Ad hoc announcement pursuant to Article 53 of the SIX Listing Rules
GENEVA, Switzerland, April 26, 2022 –Temenos AG (SIX: TEMN), the banking software company, today reports its first quarter 2022 results.
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.
- Sequential improvement in sales environment with no impact on demand from macro events to date
- Strong momentum in the first quarter with first deals closed under new subscription model
- Total Bookings grew a strong 25% in the quarter, adding to backlog and visibility
- SaaS continues to perform well with USD19m of ACV, up 58% c.c., driven by significant levels of new signings, as well as additional consumption from existing clients
- ARR growth accelerated to 14% from 12% in Q4-21, with growth across SaaS and maintenance and contribution from first signings under new subscription model; EBIT growth to track 75% of prior year ARR growth
- EBIT growth of 4%, with cost base increase due to normalization post Covid, including travel and in-person events, as well as hiring in H2-21, wage inflation and increased services costs
- Free cash flow decline of 29% with USD15m of headwind from advanced payments in Q4-21; FCF is up 12% over the last twelve months
- Positive engagement with clients around subscription pricing, with first subscription deals signed in the quarter and most deals in the pipeline expected to move to subscription
- US continues to perform very well with multiple new signings including Battle Bank, a leading US challenger bank, for core banking
- Ongoing recovery in Europe with 25% growth y-o-y and further growth expected in the coming quarters
- Transformational front-to-back platform deal for Temenos Banking Cloud with Mirabaud which opens up a disruptive phase for private banking in Switzerland and Europe; traction in Wealth Management both in Europe and globally with Tier 1 banks considering IT renovation for their private banking businesses
- Tier 1 and 2 banks contributed 40% of total software licensing in the quarter with increasing commitment among large banks to IT transformation
- Strong signings for front office, including a Tier 1 bank across 20 countries signed early in Q2-22, beating incumbent and niche front office competitors
- 17 new client wins in the quarter
- 70 go-lives including 29 implementation go-lives in Q1-22
Q1-22 financial summary (non-IFRS)
- USD10.6m of subscription licenses signed in the quarter
- Total Bookings growth of 25% c.c. in Q1-22
- SaaS Annual Contract Value (ACV) of USD19m up 58% c.c. in Q1-22
- Annual Recurring Revenue (ARR) growth of 14% c.c. in Q1-22
- Non-IFRS SaaS revenue growth of 33% c.c. in Q1-22
- Non-IFRS total software licensing revenues up 18% c.c. in Q1-22
- Non-IFRS total revenue up 7% c.c. in Q1-22
- Non-IFRS EBIT growth of 4% c.c. in Q1-22
- Q1-22 non-IFRS EBIT margin of 26.9%, down 1% points c.c.
- Operating Cash Flow decline of 19% and Free Cash Flow decline of 29% in Q1-22; FCF up 12% LTM
- Leverage at 1.7x at end of Q1-22
- DSOs at 115 days
Commenting on the results, Temenos CEO Max Chuard said:
“We had a good start to the year, with a strong sales environment through the quarter and no demand impact visible from macro-economic events. We announced our move to a subscription model for on-premise software at the start of the year where we are now selling five-year subscription contracts for on-premise deals as standard, including for renewals. We expect this change in pricing model to drive long-term value creation, increase total contract values and significantly accelerate our growth, in particular ARR as well as Total Software Licensing and EBIT. I am pleased to say we signed our first subscription deals in Q1-22 and had positive engagement with clients across all tiers and geographies around subscription pricing.
Our SaaS business continues to perform well with a very good level of new logos signing in the quarter, as well as some additional consumption from existing clients. Activity with Tier 1 and 2 banks was also robust, with 40% of our total software licensing coming from this client set in the quarter, and we see increasing appetite among larger banks to pursue transformational IT renovation.
Our US business has continued to outperform, and we see ongoing recovery in our European business, which grew 25%, with particular traction in Wealth Management this quarter and further growth expected in the coming quarters. We also had a strong level of signings for front office, including a Tier 1 bank across 20 countries that signed early in Q2-22, where we beat a number of leading incumbent and niche front office competitors to win the deal.
I am pleased with the business momentum in Q1-22. We had a strong start to the year, we continue to gain market share across both SAAS and on-premise and are well positioned for further growth in the coming quarters. The business is accelerating and we are well set to establish a robust recurring revenue model with matching profitability growth.”
Commenting on the results, Temenos CFO Takis Spiliopoulos said:
“We had a good first quarter, with SaaS ACV in particular performing very well, up 58% driven by a significant number of new logos as well as increased consumption. SaaS revenue again grew 33% for the quarter. We had our first signings under our new subscription model, generating over USD10m of subscription licenses, which, together with healthy maintenance growth of 4%, drove ARR growth to accelerate to 14% from 12% in Q4-21. We expect ARR to continue accelerating over the coming quarters. We also generated USD157m of Total Bookings in Q1-22, an increase of 25%, adding to our backlog and providing visibility.
We had increased costs year-on-year with our cost base normalizing post-Covid, as well as having the full impact of hiring in the second half of last year and wage inflation. Once we are through the headwind of post-Covid cost normalization in 2022, and with our SAAS margin continuing to expand and our recurring revenue growth accelerating, we expect our EBIT growth to accelerate from the 9-11% growth forecast for 2022, to greater than 15% growth from 2023 onwards.
In terms of cash, we generated USD60m of operating cash flow, a decline of 19%, and USD32m of Free Cash Flow, a decline of 29%. This was due to a headwind of USD15m from advanced payments in Q4-21, with Free Cash Flow up 12% over the last twelve months. There was almost no impact on cash from subscription licensing, with only USD10m of subscription licenses signed and therefore minimal delta between cash collection from licenses and subscription in the quarter.
We reiterate our guidance for 2022, with ARR growth of 18-20%, Total Software Licensing growth of 16-18% and Total Revenue growth of at least 10%. Lastly, we expect EBIT to grow 9-11% for the year. We expect to continue converting 100%+ of EBITDA into operating cash, and we expect our FY-22 tax rate to be between 18-20%.”
IFRS revenue was USD 220.7m for the quarter, an increase of 5% vs. Q1-21.
Non-IFRS revenue was USD 220.7m for the quarter, an increase of 5% vs. Q1-21.
IFRS total software licensing revenue for the quarter was USD 83.4m, an increase of 16% vs. Q1-21.
Non-IFRS total software licensing revenue was USD 83.4m for the quarter, an increase of 16% vs. Q1-21.
IFRS EBIT was USD 38.3m for the quarter, an increase of 19% vs. Q1-21.
Non-IFRS EBIT was USD 59.3m for the quarter, an increase of 4% vs. Q1-21.
Non-IFRS EBIT margin was 26.9%, down 0.3% point vs. Q1-21.
Earnings per share (EPS)
IFRS EPS was USD 0.38 for the quarter, an increase of 31% vs. Q1-21.
Non-IFRS EPS was USD 0.63 for the quarter, an increase of 9% vs. Q1-21.
IFRS operating cash was an inflow of USD 60.3m in Q1-22, a decrease of 19% vs. Q1-21 and representing an LTM conversion of 118% of IFRS EBITDA into operating cash. USD 32.3m of Free Cash Flow was generated in Q1-22, a decrease of 29% vs. Q1-21 due to the timing reversal with strong cash collection in Q4-21.
Move to subscription revenue and impact on future reporting
Temenos will sell five-year subscription contracts for on-premise license and maintenance as standard from 2022, including for renewals. This will accelerate growth by capturing greater contract value and accelerate the shift to more financial performance driven by a much higher proportion of recurring revenues. To reflect this change, on the P&L the License revenue is split into either Subscription license or Term license, depending on the nature of contract.
The impact of the move to a subscription model on P&L, cash and ARR is shown for illustrative purposes below:
2022 non-IFRS guidance
The guidance for 2022 is non-IFRS and in constant currencies.
- ARR growth of 18-20%
- Total Software Licensing growth of 16-18%
- Total revenue growth of at least 10%
- EBIT growth of +9-11%
- 100%+ conversion of EBITDA into operating cash flow
- Expected FY 2022 tax rate of 18-20%
Medium term targets by/for 2025
The medium-term targets by/for are non-IFRS and in constant currencies.
- ARR growth of 20-25% CAGR 2021-25 to reach c.USD1.3bn of ARR by 2025
- Total Software Licensing growth of 15-20% CAGR 2021-25
- Total revenue growth of 10-15% CAGR 2021-25
- EBIT margin to reach c.41% by 2025
- Free Cash Flow growth of 10-15% CAGR 2021-26 to reach >USD600m by 2026
Currency assumptions for 2022 guidance
In preparing the 2022 guidance, the Company has assumed the following:
- EUR to USD exchange rate of 1.11;
- GBP to USD exchange rate of 1.32; and
- USD to CHF exchange rate of 0.93
Conference call and webcast
At 18.30 CET / 17.30 GMT / 12.30 EST, today, April 26, 2022, Max Chuard, CEO, and Takis Spiliopoulos, CFO, will host a webcast to present the results and offer an update on the business outlook. The webcast can be accessed through the following link:
Please use the webcast in the first instance if at all possible to avoid delays in joining the call. For those who cannot access the webcast, the following dial-in details can be used as an alternative. Please dial-in 15 minutes before the call commences.
Switzerland / Europe: + 41 (0) 58 310 50 00
United Kingdom: + 44 (0) 207 107 06 13
United States: + 1 (1) 631 570 56 13
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. The Company’s non-IFRS figures exclude share-based payments and related social charges costs, any deferred revenue write-down resulting from acquisitions, discontinued activities that do not qualify as such under IFRS, acquisition related charges such as financing costs, advisory fees and integration costs, charges as a result of the amortisation of acquired intangibles, costs incurred in connection with a restructuring program or other organizational transformation activities planned 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 2022 non-IFRS guidance.
- FY 2022 estimated share-based payments and related social charges charges of c.5% of revenue
- FY 2022 estimated amortisation of acquired intangibles of USD 50m
- FY 2022 estimated restructuring costs of USD 10m
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 April 26, 2022. The above figures are estimates only and may deviate from expected amounts.
SaaS ACV is Annual Contract Value which is the annual value of incremental business taken in-year. This includes new customers, up-sell and cross-sell. It only includes the recurring element of the contract and excludes variable elements.
Total Bookings includes fair value of license contract value, committed maintenance contract value on license, and SaaS committed contract value. All must be committed and evidenced by duly signed agreements.