GENEVA, Switzerland, February 17, 2021 –Temenos AG (SIX: TEMN), the banking software company, today reports its fourth quarter and full year 2020 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
Q4 and FY 2020 highlights
- Continued strong sequential improvement in Q4-20
- Sales closure rates improved, in particular in Europe
- Predictability of business reached near pre-Covid levels
- Banks returned to conducting significant strategic transformation projects
- Flexible cost base ensured profit protection
- Continued investment in R&D and key sales positions
- 26 new client wins in Q4-20, total of 64 new customer wins in FY-20
- 307 go-lives across all clients in FY-20
- Strong pipeline generation giving confidence in outlook for 2021
- Strong start to Q1-21, well positioned for strong growth in 2021
Q4 and FY 2020 financial summary (non-IFRS)
- SaaS Annual Contract Value (ACV) up 26% c.c. in Q4 20 and 61% c.c. in FY 20
- Non-IFRS SaaS & subscription revenue growth of 7% c.c. in Q4 20 and 44% c.c. in FY 20
- Non-IFRS total software licensing revenues down 17% c.c. in Q4 20 and down 21% c.c. in FY 20
- Non-IFRS recurring revenue growth of 2% c.c. in Q4 20 and 13% c.c. in FY 20
- Non-IFRS total revenue down 12% c.c. in Q4 20 and 9% c.c. in FY 20
- Non-IFRS EBIT growth of 11% c.c. in Q4 20 and 0% c.c. in FY 20
- Operating cash flow growth of 4% in Q4 20 and 12% in FY 20, FY 20 cash conversion of 112%
- DSOs down 9 days year-on-year to 111 days
- Profit and cash flow strength support proposed dividend of CHF0.90, a 6% annual increase
Commenting on the results, Temenos CEO Max Chuard said:
“Having pre-announced our results in January, I’m pleased to confirm that we saw a strong sequential improvement in the fourth quarter with the business environment and closure rates continuing to improve. In particular we saw a strong recovery in Europe driven by Transact and SaaS, and good momentum in the US. Our SaaS ACV continues to build with the US and then Europe being the largest contributors to our SaaS pipeline, which is evenly balanced across Transact and Infinity.
We sold 44% of our licenses in the quarter to tier 1 and 2 banks as large banks returned to investing in their strategic transformation projects. We also continued to see challenger banks and fintechs looking to benefit from running software in the cloud and leveraging Temenos’ market-leading SaaS capabilities.
Looking forward to 2021, we are starting the year with a strong pipeline of SaaS and license deals and a market that is returning to solid growth based on the structural need of banks to digitally transform their operations. We expect our SaaS revenue to grow 30% in 2021 and total software licensing to also return to strong double-digit growth. With the strong growth in ACV and license, I expect to reach 2019 levels on combined license and equivalent ACV bookings by the end of year.”
Commenting on the results, Temenos CFO Takis Spiliopoulos said:
“We delivered a strong end to the year, with SaaS ACV up 26% in the quarter and 61% for the full year, and recurring revenue up 13% for the full year. We saw continued sequential improvement in our license performance in the fourth quarter, and expect to return to strong growth in 2021 as bank spend increases on structural demand and despite the uncertain macro environment, which will also drive solid growth in maintenance in 2021. The flexibility in our cost base meant that we were able to deliver EBIT growth of 11% in the quarter, however we will see some normalization of the cost base in 2021 as the business returns to revenue growth.
The demand for SaaS and cloud continues to accelerate, predominantly driven by challenger banks and fintechs. There was no cannibalisation in the quarter from license to SaaS, and we expect a limited amount of cannibalisation going forward, with most of the SaaS growth representing incremental demand, as the economics of SaaS drive market growth.
We had strong cash generation, with operating cash inflow of USD 406m for the full year, up 12%, and representing a cash conversion of 112%. We ended the year with DSOs at 111 days, and leverage at 2.1x.
Based on the continuing strong cash flow, we are recommending a 2020 dividend of CHF 0.90, and have announced share buyback of up to USD 200m. We expect to end the year with leverage at comparable levels.
We have a strong outlook for 2021 driven by our pipeline evolution. We are guiding for ARR growth of 10-15% and ACV growth of 40-50%. Despite substantial headwind on growth rates from last year’s HCL transaction, we expect non-IFRS total software licensing growth of 14% to 18%, and non-IFRS total revenue growth of between 8% and 10%. We are guiding for a 2021 non-IFRS EBIT growth of 12-14%, implying an EBIT margin of 37.2%.”
IFRS revenue was USD 277.1m for the quarter, a decrease of 9% vs. Q4 2019.
Non-IFRS revenue was USD 277.1m for the quarter, a decrease of 10% vs. Q4 2019.
IFRS total software licensing revenue for the quarter was USD 141.7m, a decrease of 10% vs. Q4 2019.
Non-IFRS total software licensing revenue was USD 141.7m for the quarter, a decrease of 13% vs. Q4 2019.
IFRS EBIT was USD 110.4m for the quarter, an increase of 35% vs. Q4 2019.
Non-IFRS EBIT was USD 130.2m for the quarter, an increase of 12% vs. Q4 2019.
Non-IFRS EBIT margin was 47.0%, up 9% points vs. Q4 2019.
Earnings per share (EPS)
IFRS EPS was USD 1.20 for the quarter, an increase of 41% vs. Q4 2019.
Non-IFRS EPS was USD 1.44 for the quarter, an increase of 13% vs. Q4 2019.
Operating cash flow
IFRS operating cash was an inflow of USD 406m in FY 2020 compared to USD 364m in FY 2019, representing an LTM conversion of 112% of IFRS EBITDA into operating cash.
Taking into account the strength of profit growth and cash generation, as well as the expected strength of future cash flows, subject to shareholder approval at the AGM on 20 May 2021, Temenos intends to pay a dividend of CHF 0.90 per share in 2021. The timing for the dividend payment will be as follows:
- 20 May AGM approval
- 25 May Shares trade ex-dividend
- 26 May Record date
- 27 May Payment date
Approximately one third of the dividend will be paid as a distribution of reserve from capital contributions, therefore exempted of withholding tax (share premium dividend), with the rest of the dividend taken from the retained earnings (cash dividend) and therefore taxable (WHT 35%). Temenos’ policy is to distribute a growing dividend.
Board and regulatory approvals have been granted for a share buyback of up to USD 200m to start on 19 February 2021 in the open market. The share buyback will be funded through Temenos’ strong cash flow generation. The company’s leverage is expected to be at a comparable level by end of year 2021. Temenos intends to use the repurchased shares for potential acquisitions and/or to cover future employee stock ownership plans. The share buyback will end on 30 December 2021 at the latest.
2021 non-IFRS guidance
ARR will be included as a new guidance metric going forward. ARR is Annual recurring revenue committed at the end of the period for both SaaS and Maintenance. Includes New Customers, up-sell/cross-sell, and attrition. Only includes the recurring element of the contract and exclude variable elements.
The guidance for 2021 is non-IFRS and in constant currencies.
- SaaS ACV growth of 40-50%
- ARR growth of 10-15%
- Total software licensing growth of 14-18%*
- Total revenue growth of 8-10%*
- EBIT growth of +12-14% (USD364-371m)*, implying 37.2% margin
- 100%+ conversion of EBITDA into operating cash flow
- Expected FY 2021 tax rate of 16% to 18%
- DSOs to be below 105 days by year end
Non-IFRS EBIT is adjusted for share-based payments and related social charges costs going forward. For comparison purposes, the FY20 EBIT adjustments to exclude USD 11m of costs. Estimated FY21 share-based payments and related social charges costs are c.USD 20m.
*HCL impact c.5% headwind on total software licensing growth, 3% headwind on total revenue growth, 5% headwind on EBIT growth.
Currency assumptions for 2021 guidance
In preparing the 2021 guidance, the Company has assumed the following:
- EUR to USD exchange rate of 1.21;
- GBP to USD exchange rate of 1.37; and
- USD to CHF exchange rate of 0.89
Conference call and webcast
At 18.00 CET / 17.00 GMT / 12.00 EST, today, February 17, 2021, 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
Capital Markets Day
Temenos will host a virtual Capital Markets Day on Thursday 18th February starting at 2pm (CET). Please register for the Capital Markets Day using the following link:
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 plan implemented and controlled by management, and adjustments made to reflect the associated tax charge relating to the above items.
Note: share-based payments and related social charges costs are considered as non-IFRS adjustments from FY21.
Below are the accounting elements not included in the 2021 non-IFRS guidance.
- FY 2021 estimated share-based payments and related social charges charges of USD 20m
- FY 2021 estimated amortisation of acquired intangibles of USD 50m
- FY 2021 estimated restructuring costs of USD 10-12m
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 17 February 2021. 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.
Recurring revenue includes Maintenance and SaaS & subscription revenue combined.