Q1 2024 nCino Inc. Earnings Call

You.

After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to.

introduce your host for today's call, Harrison Masters, Director of Investor Relations and Strategic Finance. Please go ahead.

Good afternoon and welcome to Encino's first quarter fiscal 2024 earnings call. With me on today's call are Pierre Naudet, Encino's Chairman and Chief Executive Officer, Greg Ornstein, 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. These forward-looking statements are based on management's current views and expectations, entail certain assumptions made as of today's date, and are not necessarily related to the current performance of our business. We welcome you to our session and celebrate the Cedar Gate

are subject to various risk and uncertainties described in our SEC filings and other publicly available documents, the financial services industry, and global economic conditions.

Encino disclaims any obligation to update or revise any forward-looking statements.

Further, on today's call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results.

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

as well as the earnings presentation on our investor relations website at investor.encino.com. With that, I will now turn the call over to Pierre.

Thank you, Harrison. Good afternoon and thank you all for joining us today. We are pleased to share the details and accomplishments of our 1st quarter, including our continued focused on profitable growth, resulting in a 10% non-GAAP operating margin as well as $29.7 million of free cash flow.

countries, 320 financial institutions and 29 sponsoring partners.

This year we moved the conference to Charlotte, North Carolina to accommodate the over 1700 attendees from around the globe who came to network with their peers, share best practices, the future of banking and see the latest and see new innovations.

Even as we focus on achieving our commitments around profitability and cash flow, we still expect to invest over 100 million in R&D.

this fiscal year. Innovation is at the heart of Encino's DNA and at Insight, we highlighted our continued product investment and recent and upcoming innovations centered on three key themes.

automation, experience and intelligence.

Automation is where Encino started 11 years ago when we began to automate the complex commercial lending process for community and regional banks in the US.

With automation, financial institutions benefit from faster product delivery to their customers, increased efficiency in operations, and improved accuracy in their systems.

Automation continues to be a fundamental part of Encino's product strategy across all product lines, asset classes and regions.

In this era of driving efficiency and productivity, we continue to automate processes that allow our customers to get more and more out of their platform investment.

Within experience, we were excited to demonstrate a new consumer front end, which integrates the simple Nexus Mobile First UI to the front end of the Encino Bank operating system, further enhancing the consumer lending experience.

The third key theme was intelligence.

As a reminder, we launched Nick, our suite of products utilizing data analytics, machine learning and AI four years ago. Our close relationships with our customers helped us recognize early on the critical role data plays in running successful financial institutions.

We've been encouraged by the continued growth of our existing NICK products, automated spreading, commercial pricing and profitability, and portfolio analytics.

The ability to provide data and insights and drive intelligence to every user at every stage of production across the financial institution is yet another benefit of our single platform.

Today Encino's unique customer base represents over 50% of CNI lending assets in the US.

Over 86% of all US farm credit association assets, around 38% of all Canadian bank assets,

And 25% of all US mortgage loans originated last year.

Our product roadmap is unique in that it can leverage the large dataset afforded by our broad and diverse customer base to deliver an ever-increasing level of intelligence, such as automated reviews and renewals, early warnings, automated credit decisions, and pricing for even more loan products as we expand upon our unique offerings.

Setting back to our first quarter results, as we said during our last call, Q1 was expected to be a slow sales quarter.

However, our pipeline remains healthy and we are seeing larger deals move through the pipeline. I want to share some feedback with you that we received from our sales teams in the field and directly from attendees at Insight.

representing our different market segments and geographic regions.

While all segments recognize the importance of modernization, buying propensity in Q1 differs between these segments. For example, community banks, which we define as those with assets below $10 billion, appear to have been relatively unaffected by liquidity concerns.

Regional banks, with assets between $10 billion and $100 billion, have seen slightly more impact, although those without exposure to unsecured deposit concentrations have continued to perform well.

It's within the US enterprise segment, those above 100 billion assets, where we have seen the most impact.

which caused lengthening sales cycles, particularly with larger sales opportunities.

However, the commentary we are hearing from our customers and prospects, paired with significant opportunities in the pipeline, reinforces our belief that this is a short-term situation.

Institutions of all sizes are committed to modernization and investing in automation and intelligence.

For example, we saw solid growth in EMEA in the first quarter in both bookings and qualified pipeline vote.

We also saw strong traction in APEC. Our geographic diversification is an asset and is helping to offset the current weakness in the U.S. enterprise market.

Another segment of Financial Services readdresses mortgage.

While the US mortgage market remains under pressure, we continue to grow market share.

with two more competitive takeouts in the first quarter. Additionally, the integration of the SimpleNexus team into Core and CINO is benefiting all aspects of the organization, including driving some of the largest pipeline opportunities in SimpleNexus history, particularly with larger banks and credit unions.

The integration of the SimpleNexus and Encino product teams is helping accelerate our future product development efforts as well, including the consumer front end I mentioned earlier and other enhancements and integrations across the platform.

I couldn't be more proud of their progress. Over my career, I've experienced many volatile market periods and economic cycles.

As CEO , my goal is always to focus on execution and controlling what we can control, regardless of short-term headwinds.

We went into Q1 knowing that sales, specifically with enterprise customers, would be weak given the market conditions.

Yet, the opportunities in the pipeline, record attendance at Insight, and conversations with our customers around the globe, reinforces that we are on the right path with the right strategy. From a financial standpoint, we remain firmly committed.

to executing this strategy with continued profitable growth and achieving the rule of 30 for fiscal 24. Now let me turn the call over to Josh for additional details on our progress in the quarter.

with continued profitable growth and achieving the rule of 30 for fiscal 24. Now let me turn the call over to Josh for additional details on our progress in the quarter. Thanks, Pierre.

Insight is an opportunity for us to showcase recent customer success. And nothing makes us prouder than to have satisfied clients join us on stage to talk about their Encino journey.

Representatives from financial institutions across market segments and geographies spoke about how they have partnered with Encino to reengineer processes to deliver streamlined production and faster decision with less swivel chair between systems.

For example, Lisa Frazier, Chief Operating Officer of Top Australian Small and Medium Enterprise Lender Judo Bank, shared how Encino has been a critical part of their journey and growth trajectory.

Judo Bank first started with Encino for lending, and from December 2020 to December 2022, they grew their loan book from $2.6 billion to $7.5 billion.

Since going live on Encino for retail deposits in November of 2022, Judo Bank has already experienced a 5% increase in application completion rate.

a nine-point increase in the bank's net promoter score, and an 80% decrease in customer support calls.

We demonstrated new product enhancements and features, including improved borrower experiences for consumer lending, new integrations and automation for small business lending, strategic partnerships for intelligent consumer credit decisions and automated underwriting.

and live demonstrations of SimpleNexus mobile technology being used to expand and augment usage of the Encino Bank operating system.

A product portfolio addresses the challenges financial institutions face today, such as commercial real estate.

softening, credit monitoring, and interest rate fluctuations.

by enabling them with intelligence and automation throughout the lifecycle of a loan.

During insight, we showed how Encino leverages intelligence to help customers identify the likelihood of default, offer data visualization for tenancy and vacancy within commercial real estate portfolios, provide automated credit decisions, price commercial loans based on the entire customer relationship, and automate the review of commercial loans.

We also view an evolving regulatory environment as an opportunity to assist our customers with data capture and recording around ESG, fair lending requirements and Dodd 1071.

The data strategy Pierre mentioned allows us to continue innovating, adding efficiencies, and delivering more value to our customers throughout our single platform.

The NIC product roadmap includes predictive analytics, even more automation, easier compliance, and improved monitoring.

Turning to the quarter, let's discuss some of the go live milestones we achieved for customers. We completed a small business go live for a top four US Bank.

We helped a top 50 US bank replace their internally developed commercial pricing tool with Encino's commercial pricing and profitability solution.

We completed successful trade-compliant retail lending implementations with several platform customers and we achieved a commercial and consumer platform rollout for a $4 billion bank within just seven months.

On the sales front, we benefited from our diversified market presence as some of the non-U.S. markets were our strongest growth regions. Our team in EMEA had another strong quarter, building on the success they had in the fourth quarter, adding one of the UK's top mortgage lenders as a customer for property lending. This new customer sale was an important validation point for the UK property lending market.

where we are well positioned to help the largest winters.

The EMEA team also renewed, extended and grew our relationship with the top four UK bank and caused an upsell opportunity with a top four French bank to support ESG initiatives.

To round out achievements across our target geographies, the team signed an agreement with an existing South African customer for automated spreading. NYX Solutions continued to gain traction in the US as well, where we signed an over 7 billion asset California-based lender for commercial lending, portfolio analytics, and automated spreading.

In Q1, we also closed expansion deals with two top 25 U.S. banks.

for customer portal and additional treasury onboarding users respectively.

Customers have shared that Treasury services provide not only important fee revenue, but also create stickier deposit relationships, as corporate operating accounts are less likely to flow on rate alone.

In fact, we believe our single platform vision resonates even better in the current environment, as it allows our customers to provide a robust product set that they can fulfill effectively across multiple channels. In the U.S. mortgage industry, we continue to acquire new logos, cross-sell additional products and win customers from our competition.

as we yet again grow revenues in our mortgage business despite the difficult environment. We are also nearing completion on integration work to connect with more third-party mortgage LOS providers. For more information, visit www.fema.gov

These integrations will enable us to even more aggressively self-simplenect this with the largest financial institutions in the US.

Our conviction and the opportunity to continue modernizing the financial service industry has never been stronger. And the demand we see is reflected in the strength of our customer success stories and our pipeline.

Greg, can you please take us to the financial results?

Thank you, Josh, and thanks everyone for joining us this afternoon to review our first quarter fiscal 2024 financial results.

Please note that all numbers referenced in my remarks are on a non-GAAP basis unless otherwise stated.

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

We are pleased with our first quarter results.

Total revenues were $113.7 million, an increase of 21% year over year.

Subscription revenues for the first quarter were $97.3 million, an increase of 23% year-over-year, representing 86% of total revenues. Subscription revenues were in line with the top end of our guidance despite the turbulence in the U.S. Enterprise Bank and mortgage markets.

Professional services revenues were $16.3 million in the quarter, growing 9% year-over-year. We did see project delays and postponements from three enterprise banks in the U.S. distracted by liquidity concerns that negatively impacted professional services revenues by approximately $150,000 in the quarter with a commensurate impact on services margin.

We expect these specific project delays and postponements will negatively impact professional services revenues by approximately 1.25M dollars for the full year. We redeployed the Encino personnel assigned to the impacted projects into the community market segment, which appears to have been largely unaffected by deposit flows.

continue seeing success with our managed services practice.

both of which we expect will help mitigate the impact to professional services gross margin for the year.

Non-US revenues were $19.2 million, or 17% of total revenues in the first quarter, up 35% year-over-year, or 43% in constant currency.

The region contributed strong sequential growth and more than doubled year over year. With the increase primarily attributable to subscription revenues.

We continue to expect revenues from outside the U.S. to remain accretive to growth primarily on the subscription revenues line.

non-GAAP gross profit for the first quarter of Fiscal 24 was $73.8 million, an increase of 22% year-over-year.

non-GAAP gross margin was 65% compared to 64% in the first quarter of Fiscal 23.

Our gross margin improvement in the quarter was largely due to a year-over-year improvement in customer support margins and from subscription revenues being a larger contributor to total revenues.

non-GAAP operating income for the first quarter of Fiscal 24 was $10.9 million compared with a loss of $3.7 million in the first quarter of Fiscal 23.

Our non-GAAP operating margin for the first quarter was positive 10%, compared with negative 4% in the first quarter of fiscal 23. We continue to focus on profitable growth and operating efficiencies, leading to a balanced outperformance against expense budgets and a record quarter on the bottom line.

Additionally, although we are no longer breaking out Simple Nexus, we have received questions about their impact on our bottom line and wanted to note that we expect Simple Nexus, which you will increasingly hear us refer to as our U.S. mortgage business, to be a very

to generate non-GAAP operating income and contribute positive free cash flow for fiscal 24.

despite the ongoing challenges in the mortgage market, particularly with independent mortgage banks.

The Simple Nexus business continues to perform well and take market share.

non-GAAP net income attributable to Encino for the first quarter of fiscal 24 was $8 million, or 7 cents per diluted share, compared to a loss of $6.1 million, or negative 6 cents per basic and diluted share in the first quarter of fiscal 23.

Our remaining performance obligation, or RPO, was $914 million as of April 30, 2023, up 1% from $905.6 million as of April 30, 2022.

With 622.6M in the less than 24 months category. Up 10% from 567.3M as of April 30th, 2022.

FX contributed an approximately half a percent headwind to total RPO year over year.

As I noted on last quarter's call, we expected delays in closing deals in the first quarter in light of the liquidity issues in the US bank market. And as such, the sequential decline in RPO was expected based on our internal models, though, as a reminder, we do not drive the business to RPO or current RPO targets.

Contract durations for RPO additions in the quarter were healthy, and existing customers, including renewals, accounted for just over 80% of the gross additions to RPO in the quarter.

Turn in the quarter of annualized subscription revenues was $8.6 million related to prior year M&A activity.

Independent mortgage banks downsizing or going out of business, and the expiration of some Triple P agreements, as I referenced on last quarter's earnings call. This amount of churn was in line with overall expectations, but from a timing standpoint, some of the independent mortgage bank churn occurred sooner than anticipated.

which will negatively impact our second quarter in full year subscription revenues. We expect our churn rate to remain elevated in the second quarter, but still be in line with our 6% assumption for the full year.

We continue to believe that churn rates will return to more historical norms of 2-3% in future years.

We ended the quarter with cash and cash equivalents of $103.5 million, including restricted cash, and following the payment of $15 million on our credit line, which now has $15 million outstanding.

Net cash provided by operating activities was $31.3 million compared to $1.2 million in the first quarter of fiscal 2023.

Capital expenditures were $1.6 million in the quarter, resulting in a record quarter of $29.7 million in free cash flow for the first quarter of fiscal 24.

Moving on to guidance.

For the second quarter, we expect total revenues of $114 million to $115.5 million, with subscription revenues of $97.5 million to $98.5 million.

The subscription revenues guidance includes an approximately 2% revenue headwind from the impact of the churn noted above.

non-GAAP operating income is expected to be approximately $8 million to $9.5 million, and non-GAAP net income attributable to Encino per share to be $0.06 to $0.08 for the second quarter.

This is based upon a weighted average of approximately 114.5 million diluted shares outstanding.

As you heard from Josh and Pierre, we hosted our user conference in May, so sales and marketing expenses will be seasonally higher in the second quarter, which will negatively impact our bottom line performance.

For fiscal year 24, we expect total revenues to be $474 million to $478.5 million, with subscription revenues of $405 million to $409 million.

The full year total revenue guidance takes the 1.25 million of project delays and postponements in the churn I previously mentioned into account.

and assumes the majority of churn in fiscal 24 occurs in the first half of the year, primarily from independent mortgage banks.

Given this assumption, we expect revenue growth rates to stabilize in the second half of the year.

We expect non-GAAP operating income for fiscal 24 to be $48 million to $52.5 million. non-GAAP net income attributable to Encino per share is expected to be 37 cents to 40 cents, based upon a weighted average of approximately 115 million diluted shares outstanding.

target for fiscal year 24.

24. With that, I'll open the line up for questions.

And thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And we do ask that you limit yourself to one question and one follow-up.

Again, that's one question and one follow-up. And one moment for our first question.

And our first question comes from Charles Nuban from Stevens. Your line is now open. Your line is now open.

Hi, good afternoon and thank you for taking my question. I wanted to get a little more detail around the delayed implementation.

and specifically around your expectations for those deals, whether you see them transpiring at some point during the year or next year, and maybe some comments around the root causes of those delays would be helpful as well.

Yeah, let me first, thanks for your question, let me first give you this assurance. There's delays in projects.

did not impact activation schedules of seats in any way, shape, or form as per our contracts and as we have explained for your modeling before. Maybe Josh or Greg can give more details on the project itself. Yeah, and so again from time to time projects are delayed.

That's not completely uncommon. As Pierre noted, Project-

Noted project.

Projects in general are not connected to activation dates. So that's not part of the equation here. And we work with our customers through those. These 3 enterprise banks you could appreciate were impacted by the liquidity issues that took place in Q1. And ultimately, as they had things to prioritize and focus on, you know, they.

delayed or postponed the projects that we were working on. We'll continue to work with those customers and hopefully re-engage with them as the year progresses and again, they're able to turn their attention back to what we were working on with them.

Got it and just as a quick follow up, I was hoping to get your comments around the mortgage business. I think some of the churn within among independent mortgage brokers has been widely publicized, but I was hoping you could comment on the health of.

your remaining customer base specifically in terms of whether they've you know sort of right-sized their headcount at this point and you know more align their cost structure with with environment.

It appears to us from commentary and interaction with our clients that that customer base is stabilized and that the companies who wanted to close down or decided to cut back on resources have done so. That's what it appears like at this stage. We are feeling very optimistic versus if you can realize our business has been growing year over year.

as aggressive as we can.

Yeah, Charles, ultimately, I think we end up with a smaller number of larger, more well-capitalized INBs, and I think that'll be a good base to grow from as the dust settles. And again, in parallel, focus on expanding in the banking credit union market, which we've had success just in the year that we've had SimpleNexus part of the Encino family.

Got it. I appreciate the color guys. Thank you. And thank you. And one moment for our next question.

And our next question comes from Nick Altman from Scotiabank. Your line is now open.

Awesome. Thanks, guys. Pierre, you talked about how some of these larger deals in the pipeline remain intact, but you also called out the enterprise segment as being a little bit more challenged and maybe seeing a little bit incremental weakness in the quarter. I guess my first question is just

What are sort of these larger enterprise level financial institutions telling you from a buying propensity perspective? Are they telling you to wait for the second half? Is it initiatives are just shelved in the interim? Just sort of any incremental color you can kind of provide for us around.

the deposits were drained. That was a shock to the system that is unknown to most management teams currently in their seats.

So you clearly got this shock effect and then people started looking at their own balance sheets and wanted to make sure that they've got the right allocations and the right liquidity as needed. That shock effect I would say is largely over now. Banks feel confident that they can proceed with the right liquidity levels they need right now.

So we see people moving away from paying attention to that back to more strategic elements. The early indications are that in second quarter we begin to see deals coming loose and it's moving down the pipelines again. The people are meeting with us. They're willing to see us on site.

And as you know, just from inside, they're willing to travel and come see us. So we feel that the worst is behind us. And we will see a slight improvement in second quarter and then a pickup in third and fourth quarter. But that's the commentary we get. We also see that already in Europe . We believe Europe is ahead of the US on more of a positive approach.

buying approach, so I feel optimistic for the rest of the year. Great. And then just as a follow-up and going off that comment, understand the bookings and revenue ramp dynamics that you guys have in the model. But

Can you maybe and maybe not provide a growth framework for next year, but just understanding there's sort of this lag of when you book a deal to when the revenue is sort of ramped and you guys recognize it. If some of these larger deals sort of come in in 3Q and 4Q, will that not necessarily be recognized in a revenue next year? And if that's the case...

What are you guys sort of doing in the interim or what are sort of the remedies to sort of, you know, protect revenue growth next year? As you think about, you know, some of these larger, you know, deals that have, you know, multi-year ramps are a little bit more challenged. Is it, you know, upselling back in the install base? Is it?

Is it Nick? Just sort of any incremental color you can give around how you're thinking about revenue growth for next year given the bookings dynamics for this year.

Yeah, I'm going to let Greg comment on the specific mechanics and how the reference works and how we see next year. We're not going to comment specifics on next year, but I just want to remind people on the call about the models and how they work for this year. When you have a slow Q1, some of that revenue should have fallen this year.

and Q2. You know, what happens after July has minimal effect of this year. There are some products that is a quick turn on. But that's why what you're seeing us is making sure that we've got this year.

the credibility and the visibility to you exactly what we see is happening right now. As we look at the deals in the pipe that's going to come later in Q2 and then Q3 and Q4, that's what's actually going to impact next year. And the pipe looks healthy. We feel optimistic. We were in great conversations on a global basis. And Greg, why don't you go into a little bit more into how that schedule works and what you're seeing.

the rest of the year. Again, we think that without getting into fiscal 25, we think that's helpful for fiscal 25. And in the meantime, it's, I think Pierre also noted, we do have a portion of our revenue base, which is much quicker from an activation standpoint. So when you think about our simple nexus offering, and when you think about our NIC offerings.

those turn ons are much quicker than the historic bank operating system activation schedule. Great, thank you. And thank you.

those turn-ons are much quicker than the historic bank operating system activation schedule. Great, thank you. And thank you. And one moment for our next question.

And our next question comes from Terry Tillman from Truist Securities. Your line is now open. Yeah, good afternoon. Thanks for taking my questions as well. Maybe the first question for Pierre or Josh is just on the international side. It seems like that's kind of a...

Kind of definitely a glass-half-full situation right now. There's relative strength. What's the confidence level of that activity continuing from 2.2 through the rest of the year? And is it new logos or is it just the expanding portfolio of products and just activations with existing customers? Just trying to understand. I'll see. Right?

You know, how much we can hang our hat on international holding in there the rest of the year and then add a follow up. Yeah, it's good to speak with you, Jerry and thanks for the question. We are really proud of how our team did in the 1st quarter. We spoke about that. That was a bright spot for us. Signing that property lender obviously is an indication of the retail story.

there as well as the team's ability to execute. You know, if you were an insight jury, you would have seen a total of 15 countries represented in this environment for folks to make that trip as a good validation. So, we're absolutely seeing momentum with Greenfield accounts as reference there. You saw a South African account adopt auto-spreading.

this quarter. So we're continuing to tell the story both the new accounts and existing accounts or seeing the benefit of things like our ESG module. We had an account in France adopt us for ESG. So we're proud of that. We'll keep telling the story. That team's done a nice job. They had a tough start last year.

Remember our commentary, but we're seeing a green shoots there and pleased with their progress. Yeah, and just 1 more thing to add Josh is that the property lending opportunity was a net new. A net new customer for casino. That's good enough.

Yeah, we wish you all had one of these conferences every quarter, although I guess it would add to sales and marketing. We talked to over 20 customers. It was a great event. Nick, in particular, stood out. So, no, it was a great exposure for us. So, thanks for the invitation there. One follow-up question for you, Greg, just relates to, just optically, the second half of the year, there's even more operating leverage, so that's important.

You're talking about expense leverage.

I just lost you for a second.

that'll start to improve with that in 2Q, or could that still be kind of challenged in the near term in relationship to what is clear-cut second half strength and operating leverage?

Yeah, gotcha, gotcha. Yeah, I mean, Q1 RPO is seasonally slow. We've actually had RPO down, I think, three times sequentially since being public. So it's not unusual for us. And again, we tried to preview this when we were on our last call.

And as I said in my prepared remarks, this is really in line with our kind of internal guides. And so we do expect that to improve as the year progresses. And again, as we look at the pipes, as we look at the conversations that we're having with our customers, and as we look at the activity, I think we again expect that to improve, but nothing is out of line with what we said to you back in the end of March.

Thank you. And thank you. One more and one moment for our next question.

And our next question comes from James Fausette from Morgan Stanley . Your line is now open. Great. Thank you very much. I wanted to follow up on a couple of quick things.

I guess the first is like when we look at some of the bank closures, it seems like there might be a potential in as much as 3% headwind on revenue there. But the timing and the way that they're being taken care of is a little bit uncertain. So I should be thinking about when you should.

up in M&A deals. We know the companies who acquired these. Our teams are working them all. And all of that risk is built into our forecast and our guidance. So I feel pretty good about what we see from there. Josh, anything you want to add? No, all those situations are different. Our focus is to continue supporting those accounts as best we can.

I'm going to quickly cash flow, saw a real shift there. I want to try to understand what's happening.

especially on the accounts receivable line. And, you know, how should we think about that and the cash flow dynamics generally? Is there something atypical that may be happened near term? I just wanna make sure we're calibrating ourselves correctly on a go-forward basis.

Yeah, from a cash flow perspective, you know, Q1 and Q2 are seasonally our highest cash flow quarters. It's been that way. But again, I think as you've seen us shift more towards profitability, you know, we would expect that as we commented last quarter from a

year perspective, we'd expect you to see that throughout the year. And so we're proud of the non-GAAP operating income and the cash flow that we generated, and I think from an operational perspective, there's additional opportunity to build that as the year progresses and we go into next year.

Great, thank you.

Great, thank you. And thank you. Thank you again for listening.

And one moment for our next question. And our next question comes from Robert Napoli with William Blair.

And one moment for our next question. And our next question comes from Robert Napoli with William Blair. Thank you.

Great, thank you. I was hoping to get maybe some update on NIQ, which products are really resonating there, and if you can give some color on the growth rate of NIQ, and just what you feel the long-term opportunity.

is for NIQ, you know, from a TAM or revenue perspective? Absolutely. We're proud of what we're doing there. We sit today with about 30% of bank operating system accounts leveraging NICK. We spoke earlier in our Q&A.

about a South African account that adopted us for auto spreading. We're really proud to have a top 50 bank in the U.S. live on pricing and profitability and doing extremely well. Those are discerning accounts. Once we get to that size, it's a great validation point for us. But if you pull back to what we provide these customers...

by getting the full value chain of front, middle, back office on one platform, taking the inefficiencies out of the process, streamlining from end to end how they take care of their customers, that gives us a great landing space to come back and inject intelligence. That's evidenced by what we've discussed with auto-spreading, that's evidenced by the customers that we've discussed that are on pricing and profitability, and there are myriad other opportunities to go back.

and further optimize that process. So we're pleased with that. If you're at Insight, you would have heard us really focus on the theme of intelligence, and that's timely, and it's much needed in the industry, and we'll continue going farther. Any additional metrics on growth rate or size of the business and the long-term potential for the size of that open IQ?

Yeah, currently the time we've got out there is about a 20% lift on the current base. And we've made that public as we start building that out. Obviously over time, we believe there's opportunity to expand pricing on that as those products mature, number one. Number two, lots of opportunity to add products.

Remember, as I mentioned in my prepared remarks, the amount of data that we have around the industry that banks are willing to share with us is tremendous. And they are working with us on use cases as well, where we can build more NIC products. So I'm very optimistic about that.

Thank you. Then follow up on just the investment in, I mean, you've done appreciate the operating profitability. It's great to see that, you know, obviously the challenges as you have flat investment in sales and marketing year over year, you know, how do you keep the, you know, the growth engine rolling.

So how have you been able to, obviously it seems like you had some nice wins in the quarter, but how do you adjust to take from the very high growth in sales and marketing to having that flatten out, but still looking to have the growth momentum for next year and the next several years?

Yeah, and that compare when you look at it does include some periods where we made structural investments in new markets and it takes a while. Given the complexity of what we do in the sales cycle that we that we navigate to mature those bets and continue to optimize that. So we're pleased with where we sit. As of now, we see a total of 16 cross sales of Simple Nexus.

that we've done into the Encino customer base. When I look at the growth of pipeline of large financial institutions with Simple Nexus, it shows that that market coverage is helping. We continue to throttle it. But as we've delivered on our commitment for our profitable growth framework, we are not sacrificing market coverage because we believe in the long term and we'll continue to put the people on the field that we need.

and that we are making sure from a growth standpoint, we are executing as well as we can.

Thank you. And thank you. One moment please.

One moment for our next question. And our next question comes from Kenneth Cichoski from Autonomous Research. Your line is now open.

Hey, good afternoon, everyone. Thanks for taking the question here. If I do the math right, it looks like you're forecasting a subscription revenue growth of, I think it's around 16 percent or so in fiscal 2Q and in the second half of the year. So I guess is this the new normal for the next…

handful of quarters just given where the RPO growth is at the moment. I guess is the expectation to get back to that 20% plus.

Type of growth next year. Yeah. Hey Ken. Thanks for the question. You know, we'll from a quarter standpoint, we'll focus on Q2. But ultimately the churn specifically that we noted in the headwind really impacts Q2. That was really the comment that we tried to make in terms of revenue stabilizing in, you know, from a growth standpoint in the second half of the year.

And so we would really view Q2 as the low point and again driven significantly by the churn that happened, which the good news is that we're getting it behind us as the year progresses in the first half of the year.

view Q2 as the low point and again driven significantly by the churn that happened which the good news is that we're getting it behind us as the year progresses in the first half of the year.

I think that's how we respond to that question. So you think about the full year. Okay, all right great. And then you mentioned the rule of 30 and it looks like the non gap operating income guide and the margin guide is up. Slightly versus the old guide and. So you're implying kind of better margin versus prior.

So where's the outperformance coming from on the margin side? And then maybe you could just give us an update on your appetite to reinvest versus kind of letting the margin shift higher just because we are seeing a little bit of a slowdown in this macro environment.

Yeah, and you'll see leverage across all of our operating expense lines. I think as we've consistently stated, we are going to continue to err on the side of growth. And so that remains our focus. And so, again, we've been operating the business. We see continued leverage, as I noted in my remarks, the second half of the year from an expense standpoint, but we're going to continue to.

to focus on growth. And so yes, we are willing to reinvest as we see opportunities to grow in this market.

Yeah, I just want to add something to that, which to me was extraordinary about the culture of the company and how people, the employees are pulling together on this path of profitable growth. In our engineering teams, we have moved from two releases annually to much more of a cadence of monthly releases that's available to customers.

They have to take it every six months. And if you look at how they embrace that, the productivity improvements and the pace of development that we see now versus the past, tells you that when you shift your focus from pure growth to profitable growth and people begin to recognize the impact of value to customer in a short term.

and how that could help the company, that was extraordinary. So everywhere we look in the company, we have examples like that, that is driven efficiency, which was not your main focus when you're pure growth. So we feel very good about our prospects.

for continued leverage on the cost line. Without impacting growth. Yes. Right. Okay, great. Thanks so much guys, appreciate it.

on the coastline. Without impacting growth. Yes. Right. Okay. All right. Thanks so much, guys. Appreciate it. And thank you.

And one moment for our next question.

And we have Adam Bergere from Bank of America. Your line is now open. Great. Thank you. A quick clarifying one. So the $1.25 million lower cost services revenue for this year, can we kind of concretely take that to mean that these three deals or implementations have been delayed into the next fiscal year?

If for purposes of guidance, that's what we are assuming. Obviously, we'll work with those customers on that in their timelines as they are able to focus back on projects versus other priority items. That's what we're assuming from a guidance perspective. Okay, thank you for clarifying that.

And then the comment here for the US mortgage business, I guess Simple Nexus sounds great. And I wanted to get your thoughts on what specifically about that product do you think is kind of helping to drive the market share gains even in such a tough environment. Thank you.

So, Simple Nexus has built a fantastic product that has been really well received by the customer base. I was excited at InSight to see a customer who is one of our early adopters of the integration of the front end of Simple Nexus, the bank operating system. They got live in 60 days. They've been extremely successful.

And we're proud of that. The first reason that we believe they're continuing to gain market share in this environment is they have the most intuitive and well adopted mortgage solution in the market. We think that team and the culture and the way they focus on their customers also shines through and Acino's corporate stability and overall continued good execution is another strong point for folks who are paying attention to that with their software vendors.

Yeah, then if you look at us expanding the front end to include other retail as well business products, that was very, very well received at our conference and we saw a lot of interest in people standardizing their customer experience onto a single platform. That also opens up our core platform with APIs because we use exactly the same APIs for that front end integration from simple Nexus to the back end.

and that's going to be exposed to our lots of customers to access core and Cino to those APIs. That whole development has been very positive, and that's also driving the man for simple access because they can see they can do more G today, and then by the end of the year they can start migrating some retail functions over as well. Let's help with color. Thank you very much. And thank you.

And one moment for our next question. And our next question comes from Jackson Adder from SBB Moffett Nathanson. Your line is now open.

Great. Good evening, guys. The first one is, do you expect that the lengthening of deal cycles will lead to a catch-up maybe later in 2024, or are you thinking, okay, this is just gifting things out?

No, there clearly is a point where it may accelerate bookings and concentrate that in a quarter or two as people start catching their breath and catching up. So what we are seeing right now is people are trying to get over a temporary slowdown.

make sure that their house is in order, and then we begin to see an acceleration of deals. That's what we see in movement in the pipe and the commentary from salespeople as well as the banks. And so we are pursuing those deals as aggressive as we can.

Okay, great. And then are there. You know, just on on the simple next deciding the independent mortgage brokers. Are there others that you see, like, if we get I'm not saying it happens, but let's just say we have a pause in rate hikes and then a couple more come.

And so we actually see maybe more independent brokers scale back or go out of business if rates go up. Is any of that factored into that third quarter, fourth quarter stabilization in the mortgage market? We've considered the possibility of a further rate hike and what impact that may have. And so our forecast today, look at the full marketplace.

international, as well as local mortgage, as well as our core and senior in the U.S. We considered all of those.

Obviously, I cannot foresee an incident like what we have with liquidity issues in banks. If that happens, that's outside of what I can forecast because that's truly a crisis. From all the commentary, both by our customers as well as general market commentary, what I'm seeing is that the financial markets are stabilized.

and we feel good. We also feel that in the mortgage business, the people who wanted to leave the business have gone. And that market is now concentrating on a few bigger players. And we feel good about our positioning there. And then if you look at the vendors in our space, we feel very good about our financial stability, the quality of our product and the speed that we can implement it.

So we actually see this whole situation as an opportunity. Great. Thank you. And thank you.

And one moment for our next question. And our next question comes from Meyank Pandan from Needham & Company. Your line is now open. Your line is now open.

Great. Hey, guys, this is actually Stamps Albasan for MIOC today. Thanks for taking the questions here. Just one quick one for me. You guys spoke a little bit about some of the success you had cross-selling, but could you guys dive a little deeper into, you know, how cross-selling was this past quarter and then maybe specifically talk about that in...

So the composition is going to be split between those NIC solutions for mature customers. Then we're also continuing to go where we can and take things like simple nexus or retail lending into those accounts. So pleased with the progress. I think part of why we've been able to see deal size for simple nexus increase has been the stability of the bank mortgage market.

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

Hi, this is Jessica on for Alex. I just have one quick question. Up here at InSight, you talked about how banks would try and leverage deeper whole customer relationships with customers, including treasury, as a means of preventing deposit flights. How is that message coming out of the conference? Thanks.

Yeah, thank you. You know, we exceedingly see banks understanding the value of the single platform and having a 360 view of the customer and actually drive a total business value to them as opposed to be product focused, okay, or silo focused. And I can tell you as our products are maturing and…

We've got now over 80 retail lending customers using our product, okay? And that retail side is coming up and our treasury logos is up 28% here over here

This whole notion that you can have a platform that is client focused with multiple products and you can actually center your attention to that customer and customer profitability with our tools and NIC etc. is really resonating because otherwise your deposit flow goes to the four big banks.

And they have to find a way to embrace the consumer, the retail customer, get those deposits in the banks, because those are your $1300 to $2000 deposit accounts and they don't flee for rates.

And so that message was very well received. And it was interesting how many bankers came to me and commented on the fact that they didn't make this deposit loan connection from the consumer and appreciated those insights. So we are feeling good about our strategic direction and the products we're building. And I think the banking sector is getting it.

I think what we've really seen to add to that and then further to the cross-sell question from the prior question is just a revisiting of the basics that to maintain those organic deposits, make them sticky. These banks want to fulfill a broad set of really nice products. They want to fulfill them very well across multiple channels. So, when you look at expansion deals, we have this.

And one moment for our next question. And our next question comes from Josh Beck from KeyBank. Your line is now open. Yeah, thank you so much for taking the question. Yeah, I wanted to ask a little bit..

about some of the larger enterprise banks. I think you cited there were three of them with delays. Just when you kind of double click on really some of the color that they gave, just if there were any consistencies and certainly also how they're thinking about the re-engagement of

of certainly implementation. Just anything that's put out there would be great. We see the market very focused on the expense line and even if they're not totally kicking out a project, they may want to look more closely at the resources they have on the project and try to run with the lighter team. So I think all those institutions have been watching the macro.

and are trying to be as efficient where they can spend and thoughtful with new investments. So, I mean, that's the high level theme. I've not had banks say we don't think it's important to modernize. I've not had banks say that they don't need to digitize, but they have the CFOs too who look at expense lines.

And they try to be thoughtful throughout this macro reality. Yeah, and Josh, I think specifically with those, I would note again from a timing standpoint, I think prioritization and addressing the liquidity matters that were going on, you know, played a large part in them focusing elsewhere for the for the near term.

Makes sense. And then, yeah, I'm also curious, I think one of the messages from certainly probably a lot of those similar banks, really the enterprise category is this attitude towards tightening as we go into the second half of the year.

is the calendar year. So I'm just kind of curious, like historically, are there any correlations that you've observed on the tightening within banks and then a little bit related just in terms of some of your deposit products, if that's something really

Maybe this creates an opportunity as banks become a little bit more focused on garnering deposits. Just curious if there's anything there to highlight as well. Yeah, look, if you look at the cycles, the last time you had liquidity crisis like this, or raising rates was in the early 80s. But unfortunately, none of these bank managers...

was actually in senior enough positions to understand what was going on at the time. So if you look overall, what I would say is when we started the company in 2012, we hit the market at the right time because people realized you cannot stop monetizing because you fall behind. Some of the big companies have 10, 10,000 people in the world. And that's a lot of money. And so, you know, I think that's a lot of money.

It has billions of dollars in IT budgets and they keep on investing. And so your mid to lower end markets struggle to catch up with technology investments.

So I don't think this is going to be a long-term slowdown of spend. As a matter of fact, there's a number of studies out that says banks is no, we're going to keep on spending.

I don't think this is going to be a long-term slowdown of spend. As a matter of fact, there's a number of studies out that says banks says, no, we're going to keep on spending. We have to have following what happened in agent 7 very early, as a matter of fact, what

stumble across the two, three, four, that clearly had to address the quality issues and they just had to focus on saving the bank. That is very different than something that's systemic across the industry. So what my view is, is that spending will continue. It will actually accelerate towards the second half of the year and banks will continue to do this. Realize this, in these rate environments, the net interest margin squeeze is very tight on them.

that lowers their income. The only lever left is actually operational efficiency. So you could look at their efficiency ratios and if you look at the commentary that we get back from our surveys from our banks Encino drives them to a much higher efficiency ratio also a higher close rate on loans and that's what they need.

So overall, I think we'll just come back in the second half of the year and continue on as always. It just takes a while to get there. Very helpful. Thank you, Pierre and Jean. And thank you.

And I am showing no further questions. I would now like to turn the call back over to Pierre Nardet, Chairman and Chief Executive Officer, for closing remarks. Well, thank you all for joining us. Thanks to our shareholders for their support and our employees for the innovation. And I look forward to speak to you more at a later date. Thank you so much.

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

I have.