Temenos AG Earnings Call October 2021.pdf

Company Name: Temenos AG
Company Ticker: TEMN SW Equity
Date: 2021-10-14
Page 1 of 16
, Chief Executive Officer & Member of the Executive Committee
Panagiotis Spiliopoulos, Chief Financial Officer & Member of the Executive Committee
Chandra Sriraman
Michael Foeth
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 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.
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 2 of 16
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 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.
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 3 of 16
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 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.
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 4 of 16
Panagiotis Spiliopoulos
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.
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%.
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 5 of 16
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 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
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 6 of 16
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 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.
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 7 of 16
Max Chuard
Operator
Q - Laurent Daure
A - Max Chuard
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?
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
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 8 of 16
A - Panagiotis Spiliopoulos
Q - Laurent Daure
Operator
Q - James Goodman
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.
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
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 9 of 16
A - Max Chuard
Q - James Goodman
Operator
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 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.
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 10 of 16
Q - Chandra Sriraman
A - Max Chuard
Q - Chandra Sriraman
Operator
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, 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.
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 11 of 16
Q - Knut Woller
A - Max Chuard
Q - Knut Woller
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, 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.
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 12 of 16
Operator
Q - Stacy Pollard
A - Max Chuard
Q - Stacy Pollard
Operator
Q - Michael Foeth
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 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
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 13 of 16
Q - Michael Foeth
Operator
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.
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.
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 14 of 16
Q - Gianmarco Paolo Conti
A - Max Chuard
{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?
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
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 15 of 16
A - Max Chuard
A - Max Chuard
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 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.
This transcript may not be 100 percent accurate and may contain misspellings and other
inaccuracies. This transcript is provided "as is", without express or implied warranties of
any kind. Bloomberg retains all rights to this transcript and provides it solely for your
FINAL
Bloomberg
Transcript

Date: 2021-10-14
Page 16 of 16
personal, non-commercial use. Bloomberg, its suppliers and third-party agents shall have
no liability for errors in this transcript or for lost profits, losses, or direct, indirect,
incidental, consequential, special or punitive damages in connection with the furnishing,
performance or use of such transcript. Neither the information nor any opinion expressed
in this transcript constitutes a solicitation of the purchase or sale of securities or
commodities. Any opinion expressed in the transcript does not necessarily reflect the
views of Bloomberg LP. © COPYRIGHT 2023, BLOOMBERG LP. All rights reserved. Any
reproduction, redistribution or retransmission is expressly prohibited.
FINAL
Bloomberg
Transcript

Temenos AG Earnings Call October 2021.pdf

More Related Content

Temenos AG Earnings Call October 2021.pdf