Hello, and welcome to the call to discuss nCino signs definitive agreement to acquire SimpleNexus. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to turn the conference over to your speaker for today, April Rieger, EVP and General Counsel. You may begin.
Good afternoon, and welcome to nCino's conference call to discuss our proposed acquisition of SimpleNexus. With me on today's call are Pierre Naudé, nCino's Chief Executive Officer, David Rudow, our Chief Financial Officer, Josh Glover, our President and Chief Revenue Officer, and Greg Orenstein, our Chief Corporate Development and Strategy Officer. We are also joined by members of the SimpleNexus leadership team, including Matt Hansen, its founder, Ben Miller, its co-founder, Cathleen Schreiner Gates, its Chief Executive Officer, and Kevin McKenzie, its Chief Financial Officer and Chief Operating Officer. During the course of this conference call, we may make forward-looking statements about nCino's expectations, plans, future performance, outlook, and prospects, including without limitation regarding the benefits that may be derived from the proposed transaction between nCino and SimpleNexus. SimpleNexus' growth profile, cross- and upsell opportunities, and the expansion of the nCino Bank Operating System platform.
These forward-looking statements are based on management's current views and expectations, entail certain assumptions made as of today's date, and are subject to various risks and uncertainties that may cause actual results to differ materially, including but not limited to those identified in the transaction press release issued earlier today. NCino disclaims any obligations to update or revise any forward-looking statements. Additional risks and uncertainties that could affect nCino's business and financial results and these forward-looking statements are included in nCino's reports filed with the U.S. Securities and Exchange Commission, available on our website at www.ncino.com or the SEC's website at www.sec.gov. Further information on potential risks that could affect actual results will be included in other filings that nCino makes with the SEC from time to time. With that, thank you for joining us, and I will now turn it over to Pierre.
Thank you, April. Good afternoon, and thank you for joining us on short notice. A short time ago, we announced that we have entered into a definitive agreement to acquire SimpleNexus, a leader in the digital homeownership marketplace. I could not be more excited to talk with you about this transaction and the significant value we believe our combined cloud-native companies can create for our customers, their clients, and the broader financial services industry. For reference, there is also a slide deck on our investor relations website that provides an overview of SimpleNexus and the transaction. Before I share details of this opportunity, let me outline for you what we look for at nCino in terms of acquisitions, which we have talked about with many of you before, and the questions we ask ourselves as we uncover opportunities in the market.
Number one, does the company solve a problem in a way that extends nCino's current capabilities? Number two, will the solution add value for our customers and their clients? Number three, is the solution a good architectural fit for our single platform vision? Number four, are the company's culture and values aligned with nCino's culture and values? And finally, number five, does the company have a strong, predictable, recurring revenue financial profile that will enable us to accelerate our growth? As we got to know the SimpleNexus team, their product, innovative culture, strong business model, and view on the market, it became clear that this was an opportunity that answered all of our key questions with a resounding yes. We believe this acquisition will accelerate the growth of our company and the value we create for our customers and stockholders.
For those who aren't familiar with SimpleNexus, they are a leading mobile-first, cloud-native digital homeownership software company headquartered in Lehi, Utah. Today, they work with more than 300 independent mortgage banks or IMBs, over 80 banks and credit unions, and more than 41,000 loan originators nationwide. A pretty powerful statistic is that SimpleNexus touched more than one in every seven mortgage originations in the U.S. during the first three quarters of 2021. SimpleNexus provides a natural extension of nCino's capabilities to the U.S. point-of-sale mortgage space, a strategic adjacency with significant cross and upsell opportunities, which we estimate initially expands our SAM or serviceable addressable market by more than $4 billion. We believe many of our 1,100 bank and credit union customers in the U.S. will be interested in adopting the SimpleNexus homeownership platform.
There is a sizable cross-sell opportunity that we will aggressively pursue while continuing to innovate for the IMB market, which is a core part of the SimpleNexus customer base. As we all know, the COVID-19 pandemic has accelerated digital transformation across all industries. Consumer expectations continue to increase, and mobile capabilities are now a prerequisite for consumer-facing technology across business lines, whether ordering a product for your home, having a meal delivered, booking a vacation, or applying for a loan. SimpleNexus offers a best-in-class cloud-based point-of-sale solution that was built for a mobile first world. SimpleNexus has strong market share with growth opportunity in the U.S. point-of-sale mortgage space today.
Our companies will work together to accelerate the development of other mobile and point-of-sale offerings across additional lines of business over time, unlocking new opportunities and value for our customers while furthering the nCino single platform vision. There is strong strategic alignment between nCino and SimpleNexus. We are both cloud-native companies who were founded to help solve similar challenges, streamlining and simplifying cumbersome financial processes. For nCino, that process started with commercial lending and has since expanded into small business and retail lending, treasury management sales and onboarding, deposit account opening, and more.
For SimpleNexus, they are focused on streamlining the many stages of the homeownership process, from applying for a loan, to uploading and signing documentation, to closing the loan, to getting ancillary financial products and services post-close, all into a single seamless journey that can be managed on a phone from the palm of your hand. Similar to nCino, SimpleNexus operates a per-seat subscription revenue model, which enables the company to generate financial results that are more predictable, recurring, and not based on mortgage transaction volumes. Also similar to nCino, SimpleNexus has demonstrated a track record of strong growth along with its attractive recurring revenue profile. Our two companies share similar business models. We share similar cultures, and we're closely aligned on values.
There is a large stock component in this transaction, reflecting the strategic alignment and conviction that both nCino and SimpleNexus management have in the long-term trajectory and success of our combined businesses. Additionally, the significant stock component of the transaction is an important statement of support from Insight Partners, nCino's largest stockholder and also the majority stockholder of SimpleNexus. Insight has agreed to lock up approximately two-thirds of their entire pro forma nCino ownership position. As noted in the investor presentation, approximately 1/3 of the Insight lockup shares will be released on each of the six, nine, and 12-month anniversaries of the closing.
Speaking of combined businesses, with the acquisition of SimpleNexus and its more than 300 talented and innovative employees across the country, we will have over 1,600 combined employees who are laser-focused on continuing to transform the financial services industry through innovation, reputation, and speed. Cathleen Schreiner Gates will continue to lead SimpleNexus, reporting directly to me. She brings 40 years of experience in the mortgage and technology industries, and I'm extremely impressed with Cathleen and the leadership team around her. We're glad to have Cathleen here with us today. With that, I'll now turn the call over to her.
Thanks, Pierre. This is truly an exciting day for SimpleNexus, our customers, and our employees. SimpleNexus is an award-winning developer of mobile-first technology for the modern mortgage market. Lenders and borrowers across the country depend on our cloud-based homeownership platform to unite the people, systems, and stages of the mortgage process into a seamless end-to-end solution that spans engagement, origination, closing, and business intelligence. By helping lenders manage their teams and stay connected with borrowers and real estate partners, we deliver a tangible return on investment in the form of reduced turnaround times, increased margins and loan volumes, and more referral business. As Pierre mentioned earlier, we work with more than 300 independent mortgage banks, over 80 banks and credit unions across asset classes, and more than 41,000 loan originators nationwide.
Like nCino, we are passionate about customer success, which is evidenced by our trailing 12-month net retention rate of 163%. It is very exciting to be here today and to join forces with nCino, a leader in cloud banking and a company we've long admired. Our industry-leading mobile-first homeownership platform will complement nCino's bank operating system to create even greater value for financial institutions and IMBs across multiple product lines and digital channels. Together, our best-in-class cloud-native platforms will significantly strengthen how we serve our customers. I couldn't be more excited for this next chapter, and I want to thank all of our employees at SimpleNexus for the amazing work to bring us to this point. I can't wait to see what SimpleNexus and nCino are going to do together.
With that, I will now turn the call over to David to talk more about the terms of the transaction.
Thank you, Cathleen and Pierre. Let me echo the enthusiasm for the opportunities ahead created by combining nCino and SimpleNexus's technology and teams. Turning to the details of the transaction. Subject to customary adjustments, nCino will acquire SimpleNexus for $1.2 billion, consisting of approximately $240 million in cash and approximately $960 million in common stock. The number of shares of nCino common stock being issued is based on nCino's 20-day trading volume-weighted average price of $72.525 per share.
Subject to receipt of regulatory approvals and other customary closing conditions, we expect the transaction to close by the end of nCino's fourth fiscal quarter, ending January 31, 2022. While we plan on providing fiscal year 2023 guidance for the combined companies on our fourth quarter fiscal 2022 earnings call, at this time, I can say that we expect SimpleNexus will be accretive to our growth profile. SimpleNexus' recurring per seat subscription revenue model aligns with nCino's recurring revenue business model. SimpleNexus' total revenues for the 12 months ending September 30, 2021, were approximately $41.6 million, with a net revenue retention rate of 163%. Including pro forma results of LBA Ware, an acquisition completed by SimpleNexus in October 2021, annualized total revenues as of September 2021 were approximately $54 million.
We do not expect to see any significant cost synergies from this transaction as we plan on making additional investments in the business to accelerate the product roadmap and expand growth opportunities for the combined companies. Finally, as you may have seen yesterday's press release announcing that we scheduled our third quarter's earnings call for December 1st, we look forward to sharing our third quarter results with you at that time. For today's discussion, we will exclusively focus on the SimpleNexus announcement. With that, we are now happy to take your questions about the transaction.
Thank you. Ladies and gentlemen, as a reminder to ask a question, you will need to press star then one on your telephone. We ask that you limit yourself to one question, please. Again, that's star one to ask the question. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Terry Tillman with Truist Securities. Your line is open.
Thank you for taking my question. Pierre, David, and Cathleen, congratulations on this transaction. I guess I'll have to be disciplined and ask one question. I had, like, eight of them here on my list, but, I'll try it. I guess just Pierre, for you, the timing of this, why now? You all have a lot progressing with your platform, NIQ, the retail opportunity, international, et cetera. You know, I guess maybe a little bit on the timing, in terms of now, and does this do something to potentially help the retail lending part of your business? Thank you.
Thanks, Terry. Great talking to you. Good question. As you know, there are not many high quality, great growing companies that's got a revenue model second to none with technology and people that you really want as part of your organization. These things never come at the time when you want them to come. We started looking at a partnership with SimpleNexus, and as we got to know the team as well as their technology, the way they pursue the market, and we just saw a fantastic opportunity to expand our retail offerings by getting into the point-of-sale solution for mortgages. As you would remember, I've always told you, we will build as part of our retail lending solution, a portfolio mortgage solution, but we will be complementary to ICE and Black Knight or Ellie Mae, as they used to be known.
We have no plans to go into that LOS business. SimpleNexus is the largest and best integrated solution into the Encompass product. This is just a great complement to what we plan to do, further cementing our focus and growth into the retail market. This is, for us, an opportune time and very exciting. It is also accretive to our growth, so it fits the financial picture as well as the technology architecture picture, as I've always described for you.
Okay, thank you.
Thank you. Our next question comes from the line of Brent Bracelin with Piper Sandler. Your line is open.
Good afternoon. Interesting acquisition here. Pierre, you surprised us. I think you talked about international being the first area you'd have success with mortgage. That certainly changes the dynamics. For my one question, I'm gonna ask David a question just on the growth trajectory. You gave us a stat here around the size of the business. I think $54 million in trailing 12 months revenue. What was the shape of the growth of the business? If I look back at some of the articles, it looks like loan officer growth may include that acquisition was close to 48%, kinda through October. But could you just frame the growth shape of the trajectory here for the SimpleNexus business?
Yeah. So that, the $54 million is an annualized September number.
The trailing 12 months is the $41.6 million, just to make sure the numbers are correct. SimpleNexus is a high-growth business. We'll get into more details after we close the transaction, but we do expect that the acquisition will be accretive to our total growth.
I can just address the mortgage question around international. As I always reminded you that we are building portfolio mortgage as part of our retail loan offering. International mortgage is proceeding as planned, and we're actually going through a budgeting process to see how we can increase investment in that. So that commitment is unwavering, and we're seeing great opportunities for that. This will accelerate our retail presence in the U.S., give us an additional $4 billion of SAM, and also as we plan, and we're building going forward an API first middle back office LOS that'll connect to a point-of-sale solution. This is very, very helpful for us on that front. So we're excited about this addition. One further point, the cross-sell opportunity is significant here.
This platform and solution can apply to 1,100 of our customers. There's only about 40 customers that overlaps with us between the two companies.
Well, certainly exciting to see the another growth lever here you can activate. This sounds interesting. Thank you.
Thank you.
Thank you. Our next question comes from the line of Alex Sklar with Raymond James. Your line is open.
Thank you. Just a quick clarification question. I did wanna ask about the cross-sell opportunity the other way around into the SimpleNexus customer base if the nCino Bank Operating System platform kind of makes sense going to that base. Just on the clarification, could you just confirm the recurring revenue profile, SimpleNexus, there was no kind of upside from any of the mortgage refi activity last year, it was purely subscription from that? Thanks.
Yeah. On the revenue side, they sell a seat, and there is no transaction revenues that are included in those trailing numbers and the annualized numbers that we provided.
From a cross-sell perspective, because they do this homeowner journey, you know, including not only the mortgage, but things like insurance and e-closing, et cetera, there are opportunities. We are looking at additions to that journey. For instance, you may have personal experience, you buy a house. Once you've closed on the house, all of a sudden you're not that happy with the kitchen or you need some additional furniture. In that process, we can incorporate things like an unsecured loan or a secured loan, that you can do in the same app. We're looking at possibilities like that to enhance the SimpleNexus application. One other point is from a technology perspective, nCino traditionally provided a website experience.
SimpleNexus is really excellent at a website plus an application experience, so they build apps for Android as well as Apple. Just us having access to that level of skill sets and technology is also exciting for us and open up so many possibilities.
Okay, great color. Thank you.
Thank you. Our next question comes from the line of Ken Suchoski with Autonomous Research. Your line is open.
Hi, Pierre, David, and Cathleen. Congrats on the deal, and thanks for taking the question here. You've talked before about the efficiencies a customer might see when adopting the nCino Bank Operating System. Can you just talk about what the efficiencies are or what the ROI is for a SimpleNexus customer? I guess my second part of this question is, what's driving the 163% net revenue retention rate that's really impressive? Thank you.
Hey, thanks for being on this call today on short notice. I'll give you a quick answer, then I'm gonna ask Cathleen to embroider a little bit. She's the expert in this. You know what really impressed me as we started looking at these solutions, is SimpleNexus took a two-tier approach on the ecosystem when you create a mortgage. The first one is there's a borrower. That is very natural. We all understand that. The banks all have solutions where the borrower can go and fill in an application for a mortgage. They actually, in that same app, embedded a loan officer experience which connect to the borrower and other players in the ecosystem to do this. There's actually a double or a dual value proposition here.
That ecosystem opens you up for tremendous other revenue opportunities like referrals on insurance, okay? The e-closing that happens. That excites us to see people who think outside the box. It's not just about the mortgage, it's about this journey. Cathleen, maybe you can give more color on that.
Yeah. To add to that, the loan officer who is working with a borrower is probably in receipt of a warm handoff, let's say, from the realtor. The idea in terms of efficiencies is this referral network that's created by sharing the platform actually creates warmer leads, which creates better throughput and shortens the time to close and things like that. The loan officers on average are getting better leads, building their pipelines, and closing more loans. That drives the efficiency tremendously. In terms of the net revenue retention number, that has to do with each time we add to this platform, that same customer base is investing in more of our product suite, which is a typical, you know, scenario that you would see in a high net revenue retention model.
We're continuing to add products to the platform that's driving that net revenue retention.
Thank you very much. I appreciate it.
Thank you. Our next question comes from the line of Mayank Tandon with Needham & Company. Your line is open.
Thank you. Good evening. Congrats on the deal. I wanted to ask about just competition and positioning. Should we think of maybe an Ellie Mae as a competitor or anyone else you would call out in terms of, the key companies you're competing with? Maybe if you could talk more about like win rates and just positioning versus, some of the competition, that would be very helpful. Thank you.
Yeah, you know, the SimpleNexus product is probably the best and deepest integration to the Encompass Ellie Mae product that you can imagine. That's why this is the leading front-end solution for that product. It does not compete with Encompass. It is complementary to it. That is a very good positioning for it. We will integrate this to the nCino Bank Operating System as well to give that 360 customer view and integration for the bank customers where we are present. I'm optimistic there's significant opportunity there. There's one other thing. Over time, what we've seen in the market is there used to be Avoka. They got bought by Temenos. You see other players with pure point-of-sale.
I've always told you that what we foresee is that if you just slap a point-of-sale on an inefficient middle- and back-office process and old system, then, you know, what is that end customer experience? By putting this in front, this point-of-sale solution in front of the nCino Bank Operating System, where we are actually honed and skilled in driving efficiency and effective bank processes and speed it up significantly, that is creating an end-to-end value proposition second to none in the market. As I look at our competitive positioning going forward, I'm highly optimistic that banks will select a single platform that solves the problem end to end, and that gives them a 360 customer view with a multi-product setting there. I think this is superior value prop to anything I've seen in the market.
Thanks, Pierre. Congrats again.
Thank you.
Thank you. Our next question comes from the line of Bob Napoli with William Blair. You know, your line is open.
Thank you. Good afternoon, Pierre, David, Cathleen. Cathleen, I was hoping to get a little more color on SimpleNexus product roadmap, and if you think that the type of net revenue retention rate that you believe the company can maintain over the long term.
Thanks for your question, Bob. We have, of course, talked about our roadmap with the nCino leadership team, and we are going to stick with our roadmap. Any forward-looking statements about what that would mean financially will come through when the close of the transaction has been done.
Yeah. On the net revenue retention, Bob, you know, 163%, it's a great number. As you know, we don't talk about net revenue retention, but we will update you after we close the transaction, and we're ready to provide more details.
Thank you. Just on the tech platform for SimpleNexus and the integration with the nCino Bank Operating System, how do you envision integrating? How fully integrated will that be? And, you know, any color on the difference between the two platforms?
Yeah. Remember one thing, SimpleNexus is a point-of-sale solution, was designed from day one with open APIs that's integratable to LOSs because that's the business model, okay? They never wanted to be in the LOS business. They purely focused on this home journey to integrate to a back-end LOS. nCino was being building, starting with commercial and then move on to the other lines of business from the middle back office out. Once we've got, like I always told you, cleaning the kitchen, once you've got that cleaned and efficient and so on, we will extend that experience out to the end customer of the institution. That methodology or architecture of extending it out, in our case, was typically a website experience. About two years ago, we decided we're gonna start building an API-first approach to that.
Even if you use the nCino standard interfaces, going forward, it's gonna be an API connection between that front end and the middle office and the back office. Now if you look at that and we build our portfolio mortgage product, SimpleNexus will purely plug into our middle back office LOS. That's the way we plan to do it. It'll coexist seamlessly. We will build best-of-breed APIs, and it should enable our banks. Because if you know any upmarket, in the high end of the market, many of these larger banks wants to own their front end themselves, and they build it themselves and brand it themselves, et cetera.
We are very open with an API structure to say, "You can use ours, we can brand it, we can make it customizable, or if you really wanna own that code yourself, you can build your own in the front end and plug into nCino's APIs.
Thank you. Appreciate it.
Thank you. As a reminder, ladies and gentlemen, that's star one to ask the question. Our next question comes from the line of Saket Kalia with Barclays. Your line is open.
Okay, great. Hey, guys, thanks for fitting me in, and congrats on the deal.
Hey, Saket.
Hey. David, maybe for you. I'd love if we could just talk about the dilution here a little bit, and maybe more specifically, should we think about a deferred revenue haircut on that $42 million, or rather $54 million in recurring revenue? How should we think about expenses sort of all combined with the additional shares? Does that all make sense?
Yeah. Thanks, Saket. Good to speak to you. All these details, we're gonna wait until the close of the transaction, and then we will update you after the close and give you more details to help build the model. We're just not gonna speak about that right now.
Okay, got it. Maybe just as a follow-up just to make sure we get it then. Can you just talk about how many employees are expected to come over or how many employees are coming from the acquisition just to ballpark sort of expenses, if you will?
We expect 300 employees to come over. That's the current employee count as we stand right now.
Got it. Thank you.
Thank you.
Thank you. Our next question comes from the line of Fred Havemeyer with Macquarie. Your line is open.
Hey, thank you. I think, you know, it's notable that throughout this call, as well as in your press release, you've been emphasizing the mobile first portion of SimpleNexus. Maybe, Pierre, for you perhaps, you know, what trends are you seeing among consumers that's making a mobile first mortgage experience so critical to nCino now? You know, just generally, what are you seeing in the market that is encouraging just you and SimpleNexus around offering specifically a mobile first experience?
Yeah, I think, look, mobile first can mean it's available on a browser, on a laptop, it could be on a PC, it could be self-service, it could be on a tablet, and it could be on a phone, okay? There's so many elements to this application. The first thing is this initial application. I could argue that you'll probably start that on some bigger tablet device, et cetera. Remember, that's only the initial interaction. After that, you get into a lot more interaction between the loan officer, between you, between appraisers, between all the different people in the ecosystem. Nobody carries a laptop with them. That's all a mobile experience. That's what most of us prefer.
We've also learned through the pandemic that digital transformation is accelerating, and that people are actually doing financial transactions and applications for loans, et cetera, on their phone, especially if they're a known entity to the institution, because you pre-fill all these fields, they do a simple selection of the product, and you can fulfill that, okay? To me, what you should realize is a mobile first approach means it could be a tablet or a phone. It also means it could be a browser experience, it could be an app experience, both on iPhone and on Android. That is the whole trend in the market, not only for financial services.
There's one further element, which is the thing around embedded finance, where actually the financial products that banks and credit unions are trying to deliver to their clients or prospect new customers becomes more in the context of the activity of what that person wants to do. You know, you don't wake up in the morning and think, "Man, I wish I had a bigger mortgage." You know, the way you wake up is to think, "I wish I had a bigger house or maybe move to a different neighborhood." The moment you have that's why this is a home purchase experience versus a mortgage experience, which is much broader. You know, one day maybe we'll build a car buying experience because you need insurance, you need a maintenance plan, you need, you know, warranties, et cetera.
I think this whole embedded finance concept is taking off in the market, and you see it as much more common today as it used to be. You know, in the old days, we used to call it indirect. You go to a dealership and you wanna buy a car, and then you go, "Oh my gosh, I need a loan." Then you just work with the leadership, okay? These are the kind of transformations happening in the industry. I think having access to this technology, and actually with a company that is a market leader in one of the most complex products you can imagine, which is a mortgage and the home buying experience, really excites me about the potential in the future.
Thank you.
Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Pierre for closing remarks.
Thank you, operator, and thank you everyone for joining the call today. In summary, this transaction will support our commitment to invest for scale, and it enhances all our key growth drivers. The acquisition of SimpleNexus will extend our product capabilities into the U.S. point-of-sale mortgage space, allowing us to aggressively cross-sell into our existing nCino customers while expanding our total customer base. We believe this acquisition will expand our serviceable addressable market by more than $4 billion initially, and provide a mobile-first consumer-facing technology platform along with deep subject matter expertise that will enhance nCino's mobile and point-of-sale offerings across additional product lines over time. We are very excited about this transaction and believe the acquisition of SimpleNexus will unlock additional opportunities for our customers and their clients, and create even greater value for our stockholders.
Thank you again, and we look forward to speaking with everyone on our third quarter earnings call on December 1. Have a good evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.