Welcome, everybody, to this morning to our update investor briefing following the release this morning of our third quarter global update and Appendix 4C as well as the shareholder letter. I'd like to introduce this morning the CEO of Megaport, Mr. Vincent English. He's going to
be joined by Rodney Foreman, our recently appointed Chief Revenue Officer. Vinny, take it away. Good morning, everybody. Welcome to the quarter three global update. Joining me on the call today with Steve is Rodney Forman, our new Chief Revenue Officer Sean Cassidy, our Chief Financial Officer and Eric Troy, our Chief Marketing Officer.
The purpose of today's call is a quick update on quarter three update in the 4C. I just add a little bit extra color to what was released this morning. An introduction to Rodney, his first seventy five days in Megaport and some of the changes that we're seeing there in the market and some update on our sales strategy. There's been a huge amount of requests for updates on MBE and a bit more context and color on that, so we will deep dive into that further. And then just an overall outlook for the where we are for quarter four going forward.
And we will leave adequate time for questions and answers towards the second half of the call. Overall headlines. Monthly recurring revenue was up 8% to $6,800,000 for the quarter. The underlying run rate, including FX, it was up 10%, our second highest quarter ever at 631,000 MRR. In total, revenue was up to 19.6%.
It was up 5%. Our customers closed at 2,117, up 4%, adding 74%. We had a very strong uptake in three particular verticals: financials, media and entertainment, network and IT managed services. Overall, our ports and services ports were at 7,037, up 5%, and our services passed over 20,000 to 20,056, up 4%. Just in general, on the quarter, we've seen I'll talk to this a little bit later, and Rodney will go into it in a bit more detail shortly.
We've seen a slow start to Q3, but we've seen a tremendous uplift in quarter at the end of the quarter three, and in particular, from the March onwards, and it's continued into the first two to three weeks of April. And we'll talk a little bit more of that in detail. And a lot more engagement in our pipeline, our highest pipeline build ever that we've seen in the business for Q4. So lots of opportunities and a lot of new customer as opposed to existing customer uplift coming through. In terms of the regions, on as you recall, our Q1, we had a slight dip in our European revenue, but we've seen two back to back quarters where the revenue in Europe increased by 13% in the quarter.
And in euro terms, it was up 18%. Our U. S. Business in NAM was up 10%. And excluding FX, or just reported in U.
S. Dollars, it was up 12% for the quarter and continuing to build, which contributed to the uplift in MRR at $6,800,000 for the June. In terms of NVE, as you recall from the announcement at the March, we launched NVE Live, and it was hosted on Cisco's Cisco Live's video conference conference, which should have the highest their highest amount of resellers and partners attending. We have quite a lot of collateral that's come out of that in goodwill. I'll talk a little bit in MB in detail, but we already have quite a good few customers in proof of concept and in the pipeline already starting to build for MBE.
In terms of the 4C in general, again, very strong collections coming from our customers, again, collecting over GBP 20,000,000. And our days are down to GBP 25,000,000, given that our average customer credit turns to thirty days, in some cases, our large ones are sixty days. So again, a lot of customers are valuing the services and continue to pay for them, which is a strong indicator for, I suppose, for what we would call very sticky customers continuing to use the Network as a Service platform as a key part of their infrastructure. In terms of momentum, as I said earlier on, Q3, a slow start to January, but a very strong finish to March, where we've seen most of these most of the services and uplift that we report to come through from the February into March. Again, there's an element of seasonality towards that depending on the region coming up post Christmas.
The pipeline is very strong, as I said, with new customers in Ports and Services, and we're looking forward to a very healthy quarter four, which I'll touch on a little bit later. And just with that then, in terms of where that's at, I'd like to introduce Rodney to the Investor Group for the first time since he joined in the February, just to take us through a little bit on what his background and then just more so on the sales strategy and pipeline of where how we see things moving forward. Rodney, I'll leave it over to you. Okay. Thank you
very much,
Vinny. As Vinny said, I'll take you through
a little bit about myself and my thoughts after seventy five days at Megaport and then talk a little bit about our pipeline and our plans to transform and scale the business globally. So I spent most of my career at IBM. I started as a large scale network architect.
I
spent some time at Tivoli Software after IBM acquired Tivoli as a product manager and led the product management team for the monitoring and performance products. I started the OEM business at Tivoli and formed relationships with Cisco, Toshiba, NEC and others and took that OEM business from 0 to $50,000,000 in a year. I then was promoted to Senior VP in IBM to lead the middleware and cloud business. That was both the mid market direct business and the channel business with a $1,200,000,000 target. It was the largest channel in mid market business at IBM.
I spent time recently in Nutanix, leading the sales team and global channel sales, and now glad to be joining Megaport. My thoughts after seventy five days, it's very clear to me that we are a leader in the market for a number of reasons. One is our diversity terms of platform and being in over seven forty data centers and close to two fifty cloud on ramps really differentiates us clearly in the market. And now with MBE, everyone is really excited about the news that we've received, the exposure we've received in the market, partnering with Cisco and going beyond the data center to the branch location and increasing our footprint in existing customers and being able to address more of the market with SD WAN providers. And I think that's going to propel us to grow our product footprint, only with NVE, but DXC and MCRs as well.
Our pipeline looks strong, as Vinny said. The NVE announcements with Cisco is giving us a lot of customer interest in the market on our platform. Our partnerships with data center operators like Digital Realty, CyrusOne, QTS, Zixtera is growing our pipeline, growing our business. The multi cloud opportunity, I see that growing, and that is increasing. Digital transformation projects are still happening with customers and accelerating.
And that is also contributing to our pipeline growth. And as Benny mentioned, we've got some really good momentum in EMEA and looking very strong in terms of our pipeline growth across EMEA, North America and also countries across Asia Pacific. In terms of our plans, I'm really excited about taking more advantage of the opportunity we have in the market by extending our market reach, leveraging the channel. We
opportunity with some top partners in the market that we're developing now.
And as we develop our new channel program and develop those key strategic partners, we'll have some announcements coming around leveraging that pretty shortly. That will definitely change our trajectory and extend our reach into the market, as I mentioned. I think also as we grow our business across verticals and leverage the use cases and the customer base that we have, we have a lot of satisfied customers. And as a sales leader, there's nothing more that you like than happy customers to leverage outstanding customer stories to win more new customers. And we have some very happy customers across every industry vertical.
Our overall strategy from a sales perspective is to continue to grow our direct business and in Harmony, our indirect business and extend our reach into the market across all countries globally that we cover today. So I appreciate the time, Benny, and looking forward to a great fourth quarter. So thank you very much.
Thanks, Rodney. I'm sure we'll get plenty of questions soon enough. Just an an update on the innovation and MBE overall. So I suppose you would have all, at this stage, be aware that we had the MBE collaboration with Cisco, Cisco Live, that happened on the March. It's live now on the Megaport platform and available.
We will get into a lot more detail around pricing and modeling with with various people, but we're going to do that in a bit later in May in conjunction with live demos and and as we finish off completing some some work. It will be live completely through the Cisco vManage portal in mid August. Their financial year starts in August, so we're in the process of doing all of the global training materials updates, etcetera, with their team at the moment. So that's an ongoing piece of work as we finish up this financial year. And as I said, our pipeline is continuing to grow at MBE, and the selling at the moment between now and August will be done through Megaport.
So as we hand off leads to each other to make sure that we complete customers' demand for it instantly for MBE. We have large global Fortune 500 companies at the moment going through proof of concept. And as I said before, with the Internet, Intercontinental Exchange in New York, the New York Stock Exchange, they did the same thing. Large companies tend to take up large amounts of services, but initiate by taking off a proof of concept to ensure everything works properly before adding a lot more services. So the thing that we've seen here is the fact that we've got a global network across 23 countries is something that's very important when you're building out a branch network, particularly for a global company, and that's exactly what we're seeing come true both in the pipeline and the collaboration for with proof of concepts with some of these large organizations.
We will be announcing a couple of other SD WAN technology partners in the course of this quarter. That the similar needs, what we've done with the CSPs or the cloud providers, intend to bring on more partners to allow customers the choice for whichever vendor or technology partner they want to use in the same way. In terms of the next stages for MB and where it's at, we're going into full commercial mode right now. And as I said earlier on, the full selling organization behind Cisco kicks in mid August. In the meantime, some of the partners that Rodney referred to are also Cisco resellers.
They sell a lot of other services. So we're signing on board with those that so we can actually not just sell SD WAN, but actually continue to sell ports and services and cloud connectivity in general as part of the product portfolio for a lot of these large global resellers. And we will be announcing a couple of those as well in the not too distant future. And that's pretty much where it's at. The portal is live at the moment, as I said, with MBE, and we're working through opportunities there.
We have a pipeline of 65 live at the moment for MBE as we're working through that. So very strong interest. We also won an award over in Tokyo with the Cisco in collaboration with Cisco on the SD WAN product and MBE for best technology and innovation release at the event, which was just last week. And pretty much that's the update. I anticipate we'll go more deeper into this when the Q and A opens up.
So I'll just leave I'll leave it at that for now. In terms of the outlook and where we're at, we're on track for four zero five sites for the end of the end of June. As I said, this quarter, it's the same as previous four quarters. We'll go back switching to once MB was launched, we're going back into build mode. So that's on track.
And with the momentum and everything that's on that, we're also on track for our EBITDA exit run rate on June. As I said before, the operating leverage in the business is there now. It's coming through. And so as a consequence of adding more sales, we naturally get to that outcome by the June. And the closing cash at the end of the period was GBP 141,500,000.0.
So notwithstanding that, the strong collections and the revenue come true, we have the wherewithal in terms of the balance sheet and the cash to support the push through for MBE, but mostly importantly, to support the sales strategy that we've got, which is actually an increase in momentum going from very a low base in our indirect and channel sales by bringing on some of these partners to really push the growth into from Q4 into FY 'twenty two and beyond. And I suppose most importantly, close out, we're really excited. We're finishing out FY 'twenty one in terms of the pipeline for SaaS and the momentum that we're already seeing coming through in terms of new customers already in April and the opportunities that we're seeing of what we've closed so far in the first couple of weeks. So it's an extremely busy time. And overall, the momentum, as Rodney said, coming into the new financial year, digital transformation products are accelerating, and we're seeing that.
And I think a couple of analysts have already started to pick up and report on that coming out of U. S, and those trends are continuing where business has to get on and move away from legacy architecture and the increase in IT spend is what we're seeing is the number one user case, why people are trying to move forward quickly and move more of their infrastructure into public cloud. So we're looking forward to finishing very strong in Q4 into FY 'twenty two with new products and new partners and customers. Okay. I think we'll leave it at that, and we'll open to Q and A.
Hello, this is the operator to all the participants. If you have any questions, you may send it to the e mail, investormedaport dot com. It's shown on the screen or you may raise your hand and we will promote you to ask the questions. Tim from UBS, you can unmute yourself. You can ask the question.
Hi, guys. Can you hear me? Hello? Can you hear me? Steve?
Vincent? No?
Vincent, how are you?
Oh, have you got me?
I can hear you. Yep.
Yes. Okay. Fantastic. Apologies. Just a couple of questions for me, and then I'll circle back around and give other people a chance to to ask.
But, Vincent, just looking at those ports added, seems to have been bouncing around three fifty to to five fifty. Any are there any observations that you can make when you look from going from a bit of a softer result to a stronger result? Are there any differences? Is softness coming from the direct channel or the third party channel? And then the second part to that question, just third quarter sounds like it was a bit of a tale of two halves.
And from what you're saying, the second half was much stronger. The April was much stronger. Is there a way for us to think about what that quarter would have looked like if you'd extrapolated the back half of that rather than taking in the full amount?
Well, okay. First part. Look, I see I think we're going without giving numbers, obviously, we're already early into it, but we do have a pipe the way I would look at it, we have a pipeline that's four times the coverage that we need to do what we would call a higher number. So we have a lot of opportunity even if half that convert, it's still a hell of lot more than what we've achieved before. And again, that's I think the underlying reason here is for a slow start.
There's a lot of businesses which are slow getting out of gear in January. In US and Europe, as we mentioned, had a strong quarter there. A lot of that's because their calendar year is their fiscal year, and a lot of budgets that were approved pre Christmas. And this is feedback we're picking up from customers. They're getting ahead with their IT spend, and it takes a couple of weeks to get going from the beginning of the year before you get vendors on board and then getting things tested themselves.
And we certainly saw that pick up at the February and into March and continue. And that's the number one driver is the actual increase or the willingness to increase more in IT spend and infrastructure, and we're a beneficiary of that.
Got it. And then just one other one, if I can. Just when you go on to your platform, very exciting to see that you've got MVA launch there. When I look at the pricing across the different geographies, when you think about your core product, a port is AUD500 in Australia or USD500 in United States. When I look at the mid range MVA product, it's AUD4736 versus US 2,640.
Just wondering if you can touch a little bit in terms of what the core drivers are behind that difference and how we should think about it?
Yeah. So there's a there's a transit cost or a transit element part of the bundle price, and it's different per region. So obviously, it costs more here in Australia than it does in The US and Europe, and hence, that's the difference. But the actual MBE cost as part of that bundle and of the instance depending on when you want a small, medium, or large. So similar to way we've done MCR, you can have four sizes.
You can have less than one gig, two and a half, five, up to 10. You know, they're in different categories and there's different price brackets for each one. MB itself is the same. So you go from small, medium, to large, and that basically is how much compute do you need, and it goes up in CPU usage sizes from two, four, and eight. It's kind of the bundles how we've done it.
So the pricing for that is consistent across the markets. It's just the transit element that goes along with it, which we don't really have a control of it. That's something we've bundled in as part of the price and it's a pass through. So happy to go through that in the modeling, but that's the reason for the way the price structure is set up. And those prices, obviously, in the port that you see don't include VXCs.
That's just for the MBE instance, depending on the size. And typically, for a small MBE instance, you need a minimum of two VXCs. So and it could they can be anywhere between two and four, but at a minimum, it's two. And then as as you move up in the number of MBEs required, it's it's just a multiplier factor. If you need four of them, it's four times all of that.
So think of it as a minimum instance as one MBE and two VXCs. And that'll be the smallest MBE fit or or deployment that a customer would require. We've got some large customers who are looking at various different sizes, but multiples of those.
Got it. And just very last part to that, the VXCs Pricing isn't up there. Presumably, it's not the same as the stock standard pricing?
No. No, it's $200 for less than a one gig VXC, and it's $400 for greater than one. Yeah. The pricing, again, is different because you're solving a different problem and you're removing additional complexity. So the fact that we have a network there and it's a higher premium product because of the complexity of what we're trying to solve, That's the reason for the pricing change.
Nick Harris here. Can you hear me?
Hi, Nick. Yeah.
Thanks for the call, Vinny. I'm just really interested to have a bit of a chat with Rodney and understand a little bit about your plans around changing that, I guess, the sales mix or accelerating channel in North America. Maybe you could just elaborate a little bit on your plans to do that. Do you need to add a bunch of sales people that will focus on particular partners and verticals? Or is it about getting your collateral right and your pricing points right and having sort of unified channel partner wholesale price?
Yes. Thanks for the question, Nick. It's really about building out our partner ecosystem. And that ecosystem consists of MSPs, GSIs, resellers, agents in referral and our data center operators. So it's important for us to continue to build across the ecosystem.
We have strong data center operators and strong agents and referral and some good resellers that we don't have as strong a presence as I would like in GSIs, MSPs. And we also are talking to some VADs, value add distributors, like Tech Data and Arrow, who can substantially increase our reach in the market with some top partners that are selling cloud and other solutions today and can add Megaport to those solutions. So we have a really good opportunity, not just in North America, but also EMEA and APAC by leveraging a broader ecosystem of partners that we don't have today. We will need to add channel managers for coverage. But we will work our direct sales and indirect sales in Harmony, especially during the first year because I believe the channel will bring us a lot of opportunity.
But we will need our solution architects and our direct salespeople to help those new partners that will be building skills to progress and close those deals. And already, with our Cisco alignment, we're talking to some top Cisco partners who are already bringing us pipeline and opportunities. So hopefully, that addresses your question.
Yes. Maybe just to elaborate on it a little, though. Obviously, you've got some existing channel partners. Is it about spending more time with them? Or is it also adding new channel partners?
It's both.
I think it's both. I think it's alignment of our marketing team and getting those partners to do more run more marketing campaigns and sales campaigns as well as extending our reach in the market with more partners and more partner sellers and making those partners productive.
Excellent. It's also worth pointing out think it's also worth pointing out, Rodney, that some of these global resellers or partners that are out there, they're very good at selling services and solutions in a cloud environment, like in Azure and AWS, etcetera, but they're missing they're missing the network piece. And so bundling us with with their solution selling in a cloud environment is a natural complement to each other. And I think that's the part that we're working with them very closely because we actually offer that. And the reason and the feedback we've had so far from some of them is there's nothing like what we've got in their portfolio or in what they're trying to sell today to customers.
So we're really encouraged by that and the fact that a lot of these arrangements are being accelerated now during the course of the last couple of weeks, and we hope to get a lot of them completed over the course of the next five to six weeks.
Yes. Thanks, Vin.
Thank you.
It's John Akin. If nobody else has a question, I'll chime in here. So I was interested in maybe hearing from Rodney in your discussions with customers so far. Any kind of takeaways as you've engaged with them a little bit in your first seventy five days? And then similar question for what you're hearing from your key channel partners, what's going right and what have you kind of identified as areas for improvement within the existing distribution channels?
Yes. So the customers are doing more with cloud and cloud to cloud. So that means more business for us with existing customers. They're overall, the customers I meet with are very happy with our products and are excited about our MBE offering and the fact that they have branch locations and they have SD WAN, and now they can incorporate Megaport to connect those remote sites. So my read is that we have a tremendous opportunity to increase our footprint in existing customers.
We have a lot of happy customers across all industries, which helps us to sell more. There's nothing better than a good customer use case or positive customer story to go sell more into that industry, and we have that. So I'm very delighted with what I'm seeing from our customer base and what I've seen over the first seventy five days, John.
And then as you seek more GSIs and MSPs and value added distributors, is it a matter of enhancing your own product set? Or what are the gating factors? Is it just simply engagement level that needs to happen with the existing Megaport set of products before that starts to kick in? What are some of the proof points that these potential partners are looking for?
Yes. So it's just a matter of making sure they understand our value proposition and how we can add value to what they sell today and improve their solutions and be a competitive differentiator for many of these partners. So really, it's mainly about leveraging the BADS to reach more partners simultaneously and scale much quicker. To date, we've been one by one with our own team recruiting partners. VADs, we'll be able to define a criteria and profile of partner we want to recruit and have the VADs give us scale much more quickly.
So I think that's going to help us to reach more of the market and team with more GSIs, MSPs, resellers globally at a much faster rate.
And then finally, perhaps for Vinny or Sean. But if I understood correctly earlier in the call, March and April have kind of kicked in related to just customer budgeting and where they are in the process starting the new fiscal year. Is there anything that you've taken on the sales side that's contributed to kind of the March
and
April momentum? And then maybe just lastly, the comfort level you have with sort
of hitting the what I think
is the $80,000,000 consensus for FY 'twenty one?
Yeah. Well, I think as well, mean, Rodney can jump in here too as well. I mean, he talks to the customers and he's he's he owns the pipeline effectively. And, you know, what we what we have been seeing is, to give you an example, it's different verticals. I called out three verticals, and one of them in particular was media and entertainment.
And then we signed on BBC and Fox, which is to mention two. I mean, in the financials, I suspect New York Stock Exchange with UBS, Reserve Bank New Zealand, Soro, Spend Capital, Bloomberg. I mean, we've had a lot of data services from financial services that come in, and it's it's probably not a coincidence because we've been talking to them pre Christmas and, you know, from probably four four months, five months beforehand. And a lot
of these have all just come in
the in at the same time, the same quarter as a lot of their checkbooks have opened up from budgets, etcetera. But the one common denominator here is a lot of data services, lot of media, a lot of entertainment has a use of, obviously, a lot of data. And so the use of that and having a network that's allowed to connect across many locations and data centers, it has been a key driver. So that's one instance. And I think the in terms of where we are with the pipeline, how we're looking at, we're not changing anything to do with our consensus or planning.
We're still quite confident we're going to do that. But most importantly, put us on the right trajectory going into the beginning of the new financial year. So it's a bit of both. But Remy, do you want to add anything more about what you're seeing in the difference between kind of February, March and April?
Yes. So coming in, in February and looking at January, we
put
in place a plan with the sales team to address pipeline shortage that we had and then also progress opportunities at a faster rate. And that plan has worked. We're now adding pipeline on a regular weekly basis and monitoring that and putting a focus on that from a sales perspective, while we continue to progress and close opportunities at a faster rate. So the increase that we've seen from February and now into April just is continuing. The momentum is actually building.
And even with MBE, even though we've only had the product out a very short time, we're building a pretty substantial pipeline already. So I think we just continue that discipline of focusing on pipeline build weekly and progressing closing deals. And we'll continue to see the momentum that we saw in March and April.
Does MVE contribute at all to the $80,000,000 or whatever your full year number ends up being, does MVE contribute to that minimally or not at all?
We haven't factored it in, no, because it's like everything else, you we kind of want to bed everything in. In our forecast and our planning internally, we want to kind of bed everything in. And I think closing out on a few new customers, hopefully, in May will contribute something in June, but not material enough to not to have a material impact, I suppose, in the overall total revenue. But it's more getting it done and ready and having it will be a component of our revenues in FY 'twenty two.
It's Bob here from JPMorgan. Just a couple of questions for me. You sort of mentioned earlier, Vinny, that sort of the pipeline for Q4 looks pretty strong, almost sort of 4x larger than some of your previous quarters as well. Just in terms of converting that pipeline into actual sales and to revenue dollars, I mean, can you talk a little bit about how long it typically takes to convert one of these pipeline opportunities?
Yes, I can. Just to clarify what I meant by the fourth. So what it means is whatever revenue we have or whatever ports and services that we plan to have for the quarter, we have four times cover for this quarter. So the conversion rate, broadly, is circa 40%, around that sort of a conversion number on what goes into the pipeline versus what gets converted in the same period. And so that that gives us a lot of confidence of what's going on.
There is some customers that I have called out that do take a little longer, but they tend to be once they kinda have sized up their their their size of the footprint, they tend to be the larger ones. They tend to take a little bit longer, but then when they come on, they come all on. So you get all the services very quickly. It doesn't come in in dribs and drabs, but it does take them a while to size it up and and something like I said, do proof of concepts. But, no, I think I think that's that's pretty much how it how it works in terms of what what our run rate rate, roughly, in conversions around 40% on our pipeline a qualified pipeline, sorry, not just the the total pipeline.
Yes. Okay. Perfect. And then just in terms of sort of the MBE product, obviously, you've got some sort of trials in place at the moment. Can you give any sense in terms of how large a typical sort of MEE customer could be compared to your sort of existing customer base?
It's a mix. Okay. Right? So we've got some large customers will want small MBE instances in certain locations because they don't need them be big, but they need lots of them. So if that makes sense.
And in certain cases, we have larger customers who who need that higher element of compute. But maybe, Eric, did you wanna kinda add a little color to that one?
Yeah. Sorry, just coming off mute there. In terms of the sizing for some of these MBD deployments, they're really going to vary based on the number of branch offices that need to connect into the MBE infrastructure. So initially, within the proof of concepts, we've seen a range of anywhere between 10 branch offices to get a general scheme for how the data flow works and the integration works, up into some of the pipeline that we're talking about now, supporting numbers of 100 plus branch offices. So that's really going to impact the size of MVEs deployed, and the number of MVEs deployed.
And remember, the MVEs are deployed into metro areas that are designed to aggregate branch office connectivity very quickly, get traffic off the Internet and onto the Megaport private network. And depending on the aggregation level from the customer in terms of the number of branch offices that may be in a given metro area or a regional area, there's some flexibility in how they're gonna design that interconnection back to FEV. So the reality is it's very flexible in terms of the service offering, and what we're seeing is that's coming out in some of the proposed point of proof of concept architectures that we're coming through now. Right? I think the high level bit here, as we think through this, dominantly, it's driving the intention here as part of the architecture is to drive more cloud connectivity into more buildings.
So ultimately, the VXCs, in terms of number of VXCs and sizing of VXCs, what we suspect we'll see over time is larger
consumption
and more VXEs, because ultimately, you have more points across a network that are accessing cloud resources.
And I think that's that's kind
of the high level bit when we think about the sizing of the beyond just things like MBE sizing.
Okay. Great. And then maybe just a final question on how I should think about the total addressable market of the business now? You know, MBE, obviously, a new product, and how that sort of might compare to your core services model as well?
Well, okay. Initially, it's it's not obviously, we're starting from ground zero. Right? So it's it's gonna take a a little while for it to to build up, but it's not it's not inconceivable that it will it will be a larger market or adjustable market for us than than what we've what we've seen or what we've built up to today. I mean, don't forget, this is just MBE is really important, but we're what we've been talking about here is just our first technology partner, Cisco, and there's other ones, like I said, that will have to come on in and not just in the SD SD WAN space, but with SASE and security and IoT, etcetera.
These are all areas that that will sit across the platform as we work through the various partners that we have in those in those fields. So it's it's got the it's got the reach and the potential to grow further. And having buildings being able to connect it securely, having the 23 countries, over 700 enabled data centers, and in adding to that, over 200 and close to two fifty cloud on ramps. You and we're not slowing down on that. Like I said, we're still adding sites, and we plan to add more next year as we look through our new budget for next year.
But and I'm more conscious of the geographic footprint is going to continue, the technology and the platform and the depth of that's going to continue. So look, there's some
stuff we're doing here. We're pioneering it. So, you
know, we're enabling third party research to help us with sort of market sizes. It's not something that we can point to directly and say, here's the size of the price. It's gonna take us a little while to but we do know that two things for certain. One, there's a pent up demand for two, more and more businesses want to get to the cloud. So the biggest user case for for BME right now is branch to cloud.
Right? It's also followed in by branch to branch. But that's the big one that's unanswered. And getting across, as Eric said, onto a private network, using our network to take customers securely with the right latency and network performance, etcetera, all the way into a cloud on ramp so they can secure that building access there for cloud is really important. And that's that's a that's a key problem that's not being solved properly today.
And so that's why we're seeing that there's a lot of interest in a lot of large organizations looking to to do demos, do proof of concepts and see how they can architect their business using our network, which is really the platform that we're after. So we're sort of pioneering in an area that hasn't been seen. There's various analysts out there. We can get research from a market size that Steve has kind of referenced before. But we probably would be engaging with some of those market research analysts next year to do a report on the industry
We should be able to talk about a bit more effectively and probably over the course of this coming year.
Perfect. Thanks, guys.
It's Ray from Macquarie here. If I could just ask a few questions.
The first
one is just in regards to the pipeline that we've got overall, on average about four times. I'm just wondering if we might be able to get any color as to for the different products, which might have a longer versus shorter pipeline?
Yes. The pipeline I'm referring to is ports, Right? So I don't I don't necessarily track the number of DXCs that go on it because the port is pretty useless on its own unless you actually add a DXC to it. So it's like a minimum, it's one to one to start off. So the pipeline I'm referring to is for ports.
And like I said, if you haven't got a port, you can't do anything. So that's the minimum, and that's what we track. And so customers, we're seeing more and more customers who are looking at not just one and two ports, but we're seeing multiple ports for customers with large footprints looking for two, three, four. And now that conversation switched to eight and ten ports per customer initiating depending on the size of the customer.
Okay. Got it. And then the next one, perhaps a bit more for Rodney, is just in regards to the kind of like how we think about the unit economics of indirect sales channel versus the directs that we've been doing in the past. From your experience, should we think about how that impacts on the financials of the company going forward?
Well, a lot of our business already is coming from partners where we give some margin or referral fee. So I don't see that affecting us too much because we already have a model by which a lot of partners we pay bring us opportunity. So it's well within our budget to pay margin. That's part of our business model to partners and how we've been operating today. So that really doesn't change much.
Just to add to that, Lee, I mean, what will happen is you don't go hiring 200 direct salespeople in this particular case. What you do is you hire channel managers and people who are who saw the relationship or manage the sales process with the partner. And so what happens is you have less OpEx invested going forward, but you have more of you have the margin coming off the top. That's typically how this works. And as that shifts over time, so if the volume goes from 70% direct to 30% indirect, and if that shifts the other way around, we'll see less OpEx, but we'll see more of the COGS line being impacted because of the cost of commissions or fees or whatever it is that are paid for the contract we're bringing close into sales.
So it will be a dynamic between the gross margin and the EBITDA margin. But overall, the EBITDA won't change. It will just be where that line item sits, whether it's in OpEx or where it's in the cost of sales.
Yes. That's a good point, Vinny, in that you can either hire hundreds of salespeople and take on that cost or you bring on partners and partner sellers where you only pay them when they sell. It's basically a 100% commission model. So it's in the long run, as we get more partners selling on their own, it definitely becomes more profitable.
Okay. If that's the case, if we're going to be doing more indirect sales channels going forward, would we look at lowering the amount of direct sales that we'd be doing going forward once that becomes more mature?
I think we're going to focus that like I said, we're not Rodney mentioned that area, and we're doing this in harmony. We're not slowing down on the direct sales and enterprise sales. We've already got that momentum. The business where it is today came from there, right? So I'm not changing that one minute.
And we will enhance it as we have done every year incrementally as we see fit, and that's the best course of delivering return, which is effectively getting sales, right? And that's not going to slow down. We're going to continue to do that as we see fit and as we grow. I think what really saying is we're going to really go hard at investing in the indirect channel and how do we enable more. It's better to have 5,000 people selling rather than 200 additional new direct people selling, and that's how we are looking at it.
Right. Yes. And our sales team look, there's nobody better to sell Megaport than our sales team. Our sales team is very good. Our solution architects are very, very good.
So in terms of supporting these partners and making sure we're getting deals over the line and that we're getting an opportunity, there's nobody better than our sales team. They're really good. So I think having those teams work in harmony, the channel managers working with the partners to make sure we're top of mind and we're getting pipeline as well as our direct sellers and SAs supporting them to make sure they can progress and win opportunities. It's a winning combination.
Okay, understood. Maybe one just final quick question for me is just in regards to Secure Access Service Edge architecture. I'm just wondering what the significance of this is versus what the competitors might be offering and what it means in terms of our, I guess, competitiveness overall?
Sure, yes. Eric, do you want to take that one?
Yeah. At its core, Megaport Virtual Edge is a platform for hosting network functions virtually, right? So the first use case here is really around SD WAN, getting branch offices connected through technology partners like Cisco and their good teleservice offering, connected into our private network to modernize the network, orchestrate connections into the cloud. And that really
talks about
part of the access piece of SASE. So if you're looking at SASE, there's a good model for secure access and edge networking coming together. What you're really doing is you're incorporating network capabilities and security capabilities into a cloud hosted model. So NDE, in a lot of ways, is a cloud hosting platform that's set for network function virtualization. So SD WAN is one component of a SASE architecture.
Then you start to look at more of the security elements of SASE, things like firewall, DDoS services, authentication services, identity. Many of these services are actually incorporated into some of the technology partners we're working with today, like Cisco. There are SASE elements to their SD WAN service offering that are becoming available. And as Vinnie indicated, we have a stable or a pipeline of additional technology partners that we'll be integrating onto NVE as well so that our customers can then spin up these devices on NVE as a platform. So some of these security capabilities that are part of that tick box in the SASE architecture will actually be hosted on Megaport's platform as part of the integrations that we're doing with technology partners.
So NVE has a role to play there. Additionally to that, when you look at SASE architectures, you can also connect into security service providers through the good old school mega port traditional way of getting a VXE across our network, having a port, and connecting into a service endpoint. So the combination of NVE with being able to host some of these functions as well as connecting into service providers in our ecosystem that provide SASE functionality provides enterprises the ability to address some of those SASE needs as they're evolving towards that architecture. So we view MBE as a platform to get SASE done.
Okay. Understood. And so just in terms of does SASE actually cost more on MBE or is that just a bundled service?
Just one quick element on that. Different types of virtual functions take up different processor resources, right? So NVE is sized based on compute, some storage, and then bandwidth as part of that. Certain applications require more intensive compute to actually be done, and some of those are actually security based. So really, the change in pricing will end up being a function of how big the NVE do they need based on the tiers that we provided to support some of that functionality, right?
So depending on the application, it might require a larger size NVE to support that. So initially, as we look at this, that will be the variable in terms of the pricing to support it on MBE. And sorry, Benny, was there something else you wanted to add?
No. Perfectly that's what it is. So in other words, if you're using MBE today and you want to add more additional services on it that are available on the platform, you will more than likely have to upsize your MBE from, like, a small to a medium or a medium to a large, or you may have to augment by adding an additional one. So it it's a it's a function of size. So do we need to do
No. We've to make sure we bring the partners on board so the services are available on the platform through our integration work. But it doesn't that that's that's what I'm talking about leveraging the network. I yeah. I can't really strongly emphasize how important that is.
It underpins everything that we've built and everything that we do. So we're layering services on that. Does it need extra money or cost to do it? No. It's mainly CapEx and hardware over time.
Right? And that's to allow for upsizing where we offer these services. And then it becomes more about the sales motion and go to market as we talked about Rodney. So that's how we're in addition. We're going to add more partners on.
The cost of adding those partners on is just time and effort. And then it becomes over time, it becomes a function of network expense or network hardware that's needed to support the business as it continues to grow. This
is Roger here from Jefferies. I've got two questions. First one, just back to the result. So in Europe, you had experienced a very strong turnaround in growth in the last two quarters. And I'm just wondering what has been driving that.
Is it the growth in new customers? Or just customers taking in more products? Kind of just wondering whether the IX business is still dragging down the revenue in Europe. Second question is on MVE. Just to clarify, is it right to say that MVE is a lower margin product?
Because even though price is pretty high, but because you've got IV transit bundled into the product, so therefore, you've got to pay, the cost of the transit to the telcos?
Okay. I'll answer the last part first. So the MB yes, you're right. There's the MB itself, excluding transit, is a very high margin product. The transit piece is a pass through.
And in some cases, we may have a customer who will bring their own transit. So it's flexible in that regard, but we've made it available assuming there is no transit available so the customer can actually use it. So it's a mixture. But in itself, it's a high margin product because effectively, it's just the IP that we require to build it, some licensing, etcetera, that we need to cover off. But by and large in itself, it's a high margin product.
Every VXC that attaches to it is a high margin product because we've already built it. It's a sunk cost in the network. We're carrying it already. There's no additional cost to support the VXC. So there's just that one component that sorry.
That's in Saving Metro, I should say. But, you know, there's only that one component, which is effectively a pass through. It's not our business. So we just add it on whether the customer brings it or we have it available for them to use it. It's a choice there, how it's consumed.
In terms of what if you bundle everything together, yes, it sort of dilutes the margin a bit, but it's not substantial. And like I said, in Europe and America, where
we do see the bulk of
all of our opportunities, the transit is not such a big issue in terms of the pricing. And in relation to Europe and in general, no, the IX is not having an impact. It's continuing to grow. It's a steady business. And like I said, that instance that we had back in late September was effectively a contract change over a two to three year period where terms are contracted in advance.
And so it's not like the flexible pricing that we do or dynamic pricing that we have in in the Megaport product set. And I think, generally, some of the customers that we called out are are are European based, BBC, for example. A lot of the services that we have are taken up by global companies, which are now expanding into their European footprints where they may have initiated their business in in Asia or in in The US. So expanding those in different markets inside of Europe. So it's a pickup in growth in our, let's call it, our traditional our main Megaport business as opposed to, say, traditional IX.
So I wouldn't say it's dragging it down because it's not decreasing. It's improving.
Okay. Got you. And just a quick follow-up on MVE. When do you expect that, that will represent a larger proportion of your business going forward in the long term versus the core business right now, or is it too early to tell?
It's probably too early to tell, but it'll be just as big, if not bigger, is probably how I would view it in this without having you know, we obviously need to move just we're two weeks in. Right? You know? So it's but I I think we're we're very buoyed by the by what we're seeing in speaking to customers. We've pride ourselves on making sure that this works from the first time out the door, and that's exactly what that extra bit of time and effort that was taken working with, our partners at Cisco, make sure we had a a very viable and competent product at Workday one, and that's coming through in the proof of concepts and the testing that we had, a beta testing that we've done with customers.
We've ironed out a few little wrinkles here and there in terms of operation and customer, how the customer engages or uses the product. But that that and that'll always be a continuous improvement, just making sure that the the point, click and consume model stays true in everything that we do, while we're abstracting a lot more complexity for for the customer. So other than that, I, you know, I I I see that we've got a very strong strong wing customer base that started out with this and obviously, as we bring more resellers on board, particularly from the Cisco side and in the future with other ones out there, we just widen out the product, the base that we get to sell, not just the SD WAN product, but also the rest of the product portfolio. So we see both of them. It's an opportunity for both of them to increase.
We just make we're putting the tools and the product suite into the hands of other people to sell it up on our force. And so if you go, they're complementing to each other. And if you think about what we built up to this point in time, it's been very much data center to data center. This now increases our reach further outside of the data center footprint into locations, offices, branches, facilities, etcetera. That's great.
Thanks. Okay. Is there any other questions?
Operator, we had a few questions come through via the email link. I might just start with one for Eric. They're related to the contract. This is the case study with ICE. For those who don't know, that's the Intercontinental Exchange, which operates the New York Stock Exchange.
And the question was, can you expand a bit more on what exactly that involves? And in particular, is ICE white labeling the Megaport products to deliver its services?
Yeah. And thanks to whoever that was for the question. Yeah. The Intercontinental Exchange is actually using Megaport as a means of providing an on ramp product to their customers. So they've got a number of asset managers, banks, retail trading groups, among others, that access their market data services.
And many of their customers would like to access those services securely over our private network. And what compounded the complexity of that for ICE was many of these organizations have their proprietary trading infrastructure sitting inside cloud providers. So they're running in virtual machines in Google Cloud or AWS or Microsoft. So because Megaport is already connected into these cloud providers, and we have the API integration to connect those virtual machines over a network to an endpoint, it became a very logical series of efforts to take that capability, commercialize it for ICE, and allow them to sell it to their end customers directly. So they've launched the ICE Global Network, the IGN, Cloud Connect product, which is effectively powered by Megaport.
So now they can go to their customers, and they can offer them direct access over a private network, so completely bypassing the Internet, from their proprietary services sitting in a cloud provider and can get access ICE's data feed services, which ultimately provides the data that powers many of the decisions that they make in terms of trading, data analytics, and generally getting business done on behalf of their customers. So yes, it is a white label solution, and we did work conjunction with ICE to get that deployed.
Okay. One other question just around EBITDA breakeven. There was a question question around where we were at the
end of
Q3. I'm not sure we are going to provide a sort of a blow by blow update. But Vinny, do you want to just update guidance for breakeven on a run rate basis by the end of by June '1?
Yes. Okay. I'm just going to reiterate that that's where we're tracking towards. By natural progression from where we are in December, you're going from from our EBITDA exit run rate position there to zero, effectively our breakeven. I think I'd just be happy enough to comment on the fact that we're tracking there, we're confident that we're getting there.
Okay. And additional question just in relation to MBE. Pricing is obviously available in the portal. So you can compare the MCR and MBE pricing depending on the size of the MBE instance. But I have a question related to what does a typical deployment look like for a customer that has branches across, say, 10 cities?
And I think it's a question around how many MVEs, how many VXCs, and what does that spend look like.
Eric, did you want it again, it depends on the size, right, whether you want how much compute you want and what the branch or each location is going to do. But if you took the small instance and you took a minimum of one per city, that's 10. If it's 10 cities you're trying to connect as opposed to 10 branches, you could have 10 branches connecting into one MBE. So for example, we're in Brisbane or, say, just take Sydney, for example, you can connect in you you connect into Sydney. You could have 10 branches connecting into one MBE in Sydney.
But if you're trying to connect multiple cities together, you will need more MBEs and could be up to anywhere between you know, if it's 10 cities, it could be 10 MBEs and a minimum on a small basis with two VHCs per each one. That that would be the minimum if you if you wanted to do it that way. It really depends on how much compute they want to use as part of that. Would that be fair, Eric?
Absolutely. It really boils down to the end architecture that the customer wants to enable in terms of how they want to aggregate branches together, and then ultimately the number of clouds that they want to connect into specific regions. There's a lot of variability into pulling out the right tools from the toolbox of MDE, the VXCs, in order to create the architecture that they need to scale. So it's very difficult to come up with an average basis of what that looks like now. I think as adoption grows, we'll have better insights on what the typical deployment does look like.
We have in our global updates and our full year reviews provided more color in terms of how customers are using Megaport, what some of the average usage looks like by cohorts over time. We'll have an opportunity as we get more of these services across our network to provide more of that color to give an indication of how customers are doing this. But at the moment, there's a lot of variability in terms of how customers are looking at using this service right now to give that level of detail on revenue.
It is probably worth just highlighting that we that that you don't need a VXC for each branch, but rather each MV instance that is connected to a cloud involves a VXC, partly the reason why MVVXC instance is more expensive than a regular one. It's worth possibly also calling out that there are quite a few different resources that we've added to our website in relation to MBE. There is an info paper that gives some kind of indication as to what a small, medium and large MBE instance looks like in terms of how many endpoints or branches each one can reach as well as pricing on our portal. Anyone struggling to find those, please send them through and up and send those connections through. Cisco has also published quite a few publicly available sources, which look at the SD WAN Cloud Interconnect offering that they're going be pushing out to their customers.
And Benin, do want to do an ad for the MBE update we'll provide in in a month's time or so?
Yeah. I mean, I think what we we envisage the best of things. What we've done for a lot of people is that provide a demo and also allowing for some people to digest some of the material that's available there. And then so that will assist in somewhere around mid May, we can get into having some more group sessions about how it works, pricing and modeling, etcetera. So we're in conjunction with doing with a demo, it kind of really brings it home, how the existing Megaport platform works and how it intertwines with MBE and then obviously with the branch location.
I think that, that will wrap it up. We're going over the time anyway. As usual, feel free to reach out to Steve or myself about any other questions you might want to follow-up with. And thanks very much for joining us on the call this morning. Thank you.