Temenos AG

Thanks for joining us for our Q4 and full year 25 results call. Before I hand over to Takis, I'd just like to flag that we're hosting our Capital Markets Day tomorrow in London and virtually. You can still register on our website to attend if you've not done so already. We'll be taking questions, as usual, at the end of this call related to the fourth quarter and fiscal year 2025, as well as our outlook for 2026. I'd ask if you could please kindly keep your questions related to strategy for the CMD tomorrow, where we'll also be talking much more extensively about our approach to AI. With that, I'll hand over to Takis.

Thank you, Adam. Good afternoon, good evening. I will talk you through our key performance and operational highlights for the quarter before updating you on our operational and financial performance. As Adam mentioned, we will go into more depth on our strategic execution and roadmap tomorrow at our Capital Markets Day, also covering AI, where we feel very well positioned with a strong vote for Temenos, giving us a structural competitive advantage. Starting on slide six, we achieved all our 2025 guidance metrics and delivered product revenue constant currency growth of 11% in the first year of our strategic plan, which is above the market growth of 7%. The sales environment remained stable throughout the quarter, and we saw strong demand across regions and client tiers, including several wins with Tier 1 banks globally. We also continued to see strong signings for premium maintenance, and this drove very strong maintenance growth in the quarter and full year. We invested across the business in both sales and product in line with our strategic roadmap, in particular, growing our sales quarter carrier headcount by 60% to over 140 by year end. And we executed well on our AI strategy across product, process, and people that we will be talking more about tomorrow. We announced our 2026 guidance, which is based on the stable sales environment our strong pipeline, and our confidence in maintaining business momentum through our focus on execution. And given the strong first year of execution on our strategic roadmap, we have raised our 2028 targets, reflecting the confidence in our strategic positioning and our good levels of visibility. Moving to slide seven, we signed a number of deals with Tier 1 clients in the quarter. This is a client segment we are particularly focused on, given their size and scale, the diversity of business line, and their global reach. We have invested in dedicated global strategic sales, focusing on tier one and two banks, and it was encouraging to see us expanding our footprint in the fourth quarter. I would highlight two deals in particular. We signed a Tier 1 U.S. bank for composable core banking across multiple international markets and a Japanese Tier 1 bank expanding their Temenos platform for core banking and payment to three new countries. These successes demonstrate the strength and scalability of our platform and the value and trust our clients place in Temenos and our deep domain expertise. Turning to slide eight, it is important for us to demonstrate the value we bring to our customers. I highlight this quarter with VT Bank in Vietnam, serving over 30 million customers. They completed one of the largest and most complex core banking upgrades in the region, moving to a hybrid architecture with Temnos Core and AWS for scalability. VT Bank has been a Temnos Core customer since 2006. our platform's scalability, functionality, and local knowledge are key differentiators. The co-banking platform now handles double the daily volume with zero incidents, business processing speeds are 30% faster, and payment transaction volumes are up 40%. This shows the value of our platform and trusts our customers' place in us and our extensive domain expertise. On slide nine, Our product and technology roadmap continues to be validated as market leading by industry analysts. We were particularly pleased to be named a leader by IDC Marketscape for North American retail digital banking solutions, given our focus on delivering our U.S. roadmap, which is a key part of our U.S. growth ambition. We also won best core banking system at the 2025 Banking Tech Awards and we were recognized for customer experience in asset and wealth management. Moving to slide 10, we executed well against our strategic roadmap, which translated into tangible results across the business and a strong financial performance in 2025. We reorganized our product and tech function into agile teams and hired senior talent, which strengthened our ability to deliver our roadmap. We launched multiple new products on our platform in the year, including a number of AI solutions. Our sales organization grew significantly, with individual quarter carrier headcount increasing around 60% to over 140 individuals across our region. We invested in sales operations and enablement, which resulted in strong pipeline growth and strong signing, especially with new logos. Looking at the U.S. specifically, we also made good progress on our U.S. expansion strategy, increasing sales headcount to over 20 individuals and opening our U.S. innovation hub, hiring 70 developers to roll out our U.S. product roadmap. Our U.S. pipeline has grown nicely, and we expect to close more deals in 2026. Turning to the next slide, we will be talking about our approach to AI, our competitive positioning and our AI strategy extensively tomorrow at our C&D. To summarize, we have a clearly defined AI strategy across product, process and people. This is focused on lowering total cost of ownership for our customers, speeding up delivery and empowering our people to leverage AI and enable greater productivity. As an example, we are also rolling out entropic tools across our entire software development lifecycle. The adoption threshold for AI in the banking sector is very high due to high product complexity and significant risk aversion. This, combined with our deep customer trust and domain knowledge, creates a strong competitive mode for Temenos and gives us the right to win in the AI era. I will now run through our Q4 and 2025 financial highlights, focusing on constant currency non-IFRS financials, which are pro forma, excluding any contribution from multifunds. On slide 13, we delivered strong ARR growth of 12%, with ARR now representing over 90% of product revenue. The growth in ARR was driven by growth in all our recurring revenue lines, for subscription and SaaS, as well as maintenance. Our ARR growth gives excellent visibility on recurring revenue and future cash flows, supporting our long-term growth targets. Our product revenue, which is subscription and SaaS, and maintenance grew 11% well above the market growth rate of 7% in the first year of our strategic plan. On the next slide, we exceeded our 2025 subscription and SaaS revenue growth target with 9% growth year-on-year. We also delivered strong total revenue growth of 9% in the quarter and 10% for the full year. Growth was growth-based, reflecting robust demand across geographies and client tiers for our platform and products. On the next slide, non-IFRS EBIT grew 21 percent for the year, and non-IFRS EPS grew 25 percent. While we made significant investments in our business product, DTM, and operations, this was largely self-funded to our cost efficiency program. We have good operational leverage in our business, and so the strong revenue growth, in particular premium maintenance, drove our profitability. Let me highlight a few items on slide 16. We delivered strong ARR growth of 12% year-on-year in Q4-25, with ARR now at 860 million. Cloud ARR was 39% of total ARR, excluding any contribution from multifunds or the BNPL client, which terminated their contract in 2025. We expect Cloud ARR to increase in the mix going forward, as more clients move workloads to cloud environments. Maintenance revenue grew 15% in Q4-25 and 12% for the full year, driven by premium maintenance signings. On profitability, EBIT margin improved by 3 percentage points to 34.7% for the year, reflecting strong operating leverage and savings from cost efficiencies. These results demonstrate the strength of our business model and our ability to simultaneously drive growth while investing in the future. Turning to non-operating items on slide 17, net profit was up 9% in Q4-25 and 21% for the year. EPS grew 14% in Q4 and 25% for the full year, benefiting from both profit growth and a lower share count. We had an increase across net finance charges, tax, and ethics losses in Q4, offset by our strong operating performance. The tax rate for the year was 17% in line with our guidance. On slide 18, free cash flow grew 15% year-on-year ahead of our guidance, reaching $256 million. This was supported by strong ARR growth, disciplined capital allocation, and a continued focus on operating efficiency. On slide 19, we have our changes in group liquidity in the quarter. We generated $179 million of operating cash in the quarter and bought back 13 million worth of shares in the buyback launched in December. We also repaid a bond which matured in November 2025. We ended the year with leverage at 1.3 times, comfortably within our target range of 1.0 to 1.5 times. Turning to slide 20, a few comments on our debt leverage and capital allocation. We launched our second share buyback program in 2025 for a total of 100 million Swissy in December 2025. This will run until December 2026 at the latest. Report and net debt stood at 605 million at year end. Finally, the board is proposing a dividend of 140 Swissy for 2025 which will be voted on at the AGM in May. Our approach remains disciplined and balanced, returning capital to shareholders while maintaining flexibility for future investment. Next, we have our 2026 guidance, which is non-IFRS and in constant currencies except EPS and free cash flow, which are reported. For 2026, we are guiding to 12% ARR growth, about 9% growth in subscription and SaaS, about 9% EBIT growth, about 7% EPS growth, and about 16% free cash flow growth. This guidance reflects the strong foundation we built in 2025, our execution focus, and confidence in our competitive positioning and also our pipeline visibility. The guidance includes the headwind from the termination of a BNPL client in 2025, which we have given on the slide. There will be no further headwind from this beyond the current year, 2026. And lastly, we have raised our 2028 targets based on a strong first year of execution, confidence in our strategic positioning, and good visibility. The new targets are for ARR above 1.23 billion, EBIT of about 480 million and free cash flow around 410 million. I am very pleased with our first year's execution and I'm very confident about our strategic positioning and momentum. I look forward to sharing more at our capital markets day tomorrow. Operator, please can be open for questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. You will hear a tone to confirm that you entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Please limit yourself to one question per person. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Boulan Fred from Bank of America. Please go ahead.

Hi. Good evening, Takis. If I can ask a question around the whole kind of demand slash competitive environment, are you seeing any kind of new behavior from some customers trying to leverage some of the new tools you actually described? yourself to meet their needs around core banking software or you know it's still very much kind of business as usual in terms of competition with you know incumbents and some other new vendors thank you hi Fred let me take this one so on the demand environment first as we said

It was pretty stable throughout the year and also in Q4. And also, if I look at the first two months in Q1, there has been no change so far. And it is pretty consistent across, you know, across all regions and across the tiers. So really, so far, no change seen. In terms of, I'll take the external competition first. Still see, you know, the same trends as last year. less of, I would say, the so-called neo-vendors, given some of the problems they're facing in terms of funding. So still pretty much the same competitors both in the U.S. and outside the U.S. The one thing we could call out is emerging markets clearly showing a consistent positive trend with a slight improvement every quarter. Now, when talking to our bank customers, clearly we haven't seen any trends in that direction you're mentioning. If at anything, you know, the discussions are how you, Temenos, can help us with basically two things. One is, you know, with AI, you know, to have faster installation, faster deployment, and easier upgrades. Because if we can help clients, you know, do that, they would, you know, substantially save on implementation timeframes. But in terms of, you know, anything regarding, you know, the co-banking space, we don't see any trends in that direction. Always keep in mind, you know, there is, you know, there's two... two elements or two dimensions which we need to be aware of. You know, the customer risk aversion, which is very high with banks, is a mission-critical system. There is zero tolerance for hallucinations. You know, we need to have, as a bank, always deterministic decisions. making and not probabilistic which you know if you get it wrong you know there is a very high cost to errors and on the other side you know we are seen as a trusted domain expert we're facing very highly complex workflows which are very difficult to to replicate From that perspective, we're going to talk more about tomorrow. So far, I'm not seeing an impact. Thank you very much.

The next question comes from the line of Charlie Brennan from Jefferies. Please go ahead.

Yeah, hi. Good evening. Thanks for taking my question. Two, if I could. Firstly, on the guidance, I'm pleasantly surprised by how confident you are for 2026. If I add back the BNPL contract, it looks like you're targeting an acceleration in ARR growth in 2026. We're not seeing many software companies more broadly taking these market conditions as an opportunity to point to accelerating growth. Can you just give us some visibility into pipeline coverage, maybe versus last year, or level of confidence from the known renewal of 10-year licensing deals from prior years versus new logo requirements that just shape your confidence in 2026? And then separately, just on the maintenance, obviously very, very strong growth there. Can you just remind us what customers actually get for the premium maintenance option And is this a one-time uplift to your maintenance revenues, or is it more of a sustainable source of growth going forward? Thank you.

Hi, Charlie. Okay. So on guidance, so first, if you look at, you know, the performance in 2025, we'll be up, so, you know, already some of the... The headwind from this BNPL client downsell. We had mentioned, you know, throughout the year, on one hand, you know, the stable sales environment, but on the other hand, we've also been investing a lot in, you know, additional quota carriers, which we have hired throughout the year. And clearly, that has helped the pipeline evolution. That's one thing. And you would also expect this not to be yet visible in Chinese in 2025, but this should happen in 2026, given the usual 12 to 18 months lead time. That's one thing. So clearly, we feel pretty good about the pipeline, seeing the investments we have done. specifically also in the U.S. Clearly, we started with a relatively low number of salespeople, and we're now at 20-plus, and they have substantially built a good pipeline, which we are now about to execute into scientists throughout 2026. The next one to highlight our confidence is We've done a lot of investments also in how we qualify the pipeline, how we track it. And as part of that, you've also seen now a number of quarters delivered as planned or as predicted. So we have not only better visibility, but also the quality of the pipeline is much better understood. And the third element I would put, and we always, you know, made it clear that the risk of a number of large deals included in our guidance, our approach, taking a weighted approach in terms of the risk. prove the correct one, and clearly also for 2026, we have quite a number of larger deals included in the pipeline. So overall, it's a mix of, let's say, internal process improvement and a good market environment which is giving us that confidence, and that's, you're right, we would expect, you know, excluding this impact to, you know, to have 15% on ARR growth. Now, the renewal pool, let's put it like this. You know, we have talked about the special situation of what we see and what we have in terms of situation on 2027, where we get basically the two things coming together, the 10-year renewals from 2017 and the first-time renewals from 2022. And clearly that's helping in terms of our confidence. However, I think this is an important element. We do not today, you know, think there is a specific revenue benefit included in 2026 guidance. You know, the majority of the revenue we would still expect to happen in 2027 from the respective pool clearly provides, you know, some sort of safety net. what we can say is, you know, the combined renewal tool for 2027 is definitely, you know, something attractive. But this is, you know, the same case also for 28 and the years beyond. Yeah, and this is quite sizable, but, you know, let's leave it there. Finally, on the maintenance part, what do clients get? I mean, there's premium maintenance. These are basically This is referring to two main areas. The one is you get enhanced support offerings designed for banks using transact or other Taminos platforms who want the higher service level than the standard maintenance package, yeah? Poster response times and so on. So that's one thing. And the other one is extended support, which is basically for customers who are staying on older versions know for for a bit longer and are not yet ready to upgrade but we want to continue maintenance for this now um clearly we put a lot of effort into uh you know selling this to our uh to our existing customers we have seen some good you know very good traction the last two years um we would expect you know eventually this to slow down given you know we have a you know, not an unlimited pool. So let's say 7%, 8% is probably the appropriate growth for 2026. And then we expect this, you know, over the next two years to tail down to maybe 6%. I think this is a fair assumption putting, you know, the potential of this pool together.

Perfect. Great. Thank you.

The next question comes from the line of Sven Merkt from Barclays. Please go ahead.

Great. Good evening. Thank you for taking my question. It would be great if you could comment a bit further on the U.S. progress. In the release, it reads a lot like coming from improved staff capacity and better execution. Is there anything else you would call out, especially maybe from a competitive perspective? And how much of this progress already reflected in the guidance? Thank you.

Hi, Swen. Yeah, let me comment on, you know, the U.S. situation. Clearly, we have seen, you know, a nice buildup in our pipeline in the U.S., and clearly, as we mentioned, you know, the majority of signed deals we expect to see, you know, the impact in 2026. So, this is unchanged, and hopefully, we'll have good news to report. There is an element of U.S. growth obviously embedded in 2026 guidance and, you know, in our entire midterm plan to 2028. So this is, you know, we've taken clearly a prudent approach to how much we reflect. In terms of competition, we are clearly getting now into more RFPs and our win rate is improving. And I think we have We're really tackling a huge market with a real need and a long runway for banks to modernize. And I think we also have a much better value proposition in terms of our strategic roadmap versus where we were a year ago, both on the product side. We have the Orlando Innovation Hub. So we're developing U.S. product. for US customers, they can come in, co-innovate. So this is really helping also from a perception point of view. I think we're very well on track for the US market in terms of specific products. So that's, you know, we've already been launching some and more will happen, you know, throughout, you know, throughout the year. But clearly we have been able already to, you know, start selling this. We can also see, and, you know, maybe there is some anecdotal evidence, we can also see competitors, you know, becoming more aware of Temenos, maybe as a difference to one or two years ago. Will, you'll hear more on this from Will and Barb tomorrow at our C&D. They're going to share updates on, you know, multiple fronts of our U.S. strategy, products, pipeline, go-to-market initiatives.

Okay, thank you.

The next question comes from the line of Toby Ogg from JP Morgan. Please go ahead.

Yeah, hi, good evening. Good evening, Takis. A couple from me. Just firstly on the BNPL headwind, which you've mentioned in 2026 is five points of headwind on the subscription in SAS and four points on the EBIT and EPS. Is there any reason to think that revenue growth and EBIT growth wouldn't mechanically accelerate in 2027, given there is no further headwind from the BNPL headwind after FY26? And then just secondly, just on the FY28 upgrade, so it looks like low single-digit upgrade on ARR, 7% on EBIT, and low single-digit on free cash flow. What was the main driver of the EBIT upgrade? And also, why is the upgrade a bit bigger than the free cash flow upgrade? Thank you.

Yes, hi, Toby.

Okay, so on BNPL, I think... Let's get through 2026, where we are confident about before we already talk on 2027. Clearly, yes, there should be no more headwind. Now we're still taking a prudent approach to both 2026 and also midterm targets. We're one year down into our journey. and we feel confident, and I think, you know, you can do the math what this means for 27 and 28. On the upgrade for 2028, we have delivered, you know, a good 2025 with a good exit in Q4, and clearly the upside on, given also the accounting, the upside, you know, was higher on than it was on ARR and free cash flow. Now, the maintenance or the premium maintenance grows, you know, clearly that will slowly tail down, but we thought this is something we feel confident that we can still deliver. We're not going to lose this. So this is why the EBIT upgrade. The ARR upgrade, I think it's a function of the visibility we see on our pipeline. And ultimately, we wanted and we said we would maintain, you know, EBIT to free cash flow conversion, as we said, you know, one and a half years ago, around 85% plus. So this is, you know, to maintain it, you know, this yields basically the free cash flow of 410. Yeah, so we've always been talking about, you know, ARR growth, which is why free cash flow grows. So the upgrade on ARR is about 2%, and on free cash flow also 2%, but it's 3%. 85% is the right number on change from what we said last time. Great. Thank you.

The next question comes from the line of Justin Forsythe from UBS. Please go ahead.

Thank you very much. Good evening, Takis and Adam. Thank you for letting me on. Just a couple questions here from me as well. So on Regions Bank, that was one of your big podium wins or a key reference client, if you will, in the US. It was, I think, your second large tier one, two bank in the US that you signed in 2023. It seems like they're talking about publicly a pilot in the latter part of 2026 and beginning customer conversion in 2027, which is, by my math, about what, a four or five year full rollout. So I wanted to ask if that was what your expectation was going into the project or if there had been any delays or anything that went faster, and if that would also mean a direct uplift to revenues as a result. And just wanted to get a little bit more detail on the BNPL impact that you're mentioning, and maybe just correct me if I've got this wrong, but I think it was first mentioned back in 1Q of 24, and then we talked about maybe accelerated impact in 25. So just curious if maybe you could talk a little bit about the phasing of that and why we're continuing to see the impact here in FY26. Thank you.

Hi, Justin. Clearly, we can't really comment on behalf of clients, also not Regions Bank. We clearly feel you know, quite happy with the progress the project is taking. If the bank is talking positively in that respect, you know, we appreciate this, but this is as much as we can say. You know, all large projects, you know, have a long evolution in stages, and, you know, we feel very happy with our relationship with Regions Bank. On the BNPL customer, This is correct. We initially talked about, you know, in April on the Q124 results, there was, you know, the first phase of, you know, if you want, down-sell. Last year, we mentioned this, you know, that there is an impact this year, which was reflected in our regional guidance, which was proven. We ultimately, you know, over-delivered despite this, So clearly we see that as a good success. And the reason why we bring this up now is really because ultimately it's about transparency and because it's impacting 26, we thought it's important to understand the underlying growth. It's the last year that was important. We say, okay, we want to show the impact and also show the underlying growth. There is nothing more to that.

Got it. Maybe just because the first question was one that you wouldn't answer. Just a broader question on the core versus the other services business. I think I recall in the past that you're saying revenues roughly with the old TSL line were roughly two-third core versus maybe one-fifth-ish infinity, which is now, I think, what you call it, digital banking, and then other solutions, wealth, payments, et cetera. Maybe you could just talk a little bit about if that mix has stayed similar and or how you expect it to evolve over time, i.e., is there a certain composition of the backlog that's skewed to, say, core versus digital banking or otherwise?

Okay. So I think what you're referring, and we're going to show this tomorrow, so if we look at product revenue, which includes sales and subscription and maintenance, and there's almost no term license left, If you look at this, then it's more than 80% is our core banking product. Digital is about 10%, and the remaining 10% is spread across basically payments and wealth. And we would expect, given the growth trajectory, and we're going to launch some very exciting tools this year on the digital side with AI, But you would expect this to maybe stay stable. But given the strong traction we see on core around the world, and especially also in the US, maybe core would probably increase even to, let's say, 85% or something.

Thank you so much. Appreciate it, Takis.

The next question comes from the line of Christian Barber from . Please go ahead.

Yes, good evening, gentlemen. In autumn 2024, you laid out your roadmap, including over investments of between 110 and 150 million. I was wondering if that number is still, or let's say this range is still valued, and how much of the investments did you spend in 2025, and how much is embedded in terms of investments in your guidance for 2026?

A question. So as you're going to see tomorrow, and I don't want to spoil the party, our investment algorithm, and we're going to give more detail for 2026 to 2028, It's still going to be, you know, somewhere in the same ballpark. You know, it was, you know, a broader range, but we have invested quite a bit in 2025. So if you're going to see, you know, it's the same 110 to, let's say, 130, 140 million number we plan for the next three years. What have we invested in 2025? We ended up, as you can see from our cost base, pretty much where we had said we would end up. around 30 to 35 million we have invested. Clearly, there was a lot of self-funding or basically offset by efficiencies. For 2026, we have earmarked basically a very similar investment pool somewhere between Let's say $28 and $35 million, and again, offset by some efficiency gains, but that's about it. There is a bit of a mixed shift. We were earlier with the go-to-market investments in 2025, and product came only in the second half. Clearly, the focus for 2026 is mainly going into product because we see a lot of opportunity to invest when competitors are struggling and when we have you know, the market demand and really want to extend our competitive advantage, the investment is to be done now, including AI. But we saw this as an opportunity to accelerate, you know, some of the investment. But the overall pool remains broadly unchanged for the next three years.

Very clear. Thank you.

Any further questions, please press star and one. The next question comes from the line of Laurent Dur from Kepler Chevreux. Please go ahead.

Yes, thank you. Good evening, Takis. I just have two questions. The first is, if you go back to your digital and wealth operation, which are close to 20% of the sales, referring the first comment you made, you told us that clients decision-making was not really changing. I was wondering, in these particular businesses, wealth and digital, given maybe the risk of AI disruption in the long run, do you see some clients delaying processes, delaying contracts, or is it the same pattern for your free businesses? And my second question is, at the end of 2025 on the maintenance, would it be possible to have a rough split between the customer that has taken the premium version and the one that are still on the old version. Thank you.

OK. The first one.

Specifically, digital and wealth, as you have seen from our numbers, we have so far not seen any delayed decision-making regarding any topics. I think the banks, and this is also what we see reflected in our pipeline, the discussions so far with the banks are not about, okay, we're going to you know, write our own code to replace your, you know, your wealth system or your digital system. And clearly there is, you know, the potential for, you know, banks also experimenting, you know, at the edges around the core. But they, you know, clearly want to do this and we do a lot. And Bob is going to talk to more about this, about core innovation. You know, a lot of the Also, AI-specific use cases with co-developing with banks. I think it's banks wanting to develop everything in-house and then maintain everything in-house and constantly upgrade and carry the burden of all the regulatory and compliance pressure. I think this is not something we see today, whether it will come in 10 years or so, but clearly we don't have indications for that. In terms of the mixed question for premium maintenance, clearly we can't give that kind of disclosure. There has been, let's say, a good take-up over the last two years. We would expect this, you know, eventually you'll get to a very good percentage of clients who want to take that and have taken that. So this is why we would expect the growth to trend a bit down. As always, at the start of the year, we're prudent in terms of our financial guidance, and this applies to our revenue lines.

Okay, great. Thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the company for any closing remarks.

Thank you very much. Thanks, everyone, for joining the call on Webcast, and we look forward to seeing many of you at the Capital Markets Day tomorrow and continuing the dialogue. Thank you.