nCino, Inc. (NCNO) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The company has shown strong financial performance with increased revenue guidance and non-GAAP operating income, indicating robust growth. Product development is promising with AI rollout and strategic expansions in key markets. Market strategy is sound, with significant opportunities in existing and new markets. Shareholder returns are supported by improved guidance. The Q&A section highlights positive analyst sentiment and confidence in the company's growth trajectory, particularly in AI and international markets. Overall, these factors suggest a positive stock price movement, likely in the 2% to 8% range.
Key Financial Performance
Total revenues $152.2 million, up 10% year-over-year. Reasons for change: Increased sales momentum and demand across market segments, geographies, and products.
Subscription revenues $133.4 million, up 11% year-over-year on a reported basis and 7% organically. Reasons for change: Growth in U.S. mortgage business and early renewals driven by demand for AI capabilities.
Professional services revenues $18.8 million, a decrease of 1% year-over-year. Reasons for change: Focus on gross profit growth rather than revenue growth, and internal efforts to incorporate AI tooling.
Non-U.S. total revenues $33.6 million, up 13% as reported and in constant currency. Reasons for change: Expansion in international markets, including new customer wins and renewals.
Non-U.S. subscription revenues $27.9 million, up 21% as reported and in constant currency and 3% organically. Reasons for change: Growth in international markets and adoption of AI capabilities.
Non-GAAP operating income $39.9 million, representing 26% of total revenues and a 600 basis points expansion year-over-year. Reasons for change: Increased subscription revenues, cost discipline, and leveraging AI tools.
Non-GAAP net income $35.8 million or $0.31 per diluted share. Reasons for change: Improved operating income and cost management.
Cash and restricted cash $87.9 million. Reasons for change: Seasonal cash flow patterns and share repurchases.
Outstanding line of credit $203.5 million. Reasons for change: Ongoing capital allocation strategy.
Share repurchases Approximately 1.4 million shares repurchased at an average price of $27.71 per share, totaling $39.7 million. Reasons for change: Completion of $100 million authorization for share buybacks.
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Operating Highlights
AI-powered intelligent automation: nCino's platform integrates AI-powered intelligent automation for lending, onboarding, account opening, and portfolio management across financial institutions globally.
Banking Advisor intelligence units: Over 110 customers have adopted Banking Advisor intelligence units, with increasing adoption and early renewals due to demand for AI features.
Operational analytics functionality: nCino Operations Analytics provides banking-specific analytics, enabling customers to uncover bottlenecks, analyze key metrics, and compare performance against industry peers.
Role-based AI agents: nCino introduced role-based AI agents, referred to as Digital Partners, trained on usage data to enhance loan processing speed and consistency.
Expansion in Japan: nCino signed a new customer, one of the largest regional banks in Japan, for mortgage lending, along with three expansion deals with existing Japanese customers.
Integration Gateway API in EMEA: Integration Gateway API was included in renewals with a $90 billion bank in the Czech Republic and a $9 billion credit union, marking its first deal outside the U.S.
Efficiency improvements: Examples include a $5 billion U.S. bank eliminating 86% of duplicate data entry and a $5.2 billion institution reducing underwriting time from 23 days to 2 days.
AI-driven operational enhancements: AI tools and initiatives contributed to cost discipline and efficiency, with a focus on professional services gross margin improvement.
AI strategy and innovation: nCino is embedding AI across its platform, with plans to expand Banking Advisor capabilities to 100 by fiscal year-end, emphasizing AI as a competitive differentiator.
Platform pricing transition: Approximately 27% of ACV has transitioned to platform pricing, driven by demand for AI capabilities and strategy.
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Risk or Challenges
Legacy fragmented systems: Financial institutions struggle with legacy fragmented systems that limit growth, hinder financial performance, and create poor user experiences.
Execution risks: The company needs to execute at a high level to reflect its market position and ambitions, which poses a challenge.
Highly regulated environments: Customers operate in highly regulated environments, requiring careful consideration of credit policy and risk tolerance levels.
Customer adoption of AI: The pace of AI adoption by customers is slower than the pace of innovation, requiring a clear and steady roadmap for adoption.
Bank M&A impact: Bank mergers and acquisitions can negatively impact the company, as seen with a contract buyout in the quarter.
Professional services revenue decline: Professional services revenues decreased by 1% year-over-year, indicating challenges in this segment.
Seasonal cash flow challenges: Free cash flow generation is seasonally lower in the second half of the year, impacting financial flexibility.
U.S. mortgage subscription revenue seasonality: U.S. mortgage subscription revenues are expected to decline sequentially in the fourth quarter due to historical seasonality.
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Guidance & Outlook
Revenue Guidance for Q4 Fiscal 2026: Total revenues expected to be $146.75 million to $148.25 million, with subscription revenues of $130.75 million to $132.25 million, representing year-over-year growth of 4% and 5%, respectively, at the midpoint.
Full-Year Fiscal 2026 Revenue Guidance: Total revenues projected to be $591.9 million to $593.4 million, representing approximately 10% growth at the midpoint. Subscription revenues expected to be $520.5 million to $522 million, representing 11% growth at the midpoint or 7% organically.
U.S. Mortgage Subscription Revenue Growth: Full-year U.S. mortgage subscription revenues growth revised to approximately 7%, up from prior guidance of 5%.
Non-GAAP Operating Income Guidance: For Q4 Fiscal 2026, non-GAAP operating income expected to be $32.5 million to $33.5 million. For full-year Fiscal 2026, non-GAAP operating income projected to be $127.2 million to $128.2 million, representing approximately 33% growth over Fiscal 2025.
ACV (Annual Contract Value) Guidance: Fiscal 2026 ACV expected to be $564 million to $567 million, representing 10% growth in constant currency at the midpoint.
AI and Product Development Outlook: nCino plans to expand AI capabilities, with approximately 100 Banking Advisor capabilities expected by the end of Fiscal 2026. The company is focusing on embedding AI across its platform and introducing role-based AI agents over the next year.
Platform Pricing Transition: Approximately 27% of ACV has transitioned to platform pricing, with continued early renewals driven by demand for AI capabilities.
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Shareholder Return Plan
Share Repurchase Program: We repurchased approximately 1.4 million shares of our common stock in the third quarter at an average price of $27.71 per share for total consideration of approximately $39.7 million. When added to the stock we repurchased since announcing the buyback in April, we have completed the $100 million authorization, repurchasing approximately 4 million shares at an average price of $25.02 per share.
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Key Q&A
Q:How should we think about the leverage being driven in the business this year and the impact of AI efficiencies on medium-term free cash flow and operating margin targets?
A:The company is confident in hitting its Rule of 40 target around the fourth quarter of next year. They see opportunities for further efficiency from AI and healthy cost discipline. Gross margin improvements are expected from platform initiatives and professional services. The company has learned to operate leaner and more efficiently post-restructuring.
Q:What is the level of visibility into NTM subscription revenue for fiscal 4Q and beyond?
A:The company refrained from discussing next year but expressed confidence in the sales activity and pipeline. They feel incrementally better about the business compared to the last discussion and emphasized the importance of execution. AI innovation and customer discussions are resonating in the marketplace.
Q:What is driving the confidence in the ACV guide for the year, and what are customers saying about underlying demand?
A:The company is focused on pipeline building and conversion. Customers, especially banks, are aggressive on tech investments with AI driving the narrative. IT budgets are increasing, and banks view technology as essential for efficiency and modernization. There is a shift from multiyear transformations to precision implementations, aligning with the company's strategy.
Q:Does the company expect early renewals to impact modeling as they go into next year?
A:Early renewals are not surprising as customers appreciate continuous innovation and value from the company. Discussions focus on outcomes and value, and the company works closely with customers to ensure productive discussions.
Q:What is the significance of the two top 50 bank commercial expansions, and how much white space remains in the U.S. installed base?
A:The expansions reflect opportunities for growth even within existing business lines. The company sees significant white space within the U.S. installed base, particularly in core enterprise commercial lending.
Q:How does customer M&A impact the company over the next 1-2 years?
A:M&A is historically a tailwind for the company. A study showed that in 95% of over 270 M&A events involving nCino customers, the company was the go-forward platform. The platform's scalability and ability to support institutions of all sizes make it the default choice for growth-oriented banks.
Q:What contributed to the execution-based upside in 3Q, and why doesn't it fully flow through to 4Q?
A:The upside is attributed to a balanced portfolio of solutions and geographies, as well as reduced churn. The company manages to achievable expectations, and the guidance philosophy remains consistent.
Q:What is the adoption curve for AI in the banking space, and how does the company view its trajectory?
A:The company expects a spike in AI adoption over time, with early adopters leading the way. Conversations are shifting from understanding AI to deploying it quickly. The company is aggressive in collaborating with customers to drive adoption.
Q:What is the pipeline and ACV contribution outlook for DocFox, and what are the sales cycle durations?
A:DocFox has shown year-over-year pipeline increases, particularly in the back half of the year. Sales cycles are typically 3-6 months, and the company expects ACV contributions to grow next year.
Q:What is the update on the credit union sales force and its impact?
A:The credit union go-to-market team is on track to meet internal targets. The company is gaining relevance in the credit union space and sees good activity, with the platform sale resonating well.
Q:What is the playbook for deploying intelligence units and the most resonating skills?
A:The deployment cycle for banking adviser is quick, with testing taking 1-4 months. Proactive portfolio risk monitoring and credit analysis are the most resonating skills, with interest in auto spreading and locate-and-file capabilities.
Q:How is the consumer business performing, and what are the drivers?
A:The consumer business is seeing momentum in both the bank and credit union markets. The company remains focused on aligning investments with returns and sees continued interest in consumer solutions.
Q:What are the components of the Rule of 40 target, and how is the company progressing?
A:The company is committed to achieving the Rule of 40 by the end of next year. Cost management initiatives and reaccelerated bookings growth are contributing to this trajectory.
Q:What is the update on international subscription growth and its acceleration?
A:International growth is part of the company's acceleration story for next year. The company sees progress in EMEA and Japan, with focused efforts on specific geographies and solutions driving pipeline and bookings.
Q:What is the outlook for AI adoption and its impact on change management?
A:The company is focused on helping customers manage digital partners alongside human workers. AI solutions are built on domain expertise and are designed to work seamlessly, with change management being a key focus.
Q:What is the significance of the expand deals and the potential for better expansion activity?
A:M&A and timing are factors in expand deals. The company sees opportunities in expanding existing customer relationships, particularly in areas like AI and onboarding, to drive better expansion activity.
Q:How is the company progressing with platform pricing and its impact on ACV?
A:The company is executing well on platform pricing, with Q4 being the biggest renewal quarter. Customers appreciate the innovation and value provided, and the company expects continued progress in shifting to platform pricing.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on next year's visibility into subscription revenue, stating they would refrain from discussing it until the Q4 call. Additionally, they did not provide specific numbers for credit union deals or elaborate on the exact ACV uplift from DocFox, leaving some areas of interest without sufficient detail.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI automation
AI capability
API infrastructure
Advisor capability
Analytics
Banking Advisor
Gateway API
Greg
Integration Gateway
agent
analysis
bank adoption
banking
capability AI
consistency
credit
customer
deal
employee
form
halo effect
institution AI
intelligence
market position
measure
mortgage lending
pace
peer institution
policy
processing
renewal bank
road map
sale
solution
user experience
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NCNO Slides
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