Ladies and gentlemen, welcome to the Temenos Q1 2020 Results Update Conference Call, and live webcast. I am Alessandro, the conference 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&A session. You can register for questions at any time by pressing star, and one on your telephone. Webcast viewers may submit their questions, in writing by the respective field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Max Chuard, CEO. Please go ahead, sir.
Good morning. Thank you for joining today's call, at such a short notice. I hope you've been able to access, our results presentation on our website. As you are aware, this morning we have pre-announced our Q1 2020 results. I will start with some comments, on our Q1 performance. Then I will hand over to Takis, for an overview of the financials. Before giving some concluding remarks. Starting on slide seven. Our new licenses this quarter have been significantly impacted, by the evolving COVID-19 crisis. Total software licensing was down 26% in Q1, due to a large number of deals being delayed. Despite the decline in license sales, we had robust growth in recurring revenue. Which was up 20% in the quarter. Specifically, SaaS revenue grew by 79%, SaaS ACV grew 104%, and m aintenance grew by 11%. Overall, total revenues was down 5%. EBIT was down 22%.
We have provided revised guidance for 2020, to account for the impact of COVID-19. Which Takis will talk through shortly. We benefit from a resilient business model, that we've built over more than two decades. Our recurring revenues makes up, nearly 50% of our top line. This consists mainly of our maintenance, which is highly resilient. With very little attrition, and give us visibility on our cash generation, and profitability. We also benefit from a flexible cost base. In particular, this is due to variable compensation. Including sales commissions, bonuses, and stock option plans, and travel costs. This enable us to protect our profit, even when our top line is significantly impacted. We have already taken some specific measures. Including salary cuts from myself, our Executive Chairman, and the other members of the Executive Committee. And we are reviewing other cost measures as well.
It is important, however, that we continue to invest in our business in such times. This is especially true of R&D. Such investments will ensure, we extend our product advantage. And emerge from this crisis even stronger. On slide eight, I will give you an overview of our sales performance in the quarter. Sales in the first two months of the quarter, were in line with our expectations. However, COVID-19 significantly impacted new licensing in March. Banks delayed deals, as they focused on their own business continuity plans. Ensuring they could continue running their operations remotely, and service their own customers. Travel restrictions also impacted, the ability of our sales team to close deals. Some banks decided to postpone deal signings. Due to lack of visibility on when they could start, implementing during lockdowns. Importantly, deals that did not sign in Q1 were not canceled.
These deals have been delayed, but are still in our pipeline, and expected to close. The decline in license was particularly strong in Asia, and Europe. With relatively less impact in the U.S., and Middle East, and Africa. Deals with new clients saw the largest decline. With sales to existing customer relatively less impacted. Existing clients are more likely, to continue with the IT renovation programs. They understand the benefit of running modern package software. And see it as critical, to their business operations. SaaS was a bright spot for the quarter. There was strong growth, and a number of deal signing. This includes a Tier One bank for its domestic, and international wealth operations. We signed a total of nine new clients in Q1 . Across both Temenos Transact, and Temenos Infinity.
On slide nine, despite the crisis, demand for SaaS continued to grow. With SaaS ACV up 104% in the quarter. We had demand for SaaS product, across all regions globally. And across both front, and back office. Temenos Transact contributed the majority of the ACV growth. Our SaaS revenue was up 79% in the quarter, and we still expect underlying growth in SaaS for 2020. The crisis is highlighting the benefits, of running software in the cloud. And may accelerate the shift to cloud, and SaaS in the medium term. Moving to slide 10. We had 35 implementation go live in the quarter, up from 20 in Q1 2019. Our clients are rapidly adapting to travel restrictions, and lockdowns. To enable remote delivery of mission-critical transformation, and to keep implementation progressing.
From our perspective, even prior to the crisis. We were able to deliver, a significant portion of the implementation work remotely. And have been steadily increasing, this over the past few years. We think the crisis, will accelerate this trend even further. And that the use of cloud, will become much more widespread. As a way to mitigate the impact of lockdowns, on implementation time frames. Turning to slide 11. The power of our software, and technology. Enables our clients, to rapidly adapt to the evolving crisis. By running modern package software, with maximum straight-through processing. Banks are able to easily move, to a remote operation model. Due to the high level of automation, and ease of maintaining the systems. Our software enables banks, to quickly adapt existing products. To the changing needs of the customers, rapidly adding new features, and flexibility.
Example include, incorporating payment holidays in lending products, and restructuring loans at short notice. Temenos Infinity enables banks, to maintain very strong connectivity with the customers. Through sophisticated digital channels, t his include human-to-human secure messaging. Which has been proven to generate massive customer loyalty, and significantly reduce customer attrition. We've seen numerous government initiative launch. Across the globe to help companies, and individuals deal with the fallout of the crisis. Our software can help banks rapidly launch new products, and are offering to meet these demands. We are proud to support the global banking community, with innovative solution at this time. For example, in the U.S., we have worked with clients. To enable them, to rapidly process loan applications. From small businesses, under the U.S. government Paycheck Protection Program. For one bank, we built a digital loan application, and streamlined the funding process in only four days.
This process usually take four to six months. Lastly, our software enables banks to rapidly adapt their AML, KYC, and fraud management, t o emerging threats. As banks have seen a spike, in fraud linked to the crisis. Turning to slide 12. Banks are much better capitalized, and in a stronger position than the 2008 crisis. We've seen central banks, and regulators acting more quickly, and decisively. Banks customers are much more dependent on digital channels. And we believe, this crisis will accelerate. The use of digital banking, in the medium term. We've seen that banks running modern front, to back platforms. Have been able, to rapidly adapt to the crisis. This highlights the need for sophisticated digital banking platforms. And modern core banking software, that can be run remotely. Temenos can fully support its clients remotely, and maintain our R&D productivity. To continue extending our product capabilities.
It is clear that the structural drivers of our markets are intact, and likely to accelerate post-crisis. We remain confident, in our long-term sustainable growth rates. I will now hand over to Takis, to talk through the numbers for the quarter.
Thank you, Max, and good morning, everyone. Starting on slide 14, I'd like to give you. An overview of the financial performance in Q1. Total software licensing was down 26% year-on-year. As the impact of COVID-19, caused major disruption to sales processes. In particular, in the last month of the quarter. Asia, and Europe were particularly impacted, with the U.S., and MEA more resilient. But the impact was felt, across all regions. Sales into the installed base were more robust . Than sales to new customers, as Max has already highlighted. Maintenance continued to see healthy growth of 11%. Our maintenance revenue typically, lags license revenue by two to three quarters. Which means we have very good visibility, on maintenance growth in 2020. Driven by license signings in 2019.
Overall, total revenue was down 5% year-on-year, and EBIT was down 22%. With our Q1 EBIT margin down 370 basis points. I do not want to understate, the severity of the impact on our business in Q1. But it is worth remembering, that Q1 is our smallest quarter in every year. Of the deals that did not close in Q1, none of these were canceled. Instead, being delayed as banks focus on short-term business continuity programs. We believe that once we reach a new normal, these deals will continue. We ended the quarter, with leverage of 2.6x . Operating cash flow grew a solid 9% to $60 million, yielding an LTM cash conversion of 106%. We also have seen no impact, on banks' ability to pay us. DSOs ended the quarter at 109 days, or 105 organic. Which is down 11 days since Q4 2019.
Lastly, we have reconfirmed, the 2019 dividend payment proposal of CHF 0.85 per share. Turning to slide 15, I will highlight some key figures for the quarter, and last 12 months. In a challenging quarter, the growth in recurring revenue. Really demonstrates, the resilient nature of our business. Our SaaS revenue was up 79%, with good underlying organic growth . In addition to the contribution, from the Kony acquisition. Maintenance was up 11%, giving combined recurring revenue growth of 20% year-on-year. Looking at the last 12 months, SaaS revenue has now grown 120%. Total software licensing 12%, and EBIT has grown 13%. On slide 16, we show like-for-like revenues, and costs. Adjusting for the impact of M&A, and FX. As a reminder, we closed the acquisition of Kony at the end of Q3 2019.
In terms of FX, in line with previous quarters. The weaker Euro continued to be a headwind on revenues, and a small benefit to our cost base. Taking into account all currency movements, and hedging. FX had around a slightly lower than, $1 million positive impact on EBIT in the quarter. Total software licensing declined 35% like-for-like this quarter. And services declined 23%, as some implementation processes were delayed. Due to the COVID-19 travel restrictions. We also continued with our strategy of moving more services to partners. Especially, for the acquired Kony businesses, continuing our strategy from 2019. Maintenance grew 9% like-for-like, and we are confident that both maintenance, and SaaS. Will continue to grow well this year despite the crisis. The overall like-for-like decline in revenue was 15%, and this was mirrored in the cost base. Which was down 17% like-for-like.
We benefit from a resilient business model, with nearly 50% of revenue. Coming from recurring revenue streams, and a flexible cost base. Services is a margin business, with limited impact on profit. And the remaining cost lines, around 20%-25% of these are variable. In addition, in a typical year, we have travel budgets running into the $10 of millions. This means that even before, we consider any exceptional cost measures. We already have significant flexibility in our cost base. Which we use, to protect our profit. Also, we are thoroughly reviewing our hiring, investment, and discretionary spending plans. Which may result in additional savings. On slide 17, I will run you through the below-the-line items. Net profit declined 23% in the quarter, but grew 11% on an LTM basis.
Our tax rate in Q1 was 14.3%, due to a combination of lower revenue. And use of deferred tax assets. We now expect our fiscal year 2020 tax rate, to be between 14%-15%, down from 15%-16% before. Our medium tax rate of 18%-20%, is a normalized run rate for the business. EPS declined 25% in the quarter, and grew 9% in the last 12 months. On slide 18, our DSOs ended the quarter, at 109 days reported or 105 days organic. With four days due to the acquisition of Kony. The 109 days reported, is down 11 days versus Q4 2019. We expect our DSOs, to be around 110 days by the end of 2020. And in the medium term, we expect them to reach 90 days.
This will be driven by strong cash collection on licenses. An increased contribution from SaaS, and continued reduction in DSOs. Linked to services, as we expect more implementations. To be done in the cloud, and by partners over time. Looking at slide 19, our Q1 LTM cash conversion was 106%. Above our target of converting at least 100%, of IFRS EBITDA into operating cash. With a strong contribution from recurring revenue, and our deferred revenue balance. We expect our cash conversion, to be above 100% for fiscal year 2020. On slide 20, we show the key changes. To the group liquidity over the quarter. We generated $60 million of operating cash flow, and paid back a bridge loan. Relating to the acquisition of Kony. Our cash on the balance sheet, at the end of the quarter was $103 million. And our net leverage stood at 2.6x .
We now expect our leverage, to be around 2x by year-end 2020. On slide 21, we show our revised guidance for the year. Taking into account the impact from COVID-19. The guidance is on a non-IFRS basis, and in constant currencies. You can find assumed FX rates in the appendix. The new guidance is based on the assumption. That we will see the greatest impact in Q2, and that there will be a gradual improvement. In the current markets, in the second half of the year. As banks adapt to the crisis, and lockdown restrictions are gradually relaxed. We have made a number of changes, in particular. Withdrawing our guidance for total software licensing, total revenue, and SaaS ACV. Due to the lack of visibility on these items, at the current time.
We will closely monitor the situation, as it evolves over the course of the year. And may revisit this at a later date. Depending on how the crisis develops, and its impact on our business. We have introduced new guidance on recurring revenue. Which is our SaaS, and maintenance revenue lines combined. As these are critical to the resilience of our business, and our profitability. And we have greater confidence, in our visibility on these items. We are guiding for full-year recurring revenue growth of at least 13%. And we have revised our EBIT guidance, to at least 7% growth for the full year. 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 now expect a 2020 tax rate of 14%-15%, and our net leverage to be around 2x by year-end. On slide 22, I would like to reconfirm, our sustainable annual growth targets. It is important to note that, while deals implementations are being delayed. Our clients have confirmed, they will continue investing. In transformation projects for front, and back-office renovation. They still see IT investment, as critical to their business. The current crisis has made this even more acute. Once we reach a new normal, we expect the underlying structural trends. That we have benefited, from for years to continue, and maybe even to accelerate. We are well-positioned to continue benefiting from these trends. This gives us confidence, in our sustainable long-term annual growth targets. That we exceeded for the last few years, prior to the current crisis.
With that, I will hand back to Max.
Thanks, Takis. Moving to slide 24. A quick mention for Temenos Community Forum, which we are now hosting online. This two-day virtual event, will include product announcements, and software demonstration by Temenos experts. Across a mix of streamed content, and on-demand sessions. If you would like to register, to attend any of these sessions. Please follow the link on the slide, or go to our website for more information. To finish with slide 25, we saw a significant impact from COVID-19 on new licensing. In particular, in the last months of the quarter. The deals that did not sign in Q1, have been delayed not canceled. We firmly believe, the structural driver for digital regulation. And cost pressure, and move to open banking. Are intact, and are likely to accelerate post-crisis.
Despite the impact on license sales, we had robust growth in recurring revenues. Which coupled with our flexible cost base. Enable us to generate cash, and protect our profitability. Even with the material impact on our licenses. We are confident we can continue, to grow recurring revenue. Generate cash, and protect profit for 2020. It is critical that, we continue to invest at this time. In particular in R&D, to extend our product advantage. And emerge from this crisis even stronger. With that, operator, I'd like to open the call to Q&A.
We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star, and one on their touchtone telephone. You will hear a tone to confirm, that you have entered the queue. If you wish to remove yourself, from the question queue. You may press star and two. Participants are requested to use only handsets, while asking a question. Webcast viewers may submit their questions, in writing via the relative field. Anyone who has a question may press star, and one at this time. The first question comes from, Chandramouli Sriraman from MainFirst. Please go ahead.
Yeah, h i. Good morning, Max and Takis. Just a couple of questions from my side. Firstly, I noticed that the contribution, from America saw a big jump. Just wanted to see, if there were any one-off deals, Commerzbank or something of that sort. Any update on that would be great. Number two is, Takis, specifically for you. The leverage guidance for this year, has dropped from 2x Sorry, 1.5x- 2x . I just want to see, how conservative is your assumption there? Is there more downside if the situation gets worse, or the lockdowns in Europe gets extended? Any thoughts on that would be helpful. Thanks.
Okay, Chandra. Let me take the first one. I said, the U.S., as well I would say the Middle East, and Africa. Had ultimately an okay quarter. It's really the Asia, and Europe that we've seen a major impact from COVID-19. You know, the crisis hit the U.S. at a later stage. Since we were able, to deliver as expected. I would say more or less, in those regions. It's really Asia, and Europe where we've seen a major impact from the crisis.
Hi, Chandra. On leverage, as you've seen. We've removed our guidance for the top line. For recurring revenues, which is basically pure profit. Especially on maintenance, and also pure cash. We have very good visibility for the full year. This gives us full confidence, into our cash flow projection, and also the conversion rate. Also, ta king into account that we have reconfirmed, our dividend payment proposal. If we had any issues about, the strength of our balance sheet. We would probably not have done that. We have assumed a very adverse scenario in our view. In terms of, what is going to happen to the leverage? This is sufficiently conservative.
Great, thanks. All the best for a difficult year.
The next question comes from, James Goodman from Barclays. Please go ahead.
Morning, t hanks for taking my question. Just firstly, on the license. Where the year-on-year performance, was slightly higher than. I guess, the couple of software peers, that we've seen so far. And just to dig into that a little bit. Is that mainly to do you think, with the intensity of how you sell the need? To travel for very large deals, or would you attribute it more. To the COVID-19 backdrop affecting banking decisions, perhaps more quickly or more severely than other industries? Just to give a little bit more context. I guess, for the number that we saw develop quickly at the end of the quarter. Relating that also to the guidance, where you comment that Q2. You're sensibly anticipating a sort of worsening of the scenario.
I just wonder if you can map, that a little bit to your financials? In the sense that I would expect, again, a very high percentage of licenses, signed right at the end of Q2. And if they're not a little bit of upside risk around June being. At least an easier month, from a logistical perspective. To actually close some of the deals perhaps, that are slipping from Q1. Okay, thanks.
Hi, James. Let me take the first one, and then I'll leave that to the second one. Clearly, the uncertainty in which we operate, make it very difficult to predict. If you look at Q1, it's really also a month of data point that we have. What I can say is banks clearly in March, and specifically. I would say, if I talk about Europe. Which continues still to be, a large part of what we do. We see in March a major shift of focus from banks. Banks shifting their focus to business continuity, work to move for remote working. Ensure they can continue, to serve the customers. As well being engaged, with governments to assess new product. New ways to serve the customers. Clearly, we've seen a very sharp change of focus in March.
How fast this will come back, and/or how this will come back? It's difficult to tell. I think this, I would say, has been the main issue of the license drop in Q1. In addition to that, the fact that we could not meet our customers. Had obviously, an impact on the sales process. Finally, we also had some customers, that we had up to the end of March. Finalized everything we were about to sign. They said, "Listen, with the lockdowns, we don't know when we will be able, to physically start the implementation." They say, because the contract is structured, in a way with scope of work. With deadline timetables, they said, "We don't have a view.
Can we start the project in a month, in two, in three months?" They said, "Until we are ready to start, we cannot sign." Those were really the elements, that most impacted us. We've seen less of that, on our SaaS business. Where obviously, the deliveries is done on the cloud. It's remote, and hence it does help. It did help a little bit on that side. Takis, you want to take the second one?
Yes. Hi, James. We would love to have a crystal ball, what is happening. As you know, the macro forecasts are changing. Almost on a daily basis, and there is a lot of volatility. We have to take, as a company, a cautious view, a conservative view on. How we plan the business, and also in terms of to adapt the cost base. Yes, there is already hope, that some of the lockdown. Some of the travel restrictions, are being gradually relieved. I think for a planning assumption, we say, okay, Q2 is probably going to be similarly impacted. It could be a bit more, a bit less. We don't have the kind of visibility. We expect the same monthly seasonality, i.e., an overweight of June, in terms of closing the business. This is what we have assumed.
We continue really, to closely monitor the situation if. Especially as Max mentioned, travel restrictions are being relieved faster. Obviously this would help, with salespeople traveling. Especially for the new business. I think the existing business is something, which is probably less affected? Customers have gone through, the whole selection process. For new customers, for new logos. You eventually need, to have face-to-face meetings. You need to do workshops. It's not all you can do through Zoom, and Webex. This is our view now.
Okay, t hanks, Takis. Helpful commentary, t hank you.
The next question comes from, Hannes Leitner from UBS. Please go ahead.
Yes, good morning. Thank you for letting me on. I have also a couple of questions. Can you explain us, a little bit more in detail. Why you have better visibility, on your profits forecast? Compared to other line items in the guidance? The second question is on new names, and installed base. You expressed already, that there were some, let's say, pushed-out deals. But still could you elaborate there more? On total software, you had an uptick in Tier Three- Tier Five deals? Could you explain that, why there was such an increase? Is this mainly driven, through the Kony acquisition? Thank you.
Okay. I'll take probably the second, and the third. If I look at from a sales perspective, on the new versus installed base. And Takis addressed this briefly, on the previous question on the increased resilience. I would say, on the installed base in a sense, that existing customers know Temenos. They understand the benefit of packaged software. They understand, how mission-critical it is? Hence, the propensity for them to continue, to increase the use of the software. I would say, is higher in those times of crisis. Than to go through a full new, and embarking a new customer. That's why we've seen, the impact of the crisis. Being less impacting, on our existing customers. Probably we will continue to see that.
Probably, this is a year, where we will focus in on supporting our existing customers. With whatever product we can, to give them the ability, to conduct their business. I think on that, if you look at prior crisis. We've seen a tendency of shifting a bit, more towards existing customers. On the question about tiers, it's true that if you look at Tier One. We had a larger proportion of smaller tier customers. I wouldn't read anything into that, in a sense that Q1 is a small quarter. And you can have quite some change on a quarterly basis. What I can say, though, is it's true that with our faster growth. That we see in our SaaS business, clearly those tend to be smaller customers. Even though we had, a great Tier One bank in Q1.
Nonetheless, our SaaS and cloud business is usually with smaller banks. Hence, in the medium term, this will impact the ratio. I wouldn't say anything specific around Q1, and the tiers. Takis, you want to take the visibility on the profit?
Yes, h i, Hannes. I think there are a couple of elements, what we can state. If you look at the cost base of last year, and basically subtract the services cost. You get to a number, which you would say. Okay, about 20%-25% of that number is really variable. This includes sales commission, cost of sales. It includes the variable compensation, so both from a bonus, and a share option plan perspective. You know we have very ambitious targets. Given what we see on total software licenses, you can take a reasonable assumption. That your variable compensation is going to go down. There is an additional element. We talked about, and Max also talked about travel. We have very high travel budget, at the end of the year.
If we extrapolate March, into the next couple of months. And then maybe see a pickup late in Q3 and Q4, you get quite a bit of savings. There is obviously planned investments, including in hiring. Where you can, what we are currently evaluating. This gives us a lot of leeway, into protecting whatever comes from a top-line downside. So that we have, a high confidence level on the cost side. Plus, with the impact on total software licensing, and overall total revenues. You know, the recurring part has a higher proportion. This gives us even more confidence, both on top line, and then on the cost line. That we can grow EBIT at least 7%.
Thank you. Just one quick follow-up, on your subscription performance. You don't split between licenses, and software subscription contribution by Kony. Maybe can you give us some color, on the underlying subscription performance in the quarter? According to my estimates, it's flat to slightly down. Maybe you can talk a little bit, is this product-driven. Or is this regional-driven, that your core product didn't perform that well?
Okay, we don't, you know, give any color on, particular the product. But what we can say is, we had very good underlying growth. In our key products, which is Transact, and Infinity. Specifically on Kony, what we can say is there are basically two parts. As you know, the banking product. That has been developing, in line with expectations. We have seen some higher attrition on the non-banking part. Also related to Kony, we obviously have seen. A continuation of the services revenues, being shifted to partners. That's basically for the top line, but I don't think. We have seen anything special, in terms of the individual products in Q1 2020.
Thank you. Good luck for the rest of the year.
The next question comes from, Josh Levin from Autonomous. Please go ahead.
Hi, good morning. I have two questions. The first question is about Systems Integrators. To what extent can Systems Integrators work remotely, versus have to physically be on-site at the client? How does that differ versus on-prem versus SaaS? The second question is a follow-up, to something somebody else asked before. You've indicated you assume 2Q, will be the low point. Followed by gradual improvement, in the second half of the year. Based on your discussions with your own salespeople, and bank management teams. What makes you confident that some, if not many, of these projects simply, won't get delayed until next year or even 2022? It just seems like banks are going, to have a variety of issues. To work through as they come back, related to COVID-19. Thank you.
Hi, Josh. Listen, first on the System Integrators. First, what is great is the whole education. The whole training, all of that is now done online. We've got, what we call the TLC platform. Which allows them to get trained. What we've done, our methodology on how to deliver project. Is it Temenos project delivered, by Temenos or project delivered by partners. Ultimately, we don't really do a differentiation on that. We've tried now for the last few years, to try to move as much. As possible of the projects, to be done remotely. Us and some of our partners, as well are doing that from different locations. We've been pushing for that. Clearly, there were some parts of the job. That used to be done, and are still done on-site. For instance, on the parameterization of the system.
This, we've been able to do that remotely, or over the phone with the employee, and so on. We are able, as well as our partners. To deliver, I would say, remotely. From a cloud point of view, I would say even more. Because there clearly, the full interaction is totally remote. Both on the Temenos, and on our partner side. We are able to, I would say, in both situations to support. In fact, if you look at Q1. We had quite a staggering 35 banks, that went live in Q1. And quite a few of them in March. Clearly our ability, to deliver project is not really constrained. So much by the fact, that we couldn't be on-site.
Clearly, it had a little bit, and as I said. It had some impact, also on the sales side. Because customer wanted to ensure, that they could meet the team. Other than that, we can do a lot remotely on the systems. The second question was regarding our confidence, on the sales side for balance of year. Listen, we've tried to give you, our view on the scenario. Looking from prior crisis on banks, because what we do is clearly mission critical. Yes, in March, we've seen a shift of focus on BCP, and so on. Very quickly, this is coming back. The deals that got delayed in Q1, they will be closed. Those are not deals, that got canceled. The example I gave before, about that customer. That were not able to sign, until the lockdowns are removed. This is going to happen this year.
I'm confident that, we are going to see the trough. Not sure is it in Q1 or is it in Q2, but definitely that things will improve. Banks need to digitalize. I think this crisis, will in fact accelerate digitalization even more. That we've been able to work, with some customers. And show the ability to launch new products, to adapt to the current crisis. We've been able to support government, and we are extremely proud of everything we've been able to do. To support the banking community, during that very difficult period of time. I'm confident that, there will be improvement, in the second half of the year. At the same time, as Takis said it, we are taking all the measures. To ensure that in a difficult scenario, we can protect cash. And we can protect profit growth for the year.
Thank you very much.
The next question comes from , Gautam Pillai, from Goldman Sachs. Please go ahead.
Great, t hanks for taking my questions. I have two. Firstly, just following up on, the EBIT growth guidance of 7% for the year. This would imply a double-digit growth, in EBIT in the next three quarters. You discussed a few cost levers. Just going from a top-line standpoint, is your current assumption. That the delayed deals in the pipeline, will close by Q4 2020? Secondly, a follow-up on the end market, and I totally appreciate. That there's a lot of uncertainty at the moment. From your vantage point, are banks really in a position. To spend more in the next 12 months? If they do spend on the cloud, what is the time lag? And when does it meaningfully benefit growth? Perhaps second half of next year at the earliest? Thank you.
Maybe I'll take the second one, and I'll leave you, Takis, on the first question. Again, on the market, and on the license side. So, remember there is two elements to that. First is our existing customers, and those are usually much more resilient. Those are customers, that understand the benefit. They are already starting this transformation, and this is really a continuation. The discussion we've had, with those customers. Yes, in March, they had to shift focus, but those discussions will materialize in 2020. I'm confident that those existing customers, will continue the renovation. That's obviously a large part of, what we are doing? On the new account, I think some of the projects. That we were expecting to close in Q1, or even the one that we're expecting to close in Q2. We've been working on those, for the last 12 months.
They're highly strategic for the bank. As well, as soon as the crisis, or the lockdowns are lifted. I believe those projects will go on. As we said, we don't have, obviously, a crystal ball of what is going to happen? What we've seen in past crises is, yes, there is a shock that. Will stay for one, two quarters, but things very quickly start to move again. And I believe, it's going to be also the case this time. But as Takis will say in a moment, in responding to your next question. Having said all of that, we believe that we are taking the right measures. To ensure we protect cash flow growth, and profitability growth. Do you want to give a bit more detail on the EBIT guidance, Takis?
Yes, h i, Gautam. I think there's a couple of elements to consider. First of all, Q1 is our smallest quarter, in terms of annual contribution. So, that's also true for the profitability. Now, what we have done, for a couple of weeks. Like probably every other company, really stress-tested our forecasts, with various scenarios. Have done a thorough analysis, bottom-up of every deal in the pipeline. For every quarter, and really assessed which are projects? Which you would probably call nice to have? The salespeople, and management are in constant exchange. With the banks, and with the clients. We have pretty good visibility, what salespeople believe? Can be delivered over the next quarter, based on the discussion with banks.
From this number, you obviously take a very conservative approach. And de-risk the number, and basically say, "Okay, everything which is nice to have," we say, "This is going to be delayed into the next year." I think we have, and this is the top line. Sufficiently de-risked, what is happening on a new deal basis? Don't forget, even with the current massive lockdowns, and restrictions. We were able to sign deals, until the last day of March. And that has not changed, and will likely not change also in Q2. On the cost side, as Max mentioned, there is the variable part. However, what you also have to keep in mind. We're constantly analyzing, what more can we do, in terms of the cost base. This is now what has been happening, for the last couple of weeks.
We have, just from the recurring revenue part. We have very good visibility, on our profit. And cash flow should the scenario, become even more adverse. Than even in our most conservative view, we would still have additional levers. To deliver the EBIT growth. There is a very high confidence on this one.
Thank you. If I can ask a very quick follow-up, on the geographical performance. You mentioned Q1 was impacted by Europe, and Asia. And likely U.S., and Middle East is likely impacting the Q2. Can you comment on the impact, of a significantly low oil price? In your Middle Eastern business, for the next few quarters?
Okay. I think on the oil price. Okay, our regions, if you look at Q1. Clearly, it's including both Middle East, and Africa. So, we look at it on a combined basis. It's true that oil at a very low level, could have an impact in some of those economies. There is no question about that. Now for the discussion, that we have in those specific regions. Those are, I would say, at least for the short term. Those are decisions, that get the budget. That have been approved to go on. I'm not too concerned about, I would say. The current project, based on the level of where the oil is trading.
Clearly, if the oil continues to trade, and continues to be at those levels. This could have an impact potentially, for the medium term. For the financial health, of some of the countries in the Middle East. I would not say, that there is a direct correlation. With the level of the oil right now, and what we've got to close, in H1 or even in Q2. As those are already processes, that are well advanced. Potentially could have an impact in the later years. That I would say is a potential, yes.
Great. Thank you so much, and all the best for the remainder of the year.
The next question comes from, Andreas Müller from ZKB . Please go ahead.
Yes, good morning, gentlemen. Thanks for taking my question. I've got one, on cash flow progression. Which was okay, I think, this quarter. Of course, you had some benefits also from Q4, banks that paid into the Q1. Have you seen by the end of Q1, also some banks asking basically for delayed terms? What do you expect going into Q2 for cash flow? Really short term, actually, the DSOs, how they will progress? My second question, will be on the short-term work. How is the utilization right now of your own workforce? Do you use short-term work, and the state benefits of these programs?
Takis , do you want to take that?
I'll take that one. Yes. Hi, Andreas. On DSOs, as you know, yes, we had the cutoff issue at the end of Q4. That definitely, helped into the Q1 cash flow. However, you know, yes, we collected some cash in early January. And that really helped in also the DSO reduction, and the cash flow. There is always some, social charges associated with share options. Which fluctuate widely, between the quarters. I think I would not see anything special for Q2 cash flow. We did not see any cutoff issues, at the end of Q1 2020. We did not see any change in banks' ability, to pay at all. You could say, it's business as usual.
The more challenging element was, to get people on the phone. And find the right person to talk to, because a lot of people. A lot of banks were also moving, to a remote element in terms of the workforce. I think for cash flow, and if you look at it also from a year basis. We had a very tough comparison base in Q1 2019, which is up tremendously. If you adjust basically for the two years, and the share-based payments. You would still see, operating cash flow CAGR of 14% over the last two years. Since Q1 2018 versus maintenance revenue growth of 11%, and total software licensing cover of -5%. Conclusion is quarterly cash flows, can be volatile due to timing of items. I would look at the full year, or last 12-month basis. Which smoothens the impact of such swings.
On the other question, we have obviously a lot of countries. Where a lot of measures, have been implemented. If you ask about short time work, specifically in Switzerland. As you know, we have a small number of people in Switzerland employed. I don't think, if you look at the requirements. If you grow your EBIT 7%, you're usually not eligible for that kind of programs. In general, across all our countries we operate in. We are definitely looking at measures. As Max mentioned before, what we can do in terms of reducing our cost base. One of those measures, will be to see if there is any support. From part-time work, in those various countries.
Again, with the exception of very few people. And people which are basically, linked to the offices or receptionists. The company is working full steam, whether it's on salespeople, or the implementation for the services people.
Okay. May I have a follow-up on, the regional development? Asia was going into this crisis first, and some of the industrial companies. Are already on capacity utilization between 80% and 100%. Do you see that also, from the bank side? That things are coming back in Asia already, or should we wait there a bit longer?
Yes, I think what we see is, as I said. Clearly, we had a shock in March were.
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Effectively all the way across that crisis, 97% of our staff are working remotely. We've been able to continue, to support our customers. We've been able to service our customers, without any disruption on our side. I have to say, I'm very proud for that.
Okay. Thank you, g ood luck.
The last question comes from, Laurent Daure from Kepler. Please go ahead.
Good morning, Max and Takis. I have three very quick questions. The first is on strategy you're going, to have on headcount management. Between salespeople, R&D, non-billable people. Everything you could give us, in terms of detail would be useful. My second question is on the guidance for the year on recurring, and cloud growing 13% with the addition of Kony. If you could share with us, the organic figure you have on that. Finally, on the different cases, and your extreme case. You said you could find additional savings. I was wondering, if you could also give us, a bit more detail? What kind of additional action, you may take to protect further your P&L? Thank you.
Hi, Laurent. Let me take the headcount related. Already, we've taken some measures in the sense. That we are moving, as many marketing events to online events. We are also limiting the recruitment. We are also looking at, the whole compensation structure. And clearly, we discuss bonuses, and the option plan. And how those are structured, and they are highly challenging. So clearly, will be difficult for this year. We're obviously looking at, in this environment. What probably there, will be limited or no salary increases? We are taking action. I think we've taken the action already. And I think, that was mentioned in the press release. Myself, Andreas, Executive Chairman, the ExCo, we are taking a salary reduction. For the remainder of the year, on a voluntary basis, obviously. That we are taking.
We are assessing all action that we can take. To protect as many jobs as we can. I think that's the underlying, of what we are trying to do? To be able to rebound, as soon as the crisis is over. As I said, I believe this crisis will show, and potentially accelerate the need for digital banking. Hence, we want to protect, as much as we can, as many job as possible. Obviously, we are looking at that also. We are looking at all avenues, on how to ensure? In any scenario, we can deliver on our commitment on the profit level.
Hi, Laurent . Let me take, the guidance question. We don't split out, what we say in terms of recurring revenue elements, in particular. What is the Kony contribution. I mentioned that the Kony non-banking business, has a higher attrition. Than we originally expected, so that plays into that. I think we're looking into something, like a double-digit organic. Or like for like growth in recurring revenues, which is baked into those at least 13%.
Thank you.
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