Data#3 revenue swells thanks to public cloud wave

Data#3’s tilt at public cloud has paid dividends, helping the company turn around its fortunes and grow revenue by nearly 20 percent.

Revenue for the financial year ending 30 June 2019 reached $1.4 billion, due in no small part to its burgeoning public cloud business, which grew 35.3 percent to $362.2 million in revenue.

Meanwhile net profit grew 28.7 percent to $18.1 million, while EBITDA grew 25.8 percent to $28.3 million.

Data#3’s two primary revenue sources, product and services, saw significant growth, with public cloud revenue included in both categories.

Product, which includes infrastructure and software, rose 21.3 percent to $1.17 billion, while services, including consulting, project services, support and recruitment, rose 13.3 percent to $246.9 million.

“We are delighted with the performance of the consolidated Data#3 business, which delivered a record result,” said Data#3 chief executive Laurence Baynham.

“Market conditions remained relatively stable in FY19, with digital transformation projects continuing to drive growth in our infrastructure, software and services business. The growth in public cloud was a particular highlight.”

Data#3 has no shortage of public cloud customers, having retained its status as the federal government’s sole provider of Microsoft licenses in March 2018.

So far, Data#3 has focused on Azure and Office 365 licensing, in addition to migrating customer’s applications to the cloud, whether it’s private, hybrid or public, though the company said it wants to provide services “at every stage of our solution life cycle: consulting, design and implementation, and managed or support services for both public and private clouds.”

Data#3’s cloud business hasn't always been in great shape. In December 2017, Data#3 took the step of shutting down its own cloud platform, opting to migrate customers to a public or private cloud instead.

The decision to decommission the Data#3 Cloud platform helped push customers onto new public cloud-based offerings, but at the same time dragged down managed services revenue and gross margins for products and services.

Product’s gross profit increased 17.2 percent, but gross margin dropped from 8 percent to 7.7 percent. Services gross profit grew 0.6 percent while gross margin dropped from 38.1 percent to 33.9 percent. Both of these were blamed on the change in services mix from shutting down the Data#3 Cloud.

“Moving forward, our managed services business is well positioned for improved profitability, and we are making steady progress with our strategy of offering customers public or private cloud solutions from our market-leading, global vendor partners, which include the full range of Data#3 services,” said Baynham.

Discovery Technology also felt the heat in FY19, with product revenue falling 69.2 percent to $800,000, and services revenue dropping 26.1 percent to $3.8 million. The issues were pinned on an ongoing dispute with a customer that terminated a five-year contract prematurely in FY18, which is still subject to legal recovery action.

Data#3 acquired a 77.4 percent stake in Discovery Technology, which offers WiFi network and analytics, though the business continues to operate independently from its owner. That could soon change as Data#3 will look to further integrate Discovery Technology.

“Data#3 still sees strategic advantage in Discovery Technology, and the closer working relationship with Discovery Technology will help capitalize on the growth in the fast-moving data and analytics market. We expect to see a return to positive profit contribution for Discovery Technology in FY20,” the company said in an ASX statement (pdf).

Data#3’s shares traded at $2.41 each at the time of writing, up 4.33 percent from the opening of trading.