Temenos AG

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Ladies and gentlemen, welcome to the Temenos Q3 2025 results conference call and live webcast. I am Matilde, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Takis Spiliopoulos, Interim CEO and CSO. Please go ahead.

Thank you, Matilda. Good evening, good afternoon. Thank you all for joining us for our Q3 25 results call. I will talk you through our key performance and operational highlights for the quarter, before updating you on our operational and financial performance. So starting with slide six, we delivered a strong performance in Q3 25, benefiting from a stable sales environment throughout the quarter. There was no impact from the US bank credit concerns in Q3, and we have not seen any impact so far in the current quarter. Demand in Q3 was broad-based, and we signed a number of deals across new logos and the installed base. I would note that there were no large deals in the quarter, though we do have several we expect to sign in Q4. We announced a number of AI-powered products this year, in particular our AI agent for financial crime mitigation and money movement and management, and we have seen good traction on both of these. From an investment perspective, we have continued executing our strategic roadmap investing across the business. Sales headcount in particular is on track to increase by around 50% by year end. When we launched our new strategic plan in November last year, we indicated we expected around 20 to 25 million of cost savings in 2025. And these efficiency gains are largely funding the investments we are making this year. The operating leverage in our business model is evident. Our profitability has therefore benefited from the sales momentum and the cost efficiency programs which are funding our investments. We remain prudent in our outlook, given there are a number of large deals expected in Q4. However, based on our Q3 performance and the stable sales environment, we are raising our guidance for 2025 for subscription and SaaS, EBIT and EPS and are reconfirming our 2028 targets. Turning to slide seven, we signed a number of deals with new and existing clients this quarter, and we have highlighted four of these on this slide. A couple of the highlighted deals are in the Middle East, with clients either expanding into new geographies or launching new digital banks on our platform. We also have a client in the ASEAN region upgrading and moving to the cloud, and a client in LATAM moving on to Temenos Core Banking in the cloud. The key things across all of these clients are the reliability and scalability of our platform, the uniqueness of our country model banks that clients can leverage to rapidly expand into new geographies, and the flexibility to deploy in the cloud or on-premise. And we will continue to expand our offering in all of these areas through our R&D roadmap. Moving to customer success on slide eight. This quarter, we went live on a major US SaaS expansion with FrontBank, a global bank offering banking and custodial solutions to the asset management industry. FrontBank selected Temenos to support their US expansion due to our comprehensive SaaS banking capabilities tailored specifically to the US market. We deployed a full suite of services, including digital and core banking, payments and data analytics on Temenos SaaS, allowing FundBank to launch new products faster, elevate the digital experience and scale efficiently. Notably, FundBank can now offer a fully digitized corporate onboarding experience, allowing clients to complete the process quickly and securely. This go-live continued the extension of our leadership in best of suite in the U.S. in line with our 2028 strategy around three core levers. On slide nine, we have our latest payments innovation that we launched at Sybos in September. Money Movement and Management is a single pre-integrated AI-powered platform that enables our clients to replace fragmented, siloed legacy platforms or to rapidly launch new lines of business. It is deployable on-prem, in the cloud, or as SaaS depending on the client's needs. We have already seen good traction on this and other AI-powered products such as FCM AI Agent, and we will continue investing in specific AI use cases to meet the needs of our customers. Moving to the next slide, I am proud of the industry recognition Temnos continues to receive. It is a great achievement, whether that is for the strength of our core banking platform, specific aspects of our offerings such as deposits, or from our employees where we have been recognized as a great place to work in 15 countries. This last recognition is particularly important to me and a testimony to our values and culture. People are the key to our success. Finally, on slide 11, I would like to give an update on the execution of our strategic roadmap. We have been hiring talent across the R&D organization globally, in particular in India and the US. Our innovation hub in Orlando is having a visible impact on our US expansion strategy, with the first prospective clients leveraging the hub to co-innovate with our teams in the quarter. And we are on track to increase sales headcount across the regions by 50% by end of December. We have also been making investments in our sales training and governance process to maximize the quality of our pipeline. Lastly, we are looking to improve the efficiency of our operating model, rolling out AI initiatives across the business, including in software, legal, marketing, and finance, In addition to R&D, where the focus is on leveraging AI for development, testing, and support. Moving to slide 13, we delivered 11% total revenue growth this quarter, driven by broad-based wins with both new and existing customers. We had another strong quarter for subscription and sales, which grew 10% in Q3, as well as maintenance, which was largely driven by premium maintenance signings. Services revenue also grew for the second quarter in a row. Moving to slide 14, our EBIT grew 36% in the quarter, driven by the strong revenue growth and operating leverage. Our ongoing investments in product and tech and go-to-market were largely offset by our cost savings program in line with our self-funded investment strategy that we announced at last year's CMD with an expected 20 to 25 million of cost savings in 2025, funding the majority of our investments. There is also some impact from cost phasing with some catch-up expected in Q4-25. EPS grew 41% in Q3, largely driven by EBIT growth and benefiting from the lower share count. Moving to ARR, it has once again benefited from the growth in subscription and SaaS and maintenance. As a percentage of last 12 months revenue, ARR equaled 88% up from 87% in Q3 24. This gives us excellent visibility on future recurring revenue, as well as our future cash flows helping underpin our 2028 targets as well. On slide 16, I would like to highlight a few items. Maintenance grew nicely in Q3, up 14%, and we now expect maintenance to grow around 11% constant currency for the full year. I would also flag that subscription and SaaS has grown 12% year to date, total revenue 10%, and EBIT 24%, which supports the increase in full year guidance we announced today. Given the continued strength in EBIT growth in Q3, we now expect our EBIT margin to be up at least 170 basis points for the full year. On slide 17, net profit was up 35% in the quarter in line with EBIT with higher tax charges offset by lower financing costs. The tax rate in Q3 was around 21%, and we maintain guidance of a 2025 reported tax rate of 15% to 17%, benefiting from a one-off tax benefit from prior years, which will materialize in Q4 25. The normalized underlying tax rate excluding this one-off benefit remains at 19% to 21%. EPS grew by 42% ahead of net profit growth as it did last quarter, once again supported by the lower share count. Moving to free cash flow, we delivered significant growth of 30% in Q3 2025. As expected, we are showing an acceleration in H2 2025, driven by the growth in deferred revenue and lower restructuring costs than in H1 2025. We have now absorbed 30 million of restructure in Hedwind in the first nine months of the year. Free cash flow has now grown 13% year to date. So we are confident that we will deliver on our full year guidance of at least 12%. Next on slide 19, we show the changes to group liquidity in the quarter on a reported basis. We generated 61 million of operating cash and bought back 148 million worth of shares completing our Swiss $250 million buyback program in August. We ended Q3 2025 with $184 million of cash on the balance sheet. Our leverage stood at 1.4 times at the end of the quarter, and we also expect to end 2025 within our target leverage range, retaining flexibility for either further share buybacks or bolt-on M&A. Now moving to slide 19, a couple of items to highlight on our balance sheet. We completed our SWISI 250 million share buyback program in August at an average price of 63.25 SWISI per share, representing 5.5% of registered share capital. These shares will be proposed for cancellation at the 2026 AGM. In July, we closed the 500 million revolving credit facility signed in Q2. As previously mentioned, we 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. And our report on net debt stood at $702 million at quarter end. Turning to slide 21, I would first like to note that we remain prudent in our 2025 outlook. given there are several large deals in the Q4 pipeline. However, given the good performance in the first nine months of the year, we are increasing our subscription and SaaS guidance to at least 7% to reflect the sales momentum. As a result of our operating leverage, premium maintenance signings uplift to Q3 EBIT, and the self-funding of our investments, we are raising our EBIT growth guidance from at least 9% to at least 14%. Correspondingly, we are also upgrading our EPS growth guidance from 10% to 12% to 15% to 17%. We are keeping ARR guidance of at least 12% given the delayed benefit to ARR from stronger subscription and SaaS growth. And we're also keeping free cash flow guidance of at least 12% growth unchanged. As a reminder, our guidance is non-IFRS and 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. And lastly, we have reconfirmed our 2028 target. Before we head to Q&A, I'm sure you will have seen the statement from our chairman in the press release that the CEO search conducted by the board is currently ongoing. As you can appreciate, this is not something I can comment on any further. With that, operator, can we please open the call for questions?