Megaport Limited (MP1) Earnings Call Transcript & Summary

Welcome, ladies and gentlemen, to Megaport's FY '24 Results Presentation. With us today, we have Michael Reid, CEO; and Tish Dorman, CFO. We will run through the presentation for just over 30 minutes and then turn over to Q&A. Research analysts, if you want to raise your hands or alternatively send through the questions, we can do that at the end. Thanks all, and handing over to Michael.

Beautiful. Thank you, Steve. Welcome to the investor presentation, FY '24 full year results. We've got quite a deck for you today, so we're going to get straight into it. All right. Let's start with what does Megaport do? We've got a whole range of new investors on this call, and we've got new investors potentially looking to invest in Megaport. So let's just start at the very high level. What do we do? While we connect, we are a connector. We connect data center to cloud, cloud to cloud, data center to data center, and we deliver network edge, which I'm going to give you a demo on later. We do all of that privately in less than 60 seconds. We do it from 860-plus data centers around the globe that we've built out. We're across 24 countries, and we do that up to speeds of 100 gig, and we just announced a 100-gig connectivity from over 597 data centers. We believe we're the largest network-as-a-service platform delivering 100 gig on the planet. Let's go into the company's highlights, and then we'll walk through annual results, the business update and the progress on transformation. And the story for Megaport since I took over the role a year and a little bit ago, has been a story around profitable, efficient growth. Let's talk through FY '24, share the highlights and give you a perspective on how we executed against that. Revenue, $195.3 million, up 28% year-on-year. That's a $42 million increase in revenue. Gross profit growing faster than revenue at 32%, $136.8 million, up 32% year-on-year. EBITDA, $57.1 million, and this is the story of a massive turnaround, up 182% year-on-year. That's a $36.9 million increase in EBITDA throughout that year. And the real story, I think, from a cash flow turnaround or fiscal turnaround is that net cash flow. This is our first ever year of net cash flow positive in the company's history. It's a $62.5 million turnaround, landing us with $28 million of net cash flow for the year. Showcasing that from a slide perspective in a chart, you can see it's our second year of positive EBITDA, and we landed at $57.1 million. Worth highlighting that FY '24 was a story of 2 halves. We entered the financial year with a lower cost base due to some cost out that we had in FY '23 right towards the end. And we spent the first half of the year building a plan to execute for the second half, which meant we've hired and for those of you who followed our journey, we hired a whole range inside the go-to-market machine to build for growth for the next 3-plus years basically, and we landed that team in the second half. So the first half had a lower cost, the second half as we built out. It's worth noting that as you look at the June '24 exit EBITDA run rate at $4.5 million, extrapolating that over the 12 months for the year, we landed at a $54 million annualized basis, appropriate to focus around that. Growth across all regions, this is the breakdown from a revenue perspective around the world. You shouldn't be surprised to hear that North America is our largest business and it's growing the fastest from a revenue perspective, $110.8 million of revenue, 57% of our total revenue globally and growing at 30%. $52.6 million in Asia Pacific. This is where we started. We're here in Brisbane, and we started our explosive growth should we say, through Asia Pacific and then expanded around the world. And so that represents 27% of the revenue, a more mature market for us growing at 21%. EMEA still has tremendous opportunity for us at $31.9 million, only 16% of the global revenue with 31% year-on-year growth. And you can see how that plays out from a global perspective. Annual recurring revenue, we smashed through $200 million of revenue in Q4. It was incredibly exciting to see a company actually go and cross that market. It's a massive milestone for us. So we're very excited to share that here on this call. We reported, if you look on the breakdown on the right, we were released of our 4C obligations, which means we weren't breaking down quarterly anymore. The last conversation we had was Q3. So giving you a perspective on how Q4 performed, we have reported on the left, which is a $4.5 million increase in annual recurring revenue in the quarter, up 2.3%. We have, because of the U.S. component, the revenue that we get from the United States, we have substantial foreign exchange any time the FX moves between AUD and USD, that moves the actual dollar over here. It seems to be moving a lot at the moment. So what we look at is the FX adjusted. What is it adjusted for FX? $7.3 million increase in Q4, which is a 3.7% increase quarter-on-quarter. So that is the breakdown of the quarterly piece. On the left, you see what we've done for the full year, landing at [ $204 million ]. The story continues from a focus on profitable, efficient growth. And I shared the incredible net cash flow turnaround that this business has had. I've shared this slide back for a few years right back to FY '17. Just to give you a perspective of the quantum of the turnaround, I'll reiterate a $62.5 million cash turnaround from year-on-year, landing us at $28 million. And I think this chart represents the tremendous effort that the entire Megaport team has been through over the past sort of 15, 16 months, getting us to a position of profitable efficient growth, allowing us the opportunity to invest for the incredible market that we have to go after and actually allowing us to build products that open up our TAM to go after it. Without getting that fiscal component right, you don't have an opportunity to do that and Megaport is so incredibly well positioned to continue to do that for the future. We will continue to drive profitable efficient growth. This isn't a story of moving to some sort of growth at all costs. We will continue to grow in a profitable and efficient manner, which is the appropriate time to hand over to the annual results, where I get to bring the queen of numbers, Leticia Dorman onto the stage. Now we've been debating about substantial financial turnaround. I said massive financial turnaround. I believe the appropriate word from a finance perspective is substantial. So let's let Tish come on and share the substantial financial turnaround of the business. Over to you, Tish.

I think whichever way you want to talk it through is it has been a significant substantial massive financial turnaround. Now FY '24 has been essentially, in my view, a tale of 2 halves. Now we entered FY '24, having done in FY '23, a significant reduction in force. We'd been going through a journey of working through our costs and where we could cut. And so we entered into the first half of FY '24 with significantly lower costs. However, as we move into the second part, the second half, Michael Reid was able to hire a substantial number of go-to-market sales heads. Now what that means is that, overall, those 2 halves combined, we have overall been net profit for the period, both halves profitable for the first time ever. So [ half ] our made in net profit before tax, I made a net profit after tax. Now revenue has been up 28%. That has been driven by organic growth as well as the full year of pricing changes that we implemented in the second half of FY '23. Direct network costs, how I view direct network costs is a cash out the door in essence. So when I look at it, you can have the accounting treatment you have to treat within the EBITDA line with direct network costs. And we have others, particularly when they're over 12-month contracts, which will fall below the line. Instead of focusing on the accounting treatment for that to maximize that piece, what we did have been looking at when a contract comes up for renewal, we have thousands of contracts for our direct network costs, and we assess the most appropriate way to go after that and to, if we need a shorter-term contract, a longer-term contract as well as looking at the overall cost. Now that can be across the network itself, but it can also be within the data centers in the presence that we have. Overall, those direct network costs on a net basis have increased by 4% year-on-year. Partner commissions were up 24%. That does reflect the reengagement as part of the go-to-market strategy to get back with our channel partners, particularly in the U.S. Overall, the gross profit has increased by 32%. Now, equity-settled employee costs, you'll note that there, we've called out the 3 key line items, the PRSUs issued to Michael Reid. The RSUs, which have been a reignition of our existing employee retention, but also attracting the new -- particularly around the new go-to-market team as we ramp up that team throughout, particularly North America. As last year, we have recognized our staff by paying performance-based incentives via RSUs rather than via cash. Operating costs, again, this highlights the strong financial control of the business. Whilst our employee costs have increased marginally, we did have the first half of the year, where we had very low costs, particularly in the North America go-to-market team. That has increased throughout the second half, which is why we talk further down about the operating leverage that we exit the U.S. Professional fees are down substantially, almost $2 million. That has been due to those ongoing cost control efforts, but there were some one-off services in FY '23 that we do not intend to continue in future either. Overall increase in travel, marketing and general engagement activity throughout the industry for our customers and our partners has been reignited, particularly in the second half of the year. Cash flow, now this is one, as always, as any accountant will be excited by. You see operating activities are at $41.5 million. Now how I view EBITDA, EBITDA and operating activity cash flow, they should go very -- should be very realigned. So when your EBITDA is growing, I would expect your operating activities to grow and you cannot see that reflected in this. The investing activities are low. That is largely around the -- as we utilize the inventory stores and at the same time, we've also did have the reduction in force throughout the year. Overall, our financing activities, that is down substantially, which is around the lease liability recognition, which I've referred back to previously with the direct network costs. We do also have the outflows for borrowings have also reduced, other key items there. The net cash flow improvement of $62.5 million is significant, and I think it is something that Megaport should be incredibly proud of. The financial position, the cash at bank is $72.4 million, which is almost 50%. We've almost doubled that cash in the bank during FY '24 whilst investing in the go-to-market team. The current ratio of 2.3 is a substantial improvement on FY '23's 1.5. Now capital expenditure, as we've noted earlier in the cash side, inventory had been stockpiled throughout the pandemic. So as you can see in this chart, we've actually started to utilize the existing inventory stores. We have also purchased equipment as required, particularly for our 400-gig rollout, but at the same time utilized whatever we could with the existing inventory store. We also had cap wages, which were significantly lower. That is not just due to the reduction in force that we entered FY '24 with, but we're also ensuring that if it's a capital project that's recognized that way, otherwise it is recognized as required. In FY '25, we're expecting our total capital expenditure between $27 million and $30 million. Now that is inclusive of a $6 million in network licensing that we need to utilize to operate the network, we have to purchase those licenses every 3 years. The key item that I would really like to call attention to is the exit June '24 EBITDA of $4.5 million. Now FY '23's operating leverage was very -- was substantially higher due to the fact that the -- we have done a reduction in force and the extra efforts that had been engaged with the cost control efforts. We entered into FY '24 with very low costs and the revenue, particularly from the price rise. Now what that means is that throughout FY '24, as we've hired appropriately in the right roles, we have continued to maintain an EBITDA margin at a strong level. So when you actually look at the $4.5 million exit, if you look at that on an annualized basis, the EBITDA would be $54 million. With that in mind, I'd like to hand back to Michael Reid.

Well, thank you, Tish. Let's -- I mean, outstanding, congratulations and congratulations to all the team at Megaport. What an incredible result. So let's move along into the business update. I shared before that we smashed through $200 million of annual recurring revenue. Let's take a look at how that's broken down. Total is $204 million, $116 million for North America, $55 million for Asia Pacific, $33 million for EMEA. You can see how that's trending down there on the right. As an overall group, we grew 14% in the financial year, landing as of June '24. One of my favorite charts to represent the power of Megaport, a recurring revenue business where you stack revenue on top of each other each year, and you see the expansion inside the existing customer base, a really, really important player for any SaaS style business. And if you look, each color represents another year of cohort that's landed with Megaport. So depending upon the color, it represents that entire year. And you can see how that plays forward and we've gone back from FY '14 all the way to FY '24, and you see that revenue stack on top of each other, showcasing the expansive and sticky nature of the business. One of the key measures inside the business is annual recurring revenue. And you've heard me tell this story around the investment back into the go-to-market, the product set that we've lifted, the much higher speed connectivity that we're offering and the products that we're bringing to market to ensure that we're increasing the amount of recurring revenue we can get from our customers, we're increasing the value that we bring to our customers to earn us the right to increase that recurring revenue per customer. And you can see how we're performing against that since the investments that we've been making quite a strong increase in recurring revenue per customer. We've given some examples of logos that we can share. There's a huge number of logos that we can't share sadly. I'd love to share all of them with you, but these we can legally share with you. And these are examples of customers that have expanded across our existing base as we've added new products to the play and expanded and moved out and grown with us. How is this? Total services, 29,816, and the team tell me that we've smashed through 30,000 services -- over 30,000 services in the month of July. That is an incredible achievement for this company. I just want to give you some perspective of that. That's 30,000 independent connections, ports, whatever it may be, VXCs, MCRs, MVEs, you name it, all delivered across 850 data centers, 24 countries and not a single human touches any of those. It is totally delivered via code. It is the most phenomenal business in terms of how we built that out. And it's the reason we can do this globally with such a small footprint of team because it's code that's doing all the work, and it's the team that builds the code that makes that incredible. We are continuing to grow annual recurring revenue per service, which aligns to the same statement that I gave you prior, where we're increasing annual recurring revenue per customer. The same is true of the services that we offer as well. We're increasing what we deliver to the customer base. Two products that we add to the mix that we often -- we always share, but I wanted to sort of double down in this session. Megaport's Cloud Router, we're at 914 cloud routers globally. You can see how that's been growing. That's the green bars there. This is the ability for customers to connect between clouds. And this is the story of multi-cloud and hybrid cloud connectivity. And this is the story of the future of Megaport continues to see more and more cloud providers, more and more multi-cloud connectivity and growth across all of those areas. What's really exciting to highlight is our Virtual Edge platform. Now on the next slide, I'm going to move to a demo to show you what that actually is. We give you a lot of letters here at Megaport. I'm going to show you what that means, but you can see the accelerating growth here. MVE is a far more sophisticated and complex sale. It brings significantly higher revenue. It takes a longer time, it's a long contract, it's more sticky, but it does bring higher revenue. And what you can see with the investment in the go-to-market team to help us sell these more complex solutions, you can see this accelerating growth. Now why is that interesting? Because if you're a port and a VXC only customer with Megaport, which is a more, I guess, the entry level to Megaport services, you're billing roughly around $67,000 ARR. If you move up to Megaport Cloud Router, which is the green, that's the ability to deploy a cloud router connect between AWS, Azure, GCP, you name it, Oracle, GPU as a Service platforms, whatever, you can spin that up in 60 seconds and bang, you're at about $120,000 ARR. When you start to go into SD-WAN and far more sophisticated security play, so in effect, firewall-as-a-service, as an example, you're up around $190,000 per annum for customer. And what is exciting is the growth in that Virtual Edge platform right there. So I'm going to attempt here to move into a demo. So let me just exit out of this, if I can. There we go. Just checking that. There's that screen shared. Beautiful. People are giving me thumbs up. Let me just move this thingy, thingy. Out of my way. Sorry, Zoom's in my way. I can't see. All right, folks, what we have here is the globe, the world. Hopefully, you're familiar with it. It is the spherical version. We have a rocket flying around it because that's Megaport, and that's what we love here is rockets, evidently. The great option is we have a flat earth version that we can offer folks that prefer the flat earth, I'm around earth guys. So let's just zoom in and get a bit of a view of the platform. What you can see here, every black dot represents a data center that Megaport has actually gone and build physical infrastructure, routing, switching and compute platforms, connected and stitched fiber and going to stitch that into this huge global network as a service. And so let's just take the Virtual Edge platform. We're going to zoom in here and pick a data center. Here's a sort of a cluster of data centers. We're going to zoom in on this one. This is Edge Connect, Portland, Hillsboro USA, and you can see we're hovering over at what we offer, 100-gig, 1-gig, 10-gig ports. That's the connectivity to Megaport. I've shared demos like that in the past, Megaport Cloud Routers. We also have this thing called Virtual Edge, Palo Alto 40, et cetera. So let's just go on and create a Virtual Edge. Now before I do that, I just want to explain what we're doing. If you're a customer and you procured, say, Palo Alto, a firewall, a physical firewall, you probably need a couple of those firewalls, you need a license, you need the physical infrastructure. You probably need to ship that physical infrastructure somewhere, you'd have to go and load the content on it and get it up and running. And then you'd ship it to a data center. You'd take out a data center contract, you go and set that up, you get someone to physically install this inside the data center. Then what you would do is a contract between the data center and then you would go on contract carriers and you go and connect carriage into this thing as well, get Internet and a few other pieces. And then you'd have to pay for all that upfront and then ongoing. With Megaport, we click create a Virtual Edge. It's already picked the data center. We click next. Here are the options that we have, 6WIND, Aruba. We just launched Aviatrix, Cisco's actual routing platforms, the SD-WAN. We've got firewalls that we've just launched recently with Cisco. We've got Fortinet FortiGates. We've got Meraki, we've got Palo Alto, we've got VMware and we've got Versa. Let's pick a Palo Alto platform here. All you need to do is choose Palo, we go over here on the right, we give it a name, we pick a size, so let's click a size here. This size will be 2 CPUs, 8-gig of RAM and 60 gigs of storage. Impressive, beautiful. We give it a password. We give it a key, the SSH key, we click next. We see that it's in this red diversity zone. Let me just move my zoom out of the way. We click add MVE. Success. We've literally deployed a Palo Alto MVE inside that data center in the United States, inside that -- with that connectivity. And now what we continue to do is create Megaport Internet. So now we're going to stitch an Internet connection to it, which is a product that we just launched recently. And then we can go and choose United States. We're on the West Coast. Let's go to Seattle. There's a red diversity zone. We have options for there that we've built out, pick a speed, choose your term, month-to-month, 12 months, 36 months, et cetera, click next, add the VXC, and that is it, folks. We have literally deployed. Now I'll just go back and show you what that looks like. There it is. There is the Palo Alto deployed. You can see the connection that's running up, which is an Internet connection that gives access to the platform. So people can start deploying making their changes. They build it part of their SD-WAN systems. That is the Virtual Edge power, and we can do that all around the world and build out these virtual PoPs. Now let me just move back to the presentation. All right. That was smooth. We did it. Steve is sweating over here, just so you now. So progress on transformation. Let's get back to the story. It was a massive reinvestment for growth occurred. Getting the fiscal state of the business under control, earns you the right to go and invest for growth. If you've got an opportunity to invest for growth, it's your obligation to do that, and we have the most incredible opportunity for growth in the future, and I'll share that shortly. Let's look back over the FY '24 progress because that's what we here. We're looking back, and then I'm going to bring you to look forward. Q1 was to develop the strategy. Q2 was execute the strategy. Q3 was to build the go-to-market momentum. Q4 was to refine and optimize. We doubled down on proven successes in sales and marketing. Geographic expansion. We continued the market expansion. We will continue to innovate product forever, and we added strategic investments for the long term, investments that take us for the next 3 years and beyond. So let's talk about how we performed in the fourth quarter. Now everyone who's been following us has been following this injection or reinvestment back into the go-to-market machine. And whilst you don't see that from a metric standpoint, what you see inside the business, we get to see the insights to how that team is adding value to the business and actually performing. And I am incredibly proud to share that in fourth quarter FY '24, we had our largest annual recurring revenue contribution from new access products in Megaport history. These are the products that we measure our sales team on. These are the products that give you access to the platform. And without that, you cannot deploy a single connectivity inside Megaport. This is our largest ever contribution. It was our largest ever quarter in Megaport's history for Virtual Edge sales, that sophisticated platform that I just showcased in the previous demo, that is the largest quarter we've ever had. It is the largest overall termed services sales ever. It means that we have contracted more revenue in that fourth quarter than ever before in comparison. Our total customers generating more than $100,000 ARR per annum grew 20% in FY '24. This is -- we give a lot of metrics to the market. One of the metrics we share is total customer count. Now if you look at some of our peers in the NASDAQ, they separate that customer count down between a threshold. And the reason you do that is you can get a sea of very small customers with small ARR moving in and out of the platform, and it can skew the numbers from a growth perspective, if you're just looking at the total aggregate. I've shared with you all a lot around the focus around higher revenue services to more sophisticated customers, shall we say, and that is where the frontline sales machine can support you. The product-led growth machine can support the low end. At the top end, it's about the go-to-market machine. So looking at that threshold when we crossed the $100,000 of ARR, we grew 20% in FY '24 showcasing that, that sales team is getting wind in its sail, should we say. We pivoted to solution selling. That's how you deliver across that. We are closing high-value long-haul transactions. The longer haul connectivity that Megaport launched, we couldn't do this appropriately and cost effectively where our customers would actually choose it. So we didn't have product market fit at the start of this year. We do today, and we now give higher-value long-haul connections, a connection from, say, Sydney to London is significantly more expensive than a connection from Brisbane to Sydney or even across the U.S., for example. The new hires are continuing to contribute as expected. I'm so proud of the team that's come on. You'd be impressed to meet any of those folks that really are making a massive impact there. All right. So that's what we did. And let's share more [ what we ] did in Q4. Let's share the story of the FY '24 execution, and then we'll go into the future. So we sat down over the last week or so when we put this slide deck together, and we just reflected on what we've done is 2 parts to any business. And the first part is your strategy, and it's super critical to get the strategy right. But strategy without execution is absolutely useless. And so let's look back. If you want to measure us on one thing, you should measure us on our execution. And let's talk through it. Our focus is always people continuing to get the world-class talent, innovating incredible products and ensuring we do that in a profitable way. We talked about the massive fiscal turnaround. I won't harp on it any further. But let's just go back. At the start of the year, and this is sort of crazy to think, but we have actually rebuilt a CFO, Tish. We've hired a CTO, our Chief Legal Officer, our Strategy Officer, our Marketing Officer, who's looking at me over there, CMO. We hired 3 go-to-market EVPs. And we did all that at the start of the year to ensure we could start to build. We ground up, rebuilt the entire go-to-market machine. For a company that's 11 years old, I've never seen anything quite like a rebuild that we've gone through. We added sales execs, solutions architects. We had 4 frontline sellers in North America. We have 13 to 14 today. We have solutions architects added to that space. We have one customer success person in North America. We have 8 or 9 today and continuing to hire. We had no SDRs. We now have SDRs. We invested in the channel. We added leaders. We added tool systems. We didn't have a compensation program that made sense. We didn't have a forecasting platform. We've built all these pieces. The inbound nature, if you remember, we didn't even respond to that. So we've actually been able to build a way to respond very quickly and get those leads through, which is working already, that feeds those SDRs and gets deals. We added Spain, Italy, Brazil, we added a world tour of 50-plus sites. Just speaking through that makes me want to wipe my brow. Marketing team rebuild. We launched a new website. The website is the front door to the business. It drives the significant and probably the most of a lead gen into the business is folks coming in. Massive overhaul from that from 2016. We updated branding, all the cool stuff, new cool T-shirts, new cool logos, it's a cool company. Global IX launches, we added more Internet exchanges. And this one I want to just sort of highlight because this is the key for the future. In the last 5 years, Megaport in the last year, I should say, we delivered more product launches in the last year than the entire 5 years previously combined. We added Reach, Global WAN, Internet, Termed VXCs, 100-gig VXCs, Data Center Interconnect, MVE vendors. The 100-gig VXCs that is a 10x increase on the products that we can provide from a speed perspective. That in itself opens up TAM like you wouldn't believe. Data Center Interconnect opens massive TAM. MVE vendors opens more TAM, and you can see that every one of those pieces adds TAM. We didn't sell Internet. Now we do. That's a huge TAM opportunity. Global WAN, all of these pieces give our salespeople arrows to the quiver to go back to the base and expand and for new logos. We launched NaaS on AWS marketplace. First ever, we launched Cisco Paygo. We had a DC expansion, new cloud vendors, new GPU as a Service platforms that we connected into. 400 gig backbone upgrades, which we rolled out, and we will continue to do that. We signed the largest deal ever, $1.4 million of ARR, $4.2 million of TCV. We signed that in Q2, and we're continuing to add deals with large, large contracted spend because of what I was sharing prior. The Future of Pricing was a project that we rolled it out. It is the largest overhaul on a pricing and even product in Megaport's history. I don't want to understate how much of an impact that is. This single handedly gives us an opportunity to turn back on the product-led growth that Megaport was known for. And probably most importantly, some of the folks in this room is we had a 300% increase in barbecues. We actually bought 2 additional barbecues for the head office, so you're going to have multiple sausages operating at any moment in time. So strategic investments for long-term growth. Scaling the network and product innovation is key. We're sort of moving back up here folks. We're going up to the helicopter. We're thinking about the future for the next 3 years plus. This is exactly the same messaging that I shared on the previous session, so I'll sort of quickly bounce through it, but it's important. We continue to scale the network for AI demands. The 400-gig backbones allowed us to give 100-gig services. We continue to roll out 400-gig wherever it makes sense. We continue to scale our network procurement economics. Tish mentioned it before, we have 4,000-plus contracts out there that we constantly get to actually resolve on a weekly, daily, whatever basis. And we have an opportunity to expand that, adding more value to our customers. We're expanding product set. We're going to constantly focus on what I would call low touch incremental high-revenue products. Internet, something we add to the existing platform that gives us higher revenue that's easy for us to deploy and make sense for our customers. We're going to roll out faster cloud-to-cloud connectivity. This is a big project. Multi-cloud and cloud to cloud is key. Cloud to cloud becomes cloud to GPU as a Service, you name it. Strategic data center expansion, new countries and competitive pricing to expand. AI as a service GPU on-ramps. You saw us launch most recently, if you follow us on LinkedIn, AI Exchange. That's really exciting. More Virtual Edge partners. We just added Aviatrix, and I gave you that demo. More cloud providers. We're seeing niche cloud providers come into the world, shall we say, offering niche services. For example, just doing storage, but doing it in a niche way, that makes a lot of sense. We'll continue to add them. We'll continue to add cloud on ramps with the titans that we work with globally. They continue to grow. More IX locations, more IX peering. We launched Financial Services Exchange, which is really exciting as well, which is we have -- one of the largest customer base we have is financial services, and they need to communicate with each other and allowing them to do that on the platform is really cool and adds a lot of value. We've got ongoing investments in the go-to-market. It's strategic. We will continue to invest and expand to go after that growth. All right. On to outlook and guidance. We're nearly there folks, 2 more slides, including this one. FY '25 revenue, we've given guidance of $214 million to $222 million. FY '25 EBITDA is $57 million to $65 million. FY '25 revenue guidance reflects the expected new logos and expansion of our existing base and our customers. If you look at it, there are only 3 things to focus on, what's your churn, protect your existing customer base, minimize that. What's your expansion? What can you sell to new logos? And I just shared some of the products that we've added to go into that space. And what's your new logos that you can bring inside the business? And that is we're laser-focused on all those 3. FY '25 EBITDA guidance represents the continuation of profitable, efficient growth while reinvesting in the business to drive long-term growth. This is a long-term growth opportunity. This isn't about save all your pennies. This is about invest to access that growth and go after what is tremendous total addressable market that we can go after. And so Megaport's focus on going for the next 3 years and beyond. If we look out, this is about continual product innovation. But leveraging the product innovation that I just shared for FY '24, that innovation in FY '24 significantly increased the TAM that we can go after. Global WAN, Data Center Interconnect, Internet and 100-gig connectivity alone opens up a huge total addressable market that we can go after that we couldn't go after at the start of the financial year. So the markets opened up, but the markets themselves are growing even in our traditional business is just cloud connectivity. Now that with the products there, we have to attack that new TAM. And the only way to do that is leveraging a powerful go-to-market machine that we've rebuilt, and we'll continue to pour gas on that fire. We're continuing the expansion of our global footprint. You won't see a slowdown, new countries, new locations, new network and faster speed everywhere. And that ongoing investment, again, back into the go-to-market, we will continue to invest for the foreseeable future so long as we see opportunity to go after, and we are so far away, we've just scratched the surface. I'm going to finish where we started and give you a perspective of the company and what we do. I think Megaport, whilst it's hard for some folks to understand what we do. I think some people have sort of classified us as just a connected to the cloud. Megaport is significantly more than that. We are more than just a cloud connector. What I'm showcasing here, and I'll wrap it up soon because Steve's giving me a look. But if you have a quick look here, on the left-hand side, each of those green dots or the highlighted images there, that is a product that we didn't have at the start of the financial year. The gray dot components to this is what we started the financial year with. This is what we've added from a product standpoint, which gives us an opportunity to go after and expand that total addressable market. DC to GPU, cloud to GPU, branch to ecosystem, Global WAN, virtual security, global backbone, dedicated Internet, FSI Exchange and AI Exchange, and you'll see us continue to build as we go. But just that alone gives us a tremendous opportunity. So the future is incredibly bright, and we're all in. So with all that said, we're over to questions. So I'll bring Tish in and Steve and take it away.

Okay. Thank you very much. We have a number of research analysts who have raised their hand to ask questions. We'll go down the list. Tim Plumbe from UBS. Can you please ask your question.

I'm sure there's going to be lots of questions, so I'll try and limit it to 2, if that's all right. Just thinking about the existing customer base, Michael, can you maybe talk about net revenue retention, how this has changed throughout the course of the year? How we should be thinking about the exit run rate? I mean it feels like it's slowed. I mean, if that is the case, what do we need to do to reaccelerate? And how do we think about timing for that?

Good question. So if you look at the -- and there's multiple moving parts, as I shared, there's only a few ways you can grow a company. The first piece is, are you controlling your churn? And so if you look at the history of Megaport, earn is flat, we shared that on the previous call. The next piece is how you're expanding that existing customer base. And the third piece is how you're growing the new logos. Now Megaport for a long period of time, had what was a great natural expansion from a product-led growth motion. And that has been slowing. And in line with, I would say, we -- internally, we focus very, very closely on that retention. And we compare that to how the world is sort of playing out as well. And we've got -- we can only sort of follow publicly traded companies, there's quite a few on the NASDAQ that are similar to us. And we've seen declining net retention trends globally. So inside Megaport, we have seen a decline in net retention, which is why you see that from a revenue standpoint. A few factors to that. One, yes, it's a global trend. But 2, Megaport for the last 3 years has seen a slowing. Now why? It goes back to the reinvestment around the go-to-market machine. One element is that net new adds of customers slowed some period of time ago, newer customers expand faster than older customers. That's one. The second piece is that I shared around the product -- in the previous slide, I talked about our pricing changes inside the business. The platform that we went through, we made the most significant changes to pricing inside the business to allow product-led growth. So Megaport story was land and customers would go into the portal and add services. If we weren't competitively priced for those services, customers wouldn't add and expand. And we didn't have a way to fix that pricing until we went through that massive change. We went through that massive change in Q4 or late Q3, start of Q4. That gives customers a chance to go back into the platform. I'm going to give you a little example on this because this is really important. When we look at Global WAN as a really simple piece, we have large financial services customers here in Australia that logged into the portal after we made the pricing changes that we allowed to do and connect from Sydney to London, simple, a Sydney to London connection just after those changes were made, and that was a $250,000 ARR purchase made by that customer without engagement that was clicked, added and then they connected those services. So that is the key piece around the transformation from a net retention perspective like 2 elements -- 3 elements. One, the business turned off some time ago to market, and the third is the product-led growth machine was stunted because of the pricing component.

Got it. Sorry. And just -- I might have missed it, but could you maybe share the exit run rate, if possible, please? And then just a second question around sales staff. What sort of sales staff expansion have you got factored in to the guidance numbers this year, please?

So I won't comment on that another metric on net retention. Specifically, suffice to say that you can pretty much see how that's playing out inside the business. And you can see the performance of the go-to-market actually coming into play. So I think map those 2. Tish can talk to the investment side around go-to-market.

Tim, can you just articulate your question again for me?

Sorry, just within your guidance range, what have you allocated for expansion of go-to-market sales team expansion. So what's the sales team at now? And then where are we expecting to finish FY '25, please?

So for the sales team, I guess the one thing to note is we've kind of got up to what Michael call stable stakes. And so we will continue to reinvest back into the go-to-market team.

Well, so the table stakes was quite a dramatic turnaround. We had to go and hire quite aggressively in the first half. We will not continue that rate of hiring, to be clear. So if that's where you're concerned or where you're headed. However, we have a massive opportunity to continue to invest for. We are looking out for the next 3 years and making the appropriate investments. What I don't want to see is what's happened in the past at Megaport, where they haven't made the appropriate investments upfront and you've been -- you pay for that later. And so the opportunity for us to continue to do that. What you'll get from us is a profitable fashion. So we are not going to go and do, as I said before, like crazy investments were growth at all costs. It's profitable, efficient growth. Wherever there's growth opportunity for us, you'll see us invest.

Thanks, Tim. Eric Choi from Barrenjoey, if you could please ask your question.

I'll ask 2 as well. First one, just on how Slide 29 and your fourth quarter momentum translates to revenues in Group ARR because I'm just looking at the ARR per service, which looked flat in fourth quarter '24 versus third quarter '24. And I was wondering if that should be up, if you're selling more high-value MVE in the fourth quarter? Or maybe it's not so fast and maybe we should expect that step up more in FY '25?

One thing will be FX. The second thing is when we land, we don't actually report that ARR until the service comes live, and we don't also report that until it starts revenue as ARR, even though it's contracted. So the metrics I'm giving you here, that's the reason you won't see that flow through to the metrics we share externally. We don't share like pre metrics. These are sales metrics that we look when we measure the team. So they are the 2 -- that's probably the 2 key pieces there.

Crystal clear. So we'll see that in the ARR per service in FY '25. Okay. And then just the next one for Tish. Can I just confirm your fourth quarter OpEx was around $22 million to $23 million, which kind of implies $90 million annualized. And then my question is how much extra investment dollar wise, you're putting on top of that $90 million into FY '25. And the reason why I'm asking is I'm just trying to work out how much higher your FY '25 EBITDA would have been if you didn't sink in that extra investment versus that fourth quarter base?

So Eric, the reason that we have provided guidance is to ensure that you understand that you can't grow a company if you don't reinvest back into the company. So I think if we -- it's not hard, we've proven that we can do that is cut costs and hold those cutting of costs, but you can't then allow for growth for Megaport. So in essence, that's the plan for FY '25. It's about the future growth of Megaport.

It's not out of line if you look at it, the messages that we shared is we utilize a lot of existing inventory. We're now building that back up. We also highlighted here the inclusive $6 million cost. That's an upfront cost for the next 3 years that's been covered for the network infrastructure as well. So it's giving you as much guidance on it as we can.

Thanks, Eric. Bob Chen from JPMorgan, if you could ask your question.

I might try to as well. Lots of new products and new sort of TAMs that you're opening up there. Can you talk a little bit about how we should think about the cadence of ARR growth into FY '25? I think your guidance sort of implies maybe mid-teens growth. But do you expect your '25 exit run rate to be a little bit better than that?

Won't add an additional guidance component. I think that's why we focus more on the revenue. You can pretty much determine that backwards from there. The opportunity that we have, you're right, the new products that we've announced and that's why I sort of spent a little bit of time harping on it. This sort of play lifting back into actually what we can offer dramatically expands the TAM. And so it's quite interesting. Like if you're a pure SaaS company and you want to add total addressable market, you need to create a new product, so to speak, like a totally new product to enter into that TAM. In the network space, you can increase the speed at which you provide and you open up your TAM. So for example, the fastest connectivity we can provide globally to customers was 10-gig at the start of last year, 10. Today, it's 100. That's a 10x increase in the speed that we can offer. So we can now address any customer that needs to go beyond that 10-gig phase. And there are a huge amount of customers that need to do that, that we couldn't address before. And then those -- that revenue is significantly more. So if you think about a small connection to a cloud, that could be $200. If you think about 100-gig across the United States, it could be $5,000 or $6,000 connection -- per connection per month. So orders of magnitude difference. And that's why when I say we open up the TAM, it's actually substantial. It's substantial in many ways. Internet also opens up a huge market. Think about it. Any data center that there's a customer living in it, they have to have Internet connectivity. Megaport now offers Internet connectivity in that space, and that's something we can go and roll out. That is a TAM in itself that opens up. Global backbone opens it up and so on and so forth. So it is a tremendous opportunity for us to continue to grow. And by the way, you won't see a slowdown. We will continue to innovate. It's so important that we do that. A big point of, I think, why Megaport was slowing was that we hadn't innovated -- I think the last product launch was 4 years ago prior to stepping into the role. So it's astounding.

Okay. Great. And maybe sort of another way to think about it. I mean you've got -- you mentioned earlier how you've got most of the sales team in place now. Are they all fully settled in? And are they sort of producing at sort of peak rate or optimum rate? And should the sales cadence coming through from the TAM improved through FY '25.

So the reason I shared this particular slide is to give you some insight to how we measure the business from a sales perspective. I mean, I don't think there's any -- I think the appropriate correlation you should draw is that we've had a big investment, by the way, it just gets us to table stakes. It gets us back to where we were in '20 -- I think it was '19. But that investment has resulted in the largest annual recurring revenue contribution from net access products, new access products in Megaport history, largest quarter in Megaport history for MVE sales and the largest overall term services. So I'd draw your attention to that to give you a perspective of how the team is performing. As I mentioned, I'm incredibly proud of the team that's come in. You don't land everyone perfectly and you make quick adjustments. But that team, and I think if you follow me on LinkedIn, you can actually see all those smiling faces, we just had a North American off-site. They're rock stars and they're making a massive impact already evidenced by this slide.

Nick Harris from Morgans. You could go ahead, please.

Michael, Tish, I guess I'm going to do the same as everyone else and trying to unpack the sales momentum a little bit. Obviously, you've spent a lot of time talking to us on what's happened inside the business to rebuild that momentum. But on a net basis, I guess, it's not quite as obvious. So I'm just trying to get my head around churn versus decision-making. And I guess if you look at the likes of Cisco and Telstra, they've all said, it's really hard out there in the enterprise networking market. So I'm just wondering, to some extent, is that having an impact on you? Are you seeing sort of higher churn, slower customer decision-making and things like that? And if so, can you talk a little bit about it?

Churn for us remains flat, as I mentioned before. The real story of Megaport that you're trying to unpack is purely net retention. It's the expansion of the existing customer base and how rapidly they were doing that. What we've established was we had some pricing increases. Now when that occurred, we didn't see the churn. And that was, I think, surprising at the start. And it can lead you to the wrong conclusion. It can lead you to a conclusion that suggests that actually customers are comfortable with that. Actually, they're probably more just comfortable to remain with the service. But if you just -- what happens is you need to work out the decision for the next service. And so if you're comparing pricing for the next service, which you would typically see from a product-led growth perspective, they go into the platform. If that pricing is not competitive, you just choose not to go with that vendor. So I don't think that's changed. I wouldn't compare us to Telstra at all. Our market is truly global. We also only just scratched the surface of what we address. I'd say most of what we've done is of our own doing from the historical path and the opportunity is still significant. The platform that we offer is massively differentiated and disruptive to the traditional telco players globally and still hugely valuable. But product market fit is key and a big part of product market fit is also pricing, which is why I shared to you the pricing and innovation has been super important to get that platform. That is very, very recent, like we're talking less than 1/4 of opportunity for us to start to see that turn around. So the piece is not churn. I'm not sure I haven't followed Telstra, but that if that's a challenge, that's probably more -- yes, it's them. Yes, we'll go into that. And so then for us, it's the expansion focus, and that is the net retention story that we focus on. By the way, we build out a customer success team. We had 2,600 customers with -- a few people globally trying to contact them. We've had to spend the last 6 months actually communicating with our customers, sharing what opportunity we've got. That will start to drive that net retention. Net retention is a lagging indicator, as you well know. So all of those factors we would expect to see at least change with all those investments in place.

And maybe just one more for me, which is just on the AI Exchange. I mean that's a huge opportunity, I would have thought. Are you able to share any customer feedback on that? And maybe just explain to us a little bit about how, I guess, the go-to-market, how customers will work out. They can use Megaport to connect to these different AI instances. Is that Megaport sales team pounding the pavement and building those relationships? Or could it be like cloud, where you get the big 3 CSPs saying, hey, use Megaport, it's an easier way to connect.

Great question. So the AI Exchange was us publicly sharing that to all the AI GPU as a Service style company. So AI is basically processed on GPUs. There's all these companies that are appearing building out Nvidia GPUs. And then what they do is they've got a lot of cash because they're getting a lot of cash. They're getting all these GPUs, they're landing in the data center and they're like, how do we get customers to them. Funny enough, it's the exact same problem that AWS had when they started and Megaport solves that. To us, the GPU as a Service platform is no different to a cloud. It requires high speed -- well, it requires high -- much higher speed, high-speed connectivity that's delivered on demand. Hey, welcome to Megaport. So the mission is to enable as many AI-as-a-Service platforms as many GPU as a Service platforms globally into that exchange and allow our customers to connect and spin up services. So it's exactly the same story as cloud. It's an interesting space. It's developing very quickly. I think the piece is feedback from customers is mixed at the moment, but not mix from what we provide, more mixed on their side, then trying to work out what they are going to push to be trained in these GPU as a Service models. And you're sort of seeing it move between some of the much larger players. So the GPU as a Service platforms, they're in their infancy to try and work at how to do that. What's cool is our engineers are actually helping them design the network that we are going to enable them to connect. So that became the AI story. I'm getting the wrap it up from Steve. So I could talk about that a lot.

Take it offline. I'm done.

Thanks, Nick. Andrew Gillies from Macquarie. I could you ask your question, please?

Guys, could you hear me?

Yes.

Perfect. I've heard that you might be engaging in some promotional activity in certain regions, taking advantage of one of your competitors being particularly weak and maybe [ seeding ] some share. Can you give any color on that, please?

What I'll say is we've launched a public promotion globally, and this is an offer that we would make to any of our customers. What we found is that -- particularly with these much higher revenue services that we've been going to market with. Global WAN is a really good example. A lot of these customers are previously contracted. So what we've done is helped our customers moving out of contracts that they're stuck in that they may no longer want to be in for whatever reason that may be, and giving them a path without cost to land in a safe fashion. And so if you look at Megaport to enable that to happen, let's say, for example, Macquarie had connectivity, but it's contracted for the next 9 months. Weren't feeling comfortable with that. You're still obligated to pay that. So it's not that you can get out of that contract, but you can certainly move your network connectivity to a stable platform. Megaport gives you an opportunity to do that. And to solve for that from a cost perspective, we enable you to do that at no cost for the termination of that program up to a year as long as you take out a year contract with us moving forward.

Okay. Perfect. And then maybe one really quick follow-up. I'd just like to get a feel, Michael, there have been obviously a heap of changes you've made this year. Congratulations on getting so much done, including the barbecues. But I've just got a question kind of trying to understand if 100% was all the changes that you need to make to sort of be set up for growth now, how close to that 100% do you feel like you are coming out of the exit of FY '24 because it does seem like you're getting on the front foot in certain aspects of the business.

You're never 100% in tech. It never ends. In fact, if you look at the constant strategy of the business, it's people, product and then profits. And so if you look at the product piece, you never ever stop innovating. Megaport is paying the price now for the lack of innovation from 3 years to 4 years ago. We've massively poured gas on that fire and it was an opportunity for us to release. The question is like, how far through? I'd say we have -- let's say, we stopped innovating right now. We have such an amazing opportunity just with that to continue to expand into those -- into that total addressable market, which I keep referring to. Just those things open up such a massive space. It's up to us to just go and execute that the sales teams that we've got. But what I'm saying is if you stop innovating, you'll break yourself in 2 years to 3 years' time. So you got to continue that investment.

Thanks, Andrew. We have time for 3 more questions. Could we have one each from Kane, Roger and Paul. Kane Hannan from Goldman. Go ahead, please.

Maybe just comments around no change in churn. So it's just interested how I reconcile that with the customers' survivorship cohort bubble chart. I mean I think trends seem to deteriorate quite a bit in FY '24 versus what happened in '23. So just can you to talk about that, please?

Yes. So that represents a total number of customers. And this is one of the important pieces, as I shared before, when you separate like a Cloudflare as an example, would refer to above certain threshold of ARR per customer. The problem with that suppliability chart is it's bundling in all customers. It's a quantity of customers. And so it's a smaller -- for example, if you had a lot of customers that came on to do a project in that year and they drop off, that would represent that change. Secondly, it's a small component of it. And that's why I think it's important to look at the broader business in terms of the customer count, which is what I've shared in that 20% growth year-on-year of over $100,000.

It actually represents the customer accounts, not just the customer logos, it's everything.

That's a good point. So one of -- yes, that's a good point. So the other piece to it is we changed our metrics and focused on revenue-generating customers. That bubble chart, we can't actually get the data going far back enough to get the revenue-generating component of it. And so that is actually skewed again by the same reason I moved out of that just account. So you could have, I assume, free services and God knows what in there, moving in and out. And if the whole range of free services of accounts moved out, then you would see that churn. So it's a little bit -- can be misleading, I suspect.

Thanks, Kane. Roger Samuel from Jefferies. Go ahead please.

My question is just trying to reconcile between the ARR and your revenue in FY '25 because, historically, we could get the ARR number from prior year and then apply a 20% growth on top of that, which I should get about $250 million for FY '25, but your guidance is obviously lower than that. I'm just wondering what's the factor driving that discrepancy between sort of the implied revenue versus your guidance? Is it the lower net retention rate? And what can you do about it? I mean can you potentially reduce prices to improve your net retention rates?

So pretty much the same answer I gave prior, so I won't spend too much on net retention, you're spot on. That's the reason that net retention has been declining for a period of time. The -- again, the focus around, as I said before, around the product-led growth machine for that, getting the pricing set, so that you can continue that expansion and then getting that customer success team actually contacting back to the customers. So there's a lot we can do about it. And we've executed against that. The challenge is it took a long time to rebuild the entire product base underneath to get that future of pricing. That is an engineering feat of incredible energy that went into that. It probably took 3 months to 4 months just to get that rebuilt so that we could push that into play. So we haven't even seen that impact come through. And that's why you'll see us land where that guidance is.

Thanks, Roger. If we have one final question from Paul Mason at Evans & Partners.

Just wanted to ask a little bit about sales cycles, given you're focusing on bigger deals and enterprise deals and MVE deal. Could you talk to us a little bit about whether that's having any impact on how long it takes to close on average versus history for the company? And then also the time between like closing and then revenue generation, like whether that's actually changing much this year with the refocus or whether we should look at that as stable?

You're right. And so that's why when I answered the question prior around the performance in Q4, we're not showing yet. One of the pieces is, as a really simple example, if we give 3 months free -- when we sign the contract, give you a 3-month period to start that process, when you sign up a much more complex network and there's really -- some examples of that, that we've done some incredibly complex networks that have reduced customer expenditure by millions and millions of dollars by deploying networks with Megaport leveraging MVE and all these different locations around the world, stitching them all together. They're huge projects, as you know. And so it does take time to win those deals. But when you win them, there's still a delay in terms of when it all lands and starts revenue, but you usually contract them for 3 years. So your question is twofold. One is, is it taking longer for those more sophisticated deals? They are always longer deal cycles, but they're still not crazy long. We're not talking like 18-month sales cycles. On the traditional business, we still see customers contact us and actually procure in the same week. So we see deals that could come out of nowhere and close. And then we -- they are usually project-based or they could be just support and connectivity, just the traditional platform. But separate to that, the sales motion takes longer because you're engaging, but they're significantly higher from a revenue standpoint. And so we see that already playing now. So I think yes is the answer to your question.

Okay. Thank you, everybody, for attending today. Michael, do you have any final comments to wrap up and then we'll close.

I appreciate all your support. It's been an incredible ride over FY '24. Thank you to the Megaport team, what a massive turnaround. We are positioned for tremendous growth over the next 3-plus years. It's an amazing market to be in, and we are disrupting that space on a daily basis. We'll continue to do that. You'll continue to see us grow and invest profitably and sustainably and efficiently ongoing. So thank you. Appreciate you all.