Temenos Ag · SIX:TEMN
Temenos — Q3 2007 Earnings Presentation
35 slides from Temenos's earnings presentation, Oct 31, 2007
Slide 1: Business Update & Financial Results
The Banking Software Company Business Update & Financial Results Quarter ended 30 September 2007
Slide 2: Presentation Overview
Presentation Overview Agenda Speaker Position Introduction Ben Robinson Investor Relations Financial Update David Arnott CFO Strategy and Andreas Andreades CEO Business Update Q&A David Arnott Andreas Andreades Max Chuard Director 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-loo
Slide 4: Financial Update
Financial Update David Arnott CFO 4
Slide 5: Income Statement Highlights
Income Statement Highlights Q3 2007 Q3 2006 yoy Licence 28.0 13.4 109% Revenue 70.8 44.8 58% EBIT 6.2 0.5 1140% Adjusted EPS* 0.17 (0.01) n/a *Adjusted for amortisation of acquired intangibles USDm, except EPS USD 5
Slide 6: Income Statement Detail
Income Statement Detail Q3 07 Q3 06 LTM 07 LTM 06 Licences 28.0 13.4 +109% 124.7 82.9 +50% Maintenance 19.3 14.3 +35% 69.5 52.2 +33% Services 23.5 17.1 +37% 89.1 60.4 +48% Total revenue 70.8 44.8 +58% 283.3 195.5 +45% R&D (14.9) (9.2) +62% (47.9) (32.1) +49% Cost of services (21.6) (16.6) +30% (84.1
Slide 7: l-f-l cash cost P&L
l-f-l cash cost P&L Q3 07 Q3 06 LTM 07 LTM 06 Total revenue 70.8 44.8 58% 283.4 195.5 45% Like for like* adjs. (5.7) 1.1 (11.8) 5.3 Adj. total revenue 65.1 45.9 42% 271.6 200.8 35% Total costs 64.6 44.3 45% 237.8 173.5 37% l-f-l* and non cash** adjs. (7.7) 2.4 (20.0) 6.4 Adj. total cost 56.9 46.7 23
Slide 8: Income Statement Detail
Income Statement Detail Q3 07 Q3 06 LTM 07 LTM 06 EBIT 6.2 0.5 1140% 45.7 22.0 108% Other income/ 3.7 (1.0) n/a 3.3 2.3 43% expense Tax 0 0 n/a (2.9) (2.7) 7% Net earnings 9.9 (0.5) n/a 46.1 21.6 113% Diluted EPS 0.16 (0.01) n/a 0.73 0.37 97% • Other income/expense relates chiefly to FX gains/losses
Slide 9: Revenues by Region
REVENUES BY REGION 12MONTHS TO 30 JUNE Revenues - Full Year 2003 Revenues - LTM Q3 2007 Asia Asia 17% 14% Americas 8% Americas • More global 20% EMEA 63% • More diversified EMEA 78% Licence Revenues - Full Year 2003 Licence Revenues - LTM Q3 2007 Asia Asia 17% 21% EMEA Americas 56% Americas EMEA 27%
Slide 10: Licences by Tier & Segment
Licences by Tier & Segment Full Year 2003 LTM Q3 2007 Tier 1&2 29% Others 46% Tier 1&2 54% • Larger deal size Others • More diversified 71% Full Year 2003 LTM Q3 2007 Others 37% Others Retail / 44% Universal Retail / 56% Universal 63% (1) On a $ basis 10
Slide 11: Cashflow Conversion – 12 Months to 30 Sept
Cashflow Conversion – 12 Months to 30 Sept USD million EBITDA Cash Flow from % EBITDA conversion Operations 2007 2006 T24 61.8 38.5 62% 95% TCB (2.2) (0.9) n/a n/a TOTAL 59.6 37.6 63% 53% • Cash flow from ops. + 126% vs. EBITDA + 89% • LTM operating cashflow to end October at 73% • We expect full ye
Slide 12: DSOs Analysis
DSOs* Analysis 120 9 day improvement on underlying basis 115 114 114 113 111 111 110 105 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 • 3 day improvement in headline numbers • But absorbed 6 day deterioration due to change in revenue mix • Medium term target is 100 days * DSOs defined as average of laggi
Slide 13: Strategy and Business Update
Strategy and Business Update Andreas Andreades CEO 13
Slide 14: Business update
Business update We continue to execute ahead of our plan: • Superior products • Compelling investment and product roadmap • Win ratio at above 80% • Multiple growth initiatives, which are already starting to deliver • Broad geographical reach • Services initiatives of model bank, business consulting
Slide 15: Business update
Business update • Global growth concerns not impacting our business... • Drivers for core system replacement structural, not cyclical • Exposure to (US) mortgage or investment banks minimal • ...and pipeline remains very strong • for rest of year (October 07 well ahead of October 06)... • ...and nex
Slide 16: Update on licence sales
Update on licence sales Strong growth in new clients… • New clients in Q3 at 9 vs. 9 in the prior year (but larger deal size). • In LTM, no. of new clients is 45 (2006: 40). … and in private/wholesale (off a much smaller base) 100 +93% 90 80 % Growth in LTM 70 60 50 40 +33% 30 20 10 0 Retail/Univera
Slide 17: Update on Growth Initiatives
Update on Growth Initiatives • Misys Replacement Programme: – Since the launch of our replacement programme the following number of Misys customers have selected T24: • 2005: 1 • 2006: 4 • YTD 2007: 4 (Q1= 1, Q2=2, Q3=1) • Full year 2007 target: 8 • ARC: – ARC has already been sold to 16 clients (7
Slide 18: Actis.BSP/ German Market
Actis.BSP/ German Market Our target: • To double existing client base over 3-5yrs • EBITDA USD11m by 2011 Our progress: • 2 T24 deals in Germany by end of 2007 • Our business case assumed a first T24 deal in 2008 • Actis clients happy to upgrade to T24 over time – licence upside and no risk of attri
Slide 19: Services Update
Services Update IMPROVING SALES AND MARGINS Q3 2007: • New Head of Services • Revenue up by 37% yoy; by 48% on LTM basis – Introducing tighter KPIs, processes and project execution • Margin at 8% (up from 3% • Model Bank in prior year) – Used in projects from Q4 2006 onwards – Proven to shorten impl
Slide 20: Acquisition update
Acquisition update • To complement accelerating organic growth model to achieve leadership in growing market. Targeting companies with revenues of USD20-50m to: – Strengthen delivery capability and distribution in key markets – Acquire client base – Enhance product • We have already compiled a short
Slide 21: 2007 Outlook
2007 Outlook Previous Update Revised yoy Licences 125-130 10 135-140 38%-43% Revenue 300 10-15 310-315 43%-46% Costs (243) (8-13) (256) EBIT 57 2 59 77% EBIT margin 19% 19% 400bps Adjusted EPS* 0.89 3 cents 0.92 61% We have increased our 2007 outlook to reflect: • Q3 Outperformance • Better visibili
Slide 22: The Next 2 Years – Our Strategic Plan
The Next 2 Years – Our Strategic Plan CONTINUED STRONG REVENUE GROWTH OFF A HIGHER BASE… 20 - 25% organic revenue growth p.a for 2008 and 2009 SIGNIFICANT … PLUS MARGIN EXPANSION AND SUSTAINED 2% to 3% margin improvement each year through: – increasing cumulative maintenance at an accelerated growth
Slide 23: The Next 2 Years – Our Strategic Plan
The Next 2 Years – Our Strategic Plan CONTINUED STRONG CASH CONVERSION… We expect to convert 75% of EBITDA into cash in 2008 SIGNIFICANT … PLUS STOCK BUY BACKS TO LIMIT DILUTION AND SUSTAINED We will continue to use free cash flow to buy back shares. VALUE CREATION This way we can limit stock option
Slide 24: Appendices
@ TEMENOS™ Appendices
Slide 25: 2007 Outlook EPS calculation
2007 OUTLOOK EPS calculation c o n v e r tib le c o n v e r t ib le U S D m illio n as debt a s e q u ity O u tlo o k o p e r a tin g p r o fit 5 9 .0 5 9 .0 N e t F in a n c ia l C o s ts & F o r e ig n E x c h a n g e - 2 .2 -2 .2 Tax 0 .0 0 .0 O u tlo o k n e t e a r n in g s 5 6 .8 5 6 .8 a d d
Slide 26: Operating Costs by Quarter
Operating Costs by Quarter USD million Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Reported costs 44.4 51.9 55.1 66.1 64.6 Non-trend costs* (6.9) (13.4) (9.0) (12.5) (10.1) Trend costs** 37.5 38.5 46.1 53.6 54.5 Headcount 1648 1724 1947 2128 2173 •Includes cost of sales, marketing, variable costs (bonuses, commis
Slide 27: Research and Development
Research and Development USD millions Q3 07 Q3 06 % 12 mths to Sept 07 Sept 06 % R&D costs – as reported 14.9 9.2 62% 47.9 32.1 49% Capitalised development costs 4.1 4.1 15.6 15.1 Non cash items (3.6) (1.8) (12.1) (7.9) Less Actis (2.5) - (6) - Currency impact - 0.4 - 1.6 Adj. cash R&D costs 12.9 11
Slide 28: Services
Services USD millions Q3 07 Q3 06 % 12 mths to Sep 07 Sep 06 % Service revenues 23.5 17.1 37% 89.1 60.4 48% Less Actis (2.2) - (4.9) - Currency impact - 0.5 - 1.6 Service revenues underlying 21.3 17.6 21% 84.2 62 36% Service costs – as reported 21.6 16.6 30% 84.0 66.3 27% Less Actis (1.4) - (3.1) -
Slide 29: General & Administrative Costs
General & Administrative Costs USD millions Q3 07 Q3 06 % 12 mths to Sep 07 Sep 06 % G&A costs – as reported 8.4 7.6 10% 42.4 31.5 35% Less Actis (0.4) - (1.1) - Less non-cash (1.4) (1.6) (7.3) (5.3) Currency impact - 0.4 - - 0.6 G&A costs underlying 6.6 6.4 3% 34.0 26.8 27% 29
Slide 30: Sales and Marketing
Sales and Marketing USD millions Q3 07 Q3 06 % 12 mths to Sep 07 Sep 06 % S&M costs – as reported 19.6 10.9 80% 63.3 43.6 45% Less Actis (0.5) - (0.8) - Currency impact - 0.5 - 1.8 Less non-cash (1.6) (0.2) (3.6) (1.7) S&M costs underlying 17.5 11.2 56% 58.9 43.7 35% 30
Slide 31: Calculation of DSO's
CALCULATION OF DSO’s Average 12 mths DSOs receivables revenues* Q3 2006 114 106,666 242,216 Q4 2006 114 116,396 265,530 Q1 2007 113 127,454 292,671 Q2 2007 111 137,352 321,099 Q3 2007 111 148,992 349,278 * revenues adjusted for maintenance invoicing DSO’s = (Average receivables divided by 12 month r
Slide 32: Organic revenues
Organic revenues Actis 70 USD65.2m 60 +42% USD45.9m Licence 50 +92% USDm 40 Licence Licence 30 +21% Maintenance Maintenance Maintenance 20 Services 10 Services +21% Services 0 Q3 2006* 1 Q3 2007 2 • Strong organic growth in each revenue line • Actis added $5.7m in Q3 07 *2006 restated at 2007 FX (ad
Slide 33: Effective Tax Rate
EFFECTIVE TAX RATE • Temenos has significant unrecognised deferred tax assets (DTAs). These arise from: – losses carried forward – agreement reached with the Swiss authorities in 2005 to repatriate the group’s IP to Switzerland. US$ m. of which: Deferred tax asset arising from: Total DTA recognised
Slide 34: Outlook Assumptions
Outlook Assumptions In arriving at our 2007 outlook we have made the following assumptions: • Tax rate: Zero effective tax rate (see previous slide) • Foreign exchange: USD 1 : EUR 0.71 USD 1 : CHF 1.19 USD 1 : GBP 0.49 • Number of shares for diluted EPS*: 69.4m * including impact of convertible 34
Slide 35: Analyst Comments
ANALYST COMMENTS TEMENOS “…offers the strongest overall core banking functionality, without particular functional weak spots. TEMENOS also scored best on international versatility: If a bank needs a strong core banking solution that can comprehensively support multiple languages and character sets i