Technology One

This below media announcement caught my attention¹

Australia’s largest SaaS ERP player TechnologyOne announced it was on track to deliver $500 million Annual Recurring Revenue (ARR) by the first half of 2025, more than a year ahead of schedule, and postmarked an ambitious new goal of $1 billion ARR by 2030 at its inaugural Investor Day at its Brisbane headquarters today.

A billion dollar ARR, globally there are only a handful of companies who do this sort of revenue

What does this company do?

Technology One delivers its software through the cloud using a Software as a Service (SaaS) model. This allows users to access the software on a pay-as-you-go basis. The company began by selling financial software, which remains a key part of its business. It has since expanded into other markets, such as

• Local government

• State and federal government

• Education

• Health and community services

• Financial services

• Corporate sector

SaaS is a very sticky business model, but what is more impressive about this company is that who is sells these services to?

• More than ~50% revenues from government

• ~35% of revenues from Health services and Education

85% of revenues are from sectors who once lock in generally dont have any incentive to change their software providers

Why the company has succeeded in past?

• “The Power of One” philosophy: This philosophy meant that TechnologyOne owned the entire sales and support cycle, from sales to implementation to after-sales service. This gave them greater control over the customer relationship and allowed them to provide a better customer experience.

• Focus on product development: From the beginning, TechnologyOne was focused on developing standardized products that could be used by many different organizations. This allowed them to scale their business and grow rapidly.

• Expansion into new markets: TechnologyOne started out by focusing on financial software, but they quickly expanded into other markets, such as higher education, local government, and health and community services. This diversification helped them to grow their revenue and reduce their reliance on any one market.

• Geographical expansion: TechnologyOne expanded internationally, first into New Zealand and then into other markets, such as Malaysia, Papua New Guinea, and the United Kingdom. This helped them to tap into new markets and grow their customer base.

• Strategic acquisitions: TechnologyOne made a number of strategic acquisitions, such as Proclaim Software, Avand, Icon Strategic Solutions, Digital Mapping Solutions, and Jeff Roorda & Associates. These acquisitions helped them to expand their product portfolio, enter new markets, and acquire new technologies.

• Early adoption of cloud computing: TechnologyOne was an early adopter of cloud computing, and they invested heavily in building their own cloud platform. This gave them a significant advantage as the industry moved to the cloud.

• Strong leadership and management: TechnologyOne has been led by a strong and visionary team, including founder Adrian Di Marco. This team has been able to make the right decisions at the right time, and they have been able to execute on their vision.

Moving to SaaS

The company foresaw this trend as the future of software delivery, even when the adoption rate was low, particularly for mission-critical applications. Their 2018 annual report stated that “all new customer business was driven by TechnologyOne SaaS,” and they expected this trend to continue. By 2021, SaaS revenue constituted 48% of their total revenue, and they had committed to ending their on-premise business by October 2024 to further drive their SaaS business. It allowed them to

Own and manage the entire software delivery process,

• From development to hosting to support

• Ensure complete control and accountability

• Provide a superior customer experience

and more importantly The shift to SaaS also provided TechnologyOne with significant financial benefits. The recurring revenue model offered greater predictability and stability compared to the traditional upfront license fees. This transition to a higher quality recurring revenue stream was highlighted as a key reason for pursuing the SaaS strategy

Willing to play long game

Unlike competitors who simply adapted existing architecture for the cloud, TechnologyOne decided to completely redevelop their software suite specifically for the cloud. This allowed them to fully leverage the benefits of cloud computing and differentiate themselves from the competition. Their commitment to innovation, continuous investment in R&D, and the pursuit of “beautiful software” that is incredibly simple to use further facilitated this successful transition.

The markets have rewarded them as well

In last 10 years the company has generated AUD $843 million cash²

• $373 million has been re-invested in core business

• $355 million has been returned to shareholders as dividend

by investing $373 million they have increased sales by $244 million between 2014 and 2023 from $193 million to $437 million dollars.

A lot of people will think thats not a good outcome however we need to go back to previous point $1 sales today is different from $1 sales in 2014 as today’s $1 is persistent (SaaS)

Valuation

Company is doing $500 mn ARR with about $125 mnNet profits, Globally SaaS companies trade at very expensive sales multiples depending on growth prospects

Let’s imagine they meet their guidance and in 2030 they hit $1 billion dollar ARR mark, at 15 times sales they would be a $15 billion dollar market company a doubler in 6 years. In my opinion it is fairly valued at $8bn market cap

We have a tracking position in company and are going to monitor execution.

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I try and end every post with something from gallery

Footnotes

1. https://www.technologyonecorp.com/resources/media-releases/technologyone-$13.5-billion-market-opportunity-to-drive-growth-to-$1-billion-arr-in-five-years ↩

2. Annual reports of 2017-2023 ↩