Temenos AG

SIX:TEMN

Earnings Call Analysis

Temenos Q2 2024 Performance and Strategic Adjustments

Temenos reported a 5% increase in total revenue for Q2 2024 and a 7% growth in EBIT. Despite earlier sales delays, ARR grew by 12%, and free cash flow rose 16%. The company initiated a CHF 200 million share buyback, acquiring $110 million worth of shares, and decreased its net debt to $563 million. Temenos revised its 2024 guidance, now expecting 13% ARR growth and 3-6% total software licensing growth, rather than the previously predicted 7-10%. EBIT is still forecasted to grow by 7-9%, while EPS is projected to increase by 6-8%. CEO Jean-Pierre Brulard emphasized the need for strategic investments in product and technology, particularly in the U.S. and Western European markets.

Strong Performance amidst Challenges

The recent earnings call provided a comprehensive update on the company's performance for Q2 2024. Despite challenges earlier in the year, including delays in the sales process due to an independent report, the company has managed to demonstrate resilience. The Annual Recurring Revenue (ARR) grew by 12% to reach $742 million, reflecting a return to normal growth patterns after the Q1 dip. Free cash flow also showed robust growth, increasing by 16% in the quarter, a clear sign of the company's strong cash generation capabilities. .

Subscription and SaaS Growth

The subscription business posted a 10% growth despite earlier delays, while SaaS revenue grew by 8%. However, SaaS revenue saw a slight sequential decline due to elevated downsell and churn in the first quarter, which have now normalized. The company signed $9.4 million of SaaS Annual Contract Value (ACV) in Q2, nearly doubling that of Q1. This momentum is expected to drive SaaS revenue growth sequentially in Q3, Q4, and into 2025. Maintenance revenue also rose, growing by 11% year-on-year, led by strong sales of standard and premium maintenance. .

Guidance Revision

Given the performance in the first half, the company revised its full-year guidance. They now expect ARR to grow around 13% down from the previously guided 15%, and total software licensing to grow between 3% and 6%, adjusted from the earlier estimate of 7% to 10%. However, EBIT is still anticipated to grow by 7% to 9%, providing ample headroom for incremental investments in go-to-market strategies. EPS is forecasted to increase by 6% to 8%, with free cash flow expected to grow by at least 16%, maintaining the earlier guidance.【4:0†source】 .

Capital Allocation and Share Buyback

The company launched a CHF 200 million share buyback program in June and has already bought back shares worth $110 million. At the end of the quarter, the net debt stood at $563 million with leverage at 1.4x, slightly below the target range of 1.5x to 2x. The company expects leverage to be towards the lower end of the target range by year-end, assuming no further M&A activities. This indicates a strong focus on shareholder returns and conservative financial management. .

Strategic Initiatives and Leadership

The new CEO, Jean-Pierre Brulard, emphasized the importance of customer-centricity and innovation. He reported healthy customer engagement and low attrition rates, reinforcing the company's strong relationship with its clients. The CEO's strategic focus includes enhancing go-to-market functions, specifically in the U.S. and Western Europe, areas previously underinvested. There are plans to strengthen the sales force in these regions to accelerate growth and improve market penetration. .

Outlook and Future Investments

Looking ahead, the company aims to continue its investment in product innovation and technology to stay competitive. This includes a focus on SaaS and cloud services to meet market demand. The CEO highlighted that the strategic plan and new financial guidance would be detailed further in the upcoming Capital Markets Day in November. This plan is expected to align with the company's long-term growth objectives while balancing short-term performance requirements. .

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, welcome to the Temenos Q2, 2024 Results Conference Call and Live Webcast. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Jean-Pierre Brulard, CEO. Please go ahead.

[Jean-Pierre Brulard, executive]

Thank you, operator, and good evening, good afternoon, and thank you all for joining us for our Q2, 2024 results. My first call as a CEO of Temenos, and let me tell you that it's both an honor and privilege to be with you today. So starting with the highlights of the quarter. We have seen a good incremental improvement versus Q1, across most of our KPI. And even more importantly, our customers reaffirm the confidence in Temenos with all the delayed deals from Q1 to Q2, 100% and as well as strong attendance as the Temenos Community Forum early May.

In this context, looking at our 2 most important KPIs, our ARR grew a healthy 12%. And free cash flow grew 16% in the quarter which clearly shows the resilience of the business that we have as we move to a recurring revenue model. This quarter also, we announced the launch of Temenos SaaS Foundation our Next Gen SaaS platform for banking, which we will detail later on. However, we didn't catch up the 2 months last in the most sales campaign due to the short seller report earlier this year with that clearly impacted the quarter. So given this H1 performance, we have issued revised guidance for the year. And importantly, as well, this guidance assumes a return to growth, while derisking the second half of the year.

So having said that, I would like to take a minute to briefly introduce myself as well. I joined Temenos at the start of May and have relocated myself to Zurich for this role. I have spent more than 30 years in the software industry, and I would like to share 2 key experiences that I believe are particularly relevant to this new chapter of Temenos. First of all, as CRO of VMware, a $13 billion revenue company, where I spent the last 14 years between London and Silicon Valley highlight the business transformation of VMware for Q1, premise business to a SaaS and subscription. And prior to that, I was the EMEA President of Business Objects, where I learned the challenges for a non-U.S. company on the global stage. And [indiscernible] software company observed, financial services was my first industry focus, and as a privilege as well of helping our banking customers to run and transform their business.

So coming from my first 80 days, it has been an excited 3 months at Temenos for me, a listening and learning tool. And I have the pleasure and the privilege of meeting many of our clients and partners and more importantly, hundreds of our employees in our offices around the world from London to Paris and Amsterdam to New York. And lastly, in India, in Chennai and Bangalore. One of the first events I also attended as the CEO was a Temenos Community Forum in Dublin. As you know, it's our annual ecosystem event with clients and partners coming together to share success stories and learn about our latest innovation.

Clearly speaking, I was impressed to see over 1,400 people with a higher attendance higher than last year. And for me, that really shows our clients and partner reaffirming their commitment to Temenos. From this listening and learning tour, I would like to share my initial impression with you. And it's clear to me that we are servicing a large and growing market with clients, they are under increasing pressure. And from my client meeting, I can see we have a strong customer relationship where we are a trusted partner, really at the heart of the operation. And the love or loyalty of the customer is something you cannot buy. And to me, this gives us a strong foundation to continue serving them and also create upsell and cross-sell opportunities. And despite the uncertainty driven by recent events, our level of attrition remains very low. And I've been impressed by the level of commitment and passion of our employees for the company and our clients.

Last but not least, let me share with you from my past experience in the software industry. The successful software company is always, always combine 2 major ingredients: customer centricity and innovation. And I strongly believe from my customer meetings that Temenos has this winning combination of leading functionalities and the latest technology that makes me very confident for the future.

So let's start with customer centricity by sharing with you to a proof point. The first is the number of customers going live in our product in Q2 alone. We have 101 go-live, up from 62 in Q1 this year. This includes customer going live for the very first time, customers going live on additional module where we upsell or cross-sell to them and customers upgrading to the latest version of our products. The second proof point, it was a testimony from BIL -- Banque Internationale à Luxembourg. This bank go live on Temenos core payments and wealth front office. This is a great example of upsell and cross-sell as BIL was already a core banking customer for Temenos, and they have adopted much more core modules and as well other products from Temenos like payment and wealth.

And by partnering with Temenos, BIL has achieved greater flexibility to respond to regulatory and commercial change and as well operational efficiency and scalability to allow them to onboard high-volume clients. And I do believe, at the first glance in general, we have many untapped upsell and cross-sell opportunity in our installed base and have specifically asked for our sales force to focus on it. Equally important to the customer base, we need to win new logos. And our next-gen SaaS platform that we launched at TCF will be an important asset to achieve this goal. And in a few words, Temenos SaaS Foundation is a single development portal to consume SaaS solution with operational automation and management tools. And as you can see here, Temenos SaaS Foundation is a single platform of portal based on hyperscalers like Azure and AWS. And take out the complexity of the cloud architecture.

And it's not only an announcement as we have already a client live on Temenos SaaS Foundation, which is the leading Tier 1 bank in Europe, we have gone live for its international operation. To all our customers to adapt and go live very quickly, we have also released our next-generation enterprise services on top of Temenos SaaS Foundation. And these enterprise services are fully integrated and packaged front-to-back capabilities from digital to core with pre-configurated banking products and business processes for specific banking verticals like retail, corporate and wealth.

I am also excited about the strength of our executive leadership team which have been recently reinforced through internal promotion and [indiscernible]. Starting with internal promotion, Will Moroney, which was our President of International business has been promoted to CRO with responsibility for global revenue. Will is bringing over 25 years of sales and leadership experience and joined Temenos in 2020 from Finastra. Rodrigo Silva has been promoted to President Americas with responsibility for the P&L and growing our business in North and South America.

Rodrigo joined Temenos 2 years ago LatAm Managing Director and more recently has been running sales for the America. And prior to this, Rodrigo spent over 20 years at Fiserv holding many senior sales and management roles. And we have also made 2 senior hiring, both in the U.S. and the West Coast. Isabelle Guis joined us as CMO, bringing over a decade of SaaS experience, driving go-to-market growth strategy and overseeing product marketing for global SaaS organization like Salesforce. And Monty Bhatia joined us as EVP of Global Alliances and Partner Ecosystem and as well, Monty drive our partner strategy to accelerate the growth of the company's partner ecosystem. He has over 30 of industry experience in management and commercial leadership roles in software and technology companies including AWS and Deloitte.

Lastly, I would like to outline our 3 main priorities for the second half of the year, and let me start with culture and leadership, absolutely indispensable to open this new chapter of Temenos. Second priority is the assessment of our product and technology critical to defining our strategy going forward. And based on these 2 streams, we are working on our strategic and financial plan that we will share at our Capital Markets Day on the 12th November, just after the U.S. election. Even prior to that, to accelerate our presence in the U.S. and Western Europe markets, we are making immediate incremental investment in go-to-market in H2, with that.

I would like to hand over to Takis, our CFO, to take through the other business and financial highlights of the quarter.

[Panagiotis Spiliopoulos, executive]

Thank you, Jean-Pierre. I'll start with an overview of the quarterly financials on Slide 16. All figures are non-IFRS and in constant currency unless otherwise stated. ARR grew a healthy 12% this quarter to reach $742 million and also returned to the normal pattern of sequential growth after the small decline in Q1, '24. All delayed deals from Q1 '24 signed in Q2. This is an important data point as it demonstrates our clients and prospects have fully reengaged with us after the independent report was published. We also saw our sales cycles normalize in terms of rate of progress and we saw growth in demand for both core banking and digital in Q2, '24.

However, many of our deals were impacted 2 months earlier delay in the year. As we said, the sales environment remained stable. The growth in ARR was driven by all our 3 recurring revenue lines, subscription, SaaS and maintenance. Subscription revenue was $39 million in the quarter, up double-digit year-on-year. SaaS revenue grew 8%, but declined sequentially as we had flat at the Q1, '24 results due to the temporary impact of elevated downsell and churn in the first quarter, which have now normalized.

We signed $9.4 million of SaaS ACV, nearly double that of Q1, '24, and this included a new logo win with Haventree Bank in Canada. This SaaS ACV will drive sequential growth in SaaS revenue again in Q3, Q4 and into 2025. We have a good SaaS ACV pipeline, and I would expect turning to growth in Q3, 2024. Maintenance was again a bright spot in Q2, '24, growing 11% and driven by sales of standard and premium maintenance. And I expect maintenance to grow high single digit in Q3 and Q4 to reach around 10% growth for the full year.

The shift of sales commissions to ARR at the start of the year is driving the desired behavior in our sales force to focus on recurring revenues. Total revenue grew 5% in the quarter, and EBIT was again up 7%, benefiting from lower-than-expected variable costs across commissions, bonus accruals, travel and marketing. Some of it is expected to come back in H2, '24. When we return to stronger growth along with new hires, although this will only have a small impact on H2, '24 costs given the phasing. EBIT margin expanded 1 percentage point to reach 37.4% in Q2, '24. Cash flows remained strong in Q2, with $73 million of free cash flow generated, up 16%, and we had further reduction in our DSOs, which were down to 133 days, again helped by good cash collection and a reduction in services DSOs. I still expect DSOs to decline year-on-year as previously guided.

Looking at capital allocation and the balance sheet, we launched CHF 200 million share buyback in June. And we have, so far, bought back shares worth $110 million. We ended the quarter with $563 million of net debt and leverage stood at 1.4x, slightly below our target of 1.5x to 2x. I expect our leverage to be towards the lower end of our target range by year-end after the share buyback and assume no M&A.

Moving to Slide 17. I was pleased that subscription grew 10% despite the delays in sales processes earlier this year. On an LTM basis, all product-related revenue lines, such as subscription, SaaS, total software licensing and maintenance remained on a solid trajectory and also demonstrating the health of the business despite the quarterly volatility seen in H1, '24 due to recent events.

Moving to Slide 18. We have like-for-like revenues and costs, adjusting for the impact of M&A and FX. The figures are all organic and therefore, in line with our constant currency growth rates. On services costs, we were down another 5% and the margin in our services business continues to improve as we expected. Product related costs in the quarter were up 6%, again from our ongoing investments go-to-market in SaaS, cloud and hiring across the business. Looking at FX, it was a similar trend to Q1, with a stronger pound sterling, a slight headwind on cost but offset by the weaker Indian rupee. Overall, including hedging, there was no impact from FX on EBIT this quarter. As Jean-Pierre elaborated, we are making continued investments in our go-to-market, but we are also investing in other areas such as cloud and SaaS.

On Slide 19, net profit was up 11% ahead of EBIT with lower net financing charges offsetting higher tax charges. EPS for the quarter was up 8%.

On Slide 20, our LTM cash conversion was 121%, well above our target.

Turning to Slide 21. The main movements in our group liquidity was generating $97 million of operating cash to repay bond in April and starting our share buyback. We ended the quarter with under $194 million of cash on balance sheet and net borrowings of $572 million. Our leverage is at 1.4x, and I expect our leverage to be towards the lower end of our target range by year-end after the share buyback and assuming no M&A.

And lastly, on Slide 22, we have revised our 2024 guidance, which is non-IFRS and in constant currency. Our progress on sales campaigns in Q2, '24 showed us that it is increasingly unlikely that we will catch up everything by year-end. So we have issued this revised guidance, which assumes a return to growth 8% to 10% in the second half for total software licensing, while at the same time, derisking the second half of the year. We're guiding for ARR of about 13% down from about 15% and now expect total software licensing to grow 3% to 6% instead of 7% to 10%. We still expect EBIT to grow 7% to 9% which gives us ample headroom to fund the incremental investments in go-to-market Jean-Pierre has talked about. We are guiding for EPS to grow 6% to 8% and our free cash flow to grow at least 16%. Our tax rate is expected to remain in the 20% to 22% range. We have put the EBIT and free cash flow bridges into the appendix for your reference.

A couple of things I would highlight for H2, '24. We expect Q3 to be a bit better than Q2 for total software licensing given the delays we have seen from H1, which is not our normal seasonality for TSL. Our cost evolution will be a similar case to last year, plus a few million more. And in terms of cash, we will be paying all of the invoices related to the independent investigation in Q3. So our free cash flow growth rate will be lower in Q3, which is why we have kept our 2024 guidance for free cash flow of at least 16% growth unchanged. We will be revisiting our midterm targets at Capital Markets Day in November as well.

With that operator please, can we open the call for questions.

[Operator]

[Operator Instructions] The first question comes from the line of Charles Brennan with Jefferies.

[Charles Brennan, analyst]

Welcome Jean-Pierre. If I just start with one on the investment and the guidance, if I can. You've obviously lowered your software licensing ambitions for the year but you've kept EBIT unchanged. That obviously implies OpEx lower than expected to imply something like $15 million, $20 million saving in OpEx. On the other hand, Jean-Pierre, you're talking about immediate investments into the go-to-market function. How do we square those incremental investments with the lower OpEx we're seeing in the guidance?

[Jean-Pierre Brulard, executive]

Yes. I will let maybe Takis start with the expenses, and then we'll go to the investment after that.

[Panagiotis Spiliopoulos, executive]

Charlie, a couple of things here. If you do the math, we're still basically looking for an $80 million plus incremental cost H2 versus H1. Clearly, a lot is going to be on the variable side, commissions which we didn't hit H1. But assuming we hit H2, that's going to be a substantial chunk also accruals for bonuses. And clearly also some more travel and marketing expected. Then you have big chunks coming in as we do the annual pay rise that was starting in July. And we still have made some investments, and they're going to obviously hit H2. Now what we are also seeing is a lot of efficiencies coming through over the last 6 months, and this is basically freeing up more than enough space for Temenos and Jean-Pierre initiatives to invest.

So, yes, we do that maybe the previous EBIT guidance was a bit on the conservative side. It's still on the conservative side, and we have ample room to invest. Please also bear in mind, even if we hire now a large amount of people from, let's say, September onwards is the in-year impact and it will be just 3 or 4 months. So the message is that there is ample room to invest just this year.

[Jean-Pierre Brulard, executive]

And the second part, good evening, Charlie, the answer as well that we would like to be ready for 2025. So of course, the game, we need to hire now in -- both in the U.S. and Western Europe as well, which is our growth opportunities to be full speed in Q1, 2025 as well. So it's the reason why I free up as well a couple of investments in both theaters to be ready to go and full speed as well in 2025.

[Operator]

The next question is from Sven Merkt with Barclays.

[Sven Merkt, analyst]

I was wondering if you can comment on the implied TSL guidance for H2, and the pipeline that support us, how the risk is this? And how do the assumption in terms of pipeline conversion compared to prior year?

[Panagiotis Spiliopoulos, executive]

Sven. We have seen in Q2, clearly, we have seen a normalization in terms of the conversion rates, but not a massive improvement so that we could have maintained the full year guidance. So if we look at now the pipeline volume for Q3 and Q4 obviously having good visibility on Q3, it supports clearly the revised guidance, yes. What we didn't want to do is run a high risk, maintain the current or the previous guidance and around the risk that we end up at the end of the year missing out. So I think this is now -- we call it definitely quite a bit derisked. We have some space in there as you would expect.

And the growth, which is implied on TSL, Clearly, we have very good visibility on our SaaS revenues because they are basically now locked in. So the rest is all coming from subscription. And I think we -- clearly, we would expect that the subscription volume implied for the second half is clearly covered by what we have in terms of pipeline. And I would say we have also seen an improvement in the quality of the pipeline.

[Jean-Pierre Brulard, executive]

And clearly speaking, Sven, our H2 is in line with our normal rate of -- growth rate of business as well. So we are highly penalized by the H1 performance. So we didn't change too much our H2 trajectory here. But of course, in an annual guidance is that, of course, have some implication in terms of guidance as well. And the second piece as well that, in a way the change of philosophy as well, and you will see that in capital market. We would like as well to provide, I mean, a long-term and strategic as well milestone and not running after I mean, the magic deal of the quarter that could penalize us as well as we can leave a lot of discounting on the table as well. Of course, we need to do both as a public company but not sacrifice short-term to the long-term.

[Operator]

The next question is from Mohammed Moawalla with Codman Sachs.

[Mohammed Moawalla, analyst]

Jean-Pierre, you mentioned in your kind of prepared remarks about some of the experiences you bring, having run kind of global software businesses. What are your kind of early impressions on perhaps some of the changes that you may need to make to sort of improve Temenos' execution or realization of some of the opportunities ahead, particularly in the U.S.?

[Jean-Pierre Brulard, executive]

As I mentioned in my introduction as well, we have worked on 3 different streams. The first, maybe [indiscernible] one which is culture and leadership as well. Just to chip. And of course, always the case with a Chapter 1, which is driven by the founder that -- in a specific culture and behavior as well. So I would like really, first of all, to attack this point. And in a way to shape a new culture based on initiatives based on as well long-term strategy based about the fact that we can embrace change as well. And it was really my first stream that we have done with the third-party consultant with the top management, and then we will extend to the senior leadership team as well to co-construct with them the strategy and to have more, I mean, participative contribution to the start strategy rather than top-down, #1.

Number two, as well, made as well product and technology assessment. You know which are with our strategic investment, as you may know, we have 4,000 people in India just in product and technology, which is close to 2/3 of our -- on our staff. So to know, basically, if we have the right assessment about what we will do.

And thirdly, of course, to know in the strategic plan where we will like to fight where I like to win. Differentiated what we can do in our installed customer base and the growing market as well. So it's basically the 3 streams that we have engaged and that should converge in Capital Markets Day in 12th of November, where we will lay out as well our strategic plan and midterm guidance as Takis mentioned before.

[Operator]

The next question is from Toby Ogg with JPMorgan.

[Toby Ogg, analyst]

Welcome Jean-Pierre from my side as well. Perhaps just firstly for Jean-Pierre, just on the comments in the press release, about it being clear, there are areas Temenos needs to improve on and invest in. Could you just help us with sort of how big you think the investment requirements are and what the areas -- what those areas are as well that are going to be needed to get Temenos into the right place. And then just secondly for Takis. Just back on the TSL guidance, as you said, 8% to 10% TSL growth in the second half. So a pretty significant acceleration there second half versus the first half. Could you just sort of walk us through the steps that you went through in order to derisk that TSL guidance, specifically in terms of pipeline metric -- have you gone through risk-adjusting deals, assumed lower conversion rates and how is the pipeline coverage tracking?

[Jean-Pierre Brulard, executive]

Thank you, Toby, for the question. So of course, I cannot lay out the strategy because it will be communicated and shared with you in Capital Markets on November 12. I can only share a couple of leading indicators. That in a way that will drive our reflection as well. So I cannot say about the investment, what we will double-click what in a way if we have to make some trade-off as well. Leading indicators are pretty straightforward. First of all, we need to differentiate the core products, which are core banking, payments and wealth and digital from the rest #1.

Number two, to differentiate the 3 different criteria. The first one is theater, [ Geo ] theater. We have the emerging markets when we are doing a lot of business today between Middle East Africa, the small APAC countries, LatAm and Eastern Europe from the U.S. and from the mature market composed of Western Europe, Canada, Japan and ANZ. It is one parameter and of course, with the tiering of bank as well.

The second parameter is a bank, the banking segment between retail corporate wealth and payments. And the third one is about the deployment between SaaS, on-premise and cloud-native. And the last one, of course, we need to differentiate our strategy and our investment for the installed base and as well for the growing market. So -- and on top of that, we need to take into account basically the affordability in terms of product capabilities, our skills and our trade off. So if we take into account all these ingredients, we'll be basically the leading indicator. We will construct as well our strategic plan, in line, of course, with our midterm financial guidance.

And I will let Takis comment on the second half.

[Panagiotis Spiliopoulos, executive]

Toby, maybe a different way to look at -- to help you with the modeling. Last year, we did [ $238 million ] of licensing or subscription plus term. And if you look at our guidance for this year, it basically implies roughly the same number, maybe a bit less. So this is point #1. So we are not baking in massive growth in terms of that.

Second, element to look at. We did $130 to $193 million of TSL first half last year. And this year, we got to $186 million despite the massive negative impact we have seen from Hindenburg. So it's not -- yes, it's minus 4% on the first half, but it's not like everything completely changed other than we lost 2 months on many deals.

Now on your third point conversion rates. So the exit conversion rate has normalized. However, to having maintained the guidance we would have seen -- we would have needed to see an improvement so that we could catch everything. So if you want, the conversion rate is now back to where it was pre Hindenburg allegations. And this makes us confidence clearly because of just timing and not losing deals we have now good visibility or better than usual visibility on Q3. And this is why we said, yes, it's going to be an unusual seasonality this year. So Q3 better than Q2. And finally, on the pipeline, yes, we don't want to start giving even more growth KPIs out there, but the pipeline clearly supports the second half guidance as we have stated.

[Operator]

The next question is from Frederic Boulan with Bank of America.

[Frederic Boulan, analyst]

Welcome, Jean-Pierre as well from my side, Takis. Maybe to come back to -- so first of all, previous question. I'm also struggling a little bit on the kind of confidence you have on that return to kind of 8% to 10% on the software licensing. So it would be helpful to understand within that on the SaaS side, in particular, what you expect, are we still in the kind of 10%-ish vicinity for the year? I mean Q2 was a bit below that? And then anything else you can help us around software licensing. I mean it does seem like a pretty sharp recovery as well. So anything concrete you can discussed there would be helpful.

Maybe as well a question for you, Jean-Pierre in terms of opportunities you identified and I mean, it seems to be more of a sales effort than a product investment, but it would be interesting to understand a little bit to a degree you think you need to free up more capacity to invest -- and that's more a question for November, I guess, but we've had a pretty significant margin a couple of years ago to a degree the kind of expansion in margins we have embedded in the guidance is something you think is realistic considering the investment requirement you have identified.

[Panagiotis Spiliopoulos, executive]

Fred, let me take the SaaS question for. So Q2 SaaS at $54 million was actually slightly better because we had said the downsell and the attrition we had seen would cause a $2 million to $3 million sequentially lower SaaS. So we came in at the $2 million. The SaaS given we have now done on ACV. We wanted to do more. But the ACV, we have achieved so far support still, it's the same roughly 10% SaaS growth for the full year. So sequentially, will move up from the $54.2 million, $1 million, $1.5 million up. And then for Q4, you're going to be at $57 million plus, yes? And this is how you arrive. So SaaS unchanged from previous commentary.

Now if you look at, as I said, on H1, we're slightly behind. After Q3 with the TSL we're targeting, you're probably going to be already ahead in terms of year-to-date, 9 months, '24 versus '23 . And then if you assume, let's say, normal Q4 growth, again, we don't see any change in terms of macro or anything so very similar to what SAP said sales environment remains stable and still a good time for banks. So this is SaaS locked in with the kind of growth and then TSL in Q3, slight improvement over Q2. And then for Q4, I think you should assume the normal, as we said, growth rate we should achieve. Again, conversion rates, everything has normalized it's simply we're missing on some deals, those 2 months lost during the earlier part of the year.

[Jean-Pierre Brulard, executive]

And Fred. To your second part of the question, we will not trade off go-to-market investment versus product and technology. The thing is -- it was pretty obvious we were underinvested in sales force in the U.S. and Western Europe. Basically, we have more salespeople in LatAm than U.S. So the correction was pretty obvious that we need to invest in the U.S. sales force and Western Europe. So it was really basic decision-making process to do that. Regarding product, as I mentioned earlier, we have made a high-level consultancy by an independent consultant as well to make an assessment about the level of our product and technology and even more importantly, to adjust our investments and resources to our strategy. So we just need to know which is a market demand for SaaS in which tiers, in which geography to give you an example, we need as well to make an assessment about composability, which -- particularly which is the market demand, which kind of application and module that we need to adjust to do that as well.

And just to have I think, a better market intelligence about the market demand and the investment that could pay off very quickly as well and not to invest technology for technology. So -- and -- so we are in the process to complete this assessment. And of course, it will be a very strong foundation in regard of our strategic exercise as well to know where we will bet. We know, for instance, that the Tier 1 banks, they do prefer sometimes to manage on cloud and to have deploy on cloud-native rather than SaaS. So to give you an example. So -- if we are betting on Tier 1, it's pretty obvious, and I'm not suggesting that today, that we need maybe to double-click on cloud versus SaaS. Just to give you a couple of concrete example of the trade-off then we need to operate in regard of the bet that we will share with you in November.

[Operator]

The next question is from Chandra Sriraman with Stifel.

[Chandramouli Sriraman, analyst]

Welcome from my side, Jean-Pierre, Takis. So just a couple of questions and a clarification. So if I take a step back before Q1, you had a guidance out there and then we had this negative impact from SaaS downgrades, which was compensated by the subscription -- implied subscription upgrade, which you have now stepped back. So it seems that most of the downgrade that we see is just from the SaaS side of things. So I wanted to get a sense of how conservative is your subscription guidance for the year that was one.

The second one is just a double check on associated risk with regards to large deals in the pipeline. Anything you can comment for H2?

And lastly, a clarification on the SaaS side of things, is that true that you have caught up with all the slip deals on the SaaS side as well?

[Panagiotis Spiliopoulos, executive]

Yes, on subscription, what to call conservative, what to call prudent. Clearly, at the start of the year, as you correctly pointed out, we underestimated the impact from the [ age ] report, and ultimately, as we signed all subscription deals to be precise, there is still -- some are still in the works for ACV, smaller ones. But on subscription, all down. So in hindsight, yes, we shouldn't have had a larger margin of error. How confident are we? Again, if you look at what we have done last year in terms of just licensing. So without SaaS in the second half, that was $142 million. And if you look at what the guidance implies for this year, it's maybe, let's say, $160 million, yes.

So we definitely have the pipeline for that we don't need everything because SaaS is still growing. Again, we feel confident on the subscription business. The downside from the original guidance, you -- it was the $20 million SaaS or 10% SaaS growth. But on the contrary now, given we have seen what we signed in the first half and what the ACV deals we're going to sign in -- usually, it's in September happening will not have an impact on this year. So we know we have pretty good visibility on SaaS revenues for Q3 and Q4. Churn downsell has normalized. So that's basically the other element of total software licensing SaaS were -- we still see the number in the 10% ballpark.

And then the final none on large steels. So the environment has not changed. We also signed a large deal in Q2, we had missed one in Q1 that got signed in Q2. We have, as in previous years, there is -- there are quite a number of large deals with respective cover also for -- especially for Q4, not that many for Q3. So no change to the large deal topic.

[Operator]

The next question is from Laurent Daure with Kepler Cheuvreux.

[Laurent Daure, analyst]

A few from my side. The first is, if we could -- if you could share with us, it's been a long time since you have not alluded to the fintech clients. So if you could share with us an update and if you start to see improvement around that category of clients.

My second point is also on the 4 business lines. Now if you could share a brief comment between back office, front office, wealth and fund management in terms of trends.

And finally, sorry to come back on the fourth quarter, but it requires some quite a decent growth rate at the very end of the year. So I was wondering if you were relying on a couple of large deals to achieve your guidance? Or if it was just a large number of small deals, then that would be less riskier for the end of the year?

[Panagiotis Spiliopoulos, executive]

Okay. Laurent, let me take #1 and 3. And Jean-Pierre will look at the second one. So on fintechs, I would say the situation has not materially changed. We still have a difficult funding environment. We have seen some smaller teams. And as you know, we're doing more with the established players than anyone else Haventree is a good example -- new, call them, fintechs or similar banks being launched. So I would say it has stabilized. Is it going to massively accelerate. I don't think so. I still believe their owners or the owners of the fintechs are still focusing more on profitability than growth. Clearly, eventually, even while they have told in terms of volumes will be used up. But I think this is more than -- should be more at '25 topic. If I look at the SaaS ACV pipeline and forecast during Q4, we don't have that many fintechs in there, so not really dependent on this part of the market recovering.

Large deals, Q4, maybe slightly less large deals involved versus Q4 last year, but still a considerable chunk has to come from large deals. Maybe what's better than in the past as we have better coverage, yes. So I think the real -- as we have guided, there is clearly more and more cushion there. And so we don't need to get everyone -- or even every second large deals done to hit the quarter.

[Jean-Pierre Brulard, executive]

And let me take the second question, Laurent, good evening. So in fact, we have seen this quarter, I mean, a pretty good growth, both on the front office and back office as well with core and digital. And sometimes as well in a way integrated build between, as we mentioned, for BIL, for instance. Payments remained steady. What we observe as well for us is more [ Naden ] to Transact that's a stand-alone business as well. But at the same time, payment is highly demanding by our Transact customers to be more than adjacency to our business as well.

So what we are achieving as well is to integrate all these modules and application together, and as I mentioned earlier as well, in our SaaS platform to integrate all together in different verticals between retail, corporate and wealth.

[Operator]

The last question comes from the line of Justin Forsythe sit with UBS.

[Justin Forsythe, analyst]

Thank you very much, and welcome to Jean-Pierre as well and Takis. Good to hear from you. A couple of questions from me, if I may. First, just wondering, I mean, there's been a lot of questions on the difficulty of achieving the TSL guidance in the back half of the year. Jean-Pierre and I guess, Takis as well, did you just consider [ fighting the slate ] and pulling the guidance altogether, rather than being held to something that the prior regime is holding you to. And I mean it does seem still again, like rough numbers, like $30 million worth of licenses on a year-over-year growth basis roughly, it seems like quite a few deals. So just wondering, again, thoughts on your ability to achieve that.

The other one is, and this is a question for Jean-Pierre. You talked about your experience in the U.S. software, particularly and taking a European company and a foreign company into the U.S., you said you kind of knew the attributes, and what it takes to be successful. Maybe you could just walk us through what you believe it is exactly in a little bit of detail that made that possible. And if you have any preliminary thoughts on how to disrupt the incumbents in the space such as Fiserv, FIS and Jack Henry. Thank you.

[Panagiotis Spiliopoulos, executive]

Justin, thanks for your questions. I'll take the first one. When Jean-Pierre arrived first of May, clearly, there was not any obligation to him to do anything specific with the guidance. He joined, as he explained, he looked at everything, the sales organization, pipeline, product everything -- and clearly, we have analyzed the situation. We have seen that we were catching up on the deals and they got signed. But we were also seeing towards the end of the quarter and -- so end of June and early July that despite all the achievements and the sequential improvement with summer holidays coming up, it will be increasingly unlikely to maintain and to deliver in a confident way, the old guidance. Could it have been done?

Yes, of course, yes, but you don't run a company with that kind of risk level. So it's also about derisking the second half. But there was nothing or no obligation from the board or anyone to revise it. This is how whole assessment is done.

[Jean-Pierre Brulard, executive]

So to your question as well, as I say, I spent the last 4 years in Palo Alto and of course, part of a U.S. company in 10 years ago, even more than 10 years ago, I was working for a European software company, Business Objects. So in a way, I know difficult it is for a non-U.S. company to face challenges in the U.S. as well. So of course, we need to be American in America. I mean, no escape to that. So starting with our President, Rodrigo. Rodrigo is based in Dallas. He is the American citizen. As I mentioned, we spent 20 years at Fiserv. So in a way, he knows [indiscernible] code of American business.

I spent one full week with him in New York with our new board member, Laurie Readhead from Bank of America as well to assess basically what we can do in the U.S. in 2 dimensions, the product, how to close a couple of product gaps to fulfill regulation and compliance, which where we would like to win in terms of tiering as well as we know that Tier 4 and Tier 5 in the U.S. are managed by the oligopoly of the BPO between Fiserv, FIS and Jack Henry.

And many Tier 1 banks, they have in-house core banking development as well. So we have pretty good success, as you know, with Commerz and Region which are the 3 regional banks. So we are assessing very carefully which kind of investment we need to do in the U.S. to be successful, again, both in product and go-to-market. And to your prior question, we are starting with go-to-market because it's pretty obvious that we need to be ready for 2025.

And with a product organization as well, we are assessing what will be, I mean the quick wins I'm thinking, for instance, in Corporate Banking to close a couple of gaps, both in functionalities and as well in regulation to be seen at fully American providers and to have a playground that we can bring value to our customers. So it's basically a couple of things that we need to do, and I will spend at least 1 or 2 weeks per quarter in the U.S. as well to reassess permanently our progress in the U.S.

[Justin Forsythe, analyst]

And just a quick follow-up on the medium-term guide. Should we consider that still valid for now? Or is that considered technically pulled at the Capital Markets Day?

[Panagiotis Spiliopoulos, executive]

Yes, Justin, as I said in my comments, it will be revisited. So whether the numbers will stay and the timeline expanded or it's going to be a different mix, we don't know as of today, yes.

[Operator]

Ladies and gentlemen, that will be last...

[Panagiotis Spiliopoulos, executive]

Yes. So just a quick word operator on that conclusion. So thank you for your attendance. tonight as well, and I look forward to meeting many of you in person in the next weeks and months. Thank you again.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for your participation. You may now disconnect your lines. Goodbye.