Given the ongoing state of uncertainty in the financial sector, banking software specialist Temenos was always going to suffer, but the Q2 problems it revealed earlier this month when it released its dismal prelim results and broke the news that the CEO was leaving (see here) are not solely due to outside forces.
The full set of Q2 2012 results (to June 30) shows that with the exception of maintenance revenue, every area went red on a yoy basis. Total revenue dived 14% to $105.6m. Within this licence revenue plummeted 38% to $24.2m, services sank 8% to $31.3m, but maintenance managed a 2% increase to $50.1m so it is keeping customers even if it is not signing up new ones at the rate needed to grow the business. Adjusted EBIT of $10.8m was down a whopping 55%, while adjusted EDIT margin was 9 percentage points lower, at 10%.
Banks’ reluctance to commit to core system replacement despite cost and regulatory pressures was part of the problem but was compounded by its own sales execution problems, which exacerbated the licence revenue decline. It is taking remedial action - reducing costs by $20m to set a cost base of $350m in 2013, simplifying some structures and processes, and restructuring to remove some management layers – and is pinning it hopes on the release of pent-up demand from delayed decision-making. However, Temenos is undertaking tactical adjustments rather than making strategic decisions. We get the feeling it has not recovered from seeing the Misys merger slip away (see Misys and Temenos break their engagement) and has yet to work out its route forward.