I think what has happened is that hackers have all of TNE's clients details, but not the details that the clients keep on the software systems that TNE manage for them. The only thing we know so far is that the systems are not connected, so the clients systems are safe, but the TNE client data (who their clients are, billing details, contacts, probably ABN numbers, TFNs, perhaps bank account details for processing refunds) has been stolen (copied). TechOne have said that they are going to contact the affected clients and explain what data of theirs has been stolen. So it's bad enough, but it could have been a lot worse clearly.

Disclosure: I hold TNE shares (both here on SM and IRL).

Correction: I hold TNE shares IRL (in real life), but no longer here on SM, I sold out here in October (2022) @ $11.71, for a +23.74% gain, as shown below. I'd forgotten that I'd sold them here when I wrote that above earlier today.

...I should have kept them! Closed at $14.88/share today.

@jayjayjayjay I've also beeen thinking about this, this week. The market appears to think so.

I'll state upfront, I am not an IT expert, so please discount what follows with that in mind. Overall, I am pleased that $TNE management were transparent in reporting the incident.

My understanding is that companies of all kinds are continually being subjected to cyber attacks of various kinds. This is nothing new. Clearly, this incident was considered of sufficient seriousness to be escalated to Executive/Board level, who decided to disclose it even before the impact was known.

I believe that as a SaaS provider, it was super-important they did this. SaaS firms hold mission-ciritcal data and process flows for their customers, so trust in their security is paramount. The recent high profile events (Optus, Medibank) are towards the extreme end, where data was stolen, a ransom demanded and data released onto the (dark) web. Clearly, at that point, a company has no choice but to report the event. The $TNE case - as far as we can tell at this stage - is a lower impact-potential event, but client data will be held in the back office systems, so there are reporting obligations. $TNE clearly wanted to keep ahead of (or in line with) that process with investors. The trading halt was a conservative approach, albeit a very prudent one, allowing time for fact finding and reporting to relevant stakeholders without risking information leaking to market participants. Top marks!

I hold several SaaS firms. So cybercrime is right at the top of the list of material risks these firms face. Of course, all firms these days are reliant on IT systems and data, and are therefore exposed to cybersecurity risks. However, SaaS companies and other managed system service providers have specific risks relating to their responsibilities for their client's data held as a core part of the services they offer. A client must trust the data security capabilities of its SaaS provider. Therefore it was vitally important for $TNE to be absolutely transparent and super-professional in how any issue is managed.

No matter how great the company, its management, its economics, and its performance, I consider that any could face an existential threat from a cyber attack. Personally, I am not qualified to judge the capabilities of the companies in my portfolio to manage this risk, so the only way I can manage the risk is through limiting the position size of any holding in my RL portfolio.

I also think about systemic portfolio risk. From a systemic risk perspective, some 25% of my portfolio is in SaaS-type firms. The reason I look at this is that - conceivably - if cyberattacks started to "bring down" SaaS companies, the entire sector would re-rate to reflect the risk. While I don't expect that to happen, I want to understand what my risk exposure is at a portfolio level.

I agree @mikebrisy with what you've said there about the importance of SaaS businesses being upfront and on the front foot with this type of stuff, because, as you say, trust is a must, with these types of businesses. ERP software basically runs businesses/organisations, or is used to run every/the-most important part(s) of many businesses/organisations, and data security and integrity is very important, and if there is a whiff that an ERP SaaS company can't provide that security and data integrity, then they will be dealt with very harshly.

So, with all of that in mind, what TNE have done to date on this issue is very positive. I also agree with you about systemic portfolio risk, or the risks that can be associated with having too many of the same types of companies (or companies that are all exposed to similar risk factors) in our portfolios. I think of this often in terms of miners and commodity price risk. Obviously having too many companies that are exposed to one main commodity and its price is a big risk, whether that is iron ore, gold, or anything else. That is very obvious. The SaaS thing is less obvious, but still as important I think. Another one is growth companies that are not yet printing net profits. We have seen in the past couple of years that the market can rapidly negatively re-rate such companies, so go from "as long as they are reinvesting back into their business and the top line is growing at a good clip then I'm very happy", to "Show Me The Money!"

[Further Reading on that: Tech split into ‘earners and burners’ as investors hunt value (afr.com) (Sep 5th, 2022)]

Anyway, back to TNE specifically. A company that is definitely profitable, and growing, but a company that does set itself some ambitious growth targets, and then meets them, albeit not always within the original expected timeframe.

I have just corrected my earlier post in this thread where I said at the end that I hold TNE both here and IRL. I certainly do hold TNE shares IRL (in real life), but no longer here on SM, as I sold out here in October (2022) @ $11.71, which I had forgotten about when I was typing that earlier post today (well, yesterday, as it's now 1:37am on Saturday morning).

In my real life portfolio (the one that TNE are in), I did trim the position at the end of March at $14.30/share, to lock in some profit and because I had some concerns that their upcoming report (due later this month - i.e. May 2023) for the first half of their FY23 (their H1 ends on March 31st, as their FY runs from October 1st through to September 30th) might not be as good as the market is expecting it to be - they will keep growing, but the pace of growth might not be as good as currently expected by the market.

This is based on the fact that they have made some changes to their offering recently, to offer companies a capped price to entice those companies to switch to TNE as their Enterprise Resource Planning (ERP) Software/SAAS provider - see here: TechnologyOne CEO Ed Chung waves goodbye to costly ERP software implementations with new model (afr.com) [October 28, 2022]

Further Reading:

TechnologyOne profit surges 18pc, revenue up 19pc in first half to $172.5 million (afr.com) [May 24, 2022]

Ed Chung’s TechnologyOne shows why it’s withstood the downturn (afr.com) [Nov 22, 2022]

TechnologyOne and its founder Adrian Di Marco face fresh $53m bullying claim from former state manager (afr.com) [Nov 30, 2022]

WiseTech, MYOB, Zeller CEOs: Slower sales cycles, tight capital conditions to affect tech in 2023 (afr.com) [Dec 12, 2022]

TechnologyOne founder Adrian Di Marco in $40.5m sell down via Wilsons (afr.com) [Dec 13, 2022]

Their SP has had a decent run of late:

One of the reasons their chart is all bottom left to top right is that every time the market gets a little down about TNE or thinks they may have run a little too hard and need a breather, the company seems to print another stellar set of results and beat the market's lower expectations. This time however, I would suggest the market is expecting a great set of H1 results, so there's not as much upside if they deliver that (as expected), and probably significant downside if they don't.

And the company's founder sold $40.5m worth of TNE shares in December at $13.50 each - and ceased to be a substantial shareholder at that point, as shown in the announcement: MasterbahPL-Ceasing-to-be-a-substantial-holder-TNE-13Dec2022.PDF [Masterbah Pty Ltd is/was the name of the company that Adrian Di Marco uses/used to hold his TNE shares - it could be the corporate trustee of his family super fund or a family trust, whatever, but that's where his shares were held].

Adrian Di Marco was the founder of the business - some say co-founder but the other guy - John Mactaggart (who still holds 8.3% of TNE and remains on the TNE Board as a non-executive Director) - was the financier of the business, whereas Adrian was the brains - the creator of the business, and Adrian has also been TNE's Managing Director, an Executive Director, the Chief Executive Officer, and their Board's Executive Chairman (over the journey), but Adrian resigned from the last of those roles - and the TNE Board - in July last year (2022), so as he is no longer on the board and now owns less than 5% of the company (since that sell down in December), so is no longer a "Sub", he can sell any or all of his remaining shares any time he wants and doesn't have to announce anything to the ASX.

Now this is not a red flag necessarily, as everybody is entitled to enjoy the fruits of their labour, to retire and spend some of the money they have earned. But I do tend to note the timing of such things. And with TNE still sticking with a $500m revenue target for the 2026 financial year, and making some major changes to the way they offer - and price - their services (see first link above - Ed waves goodbye to costly ERP software) - there is risk that they do not live up to the market's high expectations, at least in the near term.

Here's an excerpt from one of those "Further Reading" links above (the Nov 22nd one) - - -

TechnologyOne CEO Ed Chung told The Australian Financial Review the business was the only enterprise resource planning software company globally to successfully transition to a software-as-a-service model without taking a hit to its profit or growth.

“One fund manager came up to me [in 2018] and said there was no way we could do it. He’s just joined the register again in the last quarter,” Mr Chung said.

“We did it, but it’s been hard. Re-engineering a product is hard enough, but the whole business has changed – the structures, some people made it and some didn’t, our processes and disciplines.”

The Brisbane-based business competes with companies such as Oracle, SAP and Workday.

It started out in a tannery in Hemmant in 1987 and services governments, councils, higher education providers and healthcare operators. It provides them with software that lets them run their business day-to-day, ranging from expense management solutions to business analytics and payroll.

TechnologyOne has gone through four major transformations in its history, and with its transition to subscription-based cloud software now complete, its attention is on growing its next business lines, namely its Digital Experiences Platform (DXP) designed to help local governments and education clients give ratepayers and students a better experience.

Mr Chung said the growth of its SaaS business had exceeded expectations, and the transition off legacy software licences was complete. The company also now expects to surpass its 2026 financial year goal of $500 million in annual recurring revenue.

He said the trick to navigating market transitions was to try new things and “fail fast”.

“If it doesn’t work, you pivot quickly and listen to the market forces – there’s no silver bullet, you just keep evolving,” he said.

“It’s making small changes every day over a number of years that makes a big difference.”

--- end of excerpt --- see link above to read the entire AFR article (the 2nd link under "Further Reading" above).

Anyway, I still like the company - and in the portfolio that TNE is in (the largest portfolio that I manage), after I trimmed the position at the end of March, it remains a decent size position - currently #12 (between ALU and EGL) of 25 positions in that portfolio (the largest three positions in that portfolio are currently CDA, NST and FMG, and the smallest three are currently SBM, EVS and SWP - good ol' Swoop - with the larger positions being MUCH larger than the smallest ones, like... there's a BIG difference). So TNE is still in there, right in the middle, I'm not dumping them, but I am acknowledging that the SP has run up fairly hard, and could have a pull-back or a breather before its next leg up. Particularly if the market's high expectations with TNE's results this month aren't met in full.

TechnologyOne CEO Ed Chung says the business is on track to surpass $500 million in annual recurring revenue by 2026.  

From AFR Article - link above - photo credit: Attila Csaszar

TechnologyOne (TNE) founder and former CEO and Board Chairman Adrian Di Marco, is no longer on the Board (since June 2022), and is also no longer a substantial shareholder of TNE (since December 2022).

I am of a similar mind as you @Bear77. I sold 50% of my RL position in $TNE at $15.01 on 11-April because it had run so hard and was well ahead of my valuation. I still hold a 3% RL position, my 10th largest. If there was a significant pullback on soft results, I’d consider increasing. If not, I’m happy to sit where I am. A key part on the thesis is that it is very early days in the UK, and it will be interesting to see to what extent they can replicate the success they have had in ANZ, in what is a 3x market, albeit one where they come much later to the party.

I often wonder if my reluctance to sell down a winner is a sign of wisdom, or of laziness. I highly respect @Bear77 and @mikebrisy 's opinions, but when I am a part owner in a company with a very long track record of profitable growth, a trustworthy management team with a proven capability for good capital allocation, a business model I understand, and clear opportunities for further growth, then I just hang on for the ride.

There will always be ebbs and flows in the growth trajectory of a company, as it responds to changing conditions in its market. It is the long term (5 year plus) track record that I care about.

I've only held TNE for 5 years, and topped up once on share price weakness a year ago. It has rewarded me with an annual return of 25% and is a model holding at 5% of my 20 stock portfolio.

Of course I will reassess my investment case when there is a material change for the worse in business circumstances, but never based on share price fluctuations.

A change in software licencing model is a positive sign of adapting to the market. Just like a change from term licenses to annual subscriptions is now clearly a positive as the world moves to a SaaS model, but at the time it prompted a huge amount of angst, and still does with companies like TEAM who are still making the transition.

Adrian Di Marco is 65. He founded TNE 35 years ago and handed over the reins as CEO 5 years ago. I think he has more than earned the right to enjoy the fruits of his labours, and move on to other entrepreneurial and philanthropic activities.

https://www.dimarcogroup.co/home

Excellent points guys. On that last point @lankypom - I definitely agree that Adrian Di Marco is more than entitled to do what he's doing, especially at that age, and with that many years of work behind him. He's done exceptionally well, and all the best to him with what he's doing now (thanks for that link). My point is just about insider ownership. Ed Chung is not a "Sub", and in fact there is only one insider who is, and that's Adrian's original business partner in TNE, John Mactaggart (who still holds 8.3% of TNE and remains on the TNE Board as a non-executive Director) - apart from JM, there are just First Sentier and MUFJ (and MUFJ own First Sentier, so there are a lot of mirror notifications that refer to the same holding) and they are known shorters and traders, so not necessarily in TNE for a long time, just a "good" time (they hope).

We can see that on 30 June last year both JM and ADM (John Mactaggart and Adrian Di Marco) sold down (from 12.73% to 8.3% and from 13.77% to 5.4% respectively) and then on 13 December ADM sold down from 5.4% to 0% it looks like to me - based on the shares traded - i.e. the 26.8 million shares he sold in June represented 8.37% of the company - so the 17,378,500 shares he sold in December would have been all of the remaining 5.4%, so ADM now owns no shares in TNE if I am correct with those numbers (which are based on Commsec data, so they might not be 100% accurate of course).

As we have said, we don't have a problem with that. However, in terms of insider ownership, things are a little different now with TechnologyOne. There's just John M with his 8.3% and that's it, in terms of holdings of at least 5%. I'm sure that Ed Chung and other senior management also hold TNE shares, just not 5% of the company or more. And Ed has done OK in the 5 years that he's been running the company, but he has had ADM there at his side (and many, including an unhappy ex-manager who is suing TNE and ADM for $53 million for bullying, and is also claiming that he is no longer able to work - see the link in my previous post - have said that Adrian was the one making all of the major decisions at TechOne, even when Ed was their CEO), and ADM is no longer part of the company - he's cashed up and moved on (as is his right).

So with the changes in ownership and ADM moving away from the company (both physically and financially), and the continuing evolution of their services and business model, which has so far proved very succesful but may encounter some hiccups along the journey, I just feel it prudent to take some money off the table at this point, while retaining significant exposure (significant in terms of my portfolio weighting with TNE) to the company and their continuing growth. And that does allow me to buy more (top up) on a significant share price pullback if that was to occur.

However I certainly understand the decision that you @lankypom and others will take to stay fully invested with TNE and ride out any hiccups that may occur. I think both are valid strategies and whether one works better than the other really depends on whether TNE does indeed provide us with opportunities to top back up on a significant pullback, which of course might not happen at all.

It's interesting that I tend to trade more with some companies and with others I usually just buy and hold. I like the Koala as a metaphor for an investor, because once the hard work is done - in a koala's case, that is finding the right tree with just the right type of eucalyptus leaves, and getting up high enough to get a decent feed of them - the rest of it is mostly doing bugger all. In a Koala's case that "bugger all" is sleeping for most of the hours in every day. In our case it's getting on with other stuff in our lives and just letting the companies that we have invested in do their thing while we concentrate on other things. Including sleeping. I am a bit of an insomniac, so I value sleep highly when I manage to get a decent amount of it.

But then, I can't help but try to make a little extra sometimes when I think there's the opportunity to do so, often by trimming positions at higher share prices, and trying to top up again at lower share prices. Sometimes that works (with some companies it works very well, over and over again) and sometimes it does not. Horses for courses.

Brilliant articulation @Bear77. It takes some skill to do it consistently well though.