This meeting is being recorded.
Thank you. Hello everyone, and thank you for joining the Megaport Limited fourth quarter cash flow report release and investor briefing. We will begin with the presentation by the Megaport management team, followed by a fifteen-minute Q&A session. During the Q&A, please click the Raise Hand button to be placed in the virtual queue. This feature can be found at the bottom of the Zoom interface. If you prefer to submit a question via text, select the Q&A button to submit your typed question. Now over to you, Megaport team. Thank you.
Thank you very much. Good morning to Australia. Good afternoon for people overseas in the US. Welcome to the global update. We have just released our quarter four 4C cash flow statement to the ASX, along with the global update and a copy of this short presentation, which is heavily focused on a preview of our own audited financial statements and cash flow for the full year FY22. I'd just like to remind everybody, this is the first time we're doing this for a quarterly, 'cause we will be connecting together on the ninth of August when we will be releasing our full year results plus the annual report, and then hosting over three days of meetings for everybody to attend and ask numerous questions.
There's a Q&A session halfway through this for the last 15 minutes so that everybody can ask some questions, but we're gonna have a limited timeframe. We are in a blackout period where we're going through our audited procedures and for our financial report. Look, the reason we're doing this presentation is there's been a great amount of questions and feedback come back from the second half this year in terms of where our business is performing from the aspect of not just from a cash, but also from our operating expense, the leverage that we're seeing in our business. We wanna take this opportunity to kind of take everybody through that and give a snapshot.
Most of the detail, if not all of the detail that you're gonna see is really in the two documents that we've already released to the ASX. Okay. Let's begin. First off, we want to highlight that we've had a record MRR growth in quarter four. It's up 13% in absolute terms. It grew by AUD 1.2 million to AUD 10.7 million MRR. There is a little bit of upside in FX there, but that puts us on a run rate of AUD 128 million of annualized revenue. Also wanna highlight that this quarter we are EBITDA positive as a whole in our business. It's slightly delayed, as we mentioned on Q3, from some timing differences.
Now we've seen that come through, which proves our operating leverage in our business. We will have a lot more detail on that on a regional basis in our full year presentation. What's really added to that is that our Japan business, which we launched in November 2019, is now EBITDA positive. Our Canadian business, which we launched four months before that, is now EBITDA positive. Our business as a whole is continued to grow, proving our model, and again, there'll be a lot of details in the financial section, which Sean will take you through. We're seeing growth across all of our metrics. Some of them are performing a lot higher than others. We're seeing a lot coming through from our revenue, which is really important.
Our average revenue per port has increased 7%, along with some of our port growth, which gives us average revenue per port of $1,120. Likewise, we're seeing an increased growth in spend in total services and by customer, which we will go into in a lot more detail in our customer port analysis in our full year report. Next. Just some of the stats that were in the report, and then I'm gonna go through them all. Just want some key ones. Ended up at 533 ports in the quarter, which was a good uplift. It was 7% for us in uplift in ports.
In terms of the customers, we also seen up by 101 customers in the port in the quarter, sorry, quarter four up on quarter three. Again, two very significant indicators, and these are some of the things we wanted to call out. Notwithstanding we grew our data centers by 14 when data centers are no longer for us a key metric, but we will still report them. They're not a massive driver. We've already established ourselves in 25 countries. We've also got the most cloud on-ramps. We've got over 780 data centers that we're connected into. Adding another 10 and 20 and 30 doesn't move the needle when we're operating in some of the top GDP countries in the world today.
What is important is now at this point in time is our growth in ports, MCRs and BDCs, and in turn our growth in customer acquisition. We will be focusing heavily on that during our presentation at the annual report as opposed to just reporting on the KPIs, which are now readily available for everybody to see. The customers for us are obviously starting to accelerate, not just, as I said earlier on, not just in terms of the growth of new customers, but larger customers coming onto our base and spending more, which we'll take to more detail on that. Next slide. Just to talk about MRR as well.
Highest quarter, just under AUD 1 million, 961 underlying monthly recurring revenue growth, 1.2% in Australian dollar terms, which is continuing to grow and that's what we're expecting to see going forward, from where we see our business and it's been a significant uptick from where we've been operating at for the last two quarters, given that our heavy investment in the channel and the slight growth that we see coming through there. If you look to the chart on your left, on your right, just to talk about the growth in the channel split, which is the light blue on the top part of the stacked bar.
Our channel grew from 35% to 36% at AUD 10.7 million in monthly recurring revenue in total for the quarter. That uplift of 1% equated to a 44% indirect or channel sales lift in our in that quarter. It's contributing to that 10.7. It means that we're seeing this, and we know this from some of our operating metrics, that we're seeing an acceleration in our channel program as it gets going, and that's the lag part that was we were off on our timing over the difference between quarter two and quarter three. Just with that now, I'm gonna hand you over to Sean Cassidy, our CFO, to talk to you through about global revenue and also some of our financials, and then we'll take some Q...
I'll wrap it up then, and we'll take some Q&A after that. Over to you, Sean.
Thanks, Vinny. Our monthly recurring revenue, our MRR, at the end of Q4 was $10.7 million, as Vinny mentioned. This is up $1.2 million or 13% from our March figure. All of our regions had strong growth, with Europe up 9%, Asia Pacific up 12%, and our North American market up 15% to $5.7 million per month. Our North American market is our largest, obviously, and it's an increasingly important market for us. It is 53% of our group revenues, and it is 58% of our growth. The United States alone is the single biggest contributor to North America, and it alone accounted for 51% of our revenues in June. That figure does not include US dollar billings in other jurisdictions.
With one in three of our staff located in the United States, and half of our assets also located there, a majority of our major contracts are denominated in U.S. dollar, it's clear that we are a U.S. dollar-driven company. From the first of July, the U.S. dollar has become the functional currency for the group. Moving on to the financials for the quarter, I will point out that these remain unaudited financials, as of now. Our audit's still progressing. Revenue for the quarter is $30.6 million. It's up $2.7 million or 10%. As I noted earlier, monthly recurring revenue is up 13% quarter-on-quarter. That indicates an acceleration in the growth as the quarter progressed. Direct network cost of $7.6 million are slightly up on Q3.
We brought on 14 new data centers into our network throughout the quarter. Partner commissions of AUD 3.1 million represented 10% of net revenue, and that's broadly in line with what we've been seeing all year. We expect this percentage to increase in future quarters as momentum in the channel continues to build. Profit after direct network costs and partner commissions, AUD 19.9 million. That effectively our gross profit of AUD 19.9 million is 65% gross margin in the quarter. That's 2 percentage points up on Q3 and 4 percentage points up on H1. Gross margin for the full year at 62% is 8 percentage points up on FY 2021.
OPEX in the quarter of $18.9 million means that OPEX throughout H2 of $40.2 million is broadly in line with H1. When we went out with our half-year results, we noted that our investment in scale up, scale out was largely complete, and that you shouldn't expect additional step-up in OPEX in the second half of the year. We have held our OPEX flat in H2 versus H1, largely, although there's been a little bit of additional spend in marketing and travel. That cost control has delivered the company's first quarterly EBITDA profit. Having touched upon EBITDA breakeven in the month of June last year and invested heavily in our sales in the first half of this year, a full quarter's profit represents real progress.
It shows the return on the delivery on the investment that we made on our sales in the first half. Moving on to the cash flow. Cash flow from operating activities was positive AUD 1.6 million in the quarter. While we're not a seasonal business per se, there is a certain cadence to some material operating cash outflows that we have highlighted in previous 4Cs. Q4 is traditional low for us in terms of cash outflow. In fact, Q4 last year, we were only marginally negative from operating activities. CapEx of AUD 9.5 million, of which AUD 4.1 million is IT. That relates to further development of Megaport ONE, which will see commercial launch in August, and automation on our PartnerVantage portal, VantageTransact.
$5.4 million in PP&E relates to the 14 data centers that we brought into our network in the quarter, continued development and upgrade of our backbone, 400 gig metros, and replacement of end-of-life routing equipment as we move to the next generation software-defined network. Full-year CapEx of $39.8 million is relatively high for us. We would normally expect that figure to be about $30 million. What we have included in that is some work in progress or inventory that has been on accelerated purchase as we've stayed ahead of silicon supply chain issues. We continue to buy on a kind of 9-month horizon, and we're currently sitting on about $10 million worth of work in progress on our balance sheet. Cash flows from financing has reduced over the last few quarters.
We've had no inflows from the exercise of options relating to our current share price. Cash flows from vendor financing have been positive to us because of the accelerated CapEx spend that I noted earlier. Cash burn for the quarter of $6.3 million is a marked improvement over Q3, and we finished the year with $82.5 million cash on hand. We're currently negotiating a revolving credit facility that will take our liquidity or cash available to in excess of $100 million. With the momentum we're seeing in the business and the move to cash flow to EBITDA positive, we're pretty confident that we will, in a few quarters, see sustained cash generation from operating activities, which will be followed a few quarters thereafter by free cash flow generation.
We have clear runway to get there, and we are very confident that we don't need to look for additional funding. With that, I'll hand back to Vinny.
Thanks, Sean. I was just looking back on our quarter four and where we're at, and as we mentioned in quarter three, the slight timing differences we've had, we're very buoyed and confident about the momentum exiting quarter four coming into the new financial year 2023. We have a very high degree of confidence, not just in our financial planning, our financial management, our logistics planning, and our wherewithal to still be the leading network as a service provider in the world. With that, there will be a hell of a lot more color, more on our products, our customer cohorts, our customer strategy, our sales and revenue strategy in our annual.
There will be a high emphasis on that, pretty much on half of our presentation once we've covered off the financials in the annual presentation. There'll be a lot more color on that. With that, I'll hand it back to the moderator for yeah, if we've got 14, 15 minutes for Q&Vi
Okay. Thank you. As a reminder, to ask a verbal question, please select the Raise Hand button. If you'd prefer a typed question, please submit via the Q&A feature. Both of these options can be found at the bottom of your Zoom interface. We now have 15 minutes of Q&A, so please keep questions to the point. An expanded Q&A session will be held after the full year results briefing. We've got our first question from Tim Clune. Tim, please go ahead and ask your question.
Yeah. Hi, guys. How you going? I'll just ask one question and jump back in the queue in the interest of time. Can you maybe just elaborate a little bit more in terms of where you guys are up to on that indirect strategy. I think you mentioned 44% of new ports being added coming through that channel. However, if we look at the commissions to third parties quarter on quarter, that was flat. Are we seeing the uplift quarter on quarter that we need within that strategy? Maybe you can just talk to some of the learnings that you've had and how you're thinking about the next 12 months of expanding out to other partners.
Yeah. No, I'll touch on it briefly, Tim, 'cause we are putting together quite an extensive presentation in around about how all that works in 3 weeks time. The 44% uplift is an indication of the momentum move from that 1% uplift from 35 to 36 between quarter three and 36. No, so it's not directly correlated to the revenue 'cause obviously you have to bring the customer on and all, the revenues coming through, so there's a little bit of a lag there. It's an indicator to us about the momentum that's growing. You know, if we had a lot of that in the first quarter, if we had that back in quarter three, that would be a much higher percentage, and we would see that come through.
You would also see the revenue. When you see higher revenue, you see higher commission payments. That's as a result of that. Like 80% is typically a kind of an indicative number of what you would see dropping through depending on the type of deal and the customer that you're in. Look, it's work in progress, right? We've been ramping this, like I said, since last April, really hard. Made some changes internally to allow us to make those tweaks and get more focus on more depth in the partners we brought on rather than adding more partners. That gets us to a revenue trail much quicker in terms of enabling them.
We will show a funnel and kind of an opportunity kind of pipeline, kind of graphics around that and see how so everybody can understand how we're looking at it and how we approach it, and also gives you an idea of the speed and how it gets turned on.
Got it. Thanks.
Okay. Next up we've got Siraj. Please go ahead and speak.
Thanks. Hi, Rene and Sean. Quick question. Just looking at the quarter, it seems like it's sort of back to the core products with ports doing quite well, MVEs down quarter-over-quarter. Can you just talk to any changes you've made and how we should think about the products mix going forward? Because clearly MVE is meant to be a key product for you guys. Just gives us the quarter performance and the expectations going forward.
Yeah. I'll jump in here first and then maybe Sean can touch on it. Look, the way we just refocused a few things, right? I think we spent a lot of emphasis on building out the channel, which is the correct strategy to do, and we've done that. You all know on the commentary and on the questions we've answered around quarter two and quarter three, where we've had a little bit of shifting to people who understand our products, trying to bring up the channel at the same time with the products that we've got. I've seen it.
It's more of a revert back to norm now for us, where we're getting or as everybody's getting up to speed with the momentum of how we're, from an education point of view, product, the collateral, onboarding of partners, that we're now getting back to the core. Like 90 or so% of our business comes from ports, VDCs, and MCRs right now. MVE is still in its infancy as we're building it out. Just to point out, it's not a direct correlation for MVE to channel. Channel for us is all of our products, right? I think that's where it's at.
It's a momentum building exercise, but we've had that shift back from, personnel getting focused back on our core products, where we had them a little bit, diverted while we were trying to build out the channel.
Okay, thank you. If I could now direct you to the text question that's come through from Wei Xin.
Okay. I don't see it. If someone can read it out, would be great. Thanks.
Sure. Did some cost provisioning in quarter three. Do we envisage the possibility we may need to go back to the EBITDA negative in coming quarters before being consistently EBITDA positive over the longer term?
I'll leave that to Sean.
Yeah, thanks for the question, Wei. Yes, we are EBITDA positive, but it is still marginal and we continue to grow as a business. We're by no means going to hockey stick into large EBITDA profits, and it's going to be close. I am hopeful that we will be EBITDA positive going forward every quarter, but like I say, it will be close for certainly Q1, and Q2 should be a little bit better.
Thank you. Now I've got a question from Nick Harris coming through verbally.
Thanks, Sean and Vinny. Great to see that channel progressing. I was just curious, could you just make a couple of comments on what you're seeing sold through the channel in Q4? i.e., is it, you know, is it ports or MVEs that are moving the dial there? Thank you.
Yeah, good question, Nick. It's a mix, right? We're seeing, I think there was an emphasis beginning where it was more like it was MVE, but the quicker sales are ports and VXCs, and MCRs. So MCRs and ports and VXCs have kind of probably taken up more than 50% of that uplift. It just means that we're enabling our products to a wider audience that can sell it. MVE sales are a little slower, but we're seeing really good traction with Fortinet and Versa, in particular at the moment. So they're less reliant on hardware as customers have that, so it's more about turning up services.
They have a faster sales cycle in terms of coming through that and some of those deals, and they tend to be a little bit more global as well. It's kind of a combination of both. It's kind of what we wanna see, to be honest, because you do need a regular rhythm of our core products coming through, while we know some other products need more time, and they'll tend to be bigger deals. We wanna see a consistency on the conveyor about whether it's coming from when it's coming through the channel. We need both. It's been pretty evenly spread right now as we're enabling and onboarding.
Some of those sales, like I said, our core products are actually easier and quicker to turn up than having to orchestrate or build out your own hardware network to allow for SD-WAN products to work.
Great. Thank you.
Okay, thank you. Now we've got Gary.
Yeah. Hi, Vinny and Sean. I just wanted to check. Cost inflation is a common theme everywhere at present. Can you elaborate on where you're seeing that in your business and whether you have that ability or intent to pass on those higher costs via higher pricing?
I can take that.
Yeah. Yeah, go ahead, Sean. Go ahead.
Yeah. We're not seeing a huge amount of inflation coming through our business. Thankfully, most of our contracted CPI increases will be kind of in the data center space. It's contracted, so irrespective of what the current inflation levels we're seeing out there are, you know, we are protected by the contracts that we have currently signed. Most of our OPEX, as you can see, 75% or slightly more of our OPEX is salary. While there has been kind of wage inflation issues over the last while, we're starting to see that ease up a little in the current environment. We're not seeing huge inflationary pressures in our business and there'd be no need to pass them up onto the customer at all.
To answer the latter part of the question, we do have the ability to do it. Like, if that, you know, the question is when we see the necessity to do that, right? At the end of the day, we're still growing the business, and we believe that the pricing model for the majority of our products is at the right spot because we want to grow and bring customers on. It's about seeding out the market with what we've got as the leading service provider in this space, and that's kinda how we look at it. You know, there might be tweaks and changes here and there on the fringes, but that would be just to bring things in line rather than with inflation. Yeah, that's clear. Thanks very much.
Thank you. Now we've got Paul.
Hi, guys. Just in terms of the split between direct and indirect sales, you know, one of the things the last couple of quarters has been that you've been deploying a lot of the direct sales team into educating partners, and that has sort of taken away from their ability to execute on, you know, direct sales to some degree. Could you make some comments on sort of with this result, which is obviously a lot better than the last two quarters, was that still a factor, or was your direct sales team effectively like unimpeded this quarter in terms of having to do a second job in educating partner channel?
Yeah, no, I think that to an earlier question that's linked, we have seen a lot more focus since April timeframe when we made a few tweaks and rejigged a few things around about how do we onboard quicker and faster, and like I said, go deeper with the partners that we had coming on on the indirect side rather than spreading ourselves too thin. Then that's meant that we've had the majority of our teams all come back in to focus on quarter four, as per what we originally hired them for. I think you're seeing the benefit of that come through right now in this quarter and, you know, that shouldn't change as far as we're concerned. It's important. We had to divert that.
It was an important part of the investment in the first half and coming out of the first half into quarter one. You know, trying to educate and onboard a lot of these partners, you know, who don't really fully understand how our product works and how we had a lot of education to do there. You know, yeah, that was a decision we made, and that's kind of probably last. That was that piece I talked about in quarter three, where we sort of had a time gap, because we were a little probably naive that we thought that was gonna happen faster than it actually really did.
We refocused that right now, so to bring that back in, and I think you're seeing an impact of that come through on quarter four. And we're gonna keep focused on that. It should be less distracted from here on in.
Thank you.
Thank you. Next, we've got a question from Bob. Please go ahead, Bob.
Hey, Vinnie and Sean. Just a quick one for me. Just looking at that, pretty strong, incremental MRR coming through for the quarter, how should we think about that, going into, sort of the next couple of years? Like, can we expect that level of run rate to be sustained into the next few quarters?
Is this the underlying MRR chart that I showed earlier on about AUD 1 million? I think it is.
Yeah, that's what I'm referring to.
Yeah. Well, I mean, look, you know, as Sean said, we're going to change our functional currency to US dollars, so we should be talking less and less about an underlying MRR. You know, the Euro-US isn't really a priority anyway, so really there's only sterling at the end that we have to. They're important parts of our business, but they're not overly dominant. I think overall it's an important chart to look at in terms of where our growth is. A lot of that's been driven by, as I said earlier on, just the refocus that we took back in April around this. It's also about the making sure that we're in the right markets that we need to be in, and how do we grow that.
A lot of it's also linked to the customer acquisition growth. So, you know, 100 customers in quarter four is a decent turnout. You know, the good thing about that from our perspective is we've seen a lot of that come through in June, which means we're gonna have the majority of them when they take up services in June are gonna be billing pretty much for the whole of quarter one. You know, we can see that kind of lag. It really depends, like, where a customer comes on in the first month, the second month or the third month of a quarter. Where do you see the link between a customer acquisition and then the growth into revenue and services at the same time?
Yeah, that, you know, that's been one of our goals is to make sure we get sales and customers in earlier in the quarter, so you get a bigger bank. Yeah.
Yeah. I have to step in a little bit as well, Bob. While the whole reason we did the channel is to increase the kind of revenue growth and put an accelerator in the top line, and we expect to see MRR growth increase going forward, let's not forget this one is a record quarter. Using that as a baseline would be unfavorable end of things. You know, there has been a return to the sales efficiency that we saw tail off in kind of Q3 of this year. There is a strong improvement and it is a better indication of our sales momentum going forward. Just please bear in mind that this is an all-time record high.
Yeah. Also bear in mind that Europe goes on vacation for July and August, so you know you're gonna. It's not all, and it's a growing segment in our business as well, so it's vacation time. There is a little bit of seasonality. A lot of people getting stuff done in quarter four so they don't have to work too hard in quarter one. I don't know if you know what I mean.
Great. Thanks, guys.
All right. Do we have time for one more question?
We are top of the hour.
Okay. All right. Listen, I appreciate everybody coming on, and I know it was short, but we are in a sort of a blackout period, and we just wanted to make sure that people in the current environment got a little bit more color on our KPIs that we would continue to push out quarterly. Look, we're looking forward to catching up with everybody with a lot more detail, more on the financial, less on the KPIs as most of them are now available. Certainly a lot more focus on customers, the customer cohort, the revenue strategy, and then just the plans for FY 2023 and beyond, overall for Megaport. Okay. With that, thanks very much for coming on the call.
Thanks all.