nCino, Inc. (NCNO) Earnings Call Transcript & Summary

Hello, and welcome to the call to discuss nCino Signs Definitive Agreement to Acquire SimpleNexus. [Operator Instructions] I would now like to turn the conference over to your speaker for today, April Rieger, EVP and General Counsel. You may begin.

Good afternoon, and welcome to nCino's conference call to discuss our proposed acquisition of SimpleNexus. With me on today's call are Pierre Naude, nCino's Chief Executive Officer; David Rudow, our Chief Financial Officer; Josh Glover, our President and Chief Revenue Officer; and Greg Orenstein, our Chief Development and Strategy Officer. We are also joined by members of the SimpleNexus leadership team, including Matt Hansen, its Founder; Ben Miller, its Co-Founder; Cathleen Schreiner Gates, its Chief Executive Officer; and Kevin McKenzie, its Chief Financial Officer and Chief Operating Officer. During the course of this conference call, we may make forward-looking statements about nCino's expectations plans, future performance, outlook and prospects, including without limitation, regarding the benefits that may be derived from the proposed transaction between nCino and SimpleNexus, SimpleNexus' growth profile, cross and upsell opportunities and the expansion of the nCino Bank Operating System platform. These forward-looking statements are based on management's current views and expectations, entail certain assumptions made as of today's date and are subject to various risks and uncertainties that may cause actual results to differ materially, including, but not limited to, those identified in the transaction press release issued earlier today. nCino disclaims any obligations to update or revise any forward-looking statements. Additional risks and uncertainties that could affect nCino's business and financial results and these forward-looking statements are included in nCino's reports filed with the U.S. Securities and Exchange Commission available on our website at www.ncino.com or the SEC's website at www.sec.gov. Further information on potential risks that could affect actual results will be included in other filings that nCino makes with the SEC from time to time. With that, thank you for joining us, and I will now turn it over to Pierre.

Thank you, April. Good afternoon, and thank you for joining us on a short notice. A short time ago, we announced that we have entered into a definitive agreement to acquire SimpleNexus, a leader in the digital homeownership marketplace. I could not be more excited to talk with you about this transaction and the significant value we believe our combined cloud-native companies can create for our customers, their clients and the broader financial services industry. For reference, there is also a slide deck on our Investor Relations website that provides an overview of SimpleNexus and the transaction. Before I share details of this opportunity, let me outline for you what we look for at nCino in terms of acquisitions, which we have talked about with many of you before, and the questions we ask ourselves as we uncover opportunities in the market. Number one, does the company solve a problem in a way that extends nCino's current capabilities. Number two, will the solution add value for our customers and their clients. Number three, is the solution a good architectural fit for our single platform vision. Number four, are the company's culture and values aligned with nCino's culture and values. And finally, number five, does the company have a strong predictable recurring revenue financial profile that will enable us to accelerate our growth. As we got to know the SimpleNexus team, their product, innovative culture, strong business model and view on the market, it became clear that this was an opportunity that answered all of our key questions with a resounding yes. We believe this acquisition will accelerate the growth of our company and the value we create for our customers and stockholders. For those who aren't familiar with SimpleNexus, they are a leading mobile-first cloud-native digital homeownership software company headquartered in Lehi, Utah. Today, they work with more than 300 independent mortgage banks or IMBs, over 80 banks and credit unions and more than 41,000 loan originators nationwide. A pretty powerful statistic is that SimpleNexus touched more than 1 in every 7 mortgage originations in the U.S. during the first 3 quarters of 2021. SimpleNexus provides a natural extension of nCino's capabilities to the U.S. point-of-sale mortgage space, a strategic adjacency with significant cross and upsell opportunities, which we estimate initially expands our SAM, or serviceable addressable market, by more than $4 billion. We believe many of our 1,100 bank and credit union customers in the U.S. will be interested in adopting the SimpleNexus homeownership platform. So there is a sizable cross-sell opportunity that we will aggressively pursue while continuing to innovate for the IMB market, which is a core part of the SimpleNexus customer base. As we all know, the COVID-19 pandemic has accelerated digital transformation across all industries. Consumer expectations continue to increase and mobile capabilities are now a prerequisite for consumer-facing technology across business lines, whether ordering a product for your home, having a meal delivered, booking a vacation or applying for a loan. SimpleNexus offers a best-in-class cloud-based point-of-sale solution that was built for a mobile-first world. SimpleNexus has strong market share with growth opportunity in the U.S. point-of-sale mortgage space today. And our companies will work together to accelerate the development of other mobile and point-of-sale offerings across additional lines of business over time, unlocking new opportunities and value for our customers while furthering the nCino single platform vision. There is strong strategic alignment between nCino and SimpleNexus. We are both cloud-native companies who are founded to help solve similar challenges, streamlining and simplifying cumbersome financial processes. For nCino, that process started with commercial lending and has since expanded into small business and retail lending, treasury management sales and onboarding, deposit account opening and more. For SimpleNexus, they are focused on streamlining the many stages of the homeownership process, from applying for a loan to uploading and signing document in person, to closing the loan to getting ancillary financial products and services post close, all into a single seamless journey that can be managed on a phone from the palm of your hand. Similar to nCino, SimpleNexus operates a perceived subscription revenue model, which enables the company to generate financial results that are more predictable, recurring and not based on mortgage transaction volumes. Also similar to nCino, SimpleNexus has demonstrated a track record of strong growth along with its attractive recurring revenue profile. Our 2 companies share similar business models. We share similar cultures, and we're closely aligned on values. There is a large stock component in this transaction, reflecting the strategic alignment and conviction that both nCino and SimpleNexus management have in the long-term trajectory and success of our combined businesses. Additionally, the significant stock component of the transaction is an important statement of support from Insight Partners, nCino's largest stockholder and also the majority stockholder of SimpleNexus. Insight has agreed to lock up approximately 2/3 of their entire pro forma nCino ownership position. As noted in the investor presentation, approximately 1/3 of the inside lockup shares will be released on each of the 6-, 9- and 12-month anniversaries of the closing. And speaking of combined businesses, with the acquisition of SimpleNexus and its more than 300 talented and innovative employees across the country, we will have over 1,600 combined employees who are laser-focused on continuing to transform the financial services industry through innovation, reputation and speed. Cathleen Schreiner Gates will continue to lead SimpleNexus, reporting directly to me. She brings 40 years of experience in the mortgage and technology industries, and I'm extremely impressed with Cathleen and the leadership team around her. We're glad to have Cathleen with us today. And so with that, I'll now turn the call over to her.

Thanks, Pierre. This is truly an exciting day for SimpleNexus, our customers and our employees. SimpleNexus is an award-winning developer of mobile-first technology for the modern mortgage market. Lenders and borrowers across the country depend on our cloud-based homeownership platform to unite the people, systems and stages of the mortgage process into a seamless end-to-end solution that spans engagement, origination, closing and business intelligence. By helping lenders manage their teams and stay connected with borrowers and real estate partners, we deliver a tangible return on investment in the form of reduced turnaround times, increased margins and loan volumes and more referral business. As Pierre mentioned earlier, we work with more than 300 independent mortgage banks, over 80 banks and credit unions across asset classes and more than 41,000 loan originators nationwide. Like nCino, we are passionate about customer success, which is evidenced by our trailing 12-month net retention rate of 163%. It is very exciting to be here today and to join forces with nCino, a leader in cloud banking and a company we've long admired. Our industry-leading mobile-first homeownership platform will complement nCino's bank operating system to create even greater value for financial institutions and IMBs across multiple product lines and digital channels. Together, our best-in-class cloud-native platforms will significantly strengthen how we serve our customers. I couldn't be more excited for this next chapter, and I want to thank all of our employees at SimpleNexus for the amazing work to bring us to this point. I can't wait to see what SimpleNexus and nCino are going to do together. And with that, I will now turn the call over to David to talk more about the terms of the transaction.

Thank you, Cathleen and Pierre. Let me echo the enthusiasm for the opportunities ahead created by combining nCino and SimpleNexus' technology and teams. Turning to the details of the transaction. Subject to customary adjustments, nCino will acquire SimpleNexus for $1.2 billion, consisting of approximately $240 million in cash and approximately $960 million in common stock. The number of shares of nCino common stock being issued is based on nCino's 20-day trading volume weighted average price of $72.525 per share. Subject to receipt of regulatory approvals and other customary closing conditions, we expect the transaction to close by the end of nCino's fourth fiscal quarter ending January 31, 2022. While we plan on providing fiscal year 2023 guidance for the combined companies on our fourth quarter fiscal '22 earnings call, at this time, I can say that we expect SimpleNexus will be accretive to our growth profile. SimpleNexus' recurring per-seat subscription revenue model aligns with nCino's recurring revenue business model. SimpleNexus' total revenues for the 12 months ending September 30, 2021, were approximately $41.6 million, with a net revenue retention rate of 163%. Including pro forma results of LBA Ware, an acquisition completed by SimpleNexus in October 2021, annualized total revenues as of September 2021 were approximately $54 million. We do not expect to see any significant cost synergies from this transaction as we plan on making additional investments in the business to accelerate the product road map and expand growth opportunities for the combined companies. Finally, as you may have seen yesterday's press release announcing that we scheduled our third quarter's earnings call for December 1, we look forward to sharing our third quarter results with you at that time. But for today's discussion, we will exclusively focus on the SimpleNexus announcement. With that, we are now happy to take your questions about the transaction.

[Operator Instructions] Our first question comes from the line of Terry Tillman with Truist Securities.

Pierre, David and Cathleen, congratulations on this transaction. I guess I'll have to be disciplined and ask 1 question. I had like 8 of them here on my list, but I'll try it. I guess just, Pierre, for you the timing of this, why now? You all have a lot. You are progressing with your platform nIQ, the retail opportunity, international, et cetera. I guess maybe a little bit on the timing in terms of now? And does this do something to potentially help the retail lending part of your business?

Thanks, Terry. Good question. As you know, there are not many high-quality, great growing companies that's got a revenue model second to none with technology and people that you really want as part of your organization. So these things never come at the time when you want them to come. We started looking at a partnership with SimpleNexus, and as we got to know the team as well as the technology, the way they pursue the market and we just saw a fantastic opportunity to expand our retail offerings by getting into the point-of-sale solution for mortgages. As you will remember, I've always told you we will build as part of our retail lending solution a portfolio mortgage solution, but we will be complementary to ICE and Black Knight or Ellie Mae as they used to be known. We have no plans to go into that LOS business. But SimpleNexus is the largest and best integrated solution into the Encompass product. And this is just a great complement to what we plan to do, further cementing our focus and growth into the retail market. So this is, for us, an opportune time and very exciting. It is also accretive to our growth. So it fits the financial picture as well as the technology architecture picture, as I've always described for you.

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

Interesting acquisition here. Pierre, you surprised us. I think you talked about international being the first area you'd have success with mortgage. That certainly changes the dynamics. For my 1 question, I'm going to ask David a question just on the growth trajectory. You gave us a stat here around the size of the business, I think $54 million in trailing 12-month revenue. What was the shape of the growth of the business? If I look back at some of the articles, it looks like loan officer growth may include that acquisition, was close to 4% kind of through October. But could you just frame the growth shape of the trajectory here for the SimpleNexus business?

Yes. So the $54 million is an annualized September number. The trailing 12 months is the $41.6 million just to make sure the numbers are correct. SimpleNexus is a high-growth business. We'll get into more details after we close the transaction, but we do expect that the acquisition will be accretive to our total growth.

And I can just address the mortgage question around international. As I always reminded you that we are building portfolio mortgage as part of our retail loan offering. International mortgage is proceeding as planned, and we're actually going through a budgeting process to see how we can increase investment in that. So that commitment is unwavering and we're seeing great opportunities for that. This will accelerate our retail presence in the U.S., give us an additional $4 billion of SAM. And also as we plan and we're building going forward an API-first middle back office LOS that will connect to a point-of-sale solution, this is very, very helpful for us on that front. So we're excited about this addition. One further point. The cross-sell opportunity is significant here. This platform and solution can apply to 1,100 of our customers. There's only about 40 customers that overlaps with us between the 2 companies.

Certainly exciting to see the -- another growth leverage here you can activate. So this sounds interesting.

Our next question comes from the line of Alex Sklar with Raymond James.

Just a quick clarification question, and then I did want to ask about the cross-sell opportunity the other way around into the SimpleNexus customer base. If you're the nCino Bank Operating System platform, it kind of makes sense going into that space. And just on the clarification, could you just confirm that recurring revenue profile SimpleNexus? There was no kind of upside from any of the mortgage refi activity last year. It was purely subscription from that.

Yes. On the revenue side, they sell a seat and there is no transaction revenues that are included in those trailing numbers and the annualized numbers that we've provided.

So from a cross-sell perspective, because they do this homeowner journey, including not only the mortgage but things like insurance and e-closing, et cetera, there are opportunities. We are looking at additions to that journey. For instance, you may have personal experience. You buy a house. Once you've closed on the house, all of a sudden, you're not that happy with the kitchen or you absolutely need some additional furniture. In that process, we can incorporate things like an unsecured loan or a secured loan that you can do in the same app. We're looking at possibilities like that to enhance the SimpleNexus application. One other point is from a technology perspective. nCino traditionally provided a website experience. SimpleNexus is really excellent at a website plus an application experience. So they bought apps for Android as well as Apple. And just us having access to that level of skill sets and technology is also exciting for us and open up so many possibilities.

Our next question comes from the line of Ken Suchoski with Autonomous Research.

Pierre, David and Cathleen, congrats on the deal. You've talked before about the efficiencies the customer might see when adopting the nCino Bank Operating System. Can you just talk about what the efficiencies are or what the ROI is for a SimpleNexus customer? And then I guess my second part of this question is, what's driving the 163% net revenue retention rate, that's really impressive.

Okay. So thanks for being on this call today on short notice. So I'll give you a quick answer and then I'm going to ask Cathleen to embroider a little bit, she's the expert in this. But you know what really impressed me as we started looking at these solutions is SimpleNexus took a 2-tier approach on the ecosystem when you create a mortgage. So the first one is there's a borrower. That is very natural, we all understand that. The banks all have solutions where the borrower can go and fill in an application for a mortgage. But they actually in that same app embedded a loan officer experience, which connect to the borrower and other players in the ecosystem to do this. So there's actually a double or dual value proposition here. And that ecosystem opens you up for tremendous other revenue opportunities like referrals on insurance, okay? The e-closing that happens. So that excites us to see people who think outside the box. It's not just about the mortgage, it's about this journey. And so Cathleen, maybe you can give more color on that.

Yes. And to add to that, the loan officer who is working with a borrower is probably in receipt of a warm handoff, let's say, from the realtor. And so the idea in terms of efficiencies is this referral network that's created by sharing the platform actually creates warmer leads, which creates better throughput and shortens the time to close and things like that. So the loan officers on average are getting better leads, building their pipelines and closing more loans. So that drives the efficiency tremendously. In terms of the net revenue retention number, that has to do with each time we add to this platform. That same customer base is investing in more of our product suite, which is a typical scenario that you would see in a high net revenue retention model. So we're continuing to add products to the platform that's driving that net revenue retention.