The TechnologyOne Ltd (ASX: TNE) share price is going to be under scrutiny after revealing its FY21 half-year result.
TechnologyOne’s HY21 result
The enterprise software as a service (SaaS) business revealed that total revenue increased by 5% to $144.3 million.
However, the SaaS annual recurring revenue (ARR) figure increased by 41% to $155.8 million. This division is growing strongly. It increased the number of large-scale enterprise SaaS customers by 21% to 576.
Some wins in the government sector includes the Australian Department of Agriculture, Water and the Environment.
Expenses declined by 5%. Profit before tax increased 44% to $37.3 million and profit after tax rose 48% to $28.2 million.
The UK division has continued to improve with profit before tax of $500 for the half-year. The business sees significant growth opportunities in the coming years.
However, as the company was expecting, operating cashflow was an outflow of $2.9 million. But management expect cashflow will be strong over the full year.
The business said that it spent $34.6 million on research and development, which was up 14% and represented 24% of total revenue.
Half-year dividend
TechnologyOne’s board decided to declare a half-year dividend of 3.82 cents per share. That represented an increase of 10%.
Outlook for TechnologyOne and the share price
TechnologyOne said that it’s well positioned in the markets that it services. It’s expecting to see SaaS ARR continuing to grow strongly, up more than 35% over the full year.
It also expects full year expenses to be broadly in line with last year as it invests for growth. Management believe the business is well positioned to deliver continuing strong growth over the full year.
Its FY21 guidance for net profit before tax is between $94.3 million to $98.6 million, that would be an increase of 10% to 15% compared to FY20’s underlying profit.
Over the longer-term, it’s expecting stronger growth as it increases its penetration with existing customers, adds new customers and expands globally.
In the next few years, its SaaS and continuing business is expected to grow by approximately 15% per annum, once it has wound down its legacy licence fee business. It’s looking to increase its total ARR increasing to more than $500 million by FY26, up from $233 million right now.
This should bring economies of scale from its global SaaS ERP solution. That should see the continuing profit before tax margin rise to 35%.
The business is expecting long-term growth. It might be one of the better ASX growth shares to watch at the moment.