Temenos AG

Ladies and gentlemen, welcome to the Temenos Q1 2025 Results Conference Call and Live Webcast. I'm Sandra, the course call operator. I would like to remind you that all participants have been listened only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcasting. At this time, it's my pleasure to hand over to Jean-Pierre Brulard, CEO. Please go ahead, sir.

Thank you, operator, and good evening and good afternoon. Thank you all for joining us for our Q1 25 results call. I would like to talk through our key performance and operation highlight for the quarter before handing over to Takis. So starting with an overview of the quarter, the sales environment was stable. until the last two weeks of the quarter, when we are starting to see a number of deals being pushing out because of the macro uncertainty. We have not lost these deals and currently expect them to sign in Q2. Indeed, several have already signed in the first three weeks of April. The underlying business performance was quite strong, with IT in growth in software licensing, mainly for subscriptions. This largely compensated for the impact of downsell for large customer running by no pay later, BNPL, on our SaaS platform. And it's important to note that we have anticipated that when we announced our guidance in February. And let me add as well that BNPL customer was one of customers and non-core business as well. Aside from this, we delivered solid AR and maintenance growth, which gave us visibility on future recurring revenue and free cash flow. We continued making targeted investments across the business to support our strategic roadmap and also make good progress in our cost savings initiative. And overall, we have a strong growth in profitability this quarter. We are reconfirming today our full year guidance while recognizing the increased microeconomic uncertainty. We are also exceptionally providing indicative growth rate for Q2, which Takis will talk through shortly. And Takis will give you as well more details on the share buyback that we announced this evening. So if we are going further, I would like now to take through a couple of deals that demonstrate the strength of our platform and competitive edge. We signed a UK-based global payment provider for SAS Core Banking, where they wanted the scalability of our platform and also our extensive experience across geographies. They saw we can support the international expansion with our localization capabilities and importantly, include their ambition to expand in the US market. And in North America, we won another SAS core banking deal with a digital investment platform where we are replacing a NEO vendor. And this client was struggling to implement the NEO vendor core and so moved to Temenos when they have greater confidence in the implementation and scalability of our platform. They also want to benefit from reduced time to market, and our platform enables them to launch any product very quickly to drive the growth. We have seen as well a good number of go-lives this quarter, 17 total, up from 61 last year. And we continue to invest in our customer experience team to ensure proper customer success. This includes a Tier 1 U.S. bank going live in our core banking for wealth in one of its European locations, and a European Tier 1 bank going live on core banking and payments for the international corporate business in a major ASEAN hub, following from two other ones go live last year and as they standardize across the ASEAN operation. The U.S. remains a strategic focus for us because of the size of the market, 35% of our total market, around $8 billion of annual spend. It is a sweet spot for our future growth, with many U.S. regional banks needing to modernize the tech platform with our best of suite third-party software. We are making good progress on our U.S. growth plan, already increasing our sales capacity in the US by the end of last year, which we expect to drive our US pipeline growth later this year. And we are invested in customer lifecycle and product specific to US market. To that point, on product, we made an important announcement in Q1 with the opening of our US innovation hub in Orlando, Florida. This hub will drive innovation for customer globally and as well as our U.S. requirements. It brings our product and technology development closer to U.S. clients and enables greater collaboration with U.S. clients and partners. So an important step to our U.S. growth strategy. At the same time, we continue to invest in key areas of our global operation to deliver our strategic roadmap internationally. The international market is very large, around 15 billion dollars, and we see strong demand, in particular for best of suite software across all tiers. We have an excellent track record in this space, with a strong existing footprint and an established sales force and client base in regions like Middle East Africa, emerging Europe and part of the Asia Pacific. We see many emerging markets with strong domestic growth, which is why banks are expanding their presence in these markets. We are also investing in attractive markets like Western Europe, where we are hiring new sales, in particular for the UK and Ireland. And in APAC, we signed an important partnership with Cognizant in Q1 to expand our Australian country model bank and start go-to-market activities, as we see a lot of opportunity in this market. Lastly, I would like to give an update on the execution of our strategic roadmap. We have progressed the simplification of our product and technology organization to increase agility and align with our strategic priorities. We are focusing our research and development investments to maximize return on investment. As such, we are expanding our product and technology investment in key growth markets like the U.S. in Western Europe while maintaining a strong presence in India. We are also progressing the simplification of our product portfolio, focusing on the products that matter to our customers and building on the sale of multifund when we expect to close this quarter. Sales hiring has continued in Q1 across key regions to attract top talent and give us the coverage we need to drive our sales performance. Equally important, we are invested in services and partnerships to deliver on value as part of our focus on customer lifecycle. And we continued hiring new senior talent across the business, including this quarter a new head of architecture and database in the US and a new CIO. Now, I would like to hand over to Takis to take us through the final highlight of the quarter.

Thank you, Jean-Pierre, and welcome from my side as well. On slide 13, I'll start with an overview of the quarterly financials. All figures are non-IFRS in constant currency and pro forma, so excluding any contribution from multi-funds unless otherwise stated. Our ARR was up 9% in Q1 2025, which was driven by strong subscription and maintenance signings. Subscription and SaaS revenues were down 2% in the quarter, which was primarily due to some deals having been pushed to Q2 2025. as a result from the increased macroeconomic uncertainty at the end of the quarter. If we look at the underlying components of subscription and SaaS, we had strong high teens growth in software licensing, largely from subscription, which compensated for the weaker SaaS. We had already seen an impact last year from the downsell linked to a large BNPL client and had reflected this ongoing impact into our 2025 guidance when we announced it in February. Maintenance growth was very strong again, up 11%, with good levels of premium maintenance signed in the quarter. We continued our targeted investment program, in particular, making several senior hires in our product and technology organization, as well as in our sales organization. At the same time, We maintained overall excellent cost control and benefited from our ongoing cost savings initiatives. As a result, we were able to deliver EBIT growth of 8% in Q1 2025. We have good visibility on upcoming cost savings and will be able to pull more levers in case of a deterioration of the macro environment. Pre-cash flow was 49 million in the quarter, up 12%, and DSOs ended at 147 days, again linked to the strong subscription growth. We expect DSOs to marginally increase this year and then to start improving in 2026 as we benefit from the cumulative cash flow linked to subscription licenses signed since 2022. We ended the quarter with net debt of 562 million, And leverage was unchanged from Q4 24 at 1.3 times, well within our target range of 1 to 1.5 times. And I'm sure you have all seen the share buyback we announced this evening for up to 250 million Swissy or more than $300 million at current FX rate. The buyback will start on April 28th and finish by year-end 2025 at the latest. we will propose to cancel the shares at the 2026 AGM, so the buyback will be somewhat accretive to EPS this year and even more accretion in 2026. Moving to slide 14, with a few additional items I would like to flag, focusing on the pro forma numbers which exclude any contribution from multifam. Maintenance delivered again a strong performance with revenues up 11%, which again benefited from strong sales in premium maintenance, as well as the value uplift on subscription signings and renewals. Service revenues continue to decline in line with our strategy to work more closely with partners and the services profitability continue to improve as expected. Looking at our operating costs, we clearly have benefited from the efficiencies and cost savings programs, as well as strong cost management this quarter, despite continued targeted investments in key areas of the business. Therefore, we could deliver EBIT growth 8% and expand our EBIT margin by more than one percentage point to reach 31.5% this quarter. On slide 15, we have like-for-like revenues and costs adjusting for the impact of M&A and FX. The figures are all organic and therefore in line with our constant currency growth rates. Our services margin continued to improve slightly with revenue and costs both down around 4% like for life. While product revenues grew a solid 5% despite the headwinds, our product costs were up 3% as we continued to make targeted investments in line with our strategic plan. Also, our net capitalized development costs continue to decline, down to 2.2 million in the quarter. Looking at FX, there was a very limited impact on EBIT this quarter, once we factor in FX movements and low rolling hedges. On slide 16, net profit was up 14% in the quarter versus EBIT, which was up 9%. mainly due to lower financing charges and some ethics impact. The tax rate remained unchanged at 20.1% year-on-year, and we expect a similar tax rate in Q2. We are guiding for a 2025 report a tax rate of 15% to 17%, as we expect a one-off tax benefit of around 15 million from prior years. However, we expect this benefit to only materialize in Q3 and be phased across Q3 and Q4. The normalized underlying tax rate excluding this one-off benefit remains at 19% to 21%. EPS grew by 17% ahead of net profit growth of 14% due to the lower share count. Moving to slide 17, we show the changes to group liquidity in the quarter on a reported basis. We generated 79 million of operating cash and ended the quarter with 135 million of cash on balance sheet. We issued a new five-year, 250 million Swissie bond in March and have received the proceeds from that in early April. Our leverage stood at 1.3 times at the end of the quarter, well within our target of 1 to 1.5 times. And even with the buyback we announced today, we still expect to end 2025 within our target leverage range. So we have flexibility and optionality to do both on M&A. Moving to slide 18, I'd like to quickly run through the details of the share buyback. It is for up to $250 million, so a little over $300 million at current FX rate, and it will start next Monday on April 28th. The buyback will continue until the end of December 2025 at the latest. The shares will be purchased on a secondary trading line with a purpose to cancel them at the 2026 AGM. The buyback will be somewhat accretive this year with greater accretion in 2026. And finally, on slide 19, we have reconfirmed our guidance for 2025 while recognizing we are operating in an environment with increased macroeconomic uncertainties. Our guidance is non-IFRS and in constant currency, except for EPS and free cash flow, which are on a reported basis. Both the 2025 guidance and the 2024 pro forma numbers exclude any contribution from multifunds And free cash flow is, of course, under our new definition, including IFRS 16 leases and interest costs. We are also exceptionally giving indicative growth rates for Q2 2025, which are non-IFRS, constant currency, and exclude multifunds. We are expecting subscription and SaaS to grow in the range of 6% to 10% to between $106 and $110 million of subscription and SaaS revenue for Q2 2025. We also note that this is a small range in absolute dollar figures, and the delta of 4 million represents less than 1% of the full year guidance for subscription and sales. We do have a couple of large deals in the Q2 2025 forecast that we currently have a good level of confidence on signing them. We also expect ARR growth of at least 10% and have a high level of confidence in achieving that. With that operator, please can we open the call for questions?