MEEZA QSTP LLC (Public) (MEZA.QA) Q3 FY2025 Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Phani Kanumuri, TMT analyst at HSBC. We are pleased to host MEEZA QSTP 3Q 2025 Conference Call. We have with us James Corby, the Chief Financial Officer at MEEZA; and Yaman Al Jundi, the Investor Relations Director. I'll now hand over the floor to the MEEZA management to make the comments. [Operator Instructions] We will first take questions from those who raised the hand. Yaman, please take over the floor.

Thank you, Phani, and thank you all for joining us. The usual items before we begin. The investor presentation is available in the Investor Relations section of our website. And please note of the disclaimer on Slide 2, which is an important part of the presentation regarding any information provided and any forward-looking statements made. I'll now hand over to our CFO, Mr. James Corby.

Thanks, Yaman. Good afternoon, and good morning for some, I'm sure. I'm James, the MEEZA CFO. We will start with the year-to-date highlights. So under our growth drivers, the 4-megawatt expansion MV4 is now at 84% complete with all data center modules installed. For MV6, the first 6 megawatts of the 24 megawatts is sold and construction is expected to start before the end of the year. Financially, we had an 11% year-on-year revenue growth to QR 288 million. And on an underlying EBITDA perspective, a 4% increase to QR 86 million and year-on-year underlying net profit increased by 19% to QR 42 million. Operational highlights, net sales pipeline of QR 1 billion, contractual backlog now exceeds QR 2.3 billion. And recently -- very recently, in fact, we were awarded the best ICT Provider in Qatar for the third straight year by the Ministry of Communications and Information Technology. This slide, the next one, details MEEZA's data center portfolio, which we presented on the last call. The key update now being the addition of the 6-megawatt commitment at MV6 that you can see in kind of yellowy range. Here, we can see the pictures of the progress at MV4 with the installation of the chilled water pipes top left, generators, condensers and busducts. The project, as I said, is at 84% completion with RFS expected in H1 FY '26. Okay. So moving to the financial results and starting with Q3 FY '25 versus Q3 FY '24, good results. Total revenue increased 24% with higher revenue in all segments and higher EBITDA and net profit driven by that revenue growth, but also impacted by the revenue mix. Comparing Q3 FY '25 to Q2 FY '25, total revenues decreased by 3.4% due to one-off DC revenue in Q2 and lower solutions. And as a result, EBITDA and net profit declined by 8% and 12%, respectively. But remember, Q3 is typically a slower quarter. Moving to the 9 months ending 30th of September performance. Total revenues increased 11%, driven by higher data center utilization and higher solutions, offset by lower workplace services revenue. EBITDA decreased QR 3.4 million due to one-off electricity actualization last year and an ECL provision taken this year. Net profit increased 1% from this EBITDA flow-through, aided by lower depreciation and higher finance income. As we did last time, we're showing underlying performance, excluding the one-off electricity actualization in FY '24 of QR 6.4 million, underlying EBITDA increases 4% due to higher revenues and cost optimization, while net profit improved QR 6.8 million or 19%, aided by higher finance income. Underlying gross margin on an absolute basis increased QR 4.7 million year-on-year due to data center expansion, but the margin percentage declined by 1.3 percentage points due to higher contribution of solutions and lower solutions margin from increased competition. Moving to the margin trends. Underlying EBITDA margin adjusting for NaaS and electricity actualization is impacted now by higher solutions revenue and the ECL provision we booked this year. Net profit margin increased by 5.3 percentage points from 2021, though, driven by returns from capital expenditure and growth in recurring revenue. On to the CapEx slide. CapEx in 2025 includes the MV4 4-megawatt expansion as well as MV6 work in progress. Capital intensity is set to increase in the second half of this year, especially over the next 2 months as we ramp up our data center capacity rollout. Cash flow in the period was impacted by advances on MV4 expansion. MEEZA holds a net cash position with QR 206 million cash on hand and QR 159 million total debt. The company distributed QR 52 million in dividends in Q1. That brings us to the end of the presentation, and we will now take questions. Thank you.

[Operator Instructions] Maybe let me start off with a question on the announcement that you did yesterday. You had announced a major hyperscaler deal. Maybe you can give more details on the deal. What's the tenure probably, what's the returns that you see on the deal, et cetera?

Thanks. Yes. The deal is the typical hyperscaler duration in length. So that -- we've talked about that before in the past. The rate, again, we don't really talk about the rate specifically. But what I can say is the price does have an escalation clause in it, so it increases in line with inflation over the period of the contract. The contract is long in length, but I can't give the specifics at this stage.

And maybe on the cost structure. So there seems to be an increase of cost in 3Q more than the revenue. So what is driving the increase in costs in 3Q?

I think if you're looking at year-on-year, obviously, we talked about the electricity actualization last year, which is a QR 6.4 million benefit to cost of sales in 2024. So that's obviously not repeating. So if you have to strip that out from an underlying perspective. And we're also seeing higher solutions revenue, which is also at a lower margin, which is driving cost of sales up. If you look at OpEx on its own and you strip out ECL, actually declining OpEx by 5% year-on-year.

Okay. We have a question via chat. When should we expect the 6-megawatt contract to contribute to revenues?

Yes. Good question. I think we previously talked around Q2 FY '27 for that.

Okay. We have one more question via the chat. What work is now still remaining on MV4 extinction? And when will this -- its new capacity start hitting bottom line?

Yes. I mean, as you can see from the pictures, all of the MVP is on site and basically being put together. We're at 84% completion. Obviously, the final phases primarily relate to testing and commissioning. We're expecting RFS to be in H1 FY '26, we're pushing as a management team to get that into Q1.

So if you can maybe discuss on your future plans like on what's your long-term target in terms of the megawatts that you want to build? And how do you see the margins expand with expansion of the data centers?

Yes, sure. We showed that on the data center expansion and capacity slide. So 18 megawatts, that's how much we'll have once the 4 megawatts MV4 come online. And then MV6 is a 24-megawatt building. And as I said, we've already sold the 6. We're also in the planning and design phases of MV7, which is designed to be a 14-megawatt data center. So that will take our total capacity well over 50 megawatts. And our plans remain the same as we communicated on the last call.

[Operator Instructions] We have some other questions in the chat. Any challenges in securing appropriate contractors for your DC expansion plans?

No. All of the responses we received on active tenders, we've seen that the resources are available for the general construction of the data center. So no challenges at this stage.

Okay. We have another question in the chat. Is the new MV6 capacity also suitable and retrofitted for AI?

Our design requires that we're able to shift the technology inside the data center from air cooled to liquid cooled as required by the customer. So yes.

We have one more question on the chat. Is there any similar announcement in short term like MV6?

No. At this stage, there is -- like in terms of what does the short term, what's your definition of short term? At this stage, no. But obviously, we're working very actively with our customer base to sell capacity that is being built.

And just one more question. How is the current data center competitive environment in Qatar?

Yes. We're well aware of the competition. Obviously, Syntys, the carve-out of the DC business of Ooredoo is our competitor, and we also have Quantum switch in the QFZ. In terms of the environment, yes, it is competitive. But as you can see from our recent press releases, we're at the forefront of building out the capacity for the demand in the country.

Just have a follow-up on any similar announcements in short term to MV6. They're asking if any announcements are possible in 4Q 2025?

Sorry, repeat that, Phani. Phani, can you repeat that question?

Okay. So they were asking, is there any similar environment in short term like MV6? And when they meant short term, it was like 4Q '25. Is there any similar announcement in 4Q 2025? Is there any expectation of a similar announcement in 4Q 2025?

Yes. I mean I think we're obviously going to have our typical announcements. There will be an announcement in relation to the construction of MV6 starting and the award of that contract likely to be before the end of this year. In terms of customer contracts, that's something that we can certainly speak to our CCO about. But as it currently stands, our pipeline is extremely rich and large. And we do expect further contracts to be signed, Q4 is typically a busy period.

There's a question on -- is there any indication on the electricity prices trending down, down the road. And they're asking about electricity price trends over the next few years.

At this stage, there is no indication in terms of electricity prices trending down. However, we are in communication with the government in relation to rates. But to answer that question, the answer is no.

Maybe on CapEx. So considering that you are going into this expansion, what can we expect from CapEx in 2026 and 2027?

Yes, it's a good question. I think in terms of, obviously, MV6 is going to be well underway in 2026. So CapEx is likely to exceed QR 300 million, QR 400 million next year.

Okay. As of now, I don't see any other questions in the queue. I'll just wait for a minute if anybody wants to ask any further questions here. Okay. There's a question that will the company benefit anyhow from the government plan to double the LNG capacity?

Probably not a question specifically for me, but for our Chief Commercial Officer. But it's likely, I think as the government budget increases, there's going to be more infrastructure and building going on within the country. One of the pillars for the 2030 vision is around digitization, and there will be investment with that. So I expect MEEZA to benefit, yes.

On DC CapEx in 2025 and 2026, how much is financed with equity versus debt? This is one of the questions on the chat.

It's 90% debt.

In line with increasing government shareholding in the company around 56% now, would that assist the company to earn more government contracts?

No, not really.

I think there are no other further questions in the queue. So I'll hand it over to the MEEZA management for any ending comments.

Okay. Thank you, Phani. Thank you, everyone, for the lively discussion. Please don't hesitate to contact us for any further questions or follow-ups or if you want to schedule a follow-up meeting. Thank you, everyone, and have a great rest of the day.

Thanks, everyone, for attending, and thanks, Yaman and team for the opportunity for us to host this. We'll talk soon.

Thank you, Phani.

Thanks, Phani. Cheers. Really appreciate it.