$TNE have just posted their 1H results. At first glance, another reliable 6 months of delivery. Not much to say.

ASX Announcement

Their Highlights

• Profit Before Tax of $61.5m, up 17%
• Profit After Tax of $48.0m, up 16%
• Total Annual Recurring Revenue (ARR) of $423.6m, up 21%
• Net Revenue Retention (NRR) of 117%, above our target of 115%
• Revenue from our SaaS and Recurring business of $223.1m, up 21%
• Total Revenue of $244.8m, up 16%
• Total Expenses of $183.2m, up 16%
• Cash Flow Generation of ($3.8m) as expected in H1, and will be strong over the full year
• Cash and Investments of $172.0m, up 24%
• Record Interim Dividend of 5.08 cps, up 10%
• R&D Investment (before capitalisation) of $56.9m, up 15%, which is 24% of revenue
• UK ARR $28.8m, up 36%

My Observations

As first glance, a characteristically good result. Like clockwork.

Revenue and profit growth both somewhat weaker than 1H FY23 over its PCP.

However, the strategic framework and investment thesis is for $TNE to double in size every 5 years, for which it requires revenue and profit growth of 15%.

Cashflow typically weak in 1H due to seasonality in payments and receipts cycles.

With ARR at $423.6m, and 1.5 years to go, on track to achieve ARR of $500m by FY25.

So tick, tick, tick.

Investor call at 11am this morning, so I'll leave it there unless there is anything of interest on the call.

SP is more or less on its long term growth trend, so I don't expect much SP action. That said, don't care, coz this is one of the true long term holds that I don't really bother much about looking at the SP. Probably around fair value.

Disc: Held in RL

(Now my 4th largest holding; was 5th, but I have started selling down $ALU as I require the funds.)

$TNE announced H1 results this morning, with the investor call at 11:00am.

Their Key Results

• Profit After Tax of $41.3m, up 24%

• Profit Before Tax of $52.7m, up 24%

• SaaS Annual Recurring Revenue (ARR)1 of $316.3m, up 40%

• Revenue from our SaaS and Continuing Business of $200.0m, up 18%

• Total Revenue of $210.3m, up 22%2

• Total Expenses of $157.6m, up 21%3

• Cash and Cash Equivalents of $139.1m, up 20% from 31 March 2022

• Cash Flow Generation4 of $1.3m as expected, and will be strong over the full year

• Interim Dividend of 4.62cps, up 10%

• R&D expenditure (before capitalisation) of $49.4m, up 19%, which is 24% of revenue

• UK profit of $3.0m, up 29% 

My Further Observations

With SaaS growing strongly and now the dominant revenue component, $TNE is forecasting a one-off unusally high annual churn of 1.6%, due to its End of On-Premises milestone later this year. Regardless, it is forecasting NRR of 115%-120% for the FY.

In reviewing the results it is important to recognise the historical pattern that cash receipts are stronger in H2, due to payment seasonality.

New SaaS large enterprise customers increased 27% to a total of 903.

All industry verticals are growing ARR strongly, with above average growth in the three smallest segments: Health and Com (+23%), Asset & Project Intensive (+28%), and Fin Serv. & Corp. (+33%). Only Government was significantly below average at +12% (vs. Group 22%). Strategically, if this trend continues, it will over time mark a further diversification in $TNE's customer base, and indicates a broader market appeal for its products.

The UK business is continuing to grow profitably with PBT up 29%, ahead of the group growth of 24%. UK is only making a small contribution to 1H FY23 profit of $3.0m in the total of $52.7m.

Overall, $TNE says it is on track to achieve $500m+ ARR by FY26. No change.

Wide range of guidance given for PBT growth for the FY of 10-15%. (Note: some commentators consider this guidance as conservative, expecting a "beat" in November.)

They re-iterated their view that SaaS-enabled economies of scale will see margins expand from 30% (32% ex-Scientia impact) to 35% over the coming years.

My Key Takeaways

$TNE continues to consistently deliver with nothing exceptional in this report.

Results are broadly in line with market consensus and the shares appear fully priced for the march to FY26. Of course, outperformance could drive further upside. Given this, I have recenltly halved my $TNE position, to deploy capital to holdings were I see greater upside opportunity. Of course, I'll be happy to pile back in should the market offer any opportunity!

I'll be listening for an update on the cyber breach on the call. No reference to this in the release or the slides.

Disc. Held RL (3.0%);not held in SM