Strong start to year has continued - excellent sales performance across the Group:
- T24 ILF signings ahead of target at US$29 million, up 22% on 2004
- Major TCB deal with Global Tier 1 Bank in final contract stage
Business model on target:
- Like for like T24 licensing up 16%
- Maintenance up 24%
- Services up 8%
- Costs 2.5% below year ago (like for like: 3.5% when adjusted for currency impact)
Strengthening markets demonstrated by level of pipeline and subsequent to quarter end conversions
Andreas Andreades, Chief Executive of TEMENOS, stated: âThe strong start to the year has continued, with an excellent sales performance across the
Group. The level of T24 ILF signings is significantly ahead of last year and we are now in the final contract stage of signing a major deal with a Global Tier 1 Bank.
"Our business model is on target for the year with the T24 Licensing, Maintenance and Services aspects of our operations all making significant gains, while costs have continued to be effectively managed. The strengthening of the international market for banking software is now being clearly demonstrated by our growing pipeline and conversion of new business opportunities. We have already exceeded our T24 running rate target for the full year. During the quarter this has included deals such as the signing of a major Tier 1 Japanese domestic lending bank. Our target markets of retail and universal banking reached 83% of the signings mix during the quarter, with private banking and wholesale banking making up the balance, while new business represented 96% of total signings.
"Looking ahead, we expect to see robust growth in core spending for Retail and Universal banks on a global basis, with core system replacements now representing a top priority for CIOs of major financial institutions. This includes Tier 1 Western European banks, which are beginning to seriously evaluate their core system replacement requirements. TEMENOS is in place to take advantage of these increasing opportunities.
"The current consolidation phase, with major software companies investing in our sector, will provide significant opportunities for leading international players such as TEMENOS. We welcome the consolidation and look forward to playing a proactive part in the further development of our sector going forward.
"T24 is the established market leader, with an excellent pipeline in place, while the TCB market place is shared by a very small number of competitors. Despite TCB volatility, our TCB pipelineand T24âs performance allow us to be on track to deliver on our guidance of ILF signings of US$70-75 million and again reconfirm realistic EPS growth of 20%-25% for 2005 and acceleration in 2006."
Like for like revenues in H1 2005 (revenues adjusted for the legacy of percentage completion deals and foreign exchange) were US$ 72.1 million compared to US$ 74.6 million in the same period, down 3.4%. Reported total revenues for H1 2005 were at US$ 72.1 million compared to
US$ 78.0 million in the same period last year, down 7.6%. The drivers for the change in revenues are explained below:
T24 license revenues, adjusted for license revenues relating to contracts signed in prior periods and deferred into 2004 under âpercentage completionâ accounting, increased by 16% to US$ 19.6 million in the first half 2005. Including the comparison of a large CoreBanking deal signed in 2004,
as well as license revenues relating to contracts signed in prior periods under âpercentage completionâ, reported licensing revenues for H1 2005 decreased by 36.8% compared to US$ 33.7 million in the same period last year. We are now largely unbundling licencing revenues from
services, which has resulted in licensing revenues more closely correlating to Initial License Fees ("ILF") signings.
Maintenance revenues increased to US$ 11.4 million in Q2 2005, up 20.8% on the comparable period last year. Maintenance revenue growth is assisted by the fact that we now have a standard maintenance rate of 21% applied to ILF signings. New licences contributing to maintenance revenues in the quarter amounted to US$ 59 million, which is our 12 months run rate. In the absence of a material attrition rate our maintenance revenues grow as our cumulative client base grows.
Service revenues increased by 11.7% in Q2 2005 compared to the same period last year. Services capacity created in 2004 through our strategic partnership program now enables our services organisation to grow slower than our licensing business. We continue to maintain our full year services at a total revenue range of between 30-35% of total revenue.
The value of ILF for new T24 contracts signed during the first half of 2005 amounted to US$ 29 million, an increase of 22.3% compared to the same period last year. The 12 month T24 ILF signings run rate has now reached US$ 56 million compared to US$ 47 million for the same period last year, an increase of 19%. During the first half we have made excellent progress on TCB deals and a major TCB deal with a Global Tier 1 Bank is in final contract stage. We therefore reconfirm our target of two to four TCB deals for the year 2005. We have seen our strong pipeline develop in the EMEA and APAC regions, and we expect at least 50% of our TCB deals to come from the EMEA region. More than 80% of signings in the first half were with retail and universal banks compared to 78% for the same period last year, which is in line with TEMENOS' retail strategy.
Total expenses in the first half 2005 fell 2.5% to US$ 69.5 million, compared to US$ 71.3 million for H1 2004. At constant currency rates, total expenses in H1 2005 fell by 3.5% compared to the same period last year. At constant currency rates, cash costs for H1 2005 were flat compared to the same period last year. Capitalised development costs were US$ 3.8 million for H1 2005, compared to US$ 1.9 million for the same period last year. Due to our significant investment in both T24 and TCB, a portion of our development effort is capitalised where the compulsory criteria are met. Expenses include US$ 1.6 million related to stock option costs under IFRS2. Comparative figures have been restated accordingly. Within the individual cost lines, transfer of personnel (notably from development into services) took place at the start of 2005 to provide centres, but no increase in total costs or total headcount.
On a like for like basis, earnings before interest and taxes (EBIT) for the first half were US$ 2.6
million compared to US$ 2.6 million for the same period last year.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for Q2 2005 were US$ 5.3 million compared to US$ 6.3 million for the same period last year. Net profit for the quarter was US$ 1.6 million, compared to US$ 2.3 million for the same period last year.
Operating cash inflows were US$ 2.4 million in Q2 2005. This compares to cash inflows of US$ 0.3 million in Q1 2004, bringing total net cash at the end of June 2005 to US$ 17.3 million compared to US$ 19.3 million as of March 31st 2005. Operating cash flows continue to be seasonal.
Working capital has remained constant during the second quarter of 2005 as a result of absorbing seasonal decreases in deferred maintenance revenues. Our business model is characterised by long working capital cycles for individual clients, but very limited bad debt exposure.
Accounts receivable as at June 30, 2005 were US$ 56.7 million, an increase of 55% compared to the same date last year. This increase reflects the growth of our business over the intervening period, as well as our ability to invoice the vast majority of licensing from the day of signing, as payment terms are now linked to calendar dates.
Over the past two years we have been increasingly successful in removing licence inflows based on achievement of operational milestones in favour of calendar date triggers. This significantly improves our cashflow visibility and has resulted in a dramatic reduction of accrued revenues, which are down from US$ 36.7 million at the 30 of June 2004 to US$ 23.0 million at the end of June 2005, a decrease of 37%.
Deferred revenues as at June 30th, 2005 were US$ 26.5 million compared to US$ 29.0 million as at 31st March 2005 and US$ 34.6 million as at December 31 2004, reflecting the seasonality in our maintenance revenue stream, which results in maximum deferred revenues on December 31.