NCNO - NASDAQ

Thank you for standing by, and welcome to nCino's Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Harrison Masters, Director of Investor Relations. Please go ahead.

Good afternoon, and welcome to nCino's Fourth Quarter Fiscal 2025 Earnings Call. With me on today's call are Sean Desmond, nCino's Chief Executive Officer; and Greg Orenstein, nCino's Chief Financial Officer. During the course of this conference call, we will make forward-looking statements regarding trends, strategies and the anticipated performance of our business. These forward-looking statements are based on management's current views and expectations, entail certain assumptions made as of today's date and are subject to various risks and uncertainties described in our SEC filings and other publicly available documents, the financial services industry and global economic conditions. nCino disclaims any obligation to update or revise any forward-looking statements. Further, on today's call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to the Form 8-K furnished with the SEC just before this call, as well as the earnings presentation on our Investor Relations website at investor.ncino.com. With that, I will turn the call over to Sean.

Good afternoon, everyone, and thank you for joining us today to discuss nCino's fourth quarter and fiscal 2025 financial results. As many of you know, this is my first time addressing you as CEO, and I want to start by saying how honored and excited I am to take on this responsibility. nCino is a remarkable company, one that pioneered and built a strong foundation in cloud banking software. Now my focus is on taking this great company and making sure it is a great long-term business, one that executes with urgency and precision, delivers sustainable and profitable growth and fully capitalizes on the sizable opportunities ahead to deliver strong returns to all of our stakeholders. As we delivered on the promise of being the worldwide leader in cloud banking in the company's first chapter, I am here to lead nCino's evolution to be the worldwide leader in AI banking. We are marshaling the energy of the company to capitalize on the vertical AI opportunity to drive efficiency into the financials of our customers as well as into our own bottom line. For those of you who have been following the company, you are aware that we have been very focused on leveraging data, analytics and AI for the past 5 years. In addition to our Commercial Pricing and Profitability, Auto Spreading and portfolio monitoring solutions, we have been steadily developing Banking Advisor functionality and plan to launch numerous new capabilities at our nSight user conference in May. For those of you joining us at nSight, you will hear directly from early Banking Advisor customers about the meaningful efficiency gains they are already realizing with this AI technology. Seeing the market catch up to our strategic vision is very exciting and reinforces the unique competitive position we have. I know firsthand just how significant this opportunity is. I have spent almost 30 years in the software industry and nearly 12 at nCino, most recently as Chief Product Officer and before that as Chief Customer Success Officer. During that tenure, I've had approximately 2/3 of the company's employees in my reporting chain and have worked closely with every function of our global business. I've also worked alongside our customers, including sponsorship of sales opportunities, ensuring successful project deliveries, compliance with our SLAs, adoption of our user experiences and realization of our committed business outcomes. I understand exactly what our diverse customer base, which includes banks, credit unions, independent mortgage bankers and nonbank lenders, needs to run their business more efficiently and effectively. I have also overseen the development of the very products that serve as the system of record for our customers' banking operations. Over the past 2 quarters, I've spent time in our offices in Wilmington, North Carolina; Lehi, Utah; London, England; Sydney and Melbourne, Australia; Auckland, New

Thanks, Sean, and thank you all for joining us today. Please note that all numbers referenced in my remarks are on a non-GAAP basis, unless otherwise stated. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website, and as an exhibit to the Form 8-K furnished with the SEC just before this call. Turning to our fourth quarter results. Total revenues were $141.4 million in the fourth quarter, an increase of 14% year-over-year, and $540.7 million for fiscal '25, an increase of 13% over fiscal '24. Subscription revenues were $125 million in the fourth quarter, an increase of 16% year-over-year, and $469.2 million for the full year, an increase of 15% year-over-year. Organic subscription revenues were $118.3 million in the fourth quarter, an increase of 10%, and $456.9 million for fiscal '25, an increase of 12% year-over-year. Professional services revenue were $16.4 million in the fourth quarter, an increase of 1% year-over-year. Full year professional services revenues were $71.5 million, an increase of 7% year-over-year. Non-U.S. total revenues were $33.3 million in the fourth quarter, up 34% year-over-year or 38% in constant currency. Non-U.S. total revenues were $116.2 million in fiscal '25, up 30% year-over-year and also up 30% in constant currency. FullCircl contributed approximately $4.3 million to both the fourth quarter and full year non-U.S. total revenues. Non-GAAP operating income was $24.4 million or 17% of total revenues compared with $19.3 million or 16% of total revenues in the fourth quarter of fiscal '24. Year-over-year non-GAAP operating margin expansion was muted in the fourth quarter by $3.2 million of incremental operating expenses contributed by FullCircl as integration activities began. Our non-GAAP operating income for fiscal '25 was $96.2 million or 18% of total revenues compared with $61.8 million or 13% of total revenues in fiscal '24. Non-GAAP net income attributable to nCino for the fourth quarter of fiscal '25 was $13.9 million or $0.12 per diluted share compared to $23.8 million or $0.21 per diluted share in the fourth quarter of fiscal '24. Non-GAAP net income attributable to nCino for fiscal '25 was $76.1 million or $0.66 per diluted share compared to $58 million or $0.51 per diluted share in fiscal '24. Fiscal '25 non-GAAP net income attributable to nCino included $3 million of interest expense on our credit facility in the fourth quarter and $5.7 million for the full year. Fiscal '25 non-GAAP net income attributable to nCino also included other nonoperating, predominantly noncash expenses from fluctuations in foreign currency on intercompany loans of approximately $10.3 million in the fourth quarter and $10.5 million for the full year. Free cash flow was negative $10.4 million in the fourth quarter of fiscal '25, down from $7.7 million in the fourth quarter of fiscal '24 due to acquisition-related costs of $2.8 million, $3 million of additional interest expense and timing-related fluctuations in net working capital. Free cash flow for fiscal '25 was $53.4 million compared to $53.8 million in fiscal '24, with growth in this metric temporarily impacted by acquisition-related costs of $12.2 million and $4.8 million of additional interest expense as we drew on our line of credit to complete the acquisition of FullCircl. Subsequent to the end of the quarter, we closed the acquisition of Sandbox Banking for a purchase price of $52.5 million in cash, subject to customary adjustments, and an additional earnout opportunity of up to $10 million. The transaction was financed with our revolving credit facility. Sandbox provides middleware that has become critical to our integration strategy for connecting nCino with our customers' core processing and other third-party systems. This transaction immediately yields cost of goods sold savings of approximately $1 million annually that we would otherwise have incurred under our former partnership agreement with Sandbox and is expected to deliver accretive subscription revenue growth and reduce implementation time lines, thereby helping to improve professional services gross margins. We ended fiscal '25 with 549 customers that contributed greater than $100,000 to fiscal '25 subscription revenues, an increase of 10% from fiscal '24. Of these, 105 contributed more than $1 million to fiscal '25 subscription revenues, an increase of 22% from fiscal '24. And 14 contributed more than $5 million to fiscal '25 subscription revenues, an increase of 27% from fiscal '24. Our remaining performance obligation, or RPO, was $1.2 billion as of January 31, 2025, up 15% over $1 billion as of January 31, 2024, with $797 million expected to be recognized in the next 24 months, up 18% from $675 million as of January 31, 2024. Acquisitions completed in fiscal '25 contributed approximately $24 million to total RPO and $22 million in less than 24 months RPO. Before turning to our fiscal '26 guidance, I wanted to provide an update on our new pricing framework as well as on the new KPIs we are providing to assist you in better understanding our business and measuring our progress. On our new pricing framework, recall that in fiscal '24, we began implementing platform pricing for our mortgage customers and for Consumer Lending customers. And this year, we began implementing platform pricing for all of our other solutions. As of January 31, 2025, approximately 15% of our ACV is on platform pricing, and we expect to complete the transition of remaining ACV over the next 4 years. Due specifically to the pricing transition, we are modeling an approximately 1% subscription revenue growth benefit from the pro rata contribution of deals signed in fiscal '26 relative to how we would have recognized subscription revenues on our legacy seat-based model. This benefit, along with that of renewals where we are targeting an appropriate price uplift to reflect the meaningful innovation we have added to our product portfolio, including from Banking Advisor, will be larger in subsequent years as more of our customer base is converted to new pricing. Please reference Slide 18 in the appendix of our earnings presentation for an illustrative example of subscription revenue recognition for both new and renewal agreements under platform pricing. We look forward to discussing the new pricing model in more detail at our upcoming Investor Day at our nSight user conference in May, including the benefits we expect to realize from the shift and the anticipated impact to our reported metrics. Turning to the new KPIs. Please refer to Slide 4 in our earnings presentation to reference these updated disclosures. Going forward, we will be guiding to and reporting ACV annually as of the end of our fiscal years. We define ACV as the highest annualized subscription fee obligation under customer contracts in effect at the end of a reporting period. Note that ACV does not include any fees generated from consumption above contracted minimums for our mortgage or Banking Advisor solutions. ACV is management's preferred KPI for sales achievement, including for determining variable compensation for employees on sales commission plans. Our customers sign large multiyear agreements, some of which ramp over time, and we expect high retention rates. So optimizing the fees at the end of a contract term is what we emphasize and incent for our sales force. On a reported basis, ACV as of January 31, 2025, was $516.4 million, an increase of 13% year-over-year or 8% on an organic basis, reflecting an improving gross bookings trend versus the prior fiscal year, most notably in the U.S. community and regional and enterprise markets, both of which exceeded their gross bookings targets in fiscal '25, while international and mortgage gross bookings were below plan. On a constant currency basis, ACV grew 14% in total and 9% on an organic basis in fiscal '25. We are also introducing another new disclosure, ACV net retention rate, which increased to 106% in fiscal '25 versus 102% in the prior year. We define ACV net retention rate as total ACV at the end of the fiscal year from customers with ACV as of the end of the prior fiscal year, expressed as a percentage of AC as of the end of the prior fiscal year, converted to U.S. dollars with foreign exchange rates in effect as of the end of the applicable period. We believe this improvement is indicative of growing demand from our existing customers to more broadly adopt our platform and of churn beginning to normalize as market-driven headwinds subside. I'd note that we are aligning the definition of our subscription revenue net retention rate with the details disclosed in our quarterly SEC filings regarding changes in subscription revenues from new versus existing customers based upon when a customer first contributes to subscription revenues. A comparison to the prior reported metric is available in our Form 10-K. Subscription revenue net retention rate moderated to 110%, down from 116% in fiscal '24. Like subscription revenues, we believe this is a lagging indicator, and its decline was primarily an output of the elevated churn in fiscal '24 that impacted subscription revenues in fiscal '25. Total churn in fiscal '25 ended up at $26 million of annualized subscription revenues, down from $31 million in fiscal '24. Of this amount, mortgage churn was $9 million in fiscal '25, down from $13 million in fiscal '24. As we expect churn to continue moderating towards our historic norms, going forward, we will quantify and discuss retention on a net basis with our new disclosure framework. As Sean noted, we are very excited about the future, and we are absolutely leaning in on the growth opportunities we see ahead of us so that we can leverage our leading position in this market. This involves making certain investments, particularly in international sales and in marketing to capitalize on this opportunity. Despite these investments, we expect steady operating margin expansion beginning in the second half of this year. And while we are not ready to provide specific guidance beyond fiscal '26, we are focused on achieving the Rule of 40 milestone and are confident in our trajectory to accomplish this somewhere around the fourth quarter of next year. We believe the returns on our investments in sales and marketing and the product innovation we are bringing to market this year, coupled with the cost efficiencies we expect to achieve in our R&D organization by leveraging AI and through other organizational efficiency initiatives, will be instrumental in achieving this. While the exact timing may vary by a quarter or 2 based on market conditions and investment opportunities, you should be confident that we are laser-focused on ensuring that we achieve the Rule of 40 in a sustainable and disciplined manner. Turning to fiscal '26 guidance. We take our commitments to the Street very seriously and recognize that our prior revenue guidance philosophy could have been more conservative to leave us greater flexibility in operating the business. Recognizing this, we have adjusted our guidance framework and have attempted to derisk our guidance as much as possible. With that in mind, I'd like to provide some additional details to help you contextualize the fiscal '26 guidance and in particular the year-over-year growth trajectory throughout the year. Note that we are giving these additional data points to help you more clearly understand how we built our model and developed our guidance for fiscal '26. While we will, of course, address general trends in our guidance on each earnings call, we do not plan on going through and updating each of these assumptions on a quarterly basis. First, we expect the approximately 1% currency headwind to ACV growth in fiscal '25 to have a commensurate negative impact on fiscal '26 subscription revenues. Second, we expect to have DocFox integration complete by nSight, and our expectation is that bookings for this product will increase meaningfully in the second half of the year. We continue to believe that the onboarding opportunity for nCino on a global basis is significant. With that said, as Sean mentioned, bookings for this solution were below plan in fiscal '25 as product integration activities were prioritized. And as a result, there is a lagging effect that impacts our subscription revenue growth in fiscal '26. We expect the anticipated bookings rebound for onboarding in the second half of fiscal '26 will contribute to accelerating subscription revenue growth in fiscal '27. Third, our U.S. mortgage business grew 8% in fiscal '25 in what remained a difficult market. Despite this growth and the many opportunities we see for our mortgage solution in the market, including taking it more upmarket to regional and enterprise banks as well as to more and more credit unions, in light of the uncertainty around the path of mortgage rates in the U.S., our guidance for fiscal '26 assumes no year-over-year increase in U.S. mortgage subscription revenues. Any growth in this business, including growth in loan volume overages, would be upside to our numbers. Finally, our second half year-over-year subscription revenue comparisons will be negatively impacted by approximately 3% in both the third and fourth quarters of fiscal '26 as a result of onetime subscription revenues that occurred in the second half of fiscal '25, affecting our U.S. mortgage and international businesses as a result of onetime revenues that occurred in the second half of fiscal '25. These revenues primarily related to onetime catch-up mortgage revenues as noted on our Q3 earnings call and a contract buyout by a customer that, following management changes at the bank and internal restructuring in the business that had sponsored our program, decided that now was not the right time to move forward with their implementation. For the first quarter of fiscal '26, we expect total revenues of $138.75 million to $140.75 million, with subscription revenues of $121.75 million to $123.75 million, an increase of 9% and 11%, respectively, at the midpoint of the ranges. Beginning this quarter, our guidance for and reported non-GAAP net income attributable to nCino per share will exclude any impact from currency exchange on intercompany transactions. Non-GAAP operating income in the first quarter is expected to be $22.5 million to $24.5 million and non-GAAP net income attributable to nCino per share to be $0.15 to $0.16. This guidance assumes interest expense incurred under our credit facility of approximately $3.5 million. This is based upon a weighted average of approximately 119 million diluted shares outstanding before any share repurchases. For fiscal '26, we expect to add $48 million to $51 million to ACV on a constant currency basis, including approximately $4.5 million from the acquisition of Sandbox. This represents 19% organic net ACV bookings growth at the midpoint of the range, which should accelerate subscription revenue growth in fiscal '27. For fiscal '26, we expect total revenues of $574.5 million to $578.5 million, with subscription revenues of $503 million to $507 million, representing growth rates of 7% and 8%, respectively, at the midpoint of the ranges. Excluding the impact of the onetime items noted above and currency fluctuations, our organic subscription revenue growth rate in fiscal '26 is expected to be approximately 7% at the midpoint of the range. In light of the specific headwinds I highlighted earlier, we expect subscription revenue growth to be approximately 6 points lower in the second half of the year versus the first half before reaccelerating in fiscal '27. We expect FullCircl will contribute approximately $13.3 million to subscription revenues through the first 9 months of fiscal '26, including approximately $4.3 million in the first quarter, and that Sandbox Banking will contribute approximately $4.2 million to subscription revenues for the full year, including approximately $750,000 in the first quarter. For fiscal '26, we will refer to the 9-month contribution of FullCircl and the 12-month contribution of Sandbox as inorganic as these periods compare to the prior year periods which preceded each acquisition. We expect non-GAAP operating income for fiscal '26 to be $107 million to $111 million, a 13% increase over fiscal '25 at the midpoint. After playing defense for the better part of the past 2-plus years in light of the macro difficulties impacting financial institutions around the world, we are going on the offensive and investing in areas of high growth. To that end, our guidance assumes an increase in sales and marketing expense related to additional quota-carrying sales representatives to cover the U.S. credit union market, emerging geographies in EMEA and Japan and investments in digital marketing initiatives amounting to approximately $10 million for the full year. These investments reflect the sizable opportunity we see in front of us. Our guidance assumes approximately 100 basis points of operating margin expansion at the midpoint of the range for the full year with the first half of the year flat to that of last year. We expect the second half of the year will yield approximately 200 basis points of expansion as we leverage the sales and marketing investments made at the start of the year, get beyond our annual user conference in May and realize additional operating efficiencies in our R&D organization. We expect additional margin expansion in fiscal '27 and beyond as we generate scale and efficiency from these investments and efficiency gains. Non-GAAP net income attributable to nCino per share is expected to be $0.66 to $0.69, excluding the impact of currency fluctuations and is based upon a weighted average of approximately 120 million diluted shares outstanding before any share repurchases. This guidance also assumes interest expense incurred under our credit facility of approximately $14 million. In closing, I appreciate that we have provided you with a lot of information today, and we will do our best to make ourselves available over the coming days to answer your questions and provide clarity about the disclosures made. I also look forward to seeing many of you at nSight next month in Charlotte, North Carolina, where you will be able to see firsthand the unique and exciting product innovation we are bringing to market and where we will go into more detail about the business, our financials and the opportunities we have in front of us. With that, I will open the line for questions.

[Operator Instructions] Our first question comes from Saket Kalia of Barclays.

Okay. Great. Congrats, Sean, on your promotion to CEO. Very well deserved.

Thank you for that.

Absolutely. Sean, maybe for you. I'm curious what you're hearing back from your customers just as you -- and I know you spent a lot of time with customers. What are you hearing back from them as they think about their willingness to invest here in 2025, particularly as we look at sort of the implied organic growth here in fiscal '26?

Yes. Appreciate the question, Saket. And yes, we've got customers coming through our headquarters in global offices on a regular basis. And what we hear from executives across our customer base is that although they acknowledge the volatility in the markets currently, they're also turning the corner on some of the headwinds that we've experienced in the previous years, past the liquidity crisis, past the longest inverted yield curve we've had in the past 46 years, good thing for banks specifically. And by and large, they're telling us their balance sheets are healthy and they're expecting growth in their loan portfolios and their deposit positions and as well as their own EPS. So these are all good signals for them to focus internally on how they can improve their efficiency, which plays exactly to our value proposition.

Got it. Got it. Greg, maybe for you. Appreciate the additional disclosure. But I was wondering, could you just maybe dig into the difference between sort of the growth rates between ACV and revenue in fiscal '26? I think the ACV growth at the midpoint is, I don't know, high single digits. I think the revenue growth is a couple of points lower than that. How do you sort of think about those 2 things differently?

Thank you for the question, Saket. As Sean noted on the call, revenue growth is a lagging indicator or a metric of where we've been, while bookings or ACV growth is a leading indication of the future and where we're going. So as noted, our ACV accelerated 1% on a constant currency basis in fiscal '25, and we look forward to updating you on our bookings progress throughout the year. From a revenue perspective, I'm going to point you to Slide 16 in the presentation that we posted, which walks you through the bridge between fiscal '25 and fiscal '26. Specifically, you'll note from a headwinds perspective, 1% for FX, about 1% the mortgage business dilutive in light of the conservative nature we took around our guidance with mortgage this year. There's a 2% headwind on the onetime revenues that I commented on in my prepared remarks. And then finally, there's a 6% if you exclude mortgage organic headwind, and that's really a combination of a couple of things. One is gross bookings, which were a little shy of where we expected to end the year, mainly because of international and mortgage, as we've been talking about in the second half of last year, as well as a little bit higher churn. Again, referring back to my prepared comments in terms of the onetime nature of a customer in Q4. And then 2 other things I'd point you to. One is just from a linearity of fiscal '26 bookings. As part of our modeling this year, we did go more conservative in terms of forecasting bookings more back-end weighted than normal. And that really, I think, touches probably upon the biggest point, Saket, is just the change in the guidance philosophy, as I noted on the call. I think last year, we got a lot of feedback in terms of the guidance that we gave and how the year progressed. And ultimately, our goal this year was to be much more conservative in the guidance and try to derisk it as much as we possibly could. And as we see momentum building through the year, our goal and expectation is to be able to update you on that progress and ultimately see that momentum with the business and ultimately with our guidance going forward.

Our next question comes from Terry Tillman of Truist Securities.

You kind of broke up there, but I think that was for me. So I'll just ask a single question. There's going to be a lot of questions. Just a heads-up, it's a multiparter though. I think in your all prepared remarks, you all talked about going on the offensive and mentioning increased go-to-market investments. I mean the results on the gross booking side, definitely underwhelming. But what's -- is this signifying you don't have enough sales capacity? Is it an up-tiering of the sales force? So first, I'd just like to know kind of what's informing kind of the go-to-market investments and then had a second part of the question.

Yes. Thank you, Terry. Appreciate it. A couple of things. First and foremost, we are leaning into the go-to-market motion and solidifying our internal team here across sales, product, marketing and CS and making sure that we have solid investments layered down in the organization. So specifically, we brought in a new Head of Product Marketing to lead that organization. We've put leadership in place in EMEA specifically, where, as you all know from the prepared remarks, we were not satisfied with the year-over-year growth this past year. And those 2 appointments as well as launching a go-to-market team in the credit union space to focus specifically on an area where we think we have a lot of upside. And beyond that, we have put new mortgage leadership in place as well. So there have been a lot of intentional moves for reacceleration of growth in sales leadership as well as in the marketing functions. And those teams are collaborating really well together out of the gate, driving with a sense of urgency, gives us a real confidence this year in growth in bookings.

And Terry, the other thing that I would add is, as I noted, we have been playing defense in light of the macro and ultimately putting salespeople in the field when you appreciate what the buying environment is or maybe what it's not -- is not very productive or efficient. And so in terms of adding capacity, I think you should take that as a sign of the opportunities that we see and ultimately the market and some of the headwinds that we've had to navigate easing, again, getting back to the health in general of our customer base, which, again, comes out of a couple of years of some difficulties. And so it really is a reflection more on the market opportunity that we see right now versus, frankly, where we were a year or 2 ago.

Yes. Got it on that. And Sean, also, yes, congrats on the new appointment to CEO. The second part of the question just relates to -- I was surprised by the idea of go to -- or operating leverage in the second half after some go-to-market investments. Is maybe that apples and oranges, and actually, the leverage you see in the second half is just from normal course of business bookings improving? Or why would we get leverage that fast if you're making investments in the first half of the year?

Terry, I think it's a combination of improved bookings activity ultimately. But again, I think we're continuing to see opportunities from an efficiency standpoint as we constantly are looking at the organization and seeing -- challenging ourselves where we should invest and ultimately where we should make redirect investment. And so that's a constant activity for us, and I think we see continued opportunities. I'll also add that with AI, it certainly brings opportunities in terms of leverage. And we have been -- as Sean noted in our prepared remarks, we have been focusing on data analytics and AI for quite some time. And we think that presents opportunities for us as the year progresses as well.

Our next question comes from the line of Alex Sklar of Raymond James.

Sean or Greg, just on the ACV guidance, I appreciate the new disclosure there. In the prepared remarks, you talked about easing macro, improving international activity exiting the year, better gross retention and then the more strategic product with commercial onboardings and the AI solutions. I'm just curious with all that kind of being factored. Can you talk about the puts and takes that are embedded in that ACV growth outlook, why that wouldn't be better than the kind of 9% constant currency you saw in FY '25?

Yes. I will remind the revenue as a lagging indicator of bookings, right? And so we do believe that we have good upside opportunities with the maturity of our solutions, hardening of our onboarding solution. And we've added a lot of SAM through our acquisitions the past year of DocFox and FullCircl. Capitalizing on those opportunities, we believe, will be good upside for us. And our Consumer Lending solution where we signed up 20 new customers in Q4, including 2 banks north of $50 billion in assets and attacking the credit union market with that solution, will be another good opportunity for us. All that said, those will show up in reacceleration in FY '27 due to some of the revenue lag we talked about earlier. And then, of course, the personnel changes and the momentum we see in the international opportunity would be a good year-over-year growth in our bookings.

Yes. And Alex, the only other thing to add, again, I'd go back to the guidance philosophy that I touched upon in response to Saket's comment as well as in my prepared remarks. Again, I think we took a step back. We took a whole bunch of feedback from investors last year, particularly after our Q3 call. And again, I think our focus is on, again, building momentum throughout the year and setting ourselves up for success. And so again, I would just note that as you think about the differences between what we're talking about now versus what we spoke about last year at this time.

Okay. Great. And Greg, maybe just a quick follow-up for you. The $10 million of higher sales and marketing investments this year, can you just talk about how comprehensive those are versus the opportunity that you see? Is this part 1 of kind of a multiyear sales and marketing investment cycle? Is this a onetime step-up this year to cover some green shoot demand areas and then we see leverage there? How are you thinking about sales and marketing over a multiyear period?

Yes. Alex, I don't think it's a multiyear issue versus, again, with us seeing some falling of the market and us seeing opportunity out there. I think paired with the maturation of our products, and we talked about nSight, where we're going to be coming out with a whole bunch of new products and innovation, it's really just trying to reflect the opportunity that we see. And so some of it is in sales capacity, as we noted. Other is in digital marketing software and activities in terms of pipe and things like that. And so again, from our perspective, it's a specific investment that we're making this year and, again, reflects, as I said, the opportunity and, frankly, the thawing nature of the end market that we've been -- that we serve and have been navigating the headwinds of over the last couple of years.

Our next question comes from James Faucette of Morgan Stanley.

Going in for Michael Infante here this afternoon. I wanted to ask kind of a positioning or market positioning question. Just as a reminder, a lot of the commentary from the Treasury and Commerce Secretaries and the new administration have indicated a lot of the deregulation focus has been concentrated on stratifying capital requirements based on bank size, complexity, et cetera, which I think should disproportionately benefit small and community banks more than regional and enterprise. But can you remind us of your exposure to that smaller cohort and if you're seeing any of that sentiment reflected in your RFP or engagement activity yet?

Yes, sure. Specifically, in terms of the platform scalability, it is a unique position that we have to serve enterprise clients as well as community banks and everybody in between. And that goes beyond banking into the credit union as well as IMB space. But overall, the community bank market for us remains one of our major portfolios. We have a significant percentage of our customer base specifically doing commercial lending in that community bank space. And this past year, we had over 50% of our overall bookings outside of the commercial space in community banking.

Great. That's really helpful nuance there. And then just I wanted to circle back on Pierre's commentary about magnitude of pricing benefit. It sounds like if we're interpreting what you're saying correctly, it could be low single-digit benefit. But curious if we're in the right range and what that will be in fiscal year '26 given the phased rollout.

James, if you wouldn't mind repeating that, I think you referred to a comment from Pierre, are you talking about a prior call or...

Yes, yes. Like just general -- yes. Just generally, the magnitude of pricing benefit. I know that you guys have -- are changing pricing. And just wondering if -- it sounds like you're expecting some of that -- those pricing changes could be a low single-digit benefit this year. But just wondering what that -- if we're understanding that correctly for fiscal year '26 given the phased rollout.

Yes, sure, James. Got it. Thank you for the clarification. So noted that we expect a 1% uplift this year based on deals signed this year. And again, that's just a pro rata benefit that we would expect from the new platform pricing again. And I also will comment that we are more back half weighted bookings expectations, again, consistent with our conservative philosophy on guidance. And we also commented that you should expect that not only to get the full benefit next year, which would be an increase but that to continue as we cycle through the remaining 85% of customers as we migrate them to new pricing. So we do see that as an opportunity. And I think that it reflects the innovation and the investments that we've made, the new products that we have come out with and are coming out with and ultimately specifically the Banking Advisor opportunity, which we think is quite exciting, recognizing that it's early in that rollout, the product and the adoption of AI.

Sorry, circling back to your previous question on market segmentation, about 2/3 of our overall business is in the community and regional market in the U.S. specifically.

Our next question comes from Koji Ikeda of Bank of America.

So in the prepared remarks, you guys mentioned that it's going to take several quarters to see the progress in the 6s. And it did seem like you alluded to that there is some confidence there that you're going to be able to achieve that improvement in the execution in the next couple of quarters. So maybe can you go deeper in some of the things that you've done internally or maybe pipeline build trends since the changes were made internally that's giving you that confidence to make that statement?

Yes, absolutely. And again, the revenue being a lagging indicator of bookings, we are seeing bookings momentum and growth now that we're excited that will show up in the revenue side of the equation later. But specifically, some of the maturity and the follow-through on the commitments we've made to our customers that we've resolved is exciting. And we're hearing that feedback from our customers, specifically the onboarding solution that when we acquired DocFox last year, there was an expectation that a certain amount of customers would take that solution stand-alone as we integrated that fully with the platform. They confirm that they prefer us to go ahead and fully integrate that with the platform, and we expect to see that realized and momentum on that in the second half of this year. So onboarding is one key contributor to our confidence in the back half of this year. The EMEA leadership changes we've alluded to, we put Joaquín in place in November. As I mentioned, he's building out his go-to-market team that's largely in place now. And as they do both go through the pipeline quantitatively and qualitatively, that seems to be trending in the right direction in all areas. And then on the mortgage side of the house here in the U.S., we have hardened that and matured the mortgage solution in terms of readiness for the enterprise. We had several key initiatives last year underway, being ready for a secure multi-tenant environment for enterprise-grade customers, rounding out our APIs with Encompass and some of our AUS integration. Those all converging on completion now give us cause for excitement in the back half of the year with mortgage. And then finally, as we change our guidance philosophy, that shows up over time.

Got it. And maybe a follow-up here. I do understand you guys are targeting kind of a reacceleration in growth in fiscal '27. But I guess the question here is what is -- what if the growth continues to be constrained for longer than expected into '27? How should we be thinking about balancing the growth and profitability profile in that sort of scenario?

Thanks, Koji. Ultimately, I'd refer back to the Rule of 40 commentary that I had in my prepared remarks. And again, we targeted around the fourth quarter of next year. And we didn't specify that, that would be solely contingent on growth. So that's what I'd point you to and our focus on that and achieving that target.

Our next question comes from Ryan Tomasello of KBW.

I wanted to start with U.S. mortgage. One of your U.S. mortgage competitors, I think, recently announced a more formal move into the IMB space and also alluded to some competitive gains. So I was hoping you can provide just more context on how you view the competitive positioning there. And any elaboration on where win rates have been running and how you feel about that position of that business for '26?

Ryan, thanks for the question. I think we feel really good about where we are from a mortgage standpoint. Again, aside from the guidance philosophy, Sean just highlighted investments that we made last year in terms of being more aggressive going upmarket, which is a space that, that business is not historically focused on. But obviously, with our customer base and the large number of enterprise customers we have, we think that that's a nice opportunity for us, particularly as we talk about the platform and that being part of our platform. And so we haven't really seen a change in the competitive dynamics. We continue to win, I think, market share in logos. If you look at the presentation, you'll see that we added 24 new IMB customers last year. And so from our perspective, it's -- it remains the same from a competitive standpoint. And I think we continue to feel very good about our positioning, our technology and our ability to continue to grab market share as we have done over the last couple of years in what's been a very difficult market.

And then in the past, I think specifically, last year, you talked about the visibility you tend to have entering the year on what's already fully baked into the subscription guide. I guess given the new guidance philosophy here and what sounds like the added conservatism you're baking in, is that visibility higher than usual? And any way to kind of quantify that relative to the organic growth targets you have -- guidance you have set for -- on the subscription revenue for this year?

Thanks, Ryan. Consistent with the guidance philosophy, you can assume that as it relates to the midpoint of our guidance, we are in a better position than we were last year or the year before. And so that would be consistent with our approach this year for guidance.

Our next question comes from Chris Kennedy of William Blair.

Sean, given your former role, can you just provide some perspective on the evolution of your Consumer Lending product? You guys have been working at it for a long time. We understand bookings -- it was over 50% of bookings last year, but just talk about that evolution, please.

Yes. And so again, we were proud of the accomplishments we've had in the back half of last year, specifically in the momentum we have with Consumer Lending. And I would attribute that to the maturity and hardening of that solution, taking customer feedback and iterating with some of our early day customers on that journey. Specifically, I think we've really rounded out a robust integration set. There were key integrations that we needed to develop over the course of the past 18 months that we did commit to around stock prep and certain other areas as well as just time to market and speed of the overall solution. That's a space where people expect a seamless and very quick turnaround time, specifically in the consumer lending market where we're measuring velocity every day by minutes versus hours and days. And we're really trending well in tracking some of those metrics and KPI. I'm proud of our teams, the leadership in the Consumer Lending side of the house for challenging the product managers and engineers on those metrics. And I think that's a big part of why we've been successful in our turning the corner here. Additionally, I would say that targeting the credit union market specifically intensifies our focus for Consumer Lending and gives us a feedback loop from a broader set of customers that is helping us harden the solution as well.

Got it. And then if you think about -- and maybe you'll give this at the Investor Day, but when you think about the mix of your business over the next 3 to 5 years between the commercial, the mortgage, nIQ, consumer, any way to think about how that -- how you think that business will evolve over time?

Thanks, Chris. I think I noted that 70% of our SAM is outside of commercial lending. And this past year, more bookings were outside of commercial lending. And I think that that's really a massive opportunity for us. Not only are we going to be able to continue to sell commercial, which we've had great success with. But again, it's leveraging the success we've had, the customer relationships that we've built with that product and the confidence they have in us across the bank. And so we expect great things from consumer. It did take longer to get where we are than we wanted and expected. But ultimately, I think we feel really good about where we are. And again, that's reinforced by not only the $200 billion bank that we took live. And everyone's been waiting to see that success, and I think we feel really good about where that customer is. But also, again, adding an over $50 billion bank and an over $80 billion bank in Q4, I think, again, reinforces the nature of that product, which, from our perspective, is the only net new multi-tenant SaaS product out in the marketplace for Consumer Lending.

Our next question comes from Aaron Kimson of Citizens.

As a follow-up on that question, a lot of investors' thesis on nCino is driven around the best-in-class commercial functionality. But it seems like a lot of your focus is on the consumer opportunity where you guys just mentioned again over 70% of the SAM sits. What would you say to a skeptical investor who says there might be a SAM issue at nCino, particularly on the commercial side, where the consensus is your moat is deepest?

Yes. Thanks for the question. First and foremost, I would say we are committed to following through on the promises we make to our existing customers and the platform value proposition that we actually do onboarding, we do portfolio management, we do account opening and we do loan origination. We do that across commercial, consumer, small business and mortgage is a key differentiator for nCino. But we do point back to following through on the commitments to delivering on the omnichannel a consistent experience for our customers and their customers, whether digital and branch. And that has shown up first in our core commercial customer base. When you think about the investments we've made in AI and banking advisory capabilities and the current effort to wrap agents around current workflow, that's showing up first in commercial. So I think we're going to have significant opportunities to cross-sell into the commercial customer base opportunities to get those even more efficient through AI. And we will continue to point back to our flagship customers in terms of how we innovate and drive thoughtful innovation throughout the platform.

Aaron, I would also add that one of the unique things about nCino is the global nature of our business. And so you can just look at our logo counts, which again are in the presentation that we posted. I mean there is plenty of runway and room in just the U.S., both community banks as well as upmarket for commercial. And again, I think we are by far the gold standard. And so we see plenty of opportunity there. And then also on a global basis, it's still early for a lot of countries in terms of adopting still cloud and SaaS but ultimately, again, commercial and making those investments. And I think we are unique in our ability to go serve a global market, and I think that there's plenty of greenfield opportunity out there across the world. And so not only do we feel like just purely with commercial lending is there plenty of opportunity. But also to Sean's point, we have now added products, whether it's through AI, whether it's through some of the acquisitions that we've done as well as internal development, by continuous credit monitoring to go to those customers that are very happy and sell them more product. And so we view our commercial lending base as an asset, and we think there's plenty of runway left for us to continue to grow that base.

And then as a follow-up, can you remind us how you compete directly or I assume more indirectly with Rocket on the nCino mortgage side? And do you see any potential implications for nCino mortgage from Rocket's 2 recently announced deals for Redfin and Mr. Cooper stands up closing?

Yes. We understand they've been busy on the acquisition front of recent. And there may be some consolidation in that space, indicating that people are preparing for good news on the rate side over time. But we believe that we're firmly entrenched in the IMB space, serving that market and very focused with our mortgage solution and don't see that as an impediment to our market share.

Yes. I think to Sean's point, it's interesting, again, as people prepare for opportunity in that space after emerging from the last couple of years. Historically, M&A has been a leading indicator of perceived better times ahead. And so from an acquisition perspective, as we sit and look at that, I mean, that's what crosses our mind. In terms of those transactions as it competes with our mortgage solution, we're not competitive with Mr. Cooper in the servicing space. And so from that perspective, I wouldn't say it's a net new competitive challenge for us.

Our next question comes from Alex Markgraff of KBCM.

Thanks for the commentary on retention rates. Obviously, some headwinds in the past couple of years. Just curious, maybe, Greg, what your view is of sort of a normalized or appropriate retention rate for this business.

Yes. Subs revs, as we noted, will moderate this year. And I think we expect ACV to improve and to continue to improve. Again, that's highlighting that metric, again, as we think about the business and measuring our performance. As we took feedback on KPIs, that was one of the reasons why we wanted to bring that to you guys, so you can track it along with us. But we think that's a good metric for you guys to follow.

And then maybe just one follow-up on some of the recent headcount additions. Maybe can you just remind us on sort of the ramp for quota-carrying reps? And then as you think about the geo and product and segment leads across mortgage, EMEA and credit union, just sort of the expected ramp time line to productivity from those folks.

Sure. Thanks for the question, Alex. Yes, it really depends on the rep in terms of where they're coming from and their knowledge of the industry. But ultimately, we assume about a 6-month ramp time period.

Our next question comes from Brent Bracelin of Piper Sandler.

This is J.R. on. Maybe building a bit more on competition on the AI front specifically, do you see any banks looking to experiment more with custom AI-powered workflows? Or is customer interest largely revolving around prepackaged solutions?

I'm sorry, it was a little garbled, but I believe the question was are customers experimenting custom AI solutions versus prepackaged. Is that right?

That's right.

Thank you. Yes. So listen, there's a frenetic pace in the market, obviously, around innovation and AI. And we're all tracking that closely and having our own fun here at nCino on that journey. What I would tell you is our customers continue to validate that how they think about AI is they would prefer that their trusted partner and vendor who's been with them and house their data be the one to help them on that journey. And while they understand there are opportunities to imagine experiences, they're really encouraging us to lean into the opportunity to wrap agents around our existing workflow, continue to develop out our banking advisory capabilities and lean into our acquisition of Sandbox Banking to build a unified API layer that would be our data access or gateway for those customers. We've been encouraged by the fact that a Big 4 bank in the U.S. enterprise market is heavily using our Banking Advisor capabilities, and you'll hear more about that at our user -- at our nSight user conference here in just a few short weeks. So I think they're confirming that the partner they've been with for a while, they're willing to be a bit patient and get the experience right in a highly regulated environment rather than rushing in to the first experience they hear about on LinkedIn.

Makes sense. And maybe a quick follow-up. Any new feedback to know from larger customers around the shift away from seats to asset-based pricing?

Overall, it's been positive. I think that the customers are appreciative that we're willing to go on the journey of outcomes with them and correlate the value that they derive to what they pay. And so we would assume that over time, their asset -- their increase in assets under management would benefit everybody, and their usage of Banking Advisor and the outcomes they get and the efficiency they get from our AI would also correlate to what they pay nCino.

Next question comes from Ken Suchoski of Autonomous Research.

I know it's getting late. I'll ask maybe just about international. I think you highlighted international as a contributor to that 6 percentage point impact on subscription revenue growth in fiscal year '26. I think you guys had a good slide on the guidance assumptions. Is international the entire 6 percentage point impact? So that was, I guess, one question. And then I think you mentioned some leadership changes in Europe. Any additional detail in terms of what's happening in the region? And is it only Europe where you're seeing some issues? Or are there other markets that are contributing to that 6 percentage points?

Thanks, Ken. Yes, the 6 percentage points, again, I'd say, is a combination of 4 things. One is gross bookings falling a little short of our expectations last year. But the 2 specific areas that we've noted were international and mortgage. And so international got off to a slow start last year, as I think we talked about throughout the year. And while they had some nice wins -- and when we talk about international, this is more specifically EMEA. And we talked about some success in Japan, for example. But from an EMEA perspective, got off to a slow start and they just weren't able to catch up. And so that's that. We did talk about the churn being a little bit higher as a result of one customer deciding now wasn't the time to move forward. And then the other 2 points were, again, linearity of fiscal '26 bookings, which from a modeling perspective, again, we were more back-end weighted than normal. We see opportunities to accelerate those. But again, consistent with the last point being our guidance philosophy and we need to be more conservative and trying to derisk the year as much as possible, all of that contributed to us coming up with that 6% decrease. But those would be the factors. Maybe I'll turn it over to Sean to talk about EMEA and the opportunities that we're seeing there.

Yes. So on the leadership front in EMEA, I will point back to the early and continued success we've had, specifically in the U.K. and Ireland markets in EMEA, where we've been a little bit slower in terms of the expectation we have for ourselves is on the continent and the Mainland Europe specifically. And so our new leadership structure based in Madrid from an operator at scale who's run over $100 million business across Europe and has a network and connections to banks across the continent, we believe, is powerful. As we build out that go-to-market team, that will be our focus, to continue the momentum we have in UKI but then grow aggressively on the continent. Specifically, we think there's good opportunity in Spain and the Nordics. But obviously, we just signed a big bank in the Czech Republic in Q4 as well.

Thank you. I would now like to turn the conference back to Sean Desmond for closing remarks. Sir?

Thank you all for being with us this afternoon. We hope to see as many of you as we possibly can at our nSight user conference here in May, and we appreciate your time.