TechnologyOne share price slides despite strong first-half SaaS growth

TechnologyOne shares are falling falling the release of the company’s half-year results…

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Key points

  • TechnologyOne has released its half-year results
  • The company has reported a 44% jump in SaaS annual recurring revenue to $225.1 million
  • Management is guiding to full-year profit growth of 10% to 15% 

The TechnologyOne Ltd (ASX: TNE) share price is on the slide on Tuesday morning.

In response to the release of the enterprise software company’s half-year results, investors have sold down the TechnologyOne share price by 3% to $10.08.

TechnologyOne share price fall despite strong first-half growth

  • Total revenue up 19% to $172.5 million
  • SaaS annual recurring revenue (ARR) up 44% to $225.1 million
  • Total ARR up 23% to $288.5 million
  • Profit after tax up 18% to $33.2 million
  • Interim dividend up 10% to 4.2 cents per share

What happened during the first half?

For the six months ended 31 March, TechnologyOne reported a 19% increase in revenue to $172.5 million and a 44% jump in SaaS ARR to $225.1 million.

Management advised that this reflects an acceleration of customers moving to its global SaaS enterprise resource planning (ERP) solution. More than 138 large enterprise customers made the shift, which is the highest number to date for any comparable period. This was driven by its ‘end of on-premise program.’ Pleasingly, the majority of remaining on-premise customers are committing to transition before 2024 when its on-premise support will cease.

Another driver of its growth was its UK business, which was firing on all cylinders during the half. It delivered a profit before tax of $2.3 million, which is more than double the same period last year. But management isn’t resting on its laurels and sees significant growth opportunities in the coming years. Particularly given how the total addressable market in the UK is three times greater than the APAC addressable market.

Management commentary

TechnologyOne’s CEO, Edward Chung, was pleased with the half. He commented:

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.

This half-year, we delivered a break-even cash flow generation result, with cash and cash equivalents up 16%. Cash flow generation will be strong over the full year, and we expect it to represent approximately 85% of net profit after tax. Cash flow generation will progressively align to NPAT by FY24.

TechnologyOne’s Chair, Adrian Di Marco added:

Our results are due to the continuing strong demand for our global SaaS ERP solution. Today, 97%+ of our revenue comes from our SaaS and Continuing Business. This is an outstanding achievement for the company to have transitioned from a traditional on-premise company to a SaaS company over the last 5+ years. In light of the company’s strong results, and our confidence going forward, the dividend for the half year has increased to 4.20 cents per share, up 10% on the prior year.

Outlook

Looking ahead, TechnologyOne expects to deliver profit before tax growth of 10% to 15% and SaaS ARR growth of greater than 40% in FY 2022.

Mr Chung also dismissed concerns that the economic environment could stifle its growth. He said:

There is concern in the financial press about the deteriorating economic environment because of inflation and increasing interest rates. Over the past 35 years we have continued to grow strongly in challenging economic environments such as this. We will do so again.

Mr Chung also confirmed that the company is on track to deliver total ARR of $500 million+ by FY 2026. This is up from its current base of $288 million. In addition, thanks to the economies of scale from its global SaaS ERP solution, it also expects its profit before tax margin to expand to 35% by then.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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 Scott Phillips.

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