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Temenos reports Q1 2011 results: Revenues up 10%, reconfirms full year outlook

Temenos Group AG (SIX: TEMN), the market leading provider of core banking solutions, today reports results for its first quarter 2011, showing 10% revenue growth and enabling the group to reconfirm its full year outlook.

Q1 Financial and Operating highlights

• Like-for-like licence growth +6%, reported licence growth 3%

• Like-for-like total revenue growth -1%, reported revenue growth +10%

• Product extensions 16% of licence revenue

• Maintenance revenues up 39% to USD49m

• Partnership with Wipro to deliver T24 on ASP model to smaller, European banks

Commenting on the results, Temenos CEO Andreas Andreades said, “Temenos operates in a very exciting software market. Banks need to address their IT cost base if they are to restore profitability to pre-crisis levels and the maintenance of legacy core banking applications remains the largest source of spending today. Furthermore, banks that have taken modern core banking software are proven to enjoy higher profitability and faster growth.

Temenos remains the best-placed vendor to capitalise on this exciting market opportunity and these improving market dynamics. The results of the annual IBS league table published during the quarter confirm that T24 remains the best-selling core banking application and Temenos continues to gain significant market share. This market leadership is based on providing the highest value-added solution in our industry, which we are taking to an ever greater audience through acquisitions and by expanding our partner delivery channel.

In the quarter, licence growth was below trend as we saw some temporary slow-down in decision making as a result of the geopolitical issues in the Middle East and Japan. With Q1 being the seasonally smallest quarter in the year, small licence volatility can get amplified. We continue to be very confident that we can deliver our full year outlook. The drivers for core replacement and the corresponding levels of demand are intensifying, meaning that our pipeline and pipeline cover are very healthy and, along with the contracted revenues from the Wipro partnership, support our full year outlook.”

Revenue

Revenue for the first quarter was USD 103.1m, up from USD 93.9m in the same period last year, representing an increase of 10%. Licence revenue for the quarter was USD 28.1m, 3% higher than in 2010. For the LTM 2011, total revenue was USD 457m, up 19% on LTM 2010, with licence revenue at USD 160.9m, 28% higher than the same period last year.

Adjusted EBIT

Adjusted EBIT (EBIT before restructuring charges and amortization of acquired intangibles) was USD 5m in the quarter, 60% lower than in Q1 2010. Adjusted EBIT for the last twelve months was USD 106.2m compared to USD 92.7m in the prior period, representing a 15% increase. The adjusted EBIT margin was 5%, a decrease of nearly 850 basis points on the prior year, with LTM 2010 adjusted EBIT margin at 23%, 98 basis points lower than in the prior 12 months.

Earnings Per Share (EPS)

Adjusted EPS, which excludes amortization of acquired intangibles and restructuring charges, was USD 0.05 in the quarter, down from USD 0.17 in the same quarter of the previous year, which represents a decrease of 70%. The LTM adjusted EPS was 1.36, up 8% on the previous 12 months.

Cash

Operating cash was an outflow of USD 19m in the quarter, reflecting chiefly the seasonality of maintenance cash collection as well as the timing of supplier payments. On a twelve month basis, operating cashflow was USD 85.1mm, 36% lower than in the comparative period, but nonetheless representing an 82% operating cashflow into EBITDA conversion.

Outlook

On a like-for-like basis, we raise our licence growth expectation. The company expects licence revenue adjusting for acquisitions, FX and discontinued operations to grow 19-24%. This implies a licence revenue range of approximately USD197-205m. For total revenues, the company anticipates an unchanged range of between 22-26%, which represents a range of between USD 546-564m. Adjusted EBIT margin guidance of 26-27% and EBIT margin guidance of 20-21% are left unchanged.