Geneva, Switzerland, April 28th 2004, TEMENOS Group AG (SWX: TEMN), a provider of integrated modular and core banking systems, today announced its first quarter 2004 financial results.
• ILF signings of US$ 15.7 million for the quarter, compared to US$ 8.2
million for Q1
2003 (up 91.5%)
• Total revenues of US$ 39.7 million, up 20.7% compared to Q1 2003
• Licence revenues of US$ 17.4 million, up 40.9% compared to Q1 2003
• Maintenance revenues of US$ 8.9 million, up 21.5% compared to Q1 2003
• Service revenues of US$ 13.4 million, up 1.3% compared to Q1 2003
• Operating costs of US$ 36.0 million, up 13.2% compared to Q1 2003
• Operating profit of US$ 4.7 million, up 345.3% compared to Q1 2003
• EBITDA of US$ 8.0 million, up 61.7% compared to Q1 2003
• Net profit of US$ 4.1 million, up 248.5% compared to Q1 2003
• Fully diluted EPS of US$ 0.07, compared to a US$ 0.02 for Q1 2003
• Operating cash outflows of US$ 1.4 million, compared to US$ 3.4 million
outflows for Q1 2003
The value of Initial Licence Fees (ILF) for new contracts signed during the
first quarter of 2004 amounted to US$ 15.7 million, an increase of 91.5% compared to the same period last year. TEMENOS significantly over achieved its target of US$ 9.0 million (+74.4%). This performance represents the highest ever signings for the first quarter, traditionally a low signings quarter of the year. TEMENOS has decided to increase its first half ILF signings targets from US$ 25.0 million to US$ 31.7 million (+ 26.8%) maintaining its Q2 ILF target at US$ 16.0 million.
Total revenues for Q1 2004 were US$ 39.7 million, up 20.7% on the comparable
period last year. The principal driver behind increased total revenues was
higher ILF signings in the quarter and prior quarter, which drove growth across all revenue lines, in particular licensing and maintenance. Licensing revenues were especially strong, growing by 40.9% for the quarter. This is due to higher licence signings, good execution on projects where ILF revenues are recognised on operational milestones or on a percentage completion basis, and a greater mix of contracts, which qualify for unbundling from a revenue recognition perspective.
Services revenues increased by 1.3% compared to the prior period, in line with our expectations. Services is a lower margin business than licensing, as well as potentially being a constraint to growth. As a result, our objective is to grow licensing without increasing services revenue to the same extent, thereby improving the revenue mix and overall profitability. This has been achieved through our continuing success in partnering with integrators, resulting in a higher percentage of projects implemented by third parties. Service revenues now represent 35% of total revenues, in line with our target model and down from 55% in 2001 and 43% in 2002.
Maintenance revenue increased by 21.5% to US$ 8.9 million, reflecting the
cumulative effect of adding maintenance revenues from new customers over time.
Average deal size continued to increase during the quarter from US$ 3.1
million in Q4 2003 and an average of US$ 2.2 million for the whole of 2003
to US$ 3.2 million during Q1 2004. This is due to the launch of TEMENOS T24,
TEMENOS’ flagship product and also the success of TEMENOS CoreBanking, TEMENOS’ Tier 1 mainframe solution. TEMENOS’ success in retail banking is demonstrated by the continuing ILF signing shift toward retail banking totalling 69% of TEMENOS’ Q1 signings compared to 42% in Q4 2003, to 38% in Q3 2003 and an average of 29% for the previous 12 months. TEMENOS had an excellent performance in Europe where the company continues to see increased demand across all segments. For these reasons TEMENOS’ twelve months ILF signings running rate is now at US$ 58.5 million, its highest level ever, compared to US$ 51.0 million last quarter and US$ 54.1 million for the same period last year.
During the quarter, new single and multiple site licence contracts were signed with the Bank for Agriculture and Agricultural Cooperatives (BAAC) in Thailand with IBM and Thai Equipment Research, to upgrade the bank’s core processes across its 600 branches serving over 10 million accounts, Anglo Irish Bank Corporation to replace the core system for corporate lending, corporate deposits and retail deposits in the UK and Ireland, Overseas Private Investment Corp. in the United States, Banque de France in France, and another significant (as yet undisclosable) signing with a Tier 1 bank.
Operating costs in Q1 2004 were US$ 36.0 million, compared to US$ 31.8 million for Q1 2003, up 13.2%. At constant currency rates, cash operating costs for the first quarter 2004 increased by 4.3% compared to the same period in the prior year, as we have successfully managed growth initiatives within our existing cost base.
- Cost of licensing comprises the cost of third party software sold to our
clients as well as third party commissions. Costs incurred in the quarter
totalled US$ 1.9 million compared to US$ 1.0 million for the comparative
period, because of the higher percentage of third party software costs in
- Cost of services for Q1 2004 were at US$ 11.7 million compared to US$ 11.1
million for the same period last year. When restated at constant foreign
exchange rates, costs are flat year on year. The services margin for the
quarter was 12.7% compared to 1.2% for Q4 2003 and 12.2% for the comparative
quarter, reflecting the phasing of project starts and seasonality. As a
result of the change in focus towards using 3rd party implementers on
projects, our annualised services margin will continue to improve as we move
towards providing services at the higher end of the spectrum. For the full
year we expect a services margin of 15% to 20%.
- Software development costs for Q1 2004 were 4.4% higher than the
comparative period, at US$ 8.4 million. At constant foreign exchange rates
and when adjusted for capitalised development and non-cash costs, the
underlying cash cost of our development organisation was USD 6.8 million in
Q1 2004, flat against a comparative figure of USD 6.9 million in Q1 2003.
- Sales and marketing costs amounted to US$ 6.6 million in Q1 2004, 13.9%
higher than the comparable period last year. At constant foreign exchange
rates, sales and marketing costs year on year are flat.
- General and administrative costs amounted to US$ 7.0 million in Q1 2004,
28.3% higher than in Q1 2003. At constant foreign exchange rates we have
increased our G&A cost by 7.8% compared to the prior year. The increase is due to our investment in new office infrastructure over the past year, notably in Latin America, China, Japan, South Africa, and Australia.
We have hedged the majority of our 2004 structural mismatch at rates prevailing in November 2003 such that our operating profit is largely protected from the impact of the weakening of the USD against major currencies.
An operating profit was recorded for the quarter of US$ 4.7 million compared to US$ 1.1 million for the same period last year (+345.3%). At constant foreign exchange rates, an operating loss of US$ 0.4 million was achieved for the comparative period. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the first quarter of 2004 were US$ 8.0 million compared to US$ 4.9 million for the same period last year. At constant foreign exchange rates, EBITDA for Q1 2003 was US$ 3.4 million, meaning the underlying improvement in EBITDA compared to the restated comparative period was 286%.
Included in operating costs is an amount of US$ 3.3 million for depreciation
and amortisation of CoreBanking and other Intellectual Property rights, representing an annual cost of approximately US$ 13 million. These costs are
being amortised over three years. 2004 is the last full year of amortisation
costs, with the full year amortisation charge for 2005 dropping off
considerably between US$ 7.0 to US$ 8.0 million.
Net profit for the quarter was US$ 4.1 million, compared to US$ 1.2 million for the same period last year - resulting in EPS of US$ 0.07 per share on a fully diluted basis compared to a US$ 0.02 per share for the comparative period.
Operating cash outflows were US$ 1.4 million in Q1 2004 compared to cash outflows of US$ 3.4 million in Q1 2003. This is a result of strong EBITDA growth as well as good cash management, and represents our strongest Q1 operating cashflow performance ever. Q1 is traditionally a cash flow negative quarter as a result of lower than average new Initial Licence Fees ("ILF") signings and maintenance cashflows.
Total available cash (defined as cash plus unutilised facilities less debt) at the end of the quarter was US$ 51.2 million compared to an opening position of US$ 41.7 million. In February 2004 we renegotiated our bank facilities. We secured a US$ 25.0 million medium term working capital facility and repaid all outstanding indebtedness.
Deferred revenues as at March 31, 2004 were US$ 31.1 million compared to US$
35.9 million as at December 31, 2003 reflecting the seasonality in our maintenance revenue stream, which results in maximum deferred revenues on December 31, and the amount which can be invoiced initially in Q1 on new deals.
On the basis of our pipeline and closable opportunities, we are confident to
reach our Q2 2004 signings target of US$ 16.0 million, itself an increase of
14.3% compared to the same period last year, driven by strong performance in
the retail banking sector. We continue to see a steady flow of RFPs globally
as well as increasing activity in Europe. This will bring signings for the first six months of 2004 to US$ 31.7 million compared to US$ 22.2 million for the first half of 2003, a growth of 43%.
"I am delighted with our performance during the quarter. We have been able
to win deals with some of the world most prestigious banks to run on our
product which is evidence of our product superiority and our sales
execution. Our strategy to pursue growth and the more profitable retail
banking sector is starting to deliver results. Our performance during the
quarter which also follows a strong Q4 2003 demonstrate that we continue to
gain market share", says Andreas Andreades, CEO.
Based on strong Q1 ILF signings, we now base our financial guidance on ILF
signings of US$ 60 million instead of the previous US$ 51 million.
Internally we still target US$ 68 million of signings and are increasingly
confident that we can achieve this.
Costs are trending at US$ 36 million per quarter which suggests a full year cost of US$ 144 million. When this is adjusted for the impact of foreign exchange, this is broadly in line with our prior guidance of costs for 2004
being flat on 2003.
As a result of the above factors, we are now targeting revenues in the range of US$ 158 million to US$ 168 million. We target an operating profit in the range of US$ 17-22 million, which corresponds to an EBITDA in the range of US$ 32-37 million and an EPS in the range of US$ 0.26 - 0.32 per share, an increase of between 30% to 60% compared to 2003.
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