nCino's (NASDAQ:NCNO) Posts Q1 Sales In Line With Estimates But Full Year Guidance Underwhelms

Full Report / May 31, 2023
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Maker of operating system for banks nCino (NASDAQ:NCNO) reported results in line with analyst expectations in Q1 FY2024 quarter, with revenue up 20.7% year on year to $113.7 million. However, guidance for the next quarter was less impressive, coming in at $114.8 million at the midpoint, being 2.33% below analyst estimates. nCino made a GAAP loss of $11.6 million, improving on its loss of $30 million, in the same quarter last year.

nCino (NCNO) Q1 FY2024 Highlights:

  • Revenue: $113.7 million vs analyst estimates of $112.6 million (0.96% beat)
  • EPS (non-GAAP): $0.07 vs analyst estimates of $0.05 (32.6% beat)
  • Revenue guidance for Q2 2024 is $114.8 million at the midpoint, below analyst estimates of $117.5 million
  • The company reconfirmed revenue guidance for the full year, at $476.3 million at the midpoint
  • Free cash flow of $29.5 million, up from negative free cash flow of $27.1 million in previous quarter
  • Gross Margin (GAAP): 59.4%, up from 57.2% 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.

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.

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 two years, growing from quarterly revenue of $62.4 million in Q1 FY2022, to $113.7 million.

nCino Total Revenue

This quarter, nCino's quarterly revenue was once again up a very solid 20.7% year on year. On top of that, revenue increased $4.49 million quarter on quarter, a solid improvement on the $3.89 million increase in Q4 2023. Happily, that's a slight acceleration of growth.

Guidance for the next quarter indicates nCino is expecting revenue to grow 15.2% year on year to $114.8 million, slowing down from the 49.8% 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 16.5% over the next twelve months.


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 59.4% in Q1.

nCino Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.59 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it trending up over the last year this would still be considered low gross margin for a SaaS company and we have no doubt shareholders would like to see the improvements continue.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. nCino's free cash flow came in at $29.5 million in Q1, turning positive year on year.

nCino Free Cash Flow

nCino has burned through $1.48 million in cash over the last twelve months, resulting in a negative 0.35% free cash flow margin. This below average FCF margin is a result of nCino's need to invest in the business to continue penetrating its market.

Key Takeaways from nCino's Q1 Results

With a market capitalization of $3.09 billion nCino is among smaller companies, but its more than $98.1 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.

Revenue and EPS beat this quarter, and free cash flow was strong. On the other hand, it was unfortunate to see that total revenue, subscription revenue, adjusted operating profit, and EPS guidance for the next quarter missed analysts' expectations. Additionally, revenue guidance for the full year missed expectations although adjusted operating profit and EPS guidance for the full year were ahead. Overall, it seems to us that this was a complicated quarter for nCino. The company is down 3.46% on the results and currently trades at $26.5 per share.

Is Now The Time?

When considering nCino, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of nCino we will be cheering from the sidelines. Its revenue growth has been strong, though we don't expect it to maintain historical growth rates. Unfortunately, its gross margins show its business model is much less lucrative than the best software businesses, and its customer acquisition is less efficient than many comparable companies.

Given its price to sales ratio based on the next twelve months is 6.2x, nCino is priced with expectations of a long-term growth, and there's no doubt it is a bit of a market darling, at least for some. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

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