Here's a litte further detail on the $TNE results, which I agree are excellent

Their Key results were as follows:

• Profit Before Tax of $81.9m, up 33%

• Profit After Tax of $63.0m, up 31%

• Total Annual Recurring Revenue (ARR)(^^1) of $511.1m, up 21%

• Net Revenue Retention (NRR) of 118%, above our long-term target of 115%

• UK ARR(^^1) of $43.1m, up 50%

• Rule of 40 result of 49.4% (^^2)

• SaaS and Recurring Revenue of $265.0m, up 19%

• Total Revenue of $291.3m, up 19%

• Total Expenses of $209.4m, up 14%

• Free Cash Flow(^^3) (previously Cash Flow Generation) of $24.0m, up 100%+

• Cash and Investments of $211.9m, up 23%

• Record Interim Dividend of 6.6 cps, up 30%

• R&D Investment (before capitalisation) of $68.8m, up 21%, which is 24% of revenue (^^4)

• Step-up in Profit Guidance for FY25 to a range of 13% to 17%

Notes

^^1 ARR represents future contracted annual recurring revenue at period end. This is a non-IFRS financial measure and is unaudited.

^^2 Rule of 40 is defined as the sum of ARR growth and the 12-month rolling free cash flow margin post tax (free cash flow as a percentage of ARR). This is a non-IFRS financial measure and is unaudited.

^^3 Free Cash Flow (previously 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.

^^4 Revenue excluding interest and other income.

My Assessment

A very strong half, aided by some marketing expenses ($6m) which will go into 2H.

The new SaaS+ model appears to be leading to an acceleration in growth, with guidance for FY25 stepped up again, see below. In fact, Ed made clear a few points about the chart below:

• Lower end of guidance would internally be considered failure
• They are nudging their way progressively towards 15%-20%, as their target range
• He left eh audience to make their own mind up, but seemed to imply to me that they were expecting to hit or beat the top end, i.e., 17% PBT growth

He also empahsised that he doesn;t want anyone to mark them down on having only 1bn+ as the 2030 ARR target. He emphasied that "plus" part of the target. This is because quite clearly, they look to easily exceed that on the NRR performance alone.

NRR was 118% and churn a very low 0.3%, showing the value existing customers are seing in their product.

There are three big themes I wanted to call out from the call, which are central to the high conviction if have in my thesis.

1. SaaS+ starting to build momentum

Ed explained how the SaaS+ model is a complete reconceptualisation of product, architecture, and how it is deployed, It basically allows $TNE to deploy products to customers without using system integrators. I think this is a very big disruptor to the industry, which has to date been dominated by big players like SAP and Oracle, who then use big multi-year system integrator consultants (think Accenture, IBM, CapGemini, Deloitte etc. etc.), and of coure, the system integrators often price their projects on a time and expense basis, dragging them out for as long as possible.

End to end timelines for ERP projects are measured in years, and SaaS+, first deployed in 2023, is now achieving times of about 3 months, requiring only client and $TNE staff. (How the consultants must HATE it!!). The goal is to get to implementation timelines of 30 days! (I'm personally skeptical about that because I think there will ultimately be constaints on the customer side out of $TNE's control, particularly in the government and educational clients who don't have - how might I politely say it - have the most dynamic organisations.)

My point is, that this model is quite revolutionary in Government and Education, and it is conceivable that we will see a snowball effect as it gathers momentum. In fact, Ed pointed out that clients who had previously purchased the previous platform but were yet to implement, were already coming back and asking to go straight to SaaS+.

The value drivers for SaaS+ are significant: 1) faster for clients to gain benefits, 2) lower risk implementation, 3) avoided system integrator costs, 4) for $TNE, faster product velocity allowing staff to be tied up for less time on implementation, and accelerating the cycling of implementing further modules, this driving NRR ever higher, and finally 5) single point accountability for $TNE. (I know first hand this is a big issue - the amount of finger pointing that goes on between product vendor and system integrator with the client can be a staggering "drama triangle".)

2. UK Now Gaining Critical Mass

The expansion of Technology One into UK higher education in 2021 with the acquisition of Scientia in 2021 marked an inportant inflection point, adding to $TNE's higher ed product offering market leading timetabling/resource scheduling capability. Last year's acquisition of Courseloop, also in the UK, adds the all important back-end curriculum management system.

Importantly, between Scientia and Courseloop, $TNE now has a significant number of UK universities that have one or more products, and they are now starting to sell their entire Higher Ed Product offering (which of course includes their own student management system) into some of the smaller universities. And with 155 universities in the UK (compared with 43 in Australia), there is a lot of opportunity or the UK to compete and grow for years to come.

(As a note: the key gap in $TNE's Higher Ed. product stack is an LMS, so I wonder whether they'll ever go there? And who they might acquire?)

In four years, we've seen $TNE significantly strengthen its higher ed offering, which of course it can now sell into its established ANZ market as well. The SaaS+ offering will be very attractive to universities, who can be painfully slow in implementing new systems. (I speak with first hand experience!!)

Of course, the other big game in the UK is local authorities. $TNE now has 28 Country Councils, 6 Unitary Council and with Islington, has now won its first London Borough. Any it is early days there too, as in the UK there are a total of185 County and District Councils, 127 Unitary Authorities and 32 London Boroughs. Many have legacy SAP-type ERP installations, often poorly implemented, costly to maintain, and not that user friendly for staff. (i.e., lots and lots of offline spreadsheets and manual data-handling to work around limitations. A target rich environment!)

While UK ARR of $43m is only 8.4% of total ARR, it is growing at 50% and it will be interesting to see how this trajectory unfolds.

Anyone following the UK will know that the public sector is in dire straits. Local Councils have had years of austerity, some are essentially bankrupt. And Universities are struggling with many making swingeing cost cuts. On this Ed made clear that the appeal of implementing $TNE's solutions are that they help their customers take out costs. If that is true and if SaaS+ really can be delivered, then these are very powerful tailwinds blowing in the UK, as public sector finances are not going to improve any time soon!

3. Australia Federal Goverment Depatments

$TNE's federal government footprint has been quite small, however both Ed and Stuart (COO) spoke about how their successes with smaller departments combined with Government dissatisfaction with SAP, as well as the creation of an ERP procurement panel on which $TNE have now qualified, together with an increasing bias to "Buy Australia" meant that $TNE are expecting to see more business in future from the Federal Government. They sounded very bullish.

My Key Take Aways

This was another very consistent delivery by $TNE, with a very strong outlook. $TNE can achieve its goal of doubling profit every 5 years simply by maintain NRR at 115%. It appears to be doing better than that, with a large potential to sell new modules into its existing customer base.

Given's its innovative SaaS+ offering, the current customer base, and the market opportunities still ahead of it in ANZ and UK (which is still very early days), it seems that there is every basis to believe that $TNE can continue to grow revenues at 15%-20% for the foreseeable future and, with continued operating leverage, it is conceivable that it will be able to get up to PBT growth around 20% p.a.

And in my write up, I haven't even mentioned cashflow. FCF varies significantly from half to half, so it makes sense to look at the rolling FCF margin which was 29%, up strongly from 24% a year ago.

At the time of writing $TNE is on a forward P/E of around 87 (based on consensus before today's results!). While its quality is undeniable, and its future is very bright with a long growth runway ahead, $TNE is priced well above my upper valuation limit of $30.

6 months ago, I sold my entire RL postion at $26.291, indicating I'd be prepared to buy back in around $21-$22.

Predictably,after exiting, the SP marched on to $33 and I had the usual regret that comes from selling a winner. Of course, as luck would have it, the recent macro pullback presented an opportunity. I acquired half my position back at just over $27 in March and just under $26 in April. So, today I find myself again with a 4.7% RL position and a SP that I imagine will significantly exceed my upper valuation when I've updated it.

So this needs some reflection on what to do from here, and I guess I have to run a few scenarios from here to understand the likelihood that growth continues to accelerate. I think it is a brave person that puts that down as their base case, but several supportive fundamentals appear to be in place, and I've touched on a few in this note.

A tough one, but a nice problem to have. Some reflection is required, but I find it hard to see $TNE being worth $36-37.

Disc: Held in RL only

Good result but unusual seasonality. The Fh usually is the weaker half; this half was strong. This implies a higher FY result. Guidance of 13-17% looks light; I was already at 19%.

The commentary was bullish with targeting larger contracts and accelerating LT growth towards a 15- 20% pa cadence. Mentioned taking biz from Oracle and SAP, the big boys, all due to the Saas+ product proving superior.

at $33 with assumed 5Y growth of 18%pa and an PE exit of 40X, i see it as fully priced.

held--its hard to buy this one cheaply, i am finding

WIlsons Advisory analyst Ross Barrows remains upbeat on TechnologyOne after its results.

“In no uncertain terms, today’s result was a cracker,” he says.

“Not only did their biggest segments grow well, they grew very strongly.

He notes that annual recurring revenue from Local Government (38 per cent of ARR) rose 20 per cent and Education ARR (26 per cent of ARR) rose 27 per cent, and upgraded FY25 pre-tax profit guidance growth of 13-17 per cent versus 12-16 per cent previously is “very constructive, especially when its net revenue retention is 118 per cent in 1H25.”

“TNE also said “We expect to see our ARR continuing to grow strongly over the full year, and the Company sees significant growth opportunities in the coming years” which we are strong believers in as TNE’s new products (initially DXP Local Government, and then DLG Education) have launched stronger than expected and will underpin growth for some time yet, “Barrows adds.

Disclaimer: Sadly no longer held, sold a few weeks ago.