NEXTDC earnings surge amid demand for AI and cloud services

Data centre operator NEXTDC (ASX: NXT) is riding a wave of demand for AI and cloud services to deliver record underlying earnings for FY23, buoyed by revenue that exceeded forecasts issued just a month before the end of the financial year.

However, a blowout in costs including depreciation expenses, pushed the bottom line to a $25.6 million loss from a $9.1 million profit in FY22.

NEXTDC chief executive officer Craig Scroggie describes FY23 as an ‘extraordinary year of growth’ led by a record-breaking level of new sales that will ‘lock in a solid rate of growth over the next decade’ for the group.

“We are pleased to deliver another record result in FY23, with strong growth in revenue, underlying EBITDA and contracted utilisation,” Scroggie says.

“The company is accelerating its development activities to grow our inventory in line with elevated customer demand.”

This includes NEXTDC securing its first international development sites for data centres in Kuala Lumpur and Auckland.

Scroggie’s bullish outlook for the company has been buoyed by a 25 per cent increase in FY23 group revenue to $362.4 million, which exceeded the top end of guidance of $360 million issued in May.

Underlying EBITDA for the year increased 15 per cent to $193.7 million, which sits in the middle of NEXTDC’s guidance of between $192 million and $196 million.

NEXTDC, which operates 12 data centres nationally, grew its customer base by 13 per cent to 1,820 during the year but contract utilisation grew at a much faster rate of 47 per cent to 122.2 megawatts.

“We are in the beginning of the fourth industrial revolution,” Scroggie says.

“Change is happening at an unprecedented rate, and with innovation cycles shortening, we find ourselves at the precipice of unprecedented digital economic growth.

“With liquidity of approximately $2.3 billion, NEXTDC is exiting FY23 in a strong financial position to be able to take advantage of the opportunities presented by the exponential tailwinds of enterprise modernisation and cloud computing, in addition to the unprecedented acceleration of AI-driven applications driving one of the most powerful computational transformations in our lifetime.”

The Brisbane-based NEXTDC, which was founded by serial entrepreneur Bevan Slattery in 2010, lifted capital expenditure by 14 per cent to $690.4 million in FY23 as the company pushed ahead with data centres on new sites and expansions to existing sites.

Final building works were completed at S3 Sydney, with 4MW of capacity added in FY23. Expansion works continue at M2 Melbourne, with 12MW in the process of being built and a further 9MW currently in planning.

During FY23, new sites were secured for Sydney and Melbourne, with S5 Sydney providing future expansion at Macquarie Park and M4 Melbourne providing future expansion at Port Melbourne.

The group’s first data centre for Port Hedland is nearing completion, while work is under way on NE1 at the mining town of Newman in Western Australia.

NEXTDC says development works continue for its first centres in Adelaide and Darwin.

The company is forecasting further growth in the current year with revenue expected to range from $400 million to $415 million. Underlying EBITDA is expected to be between $190 million and $200 million.

NEXTDC is forecasting wider margins from the second half of this financial year as contracted price rises flow through to the bottom line, along with expected decreases in power costs.

The forward order book of 44.5MW is expected to translate into revenues by the end of FY24, before ramping up from FY25 to FY29.

“FY24 represents a critical investment year for NEXTDC to expand and enhance its market-leading platform capabilities, making the necessary investments to leverage the next decade of growth, both domestically and internationally,” Scroggie says.

“At the core of the future growth of AI and cloud computing lies the pivotal role of the underlying digital infrastructure.

“This technological backbone, encompassing our data centres and networks, establishes the very foundation upon which the remarkable capabilities of both AI and cloud rely, and this moment in time is an inflection point for the company.”

Scroggie says the scalability, speed, and reliability of these technologies ‘are intricately tied to the strength of this digital foundation’.

“As the insatiable demand for computational power from AI and cloud intensifies, the seamless synergy between these technologies and our digital infrastructure becomes paramount, giving us great confidence that these investments will position the company for extraordinary future growth.”