Q2 2022 nCino Inc Earnings Call
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Yeah.
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Encino, Inc. Second quarter fiscal 2022 earnings conference call.
At this time all participants are in a listen only mode. After the Speakers' presentation, there would be a question and answer session.
Ask the question during the session you will need to press Star then one on your telephone.
If you require any further assistance. Please press star then zero.
I would now like to hand, the conference over to your speaker for today, Greg One thing you may begin.
Yes.
Yeah.
Good afternoon, and welcome to <unk> second quarter fiscal 2022 earnings call for the quarter ended July 31.2021.
With me on today's call are Pierre not de <unk>, Chief Executive Officer.
David Rudow, our Chief Financial Officer, and Josh Glover, our President and Chief revenue Officer.
During the course of this conference call. We may 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, including those related to the impacts of COVID-19 on our business the financial services industry and global economic conditions.
<unk> 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.
With that thank you for joining us and I'll turn it over to Pierre.
Thanks, Greg.
Good afternoon, and thank you for joining us.
We had another great quarter and I want to thank our entire team at Encino for their hard work and efforts.
As you can see from our second quarter results. The Encino platform continues to be selected by leading financial institutions around the globe.
Reinforcing our position as the worldwide leader in cloud banking.
And <unk> really is in an enviable position the digital transformation of the global financial services industry is accelerating.
And we offer a best in class platform.
To help financial institutions of all sizes around the world Concision through a digital client first strategy.
We reported impressive financial results for the quarter highlighted by 37% growth in subscription revenues, which compared to a very strong second quarter last year. It was driven by Triple P revenues.
We also achieved the highest sales for the second quarter in the history of the company.
There is a lot of news from us today.
In addition to earnings this afternoon, and we were very pleased to announce that Wells Fargo has chosen the Encino bank operating system as a foundational technology platform to accelerate its digital transformation within its commercial banking and corporate and investment banking businesses.
I said press release share promotions across our executive management team positioning Encino for further growth as we scale the organization to address the significant global opportunity ahead.
I wanted to spend time discussing these executive changes, but first let me touch upon the wells Fargo announcement, and our record second quarter sales.
At one nine trillion dollars in assets Wells Fargo is one of the top four banks in the U S.
We now have two of the top four bank of America has been a customer of <unk> since 2017.
While its Fargo is a prime example of the momentum around digital transformation I just mentioned.
They are investing in digital capabilities to serve their clients and improve the digital experience more quickly and effectively.
We are incredibly proud to partner with wells Fargo to help them transform their commercial lending operations and continue to meet the evolving needs of their clients.
Signing our first customer in France was another highlight in the second quarter. This financial services firm a subsidiary of one of the largest banking groups in France purchased Encino for corporate lending and also purchased automated spreading part of our Encino IQ or Nick platform to automate.
And speed up the credit analysis process.
The call is we started the year I challenged the team to add customers in each of the new European markets, we entered.
Two quarters in and we've added a customer in Germany, and now one in France.
We are seeing the benefit of the teams have been able to build out in the local markets and I am pleased with the progress we have made particularly in light of the challenges posed by Covid in Europe.
Another key win with U S Bank, a $540 billion asset institution and existing Encino customer who significantly expanded their relationship with us in the second quarter U S. Bank first started using <unk> for business banking in 2018. This additional agreement puts in.
<unk> Bank operating system at the core of U S banks commercial lending strategy as.
<unk> <unk> <unk>.
<unk> Bank Executive Vice President said in the press release they issued.
Across our organization, our bankers and technology teams are working collaboratively to reshape the way we serve our wholesale banking clients.
Everyone involved is guided by our commitment to increasing simplicity and agility at every step of the lending process.
The expanded agreement will provide us with a proven platform that will improve outcomes for both clients and employees.
A few other noteworthy U S customer wins in the second quarter include adding a new logo for a top 50 bank in the U S with over $75 billion in assets that.
That will be using encino in multiple lines of business and signing a multiyear expansion with a top 20 bank in the U S was $180 billion in assets, giving them the ability to expand small business lending across their branches.
I mentioned, our first French customer purchased our automated spreading solution.
They were one of nine new orders trading customers this quarter, including the use of a global bank demand for auto spreading continues to be very encouraging and we are now selling across our customer base globally.
In addition to a strong sales quarter, our customer success organization had another productive quarter crossing key implementation and adoption milestones for many customers, including in Europe, Australia, and North America as always we celebrate the go lives and notable go lives this quarter included.
A $39 billion bank in the U S, where we went live on an end to end commercial and small business transformation project.
Management go lives for our U S community Bank and the U S Regional Bank and in Australia, We went live with three customers, including deployments for small medium and enterprise or SME being and automated spreading.
Now our growth highlights the magnitude of Chinas global market opportunity.
Executive promotions, we announced today create additional infrastructure to support a much larger increasingly global organization and to more effectively pursue the strategic opportunities. We see ahead of US one point to keep in mind you have heard me discuss in CNS culture, Many times and an important element of our culture.
His professional growth opportunities for our people.
These internal promotions reflect the core encino philosophy to forward invest in leadership.
By adding more depth to our senior team. We're also giving the next level of leaders the chance to grow professionally.
The appointment of Joe Glover as President is a perfect example, Josh was an early and senior employee and has played a key role in shaping the encino Youll see today.
That would result speak <unk> success as Chief revenue officer over the past two years and creating a dynamic global sales organization and driving in Chinas expansion across North America, EMEA and APAC.
With the additional role of President Josh will now take on operational responsibilities. In addition to sales at the same time, we've been able to the next tier of sales leadership to undertake more senior roles as Josh adds new structured below him.
Joseph New responsibilities will also free me up to focus more on customers investors and strategic opportunities.
For those of you who have not yet met Josh you will be seeing more of them in the quarters to come.
Retail prices for most of the Chief Innovation Officer is another step to free up senior time to allow an even more strategic approach to product innovation.
Further aligning our technology vision and business strategy again, this move creates an opportunity for to proven leaders under Tricia, Josh Marcy and Dolby voice.
Take on larger roles within our product development and engineering organizations.
Being an innovation company as part of <unk> DNA, Trisha <unk>, who has led the design and development of the <unk> Bank operating system for the past several years.
Now test with furthering our product innovation leadership position in the financial services industry.
But innovation can also come from outside the company finding those ideal opportunities be it a partnership or acquisition as part of our long term strategy. So I have asked Greg <unk> team, who has more than 20 years of experience driving corporate strategy and executing M&A and corporate finance transactions in the front.
Industry to head up corporate strategy. In addition to these though as chief corporate development Officer.
He says possibilities as general counsel will be assumed by April Vega West and the title after working closely with Greg over the past three years.
I view, the second quarter as a textbook example of successful Encino.
We exceeded our financial guidance posted strong sales to support future growth.
And took steps scaling the organization to effectively address a massive global market opportunity.
While recognizing key leaders, we have made invaluable contributions to the company.
With that David will take you through the second quarter financials in detail and provide color around our outlook for the rest of the year.
Thank you Pierre and thanks to everyone for joining US this afternoon to review our second quarter financial results.
Please note that all numbers referenced in my remarks are on a non-GAAP basis, unless otherwise stated are non-GAAP financial information excludes the impact of stock based compensation amortization of intangible assets and expenses related to the government antitrust investigation and related civil action disclosed in our SEC filings.
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 our form 8-K furnished with the SEC.
Echo Peter's comments, we are very pleased with the strong results for the second quarter and how it positions us for continued momentum in the second half of the year.
Total revenues for the second quarter of fiscal 'twenty, two or $71.0 million, an increase of 36% year over year.
Prescription revenues were $62.0 million, an increase of 37% year over year, representing 81% of total revenues.
Subscription revenues benefited from a few deals that closed earlier than expected and some add on sales.
While we are no longer breaking out triple fee revenues. There is no change to the previously communicated approximately $18 million and <unk> revenues, we expect for the full year.
Professional services revenues were $18.0 million in the quarter growing 34% in the second quarter of fiscal 2010.
<unk> solid billing and utilization rates on projects outside the U S.
We enjoyed a particularly strong quarter in international revenues non U S revenues were $18.0 million or 16% of total revenues in the second quarter up 129% year over year.
While we expect the level of international growth to moderate in the coming quarters based largely on strong U S sales and continued challenges from Covid. We are very pleased to see such a strong return on investment for our international growth initiatives.
Non-GAAP gross profit for the second quarter fiscal 'twenty, two was $50.0 million.
Compared with $30.0 million in the second quarter of fiscal 2021, an increase of 44% year over year non-GAAP gross margin was 63% compared to 60% second quarter of fiscal 'twenty one.
Our gross margin continues to improve largely subscription product mix.
Sales and marketing expenses for the second quarter of fiscal 'twenty, two or $24.0 million or 25% of total revenues compared to $20.0 million or 24% in the second quarter of fiscal 'twenty one we.
We continue to invest in our global expansion, adding salespeople on the continent in Europe, along with sales specialists to further support some of our newer and maturing products like retail in there.
We also saw some return to travel in the U S and continental Europe as certain customers level of comfort with onsite visits improved in the quarter.
Research and development expenses for the second quarter of fiscal 'twenty, two were $25.0 million or 25% of total revenues compared to $15.0 million or 25% for the second quarter of fiscal 'twenty. One we continue investing across our platform, including in our retail products and Nick as well as localizing.
Products to support our international expansion.
General and administrative expenses for the second quarter of fiscal 2010 were 10 million or 15% of total revenue compared to $12.0 million or 14% in the second quarter of fiscal 'twenty one we.
We continue to invest in G&A to support our global growth.
In the second quarter, we incurred approximately $11.0 million in costs related to the antitrust matters, which are not included in the $10 million expense. As a reminder, we are excluding these costs from our non-GAAP operating income results and guidance.
Non-GAAP operating loss for the second quarter of fiscal 'twenty, two was $9.0 million compared with non-GAAP operating loss of $7.0 million in second quarter of fiscal 'twenty one.
Our non-GAAP operating margin for the second quarter was negative 3% compared with negative 3% in the second quarter of fiscal 'twenty one.
Non-GAAP net loss attributable to Encino for the second quarter of fiscal 2002 was $5.0 million or <unk> <unk> per share compared to non-GAAP net loss attributable to the sale of.
581000, or <unk> <unk> per share in the second quarter of fiscal 'twenty one.
Turning to cash we ended the quarter with cash and cash equivalents of $403.0 million.
Net cash provided by operating activities totaled $16.0 million for the second quarter compared to $28.0 million in the second quarter of fiscal 'twenty one.
Capital expenditures were approximately 750000 in the quarter, resulting in free cash flow of $18.0 million.
Consistent with our normal billings and collection seasonality, we expect negative cash from operations through the balance of the year.
While we have noted some of the limitations of <unk> as a metric and managing our business I did want to comment on <unk> this quarter as our record sales, resulting in a meaningful increase.
Total <unk> was $707 million, a 55% increase over $456 million in the second quarter of fiscal 'twenty one.
The portion of <unk> greater than 24 months was up 90% over fiscal 'twenty $1 million to $301 million.
Collecting the large long term contract signed in the second quarter.
Which should position us quite well for continued top line growth.
Our pls in 24 months increased 36% to $406 million.
Now turning to guidance for the third quarter, we expect total revenues of $66 million to $67 million.
Subscription revenues are expected to be between $109 million.
Non-GAAP operating loss is expected to be approximately $10.0 million to $11.0 million and non-GAAP net loss attributable to <unk> per share is expected to be six to seven.
Based on a weighted average of approximately $102.0 million shares outstanding.
We are increasing our guidance for the full year 'twenty two as follows total revenues of 263% to $264 million.
Subscription revenues are expected to be between $216 million to $217 million.
And we expect non-GAAP operating loss for fiscal 'twenty, two to be 21% to $22 million and non-GAAP net loss attributable to <unk> per share to be 'twenty two to 'twenty three based upon a weighted average of approximately $104.0 million shares outstanding.
The second quarter was another very strong quarter for the company and sets the stage for continued momentum in the second half of the year.
I want to thank the entire encino team for their continued dedication and hard work and helping financial institutions around the globe successfully transitioned to a digital strategy.
We are now happy to take your questions.
Thank you.
Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
Draw your question press the pound key.
Again, Thats star one to ask the question.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Brad Sills with Bank of America. Your line is open.
Oh, great. Thanks, guys for taking my questions and congratulations on a real nice quarter.
The metric that stands out here is our Po.
And you called out a couple of these large deals congratulations there I wanted to ask about.
Whats driving that is this sort of pent up demand from the pandemic now catching up here in that Big Mega Bank segment of the market.
Would you classify just general spending environment.
Now versus say three six months ago, particularly in that in that segment of the market because you've obviously seen some great results there.
Yes, Brad Thanks, a lot for being here today.
What I would say to you is that in general these are very large strategic deals with long term strategic intent.
It was a great sales cycle, obviously, we talked to all of these big banks over a long period of time as you can imagine.
I would say that we finally have the impact of pandemic behind us people have adjusted Fantastically I would tell you in senior people adjusted executing and working like this I see our bankers have adjusted and executing a working like this and people are just.
Doing good jobs, whether at home or at the office et cetera. So I'm not only proud of my company I'm proud of the industry, who is actually reacting to customer needs and demands as they go forward, especially at the strategic level.
So I see this momentum I think there is an element.
<unk> is driving a strategic urgency for digital transformation and I think thats, what youre seeing because I can see that in the pipelines as well you would expect after a quarter like this that the pipelines will take a little dip for us too and I don't see that so that is pretty fantastic to see the momentum.
Excellent to hear thanks, Pierre and then one more if I may just on.
The international activity.
Obviously, you're seeing some good results there on revenue.
Which we know is kind of a lagging indicator you mentioned because of these big deals you'll see us start.
<unk> start to increase as a mix.
Just if you could just remind us kind of where you are with the build out of international which countries are you seeing real traction and where are you investing incrementally from here. Thanks again.
Yes, so I'm going to give you a broad statement on that and maybe this is a great time to introduce Josh you're a little bit to the team here as well okay.
But the first thing is you know I look at the numbers of international and compare that to the.
Company. When we started this and you guys remember at the onset of the company, we always said.
When we went public the IPO that we did a triple triple double double double okay, and I always measure every initiative against can we achieve that and as I look at the international business. In some cases, we are meeting and exceeding it and in some cases really exceeding some of that momentum. So it's growing.
Josh has put a great team on the field in London. This expanding now so just maybe you can just comment quickly on the Jim and team in France, Italy et cetera that we've always taken a land and expand approach and that's playing out as we continue to pursue our international strategy for recall in the first quarter, we announced our first German customer we announced the French customers.
This quarter and our goal is to show them a rapid path to success and we believe that has a reputation of the company that will help us continue expanding in those exciting market we made significant.
Infrastructure investments and the non U S teams that are recovering and I think that local presence is bang on.
Thanks, so much guys.
Thanks, Brian Thank you.
Our next question comes from the line of Terry Tillman with truly your line is open.
Yes, good afternoon, I think last quarter I tried some Jeremy I'll try some friendship onshore.
So.
Yes.
Sure.
No.
I'll give you some returns.
[laughter].
Steve will go.
Yes.
Alright got it.
So anyway so.
So first congrats on the record sales quarter and also for.
Hi, Josh and Tricia and everybody with the promotions Thats great scale in the business I guess the first question for you is.
And so one of the earlier questions, Brian I think you said that.
The pipeline is actually quite strong and youre not seeing a real like.
Yeah.
Kind of fall off after the great momentum recently, so what I'm curious in the pipeline what are some of the newer areas that youre seeing more proliferating in the pipeline in terms of the newer products beyond just your leadership in commercial loans, so whether it's the retail side that I've asked about in the past.
Nick or mortgage just anything you can share that on the kind of emerging sided.
Interesting or maybe incremental since last time, we caught up and then a follow up.
Yes, so I would say firstly from the areas that we've talked about international clearly is showing us great traction from a pipeline perspective and interest okay, which is what we like because it's a mature product. We know what we do there is commercial it is small business and so on and as you know thats a massive tam okay.
Number one number two we're seeing tremendous interest in the new products were coming out with driving intelligence and automation into the systems.
So Nick as great a little Nuggets for you is we went live was in Australia and mortgage customer, it's a smaller customer, but I will tell you. This.
These are new products you do proof points, you get reference customers and every one of them is just a major victory for the teams down there.
So those are the areas, we're seeing we're seeing great interest in our international mortgage products.
On the retail front.
We're seeing good momentum, but as a company hyper focused on reputation we have.
A big effort on making existing customers successful.
Get them referenced Apple and then drive volume from there and Thats, how we execute with all new products. We go in we sell a number so interesting tracker, we have as we look at <unk>.
Customers with multiple products, which actually means they do platform embracing okay.
I'm seeing a very high number of customers now are embracing the platform with multiple products.
We are getting close to where we're at.
Exceeding 25% of our customers out with multiple products and I think that's really what's holding promise for the future.
That's great to hear thank you and then I guess, David just a quick question put you on the spot here. So it was great to see the wells Fargo when something like that in one of these top four bank deals and maybe they are all different but is there any kind of guidance you can provide on how that could start flowing into the revenue from a meaningful perspective. Thank you.
Yes, so as you know we have a seat activation schedule and this followed that similar activation schedule, we talked about during the IPO process and so it's no different than that.
Revenue to ramp fully.
I think it's a little bit over 24 months, where you see the full ramp of revenues and so those are scale and over time.
As they start deploying the product.
Thanks.
Thank you.
Our next question comes from the line of Brett <unk> with Piper Sandler Your line is open.
Hi, This is hard Jefferies on for Brent Thanks for taking the question.
I think first interesting to see and automated spreading when in your first French customer just reflecting on the knick platform where are you. Most excited to go with the platform from here is an automated spreading really emerging that the killer app or are there other things on the roadmap that we should be paying attention to.
Yes, so as I look at Theres volume deals and then there is dollar volume deals. Okay. So we penetrate some very small institutions I look for instance at the volume of portfolio analytics, where we provide two very much smaller institutions a level of technology that is not easily accessible at that level. Okay. We will do.
Spreadsheets and stuff so I saw in the numbers here good traction there.
Strictly on the credit Union side et cetera, and then.
Nick obviously is available to all customers of all sizes.
I think the fact that we could launch a product that is globally available.
And that at the very first instance had great success with our early adopter customers and then now as being do show volume and then just one final point on that those products have a much quicker.
Sales to our revenue.
Turn over time.
So it is really promising to see that.
On top of that as.
As you know we had the very very early stages of commercial pricing and profitability. We are working with a handful of.
Smaller community banks to actually prove out the concept make sure our models is right and how we approach this.
The feedback so far has been very very good so that helps great promise for us.
Great and then David.
The disparity between income total <unk> and <unk>.
24 months or less or I was just wondering if the some of these larger deals extended beyond that maybe a five year contract horizon or should we think of the total RPM is mostly within that kind of five year duration.
Historically, we have had three to five year deals those are the averages in the larger deals nothing went out beyond five years. So I'd say, probably five years is the average for them.
All right perfect. Thank you.
Thank you.
Our next question comes from the line of Bob Napoli.
William Blair Your line is open.
Thank you and good afternoon, Pierre and David.
Could you talk to your nice quarter, congratulations on the wins.
On the international business.
And maybe a little commentary around the competitive environment and how you feel.
The encino.
Product SEC stands up internationally versus the U S is it more or less competitive is the win rate lower or higher and how do you see that evolving.
No what I'm seeing is that look the first thing you have to do is get success.
Introduce the cloud to an industry and are confident that believes banking will never go there.
The Great news is I've seen that in 2012 from the U S. And then they told me big banks will ever do it in 2031, we proved that wrong and now we're doing it in Europe and the momentum I'm seeing both on the pipeline side as well as the revenue growth.
Is proving out that we could.
We could even be bigger internationally than we could be in the U S.
There are a different set of competitors there as you can imagine there is some local companies.
It's still a culture of they can bullet themselves by using component based software et cetera.
But what I am beginning to see is exactly the same patents I saw back here now do realize the big differences.
You have to win in every country.
<unk> referenced and then wouldn't you follow on deals there.
That is just a factor of culture language et cetera, and especially with Covid. The borders are closed up and so on.
But do you know what I am so proud.
About two quarters away signed a bank on the continent without ever seeing them in person or by zoom.
We've done it again, we've done it yet in the U S.
I think it's boding well for us.
Thank you and then what products.
E R&D dollars what are they being channel team.
Innovations or what is the product roadmap.
Internally what are you investing the most.
So we are.
Continue to invest in our commercial small business products.
To modernize it to make it to international and to invest in unique to drive intelligence into those products, because we know that's a market leading position and thats, how we penetrate countries. So I want to make sure everyone understands when we go into Nashville, we focused on our mature products. So you gain that traction in Uganda reputation okay.
And then we launched on top of that mortgage for the international countries, including Canada UK.
To start off with and that's an early adopter or very early phase of development.
The differentiation I see there is the cloud then if you look at the specific product sets we have.
Heavily investing on top of <unk>.
Commercial we are heavily investing in retail and retail including deposit account opening.
<unk> management sales are onboarding, okay, which is a commercial retail deposit product.
As well as retail lending.
And the investments that will continue for a long time those are heavily compliant oriented products.
Nooks and crannies of do you have to figure out that's why what we do is we sell a number of customers and then we focus on those customers with all of our resources to make sure we get them right get them successful and make sure. They become reference so we can start selling the next group and that is just.
Our level of success I've seen with previous product launches and Thats, how we approach this one as well.
Thank you if I could just squeezing one last quick one you haven't made an acquisition in a couple of years certainly have a lot of momentum organically you need to make an acquisition, but just any.
Thoughts around.
Are you active on the M&A plant in looking at opportunities in itself.
What would interest you.
Yes, so as I always mentioned I look at this platform play as a puzzle and if we can find the right companies with the right analytics AI and machine learning value add decisioning engines et cetera, we love those because they can plug them underneath our platform when I can consume the outputs and the data from there okay.
That's one.
We look at the global basis, you can imagine.
Every time, we make a decision about the product area. We look at do we buy the rebuilt or do we partner and Thats why would you see is we've now got specialized groups with correct, leading that to look at strategy and make sure that we've got a machine looking at that all the time and we don't Miss out on opportunities.
But I want to emphasize that this company is built on a platform vision.
That will automate and change the way banks operate and it's a client centric platform.
And that means your products has to be integrated share components and shed databases. So it sounded like I can just go buy a basket of products out there and start selling it.
We have to make sure it fits our vision and.
And we will continue to do that.
Thank you really appreciate it.
Thank you.
Our next question comes from the line of Mike tandem with Needham Your line is open.
Thank you good evening and congrats on the quarter.
Pierre and David I wanted to just go back to the question around seed activation given the impetus on the part of banks to digitize and the pressure on them to move forward faster is it conceivable that banks might look to accelerate the seed activation schedule with you guys, which might in turn help to drive above trend growth for even longer than you would have imagine maybe.
Going back pre pandemic.
The activation typically is based on experience of our fast we can.
Change processes and deploy it to actually the people in the bank using it okay. So years youre obstacles to accelerate that the first one is there's a natural pushback.
Pushback on change and just people are used to do some hidden away. The second one is the number of integrations you have to do to internal and external data sources realize many of those systems, we connect to a very old not API driven.
You have to write custom code for that especially where the system integrators are involved so our experiences we've learned through the years how to be more prescriptive push best practices.
Old standards et cetera to help the banks to move faster and Triple <unk> was a great example.
We set out the box is how it is going to work best practice go fast we all know the market demanded that at a time. Okay. Now when you go back to a large project.
We are becoming more gold standard oriented.
But it is a complex job and we've picked the hard things automating middle back office, and then push it out to the customer. So that's a long way of telling you we see small incremental improvements in seed activations by bank size, but overall quite frankly.
What we're doing is heavy lifting and I don't see the patterns changing that much.
That's very helpful makes a lot of sense and then peer.
If I can ask you one more around the bank operating system, just given the wells Fargo. When I was curious how many of your customers today are actually on the OS the entire full suite comprehensive solution versus using point solutions and what is the opportunity to convert many of those point solution clients to the OS.
What are the potential revenue contribution we could expect from something like that if that were to happen over time.
Yes, So let me give you a number how you could calculate this if you just think of the magnitude of the opportunity. We have we are sitting around 12.
12% to 14% penetration overall in our banks now realize.
If you take a pool of banks and you take all of our employees that could consume encino and you've come up with a number.
Take our seats in those banks that sort of 12% to 14% comes from okay.
The dilemma, where the math is the moment, we add a bunch of banks, it's net new logos.
Sure.
The percentage go down again, because I've got a much smaller penetration in those banks, Okay, and then I start cross selling into printing has come back up so on the one hand, it's great news that removed from 9% to 14% at one stage and now we're coming back to kind of 12, 13% because of our new logo success is so great. Okay. So that's how the math play out.
And the gain I mentioned earlier.
More than 25% of Europe customers.
Use.
Multiple products and actually is embracing the platform.
Thats, what we are seeing and that trend is continuing and the harder I pushed to do the cross sell the faster the new logos come because they see the value in the platform and so I am actually cordier my own success trying to penetrate deeper, but getting new logos and I love both of those slide your kitchen Europe.
<unk> Marc.
Great. Thank you so much I appreciate the color.
Thank you.
Our next question comes from the line of Ken Sakowski with Autonomous Research. Your line is open.
Hey, Gerry and David Good afternoon, and congrats on the strong quarter. Thanks.
Thanks for taking the question here I, just wanted to dig into into the guidance a little bit it looks like you're guiding to call.
Call. It 26, 27% subscription revenue growth for the next couple of quarters. I mean, we would thought we thought that would have been a little bit stronger.
Since the comps get easier you are booking these new wins and ERP was up nicely even RPI recognized in the next 24 months. So is that just conservatism on your end or is there something else driving that.
Yes, so I think what we talked about in Q, we expected Q3 to be the low point and then would trend up we actually closed a couple of deals earlier than anticipated in the second quarter, and so that kind of change the revenue ramp out the revenue view into the back half of the year.
Not commenting on next year at this point, we're halfway through the year, we've had a phenomenal year, so far but we still have deals to close to get a read on next year as well, but the activity is strong.
And we feel good with where we're at right now.
Because of our activation schedule is always realize.
What we book now, let's go to long tail and they come over 18 to 24 months.
So our ability to impact the next two months comes with your Nick type products et cetera, but it's fairly limited.
And that gives you some color of why you don't see second quarter bookings immediately pushing up third and fourth quarter.
Deals that we did sign the big IPO was enterprise driven in the quarter. So those just by nature will be longer term cede activation schedules. So keep that in mind as you're building your model.
Okay, that's really helpful and I guess, just a follow up.
Question, David I mean, you just mentioned that <unk> would be the low point I think in terms of subscription revenue growth and then ramp from there.
I guess is it.
Safe to assume that.
Yes, its fiscal <unk> kind of a low point just going forward.
More broadly or is it the low point.
For this fiscal year.
Yes, we're not going to talk about next year at all but for this year. The guidance is around 27% growth rate and then you can you can back into what Q4 is what were really focused on closing out the year and then looking out to next year as we get closer to the end of the fiscal year I think there is a factor of Q3.
Last year, we took consortium revenue on the <unk> business.
It was pent up one time and that onetime revenue made last year third quarter, David the bump and so this year third quarter, which is normalized compares with that that's where you see that mathematical impact.
Okay, Alright, thanks again appreciate it thank.
Thank you.
Thank you as a reminder, ladies and gentlemen that star one to ask the question.
Our next question comes from the line of Alex <unk> with Raymond James.
Your line is open.
Thanks, Pierre I wanted to follow up on Bob's product roadmap question. I know you just took up the Tam for the new Knick offerings I'm. Just curious if you see any opportunity to expand the Tam on the commercial bank operating system side, you've kind of talked about investing more on the SMB side, there, but are there any obvious ancillary solutions.
To kind of your commercial product that you can build or buy into the core platform.
Yes, if you look at the landscape there I think there are opportunities for.
More analytics and Nick oriented.
Insights underneath our platform.
Another area of one can look at down the line is through customer Onboarding and a fully compliant and legal way for very complex entities on a global basis I mean sure. This areas you can expand okay.
We get into on the lending side into the investment banking side, and the corporate banking side et cetera, but you can expand into wealth management. So there's so many things in our bank. We can sort of address I would say to you today addressing a $12 billion opportunity that our view is let's take what we have.
<unk> repeatable fashion, so we can drive volume and actually fulfill the promise of the platform and as we do that I think that momentum and success will drive us to expand our portfolio elements.
Understood, Yes tell $12 billion.
<unk> is no small small small number to attack.
So the other thing David I wanted to ask on the growth investment side has been applied for the second half of the year. What can you just tell us in terms of where you're going to be investing and PR. You mentioned some additional hiring on the international and retail sales front I'm curious where the mix stands today of your Salesforce in terms of those big buckets commercial retail and international.
So for the balance of the year, we do have some higher.
Higher costs going into sales marketing R&D and a little bit in G&A, we have higher insurance costs those went up on a renewal.
For D&O, but then we're also investing in our employees and retaining and recruiting employees to work here. So cost increases will be around that and we do have increased costs around R&D as well to continue to mature and develop the product set.
Thank you.
But there is you see the sales expenses.
Realized although we have this platform, we have an account management structure, where people own accounts or <unk> and they are selling to them and then behind them give the specialists. So if I go and I understand that the bank has an issue with let's say retail lending than under general relationship person, but I bring in specialists for retail or bringing a specialist for small business.
Our digital transformation from our.
End user perspective, self service perspective, or maybe its commercial or is account opening.
And so.
When you see some investment going in is that that level of specialization. So that when we compete with point solutions. We are not only best of breed point solution competition, but we differentiate and introduced a platform that will give us cross sell down the line and so you will see that as we expand our salesforce.
Our depth of knowledge to compete better.
Okay, Great. That's helpful color. Thank you.
Thank you.
Our next question comes from the line of the Cat Taylor with Barclays. Your line is open.
Hey, guys. Thanks for taking my questions here.
Putting the and congrats by the way to everybody on the call for the well deserved promotions.
Thank you.
<unk>.
Yes sure.
<unk>, maybe just to start with you great news on Wells Fargo.
I was just wondering I think you said that makes two of sort of the top four banks domestically.
Boston, what do you think that could sort of open up pipeline for other large banks in the U S who are already customers.
I think every proof point actually.
Must drive people to sit back and question and say what am I doing why am I doing a different okay. So yes. The answer is absolutely. So as you can imagine we have people calling on all these banks we are in conversations with him, but I actually look at the larger opportunity every one of these is a proof point to the top 400 banks in the world.
We don't look at the U S is just a market we're looking at the biggest banks in the UK as you know Bob faces a great customer we're looking at the biggest banks in France, because banks in Spain. This fantastic institutions and everyone. We.
Get a top 10 bank in the U S and we publicize that then we'll make it public.
Those become proof points of that is the momentum and the trend of the future.
And so I see it as more a driver of that global footprint and the larger banks.
Got it.
That makes sense.
David maybe maybe for you.
I think we all have sort of a.
A rough sense for how the seat activation schedule sort of looks across the blended base, but I was just wondering how the seat activation schedule for a bigger deal like wells Fargo could be different if at all and as part of that if there was anything just open ended you would highlight just around expenses.
With that type of implementation as well.
Yes, so on the seed activation scheduled when we talked about during the IPO that was the average at the time.
And so if you look at the enterprise customers.
Turns out to that 24 month period, and sometimes even beyond 24 months for even larger deal. It just depends on.
Negotiations just how deep we are building on integrations at.
At the customer.
And so I wouldn't expect anything majorly different as you look to build the model and try to try to forecast out our revenue.
Revenue recognition.
And then what was the second part of your question.
The second part was just.
If theres anything just to highlight that would be different from an expense perspective.
With a deal like that yes, we use partners so I.
I would not expect to see really any increase in cost around a deal like that besides commissions that we pay out.
But yes. So we engaged partners partners are deploying that we put our people in there and more strategic during the deployment just to make sure everything goes as planned but on the cost side, there's really nothing else. Besides commissions that you would see an increase for them.
Got it got it and actually if I can just squeeze one more in.
Since you talked about sort of forecasting our apio I mean, it sounds like great long term growth in the long term RPM.
Does that five year duration is going to be the new normal.
For new deals or is that something that sort of ebb and flow any thoughts on sort of that duration as we kind of think about the components of our appeal.
It varies by market segment Youll community banks I think are lost average was three eight years overall and contracts.
Community banks, you have deals between three and five years.
Large banks go typically five every now and then you get the outlier was six years, but typically it's a five year deal.
That would be driving these big banks, because it's massive transformation. It takes time to do it.
And do you have to get time to complete it see the success and then we drive cross sell.
Very helpful. Thanks, guys.
Thank you. Thank you.
Thank you.
I'm showing no further questions in the queue I would now like to turn the call back over to Pierre No day for closing remarks.
Well thank you.
We couldnt be more pleased with the achievements of the quarter. Finally Wells Fargo. In addition to our first customer in France combined with strong sales all highlight the companys ability to successfully execute on a massive global market opportunity.
And we are just getting started.
Management promotions announced today position and senior to aggressively pursue this opportunity with the size and infrastructure of a much larger company yet still nimble thanks to the Encino culture.
I am energized everyday by our incredible people. The success, we've achieved in the exciting opportunities that lie ahead. Thank you again for your support and we look forward to speaking with many of you in the coming weeks and months.
Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
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