Megaport Limited (MP1) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining the Megaport FY '26 Full Year Results Investor Webcast. We will begin with the presentation by Michael Reid, Chief Executive Officer; and Leticia Dorman, Chief Financial Officer, followed by a short Q&A session. [Operator Instructions] Now I will hand the call over to the Megaport Chief Executive Officer, Michael Reid.

I've been promoted to the CFO folks. I'm also sitting as the CEO, and I have got delegated my CFO responsibility to Tish, just to let you all know. And welcome to the FY '26 full year results for Megaport. This is our investor presentation. You'll see all of this is lodged on the ASX. I think there's a number of lodgments out there, so we're going to walk through a few of those today. But let's kick it off. First and foremost, we aren't a gaming company, as many of you will probably notice from this, but this does represent our business. We are connecting from the networks to the clouds. We are compute, network and storage, and we're on fire. Let's get through it. So what you'll see is, as you know, folks, we've acquired a compute and storage company, which is we've launched storage in that period of time. So we're going to break up the business between Megaport Group, which is going to be at the top right of each screen, you'll see this particular logo. That represents that the revenue and anything we're talking about in that slide is the entire group made up of both the compute and network business. If you see this at the top right, is compute, and this is network. So that's just a bit of a slide key to break it down so that we can share how each business is performing. Today, we'll be going through company highlights, financial results, strategic update and then a guidance update. Let's just pause for a second and look back. I think it's over the past 10 months from today, in November, we actually couldn't fit enough on the slide for what we did throughout the year. Otherwise, it would be too big. So on 26th of November, we announced the acquisition of Latitude.sh. That was our entrance into CPU and now GPU-as-a-service platform is totally automated. We also announced an acquisition of Extreme IX, which is our entrance into India with 40 different data centers landing. It's the largest Internet exchange in India. And then on the 27th of April, this has happened in a pretty short period of time. So between the 27th of April and today, we've announced $1.3 billion of TCV. The first one was $35 million on the 27th of April. And then we announced a $254 million GPU/CPU network and storage contract on the 14th of May. Then on the 3rd of June, we announced $458.9 million of TCV. We also launched our GPU on-demand pool. We did a capital raise via entitlement offer, which was $827 million, the day after we launched storage, so it's been pretty busy. And then today, we announced another $506 million of TCV contracts, which were announced today. That's obviously forward-looking, so that's not reflected in the FY '26 numbers, and we've got an announcement in the ASX on that. We've also been incredibly busy, so a huge shout out to the finance team. I think a lot of the investors, as we've spoken in the past have asked us about how we're looking at this from a debt perspective, how we're looking at all of our capital management. And we've shared that we've been in a process for a period of time. We're super pleased to announce we've got $825 million of new debt facility, which has been announced as of today. So that's fantastic news, which sets us up for the future. Again, the highlight here is $1.3 billion of TCV contracts signed since April 27 to today. How does that look looking backwards? So let's talk about the FY '26 ARR chart. And you can see a quick note at the top right. This is the group business. And so you can see that broken down is the network and then the compute business ARR as at June '26. $395 million of ARR landed in that year, which is an astounding achievement. If you break it down from a group revenue perspective, we're at $312 million, which is a 37% year-on-year increase of group revenue for FY '26. Networking ARR is up 27% in constant currency to $289.6 million, an incredible achievement, and I'm very, very proud of what the team has achieved here. On network net retention, so we break down the net revenue retention effect for the network business specifically, separating out the compute business. So I think this would be appropriate to say that, that little thing doesn't represent that. This represents the network side. We're up 5 percentage points year-on-year. That's 114% net revenue retention, probably one of the most important metrics that we've been focused in the business over the last 3 years. This is an astounding achievement, and we're going to walk through some of those pieces coming up. The compute ARR. So since the acquisition, which we announced late November, we're up 72% as at June to $105 million of ARR. Just an incredible achievement for the Latitude business and a massive shout out not only to the founders that have joined us, but to the entire team and to all the new folks that are joining the business and helping scale. It's a story of massive execution coming out for the next year and continued growth. So let's look at the annual recurring revenue breakdown for the network. There's the network logo at the top right. So this is representing the network annual recurring revenue throughout the year. You can see the breakdown between Americas, obviously, the largest component of that, $290 million at the top, $166 million in Americas, $77 million in Asia Pac, $47 million in EMEA, all regions growing. But I think I want to draw your attention really specifically to the ARR incremental additions. So this is the net increase in ARR on top of the start of the year to the finish of the year. And you can see in history, we've been performing well, but look at FY '26. This is 103% increase. It's on the largest ever year-on-year growth that we've ever seen. So the largest year that we've ever seen, we've over doubled that in net ARR incremental additions to $62.3 million in FY '26, an incredible proof point that the investment that we made actually this time last year back into the business and all those pieces we've been setting up from a product standpoint is paying off in dividends, really exciting. This is the compute business and just a reflection of how the ARR has grown inside that business. I mean, right now, we're hitting sort of a little skate park here as you come up this side. So you can see since the acquisition in November 26, you can see the extreme growth that we've had here just in that very short period of time. This isn't even taking into account all of the TCV contracts that we've got in place. I think there's a very small amount of ARR from them in there. So the future is looking incredibly bright. Again, congratulations to the Latitude team, what a magic partnership between us, and that's showing right there. We've shared our DC cohorts ARR contribution over time before. It's a little bit of an eye chart, but it certainly reflects how important it is for us to continue to invest in building out new data centers. And I'll just sort of explain what you're looking at here. These -- each group here represents a cohort of data centers that we've added. So if we go back to this very first one, in FY '22 we added 26 different data centers. And it started in that year with this level of revenue. Now what was really important is that the following year, that's when you start to see the revenue come to fruition when you invest in building out a data center. And you can see its compound interest there on -- from there on after. Now we sort of shared this back here. Look, when we first came in, there were very few data centers added, and we started to say we need to continue to add. What we saw in FY '25 was we added 115 data centers. You could see how that landed from a revenue perspective, but have a look at the following year from those data centers, astronomical. And so what -- the point of this is every time we add these new DCs and get new revenue, it expands our TAM and helps us grow the business, but it's the ongoing growth of that. Now have a look at what we've done in FY '26. The team is on fire. They've added 155 data centers, landed the revenue at this component. And you can -- if you play this forward, you can start to see the impact of compound interest of building out the TAM. This is a really key part of the strategy as we constantly continue to invest in building and showcasing why we're doing that. So you can see we're up 35% year-on-year in terms of data centers. And what's really interesting is we're landing new data centers with much higher ARR because we've got so many more products that we're selling into that customer base. So it's a real key example of the strategy coming together. Probably one of my favorite charts. This sort of represents what that compound interest around net retention and how it plays out in the customer cohorts. So just to sort of quickly look at it. Whilst it looks very pretty, and it is very pretty, each color represents a cohort of customers, i.e. let's pick a particular color. So in June '22 to June '23, so FY '23, this very small piece of revenue is the customers that landed. And then what happens to them in the next year, they expand and then the year after they expand and the year after they expand. So that's actually showcasing it's incredibly sticky, but also expansive, which is your net retention number. But what we've done right at the top here is we keep stacking these on top of each other. The FY '26 cohort ARR has landed 55% higher than our previous record. It's showing an incredible result from the go-to-market team. And again, back to all those new products that we're landing and innovating, we get more revenue, more wallet share, more TAM per customer, and we're proving that out as to how we land. It's always great when we tell you what we were going to do, and we can show you historically that we actually did what we said we were going to do. This slide, there's a lot of data in here. We're putting this in the deck more for when we go through the investor roadshow. So I'm not going to walk through every one of these. But in short, the execution against the strategy throughout the financial year was nothing short of astounding for what was a pretty small team. And so we added 155 data centers. We've added so many different products. If you think about the strategy of the company, there are 3 pieces. We build, and that is how we expand and add different total addressable market into existing products. So that is how we add -- if you look at it, Megaport infrastructure across 40 sites, we build out storage hardware, we build out all this infrastructure, all these different components. We upgrade speed, 400 gig, you name it, et cetera. Then on top of that, we -- actually there's probably a few things worth calling out. We had 3x the expansion in 100-gig Internet locations, which is a 200% increase in market coverage. Just one little example of going big on the products that we're seeing massive success in. So we're constantly testing products and all sorts of things inside the business. When we find success, we double down behind them and continue to expand, 67% increase in 100-gig enabled locations, for example, 58% increase in bare metal servers. Huge investment. The innovate component is about us bringing out new products. So this is our engineering teams actually building cool stuff. We launched cloud storage, DDoS Protection. We launched MCP. So this is all the AI components that are sitting inside that. And virtual machines, Kubernetes, Agent Hub. There are so many things that came through. Cloud Router, IPSec, Packet Filtering, Ping, Traceroute. The team has delivered that in that period of time. Each one of those steps us further away from anyone that would try and do what we do and actually adds a TAM to the component. And the last piece is the investment component. We talked through a few of those. We've acquired companies. We've added capital to it. We've invested in all the different folks. We're diversifying our capital base. All those different components. We will take the investor roadshow if we need to go through that. All right. The financial results. This is the exciting part, folks. I'm going to hand you over to Leticia Dorman, our CFO. Cheers.

Thanks, Michael. So the FY '26 performance, we just have a slide here really to touch back on the guidance that we provided and where we've landed compared to that guidance. So reported group revenue is $312 million. That's made up of the network revenue, which has been since experienced significant growth over the last year, landing at $268 million. And then the compute revenue, which we talk extensively about, and what we've landed a number of strategic contracts that largely will land into FY '27 for the impact on to revenue. However, that compute revenue against there is -- around $44 million. EBITDA is at the top -- above the top end of guidance at 25%, made up of a variety of components, being revenue and a range of costs in there, which we'll talk through on the next slide. And then CapEx around the guidance that we had $90 million to $100 million, which excluded any strategic contracts or initiatives, landing at $98 million. So here, we've got a fair bit of text, which is helpful for post results for a few of the folks on the call. But the callouts here, revenue up 37%. Now that is, we did acquire 2 companies, with revenue in those companies, Latitude and the India acquisition. That -- but also the underlying network business itself, with significant NRR growth and new logo acquisition during the year has added to that result. The direct network costs, it does reflect the ongoing investment we've talked about extensively previously, 155 net new DCs, and we continue the 400-gig core backbone upgrades as well throughout the globe. Employee costs are up substantially as planned and as communicated a number of times. As the business has been rebuilding, that cost has increased. We also have incorporated the 2 entities in a much bigger group, and we continue to invest in the business, particularly to support the scale of growth and opportunity in revenue. Other operating costs, there are some higher nonrecurring expenditure associated with the 2 acquisitions, in particular, located in -- we're now located heavily in Brazil, India and the U.S. So there's a significant amount of travel as we start to merge the 3 entities together and some heavy marketing activity to support that as well. EBITDA at $77 million, which showcases that 25% margin there is also a call-out there for us. Employee costs, this is some insight into where we've invested for employees and continue to invest. And you can see that insight there, largely around the LTV to CAC of 5.8x, that really just reflects even with the go-to-market investment, which continues to scale, that supports the revenue growth in line with that. We are scaling the customer support and deployment functions to enable the compute build-out. That's a really critical component. And then we continue to invest in the product and engineering, as we continue to scale out the onion rings. I think Michael will talk to a little bit later in this, around the continuing expansion of products. Cash flow, that is up pretty materially. We did do an entitlement offer in the month of June. And so the cash had landed in the balance sheet. We continue to place deposits on significant orders of GPUs. And as we start to have those be delivered, we'll continue to utilize that cash in order to start to support the rollout of the strategic contracts as planned. You can see here the operating cash flows of the combined entities. That is driven by the inclusion of the 2 entities as well. This is a consolidated cash flow as with EBITDA. So some pretty significant changes in the business overall across the P&L, cash flow and balance sheet that you'll see. Michael has talked to this previously around the new debt facility where we have commitment letters signed by a syndicate of leading domestic and international banks. That has been a significant process that we've undertaken over the last few months. And so we're really excited to announce that as part of the overall funding strategy that we've undertaken to support growth for the consolidated group. We do continue to explore further funding strategies in line with our capital management plan. And this is really designed to highlight that where we see the growth, then we will continue to invest our cash in where we want to build and innovate to enable growth for the future of Megaport. And that debt facility will form a core part of the overall funding strategy for that. Back to you, Michael, on your strategic update.

Fantastic and congratulations for a huge amount of work from the team. I think just acknowledging the finance and HR and the legal team that have made 2 acquisitions come to fruition. The finance team has done all the multiple announcements since April, plus the end of the financial year results and on top of that, a debt facility process, which has been astounding. So Tish, you are allowed to have a little break, maybe a couple of days after this. Strategic update. So for those of you who haven't been following, we are now what is a globally distributed automated infrastructure company. So people are, well, what is Megaport and what do we do. We do 3 things. We deploy compute, network and storage, which are physical infrastructure assets. We deploy them in data centers all around the world. We own that infrastructure. We use our capital to procure that. We physically install it in the data center that we lease. We then stitch it all together with fiber, and then we run that. Now we run a software automation layer that we have built and managed in-house. That is the sort of crown jewels of the business that automates the deployment in seconds for all compute and GPU, for all network globally and then for all the storage elements as well. The 3 pieces make up the trifecta to what is all IT infrastructure service in any application that you have ever used in your life. You can see how we're distributed and broken down around the globe. We are in 31 different countries. We have 330,000 pieces of physical fiber that we lease and stitch together 3,000 network devices, 13,000-plus GPUs and CPUs and scaling at a rate of knots across 1,100 data centers. This is an incredible business with an impenetrable moat that is just scaling at a rate of knots. Like, look at this thing, it's incredible. So we're super proud of what's been built there. But as I say, a picture is worth a thousand words and a demo is 1,000 PowerPoints. So instead of putting 1,000 PowerPoints in here, I'm just going to do a very quick demo to show you what that actually means, assuming I can switch over here. Just checking everyone can see my screen. Is that coming through? Yes, all right. So what you can see here is Planet Earth. We obviously -- we have 2 options. We have the flat Earth version, which Leticia is fond of. And we've also got the spherical version. I'm a spherical guy. So let's zoom in. What you've got here is every single data center that Megaport has rolled out across the globe from a network standpoint. This is specifically looking at the network part of the business. We are compute, network and storage, and this is the network element. So if we just take a look at the United States, this is me logging into the portal as a customer. I can see all the different connectivity and different products that we've deployed. We'll pick a clean location, and we'll just zoom in on that. So we'll take 13 data centers clustered over in this particular location. We'll keep zooming in. There is 12. You can see all these different data centers sitting in this particular location. So we've got NTT Global. We've got QTS Portland, Flexential, EdgeConneX and we keep scaling. We go right down here to 2, and there's another -- there's Digital Realty Portland. So what you've got in this very small location in Portland is a whole range of data center operators that we're currently live and active in. And this is when we talk about deploying data center locations. This is what we do. So what happens is a customer has their own compute hardware sitting in this particular data center and they need to go and connect. So let's pick EdgeConneX here. We click on there and we can choose what product we want to create. We want to create a port. We want to get access from our server that we've got in that data center. We want to access connectivity to the outside world. We've picked the data center, we click next. We scroll down and we choose what side it's a port. So this is the Megaport at the 100-gig location. We'll give it a name. We'll choose whether you want to add a cross-connect, which is automated for you. We can actually deploy that. Month-to-month terms, you name it. You can add all sort of technical details, but we'll just click next and click add the port. And what we've done, as you'll see, it has gone blue. We now have deployed physically a physical 100-gig port in that particular location that I'm going to connect my data center infrastructure to. So I could be a bank and I'm running a server in there with all my applications and I need to connect somewhere. So we take the port and we go and add a connection. And we say, I want to connect to a cloud, to a private data center, to Megaport Internet, to an Internet exchange, to a marketplace, to a service key, to Megaport Storage, and we keep adding more products. But let's say we want to connect to cloud, and we'll scroll down. These are all the different cloud locations. We'll choose Amazon Web Services, a hosted connection. And every one of these locations is physical infrastructure that we've built out around the world, over 300 different cloud on-ramps. And so you can see, these are all the different connections. A blue and a red connection adds diversity. It's that simple. Let's choose a location. We'll choose up to Seattle. You can see how many milliseconds delay. We'll choose a blue. We click next, and then we give it a name. We give it a speed. Let's say, 25 gig, and we just click next. All you need to know is your AWS account ID. The platform automatically stitches in the AWS portal, gives you a piece of fiber, in effect that is yours, that you can access through that at 25 gig from your data center. We click add and then we're done. And you'll see that connectivity is now live. So that's -- it's that simple. We go back to that particular location. Every time we go and add products, we grab that same product and we say we would like to connect that to, say, a global WAN platform, and we want to go and, say, connect into Brisbane, Australia. There's NEXTDC. Let's go in. It's 148 milliseconds all the way from the U.S. to that particular location. We'll click next. We'll give it a name. We'll give it a speed. Scroll down, click and you got all this cool technical stuff you can add in, click next, and we've deployed. And what we've done is we're traversing across many, many different subsea cable that's already built. You are now stitched in and connecting across to Australia. So that becomes the network component of this piece, and the network stitches it together. And then we go into the compute side of the business. And so the exact same thing. We look at live demo to shareholders, and we go in here, and we have this beautiful thing that says create a server. So when we click create a server, first of all, we have created network. Now we're going to create compute. You have options. You have bare metal, bare metal GPU, virtual machines, and there's a whole range of other cool stuff that the team keep building. These are the locations that we have physically deployed infrastructure in. So imagine walking into a data center and seeing racks and racks and racks of servers, all spinning, lights on and you name it, let's say, 70% of those servers are customers and 30% are waiting to be deployed. So let's say, take North America. Here is Ashburn. That's where the home of the clouds. We'll scroll down and you've got all these different types of servers that you can deploy on demand at the click of a button. Core optimized memory optimized storage. Let's just choose this one, rs4.metal. You can see how much it costs per hour. You can scroll down. We can even predeploy an operating system. So the platform is searching through all the servers and deploying operating systems that make sense that we expect the customer to utilize. Why is this important? Imagine pulling an iPhone out of the box, and it didn't have an operating system on it. It would now take you 20, 30, maybe 2 hours to download and then get it up and running. We can actually predeploy the operating system on you, which means it deploys in 5 seconds. So we can scroll down, choose hourly. This is live. And so I click deploy hourly. And in effect, what it's doing is taking a server in that particular location, it's deploying it. And in less than 5 seconds, it's on. It's on with an operating system live in Ashburn. We can click into that. I can't tell you how complicated the software is to allow you to physically do that, mind-boggling. Massive shout-out to Edu and his team that actually made that happen. If you have a look down here, you can see all the different options. This is a live server. It's available. You can ping it. You can put your own software and do whatever you want to do. Then you can manage it. You can say down here, look, I want to out of band remote access, move it, install it, delete it, you name it. You can scroll down and add a database, add Kubernetes, add a network or add storage. And so this is the next pillar. What we've talked about is network. We've talked about compute that we've now deployed. And I would like to add a storage bucket onto the side of it. So if you think of it, in your laptop that's sitting in front of you got a compute, a little bit of Intel chip or something sitting in there. You've got some memory. You've got a storage, which is a little bit of a hard drive and then you got a WiFi device. That's your compute, network and storage in terms of a laptop. It's what we do, too. It's really that simple. So we click storage, we click object, block. We've got different options. Let's take object storage. and you can start to create a bucket. It's really simple. I'm going to create a bucket, and I get to choose, super high-performance storage delivered in seconds on our VAST platform. And then we look at our standard cost-optimized storage that crosses between VAST, Wasabi and a few other components inside there. And now you can start to see where we've deployed that. So let's look at a very low-cost storage platform that you can deploy from anywhere. Let's just say you wanted to create a backup out of your cloud to make sure that if there was a problem with the cloud, you had a full backup that's actually protected. And if say, you were attacked from a cyber perspective, you've got complete control. There's North America, all the different locations, Europe, Asia Pacific. This is a truly global platform. Let's say, Ashburn again. And all you need to do, imagine that you were trying to protect your data. If you have ever heard of these sort of CryptoLockers and so forth, where they break into your laptop and then they encrypt all your data and ask you for Bitcoin. 70% of the time that, that occurs, it actually has already encrypted your backups. So your IT team says, don't worry, I've got a backup. They start downloading it and you realize that's also encrypted. How do you protect that? One button from Megaport. You click this, you go right and you've object locked it, you click retention, how long you want to keep it for. So for governance, you click 30 days. You've got an immutable backup for 30 days, you click create the bucket. So that is compute, network and storage, all delivered via software, all on demand. The only thing I'm going to go back to is I'm going to delete this server because what it shows you is the fact that it's on demand, and I actually want to sell this server to someone so it's live. So let's just delete this. I will have to copy and paste this piece so I don't fat finger it, and I've deleted it. Now what has happened is that server has been deleted. It gets wiped 3 times, made available back in the portal. Okay. So hopefully, that gives you a perspective of what compute, network and storage really is without 700 slides. So we go back to this -- I think this is probably, I would say, like almost strategy on a page. These are the investments and strategic pillars that unlock TAM, total addressable market. So if we look here, I will just get my laser pointer, each one of these rings, Tish called them the onion rings. Each one of these onion rings or rings, in effect, represents a product that opens up total addressable market. So one of the key pieces to continued net retention, one of the most important factors if you're investing in a tech business, is to ensure that technology is awesome, customers love it, pricing and all those components are covered off, but the company is continuing to invest in new products and making things that customers -- that solve customer problems and that they love. And if you don't do that, you don't earn the right to get your net retention, your growth starts to slow. So this is this sort of continued investment. And you can see in the past 3 years, we've gone from what was a cloud connectivity company in Virtual Edge, adding Global WAN, data center interconnect, DC Internet, NAT Gateway and a whole range of security that we've just launched in the last hour of along including DDoS and IPSec and you name it. That represents the network part of the business. The compute component, which is CPU and GPU elements, came with the Latitude acquisition, and that team innovated incredibly fast and added storage to that pillar. And so you can do 2 things. You can continue to add rings and you can also expand the ring. And so the expansion of the ring is building. That's when we added new data centers that I talked about before, new markets, new countries, taking the same product set and landing in new locations, or even just expanding capacity, going from 10 gig to 100 gig, from 100 gig to 400 gig. That will actually expand the ring. That's the build-out. The innovator, all the developers and engineering teams sitting there building awesome compute products, network products, storage products, AI products and security that you'll see continually invested in that space. And you should expect from us constant updates around what we're bringing to market to solve customer problems. The last one is where we invest. And so we expand product and engineering to constantly invest in that space around innovation. We expand the go-to-market because the last piece that you have is when you build beautiful cool products, you need to go and tell the world about them and take them to your customers. And the last piece is you can build that either internally with your innovation team, or you can look to acquire strategic acquisitions. Latitude and Extreme are great examples of that. And actually, they represent 2 things. Latitude adds a new ring, whereas Extreme expands the existing ring. So you're actually seeing acquisitions that hit both expanding the ring and adding a new ring. So if you had to ask what our strategy is. We're adding ring and expanding them. And then you'd say, well, what constitutes a focus from a product standpoint? So these are the guiding principles specifically for product or an acquisition that we are looking at. And so we're very disciplined around what we look to acquire. If you look at Latitude, we acquired a company the same as Megaport, total automation, super important. That gives you the ability to be instantaneous. You saw us deliver that server in less than 5 seconds. If you can automate the infrastructure, you can deliver at global scale. If you can make it incredibly resilient, I can do something that you can't do as a customer, I can do it much more resilient than you could do yourself. We make it flexible, so you can turn it on, turn it off, add it, change it month-to-month per hour, whatever it is you make it super flexible. If you can make it self-service, you can add this magical thing called product-led growth, where people jump on the platform and start to add products and you reduce the amount of team that you need to service it. If you make it super easy, just that alone is what you have actual entire companies existing just because they're easier than something else. Add the best support, make sure the pricing is super disruptive and make sure that the whole thing is profitable and you have the ingredients for an incredible company. That's Megaport. That's Latitude that we have brought into the business and everything else will scale from there, and every single product lives and breathes off of that. We've done some very, very large strategic deals, whatever it was, 1 point something billion that we've gone and announced. And a lot of folks are looking to say, well, how does that play out? What is the time line? What does it look like? It's different to what you've ever done. So what we've sort of broken down is just so that you can have sort of an understanding of the process that we go through. There is sort of sales, finance and legal, procurement and then operations. And it's pretty obvious, you could sort of play this through, but I think we get a lot of questions about how it sort of works. So first of all, we would have a customer that we would talk to. They either come to us, they're introduced to us, they are existing customer and they'd say, we want to do a whole range of CPU, a whole range of GPU, or whatever it may be. Now we don't have it in the portal or the platform. So these are custom strategic deals. We would work on pricing, which is pretty tricky because pricing is only available for a very short period of time because of what's happening from a market perspective around supply/demand, particularly memory, if you are across it, sort of 2 weeks and pricing changes. So you've got to be very, very fast here. Contract negotiation can happen in parallel or very quickly. This is a very quick process. That can happen incredibly quickly, too, for sort of traditional enterprise, a bit longer. But you need to operate very quickly in this environment because by the time you've gone through your sort of contract negotiation, your pricing could have gone up. So everyone moves fast. We need to ensure we're funded. So we can't announce or do a land a deal that's not fully funded, which is what we've gone and put from a debt perspective before that was the capital raise, before that was the debt, et cetera. We then land signature, and we announce that, obviously, if it's material to the market, which is why you've seen those announcements. Separate to that, we look at DC contracts. So we have to procure the hardware, and then we also, at the same moment, need to make sure it's got a home to live in with power. So that is a very fast process to land, actually, the data centers that we're going to land in. In many cases, we're pre- talking to hundreds and hundreds of data centers anyway because we live there, but that's a very fast process to land that contract. And then we would say there's an equipment delivery period of time. And this is where I think the market sort of -- it's just worthwhile being aware. This can take time. And I think we've called it out on the next sort of slide, 6 to 9 months for delivery and all these different components can play out. So to be clear, you don't deploy the CapEx until it's sent. But you do have deposits that you pay prior, and we still have to announce the full thing fully funded is how we've played that. So we've got GPU, CPU gets ordered, network gets ordered and storage. These are the pieces of the puzzle that make up the AI, data centers that we're building out, mainly for inference and also some -- you can look at that for training and so forth for smaller pieces. But yes, this becomes the inference cloud and effect that our customers procure. The team then builds out the data center. So the data center actually has to get delivered on their site from a data center perspective, which is the build-out, the ready-for-service components, putting all the power, making sure it's available, getting the racks actually physically installed. The team then rack and stack. It's a very fast process because we're only talking about small numbers of servers. It's a fast process. They call it a week to rack and stack, and then a month to get the whole thing sort of set. It depends upon the size, the scale, the complexity. So that would take time. We test, make sure it's up and running. We hand over and give delivery to a customer. And from that moment, it instantaneously starts billing and it becomes sort of -- that's why you'll see sort of step-change jumps in our ARR throughout the year as we turn on the take-or-pay, which is the entire cluster, then it just starts billing. And then we have a live customer, we continue to manage from an operations perspective. I'll spend a bit of time on it because I think it's important. These are pretty sizable deals that we're doing, and we're rolling them out in many different locations and executing many different contracts to many different customer. But the team is on fire. So a quick update on the strategic contracts and the GPU pool. So strategic contracts, what we have, as we pointed out, very specifically, you need 3 things. You need the power, you need the network, you need the compute element. You also need storage. You need to sort of procure all the infrastructure to get that power. Lots of questions around whether we have access to that, et cetera. Just clearing the market here. We have equipment, space and power has been procured for all contracts prior to today's announcements. Delivery and deployment is progressing through FY '27. The addition of these new long-term contracts brings $1.3 billion of TCV and a total ARR of these long-term contracts. Once deployed, remember, as we deploy them, and it will take time, we'll add $435 million of annual recurring revenue. And then we've supported that with $826 million of capital expenditure. So that sort of breaks down the strategic contracts. On the right side, we're building out a GPU pool, which we spent a lot of time sort of taking the market through. It's basically exactly the same infrastructure in clusters that we build out. It takes 6 to 9 months to sort of procure, and get that deployed, and then you've got to ramp. So once we have physically deployed it, we ramp that to the market. That could be 3 to 6 months from deployment and then you look at your average paybacks sort of distributed through that for the on-demand platform. We're one of the very few companies in the world that I think will deliver true on-demand B300s as an example to the market. All right. We've shared this slide in the past, and this is sort of like, yes, okay, well, geez, Megaport is changing and what's happening and where have you come from, where have you been? It's funny because when we look back, we've had so much transformation in this year. But if we were to bring ourselves back to this moment last year, I asked or in effect, we told the market that we were going to actually invest more in building out the go-to-market teams and start to grow. So we went through this period. We were building the company. There was that period where the world caved in and we said, look, let's prioritize profitability. We saw a decline in net retention. The entire world sort of tightened post COVID. We then did this massive transformation where we said, all right, we're going to start to invest in the company because we're seeing all the net retention stabilize. We're seeing an opportunity for growth. We invested in the last year to continue to scale that and to see that revenue to start to scale. Now, we said that that's what we would expect. We had a transform and reset, and in the FY '27 to '29, we'll see an acceleration in revenue. Well, you can see that we're ahead of it. We're already seeing incredible growth from those investments that you allowed us to do as our shareholders, and we're returning that to you. Next year is continue to accelerate revenue, capitalize on all those prior investments, continue to expand the TAM, execute all these contracts, aggressively grow that market share, and we're going to continue the investment with revenue growing faster than costs, as we promised. We've accelerated the revenue through the reinvestment as well. So what you've seen is actually our revenue has been accelerating, and I showcased that by the incremental ARR, the net retention, the growth rates, everything is to plan. So okay, cool. So then what's in the future, what's beyond that? So FY '30 and beyond, if we continue at the rate of scale that we're at, which you can see how we're performing just in the last sort of since April, you'll see us to continue to build out this business. We're going to be significant scale -- significant scale in FY '30 and beyond. And at that point, your growth off that base is so large. We'll be a global leader in automated infrastructure as a service and your sort of sustainable 20-plus percent growth. When you grow at that rate with infrastructure, you become highly profitable, and you convert a huge amount of that scale into free cash flow. So we're in sort of still in an investment phase to get ahead of it. But as we get up to that point, it starts to spit out cash, which is -- that's sort of the future on that side. So here's the guidance update. I know you're all waiting for this. We get to sort of talk through the success of what we've built and get really proud about that. You've probably all just flipped to the last page. I'm still excited about the previous. Now let's give you the full guidance. So this is pretty astounding, actually. We're going to call group revenue for FY '27 between $620 million to $730 million. That is 100% to 130% year-on-year growth from a revenue standpoint in guidance. You can see the breakdown between the 2 businesses. The network business is $315 million to $325 million, and the compute business is $305 million to $405 million, is the contribution of those 2 businesses in there. Our EBITDA is moving to 38% to 40% of the revenue that lands. And then you can see the CapEx that we'll be deploying inside that year to service a lot of those existing contracts that we've just announced, and that's where we're at today. So that's a pretty exciting, I think, finish. And then we'll hand over to questions. So Tish is going to join us and look forward to taking some questions from the audience or our analysts.

[Operator Instructions] Our first question comes from Siraj Ahmed with Citi.

Can you hear me okay?

Yes.

Yes.

Great. Just a 2-part question. You were not able to procure kit for 2 contracts. Can you just expand on that? And looking at the FY '27 CapEx guide, I mean, it does seem like it's a one-off issue because, correct me if I'm wrong, but that $1.3 billion would mean all the -- you are essentially procuring all the kit for all contracts and the GPU pool, right? Can you just confirm that?

Yes, you are correct on the CapEx. That's the plan for the CapEx piece. You'll see that we didn't actually -- most of the -- we didn't have -- so the only time it triggers CapEx is actually when the equipment is delivered. That's when you have to pay a deposit up front. And then once it's procured, it then converts into CapEx and you pay the remainder. So say, for example, you might pay 20% up front deposit. And then once you deliver the kit, then your CapEx actually triggers at that point. I'll just answer the second part. In terms of the equipment, the contract announcement we made on the previous ones, I'll probably leave that to Michael to describe because I think there's a little bit nuance to that. But yes, it's largely around technical specs.

Yes. So we're rolling out lots of different technology for our customers. There was a number -- we've got lots and lots of different contracts that we've been rolling out. One particular contract was associated for a particular hardware that we weren't comfortable with the spread of the different hardware for the automation system. So we changed that with multiple customers, in effect, to a larger TCV and a much better contract for a specific infrastructure that we would deploy for the automation system globally, and that was done very quickly. And so we've announced that, in effect, inside these pieces. And so we continue to deliver more ARR, more TCV, and then we've got more contracts on top of that as we continue to deploy. It just shows the robustness of the market at the moment, and the fact that actually we have sort of this unbelievable amount of demand in the industry at the moment across not only just CPU, GPU and storage, but also the network elements that sort of stitch it all together. So it's an incredible time to be in the industry.

Got it. So can I just clarify, Tish, just a follow-up on this? So if you're spending all the CapEx, that would mean that FY '28 -- when you enter FY '28, you're essentially run rating the whole ARR from the contracts, which is $540 million -- or compute ARR of $540 million and the GPU pool, right? Is that fair? Or is that too aggressive?

The GPU pool, you deploy the CapEx for that and there is a period of ramp. And I think that's why I think this is important that we shared this slide, and we'll just sort of go back to this because I think there's a lot of questions that come out.

Two is helpful.

Yes. But I think the point is, if it's a GPU pool, once you've got deployment, so let's say we hand over here, this is the GPU handover, but the handover is to the pool. And from that moment forward, you would have a ramp period as all the GPUs start to get taken up, which is different to a strategic deal. The strategic deal is instantaneous, which is what I was saying. So the strategic deal is take-or-pay the entire piece. As soon as it's delivered, it instantaneously starts revenuing. So there's just a nuance between the 2 pieces of that. Everything in these strategic contracts, as soon as they're handed over, will -- the ARR will hit at that moment in time. And just reminding folks, ARR is different to revenue, i.e., ARR, let's say, ARR hits at December mark, we'll only get 6 months of that booked in revenue. So timing is a huge piece to this puzzle. And there's lots and lots of pieces that sort of make up that timing, which is why we're sharing this component. By the way, to get to this handover, every single one of these components must have occurred to hand it over. So if one of these delays out, then you can see how that changes and moves, which is why it's tricky to land on the exact moment of time that everything starts revenuing, which is also why we've got a range from a guidance perspective.

Your next question comes from the line of Eric Choi with Barrenjoey.

I'm so sorry, Michael, going to have to ask on guidance, if that's all right.

Oh, yes.

Could I just confirm the bottom end essentially assumes minimal GPU pool? And the very, very dirty math is you're guiding to network revenues of $320 million, your base compute ARR is $91 million. If we assume your new contracts only come in, in the second half, that's still another $190 million. So like $320 million plus $90 million plus $190 million is pretty close to that bottom end revenue guidance, and I've essentially assumed no GPU pool.

We need an AI bot to respond to you as you're throwing all these numbers at us. Come on. I think we'll -- let's not specifically answer to your numbers because I don't want Tish to sort of do that math. But let's just sort of answer the general piece of your question. Maybe we'll announce that piece.

I think it's -- Eric, timing is key in this. And so I would just build out a broad range of assumptions on that. Like the timing elements -- and this is not just a Megaport, it's industry-wide, is everything has to align perfectly to then deploy to happen perfectly from a GPU pool standpoint. It's really just around timing when it's deployed and when it's taken up and the cost of -- and the price that customers are paying at that point.

So it's tricky for us to give you guidance within the year really specifically because, let's say, 1-month delay makes a material difference.

Material.

And also, the thing that we also can't control is exactly the ramp of a pool, which is why we give sort of this guidance here, or sort of insight here, to say it takes 6 to 9 months to procure and then deploy. And once we've deployed it, there is a 3- to 6-month ramp, which, as you can see, if you rolled that through, we announced those in this financial year. We just at the start of -- at the end of last financial year. So if you play that forward, yes, you're going -- I don't know what your exact maths were. But in short, we're not expecting a whole range of that pool to be revenue in this financial year.

I think just look at the range within the guidance. We've built in some timing elements to that, and that's the real driver of that range.

Super helpful. Can I do a really, really quick follow-on, which is if you look at the difference between the bottom and top end of your guidance range, it's about $50 million of EBITDA. So if the GPU pool might be the bulk of the difference, it sort of suggests the bottom and your top end has got 3 months of different GPU pool utilization, if you like. And sorry, one other follow-up is FY '27 is a bit of a weird year because you've got partial contributions from your new contracts and you've got partial contracts from the GPU. But can I just check, if we hypothetically assumed 12 months for all of your new contracts and all of your GPU pool, I reckon you're run rating above $600 million of EBITDA now on a run rate basis? Could you help with that, please, Tish?

Eric, I would just focus on what guidance we've provided here. And what we've provided is really the timing on the range for revenue is driven by timing of strategic contract delivery, and then the EBITDA is a fall-through of that. Don't forget, we're also building the business. So we have to keep reinvesting in the new group business. So you don't just drop every single dollar to the bottom line. But that EBITDA, we feel pretty comfortable with, in terms of a range, and it is dependent on revenue.

And yes, just -- I mean, you can see this breakdown. The network revenue is tight and there's a broader range for compute revenue because of the sheer difference between how it ramps. So the network business is like all this recurring revenue, very, very tight thing that you can sort of predict. It really changes between that retention component. Whereas the compute is really a mixture of when we deploy. That's deploy and hand over or in the pool when we deploy and then adoption. So I think we've been -- I think we've given some pretty good insight to the business here in covering those ranges so that we're conservative in how we approach both ends of that. We don't want to set the market up for something that's not achievable. And that's what I think is where we see it at the moment. And remember, there's risk associated to all those components because as we remind you all, each one of these components needs to be delivered in order to turn on the paying component. And if any of that delays, which, as you know, is a massively supply chain challenged world at the moment across all these elements, it can move it. But that's why we go back to, we feel comfortable at this guidance and all these components that break it down. So I think we just keep pointing back to that.

Next up is Tim Plumbe with UBS.

For me, it's another question around the new contracts that are there. Just apologies if I've missed it, but can you talk about payback period, or the GP margin that you're expecting out of that? And if I think about that $435 million of long-term contracts and you sit there and you say average GP or average incremental margin at 80%, gives you like $350 million. And then if you assume reinvestment, every 10% is kind of $35 million. So I appreciate your comments around reinvestment back into the business, but you're starting to talk about some pretty large numbers. So how do we think about what is a reasonable expectation for reinvestment of incremental contracts back into the business, please?

Just reminding you that this is FY '27 guidance. And so yes, you're saying $435 million of ARR, which we've said here. But that depends on when you deploy that. So if we're talking specifically about the guidance for FY '27, it goes back to the same statement we...

Not the guidance for FY '27. Just in general, like how should we be thinking about reinvestment?

You mean into the future beyond FY '27 or like...

Just reinvestment of the $435 million -- reinvestment within the $435 million of ARR that has been generated to date through the strategic contracts.

Yes. I think Tish can just quickly hit on that and I think we've shared this component.

So in terms of margins there, Tim, I wouldn't necessarily want -- in terms of the future for those, the business is changing and evolving. Yes, you get to a quantum where it doesn't make sense to kind of -- you would start to see a higher margin, but I wouldn't necessarily be baking that in at this stage. The guidance for '27, Megaport will continue to reinvest where we see opportunity to build, innovate and continue to build out the product set, go to market and also like making sure that the customer support is there as well for the -- across the board for these new product sets. So I wouldn't necessarily just start baking in huge dropping down to the bottom line, but we will. We will continue to be profitable. Like this is a -- with a higher CapEx in business, you would expect to see higher margins over time, but give us time to grow.

And we've shared that again consistently for the past, I think, year around we accelerate revenue through reinvestment, yes, but we will continue investment with revenue growing faster than costs. And then we also say, well, what is the long-term future for FY '30 and beyond, very sustainable 20% growth after we've had sort of these injections of incredible growth. We're going to do 100% plus in revenue next year. And then you get to a point where, okay, well, when that winds down, you're very highly profitable -- and then you convert all of that, or a huge amount, not all, but converting a huge scale into free cash flow at that point. So that is the -- we're not going to give forward-looking guidance on those numbers, but that is -- you can look through the business and do some math and definitely catch up with the team to talk through your modeling after. Very hard for us to do modeling with all the numbers just on a call. We do not want to give the wrong impression around it. So I think definitely spend some time with the detail with the team after.

No, that's useful, guys. And sorry, just one last, like -- back to the point in terms of payback period for the new contracts. Is there a way for us to think about that?

They're consistent with what we've previously announced and they meet our internal thresholds.

I think we've stated that in the announcement.

Your next question comes from the line of Roger Samuel with Jefferies.

I've got a question about your funding requirements. So obviously, you've been using a mix of debt and equity to fund future growth. But if I look at your upsized debt facility, plus the cash on the balance sheet, plus the operating cash flow that you generate in FY '27, it looks like you just have enough to cover the CapEx requirement in FY '27 of $1.3 billion. So I'm just wondering what other options you have to fund future contracts in compute and whether you're prepared to increase your gearing ratio even more.

Roger? Roger?

Yes.