Australia | 11:59 AM
Shares in TechnologyOne reacted negatively on the release of a record FY25 performance, as not all metrics met elevated expectations as as the global technology sector is de-rated.
-TechnologyOne delivers record FY25 metrics
-Profit exceeds guidance, strong UK growth
-Market concerns on softer than expected ARR and NRR
-Global de-rating for the sector equally impacts on updated valuations/price targets
By Mark Woodruff
In unveiling FY25 results, management at ERP SaaS company TechnologyOne ((TNE)) delivered its sixteenth consecutive year of record profit and revenues, along with record SaaS fees.
Management maintains its prior aim of doubling the size of the business every five years driven by R&D investment.
A rise in profit before tax of 19% exceeded guidance set in May for between 13-17% growth, while total revenue grew 18% to $599.9m.
As expected, no formal FY26 guidance was provided as company practice is to issue longer-term forecasts (five years) and short-term (current financial year) guidance further into the accountancy period.
A special dividend of 10cps was declared along with the final dividend of 20cps (both franked to 65%) boosting the total FY25 dividend by 63% to 36.6cps. The dividend payout ratio increased to 65%-75% of net profits from 55-65%.
Strong UK growth was also evident from material customer wins in the Local Government and Higher Education verticals, due to the success of SaaS Plus. Together, these verticals represent around 65% of annual recurring revenue (ARR), highlights RBC Capital.
UK ARR jumped by 49% to $51.8m on a 52% surge in UK new sales ARR. Group ARR rose by 18% to $554.6m.
Management believes TechnologyOne possesses a “game changing” SaaS Plus offering, combining vertical-specific and mission critical SaaS ERP and implementation, with the fastest implementation times in the industry -- globally.
ERP software gathers key data within larger organisations from core functions (such as Accounting, Human Resource Management, Enterprise Content Management and Payroll) and integrates into one unified system for management.
When opting for SaaS Plus, the customer pays one annual fee, with no upfront costs or hidden extras, dramatically reducing risk, and cost.
Apart from Local Government and Education, the company’s verticals are Government, Health & Community Services, Asset & Project Intensive Industries, and Financial & Corporates.
Dismal share price reaction
Morgans believes the negative share price reaction, a fall of -17.2% on result’s day, was likely driven by a softer-than-expected group-wide ARR and net revenue retention (NRR) outcome, with ARR growth missing consensus expectations by around -2%.
Consistent with management’s long-term target for a minimum of 115-125%, NRR was 115% compared to 118% in the first half and 117% over FY24.
UBS points to market disappointment over the NRR metric, but the result is still considered as broadly strong.
With the stock trading on an elevated multiple amid a sector rotation out of technology, expectations were high. Any failure to meet was likely to weaken the share price.
Since an early-June peak, TechOne's share price has fallen about -30%, a decline broadly in line with the pullback seen across key ASX software peers such as Pro Medicus ((PME)), WiseTech Global ((WTC)), and Xero ((XRO)) over the same period.
Jarden highlights a softer-than-expected gross margin in FY25 at 86.3%, below both its own estimate and consensus for 87.5% and 87.2%, respectively.
Management explained the company is still on track for over $1.0bn of ARR by FY30, having already achieved the $500m target 18 months ahead of schedule. Analysts believe the UK and AI will be central to the attainment of the reaffirmed ARR aspiration.
In the APAC region, sustained net revenue retention within TechOne’s 115-120% target range will depend heavily on the successful adoption of new AI and AI-enhanced product offerings, explains Jarden.
Significant new customer wins or broader net customer growth represent potential upside risk to this broker’s current forecasts.
The analyst at Macquarie adds uncertainty around AI pricing and pipeline development leaves both the timing of adoption and the eventual revenue opportunity unclear.
Shaw and Partners remains confident in the outlook given key metrics remain impressive alongside the strong product story.
This broker concedes the result only reflected typical cyclical trends and lacked the “sizzle” which might have sparked stronger market enthusiasm.
Strong cash flow
The ARR result, supported by record free cash flow ((FCF) generation, produced a 7% rise on the prior year for the Rule-of-40 metric to 59%. This places TechOne in the top quartile of global SaaS software businesses, as highlighted by management.
Bell Potter explains cash flow generation of 134% was supported by growth in annual in-advance billings and the pull-forward of creditor payments in FY24. This contributed to a robust cash balance of $319.6m.
Free cash flow (FCF) of $181.0m (up 61% year-on-year) was a standout, suggests Canaccord, supported by an around $63m working capital tailwind, resulting in a ‘beat’ versus forecasts by the broker and consensus of 32% and 34%, respectively.
Gross FCF grew 55% year-on-year, 27% ahead of Shaw’s forecast. An improvement in receivables was not due to any one-off factors just disciplined control, according to management.
Driving leverage and flexibility for the future, management achieved a FCF/NPAT ratio of 134%, ahead of the 100% long-term target.
UK business and SaaS Plus
Management noted the UK business is gaining momentum, supported by new customer wins, a shift upstream toward larger local government and university clients and early signs of net revenue retention (NRR) improvement as customers increasingly evaluate TechOne’s full product suite.
Macquarie explains expansion within existing customer logos continues to underpin the company’s long-term revenue trajectory. Net retention is likely to trend lower on a structural basis as inflation normalises from the elevated post-covid period, which previously supported stronger uplift.
With net retention on existing products moderating, the Plus product is becoming an increasingly important contributor to TechOne’s long-term growth story.
Canaccord Genuity sees clear evidence the move upstream into boroughs and districts is paying off.
This broker views SaaS Plus as a transformational offering for new customer wins, noting UK deal sizes are already scaling meaningfully, with the company exclusively offering the recently launched AI product SaaS Plus in that market.
Ord Minnett mentions positive early feedback on the 'Plus' product (not to be confused with SaaS Plus) launched around four weeks ago, with eight deals already signed pre the official release to customers in March 2026. A full run-rate impact is expected only in FY27, notes Macquarie.
Plus includes a transactional-driven ARR component. Ord Minnett explains as users exceed their allocated interactions and conversations, they can purchase additional bundles, providing ARR uplift.
This potential upside is currently excluded from management’s forecasts, highlight the analysts.
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