nCino (NCNO)

Bank software company nCino (NASDAQ:NCNO) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 12.5% year on year to $144.1 million. The company expects next quarter’s revenue to be around $143 million, close to analysts’ estimates. Its non-GAAP profit of $0.16 per share was in line with analysts’ consensus estimates.

Company Overview

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.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, nCino’s 22.1% annualized revenue growth over the last three years was decent. Its growth was slightly above the average software company and shows its offerings resonate with customers.

This quarter, nCino reported year-on-year revenue growth of 12.5%, and its $144.1 million of revenue exceeded Wall Street’s estimates by 2.7%. Company management is currently guiding for a 8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 5.4% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and indicates its products and services will face some demand challenges.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

nCino’s billings punched in at $156.6 million in Q1, and over the last four quarters, its growth was solid as it averaged 15.8% year-on-year increases. This alternate topline metric grew faster than total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

nCino does a decent job acquiring new customers, and its CAC payback period checked in at 44.1 months this quarter. The company’s relatively fast recovery of its customer acquisition costs gives it the option to accelerate growth by increasing its sales and marketing investments.

For software companies like nCino, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

nCino’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 60.1% gross margin over the last year. Said differently, nCino had to pay a chunky $39.95 to its service providers for every $100 in revenue.

This quarter, nCino’s gross profit margin was 60%, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

nCino’s expensive cost structure has contributed to an average operating margin of negative 2.9% over the last year. Unprofitable, high-growth software companies require extra attention because they spend heaps of money to capture market share. As seen in its fast historical revenue growth, this strategy seems to have worked so far, but it’s unclear what would happen if nCino reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.

Over the last year, nCino’s expanding sales gave it operating leverage as its margin rose by 4.2 percentage points. Still, it will take much more for the company to reach long-term profitability.

nCino’s operating margin was negative 1% this quarter. The company's consistent lack of profits raise a flag.

If you’ve followed StockStory for a while, you know 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 has shown mediocre cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 9.3%, subpar for a software business.

nCino’s free cash flow clocked in at $52.6 million in Q1, equivalent to a 36.5% margin. The company’s cash profitability regressed as it was 5.7 percentage points lower than in the same quarter last year, but it’s still above its one-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends are more important.

Over the next year, analysts predict nCino’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 9.3% for the last 12 months will increase to 14.6%, it options for capital deployment (investments, share buybacks, etc.).

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

nCino is a well-capitalized company with $133.2 million of cash and $17.41 million of debt on its balance sheet. This $115.8 million net cash position is 3.8% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was great to see nCino raise its full-year revenue and EPS guidance. We were also happy this quarter's revenue and adjusted operating income outperformed Wall Street’s estimates. Overall, this was a solid print. The stock remained flat at $26.85 immediately after reporting.

Updated: July 9, 2025 at 10:12 PM EDT

Before deciding whether to buy nCino or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

nCino’s business quality ultimately falls short of our standards. Although its revenue growth was solid over the last three years, it’s expected to deteriorate over the next 12 months and its gross margins show its business model is much less lucrative than other companies.

nCino’s price-to-sales ratio based on the next 12 months is 5.8x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $30.64 on the company (compared to the current share price of $28.99).