Ladies and gentlemen, welcome to today's conference call of IONOS 9 month 2025 results. I'm Sarah, your operator for today, and I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session, and if you would like to ask a question, you may click on the raise your hand button. We are looking forward to the presentation, and with this, I hand over to Stephan Gramkow from Investor Relations.
Good morning, everyone, and welcome to the IONOS analyst and investor call for Q3 2025. Thank you for taking the time to join us today. My name is Stephan Gramkow, and I'm responsible for Investor Relations at IONOS. Here's what we will cover today. As we today have some exciting product news to share, I'm very happy that our Chief Product Officer, Andreas Nauerz, will provide you with a product update. Next, Britta Schmidt, CFO of IONOS, will walk you through the 9 months and Q3 financials. She will also cover our outlook. Britta and Andreas will then be happy to answer any open questions after the presentation. I would now like to hand over to Andreas. The floor is yours.
Yeah, thank you very much, Stephan, and good morning, ladies and gentlemen, and a very warm welcome to our conference call today. I'm Andreas Nauerz, CPO of IONOS. Let's talk about AI, the topic of the time, and I think it's an undeniable fact that AI is the most powerful force of our time, and we are probably in the middle of a massive transformation. The main reason for this is that today, two key ingredients have come together, right? Maybe for the first time in IT history. First, we have access to more data than ever before, and that's, of course, the foundation of every AI model. The second, we have access to more compute power than ever before, the foundation on which this data is being processed. Both are accelerating the pace of innovation and the impact of AI.
Especially with generative AI, we now see AI systems that do not only understand content, but can even generate it themselves, and in a quality often indistinguishable from human-created output, which is fascinating. Hence, we meanwhile even see AI systems performing tasks just as well or even better than humans, for example, when summarizing complex texts or when doing image recognition. At the same time, we are currently also witnessing a massive democratization of this technology. That means the underlying technical complexity is being abstracted away, making it accessible to a much broader audience, which in turn accelerates adoption. In the past, you needed AI experts, millions of training data points, and a massive compute power. Today, to put it very simple, all you need is a base model and some frameworks. Still, when looking at our customers, the following holds true.
Especially our SMB customers do not want to deal with the technology itself, even though the access has become easier. They do not want to set up their own development pipelines. What they want to do is they want to book and, at most, customize ready-to-use solutions that provide immediate value by solving their concrete business problems. That is what they are interested in. Even our larger customers want access to the right sovereign and secure infrastructure and a comprehensive tooling system to develop their own solutions in the most efficient way. In both areas, this is exactly where we come into play, something we will take a closer look at later. Just to recap, the benefit of AI mainly relates to automating manual and repetitive tasks and a better user experience when interacting with AI systems in general, as these become now controllable through natural language.
Given all these opportunities, the challenge lies in scaling AI in a way that it truly creates value, right? That is why we do business here. Of course, implementation must remain at the same time secure, sovereign, and free of dependencies. This is something where we as IONOS can play our strengths again. Because, as mentioned, access to AI itself has been democratized, it is now all about who can translate it into real value fastest, right? The winners of tomorrow will not be those with the largest models, but those who operationalize AI the fastest. In other words, the hurdle or the real hurdle is no longer technical. It is organizational and cultural. What will separate winners from losers is courage.
Courage to take responsibility, courage to do things differently, and courage, especially by leadership, to truly embed AI deeply into the DNA of the company. Right now, most small and medium-sized businesses are not using AI efficiently or, in other words, to its full extent. Even though the development in the field of AI has been impressive, we are by far not at the end of this journey, right? We can expect further significant improvements in the years ahead. Let's dive a little bit deeper. Looking at the model landscape, for example, we see more and more powerful models with better reasoning capabilities, with longer context windows, so these models can remember things for a longer time. We see the focus on multimodality continuing, so models can understand and generate not only text, but also images, audio, and video simultaneously.
We see a move from, and that's surprising if you compare to the past, but we see a move from proprietary models towards also open-source models, like for example, Llama, Mistral, and others. These models are being hosted on our AI Model Hub already, right? This is once again where we can provide value. We see entirely new architectures beyond these famous transformer-based ones being smaller and more energy efficient, so they can run even on small resource-limited devices. Just as an example, such a model is, for example, NX AI's xLSTM model, which we have recently made available via our AI Model Hub, which is probably one of the strongest leading time series models currently available on planet Earth.
Furthermore, there is a clear trend towards, and that's very impressive, hyper-personalized systems that are really capable of understanding individual users and the specific context in which they operate. As a result, future system responses will be tailored based on accumulated interactions leading to a differentiated output for each user, meaning you may get a different answer than I get, right? Because the system has learned about you and about me. Building on this foundation, AI companions and co-pilots are evolving beyond traditional tools. They are more than tools. They are becoming real digital colleagues, right, that support you. There is also massive potential from agentic AI. When I look at the innovations of, let's say, recent years, this is actually one of the greatest revenue potentials and a real game changer to our entire product portfolio. I'm not exaggerating.
Agent-based AI is introducing autonomous, adaptive, what I usually call mini AIs that operate automaticized, collaborative, and proactive, providing real value to our SMBs. Last but not least, the model context protocol, which you may have already heard of, establishes a standardized framework for communication among these agents, ensuring that diverse AI systems can exchange information efficiently and collaboratively seamlessly. It is like the language AI tools are using to talk to each other to jointly solve even more complex problems. With this rapid progress comes something else: responsibility. Sovereignty, security, and trust are key in a more and more AI-driven world. Customers need control over data. It is their IP. They need control over models. They need control over the infrastructure, making sure there is no information outflow, and all of that without vendor lock-in.
They also need transparency and traceability, and something we as IONOS can clearly help with looking at our sovereign technology stack. As simple as this may sound, all of it represents a particularly difficult challenge for our SMBs because the role of AI and the working environment of SMBs are changing rapidly, right? Both the market and the products are extremely fragmented, and this will not get better soon, right? There is so much development going on. The obvious question after this intro on the state of the AI union is, what exactly can we offer in this context? I personally think, and my team thinks as well, we as IONOS are perfectly positioned to guide our SMBs on their journey through this complex and rapidly changing world of AI.
We help them to master their AI transformation, making it easy to get started, reducing operational effort, and driving targeted growth with AI, making them benefit from this potential. In short, we offer three building blocks to make that happen. First, a robust, scalable, and secure infrastructure that ensures full control and independence from hyperscalers. Do not get locked in. A comprehensive AI development tool suite for every skill level, from no-code and low-code to full-code, enabling you as a customer to develop AI solutions tailored exactly to your needs. Last but not least, rapidly deployable, customizable AI services that allow you to get started immediately. We will have a closer look at all of this later. To be a little bit more concrete, we have and are continuing in all these fields significantly our AI stack in expanding it.
With respect to the already mentioned AI Model Hub, we are adding more and more models to build upon, like the NX AI model I mentioned before. With our AI Model Studio, we enable customers to fine-tune their own specialized models so that these models are then precisely tailored to their use case to benefit in the most possible way. The good part of this is this is a service where you do not even need high programming skills. We abstract all complexity away, even in this field. On the hardware side of things, we will offer dedicated isolated resources optimized for deep learning and generative AI with the introduction of our IONOS Cloud GPUs.
When we look at our product portfolio, AI, of course, is already an integral part of all our products, whether as a feature in onboarding or administration or as a standalone product. In this spirit, we are currently expanding many products in our portfolio with AI capabilities. It is just one simple example. The way we interact with website editors is significantly changing. It is no longer about just doing classical drag and drop, right, to model your website. It is more like the system now understanding natural language. This means you simply describe what you want to create, and the AI helps bring your website to life. This is not just the case in the area of web presence and productivity. We also added, as already mentioned, some interesting LLMs, so large language models, to our AI Model Hub.
We have also added the new, already mentioned, fine-tuning service to our cloud stack. A lot of new introductions. Now we are taking another major step forward. Today, and I am very, very happy to be able to do this now, we introduce IONOS Momentum, which is the new AI ecosystem. Even though access to AI is being democratized, as I have described, the market is fragmented. From our customers' point of view, or at least many of them, there are too many tools and even more and more coming to market. There is too much complexity. Our SMBs lack the resources and the time and the integration know-how. True productivity is locked behind silos, right? They need guidance. IONOS Momentum creates a new category, a unified sovereign AI ecosystem designed exactly for these customers, for small and medium businesses.
Our promise is to provide AI products made simple, secure, and scalable, built for everyday business and not for tech giants, right? I am pleased to share a brief preview of IONOS Momentum with you through a video that we have prepared. Enjoy watching. Hello, I am ready with the digital assistant of a unique furniture company. I love this video. IONOS Momentum is, of course, more than just another tech stack, right? It is a full-stack ecosystem for SMBs to drive digital operations end to end. Our AI environment bundles existing offerings with a wide range of new services and will be continuously expanded in the coming weeks and months. What you see today is definitely not the end. It is the beginning. The individual components of IONOS Momentum are Momentum Cloud, Momentum Studio, and Momentum Team, and they are built logically one on another.
We are creating an understandable, intuitive world of AI that enables users, from small businesses to IT experts, to easily leverage solutions without constantly having to familiarize themselves with new AI tools or even orchestrate them in a complex way, which is not their core business, right? IONOS Momentum leverages Momentum Cloud, especially the already mentioned IONOS Sovereign European Cloud Infrastructure, which meets the highest standards when it comes to GDPR compliance and guarantees maximum security and control over company data. Pure holy grail, right? Building on the Momentum Cloud is the Momentum Studio, which offers a wide range of AI models. This includes the already mentioned AI Model Hub that we launched last year, as well as the new fine-tuning service, the AI Model Studio, which I even mentioned earlier during this call.
With Momentum Team, users will soon have access to a suite of intelligent AI agents designed for seamless automation of everyday business processes, especially the tedious ones. From customer service and marketing to appointment scheduling and email management, these digital agents act as virtual employees, creating new freedom, increasing efficiency, and allowing companies to focus on what really matters to them: strategic priorities. As said before, one of the most exciting developments in AI is the rise of intelligent virtual agents, which we believe will fundamentally transform how SMBs operate. Momentum Team is a modular, interoperable ecosystem forming what I call a digital workforce. This workforce of AI agents is able to proactively anticipate customer needs, automate repetitive tasks, and deliver personalized real-time support, enabling our SMB customers to improve efficiency, to improve satisfaction to their customers, and to increase productivity and competitiveness, right?
Momentum Team will include a broad range of specialized agents for relevant use cases, which are just ready to use. All agents will be connected to what we call the Knowledge Hub, a centralized repository to store, if you permit, all business-relevant information. The agents will be deeply integrated, of course, into the IONOS product ecosystem to be able to interact and orchestrate different workflows and leverage the data being stored there. We will also provide a seamless integration to a range of relevant external tools. Agents bring a number of fundamental advantages to the table, especially when compared to us as human beings, right? They are always available. They are never sick. They never forget. They can work 24 hours a day, seven days a week, and they can speak any language.
They can work across multiple channels like instant messaging, phone, mail, and so forth simultaneously. This makes them ideal for automating repetitive, time-consuming, and low-level tasks across a business, freeing up valuable time for business owners to really look at strategic topics. In this context, IONOS is uniquely positioned. We serve a large and loyal SMB customer base, have decades of experience building digital solutions, offer excellent personal support, and have the technical platform and development capacity to integrate AI deeply into real business workflows so they can turn into real value. In the six-month webcast in August, we promised to launch the first AI agents until the end of the year in beta. Today, I'm very, very proud that we have achieved our goal earlier than expected and just launched the AI phone receptionist in Germany. What is this about?
The AI phone receptionist is a virtual employee, part of the already mentioned digital workforce that answers and manages business calls automatically in natural human-like speech. It handles customer communication and organizational processes, optimizes key administrative tasks while using the website and knowledge from the company brain that I mentioned before to respond accurately, consistently, and on-brand. The receptionist comes with different natural voices in more than 20 languages. It can schedule appointments, record leads, open support tickets, take orders, or lock messages. It connects with calendars, booking tools, CRMs, and support systems, or is even able to forward calls. The AI receptionist is the first AI employee in our Momentum Team. Over the coming weeks, we will continuously add a range of AI agents and new features and integrations to a wide range of platforms and applications.
While we will start Momentum Team in Germany, we will soon start to roll it out to other markets as well. The next important step will be the extended tool integration, which will allow AI agents to connect seamlessly with both the internal ecosystem and essential third-party applications. This capability enables them to perform concrete actions and embed themselves into daily business workflows, which is crucial for delivering maximum value. The advanced Knowledge Hub will be supplemented with additional customer information, if you permit, from your products and business systems. In addition, it will be possible to add knowledge generated or made explicit in conversations. Agents will continuously improve their capabilities by mastering new skills via tool integration and the Knowledge Hub itself. Concurrently, this ongoing interaction and feedback loop is essential for the agent to deeply learn and adapt to the customer-specific needs and implicit preferences.
There will also be agenda-specific apps, such as the social media agents, event calendar, and much more. This will make collaboration with the Momentum Team more intuitive and even easier. With the agenda and teamwork mode, agents will collaborate together on a common plan and even hand over tasks to achieve complex goals. For example, the social media agent could write a social media post about a new offer that the business development agent created for a specific product before, right? They work hand in hand. In the first half of 2026, we will include improved agent proactivity. Proactive AI agents move beyond being purely reactive by taking initiative. They can unpromptedly respond or propose ideas, ask clarifying questions, and identify insights or knowledge gaps.
This capability adds a layer of perceived intelligence, shifting the agent from a, well, let's say, simple tool to a more strategic assistant. While we will start with a free plan to allow for easy testing for most of the agents, we will also introduce paid plans with the additional features in a couple of weeks. While traditional website products generate EUR 10-20 in ARPU, virtual assistants are expected to start in the EUR 20-50 range per agent. Over time, the use of multiple task-specific agents per customer opens up entirely new revenue layers for us. Today, SMBs typically buy only one website, but they can deploy, of course, several AI agents across their business in the future. This significantly expands the addressable revenue per customer. Furthermore, AI is becoming increasingly integrated deeply into our product interfaces.
While generative AI has primarily supported the initial creation of text and content and ideas, we are now seeing the rise of interactive dialogue-based communication with AI, right? This allows users to directly implement changes and improve results similar to the experience you may already know from what is being referred to as wipe coding tools, right? With our enhanced WordPress AI Assistant, just to give you an example, we combine now the best of both worlds. On one hand, the AI Assistant enables direct interaction with immediate results, and all changes can be made directly from the chat, right? Ranging from price adjustments in the shop or text and layout modifications to the installation of full WordPress plugins. On the other hand, we are using native WordPress process elements as well.
We will shortly add wipe coding-like experience to our website site builder as well, allowing customers to easily customize everything by natural language only, right? We will leave them from the old-fashioned way of doing this drag and drop. We are combining the best of two worlds. On the one hand, WordPress continues to serve as the technical foundation for these products, offering the advantage of full access to the WordPress ecosystem and, in particular, the robust security standards of WordPress, fully supportable due to established standards. On the other hand, we provide a very simple and easy-to-maintain wipe coding-like chat interface to build websites and allow seamless publishing. In addition, essential products like domain and email are already included. I hope you found this an exciting first glimpse into what we are doing from a product point of view.
At this point, I would like to hand over to my wonderful colleague, our CFO, Britta Schmidt, to talk about our financials before we then start our Q&A session. Britta, the floor is yours.
Thanks very much, Andreas. As Andreas pointed out, our mission at IONOS is unchanged. We empower small and medium-sized businesses to succeed in the digital area, and this more than ever. With the latest developments in AI, this is really important. We strongly believe that every business, regardless of size, should have access to the same technologies and expertise as large enterprises. With the launch of IONOS Momentum and the new products set to enter the market in the coming weeks and months, we are not only intensifying our efforts, but also positioning ourselves to benefit even more strongly from this growing market.
As you might have seen in our Q3 reporting, we have decided to put our AdTech business up for sale in order to fully focus on the core business areas of web presence and productivity and cloud solutions. The AdTech business has, over the last couple of months and years, increasingly shifted from a secondary market centered around monetization and trading of domains towards a platform for traffic monetization, thereby moving further away from our core business to a more or less pure digital advertising business. The transition has already been reflected in the name of the segment when we changed it from aftermarket to AdTech. This shift opens up numerous opportunities for AdTech, which will need to be pursued with dedicated focus and expertise, given the huge opportunities we are seeing in our core business, as pointed out by Andreas, and the launch of Momentum.
We want to fully focus on this business. As a consequence, AdTech, according to IFRS 5, has to be reported as discontinued operations and will not be reported in our revenue and EBITDA numbers going forward. In the first nine months of 2025, we delivered a solid performance. Revenue amounted to EUR 980.2 million, representing an increase of 6.2% year- over- year. Excluding FX effect, revenue would have increased by 6.5% year- over- year. Total revenue growth is slightly distorted given lower revenue from hosting services provided to United Internet in Q3 2025. Revenue with external customers grew by 6.9% on FX adjusted basis. Adjusted EBITDA rose by 20.8% to EUR 368.4 million, resulting in a 37.6% adjusted EBITDA margin compared to 33% in the first nine months of 2024, again underlying the strong operational leverage of our business model.
This development underscores the continued operational strength of this business model. Marketing expenses in the first nine months were slightly higher than last year due to the expansion of the business. Adjusted for higher marketing expenses, adjusted EBITDA would have been EUR 380 million. Overall, the results for the first nine months reflect the stable business development and the disciplined cost management. Looking at the third quarter, revenues have increased 4.6% to EUR 324.2 million. Excluding FX, revenues increased by 5.8%. Adjusted EBITDA rose by 20.6% to EUR 131.5 million. The adjusted EBITDA margin increased by more than 5 percentage points to 40.6% compared to the previous year. As mentioned before, the revenue growth was impacted by lower revenue from hosting services provided to United Internet, mainly due to lower energy expenses, which are passed on. Revenue to external customers on an FX adjusted basis grew by 6.2% year- on- year.
Marketing investments were marginally lower compared to Q3 last year. Adjusted for those expenses, EBITDA would have been slightly lower accordingly. Let's have a look at the performance of the different business areas in the third quarter. In web presence and productivity, revenue reached EUR 267.9 million, representing a growth of 4.8% or 5.9% at constant currency. In cloud solutions, revenue in Q3 amounted to EUR 45.7 million, up from EUR 43 million the previous year. This corresponds to a growth of 6.5% or 7.9% excluding foreign exchange effects. The development was influenced by price reduction for selected products aimed to accelerating the migration to a digital sovereign cloud. We successfully added 60,000 net new customers in the third quarter, bringing our total net additions in the first nine months to 210,000.
This represents a significant improvement compared to the 110,000 net additions in the first nine months last year, underscoring the strong alignment between our product offerings and customer needs. As in previous years, customer growth in the third quarter and generally during the summer and autumn months was lower due to seasonal effects. The first and fourth quarter remain our strongest periods for customer acquisition. ARPU in the third quarter was EUR 16.10, which is slightly lower than the previous quarter. This is, as previously discussed, partially a seasonal effect, as a significant number of domain renewals typically occur in the first half of the year, requiring revenue recognition for 12 months upon renewal.
We are also observing changes in our product mix, driven in part by targeted price reductions in selected areas, and given that we are seeing good inflow in smaller cloud customers, which is also diluting ARPU and which we will develop further. Not to forget, we are adding a lot of new customers, which come in with starting discounts. Let me provide you an update on our cloud business for the third quarter of 2025. Cloud solutions revenue reached, as mentioned before, EUR 45.7 million in Q3, representing a 6.5% increase compared to the EUR 43 million in the prior year quarter. Looking at individual product areas, public cloud grew by 18% to EUR 13 million. Private cloud revenue was stable at EUR 25 million, reflecting a 2% increase, while managed cloud revenue rose by 5% to EUR 7 million.
As a reminder, the majority of revenue from ITZBund is recognized progressively, aligned with the deployment of hardware blocks in the data centers. We have finished setup and commissioning of our cloud in the ITZBund-owned data centers, followed by an intensive test phase for the first hardware blocks. After the technical sign-off was granted by ITZBund last quarter, we are implementing the project with strength and expect the next hardware blocks to be built in the fourth quarter. We continue, as mentioned before, to see very strong inflow from smaller and SMB customers. While these customers typically generate lower initial ARPU and require additional support, our ability to address their specific needs distinguishes us from hyperscalers. Our strategic focus continues to be on converting this high demand into sustainable growth, supporting our long-term objectives in the cloud segment.
Turning to capital expenditures, total CapEx for the first nine months of 2025 amounted to EUR 40.5 million, representing 4.1% of total revenue. This is a notable decrease compared to EUR 56.3 million or 6.1% of total revenue in the prior year period. CapEx as a percentage of revenue no longer includes AdTech revenues. Therefore, the value slightly increased as AdTech had nearly no CapEx. The previous year's figures have also been adjusted accordingly. Growth CapEx accounted for EUR 32.9 million or 3.4% of total revenue, primarily driven by continued investments in the expansion of our cloud solution capabilities. Maintenance CapEx remained low and predictable at EUR 7.6 million or 0.8% of total revenue. The reduction in CapEx over time reflects both disciplined investment and the positive effect of higher revenues.
We are slightly updating our guidance for full year 2025 CapEx from EUR 80 million to EUR 60-70 million or approximately 5% of expected revenue. This approach ensures we continue to support innovation, growth, and operational scalability while maintaining a well-invested asset base. Let me now walk you through the free cash flow development for the first nine months of 2025. Starting with adjusted EBITDA of EUR 386 million, we deduct EUR 15 million in adjustments mainly related to standalone and LTI costs. A particular feature in the new reporting period is the treatment of AdTech, which is now classified as asset held for sale in accordance with IFRS standards. As a result, the EBITDA contribution of EUR 32 million from AdTech is shown separately.
After deducting CapEx of EUR 41 million and tax payments of EUR 51 million and including EUR 5 million from LTI or share appreciation rights, which is non-cash, as well as a payout of EUR 60 million related to LTI obligations, we further account for working capital outflow of EUR 28 million, which is due to the cut-off date. We generally expect a balanced working capital. This results in a free cash flow before leasing of EUR 245 million. After deducting lease payments of EUR 11 million, free cash flow after leasing stands at EUR 243 million compared to EUR 219 million free cash flow after leasing in the same period last year. Interest payments amounted to EUR 38 million, and we executed share buybacks totaling EUR 27 million. After factoring in these items, comparable free cash flow for the periods amounts to EUR 169 million.
Overall, our free cash flow generation remains strong and highly predictable, reflecting the resilience of our business model and the disciplined financial management. As of the end of the third quarter 2025, net debt stood at EUR 741 million. This figure includes all external bank debt, and I would like to highlight that the shareholder loan from United Internet has now been fully repaid. The rated average annual interest rate has improved accordingly to 4.7%, representing our external bank loan. A particular point to note is that this quarter is the impact of the planned AdTech divestment. While AdTech itself did not carry significant financial liabilities, its adjusted EBITDA is included in the leverage calculation. Including AdTech EBITDA, our leverage ratio stands at 1.4 net debt to adjusted EBITDA. Excluding AdTech, reflecting the future structure of our business, the leverage ratio is at 1.6 at the end of Q3.
On this slide, the calculation excluding AdTech EBITDA is shown retrospectively in gray fields for transparency. This improved debt profile, combined with the elimination of refinancing risks through fixed interest debt, continues to support our financial stability and provides us with flexibility for the future. Our guidance remains more or less unchanged and now includes the previous guidance for the digital solutions and cloud segment, which we had guided separately. Revenues are expected to grow by around 8%, with web presence and productivity growing at around 7%-8% and cloud solutions growing by around 10%. We remain confident about the midterm growth opportunities in cloud solutions and expect our public cloud to get to a 20% growth over the next quarters. Adjusted EBITDA margin is still expected to be around 35%, up from 32.9% in 2024.
Adjusted EBITDA in the remaining core business is expected to increase by approximately 17% to around about EUR 480 million. For comparison, 2024 was EUR 410.4 million. As you might have seen in yesterday's press release, this is my last webcast for IONOS, and I would like to take this opportunity to thank you all for your cooperation over the past few years. Together with my successor, Patrik Heider, we will ensure a smooth transition, and we will jointly participate in a number of capital markets events before the end of the year. Thanks very much. That concludes our presentation for today. Hopefully, we provided you with a comprehensive overview, especially on our new product launch. We will continue to work hard for our customers, improve our products even further, and strengthen our market position.
With this, I would like to hand back to the operator to open the webcast for any open questions.
Thank you so much. Ladies and gentlemen, we will now begin the Q&A session. If you would like to ask a question, you may click on the raise your hand button. I will give you the permission to unmute yourself. We already received the first virtual hand from Sarah Roberts. You should be able to speak now, Ms. Roberts. Sarah? Ms. Roberts, unfortunately, we cannot hear you. In the meantime, we will move on with Mr. Treisch.
Hello. Sorry.
Hi, Sarah. Nice to meet you.
Perfect. I had a few technical difficulties. Thank you for taking my question. Just a couple of follow-ups on the AdTech business, if I may. You have obviously held it as for sale, but can you help us understand what the contribution was to revenue and adjusted EBITDA in Q3 from the segment? As a follow-up, you had previously been guiding to EUR 400 million revenues for the full year in the AdTech business. Is this still the case? I know that ASOC in particular has been a little soft recently. That is my first question. Secondly, can you give us an indication on how soon in the process the held for sale is? Are you in early conversations with any potential buyers? Any confidence that you can sell the business? That would be helpful. Very quickly, my final question, can you give us a sense of how you plan to deploy the cash received from the sale of the business? Thank you.
Let me start with the last question. Deploying the cash, and that maybe leads as well to our—so what are we doing with the cash anyhow? Let's answer it in a broader context. As mentioned before, we are looking for M&A, definitely in the field of web presence and productivity, very focused on Europe, currently exploring the market, and we believe strengthening our market leadership in some of the geographies we are in or are in but not very strong will be helpful for the future. Really investing into future growth. This is still highly on the agenda. We will, in our current discussion, to mix in discussion, to mix in maybe a little bit of share buyback, etc., depending on the M&A pipeline. Maybe that helps a bit to understand overall. On this, how do we see the AdTech business to be sold?
We actually do think there are a couple of people who would be interested in the business, and we do see first good results during the process. I will not share a lot of details today, but there is definitely a little bit to be expected. In terms of the contribution of AdTech in the third quarter, I mentioned the EBITDA contribution during the cash flow commentary, and revenue was roughly EUR 28 million in Q3, so significantly down compared to the first two quarters, which we have guided before, so that we should see a drop. That is largely driven by AFD, now slowly going down, so deteriorating over time, but RSOC slowly now kicking in. Overall, we do see this business now stabilizing on a higher level and slightly growing.
Depending for the EUR 400 million, I do not believe we will reach the EUR 400 million. However, the business should be roughly stable compared year- over- year. I hope this helps. Great. Thank you. Maybe just one comment on the EUR 400 million. I think we have seen that very strong Q1 and Q2 revenue contribution, which drove confidence. However, then a couple of things changed in the market, more or less.
Thank you so much. We had a virtual hand from Florian Treisch. I think I give you the permission to unmute yourself, but it seems, yeah. Mr. Treisch, can you say something? All right. Maybe you have the wrong device. In the meantime, we will forward with Stéphane Beyazian. Now you can unmute yourself, Stephanie. I guess there are a couple of clicks.
Hello. Can you hear me?
Yes.
Stefan, yes, we can hear you.
Yes. Thank you. Sorry about that. Not familiar with the system, with this system. Anyway, just one question I have regarding the output. I noticed that the output, if I'm not mistaken, is down quarter on quarter. At least there is a slowdown in your output momentum. I was just wondering whether you can give us some color. I mean, obviously, we're lapping the price increases that you've done, although I think you were still doing some small price action at the beginning of the year. Just help us to understand what's happening there and if there is any customers trading down, perhaps, on some plans. That would be my first question. My second question is regarding the AI.
I mean, that was a very compelling and interesting presentation, but I can't help notice that at the same time, your cloud revenues are relatively slow today and underperforming what the hyperscalers are doing. I am just wondering whether all your customers, which are auto entrepreneurs, are totally eligible to those products, first of all, and how fast and how strong you think that can kick in in your revenue streams. Thank you.
Yeah, let me start with the first question on ARPU and web presence and productivity revenue, and then Andreas will comment a little bit on AI and cloud. As mentioned before, especially in ARPU, what we do see is definitely a very strong new customer inflow, which is great, by the way, but keep in mind they are coming with discounts, starting discounts usually for 12 months. This is diluting ARPU in a significant way.
Additionally, and you mentioned it before, Stephanie, we do have phasing from price adjustments, especially out of last year. That is basically the reason. We do see a very strong underlying performance of web presence and productivity and remain, obviously, going forward, especially really confident with AI features coming in additionally besides the agentic AI, just into our core web presence and productivity.
Yeah, commenting on the second part of your questions and our, if I got it right, you made a comparison to the broader ecosystem that you currently see from the bigger hyperscalers. When we look at our customers, to be very, very clear here, and especially in the cloud field, the mid-size customers, I personally doubt that the mission must be to be on par with every single service, right? We need to provide our customers with exactly what they need.
This is really building on the three major building blocks that I've mentioned, right? They, of course, want the sovereign infrastructure that gives them full control over the data, and that's something where I would say we can really make our, or we can really distinguish, right? The second thing is that we really provide them with all the tools that these particular customers need, really from no code, if they are not so technical-affine, up to low code and up to full code.
Last but not least, having really these extensions around the AI Model Hub, which is built on a sovereign platform where you really have the option to pick from a plurality of different models, and we are continuously adding models as we go, and even fine-tuning tools that abstract, again, technical complexity away, exactly what our customers are asking us for, so that they can do fine-tuning without even having programming skills, right? I think the good part is that we on the front-end side have these three main pillars, which distinguishes us and puts us in a very strong position when it comes to sovereignty, security, and control over data. We can build, of course, on the entire ecosystem that we have. For example, the solutions that I described when I talked about the momentum efforts, they are also built on our own cloud stack.
The cloud stack is not only of interest for our customers in the different ways that I just described it. It is even the fundament that we now leverage for building the Momentum solutions on top, which makes it a very powerful stack and ensuring that even the Momentum solutions obey to the sovereignty aspects and security aspects that play a key role for our customers. I think it is not the mission to be on par with every single service. It is the mission on providing exactly the tools that our customers need and playing our strengths in the field of sovereignty, security, control over data, and continuing to abstract technical complexity away as good as we can for the customers choosing us. I hope this helps a little bit answering your question.
Okay. Thank you. Congrats, Britta, again, for all the achievements done at IONOS over the past couple of years.
Thank you very much.
Thank you.
Thank you so much for your questions, Stefan. We come back to Mr. Treisch. I already gave you the permission. Mr. Treisch, can you say something? Oh, it seems that it is the wrong device. Maybe you can check on that. Let's move forward to participants who have dialed in via phone. We go back to Dhruva and then to Nizla. Dhruva, I unmuted you on the phone, so you can ask your questions. Dhruva, okay. Let's go back because Dhruva had sent me his questions prior. I will read his questions out. What is driving the slowdown in VBNP? Customer growth continues to be strong, but the ARPU growth rate has notably slowed down.
Is there any seasonality in the business, or is this the start of a new trend?
Yeah, I commented on that with the answer to Stéphane's question already, and as well during the webcast before. Basically, no, it's not a start of a new trend. It's more the outcome of what we see in new customer inflow, what we see in price adjustment phasings over the last 12 months. We remain confident about ARPU growth going forward.
Yeah, and if I may extend, I mean, I already commented on that during my pitch, but especially with what we are now or what we have announced today, right, with Momentum. Given that we will build up this digital workforce, as we called it, and have all these virtual agents there, we clearly expect output going up significantly. And why am I thinking that?
I mean, if you look currently, let's pick again this hotel receptionist, for example, right? We know it's very difficult for people in this business currently to find even people. Second, it's very easy to do a calculation saying, "Okay, let me try and let me try buying an agent costing me in the range of EUR 30-EUR 50." Let's see if that works properly because then the savings that you can make are immediately measurable. We expect many people to try that out. Since this is at a very, compared to our previous business, at a very higher level of how we charge, we expect this will drive output to a totally different level in the next couple of months, especially when we go beyond the receptionist that we already launched and when we add more and more agents.
As I've said before, we expect customers, when they made their first experience, that they will buy not only one agent, but maybe a couple of them or even a bundle, which we'll offer as well. There is a good reason why we are very optimistic looking forward with the new AI-based extensions that we have been talking about today.
Thank you so much. Dhruva has two further questions. Now that you're considering splitting out the AdTech business, would you also look at potentially splitting out the cloud business, or are there too many synergies between VPNP and cloud? Could you give us a rough quantum of the VPNP intersegment revenues for cloud?
There is a significant synergy as we are running a couple of our core products on cloud solutions. If we would have excluded, it is a double-digit amount of revenues, which cloud is doing with web presence and productivity. This is not included in the figures you are seeing, as we are not only including external revenues, just to be precise here. We do see a lot of synergies, and we do not intend to split out cloud solutions or put it up for sale, just to be precise here. It might be that at one point in time, given we as well might consider changing how we look into the different segments on an EBITDA level, that we split them out on a segment level. We do a segmentation, but this is not done yet, and we are still considering the cost base in total currently, given what I mentioned before, the synergies which we are seeing.
I think Andreas as well pointed it out during his speech that this is a whole set as well of products we are providing between web presence and productivity and cloud solutions with AI momentum.
Yeah, and that's very crucial also to guarantee what I mentioned before, to really have a full-blown stack that is what we would consider sovereign, right, and under our control, just to make this minor addition here.
Thank you. Dhruva's last question. What differentiates the IONOS agentic AI offering versus the likes of Zendesk, Salesforce, or others? Do you compete on price or product breadth, or is there something else that's the differentiating factor? Are you concerned about potential hyperscaler competition in this space?
No, absolutely not. I think the main power of what I've been talking about, and we just had one answer to this already, right? We have the full stack under our control. We have a model hub that we can build on, where we can continuously add models that we can build upon. I think the most powerful thing is the deep integration in our full ecosystem, and that's something not so many of our competitors can build upon. I already gave you an example during my pitch. If you want to have the best-performing agent that you can think of, that really, really answers in the best possible way the customers using your agents can get, and let's pick the receptionist that I've been talking about again as an example, what you need is, I mean, what makes an AI agent an expert? The wisdom or the knowledge you feed it with.
That's something where we are really, really strong because we can build on our base of 6.5 million customers, and we can really learn from all the products these customers are already using, no matter if it's a website and so forth, right? We have a very, very powerful knowledge base that we can use to give high-quality answers when these agents are being used. The second point is, I think we are very, very good in abstracting technical complexity away. We are targeting a different group here. As I've said before, I mean, essentially, it's a three-step process to set up one of these agents up, which means, especially for our customers, which, as I've said, is also mainly SMB customers. They do not want to deal with setting up what maybe bigger hyperscalers provide, right?
A REC pipeline or want to do all of this stuff. What they really want is they want to book such an agent from shelf. They want that we ask, can we use the information we already have from you to make this the most powerful agent you can think of? We even allow to upload additional information, like, for example, coming back to the hotel example, PDFs and additional information that gives information about the menu, your vendor restaurant, and so forth. I think we have on the one hand side this full stack under control, having control over data and sovereignty, but we also provide it tailored to our customers by abstracting away the technical complexity, which I think puts us in a position to offer in a perfectly tailored way to what our customers are demanding.
Thank you so much. Then we have the next virtual hand from Gustav Froberg. Mr. Froberg, I already gave you the permission to unmute yourself. Please ask your question. Seems similar to the—
Hello, can you hear me?
Yes.
There we go. It works. Great. Thank you for taking my questions as well. Sorry about the technical mess up. I have a couple, please. Starting on ARPU, I just wanted to drill into this ARPU development a little bit more, if I may. You have talked about some new customers joining on discounts, which is fine, as well as some price reductions on the cloud side. If I strip out those two effects, I want to ask about the ARPU evolution for the core part of your business or, let's say, existing customers using web presence and productivity. How has ARPU evolved there? Maybe we can use some of that information to extrapolate what the trend should be in the future. I'll start there and then pause for the other questions.
Yeah, we are not looking into ARPU separately for web presence and productivity. We are looking at it in different product lines, obviously. Overall, we are not looking into it decoupled from cloud solutions, given as well that some of our customers do have a slight overlap.
Let me maybe come back to what still holds true, that if we target for roughly 9% revenue growth, which we are doing for web presence and productivity in future, so 9%-10%, a third should be coming from price adjustments, and another third should be coming from cross and upsell, which means in total, two-thirds should be coming from ARPU overall, whereas another third should be added by new customers joining us. This still holds true despite some quarterly distortions which you might see. Yeah, so look overall at how is ARPU trading, and this is definitely doing well and will continue to do well in Q4.
Therefore, I do understand the questions around ARPU development, but we really remain confident about ARPU growth going forward, looking at historical trends and as well looking at what we have in the product pipeline going forward, offering even more opportunities for cross and upsell to the existing customer base. Really fundamenting the one-third I mentioned, which comes from cross and upsell. Yeah, there is a bunch of opportunities in this area. Not looking into what Andreas mentioned before, the agentic AI, which will come in with a higher ARPU, just separating it for a moment. There is a strong underlying ARPU development if we look as well into the different product lines. We do see some growing faster, obviously driven by price adjustments, et cetera, but overall, there is a strong development of our underlying business.
Yeah, additionally, there's a lot of opportunities coming in with agentic AI and AI Momentum. I hope that helps a bit.
Yes, great. Thank you. A question on AdTech disposing of the business, I think very positive news because it will allow for a bit of a smoother set of results going forward. The Q3 result is perhaps very low. You mentioned that something changed after H1 that potentially resulted in this and makes you move away from that EUR 400 million goal. Firstly, what was that change? Also, why is now a good time to sell the AdTech business given that it is at its lows? Thank you.
Yeah, if you look underlying into the business, so first of all, what has changed? Google, which is a provider of the RSOC business, had introduced a couple of quality measures for this RSOC product, which caused the market to pause a bit, I would say. Additionally, which was basically expected, was that the AFD business will phase out. This is now slightly accelerated by Google. If we look into H1, we had a very strong AFD business, as we mentioned before, additionally to a very strong RSOC business. Both of them have been slightly distorted in the first months of Q3. However, RSOC is back on track, and we do see it growing. Overall, it has stabilized, and we do see a very good trading overall. This is why we believe if we look into the business, this is now a right time to focus on the opportunities which we do see in this AdTech business.
There's a lot of opportunities coming up with all of the product changes, which now are more and more digested by the market, and the business is on a good way. There's a lot of opportunities. We are given all the opportunities which we have in web presence and productivity and cloud solutions, are not able to provide enough focus for those opportunities. We really want the AdTech business to be enhanced, which can help with all those opportunities. This is basically why we believe that it's a right time. It's stabilized. There's a lot of opportunities which a potential buyer can exploit, and it needs a certain focus to exploit those opportunities. We believe there's a lot of value in the business, actually.
Okay, great. The last one is just on guidance for Q4. It kind of implies a revenue acceleration for the remaining business in Q4. Without referencing historical trends, why specifically do you think we should see an uptick in revenue growth in the fourth quarter, maybe also absent ITZ Bund? Similarly on margins, you've performed very strongly on the EBITDA margin at nine months, but for the full year, that means Q4 is looking like it will be a little bit below the nine-month level. Why should that occur?
Yeah, so I think the question on revenue, yes, there's a chunk of this coming from ITZ Bund. As I mentioned before, we expect a building block to be delivered and built, so that will help in accelerating the revenue growth. On EBITDA, and I think we implicitly mentioned it as well, as you know, Q1 and Q4 are our strongest months in terms of customer acquisition. We would expect a little bit more marketing to be spent in Q4 than we've spent in Q3, which will deteriorate EBITDA a little bit.
Okay, super. Thank you.
Thanks very much, Gustav.
Thank you so much. We will move on with the questions from Mollie. Mollie, you can unmute yourself now. I guess it takes a bit of time. Mollie, we will cover it with the questions from Nizla.
We got a question here.
Yeah, now Mollie entered a question.
I can read it out.
Okay.
On wipe coding products, you've previously spoken about what you see as limited risk from wipe coding platforms. Have you introduced new wipe coding products because this risk is proving more significant than originally anticipated? My first answer would be, Andreas, no.
Right.
Of course, we want to exploit the opportunities wipe coding offers.
Absolutely. I couldn't have phrased it any better. You know, we also have to see where our customers stand. Especially when looking at SMB customers, I think the smartest approach that we can go is not changing gears from today to tomorrow. Of course, we also anticipate what is happening in the future, and we want to be prepared. We want to take, as I've said before, our customers on that journey. Of course, we see the future coming.
That's exactly why we decided not to now shut down what we have and go full blown into wipe coding, but going step by step and taking our customers by hand on this journey to make them successful, which means I think it's absolutely right that we stick to, for example, the site builder that we have, that we now iteratively extended with wipe coding capabilities so that our customers still have the chance, right? Introducing them also slowly into this new world in using natural language in the already known site builder to let the site develop and then ultimately go in the future world when everybody has made its first experience in a system where you probably can do in an iterative fashion, build your entire website by using natural language only. It is not a technical problem.
It's also looking where our customers stand, the feedback that we get, and then doing along a timeline a transition that allows our customers to follow, right? That is also why we do not want to shut down the one thing and then add something new. As I have said, iteratively add features, also making our own learnings together with our customers, how the adaption is being, and then coming into this new world moving forward. I think this is not, this is the true answer, right?
Yeah, keep in mind, if you use wipe coding platforms, you are set with a website with a static. With us, you have a fully working WordPress website, which is not static. It is secure. It is reliable. It is sustainable. As Andreas mentioned, our customers are not as tax-heavy as you might think they are.
Yeah, so what we do is actually we give them the best of both worlds at the moment, right? I think that puts it quite to the spot. Also, when we see the agencies we are working with, also they are looking still for having those opportunities. I think that's very important. Last but not least, I mean, I'm a very technical person, as you may have seen. I've been a CTO before. You also have to be very, very realistic, very stunned with the wipe coding capabilities, right? For simple static sites, many of these things are good enough.
If you start doing more complex things, if you start refining your website in an iterative way due to the limited context windows that you sometimes have, it can very quickly happen that you make a fourth and fifth change in an iterative process, and then what you have built before is being kind of messed up, right? This is something where we want to protect our customers from, right? We go here step by step, taking our customers where they stand, but also looking at how powerful is this technology already? Where can we really use it and offer it to our customers and give them a good experience? The future is very clear, but we have to go in a speed that is reasonable from all these angles that we have just commented on.
I do see a couple of questions around wipe coding anyhow. First of all, any incremental investments and how we plan in terms of growth and margin expansion? If I look into 2026, it's a bit early to say details, but nevertheless, we stick more or less to our slightly now adjusted midterm guidance, adjusted for the reason AdTech is no longer included. We believe overall revenue growth in the midterm should be around 10%. Obviously, looking at the strong margin, which we see in the digital solutions and cloud, which is our total business by now, we would target a 40% margin in the midterm. Yeah, and any investments which we do, we are partnering with a lot of providers in that case. We do not see a significant amount of incremental investments, which we cannot fund by operational leverage efficiencies, which come from the internal use of AI, et cetera, et cetera.
Not a large drag down in profitability to be expected. I think I already answered a little bit on the wipe coding partnering. Yes, we are as well partnering with wipe coding. We mentioned our partnership with Entry before. This is still in there. The customers are our customers. This is actually what's the good thing about this partnership because we are able to cross and upsell them. Those customers are really prone to cross and upsell.
Maybe to extend a little bit, I mean, there's also this question of, I just read it out again. Are you already partnering with wipe coding, no-code builders to host their websites? How many customers did you get from these partnerships and so forth? You know that, right? I mean, IONOS has partnering and building a partner ecosystem very deep in its DNA.
This has a couple of advantages because it helps us to gain speed, of course, right? It also helps us to benefit from the domain knowledge. If you go with a particular partner that is defining a very specialized or building a very specialized solution, think of a restaurant booking system, think of whatever else, then we benefit in two ways: speed and we benefit from the domain knowledge, right? Which is why we are, of course, working with partners. To be a little bit more concrete when it comes to wipe coding or building also agentic solutions, and we made an announcement. You may have seen it, if not, I recommend to do so.
You may have seen it during the IONOS Summit that took place last week, Tuesday, in Berlin, where I gave one of the opening keynotes and where I made a couple of announcements, particularly on partners that we are working with. There is one particular slide that lists almost all the partners being relevant in the AI space. I just picked one or two examples that you get a feeling. At the moment, we are very, very strongly working together with Blockbrain, which is one of the award-winning companies in Germany recently, allowing you to build agents and knowledge bots. Especially using their technology, we will add more and more agents, as I said during my pitch, beyond the receptionist that we have. Things that will come are SEO optimization agents, analytical agents, social marketing agents, and so forth.
Not because we build everything on our own, we also rely on partners. Another one is, of course, because you also have been asking on no-code, low-code tooling. We also have our first images available for n8n. I think everybody out there knows n8n. It's a wonderful tool for building workflows where the single points in the workflow can make use of AI to automate things. This is also something that we are currently looking into. This goes actually through the entire stack, right? It's not only for wipe coding. We do also partnering, for example, when it comes to the model layer with NX AI, as I mentioned.
We even have partnerships with companies that do testing and validation in a very systematic level for building your AI solutions to make sure the AI solution that you are building is really doing what it is supposed to do. That is a technology we also use internally to test our AI solutions. Partners being called with ZARO, also being mentioned during the summit last week. Long story short, a plurality of partners we are working with, bringing us speed, bringing us domain knowledge, and making sure we can launch all the more agents in the upcoming weeks. I hope this answers this question as well.
Thank you so much. We have two further questions. One is from Mollie. If no M&A is identified in the short term, has anything changed with how you are thinking about shareholder remuneration now that AdTech is up for sale? More generally, do you think you would be more likely to prioritize dividends over buybacks? Would you consider further small buybacks in the meanwhile?
As I mentioned before, M&A is the prio. Yes, if we are not able to be quick enough or find something appropriate in the short to, let's say, 12-24 months, we definitely will look into other means of shareholder remuneration. This includes share buybacks, I think, as a prio compared to dividends. Nothing decided there. Just my personal view by now.
All right. Thank you. I guess the other questions.
That's already answered.
We already covered it, yes. All right. It seems we have no further questions and no virtual hands.
Yeah, maybe just one last comment. This is my last webcast for IONOS. I mentioned it throughout my speech. Thanks very much, everybody, for your continuous support. A special thanks goes to Andreas, who stepped in for Achim, who is not able to join for personal reasons. Obviously, it was a super fit given that we have just launched AI Momentum. Good to have you on board. I think the team will rock it as well going forward. I am still around until the end of this year to ensure a smooth transition. Thanks very much. Sarah, now back to you.
Maybe I can add just one word. We have been working together now for eight weeks. I already did know that I will miss you very much. Thank you very much for having been a good partner for these weeks and giving me a good and warm welcome and introduction, and also helping me through this today for the first time.
Thanks much, Andreas.
Thank you so much for the kind words. I have nothing more to add, and that is why I would like to turn the conference back over to Stephan Gramkow for some closing remarks.
Thank you, Sarah. And thank you all for joining today's call. Please feel free to reach out with any follow-up questions. Have a great day. Stay safe and goodbye.