Megaport Ltd
ASX:MP1

Watchlist Manager
Megaport Ltd Logo
Megaport Ltd
ASX:MP1
Watchlist
Price: 7.42 AUD -1.07% Market Closed
Market Cap: 1.2B AUD
Have any thoughts about
Megaport Ltd?
Write Note

Earnings Call Transcript

Earnings Call Transcript
2023-Q3

from 0
B
Bevan Slattery
executive

[Audio Gap]

Very short period of time. And just by changing a few levers, we've been really able to completely change the direction of this business moving forward or at least the performance of the business moving forward.

So KPIs for the quarter, as we mentioned, our monthly recurring revenue was up 14% Q-on-Q, up $1.7 million, driven, as I said, by that one price change in cloud VXC. The revenue for the quarter was $38.1 million, up $1.1 million from previous quarter. EBITDA, what we call like a statutory based, it was actually $7.2 million for the quarter. But when we take out some accruals and things like that, we really want to get to a more normal base in how we report and how we take fluctuations out. So our normal EBITDA was $5 million, but our statutory was $7.2 million. And these results really combined to give a strength with positive growth with our EBITDA of $10.6 million year-to-date.

From a customer standpoint, we had good customer traction in Q3. Ports down to 188 from 368. MCRs were up quite strongly, which is great 34. MVEs, 25. Total of 607 services during the quarter. And as I mentioned before, monthly recuring revenue went from $12.4 million to $14.1 million; revenue $38.1 million; EBITDA, $7.2 million and normalized EBITDA was $5 million.

And one of the things we really want to kind of highlight here, we're going to highlight through the presentation, I'm sure some of you have seen it already, is the kind of journey that we're on in terms of improving our cash performance in the business. And one of the leading indicators of that is EBITDA. And so really what we're kind of showing you here is we're on a certain trajectory. Then we came with a scale up, scale out approach to the exact kind of saying, hey, we've got this really great opportunity. Board endorsed and said let's get out and this gives us a good shake.

And then it kind of came off and then really what we realizes that the kind of returns on that weren't quite there, but what we've actually had now is a $5 million normalized EBITDA just in the last quarter. The main drivers of that improvement include the VXC price change, the cost-out element and some of even the OpEx side in terms of travel. So really, this journey, and we're going to show a bit later on what we're looking at in terms of Q4, as some of these cash flows and things flow through.

So what we mentioned in the Q1 presentation is that we're going to do an operational and organizational review. We're looking at getting a third party in. I think with the changes that actually happened, I became nominated to the third party. So really, at least I have a lot of domain knowledge of the business and the opportunity, I think. So I involved myself incredibly, incredibly deeply in the business. I started in November last year, doing the cost set review and understanding where the cost of the business were in a COGS standpoint. And then I think end of January, I realized that there was a misalignment between all the cross connects we're doing the cloud for our customers. They weren't really capturing with our VXC pricing. So we tweaked that one price to capture that, which is what we saw the revenue kick in.

The revenue kicked in, in March because we set the notices out in early February, the 1st of February, whenever it was. You have to give 30 days [indiscernible] to do that. Then the price change took effect from 1 March, then everybody got the invoices until the end of March. So we had to make sure that -- so we always worried a little bit about churn, but we had to see how that actually impacted later in the month of -- later in April as people started paying their bills. So now that we're obviously pretty comfortable where that landed, had a lot lower churn. I'll talk about it a bit later. That was the second part. But then obviously, over the last 7 weeks, I have been very, very deep in the business, right in the weeds and this is the outcome of that review.

So the scale-up and scale-out initiative that was much talked about, didn't yield the expected results we expected from the investment in headcount and also the increase in operational costs. The opportunity to improve the team cohesiveness, we think could be improved significantly by centralizing more of that core back office functions back here in HQ and Brisbane. We had a very geographically -- in the end, we had a very geographically dispersed leadership team across the world which actually really led to kind of reduced interactions, partly just simply because you're in a different time zone. And we had chief people and still have chief people in London, but we have some -- one person in LA, one person just outside of LA, one person in San Francisco, a person in Chicago, a person in New York and obviously someone in Sydney and someone in Brisbane. I don't think we actually had anyone in the same city as things evolve with COVID.

So we really wanted to bring kind of some of the core functions and some of that leadership back here. We're always going to be a global company. We're always going to have leaders around the world, but there was an opportunity that we think that we can improve that efficiency.

Working from home also, we found had an impact. We had less interactions with team members. Outside their immediate circle, people became more siloed. So that kind of coordination and combination with people had more empathy, I suppose, in some ways, business empathy at least to the impact of what I'm doing, how can I make your life easier in terms of your department or your section. We found that people who are in provisioning were provisioning. People who were selling were selling. People are engineering are engineering. People who were deploying were deploying. People became very siloed in what they did. So we really want to -- we saw how much of an impact that's had because people just became very task-oriented rather than kind of team-oriented. So we're kind of kind of improving that. We're not expecting it to come back to the [indiscernible] does, but we are looking for more collaboration with teams more in-person meetings.

And I think there's a really significant opportunity to improve our back-office automation and implement scalable business systems with modest investment. I'm not talking about an entirely new CRM or an entirely new something. But some of it is actually just around enforcing simple rules about what type of business we do. There seem to be a lot of lose business kind of coming through that, that was square holes or -- sorry, square peg in round hole like situation. We're going to make sure 80%, 90%, 95% of the business fits the model and less exception because that allows us to scale much better.

One of the things we want to call out and we called out in this presentation, and we found out it certainly as part of this review was we're really focusing on building sales momentum and getting that back. So one of the things I'll say upfront, the market demand for our product is still really strong. We just need to better focus our resources with the right go-to-market motion and hire more salespeople in the right areas with the right incentive plan. And I'll talk a bit about that in a moment. The channel program that we put in place hasn't delivered the target of return on investment we were seeking, right? It's not -- basically, what we're looking at doing here is saying almost money bowl. If we sit there and look at the spend that we're making there, can we implement some of that spend somewhere else to get a greater return? The answer to that is yes. And so really, that's one of the things we're looking at doing is pivoting some of those resources into direct sales.

And part of the reason for that is that when we look at the channel model, there was a simple principle the Board gave to that, which was this one principle. The direct sales engine has been the sales engine of this business forever and a day. We're okay to spend the money on channel as long as it's incremental to that. But what we actually found when Jeff did a full sales review of the organization, his plan moving forward -- headcount plan moving forward presented to the Board. One of these really actually surprised us as a Board is that we actually saw that our direct sales team was down 50% of what it was 12, 18 months ago. And there is a direct correlation between sales and sales people, especially in the direct space. And we had actually reduced some of that headcount through that.

So really a big focus for us is on the direct sales machine. We got to use a combination of recruiting new team members. We're committed to buy -- to bring back headcount to 100% of where it was as the combination of recruitment and also realignment, putting people in different areas in that space.

So we're going to be providing new -- sorry, next-generation sales tools to help the sales be more effective and efficient in what they do. And also, we're going to get the commission plans much better aligned to the company objectives. And I think the benefits of what we're doing in terms of the sales build out of the sales team and the tools we're going to see in Q2 of next financial year. So we're expecting to see that in the October to December quarter.

And obviously, the incoming CEO has got an impeccable track record of building high-performance sales teams, and so is Jeff, he is our CRO, really happy with Jeff and the plan he's put forward. And Michael and I spent a lot of time through this with him, and we're really excited for the investment and the return we expect to get from that.

As part of the organizational review, we've made a few changes. The review is now largely complete. Unfortunately, there's been a reduced headcount of 16% across the team, which is about 50 roles in April, only yesterday and overnight, that we could not reassign within the organization. So we've got the organization now back to about a headcount of 250. And the important part is that's still 10% above where we were pre COVID. So we're not taking headcount way back to where it was. We didn't have a target in mind. We literally sat there and said, how can we get this organization back to the efficient operating function that it was, and that's where we've got through there.

The onetime redundancy payouts and things relating to that headcount reduction is around $3 million. We recognize this financial quarter with an estimated reduction in annualized staff cost of $10 million commencing in May.

And really, this is what probably one of the things that we really wanted to show and that's a big impact on EBITDA. Just the level of cash flow improvement, that is being undertaken right now. Leticia Dorman, here's to my left, interim CFO. Poor Leticia has been absolutely hammered by me getting spreadsheets and data and things and a big also thank you to the ops team, Darren. The level of data we have in the business is exceptional. It's really helped drive a number of these initiatives. So a big thank you to the team for doing that.

But here's where we are. So the workforce reductions really already happened and happened now. So we expect to see, apart from the onetime payment that will happen next month in May. The impact of that from a P&L and cash standpoint, other than that will be felt from May onwards. The cloud VXC repricing, we had one month of revenue in that in this last quarter's result in March. We'll get the cash impact of that starting in April, May, June. So we get the full impact of the cash of that starting this quarter. The cost out half, half of the 3 million, that's already kind of started feeding in. You would have seen that in the Q2 result, Q3 result. And there's still more to be done in that. We've mentioned a bit later in the presentation.

And so really, in terms of cash flow improvement, nearly all of it will be -- well, certainly the workforce in cloud VXC repricing pretty much will happen from May in full capacity, and we've kind of achieved probably about 40% of our cost out program already, and the other remaining 60% will happen over the next quarter.

And what has that really done for us? It's really completely fundamentally changed our outlook and guidance. And so that kind of chart that I showed you before where we had 5 million of EBITDA through there, we're kind of giving you a bit of an idea of where EBITDA we're expecting to kind of looking at the range in terms of this quarter. It really is such a stark difference because -- and why is that? Well, we've got 2 extra months that will happen in this quarter of the VXC price change that didn't happen in Q3. We'll have the full impact of the staff cost out that didn't happen in Q3. So we kind of really -- that will happen for 2 months -- 3 months. So we'll actually see this really strong, I think -- sorry, improvement in Q4's number. And so we kind of put that out there for people to see as well, and as the details are there that speak to that.

And then as a result of that, we've -- to give people greater transparency, as a result of that, we've had, for the first time, issued guidance because we were materially outside of consensus. We're looking at, as I said, market consensus was 9 million for this year and -- sorry, $30 million for next year. We're looking at $16 million to $18 million what I call normalized EBITDA, which has taken away the onetime factors, takes away, obviously, the payment we'll do this quarter for staff, but also takes away some of the accruals that have taken before on things, whether it's there is commission or bonuses and things that's being unwound. We're stripping that out because we want to make sure that our investors and potential investors get a much better handle on what normal looks like versus kind of these onetime things that are normally in there.

Of course, we report statutory, that's there. But we're really focusing people on a consistent approach to how we do this so you can measure things much more -- much better without kind of significant variations. So we're looking at $16 million to $18 million normalized EBITDA this year, and we've given guidance of the $41 million to $46 million EBITDA next year, which is 78% to 100% uplift this year and 37% to 53% next year.

I think the call out to that is the $48 million cash in bank as well as that and now a significantly improved cash flow, the company, we don't see any -- foresee any reason to do a capital raising for a need, for initial capital raise for the normal operation of the business other than for strategic or opportunistic reasons.

So that's really the presentation for today. We wanted to keep it really short, not short, but very succinct focus on the things that really matter. Do the mea culpa in terms of where the business has been focused on the items and the changes that we've made, and we certainly invite a few questions from people.

I think Steve Loxton, who's on the screen. We see Steve. We pull Steve on the bench for over the next 3 months to help us get through the annual reporting season. So he was thinking of taking cocktails and I said he might be coming back. So thanks for joining us, Steve.

S
Steve Loxton
executive

Thanks, Bevan. What we might do is move through to Q&A.

B
Bevan Slattery
executive

Well, the first question we had from the floor here.

U
Unknown Analyst

Yes, just what does sales force looks like, numbers wise?

B
Bevan Slattery
executive

Yes. So direct sales was down at 13, 14 people. globally. So there is a direct correlation. Obviously, the channel sales would increase massively. But there's only so much that, that number of people can do. So it is a really material difference what's that. So we're looking at pushing that back up to around 30.

U
Unknown Analyst

[ Given ] that guidance you've given, how do you see your growth? Because you're obviously a great company, are you factoring what sort of growth figures are you sort of -- are you -- do you think you've been conservative in your estimates on growth? Or do you think there's new sales -- direct sales people can sort of get you back on that previous trajectory you're on a few years ago?

B
Bevan Slattery
executive

Question for the floor. The last one, we'll take I'll have to get Steve to do the rest. We put the growth and we put things in the results we've given in terms of forecast in that space. The thing that we've mentioned in there, we're kind of saying that we expect the investment that we're going to make and the re-opting of that. We expect to see green shoots of that really starting to kind of kick in, in Q2.

And really, the thing with next financial year in FY '24. After that, there's actually not a lot you can do to materially change the impact of FY '24's numbers. So our -- my goal here is to get the company in a really good shape, financially strong position. We're already in the exit run rate. Well, we're an exit run rate right now at 41%. So you're probably looking at the high 160s if that recurring revenue continues. So it's -- we're already kind of a bit ahead of where we expect to end this year, obviously. But my focus is now is to look in FY '25.

So I think -- we haven't given any guidance in terms of top line growth revenue, but we're giving in terms of profitability. Certainly comfortable with that profitability. I think what you've seen in the slide deck here, we're expecting around a 9% or whatever it might be this quarter in terms of EBITDA. So 41 to 46 seems certainly achievable, but we're going to be reinvesting in people as well.

So for us, we were in such a great position with cash and our cash burn profile now that we're going to make this year a much better investment year for a much better yield. So yes, that's all I can really say to that. Go for it, Steve.

S
Steve Loxton
executive

Bevan, if I can just add. Clearly, the EBITDA guidance for next year has a number of moving parts to it. There is the price increase that we've only seen a month come through, the COGS and OpEx savings, we've got the headcount reductions. We've also got slowing momentum in the go-to-market engine, right? If you look at the customer net add ports for the past 4 quarters that has been declining. And so one of the key outstanding is going to be how quickly Jeff and Michael can turn around that ship. And it's fair to say that we have assumed that, that slide is arrested, but not heroically. And that's been baked into the EBITDA guidance for FY '24.

Okay. Siraj, I think you're first on the list, if you want to go ahead.

S
Siraj Ahmed
analyst

Thanks, Bevan, Steve as well. I'll ask 3 questions, if that's okay.

B
Bevan Slattery
executive

Probably, we will have to cap you at 2, I'm sorry, because we've got a queue of people, so...

S
Siraj Ahmed
analyst

Sounds good. So first one, in terms of the go-to-market strategy, right? It sounds like they really need a surprise on the direct sales team from Israel, but it seems like you're slightly changing the shift away from the channel. Is that the way we should read this? Because the channel is supposed to be 70% in 3 years' time. So just keen to hear your thoughts on that, Bevan.

B
Bevan Slattery
executive

Yes, correct.

S
Siraj Ahmed
analyst

So that's still the focus. The channel's...

B
Bevan Slattery
executive

No, no. Sorry. We're going to reestablish our direct sales force, and we expect direct to still -- we actually expect direct to be the majority of our new monthly recurring revenue moving forward. As we mentioned in the slide that we're retaking some of the channel people across the direct side because what we've actually seen in practice is that direct sales people, we have a much -- so we have a higher effective rate of recurring revenue with the direct sales person and a channel sales business or a direct dollar than a channel dollar.

S
Siraj Ahmed
analyst

So should focus back into the direct side. All right. The second thing on the boards number, Bevan, in the quarter in the last few quarters, what's the churn looking like there? And are you seeing some impact from competition in here? I know macro is weak, but is there anything else that you're concerned about other than the direct sales team?

B
Bevan Slattery
executive

There's really been no change in churn. The answer to that is actually really simple. Well, I think it is. Let me give you the kind of an answer that I hope it helps people understand what happens.

Our churn -- so our gross port adds used to be around 4% per month. Churn needs to be roughly 2%, call it, 3.5% to 4%, call it, 1.8% to 1.9%. But let's do with those numbers. So if you have gross port adds of 4 and churn for 2, and if you end up having a sales force, and they're selling hard number ports, your gross adds stands to 2 and your churn stays at 2. So what happens is that when you actually have a reduced sales force, it reduces your gross adds -- your gross port adds but the impact of that in net ports is actually quite significant.

So the decline that we're seeing in that -- like I said, there's almost a direct correlation in that, and that's a direct correlation at the gross port adds. We've actually -- we haven't seen anything from competition, certainly I haven't in the numbers, the churn hasn't changed. That stayed the same. It's the gross port adds and the gross port adds are direct correlation that I've seen in plus 6 months because of how you build the pipeline. That's a direct correlation between direct sales force.

S
Steve Loxton
executive

Next question we have is from Bob Chen.

B
Bob Chen
analyst

Bevan, just your sort of comment earlier around bringing headcount back to 100% of where it was, can you elaborate on that? Is that bringing back sort of the 16% headcount reduction you outlined.

B
Bevan Slattery
executive

No, no, no. So we've reduced the headcount by 50. If, let's say, direct sales are at 14, there's probably 6 or so from channels that are going to be moving across and then we'd probably hire 7 to 10 salespeople. It's only a 10 person increase.

B
Bob Chen
analyst

Okay. Perfect. And then just thinking about reinvestment across the business going forward, like what's the cadence of OpEx growth we should be thinking about over the next few years?

B
Bevan Slattery
executive

I'm not going to give you the growth numbers for next year. That's a bit of a forecast from my side. The thing I can tell you though is we're very focused on costs and already I've seen a really a great adoption of that by everyone in the business. It's really incredibly important. I'm not expecting any I should say, let's say we get to it, but we're very focused on costs. And we actually -- we genuinely need -- we actually need 2 quarters to really get comfortable about the impact of what we're doing. And I'm not saying this in terms of we expect it to be spiking or anything, but when there's a different focus on OpEx, when there's a different -- I mean, I put a travel policy in, no one flies more than economy in certain situations, premium economy in certain situations.

It's team -- it's not what I'd call normal kind of policy in a business that's where we are in our cycle. Everything from entertainment type stuff, it probably -- in my opinion, got to be carried away in some respects. And the reason that's important is that when you kind of see expenditure that's probably not normal, it becomes normal, if you know what I mean. So what I've seen is a really great adoption by people, everyone's raising POs now, everyone's doing things, everyone's asking the questions about should we be doing this so should we be doing that.

Now I'm not -- this isn't going to be a kind of a dictatorial stat at all, that's not what I'm referencing there. But people are now focused on this really good. We're giving budgets out to leaders on all the element -- all the right elements next year. There's going to be much, much better discipline. I can't tell you what OpEx growth or OpEx is going to be, except to say there's going to be much better discipline around OpEx and COGS. And now that the team has seen the benefits of what we've actually done and how the organization is set certainly from what I've seen, they're embracing it.

S
Steve Loxton
executive

Can give us your one question, please?

U
Unknown Analyst

Just the churn on the VXC pricing, you're saying was a bit lower than your modeling. I mean, does that give you more confidence to reprice any of your other products going forward? And is there any numbers, I suppose you can rough around the churn that you did see in the quarter?

B
Bevan Slattery
executive

Look, we're not looking at modeling changing pricing. It's not -- that was really a price correction. It wasn't about taking an opportunity to sting people. It was the fact that -- I'll give you some numbers. Our annual spend on cross connect spent from $4 million to $10.7 million in the space of about 2.5 years. And that was most -- which is extraordinary. But that shows you how much growth we actually had in the cloud product in terms of most of that was being consumed on 10-gig ports to cloud. So that kind of port consolidation program that we're doing is actually consolidating 10 of those 10-gig ports down to 100-gig ports, right? So the cloud, so we're using less ports, we're using less cross connects.

This is a bit -- there's been some efficiencies in that. But what we're finding is even still with that, when you actually consider the software development, it's not just about the cross connect. It's a software development. The cost of the routers and 200 locations around the world. where we connect 150 or whatever is we connect to cloud, the network redundancy we put in that. All the infrastructure that goes behind that. $100 a month just wasn't cutting the muster. And we pay some agent fees or revenue share and those types of things.

So yes, I don't want people to think, I certainly don't want our customers to think that we're going to be using this as an opportunity, hey, this has been a low churn here, we're going to sting them for that. We think our products are reasonably priced now. I think they're very, very well priced to the market. And so we're not here to look at stinging our customers or our partners, at least for money. I'm not saying it's not going to happen, but once a year, I think we'll do a recalibration of pricing and we compare it to cost. And we always want to make sure that we bring good value to our customers.

S
Steve Loxton
executive

Lachlan Brown, a question from you.

L
Lachlan Brown
analyst

I just wanted to confirm if the projected CapEx of $28 million to $30 million in FY '24 still holds. And also just how soon do you think you'll need to upgrade to a 400G, 800G backbone given the anticipated growth of AI-integrated cloud applications from the hyperscalers?

B
Bevan Slattery
executive

We haven't changed any guidance or anything around our CapEx so far. We already have a whole bunch of 400-gig devices that are coming in, already pre-committed in the turning up in Q1, but we gave the forecast back when we last did the update. So we're not -- at this stage, I haven't dove incredibly deeply into the anticipated arrival of equipment except that there hasn't been any material change in the arrival of equipment. So at the moment, we're still in that range. If it changes or changes materially, we can let people know, but at this stage, we're still around the same number. And we already -- as you said, we already have -- I think it's another 20, 400-gig devices, maybe even 40, 400-gig devices turn up in Q1, which will have an impact on cash.

S
Steve Loxton
executive

And that CapEx guidance provided in the first half results presentation was $32 million in FY '23 and $28 million in FY '24.

Tim, your question, please.

U
Unknown Analyst

Just one for me, please, Bevan. Cash burn of $8.9 million in that quarter, but that was abnormally high given some changes in payment of invoices. How should we think about the underlying cash burn. And given the additional momentum that you guys are getting in the fourth quarter, further cost out, how are you thinking about cash burn trajectory into FY '24?

B
Bevan Slattery
executive

So look, from a cash flow on '24, so we're not giving any forecast on cash flow or cash burn. And you're right. And the reason for that, again, we want some really consistent quarters. We're not expecting surprises, but let me give you some examples. Cash flow this quarter is going to be improved. Obviously, we've already told people about the $1 million a month of improvement. Currently a million. There might be still bit of churn, but we're not expecting something material. But a $1 million a month improvement in VXC cash flow starting from this that's build and should be paid month, but some people pay a bit late, but you get the idea.

So there's that. There's a staff cost out that we mentioned. We've given the numbers to the market. That really starts in May, and we'll go through there. So there's 2 kind of items there that, that how do I think -- that's probably how you should think. We've given data and guidance on those kind of 2 numbers that's there.

You're absolutely right that -- and this is the issue, it was an abnormal quarter. And this quarter will be a little bit abnormal because we've got staff cost out, so we've got the payments we need to make for the redundancies. Next quarter is a little bit wonky because we've got -- not wonky, but we've got the 400-gig equipment that's coming through, which we've projected for people. We've given them that forecast. But also we do pay bonuses and things in that period as well.

So what we're trying to do here is we're trying to make sure we get this thing normalized in a really good way. So yes, so how do I think about it is significantly improving. The data points are there to show some of that improvement. But once we actually get through this quarter and next quarter with those takeouts, we'll be in a better place. Again, for people's benefit, one of the reasons when I came in and I was looking at cash flow, I looked at the last -- looked -- actually, I was looking at every single vendor and payment we've made for the past 12 months. And I was going through everything.

And I found it even difficult to model it because what we kind of realized is that at the end of Q4 last year, there was a hold back of payments to suppliers that kind of happen there. But then what do you then do, which in the scheme it looked like it was an improvement, but when I say hold back, there were some delays and some payments that were made. And then, of course, in July, you catch up and then in August, then it kind of happened. I don't want that. I want to make sure that we are a smooth operating business. We do things very seamlessly. We get a consistent cash flow, consistent revenue flow. So you'll see that we would open about it. We paid -- was it $5.4 million or $4.5 million?

S
Steve Loxton
executive

$5.2 million.

B
Bevan Slattery
executive

$5.4 million catch-up in -- from Q2 payments. Some of those are ordinarily come in Q3 anyway, but we made sure that all our payments are up there. So I want to make sure that we've got 2 quarters of normal cash flow, of normal operating and functioning. Once we get all the VXC revenue through, all the staff costs through, finish with the CapEx next quarter, finish with the bonuses next quarter and have paid all their billables and everything on time, at that point, we'll be able to make a proper informed assessment of where we are on free cash flow. But things are projecting very well at the moment.

S
Steve Loxton
executive

The only thing, Bevan, I'll probably add is, for those of you who haven't seen on Page 13, there is a comment made that based on the current sort of normalized trajectory of financial performance and cash flow, the company does not foresee a need to raise additional capital. And that's not a statement obviously made lightly, and that reflects the better than $8.9 million cash burn number on a normalized basis and then a number of the improvements that Bevan have just talked through.

Roger, if you have a question.

R
Roger Samuel
analyst

Yes, I do. In terms of the net adds for ports, do you foresee that you can go back to the 400-plus net adds per quarter? And would you report the net number post the consolidation? Was it 188 in this quarter or is it 22 going forward?

S
Steve Loxton
executive

I can answer that, Bevan, if you would like.

B
Bevan Slattery
executive

Okay. I just want to make sure I understand the question correctly, the last part.

R
Roger Samuel
analyst

I mean, the last part of the question was around, would you disclose the net number, which is 22 in net adds for customer ports? Or would you report 188 going forward?

B
Bevan Slattery
executive

So I think the thing that -- and this is the reason we actually didn't report that separately is because people are getting confused. So out of those ports that we've -- and the reason we haven't given all the tails we're probably going to be focusing in FY 24 and reporting metrics that are much more clear and much more understandable. So those ports at 22 that you're mentioning, they were pretty much all ports that we had actually implemented into the cloud. So that's part of that consolidation program.

So it wasn't that we actually churned out 160 customer ports or whatever it was, 160 customer ports, it's actually that we turned off 160 ports that we enabled on an aggregated basis to the cloud for our customers. So when you look at that, it's -- we actually added 188 ports certainly on the base of customers. And then we saved 160 cross connects and port counts because we did 100-gig consolidation with clients.

And so one of the things moving forward in terms of the KPIs, we're going to be working towards to make sure we get very clear KPIs about what has historically been a customer port or a customer revenue-generating port or whatever it's going to be, where to come through with stats. We didn't add 22. We added 100 -- there might be a couple of cloud ports in there as well. But it's 188,whatever the number is, it's not the 22. We saved -- I think we saved about 150-odd ports just in the cloud aggregation mode. So yes, it's not 22.

And the fact you asked that, which is actually the question actually shows a confusion about what the net port at is and the reason why we're going to be changing the metrics, not changing, we're going to be clarifying with better metrics, certainly next financial year. Anything else?

S
Steve Loxton
executive

Okay. Paul Mason, you have a question.

P
Paul Mason
analyst

Just in terms of the direct sales force, Bevan, I was hoping you could give us a little bit of historical context because, obviously, everybody is surprised by the number. And depending on when this started, some of the actual sales stats that the much smaller teams put off are actually like rather impressive in the scheme of things. So do you have a feel from your view when this like halving of the sales team actually happened? Like is this 2 years ago or a year ago or 6 months ago?

B
Bevan Slattery
executive

No, it didn't happen on a day. It probably started about 1 or 2 people here or there, 12, 15 months ago or something like that. And then like, literally, we kind of as a Board, we understood what the number was in February. And then dug back and looked at it. Some people just leave, but it wasn't, some of the roles have been backfilled. And the really important part about it is that -- you're absolutely right that people have done a pretty good effort. But at the same time, they're getting such a big pipeline given to them in terms of sales of people sometimes walking through the door, it's actually kind of easier in some ways to do sales when you've got 3x, 4x a pipeline that probably used to have. And so some of the salespeople have done an outstanding job. They've done very well.

And the second point to that is the interesting part about the declining and saying people have done well. What actually also happens is that it takes 6 months to build a really good funnel that's at the point of closing on average. That's at the point of closing those deals. So even though as people were exiting the pipeline that the person who built previously kind of got handed to someone else. So that's why I kind of -- it was a lagging indicator. The port sales is a lagging indicator of what actually happened in terms of the -- some of the direct sales force.

S
Steve Loxton
executive

Next person I have is [ Darren ].

U
Unknown Analyst

I'll stick to the one question, but I just wanted to unpack the FY '24 cloud EBITDA guidance, please. So obviously, you've done a good job in terms of the cost out program, OpEx, et cetera, and also the VXC pricing. If you sort of add the full year benefit of more days, it looks like you get into the low $40 million range from an EBITDA perspective. And I guess my question is, does that imply that you're expecting essentially [indiscernible] as your revenue growth into FY '24, please?

B
Bevan Slattery
executive

So you're saying -- you're thinking it would be around $40 million and then you're saying some of that revenue growth. Is that right?

U
Unknown Analyst

Well, the $40 million of EBITDA for FY '24 is your guidance, so the $41 million to $46 million. And so a lot of that looks like it's just driven by the cost out piece. So is that implying that there's not -- like in your guidance number, assuming that there's no revenue growth.

B
Bevan Slattery
executive

No, no. It's assuming there is revenue growth. It's also assuming that we're going to be reverting the sales team and hiring more people in that space and investing more money in that. What we have indicated is that in Q4, this financial year, Q1 next financial year, we don't expect that benefit to be appreciated or attributed until we actually get to Q2. And then once we get to Q2 and then really start kicking in Q3, well that recurring revenue really only impacts FY '25.

So you're absolutely right that if we sit there and we did nothing but retain our existing revenue and customers, we'd be in a pretty healthy position. But what we're also doing is reinvesting in that sales force and reinvesting in some areas. So we're certainly comfortable with the numbers that we've given. But as I said, we will be growing revenue, and we'll also be growing our sales team as well, which keeps up some of that, hence the range.

S
Steve Loxton
executive

[ Wei ] do you have a question?

U
Unknown Analyst

Just wondering for the FY '24 EBITDA guidance, are you able to provide the quantum of direct sales investment, either a rough dollar figure or percentage of sales?

B
Bevan Slattery
executive

We're looking around 10 people. And yes, you have the fair idea what a salesperson cost. So it's -- let's say -- you have salespeople in the different regions, I mean yes, I'm not going to give the quantum.

One last question. Anyone from the room?

S
Steve Loxton
executive

I have one more from Chris, online who had raised his hand.

U
Unknown Analyst

I've noticed MVE's result was pretty strong there. Can you just talk through some of the trends you're seeing around SD-WAN. I think some of those supply chain issues that were impacting the hardware component side starting to ease.

B
Bevan Slattery
executive

So the line was a bit scratchy. What was the -- I just want to have a better hearing of it, the MVE...

U
Unknown Analyst

Yes, the MVE part was really strong there. I was just wondering some of the trends you're seeing around SD-WAN, some of those are supply chain issues that you flagged around the half year results they're starting to ease on the hardware component.

B
Bevan Slattery
executive

I think we're really good with the hardware in terms of service. Now we've got plenty of service to roll out for that, and the software is all good. We had a poor showing in MVEs in Q2. And I think what you're seeing there is some of that hard work there is actually obviously closed in Q3. So I think we're -- I think we're seeing some of the results of that. But also, again, I certainly come back to -- I'd like to see a much more steady consistent rate in terms of MCRs and MVEs. And it's not great, but it was quite good in one quarter, down another quarter, good in another quarter.

So the things that I'm seeing there, I'm absolutely still seeing demand. But the demand is somewhat tapered by how effective our sales force is because partly because of the size of it that's going through. Some of our partnerships that we're working with some parties is looking good. It's actually started to, I think, bear fruit. But again, I'd say I'm cautiously optimistic. I think we've been there before. So it was a good result. And I want more consistency in it. That's my only part. I'm not saying it's a trend. One quarter doesn't make a trend.

Look, I think I just want to say thanks, everyone, for joining Leticia Dorman; Steve Loxton, [ Helen ] who's the [indiscernible] who helped put the presentation together.

Look, everyone, thank you very much for all your support. It's been a fairly busy and interesting change. I certainly want to thank all the team members. And certainly, we have some really great people and it wasn't a reflection on them or whatever it was, it was just where it was. So thanks to all the team members today and also thanks to the team members and all their contribution over the last 10 years. Thanks, everyone.

All Transcripts

Back to Top