TechnologyOne (ASX:TNE) share price on watch after reporting strong first half growth

The TechnologyOne Ltd (ASX:TNE) share price will be on watch today following the release of its half year results…

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The TechnologyOne Ltd (ASX: TNE) share price will be one to watch closely today.

This follows the release of the enterprise software company’s half year results this morning.

How did TechnologyOne perform in the first half?

TechnologyOne was a strong performer during the first half of FY 2021, thanks largely to continuing strong demand for the TechnologyOne Global SaaS ERP Solution.

According to the release, for the six months ended 31 March, TechnologyOne reported a 5% increase in total revenue to $144.3 million. This was underpinned by a 41% jump in SaaS Annual Recurring Revenue (ARR) to $155.8 million thanks to a 21% increase in large-scale enterprise SaaS customers to 576.

Due partly to a 5% reduction in expenses thanks to significant efficiencies, the company’s profits grew at an even quicker rate. First half profit after tax was up 48% over the prior corresponding period to $28.2 million.

One slight disappointment was that its cash flow generation was negative $2.9 million. However, this is expected to be stronger over the full year and didn’t stop the TechnologyOne board from increasing its dividend by 10% to 3.82 cents per share.

Management commentary

TechnologyOne’s CEO, Edward Chung, commented: “I am pleased to announce that we have delivered our 12th year of record first half profit and revenue and record SaaS fees.”

“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.”

Looking ahead, Mr Chung said: “As in previous years, our first half result is not necessarily indicative of our full year. In particular, as we continue to aggressively grow our SaaS business we will also continue to reduce our legacy licence fee business, which will be down approximately $7m over the full year. 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.”

Outlook

Despite previously stating that its second half would be the stronger half in FY 2021, this isn’t expected to be the case any longer.

Management is guiding to a full year net profit before tax of $94.3 million to $98.6 million. This represents year on year grow of 10% to 15% on an underlying basis.

Looking further ahead, management is targeting ARR of over $500 million by FY 2026. And thanks to the economies of scale from its Global SaaS ERP solution, it also expects continuing profit before tax margin expansion to 35%.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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