Megaport Limited (MP1) Earnings Call Transcript

Thank you for joining the Megaport 2023 Half Year Investor Briefing and Q&A. We will begin with the presentation by the Megaport management team followed by 45 minutes of Q&A. [Operator Instructions] Now over to the Megaport CEO, Vincent English.

Thanks very much. Good morning, everybody. Welcome to our first half year FY '23 results. I'm going to start with a usual market update. And then joining with me on the call is Sean Cassidy, our CFO, and he will take us through the financial performance for the period. Starting with the overall revenue performance for the period. Before I continue, all of the numbers that we have in this presentation are in Au dollars. And we do have supplementary information in the U.S. that we did release in Q2 for everybody's additional benefit. Looking at the revenue performance in the first half of this year. Starting on the left-hand side, in North America, our largest region, total revenue was $39.5 million. That's an increase on the same period last year of 48% or $12.9 million. Our APAC region delivered $20.3 million in revenue, up $4.5 million or 28% in the similar period. And then also Europe, total revenue there is $10.9 million, also grew by 24% or $2.1 million in the period. Total revenue, global revenue for the first half of the year was $70.7 million, up 38% or $19.5 million for the period. Looking at some of the highlights. Monthly recurring revenue was up 16%. It grew from $10.7 million at the end of June 2022 to the ended -- the 6 months ending 31 December, 2022. Likewise, annualized revenue is very similar at $148 million at the end of -- for the period that ended December, up 15%. Customers closed at 2,739, up 4% and the number of our services now are over 29,000 to 29,000 [indiscernible] for the 6 months period ending 31 December, up 6%. And overall, our ports grew by 3% up to 9,809 in the 6 months and also MCRs up at 768, up 5% for the period. And continuing to look at our customers profile, grew by 4% at 2,739. The average ports per customer when normalized for some of our strategic ports that our noncustomer ports grew from 3.6 services per customer to 3.69. The average service per port grew from 2.87 to 2.99. And the average revenue per port grew from $1,120 at the end of June to $1,223 at the end of December, up 9%. Switching to the middle section of the slide, overall group exit gross margins at APAC is at 77%, in Europe at 76% and North America at 64%. Overall, for the total group it's at 69%. The group exit EBITDA numbers for APAC was 51%, Europe was 24% and North America was 30%-ish overall for the group including corporate overhead is 6%. I'm sure we're going to go through some of those slides in a little bit more color in detail shortly. Total cloud onramps were 282. We added 4 new ones in the period and also added 5 new regions at 147. Very quickly, just moving to the APAC region. The total number of ports and monthly recurring revenue grew from 3.3% up to 3.4%, up 3%. Gross margin is 77%, slightly down in the period and overall number of services grew from 10,713 up to 11,069. Switching to the financial performance for the APAC region. As I said, gross margin is at 77%, continued to grow for similar periods, each December period. And the margin is holding steady at over 50%, the reporting 51% for the period. Switching to Europe, number of ports -- or sorry, the monthly recurring revenue grew from $1.7 million to $1.9 million, up 11.7%. The gross margin increased from 71% to 76%. And overall total number of services grew to 4,107, up from 3,860 in the 6 months. The financial performance profile for our European business. Gross margin compared to December last year grew from 68% to 76%. Our EBITDA position holding steady at 25% down to 24%, just a slight decrease in the period. In terms of North America, our largest market, revenue was $7.1 million, monthly recurring revenue at the end of December compared to $5.7 million at the end of June, up 24.5%. Our gross margin for the same 6-month period grew from 54% to 64% and total number of services 13,912 up from 12,810. And looking at the financial performance for North America, up from 52% same period December last year to up to 64% for the period ending December this year. And our EBITDA margin has grown from 9% in the similar period up to 38% this period. With that, I'm going to hand it over to Sean Cassidy. He's going to take us through the financial performance in more detail and then we'll take it from there after that.

Thanks, Vinny. As noted, revenue for the period of AUD 70.7 million is up 38% from the same period last year. So a very similar growth rate to that we achieved throughout the full year of FY '22. And it's encouraging to see that our growth rate being maintained. Our monthly recurring revenue in December, which is our momentum going into the second half of this year of AUD 12.4 million was 35% up on December '21 and 16% up on June '22. Our North America market delivered 56% of our group revenues and the USA alone is 96% of the North America. It should be noted that we recognized revenue where services are turned up or activated and is irrelevant to the location of the sale or the headquarters of the companies taking the services. Growth in NAM is ably assisted by our global sales team, helping to provide global solutions to global enterprises. Vinny's going to present a slide a little later on our reference Megaport customer. That was initially a European sale and is now providing revenue across all 3 regions, a substantial amount of which is in NAM. Japan has helped APAC growth, our most mature markets grow with revenue growth of 28% versus the first half of FY '22. This has slightly outperformed Europe, which is 24% of the period-on-period. For reference, AUD 70.7 million revenue over the last 6 months represents 2/3 of the revenue that we achieved in the full financial year last year and about 90% of the revenues that we achieved over the full financial year of FY '21. That shows that there is still a very compelling growth story in Megaport. Moving on to the profit and loss and looking below revenue. Direct network costs of AUD 16.2 million were 9% up on the same period last year. We added 34 new data centers to our networks, of which 12 of those had the significant points of presence installed. We also upgraded our North American backbone to 100 gigabits. And we continue to roll-out 400 gigabit networks within certain metrics. Partner commissions of AUD 8 million or 45% up on the first half of last year. This is slightly more than the revenue growth, reflecting a slightly higher percentage of new revenue that's coming through the indirect sales channel. Gross margin or profit after direct network costs and partner commissions margin of 66% for the half is 6 percentage points up on the same period last year. Our exit gross margin in December was 69%. OpEx of AUD 43.1 million was 13% up from the same period last year, largely because of additional marketing and travel as well as some staff costs as we were scaling up and scaling out in H1 of last year. Versus H2 of last year, OpEx is up 7%. EBITDA is positive for the full half year of AUD 3.4 million. This is a $10.7 million turnaround from the same period last year. Looking at the revenue increase over the first half of FY '22, we have added $19.5 million in revenue. And converting that to an additional $10.7 million of EBITDA shows our conversion rate close to $0.55 for every new dollar of revenue that we have achieved. Non-operating costs of AUD 16.9 million are $4 million ahead of the same period previous year, partly because of additional depreciation from the higher CapEx that we have had in recent years. There's also been some lower foreign exchange gains impacting that number, offset slightly by lower staff equity costs. Employee cost of AUD 30.5 million are AUD 2.1 million or 7% up on the same period last year. It should be noted that the first half of FY '22 was part of our scale up scale out, so we continue to hire throughout that period. Compared with the second half of FY '22, employee cost have increased only AUD 0.9 million -- or AUD 9 million or 3%. And as noted at the Q2 results, we gave an annual pay increase to our staff effective from the 1st of October, which is about 5% of salaries overall. Travel cost of AUD 1.5 million, were $1 million higher than the same period last year, which was greatly impacted by COVID. It should be noted that travel costs were AUD 0.4 million less than H2 of last year. Marketing costs of AUD 2.7 million represented slightly under 4% of revenue. First half '22, again, was greatly impacted by COVID with a lot of that face-to-face marketing and the conference circuit will as largely -- was very quiet. Marketing in that period of $1.1 million represented only about 2% of revenue. IT costs are largely head count-driven. And those slightly up AUD 0.2 million over the same period last year. These are flat from the second half of the year. Our cash flow from operations was positive AUD 1.4 million for the half year. This is a AUD 9 million turnaround from the same period last year. This is reflective of the $10.3 million turnaround we saw in EBITDA when we talked about the profit and loss. And it shows that the operating leverage coming through the profit and loss is now flowing through to cash. Cash invested in CapEx of $19.0 million is 11% down, well, in the first half last year and slightly down -- slightly above the second half of last year was $18.8 million. We have completed a number of significant projects, such as the Edge upgrade, which has allowed us to introduce a core route reflection for the next generation of software-defined networking. We've installed -- completed the installation in Mexico. We're still in the middle of a 400 gig metro upgrade project. But there will be no new equipment purchases for that project with -- for the rest of this financial year. We're starting to see some shortening in the purchasing horizon for equipment. And that means we'll be able to start to deploy some of the stock that we have included in inventory over recent quarters. We've had no cash inflows from the issue of equity in the half year and lower drawdowns from vendor financing because of reduced CapEx. Means, the cash flows from financing activities were an outflow of AUD 8 million as we continued to pay down long-term liabilities. Our total cash burn for the half year was AUD 25 million. And we retained AUD 57.5 million cash on hand at December. Throughout financial year '21, we were on a journey to get to EBITDA profitability. In fact, in the month of June itself in '21, we hedged EBITDA breakeven on a run rate basis. And although that year and that month were greatly impacted by COVID and which curtailed travel and marketing expenses are greater. In the first half of last year, we've reinvested in ourselves. We hired some people. We upgrade the capacity. We upgraded our back-end systems. And we knew much of that investment was going to go on the profit and loss. And in fact, we are adding a little bit more leverage to put an accelerator into the business. That scale-up was completed largely this time last year. And we can see how quickly the business has sprung back to profitability. And I believe the rate of that profitability justifies the investment we made. This next slide shows a snapshot of December for the group, similar to the slides Vinny showed earlier for the region. I don't think it accurately portrays our EBITDA journey as well as in previous slides. But it does show that the group as a whole is tracking along the same path as the regions. Group has a much bigger hurdle to get to, to get over with regards to EBITDA positivity because of the central overhead. But you can see how the regional EBITDA growth has now expanded sufficiently to cover these costs. With continued good cost control, margin expansion in the regions will feed the overall group EBITDA margin quickly. Looking at our pathway to free cash flow. Free cash flow for me is operating cash flow less investing cash flows. We are positive cash flow from operations for the half. And we have seen that this turnaround is closely related to the turnaround in profitability. And we're seeing that that profitability is closely related to revenue growth. This is the inherent operating leverage in our model. As the revenue continues to grow, cash generated from operations will continue to grow. To help with this, the Q2, the second quarter results, we announced a couple of initiatives. The first is the cost out program to drive more efficiency within our network. Looking at how we access cloud onramps to service our customer connections, looking at our network architecture and a few other areas. Across 7 work streams, we have identified potential AUD 8 million in annualized savings. Work has commenced on these. And we should start to see this increased efficiency coming through in the next few quarters. In addition, we have rebalanced some pricing, specifically port to cloud VXC to bring it into line with VXC pricing from MCR and MVE to cloud. Some price sensitive churn notwithstanding, we hope that this should add an additional -- up to an additional AUD 7 million in additional annual revenues. At the Q2, we notified that our expected CapEx this year will be lower than the $39 million from last year and lower again in FY '24. We have been completing certain major CapEx upgrade projects such as the Edge upgrade. And we will be able to deploy some of the stock we have collected in inventory. This will mean that less of our growing operating cash will be reinvested in CapEx. Just very briefly, our balance sheet still remains very strong. We have $128 million in shareholders' funds, of which $57.5 million is cash on hand. As noted in the Q2, there was a slight deterioration in our debtors in December. But this was very much a timing issue and collections, strong collections in January have helped readdress that. And with that, I'm going to pass it back to Vinny for business update.

Thanks, Sean. Okay. I'm just going to touch on, as I had earlier on in the Megaport cloud situation, where we're at 282 cloud onramps, so we've added 4 to up 1% in the period and we're in now 147 regions as we continue to add -- we've added 5 more regions in the same period in the 6 months. 77% of all of Megaport's connections, enterprise connections are terminating or connecting to one of the cloud providers or more. 40% of that base is actually using multi-cloud, in other words, more than 2 or 3. Our multi-cloud customers grew by 32% and 50% of our Megaport multi-cloud customers have adopted an MCR. I'll touch on that in a minute. You can see on the chart in the bottom right-hand corner that the AWS connections are 35% of the cloud connections, Azure from Microsoft is closely behind at 28.2% and then the remaining other operators as we move along to the left-hand side of the chart. And then the remaining 23% of our base is non-cloud, in other words, port-to-port, customer-to-customer, location-to-location, or Internet exchange connections. Once again, just a refresher on some of the key logos and I'll talk to this again shortly after this slide. Just to give you an idea or an indication of some of the companies that are using Megaport. And also on the right-hand side, you can see from the different indexes Fortune 100, Fortune 500, et cetera, the ASX 100, that have a large portion of these customers at the top end of the enterprise world. Our global customers are using more and more services and are adapting more cloud. I want to touch on, as Sean said, this is an example, an anonymous example of a single MVE customer profile that going back over the previous 7 quarters, originally started to spend $10,000 worth originating in Europe and now was continued to build out that platform, both in APAC, Japan and in North America across a good few of our countries of operation. And as you can see from the [indiscernible] just consuming an MVE or consuming VXCs and ports and growing our MRR as the customer continues to adopt the new store services. As we said before, MVE is typically a longer sales cycle. So it does take a little bit time to get customer established and up and running. But when they are up and running, this is an example of a profile of an MVE customer and how it scales very quickly. As I touched on earlier, revenue growth in our total services, we've just under 9,000, actually 9,809 ports and 19,279 services. You could see that as more and more customers consume over time, they are adding more services onto their ports and onto our network and expanding their footprint. We will talk to that in the customer core analysis on the full year when we look at the year-on-year layered in full year reporting. But it will show that as this chart illustrates that customers are continuing to take up more services. Total MRR at the end of the period is $12.4 million, up from $10.7 million in the previous period. To some stats on Megaport Cloud Router, $73,000 per MCR customer, up from $64,000 at the same period last year. The number of services 15.2, slightly up from 14.9 from the same period last year and the total services on MCR -- total customers using MCR are at the 768 MCRs. And to MVE, similar stats in terms of the average revenue per customer of 14.4 up from 12 same period last year. And then the total number of services per customer at 21.5, up from 17.9 and total MVEs laid on the network at the end of the period to December was 94. Just a quick update on China, again, this information was released in our Q2 pack. But just as a refresher, starting with the top right-hand corner chart. The number of new partners signed on to our partner Vantage program continues to grow up 87% from June last year. And then the number of partners now transacting is up 131%, but just over 50 of those compared to June '22. The monthly recurring revenue has continued to increase, up 95% and that is illustrated by the number of services being taken up with these customers. And our MRO per partner just slightly down on the same period or same quarter in this financial year. In terms of our second half execution, just to kind of round out what we're focused on, the Cost Out program, again, having invested substantial amount of CapEx in building out our network and our 400 gig capabilities to allow us to bring on 100 gig ports into the network. And then streamline some of our network operational costs, which will come true to assist in our profit before direct network costs or gross margin. And this is work-in-progress and will continue to see as we make our network more efficient over time, because we'll be able to scale it. As Sean said, we were making after pricing reviews, which we do periodically, we're bringing into line our VXC pricing for a port to cloud connectivity. So it's now on a priority with our VXC pricing with MCR and MVE products. And then finally, we've got to continue to review our business and making sure that we're building out the business in a much more efficient manner. And so we're going to continue to review what we're doing so that we'll continue to improve and grow the business into the future. With that, I will hand it back to the moderator now for Q&A.

[Operator Instructions] And now our first question goes to Tim Plumbe from UBS.

Just 2 questions from me, if possible, please. Vinny, lots of moving parts in the business and the economic backdrop at the moment, you've seen cloud providers seeing slowing growth trends. You guys had some internal disruptions following the departure of your Chief Revenue Officer. Just with the current momentum that you're seeing in your sales pipeline and where you're at with your sales team, how do you think about that trajectory of ports compared to the growth ports of 368 that you saw before? Is it a period of -- we need to kind of reset the sales team a little bit, get onboard. So a little bit subdued and then accelerate in 2 quarters' time? Or could you see improving momentum as it stands today?

Yes, our new CRO, Jeff Tworek, he's only 70-odd days into the job. So as part of what he was trying and a deep dive assessment and see how else we can bolster up our sales. And part of that is looking at the teams and see how we can make them more efficient and potentially hiring a few roles that's needed to accelerate that. So again, like I said earlier on, we're always constantly reviewing it. And I think it's a good time possibly to take a good look at underneath the hood in terms of how we're set up for that in our sales organization. So we want to make sure that we make those right decisions to allow us to do that. The general kind of macro side of things, yes, there has been a lot of news lately, particularly in the tech sector, both layoffs and jobs in the U.S., particularly from the large cloud providers. And other tech companies, many of those roles are across corporate kind of functions and in different divisions that are not cloud. So I think what happened basically coming into the period, into Christmas, we've seen kind of a hold-off of decision-making from a lot of companies and waiting for their new financial year, particularly in the U.S. which starts as the calendar year and similar to Europe. So pipeline was there a lot, but just didn't get converted because of hold-offs from -- towards the back end of the quarter 2, which I think I explained at the quarter 2 briefing.

Got it. And the second one, just around the APAC business there. You've got flat ports in APAC driven by that port consolidation in large part. Services up 3%, revenue per port up 3%. When do we say that benefit of the port consolidation leading through to increased revenue coming onboard?

Well, I mean, first of all, it's one of our more mature businesses where we originally initiated here in Australia. So there's a non-maturity in each market. But we'd continued on the port consolidation side of it. It was mainly impacted by -- in the first quarter, we had 1 gig ports, which we changed pricing on to bring it back into line. So that was where we saw that a little bit of a dip that took us -- kept it really flat. And the rest of it then is consolidation from 10 gig to 100 gig, which is mainly our internal network and making sure that we're able to focus on the direct network cost or gross margin in the business. So once we've gone through most of that, it should start to continue.

Our next question goes to Nick Harris from Morgans.

There we go. Just the first one was that Slide 24, the live customer example. I just wanted to unpack that a little bit. I was just trying to understand, obviously, that's a big uplift as the customers consume more of your services. If I'm reading it right, the uplift is mainly from more virtual cross-connects, which went from 12 to 94. Is that uplift in those virtual cross-connects because of the Megaport Virtual Edge or is it the customer buying kind of legacy products?

We've broken out there on that slide, Nick. The ports are in the bottom in the gray. So they're using the ports to connect to cloud and are using MVEs in various different markets. But they're standing substantial amount of VXCs on each of them to stitch together their affected Megaport network for their account and using and continuing to use cloud. And as they add on a new location, it adds on more certain VXCs because we've got it attach it back to the rest of the business. So it has a multiplier effect.

Got you. Yes. So what I was trying to understand is that big step-up in revenue because of Megaport Virtual Edge, or because of the other services?

It's a combination, Nick, its total services is everything. But as you know, VXCs are -- all the products are recurring in nature, but VXCs, there's usually 2 to 3, if not more, depending attached to a port or 2 an MCR or an MVE case there's more.

And just a question on the proof- of-concepts. You mentioned in Q2, obviously, proof of concepts have a finite life. And you run a bunch of tests and then you end it. Are you getting any feedback from customers on how they went? And I guess, generally speaking, what are you hearing? Are they passing the test, should we expect them to convert to live MVEs at some stage? Or I'm just curious to understand how that works.

Yes, I think we've just had one proof-of-concept that didn't materialize over time into a live customer. Some customers are existing customers when they take up the product. So -- and I think that was because we were in a couple of markets that they needed -- we were not in a couple of markets they needed to be in, so it was an isolated proof-of-concept. But by and large, it takes couple of months. And then once they get through all that and prove it all, they usually come back in as a live customer.

Our next question goes to Kane Hannan from Goldman Sachs.

So firstly, just in terms of the customer net adds during the second quarter of the slowdown, we've spoken about that at length. But you did have -- it looks like a very good quality customer net adds coming through, sort of 10 in the Fortune 500, ASX 200. Just trying to understand what drove that difference in terms of the customer segments. Is that how you're approaching the market? Or just where the -- are they having different macro environments, the larger into town versus smaller and mid customers in your base?

Yes. Good question. Thanks. The customers, well, first of all, they do take a little bit of time when they get themselves up with. When the big customers do come on our large say Fortune 100 customers tend to come on, they actually already know what they need because the either proof of concepts or they're using -- they're comfortable with the logistics and what they have to procure and buy. And they've also made obviously very informed decisions internally about what cloud partners they want to use. And in most cases, they use 2 to 3 for the various different areas. But to answer your question on what we're focused on, particularly on the approach there. As we do see certain verticals that are more in-tune, so I'll refer you back to the slide, financial, medical, manufacturing, pharmaceutical are all kind of key areas. And so one of the things that we've been looking at in the sales organization is that if we have a large customer in that vertical, then we need to see what the competition is doing and see if we can go and talk to them about this is an example of an approach of how to put together your cloud network and how that might help. And so that's helped us then to focus on sales vector there to make sure that we can be more successful with larger customers.

Yes, perfect. And then just coming back to MVE. I mean, I take the point around proof-of-concepts impacting the numbers. But just the MRR, I think went $370,000 to $350,000 in the quarter. I didn't think the proof-of-concepts had any revenue associated with them. Just trying to understand what's going on there? Is that a bit of underlying churn or people spinning down the extent of the service?

Yes. Well, that's -- so proof-of-concepts came off, right? So that's what would have brought down, right?

Do the proof-of-concepts have revenue associated with them? I thought we were talking last time that there was no revenue associated with them.

No, not for the MVE. It takes -- we usually kind of say here is like let's take it and try it. So we have a promo code or something like that. But similar to what we -- our approach was when we started with reports back in the day, right? So that's kind of how we approach that.

So there's no revenue with the proof-of-concepts, is that right?

There's a point in time, right? So we might say it for a month or 2 months and then after that, if they're still using it, then it builds. It's typically how it sale.

Okay. So there's been no underlying churn or anything I should think about that drove that MRR backwards apart from proof-of-concepts not converting in that quarter?

Yes.

Our next question goes to Bob Chen from JPMorgan.

Just a couple of questions for me. Just in terms of the cost-out initiatives, $8 million to $7 million, like how should we think about that like from a net? Or is it a gross sort of number? And longer term, how should we think about whether mature margins for this business lands in the future?

I can say we have identified a number of war themes. Some of these -- a lot of these are going to be in the -- cost savings are going to be in the network cost. So for example, the strategic port consolidation, there, we have a nice sort of impact in our KPIs. We're starting to see our costs associated with maintaining those ports come off as we can cancel cross-connection in certain data centers. And that's helping a little. There are other efficiencies that they can drive out. We're looking at some things as well. Some of our older commercial relationships with strategic partners have changed over the years just because there's -- our architecture has changed and the requirement to utilize some of our partner assets has changed. So we're looking at a few things there. Again, that will impact in the gross margin. And as we agree new commercial relationships with those partners and there are a number of other factors. We continue to look at our data center footprint and look at our underperforming assets. And we have to ensure that we are in the optimal locations for our customers, our existing customers and for our data center operating partners as well. And that we continue to review that as well as looking at how we contract for our bandwidth around the network. Though there are many, many aspects to this, and many, many individual actions that have to be completed as we go through this. So it's not that we can flick a switch and get it all done overnight. But you should start to see these efficiencies coming through the gross margins as we -- in the next few periods. As to where we are long-term gross margins for this business, we have always guided that at 70% to 72%. And as a higher proportion of our revenue is going to come through the channel, you're going to see partner commissions increase. So -- but I'm comfortable that those partner commissions with our increased revenue and our continued cost efficiency that we drive out of our network will allow us to get to those kind of long-term margins. And 69% in December is pretty efficient as it is.

Okay. That makes sense. And then just on the OpEx side as well. Like how should we think about OpEx growth into this year and next year given there seems to be a little bit more of a focus on the bottom line this year?

There is a focus on making sure that we bring home the full benefit of all the additional revenues that we do and bring a lot of the operating leverage to really bring in the cash. Yes, and one of the things that called out, one, it was noticeable that employee cost went up over the same period last year. They are largely flat or only a small increase over the second half of this year. And that's a single biggest operating expense that we have. And it shows that the scale of scale-up, scale-out that we had done in the first half of last year is complete. And there's not going to be substantial increases in these costs, inflationary, pressures notwithstanding, of course.

Okay. Cool. Now that makes sense. And then maybe just take sort of a step back. I mean, the last couple of quarters, obviously have been a little bit challenging on the growth front. But fundamentally, I mean, when you look at the total market opportunity, has that changed at all for Megaport's core business as well as some of these newer products like MCR and MVE, which seems to be taking a little bit longer to grow as well?

No, I don't think there's any change in plans there. I think that's -- I think there's just timing differences that have affected us in the last quarter or 2. And obviously, the consolidation on some of our KPIs, but that's going to help, as Sean said, margins. So I think it's really the drive and to stay focused on building our revenue and building our customer base and working with our customers to grow our revenue. And as Sean said, there's a substantial margin there that we put in place with the initiatives and everything that we're were working true and staying focused on that. That will all help to substantially grow the business over time.

The next question goes to Siraj Ahmed from Citibank.

I have 3 questions. The first one, Vinny, just going back to -- I know the focus on efficiency. But just going back to the last quarter, I mean, like client adds, even if December was weak, the sales was of 90 people, that seems just very weak, right? So can you maybe help -- because that's one of the key questions I'm getting is what's happening here? Is it competition? Or is this just something else, can you just talk through that client adds in the quarter?

Sorry, what adds in the quarter?

The customer adds, right in, even if December was weak in this macro, I mean the sale, 2 other months, right? And you have a big sales team. So can you just touch on that?

Yes. I think it's more about the services that we added from the existing customer base is what we were focusing on in the short-term. So -- and then like I said, there hasn't been much activity in quarter 2 in terms of new customer adds. And I think that's -- a lot of that has come down to the, like I said, the market -- and there's a slowing down there from at least those decision-makers notwithstanding our sales pipeline is strong. And the market conditions just in terms of the lead up into the end of the quarter 2 period. And then so they are the main reasons.

And just confirming, Vinny, on that. As you previously mentioned, I think, last week that Jan was off to a good start. Are you still seeing that? Or is it still -- is that way down a bit or something? Yes.

No, no change.

Okay, got it. Second thing, maybe one for Sean. Sean, on cash burn, I mean, clearly $5 million reduction in CapEx this half. I'm not sure how the cost and revenue comes through. Just how do you think about cash burn in the second half? And just in terms of the balance sheet, right, I mean some of these cost initiatives, I would have thought that port consolidation, et cetera, you would have already had in your business case that costs would come out. So that revenue -- the pricing range, was that -- were you a bit concerned with the balance sheet for the price increase we put through, so just trying to understand that as well?

The price increase, like I said, it's just a rebalancing where we've been looking at how we charge for the services that we provide to our customers. And it was -- it's only right that that given the cost structure that we have to provide cloud services that we ensure that we are recouping those costs. It's -- I've got a few questions here, but that's proposed. It wasn't related to the balance sheet. The...

Maybe I'll just have to check [indiscernible], sorry, Sean. But I think some of it has really got to do we wanted to get clarity on our VXC pricing, right? So we're trying to augment and bring them on more efficiencies into the way we do our billing. And the way we support that from all the various different functions, whether it's network operations, finance, et cetera. So it's trying to standardize that is really important. That was one aspect. The second aspect is we already had similar pricing for MCRs and MVE. So it was -- it's only a small subset. It's not small, but it's a subset of a subset of pricing that got changed. And like I said, we've continuously done price reviews in previous periods where we made slight changes or tweaks. But we've never really disclosed like what that financial impact would be other than that we expect to [indiscernible] than we could and we had reasons for doing it, that's it.

Okay. And Sean, just on the cash burn expectations for the second half. I think burn in the first half was $25 million. I think should we be thinking like $15 million or is there something else?

Like I said, like I mentioned earlier, we expect our CapEx profile to come down. And we expect with the increased growth, the operating leverage coming through. And we've initiated a few cost-saving measures and revenue enhancers that should help with that.