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spk09: Good day and thank you for standing by and welcome to Encino second quarter fiscal year 2024 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. To ask a question during the session, you will need to press star 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would like to introduce your host for today's call, Harrison Masters, Director of Investor Relations.
spk08: Please go ahead.
spk17: Good afternoon, and welcome to Encino's second quarter fiscal 2024 earnings call. With me on today's call are Pierre Naudet, Encino's Chairman and Chief Executive Officer, Greg Orenstein, 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. 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. 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 and as an exhibit to the Form 8-K 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.
spk00: Thank you, Harrison, and thank you for joining us this afternoon to review our second quarter fiscal 2024 performance. We are very pleased with the results and the momentum we saw both throughout the quarter. Both total and subscription revenues increased 18%. while we again outperformed on profitability, posting a 10% non-GAAP operating income margin for the quarter. We saw strength in sales activity across all parts of our business. We said last quarter that we expected a recovery in the second quarter, and we certainly saw that, with second quarter sales up 22% year over year. Our solid results mirror what we are hearing from customers. The U.S. banking industry has largely stabilized with the liquidity crisis behind us. Essentially, banks have caught their breath and most have refocused on their long-term strategy, which includes optimizing their technology infrastructure and providing a superior customer experience. The Encino platform was architected for just these purposes. It provides banks and credit unions of all sizes a 360-degree view of the customer allowing them to create a personalized, differentiated experience on a single platform. Leveraging this holistic view of the customer, Encino facilitates gathering deposits originating any loan product, onboarding customers, and portfolio management all from one platform. In addition, our NIC products, such as commercial pricing and profitability, allow financial institutions to broaden their customer relationships, cross-sell, and optimize for profitability. This, of course, ultimately enhances their ability to successfully compete in an evolving market by balancing risk and reward. With high interest rates still in effect, financial institutions are seeing pressure on net interest margins. The most effective way to offset margin compression while maintaining credit quality is by driving greater efficiency. Encino's platform was built to drive efficiency while the automation at the core of the platform helps accelerate the industry's move to increased self-service. Building out the capabilities of the platform has always been a key growth driver. With many of our new products now reaching maturity, we are pleased by the increased number of products utilized per customer. In fact, over 40% of bank operating system new logo deals in the second quarter included more than one solution. Another focus has been building out our footprint with current customers. This quarter, over 60% of sales will cross-sell and up-sell within the installed base. As we continue to expand the functionality of the platform, I can't overstate the value of our satisfied and referenceable installed customer base. We are also seeing this expanding footprint reflected in our sales pipeline. As of the end of the second quarter, more than 50% of the pipeline is for products other than commercial lending. Let me reiterate that point. Retail, small business, treasury, mortgage, and NIC, all of the products we have created to supplement our additional commercial lending business now represent over 50% of sales opportunities in the pipeline. I cannot tell you how excited we are to reach this level of demand for Encino's technology beyond commercial lending. As a reminder, SAM outside of commercial is twice as large, so we have a significant opportunity ahead. But Encino is diversified beyond products and customers. We are also diversified geographically. This has been particularly important with the uneven macro recovery. For example, in the second quarter, we saw solid demand in EMEA and APAC, including adding another large ESG customer, in this case, a UK-based global bank. While many of the challenges bankers face outside the U.S. are universal, our ability to develop products specific to the needs of respective regions has been a key differentiator. switching to the U.S., and in particular, our continued progress with the Encino Mortgage Suite. The integration of the Encino and SimpleNexus teams continues to accelerate our penetration of the banking channel. This quarter, we saw seven cross-sells in addition to six competitor takeaways. We also closed a number of large pipeline deals we noted last quarter, including a seven-figure upsell deal with a top 10 mortgage lender. We ended the second quarter with another strong pipeline of mortgage deals as mortgage lenders understand the need to become more efficient in order to compete in this market. I couldn't be prouder of the mortgage team for their continued revenue growth, again, both year over year and quarter over quarter in this difficult and volatile mortgage market. I will let Josh provide additional details around U.S. mortgage, but first, I want to highlight our data capture and analytics capabilities are key differentiators for our mortgage offering when surfaced through our Compensafe and Nexus Vision products. One upsell deal with the top 100 mortgage originators this quarter involved adding these analytics offerings to round out the mortgage suite for an existing SimpleNexus point of sale customer, increasing ACV by over 50% for that account. But this is just one area where our data analytics expertise is core to our product roadmap. Let me spend a minute reviewing our ongoing NIC strategy around intelligence, including AI, machine learning, and analytics. With our single platform, we process vast amounts of data, including customer onboarding, loan origination, account opening, and bank customer financial information. and we continue to invest to further automate every stage of production across the platform. As we've done with auto-spreading, where we remove layers of manual work to accelerate the underwriting process for loans, we'll continue to develop solutions to help bankers make faster, more informed decisions. Our team has deep domain expertise in banking and is hard at work developing thoughtful solutions to the most complex issues our customers face. Recent internal demonstrations highlighted numerous use cases, including interactive virtual assistants and automated portfolio reviews. With our philosophy of an open ecosystem enabled by our API strategy, we are also attracting an impressive group of partners that are augmenting the Encino customer experience. Together, we are developing thoughtful solutions powered by AI, data, and analytics to automate an increasing number of workflows within our single platform, allowing financial institutions to eliminate reliance on legacy point solutions and become more and more efficient. We were pioneers when bankers were reluctant to embrace the cloud. We proved that value proposition, and today, cloud banking is considered the industry standard. Our original vision continues driving the evolution of financial services as we anticipated the demand for AI and data when we launched our NIC initiative over four years ago. It is exciting to see the industry embracing this technology as we continue on our journey to embed intelligence throughout our platform and change the financial services industry once more. To quote one of our customers, Ron Nix, CTO at Vera Bank, What's important for technology vendors is not to evaluate your needs today, but to predict where you are going to be in five years. We know in five years, Encino is going to be at the forefront of lending and we'll be right there with them. Vera Bank, a community bank headquartered in Henderson, Texas, partnered with Encino to modernize its lending processes and streamline employee and customer experiences. The bank has taken a full platform approach, adopting deposit account opening, portfolio analytics, retail lending, and commercial lending, including auto-spreading. We see them as a textbook example of how Encino can be adopted across an organization to drive operational efficiency, and we appreciate their trust in our vision for where the industry is headed. The makeup of our sales pipeline proves that Insinuous's influence now extends far beyond commercial lending. With the continued expansion and maturity of our platform, we are poised to extend our market leadership to retail, small business, mortgage, data, analytics, and AI, matching our success in commercial loan origination. Our progress and positioning reinforce our optimism for the second half of fiscal 2024 and the years to come. Now let me turn the call to Josh to provide specific examples of our solid execution in the second quarter.
spk18: Thank you, Pierre. We're very pleased with our second quarter results. In the United States, we saw customers coming back to the table with a renewed focus on digital transformation projects. One such example is an expansion within a top four U.S. bank who added additional users for small business lending. This deal is a great example of the white space we see in even our largest accounts to add additional lines of business and to expand user bases within our existing footprint. We closed a retail lending add-on in conjunction with a merger of equals between two community banks. The combined bank will standardize an casino for retail and commercial lending. Their deployment will also include auto spreading, deposit account opening, and treasury onboarding. As we have experienced, With many past M&A transactions within our customer base, the Encino platform's ability to extend across multiple products and lines of business while scaling with the bank as it grows will combine lending operations for the new bank. Integrating credit cultures and portfolio management are key to the success of a bank merger, and we're proud to see another growth-minded bank leveraging Encino to help with these mission-critical merger activities. We believe, and the market has validated, that financial institutions using a single platform have the tools to grow more efficiently while also delivering great differentiated customer experiences. For example, one of our regional bank customers saw a 291% increase in average monthly new deposit accounts open online after implementing Encino. An expansion opportunity in over $10 billion bank that added retail and commercial lending provided another proof point of our single platform strategy. These products join an existing small business lending deployment, bringing all the banks lending operations onto one platform with Encino. The state of Colorado was quite good to us this quarter. Encino was selected by yet another farm credit institution for commercial lending, and we did an expansion within a community bank for deposit account opening and treasury onboarding. This Colorado community bank already used Encino for commercial lending and for the mortgage home buying journey. As Pierre noted, Our U.S. mortgage business continues to benefit from Encino's well-established brand and market presence within financial institutions. Our 19 new mortgage logos in the quarter were primarily with depository institutions, proving the value of our approach. We were particularly pleased by two net new logo deals where our mortgage suite was included in Greenfield Bank operating system deals. The first was a community bank retail lending deal that included portfolio analytics and mortgage. The second was a community bank committing to Encino for commercial lending, portfolio analytics, and mortgage. We're excited to see our customers look to Encino as the single trusted vendor across all their business lines, as they also incorporate our NIC solutions to accelerate the value they receive from our products. You'll continue to see our product strategy focus on the value Encino delivers across three pillars of intelligence, automation, and experience. These multi-solution greenfield deals illustrate the impact that strategy is providing for Encino's customers. Our global footprint continues to provide stability to our growth profile. This quarter, we added another new logo in Australia, this time a top 10 Australian bank that will be deploying Encino's market-leading commercial lending solution. Encino was selected to help the bank simplify their operating model, reduce cycle times, and improve the customer experience. I'm particularly excited to note that this Greenfield commercial loan origination deal also included NIC's commercial pricing and profitability solution. This is yet another proof point of the opportunity for this solution in banks worldwide. Another recent area of focus for us has been addressing demand from the world's top 500 financial institutions beyond Encino's established geographic footprint. With great partnership from Accenture, our emerging markets team signed one of the largest banks in the UAE, and our first customer in the Middle East for commercial lending. Our global partner ecosystem is a true force multiplier, not only in delivering customer success, but also in our go-to-market efforts. System Integrator Ecosystem's unique combination of global reach and local relationships is helping Encino uncover sales opportunities in both new and emerging markets. Expansion within existing customers made a strong contribution to Encino's international success in the second quarter. An enterprise bank in the Netherlands expanded their adoption of our commercial lending solution and renewed their agreement with Encino for another five years. Also, beyond the borders of the continental U.S., we had an over $10 billion asset Caribbean subsidiary of a global bank for commercial lending. We also signed a community bank in the U.S. territory for retail lending, portfolio analytics, and for the mortgage home buying journey, an exciting multi-solution deal. Sustained success in any market requires happy, referenceable customers. We are pleased to take another early customer from the Japanese market live on Encino's commercial lending solution. We are appreciative of the opportunity early adopters have provided us in Japan, and we look forward to highlighting more examples of success in that market. We also proudly celebrated go-live milestones in other markets for commercial, retail, small business, commercial pricing and profitability, and deposit account opening. As a customer-focused organization, we have continued appreciation for client feedback. We're extremely proud in the second quarter to receive the highest NPS score in company history, an average score of 74%. In addition to the talented customer success teams we field around the globe, the maturity and stability of our single platforms are yielding demonstrable business value, and our recent investments in IntelliJ and usage analytics are allowing Encino's customers to benchmark and accelerate their own success. Greg, over to you for the financials.
spk07: Thank you, Josh, and thanks, everyone, for joining us this afternoon to review our second quarter fiscal 24 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 earnings release, which is available on our website and is an exhibit to the Form 8K, furnished with the FCC just before this call. Total revenues for the second quarter of fiscal 24 were $117.2 million, an increase of 18% year-over-year. Subscription revenues for the second quarter were $99.9 million, also an increase of 18% year-over-year and representing 85% of total revenues. Subscription revenues benefited from strong sales in the quarter with some of those deals contributing to revenues in the quarter. Professional services revenues were $17.3 million in the quarter, growing 14% year over year. Revenue growth outside the United States accelerated this quarter as a result of increased sales momentum that began in the second half of last year. Non-US revenues were $21.9 million, or 19% of total revenues, in the second quarter, of 47% year-over-year or 48% in constant currency. Non-GAAP gross profit for the second quarter of fiscal 24 was $76.5 million, an increase of 18% year-over-year. Non-GAAP gross margin was 65% compared to 65% in the second quarter of fiscal 23. Non-GAAP operating income for the second quarter of fiscal 24 was $11.2 million compared with a $2.8 million loss in the second quarter of fiscal 23. Our non-GAAP operating margin for the second quarter was positive 10% compared with negative 3% in the second quarter of fiscal 23. We exceeded non-GAAP operating income guidance with continued solid execution against expense budgets and from our revenue performance. Non-GAAP net income attributable to Encino for the second quarter of fiscal 24 was $9.9 million or 9 cents per diluted share compared to a net loss of 4.9 million or negative 4 cents per basic and diluted share in the second quarter of fiscal 23. Our remaining performance obligation or RPO increased to $928.6 million as of July 31st, 2023 up 2% over $907.4 million as of July 31st, 2022, with $636.2 million in the less than 24 months category, up 8% from $588.8 million as of July 31st, 2022. In addition to a strong sales quarter, RPO also benefited from a solid renewal quarter. As Josh noted, there were significant expansions meaning an increase in annualized subscription revenues that accompanied several renewals. As we regularly highlight, we do not manage the business to RPO, but I do want to reinforce what Pierre mentioned earlier. It was a strong sales quarter with sales achievement of 22% year over year. Note that sales in the second quarter were greater in June and July, so some corresponding billings will occur in the third quarter. We ended the quarter with cash and cash equivalents of $103.4 million, including restricted cash. Net cash provided by operating activities was $12 million compared to $9.5 million in the second quarter of fiscal 23. Capital expenditures were $859,000 in the quarter, resulting in free cash flow of $11.1 million for the second quarter. Please note that we expect to generate positive free cash flow through the balance of the fiscal year. Also note that we repaid the outstanding balance of $15 million on our $50 million revolving credit facility and have no amounts outstanding there under. Finally, please note that in July, through mediation, the company and the plaintiff in a punitive class action complaint filed on March 12th, 2021 in the United States District Court for the Eastern District of North Carolina reached a settlement agreement in principle of approximately $2.2 million that remains subject to court approval. The company has accrued for the proposed settlement agreement, which is included in accrued expenses and other liabilities as of July 31st, 2023 on the company's unaudited condensed consolidated balance sheets. We have excluded this expense from our non-GAAP results as it is outside the ordinary course of our business. now turning to guidance for the third quarter of fiscal 24 we expect total revenues of 120 million dollars to 121 million dollars with subscription revenues of 102.5 million dollars to 103.5 million dollars this guidance assumes year-over-year subscription growth of 17 at the midpoint of our range non-gap operating income is expected to be approximately 13 million to 15 million dollars and non-GAAP net income attributable to Encino per share to be 10 cents to 12 cents for the third quarter. This is based upon a weighted average of approximately 115 million diluted shares outstanding. Churn in the second quarter was in line with our expectations, but we are conscious that the IMB segment of our U.S. mortgage customer base continues to navigate the heightened interest rate environment. Accordingly, we intend to be prudent with full year expectations by raising the low end of our revenue guidance for both total and subscription revenues while maintaining the top end of our guidance for both. Despite this conservatism, our strong performance in the second quarter, the market stabilizing following the liquidity concerns earlier this year, and the opportunities we see in our pipeline drive our optimism for the second half of the year. For fiscal 24, we expect total revenues of $475 million to $478.5 million, with subscription revenues of $406 million to $409 million. This full-year guidance assumes year-over-year subscription growth of 18% at the midpoint of our range. We are increasing both the low and top end of our non-GAAP operating income guidance for fiscal 24 to $51 million to $54 million. Non-GAAP net income attributable to Encino per share is expected to be between $0.38 to $0.41, based upon a weighted average of approximately 115 million diluted shares outstanding. The top end of our subscription revenues and non-GAAP operating income guidance reflects our continued commitment to the Rule of 30 objective for the full fiscal year. With that, I'll open the line for questions.
spk09: And thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And we do ask that you limit yourself to one question and one follow-up. Again, that is one question and one follow-up.
spk08: And one moment for our first question. And our first question comes from Terry Tillman.
spk09: From Chua Securities, your line is now open.
spk04: Hi there. Good afternoon. Usually on these calls when we have important new Lighthouse accounts in different regions, I try to say hi or some sort of greeting in local language. I've done it in German and French. Arabic, I don't know if it's Holan, but I tried my best. But great to see the UAE win. Maybe the first question. Hey there. For Pierre or Josh is, 22% sales growth, I'd like to unpack that a little bit more. Is that like an ACV booking? And do you think that coming out of the thawing out that, you know, the business can keep picking up momentum versus 2Q sales activity? I'm talking about the second half of the year, and then I had a follow-up for as well. Thank you.
spk00: Barry, thanks for that question. Yeah, just a reminder that 22% is year over year. and not quarter over quarter, which makes it more remarkable. I think it shows the pent-up demand, and it also shows the momentum we see in the market. As I look at the global markets, including the U.S., I would say the only place where people are still careful is the U.S. enterprise market, where the regional and big banks are strategically aligned and moving forward, but very careful to buy. Apart from that, in the rest of the segments, community, regional, and the U.S., we see strong demand. And internationally, we see very strong interest. I believe the current economic environment for net interest margin squeezes is truly a driver for a view to efficiency. And as we mentioned, we've got the platform, and that's being reconfirmed as we visit customers and drive around. Josh, anything to add? No, nothing to add to that.
spk04: That's great to hear. And I guess maybe the follow-up question for Greg. Greg, I mean, I think what you said is that some of the activity in June and July, you know, really doesn't show up much in RPO, you know, but then you did talk about the sales activity up year over year. People are going to be thinking about, you know, what you've done year to date and then what might happen in the second half of the year as we start to foretell how, you know, revenue looks next year. But I'm just kind of curious as it relates to the metric, because we do look at it, the RPO or CRPO, do you feel like based on what you see, just those reported metrics, are troughing in 2Q and they could start perking up in the second half of the year. Thank you.
spk07: Terry, my comment around the activity and the heightened activity towards the end of the quarter was related to billings, where we got some deals signed that would have been reflected in RPO, but ultimately from a billing standpoint, that would have happened post-quarter end. But overall, to Pierre's comments and what you heard in our prepared remarks, we definitely saw momentum pick up as the quarter progressed and You know, going back to my comments when I was kind of on the investor circuit last quarter, you know, we said that we expected second quarter to be better than first quarter. And obviously we demonstrated that. And we expected the second half of the year from a sales, you know, slash bookings perspective to be better than the first half. And momentum we're seeing right now reinforces that belief.
spk04: That's great. Good job on the quarter. Thank you.
spk08: And thank you. And one moment for our next question. And our next question comes from Charles Naban from Stevens.
spk09: Your line is now open.
spk02: Good afternoon, and thank you for taking my question. It's good to see the momentum in the mortgage business cross-selling into the FI customer base. But I'm just curious, given the recent uptick in rates, if you're seeing any stabilization in churn within the legacy IMB base for Simple Nexus.
spk07: Yeah. Again, as I mentioned in my remarks, the churn was in line in second quarter with our expectations. We're not seeing increased churn. From a forecasting or guidance perspective, we did really roll some of our overperformance, not through really to account for, I'd say, unexpected churn in the second half of the year. There's nothing as we sit here today that has us or leads us to believe that we'll have heightened churn beyond our forecast. But ultimately, just in this market, going back to your comments around mortgage rates, we wanted to take a conservative view. I think what's amazing about that business is despite the challenge of the mortgage market, the fact that they've continued to grow year over year and quarter over quarter since we acquired the business. And I think that positions us incredibly well when the market ultimately does stabilize and then ultimately rebounds, particularly as we've aligned with a lot of the larger, better capitalized IMBs. And as we've had additional sales into the Encino financial institution customer base. So I think while we're focused a little bit on churn now, I think as we think into the future, as things settle down, I think that's going to be a significant opportunity for us from a growth standpoint.
spk02: Got it. And as a follow-up, just looking at the full year guide for 23, looks like you're well on track to hit that rule of 30 target exiting the year. But you've also talked about hitting the rule of 40 at some point as well. So my question is, given the shift in the pipeline away from commercial and momentum and cross-sell activity, I'm curious how we should think about the long-term trajectory of the margin of, you know, just progress towards that rule of 40 and how we should think about that from both a margin and a revenue standpoint.
spk00: Yeah, we look forward to share our future models at our investor day and actually explain how we see the future. It's been three years since we've been public. The business mix has changed. We made some acquisitions and all those impact the models. I can just tell you from purely looking at sales activity and performance, as well as The pipeline size as well as the pipeline mix, which to me is very interesting. I want to make sure that there's not a pullback in commercial. It's more of the adoption of newer products across the platform as well. So we are full speed ahead to maintain our market leadership in commercial while we are rolling out additional platform products, which is really showing up now in our sales as well as in our customer base. Just that for clarification.
spk07: Yeah, and Chuck, just one other thing to add. Again, we said Rule of 30 was kind of a stake in the ground this year, but the expectation should be that we'll increase that as the years progress to get to Rule of 40 and beyond. And so from our perspective, this is really the first step in that journey. We, again, put that stake in the ground this year. And kudos to the whole team in terms of how we've been executing through what's been a difficult first half of the year from a customer standpoint.
spk02: Got it. Appreciate the color, guys, and look forward to hearing more at the analyst day. Thank you.
spk08: Thank you. And thank you. And one moment for our next question.
spk09: And our next question comes from James Falsetti from Morgan Stanley. Your line is now open.
spk11: Thank you very much. I guess for me, I'm looking at this cross-sell and some of these activities. You mentioned that you've had an increase in customers that are adopting more than one product. Historically, NIC module adoption tends to result in around 20% uplift to ACV in an existing commercial customer. Given the potential for differences in seat count and pricing between commercial and retail, to learn if you've run similar math on ACV uplift if the existing commercial customer adopts retail. Just trying to get a sense of potential leverage there on that cross-selling opportunity.
spk07: We've not disclosed or really commented previously on that. Again, I think as we gear up for our first investor day at the end of September, You know, our intent is to provide different cuts of the business and provide additional details so that you guys can have a better understanding of how this platform story is truly playing out and really the white space we have within our customer base and beyond.
spk11: Got it. And then quickly on, you know, kind of large deal impacts is one of your European competitors has spoken about improvements in large deals. How would you characterize the demand environment in those larger asset bases and opportunities, particularly given the lumpiness in the RPO metric for large deals and renewals? Just wondering how that could be impacting and how you're thinking about that going forward.
spk18: Yeah, this is Josh. We're pleased with the engagement that we're seeing. We called out a few exciting larger opportunities that we formalized this last quarter, and those spanned a variety of geographies. You had a nice win in Australia in one of their top 10 banks. We had a nice expansion in a global bank with our ESG solution out of the UK. We had that win in the Middle East. So we're pleased with where we are. We also had an expansion within a large account in the Netherlands. So we saw that market impacted last year kind of early. They came back early. And those proof points show the continued engagement momentum that we're seeing here.
spk11: Got it. Thanks so much.
spk09: Thank you.
spk08: And thank you. And one moment for our next question. And our next question comes from Nick Altman from Scotiabank. Your line is now open.
spk18: Awesome. Thanks, guys. I wanted to ask a quick clarification question on the 22% sales achievement. growth on a year-over-year basis.
spk03: Is that quota attainment? Is that net new ACV? Can you just maybe comment on what you mean by that 22% number?
spk18: That's a 22% increase in bookings year-over-year as we look at the Q2 compare. And is that on an ACV basis? Yeah, on an ACV basis. Okay. Okay. And then... I guess my second question is, I think you had mentioned 60% of the bookings in the quarter were cross-sells. I guess when you look at the pipeline for the second half, how much of the pipeline is sort of net new versus existing? And then just as a follow-up, you mentioned 50% of the pipeline is for products outside of commercial lending. Can you maybe just talk about whether retail and SMB is acting more of a front door in terms of your pipeline, or are these sort of more expansion-oriented deals? Thanks.
spk07: Yeah, I'll get the first question, Josh, if you want to take the second. Yeah, from a pipe perspective, there's a healthy mix between new and leveraging current customers are selling back into the base. So we're excited about that mix. which we think is important. But as Pierre noted in his comments, our customer base is an incredible asset. And as our newer products continue to mature and we see them adopt more, there's a tremendous amount of opportunity we have there in addition to going to net new customers.
spk18: And that commercial customer base obviously being where we started, For a while, that would be the entry point. We would try to add other solutions like retail or deposit account opening. Those solutions have matured, and so we're seeing situations where if a customer's priority is to start with retail or account opening or something else, they're able to do so, and we get them live with confidence. You still see some accounts. We spoke about Vera in prior quarters. We've talked about Johnson Financial Group or those accounts who make a large multi-solution commitment. Obviously, those are quite exciting. But it's our job to present the solution, show the broad single platform vision, and then we're going to show a customer a path to success based on what makes sense for them at the time. We'll bet on Encino. We'll bet on our ecosystem. We'll get them live and then hopefully expand with the other solutions later.
spk07: Yeah, and with the maturing of the products, our ability to enter anywhere, to Josh's point, that the bank has an issue that they're trying to address, you know, we think is really exciting as we look forward.
spk18: On the other side of the liquidity reality from earlier in the year, though, we do see these banks coming back to the idea that the best, most stable path for the future to grow and to grow in an efficient manner is to provide a broad set of products that fulfill a variety of customer needs, to fulfill them very well across multiple channels. And that brings you back to a single platform vision. And we're seeing that continue to be adopted by the market. Really excited about that stat that Pierre referenced where we had 40% of new logos committed to more than one solution on day one. But we believe that's not just a validation of our product maturity, but really us being nicely aligned to what's on bankers' minds today.
spk08: And thank you. And one moment for our next question. And our next question comes from Chris Kennedy from William Blair. Your line is now open.
spk06: Great. Thanks for taking the questions. Just going back to the pipeline comment, over 50% of the pipeline is outside of commercial lending. Can you just rank order the importance, whether it's NIC, treasury, retail, etc.? ?
spk18: So we're pleased with the volume of pipe that we see in the consumer side of these banks. That may be retail, it may be account opening, or it may be our mortgage solution. When you see the stat 19 new logos for Simple Nexus, I commented on it, but more than half of those were actually in depositories. So that's really resonating well. It's aligning nicely with the accounts that we've worked hard to sign and show a path to success over the years, the brand that we've built there. So it's a mix of those. I would say at a high level, the most significant components of the pipe in the consumer side of our product portfolio are retail lending and simple nexus and then also account opening.
spk06: Okay. Thank you. And then just to follow up, you just mentioned that 40% of new logos are using more than one solution. How has that trended over time? What was that statistic maybe a year or two years ago? Thank you.
spk18: So, yeah, to clarify, in the last quarter, we saw 40% of our new logos committing to more than one solution on one day. We've seen an increase on that across the full product portfolio as well. We're now looking at 27% of our platform customers are using more than one solution. That's a year-over-year increase as well.
spk07: Yeah, and that excludes NIC. You're talking pure platforms.
spk18: 27% on pure platform, 49% if you include at least one NIC solution. Thank you.
spk08: And thank you. And one moment for our next question. And our next question comes from Joe Verwink from Baird. Your line is now open.
spk12: Oh, great. Thanks. Hi, everyone. Peter, you mentioned in a previous answer just wanting to be appropriately resourced so that you maintain leadership and core commercial, but then certainly exploit and pursue the other areas. Can you maybe just go into a bit more detail on what that all means just relative to the previous long-term operating model and some of the expense ratios and margin targets you've outlined? And does it suggest that maybe expense ratios could counterbalance higher over the midterm timeframe just relative to what's obviously been great expense leverage this year?
spk00: Yeah. No, what I would say is I wanted to make sure that people understand we are still investing in that commercial product and we still see a massive global opportunity. To remind me, we've just over 400 accounts in the U.S., There's over 2,000 that we're targeting right now, but there's over 4,300 banks. There's over 5,000 credit unions. We've got the mortgage product now that goes after IMBs as well. It's over 4,000 institutions. So you're talking about over 10,000 institutions that we can target, okay? Obviously, commercial does not go after IMBs. But with this deal in the Middle East, we're opening a new front where we are going outside of our core countries along with our SIs to sell these on what I would call named account deals. So we've got a list of accounts globally we're targeting, and those are very exciting deals. And it shows you how we can take that thing and take it across borders, and it doesn't need much changing to actually run in these countries. And that's why I want to make sure people understand we will continue to invest not only in the product itself, but into unique elements around the credit underwriting and the driving of efficiency in the commercial base. That is the profit center of many, many of these banks. The second profit center, if you go outside the U.S., is the mortgage balance sheet. They keep all those mortgages on balance sheet because it's a variable rate product with a great piece of collateral attached to it, which is your house, which you don't want to lose, and so you keep on paying. So I think we are well-positioned. to actually address the core issues that banking has in the foreseeable future, drive efficiency and the heavy load of self-service. And so from that perspective, I wanted to make sure there's a balanced view of commercial growth, maintaining market leadership, because we work hard to get there. And then as these other products mature, they're all coming up to pull their weight down.
spk07: And Joe, just to add, all this is part of our plan. Again, we've made a lot of investments over the last couple of years, both in expanding geographically as well as expanding our product portfolio, whether it's retail or, again, everyone's talking about AI. We've been investing in AI now for four years and machine learning and analytics. And so this is all part of continued execution versus any net new investments, if I heard your question.
spk12: Yep. No, that's good. Thank you. And then on the careful approach being taken by the U.S. enterprise segment, when that spending comes back, do you think it comes back in the product areas where decisions have maybe been put on a bit of a pause or just given some of the strategic things you've been speaking of today, thinking about focus on net interest margins, ESG, credit quality, portfolio, you know, visibility, what's on the books. Do you think engagement and the scope of what a bank might consider Antena for changes for better or worse when that spending comes back?
spk18: We think we're just going to see them with a more dedicated focus to providing that robust set of products that they can use to fulfill a variety of customer needs. So, they're always going to want to do their commercial and business purpose lending well, because obviously that's really important to their business and it's where a lot of other assets sit. But we see increased engagement in the other offerings as well. And then within all of our solutions, they're going to want to look to leverage intelligence to the point of execution as well as they can to take that optimized process and make it even better.
spk00: You know, I've been traveling around the country to meet with customers and There is clearly a rethinking of the old strategy. For the longest time in banking, I've always heard we love consumer deposits, and I'm talking about the US now. We love consumer deposits, but we like commercial lending. Now, if you look at deposit trends across the banking sector, a lot of these deposits and consumer accounts moved to the big four, which has been for years a problem, but it wasn't as magnified as we've seen lately. And one customer commented to me that it was always a big benefit for them to have these low interest rate, big customer deposits that were seen as an asset. And when Silicon Valley Bank happened, all of a sudden, the atmosphere around that changed and people said, you should have consumer deposits. And what that is doing now is that people are rethinking their relationship with a customer, okay? And they realize that if you want a good relationship with a consumer customer, you need to provide the technology the self-service and the ease of use that you can expect from companies with big brands like J.B. Morgan Chase or Bank of America, where they have a brand around their technology. And then CINO can fill that void because we're so client-centric. We provide the account opening, we provide the loan information, et cetera, from consumer up to a small business and all the way up to commercial. And I think that is what's going to drive it, that IT simplification. and that renewed strategy and focus on the customer as opposed to the siloed way of going to market inside these banks. And I've heard that echoed as I traveled around the country. That's great. Thank you very much.
spk08: And thank you. And one moment for our next question. And our next question comes from Alex Klar from Raymond James. Your line is now open.
spk01: Hi, this is Jessica on for Alex. Thanks for taking my question. Start off with, I was just wondering, when you're considering your R&D investments and product roadmap, what are your ongoing R&D priorities? For example, are you thinking about, like, for developing, enhancing, and mix versus your other distinct or possibly new products? Thanks.
spk00: Yeah. So, um, you know, if you look historically at the company, we went public in 2020, it's just three years ago. And these are probably materials. We spent $34 million on product. And this year we spend around a hundred million dollars. So it's not that we need to incrementally spend a lot more. Now we've literally bought up the situation. so that we are ready, because remember, we've been doing NIC for four years, okay? So this is not some new revelation to us that, oh, we all of a sudden have to move to intelligent. We've been working for years on the databases, the analytics, on acquiring companies to get us there faster, okay? So what we're doing now is we always evaluate all the product suites. We look at customer needs, broadening of the markets. because when you launch these products, it may be a subset of customers who can use them. And then over time, as you add feature functions or integrations or different elements, you can broaden that customer appeal. And so what we're doing now is we evaluate the opportunity ahead of us, and we will shift money around. But there's clearly an emphasis on driving Nick, because Nick and all those products underneath that intelligence umbrella will actually differentiate us to the point. where it will be difficult to compete with us in the market. If you combine the intelligence with a platform and client-centric approach, we feel pretty good about our competitive position.
spk01: Got it. Thanks for that. And I've got a follow-up question. When you're looking at your different lines of growth opportunities, like it's been really great hearing about the big wins you've had nationally. What are you thinking as, like, where you're most confident in your business today? Is it more international, again, as you said with Nick, the differentiation you have, or is it something else? Thanks.
spk18: Yeah, as you think about the various markets that we serve in the United States is continuing to grow our single platform presence. We've thrown out a few stats earlier that show increased adoption of customers there. In some of our international markets, we're just focused on continuing to add logos and build that great customer base that we continue expanding. And intelligence is part of the conversation in every market that we serve.
spk08: Thank you. And one moment for our next question. And our next question comes from Brent Braceland from Piper Sandler. Your line is now open.
spk13: Thanks for taking the question. This is JR asking on behalf of Brent, touching on CRPO once again, how should we think about the 2024 growth rate with current RPO growth of 10% in Q1 and 8% in Q2? Is low double-digit growth doable, or could we be looking at high single-digit growth? Thank you.
spk00: Let me first make a comment about RPO. Remember, depending on the seasonality of bookings, renewals could play a significant distorting impact on RPO. In other words, we could have low bookings but a big renewal quarter and all of a sudden RPO jumps 20%. So I would be very careful to make too much of a deal about RPO. It is to me an indicator, but I think you should carefully listen to the additional comments and data we provide you to actually come to a conclusion with that. Greg, do you have anything else to add?
spk07: I think, again, we do try to consistently remind folks that we don't manage the business to RPO. And, again, there's a lot of moving parts in it. And, really, we point to the guidance that we provide with the visibility that we have in the model, both from the top and bottom line, and that's what we point you to, JR.
spk13: Sounds great. Thank you.
spk09: And thank you. Thank you.
spk08: And one moment for our next question. And our next question comes from Jackson Adder from Moffitt Nathanson.
spk09: Your line is now open.
spk03: Great. Hi, guys. The first question is for you, Pierre. The rate environment outside of the U.S., and I guess, you know, specifically in Europe, it's a little behind where we are in the States, but still I think maybe some room to go higher. And so I'm just curious if the US enterprise segment at the moment is kind of being the most cautious as you look around. What are your expectations maybe for how European banks will react once we get maybe to kind of the peak rate cycle in that geography?
spk00: Yeah, I would always remind people that all problems are relative. And if you look at the starting of the shock of the war last year, as well as the energy crisis, the rate complexity today looks like a Sunday school picnic compared to what they dealt with last year. Okay. And then you had the Swiss bank who also had liquidity problems and then got taken over. So what I would tell you is that it's relatively good. It's not ideal. and everybody in banking would like to see declining rates coming forward again. But normally there's a cycle that you have to get through where your loan rate, in other words, your income, can raise as well because your current portfolio sits there stable and your deposit rates go up, so that's a squeeze on evidence margins. But over time, as you renew those loans and you jack the rates up, as long as the economy stays healthy and you don't see a lot of problems in the credit book, I think these banks will come through this fine. I'm always amazed about how good bankers are to manage the credit side. I think the surprise was the liquidity angle was a big surprise and it came out of left field, as well as the ease of withdrawing money today in an internet-enabled world versus the previous time they saw this. You literally have to stand in line to get your money and they could close the door. so um but what we're hearing is there is a renewed focus on strategy and how they would like to move forward i will also tell you that as i mentioned before in europe there's a lot more regulation and government involvement in these banks and that's why esg is a great play for us there as a matter of fact i'm going over there to talk to some of the banks in september about this, understanding the industry better, where that's going to take us. But I'm still seeing significant interest in new technologies and how they can manage themselves better.
spk03: Okay. All right. Great. That is helpful context. One quick follow-up for Greg. The linearity that you spoke about in the quarter, you know, the June and July impacting billings maybe moving into the next quarter, was there Was the quarter more back-end loaded from a bookings perspective than you typically see in a second quarter or than you typically see in any given quarter?
spk07: No, I think, again, just coming on the other side of the liquidity crisis, we just saw the momentum build as the quarter progressed and things settled down, Jackson. I think that really more than anything would be the thing to note for Q2. Okay.
spk03: But I'm sorry, I just mean, like, was it more or less back-end loaded than usual or, like, than you expected?
spk07: No, I think it was in line with expectations. And, again, you know, speaking, you know, in the middle of the quarter and, again, talking to investors, you know, we tried to highlight some of the momentum that we saw building. And the quarter, you know, came together nicely. Our team did a great job. And, you know, it was nice to see.
spk08: All right. Awesome. Thank you. And thank you. And one moment for our next question. And our next question comes from Adam Bergery from Bank of America. Your line is now open.
spk14: Thank you and good afternoon. So how is the balance between the focus for new logos versus expansion deals changed this year so far? And how are you thinking about that balance on a go-forward basis with liquidity crisis in the rear view mirror? Thank you.
spk18: The balance of our field focus hasn't changed. We make sure we have a team on the field out in the market to tell the story to new logos. And we also make sure we're able to take care of our existing accounts. The reality is when things get challenging, The first thing that slows down is the greenfield conversations because it's just hard for folks to continue on with due diligence with the new vendor, which is a good situation for us to be in because we have a great and happy, referenceable customer base. So that will explain at some points when you see macroeconomic ups and downs, why we may see a little bit heavier weighting of expansion bookings. So part of that is just the reality of where the world is, but our market focus has not changed at all.
spk14: Got it. And then between kind of your go-to-market motions for domestic versus international, is it fairly consistent between the two as well in terms of new logos versus expansion?
spk18: Thanks again. Consistent focus and consistent motions, just different maturity of markets and time in market, which leads to a different distribution of market penetration and customer base.
spk14: Yep. Makes sense.
spk08: Thanks. And thank you. And one moment for our next question. And our next question comes from from Barclays. Your line is now open.
spk05: Okay, great. Hey, guys, thanks for getting me in here. I'll keep it quick with kind of two housekeeping questions. Maybe the first one is for you, Josh. You know, as you think about that 22%, sales achievement, which certainly was great to see and it sounded better, how do you rank order the product areas that you felt like drove that growth? Was it still very much driven by commercial lending or do you feel like the pipeline composition, things like retail, things like Nick and others, also drove a lot of that sales achievement as well? That's the first question.
spk18: Second, it's nice to speak to you. No, we had a good mix of offerings here. We talked about 19 new logos on the Simple Nexus side. One of the stats that we referenced is 40% of our new logos had multiple solutions. So you will see commercial or small business involved in those, but you also see things like retail, Simple Nexus, and NIC offerings involved. So from our perspective, look, we're very proud of that commercial product, and we take good care of it. We take care of our customers, but we continue to see expansion and new logos with those other solutions as well.
spk05: That's great. That's great to see that breadth. Maybe the follow-up for you, Greg, is maybe a little bit of a longer-term question, but that 50% pipeline point on what I'll call commercial lending versus non-commercial lending, The question for you is, what does that mix look like in revenue terms today? And where do you think that mix can go over the next few years?
spk07: Yeah. So from a market perspective, Saket, I think Pierre noted, you know, the market outside of commercial is twice as big. And so we attack commercial first. But again, we see a massive opportunity on the retail side with retail lending. with our U.S. mortgage business, with mortgage outside of the U.S. And so, again, I think as we think about the opportunity we have, we think we're just getting started. And ultimately, just based on our SAM studies, that opportunity is twice as large as commercial.
spk05: Very helpful.
spk08: Thanks, guys. Thanks, Jacob. Thanks, Jacob. And thank you. And one moment for our next question. And our next question comes from Ken Sachovsky from Autonomous Research.
spk09: Your line is now open.
spk15: Hey, good afternoon. Thanks for taking the question. Maybe I'll ask another one on the pipeline and that 50% that's coming from the non-commercial lending products. I mean, when we talk to folks, I think what really stands out is your reputation on the commercial lending side. And Pierre, I think you even mentioned, you know, maintaining your market leadership in commercial lending and So can you talk about the competitive dynamic in your moat, I guess, in the non-commercial lending products and your confidence in holding your own versus the competition just because it is a big part of the scam? Thanks.
spk00: Yeah, thank you. That's a great question. Look, our platform centricity as well as the customer focus, I think, is a big differentiator for us. Consumer is a much more simplistic product set because your end user experience must be a lot more simplistic and ease of use and instantaneous. However, because of all the regulations, it's a fairly difficult product to develop with all the integrations to actually make it that simplistic to use. So it's a complex problem you're solving, but you have to make it simple to the end consumer. If you then look back at other people selling into that consumer or small business base, what you're basically seeing is a bunch of companies who developed software in the 80s and 90s. And so we're coming out of the box here with a modern cloud-based solution that is part of a broader IT infrastructure. And I don't see other people coming up trying to do the same thing here. So I do think this is back to that reputation thing. If we maintain the reputation in the biggest profit center of the bank, we get the influence to go in there and get at least the opportunity. And then if you execute well and maintain the reputation, I think you're going to see exactly this playbook about the same momentum and the same market leadership in the other aspects of the platform. And that's what we're focused on here. And in the meetings I have outside of commercial around the country, I'm hearing similar stories. So I'm highly optimistic this strategy will play out.
spk15: Okay, great. And maybe just as my follow-up, maybe I'll ask about M&A. You know, there was some commentary out there a couple months ago stating the company might be exploring strategic options, including a potential sale. You know, so I was wondering how, I guess, you guys are thinking about the potential options for the company here because we are getting a lot of questions on it. And I guess, is this a company that should be in the public market? I know you've talked about not disclosing certain metrics due to competitive reasons. So we'd love to just get your latest thinking there. Thanks.
spk07: I can't appreciate the question, but I'm sure you can appreciate we don't comment on rumor and speculation. So can't really address that any further.
spk00: We love what we do.
spk07: We do love what we do.
spk00: Okay. All right.
spk09: Thanks, guys.
spk07: Thank you.
spk09: And thank you. And our last question, bear through one moment. And our last question comes from Alex Markrath from KBCM. Your line is now open.
spk16: Hey, everyone. Thanks for taking the question. Maybe just first on the Middle East, when you think about some of these opportunities and less penetrated international markets, just curious, maybe, Josh, for you, do you feel like all the pieces are in place here to kind of go full steam ahead with these types of opportunities?
spk18: First of all, it's a reputation-based company. We're not going to make a commitment to a bank that we're not ready to follow through on. When we go into a new market, we're excited to announce one of the largest banks in the UAE. We're going to show them a great path to success. So the pieces are absolutely there. I have a high level of confidence in the distribution machine and the teams on the ground in those markets that show those customers a path to success. And as we validated in Europe, in APAC, in Japan, in Canada, the global system and a greater ecosystem gives us unprecedented scalability to where, if you remember several years ago, we signed three Toronto banks in one year, and we showed them a path to success by leveraging that same ecosystem. So we're excited and we're proud, and we're just getting started in those markets.
spk16: Thanks for that. And maybe just one quick follow-up on the second half. um just curious if there's any way for you all to kind of describe the the renewal opportunity in the second half for us from a from a customer a current customer basis in terms of what the renewal forecast looks like alex yeah yeah yeah so we we see we see a a normal year there in seasonality we don't we don't really
spk18: guide to that. And from our perspective, we're going to keep taking care of those customers, renew them as we have an opportunity, and hopefully formalize those partnerships for a long time.
spk07: Yeah, I mean, contracts have terms, but again, as additional products become of interest to customers, that can accelerate a renewal as well. And so we always view, you know, a new sales opportunity as an opportunity to expand. So hard to predict that. outside of kind of our normal cadence, Alex.
spk09: Great. Thank you.
spk07: Thank you.
spk09: And thank you. I would now like to turn the call back over to Pierre Nade for closing remarks.
spk00: Thank you all for joining us today. I want to thank the Encino employees around the world for their passion, focus, and execution, particularly over the past six months. Our senior teammates have helped customers through a very difficult period, proving yet again that our culture and business values are two differentiators in the market. We are excited to welcome many of you to our first Investor Day on September 28th in Wilmington, North Carolina. We'll share updates on our product strategy and additional insight into our financial outlook, among other topics. We look forward to seeing you then. Thank you so much for attending tonight.
spk09: This concludes today's conference call. Thank you for participating. You may all disconnect.
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