Earnings Call Transcript
nCino, Inc. (NCNO)
Earnings Call Transcript - NCNO Q1 2025
Operator, Operator
Good day, and thank you for standing by. Welcome to the nCino First Quarter Fiscal Year 2025 Financial Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Harrison Masters, Director of Investor Relations.
Harrison Masters, Director of Investor Relations
Good afternoon, and welcome to nCino's first quarter fiscal 2025 earnings call. With me on today's call are Pierre Naude, nCino's Chairman and 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.ncnino.com. With that, I will now turn the call over to Pierre.
Pierre Naude, CEO
Thank you, Harrison, and thank you all for joining us today. We are very pleased with the start to the year. We built on the sales momentum from Q4, with gross sales in the first quarter exceeding our plan and setting a company record for the quarter. We observed strong performance across the business, particularly with existing customers expanding their use of our platform in the U.S. enterprise and community and regional markets. Last quarter, I mentioned that we anticipated net sales for fiscal '25 to increase by around 50% compared to last year. Our robust Q1 results certainly bolster our confidence in reaching that target. At year-end, we identified stability in interest rates as crucial for improving customer conversations and normalizing buying patterns. The December 2023 Federal Reserve meeting provided a much-needed stability to the U.S. market after almost two years of uncertainty. With heightened visibility into their financial performance, more financial institutions are refocusing on strategic initiatives to enhance their operations, improve efficiency, offer better user experiences to their clients, and strengthen their competitive positioning. This is resulting in increased technology spending. According to an internal survey this month, 72% of executives reported that their IT budgets have risen from last year, with 44% indicating an increase of over 5%. While the stability in interest rates has been beneficial for most of our operations, prolonged higher rates have kept the mortgage market under pressure. Nevertheless, our U.S. Mortgage business continued to perform well, adding 15 new clients and exceeding internal quarterly gross sales targets in both the financial institution and independent mortgage bank market segments. The challenging mortgage environment in recent years has highlighted the necessity for lenders to adopt technology to enhance profitability, improve customer experience, and attract top talent. Our results reflect our success in overtaking competitors and cross-selling within our banking client base. We are currently awaiting the first Federal Reserve rate cut, and the factors affecting demand do complicate predictions regarding the impact of rate cuts on mortgage volumes. However, we are confident that our market-leading technology and dedication to product innovation will allow us to gain market share. While there are market-specific nuances, we observe common priorities across all the segments we serve. The liquidity crisis a year ago and the resulting tough business cycle imparted lasting lessons for our customers and prospects. Operational efficiency and quality digital experiences are now essential requirements for their clients. As the only cloud-native, single platform that integrates lending, onboarding, and account opening operations across different business lines within financial institutions, we are uniquely positioned to drive efficiency and provide a modern digital experience in financial services. This was clearly illustrated at our annual user conference, nSight, held in Charlotte just two weeks ago, which had over 1,600 attendees. More than 70% of respondents in a registration survey indicated that improving efficiency is their institution's top priority for 2024. This aligns closely with our mission to unify people, processes, and data on a single customer-focused platform. We are committed to ensuring all our solutions lead the market as the initial steps of digital transformation can begin from any area within a financial institution. For instance, during the first quarter, a bank with over $15 billion in assets expanded their use of nCino to include treasury onboarding alongside small business and consumer lending and deposit account opening. In Q1, we nearly multiplied the annual contract value within this account by seven, even though they do not yet use our flagship commercial lending solution. In April, we made several announcements regarding our consumer lending solution, including the omnichannel experience we've discussed previously. The nSight event was the official launch of omnichannel, and we are thrilled with the overwhelmingly positive responses and feedback from our customers regarding this product, which offers the same mobile-first point-of-sale experience that has become a key differentiator for our U.S. mortgage solution, now extending it to all of consumer lending. Additionally, we enhanced our consumer lending capabilities with new features for indirect auto lending, enabled by a recent acquisition of technology from a valued partner in the credit union sector through States Financial Group. You may remember our discussion about the acquisition of DocFox during the last earnings call. This acquisition enhances our onboarding and account opening capabilities for small business and commercial banking. nSight provided many customers their first look at how this solution digitizes and streamlines what has been a high-touch, inefficient, and time-consuming process. The feedback has been outstanding, including over 100 new sales and leads generated at nSight. We are collaborating with early adopters on an integrated product aimed initially at the community and regional banking sectors in the U.S. One mutual customer has reported that the onboarding time for business accounts has dropped from two weeks to under an hour with DocFox. Our market testing suggests that solving the commercial onboarding platform for financial institutions could yield approximately half of the annual contract value that we expect for commercial lending. We are incredibly enthusiastic about the potential for DocFox, which will be known as the nCino commercial onboarding and account opening solution, and we look forward to broadening this offering for U.S. enterprise clients later this year. With an integrated platform of top-tier solutions laid out, we are uniquely equipped to lead the digital transformation of financial services through automation, data, and intelligence. Our newest NIC offering achieves precisely that. Continuous credit monitoring utilizes our partner's AI decisioning platform to automate previously manual loan review tasks at both the customer and portfolio levels. Through this collaboration, we are establishing a new standard for how financial institutions manage credit risk. We are pleased to announce that M&T is our first U.S. customer for continuous credit monitoring. This solution will empower M&T to identify early warning signs and provide insights to enhance their client service. This is just one example of how our key partnerships extend and improve our platform. Another significant development showcased at nSight is our banking advisor products, where we demonstrated how we have utilized generative AI to automate the creation of deal and credit memos, rapidly interpret policies, engage in conversations, upload, locate, and file documents, and convert PDFs into data. Our customers are thrilled with this innovative technology, leading to the Fire Marshal issuing warnings for overcrowding at the nSight Banking Advisor booth. As a reminder, nCino earned our customers' trust by guiding them through the cloud adoption journey. Our aim is to instill that same trust as their partner during their AI adoption journey. nCino distinguishes itself as a vendor in financial services, not only through our global reach and capacity to serve institutions of varying sizes but also by hosting mission-critical lending, account opening, and onboarding processes across a unified platform for all our financial products and services. nCino's foundation lies in business process reengineering, and with AI, we possess the capability to drive intelligence and automation like never before. With that, I'll hand the call over to Greg to cover the financials.
Greg Orenstein, CFO
Thank you, Pierre, and thanks, everyone, for joining us this afternoon to review our first quarter fiscal 2025 financial results. 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. We are very pleased with our first quarter financial results. Total revenues for the first quarter of fiscal '25 were $128.1 million, an increase of 13% year-over-year. Subscription revenues for the first quarter were $110.4 million, an increase of 13% year-over-year, representing 86% of total revenues. As previously discussed, revenue growth rates this year are being impacted by the heightened churn we saw last year, particularly in the IMB market. Churn in the first quarter did moderate as expected, and while we will continue to closely monitor the interest rate environment, our churn expectations for the rest of this year remain in line with the $20.5 million we discussed for the full year. Professional services revenues were $17.7 million in the quarter, growing 8% year-over-year. Non-U.S. revenues were $25.8 million or 20% of total revenues in the first quarter, up 34% year-over-year. Non-GAAP gross profit for the first quarter of fiscal '25 was $84.4 million, an increase of 14% year-over-year. Non-GAAP gross margin was 66%, compared to 65% in the first quarter of fiscal '24. Our subscription gross margins reflect approximately 70 basis points of benefit from improved unit economics under our agreement with Salesforce. We expect continued subscription gross margin improvement in line with the 1% increase for fiscal '25 we discussed last quarter as we lap annual billing events for existing customers and have the opportunity to move more of them on to our new Salesforce pricing. Non-GAAP operating income for the first quarter of fiscal '25 was $24.4 million, compared with $10.9 million in the first quarter of fiscal '24. Our non-GAAP operating margin for the first quarter was 19%, compared with 10% in the first quarter of fiscal '24. Our operating margin benefited from hiring being slightly behind plan in the quarter, favorable insurance renewals and improvement in bad debt expense, particularly in the IMB space. Non-GAAP net income attributable to nCino for the first quarter of fiscal '25 was $22 million, or $0.19 per diluted share, compared to $8 million or $0.07 per diluted share in the first quarter of fiscal '24. Our remaining performance obligation, or RPO, increased to $1.07 billion as of April 30, 2024, up 17% over $914 million as of April 30, 2023, with $702 million in the less than 24 months category, up 13% from $623 million as of April 30, 2023. We had another strong expansion quarter with contract extensions accompanying those deals, so we had healthy contract duration adds that accompanied the incremental ACV. We ended the quarter with cash and cash equivalents of $134.8 million, including restricted cash. Net cash provided by operating activities was $54.4 million, compared to $31.3 million in the first quarter of fiscal '24. Capital expenditures were $342,000 in the quarter, resulting in free cash flow of $54.1 million for the first quarter of fiscal '25. As a reminder, the first quarter is typically our seasonally strongest cash generation quarter. You will note, our statement of cash flow reflects investing activity net of acquired cash of $91.2 million. This reflects $19.9 million of all-cash purchase consideration for Abrigo and $74.3 million for DocFox, including approximately $2 million of purchase consideration that was recorded as post-combination expense, which was excluded from our non-GAAP results. With the addition of indirect lending functionality, Abrigo expands the market opportunity for our consumer lending product to a larger number of banks and credit unions, which we expect will further increase our competitiveness and consumer lending, though the revenue contribution expected this fiscal year from this technology is immaterial. We borrowed $75 million on our revolving credit facility to finance the DocFox acquisition and subsequently repaid $20 million within the quarter. We plan to pay down the remaining $55 million of borrowed principal during the rest of this fiscal year as we continue to generate cash. We use cash on hand to fund the acquisition of Abrigo. Turning to guidance. For the second quarter, we expect total revenues of $130.5 million to $131.5 million, with subscription revenues of $112.5 million to $113.5 million. This guidance assumes year-over-year subscription revenue growth of 13% to 14%. For full fiscal year '25, we continue to expect total revenues of $538.5 million to $544.5 million, with subscription revenues of $463 million to $469 million. This full-year guidance assumes year-over-year subscription revenue growth of 13% to 15%. Non-GAAP operating income in the second quarter is expected to be approximately $17 million to $18.5 million and non-GAAP net income attributable to nCino per share to be $0.12 to $0.13, based upon a weighted average of approximately 117 million diluted shares outstanding. nSight is expected to add approximately $2 million of incremental sales and marketing expense in the second quarter on a sequential basis. Additionally, annual merit increases affected in April, plus salaries and wages of people onboarded with the acquisitions will contribute to a higher quarterly operating expense run rate. Also, in light of the incredible customer demand we saw at nSight for our expanded product capabilities, we plan to reinvest some of the Q1 bottom line overperformance in sales and marketing to drive even greater adoption of our newer solutions and to more aggressively pursue the consumer lending opportunity in the credit union market. That said, we are increasing our non-GAAP operating income outlook for the full year and now expect non-GAAP operating income for fiscal '25 to be $86 million to $89 million. Full fiscal year '25 non-GAAP net income attributable to nCino per share is expected to be $0.65 to $0.68 based upon a weighted average of approximately 117 million diluted shares outstanding. With that, operator, we'll open the line for questions.
Operator, Operator
Our first question comes from Adam Hotchkiss with Goldman Sachs.
Adam Hotchkiss, Analyst
Pierre, I appreciate the comments you gave around nSight. I would love for you to just dig a little bit more into what are some of the key things you learned from customer conversations? What are they asking for around? It seems like AI and innovation? And then any incremental color you can give around the 100 new sales leads generated there? What products are people most focused on? Really appreciate it.
Pierre Naude, CEO
Yes. Thanks a lot for that question. It's interesting. AI has received significant attention since October being around the market. You get lots of very important senior people like Jamie Dimon talking about it. But then there's a problem as we are in a regulated industry, with lots of laws and regulations, many privacy concerns, and numerous data issues. If you feed bad data into AI, you get bad outcomes. So what I'm seeing is that the majority of people are very excited, but they need guidance. They need to understand what tools can be used, how they can stay compliant, and how to avoid the wrong approaches. What we've seen is, and that's why the term marker concept comes in as well; they are really hungry for solutions that will drive efficiency and help them operate the bank better. They need people like us to actually build those tools to be very purposeful and very narrow in the focus of the solutions or problems they solve. That way, they feel secure. So we have to take this journey with them and actually develop solutions that are very purpose-driven, focusing on specific problems. It’s a journey that requires patience, given the conservative nature of banking. Operational efficiency is at the forefront, and quality digital experiences are table stakes for their clients.
Greg Orenstein, CFO
And Adam, just on your question about the 100 sales leads. That was specifically for DocFox, which we're now calling our commercial onboarding and deposit account opening solution, but that was specifically at their booth. So a lot of excitement about bringing that technology into the nCino family.
Adam Hotchkiss, Analyst
Okay. Great. That's really helpful. And then, Greg, just on the margin consideration there. I think you talked about hiring being a little bit behind plan? What do you need to see either from a revenue perspective or other signals to lean in on the hiring side? And then how do we think about some of the sales and marketing expense within the context of that relative to the margin expansion plans that you laid out at Investor Day last year?
Greg Orenstein, CFO
From a hiring perspective, again, our folks have got the green light to hire. I think what we mean over the last quarter is that we are trying to bring in more talent as we find it in the market. Our teams are being methodical about who they're bringing in to help drive the company forward. So from that perspective, it's not a directive from the CFO's office, for example. It's all about making sure we have the right people who can drive growth, particularly when we talk about the breadth of products we have going forward. So that's that. As it relates from a margin perspective, again, we're going to take a little bit of a jump in our OpEx lines in the second quarter, as I talked about and gave some reasons. But once we get beyond that, again, we expect it to be fairly stable as the year progresses. I think we've talked about on our last call before; we feel very comfortable with the headcount we have. We are continuing to add in places where we see opportunities again to drive growth and efficiencies. You'll note that our headcount is up, but that's really solely related to the acquisitions that we did and the employees we've brought on from those 2 transactions.
Operator, Operator
Our next question comes from Ryan Tomasello with KBW.
Ryan Tomasello, Analyst
Pierre, last quarter, you talked about needing to hit roughly 40% of your annual bookings target to hit the guidance for the year. So just given the strong start to the year, can you provide some context around where that visibility stands today? And maybe some of the puts and takes have been? And just given the strong bookings performance to start the year, maybe just help us understand the drivers of the maintained top line guide for the year.
Pierre Naude, CEO
Yes. So look, firstly, first quarter was a continuation of the momentum from the fourth quarter, and that gives us confidence to maintain the guide. This is exactly how I expressed our market sentiment at this point. If you look at just further color on the bookings, it was about 60-40 commercial. I want to emphasize that we have taken that breadth and expanded it into small business as well as consumer deposit account opening and onboarding. So that's how we get additional users. But there’s a debt issue; the debt revolves around intelligence, data, AI, analytics, machine learning. We're literally going to go deeper into the bank and look at very specific roles and see how we can add value. This adds tremendous value through efficiency and operations of banks. So I would say the first quarter confirmed my confidence. On the downside, you have to remember we must look at churn and we always have to understand what the churn impact will be. Since I haven't seen any cuts in rates, although Mortgage is only about 15%, 16% of total revenue, it does have an impact. That Mortgage business is still running flat, although we're taking market share, which is a positive outcome. But obviously, it is dilutive to growth overall because it's growing slightly slower than the rest of the company. For now, we're going to hold what we have, and we'll see how the market develops.
Greg Orenstein, CFO
Yes. Just to expand on that, Ryan. From a mortgage perspective, that business is still growing almost double digits this quarter. Again, the team is continuing to do a great job in a difficult market. We added 15 new logos in the quarter, but it does dilute growth. You would have heard my comments around bad debt, particularly on the IMB side, subsiding a little bit. What we've seen is somewhat what we experienced mainly last year, with many of these IMBs, these mortgage lenders shutting down. We have seen that slow down; I still expect some of those to happen, but not with the frequency we saw last year. And as we think about churn this year, I think I touched upon it on the last call; it's really more about M&A. As you're left with a smaller number of larger, better capitalized IMBs, some of those are becoming aggressive in taking market share. Fortunately, many of those are our customers, so we hope there are opportunities for growth through M&A.
Ryan Tomasello, Analyst
Great. I appreciate all that color. And then just a bigger picture one here, Pierre. As you think about potential catalysts on the horizon driving demand and bookings over maybe the next 6 to 12 months, I was hoping you could just help us contextualize the importance of the different variables involved between some of the more obvious ones like rates, the U.S. presidential election, and maybe just a broader urgency that AI is placing on the industry to innovate. How would you rank order the importance among those? And any other major variables that come to mind as you think about the bookings environment over the next 6 to 12 months?
Pierre Naude, CEO
The first thing you have to realize is that banks this year operate under a lot more stability compared to the previous year. Last year was all about survival. When there is a liquidity crisis, management teams turn all their focus through a very tactical mindset just to survive. This year, I would say they bruised from that experience but are carefully moving forward with more strategic options. So what I find is there is a lot of scrutiny on deals and really making sure that they prioritize their spending in the right places. Fortunately, with what we do, we get prioritized at the top of the list many times. However, there is still a part of conservatism that you can see. As time goes on with stable rates, banks will become more aggressive in realizing they have to run an efficient operation. When it comes to the election, changes in administration come and go. If it's more compliance-oriented, we've got the tools to solve that for you. If it's more growth-driven, we’ve got the tools to grow. If it’s more about profitability and efficiency, we've got the tools to drive automation and efficiency. All the bankers know they have to work towards an efficiency ratio around 50%, with some banks even achieving around 39% or 40%. You can run these banks at very efficient and highly profitable margins by utilizing nCino, and that's a message we convey, which is reaffirmed in our surveys and feedback.
Operator, Operator
Our next question comes from Brent Bracelin with Piper Sandler.
Brent Bracelin, Analyst
Pierre for you, if I look at DocFox and Abrigo, it looks like you're reinvesting here in that community bank small business area. What's driving the need or the opportunity? Is there some pull there where you decided to buy versus build because the demand was there? Walk us through the logic and what you're hearing regarding the sense of urgency from some of those community banks and why you're leaning in here now?
Pierre Naude, CEO
Yes. So let me talk about onboarding first. Look, onboarding has always been of interest to us, but it came in a packing order. We wanted to do small business and consumer lending and deposit account opening first. But onboarding for commercial businesses is a highly complex process. Some of these deposit account openings could take up to 6 months for banks to complete, depending on complexity and regulation issues, especially in international business. Automating that and assisting banks with that is tremendously attractive. In terms of DocFox, we always aimed to build for the community bank market. With DocFox, I can accelerate that. Once integrated, that product will scale all the way up to the enterprise level. There is tremendous demand for this. By the way, this capability will also extend to international markets. So the onboarding of commercial customers has always remained a priority for us and is part of building out the platform.
Greg Orenstein, CFO
Yes, and Brent, I think I would also view that as how far our consumer lending solution has come and the confidence we have in it. It is really rounding out the functionality to bring to market. As Pierre noted, we often get requests where we cannot check a box, and we would get dinged for that during RFPs. But ultimately, now we are able to introduce this new technology, and we believe the market is asking for it because we don’t see other new technologies like what we have available for consumer lending.
Brent Bracelin, Analyst
Helpful color, and just Greg for you, one quick follow-up on CRPO, the growth did accelerate here on a year-over-year basis in the quarter. It sounds like you're flagging continued uncertainty in that mortgage market. But was all of the backlog build in the quarter tied to kind of commercial? Was it strong renewals? Just any additional color on why that CRPO growth actually accelerated even in an arguably very tough environment.
Greg Orenstein, CFO
Yes. Look, it was a good quarter, and also just the mix that we had, which we always highlight, can impact came into play. We had three commercials, and I know we frequently get questions about commercial saturation. We had three customers that each expanded with us over 40% from an ACV perspective, just solely expanding the commercial usage of us this quarter. We still see plenty of opportunity on the commercial side. The other thing with mix, Brent, shows a little bit of the enterprise customers again coming back to buy, as the events from last year and the liquidity crisis become a distant memory. So that's another point I could highlight. As we think about commercial, I’d recommend you to think about it more broadly with all of the other things we're bringing to those commercial customers like continuous credit monitoring, banking adviser, DocFox, auto spreading, and commercial pricing and profitability. We view that commercial customer base as a tremendous asset with a lot of runway ahead.
Operator, Operator
Our next question comes from Alex Sklar with Raymond James.
Alex Sklar, Analyst
Pierre, great to hear on the record first quarter bookings. I wanted to dig your comments in particular on the U.S. Tier 1 and enterprise activity, where you mentioned that you observed signs of a recovery. What do you see from that segment in the quarter? And how should we think about that segment contributing to bookings this year relative to its current mix in your business?
Pierre Naude, CEO
What I'm seeing is the same excitement. Obviously, there are bigger steps and a bit more sophistication on the IT side, but the same excitement with the same questions around usage of data. If you look at the critical mass of data by bank, JPMorgan Chase and maybe Wells Fargo have critical mass. The rest may not have enough data to create a representative picture. With our data lake and the products we offer, we have the ability to provide deeper insights into commercial lending, as well as automating review processes. Most of the work actually sits in quarterly, six-monthly, and annual reviews of existing loans. There’s a massive middle and back office operation happening that doesn't revolve around loan origination, and that is where the opportunity to drive automation lies. Our partnership with retailer corporations is beneficial in this regard. Pairing this with the generative AI tools we are developing will allow us to remove numerous processes we've built over the past 12 years into the workflow.
Alex Sklar, Analyst
Okay, great. Yes. I know RDC was a big part of the nSight keynote this year. So it's good to hear my color. One more for you, Pierre, or Greg as well, can you just discuss the launch of SimpleNexus, the front-end omnichannel capabilities? And maybe I'll lump in some of the indirect auto functionality you mentioned in response to Brent's question. What does that mean for the retail lending segment? I know Greg called that out as one of the areas you're going to spend more on in the back half of the year. So what's changed in your mind regarding consumer lending?
Pierre Naude, CEO
Let's talk about the consumer-facing side. You can think of it like this: if American Airlines changed the whole ticketing operations but you still have to make a phone call; that doesn't work. What we've worked on is probably the most sophisticated, elegant front-end solution, allowing consumers to complete processes in a self-service fashion. This removes the burden from the bank, provides them with a modern platform, and drives self-service on a level not known in banking today. All of a sudden, people are starting to believe that the hard work we put into the middle back office will push consumer adoption and self-service, which they were always competing for. This front end is making a significant difference. It’s a critical piece of the puzzle. We never wanted to launch it until we had the middle back office cleaned up; otherwise, you'd have a nice front end, but customers would wait days for answers. We envision a world 5 years from now where consumer and small business banking should be driven primarily through self-service with intuitive tools that aid consumers, allowing them to interact in a truly self-service manner. The Abrigo product is merely to fill a gap in indirect lending, as that is what the market demands. Hence, our end-to-end solution can provide comprehensive offerings solving these issues, giving us a competitive edge.
Operator, Operator
Our next question comes from Saket Kalia with Barclays.
Saket Kalia, Analyst
Pierre, maybe for you. I'd love to just double-click a little bit on just the consumer business. To your earlier point, right, you're building a whole sort of end-to-end system there for consumers. Can you talk about it from a demand perspective? Qualitatively, how do you feel about the pipeline for consumer lending this year? And as that toolkit has matured, how are you looking at competitive win rates right now in this environment?
Pierre Naude, CEO
Yes. So I would remind you that consumer includes indirect lending, mortgages, consumer finance secured and unsecured, and then when you get to real estate, it’s mortgages plus HELOCs, etc. It occupies a considerable portion of our offerings. Anyone who attended nSight witnessed this as our consumer products were showcased in different booths, portraying one unified consumer platform. Banks that have previously worked on the commercial piece with us are now resonating with the single platform story. They see the need for investment. I'll point you to that $15 billion asset bank that grew HCV 7x by signing up with us, even without a commercial offering. I'm observing demand coming in. However, owning an iPhone is often more relatable than wanting to give up your BlackBerry; it takes a while for people to adopt. You must realize that banking can't afford the personal services for unprofitable products. That's simple math. I meet with countless bank CEOs and the most recurrent theme concerns operational efficiency—they can't continue spending time and resources on unprofitable products. Therefore, the automation drive is critical going forward. The pipeline appears healthy, and we feel good about it. Customer references and existing projects in the consumer segment also look strong, so overall, I feel positive about increasing demand.
Greg Orenstein, CFO
Yes, Saket, that journey continues as we actively push services toward our SI partners. You may see some fluctuations based on project allocations but ultimately it is a steady-state business that results in substantial value for our customers. Whether we implement it directly or collaborate with our SI partners, it's a key element for our teams to learn and gather feedback from customers, which is crucial for driving innovation.
Pierre Naude, CEO
I just want to emphasize that projects succeed with nCino's involvement. Regardless of the bank's size, even with SIs involved, we must have nCino personnel on the project. The proximity to the product facilitates communication; our team can talk with product managers and get the feedback they need.
Operator, Operator
Next question comes from Terry Tillman with Truist Securities.
Terry Tillman, Analyst
Pierre, Greg, and Harrison. I remember on prior calls you would sometimes share details on international wins in various local languages. You mentioned the Enterprise business is strong in the U.S. and community banks, and generally, you’re seeing a pickup in the U.S. Was international revenue strong at 34% year-over-year growth? How was it regarding new business with new logos and/or expansion sales with international customers? I have a follow-up.
Pierre Naude, CEO
Yes. We recently had a great U.K. institution sign up, which we are proud of. However, I want to clarify that our international business is more enterprise-focused; it is therefore lumpy. The pipeline is healthy, and we feel optimistic. Additionally, Canada isn't the same as America, and we have strong operations in the U.K., Ireland, Spain, and the Nordics. We are particularly excited about developments in Spain and Japan. Spain is also the entry point for us into Latin America, as we pursue engagements with leading banks looking for global business solutions. There are some exciting developments in Japan, although it's typically a slow-moving market. However, we had two institutions from Japan attend nSight, so we see potential there. Overall, I feel good about our international business and, while we invest in our U.S. operations with acquisitions like DocFox and Abrigo, we believe international will catch up eventually, which won’t diminish the opportunity internationally.
Terry Tillman, Analyst
Got it. Well, maybe I'll just go ahead and give a little bit of Japanese language for you, but my second question is on the NIC side. I think 39% of the platform customers are using at least one of the solutions at the end of the last quarter. I assume that may tick up a little bit. Can you share any insights on that? It seemed like after you launched auto spreading, there were many good early wins. I didn't hear much about new auto spreading deals, but it seems like it's an excellent efficiency play. Is there still opportunity to get more customers to subscribe to that?
Pierre Naude, CEO
Yes, we are greatly interested in this. For anyone attending nSight, you'll remember I discussed data consumption and excitement around AI. Most of the current technology relies on OCR technologies. The future will lean on AI-driven vision capabilities, providing enhanced accuracy—around 5.9%. I expect the auto spreading and document ingestion business to undergo significant transformation in the next 6 to 18 months. We have the technology and the personnel to build it, and I receive personal demos regularly. So, I foresee a future where that continuous end-to-end value proposition becomes more clear. Greg, do you have anything else to add?
Greg Orenstein, CFO
Yes, Terry, you can assume there's a small tick-up in that percentage from the last quarter. Regarding the UK lender we highlighted, they did purchase auto spreading too. We didn't explicitly call it out, but as we introduce more products, they will be bundled. Essentially, this is about a platform unifying offerings and enhancing all transactions for banks as we keep expanding and deepening our engagements.
Operator, Operator
Our next question comes from James Faucette with Morgan Stanley.
Michael Infante, Analyst
It's Michael Infante for James. Really interesting use cases on the banking adviser front, Pierre and Greg, I wonder if you could clarify that you previously mentioned you weren't expecting any revenue contribution from Banking Advisor in FY '25. Is that still the right way to think about it, despite the product velocity and customer excitement that you are observing? Or do you think we can see some uplift this year?
Greg Orenstein, CFO
Yes, it's still not part of our plan, Michael. Again, we want to emphasize that both Banking Advisor and DocFox have been marred for integration, thus our focus remains on making sure they align with the single platform versus operating as separate products.
Michael Infante, Analyst
Got it. That's helpful. Pierre, I wanted to ask about the developments regarding Basel III. It seems we might reach some resolution toward the end of this year; easing capital requirements could potentially uplift tech spending in the broader environment. Are you having any high-level conversations with customers about this aspect?
Pierre Naude, CEO
I think banks are currently in a wait and see mode on that. There's a clear appetite for more banking mergers in some pockets. There's a common assumption that heavy regulation will be difficult under the current administration. Therefore, there’s tension ahead of the elections and FDIC happenings. However, when banks are inefficient, they recognize it; if they're behind on tech spending, they understand that too. I'm hearing that people are not approaching things in the same way they did back in 2009, 2010, 2011, and 2012. We could feel an uptick in pent-up demand for improvements and those who keep pace with tech are bound to win in the market.
Operator, Operator
Our next question comes from Adam Bergere with Bank of America.
Adam Bergere, Analyst
Just to clarify, overall, it sounds like customer activity improved in Q1. What would you say for the Mortgage business isolation; did it tick down, and that's ultimately what informed the choice to maintain the full year guide?
Greg Orenstein, CFO
No, I wouldn't describe it as ticking down. We signed 15 new logos, including some competitive takeaways. Again, that business still grew almost double digits this quarter. Our strong performance positions us well as we move through this year and beyond. Ultimately, we gave guidance a short time ago at the end of March; I think there's still a hangover from last year, but we are mindful of churn risks. It seems like the closings of IMB's have slowed, though we cannot assume it's entirely over. Predicting M&A is difficult, but we are hopeful we’re on the winning side, given fewer IMB players.
Adam Bergere, Analyst
Awesome. That's helpful context. As a quick follow-up, are you able to break out any inorganic contribution to RPO, CRPO billings from DocFox at all?
Greg Orenstein, CFO
DocFox sits within our broader metrics. It's built on a monthly basis; you'll not see it in deferred metrics or billings as separates. As we have noted previously, these contributions are small relative to our overall RPO bucket.
Operator, Operator
Our next question comes from Charles Nabhan with Stephens.
Charles Nabhan, Analyst
Had a high-level strategic question and a quick follow-up on the model. On a high level, on the strategic side, one of the persistent themes emerging from nSight was the modernization of your APIs and the growth in your partner ecosystem. Can you elaborate on that a little and the significance of this channel?
Pierre Naude, CEO
Depending on the market segment, some banks prefer their own front end, while others may wish to utilize their generative AI models with nCino's platform. Some banks have sizable data lakes they wish to share, meaning integration becomes essential. That is why we implemented an API strategy years ago; we want to conceptualize and build these APIs internally and make them available through the market, including to FIs looking to build to our products. Our experience with generative AI is another domain where we will facilitate banks in enhancing their businesses through our solutions and improve their functionalities. The objective is to promote a thriving ecosystem that strengthens both nCino and our clients.
Charles Nabhan, Analyst
Got it. That's really insightful. As a quick follow-up on the model, you highlighted several factors that led to the outperformance on operating income, including bad debt and lower hiring. Could you discuss how those factors are incorporated into the second quarter guidance and any variables we should keep in mind as the year progresses?
Greg Orenstein, CFO
Yes, Charles. All the factors driving that operating income outperformance were taken into consideration as we set Q2 and guidance for the rest of the year. We'll continue to monitor these elements carefully as we provide updates.
Operator, Operator
Our next question comes from Robert Trout with Macquarie Capital.
Robert Trout, Analyst
Pierre, Greg, and Harrison. One quick question since I know time is tight. There’s been a lot of talk about the pricing shift and the momentum on that front. Given the positive reception of pricing on consumer side, would you consider accelerating the shift away from seats towards hybrid pricing on the commercial side?
Pierre Naude, CEO
We have some deals already implemented on a platform basis as a testing measure. Therefore, sales leadership has the liberty to apply the new model as-needed. In the meantime, we're working with a consulting firm to methodically establish optimal pricing. It’s essential that we optimize pricing based on asset size and solution type while ensuring expansion capabilities and competitiveness for customers. In terms of timing, I would prefer to finalize this within the next 2 months and move cautiously to ensure it's effective before communicating any impacts to you during calls collectively.
Greg Orenstein, CFO
I think to Pierre's point, we are collaborating with a third party for this analysis. It’s a more complex undertaking than merely adjusting a price list. We’re on schedule to methodically execute, leveraging what we've seen with Consumer and Mortgage sides. It also provides us the chance to reevaluate how we view the business, offering bundled services to simplify purchasing nCino. It's something customers will appreciate along with our sales teams.
Operator, Operator
Our next question comes from Chris Kennedy with William Blair.
Chris Kennedy, Analyst
Any way to think about free cash flow for the rest of the year? I know there's some seasonality here.
Greg Orenstein, CFO
Yes. Thanks, Chris. We don't guide to cash flow. We noted that Q1 is typically our strongest cash flow quarter. I don't anticipate a change in our usual trends from Q1 to Q4. Apart from that, there's nothing significant to mention. We’ve increased our cash reserves, enabling us to pursue acquisitions that can help drive growth and value.
Operator, Operator
Thank you. I would now like to turn the call back over to Pierre Naude for any closing remarks.
Pierre Naude, CEO
Thank you, operator, and thank you all for attending today. We've always stated that customers are at the heart of nCino's mission. Therefore, the opportunity to spend 3 days with customers and partners at nSight earlier this month fuels my excitement about the road ahead. We learned much from our customers as they shape our product roadmap and drive our technology innovation. We are grateful for their trust and the chance to continue shaping the financial services industry. I also appreciate the hard work and loyalty of the Global nCino team. After another solid execution quarter, I'm excited for continued efforts as we work together to accelerate the digital transition of financial institutions around the world. Thank you all. Talk to you later.
Operator, Operator
Thank you. This concludes the conference. Thank you for your participation. You now disconnect.