I'm Adam Bergere, a member of the Software Equity Research team here at BofA. I'm happy to welcome Greg Orenstein from nCino. Greg, how are you?
I'm doing great. Very happy to be here.
Yeah, great. Let's just start with quick background. You stepped into the CFO role in January, but you've been at, you know, nCino for much longer than just this past January. Yeah, just love to learn a bit about yourself.
Yeah. I joined nCino almost eight years ago. Been fortunate to have a few different roles there. Prior to taking on the CFO role in January, I was focused on corporate development and strategy. Really, just over the last few years in that role, you know, we did three acquisitions, we went public, we had a secondary offering, and then was fortunate to get the opportunity to step into this position middle of January.
Yeah, congrats.
Thank you.
Yeah, just for people who are newer to the story, let's just start out with, like, a high-level overview of what nCino does and the solutions it provides.
Absolutely. We are a multi-tenant SaaS provider of financial services software to banks. We focused originally on commercial lending to community banks in the United States. In late 2014, 2015, we took that solution up to enterprise banks here in the States. In the summer of 2017, we planted our first flag outside of the US in London, and we subsequently expanded geographically into Australia, both in Sydney and Melbourne, through an acquisition that we did, as well as Toronto, and Tokyo, France, Spain.
While we were expanding geographically, we also expanded our product set. We started, as I said, with commercial lending, expanded to small business, consumer lending, which includes our mortgage solution that we acquired last year.
We also do account opening and onboarding for customers. About 4 years ago, we started what we call nCino IQ, or nIQ, which is really our data, analytics, AI initiative. I know AI is the buzzword and hype today, but it's something we really started 4 years ago, and under that, we've got 3 products. It's an initiative that we have in terms of leveraging a lot of the data that we have with all of the customers that we have.
That's something I think you'll continue to hear more about. I think what's unique to us is, again, one single code base spans community banks to the largest banks in the world, and it's just all on a single platform. We really give the bank the ability to run their financial institution with nCino.
Great, thank you. Just as a follow-on to that, like, how do you think about the addressable market of the core business, and how has that continued to grow over time?
Yeah. From a SAM perspective, our SAM, as we talk about commercial, where, again, we started and a lot of people think that we really are a commercial lending business, which we've evolved quite a bit from as we can elaborate as our discussion goes on. That's a little bit over a $3 billion SAM.
When you look at the retail side, which includes mortgage, that's almost a $7 billion SAM. On the nIQ side, which is the three products that we have, it's about a $2 billion SAM. As we come out with new nIQ products, that SAM will continue to increase. The other interesting thing I think about our SAM is that more than half of it's outside of the US.
We see a great opportunity, outside of the US, which is still pretty early days, notwithstanding some of the success that we've had, including we've got 5 of the top 9 banks in the UKI, 5 of the top 7 banks in Canada, 3 of the top 5 banks in New Zealand.
Great. I guess a bit of a harder question. Apologies here. We're now more than a year into, like, the Fed tightening cycle and the beginnings of, you know, some recessionary fears. Can you provide a quick synopsis of how the operating environment has evolved over the last 12 months?
Yeah, it's. It has evolved and been interesting. I think when we take a step back, if you follow the company, you would have heard us on our second quarter call last year, talk about slowness and some delays in Europe. Not surprising, given macro, given the concerns about energy and obviously the war. That continued in the third quarter.
We kind of saw it travel over to the US, if you will, in the second half of the fourth quarter and into the first quarter. I'd say kind of culminating with the liquidity crisis or concerns that we saw in March and in April. I think what's interesting and what we've seen through that is, from a deals standpoint, deals not falling out of the pipeline.
you know, a healthy pipeline. It's just there was a little bit of an air pocket in Europe, and we talked about that being in Q2 and Q3. We saw in Q4 and Q1, really strong sales in Europe. I think that's what our expectation would be here in the States, is kind of again, we get on the other side of the liquidity concerns in March and April, and financial institutions are able to kind of focus back on their need to modernize and digitize and provide their consumers with, you know, the experiences from a technology standpoint that they're, that they're used to.
The demand remains, the pipe remains. Again, from a timing standpoint, a little bit of an air pocket that, you know, we previewed on our last call was gonna happen in Q1, we're seeing that play through.
Got it. You kind of alluded to it, but you reported results last week. Just, you know, let's quick recap, maybe some key highlights that you wanted to point out and then, you know, maybe some common discussion points you're having with investors.
Yeah. I think key highlights, you know, I'd point to our record cash flow and the non-GAAP operating income that we were able to generate. I think those were financial highlights. I think from a customer perspective, we announced a deal for property lending in the UK with a large institution there. If you think about property lending, you know, it's really property lending over there versus mortgage.
You know, the US is really unique in terms of the government involvement in mortgages. Primarily outside of the US, you know, a mortgage is just another loan and a desirable loan, and we see a really large opportunity for, you know, property lending outside of the US. I think that sale was a good evidence of that opportunity, so we're excited about that. From a commentary standpoint, you know, not surprisingly, a lot of questions about macro.
Yep.
You know, what we're seeing. Certainly expected in this market, but I'm trying to provide as much transparency to folks as we can, let them you know and hear what we're seeing.
Got it. There's a counterintuitive element of, I guess, your report earnings last quarter, where you kind of saw a bit more resilience in small banks, smaller financial institutions. Just curious if you could elaborate on that.
Yeah. You know, I think a lot of people believe that's counterintuitive because I think people would have expected more impact on the community banks. I think we saw it. We had a lot of conversations with our customers, you know, during March and April, as the liquidity concerns were top of mind. You know, really what you saw, I think on the news, it was characterized as regional banks.
The way we look at our market is community banks are up to $10 billion, regional banks are between $10 billion and $100 billion, and then enterprise are North of $100 billion. The banks really in question were large banks. I mean, Silicon Valley Bank is a $200 billion bank. That's a nice size bank.
That's what you saw on the screen every day on CNBC and, you know, the stock implications in terms of their stock prices, et cetera. That's where, again, we saw folks saying, "Hey, we need to go focus internally. You know, bear with us for a few weeks." The community banks, in our discussions and experience, did not experience that for a couple reasons. One is, I think, just the nature of community banks. I think it really reinforces the place that they play in the United States. They truly are part of the community.
As the concerns rose, you know, I think it was very easy for them to call their customers, many of which they know well, they've got long-standing relationships with, address any concerns that they may have, you know, and have those discussions because they may run into each other on the soccer field on Saturday, right, with the kids.
I think that's part of it. I think the second part is those three banks in question really did have unique business models, you know, tailored to certain customers and high-net-worth customers. I think the average depositor at a community bank is about $1,300.
You know, in terms of deposit outflows, you know, it really, there's really no incentive for you to open up a new account and move money somewhere, particularly if you have a relationship with the bank, you trust the bank. moving, you know, $1,300 balance to another bank for an extra half a point of interest isn't really gonna change anything in your financial profile.
Got it. Thank you. Stepping back a bit, you know, thinking about the build versus buy, you know, thought process of a lot of these banks, you sell to institutions of all sizes, small and large. Just how has that discussion around build versus buy, buying software evolved over time?
Yeah, it's again, I've been in the financial services software business for 20 years now, and it really becomes less and less of a discussion point. You know, starting here in the US, I think you see fewer and fewer financial institutions doing it. I'd say Europe, a little behind on that path, but going down the same path.
Ultimately, I think the cloud's been a difference maker, with respect to whether you would build internally or ultimately leverage a vendor. Ultimately, with the speed with which vendors like nCino can build, the expertise we have, I mean, we have on our Bank Operating System platform, we've got over 450 or so customers, the lessons learned.
It's really from an ROI perspective and from a risk perspective and from an allocation of capital perspective, it really becomes less and less of an incentive for a financial institution to do it themselves. There's still, you know, one or two out there. There's still a handful who that is just their mindset. You know, we'll continue to try to convince them to come our way over time.
Yeah. kind of what leads most customers to choose nCino over competitors, whether it's, you know, replacing an older system, an alternative, or, you know, replacing that, you know, something they had built themselves, and then maybe it just gets a little unruly?
Yeah. I think a few things. One is, you know, I think our people, first and foremost, I think, we've always focused on our reputation. We do have a land and expand strategy. You've got to make sure that land is successful in order for you to be able to expand.
Second is the software that we've built, again, with our great folks. You know, I think we've built some really good software. I think we've been innovative. When we started the business, there really was no cloud banking. People told us banks would never put their data in the cloud. We really have pushed the market.
I think our customers look to us to continue to innovate and help drive them to where they need to be as they need to transform from a technology standpoint. The other thing, I think, is just our single platform story. If you think about how software was historically purchased by financial institutions, it was very much siloed.
The commercial lending department would have their own offering, small business, consumer, et cetera. You may be a great small business customer to financial institution and go in for a car loan, you know, for you personally, and the bank would have no idea who you were.
With our single platform, you know, with everything focused around the customer, that end user, and the ability to understand the full scope of their relationship, I think sets us apart, and again, allows the bank to standardize on nCino and get the efficiency gains from doing that, as well as the enhanced customer relationships from that technology.
Perfect. Then thinking about the different lines of businesses, you serve commercial banking, retail banking, small business banking, treasury, asset finance and leasing use cases. You talked about the single platform. You know, just when you kind of build a relationship with a customer, are they landing on a single use case or several, or are they kind of, you know, because there's that platform effect, are they kind of, you know, buying the whole thing outright?
It's been interesting. Obviously, we did start with commercial lending, as noted, and for many years, that was the product. As we've built out, our focus has always been making sure that each one of our products could stand alone from a competitive standpoint. We have seen a couple of trends, I think, over the last year or 3.
One is landing with retail or landing with small business, and then maybe commercial comes after. I think we can land with any product. The second thing is, having customers buy everything at once, the full platform. In Q4, we announced Johnson Financial Group is a really nice-sized institution. They bought everything.
That land ends up being, you know, significantly larger, but I think that's a testament to how our other newer products have matured and how, again, they are also being viewed as best of class. That allows us the opportunity, whatever the pain point may be for a customer, for us to land there, and then again, work with them over time so they get the full benefits of having a single platform.
Got it. Are there any, you know, areas of the portfolio, use cases, that you've kind of seen, you know, come a little stronger, just, you know, despite the tougher macro?
Yeah. Retail lending, which, you know, is something we've been working on for a while, I think we've been pretty open. It took a little bit longer than we expected or wanted, but I think that product has come a long way, and we now have over 80 retail lending customers. We launched that about 4 years ago. If you kind of match that up to, you know, when we launched the company in commercial, you know, I think we're way ahead of that.
Seeing that momentum, I think is exciting. I think also with our SimpleNexus acquisition, the ability to bring them into our bank and credit union customer base, we've really seen a lot of excitement around that, again, leveraging some of those relationships.
I think that there's a great opportunity for us there. If you look back at last year, obviously, turmoil in the mortgage market, we were integrating that business with nCino, and in parallel with that, we had 16 cross sales and 19 competitive takeaways, and I think that bodes well for where we are going forward with that product.
Those are the two things that I would highlight. Well, actually, I'd say one more is international. Again, with the diversification we have outside of the US and some of the investments that we've made, I think we're starting to see pretty more consistent, you know, returns on those investments, particularly as the macro, you know, as that subsides over time.
Perfect. Then on SimpleNexus, you kind of touched on it already. Just like, what, how, you know, how should we think about the TAM and opportunity? Who's the target customer? Also, you know, in just the last quarter earnings, you called out, you know, the market, the housing market is slowing, but SimpleNexus is taking share. Clearly, you know, you guys are doing something right. Wanted to get your thoughts on, you know, what that might be?
Yeah. We remain to be extremely excited about that business and opportunity. Again, it starts with great people and great product, then taking care of the customers. You know, we had, as we looked at our product portfolio, we saw a need for a mortgage offering. The other thing we saw a need for is with their Mobile-first technology, you would have heard us talk about how we are bringing that and expanding the use cases so that ends up being the consumer front end for all of nCino's products.
That's something that we showcased at our nSight event in May, our user conference, and something that you'll see as the year progresses, us rolling that out more aggressively. You know, one of the things that we saw with SimpleNexus was, again, this great technology, but we also saw a great business model.
Unlike the other players that we looked at or are familiar with in the space that are very much transaction-based, you know, we tried to highlight from day one that SimpleNexus had a seat-based transaction model, and while they didn't see the high highs of the mortgage boom, we also didn't think that they would be as impacted in a rising interest rate environment, and that has played out.
We've been, you know, very transparent about some of the churn that they've had in their market, specifically on the independent mortgage banks. Notwithstanding that churn, again, consistent growth with the rest of nCino this last quarter. Again, we had 2 more competitive takeaways, and, you know, as that market settles down, I think we, you know, expect continued good things from that business.
Awesome. Yeah, you're just the guy to ask about M&A here. I guess, you know, just how hands-on has nCino been with some of the acquisitions? For example, you know, SimpleNexus is pretty full-fledged, you know, in terms of go-to-market, you know, how much of a joint effort is there? In terms of product roadmap, how much more are you mixing the two offerings?
Yeah. Those businesses, we did fully integrate them last year, within a year of acquiring them. From a product perspective, actually, the co-founder of SimpleNexus, a gentleman named Matt Hansen, became the Chief Product Officer of all of nCino. We've seen that as an accelerator for bringing the, certainly the product organizations together, but ultimately the companies together.
You know, Matt's done a great job of coming in and really pushing our development organization to release quicker. SimpleNexus has multiple releases of code a day. Historically, we were on a two times a year cadence for releasing new product.
That's now shifted to a monthly cadence, which I think from that, we've seen a lot more efficiency gains, and just shorter product builds, which allows us to get product out to the market quicker. We've worked really closely with SimpleNexus, as well as with the other two acquisitions, the teams that we've done. I think we feel really proud of the work.
I think we've demonstrated an ability to acquire and successfully integrate companies, which I would say even the easiest acquisitions are really, really hard. You know, with great folks working together with a common objective, it increases your chances of success quite a bit.
Great. On the hot topic, AI, you kind of mentioned nIQ already.
Yep.
You know, what are some other AI-enabled offerings? You know, how big of a revenue driver are these solutions today, and where could that opportunity be over the next few years?
Yeah. We started nCino IQ or nIQ about four years ago, and it really was working with our customers. Again, as we have this platform, as we you know, our software kind of owns the screen of the, of the bank employee, ways for us to inject intelligence into their daily decision-making, versus what we always call is the swivel chair, where you've got different systems, and you swivel from one system to another, which really makes inefficient use, bless you, of data.
Also, you'll see quite a bit, you know, you'll have information, but maybe it's only shared, you know, at more senior levels. It doesn't get out into the field for people who are actually making decisions on a daily basis. We launched nIQ, 2 acquisitions were the catalyst for that, back in the summer and fall of 2019.
It currently is about 5% of our revenue. We see about a 20% uplift with the 3 products that we have, which is Portfolio Analytics, Automated Spreading, and Commercial Pricing and Profitability. With just those 3 products, we see about a 20% uplift, and that really is just primarily in our commercial lending base, which specifically Automated Spreading, Commercial Pricing and Profitability are really targeted to.
What we've been working on over the last period of time is taking all of the data that we have access to, and just to expand upon that, you know, we talk about having assets from 50% of the CNI business in the US running through nCino. We talk about 5 of the top 7 banks in Canada, again, 5 of the top 9 in the UKI, 3 of the top 5 in New Zealand.
SimpleNexus last year, touching about 25% of originations in the US, and then our Portfolio Analytics business having over 1,000 credit union customers, where we have, you know, tremendous data from a consumer perspective.
Bringing that all together so that we can continue to expand on our nIQ offering and come with additional products like early warning, like propensity to default, propensity to pay early, you know, different underwriting analysis that we can do and credit analysis. We see the nIQ product set growing over time, leveraging that data, and ultimately, we would expect that 20% to increase along with it in terms of upsell opportunity with our customer base.
Yeah. Just a quick clarification, you mentioned it contributes roughly 5% of revenue. In terms of, like, percentage of customers who are using it, would it be fair to characterize it as also 5%, or how should we think about that mix?
Yeah. About 30% of our customers have at least one nIQ product.
Mm-hmm.
of our BOS customers, or Bank Operating System platform customers, have about 1 nIQ product.
Got it.
One nIQ product.
The go-to-market for nIQ, how do you guys structure that?
Yeah, it's just another offering that the sales force has. We bring in experts, solution experts to help support the sales initiatives. But again, as you talk about, for example, Automated Spreading and Commercial Pricing and Profitability, I mean, that's something that, you know, we'd expect every one of our commercial lending customers to want and need. It's just a question of lining it up from a timing perspective and budgetary perspective.
But those are front and center, and again, I think we're excited about the infrastructure that we've invested in over the last couple of years to set us up to really leverage the data that we've got access to.
Yeah. Stepping back from that, you know, thinking about the whole company go-to-market, it's a combination of SI partners as well as direct. Just, you know, where are incremental investment dollars going in terms of, you know, investments being made in the sales and marketing organization?
Yeah. We do have a direct sales force. We work with our SIs, you know, on specific accounts. You know, for example, as we think about areas of the world that we don't have a flag planted, working with SIs, leveraging their relationships to bring us into countries. We'll continue to do that.
You know, when we looked at this year, we looked at our plan, it was important for us to make sure, in light of the demand that we see out there, notwithstanding, you know, kind of near-term headwinds, that we have the same covered. If you look year-over-year for us from a sales and marketing standpoint, you'll see R&D is down some.
You'll see GA is down quite a bit, but you'll see sales and marketing is actually a little bit up, and that is because of the opportunity we believe exists. We actually have more sales folks on the field today than we did this time last year. You know, I think that bodes well. One of the things that, you know, I've certainly seen in my career during difficult times, is people quickly cut back on sales and marketing. It's kind of easy dollars to save in the short term, and then as you kind of ride through the storm and you get on the other side, you know, your sales are down.
Mm-hmm.
You know, you wonder what happened. It somewhat becomes a self-fulfilling prophecy, and in light of the demand that we see, we wanted to make sure that that wasn't the case for us.
Great. It's a good segue. On capital allocation, you know, you guys made great progress on profitability these past few quarters, managing the business to the Rule of 30 for this year. You know, just how should investors think about capital allocation, and, you know, the trade-off between growth and profitability? You know, just, you know, how, you know, how much of that profitability would we have seen, you know, had there not been that slowdown? Like, you know, was this already kind of part of the plan?
Yeah. Again, going back to, I think, what we saw taking place in Europe, in Q2 of last year, you know, I think really set us up down this path. I think, frankly, just in terms of the maturity of the company, it was time to pivot anyway, particularly in light of the growth that we had during COVID.
As a company, you know, we view ourselves as a growth company. We err on the side of growth, and as we see opportunities to grow, we wanna make sure we invest in them because we still think we're in the early innings of a massive opportunity. You know, that said, I think it's important to put a stake in the ground, and Rule of 30 this year was that.
Again, just as a starting point, you should expect that we'll improve upon that next year and beyond as we look to Rule of 40 and then beyond Rule of 40. Again, ultimately, erring on the side of investing in growth is the mindset that we have. You would expect also to continue to see incremental improvement, you know, on our OpEx throughout the year as we leverage some of the investments that we've made previously.
Got it. Is it fair to say that, you know, hiring plans are slowing a bit for the year, or, you know, what's the cadence there?
Yeah, I think we feel good about the headcount that we have. We did, you know, have a headcount reduction in the middle of January at the end of last fiscal year that I think set us up on a good path. We also have been one of those companies that has mandated everyone to come back to the office, and we did that in January as well. Interestingly, I think, you know, the reaction to that was better than we feared. A lot more folks receptive. I think the feedback has been very strong, and I think the output from an efficiency standpoint has been very noticeable.
As we think about our current level of headcount, I think we feel like we are, you know, we're in good shape, and I still think that we've got efficiencies we can gain, again, as more time passes with people working more closely together.
Got it. Lastly, on international, you know, just how should investors be thinking about the international opportunity? You know, a lot of companies will loosely say, like, in the end state, it'll be like a 50/50 mix between US and international. Where do you guys see that going, and where is that today?
Last quarter international, which is just outside of the US for us, was about 17% of our revenues. We are also one of those companies that think it can be 50/50, if not greater. If you go back to my earlier comments about the SAM, it's a larger SAM outside of the US. I mentioned we had our user conference a couple of weeks ago.
It was fortunate for us. We had 1,700 attendees, which we didn't know in this market as people are focused on expenses, you know, whether we would have that strong of a attendance, and we did. It was sold out. What was of note to your point, was that we had people from 15 different countries come.
I think that bodes well, as, again, I think the international opportunity is still early for us, notwithstanding some of the success that we've had. As I said, it can be 50% plus of our business over time.
Got it. Good to hear. Just how much incremental effort is it? You know, I feel like for financial services customers, I would expect it to be, you know, the regulatory hurdle, you know, localizing the products. You know, is it a lot more incremental effort to kind of do that? You know, is the sales motion different for international?
The sales motion, we really look at it on a country-by-country basis. Again, we talk about international, every country is certainly unique. There are different stages, whether it's of regulatory issues or mandates or cloud adoption, ultimately, the need to modernize and digitize and provide that excellent consumer experience is the same, I think, on a global basis. I think that does bode well, again, as we continue to expand.
Specifically on the retail side, you're gonna deal with more nuanced regulatory things on a country-by-country basis, but with the platform, with all the investments that we've made, you know, that becomes much less of an effort, I think with us and our product and our platform than maybe others.
Got it. Thank you. Yeah, that puts us at time. Yeah, thank you very much for joining us.
Appreciate it. Thanks for your time.
Thank you.