Good morning, everybody. Welcome to Megaport's global update and FY 2020 full year results call this morning. I'm Vincent English, Chief Executive Officer of Megaport. Joining me on the call this morning is Steve Loxton, Head of Investor Relations, and also our new Chief Financial Officer, Sean Cassidy, who has just joined us at the beginning of April.
We will now proceed to go through the presentation, then we will take questions and answers once the presentation is concluded. I'd like to start with the company highlights for FY 2020. There's some key milestones. Most of this has been public information, just to call it out. In terms of our monthly recurring revenue, closed at AUD 5.7 million at the end of June, an increase of 57% year on year. Our annualized revenue, the same increase of 57%, is now on a run rate of AUD 67.8 million through the year.
Total number of customers, 1,842, up 24% in the quarter. The total number of services consumed by the customers was 16,712, up 45% in the year. The total number of customer ports on the network was 5,767, up 42%. The total number of installed data centers in our footprint at the end of June was 366, up 22% for the year. As of today's call, there is 380 installed sites on the network. Slight delay due to COVID-19 in terms of connectivity. Most of those sites got connected during the first month of this financial year. Moving on, continuing the highlights. One of the big callouts that we had during FY 2020 was our continued growth and an extension of our partner footprint with our leading cloud partners. Over the course of FY 2020, we added Rackspace Technology and their on-ramp capability to our network.
The total number of on-ramps at the end of June was 197, up 49% in the year. The total number of cloud regions where customers can access was at 109, also up 49% in the year. The total enabled data centers was 669 at the end of June, up 27%. Similarly, just with that slight delay at the end of June, we are now over 700 as of the timing of this call this morning.
Our marketplace now stands at over 360 managed service providers that customers now can connect to on the Megaport platform. Having a look at the revenue performance for FY 2020. Starting on the left-hand side, looking at the Asia-Pacific region. Total revenue for the financial year was AUD 20.6 million, up 54% or AUD 7.3 million in the year. Switching to North America, the revenue was AUD 26.3 million, up 94% or AUD 12.7 million in the year.
Our fastest growing region in the business. Our European business ended up at AUD 11.1 million, up 36% for the financial year. Overall, total revenue was AUD 58 million, up 66% or AUD 22.9 million for the full year. Switching to a snapshot on the annual results for FY 2020, of which the annual report was also released to the ASX this morning with the full financial statements and audit report. In summary, total revenue for the financial year was AUD 58 million, as I said, up 66%. The profit after direct network costs was at AUD 29.5 million, up from AUD 11.9 million the previous year, up 140% increase. The profit after direct network cost margin was 51% for the full year, compared to 34% from the previous year.
Operating expenses were higher as we continue to invest in growing our business, as we mentioned during our capital raise calls during the financial year, as we continue to invest in the growth and scaling of our business. Normalized EBITDA for the full financial year was AUD 19.9 million versus AUD 24.7 million the previous year, an improvement of 19%.
Overall, after depreciation and other costs, total loss for the year was AUD 47.6 million compared to AUD 33 million from the prior year. Having a regional look again at just a drill down on the revenue for FY 2020. I draw your attention to the pie chart on the left-hand side. North America now accounts for 45% of our total revenue at AUD 26.3 million compared to 39% the previous year. As I mentioned earlier, a lot of that has been driven by a 94% growth in the revenue in our fastest growing region in North America.
Our APAC business accounts for 36% of our total revenue compared to 38% from the prior year. Our European business, notwithstanding it continues to grow, is at 19% compared to 23% the prior year. Overall revenue up 66%, monthly recurring revenue up 57% for the full year. Having a look at the operating costs in a little bit more detail. As I mentioned, total direct network costs are AUD 28.5 million up on the previous year as we continue to expand our network and number of sites in the regions. Also with the growth in the revenue, our gross margin also increased. Our profit after direct network costs increased up AUD 17 million in the period. As I mentioned, our OpEx increased.
Largest impact of that has been on employee costs, where we continue to invest in our teams, both on innovation and sales and support roles as we continue to grow our business and regions, scaling it ready for FY 2021. Puts us in a position to do that, as outlined in the previous capital calls. Other costs, professional fees increased and a lot of that has got to do with regulatory new regions. We brought on four new countries in market, Spain, France, Denmark, and Japan during the course of the financial year. Most of those costs were pretty much one-off for the year compared to going forward. We also seen a reduction obviously in travel with COVID-19 and some of our marketing spend as a result of obviously COVID-19 and conferences. Overall, total OpEx was AUD 49 million compared to AUD 36 million for the prior year.
Having a quick look back on the historical financial performance on the exit run rate at the end of June for the business. You can see FY 2020 compared to prior years, June, the normalized gross profit or profit after direct network cost margin was 55% exit in June. Our normalized EBITDA margin at the end of June was - 29% compared to a - 49% the prior year. Continuing to improve. I will touch on this a little bit later as we are continuing to grow towards an exit run rate EBITDA breakeven point for June 2021. In terms of the financial position and the balance sheet, the main call-outs, I suppose the most material component is the total cash in the bank at the end of June was AUD 166.9 million, mainly driven by the recent capital raise.
Also, just to draw attention in our total liabilities, we do have the extent of some vendor financing on very favorable terms to the tune of AUD 8.8 million in our total liabilities. Other than that, the financial position is in a very healthy state, which puts us in good stead to continue into FY 2021 with our plans and our growth strategy. Switching now to just a quick update overall on the business. Starting with some of the main growth KPIs in the business. As I mentioned, installed data centers up 22% to 366, currently at 380 as of today. Customers were up 24%, 1,842. Notwithstanding that growth in customers, the number of ports grew by 42%. A lot of that growth came from existing customers as well as new customers, standing at 5,767.
Similarly, the total services were up at 45%, again, driven by both existing customers and new customers coming on board with 16,712 live services at the end of June. The average revenue, as I mentioned, was up 57% at AUD 5.7 million, and the average revenue port was up 10% at AUD 980 across the group. In terms of the growth in ports and services, just an illustrative look back on where we are quarter-on-quarter in our growth, both in the strong correlation between our monthly recurring revenue and our KPIs in terms of ports and services. The underlying fundamental growth rates that we're seeing, notwithstanding some COVID-19 or FX in recent quarters, has continued to grow at a double-digit rate. In the quarter, into quarter four, we've seen a typical 15% quarter-on-quarter growth in underlying KPIs and local currency revenues.
We continue to see that grow and continue as we are today. Having a look at the network effect, and this is possibly the last time we'll present this chart, drawing your attention to the spiral graph in the top right-hand corner. It's getting quite dense at this stage as an illustrative for the number of ports on the outer ring that you see our customers on, and obviously the number of connections on the inner side where they're connecting to. I'll draw your attention to one or two call-outs. At the five o'clock position down in the bottom right-hand corner spiral graph, that dense thing is Microsoft Azure, which continues to grow at a much faster rate.
The two o'clock position in the green, as you see at the top corner there, is AWS. At the three o'clock position is Google. Around the four o'clock position is Oracle. We've seen now recently a big uptick in more and more cloud providers, rather than traditionally we've seen a very strong growth in the predominant two players with AWS and Azure in previous periods. Looking at the pie chart down in the bottom right-hand corner, you can see notwithstanding the growth in services of 45% in the year, a larger portion, another 68% of our total connections across our network are now terminating on either one or more direct public cloud providers.
Again, it's still the main draw for why customers are using Megaport platform, and we're seeing an increase in activity where customers are looking to connect to more cloud providers as they move their infrastructure more and more so into public cloud and into more than one public cloud provider. We don't see that trend slowing down anytime soon. Speaking of public cloud and switching to our footprint, as I mentioned at the top of the presentation, a very strategic component on our partners is continuing to work with them and extend their reach to customers can connect to them more locally and more regionally. The total number of on-ramps on the network connected today was 197, an increase of 65 or 49% in the year.
Also in terms of the number of regions, we have 109 regions now, also up 36% and 49% in the year. Draw your attention to the chart on the left-hand side, you can see Microsoft Azure with 47 on-ramps globally, followed by AWS with 45 and Google at 32. We will see more of this come through in FY 2021 as they continue to reach more and more regions and more and more diversity with their cloud on-ramps. Having a look at the customer cohort trends, this is something we introduced two years ago and again, no different this year. Looking at the left-hand side where we focus on the average services per customer and focusing on the FY 2020 cohort, we see that 4.6 average services per customer for new customers coming onto the network, compared to 4.4 the previous year and four year before that.
As customers are coming onto our network for the first time, they're taking up more services initially. If we look at the cohort in FY 2019 where they had 4.4, they have increased to 6.6 this financial year. Existing customers in prior years are now continuing to use more of the Megaport services. We saw that from some of our KPIs earlier on, where we saw that the number of services and ports both increased by over 40% compared to new customer coming onto the network at 24%. We're seeing growth come from existing customers on our network, and we're also seeing growth come from new customers coming onto our network. The average service per customer in FY 2020 was 9.1, and it's an uplift of 17% compared to this time last year.
Similar trend, if you look at the chart on your right and you look at the average revenue per customer in FY 2020 has now jumped up to over AUD 2,000 compared to AUD 1,257 in the cohort for the prior year. Again, same trend where we're actually taking more services, but they're actually spending more. If you look at the FY 2019 cohort where they spent AUD 1,257 this time last year, they're now spending AUD 2,700 on average this year. The average revenue per customer overall has now jumped up to over AUD 3,000 on an increase of 27%, coming from the existing customers on our network.
We continue to see that's an important part of our strategy going forward with 1,800 customers and making sure that we're looking after them and their needs and their service, not just from existing products but also from innovation and new products and new ways that they're continuing to look to how to use the data and how the platform can serve them going forward into the future. A quick update on MCR. During the year, the average monthly revenue per customer for MCR now is at AUD 5,157 for an MCR customer compared to a non-MCR, which is AUD 2,809. This time last year, the MCR customers were spending AUD 3,967, so that growth in MCR customers have grown by 30% alone this financial year. Similarly, the average services per customer for an MCR customer was 13.9 versus a non-MCR customer at 8.6.
The MCR customers last year were using an average of 11.9. We've seen a 17% increase in the number of services. Total number of MCRs live on the network at the end of June was 307. I'm going to switch now to a little bit of a deep dive into the regions. Just everything to this point in time has been very much specific to the whole group. Starting with, on the left-hand side, in terms of our growth in our total network. North America, made up of the U.S. and Canada, two countries. We are now live in 80 metros across that region, a growth of 25% in the year. The number of installed data centers, 174, up 19%. The total enabled is at 374, up 23%. Looking to Europe, added three new countries with Spain, France, and Denmark.
Total countries now 16, 32 metros, up 39%. The installed data centers at 105, up 27%. Total enabled at 181, up 27%. Finally looking at APAC. We added Japan in, so bringing a total of five countries. Number of cities now stands at 16, up 45%, installed at 87, up 23%, and then enabled 114 at 41% for the region. We've invested quite a lot in FY 2020, and these are the figures as of at the end of June. Total installed at 366 and enabled at 669. As I called out earlier, we are now at 380 installed sites and over 700 enabled. Moving on to have a look at the regions separately. The Asia Pacific region, which is fully EBITDA positive. These numbers, and I'll call out, include Japan, which we launched in at the end of November, early December.
These take in the network and the costs associated with bringing the market live onto the network and for the trading for the last six months of the financial year. Total installed data centers, 87, up 23%. Total number of ports at 2,452, is up 32%. The monthly recurring revenue at AUD 2 million is up 43% in the region. The total number of customers are up 16% at 783. Total number of services are up 36% at 7,480. Overall, the profit after direct network costs or the gross margin for want of another word, has increased by 10 points up to 72% margin, including the new market, Japan, which is not yet gross margin profitable. Just a couple of stats on the right-hand side. Average revenue per port is now at AUD 800. Number of services per customer is increased. It's up at 9.6.
The total port utilization, which is the amount of ports that are available to sell, is only at 41%. Plenty of headroom for future growth without the necessity for further CapEx or investment. Looking to North America. The North America business is gross margin profitable, but not yet EBITDA positive. Overall, total installed data centers, up 19% at 174. The number of ports are up 54% at 2,453. Monthly recurring revenue at AUD 2.6 million is up 73% in the year. The total number of customers at 903 is up 38%. The number of services is up 58% at 6,762. The gross margin or profit after direct network costs increased from 22% to 38% in the year. A couple of call-outs on the right-hand side. Average revenue per port has increased to now over AUD 1,048.
Average service per customer is now at 7.5, and port utilization is only 34% in this region. Again, plenty of headroom for further growth and scaling the business in North America during FY 2021. Finally, just looking to Europe, where we've invested quite a bit with three new markets. 105 data centers, up 26%. Number of ports at 862, is up 40%. Monthly recurring revenue at AUD 1.1 million, is up 38%. The number of customers at 355 is up 20%, and the total number of services at 2,470 is up 38%. The gross margin or profit after direct network cost margin has gone from 40% up to 64%. The European region is now EBITDA positive for Q4 exiting FY 2020.
That brings us two regions going into FY 2021 who are now EBITDA positive, notwithstanding there is plenty of headroom and new markets in there to grow during FY 2021 and beyond. One or two call-outs. Average revenue per port now is AUD 1,298 in Europe. The service per customer is at seven, and port utilization is at 26%. I'm just going to talk a little bit now about Megaport in terms of the industry and just the space we're in, a bit of a refresher on that. The latest report from Gartner 2019, currently in FY 2020, saying that the enterprise cloud spend or the industry we're in is a AUD 266 billion industry, of which connectivity and the space that we're in, we're part of that. Forecasted to grow to AUD 354 billion over the next two years, out to 2022.
Then looking at the Flexera 2020 Updated Cloud Report, which was previously RightScale, their enterprise cloud strategy, customers over 1,000 employees. Now 93% of those, during that survey, they're now actively looking or using multi-cloud as part of their business needs. Out of that, hybrid cloud accounts for 87%, which means that their customers are using some private infrastructure that they may have in building on-prem in their data center, supplemented by either one or two public cloud providers, where they're using that now to augment what they've already got in their private infrastructure. It's clearly becoming a key focus for large companies and large enterprises, whether they're domestic or international, in terms of supplementing and increasing their-- improving their IT and infrastructure needs. Just a quick look back in terms of our value proposition, I think it's important we just refresh this.
It's more evident than ever with COVID-19, particularly over the last two quarters, notwithstanding the traditional way of connecting. The ease of use and the speed of connecting and the flexibility for that has become a key trait in terms of the Megaport platform. We believe the as a service consumption model will only continue to grow going forward, particularly in a dynamic and an agile world that we live in today, that businesses need to be able to react and have the flexibility and have the wherewithal to connect and keep their business sustained and future-proof going forward. Being able to right-size, real-time provisioning, pay for what you're consuming, and have that one-stop shop or that one platform where you can connect to services intuitively becomes really mission critical going forward. I suppose tying it all together, what does it mean? Well, 1,842 customers.
As I said, as of today, we're in over 700 enabled data centers, but we're working with 102 unique data center operators across 24 countries. When you add across that the Megaport value proposition of scalable on-demand multi-cloud connectivity, being private and secure and on flexible terms, and you're connecting your endpoint of connectivity or for enterprise are looking to connect to with over 360 service providers, including the top cloud providers, with a footprint that we have, with the cloud reach that we've got, is a very important ecosystem, which is going to continue to drive our growth going forward into FY 2021. Okay. I'd like to spend a little bit of time talking about innovation. Just as of yesterday, we announced the Megaport Connected Edge.
We had a collaboration that we were working with Cisco for an SD-WAN capability or technology that we are going to enable as part of our first step with the Megaport Connected Edge. We're very excited about that, and I'll touch on that a little bit later in a couple of slides' time. What I'd like to start by just talking about the evolution of the platform in Megaport, and I think this is important for us all to understand, A, where we've come from, and B, where we're heading in terms of our direction and our strategy. First of all, Elastic Interconnection, we started out in 2014.
It was predominantly about a main use case of how do you connect customers or enterprises who are already inside in a data center in a private, secure location, who are looking to direct connect into a public cloud service provider instead of using the internet. This allowed for a scale-up of usage, dedicated network, ease of use, et cetera. Over the course of time, that was a Layer 2 product, and we've built that platform, built our growth and our network on that basis, and that still continues to be a bedrock and continues to grow for us as a service and customer need. We've overlaid that transition that as a service more to a network as a service, where we now brought MCR, which is a Layer 3 product, into the mix.
Which not only allows us to connect customers within a data center, it also accesses customers who are born in the cloud, who may not be inside the data center and may not have physical equipment, but may want to consume virtually in a cloud environment. That allows us to do that. It also allows us, as we said before, for customers to connect to multi-cloud and have connectivity between two cloud providers where they can move their data and their usage between them in a seamless fashion and manage that accordingly. Moving on to 2020, with the Megaport Connected Edge, the new dimension now is that we step outside of the data center footprint with the technologies that we're able to enable on the Connected Edge platform, such as SD-WAN being an example.
Where we are able to connect campuses, we're able to connect headquarters, branches, offices, et cetera. Where they can now connect via an SD-WAN connection securely to connect into the Megaport platform onto our SD-WAN and end up with an endpoint either in a public cloud environment directly and securely, or through a data center, or through any of the access points across our network. In real terms, this is another evolution step in our platform where we increase the addressable market, the reach that we can get to, and now bring or break out that ability for more and more customers, particularly multinational customers or large customers with large footprints, whether in banking, retail, financial services, et cetera. Where they can connect off-prem or locations or offices to a secure network to use public cloud or any other service on our platform.
Having said all that, moving on to what it means. Again, just illustratively, starting from the left one, Cloud Connect, which is our predominant use case, where we have enterprises who are inside in data centers using our software-defined network to connect to a public cloud provider of choice. We then moved on in the evolution where multi-cloud and cloud-to-cloud became really important, where customers could connect from a data center or those who were born in a cloud could connect through our Megaport Cloud Router with or without hardware or services, and can connect virtually in through our network and onto multiple cloud or actually connect cloud-to-cloud together.
Also we have a lot of customers out there who are using our network as a service, where they are literally connecting locations together and using the Megaport network as their backbone to connect both regions or data centers together that are in multiple regions, so they can manage their infrastructure. The evolution of that, now what that means is that with the branch enablement component, we are now able, through Megaport Virtual Edge, during this year, we will be able to bring branches and other offices and locations, as I said earlier on, to connect to a data center footprint securely or to a public cloud provider, or in fact out to any other endpoint, including other branches or other technology endpoints that we have on the platform.
What we're really trying to say is we're trying to create this agile networking methodology, so enabling end-to-end and on-demand connectivity. A lot of this is going to be done and driven virtually across the Megaport platform. In a little bit more detail, the Megaport Virtual Edge overview. We announced that we're extending the reach of the Megaport platform. Our first Megaport Virtual Edge user case is we're working very closely with Cisco and have been for a while now, in terms of integrating into their vManage so that their Viptela SD-WAN technology solution can be fully integrated into the Megaport platform. Which means that customers later in this year, enterprise customers, can use through their Cisco platform or vManage platform, connect, and we bring the reach and the extensibility of our network across 700 locations in 24 countries.
Multiple cloud regions and zones become now part of the network solution to allow customers to virtually use services and connecting via SD-WAN to their endpoints. It's important to point out, if you look at the diagram on the left-hand side, where that Cisco SD-WAN service is one of our main API integrations for this year. Just like our cloud partners, we're open and neutral and independent, and we will continue to bring other service providers and other SD-WAN providers onto our team.
The customer, again, has this platform of choice where they can use what service provider they deem is suitable for them in terms of how they want to connect and use those services. I suppose the other couple of call-outs in this is all API driven, it is all automated, it is seamless, and again, has all of the functionality that is needed for customers to use and manage their technologies and their data across the network. Customers can now take advantage of Megaport’s platform to create on-demand virtual devices like SD-WAN and other virtual routers across the network. There is no need necessarily for hardware. They are able to use and manage the existing network that we have in place through our platform to stand up virtual services or their own customer services. I guess the first step here is with Cisco, and we are really excited about that.
It brings us on both sides, and it opens up the market in terms of addressable market for both for ourselves and for, more importantly, for our customers, particularly in the world that we live in today, with security and the ability to manage data and have a secure, fast, and agile network to allow our platform to manage that. Okay. I'm getting towards the end. I just want to probably just summarize up a quick wrap-up on focus for FY 2021. Notwithstanding COVID-19, we have not had a significant impact on our business with COVID-19. We are a very agile company in general, as we've outlined a couple of times publicly in terms of how we're set up as a business.
Most important is the well-being of our staff and being able to continue to work and deliver customer service and manage the network and continue to innovate has been a key component of what we've been doing. We've been doing it all remotely, and we haven't really been disrupted to any large extent. I suppose, again, financially, we're very strong as we've shown the financial position, the balance sheet closing cash of AUD 167 million at the end of June puts us in good stead for FY 2021 to continue on our roadmap and continue our growth strategy during the year. A second tranche of the focus for FY 2021 is to continue, as I've just outlined with Megaport Virtual Edge, is the platform innovation and product focus. Further API integrations, SD-WAN platforms, and more Network Function Virtualization are going to be key components of that.
Obviously the last part, as I've called out, is we're very focused on the output on our exit run rate for FY 2021 to be able to break even. I think that's pretty much the last slide of the presentation. There's a little bit of an appendix there for notation around the AASB 16 leases, if anybody really wants to get that. There's a detailed presentation in the annual report, in terms of the information. Okay, I think we'll take Q&A now.
Operator, if you wouldn't mind opening the lines for Q&A, that'd be great.
Hi there.
Hello.
Hi. Shall I go first? It's Sameer Chopra from Bank of America.
Hi, Sameer. How are you?
Hi. Hey, Vinny, just a couple of questions. One, how should we think about the pricing for Virtual Edge? How does that compare with how you price MCR? How do customers buy this product compared to some of your legacy sort of products? When you start to think about take-up rates, how quickly does this product ramp up? Do you see it as being something that'll get offered in North America first? Or do you think early parts of the product get released in Australia as well? Thanks.
Thanks, Sameer. Maybe I'll answer the second one first. We're starting with 10 metros before Christmas. In the second half of the year, we'll be extending that to 25 metros in total for FY 2021. That will include Australia, Southeast Asia, Europe, and North America. That will enable most of the connectivity where we are. Most of the infrastructure is already in place. It's really about the integration and the software component. A lot of heavy lifting in terms of that infrastructure is already done. It's just leveraging what we've already got to increase our capability. Yes, it will be global initially. With our beta work with our customers and with Cisco, we will complete most of that before the end of the second quarter. Then go live in the second half of the financial year.
In terms of the pricing, we're still working through all that. It's quite confidential at the moment, as you can appreciate. The methodology will be where a customer will subscribe on a periodic basis for the services, whether it's for licensing or for instances of the take-up of the service. It probably won't be too different from an MCR methodology price, and there'll be a series of, or flavors of pricing that a customer can choose from, depending on what they're looking to do and where.
Vinny, the underlying network that. Let's say you've got a branch sitting out in Parramatta, for example, or Liverpool in Sydney. How do you get access to the underlying network to connect between a data center that's maybe sitting in Ryde with a branch in Parramatta? How do you buy that piece of link?
Yeah, it's no different from existing network that we buy today. We buy it on a lease basis with various different providers that we have, depending on the metro or the region. That scales the same way. We augment what we already have, and if we've got gaps in between, we just build it the same way. That way, we're not changing anything or doing anything different. It's a consumption-based, scalable-based network.
You're buying lots of these spokes, right? Because a branch network would just mean that you're trying to connect up with thousands of branches compared to, say, hundreds of data centers. Do you need to actually go out and acquire that much capacity? Is it quite a complicated I'm trying to figure out how quickly can this get rolled out, and do the economics look similar in gross margins?
Okay. Yeah. Look, maybe, Sameer, the easiest thing, the speed of what it's going to get done is the services will be live in the second half of the financial year. That's the speed component, right?
Yeah.
Going to be in 25 metros across the globe. That's the speed, that's the time. The connectivity is not anything like the connectivity volumes that are needed for that we currently have.
Yeah.
Are much smaller in terms of what's being done. Yeah. It'll be a lease-based model and consumption-based model that we're working with our partners on delivering.
Perfect
It scales, its cost scales with the revenue.
Just a very different question, and then I'll pass it across, is just in terms of your cost trajectory in FY 2021, could you walk us through which elements of the cost structure do you think grow next year? Because you've spent quite a lot on employees and marketing in the current year as you launched in Japan. How do you see that sort of changing next year? Where is the big-
Yeah. I think it'll be reasonably, I won't say steady. There'll be slight increments here and there. I think we've done most of the heavy lifting that was part of the underlying reason we said when we did the capital raise in second half of FY 2020. Part of that was future-proofing for next year, but also allowed us to pull forward some of that investment into this year that we probably ordinarily wouldn't have done. Now that puts us in a position that we can push forward into FY 2021. There'll be some incremental cost, but nothing to the same extent as the prior year, as in FY 2020.
Great. Thanks, Vinny.
No worries.
Hello?
Hello.
Yes. Johnny Atkin with RBC. I wondered if you could talk a little bit about the MCR slide, which is pretty impressive. Can you quantify in any way the penetration that you're seeing from MCR as a percentage of current customers that are taking it? Then on the innovation side, if you could talk a little bit more about NFV, and maybe give some examples of customer use cases. I think you talked about branch office connectivity with respect to SD-WAN. NFV, SD-WAN is kind of the focus areas for 2021. By how much does that increase your addressable market, and can you give a couple of use cases on the NFV side?
Sure. To a degree, I can. I'll be general on that one, John, because some of it's a little bit sensitive at the moment, just given the ongoing conversations. Starting with MCR. Yeah, look, it's about 10% penetration right now. It's increasing. It's picked up quite a lot in the last two quarters, and particularly in quarter four. We're seeing MCR mainly a user case for some of the larger enterprises as opposed to smaller enterprises. I think that's reflected in the average usage and the more of the spend component per service is much higher because they're taking up higher speeds on those services, which draw a higher revenue component to them in terms of revenue per customer. Again, I think with some of the larger organizations out there, they're starting particularly with the, as I mentioned, with multi-cloud.
That seems to be the biggest driver right now. It's continuing to grow. We expect that to continue on into FY 2021 and beyond. In terms of the SD-WAN, the addressable market, there's been a couple of reports out there in terms of market share, in terms of the capability of SD-WAN and the size of that market. The top four SD-WAN providers out there today are effectively Cisco, VMware, Silver Peak, and Fortinet, Aryaka. Those folks are kind of at the top end or the top five in terms of market share and the markets that they're in. We'll continue to work with that the same way as we have with our public cloud and continue to have more and more of those service providers or that technology on the platform.
That, again, a bit like originally, some customers were an AWS shop or a Microsoft shop. Some people are Cisco, some people are a different provider. We want to be able to have that capability and that in turn increases our addressable market in terms of where and how customers can connect. The NFV is the next evolution, or the next stage. Not evolution, it's the next kind of wave that comes, and it just so happens SD-WAN is the first place we've started. Probably, John, I'll probably have a little bit more color on that over the course of the next couple of weeks or by the next quarter in terms of advanced conversations that we've been having.
Lastly from my side on the cost side of the equation. Renewal discussions, how many data center contracts are you now renewing per year? Is there any trend to call out in terms of rent per data center that you're seeing, whether it's upward pressure, downward pressure or whether it's kind of steady state?
Not that many. John, we've added most of our data centers, which tend to be five-year contracts. We've added a fair hefty lifting of those in the last two years. Some of the original contracts we would've had would've came from the APAC region. Most contracts with data center providers tend to have an annual increment in there for inflation or whatever they call it. The renewals have been reasonably straightforward in terms of the rates that we're seeing. We're not seeing anything untoward, either upward pressure or downward pressure. We do have conversations in terms of the more network we have, the more sites that we have, the more cross-connects we have. It helps the conversation because we end up being that kind of an important customer for a data center operator.
Thanks very much.
Hi, guys. It's Ash Chandra here from Goldman Sachs. Can you hear me?
Hi Ash. How are you?
Hi.
How are you?
Thanks. Fine. Good, thank you. Thanks for taking the question. Just a couple of ones from me, if I could. With respect to this platform evolution that you're referring to, is there anything that's going to be materially different with respect to OpEx and CapEx associated with this? Just sort of trying to understand whether your comments on exiting fiscal 2021 break even are ex this development or within the context of this development?
It's within the context of this development.
It is a CapEx.
Yeah, it is. If you recall, there is some CapEx that's required, which again, we outlined in our, without calling it out in detail specifically because of the early stages of this project. When we did the capital raise, we did talk about innovation and product development being a key focus for our use of capital. We will be spending some CapEx of that that we allocated for the last use of funds that will be used for this.
There is a large amount of our existing network that's being leveraged in terms of both footprint and equipment and hardware, and most of the work is being done on the software side, which is part of our IP. There is a slight increase in some networking costs as we augment a few things, but by and large, most of this is contained in our annual plan for this financial year and for the outcome that I've outlined, is to break even at the exit run rate.
Okay, thank you. Can I ask this, with respect to the going forward of network expansion versus focusing on density of use of your existing networks, how do you think about that runway from here? You're almost at 400 data centers, yet your sort of port utilization is not really rising because you're continuing to expand that network.
Yeah.
About the trade-off of a mature reach and then really optimizing density of use of that network?
Yeah. I did think I kind of sort of flagged this at the half-year results last February as well, in certain conversations, that I think FY 2021 is going to be a little bit less on network expansion and more focused on product and customer utilization and obviously the usage component. You could argue we've spent the last three years doing a pretty good job in building a 700-enabled data center footprint across 24 countries. This year is not about adding another 70 or 80 or 100 sites. It's more about how do we manage our existing 1,800 customers and grow our customer base and drive utilization, while at the same time augmenting some of the air gaps that we have in our network to expand some sites into regions that we think it's important.
Working closely with our partners in that, both on the data center side and also on the cloud side. It's a balance this year. It's not an all-in build-out mode this year. This is a little bit of a transition from one to another, where we're more focused on utilization, customer usage, more customers, and obviously then more focused on how do we bring more relevance and more products and building out our platform, and bringing more partners on. That's the shift. If you recall as well, I did mention there was always three axes.
There was one which was the global footprint, which is the network reach. Number two was the ecosystem and partners and what are customers connecting to and how they connect to them, and what are they using data for, and that's the ecosystem and partners and bringing that on. The third one was very much focused on the technology and the product and what else can we address and what other customers can we bring on that we currently are not targeting today. Then the how is to bring it all together.
In that context, if I could just squeeze in one last question, then I'll jump off.
Sure.
In your Q4 update, your kind of customer additions number was relatively soft versus the trends that you've otherwise been very consistent on for the last couple of years. I think net new customers was like 65. Is there anything that sort of caused that to be a bit weaker than recent history?
Yep.
Do you expect to-
Yep.
Step back up to the 100-ish run rate? Thank you.
Yeah. No, it's a very valid point. Yes, we did. I think what's happened is, at the end of our quarter three, we saw, like most businesses who are fortunate to be in a position where we're able to augment or help enterprise, we've seen sort of a pull forward of a lot of businesses to try and get their connectivity, whether that was got to do with the remote working or the communication needs that they needed for businesses today. We had a pull forward and I'm thinking with Q4, what we saw was a slight switch. We had less new customers, but we had more consumption from existing customers.
That kind of plays out as well in some of the charts that I talked about, how customer usage and revenue usage has increased from the existing customers and taking up more services or augmenting more services on the network to support what their needs are. We did see a little bit of an easing off. I suppose the transition between having to work with customers the whole time and an element of some customers wanting to hold off spend now that they've spent initially, there is that little bit of a transition, and I think a lot of people have seen that.
It's changed, like again, we're in this new quarter of our first year, and we have seen a significant tick in terms of the first half of this quarter in terms of new customer logos and new customers coming onto the network. I think that was just a little bit of a fade off between quarter three and quarter four in terms of the pull forward versus where it's at and then existing customers spending more. We're seeing that come right back already this quarter.
Brilliant. Thank you. I'll jump off.
Thank you.
Hey, guys. It's Bob here.
Hey, Bob.
From JP Morgan. How are you guys?
Hey, Bob, how are you?
Good. Just a few from me. Just following on in terms of the customer additions that you guys have added sort of over FY 2020, can you talk a little bit about the types of customers that you're adding now compared to maybe a year ago? Do they have more sophisticated needs or understanding of the network platform? Is that what's driving the faster adoption of your services?
Yeah, it's a great question. I would say just on one, there's probably two verticals where we've seen, maybe three really strong verticals. I don't know, some of it's maybe related to COVID-19. I think some of it's also related to a very strong funnel of conversations we've been having probably over a two-year or an 18-month period, just by the size and the nature of some of the businesses. Financial services and banking has come to the fore this year towards strictly towards the second half of FY 2020 and continues into this year. We had some of that the previous year, but nothing to the same extent. Again, some of that's more MCR, some of it's more public cloud and ports and services that we're seeing.
I think again, the SD-WAN capability will certainly play a lot more strongly into that area where you've got a lot more buildings and branches and capability where they're trying to connect securely to our network. That's certainly been one vertical. Another vertical has been healthcare, pharmaceutical, I suppose, I'm not combining the two of them together, but there's been a lot of activity around that, particularly around manufacturing, logistics. Those areas have seen a lot of services take up. Then, I suppose media and entertainment has been very strong and has been reasonably steady from year on year.
Coming into pre-COVID-19 probably was one of our top performers, but has plateaued out just a little bit because of COVID-19 and in terms of what's going on there, less sports, less rendering, less content that's being produced as a result of what's happened and being on shutdown, but still has been a very strong contributor towards our services on our network.
Okay, great. In terms of that, obviously you're at sort of 1,800 odd sort of customers now, and you have had a much more mature sort of network now. Do you sort of get any stats on customer churn coming through across your network? Is there more sort of churn that you're sort of seeing now that you've got a larger base of customers?
No, I'd say the percentages are very similar. Albeit off a larger base. I think with COVID-19, we did see something, right? We've seen both sides of that in terms of what you're looking at as the net position, we've seen both sides of that. We've had some large airlines, which are customers of ours, and as you know, they're all not flying, particularly international. We have them across all three regions. We've got American there, we've got some U.S. airlines, we've got some in Southeast Asia, and we've also got some in Australia. They're not internationally flying. About 30%-40% of a lot of their services are around scheduling, logistics, et cetera, that they use the public cloud for. When that switches off, that piece comes down a bit.
The flip side of it is we're seeing financial services, healthcare, pharmaceutical, manufacturing, logistics all go the opposite way because they're in demand, and they're trying to scale up to meet and cope with the demand that they have in their businesses with the environment that they're in. We've seen a kind of a balancing out overall to get to that net position. It's been very much driven by some vertical concentration given the environment that we're in, as opposed to just natural churn or not because of the service, it's because they can't afford it or they're shutting down or whatever the case is.
Okay, perfect. A final one for me, just in terms of the overall competitive environment. It looks like you guys have much more scale compared to people like Console and PacketFabric. Do you think that you can sort of maintain that level of scale advantage over your competitors? Have you seen any sort of movement from your competitors in terms of aggressively expanding as well?
I'll answer the first part of that question. I think our job, and we've been saying this for a long time now, is to build a highly scalable global network that we can leverage, right? It's a low CapEx model, and it's flexible. We're driving automation to make sure that we can get as much connectivity and usage from it as we can using the economic model that we've built. I think nothing has changed in my opinion, in that regard. I think we're going to continue to drive that. We've built it so that it does scale. Our job is to continue to make sure we execute on that and work with our customers and our partners to make sure that we stay relevant in that space and to drive that. That's not going to change.
That's what we've been striving for, and we're going to continue to do that. As for the competition side of things, I don't really count too much on it in terms of what they're doing. I guess they're all trying to grow their own businesses. We were the first ones to really go hard at this. As you recall, on a few capital raises we had over the last couple of years was to take advantage of that first mover and drive forward and be aggressive in what we're doing and stay relevant. I think that hasn't changed. I think all we're going to do is just keep focusing on what we do and for us to take care of itself.
Okay, great. Thanks, guys.
It's Paul Mason here. Can you hear me?
Hi, Paul. Yes. How are you?
Great. Good, thanks. Just a couple from me. The first one's just a follow-up to Sameer's question from earlier. Obviously with SD-WAN and connecting branches, you sort of got the choice of doing a private circuit back to the central orchestrator and the data center or else connecting via broadband. I was just wondering, it sounded like from the answers that you gave, that you're actually intending on doing last-mile connectivity and that that will sit in your financials. First, is that the case? Second of all, have you sort of done all the peering that you need to do in those 10 metros in order to facilitate broadband connections as well?
No, we're not intending to do the last mile. No, that's not what I meant. We're basically going to work with the providers that they've already got so they can connect using the software we have to connect into the services that we have. In terms of the metros that we have, that we've identified, which we're already peering in and we've already got the services in, there is a few more that we need to augment in terms of the providers that we want to do that with. That's underway. That's part of this build-out that we're doing at the moment. The plan is to have the first 10 metros complete by November and then the remaining total of 25 by the end of Q3.
Okay, great. Just on the partnership with Cisco, it might be too early on this front to even discuss, but it's sort of read from their press release and your press release like you might actually be on their internal sales incentive list. I don't know if you can make any comment on that. I can understand if it's commercially sensitive, but if you're able to talk through it, great.
I'll talk generally to it. Yes is the short answer. A customer would be able to come on the Megaport platform and connect to services and the provider of choice to connect to what it wants to do. The customer would then become a Megaport customer, the same as they do anywhere today. They would just be using the Cisco service to do that. On the flip side of it, if an enterprise is already a Cisco shop and it's using its services and it's using the managed platform, it can seamlessly connect across our services.
Again, I suppose the short answer to that is that what we're trying to do is enable the Cisco sales force to sell and increase their reach and depth with their product, and they're using our platform to do it. That's the basis of the commercial model. You get both sides of it. You have Cisco selling from their point of view, and we have our own team selling from our point of view. It always answers the question.
Yeah. Just maybe just to clarify more simply, so basically like Cisco, to a degree, might look a little bit like Digital Realty as a partner for you going forward. Obviously not the same type of business, but their sales team is going to actually be selling Megaport for you.
Well, yeah. It'll be a choice. They'll call it off a product list effectively and use it as part of the consumption of what the customer wants to use it for. Yeah.
Great.
Components beneath that sort of delivery of it.
I know you've named the sort of the top five SD-WAN providers. Just in general terms, given a lot of this is going to be confidential, but you're basically targeting a significant expansion in the number of SD-WAN providers. Is there any criteria that would preclude any of the major ones from also becoming partners or anything like that?
No. We're open, neutral, and independent in that regard. That's been our stance from day one. I don't think we're going to change on that. We are very much an advocate of partnerships and of enabling as many customer interactions as possible. Typically, partnerships like that tend to be very much a win-win scenario. We're great advocates of that. We don't see a change in that stance.
All right, great. Thanks. That's all for me.
Thanks. Is there anybody else?
Vinny, hi. It's Sameer. Can I ask you one more question, please?
Sure. Go ahead, Sameer. Yeah.
Yeah. I think you'd called out that there's 15% growth in underlying KPIs. Could I just understand, is that 15% growth that you're seeing in the first part of this quarter in revenues per port and also number of services? Is that 15% year-on-year or 15% sequentially? Just so I get my calculation.
Yeah. No. I'll draw your attention to the Q4 release back in, I don't know, whatever it was, July. We did mention that the underlying growth rate in revenues and in local currency was 15%. The fundamentals are strong. It's just that we had some FX headwinds in quarter four.
Okay, cool.
Just the same as we had tailwinds in quarter three. The underlying growth rate in local currency in the U.S. and in Europe were in around the region. The exact numbers, it is specific in the release. That was my point. The fundamentals were strong. Just because we have had a flip around on the FX, it did not necessarily show right through in terms of MRR in Australian dollar terms.
Perfect. Thank you. Thanks.
Steve, maybe if we're kind of there at the moment. We're now at the top of the hour, I think so. I know we have a lot of sessions that are set up for some one-on-ones and also some group calls. If there's nothing else, I'd like to bring the call to an end and thank everybody for participating, and looking forward to catching up with you all over the course of the next couple of days.
Thanks, Vinny. Thanks, Steve.
Thanks, everyone.
Thank you.