Earnings Call: Q4 2020

Feb 17, 2021

Ladies and gentlemen, welcome to Temenos' Q4 2020 Results Conference Call and Live Webcast. I am Moira, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference has been recorded. The presentation will be followed by a Q and A session. The conference must now be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Buck Schwerdt, CEO, please go ahead. Thank you, operator. Good afternoon, and thank you 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 Q4 and full year performance. And then I will hand over to Takis for an overview on the financial performance before giving some concluding remarks. Starting on Slide 7. 2020 was clearly On unprecedented year, banks suffered big disruptions and saw the delayed deals, particularly in the first half of the year. However, as soon as they had rolled out the business continuity plans, banks returned to the strategic transformation projects. Temenos was able to adapt very rapidly to the changing environment. We supported our customer with minimal disruption Three remote implementations. We adapted our sales process to the new normal and recorded Strong sequential improvement as early as Q3 when digital transformation project resumed. Turning to Slide 8. Temenos has consistently delivered over the last decade, and we will continue to do so. Over our 27 years of history, we dealt with several global crises, like the global financial crisis and the sovereign debt crisis. And TEMENS was impacted for 1 or 2 quarters, but always, we were able to rebound very quickly And emerge even stronger. And that's because our industry is a structural Going through a structural change, and digitalization is an imperative for banks. And the to change, in fact, has never been greater for them. The majority of banks, remember, are still using systems that date back more than 50 years. Banks have no choice but to transform, and this will drive sustainable long term growth for Temenos. Moving to Slide 9. We delivered a strong sales performance in the 4th quarter with a continued sequential improvement on Q3 2020. Our sales closure rate improved materially as the predictability of our business returned to near the 2019 levels. SaaS ACV reached $11,500,000 up 26% in Q4. And this took our full year SaaS ACV bookings to €34,000,000 or 60 1 percent on 2019. Total software licensing declined 17% in the quarter, though this was a material improvement on Q3. And our sales pipelines continue to develop strongly, which give us strong confidence for 2021. Thanks to the strong profitability of our recurring revenues and the flexibility of our cost base, We were able to grow our earnings with EBIT up 11% in the quarter and operating cash flow up 12% for the full year. We are also announcing a new share buyback program of up to $200,000,000 which will start on the 19th February. And finally, we will propose a €0.90 €0.03 dividend, which will be subject to the AGM approval, obviously. On Slide 10, This highlights the evolution of our performance throughout 2020. And as I said, we were clearly impacted in the early part of 20 2020 has been focused on business continuity, but we rebounded strongly in the second half as strategic project returned. While still below the 2019 levels, I'm pleased with the material improvements recorded in Q4 2020 across all our financial KPIs. Turning to Slide 11. The demand for SaaS continues to accelerate with SaaS ACV up 26% in the quarter. This takes the full year CV growth to 61% and SaaS revenue up 44% in the full year. Banks understand The operational and cost benefit to be gained from using SaaS and cloud, and there is increasing regulatory acceptance globally. Our clients recognize that running our software in the cloud allows for faster updates, lower infrastructure costs, Elastic scaling and active resilience. And the economics offered by SaaS solutions are opening the banking market to new entrants, and this includes specifically challenger banks and fintechs. And therefore, that provide us with a largely incremental opportunity for Temenos. On Slide 12, I'd like to spend a time a bit of time on the SaaS pipeline, which is growing exponentially. The ACV booking growth recorded in the second half of twenty twenty is a testament to the strong pipeline that we've Been developing over the last 2 years. Our SaaS ACV pipeline grew by 200% in the last 12 months, And that's a significant acceleration over the last year. This ACV pipeline will drive Material growth in our SaaS revenue in 2021 and over the medium term. Turning to Slide 13. I'll give you an overview of our sales performance in the quarter. Overall, sales in Q4 continued to improve sequentially. We achieved stronger closure rates as banks started to resume strategic transformation projects. And this was reflected by the greater contribution also that we saw from Tier 1 and Tier 2 banks in the quarter. As already highlighted, we had very strong momentum in SaaS, notably in the U. S. And we've had good growth in new pipeline activity for license as well. This continued momentum from the last two quarters give us greater confidence for 2021. Our installed base continued to be resilient and accounted for 70% of our license sales in the quarter. Lastly, we had a total of 26 new names wins in the quarter across all products, And this took the full year to 64 new logos in 2020. On Slide 14, I'm very pleased and very excited to announce that we've concluded 2 new strategic partnerships in the last few months. First, with Salesforce, where we will be combining the Salesforce CRM capabilities With a broad set of transaction capabilities provided by Temenos Infinity on the onboarding, the origination and the services, This offering will enable banks to engage with the clients and employees in a whole new way, And the partnership offers great opportunity for Temenos, I would say, in a very largely fragmented front office market. So this is really a great opportunity for us. In addition, as you've seen probably this morning, we've also announced and signed A strategic agreement with DXC to accelerate the digital transformation program of DXC's banking clients. And these offer large banks a viable progressive T cell transformation path, leveraging obviously our very modern technology. And this is also very, very exciting as a new development. Moving to Slide 15. I'm pleased with our performance in the U. S, which recorded strong growth, Especially with our SaaS offering, the U. S. Market has been the strongest contributor of our SaaS deal, And our modern technology and our deep banking expertise resonates very well with U. S. Charge and banks and fintechs. In addition, our referenceability in the U. S. Continues to grow. In fact, I'm very pleased that last weekend, A Tier 1 bank went live on a Temenos transaction. And finally, our recent strategic partnership that I just mentioned with DXC and Salesforce Provide a very strong platform for growth as clearly those partnership will focus a lot on the U. S, not only the U. S, but the U. S. And Europe. So strong platform for growth in 2021 and beyond. Moving to Slide 16. Temenos has once again been recognized on multiple occasions as clear leader in the software banking market, Notably, in the core and digital banking space, with a number of different accolades that we received by both IBS Intelligence And in addition to that, we are very proud that our corporate and Social Responsibility Program gained further recognition, in particular, by entering the Dow Jones Sustainability Index for both the world and the European level. And as you know, as a company, we are very focused on operating sustainably. And this is a key pillar of our culture and the foundation on which we conduct our business on a daily basis. Turning to Slide 17. We had 21 implementation go live in Q4 And a total of 99 in the full year 2020. And we recorded 307 go live events, so including of upgrades in 2020. So that's nearly one go live every day. Our clients continue to adopt our remote implementation methodology as a new standard, And this keeps the implementation progressing throughout any lockdowns. In fact, nearly all our ongoing implementation are now operating 100% remotely. The use of cloud continues to increase, and it is a key factor in remote implementation. And with our robust implementation methodology and cloud capabilities, we are very well placed to continue to bring clients live remotely. As a direct impact, our services margin continues to improve, reaching 16% this quarter 13% in the full year. And that's been achieved through So on Slide 18, as the COVID crisis hit, As I said at the start of 2020, bank initially focused the efforts on business continuity and remote activities, And this meant postponing some larger CapEx decisions. However, strategic IT investment Across the front and back of resumed in late summer, driven by structure and imperative of the market A new digital transformation project emerged in the last part of 2020. We expect a continued strong increase in demand for SaaS from Challenger and Fintechs and large banks are set to access investment again strategic on premise software renovation. With strong growth in ACV and license, I expect to reach 2019 level on a combined license basis, on an equivalent basis on an equivalent ACV booking basis by the end of 2021. On Slide 19, I wanted just to remind you, and a lot of that will be obviously discussed tomorrow during The Capital Market Day that we operate in a huge market, it's a $63,000,000,000 market. And however, only 27% of the spend is done on 3rd party software, And that compares to around 70% to 80% for all the industry that has reached maturity. So it represents An amazing growth opportunity for Terminos, and this will continue sustainably for the next 10 to 15 years. Banks are a need to invest in the IT renovation that do not have a choice. 1st participant is expected to grow at 8% for the next 5 years, with the on premise market growing at 6%. Temenos has a track record of growing twice faster than the market, and we will continue to do this because of our unique focus on that market because of our unique references, because of our unique architecture and functionality. We also see a dramatic acceleration in SaaS, which is expected to grow at 25% on a CAGR basis over the same period of time. And as I mentioned, the majority of this will be incremental. Looking forward, on Slide 20, banks across tiers and geographies I've resumed the strategic IT transformation projects. The COVID-nineteen crisis has ultimately Accelerated demand for digital transformation, and we continue to benefit from structural drivers of growth. Digitalization now is an imperative for banks with significant regulatory cost and competitive pressure. We recorded strong new pipeline growth, and we expect the demand to accelerate in 2021. And this is obviously true for SaaS solution, which remains, as I said, incremented with limited cannibalization. But it is also the case for on premise as large banks accelerate and meet banks as well their investment in strategic software renovation. With that, I will now hand over to Takis to talk through the numbers for the quarter. Thank you, Max. Starting on Slide 22, we look at our performance versus our revised guidance. The operational resilience of our business model helped us to achieve our revised guidance metrics for 2020. Recurring revenues, EBIT, DSOs and leverage ratio were delivered as guided, while our strong cash generation lifted cash conversion to 112 On Slide 23, I'd like to give you an overview of the financial performance in Q4. As a reminder, we had closed The acquisition of KONI at the end of Q3 2019, so the Q4 figures are all with KONI in the base, I. E, organic. As Max has outlined, we had strong ACV growth of 26% in Q4. Total software licensing was down 17%, a very substantial improvement on Q3 in particular And also taking into account that Q4 2019 has been a very strong quarter. We had no cannibalization of license revenue this quarter. We acknowledge that Q3 2020 was an outlier in this respect where 2 larger deals with FinTechs moved from license to SaaS, which clearly skewed the picture on a quarterly basis. However, we also know that we have a very limited number of fintech deals on our license model. Overall, total revenue was down 12%, driven by lower license revenues. We accelerated our EBIT growth this Quarter with EBIT up 11%, driven by tight cost control. We reached a full year EBIT margin of 35.6%, up 3 20 basis points and the Q4 EPS of $1.44 up 13% year on year. We continued our strong cash performance in Q4 and delivered operating cash flow of EUR 406,000,000, up 12% year on year and an operating cash conversion of 112%. We ended the year with DSOs at 111 days, down 9 days year on year and with leverage at 2.1 times, both in line with guidance. Based on our strong balance sheet and the resilience and visibility of our cash generation, we are launching a share buyback program of up to SEK 200,000,000 to commence on the 19th February. We are also proposing a dividend of SEK 0.90, up 6% year on year, demonstrating our confidence in the attractive outlook for the business. The proposal is subject to shareholder approval at the 2021 AGM. Now moving to Slide 24, I will run you through some key figures for the quarter and the last 12 months. The strong growth in recurring revenues demonstrates the resilience of our business model in the face of disruption From COVID-nineteen in H120 and is key to our strong cash and profit performance in this quarter the year. Our SaaS growth of 44% benefited mainly from a significant number of transact signings, but also from the contribution of Infinity. Maintenance grew 1% this quarter and 7% for the full year as we saw the delayed impact of weaker licenses from H120. However, Q4 2020 clearly marked a trough regarding maintenance growth. We already expect maintenance growth to accelerate to around 2% to 3% in Q1 2021 and converge towards 4% to 5% growth for the full year. Beyond 2021, the strong license growth forecast for this year will again lead to maintenance growth acceleration in 2022 and beyond. Services revenue declined 9% this year due to the delayed impact from weaker licenses and as we continue to work closely with partners. Services will also return to solid growth in 2021. Looking at the cost base, our operating costs declined 26% this quarter 13% in the full year, driven by a combination of lower variable costs and the full impact of the cost initiatives, which we had commenced in Q2 and concluded in Q3. We were also able to improve our service margin to 16% in the quarter, benefiting from the cost initiatives, but also the efficient allocation of resources in remote implementations. Now on Slide 25, We show like for like revenues and costs adjusting for the impact of M and A and FX. As a reminder, we closed the acquisition of Kony at the end of Q3 2019. So Q4 figures reflect the Kony business in the base and are therefore all organic. In terms of FX, the stronger euro and Swissy had a positive impact on revenue, but also negative impact on costs. Taking into account all currency movements and hedging, FX had a small positive impact on EBIT in the quarter. Total software licensing declined 17% like for like this quarter, and services also declined 21% As some implementation processes continue to be delayed and we started to see the impact of lower license signings in H1 on service revenue. Maintenance grew 1% like for like in Q4 2020. And as I mentioned before, clearly marked the trough regarding maintenance growth. We already expect maintenance growth to accelerate to 2% to 3% in Q1 2021 and converge towards 4% to 5% growth for the full year. The overall like for like decline in revenues was 12% and our like for like cost base was down 26%, driven by lower variable costs as well as cost savings program. Turning to Slide 26. Net profit and EPS both grew 30 In the quarter and in the last 12 months, net profit declined 2% with EPS at minus 1%. Our tax rate was 13.9% for the full year and we see the fiscal 2021 tax rate at 16% to 18%. Our medium term tax rate of 18% to 20% is a normalized run rate for the business. On Slide 27, our DSOs ended the year at 11 days. This is down 9 days versus 2019, which included the impact of the KONI balance sheet. Throughout 2020, we have seen no issues with our clients' ability to pay nor did we have requests for revised payment terms. We plan to continue our group performance in DSO reduction and aim to end below 1 or 5 days by the end of 2021. We will update our medium term target for DSOs at the Capital Markets Day, but we clearly see DSOs declining further to reach levels Comparable with software peers, driven by strong cash collection on licenses and increased contribution from SaaS And that continued reduction in DSOs linked to services as more implementations are carried out by partners and remotely. On Slide 28, our Q4 last 12 month cash conversion was 112%, 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 at 100% for 2021, driven by strong growth in recurring revenue. On Slide 29, we show the key changes So the group liquidity over the year, we generated EUR 406,000,000 of operating cash flow in the year And had net reduction in borrowings of SEK 371,000,000. Our cash on balance sheet at the end of the year stood at €110,000,000 with our net leverage reaching 2.1 times. The weakening U. S. Dollar versus the Swissy has a negative impact of 0.2 times on leverage in the full year. We expect our net leverage to remain at comparable levels at year end 2021, accounting for the share buyback and the free cash flow generation. Now turning to Slide 30. We present the key elements of our 2021 outlook. As you have heard from Max, COVID-nineteen has accelerated the pressure on banks to innovate and invest, which we see a strong demand driver for the year and continuing the improvement witnessed in Q4. There are compelling drivers for banks to change. Banks do not have a choice. This is why on premise market for banking software, both core and digital, will continue to grow at a very healthy rate. On top, we see largely incremental demand for our SaaS offering coming from Fintechs and Challenger Banks. On this slide, we have outlined the various drivers providing revenue visibility for 2021 And therefore, backing up our confident outlook. We see a very solid pipeline of license deals and accelerating demand for SaaS ACV. We have good visibility with Tier 1 and Tier 2 banks resuming their continuous renovations, and we will drive higher sales to our increasing installed pace. As in the past year, we expect to see again the strongest demand for our Transact and Infinity offerings across both licenses and SALT. Now moving to Slide 31. We show our future reporting KPIs With the majority already in place today, we are introducing 2 new KPIs to help you monitor the progress we are making. We are giving a target for total bookings, which includes the fair value of license, committed maintenance and SaaS. This will give you an indication of how the total new business generated is growing and should make the acceleration of our business through SaaS visible. We will also guide and report on annual recurring revenues, ARR, which we consider best practice to demonstrate the growth trajectory of our recurring revenue streams. ARR is defined as all committed revenue across SaaS and maintenance and will include new customers, Cross end upsell and then the attrition. Now turning to Slide 32, let me spend a bit more time to present our guidance for 2021. The guidance is on a non IFRS basis and in constant currencies. You can find the FX rate assumptions in the appendix. The 2021 guidance is based on the outlook statements presented on the previous slide. We clearly have seen a steady improvement in Q3 and continuing in Q4 in our end markets as banks have adapted to the pandemic. Banks have proven very resilient and have returned to conducting strategic transformation project, which will drive demand in 2021 and beyond. The structural demand drivers for banking software remain firmly in place. We are guiding for sustained strong ACV growth of 40% to 50%, which we see to a large extent incremental. For ARR, we guide for 10% to 15% growth, driven by our locked in strong SaaS growth and the reacceleration of our maintenance growth from Q4 trough levels, while we maintain limited attrition on both revenue streams. Total software licensing, a key P and L metric, should grow at 14% to 18%, reflecting both the strong recovery in license growth And sales performance. Total revenue growth is forecast at 8% to 10% as we digest the temporary somewhat Lower growth of maintenance and services, which are set to accelerate in 2022 and beyond. From 2021, we will be excluding the cost of share based payments and related social charges from our non IFRS presented financials, I. E, IFRS II costs. The change of methodology is supported by the fact that this expense is a noncash item. Our current non IFRS adjustments already Exclude all other noncash related expenses. This approach is common practice in a large number of listed companies. As such, More than 60% of companies in our peer group adjust their earnings for the cost of share based payments. We have provided the IFRS Two calls for both 2020 and 2021 for reconciliation purposes. We guide for an EBIT growth of 12% to 14% to US3.64 dollars to US3.71 million dollars implying an EBIT margin expansion of 1.20 basis points From 36.0 percent to 37.2 percent. As we have repeatedly said, we see no need for a catch up in investment, And we are very confident that we are now back on the EBIT margin expansion path from 2021 onwards even with a higher share of SaaS revenues in the mix. Please note that we have provided additional disclosure of the impact of the HCL transaction for the Kony non banking Customers signed in June 2020. In 2021, we now have the full year negative impact of the run rate of H220 And therefore, a considerable impact on growth metrics. You can see that our underlying growth rates for total software licensing, Total revenue and EBIT will be markedly higher. We have maintained our operating cash conversion target of converting Over 100 percent EBITDA into operating cash and expect DSOs to be below 1 or 5 days by year end 2021. We expect the 2021 tax rate of 16% to 18% and our net leverage to be at comparable levels. On Slide 33, we demonstrate for the midpoint of our 2021 guidance our strong visibility on EBIT margin expansion, driven by recurring revenue and supported by the license growth on the back of a very solid pipeline. This leaves us enough room to accommodate The increase in variable compensation and investment in the business, but still leaves enough flexibility to ensure we deliver on our profitability guidance With EBIT growth of 12% to 14%, implying the EBIT margin rising by 120 basis points from 36.0 percent to 37.2 percent. As previously mentioned, as of today, we are excluding IFRS 2 costs from our EBIT margin targets. Moving to Slide 34. To be fully transparent in our disclosure, We provide the same EBIT bridge under our previous EBIT definition, including the IFRS 2 charges. You can observe that our EBIT margin would Span by 40 basis points to 35.2%. Finally, on Slide 35, let me briefly talk about the share buyback program. Based on our strong balance sheet and the resilience and visibility of our cash generation, we are launching a share buyback program of up to EUR 200,000,000 to commence on the 19th February and to end on 30 December 2021 at the latest. With that, I will hand back to Max. Thank you, Sakis. On Slide 37, just to remind you that we are hosting our Virtual Capital Market Day tomorrow, starting at 2 p. M. CET. I hope that most of you will be able to join us to discover and discuss The very exciting opportunity that Temenos have in front of us. And finally, on Slide 38, We recorded, as we discussed, a strong sequential improvement in Q4 With our sales closure rates improving significantly, in particular in Europe, and the predictability of our business has returned To near pre COVID levels, driven by structural imperative, banks have returned to strategic transformation projects, both on SaaS and on premise solutions. Our business has demonstrated great resilience, protecting profit and cash flows through sticky recurring revenues and great cost flexibility. We continued our investments in R and D and key sales position, And we are well positioned for strong growth in 2021 and with an immediate Strong start in Q1. With that, operator, I'd like to open the call for Q and A. First question comes from James Goodman from Barclays. Please go ahead. Good evening. Thank you. Encouraging to see the additional KPIs. You've been very clear that there's no significant substitution still from core to SaaS. I I think it's fair to say there's been a broad expectation that you would consider a sort of a faster transition at this CMD. And Clearly, we did see the 2 large deals that Pekka has mentioned in Q3 switching. So the first question is Why you think it is that you don't see a sort of broader acceleration in your core customer base and Why you wouldn't sort of encourage that from your side? And I'm sure we'll talk more about it tomorrow, but some introductory remarks there would be helpful. And then secondly, and it's a bit linked to that, but just Coming back on the maintenance, I take the point in terms of the year on year growth, but just want to look at it sequentially where it was Down in the Q4 and really ask you why that was and if we aren't seeing any sort of substitution there out of maintenance to SaaS. Those are the questions. And just one more clarification maybe from you, if I can just triple check on the HCL point. Growth rates you've got in the outlook, when I look at those calculated, it looks like those are the growth rates you're guiding to and then you're just calling out that HCL is a headwind that would have driven Higher growth rates than you're showing. We don't need to make any further adjustments for HCL, if you could just confirm that. Thank you. James, maybe let me take the first one. And it's true that you'll see we'll discuss this In quite more details tomorrow. And so first, on the on our existing customer base, We feel pretty confident that the our existing core customers will not move or will move very slowly And gradually, if you want, towards a potential SaaS offering. And the reason is really that Today, our customers that are using our modern platform on premise, they still get a very large benefit From a cost point of view by running on our modern technology. And since we've not seen The need for them to go the next mile as and to us run the solution for them. So if you want, what we will discuss in quite some length tomorrow is, in fact, The product that we run as SaaS or that our customer run on premise It's the same product. And I think this is the main difference that you got with Temenos is The investment has been made. The product is there. We've got 60 customers, more than 60 On our SaaS Challenger banks, it's the same product that is run on premise by banks. So to get the benefit of the modern platform. And if you want the fact that we run it for them as a SaaS, Yes. They do get some more benefit, but it's not significant as such. And you will see that tomorrow we discuss that some of our customers that Move to Sarta are able to run and reduce costs up to 90% in some cases. However, 70% of that improvement, they can already get it on premise with our modern solution. So I think that's, I would say, the element of why we don't see, if you want, our customers moving fast Towards to SaaS and very gradually over many years. Now That's for the existing customer base. Now from the new customers and also that we will discuss at length We will discuss between the different tiers of customers. Today, what we see is really Challengers banks and fintech. So that's really the type of segmentation of customers that Decide to move to Sarta. And this is great. And this is as I said, this is incremental and It's not something that we have been doing in the past that we would not have been able to create a new bank with With the infrastructure on premise. So that's a clear, tough market. The largest bank, It is the vast majority of them is on premise. Now some of them use cloud, if you want, But they will run it to themselves. They will not ask us to run the cloud operations. And that we don't see for if you want for the medium term Tier 1 bank asking us to run the solution. They will certainly be using cloud more and more in the future, but they will be running it themselves or have a partner to run it for them. And then you've got the mid tier banks, where also, by and large, It's still on premise. I think this is probably the market, if we look at it for the next 5 years, that you will see Some of them moving in the future potentially towards our staff solution. So that's if you want to answer Why? It's by far, it's on the opportunity is by far incremental. And I think Atak is very nicely clarified. It's true that in Q3, we had those 2, 5th layer fintechs that Started the relationship through a license and then moved through SaaS. But we don't see that really. I think all those fintechs going forward will go directly SaaS and not on the license side. So but listen, join the event more, and we'll discuss this in more details. Takis, I'll leave you to take the 2 next questions that James had on. Yes. Hi, James. So on the first one, maintenance, yes, I appreciate there was this Q4 number dropping. However, there were a couple of, If you want special items. Number 1, as I mentioned, the non banking KONI clients moving to HCL, this is something Which is also linked to specific timing. So it was a very good quarter, I. E, For HCL, I. E. Moving, so we had quite attrition on that side. Number 2, there is also the attrition of Our, if you want, core Temenos business, while still lower at the usual 2%, 3%, you can still I see some timing there. And the third one, there was, as you remember, we have still a very strong European Consumer base and Europe was quite weak over the 1st 2, 3 quarters. So that was basically also The delayed impact from the weaker license growth in the 1st three quarters. But again, this is very temporary, and This is why we're going to see in Q1 already a sequential increase in absolute terms. On HCL, you're correct. We're just flagging the headwind on gross numbers, no adjustment needed to the numbers. As a reminder, the usual bulk payment we receive from HCL is always in Q2. So that is both In the base of 2020 and in 2021. So that does not affect the growth variance. Okay. Thank you. See you tomorrow. The next question is from Sutaman Chandra Malli from Stifel. Please go ahead. Yes. Hi. Thanks for taking my question. Just a couple. Firstly, Takeda, if I just If I calculate based on your comments on SaaS growth, would you say a double digit license revenue growth is still on the cards? Just wanted to double check my calculations. The second bit is we also saw a strong bounce in terms of Europe And Tier 1, Tier 2 deals in Q4. Is this just a Q4 seasonality? Or did you Just see something more in terms of willingness to spend from these regions and banks. Thanks. Takis, maybe I'll take the second one. Hi, Chandra. Yes, it was great to see Europe coming back in Q4. And clearly, Europe was the region's most challenged for the 1st 3 quarters. I think Europe is going clearly to improve in 2021. There is no question about that. And so I think I feel much more comfortable about what we can achieve in Europe in 2021. And we see pipeline building. And I think more broadly, we So the predictability of our business clearly improving. And I think that's very reassuring. And we it started in Q3. And then in Q4, the predictability, the sales process Well, clearly, it was almost the same as what we saw in pre COVID. Clearly, Q4, you do have Strong compelling events. The customers, they do want to close the deals at the end of the year. So there is a strong compelling event That you've got less in the other quarters. But definitely, I expect, If you want Europe to perform much better. Now the fact that the environment is improving is clearly also Bringing now the Tier 1, the Tier 2 that delayed spendings, both existing customers and new customers. And there as well, We see, I would say, the pipeline developing very nicely with larger banks. So As well, I think you will see in 2021, Tier 1, Tier 2 coming back towards more normality as we saw in Q4. So Ultimately, we see in 2021 a continued improvement of the environment. As I mentioned, and I wanted to spend a bit of time on this on the slides as ultimately, this is Structural for banks, they've got to renovate. And I'm engaged more and more. It's now a few quarters that Our CEOs of banks are, again, engaging to see how they will address the structural challenges that they are facing. And know that with COVID-nineteen, the one that have all technology, they clearly struggled to cope with the crisis compared to the one that are using modern technology. Hi, General. Let me take the second one. If you do the math from our total software licensing guidance from 14% to 18%, if you take the midpoint at 15% and account for the 30% sales growth we have said, then you arrive at 11% license growth at the midpoint. So this is clearly double digit. The last consensus we had compiled was at 7% or so. But again, keep in mind, we have about 4% to 5% headwind on license As well from HCL. So the underlying license growth will be more like 15% to 16%, If not taken by HCL. All right, perfect. Thanks. The next question is from Michael Faust from Fontovel. Please go ahead. Yes. Thank you. Good evening, gentlemen. Two questions from my side. The first one is regarding Your license revenues again, what sort of what is the percentage of your license revenues in 20 21 that you have already very good visibility on based on progressive renovation projects. That will be the first question. And the second question is, In your guidance, do you already include any contributions from the DXC deal announced today? Or would That's the incremental business. Takis, I think those are for you today. Yes. Let me take that one. So in terms of visibility, as we have provided the various drivers of visibility, If you put that all together, we would say we're not very at not very different levels than in prior years where we said Around 80%, 85% we have visibility on. So given that there is still Some effects from the pandemic we saw in 2020, but clearly also strong improvement also that helps Improved visibility. And as Max mentioned, the predictability has increased, the closure rates have increased. So I think we feel comfortable With that level. On your second question, no, our guidance does not include any potential business upside from DXC. Great. Thanks a lot. The next question is from Charles Brennan from Credit Suisse. Please go ahead. Great. Thanks very much for taking my questions. I've got 2 actually. The first is just back on your license comments about there being Something like 10% growth implied at the midpoint and 15% excluding HCL. That's obviously a reasonable run rate, but it does come off a minus 30% comp in the prior year. I'm just wondering to what extent could that end up being far too conservative given how weak the comp is? And are there any metrics you can provide us around a pipeline cover and closure rates that you're assuming That can give us some visibility into how conservative you might be being. And then secondly, on an unrelated matter, Can you just talk about the share buyback program? Does the share buyback program actually reduce the share count? Or does this nearly offset the issuance from share options? I must admit, I haven't been through the granularity of vesting schedules. Okay. So let me take those 2. On the first I think, Charlie, it's early in the year. We have mid February and Providing then already a hyper bullish outlook is probably not the right timing. What Max has said and in terms to give you a bit of Granularity, while we see a lot of improvement in the closure rates and our pipeline To sales ratio is providing with sufficient ammunition and sufficient coverage, We still our guidance does not incorporate that we go basically right now back to Pre COVID levels in terms of conversion ratios. I think this is something we envision for towards the end of the year or 2022. And this is what we have based our guidance on. So should those Conversion ratios improve faster. Clearly, there will be a potential upside. But right now, We feel clearly comfortable with this one. Also, What we what Max mentioned, we feel quite comfortable to bouncing back towards 2019 levels in terms of bookings. So you see in terms of business volume, we're actually Going back to 2019 levels, it's a bit of a different mix, a bit less license revenues and more SaaS. So this is providing with some picture that we see actually a very good environment out there. On the share buyback, When you apply for a share buyback with the regulator, you have to state what your intentions are. So for us, as in the past, we're going to use the shares predominantly as if available eventually For an acquisition currency and if required, if we run out of conditional capital Also for share compensation plans, which we haven't done now for a while. So clearly, It's something we look at as a very good investment. And clearly, if you look at M and A, Prices are very high, so investing in Temenos shares is providing probably the best ROE for the money. And just to help me out from a technical point of view, do I have to think about a lower share count in the calculation of EPS? Or are you suggesting that we should be modeling a broadly unchanged share count? Yes. So this is the amount of shares we're going to The buyback will be excluded from EPS calculations. However, I'll let you decide The timing and the pace, what we're going to do is clearly start on Thursday. So depending on how fast we execute on this program, yes, there could be up to maybe 1% of accretion If we execute early, but this is really subject to market conditions. Perfect. Thank you. The last question for today is from Pidlai Gautam from Goldman Sachs. Please go ahead. Great. Thanks for taking my questions. I had a couple of them. First, just coming back on Licenses, you comment on the visibility of licenses to relicensing as a factor. Can you please comment if 2021 is a big relicensing year. If you could give the mix of relicensing in the pipeline That would be great. And second question on the EBIT guidance. So your guidance margin expansion on a like for like basis versus 2020, However, there has been, as you mentioned in your prepared remarks, obviously less travel and some lesser discretionary spending as well. How should we think of cost evolution as presumably some of these costs are coming back in 2021? Are you kind of exercising cost control in some other aspects? Thank you. Okay. So on the first one, relicensing, no, we don't see any particular deviation from past Comments, yes, we would love to have more than the usual average of 10% to 15%. So no, It's not something we see different than in prior years. Then on the cost, yes, we provided the cost bridge. And And clearly, some of the voluntary or some of the variable cost reductions are baked into our forecast. So As you remember, we had announced a voluntary pay cost reduction, so that has been reversed. In terms of travel costs, yes, We have an increase in our forecast currently. It doesn't look like that, but we expect travel to resume Eventually this year. But keep also in mind that we had taken out quite some Cost from a fixed cost base, which help us retain the kind of margin trajectory. And the last bucket is Clearly, commissions and other variable costs will go up with the kind of license performance. But if you look at the bridge, we still We have sufficient leeway. We're also going to pay a bonus to employees again. We still have sufficient leeway In case of a college worst case scenario, if the license growth is not delivered, leeway on investments, which We will call it discretionary to still deliver our EBIT growth. Thank you. Ladies and gentlemen, I would now like to turn the conference back over to Marc Schwart for any closing remarks. Please go ahead, sir. Thank you, everyone, for joining us this evening, and I hope to see you virtually anyway tomorrow during our Capital Market Day. Thank you for your time. See you tomorrow. Bye. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.