Temenos Ag · SIX:TEMN
Temenos — Q3 2008 Earnings Presentation
41 slides from Temenos's earnings presentation, Oct 22, 2008
Slide 1: Financial Results & Business Update
Financial Results & Business Update Quarter ended 30 September 2008 22 October 2008
Slide 2: Presentation Overview
Presentation Overview Agenda Speaker Position Introduction Ben Robinson Investor Relations Financial Update David Arnott CFO Update on Acquisitions Max Chuard Director Strategy and Andreas Andreades CEO Business Update Q&A Slide 2
Slide 3: Disclaimer
Disclaimer Any remarks that we may make about future expectations, plans and prospects for the company constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various factors. In particular, the forward-looki
Slide 4: Financial Update
Financial Update David Arnott CFO
Slide 5: Income Statement Highlights – Q3 2008
Income Statement Highlights – Q3 2008 Q3 2008 Q3 2007 yoy Licence revenue 35.3 28.0 26% Total revenue 100.4 70.8 42% EBIT 11.2 6.2 79% Cash from ops. 10.7 (6.4) 17.1 USDm Slide 5
Slide 6: Income Statement Detail
Income Statement Detail Q3 08 Q3 07 LTM 08 LTM 07 Licences 35.3 28.0 +26% 168.5 124.7 +35% Maintenance 25.4 19.3 +32% 94.6 69.5 +36% Services 39.7 23.5 +69% 147.0 89.1 +65% Total revenue 100.4 70.8 +42% 410.0 283.4 +45% R&D (19.2) (14.9) +28% (74.5) (47.9) +56% Cost of services (36.9) (21.6) +71% (1
Slide 7: Like-for-like revenue growth
Like-for-like* revenue growth Like-for-like growth was strong in the quarter across all revenue lines: l-f-l revenue in Q3 140 Acquisitions ** 120 100 vs. stated growth +29% +48% of 42% 80 Services USDm 60 Services +17% Maintenance 40 Maintenance +22% 20 Licence Licence 0 Q3 2007 Q3 2008 2007 restat
Slide 8: Like for like cost growth
Like for like cost growth Despite strong l-f-l revenue growth, underlying costs were down sequentially: Cash l-f-l costs Q308 vs. Q208 120 Non-cash Non-cash 100 FX Acquisitions -3% 80 60 L-f -l Cash L-f -l Cash 40 costs costs 20 0 Q2 08 Q3 08 vs. stated cost growth +4% Slide 8
Slide 9: Non-operating income and expense
Non-operating income and expense Income Statement Detail Q3 08 Q3 07 LTM 08 LTM 07 EBIT 11.2 6.2 +79% 71.5 45.7 +57% Net Finance charge (2.3) (1.0) +130% (4.6) (2.4) +92% FX (loss)/gain (3.6) 4.7 n/a (2.3) 5.7 n/a Tax (0.2) 0.0 n/a 0.3 (2.9) n/a Net earnings 5.0 9.9 -49% 64.9 46.1 +41% Adjusted EPS*
Slide 10: DSOs – on course for year end target
DSOs – on course for year end target • 9 day decrease in DSOs in quarter, trend remains clearly downwards • On course to meet forecast of 10-15 day improvement in DSOs by end of 2008 190 DSO’s 185 184 Linear (DSO’s) 181 Projected Range 180 175 176 175 172 171 170 167 167* 165 157-162 160 155 150 Dec
Slide 11: EBITDA conversion – full year forecast reiterated
EBITDA conversion* – full year forecast reiterated • EBITDA conversion rebounded in Q3 and trend sustained. • Target for FY of 75% operating cash conversion on track. EBITDA Conversion Target Conversion LTM LTM Linear (EBITDA Conversion) revenue revenue growth: growth: +28% +59% 90% 85% 85% 83% 80%
Slide 12: Share buyback
Share buyback Temenos policy is to return free cash flow to shareholders through share repurchases. This has not changed. • In 2008 Temenos has approval for USD60m of share buybacks • So far we have used US34.6m purchasing our own shares • This leaves us with possibility to spend a further USD25.4m
Slide 13: Financing and balance sheet
Financing and balance sheet On balance sheet cash: USDm At Start of year: 93.1 Plus free cashflow outlook for 2008 60.0 Less returned to shareholders through buyback (60.0) Forecast cash at year end 93.1 Debt facility* 220.0 Less debt assumed in relation to two acquisitions (69.6) Remaining debt fac
Slide 14: Acquisition Update
Acquisition Update Max Chuard Director of M&A & IR
Slide 15: Integration progressing well
Integration progressing well • Acquired core banking assets of Informer on 18 July • Integration process now largely completed • Reiterate expected contribution: 2009: revenue USD20m, EBITA USD6.5m, adjusted EPS USD0.08 • Acquisition finalised on 11 September • Integration process on track, to be co
Slide 16: Acquisition strategy – update
Acquisition strategy – update • Current environment presenting interesting opportunities, pipeline continues to build strongly • No change to target criteria: • Bolt-on acquisitions to boost organic growth • USD20-50m revenue • Accretive • Geographic expansion into markets where underrepresented • M
Slide 17: Strategy and Business Update
Strategy and Business Update Andreas Andreades CEO
Slide 18: Business update - licence sales
Business update - licence sales Strong growth in sales to new customers… New clients in Q1-Q3 08 at 35 vs. 30 in Q1-Q3 07 (+17%)… …and Q3 08 new clients at 13 vs. 9 in Q3 07 (+44%) … particularly in retail/universal → Retail and universal licence growth is up 80% in the last twelve months … and acro
Slide 19: Business update - licence sales
Business update - licence sales Despite lower proportion of T24 licence revenue coming from Tier 1 Banks… LTM 08 LTM 07 Tier 1: 15% Tier 1: 32% …we continue to record strong licence revenue growth, thanks to: • More deals • Better pricing (per user, per module pricing up 20% YTD) Slide 19
Slide 20: Business Update - Growth Initiatives
Business Update - Growth Initiatives • Increasing sales coverage • Broadening and deepening geographical coverage still biggest driver of sales growth • Our client base stands at over 650 banks… …out of 22,000 banks worldwide • We aim to have c.60 quota-carrying salespeople by the year end (55 at 30
Slide 21: Growth Initiatives: Metavante partnership
Business Update - Growth Initiatives • Update on Partnership with Metavante: • TCB partnership progressing well at all levels • Partnership extended on 30 July to include joint marketing agreement for T24 • First joint T24 deal with EverBank was signed in Q3 • Despite very difficult regional market
Slide 22: Growth Initiatives: ARC
Business Update - Growth Initiatives • ARC: • ARC has so far been sold to 52 clients (10 in Q3) • ARC now represents 5% of total T24 licences (on LTM basis) • So far, good uptake of Internet Banking modules… • … and we expect faster adoption of CRM modules Slide 22
Slide 23: Business Update - Services
Business Update - Services Improving Sales and Margins, Becoming Best in Class Model Bank Used in projects from Q4 2006 onwards Q3 2008 highlights Proven to shorten implementation timeframes by 50% • Revenue up by 69% yoy TEMENOS Application Management TAM progressing in line with plan – headcount u
Slide 24: Business update - visibility
Business update - visibility As a reminder, the sales cycle for our software is 9-12 months → this is consistent with 2007, not elongating Our win rate remains above 80% → it was, in fact, above 85% in Q3 We have good deal coverage → the 12 month forward pipeline is 35% higher than at the start of 2
Slide 25: Business update – deal drivers
Business update – deal drivers Why do banks continue to take decisions in this environment? • As part of the sales process, we track the “compelling event” that obliges a prospect to replace its banking system at this time • The breakdown (by number of deals, not weighted) for Q3 was as follows: 5%
Slide 26: 2008 outlook
2008 outlook Previous New 2007 Outlook Outlook Actual y-o-y Licences 178.5 178.5 148.8 20% Revenue 444 444 329.9 35% Costs 355.4 355.4 267.4 EBIT 88.6 88.6 62.5 42% EBIT margin 20.0% 20.0% 18.9% 110bps Adjusted EPS* 1.40 1.40 1.03 36% • Despite tough economic conditions, strong trading at Q3 allows
Slide 27: Looking ahead – streamlining the business
Looking ahead – streamlining the business • Pro-forma revenue in 2008 is expected to be c.USD475m The product of: → 5 years of rapid growth → 3 acquisitions in 2 years • Size and scale allow us: • To deliver industry-standard margins… • …with sustainable revenue growth Slide 27
Slide 28: Looking ahead – streamlining the business
Looking ahead – streamlining the business • The scope of the integration process for our two recent acquisitions has been extended to encompass a broader group-wide streamlining programme in Q4… • To remove some excess costs in the business • To channel spending into growth areas of the business • T
Slide 29: Looking ahead - 2009
Looking ahead - 2009 Our previous assumptions for 2009 were as follows: • 20 - 25% organic revenue growth for 2009 • 200-300bps margin improvement, which… • …adding USD0.16 accretion from acquisitions… • …gives c.40% EPS growth Based on what we see, no reason for us to change outlook… → Pipeline of
Slide 30: Looking ahead - 2009
Looking ahead - 2009 Nonetheless, given lower base cost going into 2009 … …earnings growth protected even using more pessimistic assumptions: Illustration of 2009 EBIT with zero licence growth 4 USD89m (margin:20%) Outlook EBIT 2008 3 USD20m Locked-in maintenance growth 2009 2 USD21m Reduction in co
Slide 31: Looking ahead – structural drivers more relevant than ever
Looking ahead – structural drivers more relevant than ever Banks are still taking decisions because need for new systems critical… … and likely to become even more so: What banks are facing What this means • Higher credit costs • Need to cut costs • Slow-down in high-margin • Need to grow retail bus
Slide 32: Appendices
Appendices ‘7 sm: FM fe) FA ed Bl F EMENOS The Banking Software Company
Slide 33: Business update – still executing strongly
Business update – still executing strongly We continue to grow ahead of our plan on both T24 and TCB, underpinned by: Superior products Win ratio at above 80% Compelling investment and product roadmap Broad geographical reach Growing sales force Services initiatives of model bank, business consultin
Slide 34: Research and Development
Research and Development USD millions Q3 08 Q3 07 % 12 mths to Sept 08 Sept 07 % R&D Costs – as reported 19.2 14.9 29% 74.5 47.9 56% Capitalised development costs 5.1 4.1 18.7 15.6 Less Non cash items (4.3) (3.6) 19% (17.1) (12.0) 42% Less ACTIS* 0.0 0.0 (3.9) 0.0 Less Informer (0.1) 0.0 (0.1) 0.0 L
Slide 35: Sales and Marketing
Sales and Marketing USD millions Q3 08 Q3 07 % 12 mths to Sept 08 Sept 07 % S&M costs – as reported 20.2 19.6 3% 77.8 63.3 23% Less non-cash (2.4) (1.8) (6.8) (4.3) Less ACTIS* 0.0 0.0 (1.1) 0.0 Less Informer (1.4) 0.0 (1.4) 0.0 Less Financial Objects (0.2) 0.0 (0.2) 0.0 Currency impact n/a 0.3 n/a
Slide 36: General & Administrative Costs
General & Administrative Costs USD millions Q3 08 Q3 07 % 12 mths to Sept 08 Sept 07 % G&A costs – as reported 13.0 8.4 55% 48.7 42.4 15% Less non-cash (2.9) (1.3) (9.9) (7.4) Less ACTIS* 0.0 0.0 (0.6) 0.0 Less Informer (0.1) 0.0 (0.1) 0.0 Less Financial Objects (0.3) 0.0 (0.3) 0.0 Currency impact n
Slide 37: Impact of deferred tax assets on the effective tax rate
Impact of deferred tax assets on the effective tax rate As at 31 December 2007 the Group has significant unrecognised deferred tax assets (DTAs). These arise from: Losses carried forward Taxable temporary differences arising from repatriation of the group’s software intellectual property to Switzerl
Slide 38: TEMENOS enters the SMIM
TEMENOS enters the SMIM On 8/7/2008, Swiss Exchange announces that Temenos will join SMIM (mid-cap) index The adjustment was made after closing on September 19th, and took effect on September 22nd Selection is based on average market capitalisation and traded volumes from July 2007 to June 2008. Tem
Slide 39: Leading the IBS league table
Leading the IBS league table First place in the 2007 IBS Sales League Table Corebanking Positions Position Product Company Deals 1 T24 TEMENOS 44 2 TCS BANCS TCS 24 3 Flexcube i-flex 20 • Top two positions in the IBS Sales League Table for 9 out of the last 10 years • Second place vendor in 2007 had
Slide 40: TEMENOS’ awards
TEMENOS’ awards TEMENOS’ products are multi award winning. In 2007, awards included: T24 was named no.1 best-selling core banking system in 2007 in the IBS Journal’s annual sales league table. Martin Whybrow, editor, commented, “The company has an established, strong product combined with a large an
Slide 41: Thank You
Thank You ‘7 sm: FM fe) FA ed Bl F EMENOS The Banking Software Company