This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: And thank you for standing by. Welcome to the NCNO fourth quarter fiscal 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Greg Ornstein, Chief Corporate Development and Legal Officer. Please go ahead.
spk07: Thank you, and good afternoon, and welcome to Encino's fiscal 2021 earnings call for the fourth quarter and year-ended January 31st, 2021. With me on today's call are Pierre Nardet, Encino's President and Chief Executive Officer, and David Rudeau, our Chief Financial Officer. During the course of this conference call, we may make forward-looking statements regarding trends, strategies and the anticipated performance of our business. These forward-looking statements are based on management's current views and expectations and are subject to various risks and uncertainties, including those related to the impact of COVID-19 on our business, the financial services industry and global economic conditions. Our actual results may differ materially. Please refer to the risk factors included in our filings with the Securities and Exchange Commission which are available on the company's website at encino.com under the investor relations section and on the SEC's website at sec.gov. Forward-looking statements made during the call are being made as of today, March 31st, 2021, based on the facts available to us today and Encino disclaims any obligation to update or revise any forward-looking statements. The guidance we will provide today is in part based on our assumptions as to the macroeconomic environment in which we will be operating in the future, including the timing and pace of recovery from any negative effects caused by COVID-19. Such matters that are beyond our control and our assumptions may not be correct. On today's call, we will also discuss certain non-GAAP measures that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to the Form 8K furnished with the SEC just before this call. With that, thank you for joining us, and I will turn it over to Pierre.
spk01: Thanks, Greg, and good afternoon, and thank you, everyone, for joining us to review our fourth quarter and FY 2021 results. I couldn't be more pleased with the end of the year. Despite the uncertainty in the market, we closed a record amount of business in the fourth quarter through expansion deals with some of our largest banks in the U.S. by adding new logos for our commercial lending solution and cross-selling our retail and NIC solutions into our existing customer base. Wins in the fourth quarter also included key deals outside the US. For example, we closed a large expansion deal with our first enterprise customer in continental Europe, a $500 billion bank in the Netherlands that we initially signed in the second quarter, and also added a new logo in continental Europe with one of the largest banks in the Baltics. Even with a sales success in the fourth quarter, we ended the year with one of the largest pipelines in the company's history. Equally important is the quality of the pipeline. We are seeing interest in the Encino bank operating system from financial institutions around the world. In fact, over 50% of the pipeline is comprised of non-US financial institutions. We also achieved a record number of go-lives for our retail banking solutions, up 100% over the fourth quarter last year. Customers who went live on retail included a $30 billion U.S. bank, the U.S. arm of a $50 billion bank, and a $12 billion Canadian credit union, our first retail banking customer in Canada. We were also excited by the continued positive reception to the new products and our NIC analytics platform, including automated spreading and portfolio analytics. Automated spreading in particular has been enthusiastically received by our early adopter commercial lending customers, where we saw strong interest and close deals, both in the US and abroad. I've already noted our early international success many times. In the fourth quarter, 14% of our revenues came from outside the U.S. We expect the international growth to continue this year and we are investing to support it. More on that shortly. Achievements this quarter and here included our strong financial performance. Subscription revenues in the fourth quarter grew 43% and increased 57% for the year. This helped drive our subscription revenue retention rate. At year end, to 155%, up from 147% last year. The results include approximately $13.5 million of Triple P and Siebel's subscription revenues. David will discuss how that revenue impacts our 2022 outlook. Finally, I am pleased to report that for the full year, we were free cash flow positive. Even as we continued investing in the business, to capture the global market opportunity. I could not be more proud of the incredible work and dedication of the entire Encino team who achieved these results despite the challenges throughout the year from COVID. They responded almost overnight when the CARES Act and its Triple P loan program in the US and CBILS and BBILS in the UK crystallized the need for a digital platform in small business lending. Our solution enabled banks and credit unions to efficiently respond to their clients, helping to process hundreds of thousands of loan applications. Financial institutions around the globe have now seen the power of technology and digital lending. There is no going back to antiquated paper-based processes or continuing to rely on legacy solutions. COVID is only accelerating the move to the cloud for financial institutions around the world, Our results in FY 2021 were driven by success in four key areas. Commercial lending, retail banking, NIC, and international expansion. I thought it'd be valuable to discuss the progress on each of these areas as they are all core to our outlook for the years ahead. So let's start with commercial lending, our flagship product. Commercial is where we first built and deployed our solution to financial institutions. Globally, it represents approximately $3.3 billion of our $10.1 billion serviceable addressable market, or SAM. Yet, while commercial lending was approximately 90% of our subscription revenues in Q4, we are still early in penetrating the opportunity. Currently, we are only addressing slightly more than 4% of the global market. Our commercial lending growth was bolstered this year when we provided our Triple P and CBILS solutions to 98 customers representing banks and credit unions of all sizes. Umpqua Bank, one of the largest banks in the Pacific Northwest, with $29 billion in assets, noted Encino's role in its Triple P business on their recent Q4 earnings call. And I quote, In Q1, we will be leveraging the Encino platform to execute the new round of Triple P, that was just introduced. And in fact, we started taking applications just this week. It's early, but our technology platform is already allowing us to meet Triple P demands with less human involvement compared to last year." Our solution can be so integral to banks efficiently managing the Triple P process that in the fourth quarter, we added a $15.5 billion bank as a new customer and helped them with their typical offering even before they went live with our commercial product. Professional services also helped drive the 47% growth in Q4 total revenues. Professional services exceeded expectations as we again executed on successful remote deliveries with better than expected utilization and rate realization. We have continued to make strategic investments within our professional services organization to expand our footprint globally, further enable our SI partners, and enhance our managed services and change management practices to ensure successful adoption of our solutions across financial institutions of all sizes around the world. We are often asked how M&A affects our client retention. The short answer is that it can often be a very positive development. A great example is Truist, the result of the merger between SunTrust and BB&T. The $495 billion asset bank, now the sixth largest in the U.S., has characterized Encino as an important element of their combined operating system. Kelly King, chairman and CEO, noted on their recent earnings call, For example, in our commercial lending area, we've taken the very new and very best in class, SunTrust-Insino loan regeneration program and the BB&T backend system in terms of commercial loans. Another case is the merger of First Horizon and Iberia Bank. Iberia, a $20 billion asset longtime Insino customer, merged with First Horizon last year, creating an $18 billion asset bank. First Horizon has since committed to utilizing Insino's bank operating system across the combined entity. On its most recent earnings call, First Horizon's CEO commented, We're broadening and expanding our use of the Encino platform that's going to streamline a lot of our commercial lending business end-to-end. First Horizon, now one of the top 40 U.S. banks, will be utilizing Encino's commercial and small business lending and treasury management sales and onboarding solutions. across more than 2,000 of the bank's associates. Another important driver of our commercial growth is the strong success we've had in the U.S. farm credit space. In the fourth quarter, we added three farm credit customers. For these new customers, we are working with about 60% of the institutions in this market. Upon successful commercial implementations in these institutions, We believe these customers will be great candidates to expand their use of Encino and adopt our retail and NIC offerings. Next, let's discuss retail banking. Building out our retail business was a key focus this past year, as globally it represents $6.8 billion of our SAM. I'm very pleased with the progress across the product line, including retail lending, account opening, and international mortgage. The fourth quarter go-lives included some of our largest and most complex installations to date. The $30 billion U.S. bank I mentioned earlier included 38 integrations of the bank operating system to disparate data sources as part of a large change management initiative. This customer is a terrific example of the complexity and greater regulation in the retail market It has taken multiple years of R&D to create a retail solution that can meet these requirements. As we continue investing to mature and increase the depth and breadth of our retail functionality, including further product updates in April, we believe we are establishing a high barrier to entry for new competitors. Our differentiated solution is driving success in cross-selling retail banking to customers of all sizes. In the fourth quarter, a $17 billion asset bank already on its commercial lending, small business lending, and customer engagement solutions expanded to include retail lending. Now turning to Nick. As discussed last quarter, we have now integrated Nick into the bank operating system so we can drive intelligence across the platform. We are very pleased with the progress we are seeing selling portfolio analytics and automated spreading. two of the initial products on the NIC platform. Automated spreading customers have reported a 50% to 75% reduction in the manual requirements of loan underwriting, which accelerates the time to loan approval. We already have five customers using automated spreading, with three of them based outside the U.S. These customers are already using our legacy spreading product, so they were up and running on the new automated spreading solution in only a few short weeks. The opportunity to cross-sell to our existing commercial customers with time to revenues in weeks, not months, is particularly exciting. In the fourth quarter, six existing Encino customers purchased Portfolio Analytics, including an $8 billion asset regional bank. With Encino's Portfolio Analytics solution, Our customers receive performance and compliance-driven analytics that enable managers to better assess risk from a single source of truth. Let me spend a minute on the impact of the NIC platform on our SAM, as NIC is not included in the $10.1 billion estimate. Encino has a track record of increasing its SAM. We started with commercial lending for community banks in the U.S., expanding to enterprise banks in the U.S., then expanded to include the global commercial opportunity, and then added the global retail market to arrive at $10.1 billion. We are now again growing the SAM by approximately $2 billion, based upon the anticipated revenue lift from the first three products on the NIC platform, automated spreading, portfolio analytics, and commercial pricing, which we plan to add in April. We see this $2 billion as just the initial sizing of the NIC opportunity. As pricing matures, customers realize the value and benefit of these solutions. We expect this $2 billion to grow. In addition, as we introduce new products on the platform in the coming quarters and years, we expect to further expand the NIC SAM and the addressable market opportunity for Encino's. So now on to international. All three of these business segments, commercial, retail, and NIC, are contributing to the growth of our international business. As I've said before, we believe COVID has had the greatest negative impact on our international growth as we couldn't get feet on the ground to hire in-country salespeople and build out our infrastructure as quickly as we would have liked. However, we made solid progress in the fourth quarter, hiring senior salespeople in both Germany and France. We were also pleased last quarter to expand our relationship with our first enterprise deal in continental Europe, the $500 billion bank in the Netherlands I mentioned earlier. This customer initially selected Encino in the second quarter for a compliance-driven use case and has already increased their adoption of Encino to include end-to-end commercial lending. This success was supplemented in the quarter by one of the largest banks in the Baltics, selecting Encino to digitize their commercial lending process. The go-live of the Canadian Credit Union noted earlier further illustrates our international success, as this customer went live on both retail and commercial lending. With our Land and Expand model, we are happy to gain a foothold with a new customer through either retail or commercial, but it's even more efficient when we can sell the whole platform from the beginning. Our presence in the Japanese market also took a big step forward in the fourth quarter. We named the general manager to run our Tokyo office, Otsuko Numara, and added two expats from our Wilmington headquarters to embed the Encino culture and product knowledge as we grow our footprint in Japan. Shortly after fiscal year-end, we hosted our first-ever Encino Summer Japan, which was a virtual half-day event featuring Encino executives, partners such as Salesforce, and financial industry leaders from across Japan. More than 1,100 people registered for this inaugural event, and while we appreciate that it'll take time to break into the Japanese market, we are already seeing a positive impact in your pipeline. Early in fiscal 2022, we also announced progress in building our presence in EMEA, We named Jennifer Geary, a seasoned European finance executive, as General Manager EMEA, tasked with driving our expansion across the continent. A related step included the launch of our German subsidiary to focus on demand from financial institutions that recognize the need for a digital strategy in this $1.1 billion market. These are just some of the steps we have taken to invest in our international footprint, and further leverage the increased visibility and brand awareness we have enjoyed since our IPO, particularly overseas. I have challenged the team this year to land reputable customers in each of the new European markets we have entered. Let's talk for a minute about how we maintain the year-end momentum, leveraging one of the largest pipelines in our history. One area will be to increase specialization in our sales efforts. As we enhance the breadth and depth of products across the platform, we have begun hiring salespeople who can add deep domain expertise. Built by bankers for bankers has been the motto since Encino's earliest days, and that includes bankers selling to bankers. The Encino bank operating system brings business process optimization to the institution. We're improving efficiency, the cost structure and compliance. And who better to address those pain points than someone who lived that complexity before joining Encino. We are confident that by expanding our sales teams with this additional level of expertise, we can accelerate both the land and the expand. The cooperation required to successfully integrate another layer of sales ties directly to our culture. I'm particularly proud that we have maintained the Encino culture even without being in the office together. This was especially evident during our recent company-wide kickoff, which is typically held every February in Wilmington, and where this year our 1,100 employees around the globe came together for a week of virtual learning, networking, engagement, and interaction. I'm telling you, you could feel the positive energy and the enthusiasm through Zoom. Now, let me turn the call over to David to dive deeper into our financial results and discuss our outlook for fiscal 2022.
spk12: Thank you, Pierre, and thank you all for joining us to review our fourth quarter and fiscal year 2021 earnings. To echo Pierre's comments, I am very pleased to have ended the year with such a solid quarter. Please note that all numbers referenced in my remarks are on a non-GAAP basis unless otherwise stated. Our non-GAAP financial information excludes the impact of stock-based compensation and the amortization of intangible assets. A reconciliation to comparable GAAP metrics can be found in today's earning release, which is available on our website and as an exhibit to our 8K furnished with the SEC. Total revenues for the fourth quarter of fiscal 2021 were $56.6 million compared with $38.5 million in the fourth quarter of fiscal 2020, an increase of 47% year over year. Full fiscal year revenues were $204.3 million compared to $138.2 million in fiscal 2020, up 48% year over year. Subscription revenues for this quarter were $45 million, an increase of 43% year over year, representing 79% of total revenues in the fourth quarter. Full fiscal year subscription revenues were $162.4 million, an increase of 57% year-over-year, representing 80% of total revenues. In the quarter, Triple P contributed $4.5 million to subscription revenues. For the full year, Triple P's subscription revenues were approximately $13.5 million. The team is hard at work helping customers redeploy the PPP seats to other areas of their institution, which can help mitigate the risk of PPP churn, and we are pleased with their success to date. Even with attrition factored into our guidance, we expect this $13.5 million to grow in fiscal 2022 as we benefit from a full year of PPP revenues. However, as these seats are redeployed, they will move into commercial or retail or another bucket making them difficult to track. As such, we do not plan on further calling out PPP revenues in fiscal 22. Subscription revenue retention rate for fiscal 21 was 155%, increasing from 147% for fiscal 2020. This implies approximately 160 million of our recurring revenues were derived from customers who initially contracted for our solutions prior to fiscal 2021. we are very pleased with our success in expanding business with our installed base, which in many cases included triple P revenues. While we continue to expect the retention rate to moderate over time, maintaining and growing the footprint within our customer base is key to our success and is reflected in the high retention metrics and customer satisfaction we have historically enjoyed. Professional services revenues were $11.6 million in the quarter a 65% increase over $7.1 million in the fourth quarter of last year. Professional services revenues benefited from better than expected utilization and rates in the quarter and an easier compare versus the prior year quarter, which was negatively impacted by the implementation of ASC 606. Full fiscal year 2021 professional services revenues were $41.9 million compared to $34.9 million in fiscal 2020, an increase of 20% year-over-year. As we have discussed, we expect professional services to become a diminishing portion of total revenues as we continue to leverage our SI partners, particularly as we expand internationally. Revenues outside the U.S. were $7.8 million or 14% of total revenues in the fourth quarter, up from $3.3 million or 9% of total revenues in the fourth quarter of fiscal 2020. For the full year, 11% of revenues came from outside the U.S., an increase from 8% last year. We ended fiscal 2021 with over 1,260 customers, up from over 1,180 at the end of fiscal 2020. Of these customers, 224 contributed greater than $100,000 to fiscal 2021 subscription revenues, an increase from 161 in fiscal 2020. Of these 224 customers, 36 contributed more than $1 million to fiscal 2021 subscription revenues, compared to 21 at the end of the prior year. Non-GAAP gross profit for the fourth quarter of fiscal 2021 was $33.8 million, compared to $20.9 million in the fourth quarter of fiscal 2020, an increase of 62% year-over-year. Non-GAAP gross margin was 60% compared to 54% in the fourth quarter of fiscal 2020. Our gross margins continue to improve largely from subscription product mix with new logos weighted more towards enterprise and international customers, as well as subscription becoming a larger contributor to total revenues. Total non-GAAP operating costs for the fourth quarter of fiscal 2021 were $41.3 million, or 73% of total revenues, compared to $29 million or 75% of total revenues in the fourth quarter of fiscal 2020. While we did see some cost savings due to COVID, especially around reduced travel and in-person events, we continued investing to grow our international footprint and expand the breadth and depth of our products, as well as absorb additional costs related to being a public company. Sales and marketing expenses for the fourth quarter of fiscal 2021 were $15.9 million, or 28% of total revenues compared to $12.6 million or 33% in the fourth quarter of fiscal 2020. Research and development expenses for the fourth quarter were $15.9 million or 28% of total revenues compared to $9.8 million or 25% for the fourth quarter of fiscal 2020. As noted, we continue to invest in building out the Encino Bank operating system including NIC and our retail products, as well as localizing products to support our international expansion. General and administrative expenses were $9.5 million, or 17% of total revenues, compared to $6.5 million, or 17% in the fourth quarter of fiscal 2020. We continue to invest in our G&A function to help support our rapid growth, along with our increased public company-related costs. Non-GAAP operating loss for the fourth quarter of fiscal 2021 was $7.5 million compared with non-GAAP operating loss of $8.1 million in the fourth quarter of fiscal 2020. Our non-GAAP operating margin for the fourth quarter improved to negative 13% compared with negative 21% in the fourth quarter of fiscal 2020. Non-GAAP net loss attributable to Encino for the fourth quarter of fiscal 2021 was $5.7 million or $0.06 per share compared to non-GAAP net loss attributable to Encino of $7.7 million or $0.10 per share in the fourth quarter of fiscal 2020. For fiscal year 2021, the non-GAAP operating loss was $14.2 million compared with the non-GAAP operating loss of $20.7 million in fiscal year 2020. Our non-GAAP operating margin for fiscal year 2021 improved to negative 7% compared to negative 15% in fiscal 2020. Non-GAAP net loss attributable to Encino for fiscal year 2021 was $12.1 million or $0.14 per share compared to non-GAAP net loss attributable to Encino of $20.1 million or $0.26 per share in fiscal 2020. Turning to cash, we entered the quarter with cash and cash equivalents of $371.4 million Net cash used in operating activities was $11.9 million compared to $11.2 million in the fourth quarter of fiscal 2020. Capital expenditures were $0.6 million in the quarter, resulting in negative free cash flow of $12.5 million for the fourth quarter of fiscal 2021. As a reminder, Q4 is our strongest billing quarter, which usually results in improving cash collections in the first and second quarters. For the full year, we reported positive free cash flow of 4.9 million. While we are very pleased to have achieved positive cash flow, we do plan to continue investing for growth in fiscal 2022, especially to build out our international footprint and fund R&D in the light of the opportunity we see for the Encino Bank operating system. Our investment goal is responsible, balanced growth. We've now demonstrated our ability to successfully generate cash but it is not a short-term priority, and we do expect to burn cash in fiscal 2022. Our remaining performance obligation, or RPO, increased to $600.9 million as of January 31, 2021, up 39% over $431.5 million as of January 31, 2020, with $364.5 million in less than 24 months category, up 42%, from $253 million as of January 31, 2020. Now, turning to guidance. We are providing revenue guidance for both the subscription and professional services lines, reflecting the increasing impact of subscription revenues on our results, as I noted earlier. For the first quarter, we expect total revenues of $59 to $60 million. With subscription revenues of $48.5 million to $49.5 million, and professional services of $9.5 million to $10.5 million. Non-GAAP operating loss is expected to be approximately $4 million to $5 million, and non-GAAP loss attributable to Encino per share to be 4 to 5 cents. This is based on a weighted average of approximately 94 million basic shares outstanding. For the full fiscal year 2022, We expect total revenues of $253 million to $255 million, with subscription revenues of $209 million to $211 million, and professional services revenues of $42 million to $44 million. We expect non-GAAP operating loss for fiscal 2022 to be $23 million to $25 million, and non-GAAP net loss attributable to Encino per share to be $0.24 to $0.26 million. based on a weighted average of approximately 95 million basic shares outstanding. Non-GAAP operating loss and net loss attributable to NACINO per share guidance excludes the impact of costs related to the matters disclosed in our Form 8-K filed with the SEC on February 24th, 2021. In addition, excluding stock-based compensation and the amortization of intangible assets as in prior periods. In summary, the strong fourth quarter performance including our success in building such a high-quality pipeline, sets us up for a very exciting fiscal 22, which at the high end of our full-year guidance includes 30% subscription revenue growth. Our results would not be possible without the hard work of the Encino team around the world. I truly appreciate all of your efforts, as well as your continued passion and enthusiasm for the opportunities ahead. Now I'll turn the call back to Pierre for his closing remarks, and then we'll take your questions.
spk01: Thank you, David. The fourth quarter was an awesome end to a milestone year for Encino. The record amount of business closed in Q4 and the strong pipeline already have us off to a fast start on what we expect to be another outstanding year. We ended fiscal 2021 with 24 of the top 50 US banks as customers, with lots of existing runway inside each of those banks to expand within and across business lines. The international opportunity is even more significant as we are earlier in the journey. Globally, we believe we have only captured approximately 1% to 2% of the opportunity. I couldn't be more excited about the year ahead. We have the right product. The Encino Bank operating system is a unique end-to-end platform with a roadmap in place to continuously increase its functionality, including expanding the NIC product set, providing actionable insights and data to the bank operating system users. We have a solid reputation with our customers. This is truly one of our most valuable assets and something we work hard every day to earn. And perhaps most importantly, Encino has an outstanding team around the globe ready to take this past year's progress and turn it into this year's success. As always, We value the confidence and support of our stockholders, and we look forward to sharing our progress with you as the year continues. We are now happy to take your questions.
spk06: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Terry Tillman with Truist Securities. Your line is now open.
spk04: Yeah, thanks for taking my questions. Hey, Pierre, David, and Greg. I hope you're doing well, and congrats on the bookings and also the cash flow. Maybe the first question, Pierre, is for you in terms of it's nice to hear about the retail traction. What I'm curious about is could we get like an update on how many customers have some sort of footprint of the retail banking platform and how you're feeling about what kind of signals you're getting from either the global banks or the enterprise banks that you know, as we look into FY22 in terms of their willingness to move to this. And then I had a follow-up for David.
spk01: Yes. Hey, great to talk to you, and thanks for being on today. So what we're seeing is that across the market there's interest in our retail offering. And let me remind you, remember, retail is mortgage on the international front. It is account opening in the U.S. and Canada, and it's retail lending across the spectrum, okay? And so what we're seeing is it's a nice, healthy pipeline. The go-lives we announced was actually a great testimonial to the fact that the software can scale. You saw the sizes of the banks, okay? Initially, we thought we were going to have a lot smaller banks doing this. And for us to go live with that size bank shows that we not only can scale from a volume perspective, but also a breadth of offering. So we're seeing a nice pipeline. We're seeing great interest in our international mortgage product. across the spectrum from Canada and the UK. So I feel good about that. And from a customer number, you know, because it's somewhat relevant because we've got a large number of deposit account opening accounts and retail lending in place already. As I mentioned last time, we signed in very quick order six Canadian mortgage customers, and now we have to make that product settle and make sure we can go successful live because that's where the proof in the pudding is. But I see an increasingly... interest in retail as well as the fact that retail is growing faster than commercial, which is important to us. All our growth initiatives have to grow faster than commercial, and we're seeing that.
spk04: That's great. And I guess, David, just my second and last question, and they're always usually multi-part. That's just the way I roll. But I'm curious on the international side. I mean, it's a journey with your customers. So there's the landing, and then you expand over time. But what are the landings like so far with the international business from what you've seen? And is there any kind of different implications on the activation schedules for seats in international deals versus U.S. or North America deals? Thank you, and congrats.
spk12: Yeah, thank you. Good to see you. Talk to you, Terry. Yeah, on the international front, it's similar to what we see in the U.S. Obviously, internationally, we need to land in each country and build reference accounts, and that's what we're doing right now. So very similar. We land wherever we can to help a customer. If you look at the Deal we did on the continent, we landed a very small deal, portion of a deal in the third quarter, second quarter, I believe it was. And then we followed up and did a follow-on closing of a deal in the fourth quarter, so very quickly to upsell them. So that's the idea. We just land, prove ourselves, we're good at what we do, we can make customers successful, and then we follow and then sell them more. And in terms of activation schedule, it's very similar to what you see in the U.S., so no real change there from what we talked about in the past.
spk06: Thank you. Our next question comes from Brent Braceland with Piper Sandler. Your line is now open.
spk08: Thank you. And I apologize if the question was asked. I got kicked off earlier. But, Pierre, I wanted to start with you on the retail side. A little surprised to see just the early success, you know, cross-sell success on retail this quarter. If you look at the 300 BankOS customers that you have today, Help us understand how many of those customers do you think could use both the retail and the commercial LOS here over the next, you know, five to eight years? Is this the opportunity where if you have continued good success here, you could get half of those customers or all of those customers up for grabs? Help us kind of frame the five-year-plus opportunity around retail, given some of the momentum you saw in Q4 here. Thanks.
spk01: Yes. Thanks. That's a great question. You know, as I look at that market, firstly, these go-lives we just mentioned with you, one of those big banks, actually, we landed with retail. So they had no commercial beforehand. So that was a nightmare for us, okay, a while back. And that's why they could go live now. Apart from that, if you look at it from a planning perspective, you know, I exclude top 10, top 20 banks, Today, in pursuing that for retail, I believe we should become more in the U.S. for retail lending and account opening. We should become more mature with that product, but there's such a big market if you take the top 20 out. And most of our customers, that 300-plus you mentioned, is below that top 20, okay, from a customer account perspective. So I'm fine there. What I'm seeing with international mortgage, which is part of the retail profile, is actually we're seeing interest with our largest customers. So there's no reason that all of our international customers cannot have an interest in the mortgage product and actually use us for that. I see the same with unsecured lending in Europe and Canada, where there's a willingness to look at a solution like Encino to actually look at that. It's a very different mix of consumer business in Europe we're seeing, so I'm optimistic that we can win some business there. So as you look then at the big picture, to come back to your question, I think a large number of our logos will actually embrace the platform. We're seeing that all the time. You see my net retention rate of 155%. The only way you get there is by cross-selling, okay? So I'm optimistic. And the movement and the interest we see in retail is that, you know, two years ago people tell me, well, retail has kind of settled and built out. Well, here we are. We are taking some fairly large banks' lives. So I think the cloud time has come for retail as well.
spk08: Great. Super encouraging. And then just as a quick follow-up, David, on RPO, just wanted to make sure I get that number right. I know last quarter I think it was $453 million. Did you say it was $500 million or $600 million this quarter? I just want to make sure I get that right.
spk12: Yeah, this quarter the total was $600.9 million. And then the less than 24-month bucket was $360.5 million.
spk08: Got it. And so, I mean, that's just a monster kind of new bookings quarter, $148 million sequential increase. Walk me through what drove such a monster kind of quarter here on the backlog build side. Are these some customers that might not necessarily go live this year but next year? Did you have some new renewals? That looks just like a monster quarter there, just trying to understand what drove RPO up so much sequentially here in just one quarter. Thanks.
spk12: Yep. No, thank you. The fourth quarter was very strong. We saw deals, balanced deals across enterprise, community, regional come in, and it was just a record quarter from a business closing perspective. There's really, I don't think the average contract length changed. And the seed activation schedule is just as we talked about as we were going public with the team. So no change of that. Those revenues will flow over the next, you know, up to 24 months as they activate. Yeah, we're very pleased with the activity that we saw in the fourth quarter.
spk01: You know, I do think there was pent-up demand because the first six months of the year, banks were preoccupied with PPP. So that pent-up demand came through in fourth quarter. But on top of that, as we mentioned, we ended the year with one of the largest pipelines in the history of the company. So not only could we turn that business into contracts or that prospect, we still sit on a big pipeline at Boatswell for this year.
spk08: Great. Well, it certainly sounds like that was an amazing quarter here. Good to see the momentum and the success you're having. Thanks.
spk12: Thank you.
spk06: Thank you. Our next question comes from Josh Beck with KeyBank. Your line is now open.
spk10: Thanks for taking the question. I just wanted to follow up on some of those comments, Pierre, that you had made. When you think about maybe some of this pent-up demand coming through, obviously the world and the environment has changed a lot in the last year. Do you feel like with your bank conversations now that maybe they're worked through the Triple P and the forgiveness, and they're maybe starting to look at modernizing commercial or retail more seriously. Just curious how those conversations have maybe tenured throughout the last year and how you'd describe the current state of the environment.
spk01: Yeah, it's very interesting. The first six months, the market clearly was distracted by Triple P, and just the activity and the people working from home, it was just a a state of mind that we all had to get used to. In the second half, we started seeing acceleration back to strategic initiatives. I've spoken to a number of CEOs over the past few weeks. It's very interesting. In banking, there's a new administration, so you clearly can sense that they get ready for more regulation, and Encino was tremendously helpful there. Number one, they look at competitive pressures in the market. They fully understand that you get the Googles and the AWSs Amazon's, I mean, you know, looking at financial service as an opportunity. And so they have to wonder, do we partner? Do we compete? And how do we address that? And the way, if you step back then, if you're a banker, you look at your infrastructure and your API infrastructure, and how do you engage with these players if you want to partner with them? And that's where Encino comes in. We can optimize, we can drive a FinTech experience, but then we provide APIs into those third parties to actually do what's called embedded banking, okay? And that's a theme that you're going to hear more over the next year as banks look strategically at their IT infrastructure. So we truly believe we can help them to prepare for the future to not only survive but to thrive by looking at modern infrastructures for their bank.
spk10: Really helpful. And then maybe a follow-up for you, David. I think you had mentioned net revenue retention actually improved to 155%. So if we were to back out maybe the PPP contribution from existing customers, is that maybe a better year over year change to think about the moderation that we should see in this metric over time? Just curious on how we should maybe try to triangulate some of those data points.
spk12: Yep. So if you take out PPP, its impact for fiscal 21, Our net revenue retention number came in at 143% for the year, and that's versus the 147 we ended fiscal 20 at.
spk10: Okay. Really helpful. Thank you. Thank you. Thanks.
spk06: Thank you. Our next question comes from Mayank Tandon with Needham & Company. Your line is now open.
spk09: Thank you. Good evening, and congrats, Pierre and David, on the strong set of numbers. I wanted to first start with the SI partnership. I think, David, you mentioned that that's helping you scale internationally. Could you just talk about just who are you working with? How does that work in terms of partnering with these on the larger bank side? I imagine that's where you're really leveraging SI partnerships. And maybe we can start with that, and then I have a few follow-ups. Thanks.
spk12: Yeah, that sounds good. Thank you. Yeah, so on the SI side, we're seeing a lot more activity. At the time of IPO, we cited a number of 1,500 SI partners trained on Encino, and that grew to 2,000 at year end. So we're really seeing good traction with them. As you see, our professional services growth is lower because of that. We're engaging more partners to deploy work, and especially internationally, we don't want to build a massive services team, as we've said in the past. This is exactly what we said we were going to do. And we're just following through with that. So we're very pleased with the activity we're seeing, especially in the new countries that we're entering into. And we're getting them up to speed and running. And then, you know, over time, we expect them to be able to help us win additional deals in the future.
spk01: Yeah. And then if you look at the names, it's Deloitte, PwC, Accenture. It's the same names. It's global companies. It's companies who knows us well, who's helping us to get into these markets.
spk09: Great. Thanks. And then I just wanted to follow up maybe, Pierre, in terms of international, could you talk about what are specific markets that you're targeting? And then should we think about more organic or M&A? And then tied to that is how much is local expertise required to really win internationally? Thank you.
spk01: Yes. Yeah. So fortunately, I have experience of previous international businesses. So we established a product team in London to help us with integrations and localization and We have product managers as well as strategic thinkers there. And so we literally look at every market segment because you've got the European or EMEA-wide regulatory framework, and then each country still have their own little dynamics and changes that you have to make. And that's why we take in with commercial first because it's less regulated. It's a broad platform, and we can do tremendous business there. But we are looking at your typical Western Europe Nordics. So you've got Germany, France, Spain, Italy, UK, Ireland. UK, Ireland far being the strongest for us right now. That's where we landed at first. We now have people in Germany, France, Spain, et cetera, and the Nordics. So that's beginning to help. As you know, from zero to one is always the toughest. Once you get that reference account, the rest will come like dominoes. Then we've got a nice team in Australia, and we've got a joint venture in Japan where Salesforce has got a strong foothold, and we feel that their brand recognition will help us there, and we see that. As we mentioned, we had a conference there. It was virtually 1,100 people attending, which is tremendous. So I feel optimistic, although that market is a tough one to crack.
spk09: That's very helpful. Thank you so much.
spk06: Thank you. Our next question comes from with Barclays. Your line is now open.
spk03: Okay, great. Hey, guys, thanks for taking my questions here. Hey, Pierre, maybe just to start with you, a lot of great traction in international and it feels like it's just the beginning. So maybe just to think about this top down, Pierre, can you just maybe talk about the competitive backdrop in some of your larger international markets and how that sort of compares and contrasts to the U.S.?
spk01: Yeah, it's interesting. You know, we see different players. International, I would say, Pega is more of an interest, you know, that we see entrenched in these banks where they have done kind of a Pega framework and both to compete with us. We see a little bit FIS acquired a company a long time back that we see there in the commercial origination where they try in the underwriting space, okay? But not that active. It's the same pattern as year where the legacy players are in each country, and there's some homegrown systems, so it's a patchwork. And then once you get into the bank, you realize that they have 10, 15 systems do the same job we do with one platform, okay? And then it's a question of getting them over the hump with a cloud, and it's a new company where the IPO was tremendously helping us with brand recognition, and so on. We've cracked the UK and Ireland. We're well entrenched, we're well known, every bank you walk into will know about us. When you get into Germany, it's a bit less common. We are obviously, we've got people on the ground now, and so you tackle every country like that, and there's 1500 plus banks in Germany. Then you go to Spain, And there's four or five big ones. So you just have to get to know them. And with people and, you know, feet on the ground, that is helpful.
spk03: Got it. Got it. David, for my follow-up for you, understanding we're not going to be talking about Triple P as sort of a cohort in Fiscal 22, you know, I think you said it's about $13.5 million in revenue here in Fiscal 21. Can you just kind of give us a sense for what kind of assumption is embedded in in 22? I mean, it's going to be a full year impact, but, you know, any assumptions around churn or maybe even cross-sell that we should sort of be thinking about, you know, as we kind of think about that blending in with the rest of the total?
spk12: Yep. No, that sounds great. Nice to talk to you a second. So we ended the fourth quarter with 4.5 million in PPP revenues. That's the run rate looking out into the new fiscal 22. Now, as we exit out the year, you know, we'll start seeing some of those seats being redeployed. elsewhere within the bank, and that 4.5 also includes any level of churn that we assume for the year. So it doesn't end. It's not a cliff. Our PPP revenues continue into next year and gives us the opportunity to spend those seats elsewhere and place them in the bank to use them in some of the other segments.
spk01: Now, we've already seen customers recontracting some of those seats, redeploying them. it's a great opportunity for them to actually drive efficiency in the broader small business lending market or use it for commercial SAC FIT. So we're actually pleasantly surprised by how that is going.
spk03: Makes sense. Thanks, guys.
spk01: Thank you.
spk06: Thank you. Our next question comes from Brad Sills with Bank of America. Your line is now open.
spk02: Oh, great. Hey, guys, thanks for taking my question, and congrats on a nice bookings quarter. The backlog looked real nice. One of the comments you made, Pierre, that stood out is 50% of the pipeline is international now. You know, UK and Ireland is where you've been strong in the past, and you mentioned Germany, France are areas, Japan, where you're investing. Should we take that to mean that those countries are contributing more to the pipeline at this point Are they coming in? You know, how challenging is it to build feet on the street? You mentioned that, you know, you're a bit behind on hiring there, but that pipeline suggests that perhaps you're efficient there with the feet on the street that you have. So just any comments, if you could follow up on the hiring effort, how difficult it is to kind of address these new countries and that makeup of, you know, 50 percent, you know, how much of that is in these new countries?
spk01: Yeah, so we've been very fortunate. We've now got feet on the ground, okay, in these countries. And it makes a difference because when a German living in Stuttgart calling on Germans or in Hamburg, it just is different than me calling from London, okay? So we're beginning to see the impact of that, and that's in the pipeline. It's well-qualified deals. I've been personally on calls with some of these German customers. So that plus the IPO has been tremendously helpful. I've challenged the team to look at the reference account in each of these markets as we go forward in this year. And my team typically responds pretty well to these kind of challenges. We're just a competitive bunch. So what I'm seeing is the pipeline growing, well-qualified deals, and we're overcoming the cloud resistance that people are beginning to believe. So our goal is to see if we can get reference accounts in each of these markets.
spk02: That's great. And with the strong RPO backlog, could you help us unpack, you know, the land versus expand? You know, how much of that growth is coming from land versus expand? You know, were you surprised to the upside on either? It sounds like both were strong, but just any color on that and any color you can make on just the initial lands. Are you finding customers committing larger initial deal sizes? given the efforts you guys have made in broadening the footprint with NIQ and retail. Any comment on that would be great. Thank you so much.
spk01: Yes, what I would say is fourth quarter characterized a return to the normal business pattern, which means the contract and activation schedules is coming back to normal. Triple P, as we all know, was a distortion in first half of FY21. And so what we're seeing now is it's normal contracts. As I mentioned earlier, the big banks, could focus on strategic initiatives, and that's why we signed a larger number of those. So if you take those two factors, and now the smaller banks are coming back. I'm seeing it after the year end. But as you take those factors, those contracts were larger, they are thinking strategic, and that added to that RPO. Anything to add there, David?
spk12: No, that's, as you said, things are returning back to normal. I mean, our plan is to, our goal is to get into a customer and help them in any way we can, because we know we can upsell them once we get in. So those trends continue, and we did see a good level of activity from new customers in the fourth quarter as well.
spk02: That's great. Thanks, David. Thanks, Pierre. Thanks.
spk06: Thank you. Our next question comes from Fred Havemeyer with Macquarie. Your line is now open.
spk13: Hey, thank you. Now, I think I'd like to touch on something that you discussed in part already, but I'd like to ask about how to think about your post-pandemic pipeline. So between recent PPP demand, or rather beyond that, could you roughly bucket the reasons that banks are looking at your platform between, say, improving business resiliency, bettering customer experience, gaining efficiencies with software, or generally any other categories you'd highlight as driving this demand?
spk01: I would say the biggest thing is probably digital transformation. there is now a heightened urgency for banks to understand that the current mode of operation will not make them competitive in the future, that they truly have realized that strategically you cannot go on like today. And so many of these banks look at the different business segments, and they look at the competition out there, they look at the renewal efforts of software infrastructure, and they say, what is coming down the pike? And it varies, you know. And then you look at these massive fintech players or the Amazons of the world, et cetera, coming to the market, okay? And they realize that the customer expectation because of COVID have just changed. The way they're going to interact is different. And so what we've convinced them effectively is that, look, if you want to participate in this future banking environment, connecting to third parties, driving efficiency, be much more customer-friendly, et cetera, and have a more fintech experience for your end customer. All of that combined is driving an urgency in the banking community to understand if you want to survive, you're going to operate different. And that's what I'm seeing in every conversation I talk to. And we even, you know, we talk to CEOs of banks about this whole concept of embedded banking, which, by the way, is not that strange. If you buy a car today, you rarely go to the bank to get a loan before you buy the car. You go to the car dealership. And you get your loan right there. That's embedded banking. That happens in mortgages. There's a whole ecosystem of mortgage brokers out there. There's companies we partner with that will do that in the construction environment now, like Bolt. So there's a number of these players that's out there that's connecting to us and us creating an ecosystem where the banking services get pushed out there into third parties. And the bankers understand that's how consumers consume financial services And they have to get the infrastructure in place to do that.
spk13: Thank you. And then if I can get one follow-up question here as well. You've already called out a very strong new business quarter. And it also looks like you had a very strong collections quarter as well between positive free cash flow and also deferred revenue growing about 51% year-over-year, it looks like. So I'd like to ask, what is driving this? And how do you see this growth reflected in the underlying dynamics of your business?
spk12: Yeah, so as we've talked about in the past, our strongest billing quarters are the Q4 and Q1. So our cash flows will trail in the third and fourth quarters. And really we had a very strong cash flow year because of PPP. We had cost savings in travel and conferences. So very pleased with the cash flows for the year. But, you know, we will continue to spend next year. And as mentioned in the prepared remarks, that we plan on burning some cash in the coming year around those investments.
spk11: Appreciate it. Thank you. Thank you.
spk06: Thank you. Our next question comes from Brian Peterson with Raymond James. Your line is now open.
spk11: Hi, gentlemen. Thanks for taking the question, and congrats on the really strong RPO number in fourth quarter results for the year. So two questions for me. So first, Pierre, I know you don't manage to the SAM per se, and I know we can segment it by geo or product, but I'm curious, the 2 billion incremental SAM, that's a pretty big number. So as we're thinking about the cadence of new products that you're adding to the platform, how should we think about that? Is that organic? Is that through M&A? And what do you think this SAM could be 5 to 10 years from now?
spk01: Yes. So look, to me, the holy grail of this whole thing was to build an architecture and infrastructure of something that is client-centric and fits together. And, you know, I've got many competitors who's actually a Frankenstein who bought a bunch of companies and put them in a bucket and tell you, you can buy all this from me, okay? So we were very focused forever and even now in taking that approach. That's why we're building all these different product lines for retail, account opening, commercial, et cetera, small businesses. And as I mentioned before, we always look at the market. We look at great companies that we feel we can plug in, specifically in the NIC arena. And some we built. So if you look at Portfolio Analytics, that's a company we acquire. They have great domain expertise that applies to the global market. And then we built automated spreading from that. Then the second one in NIC is the whole analytics platform, which is we built a company in Salt Lake City. We bought one. And now we're taking that platform and we're building it out. We've got portfolio analytics going on there. And then we decided, based on those two pieces of infrastructure, we can actually build our own commercial pricing platform. And if you take those three, we've looked at what the upsell capability in our banks is and what the market will price at. And that's how we got, if you look at the total global market and you apply that upsell we have realized now, we feel pretty good about a $2 billion. And so then as we mature those products and we decide to either acquire a product to put in there or to build it organically, that will actually add to the SAM. So if you ask me, there's a tremendous opportunity to expand the SAM. But what I've learned in my life when software business is I don't want to be too thin and too wide. I would rather be a market leader. In all my segments, I address because business just comes easier your way that way. If you become the safe choice, you become the place that people just buy from because it works. It's well known. I've got people moving around between banks, and they say Encino is a great company to work with. So I'm not so hell-bent on continuing to grow that SAM in the short term because I want to capture more of the SAM. And then as we get to a point where we believe there's an opportunity, we can expand it again.
spk11: Right. Understood. Okay, great, Pierre. And so, David, I just want to clarify, there were some mentions on the call of adding some more specialized sales reps. I'm curious, how should we think about the impact of that? Is that more on upsell, and we'd see that more purchasing more on the platform, or we'd see that in bigger lands? I don't know the size of that investment, but just curious how we should be thinking about the impact there. Thanks, guys.
spk12: Yeah, so we're adding specialized people to help us on retail and NIC in the Americas. And really, because the retail is such a big product and it is different than commercial, we need specialists to go out and help talk to our customers how they talk on retail. And the same thing with Nick. You know, it's specialized analytics spreading and commercial pricing. So we have to be able to go in and talk to customers and be the expert to help them make the decision on whether to buy us or not. It's a challenge. It's a good-size investment, and it just adds to the sales team and helps the sales team. But most of that specialization is in the U.S.
spk01: You know, we talk many times about we compete with point solutions or specialized companies. So you have to realize that's the only thing they do, and they focus on that one thing. My head of sales at the front line, my account manager now, has to go in and talk about a whole platform with a suite of products. And you can't expect that person to be a specialist on commercial, small business, retail lending, account opening, HMDA, TRIT, et cetera, all these regulations. So what you do is you have a layered sales approach. There's an account manager to find an only account relationship and actually understand the full extent of the account. And then we've got a layer behind them, which is self-support people. When they're on a specific opportunity, we bring the experts to the table and explain why we believe not only we have the best product, but we have the best platform because it's client-centric and you can go across the enterprise with that solution.
spk11: Great color. Thanks, guys.
spk06: Thank you. We have time for one more question, and that question comes from Joe Verwink with Bearwood. Your line is open.
spk05: Oh, great. Thanks for squeezing me in. Hi, everyone. Yeah, maybe pressing my luck with this question, but I was hoping to maybe get some rough guideposts on a midterm framework in thinking about subscription growth. So, you know, when I think about guidance for 22 being near 30% at the high end, obviously you saw a big step up in the midterm RPO, and you have great visibility on activation schedules. So it doesn't seem like – a big deceleration is imminent, particularly given the low levels of penetration within some of your existing accounts. But just any thoughts you might have on perhaps the two or three year kind of outlook for subscription growth?
spk01: Yes, Joshua, we're not giving guidance beyond FY22. However, I have challenged my team that when it comes to subscription revenue, and I want to emphasize subscription revenue, that we as a team should target to grow at 30% or exceed that. We can do it. The market is there. We've got the wherewithal. We've got the products. So as an internal challenge to my team, we should maintain or exceed that in the longer term. And that's where we stand as a management team, and we agreed upon that.
spk05: That's great. I'll leave it there. Thank you. Thank you.
spk06: Thank you. I would now like to turn the call back over to Pierre Nade for closing remarks.
spk01: Well, thank you so much for all of you joining us today. We really appreciate this. As you can hear, we're excited about the business. We see a tremendous pipeline. We see an opportunity as the markets are opening up and we can start traveling. I think you're seeing that on our expense line. We plan to travel. There's nothing better than to go see a customer in person and actually convince them of your value proposition, especially on the international front. So we are excited and we appreciate your attention today.
Disclaimer