Data#3 expects FY24 first half-year profit before tax to be approximately $30M, 7 percent ahead of $28M guidance

About Data#3 Limited

Data#3 Limited (Data#3, the Group, ASX:DTL) is Australia’s leading IT services and technology solutions provider that was formed in 1984 and has been listed on the ASX since 1997. The Group employs 1,400 people and services 5000 customers from facilities across 12 locations in Australia and Fiji. The name Data#3 reflects the company’s culture of innovation and a willingness to break new ground in that the ’#3’ was chosen from the new IBM Personal Computer keyboard, which was the first to show the ‘#’ and the ‘3’ on the same key. ‘Data’ represents the history of the company, which was formed following the merger of a software developer and an IBM typewriter dealer with experience in providing quality office equipment and supplies.

$30M FY24 first half-year profit before tax, 7 percent ahead of guidance

Data#3 has announced that its FY24 preliminary unaudited first half-year net profit before tax will come in at between $30 million and $31 million, exceeding the $27 million to $29 million guidance range provided at the October 2023 AGM. This expected first half-year result is 24 percent higher than the $24.6 million earned in the first half-year of the 2023 financial year.

The Group noted that interest income is substantially higher than the previous corresponding half-year. This is because of effective working capital management, higher deposit interest rates and the Group’s debt-free balance sheet. Specific reference to effective working capital management infers strong operating cash flow for the six months to 31 December and a higher cash balance compared to the $405,000 of cash on hand at 30 June 2023.

Strategic initiatives to deliver future earnings growth

Strong sales growth in the high value (and high margin) Consulting and Managed Services businesses in FY2023 should commence to deliver measurable positive earnings results from FY24. Managed Services provide IT services across the service life cycle, by providing consulting, implementation, and support services under five-year contracts. The financial upside of these contracts emerges from year-2 onwards post the initial transition phase.

This life-cycle strategy encompassing consulting, design, deployment, and then support services has also been applied to Data#3’s software licensing strategy where customers seek to implement their digitisation strategy that typically requires a foundation of multi-cloud, networks, end-user computing and security. This life cycle of computing services provides deeper and expanding customer relationships that supports recurrent revenues and enhanced margins, over time.

Enhanced operational efficiency from the implementation of the Group’s Enterprise Resource Planning (ERP) system in FY22 and FY23 is expected to deliver long-term operational productivity improvements from FY24. The $6 million in capitalised development costs should enhance scalability, security, reporting and productivity in the areas of human resources, supply chain, procurement, and finance. These costs are being amortised over a five-year period.

Looking ahead

Customer investment in digital transformation, enterprise security, networking and multi-cloud should maintain revenue growth at double-digit levels for the foreseeable future. Approximately sixty-five percent of the Group’s total revenue is recurring and derived from three to five-year contracts with government and large corporate customers seeking to fulfil their essential IT requirements. Contracted revenue improves earnings visibility and reduces earnings and business risk and should, over time, lessen the profit skew towards the second half, as occurred in FY23.