Ladies and gentlemen, thank you for standing by and welcome to the Technology One Half Year Results Roadshow. For this presentation, Edward Chung, Chief Executive Officer, is here on the call in Brisbane. There will be a presentation followed by a question-and-answer session. Participants on the phone who wish to queue for questions will need to press star followed by one on your telephone. If you would like to submit a question online via the webcast, please type your question in the Ask a Question box and click Submit. I would now like to hand the conference over to your host today, Mr. Edward Chung. Thank you, sir. Please go ahead.
Thanks, Marcy. Good morning, everyone. My name's Ed Chung. I'm the CEO. To my right, I have Stuart MacDonald, Chief Operating Officer. Unfortunately, Paul Jobbins is away unwell at the moment, so we've got Mr. Gareth Pike, Group Director, standing in for Paul. I'll now get started. Welcome to our half year 2023 results presentation. The materials that you see before you today have just been lodged with the ASX. You're gonna see some really strong results presented today that we're very proud of. The TechOne team continues to deliver amazing results for our customers and each other, and this is reflected in the results that we present to you today.
The TechOne team continues to deliver amazing results, for our customers and each other, and this is reflected in the results that we present to you today. We're constantly listening, watching the market, our customers, listening to our staff, constantly learning, evolving our offering quickly. Our team are aligned and have exceptional focus and are executing probably to the highest standards that I've seen in my 16 years in TechOne. This execution is against our very clear strategy in which we went through, in detail at the full year. This strategy has been very consistent and has stood the test of time. Here's a reminder. Firstly, we're ERP software. We've got very broad and deep functionality. If you think back to 2008, we had 11 products, and now in 2022, we had 16 products and over 400 modules.
We've got the deepest functionality for specific vertical markets. That is, we ain't all things to all people. We provide mission-critical products which power and run local governments, unis, government departments, large infrastructure providers. We've got our global SaaS ERP, and this is our fourth generation ERP, which is highly efficient and allows us to invest for our customers. Nearly all of our customers are now on SaaS, and our SaaS customers unlock significant benefits. Two releases each year, providing new features, new functions, defense in-depth security with the highest levels of cyber security certification of any ERP provider on the planet. Our customers are always on the latest release and the latest tech. All products and all modules are available to all customers so that they can take on additional products without friction.
Of course, our customers save 30+% on their total cost of ownership. We have our any device, anywhere, anytime approach. This is the 4th time, as I said, that we've successfully re-engineered our entire code base. That's 16 products, 400 modules, millions of lines of code to always be on the latest technology. No other ERP provider has done this once, let alone the 4x we have over the last 36 years. We have the Power of One, and that's where we bid, market, sell, implement, support, and run our SaaS ERP. Of course, our game-changing solution as service, which I'll discuss a bit later, can only happen because of the Power of One. Finally, we're an innovation-driven company where we leverage new and emerging technology at each generation for our customers.
With this consistent strategy, we've delivered strong SaaS ARR growth up 40%, with customer adoption driving SaaS annual recurring revenue to a record AUD 316.3 million. Our total ARR grew strongly, up 22%, again, to a record AUD 350.6 million. You all know we had a target of AUD 500 million ARR by FY 2026, and with AUD 350.6 million in total ARR, we're confident that we'll surpass this target by FY 2026. This ARR growth culminates in strong profit growth, and that's profit before tax up 24% to AUD 52.7 million. Our outlook continues to be strong. I'll get into full year guidance a bit later. Attention over 36 years. This all results in consistently strong cash generation.
We have confidence in the outlook, we retain significant firepower to invest for growth. For example, if we could find a great acquisition like Scientia, we'd do it all again. The half year dividend has been increased by 10% to AUD 0.0462 per share. I'd now like to hand to Gareth to take us through the results in some more detail.
Thank you, Ed. I'd now like to take you all through the results summary. As mentioned previously, this was a strong result. A few call-outs before we dive into the numbers. If you go to the bottom of the slide, you can see SaaS ARR is strong, up 40% to AUD 316.3 million. Our ARR is now AUD 350.6 million, up 22%. Let's dive in. Moving to the top of the slide, you'll see revenue continues to reduce as planned. Other revenue is up as a result of the finalization of the earn-out of Scientia. This was a great acquisition that has achieved our desired outcomes. Scientia only just missed their ambitious earn-out targets. Stuart will discuss this later in more detail, and please refer to Appendix F.
Moving down to the middle of the slide, you'll see total expenses grew 21% to AUD 157.6 million. Within that are operating costs of AUD 133.2 million, this is before the impact of capitalization and amortization of warranty, as well as including our continued investments in growth. Moving on to our net profit after tax was up 24%. As mentioned, the full year, we expect the effective tax rate to remain at between 22% and 24% going forward. Our balance sheet remains strong. Cash at the half was AUD 139.1 million, up 20%. That's the equivalent of AUD 0.43 per share. We continue to have no debt. I'll talk to the cash flow performance shortly. Net assets grew AUD 55 million or 28% year-on-year.
Some of the key items to call out on the balance sheet include contract assets. These represent extended payment terms provided to some customers, typically with large implementations or term licenses for on-prem customers. This balance we expect will reduce over time. This is monitored and managed closely. There is no risk in these numbers. Capitalized development shows the carrying balance of our investment into our software. We'll talk more about this later. Deferred revenue increased 9%. We expect this to grow even more by the full year. Deferred revenue are payments received in advance from customers for SaaS fees and on-premise annual license fees. These will be recognized as revenue in future periods. This balance is impacted by the month within the year that the ARR is sold and/or renewed. Cash flow. Cash flow generate closely. There is no risk in these numbers.
Capitalized development shows the carrying balance of our investment into our software. We'll talk more about this later. Deferred revenue increased 9%. We expect this to grow even more by the full year. Deferred revenue are payments received in advance from customers for SaaS fees and on-premise annual license fees. These will be recognized as revenue in future periods. This balance is impacted by the month within the year that the ARR is sold and/or renewed. Cash flow. Cash flow generation will be strong over the full year. Traditionally, cash flow generation for TechOne is weighted to the second half. This is aligned with our customers' anniversary dates. This half we delivered a break-even cash flow generation as expected, with cash and cash equivalents up 20%. This is the same slide we showed at the full year.
You can see group margins continuing to improve to 35 %+ in the coming years, driven by the significant economies of scales from our single-instance, multi-tenanted global SaaS ERP offering. When we get to 35% margin, we will look to set a new target. I'd now like to take you through our segments. On the left-hand side, you can see our operating segments. As a SaaS company, we manage our business in three operating segments. The profit from the software segment has been driven by strong growth in our SaaS recurring revenue. Our consulting segment is down as we invest in our SaaS+ offering. The corporate segment benefits from growth in the operational segments. On the right-hand side, you can see our geographical segments, with all of our regions growing strongly. The U.K.'s profit is up 29% year-over-year.
We'll talk more about the U.K. later in the presentation. This slide shows a slightly different lens on the results. Some call outs are on the left-hand side, you'll see our EBITDA margin has improved from 35% to 37% this year. On the right-hand side, you can see our earnings per share has increased 24% year-over-year in line with our profit after tax. Our full year ROE is expected to be a world-class 40%. I'll now hand over to Stuart to take us through the significant achievements.
Thanks, Gareth. As you can see, of all the verticals have double-digit growth, and again, validating our strategy of hyper-focus, providing mission-critical solutions for the markets we serve. If we focus on our two key verticals, local government grew by 23% and education grew by 20%, confirming that the extending the product footprint of mission-critical software in our regions of Australia, New Zealand, and the U.K. is continuing to be successful. I'd like to highlight a few impressive wins for the period. According to Forbes, London Business School is the number one ranked MBA program worldwide. They used Infor for their financial systems and came to market to replace. We competed against Oracle, Unit4, and Advanced. We sold them our OneEducation SaaS+ solution.
As quoted by the CIO, "The product in SaaS+ is revolutionary." Well, we submitted an unsolicited proposal because we saw the value of the council leveraging our SaaS solution and the roadmap we started with them many years ago. As a result, we replaced Oracle for HRP and Infor for Property & Rating. We won this deal because our OneCouncil CiA solution is unique and because of the Property & Rating solution within it. This win grew the ARR of the City of Parramatta by more than 3x the value. Again, validating our strategy of landing an account and expanding it, leveraging SaaS and ERP, messaging, and values. TAFE Victoria is made up of 12 TAFEs within Victoria.
They've all been a customer of ours for more than 15 years, all this, all with SaaS versions of financials and supply chain, and eight of the TAFEs use us for student management. Two and a half years ago, we began work with the Department of Education and the TAFEs themselves as they had to address the obligations under the new Asset Management Accountability Framework, or AMAF. As a result, I'm proud to say that we've sold every TAFE in Victoria our SaaS Enterprise Asset Management solution to manage AMAF. This solidifies our dominance in the TAFEs in Victoria. Although this result is not within our normal 1% churn target, it's well within our plans as we anticipated the following two issues. As we close out the end of on-prem campaign, it was anticipated that a few very small customers would not transfer across.
For context, these customers are on average AUD 20K in ARR and not within our core verticals. With the acquisition of Scientia, we are focused on customers within the regions we operate. Again, it needs to be noted that these results are well within the plans we forecast, and most importantly, these results remain industry-leading. Over 16 products and over 400+ modules is the power of the SaaS ERP. It has always been our strategy to acquire a SaaS account with the primary focus of core financials and support the account over time and sell them additional CiA products to that customer base. I provided you an example of this with our customer profile in our last presentation. As mentioned before, the industry best in-class target is between 115% and 120%.
NRR of 119% is once again a testament to this strategy as it confirms we are building, selling, and delivering mission-critical products our customers expect. I'd like to address any concerns regarding the effects of CPI and Forex on these results. Although we all know that CPI is in the region of 6%, however, this increase in CPI has only had a 1% impact on the NRR results. Forex is not material at all, and it has no direct impact to these results. Again, I would like to remind you that our target range is between 115% and 120%, and we're very proud of these results as they are a testament to our strategy and the team's ability to execute.
As I've been forecasting, the U.K. is now in an impressive position to capitalize on all the hard work that has been completed over the last few years. Firstly, we have 15 of our 16 products available and localized for the U.K. This includes our student management product that has received fantastic interest during our U.K. showcase in April, which was attended by the largest and some of the most prestigious universities in England. I'd like to take a moment and talk about the Scientia acquisition. Although they did not achieve the earn-out targets originally proposed by the sellers, the business absolutely achieved the targets we set internally for the acquisition.
Even more importantly than the fantastic financial results, with the purchase, we received the world's best timetabling and scheduling product with over 300 customers worldwide, allowing us once again to build out our OneEducation SaaS ERP solution, which is unique in the industry. Within that are 97 of the best universities in the U.K., for which we are now able to transfer to our SaaS platform, which we are doing at pace. Now we have a fantastic opportunity to sell our OneEducation solution to them. We've already seen significant pipeline growth as a result of this campaign. We also acquired an amazing team of more than 100 members worldwide with the best industry knowledge of how universities manage their timetabling and scheduling activities.
This team is now helping the student DxP team as we now integrate this world-class functionality of our timetabling and scheduling features into our revolutionary student DxP application. That will put all the power of this and other student-facing information of our OneEducation solution in the hands of the student for the very first time in the industry. Now if I focus back on the U.K. as a whole, we have more than 120 team members in region now giving us the size of a team needed to deliver at scale. We now have over 150 customers in the U.K., which provides us with a wealth of impressive references.
I'm proud to inform you that at the half, the new ARR sold was close to the full ARR sold for all of FY 2022. We forecast this growth to continue. TechnologyOne invested AUD 49.4 million in R&D at the half. This is up 19%, and this is 24% of our revenue. With the completion of CiA, we've begun the mass transition of customers to our fourth generation product. We've begun the hyper-focus to design and deliver the initiatives that will support the growth beyond the AUD 500 million ARR goal. This includes some of the following. Continue the success of our SaaS+ delivery. The solutions will be faster and will increase the margin. Invest in App Builder and DXP that will increase the TAM of the two key verticals of education and local government.
If I focus on the amazing team within R&D, we have all experienced a great resignation period in the industry over a year ago. During this period, we increased our focus on the team to not only retain the fantastic talent we have, but to acquire the new talent we needed to continue our success. We did this by focusing on ENPS, which is reviewed twice a year, and implementing a wellness program, which is broken down into three sections: purpose, career, and well-being. We then reviewed the salaries, promotion cycles, and many of the other employee benefit programs to make sure we recognize the talent within our organization. I'm more than happy to inform you that while other software companies in our industry are downsizing their teams, we're actively increasing ours.
Our turnover in R&D is single digits, and we're experiencing a boomerang effect of team members coming back to Technology One, which is truly amazing. This, and the introduction of the first ever CTO, who has brought energy, passion, and innovation to the team, we are well positioned to continue to develop and introduce new products and solutions to the market that we've done for 36 years.
Thanks, Stuart. Before I get into the summary, I just wanted to pause for a moment and give you an update and give you reassurance about the incident that impacted our internal Microsoft 365 back office system. As outlined in our couple of ASX announcements, we acted immediately to investigate the issue. We initiated our cyber response strategy, which included the appointment of leading security and forensic experts to work through containment measures, and we've reported this incident to the relevant authorities and regulatory bodies. Now, in relation to the unauthorized third-party access, I can confirm that our customer-facing SaaS platform is not connected in any way, shape, or form to the Microsoft 365 system and therefore has not been impacted.
As you would expect, customers have asked many questions. Through that engagement, it has provided us the opportunity to further strengthen our relationship with them. All the feedback to date has been very positive and supportive. Our internal back office system, it was isolated to contain the incident. That system was successfully restored and is fully operational. There's been no impact on the business. In addition, the third-party experts have confirmed our Microsoft 365 system is secure. There's been no further illegal activity detected. Finally, as you'd appreciate any future information about our security posture and activities, it may compromise them. If you ask your own security experts, they'd probably say the same thing. To wrap up the results, we delivered a record half year profit, revenue, and record SaaS ARR.
SaaS ARR was up 40% to AUD 316.3 million. U.K., our ARR was up 20% to AUD 21.1 million. The investments that we've made over a long time are paying off in the U.K. Profit after tax was up 24% to AUD 41.3 million, and we delivered NRR of 119%. Remember, our target is 115%, and delivering 115% will continue to double the business in size every five years. With our total ARR of AUD 350.6 million, up 22%, we are on track to surpass AUD 500 million ARR by FY 2026. We'll turn to the guidance for the full year now. From our results, you can see that we're clearly on a high.
We expect to see continuing strong growth with net profit before tax growth of 10%-15%. Let me provide a bit more context on this guidance. Firstly, underpinning these strong results is SaaS ARR growth of circa 40%. We have our planned legacy license fee reduction from circa AUD 10 million to AUD 2 million. That's an immediate and planned hit to our bottom line of AUD 8 million this financial year. Secondly, we know there's a lot of uncertainty in the markets, discussion around inflation, wars, COVID-19 hangover. Over the past 36 years, we've continued to grow strongly in challenging environments like this, and we expect to do so again. Just to remind everyone, the markets we serve, such as local government, higher ed, and government, they're resilient. TechOne provides mission-critical software which powers our customers' operations.
Our customers turn to our global SaaS ERP to save, they save 30+%, and it streamlines their business. Our subscription revenue contracts pass on CPI. Thirdly, with these strong results, the strong guidance, we have lots of visibility and confidence in our pipeline. We're investing in growth. We're investing in SaaS+, in DxP, in App Builder, the U.K., and our talented people. Finally, we're confident that we will surpass $500 million ARR by FY 2026, we'll continue to double in size every five years. I'll now turn to our long-term guidance. If we're gonna surpass $500 million by FY 2026, our plans don't end at $500 million or in FY 2026, we continue to focus on building the future.
Our focus is to maintain our strong momentum well beyond AUD 500 million and continue to double in size every five years. It's why we invest in R&D, we invest in R&D for the long term to continue to build plat... end at AUD 500 million or in FY 2026, we continue to focus on building the future. Our focus is to maintain our strong momentum well beyond AUD 500 million and continue to double in size every five years. It's why we invest in R&D, we invest in R&D for the long term to continue to build platforms for growth. That's new products, new modules, new offerings. One of our key long-term investments and initiatives is Solution as a Service or SaaS+, this is one of our most exciting initiatives, let me explain.
We all know that Salesforce.com changed the world from on-premise to SaaS. Just like Salesforce.com changed the world, TechOne is gonna change the ERP world. SaaS+ will deliver quicker for our customers, and we'll take on all the responsibility and remove the complexity for our customers. It's something that our customers have always wanted, and we're delivering this through the Power of One. Today we have SaaS, we have all the complexity of long, risky implementations. You can picture it, right? You'll turn up whether it's TechOne or a system integrator, and they'll talk to you about project management, project plans. They'll talk to you about methodologies, configuration. Ask you who your SMEs are. Talk to you about config documents as is to be. Already miles ahead from our competitors because we have what we call the Power of One. We own the software.
We don't throw it over the fence to an implementation partner like SAP and Oracle does. We implement our software, and finally, we've got 36 years of deep IP and expertise in our markets. No one else has this. For us, we're just going the next logical step. We're gonna take away complex and long, risky implementations for our customers and deliver our SaaS and implementation in one single feed. We call it SaaS+ . Now, like everything in TechOne, this is a long-term strategy. It's like SaaS was for us many years ago. We invested and made significant losses for many years, but now it's powering our growth. I'm very confident in 10 years from now, we'll look back and have changed the ERP world. Now, we're having some early wins.
We targeted 10 deals this year, but we've sold in every region and we've focused on local government and higher education, and we're confident that we'll triple the target by the year end. You can see that we're positioned well for growth. We have strong NRR with a 115%-120% target. This alone, selling to our existing customer base, can double our business in five years. We have AUD 2 billion of ARR white space in our APAC customer base. The R&D investments we're making over the next five years increases APAC ARR. It doubles it from AUD 2 billion-AUD 4 billion. Solution as a service, as I just discussed, is a game changer, and it will lift ARR again by 40%.
We continue our search for strategic acquisitions like Scientia for timetabling and scheduling in 2021, like Property & Rating all the way back in 2001. We continue to win new logos in APAC, and we continue our growth in the U.K.. Finally, our focus and strategy is to grow our margins to 35+% through significant economies of scale delivered through our global SaaS ERP. Ladies and gents, none of these strong results would be possible without the talent and the committed people who make up TechOne. We'd like to thank each and every member of the TechOne team across the globe, and we'd also like to thank you, our shareholders, for your continuing support. Can I now hand back to Darcy for questions and answers?
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star followed by two. If you would like to submit a question online via the webcast, please type your question in the Ask a Question box and click Submit. Edward, we will now start with questions from the phone call. Your first question comes from Chris Gawler from Goldman Sachs. Please go ahead.
Good day, Chris.
Good morning. Yeah, good morning, Ed, Stuart, Gareth. Can you guys hear me okay?
Yeah, sure can.
Perfect. Thanks for taking my questions. Firstly, I wanted to talk about the pricing pass-through dynamics.
Yep.
We know that you guys have contractual CPI pass-through.
Yeah.
Just wondering, you know, obviously inflation's been elevated for a little while now. When do we expect that to start to flow through?
Yeah
... in NRR and into ARR, given it sounds like it wasn't a big contributor this half?
Yeah. Yeah. Just to recap what, Stuart, said on the call was if total NRR for the half was 119%, the impact of additional CPI, I'll come to that in a second, was about 1%. We look at normalized CPI in TechOne.
ARR, given it sounds like it wasn't a big contributor this half?
Yeah. Yeah. Just to recap what Stuart said on the call was if total NRR for the half was 119%, the impact of additional CPI, I'll come to that in a second, was about 1%. We look at normalized CPI in TechOne's history at about 3%, Chris. Our average CPI, 'cause it's a bit different in every region, is 6%. If we got the equivalent of 1% into NRR this result, then you're gonna see it in future periods. The reason you're gonna see that is that, although we've got annual contracts and bill annually, invoice annually for our customers, those anniversary dates are all different depending on where they originally did their first purchase with us.
You expect to see those in future periods, from this moment onwards.
Are you seeing any pushback at all, or is there any scope for pushback from your customers on the contractual pass-through at all?
There is zero scope, and we don't receive any pushback. If I explain to you that it's a term that's been built into our contracts from the very beginning, it's not unusual for our customers. When CPI was zero through the COVID era, they got zero. Now that it's high, higher at 6%, they're getting 6%. One, there's no pushback, and two, to the extent there was any, it's contractual and has to be paid.
Yep, that makes sense. Next question, just on the SaaS ARR growth of 40%. For this year, you know, that implies around AUD 100 million-AUD 110 million, you know, incremental SaaS ARR versus last year.
Yeah
... in FY 2023.
Yeah.
Do you mind helping us break that down? You know, the contribution from new business. Is there an acceleration in the SaaS slip that you're seeing or an increase in the uplift multiplier?
Yeah.
Yeah, just interested to get a bit more color around that, please.
Chris, it's largely driven through the end of on-premise program. You know, we called it... How long ago, Stuart? Three years ago?
Three years.
Yeah. FY 2024 is effectively the end of the end of on-premise program. Any acceleration we've seen from SaaS flips has been driven by that. Is that helpful?
Yeah, that's helpful. You're expecting of the residual on-premise base, most of that to have transitioned to cloud-
Yeah.
by the end of 2023.
Exactly. Yeah.
A little bit in 2024.
Yeah, exactly.
Okay.
Yeah.
Okay, that makes sense. Then just last question before I jump back into the queue. You've spoken again about getting to PBT margins of greater than 35%.
Yeah
in the next few years.
Yeah.
I guess two parts. I mean, you know, does that mean FY 2025, FY 2026? Secondly, do you expect that ramp to be, you know, pretty linear from here?
Yeah. I think, we purposely haven't given a date on that. The guidance that we give people is aside from last year's Scientia look at the history of how much, what do you say, Gareth Pike? How much margin we've added every year.
Yeah.
If you model that going forward, you're probably in the right zone.
Cool. Thanks, guys. I'll jump back in the queue.
Thank you.
Thank you. Your next question comes from Darren Leung from Macquarie. Please go ahead.
Good day, Darren. How are you?
Morning, guys. Good, thank you. Congratulations on a good result.
Thank you.
Just had three from us, please. It's been sort of two odd weeks since the data breach, and obviously a good outcome in terms of maintaining it and resolving it sort of quickly. I know you mentioned your existing clients have had a lot of questions about it. I'm curious as to what your discussions with prospective clients have.
Yeah
following that data breach.
Yeah. I might start and then hand over to you, Stewie. I think the most important thing to firstly understand is that it was our back office Microsoft 365 system, and it was definitely not our customer-facing global SaaS ERP that we sell our customers. There's a big air gap between the two, and there's absolutely no way at all that it can be impacted by the front office customer-facing global SaaS ERP, cannot be impacted by what happened in Microsoft 365. I've also got to say that that has had no operational impact on the business, was up and running very fast, and our cybersecurity experts have given it the all clear in terms of no more illegal activity. Now, Stuart, can I hand over to you to talk about not only the customer, existing customer conversations-
Yeah
Impact on prospective customers?
The conversations have been the same. Once we clarified that it was the back office Microsoft 365 system, it had nothing to do with the customer's data and the on-premise, Sorry, and the SaaS platform.
Yeah.
The questions really came to, you know, we'd really like to understand how you went through this. We'd like to learn from it. There's a lot of customers actually asking us to debrief at the end of this whole situation so that their IT team can learn from the exercise as well. It's been very positive, very supportive. It was really the same if it was a current customer or potential future customer. It was that same conversation that we had with both.
Thanks, Stuart.
Great. Thank you. Just the second one, bit more left-wing one. You're seeing some of the sort of ASX-listed software peers and like, indeed, I guess, globally sort of scaling back on their R&D and development spend more broadly.
Yeah.
Just given the sort of point in the economic cycle. Is this something that the TechOne business could potentially think about?
I think, we're in a different place, to be honest. We are. Well, the results speak for themselves. We've got excellent results, strong results, and when we look at the future pipeline and our guidance, and even the pipeline going out many years, is very strong. That gives us confidence to continue to invest and invest for growth. Our approach to managing costs, generally speaking, is that we know or can predict with a high degree of certainty what our revenue is going to be, and we know what margin we want to achieve. We make sure that we manage the whole business to achieve that margin growth. To the extent we can be more efficient in every other part of the business, that frees up funds for us to invest into R&D.
The reason that we take that approach is because our R&D investment is for the long term. Our R&D investment is for new, products, new modules, new offerings that will continue to, provide us platforms for growth to continue to double in size, every five years. You would've heard on the call that we're very confident that we'll surpass AUD 500 million ARR by FY 2026, and then with our long-term investments, we're gonna double in size again.
Understand. Thank you. Maybe just a final one, on slide 22. You've obviously got that little bar that sort of shows the products per customer.
Yeah.
sort of increasing
Yeah.
in the second half.
Yeah.
I know it sort of talks to your point around ARR increasing and, you know, greater product take-up.
Yeah.
And maybe even to your-
Would've heard on the call that we're very confident that we'll surpass AUD 500 million ARR by FY 2026, then with our long-term investments, we're gonna double in size again.
Understand. Thank you. Maybe just a final one, on slide 22. You've obviously got that little bar that sort of shows the products per customer.
Yeah.
sort of increasing
Yeah.
in the second half.
Yeah.
I know it sort of talks to your point around ARR increasing and, you know, greater product take-up.
Yeah.
Maybe even to your point around continued R&D spend. Can you give us a feel as to what those sort of products are that customers are taking up? What sort of? Where you're allocating your development efforts.
Yeah
behind that, please.
I might hand over to you, but I'll start, Stuart. There's no specific product that drives that. It's through our sales and marketing and messaging and just our general approach to landing and expanding. Stuart, do you wanna add a bit more color to that?
Yeah. It's also probably a little bit more complex under the covers. Even when we talk about a product, a product will have between 20 and 40 modules in itself. Even a customer that says it has financials, it might only have a subcomponent of the full financial suite. That's the beauty of the ERP message. We constantly are bringing new features to market. We're also positioning new features. We're integrating it to other components. You see that just natural progression into more and more of our product suite as they start to use it. It's, it's not as cut and dry to say there are 16 products and this customer has four of them. They might have four products, but a subset of those, that's the continuing story of the ERP message. It, it's far more complex.
Fair enough. Thanks again for your time, guys.
Thank you.
Thank you. The next question comes from Josh Kannourakis from Barrenjoey. Please go ahead.
Good day, Josh.
Hi, guys. Can you hear me okay?
Yeah, sure can.
Perfect. A few quick questions. Firstly, a quick follow-up on the CPI one. Is the way that we should read that the, you know, 1% sort of in the first half, probably a bit more into the second half, but it should be, if we look at the full annualized run rate into FY 2024, that should be a little bit more, right? Into the... For the FY 2024 year, if you sort of keep rolling that through.
We haven't done precise models like that, but Gareth, That's in the zone?
That's in the zone, yeah. Future periods, yeah.
Yeah. Gareth Pike.
Yeah. Okay.
Yeah.
Yeah.
Perfect. No, that's okay. I just wanted to clarify that. Second one, just around great to see the legacy of the license fees dropping off probably more than what we'd expected this year.
Yeah.
If we look at those annual license, the ARR at AUD 34 million, just into the second half, given you've sort of already talked about the SaaS ARR growth
Yeah
... can you give us a bit of a feel for just how much that sort of comes off into the second half of that? Second one, just around great to see the legacy of the license fees dropping off probably more than what we'd expected this year.
Yeah.
If we look at those annual license, the ARR at AUD 34 million, just into the second half, given you've sort of already talked about the SaaS ARR growth
Yeah
... can you give us a bit of a feel for just how much that sort of comes off into the second half, that sort of legacy annual license ARR?
Yeah, the annual license fees, I can't give you the precise numbers, Josh, but there won't be much that carries on into FY 2024.
Okay, great. No, that's right. Okay, perfect. And then just final one, just around costs.
Yeah
... and sort of looking through into the, I guess, into the second half.
Yeah.
Like is there anything other than obviously it's been a strong year, I imagine in terms of remuneration and-
Yeah
... maybe commissions, bonuses-
Yeah
... things like that could be a bit more significant-
Yeah
... given how strong the second half's expected to be. Can you just maybe talk through some of the moving parts on the cost side into the second half?
Yeah. Yeah. We manage, as I said before, to make sure we get margin improvement. We look at the whole business in total. Gareth, is there anything else you'd add in there?
I don't think so, Ed. As you said, you know, we manage our expenses within an envelope to hit our profit targets.
Yeah.
Yeah. Yeah. Nothing unusual here, Josh.
Yeah. I guess it's just everyone's probably looking at it. It seems like there is a very, clearly a very strong.
Yeah
... sort of outcome and probably not too commensurate with the 10%-15%, I guess. I'll leave that for you guys to manage. Final one, just really quickly, if that's all right. Just on the consulting side.
Yeah.
Obviously there's been that.
Yeah
... as the solution of the service.
Yeah.
Maybe you could just talk a little bit about that, Ed, in terms of the take-up of that so far?
Yeah. Yeah.
... and how that impacts the consulting profile as well.
Yeah. Yeah. We've got a, an appendix, I can't remember which one it is. It's in the back, called Consulting. There has been no change to the consulting business in that about half is what we call AMS, application managed service. That's all... That is a subscription fee. It's not included in our ARR numbers, where half of it, existing customers sign up, and it's almost like we become their system administrator as if they were part of their staff and we do simple things like change workflows, write reports, et cetera. That's, that half will continue as always.
The other half is what we call new projects, that's if a new customer comes on board and needs to implement for the first time, or an existing customer buys a completely new product, and then it gets implemented by the new projects team. It's that part of the business which over time, and I've gotta stress it will be over time, will move from traditional consulting to SaaS+ . And we're just using the same methods that we did to transform or our business from legacy license fees to SaaS. If you think about legacy license fees, Josh, at its high, it was AUD 65 million, and then it came down to around AUD 40 million, then I think AUD 30 million, then AUD 17 million, then AUD 10 million last year, and then AUD 2 million.
You can see that we've managed significant headwinds every single year and still delivered for our customers and delivered growth for our business. We're just gonna use those same techniques to come from off traditional consulting to SaaS+, albeit the numbers are a lot smaller. Does that answer your question, Josh, that we'll do it carefully over time?
Yeah. No. That's perfect. Thanks, Ed. In terms of that though, as an extra bit of granularity that's only with the new customers in it. If I'm an existing customer.
No
already on a solution, I'm not going on to Solution as a Service, am I?
No, you can be a new customer. Imagine... Sorry. You can be an existing customer. Imagine.
Okay
City of Parramatta that Stuart talked about and you. This is just an example. You had financials and supply chain. You came to us to buy Enterprise Asset Management, whole new product that you didn't have at all. We can offer you that as solution or service SaaS+ .
Got it. That's very helpful. Thanks, guys. I really appreciate your time.
No probs. Thanks, Josh.
Thank you. Your next question comes from Apoorv Sehgal from UBS. Please go ahead.
G'day, Apoorv.
G'day, Ed and team. A couple of specific questions first and a more general one after that.
Yeah.
Just firstly on the trade receivables, down about AUD 10.4 million. I think you said impacted by new deals signed late in the period.
Yeah.
Could you just explain that, please?
Yeah. I might hand over to Gareth, to get into that, Apoorv.
Thanks, Apoorv. Yeah, it literally just came down to the timing of a number of our deals at the end of the half. You know, customers sign when they sign. We had a few deals sign right at the end of the half that impacted our trade receivables balance.
Apoorv, I think that comment refers to the variance or the comparative when you compare that reduction against last year's reduction in trade receivables. Is that right, Gareth?
It is the cash flow. That's opening, 30 September down to 31 March, it's just the movement and the balance. We collected strongly. We just had some late invoicing that just impacted us at the end of the half.
Okay. Sure. Could you give some color on, like, what proportion of customers are now on the CiA platform at the moment? My understanding is.
Yeah.
Obviously, the SaaS is one thing.
Yeah.
The pure Ci Anywhere, getting customers there.
Yeah
Is a big opportunity for you. What's sort of the friction, I guess, for the customers?
Yeah
Not yet on pure CiA.
Yeah
What can you do about that?
Yeah. Got it. I might hand to Stuart to take that question, please.
we started the development of CiA probably about 11 years ago, 10, 11 years ago.
Yeah.
As the modules were coming out, we actually released module by module to the market. The simple answer to your question is the vast majority of our customers are somewhere in the middle. They've got components that are still the old product called Ci, and the majority of the product in the Ci Anywhere, as we've been bringing it over time. It wasn't a big bang. We've been doing this incrementally over time. To answer your question, if the amount of customers that are pure Ci Anywhere would be quite small. To transition our customers across, we introduced a concept called CiA Live. What we're doing for that is we're actually providing all of the requirements to get our customers from the old product to Ci to Ci Anywhere, and we take full responsibility.
That product's been well represented and taken up quite well over the last few quarters. We will continue to see it grow. To answer your question, not a lot of customers are full CiA, but you'll see that build over time. The vast majority are probably more heavily CiA than Ci as they transition those remaining modules across.
If I can just add, through that CiA Live program, it's our job to make it frictionless for the customers, Apoorv.
Yeah. Yeah, of course. Last quick question. Just the R&D capitalization rate... 52%.
Yeah.
A bit lower than usual. Are you still expecting that 54% for the full year of 2023?
Yeah, we are, but I might hand over to Gareth.
Yeah. Yeah, we are, Apoorv. As, as you probably would expect, you know, R&D cap is just based on the work that was done, so based on the time sheets. It just, you know, depends on what our teams have been focused on, and it just happened to be 52% at the half full. The full year we expect to be back, you know, on trend, I guess you'd say, at 54%.
Yeah.
Okay. Thanks.
Thanks, Apoorv.
Thank you. Your next question comes from Wei Sim from Jefferies. Please go ahead.
Hi, Ed, Stuart, Gareth. Thanks for taking my questions. Great results.
Yeah, no probs.
Thank you. The first one is just in regards to the PBT margin trend that we're expecting going forward.
Yeah.
hear you on the kinda 35%, but, you know, just thinking forward in terms of our expenses coming through, you know, we have, some more investment going into the SaaS+ platform.
Yeah.
Maybe still some off-license fees coming. I'm just wondering, you know, is this trend something that we should start to see now? Or is it that we may see a bit of a pause in terms of where the margin's at currently before we start to see that, you know, uptick and trend towards 35%?
I think our main game, if you like, Wei Sim, is to deliver that PBT of 10%-15%. That's our first and foremost. Of course, we're focused on our margin improvement. As I said, I can't remember who asked the first question, if you look at our history at margin improvement growth, that's what I would model going forward to get us to 35% margin over time.
Okay. Got it. The second one is just in regards to churn.
Yeah.
If I think about, you know, the guidance that was given for FY 2023...
Yeah
Even if we x out the EOOPs, it still seems kind of higher than what we historically expect. Just keen to understand what's driving that assumption.
Yeah. to be honest, I don't... It might be a touch higher, but it's.
The churn. If I think about, you know, the guidance that was given for FY 2023.
Yeah
Even if we x out the EOOPs, it still seems kind of higher than what we historically expect. Just keen to understand what's driving that assumption.
Yeah. To be honest, I don't. It might be a touch higher, but it's still world's best practice. I might hand to you, Stuart, to get into the detail.
Yeah. Again, it was broken into really two key components. As you mentioned, the end of on-prem and those small-
The churn. If I think about, you know, the guidance that was given for FY 23.
Yeah
Even if we x out the EOOPs, it still seems kind of higher than what we historically expect. Just keen to understand what's driving that assumption.
Yeah, to be honest, I don't. It might be a touch higher, but it's still world's best practice. I might hand to you, Stuart, to get into the detail.
Yeah. Again, it was broken into really two key components. As you mentioned, the end of on-prem and those small customers that are not moving across, as we anticipated. With the Scientia acquisition... We're focused on the regions that we support and-
Still world's best practice. I might hand to you, Stuart, to get into the detail.
Yeah. Again, it was broken into really two key components. As you mentioned, the end of on-prem and those small customers that are not moving across, as we anticipated. With the Scientia acquisition. We're focused on the regions that we support. You know, of the 300 customers that we acquired through the acquisition, there might be customers in regions that we don't have any real direct visibility of them, and so they might be choosing a different path.
Thanks, Stuart.
Okay. Understood. Then just the last one in terms of, you know, growth in new IRR going forward.
Yeah.
You know, I guess with the Scientia acquisition, can we talk about, you know, what the, you know, how we should be modeling new user growth going forward?
Yeah.
You know, are we expecting this to trend up in absolute AUD terms?
Yeah.
Yeah.
Wei Sim , do you mean new, ARR to any customer or new ARR to brand-new customers?
Brand, brand new.
Yeah. I think, the thing that-
Going forward.
Yeah.
You know, I guess with the Scientia acquisition, can we talk about, you know, what the, you know, how we should be modeling new user growth going forward?
Yeah.
You know, are we expecting this to trend up in absolute AUD terms or?
Yeah.
Yeah.
Wei Sim , do you mean new, ARR to any customer or new ARR to brand-new customers?
Brand, brand new.
Yeah. I think, the thing that
Going forward.
Yeah.
You know, I guess with the Scientia acquisition, can we talk about, you know, what the, you know, how we should be modeling new user growth going forward?
Yeah.
You know, are we expecting this to trend up in absolute AUD terms or?
Yeah.
Yeah.
Wei Sim, do you mean new ARR to any customer or new ARR to brand-new customers?
Brand new.
I think the thing that we love but is a little bit unusual is if you look at the U.K. and we acquired Scientia, which has been a fantastic acquisition, Stuart, we got about 100 U.K. higher education new logos. They're the logos you want. They are the best logos that anyone could hope for. That now means in TechOne language, 'cause we're very strict on it, that none of those are new logos. It doesn't mean that we won't grow the business very fast as we're expected, and we'll sell them, you know, financial supply chain, HRP, asset management, ECM, student management, everything else that we have. They'll come across now in the NRR number to existing customers and won't be new logos. That's just a fact through the acquisition.
The new logos you should expect in local government and growth through those means. When you think of one of those last slides, it's the one that had the bullseye. All those initiatives are just platforms for us to continue to grow our total ARR. Does that make sense, Wei Sim?
Yeah. Yeah. No, that, that definitely makes sense.
Yeah.
Okay. That's helpful. That's all my questions.
Thank you.
Thank you very much.
Thanks very much.
Thank you. Your next question comes from Chris Savage from Bell Potter. Please go ahead.
G'day, Chris.
Hey, Ed. Hey, Stuart. Hey, Gareth. Hey, Paul, if you're listening. Back on NRR.
Yeah.
I know you've spoken to death about the CPI impact.
Yeah.
Can we get an idea of the remaining 17%, 18%, what part of that was product and what part was SaaS lift?
I can't give you all the answers there, Chris. You could probably do a little bit of a back solve, you know, using the annual license fees and times by two as we've discussed in previous. It's probably around 50/50, Gareth? Yeah. Yeah.
Yeah. My back of the envelope math suggested product beat SaaS lift in that.
Yeah. It might have, just marginally. It's very close.
Okay. Nice. You obviously spoke a fair bit about SaaS+ solution and service.
Yeah.
Can we get an idea what revenue contribution that made in SaaS fees and also, if possible-
Yeah.
to the SaaS ARR?
Yeah. immaterial. while we might have sold, 10? 10 or 10, 11, 12. Can't remember the precise number. It's very early days, Chris. Immaterial in total ARR. Because it's only day by day rev rec, very immaterial to SaaS fees recognized.
Yeah. Just back on the margin again. Sorry, I know it's been asked to death.
Okay.
If, if you take your guidance at face value.
Yeah.
even if you take the top end.
Yeah.
It suggests that the margin this year is gonna go backwards. Obviously, that depends on your revenue assumption.
Yeah. Yeah.
I thought.
Days, Chris. Immaterial in total ARR. Because it's only day by day rev rec, very immaterial to SaaS fees recognized.
Yeah. just back on the margin again. Sorry, I know it's been asked to death.
Okay.
If, if you take your guidance at face value.
Yeah.
even if you take the top end.
Yeah.
It suggests that the margin this year is gonna go backwards. Obviously, that depends on your revenue assumption.
Yeah. Yeah.
I thought after last year when margin went backwards, that was obviously due to the Scientia acquisition.
That was Scientia. Yeah.
I thought you indicated you thought margins would start trending up again this year.
Yeah.
Is that still your expectation?
Can I answer your question this way, Chris? Our 10%-15% is what we're sticking to, obviously. It's conservative.
Okay. Great. Thanks, that's it.
Thank you.
Thank you. Your next question comes from Ross Barrows from Wilsons Advisory. Please go ahead.
Good day, Ross.
Good morning. Thanks for taking the questions. Just two from me. Keen to explore Scientia just a little bit more. I understand that none of those Scientia education clients were, you know, on a SaaS product.
Yeah.
Okay, great. Thanks, that's it.
Thank you.
Thank you. Your next question comes from Ross Barrows from Wilsons Advisory. Please go ahead.
Good day, Ross.
Good morning. Thanks for taking the questions. Just two from me. Keen to explore Scientia just a little bit more. I understand that none of those Scientia education clients were, you know, on a, on a SaaS product.
Yeah.
Assuming those conversations are underway, can you talk a little bit how that engagement's going and maybe any indication, if you can, around when you might expect critical mass?
Yeah
in terms of migration?
Thanks, Ross. I'll hand to Stuart. Stuart, can you update us about the tech, the R&D, and then how we're going with customers?
Again, the first thing we did when we acquired Scientia was to build the SaaS platform to move them across so they could join the rest of their product suite in our SaaS platform. One of the reasons we wanted to do that, once a Scientia customer is actually on our SaaS platform, they now have the ability to see the rest of their product suite. That's just a fantastic way of introducing them to all the products and the functionality we have within CiA, and that's actually resonating very well with them.
The sales are doing really well. To answer your question, Scientia was to build the SaaS platform to move them across so they could join the rest of their product suite in our SaaS platform. One of the reasons we wanted to do that, once a Scientia customer is actually on our SaaS platform, they now have the ability to see the rest of their product suite. That's just a fantastic way of introducing them to all the products and the functionality we have within CiA, and that's actually resonating very well with them.
The sales are doing really well. To answer your question, in the U.K., we are exceeding the expectation related to the sales pipeline. The teams are actually very, very keen for it. The customer base is loving the ability to actually have a SaaS platform to do all that compute. If you can imagine what a timetabling scheduling tool does, it's a massive algorithm that's trying to deal with all the different variables within a university and to build the hardware to be able to do that type of work is quite complex. The customer base is moving quite quickly across because now the SaaS platform is doing all that compute, and they can do it at a much, much faster, much more efficient rate. The sales are doing really well, to answer your question.
Additionally- To actually have a SaaS platform to do all that compute. If you can imagine what a timetabling scheduling tool does, it's a massive algorithm that's trying to deal with all the different variables within a university and to build the hardware to be able to do that type of work is quite complex. The customer base is moving quite quickly across because now the SaaS platform is doing all that compute, and they can do it at a much faster, much more efficient rate. The sales are doing really well, to answer your question.
Just a broader question, in that space, the competitive landscape as you see it at the moment.
Yeah, it's a good question. If we hadn't built the SaaS platform and started to move the customers across, I suspect it would be more of a competitive situation. Because we have the world's best timetabling scheduling solution, it truly is the Rolls-Royce in the space, and now we've given the customers that new technology platform to move to. We don't see competitors coming directly of materiality, customers coming into our accounts because we've given them that roadmap of where we're going, not only with the SaaS platform, but new functionality as well. If we hadn't built the SaaS platform and started to move the customers across, I suspect it would be more of a competitive situation.
Because we have the world's best timetabling scheduling solution, it truly is the Rolls-Royce in the space, and now we've given the customers that new technology platform to move to. We don't see competitors coming directly in, of materiality, customers coming into our accounts because we've given them that roadmap of where we're going, not only with the SaaS platform, but new functionality as well. You have your traditional players in the space. We are the dominant one, and we're pretty happy with our position.
Great. Thanks. A slightly granular one on slide 41, just to give you the heads up. The SaaS ARR per customer metric there, that's clearly gonna bounce around a little bit depending on the type of customer you bring in.
Yeah
a little bit softer in terms of
Traditional players in the space. We are the dominant one, and we're pretty happy with our position.
Great. Thanks. A slightly granular one on slide 41, just to give you the heads up. The SaaS ARR per customer metric there, that's clearly gonna bounce around a little bit depending on the type of customer you bring in.
Yeah
a little bit softer in terms of the per customer, number there. I'm assuming that's just reflecting the type of customers you've brought on, which is a migration.
Yeah
is it fair to assume that will kinda normalize and accelerate again into 2024 once the impact from on-prem moderates?
I'm not sure about the impact into 2024 to be, you know.
Give you the heads up. The SaaS ARR per customer metric there, that's clearly gonna bounce around a little bit depending on the type of customer you bring in, but.
Yeah.
You know, a little bit softer in terms of the per customer, number there. I'm assuming that's just reflecting the type of customers you've brought on, which is a migration.
Yeah.
Is it fair to assume that will kinda normalize and accelerate again into 2024 once that the impact from on-prem moderates?
I'm not sure about the impact into 2024, to be, you know, honest with you, Ross. You're right. I am sure that it's just the type of customer that comes, and when they come. There's no rhyme or no reason to that.
Great. Thanks a lot.
Thanks, Ross.
Thank you. We have a follow-up question from Chris Gawler from Goldman Sachs. Please go ahead.
Hey, Chris.
Hey, guys. Yeah, just a couple of quick follow-ups from me.
Of course.
firstly, back at the full year, you were talking quite positively about the early traction of DxP
Yeah.
for local government.
Yeah.
I was interested to get an update on that.
Yeah.
How materially contributing you think that can become?
Yeah.
in our arguments.
Please go ahead.
Hey, Chris.
Hey, guys. Yeah, just a couple of quick follow-ups from me.
Of course.
firstly, back at the full year, you were talking quite positively about the early traction of DxP
Yeah.
-for local government.
Yeah.
I was interested to get an update on that.
Yeah.
How materially contributing you think that can become?
Yeah.
in our arguments.
Yeah. We're still very positive on it. Thanks for the question, Chris. I think when our customers see it's a bit of magic. I think Stuart would've told the story of Moreton Bay Regional Council at the full year. They were shown DxP by one of our early adopters and then said: "How do I get that?" They could only get it by taking Property & Rating, but what they did is they bought everything. We're still hearing that same excellent feedback. We're still in early adopters, to be honest, Chris. It takes time to build and roll out carefully and learn lessons, to be honest. We broke LG DxP, at least the very first offerings, into three phases. We just call it phase I, II, and III.
All phases have been finished development, and phases I and II are through early adopters. Is that right, Stuart? Yeah. We expect it to contribute quite a lot over time because these are long-term strategies. It's solving a business problem that no one else in the market has managed to solve for local government. Is there anything you'd add, Stuart?
Yeah, if I could just add one piece. We just finished our seventh showcase with the U.K. in April. In all seven showcases, which were in all the capital cities of Australia and in New Zealand, we actually showed the product live.
Yeah.
in the plenary session, the feedback from all the customers are: When can we have it? Um, so it's... There's-
Is there anything you'd add, Stuart?
Yeah, if I could just add one piece. We just finished our seventh showcase with the U.K. in April. In all seven showcases, which were in all the capital cities of Australia and in New Zealand, we actually showed the product live.
Yeah.
in the plenary session, the feedback from all the customers are: When can we have it? There's absolute demand. They see the gap that they're in, we're not able to support their customer base with, and they see the value of it and the frictionless nature of which we can deploy it. It's really a question of now just getting it through the early adopter program and getting it out to mass, and we're pretty excited about it.
Chris, if I can just add finally, TechOne invests in R&D for the long term to build future platforms for growth, and this is one of those platforms that we think will help us continue to double in size after the AUD 500 million, if that makes sense.
Sorry, can I just go one more piece?
Yeah.
We're only talking, we're only just to clarify, you're only talking about one piece of the strategy.
Yeah.
That's the LG DxP. The student DxP that comes out a couple of years later will have the same type of momentum the same traction within the space.
Sure. Just to confirm on DXP, at the moment, that's just for customers that are on pure CiA, right? Just to confirm.
Well, that's a complex question, isn't it? You don't.
For DxP LG.
Ye-yes.
For the early adopters.
Yeah.
Yeah.
Yeah, yeah.
Yeah.
Chris, we've built it in such a way that customers can take... If you look at LG DXP, for example, if there's three phases, you don't have to go wall to wall Ci Anywhere to go there because that would create friction. You can progressively go there. For example, Stuart talked about as the modules have been developed in Ci over a long period of time, customers have taken them. We've built LG DXP that when they're progressively live on CiA, which many, many are, then you can progressively take LG DXP. That's a frictionless approach to make sure that our customers can come on that journey with us and get significant value. Does that make sense?
Yeah. Yeah, that's clear. Maybe while I've got all three of you wanted to ask more of a high level, maybe another left field sort of question. It's obviously been quite topical recently, generative AI. I was interested to get your thoughts on, you know, how you might, you know, be able to integrate that into your product suite or use it in the way that you deliver software to your customers?
I think it's early days, to be honest, Chris, and I say this a little bit cheekily, but it's like AI is a solution looking for a problem. We, of course, we got teams working on AI, but we just don't go and implement it for implementing sake. When we look at, for example, some of our DXP, we have an expenses DXP, right? It was one of our first DXPs to trial the technology. It's got AI. When you go and scan an invoice, it automatically reads it automatically processes it into the right categories and passes it through. When you look at timetabling and scheduling, part of the engine is the original AI. That's where the power comes into it.
It's one of these things, Chris, that we got teams working on all the time, looking about how we can apply it, to make life easier for our customers.
Makes sense. Thanks, guys.
No problems.
Edward, we will now start with questions from the webcast.
Thanks, Darcy.
Your first question comes from Bruce Carmichael f rom Teami nvest, who asks, "What is the income tax effect, if any, on the reversal of contingent consideration of AUD 7,378K?
Yep. Thanks.
What is the income-
Oh, sorry. There's a second part.
Sorry. If any, on the derecognition of acquired intangible assets of AUD 6,767K.
Yep.
What line item in the income statement includes derecognition of acquired intangible assets?
All right. Thanks, Bruce. I can understand your line of questioning. I'll hand to Gareth to answer those.
Yeah. Thanks, Bruce. I think there's two parts to your question. The first part is the impact of tax as a result of the reversal contingent consideration and the derecognition of the tangible assets. When we've looked at them, the actual impact is negligible. You know, has no impact on our stated goal of, you know, effective tax rate of 22%-24%. Negligible impact on those two. In regards to your final question on what line in the income statement, if you look in the accounts note nine and 10, it'll actually lay it out for you. The majority is actually flowing through corporate costs, but there's a little bit going through amortization, but you'll see that in note nine and 10.
Thanks, Bruce.
Thank you. Your next question comes from Marc D'Annunzio f rom Discovery Funds, who asks, "How much of Scientia ARR was included in the SaaS ARR?
Thanks, Marc. Not much. So, while we have created the first offering, have sold it more than two handfuls. Presently it's still early days when you think about their entire customer base. Not material amount at all is included in our total SaaS ARR.
Thank you. Your next question c omes from Prasad Patkar from Platypus AM.
Yep
Who asks, "Given that your business has transitioned to recurring revenues model, why do the cash flows still have so much seasonality o r H1 H2 SKU?
Thanks for the question, Prasad. I might hand to Gareth to take that.
Yeah. Thanks, Prasad. Prasad, you may recall it touched on earlier that, you know, when a customer signs up their contract, you know, that sets the date on a go-forward basis. What happens with our cash flows is based on when they actually signed up, that sets their renewal date. We bill annually in advance. It just so happens at the moment that the majority of our renewals are on the second half. You'll see that flowing through in our cash flow in the second half.
Thank you. Your next question comes from Luke Walters from Peak Invest , who asks, "R&D over five years d oubles TAM, what are the segments you plan to grow into and what segments are priority?
Thanks for your question, Luke. I might hand to Stuart to talk about the regions.
Yeah
The verticals that we focus on.
Yeah. If you look at us historically in our seven verticals, you know, we own local government education from a positioning of our brand in Australia. That continues to grow. As we've talked about, as we introduce new products like App Builder and DxP LG and DxP Student, that just increases the TAM, the ability for us to support that customer base. If you look into the U.K., the U.K., we are only in there with local government education. You can see that that's where a lot of our investment from an R&D will focus on is building out that product within those two suites and absolutely trying to get that efficiency to our customers so they can acquire the products as quickly as possible and leverage that SaaS.
Simply put, from a regional standpoint, we're in a very comfortable place in Australia, and we leverage the logos we have and build new products for them. We're growing the customer base in the U.K. and hyper-focused on Local Government Education, and that will be our recipe for quite some time.
Yeah. I'd add and just underline the words Stuart said, we're hyper-focused. We don't have a lot of resource, particularly when you compare against, you know, the giants like SAP and Oracle. We hyper-focus on those markets and verticals that Stuart talked about.
Standpoint, we're in a very comfortable place in Australia, we leverage the logos we have and build new product for them. We're growing the customer base in the U.K. and hyper-focused on local government education, and that will be our recipe for quite some time.
Yeah. I'd add and just underline the words Stuart said, we're hyper-focused. We don't have a lot of resource, particularly when you compare against, you know, the giants like SAP and Oracle, and we hyper-focus on those markets and verticals that Stuart talked about. Next question, please.
Thank you.
Darcy.
Your next question comes from Michael Hollewand f rom Hollewand Consulting, who asks, "Given that more universities are moving to hybrid online in-person teaching-
Yep
This has implications for teaching space allocation and timetabling. Are your timetabling solutions incorporating predictive analytics to help customers optimize allocation of teaching spaces?
Yeah, that's what the product does, Michael, so it's hyper-efficient at that. We asked the same question to be honest, during acquisition. There's many inputs into scheduling. There's obviously the students, the teachers, the rooms and equipment. Imagine a world where there are no rooms needed. They simply replace it with Zoom calls. We believe that, it's a great solution for the traditional old way, the new way and hybrid. Thanks, Darcy.
Thank you.
Darcy, are there any more questions online or on the webcast?
There are no further questions at this time.
All right.
Which concludes our conference for today.
Thank you, everyone.
Thank you all for participating. You may all disconnect.