Megaport Limited (MP1) Earnings Call Transcript & Summary

Welcome to the Annual General Meeting of Megaport Limited. My name is Bevan Slattery, Chairman of the company. I'd like to begin by acknowledging and paying respects to the Turrbal people, who are the traditional custodians of the land in which Megaport's head office stands and which we're presenting from today. I'd also like to pay my respects to Elders, past, present and emerging, and to extend that respect to other Aboriginal and Torres Strait Islanders who are joining our Annual General Meeting today. On behalf of the Board and staff of Megaport, it's my pleasure to welcome you to our AGM for 2022. As we have a quorum, I declare the AGM open. I'd now like to introduce you to the members of the Megaport Board of Directors. Vincent English, our Executive Director and Chief Executive Officer, and I are together here in Brisbane. I also have Melinda Snowden, who's the Chair of Audit and Risk Committee. She's in the room as well. As this is a hybrid meeting, our other Megaport directors, Naomi Seddon, Jay Adelson, Mike Klayko and Glo Gordon, are joining us online today. Also here in Brisbane, we have Sean Cassidy, our Chief Financial Officer, at the end there; Emily McCaffery, our Company Secretary. [ Hamish Park ] from Computershare is also in the room today and is a returning officer for the meeting. I'd also like to introduce Richard Wanstall of Deloitte Touche Tohmatsu, who's attending online today. Richard is available to take questions on 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 the meeting, and I've not received any questions prior to the meeting. This meeting is being held as a hybrid meeting. In addition to shareholders and guests who join us in our Brisbane office, we also have shareholders and guests joining us online via the Computershare meeting platform. This online platform allow shareholders, proxies and guests to attend the meeting virtually no matter where they are located. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxies have the ability to ask question and submit votes. To ensure an orderly process, I will first take questions from the shareholders and proxies in the room. Please raise your hand if you have a question. Once you have the microphone, please introduce yourself with your full name and ask the question. After all the questions in the room have been answered, I will then ask for questions submitted online. Finally, I'll move to any questions that come through the phone line. Online attendees can submit questions at any time. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until a relevant time during the meeting. Please also note that your questions may be moderated if we receive multiple questions on one topic, amalgamate them together. Questions that have been submitted regarding other items of business will be held over until we come to those items, and general questions of the business -- of the company will be addressed after the meeting closes. For those shareholders who wish to ask a verbal question, an audio question facility is available during this meeting. To use a service, please follow the instructions written below the webcast. Finally, due to time constraints, we may not get to answer all of your questions. If this happens, we will answer them in due course via e-mail or posting responses on our website. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open voting on all resolutions. If you are eligible to vote, voting opens -- sorry, once voting opens, press the Vote icon, and all resolutions will be activated 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'll receive a vote confirmation notification on your screen. You can change your vote up until the time that I declare the voting is closed. For those in Brisbane, you have been issued with 2 voting cards, one for resolution 1 to 10 and one for the contingent item of business. Computershare will collect the card for resolutions 1 to 10 later in the meeting. Once the poll has been conducted on these items, this will determine if the contingent item is required to be put to the meeting or not. I'll now declare the voting open on all items of business. Proxy votes already received are contained in our presentation today and will be displayed on the 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 vote -- sorry, yes, I now declare the voting open on all items of business. The voting tab will soon appear. Please submit your votes at any time. I'll give you a warning before I move to close the meeting. I'll now give the Chairman's address. I'd now like to refer shareholders to the company's 2022 annual report, which is released on the 9th of August of this year. This included a letter to shareholders from me as well as the extensive information about the company and its operations. As set out in my letter, with the continued migration of enterprise cloud workloads from siloed on-premises infrastructure to hybrid and multi-cloud architectures, cloud is now an undeniable force in almost everything that we do. The question of whether businesses will adopt cloud is no longer up for debate. It's now a question of how many clouds they will adopt. In the face of rising global inflation and ongoing supply chain issues, cloud services are proving to be a critical means of growing the scaling businesses. The ability to minimize costs, deploy with a capital-light strategy and enable rapid services give businesses the edge they need through dynamic and shifting economic times. The massive growth in cloud adoption is fueling an ever-increasing dependence on critical communications infrastructure as data traverses between end users and public and private cloud locations. Megaport was built to solve this problem and founded at the junction where the network infrastructure and operations meet the next-generation software and automation. Our industry-leading Network as a Service platform was built for scalability, global multi-terabit capacity that reaches 25 countries. More than a means of scaling cloud connectivity, Megaport has become a fundamental part of solving the cloud interoperability. With services like Megaport Cloud Router, our customers directly connect public clouds together, all without the need to procure or deploy hardware. This means customers can simply -- sorry, simplify their operations while ensuring their multi-cloud environment performs and scales. Our company's innovation road map will continue to focus on automation and orchestration of network capacity, Network Function Virtualization and IT services discovery. We will also have focus on security capabilities with Megaport Virtual Edge integrations that bring Secure Access Service Edge, or SASE, capabilities through our platform. As Megaport grows, we are, too, committed to a holistic view of the company's impact on our customers, partners, employees and the global community. I'm excited to announce the release of our inaugural Environmental, Social and Governance Report published in September of this year. Our ESG report provides a view of our plans and actions to align our business towards a globally sustainable and equitable operations. Today, more than 2,600 customers and a leading ecosystem of cloud partners, including 20 Fortune 100 companies, trust Megaport to connect and protect their business-critical services. I'm very proud of Megaport's enduring drive to innovate and deliver value to our customers, partners and shareholders. I'd 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 the cloud. Finally, I'd like to address the first strike received at Megaport's AGM last year with concerns raised over aspects of the executive and nonexecutive remuneration arrangements. We've listened carefully to the feedback. To ensure the remuneration framework remains fit for purpose as Megaport transitions from start-up to a more mature ASX 200 company, the Board has undertaken a comprehensive review of the remuneration framework in 2022. We've responded by introducing a new executive STI framework, which will improve disclosure on outcomes in the 2023 financial remuneration report, introducing a formal LTI plan with consistent performance measures for executives at the end of a 3-year period and by moving from options to shares for nonexecutive directors in greater alignment with shareholders. The capital market has changed significantly in the past few months. It's clear that ensuring our working capital profile is healthy and sustainable is a top priority for our valued investors and for Megaport. The Board and I worked with the executive team to align our goals and programs to deliver a sustainable business model that focuses on profitability. I'd like to thank you, our valued investors, for your continued support of Megaport's mission to transform the way companies connect to the services that power their business. I'll now hand over to our CEO and Executive Director, Vincent English, who will provide his address. Thank you.

Good morning. Welcome to our Annual General Meeting. As the first mover and global leader in this Network as Service space, Megaport has built a unique technology platform. The global reach of our software-defined network, coupled with the leading ecosystem of service providers, has set the standard for cloud connectivity and on-demand data networking. With the direction of the Megaport Board, our goals for this fiscal year align to profitability and cash generation. The Megaport platform and the underlying business model have operating leverage built in, and we will continue to focus our efforts on growing revenue with our direct and indirect sales strategies and growing service uptake with more than 2,600 customers. I'm pleased to announce that Megaport has appointed our new Chief Revenue Officer, Jeff Tworek, whose official day was the 21st of November this week. Jeff's experience with leading and transforming global sales organizations and rapidly accelerating revenue growth will provide Megaport with a strong foundation to drive adoption of our platform globally. He brings more than 30 years of cloud and networking industry experience operating commercial business units within billion-dollar companies, including nearly 20 years at Akamai Technologies. Prior to joining Megaport, Jeff held the CRO position of Contrast Security. Jeff is based in Chicago, Illinois, U.S.A. and reports directly to me. As a global technology company, we have grown our platform to service 145 cities across 25 countries around the world. We have seen our customers growing along with us. Average revenue per customer grew 24% in fiscal year 2022. Companies of all sizes are taking advantage of Megaport's ability to connect to services and locations all over the world, powering multiregional IT architectures with cloud speed and with cloud ease. Increasingly, we are providing global solutions to global enterprises as reflected in the makeup of our customer base. Ultimately, Megaport is a global technology company on the leading edge of cloud connectivity. Our network infrastructure expertise allows us to build and operate one-of-a-kind, highly efficient global network with healthy operating leverage built in. With the continued rapid growth of cloud connectivity space, we have the scale and capital position necessary to drive our business to profitability. This will be a key focus for fiscal year 2023 as we continue to leverage our channel programs and operational efficiency. A key indicator of the value of the Megaport platform for customers is service adoption. Average services per customer increased 9% in fiscal year 2022. We drive more value by delivering features that allow customers to take greater control of their traffic and ease the job of getting connected. Our technology road map continues to drive new features that power greater control and simplifies overall operations. In addition to our existing cash position of $82.5 million at the 30th of June, we've also secured a new $25 million revolving credit facility, providing further flexibility in funding our growth. The team is highly aligned to grow our business through geographic expansion to key new markets, ongoing product innovation and operational efficiencies. These initiatives will continue to drive towards profitability. We remain highly customer-focused, and we're working hard to accelerate our leadership position in the Network as a Service space. 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 could not report the massive achievements we're reporting today. On behalf of the team, I sincerely thank you for your investment in Megaport. Thank you. I'll now hand you back to the Chairman.

Thank you, Vinny. We now come to the formal business of the meeting. As set out in the notice of meeting, there are 10 resolutions of ordinary business and special business to be considered today. The resolutions have been outlined in the explanatory memorandum that was included in the notice of meeting. Each resolution will be put to the meeting. Shareholders' questions that are submitted, which are relevant to the resolution, will be addressed by me. I'll then advise the number of proxy votes received for each resolution before moving to the next item of business. Each resolution set out in the notice of the meeting is to be considered as an ordinary resolution, as such, must be approved by a simple majority of the votes cast by shareholders. Once the voting is closed, Computershare, our share registry provider, will tabulate the results, which will be released as soon as possible today in the ASX. Those results will also be displayed on our company website once available. I'll now turn to the financial statements at Megaport. You have received the annual report of the directors, the auditor's report and the financial report for financial year ending 30th of June 2022. 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, accounting policies adopted by the company and the independence of the auditor carrying out the audit. Are there any questions in the room? No? Emily, any questions online?

Chair, there are no questions online.

Excellent. Finally, any audio questions? No?

We have no questions on the phone.

Thank you. As there are no more questions, I'll move on 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 the resolution is advisory only and does not bind the company or its directors. The resolution is that the remuneration report of the directors for financial year ended 30 June 2022 be adopted. The proxy votes are displayed on screen. Votes for, 71,465,579; votes against, 21,113,364; votes open, 135,736; votes abstaining, 48,903. Are there any questions or comments in the room? No? Emily, any questions or comments online?

There are no questions online.

And are there any audio questions?

There are no questions on the phone.

Thank you. As there are 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. The directors abstain in the interest of corporate governance from making a recommendation in relation to resolution 1. Resolution 2. For resolution 2, I ask that you consider, if in favor, to pass the following resolution as an ordinary resolution, that Mr. Jay Adelson, being a director who retires in accordance with Listing Rule 19.3(b) of Megaport's constitution and ASX Listing Rule 14.4 and being eligible, be reelected as director of Megaport. As set out in the notice of meeting, Jay is seeking reelection as a director of the company. Jay's background, qualifications and experience appear in the explanatory memorandum to the notice of meeting. For the reasons set out in the explanatory memorandum, Jay has the full support of the Board in his reelection. The proxy votes are displayed on screen. Votes for, 96,662,838; votes against, 1,050,823; votes open, 135,654; and vote abstain, 52,374. I'll now turn to questions regarding Jay's reelection. Any questions or comments in the room for Jay, Jay's resolution? No? Emily, any questions?

There are no questions online.

Computershare, any questions over the phone?

There are no questions at this time.

Thank you. As there are no further questions, the proxy votes received in relation to the resolution is on screen. The directors recommend you vote in favor of resolution 2. Resolution 3, the reelection of Naomi Seddon as a director. For resolution 3, I ask you to consider, if in favor, to pass the following resolution as an ordinary resolution, that Ms. Naomi Seddon, being a director who retires in accordance with Listing Rule 19.3(b) of Megaport's constitution and ASX Listing Rule 14.4 and being eligible, be reelected as a director of Megaport. As set out in the notice of meeting, Naomi is seeking reelection as a director of the company. Naomi's background, qualifications and experience appear in the explanatory memorandum of the notice of meeting. For the reasons set out in explanatory memorandum, Naomi has the full support of the Board for reelection. The proxy votes are displayed on screen. For, 93,297,091; against, 4,436,146; votes open, 137,354; votes abstaining, 41,098. I'll now turn to comments and questions regarding Naomi's reelection. Are there any comments or questions in the room? No? Emily, any questions online?

There are no questions online.

Computershare, any questions? Any audio questions?

There are no questions at this time.

Okay. The directors do recommend you vote in favor of resolution 2. Resolution 4, issue, transfer or allocation of Megaport shares to Mr. Bevan Slattery. We now move to the special business of the meeting. As the resolution relates to me, I now ask Naomi Seddon as lead independent director to address this item. Over to you, Naomi.

Thank you, Chairman. For resolution 4, 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 approved the issue, transfer or allocation of 6,027 Megaport shares to Mr. Bevan Slattery as detailed in the explanatory memorandum. Are there any comments or questions in the room?

No questions in the room.

Are there any comments or questions online, please?

There are no questions online.

Finally, are there any audio questions?

There are no questions at this time.

Thank you. 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. The directors abstain in the interest of corporate governance from making a recommendation in relation to resolution 4. Thank you. I'll now hand back to the Chairman.

Thank you, Naomi. For resolution 5(a), 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 10.14 and with other -- and all other purposes, shareholders approve the grant of 187,547 PRSUs, performance restricted stock units, to Mr. Vincent English as detailed in the explanatory memorandum. The proxy results are shown on screen. Votes for, 59,809,505; votes against, 32,759,568; votes open, 135,446; and votes abstaining, 69,563. Are there any comments or questions relating to resolution 5(a)? Any questions in the room? No? Any questions online, Emily?

There are no questions online.

Finally, any audio questions?

There are no questions at this time.

Thank you. Proxy votes received in relation to this resolution as they are on screen, I mentioned. Voting exclusions apply to this resolution as set out in the notice of meeting. The directors abstain in the interest of corporate governance for making a recommendation in relation to resolution 5(a). 5(b), the granting of RSUs to Mr. Vincent English. For the resolution 5(b), I ask you to consider, if in favor, to pass the following resolution as an ordinary resolution, that for the purpose of ASX existing Rule 10.14 and all other purposes, shareholders approve the grant of 46,877 RSUs to Mr. Vincent English as detailed in the explanatory memorandum. Proxy results are displayed on screen. For, 73,939,252; votes against, 80,690,440; votes open, 147,125; votes abstaining, 68,265. Any questions or comments on 5(b) in the room? No? Emily, any questions online?

There are no questions online.

Finally, any audio questions?

There are no questions at this time.

Okay. Thanks. No further questions. The voting exclusions apply to this resolution as set out in the notice of meeting. The directors abstain in the interest of corporate governance for making a recommendation on resolution 5(b). Resolution 6, issue, transfer or allocation of Megaport shares to Mr. Adelson. For resolution 6, I ask for you to consider and, if in favor, to pass the following resolution as an ordinal resolution, that for the purpose of ASX Listing Rule 10.14, 10.14, and all other purposes, shareholders approve the issue, transfer, allocation of 6,027 Megaport shares to Mr. Jay Adelson as detailed in the explanatory memorandum. The proxy results are displayed on screen. For, 91,514,631; votes against 1,050,233; votes open, 134,027; votes abstaining, 75,191. Any questions or comments on resolution 6 in the room? No? Any questions online, Emily?

There are no questions online.

Any audio questions?

There are no audio questions at this time.

As mentioned earlier, as there are no further questions, the proxy votes are on screen. Voting exclusions apply to this resolution as set out in the notice of meeting. The directors abstain in the interest of corporate governance from making a recommendation in relation to resolution 6. Resolution 7, the issue or transfer of Megaport shares to Ms. Naomi Seddon. For resolution 7, 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 10.14 and all other purposes, shareholders approve the issue, transfer, allocation of 6,027 Megaport shares to Ms. Naomi Seddon as detailed in the explanatory memorandum. The proxy results are displayed on screen. Votes for, 91,505,327; votes against, 1,058,126; votes open, 135,340; votes abstaining, 74,589. Any comments and questions on resolution 7 from the room? No? Any questions online?

There are no questions online.

Any audio questions?

There are no questions at this time.

Okay. Thank you. As there's no further questions, the proxy votes, as I said, are on screen. Voting exclusions apply to this resolution as set out in the notice of meeting. Directors abstain in the interest of corporate governance from making a recommendation in relation to resolution 7. Resolution 8, the issue, transfer, allocation of Megaport shares to Mr. Mike Klayko -- Michael Klayko. For resolution 8, I ask to consider and, 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 issue, transfer, allocation of 6,027 Megaport shares to Michael Klayko as detailed in the explanatory memorandum. The proxy results are displayed on screen. Votes for, 91,512,482; votes against, 1,050,812; votes open, 135,547; votes abstaining, 75,241. Any questions on resolution 8 in the room? Okay. Any questions online, Emily?

There are no questions online.

Any audio questions?

There are no questions at this time.

Okay. As there's no further questions, the proxy votes received, as I said, are on the screen. Voting exclusions apply to this resolution as set out in the notice of meeting. The directors abstain in the interest of corporate governance from making a recommendation in relation to resolution 8. Resolution 9, issue, transfer, allocation of Megaport shares to Ms. Melinda Snowden. For resolution 9, 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 issue, transfer or allocation of 6,027 Megaport shares to Melinda Snowden as detailed in the explanatory memorandum. The proxy results are shown on screen. Votes for, 99,508,321; votes against, 1,057,172; votes open, 134,350; votes abstaining, 74,239. Any further questions -- comments or questions on resolution 8 from the room? No? Emily, any questions online?

There are no questions online.

And finally, any audio questions?

There are no questions at this time.

Thank you. As there's no further questions, as I said, the proxy votes are on screen. Voting exclusions also apply to this resolution as set out in the notice of meeting. The directors abstain in the interest of corporate governance from making a recommendation in relation to resolution 9. Resolution 10, the issue, transfer or allocation of Megaport shares to Ms. Glo Gordon. For resolution 10, I ask you to consider and, if in favor, 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 issue, transfer, allocation of 6,027 Megaport shares to Ms. Glo Gordon as detailed in the explanatory memorandum. The proxy results are shown on the screen. Votes for, 91,509,191; votes against, 1,039,109; votes open, 151,153; votes abstaining, 74,639. Any comments or questions on resolution 10 from the room? No? Any comments or questions online?

There are no questions online.

Finally, any audio questions?

There are no questions at that time.

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. The directors abstain in the interest of corporate governance from making a recommendation in relation to the resolution 10. We're just going to open the -- any comments or questions in the room on general items of business relating to the AGM. We will have some Q&A that we'll do while the votes are being tallied. But are there any other questions people have about the conduct of the AGM so far? Anything, Emily?

No.

Great. I'd like to advise you that voting on all resolutions will close shortly. I'll provide you with a few moments now to finish your voting. Please finalize your voting either by using the poll cards if you are here in Brisbane or using the online voting process if you're joining virtually. Please complete your voting now. [Voting]

Okay. With that, I now declare the poll closed. Computershare will now tally the poll to determine the result of voting on resolution 1. This could take 10 or 20 minutes. We'll now take a short break. During this break, I'll answer any kind of general questions that you might have. Just general questions that you might have on the business. Anyone? It's what happens when Nick Harris isn't here. Okay. Here we go.

Bevan, [ Mike Finley ], shareholder. Thanks so much for the last 12 months, and Vincent as well and your team. I feel like the business has come a long way even if the share price has gone the opposite way. But that happens in listed companies. I think you haven't been influenced by it, and you've kept on persevering and pushing the business forward, which is great to see. I guess my question will be, though, around the amount of short interest that's in the stock. And I guess it's probably borne a bit out of people's concern around CapEx and sufficient capital to move to breakeven. I guess if we had to be critical, there's a lot of people out there who have heard of the stock who have extrapolated your capital expenditure and how it's being reported through the last 12 months. Is there any plans to do things differently, report capital expenditure differently? And then I guess the other side of spending, it's also revenue. And in an environment where the global economy looks to be weakening, I guess when we started this journey with you, we saw this as a business that would probably see greater support when people were worried about costs within businesses and a way of actually reducing their costs by flexing up and down with your services. Has anything changed in the last 5 years? Are you still convinced that from a top line perspective that the tougher that the times are for the global economy, the better it should be for Megaport? So like [ Nick ], I've wrapped about 3 questions in that one.

Very well done, just as Nick would do. Yes, good question. I think -- I've had a lot of phone calls with shareholders over the last probably 2 weeks just leading up to AGM as you do. The capital one is one that's actually kind of raised its head. There was obviously a big CapEx in Q1. One of the things that we will do the next time we come out with our release is give a lot of transparency around where CapEx has changed. The one -- a couple of things on CapEx that made that kind of Q1 a fairly significant number and probably from an adjustment standpoint. We've had kind of normal business as usual that we kind of do both in software development but also just kind of site expansion. But there's 2 major projects that we've disclosed in our -- I think just about every kind of deck that we've had. One is the 400-gig upgrade. So basically, what happens in the most dense metros or the most dense markets that we're at, we have to do an upgrade of the core network or we want to do an upgrade of the core network. And that's for a couple of reasons. One, the 100 gig is probably not enough for the core of the network. So we've had a 400-gig program to do that. A significant amount of infrastructure came in last year and Q1 to deal with that. There's is a little bit in Q2, but that's pretty much done for the year. And that's actually -- we'll do another one in Q1 next year, and that's to do the next probably 10 to 20 markets out of that. So that's a -- there's a few million dollars in that as well. Secondly is -- I'll go through the different other projects. The other project, we've done a really big upgrade of all our edge locations. I'll get the numbers -- and we'll disclose this in a much more kind of transparent way. Just about every edge that we've had, what we call the old Juniper edge you're sitting at, we've replaced. And that's a really big, long, laborious process. And the reason it's done is that some of the equipment is 5 years old, 6, 7 years old. And the challenge you have with that is that the uplinks and capacity is still good from a client but not from a backbone. But the other problem is just there's a number of features and services that we want to enable moving forward in FY '23 that those edge devices didn't support. So then it's actually really -- it's not as easy swapping out a bit of equipment because all our customers are connected to those edges. So we actually have to do a whole -- not just replace the piece of equipment. But there's a whole program of actually disconnecting every port, which have customers live on it, and migrating them to new ports. That program, I'll verify what the number is, and we'll do that as part of a more formal presentation. But we're way through the vast majority of that program. And that's been a big kind of cost for us over the last probably 18 months. Some preordering of equipment. We went through inventory. We looked at the hardware compute platform we had for MCR. We've got probably -- we had about more than 12 months inventory available to us. I think we're -- anything that's more than 12 months, we're actually working to hand back some of that equipment. But again, that was a prebuying with COVID, kind of getting through supply chain issues. And so we preorder to make sure we have plenty. So the kind of CapEx number was higher because there's kind of big projects that we're working on culminating and kind of coming up to that last element, getting across the finish line. So we'll actually give a really firm number on where CapEx is going to be for this year, and we'll probably look at giving guidance on what CapEx number is going to be next year as well. So we've already got it internally. We want to make sure we get it right. But what it should show and hopefully what we hope that will demonstrate is that the CapEx of some of the previous years, particularly in hardware and equipment, is actually going to come down a fair bit -- or come down a bit because those 2 major programs have been done. We shouldn't have to get and replace a whole bunch of edges now for a number of years. So we'll still do the normal business as usual replacement but not a big kind of forklift upgrade. So that's kind of the CapEx side of it. The revenue side -- and so I think to your point in terms of the levers that are there, the other levers we have is cost. We're doing a big cost review right now, which we'd do every probably 2 years. The business grows. We expanded the locations. We do all these kind of things, and then there's a really good opportunity to start, pause. [ I want to ] say cost. Just network efficiency. So we did this back in June 2020. We just look at our network architecture. We look at how we're doing it. We look at how we're buying, and then we kind of go through a program. We do a whole bunch of cost out as well as that. So that program is pretty well underway now, and we'll do that. I expect the heavy lifting on some of that will be finished by the end of the year, but the implementation of the saving will kind of happen after that, and it will happen over 6 to 12 months. On the revenue side, obviously, that's the other lever that's really important, is the more revenue we have. So we've obviously given our Q1 result and how that's going. You saw the revenue lift up quite -- really quite nicely. And what we're finding is now a bifurcation of it's not just about ports, it's actually about services. So whether it's VXCs or MCRs or MVEs, people consuming more product and service, a combination of new customers adding on buying services, but existing customers keep kind of building up. And one thing we've made sure we try to do is give you that cohort report and the analysis of that. Seeing when customers are here, once they're here for 12, 18 months, 2 years, once they've really embedded it, they remain with us in an incredibly sticky way and probably the stickiest of any business I've been involved in, except for probably the cigarette industry, I suppose, which is not what I want to be with. Yes?

Just new business with the tougher economic outlook as well. Just in terms of new business development in a tougher economic outlook for the world, does that play into your favor?

Look, I can only talk anecdotally or what I personally feel. We'll know in the next 12 months. We've seen it before previously when people really had to go more into a utilization-based process rather than just buying hardware and managing it themselves and doing all those sorts of things. I don't see any material change in organizations virtualizing their digital infrastructure. It sounds a bit basically buying a more on-demand service that can scale up and scale down. When I started this business, I basically wanted to do the connectivity, what Amazon did to cloud, which is completely virtualize it and allow the end user to not just configure but to dial it up and dial it down. We haven't seen existing customers slow down on what they're doing. They continue to consume more, and you saw that in the last 4 quarters. So I think some customers will absolutely -- across the board, every business will be looking at how they can save pennies here and there. But my personal view of that is I don't think that the connectivity of $200 VXE here or there is going to be the thing. They might reduce some of their cloud spend here or there, but what we're connecting people to is generally their core infrastructure that runs, whether it's their office productivity or their hosted compute platform with those large providers. We're not necessarily -- and we're providing Internet exchange connectivity in some applications, but not so much. It's really that core infrastructure, I think. So I'm reasonably optimistic that we'll be okay in this period, and I think -- I'm hoping there will be some more growth in that space. Okay.

Can I just add a little bit? Sorry. Yes. So on that latter point, Bevan is correct. What we're seeing is there may be a slight pause, and people are rethinking because of interest and inflation, and what they are looking at is not spending big checks for CapEx. And so our platform and increasing our service and the ease of use plays into that space, and that dynamic hasn't changed. That's important to remember that. And we don't see it, but what we are seeing is some of our existing customers continue to grow their business with Megaport. And that's the products and services that we're adding, the geographic footprint, all of the cloud on ramps that we have in our business that's allowing them to get to that connectivity. And obviously, we're becoming more relevant at the edge as well because of the way our data centers are all connected globally. So they're not out in Tier 1 markets. They're out in Tier 2 and Tier 3. That's what we're seeing with our SD-WAN products, that most manufacturing businesses, pharmaceuticals, health care, they're not in the middle of a CBD or a C. They're 20 miles outside. And so getting connectivity from there to a cloud still hasn't changed. So the dynamic hasn't changed.

We got a question online?

We do have a question online from [ Nicolas Harris and Elena Harris ]. Congrats on the appointment of your new Chief Revenue Officer, Jeff Tworek. Can you please provide a bit of detail on what Jeff did and as well as prior to joining Megaport? Also, I appreciate he only joined a few days ago, but does Jeff feel he needs to make big changes to the current sales model of Megaport? Or is his role more about expanding what you already have in terms of systems and processes? Thank you.

Yes, yes. So Jeff has -- like I said earlier on, he spent over 20 years working for Akamai. They started out in Akamai very much like Megaport. It's a start-up business, very small, had to restructure and build it up into over $4 billion company. He ran sales organizations across North America and Europe and globally as part of his expansion into his role and like has been very successful building a business from a couple of million up to over $4 billion in revenue. And yes, he has -- both sides of his experience has dealt with not just direct selling organizations but also indirect selling organizations, which is what we've developed and put together in Megaport. And so he's going to have to -- he's going to be working on continuing to work on those, both those. And yes, as part of a continuous, I suppose, evolution and improvement, we will always continue to look at improving our sales organization and how that performs and who our partners are and how we sell. So he'll be instrumental in helping us to drive that going forward.

Question?

There's no further questions online at the present.

Okay. Anyone in the room?

Bevan, this is [ Michael Tonn ], shareholder. When the announcement was made quite some time ago about the relationship with Cisco and some of these partners, there was a lot of excitement at that time. But it seems to me that it probably hasn't really -- either it's been slower than what was expected or -- can you just give some comment on how that is progressing? I know there's been some information release, but as I said, it seems to have been a lot -- the take-up has been a lot slower than what was expected -- seem to be expected at the time.

I'll let Vinny talk probably a bit more detail about that in a moment. But I mean one of the things that we've done with MVE is -- MVE is a product that we've realized actually takes -- the solution isn't that they're going to pick Megaport or not. They're generally happy to make that decision, but they're actually making a decision on which firewall platform, how we're going to deploy it. We're actually kind of waiting in many ways for the equipment they deploy at the edge and how they do all that. And we're kind of like, okay, yes, great, we're happy with MVE because we're using Fortinet or we're using Cisco or whatever it might be, Viptela. But there's actually -- those projects are a much longer lead time. So part of it, what we're seeing is just those projects take longer for them to kind of fall and close. But yes, in terms of that, I think it's also fair to say we haven't seen the take-up yet that we were expecting earlier on. And we're obviously dealing with -- talking with those organizations about how we can make sure the potential that's realized. Vinny, talk to the rest.

Yes, sure. So as part of that process, if I look at normal Megaport services that we're able to provision pretty much in minutes, with an SD-WAN solution, each customer has to buy its own CP or hardware and has to build and decide what -- signing up to an MVE is the very last component of that solution. So we're interdependent on a lot of stuff that the customer actually wants to do with its other vendor, say, like someone like Cisco or with -- and lead times and ordering hardware that they've got to deploy before they can connect to an MVE. So it's a much longer sales cycle, but we're also interdependent on our enterprise customers to actually fulfill a lot of other work before we can bring on MVE. So it is a little slower than we originally anticipated. But at the same time, it's still a real solution. We're still adding more customers and MVEs into our network, and they do tend to be a lot bigger sales because of the number of connections that it brings and also the fact, again, leading into why a branch to cloud is the solution and why it's important. So there's a lot of logistics and planning that needs to take place in the IT side of the enterprise customer to make sure they build it correctly. But then once you stand it up, it stays. It's extremely sticky because you're connecting lots of facilities together with the SD-WAN product to connect to cloud.

Thank you. One more?

[ Tony Dennis ], shareholder. Can you comment on the global competitive landscape? And you talked earlier about you have upgraded stuff at the edge, et cetera, technological changes. Are people able to catch up more easily to Megaport now?

I mean from my standpoint, I really haven't seen it. A combination of the coverage we have, the neutrality we have, the platform we've built, both the geographic and cloud coverage that we've got. The people that are out there, it might seem easy to go, I'm going to build a platform like this. The problem is it's generally a data center operator that just don't have the coverage that we have. It might be a network provider say we're going to go and provide this, and we haven't seen one of those succeed yet. So at the moment, we're still not seeing any significant competition at all in the space. A big part of that is because -- the product that we have and how much our customers embrace and adopt. But as I said, the coverage, the neutrality and the brand recognition as being the leader in the space, we haven't seen that much competition at all. That's from my standpoint.

Yes. I agree with that. And also just from an overall industry point of view, there's been a lot of news recently about cloud providers and potentially layoffs. We've seen it all in Bloomberg and CNBC, et cetera. A lot of that work is not in the cloud space. If you actually pay attention to where it is, it's like around the gaming side of things, or it's in Amazon on the retail side of their business. But the actual cloud and specifically speaking to the industry, 72% of our connections connect to one or more cloud provider. And so the key thing for us is we obviously work with them very strategically in terms of where they're going on the on-ramps. And we are a very key partner, and that hasn't changed. And in fact, the actual spend in cloud continues to increase, albeit the numbers are getting bigger. The percentages are still big, right? So we're part of that. That's our industry. That's where we play. So there's no real changes that we're seeing, and we're certainly not hearing it from them about any changes. But the big news, headline items that were in that space are not related to cloud.

Any more? Okay.

Just in terms of services, obviously, the more services customers buy, the better it is for Megaport. The business started out with a single service almost in the beginning, and now we're up to about 5 or 6. How many different types of services do you see Megaport maturing into?

Yes.

And maybe I should just rephrase that question. Without any sort of major capital expenditure that comes with it.

Look, that's the one good thing about MVE, for example. Megaport Cloud Router was actually the first product on MVE. So basically, we have the connectivity platform that sits underneath. Then we have our virtual hosted infrastructure where that Megaport Cloud Router will spin you up, a router that directly connects to our interconnection platform so it can connect multiple clouds together. We realized that we had MCR sitting on top of our connectivity. We realized it's actually the first application that sat on MVE. So MVE right now, focused on cloud router and basically managing SD-WAN from different applier, have an aggregation device -- virtual device that sits there. As in the speech presentation, we're looking at the areas around security, SASE-type side of things. So we keep evolving that. And I think there was a couple of lines in the presentation we spoke about, which is around discovery. Megaport ONE is going to be a really key part of that because it has 2 kind of main real strong benefits. First is we can actually help our largest partners and customers create a branded experience for them that they can actually, with a very consistent brand, rebrand it with them, still powered by Megaport. Order and provision services is really elegant, really simple for us to help that configure. But the second part of that, which is probably more for an FY '24 conversation, it's around -- when we acquired that business, which powers our [ company called ] InnovoEdge. They have a really amazing ability to discover elements beyond just network but also cloud and to visualize that and to orchestrate that. So I don't -- we're not talking, that I'm really aware of, in the next 6 months at all, certainly. I don't see any really big heavy lift in terms of we're going to do this thing and it's going to require a hell of a lot of compute or a hell a lot of this or that. It's more around software features that sit on the infrastructure we've built. So there's a couple of pieces in that presentation that I made in my Chairman's remarks that kind of indicate where that is, and I think MVE and security but also I think Megaport ONE is a really interesting part where today, Megaport, you can see all the things that you do within Megaport, and there might be -- we're investigating the ability to have that where you can actually look at all your cloud resources. And like we said, when we acquired it, Megaport takes it to the cloud. Megaport ONE can take you through the cloud, and I think that's something we'll be focusing more on next financial year. Cool. Okay. I think that's it. We might pause it for now. And I think we're still waiting for the votes to come in. So I assume it must be pretty close by now, and we'll go from there. Okay. Won't be a moment. [Break]

I'm informed by our returning officer that resolution 1 has been passed. This means that the business of the meeting has now been concluded. The results will be announced to the ASX later today. As there are no further questions, I thank everyone for their attendance and ongoing support of the company and wish you all the very best. I now declare the meeting closed. Thank you.