Excellent. Well, hey, good afternoon, everyone. Welcome to day one of the Barclays Tech Conference. My name is Saket Kalia. I cover software here. I'm honored to have with us the team here from nCino. We've got Greg Orenstein, Chief Financial Officer. I also have Harrison Masters there in the audience. He's Head of Investor Relations, as well as Director of Strategic Finance. We've got about 30 minutes together. Let's take the first 20 or 25 minutes just to do some fireside chat here with Greg, which I know is going to be fun, and then we'd love to make this interactive. So any questions out there in the audience, just pop up your hand. We've got a mic runner in the back there, so Greg, thanks so much for being with us here today.
Pleasure to be here.
Wouldn't it be?
Yeah, absolutely.
Wouldn't be a Barclays Conference without nCino here. So thanks for coming.
Too kind.
Listen, Greg, for those of us that remember nCino from the IPO, we remember a leading platform in commercial lending here in the U.S. and a growing story internationally. Maybe you could just talk to us about how the story has changed since the IPO in terms of the areas of focus and new markets that you've entered.
Yeah. Again, great seeing you, Saket. So when we went public now, coming up in the summer of 2020, we very much, as you noted, were looked at as a commercial lending company. We always had this vision of building out a single platform across the bank where you could do all of your lending needs, whether it be commercial, small business, consumer, including mortgage, account opening, and onboarding, which we can expand upon a little bit in light of some of our M&A activity. And so we have executed on building out that platform and really bringing to the market, really for the first time, that level of functionality that a bank can standardize on with just one vendor. And while we've built it out across the bank, we've also gone deep on the commercial side because we have such a large and happy customer base there.
We've expanded our product offering there with specifically commercial onboarding, with Banking Advisor, with a partnership and Continuous Credit Monitoring. Really think about us going across the bank and deep. The other thing that we've been very focused on that we started right before the IPO is what we called nIQ, which was our data analytics and AI initiative. We really appreciated the value of data because if you think about what our customers use us for, the bank employees, first and foremost, they live in nCino every day. They come there and they see us and they sit in those screens every day. We have this vision of us being able to bring intelligence and insights to them at the time of decision-making since they are living and breathing in nCino every day, just like plenty of folks live in their Bloomberg terminals.
So we really focused on accumulating data over these past few years. Commercial lending, obviously, we have probably the largest commercial lending book in the world. And it's not just the commercial loan piece. It's the financial statements that support the commercial loan. It's the tax returns. From a mortgage standpoint, through an acquisition we did of SimpleNexus a few years ago, we get visibility into about a third of every loan done in the country each year. And then finally, from the consumer side, we have over 1,000 credit unions, which have a rich history of consumer lending data. And so we're able to leverage all of that. We've been working with our customers for multiple years to actually get their consent to use that data. And that's what we're using to fuel our AI initiatives as well as some of our data and analytics initiatives.
That's really what we've been up to since the IPO.
Yeah, you've been busy.
You've been busy.
Maybe zooming in a little bit, Greg. I mean, we just reported a quarter last week. Could you just maybe recap some of the key takeaways that you were maybe most proud of, if that makes sense?
I think it was a good quarter. Again, thank my colleagues at nCino for working hard and taking care of our customers, but from a financial results perspective, a good quarter, particularly on the bottom line. We had significant overperformance on our bottom line number every quarter this year as we've raised our bottom line guidance, and I think hopefully we've demonstrated the ability to manage not just growth, but do it profitably. The other thing, if you go back to our second quarter call, we highlighted that we had a handful of, let's say, larger logos that were out there that we were focused on signing. I think some people were concerned in terms of second half risk because we had some of those large logos out there.
But really pleased to be able to communicate on this call, signing our largest customer in Japan, signing our first deal in Luxembourg, as well as signing a nice deal in the Nordics. And so taking some of those logos off the board hopefully provided some comfort to folks. And then early in the fourth quarter, we signed a large enterprise deal with a top 40 bank here in the US for commercial. And so nice to, instead of talking about opportunities, actually talking about deals that we were able to get done. And it was a good quarter of just solid execution from the team.
Yeah, absolutely. And I think I know RPO is, it can be a noisy metric, but it really showed in that RPO, I would argue, right, from just an underlying bookings perspective, if that makes sense.
Correct. And we're always careful, as you know, around RPO, whether it's good or bad. We're very consistent in our commentary to be cautious in terms of using that as a metric. But ultimately, it was a good RPO quarter.
Yeah, absolutely. Maybe that's a good segue just to talk about the health of your end market. It's obviously been an interesting year with just some of the choppiness in bank spending over the last, really over the last couple of years, with some of the macro sluggishness and, of course, the liquidity issues that some of the regional banks saw last year. How do you sort of see demand in your end customers today? And I'm just going to ask to maybe put the mortgage market aside, right, because that's a little bit of a different animal. And sort of your core, and sort of the core bank market, how do you kind of feel about the health of that today?
Yeah, so from a U.S. perspective, again, if you put mortgage to the side for now, we talked about on our call that we, both in our community and regional business, as well as our enterprise business, which that's the biggest bulk of the company, were ahead of our gross bookings plan for not only the quarter, but for the year that we expected to be ahead as we exit the year. And so it's nice to see the U.S. market pick up, particularly as you comment. It's been an interesting couple of years. I mean, the liquidity crisis was just last year, right? So it's not that far in the rearview mirror. So good performance in the U.S. And again, that's the biggest part of our business. So excited to see that. International, we were able to bring some nice wins, as I said, off the board.
So good progress there. International has been lagging a little bit this year. It's nice to see us take a step or two forward. Still, international, as I said, has lagged, and we ultimately expect it to. But seeing those deals come off the table, I think, is good from a momentum standpoint as we exit the year and go into next year.
Yeah, yeah. I'd love to double-click on international, actually, right, just because to your point, we heard you mention a couple of new banks in several markets, right, on the call last week. Maybe the question is just to level set, what are some of the biggest countries where you've landed reference customers in, right? Like you mentioned Japan, for example, right? I'm curious what the other ones are. But then also, what competitors do you typically run into in those markets that, I don't know, is that what's maybe impacting that lagging nature of international, or is it macro? I'm just kind of curious how you think about that.
Yeah, I think it's an element of macro. Again, different economies have had their different challenges. Obviously, there's still a war that's been going on now for several years that is there. From a competitive standpoint, we'll talk about that. Our biggest competitor, and if you think about those banks, those are generally large enterprise banks. Our biggest competitor, same with the US at those large banks, is to do nothing, right? Just status quo versus a particular competitor. You still have some build your own, although over the years that becomes less and less because why would you want to embark upon building something that someone else has demonstrated success delivering? But you still have some of that, some folks who may get a framework to expand upon that as well.
But the biggest competitor, other than maybe some smaller vendors in any particular country, is by far do nothing. When we think about the countries that we've had success in, we started in the U.K. And so U.K., I think we have about five of the top nine banks there that we've signed. We've had great success with Canada, and we've got several large banks there. Same with New Zealand, which we hope and expect is a nice entrée back into Australia in light of the relationship with the banks between those two countries. And then Japan, which I mentioned. Japan is a country that we're very, very bullish on. Pierre mentioned on the call, he was actually just there a couple of weeks ago. I think there's a really good opportunity for us there. It's obviously a different culture, and they move at a pace that they move at.
But I think in terms of the opportunity for us and their need for our software, we're really excited about that over time.
So, I mean, if I had to summarize international, it kind of sounds like more of a matter of when, as opposed to if those markets are going to be whether it's when rather than if you're going to gain share in those markets.
Yeah, it's.
If that makes sense.
It does. I mean, this quarter, it was 21% of our overall business. So it's a nice part of our business. But the enterprise nature of that, by definition, it's just lumpy. And you can get a deal or two in any particular quarter or in any particular year that can significantly impact the contribution because they are just large banks and they're generally large deals. And so there is an element of lumpiness that comes along to it. You've got to be patient and persistent in order to get yourself in the door. But again, I think we've got plenty of product for them. We've invested in terms of building out our geographic footprint, right? So I think we feel very comfortable with the infrastructure that we have in place. We did just acquire FullCircl, which has got a great presence in the U.K.
I think we're both looking to move more aggressively onto the continent, and I think together, we're very excited about that, and then we just actually named a new head of EMEA, a new managing director for EMEA, someone that we've worked with in the past, used to work at Salesforce, so we know him, we've seen him in action, and we're excited for his energy and his drive to hopefully help take us to that next level internationally because we believe the opportunities are there, and from a SAM standpoint, outside the U.S., it's about half of our SAM.
Yeah, yeah, absolutely. We'll look forward to seeing more developments there. Let's switch gears to the mortgage market here in the U.S. You talked about some of the dynamics there that are impacting Q4. It seems like with rate cuts maybe coming into play, that should offer a boost to kind of new purchase loan volumes. But maybe the question is, what are your customers saying in terms of their willingness to invest into this period of growing volumes?
You would think a rate cut, particularly a 50 basis points rate cut, would help drive increased mortgage activity and lower interest rates. But that's not what we've seen over the last month or two post that. Just as you talk about Q4 and our views of mortgage as it relates to our guidance on subscription revenue, I actually had a few questions of this post our earnings call. If you take a step back and look at the subscription revenue guidance we gave, and I'm talking just organically so you can exclude FullCircl from this conversation, that we gave for the year, we gave that in March. We reiterated it in Q1, and then we reiterated it again in Q2.
In Q2, we laid out some expectations and what we thought mortgage was going to do for the rest of the year, trying to be very prudent in a volatile market. But as we talked about all year, we expected upside in the fourth quarter. We weren't expecting it before then. I think we were cautious about when rate cuts would happen. I think we got the timing right. But again, I think the expectation that an associated drop in mortgage rates would come through, and that didn't happen. And so as we were coming up with our guidance for Q4 for subscription revenue, we took that into account, right? And basically, we took a step back and said, the rates that we expected to come and the increased activity is not going to come.
We also experienced from an M&A event $2 million of annualized churn, $500,000 that hit in the fourth quarter. And so while we reiterated our guidance in Q1 and Q2 for the third quarter, as we talk about fourth quarter, we took down the top end of our organic subscription. We maintained the bottom. So we tightened that range really to reflect the fact that I think the overperformance that we were, as we took mortgage into account for our subscription revenue guidance, the overperformance that we thought we reasonably were expecting and frankly being prudent expecting just wasn't going to come. So we tempered our expectations around bookings for mortgage in the fourth quarter. As you know, Saket, it's a pretty quick conversion from mortgage bookings to revenue.
So we took that expectation down, and then we tempered our expectations around our new pricing model and some of the overages that we would have expected to have gotten with increased mortgage activity. And so that was kind of the play as we thought about Q4 subscription revenue guidance. Big picture, our business has performed incredibly well since we acquired it, including last year. It was up over 14% year over year. It'll be up this year again year over year, including we expected again, including up in the fourth quarter. So if it can perform like that in one of the most difficult, if not the most difficult mortgage environment in history, I think that positions us well as ultimately volume comes back and activity comes back.
We had hoped it was going to be, and we're expecting it to be this quarter, the fourth quarter, but clearly it's going to take a little bit longer.
Yeah, listen, I think it's a completely fair assumption to think about a Fed rate cut to drive a mortgage rate cut, but for whatever reason that didn't happen, but I would argue that that is somewhat inevitable, right, so we'll look forward to kind of seeing how that sort of trends. I want to dig into the churn, maybe not just the churn event, but a category of your mortgage customers, right, which of course are the independent mortgage banks or IMBs, right? Can you just remind us how much of your revenue is tied to those customers, and how are you thinking about churn, maybe more generally in the mortgage market, in your mortgage business after what's been an elevated year of churn given this unprecedented market?
Yeah, so our business, the business really started on the IMB side. And so from a revenue perspective, it's still a little more heavily rated towards IMBs. And I think this has been accelerated post-acquisition. One of the theses was that we would take them into our financial institution customer base. And so from a logo perspective, that's kind of balanced out as you look at that part or that balance of our mix of the business, I should say. The second part of your question, just remind me about it.
How do you think about churn in your overall mortgage business going forward?
Yeah, so churn is obviously something that impacted us considerably over the last two years, and again, I think the ability to outsell the churn reflects well on that business long term. Interestingly, the churn over the last two years was much more around mortgage lenders going out of business, and so literally shutting their doors. They were doing loans at a loss and shut their doors. That seems to have settled down. There'll still be some, I mean, just in terms of any industry, but that seems to have settled down quite a bit.
And I said earlier this year in some public commentary that as we thought about churn for this year, it was less about that and more about potential M&A, which we expect to be a beneficiary of M&A in the mortgage space as well as the bank space as we've worked hard to align ourselves with some of the larger players. This time, we were unfortunate. But the fact that there is M&A to me is, again, a reflection of a healthier market where people are comfortable allocating capital for M&A. And again, I think that's reflecting more stability as we exit the year and go into next year.
I agree. I agree. We talked a little bit about the commercial lending side. We've of course talked about the mortgage side. I would love to just maybe touch on the consumer side, right? I mean, could you just maybe remind us, consumer ex-mortgage, can you just remind us how large that is as a percentage of revenue today? And I mean, you've talked about typically you used to lead with commercial lending. Now you're starting with wins in consumer. Why do you think nCino is starting to win in that market a little bit more?
I think we're winning more because we have, I think, fulfilled our vision of what that product can be. And we've been very transparent about it. It took us longer to build, and it was more difficult. And that's frustrating. I think on the other side of that, the good news is I think there's a nice competitive moat because I don't know why anyone wouldn't embark. And if anyone wants to embark on building a consumer LOS for the U.S., net new, please give me a call. So I think we've got a great competitive positioning. And again, it's part of that single platform story. And I think as financial institutions look to become more efficient, look to provide better customer service and a better user experience, they appreciate how important it is to leverage one platform. And so it's still a small part of the business. It's growing.
We announced about this time last year our first enterprise consumer banking customer in the U.S., a $200 billion bank. We actually landed, to your point, we landed with that. That's our first product with them. Everyone's waiting to see how that's going, and so we look forward, hopefully sooner rather than later, that customer communicating about the value that they see, the delivery and how well that went and the value they're getting for consumer, and hopefully others aren't going to want to be last.
That reference model, right, that works so well in the commercial lending side.
That's exactly right. No one wants to be first, and everyone waits around to see how that goes. But once that goes well, we've seen others follow, whether that's with new products or new geographies. And we're excited about what we've done in consumer.
Yeah, very, very consistent model with other vertical SaaS companies that I cover as well. I'd love to maybe segue into sort of the new platform pricing model, right, that we first heard about at your investor day last year, maybe just to level set. Can you just remind us when this platform pricing model is going to be standard for all of your new deals and renewals? And is it going to be the same, sort of the same type of structure across consumer mortgage and commercial, or is it going to differ across the three? Talk to us about the implementation of that new pricing model, if you will.
Yeah. So if you go back to our investor day last year in September, we announced that we were evolving to a new pricing model. It's something that we thought about for a while. It really was because of consumer and our belief that we're able to fully automate and digitize the consumer lending experience. And so having a seat-based model, which we did for commercial, which was very high touch, low volume, right, very relationship driven. On the consumer side, it's low touch. In our mind, it should be no touch and high volume. And so we knew a seat-based model wasn't the way to go.
And then again, the impact of the mortgage market came, and we had a lot of customers come to us and say, "Hey, can you help us get through this difficult time?" And so we started with mortgage transitioning away from seats into a platform price based on loans. So you'd get a minimum loan number. And as you exceed that minimum loan number, you'd pay us more. And if you exceed it consistently, what our sales folks should be doing is raising your minimum, giving you a little better per unit pricing. And we try to manage our business to where that minimum is, right, and truly have upside as we think about additional volume. So that's what we did with mortgage. On the consumer side, we focused on Nexus based on assets, which banks are very used to buying based on assets.
That's generally how the core providers price theirs, and so very receptive to, I think, the discussion away from seats, which was more difficult. How many seats do you need? When do they turn on? What happens, Greg, if I sign a four-year deal, but two years from now, I want to cut staff and I don't need as many seats? It gets away from that versus focusing on the value, and so we'll base it on assets. Again, we've been doing this and getting the experience around that, and as their book grows, every year we have an opportunity to go back and value the assets that are on our system, and to the extent they exceed a band, we'll have an opportunity for in-contract additional revenue, which is exciting. Yeah, same thing with commercial in the commercial book.
With both of those in this new pricing, our GenAI product, Banking Advisor, it is part of the sale. So we're also seeding that into the environment. Again, they'll pay us a minimum fee for it. As they exceed the usage units they get with that minimum fee, they'll pay us more, which again, great getting additional revenue without having to go sign any new business. We're doing it now, but formally on February 1, when we start our new fiscal year, that will be the default pricing for the company. It's gone well. We've been very methodical about rolling it out. We've worked with a third party to make sure who's done this before with other companies to make sure that we anticipated potential roadblocks. So far with our customer interactions, it's been very well received.
Is that right? Just kind of good early feedback from.
Very much so. And we have such close relationships with some of our customers. We worked with them this past year and a half in terms of testing and feedback. And so we've really put a lot of energy and planning into it to minimize any potential risk. And we think this is a big positive for the company and ultimately helps mitigate potential churn down the road because actually they're going to be incentivized to put more and more people on nCino, right?
That's interesting.
Particularly as you're leveraging GenAI and what we're doing with Banking Advisor versus worrying about, does Sake t deserve a seat? Right? And do I really want to pay for it? Which is a different discussion.
That's an interesting perspective. Yeah. Yeah. I want to talk about the accounting behind it a little bit. I mean, I think an interesting point around it is it kind of feels like we'll have faster time to revenue here compared to kind of the ramping type of waterfall that we've had historically. Maybe talk about that dynamic a little bit, and any other accounting changes, not accounting changes, any other model impacts, right, that the new pricing model would have?
Yeah. So historically, right, we would sell seats and we would do it on a delayed activation where, let's say someone purchased 100 seats, you would end up rolling them out over a period of time on an agreed-upon schedule. So maybe you turned on 10 upfront and you'd bill for those 10. The remaining 90 you wouldn't bill until you turned on. So maybe you'd go from 10, you'd turn on another 30, et cetera, until you get to your 100, right? And that's ultimately the top level that they would be paying us. That seat price was fixed during the term, right? So we didn't have that opportunity, as I mentioned, for kind of in-contract revenue growth, right, as we now can do from an asset perspective. So we did. We had things under contract, but really pushed revenue.
We just had the visibility, but it was layered out. Under platform pricing, as it relates to net new customers, what you frequently see, and we learned this, is that if you go sign someone for a three-year deal, for example, they'll want to pay you less in year one because you're getting them up and running and implemented it, and then ultimately ramp up. So in an example, if they paid us $1 in year one and $2 in year two and $3 in year three on a three-year deal, under the accounting rules, you straight line that. You're going to recognize $2 each one of those years. That said, from a billing standpoint, because the contract says they're only paying us $1, it doesn't reflect the accounting rules. We're only going to bill $1, right?
We've recognized a dollar more than what we've billed. Ultimately that gets, and you would have heard us talk about that on our last two calls, that gets into an unbilled AR asset. It's lower upfront. Then as you ramp up, we end up kind of building up this bow wave of cash, right, where in year three, we're going to recognize $2, but we're actually going to get $3. Fortunately, our financial institution customers are great payers. I think it's a model that they're comfortable with and we're comfortable with. Renewals would generally not have that type of a ramp. It would just be a step up.
Right. Right. So it's interesting. I mean, from a deployment perspective, the customers are still going to be sort of activating it based on their own schedule. But from a revenue perspective, this is going to be like the revenue model will be like almost like any other SaaS company in terms of sort of ratable revenue over kind of nice straight line, right?
This is much more the norm. Our delayed seat activation model was much more unique. And that's why, again, not having to go back and forth during a negotiation process with a customer around seat activation is a big positive.
Yeah, absolutely. Absolutely. I'd love to move to some other higher level kind of modeling questions. I think that at last year's analyst day, we talked about the long-term goal of growing at about 15%. Maybe the question is, how do you feel about that as you look out the next couple of years with the moving parts of underlying growth, right, the mortgage market and actually the new pricing model that we just talked about? How do you think about those moving parts in the context of the 15?
Yeah. So without talking about future guidance, right? I've got to throw the disclaimer in. But I think what we've done, and again, really proud of my colleagues and proud of the organization, it has been a challenging couple of years. Everyone stayed very focused on executing our strategy, whether it's geographic expansion and even more specifically product expansion. Because we've had this vision and we wanted to execute on it, I think we believe in it passionately. And so we kind of emerge on the other side of some of these headwinds as they hopefully are subsiding and subside with a, I think, just a unique, broad, and deep product portfolio that's unmatched in the marketplace.
And so I feel like we have truly planted the seeds, whether it's onboarding, which we built some of ourselves, and then we made some acquisitions to round out that offering on a kind of end-to-end basis, whether it's consumer, which we've talked about, and kind of that product really being ready for prime time, whether it's Banking Advisor, the GenAI product that we talked about that we're incredibly excited about. There was actually an article in American Banker last week where they interviewed one of our customers, Great Southern Bank, around their use of Banking Advisor and just the early feedback. I would encourage you guys to read because I think hopefully it sets the stage for what's to come. We've got our omnichannel front end that we're leveraging the SimpleNexus technology that we purchased across all of our consumer-facing applications.
We've talked about international and the opportunity there that we remain excited about with a really big SAM. And then mortgage, which again, it's been difficult. It seems like things have settled down. And so we would expect that to help grow nicely in the coming years. So I feel like we've done all these things and all of these right things to help position ourselves for long-term success. And I think we feel really good about that. Now we just got to go execute, right, and just focus on doing that.
Yeah, absolutely. Maybe the last question I want to touch on here is just margins. I mean, nCino crossed, I think, the 20% margin threshold for the first time here in Q3. And the emphasis for a while has sort of been on profitable growth. Maybe as you look ahead to 2025, how should we think about sort of your priorities between driving prioritization between growth and margins, if that makes sense?
Yeah. We've been consistent. We think it's still really early in a massive opportunity. I mean, our SAM now is over $19 billion, and we think we are in a very much leadership position, and so we always want to err on the side of growth. I think we learned over the last couple of years you can't always control that, whether it's macro events or otherwise, and so we take a rule of [40/30] framework that we started talking about a year or two ago to make sure that we continue to make progress in terms of driving shareholder value. We want to drive growth, but ultimately, to the extent we don't necessarily see the growth or we see more opportunities for efficiency, which I believe as we look at our business even today, there's still quite a few opportunities for continued efficiency gains. We're always trying to tweak, right?
We kind of view the company as a living, breathing thing, and change is a good thing. Try to embrace change. What got us to where we are isn't necessarily going to get us to where we want to go. And so we'll continue to drive that. Again, I believe we've demonstrated an ability to drive that bottom line, and we'll continue to do that. Again, we'd like to continue to see that top line grow in accordance with what our expectations are. But I think we do have the ability to balance whatever gets thrown at us to make sure ultimately we're improving that ROE and driving up our share price, hopefully, and maximizing value.
Boy, could not think of a better point to end on. So maybe with that, Greg, thanks so much for the time. Really enjoyed the discussion. Very insightful.
Pleasure.
As always.
Absolutely. Thank you very much.
Thank you.