Megaport to acquire AI cloud tech InnovoEdge for $20.5m

Brisbane-based cloud technology company Megaport (ASX: MP1) is taking advantage of its strong cash position and earnings momentum to acquire a US company specialising in AI-powered software that manages multi-cloud systems.

Megaport has signed an agreement with New York-headquartered InnovoEdge Inc for US$15 million ($20.5 million), to be paid for by a 50-50 mix of cash and MP1 stock.

Both parties expect the deal to be completed by mid-August, with the cash component coming from a cash position at the end of FY21 of $136.3 million.

Megaport CEO Vincent English says the acquisition will help drive improved functionality across the company’s Network as a Service (NaaS) platform.

“By integrating the InnovoStudio service with our portal and software defined network, we will provide customers and partners with greater visibility and control of networking, cloud, and service resources,” English says.

InnovoEdge CEO Nick Balletta says his group is excited to become part of the Megaport team.

“InnovoEdge and Megaport share a philosophy of neutral enablement, and Megaport’s commitment to driving innovation and unlocking powerful connectivity use cases through integration and automation aligns perfectly with our development and orchestration expertise,” Balletta says.

“We look forward to providing more features that expand on Megaport’s platform to enable even greater agile networking capabilities.”

The news coincides with the release of Megaport’s FY21 financial results, whereby the recent achievement of EBITDA break-even in June was overshadowed by a deepened $55 million loss over the 12-month period.

This compares to a loss of $48.7 million in the previous financial year, although with the majority of revenue coming from overseas the impacts of a stronger Australian dollar were felt, resulting in $13.5 million in foreign exchange losses.

Megaport’s revenue growth slowed in FY21, down from 66 per cent to 35 per cent, but that solid growth rate delivered $78.28 million of which close to half was from the US, $25.7 million was from the Asia-Pacific region, and $13.8 million was from Europe.

“Our investment in innovation and products supported big growth in fiscal year 2021. Megaport Cloud Router (MCR), our virtual routing service that creates cloud-to-cloud connections on demand, grew 64 per cent in the period,” English says.

“MCR drives greater service adoption across our platform and provides our customers the agility they need to power their digital transformation.

“Our revenue numbers were also bolstered by strong new customer growth as a result of investments made in our commercial team and focus in growing our channel.”

The number of enabled data centres worldwide grew by 14 per cent to reach 761, while the number of customers grew by almost a quarter to 2,285.

“Megaport achieved Group EBITDA break-even in June 2021. This is a strong validation of our business model, and there is additional operating leverage based on the investments to date,” English says.

“Asia-Pacific is Megaport’s most mature market and generated a profit after direct network cost margin of 73 per cent at June 30, 2021.

“Europe achieved an EBITDA positive position for the entire fiscal year in 2021, and North America, which represents the largest target addressable market, is growing at the fastest rate with 47 per cent growth year-over-year in monthly recurring revenue.”

Megaport’s mission this year will be to ‘Scale Up, Scale Out’, according to English.

“This is a commitment by everyone at Megaport to accelerate our growth and our innovation cycle to increase our lead in the NaaS space,” he says.

“With a proven business model, the trust of partners and customers, and a leading platform built for innovation, we are well positioned to achieve this.

“We will invest in revenue growth by making investments in further market expansion, product and service innovation, and most critically, the people responsible for making Megaport the transformational technology company that is changing the way IT services are built today and tomorrow.”