Megaport Limited (MP1) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Bevan Slattery, and I'm the Chairman of Megaport Limited. On behalf of the Board and staff of Megaport, it is my pleasure to welcome you to our Annual General Meeting for 2020 and the first AGM held online. As we have a quorum, I declare the Annual General Meeting open. As you know, the meeting today is being run as a fully virtual meeting. I'd like to start by thanking you for your understanding with regard to the changes we've had to make to today's meeting format in response to COVID-19 conditions. We hope that holding a virtual meeting will assist in keeping everyone safe and encourage greater participation and engagement among shareholders. Vincent English, our Executive Director and Chief Executive Officer, and I together are here in Brisbane. There's Vinnie. Due to social distancing and travel restrictions, other Megaport directors, being Naomi Seddon and Jay Adelson, are joining us today via teleconference. Also joining by teleconference are Sean Cassidy, our Chief Financial Officer; and Celia Pheasant, our company secretary. Today, I'll be giving a Chairman's address followed by an address by our Executive Director and Chief Executive Officer, Vincent English. We'll then move on to procedural matters of the meeting. Right now, I'm pleased to present my Chairman address. I'll refer all shareholders to the company's 2020 annual report, which was released to shareholders on the 19th of August 2020. This included a letter to shareholders from me as well as extensive information at the company and its operations. As I said at my letter, it's incredible to see how Megaport over the last 7 years has become a fundamental part of how businesses operate in the cloud economy in the world over. Today, we connect over 1,980 customers from small and medium enterprises to Fortune 500 companies. The vision for Megaport has always been clear: to provide a platform that makes it easy for businesses to connect to the digital services they need. We pioneered the as-a-service model for networking. And the benefits of that model, along with our global ecosystem, have never been more apparent than in today's current climate. As COVID-19 fundamentally changed the way we live and how businesses operate, Megaport has been there to support our customers and the people that rely on our services. We help enable many customer and commercial networks to deal with the massive surge on traffic they experienced as large parts of the world rapidly switched to a distributed work and education model. I was immensely proud of our team's commitment to our customers during this incredibly difficult period. Looking forward, our customers-focused innovation doesn't let up, and a lot of the time and investment we made in financial year '20 will bear fruits in future years as we move beyond the data center and now to the edge under Megaport Connected Edge strategy. I was delighted with the recent announcement of Megaport Virtual Edge, which allow customers to extend the edge of their networks closer to the branches and on demand. Our recently announced collaboration with Cisco will enable Cisco SD-WAN as the first Megaport Virtual Edge use case and empower end-to-end control of branch, cloud and service connectivity through a single pane of glass. This is the first of many technology partners we will integrate into our platform to broaden our reach and drive the greater end-to-end automation and service orchestration. I'm very proud of the Megaport team for their continued drive to innovate our platform and deliver value for our customers and shareholders. Megaport's inclusion in the benchmark S&P/ASX 200 Index on June 22, 2020, is a testament to our shareholders' confidence in our vision and our performance. I would like to take the opportunity to thank the Megaport team and you, our valued shareholders, for you continued support as we transform the way the world does business in the cloud economy. I'll now hand over to our CEO and Executive Director, Vincent English, who will provide his address. Thanks, Vinnie.

Thank you, Bevan. Good morning. Fiscal year 2020 proved another year of significant growth for Megaport. Not only did we achieve record revenue growth, we also expanded to several new countries, including France, Denmark, Spain and Japan, one of the top 5 countries consuming cloud according to IDC. Today, our platform reaches 132 cities in 24 countries, where enterprise consumption of cloud services keep growing. As we grew our service footprint to many more data centers underserved by cloud connectivity, we also increased the breadth of our ecosystem at an unrivaled pace. As of today, we have 215 cloud on-ramps connected to the Megaport Software Defined Network. Our customers have never had more choice in how they enable their IT architectures. Our service provider ecosystem, combined with -- or more than 700 enabled data centers across 105 data center operators puts Megaport in a unique position to drive the connectivity model that will scale the future of IT services. Our innovation road map continues to keep Megaport out in front. With the development of Megaport Virtual Edge, we have a road map for the integration of many additional technology partners to enable even more ways to take advantage of Megaport's platform to rapidly interconnect with locations and services. Broadening our ecosystem with leading technology companies like Cisco, who we are collaborating with on SD-WAN, bolsters our ability to service the market and unlocks new go-to-market capabilities. The investments we have made in our network, technology and global organization are aligned to capturing the opportunity of increased demand for cloud connectivity. Megaport is positioned on a path to profitability. A key priority for fiscal year '21 is driving the business to achieve EBITDA breakeven on an exit run rate basis in FY '21. In fact, this year, we were able to measurably improve our EBITDA while expanding our installed data center footprint by 22%. Megaport is well funded, and we have an excellent operating leverage in our model. Our teams are prepared to drive greater service uptake on the Megaport platform through direct, channel go-to-market activities. As our teams stay focused on customer experience, usability and value generation through growing our ecosystem and service capabilities, customers consume more services across the Megaport network. This, in turn, drives more value to our partners, our ecosystem, customers and to our shareholders. We are continually optimizing our commercial capabilities. Recently, our teams participated in comprehensive sales training to better drive our revenue pipeline and provide the overall experience our customers deserve. Our team is now more than 225 people strong and spans many countries around the world. We have a history of getting the job done in a highly distributed remote working environment by the very nature of our global business. With this flexibility and efficiency built into our DNA, it is no surprise that our team's productivity has not been impacted by the change to a complete work-from-home dynamic to ensure our team's safety. Though 7 years have passed since the founding of Megaport, we have maintained our start-up sensibility when it comes to being nimble and responsive to the market. At the same time, we've matured as an organization. Our systems and operational discipline allow us to serve -- service some of the biggest companies in the world, many of them shaping the technology of today and tomorrow. By building a bench of experienced subject matter experts across various IT and networking technologies, Megaport has become a trusted partner. We are committed to empowering businesses with an agile networking methodology through our platform. I would like to thank the entire team for another hugely successful year. Without each team member driving our customer solutions and executing on a wider global strategy with passion and enthusiasm, Megaport could not report the massive achievements we've had so far. On behalf of the team, I sincerely thank you for your investment in Megaport. Thank you.

Excellent. Thank you, Vinnie. Before moving to the formal business of the meeting, I'd like -- now like to summarize the shareholder question on voting procedures, which will apply to the meeting. As set out in the notice of meeting, there are 5 resolutions to be considered today. The resolutions have been outlined and explained in the explanatory memorandum, which is included in the notice of meeting. I will then advise the number of proxy votes received on each resolution before moving to the next item of business. Any questions that come through relating to the general business of the company will be noted and addressed after formal proceedings have been dealt with and the meeting closed. Ladies and gentlemen, may I remind you that only shareholders, their appointed proxies or corporate representatives of shareholders are entitled to make comments, ask questions or vote. Instructions on how to lodge a question online are set out on the screen. There is also an online guide available for you by the link at the bottom of your screen. The guide is also available in the AGM page of our Investor Relations website. I encourage shareholders who have questions to submit their questions as soon as possible. As I said earlier, our company secretary, Celia Pheasant, will read out the questions that are submitted online at the appropriate time. The proxy votes already received are contained in our presentation today and will be displayed on the screen at the appropriate time. All resolutions being put to the meeting today will be determined by poll. Under -- sorry, all undirected proxies will be voted by myself in favor of the resolution to the extent I'm permitted to do so. You may submit your votes at any time using your online voting card. For assistance with voting, please refer to the instructions that are on the screen now. There's also a guide available by the link at the bottom of your screen. That guide is available in the AGM page of our Investor Relations website. Each resolution set out in the notice of meeting is to be considered as an ordinary resolution and as such, must be approved by a simple majority of votes cast by shareholders entitled to vote in voting on the resolution. Shareholders can submit their votes online until 5 minutes after the meeting closes. Once the voting is closed, our share registry provider will tabulate the results, which will be released as soon as possible today on the Austrian Securities Exchange. Those results will be displayed on our company website once available. Before we move to the first item of business, let me introduce Richard Wanstall of Deloitte Touche Tohmatsu, who has joined us online today. Welcome, Richard.

Thank you, Chairman, and good morning.

Richard is available -- so Richard is obviously from our auditors there, and Richard is available for any questions on the conduct of the audit and the preparation of the content of the independent external auditor's report. All questions should be directed to myself as Chair of the meeting, and I will then invite any other director and any other relevant person to respond as appropriate. Ladies and gentlemen, I'll now turn to the financial statements of Megaport Limited. You have received the annual report of the directors, the auditor's report and the financial report for the financial year ending 30th of June 2020. I now invite shareholders to comment or ask questions on the report of the company. Questions may also be asked of the auditors about the conduct of the audit, the content of the audit report, accounting policies adopted by the company and the independence of the auditor in carrying out the audit. Questions that have been submitted regarding other items of business will be held over until we come to those terms, and general questions on the business of the company will be addressed after the meeting closes. Celia, are there any questions?

No. There are no questions submitted on this item of business, Mr. Chairman.

Excellent. Thank you. I'll pause for a moment or 2 to see if any questions come in. No questions?

Still no questions.

Okay. As there are no more questions, we'll now move on to the formal resolutions. As a reminder, you can place your vote with respect to the resolutions before the meeting at any time using your virtual voting card. The first resolution on the notice of meeting is a nonbinding resolution to adopt the remuneration report. Please note that the vote on this resolution is advisory only and does not bind the company or the directors. Voting exclusions apply to this resolution as set out in the notice of meeting. The resolution is that remuneration report of the directors for the financial year ended 30 June 2020 be adopted. I now welcome questions with respect to the remuneration report. Celia, are there any questions regarding the remuneration report?

No, Mr. Chairman. There are no questions submitted on this item.

I'll pause just to see if any questions come in. Next few minutes. Okay. As there are no further questions, the proxy votes received in relation to the resolution are now on your screen. Votes for, 72,316,906; votes against, 7,871,778; votes open, 90,008; votes abstaining, 1,292,805. We'll now move to Resolution 2, and I ask my fellow Director, Jay Adelson, to propose this resolution on my behalf. I'll hand over to you, Jay.

Thank you, Bevan. We will now move to Resolution 2, and I will ask my fellow -- oh, that's me. Thank you, Bevan. The Resolution 2, I ask you to consider and if in favor, to pass the following resolution that Mr. Bevan Slattery, being a director who retires in accordance with rule 19.3(a) of Megaport's constitution and ASX Listing Rule 14.5 and being eligible, be reelected as a Director of Megaport. As set out on the notice of meeting, Bevan is seeking reelection as a Director of the company. Bevan has served as Director since the 27th of July 2015 and has had full support of the Board for his reelection. Bevan's background, qualifications and experience appear in the explanatory memorandum to the notice of the meeting. Are there any comments or questions regarding Bevan's reelection?

We have received no questions or comments on this item of business.

Okay. I'll just pause here to see if there's any further questions. No further questions. Proxy votes have been received on this resolution and are now on the screen. Bevan will not vote on this item. The votes for are 66,552,787. The votes against are 14,316,965. The votes open are 85,907. And the votes abstained are 706,337. Now that we have considered Resolution 2, I will pass it back to Bevan.

Thank you, Jay. Resolution 3 relates to the ratification and approval of the issue of placement shares in December 2019. By way of background, on the 6th of December 2019, the company announced it had completed a private placement of 7.1 million shares to institutional, experienced, sophisticated and professional investors. The placement was undertaken to accelerate expansion to new locations and new markets, undertake capacity upgrades, fund innovation and development of new technology and fund operating costs and general working capital requirements. The company is looking to ratify and approve this share placement and in doing so, replenish Megaport's 15% limit of equity securities, which can be issued in any 12-month period under ASX Listing Rule 7.1. We now ask you to consider and if in favor, pass the following resolution as an ordinary resolution that for the purpose of ASX Listing Rule 7.4 and all other purposes, shareholders ratify and approve the issue of 7.1 million shares -- Megaport shares at $8.70 per Megaport share to institutional, experienced, sophisticated and professional investors under a private placement as detailed in the explanatory memorandum. The directors unanimously recommend that you vote in favor of this resolution. Are there any comments or questions regarding the resolution?

Mr. Chairman, there are no questions on this item.

Thank you, Celia. I'll pause again just to allow for any further questions. Okay. As there are no further questions, we'll move on. Resolution 3 proxy votes. Proxy votes have been received for the resolution are now shown on the screen. Votes for, 56,554,370; votes against, 3,454,124; votes open, 77,390; votes abstaining, 21,576,112. Voting exclusions apply to this resolution as set out in the notice of meeting. Any person and any associate of that person who participated in the issue of placement shares is excluded from voting. Resolution 4, the ratification approval of April 2020 placement shares. I'll now turn to Resolution 4, which relates to the ratification and approval of the issue of placement shares in April 2020. On the 8th of April, the company announced that it completed a private placement of 5,263,000 shares to institutional, experienced, sophisticated and professional investors. The April 2020 placement was undertaken to accelerate sales, product development and platform expansion opportunities in the near and medium-term and give Megaport some funding capacity for future strategic opportunities. Again, the company is looking to ratify and approve this share placement and in doing so, replenish Megaport's 15% limit of equity securities, which can be issued in any 12-month period under ASX Listing Rule 7.1. We ask you to consider, if in favor, and pass the following resolution as an ordinary resolution. Now for the purpose of ASX Listing Rule 7.4 and all other purposes, shareholders ratify and approve the issue of 5,263,158 Megaport shares at $9.50 per Megaport shares to institutional, experienced, sophisticated and professional investors under a private placement as detailed in the explanatory memorandum. The directors unanimously recommend you vote in favor of this resolution. Are there any comments or questions regarding the resolution?

No. There are no questions submitted on this item of business, Mr. Chairman.

Thank you. I'll take a moment to allow for any further questions. As there are no questions, we'll move on to proxy votes for the resolution. Proxy votes have been received for this resolution and the results now appear on the screen. Votes for, 49,455,608; votes against, 3,196,673; votes open, 77,390; votes abstained, 28,942,325. Voting exclusions apply to this resolution as set out in the notice of meeting. So Resolution 5, grant of options to Mr. Vincent English. We'll now go to Resolution 5 regarding the issue of options to Chief Executive Officer and Executive Director, Vincent English. This resolution relates to the grant of options to Mr. English pursuant to the Megaport employee share option plan. Megaport Limited ask members to consider, if thought fit, to pass the following resolution at ordinary resolution -- as an ordinary resolution. That for the purpose of Listing Rule 10.14 and all other purposes, shareholders approve the grant of 1 million options with an exercise price equal to the VWAP per Megaport share in the 30-day period prior to the 31st of August 2020 and issue up to 1 million Megaport shares on exercise of those options to Mr. Vincent English as detailed in the explanatory memorandum. Are there any comments or questions regarding this resolution, Celia?

Mr. Chairman, there are no questions on this item of business.

Again, I'll wait a moment to see if there are any more questions. Great. Our proxy votes have been received in respect to this resolution. The results of the votes are now shown on screen. Votes for, 45,745,888; votes against, 31,935,583; votes open, 78,006; votes abstained, 3,812,519. Voting exclusions apply to this resolution as set out in the notice of meeting. We've now come to the end of the formal business -- formal items of business. Please ensure that you've submitted your votes online using your online voting card if you've not already done so. Shareholders are reminded they can submit their votes online until 5 minutes after the meeting closes. The results of the poll will be announced to the ASX as soon as practicable after the meeting. On behalf of the Board, I'd like to thank you for your attendance and participation online today. Thank you for your interest in the company, and we look forward to your ongoing support. Please stay safe, and I wish you very best of health. And I hope -- so I'm hopeful that we will have the opportunity to meet you face-to-face in our AGM in 2021. That brings the proceedings to an end, and I now declare the meeting closed. That allows people to make their votes online. You have 5 minutes from now to complete that voting. Now with the meeting closed, we'd like to invite shareholders to ask general questions about the business and management of the company. Celia, are there any questions?

No. There have been no questions submitted on the general business.

Okay. I've got a few moments. Okay. If there are no further questions, I really like to thank everyone for their ongoing attendance and ongoing support of the company. And I'd really like to thank everyone on the team involved. It's been an incredibly difficult 6 and 12 months -- year in terms of COVID and other things. And I just want to thank Vinnie especially, the Board, shareholders, the exec team and the broader team for doing another fantastic year this year. It's been an incredible journey over the past 7 years, and Vinnie has certainly been there for nearly all of that, and a lot of the key executives as well. And the way that everyone has been able to pull together and look after each other has been a real testament to the team that the executive built and Vinnie has built, and I couldn't be more proud of everything. Vinnie, do you want to say a quick word or 2?

Sure. Thanks very much, Bevan, for those words. Yes, it's been -- 2020 has been a very difficult year for many different reasons. Some of them just general macro and COVID-19, some personal. But I think the main thing that we try to do with Megaport is build a team, as I suggested earlier on in the address, that's more than capable of managing and running this company. A lot of people with a lot of experience. We've grown through the time as we've seen the business go from when it was when we started in APAC and built out into North America and into Europe and like I said, in 24 countries today. And that experience is invaluable. There's no company in the world today doing what Megaport does. And having gone through that with the team -- and like I said, there's 215 employees today, and extremely transparent, we all know what we're doing, what we have to do and why we have to do it. And I think that pays a large part to, in any team or any team sports event, if everybody is pulling together and know the outcome and you're always in with achieving your goals, and that's pretty much how we've set this up from where we are today. So I want to thank the Board for all their support. Been fantastic. I couldn't have asked for a better Chairman and Board. Just the experience and everything that we've gone through and navigating the global economy and everything that goes with it and at the same time, growing the company. We're excited with Megaport Virtual Edge coming on, the innovation that we're bringing into the platform. And that's pretty much it. I want to thank our shareholders for our support. As you know, we've done 2 capital raises during the year, a huge testament to our vision and our strategy and what we're trying to do, the incredible support that we've received from that. So I thank everybody for that. That's it. Thank you.

Thank you, everyone. And I think we'll conclude it there. And again, I really want to thank everyone for their support. And 2021 or FY '21 is going to be more exciting, I think. So thanks, everyone, and please stay safe. Thank you. Bye-bye.