Megaport Limited

Hello, everyone, and thank you for joining the Megaport First Half FY26 Results Webinar and Investor Briefing. We will begin with a presentation by Michael Reed, Chief Executive Officer, and Letitia Dorman, Chief Financial Officer, followed by a short Q&A session. If you would like to submit a question during the webcast, please select the Q&A button to submit a text question anytime. Alternatively, We encourage research analysts to utilize the raise hand feature to ask verbal questions. We have 60 minutes for today's call, so please keep questions short and to the point. Now I will hand over to the Megaport Chief Executive Officer, Michael Reed. Thank you.

Well, thank you so much for the introduction, and welcome, team. We've got an action-packed half-year results for you. We've done a lot, so we're going to charge through it. This is the FY26 half-year results for Megaport. Now, we're just going to open – we have not run this before, but we've got a bit of a slide key here. Obviously in the half we made two acquisitions and as we present through the slide deck what you'll see is each one of these will represent at the top right, you look at the top right of the screen and you'll see if that's Megaport network only, Latitude only, obviously Megaport++ etc and this is the total group. So just remind all folks look at the top right, think of this and hopefully it's pretty self-explanatory. So we'll be going through company highlights, financial results, Tisha sitting next to me. We've got an acquisition and strategic update. We've combined the two of those and we're actually going to spend a bit more time than what you normally would expect for a half year, given the two acquisitions that we've made. And we're also going to walk through how that aligns to the strategic view of the business moving forward and why we made those acquisitions. We're also going to spend a bit of time on guidance. Guidance has been a little bit trickier. Obviously, we've had movements in FX, but we've also got two other companies coming into the business. So we're going to give you a comparison of what we had, assuming there was no acquisition, and then we're going to break it down and finish the year with the acquisitions included for full transparency. In terms of, if we look at the top right, what you'll see, I won't keep drawing on about this, but in the top right you'll see that key. So this represents Megaport Latitude and Extreme, the two acquisitions inside the business. This is the Megaport Group annual recurring revenue. So we are a $338 million business, 263 from Megaport, 68 from Latitude and roughly 7 million in AUD ARR inside the business. We've broken two highlight pages, one being the Megaport group highlights and the next will be the Megaport standalone. So we're giving you full transparency of the underlying business and we have had an incredible run in that first half. Let's start with the group business. We said before $338 million in annual recurring revenue. That's up 49%, $112 million year-on-year and we closed, as you know, two acquisitions. We acquired, we announced and closed in the half. as we came to market in November, did the raise and actually announced both acquisitions. Latitude.sh, which is the $68 million of ARR, 22 locations, GPU, CPU as a service business, and actually adding more and more innovation that I'm going to show you through a demo soon. We actually announced the acquisition of a company in India that we didn't share the name, which is 40 data centres in India. That was for regulatory purposes. We acquired Extreme IX, which is the largest internet exchange platform in India, something that we do in many, many countries. They gave us 40 different data centres with network, and we're going to talk through that further on. It comes with 7 million in ARR and 400 customers. If we look at guidance, we've spent a lot on two guidance slides and we've also got detailed guidance in the appendix specifically covering Off FX and also the breakdown of each of the companies in there and how it's made up so that I think all analysts and investors can get their head around it. So Megaport Network original revenue guidance has been revised upwards. So the guidance that we gave at the start of the year, assuming no acquisition, we have revised the bottom end and tightened that range based on the success that we've seen through the business and we're going to walk through that. And the Latitude.sh revenue guidance that we gave in November, we are reaffirming. So let's look at the highlights from a Megaport network perspective. So this is, as you see top right, the Megaport logo sitting there. $263.4 million in ARR. That's up 19% on a constant currency basis, $36.8 million year on year. There has been an FX headwind as the move between $0.65 to $0.70, which is why it showcases at 16%. The importance is that the underlying business is growing at 19% in constant currency, an incredible result from the team. And how about this? Net revenue retention by logo 111% up three percentage points year on year our net retention continues to grow i'm going to talk about why we've seen that growth inside the business as we get through the deck And also, let's talk about this, customer lifetime. As we've changed the product mix and the types of services we offer customers, what we're seeing is customers taking longer term commitments and instead of just buying cloud connectivity, long haul data centre to connect, complicated global WAN structures and you name it, and they're actually bringing all these new products including internet together and our lifetime for the customer, this is a big deal, And this is, for those who aren't aware, it's basically one divided by churn has increased by three years. In effect, the churn is lower and so our customer lifetime has increased. It's 13 years, which is outstanding. Now, when you flow that number forward and you look at your lifetime value, your total lifetime value, which is a mixture of the lifetime and the average spend per customer and your margin wrapped into that, We're up 57%. That's a $2.5 billion total lifetime value and we've got a slide to sort of share that and we'll talk more about it. You can see our annual recurring revenue breakdown. Again, this is Megaport's standalone business or the network business, excluding acquisitions. You can see we continue to grow that annual recurring revenue fast. You can see the breakdown of Americas, Asia Pacific and EMEA as always. Let me state this, the Americas and specifically the United States really is on fire. They're growing at 24% inside that business and that's what we've been investing for a lot of growth. We're seeing an incredible opportunity for us there and it's continuing to grow and we're not even scratching the surface. And if you look here on the right, what we've shared is the net or the incremental ARR additions and you can see this is the largest ever year-on-year ARR increase This is astounding, you can see this just pushing up and up and up and to the right. So we are incredibly happy with how the team's performed and we're going to go through more of those details. It's not just about expanding the existing base and it's super critical that you do that but if you're not adding net new logos you've fallen out of product market fit and this is where we've seen that in sort of the full year you saw that massive jump in new logos. We have actually had a 100% increase in new logo growth compared to the prior comparative period. That's important because seasonality rolls throughout the year and this is a representation of the fact that this wasn't some lucky sort of H2. We're actually growing and continuing and year on year we're up 100%. That is an incredible result from the go-to-market team, but it's a mixture of two things, products that actually resonate with the market and the go-to-market team that we've invested to take that out to market, and that crosses all areas, channel, frontline sales, STRs, customer success, you name it. So congratulations to the Megaport team there. This is a slide we've shared in the full year deck, and it's actually... just continues to astound. It's actually I think what we've been hoping to see but it highlights the fact that the investment in engineering talent and all of those products that you've heard us sort of constantly refer to bringing out in that period of time, sort of FY24 period, all of that has come to fruition and 30% of our ARR growth is now attributed to what is new products. The underlying business is still growing fast, but on top of that you get this growth from new products, which just highlights the importance of continuing to invest in new products to add to the space. And I've got a slide in the strategy section that will sort of drum this one home, but you can see what a dramatic increase that has had in H1. Outstanding result from the engineering and product team and great job again from the sales team for taking that out. Total lifetime value, we shared that prior and we highlighted the fact that customer lifetime's gone from 10 to 13 years. you can see that that is a marketed shift upward. That is, if you look at it, we made quite significant changes in the business in terms of how we offer contracted services, the types of services we take to market. We did some significant investments in the network and sort of, I'll show you on the next slide, but we've sort of been going on about the investments that we've made in 400 gig backbones, 400 gig networks, so we can offer 100 gig just about everywhere on the planet, as well as rolling out massive, massive speed in internet. All of these things bring through significantly longer contracted business and also much higher ARR lands. And so that's why you've seen our ARR per customer of the 3,000 customers inside the Megaport business, this is excluding the acquisitions, is up 6% year on year. You couple that with that lifetime increasing and then you actually have this $2.5 billion increase. So again, testament to the health of the business in every metric you can think of going incredibly well. This is a bit of an eye chart. It's always astounding to sort of think that this isn't a full year, this is only six months of execution but worth pointing out that we continue to execute against the strategy which we'll talk through further but we break that down into build, innovate and invest. These provide the pillars to increase TAM and go to market. If you look at build, 51 data centres added. We crossed in this half, actually. We forget because we celebrated in August, but we crossed 1,000 data centres globally. We're now at 1,034. We added five UIX locations. We've actually on-ramped, in effect, 11 Direct Connects into Latitude, so the compute platform that we now have We've got 11 new cloud on-ramps to 344. It really is cooking with gas there. We had two internet markets, Italy and Sweden. That's all the regulatory components coming off. We've got pretty much the majority now. We lifted internet to 100 gig in 16 metros. In fact, when we first rolled out internet, we weren't sure how successful it would be. It's been so successful, and we thought it would only ever be at sort of 10 gig levels. But for the last year or so, we've been rolling out big 400 gig machines. And so you can get 100 gig in 16 metros, and it's astounding to see how many enterprise customers are taking that up. So we're not stopping. We're continuing to build that out globally. 100 gig connectivity. So this is, when I first joined Megaport, the fastest we could deliver was 10 gig anywhere. And then we had now, if you look at it, from 802 data centres, we can deliver 100 gig in 60 seconds. Quite astounding. There really is nothing else like it. Let's talk about Innovate. Cam and the team have been working incredibly hard to deliver some pretty impressive enterprise-grade security features. We rolled out IPsec, which is encrypted tunnels on the MCR, packet filtering, which is like control lists on that platform. We're going to continue to expand our investments into security, and you'll see that in the second half. We added console access for MVE. We added probably one of the most requested MVE images, which is Meraki. We've got Juniper and Anapaya. 36 countries, 7 languages. We added 400 gig ports, which is really interesting. If you remember when we launched, we were always 10 gig and 1 gig. We added 400 gig ports and actually had immediate customer adoption. So the amount of... Utilisation out there is quite astounding and we'll talk through that even when we look at sort of what AI is providing from a tailwind, but just quite astounding. Now, what's important is that we continue to build to support that. Quite two companies, we're going to go through that. We continue to invest and go to market. We're actually doing some pretty cool stuff with DWDM, which is like if you get your propeller and want to hear that spinning, we're looking at rolling our DWDM for the first metro and then doing that across Omani. Cam tells me this is a really big deal. And then we've upgraded the backbone capacity to 400 gig to eight countries. Now, what does that mean? We're getting sub-C connectivity at 100 gig, and this is where we get massive ARR for single VXCs, and it's really, really exciting. And the last thing, and I'll point this out just more broadly, is people I think carry on that AI is changing all their business and it's hard to know what I think some businesses is real and what is not. In our case, we're not someone that sort of just spruces this out there. We are seeing tremendous assistance like most companies for AI in the development space. So when you look at adding Claude into this, the efficiency of the development teams is phenomenal. But also what we're seeing, and this is more for everyone's kids out there, if you want to study something, I'd call it prompt engineering, AI prompt engineering. Folks that don't even know really what they're doing, but they know how to prompt the AI. We're seeing these folks come in and just do some incredible speed and change so many things inside the business very, very rapidly, particularly on the engineering front. All right. I'm going to pass over to Tish, our fearless CFO. She's going to slide in here and we'll go through the financial results.

Thank you, Michael. So financial results for the half. So a fair bit happening. We had two acquisitions as well as the underlying business of Megaport. So what we've highlighted here within the EBITDA is largely Megaport and the Latitude acquisition. Now, Latitude, we acquired, we announced, did a capital raise early November. On the 26th of November, we closed it. So you will see one month of results in here as well. So I did want to highlight that. Revenue, I know Michael has talked about that. However, it does come through in the numbers clearly. You've got the strong expansion with NRR, with the continuing investment within the existing customer base. We've got the growth in new logo acquisitions and those two combined results in strong revenue, plus the inclusion of the compute revenue from Latitude. Partner commissions continues to stay relatively consistent at 11%. Direct network costs, now we've got IFRA 16 in there, which I know some of those on the call do enjoy talking to me about, so I'm always happy to talk about accounting standards with anyone. However, what we look at is across kind of a net basis of that, regardless of accounting treatment, because the focus of the business over the last 18 months has been that global backbone rollout to 400 gig, which has been led by North America in particular. So if you exclude IFRS 16 from both this half and last half, it's consistent. Employee costs, I think we've hired quite a few folks, and so you will see in here that is continuing to be planned. You can see that rolling through in the numbers, and that is to support the accelerated revenue growth and then the related spend associated with those new folks coming on board. In terms of other operating expenses, you've got your sales and marketing event activities, which you can clearly see in there, as well as travel and some IT costs associated. Now EBITDA is one thing to notice. Great, Tish, you've got an EBITDA margin of 26%. That does include the latitude one month. And I just wanted to highlight that the exit margin for Megaport network business of 21% is in line with guidance and really reflects that timing of our planned investment, which we'll talk about further in the guidance slide and happy to take any questions. However, I did want to highlight that as well. Now, the cash flow, a lot of things happening in here, so I've tried to break it down clearly within the text, but I'll just go through it quickly. The operating cash inflows have increased. That is purely due to the higher customer revenues during the period and the one month of the compute or latitude SH. Results, the investing activities, you've got some acquisition payments and you've got also the CapEx payments, which are related to the planned delivery of equipment. Within the appendix, we've provided the breakdown for CAPEX to the group, so you can clearly see what that has been on, and you will see that it's to do with supporting the expansion plans and including the plan delivery. Financing activity inflows, you can clearly see that that's largely driven by the capital raise that we provided earlier in the year, late last year. One thing to highlight is the net cash flow was an outflow. If you ignore all of the capital raising and acquisition activities, was an outflow of $10 million or under $10 million. Now, that reflects the planned expansion, hiring of the go-to-market, as well as the capex spend and the investment in the front-ending of the ordering of equipment. So that is one thing I do want to highlight to the group. We've talked around headcount previously, particularly at the last year-end time that we came to talk to you. We've got here the sales and marketing continues to be a clear activity that we invest in, and that's moving upwards, continues to. Product and engineering is a big focus area, particularly with CAM hiring across the world, hiring the right talent. And G&A continues to stay steady as a percentage of revenue. So this is how we look at the investment of the business for headcount. And this is just Megaport standalone at this point. I'm going to hand back to Michael. I've done a quick snapshot of financials, but over to you.