nCino, Inc. (NCNO) Earnings

Management highlights

- **AI Platform Adoption**: Encino is transitioning to a unified AI-powered platform, with 48% of Annual Contract Value (ACV) now on platform pricing. Over 230 customers have purchased AI intelligence units, and one-third of customers on the new pricing model are actively using Banking Advisor capabilities in production. - **Customer Retention and Expansion**: Four of the top 20 U.S. enterprise customers renewed multi-year contracts ahead of schedule with an average ACV increase of over 10%. The company is seeing strong expansion in community banks, credit unions, and international markets (e.g., Japan and Germany). - **Operational Efficiency**: A key use case, 'Locate and File,' saves an estimated 160,000 hours annually for one enterprise customer, equating to over $5.5 million in savings. Continuous Credit Monitoring (CCM) uses deterministic models alongside LLMs to provide auditable, risk-based insights. - **Product Innovation**: The R&D team delivered more product features in the first half of the year than ever before. The pace of innovation outpaces current customer adoption rates, creating pent-up demand. - **Talent and Execution**: Management emphasizes attracting and retaining top technical and banking talent. Sales pipelines are healthy and diversified across segments, solutions, and geographies.

Guidance

- **Q3 Fiscal 2027**: Total revenues expected between $161.25 million and $163.25 million. Subscription revenues expected between $143.25 million and $145.25 million. Non-GAAP operating income expected between $42 million and $44 million. - **Full Year Fiscal 2027**: Total revenues raised to $644 million–$647 million (previously lower). Subscription revenues raised to $573.5 million–$576.5 million. Non-GAAP operating income raised to $171 million–$174 million (up from prior $166M–$171M range). Free cash flow raised to $137 million–$142 million. - **U.S. Mortgage Outlook**: Revised downward due to higher-for-longer interest rates causing increased churn among Independent Mortgage Banks (IMBs). Q3 forecast is ~$20 million; Q4 is ~$18.5 million. - **Non-Mortgage Growth**: Excluding U.S. mortgage, subscription revenue growth is expected to accelerate, implying ~12% growth in Q4 FY27. This is driven by AI adoption, international expansion, and cross-selling. - **Churn**: Aggregate annual churn remains unchanged at approximately $25 million, though the mix has shifted slightly toward higher IMB churn offset by lower churn elsewhere.

Segment performance

Total revenues were $161 million, up 8% year-over-year. Subscription revenues accounted for the majority of this performance at $143.5 million (up 10% YoY), representing approximately 89% of total revenue. U.S. mortgage subscription revenues contributed $20.6 million (down 1% YoY). Professional services revenues contributed $17.5 million (down 3% YoY). Non-U.S. revenues contributed $36.4 million (up 9% YoY), with non-U.S. subscription revenues at $30.9 million.

Risks & headwinds

- **Interest Rate Environment**: Persistently high mortgage rates are pressuring the Independent Mortgage Bank (IMB) market, leading to increased churn and M&A activity, which negatively impacts U.S. mortgage subscription revenue forecasts. - **Regulatory and Security Hurdles**: Highly regulated financial institutions require rigorous governance, security, and compliance reviews before adopting AI capabilities in production, potentially slowing the speed to value realization compared to internal development timelines. - **Competitive Landscape**: While Encino differentiates itself through domain-specific data and deterministic models, there is competition from local vendors, horizontal workflow providers, and potential internal build initiatives by large banks. - **Execution Risk**: Maintaining accelerated growth requires successful execution of sales motions, particularly in international markets and among smaller community/regional banks, while managing the integration of new AI capabilities into existing workflows.

Analyst Q&A

• Q: Analyst asked about mortgage competitive win rates and share gain opportunities amidst headwinds. /

  A: CEO noted that while higher rates are a headwind, the business remains important. He highlighted wins in stable community banks and credit unions as key areas for share gains, emphasizing that the platform's diverse motions (commercial, consumer, mortgage) provide a resilient portfolio and accretive pipeline momentum.

• Q: Analyst asked for drivers of upside in non-mortgage subscription growth. /

  A: CFO cited strong global demand for flagship commercial products and five key growth initiatives: AI, international expansion, credit unions, cross-selling mortgage to banks/credit unions, and onboarding. He emphasized that these levers are still early-stage, suggesting significant future growth potential beyond current acceleration.

• Q: Analyst asked about AI usage trends and specific use cases driving adoption. /

  A: CEO stated that AI production deployments have doubled year-to-date, with one-third of new-pricing customers now live. He highlighted 'Locate and File' and 'Continuous Credit Monitoring' as key examples where deterministic models combined with LLMs deliver measurable, auditable outcomes, noting that customers are moving from sandbox testing to production faster than anticipated.

• Q: Analyst asked if the 'Rule of 50' framework remains a target and how intelligence units fit in. /

  A: Management confirmed they are hitting the 'Rule of 40' early and plan to maintain aggressive growth. They view the Rule of 50 framework as intact but prioritize sustainable growth and margin expansion (targeting 35% non-GAAP operating margin) over rigid top-line metrics. Intelligence units are seen as a driver of long-term adoption and revenue, not just a short-term metric.

• Q: Analyst asked about the bottleneck between product development pace and customer adoption. /

  A: CEO stated that product development is outpacing customer consumption capacity, creating pent-up demand. He emphasized that the focus remains on delivering bottom-line efficiency (e.g., loan cycle times) rather than just feature volume. The company is rotating managed services resources to Forward Deploy Engineering to help customers adopt new features more quickly.