nCino, Inc. (NCNO) Earnings

Management highlights

### Strategic AI Positioning & Product Development - Encino's core mission is to help global financial institutions digitize and automate workflows via an AI-powered unified platform, with unique domain expertise, 15 years of operational banking data, and built-in regulatory governance that cannot be easily replicated by general-purpose AI providers. - Unveiled Banking Advisor, the first product on Encino's new agentic operating system (AOS), with role-specific digital AI agents for distinct banking functions. Over 200 customers already have initial bundles of intelligence units (IUs), Encino's token-based AI consumption metric. As of end-Q1, over 40% of annual contract value (ACV) has transitioned to Encino's new outcome-aligned platform pricing model. - AI has reduced internal product development cycles from over 1 year to under 90 days, with 57% of code now written with AI assistance (up from 21% a year prior), increasing overall engineering efficiency by 34%. ### AI Adoption & Customer Engagement - Initial IU bundles are intentionally sized to let customers experiment and build reliance without unexpected overage charges; the average bundle lasts approximately one year. Usage growth has been strong, with Banking Advisor usage up 38x in May 2027 compared to October 2026. The first set of customers have already exhausted their initial bundles, proving out the consumption-based monetization model. - Forward Deploy Engineering (FDE) on-site engagements for advanced AI adopters accelerate customer value realization and inform product roadmap improvements. The FDE team is fully booked, with engagements across small community banks, large regional banks, top-4 U.S. enterprise banks, and global customers in EMEA and APAC. - The annual Insight customer conference set an attendance record with over 1,600 attendees, including more than 300 customers and prospects, with approximately 10% of attendees being prospects (a new record for the event). ### Operational Efficiency Improvements - AI-driven improvements to professional services have reduced required hours per engagement by over 40%, compressing implementation timelines and lowering costs for customers. This improvement contributed to the meaningful increase in professional services gross margins in Q1. Improved efficiency is expected to drive higher pipeline conversion long-term. - Share repurchase activity: In Q1, Encino repurchased 6.1 million shares for $93.1 million at an average price of $15.20 per share, with $65 million remaining under the December 2025 repurchase authorization.

Guidance

- **Full Year FY27 Guidance Revisions (Upward across all metrics):** - Total revenue guidance raised to $642 million to $646 million, up from the prior range of $639 million to $643 million, representing ~8% YoY growth at the midpoint. - Subscription revenue guidance raised to $571.5 million to $575.5 million, up from $569 million to $573 million, representing 10% YoY growth (9% in constant currency) at the midpoint. Guidance maintains 1% YoY growth for U.S. mortgage subscription revenue, and 11% to 12% YoY growth for subscription revenue excluding U.S. mortgage. - Non-GAAP operating income guidance raised to $166 million to $171 million, up from $165 million to $170 million, representing ~30% YoY growth at the midpoint. Management did not pass all Q1 overperformance into full year guidance to retain operating flexibility. - Free cash flow guidance raised to $135 million to $140 million, up from $132 million to $137 million. - Net ACV additions guidance maintained at $60 million to $65 million on a constant currency basis, which would bring cumulative ACV to $662.5 million to $667.5 million, up 10% YoY at the midpoint. - **Q2 FY27 Guidance:** - Total revenue expected between $157.75 million and $159.75 million. - Subscription revenue expected between $140.25 million and $142.25 million, representing 7% to 8% YoY growth at the midpoint. U.S. mortgage subscription revenue is expected to decline 2% YoY, as elevated mortgage rates eliminate the seasonal benefit seen in Q2 FY26. - Non-GAAP operating income expected between $35.5 million and $37.5 million, with higher sequential operating expenses driven by the annual user conference, other marketing activities, and annual merit increases. - Management's core focus for FY27 is driving widespread AI adoption, not near-term revenue from IUs; any IU monetization in FY27 will be upside, with meaningful contributions expected in 2028 and beyond.

Segment performance

In Q1 FY27, Encino reported total revenues of $159.4 million, an 11% increase year-over-year (YoY). Subscription revenues, the largest segment, were $140.9 million, representing 88.4% of total revenue, and grew 12% YoY (11% in constant currency). Within subscription revenues, U.S. mortgage subscription revenues were $19.7 million, growing 4% YoY. Non-U.S. subscription revenues were $31.3 million, representing 22.2% of total subscription revenue, and grew 21% YoY (16% in constant currency). Professional services revenues were $18.5 million, flat YoY, and represented 11.6% of total revenue. Non-GAAP professional services gross margin improved 1,100 basis points YoY to 10%, adding $1 million to non-GAAP operating income. Total non-U.S. revenues were $36.4 million, growing 15% YoY (11% in constant currency), representing 22.8% of total revenue. Non-GAAP operating income was $44.5 million (28% of total revenue), up 79% YoY. Free cash flow was $80.8 million, up 54% YoY.

Risks & headwinds

- Elevated U.S. mortgage rates suppress origination volumes, creating difficult YoY comparisons for the U.S. mortgage business segment. - Uncertain AI consumption growth: Actual IU consumption and monetization depends on customer adoption rates, which vary based on institutional leadership posture and change management readiness. - AI compute/token cost volatility: Rising LLM token costs could compress margins if consumption grows faster than expected or if third-party provider costs increase faster than IU pricing adjustments. - Financial institution AI adoption risk: Customers are highly risk-averse, and slow adoption of new AI capabilities due to regulatory or internal governance concerns could slow revenue growth. - General macroeconomic uncertainty, global economic conditions, and ongoing volatility in interest rates impact financial institution investment and mortgage origination volumes.

Analyst Q&A

• Q: What is driving the 40% reduction in professional services engagement hours? How should investors think about mortgage revenue trends amid rising refi volumes? /

  A: The efficiency gains are the result of a year-long transformation across the entire product development and deployment lifecycle, aligned with AI tooling integration, allowing Banking Advisor deployments in weeks instead of months. For mortgage, while industry refi volumes increased early in Q1, rates rose later in the quarter, so management maintained a prudent guidance approach, extrapolating current run rates and leaving room for upside surprise rather than baking in elevated volumes.

• Q: What early evidence exists of customers expanding beyond initial IU bundles, and how does AI adoption differ between U.S. and international markets? /

  A: Encino has already had its first customers exhaust their initial IU bundles, proving that the adoption and consumption model is working. Management expects to monetize these overages by the end of 2027. Across geographies, customers face the same core problems and use cases, with only minor regulatory and cultural nuances that are addressed via local regional engineering teams, and the global AI strategy is consistent across all markets.

• Q: What are the main concerns financial institutions voice about AI adoption, and how has the competitive landscape evolved? /

  A: Customers' top concerns are regulatory compliance, governance, and avoiding ungoverned AI usage across their workforce that creates liability from hallucinations or policy violations. They need a trusted partner that can embed AI into existing workflows while meeting strict audit and accountability requirements. The competitive landscape has more participants, but most new and existing competitors are niche point solutions, and none have Encino's full platform breadth, 15 years of domain data, and end-to-end regulatory governance.

• Q: How do you plan to monetize customers that exceed initial IU limits, and is international subscription growth expected to continue accelerating? /

  A: Active conversations are underway with the first customers that have exhausted their bundles, with addendum contracts already out for signature. Pricing is aligned with the value customers realize, with flexibility for early adopters. International growth accelerated in Q1 on the back of strong end-of-year bookings momentum, with strength across continental Europe, Japan, and Southeast Asia, and management expects international growth to remain accretive to overall growth for the full year.

• Q: What is the long-term vision for the agentic operating system (AOS), and will it support third-party agents? /

  A: The long-term vision is for AOS to be the governing platform for all AI agents in banking, including both Encino-built prepackaged agents for core workflows and third-party or customer-built agents for additional use cases. Encino monetizes IUs for its own agents and monetizes data layer access for third-party agents, creating a scalable platform model.