​Cloud revenue boosts Data#3's first half profit to AU$5.8m

Business technology solutions firm Data#3 has released its results for the first half of the 2017 financial year, reporting net profit of AU$5.8 million, up 34 percent over the corresponding period a year prior.

Revenue for the six months to December 31, 2016 was up 10.6 percent year on year to AU$506 million, which included cloud-based revenues of AU$58 million.

"The solid financial and operational results reported today reflect our strategic and increasing focus on growing our portfolio of services. This includes the rapidly growing cloud services market, and I am confident that we are well positioned to satisfy market demand," Data#3 CEO Laurence Baynham said in a statement.

Total product revenue from hardware and software sales and subscriptions increased by 11.5 percent for the period, from AU$371.1 million to AU$413.9 million. Data#3 said this reflected strong growth in public cloud solutions, which was up 32.5 percent to AU$53.3 million, as well as steady growth in other on-premises solutions, which experienced 9.0 percent growth to AU$360.7 million.

During the six-month period, total services revenue increased by 6.6 percent from AU$85.6 million to AU$91.3 million, which included AU$4.7 million of cloud-based services.

Operating expenses for the half came in at AU$66.7 million.

Data#3 told shareholders that consulting, professional services, and recruitment revenues also grew strongly, offsetting relatively flat managed services and maintenance services revenues.

"We remain strongly focused on achieving our full-year financial objective, and the first half performance positions us well to achieve that goal," the company said on Wednesday.

"In the longer term, Data#3's strategic transition from primarily product-centric to increasingly service-centric positions us well to continue growth in shareholder value.

"We will continue to develop and offer the combination of on-premises and cloud-based solutions for our customers' changing requirements."

For the 2016 financial year, Data#3 reported a 30 percent year-on-year increase in net profit after tax to AU$13.8 million, with gross profit up 13.2 percent to AU$146.6 million.

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) was up 31.6 percent to AU$22.4 million on revenue of AU$983.2 million for the 12-month period.

At the time, Baynham told shareholders the record result was thanks to the strategic shift the company undertook, attempting to transition the company into a services firm.

"The FY16 results reflect the company's strategy of transitioning from primarily a product-centric approach to an increasingly service-centric approach in a rapidly changing IT environment," he said.

"We are currently on track with our strategic plan which contains three long-term objectives, being to deliver sustained profit growth; to grow services revenue with an increase in annuity and an increase in margin; and to grow cloud services revenues."

During the first half of the 2017 financial year, Data#3 transitioned the Victoria State Emergency Services into the Microsoft Azure cloud, which saw it become the first emergency services organisation in Australia to head to the public cloud.

Looking forward, Data#3 told shareholders it expects public cloud will become mainstream in the local environment and said it is currently witnessing a rapid shift to consumption-based and service-centric solutions.

Growing its business consulting and investing in new internal systems were flagged as key priorities for the remainder of the financial year by the company.

In addition, Data#3 said it will be establishing a health sector practice in a bid to emulate what the company has seen with its investment in education.

"We are confident that we have the right strategy to underpin sustainable growth in long-term shareholder returns," Baynham said on Wednesday.

"Our first-half performance and pipeline of opportunities provides a solid foundation to achieve our objective of improving on the company's 2016 full-year profit."