Earnings Call: Q2 2021

Jul 21, 2021

Ladies and gentlemen, welcome to the Timonos Q2 2021 Results Conference Call and Live Webcast. I'm Sasha, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. This conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Max Shois, CEO. Please go ahead, sir. Thank you. Good afternoon, and thank you all for joining today's call. I hope you've been able to access our results presentation on our website. As usual, I will start with some comments on our Q2 performance, and then I would hand over to Takis for an overview of the financial Before giving some concluding remarks. Starting on Slide 7. We had Showing momentum in the Q2 as more banks embarked on digital transformation journeys In response to the pandemic and the ongoing structural pressures on traditional banking models. We also benefit from significant numbers of new entrants to the market. Our success with new entrants and challenger banks Has driven significant growth in SARS ACV, which were up 409% in Q2. Combined with strong license growth, this has delivered excellent growth in total bookings of 1% 4%. Our total bookings this quarter are higher than they were in Q1 and Q2 2019, demonstrating the Trends of recovery and underpinning our future outlook. We introduced total booking as new KPIs this year To reflect the increasing contribution from SaaS and to enable you to track the overgrowth in our business. Our EBIT grew 16% this quarter, and our EBIT margin expanded by 300 basis points During strong operating and free cash flow generation. With the strong momentum in our business, We have raised our SaaS ACV guidance for the year to between 50% to 60%, up from between 40% to 50%. We have reconfirmed the other guidance items, which Takis will run through later on. Moving to Slide 8. We had significant sales ACV growth this quarter, up 409% with ACV of $17,400,000 our highest ever ACV quarter. The U. S. Was the strongest contributor by region, and we expect this to continue going forward. We signed a number of new SaaS logos this quarter as well as benefiting from volume growth within some existing clients We have rapidly scaled the business. On Slide 9, You can see that our SaaS growth is largely incremental to the business. Large banks are buying licenses from us To progressively renovate the bank based on package business capabilities and those will be run either on premise Or in the cloud directly themselves or with a hybrid model that combines the 2. Mid to lower tier banks are also largely on premise, renovating the entire bank, and we do see increasing use of cloud and SaaS in this segment. And finally, challenged banks and fintechs are almost entirely SaaS for their operations, And this is where we see the incremental demand. And we can achieve rapid SaaS ACV growth with successful trends As they scale the business massively. Turning to Slide 10. We had an excellent total booking growth Of 104% this quarter, total booking hit $165,000,000 which is higher than What we had in Q2 2019, as you know, 2019 was our best year so far. So this reflects the strong sales momentum We see in the business. Demand this quarter was broad based across most geographies and products. Total booking is a key metric for us as it drives growth in our backlog and increases our long term visibility. It underpins our guidance for the year, shows we are building backlog for 2022 and give us confidence In our 2025 targets, our growth in total bookings was driven by significant growth in SaaS As well as strong growth in licenses. As with Q1, we also saw an increase in average tenure this quarter On Slide 11, we saw continued momentum in the 2nd quarter, Building on Q1 with the sales environment improving across most geographies. All regions delivered double digit growth in the quarter, with the U. S, in particular, having another very strong performance. The U. S. Was again the largest contributor to total software licensing. In Europe, we are seeing a recovery that is following the trajectory of the U. S. With a short time lag. Our European deal pipeline is building up very nicely, and we expect strong sales growth in the second half of the year. Activity with Tier 1 and Tier 2 banks is also increasing across all regions. And in fact, we are strengthening our sales organization to address this. We had 16 new client wins in the quarter, and our services teams and partners delivered 15 implementation go live. On Slide 12, I'm very proud that we again topped the sales league tables for the year. With IBS, we were ranked Number 1 seller for core banking for 16 years in a row, which is an amazing achievement. We were also the number one seller for digital banking and channels, retail payments and risk management. This year, IBS introduced a new category for sales to neobanks and challenger banks, Which is a very fast growing segment targeted by a number of new vendors. We have Invested heavily in our SaaS and cloud capabilities over the past few years to ensure we are highly competitive in this segment And being ranked number 1 in this new category is a strong statement of our capabilities, Our competitive positioning and the investments we've made so far. With Forrester, we were the top global power seller for the 15th year. And in fact, this year, we were the only vendor to be ranked As a global power seller with a 20% increase in new named deals and with 3 times As many deals as the next vendor in the ranking, so that's quite impressive. I'm very pleased with this Confirmation of our market leadership and the efforts of all our product, sales and marketing teams Who fully deserve the credit for this success. Moving now to Slide 13. I'd like to give a quick update on the 2 strategic partnerships announced earlier this year. In our partnership with Salesforce, As you know, we are combining Salesforce CRM capabilities with transactional capabilities from Telnos Infinity. The product integration is nearly complete and sales activity have already commenced with strong level of interest. The second partnership was a strategic agreement with DXC to offer the bank's clients additional transformation path for core banking. We have a number of workshops and early stage sales processes underway and are looking to potentially expand the relationship to offer all the products into the U. S. Market. Turning to Slide 14. Our U. S. Business continues to perform very well and was the largest contributor to our total software licensing With strong growth in both license and SaaS, we've had a number of new U. S. Logos signed in the quarter. And looking forward, it is the largest contributor to our global ACV pipeline this year. We have continued investing in our sales team in the U. S, which is translating into pipeline growth, and we expect our strategic partnerships, As I mentioned with Salesforce and DXC to also contribute to future growth. And Spanish sales activity with large U. S. Clients is also increasing. Finally, turning to Slide 15. We are seeing increased activity with Tier 1 and Tier 2 banks in the market, And therefore, we are proactively responding to this and have announced 2 expanded roles in our executive committee To strengthen our global sales leadership, first, Philippe Barnett is taking the role of President Of Global Accounts, in addition to his strategic partner responsibilities, she's building a dedicated sales team focusing on strategic And complex Tier 1 and Tier 2 accounts to capture the increased demand we see in this market. And I think this is very exciting. Jean Paul Meurge is being promoted to present international sales With responsibility for sales across Europe, Middle East and Africa as well as Asia Pac. Jean Paul took over responsibility for Asia earlier this year and has already had great success, And we are very confident he will replicate this in Europe. Jacqueline will continue as President of the America with Responsibility for sales both across North and South America. On that, I will now hand over to Takis to talk through the numbers for the quarter. Yes. Thank you, Max, and hello, everyone, from my side as well. On Slide 17, I'll start with an overview of the quarterly financial performance. All figures are in constant currency unless otherwise stated. SAAS revenue was up 24% in Q2 2021, driven by strong ACV growth in prior quarters, But offset by the impact of HCL, total software licensing grew a strong 16% and maintenance grew 3%, In line with guidance and in line with Q1 2021, giving total revenue growth of 8%. EBIT grew 16% and the EBIT margin expanded by 300 basis points to 36.2%, Driven by the operational leverage in our business model. We had another very strong cash quarter with operating cash flow of EUR112,000,000, Up 19% and free cash flow of EUR 87,000,000 up 24%. DSOs ended the quarter at 106 days, Down one day year on year and also down one day sequentially. Our net debt is now just above €1,000,000,000 and our leverage is at 2.3 times, Having paid out the 2020 dividend and executed €194,000,000 of the €200,000,000 share buyback program. With our strongest cash quarter ahead in Q4 2021, we expect our leverage to be around 2.1 times by year end, therefore, unchanged year on year. Moving to Slide 18. SaaS revenue grew a strong 24% despite the HCL headwind. We have had several strong quarters of ACV growth. And with most of the HCL headwinds behind us, I expect a sequential improvement in SaaS revenue of EUR 2,000,000 to EUR 3,000,000 in Q3 2021 and an even stronger Sequential improvement in Q4 2021 as the ACV growth is reflected in the P and L. Total software licensing grew 16% On the back of strong sales momentum and an improving environment in most regions. Maintenance continues to recover as expected, Growing 3% in the quarter. We expect maintenance to grow at a similar rate in Q3 2021 and then accelerate in Q4 2021 want to give full year maintenance growth of around 4%, driven by the license growth in the first half of the year. After 2021, We expect our maintenance growth to accelerate in 2022 and beyond as license growth is rebounding. Service revenue was slightly up in the quarter, and I expect service revenue to accelerate in the second half To also yield around 4% growth for the full year. Looking at the cost base. Our operating costs were up 3% year on year. Our fixed cost base continued to grow with hiring in R and D and sales in particular, and we had some limited increase in travel costs. On Slide 19, we have provided the Q2 2021 impact of the KONI non banking clients moving off from the Temenos P and L to HCL. HCL paid us an annual license fee in Q2 2020, and this repeated again in Q2 2021, So there was no impact from the HCL license fee on our year on year growth rates. The headwind comes from lost revenue across license and SaaS As well as services and a bit of maintenance as non banking clients move from Temenos to HCL, which also impacts EBIT. In Q2 2021, this created a 4% headwind on sales revenue, 9% on total software licensing and 4% on total revenue. There was also a 10% impact on EBIT. The large majority of the HCL impact is now behind us, And the rest will gradually phase out in H2 'twenty one and become negligible in 2022. The strong ATV performance in the recent quarters will become more visible in the SaaS growth acceleration in Q3 2021 and Q4 2021. We have now visibility on most of our forecast 2021 SaaS revenue given the sale of 3 months time lag between SaaS deal signing And sales revenue starts. Now on Slide 20, we show like for like revenues and costs adjusting for the impact of M and A and FX. The Q2 'twenty one figures are all organic and therefore in line with our constant currency growth rates. In terms of FX, the trends from Q1 2021 continued with a stronger euro having a positive impact on revenues, But more than offset by cost increases in all major currencies, in particular, the British pound and the Aussie dollar. Taking into account all currency movements and hedging, FX had a negative impact of about EUR 2,500,000 on EBIT in the quarter. Turning to Slide 21. Net profit grew 11% with higher taxes driving most of the difference versus EBIT, And EPS grew 11%. Our tax rate was 17.5% for the quarter, and we continue to guide The 2021 tax rate at 16% to 18%. Moving to Slide 22. Our DSOs reached 1 of 6 days at the end of the quarter, down one day sequentially and also down one day versus 1 year ago. We had strong cash collection in H1 'twenty one, which was reflected in the operating and free cash flow growth, and we expect this trend to continue going forward. We are confident in getting DSOs to below 105 days by year end. Beyond 2021, we expect DSOs to continue on their downward trend Towards 85 days by 2025, driven by continued improvement in licenses and services, cash collection And an increasing contribution from SARS in the P and L, which typically has lower DSOs, more in line with maintenance. On Slide 23, our Q2 2021 LTM cash conversion was 107%, well above our target of converting at least 100 percent of IFRS EBITDA into operating cash. We expect our cash conversion to be at least 100% for 2021, Driven by strong growth in recurring revenue, which we have continued to deliver for the last few quarters. Now on Slide 24, we show the key changes to the group liquidity since Q1 2021. In Q2 21, we generated $112,000,000 of operating cash flow, and the other main movements were the share buyback of $105,000,000 A net positive inflow from borrowings and a $71,000,000 dividend payment. Our cash on balance sheet at the end of the quarter was 88,000,000 With our net leverage reaching 2.3x. We expect our net leverage to be around 2.1x@yearend2021 After the share buyback and with strong free cash flow generation. This is unchanged with the end of 2020. Turning to Slide 25. We had an acceleration in ARR versus Q1 2021 with ARR growing 8%. HCL was still a considerable headwind in this quarter, but most of this is behind us now, and underlying attrition on ARR remains in line with historic rates. ARR growth will continue to move upwards in Q3 2021 On the back of higher SaaS growth before considerably accelerating in Q4 2021 as both SaaS growth and maintenance growth Reached normalized levels. We had very strong growth in deferred revenue, which was up 17% After already growing 28% in Q1 2021. This is driven by a combination of strong cash collection on maintenance And the growing contribution from SaaS. Free cash flow was therefore up 24% year on year to reach €87,000,000 And our net cat debt was €5,400,000 flat on Q1 2021 and still expected to be at or below 2020 levels for the full year, Assuming no further M and A. Moving to Slide 26. I have kept this slide in here to remind you of the new KPIs we introduced in February, Total bookings and ARR. Most of you will be familiar with this by now, so I will not spend time going through them. But if you have any questions, please let us know. We've also put slides in the appendix with tables showing SAAS ACV, Here are our total bookings and free cash flow by quarter. On Slide 27, we have revised our 2021 non IFRS guidance, specifically Increasing our expected SaaS ACV growth to 50% to 60%, up from previously 40% to 50%. Keep in mind, there is a 1 quarter delay between ACV and SaaS revenue growth, so most of this will impact the 2022 P and L. With $1 of SaaS ACV equivalent to around $2.5 of license, if this has been licenses, we would be raising total software licensing guidance by 2.3% for the full year Our licensing guidance by 2.3% for the full year 2021. This is why reporting our new KPIs of ACV, TV, total bookings and ARR are so important. They provide visibility on the future growth trajectory of our business given the acceleration in SaaS And its increasing contribution to the P and L line. We have reconfirmed our other guidance items for 2021. The guidance is on a non IFRS basis and in constant currencies. You can find the FX rate assumptions in the appendix. For ARR, we guide for 10% to 15% growth, driven by committed sales revenue from the ACV we have booked And the reacceleration in our maintenance growth during the year. We expect to grow total software licensing By 14% to 18% as licenses continue to grow as already seen in the 1st 2 quarters and driven by sustained growth in SaaS. Total revenue growth is forecast at 8% to 10%, with the impact of slower growth in maintenance and services On the back of lower license growth last year, we expect both of these to accelerate throughout the year and in 2022 and beyond. We are guiding for EBIT growth of 12% to 14% to €362,000,000 to €369,000,000 implying an EBIT margin expansion Of 130 basis points from 34.9 percent to 37.2%. We have maintained our target of Converting over 100 percent of EBITDA into operating cash and expect TSOs to be below 105 days by year end 2021. We expect a tax rate of 16% to 18% for 2021 and our net leverage to be around 2.1x at the end of Good year. On Slide 28, I'd like to reconfirm also our 2025 targets, which we presented At our Capital Markets Day in February, these targets our organic growth rates per annum. We expect total software licensing To grow 15% to 20%, sales will clearly grow significantly faster at around 30% plus And licenses are expected to grow at 10% plus per annum. This will drive total revenue growth of 10% to 15% per annum. We expect to expand the EBIT margin to around 41% by 2025, driven by strong growth in license and maintenance, Improving our SaaS gross margin and leveraging R and D and G and A, while still growing R and D on an absolute basis by 7% to 8% per annum. We expect total bookings to grow 17% to 22% per annum with ARR to grow at least 15%. ARR in particular will drive free cash flow growth of at least 15% to reach more than €600,000,000 by 2025. Next on Slide 29. This is a slide we showed during the last couple of quarters, but I wanted to give you A quick run through of our non IFRS EBIT and margin expansion in 2021. Our EBIT growth will be driven in By our growth in recurring revenue as well as licenses, while we continue to invest in R and D and sales and marketing And with greater variable cost accrual compared to 2020. As such, we expect to deliver an EBIT margin expansion of around 1 30 basis points in 2021. Lastly, on Slide 30, we have so far completed €194,000,000 of the €200,000,000 share buyback We launched in February. With that, I hand back to Max. Thank you, Takis. Turning to Slide 32. We are operating in a very large market, dollars 63,000,000,000 with well over 70% of the spend Still being done in house. So we've got a huge opportunity in front of us for sustainable growth in the long term. COVID-nineteen has accelerated the structural pressures on banks with traditional business models and legacy technology stacks. Demand for our products and technology continues to accelerate, in particular for SaaS, And this is driven by our pipeline growth. The acceleration in SaaS is largely incremental, as we discussed, And our growth in total booking is increasing our backlog and long term visibility. On Slide 33, our strong SaaS performance is built on years of investment in our SaaS and cloud We were the 1st vendor to run a bank in the cloud a decade ago. And since then, We've invested in our product and architecture to ensure we have the market leading SaaS and cloud platform. We use a single code base on the same product is delivered on premise or in the cloud. This means our clients are not forced to choose between different products with different capabilities. They simply choose Temenos And then decide how they want to implement and run the software. It also means we can leverage a single Product and sales and marketing organization to drive our growth profitably going forward. We are very well positioned for the future growth in demand for SaaS and cloud, and we'll continue to invest heavily in R and D to ensure we stay well ahead of the competition. So finally, on Slide 34, to conclude, we had Strong momentum in the Q2 with substantial growth in SaaS ACV, which will drive our SaaS revenue over the coming quarters. We had excellent growth in total bookings, up on Q2 2019 as the sales environment continues to improve And we maintain our market leadership across products and regions. Our revenue growth continued to drive Our EBIT and the operational leverage in our business model is driven margin expansion. And we remain very focused on cash With strong operating and free cash flow generation in the quarter. Finally, We've raised our 2021 SaaS ACV guidance to reflect the momentum in our SaaS business, And I'm confident we will have a very strong second half of the year. With that, operator, I'd like to open the call Thank you, The first question comes from the line of Sam Marks from Barclays. Please go ahead. Good evening. Thank you very much for taking my questions and congratulations on a good quarter. Clearly, if we adjust for the different accounting Between SaaS and on premise, you're already tracking ahead of the 2019 level. But on the other hand, Q4 remains an important quarter. Could you therefore maybe comment on the visibility you currently have for Q4 and how pipeline coverage and pipeline conversion has developed versus your initial And then secondly, SaaS was clearly very strong. And I'm just wondering to what extent this was driven by license substitutions for customers that decided in the end to go for a SaaS solution rather than for the on premise solution. Thank you very much. Thanks for the question. Let me take the first one. And listen, Yes. We are very pleased with the quarter, pleased with the first half. Clearly, as you know, the second half of the year is where A lot of activity still has to happen. What I can tell you is we've seen quarter After quarter, the improvement in the environment, which this is extremely positive across the regions. Clearly, we said the U. S. He's ahead, but we see now Europe as well coming back with a time lag of potentially 6 to 9 months. So I expect the second half of the year to be also very strong now in Europe. And I will say what is also very exciting is I think I've been mentioning this now for a few quarters is the fact that we see some large Tier 1 and Tier 2 banks coming back to the market. And as we discussed, we've structured and we the organization to ensure we can take the full potential of that. Now what we've seen since the start of the year is clearly an environment which is much more predictable. So the ability to forecast accurately clearly is almost back to the 2019 levels. So that's why, as we said, we feel confident for the balance of the year. Hi, Sven. Let me take the ACV question. So I can here confirm that we have seen also in Q2, same as in Q1, no cannibalization, I. E, no licensed deal shifting to a SARs deal. And with the visibility we have in our forecast In our pipeline, this is also not something we see coming. So that's maybe the first part of the answer. The other one, The way to look at the ACV number is really it's not just incremental, meaning we win a lot of new Clients, it's also what we call basically surfing the wave, I. E, if you are If you have clients which are successful with their business models on the cloud, these challenger banks and fintechs, Just to give you one example, PayPal, as we have mentioned a couple of times, and they are successful. Clearly, you ride this wave and they come back buying more and more. So the ACV number is driven by Both new names and new logos we bring, but also incremental additional business with existing clients. So, this is why you see the strong performance and clearly there is no kind of valuation or any business shifting from license to that. That's great. It's been very helpful. Thank you. The next question is from the line of Chandra Thiriman from Stifel. Please go ahead. Yes. Good evening, Max. Good evening, Takis. Just a couple of questions from my side. So thanks for giving us some sense of the HCL impact on the SaaS revenues. Could you give us a sense of what is the impact in Q2, I would assume there was some impact this Q2. A number would be nice, but at least the direction in terms of what the figure was, that would be very helpful. The second question is, you've been quite positive on Tier 1, Tier 2 deals, at least in terms of activity, but there was a significant drop The contribution in licensing from Tier 1, Tier 2, would you be able to comment on that? Thanks. Hi, Chandra, listen, it's Max. Let me take the second and I'll leave Takis with the HCL one. Listen, I wouldn't track the quarterly To take a view of the trend. And clearly, my comment about the activity in Tier 1, Tier 2, Katy means what I see in the market, what is reflected in the pipeline until there is a time lag between this and those bid closing. What is so I would say so positive is that there is really increased activity across the lines, across the regions On those larger, more strategic deals. Now it doesn't mean that You see this immediately, but definitely, it will, at some stage, flow through the P and L as we close them. So My remarks is much more about, if you want, the opportunity that I see in front of us. Now as well when you look at the pie chart that you referred to, you need to take into account that we do have A SaaS business which is growing very strongly, and this will be reflected and those are, as we know, On the low end of the tiers. Hi, Chandra. So for the HCL impact on Q3, First of all, Q2 was clearly the 1 quarter with the strongest impact. It was even higher, As you see from versus Q1. Now for Q3, clearly beyond the, if you want, the peak. So I would say on total software licensing, the impact would be maybe 2%, 3%, 4% lower than in Q2 And then substantially lower in Q4 again, so really minimal in Q4 to get to the full year number. And then on profit, clearly, there was a there is a bit more impact from services in Q3 Versus the previous quarter, so the profit impact will be lower. So maybe on profit, let's say, 3%, 4% impact From HCI. Then Q4, clearly, it's a very low single digit impact, and then you arrive at the full year number. On ARR, we have not basically given guidance on that, but it was in the previous quarter and also in the Future quarters, it's about 1% to 2%. So full year impact is also then at 2% on ARR. And next year, as we said, is negligible. So I guess we'll not going to be providing this anymore. Maybe We'll only provide Q3, and then it becomes really negligible and not meaningful to report anymore. Great. Maybe sorry, just a clarification. Was there an impact on pure licenses as such? Yes. So as you remember, HCL impacts across all lines. We had the KONI non banking business. It wasn't just pure SaaS. There was also, if you want to call it, annual licenses and annual maintenance. So yes, there was Clearly, in Q2, there was an impact, as we mentioned, of 11% just on the license line. In Q3, this will be also substantially lower, maybe 6%, 7%. Perfect. Thank you very much. Next question is from the line of Josh Levin from Autonomous Research. Please go ahead. Thank you and good evening. I have two questions. One, I guess there's a lot of uncertainty Around the Delta variant, how much does your ability to sell these days depend on your ability to travel? And then number 2, you announced some new management changes today. Has there been a departure of any key executives? Was somebody else previously President of International Sales or Chief Marketing Officer? Thank you. Listen, let me take both. First on the delta variant, And which is obviously very sad what is happening on that part. But I would say from a business point of view, The banks have adapted to the situation now for quite a few quarters. And hence, we don't see an impact On our ability to transact, to close deals to operate, quite a lot of banks are still operating remotely. The few that have started to go back to the office, I think now have the ability to very quickly go back to remote if this It would be the case. So we don't foresee, if you want, an impact from on that side. Now regarding the management change. So as I said, I mentioned 2 main ones, both on the sales side. We did not have before someone running international sales as it is today. However, we had someone running Europe, and that person, for personal reason, He's going to depart and leave the company. Now internally, we've got great A very seasoned executive in Europe. This is really our core market. So I'm very confident about the ability To deliver on the strong expectation with that in H2 for Europe. So that's if you want For the international sales, as well you've seen we've announced also A new Chief People Officer, who has been with us now for more than 5 years. Jade, she's really fantastic. And she's taking over Monica, who is leaving for personal reasons. And finally, We've got a new CMO that is joining the Exco. And Martin, I'm sure he's going to be great. He's fully in line with Open Banking, and this is lots of initiative on what we want to do more On that side, so very excited to have Martin on board. So lots of new people joining the company, which is great. It Shows how exciting it is. So very pleased with those changes. Thank you. The next question comes from the line of Laurent from the Kepler Cheuvreux. Please go ahead. In fact, I have Two questions. I'd like to come back on the ECB number for the quarter. I was wondering if there was a kind of a larger than usual deal. Because when I look at your new guidance, basically, you expect the second half to be a bit softer than the Exceptional performance you had in the first half in terms of bookings. And my second question is on North America. For the wins that you had in the 1st part of the year, do you see the environment changing in terms of competition Between the new entrant and the U. S. Improvement or you're still fighting with the same names? Thank you. Hi, Laurent. Let me take the second one. I'll leave Takis with the SCV one. So on North America, as I've been saying now for a few quarters, Clearly, we are more and more established in the U. S. We are more and more, I would say, credible. Some of our, I would say, high profile wins like PayPal, what we've been able to achieve In less than 9 months to be going from 0 to EUR 20,000,000 of loans being processed, I think that's quite fantastic, what we are doing with VARO as well in the U. S. Are fantastic case studies. In fact, VARO They're telling very openly that they're able to deliver a service at 25% of the cost Of an incumbent bank. So we've been able to show really some strong traction in the U. S, which clearly give And much more credibility in our ability. And so we are more and more invited to join the sales processes And clearly, our technology makes a difference. At the same time, as you know, we've been investing on the sales side. So we've been With the leadership of Jacqueline, we've been building a stronger, larger sales organization. And finally, the market is clearly there. Banks are spending both, I will say, On the new bank on Fintechs, but as well on more established banks that Want to go through the digital transformation, and Telnos is more and more appealing to those banks. So I think That's why you see the momentum which is building and which is continues to build, where we've got a pipeline which Continues to be very exciting, and I think we are better positioned than ever to capture this opportunity. Hi, Laurent. Yes, let me go back again to the ACV details. Clearly, If you look at the, let's say, new business, new incremental business in H1, There was already a very strong growth. And then on top, we had additional business With existing clients buying more volumes. Now the way we forecast, and this is also true for the second half, is The new business or new logos acquisition has the same, if you want, seasonality as the license So you will see Q4 being the strongest one where most of the deals get decided. And this is the way we forecast. So if You add €29,500,000 of the first half plus whatever the number is in our guidance, That will basically imply a slowdown. However, if you just look at the incremental business, so excluding the volume with Existing customers, which is very difficult to predict because you don't really know when those customers Hit the next threshold and they have to come back and buy more volumes. So usually, this is not what we are able to correctly forecast. So if you want, the guidance implies largely new incremental business. So you could see on top maybe some of the existing ones also coming. Thank you. Just a clarification. In terms of the ACV, the split between the new logos and Additional businesses with existing clients, can you share that with us? We're in no more than Yes. I know where you're going to. We it took many years for the traditional license business to become Predictable and then also to have some kind of time series giving additional information. Now we had now Four quarters in a row with double digit ACV growth, let us get to, let's say, a business which We can even better predict than we do it today. And then maybe we'll start sharing some additional color Of that. But also keep in mind, we have now 70 clients in our cloud. This is compared to 10 or 15 or 20 times more, which we have in our traditional business. Okay, fair enough. Thank you. The next question is from Stacy Pollard from JPMorgan. Please go ahead. Hi, thanks very much. Just a couple from me. You seem to be running ahead of the curve on EBIT margins. Does this mean that you're being a little bit Conservative for the full year or that maybe you won't have the same kind of level of heavy Q4 weighting on margins? So is there some seasonality that we need to be aware of? Secondly, just a quick update on M and A. How's the pipeline looking there, sort of your current thoughts and valuation levels? Hi, Stacy. Let me take both. So yes, on the EBIT margin, Clearly, I think there are a couple of elements to keep in mind. First of all, last year, if you remember Q1 and Q2, We were hit with the impact from COVID, and the cost base was basically still the 2019 or early 2020 Cost base, which we only after that started to take out costs. So what we have seen now in Q1 and Q2 is Clearly, a strong revenue growth hitting on a year on year comparison a relatively low Cost base. So this has clearly boosted the EBIT margin quite dramatically. Now we have been investing now In this year and already started last year, so some of those investments will now follow through as originally Communicated in February, so I would expect clearly to see the year on year margin trajectory Probably not having the kind of jumps we have seen in Q1 and Q2. But there is, I would say, no magic Behind that, because in the second half, so if you compare H2 'twenty one to H2 'twenty 20, Clearly, H2 21 will then have a higher cost base again. So I think the margin expansion will be as guided for the full year. But so far, yes, it's basically very good top line growth, hitting a cost base, which is Maybe a bit slower ramping up because of the hiring process. There was still some COVID impact in the first half. But this will if you look at the exit run rate in June on the cost base, I think we're tracking well for our full year EBIT margin. On the M and A, unfortunately, nothing has changed. There is still A very elevated valuation level. I mean, if you've seen some of the recent Transactions, some FinTech spot for they don't even have SaaS multiple by now. So that's clearly something very mind boggling still. We're looking at Smaller bolt on acquisitions, more on the technology side, but we clearly don't see right now Any larger opportunity coming on stream for us? Ameluz strategy is unchanged, clearly searching the market. But yes, we probably would need to see some more reasonable valuation levels. Thank you. Next question is from Knut Voller from Baader Bank. Please go ahead. Yes. Hi. Thanks for taking my questions. It's actually 2. The first one on sales and marketing, which was down sequentially, which took me a bit by surprise Given that license revenues have been up here in the Q2 and normally it used always to be that sales and marketing was Up sequentially in normal seasonality. So can you give some color here on what drove this development and what we should expect in the quarters to come? And then just briefly on the cash flow, which was strong but benefited from non cash and other non cash and non operating items and also Trade payables, can you provide some more color? In Q2, it seems to be just reversed compared to last year while it looked On the I think on the longer time horizon, on the 12 month perspective, as you showed, it's a bit more equalized. So some more color on these two line items would be helpful. Thank you. Okay. Hi, Knut. Thanks for the questions. On sales and marketing, again, I would not read too much into that. It has also to do with some of the variable versus fixed cost evolution. Clearly, we had some Lower variable costs in Q2 versus Q1. But overall, I wouldn't Any change to what we have communicated in February, I. E, sales and marketing, We'll be clearly going forward increasing. Now if you look at this, And maybe this is what you meant, the year on year drop. If you look at the IFRS number, Clearly, there was mainly the if you remember, the earnout of the KONI reversal, which was booked there On the sales and marketing, so this basically explains the largest part of the drop from €50,000,000 Basically, SEK 25,000,000. So the year on year on IFRS has a special item in there. Now if we look at the free cash flow, yes, I would say some of the, If you want, strong cash flow growth was timing related, payables being one of that. But I would see even if some of that will reverse in Q3, I would say maybe 5 to 8 percentage points Due to timing, but this can happen in any particular quarter. So we would still expect Very solid development of free cash flow, both in Q3 and also the full year. So this is just timing, nothing specific else in there. Okay. Thank you very much. The next question is from Gautam Dhillay from Goldman Sachs. Please go ahead. Good. Thanks for taking my questions. Firstly, can you excluding the HCL impact, can you comment on the underlying churn In the SaaS business and also how the maintenance churn is tracking. Secondly, there was an announcement By Cognizant terminating a co banking contract with a Finnish bank in which I believe Temnos was a software partner. Is there any financial liability for you in this? And also, is there any impact for the other contracts you have signed With Cognizant in the region. And finally, a quick clarification on share based compensation seems to be tracking slightly ahead at the half year versus your full year guidance. Anything we should be mindful In terms of the rating of Forchevar's compensation for the year. Thank you. Hi, Katar. Happy to take that one. Maybe first on the Cognizant announcement. Clearly, You would understand that we can't comment on individual clients or individual partners. But what we can say is if there is Anyone with a relation to Temenos, it would clearly not have any material impact. So I think we don't see that as any event for that. Now on the churn, The maintenance churn is still tracking as we have guided in the past, so around 3%. If you look at the South churn, maybe it's slightly higher, overall, let's say, 3% to 4%, Which basically gives you an ARR churn around the same levels. I think what is important to note On the SaaS is that the churn on TRANZACT clearly is lower. I mean, this is more in line With the on prem license, while Infinity, which clearly has also shorter sales cycles and a shorter Life span is a bit higher. So on average, we're on sales maybe slightly above the 3% Which we have on the maintenance side. And then finally, on the share based compensation. Clearly, We track this very closely what is happening with the share price and when people exercise their shares. So we take assumption at the start of the year. Now clearly, there has been a good recovery in the share price. So maybe I know some people exercised a bit ahead of expectations. But just because we're now €13,000,000 for the half year. It doesn't mean that it automatically it's just like A doubling of that number. What we would need to add here on the share based compensation, it's usually Three plans which are running in parallel. As you know, the share based compensation as always for 3 year plans, there is a number of assumptions Which we have to take. Not much to add to that. But One reason why we decided at the start of the year to exclude this from our target is exactly that. It's very unpredictable You know what is happening to the share price and when people exercise how much. So this is why we have taken it out or one of the reasons. Got it. Thanks, Thomas. The last question for today's conference is from Michael Vogt from Vontobel. Please go ahead. Yes, thank you. Good evening, gentlemen. Two questions from my side. The first one is the acceleration in SaaS ACV And the increasing guidance, could you maybe explain what impact That could have on your EBIT margin expansion road map beyond 2021, If there is any meaningful impact from the faster ICV development. And the second question would be regarding your partnership with DXC, now that we are a few months in, could you maybe elaborate a little bit on what sort of potential you're seeing Going forward from that partnership, I think we sort of are not fully appreciating that potential yet. Thank you. Hi, Michael. Let me start with DXC and One of the very exciting partnership that we signed earlier this year, We've started engaging now with a lot of the customers That are using the IP from DXC. I would say more in the U. S. And internationally, even though we've done also So internationally, we've started running some processes and there are some And remember, the customer base from DXC are mainly large banks. And so we do have some process that are at early stage, but which are that looks very Interesting. So I think the relationship is clearly very, very strong. And in addition to that, we are assessing potentially also to extend Because the partnership is today for Transacta, and it could be able to extend to different products. So we could enlarge as well this partnership. But I have to say the engagement is very, very strong. The type of banks are really core to what we do. Those are really large banks, Meet 2 large banks that are running on mainstream type of application and that do need to go through a transformation. And so those are perfect prospects for Assam. And hence, it's progressing well, and It's partly as well. Why we are also structuring this team that will focus globally on Global accounts is to how to better capture, how to better maximize the opportunity with those type of large banks. So very good so far, but those large banks take some time to go through the full sales process, But it's very encouraging at this stage. Hi, Michael. Let me take the sales margin impact. I mean, as we have guided of at least, let's say, 30% SaaS growth In terms of cover until 2025, so this is implied in our 2025 guidance, Every additional €1,000,000 on the top line of SaaS revenue will clearly help Not just improving the gross margin by simply running more volume Through our cost base, but also clearly help improving the EBIT margin. Now on the exact timing Of the margin progression, we have given some color back in February. If you look at the SaaS gross margin to address maybe this point, It's clearly progressing very well. We intentionally don't give this on a quarterly basis because you could you would see then Where we track and then probably consider our 2025 targets not ambitious enough. So there is still some volatility In the margin evolution of SaaS, because sometimes people sometimes clients come on board faster, Others ramp up much faster with volumes. If somebody goes live with very few clients, the gross margin is much Higher than if he runs up much faster. So there is a lot of there are a lot of variables in there. But clearly, as a general rule of thumb, Every acceleration in sales growth in 2022 and beyond is clearly beneficial to the margin. Thank you. Very helpful and well done. Thanks. Thank you everyone for joining The results are presentation. So I'm sure we'll speak soon. And thank you again for joining this call today. Bye. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.