TechnologyOne posts record profit as AI boosts growth

TechnologyOne reported record first-half profit, revenue and annual recurring revenue, marking its 17th consecutive record first-half profit.

The Australian software group attributed the result to growth in its SaaS+ business and early customer uptake of its artificial intelligence tools. It remains on track with its plan to double in size every five years through FY30 and is targeting more than AUD $1 billion in annual recurring revenue by FY30.

TechnologyOne, which describes itself as Australia's largest enterprise software-as-a-service company, has continued a run of steady recurring revenue growth. It has also been shifting customers from on-premise software to its cloud offering while building products in areas including AI, App Builder and its Digital Experience Platform.

The enterprise software company posted profit before tax of AUD $89.1 million for the six months to 31 March, up 9% from a year earlier. Revenue rose 11% to AUD $322.7 million, while annual recurring revenue increased 17% to AUD $598 million.

TechnologyOne also increased its interim dividend by 21% to 8.0 cents per share.

The figures indicate continued momentum in the company's subscription-led model, in which recurring revenue is a key metric for investors assessing software businesses. Record annual recurring revenue and revenue suggest the group has continued to expand its customer base and increase spending from existing clients.

Guidance

TechnologyOne reaffirmed upgraded FY26 guidance issued earlier this year. The company expects profit before tax growth of 18%-20% and annual recurring revenue growth of 16%-18%. Management said it expects results to reach the upper end of both ranges.

The company said recurring revenue now represents the majority of group revenue, providing greater visibility over future earnings.

TechnologyOne has continued to expand its SaaS+ model, which combines software, implementation and support services into a recurring subscription arrangement. The company said adoption of the model continued across government, education and corporate customers.

The latest result comes as software companies face investor pressure to show both growth and spending discipline. TechnologyOne's decision to continue allocating more than a fifth of its revenue to product development suggests it sees room to strengthen its market position even as it delivers record profits.

AI products

TechnologyOne is reinvesting more than 20% of revenue into research and development, including work on artificial intelligence, App Builder and its Digital Experience Platform, as it broadens its product set while maintaining growth in its core software operations.

The company has recently launched AI-related products, including Plus and Guide, which it said had received strong customer interest.

"AI is a game changer and a key platform for growth," said Ed Chung, Chief Executive Officer, TechnologyOne.

Management linked the result to its SaaS+ strategy, which positions the business as more than a conventional cloud migration story. Executives also pointed to stronger-than-expected uptake of AI-related products, suggesting that newer features are beginning to drive customer demand.

Chief Executive Officer Ed Chung said the company had a long record of setting growth targets and meeting them.

"The DNA of our business is to set ambitious goals and deliver for our community. Whether it's transitioning 1,200 on-premise customers to SaaS, expanding into the UK to challenge established players, or redefining ERP with SaaS+, we set bold targets and execute," said Chung.

TechnologyOne has maintained research and development spending at about one quarter of revenue in recent years as it expands its SaaS platform and AI capabilities.

UK growth

The UK business continued to record double-digit growth during the half-year.

Annual recurring revenue in the region increased 23% to AUD $53 million. TechnologyOne said demand remained strongest in higher education and local government markets.

The company has been investing in sales, marketing and implementation capability in the UK as it seeks to increase market share outside Australia and New Zealand.

TechnologyOne previously said the UK market represented a significant long-term growth opportunity for its enterprise resource planning software.

Cash flow

Free cash flow declined by 15% during the half-year as the company increased spending on AI development, customer events, and growth initiatives.

TechnologyOne said cash generation is typically weighted toward the second half of the financial year due to customer payment cycles.

The company retained a strong balance sheet position and continued to generate high levels of recurring revenue from long-term customer contracts.

Long-term targets

For shareholders, the target of more than AUD $1 billion in annual recurring revenue by FY30 provides a clear benchmark for the next phase of expansion. It also underlines how central recurring subscription income has become to the company's long-term financial model.

Chung said customer response to newer products had added to management's confidence.

"We're seeing strong momentum and confidence in SaaS+, which is driving today's results and enabling continued investment in the future. Our AI strategy is already exceeding expectations in terms of adoption and customer feedback, giving us further confidence in our pipeline," said Chung.

The company also reiterated its longer-term margin expectations of more than 35%.

TechnologyOne has continued to shift customers from traditional on-premises software deployments to cloud-based subscriptions in recent years. The company said recurring revenue and customer retention levels remained strong as more customers adopted additional software modules and services.