Megaport Limited (MP1) Earnings Call Transcript & Summary

Good morning to those in Australia, and good evening to those in other parts of the world. And welcome to the Investor Briefing on Megaport Virtual Edge or MVE. Today, we have presenters located in Brisbane, Sydney, the U.K., San Fran and Austin, Texas. I'll just run through some housekeeping at the beginning and the agenda for the day and then hand over to Vinny. For those that have followed Megaport, in August 2020, we announced the upcoming release of MVE and collaboration with Cisco. On the 31st of March, we announced the launch of MVE available in 11 metros, with plans to extend it to 21 metros globally. Megaport and Cisco have also partnered to integrate Cisco SD-WAN Cloud Interconnect with MVE, leveraging Megaport's 740-plus locations globally and 227-plus cloud on-ramps. This was followed by a partnership with Fortinet, and we have 3 more SD-WAN providers in the works. Today, the agenda will involve John Veizades, our VP of Engineering, running through the history of SD-WAN, the addressable market and the major players. He will also consider some of the challenges faced by customers and the Megaport solution to reaching the cloud. Matt Simpson, our VP of Cloud, will address MVE pricing and some typical SD-WAN use cases. James McElvanna, one of our leading solutions architects, will then run through a demonstration of connecting a customer to SD-WAN via MVE. And finally, Rodney Foreman, our Chief Revenue Officer, will address our go-to-market and sales motions. Today's session should run for about 30 minutes and will be followed by Q&A. Please send your questions to -- via e-mail to investor@megaport.com. And these can be sent through at any time starting now. We are recording this webinar, and we'll make a replay available on our website. I will now hand over to Megaport's CEO, Vincent English, to run through MVE in more detail.

Thank you, Steve. Good morning, everybody, and thanks for joining our presentation briefing this morning on MVE. First off, Steve just run down through the agenda. The most important objective here is that we understand that there's been lots of questions from the community about MVE, so we wanted to tackle those here in this one forum. It's not a market update or a briefing. This is specifically a product overview and an update on MVE. To that end, we have just moved to the evolution of MVE on the platform for Megaport. And just to recap, we started out with -- in 2014. We were connecting data centers via our platform, Megaport, at the time, connecting using ports and VXCs into public cloud providers and other MSPs. And the idea here, as we all know, is we've [ lasted as ] to be allowed to spin off services connecting at different speeds, different service points and having the flexibility for the customer, for the enterprise, to connect to end services. Over time, that evolved effectively to the first of its kind for Network as a Service, where we were able to address a large global network connecting nearly today over 400 data centers, physically connect to them. We rolled out MCR, which is our cloud provider, which allowed connectivity between different cloud providers. And so we kept enhancing the platform. And as we announced earlier this year, moving towards a Megaport Connected Edge, where we were allowed to -- were extending our physical footprint that we've built, the Network as a Service and the global network that we've built, by allowing capability to connect to other buildings outside of that footprint using the Megaport Virtual Edge. In terms of the -- what is MVE, we try to keep this -- [ to still this down ] as succinctly as possible. It's a hybrid network and a compute service that hosts network function virtualization on Megaport's software-defined network. As I explained a couple of times before, what we are really doing here is we're layering over the existing physical network and other forms or other services that we can bring to the market. In this particular case, using MVE on the network element of it, we're allowing connections or point bridging to the -- from the public network or public Internet to connect to Megaport's on-demand platform. And to do that, we're connecting with -- to get the compute side of it, we're hosting software services like SD-WAN providers. And some of them, as mentioned on the slide, Cisco, Fortinet, VMware and Versa. These top 4 account for 48% of the SD-WAN market. Now SD-WAN is only one element of network function virtualization that we can roll out across the MVE platform. There are other ones, but today, we're focusing on SD-WAN. And looking at the Megaport Virtual Edge overview. On the diagram, you can see here we are integrating connecting buildings, and the buildings can be branches. In terminology used for SD-WAN providers, the branches can be actually buildings, facilities, other locations for physical hardware, our customers' CPEs, where they use the Internet connecting to an SD-WAN provider to connect to an endpoint or branch to branch. In this particular case, we're using the Megaport platform through our portal, which is fully integrated, connecting endpoints, such as branches, using an SD-WAN provider, using their public Internet to connect to MVE, which then connects into the nearest data center on our network, which then allows the customer to traverse our network to connect to a public service provider or in fact, to another branch on the other side of the network. So it extends the reach of our platform. That's the first thing. So we're leveraging the platform. We were the first ever to integrate fully with the Cisco SD-WAN as the use case. It supports branch-to-branch connections, but more importantly, branch to cloud is the #1 use case that we're seeing from customers today. And we've built it using our own technology API built for future integrations and extension -- extends the enterprise network edge. And again, it allows to activate more demand network devices and thus, completely end-to-end provisioning. Now I'm going to hand over for the next couple of slides, just to go into a little bit more of a deep dive on what exactly SD-WAN is and how does it work and what's the problem it solves and how does it complement what we do with Megaport. So John, would you like to take it on?

Thanks, Vinny. So a little bit about SD-WAN and how Megaport ended up to where it is with MVE. If you think -- can you go to the next slide, please? Yes, if you think about enterprise networks, today and in the past, have been very heavily reliant on MPLS technology. That's technology that has traditionally been delivered by the incumbent telco or the enterprise, may purchase many services for that incumbent telco. They purchased these services with term commitments, which have fairly costly walkaway clauses that can take a long time to set up. So when you bring on a new branch office, so one of the first things you do is set up your network connectivity because that can take months to fulfill. And it works. It worked well from branch to data center connectivity, but not so well for cloud connectivity. And as a result, what happened was many -- there are a few number of vendors that started looking at alternatives to MPLS and came up with the terminology -- technology called SD-WAN. This allowed enterprise customers to use their local Internet connection to move enterprise-grade traffic over that connection and unlike many of those connections, were as good or better than the MPLS networks they were moving from. So Internet got very good over the years that the telcos have been delivering at and suddenly became good enough for enterprises to use them. So SD-WAN allows an enterprise to use policies to control what traffic goes over those encrypted links. And you can determine whether a specific application, like, for instance, a cloud application, can go for that encrypted SD-WAN link or whether traffic, like maybe YouTube, goes over your traditional Internet connection. SD-WAN also allowed customers to route traffic based on link quality. So you could determine whether you want to use your DSL link or your LTE, your secondary LTE link, based on the quality of those networks. Unfortunately, cloud is still a hard thing to do with the current SD-WAN technology. It is complex for an enterprise to set that up in cloud. It's costly. The data charges associated with cloud can be quite costly. And you have to think about the applications you have in cloud and how you set up these connections for each one of those applications. The other bit is you see many, many enterprise applications moving to cloud, and as such, the current approach to SD-WAN has been very complex for enterprises to cage in. What Megaport has done is we are taking the extension that we've had in the data center, the technology we've had in the data center, the concept of the VXC, the concept of cloud connectivity, or data center to data center connectivity, and extending that out using that MVE Edge. So that SD-WAN technology that is sitting in that branch office connect to that edge and provide the same platform that we offer ports in the data center, to SD-WAN links that come from those branch offices. Additionally, what we've done is we've given our APIs to vendors and to our customers so that they can simplify that cloud onboarding. I mean many of you have seen the time it takes for a customer to onboard in the cloud, and they can do it in just a manner of a few clicks. We wanted to extend that functionality to the SD-WAN vendors as well. So we've done that using APIs to do that extension. And I'll go back into one of those integrations in just a second. What we've also done is taken our backbone and delivering that to those SD-WAN customers. So no longer do you have to use Internet connectivity over long-reach distances to connect to other branches, you can now link to the MVE Edge that Megaport provides and traverse our enterprise-class backbone to other locations that you may have connected to, so giving a dramatically different experience to those customers on how they get connectivity to branch to branch. And that dramatic difference is really about the quality of experience. But it's not good enough just to give that quality of experience. You have to help the customer get to that SD-WAN edge as quickly as possible. And as part of that, we've deployed many locations across our platform to be close to that enterprise. And what I mean by close is latency close, the number of hops that you go over your Internet provider to get to us is reduced. So we can -- an enterprise can get to that better-quality experience quicker. And you can't do this without supporting a lot of the incumbent players in the SD-WAN marketplace. And let's talk a little bit about that and if you can move to the next slide, please. So what we've done is we realize that we needed to go work with the leaders that enterprises are purchasing and making commitments to. So one of that is we've gone and integrated to many of the SD-WAN leaders as part of the -- that you can see in the Gartner Magic Quadrant. So we've gone through and looked at their market share, looked at their presence and capabilities and chosen some of those top vendors to do that integration with. And I think Vinny went through and mentioned some of those, Cisco, VMware, Fortinet, Versa, and eventually some others as well. What we've done by doing that is, first of all, many of our internal customers are very excited with that proposition so that they can take technology that they're already using, the Megaport technology, and other technology they're using, the SD-WAN technology, and integrate them together in one network that they're very familiar with. And additionally, this offers us the ability to go to the tens of thousands of additional businesses that adopted these technology features as their choice for enterprise connectivity. So that gives you a sense of the type of market that is available to Megaport. Could we go on to the next slide, please? One of those leaders is Cisco. And what we've done with Cisco is fairly unique in that we've done a very deep integration with them with a console that they call vManage. vManage is their orchestration console for all their SD-WAN connections. And from there, through that single pane of glass, that single management user interface, the customer can provision an MVE Edge, that is that connection that is in all the regional metros that may be close to you, as well as provision the VXCs onto those cloud endpoints or even to other branch endpoints. So through that one experience, the customer can go and provision not only the technology that they're using today and the connections they're using today, but the whole Megaport platform connectivity to cloud, to other data centers and other branches. Additionally, through that whole vManage console, they can implement traffic and policy controls with that one interface. And on top of that, we've taken a lot of the technology that they've used, traditionally with MCR, and allow them to do that cloud-to-cloud connectivity using their SD-WAN management pane. That's a solution that we've delivered through Cisco today. That technical integration is done. The next bit we're working on is to integrate with the Cisco price book. That means to have those MVE components available, Cisco's global price list, and being able to have customers billed by one entity and that would be Cisco and specifically sold by Cisco's SD-WAN specialists across the globe. So not only a technical integration, but also a billing experience integration for that end user and we believe a very compelling solution for enterprise customers. Thank you. Now I'll hand it over to Matt.

Thanks, John. Hi, everyone. I'm going to be walking you through a couple of real-world use cases for both a small and a large enterprise, and we'll also be outlining the revenue associated with those use cases. But before we do, I'm also going to do a little bit of a recap on the MVE and the pricing and how it actually works and how it's built together, just to give you a little bit of an idea of the revenue associated with that. So if we walk from left to right, you've got [indiscernible] MVE, medium and large. In the small, you have 2 vCPU, which is the compute. And included in that is 500 meg of Internet transit. That's the Internet to access the MVE from your branch location. Medium is 4 vCPU, with 1 gig of transit. And then the large 8 vCPU with 5 gig of transit. What's really important is, with the small, medium and large, it supports up to 4,100 and 500 IPSec VPN connections, which is essentially branch locations. So small can actually connect up to 40 branch locations. And when I go through those use cases, you'll see which sort of MVE will suit depending on the number of branch locations an enterprise might have. As I mentioned earlier, we've bundled the transit in. So these prices for North America, Europe, Asia and ANZ include the transit. And they are a little bit different because transit and the cost of transit is quite significantly different depending on the region. So in North America and Europe, it's quite reasonably priced, so $1,545; and then Asia, $2,140; and then ANZ, AUD 2,670, which is in Australian dollars. We've also just broken out the actual MVE price so that you can actually see the difference between the MVE and the transit price there. Now with the transit, it is a pure pass-through. We don't mark up the transit. And we also don't provide commissions or discounts on the transit because it is a pass-through cost. Now in terms of best practices, we associate at least 2 VXCs to the metro or cloud when an MVE stood up. And when I go through those use cases, I will be providing a little bit more clarification around branch locations and endpoints versus the number of VXCs and an enterprise may need in terms of connecting to some of their applications. Next slide, please. So John and Vinny mentioned the locations. There are 21 enabled today. And those 21 locations are sitting on a similar infrastructure to MCR. However, our strategy on the rollout of MVE is to ensure that we get closest to the enterprise rather than closest to the cloud or the application because we've already enabled the cloud interconnect points. We now need to get closer to the enterprise, and we'll continue to roll out more locations by working very closely with our SD-WAN partners that we've brought onboard. And we've already got our Phase II and Phase III locations coming through over the next 12 months. Next slide, please. Okay. So the first use case, small enterprise. This enterprise has 7 branch locations in Los Angeles. And with that, they would only need a small MVE. Now that small MVE, of course, can house up to 40 branch locations. So as the small enterprise is building with Megaport, they can still utilize the small MVE and connect up to 40 branch locations. So in this use case, it's only 7. And then from the MVE, so you go from left to right, so up to 7 branch locations, doesn't mean that they need 7 VXCs, they only need 2 VXCs. And those 2 VXCs are going to be primary and secondary to their cloud provider, whether it be an AWS or a Microsoft. And the VXCs are connecting locally in a cloud region, so within that same metro. So similar to how you've seen with our other products, up to 1 gig is $200, and up to 10 gig is $400. So with that in mind, you've got $1,550 for the MVE, including the 500 meg of transit. And the 2 VXCs at $200 comes at a total of $1,950. And these are, again, our retail rates. It's not taking into account partner commissions. Onto the second use case. This one is a really interesting one. This was an existing Megaport customer. So what's really interesting is they had mega ports already with us. But they were actually hairpinning their traffic back to Las Vegas and Reno, as you can see on the left-hand side. So this is a Fortune 500 U.S. company. They've got 1,100 branch locations all across the U.S., and they've got 40,000 employees. So those 40,000 employees across those 1,100 branches have got access to some of their databases, some of their applications running on AWS and Microsoft. And they had private infrastructure in a colocation in Las Vegas and in Reno, on the West Coast of the U.S. So they had mega ports with us, and they are all connecting those mega ports to their cloud or their applications, which is great. They were using us. However, if you think about the spread of their branch locations and their employees, that latency or the traffic was going all the way back to Vegas and then going up to Microsoft. With MVE, they can now connect those branch locations locally. So if you see on the right-hand side, you can see they don't have any East Coast presence, so with MVE, they stood up those MVEs. And now, those branch locations or those employees now can actually access their applications and the cloud on the East Coast. So the MVE now connects up to the East Coast cloud region. And to give you a bit of an idea of the problem that they're solving, not only are they now accessing the East Coast, they're also reducing some of their latency. So by avoiding hairpinning to like, for instance, to Dallas, their Florida sites can now reduce their latency to AWS by at least 50%. Miami drops from approximately 80 milliseconds, to 40 milliseconds. Orlando, all those branch locations, dropped from 69 milliseconds to 30 -- 31 milliseconds. And then Miami traffic travels, is almost half. So it's like Orlando is like 2,394 miles. Now with MVE, they're only connecting and it's hitting 1,000 miles from those branch locations. So we know that with this particular company, with 1,100 branch locations, they will need medium MVEs because those medium MVEs can host or connect up to 100 branch locations. And as you can see there, they have got VXCs to not only their ports to their private infrastructure, but VXCs and redundant VXCs to their cloud and applications. So if we look at the table to the right-hand side, we've got 4 MVEs, which is one in Atlanta, Chicago, Toronto and Seattle; the VXCs to the ports, for Vegas and Reno; and then they've got 16 VXCs to their ports and their cloud applications on the East and West Coast. And the total monthly recurring revenue is just over USD 15,254 per month. And that is only just one customer. And we're looking at, of course, bringing on many, many more. And that is, I believe -- or no, next slide. What do customers actually get? So we want to just make sure everyone is very clear on what Megaport provides and what our SD-WAN partners are providing. So the customer, before they actually come to Megaport, will have an interconnect -- Internet connection from their branch location that's through their provider. They will have their SD-WAN vendors selected. So it's really important that we have all of the rich ecosystem of SD-WAN providers out there, as John mentioned. But they will also already had purchased that router or that CPE equipment at the branch location. Megaport won't be responsible for that. And they will also bring some sort of SD-WAN license to use and run that SD-WAN service on our compute. With Cisco, of course, it's integrated. So it's just one easier step. But with the other vendors, they will just enter that. And James will be showing that later on. So with Megaport, what are they getting? They're getting a platform to host SD-WAN appliances; DDoS-protected Internet connection at our edge, at our network edge; and they're getting that full Megaport ecosystem. Those MVEs will hold up to 24 VXCs. And that is, of course, separate to the branch location numbers that I mentioned earlier. And then, of course, the MVE gets access for VXCs to any destination on the Megaport network. And that said, I'll hand it over to James.

Hi, everyone. I'm James McElvanna. I'm a solutions architect with Megaport. And I'm going to do a very quick demo today. Just jump into the portal. Our plan is to show you very briefly 3 things: one, how quickly customers can spin up a virtual edge; two, demonstrate how the MVE exists in both the SD-WAN vendor's platform and also in the megaport portal; and then lastly, I want to show how easy it is to build a connection from the MVE to the cloud providers. So first step here is I'll go to the normal Megaport portal that our customers use on a daily basis. I am going to select MVE. I'm going to pick a location, Atlanta. From here, I've got to select the vendor. For the purpose of this demonstration, I'm going to go with Fortinet. And you can see here that I've got a couple of different options. I'm going to pick the small -- at this point, it's asking me for an application license. So I have to go to the Fortinet asset management page and download a Fortinet license. I've already downloaded this. And then I will add it here. And then for security access purposes, I need an SSH key. Now you can see I'm getting the monthly charge down at the bottom. Then you add MVE. And in the interest of time, while that's deploying, I'm going to jump into the FortiMonitor, which is the management console for Fortinet. And you can see here, I've already added one earlier on this afternoon. For all intents and purposes, this is where the customers will manage this device, and it will appear just like a regular physical SD-WAN hardware plans in the customer's management console. And so all the day-to-day operations are going to be done here, access list, quality of service, intrusion detection, BTP. And this has got the same [ force that's going in ] VMware. And you can see -- I can even go in and actually configure it from the console that I wanted. But just to jump back to the portal, I'm going to show you that this is the -- another MVE -- the MVE that I was just showing there. You can see that it's already got the Internet access included. There's the public IP addresses. There's the IP transit. We've got IP version 6. Also worth noting that this includes the DDoS protection. So similar to the way our customers are already creating cloud connections by mega ports, by the Megaport Cloud Routers, it's the exact same process to add a connection to AWS. So I'm going to go here, click on our connection. I want to get a cloud connection, I pick AWS. For speed, I'm just going to pick [ Hosted 5th ]. And you can see here that literally, within the space of a few minutes, I've been able to build an MVE and also then build a connection, a 1-gig private Layer 2 high-speed connection into AWS, all within the space of a couple of minutes. And that's it from me.

Rodney?

All right. Thanks, James. It was a great demonstration and with a great product. You need an exceptional go-to-market so that we can sell it. So that's what I'm going to take you through now. We've put a lot of focus on putting the right team in place to support our selling motion. So we've hired a dedicated team of sellers and solution architects to be trusted advisers to our partners that are on the SD-WAN side, with Cisco, VMware, Fortinet and others soon. We are enabling those salespeople and have started the sales enablement process well before GA and continue to enable the sellers in the field and providing them sales playbooks and other collateral that I'll talk about in a moment so that they are fully enabled to sell our product across the industry and utilize many of the use cases, some of which Matt took you through, so that they understand what the target customer looks like, what the value proposition is, so that they can execute, identify opportunities and go through the sales cycle as quickly as possible. We are targeting indirect and direct sales. So we're targeting the market using the SD-WAN resellers, distributors and service providers in an indirect- or channel-selling motion. And then also, we're supporting their direct sales teams, targeting specific industries that fit the profile of the best SD-WAN customer that can utilize and get value from MVE. We are on the Cisco global price list and also on the Cisco Commerce Workspace. This is significant because this is how the Cisco sellers get paid and how their partners get paid and obtain benefits from Cisco. So it's important that we're on the price list and we're in CCW. If we go to the next slide, please. So we have a blended go-to-market here with both leveraging the extensive network of partners, from Cisco, Fortinet and VMware, and our direct sales teams, both working in harmony to attack the market and identify opportunities. We are supporting those direct sellers with our solution architects. James is one of those, that you just met, that is supporting the direct sales teams. We are making sure that Cisco, Fortinet and VMware partners are trained, enabled, they understand our solution and are -- have the ability to identify opportunities to sell. That includes their entire partner ecosystem, those resellers, MSPs, GSIs and the VADs as well. We are already jointly selling Megaport and Cisco together. And we are conducting joint presentations together, demos, POCs, targeting existing and potentially new customers together, working together. And that joint selling is working very, very well so far. If we go to the next slide. We have a very good go-to-market plan that I believe is well thought-out and is being executed very well to date here, 50 days or so into the GA of the MVE product. We have some very good marketing assets that the team is leveraging to sell in the way of battlecards, demos, and we've got an excellent marketing plan and a lot of marketing activities going on. We have integrated into the management consoles of the SD-WAN solutions, and customers can order through the SD-WAN providers and through Megaport those panes of glass working together. We have field enablement, as I said, going on with dedicated resources that are training both the channel partners and the direct sellers. And we continue to revise and improve our go-to-market jointly together with those SD-WAN providers, making sure that we have a joint value prop, that we have sales playbooks, demos that apply across industry and attract some of the largest customers -- existing customers we have and new customers. Matt showed you a few examples of those. So I think we have a very thorough go-to-market action plan in place and the right selling motion to leverage both the direct and indirect sales channel to win as many opportunities as we possibly can in the market. Next. I believe that's the last slide. So I'll turn it over to you, Steve. We can start the Q&A.

Thank you, Rodney. We're now going to turn to the Q&A for the session. [Operator Instructions]

And whilst perhaps OpenExchange would line up some of the questions, I thought I might start with a relatively simple one that's coming via the Q&A function. And the question is why would a customer use SD-WAN over MVE to connect branches versus just directly over the public Internet? Matty or John, is this something that either of you can take?

I can take that. If you think about the regular Internet, the Internet is comprised of many, many networks connected together in an ad hoc fashion. Now if you think about what do you get when you connect 2 branches together using different network providers in different geographies, that end-to-end experience is really determined by the quality of those connections between those Internet providers. What we've seen, I think there was a very good presentation at Cisco Live, where Cisco used their ThousandEyes product to look at the connectivity between 2 locations and the bandwidth that could be utilized by a customer connected to those 2 locations. And what they discovered, that when they go to the Megaport network, the connectivity was more consistent, they got better throughput between those 2 locations and had a better experience when it comes to a facet called jitter. It's a measure of network quality. Additionally, when you're moving large workloads, the Internet, the fragment of traffic that you're sending over that -- those Internet connections, is limited to 1,500 bytes. So when you're moving large amounts of data, that becomes a significant hurdle. On the Megaport network, you can go to larger maximum transmission units, the size of those packets. So it gives you better end-to-end behavior, better end-to-end bandwidth. So just -- those are the major differences between what you get over the Internet and what you get over the Megaport backbone.

Thank you, John. Operator, do we have any questions in the waiting room?

Yes. We've got Tim Plumbe coming up right now.

Guys, can you hear me?

Yes.

Yes.

It's Tim Plumbe here from UBS. Just a couple, if that's all right, from me. Just focusing on that use case or the second use case with the Fortune 500 U.S. company. Can you give us a sense out of that $15,254, how much of that would Megaport get net of those IP transit costs? And are there any other costs that we need to take into account when thinking about that customer?

Tim, it's Vinny here. Yes. So the IP -- no, there is no other cost. The IP transit cost, which is in the schedule that you will have seen on the pricing that's included in the overall bundled price for the MVE instance, the VXCs don't have an associated cost because that's already where -- they're already being consumed across our existing network. There is one other additional cost which is it depends on where -- as Rodney outlined, it depends on where the sales motion comes from. If -- obviously, if it's a direct sale, we have our own sales team and inherent commission costs associated with that. Whereas if it goes through a third party, there's the -- an external commission on that. And that range is, it's circa anywhere between 15% and 20%, excluding the IP costs. And I should also point out that there is a special revenue share arrangement between ourselves and Cisco due to the extended integration work that we're doing and being on -- included into the global product list, which in turn drives huge volume for the business. So that's a separate arrangement.

Got it. The second question is still around that second use case. Just in terms of the deployment for that actual company, I mean, you showed us how easy it was to set it up on your platform. Can you walk us through the next stages that, that company would have to undertake to actually transition their back-end system or their business across on to it? Is that a project that would take a matter of weeks or months? Or how challenging is that from their side?

Matt, did you want to take that one? I mean, I think you touched on it in terms of what the customer brings to the table. Ordinarily, Tim, the customer would already be, in this particular case, an SD-WAN provider. They would have already had that. So it's a matter of them -- it would have been a quicker process. It was very quick for them to set this up. But maybe, Matt, you're closer to this local customer, if you wanted to talk to that.

Sure, Vinny. I think it's similar to our existing products and the customer journey. So in that use case, we've gone small. The customer, it only has taken a matter of weeks to stand up. However, it will be a long-term migration. So we are expecting that customer to grow with us over the course of the next 12 to 24 months as they move some of that legacy infrastructure. But as Vinny pointed out, they already have the SD-WAN vendor already -- they were already using them. It was now just a case of establishing on our network edge rather than to the cloud providers directly. So it only takes a matter of weeks.

We also have Paul Mason is joining us now.

Can you guys hear me?

Yes. Paul, I can.

Yes. Okay. Great. So the first question I had was just if you could maybe go through the products defined both in terms of bandwidth and in terms of the number of virtual CPU resources that are allocated to it. Could you maybe give a bit of an explanation about why you need to increase the number of CPUs attached as you scale up the size of the bandwidth on the servers and the number of end points that are [ talking ] to it?

Sure. Sure, Paul. Let me answer that. You have to remember that all of the -- majority of SD-WAN traffic is over encrypted sessions. And with current modern technology, every encrypted session typically has a maximum bandwidth of about 1.5 gig. So as you increase the number of branches, you -- and the number of connections that you're making to that MVE, you have to think about encryption overhead. And that's where the number of these CPUs come -- goes up to deal with that decryption task. The decryption task is a pretty heavyweight activity on modern CPUs.

Okay. Great. And just in terms of how the SD-WAN orchestrator interacts with Megaport Virtual Edge. So the use cases you guys have provided, I think, sort of basically imply that your expectation is that the orchestrator will live on Megaport infrastructure, whenever Megaport Virtual Edge is deployed side-by-side with an SD-WAN vendor's solution. Are you ever expecting that to not be the case and for the SD-WAN vendor to sort of build next door instead of just pushing their software onto your infrastructure?

Let me answer that in 2 bits. The first one is that the SD-WAN orchestrator, the thing that manages all your SD-WAN connections, that's typically a SaaS-based solution by that SD-WAN vendor. So in the case of Cisco, it's a technology called vManage, which they host. It allows you to manage not just Megaport-deployed SD-WAN edges but everything you have on a branch or a data center footprint as well. So each one of those vendors has technology that they stand up on their own using SaaS technology. Does that clarify your question?

Sort of. So in terms of how the virtual edge talks to that so that the orchestrator can sort of use Megaport's network, is it going to be living in the same data center but in a separate rack, for instance, to Megaport's infrastructure and then you're going to cross-connect into that? Or is it actually -- is the better outcome for it to live on Megaport's servers and you provide the infrastructure of the servers that's backing up the Software as a Service? Does that make sense?

Yes. So typically, they're doing a SaaS deployment. That control function is typically located in a cloud provider somewhere or in a data center that's controlled by that SD-WAN vendor. They talk -- when they do the deep integration with us, that connection is over an -- to our public API end points. So they talk directly to the APIs that we provide that allow them to control an MVE instance or a VXE on our network. That's the way that Cisco has done the integration. So they talk from their SaaS-enabled control function over our -- to our APIs to make and orchestrate those connections.

I suppose just -- Paul, just one other thing to overlay that. So not all of the SD-WAN providers are going to continue to build out infrastructure to support. That's -- they've cut their central hubs, and this is where they're relying on partners like ourselves to actually extend that reach. And that goes back to what I was talking with the platform at the end of it. So there's a huge inherent value in the platform and the network that we've built and all the locations that we're in, and that's what's augmenting this heavy lift and allowing for greater customer reach both for the SD-WAN provider and for ourselves.

Okay. And last one from me for now, and I'll jump back in the queue. But it's just on Versa Networks, which is one of your more recently named partners here. My understanding of their business is that they historically have provided customers with their own sort of global map of points of presence and a sort of global backbone of dedicated bandwidths that, in effect, had tried to do what you appear to be doing for their solutions themselves in one holistic package. And now they've decided to partner with you. I don't know if you can share sort of anything about sort of why they've gone away from trying to do this themselves and instead partnering with your network in order to provide that solution?

Matt, did you want to take that one? I don't think they're stopping from doing what they're insisting doing. I think they're just using us to -- again, like I said, it's an extended [ term ].

Yes. It certainly extend -- I think it's -- not only is it the 21 locations now where their customers connect to, we're seeing that demand from our existing customer base, which they see coming through directly but also the cloud interconnect points and the reach of those cloud regions and the applications.

We have Bob Chen from JPMorgan joining us now.

Just thinking about the potential take-up rate of MVE, what's the best way to think about it? I mean, just given Megaport's core product did take a little bit of time to sort of get adoption or sort of you need to do a bit more education of the customer base, I mean, do you think something similar will happen with MVE?

I think -- Bob, our assumption is, and we can only work off what the partners are doing in, as Rodney has outlined, not just in the last quarterly update but what we had in our go-to-market motion, is about extending our access to the partners and the resellers that actually currently resell SD-WAN today. And by doing that, we get a greater reach. It's also solving a problem. As I said, like the Network-as-a-Service element of our platform is lacking, as we've talked about it. I know we can get a bit technical in some ways. But at the end of the day, that's the part that's missing and we're solving for. And we believe that it -- this will be faster than the existing business that we started out with rolling it out. This is a technology that is known and is understood by enterprise customers. There is the overwhelming demand to connect to the public cloud provider. And as John outlined, that's a difficult process today for both security latency, network performance, cloud application performance over longer distances. And in the user case, as you can see how quickly that we were able to deal with that for the customer. So we anticipate -- I don't know. I'm talking to Rodney. We already -- and this is just on our side of it, not with the reseller side. We already have a pretty strong pipeline building of customers and, like I said, digital concepts that we're finishing out. And this user case that we talked about here was a proof of concept that we were talking about 3 or 4 weeks back. And it's now come to fruition. And we have a couple of more those that will be going live during June. But maybe, Rodney, if you wanted to touch on that a little bit more.

Yes. I would just say early indication, as we talk to the top partners from these vendors and to the leaders in the -- of the SD-WAN sales teams, there's a definite customer need. The value proposition is very clear, and the value that we provide to customers just extends the value that customers realize from the vendor's SD-WAN solutions. So as Vinny said, our pipeline is very strong already and building very rapidly. So I believe that the uptake on this product and the knowledge of our product in the market is going to happen pretty quickly. We're already seeing signs of that.

All right. Great. Perfect. And just bringing it back to use case to like Tim earlier. In terms of $15,000 per month number, like how would that compare to what that customer was previously spending on Megaport?

I can help answer that. So they were roughly, I think, spending, from memory, around just over $2,700 a month. So now they will be reaching about $15,000 per month. And so of course, a lot of that has to do with the transit but also the VXCs associated with that now, too. So connecting those branch locations back to their private infrastructure that they've had, we've [indiscernible] all the VXCs to those cloud applications as well.

All right. Perfect. And in terms of your sort of target customer base, I mean, do you expect a different sort of customer base to what you're currently targeting, more of an expansion or is there some overlap there as well?

Well, keep in mind that today, we're selling very well across every industry. There's not an industry that we're not touching today or have a logo in. So I think as we look at those customers that meet the profile that have those branch locations, like the use case example that Matt pointed out, we're looking across our existing customer base. And those that meet that profile, we have a set of questions that we're approaching those customers with already proactively to identify the need and to start the selling motion. And then from a Cisco/Fortinet/VMware perspective, the same thing: Those customers that already have SD-WAN solution or in the process of buying have identified a need for our solution based on what has been outlined in this call, and we're approaching those customers as well. So there's no shortage across industry, be it retail, finance, manufacturing, that have a lot of branch locations that have a need for this product.

We now have Matthew Dolgin from Morningstar joining us.

Can you hear me?

Yes.

Matthew, yes.

I guess I'm looking at Slide 9 and thinking about those customers that already have been on an SD-WAN solution. Is your solution geared mostly towards those that have already had it and it's actually better to go to Megaport also? Or are you targeting mostly towards those that are setting up new SD-WAN networks? I guess I'm just wondering what the value proposition is, once you've already gotten that first step of complexity out of the way on a traditional SD-WAN network. And then my second question is actually just how you guys look at the future of SD-WAN. If we end up with a more distributed workforce, with more work from home, does that lower the need for it just because enterprises, despite how it might be better for the branch office, they have less need for it with fewer workers maybe in the branch offices?

Thanks, Matthew. Well, I'll touch on it first, and maybe, Rodney, you can add a bit more color. But look, it's both, right? So we see this -- the reason we've seen most of these providers who were collaborating with an arrangement is that not everybody is using one of those vendors. They pick and choose the same as they pick and choose their cloud vendors. They are all -- they all see this as a growth vector in their business, their -- these products. So it's -- I think there's a slide there we had -- John had a slide and it was that slide -- yes, Slide 10, the one after that, where it talks about the revenue growth over the next couple of years in this space. So it's a growing market, and that's the first thing. So yes, we are seeing it come from existing customers. As Rodney said, we're looking at profiling those customers that we have today. But more importantly, this is seen as a growth engine from the SD-WAN providers. And so we're seen as an enabler or a fast-tracker for customers to get network connectivity using their product to what the customers are looking for, which is to solve for predominantly to -- from branch to cloud. And that's basically what we saw. It's not actually both. It's a growth market, and it's also -- we're targeting our existing customers. And just to touch on the second part, we're not really seeing that. From what we're seeing in most businesses there, as I said, it's a growth pace. People are looking to use SD-WAN to make other things easier for them, whether with the existing legacy infrastructure connectivity or for more diverse or more edge connectivity. Not have -- we haven't really come across anything at this stage to say that working from home and less branches and less offices is going to have a diminishing impact. But maybe Rodney, I'll ask on what's your take.

Yes. I mean, one of the beautiful things about this product that every salesperson wants is the -- how easy it is to set up and demo and show the performance advantages very quickly. So for existing customers that we're approaching, and Matt showed a few examples there, we're very -- we can very quickly prove by using -- actually using the product that the performance is better, and that there's a lot of advantages in terms of not only connecting their branch locations by connecting to the cloud and avoiding some of the costs that they're paying in egress fees and other things. So it's -- the value proposition is clear. The ability to demo the product is very easy and quick. And it looks like the sales cycle is going to be fairly quick in comparison to our ports, right in the same lines, if not quicker, than selling our port product.

So just as far as the network architecture goes, if you do have more employees working from home, do they still -- the companies still get the benefit of this SD-WAN network? Or for employees working from home, are they kind of excluded from this?

Yes. Let me take that for a second. You have to remember, what are the applications that those employees are going to? These are all on private on-network applications. So like in a health care setting, it might be cloud-based radiography and imaging or in a entertainment environment, it could be manipulating assets in cloud that are doing film production. I think we've done a great video with Framestore on how they use that. So all those applications are private applications that come over the private enterprise network. As employees move to a more work-from-home environment, in those situations, they still need to get to those private applications. And they want to get them over a private link to cloud. They don't want to use the public access, especially when they have applications that are very sensitive, the core IP of companies. So we -- yes, working from home is going to change the enterprise network. SD-WAN will help that in allowing workers to work anywhere but still can -- they have a mechanism connecting to that enterprise network that gives them private connectivity to cloud. I would say that eventually, you're going to see some of the SD-WAN vendors realizing that trend and be able to provide that SD-WAN functionality to a homeworker, not just a branch office. Granted that will mean more connections to those hubs, and they might have to change their software architecture to facilitate that. But the work from home, yes, it's a change in the way enterprise networks need to be built. But the access to those private applications still needs to go over dedicated private links that SD-WAN facilitates.

We now have Nick Harris from Morgans joining us.

Nick Harris here from Morgans. Can you hear me?

Yes.

Vinny, just a couple of questions from me. Just on the MVE sales model within Megaport, are you retraining your existing salespeople to sell MVE? Or are you adding new salespeople who will specifically focus on this?

We're training our existing salespeople, and we are adding primarily solution architects that can support not only our sales team but also the partner sales teams to identify and progress opportunities. So some of both we're hiring, and we're training our existing team as well.

Just also interested, I guess, from the perspective of your big providers like Cisco, where do you think SD-WAN sits in terms of their sales priorities? Obviously, they're a very big base. So they've got a lot of things going on. Is it something they're -- you think they'll actively push? Or is it more customer demand that's driving, as in pull rather than push?

Well, I'll have -- I can have Matty chime in on this one as well. But the feedback we're getting from the sales team is that this is one of their fastest-growing areas of their business, is SD-WAN. So they're getting not only pull from the market but also push from their partners as well. But the feedback we're getting from the partners and the direct sales team is that there's focus here, there's demand, and it's one of the fastest-growing areas in their portfolio. And I'll let Matt chime in as well.

Yes. Thanks, Rodney. We haven't been given sort of a specific number from Cisco. However, we're certainly working with them. Just to recap on what we presented earlier, once we're on the global price list, their sales team are incentivized to sell this. Also, their partners are incentivized to sell this through the Cisco rebate system, through their special incentives. But also, they are certainly seeing the demand coming through, particularly when they're rolling out new router infrastructure. So the C8KV, it's sort of established like as a bundled sort of package. So when they -- when a customer goes and purchases a C8KV, they're going to get access to Megaport services as well. And that's how they're sort of driving those sales because they want them to buy it through Cisco direct rather than going and buying this through some of the other partners that they've got this infrastructure hosted on.

Just one other thing to add to that, Nick, as well. I mean -- and this is public knowledge, I mean, Cisco being a public company. They are very much focused on trying to drive monthly recurring revenue streams as opposed to some of their traditional business, which is just selling hardware. So again, this is -- value-added services is seen as a high-growth area within Cisco.

Okay. I might just sneak in 2 ones, which are hopefully will be quicker as well. Just to clarify, does Megaport pay commission on the Megaport Virtual Edge plus the VXCs? Or is it just the Virtual Edge? And then the second question was just cybersecurity. Obviously, when you've got a branch out in the wilderness, you've got to protect some of that. Do you guys provide any of that? Or how does that work, just the cybersecurity side attached to the MVE?

I'll answer the first part. Maybe John, you take the second. Yes, commissions are usually on a bundled price, which is the way we've structured it, excluding the IP transit. That's a typical format globally. So that doesn't differ from the way we do things today with the remaining -- or the existing products. On the cybersecurity piece, John, did you want to take that one?

Sure. I mean, we don't do anything specific to the branch. What we do -- what SD-WAN does allow you to do is take those sensitive workloads and put them over an encrypted pipe to the Megaport Virtual Edge. The other part of most of the SD-WAN vendors' solutions are they do offer a full suite of security functions on that instance that they're running on the Virtual Edge, whether it be firewall, deep packet inspection, application inspection, things like that are all offered on those platforms. And customers may take advantage of those security functions to protect the applications that they may be running in data center and cloud.

So it's more like it's wrapped into the bundle rather than they get a VXC to a security solution.