Temenos AG

Good afternoon, good evening everyone. Thank you very much for joining our Q225 results call. I would just like to offer everyone a brief apology. It seems there was an issue with the conference call dial-in numbers that were sent out. New numbers have been sent out to everyone, so hopefully more people will be joining. So sorry about that. We will make sure that it's fixed for the next call. Nothing further from me. I'm going to hand straight over to Jean-Pierre to talk about the quarter.

Okay. Thank you, Adam. And good evening, good afternoon. Thank you all for joining us for our Q2 25 results call. I would like to talk through our key performance and operational highlight for the quarter before handing over to Takis. So let me start with an overview. I am very pleased with our performance in Q2, which means we deliver a strong first half. The sales environment was stable throughout the quarter. We were able to convert the orders which slipped from Q1, and as well executing a number of larger deals. I was especially pleased with our performance in Europe, as well in the Americas. We had good traction with our existing base and also won quite a lot of new logos. We continued executing our strategy crop map, investing across the business, and make new senior hires in sales and product and technology. This is largely self-funded through our cost program. So even with this investment, we had strong growth in our profitability, driven by the strong revenue growth and cost control. In May, we held the Temenos Community Forum, which was very well attended by clients and prospects. We made several important AI product announcements, which I will give some details on. And I was pleased to announce the sale of Multifon closed at the end of May as planned, as we continue to rationalize our product portfolio. So with a strong H1, we have raised our full year guidance and confirmed our 2028 targets. So now I would like to highlight a couple of deals we announced this quarter. We signed Banco de Amazonia, a large regional development bank in Brazil for corporate banking, payments, and digital. This is a marquee win for us in LATAM, and we are supporting them across the business, including retail, SME, and corporate banking. Their main objective of implementing Temenos is to modernize their core banking infrastructure, diversify revenue streams, and expand digital capabilities beyond their current physical footprint, positioning themselves as a full digital bank with national reach. And they chose us for our modular platform, strong banking compliance, and our deep functionality. So overall, a great win. In APAC, we announced a deal with EastWest Bank, moving to Temenos SaaS Core and Digital for retail, SME, and corporate. For the digital platform, they are replacing the current leading global front-of-piece provider with our digital platform. And they're wanting the scalability and efficiency of our platform, and as well, the opportunity is given to them to expand into new segments, including wealth. Indeed, we have some good traction in the wealth space with a number of deals signed, in particular in Europe, and that will be a focus for us going forward. Looking at go-lifes, this increased to 81 this quarter, up from 70 in Q1. This included Raiffeisen Bank going live in Bosnia-Herzegovina, as they continue to roll out Temenos core banking across the operation. They are already live with Temenos in other Eastern European markets, including Poland. Now I would like to touch briefly on Temenos Community Forum, our flagship client event. We held the main event in Madrid with two regional events in Miami and the Philippines. The first time we have taken TCF Global, reflecting our strong profile and the strength of demand for our solution around the world. We have nearly 2,000 attendees, including hundreds of clients and prospects, so a very strong level of attendance. We made some important product announcements during this event. We launched Temenos Product Manager Copilot, a GenAI assistant that integrates Microsoft OpenAI service and is embedded with the Temenos Retail Core Banking solution. With this, banks can rapidly design, test, launch, and optimize financial products using GenAI. We also launched our FCM AI agent to detect, investigate, and prevent sanctioned transgressions against global and domestic watch lists. This product was developed in collaboration with the Tier 1 European Bank. And this GenAI agent allows them to reduce false positives and evaluate screening alerts in real time. I was pleased during this quarter that Temenos received several notable awards from leading industry analysts and journals. I would like to highlight a couple of these in particular. Temenos was named best-selling core banking provider for the 20th consecutive year by IBS Intelligence. We are ranking number one in 13 categories by IBS, including core, digital, payment, and wealth. We are also named best core banking system at Banking Tech Awards USA. This is particularly important to me as it demonstrates the strength and depth of our U.S. banking capabilities at this stage in the execution of our U.S. strategy. Lastly, Time Magazine ranking Temenos as fourth most sustainable company in the world in their annual ranking of the top 500 companies globally. We are the highest ranking Swiss company and the only core banking software provider in the top 40. This reflects our approach to sustainability, which is really central to the way we operate as a business. Finally, I would like to give an update on the execution of our strategic roadmap. Since opening our innovation hub in Florida, over 50 new developers and architects have joined Temenos in Q2. and we will make further hires on the coming quarters. We also brought in some strong senior talent, including a new chief security and risk officer and chief technology officer, as well as hiring over 25 new salespeople across the globe. And of course, we will continue to invest in our product and strategy roadmaps. for corporate and wealth in particular. Now, I will hand over to Takis to talk through the financial highlights.

Thank you, Jean-Claire. So, starting with slide 12, we had very strong revenue growth this quarter, both for subscription and SaaS and for total revenue. A few things I would like to highlight in particular. Firstly, we significantly exceeded the Q2 25 guidance we gave back in April. We were able to close the slip deals from Q1, and we benefited from a stable sales environment and good execution across most regions, with Europe and the Americas being a particular source of strength. We also closed the large deals we had in the forecast. Please note that we still had the headwind on SaaS from the down selling to our BNPL client. So to deliver 24% growth in subscription and SaaS, was a very strong performance. It means that subscription and SaaS grew 12% in H1-25, and this underpins our guidance increase. Total revenue grew 16% in Q2-25, benefiting from the strong subscription and SaaS revenue, but also another strong quota for maintenance, largely due to strong sales of our premium maintenance offering. We also had mid-significant growth in services. Total revenue grew 10% in H125, which provides us a good setup for the second half. Moving to slide 13, our EBIT growth of 28% in the quarter was driven by the strong revenue growth, as well as the good performance at cost level. Our costs did increase by around 15 million year on year. This was driven by a combination of increased investments variable accruals due to higher revenues, mainly for commissions and bonuses, and marketing costs largely linked to TCF, our flagship client event. However, we continue to have a good level of offset by the positive impact from our ongoing cost savings programs. EBIT grew 19% in H125, and this was reflected in EPS, which grew 36% in Q2 25 and 28% in H1 25, also benefiting from the lower share count. Looking at ARR, this has benefited from the growth in subscription licenses and maintenance in particular and continues to increase as a percentage of our last 12-month product revenue. Per end of Q2 25, Our ARR equaled 89% of our product revenue, up from 85% in Q2-24. This gives us excellent visibility both on future recurring revenue in the P&L as well as our future cash flows and, as this is a 12-month forward-looking metric, helps underpin our 2028 targets as well. Turning to slide 15, I would like to highlight a couple of additional points here. ARL has grown 11% year-on-year, and we expect this to accelerate further in the second half of the year in line with our full-year guidance based on the strength and visibility of our pipeline. I would also like to flag the EBIT margin, which expanded 400 basis points in Q2 2025, even with an 8% increase in operating costs. Given the strength of H125 and looking ahead at our revenue trajectory and investment program, we now expect our EBIT margin to be up at least 50 basis points for the full year. On slide 16, 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. We benefited from further improvement in our services margin, and whilst our product costs were up quite a bit with all the investments we are making, it was also outpaced by the strong growth in product revenue this quarter. Our net capitalized development costs also continued to decline, down to 1.9 million in the quarter. In terms of ethics, there was a roughly 1 million benefit on EBIT this quarter, largely driven by the euro strength and weakness in the European rupee. On slide 17, net profit was up 31% in the quarter, in line with EBIT, with higher tax charges partially offset by lower financing costs in Q2 2025. The tax rate in Q2 2025 was 19.5%, And we are guiding for a 2025 reported 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 2025. The normalized underlying tax rate excluding this one-off benefit remains unchanged at 19 to 21%. EPS grew by 36% ahead of net profit growth as it did last quarter, again due to the lower share count. Turning to the next slide, we had free cash flow growth of 8% in the quarter and free cash flow grew double-digit in H125. We have already absorbed 75% of our expected full-year restructuring charges in the first half of the year. Driven by our strong growth in deferred revenue in H125, we expect free cash flow growth to accelerate in H225 to deliver our full year guidance of at least 12% in line with our plan. Moving to slide 19, we show the changes to move liquidity in the quarter on a reported basis. We generated 79 million of operating cash. and received about 80% of the multifunds purchase pricing cash in the quarter, with net proceeds of 319 million. We also paid the 2024 dividend and bought back 160 million worth of shares, and so ended with 305 million of cash on balance sheet. Our leverage stood at 1.2 times at the end of the quarter, down from 1.3 times at the end of Q125, and well within our target of 1 to 1.5 times. We expect to end 2025 within our target leverage range, so we have flexibility and optionality to do both on M&A, though this is rather unlikely for this year. Next, on slide 20, a couple of items to highlight on our balance sheet. We received an investment grade rating from S&P, adding to our existing investment grade rating from Fitch, and we signed a new revolving credit facility for 500 million. We now have no further refinancing requirements until 2028. The bond maturing in November of this year has already been refinanced by the bond issued in March of this year. We continue that pace with the share buyback, purchasing 136 million Swissy worth of shares by the end of June, out of a total of 250 million And our net debt stood at 539 million at quarter end. Moving on to slide 21, we have raised our guidance for 2025 to reflect a strong first half, stable sales environment, and visibility and strengths of our pipeline. 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 standard definition, including IFRS 16 leases and interest costs. We are guiding for subscription and sales to grow at least 6% for the full year, up from 5% to 7% previously. We have also raised our EBIT guidance to at least 9%, up from at least 5%. And lastly, we have raised the EPS guidance to 10% to 12%, up from 7% to 9%. And we have kept ARR and free cash flow guidance unchanged, with both growing at least 12%. Slide 22. Lastly, we have reconfirmed our 2028 target. With that, operator, can we please open the call for questions?