Data#3 revenues dip but WA growth surges

Data#3's revenue took a 5 percent dip amid changes to Microsoft's Enterprise licensing arrangements, but the company saw good news in gross profits, a surge in cloud-based software sales and huge growth in Western Australia.

The channel giant's revenue fell 5 percent year-on-year to $771 million for the 12 months to 30 June.

Net profit fell 11.3 percent to $12.1 million.

One of the hardest hit areas was software licensing, where sales fell 11.4 percent to $428.1 million.

However, Data#3 managing director John Grant explained that the decline didn’t tell the full story – the company expects to take ongoing hits to top-line revenue over three years as Microsoft Enterprise licences come up for renewal and are transitioned to the new commission model.

Grant told CRN that this applies to every company that resells Microsoft software under Enterprise agreements. "I wouldn't make too big a deal of this. The fact that our revenue has dropped is due to the way it is billed.

"Revenue is less an indicator than gross profit… total gross profit is a better indicator of business performance and it went up 2.1 percent."

He added: "Did we grow or did we not? We did – that is a very a relevant piece of information in our view."

Grant also revealed that cloud-based software sales comprised 10 percent of Data#3's licensing business: "That is a big number."

Data#3 has also won a significant deal with Ipswich City Council that could be the sign of things to come.

"Ipswich City Council has moved its own data centre infrastructure into Data#3's cloud. Nothing is on-premise – it is a big deal. Much as everyone talks about it, customer are still cherry-picking parts of the cloud for certain application workloads unless they are a very small entity."

Data#3's cloud is hosted in Equinix's data centre in Sydney and the Polaris data centre in Queensland.

The full-year results were buoyed by its "largest-ever infrastructure contract" – a contract win with Perth-based Fiona Stanley Hospital that is worth a combined $50 million to Data#3 and fellow supplier Dimension Data.

Data#3's share of the deal is not public, but Grant told CRN it was in the "multi tens of millions".

The company has continued to build its west coast operation off the back of the hospital deal.

"Our business in WA more than doubled its people, more than doubled its revenue and more than tripled its profit," said Grant.

Looking ahead, Data#3 is "watchful for non-organic growth options".

Grant offered some insight into the types of acquisitions it would look for.

"Firstly, we don’t think it is productive to acquire like business to Data#3 and merge them. That is high risk. We certainly look for solutions and capabilities that are complementary to Data#3.

"To be specific, we have a very small SharePoint practice at the moment – certainly a larger SharePoint practice is one thing we could be interested in.

"We have a relatively small recruitment and contracting business in one state and we could certainly look to bolster our presence outside of Queensland."

He pointed to the business applications space and managed print as two more possible targets.

Grant added that Data#3 would only be interested in acquiring a company if it could "run itself as a business", rather than see M&A as an exit strategy for the owners.