3820

nCino (NASDAQ:NCNO) Surprises With Q1 Sales, Provides Encouraging Quarterly Guidance


Radek Strnad /
2022/06/01 4:18 pm EDT
Add to Watchlist

Maker of operating system for banks nCino (NASDAQ:NCNO) reported results ahead of analyst expectations in the Q1 FY2023 quarter, with revenue up 51% year on year to $94.2 million. Guidance for next quarter's revenue was $97.5 million at the midpoint, 2.26% above the average of analyst estimates. nCino made a GAAP loss of $30 million, down on its loss of $15.6 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) Q1 FY2023 Highlights:

  • Revenue: $94.2 million vs analyst estimates of $91.4 million (3.05% beat)
  • EPS (non-GAAP): -$0.06 vs analyst estimates of -$0.08
  • Revenue guidance for Q2 2023 is $97.5 million at the midpoint, above analyst estimates of $95.3 million
  • The company reconfirmed revenue guidance for the full year, at $402 million at the midpoint
  • Free cash flow was negative $3.44 million, compared to negative free cash flow of $22.8 million in previous quarter
  • Gross Margin (GAAP): 57.2%, down from 57.8% same quarter last year

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

Consumers these days are accustomed to frictionless digital experiences from online shopping to ordering food or hailing a cab. Financial services firms are notoriously risk averse in adopting modern software, often lacking the resources or competency to develop the digital solutions in-house. That drives demand for software as a service platforms that allows banks and other finance institutions 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 very strong over the last year, growing from quarterly revenue of $62.3 million, to $94.2 million.

nCino Total Revenue

This was a standout quarter for nCino with quarterly revenue up a 51% year on year, driven by the acquisition of SimpleNexus. On top of that, revenue increased $19.2 million quarter on quarter, a very strong improvement on the $4.91 million increase in Q4 2022, and a sign of re-acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates nCino is expecting revenue to grow 46.5% year on year to $97.5 million, improving on the 36.4% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 39.6% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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, licenses, technical support and other necessary running expenses was at 57.2% in Q1.

nCino Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.57 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has dropped significantly from the previous quarter, which is probably the opposite of what shareholders would like it to do.

Key Takeaways from nCino's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on nCino’s balance sheet, but we note that with a market capitalization of $3.59 billion and more than $78.6 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth nCino delivered this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, there was a deterioration in gross margin. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $32.01 per share.

Should you invest in nCino 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.