Meeting. Thank
you for joining today's session. We have today with us Megaport for their full year results release and investor briefing with CEO, Vincent English and CFO, Sean Cassidy. Vincent, I'll pass it off to you.
Good morning. Thanks, Dylan. Good morning, everybody, and welcome to the FY 2021 Megaport earnings call and global update. I'd like to start with our FY 2021 highlights, Most of which have been reported earlier through our quarterly announcements. But just taking you through the The key highlights, monthly recurring revenue at $7,500,000 was up 32% on the same time last year.
Also, annualized run rate revenue now is running at just under $19,000,000 also up 32%. But the growth in our customers went up by 24% to 2,285, and we've seen a record growth in quarter and quarter 4 across a lot of our metrics, including customers, which bodes really well for FY 2022. In terms of the total number of services, they grew by 30% to 21,712. And also the number of ports live on the network was 7,689, up 33%. I must encourage you, as we'll talk about this a little bit later on in cloud, with hybrid cloud being so prominent, MCRs grew about 500% up to 502%, up 64% in the year.
I suppose the other highlight the other major highlight in the financial base And Sean will such insist on the financial section is that we reached the group EBITDA breakeven on an exit run rate in the month of June, which was anticipated and we're expecting next year to be more of the same. We also achieved our ISO 27,001 accreditation earlier in the year, which was really important from a security information perspective, particularly as we go further into managing data with customers. In terms of our continued focus on our Strategic cloud partners extending their reach and maintaining a global number one position with the most on ramps on our network. Not only that, have we done that, but with the launch of MBE back in March, we've added Four partners onto our ecosystem from the SD WAN space are Cisco, VMware, Versa and Fortinet. And we will continue to grow that ecosystem in SD WAN providers over the course of the year.
In terms of the cloud on ramps, We added 36 in the year to a total of 233, up 18%. And in terms of the cloud regions, we added 12% up to 121%, which is an increase of 12%. In terms of the installed data centers, we finished the year at 405%, extending our Print up 11% in the year. And then the enabled data centers themselves at 761 grew by 14% in the year. Looking at the revenue performance for the full year, starting with the right hand side, total revenue is €78,300,000 up dollars 20,200,000 or 35 percent in the year.
Looking to APAC, revenue was $25,700,000 up 25 percent And North America business at $38,700,000 in revenue, up 47% and our European business at $13,800,000 up 24%. It's telling that with over 49% of our revenue now coming from North America, The growth in our North America business is now nearly at twice the growth of APAC and European regions. And in U. S. Dollar terms, North American, not only did it on a reported basis in the Australian dollars increased by 47, in U.
S. Dollars terms, it grew by 65%. I'm going to hand it over to Sean Cassidy, our CFO, to take you through the annual results. Thanks, Fenny. Good morning, everybody.
Revenue for the year of $78,300,000 is up 35 percent from FY 2020. This is despite the FX headwinds we've experienced all year from the strengthening Australian dollar. Excluding the impact of this, the underlying revenue growth is around 44% of the business. Direct network costs grew 7,700,000 27 percent to $36,200,000 With revenue growth outstripping this, profit after direct network costs, Our equivalent to gross profit grew $12,600,000 to $42,100,000 as we saw a 3 percentage point increase in margin in the year to 54%. OpEx grew 10% to 55,400,000 largely with increased staff costs as the business continues to expand.
A quick summary of those points to the operating leverage coming through to Naro, our EBITDA losses. $20,200,000 additional revenue yielded $12,600,000 more gross margin and added $7,700,000 to our EBITDA. EBITDA losses represent 17% of revenue, an improvement of 19 percentage points over the previous year. Below EBITDA, the increase in depreciation and amortization of $6,200,000 to $23,500,000 reflects the network expansion that we've done, especially the full year costs of our expansion in FY 2020 and the investment in intellectual property over the last 2 years, delivering products such as MBE. Our net losses widened slightly in the year to $55,000,000 principally because of increased depreciation and amortization and also because of unrealized foreign exchange losses on intra group loans.
These graphs represent the geographical split of our revenue as reported in the Australian dollar. As can be seen, all regions grew in absolute terms. Growth of €2,700,000 was 25% in reported currency, but the market grew 29% in local currency terms. APAC growth of $5,100,000 25 percent is primarily driven to growth in Australia, so $600,000 of backlog comes from Japan. As Vinnie mentioned, the North America region remains our main growth engine with our investments on expansion into 86 methods really delivering growth.
NAMA accounted for 49% of our group revenues in the year, up from 45% in FY 2020. Our monthly recurring revenue in June of $7,500,000 up 33% year on year means our exit run rate of the business is almost $90,000,000 on an underline basis. Next year, we will see strong growth across all our footprints with Japan being a growth engine for APAC, But NAM will continue to outperform and will constitute a majority of our growth in FY 'twenty two. We can expect North America to exceed 50% of group revenues next year. This may be further emphasized that the U.
S. Dollar recovers growing against the Australian dollar and there have been some indicators in that regard at least. On operating costs, direct network costs include partner commissions as well as the costs directly associated with running our network. The $7,700,000 increase year on year comes from both these elements. While we have traditionally shown a metric of average monthly cost per DC for our network, With increasing channel sales and increasing partner commissions are skewing this figure.
So average monthly cost for FY Y21 of $7,800 is up 10%, but that increase is wholly attributable to partner commissions, which grew 99% year on year. Excluding these, average network cost per DC actually came down 2% year on year. Going forward, We split out these partner commissions and network costs to allow better tracking of our increasing efficiency and network utilization. Feeble costs increased 14% to $41,400,000 as we continue to grow the business. A majority of this growth where in our commercial and operations areas along with some hiring and product and engineering development.
General and administration costs increased 1 point $7,000,000 to $5,400,000 for the year, the significant increases in insurance costs, particularly D and O. This is related to the scale and the market capital for business. Savings across other OpEx areas or other OpEx areas help keep our costs under control and help deliver the EBITDA results that Fini alluded to or mentioned earlier. So obviously, we have savings of travel, some marketing, which were COVID related. Non operating costs Then equity settled employee related costs have increased $2,900,000,000 or 42 percent to 9,800,000 These costs now include some Australian state employer taxes on the exercise of options and included in the chart this year for $1,700,000 of costs related to prior pay raise.
Foreign exchange losses of $13,500,000 have increased 9,700,000 here because of the strengthening of the Australian dollar. Dollars 7,000,000 of this is unrealized and it arrives from the retranslation of Australian dollar denominated intergroup loans. $4,600,000 sorry, dollars 4,600,000 of realized losses come from the retranslation of cash deposits held in other currencies, principally in U. S. Dollar.
Interest expense of $1,500,000 is imputed interest on the 0% lender financing we have and also some certain leases capitalized under AASB 16. The credit of $6,600,000 in income tax from the recognition of deferred tax assets. Largely because of timing differences, although $1,700,000 is recognized in respect to tax losses carried forward as some of our subsidiaries approach net profitability. This graph I'd like to point out is the month of June in each year. It doesn't represent the full year.
I'd like to point out that the Fenugreek has a good turned EBITDA followed up as a whole in June. We've been showing the slide for a few years And whether you look at it monthly or whether you look at it annual snapshots like this, we know this results have been gone. Our margin after direct network costs is up 5 percentage points over the year to 60% in June as we appreciate the benefits of scale. This figure includes increasing commissions as our partners bring a greater percentage of our revenue. This year, we've saved on some travel and marketing costs.
Going forward, we'll be investing a little more on our P and L in growth, but that's not going to change the dynamics that we see here. And I'd also like to point out a few regional highlights. On to APAC first. APAC has shown solid growth, 25 percent to close with $2,400,000 of monthly recurring revenue. In line with our other two regions, they've had saw very strong record growth in Q4 with significant poor additions late in the quarter.
This is the effect of temporarily dilutive metrics such as our revenue per port, which is flat to $7.99 and our average services per port stood down marginally 3.0. APAC is a mature market, but it's still growing in absolute terms with ports growing 21 percent to 2,977. It's also growing in efficiency with profit after direct network cost margin increasing 1 percentage point to 73%. Services are up 19% to 8,937. I'd just like to point out there always is a slight lag on additional services attached to ports, particularly in high acquisition months that we just had in June.
And while portal utilization is not a metric we use much internally outside of capacity planning, it can be seen at 43% in such mature markets, there Still ample opportunity for revenue growth, quite much additional CapEx or incremental OpEx costs to be incurred. Being a mature market, it's easy to see the benefits of the operating leverage work. From June 2020 to June 2021, we added $400,000 of monthly revenue, which brought in $300,000 in additional EBITDA. I'd also like to point out the operating metrics of 73% gross margin and 47% EBITDA are close to what we've previously guided at our long term margins. These results include Japan, which is still slightly gross margin and EBITDA negative.
This shows that we now have the scale To absorb this type of expansion into new markets, we saw it significantly impacting results, even a market as big as Japan, which is the 5th biggest cloud market in the world. The European business next. Revenue per port has fallen 12% year on year to $11.44 This is impacted by FX and at local terms revenue per port has fallen 8% year on year. This is partially because of dilution effect of strong port additions in late Q4 and partially because of the IX repricing we flagged in Q2. Port numbers have increased 33% in the year to 11.37%.
This has driven MRR growth of 25% year on year to $1,300,000 in June. As of APAC, core growth has not quite been matched with growth in additional services, which have grown 23% to 3,044. The apparent drop in in installed data centers from 105 to 103 was where we've removed some duplication on our network, e. G. Multiple PoPs and accountants.
These DCs have simply transitioned from installed to enabled, that all remains in our network. The slight drop in profit after direct network cost margin to 62% is related to an increase in partner commissions. We see Europe as a market that greatly benefits from the channel we are currently building, and we see strong pipeline growth, particularly in networking solutions to larger companies. The number of customers grew 21% in the year and finished in June 430. We're starting to see huge uptick in large European multinationals using the Megaport platform globally as our direct sales engine become more and more localized and have started to build on that.
Europe turned EBITDA positive in Q4 of FY 2020 and has been EBITDA positive for the year as a whole in FY 2021. Notwithstanding the reduction in margin after direct costs, food cost control has resulted in increasing profitability from our revenue growth. EBITDA margin of 42% is 19 percentage points up from June 20. Our EBITDA margins are fast approaching low to day packages and mature business. Although here, we feel there's a lot more growth to come, especially through our channel.
Last but certainly not least, North America. All metrics for the North American region are showing exceptional growth. Ports are up 44% to 3,575, customers are up 35% to 12 19 and that now represents more than half of our customer base. MRR of Australian dollars has increased 46% to 3,800,000 As Cindy mentioned, local currency has grown 64% year on year, in line with the total revenues. Our NAM region holds 50% of our assets and accounts for almost 50% of our revenues as reported in the Australia dollar.
The region accounts for 63%, 86 out of 136 of the networks we have a presence in, and we still see huge potential for growth in this, the biggest cloud market of the world. Our network reach, particularly in the United States, is a valuable asset. It's becoming more so as we continue to roll out FD WAN on MBE, bringing the edge closer to the branch. In fact, our expansion into Tier 2 enterprise rich markets has allowed us to build a very granular base to address branch connectivity. The North American region's March profitability has been very swift.
And turning EBITDA positive in December 20, EBITDA margin in June of 22% is a fantastic result and that's an improvement of 35 percentage points over June of last year. NAM is an example of our operating model writ large. In the North America region, we invested more capital in a shorter time and we've accepted deeper EBITDA losses than any other region. The returns have been swifter and greater. From June 20 to June 21 in Australian dollar terms, we added $1,300,000 in monthly recurring revenue and converted all of that to EBITDA.
This is done by achieving scale to cover the cost of the network and are directly attributable OpEx cost in the region. We've done this with a port utilization of 32% indicating there's scope for a lot of additional revenue growth with little in the way of additional CapEx or incremental network costs. Proving out the model at this scale, at this speed gives us great confidence in achieving larger and quicker returns as we continue to invest in growth. And finally, I'd like to point out a few highlights on our financial position at the 30th June. Included with current assets, Free receivables of $6,600,000 down 24% from June 20.
This marked improvement in collections is also reflected in the greatly improved quality of our debt agent. Other current assets are included within that balance are cash balances and some prepayments. The increase of $3,500,000 in non current assets is the additional deferred tax That I mentioned earlier, certain group subsidiaries approach net profitability. The increase $9,500,000 in current liabilities represents the increase in scale of the business and the increase is largely coming from trade receivables sorry, trade payables and sales and employer tax liabilities. Our total net cash spend in the 12 months was 30,500,000 with $8,300,000 spent on operations and $22,100,000 spent in CapEx.
The significant reduction in cash spent on operations is reflective of the group edging closer to EBITDA breakeven throughout the year. Cash debt and operating activities in Q4 was 0 600,000 The net reduction in cash burn affords us the opportunity to utilize some of the cash assets we have on hand to invest in growth, such
as the build out of
the indirect channel, partner advantage program and the acquisition of Innovu Page, which Benny will talk about later. And with that, I'd like to hand back to Tim. Thank you.
Thanks, John. We'll just go through a few business And a few of our metrics. The chart on your left hand side, once again, it's Showing the significant uplift that we've seen towards the difference between FY 2021 and FY 2020, the Brazilian year. The number of services continues to grow at a faster rate than the number of ports in the network. And total services, as I said, was at 21,712.
On the chart on our right, very strong correlation to mapping total services and uptake in ports and services actually correlates The $7,500,000 in recurring revenue exiting in June. As we said earlier on, installed data centers were up 11 Our ports were up 33%, total services were up 30% and our customers were up 24%. And if you look at the monthly recurring revenue at 1.8%, up an increase of 32%. And as we said earlier on, North America contributed 4% to 6 is growing at a rate of 4% to 6% year on year, Europe 32% and APAC at 20%. And the revenue per port, well, it dipped down slightly by $6 and that's really a direct relation to the very strong quarter we had in ports towards the end of Q4, which is at a slight dilutionary effect on the overall revenue per port in June, but we expect that to be fully billing and coming into effect in the start of this quarter in the new financial year, FY 'twenty two.
Switching to our Strategic partners, and this is really around what's happening in the cloud space and some telling On the right hand side of your chart, 68% of all of Megaport connections terminate through a public cloud provider And 35% of Megaport customers are using Multi Cloud, and this number has significantly increased over the last year. As you may recall, we used to Present the SpiroGrafts, but because of the density of the lines and the connectivity in there, it's no longer feasible. It's just a block. But I think it's telling that it's a significant part of our business having a network that's connecting to over 2 33 on ramps, increased by 18% throughout the year and also the number of cloud regions that we're connected to across the 23 countries, up 12%. Switching to the customer cohorts trend, which we present this time every year.
Looking at the chart on your left, starting with the number of average services per customer, we had 4 Services per customer in FY 2021, slightly down on the previous year. But as each of the other cohorts move from left To rise in the dark bubble, they substantially increased over previous years in terms of the number of services uptaken, including FY 14s increasing up to 25.7 services per customer. And some of this is reflective of some of the tight data profile of our customers, which are getting larger and also taking on more services. And with the advent of NVE coming on to our network, this will allow us to increase that even further as existing customers and new customers start to take on larger footprints and uptake of services. Looking at the chart on your right, where the average revenue per Cosmos increased is around $3,300 increased by 7%.
FY 2021, dollars 1765, Again, slightly down on the 2,008 and the previous year, but has been impacted, as Sean said, with 49% of our revenue coming from the U. S. Has been impacted by the FX to a degree. But in all other cases, as we move from left to right, you can see in the dark bubbles that each of the numbers are increasing year on year as customers are actually using more services. And interesting two interesting pieces of information here.
The number of customers
that we added in FY 2021 is now 5 times what we added in FY 2014 over the year. And then even looking at our FY 2014 cohort Since the year 1 up to year 8 now at the moment, 55% of all of those customers initially are now still on the network after 8 years. So again, some really sticky customers in the usage case, which proves out that cloud It is no longer just seen as a potential to help business. It's actually becoming a very essential service and actually the network underneath that to allow for that connectivity is even more critical and important. Another interesting last interesting statistic on our customer cohorts is that we've seen over the last 6 months.
There's a bigger percentage of our customers now signing up to take terms on our contracts. So it's not on a month to month, but it's a minimum of 12 months per term, which is really important for continuity and as larger organizations want to make sure that they have that those contracts in place. So it's been a significant shift or change in the dynamic of customers purchasing and buying. Looking at Megaport Cloud Router, as I said earlier on, we ended up with 502 at the end of June, and it was 64% increase in uplift and not really surprising when also we've got over 35% of our connections connecting to more than 1 cloud provider. The average monthly revenue per customer was $5,000 $5,900 and has been remained very consistent, notwithstanding that we're Adding more customers over time, so we expect this number to tick up over in FY 2022, particularly on the back of a very strong quarter 4 as those customers tend to will bill accordingly into FY 2022.
Looking at Megaport Virtual Edge, and bear in mind that this has only been live across Megaport for less than 90 days up to the end of June. We've been as of that point in time, we have 21 MVE sold up to the end of June. We've built out across 20 metros with NVE covering the major markets and will continue to do so in FY 'twenty two. As I said earlier, we've enabled 4 of the SD the top 4 of the SD WAN partners onto the platform with the remaining couple Come on this quarter by the end of September, which will cover over 50% of the SD WAN market. And looking forward for this first half of FY 2022, We have 129 customer opportunities in our pipeline that we're currently working through.
So again, I think The piece that we had from back in early April around SD WAN and with the launch of The global price list with Cisco happening at the end of this month, we anticipate that to continue to grow into FY 2022 and beyond. And just touching on this slide from that last presentation, just illustrating The customer use case here where the customer is based on the West Coast and is connecting or standing up MBEs on the East Coast, so it could connect It's locations together. I'm just looking at the map in this particular case in the U. S. Where all the dots, which represent where the customer has locations.
This spend in this use case started over proof of concept, has now turned live around $15,200 for this solution just initially. But all of those locations have to be connected at some point in time and that's going to be built out over the next FY 22 and beyond. And this is typical of some of the large customers that we're seeing opportunities with who have large footprints, either regionally or globally, And they're looking to connect their locations as branches back to services such as cloud. So we expect this to develop further, particularly with our large customers in the network. Looking at the below the network Footprint is itself.
We continue to expand. And as I said, we were from 405 installed data centers at the end of the year. And as Sean said, we're in 86 metros now in North America, up 8%. And in terms of the installed, increased by 14% in North America, which It's still, as we said, is our largest market with over half our network and half of our revenue attributed to it. Europe is continuing to grow.
We added an extra city and had 33 cities into Europe. While installed points slightly down, the enabled went up by 15% as we leveraged campuses and locations that we were in. And then in the APAC region, we added again similarly, we installed new locations there, up 21% and enabled up around 19%. So again, I suppose they continue to expand into FY 2022 into new metros and in new countries going forward. Next, I'd like to switch our attention to some recent news or PR that we've announced around scaling through the channel And with Rodney Forman, our Chief Revenue Officer, at the last presentation, we talked a lot about how we pivot from direct selling and the percentage of direct sales that we have today into more indirect sales, which allows us to scale and through enabling partners to have access to our services so they can sell more Megaport services.
So this is a partner advantage, introducing it was launched on the 3rd August, And it's really about enabling partners to sell. I'd just like to take you through a couple of components of what it actually is. Well, it's a world class channel program That allows customers to sell our services and enable our network as a service to be bundled with other services, cloud solutions as part of what the enterprise customers are looking for. And it's really 3 pillars to this. This is really about the ease of doing business, How are the partners able to easy provision, easy to order, easy to manage and get paid essentially for doing that?
If we make the sales process And the provisioning process is very simple for the partner. The partner can sell more to the end customer, and that's really what this is about. And also it's about making sure we provide comprehensive materials, sales, technical and marketing to allow them to accelerate With that, I'm actually going to be more self sufficient in their selling process. But ultimately, this is all about growing revenue and having 100 and thousands of other partners out there selling Megaport services and having a platform where it enables them to do that. So who are we targeting?
Mainly the providers in this particular case are cloud service providers, network Service providers, data center operators, managed service providers, global system integrators, value added resellers and value added distributors, And using agents as well who will help us to aggregate solutions and work with Megaport to do so. Like Any program that's out there, we've enabled 2 tiers to compensate the expertise and performance for the partner, which is the Prestige and obviously the Preferred Space. There's various elements that are part of the Partner Advantage program. There's the PRM, which is the partner relationships, That could be a CRM for partners, allows them to have that one stop to for the partner to actually deal and manage the entire Megaport processing business. And the single pane of glass, which we talk about more a bit later on, allowing for the partner to actually go in and provision services for on behalf of the customer.
We also have financial incentives in place in the program so they can track how their sales are tracking and commissions, etcetera. And there's also a learning component where we have a lot of materials, both sales and technical, for to help the partners and their Staff to actually sell, not to mention there's also the resources that
are needed
for the sales and sales toolkits as well as the marketing capability and the presentations and toolkits to allow them to use Megaport. So we're very excited about Partner Advantage, and it's a key component in Rodney's strategy and Gene, and our overall strategy for FY 'twenty two and beyond. And so we're really good. As Sean said, we're going to be investing in that and supporting that as we pivot from 30% indirect sales today into over 70% over the coming 2 years. Next, I'd like to switch very excited to announce the acquisition of Inovo Edge Inc, which we announced This morning, this is a very synergistic acquisition and it's also very strategic to Megaport.
It's an AI powered multi cloud and edge application orchestration company. It allows us to Add more capabilities on a couple of fronts, one in terms of people capabilities, and it also allows us to step up the stack in terms of the services and what we can offer through a single pane of glass with customers. So we're very excited about this. It's very strategic to us. It aligns Very easily across what we've already built as in our network.
And you've heard me talk about this on a couple of occasions where the next thing after NVE will be allowing more and more services to be built on a network that already has a lot of leverage in it to scale. In terms of the market drivers in why it is, and part from having A very principled view, which is very much aligned to us about automation in terms of making everything very simple for the customer and how they want to manage their services And being very agile and simple to use, not all services are all together in one place Converged and convenience, so they're all very much isolated or siloed. And it allows us to actually build more solutions Our partners' solutions allow them to manage public and private cloud. It also brings us into the AI and machine learning Space on how we manage that consumption of the compute that's used for that and managing the network, which underlying is Megaport. And again, allows the enterprises using their partners to focus on the simplicity and agility of managing their IT infrastructure and network.
An example of the orchestration is, as you see on the slide, when you add You add innovation or sorry, Inoval Edge to Megaport. What we're effectively done, as you can see on the left hand side, is The orchestration allows us to get to the cloud with Megaport and with the combination of Inovo, it allows us to go through the cloud. And effectively, what that means is that customers, our enterprise customers can be in a branch, can be in a data center in many different locations on our network today. And not only now do we hand off the customer at the doorway or the gateway of the cloud service provider through the on ramp, This now gives us the ability for the customer to manage all of its cloud infrastructure and its Compute right down to the application level where the data resides. So this brings us steeper and deeper into the customer's actual infrastructure and what they're using their data for.
Structuring what they're using their data for. Added to that, the simplicity of a single pane of glass, which again, as you can see from the diagram on your left, customers, as I said earlier, 35% of our customers are using multi cloud. So, You could have 1 cloud provider, a second cloud provider. You also have a port here access to a data center provider, and you may also have an SD WAN capability provider as you're using. With Megaport and Inoval Engine, we create a single pane at last where the enterprise customers have to manage all of that through one log on or one portal.
Main cloud instances for containers and applications allows them to manage that and create them. And it gives them access to visibility and reporting, deep learning analytics. And the benefits are reduced complexity, rapid Service turn up gives agility to the customer and allows them to provision real time with their network and compute. And really it bridges The network and the DevOps function where you've got physical network to code to manage infrastructure and data. It allows us to do a lot more white label portal benefits for providers that we will be working with and also facilitate a real end to end solution.
So again, it's all about simplicity and removing complexity on behalf of the customer.
There are
several main drivers as to why we linked up with Inoval Edge. We started working with Inoval Edge a couple of months back, and that was really to work together for solutions for customers. And it became fairly apparent between both of us that there was a lot of synergies in terms of Being acquired and being 1 company together. And it happened very quickly. And as you recall, when we were doing the earnings call, over a year ago, we talked about capability on some M and The kit, Boujee was really about technology.
It was about people and talent and taking us to the next stage in terms of our development and the space that we wanted to go into and highly complementary or adjacent to what we were already doing. So looking at the main drivers, the partner enablement is really important given the fact that we're over 200 data center operators that we're working with today. It's really about driving revenue and service adoption across our products and allowing us to get further deeper and access to more customers. And the innovation was really important as we've been talking about for the last 18 months about how we continue to innovate and Add more relevance to customer and what they're using their data for in the future, and MBU is the first step of that. And then just the agility, and again, this is like We're effectively acquiring a dev team that allows us to rapidly develop going forward, not just Our products, both combined products for customers.
And that allows us to stay ahead. It gives us competitive advantage. It also brings us into the AI space, which is something that we've said is something that would fit across our NVE platform and allows to integrate and work with other far more providers. It allows us to expand our channel and addressable markets and effectively future proofs us going forward. And they're the real rationale as to why we're doing that today.
In NovoEdge, we'll continue to operate as a separate entity In our business, we will integrate fully with Megaport and their Inovo studio, which allows us to Provide solutions for our partners, while at the same time, our core business is still what we've been doing, what we presented to you earlier on today in terms of how it's Formal of FY 2021 and beyond. In terms of the innovation roadmap, really looking at our logo in the center of The diagram here, we're effectively the foundation underneath this. And what we're really doing is plugging other technologies into our network foundation. And really, this is about bridging the gap between network operations and development operations. And there's The capability that it gives us is quite substantial.
The initial 6 months in our business will be working on the integrations and getting that up and running. And then we'll eventually, coming out the second half year, we'll be productizing a lot of this with our go to market strategy to enable that. And that's reflected in the milestones in the terms of the acquisition, which brings us to The consideration, which is in total $15,000,000 $7,500,000 of that is a cash consideration, with the remaining $7,500,000 in equivalent in Megaport shares. And these will be in 3 tranches over the next 3 years, subject to achievement of certain product development and revenue milestones. And the team are fully committed, to being honest, over that term for the 3 years as we Both work towards really building a future roadmap for Megaport.
And then that's the end of that section. And then I'd like to move on to the next phase of our growth and continue on the same team. It's about scaling up and scaling out. And as Sean said, a lot of our we've spent the last couple of years to this point in time where we've been proving out Plus, the leverage in our network and the capability we have and we can see from our margins and we can see from the utilization that we have in our network that we Got plenty of headroom to continue to grow. And with Brody and his team and as you saw from the Partner Advantage, Continue to invest in that in the channel and unlocking those other providers to really sell more of our existing products is really important And it's a strategic issue.
So we're continuing to invest in that. Obviously, on the product, more MDE integrations will continue. And like I said, we just started with And we've got the first couple of providers on that will continue through FY 2022. And as you saw with the Investment with Innovative Edge, it allows us to create more platform innovation and orchestration and ease of use and actually And more services to the network. And on top of that, we're going to continue to invest in the growth and some resources in hiring on people And talent, both in commercial and operations teams, because as we scale up and scale out, we actually need to be able to manage that and deal with it.
And lastly, network growth. As we double our customers and continue to grow into the future and have way more services and Transactions across the network, we also need to make sure that our operations and our capabilities here are in lockstep as we manage And on that note, I'll just wrap it up before we go to Q and A. I'm really to say that we're really excited about where we are In terms of the business, thank the team. We had an amazing strong year despite everything in the work that's going on in the world. And Really looking forward to FY 'twenty two.
Okay, I'll hand it over for Q and A. All right. We are now beginning
the Q and A session. And we have the first question from Tim Plumb at UBS.
Go ahead, Tim, when I'd be ready.
Sorry, Binnie, can you hear me? I can, yes. Sorry about that. Look, I'll
just ask 2 questions and then jump back into the queue in the interest of giving everyone else a go. But 650 ports added, which was a pretty solid improvement from the previous quarters. Can you talk a little bit about some of the changes across the platform that helped drive That uplift and how are you thinking about the cadence of incremental ports going into or in FY 2022 as we start to see some of the initiatives from this Vantage partner program flowing through?
Yes. So we're starting with the 650 that we had at the end of the quarter. I think a lot of that, as I said earlier, I think With Rodney coming on board, it would be in February, it gave us an opportunity to realign our resources and our teams and put a fair degree of rigor and discipline around our sales process. And That was one of the key elements that was being met. And part of that also was actually we talked about before was the pipeline build.
It was growing at a faster rate than we ever had 4, so the conversion allowed for there was more conversion on a bigger pipeline, which allowed for the higher ports number. Not just the number of ports we have record as well, there's also a number of new customers that we added at the end of quarter 4. So, there was a lot about that. We put an incentive Program, we tightened it up, made it easier. And so that's contributed lots of words, what we've done.
I think the next phase is, as you mentioned, as we bring on more partners and who are starting to sign Contracts with some of these partners and hence the urgency to launch Partner Vantage and have the program not just in place, but actually have it integrated so that we could use it. And I think that will bode us well probably more into Quarter 2 of this financial year and beyond as we're betting it all in this quarter. We expect the kind of similar momentum to come through from Quarter 4 into quarter 1, the benefit of adding lots of new customers And lots of ports towards the back end of quarter 4 means the VXCs and the services tend to follow. So we see more of an impact of that coming through into July, whereas a lot of the ports and the actual standing of original services ended In June, hence that dilution we talked about in the revenue report. So we expect that to bounce back in quarter 1.
Great. Thanks for that. And just the other question around reinvesting for growth. Just wondering if you're able to give us any more color around how you're thinking about that OpEx uplift compared to this year and with that incremental spend, how are you thinking about the impact
that, that has on the cadence of your top line going forward? Yes.
I think initially in this first half of the year, we're obviously investing around Partner Advantage and a lot of it's Investing around sales and getting that set up. Obviously, we're still sort of in a lockdown by country, if you So, traveling is a little bit prohibitive, but we've got a strong team now in each of the regions. And so that allows us to keep selling going on in the U. S. We have to build a structure around the indirect team.
And we're also building small teams around each of the SD WAN providers, the same as we did with Cloud providers to make sure that we have a contact that works specifically with, for example, a Cisco on a Fortinet. So there's a lot of that That's going on at the moment. It will keep us a little bit lower, I would flip back into the red during the second half of the year, so your first half of this year And pop out, it will probably be 3 or 4 months during this first half of the year and we pop out the other side when we finished with the investment. The other half of the investment is really related to CapEx, which is in building out and supporting the network, the infrastructure As well as the IP and on products that we talked about and getting ready having new products ready for FY and or calendar year 2022, sorry.
Right. Thanks, guys. No problem. Tim, I'll just add to that a little. In terms of kind of the revenue momentum, the indirect sales channel is going to take a little while to put up.
So we incur the expense Before we get the benefit of this, you'll really see the revenue momentum coming through in the second half of the year, particularly in Q4 as it builds momentum. In terms of port adds and the momentum we're seeing there, Q4 was a record quarter And that was done through our existing kind of our existing direct sales and the indirect channels that we have. And we see that momentum continuing on. It might not be quite as
All right. We have the next question from Jonathan Atkin.
Thanks very much. So on costs, I was interested in understanding a little bit more about The items where you feel like you can get some operating leverage, whether it's bandwidth, data center rent, data center power, The items that make up cost of goods sold in SG and A, as you look forward, where are there opportunities and where are there perhaps Some challenges?
Hey, Jonathan. Maybe I'll ask to park that and maybe Sean, you want to jump in as well. One of the things that as we built out the cost structure on how we roll out into DCs, the costs They're based on the number of services or ports per data center that we use based on the rollout of the equipment. And it's reasonably as Sean mentioned in the thing, it's reasonably fixed In terms of what it is, we need 15 ports effectively in a data center to breakeven, roughly between 15 and 18 ports to breakeven in a data center. And the minimum build has 40 odd ports.
So, we got again, that goes back to the utilization that we talked about ports No, I know it's done by country or region there, but that can be filled right down into first site. And so as you add more ports in each site, and actually create that margin or that gross margin that we're seeing on the network. So even if some costs were to increase, it's really additional the next Quarter to per month is really what will cover it off. There is some capacity that we need to look at as we build out 400 gig on the backbone. But again, that's part of that that will be a
minor part of an uplift that we would have
to do as we substitute Other parts of connectivity and upgrade them into 400. Sean, did you want to add anything to that?
Yes, absolutely. And like you say, Puneet, the kind of network costs are stepped in relation to the number of DCs, not particularly the bigger steps are when we move into a new network. For example, the densification that we see sometimes get a small incremental cost, but it's not quite as much as you add every time you add a new metro. We're at quite some scale now. We're not doing the kind of lab graph that we did in FY 2019 and FY 2020.
And so we're able To do go about this in a much more measured and controlled fashion, we spent quite a lot of effort in last year Looking at the direct effort costs and combining them and rationalize them and putting a lot of control there. And that's why you see kind of the average cost for Do you see excluding partner commissions come down year on year? And that kind of dynamic where we're Holding a good cross control network at the scale will continue going forward.
So you talked about locking in some Yes. So you locked in some duration with your customers talking about year annual rather than month to month. So on the cost side, I'm kind of curious Whether it's data center cost or bandwidth or getting any kind of discount that way or Is there some vulnerability around maybe the much nature of some of your costs?
No. Most of the costs are termed from our in our COGS. So whether it's colocation, power, cross connects, dark fiber, Etcetera, all of those are termed. What we've been able to do is, as we've been expanding and growing our network over time is that we've been able to get better Purchasing power, particularly on network, as we're adding more, the unit cost comes down over time and as we come to renewals. So in general, that's as Sean said, it's reasonably a fixed cost and we tend to When renewals tend to come up, we tend to bundle a lot of things where we have the opportunity to do it so to renegotiate that better.
It Doesn't happen with all costs, but for the most part, that's how it works. We tend to have very small in our COGS, it's very small month to month costs as part of the overall COGS, it's mainly termed. And the only other thing that we will be, I suppose, And Sean mentioned earlier on, the other thing we will be spending more on is actually the GSA and the marketing as well, right, because that's really important to For the revenue generation with what we're doing. So you would we will see a pickup on that whereas last year with COVID and less travel and less conferences, Yes. That's we're expecting that to pick back up and we're going to invest in that going forward.
And then lastly from my side, and
I'll jump back in
the There was a slight miss on gross margin you called out because of indirect commissions, but I think you beat on EBITDA. So what's the simple Or sort of intuitive way to understand that, was it headcount, travel, what were the items that led you to kind of exceed on EBITDA despite the mix on gross margins?
There were a lot of movements going either way. So yes, we did save on travel and we did save on Certain marketing expense
as well, because we like to see
a lot of our marketing face to face. And whether there's a cause or effect on kind of Slightly flatter revenues we have seen in the middle part of the year, it's a little unclear. So we have those type of savings, There were other calls went against us. As you may or may not be aware, there was an accounting policy change where we accounted for Network sorry, software as a service arrangements. And that causes to expense quite a lot of it.
Cost would be would normally have capitalized, not something a lot of business They're going to go through this reporting season. We're going to be significant P and L hits on businesses for stuff that don't be capitalized. So there has been a little bit of give and take, but we will certainly be adding a lot more to support the channel build up that We're currently building going forward, but there were both gives and takes in the last year. Thank you.
All right. We have the next question from Nick Harris at Morgan's.
Hey, guys. Thanks for the call and obviously congratulations. Great year. 3 for me. Just The first one, if you look at sort of the segment level OpEx across all three regions, it declined.
I'm just trying to understand, is that largely FX?
Can you give us
an idea of what was happening on a sort of constant currency underlying basis?
There will be FX impacts, particularly in the United States, if I've got. There has been no change in kind of the operational setup where we have specifically moved expenditure 2 example from region, that's not the case at all. So there will have been FX impacts.
You could probably back out the
EBITDA from the quarterly reports and the FX report that we've published quarterly. But I could probably copy it for you.
That's okay. I can backfill it. I just wanted to understand if Taking sort of headcount out or
it was really currency related?
It's mostly currency related. We haven't taken headcount out or we have a given some
The other thing, Nick, just bear in mind that we didn't have the same travel as previous years in each region, right, because of COVID and On marketing as well, so it's an element of each of the region OpEx as we said that would have been depressed. And you can see that in the total numbers in some of the line items and for OpEx that are well down on the previous year. So the same impact would flow through in 3 regions.
Got it. Thanks, Vinny. Thanks, Sean. Just next two questions. Megaport, the virtual edge, obviously, you had a great Q4.
You've given us a pipeline, which looks really good. I'm not trying to hold you to a number. I'm just trying to get a vague idea of conversion rates. Would I be crazy to think it's reasonable that you might convert a third of those or something?
Look, it's only 21 customers so far that we reported at the end of June, but the pipeline going forward Has certainly picked up. And that's also attributed to the fact that we started out with 1 service provider and now we've got 4. So naturally, we'd expect it to increase. And there is some of those that pipeline will convert quicker because there is an immediate Solution and immediate need there and that's part of that proof of concept that we've been working through with some new customers that seems to be working really well. So it's probably early days, but it's probably not unrealistic.
We our conversion rate And our existing products outside MB is circa 40%. So, yes, probably somewhere between 30% to 40% would seem reasonable.
Thanks very much. And just my last question, Jonathan mentioned it as well, Nearly half of your ports in the Q4 were customers on 12 to 36 month terms, which is obviously great for you, bit of a change in the Business model given it's normally sort of consumption as a service. I'm just trying to understand, right for you, what's driving the customer, the end customer to So on a 12 month or 36 month agreement?
I think the underlying feedback that we're getting is some of the companies that we've seen taken up are larger companies. And as obviously, they're more comfortable with same terms as per their procurement policies or as their buying Policies are in place and it's just easier for them to do it that way. And the solutions are bigger and the footprints are bigger and Spend is bigger. So as a result, they're just locking in terms the same way they bought. That seems to be the underlining team that we're picking up from customers as opposed to anything else that's happened.
Obviously, we do when we do talk to customers, we do let them know, yes, you could it's a consumption of service, as you said, but And we also make them aware of that there is a slight discount if they take a term as opposed to going month to month. So, but that's the main reason so far. And Mike, it
doesn't really take away from the flexibility that our service offers because the VXEs are still flexible in terms of capacity and whether they turn Hold on. In many ways, you can think of this kind of as a mobile phone. And you don't change your mobile phone every time you add credit necessarily. Your mobile phone is there and Credit 2. In the same way, the port itself, while we did offer the flexibility of month to month, people want to turn up a new port, it's not quite as Straightforward of turning up with the EFC, for example.
So signing a port in terms is not as inconvenient as it might look. Great. Thanks, guys.
All right. We have
the next question coming from Bob Chen at JPMorgan.
Hey, good morning guys. This is Beth's line for me. Hey, guys. Can you hear me?
Yes.
There we go. Just revisiting that sort of reinvestment into FY 2022. I think you mentioned earlier that obviously FY 2022 if by At 2021, some of the cost categories are a little bit depressed because of lack of traveling. And now you're sort of talking about a bit more of an investment for For 'twenty two, can you talk a little bit about what that quantum might look like into 'twenty two and what the impact would be on sort of your margin Expansion between 1st half and second half?
Yes. I mean, there's we're looking to hire about, I think in this first half of the year, next well, between this quarter and next quarter, between now and sort of October, November time, we're looking to hiring 40 odd people. So that would be the biggest uplift in terms of our OpEx and then obviously followed by marketing spend to support The partner Vantage and the partners as we get that up and rolled out, plus supporting the SD WAN capability on MB Edge. So That's the shift change. We just launched it.
And as things start to open up within, say, each of the regions, like in the United States and in parts So Europe where people can get out and travel within region, with the exception of Australia, of course. But once you've been allowed to do that, It then means that we can actually now actively grow and pursue more aggressively the revenue and part of that is obviously the investment back into it. But they are the 2 constituent components from an OpEx point of view that we'll be focusing on over the next 3 to 4 months. And then once that's done, that's effectively the heavy lifting done that will Springboard us on into the next the rest of the year. And it's not too dissimilar from something we did 2 years ago with our direct sales team, if you recall that, where we did reinvest Back into hiring more people and account management, etcetera.
And then subsequently, quarter or 2 quarters left later, we actually got the bounce And from that, once it all got embedded in. So it's the same similar type process as what we're doing here.
Okay, brilliant. And then obviously, yes, launching more into that indirect channel with Partner Vantage and you've also got Yes, more customers, same term contracts. Can you talk a little bit about what the longer term impacts that will have on your gross margins going forward?
They'll increase. Now there's 2 elements to that, right? So partner commissions is a line item that we include as part of our COGS, for the want of a better word, which then affects your margin, your gross margin or your margin after network costs. Whereas that may flatten out based on where we're at, particularly as we switch to more 70%, I'm saying 2 years down the road, is that switch more of an indirect. It will have more of an impact on your gross margin, but there'll be a negligible impact.
Most of the rest will flow through to your EBITDA. So your EBITDA margin If the gross margin flattens out, your EBITDA margin goes up because we're not finished with that heavy lifting and hiring. So Your cost base is going to be more around the commissions that you need to pay to support large volumes of sales as opposed to hiring more and more salespeople. If that if you understand what I'm trying to say, the dynamic between the two margin profiles. But in general, the way we see it is the more products we add to the platform.
That's the second thing. That has a bigger influence. The more products we add, They are layering up on top as we talked about the foundation of our network that we've already built and the capability within the network to support more. And as we layer more products on it, those products have much higher Margin, once you get the sales engine and the sales machinery in place, all you're doing is selling more products that layer over the existing network, which then contribute to a higher gross margin and ultimately EBITDA over time.
Okay, great. And just a final one for me. You provide some details on the innovation pathway with Inovo Edge. Can you talk a little bit it's obviously early days, but can you talk a little bit Yes, how we should think about it from a potential revenue opportunity perspective in the future?
Yes. Well, initially, yes, there is a kind of a business model behind Inovo Edge, which is One of the milestones that we have as part of the 3 year that the guys will be working towards driving a revenue outcome as part of the milestones. But more importantly, this is how we see this as an avenue, as I said earlier, to help us build more products that we can sell across the entire company with then having the sales engine in place. So, but it's allowing us to get deeper People with the enterprise customer into what they're actually using their network for to connect to and into their infrastructure and managing all of that. So that's it steps into the world of effectively like licensing as a service effective for what they use inside.
The VXCs and the network and everything that you see that connects the customer to that endpoint and as they pass through that endpoint then it would be effectively on a licensing model based on emcegen consumption.
All right, great. Thanks for that guys.
We have the next question coming from Roger Samuel at Jefferies.
Hi, guys. I've got two questions. First one, just on Partner Vantage. Can you tell us what is the commission rate and what are the incentives that you put in place to ensure that No. They are driven to sell the Megaport products.
Yes. The commission There's 2 elements to this one, Roger. And the first one is the commission. So the partners that we're bringing on here all fall within the same type of commission structure that we've had before. It's just a way we're having a platform where it's easier for them to do business than we can actually have 3 or 4 large partners that end up having 100 of semi partners underneath them to sell.
And so the structure is very similar to where it ranges from anywhere from 15% up to 21% is the range based on Small volume to large volume, right? And so that's no different from what we're seeing today. This just allows us to do it a lot more efficiently And creating a world class program to put that together to make it easier for all of these partners to actually sell. So, that's no different. It's just a mechanism how we do it.
The MDS that we referred to is effectively Market Development Funds and some of that can come from end user providers like SDN providers, some of that will come from us. And this is where we put incentives into to have a push on a product, let's say, it could be for a quarter or a month or whatever that you normally would do to help them to have a push in a certain product line or it could be a certain country or region. And that's typically how these programs are built and set up. Think of it as marketing spend. Okay.
And my second question is just on MBE. You mentioned that the revenue per customer is about $5,000 a month. Does this include the revenue share with your SD WAN partners or is it what The net revenue to Megaport is
net revenue share, the MBE partner. Those are all direct customers. Okay. That's not just NVE revenue, that's the revenue occurring to getting from customers with NVEs. In the same way, we talk about the MRR, the different customers for MTR, but not the metrics
Yes, because they're buying a few VXCs as well, I imagine. Correct.
Yes, okay. Thank you. Thanks, guys.
We have the next question from Paul Mason.
Hey, guys. Just on InovoEdge, firstly, I just wanted to check that I understand like Sort of where it sits in the stack, if I compare it to say like VMware, Tanzu for like container orchestration Or alternatively something like ZeeManage for SD WAN Management. It sort of looks like it's sort of touching Both sorts of capabilities. Is that how it's placed? And if so, is it positioned to actually compete against those Things or is it sort of positioned more as a complement?
More the latter is complement. This is where you have a single pane of glass where you can They have many services and you want to be able to actually manage it through one source. So, it allows you to look at Your compute with Google and your compute that you have with Azure and some bare metal that you've got with somebody else, plus your own infrastructure, They run applications and monitor not just the network, but everything that goes past the network and where the network connects to. It also has elements of predictability. So it's going to tell you when certain services or servers or compute Are reaching a maximum and to predict that you'll need to upgrade or downgrade or increase your capacity for compute.
And the AI component allows for that predictability. So there's a lot in it. It's actually it's Got it. The best way to explain it, the way we look at it is, is that allows us the capability to be neutral and using the automation for the end customer to Pull everything together in one place. And with the foundation being the underlining network that we've already built, which with 200 Over 220 cloud on ramps across 23 countries is one of the things that's underpinning that usage and the ability to have Service providers using quite labeled solutions like that to further business and further customers.
So it's more in that vein.
Okay. And just in terms of the sort of revenue model that you guys are looking at, Inferred in the release, it sounds like it doesn't have much revenue at the moment, but and so this is maybe a business plan as opposed to And existing revenue model. It's a pre revenue, Paul, yes. Could we ask just obviously you've described it as a SaaS business, but is there also Outside of like, say, software subscription revenue streams, would you guys be able to function effectively as like a channel partner for AWS or an Azure and Google Cloud Through customers ordering that service through the pain? Or is it like so would you be eligible for like Partner revenues from that sort of revenue stream with it or it doesn't work like that?
No. I mean, really what you're Talking about a customer who's already gotten AWS account or another cloud provider account, and what you're doing is you're actually using One log on to link all of those together so you can see everything in one place. And the As just to answer the first part of it, yes, it is pre revenue, but a lot of this is about these are very smart And a bunch of people and they're at the there's as I said, we're very excited when we sat down and started to work through Certain solutions that we were looking at for some of our customers that it became fairly evident that This was kind of critical to the way forward and hence we just we moved on it quickly and that's where it's at. So it's definitely pre revenue. They do have a business case and they do have a model in terms of how it will all work and it's quite adjacent, as I said, to what we are doing.
That's part of the earn out piece that we have is to prove out certainly the revenue model is there, but it's for us initially, This is really about the capability, the development capability that we have to expediate products across the platform.
Yes. I was more just interested in that sort of the revenue model plan as opposed to No problems with the pre revenue part of it.
Well, the revenue model is more like a license.
So, as you stand up more
and more service, so you connect to more things as you go through the cloud, then there's an instance basis for that and sort of an umbrella license type scenario and then a usage base going after that.
Okay, great. And just one last one for me. Just in terms of your network capacity plans, obviously, I don't think you guys are complete They rolled out on 100 gig and now moving into 400 gig. So in terms of thinking about your network capacity Evolution like are you expecting to get 100 gig everywhere in the next sort of 12 months or 2 years as part of moving up into 400 gig in some markets as well? Or Is it just like there's certain key markets, say like Sydney, for example, which is a big cloud market that where you're going to Keep growing network capacity, but other markets are going to sort of cap out at 10 gig.
What's sort of the plan there?
Yes. So yes, you're right there. So we started out with the major markets across the network that's where we saw higher utilization where we're using over Going 30, 40 gigs traffic. So those ones were all automatically on the top list to go to 100. And a lot of them are already done in the year just gone.
And the second part of that is the 400 gig is literally the Think of it as the backbone that we're upgrading to. So devices are coming available to us in August, actually, the first slot. And we'll start with those and once you put them through test labs and everything, they'll get rolled out and they'll follow that same pattern. And then the ones that haven't yet been upgraded to 100 gig, they are being monitored based on the number of traffic. And as it hits certain thresholds, we upgrade them.
So instead of going from 20 to people just go from 20 to 100.
Okay. Thanks a lot, guys.
We have the next question from Lucy Huang at Bank of America.
Hey, Vinnie. Hey, Sean. I just have one question. So in terms of the NBE So I think you said you've landed the year with 129 in the pipeline. I'm just wondering if you can give us some color as to out of that 129, how many And then to the Megaport platform and maybe what proportion are existing?
And also, are they are most of them coming from the Cisco Partnership or some of the other, SD WAN partners that you signed on recently? Thanks.
Yes. The majority are new customers. There's only been, I would say, 20 rule applies here. There's probably 20% coming from existing customers. The rest of it is new.
We've had and part of that pipeline is between the top 2 existing Yes, demand providers that are live, which is Cisco and Fortinet. So they've come directly from them. Well, we're not open live yet in Cisco. They can only get provision through Megaport at the moment. We expect that number to increase as the Cisco machine goes live in later this month and onwards.
The Fortinet business is all 100% channel. So its channel partners are the ones who We have been redirected to us about this product offering.
Wonderful. And then just very early days as well, but just wondering, has There's been any kind of cross sell opportunities across some of the 20 ish new customers you signed on with MVE? Have you been able to cross sell some extra Megaport So is it just too early because they're still rolling out?
Sorry, what was the first part there?
Out of the I think you're now billing for about 20 MVA customers. So just wondering has there been any kind of cross sell opportunity so far with those new customers to the platform Or is it still too early in that phase?
It's a little early, but yes, there has been 2 or 3 customers that we've spoken to about MVE and are now asking about direct ports and VXEs in data centers Connecting to like our core products are effectively connecting to the cloud. So, yes, there is and it's I think some of it's got to do with Started out with an SD WAN because multiple locations and then realizing that it was that easy to do and then these are all the other services that we have. So they're realizing This would be a better way for them to build out their network using Megaport compared to what they've already got. So there's been several conversations around that, which is good because it allows the new customer to come in and take up more services.
But it's like
I said, there's only been 20 up The end of June. So probably by the end of this half year, we'll be in a better position to know of our seat and certainly at the end of
We have the next question from Ross Barrows at Wilson's Advisory.
Great. Thanks.
Can you
guys hear me okay?
Yes. Hey, Ross.
Just a question. I just wanted to follow-up on the customs that were moving from month to month to contract terms. I think you I've seen comments around that before, but I don't think you addressed pricing. So is it fair to say that the moving to a 12, 24 or 36 month term would Improved pricing, I guess, for those customers doing so. And then just some any comments you can make Just around the materiality of
those customers, it sounds like
they're bigger customers and smaller, but what proportion, I guess, by value are you kind of seeing as the customer base finding that appealing?
Well, in last quarter, it was nearly I think it was nearly 50% of new customers coming on were taking terms. And to be honest, we saw most of that actually happen in North America and Europe, probably Europe more so than anywhere else first. And there is a different pricing. I mean, in the pricing as part of the portal, when you log on, most people click on the $500 and it's Month to month, where you can get up to a 10% or 15% discount if you pick out or between a 1 3 year term on the port. And then the VXCs are as normal after that.
So that's typically it's been that way all along. It's just that we've Seeing different types of profiles of customers, like I said, based on their procurement policies or whatever they're doing, They prefer to take terms rather than not. And that's kind of how Europe works too. They like terms and like to lock things in and It's just a different blame mechanism.
And you mentioned that's for new customers. What's the proportion of existing customers looking to do the same or have done
Not much. To be honest, there hasn't been much movement. I mean, it's mainly new customers where we're seeing that, like all those new ports that we Coming on the network last year or last quarter and the last and those customers and those ports have all decided to be termed. So it's really Megaport on existing.
And just one other question. In the use case slide that you had When you spoke about the customer turning around U. S. 15,000 at the moment, but obviously has the opportunity to expand that over time. What I know every case will be different, obviously, but just in terms of that customer, what's the potential upside to the customer like that that has that many branches It could expand over time hypothetically, of course.
Quadruple easily. Yes. In particular customer case. Great. Thank you.
All right. We have the final question in the queue back to Tim Plumb at UBS.
Hi, Ginnie. Just one last question from me. Just thinking about Expansion into new data centers over FY 2022, how are you thinking about that across your existing geography? And then maybe can you touch on Any potential new geographies that you're thinking about, pre COVID, Brazil was on
the cards, obviously, that got put on
the back burner. How are
you thinking about new areas going forward?
We're thinking about 2 countries. I'd rather not say, to be honest, because I'm not tipping my hand to the any potential competition or whatever is But yes, one would be Latin America region and one potentially Europe or It's a toss-up between Europe and over the site of the world. But in terms of look, the rollout of sites, Sean, I think we were planning for similar numbers to the year that we just had with 40, 45 sites across the existing Three regions. If we do a new market, that will be additional on top of that. Fantastic.
Thanks, guys.
All right. And with that, there are no more questions in the queue. Back to you, Vincent and John.
Okay. Thank you very much, everybody, Thank you for joining us on the earnings call. I noticed quite a lot of meetings either group sessions or 1 on 1 sessions between now and Friday. So Looking forward to catching up everybody. Thanks again.
We'll leave it at that. Thank you.
That's all.