Earnings Call Transcript - NCNO Q4 2025

Operator, Operator

Thank you for waiting, and welcome to nCino's Fourth Quarter Fiscal Year 2025 Earnings Conference Call. I will now turn the call over to Harrison Masters, Director of Investor Relations. Please proceed.

Harrison Masters, Director of Investor Relations

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.

Sean Desmond, CEO

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 two-thirds 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 Zealand; and Johannesburg and Cape Town, South Africa. On each of these visits, I've spent time not only with our employees but with our customers and partners in our ecosystem, listening intently. These experiences give me deep conviction in our strategy, the strength of our platform and the product portfolio and the highly differentiated value we provide to financial institutions. I firmly believe that the next decade holds far more growth and opportunity for nCino to innovate and transform the financial services industry than the previous decade. There is no doubt that financial institutions across the globe continue to struggle with inefficiencies caused by legacy infrastructure. Too many of them still rely on fragmented tech stacks and siloed data, making critical processes far too slow and cumbersome. We are reimagining these processes and delivering world-class experiences. To name just a few, onboarding complex commercial clients, proactively and continuously monitoring small business and commercial loan portfolios, providing frictionless account opening experiences and efficiently scaling mortgage lending with AI-powered document validation and processing. nCino is uniquely positioned to solve all of these problems. We are the only cloud-based SaaS provider that enables financial institutions around the world to seamlessly manage lending, onboarding, account opening and portfolio management across multiple lines of business connected on a scalable platform powered by AI. We are the enabler of our customers' most critical operations. And we have a broad, diverse and sizable customer base across more than 20 countries. This global reach, combined with our broad and deep product capabilities, provides us with a competitive moat that nobody can match. Since our IPO in 2020, we have delivered strong revenue growth, significantly increased our operating margin, expanded our customer base, extended our geographic presence and built out the breadth and depth of our solutions. But while our scale has increased, I don't believe our execution has kept pace with the full extent of the market opportunity. I think it's important not only to be a cheerleader for nCino but also to be pragmatic and realistic. Importantly, we need to consistently execute at a level that reflects the strength of our market position and the ambitions we have for this business. Of course, our ability to execute over the past couple of years was significantly impacted by macroeconomic headwinds beyond our control. The rapid rise in interest rates in 2022 caused banks to pull back on spending, and the liquidity crisis in early 2023 led to even greater caution around large-scale technology investments. These external factors certainly dampened our sales momentum and new bookings growth. But there were also challenges within our control. As we expanded beyond our Commercial Banking routes into Consumer Lending, we ultimately brought to market a product capable of leapfrogging our competitors, but not as quickly as we originally planned. We also saw customers pause their onboarding buying decisions this past year until we completed our highly anticipated platform integration of the intellectual property we acquired in our acquisition from DocFox. With the benefit of hindsight, we were also too optimistic in expecting a drop in interest rates to drive an increase in mortgage activity. Additionally, our sales execution and sense of urgency in certain international markets, most notably Europe, was not as crisp as it needed to be. Some of these challenges created compounding headwinds that further impacted our new bookings momentum in fiscal '25 and are chief contributors to our fiscal '26 revenue outlook, which is below our expectations. The good news is that we have already taken decisive action to address these challenges that have impacted us, and I am confident they are squarely behind us. During my tenure as Chief Product Officer, we did bring to market a best-in-breed Consumer Lending product last year, which helped us outperform our internal expectations for sales of that solution in fiscal '25. Leveraging our best-in-breed digital mortgage technology, we are bringing to market full omnichannel capabilities across our consumer solutions at nSight. This consistent experience for bankers and their customers alike, whether digital or in-branch, will help us further accelerate bookings of our products in fiscal '26 and beyond. In addition, we plan to release our fully integrated onboarding solution that leverages the technology acquired in the DocFox acquisition in the second quarter, unlocking numerous pent-up opportunities. On the personnel front, we have made key leadership changes in our European operations with the hiring of Joaquín de Valenzuela, a seasoned software sales executive with a great track record on the European continent, as our EMEA General Manager to sharpen our execution. Joaquín has been aggressively assembling his go-to-market team to capture the full potential of the EMEA SAM beyond just the UKI, where we've had a strong presence to date. We have also added several other key leaders across our sales and marketing organizations, hardening our product marketing and credit union posture. And we just appointed an AI catalyst Chief Technology Officer, Will Jung, to our product development and engineering organization. All of our new leaders and restructured teams are laser-focused on increasing and accelerating our sales momentum and gross bookings. Operating with a keen sense of urgency and purpose, we are well positioned to reaccelerate new bookings growth, although we expect it will take a few quarters for consistent momentum to build. As Greg will discuss when he reviews the financials, we expect improved gross bookings growth as the year progresses. This will result in subscription revenue growth reacceleration in fiscal '27 as we get back on track to achieving our double-digit long-term growth ambitions. Not surprisingly, one of the most exciting areas of opportunity ahead for nCino is our ability to help financial institutions better connect their data so they can meaningfully harness AI. Specifically, we continue to build generative and agentic AI-powered solutions and embed them throughout the nCino platform. Because nCino serves as the system of record for our customers' banking operations, we sit at the heart of their most critical financial processes. That means we are in a unique position to help them leverage their data to operationalize AI efficiently, automate and eliminate workflows and to deliver better customer experiences. I touched upon Banking Advisor earlier in my comments, but it's worth reinforcing that the capabilities within our AI-driven Banking Advisor suite of skills have already reduced complex banking processes from days to seconds. And this is just the beginning. Take for example document validation in U.S. mortgage, which with AI verifies that customers have uploaded the correct documentation, avoiding an approval delay for the borrower and saving the loan officer about 40 minutes per loan. Our Continuous Credit Monitoring functionality eliminates hours of manual work, gathering data to assess a client's borrowing position. And Tax Statements 3.0 uses a large language model trained in-house to process tax statements, avoiding 15 to 20 minutes of manual work per statement. As we lead this charge, our customers are validating that they ultimately prefer agentic capabilities embedded in a platform they already trust with their data. The data is fundamental to our strategy, and we are leaning into our acquisition of Sandbox Banking to complete a unified API layer that becomes the access point or gateway for financial institutions globally. Thus, our AI strategy is to deepen our moat by expanding Banking Advisor skills, mobilize agents and manage the gateway. Clearly, we believe that AI, both generative and agentic, and the unique data set we have to fuel AI will be key drivers of growth for nCino, powerful differentiators across our entire platform that will further enhance our market leadership position and accelerate platform adoption as we continue to evolve the company and lead the vertical AI movement in banking. Beyond AI, we have been hard at work strengthening our core business, and we believe these improvements will drive solid bookings trends in the quarters and years ahead. One of the most powerful aspects of our competitive moat is the reputation we have built through our success in Commercial Banking. We are recognized as the gold standard in this space, and that credibility is opening doors as we drive deeper into consumer, small business and mortgage opportunities. As a reminder, over 70% of our global SAM is outside of commercial lending, and more than half of our bookings in fiscal '25 came from solutions other than commercial lending. We are leveraging our reputation and track record of success to demonstrate our solutions to new customers and to deepen our existing relationships with current customers as the nCino ecosystem adopts more of our products. Turning nCino from a great company into a great long-term business requires discipline, focus and relentless execution. That means making sure our product roadmap aligns tightly with market needs, driving strong top line growth while maintaining financial discipline and making thoughtful capital allocation decisions. It means being sharp in how we position ourselves in the market and ensuring that every experience we serve up to customers is truly best in class. I am maniacally focused on these execution tasks and firmly believe the team will exceed my expectations. To that end, we are seeing signs that the changes we have made are driving results. Our fiscal '25 ACV growth accelerated to 9% organically from 8% in fiscal '24 on a constant currency basis. On a reported basis, this ACV year-over-year growth was 8% organically or 13% including ACV from acquisitions. Our expansion on the European continent is seeing signs of traction as well with our largest new logo by ACV in Q4 coming from CSOB, a top 3 bank in the Czech Republic, and we also had another major win in Japan. And while it took longer than we originally expected, our Consumer Lending business is seeing momentum. The $200 billion asset bank we discussed winning in late fiscal '24 is now live on nCino Consumer Lending. And we added over 20 new Consumer Lending deals in Q4, including 2 large banks with $80 billion and $50 billion in assets, respectively. On the M&A front, we are very excited about the four acquisitions we closed over the past year and expect each of them to be strong, positive contributors to our future financial performance. Our DocFox and FullCircl acquisitions expanded our SAM in the onboarding arena and provided our sales teams unique and highly desirable solutions to cross-sell to a very happy customer base. Allegro is an important addition to our Consumer Lending offering, delivering on the need for indirect lending functionality, particularly as we expand more aggressively into credit unions. In fact, leveraging nCino's established market-leading portfolio analytics solution, which serves up approximately 40% of the United States credit union market, we have visibility into over $600 billion in assets across more than 800 credit union customers. We are leaning into this unique and powerful data set and our acquisition of Allegro and have launched a dedicated credit union go-to-market team and are developing new solutions to bring to this market, including financial product performance and pricing models and peer analysis products for competitor insights. Finally, on the M&A integration front, Sandbox Banking is a highly strategic acquisition that reaches far beyond core integration capabilities. nCino customers will quickly realize the benefit of customer data alignment and system operability with a unified API layer and integration hub for the platform. I am also energized by the AI-first culture and DNA of the talent that accompanies these acquisitions. That said, while we, of course, remain alert to potential future M&A where we see compelling value in accelerating our technology, profitable growth or addressable market, we expect our focus for fiscal '26 will be on realizing the planned synergies and expected investment returns from these completed transactions as opposed to pursuing any additional M&A. In summary, this is an extraordinary time for nCino. And with the vertical AI opportunity, there has never been more excitement in this intersection of technology and banking. The secular growth in front of us, which is helping financial institutions truly modernize their operations, is massive. The ability to accelerate this transformation through our scalable, tested and trusted platform with intelligence embedded throughout our solutions makes it even more exciting. And the improvements we have made in our product functionality and international operations sets us up for success. Additionally, while there is currently volatility in the financial markets, the macro headwinds that specifically challenged us and our customer base over the past couple of years have eased quite a bit. Our customers, by and large, have healthy balance sheets and are forecasting growth in their loan portfolios, deposit positions and earnings per share. Our U.S. customers are also telling us that the potential for deregulation could free up capital, streamline decision-making and enable them to further adopt best-in-class technology solutions. Our sales teams are aggressively pursuing bookings in fiscal '26 that we expect will drive reacceleration in subscription revenue growth in fiscal '27, and we are investing accordingly with a plan to drive sustainable, long-term revenue growth and further margin expansion. While Greg will walk you through our financial guidance in more detail, just a reminder that our revenue growth is a lagging indicator of our bookings growth. While we are forecasting lower year-over-year revenue growth in the second half of the year, we believe this is temporary and due to trailing factors that have now been addressed as well as to difficult year-over-year second half comparisons that Greg will elaborate on. I have tremendous confidence in our team, our technology and our market position. This confidence is supported by the $100 million stock repurchase program our Board of Directors authorized that we announced this afternoon. The foundation is in place, and now it's all about execution. Pierre was the visionary who built this company, and I deeply respect the impact he had. My role is to take that vision and turn it into durable, scalable and long-term profitable growth. We are not selling a dream at nCino. We are committing to execution. To that end, the metrics I am laser-focused on are growth in gross bookings, achieving our rule of targets and over time, free cash flow. On behalf of the entire nCino team, I want to thank you for your continued support. I am incredibly energized by what lies ahead and look forward to delivering results and building credibility with our shareholders. With that, I'll turn it over to Greg to walk through the details of our quarter and outlook.

Gregory D. Orenstein, CFO

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 timelines, 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 ACV 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 into 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 two 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 one-time subscription revenues that occurred in the second half of fiscal '25, affecting our U.S. mortgage and international businesses as a result of one-time revenues that occurred in the second half of fiscal '25. These revenues primarily related to one-time 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 one-time 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, Operator

Our first question comes from Saket Kalia of Barclays.

Saket Kalia, Analyst

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

Sean Desmond, CEO

Thank you for that.

Saket Kalia, Analyst

Absolutely. Sean, I’m interested to know what feedback you’re receiving from your customers, considering the time you've spent with them. What are their thoughts on investing in 2025, especially in light of the projected organic growth for fiscal '26?

Sean Desmond, CEO

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.

Saket Kalia, Analyst

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?

Gregory D. Orenstein, CFO

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 one-time 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 one-time nature of a customer in Q4. And then two 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.

Operator, Operator

Our next question comes from Terry Tillman of Truist Securities.

Terrell Tillman, Analyst

I couldn't hear you clearly, but I believe that was directed at me. So, I will ask just one question, though I have several. I noticed in your prepared remarks that you mentioned increasing your go-to-market investments and taking an offensive approach. However, the results in gross bookings were disappointing. Does this indicate a lack of sales capacity? Are you upgrading the sales team? First, I would like to understand the reasoning behind your go-to-market investments, and I have a second part to my question.

Sean Desmond, CEO

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 customer success 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 two 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.

Gregory D. Orenstein, CFO

And Terry, I would like to add that we have been taking a cautious approach due to the current market conditions, which has made it less effective to deploy our salespeople without understanding the buying environment. Therefore, when we consider increasing our capacity, it indicates the potential we see in the market and suggests that some of the challenges we've faced are starting to lessen. This reflects the overall health of our customer base, which has improved after facing several difficulties over the past couple of years. It illustrates the market opportunities we recognize now compared to where we were a year or two ago.

Terrell Tillman, Analyst

Yes, I understand that. And Sean, congratulations on your new role as CEO. Regarding the second part of the question, I was surprised by the notion of operating leverage in the second half following some go-to-market investments. Is it possible that this is a comparison that doesn’t quite fit, and the leverage we expect in the second half is simply due to improved bookings from normal business operations? Or how could we see such quick leverage if you're making investments in the first half of the year?

Gregory D. Orenstein, CFO

Terry, I believe it's a mix of better booking activity ultimately. However, we are also continuously exploring efficiency opportunities by assessing our organization, challenging ourselves on where to invest and where to redirect investments. This is an ongoing process for us, and we see ongoing opportunities. Additionally, with AI, there are clear ways to leverage its potential. As Sean mentioned in our prepared remarks, we have been concentrating on data analytics and AI for quite a while, and we believe this will provide us with more opportunities as the year advances.

Operator, Operator

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

Alexander Sklar, Analyst

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?

Sean Desmond, CEO

Yes. I will remind that revenue is 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 two 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.

Gregory D. Orenstein, CFO

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.

Operator, Operator

Our next question comes from Alexander Markgraff of KBCM.

Alexander Markgraff, Analyst

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.

Gregory D. Orenstein, CFO

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.

Operator, Operator

Our next question comes from Brent Bracelin of Piper Sandler.

J.R. Herrera, Analyst

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?

Sean Desmond, CEO

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

J.R. Herrera, Analyst

That's right.

Sean Desmond, CEO

Thank you. There is a busy atmosphere in the market, especially regarding innovation and AI. We at nCino are closely monitoring this and enjoying our journey. Our customers consistently express that they would prefer their trusted partner, the one who has been with them and holds their data, to assist them in this endeavor. While they recognize the potential for new experiences, they are encouraging us to focus on integrating agents into our existing workflows, enhance our banking advisory capabilities, and leverage our acquisition of Sandbox Banking to create a unified API layer for data access for those customers. We have been pleased to see that a major U.S. bank is extensively using our Banking Advisor capabilities, and more details will be shared at our upcoming nSight user conference in just a few weeks. Customers are indicating that they are willing to be patient and want to ensure that the experience is right in a highly regulated environment, rather than rushing into the first solution they come across on LinkedIn.

J.R. Herrera, Analyst

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?

Sean Desmond, CEO

Overall, it's been positive. I believe that customers appreciate our willingness to accompany them on their journey toward achieving outcomes and to correlate the value they receive with what they pay. We anticipate that over time, as their assets under management increase, it will benefit everyone. Additionally, their use of Banking Advisor and the efficiencies gained from our AI should align with their payments to nCino.

Operator, Operator

Next question comes from Ken Suchoski of Autonomous Research.

Kenneth Suchoski, Analyst

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?

Gregory D. Orenstein, CFO

Thanks, Ken. The 6 percentage points can be attributed to a combination of factors. Firstly, gross bookings fell slightly below our expectations last year. Notably, international and mortgage sectors were key areas of concern. The international sector had a slow start last year, particularly in the EMEA region, despite some successes like in Japan. However, the overall performance in EMEA did not recover. Additionally, we experienced increased churn due to one customer deciding to delay their plans. Other aspects included the distribution of fiscal '26 bookings, which were more back-end weighted than usual. We see opportunities to improve this, but in line with our guidance philosophy, we prioritized being conservative to mitigate risks for the year, which contributed to the 6% decrease. Now, I'll pass it over to Sean to discuss the opportunities we’re identifying in EMEA.

Sean Desmond, CEO

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 a $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 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.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.