• ARR Growth: 12% year-on-year in Q4 2024.
• Free Cash Flow Growth: 25% in Q4 2024.
• SACV: $24.8 million, the strongest SACV quarter ever.
• Maintenance Growth: 12% in Q4 2024.
• Net Debt: $595 million with leverage at 1.3 times.
• Dividend: CHF 1.33 for 2024, up 8% from the previous year.
• Net Profit Growth: 44% in Q4 2024.
• EPS Growth: 47% in Q4 2024.
• Operating Cash Flow: $391 million in 2024.
• Cloud ARR Disclosure: Introduced to reflect client demand for cloud infrastructure.
• Operating Costs: Up 1% in Q4 2024.
• EBIT Margin Growth: 3 percentage points to reach 34% for the full year.
• Net Capitalized Development Costs: Declined to $10 million in 2024 from $18 million in 2023.
• 2025 Guidance: ARR growth of at least 12%, subscription and sales growth of 5%, and free cash flow growth of at least 12%.

• Warning! GuruFocus has detected 7 Warning Signs with TMNSF.

Release Date: February 18, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Temenos AG (TMNSF) reported strong Q4 2024 results with a 12% year-on-year growth in Annual Recurring Revenue (ARR) and a 25% increase in free cash flow.
• The company achieved its strongest Sales Annual Contract Value (SACV) quarter ever, amounting to $24.8 million.
• Temenos AG (TMNSF) made significant progress in strategic execution, including the sale of Multi-fund to focus on core product offerings.
• The company has successfully transitioned to a subscription model, with ARR now representing 88% of product revenue.
• Temenos AG (TMNSF) announced a dividend increase of 8% for 2024, reflecting confidence in its financial health.

Negative Points

• Deferred revenues were down 5% year-over-year in Q4, showing the lowest sequential uptake in many years.
• The transition to a subscription model has led to a decline in term license contributions, which may impact short-term revenue visibility.
• The sale of Multi-fund, while strategic, resulted in a reduction of $50 million in EBITA targets for 2028.
• The company faces challenges in the US market, requiring significant investment in sales and product adaptation.
• There is a high level of uncertainty in the 2025 guidance, particularly in subscription and SaaS growth, due to market conditions and client demand.

Q & A Highlights

Q: Can you provide more details on the subscription and SaaS guidance for 2025, and how should we think about the growth rates for these components? A: Panagiotis Spiliopoulos, CFO: We have aligned our disclosure with global software players, reflecting the reality of client buying decisions. SaaS ACV was strong in Q4, and we expect a good performance in the coming quarters. Jean-Pierre Brulard, CEO, added that customer demand is strong, especially from large banks in the US and UK, and emphasized the importance of modular applications and multi-cloud environments.

Q: What are the greatest areas of uncertainty in the 2025 guidance, and what do you plan to do with the $400 million proceeds from the multi-fund sale? A: Panagiotis Spiliopoulos, CFO: The market's development will influence subscription and SaaS growth. ARR growth is a focus, and we are comfortable with our guidance. The proceeds from the multi-fund sale will likely be used for share buybacks, given our strong free cash flow profile.

Q: Have you noticed any changes in conversations with banks, and could there be a macro tailwind for discretionary spending? A: Jean-Pierre Brulard, CEO: Banks are investing heavily in technology, but face challenges with legacy systems. There is no slowdown in technology investment, and we are encouraged by modernization projects in the UK and US.

Q: Can you provide an update on your US market efforts and product positioning? A: Jean-Pierre Brulard, CEO: We have completed initial recruitment in the US, focusing on tier 3 regional banks. We are investing in specific product needs for the US market and have opened a new innovation hub in Florida.

Q: How will you report Q1 and Q2 results with the multi-fund sale, and what is the size of the earnout from the $400 million sale? A: Panagiotis Spiliopoulos, CFO: Multi-funds will not be reported as discontinued operations, but as part of the operating business. The majority of the earnout is upfront, with the remainder spread over the next few years.

Q: Can you provide more details on the high profitability of multi-funds and the rationale for its sale? A: Jean-Pierre Brulard, CEO: Multi-funds was ring-fenced within Temenos, and we decided to focus on our core business. Panagiotis Spiliopoulos, CFO, added that the transition to SaaS would require significant investment, and the sale aligns with our strategic focus.

Q: What drove the development of deferred revenues, and can you explain the one-off tax benefits in 2024? A: Panagiotis Spiliopoulos, CFO: Deferred revenues were impacted by the exclusion of multi-funds and currency effects. The tax benefits resulted from successful resolutions of uncertain tax positions and filings from prior years.

Q: How do you view the European market, and do you see potential for growth in this region? A: Jean-Pierre Brulard, CEO: We have reorganized our European operations and are focusing on UKI, wealth management, and strategic accounts. We are encouraged by recent successes and see potential for growth in these areas.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.