DC Two’s ASX debut to underpin nationwide expansion of data centre and cloud services

Managed cloud service provider DC Two (ASX: DC2) will be the latest tech company to list on the ASX, after successfully completing a $5.5 million capital raise to underpin its expansion plans.

The company will list on the ASX today with a market capitalisation of $11.7 million. Alto Capital acted as lead manager and corporate advisor to the IPO.

Current managing director Justin Thomas co-founded the company with Mark Dignam in 2012.

Speaking with Small Caps, Mr Thomas said DC Two’s strategy is to become Western Australia’s first fully integrated tier three data centre and cloud hosting solution provider from a new premise in Perth suburb Bibra Lake.

The company then plans to roll out this business model across the country, with cloud managed service clients already existing in Victoria. Mr Thomas said Victoria accounted for 8% of the company’s business, and DC Two will deploy its data centre infrastructure in the state next year to provide a localised hosting service.

He added this will be followed with deployments across New South Wales, Queensland, South Australia and Tasmania.

From its current data centres, DC Two provides managed cloud (hosting) services to more than 300 businesses across primarily Western Australia and the Northern Territory.

The business has seen strong and consistent growth over the last five years, with recurring revenue of $1.8 million in FY 2020 achieved with limited capital and minimal customer marketing to date.

“This recurring revenue provides stable, predictable income and is setting a strong underlying commercial foundation for the business. The IPO proceeds will allow us to accelerate commercialisation of our expansion plans and continue ongoing research and development into new software and hardware products,” Mr Thomas said.

Data centres – the cornerstone of our digital economy

Almost every modern business, government and consumer has data stored in a data centre. They host websites and manage e-mail, power hyper-scale platforms like Facebook and Google, and support almost all cloud storage and applications.

According to technology insight company Telsyte, 45% of Australian organisations are looking to increase cloud infrastructure spending in 2020, and 59% of Australian businesses have a “cloud first” policy.

Mr Thomas believes DC Two is uniquely positioned to take advantage of this demand.

“There is no doubt COVID-19 has pushed more users online and increased reliance on digital tools for remote working, remote learning, video conferencing and online shopping. This has led to a surge in demand for Australian data centre capacity and cloud services. Our ambition is to become a major player in the space,” Mr Thomas said.

DC Two owns and operates a data centre in Perth with a shared capacity in Darwin which underpins the company’s cloud managed services.

Following today’s successful IPO, DC Two plans to move into a larger premise in Perth suburb Bibra Lake.

Mr Thomas said moving to the larger Bibra Lake facility will enable the company to secure tier three accreditation for the data centre. He added this will place the company in a “pre-eminent position”, with many mid-tier companies already showing interest in DC Two’s integrated offerings and a fast-growing sales pipeline.

“The Australian data centre market is expected to grow to $3.76 billion in 2025, and we have our sights set firmly on increasing our share of this market. When our Bibra Lake facility achieves tier three status, this will provide mid-market and enterprise customers with tier three compliance, security and access accreditations,” Mr Thomas said.

Launching a new commercial model

DC Two has developed a high density and transportable data centre that can be deployed ‘behind the meter’ at sustainable power generation sites all across Australia and globally.

Based on durable ISO standard sea containers, Mr Thomas said the data centres will provide a “new commercial model” for the company by gaining access to globally competitive power prices that will decreases the operational costs of running the data centres.

“This really is a new commercial model for us and the industry. Powering data centres is one of the biggest costs associated with our model, and being able to access competitive power prices will decrease the operational costs of running our data centres and increase our margins.”

Mr Thomas also said he sees a significant opportunity to utilise wind, solar and other renewable power sources to offer a “green powered” service to Australian customers seeking more eco-credentials across their business.

“As more and more businesses begin to look deeper into their environmental footprint, we believe our modular offering will appeal greatly to these organisations. Funds from the IPO will immediately be used to accelerate a number of these projects, some of which have already generated significant customer interest and initial revenue,” Mr Tomas said.

The Microsoft opportunity

In addition to data centre and cloud management solutions, DC Two has been busy developing its own software products via its DC Soft division and has built an Australian-first automated software reporting tool to specifically target Microsoft service providers.

Mr Thomas said that virtually no software exists to manage Microsoft’s ”pay per use” Service Provider Licence Agreements (SPLA) which are sold by 1,500 providers in Australia.

“Most of these organisations report all consumption manually, leading to a cost intensive processes and risk of fines for non-compliance,” he said.

The tool accurately reports customers monthly usage of Microsoft products, reduces compliance risk and optimises licence utilisation to reduce ongoing costs.

Mr Thomas said that accurate reporting could “potentially provide additional gross revenue for Microsoft”.

The company has successfully demonstrated the technology to a leading Microsoft distributor in Australia, who supplies the majority of the Australian SPLA market.