Q3 2025 nCino Inc Earnings Call
To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded. Now I will pass the call over to the Director of Investor Relations, Harrison Masters. Please proceed.
Harrison Masters: Good afternoon and welcome to Encino's third quarter fiscal 2025 earnings call. With me on today's call are Pierre Naude, Encino's Chairman and Chief Executive Officer, and Greg Orenstein, Encino's Chief Financial Officer.
Speaker Change: During the course of this conference call, we will make forward-looking statements regarding trends, strategies, and the anticipated performance of our business.
Speaker Change: These forward-looking statements are based on management's current views and expectations
Speaker Change: entail certain assumptions made as of today's date and are subject to various risks and uncertainties described in our SEC filings.
Speaker Change: and other publicly available documents, the financial services industry and global economic conditions.
Speaker Change: and CINO disclaims any obligation to update or revise any forward-looking statements.
Speaker Change: 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 Change: 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.
Speaker Change: just before this call, as well as the earnings presentation on our investor relations website at investor.ensino.com. With that, I will turn the call over to Pierre.
Good afternoon, and thanks for joining us today.
Pierre Naude: We are very pleased with our third quarter financial results, once again exceeding expectations for both revenues and non-GAAP operating income. Our sales momentum increased in the third quarter, with gross bookings accelerating quarter over quarter and year over year.
Pierre Naude: The team demonstrated solid execution across the globe, signing over 30 multi-solution deals and generating more gross bookings from net new customers than the last two quarters combined.
Pierre Naude: Turning to specific sales highlights from the third quarter, our U.S. community and regional and U.S. enterprise businesses both again had strong sales quarters and both are well on their way to exceeding their gross bookings targets for the year.
Pierre Naude: Of note in the CNR space was the signing of an over $10 billion credit union for commercial lending, small business lending, portfolio analytics, and banking advisor under our new pricing framework, which Greg will discuss further.
Pierre Naude: In the U.S. enterprise market, we continue to see strength with expansion sales, including signing an agreement for our small business solution with an $80 billion bank, increasing ACV for that account by approximately 15%.
Pierre Naude: The scope of this expansion is initially focused on solving a key challenge for compliance with Dodd-Frank 1071, but will be part of a larger journey to automate the bank's small business lending processes and consolidate multiple legacy systems onto Encino.
Pierre Naude: I'm also pleased to announce that shortly after the end of the third quarter, our U.S. enterprise team signed a five-year multi-solution deal, also under our new pricing framework, with a top 40 bank in the U.S. for commercial lending.
Pierre Naude: Small Business Lending, Treasury Management, Automated Spreading, Pricing and Profitability, and Banking Advisor.
Pierre Naude: Our financial results also reflect some momentum in mortgage, even as mortgage rates remain elevated despite the reduction in the federal funds rate.
Pierre Naude: We added 11 new mortgage logos in the U.S. in the quarter, including four banks and a farm credit institution, though we did see slightly higher trend due to IMB M&A.
Pierre Naude: Our average mortgage customer ACV is 15% higher than a year ago, highlighting the progress we've made in aligning with larger mortgage lenders over the past couple of years and with bundling products for this market.
Pierre Naude: As we previewed on last quarter's call, we saw some increased momentum in international markets.
Pierre Naude: You would have seen a press release in August announcing Tokushima Taisho Bank as a new customer in Japan using Encino for commercial lending.
Pierre Naude: This agreement, signed in the third quarter, makes Takashima Taisho our largest customer in Japan.
Pierre Naude: We are honored to partner with Tokushima Taisho to enhance the value it brings to both its corporate client and its employees. I was in Japan just a couple of weeks ago visiting customers and prospects.
Pierre Naude: and left more excited than ever about the opportunity we have in that market.
Pierre Naude: In the third quarter, the EMEA team signed an expansion agreement with the largest bank in Norway, bringing the full business bank onto Encino, as well as ESG reporting capabilities, banking advisor, and credit portfolio management.
Pierre Naude: The expansion of this customer relationship should serve to continue building our brand awareness in the Nordics and the media at large.
Pierre Naude: The EMEA team also signed our first customer in Luxembourg in third quarter for a joint commercial and mortgage lending solution.
Pierre Naude: The ongoing emphasis on regulation in Europe continues to be an opportunity for Encino. For example, the Digital Operational Resilience Act, or DORA, is designed to enhance the operational resilience of digital systems that support financial institutions operating in European markets.
Pierre Naude: As such, financial institutions are looking to aggressively reduce the number of vendors they are using in an effort to mitigate risk and become more efficient.
Pierre Naude: Vendor consolidation is a key priority for many of the institutions we speak with, and the Encino platform is the ideal solution for a financial institution on a global basis to run its lending, account opening, onboarding, and ongoing portfolio management needs.
Pierre Naude: Turning to Banking Advisor, we continue to be quite pleased with the early traction we are seeing. We added 11 new Banking Advisor customers in the quarter across the globe, with customers going live in just a few weeks. As our new pricing framework gets rolled out, we plan for Banking Advisor to be part of every new deal and renewal.
Pierre Naude: We expect this to be well received based on customer feedback for Banking Advisor as well as for the new pricing framework.
Pierre Naude: In the third quarter, we announced the acquisition of Full Circle, which we subsequently closed on November 5th.
Pierre Naude: This transaction is just the latest example of Encino utilizing an acquisition to strategically extend our platform and grow the wallet share opportunity within our large and happy customer base.
Pierre Naude: The acquisition of Full Circle brings additional depth to our customer onboarding capabilities, with an initial focus on the UK and growing applicability across Europe.
Pierre Naude: Following the successful acquisition of DocFox earlier this year, which addressed the user experience for onboarding commercial customers,
Pierre Naude: Full Circle marks another step forward in advancing and expanding our onboarding capabilities by adding data aggregation components to the platform.
Pierre Naude: Today, onboarding, which is the process by which financial institutions verify the legitimacy of a prospective client or business for the prevention of things such as money laundering and fraud.
Pierre Naude: is a highly manual and time-intensive process with a lot of complexity, particularly when onboarding larger and more sophisticated organizations.
Speaker Change: Full Circle aggregates a premium data supply that our customers would otherwise be gathering from fragmented sources.
access to this data
Speaker Change: Within the Encino platform will enable financial institutions to streamline application processes and improve client lifecycle management across other processes being performed on Encino, yielding a powerful, combined, integrated offering.
Speaker Change: We currently have 10 mutual customers in the UK, and we believe all our UK clients can benefit from the combined businesses as we look to further expand this offering across the channel to continental Europe to create even more cross-sell opportunities.
Speaker Change: Based on the onboarding capabilities we brought onto the platform this year with DocFox in full circle, we believe we have increased the size of our global SAM by approximately $800 million based on observed attach rates within our mutual customers.
Speaker Change: As evidenced by these acquisitions and recent enhancements developed by our internal product development organization, our focus across the business remains on delivering greater efficiencies that create real business value for our customers.
Speaker Change: In a recent issue of American Banker, the President and CEO of First Horizon spoke about tangible economic value delivered with our new deal proposal feature.
Speaker Change: He shared that the deployment of this feature has cut 1500 hours in staff work on a yearly basis with 44% fewer screens, 21% fewer clicks, and 20% fewer required fields when filling out digital forms for internal tasks.
Speaker Change: It's important to note that these improvements are compared to an earlier Encino experience, demonstrating the ongoing innovation and value we deliver for customers long after their initial deployment.
Speaker Change: In the third quarter, we also announced Joaquin de Valenciela as the new Managing Director for our EMAA operations.
Speaker Change: Joaquin has extensive experience leading large cross-functional teams and go-to-market efforts across the European continent.
Greg Orenstein: We look forward to building on the momentum created by existing EMEA leadership, especially as we add the capabilities of Full Circle to the platform. With that, I will turn the call over to Greg.
Greg Orenstein: Thank you, Pierre, and thanks, everyone, for joining us this afternoon to review our third quarter fiscal 2025 financial results.
Greg Orenstein: 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 it is an exhibit to the Form 8K furnished with the SEC just before this call.
Speaker Change: As Pierre noted, we are very pleased with our third quarter financial results.
Speaker Change: Total revenues for the third quarter of fiscal 25 were $138.8 million, an increase of 14% year-over-year.
Speaker Change: Subscription revenues for the third quarter were $119.9 million, also an increase of 14% year-over-year, representing 86% of total revenues, both ahead of the top end of our guidance.
Speaker Change: Mortgage subscription revenues were $20.7 million, or 17% of subscription revenues in the quarter, representing year-over-year growth of 16%.
Speaker Change: Mortgage subscription revenues outperformed our previous expectations for the quarter due in part to completing the rollout and go-live of a large national home builder which we had expected to take place in the fourth quarter.
Speaker Change: Mortgage churn in Q3 was approximately $3 million, slightly higher than our expectations due to M&A in the IMB space.
Speaker Change: In light of IMB M&A activity, we are forecasting mortgage churn of approximately $2 million in the fourth quarter and approximately $10 million for the full year, up from our prior expectation of $8 million.
Speaker Change: We have been asked what a hypothetical increase in mortgage volumes would equate to in increased mortgage revenues.
Speaker Change: Noting that we will continue to update our modeling as mortgage volumes increase and we see more history on the actual impact to each individual individual mortgage customer.
Speaker Change: We are currently forecasting that a 20% increase in mortgage lending by our customers on volume based pricing, which is about 50% of our U.S. mortgage customers, will yield an approximately 10% increase in revenues from these customers.
Speaker Change: with the Delta taking into account that not all of these customers will exceed their minimums.
Speaker Change: Professional Services revenues were 18.9 million dollars in the quarter growing 10% year-over-year.
Speaker Change: Non-U.S. revenues were $29.6 million, or 21% of total revenues in the third quarter, of 26% year-over-year, or 23% in constant currency.
Speaker Change: Non-GAAP gross profit for the third quarter of fiscal 25 was $93.2 million, an increase of 15% year-over-year.
Speaker Change: Non-GAAP gross margin was 67.2% compared to 66.5% in the third quarter of fiscal 24.
Speaker Change: Non-GAAP gross margin continues to benefit from our amended agreement with Salesforce along with product mix.
Speaker Change: Non-GAAP operating income for the third quarter of Fiscal 25 was $28 million, compared with $20.4 million in the third quarter of Fiscal 24, a 38% increase year-over-year.
Speaker Change: Our non-GAAP operating margin for the third quarter was 20% compared with 17% in the third quarter of fiscal 24.
Speaker Change: We also benefited from approximately $1 million of prior year payroll tax adjustments in the quarter.
Speaker Change: Non-GAAP net income attributable to Encino for the third quarter of fiscal 25 was $24.4 million, or $0.21 per diluted share, compared to $16.2 million, or $0.14 per diluted share in the third quarter of fiscal 24.
Speaker Change: Our remaining performance obligation, or RPO, was $1.095 billion as of October 31st, 2024, up 19%, over $917.1 million as of October 31st, 2023.
Speaker Change: with $730 million in the less than 24 months category, up 16% from $627.6 million as of October 31st, 2023.
Speaker Change: We ended the third quarter with cash and cash equivalents of $258.3 million, including restricted cash, which reflected the refinancing of our revolving credit facility and included $129.7 million that was subsequently utilized to acquire Full Circle on November 5th.
Speaker Change: During the third quarter, we were paid $10 million on our revolving credit facility and ended the quarter with $166 million of principal outstanding.
Speaker Change: Net cash provided by operating activities was $5.8 million compared to $5.9 million in the third quarter of fiscal 24.
Speaker Change: Capital expenditures were $680,000 in the quarter, resulting in free cash flow of $5.1 million for the third quarter of fiscal 25.
Speaker Change: Unbilled accounts receivable increased to $17 million, up from $6.1 million as of October 31, 2023, reflecting an increase in contracts where revenue recognition exceeded billings.
Speaker Change: Turning now to the changes we have discussed for the past year around our new pricing and monetization strategy, which we are calling the Intelligent Solution Framework, I would like to reinforce a couple of points.
Speaker Change: As a reminder, we are transitioning to platform pricing, where the fees we charge for commercial and consumer lending customers will be based on the assets of the financial institution.
Speaker Change: Specifically, the assets on which fees are based and those being evaluated on an annual basis under these agreements will be those relevant to the lines of business being supported by Encino Software.
Speaker Change: Assets tied to business units not using Encino will not be relevant to fee calculations.
Speaker Change: , , , , , , , , , , , , , ,
Speaker Change: We expect these changes will be immediately beneficial to the subscription revenues we recognize from customers under these agreements.
Speaker Change: We have already seen these changes to our monetization strategy simplify discussions with customers and prospects, and we expect they will result in more value creation for Encino.
Speaker Change: As Pierre noted, the credit union that selected us in the third quarter for commercial lending, small business lending, portfolio analytics, and banking advisor did so under the Intelligent Solutions Framework.
Speaker Change: as did the top 40 bank in the U.S. we signed early in the fourth quarter.
Speaker Change: We expect all new customer and contract renewal discussions beginning February 1st to be under this new framework, including in our commercial lending business.
Speaker Change: As a reminder, mortgage revenues under the Intelligent Solutions Framework are generated from a minimum monthly loan volume commitment with revenue upside as those minimums are exceeded.
Turning to guidance.
Speaker Change: For the fourth quarter, we expect total revenues of $139.5 million to $141.5 million, with subscription revenues of approximately $122.5 million to $124.5 million.
Speaker Change: For full fiscal year 25, we now expect total revenues of $539 million to $541 million with subscription revenues of $467 million to $469 million.
Speaker Change: This guidance takes into account lower expectations for mortgage revenues in the fourth quarter in light of continued elevated mortgage rates.
Speaker Change: We expect Full Circle to contribute approximately $4 million to both subscription and total revenues in the fourth quarter.
Speaker Change: Implementation efforts for full-circle products are diminimous, so consequently, there generally are no professional services revenues.
Speaker Change: Non-GAAP operating income in the fourth quarter is expected to be approximately $23.25 million to $24.25 million in non-GAAP net income attributable to Encino per share to be 18 cents to 19 cents.
Speaker Change: This is based upon a weighted average of approximately 118 million diluted shares outstanding.
In light of the significant outperformance in the third quarter,
Speaker Change: We are increasing our non-GAAP operating income outlook and now expect non-GAAP operating income for fiscal 25 to be $95 million to $96 million.
Speaker Change: For full fiscal year 25, non-GAAP net income attributable to Encino per share is expected to be 75 cents to 76 cents based upon a weighted average of approximately 117 million diluted shares outstanding.
Speaker Change: Finally, as we have discussed over the past year, we have been providing quite a few new and different financial metrics and have been actively engaging with our shareholder base to solicit feedback on the KPIs and disclosures that are most helpful to the investment community and better understanding and modeling the business.
Speaker Change: We believe these different metrics would be helpful in providing additional transparency into the business while we navigated market headwinds from the unprecedented rise in interest rates to the liquidity crisis.
Speaker Change: We would like to thank everyone for the feedback that has been provided, including those that participated in interviews with our outside investor relations firm over the past quarter.
Speaker Change: In response to this feedback, we plan to provide an updated Go Forward KPI framework, starting with our fourth quarter's earnings report.
With that, we'll open the line for questions.
Speaker Change: Thank you so much. And as a reminder, if you do have a question, press star 11 on your telephone and wait for your name to be announced. To withdraw the question, simply press star 11 again.
Speaker Change: Our first question is from the line of Michael Infante with Morgan Stanley. Please proceed.
Speaker Change: Hey guys, thanks for taking our question. Greg, I just wanted to circle back to the fourth quarter outlook. I appreciate the commentary on
Speaker Change: Full Circle's contribution in 4Q, but could you just help us sort of decompose, if you sort of back out Full Circle contributions, sort of what the building blocks are to the fiscal 4Q guidance reduction on an organic subscription basis? I heard you on the $2 million of mortgage term, but I just wanted to figure out the residual. Thanks.
Speaker Change: Yeah, thanks, Michael. Yeah, those are really the two big puts and takes in terms of the change in Q4 guidance.
Speaker Change: You mentioned full circle. In terms of the organic piece, it would really be a reflection of that increased churn that we commented on, as well as, again, as we look at the MBA forecast and volumes.
for mortgages.
Speaker Change: notwithstanding the fact that the Fed's fund rate was reduced, you know, we haven't seen mortgage rates come down. And so we wanted to take that into account. You can recall throughout the year, we were looking towards Q4 as a potential increase.
Speaker Change: in mortgage volumes. We kind of timed the Fed's fund rate change right in the lowering of interest rates. But again, without the corresponding lowering of mortgage rates, we are trying to be prudent and cautious as we think about what the impact is going to be in the fourth quarter.
Speaker Change: Okay, understood. So as I think about fiscal 4Q and the exit rate and sort of extrapolating that into next year, full circle for a million, is it appropriate to annualize that into next year? And as we look at the implied organic subscription numbers in fiscal 4Q, again, is that a relatively, you know, reasonable run rate to assume for next year? Thanks.
Speaker Change: I think, Michael, we're going to stay away from guidance for next year and we'll wait to our Q4 call for that before talking more about next year's performance.
Thanks Greg.
Thank you. One moment for our next question.
Speaker Change: And he comes from the line of Adam Hotchkiss with Goldman Sachs. Please proceed.
Speaker Change: Great. Thanks so much for taking the question. Greg, just to follow up on the Q4 commentary, curious how you think about how the other pieces of the business performed outside of mortgage and so far what you're seeing in Q4. I know there's a lot of larger deals that typically close into December and January. So any early indicators on how that pipeline is shaping up and if it all affected the guidance change?
Speaker Change: Yeah, I think again, from the last time we spoke, you would have seen us sign and we talked about it, you know, deals internationally, right? We talked about the deals in the Nordics, we talked about the Luxembourg deal, we talked about the largest deal we've had in Japan. So it was really nice to get those off the board.
Speaker Change: and then in Q4, you know, shortly after third quarter ended, we signed that large enterprise deal.
Speaker Change: In the U.S., something we're excited about, obviously we've been working on for quite some time.
Speaker Change: And if you think about that deal, that really was the largest remaining deal we had for this year.
Speaker Change: as we think about, you know, some of those larger opportunities.
Speaker Change: And so the fact that we've got that signed already, you know, certainly, I think bodes well. And so, you know, as we look at the pipe for the rest of the year, and what we're expected to execute on, it's a much more singles and doubles, Adam, you know, versus having to hit that home run.
Speaker Change: And so we got a lot of volume we need to go through. But yeah, I think as we see where we are versus the last time we spoke, some of those large logos that we referenced, it's nice to see those signed. And you know, that's focused on implementing them versus signing them.
Speaker Change: Great. Okay, that's really helpful. And then Pierre, just on the intelligence solution framework, appreciate the commentary on the top 40 institution that went on to the new pricing model. Just curious how that process went versus your expectations and anything you'd highlight that, you know, either from a pushback perspective or from a, you know, worked well perspective, anything you'd highlight for folks as we, you know, get to the point where you're putting all the renewals on the new pricing model. Appreciate it.
Speaker Change: Yeah, we're actually getting very positive feedback on it. Realized because now for the first time we're aligning with a bank success.
Speaker Change: It's a simplified structure. We're not nickel-and-diming them about seeds and then you know little add-ons all the time.
Speaker Change: So far, it's very early in the race, but so far we're seeing
Very good feedback from the customers.
Speaker Change: The value is tied to their loan portfolio, so we grow with the customers, which is good.
Speaker Change: and simplifying the buying experience is very good. So the whole renewal process was easier and simpler. And so we're seeing all the right behavior and we expected so far, putting that in place. So I'm very pleased with that.
Okay, thank you very much.
Thank you. Thanks, Adam. Thanks.
Speaker Change: Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed.
Speaker Change: Great. Thanks for taking the questions. This is Bobby Deon for Terry. My first one is for Pierre. Pierre, we picked up some commentary or speculation that you may be retiring sometime soon. Is there any perspective you can share on some of that commentary in the market? And then I had one follow-up. Thank you.
Pierre Naude: Yeah, I'm battling a cold so I didn't realize I sound that old.
Speaker Change: and that's how people took it. Look, we and the board take our governance responsibility and obligation very serious.
Speaker Change: including every interest in planning process and the plan for me.
Speaker Change: They will come a day where obviously somebody new will step up into my role. I told the board that my commitment is to make sure when we find the right person that'll be a smooth transition of whatever period that takes to get it done. Our focus is more on finding the right person with a specific timeline.
Speaker Change: I love what I'm doing, enjoy this company, very proud that we're both here. But we have to find the right person to really take this thing on and accelerate what we've built here. And I'm excited about that.
The End
Speaker Change: Appreciate that. And then just any updates or customer feedback to share from the initial cohort of Banking Advisor customers including the one customer who went live in 2Q and are y'all able to share how many customers went live in 3Q? Thank you.
Speaker Change: I think we said we added 11 again this quarter. It's early days. People are literally adopting this. It's such a new technology and so on. And realize we provide a deep banking experience. I'll tell you what's exciting to me about it is
Speaker Change: because initially we had four of these skills that we came up with and built into the product and What I've seen now is we've got identified skills we can add to the product over the next six to eight months of Went from four to forty eight
Speaker Change: which is tremendous. So can you imagine if you start putting all of these skills in place, people can just click, and the machine is start doing it for them versus manual tasks.
Speaker Change: and courses, how they do this. I want to remind you guys we are in a regulated industry and in these industries you have to certify that what's called a model actually reflect accuracy as well as traceable and auditable.
Speaker Change: And as such, the initial, you know, getting into the water is very slow, but once it takes off and we can just upgrade them and get them from one skill to 10 skills to 40, that'll literally be an upgrade as we roll out upgrades and updates.
Speaker Change: So I think at our next conference in May, we're gonna start showcasing all of these skills and the productivity improvements and that's gonna be quite exciting. And we'll keep you up to date as we get feedback from customers because this is top of mind for all of us.
Thank you.
Thank you. One moment for our next question.
Speaker Change: and he comes from the line of Brent Bracelein with Piper Sandler. Please proceed.
Thank you, good afternoon. Pierre, I wanted to ask about
Speaker Change: cross sell. You clearly have a large installed base of commercial banking customers, you're layering on additional product capabilities, expand the TAM with DocFox, Full Circle, you got Banking Advisor. When do these products
Speaker Change: Get fully integrated and your best guess on the timing when you start to see material cross-sell. Do you think it's...
Speaker Change: another six months, another year, these materialize, these are large customers, just trying to think through cross-sell and timing as you're layering these new products when it could have an impact.
Speaker Change: Yeah, so there's two elements here. The first one, I want to comment about the acquisitions separate form, homegrown products, okay? And then the second thing is just the sales or booking patents I'm seeing.
Speaker Change: I would remind you that every quarter we comment on, is it mostly commercial, mostly non-commercial, okay? Last quarter again, more than 50% of bookings came from non-commercial products.
Speaker Change: So to me the cross-sell and the platform play is already proving itself. It's been happening for the past few quarters So I'm very pleased with that
The second thing is.
Speaker Change: When you do these acquisitions, we let the new company that's now becoming Encino continue with their current pipelines.
Speaker Change: and keep on selling independently but then we start laying out the vision of the integrated product.
Speaker Change: And then typically what happens is the moment you get that out in the market.
Speaker Change: the direct sales start slowing down because people say, wait a minute, why would I keep on this way, if I can get a fully integrated product, which is a single platform experience, etc. And so what we're seeing is you get your initial bunch of sales, that kind of slows down a little bit, we integrate the products, we launch them as an integrated solution, and then sales take off really fast. Okay. And that's the patterns I'm seeing with these acquisitions.
Speaker Change: They are tremendously accretive. I can tell you the excitement I'm seeing around the onboarding solution of
Speaker Change: At our next Insight, people will start seeing the value and the excitement is building. The feedback I'm getting from customers as we showcase it, because we do early tests and test marketing with clients, is very positive.
Speaker Change: And I stand by my earlier comments that I believe commercial onboarding is going to be very close to as large for this company as what commercial origination was.
Greg Orenstein: Very helpful color there. Greg, I would love to double click into mortgage, kind of going in here, you earmarked maybe 8 million to churn.
Greg Orenstein: Even with rates going lower, you're seeing more churn. I think another $2 million here in Q4, $10 million for the year. When do you think the mortgage churn
Greg Orenstein: kind of pauses. Is the worst behind you? Is it still TDD? What's your visibility into churn beyond Q4?
Speaker Change: As you used to think about headwinds to that market, it feels like we should be at a point where turn should be behind you. But that clearly is not the case.
Speaker Change: And I think what we've seen, and this is consistent with comments, I think last quarter, on the call as well, is the churn has turned from if you look back, you know, the last call it two years, it was
Speaker Change: I think much more heavily weighted towards mortgage lenders shutting down or going out of business.
I think we've seen that largely stabilize.
Unknown Speaker More stable are.
Speaker Change: and that's hard to predict. Obviously, you know, we've tried hard.
Speaker Change: and we've talked about it many times in line ourselves with some of these large mortgage lenders out there.
to be the beneficiary of that.
Speaker Change: But we know it's not always the case. And I think in this circumstance, again, it was just it was just an IMB being acquired.
Speaker Change: It's hard to speculate about, you know, when that may happen, but there's an impact. But again, I think overall, that bodes well for a improving market versus the churn that we saw previously, which was much more around unprofitability and folks shutting down.
Got it. Makes sense. Thank you.
Thank you.
Speaker Change: Hey guys, how you doing? Thanks for taking my questions here.
Speaker Change: Hey, Greg. Hey, Pierre. Pierre, maybe just to start with you.
Speaker Change: You know, I think from the customer examples that you threw out in the call, it sounds like just the US activity is doing a lot better than expected. My question is maybe more on the international side. Can you just touch on maybe how much of the performance internationally is kind of coming from just the differing macro environments out there, versus other factors, right? Like market maturity or anything else? Does that make sense?
Speaker Change: Yeah, so look, if you look at the map internationally, we've got a great UK island business.
We struggled to penetrate the continent.
That's why we hired Joaquin, he lives in Madrid.
Speaker Change: Spain is one of our target areas. I've got Santander both in the UK as well as the US.
Speaker Change: And to me, there's no reason why we shouldn't penetrate those very large Spanish banks that also then carries you into Latin America.
Speaker Change: So that is a positive highlight for us for the future, but we've not been successful there. In the Nordics, you saw the announcement there. This focused territory approach that we're taking now, we see some results coming from it.
Speaker Change: Japan. I was in Japan, excited about Japan. You know, culturally, I don't speak language, so you get there, you get through translators, and you listen to everything.
Speaker Change: I've never seen a group of Japanese people that excited in my life, but I haven't been that much exposed But I'm just telling you it is very positive. It was the largest banking conference in Japan for the year
We had great attendance.
Speaker Change: people on stage spoke very positively about the company. And then you go down to Asia, Pakistan, New Zealand, got a great installed base in New Zealand. To me, that business is just slower. It's a smaller market. People tend to look at the map and think it's a big market. South Africa is doing well for us.
Speaker Change: that local businesses keep on selling and doing well. So as you look at all over the place, great installed basis, where's the momentum on sales? I see the Nordics.
Speaker Change: And I see Japan as momentum. And then for the future, I look at Spain for momentum and across the place. I still believe Germany is more of a place where we have to go do an acquisition or something to get a solid enough footprint to tackle that marketplace.
Speaker Change: Very, very helpful. Greg, maybe for my follow up for you, you know, I know RPO is never a metric that that you manage the business to or that you really focus us on. But, but the growth there accelerated and I know that that can, that can really depend on mix of business and of course duration. But, you know, just to make sure the question is asked, can you just speak to some of that RPO strength this quarter?
Greg Orenstein: Second, I think it really was just executing, I think it was a nice mix of net new business as well as renewals, you know, nothing unusual to call out from that perspective. And so I think it was
It was just good execution.
from the team.
Greg Orenstein: And to your point, you said it when you asked the question, you know, we've talked about mortgage from a U.S. perspective, but hopefully that comment in terms of both our community and regional and enterprise businesses, having, you know, another good quarter, both of them, as well as being well on their way to exceeding their targets for the year, you know, something, again, you can take from that as it relates to that RPO number.
Very helpful. Thanks, guys.
Speaker Change: And he comes from the line of Alex Klar with Raymond James. Please proceed.
Speaker Change: Thank you. Greg, maybe just following up on your answer right there to Saket's question, the commentary on the strong gross bookings and on your way to exceed the targets for the year, you did call out the offset though is the higher IMB churn. So, how can we think about that net 50% bookings target? Is that still in play given those two factors of the higher gross bookings, but the slightly higher gross, the lower gross retention? I'm curious how those kind of offset. Thanks.
Speaker Change: Thanks, Alex. Look, that remains our target. But as you all know, the fourth quarter has historically been our largest bookings quarter of the year. So we'll hold off commenting, you know, on that at this time. But we're certainly focused on executing, you know, executing towards that target.
Speaker Change: Okay, great. And then maybe one for each of you on full circle, but Pierre, just some more color on what you saw on first full circle. Why now? And then Greg, how much of that 4 million hitting subscription revenue and any color and kind of the growth rate this year of the full circle business? Thanks.
Speaker Change: Yes, so as I explained earlier, DocRocks acquisition is all about the interaction between the banker, the client, and the onboarding processes. So think of the workflow, think of the tools they have on their desktops, in their browsers, and on their phones to actually facilitate a complex process of exchanging documents and information.
Speaker Change: That's why we got Dark Fox as a front end, similar to what Simple Nexus was on the consumer or individual side. But then, if you look at ongoing client health management,
Speaker Change: So look at Europe. If a company has a board of directors, and all of a sudden they swap one out.
Speaker Change: somebody from let's say the Middle East that's on a terrorist watch list.
Speaker Change: How does the bank find that out? How would they know? And that's by compliance rules. They have to know that at all times.
Speaker Change: Full Circus has integrations and data that are continuously monitoring the health or the legality of the client makeup to make sure you keep that customer legally or do you warn them that you cannot do business with them because of that.
Just like portfolio management from a credit quality perspective.
These are tremendously manual and labor-intensive processes.
Speaker Change: And so putting this into an end-to-end experience where the customers can get monitored automatically through integrations and data, and we can do early warnings and actually prevent them from getting in trouble with regulators.
Speaker Change: In Europe specifically, this played very strong because of the multinational nature of so many companies there. And that's what excited me. So we are building this onboarding experience second to none. And I believe, again, we can take it to all our commercial customers and cross sell that.
Speaker Change: and Alex on the on the follow-up question we commented four million dollars in Q4 and that's all subscription revenue there's generally no professional services with associated with that product in that implementation
Speaker Change: Okay, great. Thanks for that. And just real quick, Greg, any call on what that was growing this year, just as we try and think about for next year?
Greg Orenstein: No, we haven't commented on that. Obviously, we'll factor that in as we come out with our Q4 call and give guidance for next year.
Speaker Change: As Pierre talked about, we want to focus on getting that integrated. Again, we have a history with them in terms of partnering, and so that, I think, always helps. But ultimately, we'll focus on getting that business integrated and getting our go-to-market motion together. And again, as we come back and talk to you guys on the next call, I think we'll have additional color around how that's going to contribute to our growth next year and beyond.
All right, great. Thank you both.
Thank you. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Koji Aikeda with Bank of America. Please proceed.
Speaker Change: Thanks so much for taking the questions. A couple from me here. I wanted to ask on the mortgage volumes. And you gave some excellent color in the prepared remarks thinking about volume increases and what it would contribute in revenues based on those volume increases. But you said something interesting about
Speaker Change: customers exceeding contract minimums. And so the minimums. And so the question here is, at what level of volume increase would it be required to get all the customers above minimum commitment levels?
Unknown Speaker
Very specific question, which we appreciate.
Speaker Change: is something we'd follow back up with you on it. It does differ as we've talked about.
Speaker Change: You know, we went to this model change, you know, in a very challenging time for that market. And so we, again, I think we're pleased when we would get some of those customers to commit to any minimums.
Speaker Change: and our belief has been that minimums for the most part were set.
Speaker Change: generally low, right, in terms of what they were comfortable signing up for.
Speaker Change: I think the challenge that we've had is, again, there's been a lot of talk about mortgage volumes and mortgage volume increases, and we've been telling folks, you know, it's really important for us to see volumes go through each one of those customers because their minimums are going to be at different levels.
Speaker Change: and as volume comes back, again, it may come back at different levels for different lenders.
Speaker Change: Right, some may be more aggressive, some may have gone out and try to, you know, accumulate a whole bunch of loan officers in terms of, you know, expanding their, their footprint. And so we really want to see that track record and that history of that data go through before I think we can give more clarity, but we try to give some
Speaker Change: some indication for you guys from a modeling perspective with what we see. And as I noted, the more data we get, and once we actually see, I think, volumes meaningfully increase, we'll be able to come back with, I think, more specificity so you guys can continue to tweak your models and be as accurate as possible.
Speaker Change: Got it. Thanks, Greg. I really appreciate that. And maybe a follow-up here, more philosophical for Pierre or Greg.
As you head into next year, Fiscal 26,
Speaker Change: What do you think is the bigger driver for your customers to increase spend with Encino? Is it quite simply lower interest rates or is it more a resilient economy that would really drive more spend from your customers?
Speaker Change: That's an interesting question. What I'm seeing, and I've been with a number of CEOs year-literally in the past month, is that
As you go through these
Speaker Change: Administrations, and we started the company in, you know, late 2011, with the Obama administration in place, and then, of course, Trump came in, then Biden, etc. What you see is you go from a defensive posture with regulators and compliance.
to more of an upbeat
Speaker Change: Go, go, go, activity, economic activity, if you go through these cycles.
Speaker Change: And what I'm seeing again is there's an optimistic outlook on the economy as a whole. There's an excitement about M&A.
Speaker Change: We typically are on the winning side of M&A because the people who bought Encino are the more forward-looking, but it does introduce a little bit of risk because if the non-Encino bank buys the Encino bank, we've had successes where we actually take them up into the acquirer, but we've also had
Speaker Change: It's a minority, but we have cases where we lose the account. OK, so I would tell you.
Speaker Change: They are excited about our ability to bring, on a macro level, that there's going to be M&A. There'll be an increased economic activity, which I think is good for all of us. They believe the rates will still keep on coming down until it's at a neutral level. So all of those things is positive for the banks.
Speaker Change: On top of that, the continuous innovation we do in a single platform is playing out all over the place. As I mentioned earlier on my bookings, more than 50% is non-commercial. So all of that combined.
Speaker Change: makes me optimistic that we will continue on this pattern, and of course, AI. That's going to be a major game changer for us, along with this new pricing model. So if you package all of that together, I feel pretty positive.
Speaker Change: And just one more thing to add is, you know, as you talk about AI, obviously a focus everywhere. Again, thank you, advisor. Really excited about another 11 deals being signed.
Speaker Change: And as was mentioned, you know, come step one, every deal that we do is going to have banking advisor in it and seated.
We've talked in the past about the data.
Speaker Change: and how, again, we've been fortunate and focused on accumulating data, both commercial lending data, mortgage data, as well as consumer lending data. But what we've also been very focused on is getting consents from our customer to use that data.
Speaker Change: and I think that puts us in a unique position. And as we sit here today, we've got four of our ten largest customers that we've received their consents.
Speaker Change: and you can appreciate, you know, those larger customers being some of the largest banks in the country.
Speaker Change: And, you know, and so I think that bodes well as we talk about AI and we talk about Banking Advisor and we think about next year and beyond, get us in a pretty unique position with what we've been able to create and leverage the platform to do.
Thanks, guys. Thanks for taking the questions.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Ryan Tomasello with KBW. Please proceed.
Speaker Change: Thanks for taking the questions. Greg, just wanted to double click again on the 4Q guidance.
Speaker Change: Looking at this organically, we're moving Doc Fox. I think the rough math implies that you'll be exiting the year somewhere within an organic subscription growth rate in like the high single to low double digits.
Speaker Change: As it relates to that, Ryan, you know, that 15% that, you know, remains our target. But just as I said, with the net bookings commentary,
Speaker Change: You know, the fourth quarter is obviously our largest bookings quarter historically. And so, you know, we'll refresh our guide and outlook for next year on our Q4 call.
Speaker Change: And so we note that as we talk about the the breakdown of growth You know, I don't want to do kind of a quick back of the envelope to to reconcile what you said
Speaker Change: And so, you know, from that perspective, I'd say I'd follow up with you. But as we talk about M&A, you know, M&A is something that, you know, we will continue to evaluate as we look to continue to expand our SAM.
Speaker Change: and our product offerings, you know, just as we always look at, you know, buy versus build versus partner. And so from our perspective, you know, M&A is part of our corporate strategy. You know, we feel really good about the deals that we've done.
Speaker Change: And as we think about, you know, year over year comps, you know, keep in mind, as you noted, we do have M&A in, you know, this year, you know, as we think about what Full Circle will bring ultimately, you know, next year, as well in comps.
Speaker Change: But as it relates to your single kind of, you know, breakdown, let me confirm that and close off to make sure I give you an accurate answer.
Speaker Change: Okay, thanks. And then, Pierre, just a follow-up question for you. I think one of the dynamics that...
wasn't called out maybe as much in your remarks was.
Speaker Change: And is this something that you see is helping to unlock, you know, demand appetite for larger scale tech deployments just as banks are presumably a little less distracted, you know, if this deregulatory theme really comes into play? Thanks.
Speaker Change: I think there's a sense, and by the way, the new administration is very vocal about deregulation and removing government barriers.
Speaker Change: I am not a bank regulator that could tell you exactly what the answer is, what they should do. But I can just tell you from the sentiment I'm hearing from bankers is that there is a positive outlook for the future, both on regulation applying to the right level of bank.
Speaker Change: The smaller banks especially struggle with an overburdened regulated environment, okay?
Speaker Change: I can tell you I've been in at conferences where I listen to.
CEOs of the Big Four.
Speaker Change: And if they start explaining to you the number of people they've got answering to regulators and trying to be perfect and never make a mistake, it really sounds cumbersome for those companies. And I think you've seen people like Jamie Dimon make public statements about it.
Speaker Change: So, there is a sigh of relief that there may become a better level of regulation into banking as they go forward. And that typical optimism drives people to start looking at other things. I will also remind you that before this election, we had this liquidity crisis, which weighed on the banks, and they were worried about survival.
Speaker Change: Now you get this little positive push and now people start looking much more strategically at their businesses.
Speaker Change: Then you throw M&A into the mix, and all of a sudden they go, any possibility is possible in front of them. They can buy banks, they can sell the bank, they can drive up loan volumes, regulation will be easier for them, and that drives economic activity.
Speaker Change: So I think that overall positive and optimistic posture is boding well for us.
Great. Appreciate the color.
Thank you.
Speaker Change: Our next question comes from the line of Chris Kennedy with William Blair. Please proceed.
Speaker Change: Good afternoon. Thanks for all the detail. Thanks for taking the question.
Speaker Change: Greg, can you just give us an update on the fiscal 2025 expectation for revenue churn? I think it was 5% previously. What's your current expectation?
Joshua Glover, Gregory Orenstein, Unknown Executive
And that's who we are.
Speaker Change: Okay, thank you for that. And then you also alluded to providing additional KPIs. Is there any kind of...
Speaker Change: preview you can give. Is it ACV? Is it business mix? What more are you thinking about disclosing going forward? Thank you.
Speaker Change: Thanks, Chris, and again, you know, appreciate all the discussions we've had really over the past year in terms of what's most helpful.
Speaker Change: But ultimately, we'll, you know, lock down that framework and communicate it formally on our Q4 call. Obviously, with the feedback we've gotten, you know, we've got kind of a working plan internally, but we'll wait to just start the new year fresh with those KPIs and go forward from there.
Great. Thank you.
Thank you.
One moment for our next question.
Speaker Change: And it's from the line of Nick Altman with Scotia Bank. Please proceed.
Speaker Change: Awesome, thank you. Pierre, you talked about earlier how Banking Advisor is going to be part of.
Speaker Change: every net new deal as well as renewal. And I guess on the positive side, you know, perhaps there's going to be some ACD uplift there. So can you maybe just touch on that aspect of it on the flip side of the equation?
Speaker Change: You know, you're bringing in a generative AI product into some of these deals. Those deals might take longer, they might have to go through a more lengthy approval process. So maybe just talk about the puts and takes there and whether we might see some stale cycle elongation, albeit with the benefit of an ACV uplift. Thanks.
Speaker Change: Yeah, so let me talk about renewals first and then we'll go to that new sales. Renewals, so that's where you learn how these things go and who's pushing back, etc., because the renewals is a mix of big customers, large customers, small customers, medium customers, and they've known us and we've got a reputation.
Speaker Change: So far with renewals, I've not seen a banking advisor upholding any of it. As a matter of fact, they welcome the fact that they can get it and get access to this.
Speaker Change: We are a trusted vendor with a long history of supplying critical software to these banks and to date I've not seen any pushback on that. I'll also comment to you that we do see an ACV uplift because of Banking Advisor as well as an uplift because of the new pricing structure.
So, we do expect, on a continual basis, to get
Speaker Change: increased subscription revenues because of new pricing structure as well as the inclusion of Banking Advisor. That bodes well for us. When it comes to new deals
Speaker Change: The Banking Advisor is so integrated into the solution, it literally just becomes a differentiator, and people start realizing that, how do you work without this?
Speaker Change: You know, it's like me giving you a flip phone and start saying live with that for a week and you cannot Google anybody, you cannot search anything, you cannot use your airline apps on your phone, etc.
Speaker Change: And the moment people see the possibilities of how the system is going to work in the future, it becomes a massive plus. Because again, remember, every time we launch a skill like that,
We actually proved to them it's certified.
Speaker Change: It's auditable, it's traceable, and it's explainable, which is what regulators will come after. So I feel very good that we've got the positioning and the brand to actually get this out without it being an obstacle. I've not seen elongated sales cycles because of that.
Speaker Change: Got it. Okay. And then, Greg, just circling back to the implied organic Q4 guidance. Any change to your guidance philosophy as we look at that growth rate I've seen here? Thanks.
Greg Orenstein: Thanks for the question. And just after scribbling here, it would be low double digits in Q4 from a growth rate perspective if you exclude the M&A that we did this fiscal year.
Speaker Change: So to confirm that, but from a guidance perspective, no different. Look, we've
Speaker Change: you know, beating the top line every quarter and the bottom line.
Speaker Change: We've raised the bottom line. We've been, I'd say, cautious or prudent on the top line. Again, not wanting to get too ahead of ourselves, particularly with some of the volatility in mortgage.
Speaker Change: And I think that's played out as we, you know, sit here in Q4, and again, there was a interest rate reduction, but really not a mortgage rate one. So I think that's consistent and has played out, you know, prudently, as we think about guidance, but from an overall guidance perspective, there's there's no change.
in terms of how we've approached this year.
Right. Thank you.
Speaker Change: Thank you. And as a reminder, to ask a question, simply press star 11 to get in the queue. Our next question is from Aaron Kimson with Citizens JMP. Please proceed.
Speaker Change: Hey, thanks for the questions. I have two on digital account opening, given the focus there. First, is your deposit account opening product something you see mostly credit unions and community banks implementing today? Are you seeing success selling that product as is into enterprise banks as well?
Speaker Change: It goes across the spectrum. It typically is part of a platform sale.
Speaker Change: We don't run around trying to sell a standalone by itself. Our value proposition is the full platform and to end the experience and how it works across the bank. And by the way, just a reminder, it is both an in-brand as well as a self-service tool, which differentiate us. Many of the people talk about digital account opening.
but we do see success across the spectrum.
Speaker Change: Got it. And I think you kind of answered my second question just around the strategic importance of owning that deposit account opening relationship, right? I mean, the uplift you see there and owning that real estate.
Speaker Change: but it sounds like you're attaching that you're it's in all your plans so I think you answered my question
Speaker Change: Thank you. Yes. You know, I always viewed it as, look, with zero interest rates, deposits are free and people are like, well, why would you do this?
Speaker Change: And then the world changed and all of a sudden the positive was important again, okay?
Speaker Change: I would tell you in the end, the only benefit banks have in the marketplace.
Unknown Speaker 06.01.06
Speaker Change: is that they have cheaper deposits. Otherwise, you can get money from private equity and other places, okay? And they've got a presence in the branch network. But in the end, banks compete with the other and they have to be good.
Raising Deposits and I believe that we've got a solution.
Speaker Change: That will be an integrated solution that feels the same experience across all channels.
Aaron, does that answer your question?
Speaker Change: Yep, all good, thanks. Thank you so much. One moment for our last question.
Speaker Change: and it comes from the line of Charles Nappin with Stevens. Please proceed.
Charles Nappin: Hey guys, thanks for getting me in and I apologize if I if I missed this, but you had mentioned that the home builder deal fell into three Q. Could you quantify the impact that may have had on the quarter and specify whether how much is in professional services versus subscription?
Yeah.
Speaker Change: Thanks for the question Chuck. I don't think we're going to break down a particular you know customer and their impact. I think the main point there was
Speaker Change: a couple things. One, ultimately, again, good execution in terms of the implementation and us finishing that up ahead of where we were forecasting it. I think that's the main thing. And ultimately, again, getting them live, you know, as volumes do pick up, again, having such a large customer leveraging Encino.
Speaker Change: You know should ultimately help us again as we expand market share and hopefully again get increased revenue from increased volume
Speaker Change: Got it. And as a follow up, had somewhat of a philosophical question. In the past, you've talked about M&A as a catalyst to demand.
Speaker Change: in that acquiring banks tend to get their house in order from a middle back office standpoint before they go out and do deals. And I know it's early, given the timing of the administration change, but I wanted to see if, you know, that's something you envision occurring, whether you're already having conversations.
Speaker Change: around, you know, centered around that concept or type of activity.
That is a normal talk track for us.
Speaker Change: to explain to banks that if you want to be an acquiring bank, you better have your middle back office in place, get all your channels in place, because when you bring that bank on,
Speaker Change: What is your operating methodology? What is your standard operating procedures? Okay, otherwise, with a bunch of point solutions, you have to train them on all your systems, it's disparate, etc. And that's why we've seen in the past, banks actually got bored because they hadn't seen it. And then it got taken up into the bigger bank, they acquired it as well. So it's been a catalyst for acquisitions.
Speaker Change: I believe that pattern will play out again as we go into next year, and I'm very optimistic that it could be positive for us.
Great. Appreciate all the callers. Thank you.
Thanks for the questions.
Speaker Change: And this concludes our Q&A session. I will turn it back to Pierre Nadal for closing comments.
Unknown Speaker 05.
Pierre Nadal: Thank you, Operator, and thank you, everyone, for joining us today. We appreciate your analysis, your insights, and your feedback, and we're looking forward to talk to you next quarter. Thank you so much.
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Speaker Change: Unknown Executive, George Washington. Unknown Executive, David Bierman, Unknown Executive, Unknown Executive, Gregory Orenstein, Unknown Executive, Alrighty Henley, Unknown Executive
Happy Birthday Garry Martinez! Happy Birthday Garry Martinez!
Thanks for watching!
There was no day like the one you had.
Speaker Change: Hello everyone and welcome to Encino Quarter Financial Results conference call for the year 2025.
Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised.
Speaker Change: Good afternoon and welcome to Encino's third quarter fiscal 2025 earnings call. With me on today's call are Pierre Naude, Encino's Chairman and Chief Executive Officer, and Greg Orenstein, Encino's Chief Financial Officer.
Speaker Change: During the course of this conference call, we will make forward-looking statements regarding trends, strategies, and the anticipated performance of our business.
Speaker Change: 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 Change: and CINO disclaims any obligation to update or revise any forward-looking statements.
Speaker Change: 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 Change: 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.
Pierre: as well as the earnings presentation on our investor relations website at investor.ensino.com. With that, I will turn the call over to Pierre.
Pierre: Good afternoon, and thanks for joining us today. We are very pleased with our third quarter financial results, once again exceeding expectations for both revenues and non-GAAP operating income. Our sales momentum increased in the third quarter, with gross bookings accelerating quarter over quarter and year over year.
Pierre: The team demonstrated solid execution across the globe, signing over 30 multi-solution deals and generating more gross bookings from net new customers than the last two quarters combined.
Pierre: Turning to specific sales highlights from the third quarter, our U.S. community and regional and U.S. enterprise businesses both again had strong sales quarters and both are well on their way to exceeding their gross bookings targets for the year.
Pierre: Of note in the CNR space was the signing of an over $10 billion credit union for commercial lending, small business lending, portfolio analytics, and banking advisor under our new pricing framework, which Greg will discuss further.
Pierre: In the U.S. enterprise market, we continue to see strength with expansion sales, including signing an agreement for our small business solution with an $80 billion bank, increasing ACV for that account by approximately 15 percent.
Pierre: The scope of this expansion is initially focused on solving a key challenge for compliance with Dodd-Frank 1071, but will be part of a larger journey to automate the bank's small business lending processes and consolidate multiple legacy systems onto Encino.
Pierre: I'm also pleased to announce that shortly after the end of the third quarter, our U.S. enterprise team signed a five-year multi-solution deal, also under our new pricing framework, with a top 40 bank in the U.S. for commercial lending.
Speaker Change: Small Business Lending, Treasury Management, Automated Spreading, Pricing and Profitability, and Banking Advisor.
Speaker Change: Our financial results also reflect some momentum in mortgage, even as mortgage rates remain elevated despite the reduction in the federal funds rate.
Speaker Change: We added 11 new mortgage logos in the U.S. in the quarter, including four banks and a farm credit institution, though we did see slightly higher churn due to IMB M&A.
Speaker Change: Our average mortgage customer ACV is 15% higher than a year ago, highlighting the progress we've made in aligning with larger mortgage lenders over the past couple of years and with bundling products for this market.
Speaker Change: As we previewed on last quarter's call, we saw some increased momentum in international markets.
Speaker Change: You would have seen a press release in August announcing Tokushima Taisho Bank as a new customer in Japan using Encino for commercial lending.
Speaker Change: This agreement, signed in the third quarter, makes Takashima Taisho our largest customer in Japan.
Speaker Change: We are honored to partner with Tokushima Taisho to enhance the value it brings to both its corporate client and its employees. I was in Japan just a couple of weeks ago visiting customers and prospects and left more excited than ever about the opportunity we have in that market.
Speaker Change: In the third quarter, the EMEA team signed an expansion agreement with the largest bank in Norway, bringing the full business bank onto Encino, as well as ESG reporting capabilities, banking advisor, and credit portfolio management.
Speaker Change: The expansion of this customer relationship should serve to continue building our brand awareness in the Nordics and EMEA at large.
Speaker Change: The ongoing emphasis on regulation in Europe continues to be an opportunity for Encino.
Speaker Change: For example, the Digital Operational Resilience Act, or DORA, is designed to enhance the operational resilience of digital systems that support financial institutions operating in European markets.
Speaker Change: As such, financial institutions are looking to aggressively reduce the number of vendors they are using in an effort to mitigate risk and become more efficient.
Speaker Change: Vendor consolidation is a key priority for many of the institutions we speak with, and the Encino platform is the ideal solution for a financial institution on a global basis to run its lending, account opening, onboarding, and ongoing portfolio management needs.
Speaker Change: Turning to Banking Advisor. We continue to be quite pleased with the early traction we are seeing. We added 11 new Banking Advisor customers in the quarter across the globe, with customers going live in just a few weeks.
Speaker Change: As our new pricing framework gets rolled out, we plan for Banking Advisor to be part of every new deal and renewal.
Speaker Change: We expect this to be well received based on customer feedback for Banking Advisor as well as for the new pricing framework.
Speaker Change: In the third quarter, we announced the acquisition of Full Circle, which we subsequently closed on November 5th.
Speaker Change: This transaction is just the latest example of Encino utilizing an acquisition to strategically extend our platform and grow the wallet share opportunity within our large and happy customer base.
Speaker Change: The acquisition of Full Circle brings additional depth to our customer onboarding capabilities, with an initial focus on the UK and growing applicability across Europe.
Speaker Change: Following the successful acquisition of DarkFox earlier this year, which addressed the user experience for onboarding commercial customers,
Speaker Change: Full Circle marks another step forward in advancing and expanding our onboarding capabilities by adding data aggregation components to the platform.
Speaker Change: Today, onboarding, which is the process by which financial institutions verify the legitimacy of a prospective client or business for the prevention of things such as money laundering and fraud.
Speaker Change: Full Circle aggregates a premium data supply that our customers would otherwise be gathering from fragmented sources.
Speaker Change: Access to this data within the Encino platform will enable financial institutions to streamline application processes and improve client lifecycle management across other processes being performed on Encino, yielding a powerful combined integrated offering.
Speaker Change: We currently have 10 mutual customers in the UK and we believe all our UK clients can benefit from the combined businesses as we look to further expand this offering across the channel to continental Europe to create even more cross-sell opportunities.
Speaker Change: Based on the onboarding capabilities we brought onto the platform this year with DocFox in full circle, we believe we have increased the size of our global SAM by approximately $800 million based on observed attach rates within our mutual customers.
Speaker Change: As evidenced by these acquisitions and recent enhancements developed by our internal product development organization, our focus across the business remains on delivering greater efficiencies that create real business value for our customers.
Speaker Change: In the recent issue of American Banker, the president and CEO of First Horizon spoke about tangible economic value delivered with our new deal proposal feature.
Speaker Change: He shared that the deployment of this feature has cut 1500 hours in staff work on a yearly basis with 44% fewer screens, 21% fewer clicks, and 20% fewer required fields when filling out digital forms for internal tasks.
Speaker Change: It's important to note that these improvements are compared to an earlier Encino experience, demonstrating the ongoing innovation and value we deliver for customers long after their initial deployment.
Speaker Change: In the third quarter, we also announced Joaquin de Valenciela as the new Managing Director for our EMA operations.
Speaker Change: Joaquin has extensive experience leading large cross-functional teams and go-to-market efforts across the European continent.
Greg Orenstein: We look forward to building on the momentum created by existing EMEA leadership, especially as we add the capabilities of Full Circle to the platform. With that, I will turn the call over to Greg.
Greg Orenstein: Thank you, Pierre, and thanks, everyone, for joining us this afternoon to review our third quarter fiscal 2025 financial results.
Greg Orenstein: A reconciliation to comparable gap metrics can be found in today's earnings release, which is available on our website, and it is an exhibit to the Form 8K furnished with the SEC just before this call.
Speaker Change: As Pierre noted, we are very pleased with our third quarter financial results.
Speaker Change: Total revenues for the third quarter of fiscal 25 were $138.8 million, an increase of 14% year-over-year.
Speaker Change: Subscription revenues for the third quarter were $119.9 million, also an increase of 14% year-over-year, representing 86% of total revenues, both ahead of the top end of our guidance.
Speaker Change: Mortgage subscription revenues were $20.7 million, or 17% of subscription revenues in the quarter, representing year-over-year growth of 16%.
Speaker Change: Mortgage subscription revenues outperformed our previous expectations for the quarter due in part to completing the rollout and go live of a large national home builder which we had expected to take place in the fourth quarter.
Speaker Change: Mortgage churn in Q3 was approximately $3 million, slightly higher than our expectations due to M&A in the IMB space.
Speaker Change: In light of IMB M&A activity, we are forecasting mortgage churn of approximately $2 million in the fourth quarter and approximately $10 million for the full year, up from our prior expectation of $8 million.
Speaker Change: We have been asked what a hypothetical increase in mortgage volumes would equate to in increased mortgage revenues.
Speaker Change: will yield an approximately 10% increase in revenues from these customers.
Speaker Change: with the Delta taking into account that not all of these customers will exceed their minimums.
Speaker Change: Professional Services revenues were 18.9 million dollars in the quarter growing 10% year-over-year.
Speaker Change: Non-U.S. revenues were 29.6 million dollars or 21% of total revenues in the third quarter of 26% year-over-year or 23% in constant currency.
Speaker Change: Non-GAAP gross profit for the third quarter of fiscal 25 was $93.2 million, an increase of 15% year-over-year.
Speaker Change: Non-GAAP gross margin was 67.2% compared to 66.5% in the third quarter of fiscal 24.
Speaker Change: Non-GAAP gross margin continues to benefit from our amended agreement with Salesforce along with product mix.
Speaker Change: Non-GAAP operating income for the third quarter of Fiscal 25 was $28 million, compared with $20.4 million in the third quarter of Fiscal 24, a 38% increase year-over-year.
Speaker Change: Our non-GAAP operating margin for the third quarter was 20% compared with 17% in the third quarter of fiscal 24.
Speaker Change: Paired with improved gross margins, we have further expanded operating margins through thoughtful hiring and operating expense management, including with regard to our integration activities for recent acquisitions.
Speaker Change: We also benefited from approximately $1 million of prior year payroll tax adjustments in the quarter.
Speaker Change: Non-GAAP net income attributable to Encino for the third quarter of fiscal 25 was 24.4 million dollars or 21 cents per diluted share compared to 16.2 million dollars or 14 cents per diluted share in the third quarter of fiscal 24.
Speaker Change: Our remaining performance obligation, or RPO, was $1.095 billion as of October 31st, 2024, up 19%, over $917.1 million as of October 31st, 2023,
Speaker Change: with $730 million in the less than 24 months category, up 16% from $627.6 million as of October 31st, 2023.
Speaker Change: We ended the third quarter with cash and cash equivalents of $258.3 million, including restricted cash, which reflected the refinancing of our revolving credit facility and included $129.7 million that was subsequently utilized to acquire Full Circle on November 5th.
Speaker Change: During the third quarter, we were paid $10 million on our revolving credit facility and ended the quarter with $166 million of principal outstanding.
Speaker Change: Capital expenditures were $680,000 in the quarter, resulting in free cash flow of $5.1 million for the third quarter of fiscal 25.
Speaker Change: Unbilled accounts receivable increased to $17 million, up from $6.1 million as of October 31, 2023, reflecting an increase in contracts where revenue recognition exceeded billings.
Speaker Change: Turning now to the changes we have discussed for the past year around our new pricing and monetization strategy, which we are calling the Intelligent Solution Framework, I would like to reinforce a couple of points.
Speaker Change: As a reminder, we are transitioning to platform pricing where the fees we charge for commercial and consumer lending customers will be based on the assets of the financial institution.
Speaker Change: Specifically, the assets on which fees are based and those being evaluated on an annual basis under these agreements will be those relevant to the lines of business being supported by Encino Software.
Speaker Change: Assets tied to business units not using Encino will not be relevant to fee calculations.
Speaker Change: We expect these changes will be immediately beneficial to the subscription revenues we recognize from customers under these agreements.
Speaker Change: We have already seen these changes to our monetization strategy simplify discussions with customers and prospects, and we expect they will result in more value creation for Encino.
Speaker Change: As Pierre noted, the credit union that selected us in the third quarter for commercial lending, small business lending, portfolio analytics, and banking advisor did so under the intelligence solution framework.
Speaker Change: as did the top 40 bank in the U.S. we signed early in the fourth quarter.
Speaker Change: We expect all new customer and contract renewal discussions beginning February 1st to be under this new framework, including in our commercial lending business.
Speaker Change: As a reminder, mortgage revenues under the Intelligent Solutions Framework are generated from a minimum monthly loan volume commitment with revenue upside as those minimums are exceeded.
Turning to Guidance.
Speaker Change: For the fourth quarter, we expect total revenues of $139.5 million to $141.5 million, with subscription revenues of approximately $122.5 million to $124.5 million.
Speaker Change: This guidance takes into account lower expectations for mortgage revenues in the fourth quarter in light of continued elevated mortgage rates.
Speaker Change: We expect Full Circle to contribute approximately $4 million to both subscription and total revenues in the fourth quarter.
Speaker Change: Implementation efforts for full-circle products are de minimis, so consequently there generally are no professional services revenues.
Speaker Change: Non-GAAP operating income in the fourth quarter is expected to be approximately 23.25 million dollars to 24.25 million dollars and non-GAAP net income attributable to Encino per share to be 18 cents to 19 cents.
Speaker Change: This is based upon a weighted average of approximately 118 million diluted shares outstanding.
In light of the significant outperformance in the third quarter,
Speaker Change: We are increasing our non-GAAP operating income outlook and now expect non-GAAP operating income for fiscal 25 to be $95 million to $96 million.
Speaker Change: For full fiscal year 25, non-GAAP net income attributable to Encino per share is expected to be $0.75 to $0.76 based upon a weighted average of approximately 117 million diluted shares outstanding.