Q4 2024 nCino Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Encino fourth quarter and fiscal year 2024 financial results Conference call. At this time, all participants listen only mode.
After the Speakers' prepared remarks, there'll be a question and answer session to ask a question. Please press star one one we ask that you limit yourself to one question and a follow up.
As a reminder, this conference is being recorded.
Harrison Masters: To turn the call over to Harrison masses Director Investor Relations. Please go ahead.
Harrison Masters: Good afternoon, and welcome to <unk> fourth quarter fiscal 2024 earnings call with me on today's call are Pierre Arnaud de <unk>.
Harrison Masters: Chairman and Chief Executive Officer, Greg Ornstein, Chief Financial Officer, and Josh Glover, President and Chief revenue Officer.
Harrison Masters: During the course of this conference call, we will make forward looking statements regarding trends strategies and the anticipated performance of our business. These forward looking statements are based on management's current views and expectations entail certain assumptions made as of today's date and are subject to various risks and uncertainties.
Harrison Masters: Scribed in our SEC filings and other publicly available documents, the financial services industry and global economic conditions.
Harrison Masters: <unk> disclaims any obligation to update or revise any forward looking statements.
Harrison Masters: Further on today's call. We will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results I.
Harrison Masters: 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 well as the earnings presentation on our Investor Relations website at Investor that Encino Dot com.
Harrison Masters: With that I will now turn the call over to Peter.
Thank you for joining us this afternoon to discuss our strong finish to a challenging year.
Peter: We are very pleased to close fiscal 'twenty four were the strongest gross sales quarter, we've had in the past 10 quarters.
Peter: Increasing 23% over the fourth quarter of fiscal 'twenty three.
Peter: We saw strength across all U S customer segments and from outside the U S as well driving 16% subscription revenues growth for the quarter.
Peter: We believe our Q4 results reflect a return to more normal buying patterns and behavior.
Peter: Including from our U S enterprise customers, which we saw disproportionately impacted by the.
Peter: Liquidity crisis last year they.
Peter: The improving tone from customers is also a positive indicators.
Peter: Our confidence in the rebound along with our expectations for lower churn. This year drives our plan for net sales in fiscal 'twenty five.
Peter: Roughly 50% higher than fiscal 'twenty four.
Peter: Despite the macro headwinds full year subscription revenues in fiscal 'twenty, four increased 19% year over year.
Peter: I couldnt be more proud of the solid execution of the global Encino team.
Peter: The difficult environment, we remain focused on our customers and on product innovation.
Peter: The difficult environment, we remain focused on our customers and on product innovation.
Peter: Demonstrating our loyalty and commitment to them through the inevitable business cycles.
Peter: Customer relationships are at the center of the Encino culture.
Peter: The opportunity to expand these partnerships with new products and technology is one of the many reasons. We are so excited about the road ahead.
A more normal buying cycle and the improving tone from customers follows almost four years of industry upheaval between Covid and.
Peter: Unprecedented rise in interest rates and the liquidity crisis.
Peter: During this time Encino generated a 41% subscription revenues CAGR and transformed from posting a $14 million non-GAAP operating loss in fiscal 'twenty, one to generating non-GAAP operating income of $62 million in fiscal 'twenty four.
Peter: This success reflects the value of our unique platform and strategy, which has created a durable business that can grow and be profitable in any economic environment.
Peter: And obvious question is why we saw such a strong rebound in Q4 sales and the improved customer behavior.
Peter: In short interest rates stabilized, which provided customers the opportunity to focus more on moving forward with strategic investments in light of increased confidence in the business environment and greater visibility into economic trends.
Peter: Throughout fiscal 'twenty four we discussed the strong demand we were seeing in the market with the federal reserve, indicating it is largely finished raising rates, we saw customers ready to close on pending deals.
Peter: Even after the sales success in Q4, we entered fiscal 'twenty five with a strong pipeline, which has helped us carry momentum into this year.
Peter: Before we discuss the factors behind our optimism for the current year and beyond I wanted to briefly review some of the highlights from the fourth quarter and from fiscal 'twenty four.
Peter: First let's discuss mortgage despite the mortgage turmoil leading to unprecedented chair full year U S mortgage subscription revenues grew by 14%.
Peter: With Q4, being our best mortgage gross sales quarter of the year.
Our success in the fourth quarter was driven largely by selling into banks and credit unions of the 21, new mortgage customers signed in the fourth quarter hurting price.
Peter: For 12 of these customers' mortgage was the landing point for Encino with in the institution.
Peter: We again saw solid growth internationally in the fourth quarter, which we now represents 20% of total revenues EMEA.
Peter: EMEA remains our largest market outside of the United States, but in the fourth quarter. We added our first enterprise bank in the Nordics, our new logo in South Africa, and the new U K platform customer or our commercial lending mortgage and Nic solutions.
Peter: We also continued our momentum in Japan announcing another Japanese customer a few weeks ago.
Peter: Signed with us in the fourth quarter for mortgage.
Peter: We continued innovating to expand the capabilities of the platform.
Peter: Unlocking more wallet share opportunities without any our installed base, which contributed to more multi product wins in the fourth quarter.
Peter: Joshua recover some of these wins in more detail in his comments.
Peter: Let's central Nick NII looking both at our progress in fiscal 'twenty, four and the accelerating opportunity we see in fiscal 'twenty five and beyond.
Peter: <unk> II starts with our <unk> products, which we've been developing for almost five years.
Peter: We have seen strong traction across all three products currently in the portfolio.
Peter: In the fourth quarter, we added our largest order spreading deal outside of the United States, which follows signing our largest portfolio analytics deal last quarter.
Nick demonstrated our initial success in utilizing an unmatched data assets to provide intelligence and actionable insights at the point of production.
Peter: Our single platform.
Peter: Now we are taking the next step with banking adviser.
Peter: Which already has early adopters.
Peter: <unk> advisor Leverages degenerative AI to further automate banking specific tasks.
Peter: The opportunity for AI and banking can't be overstated.
Peter: A recent Accenture study concluded that banks are likely to benefit more from generative AI than any other industry.
Peter: To truly benefit financial institutions need and she knows single platform to surface data at the point of production to drive actionable insights and intelligence that differentiate our bank and improve the customer experience.
Peter: Obviously it is early in the lifecycle.
Peter: Our unique perspective on industry demand drivers, we believe the opportunity for AI and banks is not high Israel.
Peter: Banking adviser and our other offerings are examples of our continued emphasis on expanding the breadth and depth of our product offerings since the beginning.
Peter: <unk> single platform has addressed a variety of pain points.
Peter: Including the need to grow revenues.
Tractor based talent with regulatory demands improve the customer experience and increase efficiency.
Peter: While the relative importance of the individual capabilities varies over time.
Peter: Similar feedback points to efficiency is currently the most important driver there.
Peter: Becoming more efficient is critical in any economic environment.
Peter: It's a business input and organization can control of.
Peter: Of course, the importance of AI ties directly to this demand at the same time. The continued pressure on net interest margins can only be mitigated by improved efficiency.
Peter: Our single platform allows <unk> to be part of the solution.
Peter: <unk> look to consolidate vendors and streamlined operations.
Peter: As the only platform that can work with small community banks credit unions and independent mortgage banks, all the way to the largest institutions across the globe.
Peter: The value of our solution becomes more and more clear all the time.
Peter: <unk> platform provides commercial small business consumer lending, including mortgage account opening and Onboarding from one trusted partner on a single platform that is embedded with AI actionable insights data and intelligence and.
Peter: <unk> <unk> <unk> <unk>.
Peter: Leveraging the lower cost of capital with the ease of use and personalized experience consumers have come to expect from <unk>.
Peter: Our new Omnichannel experience for consumer lending is also in the hands of early adopters.
The lesson from the liquidity crisis last year that is sunk in all too well is the need to extend the relationship banking through digital channels to create a more enjoyable user experience for the consumer.
Peter: And to reduce costs for financial institutions.
Peter: While online banking has been around for decades, and consumers' interactions with their financial institution frequently.
Peter: Through an app today middle and back office processes for consumers have remained far from automated.
Peter: The consumer facing technology leverage from our Encino mortgage suite.
It's a consistent experience for consumers across mortgage and spectrum of consumer lending products offered in today's market.
Peter: And Omnichannel connect seamlessly to our platform through proprietary Apis fully digitizing the process beginning with the application.
Peter: The release of this functionality is already driving significant pipeline development for both of our consumer lending and mortgage solutions.
Peter: Subsequent to year end.
Peter: Took an additional step to accelerate expanding our platform capabilities with a tuck in acquisition.
Peter: Last week, we announced the acquisition of <unk>, which provides technology for commercial account opening and Onboarding.
Peter: Including robust <unk> and AML functionality youth.
Peter: Utilizing dock trucks eliminates paperwork, reducing the time it required through Onboarding complex commercial accounts from months to days.
Peter: The acquired technology provides complementary functionality and again allows us to capture greater wallet share within our installed base.
Peter: I can't overemphasize, the asset dividend by our customer base as we continue to expand the breadth and depth of our product capabilities and value proposition.
Peter: Our initial focus will be on bringing Dr pharmacy, our community bank customers.
Peter: Finding our go to market and implementation motions in this market as we usually do with new products after.
Peter: After demonstrating success within the commanding market will begin targeting our entire commercial and small business customer base.
Speaker Change: Greg will review, our financial outlook, but I want to note that we are trying to be prudent in our guidance. Despite our optimism about the improving trends.
Speaker Change: Even with a strong finish to the year.
Speaker Change: <unk> first quarter of fiscal 'twenty, four which stemmed from the liquidity crisis pant with unprecedented churn that we believe peaked in the second half of last year, thus create difficult compares for much of the year.
Understanding our success increasing profitability subscription revenues growth remains our primary objective.
Speaker Change: We are confident the strength of year end sales and the improving macro trends, we see puts us on track to exceed 15% subscription revenue growth in FY 'twenty six.
Speaker Change: In addition, we remain on track to achieve the rule of 50 as highlighted during our Investor day in September.
Speaker Change: Before I turn the call over to Josh to review the operational highlights of the quarter.
Joshua L. Glover: Want to speak briefly about two organizational changes.
Joshua L. Glover: First our chief product Officer, Matt Hanson as informed me that following a number of professional successes, including traveling simple access in 2011 and integrating it with Encino. Following the acquisition in January 2022, and delivering exemplary results over the last three years, leading our product development and <unk>.
Joshua L. Glover: Hearing organization, yes.
Matt Hansen: <unk> made the decision to leave Encino to spend more quality time with his family.
Matt Hansen: We are grateful for Matt's contributions and his leadership of various change initiatives, including the launch of the Omnichannel experience.
Matt Hansen: Monthly product releases evolving how work is done across PD in E and the significant productivity improvements during his tenure.
Matt Hansen: <unk>, an ongoing impact on our success.
Matt Hansen: <unk> will remain within senior in a consulting capacity until August to help ensure a smooth transition.
Matt Hansen: Shawn Desman currently our chief customer success offer has been named Chief product Officer effective May one Shawn has extensive background in technical management and product development.
Matt Hansen: Customer centric approach and its proven ability to both meaningful relationships and lead complex organizations.
Matt Hansen: Help ensure the continued evolution of our solutions and our <unk> team.
Matt Hansen: China has been a member of <unk> executive leadership team for over 10 years.
Matt Hansen: And his understanding of our business products customers and market needs and prepare them extremely well for this position.
Matt Hansen: John has been a key partner and highly collaborative with Matt and <unk> leadership.
Matt Hansen: On the change initiatives I just referenced is customer success organization is well developed and positioned to continue delivering best in class service levels to our customers.
Matt Hansen: The other organizational change as referenced in our earnings release is that John's Glover, our president and Chief revenue Officer is leaving <unk> to pursue an opportunity as president and CFO of later stage private company outside of the financial services industry.
Joshua L. Glover: As most of you know transfer is one of the earliest and senior employees and has been at my side. The past 12 years to create the global profitable growth company, we are today.
Joshua L. Glover: What I am sorry to see him leave.
Joshua L. Glover: We have always seen the greatest success as he pursues a new challenge and expenses professional experience beyond the encino.
Joshua L. Glover: We'll continue with Encino any consulting capacity until June 30th.
Joshua L. Glover: Help ensure a smooth transition.
Joshua L. Glover: Coal Clarkson, who has been leading global sales with Justice organization and his deep knowledge of our business.
Customers and the markets. We serve has been named executive Vice President Global revenue.
Joshua L. Glover: We're excited for Paul to take on this increased responsibility as promoting from within is long been part of <unk> success.
Speaker Change: At this time, we do not plan to fill the president role as we believe those responsibilities can be shared amongst the executive leadership team members.
Speaker Change: With that I will turn the call over to Josh to review some of the operational highlights from the quarter.
Joshua L. Glover: Thank you Pierre as I'm sure you can appreciate given the decision to leave and seen a great deal of thought.
Joshua L. Glover: Never easy to leave a place we've invested so much of yourself and where you so highly value the people the friends that you work with.
Joshua L. Glover: With a mature global go to market and sales organization well in place and with interest rates stabilizing in the liquidity crisis behind us. It feels like now is the right time for me to pursue a new challenge.
Joshua L. Glover: I will always be encino, his biggest supporter and I look forward to watching the company's continued success at.
Joshua L. Glover: Particularly look forward to watching some of my closest colleagues and friends as they step up to take on additional responsibilities and received well earned professional opportunities.
Joshua L. Glover: I've enjoyed getting to know all of you over the years and I hope to get to work with you again down the road.
Joshua L. Glover: With that said, let's turn to the strong Q4 results.
Joshua L. Glover: We are very pleased with the way our sales team finished the year our.
Joshua L. Glover: Our existing customer base continues to be an seanez, most strategic asset and.
Joshua L. Glover: About 60% of the business signed in the fourth quarter came from Upsells and cross sells to our existing base we.
Joshua L. Glover: We saw multiyear extensions across the entire business with.
Joshua L. Glover: With expanded commitments from 2009 institutions and U S banking segment.
Joshua L. Glover: In EMEA APAC and Canada.
Joshua L. Glover: In the fourth quarter, we signed a seven figure expansion agreement for small business at a top 50 U S Bank.
Joshua L. Glover: And another for deposit account opening and a top 100 U S Bank.
Joshua L. Glover: Reinforcing our successful delivery of the single platform.
Joshua L. Glover: Of the new business signed in the quarter came from solutions other than commercial lending.
Joshua L. Glover: Nick adoption also increase.
Joshua L. Glover: 39% of our platform base has now adopted at least one Nic solution.
Joshua L. Glover: This is up from 30% at the end of last year.
Joshua L. Glover: As part of their initial commitment to encino and over $4 billion Bank in Texas selected us for commercial small business and consumer lending as well as commercial pricing and profitability automated spreading and portfolio analytics.
Joshua L. Glover: Also in over $8 billion bank in Ohio selected Encino for commercial and small business lending as well as auto spreading and portfolio analytics.
Joshua L. Glover: Customers are telling us more now than ever that financial institutions need to realize efficiencies by consolidating operations and data onto a single trusted platform with.
Joshua L. Glover: With the new offerings, we are bringing to the market and.
Joshua L. Glover: And the acquisition of <unk>, we expect to see even deeper adoption of the single platform within our accounts.
Joshua L. Glover: This platform is being embraced by more than just U S customers here.
Joshua L. Glover: During the fourth quarter, we completed one of our largest automated spreading agreement. This was with a top 10 Canadian financial institution, Yes sure Dan.
Joshua L. Glover: Yesterday, we began their digital lending journey with Encino with small business banking and expanded to their commercial banking line of business and has now selected us for auto spreading.
Joshua L. Glover: Also in the quarter, a top UK nonbank lenders selected encino as deep digital lending platform across all of their core product.
Joshua L. Glover: <unk> and buy to let mortgages.
Joshua L. Glover: Commercial loans bridging finance and development funding.
Joshua L. Glover: Other notable wins outside of the U S included a Japanese regional bank wins with the <unk> Bank for mortgage our first enterprise bank in the Nordics and the top 10, South African Bank.
Joshua L. Glover: Notably in Canada, we added another two top 20 Canadian credit unions, and we added another top 10 Canadian Bank.
Joshua L. Glover: We now have six of the top 10 Canadian financial institutions on the <unk> platform.
Joshua L. Glover: Our continued investment in the platform has become a major differentiator for us in the market.
Joshua L. Glover: Correct announcements over the last several quarters, including the launch of banking adviser automated insights for portfolio analytics, our omnichannel experience for consumer lending and the acquisition of dark fiber revolve around three key innovation themes, you've heard us discuss many times.
Joshua L. Glover: Automation intelligence and experience.
Joshua L. Glover: As Pierre mentioned in a recent publication from Accenture concluded that banking is likely to be more profoundly impacted by generative AI in any other industry based on the potential for automation and augmentation.
Joshua L. Glover: As of this call we have three early adopters, representing the U S enterprise.
Joshua L. Glover: Community banking segments, plus and international bank using several banking adviser skills.
Joshua L. Glover: One of those skills as credit Midland narratives, which leverages generative AI to automate the creation of a credit memo.
Joshua L. Glover: A required in complex deliverable and every commercial loan that is used for making lending decisions.
Joshua L. Glover: We have additional skills already in development that will be in the market later this year, bringing even more actionable intelligence to the point of production, where it can influence positive business outcomes for the financial institution.
Joshua L. Glover: These use cases include layering generative AI into commercial pricing and profitability.
Joshua L. Glover: And into our priority manager feature.
Joshua L. Glover: Given the shape of anticipated demand and adoption for generative AI, our intent is to monetize as a platform fee paired with consumption base fees and also to drive intelligence across our various solutions.
Joshua L. Glover: Look forward to demonstrating many of these new features and enhancements that insight in May we hope to see many of you there as well to see these innovations and <unk> vibrant ecosystem in person.
Joshua L. Glover: Product enhancements aimed at experience had been driving market momentum for our mortgage fee.
Joshua L. Glover: And over $30 billion regional bank, who previously adopted encino across consumer and commercial lending went live on our mortgage suite in the fourth quarter.
Joshua L. Glover: Glad to hear the differentiated experience to one borrower.
Joshua L. Glover: The customer is able to apply for their mortgage at less than 10 minutes.
On their phone while walking their dog.
Joshua L. Glover: This bank is well on their way to realize and exceed their business case for the solution.
Joshua L. Glover: By transitioning significant application volume digital channel and realizing a commensurate reduction in abandonment rates, bringing them well ahead of industry average.
Joshua L. Glover: The fourth quarter was our best sales quarter for U S mortgage in fiscal 'twenty, four adding 21, new logos for mortgage point of sale.
Joshua L. Glover: These 21, new customers included one of the largest <unk> in the nation, a takeaway from a competitor.
Joshua L. Glover: And one of the largest deals in our mortgage teams history.
Joshua L. Glover: The 13, new financial institution customers added also validate the benefit of our efforts to continue integrating and aligning our go to market teams deleveraging casinos brand and presence across the finest financial institutions in the United States.
Joshua L. Glover: The reshuffle of mortgage loan officers throughout the latest cycle has been one of our best sources of demand generation.
Joshua L. Glover: As users and as you know is mortgage solutions evangelize, the product new employer and become vocal internal advocate as you pursue those accounts.
Joshua L. Glover: And mortgage lenders look to implement our market leading solutions to proactively compete for talent.
Joshua L. Glover: While churn from market consolidation remains elevated in the quarter. We are confident that the share gains throughout this cycle and with continued product development efforts will yield accelerating growth as the mortgage market normalizes.
Joshua L. Glover: I am proud of how the company came together to support sales efforts in the fourth quarter.
Joshua L. Glover: Strength of our team and competitive positioning makes me optimistic for a strong fiscal 'twenty five and beyond.
Joshua L. Glover: Greg can you please take us through the financials.
Gregory D. Orenstein: Thank you Josh and thank you for your friendship and partnership over the past eight and a half years.
Gregory D. Orenstein: While I will Miss working with you I know, it's time for you to take on a new challenge and I wish you the very best.
Gregory D. Orenstein: With that thanks, everyone for joining us this afternoon to review our fourth quarter fiscal 2024 financial results.
Gregory D. Orenstein: Note that all numbers referenced in my remarks are on a non-GAAP basis, unless otherwise stated.
Gregory D. Orenstein: 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.
Gregory D. Orenstein: We are pleased with our fourth quarter fiscal 'twenty four financial results total.
Gregory D. Orenstein: Total revenues for the fourth quarter were $123 7 million, an increase of 13% year over year.
Gregory D. Orenstein: Full year total revenues were $476 5 million, an increase of 17% over fiscal 'twenty three.
Gregory D. Orenstein: Subscription revenues for the fourth quarter of fiscal 'twenty, four or $107 5 million, an increase of 16% year over year.
Gregory D. Orenstein: Subscription revenues were 87% of total revenues.
Gregory D. Orenstein: Full year subscription revenues were $409 $5 million, an increase of 19% over fiscal 'twenty, three and 86% of total revenues for the year.
Gregory D. Orenstein: Professional services revenues were $16 2 million in the fourth quarter, a slight decrease year over year.
Gregory D. Orenstein: Full year professional services revenues were $67 1 million an increase of 6%.
Gregory D. Orenstein: As I noted on our third quarter earnings call and at Investor Day, we intend to prioritize subscription revenues growth over professional services revenues growth on our path towards the rule of 50.
Gregory D. Orenstein: In the fourth quarter, we continued to invest in our Si partner ecosystem and.
Gregory D. Orenstein: And an implementation repetitions for newer products, which impacted the number of billable hours.
Gregory D. Orenstein: We also faced a difficult year over year comparison in professional services from our portfolio analytics business, where the fourth quarter of fiscal 'twenty three contributed an additional $1 $2 million of professional services revenue related to meeting the seasonal implementation deadlines.
Gregory D. Orenstein: Non U S revenues were $24 $8 million or 20% of total revenues in the fourth quarter up 48% year over year.
Gregory D. Orenstein: Revenues from outside the U S were $89 3 million or 19% of total revenues for the full year up 45% year over year.
Gregory D. Orenstein: As you are aware international is one of our key growth pillars, and we are very pleased to see this continued growth outside the United States.
Gregory D. Orenstein: We believe our global footprint, which just grew with the new office in South Africa from the Dark box acquisition is truly unique amongst vertical financial services SaaS companies.
Gregory D. Orenstein: non-GAAP gross profit for the fourth quarter of fiscal 'twenty, four was $81 $7 million, an increase of 15% year over year.
Gregory D. Orenstein: non-GAAP gross margin was 66% compared to 65% in the fourth quarter of fiscal 'twenty three.
Gregory D. Orenstein: non-GAAP gross profit for the full year was $313 1 million.
Gregory D. Orenstein: An increase of 18% year over year.
Gregory D. Orenstein: non-GAAP gross margin for the full year was 66% compared to 65% in fiscal 'twenty three.
Our gross margins improved due to subscription revenues being a larger contributor to total revenues.
Gregory D. Orenstein: non-GAAP operating income for the fourth quarter of fiscal 'twenty, four was $19 3 million.
Gregory D. Orenstein: With non-GAAP operating income of $1 8 million in the fourth quarter of fiscal 'twenty three.
Gregory D. Orenstein: Our non-GAAP operating margin in the fourth quarter was 16% compared with 2% in the fourth quarter of fiscal 'twenty three.
Gregory D. Orenstein: non-GAAP operating income for the full year was $61 8 million compared.
Gregory D. Orenstein: Compared with a non-GAAP operating loss of $2 1 million for fiscal 'twenty three.
Gregory D. Orenstein: Our non-GAAP operating margin for fiscal 'twenty, four was 13% compared with negative 1% in fiscal 'twenty three.
Gregory D. Orenstein: We realized efficiencies across the organization in fiscal 'twenty, four while remaining committed to continuous product innovation delivering the highest levels of customer satisfaction and building out our global market presence.
Gregory D. Orenstein: non-GAAP net income attributable to Encino for the fourth quarter of fiscal 'twenty, four was $23 8 million or 21 per diluted share compared to $4 4 million or <unk> <unk> per diluted share in the fourth quarter of fiscal 'twenty three.
Gregory D. Orenstein: non-GAAP net income attributable to <unk> for fiscal 'twenty, four was $58 million or <unk> 50 per diluted share compared to negative $8 million or negative <unk> <unk> per basic and diluted share in fiscal 'twenty three.
Gregory D. Orenstein: The company received an income tax benefit in the fourth quarter from releasing a valuation allowance against the UK deferred tax assets, which contributed $3 7 million to both GAAP and non-GAAP net income attributable to <unk> in the quarter.
Gregory D. Orenstein: Our remaining performance obligation increased to over $1 billion as of January 31, 2024 up.
Gregory D. Orenstein: Up 9% from $944 1 million as of January 31, 2023.
Gregory D. Orenstein: With $675 4 million in the less than 24 months category up 6% from $634 8 million as of January 31, 2023.
Gregory D. Orenstein: <unk> was positively impacted by the strength of gross sales coupled with a very strong renewal quarter.
Gregory D. Orenstein: We ended the quarter with cash and cash equivalents of $117 $4 million, including restricted cash.
Gregory D. Orenstein: Net cash provided by operating activities in the fourth quarter was $8 1 million compared to negative $22 million in the fourth quarter of fiscal 'twenty three.
Gregory D. Orenstein: Capital expenditures were 400000 in the quarter, resulting in free cash flow of $7 $7 million in the fourth quarter, marking the first year in company history with positive free cash generation in every quarter of our fiscal year.
Gregory D. Orenstein: Moving on to Dark box, we closed this acquisition on March 20th with the $75 million purchase price paid in cash at closing.
Gregory D. Orenstein: We leveraged our expanding revolving credit facility to help fund this transaction and intend to pay down the borrower principles throughout the year as we continue to generate cash.
Financial results of <unk> will be consolidated from the date of acquisition for reporting in accordance with GAAP.
Gregory D. Orenstein: As of December 31, 2023, dark box had approximately $6 million of annualized subscription revenues.
Gregory D. Orenstein: We ended fiscal 'twenty four with over 800 customers down from 1858 at the end of fiscal 'twenty three.
Gregory D. Orenstein: Due to the churn we have discussed all year within the independent mortgage bank market.
Gregory D. Orenstein: 501 of these customers contributed greater than $100000 to fiscal 'twenty for subscription revenues, an increase of 8% from the end of fiscal 'twenty three.
Gregory D. Orenstein: Of these 501 customers 86 contributed more than $1 million fiscal 'twenty for subscription revenues, an increase of 18% from the end of fiscal 'twenty three.
Gregory D. Orenstein: We ended fiscal 'twenty four with 460 platform customers up from 428 at the end of fiscal 'twenty three.
Gregory D. Orenstein: Our subscription revenue retention rate for fiscal 'twenty, four was 117% down from 148% in fiscal 'twenty, three or 125%. If you exclude the inorganic contribution from a simple Nexus acquisition.
Gregory D. Orenstein: Churn for fiscal 'twenty, four was approximately $31 million in line with our revised expectations provided on our Q3 earnings call.
Speaker Change: Before we turn to our fiscal 'twenty five financial guidance, let me provide some commentary around our outlook for the year. In addition to peers earlier comment about the negative impact of the first quarter fiscal 'twenty four sales as a result of the liquidity crisis.
Speaker Change: First and most noteworthy we entered fiscal 'twenty five with a subscription revenues headwind of approximately $31 million as a result of the heightened churn that occurred in fiscal 'twenty four.
Speaker Change: A significant amount of which we consider to be outside the norm.
Speaker Change: Okay.
Speaker Change: Michelle.
Speaker Change: Hello.
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Speaker Change: One moment please.
Speaker Change: Okay. This eschar Michelle.
Speaker Change: Yes at this time, if anyone would like to ask a question. Please press <unk>.
Michelle: Michelle Michelle.
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Michelle: Yes, we should read the final page of the recording because it stopped prematurely yes, Sir.
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Speaker Change: Apologies it seemed like we were having some technical difficulties.
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Speaker Change: First and most noteworthy we entered fiscal 'twenty five with a subscription revenues headwind of approximately $31 million as a result of the heightened churn that occurred in fiscal 'twenty four.
Speaker Change: Significant amount of which we consider to be outside the normal course of our business.
Speaker Change: Specifically $13 million was related to the turmoil in the U S mortgage market $2 5 million was attributable to a customer directly impacted by the liquidity crisis and $4 million represented the remainder of Triple P licenses.
Speaker Change: The financial impact of this churn even when netted against the contribution from the Doc Fox acquisition results in a 3% headwind to fiscal 'twenty five subscription revenues growth.
Speaker Change: Turning to mortgage our U S mortgage subscription revenues grew 10% in the fourth quarter of fiscal 'twenty, four and 14% for the full year.
Speaker Change: We are very proud of this achievement and what was a very difficult mortgage market.
Speaker Change: For fiscal 'twenty, five we are modeling $8 million in mortgage churn, which while still elevated from historic levels.
$5 million less than last year.
But otherwise modeling minimal improvement in the U S mortgage market until the fourth quarter of fiscal 'twenty five.
Speaker Change: We expect our U S mortgage business will be dilutive to the company's overall subscription revenues growth rate for full year fiscal 'twenty five.
Speaker Change: <unk> of the fiscal 2000 and for churn.
Speaker Change: We expect our total company churn in fiscal 'twenty five to decrease to approximately $25 million or 5% of fiscal 'twenty for subscription revenues and that churn will continue to moderate towards historic norms beyond this year as the mortgage market continues to normalize.
Speaker Change: On the cost side, we were pleased to announce an extension to our longstanding agreement with Salesforce in December that took effect at the start of fiscal 'twenty five.
Speaker Change: In addition to deepening the commitment between our two product organizations, we expect a more favorable unit economics as provided by the agreement to contribute an approximately 1% improvement in our non-GAAP gross margin in fiscal 'twenty five.
Speaker Change: And then contribute further incremental improvements in our non-GAAP gross margin in future years.
Speaker Change: This agreement provides us with even more confidence in our ability to deliver on the 78% to 80% subscription gross margin long term target announced at Investor day.
You will note our guidance for fiscal 'twenty five assumes continued progress on non-GAAP operating income with a 22% to $24 million or <unk>, 36% to 39% improvement year over year.
Speaker Change: We plan to continue prudently investing, particularly in R&D and sales and marketing.
Speaker Change: To drive subscription revenues growth in light of the significant opportunity we see ahead.
Speaker Change: Including with our Nic AI data and analytics products.
Speaker Change: We remain confident in our long term operating model targets, we shared at our Investor day in September.
Speaker Change: As I have previously stated progress towards those targets will not be linear.
And as a reminder, the 15% implied subscription revenues growth target and our long term model is not a CAGR, but rather expected growth for that year.
Speaker Change: Finally, our plan assumes approximately $8 $5 million of capital expenditures most of which is for improvements to an expansion of our office in the U K.
Speaker Change: For the first quarter of fiscal 2025, we expect total revenues of $126 million to $127 million.
Speaker Change: Subscription revenues of $108 75 to $109 $75 million.
Speaker Change: This guidance assumes year over year subscription revenues growth of 12% to 13%.
Speaker Change: As Peter noted churn in fiscal 'twenty four peaked in the second half of the year.
Speaker Change: Specifically mortgage churn peaked in October and total churn peaked in the fourth quarter, making the first three quarters more difficult comparisons.
Speaker Change: non-GAAP operating income in the first quarter is expected to be approximately 18% to $19 million.
Speaker Change: non-GAAP net income attributable to encino per share to be 13 to 14.
Speaker Change: This is based upon a weighted average of approximately 117 million diluted shares outstanding.
Speaker Change: For fiscal 'twenty five we expect total revenues of $538 five to 400 to.
Speaker Change: 538, 5% to $544 $5 million with subscription revenues of $463 million to $469 million.
Speaker Change: This full year guidance assumes year over year subscription revenues growth of 13% to 15%.
Speaker Change: As Youll note the 13% high end of our first quarter subscription revenues guidance is the low end of our full year subscription revenue guidance.
Speaker Change: We expect our highest year over year and sequential growth to occur in the fourth quarter.
Speaker Change: We expect non-GAAP operating income for fiscal 'twenty, five to be $84 million to $86 million.
Speaker Change: non-GAAP net income attributable to <unk> per share is expected to be 60 to 64.
Speaker Change: Based upon a weighted average of approximately 118 million diluted shares outstanding.
Speaker Change: And with that operator, we'll open the line for questions.
Speaker Change: Thank you as a reminder, we ask that you. Please limit yourself to one question and a follow up.
Speaker Change: Our first question comes from Terry Tillman maturing Securities. Your line is open.
Terrell Frederick Tillman: Yes. Good afternoon, everybody first I did want to say, Josh I guess, congratulations and good luck with the new opportunity once you and I'm sure you're going to Miss are great questions.
Terrell Frederick Tillman: I guess my first question and then I have a follow up is on the enterprise side. Pierre I think you were talking about enterprise demand normalizing I.
Terrell Frederick Tillman: I guess is it starting decision after pivot in terms of some of the products. They are looking at in particular I'm wondering are you seeing green shoots for these larger transformational commercial loan origination deals, which typically are much larger.
Terrell Frederick Tillman: Or is it really a lot of the other products on the diversification playing out and then I'll follow up.
Speaker Change: Yes, I would say thanks, a lot Terry.
Speaker Change: I would say that the larger banks is returning to more of a strategic posture, which means they are beginning to look at lots of transformations. It's very early on in the buying cycle, but most of the actual activity is on the non loan origination or non commercial loan origination systems. Okay.
Speaker Change: So it sinks other than commercial origination.
Speaker Change: As we always reminded us we see our customer base as a massive asset to this company and you can see now we are beginning to cross sell into them with existing products as these products sub scaling and become more attractive to larger banks as well as well as a comedian regional space. You can also see how the dog <unk> acquisitions.
Tremendously accretive to those accounts that is a critical issue for them out of deposit account opening and onboarding with a robust <unk> email functionality.
Speaker Change: So I think we are proving out the case that our customer base is not a drag but actually a positive for us.
Speaker Change: Got it thanks for that up here and I guess my follow up question is related to the $6 million. Greg I think you disclosed that that was the annualized subscription revenue is that what youre assuming for FY 'twenty five.
Gregory D. Orenstein: It's like simple Nexus you had some pretty significant revenue synergies are you baking anything in there. Thank you.
Gregory D. Orenstein: Yeah. Thanks Terry.
Gregory D. Orenstein: So we don't break down that detail from our fiscal 'twenty, five or specific product guidance perspective.
Gregory D. Orenstein: But as I as was noted in the call we're going to focus on integration.
Gregory D. Orenstein: And make sure from a product perspective, we've got that single platform motion going to market starting in the community base and so we would expect the momentum to build as the year progresses.
Gregory D. Orenstein: Is how we're looking at that that contribution from dark box.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: We'd like to ask a question. Please press star one one.
Speaker Change: Our next question comes from Adam Hotchkiss with Goldman Sachs. Your line is open.
Adam R. Hotchkiss: Great. Thanks for taking the questions I guess I'll start I, just wanted to touch a little bit more on the expansion of your partnership with Salesforce I appreciate the detail on the model, Greg, but could you just talk a little bit more about what if at all is changing on the technology technology side from an egg.
Speaker Change: And integration perspective thanks.
Speaker Change: Yes, I'll take that thanks, Rick So the first thing is.
Speaker Change: We enter hospitals get together with our customers and we're always looking at opportunities to improve how the platform, which is <unk> dot com and then the CRM functionality that call center functionality from Salesforce integrate into encino to make it a seamless experience for the banker.
Speaker Change: And so on the one hand, salesforce can expanding some platform elements. So that we can integrate easier to it in better and on top of that.
It will provide a much better client experience and I always use. This example think of your iPhone as our platform was a number of Epsilon there and if they stop sharing data that makes it just so much more seamless and although we've had that in the past we have now and taking that to a new dimension, where more vertical capabilities of salesforce.
Speaker Change: <unk> available to Encino. So it gives us deeper integration it gives us more cross sell opportunities as well as co sell opportunities and I'm very optimistic with our product direction of sales force and how we piggyback on that as well as the coordination in the field for us to win larger deals.
Speaker Change: Okay, Great. That's really helpful. And then I just wanted to talk a little bit more about banking adviser and some of the early adopters. How quickly do you think you can realistically ramp adoption of some of these features into the base and then just any initial thoughts on how you think about the potential ACB uplift for existing customers would be helpful.
Speaker Change: And it was very early stage for banking adviser, we've got early adopters going with it but in the end banking adviser is going to be a tremendous productivity tool and it'll be based on obviously the.
Speaker Change: The size of the deployment, which correlates with the size of the bank it'll be based on the number of skills it'll be heavily our ROI based because we have to begin to understand how's it comp.
Speaker Change: Complementing specific rows.
Speaker Change: And how it may even replace humans at certain places in in the production line. Okay. So.
Speaker Change: The feedback we're getting right now is very positive, but it's early days.
Speaker Change: And just do you want to comment on that on top of I think what's important to note back to your question about how quickly we can ramp adoption of that are early adopters represent pieces of the U S enterprise use too many regional and international customers. So this is something we feel it will be globally applicable and that's why we've taken that approach with the innovation it will be a much fast.
Speaker Change: Implementation, then in Encino transformation and that aligns with a lot of our other cross sale.
Speaker Change: And Nic solutions that you've seen you've heard us talk about record setting portfolio analytics deals. Those are also quick to adopt and we think that translates.
Speaker Change: Isaly to lots of our customers the problems that we solve and two to how quickly we can see a ramp from that.
Speaker Change: And Adam it's Greg just to note, while again not necessarily breaking down product contribution I will note because I think it's important that we're not assuming revenue in fiscal 'twenty five from banking adviser so.
Gregory D. Orenstein: Again, consistent with our rollout model very methodical.
Gregory D. Orenstein: Make sure it's battle tested and ultimately that's what we're focused on doing doing this year.
Speaker Change: Okay really helpful. Thanks, everyone.
Speaker Change: Thank you.
Speaker Change: Next question comes from Alex Sklar with Raymond James Your line is open.
Alexander James Sklar: Great. Thank you.
Alexander James Sklar: First question I guess for peer Augusta or policies. If he is on but you highlighted some of the fifth.
Alexander James Sklar: 24 ish that impacted growth and I just wanted to see if you'd elaborate a little bit more on the visibility going to FY 'twenty five.
Alexander James Sklar: That should drive the comments around 50% greater net bookings and specifically how should we think about that between kind of improved gross bookings versus improved churn.
Alexander James Sklar: Thanks.
Alexander James Sklar: Yeah, Hey, Alex it's Greg just on the churn I think it's a combination of both.
Alexander James Sklar: In terms of again improved gross bookings were consistent than what we saw last year, particularly.
Gregory D. Orenstein: You know in light of the liquidity crisis in Q1, but it can also an expectation as I tried to detail in my prepared remarks around a lower expectation for churn. So those two I think helped drive.
Gregory D. Orenstein: That 50% number and some of the confidence that we see going into the year begins in the pipelines that we have down I emphasize our capacity on the field has increased year over year, because we believe that's a massive opportunity in our Tam or Sam supports that.
Gregory D. Orenstein: That gross bookings growth.
Gregory D. Orenstein: Along with lesser churn gives us a significant upside on that on the net bookings.
Speaker Change: Okay, and then just a quick follow up is any way to think about kind of how that should flow in the fiscal 'twenty five versus fiscal 2016 that is that mostly a 2006 issue.
Speaker Change: So when you look at our.
Speaker Change: Our revenue southern Geo visibility as the year starts were sitting around 93% through the middle of the guidance Okay.
Speaker Change: And so what we book the first half of the year. There's two main practice inspection of product in other words, how quickly it becomes revenue it will return as we see those indicators because there's some unknowns and churn always we've been conservative, but you never know what's going to happen.
Speaker Change: So those are the two main factors and can we get the bookings early enough in the year.
Speaker Change: Rich I'll give you and just to.
Speaker Change: A rough understanding of if we can buy michio have roughly around <unk>.
Rich: 40% of our total gross bookings for the year in that is much more of a normal picture for the year and you get 60% of the back half.
Rich: That's first six months of bookings so impact this year's P&L.
Rich: And as you get later through the end of the year that impacts a lot more into next year's P&L. Okay. So that gives you some color on how we see.
Rich: Actually if you look at this year's financial results.
Rich: We need to get bookings early and often.
Rich: And.
Rich: We need to contain Chubb and those are the main factors for this year's financials.
Speaker Change: Great. Thank you both for that color.
Speaker Change: Thanks, Alex.
Speaker Change: Thank you. Our next question comes from Nick Altmann with Scotiabank. Your line is open.
Nicholas William Altmann: Awesome. Thanks, guys I wanted to ask a question on the mortgage side of the business. It sounds like there is a.
Nicholas William Altmann: A pretty nice rebound in Q4, but can.
Nicholas William Altmann: Can you, maybe just talk about where you're at with the transition to more of a consumption based model.
Nicholas William Altmann: And going off that how should we be thinking about the impacts to the model in FY 'twenty five.
Speaker Change: Yes, Nick.
Nicholas William Altmann: If you think about the transition to more consumption base, which again has a committed platform fee and then which comes with a specific number of loans for that and then to the extent that there's additional volume we would get upside from that.
Speaker Change: From a logo perspective, it's about 25% to 30% of our of our mortgage base.
Speaker Change: Probably a little bit higher from a revenue perspective.
Speaker Change: And so that's where we are from a transition standpoint, some customers again like the old seat based model and it works for them and we're comfortable with that.
Speaker Change: Again, we started this because a lot of customers who were trying to navigate that.
Speaker Change: Rising interest rates came to us and.
Speaker Change: Wanted some relief.
Speaker Change: We agreed to work with them as the market was was struggling through that but again, we wanted upside on the other side and they worked with us for that so I think we're positioned nicely as volumes come back that said if you go back to my prepared remarks.
Speaker Change: We arent expecting much improvement in the mortgage market until Q4 of this year. If you look at the MBA Statistics Q3 is where they see a pop.
Speaker Change: But again, we want to be prudent.
Speaker Change: With with our modeling as we think about the business and we think about managing the business. So that's that's where we are as it relates to the mortgage opportunity Greg maybe I can give some further color just so that people understand what the mortgage impact is on the company as a whole today mortgages about 16% of total revenue.
And then if you look at the what I would say is your churn and stability is that is born in the <unk> market and that makes up only 11%.
Speaker Change: When you look at the overall picture of you said in your press release that mortgage grew 14% year over year.
Speaker Change: Which I think with all these headwinds is a fantastic accomplishment is number one but also you have to understand it.
Speaker Change: The AMB market is only 11% of the total company.
Speaker Change: So that impact is not massive on the company. So it's painful and I want to see a change.
Speaker Change: But overall this company's got a financial and a business model that is way beyond mortgage and much stronger.
Speaker Change: To support certainty for us as we make these projections.
Speaker Change: Awesome. Thanks, guys.
Speaker Change: Thanks, Tim.
Speaker Change: Thank you. Our next question comes from James Fawcett with Morgan Stanley. Your line is open.
Speaker Change: Hey, Ron its Mike <unk> on for James Thanks for taking my question I just wanted to follow up on next question Mark hedge it sounds like you're modeling minimal improvement in the market throughout the year, even though the business grew 14% on a subscription basis.
Mike: A market that was down quite meaningfully in 'twenty three if we Greg you alluded to this if we look at some of the industry asking rents it looks like on an aggregate basis for 24 hour, we're going to see about a 20% to 30% year over year growth.
Mike: Relative to 'twenty three so granted a lot of that will be concentrated in the back half, but I am curious if you could just walk through the rationale for minimal improvement in the mortgage business in fiscal year, 'twenty, five and whether or not that could prove to be conservative. Thanks.
Speaker Change: Yes, Thanks, Michael.
Speaker Change: So I think a couple of things one is again, we want to be prudent with.
Speaker Change:
Speaker Change: Our model and our our guidance and forecasting.
Speaker Change: Launched last year plan in six weeks into it and Silicon Valley Bank happened and so you know we're sensitive we're sensitive to that.
Speaker Change: From a year over year growth perspective, again, the churn that we identified in the mortgage side in fiscal 'twenty four you see the impact of that really in fiscal 'twenty five and so as we think about year over year growth.
Speaker Change: It's a big drag on on that business that said again I think the team's done a great job.
Speaker Change: Navigating through with the 14% year over year growth and 10% in the fourth quarter and.
And as I've said before I think one of the focus areas was aligning with the larger more successful <unk>. If you look at that part of that business.
Speaker Change: And as the dust is settling again I think youre left with a smaller number of larger better capitalized <unk>.
Speaker Change: And again, we've worked hard to support those and as volumes come back and we expect to benefit from that.
Speaker Change: Other thing from a mortgage perspective, if you go back to Josh.
Josh as comments earlier around sales in Q4, the number of financial institutions that were cross selling and not only just cross selling but are actually bringing in <unk> into the into the financial institution again is another part that should bring some stability to that business as we get through the year.
Speaker Change: The net of it is is we want to be prudent.
Speaker Change: And.
Speaker Change: I think there is a debate about when interest rates are going to go down and the impact of that on on mortgage rates and I think we've probably taken a view of it happening a little bit later in the year than maybe some other people.
Speaker Change: I appreciate that Greg makes sense for my second question I am curious if you could give us a status update just in terms of how the synchronization of the simple and access front and to the rest of the retail lending offering is going when do you expect to complete that and how do you think that will ultimately.
Speaker Change: Impact adoption of the product more generally, particularly after.
Speaker Change: Last quarter as well on the retail side. Thanks.
Speaker Change: Yes, so as you could hear the number of banks or financial institutions for selling that from the <unk>. Two now is increasing and that velocity as our momentum is good.
Speaker Change: At our insight user conference, which is in May we will demonstrate the entrant product it'll be it'll come with fully develop api's.
Speaker Change: We are very excited about that I can tell you with vendor consolidation.
Speaker Change: And the platform approach, we've taken we just see a significant.
Speaker Change: What I would say interest in this platform because it gives the big banks the ability to do their own front end and then it gives to the API is that gives us smaller banks the ability to adopt a platform into <unk>. Okay.
Speaker Change: You throw in.
Speaker Change: The Doc <unk> acquisition, which is going to cover the simple excess will cover your consumer and individual oriented businesses and use cases, and then you bring in dark box and you cover your deposit account opening and Onboarding for the commercial side and the heavy complex site.
Speaker Change: So I just think that this pieces of the puzzle is coming together.
Speaker Change: <unk> will take us six months for the first integration milestone and <unk> will be after.
Speaker Change: Our inside conference in May it will be fully in the market. Then we will sell this across the platform.
Speaker Change: Yeah, So Michael again insight in May.
Speaker Change: We look forward to showing that to our customer base and prospects there.
Speaker Change: We're really excited about about that technology.
Speaker Change: So.
Speaker Change: Next year there.
Speaker Change: Got it thank you both.
Speaker Change: Thank you our next question.
Speaker Change: Chris Kennedy with William Blair. Your line is open.
Unknown Attendee: Yeah. Good afternoon. Thanks for taking the question Pierre you talked about at least 15% subscription revenue growth. In 2026 can you just talk about kind of the puts and takes to that number as you sit here today.
Speaker Change: Yes, so the first thing is.
Unknown Attendee: If we accomplish the goals for our bookings for this year that we feel very confident about if you look at the macroeconomic environment. If you look at.
Unknown Attendee: Customer conversations, we're having et cetera that is your first foundational milestone to that the second one is over the next.
Unknown Attendee: Nine months, we are going to loans, a number of new products that is.
Unknown Attendee: Very quick to market much volatile install installation cycles, and I believe that will drive momentum, where we actually have a higher ACB number come the end of the year, but it'll translate into revenue growth for next year, So the new products.
Unknown Attendee: Along with the Omni channel front, and we're launching along with our product being fully integrated okay.
Unknown Attendee: I think all of those and then you look at mortgage when that recovers and I do believe there is a point that mortgage rates will have come down that much I think it's more of a point of house prices will reach an equilibrium ended the consumer realized because of life events they have to move in.
Unknown Attendee: If you combine all of those who meet a return more to a normal market that upside in mortgage is going to be significant for us as well as.
Unknown Attendee: The combination of all of that.
Unknown Attendee: I think we will drive.
Unknown Attendee: Our growth rate for next year that is north of 15%.
Speaker Change: Great. Thanks for that and then you talked about churn going back to normal do you still think the normal is kind of 2% to 3% going forward. Thanks a lot.
Speaker Change: Yes, I think it would probably be more towards the three ish percent.
Speaker Change: Chris just because again, the AMB piece to it which is a little bit more volatile.
Speaker Change: But I think again.
Speaker Change: Taking a step down this year, we still expect elevated churn as we noted.
Speaker Change: But ultimately, particularly if you look at the legacy Encino side, it's fairly consistent so theres no new news there.
Speaker Change: And as mortgage settles, we would expect to be closer down to that three ish percent than where we are last year and certainly where we are this year, where we were last year I should say, where we are this year. The other products. We're installing is very sticky. Its long term. These are generational buying decisions amongst bank standardize on this kind of software they stay on for a very long time.
Speaker Change: So I feel confident that churn rate will come down to that overtime as the rest of the business grow as well you'll find that our mortgage business in banking will grow significantly.
Speaker Change: Which is a much more stable customer base, we love the <unk> space Youre going to focus other than sell that two thirds of mortgages are made there. However over time that'll become a smaller and smaller portion of the business overall.
Speaker Change: Just because we're a growth on the other side of the balance sheet.
Speaker Change: Understood. Thanks for taking the questions.
Speaker Change: Thanks, Chris.
Speaker Change: Thank you. Our next question comes from Robert <unk> with Macquarie Capital. Your line is open.
Robert: Hi, yes. Good afternoon. Thanks, Thanks, both of you.
Robert: Congratulations to Josh well my first question.
Robert: I know we've covered.
Speaker Change: The pricing.
Robert: Evolution and the trends that Youre seeing.
Robert: On the consumer.
Robert: And mortgage side.
Robert: With regards to.
Robert: That eventual shifts.
Robert: On the commercial side.
Robert: I know you said, Greg you want to work out all the Kinks and everything.
Robert: On the consumer side before.
Robert: You begin to deploy that.
Robert: <unk>.
Robert: The commercial segment with the <unk> acquisition and as Pierre mentioned.
Robert: Rounding out the pieces of puzzle.
Robert: Puzzled.
Robert: You know is there any thought to perhaps.
Robert: Accelerating that.
Robert: That hybrid pricing model by model transition on the commercial side versus a quarter ago.
Speaker Change: Yeah. Thanks, Bob.
Speaker Change: Potentially I mean, ultimately the rollout of platform pricing is really a cross functional and organizational effort.
Speaker Change: And that will play out throughout the year as we get that muscle.
Speaker Change: Solidified here internally.
Speaker Change: We're able to do that in a very consistent basis and so you are right again, our focus has been on mortgage and on consumer.
Speaker Change: But ultimately as the year progresses, and certainly as we get into next year, we would expect to focus on on commercial as well.
Speaker Change: Starting with net new customers and then again as renewals come up.
Speaker Change: Addressing it from a renewal perspective.
Speaker Change: So it'll be an evolution throughout the year and into and into next year, but again, thats where were going and again it really been reinforced as we talked about efficiency here a lot on this call and in the prepared remarks.
Speaker Change: And again, I think we're making our customers more efficient which means fewer seats.
Speaker Change: Which means they're also getting more value from our products and so focusing on that value from a sale standpoint versus the number of seats is the right thing for us to be doing.
Speaker Change: Thank you.
Speaker Change: That makes perfect sense.
Speaker Change: And then my follow up just on the.
Speaker Change: Yes.
Speaker Change: Very pleased to hear that still on track for the Tar.
Speaker Change: Targeted drives rule of 50.
Speaker Change: You know.
Speaker Change: Within the various levers that you have.
That will get you there.
Speaker Change: When you think about the fact that.
Speaker Change: Sure, let's say three out of the next four quarters you would expect.
Speaker Change: The mortgage segment growth to be dilutive to the company average before.
Speaker Change: Without it in.
Speaker Change: In the fourth quarter.
Speaker Change: But you still very much believe that youll get to rule of 50 and Youll hit your.
Speaker Change: Gross margin of 78 to 80 and it doesn't have to be linear so what.
Speaker Change: What are the what would be potentially the.
Speaker Change: The Austin positively offsetting factors when you have say a couple of quarters.
Speaker Change: Weakness, you say mortgage or.
Speaker Change: Or any other.
Speaker Change: And I think one of the things that we're really proud about we talked about the turmoil really that this business and the industry has gone through over the last couple of years between Covid and the rise in interest rates in the liquidity crisis, we stayed very focused on executing our strategy.
Both product wise as well as our geographic footprint and so again I think we've got multiple levers in the business.
In order to help support us on our path to reach that rule of 50 on that long term target that we discussed back in September.
It's for mortgage it's from new products, it's from AI.
Speaker Change: From our consumer lending product being in a place where again, we can sign a $200 billion enterprise bank as we announced in the third quarter.
Speaker Change: It's the new Omnichannel and so again I think it's just been and credit to the team a lot of focus over the last couple of years to position us.
Speaker Change: To be ready.
Speaker Change: And really have this kind of convergence of the market hopefully coming back and settling after after the turmoil that we've seen aligning very nicely with the maturing of our products and our go to market motion and so again I think.
Speaker Change: It really spans products and geographies and I think we've got multiple different levers to help drive growth over the next several several years.
Speaker Change: So that's great to hear thank you. Thank you very much guys.
Speaker Change: Thank you Bob.
Speaker Change: Thank you. Our next question comes from Brent <unk> with Piper Sandler Your line is open.
Speaker Change: Good afternoon, and thanks for taking the question. This is J R on for Brent.
J R: Just a quick clarification for me.
J R: Wondering if you can quantify how much of this build in RPM you would attribute to the enterprise deals that slipped from the third quarter versus any other source of uplift. Thank you.
Speaker Change: Thanks, Jr.
Speaker Change: When you get that level of specificity, what I would highlight is as we talked about seeing traction across all kind of market segments that total ARPA.
Speaker Change: Really is a reflection of duration and as Youre aware.
Speaker Change: Enterprise customers that usually sign the longer contracts.
Speaker Change: And again with those enterprise customers signing it was very much extend and expand.
Speaker Change: With those and so that was really what was driving.
I wouldn't highlight one specific deal.
Speaker Change: Versus again, just a strong quarter of gross sales and a strong renewal quarter as part of that.
Speaker Change: Things came together nicely.
Speaker Change: Very much more in line with what our historic expectations have been versus again, what we've seen over the prior several quarters, where it was much more lumpy than normal.
Speaker Change: Alright, It makes total sense. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you and our last question comes from Alex Mark Graf with <unk>. Your line is open.
Speaker Change: Hey, everyone. Thanks for taking my question here.
Speaker Change: Just wanted to follow up on some of the commentary around normalizing it normalizing sales environment.
Speaker Change: When you think about the normalized normalization that you're seeing.
So far early in the fourth quarter I'm, just curious I mean, what does that represent versus the.
Speaker Change: I don't know if all cause from a backlog of pause demand that has built up more recently.
Speaker Change: That's sort of the first part of it and then as you think about fiscal 'twenty fives, what is sort of the operating assumption as to how quickly some of that demand sort of resumes and deals are signed.
Speaker Change: Hey, Thank you for the question. This is Josh I think the biggest shift that we've seen.
Joshua L. Glover: <unk> is really the motivation that the customer has as we engage with them we.
Joshua L. Glover: See a more resounding and consistent focus on efficiency from our customer base.
And then we've seen since we started the company look if you look at last year, you had the market took a shock, but when they've come back and realize that their margins are still compressed so they understand the environment, there and theyre getting more questions about the credit quality.
Joshua L. Glover: The ability to to continue banking, but do so more efficiently is something that we're seeing in all segments across the globe and so on.
Joshua L. Glover: Obviously, you understand the efficiency lifts at Encino gives no team and their ecosystems better equipped.
Crew is to deliver that efficiency, that's probably been the biggest change that we've seen so.
Joshua L. Glover: A big piece when we talk about return to engagement and returning sentiment is is a pretty clear crystal clear focus from the customers, we serve and delivering more efficiency.
Joshua L. Glover: Thanks.
Joshua L. Glover: Thank you there are no fresh questions at this time I'd like to turn the call back over to Peter <unk> for closing remarks.
Peter: Thank you so much operator.
Peter: When we founded Encino algo.
Peter: Our goal is to make our customer successful that vision hasnt changed today, our solutions brings all of our financial institutions lending Onboarding and account opening operations onto a single platform.
Peter: I know of no other truly multi tenant SaaS company in the financial services industry with a product richness and ability to serve the needs of the largest financial institutions across the globe to community banks credit unions and <unk>.
Peter: <unk> had the vision and technology to take banks into the cloud.
Peter: And now we have the deep domain expertise and unmet stay there.
Peter: All of them embrace and leverage AI.
Speaker Change: Thank you all for joining us today I hope many of you will be able to attend our annual user conference insight in may to see what's coming next thank you so much.
Speaker Change: Thank you Sir.
This does conclude the program and you may now disconnect everyone have a great evening.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [noise].
Speaker Change: Yes.
Speaker Change: [music].