Q1 2026 nCino Inc Earnings Call
Okay.
Speaker Change: Thank you for standing by and welcome to <unk> first quarter fiscal year 2026 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone if youre.
Speaker Change: That's been answered and you'd like to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program, Paris and Masters Director of Investor Relations. Please go ahead Sir.
Speaker Change: Good afternoon, and welcome to <unk> first quarter fiscal 2026 earnings call.
Shawn Desman: With me on today's call are Shawn Desman, Encino, as Chief Executive Officer, and Greg Ornstein, <unk> Chief Financial Officer.
Shawn Desman: 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 described in our SEC.
Shawn Desman: Filings and other publicly available documents, the financial services industry and global economic conditions.
Shawn Desman: <unk> disclaims any obligation to update or revise any forward looking statements.
Shawn Desman: Further on today's call. We will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results a reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to the form 8-K furnished with the SEC just before this call as.
Shawn Desman: Well as the earnings presentation on our Investor Relations website at Investor <unk> Dot com.
Sean: With that I will turn the call over to Sean.
Sean: Good afternoon, everyone and thank you for joining us to discuss <unk> first quarter fiscal 2026 results.
Sean: Before I get into the details of the quarter I want to take a moment to remind you of the core problem, we're solving and Lyons senior exists.
Sean: Across the globe financial institutions continue to wrestle with inefficiencies caused by legacy infrastructure.
Sean: Too many are constrained by fragmented technology stacks and Siloed data.
Sean: Which slowed down decision, making limit the ability to leverage data and analytics to make more informed and real time decisions.
Sean: Limit the ability to leverage AI to further automate tasks across the institution and inhibit growth and the ability to reduce expenses.
Sean: These operational roadblocks are precisely when <unk> is designed to eliminate.
Sean: We're re imagining these processes and delivering world class experiences across the customer lifecycle.
Sean: And <unk> is the only cloud based SaaS provider that enables financial institutions to seamlessly manage lending onboarding account opening and portfolio management across all major lines of business connected on a unified scalable platform powered by AI.
Sean: Because we are the system of record for so many of our customers most critical operations and because our solutions are deployed in over 20 countries across a broad and diverse customer base of banks credit unions and <unk> of all sizes. We believe we've built a competitive moat that is both wide and deep.
Sean: Turning to Q1 results.
Sean: This was a strong start to the year and an important first step in turning encino from a great company into a great long term business that executes with precision and capitalizes on the sizable opportunities ahead.
Sean: We delivered total revenues ahead of guidance driven by strength in our subscription revenues line.
Sean: We are pleased with the demand we see building in the market, which was confirmed by the reception to the AI capabilities and Omnichannel experiences. We showed last week at our annual insight customer conference.
Sean: I'm also pleased to report that our non-GAAP operating income also came in ahead of expectations.
Sean: It's early in the year, but I am extremely encouraged not just by the financial results, we're reporting today, but by the internal Kpis, we track closely to run the business.
Sean: Bookings of new annual contract value are progressing well of course, there is work to do but we remain confident in the full year ACB plan, we outlined last quarter.
Sean: As you know ACD is the leading indicator of future subscription revenues growth and we believe we are on track.
Sean: At insight last week, we showcased the culmination of a large multi year and multi product body of development work that delivered significant enhancements to our onboarding capabilities created enhanced omnichannel digital experiences for our customers clients reinforced the scalability of our mortgage solution.
Sean: And embedded intelligence across our workflows.
Sean: Having fulfilled these commitments to our customers, we see incremental growth initiatives available as extensions of the core opportunity we have been pursuing for over a decade.
Sean: AI is central to our long term differentiation and our approach, which we believe leverages the largest process centric dataset in fintech is uniquely powerful.
Sean: At our insight conference, we released 16, new banking adviser capabilities building on the two that were already generally available. These new capabilities are designed to help customers save time lower cost and improved productivity.
Sean: And because banking adviser drive incremental usage of the Encino platform. We see these enhancements as key drivers of future subscription revenues growth.
Sean: One of the initiatives highlighted at Investor Day is the mortgage cross sell opportunity.
Sean: In the first quarter, a $25 billion regional bank doubled their annual commitment to <unk> through the adoption of our mortgage and our consumer lending solutions.
Sean: Company, a five year renewal.
Sean: This institution will be able to provide a consistent experience for their clients across all consumer loan products, including mortgage.
Sean: We expect this differentiated experience will be a true competitive advantage for them in the marketplace.
Sean: Another growth initiative I discussed is the credit Union market, where we see a $1 billion of Sam opportunity that has been unlocked through the readiness of our solutions for that market.
Sean: In Q1, and $800 million credit Union, who had an existing relationship with encino through our portfolio analytics solution chose to also adopt our consumer lending, including indirect auto commercial lending and account opening solutions.
Sean: The <unk> platform was truly the differentiator here is the credit Union was looking to consolidate vendors and streamline operations on a unified platform across their institution.
Sean: And finally, we saw good progress on the international front with a significant add on deal at a top Canadian bank and a new logo in Japan.
Sean: International expansion is core to our strategy, which goes beyond the EMEA growth initiatives I spoke of at Investor Day.
Sean: The global opportunity for <unk> is large and we evaluated with a broad lens.
Sean: We are excited by the progress so far this year in Europe, and in Japan, and look forward to updating you on wins later this year as opportunities get over the finish line.
Speaker Change: Before turning it over to Greg I want to offer a brief perspective on the macro environment.
Speaker Change: We are of course sensitive to what's happening out there.
Sean: It's a fluid situation that continues to evolve.
Sean: That said, our financial institution customers remained well positioned.
Sean: <unk> of them have healthy balance sheets and are projecting growth in both loan portfolios and earnings. We're also seeing encouraging signs of stability in the mortgage market, even while some interest rate volatility persists.
Sean: We plan to conservatively in this part of the business that stability contributed to our outperformance in Q1.
Sean: And finally, our U S customers are telling us that potential deregulation could free up capital streamline decision, making and open the door to further adoption of best in class technology platforms like ours.
Sean: Taken together these are solid early positive signals that reinforce the confidence we have in our strategy our product portfolio, our team and our ability to execute.
Sean: You may have seen that we filed an 8-K yesterday disclosing a restructuring event that affected approximately 7% of our global workforce.
Sean: We do not take these actions lightly and it does not diminish our appreciation for the contributions of these employees.
Speaker Change: As a result of reexamining, our processes and organizational structure, including the ways, we build and deliver software, which I had the opportunity to see up close during my tenure as the Companys Chief product officer.
Speaker Change: We identified opportunities to streamline our operations.
Speaker Change: Including by leveraging AI tools.
Speaker Change: This restructuring event is indicative of our belief that we can reduce bureaucracy and be more efficient, including by bringing new product functionality to market, even faster, while also delivering durable accelerating growth with the ultimate aim of maximizing shareholder value, which is our primary mandate.
Sean: In closing.
Sean: I'm very encouraged by the start to the year, we've had and by the feedback we're receiving on both our existing and our new products the.
Sean: The conversations we're having with customers are more focused more strategic and more forward leaning than they were just a few months ago.
Sean: I'm more excited about what lies ahead and I look forward to updating you on our progress again on our second quarter earnings call.
Sean: With that I'll turn it over to Greg to walk you through the financial details.
Speaker Change: Thanks, Sean and thank you all for joining us today.
Greg: Please note that all numbers referenced in my remarks other than revenues are on a non-GAAP basis, unless otherwise stated.
Speaker Change: 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.
Speaker Change: In Q1 total revenues were $144 1 million and rose 13% year over year.
Speaker Change: Subscription revenues were $125 6 million and rose, 14% year over year on a reported basis and 9% organically.
Speaker Change: Subscription revenues growth was driven by successful execution against our operating plan.
Speaker Change: Subscription revenues growth was also seasonally aided by approximately $800000 of U S mortgage revenues that exceeded expectations.
Sean: Professional services revenues were $18 5 million, an increase of 5% year over year.
Sean: Professional services revenues exceeded expectations in the quarter due to requisite revenue recognition adjustments of subscription fees to professional services revenues.
Sean: Non U S. Total revenues were $31 6 million up 22% year over year or 23% in constant currency.
Sean: Non U S subscription revenues were $25 9 million up 31% year over year or 32% in constant currency.
Sean: non-GAAP operating income was $24 8 million or 17% of total revenues.
Sean: Over performance of subscription revenues contributed to the over performance of non-GAAP operating income offset in part by severance expenses of approximately a half a million dollars incurred in the first quarter.
Sean: non-GAAP net income attributable to <unk> was $18 4 million or <unk> 16 per diluted share.
Sean: Turning to an update on our share repurchase program, we repurchased approximately one 8 million shares during the first quarter at an average price of $22 17.
Sean: For total consideration of $40 6 million.
Sean: As we stated last quarter, our capital focus for the time being will be on realizing the benefits of the prior acquisitions, we've made and on share repurchases.
Sean: Now turning to guidance.
Sean: For the second quarter of fiscal 'twenty, six we expect total revenues of $142 million to $144 million with.
Sean: <unk> revenues of $124 5 million.
Sean: To $126 5 million, an increase of 8% and 10% respectively.
Sean: At the midpoint of the ranges.
Sean: Note that the sequential change in total revenues is impacted by us not flowing through the Q1 over achievement in mortgage and professional services revenues.
Sean: non-GAAP operating income in the second quarter is expected to be $23 5 million to $24 5 million and non-GAAP net income attributable to <unk> per share to be 13 to 14.
Sean: Our annual user conference is expected to contribute approximately $2 5 million sequential increase the sales and marketing expenses in the second quarter.
Sean: This guidance assumes interest expense incurred under our credit facility of approximately $4 million and is based upon a weighted average of approximately $119 million diluted shares outstanding before any share repurchases.
Sean: For fiscal 'twenty six we are off to a strong start to the year and are reiterating our guidance to add $48 million to $51 million to ACB on a constant currency basis, including approximately $4 $5 million from the acquisition of sandbox banking.
Sean: This represents 19% organic net ACB bookings growth at the midpoint of the range, which should accelerate subscription revenue growth in fiscal 'twenty seven.
Sean: For fiscal 'twenty six we are flowing through a majority of our Q1 subscription revenues outperformance to our full year guidance, but in keeping with the guidance philosophy for mortgage we introduced last quarter. We are not flowing through the approximately 800000 of seasonal over performance in U S mortgage subscription revenues.
Sean: We now expect our subscription revenues to be $507 million to $511 million up from $503 million to $507 million.
Sean: Our updated guidance for subscription revenues represents approximately eight 5% growth at the midpoint of the range.
Sean: Excluding currency fluctuations, our organic subscription revenue growth rate in fiscal 'twenty six is expected to be approximately 5% at the midpoint of the range up from the 4% noted on our Q4 earnings call.
Sean: Please note this guidance assumes the fourth quarter will represent the lowest year over year subscription revenues growth and continues to assume no year over year increase in U S mortgage subscription revenues.
Sean: Note also that our inorganic contribution expectations from full circle in sandbox banking remained unchanged from last quarter.
Sean: Taking all of this together, we now expect total revenues of $578 5 million to $582 5 million up from our prior guidance range of $574 5 million to $578 5 million, representing approximately 7% growth at the midpoint of the range.
Sean: Turning to the 8-K regarding the restructuring restructuring event that Sean referenced we expect to realize approximately $24 million of gross annualized expense savings from these and other cost saving actions.
Sean: And our initial non-GAAP operating income guidance for fiscal 'twenty six we assumed we would realize approximately $6 million in gross annualized expense savings during the year.
Sean: Through the actions we are taking we accelerated the $6 million in planned cost savings and increased it by an additional approximately $18 million.
Sean: We are initially flowing through approximately $5 million of the incremental savings through to our updated fiscal 'twenty six non-GAAP operating income guidance, which will primarily benefit the second half of this fiscal year.
Sean: This approach to guidance is intended to preserve flexibility in operating the business, including the ability to make additional investments in AI technology to drive further efficiencies in the business if opportunities present themselves.
Sean: The net cost savings will primarily benefit our R&D expense line as well as our cost of goods sold line.
Sean: Specifically, we expect to achieve expense savings on our R&D line at several major development milestones are now behind us with respect to various product initiatives.
Sean: And as Sean noted, we have identified opportunities to streamline our development operations, including by further leveraging AI tools.
Sean: On the cost of goods sold line, we expect to deliver projects more efficiently as a result of redesigning our products to be implemented quicker.
Sean: And through the use of AI tools.
Sean: It will take some time to see our PSM margins increase as we closeout on legacy projects and ramp up the use of AI tools, but we're confident enough in our ability to achieve efficiency gains and our PSL and customer support organizations from the use of AI in initiatives like project <unk> zero that we discussed at Investor day to take this action.
Sean: At this time.
Sean: We expect to incur approximately seven 5 million to $9 million in one time restructuring costs, primarily in the second quarter to realize these savings of which we expect approximately $1 million will be noncash.
Sean: These restructuring costs will be excluded from our non-GAAP operating income results, but will impact fiscal 'twenty six free cash flow.
Sean: We now expect our fiscal 'twenty six non-GAAP operating income to be $112 million to $116 million up from a prior range of $107 million to $111 million.
Sean: This represents an approximately 19% increase over fiscal 'twenty five at the midpoint.
Sean: At Investor Day, I mentioned that we added about 14% more sales capacity for fiscal 'twenty six.
Sean: To be clear this was embedded in our initial guidance for the year and there has not been an update to that number as a result of the restructuring.
Sean: non-GAAP net income attributable to Encino per diluted share is now expected to be 69 to 72 for fiscal 'twenty six.
Sean: Up from our prior guidance of 66 to 69.
Sean: Excluding the impact of currency fluctuations and is based upon a weighted average of approximately 119 million diluted shares outstanding which does not factor in any additional share repurchases beyond those we have made to date.
Sean: This guidance also assumes interest income interest expense incurred under our credit facility of approximately $15 million for the fiscal year.
Sean: And with that we will open up the line for questions.
Speaker Change: Certainly and ladies and gentlemen, we have a full queue today, we ask that you. Please limit yourself to one question and one follow up our first question comes from the line of <unk> Kalia from.
Speaker Change: Barclays. Your question please.
Kalia: Okay, Great Hey, guys. Thanks for taking my questions here and good to go.
Speaker Change: I see a strong start to the year.
Speaker Change: Thanks.
Speaker Change: Absolutely, Sean maybe just to start with you.
Speaker Change: Touched on this a little bit in your prepared remarks, but I.
Speaker Change: I was wondering if you could just talk about how your how youre thinking about underlying demand.
Speaker Change: And sort of willingness to invest right now with your bank clients. I know you spent a lot of time with customers and you touched on some some some.
Speaker Change: The positive conversations, but I'm curious just what data points do you look at it and what gives you confidence in sort of strong underlying demand.
Speaker Change: Yes. Thanks for the question Zack and then I do have a lot of confidence in the demand that we're seeing I think that was validated at our user conference last week and insight in Charlotte with the full <unk> ecosystem unfold on display.
Speaker Change: And we have very steady interest across the board on our solutions across Onboarding Cross count opening loan origination as well as portfolio monitoring and we do measure.
Speaker Change: The pipeline activity and look at that for the right coverage and the growth in that coverage and make sure we're aligning investments towards that as well and by and large despite the macro which Greg referred to.
Speaker Change: His comments, we are seeing mostly a stay the course from a narrative from our banks and hearing that budgets are set for the year.
Speaker Change: <unk> business imperatives to drive efficiency into the operating model of our financial institution customers.
Speaker Change: <unk> remaining strong in terms of demand.
Greg: Got it got it that's helpful. Maybe for my follow up Greg for you.
Speaker Change: I was wondering if could just dig into professional services gross margins a little bit and you touched on this in sort of the plan to improve it but it's been a drag on gross margin here for a couple of quarters now whats driven that and how do you think about the path to.
Speaker Change: Improvement.
Speaker Change: Yes. Thanks.
Speaker Change: The <unk>.
Speaker Change: Price pressure or cost pressure on services really has been concentrated in the community bank space in the U S.
Speaker Change: Particularly over the last two or so years when obviously it was a more challenged market for our for our banking customers and so we've done a few things one is from a project and product perspective as I commented on.
Speaker Change: We redesigned some of our products so that they could be implemented quicker more efficiently right to ultimately.
Speaker Change: Improved margins in the second thing and again, we highlighted at Investor day reiterated in my prepared remarks, with what we're seeing with AI, we see a lot of opportunities to improve that gross margin as well and so it is a focus area for us I'd say, it's an opportunity for us and I think it's something that we are executing on it will take a little bit of time right is.
Speaker Change: Again as I commented work through the legacy projects that we have in truly ramp up some of these AI tools that we are seeing in <unk> and experimenting with and doing poc's with.
Speaker Change: But it is an opportunity we see that we can execute on and so it's something that we will see over the coming quarters.
Speaker Change: Results from.
Speaker Change: Very helpful. Thanks, guys.
Speaker Change: Thanks.
Speaker Change: Thank you and our next question comes from the line of Terry Tillman from Truest. Your question. Please.
Bobby: Great. Thanks for taking the questions. This is Bobby <unk> on for Terry.
Speaker Change: First one for Sean Sean now that you've got some time engaging with analysts and investors. What do you think is most misunderstood about the story and then I had one follow up thank you.
Speaker Change: I think spending time with you all in the past three months I see good alignment and understanding of the story.
Speaker Change: Walked away from Investor Day last week, especially after the formal presentation and taking questions.
Speaker Change: The confidence that the group understands our focus on execution discipline, our commitment to the metrics that we're tracking around HCV rule of and free cash flow and they understand what our growth initiatives are across.
Speaker Change: Leaning into the Onboarding opportunity the credit Union space mortgage beyond <unk> and <unk>.
Speaker Change: The EMEA opportunity as well as the momentum in Japan, and finally, our strategy around AI, which we got to double down on.
Speaker Change: I don't have a lot of discomfort that there is there is a misunderstanding of the encino strategy right now.
Speaker Change: Much appreciate it and then with Omnichannel experiences can you talk about the sales strategy there.
Speaker Change: Something existing customers can easily upgrade into are there pricing implications from an upgrade and how important is omnichannel to the overall platform go to market strategy. Thank you.
Speaker Change: Yes. Thanks for the question and you all heard the story that we had.
Speaker Change: Two primary goals stated it inside one was that we felt filled to fulfill the commitments that we made to our customers and Omnichannel is a big part of that that we would have a consistent experience for the banker and their customer whether digital or and brands across our solutions.
Speaker Change: And as we upgrade customers to that Omnichannel experience, there's not incremental cost it's simply part of the platform of course, if a customers on commercial and then they come to.
Speaker Change: <unk> for a new solution, there's incremental ACB, there, but if they are upgrading.
Speaker Change: On an older version of <unk> to the current they simply get Omnichannel with that and there is not additional spend.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Koji Ikea from Bank of America. Your question. Please.
Koji Ikea: Yeah, Hey, guys. Thanks for taking the questions here.
Koji Ikea: I did want to ask a question on kind of the workforce reduction in the office space reductions.
Speaker Change: I guess first question how to think about fertile further utilization opportunities in the office space from here and then how to think about any sort of reinvestments from the workforce changes how is AI playing into the workflow efficiency. It definitely sounds like youre, gaining some efficiency in the R&D department, but anywhere else, where AI is play.
Speaker Change: And our role and workforce efficiency. Thank you.
Speaker Change: Yes, and can you restate the first part about the office question I want to make sure I understand that.
Speaker Change: Yes, you guys got rid of some office space.
Speaker Change: That part of the.
Speaker Change: Utilization optimization complete or is there any more office space to potentially downsize from here.
Speaker Change: Gotcha, Yeah. Thank you.
Speaker Change: We have.
Speaker Change: Our campus headquarters here in Wilmington, North Carolina, and as you all know seven offices beyond that globally, because we have some overage and capacity that basically when we moved across facilities overtime, we hung on to some older space as we moved into newer space just to safeguard.
Speaker Change: Whether or not we would need that at a future date at this point the new building serves our needs Holistically and we had a large conference room down the road that held about 100 people and we only used it a couple times a year. It just wasn't a good use of our money we have plenty of statutory in town Hall space right here.
Speaker Change: Wilmington, and then beyond that we're always going to look for opportunities to right size, our investments with how we're seeing return there, but I think we're right sizing our major office and geolocation and we don't have a lot of overage in capacity there.
Speaker Change: Specifically in terms of how we think about investments in the future listen in terms of the workforce reduction there probably a combination of contributing factors. There. One is just with the discipline that we have and the commitment we have to make difficult decisions for.
Speaker Change: The betterment of the business in the long term there probably were some overdue decisions, we need to make on our capacity alignment there have been shifts in the market shifts in the landscape enrolls.
Speaker Change: In our organization that were no longer as relevant to the point in time needs that our customers have today and we simply acted on those those are never easy decisions, those who never fund decisions, but theyre right decisions for the.
Speaker Change: The long term viability of Encino, and so and so we move from there beyond that.
Speaker Change: There are certainly efficiencies to be gained as we move forward and modernize how we build software and re imagine that build and realign with partners in our technology stack and that all adds up to a reality that I think we're going to actually increase our velocity in terms of our software build.
Speaker Change: <unk> with less head and that doesn't with less head count and that doesn't necessarily mean do more with less it means be optimized to be more efficient be leaner and meaner and go attack the market.
Speaker Change: Thanks, Sean and maybe a follow up here for Greg.
Speaker Change: Billings I know billings may not be the best indicator for you guys.
Speaker Change: But I did notice it decelerated a little bit in growth here and so I do understand there is probably some inorganic contributions in there and and billings dynamic with Rev. Rec, but just just wanted to as we build our models just wanted to understand if there's anything we need to know within billings this quarter or how to think about deferred revenue over the next several quarters as we build our.
Speaker Change: Models out thank you.
Speaker Change: Thanks, Cody nothing to note I mean billings, which is one of the reasons, we don't guide to it can be lumpy certainly with larger customers.
Speaker Change: And just depending on timing of deal signing and ultimately again, the billings and so nothing to note.
Speaker Change: Different from prior quarters that I would call out at this point in time.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question comes from the line of Ryan Tomasello from <unk>. Your question. Please.
Ryan Tomasello: Hi, everyone. Thanks for taking the questions actually I wanted to touch on something that you highlighted last quarter on the consumer lending side I know you called out a really strong end to the year I think 40.
Speaker Change: Sewer lending deal signed in the fourth quarter.
Speaker Change: I guess, how much of that momentum was driven by the sales force activation in the credit Union space and just generally how should we be thinking about the timing for that to start to kick in more meaningfully the benefit of that activation and as a follow up as we think about.
Ryan Tomasello: Momentum this year in the consumer lending category.
Ryan Tomasello: I would assume that last year, you were baking in some amount of ACD bookings.
Ryan Tomasello: Assuming momentum in that category of revenue, but any color on how youre thinking about targets for this year on the consumer lending side, just given it seems like youre always kicking off the year with good momentum you cited the $800 million.
Paul: Paul here.
Paul: Yes. So we are clearly excited about consumer lending with respect to your first question on the 20 deals we signed in Q4.
Paul: There was really no tangible impact on the activation of the credit Union go to market team as we were assembling that team for the majority of the back half of last year and I believe they are just hitting their stride now so that all have an independent and before we fully activated that team.
Paul: So we think there is further upside there.
Paul: And then as far as the second question listen we're excited in the first quarter, we had a nice mix from a revenue standpoint.
Paul: Half of our revenues for commercial the other half distributed across consumer and mortgage the.
Paul: The momentum in the pipeline activity is encouraging in consumer across banks as well as credit unions and across market segments down market and up market as evidenced by the reference you made to first citizens being on stage with us at Investor Day.
Paul: Yes, just to clarify.
Paul: On commercial was a little less than half of our bookings for the quarter. I think you said revenues and the rest of the split between consumer and mortgage. Thank you Greg welcome Sean.
Paul: And then Greg.
Paul: Regarding the expense savings youre flowing through I think roughly.
Paul: Do you think you said only $5 million of the total of $18 million savings I guess I understand the approach to wanting to preserve flexibility, but how should we think about additional upside to the full year guidance from those savings once you've had a chance to evaluate.
Paul: Additional reinvestment opportunities. Thanks.
Ryan Tomasello: Sure Ryan Yeah, obviously, we'll update you as the year progresses.
Paul: If you take the 18.
Paul: Expenses will basically be a Q2 event, so you'll get about half.
Ryan Tomasello: Out of that 18, you would think in the second half of the year again, we're going ahead and falling five of that through as we sit here today.
Ryan Tomasello: As the year progresses, we'll either flow more through <unk>.
Ryan Tomasello: <unk> come to you and highlight some investments that we made.
Ryan Tomasello: Again with the belief that it's going to.
Ryan Tomasello: To meet our return expectations and ultimately help drive us to meeting that rule of 40 target that we put out there for around the fourth quarter of next year.
Ryan Tomasello: Great. Thanks for taking the questions.
Ryan Tomasello: Alright.
Speaker Change: Thank you and our next question comes from the line of Nick Goldman from Scotia Bank. Your question. Please.
Speaker Change: Okay Awesome. Thank you guys.
Speaker Change: Last week at the Investor Day, you noted sales head count was up 14% year over year and the incremental quota carrying capacity was.
Ryan Tomasello: Helping to underpin some of the growth assumptions.
Speaker Change: Just given the reduction in force can you just clarify whether that 14% growth rate in sales capacity was inclusive of the reduction in force and then.
Speaker Change: Just a follow up is maybe can you guys just unpack some of the assumptions around sales productivity as it relates to that.
Speaker Change: 2026, ACB target thanks.
Speaker Change: Yeah on the first question Nick sales was not impacted by the actions that we announced last night.
Speaker Change: And so that 14%.
Speaker Change: It is still appropriate.
Speaker Change: And then if you could just repeat the second question.
Speaker Change: Yes, maybe just unpack some of the assumptions around sales productivity as it relates to the ACB target with the context of the 14% growth in quota carrying capacity.
Speaker Change: Yes, I mean, ultimately you can assume that we over sign our targets.
Ryan Tomasello: <unk> take into account when we do bring on new people that there is a appropriate generally a six month ramp that can vary depending on the background of the sales.
Ryan Tomasello: Individual that joins the company, but we take all that into account as we think about the plan.
Hugo: And Hugo.
Hugo: Spoke about specifically areas that we invested in including the credit Union market, which we just touched upon.
Ryan Tomasello: Yes.
Ryan Tomasello: We've been very vocal in terms of the opportunity that we see there as well as investing.
Ryan Tomasello: And sales capacity.
Ryan Tomasello: As we go more aggressively towards the continent.
Ryan Tomasello: And then Japan as well as an opportunity that we see and so we feel good about the investments that we've made again, we didnt make them previously because again from a market perspective, we were very judicious in terms of of rolling those out with the returns, but with what we see in the market. We feel like it's the appropriate thing to do and again as we think about sales capacity.
Ryan Tomasello: <unk> and the actions that we that we took we did not touch our sales capacity.
Speaker Change: Okay, Great and then just my quick follow up is what are the growth signals. You guys are looking for that would give you confidence to reinvest some of those cost savings back into the business rather than showing more margin expansion. Thanks.
Speaker Change: Yes listen building upon what Gregg said I mean, the maturity of the solutions that we have delivered and showcase last week it inside.
Ryan Tomasello: You indicate that we in fact have more things to sell right and so that also contributes to the capacity the indicators we look for.
Speaker Change: Are some of the age old tried and true good old fashion pipeline and activity management right.
Ryan Tomasello: And we're seeing a nice uptick there.
Ryan Tomasello: And the overall activity in the field before insight.
Ryan Tomasello: And lots of great warm leads coming out of the event as well that we think will continue to build on that momentum and we feel like it's early days, but the interest in the inbound questions.
Ryan Tomasello: Questions were getting around leveraging our AI solutions, specifically banking adviser and how soon can we partner with customers to co build agenda experiences and showcase those and deliver those in a more components highs fashion without having to go for the whole platform all in one shot.
Ryan Tomasello: It is really encouraging as well so pipeline activity is.
Ryan Tomasello: As always the leading indicator of health and hygiene and the sales process and we're looking at that and focused on that with our execution.
Ryan Tomasello: Great. Thank you.
Nick: Thanks, Nick.
Speaker Change: Thank you and our next question comes from the line of Alex Skyler from Raymond James Your question. Please.
Speaker Change: Alright. Thank you Sean maybe first just I wanted to follow up on <unk> question on your on your macro comments in your prepared remarks, just relative to what you spoke to on the last call in early April and our Q1, not a big bookings quarter, but any change in buying behavior or sales cycles here at the end of may or coming out of insight relative to World Cup.
Speaker Change: Months ago.
Speaker Change: No material changes in that behavior, we're seeing again, a nice uptick in pipeline activity, but in terms of buying cycles behaviors.
Speaker Change: Indicators that people are willing to go on that journey with us to explore how to gain efficiencies and drive those into their operating model through our solutions those are pretty steady and consistent.
Speaker Change: I do.
Speaker Change: I do think and I'm very encouraged that by accelerating the velocity of our delivery of solutions as well as the deployment and implementation time frames that that could actually speed up sales cycles, because thats historically has been a friction point and thats an area that we're being very intentional about investing to remove that friction.
Speaker Change: From the sales process.
Speaker Change: So I'm hopeful that that would result in second half of the year.
Speaker Change: Compression of sales cycles, that's the intent.
Speaker Change: Okay, Great color, Greg maybe a follow up for you just on mortgage.
Speaker Change: Unchanged 26 outlook I appreciate it.
Speaker Change: Not wanted to flow through some of that upside, but can you talk about was that upside driven by volume you saw in the quarter are you seeing retention improvement relative to last year or is that kind of on the on the new gross bookings upside. Thanks.
Alex: Yes, Alex I think it was a combination of sales.
Speaker Change: Sales volumes.
Speaker Change: Our volumes.
Speaker Change: And also again continued positive trends from a churn standpoint, I mentioned at Investor Day that Q4 was our lowest churn quarter for mortgage last year.
Speaker Change: And Q1 was lower than Q4, so I think that whole combination came together for that over performance.
Speaker Change: But again consistent with the philosophy that we laid out we'll take it one quarter at a time.
Speaker Change: With that with that business in this market.
Speaker Change: Okay, great. Thank you both.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question comes from the line of Chris Kennedy from William Blair. Your question. Please.
Chris Kennedy: Great. Good afternoon. Thanks for taking my question can you just talk broadly about the decelerating subscription revenue growth in fiscal 2026, and then kind of what the implications are for 2027.
Greg: Yeah, I think Chris it's Greg. Thanks for the question I think it goes back to what we talked about on last quarter's call.
Greg: In the second half of the year, we referenced we're going to have difficult comps.
Greg: But I think there is nothing new to report from really what we talked about last quarter as we laid out the year and our expectations for the year.
Greg: Again, we had a good first quarter.
Greg: We are pleased with the execution from the team.
Greg: It's nice to beat and raise and flow some of that through.
Greg: And ultimately again I think from our perspective as we set out.
Greg: Groundwork for this year on our Q4 call. It's just executing to it so long story short nothing new to report, but ultimately the second half of the year. It's the same comment I made last quarter around difficult second half comps.
Greg: Understood. Thank you for that and then we really appreciate the ACD mix by category U S mortgage commercial and consumer is there any way to think about kind of how that mix should evolve as you think about the business in three years or so thanks.
Greg: Yes.
Greg: Predicting what's going to happen on the macro events and how that's going to impact different solutions.
Greg: <unk> got everybody in a bond specifically in the mortgage side in the past few years, we're going to follow closely what happens.
Greg: Across the landscape and we believe that having a diversified and broad platform at scale.
Greg: It's up and positions us very well no matter whats happening because when one line of business is up another line of business might be down and it comes out of the wash and similar.
Greg: In terms of the imperatives and outcomes, we deliver to our customers.
Greg: So.
Greg: Core commercial remains very healthy I've been getting a lot of questions about that the pipeline is healthy and commercial activity the deals across market segments.
Greg: As any good place and we're reading out to you the mix of consumer and mortgage is at very healthy proportion of our mix as well and that all is before we contemplate an influx from the intelligent.
Greg: Intelligence unit consumption of banking adviser and Egencia.
Speaker Change: Great. Thanks for taking the questions.
Greg: Thank you.
Speaker Change: Thank you and our next question comes from the line of Aaron Kimpton from citizens. Your question. Please.
Speaker Change: Great. Thanks, guys Shawn last week, you talked about the importance of the process centric data has on its customers. The thesis that AI is going to increasingly vertical software has been out there for some time, but as we begin to move into a world of AI agents do you have a strong stance on the future competitive positioning of agents from vertical vendors.
Speaker Change: Like yourself versus horizontal vendors, but also have large relationships with financial institutions and <unk> seen our other vertical vendors have the advantage there.
Speaker Change: Yeah I appreciate you recognizing the importance of the process centric point of view, we have on data, which allows us to really understand how the money flows.
Speaker Change: Through the workflow.
Speaker Change: And as we start to wrap agents around those workflows and fully automate those experiences there'll be informed.
Speaker Change: By how that capital flows there are lots of folks out there who have transactional data, but it's really that workflow oriented interactive data that gives you a process centric point of view and then enables you to go ahead and deliver insights to your customers by rolling paper by persona to the production line, where they are.
Speaker Change: Need to make decisions on behalf of their customers on the next product or service to offer.
Speaker Change: So we think thats very differentiating and Thats why vertical AI is so compelling we saw the same trends and patterns from horizontal cloud into vertical cloud and I think we'll see the same thing exponentially here in banking in the next few years.
Speaker Change: That's really exciting and then as the follow up has there been any feedback on the encino mortgage demonstration of the top four bank last week and so is that customer currently use a homegrown solution where competitive solution for mortgage thanks guys.
Speaker Change: Yeah.
Speaker Change: So that was a fantastic discussion we were honored to participate in we got great feedback as we always do we show our solutions that were proud of.
Speaker Change: Of course, those size and scale banks typically have long cycles and all we know is we've got positive feedback on what we should.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Michael <unk> from Morgan Stanley. Your question. Please.
Speaker Change: Hey, guys. Thanks for taking my question, Sean honestly, a healthy amount of new products, offsetting which I'm sure is that rates, partially playing into the pipeline and programs that you mentioned, but it also seems like loan growth itself at the banks that we track has been trending better and is expected to grow faster than deposits broad base I'm just curious.
Speaker Change: Whether or not that loan growth acceleration dynamic is helping to catalyze some incremental demand.
Speaker Change: Yes, absolutely it's been a core part of our value proposition from day one.
Speaker Change: Both on not only loan origination, but then.
Speaker Change: Through monitoring and servicing and there is an uptick in interest of our continuous credit monitoring.
Speaker Change: Solution that is.
Speaker Change: Is now gaining a lot of traction in the market and so we believe there is upside from an ACB standpoints in core commercial with loan growth and across the portfolio absolutely.
Speaker Change: Hello, Paul and Greg maybe just a quick housekeeping item on the on the reiterated HCV outlook.
Speaker Change: <unk> 48 to 51 I wasn't aware that the <unk> edition had contemplated the four and a half from sandbox banking. It seems like it does so I just wanted to clarify whether or not that was embedded into last quarter's HCV outlook. Thanks.
Michael: Yeah, Michael It was no change there.
Speaker Change: So the 19% organic.
Speaker Change: But the sandbox as part of that.
Speaker Change: Got it thanks guys.
Michael: Thank you Michael.
Speaker Change: Thank you and our next question comes from the line of Charles Nabhan from Stephens. Your question. Please.
Charles Nabhan: Hi, guys. Congrats on the result, and thank you for taking my question.
Charles Nabhan: I had a quick one on international performance.
Charles Nabhan: Year over year growth of 31%.
Charles Nabhan: Very strong I remember, if I think back a couple of quarters ago, you would extend that growth internationally you would at some point converge with.
Charles Nabhan: The overall revenue growth.
Charles Nabhan: So my question is what's led to that outperformance and is the outperformance in international relative to overall growth.
Charles Nabhan: Excluding mortgage sustainable.
Charles Nabhan: Over the next year or so based on the pipeline.
Speaker Change: Yes. Thanks for the question I think the big contribution to that was the full circle acquisition.
Speaker Change: So that certainly helped drive.
Speaker Change: The international growth.
Speaker Change: But ultimately again I think you've heard whether it was at Investor day or even in our prepared remarks today the excitement our optimism around the opportunity that we have.
Speaker Change: Internationally, we've talked specifically around Japan and.
Speaker Change: And our excitement and optimism there as well as and again the focus on the continent.
Speaker Change: In Europe, and so we do think that there's opportunities for growth there that could very much out size.
Speaker Change: It will be accretive to the rest of the company.
Speaker Change: As we get into next year and beyond.
Speaker Change: Got it.
Speaker Change: As a follow up.
Speaker Change: No. It's still kind of early days on sandbox. So you've done a number of acquisitions over the past year I was hoping you could just kind of give us a quick high level update on what's working what's not working with.
Speaker Change: With full circle dark box and a libre.
Speaker Change: So across the board or you know we've been active on the acquisition.
Speaker Change: Kind of agenda for the past 14, or so months with respect to the opportunity in onboarding and delivering on the integration of dark box with the rest of our platform.
Speaker Change: We're ready to go.
Speaker Change: Press, the gas and sell that out to our community and regional banks in the U S and that we expect the pipeline activity is already showing them that we will be busy in those sales cycles for the back half of the year.
Speaker Change: Full circle standpoint, we already had accretive full circle deals continue.
Speaker Change: And that momentum shows up in some of the year over year growth numbers already but it positions us really well to capture the opportunity more broadly on the continent in EMEA.
Speaker Change: And expand out our integrations that would be required to do that so we've got an eye on what we need to do to go beyond the UK and Ireland with full circle Allegro gives us the hooks into the indirect auto lending solution, which is an imperative for credit unions and that is just a non stop.
Speaker Change: <unk> if you go into the credit Union market without that capability. So I would argue that unlocks almost every opportunity we look at in.
Speaker Change: In the credit Union space for consumer lending specifically, we also have a lot of momentum and opportunity for commercial and small business and the credit Union markets and then sandbox banking arguably stole the show at insight last week is such a core part of our AI strategy I think that was probably underappreciated prior to the events a lot of.
Speaker Change: Folks associated sandbox banking with real time core integrations for consumer lending solution, where we are alive and in production with many customers prior to that acquisition, but it really will underpin our entire trade data strategy play a key role in <unk>.
Speaker Change: Integrating that process centric data that we already talked about and as you see the market aggressively positioning on data capture sandbox banking has a very financial services oriented point of view on ingesting that data and interpreting that data and readying that data and preparing us to capture on AI.
Speaker Change: Opportunity.
Speaker Change: So that's where we are with the collective integrations and Theyre, all giving us momentum in our pipeline activity.
Speaker Change: Got it got it I appreciate all the color thanks, Ken.
Speaker Change: Thanks for the questions.
Speaker Change: Thank you and our next question comes from the line of Adam Hotchkiss from Goldman Sachs. Your question. Please.
Adam Hotchkiss: Great. Thanks, so much for taking the question Sean you mentioned that deployment, that's been a pretty heavy friction point for your customers can you just give a little more detail on what the biggest friction points are on the implementation side and how you think that's actually impacted pipeline conversion versus just the sales cycle length, and then maybe what gives you the confidence in that improving it.
Adam Hotchkiss: Soon as the second half of the year.
Andrew: Sure Andrew.
Speaker Change: Fully appreciate the reality there we have to understand the shifts in the market and the landscape over time and also understand that Encino grew up with a core value proposition of a solution that was highly configurable and that uniquely differentiated ourselves from legacy competitors that for years were.
Speaker Change: And say you get what you get right and there was no configure ability our optionality in those solutions.
Speaker Change: And.
Speaker Change: At that time, there was also a very very big appetite for long consultative projects that were heavy in their investment from a consulting dollar standpoint in order to configure those solutions and tailor them.
Speaker Change: In a very unique way for institutions, who want it want it differently. So what happened in the landscape is twofold right. One is the market shifted in terms of appetite to spend consulting dollars and have these long projects and as a result people realize they can't have their cake you needed to in other words if.
Speaker Change: If I can have this long tailored configurable implementation, then I do want to box it in and I am willing to have less flexibility there and I also want to vendor who is going to give me a robust experience and to deliver as much functionality as they possibly can with the solution that is scalable over time and so that's how we've evolved our salute.
Speaker Change: <unk> set is we've reined in the configure ability, we have given customers less optionality and we've delivered more functionality, which has all resulted in probably some of the longer than we would like.
Speaker Change: <unk> frames to deliver the convergence and the maturity of solutions that we saw at inside last week.
Speaker Change: But now we positioned customers to really lean into the offerings that we have without having these long drawn out projects and in large dollar consulting.
Speaker Change: <unk>.
Koji Ikea: Okay, that's really helpful color Sean.
Speaker Change: It does it does that was really really helpful. And then Greg just another housekeeping item I think you mentioned.
Koji Ikea: Revenue recognition adjustment to services any color on what that is what the magnitude might be and then whether thats going to be ongoing and future period.
Speaker Change: Sure Adam when we evaluate standalone selling price of subscription and services right, which can result in reallocating fees between revenue line. So nothing out of the ordinary but just in terms of the actual results this quarter.
Koji Ikea: Versus where we were expecting it to come in that was an impact so nothing new nothing.
Koji Ikea: Of note other than again, just making sure you guys. Appreciate it why it was a little bit ahead of where we expected it to be.
Speaker Change: Okay understood. Thanks, so much.
Speaker Change: Thank you and our next question comes from the line of Brent <unk> from Piper Sandler Your question. Please.
Speaker Change: Good afternoon, and thanks for taking the question. This is J R. On just one for us today.
Speaker Change: Credit Union space has been a topic you've touched on frequently could you maybe remind us about the differences in competitive dynamics in that into the market compared to the enterprise and regional bank space.
Speaker Change: Yeah.
Speaker Change: The opportunity for Encino to realize that our solutions and the value proposition of our solutions resonate with the credit Union market in other words, we don't have to go and build separate products because we're delivering on the same outcomes on the other hand, the credit unions have a unique culture from banks and.
Speaker Change: In terms of how they serve their member in our local communities they plan and quite honestly manage their balance sheet right and so what we realized over time is that although we're solving the same business problem and delivering a very similar technology solution. The way our teams go out and build really.
Speaker Change: <unk> shifts in those markets really matters right and they expect folks too.
Speaker Change: Understand the dynamic in a credit Union. Therefore, we put leadership in place that has historically worked in credit unions overtime, and we have a whole team that largely sources from spending careers and credit unions in building those relationships and not to be discounted or the 800 plus credit you.
Speaker Change: <unk> customers that we already.
Speaker Change: Claim with our portfolio analytics solution and footprint and we have the world's largest credit union.
Speaker Change: Our commercial solutions, so theres already traction and momentum and just with the renewed focus and a team that wakes up in the morning, and things only about the credit Union and their member versus the bank and credit Union I think positions us to really build momentum there.
Speaker Change: Got it makes sense. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you and our next question comes from the line of Alex Mark Graf from <unk>. Your question. Please.
Speaker Change: Hi, guys. Thanks for taking the question.
Speaker Change: Just a couple of follow ups on the efforts around deployment, Sean maybe just first the 200 hours that you referenced can you just clarify what we should be sort of comparing that to you today.
Greg: And then Greg if you would maybe speak to.
Speaker Change: The impact that that sort of improve delivery timing would have on.
Speaker Change: Timing of revenue recognition over over the midterm that'd be helpful. Thank you.
Speaker Change: Yes ended 200 hours is a bold audacious goal and we have set the bar high there.
Speaker Change: And we're excited to run toward that with everything we have.
Speaker Change: What I would tell you is that in the community and regional bank landscape across our solution set those projects are historically anywhere from two to six ish months.
Speaker Change: And up in the enterprise that can vary from six to 18 months, depending on the culture of those institutions to change management discipline and how far they are coming from their legacy experience. So yes, we're talking about going from months to years two months to days.
Speaker Change: Yes, and on the second question.
Speaker Change: It doesn't impact subscription revenue recognition.
Speaker Change: Going back to my comments on Investor Day again, our focus is going to be on professional services gross profit growth versus again driving more professional services revenues because we do think we will be able to do projects quicker.
Speaker Change: And ultimately leverage AI and other efficiency initiatives that we have and that's going to help drive our margins overtime.
Speaker Change: Does that answer your questions.
Speaker Change: Okay.
Speaker Change: Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Shawn Desman, Chief Executive Officer for any further remarks.
Shawn Desman: Sure before we close I'd like to thank the entire and senior ecosystem that was on full display last week in Charlotte at our user conference I'd like to thank our employees for their tireless work tireless work they've put in to ensure that this has now become the marquee event in fintech annually I'd like to thank our customers for showing up in full force and validating that.
Speaker Change: Our prioritization is in line with their needs.
Speaker Change: And I'd like to thank our partners, both resi and Tech partners, who plan and valuable role in our go to market strategy. Finally, I would like to thank you all our investors, who I think we're very additive to the invent adding investor day, coupled with insight gives a lot of perspective and value. So collectively I think we all return to our offices.
Speaker Change: Wherever we are with the renewed focus on our execution strategy.
Speaker Change: And ready to go so thank you for your time. This afternoon, we appreciate it.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thanks.
Speaker Change:
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Oh.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Hum.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Right.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.