Earnings Call: Q2 2018

Jul 18, 2018

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's TIMENA's Q2 2018 Results Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must also advise you that this conference is being recorded today, Wednesday, July 18, 2018. And I would now like to hand the conference over to your speaker today, David Arnott. Please go ahead, sir. Thank you, operator. Good morning, good afternoon, everybody. Thank you for taking the time to join today's call. I hope you've all had a chance to get hold of our results presentation, which you can find on our website if you haven't so far, and we'll be using this presentation to walk you through some of our message today's call. I'm going to start with some comments on our Q2 performance, and then I'll hand you over to Max for an overview of the financials, and then I'll wrap up with some concluding remarks. So assuming now you've all done the presentation, I'm starting on Slide 7, where at KEYMSGIR, we've had a very strong quarter with 23% growth in total software licensing and 17% growth in total revenue. For those of you who joined us at our annual client event in May in Dublin, what we call the Semeloss Community Forum, you may know that we signed we have 3 times the number of prospects attending that event than in the previous year. The precious banks are under as they move to digital, increased regulation in open banking, driving the significant increase in demand and activity in the end market. And we've been once again able to capitalize on this momentum as a leader in our market by taking market share and delivering another strong quarter. This momentum also underpins our confidence in the outlook for the second half of twenty eighteen as we've got very good revenue visibility from committed spend. We talked about some of the lead tables that we talked at the time of the Q1 results, including both the Faster Wave and the IBS survey. And since then, Gartner have, in May, published their latest Magic Quadrant for Retail Core Banking. And Teberos was recognized for the next time in a row as a leader in the leading segment of that quadrant, which is fantastic and it's clear as a validation of our position as the leader in this market. Moving now to Slide 8. I'll give you a review of our sales performance in the second quarter. Very strong performance in the quarter was driven by broad based demand across all tiers and segments across all our geographies. We continue to do well in winning new business with 41% of licensing coming from competitive deals and 13 new name customer wins in the quarter. Focusing on the regional performance for a second. Europe lapped a very strong comparison with a large number of signings across all tiers of banks. And the strong performance in Asia, it's worth highlighting, was largely down to the significant progress we've been making in Australia. I'm also pleased with the good traction we're building in the U. S. We signed 2 notable deals. The first was Northern Trust and the second was another neo bank in the digital space, a digital disruptor. As a reminder, we signed our 1st digital neobank in the U. S. Last year. The fact that digital start up banks are selecting Temenos as their technology partner is testimony to the strength of our existing product out of the box as well as our innovation road map. These banks are typically at the cutting edge of innovation in Financial Services. On Slide 9 now, I'd like to run you through the highlights of a couple of the key deals that we signed in the quarter. The first is that we announced a deal with Coventry Building Society, who bought T24 core banking as well as our payments hub, our channel solutions and our financial crime mitigation suite of products. They're using Telenas to power their digital transformation with a focus on speed to market for new products and services and maintaining their sector leading cost efficiency. Coventry is the 2nd largest building society in the UK and one of the top 10 mortgage providers with a great brand name. It's an important win for us as the U. K. Is one of our key growth markets in Europe and growing in quite a significant way. The other deals I'd like to highlight is Northern Trust, which is a leading provider of asset management and banking services. They're an existing customer of ours, already using our funds platform for their European operations, and they signed a deal to extend the relationship further to support their growth and the integration of a recent acquisition they made. It's a strategically important client but the decision making process was driven at the most senior levels of the organization out of the U. S. It demonstrates the progress we're making in building our brand in the U. S. Moving to Slide 10 now. We had 24 implementation go lives in the second quarter, giving a total of 49 implementation go lives in the first half. I'm particularly pleased to see that Julius Baer went live with wealth suites across our Asian business after successfully going live in Luxembourg last year, as they're one of our key strategic clients in the world space. We're very focused on our partner relationships. We have a strategy of working closely with partners to deliver successful implementations. Last year, we launched the Temenos Learning Community, which is leading our efforts to industrialize the partner trading program ready for growth. This has been very successful and now there's over 4,000 Temenos partner consultants, which is an increase of over 50% over the last 12 months. Our close relationship with our partners is driving our services margin up, which has now reached 11% over the last 12 months. Moving to Slide 11 now. Just like to spend a minute on the Temoz Community Forum, our annual client event. We held in Dublin this year. And we have the Irish Prime Minister join us for our keynote speech along with presentations from several of our leading clients, including Santander's Open Bank, UBS and KBC. As I already mentioned, we have 3x the number of prospects attending than in the previous year. As well as using this event to sell, we use it to announce our new product innovations, some of which I've added and shown you on this slide that I expected from the presentation we gave at the time. To highlight just a few of these, because I think you're worthy of note, we've further extended the Temenos front office suite as a standalone digital front office solution that can integrate with any core banking system or any legacy system. We announced enhancements to our data analytics and robo advisory products as we see banks trying to capitalize on the data advantage and automate parts of their retail and mass affluent channels. We also announced enhancements to our payment hub in the areas of compliance and STP. Our payment hub is available as a standalone solution in the cloud and enables banks to be ready for the demands of instant payments. We see more and more banks identifying payments as a key pain point, and we expect it to be increasingly important entry point into banks going forward. Turning to Slide 12. Just like to spend a minute on the outlook for the market in Pecerminos, standing back up, if you like, from the Q2 itself more into the medium term. Market growth is being driven by the increased pressure on banks from the move to digital, increased regulation and the rise of new competition taking advantage of Open Banking to break up the value chain. And so struggling to adapt to legacy technology and are looking for packaged off the shelf solutions to transform their IT platforms and increase efficiency. We've seen a significant increase in signings for the cloud and software as a service. And whilst this is from a low base, we do expect strong growth in this area in 2019. We're seeing clear signs of momentum building in the U. S. As more banks consider how to address their platform issues. Signings such as Northern Trust and the Digital Neo Banks, at either end of the SiSpecs team today, shows a range of clients looking for new solutions to support their growth, drive efficiency and to launch new banking platforms. We continue to demonstrate our leadership position with our growth rate well ahead of the market and with data points from the likes of Gartner, IBS and Forrester providing further validation of this. And lastly, our revenue visibility continues to increase with committed spend from Tier 1 and Tier 2 progressive renovation and with growth in our pipeline giving us confidence beyond 2018 and up into the medium term. So with that, I'd like to hand you over now to Max for an update on the financials. Thank you, David. Starting with Slide 14, I'd like to give you the financial highlights from Q2. We had a very strong Q2 with total software licensing up 23%. The growth was broad based across all tiers of clients and across all of our geographies. This performance demonstrates our position as a leading global vendor of banking software. Our strong license growth over the last few quarters has driven acceleration maintenance, which grew 12% in the quarter. We grew total revenues by 17% and EBIT by 20%, with our EBIT margin continuing to expand to 30.5 percent on an NPM basis. We also delivered strong EPS growth of 23% in the quarter. We had a particularly strong cash quarter with operating cash up 52% and DSOs down another 10 days to 114 days. By working closely with partners, we've been able to consistently improve our services margin, which reached 10% in Q2. As already mentioned by David, last year, we launched a strategic initiative called Themis Learning Community to industrialize our partnering program. This is a key success factor in our partnering program and should continue to help our services business. On Slide 15, I will highlight some of the most important numbers for the quarter. Our total software licensing grew 23% reported in the quarter, 28% over the last 12 months, and total revenues grew 17% in the quarter and 19 percent over the last 12 months. These numbers are evident of our leadership position, which has been recognized by the industry analyst as we continue to grow significantly faster than the market. We've seen a significant uptick in our cloud and SaaS based solutions since the beginning of the year. Given the time lag between bookings and revenues of these products, I expect the strong growth to be visible in our 2019 earnings. The strong growth in revenue has continued to drive our margin expansion, and EBIT was up 20% in the quarter and 21% in the LTM. And now our LCM EBIT margin has reached 30.5%. Lastly, we continue to improve our services margin, which is now at 11% on an LTM basis. 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 Rubik in Australia in Q2 of last year. Taking into account both currency movement and our hedging program, there was minimal net impact from FX at the EBIT level this quarter. We benefited from the stronger euro on revenues. However, our cost also increased due to the number of currencies strengthened against the dollar. Our leadership position in the growing market means that we continue to deliver strong organic growth with total software licensing revenue up 16% like for like this quarter and maintenance up 10%. Total like for like costs increased 8% in the quarter as we continued to invest in sales and marketing and products to drive our future growth. On Slide 17, we had another quarter of strong growth in both net profit and EPS. Our net profit grew 20% in the quarter and 21% in the last 12 months. And you can see we've been able to improve our financing costs over the last 12 months by refinancing at better rates. The strong profit has driven our EPS growth with, as I said, EPS up 23% in the quarter and 21% in the last 12 months to reach $2.72 per share. On Slide 18, our cash conversion was at 116%, well above our target of 1% of IFRS EBITDA. DSO decreased another 10 days year on year to end the quarter at 114 days, and we expect DSOs to continue declining at around 5 to 10 days per year to reach 1 10 days in the medium term. On Slide 19, we highlight the key changings from the group and liquidity in the quarter. We generated $67,000,000 of operating cash in the quarter, an increase of 52%, which is partly due to the timing of outflows leading to viable compensation elements that took place a little later than last year. I expect this to normalize by the end of Q3 2018. Out of the total $250,000,000 buyback that we announced, we bought $161,000,000 of shares in the quarter at an average price of CHF 147 and paid out $46,000,000 in dividend. We ended the quarter with $88,000,000 of cash, balance sheet and a net debt of $470,000,000 equals to leverage of 1.4x. Finally, on Slide 20, we have reconfirmed our guidance for 2018. Our guidance is based on IAS 18 and is in constant currencies. We've provided the FX rates in the appendix. We are guiding for full year total software licensing growth of 13.5% to 18.5% and total revenue growth of 10% to 13%. Our EBIT guidance is in the range of $255,000,000 to $260,000,000 which implies a full year margin of circa 31%, which represents one basis points expansion in constant currencies to last year. We expect a 2018 tax rate of 15% to 16%. And finally, we expect conversion of over 1% of EBITDA into operating cash. We had a strong start to Q3, and our revenue visibility continues to increase. And as such, I am confident we will be above the midpoint of the guidance for 2018. With that, I will hand back to David. Thank you, Matt. So in conclusion, the second quarter was a very strong quarter across all our key KPIs. The move towards becoming digital and regulation continue to be a key focus for banks with open banking and payments, in particular, driving strong demand. IT spend is increasingly clearly nondiscretionary for banks, something they have to do, something they see as critical to their competitive positioning, client retention and efficiency long term in a market that's become increasingly crowded. This is translating into continued growth for our end market, and we continue to pay market share, pulling further ahead of the competition. We've had a strong start to the Q3. And committed spend from Tier 1 and Tier 2 banks gives us confidence in our full year 2018 guidance. Structural drivers are very much in place, and our strong pipeline gives us confidence beyond that out into the medium term. And again, I look forward to updating you after our Q3 results in October. So with that, operator, we'd like to open up the call for Q and A, please. Thank you. Your first question comes from the line of Takis Pilopoulos from Bank of Bonnerville. Please ask your question. Your line is open. Thanks. Hi, David. Hi, Max. Thanks for taking my question. Two questions, I guess, one for each of you. I mean, you mentioned a couple of times that Cleveland is becoming a key focus now for banks. How do you tackle this opportunity? How do you win basically against the pure plays? Maybe some background on this one would be appreciated. IAS 18 or 11% on IFRS 15. That's quite a bit slower than in the previous quarter. Is there an intentional deceleration? Or is it just timing? Maybe I'll make more color on this one. Thanks. Okay. Thanks, Takis. Let me take the payments one, and Max will take the sales and marketing one. So payments, especially Tier 1 payments, is really a technology game. The big challenges for payments are on volume. The volumes of payments are exploding as we move to a world of micro payments, but it costs the same amount to process a small payment as it does a big payment. So the two big issues are how to handle a huge, huge expansion in terms of the payment of volumes out into the medium term as the way the extent changes and how to become how to be profitable and process that large volumes of transactions with the fixed costs being prohibitively high. So the functionality, as you'd imagine, is relatively straightforward. It's all about scalability, architecture, ability to support modern platforms. And we're quite unique that we started with a blank sheet of paper in our partnership with ABN. Obviously, we've been doing payments since the beginning of Temenos, but we carved out a specific initiative around scalable high volume Tier 1 payments, really because of the architecture complexity a few years ago, back in 2013. And what we have now is truly Tier 1 scalable in terms of the benchmarks we've been going through. It's nice that it also fits as a module within an overall core banking product. So those whose biggest pay to pay ish payments know they can replace the best of their systems as people like KBC and ABN have been doing with more modules from the same vendors. That's a big differentiator. And the second big differentiator, I would say, is the technology because none of the pure play payments vendors out in the market today have modern technology. It's all being built in the data batch systems. The architecture is very much based in the phase of branch banking, and it's really not scalable for the modern needs going forward. So predominantly architecture, but the fact we're a big software company who can move more than each from one vendor relationship is important too. Thank you. On the second question, clearly, we've said many times, we invest on certain marketing scheme. And on the 15% or 11% on which account is time we look is just a reflection of time. Underlying the investment growth is around 25%, and I think this is what you see for the year. Okay. Thanks. Thank you. Your next question comes from the line of Josh Levin from Citi. Please ask your question. Your line is open. Thank you and good evening. If you look at software licensing, it grew 24% during the quarter and I think it was 37% in the Q1. You say the 3rd quarter is off to a strong start. Your guidance for the full year, total software licensing growth is 13.5% to 18.5%. But I think doesn't that guidance look a bit conservative? Or am I missing something? Well, Luciano, obviously, we gave yearly guidance, which we did at the start of the year. We are, as we said, very confident on delivering on that guidance. And as I said, I expect to be above the midpoint of the guidance. We are in Q2, we are starting strongly Q3, which is great because we are confident to be able to deliver on that guidance. Okay. And my next question is about the competitive landscape. Are you seeing any of your competitors materially improve the product offering? In a word, no, not really. There's nobody who's come from that field. I think whoever's going to win is already playing. Quite difficult with the momentum that players like Temenos and even some of the international other vendors with a maybe slightly more services led business model. With the momentum we've all got and the fact the market is moving so fast, I think it would be difficult to start from scratch. So that leaves the competition really at the 15 players. And I wouldn't say any of them have made any great strides in terms of focus on banking, focus on rationalizing their products. The market is big enough for all this, but I would say certainly in the first half of twenty eighteen, nothing to note, certainly not on the positive, let's put it like that, from any of our competitors in terms of changes of strategy or execution. In fact, our win rate our win rate, as you can see, given our rate of growth being higher than the overall market, is predominantly coming at this stage still from market share gains. Your next question comes from the line of Gerardus Vos from Barclays. Please ask your question. Your line is open. Hi, thanks for taking my question. Just a few, if I may. First of all, on the kind of revenues, I think it was the Q1 in 8 quarters that you didn't beat consensus. I noticed that you also indicated in the presentation that you made a strong start to Q3. So have some deals perhaps slipped from Q2 in Q3? Then secondly, on the SaaS revenues, I think if I exclude the M and A, they went backwards. I think there were some kind of products you've kind of discontinued from the businesses you've acquired. Could you perhaps share with us how much revenue impact that will be for the full year? Thank you. Hi, guys. This is Luciano. I'm not going to comment on these consensus. I think our collection is that we've been doing better than the consensus. But I think it's a great quarter on the license and overall. I mean, I'm pleased that the full KPIs in Q2 has been outstanding. And clearly, based on how and I see from when we gather the different data points, we are clearly beating on the license. But putting that aside, we had a strong very strong Q2. As I said, we are starting Q2 very strongly as well. We are not in the business of looking at it on a quarterly basis. We look at it on a 12 month basis. And I'm changing that we feel very confident for 2018. On the SaaS question, it's true that some of the legacy assets that we inherited through some of the M and A, we've sunset it, which had an impact on the year. And I think, as we said, the plan on start is performing extremely well. Now there is a timing to that because we start to be boosting the revenues when the customer goes with AIFA and it can take within 6 to 12 months. But I think we'll see really the benefit and the growth in 2019. But as already as we said in the Capital Market Day, this is something that is expected as what we said in the past. We do expect SaaS to be growing at around 35% in the medium term. And I think 2019, we are going to see to be closer to that direction. Your next question comes from the line of Chandra Srivaraman from MainFirst. Please ask your question. Your line is open. Yes, thanks. Good evening, guys, and congrats on another good quarter. Just a couple from my side. First one, I noticed a big jump in contribution to licensing from Middle East and Africa. So I was just wondering if you have any thoughts on the region as such. And maybe the second one is on your investments in terms of sales and marketing. David, you mentioned a couple of times the heightened interest in Theranos in the TCS conference. Do you see any urgency to accelerate investments at this moment? Or you think you have enough on the plate to deliver to a high quality? Thanks, Chandra, for taking this on our second quarter. Really appreciate it. You're right, the spot that Middle East and Africa have grown faster. They're performing very well actually. I would say the market itself is in good shape, but we've been particularly strong in terms of the market taking market share in the Middle East and increasingly in Africa from 2 groups of people. First of all, a lot of the local players are starting to drop by the wayside in terms of their ability to invest at the level that's needed, especially in the bigger banks. And secondly, we've been taking market share from the larger global players, specifically in Persistent Oracle in the last 12, 18 months, and that's starting to show through our numbers. On the sales and marketing piece, if you remember 4, 5 years ago, we thought that the constraints to market were, A, the market's willingness to or need to change software systems. So we holding back investment and focusing between revenue and margin until we had visibility that the market was moving to the extent it is today. We, in parallel, prepared ourselves for a level of growth by removing constraints around delivery. So all the model banks, country platforms, partner programs, online learning, community tooling, that type of stuff is well in place. So I would say today, the biggest constraint we have for Telenor over the medium term is our ability to be out present in the market. And it's a good 2 years now that we've been focusing significantly on sales and marketing investment, both in absolute terms, but also as we specialize. So we've got product specializations in areas like wealth, private banking, retail, capital markets. And also in terms of the tiers, as Tier 1 banks look for more technologies, more of a technology sell, whereas for smaller banks, it might be more of a bank in a box, how quickly can I deploy sales? So there's a complexity as we grow, as capture all the different segments of markets. And we've already been growing significantly ourselves and marketing investment. I highlighted the key areas as being sales investment and presales campaign support. They're the 2 big buckets of activity. And we've found a model which does allow us to onboard those people quite fast and find them in the market by going directly to adjacent segments, setting up a sales academy and finding the right model to incentivize people to come away from our peers and our competitors to join Temenos. So it's something we track. It's something that, for me, is one of the biggest opportunities for Thermolos over the medium term, and I drive personally. And I would say we're doing quite well in terms of ramping up our sales investment. You can see that coming through the numbers. Great. And maybe a quick follow-up. Just you've had a fantastic run over the last few years. And as we look forward from here in terms of your opportunity, do you see signing more large deals as a key focus for you as such? Or is it penetrating deeper into your existing large customers? Do you see a lot more opportunity there? Hopefully, I don't have to pick 1. Those are exciting in their own right. We've done the hard work of gaining the trust of a significant and cumulative number of Tier 1 and Tier 2 and of course, smaller organizations and specialized organizations gaining their trust to embark on what is going to be a very significant opportunity for us going forward. And I know a couple of your models out there try to quantify the opportunity of progressive renovation. So changing out the addressable part of the subsystems that exist in those markets. And the average number is obviously a significant opportunity. That alone gives us a good base level of growth. So provided we don't upset these banks, provided we deliver on the business cases, take them live on time, deliver revenue business case or the cost cut business case, whatever they bought the software before, and we can create sponsors in our customers and references for other customers. That's a good level of growth. But it's already I wouldn't say locked in, but we're proving every day the success our software wins for banks. Clearly, though, if you can take this view that software is going to be dominated by best 1 or 2 software companies, it's also very important that as the big deals come to market, that Temenos wins the lion's share of those and don't have to share that leadership position with 2 or 3 others because then it starts to impact lots of things that we shouldn't be talking in this call now. But if you remain the leader, if you look after your installed base, if you provide success, if you make heroes of the people that carry your software, if you win the lion's share of the big business, each one of them in its own right is a significant contributor to the $49,000,000,000 of addressable spend. So I'd say it's both. Ultimately, it's the same constraining factors to both. The the sales organization for existing customers, the sales organization for new business. But ultimately, it's demonstrating that the product can go live quickly in our existing customers that underpins their comfort to buy more software and underpins the comfort of new banks to join the club. So it's the same fundamental drivers really for both. It's slightly different go to market challenges, but broadly the same. Thanks. Very helpful. Thank you. Your next question comes from the line of Adam Wood from Morgan Stanley. Please ask your question. Your line is open. Hi, good evening and thanks for taking the question. Just 2 for me, please. Just first of all, on the building societies in the UK, obviously you signed commentary. Wonder if you could just give us a little outline on what the landscape is there. I think one in particular has done an implementation of SAP that seems to be challenging. Have they done any major moves towards packaged software? Or is that a fruitful field for you? And potentially, how big could it be? And then maybe just backing on the services margin, obviously, good improvement there. Is that realistically where you'd like it to be? And there's more limited upside from here? Or which again, there's still more work you could do on that side of things? Okay, Adam. Thanks for that. I'll be Chris on the building for Surrey UK market. It's quite small, so I won't obviously, I won't be commenting on specific prospects. But it is a market that can potentially give growth opportunities to Temenos. And there's a number of organizations there that we would be targeting, as you'd expect. And it's quite standard. Once we've brought out something into Cognizy, it's quite easy to not much of a functionality overlap to the rest of that market. It's quite homogeneous. And on the services margin, I'm clearly very pleased of the improvement on what we've been able to achieve the last few years to be at year end percent on NTM basis is great. I think ultimately, if you look at where all the software services in the software coming up has been able to achieve, I think there's still a bit of room for improvement and probably in the medium term, we could potentially get to the 15%. But I have to say I'm very pleased already with the levels that we achieved. As you know, CellEasy is a small percentage of the overall business, which represents slightly less than 20% of the revenues. So the improvement we can get from increasing the margin is quite small, ultimately, at the bottom line. Your next question comes from the line of Mohammed Moghawala from Goldman Sachs. Great. Thank you very much. Two questions from me as well. First on the U. S, David, can you kind of give us an update on where we are in terms of the go lives, but also in terms of sort of the strategy or sort of go to market? I mean, you highlighted a lot of these digital from neobanks, but what has been sort of the gating factor in terms of achieving perhaps more progress or announcements? And when do we start to see sort of evidence of some more references? Is this still sort of a medium term thing? Or should we think of the back half of the year potentially to see some of this incremental progress? And then secondly, just coming back to sort of the balance sheet. You obviously have done a fair amount of the buyback that you specified a few months ago. How do you sort of think about sort of M and A through the rest of the year, but also weigh that up against further kind of returning capital back to shareholders via buybacks? Okay. No, thanks, David. I'll take the U. S. One. We're making good progress, and we're very happy with where we are, clearly. Ally has been live with payment from for a good year and a half now, and that's clearly a reference in the payment space. Commerce Bank are hitting all of their milestones and have met all their Q2 milestones and they're well on track to execute 3 milestones, which give us the bulk of the new localization delivered. So after that, it's really about the bank's readiness and clean data and things like that. So we're making very, very good progress on e commerce. We signed a Tier 1 bank in Q4 last year. That is also progressing well. I can't say much more about that other than that it's progressing well. We also signed, if you remember last October, a neo bank out of New York that we said will be live in Q2. They're ready to go live. They're totally done. They're just waiting for their final approval of the banking license and some branding issues, which I shouldn't talk about on their behalf before we see a formal launch. But our job is effectively done. And we're trying another new NeoBank, which is really quite disruptive at staff, both people from Facebook and Amazon and LendingClub, and they're going to be making a lot of noise. And I think these new banks are interesting in as much as they allow us to prove we can deploy software quickly. They're going to be disruptive, and it's always nice to be attached to a disruptive modem. But from a revenue opportunity, clearly, the market is really, for us, about the top 100 and 20 odd banks over the €10,000,000,000 where we're looking to extract efficiencies, savings, allow them to be digital and compete against some of these new players. So I would say for that, it's really about Commerce and this Tier 1 that we bank. So there's no competitor that's won a U. S. Deal in the meantime. We've won them all, and we're just crunching our way through them. So we'll have references in the second half of this year and then going into 2019. Well, Hamed, on the balance sheet, as you've seen, only in Q2, we stayed €46,000,000 of dividends. We did €161,000,000 of buyback. And still, the leverage is still below 1.5 times EBITDA. So clearly, we want to continue the buyback that we announced and to complete the $450,000,000 that we announced. But at the same time, we still have a very strong balance sheet, which allow us to look at many opportunities. And now clearly, on the M and A side, timing is always difficult to predict, but we are looking at ways to complement the organic piece. But let's assure that the balance sheet is very strong for us. It's needed to be able to do more acquisitions. Great. Thank you. Thank you. Your next question comes from the line of Michael Briest from UBS. Please ask your question. Your line is open. Thanks. Good afternoon and congratulations on the good quarter. A couple for me, Max first and then one for you, David. In terms of the guidance, I know just your current assumption now is in our thinking sort of $1.16 for the year. I think in the first half, it's probably $1.19 or $0.20. So it's quite a bleak forecast for the euro for the second half. Can you sort of talk about the assumptions behind that? Or maybe are you sort of suffering from Brazilian reals and Turkish liras and things like that flying around, which have been quite weak? And then just on the SaaS subscription business, Gerardus was asking, for the second half of the year, should we assume the Q2 run rate is more indicative before you ramp up SaaS in 2019? It might help us understand the guidance. And then David, just in terms of Australia, I noticed there was a deal with Volt 1. Is that the one you're referencing? Or is it another deal that hasn't been announced yet? And then just on Middle East seemingly. Are there no large banks that you can call out as having driven that strong performance this quarter? Thanks. Michael, let me start. Recently, the 1.16% is for the balance of here. So for the full year, we'll be talking 1.8%. Now in fact, we are back quite closely to where we were at the start of the year when we gave the guidance. So and I think for us, the main one is really the euro, which drives most of the impact on the currency side. So I think we are quite good with that. On the SaaS now, to come back to the question that was asked on what to expect for the balance of here, I think SaaS will be probably between 10% to 15% growth for the full year. So you'd see a continuation on probably of where we are today in Q2. Obviously, starting Q3, we don't pay the contribution on from Rubik anymore because it should be more than 12 months. So I expect the underlying to be growing faster. Okay. Michael, let me take the Australian one, and I need you to repeat the last one because I didn't quite capture it. So we did sign Volt. That's not the reason we're excited about Australia. We signed deals beyond Volt, but I'm not able to talk about at the moment. That's why it's just more than this bulk. And can you just repeat the last bit? I didn't capture that. Yes. It's just I mean, Middle East, Africa does look like it had a very strong quarter year on year. Are there no sort of single banks you can name or big deals you can reference that contributed? Was it just generally lots of little deals coming in? It's just across the board, really. If I were to single out one sub region that's performing extremely well within that, I would say Africa. Africa is coming back. It's been quiet for a while. It appears to recycle. A lot of them at the end of we migrated to 3rd body systems 10, 15 years ago, and there was a loss replacement cycle. We've amortized it now. They're coming to market. The lion's share are coming to Temenos. Some of them are big names. Nobody probably I'm allowed to mention. So and we think we're also upselling to our existing customers. We've been there a long time. So across the board, if there's one that I can give you is that Africa is growing really well. All right. Thank you. Thank you. Your next question comes from the line of Laurent Dor from Kepler. Please ask your question. Your line is open. Yes. Thank you. Good evening, gentlemen. I also have two questions. First one is regarding the strong run of your stock price. Can we have kind of an indication of the stock option charge you're expecting for the full year and your assumption in your guidance? And my second question is back to the question that was asked about the sales and marketing cost. It's been quite erratic from 1 quarter to the other. So does it have to do with provisioning of bonuses of the salespeople? Or is it more the timing of equipment? And more generally, how do you how is the market of recruiting sales at the moment? Do you see inflation? Any comment, any color on that would be very useful. Okay. Let me take the second one while Matt gets to answer Chris for the first one. There is a lot of variable costs clearly flowing through quarterly sales and marketing. There is a critical bonuses, your accrue for sales commissions and then it has different times. The licensing, which is where the majority of the variable pay goes, is quite lumpy, it's quite seasonal, often it's attached the payments to attach to things you don't see because the revenue recognition may not be perfectly aligned. But if you cut through the variability of that, I would say we're very steadily increasing our underlying sales and marketing headcount in dollar terms by about 25%. And that's very steady. Every quarter, we're bringing on a bunch of new people. There's a lump in September when our sales academy intake comes through. That's the only nonlinear amount, I'd say. They're very slow and steady, 25% increase over the year. I'm targeting to get that up a bit over the medium term, but that's more of a sort of a capital market strategy point. So we're executing on the strategy that we laid out in February, which was to invest disproportionately high in sales and marketing. And we've been able to start finding the right people. The rest is just variable timing. The production charge is yes, it will be slightly higher than last year, but this is fully taken into account in the guidance. So it's part of the guidance we give at the cost and at the profit level. So slightly up on last year, obviously. Your next question comes from the line of sorry, there are no further questions. Okay. Thank you very much, everybody, for giving up your time to spend with us this morning, this afternoon. I look forward to speaking to you after the Q1, if not the call. Thank you very much. That does conclude your conference for today. Thank you for participating. You may all disconnect.