nCino, Inc. ($NCNO)

My name is Cris Kennedy. I'm a research analyst at William Blair who covers the fintech and payment space. For a complete list of research disclosures and/or potential conflicts of interest, please visit our website at williamblair.com. Next up, we have nCino. From the company, we have the CFO, Greg Orenstein. And in the audience, Harrison Masters from IR. The company was founded in 2011, they provide software that helps their clients become more efficient and ultimately grow. The company has evolved over the years. But they -- and now they're clearly focused on AI, banking and providing that solution. I think the important thing to know is this is a highly complex, highly regulated market that's not easy to disrupt and I'm sure Greg is going to talk about that. So let me pass it over to Greg.

Great. Thank you. Thank you all for joining us here today. It's a pleasure to be here talking about nCino and what we do. As you know, the platform for agentic banking. Of course, we have to go through the forward-looking statements disclaimer. So please note the attached. So our lawyers are happy, so thank you for noticing that. Expanding upon what Cris mentioned, we were founded to help financial institutions across the globe, digitize, automate and streamline their business processes, really boosting efficiencies. Efficiency is a key word you'll hear today and as you learn more about the company and creating better banking experiences for our customers' customers. For nCino's customers, we serve as the system of record for the operational processes and resulting decisions that drive revenue growth and importantly, mitigate risk. Today, we serve some of the largest institutions across the globe as well as community banks, regional banks here in the U.S. and credit unions and independent mortgage banks. And we help them more efficiently and effectively do 4 things: onboard customers, make any type of loan, open any type of account and ultimately monitor portfolios. And we do that through a single, unified technology platform that is powered by artificial intelligence. Our depth and breadth of customer relationships the unique data set that we have, our history of technology innovation that has been built on over a decade and half of deep domain expertise inside the highly regulated world of banking. It really uniquely positions us to lead the AI-based transformation happening in the financial services industry. You'll note financial results for fiscal year 2026 on the slide, which for us ended on January 31. So this is just a snapshot of last year, where we made a meaningful progress on increasing profitability while reaccelerating top line revenue growth. Last year was also the best sales year in the history of the company. And the fourth quarter specifically was the best sales quarter that we've had in the history of the company. So we exited last year and entered this year with a lot of momentum around the globe. The nCino platform brings together AI and data in one place, eliminating the chaos of disconnected systems, and giving financial institutions a unified foundation again to onboard clients faster, originate loans smarter and more deeply understand their customers and their business. With intelligence embedded across every solution, our customers can see what's coming, act quickly on what matters and build relationships that last with their customers. One of the things that makes nCino's platform different isn't just a specific single feature, it's how everything works seamlessly together. AI operates invisibly in the background delivering results in seconds while maintaining institutional knowledge and compliance standards our customers can validate and most importantly, trust, not only for their internal purposes but in connection with their -- with the regulatory oversight that they're subject to. The nCino platform has been built to surround and provide a complete 360-degree view of a customer's customer, which contrasts to legacy technology infrastructure that historically has been organized by financial institution line of business. With nCino, a customer can originate any type loan, open any type of account and onboard any customer across primary lines of business of commercial, small business and consumer, including mortgage. We do that on a unified platform that is scalable for a bank of any size, and that's something that's very unique to nCino. The same code that runs a small community bank here in the United States, runs some of the largest banks here in the United States as well as globally. And again, that's very unique in the competitive landscape. Most of the competition we see on a global basis is actually concentrated here in the United States, down market in the community bank and credit union space. And those vendors have had a challenge historically of demonstrating the ability to scale. And so when a bank thinks about growth, thinks about wanting to grow, whether it's organically or through acquisition, nCino really is the alternative for them to have that platform that they know they can grow on and not have to worry about replacing the platform over time. One of the other unique things about nCino is our ability to serve banks across the globe. As noted on the slide, we have customers in over 25 countries and over 20% of our subscription revenues last quarter were generated outside of the United States. We can handle over 100 currencies and languages and financial institutions across the globe. They're faced with similar challenges, right? While there are regulatory and cultural nuances to solve for, we always joke the old adage a loan is a loan is a loan and other similarities hold true on a global basis. Our value proposition resonates. There's not an institution that I've spoken to in my over 2.5 years at the company that does not have a desire and need to focus on becoming more efficient, and that is exactly what we're here to help them do. And that is very natural to us. That's the business that we've always been in, helping our customers become more efficient. We did that when we took them from on-premise technology to the cloud. And again, now with AI, we actually have just a newer technology that helps us create further efficiencies with our customers. We are proudly unique in our ability, again, to serve globally, not particularly in our vertical with a single platform and a single common code base. We lean into opportunities specifically in EMEA. We originally were focused in the U.K. and Ireland, where we had very early success and built up a very nice customer base. Our attention continuing to support and expand that over the last year or 2 has been more aggressively moving on to the continent. Our largest logo last year was actually from a bank in Austria, driven by our EMEA team, which we're really proud of. Another geo that we've been very excited about and continue to be very bullish about is Japan. In the fourth quarter last year, we cracked into the mega banks with an over $2 trillion financial institution to pick us to help standardize their operations. We also have operations in the Middle East and customers there, and we see increased opportunities for growth in Southeast Asia. If you take a step back and look at our SAM, we have a sizable global opportunity. And today, we have a very well-established go-to-market motion. We measured our SAM at $10 billion at the time of our IPO back in 2020. And since then, we've almost been able to double it through the addition of projects and expansion from a geographical perspective. This SAM calculation was derived by extrapolating ACV in our existing base to relevant financial institution assets, which is how we think about the opportunity going forward given our new pricing model, which allows nCino to participate in the growth of our customers and assets. We see a large greenfield opportunity on the continent in Europe as well as in APAC, as I touched upon a few moments ago and a tremendous opportunity to cross-sell within our installed base, where we have already helped our customers realized a lot of business value and where we have deep, long-standing, very positive and constructive customer relationships. At nCino, we measure success based on the outcomes we deliver for our customers. And you can have a conversation about how you've helped the bank grow their loan portfolio, increase deposits or how you've helped them remove time and expense from a process that elevates you from being just a vendor to being a strategic partner, and that is the position that we want to be with our customers. We frequently hear C-suite executives referring to nCino programs when they speak to their shareholders on public earnings calls because the value proposition has been demonstrated again and again, and it sends a clear message to the market that they -- that financial institution is committed to becoming more efficient. We have a proud heritage of success and customer outcomes with some more recent ones depicted on the statistics at the top of the slide. These outcomes have been achieved largely with the technology that's been available to our customers over the last decade and almost half. And now obviously, we've got new technology that we're incredibly excited about as are our customers, which is AI. And we believe that we are uniquely positioned to deliver AI to our customers to reshape the work of banking, much of which has already performed on our platform today. We have a foundation of contextual data. We have the governance and security infrastructure. We have the trust, most importantly, of our customers, and we own the process, right? And we've demonstrated for almost 1.5 decades that we can make financial institutions more efficient. And we've been iterating on our product every day to continue that over the history of the company. AI is just a new and very exciting tool available to make our solution even better. There are 3 components to our AI strategy. The first one is banking adviser. And you can think about that as the chat interface and foundational set of generative AI tools or nCino. The second one is digital partners. That's our term for agents. Think of those as persona-based agents that leverage the banking adviser tools to accomplish that would otherwise be performed by human bankers. Now the banker is an orchestrator with human judgment preserved in the process where and if it makes sense. And the last one is we've got the third leg of our MCP or API interconnectivity layer. And at our customer conference a few weeks ago, we talked about and unveiled the agentic operating system, which is the architecture on which we, at nCino, have built our AI capabilities. And the AOS, what it really does is it supports 3 things: One is it provides governance and observability in orchestrating AI. The genic operating system is how we direct agents today. The second thing is it provides customers the ability to build their own agents. And the third thing is it provides the connectivity and interoperability with other systems. So for example, if a bank has developed a call center agent, that agent can traverse the customer's nCino environment, to access client data to facilitate a support call. We actually have a short demonstration video I'd like to share. So you just get a small appreciation for some of the value that we can deliver to our banking adviser and digital partner capability. Let's see this. [Presentation]

And again, I think one of the things that's very exciting for us as a technology company is the trust that we have with our customers, the relationships we have with our customer. Obviously, there's a lot of noise in the market about AI and we see them looking to us to help lead them on this AI journey. Our AI solutions are unique and then they've been specifically tailored to the challenges faced by financial institutions, automating the tedious manual work that previously consumed banker time and robbed business value. nCino has the domain expertise to identify where AI can be applied to deliver measurable efficiency improvements like increasing deal velocity and mitigating risks before they impact the P&L of our financial institution. We also have benchmarking data that informs our AI road map and is also available to our customers so they appreciate the outcomes they're getting from our platform and how they compare on an anonymized basis to their peers. I'm not aware of another competitor in the market with the same positioning and ability to deliver AI that nCino has. And just as we ushered our customers into the era of the cloud, nCino is emerging as a trusted partner that can lead them on this AI transformation journey. Switching gears from strategy to an update on our financials, we released earnings a week or so ago. We posted a really strong first quarter of fiscal '27, achieving the Rule of 40, a couple of quarters earlier than anticipated, which we define as subscription revenue growth plus non-GAAP operating income margin. We outperformed guidance across all key metrics and have guided to accelerated organic subscription revenue growth for this fiscal year. A key enabler of the accelerating subscription revenue growth has been an acceleration in organic international subscription revenues. We were pleased to report this was again accretive to overall subscription growth in the first quarter, and we are seeing the fruits of renewed focus in Continental Europe with our largest deal last year. And again, Japan, we had a great win there. And last year, we tripled the size of ACV in our Japanese business. Again, we continue to be very excited about the opportunities we see in that country. And lastly, I'm especially proud of how the organization has continued to operate more efficiently. In the first quarter of fiscal '27, non-GAAP operating income increased 79% over the first quarter of fiscal '26 and free cash flow increased 54% to $80.8 million, which is nearly the amount of free cash flow we generated all of fiscal '26. Recognizing that free cash flow has increasingly become the common denominator for valuations in our space, we have for the first time this year, provided annual guidance for that metric. And the increasing free cash flow that we have been able to generate and that we see our ability to continue to generate has enabled us to repurchase 11 million shares of our stock for approximately $219 million over the last 5 quarters, including 6.1 million shares in the first quarter of fiscal '27 at a price of $15.20 a share. So in sum, we're really pleased with our latest financial results and the progress made over the last several quarters at the company. We are incredibly excited about the position we find ourselves in as a trusted vendor in the highly regulated world of banking as we lead our customers on the AI journey to, again, transform the way they operate their financial institutions. With that, Cris...

Yes. Just I'll start out with AI. I mean, now you have a presence in the largest of the largest institutions all the way down to the community banks. Just talk about what you're hearing from your customers and how they're viewing AI.

Yes. Obviously, it's top of mind for most, if not all, folks. But really, what we're seeing them look to us towards is to be a trusted partner. Again, I mentioned it earlier, there's a lot of noise and confusion out there. They're being inundated with ideas and opportunities. And our job is to help hold their hand, if you will, and walk them on this AI journey. And so for us, it's an incredibly exciting time. We've got a lot of product out there live and referenceable. We had customers up on stage at our user conference just a couple of weeks ago talking about the efficiency gains that they are already seeing. And ultimately, that's the position that we want to be in, which is to help them understand the value of it, the efficiency gains that they can get from it. And again, look to nCino to help take them on that journey. And so for us, yes, this is just a massive opportunity that we see, and it's been a very energizing one. It almost feels like in the earlier days of the company, creating this category called cloud banking, which did not exist. We find ourselves, again, kind of creating new ground. And again, I think we are uniquely positioned to provide benefit and efficiency gains for our customers.

Understood. You clearly have a product road map. Can you just talk about the opportunities for you to monetize some of the newer products you have in AI?

And so we started a couple of years ago on a journey of transitioning away from seat-based pricing to, for us, as our foundation asset pricing based on the assets that a financial institution has on our platform. We formalized that going into last year. We commented on our call last week that we have now over 40% of our customer base on platform pricing, but really, we saw with the efficiency gains that we were driving that over time and the more that we were able to automate over time, customers will need fewer and fewer seats, which is obviously not a great business model. And so we're more aligned with them with asset growth from a value standpoint. So as their assets grow, we're able to be able to participate in that growth. And so we do that by bands, asset bands. So a customer will get a price for a particular asset band. And then each year on the anniversary date of the customer contract, we'll go and recalculate the assets that are sitting on our platform. And to the extent that they move from one band to another band, the invoice or the price for the new year will be based on the new price band. Historically, asset growth has tracked GDP. And so we see the opportunity with each customer to be about 2% to 3% uplift each year. Based on that asset growth, not every customer is going to move assets, some they move multiple assets depending on growth, but at least from an opportunity standpoint, intra-contract to be able to raise prices as we continue to drive value for our customer, we're able to participate in there. In addition to that, with AI, we've got intelligent unit consumption opportunities, which is really for us if you go back, it's a new growth opportunity, right? One that 18 months, 2 years ago really didn't exist. And so we are selling bundles of what we call intelligence units. We have over 200 customers that have purchased our AI technology that have purchased these intelligent units. And in order to use our AI technology, you need to be on a new pricing platform. So it's actually been a catalyst for customers to renew early, which has been a great trend to see, right? Because in order to use the AI, again, they need to be on the pricing model. And the way it works is each month, they get a monthly allocation. And to the extent they exceed that allocation well, they would need to come back and buy more. We've been very transparent and vocal about our focus for the short term, which we said as we think about this year, is on adoption. If we do the adoption thing right, the revenues are going to come. And it's great to see usage going up. We gave a statistic that since October, if you go back to our Q4 call at the end of March, we had seen usage increase over 25x towards the end of March. And if you use that same October starting point over 38 times through the third week of May, in terms of increased usage. So I think the trends are great. The adoption is going well. And ultimately, the receptivity or desire for our customers to use our AI technology, I think, is exceeded our expectations.

Got it. And on the flip side of that, there are costs associated...

It is something that we're monitoring closely and very importantly, making sure we're getting the returns on the investments that we're making. We talked about on our earnings call last week, some of the statistics and some of the efficiency gains that we're seeing. And so I think we feel good about that, but it is something that we're monitoring and making sure we have the right guidelines and infrastructure in place so that people are using to to solve the right problems, right? And so that's from an internal perspective. A year ago, we talked about an initiative, for example, in terms of some of the returns for our professional services organizations, we've been very focused on increasing our gross margins in professional services. We had something that we called internally Project Sub-Zero to bring that time line down and get our margins up. And so we were very pleased in Q1 to show 10% margins for our professional services organization, which was a very nice leap and again, that's driven in part by some of the AI investments that we've made and some of the efficiency gains that we've seen from them. From an external standpoint, I think a few things. One is, I think about lease cost routing in terms of model use, in which model you need to solve what problem. The other thing I'd highlight, and I noted this on our earnings call, not every one of our intelligence units that gets consumed actually requires a third-party OM. We have things like our auto spreading capability, which is proprietary machine learning data that we have, that we leverage that helps drive the results from that. That's internal. It does use intelligence units. But ultimately, that's an internal product that we have. And again, that would come at a very high margin for us. So I think that mix also because we have all of this other data that we're helping drive intelligence and provide information to our customers with as part of the additional value add that we can provide from an AI standpoint.

The CEO came in maybe a year -- just over a year ago, you kind of outlined 5 strategic initiatives. Can you just provide an update on those initiatives?

Absolutely. Again, I wanted to get back to growth, right? And again, hopefully, we've been able to demonstrate continued consistent improvement from an operating margin standpoint, but I want to make sure this business is growing at a rate that is reflective of the quality of this business, and we haven't been happy where that was. There are some external factors that impacted that. And obviously, always, there's things that we can do better. But driving reacceleration of growth, it was nice to see that trajectory change this year. And that was in large part due to the 5 initiatives that we talked about that you mentioned, Cris. One is international. Again, last year, internationally, we had the highest gross bookings year that we have had outside of the United States. That is accretive to growth we said. And so that's been very nice to see. And again, I think we see continued opportunities there. As again, it makes up about half of our overall SAM. The second one is we formed a credit union team. We've been selling to credit unions for years. But we really wanted to make sure we had a team that was just exclusively focused on that market. There's some nuances there between credit unions and banks and it's important that we're sensitive to those. So they had a good year last year, not only getting the team organized and up and running, but also building pipeline. In the first quarter, we announced that they signed their largest deal to date, that team. So real pleased to see that. That was a multiproduct platform sale. So pleased to see that. The third thing would be mortgage, cross-selling our fantastic mortgage solution into our large bank and credit union customer base, particularly going up market. And we were able to announce in the fourth quarter, signing a top 35 bank, an $80 billion asset bank for mortgage, which was a great cross-sell as they use other solutions from nCino. The other one is AI, which obviously, we've talked about. And then the final one is onboarding. And there's kind of 2 components to that really through to acquisition. One was we acquired a company called Full Circle in the U.K. I've been pleased with that. That business, it's evolved into a client life cycle management opportunity and not just in the U.K. where it was initially based and focused, but again, as we move more aggressively on the continent, we're taking that product with us from an onboarding perspective. And in the U.S., we had an acquisition we did call DocFox. We've talked over the last quarter or 3 that the integration of that post acquisition took us longer than we wanted it to. But I think as we sit here today, we feel really good about that product being fully integrated into the overall platform experience. And our expectation as the year progresses, we'll have some nice data points to talk about there. So all those been moving along very nicely, and I think pleased to see that. And that, again, helps drive that reacceleration of growth that we've been so focused on.

Right. The company started in the commercial segment and then they evolved into the consumer segment. Consumer is probably, I don't know under 15% of ACV or so. Can you just talk about the journey in the consumer segment for nCino and the opportunity there?

Yes, it has been a journey. We had great success initially with our commercial offering, kind of expanded into small business and then to consumer I think appreciated. There are differences between the consumer not only regulatory environment but also just expectations from a user standpoint. And so ultimately, we -- the consumer, what we really see resonates as part of our platform story. We've had good success both upmarket, selling a $200 billion bank, but particularly say in the credit union space and the community bank space. So we have a very compelling consumer offering, and we feel good about about that is it's more, I'd say, singles and doubles just in terms of kind of size of deals, right, versus commercial tend to be larger. And so sometimes they get a little more attention on the commercial side than the consumer side when you have 5 bullet points to highlight in a particular moment. But we have a competitive and I think compelling consumer stand-alone product. And then I think it becomes even more compelling as part of our overall platform story where a financial institution is able to standardize their commercial small business, consumer mortgage onboarding and account opening all nCino. You get the efficiencies from doing that versus having multiple different point solutions, which is historically how they purchase their software.

You talked about it in your presentation, just once again, just talk about the competitive moat within this bank tech market.

Yes. Look, I think in this world and everyone's concerned about changes in technology, from our perspective, we have been and continue to be in the change management business, right? What we drive our customers to do is change the way that they operate their financial institution to be more efficient, to be more competitive. And so again, now there's a new technology to do that. We have a customer base of a couple of thousand customers across the globe, including banks of all sizes. And I think that trust factor, the fact that this is what we do right? We now have new tools to do it even better is exciting. We have demonstrated an ability, unlike any other competitor out there, to scale, again, all the way up to the largest banks in the world. We have housed our customers' data for almost 1.5 decades. And that trust component, which I keep coming back to is evidenced by the fact that we have over $11 trillion of assets that sit on our platform that our customers have given us consent to use the data supporting that to help some of our product initiatives like the benchmarking that I referenced earlier in my prepared remarks. And so while new technology comes and goes, and obviously, this is an exciting time, we sell to a very conservative, highly regulated market. And I think most importantly for them is that they can trust their vendor. They know they've got a vendor that innovates, right, and that they're getting the return on their investments that they make and who can safely lead them on this AI journey, frankly, at a pace that they're comfortable with. We see customers who are jumping kind of fee first at first, if you will, and others who are going to be more on the tail end. They all have different speeds. They all have different risk tolerances. We understand that. And again, I think that's why we're uniquely positioned to be a huge beneficiary of AI and banking.

All right. We're going to end it there. There is a breakout upstairs. So thank you all for your time.