• Revenue: Increased by 1.1% to EUR2.015 billion.
• Service Revenue Growth: Increased by 3.8%, adjusted growth of 4.4% excluding regulatory effects.
• Other Revenue: Decreased by 9.2% to EUR371 million.
• EBITDA Growth: Increased by 11.4% in the operating business access segment.
• Net Loss: EUR111 million, including EUR14.3 million out of period expenses.
• CapEx: EUR34 million in the first half of the year.
• Gross Profit: Decreased from EUR604 million to EUR557 million.
• Distribution Costs: Increased by 3.4% to EUR262.9 million.
• Administrative Costs: EUR57 million, stable compared to the previous year.
• Consolidated Profit Before Taxes: EUR196 million, down from EUR257 million in the previous year.
• Cash Flow from Operating Activities: EUR262 million, stable compared to EUR260 million in the previous year.
• Free Cash Flow: Minus EUR85.5 million, compared to minus EUR58 million in the previous year.
• Forecast for Service Revenues: Expected to increase by 3% to around EUR3.33 billion.
• Forecast for EBITDA: Expected to increase by 5% to EUR686 million.
• Cash CapEx Forecast: Expected to be EUR460 million, adjusted from EUR380 million.

• Warning! GuruFocus has detected 2 Warning Sign with XTER:1U1.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• 1&1 AG (XTER:1U1) reported a 1.1% increase in revenue for the first half of 2024, reaching EUR2.015 billion.
• The company achieved an 11.4% growth in EBITDA in its operating business access segment.
• 1&1 AG successfully launched the first fully virtualized Open RAN in Europe, enhancing its mobile network capabilities.
• The company added 90,000 new mobile contracts in the first half of the year, demonstrating growth in its customer base.
• 1&1 AG's service revenue grew by 3.8%, with a potential growth of 4.4% when excluding regulatory effects, indicating strong performance in core services.

Negative Points

• 1&1 AG experienced a EUR111 million loss, partly due to out-of-period expenses related to network expansion preparations.
• The company faced a reduction of 20,000 broadband connections in the first half of the year.
• There was a significant decrease of 9.2% in smartphone-related revenue, which has low margins.
• The company encountered a network failure that lasted almost a day, impacting customer service and raising concerns about network reliability.
• 1&1 AG's CapEx for the first half of the year was EUR34 million, with expectations of higher expenses in the second half, indicating potential financial strain.

Q & A Highlights

Q: Can you explain the recent network failure and its impact on network expansion? A: Ralph Dommermuth, CEO, explained that the network failure was unexpected and due to a bad configuration in their data centers. The redundancy between data centers did not work as planned because a necessary file was missing. The issue was resolved, and audits have been conducted to prevent future occurrences. The failure delayed customer migration to the new network, but measures have been taken to ensure stability before resuming migration.

Q: What is the status of the contract with Vodafone, and are there any complications? A: Ralph Dommermuth confirmed that a binding precontract with Vodafone exists, and the detailed contract is being finalized. There are no major disagreements, and technical setups are in place. The company plans to start operations in the summer, as initially planned. The contract is complex due to its long-term nature and the need to anticipate future technological developments.

Q: Could you consider sharing infrastructure with Vodafone to optimize CapEx? A: Ralph Dommermuth acknowledged that sharing infrastructure with Vodafone could be beneficial, especially in rural areas, but no discussions have taken place yet. The company is open to the idea, but it depends on Vodafone's perspective as well.

Q: Can you clarify the EUR80 million increase in CapEx and its impact on future spending? A: Markus Huhn, CFO, explained that the EUR80 million increase is a phasing effect due to taking ownership of hardware from Rakuten earlier than planned. This does not represent additional hardware needs or increased prices. CapEx for 2025 is expected to be around 10% lower than in 2024, assuming a partner is found for passive infrastructure.

Q: What is the status of the low-band spectrum lease discussions? A: Ralph Dommermuth stated that 1&1 AG is open to the Federal Network Agency's proposal for sub-usage of frequencies. The company has submitted its assessment, which will be published soon. The terms and conditions, as well as the frequency amount, are still under discussion, but the company is generally supportive of the direction.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.