nCino, Inc.

Thank you for standing by. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Harrison Masters, Vice President in Fester Relations. Please go ahead, sir.

Good afternoon and welcome to Encino's second quarter fiscal 2027 earnings call. With me on today's call are Sean Desmond, Encino's Chief Executive Officer, and Greg Orenstein, Encino's Chief Financial Officer. During the course of this conference call, we will 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, entail 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. The Financial Services Industry, and Global Economic Conditions. Cino 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, as well as the earnings presentation on our investor relations website at investor.incino.com. With that, I will turn the call over to Sean.

Thank you, Harrison, and welcome to Incino's second quarter fiscal 2027 earnings call. I'm very proud of the team's consistent focus and execution this past quarter. We continue to deliver on our commitments once again outperforming all financial guidance metrics and find ourselves very well positioned for the second half of this fiscal year and beyond. Over the last several months, my time on the road with customers, prospects, and partners has continued to validate our strategy. Each interaction, whether in Charlotte, Oklahoma City, New York, Tokyo, Amsterdam, or Jackson, Mississippi, has reinforced how uniquely positioned Incino is to be the trusted global leader in AI-powered banking. With the rapid evolution in technology and market dynamics, financial institutions of all sizes the world over are looking for a trusted partner rather than more vendors. And Incino is increasingly recognized as that partner. We are the partner The market can count on to innovate and bring the right technology to solve banking-specific operational risk management and regulatory compliance challenges. Our solutions for lending, onboarding, account opening, and portfolio monitoring run on a unified AI-powered platform, allowing customers to consolidate and streamline operations with one vendor and gain efficiencies other technology companies simply can't match. During the second quarter, we signed multi-year renewals with four of our 20 largest U.S. enterprise customers by ACB, representing over $900 billion in assets. All four renewed ahead of schedule with an average ACB increase of more than 10% because they wanted access to Encino's rapidly expanding suite of AI tools and functionality. These customers are some of the largest financial institutions in the country and have the financial and technical resources to build internally if they chose to. But they're proactively doubling down on Encino because we've spent nearly 15 years building the trusted global system of record for critical banking processes. We've done the heavy lifting of building the data foundation, workflows, governance, security infrastructure and regulatory compliance capabilities of the Encino platform and embedded AI and intelligence throughout. That work is difficult, risky, costly, distracting, and time-consuming, and exactly why so many internal build initiatives at some of the world's largest financial institutions have historically failed. This is also why so many of our customers are telling us They have no desire to attempt to rebuild an incredibly complex tier one mission critical enterprise application themselves simply because AI has made coding easy. Incino has the product functionality, data, workflow, context, customer relationships, and regulatory knowledge and credibility to turn AI into accountable actions and to drive significantly better outcomes for customers. We believe those advantages have become even more evident to the market since our last earnings call as more customers use our banking advisor capabilities in production and realize meaningful outcomes for their organizations. Cino enables financial institutions to drive the specific banking outcomes they want Backed by 15 years of data, governance, regulatory tracking, compliance, and the domain-specific context they require. As of the end of the second quarter, 12 of our top 20 U.S. Enterprise customers by ACV have already transitioned to our new pricing model under multi-year contract extensions. And approximately 48% of our total ACV is now on platform pricing. up from just 40% last quarter. New customer wins, like Hachijuni Nagano Bank in Japan, who selected Encino for consumer lending, and a growth-focused development finance institution in Germany that selected Encino for commercial lending, are the latest proof points that our unified platform and AI capabilities are resonating on a global basis. Encino's deep banking domain expertise and market-leading product innovation and AI capabilities were clear differentiators against local market competitors, horizontal workflow vendors, and potential internal build options in these recent international sales cycles. These attributes have also been clear differentiators for other customers around the world that are reinforcing their commitment to the Encino platform in the form of expanded and renewed commitments for the next phase of technology and operational transformation. The breadth and depth of our unique platform gives us the confidence to land with any solution and expand across our full suite as our customers' needs grow. This is especially true in the community and regional bank and credit union markets where centralized decision-making frequently allows us to sell multiple solutions or the entire platform to a single buyer. The second quarter was no exception in demonstrating this point. A regional bank with over $15 billion in assets expanded its adoption of Encino from commercial lending and treasury management to now include consumer lending. A Seattle-based credit union and portfolio analytics customer since 2014 expanded their commitment to the Encino platform in a major way by adding commercial and small business lending plus commercial account opening. The Community Bank of the Northeast expanded their Encino adoption from commercial and consumer lending and account opening to also include mortgage, and a credit union with almost $5 billion in assets became a seven-figure ACV customer through an expansion of their existing mortgage deployment to support their strategic growth objectives. Despite these mortgage wins with depository financial institutions, the higher for longer mortgage rate environment is pressuring the independent mortgage bank market and driving incremental M&A. While the rate environment remains a headwind to the U.S. mortgage industry, we continue to focus on expanding our market share by adding logos with a market-leading AI-powered experience. To that end, we were pleased to welcome back an IMB customer that left in August 2024 for a less expensive solution. Reliability issues and a cumbersome borrower experience with that solution, along with pushback from their own sales team about losing potential borrowers, brought them back to Encino. Customers and prospects recognize that Encino has been investing in AI, rapidly evolving and advancing our business model, and leading the industry by aggressively incorporating intelligent and AI capabilities into our solutions with measurable results. As an example, one of our U.S. enterprise customers estimates they can save 160,000 hours annually by utilizing our locate and file functionality, which is just one of our banking advisor capabilities. When extrapolated by about $35 per hour to approximate median loan officer compensation, according to the Bureau of Labor Statistics, that yields annual savings of over $5.5 million. Again, that level of savings is from using just one banking advisor capability. Proof points like this are motivating customers to transition our platform pricing model to gain access to Encino's agentic solutions and other AI initiatives. At the end of the second quarter, over 230 customers have already purchased AI intelligence units. We are no longer trying to convince prospective customers that we can lead the transition to agentic AI-powered banking. We're doing it. and the energy and momentum we are seeing in customer and prospect conversations around the globe reflects that conviction. I mentioned during our first quarter earnings call that some customers were beginning to reach the limits of their initial intelligence unit bundles. We have recently begun monetizing the sale of additional intelligence units as clients come back for more, which is really exciting to see and a strong signal of engagement with our banking advisor capabilities. Our focus for the foreseeable future will remain on driving long-term sustainable AI adoption over near-term subscription revenues growth. So we do not expect this early additional monetization to materially impact our financial results in fiscal 27. However, the adoption trends and consumption trajectory we're seeing give us increasing confidence that intelligence unit consumption through the adoption of our AI capabilities will be a material driver of subscription revenues growth for years to come. You may recall us referencing continuous credit monitoring, or CCM for short, which is one of our banking advisor capabilities currently driving a meaningful amount of intelligence unit consumption. CCM is a great example of how Encino leverages LLMs where they excel and add value. In this case, powering a natural language chat experience paired with our own proprietary predictive models, algorithms, and data. Rather than having credit teams manually review a commercial portfolio on a quarterly, semi-annual, or annual basis, Encino's continuous credit monitoring can assess more than 40 credit and operational indicators on a daily basis. and can identify the loans that warrant attention, create the necessary documentation to review and help guide the next appropriate actions. This functionality gives relationship managers and credit teams the ability to focus their time on issues requiring careful judgment while giving senior leaders a current portfolio level view of risk and the ability to drill into underlying exposures and detail. What's important to understand here is that this is not simply an LLM layered onto a bank or credit union's data. Banking requires reliable, traceable, auditable, and governed outcomes. While we use LLMs to summarize and understand intent across multiple data sources, the core of our continuous credit monitoring's functionality is guided by Encino's internally developed, purpose-built, deterministic models and algorithms. We use these to consistently apply the same defined rules because a financial institution must be able to reproduce, explain, and defend how every single credit decision was made and how every process was executed. We believe the continuous credit monitoring functionality will be a meaningful medium-term driver of intelligence unit consumption. That's because this isn't just a simple chat interaction. It is performing ongoing, highly complex multi-step processes across critical banking activities. This is software that is actually doing the work of a bank or credit union employee, not just helping that employee do the work. The combination of our unique operational data, deep banking expertise, and tested governance and security infrastructure is what enables Cino to deliver this kind of outcome to our customers in a way that simply cannot be replicated by adding non-deterministic LLM on top of core banking data. I have yet to hear a C-level executive at a financial institution express a desire to automate their business processes on public cloud data. Conversely, they are as excited about offerings like CCM as we are, and I look forward to updating you on its progress over the coming course. Based on the conversations we are having with customers and prospects, we believe financial institutions of all sizes around the world are gaining a better and more clear understanding and appreciation of the uniqueness, value, and differentiation Encino's AI technology provides, which we believe has been a significant driver of the sales momentum we have seen over the past year and continue to see in our sales pipeline today. The pace of product innovation Encino is realizing today would not have been possible a few years ago. Through our own initiatives and our internal team's use of AI, we are seeing tighter alignment across product development, engineering, and professional services, allowing us to learn from FDE engagements and customer deployments and incorporate those lessons back into the platform more quickly. It's also great to see that we are attracting extremely strong technical and banking talent that wants to join Encino to help define, build, and deploy the next generation of financial services technology. Attracting and retaining talent is a strategic and stated top priority for the company. We remain laser focused on execution and continue to make strong progress against the strategy and growth levers We've highlighted over the past year and a half. We continue to focus on what we can control and are energized by the accelerated subscription revenues growth we are seeing in the business outside of U.S. mortgage. In summary, our business is strong and continues to gain momentum. We continue to see customers up and down the asset size spectrum, renew early, and expand their use of our AI technology. and our sales pipelines are healthy and diversified across segments, solutions, and geographies.