Q4 2024 nCino Inc Earnings Call

Participants

Gregory D. Orenstein; CFO & Treasurer; nCino, Inc.

Harrison Masters; IR Executive; nCino, Inc.

Joshua L. Glover; President & Chief Revenue Officer; nCino, Inc.

Pierre Naude; Co-Founder, Chairman & CEO; nCino, Inc.

Adam R. Hotchkiss; Business Analyst; Goldman Sachs Group, Inc., Research Division

Alexander James Sklar; Senior Research Associate; Raymond James & Associates, Inc., Research Division

Alexander Wexler Markgraff; Associate ; KeyBanc Capital Markets Inc., Research Division

Cristopher David Kennedy; Research Analyst; William Blair & Company L.L.C., Research Division

J.R. Herrera

Michael Nicholas Infante; Research Associate; Morgan Stanley, Research Division

Nicholas William Altmann; Analyst; Scotiabank Global Banking and Markets, Research Division

Robert Charles Trout; Research Analyst; Macquarie Research

Terrell Frederick Tillman; Research Analyst; Truist Securities, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the nCino Fourth Quarter and Fiscal Year 2024 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.
I would like to turn the call over to Harrison Masters, Director of Investor Relations. Please go ahead.

Harrison Masters

Good afternoon, and welcome to nCino's Fourth Quarter Fiscal 2024 Earnings Call. With me on today's call are Pierre Naude, nCino's Chairman and Chief Executive Officer; Greg Orenstein, 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. 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.
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 before this call as well as the earnings presentation on our Investor Relations website at investor.ncino.com.
With that, I will now turn the call over to Pierre.

Pierre Naude

Thank you for joining us this afternoon to discuss our strong finish to a challenging year. We are very pleased to close fiscal '24 with the strongest gross sales quarter we've had in the past 10 quarters, increasing 23% over the fourth quarter of fiscal '23. We saw strength across all U.S. customer segments and from outside the U.S. as well, driving 16% subscription revenues growth for the quarter.
We believe our Q4 results reflect a return to more normal buying patterns and behavior, including from our U.S. enterprise customers, which we saw disproportionately impacted by the liquidity crisis last year. The improving churn from customers is also a positive indicator. Our confidence in the rebound, along with our expectations for lower churn this year, drives our plan for net sales in fiscal '25 to be roughly 50% higher than fiscal '24. Despite the macro headwinds, full year subscription revenues in fiscal '24 increased 19% year-over-year.
I couldn't be more proud of the solid execution of the global nCino team. Through the difficult environment, we remain focused on our customers and on product innovation, demonstrating our loyalty and commitment to them through the inevitable business cycles. Customer relationships are at the center of the nCino culture. The opportunity to expand these partnerships with new products and technology is one of the many reasons we are so excited about the road ahead.
A more normal buying cycle and the improving churn from customers follows almost 4 years of industry upheaval between COVID, an unprecedented rise in interest rates and the liquidity crisis. During this time, nCino generated a 41% subscription revenues CAGR and transformed from posting a $14 million non-GAAP operating loss in fiscal '21 to generating non-GAAP operating income of $62 million in fiscal '24.
This success reflects the value of our unique platform and strategy, which has created a durable business that can grow and be profitable in any economic environment. An obvious question is why we saw such a strong rebound in Q4 sales and the improved customer behavior. In short, interest rates stabilized, which provided customers the opportunity to focus more on moving forward to strategic investments in light of increased confidence in the business environment and greater visibility into economic trends.
Throughout fiscal '24, we discussed the strong demand we were seeing in the market, with the Federal Reserve indicating it has largely finished raising rates. We saw customers ready to close on pending deals. Even after the sales success in Q4, we entered fiscal '25 with a strong pipeline, which has helped us carry momentum into this year. Before we discuss the factors behind our optimism for the current year and beyond, I wanted to briefly review some of the highlights from the fourth quarter and from fiscal '24.
First, let's discuss mortgage. Despite the mortgage turmoil leading to unprecedented churn, full year U.S. mortgage subscription revenues grew by 14%, with Q4 being our best mortgage gross sales quarter of the year. Our success in the fourth quarter was driven largely by selling into banks and credit unions. Of the 21 new mortgage customers signed in the fourth quarter, 13 were FIs. For 12 of these customers, mortgage was the landing point for nCino with the India institution.
We again saw solid growth internationally in the fourth quarter, which we now represent 20% of total revenues. EMEA remains our largest market outside of the United States, where in the fourth quarter, we added our first enterprise bank in the Nordics, a new logo in South Africa and a new U.K. platform customer for our commercial lending, mortgage and nIQ solutions.
We also continued our momentum in Japan, announcing another Japanese customer a few weeks ago that signed with us in the fourth quarter for mortgage. We continued innovating to expand the capabilities of the platform, unlocking more wallet share opportunities in our installed base, which contributed to more multiproduct wins in the fourth quarter. Josh will cover some of these wins in more detail in his comments.
Let's turn to nIQ and AI, looking both at our progress in fiscal '24 and the accelerating opportunity we see in fiscal '25 and beyond. For nCino, AI starts with our nIQ products, which we've been developing for almost 5 years. We have seen strong traction across all 3 products currently in the nIQ portfolio. In the fourth quarter, we added our largest auto spreading deal outside of the United States, which follows signing our largest portfolio analytics deal last quarter.
nIQ demonstrated our initial success in utilizing an unmatched data assets to provide intelligence and actionable insights at the point of production across our single platform. Now we are taking the next step with banking advisers, which already has early adopters. Banking adviser leverages generative AI to further automate banking-specific tasks.
The opportunity for AI in banking can't be overstated. A recent Accenture study concluded that banks are likely to benefit more from generative AI than any other industry. To truly benefit, financial institutions need nCino's single platform to surface data at the point of production to drive the actionable insights and intelligence that differentiate the bank and improve the customer experience. Obviously, it is early in the AI life cycle, but with our unique perspective on industry demand drivers, we believe the opportunity for AI and banks is not hype. It's real.
Banking adviser and our other nIQ offerings are examples of our continued emphasis on expanding the breadth and depth of our product offerings. Since the beginning, nCino's single platform has addressed a variety of pain points, including the need to grow revenues, attract the base talent, (inaudible) demands, improve the customer experience and increase efficiency.
While the relative importance of the individual capabilities varies over time, customer feedback points to efficiency is currently the most important driver. Becoming more efficient is critical in any economic environment. It's a business input an organization can control. Of course, the importance of AI ties directly to this demand. At the same time, the continued pressure on net interest margins can only be mitigated by improved efficiency. Our single platform allows nCino to be part of the solution as FIs look to consolidate vendors and streamline operations.
As the only platform that can work with small community banks, credit unions and independent mortgage banks, all the way to the largest institutions across the globe, the value of our solution becomes more and more clear over time. The nCino platform provides commercial, small business, consumer lending including mortgage, account opening and onboarding from one trusted partner on a single platform that is embedded with AI, actionable insights, data and intelligence.
nCino helps FIs act like fintechs, leveraging the lower cost of capital with the ease of use and personalized experience consumers have come to expect from fintechs. Our new omnichannel experience for consumer lending is also in the hands of early adopters. A lesson from the liquidity crisis last year that has sunk in all too well is the need to extend relationship banking through digital channels to create a more enjoyable user experience for the consumer and to reduce costs for financial institutions.
While online banking has been around for decades and consumers' interactions with their financial institution frequently occur through an app today, middle and back-office processes for consumers have remained far from automated. The consumer-facing technology leveraged from our nCino mortgage suite creates a consistent experience for consumers across mortgage and spectrum of consumer lending products offered in today's market.
nCino omnichannel connects seamlessly to our platform through proprietary APIs, fully digitizing the process, beginning with the application. The release of this functionality is already driving significant pipeline development for both our consumer lending and mortgage solutions.
Subsequent to year-end, we took an additional step to accelerate expanding our platform capabilities with a tuck-in acquisition. Last week, we announced the acquisition of DocFox, which provides technology for commercial account opening and onboarding, including robust KYC and AML functionality. Utilizing DocFox eliminates paperwork, reducing the time required for onboarding complex commercial accounts from months to days.
The acquired technology provides complementary functionality, and again, allows us to capture greater wallet share within our installed base. I can't overemphasize the asset [delivered] by our customer base as we continue to expand the breadth and depth of our product capabilities and value proposition.
Our initial focus will be on bringing DocFox to our community bank customers, refining our go-to-market and implementation motions in this market as we usually do with new products. After demonstrating success within the community market, we'll begin targeting our entire commercial and small business customer base. Greg will review our financial outlook, but I want to note that we are trying to be prudent in our guidance despite our optimism about the improving trends.
Even with a strong finish through the year, the difficult first quarter of fiscal '24, which stemmed from the liquidity crisis, paired with the unprecedented churn that we believe peaked in the second half of last year, does create difficult compares for much of the year.
Notwithstanding our success increasing profitability, subscription revenues growth remains our primary objective. We are confident the strength of year-end sales and the improving macro trends we see puts us on track to exceed 15% subscription revenue growth in FY '26. In addition, we remain on track to achieve the Rule of 50 as highlighted during our Investor Day in September.
Before I turn the call over to Josh to review the operational highlights of the quarter, I want to speak briefly about 2 organizational changes. First, our Chief Product Officer, Matt Hansen, has informed me that following a number of professional successes, including founding SimpleNexus in 2011, integrating it with nCino following the acquisition in January 2022 and delivering exemplary results over the last 2 years leading our product development and engineering organization, he has made the decision to leave nCino to spend more quality time with his family.
We are grateful for Matt's contributions and the leadership of various change initiatives, including the launch of the omnichannel experience, monthly product releases, evolving how work is done across PD&E and the significant productivity improvements during his tenure will have an ongoing impact on our success. Mat will remain within nCino in a consulting capacity until August to help ensure a smooth transition.
Sean Desmond, currently our Chief Customer Success Officer has been named Chief Product Officer, effective May 1. Sean's extensive background in technical management and product development, his customer-centric approach and his proven ability to build meaningful relationships and lead complex organizations will help ensure the continued evolution of our solutions and our PD&E team.
Sean has been a member of nCino's executive leadership team for over 10 years, and his understanding of our business, products, customers and market needs have prepared him extremely well for this position. Sean has been a key partner and highly collaborative with Matt and PD&E leadership on the change initiatives I just referenced. His customer success organization is well developed and positioned to continue delivering best-in-class service levels to our customers.
The other organizational change, as referenced in our earnings release, is that Josh Glover, our President and Chief Revenue Officer, is leaving nCino to pursue an opportunity as President and CRO of a later-stage private company outside of the financial services industry. As most of you know, Josh was one of the earliest nCino employees and has been at my side for the past 12 years, helping to create a global profitable growth company we are today.
While I'm sorry to see him leave, we all wish him the greatest success as he pursues a new challenge and expands his professional experience beyond nCino. Josh will continue with nCino in a consulting capacity until June 30 to help ensure a smooth transition. Paul Clarkson, who has been leading global sales with Josh's organization and has deep knowledge of our business, customers and the markets we serve, has been named Executive Vice President, Global Revenue.
We're excited for Paul to take on this increased responsibility as promoting from within has long been part of nCino's success. At this time, we do not plan to fill the President role as we believe those responsibilities can be shared amongst the executive leadership team members.
With that, I will turn the call over to Josh to review some of the operational highlights from the quarter.

Joshua L. Glover

Thank you, Pierre. As I'm sure you can appreciate, I've given the decision to leave nCino a great deal of thought. It's never easy to leave a place where you've invested so much of yourself and where you so highly value the people, the friends that you work with. With a mature global go-to-market and sales organization well in place and with interest rates stabilizing and the liquidity crisis behind us, it feels like now is the right time for me to pursue a new challenge.
I will always be nCino's biggest supporter and I look forward to watching the company's continued success. I particularly look forward to watching some of my closest colleagues and friends as they step up to take on additional responsibilities and receive well-earned professional opportunities. I've enjoyed getting to know all of you over the years, and I hope to get to work with you again down the road.
With that said, let's turn to the strong Q4 results. We are very pleased with the way our sales team finished the year. Our existing customer base continues to be nCino's most strategic asset. About 60% of the business signed in the fourth quarter came from upsells and cross-sells to our existing base. We saw multiyear extensions across the entire business, with expanded commitments from 29 institutions in U.S. banking segments, in EMEA, APAC and Canada.
In the fourth quarter, we signed a 7-figure expansion agreement for small business at a top 50 U.S. bank and another for deposit account opening at a top 100 U.S. bank. Reinforcing our successful delivery of a single platform, half of the new business signed in the quarter came from solutions other than commercial lending. nIQ adoption also increased. 39% of our platform base has now adopted at least 1 nIQ solution. This is up from 30% at the end of last year.
As part of their initial commitment to nCino, an over $4 billion bank in Texas selected us for commercial, small business and consumer lending as well as commercial pricing and profitability, automated spreading and portfolio analytics. Also, an over $8 billion bank in Ohio selected nCino for commercial and small business lending as well as auto spreading and portfolio analytics.
Customers are telling us more now than ever that financial institutions need to realize efficiencies by consolidating operations and data onto a single trusted platform. With the new offerings we're bringing to the market and the acquisition of DocFox, we expect to see even deeper adoption of the single platform within our accounts. This platform is being embraced by more than just U.S. customers.
During the fourth quarter, we completed one of our largest automated spreading agreements. This is with a top 10 Canadian financial institution, Desjardins. Desjardins began their digital lending journey with nCino with small business banking that expanded to their commercial banking line of business and has now selected us for auto spreading. Also in the quarter, a top U.K. nonbank lender selected nCino as the digital lending platform across all of their core products: residential and buy-to-let mortgages, commercial loans, bridging finance and development funding.
Other notable wins outside of the U.S. included a Japanese regional bank win with The Saikyo Bank for mortgage, our first enterprise bank in the Nordics and a top 10 South African bank. Notably, in Canada, we added another 2 top 20 Canadian credit unions, and we added another top 10 Canadian bank. We now have 6 of the top 10 Canadian financial institutions on the nCino platform.
Our continued investment in the platform has become a major differentiator for us in the market. The product announcements over the last several quarters, including the launch of banking adviser, automated insights for portfolio analytics, our omnichannel experience for consumer lending and the acquisition of DocFox, revolve around 3 key innovation themes you've heard us discuss many times: automation, intelligence and experience.
As Pierre mentioned, a recent publication from Accenture concluded that banking is likely to be more profoundly impacted by generative AI than any other industry based on the potential for automation and augmentation. As of this call, we have 3 early adopters representing the U.S. enterprise, U.S. community banking segments plus an international bank using several banking adviser skills.
One of those skills is credit memo narratives, which leverages generative AI to automate the creation of a credit memo, a required and complex deliverable in every commercial loan that is used when making a lending decision. We have additional skills already in development that will be in the market later this year, bringing even more actionable intelligence to the point of production, where it can influence positive business outcomes for the financial institution.
These use cases include layering generative AI into commercial pricing and profitability and into our priority manager feature. Given the shape of anticipated demand and adoption for generative AI, our intent is to monetize as a platform fee paired with consumption-based fees and also to drive intelligence across our various solutions. We look forward to demonstrating many of these new features and enhancements at nSight in May. We hope to see many of you there as well to see these innovations and to see nCino's vibrant ecosystem in person.
Product enhancements aimed at experience have been driving market momentum for our mortgage suite. An over $30 billion regional bank who previously adopted nCino across consumer and commercial lending went live on our mortgage suite in the fourth quarter. We were glad to hear the differentiated experience of 1 borrower. The customer was able to apply for their mortgage in less than 10 minutes on their phone while walking their dog. This bank is well on their way to realize and exceed their business case for the solution by transitioning significant application volumes to digital channels and realizing a commensurate reduction in abandonment rates, bringing them well ahead of industry average.
The fourth quarter was our best sales quarter for U.S. mortgage in fiscal '24, adding 21 new logos for mortgage point of sale. These 21 new customers included one of the largest IMBs in the nation, a takeaway from a competitor and one of the largest deals in our mortgage team's history. The 13 new financial institution customers added also validate the benefit of our efforts to continue integrating and aligning our go-to-market teams to leverage nCino's brand and presence across the finest financial institutions in the United States.
The reshuffle of mortgage loan officers throughout the latest cycle has been one of our best sources of demand generation. Past users in nCino's mortgage solutions evangelize the product to their new employer and become vocal internal advocates as we pursue those accounts, and mortgage lenders look to implement our market-leading solutions to proactively compete for talent. While churn for market consolidation remained elevated in the quarter, we are confident that the share gains throughout this cycle paired with continued product development efforts will yield accelerating growth as the mortgage market normalizes.
I am proud of how the company came together to support sales efforts in the fourth quarter. The strength of our team and competitive positioning makes me optimistic for a strong fiscal '25 and beyond. Greg, can you please take us through the financials?

Gregory D. Orenstein

Thank you, Josh, and thank you for your friendship and partnership over the past 8.5 years. While I will miss working with you, I know it's time for you to take on a new challenge, and I wish you the very best.
With that, thanks, everyone, for joining us this afternoon to review our fourth quarter fiscal 2024 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 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.
We are pleased with our fourth quarter fiscal '24 financial results. Total revenues for the fourth quarter were $123.7 million, an increase of 13% year-over-year. Full year total revenues were $476.5 million, an increase of 17% over fiscal '23. Subscription revenues for the fourth quarter of fiscal '24 were $107.5 million, an increase of 16% year-over-year. Subscription revenues were 87% of total revenues. Full year subscription revenues were $409.5 million, an increase of 19% over fiscal '23 and 86% of total revenues for the year.
Professional services revenues were $16.2 million in the fourth quarter, a slight decrease year-over-year. Full year professional services revenues were $67.1 million, an increase of 6%. As I noted on our third quarter earnings call and at Investor Day, we intend to prioritize subscription revenues growth over professional services revenues growth on our path towards the Rule of 50.
In the fourth quarter, we continued to invest in our FI partner ecosystem and in implementation repetitions for newer products, which impacted the number of billable hours. We also faced a difficult year-over-year comparison in professional services from our portfolio analytics business, where the fourth quarter of fiscal '23 contributed an additional $1.2 million of professional services revenue related to meeting the CECL implementation deadline.
Non-U.S. revenues were $24.8 million or 20% of total revenues in the fourth quarter, up 48% year-over-year. Revenues from outside the U.S. were $89.3 million or 19% of total revenues for the full year, up 45% year-over-year. As you are aware, international is one of our key growth pillars, and we are very pleased to see this continued growth outside the United States. We believe our global footprint, which just grew with the new office in South Africa from the DocFox acquisition, is truly unique amongst vertical financial services SaaS companies.
Non-GAAP gross profit for the fourth quarter of fiscal '24 was $81.7 million, an increase of 15% year-over-year. Non-GAAP gross margin was 66% compared to 65% in the fourth quarter of fiscal '23. Non-GAAP gross profit for the full year was $313.1 million, an increase of 18% year-over-year. Non-GAAP gross margin for the full year was 66% compared to 65% in fiscal '23. Our gross margins improved due to subscription revenues being a larger contributor to total revenues.
Non-GAAP operating income for the fourth quarter of fiscal '24 was $19.3 million, with non-GAAP operating income of $1.8 million in the fourth quarter of fiscal '23. Our non-GAAP operating margin in the fourth quarter was 16% compared with 2% in the fourth quarter of fiscal '23. Non-GAAP operating income for the full year was $61.8 million compared with a non-GAAP operating loss of $2.1 million for fiscal '23.
Our non-GAAP operating margin for fiscal '24 was 13% compared with negative 1% in fiscal '23. We realized efficiencies across the organization in fiscal '24 while remaining committed to continuous product innovation, delivering the highest levels of customer satisfaction and building out our global market presence.
Non-GAAP net income attributable to nCino for the fourth quarter of fiscal '24 was $23.8 million or $0.21 per diluted share compared to $4.4 million or $0.04 per diluted share in the fourth quarter of fiscal '23. Non-GAAP net income attributable to nCino for fiscal '24 was $58 million or $0.50 per diluted share compared to negative $8 million or negative $0.07 per basic and diluted share in fiscal '23.
The company received an income tax benefit in the fourth quarter from releasing a valuation allowance against a U.K. deferred tax asset which contributed $3.7 million to both GAAP and non-GAAP net income attributable to nCino in the quarter. Our remaining performance obligation increased to over $1 billion as of January 31, 2024, up 9% from $944.1 million as of January 31, 2023, with $675.4 million in the less than 24 months category, up 6% from $634.8 million as of January 31, 2023. RPO was positively impacted by the strength of gross sales coupled with a very strong renewal quarter.
We ended the quarter with cash and cash equivalents of $117.4 million, including restricted cash. Net cash provided by operating activities in the fourth quarter was $8.1 million compared to negative $22 million in the fourth quarter of fiscal '23. Capital expenditures were $400,000 in the quarter, resulting in free cash flow of $7.7 million in the fourth quarter, marking the first year in company history with positive free cash generation in every quarter of a fiscal year.
Moving on to DocFox. We closed this acquisition on March 20, with the $75 million purchase price paid in cash at closing. We leveraged our expanding revolving credit facility to help fund this transaction and intend to pay down the borrower principal throughout the year as we continue to generate cash. Financial results of DocFox will be consolidated from the date of acquisition for reporting in accordance with GAAP. As of December 31, 2023, DocFox had approximately $6 million of annualized subscription revenues.
We ended fiscal '24 with over 1,800 customers, down from 1,858 at the end of fiscal '23 due to the churn we have discussed all year within the independent mortgage bank market. 501 of these customers contributed greater than $100,000 to fiscal '24 subscription revenues, an increase of 8% from the end of fiscal '23. Of these 501 customers, 86 contributed more than $1 million to fiscal '24 subscription revenues, an increase of 18% from the end of fiscal '23. We ended fiscal '24 with 460 platform customers, up from 428 at the end of fiscal '23.
Our subscription revenue retention rate for fiscal '24 was 117%, down from 148% in fiscal '23 and or 125% if you exclude the inorganic contribution from the SimpleNexus acquisition. Churn for fiscal '24 was approximately $31 million, in line with the revised expectations provided on our Q3 earnings call.
Before we turn to our fiscal '25 financial guidance, let me provide some commentary around our outlook for the year, in addition to Pierre's earlier comment about the negative impact of first quarter fiscal '24 sales as a result of the liquidity crisis. First and most noteworthy, we entered fiscal '25 with a subscription revenues headwind of approximately $31 million as a result of the heightened churn that occurred in fiscal '24, a significant amount of which we consider to be outside the...
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First and most noteworthy, we entered fiscal '25 with a subscription revenue headwind of approximately $31 million as a result of the heightened churn that occurred in fiscal '24, a significant amount of which we consider to be outside the normal course of our business. Specifically, $13 million was related to the turmoil in the U.S. mortgage market, $2.5 million was attributable to a customer directly impacted by the liquidity crisis and $4 million represented the remainder of PPP licenses. The financial impact of this churn, even when netted against the contribution from the DocFox acquisition, results in a 3% headwind to fiscal '25 subscription revenues growth.
Turning to mortgage. Our U.S. mortgage subscription revenues grew 10% in the fourth quarter of fiscal '24 and 14% for the full year. We are very proud of this achievement in what was a very difficult mortgage market. For fiscal '25, we are modeling $8 million in mortgage churn, which, while still elevated from historic levels, is $5 million less than last year, but otherwise modeling minimal improvement in the U.S. mortgage market until the fourth quarter of fiscal '25. We expect our U.S. mortgage business will be dilutive to the company's overall subscription revenues growth rate for full year fiscal '25 in light of the fiscal '24 churn.
We expect our total company churn in fiscal '25 to decrease to approximately $20.5 million or 5% of fiscal '24 subscription revenues, and that churn will continue to moderate towards historic norms beyond this year as the mortgage market continues to normalize. On the cost side, we were pleased to announce an extension to our long-standing agreement with Salesforce in December that took effect at the start of fiscal '25.
In addition to deepening the commitment between our 2 product organizations, we expect the more favorable unit economics provided by the agreement to contribute an approximately 1% improvement in our non-GAAP gross margin in fiscal '25 and then contribute further incremental improvements in our non-GAAP gross margin in future years. This agreement provides us with even more confidence in our ability to deliver on the 78% to 80% subscription gross margin long-term target announced at Investor Day.
You will note our guidance for fiscal '25 assumes continued progress on non-GAAP operating income with a $22 million to $24 million or 36% to 39% improvement year-over-year. We plan to continue prudently investing, particularly in R&D and sales and marketing, to drive subscription revenues growth in light of the significant opportunity we see ahead, including with our nIQ AI, data and analytics products.
We remain confident in the long-term operating model targets we shared at our Investor Day in September. As I have previously stated, progress towards those targets will not be linear. And as a reminder, the 15% implied subscription revenues growth target in our long-term model is not a CAGR, but rather expected growth for that year.
Finally, our plan assumes approximately $8.5 million of capital expenditures, most of which is for improvements to and expansion of our office in the U.K. For the first quarter of fiscal 2025, we expect total revenues of $126 million to $127 million, with subscription revenues of $108.75 million to $109.75 million. This guidance assumes year-over-year subscription revenues growth of 12% to 13%.
As Pierre noted, churn in fiscal '24 peaked in the second half of the year. Specifically, mortgage churn peaked in October, and total churn peaked in the fourth quarter, making the first 3 quarters more difficult comparisons. Non-GAAP operating income in the first quarter is expected to be approximately $18 million to $19 million, and non-GAAP net income attributable to nCino per share to be $0.13 to $0.14. This is based upon a weighted average of approximately 117 million diluted shares outstanding.
For fiscal '25, we expect total revenues of $538.5 million to $544.5 million, with subscription revenues of $463 million to $469 million. This full year guidance assumes year-over-year subscription revenues growth of 13% to 15%. As you will note, the 13% high end of our first quarter subscription revenues guidance is the low end of our full year subscription revenue guidance. We expect our highest year-over-year and sequential growth to occur in the fourth quarter.
We expect non-GAAP operating income for fiscal '25 to be $84 million to $86 million. Non-GAAP net income attributable to nCino per share is expected to be $0.60 to $0.64 based upon a weighted average of approximately 118 million diluted shares outstanding.
And with that, operator, we'll open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from Terry Tillman with Truist Securities.

Terrell Frederick Tillman

Yes. First, I do want to say, Josh, I guess congratulations and good luck with the new opportunity, and I'm sure you're going to miss our great questions.
I guess my first question, and then I have a follow-up, is on the enterprise side. Pierre, I think you were talking about enterprise demand normalizing. I guess is it starting to shift or pivot in terms of some of the products they're looking at?
In particular, I'm wondering, are you seeing green shoots for these larger transformational commercial loan origination deals, which typically were much larger? Or is it really a lot of the other products and the diversification playing out? And then I had a follow-up.

Pierre Naude

Yes. I would say -- thanks a lot, Terry. I would say that the larger banks is returning to more of a strategic posture, which means they are beginning to look at larger transformations. It's very early on in the buying cycle, but most of the actual activity is on the non-loan origination or noncommercial loan origination systems, okay? So it's things other than commercial loan origination.
And as we always reminded you, we see our customer base as a massive asset to this company. And you can see now how we're beginning to cross-sell into them with existing products as these products start scaling and become more attractive to larger banks as well, as well as the community and regional space. You can also see how the DocFox acquisition has been tremendously accretive to those accounts. That is a critical issue for them, how to deposit account opening and onboarding with a robust KYC and AML functionality. So I think we are proving out the case that our customer base is not a drag but actually a positive for us.

Terrell Frederick Tillman

Got it. And I guess my follow-up question is related to the $6 million. Greg, I think you disclosed that, that was the annualized subscription revenue. Is that what you're assuming for FY '25? And if it's like SimpleNexus, you have some pretty significant revenue synergies. Are you baking anything in there?

Gregory D. Orenstein

Yes. Thanks, Terry. Obviously, we don't break down that detail from a fiscal '25 or specific product guidance perspective, but as was noted in the call, we're going to focus on integration and make sure, from a product perspective, we've got that single platform motion going to market, starting in the community base. And so we would expect the momentum to build as the year progresses is how we're looking at that contribution from DocFox.

Operator

(Operator Instructions) Our next question comes from Adam Hotchkiss with Goldman Sachs.

Adam R. Hotchkiss

Great. I guess to start, I just wanted to touch a little bit more on the expansion of your partnership with Salesforce. I appreciate the detail on the model, Greg, but could you just talk a little bit more about what, if at all, is changing on the technology side from an integration perspective?

Pierre Naude

Yes, I'll take that. Thanks, Greg. So the first thing is we and Salesforce get together with our customers, and we always look at opportunities to improve how the platform, which is Force.com, and then the CRM functionality, the call center functionality from Salesforce, integrate to nCino to make it a seamless experience for the banker. And so on the one hand, Salesforce are kind of expanding some platform elements so that we can integrate easier to it and better, and on top of that, it will provide a much better client experience.
And I always use this example. Think of your iPhone as a platform with a number of apps on there. And if they start sharing data, that makes it just so much more seamless. And although we've had that in the past, we are now taking that to a new dimension where more vertical capabilities of Salesforce becomes available to nCino. So it gives us deeper integration, it gives us more cross-sell opportunities as well as co-sell opportunities. And I'm very optimistic with the product direction of Salesforce and how we piggyback on that as well as the coordination in the field for us to win larger deals.

Adam R. Hotchkiss

Okay. Great. That's really helpful. And then I just wanted to talk a little bit more about banking adviser, some of the early adopters. How quickly do you think you can realistically ramp adoption of some of these features into the base? And then just any initial thoughts on how you think about the potential ACV uplift for existing customers would be helpful.

Pierre Naude

It's very early stage for banking adviser. We've got early adopters going with it. But in the end, banking adviser is going to be a tremendous productivity tool, and it will be based on, obviously, the size of the deployment, which correlates with the size of the bank. It will be based with a number of skills. It will be heavily ROI-based because we have to begin to understand how is it complementing specific roles and how it may even replace humans at certain places in the production line, okay? So the feedback we're getting right now is very positive, but it's early days. And Josh, do you want to comment on that?

Joshua L. Glover

I think it's important to note, back to your question about how quickly we can ramp adoption of that, our early adopters represent pieces of the U.S. enterprise, U.S. community regional and international customers. So this is something we feel will be globally applicable, and that's why we've taken that approach with the innovation.
It will be a much faster implementation than an nCino transformation. And that aligns with a lot of our other cross-sell and nIQ solutions that you've seen. You've heard us talk about record-setting portfolio analytics deals. Those are also quick to adopt, and we think that translates nicely to lots of our customers, the problems that we solve and to how quickly we can see a ramp from that.

Gregory D. Orenstein

Yes. And Adam, it's Greg. Just to note, while again, not necessarily breaking down product contribution, I will note I think it's important that we're not assuming revenue in fiscal '25 from banking advisers. So again, consistent with our rollout model, very methodical, make sure it's battle-tested, and ultimately, that's what we're focused on doing this year.

Operator

Our next question comes from Alex Sklar with Raymond James.

Alexander James Sklar

Great. First question, I guess, for Pierre, Josh or Paul, if he's on, but you highlighted some of the fiscal '24 issues that impacted growth, and I just wanted to see if you could elaborate a little bit more on the visibility going to FY '25 that should drive the comments around 50% greater net bookings. And specifically, how should we think about that between kind of improved gross bookings versus improved churn?

Gregory D. Orenstein

Yes. Alex, it's Greg. Just on the churn, I think it's a combination of both in terms of, again, improved gross bookings, a little bit more consistent than what we saw last year, particularly in light of the liquidity crisis in Q1. but again, also an expectation, as I tried to detail in my prepared remarks, around the lower expectation for churn. So those 2, I think, helped drive that 50% number and some of the confidence that we see going into -- as the year begins in the pipelines that we have.

Pierre Naude

I want to emphasize our capacity on the field has increased year-over-year because we believe there's a massive opportunity, and our TAM and SAM supports that. That gross bookings growth, along with lesser churn, gives us a significant upside on the net bookings.

Alexander James Sklar

Okay. And then just a quick follow-up. Is there any way to think about kind of how that should flow into fiscal '25 versus fiscal '26? Is that mostly a '26 issue?

Pierre Naude

Our revenue certainty or visibility as the year starts, we're sitting around 93% to the middle of the guidance, okay? And so what we booked the first half of the year, there's 2 main factors. It's mix of product, in other words, how quickly it becomes revenue. It will be churned as we see those indicators because there's some unknowns in churn always. We've been conservative, but you never know what's going to happen. So those are the 2 main factors.
And can we get the bookings early enough in the year? Which I'll give you just a rough understanding of if we can, by mid-year, have roughly around 40% of our total gross bookings for the year in, that is much more of a normal picture for the year end. You get 60% in the back half. That first 6 months of bookings still impact this year's P&L. And as you get later through the end of the year, that impacts a lot more into next year's P&L, okay? So that gives you some color how we see. So actually, if you look at this year's financial results, we need to get bookings early and often, and we need to contain churn. And those are the main factors for this year's financials.

Operator

Our next question comes from Nick Altmann with Scotiabank.

Nicholas William Altmann

Awesome. I wanted to ask a question on the mortgage side of the business. It sounds like there is a pretty nice rebound in Q4, but can you maybe just talk about where you're at with the transition to more of a consumption-based model? And going off that, how should we be thinking about the impacts to the model in FY '25?

Gregory D. Orenstein

Yes. Nick, if you think about the transition to more consumption base, which again has a committed platform fee and then which comes with a specific number of loans for that, and then to the extent that there's additional volume, we would get upside from that, from a logo perspective, it's about 25% to 30% of our mortgage base, probably a little bit higher from a revenue perspective. And so that's where we are from a transition standpoint.
Some customers, again, like the old seat-based model, and it works for them, and we're comfortable with that. Again, we started this because a lot of customers who were trying to navigate the rising interest rates came to us and wanted some relief, and we agreed to work with them as the market was struggling through that. But again, we wanted upside on the other side, and they worked with us for that. So I think we're positioned nicely as volumes come back.
That said, if you go back to my prepared remarks, we aren't expecting much improvement in the mortgage market until Q4 of this year. If you look at the MBA statistics, Q3 is where they see a pop. But again, we want to be prudent with our modeling as we think about the business and we think about managing the business. So that's where we are as it relates to the mortgage opportunity.

Pierre Naude

Greg, maybe I can give some further color, just so that people understand what the mortgage impact is on the company as a whole. Today, mortgage is about 16% of total revenue. And then if you look at the -- what I would say is your churn and stability is that is more in the IMB market, and that makes up only 11%. When you look at the overall picture that we said in our press release that mortgage grew 14% year-over-year, which I think with all these headwinds is a fantastic accomplishment, number one.
But also you have to understand that it's -- the IMB market is only 11% of the total company. So that impact is not massive on the company as a whole. It's painful, and I want to see a change. But overall, this company has got a financial and a business model that is way beyond mortgage and much stronger to support certainty for us as we make these projections.

Operator

Our next question comes from James Faucette with Morgan Stanley.

Michael Nicholas Infante

It's Michael Infante on for James. I just wanted to follow up on Nick's question on mortgage. It sounds like you're modeling minimal improvement in the market throughout the year, even though the business grew 14% on a subscription basis in a market that was down quite meaningfully in '23.
If we -- Greg, you alluded to this. If we look at some of the industry estimates, it looks like on an aggregate basis for '24, we're going to see about a 20% to 30% year-over-year growth relative to '23. So granted, a lot of that will be concentrated in the back half, but I'm curious if you could just walk through the rationale for minimal improvement in the mortgage business in fiscal year '25 and whether or not that could prove to be conservative.

Gregory D. Orenstein

Yes. Thanks, Michael. So I think a couple of things. One is, again, we want to be prudent with our model and our guidance and forecasting. We launched last year a plan, and 6 weeks into it, Silicon Valley Bank happened. So we're sensitive to that. From a year-over-year growth perspective, again, the churn that we identified in the mortgage side in fiscal '24, you see the impact of that really in fiscal '25. And so as we think about year-over-year growth, that's a big drag on that business.
That said, again, I think the team has done a great job navigating through with the 14% year-over-year growth and 10% in the fourth quarter. And as I've said before, I think one of the focus areas was aligning with the larger, more successful IMBs, if you look at that part of that business. And as the dust is settling, again, I think you're left with a smaller number of larger, better capitalized IMBs. And again, we've worked hard to support those. And as volumes come back, we expect to benefit from that.
The other thing, from a mortgage perspective, if you go back to Josh's comments earlier around sales in Q4, the number of financial institutions that we're cross-selling, and not only just cross-selling, but actually bringing nCino into the financial institution, again, is another part that should bring some stability to that business as we get through the year.
But net of it is, is we want to be prudent. And I think there's a debate about when interest rates are going to go down and the impact of that on mortgage rates. And I think we're probably taking a view of it happening a little bit later in the year than maybe some other people.

Michael Nicholas Infante

Appreciate that Greg, makes sense. For my second question, I'm curious if you could give us a status update just in terms of how the synchronization of the SimpleNexus front end to the rest of the retail lending offering is going. When do you expect to complete that, and how do you think that will ultimately impact adoption of the product more generally, particularly after last quarter's win on the retail side?

Pierre Naude

Yes. So as you could hear, the number of banks or financial institutions we're selling that front end to now is increasing, and that velocity or momentum is good. At our nSight user conference, which is in May, we will demonstrate the end-to-end product. It will be in -- it will come with fully developed APIs, and we are very excited about that.
I can tell you with vendor consolidation and the platform approach we've taken, we just see a significant, what I would say, interest in this platform because it gives the big banks the ability to do their own front end, and then it gives -- through the APIs, and gives the smaller banks the ability to adopt the platform end-to-end, okay?
Now you throw in the DocFox acquisition, which is going to cover -- so SimpleNexus will cover your consumer and individual oriented businesses and use cases, and then you bring in DocFox and you cover your deposit account opening and onboarding for the commercial side and the heavy complex side. So I just think that this piece of the puzzle is coming together. DocFox will take us 6 months for the first integration milestone and SimpleNexus will be after our nSight conference in May. It will be fully in the market, and we will sell this across the platform.

Gregory D. Orenstein

Yes. So Michael, again, nSight in May, we look forward to showing that to our customer base and prospects there. And again, we're really excited about that technology. So make sure you're there.

Operator

Our next question comes from Cris Kennedy with William Blair.

Cristopher David Kennedy

Pierre, you talked about at least 15% subscription revenue growth in 2026. Can you just talk about kind of the puts and takes to that number as you sit here today?

Pierre Naude

Yes. So the first thing is, if we accomplish the goals our bookings for this year that we feel very confident about, if you look at the macroeconomic environment, if you look at customer conversations we're having, et cetera, that is your first foundational milestone to that.
The second one is, over the next 9 months, we are going to launch a number of new products that is very quick to market, much smaller installation cycles, and I believe that will drive momentum where we actually have a higher ACV number come the end of the year, but it will translate into revenue growth for next year.
So the new products, along with the omnichannel front end, we're launching along with DocFox being fully integrated, okay? I think all of those -- and then you look at mortgage, when that recovers. And I do believe there's a point -- the rate of -- mortgage rates will not come down that much.
I think it's more of a point of house prices will reach an equilibrium and that the consumer realizes because of life events, they have to move. And if you combine all of those and we return more to a normal market, that upside in mortgage is going to be significant for us as well. So the combination of all of that I think will drive a growth rate for next year that is north of 15%.

Cristopher David Kennedy

Great. And then you talked about churn going back to normal. Do you still think the normal is kind of 2% to 3% going forward?

Gregory D. Orenstein

Yes, I think it would probably be more towards the 3-ish percent, Cris, just because, again, the IMB piece to it, which is a little bit more volatile. But I think, again, we're taking a step down this year. We still expect elevated churn as we noted. But ultimately, particularly if you look at the legacy nCino side, it's fairly consistent, so there's no new news there. And as mortgage settles, we would expect to be closer down to that 3-ish percent than where we are last year and certainly where we are this year, where we were last year, so say where we are this year.

Pierre Naude

Yes. The products we're installing is very sticky. It's long term. These are generational buying decisions, and once banks standardize on this kind of software, they stay on it for a very long time. So I feel confident that churn rate will come down to that.
Over time, as the rest of the business grows as well, you'll find that our mortgage business in banking will grow significantly, which is a much more stable customer base. We love the IMB space. We're going to focus on it and sell that. 2/3 of mortgages are made there. However, over time, that will become a smaller and smaller portion of the business overall just because we'll outgrow it on the other side of the balance sheet.

Operator

Our next question comes from Robert Trout with Macquarie Capital.

Robert Charles Trout

Yes. Congratulations to Josh as well. My first question, I know we've covered the pricing evolution and the trends that you're seeing on the consumer and mortgage side. With regards to that eventual shift on the commercial side, I know you've said, Greg, that you want to work out all the kinks and everything on the consumer side before you begin to deploy that on the commercial segment. But with the DocFox acquisition, and as Pierre mentioned, rounding out the pieces of the puzzle, is there any thought to perhaps accelerating that hybrid pricing model transition on the commercial side versus a quarter ago?

Gregory D. Orenstein

Yes. Thanks, Bob. Potentially, I mean, ultimately, the rollout of platform pricing is really a cross-functional and organizational effort and that will play out throughout the year as we get that muscle solidified here internally and are able to do that on a very consistent basis. And so you're right. Again, our focus has been on mortgage and on consumer, but ultimately, if the year progresses, and certainly, as we get into next year, we would expect to focus on commercial as well, starting with net new customers and then again, as renewals come up, addressing it from a renewal perspective.
So it will be an evolution throughout the year and into next year. But again, that's where we're going. And again, it's really been reinforced as we talked about efficiency here a lot on this call and in the prepared remarks, and again, I think we're making our customers more efficient, which means fewer seats, which means they're also getting more value from our products. And so focusing on that value from a sales standpoint versus the number of seats is the right thing for us to be doing.

Robert Charles Trout

That makes perfect sense. And then my follow-up, just on the -- very pleased to hear that still on track for the targeted drive to Rule of 50. Within the various levers that you have that will get you there, when you think about the fact that for, let's say, 3 out of the next 4 quarters, you expect the mortgage segment's growth to be dilutive to the company average before rebounding in the fourth quarter, but you still very much believe that you'll get to Rule of 50 and you'll hit your gross margin of 78% to 80%, and it doesn't have to be linear. So what would be potentially the positively offsetting factors when you have, say, a couple of quarters of weakness in, say, mortgage or any other?

Gregory D. Orenstein

I think one of the things that we're really proud about, we talked about the turmoil really that this business and the industry has gone through over the last couple of years between COVID and the rising interest rates and the liquidity crisis, we stayed very focused on executing our strategy, both product-wise as well as our geographic footprint. And so again, I think we've got multiple levers in the business in order to help us or support us on our path to reach that Rule of 50 on that long-term target that we discussed back in September.
And it's from mortgage, it's from new products, it's from AI, it's from our consumer lending product being in a place where, again, we can sign a $200 billion enterprise bank as we announced in the third quarter. It's the new omnichannel. And so again, I think it's just been a credit to the team, a lot of focus over the last couple of years to position us to be ready and really have this kind of convergence of the market hopefully coming back and settling after the turmoil that we've seen aligning very nicely with the maturing of our products and our go-to-market motion. And so again, I think it really spans products and geographies, and I think we've got multiple different levers to help drive growth over the next several years.

Operator

Our next question comes from Brent Bracelin with Piper Sandler.

J.R. Herrera

This is J.R. on for Brent. Just a quick clarification for me. Wondering if you can quantify how much of this build in RPO you would attribute to the enterprise deals that slipped from the third quarter versus any other source of uplift.

Gregory D. Orenstein

J.R., wouldn't get that level of specificity. What I would highlight is, as we talked about, seeing traction across all kind of market segments, that total RPO really is a reflection of duration. And as you're aware, it's those enterprise customers that generally sign the longer contracts. And again, with those enterprise customers signing, it was very much extend and expand with those. And so that was really what was driving.
But I wouldn't highlight 1 specific deal versus, again, just a strong quarter of gross sales and a strong renewal quarter as part of that as things came together nicely, very much more in line with what our historic expectations have been versus, again, what we've seen over the prior several quarters where it was much more lumpy than normal.

Operator

And our last question comes from Alex Markgraff with KBCM.

Alexander Wexler Markgraff

Just wanted to follow up on some of the commentary around a normalizing sales environment. When you think about the normalization that you've seen so far, really in the fourth quarter, just curious. I mean, what does that represent versus the, I don't know, I'll call it sort of backlog of paused demand that has built up more recently? That's sort of the first part of it. And then as you think about fiscal '25, what is sort of the operating assumption as to how quickly some of that demand sort of resumes and deals are signed?

Joshua L. Glover

Thank you for the question. This is Josh. I think the biggest shift that we've seen is really the motivation that the customer has as we engage with them. We see a more resounding and consistent focus on efficiency from our customer base than we've seen since we started the company.
Look, if you look at last year, you had the market took a shock, but when they've come back and realized that their margins are still compressed, so they understand the environment they're in, they're getting more questions about their credit quality, the ability to continue banking but do so more efficiently is something that we're seeing in all segments across the globe.
And so obviously, you understand the efficiency lift that nCino gives. No team and no ecosystem is better equipped than the nCino crew is to deliver that efficiency. That's probably been the biggest change that we've seen. So a big piece when we talk about return to engagement and returning sentiment is a pretty crystal clear focus from the customers we serve and delivering more efficiency.

Operator

There are no further questions at this time. I'd like to turn the call back over to Pierre Naude for closing remarks.

Pierre Naude

Thank you so much, operator. When we founded nCino, our goal was to make our customers successful. That vision hasn't changed. Today, our solutions brings all of our financial institutions' lending, onboarding and account opening operations onto a single trusted platform. I know of no other truly multi-tenant SaaS company in the financial services industry with the product richness and ability to serve the needs of the largest financial institutions across the globe to community banks, credit unions and IMBs.
nCino had the vision and technology to take banks into the cloud, and now we have the deep domain expertise and unmatched data to help them embrace and leverage AI. Thank you all for joining us today. I hope many of you will be able to attend our annual user conference, nSight, in May to see what's coming next. Thank you so much.

Operator

Thank you to (inaudible). This does conclude the program. You may now disconnect. Everyone, have a great evening.