nCino, Inc. (NCNO) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us for the 3rd day of the 45th NASDAQ Investor Conference. I am Karen Snow, head of East Coast Listings and Capital Services, here at NASDAQ, and it's my great pleasure to be joined by the team at nCino, including Pierre Naude, CEO; and David Rudow, CFO. [Operator Instructions]

So Pierre, let's go ahead and get started. Since some of the attendees may not be as familiar with nCino, could you start out with a brief overview of the company, including really how big the opportunity is, as well as address the competitive landscape?

Thank you, Karen, and thank you for having us, and welcome, everyone. Thanks for your time today. nCino is a vertically-focused SaaS company, focused on the digital transformation of the banking industry. So we take that very difficult processes of onboarding a customer, originating any loan from the most complex, syndicated loan, down to the most simplistic consumer financing loan. We open accounts of any type. So those are your compliance and regulated type of activities in a bank that takes lots of paperwork, lots of time. And we have built a Software-as-a-Service model on a cloud-based platform to automate this and streamline it to where actually banks can start operating like fintechs. We've had great success. The opportunity is around $16 billion, as we calculated, that's a bottoms-up on a global basis, excluding places like India and China. So it really is actually a SAM or serviceable addressable market. The company is 10 years old, and we are proud of what we have accomplished. We're now a public company, and we are set for growth.

Great. And can you talk a little bit about the competitive landscape?

Yes. It varies by segment. If you start in the U.S., where there's a community bank segment with about 5,000 banks, -- We see many point solutions, older software, where people specifically build account-opening software or commercial-lending software or maybe a retail or consumer-lending software. And so there, we typically compete with point solutions. At the very bottom end of the market, we may see the big 3 like Jack Henry, Fiserv, FIS,without the box solutions with their core providers. But the moment the bank becomes more sophisticated, they look at solutions like nCino, okay? When you start going upmarket to your bigger banks, it used to be a homegrown solutions. And here and there, we saw a point solution. So we are the only company that actually built a platform that the single platform will provide all of those different services I mentioned earlier, okay? Which is very client-centric -- So if you come to your second account, orienting the same data, providing the same documentation again. When you come to your international markets, in Europe, specifically, we see a lot of homegrown, maybe a little bit of Pega, people that build on Pega, they've got the skill set in-house. And again, a bunch of point solutions. But we never see a platform player like us that actually build something organically from the ground up and actually transform the bank that way.

That's really helpful. So we've heard a lot about the acceleration of digitization, especially around COVID. Can you talk a little bit about the trends that you're seeing in the banking industry? And are those trends different in the U.S. from what you're seeing in EMEA and Asia?

Yes. I think that the market present and the trends are similar around the world. I do think the U.S. was a little bit ahead of cloud adoption, especially since the Kingston the West Coast in the U.S. with Salesforce.com, et cetera. And so it took us the first 3, 4 years to get the bank really comfortable using the cloud and understanding the power of the cloud. We have then went to the U.K., Canada and to Europe and actually have to do the same evangelization to get banks there. I would say, now it is common practice to understand how important the cloud is, the flexibility and benefits of that. And we've had now success, both in EMEA, in Australia and New Zealand, we've signed a bank in Japan. But that's part of -- when you're a first mover in the market, that's just what happens. If you look at the industry as a whole, there are multiple pressures on the industry. The first one is the whole compliance environment, where a company value compliance out of the box. In the old days, you own around 20, 30 different systems to enter manually. That's one. The second one is, there's an whole notion around ESG, understanding your portfolio that's a big pressure on banks provide those things because we have a single data source and a single source of truth for everything, okay? And then finally, just the competition. Fintechs point solutions, taking away the most profitable parts of banking. So I believe that nCino is well positioned to help banks to start operating like fintechs and be relevant in the future to actually overhaul their IT infrastructures.

Yes. Perfect. So you've got 2 of the top 4 U.S. banks as customers. Is it reasonable to think that you can get the other 2? And what about some of the large banks out of the U.S.? How are you thinking about your international expansion, in terms of driving growth?

Yes. We are always optimistic, and we're talking to every bank in the U.S. As you can imagine, we're talking to the biggest names in Europe. I'm very proud that we've got banks like Allied Irish Bank. We've got Barclays in the U.K. We've signed a very large bank in France. We've got a bank in Germany going. In the U.S., if you look at the top 25, we used to have top 14 of the top 25, then we see some consolidation. We're now at 12. But I'm proud to say, every time two banks merge and one bank has nCino and one doesn't, nCino tends to be the solution of choice. So I'm seeing in the expansion that it's almost becoming an industry standard. And as you know, in banking, you have to get that level of market presence, and then you become the safe choice.

Yes. Exactly. So we've heard a little bit of talk about cleaning up the back office within the bank operating system, what is bank's willingness to have customers undertake major modernization of their core operations?

So it's very interesting. There's actually 3 layers we're talking about here. At the very back end, is your accounting engine or known as the core of the bank, which actually runs every account that calculates interest statements, et cetera. That's -- I see that as a cold financial engine. And I always challenge banks and say, "what is the real value to replace that?" Because if you balance to that, you've got to balance to model. The layer just above that, or I call it the plumbing, you get the transaction engine. And from that, you do [ HCHYFs ], online banking, et cetera. Those to me, is the plumbing. It's operating [ probably ] in your house. There's very little value because you provide the same service tomorrow, maybe a little bit of flexibility. The layer just above that, is your regulated client-onboarding layer, which is the loan origination, account opening and onboarding. That's where nCino plays, that's the heavy lifting, and that is fairly difficult. The problem is they have no choice because nobody is willing to go to the bank and take 4 days to open an account anymore, and sign the same document 3 times over, okay? So every bank is forward-looking and looking at their costs as well as their operational efficiency and their client readiness. They're going through this, right now, by segment. They may tackle commercial first, when -- that's when they become small business and then retail, okay? And then finally, there's your client-facing layer, which is your UI, your online banking app, et cetera. Your dilemmas, if you slap just a client-facing layer on the front end and the back office is still inefficient, the customer have a great experience entering the data, but then they quickly realize that there's still a bunch of humans in the background doing it, and you're not deploying cloud-based solutions with the intelligence, AI, machine learning and analytics. And then so what we advocate is, "yes, let that first thing on the front end." But actually, we have to clean up your middle back office. And I'm seeing that movement going as we advocated for.

Yes, it really is perfect timing. So let's discuss your analytics platform and IQ. What's the growth opportunity there? What is it, exactly?

You know, so what we realize is, orchestration and workflow can achieve a lot of things by just streamlining and removing 15 to 20 systems and being centralized and a well-designed database. But finally, how are we, in banking, going to use the whole movement around AI, machine learning and analytics, okay? And then, you have to be compliant because be careful, the machine will actually learn and become biased. And so that's one thing to be very careful of for the banking because when you typically higher credit scores will get preferential treatment, which is not what the regulations would allow. So what we've done is to say, "where are the areas, where we can actually inject intelligence at every point of production?" And it could be as simplistic as giving advice to the consumer, what other people like them do, just like when you shop on Amazon. If you like this, you would also probably you -- open and check-in account, you need debit card, okay? Things like that. The next one is pricing and profitability, so that the bank can have flexibility and how they price the loan because you bring deposits, et cetera. That's the second one. The third one is portfolio analytics. Understanding actually your portfolio weight by industry. In ESG, this is going to become very important. Where do you do most of your investment, okay? And what kind of companies do you deal with, and how do you rebalance that? And if you have Shell Oil as a customer, is it all mean that it's actually Shell Oil or is there a green component of that because the investment goes to them, decarbonizing the atmosphere. So you have to look at that in an intelligent way. And so the way we're approaching it is, we look at every process we're doing and then see where can we inject intelligence, analytics and AI to actually help back streamline. Another interesting point is automated spreading. Today, you'll get financial statements from a customer. And then some of your highest-paid people said they're doing data entry for now, okay? With nCino now, you can scan that, populate all the analytics tools and come up with some insights. So we actually use you for your intelligence and your industry knowledge as opposed to a data entry. Those kind of things are very powerful.

Yes. That's fantastic. So let's switch gears a little bit to your financials. I know, you reported yesterday. Congratulations. Are there any key highlights that you'd like to point out from your results?

Yes. We had a good -- another good quarter, internationally. We signed our first Japanese customer. They did a press release with us, which was fantastic. It's our first one...

Congratulations.

Thank you. In joint venture with Japan Cloud. We closed a deal in New Zealand, which is great. We continue to build brand in Europe. We recently, over the last year, have added heads, people in Germany, Spain, France and Italy. We're seeing some traction there, and it's really -- we're kind of building the brand and generating pipeline there. So very happy with the performance there. Canada is another bright spot, too. We performed well this year, there as well. And then our RPO growth, that's a metric that a lot of investors look at. We had good RPO growth in the quarter as well. But overall, it's a very good and solid sales quarter for nCino, and we're happy with the performance of what we reported last night.

Great. So let's double-click on the -- your customer activation schedule. Can you discuss this a little bit more and how it impacts your revenue growth?

Yes. That's great. Yes, we're a little different than others. Unlike when a customer buys Workday on day 1, you'll start paying for the 100 seats that you bought. With nCino, we work with our customers and negotiate, kind of, the timing of those seat activations. So you might sell 100 seats and on day -- after 2 months, you might activate 10% of those seats. But it's by contract, depending on the size of the customer. For a community, regional customer, it's up to 12 months, where you see that full activation schedule to ramp into their annual contract value. And for enterprise, it could be 2, 3, 4 or maybe even 5 years, just depending on the size, for a larger deal. And what that provides us, is great visibility to our revenues, but it also helps us maximize our total contract value with the customer. And I think, it shows our commitment with the customer and that we're not making them pay from day 1 for all the seats. So we're working with them and understanding how the product deploys and how those seats will then be layered in and actually distribute it to end users.

And is that part of your land-and-expand model? Or can you discuss how that works exactly and what the adoption to grow is, by product line and department?

Yes, that's different. This is more we sold commercial into a bank, and we deploy that and activate those seats. But while that we're deploying and getting the customer live, we're constantly in with the customer, talking about the platform strategy that we have and trying to figure out other areas of the bank, where you can help them, whether that be small business, treasury, retail lending, could be international mortgage for customers and/or including nIQ as well. So we try to land somewhere to solve a problem for a customer, to show the value that we can bring to that customer, and then with that platform strategy, add different products into different lines of business to, kind of, build out the single view of a customer across the entire bank.

That's super helpful. So let's talk about your R&D for a second. It's pretty, I would say, healthy at roughly 25% of your revenue. Can you talk a little bit about your priorities? And then also, is that something that investors can expect, on a go-forward basis, in terms of your spend?

Yes. We are a product company, and we're very happy to spend in development. We've built up the team. We have a team in Wilmington, Salt Lake City, Melbourne, Australia, and we're building a team in London now as well. We've built -- it's all about the platform, right? The whole nCino Bank Operating System is built on a single platform. We started commercial, add a small business, treasury. We're spending a lot of time and resources in retail, and that's retail lending in the U.S., international mortgage in Canada and the U.K. and digital account opening as well. So a lot of resources are going to that. And also, on nIQ, we did acquisitions of FinSuite, which was in Melbourne, Australia; and Visible Equity in Salt Lake City, Utah; and we are further developing those products to sell as well. So there's a lot of resources going to our nIQ strategy. And the great thing about nIQ is, it plugs directly into the bank operating system, makes the product a lot stickier for customers, but gives them a lot more ability to streamline their business and gain efficiencies by using those products. So those are the areas that we're spending in. And then also on the international side, kind of building out that London team to help us in creating products for -- that are on the continent, specific to each and every country in Europe.

Canada, as a growth company, in a regulatory environment, there are many nuances per country about banking regulations. So for the foreseeable future, we have to maximize the opportunity by investing in product. There will be a point where we'll get tremendous leverage out of this because once you've done it, it's in place and the maintenance is a lot cheaper than this. But we are proud to be a growth company as well as a more of a product-innovation company, heavily focused on our customers. So I think, for a while, you're going to see this, but then over time, we'll get tremendous leverage out.

Yes, yes. I think, that's very well. But -- so let"s talk a little bit about your recent acquisition. Congratulations. SimpleNexus, it was for $1.2 billion in stock and cash. Can you talk a little bit about the overall business, how it fits into nCino? How you expect it to impact your growth?

Yes. We're very excited. We actually just finished 3 days of integration planning with them to see how we will do this, once we get the regulatory approval for the deal to move forward. And I'm becoming more conversed every day, this was a fantastic move. So if you look at nCino traditionally, we are very good at the middle and back office transformation, et cetera. And then, once we've cleaned the kitchen, we will extend that out to the end customer. On commercial, that is much more of a documentation submittal, maybe some information because you would never apply for a $20 million loan online. As you come down, the consumer, it's not sort of a mobile-first experience that people expect. What we liked about SimpleNexus is that as opposed to say, they want to do a mortgage application in the U.S. They actually said, "No, wait a minute, you wake up in the morning and you've got an idea to buy a new house. And what is that home-buying experience like?" And then they created this ecosystem, with the loan officer for the mortgage, the real estate agent, the insurance agent and the homebuyer, all share a single app and create this ecosystem, where you connect it and get guided through your home-buying experience, which excites you, not the mortgage, okay? The mortgage just happens to be one component of that. So not only does this thing provide us with a tremendous sticky infrastructure, but it also gives you additional revenue opportunities, like including the insurance, the security system, may be an unsecured loan from your bank because you're going to redo the kitchen, add some furniture because we always buy a house bigger than we anticipated. So this company is really specialist on the front-end point-of-sale side. And so I can see down the line, we could expand that to, maybe, a car buying experience because you need insurance, you need maybe, warranties, et cetera. And so they bring a specialized skill set. They bring a fantastic brand in the marketplace, and they bring a mortgage speciality that we didn't have in the house, from a point-of-sale perspective, and as well as an approach center. So we see it as very accretive to growth, and we also see their management team as mature, they can scale. We love the skill sets they've got.

Yes. That's exciting. So we've heard a lot about [ Blends ]. Can you discuss how SimpleNexus competes with [ Blends ]?

I know of Blend. I know what they do. I think it's a different approach to the marketplace. As I mentioned, SimpleNexus take this home-buying experience as opposed to a loan application. We, nCino, already do that, which -- where we can do any loan application through the funding that we've developed. I think, there's a place for that. But as you look at the future of finance, I think embedded finance is going to play a much bigger role to actually take bank products into the buying experience and embeds it whether it's into the Amazon buying experience and the retail buying experience, locally. And banks understand it to be irrelevant, they have to embed themselves into these different players, okay? So I just think, it's a differentiated approach to what Blend is doing. The other thing I like is, SimpleNexus did the same as nCino, start with these smaller institutions as well as the independent mortgage bankers, and we're moving up in the food chain, which is a lot easier to scale versus starting with the big ones, where you have component-based software trying to package it back down into the market. So we really think, not only from an architecture perspective, but also from a financial modeling perspective, where they are a seat-based model, which is a lot more stable versus a transaction-based model.

Yes. Okay. That's perfect. And so before we turn it over to Kevin to field questions from the audience, can we talk a little bit about your relationship with Salesforce, just so we understand what that is, exactly?

Yes. So we have what's called an OEM relationship. We build on that platform, but we go to market, totally independently. When we did the IPO 18 months ago, we signed a long-term extension of that contract. You may have heard Marc Benioff mention nCino on some of these earnings calls. We are well entrenched in that company. They understand, the strategic importance to us is the platform. But the flip side is, if you look at Salesforce, they paint this broad picture of financial service and everything they can do. Part of that story is the ecosystem they've built, which, I think, was brilliant. And nCino fills a massive hole in financial services. So it's really a complementary relationship. And I cannot tell you how pleased we are with that relationship, the technology we get, the innovation they do as a massive company. But most of all, the brand equity. When you go to a bank and you say, "we're on Salesforce.com", the level of trust, the security, the platform stability it brings, is a tremendous benefit to us.

Yes, definitely. I can see that. So Kevin, I'm going to turn it over to you.

Thanks, Karen. We had a few questions come in. I guess, the first one is, David and Pierre, if you could dive into your go-to-market strategy a little bit, expand on that?

Yes. So our main go-to-market is a direct go-to-market. We hire salespeople. We promote our own brand in the business, and we sell independently. We have tremendous partnerships with some of the biggest system integrators in the world, including PwC, Deloitte, et cetera, on a global basis. And so that is a very complementary relationship. On top of that, in countries outside of our core focus countries, we go with our SI partners on more of an account base, where they will take us into large accounts in Southeast Asia, maybe or in Latin America. But mostly, it's a direct model, where we sell the software.

Fantastic. Next question came in. I know, we talked a little bit about your land-and-expand model, but maybe you could dive in a little bit deeper about -- if you can discuss how the customer typically expands within nCino? Does the adoption grow by department or by product line?

We typically, enter with 1 product line in a big bank. In the smaller banks, we sell the platform, and then you can transform the bank as a whole. But in your big banks, you typically start with, let's say, commercial or small business or even a business line within commercial. Then when you land that contract, within the contract, specifically by date, if you are on outside the revenue model, it will have specific activation schedules for seats because they know the project will take 24 months, so we have to roll them out as we continue on, okay? As you start showing success in that bank, we'll walk the hallways and start promote the nCino platform to other departments. And what we see is, normally, after about 12 to 18 months, there's enough evidence and confidence, where we start expanding to more departments. And as a result, the last time our net retention rate was 155% and including PPP, net of PPP was 144%, which I think in our industry-best, around 2% to 3%. I think that shows you the power of how people get used to the platform and then want more of it.

That's fantastic. I don't see any additional questions that have come in. So I can turn it back to Karen now. Maybe, we can end a little early.

Great. Well, thank you very much, Pierre, David, appreciate your time. Good luck with the rest of the conference. There's certainly, a lot of the interest in nCino. And that brings us to the end of our session. So thanks to everyone for joining, and enjoy the rest of the conference.

Thank you, Kevin. Come visit us.