nCino, Inc. is a pioneer in the cloud banking software industry, providing innovative solutions that are transforming the way financial institutions operate. Founded in 2011, the company has quickly established itself as the go-to provider of intelligent, best-in-class banking solutions, empowering financial institutions to streamline their operations, enhance customer experiences, and stay ahead of the curve in an ever-evolving financial landscape.
Business Overview and History
nCino's origins can be traced back to a North Carolina-based bank, where the founders recognized the need for a comprehensive, cloud-based platform to streamline banking operations. Realizing that this challenge was not unique to their institution, they spun off nCino as a separate company in late 2011, with the goal of providing a scalable solution that could benefit financial institutions of all sizes.
The nCino Bank Operating System was initially designed to help transform commercial and small business lending for community and regional banks. In 2014, the company expanded its reach to enterprise banks in the United States, and in 2017, it began its international expansion. Throughout this market expansion, nCino broadened the nCino Bank Operating System by adding functionality for consumer lending, client onboarding, deposit account opening, analytics, and artificial intelligence and machine learning.
In fiscal year 2020, nCino made two strategic acquisitions to further bolster its capabilities, including the purchase of SimpleNexus, a U.S. point-of-sale mortgage solution, and the establishment of a joint venture in Japan to facilitate the company's entry into the Japanese market. These initiatives have allowed nCino to broaden its product offerings and strengthen its global presence.
Over the years, nCino has faced several challenges, including navigating the COVID-19 pandemic and the resulting economic uncertainty, as well as the volatility in the mortgage market due to rising interest rates. However, the company has been able to weather these storms and continue to grow its business by focusing on expanding its product offerings, entering new markets, and helping its customers become more efficient through its technology solutions.
nCino operates a single software-as-a-service (SaaS) platform that helps financial institutions (FIs) modernize and digitally serve their clients across lines of business, including commercial and small business lending, consumer lending, and deposit account opening. The company's main product is the nCino Bank Operating System, which was initially designed for commercial and small business lending for community and regional banks before being expanded to enterprise banks and internationally.
The company generally offers its nCino Bank Operating System on a subscription basis under multi-year contracts, which typically range from 3-5 years for the nCino Bank Operating System and 1-3 years for nCino Mortgage. nCino also provides professional services including configuration, implementation, training, and advisory services.
Financial Performance and Ratios
nCino's financial performance has been characterized by consistent revenue growth and a focus on expanding its customer base. In the most recent fiscal year, the company reported total revenues of $476.54 million, up from $408.31 million in the prior year, representing a year-over-year increase of 16.7%. Subscription revenues, which account for the majority of the company's top line, grew 18.2% to $377.60 million during the same period.
Despite the company's impressive revenue growth, nCino has historically reported net losses due to its ongoing investments in product development, sales and marketing, and strategic initiatives. In the most recent fiscal year, the company recorded a net loss of $42.35 million.
For the most recent quarter, nCino reported total revenues of $132.40 million, with subscription revenues growing 14% year-over-year and total revenue growing 13% year-over-year. The company recorded a net loss of $11.04 million for the quarter.
nCino's revenues are primarily derived from the United States, which accounted for 79.20% of total revenues in the most recent quarter. International revenues were 20.80% of total revenues in the same period.
The company's operating cash flow (OCF) for the most recent fiscal year was $57.28 million, with free cash flow (FCF) of $53.77 million. In the most recent quarter, OCF was $5.00 million, with FCF of $4.60 million.
Liquidity
On the balance sheet, nCino maintains a strong financial position, with $121.41 million in cash and cash equivalents as of the end of the most recent quarter. The company's current ratio stands at 1.03, indicating a healthy working capital position, while its debt-to-equity ratio of 0.03 suggests a conservative capital structure.
nCino also has a revolving credit facility with a borrowing capacity of $100 million, of which $40 million was outstanding as of the most recent quarter. The company's quick ratio is 1.03, further demonstrating its strong liquidity position.
Operational Highlights and Competitive Landscape
nCino's success can be attributed to its ability to deliver innovative solutions that address the evolving needs of financial institutions. The company's focus on streamlining operations, enhancing customer experiences, and leveraging data-driven insights has resonated with its growing customer base, which includes a diverse mix of community, regional, and enterprise-level banks.
As of the end of the most recent fiscal year, nCino had over 1,200 financial institution customers across the United States and international markets, including 8 of the top 10 U.S. banks by assets. The company's customer retention rates have remained strong, underscoring the stickiness of its platform and the value it provides to its clients.
nCino has been focused on expanding its product offerings beyond commercial lending, with over 50% of its total bookings in the most recent quarter coming from non-commercial products like consumer lending and deposit account opening. The company believes there is significant opportunity to cross-sell its growing suite of solutions to its existing customer base.
In the highly competitive cloud banking software market, nCino faces competition from a variety of players, including traditional on-premise core banking providers, as well as newer, cloud-based competitors. However, the company's comprehensive product suite, deep domain expertise, and strong customer relationships have allowed it to maintain a leadership position in the industry.
Risks and Challenges
While nCino's growth trajectory has been impressive, the company faces several key risks and challenges that investors should consider. These include:
1. Reliance on a limited number of large customers: A significant portion of nCino's revenue is derived from a small number of enterprise-level clients, making the company vulnerable to the loss of these key accounts.
2. Ongoing investment requirements: To maintain its competitive edge, nCino must continually invest in product development, sales and marketing, and strategic initiatives, which could put pressure on the company's profitability in the short-term.
3. Regulatory and compliance complexities: As a provider of mission-critical software to the heavily regulated financial services industry, nCino must navigate a complex regulatory landscape, which could impact its operations and growth.
4. Intense competition: The cloud banking software market is highly competitive, and nCino faces the risk of losing market share to both established players and emerging competitors.
5. International expansion challenges: While nCino has made inroads into international markets, the company's global expansion efforts could be hampered by cultural, regulatory, and operational differences in various regions.
Outlook and Guidance
Despite the challenges, nCino remains well-positioned for continued growth. The company has consistently demonstrated its ability to innovate and adapt to the evolving needs of the financial services industry, as evidenced by the steady expansion of its product suite and customer base.
For the third quarter of fiscal year 2025, nCino expects: - Total revenues of $136 million to $138 million - Subscription revenues of approximately $117 million to $119 million - Non-GAAP operating income of approximately $21 million to $22 million - Non-GAAP net income attributable to nCino per share of $0.15 to $0.16
For the full fiscal year 2025, nCino expects: - Total revenues of $538.5 million to $544.5 million - Subscription revenues of $463 million to $469 million - Non-GAAP operating income of $87 million to $90 million - Non-GAAP net income attributable to nCino per share of $0.66 to $0.69
It's worth noting that in the second quarter of fiscal year 2025, nCino exceeded their guidance for both subscription and total revenues, as well as for non-GAAP operating income. The company's churn expectations for fiscal year 2025 remained in line with the $20.5 million they had discussed on their previous two earnings calls.
The company's focus on driving efficiencies, automating critical banking workflows, and leveraging data-driven insights positions it well to capitalize on the ongoing digital transformation within the financial services industry. Additionally, nCino's strategic acquisitions and international expansion efforts are expected to contribute to its long-term growth prospects.
Conclusion
nCino's journey from a bank-born startup to a leading provider of cloud banking solutions has been nothing short of remarkable. The company's ability to innovate, adapt, and deliver value to its customers has been the driving force behind its success, and its comprehensive product offerings, strong customer relationships, and focus on operational excellence position it well for continued growth in the years ahead.
While the company faces a range of risks and challenges, nCino's proven track record, solid financial position, and compelling growth outlook make it a compelling investment opportunity for those seeking exposure to the dynamic and rapidly evolving cloud banking software market. The company's consistent revenue growth, expanding product offerings, and strong customer retention rates demonstrate its ability to execute on its strategic initiatives and capitalize on the significant market opportunity in the financial technology sector.