Q3 2024 nCino Inc Earnings Call
Thank you for standing by and welcome to the Encino third quarter fiscal year 2024 financial results Conference call. At this time, all participants are in a listen only mode.
Speaker 1: Thank you for standing by and welcome to Encino's third quarter fiscal year of 2024 Financial Results Conference call. At this time, all participants are on a listening mode. After the speakers presentations, there'll be a question and answer session.
After the Speakers' presentation, there'll be a question and answer session.
Dan a question at that time. Please press star one wondering your telephone. Please be advised today's call is being recorded I would now like turn the call over to your host Mr. Harrison Master Investor Relations. Please go ahead.
Speaker 1: To enter a question at that time, please press star one one on your telephone. Please be advised that today's call is being recorded. I will now turn the call over to your host, Mr. Harrison, master investor relations. Please go ahead.
Okay.
Good afternoon, and welcome to <unk> third quarter fiscal 2024 earnings call with me on today's call are pure Arnaud de <unk>, Chairman and Chief Executive Officer, Greg Ornstein, Chief Financial Officer, and Josh Glover, President and Chief revenue Officer.
Speaker 2: Good afternoon and welcome to Encina's third quarter fiscal 2024 earnings call. With me on today's call, our PR Nodei, Encina's Chairman and Chief Executive Officer, Greg Hornstein, Chief Financial Officer, and Josh Glover, President and Chief Revenue Officer.
Speaker 2: During the course of this conference call, we will make for-looking statements regarding trends, strategies, and the anticipated performance of our business.
During the course of this conference call, we will make forward looking statements regarding trends strategies and anticipated performance of our business.
Speaker 2: These forward-looking statements are based on management's current views and expectations and pale certain assumptions made as of today's date. And our subject to various risk and uncertainties described in our SEC filings at other publicly available documents, the financial services industry and global economic conditions.
These forward looking statements are based on management's current views and expectations entail certain assumptions made as of today's date and are subject to various risks and uncertainties described in our SEC filings and other publicly available documents the financial services industry and global economic conditions.
Speaker 2: and CNO just claims any obligation to update or revise any forward-looking statement.
<unk> disclaims any obligation to update or revise any forward looking statements.
Speaker 2: Further on today's call, we will also discuss certain non-gap metrics that we believe aid in the understanding of our financial results.
Further on today's call. We will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results.
Speaker 2: The 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 SBC 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.
A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to the form 8-K furnished with the SEC just before this call as.
As well as the earnings presentation on our Investor Relations website at Investor <unk> Dot com with that I will now turn the call over to Pierre.
Speaker 3: Thank you, Harrison. And thank you for joining us this afternoon to review our third quarter fiscal 2024 performance.
Thank you Allison and thank you for joining US this afternoon to review our third quarter fiscal 2020 for performance.
Speaker 3: We had another solid quarter despite the continued unsettled macroeconomic environment.
We had another solid quarter. Despite the continued unsettled macroeconomic environment.
Speaker 3: We exceeded the high end of our revenue guidance with subscription revenues of $104.8 million up 19% year over year. And total revenues of $121.9 million up 16% year over year. Once again, we significantly increased profitability, posting a 17% non-gap operating income margin, even as we continue to invest in the business, specifically in product innovation.
We exceeded the high end of our revenue guidance with subscription revenues of $104 8 million.
Up 19% year over year, and total revenues of $121 9 million.
Up 16% year over year.
Once again, we significantly increased profitability posting a 17% non-GAAP operating income margin, even as we continue to invest in the business specifically in product innovation.
Speaker 3: Our positive view of the quarter reflects a number of significant product wins across the platform. In particular, we are very excited to announce signing our first consumer lending deal with an enterprise bank in the United States. And over 200 billion dollar interviews.
Our positive view of the quarter reflects a number of significant product wins across the platform.
In particular, we are very excited to announce signing our first consumer lending deal with an enterprise bank in the United States and over $200 billion institution.
Speaker 3: Over the past several quarters, we have been highlighting the progress we have made maturing our consumer lending product, and we view landing this customer for consumer lending as another validation of that momentum, as well as of our overall single platform product stats.
Over the past several quarters, we have been highlighting the progress we have made maturing our consumer lending product and we view lending this customer for consumer lending that's another validation of that momentum as well as overall single platform product strategy.
Speaker 3: We also continue to stride in our US mortgage business. Our financial results reflect double digit US mortgage revenue growth.
We also continued.
And how are you.
S mortgage business, our financial results reflect double digit U S mortgage revenue growth.
Speaker 3: Even despite lower volumes of originations and an uptick in IMV churn driven by generationally high mortgage rates.
Even despite lower volumes of originations and the uptick in <unk> churn driven by generationally high mortgage rates.
Speaker 3: These results demonstrate the benefit of cross-selling into our installed base of banks and credit unions, the differentiation of our mortgage technology and, we believe, the durability of our business model.
These results demonstrate the benefits of cross selling into our installed base of banks and credit unions, the differentiation of our mortgage technology and we believe the durability of our business model.
A pivotal one for our U S mortgage business in the quarter came with our first cross sell to a regional bank in the U S that has been using <unk> for both consumer and commercial lending our.
Speaker 3: A pivotal one for our US mortgage business in the quarter came with our first cross sell to a regional bank in the US that has been using and seen over both consumer and commercial lending. Our market leading mortgage technology further enhances our ability to grow wallet share in an account once a customer experiences the value of our technology.
Our market, leading mortgage technology further enhances our ability to grow wallet share in an account once a customer experiences the value of our technology.
Speaker 3: These ones are the result of having our products available on a single integrated platform. And we are excited to deliver an enhanced omnichannel experience for consumer lending in the spring, further leveraging the technology we acquired in the Simple Nexus Transact.
These wins are the result of having products available on a single integrated platform and we are excited to deliver an enhanced omnichannel experience for consumer lending in the spring further leveraging the technology, we acquired in the simple Nexus transaction.
Speaker 3: As our first generally available point of sale journey beyond mortgage, this offering will empower our consumer lending customers to deliver the exceptional point of sale experience we offer for mortgage across a broad spectrum of consumer lending products.
Our first generally available point of sale journey beyond mortgage this offering will empower our consumer lending customers to deliver the exceptional point of sale experience, we outperformed mortgage across a broad spectrum of consumer lending products.
Speaker 3: We expect this offering to further accelerate sales for both our consumer and mortgage lending solutions.
We expect this offering to further accelerate sales for both our consumer and mortgage lending solutions.
Speaker 3: As we continue to innovate and expand the capabilities of the platform, I'm also excited by the AI capabilities being introduced through banking advisor.
As we continue to innovate and expand the capabilities of the platform.
I'm also excited by the AI capabilities being introduced through banking adviser.
Speaker 3: which leverages our data expertise. Over the past four years, we have been working with our customers to create a large, differentiated pool of commercial and consumer banking data, including mortgage data. Today, we are well positioned to provide valuable and actionable insights from data aggregated across our customer base and integrated into our single platform.
Which leverages our data expertise over the past four years, we have been working with our customers to create a large differentiated pool of commercial and consumer banking data, including mortgage data to date, we are well positioned to provide valuable and actionable insights from data aggregated across our customer.
Base and integrated into our single platform.
Speaker 3: Access to the data is a powerful enabler and our deep domain expertise is informing our AI strategy.
Access to this data is a powerful enabler and our deep domain expertise is informing our AI strategy.
The industry has taken notice of this expertise as evidenced by the over 1200 people who registered put out initial AI webinar in September.
Speaker 3: When available early next year, Banking Advisor will help usher in the next wave of intelligent automation, delivered on a single platform for originating any loan product and opening any account type at critical decision points.
When available early next year banking advisor will help usher in the next wave of intelligent automation delivered on a single platform for originating any loan product and opening any account type at critical decision points.
Speaker 3: Turning to our international business, in Q3 we added our largest customer to date in Japan by signing Yamaguchi Financial Group.
Turning to our international business in Q3, we added our largest customer to date in Japan by signing Yamaguchi financial group.
Speaker 3: YMFG, which occupies a top spot in the sizable regional Japanese banking market, opportunity within Sino to improve the efficiency of their processes and the user experience offered to their customers through digital transformation, beginning with their mortgage business.
Im AFG, which occupies a top spot in the sizeable regional Japanese banking market.
One opportunity with encino to improve the efficiency of their processes and the user experience they offer to their customers through digital transformation beginning with their mortgage business.
Speaker 3: We are excited about the large opportunities we see in the Japanese market and are pleased to see our investments over the past three years their bearing fruit.
We are excited about the large opportunities we see in the Japanese market and are pleased to see our investments over the past few years, they're bearing fruit.
Speaker 3: Despite this list of Q3 accomplishments, the selling environment does remain challenged in certain parts of our business.
Despite this list of Q3 accomplishments the selling environment does remain challenged in certain parts of our business.
Speaker 3: Enterprise banks in particular continue to be slower signing deals. And unlike the second quarter, we did see a few deals get pushed out of the third quarter as these customers further evaluate their budgets and the potential impact of an evolving interest rate environment on their business.
Enterprise banks in particular continued to be slower signing deals and unlike the second quarter. We did see a few deals get pushed out of the third quarter. As these customers further evaluate their budgets and the potential impact of an evolving interest rate environment on their business.
Over the past few weeks I've traveled to see customers and prospects across North America and Europe.
Speaker 3: Over the past few weeks, I have traveled to see customers and prospects across North America and Europe .
Speaker 3: I've come away from these conversations incredibly energized about our opportunity, as their needs align so closely with the value proposition of Encino's single platform in product strategy.
Come away from these conversations incredibly energized about our opportunity as it needs align so closely with the value proposition often see knows single platform and product strategy.
Speaker 3: We both this company and continue to innovate our technology. So the world's best financial institutions can more efficiently run their operations on a single platform.
We built this company and continue to innovate our technology. So the worlds best financial institutions can more efficiently run their operations on a single platform.
Speaker 3: In this environment, risk reduction and cost savings are paramount. An Encina was proving efficiency and greater security, while leveraging data to provide unique insights into our customers' business.
In this environment, the risk reduction and cost savings are Paramount and then.
<unk> is proving efficiency and greater security, while leveraging data to provide unique insights into our customers' businesses.
As the macro environment settles down.
Speaker 3: As the macro environment settles down, the institutions leveraging and seeing there will be better position for market share gains. Profitability, success and longevity.
<unk>, leveraging and senior will be better positioned for market share gains profitability success and longevity.
Speaker 3: Our sales pipeline, which remains healthy, reinforces we are on the right path, notwithstanding some lumpiness we have seen this year with enterprise sales opportunities.
Our sales pipelines.
Which remains healthy reinforces we are on the right path notwithstanding some lumpiness, we have seen this year with enterprise sales opportunities.
Speaker 3: We are excited to close the year with a strong Q4, positioning in CNO for further growth next year and beyond.
We are excited to close the year with a strong Q4 positioning encino for further growth next year and beyond now.
Speaker 3: Now let me turn the call over to Joss to provide additional details on some of the operational highlights of Q3.
Now, let me turn the call over to Josh to provide additional details on some of the operational highlights of Q3.
Speaker 2: Thank you, Pierre. We are pleased with our third quarter result in the continuum of men and we see in the business.
Thank you Pierre we are pleased with our third quarter results and the continued momentum we see in the business on the sales front, we signed key strategic wins across market segments geographies and solutions.
Speaker 2: On the sales front, we sign key strategic wins across market segments, geographies, and solutions.
Speaker 2: We added our largest customer to date for consumer lending in this last quarter, signing a $200 billion bank in the United States. This new customer will leverage Encino across all of their consumer lines of business, with both in-branch and digital workflows to modernize their go-to-market approach. We're extremely proud of the work our product teams have done to enable a best of breed consumer lending solution for even the largest banks in the U.S.
We ended our largest customer to date for consumer lending in this last quarter, signing a $200 billion bank in the United States. This new customer will leverage encino across all of their consumer lines of business with both in branch and digital workflows to modernize their go to market approach.
We're extremely proud of the work our product teams have done to enable a best of breed consumer lending solution for even the largest banks in the U S.
Also in the quarter, we signed an expansion agreement with an existing regional bank customer for mortgage point of sale, bringing mortgage point of sale consumer and commercial lending all into a single platform for this over $35 billion bank.
Speaker 2: Also in the quarter, we signed an expansion agreement with an existing regional bank customer for mortgage point of sale, bringing mortgage point of sale, consumer and commercial lending all into a single platform for this over $35 billion bank. This is an exciting proof point for the scalability of our mortgage technology, having passed a rigorous selection process with one of our most sophisticated customers.
This is an exciting proof point for the scalability of our mortgaged technology, having passed a rigorous selection process with minerals. Our most sophisticated customers, we expect to deliver exceptional time to value with a quick go live in the fourth quarter, our thesis that a mortgage point of sale offering with resonate in our legacy bank customer base is proving out.
Speaker 2: We expect to deliver exceptional time to value with a quick go live in the fourth quarter. Our thesis that a mortgage point of sale offering would resonate in our legacy bank customer base is proving out.
With half of the eight new mortgage logo signed in the third quarter belonging to financial institutions are mortgage customer base is now 46% financial institutions on a logo basis versus 25% at the time of the acquisition of simple Nexus and our mortgage pipeline on a dollar basis is now comprised 60% of <unk>.
Speaker 2: Our mortgage customer base is now 46% financial institutions on a logo basis, versus 25% at the time of the acquisition of Simple Nexus. And our mortgage pipeline on a dollar basis is now comprised 60% of financial institutions.
Financial institutions.
Speaker 2: As interest rate pressures continue to drive consolidation of the long tail of IMBs in the industry, we are working with existing customers to season through this downturn, and we are aggressively cross-selling into the under-pinnetrated banking and credit EU markets.
As interest rate pressures continue to drive consolidation of the long tail of <unk> in the industry. We are working with existing customers. The season through this downturn and we are aggressively cross selling into the Underpenetrated banking and credit Union markets.
Speaker 2: We continue to see our competitive differentiation of mortgage proven out by the market with two additional competitive takeaways this quarter.
We continue to see our competitive differentiation of mortgage proven out by the market with two additional competitive takeaways this quarter.
Speaker 2: We continue to see success with multi-solution net new deals in the quarter, including a $6 billion bank that selected in CNO for commercial lending, portfolio analytics, and auto spreading, and a community bank that picked in CNO for commercial and consumer lending as well as auto spreading. A more streamlined and efficient tech stack is resonating even in the current environment as banks see vendor consolidation as a way to gain critical efficiencies across their operations.
We continue to seeing some success with multi solution net new deals in the quarter, including a $6 billion bank that selected encino for commercial lending portfolio analytics and auto spreading in a community bank that pickton casino for commercial and consumer lending as well as auto spreading.
More streamlined and efficient tech stack is resonating even in the current environment as banks see vendor consolidation as a way to gain critical efficiencies across their operations.
Speaker 2: Our pipeline for solutions beyond commercial lending continues to develop, making up half of the total pipeline as of quarter-inch.
Our pipeline for solutions beyond commercial lending continues to develop making up half of the total pipeline as of quarter end.
Risk management is another key value proposition of our solutions that drove new business in the third quarter, we signed our largest portfolio analytics bank deal to date for commercial real estate stress testing extended analysis and concentrated risk reported reporting.
Speaker 2: Risk management is another key value proposition of our solutions that drove new business and the third quarter. We signed our largest portfolio analytics bank deal to date for commercial real estate stress testing, trended analysis, and concentrated risk reporting.
Speaker 2: We also signed our largest ever Portfolio Analytics Credit Union deal this quarter for CC.
We also signed our largest ever portfolio analytics credit Union deal this quarter for seasonal.
Turning to international markets as peer noted in Japan, our team signed a record deal with Yamaguchi financial group.
Speaker 2: Turning to international markets, as Pierre noted, in Japan, our team signed a record deal with Yamaguchi Financial Group, a US $150 billion asset bank, making this our largest customer to date in Japan. This opportunity is for a mortgage use case by which prospective home buyers can apply entirely online 24 hours a day, replacing a traditional paper process.
150 billion asset bank, making this our largest customer to date in Japan. This opportunities for a mortgage use case, which prospective homebuyers can apply entirely online 24 hours a day, replacing a traditional paper process.
Speaker 2: jointly we see a clear expansion path across both corporate and consumer lines of business to help YMFG realize a goal of originating all loan products from a single plant.
Jointly we see a clear expansion path across both corporate and consumer lines of business.
To help <unk> realize a goal of originating all loan products from a single platform.
Speaker 2: We are pleased with the receptivity we're seeing in the Japanese market. A SAM opportunity we size at $1.4 billion US. This win represents another critical lighthouse account and is still relatively new and still under penetrated market for NCE.
We are pleased with the receptivity, we're seeing in the Japanese market.
Sam opportunity, we sized at $1 $4 billion U S.
This win represents another critical lighthouse account and is still relatively new and still underpenetrated market for Encino.
Lastly, we completed in year seven figure ACB expansion deal.
Speaker 2: Lastly, we completed a year seven figure ACV expansion deal with an existing UKI customer that first signed in fiscal 2019.
With an existing UK customer that first signed in fiscal 2019.
Speaker 2: This opportunity was for corporate and institutional banking, small and medium enterprise banking, commercial pricing and profitability, ESG and end-to-end mortgage.
This opportunity was for our corporate and institutional banking small and medium enterprise banking commercial pricing and profitability ESG and end to end mortgage origination.
Speaker 2: While embracing these newer offerings, this bank also extended their commitment with Ixino for another five years.
While embracing these newer offerings. This bank also extended their commitment with a casino for another five years.
Speaker 2: Our broad and diverse customer base continues to be an asset, particularly in a complex macro environment.
Our broad and diverse customer base continues to be an asset, particularly in a complex macro environment.
Approximately 60% of our gross ACB bookings in the quarter came from existing customers with.
Speaker 2: Approximately 60% of our growth ACV bookings in the quarter came from existing customers.
Speaker 2: With 50% of platform customers now using more than one product, and 25% year-over-year growth and nick adoption by platform customers, I cannot overstate the strategic long-term value of our customer relationship.
With 50% of platform customers now using more than one product in.
And 25% year over year growth in Nick adoption by platform customers.
Cannot overstate the strategic long term value of our customer relationships looking.
Speaker 2: Looking to the fourth quarter, we remain confident in our ability to execute and our well-positioned with ample pipeline coverage for a seasonally high fourth quarter sales performance. Greg, he takes us to the finance.
Looking to the fourth quarter, we remain confident in our ability to execute and are well positioned with ample pipeline coverage for our seasonally high fourth quarter sales performance Gregg can you take us through the financials.
Speaker 2: Thank you Josh and thanks everyone for joining us this afternoon to review our third quarter 524 financial results.
Thank you Josh and thanks, everyone for joining us this afternoon to review our third quarter 24 financial results.
Speaker 2: Please note that all numbers referenced in my remarks are only non-gap basis unless otherwise stated. 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 SEC just before this call.
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 8-K furnished with the SEC just before this call.
To echo peer and Josh I am pleased with our third quarter financial results total.
Speaker 2: To echo Pierre and Josh, I am pleased with our third quarter financial results.
Speaker 2: Total revenues for the third quarter of fiscal 24 were $121.9 million, an increase of 16% year over year.
Total revenues for the third quarter of fiscal 'twenty, four or $121 9 million, an increase of 16% year over year.
Speaker 2: Subscription revenues for the third quarter were $104.8 million, an increase of 19% year-over-year, representing 86% of total revenue.
Subscription revenues for the third quarter were $104 8 million, an increase of 19% year over year, representing 86% of total revenues.
Professional services revenues were $17 $2 million in the quarter growing 1% year over year.
Speaker 2: Professional services revenues were $17.2 million in the quarter, growing 1% year over year.
Speaker 2: professional services revenue growth was impacted by pressure on bill rates, even as utilization from a billable hours perspective improved year over year.
Professional services revenue growth was impacted by pressure on bill rates, even as utilization from a billable hours perspective improved year over year.
Speaker 2: As I noted during my investor day comments, we will continue to focus on leveraging our extensive SI ecosystem to provide professional services to our customers and prioritize subscription over professional services revenue.
As I noted during our Investor day comments, we will continue to focus on leveraging our extensive si ecosystem to provide professional services to our customers and prioritize subscription over professional services revenues.
Speaker 2: Non-US revenues were 23.4 million dollars or 19% of total revenues in the third quarter, up 48% year over year.
Non U S revenues were $23 4 million or 19% of total revenues in the third quarter up 48% year over year.
Subscription revenues growth outside the United States outpaced respective total revenues growth with particular strength coming from our Australia, and New Zealand operations.
Speaker 2: Subscription Revenous Growth outside the United States outpaced respective total revenues growth with particular strength coming from Australia and New Zealand operations.
non-GAAP gross profit for the third quarter of fiscal 'twenty, four was $81 1 million, an increase of 18% year over year.
Speaker 2: Non-GAP gross profit for the third quarter of fiscal 24 was $81.1 million, an increase of 18% year over year.
Speaker 2: Non-gap gross margin was 67% compared to 65% in the third quarter of fiscal 23.
non-GAAP gross margin was 67% compared to 65% in the third quarter of fiscal 'twenty three.
Speaker 2: The gross margin improvement was due to efficiencies realized in our customer support organization while maintaining customer satisfaction ratings of 3.9 or about 98% with five times the the respondent's documented versus the year ago quarter.
The gross margin improvement was due to efficiencies realized in our customer support organization, while maintaining customer satisfaction ratings of three nine or about 98% with five times, the respondents documented versus the year ago quarter.
Speaker 2: non-GAAP operating income for the third quarter of fiscal 24 was $20.4 million, compared with $2.5 million in the third quarter of fiscal 23.
non-GAAP operating income for the third quarter of fiscal 'twenty, four was $24 million compared with $2 $5 million in the third quarter of fiscal 'twenty three.
Speaker 2: Our non-gap operating margin for the third quarter was 17% compared with 2% in the third quarter of fiscal 23.
Our non-GAAP operating margin for the third quarter was 17% compared with 2% in the third quarter of fiscal 'twenty three.
Speaker 2: This impressive bottom line performance reflects continued operational discipline and leverage from our business model.
This impressive bottom line performance reflects continued operational discipline and leverage from our business model.
Speaker 2: Our non-GAAP results this quarter also include approximately $2.8 million of accrual reversals for tax equalization within sales and marketing and for certain employee benefits across the organization.
Our non-GAAP results. This quarter also include approximately $2 $8 million of accrual reversals for tax equalization within sales and marketing and for certain employee benefits across the organization.
non-GAAP net income attributable to Encino for the third quarter of fiscal 'twenty, four was $16 2 million or <unk> 14 per diluted share compared to negative $1 4 million or negative <unk> <unk> per basic and diluted share in the third quarter of fiscal 'twenty three.
Speaker 2: non-gap net income attributable to Encino for the third quarter of fiscal 24 was $16.2 million or 14 cents per deluded share compared to negative $1.4 million or negative 1 cents per basic indeluted share in the third quarter of fiscal 23.
Speaker 2: As I noted during our investor day, during the third quarter, we rebranded the SimpleNexus solution to Encino Mortgage, resulting in a change to the trade name Useful Life. As a result, we recorded accelerated amortization to fully amortize the remaining trade name Intangible Assets.
As I noted during our Investor day during the third quarter, we rebranded the simple Nexus solution to Encino mortgage resulting in a change to the trade name useful life.
As a result, we recorded accelerated amortization to fully amortize the remaining trade name intangible asset.
Speaker 2: The effect of this change in estimate for the third quarter was an increase in sales and marketing amortization expense of $10.1 million or $0.09 per basic and diluted share.
The effect of this change in estimate for the third quarter was an increase in sales and marketing amortization expense of $10 $1 million or <unk> <unk> per basic and diluted share.
Speaker 2: The impact of this accelerated amortization expense has been excluded from our non-GAAP result.
The impact of this accelerated amortization expense has been excluded from our non-GAAP results.
We ended the quarter with cash and cash equivalents of $105 8 million, including restricted cash.
Speaker 2: We ended the quarter with cash and cash equivalents of $105.8 million, including restricted cash.
Net cash provided by operating activities was $5 9 million compared to negative $4 1 million in the third quarter of fiscal 'twenty three.
Speaker 2: Capital expenditures were approximately $600,000 in the quarter, resulting in free cash flow of $5.3 million for the third quarter of fiscal 24.
Capital expenditures were approximately $600000 in the quarter.
Resulting in free cash flow of $5 3 million for the third quarter of fiscal 'twenty four.
You will note incremental spend on the investment on the investments line of our balance sheet and statement of cash flows and related disclosures this quarter for a $2 $5 million investment in rich data Coe and Australia based leading AI decisioning platform that helps banks make high quality lending decisions efficiently and <unk>.
Speaker 2: You will note incremental spend on the investments line of our balance sheet and statement of cash flows and related disclosures this quarter for a $2.5 million investment in Rich DataCo, an Australia-based leading AI decisioning platform that helps banks make high quality lending decisions efficiently and safely.
Safely we announced.
Speaker 2: We announced a partnership and reseller arrangement with RDC in February of this year and our proud to cement our relationship with this investment to enable even tighter collaboration between our two organizations.
The partnership and reseller arrangement with RTC in February of this year and are proud to cement our relationship with this investment to enable even tighter collaboration between our two organizations.
Our remaining performance obligation or <unk> was $917 $1 million as of October 31, 2023, compared with $919 $2 million as of October 31, 2022.
With $627 6 million in the less than 24 months category.
Up 4% from $603 $9 million as of October 31, 2022.
As you heard from payer and Josh we saw great validation of our solutions across market segments products and geographies in the third quarter.
Bookings in the third quarter were lower than in the second quarter, but we continue to expect gross bookings in the second half of the year to be better in the first half of the year as previously communicated.
We did see elevated churn in the third quarter from <unk> and our U S mortgage business of approximately $5 million of annualized subscription revenues as some RMB struggled with mortgage rates, peaking in October to the highest level in over 20 years.
This level of churn exceeded our internal churn forecast by about $2 5 million.
Fortunately despite the rate pressure, we are seeing the top performing originators earn a positive production profit as reported in the latest MBA quarterly mortgage bankers performance report the.
The mortgage industry has come a long way towards right sizing for current volumes and with our U S mortgage business continuing to take market share and grow revenues. Despite the interest rate pressure and elevated churn. We believe this business is very well positioned for healthy top line growth for years to come.
Churn in down sell for the rest of the business were in line with expectations in the third quarter, but in light of the elevated RMB churn. We are adjusting our churn rate expert expectation for the full year to about 9% of prior year subscription revenues up from 6%.
Although the outlook for our fourth quarter revenues has been tempered by this heightened churn we are increasing both the low and high end of our outlook for full year subscription revenues guidance.
Please note that this heightened churn rate of 9% also includes the impact of our relationship with one of the three customers that was acquired during the liquidity crisis ending about nine months before the expiration of their contract which was scheduled to be in may of 2024.
This event had a negative impact on deferred revenue of approximately $900000.
Positively we expect to maintain the other two customers that were acquired and in fact have already expanded our relationship into one of the acquiring bags.
Turning to guidance for the fourth quarter, we expect total revenues of $23 5 million to $125 $5 million with subscription revenues of $105 5 million to $107 $5 million.
This guidance assumes year over year subscription revenues growth at 15% at the midpoint of our range.
non-GAAP operating income is expected to be approximately $15 million to $16 million and non-GAAP loss attributable to <unk> per share to be between 11 to 13 for the fourth quarter.
This is based upon a weighted average of approximately $115 5 million diluted shares outstanding.
For the full fiscal year 'twenty four we expect total revenues of $476 5 million to $478 $5 million with.
<unk> revenues of $407 5 million to $409 5 million.
This full year guidance assumes year over year subscription revenues growth of 18% at the midpoint of our range.
We are again, increasing the range of our full year non-GAAP operating income guidance to 57 5 million to $58 $5 million.
non-GAAP net income attributable to <unk> per share is expected to be between <unk> 40.
To <unk> 42.
Based upon a weighted average of approximately 115 million diluted shares outstanding.
With that we'll open the lineup for questions.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one wondering your telephone again to ask a question. Please press star 111 moment for your first question.
Our first question comes from the line of Adam Hotchkiss of Goldman Sachs. Your line is open.
Great. Thanks for taking my questions I guess to start it would be great to get a little bit more color on how customers outside of the independent mortgage banks are responding to the evolving rate environment in particular some of the recent movement in rate expectations for next year, just wondering if youre seeing any initial changes as to how decision makers are thinking about product prioritization.
Our budgets and then your comment on incremental scrutiny at the enterprise level.
Thats relation in relation to Q4 or if that's something you'd think reflects early indications of 24 budgets as well.
Okay. Thanks for your question, what we're seeing in the market is.
That everybody is preparing.
The moment of the rates stabilize to actually come more aggressive through the market and to solutions like ours.
We see it in our pipelines received in conversations with the banks.
The tentative nature of the buying persona were seeing today is still because of the uncertainty of the rate environment and as soon as I see stability in depth the banks realize the need for moving forward this transformation projects to actually be competitive.
In the short run.
We're still seeing that lumpiness in the market in the enterprise, we are beginning to see some stabilization.
Is that the retail deal we'll show you.
We're seeing some great stuff in the pipeline around movement in that market, but again that final decision making.
<unk> is a bit slower than what we would like to see people looks a bit more tentative on the other hand, the pipeline is healthy and we feel very good about it.
That's great really helpful. And then Greg I was wondering if you could just comment a bit more on the leverage this quarter and it looks like it was both in sales and marketing and R&D in particular, just wondering where youre seeing the lowest hanging fruit and what youre looking for in terms of investment discipline four of 24.
Yes, Thanks Adam.
As noted the team continues to execute well as an organization and really has embraced the shift from just pure growth in prior years to profitable growth and so we have seen nice leverage across all of our opex lines.
And we will continue to focus on that as we think about next year and again consistently we say we want to reinforce this that we will continue to prioritize growth.
And as we see opportunities for growth, we're going to make sure. Our investments are aligned to capture those again, we still think it's in the early days of a very large market opportunity for US. We think we've got a unique leadership position and we want to make sure that we continue to invest.
In that in that leadership position again across the entire platform.
And again, Peter referenced and Josh referenced in their comments that consumer lending deal again, another validation of our platform and ultimately what our software can do for banks on a global basis.
Okay really helpful. Thanks, Pierre Thanks, Craig.
Thanks, Adam.
Thank you one moment please.
Our next question comes from the line of key CLIA.
Barclays. Your line is open.
Okay, Great Hey, guys. Thanks, a lot for taking my questions here.
Okay.
Hey, Hey, guys.
Pierre Josh maybe this question is for you first of all congrats on the consumer lending.
Enterprise when 200 billion is certainly very big Bank, maybe the question is.
Could you folks just maybe speak to.
<unk> is typically replacing in these consumer lending deals.
And what do you think is sort of the catalyst for these banks to be considering a replacement at this juncture does that makes sense.
Sure I can take that.
Thats grown a lot and when a bank grows like that and they realize they want to continue serving the consumer.
Segment at scale.
They pulled back and make sure they have architectures that will continue to scale with them big.
A big piece of focus here.
Pushing more to the digital channel. If you are working with the legacy system. As this institution was it's pretty hard to run an efficient operation. If you have an in house legacy system.
<unk> that's in flexible that can evolve with your business, it's hard to add products, it's hard to change business rules and we need through a digital channel on top of that it just won't keep up with the size of that with the bank of that size, so that $200 billion bank.
They realized they needed to replace probably three or four systems, along the way with the Encino project they'll get in branch.
And digital channel and that'll be a lot more efficient allow them to serve that customer base in a way customers expect to be served today. So.
Patient sees a driver of their vendor consolidation to driver there theyre going to be very well positioned on the other side.
A quick project as the economy recovers to compete.
I would add I think what youll notice is.
Below the top four banks.
The deposit flow towards the big four was an issue through the liquidity crisis and.
Every bank we talk to.
As a new renewed focus on the consumer to drive deposits.
Because your average deposit balance of a consumer that's much lower beta on movements for interest rate fluctuations. So what youll find this there will be a focus on consumers in the future to have a stable and a much broader diversified the deposit base going forward.
Youll see this across the whole banking sector that they.
Have to reverse that trend with deposit flows to the big four.
Yeah, that's super interesting.
Gregg maybe for you for my follow up.
So I'll preface by saying I know, we don't manage the business to to our Po.
Just since there are so many different drivers in that metric.
Its duration or mix and others right that you can educate us on but but can you just maybe just to make sure. The question is can you just speak to some of those moving parts and how you think about that sequential change in <unk> that we saw this quarter.
Yes.
Thanks for noting that we don't manage the business to RPM.
Appreciate that Vince we've tried to go out of our way to make sure folks understand that when you think about the different moving parts you mentioned duration.
Being being one obviously with the churn that we noted that as an impact to two <unk> as well.
<unk> mentioned some of the Lumpiness in enterprise, particularly when you think about the over 24 month number as you know those contracts with the larger customers are generally.
Longer than the two years 24 months, so we give them the CRP.
And so that's where you see some of the Lumpiness that we've been experiencing throughout the year in light of the macro environment.
And then the other thing I would probably note is just in terms of Josh mentioned in his comments approximately 60% of our gross ACB bookings in the quarter came from existing customers a lot of that is going to be add on business.
Generally we will align the Ireland business to co term with the agreement that's in place and so those would generally be in that shorter duration bucket.
Bucket as well.
And so those would be some of the moving parts on the other side things that we've talked about recently in terms for example of how we're structuring our mortgage contracts right to take into account some of the growth that we expect as that market stabilizes and ultimately grows again, that's not captured in our apio either as we think about upside opportunities.
Outside of that specific metric. So those are the things that I would kind of highlight to you.
Super clear, thanks, guys I'll get back in queue.
Thanks.
Thank you one moment please.
Our next question comes from the line of Terry Tillman of choice Securities. Your line is open.
Hey, good afternoon, Pierre Greg Harrison, Thanks for taking my questions as well I guess the first question.
And I don't know if this is Josh alright, Josh almost forgot your I don't know if this is for <unk> or Josh, but on the retail or consumer lending side. It does seem like a really important lighthouse win what I'm curious about is not trying to put you on the spot <unk>, the seasonally stronger bookings quarter, hopefully, but could we see rapidity here and more.
Large wins in the offing for near term or do you need to kind of get them up and running and they become this kind of referenced of all customer and then from there. We can start knocking them down like dominoes in terms of other large enterprise retail or consumer lending wins, and then I had a follow up.
Hey, Terry.
Josh.
Look the goal is to go as quickly as we can.
To sign a $200 billion bank for our consumer lending solution. Obviously, you have to go through.
Pretty detailed and long evaluation process, that's a fantastic proof point. So if you look at the other announcements we put out even in this call multiple community and regional financial institutions picking us for both commercial small business and consumer that's a great proof point that we'll try to take to the market and frankly for 200.
<unk>.
Thank to pull the trigger on a consumer lending deal in this environment.
It shows a lot of conviction as a great validation point. So we're excited so to answer your question directly we're going to go as quickly as we can.
Because because ultimately the scrutiny that we've stood up two shows that we can scale up.
Got it thank you, Josh and I guess as a follow up question is you. All recently hosted a great analyst day in terms of a lot of content a lot of helpful content one of the things I think.
It picked up from you all was the idea that ending <unk>.
The ending ACB balances up 14% year over year, I know, we have a little bit of a kind of a moving part here in terms of some of the <unk> churn, but do you still feel like there is that's kind of the floor or is the floor a bit higher just anything you can share about kind of the risk as we move into 2000 and calendar 2024, and subscription revenue kind of whats the low watermark. Thank you.
Yes Terry.
I think we're going to.
Pull back on addressing next year.
We did give you some commentary around bookings this quarter versus last quarter as well as some commentary around how we're looking at the second half of the year versus the first half of the year.
So I think at this point will probably be there again, noting that that was as we said at the Investor day kind of a data point and a point in time and I think thats something that we would really look too.
We visit more on an annual basis versus on a quarterly basis, but hopefully those data points in terms of the second half of the year over first are helpful to the commentary around the ample pipeline coverage that we have are helpful. In terms of how we're thinking about Q4, and ultimately ending the year strong.
Yes, Greg just one quick follow up on that.
<unk> you signed business. Some of this can be shorter data Dr activation schedules, though correct. So some of the products. If you do have a strong finish some of that could could meaningfully show up in calendar 'twenty four is that accurate.
At least in the second half that is accurate, yes, and again as we talked about in Investor day.
We are seeing with the mix of business with some of the pricing evolution that we've that we've addressed we're seeing a quicker turn from signing to revenue.
It's upwards of 28% to 30% in the first half of the year and compared that to the prior year I think was around 16%.
So we expect that trend to continue and so again, we will be getting as we go forward more in quarter or in year revenue from deals that we signed in quarter and year than we have in the past.
Thank you.
Thanks, Terry thank.
Thank you well known players.
Our next question comes from the line of Bob Napoli of William Blair. Your line is open.
Hey, good evening deep shattering on for Bob.
So first question just in terms of the significant Japan win.
Could you kind of talk about how critical system integrators, where if at all to that.
And then more broadly are you seeing kind of periods using a similar strategy in some of your core international cloud banking market.
Yes.
Absolutely. This is Josh the system integrators are part of that play they have local presence to understand the culture and we're taking some of these institutions literally from paper straight into the cloud so having.
The local team change management expertise and scale abilities of the size, particularly as we expand internationally.
Helps and were pleased not just about the initial <unk>.
<unk> point, but also about the way these banks are thinking about the single platform.
Where you have banks that are starting with mortgage some are starting with commercial but they're all doing it from the lens that they want to get the whole institution up on encina.
Got it.
And I guess, one for Greg and thinking about the long term operating margin targets you guys laid out during the Investor day, 35% and that compares to the 12 or so implied from the current fiscal full year guide as we thinking about annual margin expansion cadence should that kind of evenly distributed or more front end.
Back end loaded.
What's the visibility you have around that expansion. Thank you.
Yes.
Giving any guidance beyond this year again as we look at the target I set out a timeframe of 4% to six years and I think it all depends on.
The opportunities that we see.
Ultimately the market.
But again, we're going to err on the side of growth and to the extent that that margin targets, a little bit lower because our growth is higher as we march towards that rule of 50.
We'd be very happy with that.
So again I think we will update you as we as we move along in terms of progress that we're making but we continue to see opportunities for leverage across the organization again, you see and the progress that we've made on our on our margin lines as well as on our Opex lines.
I said earlier the team has done a great job. The organization has done a great job embracing the environment that we've been operating in.
Perfect. Thanks, guys.
Thank you.
Please.
Our next question comes from the line of Adam Burglary of Bank of America. Your line is open.
Hey, Thanks for taking my question can you give some color on the deals that pushed any sort of commonality between those deals.
Or you know thinking more in depth on them is there any way in which you had quantified dimensionalize how much that may have impacted Q3 results and lastly, how are those deals tracking now that you're roughly a month into Q4. Thanks.
Sure.
Absolutely those are not deals that dropped out of the pipeline ultimately sometimes they may have wanted to get another board look at that sometimes they may learn and see how the year continued on.
They are in this interest rate environment and continue to keep a keen eye on their credit quality, they're also thinking about their P&L as they deal with this margin compression.
So we do not see a lack of conviction on the need for transformation we.
We do see more more measured investment as they think about new lines of investment for the institution.
I think it's more a case of timing versus need.
Also we've not lost any of those deals to competitiveness. This is more a matter of.
Let's revisit in the budget cycle for banks and as soon as those are solidified.
Move forward and we see that pipeline movements as well. So we're very optimistic that we're going to see some of those coming through.
Got it and as a quick follow up sort of embedded that new assumption I don't know if these are taking a little longer than expected and the Q4 guide. Thanks.
Yes, our Q4 guide is assuming that it's understood we understand now very well.
Churn expectations in the market both are in RMB. So we've taken a conservative view and we've built that into the guidance that we've provided.
Thank you.
One moment please.
Our next question comes from the line of Alex Skyler.
Raymond James Your line is open.
Great. Thank you Greg outside of that the 2 million accrual that you called out.
Sales and marketing this quarter was there anything else one time impacting operating income this quarter, and then kind of unrelated to your answer about preferring to growth.
A couple of the earlier questions can you just talk about what's being factored from a hiring or an investment perspective in the fourth quarter relative to the third quarter.
Driving kind of the sequential margin decline.
Yes, so from.
It was $2 $8 million that was really the one time.
The other thing I'd note is in the second quarter, we had our insight our annual user conference.
As a heavier spend so as you look at it on a sequential basis I would note that as well when.
When you look at fourth quarter.
The guide that we provided.
Ultimately taking into account obviously holidays.
Seasonality that we sometimes see in the fourth quarter. So I think that's what.
As impacting the guide if you deduct the one times that I noted.
From the total and you look at the guide that we gave.
Theres, a small little delta there, but that's really what it comes down to.
Okay, perfect. So no major incremental hiring kind of into yearend above and beyond kind of normal operating.
No I think for US it's business as usual as.
As we look into the fourth quarter, a big focus one obviously closing business as Josh noted.
And echoing <unk> comments, we have we.
We see ample coverage from a sales pipeline perspective, and so we're just focused on execution.
Now and the end of the fiscal year.
Okay, great color and Josh just one for you. It seems like good net sales again this quarter I heard that 25% growth in adoption I think you flagged, though recently that youre seeing higher Nick deal sizes as well so any way you could kind of frame the revenue growth from Nick is it meaningfully above that 25% figure.
Yes, and the stat that we quote it was we see 25% year over year growth and Nick adoption on the platform that brings us to 34% of platform customers.
Nick to date.
Also in the quarter, we had for portfolio analytics, one of our one of our Great Lakes solutions. The biggest deal we've ever done with the bank and the biggest deal we've ever done with a credit Union. So we're pleased with that momentum Greg you want to speak about how that fluids revenue.
Yes, I mean, ultimately again as we talked about with our niche solutions that turns quicker into revenue.
So.
We see that more quickly impacting our P&L that's exciting as we look at the mix of business and again, the evolution of our of our pricing model.
Alright, Thank you both.
Thank you.
Ladies and gentlemen, if you like to ask a question. Please press star one one of your telephone again to ask a question. Please press star one one.
One moment for our next question.
Our next question comes from James Faucette of Morgan Stanley. Your line is open.
Great. Thank you very much.
I wanted to dig in quickly and I think here in the past you've alluded to some inertia in the sales cycle does that kind of what youre seeing right now and is that.
Consistent or is that what youre also talking about when you say that you've got customers that are kind of waiting for the interest rate environment to stabilize before kind of moving ahead and making decisions.
Yeah look we've got banks, where profitability was down as much as 40% year over here as announced by public institutions.
And so you can imagine when you have that kind of environment, where they are looking for east ability of the future and right now there's still there's massive debate is the fed going to raise rates was more is it going to start cutting et cetera, and these have impacts.
Both of them the psychology as well as the actual results of banking and so what we're seeing is.
People are cautiously becoming optimistic but waiting to see that this stabilized environment is setting in.
I don't think that necessarily wait for the rates to start coming down.
I think bankers in general believe it will more stabilize the southern and the moment that stabilization of set in place.
They are ready to make investments and you're just seeing that level of uncertainty at the moment that's over.
According to our pipelines and our conversations with banks.
They have to do this this is where they have to go this is the kind of platform.
Core IV simplification modernization. This is what the consumer wants they needed for the deposit gathering they needed for efficiency than it is for compliance.
<unk>.
They all know that and we meet with them on a frequent basis.
In Europe, where one customer said when we look back the project is a bit more difficult than we expected, but what else do you do.
Of course was music to my ears.
So I feel very optimistic that being a good strategic place our platform was maturing at the right time.
And as these phenomenal noncommercial wins of the need to show is that this whole architecture of effort. We put in is going to pay off.
Got it got it got it thank you.
Greg I know you've kind of touched on this in a couple of different ways.
Just want to make sure that we understand in terms of the change in churn.
Churn has remained.
Stable at your previous assumption.
How much of an impact or how would you have been changing your fourth quarter guide at all I'm, just trying to make sure that we understand though that the level of.
Churn impact versus other factors.
It was a big part of MISO, we rolled some of our over performance in Q3 into Q4 in terms of upping, our helping our guidance, but ultimately not the whole thing and so that certainly was an impact and Ian James When we really saw was just October I mean <unk>.
Interest rates, and where specifically mortgage rates peaked.
<unk>.
Ultimately just some of the <unk> I think just said enough was enough.
As we looked at the first month of this quarter. So far things are more in line with what we expect and obviously this is something we've been tracking for the last year plus the team's done a really good job of tracking the churn I do think it was somewhat unique.
A unique set of circumstances in October with that spike that really.
Increased the the churn level from really what our expectations were.
Got it got it got it thanks for that Greg I appreciate it.
You bet.
Thank you one moment please.
Our next question comes from the line of Nick Altman.
<unk> Bank your line is open.
Awesome. Thanks, guys.
It sounds like Theres, a lot of excitement around banking advisers. So I wanted to ask a couple questions there.
I guess just the first one being what is the initial customer feedback then from those who are beta testing it.
Is there any sort of update on the monetization strategy there.
And then just as a follow up is the best way to think about the opportunity with banking adviser really around the installed base with with <unk> Iq.
And should that really kind of foster more cross sell activity into next year should we kind of think about those as mutually exclusive.
And this is Josh.
<unk> been pleased but not surprised by the customer excitement about this we've done I think were really good job of meeting our customers where they are the problems are really asking us to help them solve today is helping with efficiency and also helping with employee effectiveness and employee engagement. So if you think about the initial use cases, where we will have.
The ability for banking advisor to offer a knowledge base, where a banker rather than navigating a 300 page PDF credit memo.
They can have that at their fingertips, where they can have intelligent credit memo narratives, where rather than sitting in typing out the risks of doing a hotel loan in Florida. They can use generative AI to tell them that look we have seasonal risks because of tourism, we have hurricane risk et cetera. So those are things that are going to make employees a lot more efficient and frankly.
Help banks, even though the labor market is becoming a little bit more employer friendly it will help them attract the kind of employees that they need to continue evolving their bank because the smartest Kid graduating universities today does not want to go sit in them through a 300 page credit memo our credit policy. So those are the kinds of things that we've seen relative to monetization.
<unk> banking adviser is something that will contribute to <unk> growth and I would expect to see Nick use cases continue to monetize on a standalone basis as you've heard from us with portfolio analytics with pricing and profitability, but we will also use these tools to inject intelligence at every aspect of the application.
<unk> is a validation of the continued investment that we have in the ongoing growth that we get from our customers.
Great and then just a quick follow up you guys mentioned earlier, 60% of gross ACD bookings came from the installed base in <unk>.
When you look at the Q4 pipeline, how does that kind of look in terms of net new versus existing just given it's a seasonally strong spending quarter for software, there's budget flush dynamics et cetera. Thanks.
So we feel good about the pipe relative to our ability to deliver on the commitments that we've made for the fourth quarter were we're not also not being tone deaf on the macro and realizing that.
The buying environment is tough so we feel confident that we have ample coverage.
60% in quarter from existing customers as we've seen when when the market gets tough our customers need us more and we continue to focus on them and Thats one of the benefits of having such a fantastic customer base of happy happy customers that we that we partnered with three years composition has not changed.
Relative to two new deals or existing customers as we said earlier, we're not seeing greenfield logos fall out of the pipe. We're just seeing a more thoughtful timeline for how they buy.
Very helpful. Thank you.
Thank you one moment please.
Our next question comes from the line of Alex Mark Graff.
<unk> Your line is open.
Hey, everyone. Thanks for taking the question I actually wanted to expand on the prior question, maybe ask it a bit differently.
Thinking about that mix of say gross ACB bookings on a more normalized basis or in a more normalized environment. When you consider the.
Pent up demand, particularly in enterprise and some of the product expansions that are helping you lead with noncommercial products just curious I mean.
60% for the last couple of quarters from existing what is a good range to think about for that mix from existing versus new.
On the other side of this kind of more challenging macro environment, just considering that the changes are out product and such in the last couple of years historically as targeted we run about 50 50.
Which is good because.
You cross sell into your base through both of these products you add more value.
You upgrade them and that gives you a bit of.
Pricing power as well because of your continuous innovation and then 50% new logos, where you've got lower penetration you can start cross selling to them again, so historically reran. It $50 50, what we saw through Covid was when the market was the stabilized it went to a much higher percentage of cross selling to existing <unk> customers.
And what you see in this these stabilize liquidity environment.
It's just up to that 60%.
We believe that.
In the future it will come back to more of a 50 50 ratio.
Great. Thank you Pierre and then I apologize if I missed this but did you provide the sales growth metric for the quarter.
As you did last quarter or not.
We did not we provided the commentary.
Around Q3 sales bookings being.
Lower than Q2.
But still confirming that we expect the second half of the year to be greater than the first half of the year from a gross bookings perspective.
Okay. Thanks, Greg and just from an from an internal perspective, we did expect Q3 to be lower than Q2.
So I'll note I'll note that.
Just as we think about the year playing out.
Got it thank you.
Thank you one moment please.
One moment. Our next question comes from the line of Robert Trout of Macquarie Capital. Your line is open.
Yeah.
Hey, Thanks, guys.
Nice too.
Just to have my first.
Earnings call as a covering analyst with.
Team here.
If.
If I could just ask two questions.
First on the evolution of.
The pricing model Greg.
You mentioned I think in response to Charles' question, but.
The early indications.
From from that migration, Youre generally seeing a quicker path to revenue.
And then.
Yes.
What I'm wondering is.
While the employment the financial services financial services.
Margaret.
As you mentioned it a bit more.
Frankly, right now going forward.
How does.
The.
Job growth or lack thereof in the financial services market.
The state of that.
How does the new pricing model.
Benefit or not benefit from from changes in that relative.
To the old pricing model.
Yes, So let me actually I'll use a simple use case for instance, consumer banking and if I take you back to an example of airlines 15 years ago, we all used to call. The airline reservation get the ticket if you're lucky through email printed out and you go to the airport and you've got a paper.
Boarding pass and a ticket with you okay.
Today that sounds laughable and you basically go on your phone you booked a ticket your boarding pass that's when your telephone India and boom you go and you Trust the system. Okay banking. That's really is that 15 20 years behind there is still a lot of investor App and in brands come show your driver's license up about some documentation proof of employment et cetera.
We believe in the next five years that we can move that consumer use case to a total digital end to end experience, that's highly customer friendly and fully automated.
If you take that use case to that extent it means that the employment shifts in banking will move away from personal interactions between the consumer and the banker and much more to a middle back office exercise with people in self service mode.
As we are going to drive that value into banking, we're going to provide a pricing model that is more solution and platform based.
And therefore, the bank will understand that they're going to have a massive one year on the cost side from us because these banks are ongoing and we can redeploy that people. Okay. They will still be some back office or call center activities going on to help consumers who doesn't get it done on their own just like an airline too.
So our pricing levels will reflect the value we bring to the table number one and number two that it is a platform that is truly and.
The consumer to go into and if you go from there to small business it will be more of a.
40% of fully automated 60% banker involved if you go to commercial it'll be more highly automated processes, but 100% Banco involvement okay and thats, how we are going to look at that across but yes solution based and platform based pricing will become the norm in our industry.
Okay.
That's very helpful.
And just.
On the on the consumer.
I just wanted to ask sort of a broader question about sales strategy you had this wonderful win.
Congratulations on that during during the quarter and I. Thank you.
Two.
I think the amount of time and energy that that gets spent.
Landing something like that.
As consumer becomes.
But you'll also becomes a bigger portion of the pie.
How do you think about.
Perhaps changing.
Your approach to.
Your sales force will be trained in the way you.
Resources, where you evaluate them.
<unk>.
And in terms of how they should.
Kudisch.
Prospect.
What are the kind of the key metrics to evaluate them and how they're spending their time.
Our focus as we continue to take the single platform. These institutions as we are covering these accounts are the core account executive to maintain that relationship. This is a C suite sales and multiple stakeholders in the C suite and they expect us to have that Corey who drives the relationship and we support them with a robust set of experts.
Across our various solutions, who can help them.
Tell that story to those differentiated stakeholders within the institution. For example, you heard us speak about a $35 billion bank. They are already using us for commercial lending and consumer lending.
This last quarter, they purchased our mortgage solution, they're going to deliver a single platform that's going to put them ahead of their competition.
Relationship was driven by our core account executives, but while driving in the consumer opportunity in the past while driving in the mortgage opportunity. This quarter that are specialists to help them.
Best thing for our customers for my CFO. He does get some operating leverage with time because in this market where in the US For example, banks are going through a period of consolidation when I launched a new solution.
I don't have to linearly grow my salesforce, but I can thoughtfully support them with the specialists that they need to drive those other solutions and so does that answer your question.
Yes, absolutely very helpful.
Just to add something to that which is remember we sell to business owners not decided to it.
It is heavily involved they assist us in integrations and project management et cetera, but those business are those once we see business value and what's put in CNI were parked since its inception was the fact that we've trained our salespeople do understand the return on investment on the standout businesses will actually look at this investment they have to make and what value that will bring.
If you look at that Japanese case, we talked about earlier, that's a mortgage use case, which is very exciting because that's a consumer use case first and a place like Japan.
So across the board our people are trained and equipped to do an ROI model and actually win the business based on a solid business case.
And then with the help of it get it installed.
That's great. Thank you very much.
Yes.
Thank you one moment please.
Our next question comes from the line of <unk> <unk>.
With Barclays. Your line is open.
Awesome. Thanks, guys here for taking my follow up I'm, sorry to lengthen the call here, but.
Pricing has been mentioned a couple of times here on the call and I think there was a question earlier just around.
Pricing in the retail business.
I guess I wanted to ask kind of a two part question right. So the first one is.
How much of the mortgage business is now being priced based on volume versus seats right.
And I guess the second question is just a just a looping.
Great retail win is there anything that you can disclose just on how the pricing structure works for that deal was there a decent volume component to it was it was mostly seat base anything you could talk about on pricing here for mortgage and for that retail deal.
Second as you know that.
We never want to be a pure volume business and we've said that from day. One that's why we like simple access. So we always include a platform component to that even where do we add seat based pricing. There is a component that is fixed at a minimum in the contract and we like that we've always done that in the mortgage market.
Went in with lower platforms basis, because that's how you penetrate the account and they are skittish about making a massive commitment, but then on top of it the pricing schedule is incentivizing them when volumes come back to a bare minimum commitment together lower unit cost on volume. So yes, we will see some volume upsides.
When that market comes back and then there's triggers bolt in.
If they then commit to us are higher or lower minimum they will actually get a lower unit cost for that volume and that is incentivizing good behavior for both parties, because we get a bigger commitment and they pay a lower unit cost price.
So thats, how were going to exit up to a much higher minimums again in the contracts when that market comes back does that makes sense, yes.
Yes that does that's super helpful and anything on the retail deal that you would call out as well.
Yes.
I'll note that that consumer lending deal.
It included platform pricing.
So thats, how we structured that consistent with <unk>.
Again, with where we are evolving the business and as a follow up to the comments that I made on Investor day, starting in consumer and moving away from that seats, particularly with the digital element to it as Josh highlighted you've got the in branch and digital and Thats, where again, it's very much a value sale and what we're able to do for the institution.
Versus a an employee.
Seat based sale and so that worked nicely and I think as we talked about previously we think from a sales cycle standpoint.
Our customers and prospects are comfortable.
Signing business with that structure. So we think that's helpful in the sales cycle as well.
Very helpful. Thanks, guys.
Thank you.
Im showing no further questions at this time I'd like to turn the call back over to Pierre Nowaday for any closing remarks.
Thank you operator, and thank you everyone for attending our call today and thank you for your insightful questions.
We are excited about the business <unk> got a great pipeline with good coverage.
We are considering all factors in the current market as we give you guidance for the future.
Actually you can see our confidence in our strategy as well as our customer relations and our customer set we get from our clients. So.
So thank you very much until next time have a great day.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.
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Thank you for standing by and welcome to <unk> third quarter fiscal year 2024 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.
Dan a question at that time. Please press star one wondering your telephone please be advised for today's call is being recorded.
I would now like turn the call over to your host Mr. Harrison Master Investor Relations. Please go ahead.
Good afternoon, and welcome to <unk> third quarter fiscal 2024 earnings call with me on today's call RP Arnaud de <unk>, 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 anticipated performance of our business.
These forward looking statements are based on management's current views and expectations entail certain assumptions made as of today's date and are subject to various risks and uncertainties described in our SEC filings and other publicly available documents the financial services industry and global economic conditions 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.
A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to the form 8-K furnished with the SEC just before this call as.
As well as the earnings presentation on our Investor Relations website at Investor <unk> Dot com with that I will now turn the call over to Pierre.
Thank you Allison and thank you for joining US this afternoon to review our third quarter fiscal 2020 for performance.
We had another solid quarter. Despite the continued unsettled macroeconomic environment.
We exceeded the high end of our revenue guidance with subscription revenues of $104 8 million.
Up 19% year over year, and total revenues of $121 9 million up.
Up 16% year over year once again, we significantly increased profitability posting a 17% non-GAAP operating income margin, even as we continue to invest in the business specifically in product innovation.
Our positive view of the quarter reflects a number of significant product wins across the platform.
In particular, we are very excited to announce signing our first consumer lending deal with an enterprise bank in the United States and over $200 billion institution.
Over the past several quarters, we have been highlighting the progress we have made maturing our consumer lending product and review landing this customer for consumer lending is another validation of that momentum as well as of our overall single platform product strategy.
We also continued strides in our U S mortgage business.
Financial results reflect double digit U S mortgage revenue growth.
Even despite lower volumes of originations and the uptick in <unk> churn driven by generationally high mortgage rates.
These results demonstrate the benefits of cross selling into our installed base of banks and credit unions. The differentiation of your mortgage technology, and we believe the durability of our business model.
A pivotal one for our U S mortgage business in the quarter came with our first cross sell to a regional bank in the U S that has been using encino for both consumer and commercial lending our.
Our market, leading mortgage technology further enhances our ability to grow wallet share in an account once a customer experiences the value of our technology.
These wins are the result of having products available on a single integrated platform and we are excited to deliver an enhanced omnichannel experience for consumer lending in the spring further leveraging the technology, we acquired in the simple Nexus transaction.
Our first generally available point of sale journey beyond mortgage this offering will empower our consumer lending customers to deliver the exceptional point of sale experience, we offer for mortgage across a broad spectrum of consumer lending products.
We expect this offering to further accelerate sales for both our consumer and mortgage lending solutions.
As we continue to innovate and expand the capabilities of the platform I'm also excited by the AI capabilities being introduced through banking adviser.
Which leverages our data expertise over the past four years, we have been working with our customers to create a large differentiated pool of commercial and consumer banking data, including mortgage data today, we are well positioned to provide valuable and actionable insights from data aggregated across our customer.
Base and integrated into our single platform.
Access to this data is a powerful enabler and our deep domain expertise is informing our AI strategy.
The industry has taken notice of this expertise as evidenced by the over 1200 people who registered put out initial AI webinar in September.
When available early next year banking advisor will help usher in the next wave of intelligent automation delivered on a single platform for originating any loan product and opening any account type at critical decision points.
Turning to our international business in Q3, we added our largest customer to date in Japan by signing Yamaguchi financial group.
Im AFG, which occupies a top spot in the sizeable regional Japanese banking market.
<unk> opportunity with encino to improve the efficiency of their processes and the user experience they offer to their customers through digital transformation beginning with their mortgage business.
We are excited about the large opportunities we see in the Japanese market and are pleased to see our investments over the past few years, they're bearing fruit.
Despite this list of Q3 accomplishments the selling environment does remain challenged in certain parts of our business.
Enterprise banks in particular continued to be slower signing deals and unlike the second quarter. We did see a few deals get pushed out of the third quarter. As these customers further evaluate their budgets and the potential impact of an evolving interest rate environment on their business.
Over the past few weeks I've traveled to see customers and prospects across North America and Europe.
Come away from these conversations incredibly energized about our opportunity as Ed needs align so closely with the value proposition often see knows single platform and product strategy.
We built this company and continue to innovate our technology. So the worlds best financial institutions can more efficiently run their operations on a single platform.
This environment, the risk reduction and cost savings are paramount and it seemed there was proving efficiency and greater security, while leveraging data to provide unique insights into our customers' businesses.
As the macro environment settles down the institutions, leveraging and soon they will be better positioned for market share gains profitability success and longevity.
Our sales pipeline.
Which remains healthy reinforces we are on the right path notwithstanding some lumpiness, we've seen this year with enterprise sales opportunities.
We are excited to close the year with a strong Q4 positioning us for further growth next year and beyond.
Now, let me turn the call over to Josh to provide additional details on some of the operational highlights of Q3.
Thank you Pierre we are pleased with our third quarter results and the continued momentum we see in the business on the sales front, we signed key strategic wins across market segments geographies and solutions.
We ended our largest customer to date for consumer lending in this last quarter, signing a $200 billion bank in the United States. This new customer will leverage encino across all of their consumer lines of business with both in branch and digital workflows to modernize their go to market approach.
We're extremely proud of the work our product teams have done to enable a best of breed consumer lending solution for even the largest banks in the U S.
Also in the quarter, we signed an expansion agreement with an existing regional bank customer for mortgage point of sale, bringing mortgage point of sale consumer and commercial lending all into a single platform for this over $35 billion bank.
This is an exciting proof point for the scalability of our mortgage technology, having passed a rigorous selection process with one of our most sophisticated customers. We expect to deliver exceptional time to value with a quick go live in the fourth quarter, our thesis that a mortgage point of sale offering would resonate in our legacy bank customer base is proving out.
With half of the eight new mortgage logo signed in the third quarter belonging to financial institutions are mortgage customer base is now 46% financial institutions on a logo basis for 25% at the time of the acquisition of simple Nexus and our mortgage pipeline on a dollar basis is now comprised 60% of <unk>.
Financial institutions.
As interest rate pressures continue to drive consolidation of the long tail of <unk> in the industry. We are working with existing customers. The season through this downturn and we are aggressively cross selling into the Underpenetrated banking and credit Union markets.
We continue to see our competitive differentiation of mortgage proven out by the market with two additional competitive takeaways this quarter.
We continue seeing some success with multi solution net new deals in the quarter, including a $6 billion bank that selected <unk> for commercial lending portfolio analytics, and auto spreading and a community bank that picked casino for commercial and consumer lending as well as auto spreading.
More streamlined and efficient tech stack is resonating even in the current environment as banksy vendor consolidation as a way to gain critical efficiencies across their operations.
Our pipeline for solutions beyond commercial lending continues to develop making up half of the total pipeline as of quarter end.
Risk management is another key value proposition of our solutions that drove new business in the third quarter, we signed our largest portfolio analytics bank deal to date for commercial real estate stress testing.
Analysis and concentrated risk reported reporting.
We also signed our largest ever portfolio analytics credit Union deal this quarter for seasonal.
Turning to international markets as Peter noted in Japan, our team signed a record deal with Yamaguchi financial group.
Our use of 150 billion asset bank, making this our largest customer to date in Japan. This opportunities for a mortgage use case, but which prospective homebuyers can apply entirely online.
Four hours a day, replacing a traditional paper process.
Currently we see a clear expansion path across both corporate and consumer lines of business to.
To help <unk> realize a goal of originating all loan products from a single platform.
We are pleased with the receptivity, we're seeing in the Japanese market.
Sam opportunity, we sized at $1 $4 billion U S.
This win represents another critical lighthouse account and is still relatively new and still underpenetrated market for Encino.
Lastly, we completed in year seven figure ACB expansion deal.
With an existing UK customer that first signed in fiscal 2019.
This opportunity was for our corporate and institutional banking small and medium enterprise banking commercial pricing and profitability ESG and end to end mortgage origination.
While embracing these newer offerings. This bank also extended their commitment with the casino for another five years.
Our broad and diverse customer base continues to be an asset, particularly in a complex macro environment.
Approximately 60% of our gross ACD bookings in the quarter came from existing customers with.
With 50% of platform customers now using more than one product in.
And 25% year over year growth in Nick adoption by platform customers.
Cannot overstate the strategic long term value of our customer relationships.
Looking to the fourth quarter, we remain confident in our ability to execute and are well positioned with ample pipeline coverage for its seasonally high fourth quarter sales performance Gregg can you take us through the financials.
Thank you Josh and thanks, everyone for joining us this afternoon to review our third quarter 24 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 8-K furnished with the SEC just before this call.
To echo peer and Josh I am pleased with our third quarter financial results total revenues for the third quarter of fiscal 'twenty four were $121 $9 million, an increase of 16% year over year <unk>.
Subscription revenues for the third quarter were $104 $8 million, an increase of 19% year over year, representing 86% of total revenues.
Professional services revenues were $17 $2 million in the quarter growing 1% year over year.
Professional services revenue growth was impacted by pressure on bill rates, even as utilization from a billable hours perspective improved year over year.
As I noted during our Investor day comments, we will continue to focus on leveraging our extensive si ecosystem to provide professional services to our customers and prioritize subscription over professional services revenues.
Non U S revenues were $23 4 million or 19% of total revenues in the third quarter up 48% year over year.
Subscription revenues growth outside the United States outpaced respective total revenues growth with particular strength coming from our Australia, and New Zealand operations.
non-GAAP gross profit for the third quarter of fiscal 'twenty, four was $81 $1 million, an increase of 18% year over year.
non-GAAP gross margin was 67% compared to 65% in the third quarter of fiscal 'twenty three.
The gross margin improvement was due to efficiencies realized in our customer support organization, while maintaining customer satisfaction ratings of three nine or about 98% with five times, the respondents documented versus the year ago quarter.
non-GAAP operating income for the third quarter of fiscal 'twenty, four was $24 million compared with $2 5 million in the third quarter of fiscal 'twenty three.
Our non-GAAP operating margin for the third quarter was 17% compared with 2% in the third quarter of fiscal 'twenty three.
This impressive bottom line performance reflects continued operational discipline and leverage from our business model.
Our non-GAAP results. This quarter also include approximately $2 $8 million of accrual reversals for tax equalization within sales and marketing and for certain employee benefits across the organization.
non-GAAP net income attributable to Encino for the third quarter of fiscal 'twenty, four was $16 2 million or <unk> 14 per diluted share compared to negative $1 4 million or negative <unk> <unk> per basic and diluted share in the third quarter of fiscal 'twenty three.
As I noted during our Investor day during the third quarter, we rebranded the simple Nexus solution to Encino mortgage resulting in a change to the trade name useful life.
As a result, we recorded accelerated amortization to fully amortize the remaining trade name intangible asset.
The effect of this change in estimate for the third quarter was an increase in sales and marketing amortization expense of $10 1 million or <unk> <unk> per basic and diluted share.
The impact of this accelerated amortization expense has been excluded from our non-GAAP results.
We ended the quarter with cash and cash equivalents of $105 $8 million, including restricted cash.
Net cash provided by operating activities was $5 9 million compared to negative $4 $1 million in the third quarter of fiscal 'twenty three.
Capital expenditures were approximately $600000 in the quarter.
Resulting in free cash flow of $5 3 million for the third quarter of fiscal 'twenty four.
Okay.
You will note incremental spend on the investment on the investments line of our balance sheet and statement of cash flows and related disclosures this quarter for a $2 $5 million investment in rich data Coe and Australia based leading AI decisioning platform that helps banks make high quality lending decisions efficiently and safely we.
The partnership and reseller arrangement with RTC in February of this year and are proud to cement our relationship with this investment to enable even tighter collaboration between our two organizations.
Our remaining performance obligation or <unk> was $917 $1 million as of October 31, 2023, compared with $919 $2 million as of October 31, 2022.
With $627 6 million in the less than 24 months category.
4% from $603 $9 million as of October 31, 2022.
As you heard from payer and Josh we saw great validation of our solutions across market segments products and geographies in the third quarter.
Bookings in the third quarter were lower than in the second quarter, but we continue to expect gross bookings in the second half of the year to be better in the first half of the year as previously communicated.
We did see elevated churn in the third quarter from <unk> and our U S mortgage business of approximately $5 million of annualized subscription revenues as some RMB struggled with mortgage rates, peaking in October to their highest level in over 20 years.
This level of churn exceeded our internal churn forecast by about $2 5 million.
Fortunately despite the rate pressure, we are seeing the top performing originators earn a positive production profit as reported in the latest MBA quarterly mortgage bankers performance report.
The mortgage industry has come a long way towards right sizing for current volumes and with our U S mortgage business continuing to take market share and grow revenues. Despite the interest rate pressure and elevated churn. We believe this business is very well positioned for healthy topline growth for years to come.
Churn in down sell for the rest of the business were in line with expectations in the third quarter, but in light of the elevated RMB churn. We are adjusting our churn rate expect expectation for the full year to about 9% of prior year subscription revenues up from 6%.
Although the outlook for our fourth quarter revenues has been tempered by this heightened churn we are increasing both the low and high end of our outlook for full year subscription revenues guidance.
Please note that this heightened churn rate of 9% also includes the impact of our relationship with one of the three customers that was acquired during the liquidity crisis ending about nine months before the expiration of their contract which was scheduled to be in may of 2024.
This event had a negative impact on deferred revenue of approximately $900000.
Positively we expect to maintain the other two customers that were acquired and in fact have already expanded our relationship into one of the acquiring bags.
Turning to guidance for the fourth quarter, we expect total revenues of $123 5 million to $125 $5 million with subscription revenues of $105 5 million to $107 $5 million.
This guidance assumes year over year subscription revenues growth at 15% at the midpoint of our range.
non-GAAP operating income is expected to be approximately $15 million to $16 million and non-GAAP loss attributable to <unk> per share to be between 11 to 13 for the fourth quarter.
This is based upon a weighted average of approximately $115 5 million diluted shares outstanding.
For the full fiscal year 'twenty four we expect total revenues of $476 5 million to $478 $5 million with subscription revenues of $407 5 million to $409 5 million.
This full year guidance assumes year over year subscription revenues growth of 18% at the midpoint of our range.
We are again, increasing the range of our full year non-GAAP operating income guidance to 57 5 million to $58 $5 million.
non-GAAP net income attributable to <unk> per share is expected to be between 40.
To <unk> 42.
Based upon a weighted average of approximately 115 million diluted shares outstanding.
With that we'll open the lineup for questions.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one wondering your telephone again to ask a question. Please press star 111 moment for your first question.
Our first question comes from the line of Adam Hotchkiss of Goldman Sachs. Your line is open.
Great. Thanks for taking my questions I guess to start it would be great to get a little bit more color on how customers outside of the independent mortgage banks are responding to the evolving rate environment in particular some of the recent movement in rate expectations for next year, just wondering if youre seeing any initial changes as to how decision makers are thinking about product prioritization.
Our budgets and then your comment on incremental scrutiny at the enterprise level.
Thats relation in relation to Q4 or if that's something you'd think reflects early indications of 24 budgets as well.
Okay. Thanks for your question, what we're seeing in the market is.
That everybody is preparing.
The moment the rates stabilize to actually come more aggressive through the market and to solutions like ours.
We see it in our pipelines received in conversations with the banks.
The tentative nature of the buying persona were seeing today is still because of the uncertainty of the rate environment and as soon as I see stability in that the banks realize the need for moving forward the transformation projects to actually be competitive.
In the short run.
We're still seeing that lumpiness in the market in the enterprise, we are beginning to see some stabilization.
Is that the retail deal we'll show you.
We're seeing some great stuff in the pipeline around a movement in that market, but again that final decision making.
<unk> is a bit slower than what we would like to see a bit more tentative on the other hand, the pipeline is healthy and we feel very good about it.
That's great really helpful. And then Greg I was wondering if you could just comment a bit more on the leverage this quarter and it looks like it was both in sales and marketing and R&D in particular, just wondering where youre seeing the lowest hanging fruit and what youre looking for in terms of investment discipline four of 24.
Yes, Thanks Adam.
As noted the team continues to execute well as an organization and really has embraced the shift from just pure growth in prior years to profitable growth and so we have seen nice leverage across all of our opex lines.
And we will continue to focus on that as we think about next year and again consistently we say we want to reinforce this that we will continue to prioritize growth.
And as we see opportunities for growth, we're going to make sure. Our investments are aligned to capture those again, we still think it's in the early days of a very large market opportunity for US. We think we've got a unique leadership position and we want to make sure that we continue to invest.
In that in that leadership position again across the entire platform.
And again peer referenced and Josh referenced in their comments that consumer lending deal again, another validation of our platform and ultimately what our software can do for banks on a global basis.
Okay really helpful. Thanks, Pierre Thanks, Craig.
Thanks, Adam.
Thank you one moment please.
Our next question comes from the line of <unk> clear.
Barclays. Your line is open.
Okay, Great Hey, guys. Thanks, a lot for taking my questions here.
Okay.
Hey, Hey, guys.
Pierre Josh maybe this question is for you first of all congrats on the consumer lending.
Enterprise when 200 billion is certainly very big Bank, maybe the question is.
Could you folks just maybe speak to.
<unk> is typically replacing in these consumer lending deals.
And what do you think is sort of the catalyst for these banks to be considering a replacement at this juncture does that makes sense.
Sure I can take that.
Thats grown a lot and when a bank grows like that and they realize they want to continue serving the consumer.
Segment at scale.
They pulled back and make sure they have architectures that will continue to scale with them big.
A big piece of focus here.
Pushing more to the digital channel. If you are working with the legacy system. As this institution was it's pretty hard to run an efficient operation. If you have an in house legacy system.
<unk> that's in flexible that can evolve with your business, it's hard to add products, it's hard to change business rules and we need through a digital channel on top of that it just won't keep up with the size of that with the bank of that size, so that $200 billion Bank <unk>.
They realized they needed to replace probably three or four systems, along the way with the Encino project they'll get in branch.
And digital channel and that'll be a lot more efficient allow them to serve that customer base in a way customers expect to be serve today. So.
<unk> is a driver of their vendor consolidation to driver there theyre going to be very well positioned on the other side of it.
Quick project as the economy recovers to compete.
I would add I think what youll notice is.
Below the top four banks.
The deposit flow towards the big four was an issue through the liquidity crisis and.
Every bank we talk to.
As a REIT a new renewed focus on the consumer to drive deposits.
Because your average deposit balance of a consumer is much lower beta on movements for interest rate fluctuations. So what youll find this there will be a focus on consumers in the future to have a stable and a much broader diversified the deposit base going forward.
Youll see this across the whole banking sector that they have to reverse that trend with deposits slowed to the big four.
Yeah, that's super interesting.
Gregg maybe for you for my follow up.
So I'll preface by saying I know, we don't manage the business to to our Po.
Just since there are so many different drivers in that metric.
Its duration or mix and others right that you can educate us on but but can you just maybe just to make sure. The question is can you just speak to some of those moving parts and how you think about that sequential change in <unk> that we saw this quarter.
Yes, Sir.
Thanks for noting that we don't manage the business carpio.
I appreciate that Vince we've tried to go out of our way to make sure folks understand that when you think about the different moving parts you mentioned duration.
Being being one obviously with the churn that we noted that as an impact to two <unk> as well.
<unk> mentioned some of the Lumpiness in enterprise, particularly when you think about the over 24 month number as you know those contracts with the larger customers are generally.
Longer than the two years 24 months that we gave on the <unk>.
And so that's where you see some of the Lumpiness that we've been experiencing throughout the year in light of the macro environment.
And then the other thing I would probably note is just in terms of Josh mentioned in his comments approximately 60% of our gross ACB bookings in the quarter came from existing customers a lot of that is going to be add on business.
Generally we will align the Ireland business to co term with the agreement that's in place.
So those would generally be in that shorter duration bucket.
Bucket as well.
And so those would be some of the moving parts on the other side things that we've talked about recently in terms for example of how we're structuring our mortgage contracts right to take into account some of the growth that we expect as that market stabilizes and ultimately grows again, that's not captured in our apio either as we think about upside opportunities.
Outside of that specific metric. So those are the things that I would kind of highlight to you.
Super clear, thanks, guys I'll get back in queue.
Thanks.
Thank you one moment please.
Our next question comes from the line of Terry Tillman of choice Securities. Your line is open.
Hey, good afternoon, Pierre Greg Harrison, Thanks for taking my questions as well I guess, the first question and.
And I don't know if this is Josh sorry, Josh almost forgot your I don't know if this is for <unk> or Josh, but on the retail or consumer lending side. It does seem like a really important lighthouse win what I'm curious about is not trying to put you on the spot <unk>, the seasonally stronger bookings quarter, hopefully, but could we see rapidity here and more.
Large wins in the offing for near term or do you need to kind of get them up and running and they become this kind of referenced of all customer and then from there. We can start knocking them down like dominoes in terms of other large enterprise retail or consumer lending wins, and then I had a follow up.
Hey, Terry.
Josh.
Look the goal is to go as quickly as we can.
To sign a $200 billion bank FERC consumer lending solution, obviously, you have to go through.
Pretty detailed and long evaluation process, that's a fantastic proof point. So if you look at the other announcements we put out even in this call multiple community and regional financial institutions picking us for both commercial small business and consumer that's a great proof point that we'll try to take to the market and frankly for 200.
<unk>.
To pull the trigger on a consumer lending deal in this environment.
It shows a lot of conviction as a great validation point. So we're excited so to answer your question directly we're going to go as quickly as we can.
Because ultimately the scrutiny that we've stood up two shows that we can scale up.
Got it thank you, Josh and I guess as a follow up question is you. All recently hosted a great analyst day in terms of a lot of content a lot of helpful content. One of the things I think we picked up from you all was the idea that ending <unk>.
The ending ACB balances up 14% year over year, I know, we have a little bit of a kind of a moving part here in terms of some of the <unk> churn, but do you still feel like there is that's kind of the floor or is the floor a bit higher does anything you can share about kind of the risk as we move into 2000 calendar 2024, and subscription revenue kind of whats the low watermark. Thank you.
Yes Terry.
I think we're going to pull.
Pull back on addressing next year, we get to give you some commentary around bookings this quarter versus last quarter as well as some commentary around how we're looking at the second half of the year versus the first half of the year.
So I think at this point, we'll probably leave it there again, noting that that was as we said at the Investor day kind of a data point and a point in time and I think thats something that we would really look too.
We visit more on an annual basis versus on a quarterly basis, but hopefully those data points in terms of the second half of the year over first are helpful too and the commentary around the ample pipeline coverage that we have are helpful. In terms of how we're thinking about Q4, and ultimately ending the year strong.
Yes, Greg just one quick follow up on that.
<unk> you signed business some of it can be shorter data Dr activation schedules, though correct. So some of the products. If you do have a strong finish some of that could could meaningfully show up in calendar 'twenty four is that accurate.
At least in the second half that is accurate, yes, and again as we talked about in Investor day.
We're seeing with the mix of business with some of the pricing evolution that we've that we've addressed we're seeing a quicker turn from signing to revenue.
It's upwards of 28% to 30% in the first half of the year and compared that to the prior year I think was around 16%.
So we expect that trend to continue and so again, we'll be getting as we go forward more in quarter or in year revenue from deals that we signed in quarter and year than we have in the past.
Thank you.
Thanks, Terry thank.
Thank you one marketplace.
Our next question comes from the line of Bob Napoli of William Blair. Your line is open.
Hey, good evening, and a deep chattering on for Bob.
First question just in terms of the significant Japan, and you kind of talk about how critical system integrators, where if at all.
And then more broadly are you seeing kind of peers using a similar <unk> on your core international cloud banking market.
Yes.
Absolutely. This is Josh. This is some integrators are part of that play they have local presence I understand the culture and we're taking some of these institutions literally from paper straight into the cloud so having deal.
The local team change management expertise and scale abilities of those size, particularly as we expand internationally really helps and we are pleased not just about the initial <unk>.
<unk> point, but also about the way these banks are thinking about the single platform.
You have banks that are starting with mortgage some are starting with commercial but they're all doing it from the lens that they want to get the whole institution up on encina.
Got it.
And I guess one for Greg.
And about the long term operating margin targets you guys laid out during the Investor day, 35% and that compares to the 12 or so implied from the current fiscal full year guidance as we thinking about annual margin expansion cadence should that kind of evenly distributed or more front and backend loaded.
What's the visibility you have around that expansion. Thank you.
Yes.
All giving any guidance beyond this year again as we look at the target I set out a timeframe of four to six years and I think it all depends on.
The opportunities that we see.
Ultimately the market.
But again, we're going to err on the side of growth and to the extent that that margin targets, a little bit lower because our growth is higher as we march towards that rule of 50.
We'd be very happy with that.
So again I think we will update you as we as we move along in terms of progress that we're making but we continue to see opportunities for leverage across the organization again, you see and the progress that we've made on our on our margin lines as well as on our Opex lines and I have said earlier the team has done a great job. The organization has done a great.
Embracing the environment that we've been operating in.
Perfect. Thanks, guys.
Thank you.
One moment please.
Our next question comes from the line of Adam <unk> of Bank of America. Your line is open.
Hey, Thanks for taking my question can you give some color on the deals that pushed any sort of commonality between those deals or you know thinking more in depth on them is there any way in which you had quantified dimensionalize how much that may have impacted Q3 results and lastly, how are those deals tracking now that you're roughly a month.
Q4 thanks.
Sure.
Absolutely those are not deals that dropped out of the pipeline ultimately <unk>.
They may have wanted to get another board look at that sometimes they may learn and see how the year continued on.
They are in this interest rate environment and continue to keep a keen eye on their credit quality, they're also thinking about their P&L.
Deal with this margin compression.
We do not see a lack of conviction on the need for transformation.
We do see more more measured investment as they think about new lines of investment for the institution.
I think it's more a case of timing versus need.
Also we've not lost any of those deals to competitiveness. This is more of a matter of.
Let's revisit in the budget cycle for banks and as soon as those are solidified.
Move forward and we see that now pipeline movements as well. So we're very optimistic that we're going to see some of those coming through.
Got it and as a quick follow up sort of embedded that new assumption I don't know if these are taking a little longer than I expected and the Q4 guide. Thanks.
Yes, our Q4 guide is assuming that it's understood we understand now very well the churn expectations in the market. Both are in RMB. So we've taken a conservative view and we've built that into the guidance that we provided.
Thank you.
One moment please.
Our next question comes from the line of Alex scholar.
Hi, Raymond James Your line is open.
Great. Thank you Greg outside of that the 2 million accrual that you called out.
Sales and marketing this quarter was there anything else one time impacting operating income this quarter and then kind of on a related to your answer about preferring growth.
A couple of the earlier questions can you just talk about what's being factored from a hiring or an investment perspective in fourth quarter relative to the third quarter.
Driving kind of the sequential margin decline.
Yes, so from.
It was $2 $8 million that was really the one time.
The other thing I'd note is in the second quarter, we had our insight our annual user conference and so that.
As a heavier spend so as you look at it on a sequential basis I would note that as well when.
When you look at fourth quarter.
The guide that we provided.
Ultimately taking into account obviously holidays.
Seasonality that we that we sometimes see in the fourth quarter. So I think that's what.
As impacting the guide if you deduct the one times that I noted.
From the total and you look at the guide that we gave.
Theres, a small little delta there, but that's really what it comes down to.
Okay, perfect no major incremental hiring kind of into yearend above and beyond kind of normal operating.
No I think for US it's business as usual as.
As we look into the fourth quarter, a big focus one obviously closing business as Josh noted.
And echoing <unk> comments, we have we.
We see ample coverage from a sales pipeline perspective, and so we're just focused on execution.
Now and the end of the fiscal year.
Okay, great color and Josh just one for you. It seems like good net sales again this quarter I heard that 25% growth in adoption I think you flagged out recently that youre seeing higher Nick deal sizes as well so any way you could kind of frame the revenue growth from Nick is it meaningfully above that 25% figure.
Yes, and the stat that we quote it was we see 25% year over year growth and Nick adoption on the platform that brings us to 34% of platform customers.
Nick to date.
Also in the quarter, we had for portfolio analytics, one of our one of our Great Lakes solutions. The biggest deal we've ever done with the bank and the biggest deal we've ever done with a credit Union. So we're pleased with that momentum Greg you want to speak about how that fluids revenue.
Yes, I mean, ultimately again as we talked about with our niche solutions that turns quicker into revenue.
So.
<unk>.
We see that more quickly impacting our P&L that's exciting as we look at the mix of business and again, the evolution of our of our pricing model.
Alright, Thank you both.
Thank you.
Again, ladies and gentlemen, if you'd like to ask a question. Please press star one one of your telephone again to ask a question. Please press star 111.
One moment for our next question.
Our next question comes from James Faucette of Morgan Stanley. Your line is open.
Great. Thank you very much.
I wanted to dig in quickly and I think here in the past you've alluded to some inertia in the sales cycle is that kind of what youre seeing right now and is that.
Consistent or is that what you are also talking about when you say that you've got customers that are kind of waiting for the interest rate environment to stabilize before kind of moving ahead and making decisions.
Yeah look we've got banks, where profitability is down as much as 40% year over here as announced by public institutions.
And so you can imagine when you have that kind of environment, where they are looking for is stability of the future and right now there's still there's massive debate is the fed going to raise rates was more is it going to start cutting et cetera, and these have impacts.
Both on the psychology as well as the actual results of banking and so what we're seeing is.
People are cautiously becoming optimistic but waiting to see that this stabilized environment is setting in.
I don't think that necessarily wait for the rates to start coming down.
I think bankers in general believe it will more stabilize the southern and the moment that <unk>.
Amortization of set in place.
They are ready to make investments and you're just seeing that level of uncertainty at the moment that's over.
According to our pipelines and our conversations with banks they have to do this this is where they have to go. This is the kind of platform.
Core IV simplification modernization. This is what the consumer wants they needed for the deposit gathering they needed for efficiency than it is for compliance.
<unk>.
They all know that and we meet with them on a frequent basis.
In Europe, where one customer said when we look around the project is a bit more difficult than we expected, but what else do you do.
Of course, it's music to my ears.
So I feel very optimistic that we are in a good strategic place our platform was maturing at the right time.
And as these phenomenal noncommercial wins are beginning to show is that this whole architecture and effort. We put in is going to pay off.
Got it got it got it thank you Greg.
Greg I know you've kind of touched on this in a couple of different ways.
Just want to make sure that we understand in terms of the change in churn.
Churn has remained.
Stable at your previous assumption.
How much of an impact or how would you have been changing your fourth quarter guide it at all I'm just trying to make sure that we understand the level of.
Churn impact versus other factors.
It was a big part of MISO, we rolled some of our over performance in Q3 into Q4 in terms of upping, our upping our guidance, but ultimately not the whole thing and so that certainly was an impact in the engines. When we really saw was just October I mean <unk>.
Interest rates, and where specifically mortgage rates peaked.
<unk>.
Ultimately just some of the <unk> I think just said enough was enough.
As we looked at the first month of this quarter. So far things are more in line with what we expect and obviously this is something we've been tracking for the last year plus the team has done a really good job of tracking the churn I do think it was somewhat unique.
A unique set of circumstances in October with that spike that really.
Increased the the churn level from really what our expectations were.
Got it got it got it thanks for that Greg I appreciate it.
You bet.
Thank you one moment please.
Our next question comes from the line of Nick Altman.
<unk> Bank your line is open.
Awesome. Thanks, guys.
It sounds like Theres, a lot of excitement around banking advisers. So I wanted to ask a couple questions there.
I guess just the first one being what is the initial customer feedback then from those who are beta testing it.
Is there any sort of update on the monetization strategy there.
And then just as a follow up is the best way to think about the opportunity with banking adviser really around the installed base with with <unk> IQ and should that really kind of foster more cross sell activity into neck or should we kind of think about those as mutually exclusive.
Hey, this is Josh.
We've been pleased but not surprised by the customer excitement about this we've done I think we are really good job of meeting our customers where they are the problems are really asking us to help them solve today is helping with efficiency and also helping with employee effectiveness and employee engagement. So if you think about the initial use cases, where we will have.
The ability for banking advisor to offer a knowledge base, where banks are rather than navigating a 300 page PDF of a credit they.
They can have that at their fingertips, where they can have intelligent credit memo narratives, where rather than sitting in typing out the risks of doing a hotel loan in Florida. They can use generative AI to tell them that look we have seasonal risks because of tourism, we had hurricane risk et cetera. So those are things that are going to make employees a lot more efficient and frankly.
Help banks, even though the labor market is becoming a little bit more employer friendly it will help them attract the kind of employees that they need to continue evolving their bank because the smartest Kid graduating universities today does not want to go sit and thumbed through a 300 page credit Nemo, our credit policy. So those are the kinds of things that we've seen relative to monetization.
<unk> banking adviser is something that will contribute to <unk> growth and I would expect to see Nick use cases continue to be monetized on a standalone basis as you've heard from us with portfolio analytics with pricing and profitability, but we will also use these tools to inject intelligence at every aspect of the application.
<unk> is a validation of the continued investment that we have in the ongoing growth that we get from our customers.
Great and then just a quick follow up you guys mentioned earlier, 60% of gross eight TV bookings came from the installed base in <unk>.
When you look at the Q4 pipeline, how does that kind of look in terms of net new versus existing just given it's a seasonally strong spending quarter for software there is budget flush dynamics et cetera. Thanks.
Yes, so we feel good about the pipe relative to our ability to deliver on the commitments that we've made for the fourth quarter were we're not also not being tone deaf on the macro and realizing that.
The buying environment is tough so we feel confident that we have ample coverage.
60% in quarter from existing customers as we've seen when when the market gets tough our customers need us more and we continue to focus on them and Thats one of the benefits of having such a fantastic customer base of happy happy customers that we that we partnered with three years composition has not changed.
Relative to two new deals or existing customers as we said earlier, we're not seeing greenfield logos fall out of the pipe. We're just seeing a more thoughtful timeline for how they buy.
Very helpful. Thank you.
Thank you.
Please.
Our next question comes from the line of Alex Mark Graff.
<unk> Your line is open.
Hey, everyone. Thanks for taking the question I actually wanted to expand on the prior question, maybe ask it a bit differently.
Thinking about that mix of seguros ACB bookings on a more normalized basis or in a more normalized environment. When you consider the.
Pent up demand, particularly in enterprise and some of the product expansions that are helping you lead with noncommercial products just curious I mean.
60% for the last couple of quarters from existing what is that a good range to think about for that mix from existing versus new.
On the other side of this kind of a more challenging macro environment, just considering that the changes around our product and such in the last couple of years historically is targeted at around about 50 50.
Which is good because.
You cross sell into your base through both of the soft products you add more value.
You upgrade them and that gives you a bit of.
Pricing power as well because of your continuous innovation and then 50% of new logos, where you've got lower penetration you can start cross selling to them again. So he started we reran it $50 50, what we saw through Covid was when the market was these stabilized it went to a much higher percentage of cross selling to existing <unk> customers.
And what you see in this these stabilize liquidity environment.
Just up to that 60%.
We believe that.
In the future it will come back to more of a 50 50 ratio.
Great. Thank you Pierre and then I apologize if I missed this but did you provide the sales growth metrics for the quarter.
As you did last quarter or not.
We did not we provided the commentary.
Around Q3 sales bookings being.
Lower than Q2.
But still confirming that we expect the second half of the year to be greater than the first half of the year from a gross bookings perspective.
Okay. Thanks, Craig and just from an it from an internal perspective, we did expect Q3 to be lower than Q2.
So I'll note I'll note that.
Just as we think about the year playing out.
Got it thank you.
Thank you one moment please.
One moment. Our next question comes from the line of Robert Trout of Macquarie Capital. Your line is open.
Yeah.
Okay.
Hey, Thanks, guys.
Nice too.
Just to have my first.
Earnings call as a covering analyst.
Jim here.
If.
If I could just ask two questions.
The first on the.
<unk> of <unk>.
The pricing model, Greg I know you mentioned I think in response to Terry's question, but.
The early indications.
From from that migration, Youre generally seeing a quicker path to revenue.
And then.
Yes.
But what I'm wondering is.
While the employment the financial services financial services.
Margaret.
As you mentioned it a bit more.
Friendly right now or going forward.
How does.
The.
Job growth or lack thereof in the financial services market.
The state of that.
How does the new pricing model.
Benefit or not benefit from from changes in that relative.
To the old pricing model.
Yes, So let me actually I'll I'll use a simple use case for instance, consumer banking and as I take you back to an example of airlines 15 years ago, we all used to call. The airline reservation get the ticket if youre lucky through email printed out new printer to go to the airport and you've got a paper.
Boarding pass and a ticket with you okay.
Today that sounds laughable and you basically go into your phone you booked to pick up your boarding pass and your telephone India and boom Hugo and you Trust. The system. Okay banking literally is that 15 training behind it there's still a lot of the desktop and in brands come show your driver's license up about some documentation proof of employment et cetera.
We believe in the next five years that we can move that consumer use case to a total digital end to end experience that is highly customer friendly and fully automated.
If you take that use case to that extent it means that the employment shifts in banking will move away from personal interactions between the consumer and the banker and much more to a middle back office exercise with people in self service mode.
As we are going to drive that value into banking, we're going to provide a pricing model that is more solution and platform based.
And therefore, the bank will understand that they're going to have a massive one year on the cost side from us because these banks are all growing and you can redeploy that people. Okay. They will still be some back office or call center activities going on to help consumers who doesn't get it done on their own just like an airline do.
So our pricing levels will reflect the value we bring to the table number one and number two that it is a platform that is truly <unk>.
The consumer to go into ramp as you go from there to small business it'll be more of a.
40% fully automated 60% banker involved if you go to commercial it will be more highly automated processes, but 100% banker involvement okay and thats. How we are going to look at that across but yes solution based and platform based pricing will become the norm in our industry.
Okay.
That's very helpful and just.
On the consumer side.
Alright.
I just wanted to ask sort of a broader question about sales strategy you had this wonderful win.
Congratulations on that during the quarter and I. Thank you.
Two.
The amount of time and energy that that gets spent.
Atlantic something like that.
As consumer becomes as you know that.
You will also becomes a bigger portion of the pie.
How do you think about.
Perhaps changing.
Our approach to.
Your sales force will be trained in the way you resources, where you evaluate them.
<unk>.
And in terms of how they should.
Cool.
Prospect.
What are the kind of the key metrics to evaluate them and how they are spending their time.
Our focus as we continue to take the single platform. These institutions as we are covering these accounts with a core account executive who maintains that relationship. This is a C suite sale through multiple stakeholders in the C suite and they expect us to have that Corey who drive the relationship and we support them with a robust set of experts.
Across our various solutions, who can help them.
Tell that story to those differentiated stakeholders within the institution. For example, you heard us speak about a $35 billion bank. They are already using us for commercial lending and consumer lending.
This last quarter, they purchased our mortgage solution, they're going to deliver a single platform that's going to put them ahead of their competition.
That relationship was driven by our core account executives, but while driving in the consumer opportunity in the past while driving in the mortgage opportunity. This quarter that are specialists to help them.
Best thing for our customers for my CFO. He does get some operating leverage with time because in this market where in the U S. For example, banks are going through a period of consolidation when I launch a new solution.
I don't have the linearly grow my Salesforce, but I can thoughtfully support them with the specialists that they need to drive those other solutions and so does that answer your question.
Yes, absolutely very helpful.
Just to add something to that which is remember we sell to business owners not decided to it it.
It is heavily involved they assist us in integrations and project management et cetera, but those business are those once we see business value and whats put encino apart since its inception was the fact that we train our salespeople do understand the return on investment on the <unk>.
Our businesses will actually look at this investment they have to make our value that will bring if you look at that Japanese case, we talked about earlier, that's a mortgage use case, which is very exciting because that's a consumer use case first and a place like Japan. So.
So across the board our people are trained and equipped to do an ROI model and actually win the business based on a solid business case.
And then with the help of it get it installed.
That's a good point, thank you very much.
Yes.
Thank you one moment please.
Our next question comes from the line of <unk> clear.
With Barclays. Your line is open.
Awesome. Thanks, guys here for taking my follow up I'm, sorry to lengthen the call here, but.
Pricing has been mentioned a couple of times here on the call and I think there was a question earlier just around.
Pricing in the retail business.
I guess I wanted to ask kind of a two part question right. So the first one is.
How much of the mortgage business is now being priced based on volume versus seats right.
And I guess the second question is just a just a looping.
Great retail win is there anything that you can disclose just on how the pricing structure works that deal was there a decent volume component to it was it was mostly seat base anything you could talk about on pricing here for mortgage and for that retail deal.
Second as you know that.
We never want to be a pure volume business and we've said that from day. One that's why we like simple access. So we always include a platform component to that even when we add seat based pricing. There is a component that is fixed as a minimum in the contract and we like that we've always done that in the mortgage market.
Went in with lower platforms basis, because that's how you penetrate the account and they are skittish about making a massive commitment, but then on top of it the pricing schedule is incentivizing them when volumes come back to a bare minimum commitment together lower unit cost on volume. So yes, we will see some volume upsides.
When that market comes back and then there's triggers bolt in.
If they then commit to us are higher or lower minimum they will actually get a lower unit cost for that volume and that is incentivizing good behavior for both parties, because we get a bigger commitment.
Lower unit cost price.
So thats, how were going to exit up to a much higher minimums again in the contracts when that market comes back does that makes sense, yes.
Yes that does Thats super helpful and anything on the retail deals that you would call out as well.
Yes, second I'll note that that consumer lending deal.
It included platform pricing.
So thats, how we structured that consistent with <unk>.
Again, with where we are evolving the business and as a follow up to the comments that are made on investor day, starting in consumer and moving away from that seats, particularly with the digital element to it as Josh highlighted you've got the in branch and digital and Thats, where again, it's very much a value sale and what we're able to do for the institution.
Versus a an employee.
Seat based sale and so that worked nicely and I think as we talked about previously we think from a sales cycle standpoint.
Our customers and prospects are comfortable.
Signing business with that structure. So we think that's helpful in the sales cycle as well.
Very helpful. Thanks, guys.
Thank you.
Showing no further questions at this time I'd like to turn the call back over to PR Nowaday for any closing remarks.
Thank you operator, and thank you everyone for attending our call today and thank you for your insightful questions.
We are excited about the business, we've got a great pipeline with good coverage.
We are considering all factors in the current market as we give you guidance for the future and hopefully you can see our confidence in our strategy as well as our customer relations and our customer set we get from our clients.
Thank you very much until next time have a great day.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.