You can access the article using the link below.

https://arichlife.com.au/kip-mcgrath-education-centres-asx-kme-h1-fy-2026-results-the-turnaround-continues/

I’ve put together my views on Audinate (ASX: AD8) after 1H FY26 result for  A Rich Life.

You can access the article using the link below.

https://arichlife.com.au/audinate-asx-ad8-h1-fy-2026-results-analysis/

PS: It has been a while since I have written anything, as I have been busy with my day-to-day work and moving house. I moved recently and am still settling into the new place. I expect to be writing more in the coming months, though I have had my hands full with all the news coming out of reporting season and trying to understand AI and the way it affects the companies I follow.

I was relatively lucky to sell a few of my winners mid-last year to purchase my new home, but that hasn’t shielded me from market drawdowns. I have been taking the blow on the chin since November, but I remain optimistic about some of the companies I hold. A few of my theses were broken as well, forcing me to exit positions at a loss.

At this stage, I am taking it slow. I have quite a few companies on my radar, but understanding how AI plays out isn’t yet certain or clear in my mind. In an extreme case, a “non-moaty” SaaS company will fold; at the other extreme, a “moaty” SaaS company will flourish. The basic question I am pondering right now is: which moats will remain after the AI shift?

All that said, I think management will play an even more crucial role in the coming years. Leaders with foresight and a clear direction for innovation will pivot quickly, positioning their companies to benefit. Therefore, I am watching for pivots that tackle AI threats or explore new opportunities. My guess is that those who ignore this shift will likely suffer.

Anyway, good luck!

When I first started buying shares, I had no process. I had read many books and blogs. I had listened to podcasts and watched videos. I soon learned that every investor has a different way to do this. There is no single correct method. That is fine in theory, but without a process, it is easy to buy for the wrong reasons and sell for the wrong reasons. I made those mistakes and upon reflection, I learned that the big wins are rare, the big mistakes are expensive. Avoiding those mistakes can put you ahead of most people. That realisation changed how I invest. One of the best ways to avoid mistakes is to follow a clear process. A process that is built around looking for risk first, then return

A process will not strike gold every time. It should not try to. What it can do is protect you from the worst decisions, the ones that hurt both the portfolio and the mind. In my view, that protection is often enough to beat the market over time. Fewer unforced errors, more time in the game.

This is simply my current process. It is not perfect, and neither am I. Even with a process, I still catch myself reacting to fear and greed. I am writing this in public to keep myself honest and to clear my own thinking, and to invite feedback. If something here helps you, great. If not, feel free to skip it.

Two hats on one head

As a retail investor, I play two roles. I am the Equity Analyst and I am the Portfolio Manager. It took me a few years to see the difference. Experienced investors often say these are separate skill sets. I agree. The challenge for a one-person shop is to keep the roles separate in practice.

Here is how I draw the line in my own work.

• The Equity Analyst turns over rocks. This role studies many companies and decides which ones are inside my circle of competence. If a company passes that test, the analyst researches it, values it, and if it still looks interesting, prepares a short stock pitch. The analyst also monitors existing holdings to see if the thesis is on track.

• The Portfolio Manager looks at the same company from a different angle. This role decides when to buy, how much to buy, and how the position fits with the rest of the portfolio. The manager also watches position sizes, risk, and cash.

I now ask myself a simple question before I act. Am I wearing the analyst hat or the manager hat? The following diagram shows my overall process.

So let’s delve a little deeper now

The Equity Analyst process

When a new company comes to my radar, I start with a simple filter. Do I understand how it makes money? Do I understand the product or service? Am I willing to follow this business for years? If the answer is no, the idea goes in the Too Hard basket. It is better to be honest than to pretend.

If the idea passes that first filter, I look at it from three angles. I have written about these before.

• Qualitative Analysis using my SIMPLE framework. This covers the solution, innovation, margin, product, leadership, and size of the market.

• Quantitative Analysis using my SOLID framework. This looks at growth, operating leverage, liquidity, returns on investment, and dilution.

• Risk Analysis using my RISK framework. This lists regulatory, inherent, systemic, and key internal risks.

These frameworks are not magic. They are checklists that help me ask the same questions each time. If the answers look poor, the idea becomes a No.

If a company clears those checks, I try a simple valuation. I use free cash flow where I can. I use a range of growth rates rather than one precise number. I keep the math light and focus on the rough value zone.

If quality is fine but the price asks for perfection, it becomes Not Now.

If price and value line up, I write a short stock pitch. This is a few pages that explain the business, the thesis, the main risks, and what success might look like. The goal is clarity. The stock pitch is the hand-off to the Portfolio Manager.

The Portfolio Manager process

Now I change hats. I read the stock pitch like a stranger. I think about risk and reward. I think about how it fits with the rest of the portfolio. I also think about timing and position size.

I use a simple portfolio construction framework I call C.A.L.M. I will publish a full piece on it sometime later. For now, here is the short version.

• Core positions. These are proven compounders. They tend to sit around five percent.

• Almost-there positions. These are solid but still maturing. They are often three percent.

• Leap positions. These are earlier or catalyst driven. They are capped at two percent.

Companies can move between these groups as facts change. Alongside the buckets I keep a flexible cash sleeve. Cash rises when I cannot find good ideas at fair prices. Cash falls when the market offers value. There is no complex formula here. I make small adjustments and avoid big swings.

Ongoing monitoring

In the diagram, this sits under the Portfolio Manager, but in practice, both roles watch existing positions.

• The Analyst watches the business. Are customers happy? Are returns holding up? Is the original thesis working? If facts change, I update the notes and the pitch.

• The Manager watches the position. Is the weight still right? Has price run ahead of value. Does risk-reward still make sense given other choices? What are the tax and broker costs?

One area I pay special attention to is capital allocation. I look at how management spends its cash. Share buybacks. Dividends. Research and development. I wrote about it in my previous article.

Why does this help me?

A simple process does not guarantee good returns. It does help me avoid the worst mistakes. It gives me a calm path to follow when markets get loud. It creates a record I can review. When I get something wrong, I can see where the thinking broke and fix the framework.

This is my process today. It will not be my process forever. I expect to keep refining it as I learn. If you see gaps or better ways, I would love to hear them. The goal is steady progress, not perfection.

https://arichlife.com.au/siteminder-asx-sdr-fy-2025-results-analysis-shows-long-term-thesis-on-track/

I first covered Nanosonics in April 2024, where I did a deep dive on the business model. You can read it here.

I also wrote my views after the FY24 result, which you can read here.

Below are the highlights from Nanosonics’ FY25 results:

• Revenue rose 17% to $198.6 million

• NPAT increased 59% to $20.6 million

• Free cash flow was up 52% to $32 million

• Cash and cash equivalents of $161 million on the balance sheet, no debt

Those numbers look impressive. That said, short interest is currently elevated: at the time of writing, roughly 8.5% of the company’s shares (~25.8 million) are sold short.

So naturally, it’s important to understand the bear thesis. First, I’ll lay out the FY25 operational and financial performance. Then I’ll dig into what the bear case could be, my thoughts on it, and the key signs I’ll watch for in the future.

Operational performance

As I mentioned in my earlier post, Nanosonics generates revenue primarily from selling its Trophon2 device, either to new customers or by upgrading the older Trophon EPR devices for existing customers. However, their recurring revenue come from the high-margin consumables and service revenues tied to their growing installed base.

Following the close of FY25, Nanosonics released its next-generation trophon3. trophon3 delivers ~40% faster cycles than the previous generation, with expanded digital integration and broader traceability. Customers with first-generation EPR devices can upgrade directly to trophon3; there are roughly 10,000 such units in the field. Customers with trophon2 can upgrade to trophon3 via a software upgrade rather than buying new hardware; there are roughly 20,000 trophon2 devices that could take this upgrade. Alongside trophon3, Nanosonics introduced a SaaS-style connectivity subscription that provides digital traceability via customers’ DICOM imaging systems.

The chart below shows half-on-half additions from new installs and upgrades. The rate of new installs is slightly decreasing, but that’s being offset by a rising upgrade contribution.

As the installed base grows, Nanosonics’ revenue mix continues to shift toward high-margin consumables and service (you can see this transition in the chart below)

As noted in my earlier piece, Nanosonics shifted to a direct sales model in North America, transitioning customers from GE to direct. Most customers opt for multi-year service agreements, often paying upfront. Those upfront payments appear on the balance sheet as contract liabilities, which have been expanding (see chart)

On top of service, the new SaaS connectivity subscriptions become an additional revenue layer attached to both new installs and upgrades going forward.

Financial Performance

Revenue

Nanosonics has variable growth may be some year bit less and some year bit more but if you look at the long term record, don’t think anyone can fault the performance at all.

Gross margin

As indicated earlier, nanosonics revenue includes high margin (almost SaaS like) consumable+service revenue and capital revenue which is slightly less gross margin and at company level it operates in the range of high 70s for gross margin as can be seen in the graph below.

R&D

Out of that ~78% gross margin, Nanosonics still invests heavily in R&D—roughly 17–20% of revenue. Most of this has gone into CORIS. The company is currently commercialising CORIS, and I expect revenue contribution from FY27 onwards. Because Nanosonics expenses R&D, reported profit looks lower than the profit core business generates. The chart shows R&D as a percentage of revenue; I’d expect this ratio to trend down in the medium term.

Net Margin

Even with elevated growth investment, Nanosonics is still delivering a ~10% net margin, as shown in the chart.

Balance Sheet

No issues here. No debt and about $161 million in cash and equivalents puts the company in a strong financial position.

What are Bear cases?

Let’s keep valuation aside for now (I’ll cover it later). The core business has performed well, so the bear view is essentially that the future won’t look like the past. Here are the main cases I think bears have in mind.

Case 1: Trophon is highly penetrated, with limited installed-base growth

There’s some truth here. Trophon has captured more than 50% of the North American market. That said, there’s still roughly 27,000 units of TAM in North America (about two-thirds in hospitals and one-third in private practices), plus a significant international opportunity. Yes, the number of boxes they can sell has an upper limit, but Trophon3 creates an upgrade cycle, and consumables/service revenue should keep growing with ultrasound procedure volumes. On top of that, connectivity SaaS is a new attach revenue stream. In short, management still has several growth levers. ( Its more important to see how much revenue they can generate from torphon business going forward compare to how much boxes they sell)

Case 2: Competition will eat share

As I noted earlier, Germitec received FDA De Novo clearance last year, and Tristel ULT (ClO₂ foam) is FDA-cleared and promises point-of-care HLD with no machine capex—appealing to cost-sensitive, space-constrained sites (see: https://www.accessdata.fda.gov/cdrh_docs/pdf22/DEN220041.pdf). Competition exists in every good market. The trophon moat isn’t just the machine; it’s the validated protocol, training, audits, and service relationships. Replacing an entrenched workflow in a highly regulated hospital environment is slow and costly.

Case 3: CORIS adoption will disappoint (plumbing, long sales cycles)

Endoscopy is not like ultrasound. Ultrasound probes are cleaned in the room with the patient, so plug-and-play devices work there. Flexible endoscopes are sent to a central reprocessing room with plumbing, AERs, drying cabinets, and a strict dirty-to-clean layout. CORIS is designed for that room. Practically, this means a hospital may need fewer CORIS devices than trophon units (CORIS is a shared room asset). So the capital opportunity is smaller, but the consumable/service/connectivity (recurring) opportunity is much larger than trophon. And yes, sales cycles will be longer—hospitals run trials, check infection-control policy, and seek multiple approvals. The payoff is a larger recurring layer if adoption lands.

Case 4: R&D and capital allocation skepticism

Bears argue the payback on years of R&D is unproven without visible CORIS uptake, and that management is sitting on a ton of cash. It’s fair to say CORIS took longer than I expected and had multiple delays, but we’re now close to the commercial phase. Management has flagged that once CORIS is in market, cash can be put to work in M&A to build out adjacent steps in the endoscope workflow. CORIS solves one problem; there are adjacent workflow targets Nanosonics can pursue.

Valuation

A common bear line is: “It trades on a ~65× P/E. Its too expensive.”

My view: trophon alone is a highly profitable cash business with a strong moat (standard of care; >50% share). Recent trophon-only profit before tax (PBT):

• FY22: $16m

• FY23: $44m

• FY24: $41m

• FY25: $52.8m

It isn’t rocket science to say the trophon business is a strong cash machine, growing earnings at >30% CAGR over the last four years. If we assume 15% earnings growth for the next three years (10–12% revenue growth plus operating leverage), that implies ~$80m PBT in FY28, or ~$56m NPAT. On a 40× P/E for this trophon-only business, the implied FY28 share price is ~$7.34; discounting back gives ~$5.35 today. (Again, this is for trophon only.)

In the best case, if CORIS is even mildly successful, the valuation would be higher. If CORIS underwhelms, trophon still sets a floor. The simple takeaway: despite a seemingly high headline P/E, a deeper look suggests the stock may not be as expensive as it appears, and the market may be giving little credit to CORIS at this stage.

Changes

Short-term incentives (STI) changes

• They will judge short-term performance on EBIT instead of Profit before tax. ( I think it is good that management don’t get incentivised on interest income on sizable cash that they are holding. I am hoping this doesn’t incentivise them to go for acquisition for its sake)

• Focus is also shifting from Total units to annuity revenue growth. Management will be rewarded on growth in recurring revenue instead of device units. ( I don’t know what this indicate, does it indicate that device revenue growth isn’t coming anymore or recurring revenue will grow faster going forward- will see)

Long-term incentives (LTI) changes

• Couple of years back I didn’t like it when they changed incentives from company-wide EPS to Trophon only business PBT. This year they have made a switch. focus is back to company-wide EPS CAGR ( this definetly signals that R&D will go down as % of revenue and CORIS will start contributing in medium term)

Headquarter Relocation

Nanosonic current HQ lease expires on 31 March 2027 and it has signed new contract for new premises. New lease will commence on 1st April 2027 but Nanosonics will gain early access to these facilities from 1 April 2026, so expect increased capex for fit out and relocation cost etc.

Final thoughts

Obviously, Nanosonics has performed well in the past, but the future is what matters in investing. As outlined earlier, there are multiple cases the bears can point to; however, none of them are set in stone or prove things must go downhill from here. I’m optimistic at this stage. I think the company has a competitive moat, pricing power, and multiple levers for growth in the coming years. I also acknowledge there are risks, and I’ll keep my eyes and mind open to spot them early

https://arichlife.com.au/kip-mcgrath-education-centres-asx-kme-fy-2025-results-these-clouds-have-a-silver-lining/

Hope you had a good Earning Season.

You can access the article using the link below.

https://arichlife.com.au/laserbond-fy25-results/

I’ve put together my views on Audinate (ASX: AD8) for  A Rich Life.

You can access the article using the link below.

https://arichlife.com.au/audinate-asx-ad8-fy25-results-see-share-price-drop-on-disappointing-guidance/

As I prepare for the FY25 results of the companies I follow, I decided to document all the capital allocation decisions made by them, along with my thoughts on their implications in both the near and long term. While I was in the middle of that piece, I realised it had been a long time since I wrote anything for the fundamentals section of the site. When I first started writing publicly, I outlined my frameworks for researching companies, valuing them, and assessing risk. You can access them by clicking the links below.

• A S.I.M.P.L.E Framework (Qualitative Analysis)

• A S.O.L.I.D Framework (Quantitative Analysis)

• Stock Valuations: Simple and Practical Approach

• A R.I.S.K Framework

While writing about capital allocation decisions of various companies, it struck me that I should first cover the core concept of capital allocation in my fundamentals section ( It is an important topic to have deliberate time allocated for clear thinking and documenting it). Once you hold a position, your job as an investor is to track whether the business is living up to your thesis. The easiest way to do that is by watching how the leadership team allocates capital.

My goal in writing this out isn’t to instruct or guide others. In reality, writing helps me clarify my thinking and internalise these concepts more deeply. Additionally, I don’t claim to be the one who originated these ideas. My views come from a mix of books, articles, podcasts, videos, and conversations with talented investors. Everything I write is an amalgamation of those influences, filtered through my understanding and whatever I can recall at the time of writing it.

What Is Capital Allocation?

Capital allocation is simply how a company’s leaders decide to use the capital they have. This capital can come from different sources e.g., raising funds from investors, cashflow from the business, loans from banks, selling assets, or even advance payments from customers etc.

What really matters is how management chooses to spend it. Every choice, like launching a new product, buying another company, or giving cash back to shareholders or any other use, shows how well the leaders understand their business and what they believe will drive its future success.

Why does it matter?

When constructing an investment portfolio, we carefully consider the allocation of our investment in each position, either based on our conviction or risk appetite or near-term catalyst, special situation, etc. If larger holdings do well, they can drive strong returns, even if a few small positions don’t work out.

Businesses face a similar challenge. Businesses have a limited amount of capital and must decide how to allocate it across various growth opportunities. Think of each business initiative as a company’s version of a stock selection.

The way management chooses which idea to back reveals a lot about their capital allocation mindset as well as key underlying strategic thinking. Are they focused on quick wins or building for the long term? Do they spread their bets across many ideas or concentrate on just a few? These choices shape the company’s future and can make or break its success.

Capital allocation is critical for any business, but for small cap companies where every dollar counts, it's vital, and discipline is essential. For investors, understanding how a company allocates its capital isn’t just a theoretical exercise. It’s a key part of making smart investment decisions and avoiding costly mistakes. Making sure a company’s capital allocation actions are consistent with the story they are telling the market is essential.

The Cost of Capital: The Investor’s Benchmark

A fundamental principle in capital allocation is that any investment should generate a return greater than the cost of capital. For simplicity, let’s assume a cost of capital is 8%. If management invests in a project or acquisition, the expected return should comfortably exceed 8% per annum. ( If returns are less than 8%, it will be a value-destroying move)

There are several alternatives. If a Leadership team chooses to allocate capital somewhere, they are implicitly stating their conviction that this use of funds will outperform those alternatives. If they are not making this calculation, then it’s a red flag. Or even worse, if they don’t care.

Factors that matter most

Now that I have defined what capital allocation is and why it matters. The next thing is how to figure out leaders who allocate capital well. In other words, what attributes do you need to see to be comfortable that they will make good capital allocation decisions on your behalf? There are many factors, but these 5 are the main ones, as depicted in the picture below.

Incentive

Leaders who benefit when the company grows in value are more likely to make smart capital allocation decisions and avoid wasteful spending. Skin in the game is a good enough incentive, but also a remuneration structure that encourages responsible risk-taking and reward decisions that drive sustainable and long-term growth is something to look for.

Skill

Value-creating capital allocation needs a variety of skills. It starts with financial know-how and, deep understanding of the business itself. Just as important is building a culture that attracts, empowers, and incentivizes smart people. Broader skills at the board level as well as the executive level help them weigh opportunities from various perspectives and avoid common pitfalls in spending or investing the company’s money.

Vision

Leaders with vision allocate resources to areas that support long-term strategy, rather than just short-term gains. They direct capital to fuel innovations, expansion, and transformation that keep the business ahead in its industry. Leaders with vision see things that will be important for their customers in the future and make capital allocation decisions for them today.

Discipline

Leaders with financial and business discipline follow clear processes for evaluating opportunities and know when to say no. They avoid two traps:

• Buying cheap assets that don’t fit

• Overpaying for those that do fit

They stick with their strategy and avoid impulsive or emotion-driven decisions.

Accountable

It is also important to understand that throughout business life leadership team will make many decisions and not all of them will turn out to be good. In that instance, it is important to see how fast they acknowledge, pivot, and cut their losses.

Practical Steps for Investors

Capital allocation is not a one-time event. It’s an ongoing process that touches nearly every aspect of a business. Hence, once you have the business in your portfolio, you still need to keep an eye on all the decisions that management makes and filter it through a capital allocation lens to see if this business still fits in your portfolio or your money should be better allocated somewhere else.

Many public announcements (whether price-sensitive or not) can usually be traced back to capital allocation decisions. Each decision is a clue as to how management is thinking about the future and the bets they are making.

1. Read Between the Lines

Don’t just take company announcements at face value. Ask yourself:

• What is the underlying capital allocation decision?

• Does this move align with the company’s long-term strategy?

• Is management chasing optics, or is real value being created? In other words, are they disciplined about returns?

One of the insights you can get from capital allocation is the time horizon that management adopts. Some investments, like new product development or geographic expansion, may take years to bear fruit. Others, like cost-cutting or minor acquisitions, might deliver quick wins.

Another insight comes from observing how management makes capital allocation decisions. Are they diversifying across multiple opportunities, or going all-in on a single big idea? Are decisions seem to be made based on careful analysis, or do they seem impulsive or for any other motive? In many ways, this mirrors the world of investing itself: the win ratio of bets, the size of each bet, and the overall risk profile all matter.

• Aggressive Allocators: May pursue bold acquisitions or rapid expansion. This can lead to outsized returns, but also increases the risk of failure.

• Conservative Allocators: Might focus on incremental improvements, maintaining a strong balance sheet, and returning capital to shareholders. This approach can be safer but may limit upside.

The best management teams strike a balance, making calculated bets with a clear understanding of the risks and rewards.

2. Track the Track Record

Look at the history of management’s decisions. Have past investments delivered the promised returns? Has the company created value over time, or have capital allocation missteps eroded shareholder wealth?

3. Assess Incentives

Review insider ownership and incentive structures. Are management and board members personally invested in the company’s success?

4. Compare Alternatives

Remember, every dollar spent is a dollar that could have been returned to shareholders or invested elsewhere. Is the chosen use of capital truly the best available option?

As you analyze potential investments, keep an eye out for companies that:

• Consistently earn returns above their cost of capital

• Communicate a clear, coherent capital allocation strategy

• Demonstrate flexibility and learning from past decisions

In the end,

Capital allocation is the ultimate test of management’s skill and integrity. For small-cap investors, it is both a risk and an opportunity. By focusing on how leaders deploy the company’s resources, you gain a powerful lens for evaluating potential investments and avoiding costly mistakes.

The next time you review a company’s announcement or listen to a CEO’s presentation, ask yourself: What does this decision say about their approach to capital allocation? The answer may be the most important factor in your investment decision.

I’ve put together my latest views on LaserBond (ASX: LBL) for  A Rich Life. For now, the article is exclusive to supporting members, but if it’s opened up to free subscribers later, you’ll be able to read it via the link below.

You can access the article using the link below.

https://arichlife.com.au/is-the-laserbond-asx-lbl-share-price-too-low/

Business Overview

PWH employs around 550 people and operates roughly 30,000 m² of factory space equipped with specialised plant and equipment across Australia, the UK, and the USA.

The company designs, manufactures, and supplies advanced cooling systems for niche, high-performance applications. Its four key end-markets are:

• Motorsports (Formula 1, NASCAR, WRC, Supercars, etc.)

• OEMs building special-edition vehicles

• Aftermarket performance parts

• Aerospace & Defence

The following drawing shows the business model of PWH

Today, Motorsports contributes a little over half of group's revenue. OEM and Aftermarket together account for roughly one quarter, while Aerospace & Defence has climbed to about a quarter, up from almost nothing just a few years ago. (These splits come from the 1H FY25 result; OEM and Aftermarket were softer than usual, so mix may shift again, but the broad picture of where PWH earns its money still holds.)

PWH secret sauce

PWH excels in a niche where precision and performance matter far more than cost. Customers care about every gram of weight and every millimetre of space; “good enough” off-the-shelf parts simply won’t do. Instead, they need a partner that can take raw aluminium in one door and deliver a fully-engineered, validated, custom cooling solution out the other—quickly and reliably.

• Mass-market automakers struggle to match this because their margins depend on scale, stable designs, and relentless cost control, not annual redesigns for peak performance.

• Tiny fabricators can’t keep up with PWH’s continual R&D spend, IP portfolio, and deep relationships with top-tier racing teams, OEM engineers, and aerospace primes.

That dynamic leaves PWH sitting comfortably between the giants and the minnows, protected by three main barriers to entry:

Together, these defences make it tough for newcomers to dislodge PWH or replicate its vertically integrated, high-performance model.

Total Addressable Market (TAM)

PWH operates across four segments: Motorsports, OEM, Aftermarket Spare Parts, and Aerospace & Defence.

Motorsports is its bread and butter. PWH supplies cooling systems to a wide range of racing teams across multiple global competitions, including Formula 1, where it claims to supply every single team. As motorsports continues to grow in global popularity and commercial success, team budgets are expanding, especially in areas like R&D for high-performance components. A portion of that increased investment flows to suppliers like PWH.

That said, motorsport isn’t a TAM monster. Based on various research papers I’ve come across, the motorsport market is expected to grow at a low single-digit CAGR between 2024 and 2030. So while it won’t see explosive growth, motorsport serves a more strategic purpose for PWH.

it’s an engineering showcase and testing ground. This helps PWH maintain its technical edge and lends credibility as it expands into adjacent, higher-growth segments like Aerospace & Defence.

Similarly, the OEM and Aftermarket Spare Parts markets aren't expected to deliver huge TAM expansion either. But all three of these divisions i.e, Motorsports, OEM, and Aftermarket, are:

• High-margin

• Cash-flow generative

• R&D transferable to other applications

• And contribute to brand credibility across industries

The real opportunity lies in Aerospace & Defence. PWH has grown this segment organically, leveraging its core R&D and engineering capabilities. From almost nothing five years ago, it now accounts for roughly 22% of total revenue.

This growth demonstrates that PWH is beginning to establish itself in a sector that values technical performance, customisation, and reliability, traits that align well with PWH’s DNA. If the bets it is currently placing in this segment continue to play out, Aerospace & Defence could become a breakout growth engine for the company in the years to come.

Recent setbacks

PWH’s share price has taken a hit following a decline in revenue during 1H FY25, which broke the company’s usual pattern of consistent growth. Management attributed the drop to the completion of two major OEM programs, as well as three niche OEM EV programs that did not proceed in FY25, despite having issued purchase orders in FY24.

Understandably, management noted that cost structures couldn’t be adjusted quickly enough to match the lower-than-expected volumes, which affected margins.

All of this has come at a time when PWH is in the midst of its largest investment phase to date. It has expanded factory capacity in both the UK and the US, and signed a lease for a new facility in Australia that’s twice the size of the current one. The company has guided that the transition to the new Australian facility will complete by November 2025, but also cautioned investors about the potential for production delay. I think it’s a fair warning, as such complex moves rarely go perfectly to plan.

Another challenge emerged in April, when founder and CEO Mr Kees Weel took medical leave. In his absence, Mathew Bryson has been appointed Acting CEO.

There’s no doubt this is a challenging period for the company. And while it's not a reflection of management’s competence, the reality is that things rarely go exactly to plan in the short term, especially during large transitions like facility moves and leadership changes. So yes, there are some risks of missteps along the way, even if the long-term direction remains sound

Potential Catalysts in future

During the 1H FY25 results, Management indicated that they have reviewed the organisation structure, headcount, and annual sale price increase, and the full impact of these measures hasn’t been reflected in the 1H financial results.

Formula 1 regulation changes are expected to drive revenue growth in H2 FY25. One more team added to F1, potentially increasing motorsport revenue by 10%

Aerospace and Defence segment will see high demand based on macro ( as it is market is expanding )

Short position has increased to 7.22% ( i.e, roughly 7.2m shares).T hat’s a significant number of shares already sold that, at some point, will need to be bought back. It can potentially add buying pressure if sentiment shifts or the company delivers better-than-expected results in August.

Valuation

So there is potential for me to create a bear case based on all the setbacks or create a bull case based on all the potential catalysts that I pointed out earlier. Well, PWH is a profitable and cashflow-generating company with negligible debt, so there is a floor to the downside, but if this is going to be a temporary issue, then upside can be significant in the future.

Currently, PWH is trading roughly at $660m market cap. So if I put that straight into a term deposit, I can get 33m every year at a 5% interest rate. Based on my calculation in FY24 it generated roughly $17.5m in free cashflow so based on current price 2.5% yield ( Although FY25 is going to be transition year and won’t generate same amount ) so if you look at 5 years down the track and assume that it increase its free cashflow by 15% then it will match 5% yield of term deposit but from there on it can grow its future cashflow significantly. ( Mind you, this is a very crude way to see the value as I haven’t factored in a lot of other things, but this gives me a rough idea)

So obviously market cap of the company has come significantly lower than what it used to trade, but still, at the current market cap, there are lofty expectations backed in. It would be interesting to see how things pan out, but I am looking forward to FY25 results.

I have gathered my thoughts about the Catapult FY25 result for A Rich Life. You can access the article by clicking the link below ( it is free)

https://arichlife.com.au/catapult-group-international-asx-cat-fy25-results-analysis/

Xero is one of the rare ASX-listed companies that seems to have pricing power. And pricing power doesn’t usually come without some kind of moat. In Xero’s case, that could be a mix of strong brand recognition, scale, the difficulty of switching platforms once you're in, and maybe even a bit of a flywheel effect from its growing ecosystem.

Over the past few years, Xero has moved away from a “growth at all costs” mindset. There’s been a clear shift toward what I call efficient growth, with less focus on chasing questionable acquisitions and spending huge marketing and sales $ in the region where they are facing their biggest competition. Instead, the New CEO hasn’t done any silly acquisitions and wound down a few businesses that were not fitting the strategy, and migrated towards focused growth in the US region and making its product appropriate for the US market before allocating a huge budget for growth.

When I last wrote about Xero here and here, I mentioned a few areas I’d be watching closely between FY25 and FY27. These were based on what the current CEO had outlined as part of her strategic vision after taking over the reins. Now that she’s been in the role for a couple of years and the FY25 results are out, I thought it’d be worth revisiting those ideas to see how things are tracking.

Here are three things that I believe are important for judging CEO performance.

• Cost control

• Revenue mix

• Subscriber growth

1. Cost Control – Is the business becoming more efficient as promised?

One of the first things I look at when reviewing Xero is its operating income. With gross margins around 89%, the business has a lot of flexibility, but what matters is how well it manages the money below that line.

Here’s how FY25 operating expenses stacked up:

• Sales & Marketing (S&M): 31.6% of revenue

• Product Development (PD): 29.4%

• General & Administrative (G&A): 10.8%

Add those up, and 71.8% of revenue is spent on operating costs, leaving about 17.2% for operating income. That’s quite a lift from around 6% a couple of years ago.

The CEO’s focus on streamlining costs is showing up in the numbers. So this is definitely a green tick for the CEO.

2. Revenue Mix – Is ARPU growing beyond just price hikes?

One of the themes in Xero’s strategy has been to build around three “jobs to be done” (JTBD): accounting, payments, and payroll. At the moment, most revenue still comes from accounting, but ideally, over time, the other two areas could play a bigger role.

Payments revenue grew 65% year-on-year, which is a good signal. There are also changes underway to improve payroll adoption, including adjustments to plans. That said, Xero doesn’t break out revenue by segment, so it’s hard to gauge how much progress is being made here.

It is too early to see the diversification of revenue between Accounting, Payments, and Payroll, just because Accounting is such a huge portion of the current revenue. This is what will become more evident as we progress towards FY27 and beyond.

While price increases have driven a good portion of revenue growth in recent years, hopefully, we will see Payments and Payroll do the heavy lifting in the coming years. This is probably an amber tick - I can see the sign of improvements but can’t be sure.

3. Subscriber Growth – UK/US Starting to Show Life?

Xero’s geographic focus continues to be on its three major markets: ANZ, UK, and US. They call this the “Win 3x3” approach—matching three regions with the three jobs to be done.

Here are the graphs showing the trend of net new subscribers in three major markets.

Looking at these graphs, I can see the UK and US saw an uptick in net new subscribers in the second half. It’s early, and one-half doesn’t make a trend, but it’s good to see some momentum there. These are much larger markets with much room to grow, if Xero can keep improving its product-market fit.

On the flip side, subscriber growth in ANZ has slowed. That’s probably not surprising given Xero’s strong market share in the region. Price increases seem to be doing more of the heavy lifting for growing revenue now. Either growth here has naturally plateaued, or price sensitivity is starting to impact new customer additions.

It’s hard to say for sure, but I do wonder whether Xero might need to ease off pricing in ANZ at some point to reignite customer growth—or maybe the next leg of growth really will have to come from outside Australia and New Zealand.

Overall, I think Xero’s FY25 results show some steady progress against the broader strategy laid out a couple of years ago. There’s a clear improvement in operating leverage, some signs of revenue diversification, and at least a glimmer of growth in the UK and US. Slow down in subscriber growth in the ANZ region is -ve. I think management has gone a bit too far with the price increase, which is impacting new customer additions.

With these thoughts in mind, giving the CEO strategy execution a green tick - Let’s analyse Financial performance for FY25

Revenue

The chart below shows Xero’s revenue trend, and it is very difficult to fault the growth it has achieved. For FY25, it has reported revenue of $2.1B i.e, 20% growth in constant currency compared to FY24.

Subscribers ( Xero’s customers)

The charts below show how Xero has grown its customer base over the years - Xero calls its customers subscribers. The first graph shows overall subscribers, and the subsequent graph shows subscriber growth performance in the ANZ, UK, and USA regions.

Note: The dip in 1H2025 in the USA and UK charts is because Xero decided to remove its roughly 160K long idle subscribers from the count ( those subscribers were mainly in USA, UK, and Rest of the World region)

Average Revenue Per User (ARPU)

While price increases have been the main driver of ARPU growth, other factors like cleaning up long-idle subscriptions, growth in payments revenue, and foreign exchange movements have also played a role.

NPAT

There’s no better chart to highlight Xero’s shift in focus toward profitability starting in the second half of 2023, when the company trimmed its workforce to the right size and wrote down some of the questionable acquisitions made before the current CEO came on board..

Valuation

Xero currently has around 154 million shares on issue. At a share price of $180, that gives it a market cap of roughly $28 billion. [ Edit: I forgot to convert AUD to NZD during my initial article - So that is roughly $30.4 billion NZ$ ]

For FY25, Xero reported revenue of $2.1 billion, EBITDA of $638.5 million, and a net profit after tax (NPAT) of around $228 million.

That means it's trading at about 13.4 (14.47 - when converted to NZ$ ) times sales, an EV/EBITDA ratio of 43 (47 - when converted to NZ$), and a P/E of roughly 123 (133 - when converted to NZ$). This kind of valuation suggests the market is expecting strong future revenue growth and improved operating leverage over time.

If I run a reverse DCF and aim for a 10% annual return, Xero would need to grow its free cash flow by 30% (31% when converted to NZ$) per year for the next 10 years to justify the current price. Can it grow FCF at that pace for 10 years?

Alternatively, if you’re okay with a 6% annual return, then Xero needs to grow free cash flow at about 14% (14.5%, when converted to NZ$) annually for the next 10 years to justify the current price.

These aren’t my forecasts or assumptions—they just reflect what the market appears to be pricing in today. My reverse DCF assumes 10 years of growth before transitioning to a terminal growth rate. Of course, some quality businesses manage to grow meaningfully for much longer than that. Is Xero one of them? If I sell now, will I get the chance to buy back in before it grows into an even bigger beast? It rarely trades at a low valuation, and when it does, it usually means there’s something seriously wrong in the broader market.

I don’t have the answers, but these are the kinds of questions I find myself asking when I think about XRO’s place in my portfolio.

Disclaimer: The information contained within this website and article is not financial advice and reflects my opinion in a strictly personal capacity. I am an engineer by training and profession; I do not possess formal qualifications in finance or investment. I may hold positions in the stocks mentioned and hence probably biased. This website and article aren’t written to give you advice. I am just using it as my online journal to share knowledge and insights and to get feedback - I can’t guarantee the complete accuracy of all content so don’t rely on it. Please conduct your own research or consult a professional financial advisor - I am not the one.

Back in August 2024, when I analysed Megaport’s FY24 results and FY25 guidance, I ended with a key question: - you can read it here

Again, when I wrote back in November 2024 after it’s AGM ( here )- I broke down drivers behind NRR story for Megaport and ended up with following conclusion

It’s no surprise that I was watching NRR closely in the 1H FY25 results. When Megaport reported in February, the good news was that management highlighted NRR right on the front page of the presentation — pointing to the first signs of stabilisation.

The Good News: NRR Is Stabilising

Megaport reported a Net Revenue Retention (NRR) of 107%, meaning revenue from existing customers grew by 7% over the past year. That’s after accounting for customer expansion (like upgrades, increased usage, and add-ons) and subtracting churn (downgrades, reduced usage, or cancellations).

Historically, 60–70% of Megaport’s growth has come from existing customers. While this result hasn’t quite reached those levels, it’s a step in the right direction. NRR has improved by 1 percentage point from the previous half, and the early signs suggest further improvement may be coming.

In my earlier article, I broke down the key factors that influence NRR — and encouragingly, many of them now seem to be trending in the right direction:

1. Market conditions are improving –Global NaaS peers have recently reported stronger NRR, suggesting a healthier environment for the sector. That said, there are some potential headwinds on the horizon. With Trump’s tariff announcements and rising tensions between the world’s two largest economies, there’s a risk of a broader trade war. While this may not directly impact Megaport, no company operates in isolation — effects on suppliers, customers, or the broader supply chain could still have indirect consequences.

2. New customers tend to expand faster – Megaport's presentation shows a clear uptick in new customer acquisition, along with growing momentum in its access products — typically the first step customers take to connect to the Megaport fabric. (Screenshots below.)

3. New product offerings – Megaport has launched new products aimed at driving more usage from existing customers.

4. Go-to-market investment – Megaport has been investing in GTM efforts, including its customer success team, which should help with both expansion and retention.

Small Greenshoots, Cautious Optimism

It’s not just about NRR. Management also tightened the lower end of revenue guidance while maintaining EBITDA guidance, even after absorbing a $4 million opportunistic go-to-market (GTM) investment.

This suggests a balanced approach: investing for growth, while keeping profitability intact.

Personally, I’ve moved from being doubtfully optimistic to cautiously optimistic. I remain a fan of the structural tailwinds supporting Megaport’s business model — and this result gives me more reason to watch closely.

Let’s Break Down the Numbers

Annual Recurring Revenue (ARR)

One of the key metrics for Megaport is Annual Recurring Revenue (ARR), which is calculated by multiplying the Monthly Recurring Revenue for the last month of the period by 12

last time when i analysed FY24 result, i said the main problem is the slowing growth of ARR growth. This half, I am seeing improvement ( Although during 1HFY25 there is considerable currency tailwind, even if we compare constant currency - ARR growth is 14%, which is better than my expectation based on my last post). Here’s a look at the growth of ARR growth pattern:

and if you want to see ARR growth pattern, following graph shows it

Revenue

Revenue flows directly from ARR (Note: the 2H FY25 estimate in red is my projection.)

Margin Trends: Gross, EBITDA, and Net

It’s clear Megaport has pivoted hard toward profitable growth, as the market demanded.

The business model is proving to be sustainable, and I believe we’ve yet to see the full benefits of operating leverage kick in.

The following three charts show margin trends, which tell an important part of the story.

My thoughts

In its early years, Megaport benefited from a “growth at all costs” environment, scaling rapidly but burning a lot of cash until FY22.

Since then, the company has pivoted successfully toward profitability, responding well to market pressure. Now, it appears to be finding a middle ground — investing to grow ARR while remaining just above the profitability line. It doesn’t seem to be optimising for maximum net or EBITDA margins just yet — and that’s okay.

The industry tailwinds remain strong, and the 1H FY25 result shows early greenshoots. Execution momentum will be key going forward.

From a macro perspective, there are some mixed signals:

• Trade tensions could lead to higher equipment costs in the U.S., potential supply chain disruptions, and a general dampening of business sentiment. On the flip side, they could also raise barriers to entry — which might work in Megaport’s favour by limiting new competition.

• The weak Australian dollar is currently a tailwind for Megaport, but that could easily reverse. Rather than stressing over things outside the company’s control, I prefer to focus on how well it's executing its strategy.

In any case, the macro environment is shifting so rapidly that it's impossible to predict what’s next. The good news? Megaport is building its cash balance and has a strong balance sheet, and I believe it’s well-positioned to absorb shocks and emerge stronger on the other side.

And based on this result, I see a little more hope for the future.

https://arichlife.com.au/siteminder-asx-sdr-1h-fy25-half-year-results-analysis/

PS: If you're wondering why I keep posting these updates, it's to maintain a consolidated view of my articles. This way, when I visit my website, I can easily track what I’ve written and when—making it easier to reference all my work in one place.

https://arichlife.com.au/kip-mcgrath-education-centres-asx-kme-h1-fy2025-result-the-good-the-bad-and-the-tutorfly/

Hope you had a good Earning Season.

However, due to ARL’s compliance policy, the article had to be held for at least two days after the market traded on the results before publication.

For added transparency, I’m also disclosing that I won’t be trading AD8 shares for at least two weeks—rather than just two days—after the article goes live.

You can read the article for free here:

https://arichlife.com.au/audinate-asx-ad8-h1-fy-2025-results-has-the-worst-passed/

Disclaimer: The information contained within this website and article is not financial advice and reflects my opinion in a strictly personal capacity. I am an engineer by training and profession; I do not possess formal qualifications in finance or investment. I may hold positions in the stocks mentioned and hence probably biased. This website and article aren’t written to give you advice. I am just using it as my online journal to share knowledge and insights and to get feedback - I can’t guarantee the complete accuracy of all content so don’t rely on it. Please conduct your own research or consult a professional financial advisor - I am not the one.

Back in early August 2024, I shared my thoughts on Audinate’s FY24 results ( you can read it here) highlighting my expectations ahead of its release ( obviously it didn’t meet my expectation as well as market’s expectation). Fast forward to six months, and the company has faced significant challenges, with another downgrades in a short span—first with its disappointing guidance for FY25 during FY24 result presentation and then again with further downgrade in their 1Q FY25 trading update. Management has already set expectations that FY25 will be a transition year, which raises several key questions in my mind.

1. What headwind Audinate is facing? - is it structural issue or something that company doesn’t have control over.

2. Is Audinate cyclical business or is it once off? Is these headwind near end?

3. Is Audinate operationally performing based on outside view?

What headwind Audinate is facing?

Audinate’s recent performance has been impacted by industry-wide and company specific headwinds.

Industry-wide headwinds

• Customers Investory Levels (H1) : Many of Audinate’s manufacturing customers had previously over-ordered chips and modules, leading to an inventory buildup. This has resulted in a slowdown in new purchases while customers clear existing stock

• Shorter Lead Times (H2) : Once the Chip supply has normalised, in FY24 Audinate managed to clear the backlog and hence overachived revenue. There are no backlogs to clear in FY25.

• Softer End-User Demand (H3): The AV industry has not yet rebounded as strongly as expected.

Company Specific headwinds

• Transition to Software (H4) : The shift towards software-based Dante implementations continues, driving margin expansion but at the cost of lower per-unit revenue.

• End of Life Products (H5): Legacy products like Viper being phased out, creating addition revenue headwinds.

Is Audinate a Cyclical Business or is This a One-Off Issue?

When I look at all five headwinds (H1 to H5) outlined earlier, I see a mix of factors that contribute to Audinate’s current situation.

Audinate’s business model inherently involves some level of reliance on manufacturer and OEM inventory levels, as well as lead times. Any disruption in the supply chain will have an impact, though with a delayed effect. However, as Audinate transitions to software-based Dante implementations, this reliance should diminish. Additionally, this current situation is largely a result of once-in-a-century events like COVID and the supply chain disruptions that followed. Given this, I lean towards the view that H1 and H2 have played a larger role in this downturn, and hopefully, this is a one-off event rather than a persistent issue. In the future, Audinate should be able to navigate smaller supply chain disruptions more effectively.

H3—softer end-user demand—is a factor that will always remain, affecting most companies. While Audinate is somewhat reliant on the broader economy and consumer/business confidence, I don’t see it as overly dependent. The company operates on a global scale and is expanding from audio-only offerings to video and management products, providing some insulation from economic cycles.

H4 and H5—product transitions and end-of-life products—are genuinely once-off issues. Over the long run, these changes should be operationally beneficial for Audinate. While H4 (the shift toward software) will take a few years to fully play out, its impact should decrease over time as the transition progresses.

Overall, I believe Audinate is not entirely a cyclical business, but it is also not completely immune to broader economic trends. That said, I am comfortable assuming that this is not a structural issue at this stage. As I’ve been tracking the broader Audio-Visual (AV) industry, I have been looking at leading indicators to assess whether growth is picking up. Unfortunately, the signals remain weak. For instance, the AVIXA Sales Index suggests that sales growth has slowed, and similar trends can be observed in the financial results of key industry players like Yamaha and Aver. These indicators reinforce the idea that a strong recovery in AV product demand has yet to materialize.

Given this context, I believe Audinate’s first-half FY25 results will likely disappoint, particularly when compared to the exceptionally strong first-half FY24 numbers. More importantly, even if the company does manage to meet expectations, I do not see a scenario where it provides a confident, growth-driven outlook for the second half. The recovery appears to be a drawn-out process rather than an immediate turnaround.

Is Audinate Operationally Performing Based on External Observations?

What I mean by this question is whether management is executing on their stated strategy and making long-term decisions that align with their vision.

There are several reasons to believe that Audinate is performing well operationally:

• Audinate continues to innovate in the AV field, launching products that address real industry challenges. Examples include Dante Director, Dante Connect, and the Dante-AV protocol.

• Audinate focus is in onboarding as many manufacturer and OEM partner and increase products with them and build the network as much and as fast as it can and rest will take care. Even in 1Q2025 trading update they indicated that design wins increased by 22%.

• Audinate has already established itself as the de facto standard in professional audio and is making strong progress in video. Several factors give Audinate an advantage in the video market:

  • AV professionals who have been trained on Dante certification require no additional learning to adopt Dante-AV, as the same principles apply.

  • Audinate has over six million audio devices deployed in the field, with no true alternative offering an ecosystem as expansive as Dante. It makes logical sense for customers to extend this to video devices within the same network.

  • Selecting an alternative standard for video would be costly for manufacturers, system integrators, and end users. One manufacturer cited the following reason for choosing Dante-AV:

    

• Historically, a drawback of Dante compared to other software-based protocols was its requirement for dedicated hardware. However, with Audinate transitioning to software-based implementations, this limitation is being eliminated.

These factors suggest that despite near-term financial headwinds, Audinate is making the right strategic moves to strengthen its position in the AV industry for the long term.

My Strategy

Considering these challenges, my base case is that Audinate’s share price will decline after its first-half FY25 results. The following tweet succinctly outlines my strategy.

Link to my previous tweet

Another interesting factor to consider is the short interest in Audinate. Currently, about 7.5% of the company’s shares (approximately 6.2 million shares) are being shorted. This means that, at some point, these positions will need to be covered, which could drive some buying activity.

Looking at historical liquidity, when Audinate issued its first downgrade on August 6, 2024, the total volume of shares exchanged on that day was roughly 5.6 million. This suggests that if another sell-off occurs post-results, it may create a buying opportunity, especially if the market overreacts to short-term weakness.

The Risk of Confirmation Bias

While I hold a bearish near-term view, I acknowledge the risk of confirmation bias. Am I simply looking for data points that align with my existing belief that Audinate’s stock will decline ( as you can see that was my view in last year August as well). Could I be missing signs that the company is already on the path to recovery?

The alternative scenario is that Audinate surprises on the upside. Perhaps the company has managed to navigate its inventory challenges more effectively than expected, or maybe there are new revenue drivers that haven’t been fully appreciated by the market yet. If Audinate “comes out all guns blazing,” as the saying goes, the stock could see a sharp rebound, proving my cautious stance to be overly pessimistic.

Final Thoughts

Audinate remains a high-quality company in a strong strategic position, but short-term turbulence is undeniable. The upcoming first-half FY25 results will be a crucial moment, not just in terms of financial performance but also in setting expectations for the rest of the year.

For now, I remain cautious, anticipating near-term weakness but keeping an open mind. I am just documenting this for my referencing and there is a high chance that I could be wrong (and that wouldn’t be the first time either). So, you are welcome to read it and interpret it as you see fit. I am just thinking out loud—it is safe to ignore me.

Let’s see how this unfolds. Happy Valentine’s Day—and, more importantly, happy earnings season!

On November 22nd, Megaport held its Annual General Meeting (AGM). In my last analysis on August 26th, I reflected on their FY24 results and FY25 guidance, posing a main question in my mind:

“If you can answer this one crucial question, you’ll be able to accurately assess Megaport’s value: Can Megaport successfully reverse the decline in Net Revenue Retention (NRR)?”

At the AGM, Megaport reaffirmed their FY25 guidance, a positive sign indicating no need for a downgrade. However, the market appeared disappointed, likely anticipating a more optimistic surprise. As of this writing, Megaport’s stock is down approximately 10%, reflecting this sentiment.

Interestingly, beyond the FY25 guidance, management added an important note:

“Early trends are indicative of a continuation of this revenue growth trajectory in FY26.”

This suggests that the NRR reversal may take longer than anticipated while growth is steady. Based on the company’s midpoint guidance, FY26 revenue growth is expected to be in the range of 13–15%, in line with FY25 trends (at this point)

What Drives NRR at Megaport?

Several factors influence NRR performance:

1. Market Conditions
   Broader market conditions impact all industry players. While there isn’t a perfect comparable company for Megaport, trends at peers like Equinix (connectivity segment) and Cloudflare show similar NRR declines. This indicates that external market factors are playing a role.

   This is something they don’t have control over. so hope for the best and prepare for the worst is the strategy.

2. Launch of New Products
   Expanding existing customer spend often requires new products for upselling or cross-selling. Between 2020 and 2023, Megaport struggled with innovation. However, the last year has seen multiple new product launches, which should potentially drive improvements in NRR.

3. Pricing Adjustments
   Incorrect pricing can hinder upselling and cross-selling. This was a significant issue for Megaport, but management claims it has been addressed. Still, it will take time for these adjustments to reflect in NRR metrics.

4. Customer Success Management
   Customer Success Managers (CSMs) are crucial for driving NRR by fostering deeper engagement with existing clients. In 2023, Megaport had just one CSM. Today, North America alone has 12, signaling a major shift in focus.

5. New Customer Wins
   New customers typically expand usage faster than existing ones as they explore and integrate into Megaport’s ecosystem. Last year, net new customer growth was weak. To address this, Megaport revamped its go-to-market (GTM) strategy, incentivizing the sales team to prioritize new customer acquisitions.

Assessing Megaport’s Progress

Out of the five levers that influence NRR, Megaport controls four: new products, pricing, CSMs, and customer acquisition. Encouragingly, management has implemented the right strategies in these areas. The fifth lever—market conditions—remains outside their control and will likely improve with time.

That said, there is still no concrete evidence that the NRR decline has been reversed. My original question remains unanswered:

“Can Megaport reverse the decline in NRR?”

The updated answer: It may, but it could take longer than hoped.

Is Management on the Right Track?

Yes, their strategy seems sound. Now, the challenge lies in execution. Only time will tell if Megaport can overcome its NRR headwinds and deliver on its growth potential. For now, I should monitor progress closely while remaining patient.

I wrote a follow-up article analyzing the FY24 result - you can read it here

and today, I just penned down my thoughts on 1H FY25 result - you can read it here

Life has been a bit hectic lately, which is why I haven’t published anything recently—not because I’ve forgotten about my Substack! A lot has been happening all at once:

• I landed a major project at work that’s been keeping me busy.

• Family members were visiting from overseas and staying with us.

• I also joined an intense learning group that required a fair bit of effort but has been worth it. I’m excited about how what I’ve learned will eventually translate into my writing and hopefully benefit you too.

That said, I’m looking forward to spending more time at my keyboard in the coming months!