• ARR Growth: 12% increase, reaching $742 million.
• Free Cash Flow Growth: 16% increase, with $73 million generated in Q2.
• Subscription Revenue: $39 million, up double-digit year-on-year.
• SaaS Revenue: Grew 8% year-on-year but declined sequentially.
• SaaS ACV: $9.4 million, nearly double that of Q1 2024.
• Maintenance Revenue: Grew 11% in Q2 2024.
• Total Revenue Growth: 5% increase in the quarter.
• EBIT Growth: 7% increase, with a margin of 37.4%.
• Net Profit Growth: 11% increase.
• EPS Growth: 8% increase.
• Cash Conversion: 121% LTM cash conversion.
• Net Debt: $563 million, with leverage at 1.4 times.
• Revised 2024 Guidance: ARR growth of about 13%, total software licensing growth of 3% to 6%, EBIT growth of 7% to 9%, and free cash flow growth of at least 16%.

• Warning! GuruFocus has detected 5 Warning Signs with TMSNY.

Release Date: July 23, 2024

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

Positive Points

• Temenos AG (TMSNY) reported a healthy 12% growth in Annual Recurring Revenue (ARR) and a 16% increase in free cash flow, indicating strong business resilience.
• The company successfully launched the Temenos SaaS Foundation, a next-gen SaaS platform for banking, which is expected to drive future growth.
• Temenos AG (TMSNY) saw a significant increase in customer engagement, with 101 go-lives in Q2, up from 62 in Q1, showcasing strong customer adoption.
• The company has reinforced its executive leadership team with internal promotions and new hires, bringing in experienced leaders to drive growth.
• Temenos AG (TMSNY) maintained a strong cash flow position, with $73 million of free cash flow generated in Q2, and continued to reduce Days Sales Outstanding (DSOs).

Negative Points

• The company faced challenges due to a short seller report earlier in the year, which impacted sales campaigns and led to a revised guidance for 2024.
• Despite growth in ARR, the SaaS revenue declined sequentially due to elevated downsell and churn in Q1, which only normalized in Q2.
• Temenos AG (TMSNY) had to lower its software licensing ambitions for the year, indicating potential challenges in achieving previous growth targets.
• The company is facing a competitive landscape in the US, with a need to invest in sales force and product adjustments to close gaps in regulation and compliance.
• There is a reliance on large deals to achieve guidance in the second half of the year, which could pose a risk if these deals do not materialize as expected.

Q & A Highlights

Q: You've lowered your software licensing ambitions for the year but kept EBIT unchanged. How do you reconcile these incremental investments with the lower OpEx in the guidance? A: We are looking at an $80 million plus incremental cost in H2 versus H1, mainly on the variable side like commissions and bonuses. We have seen efficiencies over the last six months, freeing up space for investments. Even if we hire now, the in-year impact will be minimal, allowing ample room to invest this year. (Paniagotis Spiliopoulos, CFO)

Q: Can you comment on the implied TSL guidance for H2 and the pipeline that supports it? How derisked is this, and how do the assumptions compare to prior years? A: We have seen normalization in conversion rates but not enough to maintain the full-year guidance. The pipeline volume for Q3 and Q4 supports the revised guidance. We have good visibility on SaaS revenues, and the subscription volume for the second half is covered by the pipeline. (Paniagotis Spiliopoulos, CFO)

Q: What are your early impressions on changes needed to improve Temenos' execution, particularly in the US? A: We are focusing on three streams: culture and leadership, product and technology assessment, and strategic planning. We aim to shape a new culture, assess our product capabilities, and define where we want to compete. This will converge at our Capital Markets Day in November. (Jean-Pierre Brulard, CEO)

Q: Could you elaborate on the areas Temenos needs to improve and invest in? How significant are these investment requirements? A: We need to differentiate core products and focus on specific geographies and banking segments. We are assessing market demand and investment opportunities, particularly in the US and Western Europe, to align with our strategic plan and midterm financial guidance. (Jean-Pierre Brulard, CEO)

Q: Did you consider pulling the guidance altogether given the challenges in achieving TSL guidance in H2? A: There was no obligation to revise the guidance. We assessed the situation and saw that while we were catching up on deals, maintaining the old guidance would have been risky. The revision derisks the second half. (Paniagotis Spiliopoulos, CFO)

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