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.
spk10: Good day, and thank you for standing by. Welcome to Encino first quarter fiscal year 2023 financial results conference call. At this time, all participants on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised this call is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your host today, to Brittany Riley. investor relations, you may begin.
spk00: Good afternoon, and welcome to Encino's first quarter fiscal 2023 earnings call. With me on today's call are Pierre Naudet, Encino's Chairman and Chief Executive Officer, David Rudeau, Chief Financial Officer, and Josh Glover, President and Chief Revenue Officer. During the course of this conference call, we will make forward-looking statements regarding trends, strategies, and the anticipated performance of our business, including, without limitation, the acquisition and integration of SimpleNexus. These forward-looking statements are based on management's current views and expectations, entail certain assumptions made as of today's date, and are subject to various risks and uncertainties described in our SEC filings and other publicly available documents. including those related to the impacts of COVID-19 on our business, the financial services industry, and global economic conditions. Encino disclaims any obligation to update or revise any forward-looking statements. Further, on today's call, we will also discuss certain non-GAAP metrics 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 as an exhibit to the Form 8-K furnished with the SEC just before this call. With that, I will now turn the call over to Pierre.
spk01: Good afternoon, and thank you for joining us today to discuss our first quarter results for fiscal 2023. We had another strong quarter and a solid start to the year. Our team executed extremely well in the first quarter, highlighted by our strong top-line performance with $94.2 million in total revenues, an increase of 51% over the first quarter of fiscal 2022, which includes the addition of simple nexus revenues for the first full quarter. Subscription revenues grew 55%, or 29% organically, not including the addition of simple nexus. Year-over-year RPO growth for the first quarter was 48%, or 38% organically, and our non-GAAP operating margin improved to negative 4%. I am pleased that we are once again raising our revenue outlook for the full year. Additionally, we told you last quarter that we were committed to being profitable on a non-GAAP operating income basis and free cash flow positive in fiscal 2024, and our updated guidance reflects good progress towards achieving that objective. We continue to see strong demand for technology investments and digital transformation across the financial services sector, as well as the positive impact that Encino has on our customers' business. While we are aware of the various business headwinds across the globe, most banks are well capitalized today and are still looking to deploy capital to its highest use. In a rising interest rate environment, Banks are typically more profitable and in an even better position to continue growing and investing. We've heard this theme repeated in recent discussions with our customers and in earnings reports from financial institutions. Regardless of how many times the Fed may raise rates, financial institutions are always looking for ways to become more efficient, to streamline their operations, and to remain compliant. And Encino helps them achieve all three of these goals. For example, Connect One Bank, an $8 billion asset bank headquartered in New Jersey, recently reported their first quarter earnings, and their chairman and CEO, Frank Sorrentino, stated on the call, Supporting our industry-leading efficiency ratio is our ability to leverage technology and streamline internal processes. A great example of this is our partnership with Encino. which has been instrumental in this regard. We partnered with Encino in 2017 when our total asset size was just 4 billion to help deploy a single cloud-based platform throughout the organization and business lines. And today, we've more than doubled in size and yet we've been able to create efficiencies as we continue to build scale. This is just one example of how the Encino Bank operating system is enabling growth and efficiency gains for our customers. Connect One Bank is an existing Encino customer, and we also welcomed new customers during the first quarter in the US, APAC, and EMEA. One of these new customers was a UK financial services provider with over $1 trillion in assets, becoming our second largest EMEA deal in company history. In addition to continued demand for the Encino Bank opening system, we also show strong interest in your simple nexus solutions. As interest rates rise, mortgage lenders are shifting their focus to finding ways to improve their operational efficiency and invest in technologies that will deliver high levels of borrower satisfaction. We view this window of time in the U.S. mortgage market as a strategic opportunity for our Simple Nexus business. Strong companies with the right focus, execution, and business model have the opportunity to become even stronger during difficult times and take market share away from competitors. And that is exactly what the Simple Nexus team is focused on doing. From a solution perspective, there is heightened demand for technology that can help automate facilitate and expedite mortgage closings, such as those provided by the simple Nexus e-Close, e-Note and e-Vault solutions. While it's still early days and the mortgage market has experienced a rapid increase in interest rates, I continue to be extremely impressed by the overall quality of this asset that we acquired. From the superior mobile-first technology to the strength of the team, and to its superior subscription-based revenue model, which we have highlighted to you on several occasions. As a collective organization, we remain laser-focused on taking care of our customers, both great software and transforming an industry through innovation, reputation, and speed. This will be the front and center next week when we host Insight, our annual user conference in Raleigh, North Carolina. Insight is by far my favorite event, and it will be the first time we've held it in person since June 2019. We have nearly 1,400 registered attendees from 15 different countries representing 250 financial institutions, as well as dozens of consulting and technology partners from across the financial services ecosystem. It's going to be an incredible three days with colleagues, customers, and partners from around the globe as we continue to drive this industry forward together. I'll now turn the call over to Josh to go through more business highlights from the first quarter. Josh?
spk04: Thanks, Pierre. I'm pleased with the start of our fiscal year 2023, which was a balanced quarter reflecting both new logos and expansion deals in multiple markets and growth across our newer product solutions. For example, we continue to see strong interest in commercial pricing and profitability, part of our NIC platform, which allows bank operating system customers to gain additional benefit from the single platform approach. This quarter, we saw additional customers sign up for commercial pricing and profitability with continued activity across our community and regional market. Billy Carroll, President and Chief Executive Officer of Smart Financial, the holding company for 4 billion assets SmartBank, recently noted on their earnings call that one of the biggest initiatives this year is the full installation of Encino's workflow platform. That's moving along, and we plan to be live by the third quarter, and shortly after we'll be adding the Encino customer pricing and profitability platform. We're thrilled to get these platforms operating in the bank this year, as we believe they'll have great impacts to efficiency and profitability. During the first quarter, we also signed a number of deals across our other NIC solutions. Our customer count for auto spreading is up over 400% year over year, and our recent enhancements to that solution are resonating nicely with the market. Our portfolio analytics team had an impressive quarter, and CECL continues to be a big driver of growth for that solution. As of quarter end, about one quarter of our Encino bank operating system customers are using at least one NIC product. As Pierre mentioned earlier, we signed a large strategic account in the U.K. during the first quarter for commercial lending and automated spreading. This was the second largest deal in the history of Encino's EMEA business. That team continues to grow and mature and remains laser focused on executing in our primary markets. Over the last few months, our EMEA team has attended many conferences and events and met with banks from London to Paris to Madrid, and the momentum is very encouraging. It's clear that the Encino brand is becoming more well-known and sought after in APAC as well. We are actively in conversations with leading financial institutions and also with innovative emerging banks across that region. I'm proud to be able to announce publicly today Encino's partnership with Avenue Bank, which we signed in the first quarter. Avenue Bank is a brand new Australian challenger bank focused on SME, or small business lending, and their technology-enabled business model is perfectly aligned with Encino's expertise and platform. We also expanded relationships with existing customers during the first quarter, and the activity and pipeline across our Australia, New Zealand, and Japan business is solid. I was lucky to finally have an opportunity to visit our APAC offices again last month, spending time with our teams in Sydney, Melbourne, and Auckland, as well as meeting with our Encino KK team who flew over from Japan. I returned from that trip more optimistic about our APAC business than ever before. Our teams remain relentlessly obsessed with our customers and their success. To that end, one of the achievements I'm most proud of from the first quarter is an incredible go-live with Hancock Whitney, a $36 billion Gulf Coast bank. Hancock Whitney selected Encino for both commercial and retail lending, and today their bank is officially live on Encino's retail lending solution. This is Encino's largest upmarket retail lending deployment to date, and the bank is in the process of going live with commercial lending as well. While many customers have traditionally started with commercial and then expanded to retail, Hancock Whitney actually started their Encino journey by implementing retail lending first. This illustrates the very path to success that Encino can offer customers who hope to leverage our single platform. We deeply appreciate the team at Hancock Whitney for their early and continued commitment to Encino and their belief in our single platform vision. These projects are hard work and it takes strong partners on all sides to ensure that they are successful. Continuing with retail, as you all know by now, Simple Nexus is an important part of our consumer retail strategy. As Pierre mentioned, they had a strong start to the quarter, with the count of new customers added in the corner across all their solutions up 80% from the first quarter last year, including a larger mix of banks. As you may recall, last quarter we announced our first cross-sell deal of Simple Nexus into the bank operating system customer base. and we continue to see interest and momentum in our cross-sell and referral programs in the first quarter. We are looking forward to introducing more of Encino's customer base to Simple Nexus and their innovative home ownership platform at our Insight Conference next week. I'm extremely excited for that event, and I look forward to being back with our customers in person again. And with that, I'll now turn the call over to David.
spk11: Thank you, Josh, and thanks, everyone, for joining us this afternoon to review our first quarter fiscal 23 financial results. Please note that all numbers referenced in my remarks are on a non-GAAP basis unless otherwise stated. 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 the Form 8K furnished with the SEC just before this call. We are excited about the first quarter results and the solid start to the year. Total revenues for the first quarter of fiscal 23 were $94.2 million, an increase of 51%. with Simple Nexus up approximately 92%, including LBAware revenues, or about 61% organically. Subscription revenues for the first quarter were $79.2 million, an increase of 55% year-over-year, representing 84% of total revenues. Organic subscription revenues, excluding Simple Nexus, were $65.6 million, representing 29% year-over-year growth. Organic subscription revenue outperformance was due to some deals converting to revenues quicker than forecasted. Professional services revenues were $15 million in the quarter, growing 33% year-over-year. Non-U.S. revenues were $14.3 million, or 15% of total revenues, in the first quarter, up 58% year-over-year. Non-GAAP gross profit for the first quarter of fiscal 23 was was $60.4 million, an increase of 59% year-over-year. Non-GAAP gross margin was 64% compared to 61% in the first quarter of fiscal 22. Our gross margins continue to improve largely from subscription product mix as enterprise and international customers comprise more of our revenues from the adoption of NIC products and from subscription becoming a larger contributor to total revenues. Non-GAAP operating loss for the first quarter of fiscal 23 was negative 3.7 million compared with negative 4.3 million in the first quarter of fiscal 22. Our non-GAAP operating margin for the first quarter improved to negative 4% compared with negative 7% in the first quarter of fiscal 22. Non-GAAP net loss attributable to Encino for the first quarter of fiscal 23 was negative 6.1 million or negative 6 cents per share, compared with negative 4 million, or negative 4 cents per share in the first quarter of fiscal 22. Non-GAAP net loss attributable to Encino included approximately 1.6 million of non-cash unrealized loss on intercompany loans due to the strengthening dollar. Our remaining performance obligation, or RPO, increased to 906 million as of April 30, 2022, up 48 percent from $611 million as of April 30, 2021, with $567 million in the less than 24-month category, up 49 percent from $380 million as of April 30, 2021. Organic RPO increased 38 percent year-over-year. Our renewals in the quarter were largely community and regional banks, with contract durations shorter than what we observed last quarter. turning to cash. We ended the quarter with cash and cash equivalents of 84.1 million, including restricted cash. Net cash provided by operating activities was 1.2 million compared to 7.6 million in the first quarter of fiscal 22. Capital expenditures were 4.7 million in the quarter, resulting in free cash flow of negative 3.4 million. As a reminder, Our typical seasonality includes generation of positive cash from operations in the first and second quarter, normally followed by negative operating cash in the third and fourth quarters. For the second quarter, we expect total revenues of $97 million to $98 million, with subscription revenues of $81.5 million to $82.5 million. This guidance assumes a year-over-year subscription growth of 52% at the midpoint of our range, with approximately 26.5% organic subscription growth for the second quarter. Non-GAAP operating loss is expected to be approximately negative 6.5 million to negative 7.5 million, and non-GAAP net loss attributable to Encino per share to be eight to nine cents for the second quarter. This is based on weighted average of approximately 110.5 million basic shares outstanding. Turning to guidance for the full year, we are increasing our revenue outlook For fiscal year 2023, we expect total revenues of $401 to $403 million, with subscription revenues of $341 million to $343 million. This full-year guidance assumes year-over-year subscription revenue growth of 52% at the midpoint of our range, with approximately 27.5% organic subscription growth. There has been no change to our expectations regarding Triple P revenues. We now expect non-GAAP operating loss for fiscal 23 to be negative 24 to negative 26 million. This updated guidance reflect our commitment to achieve profitability on a non-GAAP operating income basis and positive free cash flow in fiscal 2024 as we communicated on our last earnings call. Non-GAAP net loss attributable to Encino per share is expected to be negative 28 to negative 30 cents based on a weighted average of approximately 110.5 million basic shares outstanding. The first quarter was a great start to the year, thanks to the hard work of the Encino team around the world. Your dedication to the success of our customers is what makes Encino the global leader in cloud banking. And with that, we will now open the line for your questions.
spk10: And thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by. We compiled the Q&A roster. And our first question comes from James Fawcett from Morgan Stanley. Your line is now open.
spk08: Great. Thank you very much, and thanks for the time this afternoon. I guess I want to start with just kind of your penetration and work that you're doing with the top banks is Looks like you've got about 12 of the top 25 banks in your client roster. How should we think about pricing and how that's going to evolve domestically with such a large customer base or a base of customers that are so large, better said?
spk01: Thanks for your time today and thanks for your question. You know, we've got a great market share. Banks talk to each other. We are well aware of our position in the market. It is a competitive market. Some banks are doing building their own software. So it's not like we can just go in there and price at will. There is a market where you can't exceed that. However, with the quality of our software and the breadth of our solution, obviously we are right now, I would say, in a very market-leading position with our software. And I feel good. But if you've ever been through a procurement cycle with a big bank, you understand that there's a good balance there of pricing power versus what banks will pay.
spk08: Got it. And then I guess maybe for you, David, can you talk about kind of the drivers of the narrowed operating loss outlook? Obviously, you're looking to come in at least better than we had modeled, et cetera. And just wondering, it seems like there's been some improvements there from your perspective, but just wondering how you would characterize the different contributors to that improved outlook.
spk11: Yeah, so during the quarter, you know, the hiring market remains tight, of course, but, you know, we are committed to being profitable, and that was at the back of our minds as we entered into the year, that we want to be, we were committed to be profitable next year and free cash flow positive next year. So we're taking a measured approach to hiring, focusing on our customers, servicing our customers, building great product and selling in the regions that we're positioned in. And so as we made it through the quarter, you know, we looked at hiring and measured out kind of where we would be. And then for the balance of the year, we would expect the guidance reflects that continued focus on being profitable next year.
spk02: Thank you.
spk10: Thank you. And thank you. And our next question comes from Saket Kalia from Barclays. Your line is now open.
spk12: Okay, great. Hey, guys, thanks for taking my questions here. Pierre or Josh, maybe for you gents, can you just talk about the pipeline for international opportunities? You know, it's been several quarters now where we've been seeing great wins in a variety of geographies. Can you talk about the pipeline as well as what you're seeing there competitively as you've had more time under your belt internationally?
spk04: Hey, second, this is Josh. We're pleased with where the pipe is. It continues to execute. You heard us mention there earlier, but I'll reference this. We did sign the second largest net new deal that we've signed in our EMEA team, and we still sit with the pipe at a very healthy spot. So we pick a market. We focus, again, the goal is to come in sign these accounts, show them a great path to success, continue telling that story, and that's what we're doing.
spk12: That's great. Great to hear. David, maybe for my follow-up for you, I was wondering if you could just talk to us a little bit about RPO dynamics a little bit. Obviously, a variety of factors that can drive that. I think you called out one or two in your prepared remarks, but can you just go one level deeper into some of those dynamics and and how you're sort of thinking about RPO trending this year qualitatively, of course.
spk11: Yeah, so RPO reflects kind of the bookings in the quarter, their total contract value of deals that we close in the quarter. And there's also an element of renewals that enter into the RPO numbers as well as customers renew. You know, Q1 is seasonally weaker. It's kind of normal, right? Bookings are lighter in Q1 as they have been historically. There was no change in the quarter. In the current quarter, we did have community regional customers dominate the renewals, and those renewals are normally in the one- to two-year period, so a little bit shorter duration on average for renewals that we saw. We did see about a $3 million headwind to RPO around currency. The dollar strengthened in the quarter, and so that reduced our total RPO balance by $3 million. And a reminder, enterprise is lumpy from quarter to quarter. We had a great second quarter last year on the enterprise side. We closed Wells and we closed a number of renewals with the enterprise side. So to, you know, look into the second quarter, you know, we expect to have a difficult compare just because we had such a great second quarter of last year. And then we don't forecast, we don't run the business on RPO internally, but I would expect, you know, the trends that we've seen in RPO to continue as we have in the past.
spk12: Very helpful. Thanks, guys.
spk10: And thank you. And our next question comes from Terry Tillman from Truist Security. Your line is now open.
spk15: Yeah, thanks. Good afternoon. Congrats from me. Hi, Pierre, David, and Josh. First, I just wanted to wish you guys luck next week at the conference. I hope it's a smashing success. The first question I have, and I don't know if this is for Pierre or Josh, but on the retail lending side, it is great to hear about the Hancock Whitney going live. You know, I remember when you were going public, there was interest and excitement around just a lot more seats involved on the retail side compared to commercial and potentially a pretty sizable SAM that you could attack. And so could you maybe give us an update on kind of what you thought, what were your planning assumptions still irrelevant in terms of much bigger seats, much bigger potential addressable market? And then the second part is, you know, I always ask about this, but on the enterprise bank side, How do we feel about timing of this becoming much more mainstream and them willing to now move forward and standardize on the retail side as well? And then a follow-up for David. Thank you.
spk01: Yeah, so let me just start over the big, and then Josh will follow up as well. So if you look at the retail, we told you a year ago we pulled back slightly. We narrowed our target market. The Anchor of Whitney Go Live to us is tremendous momentum. It's a $40 billion, what's a $36 billion bank. So it shows you that we've covered the solution end-to-end. with the complexity of that size bank as well as the geographical footprint. I would like to highlight a few things. If you look at the retail lending, logo growth rate year-over-year is 30%. The deposit account opening is logo growth is 29%. So we see continuous momentum as we sign these banks. And remember, the more you sign, the more you mature the product, and the more you refine it, you get your integrations right. So I really feel good now about the team we've got in engineering, building that product, refining it, and actually make it much more of a packaged product that I can slot in in volume. Because, you know, doing it, it's a big bank, it's a big project, but eventually we have to come to the smaller-sized banks where you can literally just sell this in volume and slot it in. So I'm very pleased with the progress we've made, and this is great news for us as a company, Joss.
spk04: All good there. I was going to point out the validation of that single platform vision that we have when you can announce an account like Hancock Whitney. That's a fantastic account. They took the full view. They're going to give a consistent experience to their customers regardless of the loan type. Our goal is to tell that story, and frankly, having great partners like Hancock Whitney who are willing to tell that story with you helps you continue to gain momentum. So we're really proud of that and appreciative of that team and their leadership and their partnership.
spk01: So then you asked about the enterprise. So realize, you know, the platform play right now at this stage of the company and the market, I would say play up to that $50 billion in assets. So if you look at the enterprise above that, you have to look at how they buy software, specifically in the retail bank. It's more by product line, or they may see very interesting components and then use it for specific product types. That's what we're seeing at this early stage. We can do that. We're working on the product to actually componentize it like that and attack that. But I would say we need a few more at-bats at your smaller banks and really get this thing well-oiled. To me, our reputation is above getting a big one now and then struggle with it. But we are working on that continuously. We've got people focused on that. So I'm pleased with where we stand with retail.
spk15: That's great to hear. Thanks for the insight from both of you on that. And I guess the follow-up question for David, we've gotten more and more data points now with Nick and then automated spreading customer count up as much as it was year over year. You know, I don't know how you would define materiality, but is Nick now something where it's coming in on like 10% plus of the business? And what kind of uplift are you seeing now given you have three different products in that family? Thank you.
spk11: Yeah, so in terms of materiality, it's still at a lower level. It's not at that 10% level yet. We're very pleased with the activity we're seeing. Auto spreading has been a huge success, especially since we added tax returns to it. You know, we've talked about a 20% uplift to the average customer. That seems to be holding as the case is so far. Commercial pricing is still early days. We're very excited about that product. The feedback is great. And hopefully we'll see uplift from the 20% as we mature that product over time.
spk15: Thanks a lot.
spk10: Thank you. And our next question comes from Brad Sills from Bank of America Securities. Your line is now open.
spk03: Oh, great. Thanks, guys. I wanted to ask a question about just the environment. Obviously, there's a lot of concern around potential slowdown in Europe with the Russia war in Asia with the slowdown in China. It sounds like you're pretty bullish on your pipeline. So I guess the question is, what are you seeing there? Are you seeing any pause at all? And if not, then how would you view Encino Solutions as kind of capable of kind of riding through any macro headwinds that we might see here, any choppiness, just general resiliency of the business? How do you see that? Thank you so much.
spk04: Obviously a common topic. Look, we see lots of eyes on the market in looking at the macroeconomic situation, but I don't hear a lot of banks questioning whether they need to digitize and whether they need to digitally transform. We just believe that's where the industry is going. So where this goes, like everyone else, and David spoke about our commitment to operational discipline as we look at how we spend, we're going to be really smart here, but I don't see a decrease in resolve from my customers. So our goal is to continue giving solutions that are going to be relevant in any environment. Whether interest rates are up or down, our banks are not going to want to lend money slower to their customers, right? They're not going to want to offer a less competitive experience. So we're going to keep focusing on those things, and we believe that that value will transcend any near-term economic environment.
spk01: I can just add to that that remember in Europe, your compliance and regulations is a lot more strenuous and taxing on the bank operations. And so we see, for instance, ESG is really a strong element of the product there. We've got a team in London working on a specific ESG program. Because what are you talking about when you look at ESG is what price you charge per loan, what does the bank balance sheet look like for green loans versus brown loans, et cetera. And so if you look at that picture, Encino contains that full story about the portfolio. And we can price it. We can originate the loans. We can review the portfolio. And so I think we're going to have a strong play there. We're not totally immune for external factors. financial environments, and therefore we are conservative with how we burn cash and how we're going to hire going forward. But overall, we feel very good about the business.
spk03: That's great to hear. Thanks, guys. And one more, if I may, please. David, if you could comment on the organic CRPO growth rate, please.
spk11: Yeah, on the organic current, we are at a – so it's 38% overall growth. Less than 24 months is 34% organic growth, and greater than 24 months is 45% organic growth.
spk03: Great to hear. Thank you.
spk11: Thank you.
spk10: And thank you. And our next question comes from Josh Beck from KeyBank. Your line is now open.
spk09: Thanks for taking the question. I wanted to ask just a little bit higher level with The increase in rates, obviously, that's helping NIMS at banks and in some ways giving them more dollars to invest. Obviously, that's a little bit of an outlier, I think, with the broader macro backdrop. So just kind of curious how you see that filtering into bank IT budgets and just kind of how those executive conversations are trending.
spk04: We like that math. Obviously the net interest income allows them to continue funding their most strategic projects and we believe we should be at the top of that list. So we will continue telling that story and obviously banks are looking at that now and again, I think that is part of our belief that we're set up well here.
spk09: Okay. That's good to hear. And then Just with respect to M&A, obviously you've had quite a strong track record in the last couple of years of really finding strong fits for the platform that are really additive to the ACV and value prop. Just as you look forward and you think obviously about balancing the profitability goals as well, do you see future M&A as as maybe less likely at the moment. Just curious how you're approaching that topic.
spk01: Yeah. So, you know, we always like to look around what's going on to be actually aware of what's happening in the market. But I can tell you right now we are laser focused on integrating SimpleNexus, on cross-selling it into our customer base. on making sure that we pay the right amount of attention to the independent mortgage banker's base, which is where they come from, so that they feel actually appreciated and loved, and that's the focus of that market. And then you bring the strength of Encino into the banking market around and our cross-sell capabilities. And I think this is a fantastic asset, and the complementary nature of the two businesses is just playing out every day. So we are pleased with that one. It will give us a great point-of-sale front-end capability and technology. As you know, we've never built apps before, so now we've got apps running on Apple and Android. So that was a great example of a very good acquisition, as well as FunSuite way back in Australia for automated spreading. So we like what we've done, but as I've explained before, we look at our acquisitions as architectural pieces that we add to the puzzle. because it's all done in the architectural design of a single platform that is well integrated and that is client-centric, and then focused on the delivery methods to the end user, whether it's a bank officer or an end customer. So yeah, we will look at the market. I would say in the future, we look more at elements that we can fit into NIC, which is AI machine learning, driving intelligence into the platform Because once we own every seat in the bank, if you then add intelligence into that pre-populate field, come up with an analysis of the credit score, et cetera, that's going to drive banks to operate like fintechs. And I think your leading banks that use Encino, you can call our customers. That's what they're seeing happening. And our continuous investment in innovation is paying off like that.
spk09: Great.
spk10: Thanks, Tim. Thank you. Thank you. And our next question comes from Bob Napoli with William & Blair. Your line is now open.
spk05: Thank you, and good job. I just wanted to touch on your partnerships with system integrators. You did call out one of your partners this quarter in helping to bring on a large transaction. So maybe any color on that. how your strategy around system integrators is evolving.
spk04: That is a great strategy, and I appreciate the question. That has been part of our ability to continue going both upmarket and international. We sit today with approximately 2,700 Encino consultants that are certified, and they help us continue to take this great product and get it on bank screens. And that's how you're able to, in a call like today, announce a big four bank in the U.K., talk about taking an account like BOKF live, and it was really neat to have Deloitte mentioned in there. So we're very proud of those system integrators. They're part of the ecosystem, and we'll have a lot of them with us at Insight in Raleigh next week, and they'll be as much of telling our story as we are. Great.
spk05: Thank you. And just to follow up, and I know you've talked a lot about Simple Nexus, but I just wondered how the performance of Simple Nexus, the mortgage market has become a lot tougher probably than I think maybe one might have expected when you announced that deal. But it sounds like you're still performing very well. So how is the business performing versus when your expectations to this point?
spk01: No, I would say, I mean, we were always bullish and positive about the business, so it's meeting our expectations. You know, if you look at the competitive nature of that market and you look at the other players and you then compare the simple nexus performance, this is proving out the financial model we talked about when we acquired the business and people were skeptical, number one. Number two, if you look at the stability of that organization, the leadership of the people, and the way their customers embrace them, That is a quality business, and we're going to expand that as fast as we can to take market share. You see that in the logo account as well as the year-over-year revenue growth. Always remember, when an industry starts struggling, they look for ways to automate and how they can actually reduce manual labor with systems. And we are right in the middle of doing that with a stellar piece of software that we now are trying to prove out that we can scale into banks in large volume. So that's what we're focused on, and we'll continue to do that.
spk04: And to see them increase the number of new logos in the quarter-to-quarter compare year-over-year is something that's a fantastic accomplishment in any environment, much less in this interest rate environment. So we're pleased about that. We're going to keep taking them into the banks as well.
spk01: Yeah, and we're very proud at Insight next week. We will actually start demonstrating some of the integrations of the Encino products with Simple Nexus products and into the platform. For instance, when you're on there working at a home buying experience, you can open accounts, you can apply for unsecured lending products, et cetera. And the more we integrate these two products and we drive that vision of a single platform, the more attractive this will become. It also gives us another penetration point on the retail side of the bank, because when I look at the SAM that we've defined, You know, you have to tag that retail SAM from any angle you can, and I think Symbol Nexus is just another great tool for us.
spk05: Thank you.
spk10: Thank you. And our next question comes from Charles Naveon from Stevens, Inc. Your line is now open.
spk14: Good afternoon, and thank you for taking my question. Pierre, you touched on this in response to the last question, but I'm curious about the mix of community banks within the pipeline for Simple Nexus. And I know you're still in the process of integrating, but I guess over time, could we envision the mix shift in revenue coming more from community banks and from your existing portfolio as opposed to independent mortgage banks? And secondly, if you could comment on, you know, the state of employment and labor within your independent mortgage base. It sounds like the bulk of the layoffs at certain institutions are more centered around back office as opposed to brokers, and that digitization is a means of improving efficiency. But any comments you could provide on that I think would be incremental. Thank you.
spk01: Well, let me first say SimpleX has a great reputation in the independent mortgage banker's world, and we will not take our focus off that marketplace. That is true. critical to us as we grow that business. And we even see for some of our products an interest in that marketplace for some of the Encino stuff and integration. But if you come over to banking, our presence in our brand, and Josh is going to comment on this as well, It's tremendous, and people like the single platform story. So we have incentivized our sales teams at Encino to actually take the Simple Nexus product into there and then get their domain expertise in to help them to sell it and explain it. And we are seeing great receptivity. And again, that's based on reputation for delivery. Josh, any comments on that?
spk04: We did. We were able to announce our first cross-sale during our last quarter. We're continuing to take that motion and tell that story. The teams are working great together. We feel that we have two like-minded teams, and the kind of customer that's going to look at digital transformation through the lens that drives them to Encino can also drive them to SimpleNexus. So it's going to be fun to continue to expand their market share in banks.
spk01: Yeah, and the trends we're seeing in those markets, there's a slowdown of refis. It's actually the middle back offices is where they reduce their staffing, and they keep as much of the front line going. And that's where SimpleNexus comes in and helps them because that creates that home buying ecosystem connecting the mortgage broker with the home buyer or the mortgage applicant along with the rest of the ecosystem. And that makes that solution very sticky. So we feel very good about that.
spk13: Great. I appreciate the caller and I'm looking forward to seeing everyone next week. Thank you. Look forward to seeing you. Thanks for coming.
spk10: Thank you. And our next question comes from Alex Sklar from Raymond James. And your line is now open.
spk02: Great. Thank you. Josh, another strong international quarter. I just wanted to see if you could talk about where productivity stands for that newer international team relative to the U.S. where it's a bit more mature. And with that, how should we think about additional international capacity in terms of priorities for the next 12 months?
spk04: We've brought a lot of team members on in those markets over the last couple of years, continue to get them onboarded and build that pipe. These are large opportunities and large accounts, which allows us to tell some fun stories, but the deal cycles are long. That's the game that we play, and we feel like we understand exactly how those cycles navigate, and that's coming together as you see us able to announce another big four account in the U.K. One point that we haven't hit yet during the Q&A is if you look at Avenue Bank, which is a challenger bank in Australia with a very unique tech-enabled model for small business lending. That kind of account is out there. They need Encino, and we're going to continue to refine those partnerships, bring them on the platform, take them live, and use that to drive further conversations.
spk11: And then in terms of future investments, we've made big investments in countries. The initial foundation is there. The entities are set up. We have a team there. And so as we see traction there, and closing of deals will then add incremental, but it does not require a big investment, which is part of the reason why we can get to profitability next year because we've made those investments and we're actively selling in each of those countries.
spk02: Okay, great. Thanks for that, Collar. And, David, just to follow up on the simple nexus outlook, I think if we look at the first half or the second half revenue contribution, it does imply a little bit of a ramp in the back half of the year. Can you talk about the visibility into that acceleration? Is there any sort of seasonality or similar seed activation component to Core and CINO? Thanks.
spk11: Yeah, so Simple Nexus seasonality, they usually have a stronger second quarter in terms of bookings because of the seasonal nature of home buying, right? People enter into the summer, get kids into schools, buy the houses. And so we would expect to see stronger bookings in the second quarter, and then that will then flow into third quarter. And so that's the way historically it's trended in the past, and we would expect that to continue this year.
spk02: Okay, great. Thank you.
spk10: And thank you. And if you have a question, that is star one. Again, if you would like to ask a question, that is star one. And our next question comes from Mauro Molina from Piper Sandler. Your line is now open.
spk06: Hi. Hi. Hi, just jumping in for Brent here. Thanks for taking our questions. So just to circle back on Nick, you know, I know you cited some impressive stats on BankOS penetration and automated spreading. And I guess I'm just curious, what's sort of been the biggest driver of that adoption? You know, is it more of a function of cost savings through automation or are customers more so using it to boost top line growth? And then I have one follow up.
spk04: Auto-spreading, there's a few aspects to that. One is employee experience. In this market, everyone's competing for talent. Getting rid of the mind-numbing task of looking at an unstructured financial statement and then keying that into spreads is going to make that employee obviously more efficient, more effective. It's also going to allow you to compete better for the top talent out of university or out of the market. So there's obviously the efficiency piece. There is the employee experience piece. And there's also the competitive piece that a bank gets from streamlining and optimizing the time with which it takes to underwrite that loan. Pricing and profitability will continue to allow banks to look at how they price those loans, ensure that they're optimal, not just from a pricing perspective, but also from a risk perspective as they look at their loans. And then, obviously, portfolio analytics as that team prepares for CECL, that's That's a regulation that will be implemented next January. The financial institutions have to be compliant, and so obviously that will help them keep their eye on their business while following the rules. Does that answer your question?
spk06: Yeah, absolutely. That's very helpful. And then similarly, as it relates to SimpleNexus, given the challenges that we've seen in the mortgage market, I guess what's kind of resonating most about SimpleNexus with customers that's allowing you to drive that? I think you said it was 80%. customer account growth? You know, is it, again, is it more a cost, a function of cost savings or is there something else at play there? Thank you.
spk01: No, I would say it's the home buying experience, but also it's the stickiness of the software or the app in the hands of the mortgage broker. So, so you have to think you're a mortgage bank. You want to maintain your very best performance because even though the market is down or the volume is down, you want to maximize what's out there and gain market share. Okay. And so if you now start taking away the experience of the home buyer as well as the tools that the mortgage broker is using, then what's going to happen? Your people will leave for other institutions, okay? And so what we've seen is, and what intrigued us from day one, is because the Simple Access app is being used by the mortgage broker, the insurance agent, by the home buyer itself, and by the other people in the ecosystem like the real estate broker, this becomes a crutch for them, and they communicate through this, and that's how they make the deals happen. And so you can't take that piece of software away because then you lose your top lenders, okay? So that's why we see a lot more sticky business with SimpleNexus than I think your other players, which is more focused on just the mortgage application. And that ecosystem has been instrumental in us. And that's where they see it. They maintain the top players that they can get the top producers in that marketplace.
spk06: Great. Very helpful. Thank you.
spk10: Thank you. And our next question comes from Ken Sachovsky from Automonas Research. Your line is now open.
spk07: Hey, everyone. Good afternoon and thanks for taking the question. I just want to follow up on the question on retail and Hancock Whitney. It sounds like you're gaining a lot of traction with the retail solution across larger FIs and If I remember correctly, I think the feedback we heard around the time of the IPO was that retail was resonating well with smaller customers, but not necessarily with bigger banks. So I guess the question is, how much of a tipping point is this for retail where you're going to start seeing larger customer wins? And then I guess, do you think these new wins come from new customers or is it more of a cross-sell opportunity?
spk04: So as we look at a solution, we try to refine it down market and take it up market. And we think all these banks need to solve these problems, so we'll try to tell it to everyone. Relative to where is the opportunity, a lot of our customers that pick Encino pick us not to solve a point solution, but because they believe that they need that platform to fulfill all those products in one place. So the goal is obviously to take this within the existing commercial framework. small business customer base and expands into retail or consumer. We'll continue driving on that. And as you see, Hancock actually came to us because of a retail problem they wanted to solve. It's a great validation that we can start there as well. So we're going to try to take the product into the market on both axes.
spk01: Yeah, so let me just add to that, you know, what makes the platform so appealing versus Point Solutions? Remember, these banks have deployed Point Solutions by product line. So if you go for a HELOC, that's a specific product. If you then go for a car loan, that's a different product. And then you go for an unsecured loan, that's a different product. So you've submitted now your driver's license, maybe your tax returns, maybe your credit score, and then you go for a different loan product, all of a sudden you feel like a new customer again. What Encino has done effectively is to take that CRM view, which is a 360 view of all the products that you may have of that client, and then reuse the documentation and your data over and over. And even better, if you're a small business owner, your personal business is shared with your business, so you don't have to reenter the same data. So there's an efficiency, there's an employee satisfaction issue, and there's also a customer satisfaction issue. And all of those in the end overpower the existing infrastructure. And that's just the way we think about it. You know, when we started the company, people said nobody will ever go into the cloud. Then once we became successful, they said, no big bank will ever buy this. Then once we got that one, they said, international will never do this. We got that now, okay? So now we're on this retail path. We're patient, we're gonna get it right, and we'll take the market.
spk07: No, that makes a lot of sense. Thanks for that, Pierre. And then as I follow up, I wanted to ask about Simple Nexus and the cross-sell opportunity, because it seems like you're gaining traction there. Now that you've owned that business for several months, Just talk a little bit about what that cross-sell might look like and what kind of cross-sell figures you think you can achieve, you know, either from a customer standpoint or a revenue standpoint over the next few years.
spk04: As you look at our customer base on the bank operating system side, this is typically a very senior company. persona within the financial institution that will not just authorize Encino to come into the financial institution, but they actually sponsor it. They're actually part of that change. And so we have those relationships, and the goal is to leverage those relationships that we've worked hard to earn. and use those to get an opportunity to tell the Simple Nexus story. So that's a pretty simple description of the motion. That's what we've taken with the bank operating system, and now with the Simple Nexus team on board, we're continuing to pursue that.
spk07: Okay, great. Thank you very much.
spk10: And thank you. And I'm showing no further questions. I would now like to turn the call back over to Pierre Nade for closing remarks.
spk01: Thank you, operator. While there remains a lot of uncertainty about the overall economy, what is certain is that demand for digital transformation of financial institutions is not going away. Consumers and financial institutions continue to seek out technology solutions that increase efficiency and transparency, improve operations, reduce turnaround times, and provide an overall superior experience. That is why Encino and SimpleNexus remain extremely well positioned to capitalize on these digital acceleration trends. We are seeing the positive results of our innovative cloud-based platform offerings, coupled with our predictable recurring revenue model, our experienced team, and our unwavering dedication to our customer success. Thank you all again for joining us today, and we look forward to seeing many of you at our Insight Conference next week. You have a good evening.
spk10: This concludes today's conference call.
spk01: Thank you for participating. You may now disconnect.
Disclaimer