Temenos: Major Accounting Irregularities, Failed Products And An Illusive Turnaround
Published on February 15, 2024
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Temenos (SWX:TEMN) is a ~$7.5B market cap Swiss-listed banking software developer and services company that serves 3,000 customers globally and reported $1 billion in preliminary 2023 revenue.
Our 4-month investigation into Temenos, involving interviews with 25 former employees, including senior leaders at the company, uncovered hallmarks of manipulated earnings and major accounting irregularities. This includes evidence of roundtripped revenue, sham partnerships, rampant pulling forward of contract renewals, backdated contracts, excessive capitalization of seemingly non-existent R&D investments, and other classic accounting red flags.
These aggressive accounting practices seemed to be an open secret among many of the former employees we spoke with. Several indicated that CEO Andreas Andreades encourages the practices, which help gloss over significant customer product dissatisfaction and attrition.
In October 2021, Temenos announced a strategic partnership with fintech Mbanq to “accelerate banking-as-a-service adoption across the US,” its key strategic market. According to a former Temenos executive, the deal involved Mbanq purchasing $20 million in software and services from Temenos.
Litigation records, financial statements, and former Temenos executives evidence that Temenos secretly funded the purchase of its own software- effectively engaging in a roundtripping scheme by making an undisclosed ~$20 million investment into Mbanq around the same time as the software purchase.
A former Temenos executive told us, “The convertible note was signed the same day, the same hour as the deal was signed for Mbanq … because they [Mbanq] couldn’t have signed it if they didn’t have the money.” They added, “If that was in the US and that was with the SEC, everyone would be out.”
In February 2021, Temenos announced a partnership with US-based banking software company DXC Technology, which a former DXC executive told us entailed DXC buying approximately $8-10 million in software licenses from Temenos.
While Temenos repeatedly assured shareholders that the DXC partnership was “game-changing” and would “accelerate our penetration” with large banks in North America, a former DXC executive told us the deal was “rushed through” on the last day of the year to “help Temenos make their yearly number”. They said of the deal: “This isn’t a partnership. You used us for a license sale.”
According to the executive, the deal was subsequently terminated due to inaction on Temenos’ part, leading to an eventual ~$8 million write-off for DXC, saying “they [Temenos] left us at the altar … we gave them a bunch of money and then they literally walked away.”
A former Temenos executive confirmed that the partnership failed, saying, “[DXC] had to write that off [their] books…” and told us the deal was “typical Temenos” and all about “selling and quick hits.”
Throughout our research, 4 different former Temenos employees corroborated the practice of pulling forward license renewals, often at discounts, to boost short-term earnings while cannibalizing future renewal revenue. One former executive told us, “If there’s a renewal that they can pull forward, they’re going to go and be very aggressive about doing that, and that’s what happened.”
Another executive described the effect of aggressive pull forwards by citing Temenos’ record-breaking revenue in 2019, saying, “When outside investors were looking at this, they thought ah, the licensing is growing and we’re getting new customers. The reality is the new customer sales were coming down…”