I guess we'll just start with quick intro. Greg Orenstein, CFO, nCino. And yeah, like, maybe let's just start with, you know, for those who are new to the story or picking back up on nCino, you know, what's maybe a few things you would highlight that's changed over the past couple of years, or, like, just general trends within the software banking market?
So thanks for having us here. When nCino started, we were very much focused on co-solving commercial lending problems in the U.S. We started in the community banking space, ultimately went up to the enterprise space, and then went global. But we always had a vision from day one of being a single platform that would enable a financial institution to do all of their lending, whether it's commercial, small business, consumer, including mortgage, deposit account opening and onboarding on a single platform. And over the last couple of years, we've been very focused on making sure that each one of those products is best in market, and that we're able to land within a financial institution with any of them.
And, underpinning all of that, we have what we call nIQ, which is nCino IQ, which we've made a lot of progress on since we started that initiative in 2019. nIQ is our data analytics and AI initiative. We spent a lot of time investing over the last year or two and building out the infrastructure to be able to leverage the data of our customers, working with them, to provide them insights and intelligence. And so we've really gone broad. And then on the commercial side, specifically, we've added a whole bunch of products, a Commercial Pricing and Profitability, Auto Spreading. We announced an acquisition earlier this year in March called DocFox, which does commercial onboarding.
Then at our user conference a couple of weeks ago in Charlotte, North Carolina, we GA'd what we call Banking Advisor, which is the marketing brand for our Gen AI products.
Awesome. Very comprehensive. So I guess, you know, just turning to the macro, bit of a standardized question we're asking here: how would you categorize the current demand environment? Maybe just compare and contrast it with similar time last year. Just, there's a lot going on there. Yeah.
You know, last year was difficult for us. We sell to banks and credit unions in the United States, is our biggest market, and in the March timeframe, in the spring, we had the liquidity crisis. So our fiscal year starts February 1, come March, Silicon Valley Bank happens, so you kinda throw your plan out the window and regroup. And so Q1 was a challenge for us last year, and really, the whole year was challenging. But I think the farther that we got away from the liquidity crisis, particularly as we ended the year and got into this year, I think the more we've seen financial institutions be able to lift their heads up and focus on strategic things like nCino.
A big driver of that, and I think one of the lessons learned through the liquidity crisis, is the need to be more efficient. At our user conference that I mentioned, 70% of the respondents at the user conference said efficiency and becoming more efficient was their number one priority for this year. And so, you know, we've seen that, we've seen that play out. And so we've seen banks and credit unions come back to the market. Q4 for us, we had our best gross bookings quarter in 2.5 years, and then this Q1, we announced our best Q1 bookings quarter ever. And so I know there's, you know, some challenges in the market and various parts of the software industry. Some of that we may have actually dealt with last year.
And again, I'd like to think that we're, you know, maybe ahead of, ahead of some of the other markets out there.
Yeah. And maybe to put a finer point on that, would you say there's any difference between what you're seeing with, I don't know, like a community or smaller bank versus, like a, a Bank of America, for example?
A wonderful customer-
Uh-huh
... just by the way. Well, post-liquidity crisis, you know, interestingly, I think a lot of people expected there to be challenges in the community banking space, but we really didn't see that. We really saw the larger banks pause and really focus internally, making sure their operations were, you know, in order, and ultimately trying to determine what things that they needed to do to become more efficient. And so that's really what we've seen come back a little bit, is those enterprise banks. The community banks, you know, still pretty consistent, and, again, the liquidity crisis seemed to have impacted them a lot less than some of the regional and the larger banks.
Yeah, counterintuitive.
Yeah.
So, I guess start here with the... You know, you guys reported earnings just a week ago. So, maybe just some high-level takeaways from there, and, like, maybe some top questions you've been addressing with investors since then.
Yeah, takeaways, there's probably a couple of things I'd point to. One is, again, the record first quarter gross bookings, something we're excited about. Q1 is usually our slowest quarter, Q4 usually being our largest, and so we're used to a dip, but it was nice to see that continued momentum now for two quarters in a row. And the other thing I think to highlight was the continued performance on our operating income line. I think the team, the organization has done a great job in embracing growing profitably. And so we were able to have a nice beat on the bottom line. Some of that we flowed through in increasing our guidance on the bottom line for the remainder of the year.
But we also withheld a little bit, just as we see demand coming back, to be able to make some specific investments to help drive continued growth.
Mm-hmm. So is that incremental investment because of what you saw in Q1?
Definitely, and our user conference.
Yeah.
And so, you know, particularly around the GenAI stuff, I mean, we appreciate that, our customers are not gonna be kind of at the tip of the spear in terms of adopting, you know, GenAI, but it's something that I think they appreciate, can be tremendously valuable to their organizations, and so we wanna make sure we have the support. And just as we help them go to the cloud, they're looking to us to help them on this AI journey. And so from a, sales and support perspective, that's a place that we're investing additional dollars.
Awesome. And that's like the perfect segue. So just thinking about AI and what it means for nCino, I mean, how has that changed, like, the nature of the conversation you have with the customer? I can't imagine, like, a small credit union really has, like, too many of their own initiatives, so they're probably relying on someone like you guys to help them with that. So that's one. And then two, you did mention, like, you guys released Banking Advisor late recently.
Mm-hmm.
So sort of like how should we expect that to kind of flow through the model or like what's the—what are the implications there?
So I think you're spot on. I think our customers are looking to us for leadership and to help them adopt not just GenAI, but data and analytics, leverage data and analytics to make more informed business decisions. And I think one of the great things about nCino, what we do is, you know, we're on the employee screens at the financial institutions all day. They live in nCino. And so I think in terms of the real estate that we have, we're uniquely positioned to help drive intelligence to the point of decision-making for our customers. And again, I think financial institutions are looking to us and need from a resource perspective to look to us to help them, to help them drive down that path. And so we're excited about that.
Banking Advisor, we've been working with early adopters for the last several months. We GA'd it at our user conference. If you heard our earnings call, you heard Pierre, our CEO, mention that we got reprimanded by the fire marshal because of the crowd that was surrounding our Banking Advisor booth, which is, you know, a good problem to have. But what you'll see is that is the marketing name for, again, for our GenAI offerings. We're starting off with two skills, as we call them. One is called Knowledge, which allows you to interact with any document. And so if you're a bank employee, you can say, you know, "What does this credit policy say?" Or, "Is this credit policy in line with this loan?" Right?
And it will come back, and it will, and it will tell you that. A huge time save. The second one is a skill that we call Narratives, which it allows, ultimately, the employee of a financial institution to accelerate some of their tasks, the main one being credit memos. If you've ever been involved in commercial banking, you know that to underwrite a commercial loan, you need to put together a credit memo, which is a lengthy document about the industry, the market, why this particular loan makes a lot of sense. And instead of an employee taking, you know, what can be hours to put it together, Banking Advisor Narratives actually will do it for them. And all they have to do is simply review it, and so a huge time save.
And so those are the first two that are coming out, and then ultimately, we'll expect additional skills to be coming out on a fairly regular basis as we expand the different things that we can do with generative AI.
Awesome. Have you guys talked about pricing or alluded to, I don't know, how you might be charging for it, that sort of thing just yet?
I don't think we've talked about it much publicly, but no better time than the present.
Uh-huh.
Ultimately, there's gonna be a platform fee, and that will entitle you to a certain amount of usage. And once you exceed that usage, ultimately, there'd be an upcharge. And so that's how we're going in. We intend to make it something so the banks can really start to play around with it, get familiar with it, get comfortable with it, and get them excited about it, particularly as we have more and more skills coming out. So we're excited to get it out in the market. GA-ing it at the user conference, again, was extremely well received, and so we're looking for that uptick as the year progresses.
Awesome. And you did mention the platform fee. I know last year at the Analyst Day, you sort of highlighted, you know, longer term, there's gonna be a bit more of a shift to a platform fee-based model, you know, what's currently a seat-based model. Can you talk about, I guess, what motivated that, and you know, where you are in that journey, that... Yeah.
So we are on a transition, and what motivated it was, again, I think we have an appreciation that our technology is making our customers much more efficient. And we've got a whole bunch of data points saying that. We ultimately started on the mortgage side. Some of it was the market where, you know, we were working with some customers who've been under pressure in light of the rise in interest rates, saying, "Hey, can you help out?" And as part of this first step down this transition, we, you know, been working with them and evolved from seat-based, where they had loan officers, to a platform fee. This is for mortgage specifically. That platform fee entitled them to a certain number of loans, and that was a fixed fee.
Again, if they exceed the number of loans that they signed up for, then we would get additional revenue. So as the market comes back, we try to position, you know, the mortgage space so that we'd be able to participate in the return to the market. Right now, we have about 30% of our mortgage logos that are using that pricing model. It's a little bit more on the revenue side, but I think that's worked out well. And again, as the market comes back, we're excited to see how that plays out. The next transition is on the consumer banking side, where we're offering or pricing it on a platform basis, based on asset size, and that's how financial institutions are used to buying software from their vendors.
So we think that, and we've seen, in terms of the feedback that we've received, banks being happy with that pricing model and then our sales folks being happy. Because historically, they had to debate how many seats do you want to buy and when do we activate them. And then finally, we're working right now, actually with a third party to attach the final piece to it, which is the commercial side of our business, that will also be on a platform basis. Pricing like we're doing it for consumer. But ultimately, we're spending a little bit more time because of the depth of product that we now have on commercial, as I touched upon earlier. A lot of it's around packaging, right?
And we wanna make sure we package it very, very in a very straightforward manner to make it easy for our customers to buy, to make it easy for our sales folks to sell. And so ultimately, we think the efficiency that we're driving in our customers, we don't want to be penalized by because they're gonna be able to reduce seats. We want to get the benefit of, and that really, as we thought about this, you know, a year or three ago, that really is the catalyst for driving us towards platform pricing.
That's good. I feel like the GenAI debate has sort of opened that up for companies that are very fixed on seat-based models. So you guys got ahead of that.
Yeah, and we also have other pricing, like our Auto Spreading is based on this type of platform plus consumption model. So it's something we're familiar with, and again, getting it very consistent, again, we think will make the sales process that much easier.
Yeah. And speaking about the platform, could you remind us, you know, this is a common question we get, like, what your relationship is with Salesforce? Does someone have to be a Salesforce customer to use nCino? And I know you guys recently renewed that agreement, so maybe just, you know, like the, the skinny on that.
Yeah. So, Salesforce has been a great partner since we started the company. We started building on their platform. We've renewed our agreement with them many times, including right before we went public, where we put in place a seven-year agreement, knowing that was gonna be a question on the roadshow and kinda take that off the table. We again amended our agreement with them that we announced in December, which I'll walk you through the details of in a second. But to answer your other question, you do not need to be a Salesforce customer to use nCino. In fact, a lot of, I think, their customers in financial services, we were actually the first entree into leveraging Salesforce.
If Salesforce is already in a customer, that's a great opening for us 'cause they're familiar with the software and the technology, and we're able to go in behind them. And I think similarly, if we're in there first, they're able to go behind us and sell more. The amendment or extension we announced in December did kind of four main things. The first thing that it did was we both committed, as it relates to Financial Services Cloud and our product, to work on some better integration to make the customer or mutual customer experience that much better. And so we did that. The second thing we did was we extended it for another three years, so get back to seven-plus years on the term.
The third thing that we did was we committed for the first four years of that agreement to a certain revenue level, committed revenue, which is the first time that we'd committed revenue to Salesforce. And we did it at a level that we're comfortable with, consistent with what we were paying them, so we felt comfortable doing that. And then the final piece was just from a gross margin perspective. We worked with them to improve our COGS and really get back to kinda where we started. Over time, as we added more and more products to the relationship, kinda that COGS crept up a little bit, and so we kinda rounded back to where we started from. And so we talked about getting a point of relief for our gross margin line this year.
We got 70 basis points in the first quarter, and we feel really good about getting that amendment and extension behind us. Ultimately, I think it's a win-win for us, for Salesforce, and then another win for our customers in terms of the deeper product integration.
Awesome. And back to DocFox. You had mentioned this earlier, and I know Pierre was pretty fired up about it at the conference. I think, I don't know, maybe someone like me perhaps under appreciates what it's gonna do or what it could offer to customers. So could you walk us through, I don't know, I guess, like, the rationale behind, you know, wanting that piece of technology for nCino?
So when we think about M&A, you know, we did over the last couple of weeks, two tuck-in acquisitions. DocFox, we always think about buying from an architectural perspective, and so building out the platform, right? But staying true to the single platform vision that we have. And DocFox is a great additional piece that allows our customers to onboard their commercial customers much quicker. It can take months to onboard a complex commercial entity or business. You can have entities all over the globe. You gotta look at boards, you gotta look at shareholders as you do KYC and AML, and DocFox takes what is a very labor-intensive and paper-intensive process down from months to days and sometimes even hours. And so it is a great add-on for nCino. Again, all of our commercial lending customers should buy DocFox.
Right now, we're focused on making sure it is tightly integrated and truly part of our single platform. But as the year progresses and as we get into next year and beyond, you know, we have very high hopes for that, that transaction, that acquisition. We have a handful of mutual customers. It's a small data sample, but it is one where we're getting about a 50% uplift for what they're paying us on Commercial Lending with that product. So we think in addition to helping solve a pain point for our customers, it's also gonna be a nice driver of revenue growth as we look to next year and beyond.
How active is that cross-sell motion right now? You mentioned you want to have it really tightly integrated. So is it sort of if they come to you, you'll still talk to them about adding it on, or is it the sales force is pretty active about selling it into the account base already?
Yeah. So the first thing we've been doing since we bought it is educating the sales force, right? And making sure they appreciate, you know, what a great asset this is, what great technology, what great people came with the transaction and how it fits in. And then you embark upon a sales cycle, which can take several months, right? Selling to financial institutions. And so they're getting educated and going out and having those discussions. And so it's ready, it's available, it's in the market, and ultimately, hopefully, that lines up in terms of those sales processes as we make progress on the integration, and those things come together very nicely.
Gotcha. Awesome. Let's shift to international and, like, the go-to-market a little bit. I know international has been a pretty big part of your guys' focus. I feel like the time that you guys started to really branch out and invest in international was sort of during the COVID period. So it's a little unlucky in terms of timing. But just any update there, you know, what are the key markets that you guys feel like you have a good fit for? And where are you sort of adding on, you know, looking to add on capacity?
You mean, so launching a joint venture in Japan about two months before COVID started? No.
Yeah, so they're unlucky.
Yeah. So no, we've got, we've got a lot of excitement about the international opportunity. I mean, when you look at our SAM, which is, you know, just under $19 billion, you know, majority of it actually sits outside of the U.S. We initially went outside of the U.S. in the summer of 2017 and built up a presence in UKI, Canada, Australia, New Zealand. And ultimately now, in addition to Japan, which we're very, very excited about that opportunity, we see a lot of opportunity in Spain as well as the Nordics. And so, it is a growth lever for us.
It can be a little lumpy because they're mainly large banks outside of the US, and so, you know, some of those sales cycles can be long, but we remain incredibly excited about that opportunity. Pierre did mention on the call that with all these new products that we released, they're in the US first. And so as you think about contributions, you know, you should expect to see some type of acceleration in the US, which may make the international contribution look a little bit smaller in the near term. But ultimately, again, we would expect that business to continue to grow. And as I said, the SAM's about half of our total SAM, and so we remain excited about that opportunity.
Yeah. How, how do you guys think about the R&D side of that piece? Is there like, not too—it's not too duplicative in the sense that you, you sort of just have to translate it and make sure it works for, for companies abroad, and therefore, you're getting a lot of leverage on the R&D side by selling abroad. How should we think about that?
We are getting leverage, and that's one of the benefits of being on the Salesforce platform, where you get languages and you get currencies, as well as their physical presence. So that's one of the reasons I think we've been able to grow. Again, I think it's unique when you think about nCino versus other financial services software firms. With one platform, we're the only one that I'm aware of that spans from the community bank space all the way up to Bank of America here in the States, as well as travels internationally. It's one product set. It's not different products, you know, dealing with large banks versus small banks, which is what I think you've historically seen. So we're able to get that leverage, particularly with our commercial product, which, you know, best in market.
There's a lot of similarities on a global basis with commercial lending. It's a little less regulated than the consumer side, as you go from geography to geography. So it's a great starting point for us for commercial. The other great starting point is mortgage. Mortgage outside of the U.S. is really treated just like another loan with the house as collateral. They don't have the involvement of the government like we do here. And so mortgage is also a great use case for us. And so we've gotten, particularly in Japan, where mortgage has been the first sale that we've done.
We announced a $150 billion bank a quarter or two ago, where they were using paper, and they adopted nCino first for mortgage, and they've already come out in the, in the press and said they expect to expand the rest of their consumer bank as well as commercial.
Got it. And then thinking about competition, how has that changed over, you know, the last few years? And also, I guess what's interesting is, like, how do you think about competition in the U.S. versus abroad as well?
Most of our competition globally really is concentrated in the community bank space in the U.S., where you see a lot of point solution vendors. So if we have a commercial lending opportunity, you'll see a couple of folks competing there. They'll be different than the ones that you see competing on consumer and then competing on mortgage. Again, we're the only ones that span that entire platform. Not seeing much change competitively, in terms of market activity. I do think although there have been some headwinds with mortgage rates, the liquidity crisis, one of the things I'm really proud of for the company and my colleagues is we stayed very focused on executing our product strategy. We did see competitors pull back on R&D, you know, offshore support, and we stayed very focused.
So while it's been a, you know, somewhat of a challenging time, I think we come out on the other side of this, you know, as we were the clear market leader, but I think with even more separation, because we've been able to continue to invest and make sure each one of our products is market-leading and can go head-to-head against any one of those point products, while we've got the whole platform value proposition behind us.
Mm-hmm. And then thinking about the financials and, and the business model more broadly, around the time you guys went public, it was a bit more of a, "Hey, look at backlog, look what's happening with our PO, what we're booking." You know, you've mentioned there's more revenue recognized within a quarter now. So how should just investors think about, you know, the different metrics, what to put emphasis on, and sort of how should they gauge the health of the business?
I think our guidance that we give, we try to provide very achievable, prudent guidance is the first thing, as well as the commentary. Again, I think we try to provide a lot of commentary in terms of helping you understand what we're seeing in the market, you know, at any particular time. And so those are the two things that we continue to point to. You know, we're consistent in saying don't look at RPO because, again, there's so many different variables, whether it's duration, whether it's a particular deal, it can skew it. And so that can be somewhat misleading. You know, same with Billings, which again, can be lumpy. You could have a whole bunch of sales at the end of a quarter, for example, and it could skew it could skew your Billings.
Continuing to focus on the guidance and commentary, and you're right, we are seeing a quicker turn between bookings and revenue. That's based on a couple things. One is the product mix, particularly as we now have more and more of these ancillary products that they can turn on very quickly. The second, I think you'll see from a platform standpoint, versus selling seats and having these delayed activations, when you sell a platform, you know, you're able to start recognizing revenue quicker. So I think that also is impacting and will continue to impact in a positive way, the financial model.
And then you talked earlier about just all the expansion you guys have gotten on, like, the profitability side. So walk us through how you managed to achieve so much expansion. I think it's, like, 10% plus on the operating margin side, just within a year. So, so yeah, love to hear more about that.
Yeah. Again, very much a team effort. Again, we've got, you know, a fantastic bunch of employees who embrace this profitable growth theme, but part of it was just conditioning. You know, you take what the market gives you, at times, and, you know, everything was about grow, grow, grow, and quickly, you know, the market turned, and you need to turn with it. But I think what the team appreciated was the answer to every problem is not, "Let's hire five people, or let's throw 10 bodies at it." And, when you kind of point people to, that's not necessarily a solution, right? Let's figure out how we make things work, you know, they adjust, and the team's done a great job of doing that. I think we feel very comfortable where our OpEx is.
You know, we're still hiring people, bringing them on, but again, I think we feel very comfortable with the infrastructure that we have in place. We've made a lot of investments on a global basis. In terms of our geographic footprint, we've made a lot of investments in terms of our product portfolio. And so again, both those things, I think we are excited about. If you look at our OpEx in Q2 on the call, we noted there was a step up. First of all, we had our user conference, and so there was an annual one-time expense of around $2 million to support our nSight user conference. And then also, we brought on these two little acquisitions that we did, and the expense for those was mainly in R&D. And so you'll see a step up there.
But other than that, you know, from our perspective, it's kind of ordinary course. You see opportunities for growth, you want to invest in them, and we'll continue to do that. We're always going to err on the side of growth in light of the massive opportunity that we see, and it's still being, you know, really early. But hopefully, we've been able to demonstrate the ability to be profitable and generate that bottom line, and that gives people confidence in the model as we continue to scale.
Yeah, totally. And then how should we think about the medium-term target, the Rule of 50 that you guys sort of unveiled last year at the Analyst Day within that context? Is there any guardrail around, you know, how much of that could come from revenue growth versus margin? How should we be thinking about the two there?
We laid out a four to six year, long-term, target back in our September Investor Day, and we said that, we'd have a 35% margin, which by default, if your rule of 50 gets you to 50%, 15% on the top. We noted that wasn't a CAGR versus where we see growth, you know, in those, in those outer years. Again, as I just said, we're going to err on the side of growth and much rather be, you know, 20/30, for example, than 15/35. But we continue to see opportunities again, when you look at the footprint that we've got, when you look at the product portfolio that we've got, I think we feel good about the progress we've made just since we've laid, laid those out.
I've commented before, it's not going to be a straight line, and so what you should expect to see is from time to time, we will pause. Just as you said, we had a big, improvement on the bottom line, but we always want to pause and make sure that we're investing in the right places. We've got our products where we want them, we got our geographic footprint when we want them, where we want it, and then again, we can continue, we can continue that growth. But we see all of the pieces of the puzzle there in order to achieve that. We just need to focus on, on executing.
Awesome. We probably have time for one more question, so I'll pause to see if anyone has one. Otherwise, I'll be happy to do one more. Yeah, I guess I'll just do a more open-ended one. Just in terms of how you expect the rest of the year to play out, I think a lot of people, I don't know, maybe earlier in the year were expecting rate cuts, and obviously, it'd be pretty beneficial to, to nCino's end market, to your business. Pierre, on the last call, sort of said, "None of what we do is predicated on needing rate cuts." So just, I don't know, how are you guys positioned within that context? Like, I don't know, walk us through, like, why rate cuts would benefit you guys. Obviously, there's the mortgage business, but there's also the core.
So, just walk us through some of that, the thinking, different scenarios there.
For us, and it happened, you know, towards the end of the year, the Fed, coming out with real stability, right? We can debate when a rate cut may happen and what it will be and what that looks like, but the expectation, you know, as we see it here today, that there won't be increases, was a huge opportunity for our customers just to catch their breath. If you think about it, they've been chasing rates for two years, right? And it's really hard to run a business and put together a P&L, put together a forecast, put together, you know, a plan, a strategic plan when you're chasing rates because it's such an impact on, on financial institution. And so to Pierre's point, having that stability for us was a huge change.
Again, post that, we saw demand come back, right, much more aggressively. It will help the mortgage business. There's no doubt about that. Although what's interesting is you're seeing as time passes and people appreciate rates are not gonna come back down to 3% and, you know, anywhere in the near term, you know, life events take over, right? And ultimately, if you have a child, for example, or you're gonna move, you know, and you need to buy a house, these are the rates, right? And so, you know, there was a customer conversation specifically not too long ago, where they said, you know, they were starting to see some of that.
And so I think even rates for longer at these levels, people aren't holding back saying: "Well, maybe in a couple of months, they'll be better, and I'll wait till then," versus, "If I need to do something, I'm going to do something." So overall, I think it's a positive, but again, I think the biggest thing for us was the stability that came from the Fed, and, you know, we've seen that play out and come through the business in terms of the pipe and in terms of ultimately getting deals closed in the pipe, more importantly.
Awesome. Thank you.
Thank you.
Yeah.
Appreciate it.
Yep.
Thanks, everyone, for being here.
Yeah, thank you.