Temenos Ag · SIX:TEMN
Temenos — Q3 2006 Earnings Presentation
41 slides from Temenos's earnings presentation, Nov 1, 2006
Slide 1: Financial Results & Business Update
Financial Results & Business Update Quarter ended September 30th, 2006 1
Slide 2: 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 3: Presentation Overview
Presentation Overview Agenda Speaker Position Introduction Max Chuard Director Business Update Andreas Andreades CEO Financial Results David Arnott CFO 3
Slide 4: Business Update
Business Update Andreas Andreades CEO 4
Slide 5: Temenos Vision and Summary
TEMENOS VISION AND SUMMARY TEMENOS VISION is to become the leading global brand in financial services software TEMENOS TODAY is the provider of choice for the world’s leading financial institutions: Supporting two product lines for core processing: TEMENOS T24™ (T24): Private, Universal, Wholesale a
Slide 6: Q3 2006 Results – Key Points
Q3 2006 RESULTS – KEY POINTS • Excellent quarter with revenue growing by 17% – T24 licence growth continues significantly above trend rate growth at 39%, bringing total licence to -3% compared to year ago despite no TCB deal in the quarter, and lapping HSBC contract in comparative Q3. • Services str
Slide 7: Rolling 12 Months - Business Update
ROLLING 12 MONTHS - BUSINESS UPDATE Revenues (USD m) Costs (USD m) S 151.1 S 195.5 173.5 +26% +29% 138.2 +12% Services 60.4 53.9 52.2 +15% Maintenance 45.5 License 82.9 +60% 51.7 2005 2005 2006 2005 2006 Cash Flow from Operations and EBIT (USD m) Fully Diluted EPS (USD per share) 0.37 +76% +47% +6%
Slide 8: Sales Performance – Business Update (cont.)
SALES PERFORMANCE – BUSINES UPDATE (CONT.) • T24 license revenues grew by 39% in the quarter compared to Q3 2005 and by 57% in the last 12 months compared to the same period last year. On a like for like basis, T24 license revenues in the last 12 months grew by 68% compared to the same period last y
Slide 9: Rolling 12 Months - Business Update (cont.)
ROLLING 12 MONTHS - BUSINESS UPDATE (CONT.) Revenues – LTM 2005 Revenues – LTM 2006 Americas Americas 14% 15% Asia 13% Asia 22% EMEA 64% EMEA 72% License Revenues – LTM 2005 License Revenues – LTM 2006 Americas Americas 11% 17% Asia Asia 16% 26% EMEA EMEA 63% 67% (1) On a $ basis 9
Slide 10: Rolling 12 Months - Business Update (cont.)
ROLLING 12 MONTHS - BUSINESS UPDATE (CONT.) License Revenues – LTM 2005 License Revenues – LTM 2006 Tier 1&2 27% Tier 1&2 37% Others 63% Others 73% License Revenues – LTM 2005 License Revenues – LTM 2006 Others Others 21% 27% Retail / Retail / Universal Universal 77% 79% (1) On a $ basis 10
Slide 11: Competition & Market Share
COMPETITION & MARKET SHARE • In the last 6 quarters, we have been steadily improving our win ratios from an already high 80% and winning consistently against competition including iflex, Misys, Fidelity, Infosys and SAP. • Organic licence growth of 53% in the 9 months to date vs estimated market gro
Slide 12: Position in the Market
POSITION IN THE MARKET Forrester Research, Inc IBS League Table Banking Platform Wins 2005 N ew name Accenture Fidelity CSC customers 10 7 signed Infosys 1 Supplier Product i n 2 0 0 5( 1 ) Customers Live sites 14 TEMENOS i-flex Solutions Flexcube 38 170 200+ 68 TEMENOS T24/TCB 34 478 645 SAP Misys
Slide 13: Market Outlook
MARKET OUTLOOK • Robust and increased growth in core spending for Retail, Universal and Private banks on a global basis • Core system replacement today represents the number one or number two priority for CIO’s of major institutions • Key drivers are growth and strategic cost management, this is not
Slide 14: Market Trends
MARKET TRENDS Industry analysts also forecast significant growth in spending on corebanking systems : • Forrester reported that more than 68% of western European banks will commence a core renewal project in the period 2005 to 2010 (Source: Forrester Research 2005) • Gartner expects 6 European Core
Slide 15: Client Services Strategy: An Update
CLIENT SERVICES STRATEGY: AN UPDATE • Our services strategy to achieve both faster revenue growth and margin improvement has started to gain traction with revenue growing at 34% in the quarter (LTM 12%) and a positive services margin of 3% (LTM -10%). • Faster revenue growth is achieved through a br
Slide 16: New Product Offering – Temenos Front Office - ARC
NEW PRODUCT OFFERING – TEMENOS FRONT OFFICE - ARC • In response to Banks’ focus on driving revenue growth through managing their client relationships more efficiently we announced the release of our Front office suite – ARC (Acquire, Retaining, Cross sell): operational and analytical customer relati
Slide 17: Misys User Target Replacement Programme
MISYS USER TARGET REPLACEMENT PROGRAMME • In total 4 banks have chosen TEMENOS T24 to replace Misys products since we started the program seven months ago. • Bank of East Asia, the pilot project for validation of the implementation timeline, was completed on schedule in September taking only 10 mont
Slide 18: Acquisitions
ACQUISITIONS • Organic growth model on track delivering exceptional EPS growth • Majority of banks are expected to replace their Core Banking systems in the next 5 years. Vendor growth over the next 3-5 years will determine long term leadership in our market. TEMENOS intends to take advantage of the
Slide 19: 2006 Business Outlook
2006 BUSINESS OUTLOOK • We continue to see strong business momentum into the fourth quarter of the year fuelled by banks’ necessity to correct significant structural issues that precipitate changing their aging legacy systems. • Our revised outlook is for EPS in excess of $49 cents per fully diluted
Slide 20: 2003 – 2005: What Have We Achieved?
2003 – 2005: WHAT HAVE WE ACHIEVED? • Established a growing and profitable company • Built product superiority and client referenceability • Strengthened management team • Broadened sales coverage • Demonstrated increasing Tier 1 and Tier 2 penetration 20
Slide 21: The Next Challenges
THE NEXT CHALLENGES • Sustain organic revenue growth for the next 3 to 5 years in excess of 20% per annum • Consolidate a clear leadership in high end retail banking with TCB, leveraging the significant up front investment we have already made in the product • Establish a profitable and growing serv
Slide 22: 2007 Outlook
2007 OUTLOOK • We plan our business for medium term T24 license revenues to grow at 20% (LTM like for like T24 growth at 68%). • We continue to target aggressive medium term TCB growth around a Tier 1&2 conversion (LTM growth at 76%). • Our outlook for 2007 revenues is $250m (2006: $212.5m), up 18%.
Slide 23: 2007 Outlook (continued)
2007 OUTLOOK (continued): • In 3 years 04/05/06 the increase in maintenance of $ 22 m has been delivered as an increase in profitability. • We target to do the same in 2007, resulting in an outlook EBIT of $50m. • Services profitability improvement, growth in licencing and TCB leverage are planned t
Slide 24: Financial Results
Financial Results David Arnott CFO 24
Slide 25: Q3 2006 Financial Highlights
Q3 2006 FINANCIAL HIGHLIGHTS Earnings Per Share • Fully diluted EPS for the quarter of USD (0.01) per share compared to USD 0.06 per share for the same period last year. Fully diluted EPS for the LTM of USD 0.37 per share compared to USD 0.21 per share for the same period last year, up 76.2% . EBIT
Slide 26: Income Statement
INCOME STATEMENT USD million Quarter ended September 30 LTM September 30 2006 2005 Growth 2006 2005 Growth Revenues Licensing 13.4 13.8 (3.0)% 82.9 51.7 60.3% Maintenance 14.3 11.9 20.2% 52.2 45.5 14.9% Services 17.1 12.7 34.2% 60.4 53.9 11.9% Total revenues 44.8 38.5 16.5% 195.5 151.1 29.4% Total o
Slide 27: Like for Like Income Statement
LIKE FOR LIKE INCOME STATEMENT USD million LTM September 30 % 2006 2005 License revenues as reported 82.9 51.7 60.3% Change in methodology - % of completion (2.7) Like for like license revenues 82.9 49.0 69.2% Reported Revenues 195.5 151.1 29.3% Like for like Revenues 195.5 148.4 31.7% Like for like
Slide 28: Cash EBITDA
CASH EBITDA USD million LTM September 30 % 2006 2005 Revenues 195.5 151.1 29% Reported Operating Costs 173.5 138.2 26% Capitalised development 15.1 10.0 51% Non-cash costs (6.9) (1.3) 430% Depreciation & amortisation (9.4) (12.5) (25)% Cash cost 172.3 134.4 28% “Cash EBITDA” 23.2 16.7 39% EBITDA 31.
Slide 29: Cashflow Conversion LTM September 2006
CASHFLOW CONVERSION LTM September 30 2006 USD million EBITDA Cash Flow from Operations T24 41.3 37.9 TCB (9.9) (21.2) TOTAL 31.4 16.7 • Cash flow from operations in line with our plan for the quarter. • Strong T24 performance with 92% conversion of EBITDA to cash flow from operations. • TCB cash out
Slide 30: Operating Costs by Quarter 2006
OPERATING COSTS BY QUARTER 2006 USD million Q1 Q2 Q3 Reported costs 36.3 50.3 44.4 Non-trend costs (2.3) (15.3) (6.9) Trend costs 34.0 35.0 37.5 • On an underlying basis, we continue to invest in operational capacity to meet the demands of accelerating growth. This underlying rate of cost increase s
Slide 31: DSOs Analysis
DSOs ANALYSIS 120 114 101 103 104 104 105 100 97 97 98 80 60 40 20 - Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 • DSO definition (see below) based on using average LTM receivables. This allows trend comparisons without the distortion of deal lumpiness and seasonality. •
Slide 32: Free Cash Flow and Repurchase of Own Shares to Fund Stock Option Obligations
FREE CASH FLOW AND REPURCHASE OF OWN SHARES TO FUND STOCK OPTION OBLIGATIONS • Cash EBITDA increases by 39% LTM 2006 vs previous year. • Continued consistent management of our DSO’s and working capital, as achieved in the last 8 quarters, is expected to result in free cash flow at an accelerated pac
Slide 33: Outlook 2006
OUTLOOK 2006 US$ million Previous Mvt Revised 2005 % LTM Q3 License Revenues 85 - 90 +5 90 - 95 64.4 +44% +60% Revenue 205 - 210 +5 210 - 215 168.7 +26% +29% EPS per diluted shares* 45cts +4cts 49cts 32cts +53% +76% EPS growth +40% +13% +53% * Our EPS outlook includes our estimated full year profit
Slide 34: Outlook 2007
OUTLOOK 2007 • We expect to reach revenues of USD 250 million, a growth of 18% vs 2006 • We expect to reach EBIT of USD 50 million. • We expect EPS of 66 cents per share. 34
Slide 35: Outlook Assumptions
OUTLOOK ASSUMPTIONS In arriving at our 2007 guidance, the following assumptions have been used: • Exchange rates: Rates for the following currencies will be reached on December 31 2006 and remain at that level throughout 2007: § USD:Euro 1.27:1 § USD:CHF 1:1.27 § USD:GBP 1.89:1 • Dilutive number of
Slide 36: Appendix
@ TEMENOS* Appendix
Slide 37: 12 Month Rolling Cashflow from Operations
12 MONTH ROLLING CASHFLOW FROM OPERATIONS (US$’000) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 LTM LTM LTM LTM LTM LTM LTM LTM LTM LTM Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- 2004 2004 2004 2005 2005 2005 2005 2006 2006 2006 37
Slide 38: Research & Development
RESEARCH & DEVELOPMENT US$ million Q3 2006 Q2 2006 Q3 2005 R&D costs – as reported 9.2 9.2 5.4 Capitalised development costs 4.1 3.6 2.9 Non cash items (2.0) (2.4) (1.5) Cash R&D costs 11.3 10.4 6.8 38
Slide 39: Research & Development (cont.)
RESEARCH & DEVELOPMENT (CONT.) US$ million LTM 2006 LTM 2005 % R&D costs – as reported 32.1 22.4 43% Capitalised development costs 15.2 10.0 Non cash items (8.1) (9.5) Cash R&D costs 39.2 22.9 71% of which: T24 20.4 14.6 40% TCB 18.8 8.3 127% 39
Slide 40: Currency Movements
CURRENCY MOVEMENTS USD millions Q3 06 Q3 05 % LTM 06 LTM 05 % Revenue – as reported 44.8 38.5 16.5% 195.5 151.1 29.4% Currency impact n/a 0.6 n/a (1.6) Revenue adj. for Currency 44.8 39.1 14.6% 195.5 149.5 30.8% Operating costs – as reported (44.4) (33.8) 31.4% (173.5) (138.2) 25.5% Currency impact
Slide 41: Calculation of DSO's
CALCULATION OF DSO’s Average LTM receivables (‘000 revenues*(‘000 DSOs USD) USD) Q3 2004 97 70,254 187,507 Q4 2004 97 73,045 196,805 Q1 2005 101 74,707 192,967 Q2 2005 103 75,924 191,579 Q3 2005 104 76,746 192,471 Q4 2005 98 80,463 214,174 Q1 2006 104 87,245 217,145 Q2 2006 105 95,790 236,646 Q3 200