Total software licensing revenue growth of 22% year-on-year for Q2 2017

Total software licensing revenue growth of 22% year-on-year for Q2 2017

Banking software vendor Temenos is retaining momentum with software licensing revenues rising yet again.

In its Q2 2017 results, it reported total software licensing revenues of 22% year-on-year. For the previous quarter, these figures stood at a respectable 19%. The Q1 results were notable as Temenos CEO David Arnott (answering a question from an analyst) took a swipe at rival Avaloq in the process.

In June, Banking Technology attended the Avaloq Community Conference in Zurich, where Avaloq hit back at Temenos’ claims that it was “trapped in a relatively small geography” by pointing to its revenue rise and innovation drive as reasons for something to be cheerful about.

In an exclusive interview with Avaloq deputy CEO and group CMO Jürg Hunziker; he responded to Temenos’ opinions, saying Arnott is “worried” if he has to say that about a rival. While Hunziker concedes “we were not that cosmopolitan” – its success (such as revenue and clients) means it is doing well. For Hunziker, the reality is that both firms “operate in a challenging environment”.

Anyway, back to Temenos and Q2.

Arnott says: “We see continued pressure on banks to transform, driven by end-customer adoption of digital banking services as well as regulation. This is translating into significant growth in our market as banks embark on front-to-back progressive renovation of their legacy systems.”

He adds: “The strength of our business model is enabling us to pull ahead of our competition.”

In a call with an analyst, Arnott was asked a couple of questions – one about Avaloq and another about the bottom end of the software market.

When asked about any kind of change at Avaloq since private equity firm Warburg Pincus took a big stake in June; Arnott said: “No. We can’t comment on that I don’t think it would be appropriate.”

For the second question, Arnott said there will be “more an industrialisation at the bottom end, as you saw with Avaloq and SAP at this stage of their life when they focused themselves on the big must-win accounts and they industrialise the sale and distribution of the smaller tiers. And we’re moving towards that, and you can see that in the numbers.”

In terms of other Q2 facts and figures, Temenos pointed to its acquisition of Australia-based Rubik Financial, which closed in May, “bringing scale and presence in the Australian market”, and it says there is a “strong start” to Q3.

IFRS total revenue for the quarter was $174.3 million, up from $153.6 million in Q2 2016. Non-IFRS total revenue was $174.7 million for Q2 2017, up from $153.8 million in Q2 2016, representing an increase of 15% in constant currencies.

For IFRS total software licensing revenue for the quarter, this was $72.4 million; while non-IFRS total software licensing revenue for the quarter was $72.8 million.

Other stats proved positive. IFRS EBIT was $34.7 million this quarter, up from $28.9 million in Q2 2016. Non-IFRS EBIT was $48 million in Q2, an increase of 21% in constant currencies. Q2 2017 non-IFRS EBIT margin was 27.5%, up 1% point on Q2 2016.

Outlook

Temenos’ guidance for 2017 is non-IFRS total software licensing growth at constant currency of 15% to 20% – implying total software licensing revenue of $291 million to $304 million.

For non-IFRS revenue growth, the outlook, at constant currency, is from 10% to 13% – implying revenue of $693 million to $712 million.

Finally, after a lot of numbers, Temenos anticipates non-IFRS EBIT at constant currency of $210 million to $215 million – implying non-IFRS EBIT margin of c.30.5%.

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