Q2 2018 highlights
- Very strong quarter driven by broad based demand across all tiers and geographies
- Digital, regulatory and competitive pressures on banks continue to intensify, with open banking and payments a key focus
- Competitive deals contributed 41% of software licensing, 13 new customer wins
- Europe lapped strong comparative, driven by large number of deals across all tiers
- APAC growth driven by significant progress in Australia
- Traction in US with signing of Northern Trust for its European operations and a US digital neo-bank
- Third party recognition of leadership position, pulling ahead of the competition
- Strong start to Q3, committed spend from tier 1 and 2 banks giving confidence in 2018 guidance
Q2 2018 financial summary (non-IFRS, IAS 18)
- Non-IFRS total software licensing revenues up 23%
- Non-IFRS maintenance growth of 12%
- Non-IFRS total revenue growth of 17%
- Non-IFRS EBIT up 20%, LTM non-IFRS EBIT margin of 30.5%
- Non-IFRS EPS increase of 23%
- Operating cash flow up 52%, cash conversion at 116%
- DSOs down 10 days Y-o-Y to 114 days
Commenting on the results, Temenos CEO David Arnott said:
“We had a very strong second quarter, building on the momentum from Q1. There has been a marked increase in engagement by banks across all regions around front-to-back digital renovation this year, which is reflected in both our signings and pipeline growth. We are seeing more and more clients focused on open banking, what it means for their businesses going forward and how they plan to use core IT renovation to achieve their digital ambitions. We also increasingly see payments as a pain point for banks which is bringing more of them to the table.
This quarter we were once again recognised as a leader by Gartner, who highlighted our ability to execute and the strength of our vision. This reflects our relentless focus on innovation and ensuring client success through our rigorous implementation methodologies.”
Commenting on the results, Temenos CFO and COO Max Chuard said:
“We had a very strong performance in Q2, with total software licensing growth of 23% and total revenue growth of 17%. These results were driven by broad based demand across all tiers and geographies, with Australia in particular driving growth in Asia and Europe lapping a strong comparative driven by a large number of deals across tiers. We also had good traction in the US with the signing of Northern Trust and a digital neo-bank.
We had a strong start to Q3 and our revenue visibility continues to increase driven by committed spend from tier 1 and 2 clients undergoing progressive renovation. I am confident we will be above the mid-point of our guidance for FY 2018.”
IFRS (IFRS 15) revenue for the quarter was USD 206.1m.
IFRS (IAS-18) revenue were USD 204.0m, an increase of 17% vs. Q2 2017. Non-IFRS (IAS 18) revenue was USD 204.0m for the quarter, an increase of 17% vs. Q2 2017.
IFRS (IFRS 15) total software licensing revenue for the quarter was USD 90.8m.
IFRS (IAS 18) total software licensing revenue for the quarter was USD 89.7m, an increase of 24% vs. Q2 2017. Non-IFRS (IAS 18) total software licensing revenue was USD 89.7m for the quarter, an increase of 23% vs. Q2 2017.
IFRS (IFRS 15) EBIT was USD 45.4m for the quarter.
IFRS (IAS 18) EBIT was USD 42.4m for the quarter, an increase of 22% vs. Q2 2017. Non-IFRS (IAS 18) EBIT was USD 57.7m for the quarter, an increase of 20% vs. Q2 2017. Q2 2018 non-IFRS (IAS 18) EBIT margin was 28.3%, up 1% points vs. Q2 2017.
Earnings per share (EPS)
IFRS (IFRS 15) EPS for the quarter was USD 0.46.
IFRS (IAS 18) EPS was USD 0.42 for the quarter, an increase of 20% vs. Q2 2017. Non-IFRS (IAS 18) EPS was 0.64 for the quarter, an increase of 23% vs. Q2 2017.
Operating cash flow
IFRS (IFRS 15) operating cash was an inflow of USD 66.8m in Q2 2018 compared to USD 44.0m in Q2 2017. For LTM to June 2018, operating cash was USD 332.0m representing a conversion of 116% of IFRS (IAS 18) EBITDA into operating cash.
Temenos has implemented IFRS 15 for reporting period 1st January 2018 onwards using the modified retrospective method. Under the modified retrospective method the 2017 and prior results will not be restated under IFRS 15. The reporting of the results for 2018 will be provided under IAS 18 and under IFRS 15, which will allow for comparability against 2017 and prior periods. From 2019, the reporting of results will be provided only under IFRS 15. For more information on the impact of IFRS 15, please visit the Temenos Investor Relations website.
Our guidance for 2018 is in constant currencies and under IAS 18. The guidance is as follows:
- Non-IFRS total software licensing growth at constant currency of 13.5% to 18.5% (implying total software licensing revenue of USD 363m to USD 379m)
- Non-IFRS revenue growth at constant currency of 10% to 13% (implying revenue of USD 820m to USD 840m)
- Non-IFRS EBIT at constant currency of USD 255m to 260m (implying non-IFRS EBIT margin of c.31%, 100bps expansion in constant currencies)
- 100%+ conversion of IFRS EBITDA into operating cashflow
- IFRS tax rate of 15% to 16%
Currency assumptions for 2018 guidance
In preparing the 2018 guidance, the Company has assumed the following:
- USD to Euro exchange rate of 0.859;
- USD to GBP exchange rate of 0.754; and
- USD to CHF exchange rate of 0.990.
At 18.30 CET / 17.30 GMT / 12.30 EST, today, 18 July 2018, David Arnott, CEO, and Max Chuard, CFO and COO, will host a conference call to present the results and offer an update on the business outlook. Listeners can access the conference call using the following dial in numbers:
0800 740 377 (Swiss Free Call)
1 866 966 1396 (USA Free Call)
0800 376 7922 (UK Free Call)
+44 (0) 207 192 8000 (UK and International)
Conference ID # 5193514
A transcript will be made available on the Company website 48 hours after the call. Presentation slides for the call can be accessed on 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 2018 non-IFRS guidance:
- FY 2018 estimated deferred revenue write down of USD 1m
- FY 2018 estimated amortisation of acquired intangibles of USD 38m
- FY 2018 estimated restructuring costs of USD 5m
- FY 2018 estimated acquisition costs of USD 13m
Restructuring costs include realising R&D, operational and infrastructure efficiencies. Acquisition costs include the costs associated with the bid for Fidessa.
These estimates do not include impact of any further acquisitions or restructuring programmes commenced after 18 July 2018. The above figures are estimates only and may deviate from expected amounts.