nCino Inc (NCNO) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the nCino, Inc. Second Quarter Earnings Conference Call. (Operator Instructions) I would now like to introduce your host for today's program, Greg Orenstein, Chief Corporate Development and Legal Officer. Please go ahead, sir.

Thank you, and good afternoon and welcome to nCino's fiscal 2021 second quarter earnings call for the quarter ended July 31, 2020. With me on today's call are Pierre 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 and are subject to various risks and uncertainties, including those related to the impacts of COVID-19 on our business, the financial services industry and global economic conditions. Our actual results may differ materially. Please refer to the risk factors included in our filings with the Securities and Exchange Commission, which are available on the company's website at ncino.com under the Investor Relations section and on the SEC's website at sec.gov.

Forward-looking statements made during the call are being made as of today, September 9, 2020 based on the facts available to us today, and nCino disclaims any obligation to update or revise any forward-looking statements. The guidance we will provide today is in part based on our assumptions as to the macroeconomic environment in which we will be operating in the future, including the timing and pace of recovery from any negative effects caused by COVID-19. Such matters that are beyond our control and our assumptions may not be correct.

On today's call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. 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.

Thank you, Greg. Hello, and good afternoon. Thank you for joining us today for our inaugural public company earnings call. I'm excited to share details about nCino and our second quarter results. But let me start by saying that we hope you and your loved ones are safe and in good health.

While COVID-19 has created a new normal for all of us, it has also sharpened the momentum and urgency around the digital transformation of financial institutions, which nCino pioneered over 8 years ago. When COVID struck and the world immediately moved to remote access, nCino customers seamlessly converted to a work-from-home structure, yet many financial institutions that did not have a cloud-based bank operating system struggled trying to remotely operate their institution, run their business, keep their employees productive and effective and support their clients.

We believe the pandemic has dramatically demonstrated for financial institution executives that moving to a cloud environment can't just be part of their future road map. It's an immediate imperative. The size and prominence of the global financial institutions that are engaging with us today confirms that digital transformation in banking is happening and is accelerating. The strength of our pipeline is further evidence of this fact.

As soon as COVID struck, nCino was there to help our financial institution customers and their clients navigate this difficult time. In the past 2 quarters, we helped our customers to fund more than $50 billion in PPP loans under the CARES Act. In the second quarter, we also added banks managing the Forgiveness portion of the loan as well as worked with banks in the U.K. to support the Coronavirus Business Interruption Loan Scheme or CBILS. I'm extremely proud of how the nCino team has successfully engaged with both established and new customers around the globe during an unprecedented period.

Before I share additional highlights from the second quarter, I want to spend a few minutes providing a brief overview of nCino for those new to our story. nCino was founded by a team of bankers and entrepreneurs in late 2011, who recognized that the commercial lending process was inefficient and time-consuming. Our ambitious goal was to create a cloud-based solution that would enhance transparency, efficiency and speed across the financial institution. From the very beginning, our theme was both by bankers for bankers.

We believe this core foundation differentiates us from competitors as we deeply understand a banker's challenges and pain points, and we focused, first and foremost, on creating solutions to improve the bank employees' work experience. Once that was established, we extended our product functionality to benefit the bank's end-user clients.

Today, nCino offers an end-to-end digital bank operating system on a single platform designed to help reduce costs, increase revenues, improve employee efficiency and productivity and enhance transparency across client onboarding, loan origination and deposit account opening, all while helping to ensure regulatory compliance.

Built on the Salesforce platform since day 1, our bank operating system integrates, digitizes and enhances the operations for financial institutions across lines of business, including commercial, small business and retail. Our single cloud-based platform is scalable for a financial institution's customers of all sizes and complexities across the globe, including enterprise banks, regional and community banks, credit unions and challenger banks.

We couldn't be more proud of where nCino is today, with over 1,100 financial institution customers worldwide, ranging in assets from $30 million to more than $2 trillion, including institutions such as Bank of America, Barclays, Santander, Truist, ConnectOne Bank, Navy Federal Credit Union and many more.

As good as we feel about the progress we have made to date, we have only begun to penetrate our market opportunity. With more than 28,000 financial institutions worldwide, banking is one of the largest and most complex industries there is, with many financial institutions still operating with outdated legacy systems end point solutions. According to Gartner, global IT software spend within banking was over $63 billion in 2018. Not surprisingly, 85% of banks have indicated that digital investment is a clear priority on their road map. We have sized our serviceable available market, or SAM, at $10 billion, which realistically reflects the opportunity to sell our current products in our current targeted markets.

Our bank operating system is generally sold by seats on a subscription basis, usually with 3- to 5-year initial contract terms. Our land-and-expand approach allows us to deploy with a specific product solution, such as client onboarding, loan origination or account opening within a specific business line. We then look to expand adoption within that business and across other lines of business, allowing us to leverage data and functionality across the financial institution, increasing efficiencies and cost savings. Beyond this expansion within our current installed base, our growth strategy includes continued expansion of our installed base, including increasing our international footprint, increasing the depth and breadth of our product set, growing our partner ecosystem and selective targeted acquisitions.

One of our most exciting opportunities is derived from 2 technology acquisitions we completed last year, which formed the basis of nCino IQ or nIQ analytics platform. Using artificial intelligence, data analytics and machine learning, we believe nIQ will provide unmatched insight and actionable data for our customers, enabling them to become more predictive, personalized and proactive. It's still early days for nIQ, but we are very excited by the customer feedback we have received and the potential that lies ahead to help financial institutions around the world leverage data to make more informed decisions in real-time at the point of production.

So turning back to the quarter. We are pleased with the results of our first quarter as a public company. Subscription revenues increased 70% to a record $39.4 million, while total revenues grew 52% to $48.8 million, also a record. The PPP loans and Forgiveness business I mentioned earlier helped drive subscription revenues in the quarter to 81% of total revenues.

In the second quarter, 32 financial institutions purchased seats for Forgiveness that were not PPP customers to process the loans, including the addition of 10 new customers, 2 with over $25 billion in assets and an expansion within a top 10 U.S. bank. Those seats activated immediately and generated revenues in the second quarter, which is different from our normal delayed activation process. David will provide details around that element of our business model. In total, 87 financial institutions used nCino to PPP and forgiveness in the first 2 quarters, including 45 banks with over $5 billion in assets.

Our professional services teams were busy in the quarter, including in Europe, where we assisted one of the large global bank customers in establishing a solution to process loans for the U.K. government-backed CBILS lending program. Similar to PPP loans, these revenues activated immediately after help from our professional services teams. We have largely built out our customer success and professional services teams in EMEA, and we are very encouraged by the growth opportunities we are seeing there. In fact, in the second quarter, we signed a large expansion for the EMEA-based global bank we supported on CBILS, which has close to $2 trillion in assets for our Onboarding solution, their second large expand since the initial land.

We also had a significant win with a new customer in Continental Europe. This $450 billion global bank chose nCino for collateral management within their commercial bank, and we see meaningful opportunities to expand from this initial land deal over time.

Our traction with international banks demonstrates that our global branding is working. nCino is becoming synonymous with the digital transformation of banking. For example, on its recent second quarter earnings call, Fifth Third Bank, a top 20 U.S. bank, with more than $200 billion in assets, discussed that their client interactions are increasingly shifting to digital products and noted the digital strategy includes accelerating the implementation of nCino in their commercial business.

Venmo Trust, a financial services company headquartered in Pennsylvania, that has offered banking, insurance and wealth management solutions for over 130 years and has over $5 billion in assets and $17 billion in assets under management, also discussed nCino on its recent earnings call, highlighting the growth in its digital account opening and nCino's role in the success, stating, "Deposit account applications increased 300% from March through April and remained at elevated levels in May. This increase in openings were enabled by our nCino online account opening solution, which we deployed in the fourth quarter of 2019." Our customers highlighting us on their earnings calls as a strategic differentiator is a testament to the tangible impact nCino is having on their institutions and the banking industry.

On the product front, the strength of our retail offering was recognized recently when nCino's retail loan origination system was named best-in-class by the Aite Group, a highly respected research and advisory firm focused on the financial services industry. Of the 15 firms assessed, nCino was recognized as the global leader in 3 categories: client strength, client service and product features. Expansion of our retail lending footprint is a key avenue to increase penetration of our installed base, so this best-in-class designation is important validation, especially since this is a relatively new product for us.

Product innovation is key to our success, and we will further expand the depth and breadth of our retail lending product in October, when we release new product updates, including functionality, to further improve the regulatory and compliance capabilities of retail lending. We are also making important updates to nIQ, the analytics platform I mentioned earlier. The October release will be the first full integration of nIQ into the nCino Bank Operating System. Leveraging the FinSuite technology we acquired last year embedded in nIQ, we have developed automated loan underwriting, which we have seen reduce the manual component by 50% to 75%, thereby accelerating the time to approval. We have an ambitious product road map for nIQ and are excited about the multiple solutions we are developing to provide customers with data-driven insights across our institution. We are confident that nIQ will play a key role in continuing to differentiate nCino's bank operating system in the coming years.

Our customer success team had a very productive quarter, taking numerous customers into production, highlighted by 2 significant go-lives. Before I get into the specifics of these accounts, let me spend a minute talking about what it means to go into production or go live since it is such an important milestone for a customer, and it says a great deal about the nCino culture.

A customer is considered in production or live when a critical mass of employees or users, often an entire line of business or function within the institution, has begun using nCino. As a company, we celebrate when a customer goes live much more than when the deal is closed because we recognize that our success is directly linked to the success of our customers having used our software. As a company, we are laser-focused on ensuring we have an extremely loyal, satisfied and reasonable customer base who are advocates and champions for our platform.

Anyone who has followed nCino over the years or heard me tell our story during the IPO roadshow understands how important culture is at nCino. We believe empowering our employees and trusting them to do the right thing fuels this customer loyalty and help drive the 147% subscription revenue retention rate for fiscal 2020. Our growing team in Wilmington, North Carolina, along with our 6 other offices in major cities around the globe, are changing the cloud banking world.

So back to the 2 go-lives I wanted to highlight. The first was with $145 billion agricultural lender in the U.S. A niche like ag lending requires specific functionality and workflows implemented at the financial institution level, which the flexibility and configurability of our software easily enables. This is an important selling feature. It guarantees a frontline employee's productivity is not at the mercy of an overworked IT department.

We saw another significant go-live with a $67 billion global bank. With an ambitious deployment plan, we went live with commercial lending in 3 countries on 3 continents in less than a month. We believe this global bank will continue adding more lines of business to their nCino footprint.

I want to thank the nCino team, our customers, partners and stockholders for your support and loyalty. nCino's role in the digital transformation of the financial services industry is of global significance, and we are gaining traction in every market where we operate today. We're on a very exciting and important journey and are just getting started. We look forward to sharing it with you.

Now let me turn the call over to David to review the second quarter financials in detail and discuss our outlook for the third quarter and full year.

Thank you, Pierre, and thank you all for joining us on our first earnings call. It's been an exciting time, and I want to thank my team and everyone who helped us get to this point. We are very pleased to have started our public company life with such a strong quarter.

So let me begin by reviewing our results for the second quarter of fiscal 2021. Please note that all numbers referenced in my remarks are on a non-GAAP basis, unless otherwise stated. Our non-GAAP financial information excludes the impact of stock-based compensation and the amortization of intangible assets. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to our Form 8-K furnished with the SEC.

Total revenues for the second quarter of fiscal 2021 were $48.8 million compared with $32 million in the second quarter of fiscal 2020, an increase of 52% year-over-year. Subscription revenues for this quarter were $39.4 million, an increase of 70% year-over-year and represented 81% of total revenues in the second quarter. As a reminder, our subscription revenues include subscription and support revenues. Subscription revenues growth benefited from the PPP and Forgiveness customers that Pierre noted, which were activated immediately and resulted in revenues being recognized in the second quarter.

Well, let me spend a minute on this topic because it is a unique and valuable aspect of our business model. Usually, our contracts include a phased seat deployment time line, which is generally 6 to 9 months for community and regional banks and 12 to 24 months for enterprise customers. This structure, which is based on specific seat activation dates and not tied to project success milestones, allows us to maximize the lifetime value of a customer, maintain pricing and provides heightened visibility to our revenues. Because they were activated immediately, PPP and Forgiveness deals actually contributed $3 million to our second quarter subscription revenues and were not subject to our usual phased activation approach. We will work to repurpose these seats to other business lines once the CARES Act winds down over the next 12 to 24 months.

Visible Equity and FinSuite, the 2 acquisitions completed last year that form the technology base for nIQ, contributed $2.6 million to second quarter subscription revenues. As we have now owned both companies for about a year, in the future, we do not plan on separately disclosing revenues related to these acquisitions in our financial results.

Professional services were $9.4 million in the quarter, a 6% increase over the $8.9 million in the second quarter of last year. We had assumed lower utilization rates due to COVID and the strong services performance in EMEA drove the professional services revenues in the quarter.

Our international revenues continue to expand. All non-U.S. revenues were $4.7 million or 10% of total revenues in the second quarter, up from $2.3 million or 7% of total revenues in the second quarter of fiscal 2020. International revenues increased 103% year-over-year, reflecting continued success on our international expansion, with some benefit from the CBILS program in the U.K. that Pierre mentioned earlier.

Non-GAAP gross profit for the second quarter of fiscal 2021 was $29.1 million compared with $17.6 million in the second quarter of fiscal 2020, an increase of 65% year-over-year. Gross margin was 60% compared to 55% in the second quarter of fiscal 2020. Our gross margins continue to improve largely from product mix as well as a larger portion of our total revenues coming from subscriptions. Total non-GAAP operating costs for the second quarter of fiscal 2021 was $30.7 million or 63% of revenues compared to $22.9 million or 72% of revenues in the second quarter of fiscal 2020. While we did see some cost savings due to COVID, especially around reduced travel and in-person events, we continue to invest to grow our international footprint and expand the breadth and depth of our products as well as absorb public company costs as we move toward our IPO.

Sales and marketing for the second quarter of fiscal 2021 was $11.9 million or 24% of revenues compared to $10 million or 31% in the second quarter of fiscal 2020 and an 18% increase year-over-year. Though we continue to invest for our global expansion, sales and marketing expenses were lower than originally expected during the quarter due to the reduction in travel and expenses related to nSight, our annual user conference, which we moved to a virtual event. We expect this lower level of spending to rebound slightly in the second half of the year as we continue to invest in expanding internationally and people returning to travel, offset by savings for virtual conferences.

Research and development for the second quarter was $12.3 million or 25% of revenues compared to $8 million or 25% for the second quarter of fiscal 2020, a 54% increase year-over-year. We continue to invest in building out the nCino Bank Operating System, including nIQ and our retail products as well as localizing products to support our international expansion.

General and administrative expenses was $6.6 million or 14% of revenues compared to 4.9% or 15% in the second quarter of fiscal 2020. We expect G&A to be higher in the second half of the year as we begin to incur public company D&O insurance costs in addition to absorbing other public company costs.

Non-GAAP operating loss for the second quarter of fiscal 2021 was $1.6 million compared with non-GAAP operating loss of $5.3 million in the second quarter of fiscal 2020. Our non-GAAP operating margin for the second quarter was negative 3% compared with negative 17% in the second quarter of fiscal 2020. Non-GAAP net loss attributable to nCino for the second quarter of fiscal 2021 was $581,000 or $0.01 per share compared to non-GAAP net loss attributable to nCino of $5.8 million or $0.08 per share in the second quarter of fiscal 2020.

Turning to cash. We ended the quarter with cash and cash equivalents of $388.2 million. This includes $268 million in net proceeds from the IPO. Net cash provided by operating activities totaled $23.5 million for the second quarter compared to $8.4 million in the first quarter of fiscal 2021, an increase of 179% quarter-over-quarter. Net of $1.9 million in capital expenditures, this resulted in positive free cash flow of $21.6 million for the second quarter of fiscal 2021. This very strong cash generation reflects both immediate activation of PPP and Forgiveness seats and solid renewal activity. Based upon historic seasonality, we do not expect to generate cash in the second half of the year. We will continue to balance cash flow while investing to take advantage of the global opportunity in front of us.

Now turning to guidance. For the third quarter, we expect total revenues of $49 million to $50 million. Non-GAAP operating loss of approximately $8 million to $9 million and non-GAAP net loss attributable to nCino per share to be $0.09 to $0.10. This is based upon a weighted average of approximately 91.4 million basic shares outstanding.

Our outlook for the full fiscal year is as follows. Total revenues of $193 million to $194 million. We expect non-GAAP operating loss for fiscal 2021 to be $22 million to $23 million and non-GAAP net loss attributable to nCino per share to be $0.25 to $0.26 based upon a weighted average of approximately 87.3 million basic shares outstanding.

In summary, we are very pleased with the momentum in the second quarter as we benefited from revenues related to government-backed COVID lending programs, both in the U.S. and Europe. These revenues will also drive full year growth, which is approximately 40% at the midpoint of the updated range. We are beginning to see bank executives refocus more on business as usual and revisiting some of the long-term projects in the pipeline. We expect in the second half we'll begin to experience more normal sales and activation cycles and an increase focused on digital transformation.

As always, we appreciate the hard work of the nCino team around the globe and the loyalty of our customers and stockholders. We are early in the digital transformation of the banking industry, and we are excited to share this journey with you.

Pierre and I are now happy to take your questions.

(Operator Instructions) Our first question comes from the line of Brad Sills from Bank of America.

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

Yes. Thanks a lot for joining us. So as you may remember, the nIQ solution set or nCino IQ is actually a suite of very specific solutions that we will be launching here shortly, okay? And I'm going to make it -- it's very simple bank solutions that we offer. For instance, the first one is a CECL solution. And we've got already hundreds of credit unions using that today from the Visible Equity acquisition. And CECL has now been -- that whole platform has been moved over to AWS, made scalable, made available for banks. And so come October, when that release comes out, that thing will go across our customer base.

The second one is portfolio analytics, which you can imagine, in times like this, banks are looking to understand better their portfolios, the payment history of their customers and what they can expect in the future. The third one is automated spreading. And automated spreading is all about scanning in your financial statements, your tax forms, et cetera, prepopulate the spreads, tremendous manpower and cost savings for banks there. And the final one is consumer credit risk insights. Those 4 solutions will come out here shortly. And as you remember, we are adding solutions like that continuously going forward. But that's the initial 4. We'll start taking it to market. I don't think you're going to see an immediate impact on revenue because there's a sales cycle and there's also an implementation cycle, et cetera. But the early indications are very promising on that solution set.

That's great. And then I wanted to ask about kind of the mix of business this quarter in the global bank segment and the community and regional segment. It looked like pretty balanced results. You cited some examples in both segments. Can you just remind us kind of where the industry is in those 2 segments? Is one further along in their digital transformation efforts? And is there one that you would point to where maybe they're less -- the adoption cycle is perhaps behind and we could see an inflection point? Just where are we in terms of adoption in those 2 different segments?

Yes. It's interesting. So in the community bank sector, there's about 5,000 institutions. We target about 2,000 of them. And we've got 300 customers. So from that alone, you can imagine. And we focused mainly on commercial loan origination. So all of retail and other account opening, et cetera, is open for us, is very new for us in there, okay? I would like to remind you that the commercial loan origination, global SAM, is $3.4 billion. So as a company, we're just scratching the surface here.

Then if you go to the community or to the large banks, we mentioned we've got 14 of the top 25. But again, realize, we are getting small pieces of the commercial bank as our landing opportunity, and then we expand within it. And again, there, if you look at 14 of the top 25 in the Americas or North America, Canada and the U.S., although that sounds like a lot, the SAM is about $1.2 billion. So there is a massive opportunity, both in commercial origination as well as for the enterprise banks as well as the community banks. I think we are just scratching the surface.

And then finally, let me explain to you retail a little bit. It's important to understand that retail has 3 components. There's your account opening. There's the onboarding aspects going through KYC, anti-money laundering, et cetera. And then finally, there's international mortgage, which are all relatively very new products. And we are seeing significant interest in those 3. And then, of course, the loan origination coming from the retail space and then we've got commercial on top. And then small business, where some banks fall into the retail space and some banks into commercial. So I believe it's very early for this process in this market as we go. It's very early for the cloud technologies to penetrate these banks. Although we've been going for 8 years, it feels just like yesterday.

That's great. And then one more, if I may, just please on the comments you made, David, on the PPP and the Forgiveness program, potentially repurposing those seats, would that mean that these could become recurring in nature?

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

Our next question comes from the line of Saket Kalia from Barclays Capital.

And congrats on becoming a public company.

Thanks, Saket.

Thank you.

Great hearing from you.

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

Yes. I can tell you that we see an accelerated or urgency around digital transformation. There's, to me, a realization now that work-from-home is not a luxury anymore. It's just an imperative. If you live in a city like London and you're commuting 1.5 hours each way per day, why would you waste 3 hours in a train if you can do your job from home? And as a businessman, you think, I can get more productivity out of my people doing that.

Now look, in Wilmington, we commute 15 minutes, so that same logic doesn't apply. But if you live in New York City, Chicago, L.A., any of these big cities, I think these banks realize they were forced to go this direction. And I think when this is done, everybody is going to move towards a much more flexible workforce that can work from anywhere on any device at any time, okay, because the work-life balance have just changed. And number one, because of that, because of COVID, actually drove the urgency, we are seeing great strategic conversations with the most senior people in the largest complex institutions of how to actually get there at a faster pace. So I'm very optimistic.

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

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

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

Our next question comes from the line of Josh Beck from KeyBanc.

Maybe this is for you, Pierre, but you've talked a bit about digital transformation. I certainly think the conversation has changed, and you gave some great references from other bank calls on how they're thinking about that. So that seems to be something that would build the pipeline. On the other hand, these are large enterprises, and we have seen some elements of disruption to sales cycles and implementation cycles. So I'm just wondering like when you balance those 2 factors together, how are you thinking about building the pipeline and the outlook for new bookings as we go into the end of this year and the end of your fiscal year.

Josh, thanks a lot for joining the call here. So look, yes, it's very interesting. In the community bank space, there clearly was a disruption because it's a smaller staff, people are more focused. And when they had to pivot towards PPP, that started pushing deals out, and that was about a 4-, 5-month, I would say, redirection of activity and people, okay? And the moment that it is coming to an end, people are focusing back on long-term strategic initiatives.

Once you get to your larger regional banks and your enterprise banks, they're big enough, they stayed strategically on track. And this has driven a higher urgency, as I mentioned, for these initiatives because it's not only a matter of efficiency anymore, there's compliance issues around this. Can you work from home effectively on the old systems? Do you have the right entitlement engines in place to make sure your people are actually the people signing into the systems, et cetera. So all of that plays into this higher level of urgency. These are big banks. It takes time, okay? But I can tell you that, in this time, our pipeline has grown because of these banks understanding the need to do this. And they have to move forward. And it's not merely, I would say, something that they would like to do. It's becoming a strategic imperative to run the bank in a different way.

Okay. That's really helpful. And David, I think you gave us some helpful relay charts describing the ACV net revenue retention in your S-1 filing. So anything you can share there? Certainly, it seems like you've had some nice deals where you have had some expansion. So just is that still a good framework for us to use as we build out the kind of long-term growth prospects for your business?

Yes. Great. Thank you. Yes. So we ended fiscal '20 at 147%, which Pierre mentioned earlier. If you think about the PPP deals and the Forgiveness deals that we closed in the first half of the year, many of those -- most of those were existing customers. So although we're not disclosing revenue retention on a quarterly basis, I would assume that -- I mean you could assume that those, that 147% would have increased because of that. And we are planning on updating that at the end of this fiscal year as well. So PPP absolutely did help that metric in the last 2 quarters.

Our next question comes from the line of Terry Tillman from Truist Securities.

Pierre, Greg and David, congrats on the IPO from me as well. Maybe the first question, Pierre, for you is just related to -- sometimes an IPO can catalyze the business and just create more notoriety and recognition. I know it's early still since the IPO. But like what have you seen from just getting this increased recognition, maybe particularly in international markets? What does being a public company help you? Or have you seen any benefits so far with that increased exposure? And then I have a follow-up.

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

Got it. And actually, you just mentioned Salesforce. They actually talked about acceleration in some large enterprises in terms of their digital transformation. I mean you all were able to exhibit the power of your platform over the last 2 quarters with PPP and then Forgiveness. Is it doing anything to kind of spur accelerating kind of conversations and maybe even kind of the monetization time frame for things like retail lending or deposit account openings, et cetera? Just like what are you seeing so far in terms of maybe that picking up the pace of some of these sales cycles?

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

Our next question comes from the line of Brian Peterson from Raymond James.

And congrats on the strong results. So Pierre, I wanted to hit on the retail opportunity. You got a nice third-party endorsement this quarter. As we think about that, the progress of that product offering, what are the guideposts that you're using internally? And what would you express to investors for how to assess that ramp as we look at that product building up?

Yes. Hey, thanks for dialing in. So as I mentioned earlier, there's 3 legs of the stool for the retail offering, okay? We came out the shoot for mortgage international and signed 6 Canadian smaller -- very small institutions, but 6 was taken up at a very short order, which was, number one, not only promising, but it's showing the acute issues in that marketplace for good software. On the retail lending side, we're taking a careful approach because it is so intense around the regulatory compliance and the documentation that you need. But we are making great progress. We are seeing good referenceable customers. And I can tell you, the complexity of building that solution is also the biggest moat around that, that people cannot enter into that market.

The one where I see the biggest momentum right now is deposit account opening. And so you look at that, you look at my mortgage reference points about the Canadian market, and in Europe, I'm seeing good interest as well. You look at the uptake on the lending side and the Aite report and I feel very good that, that whole offering is coming up and actually outpaced, from a growth perspective, the commercial loan origination. If you look at percentage growth, although it's a smaller start, I really see the moment you start marrying the nIQ elements into the retail and you get to a touchless experience, where customers can do everything on their phone, there's no banker involved, and you can have automated decisioning at the back end, that's going to propel and accelerate this.

So here's one of the dilemmas in the banking industry today. If you look at the history of deposits and how banks are funding loans, deposits are flowing to the 4 big banks in the U.S. today. And the community regional banks are struggling to gather deposit at the same rate. We have many proof points that the nCino solution is much more effective and efficient in gathering deposit accounts, number one. But number two, they will have to be from the retail lending efforts to get my deposits in the future. Because otherwise, if I can't be a one-stop shop, I'll take my deposit to a big bank, who's willing to do my car loan, my mortgage, et cetera. And we are beginning to bundle and package that all together and explain to banks how to get there. And I'm seeing good receptivity.

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

Thanks. What I would say is we see still a very healthy commercial pipeline coming in, whether it's expanding in existing enterprise banks in your community and regional space. As I mentioned earlier, we've got 300 out of 2,000 institutions. And by the way, we don't even have the whole commercial bank of the 300 we got. We've got pieces of this and maybe certain loan types, et cetera. So there's tremendous cross-sell as well as new logo opportunities in the commercial side. Then on top of that, in the community regional space, the platform story is really powerful. They would love to standardize all their operations, middle back office and customer interaction on a single platform. And so what we're seeing is they're buy into the full platform, but then deploy one line of business at a time because it just takes time and effort to do that, okay?

And then the other leg of the stool is absolutely international. I mentioned to you earlier through the IPO that I measure every one of these solution sets of our strategic growth initiatives compared to the early days of the company. So I look at international, and after 3 years, it's outpacing where the company was in the first 3 years. I then look at the retail solution set, and it's outpacing what we did with commercial in the first 3 years. And if those 2 things keep on holding true, then it actually is an exponential growth story, which is what we are doing here.

Our next question comes from the line of Brent Bracelin from Piper Sandler.

I guess one for Pierre and one for David. Pierre, international crossed over 10% of revenue for the first time. I know it's early days, but I was hoping if you could frame just the international opportunity, what's changed post-COVID? I mean you talked about a big U.K. bank basically pulling you in for a PPP equivalent in the U.K. But more broadly speaking, what are you seeing there relative to opportunity? And has it materially changed in the last 6 months as you just think about engagement activity, and is it largely because of that need around remote workers?

Yes. So I would firstly say, when we entered Europe, we realized that the cloud was not as well adopted as in the U.S. There's a lag effect there. So we had to start evangelizing from scratch again to get people comfortable with the cloud. The second main thing is I can fly from here to Kentucky and go sell a piece of software. I cannot do the same from England to Germany. I need a German speaker, I need German infrastructure, I need somebody who speaks Spanish for Spain, et cetera.

So the initial start-up in that market, although the market is bigger, took a bigger investment in the larger infrastructure that we have to put in. We had to make sure the languages are supported by the software, all the different integrations, et cetera. So your upfront investment happens to be more complex and larger. However, what we're beginning to see is, with COVID and just the events, so realize the only country we had a PPP program like the U.S. was the U.K. I didn't see any of this in France or in Germany or Spain, a similar program. But there is, I would say, a heightened awareness, number one.

Number two, we've got banks like Santander, who's using us in the U.K. and the U.S., which, obviously, the next question is what about Spain? So we are penetrating these banks in their foreign subsidiaries and then circle that and to get into their main home countries. So I'm seeing overall this awareness, the cloud adoption, the awareness of Salesforce and nCino, the brands, and the trust factor around that. And then further to that, I can tell you, in Australia, we see fantastic traction. As you may know, we've got Macquarie Bank there as an anchor solution. We did. We've got a Bank of New Zealand going. So everywhere we've planted the flag, we've got a presence, we've got a great success story, and that will just drive it forward. But there was a more difficult up-ramp in the beginning.

Helpful color there. And then, I guess, David, for you, just to be clear on this subscription growth. I mean 70%, just phenomenal growth this quarter. I get that you got a benefit from -- it looks like, what, 2 go-lives as well as the PPP, Forgiveness. My question is, did you see any tailwind this quarter from that U.K. bank that's rolling out the PPP-like program? Or is that a potential that could roll in, in Q3?

Yes. Thank you. I appreciate the call. Yes, on the PPP, the CBILS in Europe, we did see benefit on the PSO side in the quarter. And we will see -- we didn't see a full quarter of benefit on the subscription side. So that will come in the following quarters.

Okay. Great. And then just quickly, housekeeping, RPO. Did you kind of have -- or give us what the RPO was in the quarter.

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

Our next question comes from the line of Sarah Hindlian-Bowler from Macquarie.

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

Yes. So as you can see, the balance of revenue subscription to professional services, the professional services portion is continuing to decline historically for the company because we are focused on expanding globally with our SI partners. In the U.S., we've got a stable of, I would say, the top brands in system integration working with us, which is very beneficial, and we're proud on those partnerships. What we are seeing in Europe, there are cases where banks want to use partners we have never used before. We have a very effective training and onboarding program for these partnerships. We get them up to speed. We substitute those projects with a bit more nCino resources to make sure they get the best product knowledge and help for the project.

So I would see -- I do see an expansion, typically driven by customers. As we go to new geographies, we're always open-minded. Typically, in your smaller bank markets, we will have more smaller SIs doing it. And then your global style partnerships will play more in the enterprise-type banks. I haven't seen much change. It's more a factor of the growth we're seeing is driving more partnerships as opposed to the IPO.

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

Could you repeat that? I think you broke up right at the beginning of the question.

Sure. Sure. No problem. I was wondering if COVID-driven seats or seat expansions got bigger versus what you expected for the year given the signing you had in EMEA.

Yes. I would say, yes, COVID did, the PPP and even the CBILS, that came as a surprise in the quarter. And that was part of the reason for the upside. We do expect to see -- we saw $3 million in the quarter. We expect to see a little bit uptick in that for the balance of the year as well, around the PPP and Forgiveness-related subscription revenues.

I think, normally, when we sign a contract, there's a fairly lengthy activation of seats. And the CBILS and PPP just had a very quick activation. You literally signed the contract, and 2 weeks later, you're up and running, you take revenue, okay? So that is a slight distortion that you're going to see in Q2 and Q3, which is modeled into the models and the guidance. That quick uptake is just not normal for how we do business, and that's the reflection you're seeing.

And this does conclude the question-and-answer session. I would like to hand the program back to Pierre for any further remarks.

Well, thank you so much for dialing in today and tracking our progress. We are excited about the future, and we are focused on our customers and delivering what we promised. So thank you very much for joining us today.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.