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Data#3 share price on the move following earnings release

SaaS company share price

The Data#3 Limited (ASX: DTL) share price is on the move this morning following the release of the technology solutions provider’s first-half results.

Data#3 shares dropped as much as 13.36% lower in early trade this morning but have since recovered to be up by 1.29% at the time of writing.

Revenue and profitability higher

For the six months ended 31 December 2019, Data#3 recorded total revenue of $718.9 million, up by 11.6% on the prior corresponding period (pcp). This included $251.9 million of public cloud-based revenues, up a massive 76.5%.

The company reported that total gross profit increased by 7.7% to $88.6 million, while total gross margin declined slightly from 12.8% to 12.3%. This decline reflects a shift in sales mix which saw strong growth in Software Licensing and public cloud revenues, and a decline in Consulting revenue.

Net profit before tax came in at $12.7 million, an increase of 40.6% on the pcp. Net profit after tax, excluding minority interests, increased by a significant 41.5% to $8.7 million.

Data#3 said that these results reflect the ongoing successful implementation of the company’s strategies over a number of years, supported by a continued positive market environment.

In terms of expenses, Staff costs for the period increased by 4.7% to $65.1 million. This increase reflected headcount growth and market-based increases. Operating expenses decreased by 1.1% to $11.8 million, with savings generated from the decommissioning of the Data#3 Cloud platform.

Earnings per share rose to 5.65 cents, which was an increase of 41.5% on the result in the pcp.

Data#3 declared an interim fully franked dividend of 5.10 cents per share, representing a significant 41.7% increase on the pcp and a payout ratio of 90.3%. The record and payment dates for the interim dividend have been set as 17 March 2020 and 31 March 2020, respectively.

FY20 outlook

Data#3 sees ongoing growth in the Australian IT market, with digital technologies leading business transformation in both the commercial and public sectors. The company believes it remains well-positioned to capitalise on these opportunities during the second half of FY20.

With regard to external factors, Data#3 sees the market remaining buoyant but commented on the global geo-political influences on the local market. As a result, it will monitor infrastructure supply chain impacts.

With regard to internal factors, the company has a pipeline of integration projects for its hardware segment and also for its software and services segment. Data#3 believes it can capitalise on these projects during the second half of the FY20 financial year.

Commenting on the 1H FY20 result, Data#3 Chief Executive Officer and Managing Director Laurence Baynham said:

“We are very pleased with the first half performance, maintaining the longer-term growth trend. The market is growing as digital transformation fuels the overall information technology spend, and we have seen sustained large project activity.”

“The strong first half performance and pipeline of opportunities for the second half give us confidence that we will achieve our full year financial objective, being to deliver sustainable earnings growth over time,” he added.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Data#3 Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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