Q2 2023 nCino Inc Earnings Call

September 1, 2022

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Good day and thank you for standing by welcome to Encino second quarter fiscal year 2023 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session.

Ask a question during the session you will need to press star one one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.

First the Masters Investor Relations. Please go ahead.

Good afternoon, and welcome to <unk> second quarter fiscal 2023 earnings call with me on today's call are Pierre Nowadays he knows chairman and Chief Executive Officer, David <unk>, Chief Financial Officer, and Josh Glover, President and Chief revenue Officer.

During the course of this conference call, we will make forward looking statements regarding trends strategies and anticipated performance of our business, including without limitation the acquisition and integration of simple network.

These forward looking statements are based on management's current views and expectations.

Entailed 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.

<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.

The form 8-K furnished with the SEC just before this call.

With that I will now turn the call over to Pierre.

Thank you Allison and thank you all for joining us today to discuss our second quarter fiscal 'twenty three the results are.

Our team executed extremely well in the second quarter highlighted by our strong topline performance of $99 6 million in total revenues.

A 50% increase over the second quarter, our fiscal 'twenty two.

These include simple excess revenues.

Excluding simple Nexus, we grew subscription revenues by 29% organically.

During the second quarter, we saw continued global demand for our platform, including strong growth across our newer product solutions.

As illustrated by the Rabobank announcement, we issued shortly before this call.

Bank selected our Nic automated spreading solution to transform their financial spreading capabilities within Australia and Brazil.

This partnership represents a multi currency cross country commitment energy, our largest order spreading deal to date.

We all know we're in a challenging mortgage market, but despite that our simple nexus teammates and another strong quarter.

<unk> subscription revenues, 73% year over year or 47% organically.

You will hear more about simple access from Jos shortly but we believe the strength in the quarter further highlights the unique quality of this business.

Including its mobile first cloud based homeownership platform and superior subscription based business model, which is fueling continued growth and market share gains in a difficult mortgage market.

The uncertainty in the economy isn't just tied to the mortgage market. So let me spend a minute on the macro outlook as it is top of mind for all of US right now.

Overall, I would characterize the global market as having become more complex.

With different dynamics and different geographies.

On the plus side.

Interest rates are generally a positive for financial institutions and the demand we've seen our.

Sales pipeline for our products has never been stronger, reflecting the ongoing need for financial institutions to digitally transform.

In order to stay relevant and competitive.

Specifically, we are seeing strength in the U S, Canada and Asia Pacific markets.

However, we are seeing some weakness in Europe highlighted by longer fuel cycles.

We continue to closely monitor how the macro environment is impacting the market.

In the meantime.

Im pleased that we are once again, increasing our full year revenue guidance.

David will provide more details later on in the call and how we view the second half of the year.

I would like to highlight the progress we made in the second quarter towards profitability and reinforce that we remain committed to achieving non-GAAP profitability next year, even as we continued to invest in the business.

In fact, we are improving our non-GAAP operating loss guidance by $12 million for the full year from our guidance last quarter.

The key focus for us as being a more measured approach to hiring.

We believe we have plenty of opportunity within our existing employee base to support future growth, while driving incremental operating leverage.

That said, we will continue to responsibly invest in growth, which remains our top priority and we will make additional strategic hires we have needed to drive growth and revenue expansion.

We are in the early innings of growing a global business and capturing a $16 billion serviceable addressable market and.

And we see the current environment at the time to invest with discipline to extend our market leadership.

The executive appointments announced recently proved this point.

I am sure you also our announcement last month of met Hamptons appointment SMC knows.

Chief product officer.

After conducting an extensive external sets it became evident that we have the strongest candidate right here in the <unk> family met founder of simple Nexus is now overseeing all of <unk> product development and engineering organization globally.

We also appointed Bain Mueller co founder of simple in excess as its CEO , taking over forecasting China gates, who is staying on with us in an advisory capacity.

And we announced two other appointments to our executive leadership team during the quarter, including Jamie punish him as our Chief marketing Officer, and Chris Ainsworth as our first Chief people Officer.

I am excited about the deep domain expertise and diverse perspectives. Each of these individuals brings to encino. These.

These additions to our leadership team will enable us to further scale.

Maximize market share and drive profitable growth, while continuing to attract and retain top talent and deliver the best products in the industry.

And with that I'll turn the call over to just to go through more business highlights from the quarter Josh.

Thanks, Pierre we had a solid second quarter with a strong mix of go lives renewals, upsells and new logos across our portfolio of products asset classes and geographies.

<unk> addressed earlier, but rather the bank win is a great example of the increased interest in our <unk> solutions as well as our momentum across APAC.

Earlier in the quarter, we announced that ASB when a new Zealand, leading commercial banks went live in senior Bank operating system. Following a primarily remote implementation during COVID-19 within.

We can see no ASB sought to replace and consolidate 16 existing legacy systems and tools.

Hang on one platform to streamline the lending process for their bankers and to reduce overall complexity for the bank.

Additionally, in APAC, our team added a new logo and Japan, marking our fourth customer in that country. We also expanded our international footprint with new customers in the Netherlands in South Africa during this quarter.

We had a number of Nick cross sales within our existing customer base in the quarter, including an automated spreading deal with the $7 billion U S Bank and a commercial pricing and profitability upsell with the $2 billion community Bank.

Bank operating system customers, using our <unk> solutions, including portfolio analytics, automated spreading and commercial pricing and profitability increased to 119% year over year.

Reflecting the growing demand we see for these solutions.

For example, during the quarter, we announced that in Dkc, a $1 $1 billion community Bank in Kansas City went live on both automated spreading and commercial pricing and profitability as well as our commercial small business and retail lending solution.

In Dkc eliminated numerous systems and manual processes in favor of the <unk> platform to drive efficiency transparency and real time data insights across the entire lending origination strategy.

Insight our annual user conference was a huge event for us during the second quarter and it was wonderful to be together again with over 1400 of our customers partners and <unk> teammates from around the globe. We were honored to have many customers on stage with us sharing their encino journey, including Kevin Nielsen director of product management and in Dkc as well.

As Shane Loper, Chief operating officer of Hancock Whitney <unk>.

You may recall last quarter I spoke about our retail go live at 36 billion Hancock, Whitney, which isn't seen as largest upmarket retail lending deployment to date.

I am pleased to share that the bankers life not only on retail that is also now live on commercial lending.

We are deeply appreciated the Hancock whitney's team's continued partnership.

Our single platform vision continue to resonate with the market in the second quarter with five new customers selecting <unk> for both our commercial and retail solutions.

Cambria suites implement access had another strong quarter.

And a tough mortgage market, we continue to win new deals with revenue and take market share.

During the second quarter simple Nexus signed 26, new customers across banks credit unions Nimb's.

Of these four rings cross sales, including one with an over $30 billion asset regional bank and six were competitive replacements.

To highlight our strong competitive position simple nexis had more competitive replacements in the second quarter and then all of the prior fiscal year.

Simple Nexus continues to be a critical part of our consumer retail strategy, which is one of our four key pillars for growth along with Nick maintaining our commercial market leadership in our international expansion.

Looking at the third quarter, we are excited to spend more time in person with customers across the globe.

Many of US were in Dallas This week with a large group of our customers from the farm credit system and there was so much energy and enthusiasm from every one of the room.

Over the next several months, we will be hosting customer events and executive forums from Wilmington to London to Sydney to <unk> and.

Im excited to show these customers haven't seen it can deliver digital transformation to financial institutions of all sizes all around the world.

And with that I'll turn the call over to David.

Thank you Josh and thanks, everyone for joining us this afternoon to review our second quarter fiscal 2003 financial results.

Please note that all numbers referenced in my remarks 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 as an exhibit to the form 8-K furnished with the SEC just before this call.

We are pleased with our second quarter results and in particular, our progress towards achieving non-GAAP profitability in fiscal 'twenty for total revenues for the second quarter of fiscal 'twenty, three increased 50% to $99 6 million, which included a negative $1 5 million impact from FX.

Prescription revenues for the second quarter were $84 4 million, an increase of 57% year over year, representing 85% of total revenues.

Organic subscription revenues, excluding simple nexis were $69 4 million.

Representing 29% year over year growth.

<unk> subscription revenues increased approximately 73%, including NBA, where revenues are about 47% organically.

Simple nexus again exceeded our internal expectations, despite the difficult market to market.

Professional services revenues were $15 2 million in the quarter.

21% year over year non U S revenues were $14 9 million or 15% of total revenues in the second quarter up 38% year over year or approximately 52% in constant currency.

International revenues continued to see strong subscription growth, while professional services growth lags as we engage our partner ecosystem more frequently and new deployments.

non-GAAP gross profit for the second quarter of fiscal 'twenty, three was $64 9 million, an increase of 55% year over year.

non-GAAP gross margin was 65% compared to 63% in the second quarter of fiscal 2002.

Our gross margins continue to improve largely from subscription product mix as enterprise and international customers comprise more of our revenues the increasing adoption of <unk> products, along with the growth of subscription as a percentage of total revenues.

non-GAAP operating loss for the second quarter of fiscal 'twenty, three was negative $2 8 million compared with negative $1 8 million in the second quarter of fiscal 2002.

Our non-GAAP operating margin for the second quarter.

Was negative 3% flat with negative 3% in the second quarter of fiscal 2002.

non-GAAP net loss attributable to <unk> for the second quarter of fiscal 'twenty, three was negative $4 9 million or negative <unk> <unk> per share compared with negative $2 5 million.

Our negative <unk> <unk> per share.

In the second quarter of fiscal 2002.

non-GAAP net loss attributable to <unk> included approximately $1 million of noncash unrealized loss on intercompany loans due to the strengthening dollar.

Our remaining performance obligation or <unk> increased to $907 million.

As of July 31, 2002 up 28%.

$707 million as of July 31, 2021.

With $589 million in the less than 24 months category up 45% from $406 million as of July 31, 2021.

Organic <unk> increased 19% year over year with $528 million in the less than 24 months category up 30% from July 31 2021.

As a reminder, the second quarter of fiscal 'twenty two saw a significant increase in total <unk> several large enterprise deals signed in the quarter.

The stronger dollar also had approximately negative $2 million impact on total RPM.

As we've discussed the business can be lumpy from quarter to quarter.

Turning to cash we ended the quarter with cash and cash equivalents of $91 5 million, including restricted cash.

Net cash provided by operating activities.

Was $9 5 million compared to $13 3 million in the second quarter of fiscal 'twenty two.

Capital expenditures were $4 6 million in the quarter, resulting in free cash flow of $4 9 million.

As a reminder, we have also have an untapped $50 million line of credit that we signed earlier this year.

So overall, we had a good first half of fiscal 'twenty, three with strong revenue growth focused investments for future growth.

Significant momentum towards achieving non-GAAP profitability.

Let me Echo <unk> comments, we are keenly aware that we are addressing a big market.

And are strategically building our business for the long term.

We will continue to invest optimizing our spend in the areas of greatest opportunity.

While working towards being non-GAAP profitable and cash flow positive next year.

And providing Q3 guidance and updating our full year outlook, we have taken a few factors into account.

Longer sales cycles in Europe .

Second a measured outlook for simple Nexus in light of the challenging mortgage market and finally, a 1% to 2% negative revenue impact from FX.

Set.

For the third quarter, we expect total revenues of $103 million to $104 million.

With subscription revenues of $87 million to $88 million.

This guidance assumes year over year subscription growth of 53% at the midpoint of the range with approximately 27% organic subscription growth for the third quarter.

non-GAAP operating loss is expected to be approximately negative 750.

To negative $1 $75 million and.

And non-GAAP net loss attributable to <unk> per share to be negative two to negative <unk> <unk> per share for the third quarter.

This is based on a weighted average of approximately 111 million basic shares outstanding.

Turning to guidance for the full year, we are now increasing our revenue outlook.

For full fiscal year 'twenty three we now expect total revenues of $401 5 million to.

$403 5 million.

With subscription revenues up $341 5 million.

To $343 5 million this full year guidance assumes year over year subscription revenue growth of 52% at the midpoint of our range with approximately 28% organic subscription growth.

We are also improving our non-GAAP operating loss guidance for fiscal 'twenty three to negative <unk> 12 to negative $14 million.

non-GAAP net loss attributable to <unk> per share is expected to be negative 17 to negative 19.

Based on a weighted average of approximately $110 5 million basic shares outstanding.

The second quarter was another strong one thanks to the hard work of the Encino team around the world.

Your dedication to the success of our customers at what just what makes casino with a global leader in cloud banking.

And with that we will now open the line for your questions.

As a reminder to ask a question you will need to press star one one on your telephone.

Please standby, while we compile the Q&A roster.

Our first question is from James Faucette with Morgan Stanley . Please proceed with your question.

Great. Thank you so much.

Really great performance here.

Mentioned, a little bit of slowing in early sales cycles and in Europe , and that you've taken that into account and the outlook for the second half of the year et cetera, but I'm wondering if you can talk to us about how we should expect those to progress or beyond just the delays are you seeing.

Reassessment of scope of scale et cetera, and what's your sense as to actual timing to close.

And the like in that market.

Thanks, a lot for the question.

We are fortunate to have a global footprint, including Japan Asia Pacific, Australia, New Zealand, South Africa of course, Europe , UK, Ireland, Canada, and the U S.

What I've seen over the over the history of the company since 2017, when we rent.

And that's on a global basis is that these markets take a long time to develop there are macro influences, sometimes it just by country that the slower a more conservative but fortunately for us it's always that one market pops out of another one et cetera. So.

Just like our solutions some are more mature than others and then we lean on the more mature ones to carry us through what I'm seeing on a global basis is very exciting stuff out of Canada as well as the starting at Zealand.

We've got a good presence South Africa right now I see good momentum in Japan. The European thing is really a macro influence where we do see an impact with the energy crisis as well as the Ukraine war, whether its psychological or not.

On the other hand, we see a great opportunity with the ESG. So what we're doing is we've got the right team in place. There we are tracking the deals on a per country basis.

But we clearly saw that there was less.

And aggression on adopting this in the short term and the long term those markets have no choice, but to actually move to cloud based flexible solutions. So we are maintaining our investment and I'm bullish on it but we just realized that in the short term it is macro influences.

Josh do you have anything to add.

No we've not seen a change in that.

Conviction of our customers that they need to continue to digitize and modernize.

That commitment is very clear for us lots of uncertainty and we see them.

Continuing to evaluate the timing of those investments.

Got it got it and I'm wondering if you can help us nuance a little bit what's happening with simple nexis, obviously really strong growth that they're seeing.

But at the same time, it sounds like you're a little bit.

Aware of obviously the way that the market is developing as you formulate your outlook and we have started to see headlines at least from some mortgage originators that theyre planning to cut back heads et cetera. So how are you.

Thinking about like what's reasonable for simple nexis.

And what the work is that they need to do to assure that they do as well as they possibly can in the current environment.

We've included a very conservative.

Our cast for them and is reflected in our guidance, but I would like to emphasize six competitive takeaways.

New logos 26, new logos for the past quarter realize even though they are cutting back hits in the hour.

Estimation. It typically is middle back office. When these mortgage volumes go down also remember that market is shifting to a purchase market versus a refi market and we are very strong on the purchase side. Then if you look at the competitive landscape and the financial strength of different companies. I think we are a standout there we can continue to invest in that.

Thats why youre seeing a shift in market share to us.

So I'm very optimistic our technology is superior experiences superior for the loan officer as well as the ecosystem around them.

Versus purely a mortgage application.

We think we got this asset at the right time.

In difficult times like this is run good companies actually take market share and land logos that will expand rapidly when this market turns around.

Josh you want to add to that but you also have to think.

About the opportunities that we have to continue cross selling simple nexus into the bank customer base. We are proud of what we did this quarter.

It's hard to drive as a proxy, but but I think you would need to understand how we go to market. When you say, 119% year over year increase bank operating system customers, who have adopted Nick that is it.

As a well defined cross selling motion and the team is executing well on that.

So when you look at simple Nexus as we continue to bring these teams together.

We look to continue driving that cross sell further into the bank operating system customer base. We cross sold simply makes us into a 30 plus billion dollar basis last quarter excuse me 30, plus billion dollars bank. This last quarter sophisticated institution, great validation point for us and we have a fantastic customer base that needs the software and James on the numbers for simple next.

As we had anticipated $60 million for the year, we did have a little better performance than we anticipated in the quarter and we're going to maintain that $60 million for simple nexus for the year accounting for a little bit higher churn that we're seeing are some M&A. One a couple one or two deal went against us in the quarter, but we do anticipate within our guidance and elevated level of churn too.

On top of that we expect to also grow revenue sequentially in Q3, and Q4 from where they ended in the second quarter.

That's great nuances color gentlemen, thank you.

Thank you.

Our next question.

All right. Our next question is from the line of Brad Sills with both the Securities. Your line is open.

Wonderful thanks, Thanks, guys.

And congratulations on a nice quarter here in a tough environment.

My question is on simple Nexus, obviously, youre seeing traction here with cross sell into the base is there a point at which we might see.

This drive more new deals in retail now that you've got this more complete solution across mortgage credit card auto personal you've got the full suite now could this be.

<unk>.

A situation where simple nexus.

Starts to lend to new deals coming in in that.

In the retail segment.

And you saw our comments on the <unk> platform wins that we had people who purchase commercial plus a retail solution absolutely think that these validation points of our single platform strategy are going to help us across the board I would hope it helps us with all of our solutions because as banks look to digitize. They just don't want more point.

So from our perspective is our job to tell that story, but I think you have to look at all of these has continued to strengthen that strategic message yes.

Other thing I want to emphasize as I remember in the community bank space very shallow whole platform story, and we can deploy that in one fell swoop. When you start getting to very large bank top 25 et cetera, they buy more.

More piecemeal because they cannot absorb the whole thing so.

So we would sell commercial we will sell small business <unk> selling through the mortgage division that gives us a foothold we get to know the senior people in the retail division and we sell retail products. Okay.

We've done this across the base for a long time, we feel very good about that strategy and simple next is just one more arrow for us to get into retail again, if we don't get to know the people become influential and penetrate deeper.

So I feel very good about that penetration point.

Great to hear guys. Thanks, Ed if I could ask one on the macro you called out earlier peer that.

Rising interest rate is a positive for banks, we all understand that but yet the risk of recession is coming in more in recessions, obviously not a positive for banks. So in the U S. In particular, what are you hearing from Ceos with regard to their willingness to take on these new digital transformation projects for <unk>.

For loan origination.

Thank you.

What's great for US is we actually sell through the business I just spent a day on Monday with.

The head of top 25 bank.

On the commercial side listen to their book of business, what is it credit quality out of they feel about it and Josh comes back from trips in the field and we talk to them all the time.

<unk> technology people, we do talk to them as well, but we talk to the headset business and begin to understand how do they manage credit what are they seeing.

The weakening of the book et cetera, and I can tell you everyone says it must be the other guy because none have ever told me that their book is looking weekend. They are beginning to worry about it which.

Which is to me extraordinary so our banks are moving full speed ahead on transformation they see it as a competitive advantage and they keep on spending. We also saw global survey around sprint for banks and for next year is going up by 5%. So we believe the momentum will continue and with our reputation our installed base I feel good about it.

Great to hear thanks, so much.

Thank you. Please standby for your next question.

Our next question comes from the line of Terry Tillman with curious securities.

Hey, Josh and David Thanks for taking my questions.

David.

Prospective and all of the color you're providing it really helpful, particularly even with that.

Simple nexus and giving us the I think for the full year. So thanks for all the color and transparency. My first question was related to with like Nick and like Rabobank was that's the entry point you all expected to get in there I'm kind of curious about Nick in terms of in the environment. We're in where people are trying to control costs and efficiencies is Nick potentially kind of tip of the spear in.

Something that could actually even get you into some of the other top 25 banks youre not into in the U S and just a little bit more color on how you got Nick in the door at Rabobank, and then I had a follow up for David.

We're proud of that press release that was our entry point is the largest auto spreading deal that we've done in history. So I think.

Sometimes these things are viewed as as cross sales are up sells the fact that it's an entry point.

We can execute really well there is something that we're quite excited about so Terry I would say, we should think about.

Continuing this template and using these new solutions as an entry point.

Okay got it and I guess, David going into this quarter. I mean, you gave us a heads up we're going to have a tough comp for like <unk> and total RTL. So 24 months and then photo RVO because of the enterprise transactions last year, but you definitely were ahead of what I was expecting so it's good to see that but as we think about the second half of the year are there any.

Callouts in terms of like Anniversarying tough comps in the second half of the year and then also kind of.

Not trying to pin you down on <unk> guidance, given the puts and takes we have any more color you could share about how we should be thinking about our appeal in the second half. Thank you.

Yes for the second half our peer we don't guide to <unk> I think it's a metric that I think is important.

Issue with it is its lumpy from quarter to quarter as you saw last year, we closed wells in a couple of other large enterprise deals we had some FX impact as well that affected it.

And I think the thing to note with the current quarter second quarter is that we didn't have any big deals or any large renewals in the quarter that were longer duration.

I would expect to see kind of continued balanced renewals versus new bookings for the balance of the year and I think that's that's the update on RPM.

Alright. Thanks.

Thank you please standby for our next question.

Our next question comes from the line of sockets Kalia with Barclays. Your line is open.

Okay great.

Guys. Thanks for taking my questions here.

Hey, maybe a question for Pierre and Josh to maybe tag team.

Just talk a little bit about just the broader retail opportunity the <unk> platform customers, Josh great to hear I guess zeroing in on retail specifically, there's been some some nice traction.

Hancock Whitney right.

It was a great win what are customers, saying broadly about their willingness to explore a replacement to that to that legacy retail solution with something like <unk>.

So look if you look at the Canadian retail base, so, let's make that anchor wouldn't use a $40 $36 billion bank. So lets go up to that level.

There, we see some consolidation happening in the banking space and they need to saturday's on platform technologies.

And when you put two of those sized banks together they cannot continue on with point solutions sets not attached to the customer who 360 CRM records et cetera. So we see great traction on the platform story and banks up to that size. When you go above that you start selling more into certain divisions for certain product.

Types to solve a problem they've got today, that's why simple next important for US we get in there on the mortgage side. Okay. You can point since seller HELOC on each one into that market because thats, what somebody wants to automate and do it on a cell phone and so on.

We see good traction into.

Internationally, we also see good traction and interest on the retail side.

Back to the platform story, they want to see a consolidation of their customer records into their fulfillment supply chains.

And customers cannot run anymore. It will be competitive when its point solutions. So we are actually beginning to see traction on a wider basis with retail and.

And the investment to us is going to pay off.

Got it got it that's very helpful. David maybe for you maybe a metric that we haven't talked about as much but it was great to see was the subscription gross margin I think about 70, 475%.

non-GAAP can you just talk about sort of whats helped with that expansion.

As we've looked over the last few quarters and how sustainable this level might be.

As we think about again that path to profitability for next year.

Yes. Thanks, Yes, it's really from the product mix, we're selling more enterprise and international which has a higher margin than we see on the community regional side at the lower end of the market. We are able to sell salesforce at $5 billion and below our premium seat, which comes at a lower gross margin. So we're selling more enterprise and international we'd get the natural lift but then also.

If you look at the Nic products those are based on AWS and those have a much higher gross margin. So the mix of that allows us to elevate the gross margins overtime.

And then in terms of outlook on gross margins I said, 74% to 75% range still holds true as you look out to build your model.

Very helpful guys. Thank you.

Thank you please standby for our next question.

Yes.

Our next question comes from the line of Brent <unk> with Piper Sandler Your line is open.

Okay.

Thank you good afternoon.

I wanted to basically drill down a little bit into the current environment for <unk> and Josh.

Clearly understand.

Larger deals will take longer given just the complexity out there in the space, but a little surprised to see the momentum around simple and access the number of competitive takeaways momentum around Nick.

Obviously, we know labor costs are.

<unk> are going up here in a meaningful way I think of 40% or 40 year high and growth in labor costs.

Much is automation and software automation, helping you win some business is that resonating with end users love to get your view on kind of what is resonating across either Nick simple nexis.

At a high level is automation and the benefits of the platform. The reason why youre, winning here or not love to drill down a little bit into that.

So let me take the automation and intelligence.

And then Josh will take some <unk> for you okay.

First thing we have to remember us.

How do you use in the bank AI and machine learning analytics et cetera, unless you have a platform to deliver the insights of the people on the frontline and thats been the age old problem. The people on the 36th floor of a bank that with all the people around them with all the answers, but you have to give that out to 24000 people working in your branches etcetera. So.

So what we've.

Established is a workflow platform that everybody touches from the moment they step into the offers that morning, whether that'd be at home or.

In the office until they leave for today.

And so now everybody works in exactly the same system all the way from the first touch point with the customer through the loan origination or account opening.

Underwriting the closing et cetera. So.

<unk> got everybody in the same system you can start developing systems like an integrated commercial pricing and profitability system that now gives you an experience into and think it will be influenced by anyone on the line.

Because you have to think of this as a production line okay.

That level of intelligence is now beginning to become much more of a differentiator. So think about this you have to adopt encino could your processes in place and then you drive intelligence insights integrations and data into that platform.

Nobody else in the market has done this at this level of sophistication than.

And then you start with unique products and you've become a lot more sticky and more differentiating as you go forward and Thats why we have the market share we've got and we continue to penetrate these markets overseas. So they can see that our vision and execution is aligned and they actually see the outcomes were banks is using <unk> to <unk>.

Imagine competing with a bank in a title III, if you don't have encino.

These automated processes so.

That's how we've driven this so nick becomes a penetration point as well as a differentiating point when we sell to the <unk>.

Platform.

Jos can now comment a bit on simple metrics I will add one more point on the automation aspect when change I've.

<unk> seen in the last 12 months or so as I talk to business leaders is that this talent market is causing them to think about software investments not just how do I run my organization more efficiently, but how do I actually compete for talent, so something like spreading that takes 85% of the effort of taking an unstructured financial statement or a tax return and getting that into it.

Red tool helps them compete for the best talent out of University and.

Ben really fascinating to see how how that message continues to resonate on simple nexis, what I will say is there is strength in the purchase market, particularly as they digitize that home buying journey and the NBA outlook for sustained interest in the purchase market is something that differentiates them. The refi shops are having a hard time.

But if you do a lot of purchase.

No one better than simple Nexus. The other thing I think that I've seen from engaging with that market is that you have a lot of business leaders in the mortgage space today, who have seen this before and I understand that facing a competitive market facing market challenges is the time to actually invest not to cut back. So we do believe that's driving a lot of their continued momentum when you look at the.

Number of new logos added this quarter it feels that they are leaning into the opportunity to differentiate in a tough market.

Yes, we also see with banks.

Banks.

Tends to be a bit more stable and with our focus on banking, bringing that solution over two banks in the purchase market.

Feel pretty optimistic about that business.

That's very helpful color there I guess last follow up here for David I agree not to.

Take a look at that guide on.

Nearing the operating last year in the second half of the year is that tied to a slowdown in hiring or is that tied to just greater leverage do you think about that momentum of the business trying to think through the levers and how youre narrowing losses here in the second half the year. Thanks.

Yes. So it was really in the second quarter, we paused hiring and then we reevaluated with the entire team around the head count adds for the balance of the year. So it really is around optimizing each and every team and increasing productivity.

We've done that work the plans in place we're still hiring for the balance of the year as well as just at a more measured pace. So youll see those cost savings kick in this year, but then really will benefit us next year and achieving our profitability and cash flow positive status.

Good to hear thank you.

Thank you and as a reminder to ask a question you will need to press star one on one on your telephone.

Please standby. Our next question comes from the line of Brian Peterson with Raymond James Your line is open.

Hi, gentlemen, thanks for taking the question so David one for you so.

With a 19% implied organic growth outlook for subscription revenue for the fourth quarter.

Realize you guys are guiding for next year at this point, but is that something that investors should use as a reasonable starting point for next year I know, there's some potentially larger seat ramp yields that are coming in but any context that you could add there would be helpful.

Yes, that's not we guided for the year at 28%.

And 27% for Q3.

So.

That 19% is.

Not correct.

And it should be you can I mean, it's higher than that and you should run the numbers. It's just solve for Q4 and it will end up being in the 27% to 28% range, 19% is.

Not correct.

And it should be you can I mean, it's higher than that and you should run the numbers. It's just solve for Q4 and it will end up being in the 27% to 28% range for Q4 I believe.

Understood I apologize about that.

Messed up the M&A basket one on some of the sales cycles are kind of following up on some of those questions. I mean is that really differentiated by the size of any of your customers I guess looking to double click on that a little bit.

And as we think about maybe the linearity of some of the slowdown that you guys have mentioned did that change throughout the quarter, but would love.

Love to get some perspective there.

I would say the macroeconomic sentiment is pretty standard across the customer base.

That would give you is when you look outside of the U S. You have just a more enterprise heavy market. They just don't they don't have as many small institutions as we do here thats. The only the only difference I would see but that's more of a market composition question not really a sentiment question, yes, and then on the quarter you talk about linearity in the quarter I would say linearity as normal I think we had some deal.

<unk>.

And the early in the quarter that were closed early than we expected in may which part of the reason why we saw upside in subscription revenue. So linearity was was more normal, but I would say heavier weighted to the balance to the beginning of the quarter.

Understood. Thanks Sheila.

Sure.

Thank you.

Please standby for our next question. Our next question comes from the line of Robert Napoli with William Blair. Your line is open.

Thank you Glenn and good luck.

Okay.

Yes.

Hi, Nick.

Just anything you can give on the sizing of Nick order gross margins.

Which products I mean, not as spending obviously is on fire, but how is that loan pricing those portfolio analytics is that is that it's becoming more important.

Yes.

We're really proud of what we did with auto spreading today within my bank operating system customer base I had 26% of those customers have at least one Nic solution, which is exciting progress, but that means we saw a very long runway there.

Get them hopefully to adopt all of those pricing and profitability. We included in our notes here, we saw momentum in a in a $7 billion bank signing a $2 billion bank, signing and I frankly pleased with the up market momentum that we have in a way that's being received both in the U S and internationally. So we feel like we have good proof points to products coming along.

We're going to continue trying to drive that into the customer base, because they will need it.

And Bob did you have a question on growth. The first part of your question Didnt come through did you have another question.

Yes, David if any if you could give any color on the sizing of.

Nick today, given the growth that has gross margin given your gross margin momentum.

<unk> been pretty impressive and I guess as Nick contributing today.

Yes. So in terms of total revenues sits about 5% and remember we added simple Nexus, which is about 15% of revenue. So that percentage has come down that mix on the on.

On the gross margin side, we do use AWS. So I would view those gross margins similar to what you see with other SaaS companies.

In that range.

Okay.

And last quarter, you had announced that you added a trillion dollars bank I think in the U K.

Hi.

With the elongated onboarding cycles as well.

In that market.

And I think that was.

Commercial and auto scaling and.

When does that customer onboard.

We're not seeing an impact project duration I think we've seen the industry has figured out how to work either remotely or hybrid one proof point that we gained from our press releases <unk> that was a <unk>.

Program that we kind of kicked off right in the teeth of Covid in their live with this.

And they are out there publicly with us so no impact on that program timeline relative to Onboarding. This in line with our typical expectations for a program at that site.

It's a normal enterprise type seat activation schedule that you would see with that as well.

Thank you I appreciate it.

Thank you.

Please standby for your next question.

And our next question comes from the line of Fred <unk>.

<unk> with Macquarie. Your line is open.

Hey, Thank you very much for the question here and congratulations on a on a strong quarter, despite the macro environment.

Really great to see the narrowing in the non-GAAP operating loss guidance for the year I wanted to ask about just generally how rather it's a little bit of additional context, what you're describing in terms of doing more with your existing head count in terms of the R&D initiatives are you just finding that.

Head count that you have in place are sufficient for the product innovation and your product roadmap that you have or have you decided.

The changes your cadence of product delivery.

Yes, so if you look at the breadth of the portfolio.

We used to be mostly commercial a little bit of small business. When you started building. These different teams out commercial lending small business lending retail lending deposit account opening treasury management Onboarding okay.

And then you have simple accessing.

And then we started adding customer facing technologies for each of those solutions, we have to book a foundational infrastructure. In place then you go to international Lenovo Southern London team to put in place for integrations et cetera, We acquired a company in Australia.

<unk> became the auto spreading thing.

If you put that whole footprint in place and you onboard.

100 to 200 people per year like that it takes a lot of management time as well as effort by the teams to bring them in.

We're very fortunate we always had a fairly or much lower than the industry churn rate of people or turnover rate.

So what we recognized is.

As a percentage of revenue that would be spent on R&D was always to this quite high was 27% I believe a month.

That if we stabilize at organization keep the head count more fed would actually still adding but a much slower growth rate. We have all of these teams populated and let them focus on bringing out new products through quality improvements et cetera that stabilization effect could have quite a big boost for productivity.

And focusing on processes and optimization of software development and time to value, where we actually write code and get a quicker through the customer those initiatives. It's a great little breather for a company like US is for 10 years. This window Gogo and have more hits, Okay. I would say that if you look at companies like us the.

The answer later on becomes an even more ahead.

And I think what we've done now is change that mentality to looking at optimization methods, improving our processes and so on and I am seeing great progress and I am pleased with my team's so I think it's a good thing and it is good corporate hygiene to do this.

But I am satisfied that each of these teams are populated to the extent needed for their solutions.

While it's a big congrats to the team that had been more auto spreading oes always impressed with what I see that I wanted to also ask about gen.

Generally your channel ecosystem and how that is also shaping up as you are continuing to scale as theyre going more globally and just generally how do you see your maturity of your channel ecosystem and global systems integrators shaping up around in P&L and how do you think that could impact professional services exit your total revenue over time. Thank you.

And I appreciate you calling that out because we do believe that's a differentiator for us and has allowed us to execute as we've executed. This global strategy. We see about 2800 partner practitioners to date that are certified to implement and seen a lot of that increase since we last spoke was driven by international interest, which is a great thing.

We're proud of.

And then the earlier question about you sign a large account in the UK are they implementing well, it's because we have that partner ecosystem and a proven model from our perspective.

That is that is going to continue to be how we go to market globally and how we can put a reputation behind these strategic accounts and I'll, let David to speak to the revenue side of that yes.

Yes on the revenue side for total services.

15% is kind of what we see for the year.

The partner channel they deploy the majority of our if not all of our large solutions and so they have their own revenue streams for that but we would expect as we continue to expand onshore onto the continent in Europe that those partners will be get up trained and running in deploying the solutions on the continent as well as we've seen with the initial.

<unk> that we have.

There is a demand for our services because we have the specialists and I don't have a problem coexisting in the ecosystem with services between 15 to 20.

<unk> of total revenue, but.

We are very careful to complement the el partnerships and compete with them, but sometimes customers ask for our people because it's closely related to the engineering teams et cetera.

So it's a nice equilibrium.

We will continue to grow services as well.

Great. Thank you very much.

Thank you. Please standby for your next question.

And our next question comes from the line of Joe <unk> with Baird. Your line is open.

Okay.

Hi, Greg Hi, everyone I wanted to go back to the hiring topic.

You touched on it a little bit a few answers like alpha.

John .

Todd is maybe recalibrating new trajectory of demand.

Unable or moderation in hiring but productivity has come up a few times.

This discussion so are you seeing something from an efficiency standpoint, where we actually feel a certain rate of growth Canadian sustained at this point and a different head count gets you there.

So our priorities for growth is as follows.

Head count the very first thing we do every year. When we started the year is to plan to make sure. We've got enough salespeople back carrying salespeople on the field to cover the quota and the sales goes for that year and so that is noticed friction on that Steve.

<unk> tells me the pipeline supports a certain amount of sales we will make sure that we've got that team on the field to accomplish yet so thats. Your very first thing. The second one then is to complement that with a support team to support the existing customers in the professional services team to implement those three things go lock step and we don't cut back.

On them, we don't hold back we plan that first once that's in place we look at.

<unk> core product and then finally, a G&A because we're a large global organization. We have complex tax structures, we have people to support accounting finance entity involvement or entity creation, okay. As we go around the globe.

All of those infrastructures are in place because we always had a plan to build this global company. So I feel we're going to get leverage on the G&A side.

We're getting leverage on our global infrastructure, because they've been in place. The management structure is in place and the people you add now is motor from a capacity standpoint to maintain the growth rates, Okay and as I explained before the product organization has got all the necessary.

Teams as well as factors in place to continue building out each of our portfolio elements.

So I think we're just reaching a level of maturity, where you can scale and drive growth without having to add overhead.

To summarize, we're making measured business decisions in an uncertain environment and thats the real driver by the way if you bring me a great idea and I can make a lot of money quickly we'll invest.

Okay. Thanks, guys.

Lot of.

But maybe.

A lot of money.

Scott I'll work on that.

On the international side of things.

Revenues I think they're at ground and close to 60% in the last few quarters, where did that stand in the second quarter and.

Might you be thinking about international growth, just given we seem to be having this divergence between APAC and Europe .

Yes International growth in total grew at 30%, 38%. The majority of the growth, though is coming on the subscription side, we have seen a slowdown in the services growth because we are pushing more.

More of our projects to our partners.

And then also FX, we had a big FX hit in the quarter.

On the international side, which I believe.

Currency was at 52%.

Okay. Thank you very much.

Thank you please standby for our next question.

And our next question comes from the line of Charles <unk> with Stephens. Your line is open.

Hi, good afternoon, and thank you for taking my question. So we're about a year year and a half removed from the wells Fargo win and had a pretty significant had gone back in September just wanted to get a quick update on how that's Boeing in terms of the integration and the impact that can have on ACD expansion going forward.

Yes, we were.

Really proud to do both of those press releases not only on the broad commercial deal, but also expansion into small business I won't comment on the details of their program, but theres been no change in the landscape there.

And the CIA vacation schedules.

Hey, Charles on the seed Activations, we've talked about that in the past, it's a normal larger deal probably a little longer in duration to activate those seats.

So those are ongoing those are all contracted by date.

And so no update there either.

Got it and if I go back to the conference in the body in the spring I thought the commercial pricing and profitability tool was one of the more interesting.

Product product show, so I was hoping to get an update on that and any traction youre getting on that broad reception, you're getting from your customer base.

And you were a little bit broken just to read that back youre asking for an update on how pricing profitability is progressing.

Yes, that's right I apologize.

So we commented we brought on a $7 billion bank of $2 billion Bank. We're also really proud to do a press release within Dkc, who went live.

Great replacement sale and we're proud to have them live we continue to take that to market in the accounts that we can serve.

And within the customer base.

And I'm quite excited by the momentum in accounts of the size that I referenced and also in some of our larger accounts both in the U S and globally.

I would tell you what surprised me about that product is because I thought we will focus for an extended period on the community regional space and then eventually get to the enterprise.

And we are beginning to see serious interest in the enterprise versus even internationally.

It tells me that the integrated experience that we've built and the complexity of the models. We included there as well as the flexibility is actually resonating and so on.

I'm very positive around how that product is coming about and the proof points. We are seeing from these customers evaluating it.

I feel very good about what we've done there so much of the initial value prop with those customers was the opportunity to connect the front middle back office into into one platform. When you look at the way we price. These loans are so central to the connection of the front office and the risk function at the institution. The overall profitability that message has really resonated nicely.

Yes, My view is Indiana every commercial customer.

I think profitability and should get all.

Ultimate is spreading from us.

As Nic solutions rollout so they serve as a significant upside penetrating the existing base.

Thank you I appreciate the color.

Thank you please.

Please standby for your next question.

Our next question comes from the line of Ken <unk> with Autonomous Research. Your line is open.

Hi, everyone. Good afternoon, and thanks for taking the questions I wanted to ask you about the.

The ability to pass on higher expenses and higher inflation that we're seeing in today's environment and my understanding is that <unk>.

The contracts don't have annual inflation escalators. So can you just talk about your.

Your interest and your ability to add those into your contracts or is the plan to kind of wait until the end of the contract to put through some of that pricing. Thank you.

Yes, so when we sell a deal we have whether it's a 3% to five five plus year deal. We have an activation schedule built into that for customers as we deploy the product.

By contract we are allowed to increase pricing upon renewal, where we normally try to do though is go in and sell them additional products or lines of business or additional seats.

To expand the relationship with the customer and the idea is to get grab as many seats as possible with the customer and then in the future you would have the ability to raise prices, but our idea now is to grab as much share as we can.

And then.

Hopefully as we service our customers and make them happy we have the ability to maintain them as customers and increase prices at inflation or whatever the numbers in the future.

Okay that makes a lot of sense David.

And just as my follow up I wanted to ask a simple Nexus I think you mentioned the new logos the competitive takeaways.

Talk about what youre seeing across your customer base and I guess the industry more broadly from a seat and employment perspective. I mean are you seen layoffs or are you seeing see growth at your existing customers. Thank you.

We hear some of that but historically, what youll see is into into a challenging market. The mortgage industry will look to cut the middle and back office first because those are salary employees. They want to keep their good loan officers because theyre more commission based and they drive the revenue. So I think David spoke about some of our moderated approach to ensuring.

We're suffering for some churn there.

But no change to that David even elaborate.

No I think you summarized it well.

Okay. Thank you.

And just a friendly reminder to ask a question you will need to press star one one please.

Please standby for your next question.

Our next question comes from the line of Maddie Schrage with Keybanc capital markets. Your line is open.

Hey, guys congrats on the quarter and thanks for taking my question.

My first question for you I'm wondering if you could provide some color on the competitive landscape.

Im wondering if youre seeing any changes in pricing.

Mainly from your competitors.

Internationally, if there is any new entrants.

Paul.

Yes.

So if you look at our competitors you have to look at it.

By segment, because they vary by product type and segment. Okay. So let's start with the community regional space, but when you look at commercial there we do have at the lower end of the banking space. Some competitor, we expect them they come with a different approach than most of our packaged approach.

We're competing well, but we see competition that it wasn't there a few years ago. Okay. If you look then at the enterprise market. It typically is still they can build it themselves or they want to do it.

Yes.

For the life of me I wouldn't know.

Why do you want to do it but every now and then Youll still see a bank of the enterprise or even the international space to try and do that.

<unk> as a platform provider, we see more active in Europe , where people might contemplate that.

So the landscape since we went public essent really changed on that front.

When you look at.

The mortgage markets.

As a matter of fact that landscape has changed.

Some of your competitors are public companies you can clearly see that their business models are different than ours and the resultant.

Outcomes of that so we see that as a big opportunity for us to be more aggressive and grab logos and do a land grab.

In that space.

So in the consolidation in that market is going to help us as well because we had a very stable financial company with growth aspirations and reinvest in our products.

So I feel optimistic that in turbulent times companies like us with a very stable management team and a strategy that's been proven over time will actually expand and take market share.

Awesome and then just a follow up for you guys.

Have you guys been reevaluating your M&A standpoint with background.

Macro uncertainty.

Alright.

This.

Some nice assets out there and obviously prices came down but right now we're focused on execution.

Our customers are looking at us critically to see that we focus on their needs and the integration of simple access.

As you could see from the appointment of Matt and Ben and integration into my executive team.

Those two teams are coming together very well.

We had a whole team of simple excess people today here at the office.

Training on cross selling and cross pollination of people and I can tell you the excitement in the room is infectious.

We're focused on execution.

Through the rest of the year is always beaten raise make our numbers and then we'll evaluate as the market develops.

Thank you Alex appreciate it.

I am showing no further questions at this time I would now like to turn the conference back to Peter <unk> for closing remarks.

Thank you operator, and thank you all again for joining US today, we look forward to talking with you next quarter and seeing many of you at upcoming can seeing many of you at upcoming calls.

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

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Good day, and thank you for standing by and welcome to <unk> second quarter fiscal year 2023 financial results Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker today Harrison Masters Investor Relations. Please go ahead.

Good afternoon, and welcome to <unk> second quarter fiscal 2023 earnings call.

With me on today's call are Pierre Nowaday, and Sina is chairman and Chief Executive Officer, David Ruder, Chief Financial Officer, and Josh Glover, President and Chief revenue Officer.

These forward looking statements are based on management's current views and expectations.

<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.

The form 8-K furnished with the SEC just before this call.

With that I will now turn the call over to Pierre.

Thank you Allison and thank you all for joining us today to discuss our second quarter fiscal 'twenty three the results.

Our team executed extremely well in the second quarter highlighted by our strong topline performance of $99 6 million in total revenues, a 50% increase over the second quarter of fiscal 'twenty two.

Which includes simple <unk> revenues.

Excluding simple Nexus, we grew subscription revenues by 29% organically.

During the second quarter, we saw continued global demand for our platform, including strong growth across our newer product solutions.

As illustrated by the Rabobank announcement, we issued shortly before this call.

Bank selected our Nick automated spreading solution to transform their financial spreading capabilities within Australia and Brazil.

This partnership represents a multi currency cross country commitment, Venezuela largest auto spreading deal to date.

We all know we're in a challenging mortgage market, but despite that our simple nexus teammates and another strong quarter.

<unk> subscription revenues, 73% year over year or 47% organically.

You will hear more about simple in excess from Jos shortly but we believe the strength in the quarter further highlights the unique quality of this business.

Including its mobile first cloud based homeowner surplus form and superior subscription based business model, which is fueling continued growth and market share gains in a difficult mortgage market.

The uncertainty in the economy isn't just tied to the mortgage market. So let me spend a minute on the macro outlook as it is top of mind for all of US right now.

Overall, I would characterize the global market as having become more complex.

With different dynamics in different geographies.

On the plus side higher interest rates are generally a positive for financial institutions and the demand we've seen our.

Sales pipeline for our products has never been stronger, reflecting the ongoing need for financial institutions to digitally transform.

In order to stay relevant and competitive.

<unk>, we are seeing strength in the U S, Canada and Asia Pacific markets.

However, we are seeing some weakness in Europe highlighted by longer deal cycles.

We continue to closely monitor how the macro environment is impacting the market in the meantime, I am pleased that we are once again, increasing our full year revenue guidance.

David will provide more details later on in the call and how we view the second half of the year.

I would like to highlight the progress we made in the second quarter towards profitability.

And reinforce that we remain committed to achieving non-GAAP profitability next year, even as we continued to invest in the business.

In fact, we are improving our non-GAAP operating loss guidance by $12 million for the full year from our guidance last quarter.

The key focus for us as being a more measured approach to hiring.

We believe we have plenty of opportunity within our existing employee base to support future growth, while driving incremental operating leverage.

That said, we will continue to responsibly invest in growth, which remains our top priority and we will make additional strategic hires where it needed to drive growth and revenue expansion.

We are in the early innings of growing a global business and capturing a $16 billion serviceable addressable market and.

And we see the current environment at the time to invest with discipline to extend our market leadership.

The executive appointments announced recently proved this point I am sure you also our announcement last month of met Hamptons appointment SMC knows.

Chief product officer.

After conducting an extensive external sets it became evident that we have the strongest candidate right here in the <unk> family met founder of simple Nexus is now overseeing all of you have seen those product development and engineering organization globally.

We also appointed Bain Mueller co founder of simple in excess as its CEO , taking over forecasting Schreiner gates, who is staying on with us in an advisory capacity.

I am excited about the deep domain expertise and diverse perspectives. Each of these individuals brings to encino. These.

These additions to our leadership team will enable us to further scale maximize market share and drive profitable growth, while continuing to attract and retain top talent and deliver the best products in the industry.

And with that I'll turn the call over to just to go through more business highlights from the quarter Josh.

Thanks, Pierre we had a solid second quarter with a strong mix of go lives renewals, upsells and new logos across our portfolio of products asset classes and geographies.

As Peter addressed earlier, rather than bank win is a great example of the increased interest in our <unk> solutions as well as our momentum across APAC.

Earlier in the quarter, we announced that ASB when a new Zealand, leading commercial banks went live in senior Bank operating system. Following a primarily remote implementation during COVID-19.

We can see no ASB sought to replace and consolidate 16 existing legacy systems and tools.

Hang on one platform to streamline the lending process for their bankers and to reduce overall complexity for the bank.

Bank operating system customers, using our <unk> solutions, including portfolio analytics, automated spreading and commercial pricing and profitability increased to 119% year over year.

Reflecting the growing demand we see for these solutions.

In Dkc eliminated numerous systems and manual processes in favor of the <unk> platform to drive efficiency transparency and real time data insights across the entire lending originations journey.

Insight our annual user conference was a huge event for us during the second quarter and it was wonderful to be together again with over 1400 of our customers partners and his teammates from around the globe. We were honored to have many customers on stage with us sharing their senior journey, including Kevin Nielsen director of product management and in Dkc as well.

As Shane Loper, Chief operating officer of Hancock Whitney <unk>.

You may recall last quarter I spoke about our retail go live at 36 billion Hancock, Whitney, which is <unk> largest market retail lending deployment to date.

I am pleased to share that the bank is why it's not only on retail, but it's also now live on commercial lending.

We are deeply appreciative of the Hancock Whitney's team's continued partnership.

Our single platform vision continue to resonate with the market in the second quarter with five new customers selecting <unk>.

For both our commercial and retail solutions.

This was simply Texas had another strong quarter.

Mortgage market, we continue to win new deals revenue and take market share.

During the second quarter simple next has signed 26, new customers across banks credit unions Nimb's.

These four rings cross sales, including one with an over $30 billion asset regional bank and six were competitive replacements.

To highlight our strong competitive position simple nexis had more competitive replacements in the second quarter and then all of the prior fiscal year.

Simple next this continues to be a critical part of our consumer retail strategy, which is one of our four key pillars for growth along with Nick maintaining our commercial market leadership in our international expansion.

Looking at the third quarter, we are excited to spend more time in person with customers across the globe.

Many of US were in Dallas This week with a large group of our customers from the farm credit system and there was so much energy and enthusiasm from every one of them.

Over the next several months, we will be hosting customer events and executive forums from Wilmington to London to Sydney to Toronto and.

Im excited to show these customers haven't seen it can deliver digital transformation to financial institutions of all sizes all around the world.

And with that I'll turn the call over to David.

Thank you Josh and thanks, everyone for joining us this afternoon to review our second quarter fiscal 'twenty three financial results.

Prescription revenues for the second quarter were $84 4 million, an increase of 57% year over year, representing 85% of total revenues.

Organic subscription revenues, excluding simple nexus were $69 4 million.

Representing 29% year over year growth.

<unk> subscription revenues increased approximately 73%, including <unk>, where revenues are about 47% organically simple.

<unk> has again exceeded our internal expectations, despite the difficult mortgage market.

Professional services revenues were $15 2 million in the quarter growing 21% year over year.

Non U S revenues were $14 9 million or 15% of total revenues in the second quarter.

Up 38% year over year or approximately 52% in constant currency.

International revenues continued to see strong subscription growth, while professional services growth lags as we engage our partner ecosystem more frequently and new deployments.

non-GAAP gross profit for the second quarter of fiscal 'twenty, three was $64 9 million, an increase of 55% year over year.

non-GAAP gross margin was 65% compared to 63% in the second quarter of fiscal 2002.

Our gross margins continuing to improve largely from subscription product mix as enterprise and international customers comprise more of our revenues the increasing adoption of Nick products, along with the growth of subscription as a percentage of total revenues.

non-GAAP operating loss for the second quarter of fiscal 'twenty, three was negative $2 8 million compared with negative $1 8 million in the second quarter of fiscal 2002.

Our non-GAAP operating margin for the second quarter was negative 3% flat with negative 3% in the second quarter of fiscal 2002.

non-GAAP net loss attributable to <unk> for the second quarter of fiscal 'twenty, three was negative $4 9 million or <unk>.

Negative <unk> <unk> per share compared with negative $2 5 million or.

Our negative <unk> <unk> per share.

In the second quarter of fiscal 2002.

non-GAAP net loss attributable to <unk> included approximately $1 million of noncash unrealized loss on intercompany loans due to the strengthening dollar.

Our remaining performance obligation or <unk> increased.

<unk> increased to $907 million as.

As of July 31, 2002 up 28% from $707 million as of July 31, 2021.

With $589 million in the less than 24 months category up 45% from $406 million as of July 31, 2021.

Organic <unk> increased 19% year over year with $528 million in the less than 24 months category up 30% from July 31 2021.

As a reminder, the second quarter of fiscal 'twenty two saw a significant increase in total RPI from several large enterprise deals signed in the quarter.

The stronger dollar also had approximately negative $2 million impact on total RPM.

As we've discussed the business can be lumpy from quarter to quarter.

Turning to cash we ended the quarter with cash and cash equivalents of $91 5 million, including restricted cash.

Net cash provided by operating activities.

Was $9 5 million compared to $13 3 million in the second quarter of fiscal 2002.

Capital expenditures were $4 6 million in the quarter, resulting in free cash flow of $4 9 million.

As a reminder, we have also have an untapped $50 million line of credit that we signed earlier this year.

So overall, we had a good first half of fiscal 'twenty, three with strong revenue growth focused investments for future growth and significant momentum towards achieving non-GAAP profitability.

Let me Echo <unk> comments, we are keenly aware that we are addressing a big market and are strategically building our business for the long term.

We'll continue to invest optimizing our spend in the areas of greatest opportunity.

While working towards being non-GAAP profitable and cash flow positive next year.

And providing Q3 guidance and updating our full year outlook, we are taking a few factors into account.

First.

Longer sales cycles in Europe second a measured outlook for simple Nexus in light of the challenging mortgage market and finally, a 1% to 2% negative revenue impact from FX.

Set.

For the third quarter, we expect total revenues of $103 million to $104 million with subscription revenues of $87 million to $88 million.

This guidance assumes year over year subscription growth of 53% at the midpoint of the range with approximately 27% organic subscription growth for the third quarter.

non-GAAP operating loss is expected to be approximately negative 750.

To negative $1 $75 million.

And non-GAAP net loss attributable to <unk> per share to be negative two to negative <unk> <unk> per share for the third quarter.

This is based on a weighted average of approximately 111 million basic shares outstanding.

Turning to guidance for the full year, we are now increasing our revenue outlook.

For full fiscal year 2003, we now expect total revenues of $401 5 million to.

$403 5 million.

With subscription revenues up $341 5 million to.

The $343 $5 million. This full year guidance assumes year over year subscription revenue growth of 52% at the midpoint of our range with approximately 28% organic subscription growth.

We are also improving our non-GAAP operating loss guidance for fiscal 'twenty three to negative <unk> 12 to negative $14 million.

non-GAAP net loss attributable to <unk> per share is expected to be negative 17 to negative 19.

Based on a weighted average of approximately $110 5 million basic shares outstanding.

The second quarter was another strong one thanks to the hard work of the Encino team around the world.

Dedication to the success of our customers.

What makes casino is the global leader in cloud banking.

And with that we will now open the line for your questions.

As a reminder to ask a question you will need to press star one one on your telephone.

Please standby, while we compile the Q&A roster.

Our first question is from James Faucette with Morgan Stanley . Please proceed with your question.

Great. Thank you so much.

Really great performance here.

You mentioned, a little bit of slowing in early sales cycles and in Europe , and that you've taken that into account and the outlook for the second half of the year et cetera, but I'm wondering if you can talk to us about how we should expect those to progress our beyond just the delays are you seeing.

Reassessment of scope scale et cetera, and what's your sense as to actual timing to close.

And the like in that market.

Sure.

Yes, Thanks, a lot for the question.

We are fortunate to have a global footprint, including Japan, Asia Pacific, Australia, and New Zealand.

South Africa of course Europe .

Ireland, Canada, and the U S and what I've seen over the over the history of the company since 2017, when we ramp.

Expanded on a global basis is that these markets take a long time to develop there are macro influences, sometimes it just by country that the slower a more conservative but fortunately for us it's always that one market Pops ahead of another one et cetera. So.

On the other hand, we see a great opportunity with the ESG. So what we're doing is we've got the right team in place. There we are tracking the deals on a per country basis, but we clearly saw that there was less.

Of an aggression on adopting this in the short term and the long term those markets have no choice, but to actually move to cloud based flexible solutions. So we are maintaining our investment and I'm bullish on it but we just realized that in the short term there's macro influences.

Josh do you have anything to add.

No we've not seen a change.

In the <unk>.

<unk> of our customers that they need to continue to digitize and modernize that.

That commitment is very clear for us is lots of uncertainty and we see them.

Continuing to evaluate the timing of those investments.

Got it got it and I'm wondering if you can help us nuance a little bit what's happening with simple nexis, obviously really strong growth that they're seeing.

But at the same time, it sounds like you're a little bit.

Aware of obviously the way that the market is developing as you formulate your outlook and we have started to see headlines at least from some mortgage originators that they are planning to cut back heads et cetera. So how are you.

Thinking about like what's reasonable for simple nexis.

And what the work is that they need to do to kind of.

Assure that they do as well as they possibly can in the current environment.

We've included a very conservative.

Forecast for them and it's reflected in our guidance, but I would like to emphasize six competitive takeaways.

How many new logos 26, new logos, the past quarter realize even though they are cutting back hits in the hour.

Estimation. It typically is middle back office. When these mortgage volumes go down also remember that market is shifting to a purchase market versus a refi market and we are very strong in the purchase side. Then if you look at the competitive landscape and the financial strength of different companies. I think we are a standout there we can continue to invest in.

Thats why youre seeing a shift in market share to us.

So I'm very optimistic our technology is superior experience superior for the loan officer as well as the ecosystem around them.

This is purely a mortgage application.

We think we got this asset at the right time.

In difficult times like this is run good companies actually take market share and land logos that will expand rapidly when this market turns around.

Josh you want to add to that but you also have to think about the opportunity. We have to continue cross selling simple nexus into the bank customer base. We are proud of what we did this quarter.

And it is hard to drive as a proxy, but but I think you'd need to understand how we go to market. When you say, 119% year over year increase of bank operating system customers, who have adopted Nick that is.

There's a well defined cross selling motion and the team is executing well on that.

So when you look at it simple Nexus as we continue to bring these teams together.

We look to continue driving that cross sell further into the bank operating system customer base. We cross sold simply makes us into 30 plus billion dollar basis last quarter excuse me 30, plus billion dollars bank. This last quarter sophisticated institution, great validation point for us and we have a fantastic customer base that needs the software and James on the numbers for simple next.

On top of that we expect to also grow revenue sequentially in Q3, and Q4 from where they ended in the second quarter.

That's great nuances color gentlemen, thank you.

Thank you.

Our next question.

All right. Our next question is from the line of Brad Sills with both the Securities. Your line is open.

Wonderful thanks, Thanks, guys.

And congratulations on a nice quarter here in a tough environment.

My question is on civil Nexus, obviously, youre seeing traction here with cross sell into the base is there a point in which we might see.

This drive more new deals in retail now that you've got this more complete solution across mortgage credit card auto personal you've got the full suite now could this be.

<unk> simple nexus.

Starts to lend to new deals coming in in that.

In the retail segment.

Yes, and you saw our comments on the <unk> platform wins that we had with people who purchase commercial plus a retail solution absolutely think that these validation points of our single platform strategy are going to help us across the board I would hope it helps us with all of our solutions because as banks look to digitize. They just don't want more point.

So from our perspective, it's our job to tell that story, but I think you have to look at all of these is continuing to strengthen that strategic message yes.

Other thing I want to emphasize as I remember in the community bank space via sell a whole platform story and we can deploy that in one fell swoop. When you start going through very large banks top 25 et cetera, they buy more piecemeal because they cannot absorb the whole thing so.

So we would sell commercial we will sell small business you might selling through the mortgage division that gives us a foothold we get to the other senior people in the retail division and we sell retail products. Okay.

Done this across the base for a long time, we feel very good about that strategy and simple next is just one more arrow for us to get into retail again, if we don't get to know that people become influential and penetrate deeper.

So I feel very good about that penetration point great.

Great to hear guys. Thanks, Ed if I could ask one on the macro.

Called out earlier peer that.

Rising interest rate is a positive for banks, we all understand that but yet the risk of recession is coming in more in recessions, obviously not a positive for banks.

So in the U S. In particular, what are you hearing from CIO with regard to their willingness to take on these new digital transformation projects.

For for loan origination.

Thank you.

Yes.

Great for US is we actually sell through the business I just spent a day on Monday with.

The head of top 25 bank.

On the commercial side listen to their book of business. What has occurred quality out of they feel about it and just comes back from trips in the field and we talk to them all the time.

<unk> technology people, we do talk to them as Robert we talked to the headset business and begin to understand how do they manage credit what are they seeing.

The weakening of the book et cetera, and I can tell you.

Everyone says it must be the other guy because none have ever told me that their book is looking weekend. They are beginning to worry about it.

Which is to me extraordinary so our banks are moving full speed ahead on transformation they see it as a competitive advantage and they keep on spending we also saw a global survey around it spend for banks and for next year, it's growing up by 5%. So we believe the momentum will continue and with our reputation our installed base I feel good about it.

Great to hear thanks, so much.

Thank you please standby for our next question.

Our next question comes from the line of Terry Tillman with curious securities.

Hey, Pierre Josh and David Thanks for taking my questions.

David.

Perspective, and all the color, you're providing us really helpful, particularly even with that.

Simple nexus and giving us the update for the full year. So thanks for all the color and transparency. My first question was related to with like Nick and like Rabobank was that's the entry point you all expected to get in there I'm kind of curious about Nick in terms of the environment. We're in where people are trying to like control cost and efficiencies is Nick potentially kind of tip of the spear and.

Something that could actually even get you into some of the other kind of top 25 banks youre not into in the us and just a little bit more color on how you've got Nick in the door at Rabobank and then I had a follow up for David.

We're proud of that press release that was our entry point is the largest auto spreading deal that we've done in history. So I think.

Sometimes these things are viewed as as cross sales are up sells the fact that as an entry point.

We can execute really well there is something that we're quite excited about so Terry I would say, we should think about.

Continuing in this template and using these new solutions as an entry point.

Okay got it and I guess, David you know going into this quarter. I mean, you gave us the heads up we're going to have a tough comp for like <unk> and total RTL for 24 months and then total RPM because of the enterprise transaction last year, but you definitely were ahead of what I was expecting so it's good to see that but as we think about the second half of the year are there any.

Callouts in terms of like Anniversarying tough comps in the second half of the year and then also kind of.

Not trying to pin you down on <unk> guidance, given the puts and takes we have any more color you could share about how we should be thinking about our appeal in the second half. Thank you.

Yes for the second half our peer we don't guide to <unk> I think it's a metric that I think is important.

Issue with it is its lumpy from quarter to quarter as you saw last year, we closed wells in a couple of other large enterprise deals we had some FX impact as well that affected it.

And I think the thing to note with the current quarter second quarter is that we didn't have any big deals or any large renewals in the quarter that were longer duration.

I would expect to see kind of continued balanced renewals versus new bookings for the balance of the year.

That's that's the update on RPM.

Alright. Thanks.

Thank you please standby for our next question.

Our next question comes from the line of sockets Calia with Barclays. Your line is open.

Okay, Great Hey, guys. Thanks for taking my questions here.

Hey, maybe a question for Pierre and Josh to maybe tag team.

Just talk a little bit about just the broader retail opportunity the five platform customers Josh great to hear.

Zeroing in on retail specifically, there's been some some nice traction.

Hancock Whitney right.

It was a great win what are customers, saying broadly about their willingness to explore a replacement to that to that legacy retail solution with something like <unk>.

So look if you look at the Canadian retail by so let's make that anchor with news of $40 $36 billion Bank. So lets go up to that level.

There, we see some consolidation happening in the banking space and they need to saturday's on platform technologies.

And when you put two of those sized banks together they cannot continue on with point solutions sets not attached to the customer for 360, <unk> et cetera. So we see great traction on the platform story and banks up to that size. When you go above that you start selling more into certain divisions for certain product.

Types to solve a problem they've got today, that's why simple next important for US we get in there on the mortgage side. Okay. You didn't point since seller HELOC on each one into that market because thats, what somebody wants to automate and do it on a cell phone and so on.

We see good traction into.

Internationally, we also see good traction and interest on the retail side.

Back to the platform story, they want to see a consolidation of their customer records into their fulfillment supply chains.

And customers cannot run anymore be competitive one eight point solutions. So we are actually beginning to see traction on a wider basis with retail and.

And the investment to us is going to pay off.

Got it got it that's very helpful. David maybe for you maybe a metric that we haven't talked about as much but it was great to see was the subscription gross margin I think about $74 75%.

non-GAAP can you just talk about sort of whats helped with that expansion.

As we've looked over the last few quarters and how sustainable this level might be.

As we think about again that path to profitability for next year.

Yes. Thanks, Yeah, it's really from the product mix, we're selling more enterprise and international which has a higher margin than we see on the comedian regional side at the lower end of the market. We are able to sell salesforce at $5 billion and below our premium seat, which comes at a lower gross margin. So we're selling more enterprise and international we'd get the natural lift but then also.

You look at the Nic products those are based on AWS and those have a much higher gross margin. So the mix of that allows us to elevate the gross margins overtime.

And then in terms of outlook on gross margins I said, 74% to 75% range still holds true as you look out to build your model.

Very helpful guys. Thank you.

Thank you please standby for our next question.

Yes.

Our next question comes from the line of Brent <unk> with Piper Sandler Your line is open.

Okay.

Thank you good afternoon.

I wanted to basically drill down a little bit into the current environment for.

Pierre and Josh.

Clearly understand.

Larger deals will take longer given just the complexity out there in the space, but a little surprised to see the momentum around simple in excess of the number of competitive takeaways momentum around Nick.

Obviously, we know labor costs.

<unk> are going up here in a meaningful way I think of 40% or 40 year high and growth in labor costs.

Much is automation and software automation, helping you win some business is that resonating with end users love to get your view on kind of what is resonating across either Nick simple nexis.

At a high level is automation and the benefits of the platform. The reason why youre, winning here or not love to drill down a little bit into that thanks.

So let me take the automation and intelligence first and then Josh will take some <unk> for you okay.

The first thing we have to remember.

What are you using a bank AI and machine learning analytics et cetera, unless you have a platform to deliver the insights of the people on the frontline and thats been the age old problem. The people on the 36th floor of a bandwidth with all the people around them with all the answers, but you have to get that out to 24000 people working in your branches etcetera.

So what we've.

Established as a workflow platform that everybody touches from the moment they step into the offers that morning, whether that'd be at home or.

In the office until they leave for the day.

And so now everybody works in exactly the same system all the way from the first touch point with the customer through the loan origination or account opening.

The underwriting the closing et cetera, since you've got everybody in the same system you can start developing systems like an integrated commercial pricing and profitability system that now gives you an experienced into and think it would be influenced by anyone on the line.

Because you have to think of this as a production line okay.

And then you start with unique products and you've become a lot more sticky and more differentiating as you go forward and that's why we have the market share we've got and we continue to penetrate these markets overseas. So they can see that our vision and execution is aligned and they actually see the outcomes with banks is using encino can you imagine competing with a bank in the territory.

If you don't have encino.

These automated processes so.

That's how we've driven this so nick becomes a penetration point as well as a differentiating point when we sell to.

The platform.

Jos can now comment a bit on simple Nexus I will add one more point on the automation aspect when change I've seen.

<unk> seen in the last 12 months or so as I've talked to business leaders is that this talent market is causing them to think about software investments not just how do I run my organization more efficiently, but how do I actually compete for talent, so something like spreading that takes 85% of the effort out of taking an unstructured financial statement or a tax return and getting that into a spread.

Tool helps them compete for the best talent out of University, and it's been really fascinating to see how how that message continues to resonate on simple nexus.

I will say is there is strength in the purchase market, particularly as they digitize that home buying journey and the MBA outlook for sustained interest in the purchase market is something that differentiates them. The refi shops are having a hard time, but if you do a lot of purchase.

There is no one better than simple nexus. The other thing I think that I've seen from engaging with that market is that you have a lot of business leaders in the mortgage space today as you've seen this before and they understand that facing a competitive market facing market challenges is the time to actually invest not to cut back. So we do believe that's driving a lot of their continued momentum when you look at.

The number of new logos added this quarter it feels that they are leaning into the opportunity to differentiate in a tough market yes.

Yes, we also see with banks.

Banks.

Tends to be a bit more stable and with our focus on banking, bringing that solution over two banks in the purchase market.

Feel pretty optimistic about that business.

That's very helpful color there I guess last follow up here for David I agree not to.

Take a look at that guide on NIM.

Nearing the operating loss here in the second half of the year is that tied to a slowdown in hiring or is that tied to just greater leverage do you think about that momentum of the business trying to think through the levers and how youre narrowing losses here in the second half of the year. Thanks.

Yes. So it was really in the second quarter, we paused hiring and then we reevaluated with the entire team around the head count adds for the amounts of the year. So it really is around optimizing each and every team and increasing productivity.

Good to hear thank you.

Thank you and as a reminder to ask a question you will need to press star one one on your telephone.

Please standby. Our next question comes from the line of Brian Peterson with Raymond James Your line is open.

Hi, gentlemen, thanks for taking the question. So David one for you so I am coming up with a 19% implied organic growth outlook for subscription revenue for the fourth quarter.

All lines you guys are guiding next year at this point, but is that something that investors should use maybe is a reasonable starting point for next year. I know there is some potentially larger seat ramp deals that are coming in but any context that you could add there would be helpful.

Yes, that's not we guided for the year at 28%.

And 27% for Q3.

So.

That 2019% is <unk>.

Correct.

And it should be you can I mean, it's higher than that and you should run the numbers. It's just solve for Q4 and it will end up being in the 27% to 28% range, 19% is <unk>.

Correct.

And it should be you can I mean, it's higher than that and you should run the numbers. It's just solve for Q4 and it will end up being in the 27% to 28% range for Q4 I believe.

Understood I apologize about that.

Messed up the M&A by asking one on some of the sales cycles are kind of following up on some of those questions. I mean is that really differentiated by the size of any of your customers I guess looking to double click on that a little bit.

And as we think about maybe the linearity of some of the slowdown that you guys have mentioned did that change throughout the quarter, but would.

Love to get some perspective there.

I would say the macroeconomic sentiment is pretty standard across the customer base. The difference that would give you is when you look outside of the U S. You have just a more enterprise heavy market. They just don't they don't have as many small institutions as we do here at <unk>.

The only difference I would see but that's more of a market competition question not really a sentiment question, yes, and then on the quarter you talk about linearity in the quarter I would say linearity as normal I think we had some deals.

Early in the quarter that were closed early than we expected in may which part of the reason why we saw upside in subscription revenue. So linearity was was more normal, but I would say heavier weighted to the balance to the beginning of the quarter.

Understood. Thanks, gentlemen.

Okay.

Thank you.

Please standby for our next question. Our next question comes from the line of Robert Napoli with William Blair. Your line is open.

Thank you Lynn and good afternoon.

Yes.

Hi, Nick.

I guess anything you can give on the sizing of Nick or gross margins.

Which products I mean, not as spending obviously is on fire, but how is that loan pricing those portfolio analytics is that is that it's becoming more important.

Yes.

Get them, mostly to adopt all of those pricing and profitability. We included in our notes here, we saw momentum in a in a $7 billion bank signing a $2 billion bank, signing and I frankly pleased with the upmarket momentum that we have in the way that's being received both in the U S and internationally. So we feel like we have good proof points the products coming along.

We're going to continue trying to drive that into the customer base, because they will need it.

And Bob did you have a question on growth. The first part of your question Didnt come through did you have another question.

Yes, David if any if you could give any color on the sizing of.

Nick today, given the growth that has gross.

Gross margins I mean, your gross margin momentum has been pretty impressive and I guess as Nick contributing today.

Yes. So in terms of total revenues sits about 5% and remember we added simple Nexus, which is about 15% of revenue so that percentage has come down.

<unk>.

The gross margin side, we do use AWS. So I would view those gross margins similar to what you see with other SaaS companies.

That range.

Okay, and then last quarter, you had announced that you added a trillion dollars bank I think in the U K.

<unk>.

Are there elongated onboarding cycles, as well and in that market.

And I think that was commercial.

Commercial and auto spreading.

When does that customer onboard.

And we're not seeing an impact project duration I think we've seen the industry has figured out how to.

Work, either remotely or hybrid I want to point that we gained from our press releases <unk> that was.

A program that we kind of kicked off right in the teeth of Covid and they're live with this.

And they are out there publicly with us so no impact on that program timeline relative to Onboarding. This in line with our typical expectations for a program at that site.

It's a normal enterprise type seat activation schedule that you would see with that as well.

Okay.

I appreciate it.

Thank you.

Please standby for your next question.

And our next question comes from the line of Fred Meyer.

<unk> with Macquarie. Your line is open.

Hey, Thank you very much for the question here and congratulations on a strong quarter, despite the macro environment.

Really great to see the narrowing in the non-GAAP operating loss guidance for the year I wanted to ask about just generally how rather it's a little bit of additional context in what you're describing in terms of doing more with your existing head count in terms of the R&D initiatives are you just finding that.

Head count that you have in place are sufficient for the product innovation and your product roadmap that you have or have you decided.

Any changes here.

So product delivery.

Yes, so if you look at the breadth of the portfolio.

We used to be mostly commercial a little bit of a small business. When you started building. These different teams out commercial lending small business lending retail lending deposit account opening treasury management on boarding okay.

And then you add simple accessing.

And then we started adding customer facing technologies for each of those solutions, we have to both a foundational infrastructure. In place then you go to international Lenovo Southern London team to put in place for integrations et cetera, We acquired a company in Australia.

<unk> became the auto spreading thing.

If you put that whole footprint in place and you onboard.

The 100 to 200 people per year like that it takes a lot of management time as well as effort by the teams to bring them in.

We're very fortunate we always had a fairly much lower than the industry churn rate of people or turnover rate.

So what we recognized is.

The percentage of revenue that would be spent on R&D was always to this quite high with 27% I believe a month.

That if we stabilize at the organization keep the head count more fed would actually still adding.

A much slower growth rate, we have all of these teams populated and let them focus on bringing out new products through quality improvements et cetera that stabilization effect could have quite a big boost to productivity and focusing on processes and optimization of software development and time to value.

While we actually write code and get a quicker through the customer those units. It's a great little breather for a company like US is for 10 years. This window go grow and add more hits, Okay. I would say that if you look at companies like us.

The answer later on becomes an even more ahead.

But I am satisfied that each of these teams are populated to the extent needed for their solutions.

Well, it's a big congrats to the team that had been the auto spreading oes always impressed with what I see that I wanted to also ask about <unk>.

Generally your channel ecosystem and how that is also shaping up as you are continuing to scale as you're going more globally.

And just generally how do you see the maturity of your channel ecosystem and global systems integrators shaping up around <unk> and how do you think that could impact professional services exit your total revenue over time. Thank you.

Yes, and I appreciate you calling that out because we do believe that's a differentiator for us and has allowed us to execute as we've executed this global strategy and we see about 2800 partner practitioners to date that are certified to implement and seen a lot of that increase since we last spoke was driven by international interest, which is a great thing.

We're proud of.

The earlier question about you sign a large account in the UK or the implementing well, it's because we have that partner ecosystem and a proven model from our perspective that is that is going to continue to be how we go to market globally and how we can put a reputation behind these strategic accounts and I'll, let David to speak to the revenue side of that on the revenue side for.

Total services.

15% is kind of what we see for the year.

The partner channel they deploy the majority of our if not all of our large solutions and so they have their own revenue stream for that but we would expect as we continue to expand onshore onto the continent in Europe that those partners will be get up trained and running in deploying the solutions on the continent as well as we've seen with the initial.

Projects that we have.

There is a demand for our services because we have the specialists.

And I don't have a problem coexisting in the ecosystem with services between 15% to 20% of total revenue but.

We are very careful to complement the <unk> partnerships and compete with them, but sometimes customers ask for our people because it's closely related to the engineering teams et cetera.

So it's a nice equilibrium, but will continue to grow services as well.

Great. Thank you very much.

Thank you. Please standby for your next question.

And our next question comes from the line of Joe <unk> with Baird. Your line is open.

Hi, Greg Hi, everyone I wanted to go back to the hiring topic that you touched on it a little bit of your answers.

One.

Thought is maybe recalibrating new trajectory of demand.

Unable or moderation in hiring but productivity has come up a few times.

In this discussion so are you seeing something from an efficiency standpoint, where you actually feel a certain rate of growth Canadian sustained at this point and a different head count gets you there.

So our priorities for growth is as follows.

What actually head count the very first thing we do every year when we start to plan to make sure. We've got enough salespeople back carrying salespeople on the field to cover the quota.

The sales goes for that year, and so that is noticed friction on that Steve. Just tells me the pipeline supports a certain amount of sales we will make sure that we've got that team on the field to accomplish yet so thats. Your very first thing. The second one then is to complement that with a support team to support the existing customers and the <unk>.

Personal services team to implement those three things go lock step and we don't cut back on them. We don't hold back we plan that first once that's in place.

Look at PD.

<unk> core product and then finally, a G&A because we're a large global organization. We have complex tax structures, we have people to support the accounting finance entity involvement or entity creation, okay. As we go around the globe.

All of those infrastructures are in place because we always had a plan to build this global company. So I feel we're going to get leverage on the G&A side.

We're getting leverage on our global infrastructure, because they've been in place. The management structure is in place and the people you have now is more from a capacity standpoint to maintain the growth rates, okay and as I explained before the product organization has got all the necessary.

Teams as well as structures in place to continue building out each of our portfolio elements.

So I think we're just reaching a level of maturity, where you can scale and drive growth without having to add overhead.

Okay.

Lot of.

But maybe.

A lot of money.

I'll work on that.

On the international side of things.

Revenues I think they're out of ground and close to 60% in the last few quarters, where did that stand in the second quarter and.

Might you be thinking about international growth, just given we seem to be having this divergence between APAC and Europe .

Yes International growth in total grew at 30%, 38%. The majority of the growth, though is coming on the subscription side, we have seen a slowdown in the services growth because we are pushing more.

More of our projects to our partners.

And then also FX, we had a big FX hit in the quarter.

On the international side, which I believe.

Currency was at 52%.

Okay. Thank you very much.

Thank you please standby for our next question.

And our next question comes from the line of Charles <unk> with Stephens. Your line is open.

We are really proud to do both of those press releases not only on the broad commercial deal, but also expansion into small business I won't comment on the details of their program, but theres been no change in the landscape there.

And the CIA.

John .

Hey, Charles on the seed Activations, we've talked about that in the past, it's a normal larger deal probably a little longer in duration to activate those seats.

So those are ongoing those are all contracted by date.

And so no update there either.

Got it and if I go back to the conference in the body in the spring I thought the commercial pricing and profitability tool was one of the more interesting.

Product product show, so I was hoping to get an update on that and any traction youre getting on that thought and reception you're getting from your customer base.

And you were a little bit broken just to read that back youre asking for an update on how pricing profitability is progressing.

Yes, that's right I apologize.

So we commented we brought on a $7 billion bank of $2 billion Bank. We're also really proud to do a press release within Dkc, who went live.

Great replacement sale and we're proud to have them live we continue to take that to market in the accounts that we can serve.

And within the customer base.

And I'm quite excited by the momentum in accounts of the size that I referenced and also in some of our larger accounts both in the U S and globally.

I will tell you what surprised me about that product is because I thought we will focus for an extended period on the community regional space and then eventually get to the enterprise.

And we are beginning to see serious interest in the enterprise versus even internationally.

It tells me that the integrated experience that we've built and the complexity of the models. We included there as well as the flexibility is actually resonating and so on.

I'm very positive around how that product is coming about and the proof points. We are seeing from these customers evaluating it.

I feel very good about what we've done there so much of the initial value prop with those customers was the opportunity to connect the front middle back office into into one platform. When you look at the way we price. These loans are so central to the connection of the front office and the risk function at the institution and the overall profitability that message has really resonated nicely.

Yes, My view is Indiana every commercial customer.

I think profitability and should get automated spreading from us.

Nic solutions rolled out so there's a significant upside penetrating the existing base.

Thank you I appreciate the color.

Okay.

Thank you.

Please standby for your next question.

Our next question comes from the line of Ken <unk> with Autonomous Research. Your line is open.

Hi, everyone. Good afternoon, and thanks for taking the questions.

Wanted to ask you about.

The ability to pass on higher expenses and higher inflation that we're seeing in today's environment and my understanding is that <unk>.

The contracts don't have annual inflation escalators. So can you just talk about your.

Your interest and your ability to add those into your contracts or is the plan to kind of wait until the end of the contract to put through some of that pricing. Thank you.

Yes, so when we sell a deal we have whether its a three to five or five plus year deal. We have an activation schedule built into that for customers as we deploy the product by.

By contract we are allowed to increase pricing upon renewal, where we normally try to do though is go in and sell them additional products or lines of business or additional seats.

To expand the relationship with the customer and the idea is to get grab as many seats as possible at the customer and then in the future you would have the ability to raise prices, but our idea now is to grab as much share as we can.

And then.

Hopefully as we service our customers and make them happy we have the ability to maintain them as customers and increased prices at inflation or whatever the number is in the future.

Okay that makes a lot of sense David.

And just as my follow up I wanted to ask a simple Nexus I think you mentioned the new logos the competitive takeaways.

Talk about what youre seeing across your customer base and I guess the industry more broadly from a C and employment perspective, I mean are you seen layoffs or are you seeing seek growth at your existing customers. Thank you.

We hear some of that but historically, what youll see is into into a challenging market. The mortgage industry will look to cut the middle and back office first because those are salary employees. They want to keep their good loan officers because theyre more commission based and they drive that revenue. So I think David spoke about some of our moderated approach to ensuring.

That were suffering for some churn there.

But no change to that David even elaborate.

No no I think you summarized it well.

Okay. Thank you.

And just a friendly reminder to ask a question you will need to press star one one please.

Please standby for your next question.

Our next question comes from the line of Maddie Schrage with Keybanc capital markets. Your line is open.

Hey, guys congrats on the quarter and thanks for taking my question.

My first question for you guys I'm wondering if you could provide some color on the competitive landscape.

Im wondering if youre seeing any changes in pricing.

Mainly from your competitors.

Internationally, if there is any new entrants.

Yes.

So if you look at our competitors you have to look at it.

No.

For the life of me why do you want to do it but every now and then Youll see a bank of the enterprise or even the international space to try and do that.

<unk> is a platform provider, we see more active in Europe , where people may contemplate that.

So the landscape since we went public essent really changed on that front.

When you look at.

The mortgage markets.

As a matter of fact that landscape has changed.

Some of your competitors are public companies you can clearly see that their business models are different than ours and the resultant.

The outcomes of that so we see that as a big opportunity for us to be more aggressive and grab logos and do a land grab.

In that space.

So in the consolidation of that market is going to help us as well because we had a very stable financial company with gross aspirations and reinvesting in our products.

So I feel optimistic that in turbulent times companies like us with a very stable management team and a strategy that's been proven over time will actually expand and take market share.

Awesome and then just a follow up for you guys.

Have you guys been reevaluating your M&A standpoint, with great backgrounds.

Macro uncertainty.

Alright.

This.

Sunrise assets out there and obviously prices came down but right now we're focused on execution.

Our customers are looking at us critically to see that we focus on their needs and the integration of simple access.

As you could see from the appointment of Matt and Ben and integration into my executive team.

Those two teams are coming together very well.

We had a whole team of simple access people today here at the office.

Training on cross selling and cross pollination of people and I can tell you the excitement in the room is infectious.

We're focused on execution.

Through the rest of the year as always beaten raise make our numbers and then we'll evaluate as the market develops.

Thank you all and appreciate it.

I am showing no further questions at this time I would now like to turn the conference back to Peter <unk> for closing remarks.

Thank you operator, and thank you all again for joining US today, we look forward to talking with you next quarter and seeing many of you at upcoming can see many of you at upcoming calls.

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

Q2 2023 nCino Inc Earnings Call

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