The growth of the Queensland-based enterprise software company’s cloud business has exceeded even its own expectations, with the value of its contracts hitting $8 million by September 30, three months ahead of schedule.
Revenue generated by the cloud business for the full year grew 200 per cent in this time to $4.1 million.
Executive chairman Adrian Di Marco said the business’ software-as-a-service (SaaS) model gave it a competitive advantage over cloud hosting businesses.
“It’s a fundamentally different paradigm shift between hosting and SaaS. Hosting is like building a cubby house, while SaaS is like building a skyscraper. It’s a quantum leap between the two,” he said.
“The biggest deals we’ve done this year were on the cloud. It’s interesting to see that the intake has been from the big end of town, they get it, they want to have one person take responsibility for the whole thing and one person to be accountable.”
Net profit after tax for TechnologyOne jumped 16 per cent to $35.8 million and revenue was up 12 per cent to $218.7 million for the full year.
Mr Di Marco said that hosting was a “fake cloud” and was not scalable.
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“Customers end up paying for incompatible environments, outdated/unsupported databases and expensive middleware to glue it all together,” he said.
In the last year TechnologyOne has added more than 50 new enterprise customers, and signed up 49 organisations for its SaaS offering. New SaaS customers include the Australian Bureau of Statistics, Mercy Health, TAFE Queensland and the Department of Treasury.
POSITIVE SIGNS FOR THE FUTURE
They are positive signs for the future of the business, which analysts consider a consistently strong performer.
Morgans senior analyst Nick Harris said the results came in “a touch” ahead of his expectations.
“They’ve done consistently 10 to 15 per cent growth each year and they were just above that,” he said.
“The cloud division is the fastest growing part of the business but it’s also the smallest part. It’s a really strong business and it has good growth to come but it’s not a cheap stock.”
The business has a diverse portfolio of clients but in the past 12 months has predominantly added government, health and community services and education customers.
Mr Di Marco expects more major client wins to come from these industries in 2016.
“The pipeline looks good for next year,” he said. “The big focus for us will continue to be the cloud rollout, which we’ll take from $8 million of recurring revenue to $16 million and then $32 million.”
TechnologyOne also intends to increase the scope of its UK operations next year and to finish developing its Ci Anywhere product in the next 18 months.
It will also start to look at new countries to expand into in the next two to three years, including the United States.
The company’s long-term growth strategy also revolves around its investment in research and development.
In the 12 months to September 30 TechnologyOne invested $41 million, 19 per cent of its revenue, in research and development, beating the market average of 12 per cent.
In the past year it’s also made three acquisitions, asset management and consulting firm Jeff Roorda and Associates, Digital Mapping Solutions and ICON Strategic Solutions, all of which are being integrated into TechnologyOne.
“We’re not losing any sleep about competition. We’re just not seeing it in our markets,” Mr Di Marco said. “There’s no one we can see blazing ahead of us. We’re in a blue ocean.”
On Tuesday TechnologyOne shares closed up 0.5 per cent at $4.03.
Read more: http://www.afr.com/#technology/technologyone-toasts-speedy-cloud-growth-for-16-per-cent-profit-rise-20151123-gl67dh##ixzz3zdWK4nyh
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