Hindenburg Research, known for its short-selling attacks, has set its sights on Temenos AG, a Swiss-listed banking software developer. With a market capitalization of approximately $7.5 billion and a reported revenue of $1 billion in 2023, Temenos boasts a global client base of 3,000 customers. However, the Hindenburg report, including whistleblower information and interviews with former Temenos employees, has unearthed serious concerns about the company’s accounting practices.
The investigation alleges a pattern of manipulated earnings and major accounting irregularities at Temenos. Accusations include roundtripped revenue, sham partnerships, aggressive pulling forward of contract renewals, backdated contracts, and excessive capitalization of dubious R&D investments. These practices, according to the whistleblowers, were encouraged by CEO Andreas Andreades to mask customer dissatisfaction and attrition.
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A focal point of the allegations centers on a 2021 strategic partnership with Mbanq, touted by Temenos to boost banking-as-a-service in the US. Hindenburg claims that Temenos secretly funded Mbanq‘s $20 million purchase of its own software, a move described as roundtripping. Similarly, a partnership with DXC Technology raised eyebrows, with a former DXC executive characterizing the deal as a last-minute effort to inflate Temenos‘ annual figures rather than a genuine collaboration.
The whistleblowers also highlighted aggressive revenue recognition tactics, such as pulling forward license renewals and backdating contracts, to artificially enhance short-term earnings at the expense of future revenue. Moreover, Temenos‘ claim of reinvesting 20% of its revenue into R&D was challenged, with allegations that much of the reported R&D spending was, in reality, customer-specific implementation costs miscategorized as research and development.
Temenos‘ accounting practices have reportedly led to an inflated pre-tax profit figure for 2022, with a significant portion of R&D costs being capitalized. The company also extended the amortization period for internally generated software development costs, a move that Hindenburg estimates will further artificially boost profits.
The report also criticizes Temenos for its Days Sales Outstanding (DSO) figure, which is almost double that of its peers, suggesting aggressive revenue recognition and collection issues. Despite these challenges, Temenos continues to project growth in North America, a market that has seen failed implementations and customer dissatisfaction, according to former employees.
Legal actions from US-based financial institutions like Unify Financial Credit Union and First Fidelity Bank against Temenos for misrepresentation and breach of contract further support the allegations of product instability and implementation failures.
Hindenburg‘s report paints a troubling picture of Temenos‘ business practices, suggesting an unsustainable reliance on aggressive accounting tactics and questionable partnerships. The research firm has openly disclosed its short position in Temenos shares, prompting investors and regulators to scrutinize the software giant’s financial health and operational integrity closely.