​SaaS bolsters TechnologyOne profit to AU$41.4m

TechnologyOne has thanked its software-as-a-service offering for its AU$41.1 million net profit, claiming a focus on SaaS will keep the company from succumbing to obsolescence.
Written by Asha Barbaschow, Contributor

Australian-listed ERP software provider TechnologyOne has released its results for the 2016 financial year, reporting a 16 percent year-on-year increase in net profit after tax to AU$41.3 million.

The company also recorded its seventeenth consecutive year of record revenues, with FY16 revenue totalling AU$249 million.

For the 12 months to September 30, 2016, TechnologyOne saw its licence fees jump 14 percent to AU$56 million, and its annual contract value for cloud services jump 100 percent to AU$16 million.

Executive chairman Adrian Di Marco told shareholders on Tuesday that the company's success was underpinned by the growth of its software-as-a-service (SaaS) business, with its largest wins in 2016 all coming from SaaS.

"This growth is across all industries, from federal government to local government, education, and financial services, which speaks volumes about the market shift towards a cloud-first, mobile-first world," Di Marco said.

TechnologyOne recently signed up the federal Department of Treasury and the Australian Bureau of Statistics, with both departments implementing TechnologyOne's OneGovernment SaaS solution in a shared services arrangement that is expected to eventually include upwards of 25 government departments.

Under the AU$5.8 million deal with Treasury, TechnologyOne has taken responsibility for running the software, replacing the ageing SAP software the department previously had in place.

The company also inked a AU$6.2 million deal with the federal Department of Agriculture and Water Resources to implement the OneGovernment platform, with the department marking the first government customer on TechnologyOne's newly developed industry-specific cloud platform, which was built to cater for the unique security and operational requirements of the federal government.

In delivering the company's results, Di Marco explained that organisations are rapidly gaining a more "sophisticated" understanding of the difference between SaaS and cloud hosting, and said they are opting for the economies of scale and long-term strategic benefits only offered by SaaS providers.

"Hosting providers cannot keep pace with the evolving mass production capabilities of SaaS. That is why, rather than 'lifting and shifting' to the cloud, we've made a huge investment in delivering our enterprise software as SaaS. We are one of only a few companies globally delivering enterprise software as a service," he said.

"SaaS will signal the demise of much of the current IT industry. In 10 years, more than 50 percent of the current IT providers will be obsolete. Much like mass production signalled the demise of the cottage industries during the industrial revolution, the IT industry is now going through a similar revolution -- a digital revolution. Only those IT companies that can achieve massive economies of scale through SaaS will survive."

According to Di Marco, the days of heavily customised solutions and complex projects are "gone".

"SaaS is more than just a delivery model; it is a whole new way of approaching enterprise software from design and development, right through to implementation and support," he said on Tuesday.

"We are one of the only enterprise software providers that offers a fully integrated and configurable enterprise SaaS solution. Newcomers such as Workday cannot match the depth and breadth of functionality that we offer."

Looking forward, the company said it expects to again double its annual contract value for cloud to AU$32 million in the next 12 months, after adding 57 new customers to its books this year.

Such customers included Police Health, Queensland Catholic Education Commission, and Credit Union Australia.

The company's TechnologyOne Cloud offering suffered a AU$2.2 million loss this financial year, however Di Marco is predicting the segment to reverse its loss due to expenditure in the 2017 financial year, when it sees the completion of shifting customers from its 1.0 and 5.0 architecture to Cloud version 6.0.

Research and development (R&D) continued to be a significant investment for TechnologyOne, at AU$46 million for the full year, which the company explained was 19 percent of revenue fully expensed in the year it is incurred.

"TechnologyOne's continuing success validates our strategy, vision, and ongoing investment in R&D, as we continue to focus on building beautiful software that is incredibly simple and easy to use," Di Marco added.

TechnologyOne also announced in August that it had signed a 10-year contract worth AU$40 million to supply TAFE Queensland with its student management solution.

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