Temenos Group AG (SIX: TEMN), the market leading provider of mission-critical software to banks globally, today reports its full second quarter 2012 results.
Q2 Financial and Operating highlights
- Large wins at ME Bank in Australia and Jordan Ahli Bank in the Middle East
- Launch of Temenos Enterprise Frameworks Architecture (TEFA), alongside latest release of T24 R12
- 8 Customer Go-lives
- Maintenance revenue resilient with growth of 6% in constant currency terms
- Services recovery gaining traction - margins have improved by 400 basis points in the last twelve months
*Adjusted for non-recurring items such as restructuring charges, as well for amortisation of acquired intangibles.
Commenting on the results, Temenos CEO David Arnott said, "Q2 was a disappointing quarter. The environment is difficult with high levels of uncertainty delaying decisions, especially with new name customers. But, in addition, we had some sales execution issues, which caused the decline in licensing to be much steeper than anticipated. The bright spots in the quarter were sales to the installed base, sales into Asia Pacific and the Middle East and sales in retail and private wealth management, which are holding up well.
In order to improve performance, we are taking a number of actions. Firstly, we are reducing costs by an additional USD20m, which will lock in a cost base of USD350m in 2013. Secondly, we have simplified some structures and processes to bring greater alignment in the organisation. Lastly, we have reduced some of the management layers. We have a great team and this is the time to have our best people as actively as possible.
The structural drivers for system renewal in banking are continually growing in intensity. Banks face a number of challenges - around cost pressure, new regulation, a changing competitive environment and more exacting customers - which can only be met with technology investment. Nonetheless, at present, most banks are still deferring action. Our strategic priorities are unchanged, we remain the best-placed vendor to capitalise on the pent-up demand when it materialises and, in short term, the actions we are taking will protect profitability and improve execution."
Revenue
Revenue for the second quarter was USD 105.6m, down from USD 122.5m in the same period last year, representing an decrease of 14%. Licence revenue for the quarter was USD 24.2m, 38% lower than in 2011. For the LTM 2012, total revenue was USD 453.9m, down 5% on LTM 2011, with LTM licence revenue at USD 126.4m, 24% lower than the same period last year.
Adjusted EBIT
Adjusted EBIT (EBIT before one-off restructuring charges and amortisation of acquired intangibles) was USD 10.8m, 55% lower than in Q2 2011. Adjusted EBIT for the last twelve months was USD 76.1m compared to USD 111.8m in the prior period, representing a 32% decrease. The adjusted EBIT margin was 10%, 9 percentage points lower than the prior year, with LTM 2012 adjusted EBIT margin at 17%, 6 percentage points lower than in the prior 12 months.
Earnings Per Share (EPS)
Adjusted EPS, which excludes amortization of acquired intangibles and restructuring charges, was USD 0.05 in the quarter, down from USD 0.27 in the same quarter of the previous year, which represents a decline of 81%. The LTM adjusted EPS was 0.61, down 56% on the previous 12 months.
Cash
Operating cash was an outflow of USD 13.5m in the quarter, reflecting chiefly a large adverse movement on payables. On a twelve month basis, operating cashflow was USD 99.2m, 8% higher than in the comparative period and representing a 137% operating cashflow into EBITDA conversion.
Outlook
In line with the announcement made on July 12, 2012, the company anticipates a constant currency growth range of -5% to +1%. The company expects to achieve adjusted EBIT margin between 19% and 22%. Lastly, the company expects a 100% conversion of operating cashflow into EBITDA.
In connection with the USD20m cost rationalisation programme, the company expects USD5-10m of restructuring charges.