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"Over the past 36 years we have continued to grow strongly in challenging economic environments such as this. We will do so again," says TechnologyOne CEO Edward Chung.
The profit machine at TechnologyOne (ASX: TNE) pumped out another record result for the first half of FY23, with the company declaring that it is on track to double in size over the next five years despite the challenging economic environment ahead.
The enterprise Software-as-a-Service (SaaS) provider has posted a 24 per cent increase in net profit to $41.28 million for the six months to the end of March, following a 17 per cent lift in group revenue to a record $201 million.
It is the 14th consecutive record interim profit for the group, with TechnologyOne noting SaaS annual recurring revenue (ARR) rose 40 per cent after growing its client base by 27 per cent to 903 – among them a swag of large-scale enterprises.
The growth reflects the company’s move away from its legacy licence fee operations in recent years while pumping up its Saas offering.
TechnologyOne CEO Edward Chung expects recurring revenue from SaaS subscriptions to maintain momentum to increase 40 per cent across the full year, while he also has allayed concerns that economic headwinds will temper that growth.
“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 million over the full year (compared with $10 million in the previous corresponding period),” Chung says.
“While this has a significant immediate impact on our profit and loss 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.”
Chung notes that the company’s future earnings performance will be supported by the strength of its client base in the ‘resilient’ sectors of local government, higher education and government, where the company provides ‘mission critical software with deep functionality for these markets’.
“In times like this, these customers turn to ERP (enterprise resource planning) software to achieve greater efficiencies in their business,” Chung says. “They save 30 per cent-plus by using our global SaaS ERP.”
TechnologyOne is forecasting a 10 to 15 per cent increase in net profit before tax for FY23, supported by the take-up of SaaS subscriptions by major clients.
“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,” Chung says.
“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 any time. 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.”
A key measure supporting revenue growth is net revenue retention (NRR), which is the net amount of new ARR won and retained from existing customers.
NRR for the 12 months to 31 March was 119 per cent, compared to 114 per cent for the same period last year.
“We expect to meet our 115 per cent target for the full year,” Chung says.
“By growing NRR at 115 per cent we can double the size of our business every five years, which shows the strength and resilience of our strategy and deep customer relationships.”
Chung says TechnologyOne is on track to surpass total ARR of $500 million by FY26 from the company’s current base of $350.6 million.
“We continue our significant long-term investments in R&D to build platforms for growth to continue to double in size every five years,” he says.
TechnologyOne has increased its interim dividend by 10 per cent to 4.62c per share.
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