nCino, Inc.

and welcome to the Encino Fourth Quarter and Fiscal Year 2023 Financial Results 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, and instructions will be given at that time. As a reminder, this call is being recorded. I would like to turn the call over to Harrison Masters, Director of Investor Relations. You may begin.

Harrison Masters Good afternoon, and welcome to Encino's Fourth Quarter Fiscal 2023 Earnings Call. With me on today's call are Pierre Naudet, Encino's Chairman and Chief Executive Officer, Greg Ornstein, 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, the financial services industry, and global economic conditions. NCINO 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 and as an exhibit to form 8K furnished with the SEC just before this call, as well as the earnings presentation on our investor relations website at investor.ensino.com. With that, I will now turn the call over to Pierre.

thank you harrison good afternoon and thank you all for joining us today we are pleased to share the details and accomplishments of our fourth quarter and 2023 fiscal year with you but before we walk you through those results i would be remiss if i did not acknowledge the events of the past few weeks which have been impacting the banking sector we are all aware there has been significant turmoil and uncertainty surrounding financial institutions, particularly certain regional banks in the United States. As you will recall, a few weeks ago, we filed an 8K regarding our known impacted customers, Silicon Valley Bank and Signature Bank, which were both taken over by the FDIC. These financial institutions collectively represented less than 2% of the company's total revenues the third quarter of fiscal year 2023 that was true for the fourth quarter as well since that 8k was filed we received notice from the fdic that bridge banks have been established to assume the contractual obligations both banks had with encino and that they have the full ability to make timely payments to vendors subsequently We took note of announcements that First Citizens and New York Community Bank would acquire assets of Silicon Valley Bank and Signature Bank, respectively. We will continue to monitor the situation and see how this plays out, just as we would with other bank M&A situations. Let me remind you that Encino has a large and diversified customer base representing more than 1,850 financial institutions of all types and sizes around the globe. We remain well positioned, well capitalized, and confident in our ability to support our customers as they navigate through current conditions. What we continue to focus on is taking care of our customers, developing innovative cloud-based software, and strengthening our partnerships across the financial services ecosystem. As a management team, those have always been and will continue to be our key priorities. We are incredibly passionate about the company we have built and the future promise and growth opportunities we see for this business. We will continue to focus on controlling what we can control and the markets will do what markets do. We have a great business model, a healthy balance sheet, industry-leading software, and a seasoned management team that has been through many different economic cycles. I am confident in the team's ability to manage through the short-term challenges while continuing to position Encino for long-term growth. And now with that, let me turn back to the results of the fourth quarter. We are pleased that in Q4, we once again exceeded expectations. Total revenues grew 46% and we posted another profitable quarter on a non-GAAP basis. $5 million better than the midpoint of our non-GAAP operating income guidance. We improved our full year loss by $32 million compared to the midpoint of the guidance we provided at the beginning of the year. I'm proud of the team's successful execution toward accelerating our path to profitability, which we first committed to during the second quarter last year. The difficult mortgage market made SimpleNexus' fourth quarter performance especially impressive. The team had its largest sales quarter ever, including signing three of the largest initial deals in its history. There were also seven cross-sells into the Ancino installed base, along with five competitive takeaways. We again increased market share, which will be particularly valuable as mortgage demand rebounds. Two additional points to highlight on SimpleNexus. First, SimpleNexus has been making solid progress expanding its footprint into banks and credit unions, as evidenced by their mix of new customers this past year, which was almost evenly split between banks and credit unions, and independent mortgage banks as compared to prior years, where it was much more heavily weighted to IMBs. Second, we are seeing Simple Nexus getting engaged in larger sales opportunities. These are just two of the many benefits we have seen from the Simple Nexus acquisition. To that point, We are now one Encino with all of the SimpleNexus and Encino teams integrated, including engineering, sales, and marketing. I'm very excited by the progress we have made to date integrating the SimpleNexus technology with the Encino platform. And by the continued traction, we see cross-selling to banks and credit unions within the Encino customer base. In Q4, The macro uncertainty definitely had an increased impact on banks and their ability to move forward with buying decisions. We continue to see strong interest from financial institutions in modernizing their operations with our platform. The issue we saw in Q4 was an unprecedented level of deal scrutiny, particularly with larger opportunities. We highlighted this issue in Europe earlier in fiscal 23. we faced similar behavior in North America, including Canada. The good news is that just as we saw some deals that were delayed in Europe last year get signed in Q4, as Josh will discuss shortly, we still believe the deals that slipped in Q4 will close in the coming quarters. The reality is that banks need to digitally transform. That was true when we started Encino, and it's even more relevant today. In order to thrive, financial institutions must provide the personalized customer experience and ease of use of a fintech while benefiting from a bank's lower cost of capital. The health of our pipeline only reinforces that banks are embracing this view. Even if moving from a prospect to assigned customer is taking longer than we would like. The extended sales cycles and increased deal scrutiny I mentioned led to fourth quarter net bookings that did not meet our expectations, which is reflected in RPO. Yet, we remain focused on achieving Rule of 30 profitable growth for fiscal 24, specifically subscription revenue growth and non-GAAP operating income margins, thanks to the durability of our business model. But let me be clear. While cost efficiencies, including with the integration of Simple Nexus, are at the center of our ability to increase profitability, our overriding focus remains on driving growth. We are continuing to invest in product development, especially around data utilization, and integrating Simple Nexus technology into the front end of the Encino platform. We are also prioritizing sales and customer success by deploying teams to cover the global SAM and maintaining the touch points key to our success in renewing and expanding with our customers. The excitement and enthusiasm from the global team at our company kickoff last month set a solid tone for the year ahead. We'll share this enthusiasm when we welcome over a thousand strategic partners and customers from global, enterprise, regional, and community banks and credit unions to Insight 2023 in May. This year, we have moved our annual conference to Charlotte, North Carolina, to accommodate the increased demand. And we are excited to gather for three days of keynotes, breakout sessions, product demonstrations, and networking across the Encino ecosystem. Greg will provide the details on our fiscal 24 guidance, which takes the more difficult banking and macro environment into account, even as we remain confident in our strategy product portfolio, and ability to execute. Now let me turn the call over to Josh, so he can provide operational highlights for the fourth quarter, as well as his thoughts on our positioning for fiscal 24. Thanks.

And as Pierre noted, our teams experienced a more challenging selling environment last quarter, above and beyond the typical lumpiness of enterprise and global banking. Even still, we signed marquee new logos and recorded significant expansion deals with strategic accounts. For example, our EMEA team added one of the largest banks in Ireland as a new customer, as well as the UK division of a global bank with over $75 billion in assets for commercial lending. With the addition of these customers, five of the top UK-Ireland banks use Encino. In the U.S., we saw leading financial institutions continue adding multiple solutions to their initial contract with Encino. Johnson Financial Group, a Wisconsin-based privately held financial services company with more than $6 billion in assets, selected Encino for commercial, retail, and small business lending, along with deposit account opening and treasury onboarding. As we know, banks are focused on growing and retaining their organic deposits in this environment, and we believe that offering a broad set of products and fulfilling them with a great experience is critical to maintaining a healthy deposit base. Johnson Financial is a great example of a financial institution fully embracing the Encino platform to modernize their front, middle, and back offices across product lines. They also adopted NIC with this initial contract, purchasing auto spreading and commercial pricing and profitability. Adoption of our NIC offerings continue to expand in the fourth quarter with 30% of bank operating system customers now utilizing at least one NIC solution of 50% year over year. New NIC customers included signing a top 50 US bank for commercial pricing and profitability following a process that evaluated multiple vendors. This agreement represents our largest commitment to date for a commercial pricing and profitability solution. We also saw a good upsell activity in the quarter, representing over 40% of our sales. An existing customer with $25 billion in assets continued expanding Encino across their commercial lending business, adding eight new divisions in the fourth quarter. This customer tripled their commitment with Encino over the course of FY23, expanding their adoption across multiple divisions in the western United States. Our professional services practice and system integration partners completed a record year for GoLives, including activating two lines of business in Q4 for the top 10 U.S. bank. Encino's updated small business lending offering also gained traction in Q4, as shown by proof points from People's Bank's adoption of that small business solution. When we began talking to the bank, they shared that their corporate mandate was to find ways to spend less time on transactions and more time on value-added interactions. I'm so pleased that working with Encino has allowed the bank to do just that, focusing on customers and not administrative tasks. Just two examples. Pre-Encino, a bank employee would rekey client information 37 times. Today, they key it in just once. They also shared that qualification for approval for a small business loan is happening five times faster with Encino. In a business climate where speed and efficiency matter more than ever, Encino is helping People's Bank and others It's all for a high-tech, low-touch experience with our platform. Finally, in the fourth quarter, our mortgage business signed its largest three contracts in the history of that business, a remarkable accomplishment in this environment. The largest of these was with one of the nation's premier home builders, and the other two were cross-sells into the Encino customer base. As Pierre noted, the Simple Nexus team is now fully integrated into Encino, and our execution as one team is key to our strategy in fiscal 24. By combining the two sales teams, we are activating our footprint in the banking and credit union channels, which expands SimpleNexus' cross-sell opportunities. And we will definitely maintain a focused team to continue supporting our critical efforts in the independent mortgage bank market. Our go-to-market efforts will be enabled by investing in new digital marketing tools, along with a continued focus on partner-driven lead generation around the globe and the addition of proven Encino sales leaders to the ranks in EMEA. Greg? Can you take us through the financial results?

Thank you, Josh, and thanks everyone for joining us this afternoon to review our fourth quarter in fiscal 2023 financial results. I am very excited to work with you all more closely from the Chief Financial Officer Chair. Before I begin, I would like to thank the members of our accounting, finance, and tax teams for all of their hard work and efforts and for making my transition to the CFO role so seamless. 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 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, I'll share some of the financial highlights from the quarter and full year starting with revenues. Total revenues were $109.2 million in the fourth quarter, an increase of 46% year over year, and $408.3 million for fiscal 23, an increase of 49% year over year. Subscription revenues for the fourth quarter were $92.8 million, an increase of 48% year over year, and $344.8 million for the full year, an increase of 53% year over year. Organic subscription revenues were $77 million for the fourth quarter and $285 million for the full year, representing 30% and 29% growth year-over-year, respectively. Outperformance on subscription revenues in the fourth quarter was due to add-on sales and favorable activation terms from new customers. As Pierre and Josh noted, Simple Nexus had another strong quarter in a challenging mortgage market, organically growing total revenues by 27% and subscription revenues by 28% year-over-year. Professional services revenues were $16.4 million in the quarter, growing 35% year over year, with the improvement due to higher utilization. Non-U.S. revenues were $16.7 million, or 15% of total revenues in the fourth quarter, up 39% year over year, or 51% in constant currency. On an organic basis, non-U.S. revenues were 18% of total revenues in the fourth quarter, up from 17% in the fourth quarter of fiscal 22. Non-GAAP gross profit for the fourth quarter was $70.9 million, an increase of 52% year-over-year. Non-GAAP gross margin was 65% compared to 62% in the fourth quarter of fiscal 22. Our gross margins continue to improve due to subscription product mix, including a higher NIC mix, as well as subscriptions becoming a larger contributor to total revenues. Non-GAAP operating income for the fourth quarter was $1.8 million, compared with a non-GAAP operating loss of $8.3 million in the fourth quarter of fiscal 22. Our non-GAAP operating margin for the fourth quarter was positive 2%, compared with negative 11% in the fourth quarter of fiscal 22. Restructuring charges incurred during the fourth quarter were $5 million, including severance and employee benefits. with the associated cash payments made in the first quarter of fiscal 24. The year-over-year improvement in non-GAAP operating margins was a testament to the company's discipline and focus on achieving operational efficiencies, including completing the integration of SimpleNexus. Non-GAAP net income attributable to Encino for the fourth quarter of fiscal 23 was $4.4 million, or 4 cents per diluted share, compared with a loss of $9.3 million, or $0.09 per basic and diluted share in the fourth quarter of fiscal 2022. Our remaining performance obligation increased to $944.1 million as of January 31, 2023, up 3% over $912.3 million as of January 31, 2022, with $634.8 million in the less than 24 months category, up 18% from $538.4 million as of January 31st, 2022. As Pierre noted, some large deals slipped out of the fourth quarter, which negatively impacted the total contract value added from new sales during the quarter. Duration on renewals in the quarter was in line with what we have observed since tracking RPO, but due to timing, the volumes of renewals were significantly lower in the fourth quarter of fiscal 23. This tough compare and renewals resulted in an approximate 7% headwind to total RPO growth, and foreign exchange also created a 1% headwind year over year. The contribution to RPO from new and existing customer sales was roughly evenly split. We ended the quarter with cash and cash equivalents of $87.4 million, including restricted cash. $30 million remained drawn from our line of credit. Net cash used in operating activities was $22 million compared to $21.1 million in the fourth quarter of fiscal 22. Cash used in operations included approximately $800,000 to exercise an early termination clause to exit a facility during fiscal 24. As a reminder, the fourth quarter is our strongest billings quarter, which should generate greater cash collections in the first and second quarters of fiscal 24. Capital expenditures were $4.4 million in the quarter, resulting in free cash flow of negative $26.5 million for the fourth quarter and free cash flow of negative $33.7 million for the full year. Approximately $5 million of restructuring charges accrued in the fourth quarter of fiscal 23 will be reflected in cash from operations in the first quarter of fiscal 24. Capital expenditures should begin to moderate as we complete improvements to our facilities in Wilmington this year, and we expect to generate positive free cash flow for the full fiscal year 24. We ended fiscal 23 with over 1,850 customers, up from over 1,750 at the end of fiscal 22. 465 of these customers contributed greater than $100,000 to fiscal 23 subscription revenues an increase of 72% from the end of fiscal 22. Of these 465 customers, 73 contributed more than $1 million to fiscal 23 subscription revenues, an increase of 55% from the end of fiscal 22. Our subscription revenue retention rate for fiscal 23 was 148% or 125% excluding SimpleNexus. Elevated churn from independent mortgage banks and approximately $7 million of annualized Triple P churn were headwinds to our subscription revenue retention rate for fiscal 23. As we have previously communicated, we have historically had a churn rate of approximately 2 to 3%, but last year we experienced elevated churn from independent mortgage banks, bringing our total company churn to just under 5% in fiscal 23. In developing guidance for this fiscal year, we are taking three main factors into consideration. First, we are assuming unique and historically high annualized subscription revenue churn of approximately 6% for the combined business from independent mortgage banks impacted by adverse conditions in the mortgage market, the remaining Triple P churn, and over $3.25 million from two bank operating system customers that are being acquired by non-customers. While we have frequently been the beneficiary of M&A, that was unfortunately not the case in these two specific transactions. Second, we are taking into account the extended sales cycles and increased deal scrutiny in the fourth quarter Pierre mentioned, which, along with the churn referenced above, led to fourth quarter net bookings that were below our expectations. The third main factor is that we are assuming some delays in closing deals in light of the more difficult macro environment and the current challenges facing some of our customers and prospects. We think this will be particularly true in the first quarter of fiscal 24 in light of the distractions caused by the events over the past couple of weeks, which we anticipate will cause some subscription and professional services revenues we would have otherwise expected to recognize in the second half of fiscal 24 to be pushed into fiscal 25. That said, Our subscription revenue backlog, including expected churn and anticipated renewals, currently provides for approximately 95% visibility to the 20% growth at the top end of our fiscal 24 subscription revenue guidance. Additionally, our pipeline remains healthy and supports our plan this year, and with more products available to sell than ever before, we are well positioned to execute on our top line goals for the year, notwithstanding the current environment. We also expect revenue growth from outside the U.S. to accelerate for the full fiscal year 24 in constant currency. We continue to see and invest in opportunities outside of the U.S. as our brand builds globally, and we expect accretive growth from all of the markets we participate in outside of the United States. The strong fourth quarter finish for our EMEA team was a testament to that. Note that our guidance assumes foreign exchange rates in effect as of January 31, 2023. Further subscription gross margin accretion will be dependent on product mix, and we anticipate normal seasonal variability in our professional services margin. We do expect to see leverage on all operating expense lines. With the integration of Simple Nexus effectively complete, we will provide guidance and results for the consolidated business going forward. For the first quarter of fiscal 24, we expect total revenues of $111.5 million, to $113.5 million, with subscription revenues of $95.5 million to $97.5 million. Non-GAAP operating income is expected to be approximately $7 million to $9 million, and non-GAAP net income attributable to Encino per diluted share to be 4 cents to 5 cents for the first quarter. This is based upon a weighted average of approximately 114 million diluted shares outstanding. For fiscal year 24, we expect total revenues of $476 million to $483 million, with subscription revenues of $407 million to $412 million. We expect non-GAAP operating income for fiscal 24 to be $45 million to $50 million. Non-GAAP net income attributable to Encino per diluted share is expected to be 36 cents to 40 cents, based upon a weighted average of approximately 115 million diluted shares outstanding. Please note that notwithstanding current market conditions, we remain focused on achieving Rule of 30 profitable growth this year, specifically with subscription revenue growth and non-GAAP operating income margin, with a dedicated effort on increasing that number in the years to follow. As market conditions evolve throughout the year, we will continue to emphasize growth over profitability and how we evaluate the proper balance between the two. In closing, Pierre and I were officers of a publicly traded company that sold software to financial institutions during the 08-09 financial crisis, and one of our main takeaways from that experience was that challenging times can present incredible opportunities. With our experienced team, resilient business model, strong balance sheet, broad product portfolio, global presence, and diverse customer base, we believe we are very well positioned to navigate this environment and gain market share. With that, I'll open the line for questions.

Thank you. If you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again. Our first question comes from James Fawcett with Morgan Stanley. Your line is open.

Great. Thank you very much. I guess I'm wondering a little bit of clarification in terms of your expectations around some of the affected banks, et cetera. The FDIC put out a statement on March 14th which effectively stated that bridge banks were obligated to and had the full ability to make timely payments to vendors. I guess I'm wondering, you know, how should we think about SIVB and signature bank as any headwinds to your fiscal year 24 revenue? And if not, when do you think we would ultimately see an impact from those affected banks?

Yeah, thanks, James. I mean, based on what we know today in referencing the FDIC disclosure that you just noted and our prior experience dealing with customer M&A, we're expecting both those banks to be customers throughout the year. You know, ultimately, as Pierre noted in his comments, we view this as an M&A opportunity, no different than we've dealt with over time. Consolidation is not a new trend, certainly in the U.S. financial institution space. And so from our perspective, you know, there's a playbook here that we've executed. Even though this quarter we noted that we're not the beneficiary of two M&A transactions, historically we have been a beneficiary numerous times, and that's what we'll focus on.

Got it. And I just, I guess there's a lot of places we could go, but I'm wondering if you can help us domestically decompose ACV or at least provide some directional color on the differences in exposure between small banks, credit unions, regional banks, and top 20 banks. And I guess that question is tied to kind of those loss of customers via acquisition and and just trying to get a sense of where your exposures are. And do your contracts typically have deconversion allowances or payments that would be due in those events?

This is Josh. I can speak to the ACV spread. If you'll recall, we started off in the community and regional space. We have a really nice business there, and those are accounts that we'll continue to take care of. And then we spend a lot of time speaking about the big banks on these calls. I would say ACV is pretty evenly spread across the enterprise, the regional bank market, and the community bank market. And these are times where we're grateful for the resilience that we get from that balance. Relative to our contracts, you know, we have guaranteed contracts. And so at this point, we don't see a near-term impact from those.

All right. Thanks a lot.

Thank you.

thank you our next question comes from nick altman with scotia bank your line is open awesome thanks guys um i have two quick ones the first one is just for josh um josh can you just kind of compare how your conversations with customers were before sort of all this turbulence in the banking sector and sort of what they look like today absolutely and we've had a lot to discuss because it's been busy

I think if you play it back to the end of last year, the interest rate environment has forced these banks to spend a lot of time looking at their portfolios. So even over the last couple weeks, I don't see any change in the narrative about credit quality. I would say we did see some deposit flows. It feels like that has calmed down. Some of that was from smaller accounts to bigger. Sometimes that was just bank to bank, and sometimes that was people wanting to spread out risk. What I see now from a lot of our accounts in the U.S., particularly in the community and regional market where a lot of the energy and narrative has been lately, is a realization that those organic deposits are a real source of strength. And you can't compete for organic deposits on rate and expect to retain them. That's a race to the bottom. The way you compete for organic deposits is to offer your customers a really broad set of products that you can fulfill very well and that you can fulfill across multiple channels. We've heard lots of conversations since COVID started about the need to go all digital. What I've heard from my customers recently is that when things get tough, they want to talk to a person. You still want to offer them the convenience of a digital channel, but we don't want to just throw them at a website or in an app. So the smart banks are trying to figure out how do we provide that diverse set of products and how do we engage our customers to fill those products well across multiple channels. The other piece that I've seen that I found interesting is that Commercial and business deposits are a little bit more mobile than organic consumer deposits. Bigger businesses have treasurers, and it's their job to look at where are the deposits, what are my rates. They look at the risk and they try to spread them out. Whereas if you have a commercial customer, that's their job. A family or an individual that has a personal banking relationship with you is gonna see a lot stickier deposits if you take good care of them. So that's what I hear from the market today.

Great. And then just as a follow-up, you know, you guys mentioned 4Q bookings came in below your expectations and called out some incremental macro headwinds. And now there's, you know, a little bit more turbulence in your end market. So I'm just curious, can you maybe just talk about from a go-to-market perspective, how you plan to sort of combat some of these challenges? Is it, you know, leaning more into cross-selling into the existing install base and maybe focusing less on the, you know, landing net new customers? Is it leaning more into NIC and sort of structuring sales comp incentives around some of those products that you typically sell into the existing install phase? Just maybe talk a little bit about some of the go-to-market changes, if any, that you're sort of making given the turbulence and ambiguity. Thanks.

The benefit of this team having run this company for about 11 years now is that we've seen a variety of economic cycles. In times when they get very challenging, We absolutely do see expansion and upsell conversations being easier. Greenfield is always the first thing to shut down. But we're going to continue playing the long game. A lot of our customers are looking at more budgetary and project approval scrutiny. We're doing it internally as we continue our evolution as a profitable growth company. But we're going to continue telling them that story. I think what I see from banks who are forward-looking is that even if things are tough now, they have to position themselves to grow on the other side of this cycle. So those conversations continue.

Great. Thank you.

Thank you. Our next question comes from Terry Tillman with Truist Securities. Your line is open. Thank you.

Yeah, good afternoon. Can you all hear me okay? Yep. Good afternoon. Thanks for taking my questions. I guess, you know, Kind of building on some of the prior questions on the macro side and appreciate you all providing some color in terms of what was happening in fourth quarter, particularly in the North American market. Maybe we could just talk about like how this compares to like COVID. COVID became disruptive on new business, you know, and then banks focusing on TRIP and just helping their customers, business continuity. If we're getting into a situation tighter credit lending standards and just tighter credit in general, I don't know how your business operates in that kind of environment, but how would that compare to the disruption we saw around COVID in terms of maybe becoming an ongoing challenge in terms of bookings if banks are focused on credit standards and tighter credit? Does that have a big impact? Is it too early to tell? Just a little bit more color on that. I'm getting some questions about that.

Thanks, Terry. Let me first address with you the COVID thing. Remember, there's always an initial shock that you see. And then people start realizing, what are we going to do about this? In the case of COVID, Triple P came to the forefront. And all of a sudden, we all jumped into action and saw massive opportunities short-term to digitize banks, help them distribute the money from the government, et cetera. I would tell you that the compression of net interest margins over time is becoming a new reality. And it's going to take time for the bank to realize it. And once you're, it's the same as my business, once your gross margin squeeze is there, What else is left? It's efficiency. And then you have to start looking at automation. So what we see as these trends come and go is that the need for automation and the investment in software infrastructure to actually digitize and service your customer experience in a more efficient way while keeping your people to maintain their personal relationships is just becoming more of a need and a must for these banks to have to compete effectively. What you'll find is over time is that banks who lack the investment in their IT infrastructure will be acquired, and they'll be acquired by banks with deep infrastructures that digitize everything end-to-end, and it gives a 360 customer view as well as an experience second to none. So I feel we're very well positioned as I see the market shifts that way to get used to a tighter NIM that NCN will be well positioned to help them.

That's very helpful, Pierre. Thank you for that. And I guess, Josh, just a quick question on SimpleNexus. You know, kind of glass half full, it sounded like you had three of the largest contracts ever and you're starting to have that real cross-selling motion play out. Was that less impacted? How did that perform in the quarter? And are there broader synergies you're now seeing with that integrated with the broader retail banking set of products? Thank you.

Yeah, we are very proud of the progress that SimpleNexus made. As we commented, there are three largest synergies. initial deals that they've ever signed. And I'm very proud that two of those were actually cross sales as a bank operating system customer base. So that took us to 15 cross sales in the fiscal year as we just get the motions down and get the teams aligned. SimpleNexus is fully integrated into Encino sales now. We still have a dedicated team for the IMB space. That's very important to me because they have a great market share there and we're going to keep our eyes on that market and continue expanding there. But when you look at the focus that we've had for 11 years in banks and credit unions and relationships that we have, we've talked to them about a single platform for multiple products for years. And this is just one more step towards fulfilling that vision. So in those accounts that we know in the market that we've spent a lot of time in, we're getting them great introductions. I think the cross-sale numbers that you're seeing are evidenced by that. as is the fact that this year their average deal size was up 15%. In this market, that's something I'm proud of.

Thank you. Our next question comes from Saket Kalia with Barclays. Your line is open.

Okay. Hey, guys. Thanks for taking my questions here. Josh, maybe for you, very, very helpful commentary earlier just on on how conversations have sort of changed, you know, kind of after all the news here. But I'm wondering if we could just talk about that specifically with banks internationally, maybe focusing on Europe, just kind of given all the new logos there, right? I mean, clearly there is more room for adoption in Europe as, you know, I think you talked about a big win in Ireland there. But I'm curious, how does the tone of business there in Europe compare to here in the U.S., if you can comment on that at all qualitatively?

I think it's been a little bit more measures over the last couple of weeks. We obviously have seen some of this crisis extend to European banks. I wouldn't draw a huge delineation in how they're thinking. Obviously, the deposit push in the U.S. has been a little bit unique. But we're continuing to expand in the banks where we are and advance greenfield accounts. I think it's a little bit of an inkblot strategy. You try to get one on the board, make them successful. And with time, you slowly expand. So what we did in Canada, what we've done in UKI is something that we'll continue doing on the continent and in our other international markets as well.

Got it. Got it. That makes sense. Greg, maybe for my follow-up for you, I know we've got good visibility into that revenue growth for next year, which clearly is a testament to the seat-based activation model. But I'm curious if you could comment on how you're thinking about ACV bookings growth next year. you know, qualitatively, quantitatively, however you want to approach it. But curious how you're kind of thinking about that sort of, you know, preliminary driver, right, with, of course, revenue kind of lagging behind. How are you thinking about sort of top-down, you know, ACV type of bookings next year?

Yeah, hey, Sackett. You know, we've tried to give you some additional visibility in terms of the year and the outlook, along with, again, just what we're seeing in the market. And so, obviously, we'll update you as the year progresses. As I think both Pierre and Josh noted, you know, our pipelines are healthy, remain strong. Things are moving. You know, we always want them to move quicker. But, you know, ultimately, from a bookings perspective, we'll see how the year progresses and, again, kind of focus you on, you know, the guidance that we gave and the visibility that we provided, you know, for this fiscal year.

Very helpful. Thanks, guys.

Thanks, Agathe.

Thank you. Our next question comes from Josh Beck with KeyBank Capital Markets. Your line is open.

Yeah, thank you so much, team, for taking the question. I wanted to drill down on the sales cycles a little bit. That's certainly something we had picked up as well in some of the work that we had done. From what I remember, the smaller financial institutions, I think it was roughly two to three quarters for the larger ones, I think it was about double that, four to six quarters. I know it's early and it's probably a little bit difficult to have any precision on that, but how much of an extension are you contemplating in the forecast here?

It's difficult to quantify these things this early because normally what we see in these markets is People see the bad news or they get aware of it, and it takes them time to find their feet. Like right now, I can tell you every bank is focused on liquidity, their deposit flow, et cetera. That's what they think about. And then the moment things settle down, the management team sits around and say, what do we do now? And then they have to look strategically at the long term. And that's what we're focused on because that strategic long term means they have to automate, drive their efficiency ratios to a much better point where it is today, And there will be some consolidation because some management teams just cannot get it done. But overall, we feel good about our positioning and where we sit in the market, the business model we've deployed. You've heard all the good news about Simple Nexus. So as we put this puzzle together and we grow in the market, we feel like Encino is going to be the company that actually will go and thrive through our periods like this. because of our solutions, but also our relentless focus on execution. And that is the best way to beat market sentiment.

Very helpful, Pierre. And then maybe a follow-up around the rule of 30. Obviously, you've been able to certainly contemplate that in the outlook this year, even with a lot of, I think, headwinds. Probably nobody would have really been able to to foresee just a few months ago. But, you know, as we move forward into the future years, you know, should we look at fiscal 24 as a real, you know, stepping up in terms of the operating margins of the business that, you know, could moderate in future years? Or is it something that's, you know, just a bit more of an inflection point? Just curious on how we should just kind of roughly think about that framework in the future years.

Yes, so FY24, which we're in right now, we committed to the Rule 30. I think to change from a pure growth company to a profitable growth company was strategically important to us. I think the ability of this team that they've shown they can execute and they can do that. We believe the cost basis of the business is now right in line with our execution expectations. The building of product, our go-to-market strategy, we cover the SAM well. So I feel good about all of those line items. If you look longer term, We want to be a marquee profitable growth company, which means we have to grow beyond the rule of 30 over time. But I'm not going to give specifics because we'll have to look at market conditions. But overall, our aspirations, as you know, has always been very bullish.

Helpful. Thank you, Pierre.

Thank you. Our next question comes from Charles Nobbin with Stevens. Your line is open.

Hi, good afternoon, and thank you for taking my question. Most of my questions have been asked, but I wanted to ask a quick one on the independent mortgage market. Specifically, you know, the market obviously had quite a few layoffs last year, but where we stand today, in the conversations you had, do you feel as though the majority of your customers have right-sized their customer, their employee bases at this point?

Yeah. Clearly, we've been watching the mortgage market adjust to this new environment and really the extra capacity or the excess capacity that it has being wrung out of the system. And we saw that in last year. And again, we had heightened elevated churn as a result of that. And coming up with the guidance for this year, we are still assuming some heightened elevated churn. Obviously, we're optimistic that some of it is behind us or most of it is behind us. But as we think about this year, you know, it's really time we'll tell. But with what happened last year and what played out, you'd like to think you're on the other side of it without confirming that it's passed us completely.

Got it. And just a quick follow-up on competition. You compete against institutions of all sizes across your markets. And just curious if – there's potential for dislocation at the lower end of your competition set that you could potentially take advantage of going forward. Again, I know it's early, but I just wanted to get some commentary on the potential market dynamics.

Absolutely. We're always proud of our product, and we start with that when you look at the Encino company's story. If you're looking at a company that has been profitable now for two quarters, we will be cash flow positive this year. And despite the shift to profitable growth and the margin expansion that we discussed earlier, we'll put $100 million into our product this year. So that stability and that commitment to investment is a great validation point as banks select their partner. And we do believe that that discipline and execution that we've shown is going to differentiate us as they evaluate vendors.

Got it. Appreciate the caller. Thank you.

Thank you. Our next question comes from Jackson Ader with SVB Moffitt Nathanson. Your line is open.

Great. Thanks for taking our questions, guys. The first one is, were any of the deal closure or bookings issues in the fourth quarter Do you think any of those had to do with the timing of the workforce production that was announced?

We've had no feedback to that point. We didn't see any negative impact from that, and we didn't see any negative feedback from a market perspective. Those specific cases are very large banks that is scrutinizing their deals and making sure they do the right thing at the right time. They have to align all their resources to be in line with large projects like that, And those are typically the factors that comes into play.

Okay. Yep, that's fair. And then following up on Spackett's question earlier, Greg, you mentioned, you know, still strong, healthy pipelines, but I'm curious, pipeline coverage, right, like pipeline coverage ratio relative to a year ago, is that, you know, up, down, or flat from what it has been in previous years? Yeah, and I'll actually, Josh, you probably want to answer that.

Absolutely. As we look at the pipe and we set our goals here, we're going to look at a few things. Obviously, we're going to look at the existing pipe for a fiscal period. We'll look at deals that we're able to pull forward from the farther period. We'll look at deals that might slip. And then we look at the pipeline generation and demand generation that we're doing. So at this point, as we evaluate the pipeline and try to make sense of what's going on in the news, we feel confident that we have the coverage that we need to execute on the plan that we just put forward.

Jackson, that's something we've always reinforced is covering the SAM with the market opportunity we have. It's critical that we do that. We obviously factored that in, getting back to your first question around the workforce reduction that we did in January. Again, making sure that we've got folks in the right places so that we can continue to focus on our growth aspirations.

Yeah, let me make one more comment about that because, you know, people hear that event and the headlines are there, et cetera. But if you look at the size of the company and the size of the reduction, it was less than 7%. I reminded one of my customers the other day when we went public, and these are public numbers, in 2020, we spent $38 million in R&D. This year, as Josh mentioned to you earlier, we'll spend over $100 million. This company is committed to innovation. It's got a platform approach. It's got a seasoned executive team and people who's motivated to change this market over time, and our customers are seeing that. It's deep partnerships, and that level of innovation and commitment, as well as account assignments and salespeople on the field, we maintained in place, and I feel pretty good about that. We'll get through this short period, and then we'll take more market share.

Okay. All right. Thank you.

Thank you. Our next question comes from Kyle Peterson with Needham & Company. Your line is open.

Hey, good afternoon, guys. Kyle Peterson on for my own tangent. Thanks for taking the question. I just wanted to touch a little bit on some of the commentary with the sales cycles kind of getting pushed a little bit and then obviously some of the recent uncertainty in the last few weeks. It seems like that's at least kind of baked into to the guide. Um, but you know, just want to see how much more kind of malaise or uncertainty in deal cycles is kind of built in to the guide this year. And I guess what I'm kind of getting at is, you know, if this continues for another couple of months or a couple of weeks or whatever, um, are you guys still confident that, um, you know, in the guide you've, laid out this year, or is there some downside risk if some of this uncertainty and instability continues here?

Look, so firstly, all known factors today in the market has been accounted for in our guidance. So we assess the market, we speak to our salespeople, we speak to our clients, to our prospects, and all of those factors were considered in this guidance. Secondly, if you look at the end of Q4, end of January, there were no liquidity crisis in banking at the end of January. It came very sudden about two to three weeks ago. So those things can pop up. So I cannot forecast exactly what this, as you call it, malaise or downtrend in sentiment will be in banking. What I've seen in the past is that the bankers react immediately to actually make sure they can survive, which in this case is make sure their balance sheets are in place, where they have the necessary liquidity, not only from compliance and regulatory perspective, but also from a survival and a healthy bank deposit-based perspective. The moment they're through with that and they take their breath, they actually start focusing a lot more on the strategic future of the bank because they have to understand what they're going to do next. And it's not only about loan making. It's about managing those portfolios effectively and properly. And that's when Encino comes in. Over 80% of the work that's being done in our systems are typically around portfolio management, renewals, covenants, collateral, make sure it all is in place. And only about 20% of the amount of work is on loan origination. The same with our deposit account opening systems, et cetera. So I feel very good that you're going to see this short-term lull and then all of a sudden the sales cycles will start moving forward again. You cannot push these deals forever. We haven't seen losses. What we're seeing is just slower decision-making.

Yeah, and Kyle, I'll just point you to that 95% visibility that I highlighted in my prepared remarks, again, to address your question in terms of how we approached giving that guidance.

Thanks. That's helpful. And then, you know, I guess just maybe kind of a higher-level question on your client mix here. Could you give us at least kind of qualitatively or kind of in terms of where some of your exposure in the client base is highest between if you consider kind of enterprise or money center banks versus some of the larger regionals versus maybe community and more credit union type focused banks just so we have a bit of a sense at least kind of in aggregate where you guys kind of play the most significantly with in the client mix?

In the U.S., it's spread pretty evenly across the enterprise, the middle market or the regionals, and community and regionals. Outside of the U.S., you don't really see that robust middle market. It's a little bit more top-heavy or weighted towards the enterprise. Then outside of the U.S., we see more de novos or challenger banks So just slightly different, I think, because the industry looks different in different countries. But that's generally how our revenue is laid down across the globe.

All right. Helpful. Thanks, guys.

Thank you. Our next question comes from Alex Sklar with Raymond James. Your line is open.

Thanks. Pierre, I want to follow up on your answer to Kyle's question just a second ago. In terms of bankers figuring out how they're going to survive first, Can you talk about in your conversations what bogeys are out there in terms of when banks and bankers are going to get confident that they're going to get to that survival period? Is there any sort of commonality, like a June 30th kind of review period, or what are you hearing from banks in terms of timelines?

No, what I would say is there was this immediate deposit flow that obviously shocked the banking environment. When SGB had that run on the bank and there was a ripple effect, There were analysis done, and you heard certain names come up. You heard signature, and you heard certain other names in the news where people were concerned about liquidity. Fortunately, some of the big banks stepped in, made sure there was adequate liquidity. That whole notion is now settled down. When you speak or you actually look at the average deposit account balance across the market, it sits around $1,300. So if you look at that, the majority of banks sits around that mark or lower, which means that the exposure for a few big accounts moving is a lot less. And the moment people understood that and started understanding how that ties into liquidity and the raising of capital, that whole notion is settled down. There's a lot of awesome math and second guessing going on now, as you saw today, there was big meetings in Congress on the Hill around what happened to SGB, et cetera. But that was a unique case with a very high account balance per account in that bank and similar to Signature Bank. So I would say the CEOs are settling down. I've spoken to a number of them. They realize now they have to look at their loan book once the balance sheet is in place. Look at your loan book. The loan book is healthy. They feel good about that. And now they tend to ease out of this mode into what do we do with this bank strategically? And that's where we come in. So I feel good that there's always a short-term shock factor, but it's actually moving beyond that.

Okay, great. So maybe this follows up on that. But on the deals that did slip, have you seen any of those close to date? And can those deals still impact FY24 results?

Those deals did not slip because of any of these factors of the last month or so. The liquidity crisis came after that. Those deals slipped. If you look at a global basis and you look at some of the layoffs of some of the largest system integrators and you see that some of these very big projects, okay, get delayed, that's the kind of thing you're seeing. What I would tell you is those deals are in full progress. We're very confident it's going to close, and people are committed. It's budgeted for, et cetera. So we feel good about them.

Got it. Yeah, my mistake. Clarifying the fourth quarter deals that slipped, when those given time to book the bills, can those still impact this fiscal year's results, though?

You know, potentially it's going to depend on timing. It's a fluid environment, so we've given the clearest guidance that we can based on the world as we see it today.

Okay, great. Thank you.

Thanks, Alex.

Thank you. Our next question comes from Bob Napoli with William Blair. Your line is open.

Good afternoon. Thank you. So maybe around a separate question that was out there. I mean, Pierre, are you seeing banks, you know, really tighten credit? Do you think you're... I mean, are you seeing the number of commercial loans? I know you... I think you mentioned earlier that only, you know, a low percentage of your revenue is tied specifically to commercial loans. But are you seeing a... a significant slowdown in the number of loans. And I'm sorry, could you remind us what percentage of revenue maybe is directly tied to that loan underwriting portion?

Yeah. No, no. We don't measure the number of loans we do because we're not a transaction volume-based revenue model. What I was meaning by that is if you look at the workload of people inside the bank, 80% of what they do is to work on the existing book of business and renewals and making sure the covenants and collateral stays in place. and that the bank is well covered. 20% is actually new loan origination. Is your very common notion that where the effort of banks sit, okay? No, we obviously, as you know, it's heavily weighted towards a commercial loan portfolio. That is where we started the company. And I cannot comment on banks' credit policy or what they're doing. What I would tell you is they're all dealing with rising rates, which means lending is more expensive to the end consumer. and that's just a fact of life.

I think the reality is it's a bit of a binary reality. You're either going to lend money or you're not going to. And if you're going to lend money, you have to do it well because regulators won't let you do it poorly. So we're not seeing banks leave the market, and we see a renewed vigor in this environment that they need to manage that portfolio well and also take good care of their customers along the way.

Thank you. And just on industry consolidation, I know the industry has been consolidating for a long, long time. And actually, the number of banks in certain sides have actually increased while the really small banks have decreased. But what are your thoughts on if we see continued substantial industry consolidation over the next five to 10 years? Are you looking to expand your SAM in some other ways? Or how does Encino thrive if they say the number of commercial banks in the U.S. were to be cut in half over the next decade?

Absolutely. And we've seen this wave of consolidation for a little while and have spent a lot of time there. First of all, Encino will continue to serve both the enterprise and the mid-market and the community banks because we don't think that community banks, regional banks in the U.S. will go away. The composition of the market might look slightly different. We have been the beneficiary of that consolidation due to our upmarket uh footprint that we have and frankly encino is a great value proposition for an acquisitive bank integrating cores is work consolidating branches is work but a lot of the real opportunity and potentially the risk of a consolidation is actually rolling a bank into your credit culture with encino on day one you can provision a license you can train your users and they're rolling within your credit policy That's pretty attractive to a bank that wants to grow from consolidation. The other piece to mention, because we are spending a lot of time talking about the bank operating system, is to look at the opportunities that we have to continue upselling Simple Nexus to these accounts. As we said, 15 cross-sales this fiscal year. And if you look at our customer account that we disclosed, we're just getting started. If you look at the continued growth of Nick, we haven't really talked about this. Coming out of the year, 30% of our bank operating system accounts use one NIC solution. That's 52% year-over-year growth. We're quite proud of that, and we have more than that one solution, and we have more to offer them than one choice. So, you know, we feel that the consolidation market is one that we can navigate. And then with time, this asset that is the Encino customer base will be able to enjoy our increased and ongoing innovation in the product. as we continue to go back and help them better leverage what they've bought from us and also have more solutions to optimize their business.

Thank you. Appreciate it.

Thank you. Our next question comes from Ken Sachosky with Autonomous. Your line is open.

Hi. Good evening, everyone. Thanks for squeezing me in and taking the questions. I just want to ask about the delayed sales cycle. Can you just talk about what you're seeing across companies the different segments of your customer base? And I guess I'm mostly interested in any differences based on the size of the financial institution, or is it a kind of across the board type of slowdown? And then also any differences in terms of what you're seeing across your bank versus credit union customers?

I think in general, it's just a little bit more scrutiny, potentially where any financial institution might have pre-approval a delegated approval they may say hey let's send this to the board you know you may have an initial look with the CFO in different times and now they want to do a lot deeper business case we're happy to have those conversations because we've had those business conversations for years and we know that the business value that we provide is going to stand up but it impacts timing relative to difference in segment market to market look I I I think if banks and credit unions and IMBs are all navigating this because they're all out in the market dealing with this uncertainty, I wouldn't draw any big generalizations at this point. We might have observations as this continues to play out, but it's just generally the customers we serve.

Okay. All right. That's helpful. And I think you guys called out a 7% impact to RPO growth, and I think that was due to renewals slipping out of the quarter. So, Any sense of when these deals might close? Should we expect a strong kind of fiscal 1Q, fiscal 2Q RPO number? And then just taking a step back, RPO grew 3% year over year this fiscal year. You know, the OPEX growth in the business is slowing. Margins are moving higher. So can you talk about your confidence in revenue growth remaining robust as we move throughout the year and in fiscal year 25?

Yeah, Ken, on the 7%, it was really just Q4 over Q4. We had substantially higher renewals last year, Q4. And just based on timing, you know, we did not have as many this Q4. And so it wasn't anything moving. It was just from a timing perspective. It was a tough compare, which equated to that 7%. You know, as it relates to RPO, you know, we don't run the business to RPO. I think as we previously discussed, it's really an output. of our operations. Last year was a big RPO year, particularly with renewals, as I just mentioned, in Q4. But ultimately, it can be lumpy. And so, as we've discussed, I think going back to our IPO days, just take that into account as we disclose that number. Okay.

Thank you very much.

Thank you. Our next question comes from Brent Raceland with Piper Sandler. Your line is open.

Hi, everyone. This is Mauro, just jumping on for Brent. Thanks for squeezing us in. I'll just ask one, and it's around the Insight 2023 conference. So how important is that conference in sort of driving new bookings activity? And obviously, we're still a ways out from the conference date, but have you picked up on any relevant data points as to how interest for that event is trending just in light of the environment that we're in. Thanks.

Yeah, thank you. You know, we're seeing actually quite a high level of interest increased over last year. Due to that volume, we had to move it to Charlotte. So I feel very confident that we're going to have a great conference. Nobody sells Encino better than our customers. And when you bring ProfTech together with our installed base, people who have been with us for a long time, And they see that energy and the positive feedback from customers, not only on stages, but actually in more settings around casual settings and informal settings, and they can speak to them directly. That is tremendously powerful. And we, every year, see a tremendous output from that conference. So we're glad we're going to have it. Volume is up for us. Interest is higher than ever before. It may be our largest conference ever. Period. It will be. It will definitely be. I'm just reminded here. It will definitely be the largest conference ever. Is that guidance?

Thank you. Our next question comes from Brad Seals with Bank of America. Your line is open.

Hey, this is Adam Brashear on for Brad Seals. Thanks for taking our question. Just a quick housekeeping one. Could you just explain or give some color around the delta between RPO and CRPO and just any changes to duration or the impact duration might be having on those metrics? Thank you.

From an RPO perspective, again, up 3% year over year. The less than 24% was up 18%. As we noted, there's tough compare on renewals, the 7% headwind, as we talked about, just based on timing of renewals, and then the 1% FX headwind. And then, again, we talked about a few large deals slipping, which obviously would have impacted RPO had they come in in Q4.

I want to make sure that the renewals is not slippage. A renewal is a contract time when the contract renewal comes up. And it may be that in one year we had a massive Q4, and the next year we had a smaller Q4. And what will happen is when that renewal is three or five years old, if they all lumped together last year in Q4, then I had a big renewal quarter. Or if they didn't, maybe they all lumped together the previous year, then my renewal is lower for last year. That's where that comes from, okay? The deals can't slip because once the contract is up, it has to renew or they have to go somewhere else.

Yeah, and last year we had some long-duration renewals, which obviously would impact that number as well.

Yeah, which is massive coming into that RPR.

Okay, got it.

Does that address your question, hopefully?

Yeah, just last point of clarification. Is it fair to say that duration did come down on a year-by-year basis then, Q4 to Q4?

Let's take a look into that, and we can follow up. Okay. All right.

Okay, no problem. Sounds good. Thank you.

Thank you. There are no further questions. At this time, I'd like to turn the call back over to Pierre for any closing remarks.

To everyone on this call, thank you so much for coming to our earnings call today. As always, we are grateful for the support of your stockholders, customers, and partners, and for the tireless efforts of our employees across the globe. Thank you, and have a good evening.

Thank you. This does include the presentation. You may now disconnect.