Data#3 (ASX:DTL) executives outlined record first-half gross sales and modest earnings growth in a briefing on the company’s interim FY26 results, while highlighting the waning impact of Microsoft channel incentive changes and continued demand in infrastructure and software.
Record gross sales, stable gross profit, and dividend increase
CEO and Managing Director Brad Colledge said gross sales reached a record AUD 1.5 billion for the first half of FY26, up more than 9% from the prior corresponding period, driven by growth across most business units and particularly in managed services, infrastructure solutions, and software solutions.
For profitability, management reported first-half profit before tax (PBT) of AUD 33.5 million, up 4.5%, and said EBIT rose more than 6%. Earnings per share increased 3.6%. The board declared a fully franked interim dividend of AUD 0.135 per share, with CFO Cherie O’Riordan stating the payout ratio was 90.3%.
Operating segment performance: Infrastructure strength offsets software margin pressure
O’Riordan provided details across operating segments, describing strong demand in infrastructure and ongoing growth in software sales, while noting mixed conditions in services.
- Services: Gross sales of AUD 205 million rose 0.9%. Managed services sales grew almost 16%, supported by contract wins and improved renewals. Business-aspect consulting rose more than 9% to AUD 16 million, with improved pipeline in areas including information analytics, security, and transformation. Project services sales of nearly AUD 37 million fell about 13%, which management attributed to prolonged lead times and project delays as customers managed IT budgets. People Solutions sales declined 4.8% to AUD 30.7 million. Managed maintenance services sales of AUD 90.6 million increased almost 4%, and the company said a strong second-half pipeline of Cisco enterprise agreements should support improvement. Services gross profit declined 4.2% to AUD 69.5 million, and management profit fell almost 14% to AUD 12 million, partly offset by cost control.
- Infrastructure solutions: Gross sales increased almost 18% to AUD 275 million, with management noting end-user computing and data center sales were each up about 30%. O’Riordan cited Windows 11 upgrades, device refresh cycles (including AI PCs), and customer moves toward hybrid cloud and AI adoption. Infrastructure gross profit rose almost 17% to AUD 36.8 million, while gross margin was steady at 13.4%. Management profit increased more than 105% to nearly AUD 11 million, which the company linked to improved operating leverage and automation and restructuring initiatives implemented during FY25.
- Software solutions: Gross sales were AUD 1.1 billion, up almost 9%, driven by demand for security products, enterprise agreements, Cloud Solution Provider (CSP) conversions, Azure, and growth with non-Microsoft vendors including Adobe and VMware. However, gross profit of AUD 37.5 million fell more than 4%, with gross margin down to 3.5% from 4.0%. Management profit declined more than 9% to AUD 19.7 million, reflecting Microsoft incentive changes. The company said it implemented initiatives to mitigate the impact and expects the software business to return to gross profit growth in the second half, resulting in full-year software gross profit consistent with FY25.
Costs, interest income, and balance sheet highlights
O’Riordan said statutory revenue increased more than 8% to AUD 423 million, noting that software licensing and vendor-delivered maintenance support sales are presented on a net revenue basis. Operating expenses, including internal staff costs, were down 1% year over year, which management attributed to tight cost control, some unfilled roles, and a prior period that included higher restructuring costs. She also cited a non-recurring lease adjustment in the half related to an upcoming office relocation.
First-half earnings included AUD 6.3 million of interest revenue (versus AUD 6.5 million in the prior half). O’Riordan said the company was forecasting interest income of about AUD 9.6 million for FY26, assuming cash seasonality similar to FY25 and no further cash rate changes in the second half.
At 31 December 2025, cash was AUD 125.4 million, compared with AUD 131 million at the prior year-end reference point provided. Net cash outflow from operating activities in the first half was AUD 204.3 million (prior year outflow AUD 123.8 million), which management said reflected timing differences in customer collections. O’Riordan also said average daily cash balance was AUD 347 million, up nearly 12%, and days sales outstanding was maintained at 25 days. The company’s internal cost ratio improved to 81.2% from 82.2%, which management attributed to prior restructuring, automation initiatives, and cost management.
Market conditions, AI focus, and FY26 outlook commentary
Colledge referenced Gartner expectations for calendar year 2026, including Australian technology spending growth of 8.9% to approximately AUD 172 billion, with software spending forecast to rise 13.6% to nearly AUD 60 billion. He also cited forecast growth in devices of 6.6% and IT services growth of 5.6%, while noting memory chip price increases and availability could pose risks in devices. Colledge said AI-related infrastructure investments are driving data center growth of 22.5% and added that the company is seeing renewed interest in hybrid cloud as customers weigh environments for AI and non-AI workloads.
Management emphasized that AI is embedded across the business and described measurable internal efficiency gains, including reduced human hours in product pricing management, ordering, and invoice-related processes. Colledge also said proof-of-concepts can now be delivered in days rather than weeks or months, and that AI agents are streamlining solution design and testing.
On outlook, Colledge reiterated that the company is not providing specific FY26 earnings guidance and noted seasonality, with an earnings skew to the second half and significant months in May and June. In Q&A, he said the outlook was “unchanged” from prior commentary, expecting the software business to return to growth in the second half now that the company has cycled the 12-month Microsoft incentive change period. When asked about gross profit growth for FY26, Colledge said achieving 7% to 9% growth would be “a great result,” while noting the company’s exposure to market factors.
Executives also discussed project delays in services, citing budget and interest-rate uncertainty, technology complexity (including AI-related complexity), and more stakeholders involved in purchasing decisions. Colledge referenced Gartner reporting that 9–10 people may now be involved in decision-making, versus 3–4 previously.
On infrastructure, Colledge said the company has started to see vendor price increases in February and discussed potential customer pull-forward demand, but also the risk of delayed fulfillment if supply constraints emerge in Q4. He characterized the memory-price and supply dynamics as potentially lasting 12–18 months.
Regarding vendor programs, management said Cisco’s new 360 Partner Program launched in February 2026, but the company does not expect it to have a material effect on FY26. In Q&A, Colledge said any FY27 impact would be clearer after observing how the program rolls out, but he indicated the company is aligned with the program and does not expect a meaningful long-term impact.
About Data#3 (ASX:DTL)
Data#3 Limited engages in the provision of information technology (IT) solutions and services in Australia, Fiji, and the Pacific Islands. The company offers cloud solutions, such as public and private cloud, Azure, and modern data center solutions; modern workplace solutions, including collaboration, end user devices, and systems management; and security solutions comprising data security and privacy, cloud security, identity and access management, infrastructure end point security, and security monitoring and analytics.
