Earnings Call Transcript - NCNO Q2 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by. And welcome to the nCino, Inc Second Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I’d now like to introduce your host for today’s program, Greg Orenstein, Chief Corporate Development & Legal Officer. Please go ahead, sir.

Greg Orenstein, Chief Corporate Development & Legal Officer

Thank you. And good afternoon and welcome to nCino’s fiscal 2021 second quarter earnings call for the quarter ended July 31, 2020. With me on today’s call are Pierre Naudé, nCino’s President and Chief Executive Officer and David Rudow, our Chief Financial Officer. During the course of this conference call, we may 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 and are subject to various risks and uncertainties, including those related to the impacts of COVID-19 on our business, the financial services industry and global economic conditions. Our actual results may differ materially. Please refer to the risk factors included in our filings with the Securities and Exchange Commission, which are available on the Company’s website at ncino.com under the investor relations section and on the SEC’s website at sec.gov. Forward-looking statements made during the call are being made as of today, September 09, 2020 based on the facts available to us today and nCino disclaims any obligation to update or revise any forward-looking statements. The guidance we will provide today is in part based on our assumptions as to the macroeconomic environment in which we will be operating in the future, including the timing and pace of recovery from any negative effects caused by COVID-19. Such matters that are beyond our control and our assumptions may not be correct. On today’s call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. The reconciliations to comparable GAAP metrics can be found in today’s earnings release, which is available on our website and is an exhibit to the form 8K furnished with the SEC just before this call. With that, thank you for joining us and I will turn it over to Pierre.

Pierre Naudé, President and CEO

Thank you, Greg. Hello and good afternoon. Thank you for joining us today for our inaugural Public Company Earnings Call. I’m excited to share details about nCino and our second quarter results. But let me start by saying that we hope you and your loved ones are safe and in good health. While COVID-19 has created a new normal for all of us, it has also sharpened the momentum and urgency around the digital transformation of financial institutions, which nCino pioneered over eight years ago. When COVID struck, and the world immediately moved to remote access, nCino customers seamlessly converted to a work-from-home structure, yet many financial institutions that did not have a cloud based bank operating system struggled trying to remotely operate their institutions, run their business, keep their employees productive and effective and support their clients. We believe the pandemic has dramatically demonstrated to financial institution executives that moving to a cloud environment can't just be part of their future roadmap. It's an immediate imperative. The size and prominence of the global financial institutions that are engaging with us today confirms that digital transformation in banking is happening and is accelerating. The strength of our pipeline is further evidence of this fact. As soon as COVID struck, nCino was there to help our financial institution customers and their clients navigate this difficult time. In the past two quarters, we helped our customers fund more than $50 billion in PPP loans under the CARES Act. In the second quarter, we also added banks managing the Forgiveness portion of the loan, as well as worked with banks in the U.K. to support the Coronavirus Business Interruption Loan Scheme or CBILS. I'm extremely proud of how the nCino team has successfully engaged with both established and new customers around the globe during an unprecedented period. Before I share additional highlights from the second quarter, I want to spend a few minutes providing a brief overview of nCino for those new to our story. nCino was founded by a team of bankers and entrepreneurs in late 2011, who recognized that the commercial lending process was inefficient and time-consuming. Our ambitious goal was to create a cloud based solution that would enhance transparency, efficiency and speed across the financial institution. From the very beginning, our theme was Built by Bankers, for Bankers. We believe this core foundation differentiates us from competitors. As we deeply understand a bank’s challenges and pain points, we focused first and foremost, on creating solutions to improve the bank employees' work experience. Once that was established, we extended our product functionality to benefit the bank's end-user clients. Today, nCino offers an end-to-end digital bank operating system on a single platform designed to help reduce costs, increase revenues, improve employee efficiency and productivity, and enhance transparency across client onboarding, loan origination, and deposit account opening, all while helping to ensure regulatory compliance. Built on the Salesforce platform since day one, our bank operating system integrates, digitizes, and enhances the operations for financial institutions across lines of business, including commercial, small business, retail, and more. Our single cloud based platform is scalable for financial institution customers of all sizes and complexities across the globe, including enterprise banks, regional and community banks, credit unions, and challenger banks. We couldn't be more proud of where nCino is today, with over 1100 financial institution customers worldwide ranging in assets from $30 million to more than $2 trillion, including institutions such as Bank of America, Barclays, Santander, Truist, ConnectOne Bank, Navy Federal Credit Union, and many more. As good as we feel about the progress we have made to date, we have only begun to penetrate our market opportunity. With more than 28,000 financial institutions worldwide, banking is one of the largest and most complex industries there is, with many financial institutions still operating with outdated legacy systems and point solutions. According to Gartner, global IT software spend within banking was over $63 billion in 2018. Not surprisingly, 85% of banks have indicated that digital investment is a key priority on their roadmap. We have sized our serviceable available market or SAM at $10 billion, which realistically reflects the opportunity to sell our current products in our current targeted markets. Our bank operating system is generally sold by seats on a subscription basis, usually with three to five year initial contract terms. Our land and expand approach allows us to deploy with a specific product solution, such as client onboarding, loan origination, or account opening within a specific business line. We then look to expand adoption within that business and across other lines of business, allowing us to leverage data and functionality across the financial institution, increasing efficiencies and cost savings. Beyond this expansion within our current installed base, our growth strategy includes continued expansion of our installed base, increasing our international footprint, increasing the depth and breadth of our product set, growing our partner ecosystem, and selective targeted acquisitions. One of our most exciting opportunities is derived from two technology acquisitions we completed last year, which formed the basis of nCino IQ or nIQ analytics platform. Using artificial intelligence, data analytics, and machine learning, we believe nIQ will provide unmatched insight and actionable data to our customers enabling them to become more predictive, personalized and proactive. It's still early days for nIQ, but we are very excited by the customer feedback we have received and the potential that lies ahead to help financial institutions around the world leverage data to make more informed decisions in real time at the point of production. So turning back to the quarter, we are pleased with the results of our first quarter as a public company. Subscription revenues increased 70% to a record $39.4 million, while total revenues grew 52% to $48.8 million, also a record. The PPP loans and Forgiveness business I mentioned earlier helped drive subscription revenues in the quarter to 81% of total revenues. In the second quarter, 32 financial institutions purchased seats for Forgiveness that were not to property customers, to process the loans, including the addition of 10 new customers, two with over $25 billion in assets and an expansion within the top 10 U.S. banks. Those seats activated immediately and generated revenues in the second quarter, which is different from our normal delayed activation process. David will provide details around that element of our business model. In total, 87 financial institutions used nCino for PPP and Forgiveness in the first two quarters, including 45 banks with over $5 billion in assets. Our professional services teams were busy in the quarter, including in Europe, where we assisted one of the large global bank customers in establishing a solution to process loans for the U.K. government backed CBILS lending program. Similar to PPP loans, these revenues activated immediately after help from our professional services teams. We have largely built out our customer success and professional services teams in EMEA and we are very encouraged by the growth opportunities we have seen there. In fact, in the second quarter, we signed a large expansion for the EMEA based global bank we supported on CBILS, which has close to $2 trillion in assets for our onboarding solution, their second large expansion since the initial land. We also had a significant win with a new customer in Continental Europe. This $450 billion global bank chose nCino for collateral management within their commercial bank, and we see meaningful opportunities to expand from this initial land deal over time. Our traction with international banks demonstrates that our global branding is working. nCino is becoming synonymous with a digital transformation of banking. For example, on its recent second quarter earnings call, a top 20 U.S. bank, with more than $200 billion in assets discussed that their client interactions are increasingly shifting to digital products. And noted that digital strategy includes accelerating the implementation of nCino in their commercial business. Bryn Mawr Trust, a financial services company headquartered in Pennsylvania, that has offered banking, insurance and wealth management solutions for over 130 years and has over $5 billion in assets, and $17 billion in assets under management also discussed nCino on his recent earnings call, highlighting the growth in his digital account opening and nCino’s role in the success. Deposit account applications increased 300% from March through April and remained at elevated levels in May. This increase in openings was enabled by our nCino online account opening solution, which redeployed in the fourth quarter of 2019. Our customers highlighting us on their earnings calls as a strategic differentiator is a testament to the tangible impact nCino is having on their institutions and the banking industry. On the product front, the strength of our retail offering was recognized recently when nCino’s retail loan origination system was named best-in-class by IT Group, a highly respected research and advisory firm focused on the financial services industry. Of the 15 firms assessed, nCino was recognized as the global leader in three categories; client strength, client service, and product features. Expansion of our retail lending footprint is a key avenue to increased penetration of our installed base. So this best-in-class designation is important validation, especially since this is a relatively new product for us. Product innovation is key to our success, and we will further expand the depth and breadth of our retail lending product in October when we release new product updates including functionality to further improve the regulatory and compliance capabilities of retail lending. We are also making important updates to nIQ, to the analytics platform I mentioned earlier. The October release will be the first full integration of nIQ into the nCino bank operating system, leveraging the FinSuite technology we acquired last year. We have developed automated loan underwriting, which we have seen reduce the manual component by 50% to 75%, thereby accelerating the time to approval. We have an ambitious product roadmap for nIQ, and we’re excited about the multiple solutions we are developing to provide customers with data-driven insights across the institution. We are confident that nIQ will play a key role in continuing to differentiate nCino’s bank operating system in the coming years. Our customer success team had a very productive quarter, taking numerous customers into production, highlighted by two significant go-lives. Before I get into the specifics of these accounts, let me spend a minute talking about what it means to go into production or go live, since it is such an important milestone for a customer and it says a great deal about the nCino culture. A customer is considered in production or live when a critical mass of employees or users, often an entire line of business or function within the institution, has begun using nCino. As a company, we celebrate when a customer goes live much more than when the deal is closed, because we recognize that our success is directly linked to the success of our customers using our software. As a company, we are laser-focused on ensuring we have an extremely loyal, satisfied and reasonable customer base who are advocates and champions for our platform. Anyone who has followed nCino over the years or heard me tell our story during the IPO roadshow understands how important culture is at nCino. We believe empowering our employees and trusting them to do the right thing fuels this customer loyalty and helps drive the 147% subscription revenue retention rate for fiscal 2020. Our growing team in Wilmington, North Carolina, along with our six other offices in major cities around the globe, are changing the cloud banking world. So back to the two go-lives I wanted to highlight; the first was with a $145 billion agricultural lender in the U.S. A niche like Ag lending requires specific functionality and workflows implemented at the financial institution level, which the flexibility and configurability of our software easily enables. This is an important selling feature. It guarantees that a frontline employee's productivity is not at the mercy of an overworked IT department. We saw another significant go-live with a $67 billion global bank. With an ambitious deployment plan, we went live with commercial lending in three countries, on three continents, in less than a month. We believe this global bank will continue adding more lines of business to their nCino footprint. I want to thank the nCino team, our customers, partners, and stockholders for your support and loyalty. nCino’s role in the digital transformation of the financial services industry is of global significance. And we are gaining traction in every market where we operate today. We are on a very exciting and important journey and are just getting started. We look forward to sharing it with you. Now let me turn the call over to David to review the second quarter financials in detail and discuss our outlook for the third quarter and full year.

David Rudow, Chief Financial Officer

Thank you Pierre and thank you all for joining us on our first earnings call. It's been an exciting time and I want to thank my team and everyone who helped us get to this point. We are very pleased to have started a public company life with such a strong quarter. So let me begin by reviewing our results for the second quarter of fiscal 2021. Please note that all numbers referenced in my remarks are on a non-GAAP basis unless otherwise stated. Our non-GAAP financial information excludes the impact of stock based compensation and the amortization of intangible assets. 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 our Form 8-K furnished with the SEC. Total revenues for the second quarter of fiscal 2021 were $48.8 million, compared with $32 million in the second quarter of fiscal 2020, an increase of 52% year-over-year. Subscription revenues for this quarter were $39.4 million, an increase of 70% year-over-year, and represented 81% of total revenues in the second quarter. As a reminder, our subscription revenues include subscription and support revenues. Subscription revenue growth benefited from the PPP and Forgiveness customers that Pierre noted, which are activated immediately and resulted in revenues being recognized in the second quarter. Let me spend a minute on this topic because it is a unique and valuable aspect of our business model. Usually, our contracts include a phased deployment timeline, which is generally six to nine months for community and regional banks and 12 to 24 months for enterprise customers. This structure, which is based on specific seat activation dates and not tied to project success milestones allows us to maximize the lifetime value of a customer, maintain pricing, and provides heightened visibility to our revenues. Because they were activated immediately, PPP and Forgiveness deals actually contributed $3 million to our second quarter subscription revenues and were not subject to our usual phased activation approach. We will work to repurpose these seats to other business lines once the CARES Act winds down over the next 12 to 24 months. Visible Equity and FinSuite, the two acquisitions completed last year that form the technology base for nIQ, contributed $2.6 million to second quarter subscription revenues. As we have now owned both companies for about a year, in the future, we do not plan on separately disclosing revenues related to these acquisitions in our financial results. Professional services were $9.4 million in the quarter, a 6% increase over the $8.9 million in the second quarter last year. We had assumed lower utilization rates due to COVID, with strong services performance in EMEA driving the professional services revenues in the quarter. Our international revenues continue to expand. All U.S. revenues were $4.7 million or 10% of total revenues in the second quarter, up from $2.3 million or 7% of total revenues in the second quarter of fiscal 2020. International revenues increased 103% year-over-year, reflecting continued success in our international expansion with some benefits from the CBIL program in the U.K. that Pierre mentioned earlier. Non-GAAP gross profit for the second quarter of fiscal 2021 was $29.1 million, compared with $17.6 million in the second quarter of fiscal 2020, an increase of 65% year-over-year. Gross Margin was 60% compared to 55% in the second quarter of fiscal 2020. Our gross margins continued to improve largely due to product mix, as well as a large portion of our total revenues coming from subscriptions. Total non-GAAP operating costs for the second quarter of fiscal 2021 were $30.7 million, or 63% of revenues, compared to $22.9 million or 72% of revenues in the second quarter of fiscal 2020. While we did see some cost savings due to COVID, especially around reduced travel and in-person events, we continue to invest to grow our international footprint and expand the breadth and depth of our products as well as absorb public company costs as we move toward our IPO. Sales and marketing for the second quarter of fiscal 2021 was $11.9 million or 24% of revenues compared to $10 million, or 31% in the second quarter of fiscal 2020, an 18% increase year-over-year. Though we continue to invest for global expansion, sales and marketing expenses were lower than originally expected during the quarter due to the reduction in travel and expenses related to our annual user conference, which we moved to a virtual event. We expect this lower level of spending to rebound slightly in the second half of the year, as we continue to invest in expanding internationally, and people returning to travel offset by savings for virtual conferences. Research and Development for the second quarter was $12.3 million or 25% of revenues, compared to 8 million or 25% for the second quarter of fiscal 2020, a 54% increase year-over-year. We continued to invest in building out the nCino Bank operating system including nIQ and our retail products as well as localizing products to support our international expansion. General and administrative expenses were $6.6 million or 14% of revenues compared to $4.9 million or 15% in the second quarter of fiscal 2020. We expect G&A to be higher in the second half of the year as we begin to incur public company D&O insurance costs, in addition to absorbing other public company costs. Non-GAAP operating loss for the second quarter of fiscal 2021 was $1.6 million, compared with a non-GAAP operating loss of $5.3 million in the second quarter of fiscal 2020. Our non-GAAP operating margin for the second quarter was negative 3% compared with negative 17% in the second quarter of fiscal 2020. Non-GAAP net loss attributable to nCino for the second quarter of fiscal 2021 was $581,000 or $0.01 per share compared to a non-GAAP net loss attributable to nCino of $5.8 million or $0.08 per share in the second quarter of fiscal 2020. Turning to cash. We ended the quarter with cash and cash equivalents of $388.2 million. This includes $268 million in net proceeds from the IPO. Net cash provided by operating activities totaled $23.5 million for the second quarter, compared to $8.4 million in the first quarter of fiscal 2021, an increase of 179% quarter-over-quarter. Net of $1.9 million capital expenditures, this resulted in positive free cash flow of $21.6 million for the second quarter of fiscal 2021. This very strong cash generation reflects both immediate activation of PPP and Forgiveness seats and solid renewal activity. Based upon historic seasonality, we do not expect to generate cash in the second half of the year. We will continue to balance cash flow while investing to take advantage of the global opportunity in front of us. Now, turning to guidance. For the third quarter, we expect total revenues of $49 million to $50 million, a non-GAAP operating loss of approximately $8 million to $9 million and non-GAAP net loss attributable to nCino per share to be $0.09 to $0.10 this was based upon a weighted average of approximately 91.4 million basic shares outstanding. Our outlook for the full fiscal year is as follows; total revenues of $193 million to $194 million. We expect non-GAAP operating loss for fiscal 2021 to be $22 million to $23 million and non-GAAP net loss attributable to nCino per share to be $0.25 to $0.26 based upon a weighted average of approximately 87.3 million basic shares outstanding. In summary, we are very pleased with the momentum in the second quarter as we benefited from revenues related to government backed COVID lending programs both in the U.S. and Europe. These revenues will also drive full year growth, which is approximately 40% at the midpoint of the updated range. We're beginning to see bank executives refocus more on business as usual and revisiting some of the long term projects in the pipeline. We expect the second half will begin to experience more normal sales and activation cycles and an increased focus on digital transformation. As always, we appreciate the hard work of the nCino team around the globe, and the loyalty of our customers and stockholders. We are early in the digital transformation of the banking industry. And we are excited to share this journey with you. Pierre and I are now happy to take your questions.

Operator, Operator

Our first question comes from Brad Sills from Bank of America. Please go ahead with your question.

Brad Sills, Analyst

Great. Hey guys. Thanks so much, and congratulations on a nice quarter out of the gate. I wanted to ask about nIQ. It's an exciting opportunity. And wanted to get a little bit more color please on some of these initial use cases that you're going after in October. I know the products not out yet. But anything you can share with us in terms of use cases and what the expected uptake would look like initially? And any impact that might have on ASP?

Pierre Naudé, President and CEO

Thank you for joining us. As you may recall, the nIQ solution set, or nCino IQ, is a collection of specific solutions that we will be launching soon. These are straightforward banking solutions we will provide. The first solution is a CECL solution, which is currently being utilized by hundreds of credit unions due to the visible equity acquisition. This platform has now been migrated to AWS, allowing it to be scalable and accessible for banks. In October, when we release this, it will be available to our entire customer base. The second solution is portfolio analytics, which is particularly valuable right now as banks seek to gain insights into their portfolios, payment histories, and future expectations. The third solution is automated spreading, which involves scanning financial statements and tax forms and automatically populating these spreads, resulting in significant manpower and cost savings for banks. Lastly, we have consumer credit risk insights. These four solutions will be available soon, and we are continuously adding similar solutions in the future. While we will begin marketing these offerings, it’s important to note that we may not see an immediate revenue impact due to the existing sales and implementation cycles. However, initial indications for this solution set are very encouraging.

Brad Sills, Analyst

That's great. Thank you, Pierre. I wanted to ask about the business mix this quarter in the global bank segment compared to the community and regional segment. The results seem quite balanced, and you provided examples from both segments. Can you clarify the current status of the industry in these two segments? Is one further along in their digital transformation efforts? Is there one segment where adoption seems to be lagging, indicating a potential inflection point? What is the current state of adoption in these two segments?

Pierre Naudé, President and CEO

Yes. It's interesting. So in the community bank sector, there's about 5000 institutions. We target about 2000 of them and we've got 300 customers. So from that alone, you can imagine. And we focus mainly on commercial loan origination. So, all of retail and other account opening, etc. is open for us. It’s very new for us in there. I would like to remind you that the commercial loan origination global SAM is $3.4 billion. So as a company, we're just scratching the surface here. Then if you go to the community or to the large banks, we mentioned we've got 14 of the top 25. But again, realize we're getting small pieces of the commercial bank as our landing opportunity. And then we expand within it. And again, there, if you look at 14 of the top 25 in the America. So North America, Canada, and the U.S. Although that sounds like a lot, the SAM is about $1.2 billion. So there is a massive opportunity both in commercial origination, as well as for the enterprise banks as well as the community banks. I think we are just scratching the surface. And then finally, let me explain to you retail a little bit. It's important to understand that retail has three components. There's your account opening. There's the onboarding aspects going through KYC, anti-money laundering, etc. And then finally, there's international mortgage, which are all relatively very new products. And we are seeing significant interest in those three. And then, of course, the loan origination coming from the retail space and then we've got commercial on top. And then small business with some banks falls into the retail space and some banks into commercial. So I believe it's very early for this process in this market as we go. It’s very early for the cloud technologies to penetrate these banks. Although, we've been going for eight years. It feels just like yesterday.

Brad Sills, Analyst

That's great. Thanks, Pierre. And one more if I may. Just please on the on the comments you made David on the PPP and forgiveness program, potentially repurposing those seats. Would that mean that these could become recurring in nature?

David Rudow, Chief Financial Officer

Yes. That's the plan. I think the majority of those contracts were co-terminus. So they lined up with the original contract length of the customers. We had a handful that were 12 or 24 months. The idea is to repurpose those seats upon expiration into other areas of the bank so we can continue to maintain those revenues.

Brad Sills, Analyst

That's great. Thanks so much, guys.

Pierre Naudé, President and CEO

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Saket Kalia from Barclays Capital. Your question, please.

Saket Kalia, Analyst

Okay. Hey, guys. Thanks for taking my questions here. And congrats on becoming a public company.

Pierre Naudé, President and CEO

Thanks, Saket. Great hearing from you.

Saket Kalia, Analyst

Yes, same here. Hey, Pierre, maybe just to start with you. Can you just talk about what you're hearing from customers? I know you spend a lot of time with customers. What are you hearing from them outside of PPP and forgiveness? In terms of their willingness to invest, particularly in that core commercial lending part of the market? Does that make sense?

Pierre Naudé, President and CEO

Yes. I can tell you that we see an accelerated urgency around digital transformation. There's, to me, a realization now that work-from-home is not a luxury anymore. It's just an imperative. If you live in a city like London, and you're commuting an hour and a half each way per day, why would you waste three hours in a train if you can do your job from home? And as a businessman, you think, I can get more productivity out of my people doing that. Now look, in Wilmington, we can wait 15 minutes. So that same logic doesn't apply. But if you live in New York City, Chicago, LA, any of these big cities, I think these banks realize they were forced to go in this direction. And I think when this is done, everybody is going to move towards a much more flexible workforce that can work from anywhere, on any device, at any time. Because their work life balance has just changed. And number one, because of that, because COVID actually drove the urgency. We are seeing great strategic conversations with the most senior people in the largest complex institutions about how to actually get there at a faster pace. So I'm very optimistic.

Saket Kalia, Analyst

Got it. That makes sense. David, maybe my follow-up for you. You touched on this a little bit in the prepared remarks, but just I want to unpack a little bit. Can you just talk about the seat activation schedule a bit in terms of how that can change if at all? And how we should be thinking about that activation schedule when we model revenues going forward?

David Rudow, Chief Financial Officer

Yes. So we do have a delayed seat activation schedule, and we did not see any major change to those activation schedules in the quarter. Our guidance assumes a similar level that we saw in the past for those activation schedules.

Pierre Naudé, President and CEO

But except for PPP. I mean PPP obviously accelerated activations and it's distorting the revenue of the second quarter. So it's a quick growth because of that. But overall, on your normal business, the activation schedule stayed steady as it was before PPP and COVID.

Saket Kalia, Analyst

Got it. Makes a lot of sense. Thanks, guys.

Pierre Naudé, President and CEO

Thanks a lot, Saket.

Operator, Operator

Thank you. Our next question comes from the line of Josh Beck from Keybanc. Your question please.

Josh Beck, Analyst

Thank you for taking the question. Maybe this is for you, Pierre. But you've talked a bit about digital transformation. And I certainly think the conversation has changed and you gave some great references from other bank calls on how they're thinking about that. So that seems to be something that would build the pipeline. On the other hand, these are large enterprises. And we have seen some elements of disruption to sales cycles and implementation cycles. So I'm just wondering like when you balance those two factors together, how are you thinking about building the pipeline and the outlook for new bookings, as we go into the end of this year and the end of your fiscal year?

Pierre Naudé, President and CEO

So thanks a lot for joining the call here. So look, yes, it's really interesting. In the community bank space, there clearly was a disruption because it's smaller staff, people are more focused. And when they had to pivot towards PPP that started pushing deals out, and that was about a four, five months I would say, redirection of activity and people. The moment that is coming to an end, people are focusing back on long term strategic initiatives. Once you get to your larger regional banks and your enterprise banks, they're big enough that they stay strategically on track. And this is driven a higher urgency, as I mentioned for these initiatives. Because it's not only a matter of efficiency anymore. There are compliance issues around this. Can you work-from-home effectively on the old systems? Do you have the right entitlement engines in place to make sure your people are actually the people signing into the systems, etc. So all of that plays into this higher level of urgency. These are big banks. It takes time. But I can tell you that in this time our pipeline has grown because of these banks understanding the need to do this. And they have to move forward. And it's not merely I would say, something that they would like to do. It's becoming a strategic imperative to run the bank in a different way.

Josh Beck, Analyst

That's really helpful. David provided some insightful charts regarding the ACV net revenue retention in your S1 filing. Is there anything else you can share about that? It looks like you've secured some significant deals with expansions. Is this still a solid framework for us to consider as we develop long-term growth prospects for your business?

David Rudow, Chief Financial Officer

Yes, thank you. We ended fiscal 2020 with a revenue retention rate of 147%, as Pierre mentioned earlier. If you consider the PPP deals and the forgiveness deals we finalized in the first half of the year, most of those were with existing customers. While we are not disclosing quarterly revenue retention, you could assume that the 147% rate would have increased due to that. We plan to provide an update on this at the end of the fiscal year as well. The PPP did positively impact that metric in the last two quarters.

Josh Beck, Analyst

Okay. Very helpful. Thank you, Dave.

David Rudow, Chief Financial Officer

Thanks.

Operator, Operator

Thank you. Our next question comes from the line of Terry Tillman from Truist Securities. Your question, please.

Terry Tillman, Analyst

Yes. Congratulations on the IPO, Pierre, Greg, and David. My first question is for you, Pierre. Sometimes an IPO can boost the business and enhance its visibility. I know it's still early since the IPO, but what have you observed in terms of increased recognition, particularly in international markets? How has being a public company benefited you, if at all, with this increased exposure? I have a follow-up question as well.

Pierre Naudé, President and CEO

Terry, it's quite interesting. One of the strategic reasons we thought to do this was notoriety to be taken seriously in more conservative international markets. Like if you think about Germany, or Italy or Spain, where you don't want to be seen as a small startup out of the U.S. And the notoriety around this has driven significant activity and receptivity, from the banks to our teams. If you speak to our London team now, they will tell you that they get calls and meetings now they could never get before. So we see the notoriety. We see the brand recognition. Our relationship with salesforce.com is always helpful. But these events, the way we built this platform with the referenceable customers we've got in the U.S. is tremendously helpful, and the IPO was just at the next step to push us forward.

Terry Tillman, Analyst

Got it. And actually you just mentioned Salesforce. They actually talked about acceleration in some large enterprises in terms of their digital transformation. I mean, you all were able to exhibit the power of your platform over the last two quarters with PPP and then forgiveness. Is it doing anything to kind of spur accelerating conversations? And maybe even kind of the monetization timeframe for things like retail lending or deposit account openings, etc. Just like what are you seeing so far in terms of maybe that picking up the pace of some of these sales cycles? Thank you.

David Rudow, Chief Financial Officer

Yes. It's interesting to actually notice this. So PPP forced banks to have a digital channel in a very short order to get up and running. And for years, we had a sales cycle trying to convince them this is the right thing to do, it's going to help you etc. And now everybody is a believer. So now it's about where do you deploy first, what business line do you get, etc. So it's not a matter of should we do it anymore. It's now a matter of when do we do this and when is the IT budget, etc. And we can use the examples of how quickly we stood up the PPP loan product and actually got it in production and processed billions of dollars. As proof points that these projects shouldn't take 12, 18 and 24 months. We can do it much faster, have a much bigger impact, and then do some of the integrations after the fact. We are seeing that messaging resonating with banks and senior management.

Terry Tillman, Analyst

Thanks.

Operator, Operator

Thank you. Our next question comes from the line of Brian Peterson from Raymond James. Your question please.

Brian Peterson, Analyst

Hi, everyone, and thank you for the question. Congratulations on the impressive results. Pierre, I wanted to touch on the retail opportunity. You received a great endorsement from a third party this quarter. As we consider the progress of that product offering, what internal indicators are you using? How would you advise your investors to evaluate the growth of that product as it develops?

Pierre Naudé, President and CEO

Thank you for joining us. As I mentioned earlier, our retail offering has three key components. We aimed to expand into mortgage internationally, and we successfully signed six small Canadian institutions in a very short period, which is not only promising but also highlights the pressing need for quality software in that market. On the retail lending front, we are being very cautious due to the intense regulatory compliance and documentation requirements, but we are making significant progress and gaining reputable customers. The complexity involved in developing this solution serves as a strong barrier to entry for others in the market. Currently, the area where we see the most momentum is in opening deposit accounts. The interest in the mortgage sector, particularly in Canada and Europe, is encouraging, and the uptake in lending and IT reports has been positive. Overall, this offering is growing faster than commercial loan origination, even though it started smaller. I truly believe that as we integrate the nIQ elements into retail, we can provide a seamless, automated experience for customers, allowing them to complete everything via their phones without needing bankers, supported by backend automated decision-making. This will drive significant growth. A challenge in today's banking industry is the trend in deposits, where funds are concentrating in the largest U.S. banks, while community and regional banks are having difficulty attracting deposits at the same pace. We have numerous examples showing that the nCino solution is far more effective in acquiring deposit accounts. Additionally, these banks will need to enhance their retail lending capabilities to ensure they can attract deposits in the future. If I can provide a comprehensive service, I will choose to deposit my funds with a larger bank that can also handle my car loan, mortgage, etc. We are in the process of bundling these offerings and guiding banks on how to achieve this, and I am seeing positive receptivity to our approach.

Brian Peterson, Analyst

That's great to hear. And maybe one of the follow up question on the pipeline. I realized there's a lot of market presence and things that's driving awareness of your solution, whether that's PPP or the IPO. I'm curious what you're seeing in the pipelines in terms of new customer opportunities? And is there any commonality? And what's driving those new opportunities into the pipeline? Thank you.

David Rudow, Chief Financial Officer

Thanks. What I would say is we see still a very healthy commercial pipeline coming in, whether it's expanding in existing enterprise banks in your community and regional space, as I mentioned earlier, we've got 300 out of 2000 institutions. And by the way, we don't even have the whole commercial bank of the 300 we got. We've got pieces of this and maybe certain loan types, etc. So there's tremendous cross-sell as well as new logo opportunities in the commercial side. Then on top of that, in the community and regional space, the platform story is really powerful. They would love to standardize all their operations, middle back office, and customer interaction on a single platform. So what we're seeing is they bind to the full platform, but then deploy one line of business at a time. Because it just takes time and effort to do that. And then, the other leg of the stool is absolutely international. I've mentioned to you earlier through the IPO that I measure every one of these solution sets of our strategic growth initiatives compared to the early days of the company. So if I look at international and after three years, it's outpacing where the company was in the first three years. I then look at the retail solution set, and it's outpacing what we did with commercial in the first three years. And if those two things keep on holding true, then it actually is an exponential growth story, which is what we are doing here.

Brian Peterson, Analyst

That's great color. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Brent Bracelin from Piper Sandler. Your question please.

Brent Bracelin, Analyst

Thank you. And good afternoon. I guess one for Pierre and one for David. Pierre, international crossed over 10% of revenue for the first time. I know it's early days. But I was hoping if you could frame just the international opportunity, what's changed post COVID. I mean, you talked about a big U.K. Bank, basically pulling you in for a triple P equivalent in U.K. But more broadly speaking, what are you seeing there relative to the opportunity? And has it materially changed in the last six months as you just think about engagement activity? And is it largely because of that need around remote workers?

Pierre Naudé, President and CEO

Yes. So I would firstly say, when we entered Europe, we realized that the cloud was not as well adopted as in the U.S. There's a lag effect there. So we had to start evangelizing from scratch again to get people comfortable with the cloud. The second main thing is, I can fly from here to Kentucky and go sell a piece of software. I cannot do the same from England to Germany. I need a German speaker and need German infrastructure, and somebody who speaks Spanish for Spain, etc. So the initial startup in that market, although the market is bigger, took a bigger investment in a larger infrastructure that we have to put in. We had to make sure the languages are supported by the software, all the different integrations, etc. So your upfront investment happens to be more complex and larger. However, what we're beginning to see is with COVID, and just the event. So realize, the only country we had a triple P program like the U.S. was the U.K. I didn't see any of this in France or Germany or Spain, similar programs. But there is, I would say a heightened awareness, number one. Number two, we've got banks like Santander, who's using us in the U.K and the U.S. Is obviously the next question, is what about Spain? We are penetrating these banks in their foreign subsidiaries and then circling that and getting into their main home countries. So I'm seeing overall this awareness, the cloud adoption, the awareness of Salesforce and nCino, the brands, and the trust factor around that. And then further to that, I can tell you in Australia, we see fantastic traction. As you may know, we've got Macquarie Bank there as an anchor solution we did. We've got a bank in New Zealand going. So everywhere we've planted the flag, we've got a presence. We've got a great success story and that'll just drive it forward. But there was a more difficult ramp in the beginning.

Brent Bracelin, Analyst

Thank you for the information. David, I want to clarify the subscription growth, which was around 70% this quarter, an impressive achievement. I understand there was some benefit from two go-lives and the PPP forgiveness. My question is whether you experienced any positive impact this quarter from the U.K. Bank launching a similar PPP program, or is that something we can expect to see in Q3?

David Rudow, Chief Financial Officer

Thank you for the call. Regarding the PPP and the CBILS in Europe, we did see some benefits on the PSO side this quarter. However, we did not experience a complete quarter of benefits on the subscription side, so we expect that to materialize in the upcoming quarters.

Brent Bracelin, Analyst

Okay, great. And then just quickly housekeeping RPO. Did you kind of give us what the RPO was in the quarter?

David Rudow, Chief Financial Officer

Yes. And you'll see all the details in the 10Q which we're filing tomorrow morning. RPO increased by about $20 million in the quarter, with a majority of that increase coming from the less than 24-month bucket, which kind of reflects the PPP and forgiveness deals that we closed in the quarter.

Brent Bracelin, Analyst

Got it. Super helpful.

Operator, Operator

Thank you. Our next question comes from the line of Sarah Hindlian from Macquarie. Your question please.

Sarah Hindlian, Analyst

Great. Thank you so much for taking my questions. Pierre and David, it's great to hear your voices. And I'll definitely add my congrats on your debut quarter. Pierre, I know one initiative you have been focusing on. And I know this was certainly the case pre-IPO has been expanding both through technology, partnership ecosystem and also your consulting partner ecosystem. So I'm wondering how that has changed or what kind of development you're seeing there since the IPO? And then I have a quick housekeeping follow-up for David.

Pierre Naudé, President and CEO

Yes. As you can see, the revenue balance between subscriptions and professional services continues to show a decline in the professional services segment historically for the company. This decline is due to our focus on expanding globally with our system integration partners. In the U.S., we have established relationships with some of the top brands in system integration, which is very advantageous, and we take pride in those partnerships. In Europe, we are encountering instances where banks wish to collaborate with partners we have not previously engaged. We have an efficient training and onboarding program for these partnerships, which allows us to bring them up to speed. We complement these projects with additional nCino resources to ensure they receive the best product knowledge and assistance. I anticipate growth typically driven by customer demand. As we enter new regions, we remain flexible. Generally, in smaller bank markets, we engage more with smaller system integrators, while our global partnerships cater to larger enterprise banks. I haven't noticed significant changes; rather, the growth we are witnessing is fostering more partnerships, beyond just the IPO.

Sarah Hindlian, Analyst

Okay, great. Thank you. And then, David, just a quick follow-up for you. Did COVID loans get bigger versus what you expected for the year given the upsell in EMEA? Is that kind of a fair classification?

Pierre Naudé, President and CEO

Yes, I would say that COVID had an impact, and the PPP and CBILS programs were unexpected this quarter. This contributed to the positive results. We recorded $3 million during the quarter and anticipate some growth in that area for the remainder of the year, especially regarding the PPP and related subscription revenues.

Sarah Hindlian, Analyst

Okay. All right. That's…

Pierre Naudé, President and CEO

I think hopefully, normally when we sign a contract, there's a fairly lengthy activation of seats and the CBILS and PPP just had a very quick activation. You literally sign the contract and two weeks later, you're up and running, you take revenue, okay. So that is a slight distortion that you're going to see in Q2. And Q3 we just modeled into the models and the guidance. That quick uptake is just not normal for how we do business. And that's the reflection you're seeing.

Sarah Hindlian, Analyst

Absolutely great. That makes a lot of sense. I appreciate it. Thank you so much.

Pierre Naudé, President and CEO

Thanks a lot.

Operator, Operator

Thank you. And this does conclude the question and answer session. I'd like to hand the program back to Pierre for any further remarks. Well, thank you so much for dialing in today and tracking our progress. We are excited about the future. And we are focused on our customers and delivering what we promised. So thank you very much for joining us today. Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.