Infamous short-selling institution Hindenburg Research has another target in its crosshairs with enterprise software firm Temenos AG.
In a detailed report published on Thursday, New York-based Hindenburg laid down a litany of accusations against Geneva-listed Temenos, ranging from financial mishandling, poor product quality and insider selling.
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 plunged 30% following the publication of the report.
Proactive has reached out to the group for a comment.
Previous short-selling targets of New York-based Hindenburg Research include Indian conglomerate Adani Group, corporate raider Carl Icahn and Twitter founder Jack Dorsey’s Block.