TechnologyOne reports surge in profit despite Brisbane City Council dispute

Despite an ongoing dispute with the Brisbane City Council, TechnologyOne has reported positive financial results thanks to growth in subscription licenses.
Written by Tas Bindi, Contributor

Australian-listed enterprise technology company TechnologyOne has reported after-tax profit of AU$8.1 million for the six months ended March 31, 2017, up 10 percent from the AU$7.4 million reported in the previous corresponding period.

Revenue surged 13 percent to AU$113.9 million during the September-March period, compared to the AU$101 million reported by the ERP software provider in the previous year.

TechnologyOne also turned around its operating cash flow from negative AU$3.3 million to $2.9 million, up 177 percent year-on-year.

Initial licence fees increased 30 percent year-on-year from AU$18.5 million to AU$24.1 million, while annual licence fees increased 10 percent year-on-year from AU$43.7 million to AU$47.9 million.

The government sector accounted for AU$10.7 million or 44 percent of TechnologyOne's initial license fees, followed by education, which accounted for AU$7.1 million or 30 percent, and health and community services, which accounted for AU$3.1 million or 13 percent.

"An important goal for TechnologyOne was to move away from perpetual licences and to move new business to subscription licences to create a strong longer term annuity business. This half we achieved over 80 percent of all new business being subscription licences," the company stated in a disclosure to the Australian Securities Exchange (ASX).

TechnologyOne's cloud services business was its strongest-performing in terms of revenue growth, with annual contract value jumping 93 percent from AU$10.3 million to AU$19.9 million.

The cloud services business also contributed AU$937,000 in profit, compared to the AU$922,000 loss reported in the previous year. The company expects the profit amount to reach AU$2.5 million by the end of the current financial year.

"This is due to our mass production Software as a Service architecture which is starting to deliver significant economies of scale," TechnologyOne stated.

The company said it now has 199 cloud customers.

Total consulting services fees remained stagnant at AU$32.9 million, although its profit was wiped out.

TechnologyOne attributed part of the profit loss -- about AU$2 million -- to its ongoing dispute with the Brisbane City Council (BCC) who the company said "found it increasingly difficult to fulfil their obligations".

At the start of the year, Brisbane Lord Mayor Graham Quirk directed council officers to renegotiate a contract with TechnologyOne after learning of an 18-month delay in deployment and a potential AU$60 million cost blowout. The BCC stopped paying the company from October last year.

TechnologyOne explained in January that the council had requested "substantially more" functionality than was originally tendered for and was provided to the council at no additional cost.

The company advised on Tuesday that the BCC dispute has not yet been resolved and contract termination is probable.

"Had BCC been commercially sensible and not been driven to improve their negotiating position, BCC would be on track for a new digitally enabled system by January 2018," TechnologyOne said in its ASX investor presentation.

The company remains confident that the BCC dispute will not impact its sales pipeline. In August last year, TechnologyOne had signed a 10-year contract worth AU$40 million to supply TAFE Queensland with its student management solution.

The following month, the federal Department of Agriculture and Water Resources signed a AU$6.2 million deal with the ERP software company to provide an end-to-end enterprise system that will underpin the entire department.

Later in the year, TechnologyOne partnered with the University of South Australia to bring the university's accounts payable and invoicing procedures into the "digital world".

In addition to the BCC dispute, TechnologyOne said its Evolve Customer Conference, which is hosted once every three years, contributed a loss of $1.6 million to its consulting business.

From September to March, TechnologyOne had paid AU$4.5 million in income tax, up 29 percent from the AU$3.5 million paid in the previous corresponding period.

Research and development continued to be a significant investment for TechnologyOne, with R&D spend increasing 9 percent from AU$21.8 million to AU$23.9 million during the six-month period, representing 21 percent of its half-year revenue.

Cash and cash equivalents currently stands at AU$57.5 million, a 26 percent increase from the AU$45.4 million reported in the previous year.

TechnologyOne also announced that, as of Tuesday, its long-serving COO Edward Chung is taking over as CEO.

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