TNE - Technology One

[peter2]

Since my exit price has fallen 30% but has now been supported near the $10 level three times recently.
TNE like the other IT companies DDR and DTL have been in demand recently with their share prices showing strength relative to the index.

 

[divs4ever]

TechnologyOne SaaS ARR up 40% and H1 FY23 Profit After Tax up 24%
BRISBANE, 23 May 2023 – One of Australia’s largest enterprise Software-as-a-Service (SaaS)
companies, TechnologyOne (ASX:TNE), today announced its financial results for the half year
ended 31 March 2023, showing its 14
th year of record first half profit, with SaaS ARR up 40% and
Profit After Tax up 24%, underpinned by continuing strong demand for the TechnologyOne global
SaaS ERP solution.
TechnologyOne’s SaaS and Continuing Business now has revenue of $200.0m for the half year, up
18%, representing 98%+ of our business, reflecting a huge shift from our legacy licence business.
TechnologyOne CEO, Edward Chung said: “I am pleased to announce we have delivered our 14
th
year of record first half profit, record revenue and record SaaS fees.
“Our Profit After Tax for the half is up 24%. Our SaaS Annual Recurring Revenue (ARR) is up 40%,
as we increased the number of large-scale enterprise SaaS customers by 27% to 903. Our SaaS
business continues to grow strongly.
Key results were as follows:
• Profit After Tax of $41.3m, up 24%
• Profit Before Tax of $52.7m, up 24%
• SaaS Annual Recurring Revenue (ARR)1 of $316.3m, up 40%
• Revenue from our SaaS and Continuing Business of $200.0m, up 18%
• Total Revenue of $210.3m, up 22%2
• Total Expenses of $157.6m, up 21%3
• Cash and Cash Equivalents of $139.1m, up 20% from 31 March 2022
• Cash Flow Generation4 of $1.3m as expected, and will be strong over the full year
• Interim Dividend of 4.62cps, up 10%
• R&D expenditure (before capitalisation) of $49.4m, up 19%, which is 24% of
revenue
• UK profit of $3.0m, up 29%
1 ARR represents future contracted annual recurring revenue at period end. This is a non-IFRS financial measure and is unaudited.
2Total Revenue includes a gain of $7.4m as a result of the Scientia earn-out stretch targets not being achieved. However, the
Scientia product is performing strongly, in line with our expectations and will continue to support UK growth.
3 Total expenses includes the partial derecognition of acquired Scientia intangible assets for $6.8m.
4 Cash Flow Generation is Cash flow from operating activities less capitalised development costs, capitalised commission costs and
lease payments. This is a non-IFRS financial measure and is unaudited.
2
We have a clear and consistent strategy, and our team are executing very well, delivering significant
value for our customers.
“We saw an acceleration of customers move to our global SaaS ERP solution, with more than 189
large enterprise customers committing to make the shift in the last 12 months, the highest number to
date for any comparable period.”
“Our global SaaS ERP is the future of enterprise software. It provides our enterprise customers a
mission critical solution to run their entire business on any device, anywhere, at anytime. It also
allows them to innovate and meet the challenges ahead with greater agility and speed, without
having to worry about underlying technologies. This makes life simple for them.”
“These are strong half year results for TechnologyOne and validate the strength of our SaaS
strategy, which continues our strong growth trajectory in both Australia and the UK.”
“We continue to have many strong customer wins driving organic growth. Twenty-five large scale
enterprise customers partnered with us in the first half, including Hume City Council, City of
Parramatta Council and six Victorian water authorities in Australia, Waikato District Council and
Massey University in New Zealand and London Business School, Liverpool School of Tropical
Medicine and Ashfield District Council in the UK. All of these organisations partnered with us to find
efficiencies through transforming their operations to enable more free time and resources, which
can then be invested back into their customers and community,” Mr Chung said.
Net Revenue Retention (NRR), which is the net amount of new ARR won and retained from existing
customers, was 119% for the 12 months to 31 March, compared to 114% for the same period last
year. This was an outstanding result given best practice in the ERP market is between 115% and
120%.
“We expect to meet our 115% target for the full year. By growing NRR at 115% we can double the
size of our business every five years, which shows the strength and resilience of our strategy and
deep customer relationships,” Mr Chung continued.
The UK business delivered almost the same amount of new ARR in the first half of FY23 as it did for
the full year in FY22 and delivered profit before tax of $3.0m for the half-year, up 29%.
Mr Chung said: “We expect strong growth for the full year FY23, and the company sees significant
growth opportunities in the coming years.”
“As we continue to win more customers and our SaaS Platform continues to scale globally, our profit
margin will continue to expand.”
TechnologyOne also continued significant R&D investment in platforms for growth including SaaS+
(Solution as a Service), App Builder, its Digital Experience Platform (DXP) and extending the
functionality and capabilities of the company’s global SaaS ERP solution.
3
“Traditionally, cash flow generation for TechnologyOne is weighted to the second half, aligned with
customer payment anniversary dates, resulting in negative cash flow in the first half. This half-year,
we delivered a break-even cash flow generation result, with cash and cash equivalents up 20% pcp.
Cash Flow Generation will be strong over the full year, and we expect it to represent approximately
90% of Net Profit After Tax. Cash Flow Generation will progressively align to NPAT from FY24,” Mr
Chung said.
“In light of the company’s strong results, and our confidence going forward, the dividend for the half
year has increased to 4.62 cents per share, up 10% on the prior year.”
Guidance for FY23 – profit up 10% to 15%, and SaaS ARR up 40%+
The company is well positioned to deliver continuing strong growth over the full year, expecting Net
Profit Before Tax growth for FY23 up 10% to 15% on FY22.
“We expect to see our SaaS ARR continuing to grow strongly, circa 40% over the full year,” Mr
Chung said.
“As we continue to aggressively grow our SaaS business, we will also continue to reduce our legacy
licence fee business, which will be down to approximately $2.0m over the full year (vs $10.0m pcp).
While this has a significant immediate impact on our P&L over the full year, this is an integral part of
our strategy to grow our SaaS business and the recurring revenue base.”
“There is concern in the financial press about the deteriorating economic environment because of
inflation and increasing interest rates. Over the past 36 years we have continued to grow strongly in
challenging economic environments such as this. We will do so again because of the following
reasons:
• The markets we serve such as local government, higher education and government are
resilient;
• TechnologyOne provides mission critical software with deep functionality for these markets;
• In times like this, these customers turn to ERP software to achieve greater efficiencies in
their business. They save 30%+ by using our global SaaS ERP;
• Our subscription revenue contracts pass on inflation;
• We continue to benefit from improving margins because of the significant economies of
scale from our single instance global SaaS ERP solution.”
“We have clear visibility and confidence in our pipeline, which enables us to continue to invest in
talented staff and new areas of growth such as SaaS+ (Solution as a Service), DXP, App Builder
and our UK business.” Ed Chung said.
4
Long-term outlook
TechnologyOne sees long-term continuing strong growth driven by its global SaaS ERP solution,
increased product adoption by existing customers, new customers and expansion globally.
“Over the next few years, our SaaS and Continuing Business is expected to continue to grow
strongly,” Mr Chung said.
“We are on track to surpass Total ARR of $500m+ by FY26, from our current base of $350.6m. We
continue our significant long-term investments in R&D to build platforms for growth to continue to
double in size every 5 years.”
“The economies of scale from our global SaaS ERP solution will also see continuing Profit Before
Tax margin expansion to 35%+.”

DYOR

i hold TNE ('free-carried' )

hmmm i never picked this to be a ten-bagger when i bought in November 2011 @ $1.10

 

[galumay]

I sold them last year, they became my lowest conviction holding due to accounting shenanigans especially with their manipulation of cash flow. My cost base was higher than yours though, so more capital at risk.

 

[divs4ever]

I sold them last year, they became my lowest conviction holding due to accounting shenanigans especially with their manipulation of cash flow. My cost base was higher than yours though, so more capital at risk.

a preferred tactic of mine is to rescue to cash invested as soon as logical ( to me ) so reduced in May 2014

by necessity i remain cautious ( no more big cash injections expected ) in the market

 

[galumay]

Yes, I know thats a tactic of yours, I am not a fan of the 'free carry' concept, but I realise its suits the personality of some investors.

 

[divs4ever]

Yes, I know thats a tactic of yours, I am not a fan of the 'free carry' concept, but I realise its suits the personality of some investors.

well as a frequent former visitor to the race-tracks i realize the strategy i used there in the past , wasn't in line with my investment aims ( but some race-track lessons have still been useful
i needed to change for the new game i was entering

BTW i was reluctant to invest more in TNE after their brush with the Brisbane City Council .. i had seen how the BCC planned their IT layouts so that dispute was imaginable

 

[Dona Ferentes]

this is a degree of difficulty 2.5 dive into TNE.

A top quality company shows cheaper is not better

As investors, we all like to snap up a bargain but cheaply-priced stocks tend to provide short-term, temporary pleasures. Meanwhile, a quality gem is the gift that keeps on giving, even if the entry price seems expensive.

www.firstlinks.com.au

 

[galumay]

Funny innit?! I sold TNE because it became the lowest conviction holding in my portfolio, the accounting shenanigans and lack of business quality relative to valuation were the main drivers. I wouldn't be surprised if the price remains disconnected from value for a long time, but the downside risk put me off.

 

[finicky]

Technology One (TNE) was the top performer among the ASX200 today (Tuesday)
Not Held
From Market Matters afternoon report:

Technology One Ltd (TNE) $29.45

TNE was the market’s shooting star on Tuesday, surging ~11% after beating earnings guidance: Profit before tax rose 18.3%, well ahead of 12-16% guidance. Total annual recurring revenue (ARR) soared 20% to $470.2mn, with the company evolving well in the UK. Total revenue increased 17% to $515.4 million, while revenue from SaaS and recurring business rose 19% Analysts welcomed the result with open arms. Wilson said they’re confident that TNE can achieve its goal of $1bn annual returning revenue by FY30—we wouldn’t argue with them! We like TNE, but the risk/reward ratio is difficult at $30, its one to consider during its next pullback.