The definition of non-IFRS adjustments is below and a full reconciliation of IFRS to non-IFRS results can be found in Appendix II
* Constant currency (c.c.) adjusts prior year for movements in currencies.
**SaaS ACV is Annual Contract Value which is the annual value of incremental business taken in-year (bookings). This includes new customers, up-sell and cross-sell. It only includes the recurring element of the contract and excludes variable elements.
Q3 2019 highlights
- Digital, regulatory and cost pressures and move to open banking continue to drive market growth
- Good sales momentum in Europe, Asia and the Americas, in particular in the US, continuing the trend from H1
- Key wins in Q3 include a tier 1 US bank for fund administration, a tier 1 Australian bank for Infinity and multiple sales to existing tier 1 European clients
- Strong momentum in SaaS, with revenue up 93% and ACV up 164%
- SaaS signings included a high profile challenger bank entering Australian market, a UK challenger bank focusing on SMEs and multiple wins across countries in Europe for neo-banks and new entrants
- Continued momentum in sales into the installed base, increasing share of wallet
- Weak sales execution in MEA region impacted signings in Q3, plan in place to regain momentum in the region by early 2020
- Acquisition of Kony, the market leader in digital banking, significantly enhances the Temenos Infinity platform and strengthens SaaS and cloud and US presence and strategy
Q3 2019 and 2019 YTD financial summary (non-IFRS)
- Non-IFRS total software licensing revenues up 15% in Q3, 20% YTD c.c.
- Non-IFRS maintenance growth of 12% in Q3, 12% YTD c.c.
- Non-IFRS total revenue growth of 12% in Q3, 17% YTD c.c.
- Non-IFRS EBIT up 16% in Q3, 20% YTD c.c., Q3 EBIT margin of 34.5%
- Non-IFRS EPS increase of 18% in Q3, 19% YTD
- Operating cash flow of USD 50m, LTM cash conversion of 107% of IFRS EBITDA
- DSOs at 123 days reported, of which 9 are due to Kony acquisition
Commenting on the results, Temenos CEO Max Chuard said:
“We have continued the momentum from the first half and have now delivered total software licensing growth of 20% in the first three quarters of 2019 and total revenue growth of 17%, and I am particularly pleased with the SaaS performance with our ACV more than doubling. We continue to see strong demand across geographies, with Europe, Asia and the US in particular contributing to the quarter. We also had multiple signings with tier 1 banks, again across a broad range of countries, as we continue winning new names and increasing the penetration of our existing client base.
Key SaaS signings included a high profile challenger bank entering the Australian market, Alba, a UK challenger bank focusing on SMEs and multiple wins across countries in Europe for neo-banks and new entrants.
We continue to execute well on our US strategy and the closing of the Kony acquisition brings significant additional digital, cloud and SaaS expertise in the US in particular, as well as strengthening Temenos Infinity, our award-winning digital front office platform. We have already started to build pipeline on the back of this acquisition and have seen some early success in Q4.”
Commenting on the results, Temenos CFO Takis Spiliopoulos said:
“We had a good level of signings in the quarter and delivered total software licensing growth of 15%, total revenue growth of 12% and EBIT growth of 16%, which is in line with our sustainable annual growth targets. We also delivered an EBIT margin improvement of 127bps. The signings were across all of our six drivers of growth including Transact, Infinity, fund administration and SaaS. I am particularly pleased with the strong momentum in SaaS with revenues up 93% and ACV up 164%.
We remain disciplined around our cash and balance sheet, with operating cash inflows of USD 50m in the quarter. We ended the quarter with DSOs at 123 days, 9 of which were due to the acquisition of Kony. Our leverage was 3.1x net debt to EBITDA at the end of the quarter, again driven by the acquisition of Kony and we expect this to come down to below 2.5x by year end.
We have revised our FY 2019 guidance for Kony. Our new guidance is for total software licensing growth of 19.5-22.5%, total revenue growth of 18-20% and EBIT of between USD 310-315m. The implied organic EBIT margin expansion remains at 150bps.”
IFRS revenue were USD 228.0m for the quarter, an increase of 10% vs. Q3 2018.
Non-IFRS revenue was USD 229.1m for the quarter, an increase of 10% vs. Q3 2018.
IFRS total software licensing revenue for the quarter was USD 97.0m, an increase of 10% vs. Q3 2018.
Non-IFRS total software licensing revenue was USD 98.1m for the quarter, an increase of 11% vs. Q3 2018.
IFRS EBIT was USD 61.5m for the quarter, an increase of 4% vs. Q3 2018.
Non-IFRS EBIT was USD 79.1m for the quarter, an increase of 16% vs. Q3 2018.
Non-IFRS EBIT margin was 34.5%, up 2% points vs. Q3 2018.
Earnings per share (EPS)
IFRS EPS was USD 0.68 for the quarter, an increase of 5% vs. Q3 2018.
Non-IFRS EPS was USD 0.90 for the quarter, an increase of 18% vs. Q3 2018.
Operating cash flow
IFRS operating cash was an inflow of USD 50m in Q3 2019 compared to USD 53m in Q3 2018, representing an LTM conversion of 107% of IFRS EBITDA into operating cash.
The 2019 guidance has been revised for the acquisition of Kony. Our guidance for 2019 is in constant currencies. The revised guidance is as follows:
- Non-IFRS total software licensing growth at constant currencies of 19.5% to 22.5% (implying non-IFRS total software licensing revenue of USD 431m to USD 442m), revised from 17.5% to 22.5%
- Non-IFRS revenue growth at constant currencies of 18% to 20% (implying non-IFRS revenue of USD 970m to USD 986m), revised from 16% to 19%
- Non-IFRS EBIT at constant currencies of USD 310m to 315m, (implying non-IFRS EBIT margin of c. 31.9%, or 150bps expansion organically excluding the impact of Avoka and Kony)
- 100%+ conversion of EBITDA into operating cash flow
- Expected FY 2019 tax rate of 14% to 15%, revised from 15% to 16%
Currency assumptions for 2019 guidance
In preparing the 2019 guidance, the Company has assumed the following:
- EUR to USD exchange rate of 1.095;
- GBP to USD exchange rate of 1.210; and
- USD to CHF exchange rate of 0.980.
Conference call and webcast
At 18.30 CET / 17.30 GMT / 12.30 EST, today, 16 October 2019, Max Chuard, CEO, and Takis Spiliopoulos, CFO, will host a conference call to present the results and offer an update on the business outlook, which can be followed either through the dial-in numbers or webcast. Listeners who have not pre-registered can access the conference call using the following dial in numbers:
+41 (0) 58 310 50 00 (Europe & RoW)
+44 (0) 207 107 0613 (UK)
+1 (1) 631 570 56 13 (USA)
The webcast can be accessed by clinking on this webcast link.
A transcript will be made available on the Company website 48 hours after the call. Presentation slides for the call can be accessed using the following link: https://www.temenos.com/en/about-temenos/investor-relations/results-and-presentations/.
Temenos has implemented IFRS 16 for reporting period 1st January 2019 onwards using the modified retrospective method. Under the modified retrospective method the 2018 and prior results will not be restated under IFRS 16. From 2019, the reporting results will only be provided under IFRS 16.
For more information on the impact of IFRS 16, please visit the Temenos Investor Relations website:
Non-IFRS financial Information
Readers are cautioned that the supplemental non-IFRS information presented in this press release is subject to inherent limitations. It is not based on any comprehensive set of accounting rules or principles and should not be considered as a substitute for IFRS measurements. Also, the Company’s supplemental non-IFRS financial information may not be comparable to similarly titled non-IFRS measures used by other companies. In the reconciliation of IFRS to non-IFRS found in Appendix II, the Company sets forth the most comparable IFRS financial measure and reconciliations of this information with non-IFRS information. The Company’s non-IFRS figures exclude any deferred revenue write-down resulting from acquisitions, discontinued activities that do not qualify as such under IFRS, acquisition related charges such as advisory fees and integration costs, charges as a result of the amortisation of acquired intangibles, costs incurred in connection with a restructuring plan implemented and controlled by management, and adjustments made to reflect the associated tax charge relating to the above items.
Below are the accounting elements not included in the 2019 non-IFRS guidance:
- FY 2019 estimated deferred revenue write down of USD 9-10m
- FY 2019 estimated amortisation of acquired intangibles of USD 58-60m
- FY 2019 estimated restructuring costs of USD 13-15m
Restructuring costs include realizing R&D, operational and infrastructure efficiencies. These estimates do not include impact of any further acquisitions or restructuring programs commenced after 16 October 2019. The above figures are estimates only and may deviate from expected amounts.