Temenos 2023 fiscal year revenues are in line with expectations. Moreover, the embattled firm’s dividend of CHF1.20 ($1.36) beats analyst estimates.
Temenos chairman Thibault de Tersant said that the firm continues its search for a new CEO to replace interim CEO, Andreas Andreades.
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Temenos’ CEO search
The search for a permanent CEO has become a long-drawn-out saga. Indeed, it dates back to an announcement from Temenos on 16 January 2023. On that date, Temenos released a statement saying:
“Max Chuard has decided to step down from his role as CEO and a search to identify a new CEO is under way. The board of directors is considering both internal and external candidates and the position is expected to be filled at the latest by the end of 2023.”
Hindenburg Research allegations
On 15 February, Hindenburg Research released a blistering report, highly critical of Temenos. It stated: “Our four-month investigation into Temenos, involving interviews with 25 former employees, including senior leaders at the company, uncovered hallmarks of manipulated earnings and major accounting irregularities. This includes evidence of roundtripped revenue, sham partnerships, rampant pulling forward of contract renewals, backdated contracts, excessive capitalisation of seemingly non-existent R&D investments, and other classic accounting red flags.
“These aggressive accounting practices seemed to be an open secret among many of the former employees we spoke with. Several indicated that CEO Andreas Andreades encourages the practices, which help gloss over significant customer product dissatisfaction and attrition.”
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By GlobalDataFounded in 1993, Temenos went public in 2001. Interim CEO and former chair Andreas Andreades initially joined the company as Chief Financial Officer in 1999.
Temenos’ shareholders include many leading institutional managers including Baillie Gifford, Fundsmith and Fidelity. The US has been the key target market for Temenos in recent years. The US core banking software market is dominated by Jack Henry, Fiserv, and FIS. Together, Temenos’ three US rivals make up almost 74% of the core banking solutions market share in the US, according to S&P.
Temenos’ US strategy and successful project delivery or otherwise forms a major part of the Hindenburg attack. What cannot be disputed is that the Temenos share price is down by 54% over the past five years. By contrast, the Fiserv share price is up by 74% over the same period with Jack Henry ahead by 15%.
Temenos response to Hindenburg report
Temenos commented on the Hindenburg allegations as the firm released its full year results.
de Tersant said: “With regards to the recent short seller report and further to the statement made by the board in the press release on 15 February 2024, we reiterate our position. As chairman and former Audit Committee Chair, I want to assure you of my confidence that Temenos is running a sound business with good financial controls in place. The Board places the upmost importance on its responsibilities to all stakeholders and will oversee a thorough examination of the allegations raised, with independent third parties.”
Temenos FY 2023 highlights
Temenos reported strong growth in recurring revenue in 2023, with ARR of $730m, up 16%. It posted continued growth in SaaS, and its maintenance revenue continued to accelerate. Maintenance was up 7% in Q4-23, benefiting from similar trends to those it reported in Q3, in particular the growth in its subscription revenue which contributes to maintenance in the P&L, value uplift on contract renewals, and the positive impact of CPI clauses. Temenos ARR now represents 84% of its FY-23 product revenue and it expects this to continue growing in the coming years. Cashflow in the quarter and the year was also strong reflecting underlying growth in profits. Looking at the balance sheet, it ended the quarter with leverage of 1.6x net debt to EBITDA.
