MEEZA QSTP-LLC (Public) (MEZA) Earnings Call Transcript & Summary

Hello, and welcome to the MEEZA First Quarter 2025 Earnings Call. I would like to advise all participants that this call is being recorded. [Operator Instructions] I'd now like to welcome Phibion Makuwerere from QNBFS to begin the conference. Phibion, over to you.

Thank you, Poly. Good afternoon to you all, and thank you for joining us this afternoon for MEEZA QSTP's 1Q 2025 Earnings Conference Call. My name is Phibion. I'm with QNB Financial Services. On today's call we have 2 members of MEEZA's management team, James Corby, the Chief Financial Officer, and Yaman Al-Jundi, the Investor Relations Director. And as usual, the management team will first review the results and then we have a question-and-answer segment afterwards. I'll now turn over the call to Yaman. Please go ahead.

Thank you, Phibion, and thanks, everyone, for joining us. Just a quick couple of items. The investor presentation, you should be able to see it. It's also available on our -- the IR section of our website. And also remind you of the disclaimer on Slide 2, which is an important part of this presentation regarding any information provided and any forward-looking statements made. And with that, I'll hand over to our CFO, James.

Thank you, Yaman. So, yes, welcome to MEEZA's earnings call for Q1 FY '25. I'm James Corby, MEEZA's CFO, and I wish you a very good afternoon. Today we'll give a brief business update and then go over the financial results for Q1. So looking at Q1 highlights, we're really pleased to report tangible progress. The 4 megawatt expansion of MV-4 has begun with the fabrication of the modules. Work has also begun here on site in Qatar, and the customer contract is nearing final execution. We have entered Stage 3 and 4 design on MV-6 with 6 megawatts planned to be commissioned first out of a 24-megawatt building. Financially, the quarter has been positive with total revenue increasing 1.9%, gross margin expanding 0.2 percentage points to 31.2%, and net profit increasing 12.5% to QAR 13.1 million. Operationally, our future contracted revenue unwind is still QAR 1.6 billion with a net pipeline of QAR 1.7 billion. In Q1, we onboarded 3 new customers in our key core high-margin segments of Data Center, Managed Services and SOC. And in relation to the MV-4 phase 2 expansion, we drew down QAR 25 million of the debt facility. Moving to the next slide. We're really pleased as well to give a small glimpse of the MV-4 construction, which you can see is well underway. Being a modular design, you can prepare the modules whilst also prepping the site, which enhances speed of delivery, and we expect RFS to be in H1 next year, and we are working to deliver it as early as possible. So that gives a brief update on operational matters. Now moving to the financial section of the presentation, our financial results. Q1 financial performance. Here, we're looking at movement year-on-year, Q1-to-Q1. Total revenue increased 1.9% due to higher solutions and the full optimization of full utilization of the data center capacity. Underlying EBITDA, excluding bad debt provision, increased by QAR 1 million year-on-year, while net profit improved, as I said earlier, by 12.5% from that EBITDA flow-through, lower depreciation and higher finance income. We move to then gross margin. Gross margin expanding 0.2 percentage points to 31.2%, and that is driven by higher data center contribution and margin from that higher utilization. Pleasingly, we also saw an increase in solutions margin from 8.9% to 10% due to the mix of deals that we had. Moving to the margin slide. Here, EBITDA and net profit margin for Q1 for the last 5 years. EBITDA margin, excluding the mass project that we had in 2021 to 2023 increased 8 percentage points, thanks to the favorable revenue mix and rationalized cost base. Net profit has more than doubled in the same period due to improving returns from increased CapEx. Moving to CapEx. We've spent so far QAR 6.2 million this year in CapEx, and that includes some of the MV-4 expansion of the 4 megawatts. As you'd expect, CapEx intensity is set to increase significantly this year as MEEZA ramps up its data center capacity rollout. Moving to the last slide of the presentation. We have cash flow. Q1 is typically a negative cash flow generating quarter, but cash flows in Q1 were impacted favorably this year by higher collections. So year-on-year we can see an improvement. MEEZA holds a net cash, not a net debt position with cash on hand of $234 million and $144 million of total debt. As you know, the company distributed $51.9 million in dividends during Q1. That brings us to the end of our presentation. Thank you very much, and now we'll have question-and-answer session.

[Operator Instructions] And while we await further questions to be received, I will hand back over to Phibion to guide the Q&A session.

Thank you, Poly. We'll just wait for questions to start coming in. It looks like we've got our first question here from Alessandra David from Ashmore. He says, "Can you elaborate on the Q-on-Q drop in DC revenue after the final megawatts was leased out in Q4?"

Is this year-on-year or quarter-on-quarter?

Quarter-on-quarter, Q-on-Q.

In relation to the year-on-year movement of data center revenue, like we're not seeing a bigger uplift as you might expect because in 2024 we had a fit-out one-off revenue for one of our customers in the data center white space.

Okay. Another question here from [ Gus ] with Sancta Capital. "May you please update us on the status of the land lease for MV-6? Also, where will the new facility be located?"

Yes. Thanks, Gus. MV-6 land lease is executed and the location of the facility is next to MV-2 in Umm Qarn, which is about 15 kilometers north of Doha.

Okay. Another question from Zohaib Pervez from Al Rayan Investments. I think the question is around the time line for the MV-4, when does it come online?

Yes. We're targeting H1 next year. Obviously, the earlier the better in H1.

We don't have any questions at the moment, but I'll give it a minute or so just to wait for more questions to come in. If we don't get any questions after a minute, we'll probably wrap the call up. But I suppose while you're waiting, I might just chip in with one of my questions. It's a general one, just having observed the global trends around AI and DCs. We've noticed that I think Microsoft has been almost like rethinking its DC strategy. How does -- I'm sure you've been following the headlines. How does this affect your plans, especially your longer-term growth plans?

Yes. Hi, Fabian. At the moment, we haven't seen -- obviously, we've seen Microsoft announcements, but we haven't seen a change in the demand from Microsoft in terms of our own pipeline. I think what we can add to that as well is that probably the decline from Microsoft that's been announced is in relation to AI and most of the demand that we're seeing in Qatar is coming from cloud.

All right. I think we've got a few more questions that have just come through. We've got Raja from Sancta Capital. His question is, "How do you intend to finance MV-6? What is the target time line for it? And do you have preliminary CapEx intensity estimates for MV-6 on per megawatt basis based on the tenders?"

Okay. Quite a few questions there, I think. In terms of financing for MV-6, we're looking at a 90% debt, 10% equity. In terms of the -- what was the second question? Phibion, can you just remind me?

Okay. The second question is, do you have any preliminary CapEx intensity estimates for MV-6 on per megawatt basis?

I mean, obviously what we've given to the market is sort of our target CapEx per megawatt. In the past it's been in the ballpark of $15 million per megawatt, but we're obviously looking to reduce that through an RFCI model and obviously a larger supply chain. We expect to reduce that to around $12 million per megawatt going forward on MV-6.

Okay. The next question from [ Basil ] is, "Should we expect DC revenue to be in line with 2024 given you don't expect any megawatt capacity increases this year?"

No, I think we obviously announced in Q4 last year that we were at full utilization. So we didn't have full utilization for all of 2024. So you should see some upside in data center revenue in 2025 from being fully utilized for that period. So the upside is approximately 1 megawatt revenue.

Okay. The next question from Zohaib again. It's, "What is the CapEx requirements for 2025?"

We expect to spend in excess of QAR 175 million.

Okay. The next one, when do you expect to start construction of 6 megawatts capacity?

It's a good question. We don't know the exact time line at this stage. I would say Q3 FY '25…

Okay. Thank you. Okay. The next question is, "What's your guidance for net profit and revenues for this year?"

We're not currently giving guidance, unfortunately. But obviously the company is looking to grow both revenue and net profit this year from last year.

Okay. We've got another question again from Ashmore. Okay. It starts off by saying, "Just understanding the guidance in Q4, given the uplift due to the final megawatt being leased out. Was this the run rate for the rest of the year? Just trying to understand when the 3% quarter-on-quarter drop was a result of? Was it as a result of pricing or it's a one-off? Just trying to understand the run rate going forward. Second question is net profit growth from favorable net finance costs. Can you elaborate on this?"

Yes. I think overall, if you want the breakdown separately in terms of movement on DC, I think it's -- you can definitely send us an e-mail. I think high level, Q4 is typically a very strong quarter in Qatar as entities look to exhaust or spend the remainder of their budgets. So when you're looking at a Q4 to Q1 bridge, it's very difficult to sort of see eye to eye. There's lots of moving parts. So if you have a specific question on that, please send Yaman an e-mail, and we can come back to you on that one.

And then the second question was on the net profit growth from a favorable net finance cost. He wants you to elaborate on this.

Yes. This is just year-on-year. I think we've obviously seen -- we've established our treasury function a lot more now in terms of managing the working capital and cash that we have on hand. And we're also able to put more money on deposit and basically obtain better rates year-on-year. And obviously we've seen a change in the interest rate as well on our loan year-on-year as well, which is impacting other income and expenses.

Okay. It looks like we no longer have questions on the line. I'll give it a few more seconds, and if we don't get anything, then we can wrap up.

Hi, Phibion. So I think that's about it in terms of questions. Yes, apologies on the first couple of questions there, guys. I think this is the first time we've used this tool. So, difference between receiving questions by voice versus text. But we really appreciate you attending the call. As you can see, positive results in Q1 and the future is very positive for 2025. Thank you very much.