Looking at the 2011 full year results from Temenos it’s clear why it is keen on the proposed tie up with Misys. Although overall revenue was up on the previous year, licence revenue was significantly down and growth has come from additional maintenance revenue and existing customers.
By selling additional services to existing customers the banking software supplier managed to raise maintenance revenue 28% to $197m, which pushed overall revenue for the year to $474m (up 6%). But licence revenue was down 9% to $146m despite adding 40 new customers, including two tier 1 banks.
The situation deteriorated over the year and the European sovereign debt crisis made its mark in the latter part of the year. Overall revenue was down 15% in Q4, with license revenue plummeting by 33%. But again maintenance revenue was up, by 28%. Adjusted EDIT for Q4 was down 35% to $35m, and 23% down across the full year to $88m.
Driving up maintenance revenue can deliver short term gains but does not make for sustainable growth which is why Temenos is keen to progress the merger with Misys. Just how much stability the combined entity would have is unclear given that Misys is also suffering from market uncertainty (see Misys acts to cut costs as market deteriorates), but additional cross sale opportunities would be opened up. And with Vista Equity Partners also interested in Misys, Temenos’ situation is uncertain (see Misys/Temenos halted by Vista Equity Partners?). It hopes to get back to 10-15% annual licence growth in the medium term and to take its services business (which was a problem area last year see Temenos’ growing pains), to double-digit profit margins but without some outside force it is hard to see how it can achieve those aims.
The company is approaching $0.5b in revenue and still managing to increase revenues. It is also delivering profits (albeit on an EBIT basis). It has a little breathing space to work out an alternative plan if the proposed Misys merger falls through and acquisition could be the best way forward, maybe via a private equirt firm.