Temenos AG

Ladies and gentlemen, welcome to the Terminals Q2 2026 results conference call and live broadcast. I am Moira, the chorus call operator. I would like to remind you that all participants will be in listen-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 will not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Takis Spiliopoulos, CEO and Interim CEO. Please go ahead.

Good afternoon. Good evening. Thank you for joining our Q2 26 results call. As usual, I will talk to you through our key performance and operational highlights for the quarter before updating you on our financial performance. Starting on slide six, We had a strong start to the quarter and a stable sales environment throughout. However, we saw a small number of mainly large and new logo deals timed out at the end of the quarter. Most of these deals were in Europe. Importantly, none of these deals have been lost. We have also been able to sign the majority of the slipped subscription and SaaS revenue in the first three weeks of Q3 26, which confirms the confidence we have in our pipeline conversion. These deals include one of the largest banks in Central and Eastern Europe, as well as a Tier 1 European bank. With a robust start to the third quarter and very good visibility, driven by a strong pipeline of large and new logo deals, we have given explicit guidance for Q3 26, with subscription and sales expected to grow at least 30% year on year. We have also reconfirmed our 2026 guidance and 2028 Targets. APAC performed particularly well this quarter, signing a large new logo in the ASEAN region, as well as multiple deals with existing customers. We also saw good momentum in the US, signing a deal with a regional bank to migrate to Temenos Core Banking on SaaS. We had another strong quarter of premium maintenance signings, which helped drive our profitability along with strong operational leverage in the business. We continue to execute on our strategic roadmap, making investments across the business, particularly in core banking expertise and our regional and U.S. development teams. We also close the acquisition of Additive, strengthening our wealth proposition and accelerating AI-driven orchestration in line with the product roadmap we presented at the Capital Markets Day. Terminus clients across all tiers, especially tier 1s and 2s, have shown strong interest for the additive wealth offering. Lastly, our free cash flow continues to perform very well with strong double-digit growth this quarter. Moving to slide 7, we signed a number of key deals in Q2 26, and I'd like to highlight a couple of these. As I mentioned, in APAC, we signed a large deal with a new logo for core and digital in both the bank and its digital subsidiary to help them enhance the digital experience for their customers and to accelerate product innovation. We also extended our partnership with a number of existing clients, including a tier one bank in Japan, who are using our platform to accelerate their speed to market. In Europe, we extended our SaaS partnership with a digital subsidiary of a major European bank, and in North America, we signed a deal to migrate a client to our SaaS core banking for retail lending. These are just a handful of the deals we signed in the quarter and demonstrate the breadth and depth of our global client base and the increasing demand for our market-leading products. Turning to slide 8, we continue to focus on maximizing the value we deliver to our clients. Al-Raji is the world's largest Islamic bank with over 20 million customers and more than $260 billion in assets, based in Saudi, with a growing young and digital-first population seeking innovative and personalized banking services. Al Raji is a long-standing client of Terminus who values our deep Islamic banking expertise, proven capabilities, and established presence in the region. We migrated them across more than 500 branches to the latest Terminus core banking platform, enabling them to significantly reduce product launch cycles from weeks and months to days. They now have a strong foundation for continuous innovation and to provide next-generation digital banking experiences. Turning to slide 9. At TCF, we also announced that Quest Bank in Canada had gone live on terminal SaaS. This was another encouraging milestone for a North America business. Quest Bank, part of Questrade Financial Group, is launching Canada's newest digital bank to challenge the incumbents in the market and needed a highly scalable core banking platform that enables them to launch products fast, with real-time data and strong regulatory compliance to support their growth. The core platform was implemented in nine months with new deposit and lending products and the existing mortgages business moved across to the Temenos core. It is another example of the depth and breadth of our business where we are partnering across all tiers of banks from fintechs getting new banking licenses to building composable core modules with the world's largest banks. Moving to slide 10. We have made good progress on our product roadmap with a number of announcements at TCF, our client forum, in May. We launched Composable Retail Deposits and Composable Retail Lending as part of progressing lever B of our corporate strategy, which focuses on building out composable core solutions for the world's largest banks. These two new cloud-native core banking solutions allow banks to modernize their deposits and lending operations incrementally rather than undertaking a full core replacement. These enable banks to modernize critical revenue-generating businesses in a phased and cost-effective manner. The solutions can be deployed independently, integrate with existing technology environments through APIs, and help banks accelerate innovation while reducing the risk and disruption typically associated with large-scale transformation programs. And turning to the next slide, we also announced the launch of Intelligent Core and Intelligent Digital. This is the next step in our AI product roadmap, extending AI across both core and digital banking. We are working with our clients to address some of the largest pain points in banking technology, applying AI to the install, run and upgrade lifecycle, enabling faster deployments, greater automation and simplified upgrades. We announced several agentic AI capabilities at TCF, including co-pilots for Workbench, Payments, FCM and Wealth, as well as Conversational Studio for Digital. Together, these demonstrate how we are converting decades of banking expertise into practical AI capabilities. The launches are a key part of a broader strategy to embed AI across our entire product portfolio, further differentiating our offering and directly supporting our clients' growth. Moving to slide 12. Temenos continues to be recognized as the market leader in the core banking space. This is now our 21st year as the global leader in core banking in the IBS Sales League table, and we ranked first in 15 categories overall. I was pleased to see us ranked first in nearly every region and second in North America, where we continue to focus on expanding our footprint in the U.S. We also won the world's best core banking solution award from Euromoney, another demonstration of the strength of our core banking product. Now on slide 13, we announced the acquisition of Aditya in June and closed the transaction on 17th July. This acquisition accelerates our product roadmap, in particular for mass affluent, as well as giving us strong AI orchestration capabilities for complex journeys. Overall, there are three key drivers for this acquisition. Firstly, it extends our reach into the mass affluence segment where we already had ambitions to expand. Additive's market-leading mass affluent offering enables wealth managers to provide personalized advice at scale and significantly shortens delivery cycles. It gives us an immediate footprint and offering in this fast-growing market. Secondly, Additives gives us strong foundation to build up complex retail and corporate journeys in the future, in particular for credit origination, and accelerates our ability to offer a state-of-the-art digital onboarding and origination solution to our client base. And lastly, it complements our AI strategy with purpose-built AI-enabled experience and orchestration. We are working with the Additiv team to build out more AI use cases across their orchestration platform over time. The founder-led team will continue to run Additiv on a standalone basis for the foreseeable future. On slide 14, we continue to make good progress on our strategic execution priorities. Our product roadmap is progressing well, as we have already shown, and we are investing across the business. I was pleased to welcome Brian Vival, our new President North America, who joins from SSNC and previously FIS. He brings a wealth of experience and deep knowledge of the US core banking market. Rodrigo Silva is moving to President LATAM to focus on growing our business in key markets in that region, in particular Brazil, where we see a very significant opportunity. On the product side, We closed another round of key role hires in our India and US teams and we have continued to roll out AI tools across the business as part of our AI strategy. I will now run through our Q2 26 financial highlights focusing on constant currency non-IFRS financials. On slide 16, we delivered another quarter of double-digit ARR growth, despite the slip deals in the quarter, helped by our premium maintenance signings and a good level of SaaS ACV signings. Product revenue declined marginally year-on-year, but grew a healthy 6% in H126, also helped by the strength of our premium maintenance signings and our strong performance in Q1. Turning to slide 17, subscription and sales declined 13% in Q2 26 and 4% in H1 26 due to the slipped deals. As I mentioned before, importantly, none of these deals were lost and the majority of the slipped subscription and sales revenue was already signed in the first three weeks of Q3 26. Total revenue grew 1% in the quarter and 6% in H1 26 with maintenance and services revenue growth offsetting the impact from subscription and SaaS. Now on slide 18, non-IFRS EBIT grew 4% in Q2 26 and 10% in H1 26 and non-IFRS EPS grew 7% in the quarter and 12% in H1 26. Our cost base was broadly flat in the quarter and about 4% in H1 26 with an increase in fixed costs offset by lower variable cost accruals. We continue to hire and invest in the business. However, strong premium maintenance signings and operational leverage mean we are still able to deliver strong growth in profitability. Now let me highlight a few items on slide 19. ARR grew 11% to reach 881 million bucks. We now guide for maintenance growth of 8% for the full year, slightly up from 7-8% previously, As we all continue to take a prudent view on the continued demand for premium maintenance across our customer base. On profitability, our EBIT margin improved by 1 percentage point to 41.3% year on year, reflecting strong operating leverage. Our margin will normalize in H226 with ongoing investment in the business and greater viable cost accruals that we typically see in the second half of the year. Moving to non-operating items on slide 20. Net profit was up 2% in the quarter and DPS grew 7%. This was achieved despite an increase in net finance charges and taxes, partially offset by ethics. with our tax rate this quarter marginally higher than the expected full-year tax rate of 19 to 21%. We canceled additional shares after the AGM in May from the 2025 buybacks, which also benefited EPS. On slide 21, we generated free cash flow of 74 million in the quarter, up 14% year-on-year, driven by strong ARR growth, solid EBIT to cash conversion, and our disciplined approach to capital allocation. This remains a key metric for us, given our move to our subscription license model in 2022. On slide 22, we have the changes in group liquidity in the quarter. We generated 127 million of operating cash in the quarter, paid 118 million in dividends and bought back 10 million of shares in our latest buyback, which ended in April. We ended the quarter with a leverage at 1.4 times within our target range of 1 to 1.5 times. Turning to slide 23, a few comments on our debt leverage and capital allocation. We completed our share buyback program for a total of 100 million Suisse in April 2026, with shares representing 1.9% of registered capital purchased. We also canceled approximately 4 million shares purchased in the 2025 share buyback after our AGM in May, and our reported net debt stood at $691 million at quarter end. I would also flag that we expect our leverage to be within our target range of 1 to 1.5 times by year end, including the acquisition of additive. Next, we have reconfirmed our 2026 guidance, which is non-IFRS and in constant currency, except EPS and free cash flow, which are reported. The acquisition of additive is expected to be marginally accretive to ARR and subscription and south, and neutral on EBIT, EPS, and free cash flow. The 2026 guidance includes the headwind from the termination of the BNPL client in 2025, which we have given on the slide. There will be no further headwind from this beyond 2026. We have also given guidance for Q3 26, given we already signed the majority of the slid subscription and sales revenue from Q2 26. We expect subscription and sales revenue growth of at least 30% in the quarter. And lastly, We have reconfirmed our 2028 targets based on a strong first year of execution, confidence in our strategic positioning, good visibility, and continued conversion of our pipeline. Operator, can you please open up 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 have entered the queue. If you wish to remove yourself in 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 web after 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 land of Frédéric Boulan, from Bank of America. Please go ahead.