nCino (NCNO)

Bank software company nCino (NASDAQ:NCNO) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 14.3% year on year to $141.4 million. On the other hand, next quarter’s revenue guidance of $139.8 million was less impressive, coming in 4% below analysts’ estimates. Its non-GAAP profit of $0.12 per share was 35.1% below 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 have short-term success, but a top-tier one grows for years. Over the last three years, nCino grew its sales at a solid 25.4% compounded annual growth rate. Its growth beat the average software company and shows its offerings resonate with customers.

This quarter, nCino’s year-on-year revenue growth was 14.3%, and its $141.4 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 9.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 13.3% over the next 12 months, a deceleration versus the last three years. Still, this projection is noteworthy and implies the market sees success for its products and services.

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 $200 million in Q4, and over the last four quarters, its growth slightly outpaced the sector as it averaged 13.7% year-on-year increases. This performance aligned with its total sales growth and shows the company is successfully converting sales into cash. Its growth also enhances liquidity and provides a solid foundation for future investments.

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 is efficient at acquiring new customers, and its CAC payback period checked in at 37.3 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 $39.93 to its service providers for every $100 in revenue.

This quarter, nCino’s gross profit margin was 59.7%, 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 3.4% 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 be optimistic about its growth, but we have some doubts.

Over the last year, nCino’s expanding sales gave it operating leverage as its margin rose by 4.9 percentage points. Still, it will take much more for the company to reach long-term profitability.

In Q4, nCino generated a negative 4.1% operating margin. 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 9.9%, subpar for a software business.

nCino burned through $10.37 million of cash in Q4, equivalent to a negative 7.3% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict nCino’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 9.9% for the last 12 months will increase to 19.5%, it options for capital deployment (investments, share buybacks, etc.).

Businesses that maintain a cash surplus face reduced bankruptcy risk.

nCino is a well-capitalized company with $120.9 million of cash and $17.97 million of debt on its balance sheet. This $103 million net cash position is 3.9% 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.

We struggled to find many positives in these results as its revenue and EPS guidance for next year fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 17.4% to $23.24 immediately after reporting.

Updated: May 22, 2025 at 10:22 PM EDT

Are you wondering whether to buy nCino or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

nCino isn’t a terrible business, but it isn’t one of our picks. 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 5.4x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $27.29 on the company (compared to the current share price of $26.72).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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