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Edited Transcript of MP1.AX earnings conference call or presentation 21-Aug-19 12:30am GMT

Full Year 2019 Megaport Ltd Earnings Call

FORTITUDE VALLEY Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Megaport Ltd earnings conference call or presentation Wednesday, August 21, 2019 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Vincent English

Megaport Limited - CEO & Executive Director

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Conference Call Participants

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* Ashwini Z. Chandra

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Chris Bainbridge

Pie Funds Management Ltd - Senior Investment Analyst and Portfolio Manager

* Jonathan Atkin

RBC Capital Markets, LLC, Research Division - MD and Senior Analyst

* Nick Harris

Morgans Financial Limited, Research Division - Senior Analyst

* Paul Mason

Evans & Partners Pty. Ltd., Research Division - Research Analyst

* Tim Plumbe

UBS Investment Bank, Research Division - Director and Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Megaport Limited FY 2019 Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Mr. Vincent English, Chief Executive Officer of Megaport Limited. Thank you, sir. Please go ahead.

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Vincent English, Megaport Limited - CEO & Executive Director [2]

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Thank you, Christian, and good morning, and welcome, everyone, to Megaport Limited MP1 Financial Year 2019 Results and Conference Call. We'll begin the presentation. Starting with the company highlights. And just at the outset, I'd like to just make sure that everybody is aware that all currency denominated in the presentation is actually Australian dollars.

Starting with the company highlights for FY '19. I begin by saying this has pretty much been a year of agility and execution for the team here at Megaport. We've hit some really, really high-level milestones for the company, which I'll take you through during the presentation. And some of those highlights are here. Starting with the financials. The monthly recurring revenue was $3.6 million at the end of June, up 82%, a testament to the growth in the previous year's network and partnerships that we've brought on as we've executed on the plans during FY '19. That has resulted in our annualized revenue, similarly, up 82%, but on an exit run rate of $43.3 million. Our total number of customers have grown by 44% to 1,490 at the end of June. And as a result of our existing customers and new customers coming on to our network, our total services have grown by 76% to 11,561. The number of ports added to the network during the year was up 48% at 4,069. And one of our key highlights that we flagged on several calls during the year was the achievement of 300 installed data centers across our network [of 36%] in the year.

Continuing on our highlights. The -- our strategic partners, which are the leading cloud partners, which account for 62% of all of our customer connections across the network, continues to grow. During the financial year FY '19, we added 2 more providers, SAP and also Nutanix, bringing together a total of over 9 cloud providers that drive the largest amount of share of traffic for cloud partners today in the world. At the same time, while we've continued to add to our ecosystem of cloud partners, we've extended our network reach with our cloud partners into new geographic regions and into existing markets. We've added 24 cloud onramps during the year to bring it to a total of 132, up 22% this year to become the largest network service provider with the largest cloud onramp footprint globally today across 20 countries. Similarly, the number of cloud regions increased by 11 to bring it to a total of 73%, up 18% in the year. While we had a -- I spoke earlier of our 300 installed data centers, really what that's giving us is access to over 528 enabled data centers where customers can connect to our services today physically. That's continued to grow as we've installed our network footprint and we'll continue to grow into FY '20 and '21. Similarly, our Megaport marketplace where we have not just the top cloud providers connecting on our ecosystem, but also we have 346 other service providers on our network for managed service providers and network providers. And other types of partners are on our ecosystem where they can use the Megaport platform to connect to [other] services, not just to cloud services.

Turning to the revenue performance. Megaport's overall revenue increased by 78% to $35.1 million during the FY '19. This is a result of rapidly scaling our commercial organization during the year, leveraging our key partnerships, not just our cloud, but also our network data center operators, cloud service providers. And as a result, the overall revenue, as I said, has grown to $35.1 million during the year, up 78%. But looking at the chart, we've gone from left to right. Our APAC region total revenue was $13.3 million, up 59% in the period. And our North America business is up -- total revenue is $13.6 million, up 154%, which has seen the largest amount of growth in our business. Not too on -- not too surprising in that regard, given the fact that nearly half our network is in North America and we've invested quite heavily in our North America business, and it is one of the largest regions for cloud connectivity and reach in terms of enterprise customers. Our European business revenue has grown 36% to a total of $8.2 million in the year, as I said, bringing us up a total of $15 million in the year to $35.1 million.

Turning to our annual results for the year. Starting with the consolidated income statement. The total revenue, as I said, was $35.1 million or 35,060 -- $35,065,000, up from $19,753,000 in the previous year, which is 78%. Our profit after direct network costs for the year was $11.948 million, or internally we like to call it the gross margin, reflecting a margin of 34% for the year. One significant comment here to highlight is that the North America business at the half year had just turned breakeven on a run rate. And now for the entire full year, our North America business is network -- is profitable after direct network costs are gross profitable. I will turn to this more later in the presentation in the regional breakdown. In terms of our OpEx, it was at $36.6 million, up from the previous year, again, reflecting the investment, as I said earlier on, in adding to our teams and our commercial organization earlier in the year that has also helped to facilitate the growth in revenue towards the second half of the year. So we should again see a further impact from that in the full year FY '20 going forward. Normalized EBITDA for the year was a negative $24.7 million compared to the $22.1 million the previous year. And overall, net loss for the year was $33.6 million compared to 24.5 million from the previous year.

Turning to the next slide, which refers to IFRS 16, the leasing standard or the impact of AASB 16. While this standard doesn't come into effect until the 1st of July 2019, i.e., FY '20, we wanted to just show the impact on the -- this current year's results of FY '19 on -- of what this standard would have an impact on the results in a pro forma for reference purposes going forward. And you can see that from the chart there. Overall, it's immaterial at a net profit loss position, but there is some changes between the reporting lines pre-EBITDA and post-EBITDA. So just reflecting that for future reference.

In terms of the revenue itself and the breakdown by region. As I said earlier on, revenue was $35.1 million, up 78%. The monthly recurring revenue itself exiting June was $3.6 million, up 82%. You can see from the pie charts on the left for FY '19, North America now accounts for the largest amount of the revenue in FY '19 at 39% or $13.6 million compared to APAC, just slightly behind at 38% or $13.3 million, and Europe at 23%. We expect that the North America business will continue to grow from here and will become one of the largest contributors of our overall revenue going forward into FY '20 and '21, notwithstanding the other regions continuing to grow at double-digit growth into FY '20 and '21.

Turning to a breakdown on our operating costs. As I said, direct network costs were $23.1 million compared to $15.3 million the previous year, again, reflecting the addition of 80 sites are up from -- or 79 sites from 221 during June last year, up to 300 towards the end of this year. We've added 6 new countries, and we've expanded our network, at the same time, invested in MCR product and rollout. So overall, this -- these direct network costs are directly correlate -- or directly related to the growth in the network. And again, setting us up in a position to leverage that investment towards the -- this year for next year's revenue growth.

Overall, in terms of our operating costs, our employee costs are $26 million from just under $20 million in the previous year, again, reflecting the growth in our employees. Today, we have 155 employees versus 118 from the previous year. We invested, as you recall earlier in quarter 1 and quarter 2, in our commercial organization, particularly in North America as we continue to service our customers and our partners in which is one of the largest markets in the world today, and we're starting to see the benefits of that come through in our second half of our financial year and put us in good stead going forward into FY '20. All other costs are reasonably in line with the previous year's. Total OpEx was $36.6 million compared to 26 million the previous year, like I said, predominantly driven by the growth in employee costs [and both in] our investment in our employees going forward.

In terms of the financial position, the balance sheet, consolidated balance sheet. The key takeaway here recently and towards the end of the quarter 3 and beginning of quarter 4, we complete -- successfully completed a capital raise, raising over $60 million in the process. And as a result of that, the balance sheet is in a very healthy position with a closing cash at the end of June of just under $75 million.

Turning to the Megaport effect. Wanted to just draw our attention just to the -- some industry trends and just the space that Megaport is active in, and starting with the chart on your left-hand side, which is the enterprise cloud service spend, which is published each year by Gartner from 2019. And again, they just revised the total spend each year in terms of enterprises on cloud spend. And you can see from the chart that roughly, this is a -- somewhere between a $290 billion and $330 billion industry. The CSP partners that Megaport has connected to across our ecosystem today account for 80% of this total market share. So this is where our partners like AWS, Microsoft, Google, Oracle, IBM, et cetera, our partners who are fully integrated and customers or enterprises are actually actively looking to connect to these partners, so they can actually have their needs for both data and data transformation and also for running their business service. And Megaport facilitates that connectivity to allow that to happen.

Turning to the chart on the right. Coming from RightScale's 2019 State of the Cloud Report, where they've looked at enterprises with over 1,000 employees, again, your Fortune 500-type companies and -- where they looked at what the enterprise's cloud strategy is going forward. And more and more the case, in particular, 84% of respondents are now more looking towards multicloud and/or was having more than one cloud provider to facilitate or help them with their business and data needs. And of that 84%, 58% of that is very much around the whole area of hybrid cloud, which is the combination of use of private infrastructure and public cloud for their data needs. Again, in the space of hybrid cloud, Nutanix, which just joined our network recently, again, is a provider in the hybrid -- is a hybrid cloud provider and very much focused on hyper-converged space. So again, adding Nutanix to our network and adding other providers to our network allows customers that choice and breadth and depth to use it. And the last touchpoint really here is we are seeing the same trends from our customers where Megaport customers are continuing to access multicloud, and that's increased by 100% during this financial year, where more and more customers are moving from not just one provider, but adding to multi providers to facilitate their business needs.

Turning to our value proposition, just to keep everybody afresh on this, and this continues to be very relevant for us in -- with talking to our customers and our partners. Our connectivity model, it's got flexible pricing. It's pay for what you use, real-time provisioning based on the port where customers can [set] up services in less than a minute. It's rightsized for their needs and for their capacity that they need based on projects, whether it's on ongoing use or on different data size or seasonality. The terms are flexible as month-to-month contracts or it can be long-term contracts depending on what the customer wants to choose. And then most importantly, probably the latter 2 points, again, is that continued to be that neutral one-stop shop where we have fully connected into all the service providers that customers tend to need today. And we have that very ease of use through our intuitive portal where customers can actually manage their services or manage their network using the Megaport platform that's rightsized for their business and their business needs. Again, on the right-hand side, you can see here how that's starkly different to traditional forms of connectivity, which can be expensive, long time to set up and multiple contracts, multiple vendors, and spending a lot of time before we're actually connected to any service.

And tying it all together, I guess, the ecosystem is what's really, really important for Megaport, where, as I said earlier on, a more extensive network means we have more opportunity for enterprise and service providers to interconnect globally as they gain reach and a choice for -- on a ubiquitous connectivity platform. And this slide speaks to that where we've got over 1,490 customers today, some Fortune 500 companies, right down to small and medium-sized companies connecting across an enabled footprint of 528 data centers, 90 unique data center operators across that footprint, across 20 countries globally today, with our Megaport's unique value proposition, as I spoke to, scalable and on-demand the multicloud connectivity, which is becoming increasingly important, the private and secure and flexible terms, allowing customers to reach and connect to over 346 service providers today, of which the top cloud providers are fully interconnected on our ecosystem.

I'd like to turn -- spend a little bit time talking about Megaport Cloud Router. Innovation is central to our business as we continue to push the possibilities of interconnection to continue to deliver solutions to meet the demand of customers and more importantly, to transform cloud networking. Megaport Cloud Router was born out with this ambition. The ability to connect and go between cloud platforms demand managing our own physical infrastructure or hardware. This helps to remove complexity surrounding multicloud, which, as we've spoken earlier on, is a key growing area, and it's now becoming a more standard deployment approach for enterprise customers not just looking for one cloud provider but multicloud for their data needs.

And so turning to Megaport Cloud Router and its performance during the FY '19 year. 8% of our customers are currently using Megaport Cloud Router. Our customers who are using Megaport Cloud Router, average spend on their customers are $3,900, just under $4,000 compared to non-MCR customers, around $2,307. The number of services typically taken by customers using MCR is around just under 12%, 11.9% from -- compared to 7.4% for customers that don't. And the total number of live MCRs at the end of June was 175. And again, the biggest user case here, as we mentioned earlier on is multicloud and cloud to cloud where basic customers can move data seamlessly from one cloud platform to another and between their own private infrastructure for their business needs. So we expect this MCR is really only getting started, and we really expect this to be a big -- an important value product for us going forward into FY '20, particularly with the adoption of multicloud and it becoming much more a common trend for enterprises today.

Switching to an update on the business overall from FY '19 and some of the growth trends that we've got. As I said earlier on, monthly recurring revenue has grown 82% up to $3.6 million. Our ports have grown from 2,755 in June over the 4 quarters, up 48% to 4,069, and our total services have grown at an even faster rate at 76% up to -- nearly doubling from 6,500 up to 11,500 services across the year. The -- breaking down some of the other major KPIs, which are key components of the value proposition and of our network and Megaport platform in general. As we said, the number of installed data centers grew by 36% from 221 to 300. I think it's important to draw attention to the fact that most of the majority of the growth that came from our network came from that 221 locations that we had built during FY '18. And those sites that we've added this year, those 79 extra sites, installed sites, to [the] 300 would really be for benefit for FY '20 going forward, a platform of which we will continue to grow forward on.

During the year, our customers, as I mentioned, grew by 44% from 1,038 to 1,490, again, directly related to -- directly correlated towards the number of locations and the awareness factor on cloud, in general, growing across the regions. The number of ports in our network were up 48% to 4,069 and total services, as I mentioned, at 11,561, up 76%. Overall, the growth in services, while it's growing at a faster rate, is important for the growth on the average revenue per port, and we're seeing that from last year. Average revenue per port is 887, up 23% or $167 on June '19, notwithstanding that we're continuing to add new customers and new ports and locations during the year. The average spend is still up -- higher at 23%.

Turning to the network effect and our spirographs. I'll probably say at the outset, this is probably one of the -- we're getting close towards the end of having to present this -- it's turning to bit of a dark blob on the right-hand side. The top right-hand corner shows the spirograph which has a dense outer ring reflecting the number of ports in our network and the lines in between those ports reflecting the number of services connecting to that. The pie chart underneath shows you the direct public cloud or the CSP access accounts for 62% of customers' termination into a public cloud of all the traffic that we have across our network, 19%, split equally between other connections to private service providers and Internet Exchange. On the spirograph to the top, roughly at the 2 o'clock position is Microsoft Azure and just at the 3 o'clock position is AWS. So between the 2 of them, they still account for the largest share of the traffic across our network. The 5 o'clock position is where we see Google come on and the 7 o'clock position is where we see Oracle starting to come up on the horizon. So we're actually definitely seeing more and more connectivity come across and more of the multicloud team coming across customer connections. And as I said earlier on, over 100% growth in customers today connecting to more than one CSP are to multicloud on the Megaport platform.

Continuing on the Megaport cloud enablement team. Again, this is of very strategic importance to Megaport's platform, and we continue to invest in growing the network and expand with our cloud service partners. We have, today, as I said earlier on, 132 cloud onramps, an increase of 24% or 22% in the year as we continue to expand geographically and regionally with our cloud partners, notwithstanding adding on new partners like SAP and Nutanix, where we've added 4 new locations or onramps with them during the year. And particularly with those new partners, we're actually also in the process of bringing up more locations in both Europe and North America this quarter 1 FY '20. Total regions, as I said, are 73%, up 11% or 18% in the year. And again, this will continue into FY '20 and beyond where we continue to make sure that Megaport is in lockstep as we continue to extend the reach of enterprises in bringing business towards our cloud service partners.

Turning to the customer cohort trends. We presented this table at this time last year for the first time, and we're -- again, we'll continue to do so going forward. I draw your attention to the left-hand side, where we talk to the average services per customer. During the FY '18 financial year last year, and our first year customers were on average using 4 services per customer. We've seen that cohort of customers grow to 7.8 during the year and the average services per customer, in general, across all the cohorts is now 7.8 or up 23% year-on-year. Similarly, on the right-hand side, we're seeing a similar trend coming through from the average revenue per customer. Last year's cohort FY '18, customers were spending $1,249. That's now increased this year to $2,528. And our cohort in FY '19 are already at $1,257. And overall, the average revenue per customer across all cohorts is $2,422, up 27%. Again, this reflects back on some of the earlier stats where we've had increase in services as customers start to use and consume more services related to multicloud, more regions, more countries and more access. It also directly relates to the average spend per customer, average spend per port increasing as well as customers are using and greater adoption of the Megaport platform for their connectivity.

Just a quick snapshot of the company milestones. During FY '19, as I said, annualized revenues, we've plotted annualized revenue here on the graph, but more importantly, not just plotting the revenue, but actually calling out some of the key milestones that were very important for us, particularly over the last 2 or 3 years as we scale our business. In FY '19, as I mentioned, 132 onramps, 73 cloud regions, 300 physical locations, nearly 1,500 customers, new partners coming on, MCR launch. And as each year goes by, these milestones have a multiplier effect for our business in terms of access to customers and choice, and at the same time, making sure that Megaport's platform becomes embedded and is a long-term stable feature or function for IT strategies as part of enterprises and plans. So we continue to look forward to see what FY '20 and our plans going into FY '20 and '21 on this chart this time next year.

Okay. Switching to a bit of a deeper dive on our regional highlights. First of all, just drawing your attention to our network and our global ecosystem by region. In North America, which comprises of the U.S.A. and Canada, 2 countries, we've got 64 cities now covered across the North America platform installed physically in 146 locations, which nearly accounts for just under 50% of our entire network, and enabled in 304 locations where customers can connect to Megaport today on the platform. In Europe, we are in 14 countries. We've added 6 new countries just alone in quarter 4. We're in 23 cities, installed in 83 and enabled in 143. And in our Asia Pac region, we're in 4 countries, 11 cities, installed in 71 and enabled in 81. And we will continue to grow the ecosystem and the network footprint in line with our partners, both our data center operator partners and with our cloud service partners as we extend the global reach of the Megaport platform.

Switching to Asia Pacific. Once again, Asia Pacific is EBITDA positive as an entire business unit. It has been for the entire year. It's one of our most mature markets. During the year, we started with 59 physical installed locations, it grew by 12 up to 71. The number of customers grew by 144, up 27%, to 673. The number of ports grew by 506 or 37% to 1,861. And the number of services grew by over 50% by 1,825 to a total of 5,501. So again, services, you'll see, reflecting here the growth in the depth and experience of the ecosystem as more and more enterprises, both existing and new customers, continue to use the Megaport platform. Monthly recurring revenue grew from $900,000 in June to $1.4 million, a 55% growth in the region. And the profit after direct network costs exiting June was 62%, up 7 percentage points, notwithstanding the growth in network in the APAC region. Overall, average revenue per port was up 13% at $730. Ports per data center are up 14%. Services per customer up 18%. And the port utilization across the network is at 52%. So once again, 48% headroom in terms of the leveraging of both the network and the inventory and capacity across the Asia Pacific region. So again, bodes well for our growth into FY '20 and beyond for the APAC region.

Switching to North America, which I think it's fair to say at the outset, has seen the largest amount of growth in our business and in this business unit. First, to call out North America's profit after direct network costs is fully positive for the year. I think the total gross profit after direct network costs is over just $50,000 for the full year. If you recall, we were negative in the first half of the year, just broke even on the December run rate. And for the second half of the year, powered through and recouped that loss from the first half of the year to pretty a whole full year to be positive. Notwithstanding that, we also grew our network by 46%, including installed data centers from 100 to 146. The customers grew by 92% to 653. The number of ports grew by 96% to 1,593. The number of services grew by 108% to 4,275 and our monthly recurring revenue nearly tripled from $0.5 million to $1.5 million, up 167% in the year. As I said earlier, on the profit after direct network costs in North America exited the year at 22%. This was a negative 39% in June 2018, saw a 61 percentage point swing to profitability on the gross margin or profit after direct network costs for the North America business. Again, that was a major milestone that we set ourselves for this financial year and really puts us in a very good position for our North America business unit to push forward into FY '20 to EBITDA positivity. Some other stats. Average revenue per port is up 36%. Number of ports per data center is up 34%. Service per customer, up 8%. And port utilization is only 31%. And once again reflecting the investment that we've had in the large footprint that we've got in North America with our partners and where our network footprint is and access to the network. So we've got plenty of headroom here for FY '20 and beyond as we continue to add more customers and more services onto our network in our North America business unit.

Switching to Europe. I think it's fair to say for Europe, this is our -- this year was a year towards, particularly in Q4, where we've added 6 new countries. And the reason we've done that in both feedback from both our cloud service partners and our network partners is we're seeing an uptick or an upswing in activity in Europe, particularly post GDPR and as the CSPs and hyperscales start to build out across other locations in Europe, we've continued to match that in lockstep with them, as I said earlier on. The total number of installed data centers grew from 62 to 83, which is a total of 21 in the year, of which 16 of those were added alone in Q4 between May and June, which included 6 new countries: France, Poland, Belgium, Austria, Finland and Norway. The total number of customers in the network grew 18% to 296. Number of ports, up 5%, at 615. Total number of services up 114% at 1,785. Monthly recurring revenue up 41% at just $0.8 million. And the profit after direct network costs was at 40%, slightly down on the previous year, notwithstanding we added 6 new countries and over 16 new installed data centers pretty much towards the end of the quarter. So I expect this -- we expect this number to improve during FY '20 substantially after the investment into the new locations and new countries. Overall, average revenue per port is $1,280, up 35%, again, driven by the large uptick in services across the network. Number of ports per data center slightly down at 7 compared to the previous period, again, that's down by the fact that we've added over 16 data centers pretty much during May and June and across 6 new countries. So we expect this, as I said, similar to the profit after direct network costs to improve over FY '20 substantially as we continue with that growth in those new markets. The services per port up 105% and services per customer up 81%. And overall, port utilization is 30%. So again similar to the other 2 regions, it's highly leveraged towards scaling the business in Europe with the amount of inventory and network capacity that we've got across the region. So once again, bodes well for FY '20 and our growth into Europe similar to the U.S. where it was probably a year to 2 years previously.

I'd like to focus now on our partners or customers, I guess at the outset, without which the Megaport platform wouldn't be where it is today. I'll start with our data center partners or data center operators. And we -- as I said earlier on, we're across 528 enabled locations, 300 physical locations with us across 90 unique data center operators, which you can see from the slide here the brands and the logos of our data center operators. Megaport is independently neutral. We're very much focused on growing interconnection globally. And part of that is continued into FY '20 and '21. We will continue to add more and more locations, either with our current 90 data center operators and adding new operators as we go into new regions over the course of the next 12 to 18 months.

Looking at our customers, and again, just a snapshot of some of our key customers during FY '19. We've added just under 500 customers during the year, and this is only just a snapshot of some of them. But again, like I said earlier on, we've got customers here or main reason they're using the Megaport platform or 62% of the reason is they need connectivity to the cloud across an easy-to-use flexible network, and that seems to be the constant theme that's coming back in the feedback from our customers. [Some] Major League Baseball is a key customer that came on in FY '19 is using both direct cloud connectivity and the MCR product. Technicolor is similar. And a lot of heavy usage across multiple locations, using both CSPs and MCR. And recently, we added ICE, the Intercontinental Exchange, which is on New York Stock Exchange, not only as a customer using our services, but also to help them to serve their customers with their data feeds and analysis that they're using Megaport to connect multiple locations on our network for that, not just for cloud use. Like I said earlier on, I think the main common denominator here is most of our customers are using the Megaport platform for connectivity predominantly to the cloud service provider but also interconnectivity between multiple geographic locations within their own infrastructure and also connecting to other service providers for their business needs.

I suppose, switching to the focus of FY '20. I suppose there's 3 areas that we kind of want to, as I said at the very top, FY '19 was very much focused on agility and execution. And we're going to keep with that -- we want to keep with that theme. Execution is a big part of what Megaport does and what we really strive to make sure we get that right, accelerating our partners' enablement, whether it's clouds or data centers, to maximize sales opportunity and maintain exceptional performance across our global teams is paramount to what we do every day. Leveraging our -- which is our -- strengthening our ecosystem. I've mentioned that across the region areas where we've invested in our network and in our footprint to put ourselves in a position at the end of each year. So we're moving forward into new areas of growth each financial year like what we will do in FY '20. So strengthening our ecosystem, deepening our footprint in existing markets, extend our reach globally to deliver more services to customers and partners. And more importantly, as we continue to evolve is innovation and strengthening our position to be a leading innovator in the global Network as a Service, continuing to evolve our products and services with our customers and their connectivity demands.

And I think that's it from the presentation. At this point in time, I will hand you back to Christian for -- to open it up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Jon Atkin from RBC.

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Jonathan Atkin, RBC Capital Markets, LLC, Research Division - MD and Senior Analyst [2]

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So one financial question; one, I guess, strategic question. Just as we think about FY '20 and the financial trends, what kind of EBITDA trend line might we expect? Can we look at the regional data and assume that you'll do better from both the gross and EBITDA margin trend line or are investments throughout the year going to make that a little bit lumpier.

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Vincent English, Megaport Limited - CEO & Executive Director [3]

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Jon, good question. I think each region is slightly different. I think our APAC region is reasonably steady in terms of there should be less lumpiness in that regard as we continue on there. Our goal is, for North America, is to be EBITDA positive. So we've hit the first milestone of reaching the gross profit margin positivity -- or profit after direct network costs this financial year. And our aim is to not slow down our growth on our investment in our footprint, but at the same time, aim for EBITDA positivity in that business unit this year.

And Europe is not too dissimilar, although we will be investing heavier in Europe in FY '20. So there may be a little bit more lumpiness in the European side of things as a result of that. And I think that's not too dissimilar probably from other partners that we've seen, both on the cloud and infrastructure and data center site investing into Europe.

So overall, it's a little mixed, Jon, but it's probably predominantly driven by our own internal goals of trying to get to EBITDA positive in all 3 regions.

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Jonathan Atkin, RBC Capital Markets, LLC, Research Division - MD and Senior Analyst [4]

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And then on the investment side, you mentioned the 155 employees, up from, I think, 108. So as we look at the coming year and staffing levels, any major changes to expect around either sales or product or other functions?

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Vincent English, Megaport Limited - CEO & Executive Director [5]

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Yes, Jon, we will be adding -- we will be investing more on that. Again, I think more on the innovation side, which we've very much focused on that during this financial year. So we will be investing a little bit more on our innovation and our teams, both in North America and Europe and in Australia as we continue to scale and build our network, but also with our product enhancements.

The -- and on the commercial side, not so much on existing markets where we've already ready set those teams during FY '19. But as I said, we're going to have more new markets coming online and more routes to new markets, which we need to have a different sales approach towards, particularly as we deal with different cultures, languages, et cetera, et cetera. So there will be some investment in that space over the course of the year, probably adding somewhere between 40 to 40-odd over the course of next year across the year.

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Jonathan Atkin, RBC Capital Markets, LLC, Research Division - MD and Senior Analyst [6]

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And then lastly, just strategically as we think about M&A, are there any interconnect platforms or other acquisitions around product or perhaps getting into some of the bigger economies within Asia. What can we think about as you sort of expand going forward, either through M&A or new investments?

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Vincent English, Megaport Limited - CEO & Executive Director [7]

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Right now, Jon, we don't have any plans in that regard. I think we're very much focused on -- well, first of all, we haven't come across any. I think that's a statement I want to just get out there. There's not too many folks out there doing what we're doing and trying to find something that would be accretive to what we're doing is kind of difficult right now. And having said that, we're not actively looking. We're very much focused on, as I said here in that last slide, and focus on FY '20. We've invested in what we've got. We believe we're positioning the company to continue to grow and expand, and that's where our focus is right now.

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Operator [8]

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Your next question comes from the line of Ash Chandra from Goldman Sachs.

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Ashwini Z. Chandra, Goldman Sachs Group Inc., Research Division - Equity Analyst [9]

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Just a couple of questions. Can I just pick up on the comment you made about the EBITDA trend there, and you're kind of aiming to be positive actually in Europe by the end of this year. I assume that's an exit run rate, I mean, that's just not something...

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Vincent English, Megaport Limited - CEO & Executive Director [10]

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Sorry, [Christian], we can't hear the question.

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Operator [11]

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Ash, your line is open. Just it's coming across very quiet...

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Ashwini Z. Chandra, Goldman Sachs Group Inc., Research Division - Equity Analyst [12]

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Sorry, can you hear me?

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Vincent English, Megaport Limited - CEO & Executive Director [13]

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Yes, we can hear you now.

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Ashwini Z. Chandra, Goldman Sachs Group Inc., Research Division - Equity Analyst [14]

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Is this any better? Okay, sorry, sorry. I don't know how to work my own phone. Just -- sorry -- just if I could pick up on that EBITDA answer that you gave with respect to the EBITDA trend where you're aiming to be positive by the end of this year. I assume that's an exit run rate you're referring to.

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Vincent English, Megaport Limited - CEO & Executive Director [15]

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Yes, it would be in some of the markets, yes. Well, obviously, we're going to continue to grow as well, right? We're not taking our foot off the gas in that regard. So we have to continue to invest.

North America is a large business. So we're going to continue to add. We're looking at very similar footprint of growth for this year, where we've added just 79 locations, physical locations during FY '19. And we're looking at a similar plan for FY '20. So that means there is an investment in network and physical locations across the network. Some of it's in existing markets and some of it's in new. So it's mixed. As I said on the previous question, it's mixed in terms of the more stable markets, it's more predictable, whereas the U.S. and European markets are still, in our view, high-growth areas, and we're going to continue to invest in them.

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Ashwini Z. Chandra, Goldman Sachs Group Inc., Research Division - Equity Analyst [16]

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Okay. And I think previously you've talked about a 2020 target for data centers connected to be around 500. Does that still stand by the end of calendar 2020?

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Vincent English, Megaport Limited - CEO & Executive Director [17]

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End of calendar 2020 or in financial year '21, the same thing, give or take a quarter, we're very much focused on the enabled data centers right now. So one thing is to spend the CapEx and be installed, but another thing is we go into new markets. And particularly with new data center operators in new markets, it's actually making sure that we've got that extended reach so we get a better return for investment on our CapEx and our footprint, a greater reach.

So whether it's a combination of the 500 installed or closer to 700 enabled data centers. It's a mix somewhere in between -- over that 18-month to 2-year period, yes.

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Ashwini Z. Chandra, Goldman Sachs Group Inc., Research Division - Equity Analyst [18]

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Okay. And if I could just ask one last question. With respect to the Megaport Cloud Router, where you've indicated, there are 175 of these services in the market. I assume a single customer can have like multiple services? Or is this one service per customer and we should be reading it as 175 of your 1,000-plus customers as...

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Vincent English, Megaport Limited - CEO & Executive Director [19]

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No. A customer can have -- they may have -- a customer may have one in the U.S. and may have one in APAC or they may have one in Europe or they may have it in the East Coast or North Coast. So what tends to happen is you will have a customer who would either have a port and an MCR and have an MCR, but they'll have multiple services from the MCR connecting to whatever -- other multiple cloud providers are their own infrastructure. So what MCR does is it attracts more services per use of MCR.

We are having -- we are extending the footprint of our MCRs across the network today as well. So as part of that, we've seen -- we will see a larger uptake, particularly with MCR across North America and into Europe as -- during this current financial year.

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Ashwini Z. Chandra, Goldman Sachs Group Inc., Research Division - Equity Analyst [20]

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And where I was going with that question is like what do you think's the addressable market within your existing customer portfolio that could use the MCR service? I mean is it quite a long runway for penetration that you think is relevant across the existing customers you have?

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Vincent English, Megaport Limited - CEO & Executive Director [21]

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Yes, it is. I mean, I think, particularly, customers that have maybe a global footprint or customers who have global business, but maybe not have infrastructure installed in locations where they don't need to do it. They don't need to buy their own hardware, or servers and where they're actually able to dynamically log on to the Megaport platform, [set up] services and get connectivity without having to wade through -- go through CapEx cycles installing hardware, physically deploying it in physical locations and then trying to [set] up their own connectivity.

So once again, abstracting that whole network complexity component of it, and then allowing them to get access to data. So we're finding that more sophisticated enterprises or larger enterprises are looking towards that, particularly for multicloud. And in smaller businesses equally are using it or are looking to use it more for the increase in depth of our network where they don't have to invest in that.

So it's kind of a -- it's a product that's wide-reaching. [There] the main user case right now is cloud-to-cloud. So again, moving data between AWS and Azure or AWS and Google and Oracle, et cetera, for your data needs, where all those cloud providers may not be in the same data center, or may not even be in the same metro and having the ability to do that and run that from your desktop or from their own office location or your own infrastructure is becoming more and more important.

So we're going to continue to drive that and make awareness around that for users, particularly our existing customers, but also it opens up a wider market for us where customers who don't have a physical footprint inside in the data center, may be able to access the MCR itself and then continue to use our services. So the adjustable market is much larger than the existing one.

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Operator [22]

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Your next question comes from the line of Nick Harris from Morgans.

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Nick Harris, Morgans Financial Limited, Research Division - Senior Analyst [23]

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Congratulations on a great fourth quarter and result. Just a question, I know you talked about just then, but MCR 2, I'm just curious, I know you said 8% of customers are using it, but are you seeing new customers coming to Megaport to use MCR 2 who are then also using the traditional Megaport? Or is it kind of the other way around where existing customers have gone, "This is a great solution. I'll start using that as well."

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Vincent English, Megaport Limited - CEO & Executive Director [24]

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I think it's fair to say probably initially it's existing customers who already have services who are using MCR for to further grow their business and their connectivity at a layer 3 connectivity level. What we are seeing, though, is in conversations we are having with newer customers that it is the layer 3 connectivity product of Megaport Cloud Router, which is driving more new business and more [conversations] that we're having, again [abstracting] more complexity for enterprise users.

So we're seeing that kind of pivot more on inbound inquiries and particularly from larger customers in how we can do that. We're also seeing quite a lot of interest and growth around and our cloud service provider partners, where they want to see MCR more available in more locations so that they can actually have data flow between cloud, which is something that their customers are asking for anyway. So I think we're seeing -- I think we're on the start of a journey with MCR in terms of its adoption. And I think it's -- we're really putting ourselves in a great position to grow that during FY '20 and beyond.

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Nick Harris, Morgans Financial Limited, Research Division - Senior Analyst [25]

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Just 2 other quick questions from me. Just on Slide 10, you said the average direct network cost per data center went up a little bit, ex the 100 gig, just clarifying is that you buying more comm services because customers are using more? Or is there something else kind of going on behind there?

And then the second question was just -- I saw on our year-on-year Internet exchange as a percentage of cross-connects kind of went from 21% down to 19%, but it looked like it kind of dipped down to 16% in December and then back up to 19% in June. Is there anything, I guess, interesting going on behind the things there? Or is that just a little bit of lumpiness?

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Vincent English, Megaport Limited - CEO & Executive Director [26]

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On the Internet exchange stuff, I think it probably is a little bit of lumpiness. We definitely are seeing more uptake on Internet exchange, not just in Europe, but particularly in Asia Pac, where we do have more services there. The 100-gig backbone network actually facilitate more connections, both in Europe and in Australia, in general, in New Zealand. So I think that's just a factor of growing new business and new connections of which Internet exchange appearing is one of those contributing factors to the connections and services.

The first question on the direct network costs. Look, I think that's just a function of some of the locations we're going to now we're starting to step out into more Tier 2 and Tier 3, a little bit further reach places where there's not as much density of network. So we are seeing a slight increase in that. But having said that, it's very marginal in the overall things when you factor in currencies as well in some of these new jurisdictions. That makes sense?

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Nick Harris, Morgans Financial Limited, Research Division - Senior Analyst [27]

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Yes.

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Operator [28]

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Your next question comes from the line of Tim Plumbe from UBS.

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Tim Plumbe, UBS Investment Bank, Research Division - Director and Research Analyst [29]

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Look, a lot of my questions have been asked, but just maybe if any -- if we could expand a little bit more in terms of MCR 2.0. Could you just spend a minute or so talking about the upgrade compared to the original product, how that changes the revenue opportunity. That Slide 16 that you're talking about, is that based off old MCR 1? Or is that kind of the MCR 2.0 opportunity, and how the new opportunity might be different to that Slide 16.

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Vincent English, Megaport Limited - CEO & Executive Director [30]

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Yes, sure. Okay. Well, this is MCR in total, right? So we're finding that customers who are on the earlier version are migrating across to MCR 2.0. It's had more features and functionality, as we've continued to think of it as an upgrade that adds more features that a customer can actually use it for. Some of it's for internal monitoring purposes for connectivity, which engineering, our IT [goals] would need. Others is for just other forms of connectivity between cloud. And we're going to continue as part of that innovation.

So we're calling it MCR because at the end of the day, the 2 version is the version that we're rolling out with, and it will continue to be upgraded as we go along as certain businesses or consumers, or enterprises are using it for different needs that we will factor that in.

I think the main takeaway from it is, what it does do is it has a large impact on our revenue and then on our services, in particular. Typically, customers who have an MCR tend to actually add more services or connect to more services as a result.

So I'll give you an example. A customer may connect to AWS today [are] one CSP, cloud provider, today and they'll have a port or maybe 1 or 2 VXCs as part of that. Customers looking for multicloud will connect to an MCR and may have 3 or 4 VXCs from the MCR connecting to an AWS or an Azure or a Google and or their own infrastructure inside in the data center.

So what it tends to do is it drives a higher number of services per customer, which the chart on Page 16 illustrates that it typically is an increase of 3 to 4 services more per customer. And so that has a direct impact on the average revenue then per customer, not just the price of the MCR itself in addition to the connectivity, but actually the additional connectivity from the MCR to services.

So I think adding the features and the functionality is just more making, again, helping us to remove more complexity at a layer 3 network level for our customers to make it easier for them to connect to those services in a more of a point, click and consume manner and have the monitoring and have the stats and the detail that they need for their connectivity as well as supported on the platform. And that's it, in summary of what we've done.

It's more about -- it's more about building the user cases for customers and then making it very simple for them to use the product and in turn mainly end up using more services as a result.

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Tim Plumbe, UBS Investment Bank, Research Division - Director and Research Analyst [31]

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Great. So I mean, if we go into the website, should we think about the difference in terms of a port -- 10 gig port being 500 versus MCR being 2,000, plus the additional services that -- is that the right way to think about it?

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Vincent English, Megaport Limited - CEO & Executive Director [32]

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Yes. I mean, customers can do that, if you wanted a 10-gig MCR, the pricing is on the website there. So there's a higher price for MCR depending on the instance or the type or size that you're looking to configure your MCR to. Some customers will have a port, and they'll add an MCR to that, and it's incremental. And then add on other services to that, depending on what they're connecting to.

Other customers may connect to a Megaport without being in a data center and may not have a port. And they will just consume an MCR, plus additional services on the MCR. But right now, the bigger user case is existing customers connecting, who already have services in ports and are actually now consuming an MCR on top of that.

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Tim Plumbe, UBS Investment Bank, Research Division - Director and Research Analyst [33]

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And just lastly on MCR. And then I've got another question, but incremental direct costs associated with that product, is that right close to 0 or...

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Vincent English, Megaport Limited - CEO & Executive Director [34]

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Yes. It's -- again, it's an investment in CapEx. So we've already got the network. We've already got the footprint. We've already got the colocation and the connectivity in the physical location. We're installing equipment in to provide the MCR services. So there is no direct increase in network costs as a result of that, unless we upgrade the entire network, but not directly related to an MCR.

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Tim Plumbe, UBS Investment Bank, Research Division - Director and Research Analyst [35]

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Great. And then just a clarification in terms of one of the other questions that were asked in terms of staffing levels, I think you mentioned about 40 additional staff. Just wondering if you'd be able to break that out between how you're thinking on sales versus innovation, et cetera?

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Vincent English, Megaport Limited - CEO & Executive Director [36]

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Yes, Tim, it's roughly split 50-50. We do need to increase on our commercial organization. As I said earlier on, when you're adding on new countries and like I said, new ways of doing business, new cultures, new languages, et cetera, as we continue to step outside of say the English-speaking world, then we obviously need to add that skill set in there in the go to market.

And then the other side of it is more around product, network and operations as we continue to expand both the network geographically and more importantly, on the product and on the innovation and continue to make Megaport more and more relevant for -- as a platform for connectivity for enterprises.

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Tim Plumbe, UBS Investment Bank, Research Division - Director and Research Analyst [37]

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Great. And very last question from me. Just in terms of that customer cohort trend analysis. If I'm looking at FY '19 and comparing it to FY '18 for the year 1 customers. You've seen a good uplift in terms of average service per customer going from 4 to 4.4, so up 10%. But then the average revenue per customer is broadly flat, $1,249 to $1,257. Just wondering if you could talk a little bit in terms of that trend there? And how you think about that going forward?

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Vincent English, Megaport Limited - CEO & Executive Director [38]

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Yes. Look, I don't -- I think that's just an issue of customers coming on during the year, we added over 500 -- nearly 500 customers, just alone in FY '19. So it's a large uplift in new customers compared to previous years. And as a result of that, I think you've just seen that spread. It's a dilutionary effect on the revenue per customer coming in FY '19. And really, the true reflection is the full year, when you see like last year's cohort of FY '18, grown from 1,249 up to -- nearly doubling to 2,500, I think you're going to see that similar effect if not higher in FY '19 from that cohort of customers. It's a larger cohort and they're actually starting to take on more services. So I think that's -- as you can see that they're using 4.4, already up from the previous year. So the revenue impact will come through more and more in the full year on FY in -- for next year. So that's the way we see it, kind of on a month-by-month basis.

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Operator [39]

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The next question comes from the line of Paul Mason from Evans & Partners.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division - Research Analyst [40]

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A bunch of questions from me, and apologies, I've joined the call a little bit late because of another result. So if these have been already, sorry.

The first one from me is just on CyrusOne. They made like a big press release about launching Megaport in London, the other day. And I was just wondering if you could give us any color on like their plans around Europe? Are they planning to install you guys across the whole Zenium asset base as well? Or just at the moment, in like the CyrusOne-branded facilities that they've got there?

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Vincent English, Megaport Limited - CEO & Executive Director [41]

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Paul, yes, good question. No, their intention is to bring Megaport across to European platform. Yes. That's just their first stage, was the -- their first site in London in Slough. And again, look, the -- what they're saying is really they're -- as they're building out, they're introducing Megaport in as part of their ecosystem inside a new data center to attract and keep customers inside your facilities, so as per what they've said recently. So yes, that's going to be more of a -- continued across their footprint in Europe.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division - Research Analyst [42]

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Okay, great. And just on the direct network cost for the data center of $7.4k. I just wanted to make sure I'd read that slide correctly, that includes the 100-gig network costs in it, does it? Or is...

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Vincent English, Megaport Limited - CEO & Executive Director [43]

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No, it doesn't.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division - Research Analyst [44]

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It doesn't, yes. So the actual average is a bit higher? Okay, cool.

In terms of your data center adding targets. I know you guys have also hit the 300 number this year, which was kind of the big target you'd put out. Are you guys still kind of thinking about things around the 100 data center adds per annum level from here on out? Or how should we think about your incremental network rollout and data center rollout?

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Vincent English, Megaport Limited - CEO & Executive Director [45]

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I think we're aiming for a similar number this -- I know we're aiming for a similar number this year, Paul, so it's kind of circa 80 right now. But that's not 100% in stone so we -- until we're obviously adding more countries and more markets. So some of that is a little bit -- it's not -- it's easier to add new sites in existing markets that we're in, or existing countries in. Some of the new countries and markets that we're going to, takes a little bit more time. And I think it really depends whether we go large all-in early or we stagger them over the course of the year.

So right now, we've landed on roughly a number of around 80 for this year. But we're targeting sites to have more enabled data centers. In other words, we invest the CapEx in 1 site, but it brings up more than 1 site. And so we get a bigger bang for our buck. So the targeting on enabled data centers is actually -- is probably more of a specific focus for us right now in terms of getting access and reach to enterprise customers.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division - Research Analyst [46]

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Okay. Just on the Asia Pac profit after direct network costs at 62%, I think in the past, you guys had sort of signaled that you would start reinvesting in network quite heavily once you got to about 60% gross margin or thereabouts. So should we be thinking about the margins for Asia Pac as sort of at their peak for now? Or are you expecting those to keep rising over time?

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Vincent English, Megaport Limited - CEO & Executive Director [47]

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No, we've already done that this financial year. So we've got 100-gig backbone across the major metros in -- for example, in Australia. Obviously APAC is quite diverse. I mean you've got 2 -- we've got 2 countries in Southeast Asia between Hong Kong and Singapore, and we've got New Zealand, and we've got Australia. So we've got -- we've invested in the Australia business where the lion's share of that revenue and business is across 100 gig backbone in that network and in the equipment to deal with all that. So that's already done. The -- so that's built into the cost that you're seeing right now. So we don't envisage that changing too much at all during FY '20. And each of the other markets are smaller. But again, we will look at them based on success in terms of where they're at in capacity needs.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division - Research Analyst [48]

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Okay. And just on the MCR, just as a last question, a follow-up one. Can you maybe talk -- because I think you're in about 10% of your data centers with MCR-enabled locations at the moment. I think there or thereabouts. And I was just wondering like, if you could give us a steer on what the incremental CapEx is to retro -- or retro enable as an existing Megaport data center with MCR capability.

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Vincent English, Megaport Limited - CEO & Executive Director [49]

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Yes. We started out with over 20 -- I think it's 23, 24 metros that we've covered with MCR, and we're -- over the course of this quarter ending in September, we will have reached -- the target is 53 or 54 metros covered with MCR. So again, a lot of that would be a more denser proliferation of MCR across North America and into Europe. The -- so that's kind of our road map.

And the CapEx requirement on that, we've actually covered a lot of the CapEx for that in terms of -- on the financial statements, you will see there, we had some vendor financing that we put in place to secure all that equipment that was done. So that CapEx has been pretty either accounted for across this financial year and it feeds into quarter 1 this financial year -- the new financial year, in terms of where that's at.

So we're kind of pretty much set now on that. And that will give us the MCR footprint that we need, and then everything after that is actually upgrading the actual product itself, which is all software-related and configuration-related.

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Operator [50]

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(Operator Instructions) Your next question comes from the line of Chris Bainbridge from Pie.

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Chris Bainbridge, Pie Funds Management Ltd - Senior Investment Analyst and Portfolio Manager [51]

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Congratulations on the result. Just a quick one from me. How should we think about -- you mentioned you said there's nearly 500 customers this year. How should we sort of think about customer growth into FY '20?

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Vincent English, Megaport Limited - CEO & Executive Director [52]

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Well, look, I mean, I think we should see it similar really, to be totally honest, the same kind of growth that we're on. And that's the whole plan is to not slow down, right? So the whole idea is to keep similar kind of percentage growth.

We don't necessarily model our business on actual customers or adding customers. I know that's important -- having a customer is important to add the network. We kind of focus on the services and the ports as you -- we need to make sure not only has the customer come onto the network, but the customer has a port and actually uptakes its services and make sure that's valid and sticky and that they're using it fit-for-purpose and helping them on that journey.

So we're -- like I said, if we're going to -- if the ambition is to be EBITDA positive across our regions and our network, a part of that is continuing to grow, customers continuing to grow ports and continuing to grow services. So we see it on a similar sort of a growth -- growth plans.

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Chris Bainbridge, Pie Funds Management Ltd - Senior Investment Analyst and Portfolio Manager [53]

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And you're sort of willing to share -- I mean, what is that, sort of -- maybe one way to get to it would be to think what's an achievable KPI from the sort of direct sales team you've brought on, in terms of ports that they might be sort of targeting to add?

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Vincent English, Megaport Limited - CEO & Executive Director [54]

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Yes. Look, again, I kind of -- I don't really want to get into the nuts and bolts on forecasting. I think what -- I think it's safe to say at this point in time is that the similar growth rates that we've seen that were quarter 3 and quarter 4 from our release stats are what we're looking at for going into quarter 1, 2 and 3 into this next financial year.

So it's a buildup and more same. And our plans are in around those similar type -- sorry, so you could probably model that based on those actuals.

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Operator [55]

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There are no further questions at this time. I'd like to hand the conference back to today's presenters. Please continue.

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Vincent English, Megaport Limited - CEO & Executive Director [56]

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Okay. Thanks, Christian. Look, I think the -- just to wrap it up. Thanks everybody for participating. Look, we've worked really hard to -- we appreciate everybody, your support, and our shareholders and our customers and our partners. We've worked very hard this year to, as I said, to execute on our plans and deliver a true global platform. And we're going to continue to do the same. And as we've mentioned on the call a couple of times, we have our own internal goals and what we want to achieve over that -- over the next 12 and 18 months.

So very much focused on execution, innovation and delivering more success for the company going forward.

I'm happy to -- we're in Sydney for the next couple of days and we've got meetings set up there. But after that next week, if anyone wants to reach out to have any separate calls or one-on-ones, we will be here in Brisbane next week. And in early September, we'll be in the States for a couple of weeks.

So thanks very much, everybody, and looking forward to catching up again soon.

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Operator [57]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.