Technology One Limited (TNE) Earnings Call Transcript & Summary

Hi, and welcome to the TechnologyOne full year results roadshow. For this presentation, Edward Chung, Chief Executive Officer; Stuart MacDonald, Chief Operating Officer; and Paul Jobbins, Chief Financial Officer, are on the call in Sydney. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your host today, Mr. Edward Chung. Thank you, sir. Please go ahead.

Thanks, Sari, and welcome to everyone in the room here in Sydney, and welcome to those watching online. This is our -- the TechnologyOne Full Year '22 Results Presentation. These were lodged today with the ASX. You're going to see some strong results today, some results that we're very proud of, and it's a culmination of 1,200 people that make up TechOne and many, many years of hard work. I'm jumping into the [ presentation ] now. You can see that we delivered consistently strong results since listing in '99, and it's due to TechOne's clear strategy, our clear vision, our purpose and our significant investment in R&D. And just to remind people, we've got the first slide up there with the 6 parts of our strategy. The first is we're an ERP software provider. We're not best in breed. We've got a very, very broad product base. You see there in 2008, we had 11 products through our R&D investment. We now have 16 products and over 400 modules available to all of our customers. The second is we have the deepest functionality for the markets we serve. We're not all things to all people. We only focus on 6 vertical markets and importantly, provide mission-critical software, and it powers those markets we serve. So it powers local governments, powers universities, governments and large infrastructure providers. The third is that we've got our Global SaaS ERP. And for TechOne, it's highly efficient, but for our customers, it unlocks significant value for them. So a majority of our customers are now on SaaS, and Stuart will get into it in a lot more detail. But our SaaS customers are on 2 releases every year, which provides significant new additional features and functions every year. We have [ dependent ] debt security with the highest level of cybersecurity certification of any ERP provider on the planet. Our customers are always on the latest technology. And on SaaS, all products, all modules that are available for all customers to see. So they can see it. They can use it. It's frictionless for customers to adopt our products and modules on TechOne SaaS. And particularly important in today's environment, our SaaS customers report savings of up to 30-plus percent by moving to our Global SaaS ERP. The fourth part there is we've delivered our fourth generation CIA available any device, anywhere, anytime, all features, all functions, no carve-outs, all available, and it was totally validated by the pandemic where our customers could simply go home, log on and continue working without missing a beat. With the Power of One, where we build market, sell, implement, run and support our own software, it's a very unique value proposition, and that underpins and allows us to deliver a game changer called Solution as a Service. And I'm going to get into that in a bit more detail a bit later. And all of that is underpinned by TechOne being an innovation-driven company. And with our fourth generation -- with each generation, we leverage new and emerging tech for the benefit of our customers. Now jumping into the results. With this consistent strategy, you can see that we delivered record SaaS ARR growth, up 43% to $274.2 million. In addition, that brings our total ARR growth to the highest in our history, up 25% to $320.7 million, even excluding the impact of Scientia, we recorded our highest total ARR growth, up 20%. Turning to Slide 7. We now have over 800 large-scale enterprise customers on the TechOne SaaS platform, and that's up 27%. And I just got to reiterate that they're very large customers running mission-critical software powering their organizations. And when we combine all of those customers, we have millions of users every day, logging on TechOne ERP. In the SaaS world, we've learned a couple of new things. One of them is land and expand, where you land with a small number of products and modules and grow over many years. The customers take up a lot more of our products and modules. And the second, we learned from Adobe, and that is cloud is war. When you've got a customer on your cloud or on your SaaS platform and they can see all the other products and modules, it's almost a no brainer of them to take up your products and modules compared to other third parties. And with this, we delivered strong net profit after tax up 22% to $88.8 million. Now that's at the top end of guidance that we set, and our 13th consecutive year of record profits. We had a target, and that target was $500 million ARR by FY '26. And with $320.7 million ARR, I'm sure you all do the math. We're going to beat that target. We'll surpass that target. And sometimes TechOne gets criticized for putting these big ambitious goals out there. But there's 2 sides of coin, and we believe that we put it out there, and we've got something to anchor our conversations on because we don't and the market will make it up and have to respond anyway. In any respect, we said it, we're committed to it, and we will deliver it. Next slide, to Slide 10, please. So if we're going to surpass $500 million by -- ARR by FY '26, the next obvious question is what's your next big ambitious goal. And as you expect, in TechOne, our strategies don't end in FY '26, and our strategies don't end in $500 million ARR. Our plans are very long term, they're 10 years. And we have long-term strategies for all parts of our business, including R&D, and R&D is where we build our future platforms for growth. And so with our fourth generation ERP complete, our CIA, we've now showcased to our customers in our recent showcase, the new products and solutions that will enable us to continue to double in size every 5 years. Our focus is to maintain the momentum well beyond $500 million ARR. And I'm going to get into that in a lot more detail later. Turning to FY '23, if you narrow down to this financial year, the outlook is also strong, and I'll get into that in a bit more detail. Can we go to the next slide, the dividend slide, please. By all measures, we're doing very well. We provide mission-critical apps which powers business. We've got strong recurring revenue, 99-plus percent customer retention over the last 35 years. And this results in consistently strong cash flows. And you can see over the last few years, we've built up large cash reserves. And as a result, we've declared a special dividend. And you can see there on the slide, it's $0.02 per share. And that's in addition to the final dividend or the normal dividend of $0.1082 per share. And it follows, to be honest, a similar approach that we undertook in FY '14 by introducing a special dividend. To sum it all up, we're very confident in the outlook. We retain significant firepower to invest in growth, and the full year dividend has been increased by 22% in line with net profit after tax. We'll hand over to Paul now to take us through the financial results.

Thanks, Ed. So by exceeding our ARR targets when driving the highest quality revenue, we have been able to end the legacy license business earlier than planned. At the bottom of the slide, we show our key metrics. SaaS ARR was up 43% to $274.2 million. Total ARR was up 25% to $320.7 million, as Ed said, both setting new records for growth. As a result, we made a decision to reduce legacy license fees faster as we know it's lower quality revenue. We had provided guidance with the half year result that legacy license fees were likely to be $12 million, down from $17.7 million last year. We were able to reduce this further to $9.5 million for the year, a reduction of $8.2 million year-on-year without impacting profit. Moving back to the top of the slide. We show that revenue from SaaS and continuing business grew 22% to $358.7 million, and to the middle of the slide, total expenses grew 20% to $257 million. Within that variable cost of $63.1 million have grown in line with revenue, but that's before capitalization, and it includes customer SaaS costs, third-party costs and variable or performance-based remuneration. Operating costs of $226.3 million before the impact of capitalization and amortization of R&D, stepped up with increased investments for growth, and we'll provide some more detail on that throughout the presentation. We also saw the inclusion of additional operating costs from Scientia of $14 million which we acquired at the end of last financial year. There's more information from the impact of Scientia in the appendices. Synergies delivered in FY '22 will reduce the impact of Scientia expenses in FY '23. We had another headwind from the increasing amortization expense for our software development of $23.4 million, a headwind or increase of $10 million year-on-year. The net expense from R&D in the P&L increased 35%. And we note that as in prior years, the amount capitalized is in our normal range at 54% of R&D investment. There's more information on the impact of R&D in the appendix as well. Profit before tax was 15%, as Ed said at the top end of guidance, and net profit after tax was up 22%. This reflects a reduction in our effective tax rate to 21%, down from 25.7% last year due to the new higher R&D tax incentives and benefits from bringing Scientia into account. From next year and ongoing, we expect the effective tax rate to be between 22% and 24%. Our organic margin without Scientia grew from 31% to 32%. Reported profit before tax margin remained high at 30%. The temporary decrease was expected and caused by Scientia's lower margin. As I said, synergies delivered in FY '22, will reduce Scientia's expenses in FY '23, and we expect margin growth to return in FY '23. As I said, organic margin without Scientia grew from 31% last year to 32%. The profit margin trend that we have seen historically will continue now that we have absorbed Scientia. We see group margins continuing to improve to 35% plus in the coming years, driven by the significant economies of scale from our single instance, multi-tenanted Global SaaS ERP solution. When we get to 35% margin, we'll set a new target. We continue to have a strong balance sheet. Cash at year-end was $175.9 million, up 22% and equivalent to $0.54 per share. I'll talk to our cash flow performance shortly. Net assets grew $49.6 million or 26% year-on-year, and we have no debt. As you would expect, deferred revenue continues to increase, up 9% year-on-year to $184 million. This balance represents amounts received in advance from customers for SaaS fees and on-prem annual license fees, which will be recognized as revenue in future periods. Our cash flow generation of $77.2 million grew 21% or $13.3 million on last year, a very strong result. It represents an increasing proportion of profit after tax and will progressively grow to match NPAT from FY '24 onwards. We feel cash flow generation is a better metric than operating cash flow as it also reflects payments for capitalized development costs and commission costs as well as lease payments. As a SaaS company, we manage our business in 3 operating segments. The profit from the software segment is driven by our strong growth in our SaaS recurring revenue. We are refining the strategy and focus for our Consulting segment with a focus on efficiency of projects with customers, and the corporate segment benefits from growth in our operational segments. Looking at this geographically, our business in APAC continues to grow strongly, and our U.K. segment profit has grown 52% year-on-year. We will talk more about the U.K. later in the presentation. This slide shows a slightly different lens on the result. Callouts include our EBITDA margin has improved from 40% to 41% last year. And EPS or earnings per share has increased 22% year-on-year, in line with profit after tax, and our full year return on equity is a world-class 37%. I'll hand over to Stuart to discuss significant achievements.

Thanks, Paul. During the year, we launched our fourth generation Global SaaS ERP CIA. Having reengineered the complete ERP code base leveraging SaaS technology is the fourth time we have successfully reengineered our entire code base, enabling customers to always stay on the latest technology. CIA not only underpins our significant growth in SaaS sales, both new logos and product penetration within our large customer base, but they all receive the benefits of defense and depth security, 400 modules, twice yearly upgrades with over 400 new features each time and new modules in those releases, a UX design for the next generation of user, as well as migration central, which enables currently over 100 customers to move from CI to CIA frictionlessly. It also is the platform for our new products, such as LG DXP, App Builder and Student Management DXP, currently in research. All of our verticals had double-digit growth again, validating our strategy of hyperfocus providing mission-critical solutions for the markets we serve. If we focus on our 2 core verticals, local government grew by 20%, and education grew by 45%, confirming that extending the product footprint of mission-critical software in our regions of Australia, New Zealand and the U.K. continues to be successful. If I highlight a few of the impressive wins in the period. Mornington Peninsula Shire, we lost this deal to Oracle in 2018. Oracle was unable to deliver the project and thus the council went back to market in late 2021. When the council reviewed our complete One Council solution, they took the opportunity to leverage our full SaaS ERP solution. This resulted in a much bigger win for us than their original footprint of products they went to market for in 2018. BMD is a significant win for us because it provides and validates the importance of our app builder solution, which allows customers to extend the functionality of our solution to meet their specific requirements, while at the same time, leveraging the CIA benefits, again, twice yearly upgrades, defense and debt security, just to name a few. Highland is the largest council in the U.K., and our Solution as a Service offering was the key differentiator for us. It should be noted this is also the largest ARR deal we've ever done in the U.K. in the local government sector. Western Downs Regional Council was a significant win for us again as it validates our position in the market. Our brand is so strong in local government that this significant win closed with 0 tender, no EOI, or not even a single product -- product presentation. If I look at our 99% customer retention, I'm very proud of the results as it once again confirms our value that customers are true north. And that with the Power of One philosophy, customers stay for us for a very long period of time. It should be noted we could not find another SaaS ERP provider with a metric that's even close to us. The only thing we could find would be a best of breed with a churn -- again, our turn is 0.5, their churn is on average, 13%. If I look at NRR, our 16 products and over 400 modules is the power of the SaaS ERP. It has always been our strategy to acquire an account with a primary focus on financials, core financials and then support the account over a long period of time, and sell them products within our One Council, our One Education, our One Government or One Asset, our One Health Solution. I provided you an example of this in the half year result. In our industry, the best-in-cost metric for this number for NRR is between 115% and 120%. And with an NRR of 116%, it is a testament to our strategy as it confirms we're building, selling and delivering mission-critical products that our customers expect. It should be noted that in FY '22, we had the benefit of CPI of about 2% to 3%, but this was offset by the ForEx impact. If I focus on the U.K., as I've mentioned in previous results, approximately 4 years ago, we began a customer-first program to focus on current customers the in-flight projects to make sure that they were completed successfully, and as a result of all this hard work, we have a strong, referenceable customer base to build from. This was completed a year ago, and I'm proud to confirm we have over 150 customers now in the U.K. We have strategically phased the localization into the U.K. of our products that TechnologyOne is famous for, as well as they are the key differentiator in our solutions because they provide mission-critical features and functions that provide the verticals what they require. I'm once again proud to confirm that with Lincoln University Live with our student management solution, we have completed the localization of student management in the U.K. It should be noted that we have a strong portfolio of customers now live with our HRP solution once again, differentiating against competitors such as Workday that don't do payroll. In a short space of a year, we have bought -- brought all the Scientia customers to TechnologyOne, introduced the first ever SaaS timetabling scheduling solution and have already signed 16 universities for contracts of this next generation of technology. It should be highlighted that with student management now fully localized in the U.K., the white space value of student management alone for our current customers in the U.K. is over $220 million annual recurring revenue. With all the foundational work complete and the strong team of over 120 people in the U.K., we are excited to see the benefits of all this hard work. As we start FY '23, we have significantly increased the size of the sales team as well as the marketing budget to take advantage of these opportunities. TechnologyOne invested $92.2 million in R&D this year, up 19.6%. We completed our Global SaaS ERP CIA. We had the first year of ownership of Scientia. We locked in key R&D talent with numeration and long-term incentives. And we took the opportunity to accelerate R&D investments in a number of new and exciting areas. As is our history, the R&D team is focused on extending the functionality and the capability of our Global SaaS ERP CIA. Our R&D program continues to be the leading edge in the industry as we embrace new technologies, new concepts and new paradigms. We continue to invest in new exciting ideas, innovations such as solution as a service, app builder, the digital experience program platform, DXP, for local government and higher education. Our 16th product, DXP LG, was released for general release in June of this year. Our value of making impossible possible has resulted in an extremely broad, deep, complex and rich functionality, providing mission-critical applications to run local government, higher education institutes, governments and large-scale infrastructure providers. As you can see from these results, we are poised for our next stage of growth. And with the strategies of DXP, Solution as a Service and App Builder now being complete, we need to reinvigorate our values, our purpose and our mission to support the communities we live in. We also needed to significantly invest in our leadership program to develop careers and succession planning. If I focus on the Leadership Summit as an example, in July, we kicked off a 6-part program with over 130 of our leaders worldwide flying into Brisbane for a 2-day conference talking about our values, alignment and supporting the organizational growth. Over the next 5 sessions, we will be focusing on all aspects such as our compelling customer experience, commercial acumen and strategic planning. I'll now hand over to Ed.

Thanks, Stuart. Well, ladies and gents, you can see we've had some strong results for FY '22, and I'll just sum them up now. We had record full year profit revenue in SaaS ARR. SaaS ARR being up 43%. Total ARR, also seeing a record, up 25%. This led to net profit after tax being up 22%, and we had very strong cash flow generation, up 21% as forecast. And that ambitious target will surpass that target of $500 million ARR by FY '26. Now before I get into the next section, I just want to reiterate and go through slowly approach the strategy in TechOne. As I said in the opening, we're very transparent with our strategies. We say it and we do it, and it creates huge alignment in our own business. And you can see that we started our transition to SaaS about 10 years ago. And in 2018, we came to market with a detailed strategy to transition from on-premise -- off- sorry, off the on-premise legacy license fee business to SaaS. And we set a really ambitious plan. And that was to go from a high of $70 million, circa $70 million in that legacy license fees, to 0 over 5 years, whilst we were aggressively growing our SaaS business without impacting profit and without impacting our customers. So what this graph shows you here is in the blue line, you can see that's our SaaS ARR growing very fast. And in the bars, you can see that's our profit before tax growing consistently at 15% per annum. And in the red line, that's our old legacy license fees, touching $70 million in FY '18, and coming down carefully over time. We've now delivered this strategy, exceeding our ARR target in FY '22, which allows us now to bring an end to legacy license fee business. And looking back, this transition has been extremely complex. We, as Stuart said, reengineered our product. We reengineered all parts of our business, including our structures, our policies, our processes, our disciplines, absolutely everything. And we did it without missing a beat, without impacting our profit growth and without impacting our customers. And if you take a big step back, I can't figure of any other ERP company in the world who's successfully made the transition without impacting its customers or its profit. I'll now jump into the next session. So building the future. You can see good momentum in the business. The customer feedback is good, and we're going to beat the target of $500 million ARR by FY '26. So what's next? Our focus is to continue the momentum well beyond the $500 million and to continue to double in size every 5 years. And we grow in a number of ways in TechOne. Traditionally, people have viewed us and outgrow through the lens of new logos and new customer wins and more recently, the potential and the growth in the U.K. And we're excited about new logos, and we're excited about U.K. because it will provide significant upside for us in TechOne. But what we're particularly excited about is the growth in our existing customer base as we sell more products and more modules to those customers. We've always said that we are no more than 15% penetrated into every one of the vertical markets we serve, particularly here in APAC. And contrary to what many people think, APAC has so much more growth potential. It's so much more immediate runway in our existing customer base, and that will underpin our growth for many, many, many years. Net revenue retention is a new metric that we introduced a couple of reporting periods ago, and it's a really important metric because it shows the growth in your existing customer base. And as Stuart said, world's best in ERP is between 115% and 120%. And you can see TechOne delivered 116% this year. Now we can double in size every 5 years just by continuing that metric. Why? Stuart said it. Because we're enterprise. We provide mission-critical products and modules. And today, we've got 16 products, 400 modules. It's extremely rich, extremely complex, and we only focus on 6 vertical markets. And the products we provide to local government runs local government. The products we provide to student management runs universities. They are mission-critical products. And on the SaaS platform, it's all available to everyone. You can see it all. You can use it. If you fall in love with it, then we might sell it to you. It's frictionless. And we'll continue to increase that functionality in the markets we serve. Now I want to go to Slide 34 now. This is a new slide, and I want to take you through carefully and slowly. If you remember at the half, Stuart took us through a customer journey and how, over time, that customer at the half took more products and more modules. He also showed that as CPI comes in, that increased ARR. And as that local government, and we licensed local government on ratable properties, as that local government grew, that increased our ARR. And that single customer that Stuart showed started with $360,000 worth of ARR per annum, and grew over time to $3 million ARR and still had significant runway around $2.5 million, $3 million to go. You got to remember, these are very large customers taking our products. And this is why we're particularly excited about the growth in our existing customer base. As we sell more products and more modules, we're going to show you now the ARR opportunity in our existing customer base. Just remember, land and expand, cloud is war. Once we have a customer on our SaaS platform with only a small number of products, we've got plenty of opportunity, and we've demonstrated that it's frictionless, and they'll take many more products over time. Now in this new graph, you can see there the black line. The black line is the average product per customer. You can see it was 4.3 in 2012. In 2022, it's now 6.2 products on average per customer. You can see the blue line there is the total products available for sale to our entire customer base. It was 11 products in 2012. And as Stuart said, we've built more products, more modules, made a few acquisitions. You can see we now have 16 products for sale into the customer base. And then the bars there, that shows the ARR value of those products and modules that our customers currently do not have of TechOne. And today, you can see that's over $2 billion of ARR white space in our APAC customer base. It's quite significant. And that compares to our total ARR of $320.7 million. So you can see that we've got a lot of runway. Now what the graph also shows you is that, that ARR white space grows over time as we build or buy new products or modules, as CPI grows, our white space grows. And because we license by user, so if you're in local government, we license by ratable properties; if you're in higher education, we license by students; as a council grows, ratable properties grows, if white space grows; as the university or university sector grows, students grow, our white space grows; and of course, as users generally grow, our white space grows. So that's how we see improved that we are no more than 15% penetrated into each one of the markets we serve. Go to the next slide, please. So at TechOne, we always stay true to our core beliefs and true to us. And one of those is we invest strongly in R&D for the future, to build future platforms for growth. And what's exciting for us is that we'll continue our trajectory, our momentum as we invest in R&D and continue to double in size every 5 years. This graph here shows that we've got a track record. Our track record is that we invest through R&D and over the last 35 years, we've invested over $800 million to build out that extremely broad, extremely deep ERP that we've talked about. And we've rewritten or reengineered the entire code base 4 times now over the last 35 years. And in each generation, we take advantage of new emerging tech for our customers, and we also reengineer our entire business, our process systems and disciplines along the way. And as Stuart said, we've now completed the fourth generation. That's our Global SaaS ERP, that's CIA. And we're now exposing the strategies that we've been working on for many years to the market. And so we had a customer showcase. We've done 4 of them. We've done in Brisbane, Sydney, ACT in Melbourne where we showcase some of these new products, these new modules and new approaches going forward. And we'll do the same again in New Zealand, Perth and 2 in the U.K. early in the calendar year FY '23. Coming to the next slide, please. Thank you. This is also a new slide, which I'll take you through slowly. So you hear me say all the time, in TechOne, we create long-term strategies, they create platforms for growth. And if we take a step back and look at our SaaS strategy, which we set many years ago, that was a very long-term strategy. We made significant investments. The SaaS platform made losses for the first 3 or 4 years, but now it's a huge contributor to TechOne. And it's the same for these new products, these new strategies that we've just announced. The first is DXP. Now if you think about TechOne ERP, it's very strong and well known for what we call the back office. They're the power users. So think of them as the payroll clerks doing payroll in the back office, the accountants during the month end, the rating clerks in a local government preparing our rates notices, or the student administrators and meeting students giving you grade. That's the back office, and TechOne's renowned for that. Now with DXP, we're extending our reach of ERP into the front office. So in our council, that's the -- that's. That's a resident and a council in university, that's the students. And so that opens up millions of additional users that are paid for by the university or the council. LG DXP has been released the first phase, the feedback is excellent, and it's significant value to the customer and also to TechOne. If you think about property and rating, the current ERP product that runs local governments, DXP LG is about the same price, same value. So it's going to be quite valuable to us as it will be for our customers. So you can see that provides significant additional or new white space in our customer base. And the same can be said for student management, which is in the research phase. We also announced at our showcase, App Builder. This is a long-term strategy. App Builder allows our customers or third parties to extend our software or develop apps with no code and little training, and you don't get any of the nasties of customization that you would with an SAP and Oracle. And if you look at an organization like Salesforce.com, their equivalent App Builder is about 30% of their total revenue. So you can see there's significant runway that can come from this long-term strategy App Builder. Then, of course, we've mentioned a couple of times there's solution as a service. If you think about Salesforce.com, they changed the world. They changed it from on-premise to SaaS. They said the old way of running license fees on-premise on your own servers was wrong, and they would take away all that pain from you. And in 1 single fee, they would run it all on SaaS. They had the vision, the conviction to change the world, right? And like salesforce.com, TechOne is going to change the world. Solution as a Service, it's a game changer. It's the next logical evolution in ERP, where TechOne delivers the entire outcome faster with little risk in 1 single fee for the customer. We'll continue to dramatically drive the time to value down, removing the need for traditional risky, long drawn-out implementations. It's a thing of the past and it can only happen through the Power of One -- and TechOne's Power of One because we are the only SaaS ERP provider in the world that has the deep mission-critical product, extreme focus on 6 vertical markets only with IP and the products that run those vertical markets, and of course, our highly skilled and trained consulting team built up over the last 35 years. So when you put all 3 together, you can see that we're the only provider that will be able to deliver this game-changing approach Solution as a Service. And if we move to the next slide, Solution as a Service creates an additional 40% ARR white space to the markets we serve. So you can see, we will continue to double in size every 5 years. We've got strong net revenue retention. World's best practice between 115% and 120%. Today, we've demonstrated that there's $2 billion of ARR white space in the APAC customer base alone with our significant investments in R&D over the next 5 years. That white space doubles from $2 billion to $4 billion ARR and on top of that, Solution as a Service, a game changer, increase that again by 40%. And of course, we'll continue to look at strategic acquisitions carefully. Scientia was the latest one, gave us that mission-critical to timetabling and scheduling product. We'll continue to grow our new logos in APAC, continue to grow in the U.K. and with our profit margins, continue to grow to 35-plus percent through the significant economies of scale through our SaaS platform, you can see we're positioned well for the future. I'll end on the guidance and the outlook for FY '23. You can see we're clearly on a high -- the economy, there's some difficult times out there. But just like in the past, TechOne has seen many difficult times, we've navigated them, and we've continued to grow very strongly. And the reason for that is the markets we serve are resilient. Whether in local government, higher education and government, these are resilient markets. TechOne provides mission-critical products and modules that run those organizations. And in times like this, those organizations look to TechOne to streamline their business, but also save 30-plus percent in the total cost of ownership. And I've said it before, we pass on CPI through our subscription contracts. So you can see that our outlook is strong for FY '23, and we will surpass $500 million ARR by FY '26. Just to wrap up. None of these results you see today wouldn't be possible -- would be possible -- without the talented people that make up the TechOne, the 1,200 people behind us that have grit and determination to make the impossible possible. We thank them for their continued efforts. FY '22 has been an amazing year to the shareholders in the room and down the camera would also like to thank you for your continuing support. Sari, I'd now like to hand over to you for questions.

[Operator Instructions] Edward, over to you to take questions from the room in Sydney.

Thanks, Sari. We've got some questions ready. Chris, over to you.

It's Chris Savage from Bell Potter. I have 3 questions, if I can. The first one, the $500 million ARR target, you said that a few years ago, and the original target was FY '25. Then COVID hit, and you pushed it out a year. Now you've changed the wording, so you'll say you'll surpass it in FY '26. Is the thinking though now that you could well achieve that in FY '25, the original target?

I say this a little bit cheekily. Chris, you can do the math. It will either happen earlier, the $500 million or in FY '26, will be a higher number.

Sure. The NRR of 116%, if you maintain that this year and you get back to margin expansion, which forgive me, my job suggested, your PBT by definition, has to be greater than 15%, does it not?

I think there's some investments we'll make this year, Chris, with solution as a service and things like that. Also, I think we will get back to margin growth, but it won't be 35% this year. Or if we go back to what it was pre the Scientia acquisition, we'll be close. We'll be close to moving faster than 15%. But 15% right now, that's our normal heartbeat. It's what we're comfortable with. It's how we are successful, and we don't [ cover ] up customers along the way. So we'll put out more specific guidance, Chris, later on in the financial year.

And just last question, more of a clarification. You've said you're going to end the legacy licenses sooner than anticipated. It sounds like you're ending them now. Like, should we still expect some amount in FY '23? Or is it going to be negligible?

If there is something in FY '23, it will be so negligible. It won't swing your numbers one way or the other. Josh?

Josh Kannourakis, Barrenjoey. Guys, just a follow-up question on the net revenue retention. Obviously, a very strong result in this period. Would you be able to give us a little bit more color of the makeup of the 16%, both in terms of CPI, SaaS flips upsells? And then maybe if we could sort of do the same on the 15% on the go forward because I imagine CPI won't be as big be more and SaaS flips will be lower. So it will be the organic profile.

You want to answer the first part of the question, Paul?

Stuart mentioned the composition in part. It did include 2% to 3% from CPI, but that was offset largely by FX, went against us for our GBP and the New Zealand dollar era. The -- we don't disclose, obviously, the amount of NRR from flips or from new product. But they were -- you can basically back solve a lot of that yourself. So we won't get into too much more detail. We've got real confidence in our ability to continue to sell more and more into our existing customer base. And that's why we've got confidence in saying that the NRR will be maintained between 115% to 120% over time.

Josh, when you do your back solve, you see that there was quite a lot of additional product and module sales this year.

Yes, that's right. And obviously, the product growth was a lot higher than what people are expecting. Okay. No, that's great. And then just a final question, just with regard to the U.K. Obviously, some really good momentum in that business in the period. How should we be thinking about you're obviously scaling up investment, looking at Stuart with a grin on his face here because he's obviously pretty excited about the growth profile. Maybe just to give us a bit of a flavor for how we should think about over the medium-term period profile of the U.K.

So we're pretty excited about where the U.K. is and all the hard work everybody has put in over the years. But I think the key message to take away is we don't need it to hit the numbers you're looking at. So we're excited about it, and we love the work that we've done, and we're poised for some really exciting stuff. But it's not necessary to hit the $500 million over the next stage of our growth as well. The phrase we use inside the company is we deserve to be there. Our team deserves to be there. So we're excited about the work we've done, but we'll achieve fantastic results with the U.K., but not needing the U.K.

Any more questions from the room before we hand back to Sari? Ross?

Great. Thank you. Ross Barrows from Wilsons. Just 2 questions for me. One is just to firstly say thanks for the increased disclosure, I think it's going to help us understand the business a bit better. Just looking at the products per customer, going from 4.3 to 6.2 over 10 years, and then it looks like 6.2 to 8.9 over a similar period, 9 years. So it's great to have that indication of growth over a longer period. I'm seeing it today, what do you think the primary drivers of that will be? And do you feel like that feels like it's somewhat of a conservative number given, I guess, the expansion in the market that you have spoken about or alluded to today already?

Yes, I might start and hand over to you. I think it's an interesting number because it tells you the products per customer Ross. But what it doesn't show you is that we create many, many more modules, and it doesn't give you that module penetration, which is quite significant in that ARR white space. Stuart, can I hand over to you to elaborate a bit more?

Again, if you get granular, we've got 16 products today but over 400 modules, and each time we come out with the release, we're adding new modules as well. So our TAM increases with each release. While at the same time, we let you wait to understand when App Builder is coming out, when the DXPs are coming out. So those are new products that are coming online. Even inside our LG DXP, there's multiple modules inside that. So you're seeing massive growth of modules and products we can sell to the customer. And there's a phrase that Ed use, which is the cloud is war. You can see that when customers are on the cloud, their ability to take up new products is just so much easier because of the frictionless experience of it.

Great. Just a second question. I'm not trying to get over [indiscernible], I guess, in terms of the U.K. improving going well. Would you consider other geographies now that you are starting to see that geography starting to get traction and looking ahead? Any color on that would be great.

We laugh about this, Ross, because pre-COVID, we might have been a little bit more excited about the U.S., to be honest. But to be really honest, we've come to the realization that there's so much runway in the U.K. that we should put our focus into that area and really double down for growth, which is what we're doing. And we've spent all this time and effort, grit and hard work to get student management live. As Stuart said, if you looked at just the 100-or-so customers we acquired through the Scientia acquisition, just using timetable and scheduling, if you just look at those alone, there's $220 million of ARR white space of just selling student management into those customers. And we haven't brought all the products over yet, products like property and rating in the U.K., which will come over time, but there's just so much runway. And for us, we sit here and that's where we put our focus before considering another region, Ross. Sari, there's no more questions from the room. Can we hand over to you for the webcast and phone, please?

There are no questions on the webcast at the moment, Edward. We will now start with questions from the phone. Your first question comes from Nick Harris from Morgans.

Congratulations on seeing that revenue growth of 18%, which is obviously ahead of PBT growth for the first time in quite a while. It's a great sign. I was just trying to get a bit of a feel, I guess, for what that might look. I know, you're not providing guidance, but into FY '23, with the CPI kind of pass-throughs coming, is it possible that revenue growth holds above 15%? Or is it just -- it will kind of normalize a little bit just given how far the mix of SaaS versus traditional stuff?

It's probably too early for us to tell, Nick. We'll put out more specific guidance in our traditional way later on in the financial year. But we have said that 15% is our target for that SaaS and continuing business, and we're comfortable with that target.

And just a slightly random one, but obviously, interest rates -- rising interest rates has been a problem for a lot of companies, the exception of BSLs with $170-odd million of net cash on balance sheet. I'm just wondering, do you get a bit of a kicker, obviously, cash rates go up? Do you have any kind of long-term hedges that would mean that your interest income doesn't sort of jump materially going forward?

No. No, no, we're -- as you know, Nick, we're very conservative. We keep our cash in the bank. We put it on term deposits in a very -- with very safe Australian banks. We don't have any hedging instruments in place from an interest point of view. We keep it simple.

Yes, because you'll obviously get a free kind of kicker there that will allow you to keep investing in the business because...

That's right.

Thanks, Nick. Any more questions from the floor? Did you have another one, Chris? Let's come back to Chris Savage.

Just a big increase in R&D was like quite notable this year, up 20%. Historically, it's been more like high single digit. So is that -- are we going to get back to that sort of 8% growth going forward, you think?

I think the way we look at it, Chris, is that we will deliver that profit margin growth. First and foremost, that's our biggest goal. And if we can extract synergies in sales and marketing, consulting, corporate services, then it allows us to best for future growth in R&D. That's the approach we take. You see the bump in there this year basically for 2 main reasons. One is we acquired Scientia, so there's a bump there. And the second is, as Stuart said, we went and locked in our key talent. So we didn't add a lot of heads in R&D during the year, but we locked in our key talent with remuneration and long-term incentives. So maybe a long way to answer your question is, we'll maintain that profit growth. And if we can invest in R&D through getting synergies and others, we will.

To give the slightly negative question, but you did miss one of your guidance targets. You suggested the full year ROE would be 40%. So is there a reason perhaps that you fell below that mark?

I think it's just when you capitalize R&D and build your net asset position. It's as simple as that.

And it's slightly granular, again, forgive me. But you did a series of showcase events as you highlighted around year-end. Did the costs for those showcase events fall in the FY '22 results? Or will be...

There's a little bit in both, but you won't see any big bumps as a result of that. Thanks, Chris. There's no more questions from the floor here. Sari, I might hand over to you to end the conference call.

Edward, there are no further questions at this time on the webcast or on the phone. I would now like to hand back to you. Please continue.

Thanks, Sari. I'd just like to once again thank the staff for all the hard work and thank our shareholders for your continued loyalty. That ends the FY '22 full year results announcement. Thanks, everyone.

Ladies and gentlemen, that concludes our conference for today. Thank you for participating, and you may now disconnect.