Megaport Limited (MP1) Earnings Call Transcript & Summary

Welcome to the Annual General Meeting of Megaport Limited. My name is Bevan Slattery, Chair of the company. I'd like to begin by acknowledging and paying my respects to the Turrbal people, who are the traditional custodians on the land at which Megaport's headquarters stands and where we're presenting from today. I'd also like to pay my respects to Elders past and present and to extend respect to Aboriginal Torres Strait Islanders who are joining our Annual General Meeting today. On behalf of the Board and staff of Megaport, it is my pleasure to welcome you to our AGM for 2021. As we have a quorum, I declare the AGM open. I'd now like to introduce you to the members of the board -- members of the Megaport Board of Directors. Vincent English, our Executive Director and Chief Executive Officer, and I are together here in Brisbane. Due to COVID-19 travel restrictions, other Megaport Directors: Naomi Seddon; Jay Adelson; Mike Klayko; Melinda Snowden; and Glo Gordon, are joining us online today. Also joining us online are Sean Cassidy, our Chief Financial Officer; and Celia Pheasant, our Company Secretary. I'd also like to introduce Richard Wanstall of Deloitte Touche Tohmatsu. Richard is available to take questions on the conduct of the audit and the preparation of the content of the independent external auditor's report. We have not received any apologies from shareholders unable to attend this meeting and have not received any questions prior to the meeting. As you know, in response to COVID-19 conditions, today's meeting is being held online via the Lumi platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxies have the ability to ask questions and submit votes. Online attendees can submit questions at any time. To ask a question, select the Messaging tab at the top of the Lumi platform. At the top of that tab, there is a selection -- sorry, there is a section for you to type your question. Once you finish typing, please hit the arrow symbol and send. Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated. Or if we receive multiple questions on one topic, amalgamated together. Questions that have been submitted regarding other items of business will be held over until we come to those items. And general questions to the business of the company will be addressed after the meeting closes. For those shareholders who wish to ask a verbal question, an audio questions facility is available during the meeting. To use this service, please pause the broadcast on the Lumi platform and then click on the link under the Ask Audio Questions. A new page will open where you'll be prompted to enter your name and the topic of your question before being connected. You will listen to the meeting on this page while waiting to ask your question. If you have any issues using the system, please return to the Lumi platform. Finally, due to time constraints, we may not get to answer all your questions. If this happens, we will answer them in due course through our e-mail or posting prompt responses to our website. Voting today will be conducted by way of a poll on all items in business. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. At the -- sorry, at that time, if you're eligible to vote at this meeting, a new voting tab will appear. Selecting this tab will bring up a list of resolutions and present you with the voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. The proxy votes already received are contained in our presentation today and will be displayed on screen at the appropriate time. All undirected proxies will be voted by me in favor of the resolution to the extent I'm permitted to do so. I now declare the meeting -- sorry, the voting open on all items of business. The voting tab will soon appear. Please submit your votes at any time. I will give you a warning before I move to close the voting. I will now give the Chairman's address. I'd like to refer all shareholders to the company's 2021 Annual Report, which was released on the 10th of August this year. This included a letter to shareholders from me as well as extensive information of the company and its operations. As I set out in my letter from humble beginnings, Megaport is now a global leader in automated connectivity. Our vision was simple, be the world's leader in software-defined connectivity. What started in 2013 as a Software-Defined Network in Australia now services over 2,200 customers in over 760 locations in 136 cities across 23 countries. This year, we launched Megaport Virtual Edge, our service that takes our platform beyond the data centers and helps enterprises accelerate their journey into SD-WAN and SASE. Customers are now connecting branch locations like office buildings, corporate campuses and storefronts to our rich ecosystem of service providers. We have integrated with many of the leading SD-WAN providers to deliver maximum flexibility. And the engineering teams are hard at work integrating new technology partners to further increase the power of choice in keeping with our neutral model. MVE is an incredibly exciting platform that provides a virtualized environment for hosting additional network functions on demand and with no need for additional hardware. SD-WAN support is only the first of many use cases to come. For our customers and partners, agility is the name of the game. The past year has shown us that the ability to adapt to shifting demands on IT system makes or breaks a business. Our acquisition of InnovoEdge, a service orchestration and automation company, will allow us to integrate the InnovoStudio service to Megaport's platform. This will give customers the ability to not just use Megaport to provision services to the cloud, but let us now take them through the cloud. The InnovoEdge team's expertise in developing and automating perfectly complements Megaport's software-defined networking capabilities. Combined, we empower even greater agility for our partners and our customers alike. As the first mover in the thriving Network as a Service space, channel partners have always played a critical role in Megaport's success. We have learned much since launching services in 2013 and recognize an opportunity to truly align NaaS to play as a foundational role in the channel to speed up service adoption. This is why we've developed Megaport PartnerVantage, a world-class channel program. With Megaport PartnerVantage, channel partners will greatly benefit from the ability to rapidly connect their customers to services directly through Megaport. Channel partners can accelerate providing solutions for their customers and seamlessly boost cloud service adoption. I'm incredibly excited about Megaport Partner Advantage and look forward to seeing the program provide greater audience for our capability and scale to our operations. I'm very proud of Megaport's enduring drive to innovate and deliver value to our customers, partners and shareholders. I'm incredibly proud of our team, their resilience in the face of diversity and culture that has been created under the leadership of CEO, Vincent English. I would like to take this opportunity to thank the Megaport team and you, our valued shareholders for your continued support as we transform the way the world does business in a cloud economy. I'll now hand over to our CEO and Executive Director, Vincent English, who will provide his address.

Good morning. Thank you, Bevan. Megaport has fundamentally changed the way network services are bought and consumed. Point, Click, Connect is more than a model. It's a philosophy that underpins our technology and innovation roadmap in order to make our customers' lives easier. The buying behavior for IT services has evolved significantly in the past few years. Today's IT decision makers are focused on using platforms and tools to achieve the infrastructure less and agile experience. They demand end-to-end control, ease of use and services that work together with minimal to no manual work. In essence, automation and integration are now fundamental requirements. The shift in the IT enablement landscape has guided our journey from a service providing connections with data centers to a global platform powering holistic connectivity solutions for all aspects of IT enablement. Through this journey, cloud connectivity has continued to play a central role in our success, representing 65% of the connections that happen on Megaport's Software-Defined Network today. According to Gartner, worldwide public cloud services end user spending will reach USD 397 billion in 2022. Multi-cloud adoption is a driving factor in these remarkable numbers, and 35% of Megaport's customer use our platform to connect to multiple cloud providers. That number continues to accelerate as we connect to more cloud on-ramps and innovate our platform to reduce the complexity of getting connected. A key enabler for this is Megaport Cloud Router, MCR. Since being launched in 2017, MCR has made it extraordinarily easy to connect cloud providers directly together in a point-click fashion, reducing the complexity of implementing multicloud and hybrid cloud architectures. The number of production MCRs grew 65% in fiscal year 2021 with more than 500 of these innovative virtual routers in service. Using the same technology platform that supports MCR, we were able to develop Megaport Virtual Edge, MVE, which supports connections through leading SD-WAN technologies. With the formal launch of services in March 2021, customers are now connecting their branch locations into the Megaport platform to manage global network services on demand. Initial MVE adoption is similar to that of the MCR in its first few months, and we expect to see accelerated growth in the product based on a strong pipeline. We won't stop there. Since orchestration and automation plays such important roles in today's IT landscape, we will leverage our acquisition of InnovoEdge to drive new features that empower our customers with predictive capacity management powered by AI. Our platform will provide greater end-to-end control of IT resources and increased visibility to drive performance and efficiencies. Essentially, we will provide our customers the tools that they need to get their users, locations and services all connected with ease. As I said before, with our technology road map, including the integration of InnovoEdge services, Megaport will take customers to the cloud and through the cloud. Megaport achieved group EBITDA breakeven in June 2021. This is a strong validation of our business model, and there is additional operating leverage based on the investments to date. Asia Pacific, for example, is Megaport's most mature market and generated a profit after direct network cost margin of 73% in June 2021. Europe achieved EBITDA positive position for the entire fiscal year in 2021. And North America, which represents the largest target addressable market, is growing at the fastest rate with 47% growth year-over-year in monthly recurring revenue. The Megaport mission for this year is to scale up, scale out. This is a commitment by everyone at Megaport to accelerate our growth and our innovation cycle to increase our lead in the NaaS space. With a proven business model, the trust of partners and customers and a leading platform built for innovation, we are well positioned to achieve this. We are investing in revenue growth by making investments in further market expansion, product and service innovation. And most critically, the people responsible for making Megaport the transformational technology company that is changing the way IT services are built today and tomorrow. To truly scale, we've developed our channel program, PartnerVantage, to take advantage of the power and the reach of the Megaport platform, which is built on continued product innovation. PartnerVantage bolsters our support for existing channels like data centers, networks and managed service providers and launches new features and capabilities to support the additional channel segments such as Value Added Distributors and Value Added Resellers. For the first time ever, VADs and VARs will have the ability to offer real-time connectivity that tie services and locations together as part of a holistic solution. The investments we are making in our channel program and the new services that we are driving through our product innovation will amplify our go-to-market capabilities and position us to capture greater market share as businesses increasingly adopt agile networking. I would like to thank the entire team for another hugely successful year. Without each team member driving our customer and partner solutions and executing on the wider global strategy, with passion and enthusiasm, Megaport would not have delivered the massive achievements in fiscal year '21. On behalf of the team, I sincerely thank you for your investment in Megaport. Thank you.

Thank you, Vinny. We now come to the formal business of the meeting. As set out in the Notice of Meeting, there are 12 resolutions to be considered today. The resolutions have been outlined and explained in the explanatory memorandum that was included with the Notice of Meeting. Each resolution will be put to the meeting. Shareholder questions, which are submitted, which are relevant to the resolution, will be addressed by me. I will then advise the number of proxy votes received on each resolution before moving to the next item of business. 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 the votes cast by shareholders entitled to vote and voting on the resolution. Once the voting is cast, our share registry provider will tabulate the results, which will be released as soon as possible today on the ASX. Those results will also be displayed on our company website once available. I'll now turn to the financial statements for Megaport Limited. We have received the annual report of the directors, the auditor's report and the financial report for the financial year ending 30th of June 2021. I now invite shareholders to comment or ask questions on the reports 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. Celia, are there any questions or comments?

No, there are no questions on this item of business.

As there are no more questions or no questions, we'll now move to the formal resolutions. The first resolution in 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 to this resolution are set out on the Notice of Meeting. The resolution is the remuneration report of the directors for the financial year ended 30th of June 2021 be adopted. I now welcome questions with respect to the remuneration report. Celia, are there any questions on the rem report?

No, we haven't received any questions.

Okay. As there are no further questions, the proxy votes received in relation to this resolution are now on the screen: for, 64,654,106; discretionary or open, 92,256; against, 25,073,901; and abstaining is 1,952,942. The resolution 2 ask you to consider, if in favor, to pass the following resolution as an ordinary resolution, that Mike Klayko being a director who retires in accordance with the Rule 19.2(b) of Megaport's constitution and ASX Listing Rule 14.4 and being eligible, be elected as a director of Megaport. As set out in the Notice of Meeting, Mike is seeking election as a director of the company. Mike's background and qualifications appear in the explanatory memorandum to the Notice of Meeting. For the reasons set out in explanatory memorandum, Mike has the full support of the Board for his election. Are there any questions or comments regarding Mike's election?

No, we've received no comments or questions on this item.

Okay. As there are no further questions, the proxy votes received in relation to this resolution are now on screen, Mike will not vote on this item: for, 110,090,235; discretionary or open, 88,101; against, 19,877; and abstaining, 220,081. For resolution 3 asks -- sorry, I ask you to consider and, if in favor, to pass the following resolution as an ordinary resolution, that Ms. Melinda Snowden, being a director who retires in accordance with Listing Rule 19.2(b) of Megaport's constitution and ASX Listing Rule 14.4 and being eligible, be elected as a director of Megaport. As set out in the Notice of Meeting, Melinda is seeking election as a Director of the company. Melinda's background, qualifications and experience appear in the explanatory memorandum to the Notice of Meeting. For reasons set out in the explanatory memorandum, Melinda has the full support of the Board for her election. Are there any questions or comments regarding Melinda's election?

No, there are no comments or questions on this item.

Okay. As there's no questions, the proxy votes received in relation to the resolution are now on screen. Melinda will not vote on the item: for, 100,178,197; discretionary or open, 113,184; against 1,906,794; abstaining, 220,119. For resolution 4, I ask you to consider and, if in favor, pass the following resolution as an order resolution, that Ms. Glo Gordon, being a director who retires in accordance with Listing Rule 19.2(b) of Megaport's constitution and ASX Listing Rule 14.4 and being eligible, be elected as a Director of Megaport. As set out in the Notice of Meeting, Glo is seeking election as a Director of the company. Glo's background, qualifications and experience appear in the explanatory memorandum to the Notice of Meeting. For reasons set out in explanatory memorandum, Glo has the full support of the Board for her election. Are there any comments or questions regarding Glo's election?

No, there are no questions.

Okay. As there are no further questions, the votes received in relation to this resolution are now on the screen. Glo will not vote on this item: for, 102,088,512; discretionary or open, 89,101; against, 20,600; abstaining, 220,081. We now move to the special business of the meeting. The first special business is the approval of the Megaport Employee Share Plan. For resolution 5, I ask you to consider and, if in favor, to pass the following resolution as an ordinary resolution, that for the purpose of ASX Listing Rule 7.2 Exception 13, and for all other purposes, issues of equity securities under the ESP, the details of which are set out in the explanatory memorandum, be approved as an exception to the ASX Listing Rule 7.1. The ESP was last approved by shareholders in 2018. The ESP was established by Megaport to offer eligible participants across the business -- sorry, across Megaport's business, the opportunity to become shareholders of Megaport and enhance employee engagement by aligning employee interest with Megaport's performance and interest to shareholders. The directors unanimously recommend that shareholders vote in favor of this resolution. Are there any comments or questions on resolution 5?

No, there are no questions.

Okay. As there's no questions, the proxy votes received in relation to this resolution are now on screen. Voting exclusions apply to this resolution as set out in the Notice of Meeting: for, 89,641,141; discretionary or open, 89,308; against, 815,695; abstaining, 2,834,543. Resolution 6 asks you to consider and, if in favor, to pass the following resolution as an ordinary resolution, that for the purposes of ASX Listing Rule 7.2 Exception 13, and all other purposes, issues of securities under the Employee Share Option Plan General, the details of which are set out in the explanatory memorandum, be approved as an exception to ASX Listing Rule 7.1. The ESOP General was established prior Megaport's listing on the ASX in December 2015, and was last approved by shareholders in 2018. The ESOP General is designed to focus executives on delivering long-term shareholder returns and retain key employees of Megaport for the long term. The directors unanimously recommend that shareholders vote in favor of this resolution. Are there any comments or questions on resolution 6?

No, there are no questions.

Okay. As there's no questions, the proxy votes received in relation to this resolution are now on screen. Voting exclusions apply on this resolution as set out in the Notice of Meeting: for, 73,097,157; discretionary or open, 88,101; against, 16,418,000; abstaining 3,777,335. We've now got a resolution 7 regarding the grant of options to Nonexecutive Director, Mike Klayko. For resolution 7, I ask you to consider, if in favor, to pass the following resolution as an ordinary resolution, that for the purpose of ASX Listing Rule 10.14 and all other purposes, shareholders approve the grant of 100,000 options with an exercise price equal to the closing price of Megaport shares on the ASX on the trading day before Mike Klayko's appointment as a director being $11.78 and the issue of up to 100,000 Megaport shares on exercise of those options to Mike Klayko as detailed in the explanatory memorandum. The directors abstain in the interest of corporate governance from making a recommendation in relation to resolution 7. Are there any comments or questions on resolution 7?

No, there are no comments or questions.

As there's no further questions, the proxy votes received in relation to this resolution are now on screen. Voting exclusions apply to this resolution as set out in the Notice of Meeting: for 38,894,419; discretionary or open, 88,101; against, 51,529,380; and abstaining 2,788,787. It seems they really want you, Mike, but they don't want to pay for you. We now go to resolution 8 regarding the grant of options to Nonexecutive Director, Melinda Snowden. For resolution 8, I ask you to consider and, if in favor, to pass the following resolution as an ordinary resolution, that for the purposes of ASX Listing Rule 10.14 and all other purposes, shareholders approve the grant of 100,000 options with an exercise prior to the closing price of Megaport shares on the ASX on the trading day before Melinda Snowden's appointment as a director being $14.99 and the issue of up to 100,000 Megaport shares on exercise of those options to Ms. Snowden as detailed in the explanatory memorandum. The directors abstain in the interest of corporate governance from making recommendations in relation to resolution 8. Are there any comments or questions on resolution 8?

No, there are no comments or questions.

As there are no further questions, the proxy votes received in relation to this resolution are now on the screen. Voting exclusions apply to this resolution as set out in the Notice of Meeting: for, 38,883,330; discretionary or open, 88,757; against, 51,529,775; abstaining, 2,788,825. Same goes for you Melinda. We'll now turn to resolution 9 regarding the grant of options to Nonexecutive Director, Glo Gordon. Resolution 9 asks you to consider and, if in favor, to pass the following resolution as an ordinary resolution, that for the purpose of the ASX Listing Rule 10.14 and all other purposes, shareholders approve the grant of 100,000 options with an exercise price equal to the closing price of Megaport shares on the ASX on the trading day before Ms. Glo Gordon's appointment as a director being $18.43 and an issue of up to 100,000 Megaport shares on exercise of those options to Ms. Gordon, as detailed in the explanatory memorandum. The directors abstain in the interest of corporate governance from making a recommendation in relation to resolution 9. Celia, are there any comments or questions on resolution 9?

No, there are no comments or questions.

As there are no further questions, the proxy votes received in relation to this resolution are now on screen. Voting exclusions apply to the resolution as set out in the Notice of Meeting: for 38,885,046; discretionary or open, 88,366; against, 51,528,488 -- sorry, 51,528,488; abstaining, 2,788,787. For resolution 10, I'd ask you to consider and, if in favor, to pass the following resolution as an ordinary resolution, that for the purpose of Listing Rule -- ASX Listing Rule 10.17 and Rule 19.5(a) of Megaport's constitution and all other purposes, the maximum aggregate amount of directors' fees that may be paid to Megaport Nonexecutive Directors per annum as remunerated for their services be increased by $500,000 from $1 million to $1.5 million per annum. The Board is seeking to increase the director fee pool to provide headroom to allow for temporary fluctuations in the size of the Board to allow for additional committees or advisory boards and to allow for future increases in fees and to maintain market competitiveness. The directors abstain in the interest of corporate governance from making a recommendation in relation to resolution 10. Are there any comments or questions on resolution 10?

No, there are no comments or questions.

As there are no further questions, the proxy votes received in relation to this resolution now on screen. Voting exclusions apply to this resolution as set out in the Notice of Meeting: for, 91,132,707; discretionary, 98,894; against 334,455; abstaining, 1,724,631. We'll now turn to resolution 11 regarding the amendment of the constitution to ensure that Megaport can convene a virtual general meeting of shareholders. I ask you to consider and, if in favor, to pass the following resolution as a special resolution, that for the purpose of Section 136(2) of the Corporations Act and all other purposes, Megaport's constitution be amended in the manner set out in the explanatory memorandum effective on the day in which this resolution is passed. During the course of the current COVID-19 pandemic, Megaport has taken advantage of various legislative and other measures to allow the company to hold general meetings virtually using technology. Such measures are, however, temporary. The proposed amendments to the constitution will enable Megaport to continue to hold general meetings using technology either physical, hybrid or virtual after such measures have lapsed. While the Board's preference is not to hold virtual-only meetings, if that is possible, this change has been proposed to avoid legislative uncertainty moving forward. The directors unanimously recommend that shareholders vote in favor of resolution 11. Are there any comments or questions on resolution 11?

No, there are no comments or questions.

As there are no questions, the proxy votes received in relation to resolution are: 80,806,366; 111 -- sorry, 111,036 are discretionary and open; against, 20,312,403; abstaining, 1,198,499. For the final resolution, I ask you to consider and, if in favor, to pass the following resolution as a special resolution, that the proportional takeover approval provisions contained in Rule 15 of Megaport's constitution be granted in effect for further 3 years effective on the date of which the resolution is passed. Megaport's constitution currently contains provisions dealing with proportional takeover bids for shares in accordance with the Corporations Act. These provisions must be renewed every 3 years or they cease to have effect. The current provisions were last reviewed in 2018. The directors unanimously recommend that shareholders vote in favor of resolution 12. Are there any comments or questions on resolution 2?

No, there are no comments or questions on this resolution.

As there are no further questions, the proxy votes received in relation to this resolution are now on screen: 101,932,292; 98,974 are discretionary or open; against, 150,004; abstaining, 237,024. That concludes the items of business. In a couple of minutes, I will close the voting system. A reminder of the online voting instructions is now on screen. Please ensure that you've cast your vote on all resolutions. So I'll now pause for you the time to finalize those votes. I think I also might probably use some of this time just to say I'm obviously pretty disappointed with our shareholders who have treated the resolutions on the directors' options that are there. It's a very competitive market, and we've managed to get hold of some of the best people, I think, in the world and the industry and the space that we're operating in. And the message that's certainly being sent to myself and the Board and the executive and members there that we're actually not really in control at all of trying to get the best talent in the world. And to vote those resolutions down for 100,000 options issued at market, it's really not -- I think it's not really friendly to getting the best people in the world. And I think the situation with proxy advisers, they're incredibly found unfriendly. And I think they're very technology company unfriendly. I think I'll just let institutions know that one of the things that I've always enjoyed is bringing technology companies to the Australian Stock Exchange and to share in prosperity and innovation with institutions. And yes, I don't know why I'd kind of keep doing that because in terms of other businesses and things that are there because as a founder, my votes don't get counted, I'm excluded. And I think it's actually pretty disappointing. But it's up to the institutions to do what they want. I'll give another 30 seconds before I close the voting. [Voting]

Okay. Voting is now closed. The results of those votes will be released to the stock exchange later today. 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. We look forward to your ongoing support. Please stay safe, and I wish you the very best of health. And I hope we'll have the opportunity to meet you face-to-face in the AGM in 2022. This does bring the proceedings to an end, and I now declare the meeting closed. Shareholders are now invited to ask general questions about the business and management of the company. Celia, are there any general questions?

No, we've not received any questions on the general business of the company.

No more?

No more.

Okay. Well, thank you very much.