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nCino (NCNO) Research Report: Q1 CY2024 Update


Full Report / May 29, 2024

Bank software company nCino (NASDAQ:NCNO) reported results ahead of analysts' expectations in Q1 CY2024, with revenue up 12.7% year on year to $128.1 million. On the other hand, the company expects next quarter's revenue to be around $131 million, slightly below analysts' estimates. It made a non-GAAP profit of $0.19 per share, improving from its loss of $0.10 per share in the same quarter last year.

nCino (NCNO) Q1 CY2024 Highlights:

  • Revenue: $128.1 million vs analyst estimates of $126.6 million (1.1% beat)
  • EPS (non-GAAP): $0.19 vs analyst estimates of $0.13 (40.9% beat)
  • Revenue Guidance for Q2 CY2024 is $131 million at the midpoint, below analyst estimates of $132.1 million
  • The company reconfirmed its revenue guidance for the full year of $541.5 million at the midpoint (slightly raised non-GAAP operating income and non-GAAP EPS guidance)
  • Gross Margin (GAAP): 60%, up from 59.4% in the same quarter last year
  • Free Cash Flow of $54.1 million, up from $7.72 million in the previous quarter
  • Market Capitalization: $3.49 billion

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

Banks are complex to run, heavily regulated and often lag far behind the curve in adopting cloud technologies, instead relying on decades old on-premise software. nCino offers cloud-based software that promises to replace the functionalities of the banks legacy systems, making it easier and cheaper to operate the bank. The company built its software on top of the Salesforce platform and as a result has a very close partnership with Salesforce (CRM).

nCino works as a central system for banks and credit unions allowing them to onboard new customers by offering them loans or checking and savings accounts, all online and in compliance with regulatory requirements. The platform becomes the single central location where all the data about customers and decisions are stored, which improves effectiveness of banking operations and allows banks to offer more personalised services to their clients.

Banking Software

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.

Other players with solutions addressing nCino’s fintech niche include Oracle (NYSE:ORCL), Infosys (INFY), and Q2 Holdings (NYSE:QTWO).

Sales Growth

As you can see below, nCino's revenue growth has been very strong over the last three years, growing from $62.36 million in Q1 2022 to $128.1 million this quarter.

nCino Total Revenue

This quarter, nCino's quarterly revenue was once again up 12.7% year on year. We can see that nCino's revenue increased by $4.39 million quarter on quarter, which is a solid improvement from the $1.75 million increase in Q4 CY2023. Shareholders should applaud the acceleration of growth.

Next quarter's guidance suggests that nCino is expecting revenue to grow 11.7% year on year to $131 million, slowing down from the 17.7% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 14.5% over the next 12 months before the earnings results announcement.

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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 60% in Q1.

nCino Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.60 left to spend on developing new products, sales and marketing, and general administrative overhead. nCino's gross margin is poor for a SaaS business and we'd like to see it start improving.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. nCino's free cash flow came in at $54.1 million in Q1, up 82.2% year on year.

nCino Free Cash Flow

nCino has generated $78.17 million in free cash flow over the last 12 months, a solid 15.9% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.

Key Takeaways from nCino's Q1 Results

It was encouraging to see nCino narrowly top analysts' revenue expectations this quarter. On the other hand, its revenue guidance for next quarter missed analysts' expectations. While full year revenue guidance was maintained, non-GAAP operating profit and non-GAAP EPS were both slightly raised, showing that growth is in line but that the growth is more profitable. Overall, this was a mixed quarter for nCino. The stock is flat after reporting and currently trades at $30.14 per share.

Is Now The Time?

When considering an investment in nCino, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We cheer for everyone who's making the lives of others easier through technology, but in case of nCino, we'll be cheering from the sidelines. Although its revenue growth has been strong over the last three years, Wall Street expects growth to deteriorate from here. On top of that, its gross margins show its business model is much less lucrative than the best software businesses.

Given its price-to-sales ratio of 6.1x based on the next 12 months, nCino is priced with expectations for long-term growth. While there are some things to like about nCino and its valuation is reasonable, we think there are better opportunities elsewhere in the market right now.

Wall Street analysts covering the company had a one-year price target of $37.50 right before these results (compared to the current share price of $30.14).

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