Data#3 revenue hits AU$1.4b thanks to Microsoft wins

The company was charged with managing a handful of Microsoft licensing arrangements during FY2019

Australian business technology firm Data#3 has reported its financial results for 2019, taking a hit from its Data#3 Cloud divestment. This was offset, however, by growth in what the company called lower-margin maintenance services revenues and Microsoft contract wins.

Revenue was up by 19.8% to AU$1.4 billion, comprised of AU$1.2 billion in product revenue -- representing 21.3% growth year-on-year. Services accounted for AU$247 million, which was a 13.3% increase over last year's result.

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Included in its product revenue, infrastructure accounted for AU$379 million, up 24.3%; software solutions for AU$788 million, up 20.3%; and discovery technology  -- predominantly a Wi-Fi network and Wi-Fi analytics business --  for AU$800,000, which was a drop of 69.2% from the previous year.

Services meanwhile comprised of AU$26.5 million from its consulting segment, a 5.2% growth; project services accounted for AU$54.8 million, up 14.2%; support services for AU$108 million, up 24.5%; recruitment for AU$53.4 million, up 6%; and discovery technology, which again dropped 26% to AU$3.8 million.

Total revenue for the year ended 30 June 2019 included AU$362 million of public cloud-based revenues, up 35.3% from FY18.

Data#3 told shareholders the growth in both product and services revenue was fuelled by digital transformation projects.

"Services gross profit increased by 0.6% and gross margin decreased from 38.1% to 33.9%, reflecting the change in Support Services mix due to decommissioning of the Data#3 Cloud in FY18 & FY19," the company wrote in its results presentation.

In the previous financial year, the company started the project to decommission the Data#3 Cloud platform, which it completed in the first half of FY19.

Data#3 said this temporarily reduced the managed services revenue and profit contribution in both FY18 and FY19 as it transitioned to a new, public cloud-based offering.

See also: Moving to the cloud: Top challenges organisations face (TechRepublic)

Gross profit was just shy of AU$174 million, however, its net profit after tax came in at AU$18.1 million for the year.

Earnings before interest, taxation, depreciation, and amortisation (EBITDA) was up 25.8% to AU$28.3 million.

"We are delighted with the performance of the consolidated Data#3 business, which delivered a record result.  Market conditions remained relatively stable in FY19, with digital transformation projects continuing to drive growth in our core infrastructure, software and services businesses," Data#3 chief executive officer and managing director Laurence Baynham said. 

"The growth in public cloud was a particular highlight."

Internal staff costs increased by 6.5% to AU$125 million, with the company now boasting 1,200 staff across nine offices in Australia and Fiji.  Other operating expenses increased by 0.6% to AU$23.4 million during the year.

Data#3 also claimed it has 4,933 enterprise and government customers, 2,113 services projects, and over 2.5 million Office 365 licensed users.

Data#3 is Microsoft's largest reseller in the region.

Last month, Microsoft scored a three-year, whole-of-government deal that makes Office 365 available to all 98 federal government agencies, with the company expecting less than 2% of the Commonwealth to remain on legacy on-premise desktop licenses.

The licensing agreement will be managed by Data#3 with partners including DQA, oobe, and Veritec.

Read more: Microsoft Australia scores whole-of-government 365 deal

Data#3 was in May handed two contracts for the supply of Microsoft software to the government of Western Australia.

Under the terms of the two three-year deals, Data#3 will be the sole provider for Microsoft software to all of the state government's agencies. The first contract that covers Microsoft licensing to the WA government, while the second arrangement continues Data#3's incumbency with the Department of Education.

Data#3 was last year awarded a Whole-of-Australian-Government (WoAG) contract by the Digital Transformation Agency (DTA) that saw the local firm be the sole provider of Microsoft licensing solutions.

The DTA, on behalf of Australian governments, went to market to find one or more Microsoft resellers to appoint to the WoAG Software Licensing and Services Panel for round three of its agreement with Microsoft.

The Microsoft Volume Sourcing Agreement (VSA3) began 1 July 2016, and will wrap up 30 June 2019.

Data#3 was also charged with replacing the Department of Finance's Govdex platform with a cloud-based file-sharing and "community collaboration" solution, chosen by the department after turning to the government's cloud services panel.

Looking forward, Data#3 said that as digital transformation is a high priority among customers, it will be focusing on its services segment, the digital enablement of its customers, improving the customer experience, and building further vendor relationships.

"We see ongoing growth in the Australian IT market, with digital technologies leading business transformation in both the commercial and public sectors, and we believe we remain well positioned to capitalise on these opportunities," the company said.

"We are confident about delivery of the company's longer-term strategy.  We have a robust business, no material debt, solid long-term customer relationships, committed supplier partnerships, and a highly experienced and productive team," Baynham added. 

For the first six months of the year, Data#3 reported AU$6 million in net profit after tax, on revenue of AU$644 million.

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