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

Good morning, and good afternoon, everyone. This is Omar Maher from EFG Hermes. I'd like to welcome everyone to MEEZA's 1H 2026 Results Conference Call. I'm pleased to be joined by Mr. Mohamed Al-Ghaithani, Chief Executive Officer of MEEZA; and Mr. James Corby, Chief Financial Officer. As usual, the call will begin with a discussion of the key highlights of the period, and this will be followed by the Q&A session. And I will now hand the call over to Yaman Al Jundi, Investor Relations Director for the safe harbor statement. Thank you.

Thank you, Omar, and thank you all for joining us. A couple of items before we begin. The investor presentation is also available on the Investor Relations section of our website. And I call your attention to the disclaimer on Slide 2, which is an important part of this presentation regarding any information provided and any forward-looking statements made. I'll now hand over to our CEO, Mr. Mohamed Al-Ghaithani.

Good afternoon, everybody, and thank you very much for joining us for MEEZA H1 results. We'll give you highlights about the first half of this year. We'll talk first about the growth drivers then the financial results, and we'll end up by operational highlights. Completed and turned over and start the MV4 expansion project. It was in June. It was a very successful project, although it was really difficult to project because MV4 expansion, 4 megawatt was part of the original MV4 site, and we have to do many integrations in all systems. It was done successfully with the help of our client and our recent commissioning consultants. Moving to the second site, which is MV6, the 24 megawatt. We have -- we are almost completing the foundations and ground floor works. We start also preparing for the columns and next phase of the construction expected to finish by -- in the next year end of the year, Q4. Are good and there in good progress. For MV7, we have completed the Stage-4 design and we are tendering now and we are in the last -- we have completed -- we are in the technical evaluation, and we expect by next month, we will be awarded the project and start the 16-megawatt project. MV8 is on track, expected to complete by Q4. We are on track. There is no issues despite the geopolitics issue. All of the projects have no issue in the supply chain or the construction itself. Moving to financial results [Foreign Language] this year is very good year. As mentioned before, there was -- despite the geopolitics issue, we have a 15% increase in year-on-year revenue growth, achieving QAR 217.3 million 9points (sic) [ 9% ] in year-on-year EBITDA growth, achieving QAR 62.7 million and net profit contributed to MEEZA increased by 5%. Year-to-date, the CapEx, we have spent around QAR 171 million. And our DC pipeline has continued to [ work ]. Operational highlights, we have secured QAR 1.6 billion Murabaha Facility from Dukhan Bank. This takes us to QAR 2.7 billion to secure our project funding. The Net Pipeline, we have a healthy pipeline around QAR 1 billion (sic) [ 1.3 billion ] This including managed service and solution businesses. The current backlog around QAR 3 billion (sic) [ 2.9 billion ] including long-term DC clients and building Black Arrow. Next slide, Yaman. So this is a highlight for our data centers. So we are continue growing. We have -- by end of this year, we'll achieve 22 megawatts. So already we have 18 megawatts [ live ]. And we'll keep continue and adding more capacity in the coming 3 years, achieving 62 megawatts, which is more than 3x the last capacity. As mentioned before, this is the pictures from the site in your left-hand side, most of the ground floor have completed and we start putting the columns to prepare for ground floor construction then we move to the first floor. The middle is [ construction ] for the MV7, both will have 16 megawatt State of the art. On your right-hand side, is the MV8, which is 4 megawatt, and we expect the delivery and commissioning by Q4 this year. Next slide. I'll hand over the financial results to Mr. James Corby, the CFO.

Great. Thank you very much, Mohamed. Good afternoon, everyone. So starting with Slide 7, looking at the consolidated results for H1 this year versus 2025. As Mohamed said, despite the conflict, consolidated revenues grew 15.2%, reaching QAR 217.3 million with top line growth in the key segments of Managed Services and Data Center Services, also aided by the contribution from Black Arrow. This is the last period where data center revenue is not going to increase significantly due to capacity expansion. As you know, the 4 megawatts for MV4 extension came online at the back end of June. So that will impact Q3 significantly. Net profit attributable to MEEZA grew 5.1% to QAR 30.1 million from revenue growth and EBITDA flow through. Moving to Slide 8, stand-alone financial results for MEEZA. So excluding Black Arrow, growth in data center and managed services and cloud services was offset by lower solutions performance due to market pressure. This led to a 4.5% decline in revenue. Stand-alone net profit declined 5.2% year-on-year, further impacted by lower net financing income with lower interest rates and lower cash on hand as we're now funding 10% of the data center expansion from our own cash balance. Moving to Slide 9. Looking at the Q2 results for FY '26 versus Q2 2025. Q2 revenues increased by 9.5% year-on-year due to organic growth and the impact of the Black Arrow contribution. As a result, EBITDA and net profit increased by 14.4% and 5%, respectively. Moving to Slide 10. Q2 versus Q1. Comparing Q2 to Q1, consolidated revenues increased by 7.5% due to the improving market environment and Ramadan being in Q1. As a result, EBITDA and net profit increased by 25% and 18%, respectively. Slide 11. This is the gross margin by segment that we always present. Gross profit improved by 22% to QAR 67.6 million in the first half. The consolidated gross margins improved by 1.8 percentage points to 31.1% due to the increased contribution from managed services and Black Arrow. This was partially offset by lower data center gross margin due to hyperscaler fit-outs at the MV4 extension, which are much lower than the normal data center colocation margins. Excluding one-offs, the underlying data center margin was 37.1%. Slide 12, showing the profitability margins quarterly, pleasing movement, both EBITDA and net profit margins rose in the quarter due to growth in recurring revenue streams. Moving to Slide 13, the CapEx. As Mohamed alluded to, there's been a significant CapEx ramp-up during the first 6 months data center expansion with CapEx for H1 reaching QAR 171.5 million. Annualized return on capital employed is lower due to the increase in financing ahead of data center activation. Slide 14, cash flow and the financial position. Working capital and cash from operations has been impacted by the conflict with a slowdown in collections. Net debt position closed at QAR 170 million with QAR 140 million cash and QAR 309 million in financing. QAR 55 million in dividends were distributed in FY '26 on FY '25 results. We'll now move to the Q&A section.

[Operator Instructions] We take the first question from Phani Kanumuri.

The first one is regarding Black Arrow margins. It seems to be at 38%, I mean, it seems to be higher than usual. Is this the run rate that you can expect in terms of Black Arrow margins? I mean I'll ask other questions too. So what is the CapEx outlook for this year? And the third one is on solutions. Like it has been a bit weak. How do we expect 2H to evolve from solutions perspective?

Phani, thanks for the question. So yes, the Black Arrow margin...

I'll answer that last question about the solutions. Solutions is affected by the geopolitical situation. It's not affecting only Qatar, but the whole -- I think the whole world was affected by this geopolitics. We expect after deescalation of the situation in the region, we will -- we have a good healthy pipeline and we are competing in many solutions projects. James, you can take the other 2 questions.

Thanks Mohamed, yes. In terms of the Black Arrow gross margin, we're expecting it to be a similar amount, really between 35% and 40% over the next few quarters. In relation to our CapEx forecast, obviously, it's going to ramp up more as MV6 gets more built or the percentage completion increases. It's really a dependency on MV7. As Mohamed said, we're expecting to award the GC of that building in August. So I can't give you a definitive figure at this stage, but I'd expect it to be over QAR 400 million.

Okay. Maybe one quick follow-up. So in the light of the geopolitical tensions, like your working capital has come down. Do you expect that to improve over 2H? Or do you think the situation needs to stabilize for the working capital to stabilize?

I will ask -- I will take that question. The situation has improved really significantly in the last few weeks. We start improvement in the market, and we expect this to be continue. It's really -- we can't say a definite question to be improved or it will be, but we are in a good position.

Next question is from [ Yong Wei ].

Hello.

Yes. We can hear you.

We can't hear him.

[ Yong ] could you try again please? We heard you for a second there. Okay. Perhaps we can move to the next one you fix your microphone. Next one is from [ Sid Bashir ].

Hello.

Yes. We can hear you.

I just have -- my question is really pertaining to the conflicts in the region. We've seen some data centers being hit in some of the neighboring countries. I'm just wondering how is that affecting the take-up of some of the capacities you've got coming up in the future like the rest of the MV5, MV6. Are those being put out now to be secured for [indiscernible] capacity? And of course, the second question is, should some of those situations that happen to other data centers come up to Qatar, what sort of measures are there? And is the insurance that will cover such situations, for example?

Well, it's really difficult to answer your question because nobody knows what is going to happen. However, we've been approached by the government as well as all other entities here in Qatar. First of all, the safety of people is the priority #1. And then second is all the critical assets for the government being secured. And we've been approached, we've giving feedback, especially here in Qatar is much better than the other regions. Hopefully, de-escalation will happen and the situation will come to an end. I hope I answered your question because there is no straight answer for that.

Yes, I'm sorry to put you in the spot...

We are very optimistic. Qatar is -- the Government of Qatar is doing a very great job. And I would say that we are in a safe position.

But does insurance cover such situations?

I don't think there is any insurance company will insure against war. So let's hope for the best and we pray for each other.

And what about clients securing the capacity that you've got coming online? How much of that has been secured?

James?

Yes. So yes, we've had a similar question or questions over the last few months for sure. I think there's been no change in our customer sentiment for signing the capacity that we're building. So as we said, 6 megawatts of the MV6 building has already been sold, and we're in the final stages of selling a further 8 megawatts that data center. MV7, we're very close as well to signing the contract for the initial 8 megawatts of that data center, and we've already sold 1.6 megawatts of MV8. So there's been no change in sentiment from our customer base in relation to taking on capacity that we're building.

And just to add that we are in contact with many other clients. It's still not mature. It's still talks, but we see there's a big interest in the capacity and the future expansion that needs a plan to do.

Sorry, just on the follow-up question. Does that -- what's happening in the region, does it change how data centers will be designed going forward? Is there anything that can be done to make them more secure?

Data center is secured, but I don't know what exactly mean by more secured.

I don't know. I mean the design phase, is there any changes in design safer or less prone to damage if hit? I mean I know this is just really hypothetical question. I'm just -- I mean, what's happened recently is it's a bit unprecedented, and it's catching a lot of us by surprise.

Okay. Well, the design is the most secure standards like earthquakes, floods it will handle [ stuff]. But other than this beyond our control, we can't comment on that.

Thank you. I think we can go back to Sid Bashir now.

Am I audible?

Yes, yes.

I have one question regarding the data center gross margin. So year-on-year, the gross margin was down 640 bps. I just want to know if this was caused by the low margin fit-out. And are you expecting the gross margin to return to the 40% now that MV4 is online?

Yes. So I communicated in the call that the underlying gross margin, excluding fit-outs and other one-offs was 37.1%. Our guidance on gross margin for data centers has always been 35% to 40% -- the newer builds that we have, the cost per megawatt, the CapEx cost per megawatt, we've brought down. So yes, we do expect gross margins on the data center space to be above 35% in the coming periods.

Next one is from Phibion Makuwerere.

I hope you can hear me. Congratulations on the good results. I've got 1 or 2 questions to ask. So the first one is around the CapEx. Just wondering whether you have got the sort of an indication of how much you used per megawatt for the 4 megawatts that have just come online, what you actually realized eventually? That's one. And then the other one is on capacity. What was the capacity achieved this quarter? And the new capacity that has just come online, is it already running at full capacity or you expect it to gradually ramp up to maximum capacity?

For the new capacity, it's already sold out. So revenue will start...

I meant utilization, yes...

Full utilization, 100% for the full MV4 8 megawatts.

So it's running at full utilized?

Yes.

The first question in relation to the CapEx per megawatt of MV4 expansion, approximately between $13 million and $13.5 million per megawatt.

Next question is from [ Ahmed Al Qahtani ].

This is Ahmed Al Qahtani from [indiscernible]. I have a question and extension to [ Yong's ] question. On the insurance front, have you like noticed anything when it comes to prices? And if so, what's the delta there?

I can take this one, Mohamed. So we have contacted our insurance broker in relation to cover for war. But the cost of insurance is extremely high and the limits are low. So it doesn't make financial sense at this stage.

Yes, that's clear. What about say like regular, normal -- your normal insurance policy for the data center? Has anything changed on that front because of the geopolitical situation?

No, we've actually done a pretty good job in terms of with our brokers to actually bring the insurance cost down year-on-year. So obviously, our insurance cost is going up because our asset base is increasing. But per megawatt, our insurance cost is actually coming down a little bit, I'd say.