That is a really valid post. Really shows how aggressive the revenue recognition has been. I also note their revenue was $300m and their trade receivables are almost $60m. If you average out their revenue the essentially get around $25m per month, so the outstanding amount is around 2 and a half months of revenue, or they have recognised a lot in revenue in the last month. If you look at their cash flow their receivables have increased by $16m since year end 2017 which is a significant number. Given they are saying they are a SAAS provided and SAAS is generally spread evenly and their revenue at the half was $120m it shows they recognised a lot of revenue which should probably be recognised next year, it can't be consulting revenues as they are nowhere near high enough to have that impact.
The other thing I would note is the fact they have said they are a SAAS provider, but out of their recurring revenue only $29m was Cloud SAAS fees. Initial licences fees were $65m despite them stating they are now a SAAS provider so evidence shows most customers are still choosing on premise (Their growth in SAAS fees was only $11m, and with a SAAS model it should grow based on a factor on the last month in the year) Their annual licences fees were $140m That $140m is annual support and maintenance for on-premise solutions which shows their cloud SAAS is only a small portion of their revenue, yet they have changed to a capex expense of R & D model based on doing the same as their SAAS competitors, despite having only a small percentage of their customers being true SAAS based on their numbers. The other point I would make is that the $65m initial licence fees was a significant number and is one off initial licence fees. If they are truly a SAAS provider they won't receive these numbers in future and the future revenues will be software as a service and spread over a number of years. If they don't receive the sugar hits of those initial licence fees next year, their overall revenue numbers will drop significantly when they truly stop selling on premise solutions, it might catch up over a number of years, but given the modest growth in SAAS fees it could take a number of years.
Another area of note is how much their consulting revenue came down. In 2017 it was $64m and in 2018 it is less than $58m. That is a drop of 10%. Project services also dropped from $7m to $5.5m. Given their ERP model which requires significant upfront consulting and the TechnologyOne's stated position is they develop, market, sell, implement, and support their software, and don't have any partners this revenue drop is a strong leading indicator that their revenue growth is not new customers, but changing their revenue model and converting existing customers to their cloud solution which is less labour intensive.
I see under the veneer of strong revenue growth and a good profit result some really concerning numbers. I would suggest you do some research before investing and satisfy yourself. These are just opinions based on reading the numbers, but talking to their customers has made me look deeper as most I have spoken to feel trapped as the recurring fees of moving to cloud are significantly higher than they currently pay. These costs are not as expensive or as disruptive as the one off project costs of changing their solution to other providers. Some I have spoken to are looking at the costs over 5 to 10 years of moving. They do have a good retention rate of current customers but their will be some risk that their stated goal of moving all their customers to the cloud by 2022 will lead to customers moving off TechnologyOne if they sunset their on-premise solutions which are effectively the same as their cloud solution, but just hosted by AWS.
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