Although core banking software maker Temenos had a profitable year and managed to increase significantly compared to 2020, the result is disappointing given the very low comparison basis.
The Geneva-based company increased sales 9% year over year to $967 million, but that was below 2019 levels. Adjusted operating income rose 11% to $356.8 million. Both metrics came in just below analyst expectations and on the low end of Temenos’ guidance issued earlier.
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Temenos is currently working with its software segment in two parts – on the one hand, the licensing business, where one-time payments are reserved, and Software-as-a-Service (SaaS) for the recurring business. Total sales grew 21% year over year to $415.9 million. Maintenance work, which is reported separately, grew only slightly and service sales fell slightly.
In 2022, Temenos also wants to switch to a subscription-based payment model in the licensing business, thus meeting the demand often expressed by investors. The new model allows customers to define software expenses as operating costs and ensures Temenos has greater predictability and higher income in the long run – so the change is certainly strategically beneficial.
The financial implications that can be estimated are still small at the moment, because Temenos is only making limited adjustments to forecasts. It is true that the estimation of the annual growth target for recurring revenue by 2025 has been raised from 15-20 to at least 25%. But in the case of free cash flow, the 600 million target has been pushed back from 2025 to 2026.
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