Good morning, and today we have Michael Reid and Leticia Dorman, our CEO and CFO respectively, to take us through a short investor presentation. That'll be followed by Q&A, where you'll be able to ask your own questions. So just raise your hand and I'll get to you at the end. Michael, over to you.
Fantastic. Thank you, Steve. Good morning, all, and good evening for those joining us from the United States and around the world. All right, let's get straight into it. This is the investor presentation, first quarter, FY 2024. All right, first quarter, let's talk about the highlights. Annual recurring revenue at AUD 189.8 million. That's up AUD 11.2 million quarter-on-quarter, or a 6% increase. EBITDA is AUD 15 million, up AUD 3.2 million quarter-on-quarter, a 27% increase. Positive net cash flow, and folks, we called out net cash flow positive for the full financial year. Our first quarter at AUD 5.6 million, up AUD 3.3, quarter-on-quarter, a 143% year-on-year growth. Investment in the go-to-market engine is progressing extremely well.
We're gonna talk about that later on in the presentation. We launched Megaport Reach in the quarter, which gives us an ability to access a whole range of new data centers, and we also announced public availability of Megaport One, and we'll talk about that later on in the session as well. Let's look at EBITDA as a comparison to how it's performed over the prior quarters. So AUD 15 million of EBITDA. You can see how that's been trending up over the period of time. Just want to acknowledge the massive turnaround that's occurred, and thank all of the Megaport staff for their continued efforts to drive our EBITDA to this record growth of AUD 15 million, and you can see how that's trended over time. Net cash flow, and as we called out last quarter, the very first quarter we had for net cash flow positive was Q4.
As we said, again, we've called FY 2024 positive net cash flow at AUD 5.6 million for the very first quarter, a great start and as expected. Net cash flow position, or net cash position, I should say, has us at AUD 38.9 million, and our cash at bank has us at AUD 55.2 million. Annual recurring revenue, and you can see that continues to grow up into the right. Quarter-on-quarter growth saw us at 6% quarter-on-quarter, and from a year-on-year perspective, we saw 36% year-on-year growth in our annual recurring revenue, and you can see how that's trended over time. Key performance indicators.
And so the metrics that we've been running for a long period of time, total services, customers, customer ports, which we added last quarter, total ports, VDCs, et cetera, MCR, and MVE. Now I'm just gonna get a little laser pointer here. If you have a quick look, this is the first column represents the metrics that we've been sharing for as long as Megaport's been around, and the quarter-on-quarter change. As you can see, and as expected, we've been sharing that the metrics will be, I would say, fairly average until we start to see the performance of the sales investments actually come to fruition. We'll talk about the hiring that we've gone through.
Most of those folks have landed in seat in this quarter, so we'll start to see that turnaround moving forward, but this is obviously representative of Q1. What I wanna highlight is this is the net or quarter-on-quarter change of the metrics in the quarter. As you can see, if you roll your eyes down, you can see that as an example, Megaport Virtual Edge, our MVE platform, is indicating a -1. Now, while we said the metrics would be slow, we also wanna actually give perspective inside some of the metrics of the smaller account products that we have, MVE and MCR, as an example, versus our total services of 31,000, because it's a small account inside MVE, the net movement in a quarter can show a signal that could be slightly off.
Now, I wanna just spend a moment and time and articulate this for a second. What we've done is we've shared our entire metrics as we have, backed out of them, et cetera, inside the the KPI file, and that is what's representative in the quarter-on-quarter change here. What I've included is a preliminary net quarter-on-quarter revenue generating ports, MCRs, MVEs, et cetera. Why would we do that? Inside Megaport, our entire platform is live. As soon as a customer spins up a proof of concept, it actually represents a metric inside the system because it's live inside our systems. Our proof of concepts, as an example, for an MVE, are actually... as they're spun up and spun down, et cetera, just for proof of concepts, can actually move the needle in terms of net quarter-on-quarter.
So this is really a focus on that net movement. So if we look at MVE specifically, as an example, a company like Cisco could have run, and they often run their proof of concepts without us, for their customers. They could spin up 20 different MVEs for a customer to prove out a proof of concept as they're competing against a competitor, and then the tender would go in, they'd respond, and then they could spin down that, that proof of concept. Now, in that time, none of that was revenue generating. So while it can show a metric moving up and down for the quarter, it's actually not the metric that we should be worried about from a revenue generating perspective.
Now, what in the half, our plan is to go and actually change our historical metrics to give more, I think, remove noise and give more signal, certainly from a quarter-on-quarter perspective. And what I've given you insight here is the reason why. You can see that when we remove and just focus on revenue generating MVEs, as an example, it moves from -1 to +8. MCRs moves from 18 to 39. We can see up here with customers, moves from 7 to 31. The same thing with customers. When we spin up those proof of concepts, they spin them up under a customer name, and they've put all the MVEs, MCRs, et cetera, under that. And so that's what can create this movement.
What I don't want the market to do is look at a signal that isn't actually representative of the business in a particular quarter and then try and flow that forward. Whilst the broader numbers are pretty much the same, you won't get a signal inside that. Breaking down quarter-on-quarter net is important. What you'll see is in the half, we're going to give you full transparency and backdate those metrics so it cleans up backwards moving forward. Obviously, in the short term, we don't want to be changing your metrics. We've given you all that information, giving you an insights to why we'll be doing that, and we'll work with you as our investors to ensure we get the appropriate metrics for you in that half. All right.
Now, we're very excited to announce, actually throughout the quarter, that we have a new queen of numbers, a new CFO. Now, the team here in the office here were very excited, when Tish took over that role, and they created her a crown, actually, a real crown. And I said, "On your first earnings call in the official role, you must wear this crown." And that was the feedback from the team. Sadly, the crown went missing, mysteriously overnight. But the great news is, I have my ways, and I found the crown that was created by the team for Tish. And so, of course, on her first earnings call, she must wear that crown. As we hand over to Tish, our new CFO.
Wow! Thank you. I can't believe it went missing. So Michael has referred to ARR, and that is the exit run rate for the quarter for our revenue growth. However, the revenue growth for the quarter was up 5%, compared to Q4, which is indicative of not only the organic growth, there is the FX tailwind for those who watch the USD to AUD rate as closely as I do. With regards to the growth margin and the EBITDA, that does still continue to show that improvement in not only the revenue growth, which is able to drop to that line, but also the continued efforts across the team from last financial year, flowing through into Q1 around the network cost.
In addition, another headline call-out is the net cash flow, which again, is reflective of that growth from the revenue, as well as the continued cost control efforts in not just the direct network costs, but across all categories. With regards to the EBITDA, some call-outs there, of course, the gross margin. One item to draw your attention to is when you're comparing the employee expenses. Now, in FY, in the last quarter of FY 2023, we did reclassify the full year to date, staff costs for accounting purposes outside of that staff cost line. So if you compare the two, they're largely comparable.
Not only do employee expenses reflect the decreased headcount as post the redundancy, but it also, as you can see, as Michael has discussed earlier, and we'll continue to talk through a little bit later, is that go-to-market engine firing up and the rehiring of the sales organization. Overall, the quarterly results really reflect that consistent, steady growth from the last quarter as we continue to move into a, the first quarter for the FY 2024. The cash flow as a result, as you'll see in the Appendix 4C, the operating activities is an inflow up of AUD 10.7 million for the quarter, which is an increase of 67% compared to the previous quarter. Now, as detailed in the Appendix 4C itself, that will be largely due to higher billed revenue for the quarter.
However, there are also some one-offs that we have paid within that, largely around working through and at commercially closing out the commercial arrangement for the renewal for a key rev share partner. And there's also a funding of a new, upfront payment for a new network provider. Investing activities has increased slightly, which is a reflection, of inventory purchase, also under the vendor financing activity, under the vendor financing facility. And then the financing activities therefore reflect that increase in the borrowings. There were also some employee share options exercised during the quarter. Overall, cash flow, the cash balance itself has increased from AUD 48.5 million to AUD 55.2 million quarter on quarter, which is 14%.
When you take into account that vendor financing facility, your overall closing net cash has increased to AUD 38.9, which is an impressive result for the quarter and continued and in line with expectations. On that note, I will hand back to Michael.
Thank you, Tish. All right, let's get back into it. She's hard to rock, even with her little crown. The Megaport portal demo. Now, they tell me never to do a demo on these things, but I think it's important. Why? Throughout the quarter... Well, last quarter, we've launched an update to the Megaport portal front end. I'm going to show you that in a second. And very recently, not in Q1, but just two weeks ago, we launched Global WAN as a service, and I wanted to give you some perspective on how that looks. So let me just cross now live to our portal. On the last earnings call, actually the full year, I gave a quick demonstration into how the portal worked, and we lived inside this services tab here.
So if you look at this, what we looked at was all the different services. When I first joined Megaport, my view was, these are all the different services, and they're great, but it's very hard to visualize. And what I'd love to see is a dashboard, like this, that gives us a, a way to actually visualize the platform globally for you as a customer. Now, the most important thing to point out is that there is a rocket here, and on the rocket is a witch, and I had nothing to do with it, but I love everything about it. And so that's the first piece I'd like to highlight. Now, if you have a quick look here, we're in Australia. We can start to see; we're looking at a customer a lot...
In effect, this is a demo portal for us, but this is the live, an example of what a live customer would see about their services. All of these long connections represent Global WAN, an ability to actually have all these different connections. And what I want to do is, I'm gonna, I'm gonna do something similar to last time. I'm gonna zoom into the United States here. And what you're looking at is every one of these black dots represents a data center that Megaport has built infrastructure in, that you can, in 60 seconds, spin up that connectivity. And you can see that, anything with the blue represents a data center, that you, as a customer, have a port activated and a connection in there. And it's really easy to use. That's one of the pieces.
So if I just zoom in here and we pick some random locations, I'm just gonna zoom right in here. Here is a number of different data centers. You can see in Portland, there's Hillsboro, Flexential, NTT, we've got Digital Realty, EdgeConneX, and you can actually see by hovering over them what we offer. So you can see 1 gig ports, 10 gig ports, 100 gig ports. In here, we can also deliver Megaport Cloud Routers. And so with one click, I'm gonna go and deploy a port. I'm gonna quickly do that. And you saw this in the last demo. I'm gonna choose, there you go, we'll pick a 100 gig port, give it a name, go next, add the port. And what you'll see is that data center is now alive from a port perspective.
So you can see these are black, and this one is now blue. That port is available. I can click on that location. There's my port. It's as simple as that. I go on, add another connection. So what I'm gonna do is show you how to connect to the cloud. There's the cloud. We've done this in the previous one. I'm gonna connect you to Amazon Web Services. We'll go pick a location. We'll go down to the United States, and let's pick West Coast. Let's pick a random location. We'll go West Coast, Northern California. What you're seeing here are blue and red diversity zones. You have an ability to pick the path to get to those particular cloud providers, and you can choose different paths and different infrastructure, depending on red or blue.
So if you're red all the way through, and there was a failure on any of that infrastructure or device, and you have a blue connection all the way through, and there was a dig through a cable or something like that, if you have those two, you have two independent, redundant paths. We're just gonna deploy a red one for the sake of this session. I'll give it a name. I'll pick a limit. Let's go up to, you know, whatever, five, whatever you want to do, basically. Connect that through, pick an account ID, click Add. Now, what you're gonna see is, here's our port. There it is, and now you see this line. So there's this beautiful line that's going and connecting all the way down to the AWS data center across here.
So now you can see that connection run through. So that's the cloud connectivity. We did that literally in a few seconds. And now what I'm gonna go and do is, I'm gonna connect to Brisbane, because I think that we should go and show where we're currently sitting. So I'm picking Australia. I'm gonna scroll down, and we're gonna pick this location, NEXTDC in Brisbane. We'll pick a red zone, red diversity. Click through here, pick, give it a name, pick a rate limit, whatever it may be. You can, you know, go wherever you want on that. Click Next, Add VXC Connectivity. Now, if you zoom out on this, what you can see is the connection from here all the way across to Brisbane.
So you can actually see that connection is now spun up and connected into the Brisbane office. That there, imagine being able to connect from San Francisco to Sydney, from Sydney to Tokyo, Tokyo to London, London to New York, New York to Chicago, and spin up a Global WAN in less than 60 seconds. That's, folks, what we've launched, and this is visually how this comes through on the map. All right, let's move back into the presentation. Hopefully, that starts to showcase what Global WAN brings. Now we constantly bring on new logos into Megaport, and you'll be surprised the logos we get, really at the top end of town. What I'll call out here is, this is a subsection of the logos, a very small subsection of the logos that we've brought into the business.
We have to get approvals from our customers before we share them, and so that obviously takes a huge amount of time, and most customers have a legal process where they're not comfortable to be shared publicly. In this instance, these are just a subsection of what we've grabbed, and as you can see, some really amazing customers with huge locations globally and all around the world. We continue to bring on those new logos and really excited by that progression. So, as you've heard me talk, we've, we've shared this a number of times, being very open and transparent. I think it was the twenty-seventh of July, and the reason I remember that is because it was my wife's fortieth birthday, and she reminded me that I was presenting to the market on that day.
So on that day, we announced we're opening 20 net new heads into the sales machine for Megaport, and we went on a global hiring spree to go and bring those folks in. So it's important that we continue to report where we're at from that. So as we've said, the global market, let me just put my laser pointer on. The go-to-market overhaul absolutely remains our number one priority. At this point in time, you'll see us continue to execute against that. The roles that we opened up, I'm incredibly pleased to share that we have 90% of those roles hired and almost all of them in seat. Two,...
Two offers have been accepted this week for the last—there's another couple of roles, but basically that gets us to 90% in seat and hired, and we have two more roles outstanding. Which is a pretty impressive achievement, given that we've opened those in August, September, October. And by the way, world-class caliber. We did not bypass the process to hire folks that weren't right for Megaport. We spent a huge amount of time finding the right folks that will ramp the fastest, who are experienced in our space, who actually understand the market that we're going after, and have plenty of experience to go and deliver upon what we need. I'm incredibly happy and excited about what that team will deliver. The sales leadership. We actually hired a number of different folks into roles, incredibly experienced folks across the business.
We had Chief Strategy Officer, Adam Mitchell, come into the business, who's been working with me for a long period of time. Rock star from a SaaS and as a service business perspective from a go-to-market. Very recent announcement, EVP of Go-to-Market Transformation, Abbey Byfield, is joining the team. Rock star, both based in the U.S. We've also hired Fred, our head of North American sales leader. He is in seat and incredibly experienced, I'm very happy about him coming into the business. We've got three new customer success hires in seat in North America. Their function is to protect and expand the existing customer base, well and truly beyond product-led growth. So if you think we've talked a lot about product-led growth over the period, Megaport is this incredible platform.
It's so simple, what I just demonstrated to you from a technology perspective. Once you've spun up that connectivity, if you need to add further, more and more connectivity to different cloud providers, et cetera, you can spin that up in 60 seconds. And what we've talked about in the past is that, if you have bought one particular product line from us, you quite often grow and expand that. What, what I've found is that when we've gone and looked and spoken to our customers, is our customers really only think of us for whatever it was that they purchased us for. So if they just connected to a cloud provider from one data center, basically, they- that's where they stayed. What we want to offer them is an ability to go, "Hey, by the way, you can run Global WAN.
All your cross connections, all your connections across the United States, across to Europe, across to Australia, in that region, you can deliver in 60 seconds." Your cloud routing capability, which is this ability to connect into cloud. So we've needed the customer success machine to go and service those customers. We've got 1,600 customers in North America, so with those 5 folks in seat, we're gonna have a much better experience for that team. Solutions architects, these are the brains behind it all. When you look at architecting like a very complex solution, you can actually use, I'd say, the Megaport Lego blocks to build incredibly sophisticated networking models. Again, spun up instantly, but you can actually build them in incredibly redundant ways and use them in so many different use cases. The solution architects are key for that.
Our channel team has been refocused to drive engagement around the partners that can deliver the outcomes for Megaport, and that we can get incredibly close to data center operators, agents in the United States. Managed service providers are incredibly powerful for us, and so continuing to service those. AWS, Azure, GCP, Oracle, our cloud providers, partnerships, and also MVE, so if you're looking at Cisco, Palo Alto, Fortinet, et cetera. So tightly focusing on the folks that can provide us the best support, and we can provide them the best access to solve their customer problems, that has been key, and that's been rolled out and underway. Really, really impactful results already. So strong, let's look at the outlook. We're in an incredibly strong financial position.
Leticia, I'm thrilled to have in the seat as CFO, is incredibly diligent and focused on this business from a cost perspective, and also where we're investing to ensure that we keep those numbers in line and that the business remains in line. We are delivering sustained improvements in EBITDA. We called out net cash flow positive for FY 2024, and we're obviously delivering upon that based upon where we've landed in the first quarter, and we'll continue to do so. We launched Megaport Reach. I talked about that before, but this is an ability for us to go into new data centers, new locations, new countries, et cetera. Megaport One Beta went live. That's free for all of our customers and non-customers to actually go and spin up Kubernetes clusters and just...
Deploy them across different cloud providers, and particularly if you think about this coming wave of AI, and actually hunting down GPUs to deploy compute across that. Now, Global WAN, whilst wasn't in the quarter, as I said two weeks ago, announcing Global WAN, this is a big thing for us. It offers us an ability to go and deliver high speed, massive connections for our customers incredibly quickly. We also just shared the portal dashboard, and you can see that visibility from that demonstration. I'm gonna announce, we're doing something a little bit different here. I'm announcing the imminent launch of Megaport Enterprise Internet product. We're actually launching that in the next few weeks. Why am I explaining that here?
I think it's appropriate to share on this call, we take a lot of feedback from our customers. When I first stepped into the seat and sent out the CEO survey to find out how, what could we do better? What would you love to see inside the product set? Actually, a huge amount of that input leads to guidance for us, and this week we were really proud to share that we had the customer advisory board for North America. We've also done Asia Pacific. Getting that guidance from our customers around what they want to see in the product is so important, and internet was one of the first pieces that came up. So if you look at the Megaport Enterprise Internet product coming live, what does that mean?
It means that inside your Megaport platform, if you need to get connectivity to internet, and it's basically, if you think about it, Megaport is a you're probably thinking Megaport is the internet. No. Megaport is a private connection across the globe, and then private, huge connections into cloud. But inside your data centers, you're still gonna have to go to another provider to get internet access for your enterprise. Well, in 60 seconds, you can spin up internet in North America, Australia, and the UK first. The next thing to call out is the internet exchange rollout. This is big for us. Across the United States, we launched Charlotte a few weeks ago, and we're actually gonna add eight additional internet exchange locations across the United States in the next two quarters. Project Centurion, I'm gonna share this.
It's this has been sort of a stealth mode project that we've been working on here at Megaport, and we're really pleased to unveil that here. What is this project? In the background, the team have been working on building out 400 gig backbone upgrades across the globe. And if you look at all these different backbones, what happens is, when we get the ability to have 400 gig connectivity with all the redundancy and diverse paths that we need, you can then run 100 gig ports, more and more 100 gig ports for our customers. And so what we've been doing is rolling out 100 gig ports, and we're over. The majority of our customers today can access an upgrade from 10 gig to 100 gig ports right now, connecting to that 400 gig backbone.
And what that leads to is a pretty big announcement in terms of the fact that we can go up to 100-gig VXC connectivity across those backbones where it's available, and we'll constantly push that, the barriers there for what we need to do. Why would we be doing this? Well, firstly, customer demand. We're always gonna follow where our customers give us guidance, what they're looking to do.
But also, if you think about the explosion in AI, one piece that Megaport will tremendously benefit from this is, if you're in, say, Oracle Cloud, and you've got all of your data sitting in an Oracle Cloud database, as an example, and you're looking to get all that data and train a model on your data so that you can interrogate your model, it's likely that you need to move that data out of Oracle Cloud and place that inside a GPU farm or inside AWS, Azure, GCP, depending on where you've built out those GPUs. You want to train that model, process it, and then store that in an inference model and bring that back out. We're talking about huge amounts of data that need to then be dynamically moved around, and it will depend on where you're gonna train that model.
So this is part of us delivering upon this AI explosion, but it doesn't rely upon the companies taking on AI. We've already got so many companies requesting 100-gig connectivity where it makes sense. So this is exciting. This is a big deal for us. We're continuing the data center expansion. We're in a healthy financial position. It's time for us to continue to expand into the data centers that make sense, and doing it in a fiscally responsible way, which means you will see us open up new countries and markets, over the, as we close out the FY, FY 2024. As we confirmed, earlier, the FY 2024 guidance has not changed. The rebuild and recovery of the momentum is expected to take time. I wanted to put that note in there.
Firstly, the FY24 guidance is absolutely unchanged for what we've called for EBITDA revenue for the year and remain cash flow positive. No concerns around that performance. The rebuild and recovery of the momentum expected to take time. I just want to set the expectation that while we've gone and added all those sales folks, they are landing inside the business now. We need to ramp them up, and then what you will see is metrics towards the end of Q4 start to turn. But the point why I'm saying that it takes time, is because you won't see that in revenue until FY24. So you'll see metrics towards the end of Q4, and then what you'll see is revenue impacting in FY25. Why? If you think about it, if we sold a whole...
Let's say we sold $10 million of ARR in the last month of the quarter, you would only have one month of that revenue, and that's why you start to see that flow for the next year. Just to give you an extreme example of that, so I can sort of make my point. All righty. We did it. We got there. Over to questions. Steve, I think I'll pass over to you, and I'll get Tish to join me in the room here.
Okay. Thank you, Michael. We have a few questions coming through the Q&A function. We might start there. Tish, this one I think is for you. Is it fair to assume that the first quarter in FY 2024, so the September quarter just gone, will represent the trough in OpEx space, given the new hires coming into the business?
A trough, as in? Could you clarify that-
The low point for... If you look at the OpEx for these four quarters, is it going to build from Q1?
Yes. Yes. So we've a lot of the sales hires have really only joined us either towards the latter months of the quarter. And so while you see the revenue uptick, we haven't kind of overlaid the full expectation of the sales headcount. So that's why we continue to guide towards our previous guidance for the FY 2024 EBITDA range.
Okay, thank you. Any update on CapEx guidance for FY 2024? You'll recall it was AUD 28 million-AUD 30 million for the period, and I suspect this has been triggered by the new 400 gig backbone and ports and other things. Over to you, Tish.
No change, no change on this part. We did note that that excluded any strategic initiatives. We have been planning this, so that's within the AUD 28 million-AUD 30 million range.
Excellent. Going to the analysts that have asked questions in the Raise Hand function. Roger Samuel, if you could go ahead with your question, please. Roger from Jefferies.
... Yes, thanks. Maybe just on that, I just came back from a data center conference, and I've seen people talking about the 800 gig backbone and also the 1,600 gig backbone as well. Do you think that there's a risk that you may need to upgrade further after the 400 gig?
Not in the short term. I'm looking over at Cam, who's our Chief Engineering Officer here. He was the number two employee at Megaport and built this piece. So, what you'll see, I think in those, you'll always have extreme examples. Megaport's not built to deliver on one-off extremes. We're here to deliver for the majority. And so if you look at that, even pushing into 100-gig connectivity, it won't be the majority of our customers, it will only be a very small subset at the top end of that, that range that will require a 100-gig. If you're pushing well and truly beyond that, that'll be for specific, particular companies that are doing something unique, I would say. So at this point, we don't see that demand and have not actually had any requests for it.
But I agree, what you're seeing from the data centers globally, there is a massive explosion. Data centers are adding, you know. I think pretty sure that they can't build fast enough to basically deliver what is the AI requirements. What you'll see is a lot of customers then working out how that plays out. But what I will say is, for us, it's not hard for us to resolve. If we have the demand from a customer for particular routes, we can upgrade those routes. And so it's not like we have to go and do an entire network upgrade globally to try and deliver that connectivity. And if you think about it, you end up then with an anchor tenant to fund that particular route anyway.
So, I don't see that personally as a concern, even if we did have that demand. If we did have that demand, we'd respond to it. I think that's unlikely for us from just the sheer quantum of customers that would require that level of connectivity. Hopefully, that's helpful.
Yep. Okay, thanks. And maybe just a follow-up question on your new product, which is, which is the internet product. What's the addressable market? Is that gonna be available in every single regions? And what's the margin profile? Because if you look at the telcos, we're selling NBN, the margin is pretty slim.
Yeah, we're definitely so let's be clear on it. We're certainly not trying to sell anything like what NBN is. It is purely for enterprise customers. It's for connectivity from the big data centers. So unlike you and I sort of running NBN from home, we have no requirement to connect, we're not, we're not looking to go to, last mile. So the profit margin on internet is, is not as high as your traditional products. However, in our case, we do it in a way that where it does make a lot of sense from a gross profit perspective. That's why we're how we're launching the product, so I feel confident there. The addressable market is basically any of our customers. The maj...
It depends on how you've architected your network, but if you look at it, most customers, if you bring in all your connectivity back into the data centers, you have to have a big connection into the internet somewhere. And so, I would say the majority of our customers are currently purchasing internet from their data centers today. The question is, and that's like I said, like, the feedback from our customers was actually to deliver this service. The question is: How do they go and deploy that in each, in different regions? So we'll see how it plays out, and that's why I say that, is because of the addressable market pieces. We'll have to see how that plays out for each of the customers.
As you see, also, you've got this play for SD-WAN, and so you'll have different ways to deliver the internet. We, by the way, have always had an ability to deliver internet. We just didn't make it a product. And what I mean by that is, if you look at our virtual edge, which is our ability to have, say, Cisco's SD-WAN infrastructure spun up on our compute platforms, SD-WAN is delivered across the internet, and so you've actually had to have an internet connectivity, which is why it's easy for us to actually expand this beyond what we just had for MVE, but actually into the data centers with really large connectivity, with competitive rates, et cetera. So, yeah, it's an exciting announcement, actually. It's...
I don't think it's gonna, it's not gonna transform the revenue of Megaport compared to the existing revenue with all the cloud connectivity, but it's certainly gonna add another arrow to the quiver, and most importantly, it's solving customer challenges. This is like keeping everything so simple. One click to go and access that space, instead of having to go and get a contract with a different carrier, as an example. Good question.
Thank you. Barrenjoey , Eric, would you like to go ahead with your question?
Oh, sorry. Just checking you can hear me as well now.
We can, yes.
Go ahead, Eric.
Thanks, guys. I wonder if I can do two. Maybe first one for Michael. Can I just confirm you've reset the sales initiatives, even for existing staff, and, and whether those KPIs are based on the rev gen subs number now, rather than those sort of non-revenue generating subs? And I wonder if this could be the difference between the performance of those two sets of subscriber numbers.
No. So, so yes, the answer is the... Well, we've actually, so firstly, we've never counted those, proof of concepts or, ports that are not-- If you look at the MVEs as an example, that are spun up as a proof of concept, the team are paid on monthly recurring revenue, and so if you think of it, a proof of concept is not delivering monthly recurring revenue, so there is no payment, no commission function towards a sales representative for that. What we have done is we've focused the sellers around... If you look at the compensation models, I'll just sort of walk through it. Roughly, you typically have like a 50/50% at-risk portfolio.
So if I said, for the sake of this, it's not the right number, but let's say, you, a salesperson earned $100,000 as an example. 50% of that is base salary, so that's $50,000 is base. The other $50,000, which is at risk, is purely commission related. Though, that commission is based on monthly recurring revenue only of, and also, if something is spun up, as an example, and spun down, and moved in a very quick point, that does not get included inside that monthly recurring revenue. So it's really longer term, monthly recurring revenue. And in fact, we're pushing our team to go towards contracted revenue, more contracted revenue over time. So there's two elements to that.
We then split that down to the existing customer base is roughly 50%, which is the expansion inside that. Imagine going back to your existing customers and talking about Global WAN as a service, and what we can actually go and change inside that existing customer base, Megaport Cloud Routers, et cetera. You do that in partnership with a customer success manager. The other 50% of that falls into net new logos, and it's on access products. So for us, it's ports, MCRs, MVEs is basically the monthly recurring revenue that you're targeted against. When you sign those up for the quarter, that gets included. So yes, there's no payment of those, what I would call the non-revenue generating metrics at all.
It's the reason I exposed them in terms of, is more around the MVE component. Because of the size of the sample and the sheer quantum that our partners are constantly spinning up and spinning down as they test them out, it was giving like I would say, an inappropriate signal either way, for better or for worse. And so what I just wanted this very clear viewpoint on that. I certainly measure the business based on revenue generating. I'm not gonna take a signal from a whole heap of proof of concepts that have spun up, other than the fact that there is a potential pipeline for the future. Hopefully, that does that cover you?
Very clear. Sounds like the right way to do it. Tish, since you're the queen of numbers, I wonder if you can bear with me on the convoluted math question.
Uh-uh.
Steve mentioned, you know, you sort of affirmed that the OpEx needs to step up from this quarter. But I guess if we do some quick math on your full year guidance, I think you're guiding to about AUD 80 of OpEx for the full year, which means you'd need to average about AUD 21 of OpEx for the remaining three quarters, and you've just done, like, a 17.4. But just thinking about it, if you're gonna even if you add an extra 20 headcount from here, it doesn't really get you that step up from a 17.4 to a 21. So I'm just going, what else needs to step up in that cost space? Or is there a bit of conservatism in the cost, EBITDA number?
Don't, I guess, forget, a quarter on any business, it will change in terms of your OpEx. So OpEx does vary. It's not just staff costs. You know, we haven't. The business has undergone significant change throughout FY 2023 around cost reduction. With that comes a cultural shift, and so a lot of that has, I guess, flowed into Q1, where there's, you know, you've got less staff, they're spending less, we're rebuilding the whole sales engine, the go-to-market, the marketing machine. There hasn't been a lot of spend this quarter, and there hasn't been a, sort of, where I've had to, you know, pad it out Q1 with significant OpEx or anything like that. We are rethinking and looking at everything that we do. We're still predicting to spend money throughout the rest of the financial year.
It's just the timing of it is probably going to be key. So that's why-
Got it.
There's no change at this point.
Got you. Thank you very much.
Before you go, I promised you I'd have a little dad joke for you. You don't have to answer this one, because I don't expect you to get it, because it's a new one. But did you hear about the first artificial intelligence to take a photo of itself?
I haven't.
Well, it became selfie aware.
Ahhh.
Very good.
Not as good as last quarter. Not as good as last quarter.
Well, I was trying to make it AI related.
You did well, I didn't.
Okay. Thanks, very much, Eric. Nick Harris from Morgans, do you want to go ahead with your question, please?
Sure do. Thanks for the dad jokes, always love them. And Tish, a bit disappointed you're not wearing that crown.
Special.
And also thanks, Michael, for just explaining that move to revenue generating KPIs. As Eric said, that makes a lot of sense. So I guess I just really had two questions. One was for Tish. Obviously, you know, you guys are adding a lot more sales staff in the second quarter. Just thinking about the costs, are there gonna be any sort of big one-offs that we need to think about, like bonuses and recruitment, things like that? Or are all the costs really just layering in the extra sales staff?
It's the staff cost line is layering in the extra headcount, so not just the... It'll depend on their pay mix, which will be the mix of, as Michael explained before, mixed between your base and your incentive. In terms of one-offs, no, there's no-- I mean, I never intend to do one-offs, but the intention is to just be considered and, I guess, conscientious as we go through the rest of the financial year.
And Nick, worth calling out that, and this is what I also think is impressive, all of those hiring efforts, we didn't pay a single recruiting fee. So that was all from our internal recruiter. Chris is based in the U.S., and worthwhile giving him a big shout-out, because the talent that he's gone and sourced has been incredibly right for our business, and he's done that in record speed. So I think there's still smoke coming off his keyboard, but just acknowledging that component. It's important because you can, as you've rightly pointed out, recruitment costs, particularly in this market, is expensive. Becomes really expensive. So very proud to say that we did that with our teams internally. So acknowledging the efforts that the team have gone through.
Excellent, and, yeah, well done. I just had a second question, which was just talking about the, I'm not sure if I'm crossing my things here, but the Megaport One beta, and how you enter new data centers. So you've kind of flagged towards the end of this financial year, you'll end up in a few or expand into a few new data centers. I'm just trying to understand, are they the same things and the economics around it? So when you go into a new data center, should we expect the, you know, the costs to be similar to what they used to be? Or are you tackling this quite a different way with, I don't know, virtualization or something?
So, Megaport One is the SaaS platform that goes and orchestrates all of the compute. Separate that piece. Megaport Reach is the ability to go and land in new data centers with a lower operational expenditure for us, and that gives us access to those tier two, tier three. We will still continue to land the data centers that are critical for us to be in immediately. Those data centers, it wouldn't change our OpEx, but in reality, the larger data centers that you'd be focused on will quickly give you a return and cover that cost.
At the tier two, tier three level, the Megaport Reach platform gives us an opportunity to land in more data centers with a lower operational expenditure profile, which gives us the chance to go and land in those locations. What we've talked about was opening up new markets, falls into that category. Each new market is slightly different. When we look at different countries around the world, you've got different regulatory components. You also have different partners inside those environments who are, and each deal gets constructed, particularly for the new countries, in a slightly different fashion. But where it makes sense, we've seen these new countries align to a...
There's a few options inside Megaport Reach as to how we would deliver that for our new data center partners. But it's all falling into that reach style of some way, shape, or form. It just depends on each country, because countries are. The countries we're going to now, we've obviously got the majority of the countries that are easy to land in. We start to get into some countries that are a little bit harder from a regulatory standpoint or a carrier license, as an example, or how we deal with it from a finance and legal perspective. Just adds a bit more complexity and nuance to it, but we are absolutely committed to go and do that. And the reason we're doing that is because our customers are requesting it from us.
Hopefully that answered it, Nick.
Yeah, thank you, Michael. I, I guess I was just trying to understand the costs going forward, if you do decide to ramp up in, say, maybe not even this year, but next year, into more locations, it should be a fair bit cheaper under the Reach platform. Is that the right way to think about it, or do you have a big wave of CapEx and OpEx coming, or is it relatively incremental?
Well, the CapEx—I mean, if you look at it, we actually still have ample infrastructure. So we have a lot of the CapEx component being the hardware that we need to deploy. We have a huge amount of that sitting in stock available. So there's actually we would take a long time to deplete that stock firstly. So that is less of a concern. The thing that is always the concern is just the repeating, or the continuing costs that come out of it. The answer is, if it's Reach, it will be less compared to our existing data centers, or again, the majority of the existing data centers. There are nuanced data centers out there.
But the reason I say I can't answer specifically for the new countries is because each one we've got to do a little bit different, slightly, if that makes sense.
That's great. Thank you.
Thanks, Nick. Annabel, at Goldman, if you'd like to go ahead with your question, please.
Morning, guys. Thanks for the questions. I've got two. So I guess firstly, a bit of a follow-on from Eric's question. The AUD 15 million EBITDA in the quarter, it's run-rate at the top end of your guidance, and that was flagged due to timing of spend and likely some currency. Does this mean that the second half, sorry, second quarter EBITDA should be the weakest for the year? And I guess secondly, can you give us a bit more color around the MVE performance in the quarter and what drove the decline there?
So with regards to the EBITDA, that's—we've got. We just haven't added the sales headcount yet, so it's that, plus we've got the marketing spend, the overall OpEx spend. So yes, I wouldn't simply times 15 times 4 to get you to your results. There's a lot more to come throughout the full financial year.
On the MVE. Sorry. Did I miss?
Oh, no. Yeah, so on the... Oh, no, no. Yeah, just on the MVE now.
Yeah, no problem. So on the MVE, if you have a look at the metrics that we shared, as I've sort of explained, the proof of concepts, the nature of MVE is slightly different to our other products, in that if you look at what happens is, firstly, an SD-WAN deployment for... I'll use Cisco as an example. It could be thousands of sites that Cisco is rolling out an SD-WAN project to, could be a bank that has 1,000 different locations. And what happens is, when the bank goes to market for these SD-WAN solutions, they're big. They're huge contracts. They're typically linked into carriers who have then obviously 1,000 connections to each site, or could be 2,000 with redundancy, then you end up with 2,000 routers.
And so what happens is, the customer comes out with a tender, and then we'll offer it to multiple providers. It might be Fortinet, Cisco and a few others, Palo Alto, et cetera. And they all bid on this project, and they all run a proof of concept. And so what happens is, Cisco can quite often spin up multiple Megaport Virtual Edges, their own Cisco platforms inside our hardware. They would spin all of those up. They're not revenue generating at this point. It's purely to prove out the proof of concept. They might win that particular deal, as an example. When they win that, they go into a big contract, and then the contract is to roll out 1,000 sites.
So what happens is you'll see it spin-off off Megaport, and then maybe even six months later, when they've actually gone and deployed all the sites, they've bought the infrastructure, started to deploy, you'll see it spin back up. And so the problem with the-- Well, the great thing about Megaport is it's 100% live. Every time you, you, you add something to the platform, it's instant. And the way we've always reported is actually from the platform itself and exported those numbers, which is, which is appropriate when you look at the total figure. What happens in quarter, is if you had someone spin up 40 MVEs and then spin them down as a test, you'll see them up in one and down in the other, and it's not actually indicative of the reality of it.
The reality of our MVEs is majority of them are contracted because they're long term. So you shouldn't see this sort of whipsaw movement in it. To solve for that, it's, I believe the right way to look at it is revenue generating. And so when you actually do an export of all of our services and flag that they have monthly recurring revenue associated to them, then what you have is, you remove the noise and you just get the signal, and that's an appropriate way to look at the business. So if you look at it, our numbers showed. Let me just swing back to the metrics. Where are we? There we go. All right. Am I still sharing? Yes.
So if you have a look at the metrics here, as an example, what I don't want you to get, either a positive signal or a negative signal that's not actually aligned with what the actual performance is, take MVE. We take it across here, and while we're showing a quarter-on-quarter change of -1, when you actually say, what is the monthly recurring revenue associated to a Megaport Virtual Edge routing component? Well, actually, when you extract the proof of concept, everything that's not billing, basically, we are up 8. So that is the right signal, in my opinion. When I look at measuring the business, that's what I'm looking at. I'm less concerned about proof of concepts. Well, proof of concepts coming in and out is not the right signal.
The last thing I want to do is pivot a company based on an incorrect signal, and that's the last thing we want to share externally as well. You can see the same thing occurs for Megaport Cloud Routers, and you can see that plays out in our customer count. So you can see the difference between those. The remainder of the large total set—like, if you look at the you know, Ports, and our total service VDCs, it's actually a minute difference between it because of the sheer quantum of them. But if you look at the MVE, MCR component and net customer component, it actually plays out in the quarterly. So that's why I've exposed that here. I'm mindful that changing metrics is not something we want to be doing. I'm obviously new into the seat.
When I first looked at these metrics, and we're continuing to give you the metrics we've been sharing forever, we haven't changed that. What I'm suggesting is that at the second, sorry, the first half, I believe there's a better way to look at the metrics that I think we can all look at and get a better signal for where the business is heading. And so that is, to me, revenue generating. And it's a very common thing, by the way, in many SaaS businesses. You'll see companies report paid customers and non-paid, as an example. So they might have 15,000 non-paid customers, 2,000 paid. Why would they report the two of those? As the non-paid increases, it's an indication to show that there could be potential future paid customers.
And so I think we're in a similar stage of our maturity, where I think it's the appropriate time to start doing that. We didn't want to throw it in the market now. We wanted to take our time and do that at the half. Hopefully that answer. Hopefully that gave you some guidance, not only on MVE, but also what revenue generating metrics are associated to.
Yep, that's helpful. Thank you.
All right. Thank you.
Okay. Thanks, Annabel. Jon Atkin, not sure from where in the world you're dialed into, but if you could go ahead with your question, please.
Thanks very much. It's, it's actually yesterday in California. Got a, got a couple questions. So, you know, you've talked a lot about the United States, in the last several calls and conference appearances and so forth. Can you talk about maybe the most meaningful EMEA, markets, that you've had a chance to kind of sink your teeth into, and maybe the most meaningful, or meaningful non-Australia APAC markets, and talk a little bit about, you know, how the go-to-market motion differs there. Maybe it's a different mix of direct versus indirect, partnerships and whatnot. So just want to get a flavor for kind of rest of the world.
And then from a product standpoint, you know, what is the velocity with which we start to see security and other sorts of kind of capital light add-on products to your platform? Thanks.
Really good question. So yes, I have talked a lot about North America. There's a reason that I've talked a lot about North America: I would always advise to go for what I would call the low-hanging fruit. So if you think of the easiest ability to access a market, then the customers is in the United States. It's easier because there's no language barriers. It's a huge market. There's huge cloud adoption. It's a very different, so it's a huge continent, and so you have this requirement to have data centers on the East Coast, West Coast, all this different connectivity. You have a huge range of data centers that sit in there, et cetera.
All of that plays extremely well into Megaport, and you can also—it's a much easier market to then go and hire folks to go and execute against. And plus, you're always billing in U.S. dollars, which obviously at the moment is very strong. So that's why we, the first low-hanging fruit expansion is into the U.S., and as I mentioned, we only had 4 frontline sellers. In the U.S., we had one customer success person servicing that 1,800. So we were not only would it be the right investment, even if we were appropriately sized, we were inappropriately sized. So that's the first piece. So yes, that's why we've gone very hard, very quickly there. Your point is also true. Hey, Megaport, you are the one of the biggest powerful components to Megaport is our global reach.
And certainly when we look at our competitors, they just don't have something similar to us in terms of our locations and the global nature of it. So your question was, what are we seeing globally? We do see different pricing in different locations around the planet. Europe, as an example, is different to the United States, is different to Australia. Japan is different again. And so you're constantly balancing the pricing component and also the go-to-market. So you'll not be surprised to hear that the U.K. is very strong for us, and that obviously aligns back to the, you know, the U.S., U.K., and Australia is a very sort of easy path.
We're also very strong in Germany, and if you look at our IX presence, which is our Internet Exchange presence, was an acquisition some time ago, is very strong. We're also having incredible success in France. And so we've got an amazing leader in France who's been driving that business and adding some of the largest... If you look at all the global logos that are from France, you'll, we can't share them because they're not public, but they're, we're rolling out to the, the, the largest French companies who have global requirements. Again, where we, where we suit those particular customers, we're very strong. Japan has been really strong for us in Asia Pacific. Again, if you once you go beyond, U.K., Germany, and France, you start to, it's, it's a, you need a, a new language component.
You need to localize the tech. You need to install the infrastructure. So there's elements associated with that. We are going to continue to expand, but it's an easier, I'd say it's right now, it's much easier for us to go after that low-hanging fruit in the US, and also in Asia. So we also have opportunities to expand in Asia and also South America. So I'd say South America, Asia, and then expansion. You'll see us land in new data centers, which is what our customers are requiring, but we have the majority of those. If you think about large banks, they land in the US, UK, Hong Kong, Singapore, and in Australia, and that's sort of that similarity. We are already in all those locations. You asked one last thing, which was security.
So, firstly, it's not well known, but one of the major benefits and a huge amount of our customers leverage Megaport for this purpose. Megaport is a private network, which means it's by definition secure, in that you would run a private network, you encrypt your traffic across that. Not only is your traffic encrypted, but it's also not accessible by any bad actors. And so if you think about the security space, and internet's a good example, lots and lots of companies want to get off internet as close to the office or as close to their entrance to that internet as possible. Lots of SaaS providers are actually suggesting that you go actually via a private connection, and that's where a lot of our private connectivity into cloud lives.
If you look at our marketplace, we have a huge amount of SaaS providers that actually connect into our platform and suggest to their customers to leverage a private Megaport high-speed connection in. Why? Because the internet is constantly changing. It's constantly. It's like a never-ending mesh of movement and failure points. It's constantly rehealing. But as you look at that, you can't guarantee latency, you can't guarantee that throughput at all times. But more importantly, from a security standpoint, is even if you encrypt your traffic, you're still running across a public network, which means if a bad actor is trying to take out that particular route that you're on, they might not hit your traffic, but they could DDoS attack the path, destroy the path, and actually take out your connectivity.
So what you're seeing is a lot of companies are trying to leverage Megaport to get off a public domain, get into it, get into Megaport. Megaport's private. We're not exposed publicly, so you can't be attacked, like a DDoS attack, because you can't see it. And so once you're in there, you get that public connectivity. The other piece to it is, where do we head from a future standpoint, from a security perspective? And I'd say the strategy for Megaport is going to be constantly looking at what we can, what challenges and problems we can solve for our customers that leverages this incredible backbone that we've built, and security falls part of that. So we're constantly exploring what makes sense from a software perspective that could actually solve a customer problem, that leverages this incredible backbone.
If you just have the software, it doesn't leverage the backbone. It's not too novel for us, but if you have any software that requires that, there's really no other company that could deliver something similar, because you'd have to go and build out the backbone. And so that, that from a strategy perspective, becomes more of the technology, longer-term strategy for the business. And it's not just security required.
... Thank you. Then just one last one for Tish. You mentioned a new network provider. I think there was maybe a cost associated with that. Can you elaborate on that a little bit, and in which region or regions is that taking place?
That's part of. That's a global platform. Now, it's largely the reason I call that out, is because we did make an upfront prepayment for the for the 12 months. But it will. It shouldn't increase our cost base. It's around the timing of the cash.
Thank you very much.
Pleasure!
Thanks, John. Tim Plumbe at UBS, question from you.
Yeah, hi, guys. Can you hear me?
Hello, can you hear me?
Yeah
Fantastic. So two questions for me, if possible. The first one around spend per customer. So Ports added, obviously important for medium and longer term growth. Spend per customer is gonna drive more of the near-term growth. Michael, you've previously said that the sales team can do more to leverage this opportunity. Can you maybe just spend a minute in terms of explaining how that shift in strategy goes ahead, and how quickly can we start to... Or how quickly could you see a change, if you drive the sales force to deliver on the increased spend per customer?
Yes. So, the change will always, as we've said, as we've landed the folks, they're all sitting in... Well, majority, as 90% are in seat now. Last check, a couple more to hire, but the other two offers are out there, so they'll be landing as soon as they start. So the majority, the vast majority are in seat. We then ramp them, train them, teach them, et cetera, and then they need to build that pipe inside the existing base. I would say what you'll see is, again, we're sort of pointing towards Q4 from a metrics standpoint, and you won't see revenue until flow through until the next financial year.
As I pointed out, the easiest and fastest way to expand your business is if your customers are not yet leveraging all of the products that you have to offer and not aware of them, and that's why we've launched a whole range of different products to actually go and access that customer base. Now, as an example, to give you some perspective on Global WAN, you could take a connection to the cloud, which is a VXC, for, say, $200, or you could take a single $7,000 connection across the U.S., as an example, for a higher speed connection. You can see the quantum between those two pieces is significant. And then as you start to lay that across multiple connections, you then have an opportunity to expand very rapidly inside the existing customer base.
And so that's new for Megaport to actually go and not only incentivize our seller. Our sellers were never incentivized to go and talk to our customers about that in the history of time. Being able to bring that story to our customers, and also be able to offer that from a contracted standpoint, which is what we're launching at the moment, is basically an ability to contract those connections, gives us an opportunity to not only deliver very, very high revenue items that we weren't delivering prior, and also deliver them for a long period of time.
So I'd say that is one of the fastest ways we can expand and access faster annual recurring revenue in the business, which is why we launched Global WAN, and that all of that flows back to that piece. The other piece is that, like I said, we have a lot of customers that have multiple cloud connectivity. So for example, they have Azure, GCP, AWS, and they don't leverage a Megaport Cloud Router, so they're actually just connecting just back to a Port or whatever it may be. And if you look at, that is a really easy example to go on.
If you want to egress traffic, and particularly now, and I, I think what we're gonna see is a whole heap of companies needing to access the data that they've got inside their compute platforms, extract it, and then process it somewhere, particularly if you think about this explosion in AI. Well, Megaport Cloud Router falls is a beautiful part. You don't need any port. You can literally just go and spin that connectivity between the clouds. There's a couple of factors: One, you get high speed connectivity. The second is, you have your egress costs drop significantly, something to the tune of 40% reduction in the cost to get your your data out of that cloud provider. So they're the sorts of easy, like I call that low-hanging fruit stories, that we can go back to our customer and articulate that to.
So we've got to get our team trained up to a point where they can show that to our customers. A big part of that was that demo that I gave before. One of the things about Megaport, you've probably experienced it. I, so I certainly experienced it when I came in. Articulating what Megaport is without drawing it or seeing it, or trying to, like, if you're not understanding 100% of the market, you've got to constantly articulate it. Whereas that portal not only gives me the ability to articulate this and show investors, but when we have customers, we literally bring the portal up, we can actually log into their account, and we can expose their entire network environment there.
Really simply, without having to understand, like, all of those services that I was showing you before, and all the acronyms, you can start to see how it's constructed. Really quickly you can see, oh, you're actually running an MCR connection from one side of the planet, one side of the U.S., as an example, to the other. You should be moving that to a very close point so that you reduce down your latency, as an example. Or you didn't realize that you're only connecting just to AWS. Oh, the amount of times I get on a customer call and bring it up to see how to deploy Megaport, they've literally just got a data center and just connecting a couple of connections into the cloud. That's great, and they love us for it.
But that's just like the tip of the iceberg of what we can deliver for the customer, and we just need to articulate that. So that's what we're working through that training process with the team, but giving them the tools to have that discussion is the portal as an example.
Gotcha. Apologies, 'cause it sounds like you spoke—I've missed a little bit of the beginning, so apologies if you've already answered this one to an extent as well. But the second one around the ports added, could you just maybe touch a little bit in terms of how we should be thinking about the current pipeline of opportunities that are there, right? How long does it take to build up that pipeline? And then remind us how we should think about the sales conversion process or the sales cycle.
Yeah. So two things. One, like, as I'll keep indicating, we're expecting to see that turnaround in sort of Q4 timeframe from a metric standpoint. Early indications that that metric start to change. It's we're in a recurring revenue business, so to move it either up or down significantly takes... It's just the expansion of your net retention and then your new logos that you add. As you add new logos, it starts expanding, which is why we keep referring to FY 25 from a revenue perspective. That hasn't changed since I took over the role. But your question is around, like, how quickly? So there's some- One of the awesome parts about Megaport is that, and this is evident with the quarter. If you look at... And this will change.
By the way, what we're sensing, we've added so much new sellers to this business, the actual, what we'll see, the sort of run rate change depending upon how all those folks touch our customers and engage with them in effect. So you move from 4 to 14 frontline, literally in a really short period of time, we're going to see this change. But what I will say is, inside Q1, 50% of our revenue came from opportunities that were created inside the quarter. That is quite astounding, for me anyway, coming from the more traditional SaaS businesses that are that take longer sales cycles. Like, if you think of a sales cycle, for some companies, it can be like 6, you know, 18-month sales cycle.
What is evidenced by the revenue is that the sales cycles for a decision to actually go and connect to the cloud, spin up Megaport and execute against it, can happen within a quarter and 50% of that revenue sits inside there. Which is really interesting, because kind of if you think about it, Megaport's not—I'm not convincing anyone that they need to go to the cloud. I'm not trying to convince you that you should connect to AWS. You've made that decision. What all we—What you're deciding is that you need to get there, and you're just deciding how you're going to get there. So all we need to do is showcase how you can get there.
Once you—if you've decided that Megaport, if you've experienced Megaport and you see how easy it is to leverage and use, you're quite often going to go with Megaport. We're well-priced, we're incredibly fast and so simple, and bang, you can spin that up, you've got all your redundancy, et cetera. Well, the time to value is instant. It's 60 seconds before it's up. And so if you think of the sales cycle being relatively short, once someone's decided that's what they want to do, and the fact that our time to value is pretty much instant as soon as you roll out the, you deploy, those two factors bode incredibly well for a much faster turnaround compared to, say, something that's like an 18-month sales cycle.
Like, if you're hiring an army of sellers for an 18-month sales cycle, you know, you're predicting that in 18 months' time that they're going to move the needle. That's definitely not the case with us. But as you can see, I'm just tempering the expectations around late Q4 and then into next financial year from a revenue perspective.
Gotcha. Thanks.
Thanks, Tim. Andrew Gillies at Macquarie, go ahead. If you could keep this to a reasonably short question, that'd be great. So we've got one more behind you. Thank you.
No problems. Can you hear me?
Yes.
Yes, we can.
Yep. Okay, perfect. I'll keep it to one then. Just in terms of competitive intensity, are you noticing anything changing over the last kind of 6-12 months, kind of flagging your normal, sort of competitor set? Obviously there have been some changes at one of their competitors. If you've got any comments around that, that would be great. Thank you.
No, actually, yes, I do have comments, of course. Obviously, I wasn't here 12 months ago, but I'm taking feedback from the team, and obviously very focused on this. What we see, and the question earlier around the regions was an appropriate question. Each region or country around the world has sort of a different story, i.e., in the U.S., we have a single competitor that's only based in the U.S. We have Equinix, as an example, that roll out to their data centers, but they only live inside the 200 data centers that they have. And so if you think about it, there's 15,000 data centers across the globe. If you're not in one of those 200 data centers, then it makes sense to leverage Megaport.
Kind of interestingly on that, Equinix is actually a big partner of ours as well. We have, some of our largest data centers on the planet, in terms of connectivity and throughput, is actually Equinix. So it's sort of an interesting one. The other piece to it is, in Equinix, as an example, if you're looking to get redundant services to AWS, as an example, you might choose to run two different fabrics. And so in that case, we have a lot of redundant circuits or whether it's either Active -Active or leveraging us, to connect as well as Equinix in that example. So that's sort of an interesting play on it.
In Asia, we see different competitors who have been stronger in, say, the China regions, those sort of Chinese markets and have sort of expanded out. The requirement for our customers from a Chinese perspective is we don't... Well, I've yet to have much request to get to China.... And so that's probably less servicing the customers that we certainly address, and obviously it's not as an easy market to go and land in. And then some of those companies have expanded in those regions, and so we don't come across them much because the customers that they're servicing are not really the customers that we're servicing.
In Europe, it's just slightly different again, because you've got each country's data and it's also a mixture of adoption of cloud and where you, what data centers you sit in. So, I wouldn't say that the—I don't think anything's heated up. I don't think there's any change from a competitive standpoint. I think our competitors, some of our competitors have gone through some pretty tough times, and no different to a lot of the startups that are based in the Bay Area, when the funding is incredibly difficult to get access to today, you know, net cash flow has become the key.
And so if you didn't cross that, sort of critical mass from a revenue perspective to get your costs under control, you couldn't land at a point where you're net cash flow positive. And that's why we're in such a good position, because instead of having to worry about, like, the costs, what we can do is continue to invest and keep our costs under control, so we can deliver profitable, sustainable growth, as opposed to looking for, you know, a funding event to try and keep the lights on, as you sort of struggle to get to a critical mass of revenue. So the other piece to that, I'll add, there's two other elements, is we're really, differentiated on two points.
1, we're based in—the majority of our developers are based in Brisbane, and so we've got a beautiful lifestyle here in Brisbane, and the costs comparatively to living in the Bay Area of the U.S. are significantly less, particularly when you've got the FX position. And the fact that Megaport is so automated, like, if you look at the platform, it's so incredibly automated. We actually have a very small number of team servicing what is that, substantial annual recurring revenue. So hopefully that gives you a bit more color. Did I answer your question?
Yeah, that's great. Thank you. Thanks, Andrew. Suraj from Citi, you're our last question for the day.
Thanks. Thanks, Michael. Can you hear me okay?
It's a little bit breaking up, but we'll get you.
Yeah, sorry. The network's pretty poor. I actually have three questions. I'll just ask them one by one. Michael, in terms of your, you know, tracking towards an improvement in 4Q, has something changed there? Is, is it a bit slower? Because you previously said it could be towards the end of the March quarter. I'm just wondering, you know, customer growth was quite weak this quarter. I mean, is something impacting your confidence in the turnaround?
I think it's just... We can't-- You can never predict the exact, response and exactly when, and so that's why I'm just tempering when that's gonna land. Then, towards the latter end of Q3, we've always shared towards the latter end of Q3, we refer to green shoots. Q4, you would start to see the metrics change, and then in FY 25, you would start to see the revenue flow through. So we haven't changed that position. I think, and if you look at it, and Steve's been great at getting us in front, and yourself and all the different analysts have been great at getting us in front of all the investors, all the analysts, and so forth.
I think what's important is that most of those questions were expecting a much faster turnaround, even though beyond the guidance we've given. So folks were thinking, "Well, at the end of Q1, you're gonna start to see a turnaround, and we'll start to see those metrics." In reality, no one was in seat in Q1, as an example. So just resetting expectations around the fact that we've only just landed those folks inside the business. We'll start to see them ramp in this quarter. We should expect a turnaround from a metrics point in that latter half of the year, but the real metric turnaround would be in Q4. And then what you would see is FY 2025 from a revenue perspective. So it's pretty much in line with what we've been articulating.
I think it's ensuring that the market doesn't get too far ahead of that. That's all I'm trying to remind folks of. It's exactly the same messaging that we've been giving. I'm just noticing that folks, when we had those discussions, had a different perspective, and I'm just reiterating that message, basically.
Yep. Perfect. Thanks. Thanks, Michael. Secondly, in terms of, I think the question from John Atkin, just on the... You made a comment about pricing in different markets, is quite different. Is that an indicator that your pricing could be potentially a bit too high in some markets, or just please clarify that?
Yeah, it's sort of, it's actually, it's more nuanced than that even, because if you look at it, you can't broad brush EMEA, as an example. The UK is different to Germany, is different to France, and it will also depend on the data center in that particular location. It'll also depend on what data center offerings that particular data center has, or the local carrier in those regions, and whether they offer and what they offer. And then the other piece to it is, you look at the customer. So if a customer has, like, huge global requirements, it's a no-brainer to go with Megaport.
But if you have a customer that literally just lives in the UK in this one particular data center, and they're getting this one particular connection, it opens up the landscape for more competitors to us, because obviously they haven't had to build out a big backbone like we have. They've picked one or two data centers. So in that instance, in that particular location, we just need to be more aggressive on pricing. It's still highly profitable, but my point is, what, what I think Megaport, when we first landed in the market, was to try and do one blanket price across the globe, and as we've evolved, and it's natural, by the way, you would expect that that is never the case, you can just put this sort of one price across the globe.
And so that's what I was referring to, that in certain regions, Japan is slightly different, U.K. is slightly different, U.S. is actually in line, Australia's in line. So it's just tweaking that as we go. And just more expansion on that is, the sheer number of potential connections that you could leverage the platform for, as you add so many different locations, the, like, permutations of how you could connect to a different data center, as an example, each one, in theory, needs to be priced, and so that's constantly changing. We don't have people that just sit there and look at that price with that location, like from Belarus to Frankfurt, from Frankfurt to, you know, Sweden, you know.
It's so we're constantly evolving that, and we take feedback from our customers on it, which is why we have, like, pricing desks inside the business to go and service that. And it's that actually works really well, which where we get direct feedback from our customers around where we need to be. So it's still a really healthy position, it's just that it's different. It's not like you can just say one price to rule them all across the globe.
Yep, thanks. Thanks. Tish, last question for you. I know there's been multiple questions on this, but and the OpEx will change going forward. But given most of the people are in the seat now, could you maybe give us an idea of where the run rate employee expenses is running at now? Because I think it is AUD 13.4 million in the first quarter. You've hired, you know, 20 roles or so. So any thing that you can give us on where the run rate employee expenses is at right now?
So probably not at this point, Suraj, not in the first quarter. However, a lot of those folks have really either landed late September, kind of really into October, so you still have a bit of increase to come there.
Okay. And on CapEx, you said AUD 28 million-AUD 30 million. I mean, you're only run rate at AUD 24 million. Sounds like you already have a lot of the inventory, et cetera. So where's the step-up coming in for the CapEx?
So there's also... We've got to deploy the equipment. We've got to get it out there. So there's still more to come. The kit itself is just one portion. It's the big, meaty portion of it, but there's other costs to come.
Perfect. All right. Thanks. Thanks, Michael. Thanks, Tish.
Pleasure.
Thanks.
Okay, we might close it there. Thank you very much, Michael, Tish, and everyone for attending. Next event will be the AGM on the first of November next, which is next Wednesday. Thanks, all.
Thank you.
Thanks, team.
Bye. Bye.