Megaport Limited (MP1) Earnings Call Transcript & Summary

Thank you. Good morning, and 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 my respects to the Turrbal people, who are the traditional custodians of the land in which Megaport's head offer stands and where we're presenting from today. I'd also like to pay my respects to Elders, past, present and to extend that respect to other Aboriginal and Torres Strait Islanders who are joining our AGM today. On behalf of the Board and staff of Megaport, it's my pleasure to welcome you to our AGM for 2023. As we have a quorum, I declare the AGM open. I would now like to introduce you to Megaport's Board of Directors. Michael Reid, our Executive Director and Chief Executive Officer, and I together here in Brisbane. I also have Melinda Snowden, our Audit and Risk Committee Chair in the room -- sorry, in the room. As this is a hybrid meeting, our other Megaport directors, Naomi Seddon, Jay Adelson, Mike Klayko and Glad Gordon will be joining us online today. Also here in Brisbane are Leticia Dorman, our Chief Financial Officer; and Celia Pheasant, our Company Secretary. Jessie Yerma from Computershare is also in the room today as a returning officer for the meeting. I'd also like to introduce Richard Wanstall from -- of Deloitte Touche Tohmatsu. Richard will be available to take questions on the conduct of the audit and the preparation of the content of the independent external auditors report. We have not received any apologies from shareholders unable to attend the meeting and have not received any questions prior to the meeting. This meeting -- sorry, this meeting is being held as a hybrid meeting. In addition to shareholders and guests who are able to join us in the Brisbane office, we also have shareholders and guests joining us online via the Computershare meeting platform. This online platform allows 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 questions and submit votes. To ensure an orderly process, I'll be taking questions from shareholders and proxies in the room. Please advise -- sorry, please raise your hand if you have a question. Once you have the microphone, please introduce yourself with your full name and then ask your question. After all questions in the room are answered, I will then ask questions to be submitted online. Finally, I move to audio questions that came through. 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 the relevant time during the meeting. Please also note that your questions may be moderated or if we receive multiple questions on 1 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 on the business of the company will be addressed after the meeting closes. Finally, due to time constraints, we may not get to answer all of your questions. If this happens, we'll answer them in due course via e-mail or by posting on our website. Voting today will be conducted by a way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. If you are eligible to vote, once voting opens, press a vote icon and all resolutions will be activated with voting options. To cast your vote, simply select one of those options. There is no need to hit a Submit or Enter button as the vote is automatically recorded. You will receive a vote confirmation notification on your screen. You can change your vote up to -- sorry, you can change your vote up until the time that I declare voting closed. For those in Brisbane, you have been issued with a voting card. Computershare will collect your completed card -- voting card later in the meeting. The proxy votes already received are contained in our presentation today and will be displayed on screen at the appropriate time. All open proxies will be voted by me in favor of the resolution to the extent I'm permitted to do so. I now declare voting open on all items of business. For online participants, the voting tab will soon appear. Please submit your votes at any time. I'll give you a warning before I move to close voting. I will now give the Chairman's address. I would like to refer all shareholders to the Company’s 2023 Annual Report, which was released on the 22nd of August this year. This included a letter to shareholders from me, as well as extensive information about the Company and its operations. As set out in my letter, 10 years ago, a handful of talented and passionate people set about building a business that we believe could transform the way enterprise customers connect to the cloud. We saw there was an opportunity to build a platform that was so unique, that no one had ever considered it possible. Our vision? To do the networking what Amazon did to compute. Totally automated, virtualized and on-demand. From these humble beginnings in a small office around the corner here in Fortitude Valley, we started executing on that vision. Fast forward 10 years and that startup is today in ASX200 company, exiting FY '23 with an annual recurring revenue run rate of $178.6 million and connecting to all the major cloud providers around the world. This little Australian company pioneered Network as a Service as it is today, the leading independent provider of Network as a Service worldwide. The past 10 years have been extraordinary, filled with many amazing stories, supported by so many remarkable people. As the say, "It's often more about the journey than the destination." In our case, there was no path to follow. We were leading the way in almost every respect. So the journey has been difficult at times, but also incredibly rewarding as we delivered on our vision. It almost seems fitting and ironic for me that the tenth year as the company has been probably the most challenging yet simultaneously possibly the most inspiring. But above all, FY '23 for Megaport has been a year of transformation. Today, we find ourselves with a business that's EBITDA positive, generating cash and with a new streamlined focus and invigorated Executive team. We've delivered a significant upgrade in earnings, outlook and trajectory, an annual $30 million cash flow improvement in less than 6 months, and our first net cash positive quarter in history. In March, the company appointed a proven technology and SaaS leader, Michael Reid, as Chief Executive Officer. Since committing his role as CEO in May, Michael has already had significant impact on Megaport. His experience and energy are greatly welcome by the team with his openness and his inclusive leadership style. A big thanks, especially to the Megaport team who worked tirelessly to implement the transformation over the past year. On behalf of the Board and shareholders, a big thank you. I would also like to thank you, our shareholders, for your ongoing support and belief in our business as we continue to revolutionize the way the world connects to and through the cloud. Finally, I'd like to personally thank our Board. I'm genuinely humbled by the extraordinary people around our table, and I really wish to thank you for your trust and support. It has been a particularly challenging year this year, but we've come together as a Board and done what we needed to do and a really big thank you to everyone. I'll now hand over to our CEO and Executive Director, Michael Reid, who will provide his address.

Well, thank you, Bevan, and thank you for joining us here in the room and online. So over a decade ago, Megaport disrupted the market, inventing the cloud interconnect and Network as a Service space. We have since built out an unrivaled platform in 800-plus data centers across more than 150 cities spanning 25 countries with 284 cloud on-ramps servicing 2,856 diverse customers. In FY '23, the world faced a challenging macro environment. Yet Megaport proved to be the 'must-have technology', with large customer churn, strong expansion and an essential component of our customers' digital infrastructure. This saw us celebrate record revenue of $153.1 million, up 40% year-on-year, an exit annual recurring revenue of $178.6 million, up 39% year-on-year and an incredible $20.2 million of normalized EBITDA, our first ever positive year. Strong revenue growth coupled with improved operating efficiencies resulted in a tremendous turnaround for the company's financial position. In Q4, we announced our first ever quarter of positive net cash flow and more importantly, guided that FY '24 will be cash flow positive, excluding any strategic investments. As we progress further into FY '24, we remain focused on achieving sustainable and profitable growth with the company continuing to return record EBITDA and positive net cash flow performance in line with our guidance. Since signing on in March 2023, I was welcomed by a passionate world-class team with a firm belief in the transformative value that Megaport brings to our customers. Today, our product and engineering teams remain committed to innovation, relentlessly improving and enhancing our platform even further, continuing to push the boundaries of what is possible. With the recent announcement of Megaport Reach, we're preparing to expand into new data centers, sustainably unlocking new markets. We're also driving an Internet exchange expansion throughout the U.S., having already launched in Charlotte and will roll out 8 additional locations by the end of third quarter FY '24. We recently shared details of Project Centurion, which provides our customers the ability to upgrade to 100 gig ports, enhancing their cloud connection capacity tenfold and catering to the world's increasing AI connectivity speeds and needs. Starting this month, we will be offering virtual cross connects up to 25 gig across most major locations globally and up to 100 gig across select markets early in the new year. Global WAN as a Service also launched recently, adding to our ever-expanding suite of innovative products and solutions, allowing our customers to utilize the power of the Megaport platform to enable their hybrid cloud, cross cloud and global WAN requirements. And with our new Internet product launching soon, customers will also be able to add enterprise Internet to their network in less than 60 seconds. I'm honored and grateful for the privilege to lead the Megaport team through this pivotal next chapter by solving complex problems for our customers, profitably scaling our business, including expanding into untapped new markets and ultimately driving enduring value for our shareholders. Thank you to all staff for your dedication to executing through the transformation, which saw us enjoy a strong finish to FY23. On behalf of all of us, I want to extend a sincere thank you to you, our shareholders, for your support.

Thanks, Michael. I will now come to the formal business of the meeting. As today, on the Notice of Meeting, there are 5 resolutions of ordinary business and special business to be considered today. The resolutions have been outlined and explained from memorandum that was included in the notice of meeting. Each resolution will be put to the meeting. Shareholders' questions as 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 civil majority of votes cast by shareholders. Once the voting is closed, Computershare, our registry provider, will tabulate the results, which will be released soon as possible on the ASX today. Those results will be also displayed on our company website once available. I'll now turn to the financial statements of Megaport Limited. You've received the annual report of directors, the auditor's report and the financial report for the financial year ending 30th of June 2023.

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. Are there any comments or questions in the room? We have got one.

Good morning. My name is Paul Donahue, and I represent the Australian Shareholders' Association today. So I'm holding the 1,000 proxy votes today. My first question is about the Q1 update and the share price crash had happened immediately afterwards. Do you have any...

Sorry, it needs to relate to the audit report. Okay. It's the financial statements that's contained in the annual report, not kind of ASX. We can hold that on to later, if that's all right.

So the second 1 is from the annual report. It's about ports versus MCRs versus MCEs.

Yes. This really relates to the annual report and the financial statements contained in your report. And the process of the audit and the auditor, it's really right for those questions. General business questions that come from ASX things for later. Any questions online?

No. There are no questions online.

I mean just to clarify, the -- and sorry, we absolutely take those questions. They are good question, I'm sure. The invitation was comments or ask questions of the reports of the company that contained in the annual report. Questions may also be asked to the auditors and the conduct of the audit report, accounting policies by the company, independence of auditor in carrying out of the audit. So any questions online?

No, there's no questions online. Any other audio questions? Operator?

There are no telephone questions at this time. Thank you.

If there's no more questions, we'll move on to the formal resolutions. The first resolution of the Notice of Meeting is an unbinding resolution to adopt the remuneration report. Please note that the vote on this resolution is advisory only and does not bind the company or its directors. The resolution is that the remuneration report of the directors for the financial year ended 30th of June 2023 be adopted. Are there any comments or questions in the room? Yes.

This is about the rem report. So specifically FY '22 AGM concerns. The rem report says that the FY '23 framework seeks to address concerns raised at the 2022 AGM. For those of us who are not at last year's AGM, could you summarize what those concerns were?

Concerns are around -- from memory, were around KPIs, especially the linking of KPIs and also providing a bit more transparency on the restructuring of remuneration report. So when we look at the rem report now in the AGM -- sorry, the rem report that was provided, we've aligned more transparency around the STI, the LTI and provide more transparency on the -- from -- more transparency on the KPIs that relate to?

Just an observation, not a criticism. I chatted with your CFO earlier on [indiscernible] moments about the CEO's FY '24 total opportunity? So can you confirm if my understanding is correct that the CEO's total opportunity for FY '24 through '26, which is the subject of this rem report. If Michael meets his targets, he gets fixed remuneration each year of $1 million. STI is 100% of that in the first year, 50% in the next 2 years and LTI is 225% of 1 year's fixed rem. But it's only paid at the end of the 3 years. And fixed rem is paid in cash and the other components paid in equity. I'm just trying to summarize the rem report into short paragraph.

Summarizing something that's in a report on a short paragraph can be dangerous because it's in detail in the report probably for a reason. But I can only really, I suppose, relate to what's in the report is what it is getting. Certainly, he gets a base remuneration. That sounds about right. In terms of that, the -- so that sounds right. And from an STI standpoint, it sounds pretty accurate as well. And the opportunity for him really is to hit the targets on the STI, LTI that will then -- and the share price improvement that should come with that. And then, yes, he get the RSUs.

If that's correct, then the total opportunity over 3 years is $7.25 million with a skew towards next year to reflect the opportunity cost you [indiscernible] moving from your previous employer.

Over the years?

Over 3 years.

Yes, it sounds about right.

So the summary is Michael's [indiscernible]?

I don't -- I don't think so. No.

Total vendor report suggests that the fixed rem is lower, which is true, but the total rem is slightly higher.

The at risk component is higher, yes. The non-at-risk component is lower. The at risk might be higher, but not by anything much. So if he achieves all these targets and exceeds everything, then he will probably be about the same, if not slightly higher. If he underperforms compared to previous, then who is actually lower. And we actually dialed back some of the guaranteed components.

And all that was just an observation, not a criticism. It's good.

No, no, no. That's good. Yes. No, thank you. So Excellent. Thank you. It's all contained in the Rem Report.

Bevan, I guess it was more just around the LTI structure. There was -- I spoke to Steve about it. I think, a couple of weeks ago, but I just wanted to hear from your perspective, I know a lot of companies and boards using relative total shareholder return as a component of an LTI. But I wanted to hear your perspective on why you think it's an acceptable component of the LTI. What the rationale is, I guess?

I think we're still beaten by proxy advisers, that's what we had to do. So I think that's probably why we came to that conclusion.

Do you think 3 years is too short or not enough time for relative total shareholder return. Given we've seen the last 3 years, anything can happen, market sentiment changes quite drastically. And it's -- I feel from my perspective, would be unfair to penalize, I guess, Michael, on his efforts over the next 3 years on something that's kind of out of his control market sentiment versus the operations of the business over a longer term that should shine through but 3 years, I guess, is a short period of time. We'd love to hear your thoughts independent of Rem Report.

Yes. Look, 3 years seemed to be the number we could land on. And obviously, currently share price is up from where it was then. So it was a number that we landed on as part of the total rem package. It's -- it was a horizon that we thought was achievable for the next phase of growth of the business effectively. And then to your point, things can actually change more in 3 years in terms of products. So this year is certainly a year of transformation. The next year is that year of -- well, sorry, calendar year is kind of like the year of transformation, I suppose, is the right way to put it. From a financial year that we're in now, it sets that transformation back into growth is really what we're looking at by the end of this financial year. And then for the next 2 years, effectively, we should be seeing the fruits of that growth and not just in terms of sales and -- but also in terms of product. And yes, I think 3, it's a good horizon. Any other questions? Anything online?

We've received a question from Stephen Maine. Would you like me to read out the question or do...

Is it this 1 here? Okay. On the rem. Okay, which proxy advisers are covering this. Actually, there's two. Did any of the 5 main proxy advisers, ACSI ,Ownership Matters, Glass Lewis, ISS and ASA recommend a vote against any of today's resolutions, including the rem report? If so, what reasons do they give? We did have some proxy advisers vote pretty much, I think all 4. We had some vote some against. Some was on the LTI. Some was on the rem report more broadly. The reasons were wide and varied, I suppose, not wide and varied, but our Australia seems to have a bit of a problem with paying technology company directors and executives stock or RSUs on performance, which whilst tenant might be a good cookie cutter if you're a 150-year-old bank, it doesn't really make sense if you're a 30-year-old, 20-year-old industry or a 10-year industry trying to fight for talent. So we just have to take that as it is. And I don't think we're really going to change that. In terms of the rem report more broadly, I think most likely, the rem report will probably get close to being voted down. At the end of the day, we put forward a rem report that we think is the most accurate we can for the business and that suits the business and [indiscernible]. Which proxy advisers covering us, and please describe the engagement we had with him before today's AGM. Will you disclose the proxy votes before the debate on each resolution. Shareholders can ask questions and reasons if they've been in protest votes. So most of them are covering us, most of the usuals we're going to disclose, obviously, proxy votes before the vote. At the same time, we bring that up. So we disclose it, which is our legal requirement to do so. I don't think protest votes -- people shouldn't be protest voting, they should just be voting for or against the resolution, people are using proxies for protest votes. And I suppose it's their decision, but it doesn't make sense to me. I want to disclose proxy position to the ASX for the formal addresses more of timing of the market, which is doing what we're legally required to do, which is and what we've always done, which is we provide visibility to the proxy votes at the time, which would do the votes. There's no particular reason for or against. Okay. Any other questions yes?

Thank you, Chairman George Borba, Director of Faircase, I was going to talk about the grant later in the thing, but you seem to be talking about them now. I would like to bring that subject up. I think that the idea of the grant is to encourage growth in the company and to keep the executives there that are doing a good job for a long time. I just believe that a short-term incentive over 1 year, and the long-term incentive over 3 years are short-term method. I think the short term should be 3 years, long term should be 7 years. We're engaged the building of the company. We don't want to build them out and knock it down next year, which is what encourages to the 1 year and then the 3-year term of the incentives.

Cool. Okay. Noted. Any other questions? I think that's a question. No. Okay. Great. So looking now in terms of remuneration proxy votes, there are no further questions, the votes received in relation to this are on screen, 71,923,822 for, 26,317,812 against 123,000 votes that are open, approximately 90,342 have abstained. Putting solutions applied to this resolution are set out in the notice of meeting. The directors abstained the interest of corporate governance from making a recommendation in relation to Resolution 1. As this resolution -- so the election of Bevan Slattery as a Director. As a resolution relates to me, I now ask Melinda to address this item.

Thank you, Bevan. For Resolution 2, I ask you to consider and if in favor, pass the following resolution as an ordinary resolution. That Mr. Bevan Slattery, being a director who retires in accordance with Rule 19.3 B of Megaport's constitution and ASX listing rules, 14.4 and 14.5 and being eligible, be reelected as a Director of Megaport. As set out in the Notice of Meeting, Bevan is seeking reelection as a Director of the company Bevan's background qualifications and experience appear in the explanatory memorandum to the Notice of Meeting. For the reasons set out in the explanation memorandum, Bevan has the full support of the Board for his reelection. I will now turn to comments or questions regarding Bevan's reelection. I will now turn to comments or questions regarding Bevan's re-election. Are there any comments or questions? Thank you. Celia, any comments or questions online?

Yes, we've received a question from Stephen Maine. I'll read out the question. Bevan has sold more than $200 million worth of shares since -- yet remains Chairman and despite having sold down from 20% to around 5%. Is he planning on selling any more shares? And why has he been selling so aggressively? Does he need the money for other ventures also isn't now the time to move to an independent chair.

Bevan, do you want to comment on that, although I don't think it's appropriate that...

There are projects -- I think the thing is it's been really documented the number of projects I've been working on for the last 6, 7, 8, 9 years since 8 years since it's been listed, so submarine cables around the place and things like that. They've been pretty well documented. More share sales. There's nothing that's sitting in front of me right now that's saying I'm going to do anything like that. And in terms of time for an independent chair, that's something for the board to consider.

I would just comment that the Board is always actively considering succession plans for all of the Board members. So as any Board should do. Are there any questions? Audio questions?

There are no telephone questions at this time.

Okay. Thank you. So as there are no further questions, the proxy votes received in relation to this resolution are on the screen. The directors with Mr. Bevan Slattery [indiscernible] recommend you vote in favor of Resolution 2. So I will -- now we've considered resolution 2. I'll pass back to Bevan.

Thank you, Melinda. We now move to the special business of the meeting. Resolution 3 are so to consider and if a vote in favor, to pass the following resolution as an ordinary resolution. For the purposes of ASX Listing Rule 7.4 and all of the purposes, shareholders ratified the previous grant of 386,379 RSUs as detailed on explanatory memorandum. I'll now turn to questions or comments regarding Resolution 3. Are there any comments or questions in the room?

My question is about the purpose of the RSUs. Is it primarily for the employee share plan?

Yes, sorry. Yes, they're related to the employees, mostly -- employee share plan, correct. Any other questions? Any questions online?

No, there are no questions online.

And any on the phone?

There are no telephone questions at this time.

Thank you. As no further questions, the proxy votes received in relation to this resolution are now on screen. Votes for 103,342,604, votes against 1,610,132 votes open, 159,703, votes abstained 92,252. Voting exclusions apply to this resolution as set at the Notice of Meeting, directors in AMC recommend that you vote in favor of Resolution 3. Resolution 4. We now move to Resolution 4 and ask you to consider and if in favor, to pass the following resolution as an ordinary resolution. That for the purposes of ASX 17.2 and all other purposes, issue equity securities under the employee share plan -- the details of which are set out in the explanatory memorandum be approved as an exception to ASX Listing rule 7.1. Are there any comments or questions for resolution 4?

The annual report says that eligible employees normally receive $1,000 worth of shares each year under the ESP. But no shares will be issued for FY '23. So why is that?

Yes. It was a couple of reasons. One is it was a bit of a tough year last year, but we just didn't go ahead with that. Sorry, take the back. One other thing is that we actually ended up paying out the PBIs, the performance-based incentives to staff we paid them in stock instead. Any questions online?

There are no questions online.

Any questions on the phone?

There are no telephone questions at this time.

As no further questions, proxy votes released in the resolution are now on screen. Votes for, 99,477,723 million, votes against 215,669, votes open are 122,231 and votes abstained 5,399,309. Voting exclusions applied to this resolution are set in the Notice of Meeting. The directors unanimously recommend you vote in favor of Resolution 4. For Resolution 5(a). I 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 approved the grant of 517,680 performance restricted stock units to Michael Reid as detailed in the explanatory memorandum. Are there any comments or questions on Resolution 5(a)?

You do the math on if the resolution is to grant 507,608 RSUs, what's the current value of that grant roughly?

That's the share price right now.

$5 million yesterday.

Okay.

It's on the record.

Okay. Thank you. Are there any comments or questions on Resolution 5(a) Apart from that, any other in the room? Any online?

We've received earlier a question from Steven Maine.

Okay. Let me go through that. Okay. Given the interest -- here we go, this is 5(a), could the CEO summarize his past LTI grants as to whether they have vested or lapsed. Also has he never sold any ordinary shares in the company or bought any on market without relying on the incentive scheme to build his equity position in the company, please don't say look it up in the annual report and through ASX announcements is complicated and set could be actually summarized the situation in 60 seconds. I'm going I'll summarize in 60 seconds. I mean, he's only been CEO for about 4 months. So I don't know how to be adding to his previous base or the previous situation. So he's only been CEO for 4 months. Everything is in the explanatory memorandum and in terms of his shares and he hasn't bought or sold any shares since he started. Thank you. Any other questions from the telephone?

There any no telephone questions at this time.

Thank you. Okay. As no further questions, the proxy votes received in relation to this resolution are now on screen. Voting solutions applied to this resolution are set out in the Notice of Meeting. Directors abstaining the interest of corporate governance from making a recommendation in relation to this resolution. The votes for, 51,136,637 million, votes against 47, 112,917, votes open 122,130, votes abstained 5,120,983. For Resolution 5(b) also to consider if in favor, to pass the following resolution as an ordinary resolution. There for the purpose of ASX rule 10.14 and all of the purposes shareholders grant -- approve the grant of 460,160 RSUs to Michael Reid detailing explanatory memorandum. Are there any comments or questions relating to 5(B).

[indiscernible] last time, it's just turning that big number of RSUs into a dollar value. That's $4.3 million at today's value.

Okay, great. Not at the point we gave them, but today's value. Keep it up buddy. Probably wouldn't be highlighting or it was at $2, but you're good. Are there any comments or questions relating to 5(b) apart from that in the room. Any questions online? Stephen Maine, we've got 1 from Stephen. Excellent. 5(b). Given the interesting discussions across a range of topics today, including the incentive plans for the CEO, could the chairman take to make an archive copy of the webcast plus a full transcript of the proceeding available on the company's website. The likes of 9 AGL ASX, ANZ, Domino's and Lendlease all produced their farthest AGM transcripts in '21. Will you follow it today? This is something IAG has been doing since 2003. Okay. So I don't know. We don't need to do it. We haven't decided to do it, but we'll take that on advisement and consider that. Excellent. Any other questions from the telephone?

No telephone questions at this time on that guy now.

I'm that guy now. I'm over 50. We're not using telephones. No audio questions. Thank you. Great. There are no further questions that are going to come. There are no questions. The proxies are on the screen as shown on here, 66,720,162, against 31,526,733, votes open 122,260, votes abstaining 5,122,812. Voting exclusions applied to this resolution are set out in the Notice of Meeting. The directors abstaining the interest of corporate governance of making recommendation in relation to Resolution 5(b). That concludes the items of business. I'd like to advise that all voting on all resolutions will close shortly. I'll provide you with a few moments now to allow you to finish your voting. Please finalize your voting now. For those in Brisbane, the member of Computershare team will collect your voting card. [Voting]

Okay. Voting is now closed. The results of these votes will be released later today on the ASX. On behalf of the board, I'd like to thank you for your attendance and participation online today. Thanks for your interest in the company, and we look forward to your ongoing support. This brings the formal proceedings to an end, and I now declare the meeting closed. Yes. So shareholders are now invited to ask general questions, the business and management of the company.

Thank you, Mr. Chairman. George [indiscernible]. Customary at these private meetings, the company would normally give an indication how the results to this part of the year here versus previous year. Can you give us that information? Thank you.

It's all contained In your report at this point. Okay. Quarterly report came out last week. And if I have the -- this is an Annual General Meeting, to be kind of clear. And if we want to give an update, the fact that we actually gave a quarterly update last week, which then also gives you comparable to the year before. We thought would actually suffice for people. But if someone was to pull up the quarterly report for me while I'm here. No, no, it's -- okay. Let me -- I'll give it to you, hang on 1 second. The quarter -- there we go. So that's quarter-on-quarter. So it's quarterly -- I'll get the 4C out. So there's the executive -- so from an executive summary standpoint, I'll actually go through the 4C itself. So on the previous year, the revenue for the quarter was up -- was $46.5 million, which is up from, I think, the previous -- actually, it only gives comparable to previous quarter, so over there. But to give you an idea from our annualized revenue, it's been consistent. So the previous quarter is up 5% to the previous quarter and the previous quarter from the year before, we did quarter-on-quarter comparisons. The previous quarter was up 38% from the previous year. So that's a quarterly kind of update. So from our quarter we just closed, we're up 5% from the previous quarter. So -- and from a year ago, that was up 38% from the year before. Perfect. So if you look at last quarter that we just closed, revenue was $46.5 million, up 38% year-on-year. Gross profit was $32.4 million, up 49% year-on-year. EBITDA was $15 million, up 1,400% year-on-year. Net cash flow was up $5.6 million or was $5.6 million, up $22.8 million year-on-year. We burned $17 million in the previous year, this time a year ago. And the exit annual run rate was $189 million -- $189.8 million, up 36% year-on-year. It was good. Anyone else here?

I just wanted to ask on a -- from shareholders. Just ask about Megaport reach versus kind of the traditional business, I don't know if now is the time to go through it. But could you just talk about how it differentiates or how it's different from your traditional setup just because, obviously, it relates to your expansion into new markets, I think you used the word sustainably. So could you just explain is the infrastructure itself quite different.

No, it's -- so it's just a different model effectively, right? So previously, we had to build a business case to go into data centers and we had to buy the fiber, by the colo, do whatever or sometimes we come to an arrangement with the data center operator. We're always flexible, but we probably decided to productize that and make sure if there's a data set we're always approached sometimes by data centers to go in their facility. But the economics for us didn't make sense. We needed a certain amount of ports and VXCs to make the revenue fly. Sometimes we've got commitments from data centers to do that. But really what Megaport Reach for us was saying, "Hey, if you're a data center provider, and you want to there's a model in which we'll both share a little bit of risk. From that side, they might, for example, do the connectivity in the colo. We don't need much colo in some of these small sites, it's only that much space in the data center. So it basically helps enable data centers and data center potential partners to allow us to extend their facility with just a slightly different kind of change in economics where there's a bit more potentially rev share and some elements of it. So they'll get a slightly bigger piece of the pie for a certain element at the beginning. So really from our standpoint, I think if we just stuck to a rigid model of how we deploy, there's usually like a $7,000 a month hurdle we need to get over. Whereas under the reach model, it's less than that. Potentially new markets will structure something even more interesting, like big new markets we want to get into if we want to partner in those markets rather than just deploy ourselves. And sometimes we might consider that because it might be a regulatory not me going in some of those markets, if we did that alone, it is from a licensing whatever standpoint, not mean it's probably a bit too strong a word, but it's -- there might be partners over there that actually have all the infrastructure needed, and they just want a platform. So from a Megaport Reach standpoint, it gives the optionality of that as well.

That can help you get into the new markets -- a lot more efficient markets potentially.

And it's just -- we're already doing some of the stuff anyway, but it's just putting a brand around it and actually creating a product of it and actually just going out with it, that's market kind of like why don't just go with Megaport Reach, actually that makes sense because -- okay, and the fact that you're bringing it up and asking what about Megaport Reach, we're going to get those questions from data center providers or we can -- you can use this to get us in there. And it just makes it an easy conversation to have with people .

And just a question on sort of the strategy going forward. Are you -- how do you think about prioritizing getting into new markets, so installing more equipment versus growing the revenue from your existing customers with new products?

We've always looked at new markets. I think there's a couple of -- there's a bunch of analysis being done. The executives are on doing that as well right now. Mike has only been in the seat for 4 months, but part of our growth is product markets and existing customers, new customers, right? So if we go into new markets, there's existing customers that will follow us there, if we go into -- we can take more product sets and things in there as well. So I think it's reasonable to expect we'll always look at new markets, but I actually think there's some key strategic markets we're not in, that I would think this time next year or even by the end of next year, we want to be in them. They're big, meaningful markets that we want to be in one way or another like country markets, not metro markets. And no, I'm not going to tell you which ones.

I'd appreciate it if you did stick around as a Chairman.

It's about ports versus MCRs versus NBEs. So there needs to be a lot of market commentary, a lot of obsession on customer ports and them going up. Looking at the -- just talk about -- this is to be a big focus commentary about Megaport about customer ports and the trajectory going up. But when you look at the data in the annual report that shows quarter-on-quarter growth, number of ports be strongly correlated to a number of customers. The ratio between customers and ports hasn't changed in a year. Same with the cloud router related to a number of customers, and they're headed up in line with customer growth, which is good. But the Megaport Virtual Edge is different. It seems to be growing much faster than the growth in customers. I just wanted to know is there some reasons why it's so well received. I appreciate it's coming from a small base, but it's growing faster. And also the report talks about much more profitable customer uses multiple device, multiple services is. So maybe a bit of comment on that.

Okay. I think a couple of things to know if you're unable to join the quarterly calls that we've had historically, I don't know if they're available online, I think they're online. I really encourage people to have a listen to the previous quarterly calls, especially the 1 when I kind of took over in April when I did the quarter call in April. Because it was a pretty cathartic kind of part where I had -- I stepped in, in March and had to do the transformation. The -- 1 of the things from a board standpoint that even we weren't aware of was the number of -- so the number of ports, you're absolutely right that ports VXCs there's a correlation between pretty much all of them. But the thing that was really the most correlator thing that wasn't obvious to us is that when the company made the decision to invest much more heavily in channel, there was a thing from the Board that we said, okay, we're okay to invest much more heavily in channel, there was a thing from the board that we said we are not kind of investing in channel but don't do it at the sacrifice of direct, right? Direct's been the 70% of our revenue has been direct, 30% has been channel. We're going to invest really hard in channel because over in the logic was in 2 to 3 years, we think channel will be 70% through massive growth and direct will be 30% of kind of new ports. So there was a decision to do that, but we said, okay, we're okay, we'll fund that and we understand the logic behind it. But what we don't want to do is you don't touch the direct because if that investment doesn't work out or if it doesn't bear fruit, it's a new kind of model. Not it's a new mill to what we do in some respects, then we don't want to interfere with that. That was the mandate. Go ahead and do that. So kind of early February, we found out that. In all of North America, we only had 4 direct salespeople, had reduced from 15 to 4, and I spoke with this in the call in April. And so what had happened is that a significant number of salespeople will move from the direct part of the business into the indirect channel part of the business. And in retrospect, I could probably understand why is that so much personal capital, professional capital have been put in that model, but they wanted to see it succeed no matter what. Now -- so I think there's more of a correlation in terms of salespeople and ports and revenue and those types of things growth on the number of salespeople than anything else. So when I kind of came in, in March, it was a pretty chaotic 7 weeks or 3 months to be completely candid, 4 months, because I've been in the business a long time from the beginning, I suppose. I understood a couple of things pretty quickly. One is, I could see a big problem in sales in North America. So fortunately we've got Michael to come on. It's nearly hard every seat that we needed to fill. Only started in October. Most of them started in October, right? So you didn't see it last quarter because, well, there was no one there last quarter. But I knew that by the fact that what it happened, we have to rebuild that. So I'd call out that quarter, I said we're going to have a soft Q4. We're going to have a soft Q1. We will hopefully see green shoots in Q2, but possibly Q3, definitely Q3 and we'll see momentum turn into sales in Q4. So just starting to see those metrics change. So I'm disappointed in the numbers of the metrics that we've reported in terms of those key metrics. I care a lot about those metrics because I think they -- we're moving away from those being the only kind of metrics in terms of growth. We think global WAN will be fantastic. Some of the other products we're going to be good. But they are -- for the next period of time, it's still going to be the kind of the bread and butter of at least from a KPI, how we're performing type thing. Now unfortunately we literally only have those -- that sales I think is high so 23 people in the space of 3 months, which is remarkable. And I just didn't hire people, we hired people that are enthusiastic and we had a different level of experience, right? It's not good to having experienced people who aren't enthusiastic. It's not good having experienced people that you -- that can't be surrounded by some -- sorry, enthusiast people that have some knowledge but more important -- a rather enthusiastic person that's passionate and driven around a team of really good people that we can grow them, but you still have to have your experienced team that they are the leaders. Michael has done an amazing job in recruiting those. So the other thing that -- just cathartic being transparent. The other part that we noticed and we spent a bit of time talking about these ports -- these aggregation ports that had happened. So you go back 7, 8, 9 years, we were doing very few cloud ports in a quarter because one, even 5 years ago, the role of the port was different. So we can go to Amazon, put a 10 gig put into Amazon, do lots and lots. We can do 50 customers, 60 customers into 1 port in Amazon. But then about 5 years ago, they changed the rules of it and said about contention and things. And we're always really good performance. But they kind of changed the rules on that with us. And then -- which we're okay. That's fine. That's how it is. The same thing with Microsoft had a 2:1 contention, Amazon did something different. Now the sleeper in that part from us was that some of those cloud points were still kind of Canada's customer ports in the thing. So what we also then did I could see the cross-connect rev costs, our costs going up significantly. So we did this big aggregation project where instead of having lots of these 10 gig ports to Amazon or Microsoft, whatever, once they made 100 gig available, which was only in the last 12, 18 months, we pushed so hard to do this cost out reduction in aggregation, but it actually affected ports as well. So I think it's a very long answer to what seemed to be a very simple question. But you're right about those metrics in terms of wanting them to be better. We want more new customers, but we can't add customers that salespeople or ports or MCRs. The MVEs -- and we're really working hard. We kind of started giving some metrics in this last quarter, the 4C. So I'll make sure you get the quarterly report. We probably -- I'm not committing because we got to be sure. We're looking at focusing on revenue-generating ports right? Because sometimes MVE is a good example. You'll see 1 quarter will go incredibly well and 1 quarter kind of go down. The great part about Megaport, 1 of the great things about Megaport is it's all fully automated in live. We don't have just -- we have a production obviously -- a live environment production and testing. But a lot of our partners want to test just go over, they want to test proof of concepts with their customers on our production environment. And we give them a code to do these proof of concepts and things, right? But the problem is that they kind of put a customer name in and do these things and it can actually skew in a quarter when you got such a small -- MVE such a smaller base, as you said, you can kind of call this variability. So we kind of looked at this quarter how come this is down. It's actually not down. It's actually up when you look at revenue generating. It's just that they did a big proof of concept last quarter. So our focus is to get even more transparent around and clearer around the KPIs. So we're going to work on that this quarter, hopefully, for the half year and get that done and give a two year look back on how does this look? So you get the historical context of it. And I can see Nick [indiscernible] has had been an analyst over there. So you can do your models and things like that. But the second part is in what I said back in April. We expect to see it's going to be a soft quarter, Q1, Q2. We only just hired the people in October. So -- and anyway has been in North America. You've got Halloween, Thanksgiving and Christmas. It's -- you've already got about 3 productive weeks in North America now from this point forward. So it's going to be a bit of a -- it will be a little bit kind of soft, but we'll start seeing the pipeline fill, I expect, in Q3, and we'll see the results coming through in Q4. So that's pretty much what I said in April, and it hasn't changed now. The reaction that happened from people this quarter that just happened. I can't explain why, except that maybe people thought the sales momentum would have picked up, but I was really clear, it wasn't going to happen because it just can't happen. You've got to hire the sales people, you've got to put them in seat, you got to give them training, given the territory and get himself a pipeline. It's any experienced person who's run a company or a sales force knows you can't plunk 20 people in the chair a month after the quarter is closed and expect them to have a change of number, but you can even do it in that quarter. It's not going to happen. And I was just trying to be transparent to that. Maybe some people got a bit ahead of themselves, really excited. That's the laws of sales, unfortunately. So -- and again, I just want to give full credit to the whole team, who've worked incredibly hard of seeing a whole change of how the organization recruits. There's interviews, you must be available the next day within 24 hours that day or within 24 hours, get this thing and get it done. They've done an amazing job. So I'm really pleased. So Q4 results, green shoots Q3. Any other questions?

[indiscernible]. I guess you highlighted on the earnings call, Michael, this new internet service [indiscernible].

Michael Why don't you come up and answer his questions. I'll get him to answer some of these questions rather than talk about him as if he's not in the room.

Just wanted to check, you kind of fall out at a few things about -- I know it's not launched publicly yet the wider customer base and -- or even a few of them yet. But just wanted to check how I guess it works with the underlying network. Will it -- will you need any additional capacity, dark fiber or anything? Or is it largely utilizing and utilize new capacity?

It's interesting. So we already have an Internet product that links to MVE. And so the MVE platform, which is our virtual edge is basically an ability for vendors to spin up their hardware or what was traditionally hardware, the software component of that on our hardware in the data centers that we support that in. And then what happens is for SD-WAN, if you're familiar with Software Defined WAN for you to leverage that, you need Internet. And so the move from MPLS towards Internet is SD-WAN. So you're basically using Internet as the connectivity platform versus what was traditional MPLS. I'm getting a bit technical here. But basically, for you to access an MVE, you had to have Internet. So we've actually had an Internet product that's always bundled tightly with MVE and we never offered that to our customer base beyond MVE because it's basically if you want to turn a MVE, you've got to connect to it, you've got to get through it via Internet. So actually, we already had the platform. We've gone through the huge amount of the process to get that done. When I jumped in the seat, I sent out a questionnaire to all customers. It was quite a long questionnaire around what could we do better? What do you love about Megaport, et cetera? And 1 of the feedback around product was what do you wish we did. And a lot of it was Internet. And so beyond MVE, if you're a customer that sits inside the platform today, you can spin up a connection to any cloud provider, any data center, you can do that in 60 seconds. But we never had an option for them to go and connect to Internet, enterprise Internet which is kind of a -- sort of a no-brainer actually when you sit back and look at it. And so the team has been working to launch the product. The reason we haven't launched it, it's actually available technically. What we need to do is go and update our contracts globally. And I think we needed a month looking at [indiscernible] the audience, so it was a month of notice. And so then as soon as that's done, the platform kicks live. So there's no infrastructure requirement to go and add it to the platform. It's a great offering, actually, like it's an additional I called the arrow in the quiver, more arrows in the quiver for the team to bring value to our customers, that is the game.

Some true salesman. Excellent. I guess, yes, just you can stay out there. This is another one for you, Mike. You're from Cisco. Cisco was before you were here was, I guess, touted as an emerging growth opportunity with the integration with [indiscernible] being on Cisco's global price list. Just wondering if you had any comments from the broader team as well around how relationship with Cisco has tracked or whether that's been completely deprioritized within the organization?

No -- so it sort of goes back to Paul's comment earlier as well around MVE and the success that we've seen in that space. Certainly, it's off a smaller base. But if you look at it, I think, Paul, you were alluding to the fact that we're adding more MVEs faster than we're adding customers as an example. And the point to that is that's quite a, I call it, a newer product for Megaport's a couple of years old, but still a newer product. But it's something we can take back to all of our existing customers, which is why we can grow that significantly faster than the existing customer base. It goes back to the strategy around arrows in the quiver. The game is so much easier to sell more to an existing customer and add value to an existing customer than it is to go and hunt and find a new customer. Now we need to do both. But the point is -- by adding the arrow in the quiver, we've got an opportunity to do that. So MVE is a great option for that. We will continue to expand our partners in that space. So if you look at it Cisco, Palo Alto, Fortinet versa, and there's a whole range of other companies that want to add their platform in there. It makes a lot of sense. You basically spin up a software platform inside our data centers. It's a really great opportunity. Obviously, I was at Cisco for a long time, had a great tenure there and great reputation inside that business. Hopefully, I was speaking to Bevan's parents about it earlier, so they were even giving me a good little bump up, which is nice. And so we've doubled down on that relationship. In fact, when we launched just recently, shout out to one of our team who's gone and actually upgraded the contract that we have with Cisco, one of the challenges on their price book was we couldn't offer month-to-month billing. And it was more of a limitation of what Cisco could deliver. They're not traditionally used to a month-to-month service, to be frank, it's different. And so we've just launched that. We're in the process of launching that at this point in time. So we're actually really investing the engineering team on our side and the partnership inside companies like Cisco. Cisco is the one that we have sitting on their price book, which means 30,000 sellers can go and actually sell Megaport without any interaction from us. It doesn't mean that it happens. And that's what I think -- I think maybe we're not talking about millions and millions of just instant sales, but it's a process for it. But it's still a great opportunity.

Fantastic. I'll ask 1 more question and I'll pass along. This one is probably for Leticia and I guess the broader board. But ASP 16 leases, it's great for looking at the financial position of the business, but it's [indiscernible] income statements. Just wondering if you guys are looking at a different metric internally for profitability of the business pre ASP 16 EBITDA. And if you intend to, I guess, release, I guess, pre-ASP 16 EBITDA metric to the market. Sorry, a bit technical.

I thought I wasn't going to have to speak at this one. So I guess from us, a big part of our cost program was also understanding every single one of our contracts, which is thousands and thousands of individual contracts. So everything that we do around our connectivity within data centers, within Metro, within national, international involves quite a complex setup or simple setup, depending on what you talk to. But that -- a lot of them are each contract will be 1 year, 2 year, 3 years depending on what we signed up to. And so part of that does fall into that AASP rule where you have to recognize it on the balance sheet as opposed to within the P&L. And that's just simply an accounting treatment thing. So in terms of what we're intending to do, we haven't -- it's more simply we've gone out after the least cost to Megaport for those contracts. And that's been the focus of us over the last 9 to 12 months really. And so that will continue. That effort will continue. And it's really just about getting the best value for us Megaport-wise rather than worrying about if it's EBITDA, non-EBITDA, if that kind of answers the question. In terms of the metric, not something I'm particularly focused on because the bottom line to me is cash out the door.

Or in recent times cash in the door. But you've got to pay them cash out. It's nice to pay them on time. I think there's 1 more question. I have [indiscernible] the only one. that we've got from online. Just the one. Here we go. One from Stephen Maine. An easy one. Could you please [indiscernible] concept to lend against your stock. It's not -- I don't think it's [indiscernible]. Why doesn't this happen when we have a market cap of $1.5 billion. Comtech happily lends, 80% against CBA shares that won't lend against 1 against Megaport. Do we have a banking relationship with CBA that could help fix this? I don't think the company does have a relationship -- I mean, I'm personally bank with CBA, but I don't that can hold a lot of water. But at the end of the day, I think the investment banks and those guys really determine their own or banks or brokers to term on their own margin lending, it seems like margin lending. So I don't know anyone at Comtech actually, but it's something we could follow up and just ask the question why? But almost feel a bit conflicted. I don't really want people margin lending against stock, be short is the light. So yes, it was a good question, but I'm not sure the answer why that's probably a question more for Comtech to ask. Any questions on the audio.

There are no telephone questions at this time.

She said telephone. That's what put me off last time. She's playing with me. Okay. Thank you. If there's no more questions, I'll declare a close, and I think we've got some [indiscernible] some biscuits and tea and things. We can all have a chat to the Board. Thank you very much for being on the call and for everyone here today. Thanks for coming. Really appreciate it. Thank you.