nCino, Inc. (NCNO) Q4 2022 Earnings Call Transcript

nCino, Inc. (NCNO) Q4 2022 Earnings Call Transcript
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nCino, Inc. ( NCNO -4.70% )
Q4 2022 Earnings Call
Mar 31, 2022, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to nCino’s fourth quarter and full year fiscal 2022 earnings call. [Operator instructions] It is now my pleasure to introduce Brittany Riley, investor relations.

Brittany RileyInvestor Relations

Good afternoon, and welcome to nCino’s fourth quarter and full year fiscal 2022 earnings call. With me on today’s call are Pierre Naude, nCino’s chief executive officer; David Rudow, chief financial officer; and Josh Glover, president and chief revenue officer. During the course of this conference call, we will make forward-looking statements regarding trends, strategies and the anticipated performance of our business, including, without limitation, the acquisition and integration of SimpleNexus. 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, including those related to the impacts of COVID-19 on our business, the financial services industry and global and economic conditions.

nCino disclaims any obligation to update or revise any forward-looking statements. Further, on today’s call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics can be found in today’s earnings release, which is available on our website and as an exhibit to the Form 8-K furnished with the SEC just before this call. With that, I will now turn the call over to Pierre.

Pierre NaudeChief Executive Officer

Good afternoon and thank you for joining us today to discuss our fourth quarter and full year fiscal 2022 results. I’m glad to be here today to share with you the success we achieved in fiscal year ’22 and how we are thinking about fiscal ’23 and beyond. We had a tremendous year. We achieved $274 million in total revenues in fiscal year 2022, an increase of 34% over fiscal ’21.

Our fourth quarter was especially strong with some significant wins in our core nCino business. Shortly before this call, we issued a press release announcing one of those key wins, a new expansion deal with Wells Fargo, one of the big four banks in the U.S. As you recall, we first signed Wells Fargo for commercial lending in the second quarter of fiscal ’22. That project has kicked off and is going well.

So well, in fact, that during the fourth quarter, Wells Fargo signed another deal with us to expand the nCino Bank operating system into their consumer and small business bank for small business lending. We are extremely proud of our partnership with Wells Fargo, and they’re trusting our team and our platform to further enable their future growth. Our international footprint also grew in the fourth quarter as we continue to execute on our vision of being the worldwide leader in cloud banking. Josh will touch on specifics of our international business shortly, but it was a strong year as we planted the nCino flag in numerous new markets from Germany to Japan, to France, to Spain, to South Africa, while continuing to grow our more mature international markets, such as Canada and the U.K.

Another major highlight for us in the fourth quarter was completing our acquisition of SimpleNexus, a leading cloud-based mobile-first homeownership software company. I want to thank all of our teams involved for their hard work and efforts to get this deal done before our fiscal year-end. This acquisition is an important element of our strategy as we continue to drive digital transformation across the financial services industry. So I want to take a minute to share some statistics with you on SimpleNexus and the opportunity we see for this business.

Today, SimpleNexus serves more than 45,000 loan originators at more than 300 independent mortgage banks and over 100 banks and credit unions nationwide. We expect the number of banks and credit unions using our SimpleNexus software to continue increasing in fiscal ’23 as we work to aggressively cross-sell this transformative solution within our existing nCino customer base. To capitalize on this opportunity, our nCino and SimpleNexus sales teams have established lead sharing and referral programs. And these programs are starting to gain traction.

As a reminder, SimpleNexus has a per seat subscription-based revenue model similar to nCino, enabling the company to generate financial results that are more predictable, recurring and not based on mortgage transaction volumes. You’ve heard me say before that one out of every seven mortgage loans originated in the U.S. in 2021 was processed through SimpleNexus. This equated to more than $500 billion in mortgage loans.

This is a powerful statistic. And as we look ahead, there are several key trends in the industry that we can leverage to continue driving growth for our SimpleNexus business. First, as I shift to a purchase market. After years of record home refinance activity, the industry expects refis to decrease significantly this year as inventories increase.

However, the demand for home purchases continue to grow. According to Fannie Mae’s March forecast, purchase mortgage volume for 2022 is estimated at $1.9 trillion, approximately 4.5%, above mortgage purchase volumes in 2021. We believe SimpleNexus is particularly well suited for the purchase market as their mobile-first application connects realtors, borrowers and loan officers, all in the same platform. Loan officers utilizing SimpleNexus will find it easier to share and provide referrals with the third parties involved in a home purchase.

As demand for new homes continues to increase, we see opportunities for continued growth and differentiation in this segment. Second, demand for electronic closings has increased significantly since the start of the pandemic. As with nearly every aspect of our financial lives, consumers want to be able to complete transactions digitally, without having to meet face to face or visit a branch in person. With Nexus closing, SimpleNexus e-closing platform, borrowers and lenders have access to a modern fully integrated closing solution that supports traditional, hybrid and fully digital closings from electronic documentation, upload to remote online notarization.

Finally, a third key trend we see is the expansion of the Hispanic homeownership market. A recent study from the Urban Institute Forecast that Hispanic buyers will comprise 70% of home ownership growth from 2020 to 2040, serving as the growth engine of American home buying. There is an incredible opportunity to help this traditionally underserved and growing market. In response, during the fourth quarter of fiscal 2022, SimpleNexus launched Nexus Bilingual, a new feature that makes the loan process more accessible to prospective Spanish-speaking homebuyers.

We see these three key trends as tailwinds for us in fiscal ’23 and beyond. And with our SimpleNexus best-in-class, mobile-first product suite, we can support all of the people, systems and stages of the homeownership process with a seamless, cloud-native end-to-end solution. Julie Sweet, the CEO of Accenture, one of nCino’s largest and longest-standing SI partners was recently quoted as saying, cloud is the enabler, data is the driver and then AI will be the differentiator. I could not agree more.

We are uniquely positioned to be the premier cloud software provider for financial institutions of all sizes all around the globe. We have a fantastic opportunity to drive digital transformation, including by leveraging data and AI through our nIQ offerings into every corner of every community, regional and enterprise bank, challenger bank, credit union and independent mortgage bank. And we’ve just barely scratched the surface. We are excited that this company which we started 10 years ago here in Wilmington, North Carolina, is now a global company approaching $400 million in annual revenues in fiscal ’23.

I’m incredibly proud of our team and believe the best is yet to come. And with that, I’ll turn it over to Josh.

Josh GloverPresident and Chief Revenue Officer

Thank you, Pierre. It’s great to be on with you today, and I’m excited about the strong results of our fourth quarter and fiscal year 2022. Before I dive into the specifics, I’d like to remind everyone that nCino’s growth strategy is based on four key pillars: Continued expansion of our market-leading commercial banking solution, international expansion, nIQ, and growth of our retail and consumer products, including SimpleNexus. I want to highlight a few notable wins within each of these pillars that help drive our strong financial performance in the fourth quarter and full fiscal year.

Starting with commercial banking. In the fourth quarter, we saw some of our largest enterprise clients increasing their commitments to nCino and to lending transformation with multiyear renewals. One customer, a U.S. enterprise bank with over $150 billion in assets, nearly double their financial commitment and a top 10 U.S.

bank expanded their nCino deployment into their largest commercial segments while simultaneously adopting nIQ auto spreading. As we enter newer markets and geographies, we generally lead with commercial, and we saw that strategy continue to pay off in fiscal ’22. For example, our team in Canada had a fantastic year despite continued lockdowns. You may remember that during the first quarter, we announced the top five Canadian bank had joined an already solid Canadian customer base by partnering with nCino.

Also, during the fourth quarter, we announced CIBC as an nCino customer. I’m quite proud to announce that during the fourth quarter, in addition to CIBC, we also signed another top five Canadian bank. That was the third top five Canadian bank we signed during fiscal year ’22. Today, five of the top seven largest financial institutions in Canada are nCino customers.

nCino is the market-leading commercial banking software platform in Canada. We deeply appreciate these Canadian institutions trusting us. We are laser-focused on making each of these customers successful. And on that momentum, we’ll continue to focus on growing our Canadian customer base with other solutions such as retail lending, small business lending and nIQ.

Turning to other areas of our international business. Last quarter, you may recall, we announced Kiraboshi Bank as our first customer in Japan. I’m pleased to note that our momentum in the strategic market continued as we ended the year with not one, but three logos in Japan. Continuing with APAC, you may have seen that Kiwibank, the largest New Zealand-owned bank, recently announced that they are partnering with nCino for their lending origination platform.

Kiwi has made technology investment and strategic priorities to improve scalability for their future growth and will be working with nCino to support the delivery of their digital transformation efforts. We are excited to announce our first customer in South Africa, as well as signing expanded use cases with existing EMEA-based customers. One EMEA customer we are incredibly proud to partner with in fiscal year ’22 is Natixis corporate and investment banking. You may have seen our press release yesterday announcing our partnership with Natixis CIB, a leading global financial institution.

Natixis CIB is part of the global financial services division of Group BPCE, the second largest banking group in France. Natixis CIB is now live on nCino using our platform to speed up its credit journeys, improve efficiency, and deliver intelligence into the financial analysis process with nIQ Automated Spreading. Natixis CIB will also use nCino’s corporate banking solution to eliminate manual processes and automate repeatable tasks for seamless collaboration across deal teams and faster credit decisioning. We also recently announced our new nCino entities in France and Spain.

Along with our entity in Germany and our main EMEA office hub in London, this additional local presence demonstrates our commitment to these local markets and will enable nCino to further strengthen our teams, grow brand awareness and accelerate the digital transformation of financial institutions across the continent. Turning to nIQ. nCino currently has three key solutions under the nIQ umbrella: Portfolio analytics, automated spreading, which you’ve already heard us discuss today, and our newest solution, commercial pricing and profitability. adoption across all three solutions continues to increase, demonstrating how nIQ truly is the differentiator for financial institutions as they evolve to meet the changing needs of the consumer and grow their banking relationships in the digital era.

One highlight I’d like to comment on is the continued maturation of our commercial pricing and profitability solution. We first launched that solution to early adopters in the fall of calendar year 2021. Today, we have several customers who are live in using the solution including Huntingdon Valley Bank. This Pennsylvania-based community bank has been an nCino commercial lending customer for several years.

I was excited to expand to our commercial pricing and profitability solution and gain additional efficiencies from the single platform approach. As Hugh Connelly, the bank’s EVP and chief lending officer stated, implementing nCino’s commercial pricing and profitability has been one of the very best projects I’ve worked on at HVB. Along with nCino’s commercial and small business solutions, these industry-leading features will streamline our employees’ work and our clients’ financial lives. One of our platforms differentiators is that it scales from a community bank all the way to the largest banks in the world.

You heard Pierre speak about Wells Fargo earlier. This significant small business add-on was secured only two quarters after their original commercial banking commitment with us. This expansion is a tremendous testament to our platform, our team and the power of the nCino partner ecosystem. We look forward to a deepened partnership with the Wells Fargo team.

In addition to Wells, a U.S. enterprise bank with over $100 billion in assets also expanded its use of nCino during the fourth quarter. This longtime nCino commercial lending customer signed an expansion deal for nCino’s deposit account opening solution. Deposit account opening is a key part of our consumer retail strategy, our fourth growth pillar, as is retail lending.

We continue to make progress with our retail lending solution. During the fourth quarter, we signed several new community banks, and we look forward to sharing more about these customers once they’re live on the solution. Note that in fiscal year ’22, nCino increased the number of customers using our U.S. retail lending and deposit account opening solutions by 37% and 46%, respectively.

SimpleNexus is also an important part of our consumer and retail strategy. Pierre spoke in detail about the opportunity with our SimpleNexus business, and I want to echo that sentiment. I’ve had the privilege of spending time with our leaders and colleagues at SimpleNexus over the last few months and are more excited than ever about the opportunity ahead. I met with joint customers.

I’ve seen the products in action. I’ve downloaded the app on my phone, and I truly believe that SimpleNexus is delivering the best mortgage technology experience in the industries today. Their mobile-first single sign-on cloud-based platform is a huge advantage for their customers. And our SimpleNexus teammates are continuing to innovate with newer product features and offerings to more deeply connect to all participants in the homeownership process through a streamlined experience.

I want to thank all of nCino’s employees for their hard work and execution in the fourth quarter to ensure a solid finish to the year and for a strong start to fiscal ’23. And with that, I’ll turn it over to David to tell you more about the numbers. David?

David RudowChief Financial Officer

Thank you, Josh, and thanks, everyone, for joining us this afternoon to review our fourth quarter and fiscal 2022 financial results. Please note that all numbers referenced in my remarks are on a non-GAAP basis, unless otherwise stated. A reconciliation to comparable GAAP metrics can be found on 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. We are very pleased with our fourth quarter and fiscal ’22 results.

Total revenues for the fourth quarter of fiscal 2022 were $75 million, an increase of 32% year over year. Fiscal ’22 total revenues were $273.9 million, up 34% year over year. Subscription revenues for the fourth quarter were $62.8 million, an increase of 40% year over year, representing 84% of total revenues. Fiscal year subscription revenues were $224.9 million, an increase of 38% year over year, representing 82% of total revenues.

Full year subscription revenues included $18.5 million of PPP revenues. Total revenues and subscription revenues from SimpleNexus kkkwere approximately $3.9 million and $3.7 million, respectively from their acquisition close date of January 7, 2022 through the end of the quarter. Professional services revenues were $12.2 million in the quarter, growing 5% year over year as we continue driving more professional services business to our partners. Fiscal year 2022 professional services revenues were $49 million, an increase of 17% year over year.

Non-U.S. revenues were $12 million or 16% of total revenues in the fourth quarter, up 54% year over year. For the full year, 16% of revenues came from outside the U.S., an increase from 11% last year. International subscription revenues more than doubled both in the fourth quarter and for the full year.

As a reminder, our international strategy includes leveraging our partner ecosystem for professional services. Non-GAAP gross profit for the fourth quarter of fiscal 2022 was $46.7 million, an increase of 38% year over year. Non-GAAP gross margin was 62% compared to 60% in the fourth quarter of fiscal ’21. Our gross margins continue to improve largely from subscription product mix as enterprise and international customers comprise more of our revenues, as well as subscription becoming a larger contributor to total revenues.

Non-GAAP operating loss for the fourth quarter of fiscal ’22 was $8.3 million compared with $7.5 million in the fourth quarter of fiscal ’21. Our non-GAAP operating margin for the fourth quarter improved to negative 11% compared with negative 13% in the fourth quarter of fiscal ’21. Non-GAAP net loss attributable to nCino for the fourth quarter of fiscal ’22 was $9.3 million or $0.09 per share compared to $5.6 million or $0.06 per share in the fourth quarter of fiscal ’21. For fiscal 2022, non-GAAP operating loss was $17.6 million compared with $14.2 million in fiscal year ’21.

Our non-GAAP operating margin for fiscal year ’22 improved to negative 6% compared to negative 7% in fiscal ’21. Non-GAAP net loss attributable to nCino for fiscal ’22 was $19.5 million or $0.20 per share compared to $11.7 million or $0.13 per share in fiscal ’21. Our remaining performance obligation, or RPO, increased to $912 million as of January 31, 2022, up 52% over $601 million as of January 31, 2021, with $538 million in the less than 24-month category, up 49% from $361 million as of January 31, 2021. SimpleNexus contributed $54 million to RPO, with $51 million of that amount expected to be recognized in the next 24 months.

Turning to cash. After funding the SimpleNexus acquisition, we ended the quarter with cash and cash equivalents of $88 million. Net cash used in operating activities was $21.1 million compared to $11.9 million in the fourth quarter of fiscal 2021. Capital expenditures were $1.8 million in the quarter resulting in negative free cash flow of $22.9 million for the fourth quarter of fiscal ’22.

As a reminder, Q4 is our strongest billing quarter, which should generate greater cash collections in the first and second quarters. For the full year, we reported cash used in operations of $19.2 million and capital expenditures of $5.5 million, resulting in negative free cash flow of $24.7 million. We ended fiscal ’22 with over 1,750 customers, including those obtained through the acquisition of SimpleNexus, up from over 1,260 at the end of fiscal 2021. Of our nCino bank operating system customers, 271 contributed greater than $100,000 to fiscal ’22 subscription revenues, an increase from 224 in fiscal ’21.

Of these 271 customers, 47 contributed more than $1 million to fiscal ’22 subscription revenues, compared to 36 at the end of the prior year. Our subscription revenue retention rate for fiscal ’22 was 133%, down from 155% in fiscal ’21 as our sales in fiscal ’21 were largely PPP upsells to existing customers with revenues activating much faster than typical for our business. This year’s retention rate excludes any impact from SimpleNexus as they were not part of our prior year results. We saw a return to more balanced bookings this fiscal year with a healthy mix of new customer and expansion deals, including those mentioned earlier by Josh.

Our churn rate, including PPP contracts that concluded in the fiscal year, remained in line with our historical average of 2% to 3% of annualized subscription revenue. Now, turning to guidance. For the first quarter, we expect total revenues of $91 million to $92 million, with subscription revenues of $77 million to $78 million. Regarding SimpleNexus’ contribution, we intend to manage and guide to total company results in the future.

However, for the balance of fiscal ’23, we plan to discuss organic and combined subscription revenues for easier comparability. This guidance assumes year-over-year subscription growth of 52% in the midpoint of our range with approximately 27% organic subscription growth for the first quarter. Non-GAAP operating loss is expected to be approximately $7.5 million to $8.5 million and non-GAAP net loss attributable to nCino per share of $0.07 to $0.08 for the first quarter. This is based on a weighted average of approximately 110 million basic shares outstanding.

For fiscal year 2023, we expect total revenues of $398 million to $400 million with subscription revenues of $340 million to $342 million. This full year guidance assumes year-over-year subscription growth of 52% at the midpoint of our range with approximately 27% organic subscription growth. Please note that our guidance assumes a little over $7 million of annualized subscription revenues from PPP will churn in the first and second quarters of fiscal ’23, which does present some headwinds to organic growth rate. We expect non-GAAP operating loss for fiscal ’23 to be $33.5 million to $35.5 million.

We expect SimpleNexus will represent close to half of this non-GAAP operating loss which includes certain onetime integration costs. Non-GAAP net loss attributable to nCino per share is expected to be $0.31 to $0.32 based on a weighted average of approximately 111.5 million basic shares outstanding. We expect negative cash from operations in fiscal ’23 and to incur capital expenditures of approximately $15 million as we expand our facilities. Our increased use of cash relative to fiscal ’22 reflects the positive view of the global market opportunity for both our core nCino and SimpleNexus business.

Given these investments on our growing base of subscription revenues, we do expect to achieve non-GAAP operating income profitability and positive free cash flow in fiscal ’24. In summary, the strong fourth quarter and fiscal ’22 financial performance is a credit to the hard work of the nCino team around the world that is passionately focused on making our customers successful. I truly appreciate all your efforts, as well as your continued enthusiasm for the opportunities ahead. And with that, we will now open the line for questions.

Questions & Answers:

Operator

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

Terry TillmanTruist Securities — Analyst

Yeah. Hey, good afternoon and congrats on the more normalized bookings, as you said, David, and congrats on the fourth quarter strength on new business. If I knew the lyrics to Oh, Canada, I guess I would sing it, but maybe thank goodness for everybody involved, I don’t know the lyrics. I had two questions.

The first question is a multipart question. The second one will be simpler. But first, on the first question, I don’t know if this is for Pierre or Josh, but SimpleNexus recently had a customer event, I think, on Utah. What kind of energy did you see from that? And where do you see potentially some of the earliest low-hanging fruit in terms of revenue synergies? And then I had a follow-up to that first question.

Josh GloverPresident and Chief Revenue Officer

Hey, Terry, it’s Josh. It’s nice to speak with you today. It’s been a lot of fun to get to work with the SimpleNexus team now that we’re past the acquisition. We have been at their user event.

We’ve spent some time with them at industry events. And the first thing that I’ve taken away from that is just a deep respect for the expertise they have in the mortgage space, and for the great relationships that they have with their customers. Relative to synergies, what we see from our customers is a real appreciation for the combination of SimpleNexus mortgage expertise and then the 10 years of focus that nCino has had on more traditional banking because the loan doesn’t equal a loan. So bringing those together is something that’s really resonated nicely with our customers.

We see a lot of folks who are very interested in simplifying their management landscape. It sounds like a simple thing. But to these customers, it really does matter. They’re excited to see our solutions integrate.

And as we go into our existing customer base, where I feel like the most initial revenue synergies are, the great relationships that we have that we’ve built by taking care of our customers and accelerating their conversations. I am excited that today, we actually signed our first cross-sell of SimpleNexus into nCino customer. That was on the back of years of great relationship with that customer and our goal is to do more of those.

Terry TillmanTruist Securities — Analyst

That’s a great data point. Thanks for that, Josh. I guess the second part of this first question was related to, we did hear, I guess, or see in the text in the press release on consumer included on the Wells Fargo win. And then, I think you talked about the $100 billion plus enterprise bank on new deposit account opening.

And then, we got the data points on year-over-year growth for both of those. I guess for Pierre or Josh, are we — as we think about new bookings in FY ’23, is there a tipping point potentially on your larger enterprise banks around retail and consumer? Or is that still potentially more in the offing? And then I had a quick one for David. Thanks.

Josh GloverPresident and Chief Revenue Officer

We were excited to make that announcement about Wells Fargo. Two quarters ago, we announced our relationship with the commercial bank and the expansion into the small business use case within their consumer and small business bank is something that we’re obviously really proud of because we’re executing well. So we do see nice momentum as evidenced by the growth in retail. And if you play out the goal for the single platform, I would point to Armstrong Bank.

That’s a $3 billion bank in Oklahoma. We put out a press release during the fourth quarter. They contracted for a commercial, for small business, for retail lending and for deposit account opening because they don’t want to give their customers a disparate experience across those various products and that’s the vision we’ll continue pursuing.

Terry TillmanTruist Securities — Analyst

That’s great. I’ll stop after this, I promise. David, in terms of the color on the first half headwinds are more notable on organic growth. The full year is also 27%.

I know you’re not guiding to like 4Q but is there the sense that by 4Q and just based on bookings activations, your organic growth could be picking up a little bit as you’re kind of ending the year thank you.

David RudowChief Financial Officer

Yes, that’s great. Thanks, Terry. Yes, so 27% in Q1, we expect a slight moderation into Q2, some improvement in the Q3 and then further improvement into Q4. So that’s the way that we — as we see today that we would expect revenues to flow.

Terry TillmanTruist Securities — Analyst

That’s great. Congrats.

David RudowChief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Brad Sills with BoA Securities.

Brad SillsBank of America Merrill Lynch — Analyst

Oh, great. Thanks, guys, for taking my question. Congratulations on a nice end of the fiscal year. I wanted to ask about just the general environment, Pierre.

We’ve got a rising interest rate environment here, which should be a positive for banks. Yet, we’ve got the threat of potential recession here with the war and the cost of oil, inflation, etc. Just curious, what are you hearing from CIOs of banks in terms of willingness to spend a digital transformation overall?

Pierre NaudeChief Executive Officer

Yes. Great question because as you mentioned there, rising interest rates is good for bank profitability. We actually see an acceleration of digital transformation kicked off by the whole pandemic. I don’t see that slowing down at all.

We actually see additional initiatives around the world. I would say Europe is leading with ESG. We’ve got a solution team there building out and working on it. We have actually moved one of our most senior people into a leading role for ESG because we not only see the company internally having an ESG program is important, but actually building a solution.

Because if you think about it, banks in the future will be judged and evaluated based on their portfolio and how that compares to the ESG goals. And what we can tell you is that as we speak to banks about it, how many of them have an interest in codeveloping with us what those metrics and models and frameworks will look like, nCino is the ideal tool to do that because of — we have all the data around every loan, what segment, what customer, etc. And for instance, if you make a loan to British Petroleum, which is an oil company, but it’s for windmills, that will become a green loan, OK? And so we have that portfolio of knowledge. We can report on those, which will be tremendously helpful.

So I would tell you, overall, we see a very positive environment, and we’re optimistic about the future.

Brad SillsBank of America Merrill Lynch — Analyst

Great to hear. Thanks, Pierre. And then, one for David, please, on just the comments on the PPP churn. Is that onetime in your view, the $7 million that you mentioned in Q1, Q2? Just any color on that and just kind of the outlook going forward.

Thanks, again.

David RudowChief Financial Officer

Yes. So on PPP, we expect in the first and second quarter to see that $7 million churn. We’re also being negatively impacted from PPP. The fact that we had three quarters in fiscal ’21 where we didn’t have any bookings that those seats are not activating now.

And then, also, we are redeploying those seats. We had $18.5 million in PPP. We expect to churn out $7 million. And so, the rest of those stay with the customers and/or are being repurposed elsewhere.

And so, that’s how we view the year for PPP. And that’s it.

Pierre NaudeChief Executive Officer

Yes. And I just want to emphasize, when we repurpose a seat, that essentially is a zero growth rate, OK? And so that does create a difficult compare for the year-over-year growth rate. We still like to redeploy them, even though that’s the impact. But finally, we’ll come to an end of this in the second quarter.

Brad SillsBank of America Merrill Lynch — Analyst

Understood. Thanks, guys.

Operator

Thank you. And our next question comes from the line of Saket Kalia from Barclays.

Saket KaliaBarclays — Analyst

Hey, guys. Thanks for taking my questions here. Josh, maybe just to start with you. Can you just go one level deeper into the expansion at Wells Fargo? Congratulations, first of all.

But maybe more broadly, as you look at the rest of your base where we’re clearly — we’re leading with commercial, how big is that opportunity to sort of land and expand with commercial and then expand into small business lending, like what you did here with Wells?

Josh GloverPresident and Chief Revenue Officer

Hi, Saket. Nice to speak with you. Look, we’re always going to pursue that. We do have situations where we had our entry point to a large bank be through small business and then on that success, we’ll expand to commercial.

So the goal for all these accounts is to tell them the story about the incremental value they can provide to their customers with a single platform. And across the whole market, we’re going to pursue that.

Saket KaliaBarclays — Analyst

Got it. Got it. David, maybe a few for my follow-up, and you touched on this a little bit in the prepared remarks, but just to flesh it out, can you just walk through the SimpleNexus margin impact this year? I think you talked about maybe some onetime investment there as well. And then, just zooming out on that topic, maybe just talk about sort of the path to profitability more broadly.

David RudowChief Financial Officer

Yes, that’s great. Yes. So on the loss for fiscal ’23, about half of that loss is SimpleNexus-related. We’ve done a big hiring.

We’ve tripled the sales force at SimpleNexus. So that’s annualizing this year, we’ve added to the product team as well. And so, about half of that is around — half of that loss for the full year is around those headcounts adds. And we also have some integration costs as well, but that’s smaller numbers.

The balance of that loss on the consolidated loss is really around some of the salary adjustments we’re making, like you see from many companies out there just to be more in line with the marketplace. And so, that’s our view on the cost side. We are committed to being operating income positive in fiscal ’24 and free cash flow positive. We have great visibility in the model.

We’ve got the headcount plans in place, and we are committed to doing that in fiscal ’24.

Saket KaliaBarclays — Analyst

Very helpful. Thanks, guys.

David RudowChief Financial Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Brent Bracelin with Piper Sandler.

Brent BracelinPiper Sandler — Analyst

Good afternoon. Maybe I’ll start with you, Pierre, here. Encouraged to see some of these renewals and the opportunity to two x the renewals you talked about a little bit. How do we think about the opportunity to expand existing customers? You have, obviously, it sounds like pretty good traction now with nIQ, SimpleNexus, further kind of expansion into retail.

If you looked in the installed base, how much room do you have left to expand just with existing customers? Thanks.

Pierre NaudeChief Executive Officer

Yes. We have a tremendous opportunity, because as I explained to you in the past, when we look at our client banks or our customers, we only have about a 12% to 14% coverage of the overall seats, OK? So theoretically, you’ve got 86% left of that bank. Now, with the addition of SimpleNexus, we can literally take that as an entry point on retail. As you heard earlier with Wells Fargo, we went into the retail side of the bank, but it’s for a small business use case, OK? So we are just creating multiple points.

You heard a $100 billion bank on deposit account opening, so we are much more nimble in attacking the other side of the bank as we go forward. And I’m very optimistic that this platform vision is playing out. We’ve built a tremendous brand in banking that we deliver what we say we’re going to deliver, and we actually provide quality software. And earlier today, in a debrief with the SimpleNexus team, they are beginning to see now an unprecedented level of larger institutions in their pipelines.

So we are optimistic on all fronts of the business.

Brent BracelinPiper Sandler — Analyst

Helpful color. And then, David, for you, as we drill down into the nIQ opportunity specifically, how should we think about the three products and the economics around those three products, portfolio analytics, commercial pricing? Are those a 10% potential uplift to $1 — for every dollar of commercial spend? Is it a 20% uplift? Just trying to frame what the uplift from nIQ across those three products could be? Thanks.

David RudowChief Financial Officer

Yes. Thanks, Brent. Yes, we’re very excited about our nIQ products. With the PA product on the CECL side.

We’ve seen great traction on auto spreading and commercial pricing, new product where we’ve had some great interest and actually customer went live on that. We would expect nIQ as a whole to contribute about 20% of ACV of any given customer.

Brent BracelinPiper Sandler — Analyst

Helpful color. That’s all I had. Thanks.

Operator

Thank you. And our next question comes from the line of Ken Suchoski with Autonomous Research.

Ken SuchoskiAutonomous Research — Analyst

Hi, everyone. Good afternoon and thanks for taking the question. I just wanted to ask about the guidance. David, I think you mentioned that you’re expecting 27% organic subscription revenue growth for fiscal 1Q.

And then, I think for the fiscal full year, guidance also assumes 27% organic subscription revenue growth. So I’m just curious if PPP is weighing on growth in the first half of the year. Shouldn’t that lead to faster growth for the full year as you see that acceleration? So just trying to reconcile those two growth rates and also trying to understand how much conservatism is baked into that number.

David RudowChief Financial Officer

Yes. Thanks, Ken. Yes. So at 27% in Q1, we do expect it to growth — year-over-year growth to moderate in the second quarter and then improve a little in the third quarter and then further improvement in the fourth quarter.

That’s kind of the trend that we see at the moment based on our modeling. And then, the way we provide guidance is similar to as we have done in the past, we built an achievable model. SimpleNexus does add some — has less visibility to the model, and so we’ll go accounted for that in the guidance as well. For the year, we expect 52% subscription growth as a whole for the business with 27% organic growth.

Ken SuchoskiAutonomous Research — Analyst

OK, great. And then, I wanted to ask about the SimpleNexus cross-sell. I mean, can you just give us a little flavor as to what that might look like. And then, also, what kind of cross-sell figures are you penciling in for this year and next year, either from a customer standpoint and a — or a revenue standpoint.

Josh GloverPresident and Chief Revenue Officer

Absolutely. As we finalize the acquisition, enabled the team that got everyone aligned on how we would jointly position the combined nCino-SimpleNexus story to these customers, we set up referral mechanisms as evidenced by the cross-sales that I spoke about earlier. We can see those are paying off. Ultimately, this is about helping the customer understand the opportunity to transform that homeownership journey for their customer to take the manual process out and offer a fantastic experience for them.

David, would you like to address the assumptions relative to cross-sales and guidance?

David RudowChief Financial Officer

Yes. I mean, I think when we close the transaction, we did an analysis of overlapping customers. I think we assume minimal cross-sell activity, just to be as conservative as possible with the model. But we would expect, based on the early activities that we see that — we think that we’ll end up closing some of these sales we closed on earlier today.

But we’re taking a conservative view as the sales force getting to know each other and get to know the product.

Ken SuchoskiAutonomous Research — Analyst

OK. Thank you very much.

David RudowChief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from the line of Josh Beck with KeyBanc.

Josh BeckKeyBanc Capital Markets — Analyst

Thanks for taking the question. I wanted to ask also a little bit on the SimpleNexus topic. Pierre, certainly, you alluded to some of the really areas to get excited about. Certainly, there is growth in the purchase mortgage market, there is a much greater demand for really a streamlined digital mortgage front end.

So there are certainly a lot of areas to be excited about. On the flip side, you obviously have the refi market really significantly slowing down. So just kind of help us understand how you balance these market factors and maybe also address David’s point on the visibility as you kind of build out the forecast for that segment.

Pierre NaudeChief Executive Officer

Yes. Remember that, as I’ve said before, many of the players in that mortgage market are actually transaction volume-based, OK? And they pay the price for that now. SimpleNexus took a much longer view and is much more seat-based with a very, very small transactional or performance-based element. So that their revenue model is much more predictable.

We’re not seeing a negative impact because of these mortgage rates so far. I will also tell you that the quality of their software and the quality of that organization is reflecting now. We’re seeing customers coming back. We’re seeing customers signing up for them.

We’re seeing customers of a very large size that is now of an interest in SimpleNexus which they have not seen before. We are studying the impact of that and why that is happening. We believe some of that is the brand association with nCino as a banking company and our experience in scaling businesses, as well as scaling software for these large institutions. So that is to me a very positive thing.

When it comes to revenue visibility, I realize they’ve got shorter-term contracts. So we are figuring out how to extend that, No. 1. But No.

2, how to build that into forecasts, etc. They’ve got a fantastic history of net retention which gives me confidence that we’re on the right track here. We went to their conferences and actually listened to their customers. And all of that is giving us the confidence that we’ve done the right deal here.

Josh BeckKeyBanc Capital Markets — Analyst

Excellent. And maybe a follow-up question on the retention point for the total business. I believe it was 133% in fiscal ’22 on a subscription basis. David, I think you’re guiding us to kind of high 20s, if you will, organic subscription revenue guidance this year.

So when we bridge the gap between where retention was and where you’re forecasting. The subscription business, obviously, I would imagine the PPP churn is a component of that? Any other factors we should be thinking about as we kind of bridge those two metrics?

David RudowChief Financial Officer

Yes. On the 133%, I think over time, we think that’s a range that we would assume in the longer run for nCino. Now, SimpleNexus does have higher. So on a consolidated basis, you could see an elevated number from that level.

But I think 130% is a range that we’re comfortable in looking at toward the future. Now, we give an achievable number. We like to provide guidance that is well thought out and our forecasting. And so, I think that 130% net revenue retention number in the long run is a good number to target.

Pierre NaudeChief Executive Officer

And just realize, PPP inflated that retention because we didn’t sell as many new logo business in FY ’21 and FY ’22, and it was heavily cross-sell, which then inflates your net retention. And now, as our sales is back to a more normalized 50-50 for new logos, as well as cross-sell, that impacts that calculation.

Josh BeckKeyBanc Capital Markets — Analyst

Great color. Thank you, both.

Operator

Thank you. [Operator instructions] Our next question comes from the line of Bob Napoli with William Blair.

Bob NapoliWilliam Blair — Analyst

Thank you and good afternoon. And congratulations on all the progress and the customer signings. Guidance sounds good. And also, good to hear the profitability in fiscal year ’24.

The momentum in international continues to be impressive. Just maybe some color on the growth over the next several years on international? And how large can international be as a percentage of this business? What’s the pipeline — what’s the mix in the pipeline? And is the profitability — I guess, I understand the gross margins are higher with professional services being outsourced, but is the profit model for international equal to or better than North America?

David RudowChief Financial Officer

Yes. I’ll take the profitability first. I think what we’ve seen because it’s mainly larger banks, international — we see stronger pricing internationally. And so, — but the gross margins are very similar to the U.S., the large enterprise side on that side of the business.

And Josh?

Pierre NaudeChief Executive Officer

Yes. I would just add that remember, the product mix is a bit different. We resell sales force in the U.S. to small banks.

And that brings down your gross margins in the U.S. business. So actually, the European gross margins is quite a bit higher, plus the impact of the enterprise banks, as David mentioned, is better as well. So we see a very strong profitable gross margin business in Europe.

Josh GloverPresident and Chief Revenue Officer

Relative to the opportunity, we see a larger SAM in the international market than we see in the U.S. Obviously, the U.S. team had a head start, so maybe a little while until international can lap them. I’d be thrilled to see that happen, though.

If you look at what we did this last year, we more than doubled subscription revenue internationally. We announced new logos in Germany, France, South Africa, we announced three in Japan. The team is executing really well. And frankly, we’re asking them to execute in a very difficult environment relative to everything going on in the world in the last two years.

But I would ask you to look at what we’ve done in the U.S. We now have 12 of the top 25 banks. You saw our announcement with Wells Fargo two quarters ago and expansion today. Look at what we’ve done in Canada, five of the top seven financial institutions in Canada.

We signed three Toronto banks in one fiscal year. I just wanted to say it again because I’m that proud. So when I look at the rest of the globe and the markets that we’ve decided to target, that’s the goal to continue replicating that.

Bob NapoliWilliam Blair — Analyst

Great. Thank you. And just a follow-up question. The gross margin on SimpleNexus, but maybe a broader question, just on the mortgage business.

Overall, what is the product pipeline? And what do you think the growth is of mortgage? And you look at mortgage, is SimpleNexus like the first step in mortgage, is there a broader strategy around product set in the mortgage market?

Josh GloverPresident and Chief Revenue Officer

Yes. This is Josh. I really appreciate you queuing that up because this is not just about a point of sale for a mortgage application. This is about the homeownership journey.

This is about bringing the applicant into the process, allowing them to engage with the loan officer, allowing them to engage with a realtor, with an appraiser and then to go and do e-closing to roll compensation information in there. There are myriad opportunities in that homeownership journey to not only, obviously, we want to go sign new logos, we’ll keep doing that, but to go deep with the logos that we have. Which is part of why I’ve been so excited after getting to work with SimpleNexus. You see that we’re very much philosophically aligned that we want to get the customer, we’re going to get them live, but we’re going to continue investing to go broader within the value chain and also deeper in that journey.

Pierre NaudeChief Executive Officer

Yes. And I can just add to that. If you look at the mortgage market, there’s portfolio mortgages and then there is your qualified mortgages for Fannie/Freddie. We have no plans to build a product for those Fannie/Freddie mortgages.

We’ve got a very close relationship with ACE or Ellie Mae. SimpleNexus is the deepest integrated front into that platform. So we’ve got tremendous success in that market with them. We will build a complementary product for purchases, HELOCs and refis from an LOS perspective that will complement that solution.

And if you integrate that with SimpleNexus, you give the bank employee the single platform experience across all the different portfolios. And as we expand our retail offerings and do this, I think this whole platform story is a winner. And so, we see a massive opportunity overall in banking, as well as independent mortgage banks for our mortgage program.

Bob NapoliWilliam Blair — Analyst

Thank you. Appreciate the answers.

Pierre NaudeChief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from the line of Charles Nabhan with Stephens.

Charles NabhanStephens Inc. — Analyst

Hi. Good afternoon and thank you for taking my questions. So if I look at the fourth quarter revenue performance, excluding SimpleNexus. It came in a little higher than the guidance and expectations.

And I apologize if I missed this, but could you give us some color around what led to that positive variance in this quarter?

David RudowChief Financial Officer

Yes, absolutely. So in the fourth quarter, we do see add-on sales in any given quarter. And the reason for that upside is really around just add-on sales, and we had some early seat activations as well that customers requested.

Charles NabhanStephens Inc. — Analyst

Great. Appreciate the color. And one quick one on Simple Nexus. Within their revenue mix, do they have any professional services revenue? Or is it predominantly — I’m sure it’s predominantly subscription, but is there any professional services within that mix?

David RudowChief Financial Officer

Yes, they have a services team that deploys product, and it’s about 10% — 5% to 10% of total revenues.

Charles NabhanStephens Inc. — Analyst

Great. And if I could sneak in one more. I was hoping to get your perspective on the competitive environment within the core operating system business. A number of your competitors have developed products over the past few years and while you’re still an industry leader.

Just curious what you’re seeing from a competitive standpoint in the market.

Pierre NaudeChief Executive Officer

Yes. Look, you have to realize that the core process is a transaction processing engine. It’s a general ledger, it’s where you keep account balances, get statements out and calculate interest, OK? If you look at the transaction processing landscape, it includes things like ACH, wires, online banking, etc. And we, as a company, do not want to play in the movement of money or the balancing of the bank.

That’s an extremely difficult business, No. 1. No. 2, the core processes.

We have a very strong hold on there. So to try and disrupt that, I’ll just show you through some of those early or innovative companies have been acquired by the big ones. So I just don’t want to get there. We love what we do.

We’re a business process reengineering company. I believe that’s where the opportunity in banking sits today. We’ve got a global marketplace that we can transform and drive them to act like fintechs and drive them efficiency, provide them with a better compliance record, provide ESG solutions for them, make them more profitable and drive revenue. So we’re hitting all those buttons that the banks are focusing on.

And so, we will just stick to our knitting.

Charles NabhanStephens Inc. — Analyst

Great. Well, I appreciate the color. Congratulations on the quarter.

Thank you.

Operator

Thank you. And our next question comes from the line of Alex Sklar with Raymond James.

Alex SklarRaymond James — Analyst

Great. Thanks. Pierre and Josh, on the sales force investments, I’m curious what’s kind of been the ability to travel, particularly internationally for the sales organization? And with that kind of have you started to see the face-to-face meetings pick up noticeably this year and if that’s factoring at all in the profitability outlook?

Josh GloverPresident and Chief Revenue Officer

I’ll speak to what I see in the market, and David can speak to the expense assumptions. But we do see the world opening back up is becoming easier. I’ve been able to travel internationally recently, and I had about a two-inch thick binder of papers to make sure I could get across the border, that’s starting to go away. So we really look forward to getting out to markets where we haven’t been in a couple of years.

We also see a lot more in-person meetings with customers popping up, and we see a lot more people convening back at in-person events, all of which are very helpful for nCino.

Pierre NaudeChief Executive Officer

Yes. We’re excited that our Insight User Conference will be in person in beginning June, and all those personal connections. I met with banks again this week. You could literally see the energy and how they want to reengage and drive business forward.

So that’s a very positive for us. David?

David RudowChief Financial Officer

Yes. And on the cost side, it’s all embedded in guidance. What we’re seeing is there’s some return to travel. I think we ended up last year at about 30%, 35% of pre-COVID travel.

We expect that to be higher this year, but we are seeing much higher cost in airline tickets. That’s gone up. I’m sure everybody who travels is seeing that. But that’s all embedded in our guidance as well.

Alex SklarRaymond James — Analyst

OK, great. And then, it’s probably a good problem to have, but some of these large deals can kind of swing RPO pretty massively. So David, I’m curious if you can talk about if there’s any noticeable change in duration within RPO.

David RudowChief Financial Officer

Yes. I think the average RPO is still at 3.5, 3.7-year range. We did have — we had a very strong RPO quarter. We had very strong renewals as well.

And I would say the bulk of the renewals actually ended up in additional upsells. But most exciting, we had one of our larger customers sign up for another five years. Now, we have a very large bank customer that will be an nCino customer for 10 years and hopefully much longer than that as we work with them in the future.

Alex SklarRaymond James — Analyst

All right, great. Thank you.

Operator

Thank you. Your next question comes from the line of Mayank Tandon with Needham & Company.

Kyle PetersonNeedham and Company — Analyst

Hey. Good afternoon, guys. This is actually Kyle Peterson on for Mayank. Thanks for squeezing me in here.

Just wanted to touch on the mortgage outlook in SimpleNexus. I appreciate that you guys are less — at least directly exposed to origination volumes, given that it’s more of a subscription kind of proceed model. But just wanted to see if you guys have noticed any change in client demand in terms of like adding seats, given the recent spike in rates is obviously probably going to pressure at least some of these mortgage lenders and might kind of constraints some of their growth plans.

Pierre NaudeChief Executive Officer

No, we’ve not seen any notable or material impact from cancellation of seats like that. It’s a competitive market. I think the association of these two companies is driving logo growth and their technology is clearly superior. So it’s looking good for us.

Kyle PetersonNeedham and Company — Analyst

OK. That’s helpful. And then, just one quick follow-up. The professional services margins, they came in a little bit light.

Was there anything onetime there? Or was that kind of layering in the small amount of, SimpleNexus services revenue? Just want to kind of think about the best way to look at that, the gross margin on services going forward.

David RudowChief Financial Officer

Yes. No, the SimpleNexus has really had no impact in the quarter. It was more around just utilization rates that we saw in the quarter. There were a number of customers that took the last two weeks off of the year.

And that was the real reason why we noticed that was a trend that happened with a number of our customers. But beyond that that was — that’s the only thing that I can call out on the quarter.

Kyle PetersonNeedham and Company — Analyst

Great. That’s helpful. Thanks, guys.

David RudowChief Financial Officer

Thank you.

Operator

Thank you. I’m showing no further questions at this time. So with that, I’ll hand the call back over to CEO, Pierre Naude, for any closing remarks.

Pierre NaudeChief Executive Officer

Thank you, operator. In closing, I would first like to reinforce what David noted earlier, following the investments we are making this year to further position us for continued top line growth. We are committed to non-GAAP operating income profitability and positive free cash flow for fiscal ’24. I would also like to share with you my experience at our recent company kickoff.

High-performing companies need creative and motivated employees. And during our annual kickoff, I was reminded how incredibly fortunate we at nCino are. Our more than 1,650 employees from across the globe gathered virtually and in-person for a week of leadership panels and keynotes, product demos and updates, customer conversations, volunteer opportunities and my favorite, our employees’ skits. The enthusiasm, innovation, creativity and passion of our people is truly inspiring.

This innovative and passionate culture is what we pour into our products, our partnerships and our customers every single day. I would like to end this call by thanking the entire nCino team, which now includes our SimpleNexus colleagues. I’m proud to be in business with you all and excited for the year ahead. Thank you so much.

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Brittany RileyInvestor Relations

Pierre NaudeChief Executive Officer

Josh GloverPresident and Chief Revenue Officer

David RudowChief Financial Officer

Terry TillmanTruist Securities — Analyst

Brad SillsBank of America Merrill Lynch — Analyst

Saket KaliaBarclays — Analyst

Brent BracelinPiper Sandler — Analyst

Ken SuchoskiAutonomous Research — Analyst

Josh BeckKeyBanc Capital Markets — Analyst

Bob NapoliWilliam Blair — Analyst

Charles NabhanStephens Inc. — Analyst

Alex SklarRaymond James — Analyst

Kyle PetersonNeedham and Company — Analyst

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