Earnings Call: Q1 2020

Apr 14, 2020

Ladies and gentlemen, welcome to the Temenos Q1 2020 Results Update Conference Call and Live Webcast. I am Alessandro, 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 Schwab, CEO. Please go ahead, sir. Good morning and 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, and then I will hand over to Takis for an overview of the financials before giving some concluding remarks. Starting on Slide 7, Our new licenses this quarter have been significantly impacted by the evolving COVID-nineteen 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 maintenance grew by 11%. Overall, total revenues was down 5% and EBIT was down 22%. We have provided revised guidance for 2020 to account for the impact of COVID-nineteen, which Takis will talk through shortly. We benefit from a resilient business model that we've built over more than 2 decades. Our recurring revenues mix 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 viable compensation including sales commissions, bonuses and stock option plans and travel costs. This enabled us to protect our profit even when our top line is significantly impacted. We have already taken some specific measures, including side cuts from myself, our Executive Chairman and the other members of the Executive Committee, and we are reviewing all the 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 and D. Such investments will ensure we extend our product advantage and emerge from this crisis even stronger. On Slide 8, I will give an overview of our sales performance in the quarter. Sales in the 1st 2 months of the quarter were in line with our expectations. However, COVID-nineteen 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 these signings due to lack of visibility on when they could start implementing during lockdowns. Importantly, deals that did not sign 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 IT renovation programs. They understand the benefit of running modern package software and see it as critical to the business operations. SaaS was a bright spot for the quarter. There was strong growth and a number of deals signing. This includes a Tier 1 bank for its domestic and international wealth operations. We signed a total of 9 new clients in Q1 across both Temenos TRANZACT and Temenos Infinity. On Slide 9, despite the crisis, demand for SaaS continued to grow. We see SaaS ACV up 1.4% in the quarter. We had demand for SaaS product across all regions globally and across both front and back office. Temenos TRANZACT 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 exceed 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 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 plans to rapidly adapt to the evolving crisis. By running modern packaged 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 products to the changing need 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. This includes human to human secure messaging, which has been proven to generate massive customer loyalty and significantly reduce customer attrition. We've seen numerous government We've seen numerous government initiatives launched 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 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 1 bank, we built additional loan application and streamlined the funding process in only 4 days. This process usually takes 4 to 6 months. Lastly, our software enables banks to rapidly adapt the AML KYC and fraud management to 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 20 8 crisis. And we've seen central banks and regulators acting more quickly and deceiving. 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. And Temenos can fully support its clients remotely and maintain our R and 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. So 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 20 6% year on year as the impact of COVID-nineteen caused major disruption to sales processes, in particular, in the last months of the quarter. Asia and Europe were particularly impacted with the U. S. And EMEA 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 lacks license revenue by 2 to 3 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 US60 million dollars 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 'nineteen. Lastly, we have reconfirmed the 2019 dividend payment proposal of CHF0.85 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 sales 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 and 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 USD1 1,000,000 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-nineteen travel restrictions. We also continued with our strategy of moving more services to partners, especially for the acquired KONE businesses, continuing our strategy from 2019. Maintenance grew 9% like for like and we are confident that both maintenance and sales 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 the flexible cost base. Services is a margin business with limited impact on profit and the remaining cost lines around 20% to 25% of these are variable. In addition, in a typical year, we have travel budgets running into the tens of 1,000,000. 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% to 16% before. Our medium tax rate of 18% to 20% is a normalized run rate for the business. EPS declined 25% in the quarter and grew 9% in the last 12 months. Now on Slide 18, our DSOs ended the quarter at 109 days reported or 105 days organic, with 4 days due to the acquisition of KONI. The 109 days reported is down 11 days versus Q4 2019. We expect our DSOs to be around 100 and 10 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 and 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 percent 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 $60,000,000 of operating cash flow and paid back a bridge known relating to the acquisition of KONI. Our cash on balance sheet at the end of the quarter was $103,000,000 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-nineteen. 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 our end 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, particular, withdrawing our guidance for total software licensing, total revenue and SaaS HCV 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 percent of EBITDA into operating cash and expect DSOs to be around 110 days by year end. We now expect the 2020 tax rate of 14% to 15% and our net leverage to be around 2x by year end. Now on Slide 22, I would like to reconfirm our sustainable annual growth targets. It is important to note that whilst 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 and 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 and 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. So moving to Slide 24. A quick mention for our Temenos Community Forum, which we are now hosting online. This 2 day virtual event will include product announcements and software demonstration by Temenos experts across a mix of streamed content and on demand sessions. So 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. So to finish with Slide 25, we saw a significant impact from COVID-nineteen 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. And we firmly believe the structural driver for digital regulation and cost pressure on move to open banking are intact and are likely to exceed post crisis. Despite the impact on license sales, we had robust growth in recurring revenues, which coupled with our flexible cost base, enabled us to generate cash and protect our profitability, even with a material impact on our licensees. We are confident we can continue to grow recurring revenue, generate cash and protect profit for 2020. And it is critical that we continue to invest at this time, in particular in R and 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 and A. We will now begin the question and answer The first question comes from Chandra Muly Sridharaman from MainFirst. Please go ahead. Yes. Hi, good morning, Max and bankers. Just a couple of questions from my side. Firstly, I noticed that the contribution from Americas saw a big jump. Just wanted to see if there were any one off deals, Commerce Bank or something of that sort. So any update on that would be great. Number 2 is, Takeda specifically for you. The leverage guidance for this year has dropped from 2 times sorry, 1.5 times to 2 times. 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. As I said, the U. S. As well as we said 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-nineteen. As you know, the crisis hit the U. S. At a later stage and hence we were able to deliver as expected, I will say more or less, in those regions. So 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. However, 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 a lot of confidence into our cash flow projection and also the conversion rate. Also taking into account, 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. So we have assumed a very adverse scenario in our view in terms of what is going to happen to the leverage. So this is sufficiently conservative. The next question comes from James Goodman from Barclays. Please go ahead. Thanks for taking my questions. 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. I mean, is that may need to do, do you think, with the intensity of how you feel the need to travel for very large deals? Or would you attribute it more to the COVID backdrop affecting banking decisions perhaps more quickly or more severely than other industries. So just to give a little bit more context, I guess, for the number that we saw develop quickly at the end of the quarter. And then relating that also to the guidance where you comment that Q2, you're sensibly anticipating that worsening of this 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 is there 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. Listen, clearly, the uncertainty in which we operate make it very difficult to predict. And if you look at Q1, it's really also a month of data points that we have. But what I can say is, thanks 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. And so banks shifting their focus to business continuity, moving to move on to 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. So clearly, we've seen a very sharp change of focus in March. How fast this will come back and how this will come back, it's difficult to tell. So I think this, I will 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. And finally, we also had some customer that we had up to the end of March finalized everything we were about to sign. But the sadly said, with the lockdowns, we don't know when we will be able to physically start the implementation and the stage until 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 2 3 months. And they said until we are ready to start, we cannot sign. So those were really the elements that most impacted us. And 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. Thank you, do you want to take the second one? Yes. Hi, James. We would love to have a crystal ball what is happening. But 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 cautious view, a conservative view on how we plan the business and also in terms of to adapt the cost base. And yes, there is already hope that some of the lockdown, some of the travel restrictions are being gradually relieved. But I think for our planning assumption, we say, okay, Q2 is probably going to be similarly impacted. It could be a bit more, a bit less. I mean, 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. And 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, then 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. So it's not all you can do through Zoom and WebEx. So this is our view now. 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? And then the second question is on new names and installed base. And you expressed already that there were some, let's say, pushed out deals. But still could you elaborate there more? And then on total software, you had quite you had an uptick in Tier 3 to Tier 5 deals. Could you explain that why there was such an increase? Is this mainly driven through the KONE acquisition? Thank you. Okay. I'll take probably the second and the third. So from if I look at from a sales perspective on the new versus installed base And this is Taki has addressed this briefly on the previous question on the resilience of of the increased resilience, I would say, on the installed base in a sense that existing customers know stem and nodes, they know they understand the benefit of package software, they understand how mission critical it is and hence the propensity for them to continue to increase the use of the software, I would say, is higher in those times of crisis and to go through a full new and embarking a new customer. And that's why we've seen the impact of the crisis being less impacting on our existing customers. And probably we will continue to see that probably this is a year where we will focus on supporting our existing customers with whatever product we can to give them the ability to conduct the business. So I think on that, if you look at prior crisis, we've seen a tendency of shifting a bit more towards existing customers. Then on the question about tiers, it's true that if you look at Tier 1, 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 1 bank in Q1. But nonetheless, our SaaS and Cloud business is usually for with smaller banks and hence in the medium term, this will impact the ratio. But I wouldn't say anything specific around Q1 and the tiers. Takis, do you want to take the visibility on the profit? Yes. Hi, Hannes. I think there is there are couple of elements what we can state. If you look at the cost base of last year and basically subtract the services costs, you get to a number, which you would say, okay, about 20% to 25% of that number is really variable. And this includes sales commission, cost of sales. It includes the variable compensation, so both from a bonus and share option plan perspective. So we have very ambitious targets. So given what we see on total software licenses, you can take a reasonable assumption that your variable compensation is going to go down. But 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 later in Q3 and Q4, you get quite a bit of savings. And then there is obviously plant investments, including in hiring, where you can what we are currently evaluating. So 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, the recurring part has a higher proportion. So this gives us even more confidence, both on top line and then on the cost line that we can grow EBIT at least 7%. Okay. Thank you. Just one quick follow-up on your subscription performance. You don't split between licenses and software subscription contribution by Korny. But 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. So maybe you can talk a little bit, is this like product driven or is this regional driven that your core product didn't perform that well? Okay. We don't give any color on particular the products. But what we can say is we had very good underlying growth in our key products, which is TRANZACT and Infinity. Specifically on KONE, what we can say is there are basically 2 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. And also related to KONE, we obviously have seen a continuation of the services revenues being shifted to partners. So 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 'twenty. 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? And then how does that differ versus on prem versus SaaS? And then the second question is a follow-up to something somebody else asked before. I mean, you have 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? Just seems like banks are going to have a variety of issues to work through as they come back related to COVID-nineteen. Thank you. Hi, Josh. Listen, first on the system integrators, first, the whole what is great is the whole education, the whole training is all of that is now done online. We've got what we call the TLC platform, which allows them to get trained. And what we've done, our methodology on how to deliver project and 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. So and you know, us and some of our partners as well are doing that from different location and so we've been pushing for that. Then 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. But this we've been able to do that remotely over the phone with the employee and so on. So 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 they're clearly the full interaction is totally remote both on the terminals and on our partner side. So we are able to, I would say, in both situation to support and we've been 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. So clearly, we the 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, but other than that, we can do a lot remotely on the systems. On the second question was regarding our confidence on the sales side for balance of here. 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. But very quickly, this is coming back. So 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 we're not able to sign until the lockdowns are removed. This is going to happen this year. So I'm confident that we are going to see the trough, Not sure if it's 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 digitization even more. 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 for to support the banking community during that very difficult period of time. So I'm confident that there will be improvement in the second half of the year. But at the same time, as Taki 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. The next question comes from Gautam Pillai from Goldman Sachs. Please go ahead. Thanks for taking my questions. I have 2. Firstly, just following up on the EBIT growth guidance of 7% for the year. And this would imply a double digit growth in EBIT in the next three quarters. You've discussed a few cost levers. But just going from a top line standpoint, is your current assumption that the delayed deals in the pipeline will close by Q4 2020? And secondly, a follow-up on the end market and I totally appreciate that there's a lot of uncertainty at the moment. But from your vantage point, are banks really in a position to spend more in the next 12 months? And 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 guys, Tagris, on the first question. So again, on the market and on the license side. So remember, there is 2 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. And the discussion we've had with those customers, yes, in March, they had to shift focus, but those discussions will materialize in 2020. So I'm confident that those existing customers will continue the renovation. So that's obviously a large part of what we are doing. Then on the new account, I think some of the projects we are expect 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 over the last 12 months. They're highly strategic for the bank. So as well as soon as the crisis or the lockdowns are lifted, I believe those projects will grow. As we said, we don't have obviously a crystal ball of what is going to happen. What we've seen in past crisis is, yes, there is a shock that will stay for 1, 2 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. So do you want to give a bit more detail on the EBIT guidance, Akis? Yes. Hi, 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 forecast with various scenarios, have done a thorough analysis, bottom up of every deal in the pipeline for every quarter and really assess which are projects, which you will probably call nice to have and the salespeople and management are in constant exchange with the banks and with the clients. So we have a pretty good visibility what salespeople believe can be delivered over the next quarter based on the discussion with banks. Now from this number, you obviously take a very conservative approach and derisk the number and basically, okay, everything which is nice to have, we say this is going to be delayed into the next year. So I think we have and this is the top line sufficiently derisked what is happening on a new deal basis. And don't forget, even with the current massive lockdowns and restrictions, we were able to sign deals, and will likely not change also in Q2. Now on the cost side, and will likely not change also in Q2. Now 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. So, 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. So there is a very high confidence on this one. Thank you. If I can ask a very quick follow-up on the geographical performance. And you mentioned Q1 was impacted by Europe and Asia and likely U. S. And Middle East is likely to impact into Q2. But 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, in the okay, our region Sunday, if you look at Q1, clearly, it's including both Middle East and Africa. So it's 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 are already that get the budget, that have been approved to go on. So I'm not too concerned about, I will say, the current project based on the level of where the oil is trading. Now 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. But I would not say that there is a de correlation with the level of the oil right now on what we've got to close H1 or even H2 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 Mueller 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 and what you expect going into Q2 for cash flow really short term actually the DSO how they will progress? And my second question will be on the short term work. I mean, how is the utilization right now of your own workforce? Do you use short term work and the state benefits of these programs? Achit, do you want to take that? I'll take that one. Yes. So 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, yes, we collected some cash in early January and that really helped also the DSO reduction and the cash flow. However, there is always some social charges associated with share options, which fluctuates widely between the quarters. I think I would not see anything special for Q2 cash flow. We do not see any cutoff issues at the end of Q1 'twenty. We did not see any change in bank's ability to pay at all. So, so far, you could say it's business as usual. The more 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. So with 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. So if you adjust basically for the 2 years and the share based payments, you would still see operating cash flow CAGR of 14% over the last 2 years. So since Q1 2018 versus maintenance revenue growth of 11% and total software licensing cover of minus 5%. So conclusion is quarterly cash flows can be volatile due to timing of items. So I would look at full year or last 12 month basis, which smoothens the impact of such swings. Now on your on the other question with we have obviously a lot of countries where a lot of measures have been implemented. Now 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 and if you look at the requirements, if you grow your EBIT 7%, you're usually not eligible for that kind of programs. But 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. And one of those measures will be to see if there is any support from part time work in those various countries. But again, with the exception of very few people and people which are basically linked to the offices or reception is 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? I mean, Asia was going in to this crisis first and some of the industrial companies are already on capacity utilization between 80% 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? I think what we see is, as I said, clearly, we had like a shock in March where banks effectively all the way across that crisis. And we 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. So I'd say I'm very proud for that. Okay. Thank you. Good luck. The last question comes from Laurence Dorr from Kepler. Please go ahead. Yes. Good morning, Max and Thakis. I have 3 very quick questions. In fact, the first is on strategy you're going to have on headcount management between salespeople, R and 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 Redwing and Clars growing 13% with the addition of KONE. If you could share with us the organic figure you have on that. And finally, on the different cases and your stream case, you said you could find additional savings. I was wondering if you could also give us a bit more detail what kind of action additional action you may take to protect further your P and L? So let me take the headcount related. Already, we've taken some measures to understand 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 discussed bonuses and option plan and how those are structured and 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 sale 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 reduction for the remainder of the year on a voluntary basis, obviously. So that, we are taking. We are assessing all actions that we can take to protect as many tureaus 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. Because as I said, I believe these crises will show and potentially exceed the need for digital banking. And hence, we want to protect as much as we can as many jobs as possible. But obviously, we are looking at that also. So we are looking at all avenues on how to ensure in any scenario we can deliver on our commitment for 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 the KONI contribution. But I mentioned that the KONI non banking business has a higher attrition than we originally expected, so that plays into that. But I think we're looking into something like digit organic or like for like growth in recurring revenues, which is baked into those at least 13%. 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.