Temenos refutes damaging Hindenburg Research report

Global banking software leader Temenos has refuted a report by Hindenburg Research which has seen the company’s share values plunge since being published.

With Cypriot national Andreas Andreades as its CEO, Temenos is due to hold an annual investor day on 20 February after its shares plunged almost a third by 16 February. Andreades has been serving as interim CEO since the departure of Max Chuard in January 2023.

The drop wiped nearly SFr3bn ($3.4bn) from Temenos’ market value, as two prominent activist investors clashed over allegations of “major accounting irregularities” at the Swiss fintech.

In a report published on 15 February, US short-seller Hindenburg Research has accused Temenos of “manipulating” its earnings, triggering the biggest share price drop in the Geneva-based company’s history.

Petrus Advisers — one of Temenos’ biggest shareholders owning about 3 percent of Temenos’ shares — on 15 February responded by accusing Hindenburg of "sloppy research," while using the controversy to double down on its own call for a management change.

Tememos shares dropped 28 percent on 15 February and closed down a further 4 percent on 16 February, valuing the company at just over SFr4.5bn.

At its peak valuation in 2019, the company, which provides software to financial services companies and claims 41 of the world’s top 50 banks as clients, had a market capitalisation of more than SFr13bn.

Responding to the report, Temenos issued a statement on 16 February saying, “The [Hindenburg] report contains factual inaccuracies and analytical errors, together with false and misleading allegations, which are intended to adversely impact the company’s share price.”

Hindenburg had said it conducted a four-month investigation into Temenos and spoken with 25 former employees, including senior executives.

Its probe “uncovered hallmarks of manipulated earnings and major accounting irregularities”, Hindenburg said. “This includes evidence of round-tripped revenue, sham partnerships, rampant pulling forward of contract renewals, backdated contracts, excessive capitalisation of seemingly non-existent R&D investments, and other classic accounting red flags,” it added.

It is worth noting that Hindenburg has been betting against Temenos shares, meaning it has already profited from the plunge in the stock.

And, less than 24 hours after Hindenburg’s report was published, Petrus questioned the sourcing of the allegations.

“Most of the points alleged by Hindenburg are based on hearsay talk from former disgruntled Temenos executives,” Petrus said in an open letter to Temenos chair Thibault de Tersant. “Since 2022, we have been speaking to many of them (many of whom clearly are on a revenge mission), plus numerous Temenos customers, partners and industry experts,” the statement added.

Petrus said its own activist campaign had reaped rewards and the company was addressing problems.

In an ad hoc announcement on 15 February, meanwhile, Temenos said: “The Board of Directors of Temenos AG (the Company) fundamentally refutes the report published today by Hindenburg Research”

The announcement continued that, “The report contains factual inaccuracies and analytical errors, together with false and misleading allegations, which are intended to adversely impact the Company’s share price. The Company was not contacted in advance for any comment on the report.”

“The Company is confident in the strength of its business, financial performance and cash position, Temenos said, adding, “On 19 February 2024 after market-close the Company will issue its audited results for the year ended 31 December 2023 and confirms that they are in line with the pre-results announcement made on 19 January 2024.”

“This highlighted the Company’s strong Q4 and FY23 performance: Annual Recurring Revenue exceeding guidance and Total Software Licensing and EBIT significantly exceeding minimum guidance; Strong free cash flow growth ahead of guidance in FY23, up 26% to $242.6m – the Board expects free cash flow to continue to grow strongly in the coming years; c. 3,000 customers – industry-leading churn of only c3% p.a. on a dollar basis; The Company’s transition to a recurring revenue business model continues at pace – 391 go-lives on our software in 2023; and Significant progress on customer engagement, NPS score of +54 based on survey of over 900 customers. As previously announced, the management of Temenos will hold a Capital Markets Day for investors on 20 February 2024,” the announcement concluded