Earnings Call: Q3 2020

Oct 15, 2020

Ladies and gentlemen, welcome to the Temenos Q3 2020 Results Conference Call and Live Webcast. I am Sandra, 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. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Max Schwarcz, CEO. Please go ahead, sir. Thank you. Good afternoon, and thank you for joining today's call. I hope you've been able to access our results presentation on our website. I'd like to start with a brief reflection on our progress in Q3. And we've reached a turning point with good underlying sequential growth in licenses from Q2, which clearly show that Q2 was a trough. And I think this is very important and the return to profit as well on growth. We've learned from all the crises that it's only a matter of time before banks refocus on the IT innovation program. The structural pressures banks are facing are too strong to be ignored or dismissed. Banks are compelled to invest in their IT platforms. And in fact, COVID-nineteen is strengthening these structural drivers. The operating environment improved in Q3, and we expect a steady improvement in Q4 and a return to growth in 2021. So as usual, I will start with some comments on our Q3 performance, and then I will hand over to Takis for an overview of the financials before giving some concluding remarks. Starting on Slide 7, we delivered strong recurring revenues growth of 16% in the quarter, with SaaS in particular growing at 61%. We delivered SaaS ACV of 14,000,000 dollars which is up 108% year on year as banks increasingly seek to benefit from SaaS and cloud. We saw some level change clearly on that side. We never achieved such an ACV quarter, which was greater. However, what we saw as well is some cannibalization from license to SaaS in the quarter with approximately €16,000,000 to €18,000,000 of license that converted to incremental SaaS ACV of €7,000,000 in the quarter. Total software licensing declined by 23% in the quarter. Now this is an underlying sequential improvement when you exclude the contribution from HCL deal that we signed in Q2, which clearly shows, as I said before, that Q2 was a triathlon. Now, the underlying improvement would have been even stronger if we had taken into account the license that ultimately turned into an ACV. And if I provide also some more details and if you were to remove in fact the relicensing contribution from Q3 2019 and from Q3 2020, on an underlying basis, will have been growing in Q3 2020. And giving this level of details as I think in this environment, I try to give you the picture of where we are from an underlying trend and why we are confident in the fact that we've reached the trough and that we are back on track and that this will continue in Q4 and 2021. We continued obviously to be very focused on cash in the quarter, and our operating cash flow was up 27%. And importantly, obviously, our EBIT return to growth of 4%, which is clearly expected to continue in Q4. We are reconfirming our revenue recurring revenue guidance of at least 13% growth and are revising our EBIT guidance to reflect those deals that moved from license to ACV as an acceleration in our SaaS and cloud investment as well. So we revisit the EBIT guidance, as I said, for the conversion from license to SaaS and some investment we are making on our cloud and SaaS business. So our revised guidance for EBIT is broadly flat year on year when you take this into account. Moving to Slide 8. COVID-nineteen is clearly accelerating demand for SaaS and cloud. With our SaaS ACV up 108% in Q3. Banks understand the operational cost benefit to begin by using the cloud. And there is also an increasing regulatory acceptance globally. Our clients recognize that turning our software in the cloud allows for lower infrastructure cost, elastic scaling, active active or increased resilience. And hence, we expect this trend to continue and to accelerate and as we will discuss shortly, which has supported very, very strong pipeline. This quarter, I was very pleased that we signed our largest ever ACV deal globally. And this was for U. S. Client taking TRANZACT as SaaS and reflect also our growing presence in the U. S. And as I said, we had a number of transact deals this quarter that converted from $16,000,000 to $18,000,000 of license to around $7,000,000 of SaaS ACV. And we do expect that this SaaS canarization on the license will continue in the following quarters. On Slide 9, I'd like to spend a minute discussing our SaaS ACV pipeline, as I said before. And as I mentioned, clearly, Q3, we saw a step change in our business for cloud. And this is very consistently expected to continue going forward. We've got a pipeline which has grown by around 120% for the last couple of 2 years. And we've seen this event accelerating in the last 12 months, growing at 160%. And this will clearly drive material growth in our SaaS revenue in 2021 and over the medium term. This is very exciting because Temenos is perfectly positioned to win in that market with an offering which is uniquely positioned as we benefit from their advanced cloud native, cloud agnostic technology. But at the same time and compared to other vendor that don't have that, we've got a very broad and richer banking functionality. So really, those two elements are extremely strong and unique. Now turning to Slide 10. I'd like to give an overview of our sales performance in the quarter. And as I said, overall, we saw an improvement in the operating environment and more consistency around closure rates this quarter and which I expect to continue into Q4. Already highlighted the very strong momentum in SaaS and the pipeline activity, which we have also, I will say, on our more traditional license or on premise activity, which give us the confidence on 2021. Deals with the installed base continue to be more resilient, as we've seen for the last few quarters. And some deals that were delayed in H1 did close as well in Q3. Finally, we had a total of 17 new clients that we won across our products in the quarter. Moving to Slide 11. We've had 15 implementation go live in Q3 and a total of 78 year to date. And this compares to 69 for the same 3 quarters of 2019. We our clients continue to adapt our remote implementation methodology, and this allows them to progress through the project throughout any travel restrictions or lockdown. And one recent example was Flowe in Italy, which is the digital bank of Benco Mediolanum, which went live in just 5 months and totally 100% remotely. And I have to say that we have more and more of those successes, which give more and more confidence on our customers to do the project 100% remotely. Clearly, the use of cloud in this implementation is a key factor and is very important. Our services margin continued to improve and we reached 14% this quarter. And the fact that those projects are now delivered mainly remotely clearly is supporting of the increase of the margin. And finally, I'd like also to highlight we had an amazing event in the U. S, which we call Synergy, which was held at the end of September. It was an online, obviously, event. We had a bit more than 20 clients that gave testimony of what they are doing with Stellanos and how successfully they are using the system. I think that was great. It was very well attended by around 3,000 attendees from the fall of the U. S. Market. And that really showed the progress we've made over the years in the U. S. Now on Slide 12, I'd like to spend a minute looking at the state of bank IT spend during COVID-nineteen and how we expect it to develop going forward. And bank's initial response was to focus on the business continuity. We focus on more short term discrete project with immediate benefit during the crisis. And this clearly created initial slowdown in banks' IT spend for larger CapEx projects. In Q2, we saw banks focus on the clients' needs, focus on digital channels, on AI, on financial crime mitigation and to focus on supporting the overall community and society. And this quarter, we've started to see banks to refocus on more infrastructure type of project, more operational IT spend. And also, clearly, what we've seen is COVID-nineteen accelerating demand for SaaS and cloud as a trend. Now from a regional perspective, we saw transact demand in the U. S, which was mainly driven by innovative banks looking for best in class solution. We also saw NEO and Challengers Banks buying front and back office solutions. In Europe, we started to see the demand for digital back and front as well. And also there's clearly a need in Europe to engage into broader projects to restructure and improve return on equity. APAC and the Middle East, both markets where we saw very strong demand for Infinity, so our digital front office solution. And overall, I would say that the delayed CapEx we've seen in 2020 is clearly expected to accelerate in 2021 as banks reprioritize IT modernization initiatives. And this is also very consistent with feedback from customers that do want to accelerate the IT transformation. Now turning to Slide 13. COVID is accelerating demand for SaaS and cloud. That's very clear. And we've seen this in the quarter. Again, with conversation with banks, those running on legacy technology have struggled continue to struggle to deliver a digital experience to the customers and this has become more and more important. COVID-nineteen is also an accelerator or amplifies the structural driver that underpin our market growth. Banks need more digital. They need they've got regulatory pressures. They've got cost pressures. And this is forcing them to address their IT renovation. Finally, we expect a steady improvement in the operating environment in Q4 and to return to growth in 2021, driven by the strong growth in our pipeline. So I will now hand over to Thakis to go through the numbers for the quarter. Thank you, Max. Starting on Slide 15, I'd like to give you an overview of the financial performance in Q3. We saw good sequential improvement in the quarter, with recurring revenue growth of 16% and SaaS growing a strong 61%. As Max has already outlined, we had very strong ACV growth of 108%. Total software licensing was down 23%, a good improvement on Q2, in particular taking into account the SaaS cannibalization in the quarter. Overall, total revenue was down 8%, driven by lower license revenues. We returned to EBIT growth this quarter with EBIT up 4%, driven by our recurring revenue and tight cost control, and we reached an Q3 EBIT margin of 39.1%, up 4.40 basis points and the Q3 EPS of US0.90 dollars which is flat year on year. We continue to have very strong cash performance with an operating cash flow of $63,000,000 up 27% year on year and with a strong operating cash conversion of 119%. We ended the quarter with DSOs at 1 11 days, down 12 days versus Q3 2019, and with leverage standing still 2.6 times, unchanged versus Q3. Q4 is, as usual, our strongest cash quarter, and we expect our leverage to be around 2 times by year end. Turning to Slide 16, 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 and is key to our strong cash and profit performance this quarter. Our SaaS growth of 61% benefited mainly from a significant number of transact signings, including the conversion of a number of deals from license to SaaS, as Max already explained. Without these deals converting to SaaS, license revenues would have only declined 16% and total software licenses only around 5%, which is for both a material improvement over Q1 and Q2. Maintenance grew 8% this quarter, and we would expect some headwind in Q4 from the lower license signings year to date, but still good growth this year. Services revenues declined 6% this quarter as we continue to work closely with our partners and as well as being impacted the lower rate of license signings in H1 flowing through. Looking at the last 12 months, SaaS has now grown 92%. Total software licensing is down 6% and total revenue has grown 3%. Looking at the cost base. Our operating costs declined 14% this quarter, driven by a combination of lower variable costs and the restructuring program we commenced in Q2, which has now concluded. There is no further cost reduction program planned for the rest of 2020. We have increased the estimate the estimated full year restructuring costs to $25,000,000 to $30,000,000 to account for these cost savings initiatives, the restructuring costs linked to the cross to our Indian operations. The flexibility in our cost base has helped to return to EBIT growth of 4% this quarter. Now on Slide 17, 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. In terms of FX, the stronger euro had a small positive impact on revenue and the stronger British pound and Swiss francs were small headwind on costs. Taking into account all currency movements and hedging, FX had a small positive impact on EBIT in this quarter. Total software licensing declined 29% like for like this quarter, and services also declined 29% as some implementation processes continued to be delayed, and we started to see the impact of lower license signings in H1 on service revenue. Maintenance grew 7% like for like, and we expect to continue we continue to expect good growth through the year. The overall like for like decline in revenue was 17%, and our like for like cost base was down 27%, driven by lower variable costs and the cost savings initiatives we outlined before. Moving to Slide 18. Net profit and EPS were both flat in the quarter and in the last 12 months, net profit declined 1% and EBIT declined 3%. Our tax rate in Q3 was 13.3%, and our expected 2020 tax rate is still 14% to 15%. Our medium term tax rate of 18% to 20% is a normalized run rate for the business. Moving to Slide 19. Our DSOs ended the quarter at 111 days. This is down 12 days versus Q3 2019, which included the impact of the KONI balance sheet. We have seen no issues with our clients' ability to pay so far in 2020, nor did we have requests for revised payment terms. We still expect our DSOs to be around 110 days by the end of 2020. In the medium term, we still expect DSOs to reach 90 days, and this is driven by strong cash collection on licenses, an increased contribution from SaaS and the continued reduction in DSOs linked to services as more implementation are carried out remotely. Moving to Slide 20. Our Q3 LTM cash conversion was 119%, well above our target converting at least 100 percent of IFRS EBITDA into operating cash. We expect our cash conversion to be above 100% for 2020, driven by strong growth in recurring revenue. On Slide 21, we show the key changes to the group liquidity over the quarter. We generated €63,000,000 of operating cash flow in the quarter and had a net reduction in borrowings of €30,000,000 Our cash on balance sheet at the end of the quarter was €113,000,000 with our net leverage standing unchanged at 2.6x. We expect our net leverage to come down to around 2x by year end with our strongest cash quarter ahead of us. Now turning to Slide 22 for our guidance. On Slide 22, we show our revised guidance for 20 20. The guidance is as usual on a non IFRS basis and in constant currencies. You can find the respective FX rate assumptions in the appendix. The 2020 guidance is based on the assumption that the Russia scenario crisis due to COVID-nineteen had the largest impact in H1 'twenty. We have seen that Q2 was clearly the trough, and we expect there will be a steady improvement in our end market in Q4 'twenty as banks adapt to the crisis. We are reconfirming our guidance for at least 13% growth in recurring revenues. We have revised our EBIT guidance to broadly flat year on year to reflect the deals converting from license to SaaS and the acceleration in our SaaS and cloud investments to ensure we are the market leader in this space and are best positioned to capture the growth in SaaS going forward. We have maintained our operating cash conversion target of converting over 100% of EBITDA into operating cash and expect DSOs to be around 110 days by year end. We expect the 2020 tax rate of 14 15% and our net leverage to be around 2x by year end. Now on Slide 23, we also reconfirm our sustainable annual growth targets. We have seen banks temporarily slowing their CapEx spend in 2020, as Max outlined, and focus on immediate IT issues around digital and AI. Our conversations with our clients indicate that they will increase spend on transformation IT going forward as well as the problems they are facing from their legacy IT are growing all the time. Research by industry analysts also show there will be a rebound and acceleration in demand in 2021 and beyond. The structural trends driving our market are being by COVID-nineteen and will drive our growth over the long term. With that, I will hand back to Max. Thank you, Thakis. So to finish with Slide 25, we've seen a very strong acceleration in SaaS this quarter. And this will continue in 2021 and in the medium term. We've seen that Q2 was the trough. And excluding the impact of HCI in Q2, we had a good underlying sequential improvement in Q3 with small consistency around closure rates. As I've highlighted, a number of transact deals converted from license to SaaS in the quarter, driving strong incremental growth in our SaaS CCV. Without this, the sequential improvement this quarter would have been even stronger. We continue to benefit from strong growth in operating revenues, which is driving our very strong cash generation and our profit. We expect steady improvement in the Q4 and the return to growth in 2021. Finally, we are accelerating our investment in our SaaS and cloud capability to ensure we are best positioned to capture this big, massive opportunity in front of us. With that, operator, I'd like to open the call for Q and A. The first question comes from James Goodman from Barclays. Please go ahead. Good evening. Thank you very much. First question on the accelerated conversion you're seeing from license to SaaS deals. It sounds like a number of clients have taken that route in the quarter. And I just wondered if you could help us a bit with what exactly it is that's really the driving force specifically for those deals? Is that the pandemic? Or is it the lower upfront cost? Or is it the deployment? And is there something internally that you've done to accelerate that? Is there a change in sales comp or anything sort of internally that's also capitalizing the accelerated shift? And then just secondly on the cost side, down 27% like for like. Can you help me with what the cost base would have looked like if the SaaS deals had been licensed? Because clearly, that would have driven a much stronger EBIT than expected. And I'm trying to, again, come back, I think, on the sales compensation for the SaaS deals because I would have expected perhaps more sort of upfront sales compensation as a result of those deals. James, let me take the first one, sir, on the cloud. What we saw, it's interesting that those are few discussions that had started on the traditional license center. And as the discussion evolved and as we were starting, in fact, even to exchange contract with our different customers, they started asking more and more about our cloud capabilities. And I think ultimately what it shows is there's an acknowledgment in the market that the resilience that clouds provide, ultimately also the cost benefit, we are talking about the elasticity of the cloud. And I think as we evolve through this crisis, everyone becomes more and more comfortable with operating in, I would say, on a digital and remote basis. And I think we've seen it's few of them and mainly and the largest one was in the U. S. That decided to take that route. Now you asked, did we do anything specific internally to from a sales point of view? No, there were nothing specific in Q3. Now as you know, we've been getting ready for that for many, many years. In fact, we had our 1st cloud customer. We were the 1st one, in fact, to have a bank running on the cloud, and that was in 2011. We've sorry, yes, in 2011, we've seen a steady improvement since. But definitely, we saw a step change in this quarter, which is very exciting. We are clearly also accelerating the investment because the market is the opportunity is very big. And I wanted also to show how the pipeline has developed and I would say it's mainly between today North America and Europe. And it's both on the transact and on the Infinity basis. Hi, James. Let me take the question on costs. Yes, clearly, if those deals were booked as licenses, we would have had some quite remarkable tailwind on top of what we've shown for the EBIT. However, we don't benchmark our operations against what consensus EBIT. But you have a number of factors which drive our cost base. As we mentioned with the previous results, you see now the full impact of the initiatives we announced earlier this year. You probably also saw the service margin was quite good. So also there, efficiency gains. Still, as Max mentioned, yes, Q1 or H1 was the trough. But still, while we do a lot of business now remotely, the overall travel costs have further come down. So that's also helping. Efficiency gains, efficiency gains across our infrastructure. The profitability of our SaaS business has obviously also improved. I wouldn't single out one factor, but it's really, as we say, a very tight cost control. Now on the variable part, with commissions, yes, clearly, we always accrue for commissions on both the traditional license business but also for the ACV business. So yes, you probably would have had a bit higher commission costs, so not all the license upside dropping down the EBIT. But clearly, with the margin we have on those deals, yes, it would have been quite a sizable upside. So it's not one factor I would highlight. And then also for Q4, we still expect Q4 costs to be up sequentially. I mean, we expect a stronger Q4 versus Q3, which will obviously also drive up also the variable costs. Plus, we've mentioned the increased investments in Southern Cloud in particular. That's helpful. Thank you. The next question comes from Charles Brennan from Credit Suisse. Please go ahead. Great. Thanks for taking my question. I've got 2 if I could. The first and I know it feels a long way away, but it's looking into next year. I feel like there are a lot of moving parts for 2021. On the one hand, we've got an improving demand backdrop and an accelerating digitization imperative, which is clearly a positive. But at the same time, you're flagging up some cannibalization of license. You're flagging up that maintenance growth is starting to fade as we get the impact of lower licenses. And again, with services that creates a drag into 2021. And then on the margin side, I guess we've got to annualize this higher investment from Q4. So I was wondering if you could just help us with a framework to get our arms around next year. You reiterated your medium term targets. Are you suggesting that we should be expecting at least 15% software licensing growth and EBIT growth next year? Is that the starting point for our analysis? And then secondly, away from 2021, can you just talk about your win rates with some of these cloud based deals versus traditional on premise deals? And the reason for asking the question is a number of investors have been suggesting you've been losing some cloud based contracts in the U. S. To some of the incumbents. So I was wondering if you could talk about win rates. Thank you. Charles, I can start with the win rates, if you want. And if I look at our competitors, you could classify them as the more traditional ones, which we compete mainly for the on premise activity. And those are the ones that we've been competing for the last 10 or 15 years, which is Oracle, which is Infosys, TCS and so on. And we had mentioned that with them, our win rate is very, very high. So it's above the 70% and it continues to be like that. And when you look at the IBS Lick table with trucks, the best vendors, you can see how far ahead of everyone we are. So I think that's on one hand. And then on the other hand, about the newer vendors that we see in the market, there as well, I would say, our win rate is also extremely higher. Now there are less data points probably because we've been competing the last few years with them. But just to give you a sense today, we have probably more than 40 neobanks, treasury banks on our software. So it's and that we had that and we gained that in the last few years. And why we win against those new vendors is because we know banking extremely well. It's because the functionality that we can offer is very, very rich, very, very broad. And we benefit from very advanced technologies, if you want. So it's cloud native and cloud agnostic and all of that stuff. But in addition to very advanced technology, we benefit from the knowledge of the banking. And those two things together are what is unique about Temenos. And that's why we win so much against both those new vendors and both the more traditional ones. So that's on the win rates. On 2021, if you want to go ahead, And I'll jump in if Yes. So let me give you a bit of a framework as you call it. Clearly, we're going to issue detailed guidance for 2021 in February only. But if you look at what Max said, and I think that's important to highlight. Despite the strong growth we have seen in ACV and which we expect to continue, clearly, if you look at our license pipeline, this is growing as well. It's good growth as well. So we expect licenses to grow next year, not just because there is an easier comparison base, but clearly, we see the pipeline supporting this. Then on maintenance, yes, there is some impact from the lower licenses we have seen this year, but there should be still good growth in maintenance also next year, which is obviously driving a considerable part for the profitability. And then strong ACV momentum, which is obviously going to have a substantial positive impact on SaaS revenue growth. So putting this all together, yes, clearly, the ambition is for us to get as quickly back to our long term total software licensing target of 15%, we'll see in February where we stand. In terms of cost base, to address the margin question, clearly, that's too early. We're only starting the budgeting process. What we said, and this is still valid, Despite the strong growth we see in sales revenues this year and next year and beyond, we still expect to reach our 36% plus midterm target for the EBIT margin. So that's still valid. The next question comes from Hannes Leitner from UBS. Please go ahead. Yes, good evening. Thank you for letting me on. I got also a couple of questions. So if you look into the average deal size, so the average contract, average license sales divided by the customer wins, it seems quite like a similar pattern over the last 3 years compared to this year. So that would be the first question is where do we see that conversion of SaaS deals? And then on the back of the SaaS conversion, you pointed out a couple of times of license growth. So if we are excluding some portion of it, of the SaaS increase quarter over quarter, you have been probably at best flat or down. Could you maybe elaborate there more? And then I have one follow-up. Okay. Anders, I don't know if we got the questions correct. I mean, we did not report on the average deal size. But clearly, what we can say is, yes, obviously, there has been if you look at the license business first, some impact this year because we have less large and transformational deals. So yes, the average deal size is down. Now on the ACV, I think it's the opposite. We have seen now, compared to years ago, where you had smaller banks with smaller deals, we have clearly seen now that the and see that also reflected in our pipeline, the average deal size really increasing in the pipeline. Yes, we had a number of a bit larger deals in this quarter. But clearly, it's if you look at it on a, let's say, total bookings value or total contract value over the lifetime, then clearly, this is both in growth territory. And I didn't get your second question in terms of the sequential trend? Yes. So on the SaaS SaaS revenue, so when you take out that conversion, which you mentioned that licenses was basically converted to SaaS. Can you talk about the underlying sequential trends because SaaS should be rather more fueled sequentially not year over year? Yes. So correct. The deals, and this is still true also for the ACV business. Most of the deals get signed in the last months of a quarter and then usually in the last couple of weeks. So this ACV business you have seen right now in Q3 has no impact on the or minimal impact on the SaaS revenue this quarter. It will have some positive impact on Q4, But clearly, the full run rate of this ACV will be visible. I mean, it usually takes a while until we go fully live with those. So you will see that partially in Q4, but especially then in 'twenty one and beyond. And okay. And so then just a small follow-up on that sense. Could you elaborate what drove a licensed customer to switch to SaaS, which is clearly over the lifetime on total cost of ownership more expensive and that's quite unusual for banks? And then my last follow-up question was on the restructuring, you slightly increased it. You reached already the €25,000,000 You have a history this year of sequential increases of restructuring costs. And could you elaborate, given the reset guidance and also if you include the HCL deal, it is quite a significant drop in EBIT. What causes the delta? Maybe you can take talk us through the moving parts here, please. Okay. So on the first one, clearly, we don't disclose the details. But if you were to look on an NPV basis, clearly, we don't lose value if we move to ACV. So much for that. Then on the restructuring, I think there is a combination of reasons envelope. I think there is still a combination of costs linked to the transaction we have announced with KONI, so about the with KONI Cross Industry with HCL. So there are some costs linked to that transaction. And I think that's what we that's the main reason. Also, there is some, as we mentioned, some costs related to transitioning our cloud, some of the cloud operations to our Indian operations. So that's also put in there. But it's not a big amount. Now HCL, as you know, it was not included in the original guidance. So when we issued the guidance in April, we didn't know about this. Now it's when we reconfirmed the guidance in July, it was in there, so larger than 7%. Now with the flat EBIT, as Max elaborated, there are a number of reasons. It's actually three reasons why we took down the EBIT to around flat: number 1, the conversion we have seen in Q3 number 2, the expected some conversion in Q4 as well and the accelerated investments we have already started in Q3, but they will impact Q4 EBIT. So these are the three reasons for the guidance reduction in EBIT. The next question comes from Adam Wood from Morgan Stanley. Please go ahead. Hi, good evening. Thanks for taking the question. A couple of kind of follow ups to Hannes' questions. Just first of all, on the SaaS versus ACV debate, I mean, you flagged in one of the slides that ACV has moved up materially over the last couple of years. But actually, if I look at the SaaS revenues over that time, sequentially ex KONI, they've kind of been flat. And if I try to do the calculation organically, it looks as if the SaaS business hasn't really grown very much over that period. Could you maybe just give a little bit of insight? Am I doing the math correctly? Is there something I've missed in terms of that SaaS organic growth? And why the confidence that we see it coming through next year where we haven't seen it so far? Then just on the cost side, we've seen pretty material declines this year, and you're talking about some need for investment that has already happened in Q3 and starts in Q4. Could you give us a little bit of more insight into the bounce back in costs next year? Because if you do get back to growth again, I imagine that we have more variable costs coming in. So just to give us some metrics to help us think about EBIT. And then maybe finally on this license to SaaS migration, I kind of I was thinking about it more from the client side that if you're a bank, the lifetime contract value is going to be much, much higher on subscription than it is on licenses. And we would have thought the most are able to kind of do that calculation and would have the cash to pay licenses upfront. Is there a way that's changed in terms of how you're selling that if companies want to run on cloud, they have to subscribe that that's pushing banks to that? Or is it just that they're willing to trade that greater cost or greater flexibility? Thank you. Adam, I was about to make a comment before. And let me just answer the last question. You asked question and then I'll leave attack it. Definitely, I would say the when we sell when we engage on an ACV And if you look at the life of that contract and if you were to do an NVV or whatever it is, the value we get on the ACV is better than on the traditional upfront license. There's no question about that. And there are different reasons, but clearly one of them is also you will have a tendency and some of our salespeople will have a tendency when there is a large upfront tour to discount it much more, I would say, we hold pricing much stronger on the ACV business, and we get really the full value. And I have to say that the last few quarters, we've been able to improve significantly the value we are getting on our ACV business. So I think that's also on our side, the fact that we are maturing in that respect and we are able to capture very, very exciting values for those ACV leads. Okay. Then let me address the other two questions. First of all, on the organic growth, yes, we don't disclose this on the SaaS and ACV line. However, 2 elements which I think you need to consider. Number 1 is, clearly, there is a pretty considerable attrition element on the SaaS revenue line from the KONE cross industry business we had acquired back in which closed 1 year ago. And we had flagged this sales revenue attrition quite early. So that's clearly not showing the real growth. Number 2, If you look at and we mentioned this, so there was a lot of Transact business in the ACV number we have shown this quarter. So clearly, TRANZACT, there is no acquisition in there. Also, we announced some deals earlier this year with Itau. That's also Transact organic. So we're very happy with the organic growth in both TRANZACT and Infinity this year. On maybe to give you a bit more confidence on the long term, clearly, the ACV business and then you do the math with the SaaS revenues following, then it should be at least 30% growth going forward. And now we've given at least one number to be a bit more specific. And this is clearly on an organic basis. And the last one was about the investments. Yes, clearly, we've done a lot on the cost side, both on the variable but also on fixed. I would say, as a run rate, maybe, let's say, 60% to 70%, maybe it's a bit more of the costs could return next year. That's clearly based on 2 assumptions. Number 1 is we deliver on our licenses. So we'll have to pay more commissions or in general, more variable costs. And also, there should be an element of rebound in terms of traveling, maybe not in the first half, maybe in the second half. So I would say, yes, maybe, let's say, onethree, 30 percent of the cost taken out this year, we still have for ourselves, and the rest is probably going to come back. The next question comes from Laurent Dor from Kepler Cheuvreux. I have two questions. The first is on your comment on the investments that you do starting to do in SaaS and Cloud. Could you be a bit more specific of the extra costs you were expecting for the rest of the year? And are we talking about adding people? Or any clarification on that would be useful. And my second point is on Europe. I mean, it seems really weak on revenues. Do you see the same trend in terms of the pipeline? Or is there a specific issue with converting the pipe into revenue in the European space? Thank you. Laurent, I can start with Europe. It's true that if you look at Europe, I would say, year to date, in fact, is the region that has been the most impacted by the crisis. And also the region that has been the that is taking the longer to adapt to that new normal. So I think that's a very fair comment. Now when I look at the pipeline and when I look at Q4 2021, I expect to see an improvement as well in Europe in Q4 and also this to come to continue into 2021. So if you want the activity, is there the closure of the transaction are taking longer. In Europe, where in most of the regions, not in every region, but most of the regions except Europe, the improvement that we saw within specifically within Q3 has clearly improved a lot. The ability and the certainty of the closure rates has massively improved in Q3 in most of the regions. It is not yet there in Europe. In Europe, it is still taking longer than normal to close deals. However, I've seen an improvement during Q3. And so I think this will continue in Q4. So we'll see a better situation in Europe in Q4 and obviously in 2021 as well. Hi, Laurent. Let me address the investment question. Yes, we have started this in Q3 already having seen how the strong pipeline has built for ACV and also delivered on the signings. So I would say, it's for this year, if you do the math and exclude the into the P and L this year. Into the P and L this year. Are we talking about extra cost in R and D or in sales? Or I'm having a hard time to understand exactly what these extra costs are. Yes. So, as we mentioned, there were some initiatives already in place. We talked about the Indian operations, our 20 fourseven operation center, we still have some local or regional cloud resources. You can you need to invest in both areas. So that's one example because you need while you have an operation center centrally, you still need some local resources. So this is adding there. And in terms of the product, clearly, with having this strong demand and the pipeline, some of the R and D pipeline, some of the roadmap is being accelerated. Okay, great. Thank you so much. The next question comes from Piyal Gutman from Goldman Sachs. Please go ahead. Yes, great. Thanks for taking my questions. I have a follow-up on the competition and the win rates point. We have a couple of contracts in the Middle East being announced by TCS and Ncino announced a win at Barclays recently. Is there any geographical or execution related dynamics we should be aware about? That's the first question. And just a clarification on the SaaS accounting point, when you kind of convert the ACV into revenues, under IFRS 15, the license portion of these revenues can be booked upfront. Is that something that you'd follow as well? Thank you. On the win rate, yes, there are markets where we are more mature. And really, Europe is a market that this is where we started. So we have probably more mature in Europe. Middle East and Africa, you mentioned, we are very, very strong in that region, extremely strong. Now clearly the U. S. Is a newer market. And so I would say the win rates comes also with the level of credibility and the reference you've got in those regions. And I will say clearly, the markets where we are more mature, we have more references and hence probably the win rates will be higher. But overall, the amount the number I was mentioning before, this is globally. So you can imagine that in every region, we've got very, very high level of win rates. There is not, I would say, regions where we are weak compared to all the others. Broadly when we compete, we win most of the time. Want to take the other one? Yes, I'll take the other one. So, while we haven't given the disclosure, the way we book those SaaS contracts is really over the lifetime of the contract, and this applies to both the license and the service part. The last question comes from Andreas Mueller from ZKB. Please go ahead. Yes. Good afternoon, gentlemen. I have two questions. Do you seek kind of what you when you see that you converted roughly €16,000,000 to €80,000,000 licensing into an ACV of €7,000,000 Is that the ratio one can apply also going forward for the deals converting? Or has the scope of these deals also changed at all? That's the first question. The second is, NEC about Avalok, do you see there any competitive change in the landscape in wealth management at all? Do you see some opportunity also for yourself creeping into our log's turf? Let me start with hi, Andreas, it's Marc. Let me start with the last one. I think every time there is an M and A transaction, it brings uncertainty and probably opportunities for people that have had very stable capital structure like us. And now I think this is a market that we know extremely well. And we are committed to this market. And I see this as an opportunity for us ultimately. Now, I could not understand personally the strategic rationale, but it doesn't mean that others don't have a different view. But I think for us, this is a market that we've been operating for a long term. And as I said, those EMEA transaction usually brings opportunity. So I will see this more as opportunity for us. Andres, let me take the one on the equivalent ratio, as we call it. Clearly, every deal is different, and this makes it sometimes difficult. But if you do the math on and take a €1,000,000 license, €1,000,000 ACV deal, it's probably a right average somewhere around that ratio, which you get from this calculation. So I think for now, that's probably a good way to think about. Okay. And these deals that have changed, I mean, have they changed in any way regarding the scope that it's broader or whatever or is it just No, the scope was fully the same. It was really the scope had not changed. Okay. Okay. Thank you. Thank you. Thank you very much everyone. I think that was the last question and looking forward to talking to each one of you very soon. Thank you. 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.