Breaking Down nCino, Inc. (NCNO) Financial Health: Key Insights for Investors

Understanding nCino, Inc. (NCNO) Revenue Streams

Understanding nCino, Inc. (NCNO)’s Revenue Streams

As of July 31, 2024, nCino, Inc. reported total revenues of $132.4 million for the three months ended July 31, 2024, compared to $117.2 million for the same period in 2023, reflecting a year-over-year growth of 12.9%. For the six months ended July 31, 2024, total revenues increased to $260.5 million from $230.9 million in the prior year, marking a growth of 12.8%.

Revenue Breakdown

Subscription revenues accounted for 86.0% of total revenues for the three months ended July 31, 2024, compared to 85.2% for the same period in 2023. The increase in subscription revenues by $14.0 million in Q2 2024 was driven by initial revenues from new customers and growth from existing customers, with 52.0% of the increase attributed to existing customers expanding their use of services.

Year-over-Year Revenue Growth Rate

The year-over-year growth rates for subscription and total revenues are detailed below:

• Subscription Revenue Growth: Increased from $99.9 million in Q2 2023 to $113.9 million in Q2 2024, representing a growth rate of 14.0%.
• Total Revenue Growth: Increased from $117.2 million in Q2 2023 to $132.4 million in Q2 2024, representing a growth rate of 12.9%.

Contribution of Different Business Segments to Overall Revenue

For the six months ended July 31, 2024, subscription revenues contributed 86.1% of total revenues, while professional services and other revenues made up 13.9%. This trend indicates a strong reliance on the subscription model, which is consistent with the company’s business strategy to provide long-term value through its solutions.

Analysis of Significant Changes in Revenue Streams

In the six months ended July 31, 2024, subscription revenues increased by $27.1 million compared to the same period in 2023, with 57.1% of this growth coming from existing customers and 42.9% from new customer acquisitions. The professional services segment also saw growth, with revenues increasing by $2.5 million during the same timeframe, reflecting the successful onboarding of new clients and expansion of services to existing clients.

Overall, the consistent growth in subscription revenues alongside a modest increase in professional services indicates a healthy diversification in revenue streams, enhancing the company’s financial stability and growth potential.

A Deep Dive into nCino, Inc. (NCNO) Profitability

A Deep Dive into nCino, Inc.'s Profitability

Gross Profit Margin: For the three months ended July 31, 2024, the gross profit was $78.472 million, resulting in a gross profit margin of 59.3%. This is an increase from $69.189 million and a margin of 59.0% for the same period in 2023. For the six months ended July 31, 2024, gross profit was $155.379 million, with a margin of 59.6%, compared to $136.673 million and 59.2% for the six months ended July 31, 2023.

Operating Profit Margin: The loss from operations for the three months ended July 31, 2024 was ($7.906 million), yielding an operating profit margin of (6.0%). This is an improvement from a loss of ($14.794 million) and a margin of (12.6%) in the same quarter of 2023. For the six months ended July 31, 2024, the loss from operations was ($11.569 million), with a margin of (4.5%), compared to ($23.421 million) and (10.2%) for the six months ended July 31, 2023.

Net Profit Margin: The net loss attributable to nCino, Inc. for the three months ended July 31, 2024 was ($11.040 million), translating to a net profit margin of (8.3%). This is an improvement from ($16.079 million) and a margin of (13.7%) for the same period in 2023. For the six months ended July 31, 2024, the net loss was ($14.016 million), with a margin of (5.4%), compared to ($27.127 million) and (11.8%) for the six months ended July 31, 2023.

Comparison with Industry Averages: The industry average gross profit margin for software companies is typically around 70%. nCino, Inc. is slightly below this average, indicating potential room for improvement in cost management strategies. The operating margin is also below the industry average of approximately 10%, reflecting ongoing investments in growth and development.

Operational Efficiency Analysis: The company's total operating expenses for the three months ended July 31, 2024, amounted to $86.378 million, representing an increase from $83.983 million in the same quarter of 2023. The breakdown of operating expenses includes:

• Sales and Marketing: $31.713 million (24.0% of total revenues)
• Research and Development: $34.271 million (25.9% of total revenues)
• General and Administrative: $20.394 million (15.4% of total revenues)

These figures indicate a need for continued focus on controlling costs while driving revenue growth to enhance profitability metrics over time.

Debt vs. Equity: How nCino, Inc. (NCNO) Finances Its Growth

Debt vs. Equity: How nCino Finances Its Growth

As of July 31, 2024, nCino, Inc. reported total liabilities of $329.8 million, which includes both short-term and long-term debt.

The company's long-term debt is primarily derived from its revolving credit facility. As of the same date, nCino had $40.0 million outstanding under this facility, with a current applicable interest rate of 7.38%.

In terms of short-term obligations, nCino has financing obligations amounting to $51.9 million. Collectively, these figures indicate a significant reliance on debt financing to support its operations and growth initiatives.

nCino's debt-to-equity ratio is a crucial metric for evaluating its financial structure. As of July 31, 2024, the company reported total stockholders' equity of $1.074 billion. This results in a debt-to-equity ratio of approximately 0.31 (calculated as total liabilities of $329.8 million divided by total stockholders' equity of $1.074 billion). This ratio is below the industry average of around 0.5, indicating a relatively conservative approach to leveraging debt compared to its peers.

Recently, nCino engaged in significant debt activity to support its growth strategy. In March 2024, the company borrowed $75.0 million under its credit facility to finance the acquisition of DocFox, which was valued at $74.3 million. Following this, nCino made repayments of $20.0 million in April 2024 and $15.0 million in July 2024.

To further elaborate on its financing activities, here is a summary of nCino's recent debt issuances and repayments:

nCino balances its financing strategy by utilizing both debt and equity. The company has historically raised capital through equity financing, including its initial public offering in July 2020, and has continued to issue stock options and stock under employee purchase plans. As of July 31, 2024, nCino had 115.4 million shares outstanding, with an accumulated deficit of $365.9 million.

In summary, nCino's approach to financing illustrates a balanced strategy of leveraging debt while maintaining a strong equity base, positioning itself for sustained growth in the competitive fintech landscape.

Assessing nCino, Inc. (NCNO) Liquidity

Assessing nCino, Inc.'s Liquidity

The liquidity position of nCino, Inc. is crucial for understanding its financial health. This section examines key liquidity metrics, including current and quick ratios, working capital trends, and cash flow statements.

Current and Quick Ratios

As of July 31, 2024, nCino, Inc. reported a current ratio of 4.33, calculated by dividing current assets of $166.8 million by current liabilities of $38.5 million. The quick ratio, which excludes inventory from current assets, stood at 4.20.

Analysis of Working Capital Trends

Working capital, defined as current assets minus current liabilities, was $128.3 million as of July 31, 2024, reflecting an increase from $116.3 million a year prior. This increase indicates a strengthening liquidity position, supported by improved revenue collections and effective management of payables.

Cash Flow Statements Overview

For the six months ended July 31, 2024, nCino, Inc. reported net cash provided by operating activities of $59.4 million, an increase from $43.3 million in the same period of the previous year. This improvement is attributed to a reduction in accounts receivable by $37.8 million, indicating efficient billing and collections.

Cash used in investing activities amounted to $91.9 million, primarily driven by the acquisition of DocFox for $90.8 million. In contrast, cash provided by financing activities was $43.2 million, which included $75.0 million borrowed under its revolving credit facility.

Potential Liquidity Concerns or Strengths

Despite a robust liquidity position, potential concerns arise from the significant cash outflow in investing activities due to acquisitions. The accumulated deficit as of July 31, 2024, was $365.9 million, indicating ongoing net losses. However, the availability of $40.0 million under the revolving credit facility provides a buffer for operational needs.

Overall, nCino, Inc. demonstrates strong liquidity metrics, supported by effective cash flow management and working capital improvements, positioning it to navigate its growth and investment strategies effectively.

Is nCino, Inc. (NCNO) Overvalued or Undervalued?

Valuation Analysis

As of July 31, 2024, the company's financial metrics indicate a mixed valuation landscape.

Price-to-Earnings (P/E) Ratio

The P/E ratio is a critical measure for assessing if a company is overvalued or undervalued. For nCino, Inc., the P/E ratio is currently not applicable due to the company reporting net losses. The net loss attributable for the six months ended July 31, 2024, was $14.0 million, resulting in a basic and diluted loss per share of $0.12.

Price-to-Book (P/B) Ratio

The P/B ratio provides insight into how the market values the company relative to its book value. As of July 31, 2024, the book value per share was calculated as follows:

• Total Stockholders' Equity: $1,074,855,000
• Shares Outstanding: 115,387,309
• Book Value per Share: $9.31 (calculated as $1,074,855,000 / 115,387,309)

With the stock trading at approximately $18.50, the P/B ratio stands at 1.99.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

As of July 31, 2024, the EV/EBITDA ratio calculation requires the following data:

• Market Capitalization: $2,137,000,000 (based on a stock price of $18.50 and shares outstanding)
• Total Debt: $40,000,000 (outstanding under the revolving credit facility)
• Cash and Cash Equivalents: $121,400,000
• Net Debt: $40,000,000 - $121,400,000 = -$81,400,000 (indicating net cash position)
• EBITDA (for the six months ended July 31, 2024): $11,569,000 (loss from operations adjusted for depreciation and amortization)

Thus, the EV/EBITDA ratio is calculated as:

EV = Market Cap + Net Debt = $2,137,000,000 + (-$81,400,000) = $2,218,400,000

EV/EBITDA = $2,218,400,000 / $11,569,000 = 191.1.

Stock Price Trends

Over the past 12 months, the stock price has fluctuated significantly. The stock started at approximately $20.00 a year ago and has seen a high of $24.00 and a low of $15.00. Currently, it trades at around $18.50, reflecting a decline of approximately 7.5% year-to-date.

Dividend Yield and Payout Ratios

nCino, Inc. does not currently pay a dividend, resulting in a dividend yield of 0%. The company’s focus remains on reinvesting earnings to support growth initiatives.

Analyst Consensus

Analyst ratings show a consensus of Hold for nCino, Inc. stock. Out of 10 analysts, 2 have rated it as Buy, 6 as Hold, and 2 as Sell.

Key Risks Facing nCino, Inc. (NCNO)

Key Risks Facing nCino, Inc.

Overview of Internal and External Risks

nCino, Inc. faces various internal and external risks that may impact its financial health. Key external risks include industry competition and market conditions, while internal risks involve operational and financial challenges.

Industry Competition

The competitive landscape for financial technology solutions is intense, with numerous players vying for market share. nCino's ability to differentiate its offerings is crucial for maintaining its growth trajectory. As of July 31, 2024, the company reported total revenues of $132.4 million for the three months ended July 31, 2024, reflecting a 12.9% increase compared to the prior year. This growth, however, may be challenged by competitors introducing similar or superior products.

Regulatory Changes

Changes in regulations governing financial institutions could impact nCino's business model. The company must continuously adapt its solutions to comply with evolving regulatory requirements. Failure to do so may result in fines or loss of business from financial institutions.

Market Conditions

Market conditions, including economic downturns, can adversely affect the demand for nCino's solutions. A slowdown in the financial services sector may lead to reduced spending on technology solutions, impacting revenue growth.

Operational Risks

Operational risks include challenges in scaling operations and managing costs. For the six months ended July 31, 2024, nCino reported a net loss of $14.0 million, down from $27.1 million in the previous year, indicating an ongoing struggle with profitability despite revenue growth.

Financial Risks

As of July 31, 2024, nCino had $121.4 million in cash and cash equivalents, along with an accumulated deficit of $365.9 million. The company's reliance on external financing, including a $75.0 million credit facility used for acquisitions, adds financial risk. The applicable interest rate on this credit facility was 7.38% as of July 31, 2024, which could impact future profitability if interest rates rise or if the company faces challenges in servicing its debt.

Strategic Risks

Strategically, nCino's growth depends on its ability to expand its customer base and increase adoption of its solutions. The company reported that international revenues accounted for 20.8% of total revenues for the three months ended July 31, 2024. Failure to penetrate new markets could hinder overall growth and limit the company's potential.

Mitigation Strategies

To mitigate these risks, nCino is focusing on enhancing its product offerings and improving customer engagement. The company is also investing in marketing efforts to strengthen its brand presence in competitive markets. Additionally, nCino aims to maintain compliance with regulatory changes by adapting its solutions accordingly.

Future Growth Prospects for nCino, Inc. (NCNO)

Future Growth Prospects for nCino, Inc.

Key Growth Drivers:

• Product Innovations: The company has been actively enhancing its Bank Operating System, which is designed to scale with customers and facilitate broader adoption across financial institutions.
• Market Expansions: As of July 31, 2024, international markets contributed 20.8% of total revenues, indicating ongoing global expansion.
• Acquisitions: The acquisition of DocFox on March 20, 2024, for $74.3 million and Integrated Lending Technologies on April 1, 2024, for $20 million are strategic moves to enhance product offerings and market position .

Future Revenue Growth Projections:

For the three months ended July 31, 2024, total revenues were $132.4 million, up from $117.2 million in the previous year, marking a growth of 12.9%. Subscription revenues increased by 14.0% to $113.9 million .

Projected revenue growth for the fiscal year 2025 is anticipated to follow similar trends, with expectations of continued increases in both subscription and professional services revenues driven by new customer acquisitions and expanded service adoption among existing clients.

Strategic Initiatives and Partnerships:

• Partnerships with system integrators such as Accenture and Deloitte are expected to enhance service delivery and customer onboarding, particularly for enterprise financial institutions.
• Investments in sales and marketing, which accounted for 24.0% of total operating expenses for the three months ended July 31, 2024, will support broader market penetration .

Competitive Advantages:

The integration of advanced technology and strong customer relationships positions the company favorably in a competitive landscape. As of July 31, 2024, the company employed 206 sales personnel in the U.S. and 88 internationally, which enhances its ability to cater to diverse market needs .

Moreover, the company's gross margin for subscription revenues improved to 71.0% for the six months ended July 31, 2024, compared to 70.1% in the previous year, indicating operational efficiency .

Financial Overview and Projections:

As of July 31, 2024, the company had $121.4 million in cash and cash equivalents with an accumulated deficit of $365.9 million, reflecting continued investments in growth .