nCino, Inc.

Thank you for standing by. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Harrison Masters, Vice President in Fester Relations. Please go ahead, sir.

Good afternoon and welcome to Encino's second quarter fiscal 2027 earnings call. With me on today's call are Sean Desmond, Encino's Chief Executive Officer, and Greg Orenstein, 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. 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.incino.com. With that, I will turn the call over to Sean.

Thank you, Harrison, and welcome to Incino's second quarter fiscal 2027 earnings call. I'm very proud of the team's consistent focus and execution this past quarter. We continue to deliver on our commitments once again outperforming all financial guidance metrics and find ourselves very well positioned for the second half of this fiscal year and beyond. Over the last several months, my time on the road with customers, prospects, and partners has continued to validate our strategy. Each interaction, whether in Charlotte, Oklahoma City, New York, Tokyo, Amsterdam, or Jackson, Mississippi, has reinforced how uniquely positioned Incino is to be the trusted global leader in AI-powered banking. With the rapid evolution in technology and market dynamics, financial institutions of all sizes the world over are looking for a trusted partner rather than more vendors. And Incino is increasingly recognized as that partner. We are the partner The market can count on to innovate and bring the right technology to solve banking-specific operational risk management and regulatory compliance challenges. Our solutions for lending, onboarding, account opening, and portfolio monitoring run on a unified AI-powered platform, allowing customers to consolidate and streamline operations with one vendor and gain efficiencies other technology companies simply can't match. During the second quarter, we signed multi-year renewals with four of our 20 largest U.S. enterprise customers by ACB, representing over $900 billion in assets. All four renewed ahead of schedule with an average ACB increase of more than 10% because they wanted access to Encino's rapidly expanding suite of AI tools and functionality. These customers are some of the largest financial institutions in the country and have the financial and technical resources to build internally if they chose to. But they're proactively doubling down on Encino because we've spent nearly 15 years building the trusted global system of record for critical banking processes. We've done the heavy lifting of building the data foundation, workflows, governance, security infrastructure and regulatory compliance capabilities of the Encino platform and embedded AI and intelligence throughout. That work is difficult, risky, costly, distracting, and time-consuming, and exactly why so many internal build initiatives at some of the world's largest financial institutions have historically failed. This is also why so many of our customers are telling us They have no desire to attempt to rebuild an incredibly complex tier one mission critical enterprise application themselves simply because AI has made coding easy. Incino has the product functionality, data, workflow, context, customer relationships, and regulatory knowledge and credibility to turn AI into accountable actions and to drive significantly better outcomes for customers. We believe those advantages have become even more evident to the market since our last earnings call as more customers use our banking advisor capabilities in production and realize meaningful outcomes for their organizations. Cino enables financial institutions to drive the specific banking outcomes they want Backed by 15 years of data, governance, regulatory tracking, compliance, and the domain-specific context they require. As of the end of the second quarter, 12 of our top 20 U.S. Enterprise customers by ACV have already transitioned to our new pricing model under multi-year contract extensions. And approximately 48% of our total ACV is now on platform pricing. up from just 40% last quarter. New customer wins, like Hachijuni Nagano Bank in Japan, who selected Encino for consumer lending, and a growth-focused development finance institution in Germany that selected Encino for commercial lending, are the latest proof points that our unified platform and AI capabilities are resonating on a global basis. Encino's deep banking domain expertise and market-leading product innovation and AI capabilities were clear differentiators against local market competitors, horizontal workflow vendors, and potential internal build options in these recent international sales cycles. These attributes have also been clear differentiators for other customers around the world that are reinforcing their commitment to the Encino platform in the form of expanded and renewed commitments for the next phase of technology and operational transformation. The breadth and depth of our unique platform gives us the confidence to land with any solution and expand across our full suite as our customers' needs grow. This is especially true in the community and regional bank and credit union markets where centralized decision-making frequently allows us to sell multiple solutions or the entire platform to a single buyer. The second quarter was no exception in demonstrating this point. A regional bank with over $15 billion in assets expanded its adoption of Encino from commercial lending and treasury management to now include consumer lending. A Seattle-based credit union and portfolio analytics customer since 2014 expanded their commitment to the Encino platform in a major way by adding commercial and small business lending plus commercial account opening. The Community Bank of the Northeast expanded their Encino adoption from commercial and consumer lending and account opening to also include mortgage, and a credit union with almost $5 billion in assets became a seven-figure ACV customer through an expansion of their existing mortgage deployment to support their strategic growth objectives. Despite these mortgage wins with depository financial institutions, the higher for longer mortgage rate environment is pressuring the independent mortgage bank market and driving incremental M&A. While the rate environment remains a headwind to the U.S. mortgage industry, we continue to focus on expanding our market share by adding logos with a market-leading AI-powered experience. To that end, we were pleased to welcome back an IMB customer that left in August 2024 for a less expensive solution. Reliability issues and a cumbersome borrower experience with that solution, along with pushback from their own sales team about losing potential borrowers, brought them back to Encino. Customers and prospects recognize that Encino has been investing in AI, rapidly evolving and advancing our business model, and leading the industry by aggressively incorporating intelligent and AI capabilities into our solutions with measurable results. As an example, one of our U.S. enterprise customers estimates they can save 160,000 hours annually by utilizing our locate and file functionality, which is just one of our banking advisor capabilities. When extrapolated by about $35 per hour to approximate median loan officer compensation, according to the Bureau of Labor Statistics, that yields annual savings of over $5.5 million. Again, that level of savings is from using just one banking advisor capability. Proof points like this are motivating customers to transition our platform pricing model to gain access to Encino's agentic solutions and other AI initiatives. At the end of the second quarter, over 230 customers have already purchased AI intelligence units. We are no longer trying to convince prospective customers that we can lead the transition to agentic AI-powered banking. We're doing it. and the energy and momentum we are seeing in customer and prospect conversations around the globe reflects that conviction. I mentioned during our first quarter earnings call that some customers were beginning to reach the limits of their initial intelligence unit bundles. We have recently begun monetizing the sale of additional intelligence units as clients come back for more, which is really exciting to see and a strong signal of engagement with our banking advisor capabilities. Our focus for the foreseeable future will remain on driving long-term sustainable AI adoption over near-term subscription revenues growth. So we do not expect this early additional monetization to materially impact our financial results in fiscal 27. However, the adoption trends and consumption trajectory we're seeing give us increasing confidence that intelligence unit consumption through the adoption of our AI capabilities will be a material driver of subscription revenues growth for years to come. You may recall us referencing continuous credit monitoring, or CCM for short, which is one of our banking advisor capabilities currently driving a meaningful amount of intelligence unit consumption. CCM is a great example of how Encino leverages LLMs where they excel and add value. In this case, powering a natural language chat experience paired with our own proprietary predictive models, algorithms, and data. Rather than having credit teams manually review a commercial portfolio on a quarterly, semi-annual, or annual basis, Encino's continuous credit monitoring can assess more than 40 credit and operational indicators on a daily basis. and can identify the loans that warrant attention, create the necessary documentation to review and help guide the next appropriate actions. This functionality gives relationship managers and credit teams the ability to focus their time on issues requiring careful judgment while giving senior leaders a current portfolio level view of risk and the ability to drill into underlying exposures and detail. What's important to understand here is that this is not simply an LLM layered onto a bank or credit union's data. Banking requires reliable, traceable, auditable, and governed outcomes. While we use LLMs to summarize and understand intent across multiple data sources, the core of our continuous credit monitoring's functionality is guided by Encino's internally developed, purpose-built, deterministic models and algorithms. We use these to consistently apply the same defined rules because a financial institution must be able to reproduce, explain, and defend how every single credit decision was made and how every process was executed. We believe the continuous credit monitoring functionality will be a meaningful medium-term driver of intelligence unit consumption. That's because this isn't just a simple chat interaction. It is performing ongoing, highly complex multi-step processes across critical banking activities. This is software that is actually doing the work of a bank or credit union employee, not just helping that employee do the work. The combination of our unique operational data, deep banking expertise, and tested governance and security infrastructure is what enables Cino to deliver this kind of outcome to our customers in a way that simply cannot be replicated by adding non-deterministic LLM on top of core banking data. I have yet to hear a C-level executive at a financial institution express a desire to automate their business processes on public cloud data. Conversely, they are as excited about offerings like CCM as we are, and I look forward to updating you on its progress over the coming course. Based on the conversations we are having with customers and prospects, we believe financial institutions of all sizes around the world are gaining a better and more clear understanding and appreciation of the uniqueness, value, and differentiation Encino's AI technology provides, which we believe has been a significant driver of the sales momentum we have seen over the past year and continue to see in our sales pipeline today. The pace of product innovation Encino is realizing today would not have been possible a few years ago. Through our own initiatives and our internal team's use of AI, we are seeing tighter alignment across product development, engineering, and professional services, allowing us to learn from FDE engagements and customer deployments and incorporate those lessons back into the platform more quickly. It's also great to see that we are attracting extremely strong technical and banking talent that wants to join Encino to help define, build, and deploy the next generation of financial services technology. Attracting and retaining talent is a strategic and stated top priority for the company. We remain laser focused on execution and continue to make strong progress against the strategy and growth levers We've highlighted over the past year and a half. We continue to focus on what we can control and are energized by the accelerated subscription revenues growth we are seeing in the business outside of U.S. mortgage. In summary, our business is strong and continues to gain momentum. We continue to see customers up and down the asset size spectrum, renew early, and expand their use of our AI technology. and our sales pipelines are healthy and diversified across segments, solutions, and geographies.

With that, I'll turn the call over to Greg. Thank you, Sean, and thanks everyone for joining us this afternoon to review our second quarter fiscal 2027 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. We are again pleased with our financial results. Total revenues for the second quarter of fiscal 27 were $161 million, an increase of 8% year over year. Subscription revenues for the second quarter were $143.5 million, up 10% year over year and also 10% in constant currency. U.S. mortgage subscription revenues were $20.6 million in the second quarter, down 1% year over year, contributing $100,000 of overperformance in the quarter against our guidance, as noted on slide 14 of our earnings presentation. Excluding U.S. mortgage, subscription revenues in the second quarter increased 12% year over year and also 12% in constant currency, reflecting strong sales execution, which helped deliver approximately $1.3 million of upside to our subscription revenues guidance for the quarter. Professional services revenues were $17.5 million in the quarter, down 3% year over year. Professional services gross profit margin was 3% in the second quarter, up 600 basis points, over negative 3% in the second quarter of fiscal 26. We continue to prioritize improving the profitability of our professional services practice over growth in professional services revenues. Non-US total revenues in the second quarter were $36.4 million, up 9% year-over-year and also 9% in constant currency. Non-US subscription revenues were $30.9 million, up 13% year-over-year and also 13% in constant currency. Non-U.S. subscription revenues were negatively impacted by a slight FX headwind of approximately $200,000 in the second quarter. Non-GAAP operating income in the second quarter was $40.8 million, or 25% of total revenues, an increase of 36% year over year. As noted on slide 14 of our earnings presentation, of the $3.3 million in non-GAAP operating income overperformance in the second quarter, Approximately $900,000 was from incremental gross profit derived from subscription revenues over performance, and the remaining $2.4 million was driven by disciplined expense management across the organization, with teams executing effectively against plan. As expected, our annual customer conference hosted in May drove the sequential increase in second quarter sales and marketing expenses. Free cash flow was $34 million in the second quarter, up 170% year over year. Turning to an update on our share repurchase programs, in the second quarter, we repurchased approximately 4.2 million shares of the company's outstanding common stock and open market purchases at an average price of $15.41 per share for total consideration of approximately $65 million. Additionally, in the second quarter, we finalized the accelerated share repurchase program we announced on March 31, 2026. Under that program, we repurchased approximately 6 million shares of our outstanding common stock at an average price of $16.57 per share for a total consideration of $100 million. Since April 2025, the company has repurchased approximately 15.8 million shares of our outstanding common stock at an average price of $18.99 per share for total consideration of $300 million. Having effectively exhausted all prior repurchase authorizations, our board of directors has authorized another $100 million share repurchase program. We continue to view opportunistic repurchases of our common stock as a compelling use of capital as available free cash flow permits. In light of the momentum we see in the business, and the sizable global opportunity we have in front of us. Turning to guidance. For the third quarter of fiscal 27, we expect total revenues of $161.25 million to $163.25 million with subscription revenues of $143.25 million to $145.25 million, an increase of 7% and 8% respectively at the midpoint of the ranges. Excluding U.S. mortgage, our third quarter guidance assumes subscription revenues growth of 11% at the midpoint of the range. Non-GAAP operating income in the third quarter of fiscal 27 is expected to be approximately $42 million to $44 million, an increase of approximately 8% year-over-year at the midpoint of the range. For fiscal year 27, We now expect total revenues of $644 million to $647 million, with subscription revenues of $573.5 million to $576.5 million, an increase of 9% and 10%, respectively, at the midpoint of the ranges. Excluding U.S. mortgage, our updated full-year guidance assumes subscription revenues growth of 12% at the midpoint of the range. As noted on slide 15 of our earnings presentation, we are extrapolating the second quarter execution-based overperformance in subscription revenues of approximately $1.3 million to both the third and fourth quarters. This is offset in part by an adjustment to our U.S. mortgage outlook, which we believe is prudent to do at this time to account for additional IMB churn resulting from mortgage rates remaining higher for longer. We are now forecasting U.S. mortgage subscription revenues of approximately $20 million in the third quarter and approximately $18.5 million in the fourth quarter, the sequential quarterly variance reflecting normal fourth quarter market seasonality. This update represents a reduction in our prior U.S. mortgage subscription revenues forecast of approximately $700,000 in the third quarter and approximately $1.2 million in the fourth quarter. Please note that our overall company churn expectations for fiscal 27 remain unchanged, but our churn forecast now includes a slightly higher mix of IMB churn offset by less churn across the rest of the business, with earlier timing assumed that negatively impacts subscription revenues in the second half of the year. We continue to expect international subscription revenues to remain accretive to overall subscription revenues growth in each of the third and fourth quarters of fiscal 27, notwithstanding that we now assume FX headwinds of approximately $200,000 in each of the third and fourth quarters. Excluding U.S. mortgage, our full-year guidance implies fourth quarter subscription revenues growth of 12% at the midpoint of the range, representing year-over-year growth acceleration of 400 basis points. which we largely attribute to sales momentum emerging from the excitement around our AI strategy and product innovation and continued strong sales execution. We are very proud of the progress we have made re-accelerating subscription revenues growth outside of U.S. mortgage and are excited for the potential to further accelerate total subscription revenues growth in a better mortgage market as we believe the re-accelerated growth we are achieving this year and the rest of the business is durable. We now expect non-GAAP operating income for fiscal 27 to be $171 million to $174 million, up from our prior range of $166 million to $171 million. Our updated guidance represents an increase in non-GAAP operating income of approximately 33% year-over-year at the midpoint of the range and non-GAAP operating income margin expansion of approximately 500 basis points. We expect to continue delivering non-GAAP operating margin expansion in the ordinary course beyond this fiscal year as the business continues to scale while balancing the opportunity to optimize subscription revenues growth, which remains our focus and priority. We are quite pleased with the progress we have made in the first half of the year and feel really good about the business right now as a result of the AI and product innovation being delivered by our R&D organization, the execution of our sales teams, and the demand environment and the sales activity we see reflected in our global sales pipelines. For fiscal 27, we continue to expect net additions to ACV of $60 million to $65 million on a constant currency basis, representing cumulative ACV of $662.5 million to $667.5 million, up 10% over fiscal 26 ending ACV at the midpoint of the range. For full year fiscal 27, we are again raising our free cash flow guidance to now be $137 million to $142 million, up from our prior range of $135 million to $140 million, representing year-over-year growth of 69% at the midpoint of the range. With that, we will open the line for questions.

Certainly. And our first question for today comes from the line of Saka Kalia from Barclays. Your question, please.

Okay, great. Hey, guys, thanks for taking my questions here. Sean, maybe for you, I was wondering if we could dig into the mortgage business just a little bit more. And maybe specifically, I'd love to hit on maybe how your competitive win rates have looked and if there are more opportunities to gain share in to maybe help offset some of this market headwind. You had a great example of a win back. I'm curious how you think about sort of win rates and that opportunity for continued market share gains.

Yeah, thank you, Zach. I appreciate it. The question and where you're coming from, we actually highlighted two wins there, one in a community bank, one in a credit union in the script and more broadly in the market. While we do see the higher for longer rate environment has been a headwind as called out, we think this is a really good business for us. And we think the IMB market is very important. But at the same time, as we talk about these wins in the community bank and credit union landscape, we think continued wins in the core banking sector where there's less volatility and more stability and are ready for the taking, both down and potentially upmarket. So we're excited there. It remains adjacent to every conversation as we talk about the power of the platform in the environment that we operate in. The motions that we run across commercial, consumer, and mortgage give us a diversified portfolio and is absolutely accretive to not only our pipeline growth, but the first half of year momentum we have, and we're really excited about the second half.

Got it, got it. That's super interesting. Greg, maybe for my follow-up for you, you noted the revised outlook for mortgage, which makes a ton of sense given the rate environment that we're in. Can you just recap for us how you're thinking about sort of the non-mortgage part of the business in terms of growth here this year? And maybe just as importantly, what could be the biggest drivers of upside to that non-mortgage part of the business? Does that make sense?

It does, Zach. I appreciate the question and your time today. Excluding U.S. mortgage, our third quarter guidance assumes subscription revenues growth of 11% at the Q3 midpoint and 12% at the midpoint it implies for Q4, which is an overall growth acceleration year-over-year of 400 basis points. And so we did want to make clear in terms of mortgage, which, as you know, is the higher for longer market that we're going through. Make sure you guys appreciate that. and not have that overshadow the rest of the business, which is performing quite well. In terms of drivers for growth, you know, look, we feel really good about our product portfolio overall. Our flagship commercial product continues to have strong demand across the globe. And ultimately, I'd remind you of the five growth initiatives that we laid out last year, which are AI, international credit unions, cross-selling mortgage to banks and credit unions, as Sean just touched upon, as well as onboarding. And so to me, the exciting thing to highlight is that while we feel really good about the progress we're making with each one of those initiatives, it's still early. And the accelerated growth we are driving really is not with those fully contributing as we expect they will be able to next year and beyond. And so we feel like we've planted the seeds for growth. We feel like we've got multiple growth levers to add on to the growth that we're already seeing from a reacceleration standpoint. And we're really excited where we are. will continue to control what we can control. And as we talked about in our prepared remarks and as Sean noted, we'll continue to aggressively try to take logos down in the mortgage business, which is what we were successfully able to do. If you go back a couple of years ago in the, I'll call it more darker days of mortgage, we were able to add a lot of logos and ultimately outpace the churn that we experienced. and that, which was, from my perspective, a much more difficult market than it is today, even though we do have headwinds today.

Makes a ton of sense, guys. Thank you.

Thanks, Zach. Thank you. And our next question comes from the line of Alex Glar from Raymond James. Your question, please.

Great, thank you. Sean, first one for you on Banking Advisor and some of the agentics launches. Nearly 50% of the base now on the new platform model. What have you seen on the usage side of things the last three months? You talked about CCM, but any clear-cut skills or use cases where you've been able to replicate the case studies across multiple users, multiple different customers that you've really been able to arm the sales force to kind of go back to base on?

Alex, the first thing that comes to mind is we have more and more customers by the day going into production with Banking Advisor and our digital partner and Agenda Capabilities. In fact, year-to-date, we've more than doubled the customers going into production, which is exciting. And of the core customers that we've named that are on our New pricing model and have adopted our AI capabilities. One third of those are in production today. So all of that trends really well, as you know, in traditional sort of, you know, environments where you test in sandbox and then move to production once you gain confidence and then you see measurable outcomes that you can drive to the bottom line of your business and directly to your balance sheet. Those start to get the attention of the executives and seed suites that sign the checks in the first place. And that's what we're looking for, right, is to directly correlate those outcomes in production to what we're delivering. And so while in some cases it still takes longer than we would like to get to production because we have to go through governance and security reviews and all the things that need to be contemplated in the AI world, we're seeing really good momentum there. So we call out in the script some of our continuous credit monitoring capabilities. We call out in the script Locate and File. If you think about Locate and File, for me, really being the floor, not the ceiling, right? We talked about 160,000 hours annually for one particular niche use case in a single workflow. And remember, Alex, we're delivering workflows across all the motions that we run, onboarding, account opening, loan origination, and portfolio monitoring across commercial, consumer, and mortgage. So if you extrapolate that locate and file potential and capability across all the workflows that we have in production environments over time, you know, hopefully you can tell them pretty fired up about that.

Yeah, and just to add to that, Sean, as we talk about a third of those customers being in production, I think one of the things that's really exciting is we've got a nice queue all lined up, right, as we take customers from signing to implementation to get through testing and then ultimately into production. So we see that queue lined up, and I think that's something that's exciting and bodes well. And to that point, the $160,000 client savings that Sean referenced, right now they're still in sandbox. We're working with them to get through security, which we will. But that's a great example of just the process that you need to go through with our customer base, which is highly regulated, right? Conservative market before they'll actually go into production and start seeing, you know, get live the outcomes that we're able to produce. And so to Sean's point, we are pretty excited about what we see happening right now.

I appreciate that color from both of you there. Greg, maybe a follow up for you just on the ACB outlook. I think it's clear that your intention is not to update that as the year progresses, but as we sit here today at the halfway point, any change in terms of where you are coverage-wise of that outlook relative to last year, or how is seasonality shaping up versus expectations, and maybe any change in terms of international composition of that mix versus prior years? Thanks.

Yeah, thanks, Alex. And just to clarify, I said $160,000. It was referring to 160,000 hours that our enterprise customer estimates they'll be able to say with the locate and file capability. But no, as you heard in my prepared remarks, we feel really good about where we are in the progress in the first half of the year. Pipelines look good. Market demand looks good. And so as we go into the second half of the year, you know, we're pretty energized here. And just to that point, we can note that just last week we signed what we expect to be our largest deal of the year with an international customer. It's a Q3 deal, so we'll talk about it more on the next call. But certainly this early in the second half of the year, getting that out of the way bodes well. Obviously, we've got five months left, so we've got work to do. But again, we're feeling pretty good right now.

Great. Thanks for that color, Greg. Thanks, Alex. Thank you. And our next question comes from the line of Ryan Tomasello from KBW. Your question, please.

Thanks, everyone. Wanted to ask about the rule of 50 framework that you provided a few years ago and confirm whether or not you still view that as a North Star for outcomes you're looking to achieve. And in particular, if the implied 15% subscription revenue growth component of that target was still intact, And on that same topic, you know, in terms of intelligence units, do you view that as being a necessary contributor to that 15 or potentially additive to that framework, depending on how things play out? Thanks.

Yeah, so in terms of long term, you know, we have stated aggressively this year we would hit the rule of 40 commitment and we're excited. We feel like we're hitting that early. With expense discipline and with growth reacceleration year over year, quarter over quarter. So as we think long term, we expect to remain at that pace and we expect growth to continue to accelerate and make up a larger portion of our overall delivery mechanism. But as far as this year, we're talking about Q2. We're excited about the trajectory to the rule of 40. And once we tackle that and read that back, we'll set our sights on what growth looks like between now and the path to beyond 40.

Yeah, Ryan, I think if you go back to our earnings day, our analyst day last year, we focused on the rule of but really more on that 35% non-GAAP operating margin which again hopefully everyone has seen the progress that we've continued to make towards that. We do continue to err on the side of growth. I noted when I was on stage during that analyst day that we believe that framework is intact. We've not said anything since that around the top line but again I think we're doing the right things in order to continue to accelerate growth at the company and get back to what we think is A more reasonable level of growth for a company of this quality with the market opportunity we have in front of us.

We're very focused on the growth. When we sit here mid-year and we beat our aggregate annual operating plan halfway through the year, when we are in a position that we signed our largest deal of the year early in the third quarter, it is about growth. And we talk about our growth initiatives and how they're maturing. and how we think about them contributing over time. We'll continue to focus on that growth. But we've exercised very good discipline on the expense side as well.

Appreciate that. And then in terms of the ACV bookings targets for this year, can you say what mix of renewals and upsells versus new logos that contemplates? And how does that compare to what you achieved last year? And if you could also just remind us How that mix in terms of renewals versus net new logos changes the math around the level of conversion that you would expect to see on this year's bookings into next year's subscription revenue?

Yeah, Ryan, I think you can assume at this point it's fairly comparable. You know, again, as we get more and more momentum outside of the United States, Those are generally going to be leaning towards more new logos just because of the white space we have outside of the U.S. But again, we've got a great customer base globally, but particularly here in the U.S., and we have a lot of product to sell to them. And again, I think one of the things we feel really good about is the output from our R&D organization, the acceleration of product. And again, I think that we don't distinguish cross-selling products. to a current customer or landing in that new logo. For us, it's all ACV. And again, with the breadth and depth of product portfolio we have, we feel like they're both opportunities for us.

Great. Thanks, guys.

Thanks, Ryan. Thank you. And our next question comes from the line of Michael Infante from Morgan Stanley.

Your question, please. Michael, you might have your phone on mute. Still not hearing anything.

Our next question in that case comes from the line of Aaron Kimson from Citizens. Your question, please.

Great. Thank you. Sean, you talked about the symbiosis you're seeing between your product development and implementation teams. As we think about the pace at which you're rolling out new products and the pace at which your heavily regulated customer base is willing and able to adopt those new products, do you feel like the bottleneck to incremental growth today is is more on the customer and implementation side or the product development side?

Yeah, I know you can hear the excitement with the pace of innovation that we're putting out into the market. I have never seen more product delivered in a six-month period than I did the first half of this year. I reviewed that with our product team last week, and we presented that to our board. And that pace I expect to continue. and as you know as we've talked about you know both in my comments as well as Greg's here yes we're in a highly regulated industry there there's compliance there's regulation there are security reviews and to a certain degree that's just part you know part of the business that we're in right and you know I do expect that there will be more pent up demands to adopt those features and and we will outpace what we're delivering into the market and I expect the product development pace to run ahead of how our customers can actually consume that and we're seeing that at every segment of the market not just enterprise but in the community and regional spaces as well and that's okay that's just part of doing business I think you're starting to see some of the narrative overall in the landscape shift around what AI is going to be. You're hearing about the gap between adoption and outcomes, and we have always been focused on the outcomes. We've never taken our eye off the ball on what truly matters, and that's driving efficiency into the bottom line for our customers through increased loan cycle times, greater production by role, and that for us remains just a core principle at Encino. Got it.

And then to build on that, consumers, about two-thirds of the SAM revenues, roughly the inverse. A lot of focus and energy has gone into building out the consumer side of the business, going back to the announcement of the Simple Nexus acquisition in 21. Given that frontier models continue to improve and the amount of unstructured data that goes into commercial lending that you can now utilize, do you feel it makes sense to focus relatively more development resources and energy on the commercial opportunity at this time?

Listen, we talk about the platform wins, right? And we talk about a balanced portfolio across commercial, consumer, and mortgage. Our flagship and core business is very strong, right? We're very excited that the commercial business in the domestic U.S. market from community up to enterprise is very strong. At the same time, we've called out in the script consumer deals at regional banks. We've called out international deals are the largest this year outside of the U.S. So to me, that's the power not only of the platform but being a global company is a diverse portfolio, and we invest accordingly to keep up that pace. We probably have more breadth overall in our commercial pace, and we're making sure we balance the functionality across all lines of business that we serve.

Thank you.

Thanks, Aaron. Thank you, and our next question comes from the line of Chris Kennedy from William Blair. Your question, please.

Yeah, good afternoon. Thanks for taking the question. It's clear it's not going to materially impact fiscal 2027 results, but is there a way to frame the opportunity with intelligence units consumption?

Yeah, we understand where you're coming from with the question. And, you know, everybody's got their model out there. I'm not in the business of trying to provide the exact inputs, not knowing those models. But in our business model, we have been very clear that we're confident in our posture this year. We're excited about the growth that we've got both in the first and second quarter. And we're excited about the momentum in the business. We don't expect to Thank you for joining us. Chris, as we've been highlighting for us, it's all about adoption this year.

We believe that will lead to material help our drivers from a top-line acceleration perspective, top-line growth perspective. We've got a lot of models here. One gets me more excited than the next. We do have discussions in terms of KPIs and things, but I think the most prudent thing to do is not get ahead of ourselves. and continue to focus on adoption. And as we get more and more data points from our customers, more and more outcomes where our customers are realizing the value like that 160,000 hour example Sean said, I think we'll be able to come to you with more clarity and definitiveness in terms of the model. But we understand the question. And again, we'll continue to work towards providing that clarity.

Got it. Thanks for that. And then just real quick as a follow-up, can you just remind us of the churn that you expect in fiscal 2027? You mentioned it in your prepared remarks. Just give us a clear update on that. Thank you.

Yeah. As I said in my prepared remarks, our churn forecast hasn't changed for the year from an aggregate basis, which is about $25 million of churn for the year. Again, it tilted a little bit more towards mortgage, specifically driven by IMBs and less towards the rest of the business. But overall, it stayed consistent with where our forecast has been from the beginning of the year.

Okay.

Thank you. And just to drill down one more point, mortgage is about a third of that $25 million, which would be consistent with last year.

Got it. Thank you. Thanks, Chris. Thank you. And our next question comes from the line of Joe Verwick from Baird. Your question, please.

Hi, Greg. Thanks. Your largest customers, I think, spend over $5 million on Encino. So hearing about double-digit increases in ACV with those renewal examples is impressive. I was wondering, can you maybe compare how ACV increases are comparing again at Renewal more broadly across your customer base? You shared maybe some enterprise examples, but the experience at small regional or maybe even U.S. international, I'm wondering if there's certain segments of your customer base that are leaning in more to what Encino can offer.

Yeah, thanks, Joe. You know, we did call out, you know, specifically some of those enterprise metrics, but the reality is when we think about ACB increase in growth, you know, both in new business and balance, community and regional, up to enterprise banks and across the credit unions as well. So, again, that speaks to the power of the platform and a diversified growth strategy.

Great, thanks for that. And then a question on just kind of price discovery around your AI capabilities. When you sit down with customers and you start walking through what's possible and you hear a customer say there's millions and potential savings that could come from this, How do you think about then broaching the topic of Incino sharing in the savings? Is it a 50-50 split, 25-75? Is this a way to maybe further the conversation beyond just the implication of intelligent unit credits and what those are worth and kind of your broader role for that account?

Yeah. I'll point back to our focus on outcomes, as has always been clear. We're serving up agentic solutions and delivering an AI. But as far as numbers and metrics with calculations, what we look at is a business case, right? With every customer, always have, before AI and after AI, what does that business case look like? If we can extrapolate those 160,000 hours we're talking about across multiple workflows and that's going to save a customer, we're excited about that, right? We don't think that fundamentally changes the pricing dynamics. We went through a pretty extensive exercise on the pricing transformation that we rolled out at the beginning of last year. And what we want to do, again, is just deliver efficiency to the bottom line of our customers as much as we possibly can.

Thank you.

Thank you. And our next question comes from the line of Andrew Schmidt from KeyBank. Your question, please.

Hey, Sean. Hey, Greg. Thanks for all the commentary this evening. I wanted to ask about the enterprise renewals, good data points there. I guess when we think about contract duration broadly in enterprise, You know, I typically think about those three to five years. I'm curious if there's any deviation in recent renewals, either shorter or longer. And then we think about sort of the 10% ACV uplift. Obviously, the flip to the platform pricing is one component. Access to AI modules is another. Then I think, you know, another big part of it is probably sort of additional modules and capabilities you're delivering. I'm just curious kind of What's the uptake on the additional sort of module side just beyond sort of the platform and AI component involved here? Thanks so much.

The first part of your question, I mean, terms are generally steady. You know, we don't see a material swing or change in the terms of our contracts and enterprise due to the current time that we're in with the pricing transformation as well as the agentic solutions that we're delivering. So that's holding firm. Can you restate the second part of the question with additional modules? I just want to make sure I understand.

Yeah, it was kind of the attribution to like there's 10% ACV uplift. And obviously a part of that is the flip to platform-based pricing, access to AI modules. But I would imagine another piece is just delivering more value, additional modules to enterprise customers, if that's part of the equation as well. I'm just curious if there's just additional uptake there to consider when you think about just these new renewals, enterprise deals beyond sort of the AI modules that enterprise customers are getting access to?

Absolutely there is, Andrew. The 10% is really think about it apples for apples in terms of them buying no new product but getting the first bundle or the initial bundle of intelligence units. For each one of our renewals, I mean our focal point is going to the customer, working with them to see where else we can expand in the financial institution, which is, again, one of the unique things about Encino and our platform story and all the product that we have to sell them, as I referenced earlier. And so there is much upside as we go into being able to sell them more, but again, just on an apples-to-apples basis with the only difference being the initial bundle of intelligence units. We laid out that 10% target last year. After Q4, we confirmed that we exceeded it, and again, we're continuing to see that as we go through this year.

Got it. Appreciate those comments. Very helpful. And then if you think about professional services, Greg, I get the comment about sort of seeking profitability versus revenue makes sense. And, you know, PS margins continue to be profitable, which is great. I guess just trying to think about the trajectory from here on the PS side, it seems like some of this efficiency continues. But then I think on the revenue side, as you get more efficient, is there an offset in terms of Lower hours required. Obviously, the North Star is efficiency and profitability, but just trying to understand how that works through the model. Thanks.

Yeah, I think that the PS organization continues to do a good job of making our implementations more efficient. And so we'll continue to focus on, again, driving margin. And again, we'll do that at the expense of revenue and get the overall total cost of ownership for our customers down. And so that's a win for all of us. As we do free up capacity, we are turning those folks into support our FDE engagements as we continue to have high demand for that part of our organization. And so, again, that's something we're excited about and that we expect will fuel more accelerated adoption of intelligence units as we deploy our FDEs on a global basis.

And remember, I talked about the pace and all that's been delivered the first half of this year. So the more Output and productivity that we see coming from the R&D organization, the more things we have to deploy. And the same thing I would tell you is as we gain efficiencies in our release management and how we actually push out new technologies, we continue to rotate managed services capacity toward the forward deploy engineering group so we can keep pace and avoid the bottlenecks that were referred to earlier in the call.

That makes sense. Sounds like throughput is really ramping. Congrats, guys. Thanks for the comments.

Appreciate the questions.

Thank you. And our next question comes from the line of Terry Tillman from Truist Securities. Your question, please.

Yeah. Hey, Sean, Greg, and Harrison, thanks for fitting me in. I'll make them really quick, which is rare for me. But in terms of the four enterprise renewals early, that's great to see. And I think you said you're now, if I'm not mistaken, 12 of 20 of your top customers in the new platform pricing category. I'm curious, could you see a situation that some folks that would have been FY28s or calendar 27s actually move into the second half of this year? Is there anything contemplated around that? Or it could happen, but you're just not going to kind of bank that in that net ACV and then add a follow-up?

Hey, listen, we're out there with an aggressive posture every day, trying to expand the functionality we have in the customer base that we have. So anything is possible. We have a team that's motivated, that's hungry, and has really strong trust, credibility, and relationships in our customer base. If we have alignment with the outcomes our customers are looking and our posture, then why not? We're anchoring to our core actual conservative estimates for this year, always looking to accelerate.

Terry, we've been pretty consistent over the last few quarters about these accelerated renewals. From a demand perspective, we haven't seen that wane. And so some of it is just timing and just working through some of these procurement processes. But in terms of the excitement with what we're doing, the capabilities that our R&D organization are producing, and ultimately, as Sean continues to note, as we focus on the organization, the outcomes we're producing for our customers, we expect that to continue to drive some accelerated renewals over the coming quarters.

That's great. And just maybe real quick on international, Greg, it was great to hear about an early 3Q. That's awesome. And Sean, I know you all have been working on, you know, kind of leadership changes in the past and then starting to build a pipeline. Are you pretty much all done with all that work and now it's just harvesting or is there still some low-hanging fruit areas ahead? Just trying to understand if that international could keep, you know, kind of outpacing the rest of the business from growth. Thank you.

Sure. Thanks for the question. The platform value preposition is proving to resonate today. as well as it is domestically. We're excited about the momentum, the outcomes that we're delivering for our customers as we talk about the excitement from EMEA to AsiaPAC is real. So I don't think it's dependent on any single individual. Again, the power of the platform and a global team and a machine here where we can ebb and flow. I mean, you're constantly going to have Changes in your personnel and a sustainable and long-term viable business model should be able to withstand this. So I don't spend a lot of time right now worrying about do we have the team on the field. I'm excited about the outcomes we're delivering and really proud of the team.

All right, thank you.

Thank you. And our next question comes from the line of Nick Altman from U.S. Bank Corp. Your question, please.

Hey, awesome. Thank you, guys. I actually wanted to follow up on Terry's first question, but maybe ask it a little bit differently. If 48% of your base is on the new pricing, what are your expectations for that, you know, where that should land at the end of the year? And I guess how are those expectations different versus when you entered the year? Thanks.

We'll continue at the pace that we've been on, and we don't necessarily call out being dependent on a percentage of the customer base being on the new model to meet our fiscal commitments. We continue to execute and do what we said we were going to do with respect to our core financial targets. Certainly, we'll be north of 48, and I think that growth will correlate as it has over the past several quarters.

Yeah, Nick, I think the good news is it continues to go well. Ahead of schedule for us, sales team's doing a great job of working with our customers through these renewals. And, again, I think the momentum that we're seeing, we do expect to continue without putting a specific target on it. And I also know it was good to hear the U.S. bank reference. So, again, congrats on that. Great.

Thank you so much. Thank you. And our next question comes from the line of Ella Smith from JP Morgan.

Your question, please. Ella, you may have your phone on mute.

And our next question comes from the line of Ken Schakowsky from Autonomous Research. Your question, please.

Hey, good afternoon. Thanks for taking the question. Maybe just one on the churn. I think, Greg, you mentioned slightly higher mix of IMB churn offset by less churn on the rest of the business. So maybe just talk about what's driving the improvement on the non-mortgage churn and just which segment does that show up in? Thank you.

Thanks, Ken. Yeah, I think just as we kind of separate the businesses as we've done for this call, again, to make sure you guys can appreciate, you know, ultimately there's not one specific place. Again, it's slightly higher on the IMB side, I said, and slightly lower on the rest of the business just based on our forecast at the beginning of the year. You know, as we go into each year, we've got some identified churn based on whatever circumstances, and then we also have some unidentified churn that we do for forecasting purposes. And as stuff comes up, you know, our teams do a great job of figuring out what's going on. And is there some way that we can mitigate a potential churn risk? So I'd say nothing worthy from a churn perspective, again, other than obviously on the IMB side with the higher for longer rates. And again, we see that driving a little bit higher churn. But I think overall, as I noted, no update in terms of where we started the year from an aggregate basis.

Okay, great. And just the one comment on the banking advisor capabilities, I think you guys called out $5.5 million. of Savings. I mean, it sounds like a lot of savings, you know, call it 40 hours a week and 50 weeks a year that replaces, you know, it's like 80 loan officers basically. And so how should we think about the size of this particular opportunity versus some of the other ways customers are leveraging banking advisors? Is this like a, you know, extraordinarily large opportunity or will these multi-million dollar per feature, you know, per customer charges be the norm? Thank you.

Yeah, you know, I'll kind of reiterate the comment I made earlier about this being sort of the floor-based case, not the ceiling, in my opinion, right? This is, you know, a particular example of a single skill within a workflow and a line of business, right? And if we extrapolate that across the platform, across the solution portfolio, across lines of business, and across the globe, As customers take cohorts into production, you can imagine that while we're not putting a number on it, it's nothing but upside in our opinion.

And Ken, I think the other thing to note is what's really exciting is kind of the funnel of additional capabilities that the team has out. A lot of them are in sandbox and being tested. But again, on upcoming calls, I think you should look forward to hearing us talk about more similar type capabilities that we think can drive significant value to our customers. And we're excited about that. Exciting stuff.

All right. Thank you, Sean. Thank you, Greg.

Appreciate your questions.

Thank you. And our next question comes from the line of Michael Infante from Morgan Stanley. Your question, please.

Hi, guys. Can you hear me now?

Yes.

Great. I'm sorry about that earlier. I just wanted to clarify because I think it got glossed over earlier in the call, but when I run the math on organic subscription revenue excluding mortgage and some of the one-timers that you've previously called out, it looks like it accelerated sequentially, grew anywhere between 13% and 14% in the quarter, even with pretty minimal contribution from Banking Advisor. I think that's basically the fastest growth rate in close to two years. To the extent that I'm in the right zip code on that math, why wouldn't the underlying growth rate accelerate in the back half of the year, just given you have easier comps in the second half on one-timers and presumably more contribution from Banking Advisor as we progress throughout the next couple quarters? Thanks, guys.

Thanks, Michael. And yeah, I don't think we would correct your assessment in terms of growth, which again, hopefully... You guys are hearing our excitement about it, and we're real proud of the team and the focus and the execution. The back half of the year, we tried to be incredibly transparent with breaking out mortgage so you guys could see the impact of that to the back half of the year. And also highlighting, again, the growth that's implied in Q4, exiting without mortgage. Obviously, we'll take some mortgage, less headwinds for mortgage as they come along. But again, I think as you look at the rest of the business, you know, we're feeling good about the trajectory. And our focus is just on continuing to execute and make sure, again, as you've heard me say before, Michael, make sure we close the deals we say we're going to close and close them when we say we're going to close them.

Thanks, Craig.

Thank you.

Thank you. And our next question comes in line at Billy Fitzsimmons from Piper Sandler. Your question, please.

Oh, great. Thanks for taking the question. You guys highlighted how 230 customers are purchasing intelligence units today and increasing consumption. And for those first customers, you also highlighted how some of the first customers are purchasing additional units. Can we just take a step back here and talk about the progression from initial AI adoption to production deployment to broader budget expansion? It sounds like one of the things you guys talked about in the prepared remarks is that There's been a little bit of a shift in customer behavior where you're not necessarily needing to go to them and convince them to take action. Many of them are taking action right now. And then as we think ahead, just help us think about how the intelligence unit sales kind of materialize into future subscription revenue streams and what's that bridge.

Yeah, and you've heard us appreciate it. I heard most of that. It was kind of in and out in the middle, but I think you're talking about what does the trajectory look like for the intelligence unit consumption? And, you know, we will remain very steadfast in that a big update here for this call is the movement into production with customers who have been using our AI solutions in sandbox and development. prior, and as those cohorts move in and we have one-third of the customers and twice as many customers in production now as we did at the beginning of the year, then we can actually read back the outcomes, right? And we read back the outcomes. That puts folks in a position where they say, okay, if I move from one to more banking advisor skills, digital partners, what's that going to look like for my outcomes? And we'll actually be able to read back to them Perfect. And then hopefully I'm coming through clear now. I apologize for that.

That was the gist of what I was asking. And if I could sneak in another one, you guys recently released the mortgage MCP. How do we think about kind of the opening up of the platform integrations with third party tools?

Yeah, this is a big milestone for the company. As you can imagine, a large part of our growth story over the years has been our partnerships and the system integration efforts. System Integrator ecosystem going to market with Encino across all segments and across banks as well as credit unions and IMBs. And so when we think about giving access to our solution to these partners to go ahead and develop on top of the platform, that becomes a force multiplier for Encino We have 1,600 employees today. We've talked about rotating the capacity toward our forward deploy engineering groups. If we can really put a multiplier in the SI ecosystem through access from our MCP layer, that really just gives us a proliferation of growth that's hard to put a ceiling on.

Perfect.

Thank you very much.

Thank you.

This does conclude the question and answer session of today's program. I'd like to hand the program back to Sean for any further remarks.

Yeah, thank you all for your time this evening. Really hope you can hear our excitement in the business, proud of our teams, energized by the momentum, and we look forward to continuing to update you all throughout the year. Have a good night.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.