Q3 2023 nCino Inc Earnings Call

November 30, 2022

Thank you for standing by and welcome to <unk> third quarter fiscal year 2023 financial results Conference call. At this time all participants are in 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.

As a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Ericsson Masters Investor Relations. Please go ahead Sir.

Good afternoon, and welcome to <unk> third quarter fiscal 2023 earnings call with me on today's call RP Arnaud de <unk>, 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 the anticipated performance of our business, including without limitation, the acquisition and integration of semiconductors.

These forward looking statements are based on management's current views and expectations until certain assumptions made as of today's date and are subject to various risks and uncertainties described in our SEC filings and other publicly available documents.

The financial services industry, and global economic conditions, and <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 are.

A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to the form 8-K furnished with the SEC just before this call.

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

Thanks, Allison and thank you all for joining us today.

Im extremely proud of our team's execution in the third quarter as we once again exceeded our top and bottom line expectations.

We generated $105 3 million in total revenues, including sample access a 50% increase over the third quarter of fiscal 'twenty two.

Subscription revenues were $88 $3 million an increase.

<unk> of 55% year over here.

Excluding sample access subscription revenues grew 28% organically this.

This quarter marked our first quarter with over $100 million in total revenues and also our first profitable quarter on a non-GAAP operating income basis.

For the past two earnings calls, we have emphasized our commitment to profitability in fiscal 'twenty four.

And I am very happy with the progress we have made to date, we plan to significantly increase our non-GAAP operating income next year and I will touch upon that shortly.

On the customer front, we were pleased to issue a press release shortly before this call announcing that the bank of New Zealand has selected the Encino Bank operating system as a foundational technology platform.

Making the bank of New Zealand, one of our largest customers globally.

With over $55 billion in assets.

<unk> Zealand is one of the country's largest financial institutions, we couldnt be prouder to be in business with them and greatly appreciate the opportunity to showcase the value our solutions can bring to financial institutions around the globe.

I'm also pleased that following the announcement last month of a successful go live with <unk> Bank in Tokyo.

We have two additional go lives in Japan in the quarter, including NBC Trust Bank.

We are excited to see good momentum and traction in the market, representing an estimated $1 billion opportunity.

Among numerous other go lives in the third quarter, our first customer in Germany is now live.

Hamburg commercial bank or each crop was recently recognized by euromoney as the world's best Bank transformation for 2022.

We are honored to be their partner as they continue optimizing systems and processes to maintain their market leadership position.

As I've mentioned before getting customers live and rest of the book is what we truly celebrate at Encino and this is of particular importance in our newer markets.

I also would like to highlight the performance of simple Lexus business, which had another strong quarter under difficult market conditions.

Simple access grew total revenues, 38% organically year over year and at six competitive takeaways and five cross sells to encino customers.

Despite the current headwinds in the U S mortgage market, we believe the quality of this business, including its people technology and recruiting recurring subscription based revenue model positions us to continue to take market share and emerge on the other side of this the rising interest rate environment as the clear leader in there.

This space.

Obviously, the macro environment remains top of mind.

We have spoken with numerous customers and prospects about market conditions and their feedback has generally been positive with banks and credit unions sharing that they are well capitalized realizing improved net interest margins and a credit risks are in check.

This bodes well for encino over the long term.

Financial institutions to remain focused on the need to digitally transform in order to be competitive and to better serve their clients and as a result, our sales pipeline remains healthy and continues to grow nicely.

That said, we are not tone deaf to external conditions and the bottomline expectations of the market, which have changed materially over the past year.

Against the backdrop of macroeconomic and geopolitical uncertainty.

We are seeing a more measured buying environment and increased executive scrutiny on purchasing decisions.

<unk> in Europe , which extend sales cycles and the time required to close deals.

Additionally, FX headwinds and a challenging U S mortgage market persisted through the third quarter.

So what does this mean for our business well, we actually view this more challenging macro environment as an opportunity to aggressively evolve from a best in class growth SaaS company into a best in class.

Developed growth SaaS company.

With the investments we have already made in sales products customer support professional services and geographies.

We're very well positioned to grow market share and continue leading the digital transformation of financial institutions around the world.

On the bottom line you have seen a significant improvement in the outperformance during the course of this fiscal year and we expect that trend to continue next year and beyond as we further optimize our cost structure and drive more meaningful leverage on the expense side of the P&L.

We have been able to accomplish this improved bottom line performance without changing our strategy or investment priorities, but instead through a more conservative approach to managing head count and disciplined investment decision, making with an even more lenders focus on Ottawa.

We have also been able to realize cost synergies from the simple Nexus acquisition as the two businesses work more closely together and our integration activities accelerate.

On the top line the fourth quarter as typically being our strongest sales period and we still have two months left in the fiscal year. So we will wait until our Q4 earnings call to provide specific financial guidance for fiscal 'twenty four.

However, we think it is important in uncertain times to provide even greater visibility into our current thinking is.

As we factor in the impact of the three headwinds I mentioned earlier and.

And the overall macro environment. We are currently planning for Encino to be a rule of 30 company next fiscal year.

With a mix between total revenue growth.

non-GAAP operating income margin trending towards 20% and 10% respectively.

We will accomplish this without changing our investment priorities, which remain making sure we have the right sales coverage for our addressable markets.

Our support and professional services organizations provide the best customer experience in the industry.

And that we continue investing in our product portfolio to extend our track record of innovation.

With that I'll turn the call over to Josh.

Go through more business highlights from the quarter Josh.

Thanks, Pierre the mechanism and when was certainly a highlight of our continued success in Asia Pac. We're pleased this quarter to also add a new logo in Australia with the government sponsored lender and an expansion deal with Air New Zealand bank for commercial pricing and profitability.

The ability of our niche products to embed intelligence insight and data into the bank operating system is a huge differentiator or Nick offerings are resonating with our customer base and are now a standard part of prospecting and expansion conversation.

Also in the quarter, we signed an expansion deal for a new line of business with the Big four U K bank again, demonstrating our success in adding value across business lines within our customer base that customer's initial contract.

We signed in the first quarter of fiscal 'twenty three so we expanded to a second business line in less than nine months.

We also closed several solid multi product commitments with new customers and the community and regional market. This quarter. A few examples include our single platform vision resonating with a $14 billion bank in Oklahoma.

Selected encino for both commercial and retail lending in agricultural lenders selecting us for our commercial and retail lending deposit account opening and treasury sales and Onboarding, which will provide a true 360 degree view of their customer relationships and a $3 billion bank in Virginia, embracing Nick with their initial encino contract.

So I think it's for commercial lending pricing and profitability and automated spreading which will enable their commercial lending employees to compete with the largest financial institutions. We also had significant expansion deals with existing customers and the Camino regional market.

Leading a $7 billion of Colorado bank expanding their use of encino from.

<unk> lending to add deposit account opening and treasury sales and Onboarding and a $7 billion bank in Hawaii, adding retail lending and deposit account opening.

Another highlight of the third quarter was our portfolio analytics team signing the biggest deal in the history of that business with the addition of one of the largest credit unions in the world is alone analytics customer.

As Pierre mentioned go lives are key measures of success here and Sienna and this quarter marked a record for successful implementations antibody a significant contribution from the portfolio analytics team as a seasonal adoption deadline approaches our first commercial lending customer in Germany.

Our business banking customer in Canada, Japanese market early adopters and a retail lending customer in the U S regional market, where all beneficiaries that focused efforts from <unk> professional services team and certified system integration partners.

As always I'm deeply appreciative of the trust, our customers and partners place in Athena and I am proud of the team's commitment energy and resolve as we continue to tell the story globally.

David can you take us through the numbers.

Thank you Josh and thanks, everyone for joining us this afternoon to review our third quarter fiscal 'twenty three financial results. Please note that all numbers referenced in my remarks are on a non-GAAP basis, unless otherwise stated.

A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to our form 8-K furnished with the SEC just before this call.

We again delivered strong results for the third fiscal quarter total revenues were $105 3 million, an increase of 50% year over year, including a negative $2 3 million impact from FX.

Subscription revenues for the third quarter were $88 3 million, an increase of 55% year over year.

Representing 84% of total revenues.

Organic subscription revenues were $72 9 million, representing 28% year over year growth.

Professional services revenues were $17 million in the quarter, representing 31% year over year.

Professional services revenues included approximately $1 5 million of simple Nexus services and other revenues.

Non U S revenues were $15 9 million or 15% of total revenues in the third quarter up 36% year over year or 55% growth in constant currency.

non-GAAP gross profit for the third quarter of fiscal 'twenty, three was $68 6 million, an increase of 54% year over year.

non-GAAP gross margin was 65% compared to 64% in the third quarter of fiscal 2002.

Our gross margins again improved due to subscription product mix as enterprise and international customers comprise more of our revenues as well as the impact from subscription revenues being a larger contributor to total revenues.

non-GAAP operating income for the third quarter of fiscal 'twenty, three was $2 5 million.

With a $3 $2 million loss in the third quarter of fiscal 2002.

Our non-GAAP operating margin for the third quarter was positive 2%.

Compared with negative 4% in the third quarter of fiscal 'twenty two.

As Pierre mentioned this profitability was achieved through a more conservative approach to managing headcount, particularly in R&D and G&A.

As well as savings in insurance and synergies from the simple Nexus acquisition.

non-GAAP net loss attributable to Encino for the third quarter of fiscal 'twenty three was negative $1 4 million.

Or negative <unk> <unk> per share compared to negative $3 7 million or negative <unk> <unk> per share in the third quarter of fiscal 'twenty two.

Our remaining performance obligation or <unk> increased to $919 2 million as of October 31, 2022.

Up 28% over $717 7 million as of October 31, 2021 with.

With $603 9 million and less than 24 months category up 43%.

From $420 9 million as of October 31, 2021.

New and expansion sales contributed more to the sequential increase in <unk> than renewals this quarter.

Turning to cash.

We ended the quarter with cash and cash equivalents of $111 8 million, including restricted cash.

Net cash used in operating activities was negative $4 1 million.

<unk> to negative $19 1 million in the third quarter of fiscal 'twenty two.

Capital expenditures were $4 6 million in the quarter, resulting in free cash flow of negative $8 7 million for the third quarter of fiscal 'twenty three.

During the quarter, we drew down approximately $30 million on our line of credit as the fourth quarter is a seasonally slower period for customer collections.

And providing Q4 guidance and updating our full year outlook, we are taking a few factors into account.

First <unk>.

<unk> sales cycles, particularly in Europe second the state of the mortgage market, including elevated churn in the <unk> space and simple Nexus and finally <unk>.

2% to 3% negative revenue impact from FX.

For the fourth quarter, we expect total revenues of $104 million to $105 million.

With subscription revenues of 90 million to $91 million.

This guidance assumes year over year subscription growth of 44% at the midpoint of our range with approximate 28% organic subscription growth for the fourth quarter.

As a reminder, the fourth quarter is typically seasonally slower for professional services revenues.

non-GAAP operating loss is expected to be approximately negative $3 million to negative $4 million.

And non-GAAP net loss attributable to <unk> per share to be negative <unk> to negative <unk> <unk>.

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

Note that we expect our non-GAAP operating loss in Q4 to be impacted by elevated payroll taxes professional services fees and additional investments in marketing technology and automation.

For fiscal 'twenty, three we expect total revenues of 403 million to $404 million.

With subscription revenues of 342 million to $343 million.

This full year guidance assumes a year over year subscription growth of <unk>.

82% at the midpoint of our range with approximately 28% organic subscription growth.

For simple Nexus, we now expect full year subscription revenues of approximately $59 million.

Versus the $60 million, we previously expected for the year.

We are improving our non-GAAP operating loss guidance for fiscal 'twenty, three to negative 7% to negative $8 million.

non-GAAP net loss attributable to <unk> per share is expected to be negative <unk> to negative <unk> 17 per share based on a weighted average of approximately $110 5 million shares outstanding.

We are proud of the financial milestones, we achieved in the third quarter and remain focused on serving our customers and continuing to improve profitability.

With that we will open the line for questions.

Ladies and gentlemen, if you have a question at this time. Please press star one one on your telephone one woman that we compile our roster one moment.

And our first question.

Comes from the line of Terry Tillman from Securities. Your question. Please.

Yes, thanks for taking my questions, Hi, PR, Josh and David.

Question, one might be a multipart question, so technically that could almost be three questions, but it's good to see the profitability in the quarter at the operating line operating profit line.

The first question that might be kind of two fold question. Two part is David on the $603 9 million.

For the current or 24 months RPM can you kind of Doubleclick in terms of the organic growth and then the second part of this question is.

The simple Nexus run rate, how do you think about that going into next year, given the independent mortgage brokers and the headwind there and then I had a follow up.

Yes on the <unk> side organically.

<unk> grew total RPM by 18% and less than 24 months at 28% and the long term at 4%.

And then on simple Nexus run rate, we took our guidance down for a simple mix of subscription revenues of $60 million of $59 million. So we expect to see a slight decline sequentially into Q4 for subscription revenues from Central Texas I think it's too early to look at next year, given what we're seeing in the mortgage market is quite volatile right now and so we are in.

Current currently in the planning stage and we will update you on <unk> numbers for next year.

When we report numbers for Q4.

Understood and just a follow up question on offices.

As for but Pierre really appreciate the some of the perspective for next year and you typically don't guide, but those are some good kind of guard rails for us I think the 20% growth in potentially 10% EBIT margin.

Are any of those kind of run rate dynamics or is that actually kind of like that would be like for FY 'twenty four and is it assuming that maybe.

You just.

Seasonally strong <unk> bookings is just it just doesn't play out like you typically would expect thank you.

Thanks Terry.

Got it.

It's very early and we're in the planning stages.

Yeah.

We look at.

Simple access in Europe , and those two combined make up 50% of your Sam.

Half of your market.

It's got serious headwinds and you've got the FX on top of that.

You have to look at what that macro environment impact will be.

50% of your Sam is impacted as I mentioned.

Our view was we're still in the planning stages.

Not finalized our plans the fourth quarter looks great.

Our pipelines are healthy so the demand for the product I said deals are not going away, but they are just slower to close.

We don't see a slowdown in the U S. But we are picking up a sentiment of caution.

Which is different than.

And then Europe , where we clearly see slower decision, making and just like a mortgage.

You take all of that mixed bag and you put it in there and we decided at this stage wise too.

Any indication to our investors.

King about next year, but it's early stages and planning.

Understood. Thank you and good luck.

Thank you.

Thank you one moment, Sir our next question.

And our next question comes from the line of Brent <unk> from Piper Sandler Your question. Please.

Thank you good afternoon.

Despite the challenging macro here it looks like organic CPR growth actually ticked up this quarter.

Your Q4 guide here implies subscription growth organically will remain I think for the fourth consecutive quarter in this 28% range. So my question here is what is resonating.

Here any sort of color commentary on what's resonating just given the consistency that we're seeing in subscription growth and a slight uptick in CRT L.

Yes.

In general Brian Thanks, Alex for your question.

The platform approach that we take in digital transformation in general are compelling value propositions.

And it's very interesting the drivers of digital transformation very slightly as you go around the world market.

And before when you look at Japan, there's an aging population and the reduction in the workforce.

As a massive issue for that economy.

Come down to Australia, and New Zealand, as well or for modernization profitability drive.

You go to Europe .

Driven by compliance regulation et cetera, and visibility into their lending practices as well as ESG you come to the U S and its profitability market share drivers efficiency cost reductions and compliance.

It varies the emphasis is slightly different in different places, but digital transformations yet to state.

Banks no it does.

Susan anymore, it's actually an impediment and then some of our leaders and somewhat Lagos.

But thats, what we are seeing in the market in general so the trend for us for the long term future is fantastic and I see it in the pipelines I just think we have to get through this slide sentiment of uncertainty.

As we get through the economic turmoil.

And then David just a quick follow up here as you think about kind of 20% growth next year, 10% EBIT margins.

To the extent that debt.

Business, maybe starts to pick up would you look to invest towards the back half of the year in hiring capacity for the following year or how are you kind of thinking about the.

Balancing kind of growth and profitability going forward.

There are a number of priority is growth.

We're committed to that rule, a third 30 model.

Because we're just starting planning now we've got an important Q4 in front of US. So it's early in the process, but we.

We are looking to make.

Investments as the market improves.

If the mortgage market improves if FX turns that could change that but for.

For now we're planning on 20% revenue growth and that would be 20% subscription, 20% total and targeting that 10% margin target for the year.

Makes sense and certainly encouraging to see the progress this quarter. Thank you.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Brad Sills from Bank of America. Your question. Please.

Hi, This is Carly on for Brian just wanted to ask a follow up on the macro I guess its Scott.

<unk> expansion momentum remained strong but just curious.

In the U S. I guess in particular, what I, what do you think carrying from your conversations with the CIO John with regard to their willingness to take on the new digital transformation projects for loan origination our origination for the.

The upcoming quarter and so on.

The upcoming 2023.

Yes in the U S as I mentioned.

We still see strong demand we see good pick up you have to divide the U S in two segments.

There is a community.

We've had a little hangover from Covid.

Because they were busy with triple P.

Plus coming back to the office et cetera, we.

We see some nice progression on that front in that market.

Well for us on the enterprise side, it's more of a.

A lumpy market because it's big deals when they come so often but if you look at overall.

Spend in the budgets, we've heard so far it looks very positive.

However, as I mentioned earlier, there is a slide sentiment of caution creeping in where people just take a little bit longer to make a decision or scrutinize it little bit depot.

But we feel very good about the direction of the business.

Also firmly believes in times like this that healthy companies.

A benefit of being able to show that it can be profitable and growing.

We can keep our investment levels high on product as well as our sales and marketing and as such.

We are keeping our coverage of our Sam on a global basis in place and as soon as these markets turn.

And that will be the brand that is known for their customer service for the quality of innovation as well as market coverage.

And that's how we plan to proceed.

Yes. Thank you for that very helpful. I guess, just a follow up on the non U S performance.

I guess it's.

It's very positive to see that you guys blended.

<unk> with bank of New Zealand and outside U K expansion.

It seems impressive but what are some other I guess outperformance.

In Europe , especially.

Just any color that you can provide on on our non U S outperformance.

And any other emerging areas.

Asia Pacific is strong.

<unk> is developing a nice market for us.

Europe overall is going through a very difficult time as you may know the energy crisis.

Price increases there.

The award of Ukrainian as much of a real thing there, it's not far away from the home front when you talk to the people. So there clearly is a psychological impact.

There is a level of conservatism creeping in.

There's a different regulatory emphasis in Europe as well as ESG is a bigger role.

So all of these different factors.

In Europe , a bit more in a conservative mode as far as we can see.

We have optimized our organization that we maintain the investments to keep the market coverage.

And as we see these deals slowly moving forward. So we are committed to the continent and I am pleased we've got about a key brand name is there an asset market loosens up we will actually expanding our footprint.

Yes that makes sense. Thank you very much.

Thank you one moment for our next question.

Okay.

And our next question comes from the line of James Faucette from Morgan Stanley .

Hey, everyone. It's Michael on Fontana for James Thanks for taking our questions.

I appreciate there are a lot of moving pieces here and you're still a couple of months away in terms of your outlet formulation, but how should we sort of think about how conservative the directional commentary you provided on FY 'twenty four was particularly given it looks like loan growth is expected to decelerate from roughly 12% this year.

Aircrafts almost half that next year I, just wanted to sort of crusher cast what youre seeing in terms of their relationship to loan growth broadly.

Okay I can speak to that this is Josh.

Sure.

Most of the commercial accounts that we serve new credit.

Is actually not the majority of the volume that they do within the commercial bank most of the banks that we serve with $50 to 75% of the loan volume would actually be renewals and modifications and they also have to monitor that portfolio monitoring. It is even more important with the challenging economic environment continue to the day, regardless of the environment.

These banks are trying to do their best to balanced risk and reward while growing as much as they can so even if growth does slow theyre going to want to run their banks efficiently right. They don't want to minimize risk where they can and have transparency into their portfolios and they're going to want to upside the reward as much as possible. So our nic offerings pricing and profitability of our auto.

Offering obviously add a lot of value to those renewals amount of modifications and monitoring activities. Our portfolio analytics tool also also helps with visibility into the portfolio. So we're confident in the value that will provide even if loan volume does compress does that answer your question.

Yeah, that's great. Thanks, Josh.

Maybe just one other one on simple and access.

Pretty impressive sentra the sequential growth, we're seeing there just given all the data points that we're observing in the mortgage market sort of speak to that resigned to the model you guys have had talked about previously.

I just wanted to quickly hit on the composition of contract duration. There is there any particular SKU, we should be aware of between one two and three years and then as a follow up to that you previously talked about elevated simple next just churn in the back half I was just curious how.

And you all discussions have been have been sharing for simple access in this environment.

Yes, what we see on simple exercise the contract duration that really hasnt changed much we see one to two years it kind of averages about one and a half years.

That's not really changed.

We are seeing a higher level of churn, though in the business on the <unk> side, that's a little more volatile market for us.

The Refis happened.

Corrected their cost structures now the originators are correcting their cost structure. So we would assume that churn will remain elevated for some time.

Got it thanks David.

Thank you one moment for our next question.

And our next question comes from the line of Alex <unk> from Raymond James Your question. Please.

Alright, great David Nice Opex leverage in the model again, this quarter and just thinking about the 10% margin outlook for next year, how should we think about overall hiring plans do you think you can achieve kind of that level just through revenue growth and some mix improvements or is there any kind of reevaluation on the hiring side.

Yes, we are still early in the planning process as we said earlier, we're looking at all cost. So it's not just head count we're looking at non head count related costs as well.

We've done a nice job this year by moderating spending and head count adds for the year to come down to the level that we're at.

We will be looking to gain more efficiencies next year, though too.

Okay, Great and then peer Josh just in terms of overall deal sizes I know you've been talking about some of the larger digital transformation type deals that are in the pipeline at bank of Blue Zealand one the nice one that just closed how should we think about kind of the overall appetite, though particularly in the U S for some of those larger digital transformation versus.

Kind of smaller quicker ones.

Each of our segments our deal sizes.

In line with where they've been.

As Peter commented earlier about.

Just the timing and the market is less of a size.

Impact than it is on our sales cycle duration in fact from our perspective.

Okay, great. Thank you.

Thank you.

For our next question.

Our next question comes from the line of Bob Napoli from William Blair. Your question. Please.

Hey, good evening guys.

Deep channery on for Bob.

Our first question is around gross margin could you kind of remind us and speak to your confidence.

We are tracking towards the 70% gross margin target over time.

The drivers that we might see some margin expansion from I think in the past you've talked about international as being accretive to margins, but that'd be helpful. Thank you.

Yes, we are still kind of a long term model of 70%.

We do have a product mix benefit as we sell less to the community and regional space.

Higher margin on that business, because we can bundle sales force feed into that also as we expand our product offering that's on AWS.

And that comes at a much higher gross margin.

We will see efficiencies and support we made a lot of investments on the support side and then on the professional services side, we would expect to see margins continue to improve as we look out over the next couple of years as well.

Great. Thank you and just for the follow up.

Could you kind of give an update on some of the competitive dynamics in retail I guess since the last quarter, if they've changed at all meaningfully as well as any update on cross selling retail with commercial clients.

Our retail account is up 30% year over here.

<unk> of landscape Hasnt really changed there et cetera, but replace market, we're making good progress.

I believe our platform story of superior and people like that it's a client centric approach to banking.

So we are on track and meeting and beating our expectations deposit account opening is up 25% year over year.

So that whole client centric platform story is playing well with us.

We are finding our small business offerings to include a retail like experience as well as the lower into small business and all of those roadmaps as people see what we are doing.

And how we are client focused helping to bank to actually get there and continue to invest in innovation.

That innovation mindset is playing out in the market and is making us the preferred vendors. So I feel good about those new products.

We spoke about in the prepared comments, but the validation point to the single platform deals multiple.

Our regional accounts those are it doesn't really nice accounts that came on board with our known commercial solution, but they also rolled into retail because they wanted to be able to connect with their customers to take care of them really.

Really well across multiple products from our perspective, that's a good validation point.

Understood Thanks very much.

Thank you and as a reminder, ladies and gentlemen, if you have a question at this time. Please press star one on your telephone and our next question comes from the line of Jason Adler from Adder Pardon me from Moffett Nathanson SBB. Your question. Please.

Great. Thanks, Hey.

Hey, guys. Thanks for taking my question.

The first one is on the pipeline.

So youre kind of seeing customers, maybe I understand take little bit longer to sign the deals but.

Do you expect when the pipeline start to build and there is a little bit of a backup growing backlog in there.

Have you seen customers in the past be anticipatory on the other side when things start to look a little bit better today do they go ahead and the sales cycle start to actually contract or are these just considerably.

All banks and May wait for the close to be absolutely clear before they start.

Leaving normal transactions again.

I would say if you remember we started the company in 2012.

And so we've been on a.

Quite a phenomenal economic run from 12 to 22.

<unk>.

Interest rate environment, It was very low.

Roaring economy.

In a previous life I've experienced going through eight or 910 11 12.

Selling to banks et cetera, and what.

You will find us initially there'll be a pause to get a full understanding of the market landscape and then very quickly the ones, who stop investing realize they're going to fall behind and then it comes back Okay. I've seen this in the financial crisis.

I expect the same thing to happen right now and people regret when they start putting these investments on hold.

<unk> set of competitors people talk a lot about competition to banking coming from outside banks and other mine bankers all the time they've got a massive.

Benefits over any other industry coming in there because of the cost of funding which have achieved deposits.

And so your biggest competition in banking is another bank.

And as the other bank and Youre counting your city is innovating and driving.

Innovation through Technology, then you better keep up so I believe this is short term pause year or a slowdown or a caution which is normal but it always come back.

Okay, Alright, great. Thank you and then.

Just on the segment outlook for for next year.

What kind of mortgage banker or.

Loan origination officer.

Head count growth is baked into that that rule 30, do you expect it.

Get worse better statement.

Yes.

Very early stages of planning as you can imagine.

Beginning December January .

Are we going to see how that market evolves over the next few months.

We cannot comment yet.

What's going to happen to the mortgage market.

See out of the market react just based on call it.

Levels.

Comments today, so we have to see how that develops before we finalize our plans.

Okay, Okay, Alright, thats perfect. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Nick Goldman from Scotia Bank. Your question. Please.

Great. Thanks, guys.

Just wanted to ask a question about the margins next year.

Over the past couple of quarters, you guys have made comments around how the core <unk> business is profitable today and investment in the simple access where really the drag on margin. So I guess with that 10% target for next year in mind is there any way to sort of parse out the margin profile between core and see now versus simple nexis.

For next year, the 10%, we're going to look at the business as a whole and we will make decisions as a company as a whole not by segments simple Nexus did is it going to lose money this year and it is profitable legacy business.

Take it at night the next layer.

Simple next as it would have to get breakeven I think we were greatly position. There we have the number one product in the space the mortgage market will return so.

So we don't want to leave the market or any opportunity for the competition to catch up with us. So the idea is to maintain investments as we can and look as we start seeing the market returned to normal.

More money and just be better position coming out of this.

Great. Thanks, and then just maybe one for Josh.

Given the challenging demand environment, how are you sort of thinking about making go to market tweaks heading into next year.

Now there maybe plans in place to shift sales resources into the upsell side.

Given that new customer side of the equation might be a little bit more difficult or maybe kind of focus on smaller higher velocity deal with shorter sales cycles, just any commentary around.

Go to market tweaks, maybe that Youre planning for heading into next year, just given the macro backdrop would be really interesting. Thanks.

<unk>.

And I would say I'll start with the international if you look at the proof points that we that we had earlier great wins in New Zealand go lives.

In Japan, and Germany expansion within London, a go live in Canada, we are committed to the countries that we're in so we're going to make sure. We're there to help those customers succeed and continue to.

To continue running at the opportunity in those markets within the U S. We don't we don't do Hunter farmer from our perspective. It makes sense to have one account executive that covers the account for the long run.

For better expansion and longer term relationships. So we don't intend to do any major changes there now we're going to play the long game with those accounts.

And ensure that just as theyre going to want to come out of the other side of any headwinds stronger will be there with them.

Yes, I would like to emphasize that even as we going into a profitable growth company, our posture will always be to favor growth.

We believe market share gains is important for our long term health as well as long term profitability.

When you look at our footprint in new strategic accounts 23 of the top 50.

Where were conversations that have played out over time.

We're going to make sure we're there for them.

Alright, thank you.

Thank you one moment for our next question.

And our next question comes from the line of Josh Beck from Keybanc. Your question. Please.

Thank you team.

Thanks for taking the question.

Just to ask a little bit higher level about the visibility that you have going into the next fiscal year. Obviously, you benefit from multiyear time based milestone types of contracts.

So I feel like in general that gives you pretty good visibility. However, macros very fluid you certainly talked about European sales cycle.

And simple nexis and FX.

I guess my question is like as we go through.

Q4.

Going to be some of the really key items.

<unk> sales cycles as it what happens with mortgage rates what are going to be some of the key.

Items that youre tracking to kind of maybe get a little more precision about how fiscal two four could could play out.

I would say.

Firstly, we are in the planning stages and as you can imagine we track all these various factors.

On a daily and weekly basis.

But the us keep on performing I would say.

I would love to see FX stabilize and improve in our favor.

That'll be a great little bonus.

Secondly.

If we get any indication that mortgage rates, just top out and start coming down youre going to see refi volumes go back up and Youre going to see people get a new lease on life in the mortgage business.

Just rub that market open okay, and then realize this those companies, who then is going to expand by using tools like simple access.

We will actually buy from stable financial companies, that's profitable and has proven that.

Do their development and their work in the U S.

And then finally I think the European story is a bit longer term.

We've got some great customers and great prospects.

But I would say that is that fair.

Third one that probably could be on the upside as that environment improves.

I can see around corners.

Okay, that's fair.

Very helpful and then just.

In terms of maybe help banks are approaching or at least the next calendar year for them obviously.

Things like unemployment.

Things like credit losses have all been pretty.

Actually encouraging thus far this calendar year, we've heard from.

Credit Karma yesterday that banks to some degree maybe the lower end of the market kind of near Prime and below are starting to be a little more conservative with respect to their marketing budgets, which are obviously very discretionary so when they are maybe China.

To be fair.

Fair, let's say from whatever the scenarios are next year, where would you rank.

The priority around modernizing and certainly some of their low.

The deposit.

<unk> systems, maybe versus other investment initiatives that some of the banks.

As I mentioned earlier digital transformation is an imperative long term and most banks that we talk to.

Ask us why we justified to do it anymore. They just wanted to know how to get there because it is difficult to take out the older systems change processes et cetera.

So I would say that the demand will be there.

The question is whether they prioritize it.

I would also tell you that.

Whether we like it or not the way to get inflation under control is at some point to get the labor market under control and that will impact the consumer which will impact consumer credit.

I need to wait and see because the banks, we talk to will tell you that they.

Well capitalized.

And that their credit is in good place.

It must be somebody else.

Which is of course interesting somewhere somebody who's going to pay the price.

We see some caution that I mentioned of.

Cautious sentiment.

But I don't see in the U S necessarily.

A slowdown yet.

And we just don't see a lot of banks, telling us today that they wanted a more manual processors that they want.

Digital engagement with their customers the long run opportunity is still there.

Very helpful. Thank you Jake.

Thank you one moment for our next question and as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one one our next question comes from the line of <unk> <unk> from Barclays. Your question. Please.

Hey, guys. Thanks for taking my questions here and fitting me in.

Peer maybe maybe for you great to see the bank of New Zealand win.

I'm wondering as you've made more headway internationally are you starting to see any of the changes are you starting to see any changes in the sales cycles and competitiveness of those deals I guess I'm just curious because you've had multiple wins now in numerous international markets. So I wonder if it is just getting easier and maybe what type of competition you're seeing.

Yeah.

Hey, this is Josh yes, we see lots of banks that want to be early but very few that are willing to be first so getting that first.

Yes release out getting that first go live that helps us go to that market with the story.

Based on banks that look and feel a lot like our prospects.

And in doing.

So it absolutely helps.

Yes, if you look at this at critical mass countries. Okay. If you live in New Zealand now we've got critical mass and then the deals come you look at Canada.

You wouldn't want to three and then boom.

Got the majority of the banks okay.

And the difference between the U S and internationally.

You have to win each of those countries because it's only in country as reference.

Australia, New Zealand, maybe slightly an exception, but Jim I, just want to see that other German banks are successful.

A great example, but now we have to get the market to accelerate but the markets, where we have that critical mass like New Zealand and Canada, absolutely South Africa coming around we've got two or three customers in the UK is like that.

But we would still like to see France, Spain, Germany et cetera.

Got it got it that makes sense, David maybe maybe for you from a follow up can you just talk about the health of underlying bookings in the quarter I mean, clearly the visibility on revenue is super high.

You gave a helpful framework for how to think about revenue growth for next year, but I'm curious how are the leading indicators looking now qualitatively of course for just revenue growth drivers in the future does it makes sense.

And we do not disclose bookings, but I can talk about sales activity. So.

Sales activity in the quarter despite.

Europe being slow we had some FX impact in.

Simple Nexus it was pretty much in line with our expectations. When we talked about this earlier about the year.

We've returned to a more normal.

Cycle in terms of sales for the year, where the second half is higher weighted then we saw the last couple of years. During Covid. So Q4. This year will be our biggest quarter of the year, but activity in the third quarter was pretty much in line with our expectations.

Very helpful. Thanks, guys.

Thank you. Our next question just one moment for our final question for today.

And our final question for today comes from the line of Charles <unk> from Stephens. Your question. Please.

Great. Good afternoon, and thank you for fitting me in so my question is on the impact of the elongated sales cycles and the delays in decision, making on your existing customer base. So I would imagine its more pronounced on potentially new deals but.

Land and expand has been really the centerpiece of your strategy. So I'm curious in terms of what youre seeing within your existing customer base.

In terms of a reluctance or an acceptance to expand existing existing relationships and I guess sort of as a follow up to that to put a finer point on it.

Curious what that could potentially mean for net retention rate.

Net retention levels and end.

<unk> expansion going forward.

Absolutely and we do value those customer relationships and where in the journey, we have seen headwinds we find that those customer.

Conversations are the easiest to keep doing so.

We continue to see.

Ongoing success and proof points of our ability to cross sell cross sell these solutions, we talked about adding retail and diego into $7 billion Bank in Hawaii, We added CPP into New Zealand Enterprise account. This one we're particularly proud of that was a competitive deal and a fantastic accounts. We're also seeing despite everything we've discussed this morning.

Good.

Good validation of simple Nexus is value in the bank market right five cross sales into banks and credit unions.

And frankly those are larger deals that we would sell into <unk>. So we.

We feel that is.

Something that will continue to focus on and we always aspire because we deliver for our accounts continue to those conversations from from a position of success in partnerships.

Got it.

And just as a quick follow up and I apologize if I missed this somewhere but can you talk about LDA wear and the impact of contribution that had to simple nexus as well as what youre seeing in that business in terms of traction.

Yeah.

Yes.

We've had some cross sales into the base of Encino.

But we don't have any more details around our breakdown details because that really is integrated into the simple nexus platform now.

And so that's all the detail we can get them and we also see that as a real differentiator for them you look at these competitive takeaways.

You look at the logos that theyre out even in this challenged marketing is because of that that fantastic package not just pass through the full home buying journey and integrated tools like <unk> help them differentiate.

Got it thank you very much.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Peter <unk> for any further remarks.

Thank you and thank you everyone for attending today and thank you for your support.

And we appreciate you attending today you have a great day.

Yeah.

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

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

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Thank you for standing by and welcome to <unk> third quarter fiscal year 2023, <unk> 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.

As a reminder, today's program is being recorded and now I would like to introduce your host for today's program Harris had Masters Investor Relations. Please go ahead Sir.

Good afternoon, and welcome to <unk> third quarter fiscal 2023 earnings call with me on today's call are peer Arnaud de <unk>, Chairman and Chief Executive Officer, Dave.

David <unk>, Chief Financial Officer, and Josh Glover, President and Chief revenue Officer.

Forward looking statements are based on management's current views and expectations until 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 to 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 are.

A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to the form 8-K furnished with the SEC just before this call with that I will now turn the call over to Pierre.

Thanks, Allison and thank you all for joining us today.

I'm extremely proud of our team's execution in the third quarter as we once again exceeded the top and bottom line expectations.

Generated $105 3 million in total revenues, including simple Nexus, a 50% increase over the third quarter of fiscal 'twenty two.

Subscription revenues were $88 3 million, an increase of 55% year over year.

Excluding simple access subscription revenues grew 28% organically.

This quarter marked our first quarter with over $100 million in total revenues and also our first profitable quarter on a non-GAAP operating income basis.

For the past two earnings calls we have emphasized our commitment to profitability in fiscal 'twenty, four and I'm very happy with the progress we have made to date.

We plan to significantly increase our non-GAAP operating income next year and I will touch upon that shortly.

Making the bank of New Zealand, one of our largest customers globally.

With over $55 billion in assets Bank of New Zealand is one of the country's largest financial institutions.

Wouldn't be prouder to be in business with them and greatly appreciate the opportunity to showcase the value of our solutions can bring through financial institutions around the globe.

I'm also pleased that following the announcement last month of a successful go live with <unk> Bank in Tokyo.

We have two additional go lives in Japan.

In the quarter, including NBC Trust Bank, we are excited to see good momentum and traction in the market, representing an estimated $1 billion opportunity.

Among numerous other go lives in the third quarter.

Our first customer in Germany is now live.

Commercial bank or each crop was recently recognized by euromoney as the world's best Bank transformation for 2022.

We are honored to be their partner as they continue optimizing systems and processes to maintain their market leadership position.

As I've mentioned before getting customers live and the rest of the boat is going to be truly celebrate <unk> and this is of particular importance in our newer markets.

I also would like to highlight the performance of simple Nexus business, which had another strong quarter under difficult market conditions.

Simple Nicklaus grew total revenues, 38% organically year over year and that sixth competitive takeaways and five cross sells to encino customers.

Space.

Obviously, the macro environment remains top of mind.

This bodes well for encino over the long term.

That said, we're not tone deaf to external conditions and the bottom line expectations of the market, which have changed materially over the past year.

Against the backdrop of macroeconomic and geopolitical uncertainty.

We are seeing a more measured buying environment and increased executive scrutiny on purchasing decisions.

Particularly in Europe , which extend sales cycles and the time required to close deals.

Additionally, FX headwinds and a challenging U S mortgage market persisted through the third quarter.

Notable growth SaaS company.

With the investments we've already made in sales products customer support professional services and geographies.

We're very well positioned to grow market share and continue leading the digital transformation of financial institutions around the world.

We have also been able to realize cost synergies from the simple Nexus acquisition as the two businesses.

More closely together and our integration activities accelerate.

On the top line the fourth quarter has typically been our strongest sales period and we still have two months left in the fiscal year. So we will wait until our Q4 earnings call to provide specific financial guidance for fiscal 'twenty four.

However, we think it is important in uncertain times to provide even greater visibility into our current thinking.

As we factor in the impact of the three headwinds I mentioned earlier and.

And the overall macro environment. We are currently planning for Encino to be a rule of 30 company next fiscal year.

With the mix between total revenue growth and non-GAAP operating income margin trending towards 20% and 10% respectively.

We will accomplish this without changing our investment priorities, which remain making sure we have the right sales coverage put out addressable markets.

Our support and professional services organizations provide the best customer experience in the industry.

And that we continue investing in our product portfolio to extend our track record of innovation.

With that I'll turn the call over to Josh to go through more business highlights from the quarter, Josh Thanks Pierre.

The bank in New Zealand win was certainly a highlight of our continued success in Asia Pac. We're pleased this quarter to also add a new logo in Australia with the government sponsored lender and an expansion deal with Air New Zealand bank for commercial pricing and profitability.

Ability of our niche products to embed intelligent insights and data into the bank operating system is a huge differentiator or Nick offerings are resonating with our customer base and are now a standard part of prospecting and expansion conversation.

We signed in the first quarter of fiscal 'twenty, three we expanded to a second business line in less than nine months.

So I think it's for commercial lending pricing and profitability and automated spreading which will enable their commercial lending employees to compete with the largest financial institutions.

We also had significant expansion deals with existing customers and it can be a regional market, including a $7 billion, Colorado bank expanding their use of <unk> from commercial lending to add deposit account opening and treasury sales and Onboarding and a $7 billion bank in Hawaii, adding retail lending and deposit account opening.

As Pierre mentioned go lives are key measures of success here at <unk> and this quarter marked a record for successful implementations antibody a significant contribution from the portfolio analytics team as a seasonal adoption deadline approaches our first commercial lending customer in Germany.

Business banking customer in Canada, Japanese market early adopters and a retail lending customer in the U S regional market, where all beneficiaries that focused efforts from our professional services teams and certified system integration partners.

As always I'm deeply appreciative of the trust, our customers and partners place in Athena and I am proud of the team's commitment energy and resolve as we continue to tell the story globally.

David can you take us through the numbers.

A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to our form 8-K furnished with the SEC just before this call.

We again delivered strong results for the third fiscal quarter total revenues were $105 3 million, an increase of 50% year over year, including a negative $2 3 million impact from FX.

Subscription revenues for the third quarter were $88 3 million, an increase of 55% year over year.

Representing 84% of total revenues.

Organic subscription revenues were $72 9 million, representing 28% year over year growth.

Professional services revenues were $17 million in the quarter, representing 31% year over year.

Professional services revenues included approximately $1 $5 million of simple mix of services and other revenues.

Non U S revenues were $15 9 million or 15% of total revenues in the third quarter up 36% year over year or 55% growth in constant currency.

non-GAAP gross profit for the third quarter of fiscal 'twenty, three was $68 6 million, an increase of 54% year over year.

non-GAAP gross margin was 65% compared to 64% in the third quarter of fiscal 2002.

Our gross margins again improved due to subscription product mix as enterprise and international customers comprised more of our revenues as well as the impact from subscription revenues being a larger contributor to total revenues.

non-GAAP operating income for the third quarter of fiscal 2003 was $2 $5 million.

With a $3 $2 million loss in the third quarter of fiscal 'twenty two.

Our non-GAAP operating margin for the third quarter was positive 2%.

Compared with negative 4% in the third quarter of fiscal 'twenty two.

As Peter mentioned this profitability was achieved through a more conservative approach to managing headcount, particularly in R&D and G&A as.

As well as savings on insurance and synergies from the simple Nexus acquisition.

non-GAAP net loss attributable to Encino for the third quarter of fiscal 'twenty three was negative $1 4 million.

Or a negative <unk> <unk> per share compared to negative $3 7 million or negative <unk> <unk> per share in the third quarter of fiscal 2002.

Our remaining performance obligation or <unk> increased to $919 2 million as of October 31, 2022.

Up 28% over $717 7 million as of October 31, 2021.

With $603 9 million and less than 24 months category up 43% from.

From $420 9 million as of October 31, 2021.

New and expansion sales contributed more to the sequential increase in <unk> than renewals this quarter.

Turning to cash.

We ended the quarter with cash and cash equivalents of $111 8 million, including restricted cash.

Net cash used in operating activities was negative $4 1 million.

Compared to negative $19 1 million in the third quarter of fiscal 2002.

Capital expenditures were $4 6 million in the quarter, resulting in free cash flow of negative $8 7 million for the third quarter of fiscal 'twenty three.

During the quarter, we drew down approximately $30 million on our line of credit as the fourth quarter is a seasonally slower period for customer collections.

And providing Q4 guidance and updating our full year outlook, we are taking a few factors into account.

First <unk>.

Longer sales cycles, particularly in Europe . The second the state of the mortgage market, including elevated churn in the <unk> space and simple nexis and finally.

2% to 3% negative revenue impact from FX.

For the fourth quarter, we expect total revenues of $104 million to $105 million.

With subscription revenues of 90 million to $91 million. This guidance assumes year over year subscription growth of 44% at the midpoint of our range with approximately 28% organic subscription growth for the fourth quarter.

As a reminder, the fourth quarter is typically seasonally slower for professional services revenues.

non-GAAP operating loss is expected to be approximately negative $3 million to negative $4 million and.

And non-GAAP net loss attributable to <unk> per share to be negative <unk> to negative <unk> <unk>.

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

Note that we expect our non-GAAP operating loss in Q4 to be impacted by elevated payroll taxes professional services fees and additional investments in marketing technology and automation.

For fiscal 'twenty, three we expect total revenues of 403 million to $404 million.

Subscription revenues of 342 million to $343 million.

Full year guidance assumes a year over year subscription growth of <unk>.

<unk>, 2% at the midpoint of our range with approximately 28% organic subscription growth.

For simple nexis.

<unk> full year subscription revenues of approximately $59 million versus the $60 million, we previously expected for the year.

We are improving our non-GAAP operating loss guidance for fiscal 'twenty, three to negative 7% to negative $8 million.

non-GAAP net loss attributable to <unk> per share is expected to be negative <unk> to negative <unk> 17 per share based on a weighted average of approximately $110 5 million shares outstanding.

We are proud of our financial milestones, we achieved in the third quarter and remain focused on serving our customers and continuing to improve profitability.

With that we will open the line for questions.

Ladies and gentlemen, if you have a question at this time. Please press star one on your telephone one moment as we compile our roster one moment.

And our first question.

Comes from the line of Terry Tillman from <unk> Securities. Your question. Please.

Yes, thanks for taking my questions, Hi, PR, Josh and David.

Question, one might be a multipart question, so technically that could almost be three questions but.

It's good to see the profitability in the quarter at the operating line operating profit line.

The first question that might be kind of two fold question. Two part is David on the $603 9 million.

For the current or 24 months RVO can you kind of double click in terms of the organic growth and then the second part of this question is.

The simple Nexus run rate, how do you think about that going into next year, given the independent mortgage brokers and the headwinds there and then I had a follow up.

On the <unk> side organically.

<unk> grew total <unk> by 18% and less than 24 months at 28% and the long term at 4%.

And then on simple Nexus run rate, we took our guidance down for a simple mix of subscription revenues from $60 million of $59 million. So we expect to see a slight decline sequentially into Q4 for subscription revenues from Central Texas I think it's too early to look at next year, given what we're seeing in the mortgage market, it's quite volatile right now and so we are in the.

Current currently in the planning stage and we will update you on simple excess numbers for next year.

When we report numbers for Q4.

Understood and just a follow up question on offices, where who this is.

As for bid peer really appreciate the some of the perspective for next year and you typically don't guide, but those are some good kind of guard rails for us I think the 20% growth in potentially 10% EBIT margin.

Are any of those kind of run rate dynamics or is that actually kind of like that would be like for FY 'twenty four and is it assuming that maybe.

You just.

Seasonally strong <unk> bookings it just doesn't play out like you typically would expect thank you.

Yes, Thanks Terry.

Got.

It's very early and we're in the planning stages here.

We look at.

Simple <unk> in Europe , and those two combined make up 50% of our Sam kind of half of your market is has got serious headwinds you've got FX on top of that.

And then you have to look at what that macro environment impact will be.

So 50% of your Sam is impacted as I mentioned, our view was we're still in the planning stages.

Not finalized the plans the fourth quarter looks great.

Our pipelines are healthy so the demand for the product as have deals are not going away, but they are just slower to close.

Don't see a slowdown in the U S.

Picking up a sentiment of caution.

Which is different.

Then Europe , where we clearly see slower decision, making and just like a mortgage so when you take all of that mixed bag and you put it in there and we decided at this stage wise to give any indication to our investors of how we're thinking about next year, but it's early stages and planning.

Understood. Thank you and good luck.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Brent <unk> from Piper Sandler Your question. Please.

Thank you good afternoon.

Despite the challenging macro here it looks like organic CPR growth actually ticked up this quarter.

Your Q4 guide here implies subscription growth organically will remain I think for the fourth consecutive quarter in this 28% range. So my question here is what is resonating.

With the platform with banks at least willing to spend money here is it cost savings thats, primarily still enticing some banks to continue to lean in on the software stack just be curious to hear any sort of color commentary on what's resonating just given the consistency that we're seeing in subscription growth in the slide.

The uptick in <unk>.

Yes addressing in general Brian . Thanks, So much for your question.

The platform approach that we take and digital transformation in general are compelling.

Propositions.

And it's very interesting the drivers of digital transformation very slightly as you go around the world markets as I've mentioned before when you look at Japan, There's an aging population and the reduction in the workforce that is a massive issue for that economy.

You come down to Australia, and New Zealand as well or for modernization profitability drive if you go to Europe .

Driven by compliance regulation et cetera, and visibility into their lending practices as well as ESG.

Come to the U S and its profitability market share drivers efficiency.

Reductions in compliance.

It varies in the air.

<unk> is slightly different in different places, but digital transformations yet to state.

No it does.

Susan anymore.

An impediment and then some of our leaders and somewhat laggards.

But thats, what we are seeing in the market in general so the trend for us for the long term future is fantastic and I see it in the pipelines I just think we have to get through this slight sentiment of uncertainty.

As we get through the economic turmoil.

And then David just a quick follow up here as you think about kind.

20% growth next year, 10% EBIT margins.

To the extent that that business, maybe starts to pick up would you look to invest towards the back half of the year in hiring capacity for the following year or how are you kind of thinking about.

Balancing kind of growth and profitability going forward.

There are a number of priority is growth.

We're committed to that rule of 30 30 model.

Because we're just starting planning now we got an important in Q4 in front of US. So it's early in the process but.

We are looking to make.

Investments as the market improves so if the mortgage market improves if FX turns that could change that but for.

For now we're planning on 20% revenue growth and that would be 20% subscription, 20% total and targeting that 10% margin target for the year.

Makes sense and certainly encouraging to see the progress this quarter. Thank you.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Brad Sills from Bank of America. Your question. Please.

Hi, This is Carly on for Brad I, just wanted to ask a follow up on the macro I guess its Scott.

Expansion momentum remains strong, but just curious.

In the U S. I guess in particular, whether you've been hearing from your conversations with the CIO John with regard to their willingness to take on the new district transformation projects for long.

Our origination court.

The upcoming quarter and so on.

The upcoming year 2023.

Yes in the U S as I mentioned.

We still see strong demand we see good pick up you have to divide the U S in two segments.

There is a community reidsville, which had a little hangover from Covid.

Because they were busy with triple P.

Plus coming back to the offers et cetera, we.

We see some nice progression on that front in that market.

Well for us on the enterprise side, it's more of a.

A lumpy market, because it's big deals and when it comes so often but if you look at overall the IP.

Spend the budgets, we've heard so far it looks very positive.

However, as I mentioned earlier, there is a slide sentiment of caution creeping in where people just take a little bit longer to make a decision or scrutinize it little bit depot.

But we feel very good about the direction of the business.

Also firmly believe in times like this that healthy companies where the.

A benefit of being able to show that it can be profitable and growing.

We can keep our investment levels high on product as well as our sales and marketing and as such.

We are keeping our coverage of our Sam on a global basis in place and as soon as these markets turn.

And that will be the brand that is known for their customer service for the quality of innovation as well as market coverage.

And Thats, how we plan to proceed.

Yes. Thank you for that very helpful. I guess, just a follow up on the non U S performance.

Hi, guys.

It's very positive to C&I eni's blended.

<unk> with bank of New Zealand, and also that U K expansion.

It seems impressive but what are some other I guess outperformance.

In Europe , especially.

Just any color that you could provide on the non U S.

<unk>.

And any other emerging areas.

Yes, we see Asia Pacific as strong.

<unk> is developing a nice market for us.

Europe overall is going through a very difficult time as you may know the energy crisis or price increases there.

The award of Ukrainians much of a real thing there, it's not far away from the home front when you talk to the people. So there clearly is a psychological impact.

There is a level of conservatism creeping in.

There's a different regulatory emphasis in Europe as well as ESG is a bigger role.

So all of these different factors.

Europe , a bit more in a conservative mode as far as we can see.

We have optimized our organization there we maintain the investments to keep their market coverage.

And as we see these deals slowly moving forward. So we are committed to the continent.

I'm pleased we've got about a key brand name is there an asset market loosens up we'll actually expanding our footprint.

Yes that makes sense. Thank you very much.

Thank you one moment for our next question.

Okay.

And our next question comes from the line of James Fawcett from Morgan Stanley .

Hey, everyone. It's Michael on Fontana for James Thanks for taking our questions.

I appreciate there are a lot of moving pieces here and you are still a couple of months away in terms of your outlet formulation, but how should we sort of think about how conservative the directional commentary you provided on FY 'twenty four was particularly given it looks like loan growth is expected to decelerate from roughly 12% this year.

Almost half of that next year I, just wanted to sort of crusher tests, what you're seeing in terms of their relationship to loan growth broadly.

Okay I can speak to that this is Josh.

Sure.

Most of the commercial accounts that we serve new credit.

Is actually not the majority of the volume that they do within the commercial bank most of the banks that we serve with 50% to 75% of the loan volume would actually be renewals and modifications and they also have to monitor that portfolio monitoring it is even more important with the challenging.

Economic environment continue to the day, regardless of the environment. These banks are trying to do their best to balanced risk and reward while growing as much as they can even if growth does slow theyre going to want to run their bank sufficiently right. They don't want to minimize risk where they can and have transparency into their portfolios.

And they're going to want to upside the reward as much as possible. So our nic offerings pricing and profitability of our auto spreading offering obviously add a lot of value to those renewals amount of modifications and monitoring activities. Our portfolio analytics tool also also helps with visibility into the portfolio. So we're confident in the value that will provide even if loan volume does.

Compressed does that answer your question.

Yes, that's great. Thanks, Josh.

Maybe just one other one on simple and access I think it's pretty impressive sentra.

<unk> growth, we're seeing there just given all the data points that we're observing in the mortgage market sort of speak to that resigned to the model you guys have talked about previously.

I just wanted to quickly hit on the composition of contract duration. There is there any particular SKU, we should be aware of between one two and three years and then as a follow up to that.

You previously talked about.

<unk> churn in the back half I was just curious how.

All discussions have been have been sharing for simple Max SMS environment.

What we see on simple and exercise the contract duration that really hasnt changed much we see one to two years kind of averages about one and a half years.

That has not really changed.

We are seeing a higher level of churn, though in the business on the <unk> side, that's a little more volatile market for us.

The Refis happened.

Corrected their cost structures now the originators are correcting their cost structure. So we would assume that churn will remain elevated for some time.

Got it thanks David.

Thank you one moment for our next question.

And our next question comes from the line of Alex <unk> from Raymond James Your question. Please.

Great David Nice Opex leverage in the model again, this quarter and just thinking about the 10% margin outlook for next year, how should we think about overall hiring plans do you think you can achieve kind of that level just through revenue growth and some mix improvements or is there any kind of reevaluation on the hiring side.

Yes, we're still early in the planning process as we said earlier, we're looking at all cost. So it's not just head count we're looking at non head count related costs as well we didn't we've done a nice job this year by moderating spending and head count adds for the year to come down to the level that we're at.

We will be looking to gain more efficiencies next year, though Tim.

Okay, Great and then peer Josh just in terms of overall deal sizes I know you've been talking about some of the larger digital transformation type deals that are in the pipeline at bank of New Zealand won the nice one that just closed how should we think about kind of the overall appetite.

Particularly in the U S for some of those larger digital transformation versus kind of smaller quicker ones.

Each of our segments our deal sizes are.

In line with where they've been.

As Peter commented earlier about.

Just the timing and the market is less of a size.

Impact than it is on our sales cycle duration in fact from our perspective.

Okay, great. Thank you.

Thank you one moment for our next question.

Our next question comes from the line of Bob Napoli from William Blair. Your question. Please.

Hey, good evening guys. So this is a deep January on for Bob.

Our first question is around gross margin could you kind of remind us and speak to your confidence.

We are tracking towards the 70% gross margin target over time.

Some of the drivers that we might see some margin expansion from.

In the past you've talked about international as being accretive to margins, but that'd be helpful. Thank you.

Yes, we are still kind of a long term model of 70%.

Do have a product mix benefit as we sell less to the community and regional space, we have a higher margin on that business because we can bundle of salesforce feed into that also as we expand our product offering that's on AWS and.

And that comes at a much higher gross margin.

We will see efficiencies and support we've made a lot of investments on the support side and then on the professional services side, we would expect to see margins continue to improve as we look out over the next couple of years as well.

Great. Thank you and just sort of follow up.

Could you kind of give an update on some of the competitive dynamics in retail.

I guess since the last quarter, if they've changed at all meaningfully as well as any update on cross selling retail with commercial clients.

Our retail count is up 30% year over here the competitive landscape hasn't really changed there, it's a rip and replace market.

We're making good progress.

I believe our platform story of superior and people like that it's a client centric approach to banking.

So we are on track and meeting and beating our expectations deposit account opening is up 25% year over year.

So that whole client centric platform story is playing well with us.

We are finding our small business offerings to include a retail like experience as well as the lower into small business and all of those roadmaps as people see what we're doing.

And how we are client focused helping the bank to actually get there and continue to invest in innovation I think that the innovation mindset is playing out in the market and is making us the preferred vendors.

So I feel good about those new products also we spoke about in the prepared comments, but the validation point to the single platform deals multiple QE and.

Regional accounts those are it doesn't really nice accounts that came onboard with our known commercial.

Commercial solution, but they also rolled in retail because they wanted to be able to connect with their customers to take care of them really.

Really well across multiple products from our perspective, that's a good validation point.

Understood Thanks very much.

Thank you and then as a reminder, ladies and gentlemen, if you have a question at this time. Please press star one on your telephone.

Our next question comes from the line of Jason Adler from at or Pardon me from Moffett Nathan SBB. Your question. Please.

Great. Thanks, Hey.

Hey, guys. Thanks for taking my question.

The first one is on the pipeline.

So you kind of think customers, maybe I understand take a little bit longer to sign the deals but.

Do you expect when the pipeline start to build and there is a little bit of a backup or backlog in there.

Have you seen customers in the past be anticipatory on the other side when things start to look a little bit better do they do they go ahead and take the sales cycle starts actually contract or.

And this is just conservative.

All banks and they wait for the close to be absolutely clear before they start.

Assuming normal transactions again.

I would say remember we started the company in 2012.

And so we've been on a.

Quite a phenomenal economic run from 12 to 22.

<unk>.

Interest rate environment that was very low.

With a roaring economy.

In a previous life I've experienced going through eight or 910 11 12.

Selling to banks et cetera, and what.

You will find us initially there'll be a pause to get a full understanding of the market landscape and then very quickly once we stop investing realize they are going to fall behind and then it comes back Okay. I've seen this in the financial crisis.

I expect the same thing to happen right now and people regret when they start putting these investments on hold.

<unk> set of competitors people talk a lot about competition to banking coming from outside banks. Another mine bankers all the time they've got a massive.

Benefits over any other industry coming in there because of the cost of funding, which have achieved deposits and so your biggest competition in banking is another bank.

And as the other bank in your calendar year City is innovating and driving.

Innovation through Technology, then you better keep up so I believe this is short term pause year or a slowdown or a caution which is normal but it always come back.

Okay, Alright, great. Thank you and then.

Just on the segment outlook for for next year.

What kind of mortgage banker or.

Loan origination officer.

Head count growth is baked into that that rule 30, do you expect thanks.

Get worse better spacing.

Yes.

Very early stages of planning as you can imagine.

Beginning December January .

Are we going to see how that market evolves over the next few months.

We cannot comment yet.

What's going to happen to the mortgage market.

See out of the market III exit based on color on panels.

Comments today, so we have to see how that develops before we finalize our plans.

Okay, Okay, Alright, thats perfect. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Nick Goldman from Scotia Bank. Your question. Please.

Great. Thanks, guys.

Just wanted to ask a question about the margins next year.

Over the past couple of quarters, you guys have made comments around how the core <unk> business is profitable today and investment in the simple axis, where really the drag on margin. So I guess with that 10% target for next year in mind is there any way to sort of parse out the margin profile between core and see now versus simple nexis.

For next year that 10%, we're going to look at the business as a whole and we will make decisions as a company as a whole not by segments simple Nexus did is it going to lose money this year and Encino is profitable legacy business.

If you take at night. The next layer I think simple next as it would have to get breakeven I think we were greatly position. There we have the number one product in the space the mortgage market will return so.

First more than money and just be better position coming out of this.

Great. Thanks, and then just maybe one for Josh.

Given the challenging demand environment, how are you sort of thinking about making go to market tweaks heading into next year.

Now there maybe plans in place to shift sales resources into the upsell side.

Given that new customer.

Out of the equation might be a little bit more difficult or maybe kind of focus on smaller higher velocity deal with shorter sales cycles, just any commentary around <unk>.

Go to market tweaks, maybe that Youre planning for heading into next year, just given the macro backdrop would be really interesting. Thanks.

Absolutely and I would say.

Start with international if you look at the proof points that we that we had earlier.

<unk> in New Zealand go lives.

In Japan, and Germany expansion within London go live in Canada.

We are committed to the countries that we're in so we're going to make sure. We're there to help those customers succeed and continue to.

For better expansion and longer term relationships. So we don't intend to do any major changes there now we're going to play the long game with those accounts.

To ensure that just as theyre going to want to come out of the other side of any headwinds stronger will be there with them.

Yes, I would like to emphasize that even as we're going into a profitable growth company, our posture will always be to favor growth.

We believe market share gains is important for our long term health as well as long term profitability.

When you look at our footprint in these strategic accounts 23 of the top 50, a lot of those.

Where were conversations that have played out over time.

We're going to make sure we're there for them.

Alright, thank you.

Thank you one moment for our next question.

And our next question comes from the line of Josh Beck from Keybanc. Your question. Please.

Safety team.

For taking the question.

Just to ask a little bit higher level about the visibility that you have going into the next fiscal year. Obviously, you benefit from multiyear time based milestone types of contracts.

So I feel like in general that gives you pretty good visibility. However, macros very fluid you certainly talked about European sales cycle.

And simple Nexus and FX.

I guess my question is like as we go through.

Q4 <unk>.

Going to be some of the really key items.

S sales cycles is it what happens with mortgage rates what are going to be some of the key.

Items that you're tracking to kind of maybe get a little more precision about health fiscal two four could could play out.

I would say.

Firstly, we are in the planning stages and as you can imagine we track all these various factors.

On a daily and weekly basis.

But the U S to keep on performing I would say.

I would love to see FX stabilize and improve our favor.

That will be a great little bonus.

Secondly.

If we get any indication that mortgage rates as top out and start coming down youre going to see refi volumes go back up and Youre going to see people get a new lease on life in the mortgage business and that will just that market open. Okay. And then realize this those companies, who then is going to expand.

By using tools like simple Lexus.

We will actually buy from stable financial companies, that's profitable and has proven that.

Do their development and their work in the U S.

And then finally I think the European story is a bit longer term.

We've got some great customers and great prospects.

But I would say that is.

Third one that probably could be on the upside as that environment improves but.

I can't see around corners.

Okay, that's fair.

Very helpful. And then just in terms of maybe help banks are approaching or at least the next calendar year for them, obviously things like unemployment things like credit losses have all been pretty.

Actually encouraging thus far this calendar year, we heard from credit Karma yesterday.

Thanks to some degree maybe the lower end of the market kind of near Prime and below are starting.

Be a little more conservative with respect to their marketing budgets, which are obviously very discretionary so when they are maybe China.

To be fair.

Let's say for whatever the scenarios are next year, where would you rank the.

Priority around modernizing certainly some of their low.

Deposit account systems, maybe versus other investment initiatives that some of the banks.

As I mentioned earlier digital transformation is an imperative long term and most banks that we talk to drug.

Ask us why we justified to do it anymore. They just wanted to know how to get there because it is difficult to take out all the systems change processes et cetera.

So I would say that the demand will be there.

<unk> is ready to de prioritize it.

I would also tell you that.

Whether we like it or not the way to get inflation under control is at some point to get the labor market under control.

It will impact the consumer which will impact consumer credit.

I need to wait and see because the banks, we talk to will tell you that they are well capitalized.

And that their credit is in good place so it must be somebody else.

Which is of course interesting somewhere somebody is going to pay the price.

We see some caution that I mentioned.

Cautious sentiment.

But I don't see in the U S necessarily.

Slow down yet.

And we just don't see a lot of banks, telling us today that they want a more manual processors that they want.

Less digital engagement with their customers.

Run opportunity is still there.

Very helpful. Thank you Jamie.

Hey, guys. Thanks for taking my questions here and fitting me in.

Peer maybe maybe for you great to see the bank of New Zealand win.

I'm wondering as you've made more headway internationally are you starting to see any of the changes are you starting to see any changes in the sales cycles and competitiveness of those deals I guess I'm just curious because you've had multiple wins now in numerous international markets. So I wonder if it's just getting easier and maybe what type of competition.

Youre, saying.

This is Josh yes, we see lots of banks that want to be early but very few that are willing to be first so getting that first press release out getting that first go live that helps us go to that market with the story.

Based on banks that look and feel a lot like our prospect being live and enjoying zeno. So it absolutely helps.

Yes, if you look at this.

Critical mass countries. Okay. If you look at New Zealand out we've got critical mass and then the deals come you look at Canada.

You wouldn't want to three and then boom.

The majority of the banks okay.

And the difference between the U S and internationally.

Have to win each of those countries because it's only in country as reference.

Australia, New Zealand baby side would be an exception, but the Germans wont to see that other German banks are successful.

A great example, but now we have to get that market to accelerate but the markets, where we had that critical mass like the Zealand, Canada, absolutely South Africa coming around we've got two or three customers in the UK is like that.

But we would still like to see France, Spain, Germany et cetera.

You gave a helpful framework for how to think about revenue growth for next year, but I am curious how are the leading indicators looking now qualitatively of course for just revenue growth drivers in the future does it makes sense that we do not disclose bookings, but I can talk about sales activity.

Sales activity in the quarter despite euro.

European slow we had some FX impact in.

In simple Nexus it was pretty much in line with our expectations and we talked about this earlier about the year.

We've returned to a more normal.

Very helpful. Thanks, guys.

Thank you. Our next question just one moment for our final question for today.

And our final question for today comes from the line of Charles <unk> from Stephens. Your question. Please.

Land and expand has been really the centerpiece of your strategy. So I'm curious in terms of what youre seeing within your existing customer base.

In terms of a reluctance or an acceptance to expand existing existing relationships and I guess sort of as a follow up to that to put a finer point on it I'm curious what that could potentially mean for net retention rate net retention levels and and <unk> expansion.

Going forward.

Absolutely and we do value those customer relationships and where in the journey, we have seen headwinds we find that those customer conversations.

Conversations are the easiest to keep going.

We continue to see.

Age.

Good validation of simple Nexus is value in the bank market right type cross sales into banks and credit unions.

Frankly, those are larger deals and we would sell into IND. So we.

We feel that is.

Something that will continue to focus on and we always aspire because we deliver for our accounts continue to those conversations from from a position of success in partnerships.

Got it.

And just as a quick follow up and I apologize if I missed this somewhere but can you talk about LDA wear and the impact of contribution that had the simple nexus as well as what youre seeing in that business in terms of traction.

Yes.

Okay.

Yes.

We've had some cross sales into the base of Encino.

But we don't have any more details around our breakdown details because that really is integrated into the simple nexus platform now.

And so that's all the detail we can get them and we also see that as a real differentiator for them you look at these competitive takeaways.

You look at the logos that they are at even this challenge marketing is because of that that fantastic package not just to pass through the full home buying journey and integrated tools like <unk> help them differentiate.

Got it thank you very much.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Peter <unk> for any further remarks.

Thank you and thank you everyone for attending today and thank you for your support.

We appreciate you attending today you have a great day.

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

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