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

All right. Well, good morning, everyone. I think we can get started. Thanks for joining us today. My name is Ben Varga, and I'm a senior associate on the U.S. Payments and Fintech team at Autonomous Research, filling in for Kenneth Suchoski, who is currently out on paternity leave looking after his first born child. This morning, we are excited to have nCino at our 39th Annual Strategic Decisions Conference, and we are thrilled to welcome Pierre Naude for a second year in a row. Pierre is the CEO and Chairman of nCino. He has more than 35 years of financial technology experience and played a key role in the founding of nCino. So Pierre, welcome. Thanks for joining us.

Good morning. Thanks for having me.

And I would like to thank you all for attending. Just a few housekeeping items before we get started. We are going to do a fireside chat today. So I will start off with some questions, but attendees are able to submit and vote on questions through pigeonhole, either by scanning the QR code shown on the screen and in the conference agenda book or by visiting pigeonhole [ at 80 ] with passcode SDC 2023. We'll try to weave these questions in as we go through our discussion. So with that, let's get started.

So to start off, nCino has been public since the summer of 2020, and it's been great to follow your journey since then. To level set the conversation, help those in the room who might be less familiar with your story. I thought it would be great if we could get a quick high-level overview of the company.

All right. Yes. Thanks for being here. So if you look at the bank's operations, lots of money and investment in the past has gone into transactional systems, payments, et cetera, but nobody is ever there to tackle the inefficiencies in loan origination to the extent where you could automate everything from the application through the underwriting, through the booking and then the whole portfolio management around that, understanding exactly because remember these banks every quarter have to look nat every loan, understand their collateral, understand the covenant and manage that book of business as well as the credit risk and then all about account openings. So if you look at nCino, we're truly that fulfillment engine that adds new accounts, we can open up loans from the most complex syndicated loan all the way down to the most simplistic unsecured individual loan as well as opening accounts like checking account savings deposits, et cetera. So that layer is very complex, paper-intensive and full of compliance, rules and risks. So that's where we started focusing specifically commercial and came down the small business, then the consumer and then the account opening side, including treasury management. I call that the fat middle layer of the banking industry. It's difficult to tackle. It's complex, but there's a lot of automation opportunity there.

Fantastic. And we've had a lot of discussions with clients since the regional bank fall out in March about the potential ramifications as it kind of relates to IT budgets. On your recent earnings calls, you've already mentioned that a few larger financial institutions have started to delay their decision-making a bit in light of the more uncertain macro environment, which has been a drag on RPO growth. Based on what you've heard at your annual client conference in May, how do you expect the recent turbulence in the banking sector to impact some of these more transformative projects?

Yes, I think it's very important to understand the difference between a liquidity crisis and a credit crisis. A credit crisis is something that moves slowly. It's like a hurricane coming to North Carolina. We know it's coming. We can prepare, we can shutter all the windows, okay. And you can get ready for it. And yes, it's painful, but you get through to the other side. A liquidity crisis is like a massive heart attack. And I could tell you the moment it happened earlier this year, every banker got scared and start stopping and looking at their liquidity, the balance sheet, how do they ascribe specific asset types to what line of the balance sheet. And so that truly was a distraction, specifically around banks with an uninsured deposit base, which is above [ $250,000 ], per account that was large. And if you look at the 3 that are bringing to trouble, they all have massive concentration in either businesses or the start-up environment in the case of Silicon Valley Bank or a bunch of wealthy people. And then you have to literally do the litmus test, step back and say to yourself, if I have had $1,000 in the bank, would I move my account because the rates moved to one point. No, most people will tell you that, I am not going to do that. Well, if I have $500,000 the bank, it not becoming material, okay? And people with that kind of money of treasures, and people who move money around. That's what happened. Silicon Valley Bank failed in 10 hours. It's a customer. I know the CEO, I know exactly what happened there. So here's what happened. That massive distraction just paused a lot of actions in the market. That's gone now. It's over. You don't see the short [ sellers ] in that market anymore, and you don't see banks worried about it as much anymore. So that massive crisis has moved past us. What we're seeing now is people realize they have to keep on innovating. So it literally just shifted the buying patterns by a quarter or 2 to catch your breath. And it's in a very specific segment, the $100 billion to just below the top 4 banks in the U.S., okay? So what we're seeing is that things moving to the pipeline again. I will also just compare this to when we saw COVID, there the community banking market was very much affected because they were distracted, they had to service a client [indiscernible] over here versus looking at the broad business. And the big banks would just operate because they have the resources. What we're seeing is a slowdown in that enterprise segment, slower decision-making, but we've not seen any deals leave the pipeline. So nobody said we're not going to do this. We just have to catch our breath. So our view is that the book of business just shifted to the right slightly and it's coming back. And we see that in the movement. I'm seeing it already in second quarter, the kind of transactions we're doing. So I feel good about the industry overall. The banking business is healthy. You can read it in American Banker. You can see from the European side, et cetera. I think these outliers are done.

Makes sense. And so it really does sound like that your pipeline remains healthy even in this kind of more uncertain macro backdrop for banks. But for maybe those buyers who are still a little bit cautious, what are some of the key points that you look to drive home in your discussions to help them get over the finish line just considering all the uncertainty around.

You have to be nimble on the front line in the field. What would have been a $5 million project and it's a big deal that goes to the Board, slice it back to a $1 million, give you immediate benefits and go back and land and expand. So we've repackaged some solutions, we've repackaged the pitches. So people can go in and say, look, what is your immediate [indiscernible] get here. And let's just start there and be a bit more tactical. We all know strategically, we have to transform the whole bank. But if you go in with a smaller bite, you get to lowered approval levels in the bank, it could be done within existing budgets and just move forward like that. And from an investor standpoint, what you'll see is -- that looks like a lesser bookings quarter, and it looks like all the [indiscernible] are moving as much. Yes, but I'm still in there. and I'm going to get the big booking 3, 4, 6 months, 12 months from now. So to me, strategically, the direction is the same. It just comes to us in a different way.

Got it. And yes, it does sound like that you and the team saying that bank spending can reaccelerate as we enter the second half of the fiscal year. And can you just put a finer point on that in terms of what really gives you the confidence that we'll see that acceleration?

So very interesting. In the middle of this liquidity crisis, we had our annual conference, and we moved it to Charlotte in anticipation last year of more people. We have people from 15 countries attending. We had over 1,700 people there, the largest ever. And everyone you spoke to are looking for expansion with nCino looking at nIQ, which is our AI, machine learning and data analytics platform that we plug into the platform. They're looking at expanding from commercial into small business and retail. They're looking at account opening. So the truly the platform vision we laid out 10 years ago is coming to fruition. So I could see in the level of conversations in the pipeline stages moving forward how this whole thing is unfolding. The other element I'm very proud of is, as you may know, is we bought a company called Simple Nexus. And lucky me, we bought it right before the rates are going up to the mortgage business things. But that business is growing year-over-year as well as quarter-over-quarter. And if you look at the competitors in that space, you can see what trends happen. So what I will tell you is business models matter. Reputation in banking matters, the stability in the way we turn to profitability. So all those elements are still moving forward in the right direction and is actually accelerating again.

That's good to hear. And maybe going back to the buying activity by different bank -- or different asset size. Why have the smaller banks been so resilient when it comes to spending?

They were disrupted through COVID. I think right now, they feel slightly behind because they couldn't act as fast, #1. #2 is their average account balance was a much lower, that sits around $1,300 per account. And so that money didn't move. So they didn't see the same liquidity issues that when you go above $10 billion. And there's about 4,000 of them, okay? So that whole sector didn't get affected by the liquidity crisis as much as the bigger banks.

That makes sense. And maybe as a follow-up, could you remind us how much of nCino's revenue comes from the larger institutions versus the smaller ones? Like what's the right way to think about that?

It's about 50-50. Our current full book of business runs around 55% larger banks and 45% smaller institutions. And here's a thing. Your big banks is lumpy. You might get a deal in second quarter when you get 2, 3 big ones in fourth quarter. And that's very unnerving for people tracking the company. So we love this mid- to down sector because that just feeds the machine every day. There's a deal coming in. Everybody can celebrate. We win these deals, they go live, they're much more open to you about what's happening inside the bank. So I believe the fact that we build a platform that scales from the smallest bank to the very largest bank, the likes of Bank of America, Wells Fargo, is critical for these companies to grow. I look at the history of pure enterprise companies in the banking business, and they never get big. Those get acquired, they get pulled into some other big company. And I think that's key to how we got here.

Makes sense. And as a friendly reminder, if you would like to ask Pierre a question, you may do so by using pigeonhole. But maybe in terms of the independent mortgage banks, you called out a 2 percentage point headwind to subscription revenues from churn in fiscal second quarter. But it sounds like the company expects trends to kind of stabilize in the back half of this year among this cohort. Could you put a finer point on that expectation? I mean, what are some of the signals that you are watching in that end market?

So last quarter was the lowest mortgage volume quarter so far to date. And I think we've hit the bottom there. We're getting into a buying season, from a housing perspective when you get into the spring as well as the summer. So we'll expect that to remain flat or slightly go up. You have to understand the IMB market is much more of an entrepreneurial gunslinger mindset. They go out there, they make money per fee per volume of mortgage. That business has washed itself out last year. The one said -- one of the fold up 10, they're gone, there was a lot of acquisitions, a lot of M&A happening there. And so that's over now. So we track this by talking to our clients and see what's happening, who is stable, who is bigger and who can make it actually, and who adjusted their cost structures. So I feel good. There may be a surprise here and there, but I think, overall, that business has stabilized. Then you have to -- that's where SimpleNexus used to play. We moved a lot of that business over to the banking credit union space, and we're beginning to see that volume increase because even the smallest bank, they have to do a mortgage. It may not be high volume, but they have to do mortgages. And we come with a single platform vision as well as the expansion of that platform, not only to be a mortgage front end but to be a front end for unsecured lending, account opening as well as secured non-real estate. So the SimpleNexus platform is becoming the standard front-end to the nCino platform. And that gives us 2 benefits: a standardized front end that the end consumer will see in brandable by the bank. But the second one is it's forcing us to write the APIs to the current platform. Because as you go upmarket, the big banks run the APIs to control the front end themselves. And this is forcing us to do that in the quality and this expeditious way so that we are relevant upstairs and down sales in the market.

Got it. And one question that we've gotten from clients over the past couple of days is -- just in terms of that churn that you're seeing, is that entirely on the mortgage side or SimpleNexus? Or is it some of it maybe -- might be [indiscernible] as well?

I assure I will never talk about PPP again, but it's going to my final say about that, okay? So PPP was the loan programs by the government throughout COVID. We saw some final churn in PPP and M&A related in first quarter. That was predicted and built into the plans. The little surprise was in the mortgage market. We had one big one that went under during that time. It accelerated trend. That's why it affected the year. We expected that, but at a later date. They just [ showed ] up earlier than when we expected. So that churn, as far as we know, we've taken a fairly aggressive stance in our views for the year. So I feel good that we built the risks in that we could foresee.

Got it. And yes, it does sound like a lot of it was just timing issues in terms of...

Yes.

Yes, that makes sense. So maybe just given that backdrop as it relates to SimpleNexus, I mean, is there a risk that some of these customers continue to pull back on some of their tech spending? Or are you fairly confident that you'll see spending trends stabilize here?

From everything we're seeing is the bank market is very stable even with mortgage because banks look at these things different. The IMB market is a bit more risky, but we built that into the models. So I feel good about that. Could there be something out of left field? We don't know, obviously, just like the liquidity crisis or the rising of rates last year, that's difficult to predict. But overall, we have a strategic play for most of these players. And so I feel good about our position there as well as we work their financials.

Yes, absolutely. And I think subscription revenue growth guidance calls for 16% in F 2Q and for the remainder of the year as well. So how should we think about SimpleNexus's performance within that?

It is basically in line with core. So there's 2 points I want to make there. The first one is it's growing year-over-year as well it's going in line with core. It's growing quarter-over-quarter as well. In probably the worst mortgage market you could ever have expected. The second thing is we expect the nCino core bookings to exceed last year's bookings. The third point on quarter-over-quarter is the churn impacted that quarter-over-quarter subscription growth. We see that stable to a slight up for the rest of the year.

That's great to hear. And one question that we received more recently, and I think this really just stems from some of the banking turmoil and the slowdown in spending is whether nCino is a nice-to-have solution or is it kind of a need to have solution for banks? And we totally agree with you, Pierre, that banks will ultimately have to improve their efficiency ratios if NIMs get squeezed. But can the banks hold off on adopting nCino and some of these other solutions over the next, call it, 1 to 2 years until the dust settles?

I made many speeches in front of groups of bank CEOs, et cetera, and I always get up and joke, that the half of you are my customers, so you can tell the rest what's going on. And the rest of you are not there yet, and I wonder what you're thinking, because here's the facts, a bank using nCino will close the commercial on 54% faster than their competitors. And the end customer are only worried about 2 things. Am I approved and when can I get the money? If you think about developer looking for a little. The second thing is that the efficiency ratio of banks using nCino was about 6 percentage points lower than a non-nCino bank. So all these bankers telling you that they are tech companies, they are innovators. It's the biggest non-sense. The way you write good software is through iteration. You commit with a product, it's kind of okay in the first iteration, you get 10 customers live. They give you feedback, you go better and get better. We've got over 400 customers using that core platform. Can you imagine the number of iterations we've had with that software versus the bank over here throwing bodies, which, by the way, is your second tier bodies because the top guns all want to work for software companies, okay? And then they try to write the same software. That's why we see it many times when we demo to these banks that they will ask for the first demo because they try to build it themselves. And when the techie starts asking, can I again see how you did that? That's when we shut the doors down and say, "look, try this and come back. I've lost deals at very large banks in 2016 and 2018. And I just wait for that guy to retire, then we got them in 2021. I mean the industry has to move to packaged cloud-based software that's highly intuitive and that you can configure. And that's what we're seeing is the trend.

Got it. Makes sense. And maybe this is a good time to weave in a question from the audience, and it relates to competition. So how do you compare with Finxact? Is it head-to-head competition? How do you differentiate?

Finxact, the company? So Finxact is a back-end core. Think of Finxact as an accounting engine. So literally, there's debits and credits. And the -- my argument has always been because I get asked, would we ever get into the core banking business. #1, it's a very slow market. But #2, what is the ROI? If you balance today, you put a new core and you balance tomorrow. I mean there's no ROI in that. So I do know there's some technologies that's getting so old you can't maintain, it that forces the banks to go that direction. But overall, as a business, I struggle how that business makes sense. And that's why you've got 3 massive companies you specializes in, the payment channels as well as the core back-end systems, okay? I prefer the value-added model at you layer on top. And the way I describe it is nCino will do all your processes and your layers on top of your transaction engines. And the next layer is we -- all about intelligence. We've got all the data inside our systems, understanding your customers as well as your bank operations. And with machine learning, AI and analytics, we can drive that insights down to the point of production. So realize as you see there's all excitement around ChatGPT and AI. People are thinking, how do I apply it to banking? Well, everyone inside the bank sits on nCino every day. So when I can drive those insights down to the point of production, that's what drive the efficiency. Not being just delivering it on the 36th floor and the boss knows what's going on, but nobody else knows how to react to it. So Finxact is transaction engine, we are a business process transformation company, which plays a very different role.

Totally, that makes sense. And maybe going back to this idea of a secular tailwind driven by bank digitization. So as the industry emerges from this sort of clouded outlook, how should we think about the normalized RPO growth moving forward?

RPO is an interesting measurement, okay, that we are required to give. But let me just tell you why we don't measure RPO from a -- an operational perspective inside the company. If I go to my biggest customers this quarter and renew most of that, although they may be only 2 years into a 5-year contract, RPO will jump tremendously. And the investment community will think, wow, this company is doing awesome. In the meantime, I discounted my future, and I just renewed existing contracts, okay? So it could be a very misleading measure. We're trying to be as transparent as possible with it. So now your -- the next question should be, well, then just give us bookings because that gives me a much better outlook for the future. The problem with that is that the buyers are so sophisticated. They didn't know we'll just wait for the end of the quarter. And then they put you over a barrel and say, if you give me a 10% discount, I'll sign this quarter. Otherwise, I'll wait because it becomes a negotiating mechanism. So we've decided on day one, we're just not going to do that. And so we'll just sit there and tell the buyer, you've got nowhere else to go. You can sign in February as opposed to January. And I maintain my unit pricing integrity. And that's how we've grown the company. So what I would say to you is RPO is an indicator, but then listen to our commentary and look at the history of our guidance. We've been very transparent. We've given you clear insights into the economics of the business by segment. And if you could look at the public records as well as our long-term shareholders, they will tell you that's just the cadence of the management team, okay? So I'm careful to bring RPO in as an operational metric and run the business like that because they can game the system.

Got it. And I think investors very much appreciate that transparency. So thank you. But maybe let's shift to another one of the key growth drivers for nCino, which is International expansion. It continues to grow very nicely, up 43% FX neutral in the most recent quarter. So how are you feeling about the sustainability of strong double-digit growth outside of the U.S. over the next 5 years? And do you feel like you've made enough investment in these markets? Or should we expect more?

So we've got a 2-tier strategy in International. As you can imagine, we can't put offices in every country. It will be a waste of money and time. So we picked the core markets. We've got a big office in London that covers Europe and South Africa. We've got a nice size office in Melbourne and Sydney in Australia. And we opened up in Japan. And then the rest of the world -- and we've got Canada going nicely. The rest of the world, we cover in conjunction with our global SI partners on an account basis because when you go into Thailand, for instance, there are 6 fantastic massive banks that need transformations we want to pursue. But I'm not going to open an office there. We fly people in from Sydney as well as from Singapore, et cetera, okay? So we've got that account-based strategy for the top 400 banks on a global basis. And then you've got in-country banks where the banking market makes sense. So I think we've got the basic infrastructure in place. And as we drive towards profitability, you can see us getting leverage over the infrastructure, which I think is pretty awesome. What's exciting about that market is we are opening up accounts in South Africa where we've got a nice number of banks in New Zealand. We've got 3 of the top 5. And as you know, they're all owned by Australian banks. So what they do that as they make you go down there, make it work in New Zealand and then bring it across to Australia. So I feel good about that. In Canada, we've got 5 of the top 7. So we're into all of these banks and the future is all about land and expand. The one that's lagging, that's now waking up is Europe. And Europe, just walk by a different drumbeat. I was just speaking to one of my largest customers in France, and I said to him, in the U.S., the shareholders, #1. The customer is a slight second, but we're all customer-focused here. I can go down the -- and then the regulator may be #5. We know we have to take care of them and follow the rules of the road. But in Europe, the regulator is #1, #2 and #3. And they said, you're absolutely right. It's just a different mindset. The shareholder is kind of #7, okay? It's just a different place with a different mindset. And so how you drive changes there is actually by looking at compliance issues they've got and fines they're getting that [ worses ] optimization because they struggle laying people off in that labor market. So here's what we're seeing. ESG is a massive driver there. So we've developed with some of the largest banks in France, a great ESG model. Where they can price loans, evaluate their loan portfolio performances on an ESG basis and actually run the bank with that angle. And eventually, we'll bring that over to the U.S. as well as it becomes more prominent here. But it's not nearly on top of mind as it is there. You just have to find your different entry points there. The second thing we're finding is that nIQ is playing well in Europe. And we find that as an entry point because they realize the dispersed data doesn't work for them. But it's a different place. And it's not one place. You have 2 in Germany on its own. You have 2 in the Netherlands on its own. The U.K., Ireland, they're all these independent and new markets.

And as you just mentioned, every single one of these markets is a little bit different. But who do you typically compete with in these international markets? And as a new entrant to those markets, how do you differentiate yourself in these client negotiations?

Firstly, I'll say, competitor wise, a lot of [indiscernible] mentality is still on Pega so they struggle with what to do. Our typical reasoning is because they would say, oh, if I look at nCino, in the next 3 to 5 years, I can bolt that. And I would say, yes, we spent over $100 million a year on product. And so you're going to be 3 to 5 years where I am today. So what are you gaining? There's no competitive advantage to that. So rather focus your resources on building differentiating elements and take the baseline from nCino. And most people get that, okay? The techies tend to leave towards molding, but the business elements are coming around to understand that. That's our main competitors, [indiscernible] on a platform like Pega or Force.com. But I would say, with our big banks in the U.S. adopting solutions like nCino, that's moving away. They're just 5 years behind the cloud adoption.

Got it. And maybe shifting to the P&L a little bit. So over the past few quarters, the focus has really shifted from top line growth to a more balanced approach as the company looks to achieve the rule of 30. So there's still plenty of growth runway for the company. So how should investors think about the right balance between growth and profitability within this framework? And what are some of the areas where you can pull back without shrinking the growth of the company?

It's very much like a mindset, okay? When you go on a cruise over the holidays, it's all about pleasure. When you come back, it's all about getting back to shape, okay? We've been on a 10-year binge of grow as fast as you can, unlimited availability of capital. I mean that's what your investors tell you when you're private. You go as fast as you can get it amounts of market share. All of a sudden, the markets change and say to you become profitable. And this is we just came off the cruise line. And we're back on land. We're working out every morning. We look at every process. We're looking at everything we have to do. And you'll be amazed if you have a great culture in your company and you've got credibility with your people, they will come up with 1,000 more ideas than what management would come up with, okay? I'll give you some just -- insight into some of the stuff. We're cutting down on the implementation time achieving them by building little tools, pre-configure some solutions, et cetera, by a massive percentage, which makes us more efficient in the field, okay? The second thing is we're going from 2 releases per year to monthly releases of the software and automated upgrades. So it's a push button and 400 customers are upgraded, okay. These things saves massive amounts of time and money, okay? We're empowering first-line managers to be nimble in the field, how they negotiate and do deals, obviously, within our revenue framework as we do it here. So to us, this change from pure growth to profitable growth has been relatively painless. We had the one event in January with a layoff, which is always painful. But quite frankly, after COVID and the [indiscernible] and the work from home, that was needed. We just washed all of that out. And by the way, you should know we're all back in the office 5 days a week, and we're focused on changing banking. And we like to hire kids. That's got a little chip on the shoulder because they couldn't get into Harvard. They come to us because we're going to beat the competition. And that sense of adventure and competition, it was driving the culture. And those people like to be in the office because they learn from the older guys what mistakes we've made and what works and what doesn't work. So it's a very natural transformation for us. What you could expect is this year is a [ low 30 ] . And these measurements are there for a reason. So next year, we'll just tweak it up a little bit and every year improve until we get to a [ low 40 ], and they will see what comes next. Although I want to emphasize, we like to be a growth innovation company, but with the right balance of profitability to growth.

Yes. And I think investors have been more and more focused on that specifically this year. But maybe this seems like a good spot to ask about the topic of the hour, which is artificial intelligence. So what role does AI play in your organization today? And how do you see it impacting your business, whether that's from a top line or a cost efficiency perspective?

Yes. I love the hype cycles, okay. It's pretty awesome. It's exciting, and it gets us on the front pages. The facts are right now is that 4 years ago, we launched a brand called nIQ, nCino IQ which is all about AI machine learning and analytics, all right? We've got a thing called automated spreading, which scans in financial statements and digitize it and put it inside your spreading modules, which is our bank analyzed financials. We've been doing this for a long time. So we understand how to play within the bank environment with secure data, making sure the tools can pass the regulatory muster, et cetera. So that's one thing that's mature, and we're dealing with, et cetera. So there's a 2-tier track. We're continuing doing that, and there's more use cases coming up. For instance, you have to write a thing called the credit memo, which is understanding the business through a credit committee to approve credit. Those are things where large language models could play a role in the bank, okay? On the other side, there's lots of documentation that banks collect from compliance documentation to write-ups about customers and sectors and so on. That is noncustomer data that is out in the open domain. We think there's a massive opportunity collecting all those relevant data sources and putting it into one executive summary where people can understand it. So we are looking at that as a further offering along with it because we're the trusted partner. But one thing you have to realize about banks, you could never make a decision without being traceable, so it can be no black boxes, okay, because by compliance and redlining. And your risk committees will shut these technologies down if you can prove that. We started before anybody was willing to go to the cloud because they worried about security. We're going to take that same approach with AI, bring it into the solutions. We'll do it in a very measured way where banks buy from a trusted vendor who knows what they're doing. They can actually get them through these compliance elements. So it's exciting. We're going to do a lot of it. It's part of nIQ. But the hype factor is interesting. And that will bring me to M&A, so I could just go there. Look, with these things, led 5 other guys go fail. We always look at, do we build it, do we partner and do we buy it. We don't mind buying companies, but we're very careful with the ones we buy. So we'll always look at building first. If the effort is too big or too long, we will look at partnering. We just announced a partnership with Zest AI, which is an awesome company out of California doing it for the consumer base. And then one day down the line, we'll see what players pan out in that space and we will buy one.

And as we said, nIQ has leveraged AI well over the past few years, even before the ChatGPT headlines took over. And can you just touch on how the use of AI differentiates nIQ today because of all of those years of work that you've put in there relative to the competing offerings. And does that widen the mode of the business?

So the first thing is you have to look at accuracy of these models and how it pertains to the actual core banking business. I would say today, we are competing with the largest players in the space around credit quality, around understanding the propensity of failure of businesses into the future. For instance, how do you model if you fund the transportation company, their sensitivity to future increases in fuel prices, for instance, diesel doubles and what happens then, okay? So we've got credit analyzing models on portfolio and analytics as well as assuming the financial statements of companies that is already playing on that and provide them insights into their future risk models of the business. This is nearly deep down back office stuff in banks, that's not flashy, but those are the most conservative people inside the bank, and we've been gaining market share. So I feel very good about the internal knowledge of the company on that as well as the ability to prove that we can deploy these tools in the marketplace.

Yes. And nIQ resonates really well with your customer base as well. I think you recently highlighted that about 30% of the bank operating system customers are now using at least one nIQ's [ operation ].

It's about 5% of the company total revenue.

Got it. So where do you see that penetration rate going in the next, call it, 3 to 5 years? And what type of uplift might you see to your revenue per customer and overall revenue?

It should be about a 20% uplift conservatively today on the current base. And if you realize the base is mostly commercial today, okay? Once you get to consumer, I think it's going to be a much larger percentage. We always take a conservative view of the SAM on top of what we currently have with pricing power I'm beginning to see that 20% creeping up. As soon as we do a remodeling of SAM, we will actually increase that demand. But as we add products as well as we see additional pricing power on that front.

Wow. And so how should we think about the product road map from nIQ over the coming years as you look to reach that penetration?

So the first thing you do is you launch a product, you mature it and then you get penetration, okay? I would say the 3 current products, if you look at portfolio analytics play, mostly in credit in small bank space, we're busy maturing that to move up market, okay? The second one is order spreading. That is a global solution that goes across all banks, it goes very well. We have to add a bit more credit modeling in there as well as risk rating and futuristic. But that's on a nice pace. And then finally, pricing and profitability. There, you look at asset bands, we get up to about $100 billion in assets right now using it and very good feedback on that. The next phase of that is to bring your own models and open up that thing with APIs. All of this stuff is happening in real time. So those are the 3 main products today. Outside of that, we're addressing the whole AI hype cycle right now to see if we can do products outside of the current credit cycle. So there's a lot of focus on the whole nIQ element because not only does it drive incremental revenue, it drives differentiation on the platform as we compete for deals.

Absolutely. And I think this kind of feeds into the next question is your land and expand strategy where nCino kind of gets into a bank and then expands within a certain business line or across different business lines or across geographies. So how long does it take for -- or for a bank to reach full seed deployment? And what are some of the major goal posts throughout the process?

So I realize we could go in -- some big banks come in and say, I'll do the full commercial thing. And that's typically an 8-figure deal, depending on the size of the bank, could be 7, 8 figures. That will be a 2- to 4-year project. And we contract them with turn on schedules going through out. Other banks will say, No, I would take one line of business, let's take business banking, which is mostly small business. And let's get it live and begin to understand this because that's where the volume certain automation really makes a difference, and we're going to do the big ones. Another bank starts with consumer. So they start all over the place. Only your smallest banks can consume the full platform in one big suite because it's small enough and it's the way they work, and I can do consumer account opening, small business and commercial at one time. So you have to look at this by market segment over a multiyear period. And then by the way, if it's a big bank, you get commercial and small business, but consumers is not there, okay? But the way you convince them is you are a small business customer at the low end wants a consumer experience with a commercial type loan. So I will do an unsecured loan for a small business owner who's going to get cash 3 months from now to buy a new yukon, it's 70,000 with a click of a button. And then you go to a consumer bank, and it takes you 4 days to open an account. When I go to them, you've got the tech, just push it down there, and that play is beginning to work, okay? Because the banks says, oh we'll never do consumer with nCino. We've got the stuff. What they missed is they spend all their money on the mobile front end and to get that interface and payments in place, but they never transformed their middle back office and there's massive inefficiencies and consumers sitting there. So I feel pretty good about consumer over the next 5 years as well.

Maybe this is a good time to weave in a question from the audience, and it relates to a different part of the SAM equation, which is just a number of financial institutions that you could potentially serve. And so it sounds like financial institution M&A could be heating up following the regional bank fall out. So could you just please remind us how nCino is impacted by industry consolidation?

There's a few big players that when they buy and they claim to be shelf builders that we get negatively impacted. But that's clearly the outlier. Most of the times, nCino is on the winning side. We've got a whole playbook of how to address it, even bigger bank buys a smaller nCino bank. I can show you a number of examples where big banks bought smaller banks with nCino because they actually wanted tech, and assume that operating model. You must remember, many of these banks became big by buying a bunch of small banks up. And so they operate like a community bank, but they've got a big asset base. I mean there's $140 billion bank now, that about 3 years ago was about $30 billion. And they think and operate like a community bank. And so you have to transform them into getting the right people and the right systems and the right processes in place. So we typically are on the winning side in these M&A cycles, #1. #2, you have to understand we know that if we truly are successful in consumer and small business, the number of seats will get less. And I can assure you there's not a single company that's renewed with nCino and got the efficiencies and then said, well, wait a minute, I need 20% less seats or I'm going to pay you less. They always paid us more because I share them the value. And you've got pricing power at that negotiation table, so you get your unit price up, okay? And nIQ, we introduced asset-based pricing. And so over time, we're going to move more and more to an asset-based pricing, so you get paid on actually the growth and the efficiency of the business as opposed purely on seats. But that is a mixed business model. We've made this public before around nIQ. But we will not be caught off guard because I help you to automate and I didn't cut my seats. So no, I feel pretty good about the M&A market. I realize the total assets of banks are growing continuously. There may be less logos in the market but the number of people banking and the asset sizes keep on growing. So I think we'll be very relevant.

Good. And on that note, one common characteristic that investors really like about bank tech providers like nCino is just the overall stickiness of the product, as you alluded to. So what are some of the areas or additional capabilities you could tack on in the future to become even more entrenched with your clients?

There's some interesting -- well, I think the only intelligent thing is going to be massive because if you're not an nCino user, and you deploy any analytics or AI or machine learning, how do you deliver it down to the front line or to the middle back office people who's actually doing the work. You open up another screen. So you've got somebody now with 15 different systems to get one level done, okay? Because that's the number of systems we replace typically when we put nCino in. But there's other fronts, it's amazingly interesting. I'll give you a good example. We just announced a mortgage deal in the U.K. In the U.S., we nare used to commercials where they make their money and that's what banks focus on. And nobody wants to touch a mortgage loan because it's a government-controlled flat rate product. In the rest of the world, mortgage is actually the prime portfolio of most of these banks because nobody wants to lose their house so they keep on paying. And it's a great loan, it's fairly big in size, and it's got a great piece of collateral, which is your house, okay? So we just won with a major mortgage or property lender, as I say in the U.K. that deal. So we're building mortgage out for Canada as well as the U.K. We've got a live in Australia in places, which I think will actually exceed the commercial business eventually. It's a very cumbersome business. There's low tech in there, a lot of manual stuff. So I feel very good about that. That's just an interesting another entry point and that could become a massive portfolio element plus it's all retail. If you look at the distribution of revenue of the company as we go through this year, you'll see how the old Monica -- well nCino is basically commercial and now that's spreading out now to be much more of a banking platform and diversified across the banks.

And Pierre, while we are on this topic of potentially adding additional solutions, could you touch on the cross-sell motion between SimpleNexus, nCino and what were the best so far? And what's really the growth runway from cross-selling opportunities in your view?

When you buy a company, the first rule always is don't break anything, okay? And so what happened to us is we bought it and said, just stay separate, you nice and nimble and just keep on doing it, and then the rates go up so fast and that the whole market exploded it. And then we started integrating them rapidly. So literally, we flipped that switch last year and just integrate them in the rapid phase. And that was the best thing because they focus more on the IMB market plus smaller institutions. So to them, a big deal was maybe $200,000, $300,000 per year. And when we folded them in and got the synergies and they work under our management, we immediately could take them up and say, "No, no, no, and they can a sell $1 million bill, and we don't even get excited. And that mentality -- and by the way, don't take me wrong, we love [indiscernible] of deals, okay? But the fact is you have to get the people ready, start thinking, can I stretch a deal up market okay? And what happened as a consequences, we're much more relevant in banking now. The deals are getting much bigger, and we expanded the offering to be the standard front end and rebrand that as nCino mortgage going forward, okay? And all of those things played into continuous growth, okay? And it's being seen as the leader down the market. Most of the mortgages in the company go through nCino on the front end or SimpleNexus. And so I feel good about that momentum. And right now, we're in it for a market share grab. And you can look at some of the other players, some of them are public. I think we're in a very good position to grab market share, and we can see it in the pipeline.

And more broadly, outside of the cross-selling opportunities, what do you see as the biggest growth area for SimpleNexus. And as you think about the next 5 years, let's say, how big could this business ultimately become inside of nCino?

Today, it's just over 15%. But realize, as we integrated and the development teams, the sales teams are integrated and we expand the product line to be retail lending, small business lending, et cetera, it's going to become a stand-alone point-of-sale front end that's available across all sectors of the company. So it's going to be a massive part of it. I can't -- and we will stop breaking it out because it's not the business on its own it anymore. But that gives us the flexibility to go to a bank and say, look, your middle back office is in bad shape. But let's slap on a digital front end for now, that's your bandaid. And then we'll start treating the patient on the back end and get this middle back office cleaned up and transition to nCino as a whole. So it gives us another entry point. It's very exciting. I think it will be a massive integral part of the company as a whole, going forward.

Absolutely. And I think we have a little bit over a minute here. So maybe one last high-level question. What do you think is the most misunderstood part of the nCino story by investors?

I think it is -- firstly, that it's mostly a commercial company, and that we have got penetration, is there room left. There's massive expansion opportunity. We've got less than 5% market share, okay? That's #1. Then [indiscernible] comes through the logo comp we've got with the penetration depth in these banks. There's massive land grab left inside these banks. We are a trusted vendor in banking reputation is everything, okay? Three is, we've got a global footprint. How many American fintech companies have you seen that's successfully gone overseas and penetrate the biggest banks and be successful over there, okay? #4, the foundation of the company sits in the gross margin and the operational efficiency. One of my investors told me last year October, or November, it was actually in the open period that what we predict in profitability has never been done in software. Well, here we are. We saw the free cash flow over $30 million in the first quarter, okay? I think you've got a seasoned team that knows how to operate these businesses and get the leverage out of it. We are the only company that created a platform that goes across banking. If we run it the right way and execute effectively, I think this is the exciting story. If you don't like us, you must like Pfizer, Jack Henry and FIS. So game on.

And we are looking forward to following your story. But I think we'll have to leave it there. Pierre, thank you so much for joining us. It's been an absolute pleasure talking to you. And thank you to the investors and everyone attending this session. Hope you have a great day, and enjoy the rest of your day.

Thanks for having me.