Dicker Data Ltd

ASX:DDR

Q2-2025 Earnings Call

[Sam Wells, analyst]

Good morning, everyone, and welcome to Dicker Data's First Half FY '25 Results Webinar. My name is Sam Wells from NWR and joining me from the company today is Executive Director and Chief Operating Officer, Vlad Mitnovetski; as well as Executive Director and Chief Financial Officer, Mary Stojcevski.

Following a summary of the results released to the ASX this morning, we will have some time for Q&A with the management team. There will be a choice of 2 options. First, research analysts will be able to raise your hand should you wish to ask a verbal question from the management team. Or you can also type a written question by the Q&A function at the bottom of the Teams screen. We'll try and take the majority of questions asked in some cases, combining questions on the same or similar topic. And with that, I'll pass it over to you, Mary.

[Mary Stojcevski, executive]

Great. Thank you, Sam, and good morning, and thank you, everyone, for joining us on this call. We're very pleased to be presenting our H1 FY '25 investor update. Today's agenda basically will go through the FY25, the half year '25 results. That will be followed by a business update from Vlad in respect of what's transpired in the first half and what we can expect for the second half, plus we've got some information around strategy updates and guidance. And then as Sam has indicated, we'll be taking some questions.

So to get on to the results, we are very pleased to be reporting solid increases across all of our categories and segments, including all lines of our profitability and revenue numbers. For the half year, our gross revenue was $1.8 billion, representing 15.7% increase. Equally, EBITDA increased by 9.4%, finalizing at $75.4, very pleasingly, our recurring software revenue is close to the $0.5 billion mark for the half year, putting us well on track for over $1 billion in recurring revenue software sales for the full year. For the half, that represented a 23% increase.

And when we go through the category presentations, Vlad will elaborate on what we're seeing within that software vendor space. Very pleasingly, our operating profit before tax finalized 13.3% higher at $57.6 million, representing $0.21 earnings per share for the half.

Having a closer look at the trends and historical performance on a half-on-half basis, a very solid result for the half year on both gross revenue and profitability. As we indicated in our AGM update in respect of where we were seeing the trends and margins, there was a softness in our gross profit margin, which we've already indicated around the pivot by the business to more enterprise type sales.

However, they have helped deliver a very solid gross sales increase. Equally, with the softer margins, there's slightly lower PBT margins. However, our forecasting and expectations and what we've seen year-to-date, we are expecting a slight improvement of those as we've indicated in our guidance.

The second half trends tend to be a stronger result if you're looking half-on-half in comparative periods, and we are expecting the same for this financial year as well. If we delve a little bit closer around the results, total gross revenue, as I said, for the group was $1.8 billion, which was driven by, we've seen an acceleration of the PC refresh, albeit being driven from more enterprise mid-market customers. And we did have some significant AI-driven deals reported in the period, which we also indicated at our AGM update.

As discussed just earlier, gross profit margin is a little bit softer driven by the shift in business mix where we are driving a lot more enterprise deals, which are a little bit more competitive on margins. And subject to SMB coming back possibly at some stage, it is likely to be the trend at least for this next quarter. And then Q4 is, I suppose the unknown and Vlad will elaborate on the market conditions in his operational update.

Total expenses as a percentage of gross revenue declined, and we have seen costs being largely contained some of it driven by interest rate improvement, but also a very targeted and deliberate strategy around cost management. There was strong profit before tax uplift of 13.3% finalizing at 57.6%. That's the operating profit before one-off costs, finalizing at 3.1% net profit margin.

I'll go through the segments in terms of the segments as we see them within the organization between Australia and New Zealand. Very pleasingly, in the Australian business, and this is where a lot of the enterprise style deals were done, strong gross revenue growth of 18%. That included approximately $30 million in revenue from some large-scale AI deployments recorded in the period. And in terms of the gross profit margin, it was more significantly felt in the Australian business being softer against the comparative period with this focus on enterprise business.

Operating profit before tax in the Australian business was up 14.5%, benefiting from reduced interest costs as a result of the lower rates, but also a lot of concerted effort around maintaining average debt balances and really managing our working capital cycles to allow that to transpire. And within the Australian business, strong profit before tax margins of 3.4%.

In our New Zealand business, again, pleasingly, from a top line perspective, solid growth of 5.2% where we've also been able to largely maintain the gross profit margins. The New Zealand, the mix of our New Zealand business does include a larger proportion of fulfillment retail and there wasn't as much influence in terms of around enterprise deals and there was more opportunity in New Zealand to expand our mid-market and SMB business. So, margins were able to be well maintained.

More pleasingly, on the New Zealand business, where a lot of the work from the last 12 months, 12, 18 months around costs, largely seen a reduction of costs across various line items, including the employee costs, interest costs and other costs, resulting in profit before tax increasing by 10.9% to $5.1 million. And representing still the PBT margins around the 1.7%, and that is still our focus area to keep improving on that to bring it more in line with the Australian business, although that's going to be a lot more work involved and it's harder to achieve with a large proportion of retail fulfillment piece in the gross revenue numbers.

On the balance sheet side, since our last balance sheet update, the key movements around working capital, working capital slightly improved in terms of working capital dollars and net working capital days. Receivables balance increased significantly driven by the large invoicing that happened in June.

June was one of our largest invoicing months ever. This was offset with an increase in the accounts payable whilst inventory remains just increased a little bit, but we've really maintaining within the range and large invoicing meant that inventory levels finalized within expectations.

Net debt decreased by $6.3 million down to $299.5 million, although gross debt net of, excluding the cash slightly increased. We've still got sufficient capacity and more credit lines available to continue supporting the business growing.

On the dividend side, the fully franked dividends paid in H1 FY '25 were $0.2 per share. Throughout FY '25, the company intends to continue paying the interim dividends, and we did announce the next quarterly dividend in August, which will be paid on the 1st of September, and the company will be retaining the DRP for FY '25. We will continue to review our capital management and our dividend policy as and when required over time.

I will now hand it over to Vlad to give you an operational update in terms of what's transpired in the half year and a further breakdown of the categorization of our revenue and also market update.

[Vladimir Mitnovetski, executive]

Thank you, Mary. Thank you very much, everybody, who joined the call. We are very, very pleased, like Mary said, with our results. A lot of exciting things happened in H1 '25.

But about an hour ago, I have done a company update giving them the view of our H1. And I said to the company, it was a very challenging and tough year last year, even though we delivered a relatively strong result as well. But our strong positioning in the market and our resilience internally driven and the results that we received in H1 is a consequence of this incredible operation that we had. A lot of things moving aside, a lot of things happening in our industry, absolutely most exciting time to be alive. I think, and we're super excited about our H2 2025 and beyond.

But now what happened in H1 '25? We secured a first AI infrastructure deal delivering a first Australia's AI factory and Dicker Data has been chosen a partner to deliver this project by Dell Technologies, one of our strongest vendor alliance partners. We've established a proof of concept for the AI workloads, which is collocate with another partner that we have with Equinix I think we're about to see a very, very large AI explosion of opportunities. We're quoting a lot. We're working with a lot of partners, and we already have seen some significant numbers coming through in H1, and we absolutely believe it's only a beginning.

We as an organization are acquiring skill set, talent, expertise internally in order to glue a lot of things together with our partners and with our vendors to truly lead the way with that AI innovation in the marketplace. We have secured a new partnership with advanced technology that is there. This is the software platform layer that actually supports AI workloads. We're building this portfolio in our ecosystem. And we believe that while it was a growth engine in H1, like I said, I don't think we've started yet.

I think we were about to see things. We're also an organization to we will make a couple of announcements around our AI practice, how we build our expertise internally in the upcoming weeks. So, a lot of exciting things happening internally.

We have secured a new contract with CrowdStrike. We're starting to build that expertise. security is one of the biggest growth opportunities that the company has and having CrowdStrike part of the portfolio is great. And another big point of growth came from our PC division, where enjoyed 18.6% growth in H1, all driven by refresh opportunities, still very much focused in mid-market and enterprise. I'll talk a little bit more about it in the upcoming slides. But nevertheless, those 3 very, very critical and important growth areas is coming.

So, if we look at our category performance, many times on these calls, I did mention, I just wanted to see all our segments of the business doing really, really well. And H1 kind of delivered it for us for our organization. We put a lot of work last year in the previous years to really solidify ourselves as a strong expert segment in those areas. And we also put a lot of work to make sure that we nicely diversify our segments. Now the business is growing with 30% software, 30% endpoint solution and 30% advanced solution, nice diverse and balanced portfolio with 3 smaller but continued growing segments of audiovisual retail and services. But I'm going to go one by one just really quickly.

Software was our absolute star performer in H1. Cybersecurity space was booming quite nicely. We are taking share from some of our competitors. We're doing extremely well with companies like Broadcom and cybersecurity Check Point and others like Commvault. So, Adobe is one of our newest vendors that we recruited last year is getting into the maturity stage. We're putting a lot of investments in our platform, and we're driving a lot of momentum.

We win a lot of software recurring revenue by providing a particular edge and differentiator in the market. Very hard to win on commercials. We are not interested in winning on commercials. We're interested to win with value we're adding to both our partners and our vendors. And I think we're delivering that not only through our exceptional skills and expertise and consultative way of approaching those, but also through a superior platform and our website.

End point Solutions grew 18.6%, really strong result. The only thing I would like to point here, most of the business and growth came from the mid-market and enterprise. We were hoping to get some small business driving stronger. We did not see it in Q2. Small business normally performs the strongest in Q2 and Q4 calendar. It did not happen in Q2. We are very, very optimistic that we will see a turn of the small business in Q4. Again, it's a great opportunity for us.

Looking at the mid-market and enterprise, it was fantastic. We've strived those partnerships very heavily last year. If you remember, we've started to see the softness in the market in the small business. We went and really start partnering closer with some of our larger mid-market partners and enterprise partners. And when the refresh cycle kicked in, it kicked in with those segments, and we're starting to see some good growth there. Great, but I think we need small business to go there. That will lift our margins a little bit up. That's one of the reasons why our gross margin has softened a little bit because we've just processed and transacted a lot of larger deals.

Advanced Solutions drove17.2%. We've had our enterprise networking vendors back into the good growth, Cisco, Juniper, Fortinet Enterprise. We've had a phenomenal growth in our AI portfolio. Again, delivering the first AI factory in H1, for a lot more and partnering with Dell Technologies here is really breaking through. If I look at the, and I'll look through the slides later, if I look at the trends in the market, if I look at the spend happening in the AI area, we positioned ourselves so good to take advantage of those opportunities.

Access and Surveillance business is growing nicely. We have restructured that business slightly last year. We've introduced some new exciting vendors in there. We've changed our approach slightly and it's now paying dividends, good steady growth, very high margin, very good business. We're going to continue to see double-digit growth in this segment.

Audio visual, if you remember last year, we were flat kind of with the PC market, PC growing, audio visual supporting that growth, more and more people refreshing their meeting rooms, their collaboration rooms. We're seeing some really good uplift.

H1 traditionally is a very soft half for our retail business. Remember, we are not interested in fulfilling big retail deals into our large-scale retailers. We are a boutique exclusive distributor. We're doing it with a lot of value. We like to do, we'd like to partner exclusively with vendors, delivering the full service. We've worked really hard to get a couple of new contracts with the new vendors, which we're launching very, very soon. H2 is a much stronger half for the consumer and retail business. We're definitely going to see a good uplift in the growth rates in our retail business in H2. So again, it's a really good opportunity.

Services. So services department going through a lot of change and transformation. For many years, we've been a single Telstra sort of focused distributor, upselling and selling complex data into our telco managed service providers. We have decided to change that strategy. It was a deliberate change. We decided to go multi-vendor. We have added Optus focus and a couple of more telco vendors in our portfolio. We transformed the business. We're going wider. We feel it's the right strategy. We have a fantastic team and expertise. We're rebuilding it. It's probably going to be slightly softer this year, and we're going to see some really good growth opportunities in this segment next year.

Just a couple of new vendors that we've put on board that, that work is ongoing work. We continue reviewing our vendor relationships. Are we adding value to those vendors? Are they adding value to us? We know where our expertise line, some really, really good signings.

We got Optus, like I've mentioned to you, it's a part of our strategy, CrowdStrike, the world and global leading cybersecurity vendor. We've been chasing that vendor for many years and we've locked it in and we're starting really to see upside. So H1 CrowdStrike is very little. We're starting to see some really good opportunities coming along. It's going to be one of our growth areas in H2. It is a very critical vendor in our AI play in our AI expertise and practice. So again, we're building that ecosystem to drive AI enablement into our partner base. We can't do it with just one single vendor. It's the conglomerate and ecosystem of various tenders.

I think I've touched like, and you probably see where I'm going with that, like what's driving the market? What's happening in Australia and New Zealand, where is people spending and how it's growing. So, from various analysis from Gartner, from IDC, we're seeing somewhere around a prediction of 8.7% growth this year. We're definitely growing beyond that because we're focusing on areas that is growing beyond 8.7%. It's really good to see.

I would say that 8.7% growth of spend on IT in our region is predominantly driven by enterprise and mid-market. We have deliberately positioned ourselves well with this market last year, and now we're the rewards from that. However, SMB and small business is very, very important to Dicker Data. It's part of our DNA. We've always been servicing small business. It's finding it really tough and especially in New Zealand. I think New Zealand was hit much harder with the economic conditions.

We've had an interest rate cut last month. We're hoping for another 1 or 2 interest rate cuts. We just need more stimulus for the small business to really get on that IT spend and trying to take advantage of all this incredible IT transformation and innovation happening in the market. We don't see it yet. This is clearly an opportunity. We're hoping that Q4 will break that cycle. If not, it's definitely going to be 2026 opportunity.

When you look at the spend, AI is going to be a big part of spend, software with cybersecurity leading the way, the backup management risk management and resiliency. A lot of large organization is really eye of how are they going to get better automation, better resilience, better cybersecurity protection. So, we lead the way with a consulting approach, consulting selling, and it's really working really, really well for us.

Again, yes.

[Fire Alarm]

[Sam Wells, analyst]

Okay. Excellent. All good Please continue

[Vladimir Mitnovetski, executive]

All right. Sorry, everyone, for the alarm testing. We'll continue. That's good. I'm talking about AI a lot. I think, again, look, just give me another 5 minutes is very, very important because we live through the era of Internet, era of cloud, multi-cloud, this has all changed our life. AI is changing our life. We, an IT organization. We work with a lot of companies who spend billions and billions of dollars believing in this and driving this.

We are huge believers ourselves. We use AI inside our organization at Dicker Data. It helps us to be more efficient. It helps us to be more innovative. And to be honest, it helps us to stay ahead of competition. We know how important AI is, and we know that if we drive the right enablement of training, we tell people how to use it and how to go ahead with that, we will get a lot of business out of it.

We look at other regions in the world, we look at United States and Europe and some of the Asian markets, they're way ahead of adoption. They're way ahead of how they're actually using AI, not only building the infrastructure on their store lens, but also actually utilizing it. If I look at the Copilot adoption and other things, when Microsoft came with the cloud in the world, Australia was one of the early adopters. But we're looking at the Copilot and others, we're actually one of the latest adopters. But that's going to change because it's all about powering GPUs and getting the capacity of the available GPUs at powers with NVIDIA. That's basically where it comes from. A lot of areas already filled. Australia is getting a lot of attention. A lot of vendors and a lot of partners is bringing and investing in Australia. And I think the next couple of years is going to drive a huge difference in your everyday life, in our everyday life, how we operate, but most importantly, it brings one of the biggest growth opportunities that Dicker Data ever had before.

And we absolutely believe in it. We're skilling ourselves. We're investing in expertise and skills. We're investing in the right partnerships and we're building that momentum internally.

So that's what's happening from the market point of view. Now we look at our strategy and how are we actually driving. Again, 3 main points of focus of where Dicker Data is seeing the growth is coming from in Australia and New Zealand. I talked a lot about AI and again, how do we position ourselves, how do we place ourselves and the investments we're making to driving that momentum, very, very important.

Windows 10 refresh, while we're seeing 17% plus growth H1 2025, I do believe we can do better. I do believe we can do better in H2. Historically, our H2 always been stronger than H1. October 14 kind of lies in between of the half. I think it's going to be great momentum. Looking at July and August, looking at the back orders we currently have, looking at the number of quoting we're doing, it gives me a great deal of confidence to sell that the whole motion of the Windows 10 refresh is going to drive another wave of a very strong accelerated growth in H2.

Cybersecurity is super critical. Like myself and Mary, our entire Board of Directors, there's not a meeting where we don't look at us as an organization, what are we doing in Dicker Data, how do we treat our resilience strategies, our cybersecurity protection strategies. And with doing that, we know how we do feel the sense of responsibility for the entire ecosystem and the market to go out there and provide them with the best quality advice with the best quality solutions with the best quality cybersecurity vendors. Hence, it's very important for us to reinvest under the portfolio.

We have an incredibly strong portfolio and CrowdStrike is a very welcome addition to that portfolio. So again, 3 major strong lines of expertise and growth. We're investing with our people, we're investing in the infrastructure. We're investing with coding and developing. We're trying to get ourselves and position ourselves as a true value-added distributor in those 3 items.

Commercially, we're not interested to go and drive commercial conversation. What we want to drive is the truly consultative value-add conversation. We've always been winning with that. We're going to continue to win with that. So again, those 3 areas are important. It describes what we're doing. So yes, we talk a lot about it.

We see what's happening in the market. We know what's driving the growth. What are we actually doing as a company? So, this is really describing our real tactical execution matters of how are we doing it, how we're driving it, how we're partnering with it. And it brings a really, really good result, and that work is ongoing and continuing.

Again, it's just drilling on some of the segments of the business. We're adding more software businesses. We're winning a lot more larger enterprise and mid-market business with software. We are going to hit $1 billion in recurring revenue for the year. We are $0.5 billion now, and we're absolutely streamlining to $1 billion. It's going to be a big milestone for our organization. And we continue chasing those innovative vendors who can really add to our AI ecosystem.

We now have hunting units who are bringing these things together to make a very compelling and very real offering into the market. At the moment, a lot what we do with AI is kind of focusing around mid-market and enterprise. I don't think it's quite a small business area. In the next couple of years, it's going to get a lot more simpler. We'll be able to drive a particular bundles, and we'll be able to scale it. At the moment, it's not quite a scale game, but very, very exciting opportunities.

End point solutions, we've got every single vendor under this roof. We have our dominance in mid-market and SMB. SMB doesn't work. At the moment, mid-market is doing really, really well and the large enterprise deals are coming and we're quoting on them. So, in H2, we'll have education season coming as well. So that's going to drive an additional growth opportunities with PCs. And we're still figuring it out in terms of how accelerated the growth in End point solutions is going to be in H2 because like I said, 14th of October is coming. We're seeing a lot of activities there. We have a great coverage of the inventory in the warehouse. We just need the SMB to really drive that momentum for us.

Advanced solutions like AI is driving it. Enterprise networking, I haven't spoken a lot on that, but it's been a phenomenal half for our large enterprise networking vendors. Cisco performed extremely well. Juniper performing really good. We're driving some incredible opportunities. AI driving the enterprise networking refresh. It's all connected together.

So we're putting a lot more effort into CX motion, customer success motion as well. A lot of complex solution within the enterprise networking we're selling, and a lot of customers maybe not knowing how to utilize and use. So, we have a dedicated unit who actually goes and talks to the end user customers, really enable and train them how to use the technology. And if they like what they're using, obviously, it's the renewal opportunities. So, we're covering it from the [depth], from the presales motion to the aftersales motion.

And access surveillance, AV, retail, smaller divisions, all very important, all driving very good high-margin business, balancing our portfolio nicely. I think access and surveillance is going to go from growth to growth. We're putting a lot of very interesting internal compositions to drive and accelerate the growth will continue to grow for the PC growth. So again, I am expecting every segment of the business to continue with double-digit growth in the next half.

Now talking a little bit more about international expansion. So last couple of years, as market was a little bit tough and we experienced slower growth areas, slower growth rates in the business. We're all incredibly passionate people. We love our company. We love what we're doing in the market, and we have the edge. A lot of vendors telling us, you guys have that edge. We would love to see you coming outside of Australia and New Zealand. We would love to bring this value that you have outside Australia and New Zealand.

So, we've started slowly to look at different potential markets, how do we open those opportunities. We started to talk to the key vendors. And we started slowly to really understand how the international markets are working. We have 2 entities at the moment, one in Singapore, one in Philippines. Those, the people who we have there, they're servicing Australia and New Zealand market. We don't have any business outside of Australia and New Zealand at the moment.

But what we're doing, we're getting a little bit of a feel for the markets. We're having a little bit of, we're talking to different vendors, and we're seeing the organic growth could be explored. We're also open to see if there is any opportunity for maybe a smaller type of acquisitions. We're not because there's so much opportunities in Australia and New Zealand at the moment, and we probably would see it for the next couple of years. We're just trying to understand the opportunity in other markets.

We're taking a very cautious approach, and we're going to continue to explore what does it mean for us. And it's all going to be based on those conversations we're having with larger vendors. The way we're thinking about going into international markets is probably through our software division, our digital platform and the value-added partnerships that we currently have and we can take it.

Actually, a lot of global partners who are dealing with us would love to see us to provide their services in other markets as well. So we're currently gathering a lot of information. We're learning, we're building expertise and then we're slowly, slowly moving until 1 or 2 things will put in place and we'll look into it in more specific in more like a concrete way of expansion. At the moment, it's just experimenting and kind of viewing what's happening in the other markets.

I think throughout my conversation, I've kind of given you enough to see where my enthusiasm is coming from, right? And where I see opportunities of growth is coming. And everything that's been driving the growth in H1, going to drive the growth and H2 in accelerated mode. This is my conviction. This is what I see in the market. This is the first couple of months of the Q3 numbers is giving me that enthusiasm.

Obviously, we have provided guidance from H2. We haven't, as a company, we haven't provided guidance for many, many halves. And having that guidance, you can probably notice our strong conviction and enthusiasm and looking at the market and seeing where the market is going. Certain areas, there is still a little bit of uncertainty, uncertainty predominantly in small business.

I'd love to say that we'll see a better growth from small business in H2. I don't think anyone can guarantee that. This certainty though, coming from the mid-market enterprise. The certainty come from the partnership we're building and the certainty coming from the vendors and new partner relationships that we're building. There's certainty coming from the expected AI deals that are driving our enthusiasm for the H2. Those sort of things is we have a good degree of control. SMB, we continue stimulating.

We continue driving and scaling programs, promotions, different, we're working very closely with all the vendors to drive that small business spend. It's not quite there yet. It's a great opportunity, and we're really, really hoping for it. So obviously, we're guiding the market that we're going to finish somewhere between $3.7 billion and $3.8 which is around 10% to 13% growth.

If you look at the historical trends for somewhere before COVID years, we've always been trying to get to around 10% to 11% growth. It feels really, really strong for this year to deliver those results. Same way in operating profit before tax, we do believe we're going to end up somewhere between $120 million and $124 million. Again, slight pressure on gross margins, but making it slightly challenging, but a really good way of controlling the cost, investing in our platform, utilizing AI internally at Dicker Data, giving us confidence we'll be able to deliver it.

Okay. That's the end of my presentation. And now we're opening up for questions.

[Sam Wells, analyst]

Great. Thank you very much, Vlad and Mary. [Operator Instructions] So first question comes from Apoorv at UBS.

[Apoorv Sehgal, analyst]

First question, on the second half implied sales guidance, it implies sales growth of about, call it, 7%, 8% year-on-year, which is obviously slower than the first half where you've done 16%. I'm just curious why the guidance has that level of a slowdown? Because I think Vlad and correct me if I'm wrong, earlier, I thought you might have said that every segment probably shows double-digit growth in the second half. I think there was a comment made. Obviously, you've also talked qualitatively about further momentum in the PC refresh cycle, AI deals coming. So I'm just -- in light of those comments, I just want to unpack the implied second half sales guidance.

[Vladimir Mitnovetski, executive]

Yes. Apoorv, thank you very much for the question. So, if you remember, Q4 2024, this is where we started to land some really strong enterprise deals, especially in December. December was one of our biggest month ever. Look, we need to go a little bit caution because when you deal with the large enterprise deals, it can be quite lumpy and 1 or 2 large enterprise deals can swing the percentage up and down. At the moment, it looks really good and strong. Are we going to get 20% growth in December '25 on December '24? -- really does. We had a really, really good December last. So the way it goes, we had a really soft H1 '24. We're delivering a really good year-on-year comparable. We still think H2 is going to be stronger. We still think it's going to grow well. But comparables on a strong Q4 '24, that's where perhaps a little bit of caution coming from...

[Apoorv Sehgal, analyst]

Okay. So yes, it is the comps you're cycling, I guess. I just want to clarify

[Mary Stojcevski, executive]

H1 comps in 24.

[Apoorv Sehgal, analyst]

Yes. Okay. Okay. That makes sense, the lumpiness of the enterprise deals, too. I just want to also clarify one other comment, Vlad. I think on Slide 19, when you're talking about the outlook on Slide 19, you're saying I heard second half End point solutions growth should be higher than the first half, which is up 19%. Did I interpret that correctly that with the refresh cycle, actually the endpoint solutions probably pick up?

[Vladimir Mitnovetski, executive]

Correct. Correct. Looking at July and August, looking at the 14th of October actually lending in H2, looking at historicals, those 3 will tell me and giving me good confidence that the End point solutions in H2 will be growing faster than in H1.

[Apoorv Sehgal, analyst]

And that's really on the back of still enterprise as opposed to small business. It's really the big stuff still flowing through.

[Vladimir Mitnovetski, executive]

Unfortunately, yes. Unfortunately, yes. We're quoting big deals and back orders, if you look at the construct of the back orders, larger deals, mid-market deals, yes.

[Apoorv Sehgal, analyst]

Got you. Okay. One final question for me then, please. Just on AI. So I think one of the slides showed that AI delivered more than $30 million of revenue in the first half. can you talk to what kind of dollar number you might expect in the second half? It sounds like with the pipeline of deals, it's probably going to be a bigger number. And could you also maybe share what kind of gross margins do these AI deals typically generate?

[Mary Stojcevski, executive]

Probably should clarify that $30 million was a specific deal; AI business would be higher than that generally, but we were calling out the one large infrastructure deal that was, could be one of the lumpy deals that may not be in the comparatives in the subsequent periods. But AI as a category is delivering more than $30 million.

[Vladimir Mitnovetski, executive]

So AI, so if we talk about AI like a Copilot sales, for example, a Copilot Plus, the growth is fantastic. We're going to continue growing it. I'll probably expect a good double-digit growth on a Copilot Plus. When we look at infrastructure deals, again, I have to be very careful here because they could be either incredibly substantial or none of that will happen. So it's a fine line between lending $100 million deal or not lending anything at all. In the first half, we've quoted a couple of larger scale, deals much larger than $30 million, none of that landed. So opportunity is great. excitement is strong. We are quoting. The great thing is we are a distributor. And distributor normally classified as a value-added channel member for the mid-market and SMB and a little bit of a transactional type of assistance to the Tier 1s.

We are now considered in the massive AI projects. The distribution provides the value that completely changes the whole perspective on traditional distribution values, and that's what's really important. So what I'm driving internally, I'm trying to build more and more of those expertise to show our OEM partners, you can't do it on your own. It's ecosystem of people. I build this ecosystem of people. I build expertise, partnerships to drive.

Now at the moment, the larger deals that we're quoting, they're on a relatively low margin. They are not large margin opportunities. But as the deal is going to become a little bit smaller and we drive a lot more through our traditional infrastructure partners, and we bring that true ecosystem in place that it becomes better margin. So I'll give you an example. That particular deal we did it was a Dell Tech, NVIDIA and a few other sort of software components into the deal was an ecosystem deal. Some of the components of the deal was on the lower margin, some of the components of the deal was on the higher margin. It was a great way of starting the whole motion. Our partner is happy. Our vendor is very happy. We can now, based on this, continue to build those expertise.

[Sam Wells, analyst]

Next question comes from Aryan from Barrenjoey. Ary please go ahead.

[Aryan Norozi, analyst]

Just the first one on the revenue side. So just going into maybe 2026. So like this year, your revenue will be up about sort of 12% year-on-year. So you've added a lot of incremental sales dollars. And you've said you've pivoted into the larger customers and mid-market and enterprise deals. Is there a component of that uplift in revenue that won't repeat in 2026? So you've sort of tried to win a lot of these enterprise contracts to plug the hole for SMB. Is that the new base? Or will those deals drop off and then you have to rely on SMB recovering, please?

[Vladimir Mitnovetski, executive]

No, no. The partnerships are built. The relationships are strong. The trust is great. A lot of those Tier 1 and Tier 2 large partners have tried to work with Dicker Data maybe for the first time because remember, it's only the last couple of years when we said, you know what, we can provide the value, we can do those deals at a slightly lower margin, but we are very confident in our capabilities. They tried us, they love us. Now that the market growth for them, they get a lot more opportunities. They're using us a lot more. I don't see that ever going to change.

What I need to see is the balance of the construct of the business change a little bit. Continue to grow through enterprise. Well, look at H1, very successful, very strong. So holding the cost right, providing the right level of expertise and investing in the right areas of the growth really paid the dividends, and it's working really well. Can I continue to grow 10% year-on-year with just enterprise business? I can. And I'll tell you what, even now, even in the moment, Dicker Data has relatively low share in enterprise business compared to some of our competitors. I can get more share of that business, and it's a good profitable business. But I also need to ensure that my expertise and my professional historical build that I built with small business is not going to get based. So that's why I need the small business to come back and work. So it's our ability to adapt to where the market is. However, saying all that, small business is our priority. It's always were and it always will be.

[Aryan Norozi, analyst]

Awesome. And then just historically, when you look at companies in the PC refresh cycle, they have a lot of growth during the cycle or the refresh cycle. And then the next year, the year after that, demand goes backwards or the revenue goes negative because you're cycling a big uplift and you go back to the trend line. Considering your PC revenues are up 18% plus this year, is it fair to say next year or the year after your PCs should fall 10% to 15% because you're above trend now when you go back to trend?

[Vladimir Mitnovetski, executive]

Yes. Thank you for the question. It's a good question. Looking at historical and looking at the trends, you're absolutely right. However, the refresh cycle is, when I look at an enterprise business, I think it's around 60%, mid-market, somewhere around 50%, SMB, not even 20%. So we don't know the time line of the refresh cycle. So it can go for another 12 months, another 18 months. They're moving a lot of production into the AI PCs. By end of this year, probably every single PC will have an NPU chip, which classified as an AI PC. So that is on a higher dollar bracket. So that's going to drive a little bit of growth.

So my feel is probably we will continue to see a good growth, very good growth in H2, a good growth in first half of '26. And I would probably, if I would make a prediction, I'll probably predict H2 of '26, the growth rate is going to slow down. I agree with you.

[Aryan Norozi, analyst]

Slow down, but not go to negative, you don't think it would actually fall year-on-year at some point because of this.

[Vladimir Mitnovetski, executive]

Very hard to say. We don't want to think it's going to go to negative, but the growth rates will definitely slow down

[Aryan Norozi, analyst]

Got you. And last one, in the lower and upper end of the guidance range, to what, on the PBT, to what extent do you assume an SMB recovery? So if you are assuming that at all. So if the SMB was pretty flat or down in the first half, do you assume any change to that in the second half in the guidance?

[Vladimir Mitnovetski, executive]

At the moment, we assume no SMB recovery for this year.

[Sam Wells, analyst]

Next question comes from Ross at Wilsons.

[Ross Barrows, analyst]

Mine is just around the AI opportunities. Vlad, can you just clarify something around, I guess, the deal sizes? When we've spoken in the past, you've mentioned that there have been some, there's a big spread of deal sizes, obviously, and there are a bunch of opportunities coming up as you've alluded to, and you've won some so far, some got delayed and some went direct. I guess the bit that I'm looking to explore a bit is just in terms of the customers that have bypassed and gone directly with their order. Are you still seeing that? And maybe just help us understand, are you still able to capture some of those larger transactions? Are they going direct? And are you able to just incrementally get bigger and bigger deals over time? And it seems like even if that's the case, there's still plenty of opportunities that are below those, the Tier 1 opportunities, if you want to phrase it that way.

[Vladimir Mitnovetski, executive]

Yes. Thank you for the question. I think actually is going to get reversed. So, at the moment, we have a few but large deals. We have a few deals that are going around. I know there was about 4 or 5 large deals. But large deals, let's just say, between $100 million and $200 million. Those opportunities are there. A lot of them is large enterprise customer spend, government, federal government spend and they've done, a lot of them done with the OEMs and NVIDIA direct. We, when the deal done by a particular partner that is not a premium Tier 1 partner for a particular OEM, they involve distribution to the partner with the project management. Some of these deals are also quite large and some are medium sized.

What we need to see, we need to see more deals of a smaller size. We need to see, we need to quote for 25, various opportunities of a deal sizes of $5 million to $10 million. That's where we're heading. That's what's coming. We're now trying to make ourselves positioned to take those $100 million and $200 million businesses, it's very difficult. The margins are tight. The investments are strong. It's a very heavily involved conversation between the customer itself who is building the infrastructure with the OEM, with the media, with the software guys like because it's such a significant deal, you can imagine all the executives of those companies will be right in the deal, and it would be hard to really position ourselves to drive a significant value.

With the smaller deals we can. And that's what I'm trying to achieve. I'm trying to actually drive demand myself, not to rely on someone else to come and actually give me the opportunity to be part of that project, which I'm incredibly grateful and we continue quoting for some really good opportunities. I want to go in the market and drive that enablement and training, trying to get the people to understand AI deal doesn't have to be a size of $50 million. They can be $2 million, $3 million and make a significant difference to the end users. And we can bring it all together and go with that. That's my aim.

[Ross Barrows, analyst]

That's really clear. So maybe just to summarize, it sounds like the $5 million to $30 million window is kind of the sweet spot for you?

[Vladimir Mitnovetski, executive]

Correct. Correct. $5 million to $30 million. I mean, if we can land 3, 4 of those deals every year, it will be fantastic. But what I really want, I want to land 25 to 30 deals of about $5 million to $10 million.

[Ross Barrows, analyst]

Understood. And just very quickly, that comes through the Advanced Solutions segment. Is that correct?

[Vladimir Mitnovetski, executive]

Correct

[Mary Stojcevski, executive]

And software... Some elements are software.

[Sam Wells, analyst]

Next question comes from Olivier at E&P

[Olivier Coulon, analyst]

Just another AI one. I mean I think that partner, I believe, is that you did the little AI deal with is calling for maybe 10 more of those. And I don't know over what time period. But your confidence that you'll continue to be kind of involved in that pipeline?

[Vladimir Mitnovetski, executive]

Yes. Yes. We've built a very strong relationship with this particular partner. We're going both ways kind of partnership. They're going to do a lot of work for us as well. So yes, we are quite confident we're going to continue to drive this with this partner.

[Olivier Coulon, analyst]

Yes. I mean on that front, so they're obviously selling a bunch of AI solutions and starting revenue generation pretty much now. Are you sourcing customers for them?

[Vladimir Mitnovetski, executive]

We will be...

[Olivier Coulon, analyst]

Yes. Okay. So just on the software business, I mean, obviously, incredible growth. I'm really interested in your point there that you're getting good growth in enterprise and medium business. I mean what's the potential here? Like you're calling for $1 billion this year. Presumably, you'd expect to grow well above market for a lot longer if you've actually cracked the code for mid-market and enterprise?

[Vladimir Mitnovetski, executive]

I think we did. We cracked the code. I think the code is, go into the partners and drive the solutions on a consultative way of selling. Before we were very aligned to our vendors, we understood the strength of their solutions. We will drive a lot of seminars, a lot of interesting webinars and training and enablement sessions. And then the partners just, they can choose one vendor or the other vendor.

Now we're going into a particular partner, and we're saying this is the solution with constructs of 2 or 3 different vendors. This is how we're going to do it. We're going to do the migration services for you. We're going to do the bidding for you. We're going to do CX, which is the customer success motion for your customers. We're going to give you a white glove service for everything. And we're going to do it as a post sales and customers love it. So that consultative outcome-based presales, after sales approach started to resonate really well with our customers. And then most importantly, it takes the conversation away from commercial conversation because the commercial conversation of going and talking to someone and just saying, well, someone else is offering for 2% if you can match it, we'll give you the deal, it's not interesting anymore. I mean we do this, but we want to drive, we want to get control of our own destiny.

We want to drive that innovative way, consultative way of selling those solutions to our partners and their customers, we're starting to engage more and more with their customers because remember, a lot of mid-market partners don't have skills and expertise. We do that. We try, but sometimes we don't know about it. So when we go and we tell them and they're like, we have no idea, you guys can do this and this and I say, and we're going to do it all for your customer on your behalf.

[Olivier Coulon, analyst]

Yes. No, it sounds pretty exciting. And then just on CrowdStrike, I mean obviously, a massive vendor for cyber. Like how does that really unlock a much larger market that you haven't been able to access having them as a cyber vendor?

[Vladimir Mitnovetski, executive]

Correct. Correct. I mean, look, CrowdStrike is predominantly the enterprise-grade solution for the enterprise customers. I mean timing is good. We now have a lot of enterprise customers. They all want to deal with us, fantastic. The opportunity with CrowdStrike, I mean, getting the enterprise customers trading with us and dealing with us, it's just a market share. It's the share shift. We're going to share shift, of course, and we're going to take a lot of business. The opportunity with CrowdStrike in that mid-market to kind of a low end of mid-market. This is where they feel they have an opportunity. We have an expertise there, and we have the market there. So it's all about their process, trust in the process. We've been doing that for many, many years. We know how to take enterprise-grade solution into the smaller and medium-sized customers. So we're going through this motion, unlocking the opportunities. So that's where the opportunity with CrowdStrike for us with Dicker Data, especially on the margin piece for the next couple of years.

[Olivier Coulon, analyst]

Yes. So just the last one maybe for me. I think when I look at December '26, and I take the point that obviously, the PC refresh cycle, you're going to get an acceleration in SMB over '26, but a plateauing or maybe a slight drag in mid-market and enterprise as they largely will have already refreshed. But I think the market is currently calling for like 6% or 7% revenue growth. I mean, based on what you're seeing at the moment, does that feel like that might be a bit conservative?

[Vladimir Mitnovetski, executive]

When we do the guidance, we're trying to be as close and as realistic to the market we feel where the market is. Our December last year was super strong. I've never seen anything like this. And I think top up with a double-digit growth in December would be a very heavy lift. Is it impossible? Nothing is impossible. But we're trying to be more realistic. We know that the Q3 is going to be great. We think that October, November is going to be in line, but December could be slightly flattened. And that's why a slight conservatism in getting the number. If we feel that's going to change, we're obviously going to update the guidance. At the moment, we're quite certain that that's where we see the market is going.

[Mary Stojcevski, executive]

You're referring to FY '26.

[Olivier Coulon, analyst]

It wasn't '26, but I mean, obviously, the color on '25 handy. Yes. I guess I was saying because obviously, you've got PC refresh that might not give the same sort of growth in '26 of '25.

[Mary Stojcevski, executive]

Yes. And that's correct. Vlad answered that question earlier. We are expecting that would come off more likely in that second half of '26, but we've got SMB driving most likely in the first half.

[Olivier Coulon, analyst]

Yes. And then obviously, your view on software and advanced solutions is those growth rates potentially continue at kind of pretty elevated levels?

[Vladimir Mitnovetski, executive]

Correct.

[Mary Stojcevski, executive]

Yes, correct.

[Vladimir Mitnovetski, executive]

Correct. And then like you've seen how much effort we're putting into the AI motion that definitely is going to be our biggest growth engine for '26. Yes. Sorry, I misunderstood the question.

[Sam Wells, analyst]

Just last question coming from Ed at Jarden.

[Ed Woodgate, analyst]

I guess following on from Aryan s good question regarding PC cycle. Just wanted to make sure that like we understand like your views on this. And maybe just if you could make a comparison to previous PC cycles, is this one proving to be a little bit more elongated, I guess, and smoother and therefore, maybe any of the kind of drop off if there was any, would be a lot less radical. And then you're also benefiting from like a mix shift to AI PC. So is that part of the reason that you feel pretty comfortable that the growth rates won't become negative, just moderate?

[Vladimir Mitnovetski, executive]

Yes, AI PC is definitely a good point. I think because we're getting into this enterprise motion and delivering this larger project and economies of scale working quite well for us. Remember, in previous years, we were very, very heavy SMB and mid-market. So we could kind of, if SMB stopped spending, we could feel it straight away. I think now we have a little bit more balanced approach. If SMB is not spending with the enterprise. If SMB is bad, then we can be a little bit more sort of selective with enterprise. So that's putting us in a really comfortable position. [Up for each cycle, there could be a slowdown]. There's no question. How big is that slowdown is going to be, when it's going to happen, we'll see. But I agree with the whole concept of H2 2026 will probably start to see it flattening the growth is flattening, even with the larger ASPs on AI.

[Ed Woodgate, analyst]

Sure. So yes, okay. So not a massive, so not negatives, but also supplemented by the areas of business. And then just on New Zealand, I appreciate that market has been challenged. Can you just talk to what do you need to see for that revenue to reaccelerate? Is it the macro continuing to improve? Is it you need to continue to add new vendors? How do you see that? And where do you think you can get to?

[Vladimir Mitnovetski, executive]

Look, definitely. Look, saying that, we are around $600 million business in New Zealand. Looking at the commercial spectrum of the business, it's going to be about $400 million, maybe just a little bit over $400 million. It's the biggest commercial space that we're occupying in New Zealand with the vendors we represent. We need more vendors in New Zealand. We need more scale in New Zealand. We need stronger SMB buy in New Zealand. But the truth is the construct of the business in New Zealand never was as heavy SMB as in Australia. And we were going through this motion. We were building our customer base. We were driving that mid-market and SMB presence. And we started to get better and better than, of course, last couple of years, it was very, very difficult. So that has slowed down. Our mid-market business is good. Our enterprise business there is very low.

We did not pivot our New Zealand business to the enterprise customers as much as we did in Australia because we were believers that, that mid-market is still have ample of growth and opportunities, and that's kind of what's happening. If we slice down New Zealand business slightly differently, and we look at our consumer retail business and Apple distribution versus the commercial, commercial is actually growing well. You're right. We need more vendors. We need more presence in mid-market. We need to unlock a few more enterprise opportunities and we need small business to come back.

It's a lot of opportunities in New Zealand business. We're putting a lot of focus there. I think there is definitely good growth. We have changed operationally our New Zealand business. You can see that profits are coming up quite significantly. We're going to continue that work. So it's just the slow steps there.

[Ed Woodgate, analyst]

Okay. So the vendor side of things, I guess, is the upside and given your track record in Australia and the opportunity to work with specific brands should come on market?

[Vladimir Mitnovetski, executive]

Yes. The problem with New Zealand is it's a small market. It's a very small market. And vendors in Australia, you can have 2 or 3 distributors, and each provide its own sets of values. In New Zealand, there's a small market. Vendors are not as keen to open up. It takes a long time to drive those contracts. So probably a bit slower motion, especially in a tough market. If the market was buoyant growth, I'd probably say we would accelerate the growth with adding more vendors and faster. But at the moment, it's a bit tough...

[Sam Wells, analyst]

Thanks very much, Ed. I think that's all the time we have for questions today. If there are any follow-up questions, please feel free to send them through via e-mail, and we'll endeavor to come back to you. And maybe with that, Vlad and Mary, I'll just pass it back to you if there's any closing comments.

[Vladimir Mitnovetski, executive]

Thank you. Thank you, everyone, who joined the call. Look, it's always nice to present on the very strong results, pleasing results. We're very proud to what we've achieved. We're very proud of what the organization have achieved and how we position ourselves for future growth. The amount of passion, enthusiasm, growth and talent that we have in the organization is exceptional. So, we're looking forward to a very successful H2. Historically, our H2 has always been stronger than H1, and it absolutely will be the case in this H2. So yes, we're looking forward to seeing you all again on, in early 2026, hopefully delivering a very, very strong result.

[Sam Wells, analyst]

Great. Thanks very much. Thank you for joining today's Dicker Data first half call. Thank you and enjoy the rest of your day. Goodbye. Thank you.