Temenos AG Earnings Call Q3 2021.pdf

FINAL TRANSCRIPT 2021-10-14
Temenos AG (TEMN SW Equity)
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, Chief Executive Officer & Member of the Executive Committee
Panagiotis Spiliopoulos, Chief Financial Officer & Member of the Executive
Committee
Chandra Sriraman, Stifel
, Deutsche Bank AG
, Barclays
, Baader Bank
, Kepler Cheuvreux
Michael Foeth, Vontobel
, JPMorgan
Max Chuard
Q3 2021 Earnings Call
Company Participants
Max Chuard
Other Participants
Gianmarco Paolo Conti
James Goodman
Knut Woller
Laurent Daure
Stacy Pollard
Presentation
{BIO 6155063 <GO>}
Good afternoon, and thank you for joining us today. I hope you've been able to
access our results presentation on our website. I will start with a review of our Q3
performance, then I will hand over to Takis to go through the financials before giving
some concluding remarks.
Starting on Slide 7, we saw strong momentum in our business this quarter. The
environment continues to improve and more banks are pushing ahead with IT
transformation. This is reflected in our license and SaaS, which both performed
strongly in Q3. SaaS revenue accelerated to 30% growth in the quarter and license
were up 20% with demand increasing across all customer tiers and products.
Total bookings grew at a healthy 19% in the quarter which is adding to our backlog
and increasing our recurring revenue visibility. This is a key metric for tracking the
growth in the business overall, as it combines the acceleration in the SaaS alongside
the ongoing demand for our traditional license business.
The growth in SaaS and maintenance is also driving our ARR, which was up 9% in the
quarter. EBIT grew 7%, driving our strong operating and free cash flow performance.
We are seeing a rapid evolution of SaaS and cloud and we are going through a very
exciting phase in our growth. Competition for talent is intense and we must ensure

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we can attract and retain the right skills and talent. This quarter, we've made some
investments to achieve this, and Takis will talk more about this later in the call.
Moving to Slide 8. We generated $10.7 million of SaaS ACV this quarter. In any one
quarter, this number is driven by a combination of new bookings and volume growth
in existing customers. In Q3, the vast majority of growth came from new booking.
And in fact, this was more than double the amount from last year, with some very
exciting names on. And I hope that those new names will also drive increased
consumption in the future, of course. The U.S. was the largest contributor to ACV and
Europe was the second largest. And we expect a very strong year with our SaaS ACV
growing between 50% to 60% for the full year.
Turning to Slide 9. Total bookings this quarter grew 19%, with strong demand across
all tiers and products. We generated $153 million of total bookings. And year-to-date,
our total booking are up 64% versus 2020, and also up very importantly on 2019, as
we continue to take market share. The growth was across license and SaaS as well as
an increase in the average tenure compared to 2020.
On Slide 10, the sales environment improved through the quarter in all regions. We
had 18 new clients' wins, which was fairly evenly split across license and SaaS deals.
The U.S. is still our largest contributor to total software licensing. This had a good mix
also of license and SaaS, this, with some very exciting new names signed in the
quarter. Europe had a sequential improvement in sales and we expect the regions to
accelerate further in the fourth quarter across both license and SaaS. We also had a
good performance in Asia with two Tier 1 banks extending their relationship with us.
And pipeline activity with Tier 1 and Tier 2 banks has clearly picked up across most
regions, but in particular, in the U.S. where we are actively engaged in multiple large
deals opportunities, this is very exciting times for us in the U.S.
On Slide 11, I'd like to take a minute to discuss an interesting trend we've seen over
the last few months. We've announced several exciting partnerships and deals with
operators in the BaaS market. We announced two partnerships with BaaS providers
in the quarter to enter the BaaS market in the U.S. and in Europe. Mbanq in the U.S.
offer services to credit union, and which is an estimated market of $3.6 billion; and
Vodeno is targeting Europe and BaaS market, and estimated around $3 billion
market annually.
We also signed a key deal with Green Dot in the U.S. to power its direct digital bank
and banking platform services. Interestingly, we competed against some of the
largest U.S. incumbent vendors and several neo-vendors on this deal. And the bank
choose Temenos because of our hyper-efficient, highly scalable and secure open
cloud capabilities. And obviously, we've made significant investments over the last
few years in that respect.
I believe the demand for BaaS will only increase going forward, as financial
institutions look to access the digital transformation, and fintechs and e-commerce
platform look to embed banking services into the ecosystems. This is, as I said, a very

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exciting and an accelerating trend that is expanding our addressable market. It is
great that our technology is at the forefront of this. And Temenos is extremely well-
positioned to capture this opportunity because of our market leadership, because of
our credibility and the strength of our solution.
Moving to Slide 12. We are making good progress with the both partnerships --
strategic partnerships that we've announced at the start of the year. With Salesforce,
we've completed the integration of our product for retail. We are working now on
the business and the wealth version of the integrated product, and we've seen
already some strong interest in the U.S. and globally across all those three business
lines. Then secondly, on the partnership with DXC, which continues to progress well.
We are engaging with a number of DXC's customers on core banking replacement,
and this is supporting the acceleration of our Tier 1 and Tier 2 pipeline in the U.S., as I
mentioned before.
Turning to Slide 13. I'd like to spend a minute on our competitive positioning.
Temenos is uniquely placed to meet the demands of our plans across all tiers and
business models. We have a unique value proposition as banking is all we do, 100%
focus. We have deep domain expertise unmatched in our market. And our overall
R&D and innovation is customer-centric, using our domain expertise to meet the
demands of our customers today and in the future. We combine our leading
functionality with extensive localization capabilities for our clients in 150 countries.
We share a game-changing technology. Our platforms are cloud-native, cloud-
agnostic, and that gives our clients efficiency, scalability and freedom to choose how
and where they want to run our software. Our technology is APIs-first with AI-
embedded across the platform. And our packaged products with a single code base
mean that all our plants are running on the same platform, and they can all benefit
from our innovation in R&D, which is the highest in the industry. We can scale
through our extensive ecosystem of technology and implementation partners.
Now on Slide 14, I'll continue a little bit on our unique value proposition, which give
us a winning combination of game-changing technology and rich highly localized
package functionality. What is important is that, our investment are not diluted across
overlapping products. We have one core banking platform and one digital banking
platform and one code base. So when we invest $1 in innovation, all our clients can
take advantage of this. These are strengths our competitors cannot match.
With a focused on technology toolkit and highly customer solution for each and
diverse clients, the model is not scalable. When clients choose Temenos, our clients
now are working with the market leader, and now we can provide the business
benefits that are looking forward in selecting a vendor.
And let me give you some example of those business benefit we provide to our
customers, like Paper. Paper had its fastest product launch ever using our Temenos
platform. In the U.S., the challenger bank, Varo estimate that it is able to operate at a
25% cost of an incumbent bank using our technology. And now Green Dot, as I said

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Panagiotis Spiliopoulos
before, selecting Temenos because of our hyper-efficient, highly scalable and highly
secure open cloud capabilities. So, these business benefits are only possible
because of our unique approach, package, upgradable software, one single code
built using deep domain expertise, and obviously our passion and relentless focus
on innovation.
Having said that, I will now hand over to Takis to go through the numbers for the
quarter.
Yes. Thank you, Max, and hello everyone from my side as well.
Starting on Slide 16, I'll start with an overview of the quarterly financial performance.
All figures are in constant currency unless otherwise stated. Our SaaS revenue
accelerated to 30% growth in the quarter, with now several quarters of strong ACV
growth starting to be reflected in the P&L. We also had strong license growth with
increased activity across all tiers. And these together drove total software licensing
growth of 23%. Maintenance grew 3% as expected, giving total revenue growth of
9%. EBIT grew 7%, and we achieved an EBIT margin of 37.2%, down 1 percentage
point. You should bear in mind that the Q3 '20 cost base has the full run rate benefit
of cost savings from our 2020 restructuring program.
Our cash generation remains strong, with operating cash flow up 7% to $68 million,
and free cash flow up 19% to $48 million. DSOs ended the quarter at 111 days, and we
expect DSOs to be around 105 days by year-end. Our net debt moved below $1
billion, and our leverage stood at 2.2 times, sequentially down from 2.3 times. We
now expect our leverage to be at around 2 times by year-end.
Moving to Slide 17. Our strong ACV growth of the last few quarters drove an
acceleration of SaaS revenue growth to 30%. I expect SaaS revenue to increase by
about $3 million in Q4. I was particularly pleased with the good license growth of
20% this quarter, driving total software licensing growth of 23%.
The maintenance continues to recover as expected, growing 3% in the quarter. We
expect maintenance growth to accelerate into Q4 to give full year maintenance
growth of around 4%, driven by the stronger license growth in the first half of the
year. After 2021, we expect our maintenance growth to accelerate in 2022 and
beyond those licenses continue to grow. Service revenues were down 5% in a
seasonally slow quarter. I expect growth to considerably accelerate in Q4 with
service revenues growing around 3% for the full year.
Looking at the cost base, our operating costs were up 10% year-on-year. As
expected, the cost base in H2 is catching up with the continued hiring across the
business and we would expect our 2021 cost base to arrive as implied by the
midpoint of our guidance. While travel costs are lower than forecast at the start of
the year, those savings are offset by competition for talent in some areas of the
business.

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Next, on Slide 18, we have like-for-like revenues and costs adjusting for the impact of
M&A and FX. The Q3 figures are all organic and therefore, in line with our constant
currency growth rates. In terms of FX, the euro weakened against the dollar, and the
sterling and the Swiss' strengthened against the dollar, creating an EBIT tailwind of
around $2 million. We have also factored in this $2 million headwind on EBIT
guidance for the full year.
Turning to Slide 19. Net profit grew 1% in the quarter, largely due to the higher tax
rate. EPS grew 3%. Our tax rate was 17.2% for the quarter and we continue to guide
for a 2021 tax rate at 16% to 18%.
Now, moving to Slide 20. Our DSOs reached 111 days at the end of the quarter, flat
year-on-year. As Q3 is normally a back-end loaded quarter due to summer holidays,
this usually results in a seasonal sequential uptick in DSOs, as also seen last year. We
still expect DSOs to reduce to around 105 days by year-end. Beyond 2021, we expect
DSOs to continue on their downward trend towards 85 days by 2025, driven by
continued improvement in licenses and services, cash collection and an increasing
contribution from SaaS in the P&L, which typically has DSOs more in line with
maintenance.
On Slide 21, our Q3 '21 LTM cash conversion was 113%, well above our target of
converting at least 100% of IFRS EBITDA into operating cash. We expect our cash
conversion to be at least 100% for 2021, driven by strong growth in recurring
revenue, which we have continued to deliver for at least a few quarters now.
Next, on Slide 22, we show the key changes to the group liquidity since Q2 '21. We
generated $68 million of operating cash. All the movements to highlight include the
completion of our share buyback, which ended in August and a net outflow of
borrowings of $28 million. Our cash on balance sheet at the end of the quarter was
$85 million, with our net leverage reaching 2.2 times, down from 2.3 times at the end
of Q2. We expect our net leverage to be around 2 times at year-end 2021, a slight
improvement from previous commentary.
Moving to Slide 23. Our ARR continues to accelerate on the back of strong SaaS
growth and on the recovery of our maintenance revenue, with ARR reaching 9%
growth in this quarter. ARR growth will continue to accelerate in the fourth quarter, as
both SaaS growth and maintenance growth reached more normal levels.
Our deferred revenue continues to grow nicely at 13% with strong advanced
collections and growth in SaaS being the key drivers. Free cash flow was up 19%
year-on-year to reach $40 million, and our net cap debt was $5.8 million, down $1.4
million versus Q3 '20, and still expected to be at 2020 levels for the full year,
assuming no further M&A.
On Slide 24, I have kept this slide in here to remind you of the new KPIs we
introduced in February, total bookings and ARR. I won't go over it again now, but you

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can find tables in the appendix with SaaS, ACV, ARR, total bookings and free cash
flow by quarter to help you track these numbers.
Now on Slide 25, we have confirmed our non-IFRS guidance for 2021. The guidance
is in constant currencies, and you can find the FX rate assumptions in the appendix.
For ACV, we are guiding for 50% to 60% growth as we have seen strong growth in
both new names and volume growth with a number of clients throughout 2021. For
ARR, we guide for 10% to 15% growth, driven by committed SaaS revenue from the
ACV we have booked and the reacceleration in our maintenance growth in Q4. We
expect total software licensing growth of 14% to 18% with continued license growth
as seen in the first three quarters and driven by the accelerating growth in SaaS.
Total revenue growth is forecast at 8% to 10%, with the impact of slower growth in
maintenance and services on the back of lower license growth last year. We expect
both of these to accelerate in Q4 ending 2022 and beyond. We are guiding for EBIT
growth of 12% to 14% to $360 million to $367 million, including the $2 million FX
headwind on EBIT for the full year. This implies an EBIT margin expansion of 130
basis points from 35.8% to 37.1%.
Under our definition of non-IFRS, which we changed in January 2021 to bring us in
line with our peers, we are now excluding IFRS 2 charges. There is a significant
amount of volatility in these costs, including the share price, and if and when
individuals exercise their options. Our estimated IFRS 2 costs for the full year have
increased from around $20 million to an estimated $50 million. While the normal
IFRS 2 run rate cost is still estimated at around $20 million to $25 million, the
incremental portion is driven by two one-off elements. Firstly, the introduction of a
new one-off LTIP program extended across an increased number of employees to
align a broader segment of the middle and upper management with the overall
company performance.
Our company is going through a rapid evolution with significant changes around
SaaS and cloud across the organization, while the competition for talent in our sector
has intensified. Our Board and ExCo made the decision to give this one-off grant to
a large number of senior and middle management below ExCo level to ensure we
can attract and retain the necessary skills and talent to drive the growth of our
business going forward. The second element driving the increase of IFRS 2 costs is
the alignment of outstanding years of existing LTIP programs with the new KPIs
introduced in 2021, as voted on at the May 2021 AGM.
Lastly, in terms of guidance, we have maintained our target of converting over 100%
of EBITDA into operating cash and expect DSOs to reduce to around 105 days by
year-end. We expect a tax rate of 16% to 18% for 2021 and our net leverage to be
around 2 times by the end of the year.
On Slide 26, I'd like to reconfirm also our 2025 targets, which we presented at our
Capital Markets Day in February. These targets are organic growth rates per annum.
We expect total software licensing to grow 15% to 20%, and SaaS will clearly grow

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Max Chuard
Operator
Q - Laurent Daure
significantly faster at around 30% plus, with licenses expected to grow at 10% plus
per annum. This will drive total revenue growth of 10% to 15% per annum.
We expect to expand the EBIT margin to around 41% by 2025, driven by strong
growth in license and maintenance, improving our SaaS gross margin and
leveraging R&D and G&A, while still growing R&D on absolute basis by 7% to 8% per
annum. We expect total bookings to grow 17% to 22% per annum, with ARR to grow
at least 15%. ARR, in particular, will drive free cash flow growth of at least 15% to reach
more than $600 million by 2025.
And then finally, on Slide 27. This is a slide we showed during the last couple of
quarters, but I wanted to give a quick run-through of our non-IFRS EBIT and margin
expansion in 2021. Our EBIT growth will be driven, in particular, by growth in
recurring revenues as well as licenses, while we continue to invest in R&D and sales
and marketing and with greater variable cost accruals compared to 2020. As such,
we expect to deliver an EBIT margin expansion of around 130 basis points in 2021.
With that, I hand back to you, Max.
{BIO 6155063 <GO>}
Thank you, Takis. And so on Slide 29, in conclusion, we continued our strong
momentum in the third quarter. License and SaaS, both performed strongly, with
SaaS revenue accelerating to 30% and licenses up 20%. Our total bookings
continues to grow strongly, driving backlog and visibility, as does our ARR. Our EBIT
growth is driving our strong operating and free cash flow generation. And finally, we
are going through a very exciting phase of growth. And I am confident to deliver our
2021 guidance as well as the mid-term ones. I look forward to updating you on our
Q4 results in February.
So with that, operator, I'd like to open the call for Q&A.
Questions And Answers
(Question And Answer)
The first question comes from Laurent Daure from Kepler Cheuvreux. Please go
ahead.
{BIO 1732601 <GO>}
Good evening, Max and Takis. I have three questions on my side. The first point is on
the Green Dots deal. It seems quite an attractive deal. Could you elaborate a bit
further with more details on this deal, the ramp up phase, I suppose the ACV will be
impacted by this deal in Q4 and any granularity on the size this deal could reach
maybe one or two years from now?

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A - Max Chuard
A - Panagiotis Spiliopoulos
The second question, Takis, one for you. You reconfirmed all your guidance, I was
thinking about the licensing growth 14% to 18%. Why have you kept the low-end of
this guidance and changed? Because it seems to imply more or less flattish license in
the fourth quarter?
And final question is on the stock option you just described. At the CMD, on the long
run, you were expecting the charge to be 3%, I think 3% to 3.5% of revenues with
more fight for talent. Is there a risk that this number may be adjusted -- for not only
for 2021, but for the coming years? Thank you.
{BIO 6155063 <GO>}
Hi, Laurent. Thanks for the question. I'll take the first one. Yeah. Listen, Green Dot is a
very exciting deal. It is that -- it's the Temenos Banking Cloud, so it is an ACV deal, it
is a large deal we signed in Q3. So if you -- it will really start impacting on the P&L
more towards 2022. But it's an exciting deal.
What we are seeing in the market with embedded finance and the ability to expand
our market into different ecosystems, and the ability for Temenos to be the
technology to power this, I think that's very exciting. And the path of traction and the
speed of at which we saw -- we are seeing this happening is very, very exciting. And I
think we are extremely well positioned. We do want to be the de facto player on
technology provider to those BaaS providers. You've seen we've announced Mbanq
in the U.S. and Vodeno we are selected, we are choosed by Green Dot, that has
around 53 million customers. It's a very, very exciting company. So, very pleased with
the deal. And as I said, it's also a deal that we were able again to show our value
proposition to show as a business benefit we can bring to them. Again, some very
established U.S. incumbent vendors and also the traditional neo vendors. So, very
pleased with this deal.
Hi, Laurent. Let me take the other two question. License growth, clearly, we're
pleased that we have shown 20% again in Q3, we had Q1 and Q2 also good. Keep in
mind, the comparison base gets tougher in Q4. So that's may be one reason why we
feel confident with the guidance as it extends now, and the second is, we still have
the largest -- traditionally the largest quarter ahead of us. As we mentioned in the
past, we expect closure rates to be back at the pre-COVID levels by the end of the
year. So, at this point in time, I think we feel confident with our guidance as it is out
there.
On your IFRS 2 cost, clearly we need to highlight that this is a one-off, okay. Now, we
have been investing across the organization in our talent pool and in terms of salary
increases, so this is all reflected in our cost base. From today's point of view, I think
it's too early to come up with an IFRS 2 number for the next year. We'll inform in
February. Maybe it's going to be slightly higher, a couple of basis points, we don't
know at this point in time. But clearly it would be not driven by this one-off or only
partially.

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Q - Laurent Daure
Operator
Q - James Goodman
A - Max Chuard
So I think -- yeah, even if we end up at 3% to 4% next year, but I think we'll need to
see where we stand in February. I mean, one of the reasons as we have mentioned is
exactly what has happened this year. Share price recovered first, then it came back
again. We really don't know what is happening. So we were constantly grown, even
when we're estimating for ourselves the cost, but the run rate, I think that's the
important one, the $20 million to $25 million still stands, so another $5 million, $6
million for Q4.
{BIO 1732601 <GO>}
Okay. Thank you very much.
The next question comes from James Goodman from Barclays. Please go ahead.
{BIO 17170609 <GO>}
Hey, good evening. Thank you. You talked about being engaged I think in multiple
large deal opportunities in the U.S. I mean, we saw obviously a particularly big cloud
vendor win in the U.S. recently for, I guess, a complex domestic operation. When I
think about the customers that you target with your SaaS offering typically and sort
of well outside of that kind of Tier 1 category. So I just wondering, if you could help
us there with I guess the evolution of the competitive situation with the native cloud
vendors as we think about larger tiered clients.
The second question just, I think there was, in Q2 some discussion of modest
amount of slippage out of that quarter. And I was curious as to whether you close
those deals, this quarter if not that's been anticipated for the year, and did you
experience any further slippage at all on the license side? Thank you.
{BIO 6155063 <GO>}
Hi, James. Let me take the first one. Yes. We do see a larger amount of exciting
opportunities in the U.S., some of those are doing with -- from our partnership with
DXC, some are just doing by our own operation that we have there. And also, as I
mentioned, we've got a particular focus on global accounts and big banks and we've
got a team that is looking specifically after those accounts. Those are I would say Tier
1 to Tier 2 institution, it's mainly I would say at the back end that they want to
renovate, is it through a micro services or line of business. But it is significant type of
activities.
Now to your question about the competitive landscape, I try to explain during the --
during my presentation, how we differentiate ourselves and why we win. We clearly
don't win all the deals, because there are some deals that are -- we found our model
doesn't fit for those deals. We -- our goal is to provide a highly scalable model,
which we can repeat, we invest massively, and we can show a very clear business
benefits to our banks, to our customers. And I try to give some of that. We are not in
a business of building a kind of platform for a single bank, that's not our business,
and that will never be our business. So, that the cases, where a bank will want to

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Q - James Goodman
Operator
Q - Chandra Sriraman
A - Max Chuard
invest in something very specific for them that they would be able to tailor it made to
evolve it in the very specific requirements, that's not Temenos.
Temenos sees about heavy investing in innovation, lead innovation, bring value and
that's why also you see Temenos running at high margins. We are able to sell that
value to the customers, they see the benefit of what we bring to them. When one of
our is able to operate at 25% of the cost of an incoming vendors, they see the
benefit of what we can bring to them, and that's our model. So we will not, we know
the deals because some of the deals will not be for us.
Hi, James. Let me take the second one. And the one example given that at the time
of Q2 results was just to show the impact one deal can have on growth rates. So I
can't really comment on this specific deal other than, not much happened with a
legal team. So, it's expected to close now shortly. So, let's say, October or November.
But clearly, as you see from our Tier 1 total software license share, we had a some
very good older deals closed in Q3. So, yeah, so still the one ahead and clearly part
of our full-year forecast.
{BIO 17170609 <GO>}
Thank you, guys. Helpful.
The next question comes from Chandra Sriraman from Stifel. Please go ahead.
Yeah. Good evening, Max. Good evening, Takis. Maybe a couple of questions from
my side. So when I look at Europe, it still seems to be very Q4 loaded like 2020. Can
you give some color on what's driving this, you have been quite positive in terms of
the demand bouncing back in Europe for a while now? What are the key hurdles you
see here for things not to have improved already?
And maybe, a very quick question in terms of the sales and marketing costs, you
have mentioned that, you're seeing some increased competition there. How should
we see this evolving as licenses continue to progress as you expect? Thanks.
{BIO 6155063 <GO>}
Hi, Chandra. Let me take the first one. So listen, Europe, we saw a sequential
improvement compared to Q2 to Q3. Clearly, the largest quarter is Q4. Europe is
pretty much close for most of the Q3. The summer is long in Europe. And
specifically, after COVID times, people are taking time off, and that was the case
clearly.
But I think as well what probably you don't fully appreciate is, that we do also see
quite some traction in our SaaS business in Europe. And when you look at our
performance in Europe, from a bookings point of view where you take into account,

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Q - Chandra Sriraman
Operator
Q - Knut Woller
A - Max Chuard
if you on the total contract value from our SaaS deals, then the picture is totally
different, and then you would see Europe in Q3 being strongly on last year. So I think
this is a little bit probably what is not that -- what you cannot see and is the fact that
we see more and more traction in our SaaS business coming from Europe. Clearly,
U.S. continues to lead the way, but second is Europe, and we see increased activity
from our SaaS business in Europe and since when you look at the total contract value
of both the license and the SaaS, then Europe as clearly strongly rebounded in Q3 in
that respect.
Maybe on, Chandra, the sales and marketing costs. I think as we explained at the
start of the year, at the CMD, sales and marketing will grow faster than the revenue
this year but also the future years. And clearly this is something we not only started
this year, but if you remember, we -- we're already making selective investments in
both R&D and sales and marketing on the back end of 2020. So this is I think
something which is going to increase. Now as we mentioned, this loyalty program
clearly had also some sales people benefiting from this, but this is just one element
we do regular salary benchmarking review -- reviews, but this is something we saw
or we predicted in our forecast. So I would say no change expected from what we
said at the start of the year.
Great. Thank you.
The next question comes from Knut Woller from Baader Bank. Please go ahead.
{BIO 1987476 <GO>}
Yeah. Thank you. Also a couple of questions from my side. First on the SaaS ACV
which was basically down year-over-year admittedly against the back of tough
comps. Still it was I think the weaker SaaS ACV now that you delivered in the last five
quarters. So, I'm trying to get a better feeling for the momentum that you're seeing
on the SaaS side, which I don't see reflected in the SaaS ACV and would appreciate
here, some more color?
And then secondly, on the cash flow, it looks like the cash flow in Q3 has been
particularly driven by trade payables, while receivables were a headwind, and here
particularly looking at receivables, they have been up sequentially. Can you give
here some ideas on what drove the receivables up in the third quarter? Thank you.
{BIO 6155063 <GO>}
Hi, Kunt. Let me take the first one. Listen, our ACV -- SaaS ACV businesses is very,
very strong. And there is a lot of activity based from pipeline. Now, when you look at
the ACV for this quarter, the element I tried to highlight is, within every quarter, you
will have an amount of consumption, and this is difficult to predict when a certain
customer will require increased consumption. And clearly this year -- this quarter,

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Q - Knut Woller
Operator
Q - Stacy Pollard
A - Max Chuard
sorry, we had minimal from that. So if you look at -- and that's why for me ultimately
this is a very positive KPIs.
When you look at the incremental, the ACV this quarter, almost all of it is new
business activity, which we generate in the future increase consumption. So yes, it is
below a year ago, that's for sure. But this is just new business activity, new logos that
will hopefully be successful customers that will increase consumption and so on. So
for me, I'm very pleased with the delivery of what we signed on the ACV side in Q3.
It's lots of new logos, very exciting new logos, exciting names that hopefully will
generate much more consumption in the future.
Yeah. Hi, Knut. Let me take the cash flow question. So yes, we had an outflow for
around $26 million on the receivables. So clearly we had, as I mentioned a very
backend loaded quarter, so quite a number of deals signed very late. And basically,
the cash will coming in Q4. This is also visible with the DSO number moving
sequentially up.
On the payables, I think if you go back into the quarters and clearly we had some
positive impact there of payments we had done to suppliers, or basically
prepayments, and therefore, this was a positive impact. But clearly, over the full-year,
we always expect it more quarterly specific variations to normalize. So, other than the
receivable with the DSO increase with the traditionally back-end loaded quarter and
nothing specific to mention here.
{BIO 1987476 <GO>}
Excellent. Thank you.
The next question comes from Stacy Pollard from JPMorgan. Please go ahead.
{BIO 3801698 <GO>}
Hi, thanks. Just a couple of catch up questions. First of all, what happened in the
services again, can you maybe speak about that a bit more and what we should
expect in services going forward? How much is being taken by third parties now and
does that shift continue?
And second question, just a kind of a follow-up around that ARR and the 9% looks a
little bit below the 10% to 15% target for the full year. Is that catch up mainly coming
from the higher signings in Q4, is that the way we should think about it?
{BIO 6155063 <GO>}
Hi, Stacy. Let me take those, maybe first on the ARR. And clearly, ARR, which is driven
by maintenance and SaaS growth. We'll see an acceleration, a pretty considerable
acceleration in both maintenance and SaaS growth in Q4, which will basically going

Page 13 of 16
Q - Stacy Pollard
Operator
Q - Michael Foeth
to drive the ARR growth into the 10% to 15% range as we have guided. So, I think
nothing specific to read into that. And given the visibility we have, this is something -
- yeah, we're pretty happy to forecast. So yes, ARR growth will materially accelerating
Q4 as well maintenance and SaaS.
On the services, I think there are two elements to consider. One is, what we have
seen in terms of the revenue impact. Clearly, we had a particularly high number of
partner implementation in Q3, which is something it's always difficult to time. From
the current point of view, we would see Q4, let's say, with a normal share of partner
implementation, so material growth acceleration in service revenues in Q4 to arrive
around the 3% mark for the full year. And then, the other element is clearly having
some impact on profitability, was more that we have been making some selective
investments into our partner model, especially around governance, customer
success, which is also, I mean, it's still small -- having a small impact on the margin,
but this clearly should have -- should help us drive license growth in 2022 and
beyond, and also become more efficient in terms of the implementation timeframe
for future projects.
{BIO 3801698 <GO>}
Okay. Thanks.
The next question comes from Michael Foeth from Vontobel. Please go ahead.
Yes. Good evening, gentlemen. Two questions also from me. The first one is
regarding the additional board members that you announced two additions which
look very good. The question is, whether they are going to replace other board
members? Or whether you're expanding the board and if you're expanding, why
does Temenos feel it needs to expand the board?
Second question is regarding your view on your overall pipeline. How is that
developing? How would you qualify your pipeline of business now versus a quarter
ago and a year ago? Thank you.
Hi, Michael. So the -- yes, we are linked to board members, which have I would say,
quite a -- probably a different profile which we will very nicely compliment. I would
say the -- our current board. It is about expanding it, it is about as I said bringing new
type of IDs, new interest into that board. And I think it's going to be very, very
interesting to have them as part of the board. We are also obviously nicely moving
into a more diversified with, now three female at the board, around 30% will be
represent by female at the board which I think is greater. So it is about expanding a
few on the board with new and very interesting backgrounds.

Page 14 of 16
Q - Michael Foeth
Operator
Q - Gianmarco Paolo Conti
On the question about the pipeline, listen, clearly the, I would say, the U.S. is where
we see the -- probably the most active because of I would say some very large deals
that are progressing well, and I think which as I said is a -- are very, very exciting. And
so, the U.S. is clearly, we are making now significant inroads in the U.S. and as you've
seen now, it's now quite few quarter that the U.S. is the largest contributor to total
software licensing. And we see both I would say from a license and SaaS. I would say,
the rest of the regions are clearly coming back from the COVID crisis and we see
both, I would say, Asia starting as well. I mentioned, we had two very interesting Tier
1 deals that expanded the footprint with Temenos this quarter. But there is more
activity happening and across Asia, also in Australia, which has been a very important
market for us in the past, and then during COVID, its slowed down, and now we see
increased activity again. So clearly, Asia as well is coming back.
I mentioned, Europe, obviously, Europe where that has been the regions, which has
been the most impacted and that has been slow -- the slowest to come back
compared to the U.S. And -- but there as well, we are starting to see increased
activities. There is a need of digitalization across the globe and we see both traction
on the license side, but as well on the ACV. So clearly, a picture which is clearly
improving compared to last year, a picture that's improving compared to if not a
months ago. So we would see continuous improvement in the environment which is,
I would say, giving us ultimately the confident for the medium-term.
Excellent. Thank you very much.
The next question comes from Gianmarco Conti from Deutsche Bank AG. Please go
ahead.
{BIO 20330794 <GO>}
Hi, there. Yeah. Good evening, Max and Takis, thanks for taking my questions. I have
about three or four. So the first one is just a quick one around, whether the one-off
LTIP is truly a one-off and not just a recurring cost and that might come back next
year?
The second question is with regards to the lowest SaaS ACV, I know you've
explained this previously. But my question is, is there a risk that to continue to grow
ACV SaaS? You would always need to basically increase new winnings. And given
that the banking environment is quite conservative with regards to cloud, it will be
tricky to have this basically grow sustainably from only fintechs and challenge a bank
and the likes, especially if consumption is so unpredictable. I'm just trying to
understand, what's the strategy and how you guys think of guiding for SaaS ACV?
The third question is, roughly I know you've given some metrics around the
exchange rates, but could you perhaps quantify what -- in percentage terms, what is
the FX impact to expect both on TSR and revenues for the full year?

Page 15 of 16
A - Max Chuard
And the fourth question is just around DXC. I was wondering, if you could give any
update there and more granular detail, for example, if you've been invited to any
RFPs or if there's just still proof of concepts at this time or if it always to have been
any significant developments? Thank you.
{BIO 6155063 <GO>}
Hi. Let me take the second question and the last one. So, on the SaaS ACV, listen, we
clearly don't see a slowdown and we don't expect a slowdown of our SaaS ACV.
What we expect is a continuous strong, very strong growth of our ACV business. And
again, as I said before, Q3 the whole ACV has been done just on new logos. And
remember last year, the same third quarter, the year where we had seen PayPal, we
had seen some of these moving into ACV. So I think that's -- for me, the quarter has
been a very strong quarter on the ACV side, because it's all incremental and there is
so much activity happening. Look at what's happening on the BaaS side. And the
market is bubbling, and this is not going to stop and we are extremely well
positioned for -- to capture it.
Now, on the DXC side, DXC, yes, we are involved in some RFP processes, some are
more advanced than others. But as I said, there is some very interesting activity
going on and set some of the large pipeline deal activity, some of them are with
DXC and some are advanced, some are less advanced. But it is going well, it is
progressing well. And clearly those are last year, so it takes time. And as we had
mentioned when we signed the partnerships at the start of the year, this would be
2022 story and not having really an impact on 2021. But listen, it is progressing well.
So it follows the flow, so we are confident that with DXC, being the owner ultimately
of the RFP knowing that customer extremely well, we are extremely well-positioned
to win those deals.
Let me take the other two question, the first one on the one-off for the LTIP. This was
clearly also communicated that way and also internally. We have clearly the regular,
as I mentioned, the regular salary increases. People have a variable component in
their total compensation, so this is always reflecting the changes in environment. I
think these people which we have now awarded with this loyalty share program, this
is also maybe the team or the key people to drive this current transformation over
the next three, four year, because you need continuity, you need stability and I guess
also some of the future leaders. So now it clearly -- it's also something we will not be
able to afford every year, let's be clear here. So, now it's definitely a one-off.
On the FX, we always post the FX rates, currently, we basically take last quarter and
then the spot rate going forward. On the top line, as most of our revenues are dollar
denominated and a bit of euro, yes, you have some impact there, but not much. So
clearly, this is why we give you usually the currency mix, we were short to British
pound, sort to Swiss, also short a lot of other currencies, the Romanian and the
Indian rupee being the most important one. So, this is the way we currently see it. So,
this year, yes, we had an overall negative impact on our cost base let's see where we
end up. We're reporting transparently and this is why we also have adjusted the
guidance to reflect this. So if we stay where we are, I think there's probably not going

Page 16 of 16
A - Max Chuard
A - Max Chuard
to be a lot, maybe a bit of additional headwind. But I think this is in the ballpark as
we have guided.
{BIO 20330794 <GO>}
Okay. Fair enough. Thank you. Just a follow-up on the DXC just to clarify. There have
been no invites to RFPs right, is it still discussions and then more advanced and less
advanced but no specific RFPs, invites to RFPs?
{BIO 6155063 <GO>}
No. No. What I say is in -- and some of them are more advanced, which means that
there's been an RFP process. And that we -- as I said, we are extremely well
positioned because of the relationship from DXC and because of what Temenos can
bring also to the table. So I think this partnership really strengthening our value
proposition, strengthening our ability to win the deal.
{BIO 20330794 <GO>}
Okay. Thank you.
{BIO 6155063 <GO>}
Thank you, operator. That was the last question. Thank you very much for attending
the call and that we'll speak very soon. Thank you.
Thank you.
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