Good morning, everybody. Welcome to Megaport's Global Update and FY twenty twenty Full Year Results Call this morning. I'm Vincent English, Chief Executive Officer of Megaport. Joining me on the call this morning is Steve Loxon, Head of Investor Relations and also our new Chief Financial Officer, Sean Cassidy, who has just joined us at the April. We will now proceed to go through the presentation, and 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, but just to call it out. In terms of our monthly recurring revenue, closed at GBP 5,700,000.0 at the June, an increase of 57% year on year. Our annualized revenue, same increase of 57%, is now on a run rate of GBP 67,800,000.0 for the year.
Total number of customers, eighteen forty two, up 24% in the quarter. And the total number of services consumed by the customers was 16,712, up 45% in the year. The total number of ports on the network customer ports on the network was 5,767, up 42%. And the total number of installed data centers in our footprint at the June was three sixty six, up 22% for the year. As of today's call, there is three eighty installed sites on the network, Slight delay due to COVID-nineteen 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 the FY 2020 was our continued growth and an extension of our partners' footprint and 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 June was 197, up 49% in the year.
And the total number of cloud regions where our customers can access was at 109%, also up 49% in the year. The total enabled data centers was six sixty nine at the June, up 27%. But similarly, just with that slight delay at the June, we are now over 700 as of the timing of this call this morning. And our marketplace now stands at over three sixty service providers or 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 €20,600,000 up 54 or €7,300,000 in the year. Switching to North America, the revenue was CHF 26,300,000.0, up 94% or CHF 12,700,000.0 in the year, our fastest growing region in the business. And our European business ended up with CHF 11,100,000.0, up 36% for the financial year. Overall, total revenue was EUR 58,000,000, up 66% or EUR 22,900,000.0 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.
And in summary, total revenue for the financial year was GBP 58,000,000, as I said, up 66%. The profit after direct network costs was at GBP 29,500,000.0, up from GBP 11.9 previous year, a 140% increase. The profit after direct network cost margin was 51% for the full year compared to EUR 34,000,000 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 EUR 19,900,000.0 versus EUR 24,700,000.0 the previous year, an improvement of 19%.
Overall, after depreciation and other costs, total loss for the year was 47.6% compared to 33% from the prior year. Having a regional look again at just a drill down on the revenue for FY 2020, a draw your attention to the pie chart on the left hand side. North America now accounts for 45% of our total revenue, 26,300,000.0 compared to 39% the previous year. And as
I mentioned earlier, a lot of
that has been driven by a 94% growth in 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. And our European business, notwithstanding, continues to grow, is at 19% compared to 23% in the prior year. Overall, revenue up 66% and 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 €28,500,000 up on the previous year as we continue to expand our network in a number of sites in the regions. Also, with the growth in revenue, our gross margin also increased. Our profit and our direct network costs increased, up GBP 17,000,000 in the period. As I mentioned, our OpEx increased. The largest impact of that has been on employee costs, where we continue to invest in our teams, both on innovation, in sales and support roles as we continue to grow our business and regions, scaling it ready for FY 2021.
So Ports is in a position to do that, as outlined in previous capital calls. Other costs and professional fees increased, 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. And then we also seen a reduction, obviously, in travel with COVID-nineteen and some of our marketing spend as a result of the COVID-nineteen and conferences.
Overall, total OpEx was GBP 49,000,000 compared to 36 for the prior year. Having a quick look back on the historical financial performance on the exit run rate at the June for the business. And you can see FY 2020 compared to prior year's June, And the normalized gross profit or profit after direct network cost margin was 55% exiting June. And our normalized EBITDA margin at the June was negative 29% compared to a negative 49% the prior year, so continuing to improve. And I will touch on this a little bit later as we're 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 at the end in the bank at the June was 166,900,000.0, mainly driven by the recent capital raise. But 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 GBP in eight our total liabilities. Other than that, the financial position is in a very healthy state and 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 and starting with some of the main growth KPIs in the business. As I mentioned, installed data centers up 22% to three sixty six, currently at three eighty as of today.
Customers were up 24%, eighteen forty two. Notwithstanding that growth in customers, the number of ports grew by 42%. So a lot of that growth came from existing customers as well as new customers, standing at 5,767. And 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 June. The average revenue, as I mentioned, was up 57% at 5.7%, and the average revenue port was up 10%, nine eighty across the group.
In terms of the growth in ports and services, just an illustrative look back on and where we are quarter on quarter in our growth, both and the strong correlation between our monthly recurring revenue and our KPIs in terms of ports and services And the underlying fundamental growth rates that we're seeing, notwithstanding some COVID-nineteen or FX in recent quarters, has continued to grow at double digit rate. And in the quarter and quarter four, we've seen a typical 15% quarter on quarter growth in underlying KPIs and local currency revenues. And we'll 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 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.
And I draw your attention to one or two colleagues The 05:00 position down in the bottom right hand corner spirograph, that dense thing is Microsoft Azure, which continues to grow at a much faster rate. The 02:00 position in the green, as you see at the top corner there, is AWS, and the 03:00 position is Google and around the 04:00 position is Oracle. So we're continuing we've seen now recently a big uptake 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 graph down 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 cloud public cloud providers. And so 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. Switching to speaking of public cloud and switching to our footprint. And as I mentioned at the top of the presentation, very strategic components on our partners is continuing to work with them and extend their reach of customers can connect to them more locally and more regionally. And the total number of on ramps on the network connected today is 197, percent, an increase of 65% or 49% in the year. And also in terms of the number of regions, we have 109 regions now up also up 3649% in the year.
Drawing your attention to the chart on the left hand side, you can see we have Microsoft Azure, we have 47% on ramps globally, followed by AWS with 45% and Google at 32%. And we will see more of this come true 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 services average services per customer for new customers coming on to the network compared to 4.4 the previous year and four year before that.
So as customers are coming on to our network for the first time, they're taking up more services initially. If we look at the in FY 2019, where they had 4.4, they have increased to 6.6 this financial year. So existing customers in prior years are now continuing to use more of the Megaport services. And 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 network at 24%. So 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.
So 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 revenue average revenue per customer in FY twenty twenty has now jumped up to over $2,000 compared to $12.57 dollars in the cohort in the prior year. So again, same trend where we're actually taking more services, but they're actually spending more. In the if you look at the FY twenty nineteen cohort, where they have spent $12.57 dollars this time last year, they are now spending $2,700 on average this year. So the average revenue per customer overall has now jumped up to over $3,000 or an increase of 27% coming from the existing customers on our network.
So we continue to see that. That's an important part of our strategy for the 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 $5,157 for an MCR customer compared to a non MCR, which is $2,809 This time last year, the MCR customers were spending $3,967 So that growth in MCR customers have grown by 30% alone this financial year. Similarly, the average service 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%. So we've seen a 17% increase in the number of services. Total number of MCRs live on the network at the June was three zero seven. I'm going to switch now to a little bit of a deep dive into the regions. And just everything at this point in time has been very much specific to the whole group.
And 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 and growth of 25% in the year. The number of installed data centers, 174, up 19%, and the total enabled at three seventy four, up 23%. Looking to Europe, added three new countries with Spain, France and Denmark.
Total countries now sixteen, thirty two metros up 39%. The installed data centers at 105,000,000 up 27%. And in total, enabled at 181, up 27%. And looking finally, looking at APAC, we added Japan in, so bringing total of five countries. Number of cities now stands at 16, up 45% and installed at 87%, up 23% and then enabled 114% at 41% for the region.
So we've invested quite a lot in FY 2020, and these are the figures as of at the June, total installed at three sixty six and enabled at six sixty nine. And as I called out earlier, we are now at three eighty 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, I'm call out in June, Japan, which we launched in at the November, early December.
So these take in the network and the cost associated with bringing the market live onto the network and for the trading for the last six months of the financial year. Total installed day of tenders, 87, up 23%. Total number of ports at 2,452 is up 32%. The monthly recurring revenue at GBP 2,000,000 is up 43% in the region. The total number of customers are up 16% at GBP $783,000,000.
Total number of services are up 36% at GBP 7,480 And overall, the profit after direct network costs, so the gross margin, for want of that award, 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 $800 Number of services per customer has increased. It's up at 9.6%. And the total port utilization, which is the amount of ports that are available to sell, is only at 41%.
So 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 center is up 19% at 174. The number of ports are up 54% at 2,453.
Monthly recurring revenue at 2.6% is up 73% in the year. The total number of customs at nine zero three is up 38. The number of services is up 58% at 6,762. And the gross margin or profit after direct member costs increased from 22% to 38% in the year. A couple of call outs on the right hand side.
Average revenue per quarter increased to now over $10.48. Average revenue average service per customer is now 7.5%, and port utilization is only 34% in this region. So again, plenty of headroom for further growth and scaling the business in North America during FY 2021. And finally, just looking to Europe, where we've invested quite a bit in three new markets. 105 data centers, up 26%.
And we reported $862,000,000 is up 40%. Monthly recurring revenue at EUR 1,100,000.0 is up 38%. The number of customers at EUR $355,000,000 is up 20%. And the total number of services at EUR 470,002,000 is up 38%. And the gross margin, our profit after network cost margin has gone from 40% up to 64%.
And the European region is now EBITDA positive for Q4 exiting FY 2020. So that brings us to regions going into FY 2021, who are now EBITDA positive, notwithstanding there's plenty of headroom and new markets in there to grow during FY 2021 and beyond. One or two call outs. Average revenue per Portno is $1,298,000,000 in Europe. The service per customer is at seven and Portno utilizations 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. And the latest report from Gartner 2019, currently in FY 2020 saying that the enterprise cloud spend or the industry we're in is a $66,000,000,000 industry, of which connectivity in the space that we're in, we're part of that. Forecasted to grow to $354,000,000,000 over the next two years in 2022. And then looking at the Flexera 2020 updated cloud report, which was previously rightscale, and their enterprise cloud strategy customers over 1,000 employees, And now 93% of those during that survey are now actively looking or using multi cloud as part of their business needs. And of that, hybrid cloud accounts for 87%, which means that customers are using some private infrastructure that they may have in their and building on prem in their data center, supplemented by either one or two public cloud providers, where they're using that to augment what they've already gotten in their private infrastructure.
So it's clearly becoming a key focus for large companies, large enterprises, whether they're domestic or international in terms of supplementing and increasing their improving their IT and infrastructure needs. And just a quick look back in terms of our value proposition, and I think it's important to refresh this, it's more evident than ever with COVID-nineteen over the last particularly over the last two quarters, notwithstanding the traditional way of connecting, but the ease of use and the speed of connecting has become and the flexibility for that has become a key trait in terms of the Megaport platform. And 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. So being able to rightsize real time provisioning, pay for what you're consuming and have that one stop shop or that one platform where you can connect services intuitively becomes really mission critical going forward. And 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. And when you add across that the megaport value proposition of scalable on demand, multi cloud connectivity in private and secure in flexible terms, and you're connecting your endpoint of connectivity or for serve where enterprises are looking to connect to, with over 360 service providers and 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. And just, as of yesterday, we announced the Megaport Connected Edge platform, and we had a collaboration that we're 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 this in a couple of slides' time. Well, 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, was predominantly about a main use case of how do you connect customers or enterprises who are already inside in the data center and a private secure location who are looking to direct connect into a public cloud service provider instead of using the Internet. And this allowed for a scale up of usage, dedicated network, ease of use, etcetera.
Over the course of time, that was a Layer two product, and we built that platform, built our growth in our network on that basis, and that still continues to be our bedrock and continues to grow for us as part of our 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 three product into the mix, which not only allows us to connect customers within the 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. And 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. With the 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, where we're able to connect headquarters, branches, offices, etcetera, 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.
So 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 they're in banking, retail, financial services, etcetera, 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. And again, just illustratively, starting from the left one, Cloud Connect, which is our predominant use case where we have enterprises who are inside the 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 are born in the cloud connect through our Megaport cloud router with or without hardware or services and can connect virtually into our network and onto multi multi cloud or actually connect cloud to cloud together. And also, we have a lot of customers out there who are using our network as a service, where they're literally connecting locations together and using the main port network as their backbone to connect both regions or data centers together that are in multiple regions so they can manage their infrastructure.
And the evolution of that now, what that means is that with the branch enablement component, we're now able to Megaports 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, had to any other endpoint, including other branches or other technology endpoints that we have on the platform. So 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. And 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, and we announced 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 the 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. But just like our cloud partners, we're opening mutual independence, and we will continue to bring other service providers and other SD WAN providers onto our team. So the customer, again, has this platform of choice where they can use what service provider they deem is suitable for them in terms
of what how they want
to connect and use those services. I suppose the other couple of call outs in this, this is all API driven, it's all automated, It's seamless. And again, has all of the functionality that's needed for customers to use and manage their technologies and their data across the network. Customers can now take advantage of Megaport's platform and to create on demand and virtual devices like SD WAN and other virtual routers across the network. So there's no need for 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 for their own customer services. So I guess that's the first step here is with Cisco, and we're really excited about that. And it brings us on both sides, 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 the level of our platform to manage that. Okay, I'm getting towards the end. I'm just going to probably just summarize a quick wrap up on the focus for FY 2021.
Notwithstanding COVID-twenty twenty one, we've had have not had a significant impact in our business with COVID-nineteen. We are a very agile company in general, and so we've outlined a couple of times publicly in terms of how we're set up as a business. And more important most important to us is our well-being of our staff and being able to continue to work and deliver customer service and all and managing 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. And I suppose, again, financially, we're very strong, as we saw in the financial position of balance sheet, closing cash of 167,000,000 at the June, puts us in good stead for FY 2021 to continue on our road map and continue our growth strategy during the year.
And a second tranche of the focus for FY 2021 is to continue, as we've just outlined with Megaport Virtual Edge, is the platform innovation and product focus and further API integrations, SD WAN platforms and more network function virtualization are going to be key components of that. And then obviously, the last part, as I called out, is we're very focused on the output on our exit run rate for FY 2021 to be EBITDA breakeven. I think it's pretty much the last slide of the presentation. There's a little bit of appendix there for notation around the SB 16 leases, if anybody really wants to get that. And there's a detailed presentation in the annual report in terms of the information.
Okay. Think we'll take Q and A now.
Operator, if you can mute up the lines for Q and A, that would be great.
Hi there.
Hello?
Hi. Shall I go first? It's Sameer Chopra from Bank of America.
Hi, Sameer. How are you?
Vinny, just a couple of questions. One, how should we think about the pricing for Virtual Edge? How does that sort of compare with how you price MCR? How do customers sort of buy this product compared to some of your legacy sort of products? And when you start to think about take up rates, how quickly does this product ramp up?
Do you see it as being something that will get offered in North America first? Or do you think early parts of the product get released in Australia as well?
Okay. Thanks, Sameer. So maybe I'll answer the second one first. We're starting with 10 metros before Christmas. And in the second half of the year, we'll be extending that to 25 metros in total for FY 2021.
So that will include Australia, Southeast Asia, Europe and North America. And 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. So 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. So yes, it will be global initially. And better work with our customers. And with Cisco, we will complete most of that before the end of the second quarter and then go live in the second half of the financial year. In terms of the pricing, we are working still working through all that.
It's quite confidential at the moment, as you can appreciate. But 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. So 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.
And really the underlying network that you let's say you've got a branch sitting out in Parramatta, for example, or Liverpool in Sydney. How do you how do you get access to the underlying network, you know, to to to connect between a data center that's maybe sitting in right with branch in Parramatta? Like how do you buy that piece of link?
Yes. It's no different from existing network that we buy instead. We buy it on a lease basis with various different providers that we have depending on the metro or the region. And then that scales the same way. So we augment what we already have.
And if we've got gaps in between, we just build it the same way. And that way, we're not changing anything or doing anything different. It's a consumption based scalable based network.
And but you're buying lots of these folks, right? Because a branch network would would just mean that you're you're trying to connect up with thousands of branches compared to, say, hundreds of data centers. So do you need to actually go on and acquire that much capacity? Is it quite complicated? I'm trying to figure out like how quickly can this get rolled out and if the economics look similar gross margins.
Okay. Yeah. Look. Maybe, Sameer, the easiest thing, the the speed of what it's gonna get done is the services will be live in the second half of the financial year. So that's the speed component.
Right? And I've just mentioned it's gonna be in 25 metros across the globe. So that's the speed. That's the time. And then the the connectivity is not anything like the connectivity volumes that are needed for, that we currently have.
So, you know, some of these conditions are smaller in terms of what's being done. But yes, it will be a lease based model and consumption based model that we're working with our partners on delivery. As health scale, it scales just 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 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? Like where is the big Yes.
I think it will be reasonably I won't say steady, it will be slight increments here and there. I think we've done most of the heavy lifting. It was part of the outline reason we said when we did the capital raise in second half of FY twenty twenty. Part of that was future proofing for the next year, but also allows us to pull forward some of that investment into this year that we probably ordinarily wouldn't have done. And now that puts us in a position that we can push forward into FY 2021.
There will be some incremental cost, but nothing to the same extent as the prior year or as in FY 2020.
Great. Thanks, buddy.
No worries.
Hello? Yes.
John Atkin with RBC. I wondered if you could talk a little bit about the MCR slide, which is pretty impressive. And can you quantify in any way the penetration that you're seeing from MCR as a percentage of current customers that are taking it? And 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.
But NFV SD WAN is kind of the focus areas for 2021. How 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 ongoing conversations. Starting with MCR, yes, 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 Q4. And we're seeing MCR mainly a user case for some of the larger enterprises as opposed to smaller enterprises. And I think that's reflected in the average usage and the more the spend component per service is much higher because they're taking higher speeds on those services, which draw on a higher revenue component to them in terms of revenue per customer. And so 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. And it's continuing to grow.
So we expect that to be to continue on into FY 2021 and beyond. And 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 and the size of that market. The top four SD WAN providers out there today are effectively Cisco, VMware, Silver Peak and Fortinet and Aryaka, kind of those folks are kind of at the top end or the top five in terms of market share and where and depending on the markets that they're in. So we will 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. And so 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.
So 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. And the NDS is the next evolution or the next stage. Not evolution is the next kind of wave that comes. And it just so happens SD WAN is the first place we started.
And 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.
And then lastly, from my side, on the cost side of the equation, renewal discussions, how many data center contracts are you now renewing per year? And 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. I mean, John, we've added most of our data centers, which tend to be five year contracts. We've added a fair lifting of those in the last two years. So some of the original contracts we would have had would have been came from the APAC region. But most contracts with data center providers tend to have an annual increment in there for inflation or whatever they call it.
And so 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 kind of an important customer for a data center operator.
It's Ash Chandra here from Goldman Sachs.
Can you hear Yes. How are you?
Yes. Hi, Ken. How are you? Thanks, Tony. Good.
Thank you. Thanks, Tony, for taking the question. Just just a couple of ones for me, if I could. With respect to, you know, this 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? And just sort of trying to understand whether your comments on exiting fiscal 'twenty one breakeven are ex this development or within the context of this development?
It's within the context of this development. If you recall yes, is. If you recall so there is some CapEx that's required, which, again, we outlined in our we're calling it out in detail specifically because of the early stages of this project. And when we did the capital raise, we did talk about innovation and product development being a key focus for our use of capital. And so we will be spending some CapEx of that that we allocated for the last use of funds that will be used for this.
And 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 has been done on the software side, which is part of our IP. So there is an element of 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 we that I've outlined just to breakeven the exit run rate.
Okay. And can I ask this, with respect to the going forward of network expansion versus focusing on density of use of your existing network, How do you how do you think about that runway from here? I mean, you know, you're almost at 400 data centers. Yet your sort of port utilization, you know, is is is not really rising because, you you're continuing to expand that network. How do you think about the trade off of a mature reach and then really optimizing density of use of that network?
Yes. I did think I kind of sort of flagged this at the half year results last February as well that 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. So we've spent a if 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. And this year is not about adding another 70 or 80 or 100 sites. It's more about how do we manage our 1,800 customers and grow our customer base and drive utilization, while at the same time augmenting some air gaps that we have in our network to expand some sites into regions that we think it's important.
Again, working closely with our partners in that, both on the data center side and also on the cloud side. So it's 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.
And if you recall as well, I did mention there was always three axises. There was one, which was the global footprint, which is the network reach Number two is the ecosystem and partners and what our customers are connecting to and how they connect to them and what are using data for, and that's the ecosystem and partners and bringing that on. And the third one is 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 and then how we're putting it all together.
In that context, if I could just squeeze in one last question, then I'll jump off. 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. Think that new customers were like 65. Is there anything that sort of caused that to be a bit weaker than recent history? And then do you expect to step back up to the 100 ish run rate?
Yes. No, it's a very valid point. Yes, we did. I think what's happened is we at the end of our quarter three, we saw like most businesses, we were fortunate to be in a position where we were able to augment or help enterprises. We've seen sort of a pull forward of a lot of businesses to try and get their connectivity, whether it's got to do with the remote working or the communication needs that they needed for businesses today.
And so we had a pull forward. And then thinking that Q4, what we saw was a slight switch. We had less new customers, but we had more consumption from existing customers. And that kind of plays out as well in some of the charts that I talked about, how customer usage and revenues just increased from the existing customers and taking up more services or augmenting more services on the network to support what their needs are. So we did see a little bit of an easing off.
And I suppose the transition between having to work with customers the whole time and an element of some customers waiting to hold off spend, now that they've spent initially, there was that little bit of a transition. I think a lot of people have seen that. And it's changed like we're gaining now, we're in this new quarter of our first year, and we have seen a significant uptick in terms of the first half of this quarter in terms of new customer logos and new customers coming on to So I think that was just a sort of 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 spend more. But we're seeing that come right back already this quarter.
It's Bob here from JPMorgan. How are you guys?
Hey, How are you?
Good, good. Just a few from me. Just going 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?
And is that what's driving the faster adoption of your services?
Yes. It's a good question. I would say that just on would say just on one there's probably two verticals where we've seen maybe three really strong verticals. And I don't know, some of this maybe relate to COVID-nineteen. I think some of it's also related to a very strong funnel of conversations we've been having probably over a two year and eighteen month period just by the size and the nature of some of the businesses.
So financial services and banking has been has come to the fore this year towards particularly towards the 2020 and continues into this year. We had some of that the previous year, but nothing to the same extent. So again, some of that's more MCR, some of it's more, public cloud and ports and services that we're seeing. And I think, again, the SD WAN capability will certainly play a lot more stronger 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 health care pharmaceutical, I suppose, 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 service to take up. And then I suppose media and entertainment has been very strong and has been reasonably steady from year on year. And coming into pre COVID-nineteen, probably was one of our top performers, but has plateaued out just a little bit because of COVID-nineteen. And in terms of what's going on there, less sports, it's 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. And then in terms of I mean, 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. I mean, do you sort of get any stats on customer churn coming through across your network? Or 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 a little are very similar, I mean, albeit off a larger base. I think with COVID-nineteen, we did see something, right? So we've got we've seen both sides of that. And in terms of what you're looking at is the net position, we've seen both sides of that. So we've had some large airlines, which are customers of ours.
And as you know, they're all not flying, particularly international. And so we have them across all three regions. We've come American there. We've got some U. S.
Airlines. We've got some in Southeast Asia, we've also got some in Australia. And and so, you know, they're not internationally flying. So, you know, about 30% to 40% of a lot of their services are around scheduling, logistics, etcetera, etcetera, that they use the public cloud for. And so when that that switches off, that piece comes down a bit.
But then the flip side of it is we're seeing financial services, health care, 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 demands that they have in their businesses with the environment that they're in. So we've seen a kind of a balancing out overall to get to that net position. So 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 it can't afford it or they're shutting down or whatever the case is.
Okay, perfect. And then a final one for me, just in terms of the overall competitive environment. I mean, it looks like you guys have much more scale compared to people like Console and Packet Fabric. Do you think that you can sort of maintain that level of scale advantage over your competitors? And have you seen any sort of movement from your competitors in terms of aggressively expanding as well?
Well, I'll answer the first part of that question. I mean, I think our job, and we've been saying this for a long time now, is that is to build a highly scalable global network that we can leverage, right? And 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. So I think nothing has changed in my regard 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. So 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 comment too much on it in terms of what they're doing. I mean, I guess they're all trying to grow their own businesses, but we were the first ones to really go hard at this. And as you recall, 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. So I think that hasn't changed. And I think what we're going do is just keep focusing on what we do and the rest take care of itself.
Okay. Great. Thanks, guys.
So it's Paul Mason here. Can you hear me?
Hi, Paul. Yes. How are you?
Great. Good. Thanks. So just a couple for me. The first one is just a follow-up to Sameer's question from earlier.
So I was 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. And so I was just wondering, it sounded like from the answers that you gave that you're actually intending on on doing last mile connectivity and that that will sit in your financials. So first, is that the case? And then second of all, have you sort of done all the peering that you need to in those 10 metros in order to facilitate broadband connections as well?
No, we're not intending to do the last move. No. That's not what I meant. We're basically gonna 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. I mean, in terms of the metros that we have, that we've identified, which we're already peering in and we've already got services in, there is a few more that we need to augment in terms of the providers that we want to do that with.
So that's underway. That's part of this build out that we're doing at the moment. So the plan is to have the first 10 metros completed by November and then the remaining total of 25 by the end of Q3.
Okay.
Great. And then just on the partnership with Cisco, it might be too early on this front to even discuss, but sort of 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 comments on that. I can understand if
it's commercially sensitive, but but
if you're able to talk, that'd be great.
I'll talk generally to it. So yes, is the short answer. So a customer will 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, and the customer will then become a Megaport customer, the same as they do anywhere today. They would just be using, the Cisco service to to do that. But on the flip side of it, if an enterprise is already a Cisco shop and it's using its its services and it's using the Veeam managed platform, it can seamlessly connect across our services.
And 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 So that's the base of the commercial model. So you get both sides of it. You have Cisco selling from their point of view, we have our own team selling from our point of view. And so it's always that answers the question. Yeah.
Of
course. Just 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 the Megaport for
Well, yes, it will 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.
Yes, we're the
underlying components beneath that sort of delivery of it.
Okay, great. And I know you've named the sort of the top five SD WAN providers. So just in general terms, given a lot of this is sort of confidential, but yes, you're basically targeting a significant expansion in the number of SD WAN providers. Like, yeah, are there any criteria that would preclude any of the major ones from from also becoming partners or anything like that?
No. No. We're open, neutral and independent in that regard. So I don't think that's been our stance from day one, so 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.
And typically, partnerships like that tend to be very much a win win scenario. So we're a great advocate to that, so 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. Yes.
So I think you called out that there's 15% growth in underlying KPIs. Can 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
Yes. I'll probably draw yes, sir. No, I'll draw your attention to the Q4 release that we back in, I don't know, whatever it was, July. We did mention that the underlying growth rate in revenues in local currency was 15%. So the fundamentals are strong, so we had some FX headwinds in the quarter four, just the same as we had tailwinds in quarter three.
But the underlying growth rate in local currency in The U. S. And in Europe were in and around the region. The exact numbers and it's specific in the release, which means that was my point. The fundamentals were strong just because we've had a flip around on the FX.
It didn't necessarily show right through in terms of MRR in Australian dollar terms. Yep. Steve, maybe if if we're kind of there at the moment, we're now at the top of the hour, I think so. And I know we have a lot of sessions that are set up for someone amongst most of some group calls. And so if there's nothing else, I'd like to bring the call to an end and thank everybody thank everybody for participating.
And looking forward to catching up with you all over the course of the next couple of days. Operator?
Thanks, Vinny. Thanks, Steve.
Thanks, everyone.
Thank you. Goodbye.