nCino Inc (NCNO) 2022 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the nCino First Quarter Fiscal 2022 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Greg Orenstein, Chief Corporate Development and Legal Officer. Please go ahead.

Thank you, and good afternoon, and welcome to nCino's first quarter fiscal 2022 earnings call for the quarter ended April 30, 2021. With me on today's call are Pierre Naude, 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, entails 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, including those related to the impacts of COVID-19 on our business, 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.

With that, thank you for joining us, and I will turn it over to Pierre.

Thanks, Greg. Good afternoon, and thanks for joining us.

We're very pleased with the results of our first quarter, maintaining the strong momentum from year-end. In the first quarter of FY '22, we closed more net new customer business than upsell for the first time since the start of the pandemic, reflecting financial institutions' increased demand for digital solutions across their product portfolio.

Subscription revenues increased 47% while once again, we ended the quarter with a record pipeline for the company. Our results reflect the accelerating digital transformation of financial services, a topic you've heard us discuss before, as have most companies in the industry.

When I think back to the early days of nCino, a lot of our time was spent educating banks and credit unions about the benefits of moving to the cloud. It's clear they now understand the significant value the cloud offers.

Today, we no longer need to focus on the why for digital transformation. Instead, we spent time on the how. The past year has made it evident for every institution that they need to embrace a digital strategy. Prior to COVID, the rest of the world lagged behind the U.S. in cloud adoption. However, our first quarter results highlight that international markets are starting to catch up. As international is 1 of our 4 key growth pillars for the year, and international momentum was particularly robust this quarter, I'd like to spend some time today focusing on that element of our growth strategy.

As a reminder, the other 3 growth areas for us are: maintaining commercial product leadership, accelerating retail banking and broadening our nCino IQ or nIQ analytics offerings. We are excited to announce that we added a nearly $1 trillion asset bank as a commercial customer in Canada, one of the big 5. This deal was a terrific expansion of our Canadian footprint. They were looking to replace their outdated disparate systems with nCino's digital platform in order to increase efficiency and automation while providing enhanced client service. Again, it's clear that the cloud is the future for banks of all sizes around the world.

We are also very excited this quarter to close our first deal in Germany, which we announced in May. You may recall that last quarter, I said I challenged our team to land a reference customer in each of the new European markets we entered. They have clearly risen to the challenge and are off to a great start. Hamburg Commercial Bank, or HCOB, will deploy the nCino Bank Operating System as part of its IT modernization.

HCOB is a Hamburg-based commercial bank with operations across Germany's metropolitan regions and in select European markets. HCOB is a terrific entry into this highly-regulated market, and based upon our past experience, we are optimistic we can leverage this deal to land more German customers.

Turning to the U.S. We were pleased to sign an approximately $8 billion regional bank who will begin their relationship with nCino with retail lending and deposit account opening. It really does feel like most community and retail banks are now focused on their longer-term strategies with the distraction of COVID and PPP largely behind them.

I've spoken previously about the farm credit system, a growing niche market for us here in the U.S. This quarter, we were pleased at 2 farm credit system institutions at $22 billion and $25 billion in assets expanded their use of nCino, illustrating our continued momentum within this market sector and our ability to upsell into our customer base.

As you all know by now, while we enjoy signing new deals in nCino, what we really celebrate is to go live. We continue working to streamline integrations and accelerate delivery, leveraging our best practices and gold standards to create a prescriptive deployment framework. Customers are very receptive to this approach, particularly in the community bank space, which allows for a faster deployment schedule and a quicker time to value, as demonstrated with a $3.5 billion community bank we took live in the first quarter with our deposit account opening solution.

Another success in the C&I segment was a new $3 billion community bank buying seats for the entire platform, commercial lending, retail lending and deposit account opening. Our goal is for all our customers to utilize the complete platform. So seeing one embrace this approach from the beginning is very exciting.

The key to all of these wins is not only our incredible team of people but our industry-leading products and ongoing commitment to innovation. We continue to invest in innovation during the first quarter by adding several new features and product enhancements across our platform as part of our Spring Release. One highlight was a new no-touch loan process for retail banking. Using this product, a customer can apply for an unsecured loan. The bank can review the file, approve the loan and generate electronic documents for signature within minutes and without any human intervention. The efficiency and cost effectiveness of this approach cannot be overstated. We're very excited about this latest release, which gets us closer to our high-tech, low-touch vision for retail banking.

As we also have discussed many times, our product vision marries the nCino Bank Operating System with the insights of nIQ. Our emphasis on data, machine learning and analytics in our platform road map aligns with banks' need to differentiate based on insights and personalization.

The awareness derived from data analytics can be used to improve decision making, increase efficiency and mitigate risk. And that's just what we are bringing to our customers with our platform. We took a big step forward with nIQ this quarter with the early adopted launch of our commercial pricing and profitability solution. Commercial pricing enables customers to price commercial loans on platform within the nCino commercial own origination system to optimize loan pricing based on the unique policies and financial targets of each bank. Repricing can be performed at each critical stage of the loan origination process based upon negotiations and business development opportunities with clients.

Automated spreading, also part of the nIQ platform, gained significant traction in the quarter. It is now deployed on 3 continents: Europe, Australia and North America. Customers using the product are reporting that Automated Spreading can reduce the time it takes to spread and process documents by 75%, accelerating loan underwriting and empowering credit analysts to develop a holistic understanding of credit risk instead of painstakingly reentering data.

All of these innovative products came to life for customers and partners at our recent annual user conference, nSight, which we held in May. We had over 2,000 people registered for the 2-day virtual conference, representing hundreds of financial institutions and partner companies from 24 countries. As part of the conference, we held our first-ever nCino Financial Services Impact Awards to recognize our customers who are doing great work and achieving exceptional results with the nCino platform. The winner of these awards included Santander U.K., Barclays and CoBank. Congratulations to the winning customers and all who are nominated for these awards based upon their success with the nCino Bank Operating System. We are honored to be in business with you.

For those listening today, if you would like to watch a replay of the conference, which includes many product demos, you can find a link on the Investor Relations section of nCino's website under Events and Presentations.

Finally, I want to share a recent company and community update that I'm incredibly proud of. As you've heard me say before, at nCino, our culture is our passion. And it's a huge differentiator for us in the market. We have an ambitious growth strategy, and we can only be successful by continuing to attract the best talent. As part of this focus, we recently committed to a long-term project, working with the city of Wilmington to create the nCino Sports Complex. Our funding will not only help ensure that youth in our community have access to sports like soccer, lacrosse and rugby, a personal favorite of mine growing up in South Africa, but it also makes Wilmington, North Carolina, an even more attractive place to live for both current and future nCino employees.

So now let me wrap up and turn the call over to David to share financial details on the first quarter and how our strong results allow us to increase our full year outlook.

David, over to you.

Thank you, Pierre, and thank you all for joining us to review our first fiscal quarter 2022 earnings. Please note that all the 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, the amortization of intangible assets and expenses related to the government antitrust investigation and related civil action disclosed in our SEC filings. 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 8-K furnished with the SEC.

As Pierre shared, we're really pleased with the start to the year. So let's review the results. Total revenues for the first quarter of fiscal 2022 were $62.4 million, compared with $44.7 million in the first quarter of fiscal 2021, an increase of 39% year-over-year. Subscription revenues for this quarter were $51 million, an increase of 47% year-over-year, representing 82% of total revenues in the first quarter. Keep in mind, the growth rate is skewed by PPP revenues, and to remind everyone, we generated about $600,000 in PPP revenues in Q1 of fiscal '21. We still expect about $18 million in PPP-related revenues in fiscal '22, in line with our previous comments made on our Q4 '21 earnings call.

Professional services revenues were $11.3 million in the quarter, a 15% increase over the $9.9 million in the first quarter of last year. Europe was particularly strong for professional services in the first quarter. Revenues outside the U.S. were $9 million or 14% of revenues in the first quarter, up from $4.2 million or 9% of total revenues in the first quarter of fiscal 2021. International revenues increased 113% year-over-year.

Non-GAAP gross profit for the first quarter of fiscal 2022 was $38.1 million compared with $26.5 million in the first quarter of fiscal 2021, an increase of 43% year-over-year. Non-GAAP gross margin was 61% compared to 59% in the first quarter of fiscal 2021. Our gross margins continue to improve largely from subscription product mix.

Sales and marketing expenses for the first quarter of fiscal 2022 were $16.3 million or 26% of total revenues compared to $11.5 million or 26% in the first quarter of fiscal 2021. We continue to invest in our international operations, adding salespeople in Europe, along with specialists to augment capabilities around the new product offerings and business lines.

Research and development expenses for the first quarter were $15.9 million or 25% of total revenues compared to $10.7 million or 24% in the first quarter of fiscal 2021. We continue to increase our investment in building up 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 $10.3 million or 16% of total revenues compared to $6.8 million or 15% in the first quarter of fiscal 2021. We continue to invest in our G&A function to help support a rapid growth, along with our increased public company-related costs. During the quarter, we incurred around $3.3 million in costs related to the antitrust matters, which are not included in the $10.3 million non-GAAP expense. As a reminder, we are excluding these costs from our non-GAAP operating income results and guidance.

In the first quarter, we also include approximately $2 million in unplanned payroll taxes related to the exercise of stock options. Non-GAAP operating loss for the first quarter of fiscal 2022 was $4.3 million compared with non-GAAP operating loss of $2.4 million in the first quarter of fiscal 2021. Our non-GAAP operating margin for the first quarter was negative 7% compared with negative 5% in the first quarter of fiscal 2021.

Turning to cash. We ended the quarter with cash and cash equivalents of $386.5 million. Net cash provided by operating activities was $7.6 million compared to $8.4 million in the first quarter of fiscal 2021, with cash generation in both periods driven by increases in deferred revenue from renewal and new sales. In addition, capital expenditures were $0.5 million in the quarter, resulting in a positive free cash flow of $7 million for the first quarter of fiscal 2022.

Now turning to guidance. For the second quarter, we expect total revenues of $63 million to $64 million. Subscription revenues are expected to be between $51.5 million and $52.5 million. Non-GAAP operating loss is expected to be approximately $5.5 million to $6.5 million. And a net loss per share to be in the range of $0.05 to $0.06 based on a weighted average of approximately 96 million basic shares outstanding.

We are increasing our guidance for the full fiscal year 2022 as follows: we now expect total revenues of $258 million to $260 million, and subscription revenues are expected to be $212.5 million and $214.5 million. We also expect non-GAAP operating loss for fiscal 2022 to be $22.5 million to $24.5 million, and a net loss per share in the range of $0.21 to $0.23 based on a weighted average of approximately 96 million basic shares.

In summary, we are very pleased with the start to the year especially some of the large international wins in the quarter. As a reminder, the seat activation cycle and any larger deals results in revenues that will primarily begin recognition in fiscal '23. The team is working hard to maintain the strong momentum into the second quarter and beyond.

We will now be happy to take your questions.

(Operator Instructions) Our first question comes from Brent Bracelin with Piper Sandler.

It looks like a really strong start to the quarter. I guess, David, let's start with you here. Subscription revenue, I think, was up, I think, $6 million sequentially. This is the highest we've ever seen with the growth accelerating slightly year-over-year. What drove the subscription upside this quarter? Is nIQ revenue starting to layer in here? Or did you see a handful of customers, activate seats faster than expected in the quarter? Just trying to get a little more color on what drove momentum on the subscription side this quarter.

Yes, that's great. Thanks. So in the quarter, we just had a very active seat activation time line in the quarter. It is lumpy from quarter-to-quarter. You saw then in the fourth quarter. In the first quarter, we just ended up with a very large number of seats activating. And all these seat activations to remind you, are contracted in the original contract. So very pleased with the activity that we saw on the seat activations in the quarter.

And was that tied to a handful of customers? Or was it relatively broad-based that all kind of landed in the quarter?

Yes, I think it was more broad-based in the quarter. We do see good activity on nIQ and the products within nIQ, those are still small in nature. And we do see contribution from them, but it was mainly the seat activations from our nCino Bank Operating System customers that activated in the quarter.

Super helpful. And then just, Pierre, for you. Any big surprises coming out of the user conference last month as it pertains to either appetite to expand that existing customers in retail or broader interest in new customer lands? Just trying to get any sort of additional color coming out of the user conference, and if there were any surprises from your takeaways based on customer conversations.

Yes. No, thanks a lot for this. What we're seeing is that clients are clearly looking at the broader picture now. There's a broad interest into the full platform story versus purely one product solution. And I would say the other one is really getting a lot of attention is nIQ. People truly want to understand what the analytics can look like, what the data and accumulation is going to look like from us as well as what specific products we will build and actually release shortly to inject into the system to help them in how they run their bank. So what I would say is we get confirmation from our customers on our strategic direction from our products. And then that makes you feel good about the investments we're making.

Our next question comes from Brad Sills of Bank of America.

This is [Sherry] on for Brad. Congrats on a great quarter. I wanted to ask if you can provide the RPO and CRPO numbers for the quarter?

Yes, I can. So for the first quarter, total RPO was $611.3 million, less than 24 months was $380.1 million and greater than 24 months was $231.2 million.

Got it. And then just my follow-up is just how penetrated is the nIQ offering within your customer base right now? And what kind of uplift are you seeing on the deal sizes?

Yes. Thank you. So nIQ is a very new product. It's actually a number of products. It's going to come out of there. The foundation of that is actually the accumulation of data. And as you can imagine, we've got 9 years' worth of commercial origination data, which accumulated a lot of data on the part of account opening as well as retail. And then we've got a long-standing product on the CECL side. So on the consumer side, we've got lots of data in these analytics. Portfolio analytics is really coming through now. On top of that, as we release new products like the commercial pricing and profitability product, we will start seeing an uptake. But at this stage, it is very lightly penetrated. And so all the upside is still sitting in that product.

Our next question comes from Joe Vruwink with Baird.

Maybe to begin, can you just give a bit of maybe an update on the competitive landscape regarding the nCino Auto Spreading capabilities? My understanding is you tackle the technology and approach a little bit differently than what's typical in the loan origination space. And as the nIQ offerings gain more mind share and traction out there, is that one thing you would look to as maybe a point of competitive differentiation, where it maybe pushes you over the goal line versus up here when it comes to a head-to-head matchup?

Yes. So when it comes to Auto Spreading, remember, there's lots of companies that actually can read the financial statement and digitize the content or maybe a tax form. The benefit we have is providing the actual spreading software as well is that we cannot only populate the spreading software, we can then do an analysis on the actual financials of the prospective lender or borrower. So therefore, what we believe is over time, as we increase our analytics, that we will begin to automate that decisioning process to a much higher degree. And because it's all an integrated system, various people in the decision chain will be able to get to these results in a real-time basis and make more informed and more complete decisions. So it's not only the auto spreading, which is consuming the data, it's actually the analytics that will follow that as we develop the product further. So I feel very strong that we've built a market-leading technology and a solution here. And we're getting that feedback from our customers, by the way.

Okay. That's good detail. And then just on the original comment that nCino is back to more net new business than pre-COVID. Are some of these transactions just deals that were moving your direction before the pandemic and so it's basically making up for lost time and pent-up demand? Or is this activity that kind of has been percolating over the last 12 months realizing, I guess, the nCino IPO just marketing, more brand awareness is driving some of this activity that you saw in the quarter?

I would say, if you look at the pipeline size, what it tells you is that we do not lose business during COVID. It just sat there dormant. And then it started picking up, as I said before, third quarter of last year, fourth quarter translating into sales. But then on top of that, the renewed interest in digital transformation is added to the pipeline. So although we have very good sales quarters, the pipeline is still growing, which means we take from the pipeline, bring it in as contracts, but the interest in the market is clearly picking up. And we see that across, especially our international markets, as people are coming out of COVID. And it's very early days for them coming out. As you know, in Europe, many countries are still under lockdown. It's barely coming out now. So we are just optimistic as we see people turning their attention to these strategic initiatives.

Our next question comes from Terry Tillman with Truist.

It's great to see the commentary on new bookings, new business bookings. Maybe the first question for you, Pierre, is just related to the retail business, and that's obviously a big market opportunity. You just talked about new innovation around unsecured retail loans capability. Is that something that could spur increased enterprise activity? Or is this just more kind of strengthening your presence with where you've had more success today on the retail side? Just love to get an update on kind of the retail business, particularly around enterprise, and then I have a follow-up for David.

Yes. Look, we plan to expand that no-touch, low-touch experience for the consumer beyond just the unsecured loans down the line as we've developed the product. And we automate the processes, the integrations we've got there, et cetera. I also think realized enterprise banks buys different from community and regional banks, which typically buy a product suite and they replace their whole retail platform. Where what we see in the enterprise world, you most solve maybe by loan type or by a group of loan types, okay? So we see good interest there, but it's very early to say as that product matures.

I would remind you, when we started the company, for the first 3 years of commercial, we only sold to community and regional because you want to mature the product. So we are not pressing too hard in the upper markets for this because we are focused on getting this down and automated to the point where it will be an imperative for the big banks to look at that low-touch, no-person involvement experience that they have to give to their customers. And that's where we plan to take this thing.

That sounds good. And I guess, David, just a follow-up. I was trying to take notes fast, but I must have missed this. Could you give us an update again on reminding us what the PPP and government-driven revenue would be for fiscal '22? And then how to think about across quarters?

Yes. So as we talked about in the fourth quarter, the exit run rate was $4.5 million. We saw some just immaterial additions to PPP in the first quarter, and we expect that to trend throughout the year to equal a total of $18 million for the year.

And I can just add that on May 31, the PPP program was shut down for new loans by the government. But fortunately, we've built a solution that is actually very effective in the forgiving stage as well. So we believe that, that solution stay in place at banks for the foreseeable future to work through that loan book that they've got of PPP.

Our next question comes from Brian Peterson with Raymond James.

Congrats on the strong quarter. So first for me, I'm actually surprised it hasn't come up yet, but the international strength, obviously, growing triple digits year-over-year. It sounds like some solid bookings in the quarter. Pierre, I'd be curious, how would you define success for investors internationally, if we're thinking about maybe the longer-term opportunity? As customers, percentage of revenue, clearly, that's a big growth driver where you're seeing success. I'm curious how you would frame that opportunity longer term.

Yes. So we've got a number of very focused areas. As you know, it's Western Europe, U.K., Ireland, Australia and Japan, where we're investing. We've got people in the ground there now. The simple measurement is that we would like to exceed the growth rates of the Americas. In other words, Europe should continuously -- or the international, including Canada, should continuously become a larger share of the total revenue of the company. And the TAM of international is larger than the U.S. So I would expect at some point in the future that the company may even be larger outside the U.S. So exceeding the growth rate of the Americas on a continuous and constant basis is, to me, success number one.

Number two, as we expand our available product suite in the international markets, like I explained before, mortgage is going to be a big player there. If you look at the balance sheet of the bank in Europe, mortgage is as big, if not bigger a player than or a component of that balance sheet than commercial lending. So we see a tremendous opportunity with that as we mature that product. Did that answer your question?

It does. But it does sound like you might have some frequent flyer miles that you'll be earning over the next few years here. And maybe, David, a follow-up for you. When you mentioned the seat activation schedule this quarter, just we're going to get the question. So as we think about net new now becoming a big -- or what you're adding, does that change the seat activation schedule at all? Just how do we think about that kind of bookings to revenue time line?

Yes. There's still no meaningful change from what we saw last year pre-PPP on the seat activation schedule. So as we talked about during the IPO process, and we talked about the seat activations, it's similar to those, that cadence that we saw historically. So no big change.

And your next question comes from Saket Kalia with Barclays.

Pierre, maybe just to dig more specifically internationally. It was great to see that commercial win in Germany. Can you just talk about the German market a little bit? How big do you think of an opportunity could that country be? And what does the competitive landscape look like there specifically?

Yes. The German markets, that over last time, I checked, over 1,500 banks, okay? Obviously, you've got some established German software companies here that's players in that market. But we believe our modern software, our Salesforce.com platform that we build on, is superior, and we've got a good shot at breaking into that market as we've proven now. Our experience is that once you've got the first one, that's only the toughest one. The second one comes a little bit easier, and number 3 comes a lot easier. And then you build momentum through that.

By the way, it's also a lot more community regional like in that market. So it's a nice, fairly-sized commercial-focused bank. And that, of course, plays well into our strengths, okay? So we see a great potential there. We've got a nice strong contingent of people now on the ground in Germany that can speak the local language as well as the dialects in the different regions where they are operating. So we see a very strong opportunity there.

Got it. That's really helpful. Maybe for my follow-up for you, David. I was wondering if you just maybe speak a little bit about the RPO metric, just in general, and some of the puts and takes of that metric for nCino's model. I think we were all impressed with that number last quarter. Good to see the sequential growth this quarter as well. But is there anything that we should sort of keep in mind as we get some more history with that metric around how that can sort of ebb and flow in the future? Does that make sense?

Yes, it does. Yes. So the RPO is just total contract value of the deals that we closed in the quarter. So if we close larger deals in a quarter, you'll see that jump. And it -- my guess would be as we move through the years -- through the quarters, it will be inconsistent. Now Q4 is normally strong as you saw when we posted the numbers that we did in the fourth quarter. What's nice to see in the first quarter is that we're able to flow through and close a good amount of deals as well. And that's what took our RPO up again.

But I think just a reminder as we close large deals, it will be lumpy because our average contract duration is still 3.8 years in the total. But we do have contracts that range from 3 to 5 years within there as well. And then also renewals will come throughout the year as well. So when they renew, if we can get multiyear renewals out of the customers, it will bounce and be larger and outsized in any given quarter, too. So we're still -- we got, what, 5, 6 RPO quarters to look at. And so it will be interesting to see how these play out. But I think just remember, the larger deals will boost those values up in any given quarter.

Our next question comes from Ken Suchoski with Autonomous Research.

I just wanted to ask about nIQ. I believe you've launched the commercial pricing module in April. Can you just talk about how that launch went? And what's been the initial interest in that module? And I guess what's the ACV uplift if a customer adopts that offering?

Yes. So we've got teams engaged in our group of early adopter customers. We are getting fantastic feedback on how banks are modeling pricing, how they view that balance with risk. As you know, ours is going to be pricing plus profitability. So you could take care of the full component of the customer business with you, including all deposits and cash that you may have on hand or treasury products. And as you look at that holistic picture, I believe, a fully integrated pricing profitability module is going to be very well received, and we are seeing that. It is in the early adopter stage right now for that product. And we believe over the next 6 months until the next release comes out when it goes to GA, it will be really start getting a lot more interest. And that's the feedback we're getting from the market as well, okay?

David, you remember the uplift on the, we -- did we ever disclose that on the -- specifically? I think what we did the last time is we said that there's about a $2 billion SAM for mix, which is 20%, but that's a combination of portfolio analytics, the commercial pricing and one more product. So it was actually the collection of the nIQ products that will give you that 20% uplift if you adopt all of them.

Okay. That's helpful. And then maybe just as my follow-up here. I just wanted to follow up on the comment about new business going dormant and ask about how that flows through to subscription revenue growth. And so I guess the question is, do you expect subscription revenue growth accelerate, I guess, either at the end of this year or maybe early next year? Because it seems like the slowdown in new ACV booked last fiscal year, so in FY '21 during COVID, is kind of impacting revenue growth this fiscal year. So I guess I'm just -- I'm curious, how should we think about that subscription revenue growth, I guess, over the next 4 to 6 quarters? Like is that going to accelerate once that lower ACV period kind of works its way through the results?

Yes, thank you. Yes. So we saw the full impact from PPP in the second quarter of last year. So growth will trend down over the next couple of quarters, it should bottom in the third quarter and then start building from there. But we had PPP ramping. We had that onetime million dollar kind of accelerator or catch-up revenue from our consortium in the third quarter, which should set the low point on year-over-year growth for the year. And then we would expect that to trend up after the third quarter.

Our next question comes from Josh Beck with KeyBanc.

I wanted to go back, Pierre, to some of your commentary around this acceleration of digital transformation within the banking space. As you said, others have certainly spoken to this. But I guess curious within the Tier 1 and true enterprise types of customers, if maybe you're seeing anything notably different about the pace at which they're starting to move this year versus, say, some of the other segments that are maybe more regional or community-based. Just maybe curious if there's any notable differences about the pace at which some of those segments are reembracing, if you will, these digital transformation projects?

Yes. So let me analyze the market for you this way. If you look at the enterprise market, they buy by business unit. So we tend to sell to either the commercial bank, small business solution, which could sit, by the way, in commercial or retail. Or maybe you go to a retail solution, but a certain slice, it could be account opening, it could be a certain loan type that they try to automate and make better, okay? So they buy over long periods, these strategic planning sessions and budgets come up once a year. And it depends what software they've got in the balance sheet. So it's a much more bigger strategic view of that.

When you start coming to community and regional, what we see is more of a platform and an IT simplification decision process. So they would look more at the full platform as a solution. They may still sometimes buy one, but you could see that they're looking at the full complement and actually look at a multiyear project that could do commercial first, maybe -- or retail first and then go small business and commercial or account opening. The community banks in the -- through PPP was a little bit slower because they got impacted more and more disruptive. But we start seeing that at the end of last year and the beginning of this year, start picking up again. And that is a fantastic market for us. So I'm seeing that accelerating. Obviously, there's a lot more of those banks.

So what I'm seeing is, overall, it's very interesting. The conversation has moved from, should we do this, is it important? Should I have account opening, et cetera? To almost more into a survival mode of, I need this to be relevant in the future. And banks are looking at that. And they have to have these modern platforms with APIs to actually participate with your third parties who wants to participate in the banking industry without being a bank, whether it's loan origination or a credit card issuance or something. And your big players are entering that market, piggybacking on some of these banks. So we can be very helpful in providing the platform, how they can participate in this embedded banking future that we're seeing coming.

Very helpful. And maybe a follow-up for David. As we're starting to be a little bit further removed from this initial wave of PPP, I imagine you had made some assumptions around repurposing of those seats. So I'm just curious maybe where things are standing versus maybe some of your original expectations with regards to the PPP and forgiveness seats.

Yes. I think what we've seen so far is pretty much in line with what we thought. Now most of these are co-termed with the original contract. We've seen a handful of seats being redeployed elsewhere in the bank and just a very low level of churn, and it's all as we expected. So no real change there. And all of our expectations on the churn and redeployments are in our numbers for the balance of the year as well. But pretty much so far as we expected.

Our next question comes from Mayank Tandon with Needham & Company.

Congrats on the quarter. Pierre, could you go back to the international opportunity? And I'm just curious, is the regulatory differences in various markets around the globe and just I would imagine different compliance issues, does that come into play when these banks are making decisions, looking to buy the nCino platform or other one-off products? Or is that even a hurdle? Or does that not be a factor when you're looking at these decisions being made?

No, absolutely. It plays. But fortunately, in Europe, there's a single regulatory compliance regime across Europe. And then what you find is, there may be nuances by country, okay? But if you look at us going in with our flagship commercial product, commercial is probably the least regulated. The balance sheet is regulated, and you have to understand your credit risk for safety and soundness. But from a loan origination piece, we could take our product from here into international countries without massively having to change it. So that opens up that whole market for us.

Then you get to retail, that's where the actual compliance is not going as well as your integration strategies because there's different players or different back-end costs. Therefore, we've got a team in London that is analyzing the markets, understanding their obstacles as well as a small contingent building integrations there and passing through specs for us here, how to change the product to make it applicable to all those. But again, as you look at the growth rates that we've shared with you, we are extremely pleased with our penetration in that market and the growth rates we're seeing there.

Right. No if I can just layer in one more question around both international and the domestic market. As you scale up, is it important to have SI partnerships and leverage them? Or do you believe that's not going to be sort of a critical aspect to your growth story, at least over the near to medium term?

The SI partners to us is critical and strategic. We've always said that professional services to us, we will do it at the low end of the market, and that means a bank's assets of $5 billion and below. We like that as a teaching and the learning ground for our people as well as taking care of that contingent of customers. People and that knowledge and expertise, along with our product expertise to assist the SIs in banks above 5 billion, 10 billion, all the way up to the very large ones. We believe to scale and grow at this rate, the served partnering with the best-of-breed SI partners in the market, as we've done on a global stage. So those partners go hand-in-hand with us. We've got today over 2,000 people certified on the nCino platform by these partners, and its highly sought-after skill sets. And we see competition in the market for that skill set, which bodes well for us.

And our last question comes from Fred Havemeyer with Macquarie.

I think that many of the questions I've been interested in have been asked, but there's a couple of things I'd just like to actually ask and clarify, around your comments on localization as it reflects on your international go-to-market. Something I think we've talked about in the past that when you're entering the region, you need to localize, of course, on languages and also local regulations, et cetera, as I know you talked about earlier. So I'd like to ask, generally speaking, when you're entering an international market, do you tend to go all in as the entire platform at once? Or do you tend to perhaps like localize products bit by bit and then introduce them into a region? And I'm curious how that's reflected in some of your wins in Germany -- rather, you're win in Germany.

Yes. So let me first highlight something. The force.com platform comes with over 120 languages and more than 120 currencies. So we don't have to build those. We do have to adjust the product for different integrations as well as maybe local regulations, which is more relevant at the retail side of the house versus the commercial side, okay? So what we do is typically, we go to a new country with a view of going at commercial and small business lending. And as you know, we have launched -- we can do unsecured consumer lending as well as we've launched a mortgage solution for Canada and the U.K. right now. So we actually look at these products, and we launched the concept of the platform, but actually take to market those product lines to start with.

And then as we penetrate the country, just like we did the U.S., if I can remind you, we started the company in early 2012, late 2011. And for the first 5 years, basically focused on commercial, but we had to architect the customer databases and the records so that we could build upon that as a platform. And that's worked well for us, and we approach the international markets exactly the same.

And then just one last follow-up question, again, about international markets, specifically, Japan. I realized it's early days, but last quarter, we talked about some of the investments that you're making into Japan, including your joint venture there. Love to ask if you have any updates generally about your go-to-market in Japan and more broadly, Asia, after we've seen the strength in Europe quarter?

Yes. We've had our -- as I mentioned before, our Japan conference there, we saw great interest. Clearly, there's a need for this kind of software. Japan, as you could see, if you track the Olympics, is really still in a lockdown mode. And so it's a difficult market to take action, but we are seeding the market. We are evangelizing. We're making great connections. Our partner in Japan, Japan Cloud, is doing a fantastic job putting us in touch with all the right people. But as you know, that's a conservative banking market. Salesforce has a nice presence there, and I'm highly optimistic.

And I'm not showing any further questions at this time. I would now like to turn the call back over to Pierre Naude for any further remarks.

Well, thank you all for your time and attention today. We truly appreciate your support. I look forward to speaking with many of you at conferences and meetings in the coming weeks. And I would like to take this opportunity to thank the employees of nCino for their efforts and dedication through this period. We are now open in Wilmington, and the excitement is building back coming back to the office, and we are ready to change the world. So thank you for your time today.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.