trending
Embattled core banking provider Temenos has hit out at Hindenburg Research’s claims that there are “major accounting irregularities, failed products and an illusive turnaround” at the firm.
Temenos fight back after Hindenburg massacre
The research note, widely circulated on the 15th February, made substantive claims about the firm which underwent significant hardships in late 2022 when it lost a fifth of its value after ditching its full-year guidance and reporting a steep fall in Q3 2022 profit.
The shares plunged at that time wiping 900 million Swiss francs ($902 million) from its valuation after investors and analysts reacted to its profit warning.
This led to calls for Chief Executive Max Chuard to be fired immediately and chairman Andreas Andreades to resign.
In the current Hindenburg Research note they say, “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.”
This was one bullet point in the research note which was followed by a further 47 bullet points – none of which are good reading.
Fight Club
However, Temenos has stepped into the ring, saying its board of directors fundamentally refuted the report published by Hindenburg and that it was confident in the strength of its business, performance and cash position.
“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,” Temenos said in a statement. “The company was not contacted in advance for any comment on the report.”
Temenos said it would issue its audited results for 2023 after the market close on February 19th and said the results were in line with a pre-results announcement made on January 19th.
3 main Hindenburg themes:
Roundtripping
Hindenburg accused the Swiss group of engaging in “roundtripping schemes”, such as making an undisclosed $20 million investment into fintech group Mbanq around the same time as Mbanq purchased $20 million in software and services from Temenos.
This accusation suggests Temenos was creating a false market for its software products by purchasing its own software via a convertible note investment in Mbanq.
Hindenburg quoted a former Temenos executive: “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… If that was in the US and that was with the SEC, everyone would be out.”
Former employees also described practices of pulling forward contract renewals and backdating contracts to boost short-term earnings.
Hindenburg also claimed that Temenos exaggerated its R&D spend, capitalising customer-specific implementation costs as R&D, which inflated reported earnings and margins.
Angry clients
Customer dissatisfaction with Temenos’ products was a prevalent theme in Hindenburg’s report.
It highlighted numerous failed implementations of Temenos’ Infinity product, described by one former Temenos executive as a “huge destruction in value”.
Another former executive said: “In 2021, We Had 19 Clients In North America… that were supposed to go live (on Infinity), and two of those 19 went live… tonnes of client cancellations, frustrated, angry clients.”
Insider selling
Hindenburg accused Temenos executives of insider selling of company stock.
During three major buybacks in 2017, 2018/2019 and 2021, Temenos bought back around $554 million of its shares, while insiders sold $702 million during those years, according to Hindenburg’s analysis of Bloomberg data.
“In short, not only have insiders cashed out a gargantuan amount of stock, but Temenos has used company funds to support these sales, and then has created a seemingly circular loop, whereby stock buybacks support further share allotment to employees.”
Temenos shares closed down 28.2% at 63.5 Swiss francs. Trading was halted and restarted numerous times.
Comments