Under the Spotlight AUS: Technology One Ltd (TNE)

Starting up a technology company in the late 1980s was a tough task. It was particularly hard to find investors looking to back early stage ventures in the suburbs of Brisbane. And yet, that’s where Adrian Di Marco received crucial funding from a previous customer to build up fledgling business. 

Working from a demountable office, Adrian was focused on relational database technology to help clients organise and analyse data from across their operations. Clients would adapt the software to meet their own needs, rather than having to change the source code. This type of configurable software became the foundation of Technology One ($TNE). 

The setup made it simple for the company to create and ship annual updates, which came with a growing number of features and functions for clients. Technology One’s first product used database technology from industry giant Oracle ($ORCL), but the company soon set out on its own. This vision shifted to becoming an Enterprise Resource Planning (ERP) vendor, whose product would consolidate a firm’s information from different functions to streamline operations and enable better communication across departments.  Technology One decided to provide a comprehensive solution they call the Power of One. They develop, market, implement and provide support services for a single platform

Targeted services 

In 1999, the company listed on the ASX and narrowed its target market to six areas: local government, education, financial services, asset-intensive services, government health and community services. This specialisation aimed to give them a competitive edge when catering to these clients, and it did just that.

Today, Technology One’s systems manage over $30b in funds, and more than $300b worth of assets and infrastructure. Approximately 73% of Australians and New Zealanders reside in councils using the company’s products, while 1.4 million students depend on its software. Although they’ve focused on building features internally, they’re open to acquisitions – such as their takeover of higher education software specialist Scientia in 2021. 

Technology One has been present in the UK since 2006, where it currently offers a tailored solution for student management, human resources and payroll. With larger potential opportunities there in the long term, the company plans to make further investments in the region. For now, though, just over 90% of the company’s FY 2023 $129.9m in profits came from the APAC region, with the remainder from the UK.

Business updates

Research & development is a major expense for Technology One, accounting for $112m, or 26% of revenues, in FY 2023. This reflects the pressure on technology companies to keep up with the latest trends and innovations, and the importance of system reliability and data security in the eyes of customers as more aspects of business move online. 

Technology One has revamped its systems several times, releasing Connected Intelligence (Ci) in 2003, as the internet gained ground as Web 2.0. In 2012, the platform was adapted to move onto the cloud, and rebuilt again in 2014 to add functionality across devices with Ci Anywhere. In recent years, the company has been transitioning from their legacy licences business to a Software-as-a-Service (SaaS) model.

This shift to SaaS has cemented software as its main source of profits. The segment saw 28% profit growth year-on-year to $97.6m, while the amount from consulting fell 11% to $14m (in line with expectations). The remaining $18.3m came from the corporate unit. 

Future prospects

A priority for Technology One is growing its annual recurring revenue (ARR), which is a relatively predictable ongoing measure compared to other one-off income sources. ARR accounted for $392.9m in FY 2023, approximately 90% of the $441.4m total revenue. The goal is to reach $500m ARR by FY 2025. 

This would involve gaining customers, as well as upsellling more products and modules to increase the average revenues per customer. Technology One has relatively sticky customers, achieving a low churn rate of 1.0% in FY 2023. However, an uncertain economic outlook and higher interest rates mean that many businesses are examining and tightening budgets, which could impact vendors like Technology One. 

The company has established its position in the Australian technology industry over the last few decades. With a history of profits and dividends, Technology One has come a long way since its days as a small startup, but there’s been no time to rest in a sector that’s constantly moving forward. Investors are waiting for the upcoming financial results – while customers are anticipating another software update.

This does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.