Temenos reports Q2 revenue rise

Q2 2017 highlights

• Strong momentum across all KPIs
• Digital and regulatory pressure on banks driving market growth
• Recognised as a Leader in the Gartner Magic Quadrant for Global Retail Core Banking 20171 and as a Leader in The Forrester Wave™: Digital Banking Engagement Platforms, Q3 20172
• Strong growth in signings and pipeline generation across all geographies
• Acquisition of Rubik closed in May, bringing scale and presence in the Australian market
• Strong start to Q3, increased visibility and strength of pipeline gives confidence for full year guidance

Q2 2017 financial summary

• Non-IFRS total software licensing revenues up 22% y-o-y (c.c.)
• Non-IFRS maintenance growth of 11% y-o-y (c.c.)
• Non-IFRS total revenue growth of 15% y-o-y (c.c.)
• Non-IFRS EBIT up 21% y-o-y (c.c.), LTM non-IFRS EBIT margin of 30.0%
• Non-IFRS EPS increase of 24%
• Q2 2017 LTM cash conversion of 117%
• DSOs at 124 days, down 6 days y-o-y
• 2016 share buyback of CHF 99m completed in June 2017

Commenting on the results, Temenos CEO David Arnott said:

"I am very pleased with our performance this quarter, which has been excellent across the board. We saw strong levels of activity in Q2 across all of our geographies, client tiers and segments and competed successfully, winning significant market share.

We see continued pressure on banks to transform, driven by end-customer adoption of digital banking services as well as regulation. This is translating into significant growth in our market as banks embark on front-to-back progressive renovation of their legacy systems.

The strength of our business model is enabling us to pull ahead of our competition and Temenos has been recognised as a Leader in Global Retail Core Banking by Gartner and in Digital Banking Engagement Platforms by Forrester."

Commenting on the results, Temenos CFO and COO Max Chuard said:

"We have continued to execute very well and this was reflected in our revenue and profit growth. We grew total software licensing 22% in the quarter and our EBIT was up 21%. We are investing in the business, in particular in Sales and Marketing, to ensure we are well positioned to continue taking market share.

We completed the acquisition of Rubik in May, which has given us scale and presence in the growing Australian market, and we are already seeing a high level of pipeline activity for core banking renovation and wealth.

With strong growth in both signings and pipeline generation in the second quarter, our revenue visibility is very high for the year. We have had a strong start to Q3 and I am very confident in achieving our guidance for the full year."

Revenue

IFRS total revenue for the quarter was USD 174.3m, up from USD 153.6m in Q2 2016. Non-IFRS total revenue was USD 174.7m for the quarter, up from USD 153.8m in Q2 2016, representing an increase of 15% in constant currencies. IFRS total software licensing revenue for the quarter was USD 72.4m, and non-IFRS total software licensing revenue for the quarter was USD 72.8m, an increase of 22% from Q2 2016 in constant currencies.

EBIT

IFRS EBIT was USD 34.7m this quarter, up from USD 28.9m in Q2 2016. Non-IFRS EBIT was USD 48.0m in this quarter, an increase of 21% in constant currencies. Q2 2017 non-IFRS EBIT margin was 27.5%, up 1% point on Q2 2016.

Earnings per share (EPS)

IFRS EPS for the quarter was USD 0.35, an increase of 21% vs. Q2 2016. Non-IFRS EPS was USD 0.52 for the quarter vs. USD 0.42 in Q2 2016.

Operating cash flow

IFRS operating cash was an inflow of USD 44.0m in Q2 2017 compared to USD 37.7m in Q2 2016. For LTM to June 2017, operating cash flow was USD 276.7m representing a conversion of 117% of IFRS EBITDA into operating cash.

2017 guidance

Our guidance for 2017 is as follows:

• Non-IFRS total software licensing growth at constant currency of 15% to 20% (implying total software licensing revenue of USD 291m to USD 304m)
• Non-IFRS revenue growth at constant currency of 10% to 13% (implying revenue of USD 693m to USD 712m)
• Non-IFRS EBIT at constant currency of USD 210m to 215m (implying non-IFRS EBIT margin of c.30.5%)
• 100%+ conversion of EBITDA into operating cash flow
• Expected FY 2017 tax rate of 14% to 15%