nCino, Inc.

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'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Harrison Masters, Director of Investor Relations. Please go ahead.

Good afternoon, and welcome to Encino's second quarter fiscal 2025 earnings call. With me on today's call are Pierre Naudet, Encino's Chairman and Chief Executive Officer, and Greg Ornstein, Encino's Chief Financial 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 gap 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 fall, as well as the earnings presentation on our investor relations website at investor.ensino.com. With that, I will turn the call over to Pierre.

Thank you, Harrison. Welcome and thank you for joining us today. We are very pleased with our second quarter financial results. Once again, exceeding our guidance for both subscription and total revenues, as well as for non-GAAP operating income. Before I turn the call over to Greg to provide you with additional financial details on the second quarter, I would like to walk you through what we are seeing in the market. In the United States, sentiment in the financial services industry has improved quite a bit from a year ago, with FI balance sheets generally healthy and net interest margin headwinds abating. Buying behavior in both the U.S. enterprise and community and regional markets accelerated in the first half of fiscal 25, with gross bookings in the U.S. up 36%. over the first half of last year, including mortgage, and up 67% without mortgage. This momentum has been driven primarily by expansion opportunities within our existing customer base as more and more customers embrace our single platform. As of the end of second quarter, our U.S. enterprise and community and regional businesses were both over 50%, of their way to their total gross bookings goals for the year. In our US mortgage business, we signed six new mortgage customers in the second quarter, four of which were financial institutions. Lending volumes and market activity did remain relatively suppressed in what would otherwise historically be a seasonally strong selling quarter. We maintain our view that US mortgage revenues will be dilutive to overall growth for Encino this fiscal year, but we expect interest rate cuts to be a catalyst for re-accelerated growth in this business starting in the fourth quarter and as we look into next year, consistent with our previous comments. We are very pleased to have successfully navigated through a difficult mortgage market over the past couple of years and with approximately 40% of our U.S. mortgage logos and 45% of our U.S. mortgage revenues now on our new pricing model. We believe we are very well situated to benefit from the expected increase in mortgage activity, including from one of the largest homebuilders in the United States, which began their nationwide rollout of the Encino Mortgage Solution in July. Turning to our business outside of the U.S., Our pipelines have grown nicely this time last year, but the international markets we operate in remain more challenged than in the U.S. As a reminder, our pipelines outside of the U.S. are comprised primarily of new logo opportunities, which do inherently take longer to close in any business climate and can be much more lumpy in light of the large bank nature of this business. That said, we do expect our international operations to add a healthy number of new logos in the second half of the year. You'll recall on our fourth quarter earnings call, I said having roughly around 40% of our total gross bookings in the first half of the year is a more normal picture for the year. Gross bookings for the first six months were approximately 36% towards our annual goal, highlighted by overperformance in our legacy US business, while our US mortgage and international businesses were more challenged. As we look at our sales pipelines, we believe we are on track to meet our gross bookings goal for the year. We are particularly encouraged to see an increasing number of large enterprise opportunities in both our newer and established markets. On a net bookings basis, We ended the first half of the year up approximately 17% year-over-year, and we believe we are on track to our goal of net bookings being up 50% year-over-year. In the second quarter, over half of our total company bookings came from outside of commercial lending, including over half of new customer deals, and we added eight new consumer lending and five new deposit account opening customers. two of which added both solutions. Legacy systems and processes continue to bog down the middle and back office of financial institutions, and our digital channels and automation are bringing speed and efficiency they never thought possible. For example, a $2 billion bank in New England shared they have taken a 41-minute deposit account opening process down to just four minutes for business clients and removed the need for a banker to get involved. Another community bank in Tennessee reduced approval times for consumer loans by 95%. In the consumer banking world, the speed with which a financial institution can fulfill requests for products and services has everything to do with client satisfaction. With a quicker yes and see no consumer lending and deposit account opening, customers are realizing a true competitive advantage. And with more product depth, we are delivering even more value to the lines of business already on your platform. For example, a $20 billion bank became one of our largest portfolio analytics customers, expanding their adoption from commercial lending and deposit account opening to also include portfolio analytics for CRE stress testing. By bringing back offers, portfolio-level risk analysis onto the same platform used for originations, this bank is enhancing the availability and suitability of data for risk management. Again and again, customers demonstrate that adopting multiple solutions on a single platform from Encino yields a consistent and more enjoyable client experience and more efficient operations within the institution. Efficiency continues to be a core mandate for every financial institution, and we continue to make investments to reduce the cost of ownership by reducing implementation timelines, hardening plug and play third-party integrations, and streamlining ongoing administration. One of the largest banks in New Zealand went live with Encino during the second quarter, a key milestone in the program that will allow this FI to retire over 40 legacy systems. We aim for that level of efficiency across every business line in the financial institution. Turning to Banking Advisor, we are quite pleased with the progress we have made bringing our unique data capabilities and AI to financial services to this product family. Even though Banking Advisor only became generally available in the second quarter, we signed eight Banking Advisor deals in the quarter across the community, regional, and enterprise market segments in the US and Canada, and have taken our first customer live with it. Our knowledge base and narratives drafting skills have strongly resonated with FIs across asset classes, representing a diverse cross-section of our customer base. Long-term, our Banking Advisor roadmap is focused on opportunities to go even deeper with intelligence and automation, enabled by our unique access to financial institutions data, which the team has done a great job obtaining consent to use. On the M&A front, we are pleased with the progress we have made integrating both DocFox and Allegro. In particular, the market response to the commercial onboarding and account opening functionality we acquired with DocFox has far exceeded our expectations. We are actively exploring opportunities to accelerate this integration along with the rollout of this product outside of the U.S., especially as customers are looking to purchase this product as part of our single platform versus on a standalone basis. With that, I'll hand it over to Greg to cover our financials.

Thank you, Pierre, and thanks, everyone, for joining us this afternoon to review our second quarter fiscal 2025 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 as an exhibit to the form 8K furnished with the SEC just before this call. As Pierre noted, we are very pleased with our second quarter financial results. Total revenues for the second quarter of fiscal 25 were $132.4 million. an increase of 13% year-over-year. Subscription revenues for the second quarter were $113.9 million, an increase of 14% year-over-year, representing 86% of total revenues, both ahead of the top end of our guidance. Mortgage subscription revenues were approximately $17 million, or 15% of subscription revenues in the quarter, representing year-over-year growth of 4%. Churn, including for mortgage, continued to moderate through the second quarter and remained in line with our $20.5 million churn forecast for the year. As we have discussed, mortgage churn peaked in October last year and total churn peaked in the fourth quarter, which negatively impacts our growth rates this year. Professional services revenues were $18.5 million in the quarter, growing 7% year over year. Our customers and prospects continue to exhibit a sensitivity to consulting rates, which we are addressing by more strongly recommending gold standard out-of-the-box deployments in order to reduce implementation timelines and administration costs post-go-live. Non-U.S. revenues were $27.5 million, or 21% of total revenues in the second quarter, up 25% year-over-year. International revenues are more dependent on new customer sales given the smaller installed customer base and the fact some of our newer solutions are not yet available outside of the United States. We expect further moderation of international revenues growth, more in line with overall company's revenue growth, until the new logo sales we plan to sign in the second half of this year impact revenues. Non-GAAP Gross profit for the second quarter of fiscal 25 was $86.7 million, an increase of 13% year over year. Non-GAAP gross margin was 66% compared to 65% in the second quarter of fiscal 24. Non-GAAP gross margin benefited from our amended agreement with Salesforce and from the larger mix of subscription revenues. Non-GAAP operating income for the second quarter of fiscal 25 was $19.3 million, compared with $11.2 million in the second quarter of fiscal 24. Our non-GAAP operating margin for the second quarter was 15%, compared with 10% in the second quarter of fiscal 24. Our annual Insight User Conference contributed approximately $2 million to a sequential increase in sales and marketing costs. Additionally, the acquisitions completed in the first quarter contributed approximately $7 million of annualized costs to research and development. Non-GAAP net income attributable to Encino for the second quarter of fiscal 25 was $15.8 million, or 14 cents per diluted share, compared to $10 million, or 9 cents per diluted share, in the second quarter of fiscal 24. Our remaining performance obligation, or RPO, was $1.04 billion as of July 31, 2024, up 12% over $929 million as of July 31, 2023, with $698 million in the less than 24 months category, up 10% from $636 million as of July 31, 2023. We ended the second quarter with cash and cash equivalents of $126.8 million, including restricted cash. Net cash provided by operating activities was $5 million compared to $12 million in the second quarter of fiscal 24. Capital expenditures were $444,000 in the quarter, resulting in free cash flow of $4.6 million for the second quarter of fiscal 25. We repaid $15 million on our revolving credit facility in the second quarter and plan to pay down the remaining $40 million of borrowed principal during the rest of this fiscal year as we generate cash. Note that unbilled accounts receivable has increased by $4.8 million since January 31st of this year. Unbilled accounts receivable are recorded when revenues earned on a contract exceed what has been billed to date for that contract. For Encino, this typically occurs when fees increase during the contract term, including under platform pricing arrangements, and revenue recognition aligns to the satisfaction of performance obligation rather than to billings. These platform pricing arrangements are becoming more commonplace for us as we execute on our strategy to evolve to a platform pricing model. Accordingly, comparisons to previous quarters calculated billings may not accurately reflect trends in our business, and deferred revenues are increasingly less predictive of the revenues that will be recognized in subsequent periods. Turning to guidance. For the third quarter, we expect total revenues of $136 million to $138 million, with subscription revenues of approximately $117 million to $119 million. For full fiscal year 25, we continue to expect total revenues of $538.5 million to $544.5 million, with subscription revenues of $463 million to $469 million. As noted, our churn expectations for fiscal 25 currently remain in line with the $20.5 million we discussed on our two previous earnings calls. Our financial outlook includes 5% subscription revenues growth for U.S. mortgage this fiscal year, with no year-over-year growth expected in the third quarter. Our guidance maintains our assumption that increased mortgage lending volumes do not start to positively impact revenues until the fourth quarter. We continue to assume banking advisors' contribution to subscription revenues this year will be de minimis, as we are offering it at an attractive initial price point to garner adoption. Our efforts to transition the company's revenue model to platform pricing continue in earnest. Our new and expansion sales of consumer lending, deposit account opening, and US mortgage solutions are on platform pricing, and we continue to refine solution bundles pursuant to which we will roll out platform pricing across the remainder of our business later this year. Beginning with this formal pricing change, we expect Banking Advisor to be part of every new deal, and we expect usage will drive a more meaningful contribution to revenues next year and beyond. Non-GAAP operating income in the third quarter is expected to be approximately $21 million to $22 million, and non-GAAP net income attributable to Encino per share to be 15 to 16 cents. This is based upon a weighted average of approximately 118 million diluted shares outstanding. For the full year, in light of the outperformance in the second quarter, we are increasing our non-GAAP operating income outlook and now expect non-GAAP operating income for fiscal 25 to be $87 million to $90 million. For full fiscal year 25, non-GAAP net income attributable to Encino per share is expected to be 66 to 69 cents based upon a weighted average of approximately 117 million basic shares outstanding. With that, we'll open the line for questions.

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. We'll compile the Q&A roster. And one moment for our first question. And our first question comes from Adam Hotzkiss from Goldman Sachs. Your line is now open.

Great. Thanks so much for taking the questions. I guess to start, Pierre, it'd be great to just understand at the high level where financial institutions broadly are on willingness to spend. I know you talked about the strength and referenceability of the legacy U.S. business. But maybe just talk a little bit about how you're building trust around some of these newer products like Banking Advisor, .Vox, continuous credit monitoring, and how we should see those flow through the model.

Thanks a lot, Adam. Yes, RPC. In the U.S., it's more of a volume business still. I don't see as many very large transformation projects like we've seen in the past. But it's good volume. People are continuously innovating and upgrading and tuning what they do in their systems. And you could see that in the results. So there's clearly a return to normalcy in the market here. Look at the international markets. That's an enterprise market. So what you'll see is it's more lumpy. It's big deals. But here's the good news. We are looking at the pipelines and I'm beginning to see these big transformation deals because if you look back at history, they are somewhat behind the U.S. in this cycle of cloud adoption, automation, driving efficiency. What I'm beginning to see is that in places like Japan, Australia, and in Europe, et cetera, I'm beginning to see on the pipeline some of these bigger transformation deals again, which bodes very well for us. When it comes to newer technologies, there's always your hype cycle. People adopt it early. Then they want to start seeing the benefits. They want to start hearing what's going on. Is it accurate? How does it pass master with regulators, et cetera? But I will tell you I'm very pleased with that number of deals on Banking Advisor so quickly. We've got a concerted effort to build out the skill set on that because that's going to drive revenue. So you have to realize AI and Banking Advisor is going to be not only a differentiator for us, but it's also going to be a revenue generator. So we're excited about that. So overall, more positive tone. It is just timing as these deals come up, especially in international. And of course, the mortgage market is impacted by rates. So we all are waiting for September, which we believe will start changing the yield curve as well as that marketplace.

And Adam, just to add one other thing in terms of the lumpiness of the international markets, Pierre touched upon a couple of countries, but we see in Japan, EMEA, Australia, New Zealand, those pipes up 30% year over year. And again, with some of those larger opportunities. And so, you know, we're encouraged by what we're seeing out there, not just in the US, but on a global basis. Although, of course, it never comes as quickly as we'd like.

Okay, got it. Thanks. That's helpful. And then, Greg, could you just maybe bridge us? between some of the positive commentary around U.S. demand and new products and the sequential step down in RPO. And then maybe just also remind us, you know, how some of that commentary, you know, generally flows through the model with things like RPO and fillings and, you know, what explains the step down there.

Yeah, from an RPO standpoint, you know, again, consistently we highlight the lumpiness of that and, again, not using that as a great metric. You know, perfect example this quarter, Adam, we highlight in our press release that we renewed a relationship with our largest client in the UK. We renewed it for a three-year deal, right? Had that been a five-year deal, you know, that would have skewed RPO, you know, meaningfully, right? And so, again, we're always cautious and, you know, urge you guys to be cautious as you look at that. You know, from a renewal standpoint this quarter, you know, nothing out of the ordinary, although I would call out from a duration standpoint some of the mortgage renewals were a little lower than normal. And so that also would have impacted RPO. But overall, again, getting back to kind of what we highlighted in our Q4 and Q1 call, you know, we like to be halfway through the year at around 40% of our total gross bookings for the year. And, you know, we see ourselves within striking distance of that. So I think as we sit here from the first half of the year, I think we're feeling pretty good when we look at what we see ahead of us in the second half of the year.

Okay. Very helpful. Thanks, Pierre. Thanks, Greg.

Thanks, Adam.

And thank you, and one moment for our next question. And our next question comes from Terry Tillman from Truist Securities. Your line is now open.

Yeah, thanks for taking my questions. Hi, Pierre, Greg, Harrison, and Joanne. Just the first question is, because it was in the prepared remarks, and I think you all talked about it multiple times, but in terms of I'm just trying to understand how important is platform deals and platform pricing structures going to be in terms of hitting this 50% net bookings growth for this year, and kind of in that same vein, as we look into next year, I think the idea is like, look, the business is coming back and potentially sub-revenue could accelerate leaving the year into next year. How important is platform monetization into the next year as well? And then add a follow-up for Greg.

Yeah, I would say, look, it's going to happen late in the year, and we're going to start with Renewal is a new business. We haven't specified the specific date. We're busy with field enablement, etc. But we are not dependent on that pricing structure change to make the numbers. We've been running the company like this for 12 years. We know exactly how to do this. We're going to make sure the field is prepared. And I would not say our numbers and how the years can perform is dependent on our change to platform pricing at all. I would tell you that platform deals, which means they buy everything for us, that moves the needle, and we love those. But the pricing model is not necessarily this year dependent on that. And also remember, our average contract duration is about 3.84 years. And therefore, it's going to take us three to four years to get through this cycle as renewals come up to change people over to platform pricing.

Yeah, that's helpful, Pierre. Thanks for that. And I guess, Greg, just to follow up, In terms of cash flow in 2Q, anything you could call out there related to timing or collections? And for the full year, does anything change about how we should be thinking about free cash flow for the full year? Thank you.

Yeah, thanks, Terry. You may have heard in my comments, you know, focusing you guys on the unbilled AR, which was up just under $5 million since the beginning of the year. And just to reiterate what I said, you know, unbilled AR is recorded when revenues earned on a contract exceed what's been billed. And that typically occurs when prices increase. Previewing is so important for us because we expect these customers to be around 10, 15 plus years. And so we always want to have that be the stepping off point when we go into a renewal discussion. And so we're seeing some of that as we transition and maybe even a little bit more of that as we transition to platform pricing and kind of navigate this. And so that's driving some of that differentiator in billings ultimately. And again, this ultimately is a reflection of 606 where you straight line what you bill over the term of an agreement. And again, your billing may not match up with what you're recognizing earlier in the contract. You're ultimately going to bill more than revenue later in the contract. So over time, it's a wash. And it certainly doesn't change our long-term view of cash, although there could be some impact in the short term. Is that responsive to your question, Terry?

Yeah. Yeah. I mean, it is helpful. I mean, it sounds like there's just some mechanics. And like you said, you explained it. But in the second half of the year, I mean, even with that in mind, I mean, should we see some seasonal strength then? Like just maybe you can just remind us on seasonal strength and free cash flow, notwithstanding the dynamics you called out. Thanks.

Yeah, sure. Yeah, recall the first half of the year for us is more cash generation than the second half. So from a seasonality perspective, historically, we have had lower cash generation in the second half. That's based a lot on just timing of deals historically and when we ultimately built. Got it. Thank you. Thanks, Terry.

And thank you. And one moment for our next question. And our next question comes from Aaron Kimson from Citizens JMP. Your line is now open.

Hey, thank you guys for the questions. First one, what would you say are the one or two largest execution risks associated with the pricing transition on the commercial side? And will the pricing transition be accompanied by a lot of operational changes to, you know, sales management structure, top plans, new roles, or it's just going to be pricing?

Yeah, you know, we've done extensive market studies around this. And to no surprise, the customers actually prefer this new pricing model we're going to roll out for the simple reason. they are used to buying either on asset size or consumption models. And I want to make 100% sure all of you understand that we are not moving to a pure consumption model. We are moving to a guaranteed foundation of pricing that will be based either on volume or on the asset size of the institution. And then when they exceed that, they will pay a unit cost that's higher than what's in the bundle guaranteed pricing to actually buy motivate them to push their minimums up, okay? So there'll be a small play on volume variation, but it'll be a smaller play in the financials of the company. Our studies show that people will much prefer that versus nickel and diming, two seats, 10 seats, 15 seats, if I use the seats or not, okay? Second to that, from a strategic perspective, we are helping banks to be more efficient and more effective, and I think that will accelerate with the adoption of AI technologies analytics and machine learning. And as you do this, you're purely a seed-based business, then essentially when you make them successful, they're going to pay you less. And that's not a good business model. So I don't see a lot of risk from a client backlash perspective or renewal perspective. The biggest thing for us is we do disciplined execution internally. I am personally involved with our sales leaders, our marketing leaders of how we roll this out. And I can tell you I'm highly confident this is going to be a very positive thing for the company.

Thank you. That's really helpful.

And then just when we talk about, I think it was on the F4Q call, subscription revenue growth on track to exceed 15% in FY26. Is that in part driven by an acceleration in Encino Mortgage that you kind of talked about it kicking in in fiscal 4Q of 25%? continuing into next year? Do you have visibility? Is that still happening just with the core commercial business and consumer X mortgage?

Yeah, we have not given further or addressed FY26 yet in any way, shape, or form. We are going to stick to our comments from earlier around that. And then we're going to focus on executing this year because what we book from now on to the end of the year is largely going to contribute to next year's growth. So it's always, really important for the team to focus on closing businesses as early as we can this year and actually set us up for next year for great success.

And, Aaron, just to add to that, again, if you look at what we've been doing from a breadth and depth of product perspective, you know, you mentioned mortgage. We talk about DocFox. We talk about Banking Advisor. We talk about where we are on the consumer lending side. We talk about Allegro. We talk about the international opportunity. Again, lumpiness is But we see a lot of opportunity there. I think that's one of the things that we're excited about as we put the last couple of years between liquidity crisis, interest rates, and COVID behind us, all the investments that we've made and the levers that we have for meeting our long-term targets from a growth standpoint. And so to Pierre's point right now, I think it's really just about keeping our heads down and executing And I think we believe that all of the ingredients are there for us to continue to track towards those targets.

Thank you guys so much.

Thanks, Aaron.

And thank you. And one moment for our next question. And our next question comes from Sakit Kalia from Barclays. Your line is now open.

OK, great. Hey, guys. Thanks for taking my questions here. Hey, Sackett. Hey, Greg. Hey, Pierre. Hey, guys. Pierre, maybe just to start with you, clearly a strong, solid U.S. and a very strong pipeline internationally. Maybe just to make sure the question is asked, can you just talk about how sort of the competitive landscape internationally looks versus the U.S.? Are those roughly similar in terms of competitive landscape, or is anything different that you're seeing as you – as you get deeper and deeper into those markets?

Yeah, no, so there's a number of differences. The first one is motivation to buy. If you look at the US, it's very shareholder and profitability and efficiency focused. If you look at Europe and mostly the national, it's more compliance regulation focused. And these are not massive zero to 100, but if you go 45, 55, that's how these balances come in. So when you enter there, you have to understand the motivation is more towards compliance, regulation, government regulations, et cetera. So that's one big difference. The second one we see is that, and this came out of a lot of these pricing studies and market research we did, is that in the US, we sell more platform deals, which is your community and regional space will take everything we got, and they believe in the simplified IT infrastructure. When you go to the enterprise, you could get the whole commercial bank or at least half of it in one shot. When you go to Europe, those are a bit more fewer and far between. And people prefer to buy point solutions that they can slot into the IT infrastructure so it's a bit smaller, a bit more focused, because the P&Ls are also slightly different to you. So those are some of the nuances we see in the markets. We actually... Make sure that we price and we package and have the flexibility to address these markets as they want to buy as opposed to us. On the flip side, it's the same phenomena, Yeri, just behind the US. If you look at once you get into a market and that market really begin to understand what we do, then the dominoes fall. New Zealand's a great example of that. The UK is another good example of that. And I'm seeing early signs in other markets like Australia and Japan of that coming along as well. South Africa is a much smaller market, but we've now got a great presence with the DocFox acquisition, which is all now Encino customers, as well as our direct-to-bank market there.

Got it. Got it. That's super helpful, Pierre. Greg, maybe for my follow-up for you, I know we've talked a lot about platform pricing, but I want to just maybe focus the question a little bit. I thought it was a really useful stat that you gave just on, I think it's 40% or 45% of the mortgage business, depending on revenue or logos, you know, 40 or 45% of that business that's being priced on sort of a platform basis. Again, just focusing on the mortgage component, do you sort of see that getting to 100% at some point? And does that take three to four years to sort of go through that process, like Pierre mentioned earlier? Or could that happen at a slightly different timeframe?

Thanks for the question, Zach. For mortgage, those contracts are a little bit shorter in duration on average. And so, that could happen quicker than the four years. You know, more I'd say probably in the two to three year range. And in terms of those discussions and receptivity, I think just like with the legacy Encino business, I think very well received. If you think about it, the seat-based pricing that we did for Encino legacy's business as well as for that mortgage business, right? And we acquired Simple Nexus. They had a seat-based business as well. But those were really the anomalies. And so we really have come around as we've evolved platform pricing throughout the company. And it's more in line with what our buyers or our customers are buying and how they buy. And so I think it's been very well received throughout the company. And we'll continue to execute on that strategy as we drive towards 100% adoption over time.

Second, just a few other things about mortgage I think it's important to realize. Sure. SimpleNexus was mostly an IMB company. provider. That's where they focused and that's where they build a good brand. When it came over to Encino, we widened that whole scope and said, look, we've got a good brand in banking, we'll go there. We've got home builders, which is another sector, and then IMBs. The one sector that is still struggling today is the IMB sector. Although the great news is a few weeks ago, we all read that the IMBs are now on average profitable. And then we all expect a rate cut in September somewhere. So that size of that market is, I think, through the trough, and they are going to start doing better, the industry as a whole, okay? Number one, the home builders, we've done fantastic with that. They see the implementations we've done. They see the actual success we provide some of their competitors, as well as the innovation and the investment we make into the product. And then you come over to banking. Banking mortgage, which was much lower priority with SimpleNexus, we've now focused on it, deployed the teams, is actually year over year 46% up over last year. So what we're doing with that business is, and banking is a lot less risky for the mortgage business because once they bought, it stays there, okay? It's not like IMBs doing M&A all the time or try to shut down the business. So I believe that business for us is a lot more balanced now. It's more growth-oriented. And as soon as this rate cut comes and the volumes go up, I'm actually highly optimistic that mortgages will start performing at a different level for us.

And just to add, Sackett, that 46% data point that Pierre gave you was in ACB bookings year over year for the FI space.

Got it. Super helpful, guys. Thank you. Thanks, Sackett. Thank you, Sackett.

And thank you.

And one moment for our next question. One moment for our next question.

And our next question comes from Charles Nabon from Stevens. Your line is now open.

Good afternoon, and thank you for taking my question. Pierre, could you talk about the mix of business you're driving domestically from new bookings, net new versus cross-sell? I guess what I'm getting at here is as you broaden the product set, could we expect to see you know, a shorter booking the bill cycle as you, as you process or into the existing base. And just trying to think about what that could mean for the 24 month portion of the RPO, as well as your, your revenue visibility over the next couple of years.

Yeah, it's very interesting. The first half of the year was 80, 20 cross sell 80% cross sell 20% new logos. Back half of the year, looks almost like the opposite. I cannot project exactly what it's going to look like, but if you look at the pipelines and the balance of business, a lot more new logo deals versus cross-sell. We used to run at 50-50. We now have got so many cross-selling products. I think that 50-50 is going to move more like a 60-40, if you ask me just to guess here, because we're going to have Commercial onboarding. You're going to have all your NIC products. You're going to have banking advisors, your AI products, your analytics products. We've got consumer ads very new. We've got small business coming in. You've got the past account opening. This last quarter, again, the non-commercial products was over 50% of bookings. So clearly the company has balanced the business to a much different extent than what it used to be. So I would just tell you the back end of the half is going to be the inverse of the first half. But yes, over time, that 60-40 versus 50-50 is what I foresee on cross-sell 60%, new logo is 40%.

Got it. And as a follow-up, could you talk about where you're investing internationally, perhaps from a geographic standpoint, as well as introducing greater product parity into some of your less mature markets?

Yeah. So our current international focus is follows. We've got a great operation in Canada. Then the UK islands, the hub for us. And then we focus on the Nordics, the Benelux and Spain. We have decided to de-emphasize Germany and France. There may be a day we go back in there, but for right now, let's focus on Spain. It's got great massive international banks that stretches into Latin America, as well as, you know, we've got a number of great logos outside of Spain that of those Spanish banks. And then you go down to New Zealand, Australia. Obviously, we've got South Africa with the Doc Fox acquisition as well as we've had some customers there beforehand. So New Zealand and then Japan. And that's where we're going to focus right now. That is a massive TAM and SAM. These countries are tea drinking countries, English speaking, similar laws, similar banking structures, etc. And we have found success there, as well as we follow where Salesforce have had success under data residency. I feel very good about that. I think what we have to do now is focus on these. We're building new product out of the UK as well as Australia for both onboarding as well as mortgage. We've had some wins there. Those products are coming along nicely. So what I would say is we've got a very focused strategy in markets where we feel it's familiar. and we can be successful.

Got it. I appreciate the call. Thanks. And thank you.

And one moment for our next question. And our next question comes from Alex Sklar from Raymond James. Your line is now open.

Great. Thank you. Pierre, just in terms of the confidence you expressed around achieving that 50% net bookings you wrote this year, I think the laughing of the mortgage headwinds part is clear. Could you elaborate a little bit more on your pipeline comments? Where are you sitting here most optimistic today in terms of reiterating that 50% outlook? And then a related question, but third quarter historically is not a big enterprise buying quarter. I know you talked about some tier one activity, enterprise activity back in the pipeline, both in the US and Europe. Is that still a fair way to think about that segment, though, that it can be more back after the back fourth quarter of the year weighted? Thanks.

Yeah, I believe we're going to have a good third quarter, but then fourth quarter is going to be big for us. That is additionally how the quarters flow out, especially the enterprise. Many of these banks, the year ends in October or September, so their budget years kick in. We've got great visibility into that. We understand their board dates. We know exactly when they make decisions. Many of this stuff is pre-approved. They just have to get for a final board approval. We do see a massive fourth quarter as well, but third quarter is not going to be negative. It's just a normal seasonality that you're going to see there. I want to make some comments on the community bank space. It's like a machine. It just rolls forward. That's why I love that business so much. I think the mortgage, we start seeing a slight improvement as the rates come down and the IMBs become more profitable. Enterprise in the U.S. is on a good footing. We mentioned over 50% of bookings already exceeded this year so far. Then you go international. A little bit more lumpy, but I'm seeing all the right movement and all the right behavior. So we are feeling confident that those numbers we put on the table is not only makeable, it's within reach. There's always a case, a middle case, A low case and a great case. And we feel that we've struck the right balance to actually make those numbers.

Okay. Thanks for that color, Pierre. Greg, this may be one for you.

I appreciate all the color in your prepared remarks on comparability issues with deferred revenue. And I know you've always talked down RPO as a key metric. In the past, you've kind of given some color on ACV or ARR growth just to kind of combat that RPO. Is there anything you can tell us in terms of like how ACV or ARR bookings kind of fared in second quarter? Thanks.

Thanks, Alex. Yeah, nothing beyond what we noted in our prepared remarks. We did try to give you quite a bit of color in terms of some of the metrics that we had laid out in enabling you guys to track us in our progress towards those numbers. That was really our thought as we came into this call.

Okay, great. Thank you both. Thanks, Alex.

And thank you. And one moment for our next question. And our next question comes from Michael Infante from Morgan Stanley. Your line is now open.

Great. Thanks for taking our question. Pierre, deposit attraction and retention has commanded pretty outsized mindshare for bank executives over the last 12 to 18 months. I'd be curious to get your perspective on a potential inflection and loan growth in calendar year 25 and whether or not that could be a catalyst for the US market to get a bit more constructive on some of the larger scale transformations.

That is a very good point because, you know, they buy where their intentions or their attention span is and what they actually believe they have to solve. I do think there will be an inflection point in loan activity. However, What we're seeing now is the markets have matured. The companies understand what they're doing. They understand what Encino does, which is clearly the market leader. We're moving now towards portfolio management, which if you look at the workload of that book of business of the bank, origination is important. It's a great cost driver, and you can get efficiencies there. But now the big next thing is going to be that portfolio management and automation of calculating your risk and exposure And how can you project that? And how can you impact the balance sheet? And so we're seeing great traction and interest in how we're going to do portfolio management and help the people actually to use the systems we put in place more effective. That's not only important from an efficiency perspective, but also a differentiation for us. So I see that as a driver as well, as well as the loan demand that you're talking about.

Understood. That's clear. Maybe, Greg, a quick one for you just on the mortgage business.

I think I was looking at some of the MBA expectations for volume growth in 25, and it looks like a pretty healthy snapback to call it 20% growth next year versus close to 40% declines in 24. Obviously, Simple Nexus took a ton of share this year. I'm just curious, just in terms of a general framework for how to think about that, is there any reason – to think that the mortgage business wouldn't grow sort of in line with broader market growth or even at a premium to the overall market, just given the level of share that you've taken this year?

Thanks for the question, Michael. Again, as we've talked about with these contracts where we have the guaranteed platform price, and then what comes with that is a certain number of loans that they're entitled to. you know, what we still need more data on as volumes ultimately do start to increase is where those minimums were set versus the go forward business of each of our customers. Right. And so we still need some more data points to understand when they're going to trip over, um, you know, the minimums and ultimately that's going to be upside revenue. We think we've positioned ourselves incredibly well to participate in that, um, in that increased volume. but a little bit too soon, I think, to determine whether it's going to align with that 20% or be some other number. But that was really one of the reasons we had such a focus on changing those contracts and that really being the first evolution of the platform was to be able to benefit from and participate in that increased volume, which, as you said, I think folks are expecting next year to be a positive year and obviously a big change from what we've seen over the last two years. And the other thing, again, you know, we talked about growth this year, but I think that mortgage business has performed incredibly well over the last two years during obviously incredibly difficult time period. And I think those logos that we've been able to take and the market share that we've been able to gain, again, puts us in a perfect spot to be able to benefit from that without being able to specifically answer your question, because I think we just need more data points and trends in order to do that.

Understood. That's good, Kyle. Thank you both.

Thanks, Michael.

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.

Hey, guys. It's John Gomez on for Nick Altman. Thanks for taking my question. Can you talk about the pipeline in terms of how it has changed when thinking about retail versus commercial and any changes to the pipeline makeup heading into the second half and where reps are leaning into?

From a pipeline perspective, John, what we're seeing now is more like high 50s to 60-ish non-commercial. And so again, that trend continues as some of those non-commercial products mature and ultimately we get more referenceability from them. And so we're excited about that mix. I mentioned earlier about Japan, EMEA, and Australia, New Zealand. Again, those pipes just being up 30% year over year on an aggregate basis. But as we think about commercial and non-commercial, it's kind of 40, 60-ish as we look at the pipe right now, non-commercial being the higher number. And we see it maturing and we see it growing. And ultimately, we're just looking at our colleagues and team to focus on executing and getting these deals over the line.

Got it. That's helpful. And as a follow-up, with your comment on the pipeline mix leaning more heavily to net new versus the first half, are you seeing more multi-product discussions up front for those net new customers? Are you seeing more multi-department or more geographical reach within those deals? Any color there would be helpful.

I think it depends on the geo. Getting back to Pierre's comments earlier, who you're selling to from a geographic perspective, In the U.S., I'd say yes, less so internationally. And then again, within the U.S., as you talk about community versus maybe enterprise bank, as we mentioned, that platform, multi-product sale, we see continued traction there. And again, I think that's a reflection of the maturation of some of those newer products like consumer lending. We talked about the eight new consumer lending deals that we got this quarter, the five DAO deals that we got this quarter. And so we're excited about that and that trend.

And thank you. And one moment for our next question.

And our next question comes from Joe Verwink from Bayard. Your line is now open.

Great. Thanks for taking my questions. I think Pierre made the comment earlier that when he looks at the pipeline, he sees larger enterprises across both new and established markets. I guess, is an imminent break cut enough to catalyze decisions for some of those big enterprises in the pipeline? Does it happen within the next two quarters or are you kind of going into this expecting maybe a potential lag and this all ultimately just aids the outlook into the next fiscal year?

No, I don't see that these people are sitting there waiting for a rate cut to make a strategic decision. These deals that we're working on is 9, 12, 16 months old. You have to prepare the full board, you prepare the management team, and they look at actually the much bigger picture strategically where the bank is going to be two, three, five years from now. I would say the driver is more how do you utilize intelligence of the future If you don't have an operating platform that allows you to standardize your methods, your procedures, and how your people interact with data and their customers, okay? It's back to the old IT infrastructure issue. I mentioned in my prepared remarks that one bank is going live. We removed 40 systems. I mean, those are the issues they deal with. Will the rate cuts help a little bit to not somebody forward? It may be. But in our conversations, it's a lot more strategic. around where they see the bank three and five years from now?

Joe, when you look at the business, really the only, I'd say, rate sensitivity that we really have is on the IMB side of the business, our home builders maybe as well. But when you look at the rest of the business, historically, it's not been very rate sensitive. Obviously, when you have what we went through over the last two years with this unprecedented rise in rates and the liquidity crisis, well, that's unusual. And that did impact our customer base. But as we distance ourselves from that and get back to, you know, what may be more of a normal operating environment, again, really where the interest rate cut will be impactful is on that IMB part of our business on the mortgage side.

Okay, that's helpful. And then I wanted to go back to the mortgage conversation, you know, specifically thinking about those MBA forecasts. Those are proven outs. purchase origination is going to be quite good in 2025 and 2026, not back to the heyday of 2021, but also you have a more robust offering now. The pricing structure is going to be different, and you certainly have a customer set that's consolidated. When you stack up all of that, and we obviously know kind of how Simple Nexus was growing on a pro forma basis, when you compare it the next two years versus prior history, can you relate those two at all in terms of what you would expect your growth rates in mortgage to settle out at in kind of a upturn, not historically robust, but a better environment in 25 and 26?

I think you're going to see a difference in our performance depending, is it the bank, is it the IMB, is it the homebuilder? So you have to slice and dice the market firstly to understand how the contracts are structured as well as how the buying patterns and the type of contracts that these people like. Will a rate cut and increased volume help us? Absolutely. I've always been very conservative, didn't believe these things are going to come. Now I believe it's going to come in September, and then we have to see what that does to inflation. I'll be very frank with you. I'm still a little bit concerned that if you cut rates too soon, too fast, that wage inflation will get us, and then boom, they stop the rate cutting. So we're not right now looking at next year, number one. I want to see more evidence, and number two, I want to slowly see how the U.S. economy reacts to a rate cut and what actually the activity is beyond that and what the unemployment rate is as a result.

Thank you.

Thank you. One moment for our next question. And our next question comes from Robert Traub from Acquire Capital. Your line is now open.

Thank you. Good afternoon, Pierre, Greg, Harrison. Thank you all for taking my question. I guess if I could just start with how you think about striking the balance in showing your customers the ROI initially. You mentioned striking the balance between adoption and demonstrable repetitive ROI. I think you've mentioned in your prepared remarks that Banking Advisor this year started at a pretty attractive introductory price to drive adoption, which of course makes sense. how do you kind of, is there a framework that you kind of use as you introduce these new products, particularly as you, you know, get deeper into portfolio management, you know, to, to, you know, not give something away, not, not for free, but, you know, in a way where people see what it's, what it's worth, but not at a price that scares them initially.

Yeah. Robert, thanks. That's a very insightful question. So, So here's what we do. We literally go into these banks and based on usage analytics, we have got currently in our systems. Okay. So remember before, when I go in with a new system, they've got no metrics, no understanding. And we literally had to get, you know, verbal measurements and people would tell us, look, it takes us about this and it's guesstimates and it's far off. We then see in our place, if it's an existing customer, we can literally measure you're spending four minutes on this task, 10 minutes on that task, et cetera. And then we show them bagging advice and say, this 10-minute task is going to come down to two minutes. Just an example, okay? So people immediately see the value of what we're doing there. And then just like with all new products, you go in with a low platform pricing and you do a usage count in there. And the more they use it, the more they're going to pay you. And then the more they use it and they pay you, that unit cost is a bit more expensive then. the guaranteed one, and then they move the minimums up, which gives us guaranteed recurring revenue. We're going to follow that same model. In the early stage, we're willing, just like we did with mortgage in the tough times, to go in with a lower guaranteed number and a higher upside for us as they start adopting and using it. If you see that product in action, it really is the closest thing to magic I've seen. I think what we're driving now is adoption. and market penetration. And then as the product mature, it'll settle down more to enhancing the skills and broadening the skills to get a much wider adoption in the bank and actually drive what I would say is material revenues for us.

It's very helpful. Thank you, Pierre. And then if I could just ask a very quick follow-up. I know... The mortgage industry, the IMB space has already gone through their commission realignment, if you will, a decade or so ago, more than that. But with the NAR sort of stormed chaos and confusion and the potential for dislocation in that market short term. Are you at all worried that particularly within the IMD space, there might be some ripples that spill over into the mortgage market?

The great news is that we've got a product that we sell to our clients to help them with compensation and how to structure it. So in this new environment, we actually can help them to do that better, number one. Number two, regardless of how... mortgage brokers and real estate agents are going to get paid, people are still going to buy houses. And the moment the volume goes up, the transaction is going to come through us. It's by far the best product in the market. We're making the investments. So I feel very optimistic that automation and what we do in that market is going to be actually the winner as opposed to manual processes. And that market's a relationship market, but the more we can take the friction out of that model the better for the market and for us. Excellent point. Thank you.

And thank you. And one moment for our next question. And our next question comes from Ryan Tomasello from KBW. Your line is now open.

Thank you. On the international front, Pierre, I was hoping you could expand upon the product roadmap there. You mentioned in your prepared remarks the opportunity for bringing DocFox in particular to international customers at some point. So curious how you would rank order what different features of the platform still represent an opportunity to expand internationally as you kind of look across what you have in the U.S. product set.

I would say the biggest next opportunity is commercial onboarding. That is a universal problem. And our market testing has shown that everybody is clamoring for a product like that in the commercial small business space, okay? To really take that from a six-month process down to a weeks and months process, okay? It literally is that difficult for them to open accounts. The second big product that we're working on there is a mortgage product. It will span from Canada into the UK, Ireland, down to Australia and New Zealand. So those are the two, I would say, big products. workflow automation type products. But then you have to realize all your NIC products, as well as Banking Advisor, are global products coming out of the chute. So every customer of Insignia will get the benefit of our intelligence and data initiatives as we go forward. And they don't need that specific customization for local environments. And then there's still a ton of commercial business left for us internationally. So we can go in on three fronts from major footprints, and then you start automating that with your banking advisor, NIC products. So I feel pretty good about the footprint we've got there.

Great. And then a follow-up for Greg, maybe a two-part question here on U.S. mortgage. Greg, last quarter you talked about M&A-driven mortgage churn as a particular area that you're being more mindful of in terms of the guide. I guess if you look at the mix across the U.S. customer base, mortgage customer base, are there any dynamics that make M&A something that's more likely to go against you over the intermediate term? And then as a follow-up on the churn piece, if you can quantify where that came in in the first half of the year and what your expectations are for the back half, just trying to understand the weighting there in terms of whether or not churn is could be a potential source of upside as we look at the second half of the year. Thanks.

Thanks for the questions, Ryan. On the M&A front, I don't think there's anything unique that would pose it as a specific risk. We've tried hard to align ourselves with the winners in the IMB space. And to that point, we've tried hard and worked hard to align ourselves with some of the bigger players out there. M&A, it certainly can go against you. It's hard to predict, right, when you're forecasting. But to the extent that there is on the mortgage side, you know, we certainly would hope to be a beneficiary. Even when we've not been in the past, you know, some of our best salespeople are frankly the loan officers that use our product at a specific IMB and they go somewhere else. And they insist on Simple Nexus, you know, now Encino Mortgage being part of their work life. And so that actually can be a benefit as well. even when a deal does go against us. But nothing unique to call out there. It's just really more reflection that we're seeing some stabilization in that space. IMBs are starting to make money again, which is great for the industry. And so as you think about churn, it's less about IMBs going out of business, which is what we experienced a majority of over the past two years and more around potential M&A. To your second question around churn, we forecasted out of the 20.5 million churn for this year, 8 million in the mortgage space. Through the first half of the year, we're about 4.75 million. And so we think we're right on track. And again, expect the second half of the year to be more stable. And so I think we feel good about where we are today.

Great. Appreciate the call. Thanks, Ryan. 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.

Great. Thanks for taking the question. When you think about the new products that you have and your commentary about the pipeline, is there a way to think about how the ACV mix will evolve for Encino as you think about the next three years or so?

I think you will see that the current pattern holding where it will be more than 50% non-commercial. I see that pattern continuing because there's so much bigger market for us left in that thing. The second thing is I think you're going to see the 60-40 I talked about earlier about new business versus cross-sell, the cross-sell being 60 and 40. That's a second way to look at it. And then thirdly, if you look at the U.S., You know, we are looking at the market here continuously. I mentioned earlier in previous calls, we are going to focus on credit unions more. And as you put dedication to those kind of markets, I think the U.S. will outpace international in bookings for the next three years just because of the sheer volume of institutions here and the breadth of the product set that we've got here. So that's how I look at the development of not only pipes, but ACV bookings and the transition into revenue of that.

Great. Thanks for taking the question.

You're welcome.

And thank you. And I am showing no further questions. I would now like to turn the call back over to Pierre Naudet, Chief Executive Officer, for closing remarks.

Thank you, Operator, and thank you all to be on the call today and with your insightful questions, etc. Here's my summary of what I'm seeing in the market. Great execution by the team. Team is well positioned. Strategically, we are as well positioned as ever in this company. We've came out of two years of COVID, then liquidity crisis, and now we're going to start seeing rate cuts. So I truly believe that there's better macroeconomic environments coming. At the same time, we kept our heads down. We kept on investing in products, et cetera. And all of that is going to culminate in a great positioning for this company. So I'm not only optimistic, I'm actually feeling pretty good about what I'm seeing in the pipelines, the early signs there. So I appreciate your analysis and your insights into our business. And hopefully you can see the enthusiasm we have as we go forward. Thank you very much. Talk to you all later.

Thank you. This concludes today's conference call. Thank you for participating.

You may now disconnect. Thank you. Thank you.

Thank you. you you

Good day, and thank you for standing by, and welcome to Encino's second quarter fiscal year 2025 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'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Harrison Masters, Director of Investor Relations. Please go ahead.

Good afternoon, and welcome to Encino's second quarter fiscal 2025 earnings call. With me on today's call are Pierre Naudet, Encino's Chairman and Chief Executive Officer, and Greg Ornstein, Encino's Chief Financial 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. and CINO 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 turn the call over to Pierre.

Thank you, Harrison. Welcome, and thank you for joining us today. We are very pleased with our second quarter financial results, once again exceeding our guidance for both subscription and total revenues, as well as for non-GAAP operating income. Before I turn the call over to Greg to provide you with additional financial details on the second quarter, I would like to walk you through what we are seeing in the market. In the United States, sentiment in the financial services industry has improved quite a bit from a year ago with FI balance sheets generally healthy and net interest margin headwinds abating. Buying behavior in both the U.S. enterprise and community and regional markets accelerated in the first half of fiscal 25, with gross bookings in the US up 36% over the first half of last year, including mortgage, and up 67% without mortgage. This momentum has been driven primarily by expansion opportunities within our existing customer base as more and more customers embrace our single platform. As of the end of second quarter, our U.S. enterprise and community and regional businesses were both over 50% of their way to their total gross bookings goals for the year. In our U.S. mortgage business, we signed six new mortgage customers in the second quarter, four of which were financial institutions. Lending volumes and market activity did remain relatively suppressed in what would otherwise historically be a seasonally strong selling quarter. We maintain our view that U.S. mortgage revenues will be dilutive to overall growth for Encino this fiscal year, but we expect interest rate cuts to be a catalyst for re-accelerated growth in this business starting in the fourth quarter and as we look into next year, consistent with our previous comments. We are very pleased to have successfully navigated through a difficult mortgage market over the past couple of years. And with approximately 40% of our U.S. mortgage logos and 45% of our U.S. mortgage revenues now on our new pricing model, we believe we are very well situated to benefit from the expected increase in mortgage activity, including from one of the largest home builders in the United States, which began their nationwide rollout of the Encino Mortgage Solution in July. Turning to our business outside of the US, our pipelines have grown nicely this time last year, but the international markets we operate in remain more challenged than in the US. As a reminder, our pipelines outside of the US are comprised primarily of new logo opportunities, which do inherently take longer to close in any business climate can be much more lumpy in light of the large bank nature of this business. That said, we do expect our international operations to add a healthy number of new logos in the second half of the year. You'll recall on our fourth quarter earnings call, I said having roughly around 40% of our total gross bookings in the first half of the year is a more normal picture for the year. Gross bookings for the first six months were approximately 36% towards our annual goal, highlighted by overperformance in our legacy US business, while our US mortgage and international businesses were more challenged. As we look at our sales pipelines, we believe we are on track to meet our gross bookings goal for the year. We are particularly encouraged to see an increasing number of large enterprise opportunities in both our newer and established markets. On a net bookings basis, we ended the first half of the year up approximately 17% year over year. And we believe we are on track to our goal of net bookings being up 50% year over year. In the second quarter, over half of our total company bookings came from outside of commercial lending, including over half of new customer deals. and we added eight new consumer lending and five new deposit account opening customers, two of which added both solutions. Legacy systems and processes continue to bog down the middle and back office of financial institutions, and our digital channels and automation are bringing speed and efficiency they never thought possible. For example, a $2 billion bank in New England shared They have taken a 41-minute deposit account opening process down to just four minutes for business clients and removed the need for a banker to get involved. Another community bank in Tennessee reduced approval times for consumer loans by 95%. In the consumer banking world, the speed with which a financial institution can fulfill requests for products and services has everything to do with client satisfaction. With a quicker yes and see no consumer lending and deposit account opening, customers are realizing a true competitive advantage. And with more product depth, we are delivering even more value to the lines of business already on your platform. For example, a $20 billion bank became one of our largest portfolio and latest customers, expanding their adoption from commercial lending and deposit account opening to also include portfolio analytics for CRE stress testing. By bringing back office portfolio level risk analysis onto the same platform used for originations, this bank is enhancing the availability and suitability of data for risk management. Again and again, customers demonstrate that adopting multiple solutions on a single platform from Encino yields a consistent and more enjoyable client experience and more efficient operations within the institution. Efficiency continues to be a core mandate for every financial institution, and we continue to make investments to reduce the cost of ownership by reducing implementation timelines, hardening plug-and-play third-party integrations, and streamlining ongoing administration. One of the largest banks in New Zealand went live with Encino during the second quarter, a key milestone in the program that will allow this FI to retire over 40 legacy systems. We aim for that level of efficiency across every business line in the financial institution. Turning to Banking Advisor, we are quite pleased with the progress we have made bringing our unique data capabilities and AI to financial services through this product family. Even though Banking Advisor only became generally available in the second quarter, we signed eight Banking Advisor deals in the quarter across the community, regional, and enterprise market segments in the U.S. and Canada, and have taken our first customer live with it. Our knowledge base and narratives drafting skills have strongly resonated with FIs across asset classes. representing a diverse cross-section of our customer base. Long-term, our banking advisor roadmap is focused on opportunities to go even deeper with intelligence and automation, enabled by our unique access to financial institutions data, which the team has done a great job obtaining consent to use. On the M&A front, we are pleased with the progress we have made integrating both DocFox and Allegro. In particular, the market responds to the commercial onboarding and account opening functionality we acquired with DocFox as far exceeded our expectations. We are actively exploring opportunities to accelerate this integration along with the rollout of this product outside of the US, especially as customers are looking to purchase this product as part of our single platform versus on a standalone basis. With that, I'll hand it over to Greg to cover our financials.

Thank you, Pierre, and thanks, everyone, for joining us this afternoon to review our second quarter fiscal 2025 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 as an exhibit to the Form 8-K furnished with the SEC just before this call. As Pierre noted, we are very pleased with our second quarter financial results. Total revenues for the second quarter of fiscal 25 were $132.4 million, an increase of 13% year over year. Subscription revenues for the second quarter were $113.9 million, an increase of 14% year over year, representing 86% of total revenues, both ahead of the top end of our guidance. Mortgage subscription revenues were approximately $17 million, or 15% of subscription revenues in the quarter, representing year-over-year growth of 4%. Churn, including for mortgage, continued to moderate through the second quarter and remained in line with our $20.5 million churn forecast for the year. As we have discussed, mortgage churn peaked in October last year and total churn peaked in the fourth quarter, which negatively impacts our growth rates this year. Professional services revenues were $18.5 million in the quarter, growing 7% year over year. Our customers and prospects continue to exhibit a sensitivity to consulting rates, which we are addressing by more strongly recommending gold standard out-of-the-box deployments in order to reduce implementation timelines and administration costs post-go-live. Non-U.S. revenues were $27.5 million, or 21% of total revenues in the second quarter, up 25% year-over-year. International revenues are more dependent on new customer sales given the smaller installed customer base and the fact some of our newer solutions are not yet available outside of the United States. We expect further moderation of international revenues growth, more in line with overall companies' revenue growth, until the new logo sales we plan to sign in the second half of this year impact revenues. Non-GAAP gross profit for the second quarter of fiscal 25 was $86.7 million, an increase of 13% year over year. Non-GAAP gross margin was 66% compared to 65% in the second quarter of fiscal 24. Non-GAAP gross margin benefited from our amended agreement with Salesforce and from the larger mix of subscription revenues. Non-GAAP operating income for the second quarter of fiscal 25 was $19.3 million compared with $11.2 million in the second quarter of fiscal 24. Our non-GAAP operating margin for the second quarter was 15% compared with 10% in the second quarter of fiscal 24. Our annual Insight User Conference contributed approximately $2 million to a sequential increase in sales and marketing costs. Additionally, the acquisitions completed in the first quarter contributed approximately $7 million of annualized costs to research and development. Non-GAAP net income attributable to Encino for the second quarter of fiscal 25 was $15.8 million, or 14 cents per diluted share, compared to $10 million or 9 cents per diluted share in the second quarter of fiscal 24. Our remaining performance obligation, or RPO, was $1.04 billion as of July 31st, 2024, up 12% over $929 million as of July 31st, 2023, with $698 million in the less than 24 months category, up 10% from $636 million as of July 31st, 2023. We ended the second quarter with cash and cash equivalents of $126.8 million, including restricted cash. Net cash provided by operating activities was $5 million compared to $12 million in the second quarter of fiscal 24. Capital expenditures were $444,000 in the quarter, resulting in free cash flow of $4.6 million for the second quarter of fiscal 25. We repaid $15 million on our revolving credit facility in the second quarter and plan to pay down the remaining $40 million of borrowed principal during the rest of this fiscal year as we generate cash. Note that unbilled accounts receivable has increased by $4.8 million since January 31st of this year. Unbilled accounts receivable are recorded when revenues earned on a contract exceed what has been billed to date for that contract. For Encino, this typically occurs when fees increase during the contract term, including under platform pricing arrangements, and revenue recognition aligns to the satisfaction of performance obligation rather than to billings. These platform pricing arrangements are becoming more commonplace for us as we execute on our strategy to evolve to a platform pricing model. Accordingly, comparisons to previous quarter's calculated billings may not accurately reflect trends in our business, and deferred revenues are increasingly less predictive of the revenues that will be recognized in subsequent periods. Turning to guidance. For the third quarter, we expect total revenues of $136 million to $138 million with subscription revenues of approximately $117 million to $119 million. For full fiscal year 25, we continue to expect total revenues of $538.5 million to $544.5 million with subscription revenues of $463 million to $469 million. As noted, our churn expectations for fiscal 25 currently remain in line with the $20.5 million we discussed on our two previous earnings calls. Our financial outlook includes 5% subscription revenues growth for U.S. mortgage this fiscal year, with no year-over-year growth expected in the third quarter. Our guidance maintains our assumption that increased mortgage lending volumes do not start to positively impact revenues until the fourth quarter. We continue to assume banking advisors' contribution to subscription revenues this year will be de minimis as we are offering it at an attractive initial price point to garner adoption. Our efforts to transition the company's revenue model to platform pricing continue in earnest. Our new and expansion sales of consumer lending, deposit account opening, and U.S. mortgage solutions are on platform pricing, and we continue to refine solution bundles pursuant to which we will roll out platform pricing across the remainder of our business later this year. Beginning with this formal pricing change, we expect Banking Advisor to be part of every new deal, and we expect usage will drive a more meaningful contribution to revenues next year and beyond. Non-GAAP operating income in the third quarter is expected to be approximately $21 million to $22 million, and non-GAAP net income attributable to Encino per share to be 15 to 16 cents. This is based upon a weighted average of approximately 118 million diluted shares outstanding. For the full year, in light of the outperformance in the second quarter, we are increasing our non-GAAP operating income outlook and now expect non-GAAP operating income for fiscal 25 to be $87 million to $90 million. For full fiscal year 25, non-GAAP net income attributable to Encino per share is expected to be 66 to 69 cents based upon a weighted average of approximately 117 million basic shares outstanding. With that, we'll open the line for questions.

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. We'll compile the Q&A roster. And one moment for our first question. And our first question comes from Adam Hotchkiss from Goldman Sachs. Your line is now open.

Great. Thanks so much for taking the questions. I guess to start, Pierre, it would be great to just understand at the high level what where financial institutions broadly are on willingness to spend. I know you talked about the strength and referenceability of the legacy U.S. business, but maybe just talk a little bit about how you're building trust around some of these newer products like BankingAdvisor.Fox, continuous credit monitoring, and how we should see those flow through the model.

Thanks a lot, Adam. Yes, RBC. In the U.S., it's more of a volume business still. I don't see as many very large transformation projects like we've seen in the past. But it's good volume. People are continuously innovating and upgrading and tuning what they do in their systems. And you could see that in the results. So there's clearly a return to normalcy in the market here. Look at the international markets. That's an enterprise market. So what you'll see is it's more lumpy. It's big deals. But here's the good news. we are looking at the pipelines and I'm beginning to see these big transformation deals. Because if you look back at history, they are somewhat behind the U.S. in this cycle of cloud adoption, automation, driving efficiency. What I'm beginning to see is that in places like Japan, Australia, and in Europe, et cetera, I'm beginning to see on the pipeline some of these bigger transformation deals again, which bodes very well for us. When it comes to newer technologies, there's always your hype cycle. People adopt it early. Then they want to start seeing the benefits. They want to start hearing what's going on. Is it accurate? How does it pass master with regulators, et cetera? But I will tell you, I'm very pleased with that number of deals on Banking Advisor so quickly. We've got a concerted effort to build out the skill set on that because that's going to drive revenue. So you have to realize AI and Banking Advisor is going to be not only a differentiator for us, but it's also going to be a revenue generator. So we're excited about that. So overall, more positive tone. It is just timing as these deals come up, especially in international. And of course, the mortgage market is impacted by rates. So we all are waiting for September, which we believe will start changing the yield curve as well as that marketplace.

And Adam, just to add one other thing, in terms of the lumpiness of the international markets, Pierre touched upon a couple of countries, but we see in Japan, EMEA, Australia, New Zealand, those pipes up 30% year over year. And again, with some of those larger opportunities. And so, you know, we're encouraged by what we're seeing out there, not just in the US, but on a global basis. Although, of course, it never comes as quickly as we'd like.

Okay, got it. Thanks. That's helpful. And then, Greg, could you just maybe bridge us? between some of the positive commentary around U.S. demand and new products and the sequential step down in RPO? And then maybe just also remind us, you know, how some of that commentary, you know, generally flows through the model with things like RPO and fillings and, you know, what explains the step down there?

Yeah, from an RPO standpoint, you know, again, consistently we highlight the lumpiness of that and, again, not using that as a great metric. You know, perfect example, this quarter, Adam, we highlighted in our press release that we renewed a relationship with our largest client in the UK. We renewed it for a three-year deal, right? Had that been a five-year deal, you know, that would have skewed RPO, you know, meaningfully, right? And so, again, we're always cautious and, you know, urge you guys to be cautious as you look at that. You know, from a renewal standpoint, this quarter, you know, nothing out of the ordinary, although I would call out from a duration standpoint, some of the mortgage renewals were a little lower than normal. And so that also would have impacted RPO. But overall, again, getting back to kind of what we highlighted in our Q4 and Q1 call, you know, we like to be halfway through the year at around 40% of our total gross bookings for the year. And, you know, we see ourselves within striking distance of that. So I think as we sit here from the first half of the year, I think we're feeling pretty good when we look at what we see ahead of us in the second half of the year.

Okay. Very helpful. Thanks, Pierre. Thanks, Greg.

Thanks, Adam.

And thank you, and one moment for our next question. And our next question comes from Terry Tillman from Truist Securities. Your line is now open.

Yeah, thanks for taking my questions. Hi, Pierre, Greg, Harrison, and Joanne. Just the first question is, because it was in the prepared remarks, and I think you all talked about it multiple times, but in terms of, I'm just trying to understand, how important is platform deals and platform pricing structures going to be in terms of hitting this 50% net bookings growth for this year, and kind of in that same vein, as we look into next year, I think the idea is like, look, the business is coming back and potentially sub-revenue could accelerate leaving the year into next year. How important is platform monetization into the next year as well? And then add a follow-up for Greg.

Yeah, I would say, look, it's going to happen late in the year, and we're going to start with Renewal is a new business. We haven't specified the specific date. We're busy with field enablement, etc. But we are not dependent on that pricing structure change to make the numbers. We've been running the company like this for 12 years. We know exactly how to do this. We're going to make sure the field is prepared. And I would not say our numbers and how the years can perform is dependent on our change to platform pricing at all. I would tell you that platform deals, which means they buy everything for us, that moves the needle, and we love those. But the pricing model is not necessarily this year dependent on that. And also remember, our average contract duration is about 3.84 years. And therefore, it's going to take us three to four years to get through this cycle as renewals come up to change people over to platform pricing.

Yeah, that's helpful, Pierre. Thanks for that. And I guess, Greg, just to follow up, In terms of cash flow and 2Q, anything you could call out there related to timing or collections? And for the full year, does anything change about how we should be thinking about free cash flow for the full year? Thank you.

Yeah, thanks, Terry. You may have heard in my comments, you know, focusing you guys on the unbilled AR, which was up just under $5 million since the beginning of the year. And just to reiterate what I said, you know, unbilled AR is recorded when revenues earned on a contract exceed what's been billed. And that typically occurs when prices increase. So important for us because we expect these customers to be around 10, 15 plus years. And so we always want to have that be the stepping off point when we go into a renewal discussion. And so we're seeing some of that as we transition and maybe even a little bit more of that as we transition to platform pricing and kind of navigate this. And so that's driving some of that differentiator in billings ultimately. And again, this ultimately is a reflection of 606 where you straight line what you bill over the term of an agreement. And again, your billing may not match up with what you're recognizing earlier in the contract. You're ultimately going to bill more than revenue later in the contract. So over time, it's a wash. And it certainly doesn't change our long-term view of cash, although there could be some impact in the short term. Is that responsive to your question, Terry?

Yeah. Yeah. I mean, it is helpful. I mean, it sounds like there's just some mechanics. And like you said, you explained it. But in the second half of the year, I mean, even with that in mind, I mean, should we see some seasonal strength then? Like just maybe you can just remind us on seasonal strength and free cash flow, notwithstanding the dynamics you called out. Thanks.

Yeah, sure. Yeah, recall the first half of the year for us is more cash generation than the second half. So from a seasonality perspective, historically, we have had lower cash generation in the second half. That's based a lot on just timing of deals historically and when we ultimately built. Got it. Thank you. Thanks, Terry.

And thank you. And one moment for our next question. And our next question comes from Aaron Kimson from Citizens JMP. Your line is now open.

Hey, thank you guys for the questions. First one, what would you say are the one or two largest execution risks associated with the pricing transition on the commercial side? And will the pricing transition be accompanied by a lot of operational changes to, you know, sales management structure, comp plans, new roles, or it's just going to be pricing?

Yeah, you know, we've done extensive market studies around this. And to no surprise, the customers actually prefer this new pricing model we're going to roll out for the simple reason, they are used to buying either on asset size or consumption models. And I want to make 100% sure all of you understand that we are not moving to a pure consumption model. We are moving to a guaranteed foundation of pricing that will be based either on volume or on the asset size of the institution. And then when they exceed that, they will pay a unit cost that's higher than what's in the bundle guaranteed pricing to actually buy motivate them to push their minimums up, okay? So there'll be more play on volume variation, but it'll be a smaller play in the financials of the company. Well, our studies show that people will much prefer that versus nickel and diming, two seats, 10 seats, 15 seats, if I use the seats or not, okay? Second to that, from a strategic perspective, we are helping banks to be more efficient and more effective. And I think that will accelerate with the adoption of AI analytics and machine learning. And as you do this, you're purely a seed-based business, then essentially when you make them successful, they're going to pay you less. And that's not a good business model. So I don't see a lot of risk from a client backlash perspective or renewal perspective. The biggest thing for us is we do disciplined execution internally. I am personally involved with our sales leaders, our marketing leaders of how we roll this out. And I can tell you I'm highly confident this is going to be a very positive thing for the company.

Thank you. That's really helpful.

And then just when we talk about, I think it was on the F4Q call, subscription revenue growth on track to exceed 15% in FY26. Is that in part driven by an acceleration in Encino Mortgage that you kind of talked about it kicking in in fiscal 4Q of 25%? continuing into next year? Do you have visibility? Is that still happening just with the core commercial business and consumer X mortgage?

Yeah, we have not given further or addressed FY26 yet in any way, shape, or form. We are going to stick to our comments from earlier around that. And then we're going to focus on executing this year because what we book from now on to the end of the year is largely going to contribute to next year's growth. So it's always, really important for the team to focus on closing businesses as early as we can this year and actually set us up for next year for great success.

And Aaron, just to add to that, again, if you look at what we've been doing from a breadth and depth of product perspective, you know, you mentioned mortgage. We talk about DocFox. We talk about Banking Advisor. We talk about where we are on the consumer lending side. We talk about Allegro. We talk about the international opportunity. Again, lumpiness is But we see a lot of opportunity there. I think that's one of the things that we're excited about as we put the last couple of years between liquidity crisis, interest rates, and COVID behind us, all the investments that we've made and the levers that we have for meeting our long-term targets from a growth standpoint. And so to Pierre's point right now, I think it's really just about keeping our heads down and executing And I think we believe that all of the ingredients are there for us to continue to track towards those targets.

Thank you guys so much. Thanks, Aaron.

And thank you. And one moment for our next question. And our next question comes from Sakit Kalia from Barclays. Your line is now open.

OK, great. Hey, guys. Thanks for taking my questions here. Hey, Sackett. Hey, Greg. Hey, Pierre. Hey, guys. Pierre, maybe just to start with you, clearly a strong, solid U.S. and a very strong pipeline internationally. Maybe just to make sure the question is asked, can you just talk about how sort of the competitive landscape internationally looks versus the U.S.? Are those roughly similar in terms of competitive landscape, or is anything different that you're seeing as you – as you get deeper and deeper into those markets?

Yeah, no, so there's a number of differences. The first one is motivation to buy. If you look at the US, it's very shareholder and profitability and efficiency focused. If you look at Europe and mostly the national, it's more compliance regulation focused. And these are not massive zero to 100, but if you go 45, 55, that's how these balances come in. So when you enter there, you have to understand the motivation is more towards compliance regulation government regulations etc so that's one big difference the second one we see is that and this came out of a lot of these pricing studies and market research we did is that in the year in the us we sell more platform deals which is your community and regional space will take everything we got and they believe in the simplified i.t infrastructure When you go to the enterprise, you could get the whole commercial bank or at least half of it in one shot. When you go to Europe, those are a bit more fewer and far between. And people prefer to buy point solutions that they can slot into the IT infrastructure so it's a bit smaller, a bit more focused, because the P&Ls are also slightly different to you. So those are some of the nuances we see in the markets. We actually... Make sure that we price and we package and have the flexibility to address these markets as they want to buy as opposed to us. On the flip side, it's the same phenomena, Yeri, just behind the US. If you look at once you get into a market and that market really begin to understand what we do, then the dominoes fall. New Zealand's a great example of that. The UK is another good example of that. And I'm seeing early signs in other markets like Australia and Japan of that coming along as well. South Africa is a much smaller market, but we've now got a great presence with the DocFox acquisition, which is all now Encino customers, as well as our direct-to-bank market there.

Got it. Got it. That's super helpful, Pierre. Greg, maybe for my follow-up for you, I know we've talked a lot about platform pricing, but I want to just maybe focus the question a little bit. I thought it was a really useful stat that you gave just on, I think it's 40% or 45% of the mortgage business, depending on revenue or logos, you know, 40 or 45% of that business that's being priced on sort of a platform basis. Again, just focusing on the mortgage component, do you sort of see that getting to 100% at some point? And does that take three to four years to sort of go through that process like Pierre mentioned earlier? Or could that happen at a slightly different timeframe?

Thanks for the question, Zach. For mortgage, those contracts are a little bit shorter in duration on average. And so, that could happen quicker than the four years, you know, more, I'd say probably in the two to three year range. And in terms of those discussions and receptivity, I think just like with the legacy Encino business, I think very well received. If you think about it, the seat based pricing that we did for Encino legacy's business, as well as for that mortgage business. Right. And we acquired Simple Nexus. They had a seat based business as well. But those were really the anomaly. And so we really have come around as we've evolved platform pricing throughout the company. And it's more in line with what our buyers or our customers are buying and how they buy. And so I think it's been very well received throughout the company. And we'll continue to execute on that strategy as we drive towards 100% adoption over time.

Second, just a few other things about mortgage I think it's important to realize. Sure. SimpleNexus was mostly an IMB company. provider. That's where they focused and that's where they build a good brand. When it came over to Encino, we widened that whole scope and said, look, we've got a good brand in banking, we'll go there. We've got home builders, which is another sector, and then IMBs. The one sector that is still struggling today is the IMB sector. Although the great news is a few weeks ago, we all read that the IMBs are now on average profitable. And then we all expect a rate cut in September somewhere. So that size of that market is, I think, through the trough, and they are going to start doing better, the industry as a whole, okay? Number one, the homebuilders, we've done fantastic with that. They see the implementations we've done. They see the actual success we provide some of their competitors, as well as the innovation and the investment we make into the product. And then you come over to banking. Banking mortgage, which was much lower priority with SimpleNexus, we've now focused on it, deployed the teams, is actually year over year 46% up over last year. So what we're doing with that business is, and banking is a lot less risky for the mortgage business because once they bought, it stays there, okay? It's not like IMBs doing M&A all the time or try to shut down the business. So I believe that business for us is a lot more balanced now. It's more growth-oriented. And as soon as this rate cut comes and the volumes go up, I'm actually highly optimistic that mortgages will start performing at a different level for us.

And just to add, Sackett, that 46% data point that Pierre gave you was in ACB bookings year over year for the FI space.

Got it. Super helpful, guys. Thank you. Thanks, Sackett. Thank you, Sackett.

And thank you.

And one moment for our next question.

one moment for our next question and our next question carl comes from charles nabon from stevens your line is now open good afternoon and thank you for taking my question pierre could you talk about the mix of business you're driving domestically from new bookings net new versus cross sell um i guess what i'm getting at here is as you broaden the product set um could we expect to see you know, a shorter booking the bill cycle as you, as you process or into the base and just trying to think about what that could mean for the 24 month portion of the RPO, as well as your, your revenue visibility over the next couple of years.

Yeah, it's very interesting. The first half of the year was 80, 20 cross sell 80% cross sell 20% new logos back half of the year. looks almost like the opposite. I cannot project exactly what it's going to look like, but if you look at the pipelines and the balance of business, a lot more new logo deals versus cross-sell. We used to run at 50-50. We now have got so many cross-selling products. I think that 50-50 is going to move more like a 60-40 if you ask me just to guess here, because we're going to have Commercial onboarding. You're going to have all your NIC products. You're going to have banking advisors, your AI products, your analytics products. We've got consumer ads very new. We've got small business coming in. You've got the past account opening. This last quarter, again, the non-commercial products was over 50% of bookings. So clearly the company has balanced the business to a much different extent than what it used to be. So I would just tell you the back end of the half is going to be the inverse of the first half. But yes, over time, that 60-40 versus 50-50 is what I foresee on cross-sell 60%, new logo is 40%.

Got it. And as a follow-up, could you talk about where you're investing internationally, perhaps from a geographic standpoint, as well as introducing greater product parity into some of your less mature markets?

Yeah. So our current international focus is follows. We've got a great operation in Canada, then the UK islands, the hub for us. And then we focus on the Nordics, the Benelux and Spain. We have decided to de-emphasize Germany and France. There may be a day we go back in there, but for right now, let's focus on Spain. It's got great massive international banks that stretches into Latin America, as well as, you know, we've got a number of great logos outside of Spain. of those Spanish banks. And then you go down to New Zealand, Australia. Obviously, we've got South Africa with the Doc Fox acquisition as well as we've had some customers there beforehand. So New Zealand and then Japan. And that's where we're going to focus right now. That is a massive TAM and SAM. These countries are tea drinking countries, English speaking, similar laws, similar banking structures, etc. And we have found success there, as well as we follow where Salesforce have had success under data residency. I feel very good about that. I think what we have to do now is focus on these. We're building new product out of the UK as well as Australia for both onboarding as well as mortgage. We've had some wins there. Those products are coming along nicely. So what I would say is we've got a very focused strategy in markets where we feel it's familiar. and we can be successful.

Got it. I appreciate the call. Thanks. And thank you.

And one moment for our next question. And our next question comes from Alex Sklar from Raymond James. Your line is now open.

Great. Thank you. Pierre, just in terms of the confidence you expressed around achieving that 50% net bookings you wrote this year, I think the laughing of the mortgage headwinds part is clear. Could you elaborate a little bit more on your pipeline comments? Where are you sitting here most optimistic today in terms of reiterating that 50% outlook? And then a related question, but third quarter historically is not a big enterprise buying quarter. I know you talked about some tier one activity, enterprise activity back in the pipeline, both in the US and Europe. Is that still a fair way to think about that segment though, that it can be more back fourth quarter of the year weighted? Thanks.

Yeah, I believe we're going to have a good third quarter, but then fourth quarter is going to be big for us. That is additionally how the quarters flow out, especially the enterprise. Many of these banks, the year ends in October or September, so their budget years kick in. We've got great visibility into that. We understand their board dates. We know exactly when they make decisions. Many of this stuff is pre-approved. They just have to get for a final board approval. So we do see a massive fourth quarter as well, but third quarter is not going to be negative. It's just a normal seasonality that you're going to see there. I want to make some comments on the community bank space. It's like a machine. It just rolls forward. Okay. And that's why I love that business so much. I think the mortgage, we start seeing a slight improvement as the rates come down and the IMBs becomes more profitable. Enterprise in the U.S. is on a good footing. We mentioned over 50% of bookings already exceeded this year so far. Then you go international. A little bit more lumpy, but I'm seeing all the right movements and all the right behavior. So we are feeling confident that those numbers we put on the table is not only makeable, it's within reach. There's always a case, a middle case, A low case and a great case. And we feel that we've struck the right balance to actually make those numbers.

Okay. Thanks for that color, Pierre. Greg, this may be one for you.

I appreciate all the color in your prepared remarks on comparability issues with deferred revenue. I know you've always talked down RPO as a key metric. In the past, you've kind of given some color on ACV or ARR growth just to kind of combat that RPO. Is there anything you can tell us in terms of like how ACV or ARR bookings kind of fared in second quarter?

Thanks. Thanks, Alex. Yeah, nothing beyond what we noted in our prepared remarks. We did try to give you quite a bit of color in terms of some of the metrics that we had laid out in enabling you guys to track us in our progress towards those numbers. That was really our thought as we came into this call.

Okay, great. Thank you both. Thanks, Alex.

And thank you. And one moment for our next question. And our next question comes from Michael Infante from Morgan Stanley. Your line is now open.

Great. Thanks for taking our question. Pierre, deposit attraction retention has commanded pretty outsized mindshare for bank executives over the last 12 to 18 months. I'd be curious to get your perspective on a potential inflection and loan growth in calendar year 25 and whether or not that could be a catalyst for the US market to get a bit more constructive on some of the larger scale transformations.

That is a very good point because, you know, they buy where their intentions or their attention span is and what they actually believe they have to solve. I do think there will be an inflection point in loan activity. However, What we're seeing now is the markets have matured. The companies understand what they're doing. They understand what Encino does, which is clearly the market leader. We're moving now towards portfolio management, which if you look at the workload of that book of business of the bank, origination is important. It's a great cost driver, and you can get efficiencies there. But now the big next thing is going to be that portfolio management and automation of calculating your risk and exposure And how can you project that and how can you impact the balance sheet? And so we're seeing great traction and interest in how we're going to do portfolio management and help the people actually to use the systems we put in place more effective. That's not only important from an efficiency perspective, but also a differentiation for us. So I see that as a driver as well, as well as the loan demand that you're talking about.

Understood. That's clear. Maybe, Greg, a quick one for you just on the mortgage business.

I think I was looking at some of the MBA expectations for volume growth in 25, and it looks like a pretty healthy snapback to call it 20% growth next year versus close to 40% declines in 24. Obviously, Simple Nexus took a ton of share this year. I'm just curious, just in terms of a general framework for how to think about that, is there any reason – to think that the mortgage business wouldn't grow sort of in line with broader market growth or even at a premium to the overall market, just given the level of share that you've taken this year?

Thanks for the question, Michael. Again, as we've talked about with these contracts where we have the guaranteed platform price, and then what comes with that is a certain number of loans that they're entitled to. You know, what we still need more data on as volumes ultimately do start to increase is where those minimums were set versus the go forward business of each of our customers. Right. And so we still need some more data points to understand when they're going to trip over, um, you know, the minimums. And ultimately that's going to be upside revenue. We think we've positioned ourselves incredibly well to participate in that, um, in that increased volume. but a little bit too soon, I think, to determine whether it's going to align with that 20% or be some other number. But that was really one of the reasons we had such a focus on changing those contracts and that really being the first evolution of the platform was to be able to benefit from and participate in that increased volume, which, as you said, I think folks are expecting next year to be a positive year and obviously a big change from what we've seen over the last two years. And the other thing, again, you know, we talked about growth this year, but I think that mortgage business has performed incredibly well over the last two years during obviously incredibly difficult time period. And I think those logos that we've been able to take and the market share that we've been able to gain, again, puts us in a perfect spot to be able to benefit from that without being able to specifically answer your question, because I think we just need more data points and trends in order to do that.

Understood. That's good, Collar. Thank you both.

Thanks, Michael.

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.

Hey, guys. It's John Gomez on for Nick Altman. Thanks for taking my question. Can you talk about the pipeline in terms of how it has changed when thinking about retail versus commercial and any changes to the pipeline makeup heading into the second half and where reps are leaning into?

From a pipeline perspective, John, what we're seeing now is more like high 50s to 60-ish non-commercial. And so, again, that trend continues as some of those non-commercial products mature, and ultimately we get more referenceability from them. And so we're excited about that mix. I mentioned earlier about Japan, EMEA, and Australia, New Zealand. Again, those pipes just being up 30% year over year on an aggregate basis. But as we think about commercial and non-commercial, it's kind of 40, 60-ish as we look at the pipe right now, non-commercial being the higher number. And we see it maturing and we see it growing. And ultimately, we're just looking at our colleagues and team to focus on executing and getting these deals over the line.

Got it. That's helpful. And as a follow-up, with your comment on the pipeline mix leaning more heavily to net new versus the first half, are you seeing more multi-product discussions up front for those net new customers? Are you seeing more multi-department or more geographical reach within those deals? Any color there would be helpful.

I think it depends on the geo. Getting back to Pierre's comments earlier, who you're selling to from a geographic perspective, In the U.S., I'd say yes, less so internationally. And then again, within the U.S., as you talk about community versus maybe enterprise bank, as we mentioned, that platform, multi-product sale, you know, we see continued traction there. And again, I think that's a reflection of the maturation of some of those newer products like consumer lending. We talked about the eight new loan consumer lending deals that we got this quarter, the five DAO deals that we got this quarter. And so we're excited about that and that trend.

And thank you. And one moment for our next question. And our next question comes from Joe Verwink from Bayard.

Your line is now open.

Great. Thanks for taking my questions. I think Pierre made the comment earlier that when he looked at the pipeline, he sees larger enterprises across both new and established markets. I guess, is an imminent break cut enough to catalyze decisions for some of those big enterprises in the pipeline? Does it happen within the next two quarters or are you kind of going into this expecting maybe a potential lag and this all ultimately just aids the outlook into the next fiscal year?

No, I don't see that these people are sitting there waiting for a rate cut to make a strategic decision. These deals that we're working on is 9, 12, 16 months old. You have to prepare the full board, you prepare the management team, and they look at actually the much bigger picture strategically where the bank is going to be two, three, five years from now. I would say the driver is more how do you utilize intelligence of the future if you don't have an operating platform that allows you to standardize your methods, your procedures, and how your people interact with data and their customers. It's back to the old IT infrastructure issue. I mentioned in my prepared remarks that one bank is going live, we removed 40 systems. Those are the issues they deal with. Will the rate cuts help a little bit to not somebody forward? It may be. But in our conversations, it's a lot more strategic around where they see the bank three and five years from now?

Joe, when you look at the business, really the only, I'd say, rate sensitivity that we really have is on the IMB side of the business, our home builders maybe as well. But when you look at the rest of the business, historically, it's not been very rate sensitive. Obviously, when you have what we went through over the last two years with this unprecedented rise in rates and the liquidity crisis, well, that's unusual. And that did impact our customer base. But as we distance ourselves from that and get back to, you know, what may be more of a normal operating environment, again, really where the interest rate cut will be impactful is on that IMB part of our business on the mortgage side.

Okay, that's helpful. And then I wanted to go back to the mortgage conversation, you know, specifically thinking about those MBA forecasts. Those are proven outs. purchase origination is going to be quite good in 2025 and 2026, not back to the heyday of 2021, but also you have a more robust offering now. The pricing structure is going to be different, and you certainly have a customer set that's consolidated. When you stack up all of that, and we obviously know kind of how Simple Nexus was growing on a pro forma basis, when you compare it the next two years versus prior history, can you relate those two at all in terms of what you would expect your growth rates in mortgage to settle out at in kind of a upturn, not historically robust, but a better environment in 25 and 26?

I think you're going to see a difference in our performance depending is it the bank is it the imb is the home builder okay so you have to slice and dice the market firstly to understand how the contracts are structured as well as how the buying patterns and the type of contracts that these people like will a rate cut and increased volume help us absolutely and I've always been very conservative, didn't believe these things are going to come. Now I believe it's going to come in September. And then we have to see what that does to inflation. I'll be very frank with you. I'm still a little bit concerned that if you cut rates too soon, too fast, that wage inflation will get us. And then, boom, they stop the rate cutting. So we're not right now looking at next year, number one. I want to see more evidence. And number two... I want to slowly see how the U.S. economy reacts to a rate cut and what actually the activity is beyond that and what the unemployment rate is as a result.

Thank you.

Thank you. One moment for our next question. And our next question comes from Robert Traub from Acquire Capital. Your line is now open.

Thank you. Good afternoon, Pierre, Greg, Harrison. Thank you all for taking my question. I guess if I could just start with how you think about striking the balance in showing your customers the ROI initially. You mentioned striking the balance between adoption and demonstrable repetitive ROI, because I think you've mentioned in your prepared remarks that Banking Advisor this year started at a pretty attractive introductory price to drive adoption, which of course makes sense. How do you kind of, is there a framework that you kind of use as you introduce these new products, particularly as you get deeper into portfolio management to not give something away, not for free, but in a way where people see what it's worth, but not at a price that scares them initially?

Robert, thanks. That's a very insightful question. So here's what we do. We literally, um, go into these banks and based on usage analytics, we have got currently in our systems. Okay. So remember before, when I go in with a new system, they've got no metrics, no understanding. And we literally had to get, you know, verbal measurements and people would tell us, look, it takes us about this and it's guesstimates and it's far off. We then see in our place, if it's an existing customer, we can literally measure you're spending four minutes on this task, 10 minutes on that task, et cetera. And then we show them bagging advice and say, this 10-minute task is going to come down to two minutes. Just an example, okay? So people immediately see the value of what we're doing there. And then just like with all new products, you go in with a low platform pricing and you do a usage count in there. And the more they use it, the more they're going to pay you. And then the more they use it and they pay you, that unit cost is a bit more expensive then. the guaranteed one, and then they move the minimums up, okay, which gives us guaranteed recurring revenue. So we're going to follow that same model. In the early stage, we're willing, just like we did with mortgage in the tough times, to go in with a lower guaranteed number and a higher upside for us as they start adopting and using it. If you see that product in action, it really is the closest thing to magic I've seen. And so I think what we're driving now is adoption and market penetration. And then as the product mature, it'll settle down more to enhancing the skills and broadening the skills to get a much wider adoption in the bank and actually drive what I would say is material revenues for us.

It's very helpful. Thank you, Pierre. And then if I could just ask a very quick follow-up. I know... The mortgage industry, the IMB space has already gone through their commission realignment, if you will, a decade or so ago, more than that. But with the NAR sort of storm of chaos and confusion and the potential for dislocation in that market short term. Are you at all worried that particularly within the IMD space, there might be some ripples that spill over into the mortgage market?

The great news is that we've got a product that we sell to our clients to help them with compensation and how to structure it. So in this new environment, we actually can help them to do that better, number one. Number two, regardless of how... mortgage brokers and real estate agents are going to get paid, people are still going to buy houses. And the moment the volume goes up, the transaction is going to come through us. It's by far the best product in the market. We're making the investments. So I feel very optimistic that automation and what we do in that market is going to be actually the winner as opposed to manual processes. And that market's a relationship market, but the more we can take the friction out of that model the better for the market and for us. Excellent point. Thank you.

And thank you. And one moment for our next question. And our next question comes from Ryan Tomasello from KBW. Your line is now open.

Thank you. On the international front, Pierre, I was hoping you could expand upon the product roadmap there. You mentioned in your prepared remarks the opportunity for bringing DocFox in particular to international customers at some point. So curious how you would rank order what different features of the platform still represent an opportunity to expand internationally as you kind of look across what you have in the U.S. product set.

I would say the biggest next opportunity is commercial onboarding. That is a universal problem. And our market testing has shown that everybody is clamoring for a product like that in the commercial small business space, okay? So we take that from a six-month process down to a weeks and months process, okay? It literally is that difficult for them to open accounts. The second big product that we're working on there is a mortgage product. It will span from Canada into the UK, Ireland, down to Australia and New Zealand. So those are the two, I would say, big products. workflow automation type products. But then you have to realize all your NIC products, as well as Banking Advisor, are global products coming out of the chute. So every customer of Encina will get the benefit of our intelligence and data initiatives as we go forward. And they don't need that specific customization for local environments. And then there's still a ton of commercial business left for us internationally. So we can go in on three fronts from major footprints, and then you start automating that with your banking advisor, NIC products. So I feel pretty good about the footprint we've got there.

Great. And then a follow-up for Greg, maybe a two-part question here on U.S. mortgage. Greg, last quarter you talked about M&A-driven mortgage churn as a particular area that you're being more mindful of in terms of the guide. I guess if you look at the mix across the U.S. customer base, mortgage customer base, are there any dynamics that make M&A something that's more likely to go against you over the intermediate term? And then as a follow-up on the churn piece, if you can quantify where that came in in the first half of the year and what your expectations are for the back half, just trying to understand the weighting there in terms of whether or not churn is could be a potential source of upside as we look at the second half of the year. Thanks.

Thanks for the questions, Ryan. You know, on the M&A front, I don't think there's anything unique that would pose it as a specific risk. We've tried hard to align ourselves with the winners in the IMB space. And to that point, we've tried hard and worked hard to align ourselves with some of the bigger players out there. And so M&A, it certainly can go against you. It's hard to predict, right, when you're forecasting. But to the extent that there is on the mortgage side, you know, we certainly would hope to be a beneficiary. Even when we've not been in the past, you know, some of our best salespeople are frankly the loan officers that use our product at a specific IMB and they go somewhere else. And they insist on Simple Nexus, you know, now Encino Mortgage being part of their work life. And so that actually can be a benefit as well. even when a deal does go against us. But nothing unique to call out there. It's just really more reflection that we're seeing some stabilization in that space. IMBs are starting to make money again, which is great for the industry. And so as you think about churn, it's less about IMBs going out of business, which is what we experienced a majority of over the past two years and more around potential M&A. To your second question around churn, we forecasted out of the 20.5 million churn for this year, 8 million in the mortgage space. Through the first half of the year, we're about 4.75 million. And so we think we're right on track. And again, expect the second half of the year to be more stable. And so I think we feel good about where we are today.

Great. Appreciate the call. Thanks, Ryan. 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.

Great. Thanks for taking the question. When you think about the new products that you have and your commentary about the pipeline, is there a way to think about how the ACV mix will evolve for Encino as you think about the next three years or so?

I think you will see that the current pattern holding where it will be more than 50% non-commercial. I see that pattern continuing because there's so much bigger market for us left in that thing. The second thing is I think you're going to see the 60-40 I talked about earlier about new business versus cross-sell, the cross-sell being 60 and 40. That's a second way to look at it. And then thirdly, if you look at the U.S., You know, we are looking at the market here continuously. I mentioned earlier in previous calls, we are going to focus on credit unions more. And as you put dedication to those kind of markets, I think the U.S. will outpace international in bookings for the next three years just because of the sheer volume of institutions here and the breadth of the product set that we've got here. So that's how I look at the development of not only pipes, but ACV bookings and the transition into revenue of that.

Great. Thanks for taking the question. You're welcome.

And thank you. And I am showing no further questions. I would now like to turn the call back over to Pierre Naudet, Chief Executive Officer, for closing remarks.

Thank you, Operator, and thank you all to be on the call today and with your insightful questions, etc. Here's my summary of what I'm seeing in the market. Great execution by the team. Team is well positioned. Strategically, we are as well positioned as ever in this company. We've came out of two years of COVID, then liquidity crisis, and now we're going to start seeing rate cuts. So I truly believe that there's better macroeconomic environments coming. At the same time, we kept our heads down. We kept on investing in products, et cetera. And all of that is going to culminate in a great positioning for this company. So I'm not only optimistic, I'm actually feeling pretty good about what I'm seeing in the pipelines, the early signs there. So I appreciate your analysis and your insights into our business. And hopefully you can see the enthusiasm we have as we go forward. Thank you very much. Talk to you all later.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.