Temenos AG

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The conference will begin shortly. Thank you. Please note, anyone who wishes to ask a question during the conference may press star and one on the touch-tone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only hands as well as connect questions. Please hold the line. The conference will begin shortly. Thank you. Please note, anyone who wishes to ask a question during the conference may press star and 1 on their touch-tone telephone. You will hear a tone to confirm that you've answered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only hands as well as any questions. Please hold the line. The conference will begin shortly. Thank you. Please note, anyone who wishes to ask a question during the conference may press star and 1 on the touch-tone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only hands as well as connect questions. Please hold the line. The conference will begin shortly. Thank you. Please note, anyone who wishes to ask a question during the conference may press star and 1 on the touch-tone telephone. You will hear a tone to confirm that you've answered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to choose only hands as well as any questions. Please hold the line. The conference will begin shortly. Thank you. Please note, anyone who wishes to ask a question during the conference may press star and 1 on the touch-tone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. Please hold the line. The conference will begin shortly. Thank you. Please note, anyone who wishes to ask a question during the conference may press star and 1 on the touch-tone telephone. You will hear a tone to confirm that you've answered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only hands as well as any questions. Please hold the line. The conference will begin shortly. Thank you. Please note, anyone who wishes to ask a question during the conference may press star and 1 on the touch-tone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only hands as well as connect questions. Please hold the line. The conference will begin shortly. Thank you. Please note, anyone who wishes to ask a question during the conference may press star and 1 on the touch-tone telephone. You will hear a tone to confirm that you've answered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only hands as well as in a question. Please hold the line. The conference will begin shortly. Thank you. Please note, anyone who wishes to ask a question during the conference may press star and 1 on the touch-tone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only hands as well as connect questions. Please hold the line. The conference will begin shortly. Thank you.

Ladies and gentlemen, welcome to the Temenos Q1 2026 results conference call and live webcast. I am Sandra, the course call operator. I would like to remind you that all participants have been listened 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 one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Takis Spiliopoulos, CEO and Interim CFO. Please go ahead, sir.

Thank you. Good afternoon. Good evening. Thank you for joining our Q126 results call. As usual, I will talk you through our key performance and operational highlights before updating you on our financial performance. Starting on slide 6, we delivered a strong performance in Q126 across all our key metrics and our product revenue continues to grow above market. This follows on from the strong performance in 2025 where we delivered above market growth in product revenue in the first year of our strategic plan. The sales environment remained stable through the quarter, and in fact, we had a particularly good performance in the Middle East and Africa, signing a number of deals with new and existing customers. Importantly, we also saw good momentum in the US. As we discussed at our Capital Markets Day, we have a strong pipeline of deals in the US, And several of these are progressing nicely through the sales process. And we fully expect to sign some of them this year. Of course, it is hard to give precise timings given the complexity of the deal process, but I'm confident we will convert the US pipeline into revenue. And this is one of our key measures of success for the business this year. We also delivered another strong quarter of growth from maintenance again largely driven by premium maintenance signings as we continue to upsell across our customer base. We have a well-funded investment plan in place for the year with planned incremental investments of $28 to $35 million, partially offset by around $10 million of cost efficiencies. One quarter into the year, we are on track with our investment plan, and I would like to highlight that we made several senior hires in sales and product. I'm also pleased to announce the hiring of a new CFO, Daniel Schmucki, who will join us on August 3rd this year. Daniel brings a wealth of experience, most recently as CFO of SIX Group and before that as CFO of publicly listed Zurich Airport. Daniel has a strong track record in building and leading high performance teams in complex international businesses. and he will be an excellent addition and strong partner for executive committee and senior management. Turning back to the business, we delivered good operational leverage in the quarter with a cost-based growth from investments we made last year, offset by strong revenue growth in Q126. And lastly, we have reconfirmed our 2026 guidance and 2028 targets. Moving to slide seven, I'd like to highlight some of the key deals with clients in the quarter across different geographies and tiers. We had a number of expansion deals with existing clients, including a Tier 1 bank in Japan for new core and payment solution, and a leading Swiss private bank expanding their payment suite across several geographies. In SaaS, we extended our partnership with a digital arm of a leading bank in GCC. And we signed with a leading bank in APAC for call payments and FCM to support their launch of a new digital bank serving retail, corporate, and wealth clients. The diversity of deals across customer tiers, geographies, business models, products, and delivery types demonstrates the breadth and depth of our banking domain knowledge, customer trust, and product capabilities. Turning to slide eight, I'd like to highlight the value we are delivering to our customers. Given all the focus on the Middle East, I'd like to show one success story from the region this quarter with Al-Salam Bank in Bahrain going live on our core banking platform. They selected Temenos to future-proof their business as we were able to demonstrate our platform's scalability and support their future growth. They wanted a platform that could enable market-leading digital services, support their AI initiatives, and help them meet their regulatory compliance requirements. In the implementation, we replaced multiple siloed legacy systems with two acquired banks migrating to our single platform, delivering a significant increase in capacity and throughput and enabling the bank to launch a new digital app for real-time integrated services, thus creating new revenue opportunities. This is a great example of what our platform can do for banks looking to scale with confidence and reflects the kind of partnership and execution that sets Temenos apart. Moving to slide nine, we show this slide at our Capital Markets Day in February, But I want to reiterate our positioning in the AI era. AI is clearly reshaping technology markets. But banking is not a typical technology environment, and that distinction matters. Banks operate at the intersection of two of the highest thresholds in technology, product complexity and customer risk aversion. This is not an environment where generic AI solutions can simply be dropped in. The requirements are fundamentally different and that is where Temenos competitive mode is strongest. On the product side, banks demand trusted domain expertise that handle highly complex workflows, proprietary data, and platforms that can be extensively audited. These obligations do not shrink with AI. As banks automate more, these obligations become more concentrated in critical systems. From a customer risk perspective, our solutions are mission critical. Banks operate in one of the most highly regulated sectors and have zero tolerance for errors or hallucinations. Every decision must be deterministic. The cost of getting it wrong is existentially high. That's why we sit in the upper right quadrant of this matrix, where both product complexity and customer risk aversion are highest, as is the threshold for AI adoption. But the benefits of AI are real, and adoption will increase over time, and Temenos provides the regulated backbone for banks globally. By embedding AI into our platform, it allows customers to automate, scale, and innovate without compromising on compliance or reliability. We are not only protected from AI innovation from peers, incumbents, and customers. It is increasingly foundational to our right to win. Turning to the next slide, we have a well-defined AI strategy to capitalize on our advantage across our products, our process, and our people. Our strategy will lower total cost of ownership for our customers to embedding AI across our products, and it will speed up our software development lifecycle and support customers who generate assistance. And lastly, it will empower our people to leverage AI and enable greater productivity. As I mentioned before, the adoption threshold for AI in the banking sector is very high. where there is high product complexity and significant risk aversion. This, combined with deep customer trust and domain knowledge, creates a strong competitive mode for Temenos and gives us the right to win in the AI era. Moving to slide 11, I'd like to give you an update on the progress we made in the first quarter on executing our strategy. Our product teams have made good progress on the product roadmap, and we are on track for several new product launches in the second quarter across core, digital, AI, and composability, while also increasing the range of AI capabilities embedded in our product. We have continued investing in the business, in particular with several senior hires in our global sales organization. These individuals bring significant expertise to Temenos to further support and drive our core banking sales pipeline, as well as expanding our team responsible for delivering large complex deals with tier one banks in particular, which requires a specific skill set and the ability to manage highly complex negotiation to a successful closing event. We also launched our new pricing and packaging in the first quarter, which will drive better value for our clients and for Temenos by simplifying our approach, especially for deals involving multiple modules or products. And lastly, we continue to roll out AI tools across the company, most notably including the rollout of Anthropic in our product teams to enhance our software development lifecycle. I will now run through our Q126 financial highlights, focusing on constant currency, non-IFRS financials. On slide 13, we delivered strong ARR growth of 13%, despite the headwind from the BNPL client that moved off our platform at the end of last year. For those interested, we have shown the underlying growth rates for all our key metrics this quarter in the appendix. excluding the impact of the BNPL client. We had good growth this quarter across all our recurring revenue lines, both subscription and SaaS, as well as maintenance. And this was also reflected in the strong product revenue growth of 14%, well above the market run rate growth. Turning to slide 14, subscription and SaaS grew 12% in Q1 26, continuing the strong performance from the previous year. As I mentioned earlier, there has been so far no visible impact from events in the Middle East, with the region having a strong quarter in terms of deal signings, with a good performance in SaaS in particular. Outside of MIA, we also saw broad-based growth across client tiers and products. This was complemented by strong growth in maintenance, and also decent services growth, which together drove total revenue growth of 13% in the quarter. Moving to slide 15, both non-IFRS EBIT and BPS grew 20% in the quarter. The year-on-year increase in our cost base is reflecting the significant investments we made throughout 2025 in product, go-to-market, and operations. However, This is more than offset by the strong revenue growth and benefits from efficiency gains in the quarter. Proforma non-IFRS R&D costs were up 14% year-on-year in constant currency as we are accelerating our investments into product as communicated in February. All this together demonstrates the strong operational leverage in our business. Premium maintenance in particular attracts a high margin and continues to help drive the growth in profit. Let me highlight a few items on slide 16. ARR stands at $860 million, despite the headwind from BNPL, giving us excellent visibility on future recurring revenue and cash flow. The 15% growth in maintenance revenue was largely linked to strong premium maintenance signings as our sales teams continue upselling to our existing client base. We continue to guide for maintenance growth of 7% to 8% for the full year, as we are taking a prudent view on the remaining demand for premium maintenance across our customer base. On profitability, EBIT margin improved by 190 basis points to 32.7% year on year, reflecting strong operating leverage and some benefit from cost efficiencies. Moving to non-operating items on slide 17, net profit was up 19% in 2-1-26 and EPS grew 20%. Our EPS continues to benefit from the strong growth in profit and a lower share count from the shares canceled at last year's AGM from prior buybacks. We saw an increase in net finance charges and taxes in Q1, partially offset by FX. We had a slightly higher tax rate this quarter, with the expected full-year tax rate unchanged at 19% to 21%. On slide 18, free cash flow for the quarter came in at $60 million, growing 22% year on year. Driven by strong ARR growth, good EBIT to cash conversion, and our disciplined approach to capital allocation, which we outlined at our capital markets day in February. Our strong growth in free cash flow is a key metric for us and is in line with our expectations given we are now in the fourth year since introducing subscription contracts in 2022. We raised our 2028 target for free cash flow in February this year, reflecting our confidence in the strength of our operating model, balance sheet, and cash generation. On slide 19, we set out our changes in group liquidity in the quarter. We generated $204 million of operating cash and bought back $104 million worth of shares as part of the buyback launched in December. We ended the quarter 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 completed our share buyback program for a total of 100 million Swissy in April, 2026. With shares representing 1.9% of registered capital purchase to be used for general corporate purposes. This was the second share buyback we launched in 2025. with the first 250 million Suisse completed in August 2025. The shares purchased in that larger buyback are to be canceled at the AGM in May this year. A reported net deficit at 609 million at quarter end. We reiterated our disciplined approach to capital allocation at our Capital Markets Day in February. Our priority is to invest in our business in particular to accelerate our R&D roadmap and using share buybacks to ensure capital efficiency and enhance shareholder returns while maintaining flexibility to support our growth levers through bolt-on acquisitions. We also have a progressive dividend policy which reflects the recurring nature of our business model. Next, we have reconfirmed our 2026 guidance which is non-IFRS and in constant currencies, except for EPS and free cash flow, which are reported. The guidance reflects the strong performance in 2025 and the investments we made last year, which we are now starting to benefit from. 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 2026. And lastly, we have reconfirmed our 2028 targets based on a strong first year of execution, confidence in our strategic positioning and good visibility. Operator, please can we open for questions?