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nCino (NASDAQ:NCNO) Reports Bullish Q2, Next Quarter Sales Guidance Is Optimistic


Kayode Omotosho /
2021/09/01 4:15 pm EDT
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Maker of operating system for banks nCino (NASDAQ:NCNO) beat analyst expectations in Q2 FY2022 quarter, with revenue up 36.4% year on year to $66.5 million. nCino made a GAAP loss of $14.2 million, improving on its loss of $14.7 million, in the same quarter last year.

Is now the time to buy nCino? Access our full analysis of the earnings results here, it's free.

nCino (NCNO) Q2 FY2022 Highlights:

  • Revenue: $66.5 million vs analyst estimates of $63.7 million (4.39% beat)
  • EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.06
  • Revenue guidance for Q3 2022 is $66.5 million at the midpoint, above analyst estimates of $65.2 million
  • The company lifted revenue guidance for the full year, from $259 million to $263.5 million at the midpoint, a 1.73% increase
  • Free cash flow of $12.5 million, up 78.9% from previous quarter
  • Gross Margin (GAAP): 60%, up from 57.8% previous quarter

“We are extremely pleased with the results of our second quarter, which include 37% year-over year growth in subscription revenues, 129% year-over-year growth in international revenues, and record second quarter sales,” said Pierre Naudé, CEO of nCino.

Founded in 2011 in North Carolina, nCino makes cloud-based operating systems for banks and provides that software as a service.

In the age of digital banking, being the only bank with a physical branch in town is not enough of a competitive advantage anymore. Regional and community banks and credit unions are facing increasing pressure to keep up with the offerings of the big banks, but they don’t have the resources or competency to develop the digital solutions in-house. That drives demand for software as a service platforms that allows the small banks to offer the digital services without having to run or maintain them.

Sales Growth

As you can see below, nCino's revenue growth has been impressive over the last year, growing from quarterly revenue of $48.7 million, to $66.5 million.

nCino Total Revenue

And unsurprisingly, this was another great quarter for nCino with revenue up an absolutely stunning 36.4% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $4.16 million in Q2, compared to $5.76 million in Q1 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 18.6% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

There are others doing even better than nCino. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. nCino's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 60% in Q2.

nCino Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.60 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Key Takeaways from nCino's Q2 Results

With a market capitalization of $5.91 billion nCino is among smaller companies, but its more than $399.3 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

We enjoyed seeing nCino’s improve their gross margin materially this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 1.53% on the results and currently trades at $64 per share.

nCino may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.