1&1:Quarterly Results/2023 Q1

Return to: Earnings Season /1&1

Results

Here is a summary of the results as well as comparisons to analysts consensus estimates.

• Revenue of 1.021 billion eusos (+4.6% y/y) topped analysts estimates of 987.2 million euros(+1.2% y/y). The beat in estimates was largely driven by hardware sales which grew 24.7% y/y to 232.1 million euros. This is not overly good as the company notes that "hardware business fluctuates seasonally and its development depends heavily on the attractiveness of new devices and the model cycles of manufacturers."
• Service revenue was 788.9 million euros, at the same level as last year and below estimate of 797 million euros(+1%). This was due to "the declining number of contracts for higher-priced broadband contracts."
• The number of customer contracts increased to 15.87 million, slightly below the 15.88 million estimate
• Mobile internet contracts increased to 11.80 million slightly below the 11.81 million estimate.
• Broadband customers declined by 30,000 to 4.07 million as expected.
• Start-up costs for the roll-out of its 5G network was approximately €-120 million (2022: €-52.4 million euros).
• The company maintained its forecasts for 2023.

Summary of Earnings Call

Below is a summary of the conference call.

Appeal for 5G National Roaming in Telefonica, Deutsche Telecom and Vodafone

Their decision to appeal for 5G national roaming in their competitors' networks is informed by;

• 5G is the standard network today.
• In 2001, Telefonica and Intercom got the right to national roaming in Deutsche Telecom's network for 10 years.
• The 2001 agreement was non-discriminatory and identical to Telefonica's own customers.
• New telecomunication law that came into effect in 2021 gave BnetZa the obligation to decide what is important to the customer and ensure favorable competition.
• Telefonica committed in 2014 to provide new entrant with 4G national roaming without restrictions.

Fines for failure to meet the 2022 antanna sites obligations

• They said they have until the end of August to explain why they did not meet the obligation.
• They expect a decision earliest September-October this year.

Antenna Sites Buildout

• They plan to have 160 sites constructed by June, 400 sites constructed in Q3 and 600 sites constructed in Q4.
• They acknowledged that 600 target in Q4 is risky.
• However, they are comfortable with those sites.
• They will use second quarter to gauge if vendors are in-line with their targets.

Price Reviews on National Roaming Agreement

• They do not plan to seek price reviews for their national roaming agreement with Telefonica.

Service Revenues

Buildings blocks for their 2023 service revenue to grow 2% y/y yet it was flat in Q1 are:

• Q1 2022 was a stronger quarter compared to Q1 2023 due to lose of customers. Left much more customers in the 2nd, 3rd and 4th quarter last year which leads to the service decelaration in the first quarter.
• See higher net growth of 500k in 2023 as they are focusing on higher values in their offers to customers.
• Net adds to come mostly in second half of the year.

When will they achieve savings from national roaming?

They believe that a large part of antenna operations will be financed by savings on national roaming but only if;

• They get access to low-band spectrum in 2026.
• They achieve 60% traffic coverage.

Working Capital Out flows

• They expect further working capital out flows in the second quarter, which shall be a payment to Deutsche Telecom.
• Generally, they expect working capital out flows this year and in 2024.
• After 2024, working capital out flows will be much lower.

Fixed Customer Contracts

• Stabilization in fixed customer contracts expect to occur in 2025. (For which business line?)
• They said fixed customer contracts in 2024 will be lower than in 2023.

Estimates

Summary

1&1 will likely beat estimates given that;

• The revenue growth rate estimate(+1.51% y/y) is low compared to most prior quarters.
• Its competitors are guiding for single digit growth rates in 2023.
• UBS expects Q1 to be positive for most German telecom companies.

Analysts Consensus Estimates

Key Items	Q1 2023	Y/Y Growth	2023	Y/Y Growth
Revenue	EUR 987.2 million	1.2%	EUR 4.03 billion	1.55%
Service revenue	EUR 797 million	1.0%	EUR 3.23 billion	~2%
EPS	EUR 0.52	-10.3 %	EUR 1.78
Access contracts	15.882 million	2.5%	16.26 million
Mobile internet customers	11.81 million	4.7%	12.25 million
Broadband customers	4.073 million	-3.3%	4.01 million
Capex (Cash-Capex)			EUR -321.5 million

Management Guidance

Key Items	2023	Y/Y Growth
New Customer Contracts	500,000	42.9%
Service Revenue	€3.23 billion	~2%
EBITDA	€655 million	-5.5%
Access Segment Revenue	€775 million	4%
1&1 Mobile Network start-up costs	€ - 120 million	129%
Cash Capex	€320 million	28%

Analysts Opinions

UBS's Polo Tang

• He maintained neutral rating on 1&1 with a price target of EUR 14.50.
• He believes that the first quarter is likely to have been positive for most German telecom companies.

Recent Developments

• A fine proceeding has been opened against 1&1 bythe Federal Network Agency.

Competitor Results

Telefonica

Management Guidnace

Key Items	Q1 2023	2023
Revenue	-	Low single digit % growth (includes regulatory headwinds of EUR 50-60 Million
OIBDA	-	Low single digit % growth (includes regulatory headwinds of EUR 10-15 Million

Analysts Estimate

Key Items	Q1 2023	Y/Y Growth	2023	Y/Y Growth
Revenue	EUR 2.04 Billion	4.6%	EUR 8.4 Billion	2.4%
OIBDA	EUR 615 Million	2.2%	EUR 2.6 Billion	4%

Deutsche Telecom

Management Guidance

Key Items	Q1 2023	2023	Y/Y Growth
Revenue	-	Expect sales to grow slightly in 2023
Adjusted EBITDA	-	more than € 40.8 billion	3.8%

Analysts Consensus Estimates

Key Items	Q1 2023	Y/Y Growth	2023	Y/Y Growth
Revenue	EUR 27.78 Billion	-0.9%	EUR 112.6 Billion	-1.6%
Adjusted EBITDA	EUR 9.9 Billion	-13.2%	EUR 40.4 Billion	2.8%
EPS	EUR 0.37		EUR 1.62