The TechnologyOne Ltd (ASX: TNE) share price is under the spotlight after the business announced its FY23 result which beat guidance.
This business provides a global software as a service (SaaS) enterprise resource planning (ERP) software offering.
FY23 result
Here are some of the highlights from the 12 months to 30 September 2023:
- Total revenue increased by 19% to $441.4 million
- R&D investment of $112 million before capitalisation, up 21%, and it was 26% of revenue
- Cash flow generation of $104.6 million, up 36%
- Net profit after tax (NPAT) rose 16% to $102.9 million
- Special dividend of $0.03 per share
- Total dividend of $0.1952 per share, including special dividend, up 15%
TechnologyOne boasted of net revenue retention of 119%. That essentially means its existing clients generated 119% revenue of the year before – that’s good organic growth. It was above its long-term target of 115%, which is the pace that would enable it to double in size in five years. It has a client retention rate of around 99%, the highest in the industry.
The average ARR from customers has grown from $100,000 in FY12 to almost $400,000 in FY23.
UK ARR rose by 52% to $26.5 million in FY23, while UK profit jumped 54% to $3.7 million.
Revenue from its SaaS and recurring business increased 22% to $390.7 million. TechnologyOne said that it’s on track to surpass $500 million of annual recurring revenue (ARR) by FY25, bringing its medium-term guidance forward by a year. Growth here could be essential for the TechnologyOne share price. Total ARR rose 23% in FY23 to $392.9 million.
The profit after tax growth of 16% beat guidance of between 10% to 15%.
Outlook and thoughts on the TechnologyOne share price
The company is expecting its profit before tax margin to return to growth in FY24, despite investing significantly for growth.
During the year, it spent $2 million considering an acquisition that didn’t ultimately proceed, but it said it remains in a strong position to explore acquisitions thanks to its strong balance sheet. Its cash and investments balance was $223.3 million at the end of the year, up 27% year on year.
The underlying profit before tax margin was 30% in FY23, and it’s expecting this to reach 35% in the coming years thanks to economies of scale and its SaaS nature.
The TechnologyOne share price has risen around 25% this year, it’s trading on a fairly high valuation. I wouldn’t call it a great buy today, but it could keep doing well over the long-term. Higher revenue and growing margins sounds appealing over the next few years.
