Q2 Financial and Operating highlights
â¢ Licence revenue growth +14%; total revenue growth +22%.
â¢ Adjusted EBIT margin +120bps.
â¢ 10 new banks signed for T24, including significant wins in Private Wealth and Retail.
â¢ Breakthrough product release â T24, the best-selling core banking solution, now available in component form and in the mainframe environment.
Commenting on the results, new Temenos CEO Guy Dubois said, âThese are solid results in a challenging market environment. The uncertainty surrounding the banking sector caused delays in decision-making, principally in Europe, which negatively impacted demand in the quarter. This is reflected in our revised outlook for the year.
Despite the challenges in Europe, we had solid licence revenue growth in Q2 and our pipeline remains strong with no changes in the competitive environment. Also in the quarter, the services business returned to revenue growth and adjusted EBIT was much improved on both an absolute and a margin basis.
Temenos remains the best placed vendor to capitalise on the structural growth in the core banking software market.â
Revenue for the second quarter was USD 122.5m, up from USD 100.2m in the same period last year, representing an increase of 22%. Licence revenue for the quarter was USD 39.2m, 14% higher than in 2010. For the LTM 2011, total revenue was USD 479.4m, up 19% on LTM 2010, with LTM licence revenue at USD 165.9m, 25% higher than the same period last year.
Adjusted EBIT (EBIT before one-off restructuring charges of USD36.3m and amortisation of acquired intangibles of USD4.6m - see further details of restructuring charge below) was USD 23.7m, 31% higher than in Q2 2010. Adjusted EBIT for the last twelve months was USD 111.8m compared to USD 98.5m in the prior period, representing a 14% increase. The adjusted EBIT margin was 19%, an increase of 120 basis points on the prior year, with LTM 2011 adjusted EBIT margin at 23%, 120 basis points lower than in the prior 12 months.
Total restructuring in the quarter was USD 36.3m, up from USD 4.0m in Q2 2010. The Q2 2011 charge is comprised of USD 3.7m related to the acquisitions of Viveo and Odyssey, USD 5.0m in cost reduction charges and a USD 27.6m accounts receivables write-off. This write-off relates to projects where Temenos has been incurring significant costs and reputational effect which have been negatively impacting future sales.
Earnings Per Share (EPS)
Adjusted EPS, which excludes amortization of acquired intangibles and restructuring charges, was USD 0.27 in the quarter, up from USD 0.23 in the same quarter of the previous year, which represents growth of 17%. The LTM adjusted EPS was 1.40, up 6% on the previous 12 months.
Operating cash was an outflow of USD 6.2m in the quarter, reflecting chiefly a large adverse movement on payables. On a twelve month basis, operating cashflow was USD 91.6m, 7% lower than in the comparative period and representing a 115% operating cashflow into EBITDA conversion.
In line with the pre-announcement made on July 15, 2011, our outlook for like-for-like licence growth is 5-10%, which implies a licence revenue range of USD 176-184m, given FX movements in the H1 and our 2010 average rates. For total revenues, the company now anticipates a growth range of 13.5 â 17.5% growth, which would imply approximately USD 508 â 526m in total revenues. We have also slightly reduced our expected adjusted EBIT margins to 24.5-25.5%. We maintain our guidance for 100% conversion of operating cashflow into EBITDA and believe that our tax rate will be 10-12% for the full year 2011.