Temenos AG (TEMN) Earnings Call Transcript & Summary

Webcast as well. I'd like to briefly run through the agenda for today. We're going to have presentations from 4 of our execs, Jean-Pierre Brulard, our CEO, talking about our new strategy and our approach to operational excellence. Then Barb Morgan, our new Chief Product Technology Officer, who will be on stage talking about our approach to product and technology. Then there'll be a coffee break to give you a chance to grill them all. Then Will Moroney, our Chief Revenue Officer, talking about our approach to our go-to-market. And finally, Takis Spiliopoulos, who you all know well, covering our financial framework and our new midterm targets. A couple of housekeeping points. There will be Q&A at the end, so please hold your questions for that. Anyone joining via the webcast, you can submit questions through the bottom right of the screen, and I will be able to aggregate those and then ask them to the execs at the end. So with no further ado, I'd like to hand straight over to Jean-Pierre to talk about our new strategy. Thank you, Jean-Pierre.

Thank you. Thank you, Adam, and good morning to all of you, and welcome and thank you to joining us today here in person and watching online as well. It's really great to be with you in London, a city I'm quite familiar, living here 5 years. And let me tell you first, I'm very excited to talk to you about the new chapter of Temenos. Maybe prior to that, allow me to provide you a brief introduction about myself. Promise I will not bother you about my long career in software industry. But I just would like, I mean, to share with you a couple of experiences that I think could be relevant for Temenos. I spent the last 4 years in Palo Alto as Chief Revenue Officer of VMware. And the goal was really to change the business model from on-premise to cloud and SaaS. And basically, we tripled [indiscernible] from $2 billion to $6 billion at the same time, growing to top line and maintaining strong margin and cash flow. And prior to that, a long time ago, because it's 14 years at VMware. I was working for a non-U.S. company, business objects. And here, I learned the challenges for non-U.S. company in a way to succeed on a global stage. Let me tell you that I strongly believe that Temenos has a winning combination between customer-centricity and innovation. And by the way, the reason I joined the company, I've [indiscernible] myself to Switzerland to lead this excited chapter for the company. So having said, basically, we will go -- my goal for today to provide you, first of all, an honest assessment of our current positioning, then a French look as a market potential, and then I'm going to define our growth lever based on our assessment of the revenue opportunity. And next, I will explain our focus on execution and operational excellence; and lastly, our new midterm targets aligned to the strategy. So first, let me look back on the last 5 years to start to share my assessment of Temenos. And the last 5 years saw a significant change in Temenos business model, like many software vendors that have made their journey from on-premise to SaaS and cloud towards a more predictable revenue. When I say predictable revenue is composed of SaaS, maintenance and services. And if we aggregate these 3 components, we were at 60% of total revenue in 2019 to go to roughly 80% of this -- at the end of this year. And the main change, as you may know, of this revenue mix has been driven by SaaS, which grows strongly from 15% to 50%, 5-0, of total software licensing. And at the same time, let me highlight that Temenos was able to maintain its EBIT and research and development investment throughout this period of substantial change. However, whilst our revenue mix has been evolved positively, total revenue growth of which software licensing has been low. And it's fair to say as well that SaaS grows from an industry perspective as well for us, Temenos was below our expectation. So net-net, I consider that we have, in a way, a strong foundation in the business, but at the same time, some significant challenges to address to drive growth. So let me start with a strong foundation that Temenos has established. Number one, as you can see on the left, a broad product portfolio with our end-to-end core solution, generating the majority of our revenue, complemented by adjacent one. Number two, we deliver this broad product offering across geographies, banking segment and technology. From a geo perspective, we serve customers in over 150 countries, with strong penetration in Western Europe and emerging market, an established presence in Australia and Canada and the first footprint in the U.S. Second, we support customer across all banking segment, primarily in retail and wealth, but increasingly in Corporate Banking. And we are able to offer our customers a choice across multiple deployment models, on-premise, private and public cloud and as well SaaS. Number three, we continue to modernize our customer base, which is, by the way, the broadest in the industry. We also lead in the number of customer acquisition. In summary, let me share with you the key learning from my listening tour over the last 6 months where I met hundreds of customers, employees, partners and many of you here, investors and analysts as well. And to me, it was very clear that we have a strong foundation to build on. The market we serve is large and growing consistently, and we have long-term loyal customer relationship. And we are very, very relevant to our customers. And it was most probably the observation I have made that surprised me a lot that we are very, very relevant. After -- let me just share with you a quick story. After the first week of my tenure at Temenos, I met a major Tier 1 European bank CEO. And we told -- what he told me was a following. He told me you, Temenos, you have my heart, you have my lungs. And if you fell, I collapse because I really bet all my product and technology on you. Equally important, I found Temenos people very passionate about the success of customer. Very proud with a very real can-do attitude. And let me repeat that our competitive edge is based on our breadth and functionality and localization, underpinned by constant innovation. So a question you should ask and I have asked this question, to be honest, with myself as well with having all the assets in hands, why did Temenos not grow more? Which are the main challenges we need to address to turn Temenos in a growth engine above the market growth? So firstly, I believe that we need to focus on culture and execution as one Temenos. Secondly, it's fair to say that our product and technology investment was over diversified. So our focus will be on product rationalization and simplification with increasing our technology investment in terms of architecture. Thirdly, in the past, we have underinvested in go-to-market and especially in the U.S. So my focus will be to grow our sales capacity and as well at the same time, improve our customer experience. So my colleague and I will share more details later on. So before I go to the strategy, let me start with a major trend that we believe are impacting the banking industry. First, banks are facing cost headwinds where technology is significantly helping them to improve their efficiency. All the major banks that on top of the league, they are investing more than the other one on technology. Second, the rise of hyperscalers, GenAI and modular architecture are really creating more opportunity for the bank to accelerate their modernization. But at the same time, amplifying the gaps between the banking tech leaders in one hand and the laggards in the other hand. Third, the explosion in digital interaction is both an opportunity and a threat, an opportunity to grow the bank customer base of digital users but at the same time, a threat coming from fintech and payment disruptors. Fourth, banks are facing increasing demand in terms of regulation, security, compliance, like, for instance, the implementation of [indiscernible] in Europe early next year. So we do believe that these 4 major structural trends are driving incremental demand for third-party banking software and for Temenos. Now let me -- let's have a look on the market size and growth rate. After having completed an extensive review of our market opportunity with a leading consulting firm, we believe that the market for third-party banking software, we grow around 7% annually to move from $23 billion today, up to $30 billion by 2028. And the best way to segment this market trend is by the tiering of the banks. The Tier 1 and Tier 2 bank mostly located in the U.S. and Western Europe represent 1/3 of the market opportunity, meaning $8 billion out of the $23 billion. And as you know, generally speaking, these Tier 1 and Tier 2 banks, they had a lot of internal skill and resources to build and maintain and mostly maintain in-house core solution. Tier 3 to 5 banks, which are 50% located in emerging markets represent 2/3 of our market opportunity, meaning $15 billion out of $23 billion. And as they don't have the skill set to build in-house, their preferred option is to buy best of the software covering from front to back including payments. Both are growing pretty similarly around 7% per annum to reach the $30 million together in 2028, which is representing $7 billion of market growth opportunity. Of this $7 billion, we believe that $3 billion will be triggered by the shift of spending from build to buy over the period. And to our estimate, the banks are spending between $40 billion to $45 billion on legacy in-house solution. And the other $4 billion of growth will come from increased share of wallet and change in deployment mix from on-prem to cloud and SaaS. So let me double-click on this. If on-premise remain dominant as of today, its contribution to the mix will go down from 67% today to 59% in 2028, growing only at 4% per annum over the next 4 years. As banks are looking for more agility, more scalability, security and cost efficiency, they will accelerate, they move to cloud and SaaS solution that together will represent 41% of the market by 2028 versus 33% today. And we believe that Tier 1, Tier 2 banks will move more rapidly to cloud-native solution, and they have now a skill set to manage their own cloud operation. As an example, let me tell you what the CEO of a very large U.S. bank based here in Europe with international operation here in Europe told me less than 3 weeks ago. He told me, we like your software, Temenos, but we will prefer to deploy in the public cloud of our choice. We are investing a lot in our public cloud in terms of security, compliance and cloud operation. And many customers value the flexibility of multi-cloud, what we can deploy in Azure, AWS, IBM Cloud and Google Cloud. SaaS, we continue to have a solid double-digit growth. But at the same time, we see slower growth in SaaS due to 2 factors: a tougher funding environment for fintech and an increasing regulatory requirement. Net-net, client values the power of choice and flexibility in deployment models. In addition to our assessment of market trends and growth expectations, we have conducted a deep dive analysis of our growth opportunity with a major consulting firm, reflecting in the different bubbles here and the size of the bubble represents a potential revenue uplift. As part of this process, again, facilitated by a major consulting firm, we have interviewed many clients, partners, analysts, employees across geographies. And we took their feedback very, very seriously while assessing [ to access ] the attractiveness and the ability to win for each opportunity. Talking about our ability to win. Let me share my confidence around our competitive positioning. First and foremost, and let me insist on that, we delivered significant and measurable customer value. Our best-performing clients have twice the return on equity and half the cost-income ratio of the industry. And we win because we deliver to our customers, the winning combination of leading functionality and latest technology and overall, the benefits of being a market leader in terms of long-term relationship. As part of this deep dive analysis, we just have realized that we have won 15% of the publicly announced deal over the last 4 years, which is almost a double that our nearest competitors. And many of them, as you can see on the screen, our new clients, and we will continue this effort of new account acquisition, reflecting in the strong recognition providing by analysts such as IBS, Gartner and Forrester. Let me now give you more color about the value we deliver to our customers across different geographies and banking domain. And let me pick up on 2 examples. As you may recall, we have just announced our new SaaS architecture and enterprise services earlier this year. One early adopter in North America has been able to go live in less than 6 months.and onboard 18,000 accounts in less than 5 days. A top bank in Africa modernized corporate payments across 20 countries, bringing the payment authorization time down for -- from 48 hours to just 6 minutes. And let me insist that all these customers went live with Temenos as part of the 300-plus go-live project we deliver every year. And many of these successful projects are resulting from strong collaboration between Temenos and partners. It's basically the reason for why the full endorsement of the global partners and ecosystem is so important for us. In the past, we were mostly partnering project by project. But we will be more and more intention -- or we have more and more intention -- intentional in building close relationship with the major players of the industry. Hyperscaler like Microsoft, strategic adviser like Bain, global system integrator like Capgemini, Cognizant and Tech Mahindra. And one of my first decision when I joined was to appoint a global partner leader based in California, and I will continue to invest myself for important time and energy to reinforce and scale this key strategic partnership. I will let you read all the codes. Just maybe let me raise one -- your attention to the Microsoft one. And during the last executive workshop that Barb and I, we have done with Microsoft less than 10 days ago in Redmond, we have taken the strategic decision to invest jointly in -- on our GenAI solution instead of building everything by ourselves. And generally speaking, what I learned working in the U.S. for a U.S. company, it's great to have powerful partners and to invest permanently on this relationship. And -- because at the end, we need to know what we are good at and where we need to scale through partners in multi-dimension, product, go-to-market, technology, operation services. Now let's move in our strategic plan and operational plan. Let me be clear. Our ambition is to grow above the 7% market growth. And we will do that through 3 major growth levers. Let me start with lever A, which is to extend our best of Swiss software leadership across 3 major dimensions: geography to extend in the U.S., Western Europe, banking segment with additional corporate banking functionality and third, customer life cycle to deliver a better and a faster experience to our customers. All this expansion will require additional investment as we expect lever A to be the largest contributor to revenue growth. Moving to lever B. Tier 1 and Tier 2 banks have legacy cores that expose them to operational risk, competitive threat and increased cost. And yet, the systems are complex and risky to replace. And to achieve this progressive modernization, these banks, they need open and modular solution. It's the reason why we will focus our investment on modular architecture in areas like lending and cash management. And lastly, for lever C, we will invest in enhancing our stand-alone adjacent solution outside the core, focus on digital banking, payment and compliance that will help expand our share of wallet. Both lever B is about to progressively replace the legacy core and lever C, which is to surround the core are requiring best of rate solution with specific focus from our side on open APIs. In summary, built upon our solid foundation, I am confident that these 3 growth levers will allow us to outperform the marginal growth. And to ensure this right level of execution and details, we have mapped our revenue growth opportunity to our 3 growth lever. And let me highlight a couple of them. U.S., western Europe, continuing market leadership in Middle East, which are representing in the major bubble in the right quadrant. So let's move now to the execution. And to me, and I think for many of you, the key question is how we will execute this strategy. What do we need to have the right level of execution to drive this growth? And our focus is to leverage 4 key major enablers. Product and technology, go-to-market, client life cycle, operating model, and these 4 business enabler, combined with the transformation of our culture and leadership. So let's start with product and technology. And let me reiterate our strategic intent to focus on measurable investment on key functionality and technology, amplify, as I say, by partnership to allow us to provide best-in-class modular solution to our customers. And Barb Morgan, our new Chief Product and Technology Officer, will come back later on more details. Second, go-to market. it's a clear focus for me to increase investment in our go-to-market, particularly in the U.S., which is our biggest opportunity. And overall, we will double down our sales capacity, sales operation and our strategic partnership. Will Moroney, our Chief Revenue Officer, will expand on that later on. Third, customer life cycle and nothing is more important for me and for our customers than delivering exceptional customer experience. And our plan here is simple, is to make it easier and faster for clients to implement our solution by investing in our modular architecture and relative services. I strongly believe in an hybrid implementation service model, leveraging the best of Temenos professional services and at the same time, scaling through partner competencies. And very quickly, we will define swim lanes between in-house versus external implementation, having in mind the following criteria: quality, time to market, profitability and overall customer satisfaction. Last but not least, we are reviewing our SaaS operation and support to ensure customer can maximize the value they gain from working with Temenos. Operating model. Our fourth and final business enabler is to operate all this investment and transition in a phased and aligned manner. And we are starting to work on 3 major directions. Number one, to move to a leaner and fitter organization, meaning to have the right balance between manager and individual contributor to have a leaner organization but also protect and invest in sales quota carrier, software developers and architects. Second, automation, automation, automation, to streamline our key processes and system. Third, and I will repeat 3x as well, data, data, data, to improve our master data management system and data accuracy to ensure all of us, we are making data-driven decisions across the organization. Let me now deep dive on the U.S. And as I mentioned, the U.S. is clearly a very important market for us and relevant to all the 3 growth levers. Why is that? For 2 major reasons. Number one, the U.S. market is 35% of the total third-party software market, representing more or less $8 billion with a lot of legacy in-house solution, our old system as well, to be either totally or partially replaced or to be surrounded by point solutions. In particular, let me insist on the sweet spot for us, which are the U.S. regional banks. They need to modernize the tech landscape in a very highly competitive market for them. And there is here a strong demand for best of suite software that I am confident we can capture. And how we will do that, how we will structure our growth plan to capture this U.S. market opportunity. To focus our investment in 3 priorities: one, invest on go-to-market, and one of the first decisions I took when I joined is to increase our sales capacity this year to be up and running for 2025, and I'm very optimistic in our execution here. Second, to deliver the right go-to-market -- the right product and technology to all these customers. We have a couple of functionality to fill up here in terms of function -- bank -- corporate banking and certification and compliance; and third, deliver a superior experience, customer experience, starting with making successful our existing U.S. regional banks with dedicated engineering and services expert, will be teamed up with client and partner resources. Increase our investment in the U.S. localization and compliance and invest in some dedicated U.S. product functionality like corporate lending, for instance. And for us, let me insist on the fact that to be successful in the U.S. is absolutely critical. So now let's move to culture and leadership, equally important for our success. I will not repeat what Peter [indiscernible] said that culture is eating strategy for breakfast. That is basically the reason my first decision when I joined was to conduct a cultural assessment with a third-party company to benchmark us against more than 100 of company. And let me share some high-level outcome of this assessment and action plan. In positive, Temenos has developed a strong can-do attitude based on personal commitment from passionate people. But at the same time, there are many areas of improvement to foster a culture of accountability and empowerment across 4 major attributes, like clarity of purpose, transparency, cross-functional collaboration and at the end to act as one Temenos. This cultural change is probably the most difficult thing to achieve as we are coming from a founder culture. And to me, the change can only be driven by the leaders. It's is the reason why I'm linking culture and leadership together, and I've already taken 2 decisions: number one, to create and empower a senior leadership team. SLT of 40 cross-functional leaders to act as game changers for both culture and execution; and second, to reinforce the Executive Committee. I'm very sensitive to embrace the legacy and shape the future. It's the reason why the Executive Committee represents to me a good balance between newcomers and existing leaders and a good gender balance as well. As you can notice, there is no change in the main support function, same CFO, legal, finance, compliance, and at the same time, as we enforce the executive team with some senior leaders, we have extended experience of the U.S. market. Barb Morgan, our new Chief Product and Technology Officer, Isabelle Guis, our new Chief Marketing Officer, who is based in the West Coast in California. And modestly, I'm bringing some U.S. experience as well. Last but not least, we have promoted Will Moroney, Chief Revenue Officer, after a successful track record in Temenos. So let me tell you that the executive is now in place. I'm confident that with the talent and energy of the leadership team, we have really the right ingredient to successfully execute our strategy. Let me wrap up with our road map and new midterm targets. To summarize our strategy and execution plan, we have a strategy driven by 3 growth levers, an execution focus led by 4 business enablers underpinned by culture leadership changes. Now let me share how this strategy is reflecting in numbers, key financial metrics. They are growing to above $1.3 billion, EBIT growing to $500 million and free cash flow growing to $420 million. And I'm confident that we have here a solid and credible plan that we can execute. Takis will provide you more detail on phasing on the CFO presentation. But what I have in mind is to act with a sense of urgencies and start of this initiative as quickly as possible to deliver our first payoff in 2025 and not to have all the results backloaded in 2028. So in 2024 and '25, our goal is to deliver execution excellence to accelerate growth. And let me tell you that in 2024, we have already started the journey by doubling down on sales capacity in the U.S., by reducing our number of manager 1,150 when I joined to 750 today and reducing the [ layer ] of manager from 11 when I joined to 7 today across most functional to have a leaner and empower organization. In 2025, we will continue and complete this efforts initiated in 2024 with a specific focus on impactful initiative for our 2025 financials such as focus on easy win build as part of our product simplification and hence our implementation services, balancing between partners and professional services. Progress further getting to a fit organization in a simple way to get rid of fat and to keep our muscles intact. The remainder of this initiative will allow to extend the boundary of our core and turbocharge our gross lever to be more impactful in the midterm. To conclude, I would like to tell you that I am all in. What you can expect for me, 2 things: focus on execution and transition to run and transform the business at the same time and to act with transparency, accountability and agility. Today, at the Capital Market Day, we started a new chapter of growth for Temenos based on solid foundations that we can build on. Thank you for your attention. And now let me hand over to Barb Morgan to cover product and technology.

Thank you. Good morning, everyone. It's a pleasure to be here with you for Capital Markets Day. I'm Barb Morgan. And if you didn't hear, the new Chief Product and Technology Officer. I've spent these first 5 weeks getting deeply involved with our teams, our clients, our technology and our strategy. But before we go any further, let me share why I'm so excited about Temenos. So when Jean-Pierre called, it really peaked my interest and here's why. At FIS, we tracked our core banking competitors globally. And Temenos consistently stood out for depth and flexibility and enabling banks to adapt and scale in changing markets. Now Temenos wasn't a major player in the U.S. So we knew if they did, they'd be a strong competitor for us. So when Jean-Pierre shared his vision for Temenos' expansion into the U.S. and doubling down in Western Europe, I saw a unique opportunity to help shape and deliver on that mission. I've spent the past 25 years in products and technology. but most of that time in financial services, with roles at Capital One, FIS and most recently, here at LSEG. I've seen how the right technology architecture empowers institutions to meet the expectations of their clients. Temenos has built a strong reputation as a leader in core banking. And I'm excited to apply my experience and expand our leadership position in the U.S. and Western Europe to grow our product and technology capabilities and to deliver the best solutions for our loyal clients. This is a unique moment for Temenos, and I'm honored to be part of the team. Given my experience with the industry, I've been able to assess our products very quickly. While I'll continue a deeper assessment over the following 6 to 8 weeks, it's clear that Temenos' R&D investment has provided a strong foundation to build upon. And as I start to dig in, let me share a few examples of what's given me confidence in the foundation. When I look at things like our ability to help our clients grow. A top bank in LATAM has driven their customer growth by 140% by leveraging our solutions to modernize from front to back. When we think about speed to market, in the Philippines, 1 of our top thrift banks adopted Temenos SaaS, driving 35% growth in their loan portfolios. This is the type of impact-driven mindset we're committed to building on and delivering globally. While we have work to do to fully unlock our potential, this foundation is what gives me confidence that with alignment to our strategy, the right talent and an agile delivery model, we're well positioned to compete and win. Working closely with Takis, we will evolve our investment strategy to build on the foundation and focus our investments on the highest impact areas. Over the past 5 years, Temenos has invested approximately 20% of the revenue annually in R&D. Again, this has created that broad, strong foundation. Now we're refining our focus to align with the growth levers. We will prioritize technology enhancements that maximize the value of our core platform while accelerating growth areas in the areas that matter most. I'm currently also assessing the talent, the ways of working as part of that deeper assessment, and we will look to make changes in 2025. Now you heard Jean-Pierre share our growth levers. But at the heart of it, it's pretty simple. We're going to expand on our best-in-suite core banking platform. We're going to provide flexibility and choices to our clients. And we're going to focus on point solutions that matter most. So if I go a bit deeper, our first lever focuses on expanding our best-of-suite banking software to strengthen our leadership position globally. Banks need comprehensive solutions, both in retail and corporate functions. This lever ensures that our platform remains robust and flexible while meeting the scalability and security needs of our clients. We will build on our strengths in retail banking and continue building out our corporate banking system specific to the U.S. needs. A few weeks ago, I had the opportunity to sit down with 2 of our key U.S. regional banks to discuss how we're thinking about meeting the client needs in the U.S. One client is on-prem. One client is implementing our SaaS, but both clients benefit from the enhancements in our core. We will also expand on our product and technology centers, bringing our product and technology teams closer to our clients. Our second lever is all about flexibility. Banks need solutions they can customize and scale, which makes modularity essential. This lever lets clients implement new capabilities without a full legacy overhaul, because no one wants to do that. We believe this is going to add significant value in markets like the U.S. and Western Europe. By offering modular solutions, we empower clients to add features and services at their own pace. Our architecture is built to support any deployment environment: on-prem, cloud, hybrid, giving clients full control over their tech strategy. We will continue with this, providing flexibility and choice to our clients. Our third lever focuses on expanding solutions that complement our core offering. We'll invest in enhancing our U.S.-specific digital capabilities, broaden our digital offerings in Western Europe and add functionality within other solutions for our existing loyal client base. In partnership with Will and across these levers, we're going to ensure that we're actually listening to our clients. We're continuing to bring our expertise and experience that they've come to trust us for. Now our journey towards cloud native architecture and AI integration cannot be optional. It's essential. Cloud and AI cannot be industry buzzwords. It's becoming increasingly foundational to the Temenos platform. By building on our cloud-native modular architecture, we're ensuring agility and scalability that meets our clients' evolving needs. AI will be woven into this evolution from operational efficiencies to proactive decision-making. Predictive AI and Gen AI are becoming foundational to building smarter SaaS solutions. Prior to this role, I'd focus on improving engineering practices by leveraging AI. As an example, we capture the usage of our digital products to see what was working and what wasn't. And we were able to immediately feed the requirements directly into the backlogs of the engineering team so they can continue to iterate. As Jean-Pierre mentioned, our recent meeting with Microsoft, a relationship and space that I know well from my time here at LSEG. Quickly, I'd ask the teams folks on 3 key areas in H1 of '25. How can AI support our development life cycle, from engineering to deployment, to monitoring and support? How can we leverage pre-trained models and content search on summarization, possibly exposing them through copilots? And third, how do we drive business agility through data insights? Data, data, data. To drive intelligent decision-making and operational efficiency within Temenos and then sharing those learnings with our clients. Overall, focused on delivering higher-quality solutions at speed, with automation accounts and driving better performance in our business decisions. For our clients, these AI advancements translate into real tangible benefits. Previously, some examples of how I've leveraged AI to help clients include reduced operational costs through business process automation, faster implementation through automation and documentation and training and greater flexibility for clients with personalized tools. For example, I've previously provided clients the ability to change loan offers based on enhanced data and suggested solutions, really reducing their time. So as our clients face mounting regulatory demands and pressure to innovate from their own customers, we're giving them a platform that can scale with them, adapt quickly and support growth. Now these 5 weeks, it's been fast, it's been curious, but it has been invaluable. And with a clear strategy to expand to the U.S., double down on Western Europe while continuously enhancing our offerings for our loyal client base, I'm confident we have what it takes to compete and win. As I said in the beginning, we have a good foundation to build upon. But we have work to do for the next chapter. We will bring in new talent to complement and strengthen our existing teams. We will work closely with our hyperscalers on our cloud and AI strategy. And we will leverage our technology ecosystem to deliver faster and more efficiently. At Temenos, we're building a culture where customer centricity and innovation are part of our DNA. With a clear vision and aligned team and focused investments, I'm thrilled to be able to unlock the Temenos full potential. Now I look forward to connecting with many of you on break. And with that, I'll turn it back over to Adam.

Thank you. Well, I think demonstrating Jean-Pierre's commitment to timely execution and agility, we are actually ahead of schedule for the first time ever. So we're going to take a half hour coffee break. If I could ask everyone to be back in the room at quarter to 2 to restart the presentation. Thank you very much. [Break]

Welcome back, everyone, to Temenos' Capital Markets Day. Just as a reminder, you can submit questions for those of you on the webcast via the platform. There will be Q&A at the end. There will, of course, be mics in the room for everyone here in person. So I'm going to hand straight over to Will Moroney, our Chief Revenue Officer, he is going to be talking about our go-to-market strategy.

Thank you, Adam. Good morning, everybody. Thanks for joining us today. As Jean-Pierre shared with us this morning, our strategy centers on 3 powerful levers to drive growth. My name is Will Moroney, and I've been the Chief Revenue Officer at Temenos since July, with responsibility for our global go-to-market. Before this, I was president since January, responsibility for P&L outside of the U.S. I joined Temenos 5 years ago, having previously held sales and leadership positions at a number of banking software and technology companies. Creating a CRO role and organization was one of the first actions that Jean-Pierre took on joining the business, with the idea that one organization will be responsible for the revenue, profit and delivery related to customer as well as customer satisfaction. The creation of this organization has been very well received by our clients, knowing that one team have ownership and are responsible for managing our client relationships across the entire customer life cycle. Today, I'd like to share with you how our team is structured currently and the challenges -- and the changes we are making to drive our growth going forward. Within the 1 GTM organization, we have end-to-end responsibility for our customer life cycle. This means we have complete oversight from the initial lead generation right through to ongoing support for our customers. This is a change from the past, where service was set outside of the GTM organization. So we can work closely with our customers to understand their business needs, get them live and then support them going forward under just 1 organization. We want our customers to get the highest possible value from running Temenos software and to see us as a long-term strategic partner. And as Jean-Pierre said, many of our customers do see us absolutely critical to their business. Our goal is to build long-term relationships where our customers come back, buy more from us, as well as acting as great references. And so we have structured our GTM organization to support this approach. We have a regional organization with sales and support on the ground, close to clients, which is key to understanding the challenges they're facing and how we can help solve those. And we have a hybrid implementation model, working closely with regional partners to deliver implementation services. This is all supported by a global delivery partner and sales organization that acts as a central resource for our regional teams across the customer life cycle. To strengthen these global teams, we've hired a Head of Global Partners based in the U.S. We've also hired a VP of Sales Operations and a Head of Global Delivery based in London, but with extensive experience in the U.S. We have a very strong presence in certain geos, especially the emerging markets. Equally, there is a clear need to invest, in particular, in the U.S. and Western Europe to replicate our success in these markets. Here is an overview of a typical sales process. A normal sales process can take anywhere from 12 to 18 months, which reflects that we are selling complex, mission-critical software to complex and highly regulated clients. We have a very structured approach to our sales with clear responsibilities across the sales organization. And we have great teams in many of our geographies, in particular, emerging markets, where we lead -- our lead identification, deal generation is very, very strong. From a technical perspective, our Business Solutions group, our presales are excellent and demonstrating the strength of our platform and the value we bring to clients, which does show in our win rates. Our win rates in new business are very high, especially in the markets where we have a good GTM footprint. This reflects the strength and breadth of our platform, which is brought alive by this team of sales specialists. So we will strengthen our commercial performance by focusing on 3 priority areas. Firstly, we will invest in GTM. Specifically, we plan to double our individual quarter carrier headcount, with much of this planned for 2025. Our goal is to have the right salespeople building sales capacity in the right geographies to deliver on our 3 growth levers. We have already built hiring pipeline, and we have hired new headcount in the U.S. and Western Europe this year. Barb talked about the focus of our product and technology investments, and we need to ensure that we structure our sales organization to capitalize on this. Secondly, we will increase sales effectiveness by prioritizing which clients and which markets our salespeople focus on, structured around our growth levers. This means a focus on Tier 3 to 5 accounts, where we are already strong in emerging markets, but replicating the success in Western Europe and with U.S. regional banks. We already have dedicated sales teams focused on Tier 1 and 2 clients, and we will expand these given the size of this opportunity. These banks require strategic account management given the global reach of their operations. I also want to make sure our sales teams are fully focused on the right target clients. So we will align incentives with the 3 growth levers. And then finally, on pricing, we are reviewing our approach to product pricing and bundles to make pricing simpler in front of our customers while demonstrating and protecting the value of our products by using our value selling team. So then I want to call out our plan for the U.S. On the growth specifically, which is targeted around our 3 levers. We are very specific on where the market opportunity is for us in the U.S., given our platform and given our investments. The execution of this is centered around 4 main areas: the U.S.-specific product investments on the top, we've already discussed in Barb's presentation. We will be increasing IQC head count threefold in the U.S. to capitalize upon this, which will build sales capacity, ultimately pipeline and revenue. Our partner network in emerging markets has traditionally been very strong and a great asset to Temenos. We need to replicate this in the U.S., which we've already started. This means we can identify opportunities, target with our partners as well as leveraging them for hybrid delivery. We do understand the U.S. is very unique in terms of types of banks and competitors that we face, and this requires a much more localized approach. So we are investing on the ground in SaaS operations, along with our hybrid delivery -- to partner delivery. Finally, to finish off, we work extensively with partners, and they can play a key part in extending our reach even further. We're going to work closely with our partners around go-to-market for best of suite to drive incremental leads coming into the top of our funnel. And whilst there are geographies where we are building more sales capacity, there are also noncore geographies where we can have a partner-led approach to sales. We already have a broad partner ecosystem and many building products and solutions on top of our platforms. We want to expand this, as it gives our clients access to even more innovation, and we can generate revenue off this. So to wrap up, you can see we are taking a very strategic, very structured approach on go-to-market investment and our U.S. expansion. I personally believe we have a great opportunity ahead of us. And with the right investment and focus, we can deliver sustainable growth for Temenos. And with that, I'd like to hand over to Takis.

Thank you, Will. Good morning, everyone. I hope my voice will last. I got buried by analysts during the break. So let's see, I hope it works. Jean-Pierre is getting a call from a client already. As Jean-Pierre shared this morning, our strategy centers on 3 powerful levers to drive Temenos growth -- I think you've got the wrong one there -- It's always good for a tech company -- Okay, now I'm excited to be here, in particular at this new start for Temenos. It's a new chapter, as Jean-Pierre said. I strongly believe we have all the ingredients to make Temenos very successful, building on strong foundations for more profitable growth. Now over the next 20 minutes or so, I plan to translate what Jean-Pierre, Barb and Will said in terms of 2028 strategy into our new financial targets. To do this, I will walk you through the 4 elements here: how our 3 growth levers will underpin our revenue growth, showcase sustainable margin expansion through operational excellence and how we will drive free cash flow growth and outline our priorities to create and return value to shareholders. Now you see on this one, we have made some good progress. Looking back, Temenos has delivered consistent double-digit growth since 2022. We have delivered 30% growth in ARR, and we are now nearly complete with our transition to subscription. We have also delivered 10% non-IFRS EBIT growth annually. And we have delivered -- and particularly proud on this one 2030, 23% free cash flow growth as we move through the trough of free cash flow in 2022. On this slide, I'm showing our new midterm targets that we have conviction -- high conviction to reach. These targets are organic and in constant currency, above $1.3 billion in ARR, $500 million in non-IFRS EBIT and $420 million in free cash flow, all by 2028. I would highlight we have changed our free cash flow definition for our 2028 targets. This is now in line with best practice, with an implied CAGR of 16% from '24 to '28. And I think this is an important element to showcase, we listen to -- the market will listen to our investor community. Our plan now reflects greater subscription and lower sales contribution, therefore, reflecting market trends in the 3 growth levers. We have also moved the target date out by 1 year, and we are very focused as a management team on investing in our culture and on strong execution to deliver our strategy and create value for all shareholders. As Jean-Pierre discussed, we conducted a deep dive on our serviceable addressable market, which we expect to grow 7% annually to 2028. We show that here, broken down by tier and deployment type with Tier 3 to Tier 1 -- sorry, with Tier 3 to Tier 5 banks and on-premise deployment being the largest components of each category. From a tier perspective, Tier 3 to Tier 5 banks, including nonincumbents, will continue to make up around 2/3 of the market, and they are a key driver for our growth. Looking at deployment models, public cloud is the fastest-growing deployment type, which is helping to drive our subscription revenue growth. We see banks, particularly mid- and larger banks, moving more workloads to the cloud, even for mission-critical back office software. However, we still have not seen demand for SaaS from large banks, who prefer to run the software and manage the infrastructure directly themselves. We now expect SaaS spend to grow at 12% CAGR, reflecting the difficult funding environment for fintechs and a lower uptake by banks than previously forecast, driven largely due to regulatory and risk concerns. We offer our clients choice, and that's very important across our deployment models to modernize their tech stacks. And our clients can leverage our extensive R&D product and technology road maps and single platform across all deployment models. Clients can choose between on-premise, hybrid, private or public cloud, where they run the software and manage the infrastructure, or our SaaS offering, where we run it as a service for them. We expect our subscription revenue will be more than 80% of software licensing by year-end, and we are only selling term license in a few exceptional cases where the client cannot move to subscription. And we have a substantial existing cloud business today. Here, we are showing, for the first time, our cloud ARR to emphasize how we have been benefiting from banks, shifting back office workloads to the cloud. This is ARR from all our products that are run on hyperscaler cloud platforms, which includes both our SaaS revenue and then subscription revenue where clients are running on private or public cloud. In 2023, our cloud ARR amounted to 43% of our total ARR. With both public cloud and SaaS spend expected to grow double digit, we expect strong growth in our own cloud ARR to 2028. You are now familiar with the 3 strategic levers that will allow us to outgrow the market and drive Temenos' next chapter. Here, we show the ARR uplift contribution by 2028. It's the same slide, but this time with numbers. Lever A is expected to be the largest contributor with around $225 million to $250 million of incremental ARR, followed by Lever B and then Lever C adjacent point solutions contributing around $100 million to $125 million. Jean-Pierre has already shown this slide, and I'd like to spend a little more time on the methodology and results of this analysis. We have segmented our revenue opportunities in detail with a leading strategy consulting firm. We looked at this in 2 dimensions. On the vertical axis first, the attractiveness of each opportunity as defined by the size of spend and future growth. And then on the horizontal axis, our ability to win, define our competitive position, resources required to capture the opportunity and feedback from customers on the opportunity set. The revenue uplift displayed by the bubbles show what potential incremental revenue we could gain if we made all the necessary investments in go-to-market and in our product. There are a number of key opportunities Jean-Pierre already highlighted, in particular, the 150 low-end Tier 2 and Tier 3 regional U.S. banks, Tier 3 to 5 banks in Western Europe and retail core banking for Tier 1 and Tier 2 banks, also in Western Europe. This is just to name a few examples of more than 20 opportunities. And as you can see, we have taken a very granular approach to understanding our revenue opportunities and structuring our growth levers around this. And Lever A, in particular, shows the strong foundations we already have in place today, which gives us the confidence in our ability to execute. Now I would like to take a look at the building blocks to deliver our 2028 targets. Here, you can see the defined contribution from each of 3 growth levers to our ARR. We expect Lever A, our best-of-suit approach to contribute around half of our ARR growth. Lever B, where we enhance banking modularity for Tier 1 and Tier 2 banks, is expected to contribute around 30% of ARR growth. And our investment in the adjacent point solution Lever C will contribute to balancing 20% of ARR growth. Moving on from strategic levers. Here, we show our targeted ARR growth by revenue model. Subscription drives the majority of incremental ARR, and therefore, most of the ARR growth. As you can see, our subscription ARR grows to more than 40% of the mix by 2028, while maintenance linked to term license declines to less than 30% of ARR as these contracts are converted to subscription at the time of renewal. Overall, this mix shift captures a successful transition to subscription with lower sales contribution than we previously expected. This one is an interesting slide, as it shows the subscription model transition we began in January '22, and we have made considerable progress to date. The output of this is that our ARR and product revenues gradually converge from the current 90% to being equal by 2027. It is important to note that ARR will be above 100% of product revenue by 2028. As ARR is a forward-looking number of the annual recurring revenue over the next 12 months, it also includes new signings that are not yet recognized in the P&L. On this slide, we have a P&L view of our revenue growth by revenue line. The expected growth in product revenue to 2028 is $320 million to $360 million. The delta versus ARR arises due to the fact that ARR is a forward-looking metric. So our 2028 ARR will give the expected annual recurring revenue in 2029. Subscription license will contribute around 40% of the revenue growth, with SaaS a bit more than 30% of the growth. Maintenance revenue growth will also contribute around 30% of the uplift, with the contribution to maintenance from subscription more than offsetting the headwind to maintenance from less term license. Next, we show our revolving cost base along more familiar reporting lines, showing the benefits of the operating leverage in the business model. On top of the annual run rate cost growth from inflation, wages and variable costs, we have also factored in additional investments to support our operational plan. We are investing an incremental $30 million to $40 million across all lines in 2025, in particular, R&D and sales and marketing, with the scaling then in subsequent years. This will be partially offset by $20 million to $25 million of cost efficiencies that we will benefit from in 2025. And overall, we expect our cost base to be roughly $200 million higher by 2028. Diving a bit deeper into EBIT, we expect EBIT to grow to about $500 million by 2028. Of that, the contribution from growth in product revenues will be followed by a set of investments and cost efficiencies that bridge to our 2028 target. On this slide, we show those investments by business enabler. You will remember from Jean-Pierre's presentation, which underpin our execution of transformation. To provide color on our targeted investment or uplift from each of those enablers, on product, we see incremental cumulative investment of $50 million to $65 million for go-to-market incremental cumulative investment of $40 million to $ 55 million. And on G&A, we see $20 million to $25 million. And with our cost efficiencies program, we will benefit from around $35 million of annualized cost efficiencies by 2028. This is the full expected run rate by 2028, and the cost efficiencies will build to this level. As I mentioned, we will already expect -- we have already a benefit of -- we already expect to benefit from around $20 million to $25 million in cost efficiencies in 2025. As we have already shown in Q3 '24, we have also very good visibility on our cost efficiency program to be delivered this year and beyond. We have a high level of confidence that these investments are more than sufficient to support our 3 growth levers. Let me move from EBIT to free cash flow. As you can see here, we will reach 85% free cash flow conversion by 2028. As the business model transitions from term maintenance to subscription and SaaS, this will also improve customer retention and the cash flow predictability. This means that by 2028, our EBIT to free cash flow conversion should be amongst the best-in-class. We have changed the free cash flow definition. But before we look at the free cash flow bridge, I'd like to spend a minute on this new definition. We are not changing our definition for the 2024 guidance, which includes leases and interest expenses. There is roughly a $40 million impact from leases and interest expenses in 2024. So the 2024 starting point for our 2028 free cash flow target is around $230 million, assuming at least 12% growth in free cash flow in 2024 as per our current guidance. We will use the new free cash flow definition going forward for both our 2025 annual guidance as well as the 2028 target. Let us now look at our free cash flow bridge to 2028. We expect our free cash flow to grow to $420 million by 2028, benefiting from growth in product revenue. However, we will have significantly lower benefit from deferred revenue than our previous midterm target given the lower sales growth now expected in our forecast. Other than the offset from growth in OpEx I have already discussed, free cash flow will also have a small benefit from lower financing costs as we target a lower leverage going forward, which will reduce our interest expense. There will also be a small benefit from lower lease expenses as we rationalize our real estate portfolio as part of our cost efficiencies program. And there will be a small headwind from increased CapEx as the business grows. Looking at EPS, we expect EPS to also grow double digit or around 10%, in line with EBIT to reach around $5 per share by 2028. We expect our tax rate going forward to reduce slightly to around 19% to 21%, down from 20% to 22% previously as we reach our optimal organizational structure. This will be offset by share count dilution linked to variable compensation. Turning now to capital allocation. We remain committed to a sustainable leverage position going forward. Having reviewed our growth and funding plans and given our strong projected free cash flow with improved predictability, we have decided to reduce our leverage target range to 1x to 1.5x going forward, down from 1.5x to 2x previously. This will drive the benefit on free cash flow of lower interest expense that I mentioned earlier. We remain committed to our investment-grade credit rating of BBB, and our lower leverage target will, of course, support this as well. We have included in the appendix a slide which shows how our financing costs will decrease with lower leverage and the expected incremental impact on our EPS growth. As for our growth approach to capital allocation, firstly, our main priority is organic investment. We are committed to investing for higher returns organically in particular, in R&D and sales and marketing, as I outlined previously, with our investment scaling up over the coming years. We will pursue selective bolt-on opportunities to support our strategic growth Lever C of investing in the adjacent point solutions. But I want to be very clear here. We have learned from our past experience of acquiring and integrating other companies, and we are committed to being highly selective and ensure we are integrating any acquisition successfully, minimizing in particular, attrition in key employees. When appropriate, share buybacks will be used to ensure capital efficiency of our balance sheet and to return shareholder value. Lastly, we will continue to pay a regular and progressive dividend, reflecting the stability and recurring nature of our business model. And so to conclude, we have set achievable 2028 targets, substantiated by a clear strategic road map to deliver them. I'm very confident that we will succeed with our growth underpinned by clear strategic levers, operating leverage and organic growth-oriented capital allocation. We are very excited and focused as a management team on execution to deliver a strategic plan to 2028 and create value for all our stakeholders. With that, I will pass back to Adam for the Q&A. Thank you.

Great. Thanks very much. Just give a second for the executive turn from stage, and then we'll dive into Q&A. [Operator Instructions]. Before we dive into questions in the room quickly, I think I'll just pose one to each exact just to warm them up. So Jean-Pierre, starting with you, actually one from the platform. You mentioned already seeing some benefits from the new strategy in 2025, given sales cycles of 12 to 18 months, what are these benefits you expect next year?

So as I mentioned, we have selective investments that we are starting 2024. In terms of investment on go-to-market in the U.S., we'll mention that as well. Our sweet spot is more or less 150 banks, lower Tier 2 and Tier 3. We need 10 additional reps to cover this 150. We already hired 5. And I'm confident that we will have 5 by the end of the year. Time for them, I mean, to onboard and to have sales enablement and to build pipeline. I'm expecting a first return at the second part of 2025 in not big banks. But all these U.S. banks, they are land and expand. So we need to have a beachhead and beachhead with what we are good at. And in a way, it's important to figure out here that in terms of average deal side, a new logo in the U.S. is 5x to 10x more important than a new logo in emerging, 5x to 10x. Doesn't mean that we will recollect emerging. We will continue to do business in emerging as we mentioned. But in a way, success look like in the U.S. for, I mean, a granular number of accounts that we will need to take. And this investment is here. I mean, just to have a couple of quick wins in the U.S. Quick wins as well, and I hand over to Barb as well about new products that are either already on the track, and they will be available very quickly as well. And as Takis mentioned, we have started our cost efficiency program as well. So maybe hand over to you for the product and Takis for the cost?

Yes, absolutely. So I had mentioned, we've made a lot of progress in the retail space. We're going to continue to build out our corporate space in the U.S. in the digital capabilities, same thing. And it goes back to that grounding of that really strong foundation that we'll be able to achieve those quick wins because we can incrementally grow on top of. And so when I say strong foundation, both architecturally and feature and functionality. And so those are 3 examples of areas where I think we can absolutely achieve quick ones.

Yes. Coming back to the previous slide, we said we're going to invest CHF 30 million to CHF 40 million across the operations with the main focus being on sales and marketing and the product organization. Now let's be very clear here. We're talking here about people. This is, to a large extent, hiring people, which obviously happens in a phased approach. We have already started so this is an important one to keep in mind. We're going full stream, sales and marketing we have already started Barb, I think once she has finished her assessment will start as well, early January, probably. And then on G&A, these are smaller things we need to do. Now the cost efficiencies which we said, okay, it's going to be around CHF 20 million to CHF 25 million impacting 2025. You've already seen some positive impact in 2024. In Q3, that will continue Q4. The good thing about cost efficiencies is you get the positive impact immediately. While on the investments, this will happen on a phased approach. But we think the investments planned for next year and beyond is clearly more than sufficient to deliver the strategy across those 3 growth levers.

Great. Barb, I think you're probably the -- always the newest person in the company. What surprised you positively and negatively that you found in your first 5 weeks here?

Yes. Jean here had talked about the people, and I had a question earlier, like our India team is very strong and will continue to be part of our strategy. So when I talked about expanding our people and the dollars that we're going to invest, we'll target key areas to be closer to clients, but we'll continue to grow our teams and invest there. But a lot of passion, a lot of pride in the products and a lot of longevity in our people, and that's very important, right? What surprised me negatively, I don't know if I would say negatively, I would say, I think it was based off of how we diversified the investments, a real opportunity to drive a lot more automation, both in our products for our customers, but also how we actually deliver to our customers and then even within our engineering space. So I touched on in the AI section driving automation through how we engineer our products, I think that's a real opportunity that I've seen.

Great. Thanks, Barb. Well, one for you to talk quite a bit about partners about evolving the partner ecosystem. So could you just talk a little bit about where the ecosystem stands today and where you'd like to see it 1, 2 years' time in terms of evolving that?

Yes. So we're very fortunate that we have a very strong partner ecosystem right now, but we just need to fill it out. So if we look at some of the Tier 1 partners, the delivery Tier 1 partners, we have extremely strong relationships with them, and they have huge Temenos practices based in Europe and they use these practices across Europe and our emerging markets. We've been working very hard over the last couple of weeks to bring to bear building those relationships in the U.S. And actually, getting these Tier 1 partners in the U.S. to understand the huge assets that lie in the practices based in Europe. And we have to do that internally within the partner sometimes. So it really is to keep building upon what we have from a go-to-market perspective to push some of the great things we do with partners in other geographies into now the growth geographies that we're looking at and then to do the same thing in the delivery side of what we do as well. Our hybrid delivery model, you'll hear a lot more about as we move forward. We've used that a lot in the last couple of periods, and it's proving very successful. So it really is building upon the foundation that we have and enhancing that into the key geos and the key accounts that we want to go into.

Maybe let me add what we'll say that partnership is a mindset. And in a way, we need to consider what we are good at, what do we need to partner. Of course, on services, of course, on go-to-market, but as well on product as well on services and SaaS operation. And to know each time just in regards of quality, time to market, skill set, cost, customer set, what we need to do ourselves and where we need to scale through partners.

Great. And then one more for Takis we've up to the room. Could you talk a little bit in terms of the change in the free cash flow target for FY '28? The deferred revenue dynamics. So if you can quantify that a little bit maybe and also talk about the working capital dynamics in the free cash flow target as well?

Yes. So if we look at the previous target, which was CHF 700 million, and this is now CHF 420 million. There are basically 3 elements. First of all, on a like-for-like basis, the previous target included or excluded the impact from leases and interest expenses. So that alone is a CHF 30 million delta versus the new definition and then the biggest actually element, which made us adjust the number was clearly the much lower SaaS revenue growth. The previous plan and the previous plan based on the market growth was 30%, 35% CAGR. As we have shown today, the SaaS market is more likely to grow around 12%. And we -- I think we've for ourselves, we forecast broadly more or less SaaS growth in line with the market, maybe a bit more a bit less, but this is the biggest driver, almost CHF 180 million, CHF 190 million of the delta is driven by just a different SaaS evolution. And the remaining then delta is the profit which we have slightly lowered to reflect the investments we've been talking about. In terms of all the working capital dynamics, there is nothing specific to mention.

Great. Thanks, Takis. I'd now like to open up to the floor. I'd ask when you ask a question, if you just introduce yourself and also for the research analysts in particular, limit yourself maybe just 1 or 2 questions so we can get around everyone. So yes, I think Fred has already got the mic.

Fred at Bank of America, 2 questions, please. One maybe on the product side, I think interesting presentation from Barb. I mean if you can help us a bit understand the product map versus some of your large U.S. competitors, especially coming from FIS. I mean what's missing? How big is the gap in terms of capability and you identified a few of those in your presentation, so that's helpful. But can you help us quantify how large we are, how far we are from having a product which is a competitive. And then a question for JP, if you look at execution in the last couple of years, there's been an issue on the predictability of the model. Anything here that you can share around what you've done to better qualify leads, funnel conversion, et cetera, to help us better understand and predict the business would be great.

Fair. Thanks, Fred. So as I had mentioned, we've built out a lot of the retail in the U.S., and we're continuing to build out our corporate. We are doing that also in conjunction with a client. And you'll start to see more of that, whether it's building out AI capabilities within our product set, but finding those key clients to be kind of champions as we're building out. And in the U.S., I think we do have an opportunity to build out our compliance and regulatory specific to the geo. Time-wise, we already have some clients in the U.S., and so we'll continue building on that. We're going to be very focused in '25. Will we finish all compliance across all in '25 now, right? We'll continue to build that out across our modules. But expecting that absolutely, as Will's team goes to market and we look to really go live with clients in '25 and in '26 we'll be ready.

Yes. Let me maybe complete that by the fact that, as I mentioned earlier, we have most probably the best breadth of functionalities, close to more than 1,000 modules, reflecting the business logic of a bank, which is reflecting the 2 decades of investment, continuous investment as well. So the marginal complement that we need to have for a couple of corporate branding is not a lot in a way in terms of effort and in terms of completion. And as Barb mentioned, is a couple of very good customers that are doing that with us in a kind of co-development as well. The second piece of that is the architecture. We talk about modular solution as well. So part of this assessment that we have done and maybe -- let me double click on that. We have made a very deep dive analysis for the best tech, to my view, I mean engineers working for a consulting firm, and they are doing that for private equity due diligence, et cetera, just to know where we are compared to the best-in-class, in terms of cloud attribute, scalability, extensibility, security, et cetera. And as well, I ask for this team as well to make a benchmark against couple of new vendors that established their brand at least, not so much the success in client and based on that. And the good news is we have a strong foundation to build on. And even if we have some work to do ahead of that as well. So when we talk about our product and technology investment is twofold. A couple of things that Barb mentioned about functionality and compliance regulation. But at the same time as well to continue to invest on our architecture to have modular solution. Why modular solutions are important not only for new customers, but as well for existing customers to upgrade as well vertical by vertical. If you like to have a get loan and deposit, you now need to upgrade all the platform at the same time. So that makes the customer experience much easier as well for our customers. So just to complete the answer about the first part of your question. So the second part, in terms of predictability. First of all, as I mentioned, 80% of our business is predictable. And Takis, we can predict more or less at 1% what could be our lending point on maintenance, SaaS and services, 80%. It was 60% 5 years ago. Of course, we have the remaining 20% and the remaining 20% is a couple of million dollars that could be volatile from one quarter to another one. That makes the branding and the perception sometimes a little bit difficult onward as we experienced in Q3. So in terms of numbers, it's not a lot but we need to be more predictable on this one is the reason why we have reinforced our sales operation, a couple of new people, I mean, coming to, in a way, implement the hygiene in terms of forecast, pipeline, largely review conversion rate. But our -- I think our main issue in the past was a lack of pipeline so our effort, and we'll maybe -- can build on that, which is basically to add additional pipeline. Sales capacity will help because the more sales we have, the more pipeline you should build but as well to have more qualified pipeline and maybe Will, if you can complete on that as well.

So I think from a sales process perspective, we've done quite a lot of work on that over the last few months especially with the new people that have come in that John Pierre referenced, that's something probably that Temenos did need to look at earlier, but we're on it now. And that goes to understanding conversion ratios, doing more in-depth analysis of deals, bringing in a more comprehensive sales methodology that we drive the sales team through. So all that is in flight right now. And we have seen already some benefits to that, and we will continue to see benefits to that. But as Jean-Pierre rightly pointed out, in sales, and I've been in sales in this industry for quite a long time. And the one thing that's going to be bring predictability is pipeline because the more pipeline you have, then the more risks you can cover. The sales cycles, as you've seen are long and they're lumpy. So when a bank is making a decision to change a core banking system for them, a 6-month delay is not a big delay because they're making a decision for possibly a vendor that's going to be with them for 20 years. But obviously, that does cause those challenges internally. So I think with the work that we're doing and we'll continue to do on the sales operations side of things and adding the additional sales headcount to drive pipeline. This we will work very hard, and we will succeed in addressing.

Great. Charlie, did you have a question?

It's Charlie Brennan from Jefferies, 2 questions from me. Firstly, just a high-level one. It feels like you've down ticked your view of market growth from 10% previously to 7% today. It doesn't feel like you've down ticked your ARR growth expectations by 3 percentage points. Implicitly, your magnitude of market outperformance is higher under this plan than it was previously. Just given the execution that we've seen over the last couple of years, why should we assume that, that's a conservative ambition? And then secondly, just in terms of the margin trajectory, I think you showed a slide showing the cost as a percentage of revenues. It looks like you're assuming margin expansion in 2025 just for simple people like me, can you run us through a bridge of the incremental investments, the cost saves, underlying cost inflation. Can you just build us the building blocks to margin expansion next year?

Things on margin? Okay. So on the market growth, in a way, as you have seen as well, we have conducted a very deep dive analysis, growth opportunity by growth opportunity, more or less, as you have seen on the Slide 20 growth opportunity that we have reviewed one by one and to focus on 2 or 3 of them because, in a way, as I told you, we'd like to focus, we cannot focus on 20 growth opportunities. So we focus on 3 out of the 20, and we strongly believe that this 7% is well balanced between the natural increases, new needs for current customers which are buying third-party software as a shift as well, even if it's slower than before to SaaS and cloud, which is a better value in every deal size as well. And you have seen the shift from build to buy. This estimate is between [ $40 billion to $45 billion ] spent today by the banks in our solution, mostly to keep the light on in terms of maintaining as well. Shifting $3 billion out of [ $40 billion, $45 billion ] in 4 years seems to your words a little bit conservative. But at the same time, based on the current experience, it represented less than 8%, which is 2% per year. But this system are complex, this system of embracing the security compliance of the banks and some Tier 1, Tier 2 banks mostly, they are up to 40 core bankings, 40. [indiscernible] of different core banking as well. And sometimes they ask for the retiree developer to come back onboard just to maintain that. But at the same time, the velocity of change -- and it's a kind of paradox of this industry because technology is fueling growth and performance of the bank. At the same time, there are frozen ways basically this legacy in-house. So could this $3 billion could be a little bit upper potentially is an upside, but we do prefer to have a realistic and credible plan based on this assumption, which is $4 billion of, in a way, natural organic growth of the market of third-party software and $3 billion coming from the shift for build to buy. So it's basically where, I mean, our assumption has been based. And again, our ambition is to grow above this market share. So for the margin, I will hand over to...

Maybe to clarify, it's not -- it's not absolutely correct because we pushed out the $1.3 billion by 1 year. So actually, if you were to do a like-for-like growth for ARR, it is come down on the same time period. So it is reflecting what Jean-Pierre just said. Also, we talk here about product revenue growth, which if you do the numbers, it's -- let's add 1%, 1.5%, 2% to the market growth. So you get to 8-plus% product revenue growth. Now on your question about 2025, we'll give precise guidance on 2025 across all KPIs as usual in February. We wanted to share today already what we see in terms of investments. Clearly, that's tangible. It has already started with product and sales and marketing being the largest one and offset to a large extent by cost savings. From today's perspective, I think you shouldn't not read too much into the chart. From today's perspective, clearly, there is an ambition to have a very or a good growth in EBIT next year, where the margin will expand slightly, be flat or slightly down. I think this is too early to say, clearly, we don't expect anything material in terms of phasing away from linearity over this multiyear plan. You can always have 1 year a bit growing or growing a bit less or being a bit more and this is why we've provided an absolute target, but there is no magic on 2025. Yes, the investments are front loaded. As you would expect, we need to do certain things to benefit and to deliver the plan. But clearly, margin, I think if you -- from today's perspective, if you model a flat margin, it's probably not completely wrong.

Toby, I think you add on?

It's Toby Ogg from JPMorgan. Just on the -- just on -- couple of questions. Just on the revenue growth outlook. Takis you talked about 8% on the product growth, just 8% plus on the product growth. So assuming you're running at sort of high single-digit growth on the maintenance, low double digit on the SaaS, this then implies that the non-SaaS TSL in aggregate is probably running kind of mid-single-digit plus. Is that the sort of right way to be thinking about the kind of different revenue lines? And what then gives you the confidence on that non-SaaS TSL re-acceleration given the pressure that, that revenue line has seen? And then just secondly, just on the SaaS expectations just over the midterm you talked about the potential for double-digit growth there in that revenue line. So could you help us with the building blocks of that growth? I appreciate there's the 12% market growth rate there. But anything you can sort of say bottom up that can help give us confidence in that double-digit growth?

Okay. On '25, again and maybe the mix between what will be driven by software licensing and what's out, let's not go into the detail today. We said SaaS market is going to grow 12%, probably so will be, let's assume for simplicity, this will be around that level and then the delta coming from basically software licensing. Now inside software licensing, it's important to understand, the term license business. So the very small part, which continues to decline, we'll have less and less of an impact. So obviously, that's boosting ARR. The public cloud part, which we explicitly mentioned at a very good growth rate, clearly is going to be the main driver going forward, yes. So for -- call it, the software licensing part, which is the one driving ultimately, ARR I think, yes, it's the offset of ARR mid- to high single digit is probably appropriate, maybe even a bit more. And the thing we want to deliver a data point that this is the right rate when we delivered Q4. On the other metrics, maintenance, clearly, we benefited or we are benefiting this year from an easy base, yes. So mid to high, I think it's probably appropriate. Services will also grow again. I think we shifted a lot to partners. That's still the default strategy, but some clients are requesting us to do the implementation. And I think that's important, especially when we're launching new products. So services should grow again. And that ultimately will get you to a growth rate for the group, which is similar to the overall number like 7% plus year.

Just to add to Takis introduced today a new metric which is cloud AR, which is important because it's the aggregate between the SaaS that you know and the cloud-native architecture deployed by customers. And this one, from an accounting standpoint is part of a software licensing. So in a way -- in the past, we have subscription and term. But more and more, we see a shift mostly for Tier 1 and Tier 2 bank, as I mentioned, to manage himself the software that we deliver through the cloud operation because they have invested in security compliance. A couple of them, as you may know as well, I invested upfront commitment to the main [indiscernible] So they need as well to decrement the upfront from a financial standpoint as well. So what we observe is the shift -- a small shift, but an existing shift mostly for the IoT from SaaS to cloud native. Didn't change at all our perspective on product because we need to establish a cloud attribute, a cloud able architecture, which is beneficial for both deployment. But in terms of numbers, that will indicate a light uptick on the cloud native versus SaaS, even if both of them are growing as you observe.

Josh?

Josh Levin from Autonomous Research, 2 questions. Jean-Pierre, you've talked a lot about changing culture. Maybe you could talk a little bit about or give us some examples how you're changing incentives of your employees in order to align the outcomes of the culture you want? And then the second question, just a clarification, Takis. Just you haven't given 2025 guidance yet, but just to be clear, your message is broadly, we can think of scaling linearly from '24 to '28, broadly speaking, linear scaling. Is that the way to think about it?

Okay. So I will take the first one, thank you for your question to me. It's most probably the most important and the most difficult change to execute. The first thing I did when I joined early May is to appoint a third-party consultant. They have a very good benchmark and as they benchmark more than 300 companies in terms of culture. And just to compare and we did that with the top 100 leaders of the company, where we are in the regard of 6 cultural indicators versus the rest of the industry to have something very objective as well and not to say we will change our culture, okay, I can firm that and nothing happened. First of all, to have a wake-up call for the 100, I mean, top leaders of the company to know where we are good at, and we have a couple of good cultural indicators. As I say good [ cultural ] attitude. Temenos was pretty active in crisis management when we can mobilize, I mean, people, very reactive and personal commitment of each individual. But as a team, another team of teams not working very well for different reasons, quite silo based. Number one, products blaming sales, sales blaming products, et cetera, et cetera and fund our culture in terms of decision-making as well. And I do believe that the role of the leaders is to release their own energy, their own initiative as well to have the framework for decision and not the fear to fail. So it's a couple of things that in a way we have identified. And the first decision was to shrink the Executive Committee to 6 people that you have -- to 8 people that we have seen on screen, it was 12 before, and as well to shrink the senior leadership team or to build a senior leadership team, it's a cross-functional team of 40 leaders, not 100, reporting mostly to the Executive Committee cross-functional and working together as a team. We have the first workshop that took place 4 weeks ago in Amsterdam to have people working. This leader working on culture on day 1 and strategy, the strategy you have seen here was basically share and updated as well with the comment of this leader and in a way, it will be an organ of management and leadership are super important between, it was a 3-layer organ executive committee, 8 people. SLT 40 people. And as I mentioned, we reduced the manager for 1,150 to 750 today manager and to have the right interaction between the different levers of management and leadership and to align everyone to the strategic plan. So it will be not a 1-day change, I agree. But we try to fulfill as well as this culture of accountability and empowerment. And sometimes, it's it will be rude just in a way for people, they are not feeling accountable but is the best way as well to have people fully accountable empowerment to drive this growth. The second part is with Takis.

I appreciate you are all starting to that 2025 guidance in November, but we have an important Q4 ahead. There are basically 2 elements which we need to consider for 2025. One is, as we've seen this year, probably the base will be a bit easier just from a numbers perspective on subscription license given the issues we had throughout the year. And on the other hand, clearly, there has been so far also negative impact on our South ACV, which then drives SaaS growth going forward. Now one is a positive, one is a negative. So let's see how we end up after Q4, what we can guide for '25. We want to go back to what we did in '23, come out with something credible. We're convinced to achieve and deliver and then at least achieve and maybe over deliver. But broadly, linearity plus/minus around the market growth is probably not far off at this stage. On margin, clearly, there will be margin expansion, acceleration and EBIT growth acceleration after '25 given that we have front loaded the investments. But again, not a massive delta given we have a 10% EBIT CAGR for the years to '28, yes, maybe it's a bit on the lower end or below that in '25 and a bit more the years after.

Thanks, Takis. So look, we like to deliver on time for our clients as well, so we have to wrap up there. For other people who got questions in the room, there will be time to ask the execs at lunch afterwards. Thank you very much, everyone, for joining us, taking the time, and we look forward to seeing many of you on the road in the next couple of weeks. Thanks, guys.