nCino, Inc. — Q3 Fiscal 2024 Form 10-Q
Reporting period: Three and nine months ended October 31, 2023. nCino provides cloud-based banking software on a SaaS basis. Fiscal 2024 ends January 31, 2024. Financial amounts below are in millions unless noted.
Financial performance
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Total revenue | $121.9 | $105.3 | $352.9 | $299.1 |
| Subscription revenue | $104.8 | $88.3 | $302.0 | $251.9 |
| Professional services and other revenue | $17.2 | $17.0 | $50.9 | $47.2 |
| Gross margin | 60.6% | 59.0% | 59.7% | 58.3% |
| Operating loss | $(12.9) | $(18.4) | $(36.3) | $(70.7) |
| Net loss attributable to nCino | $(16.4) | $(23.6) | $(43.5) | $(81.5) |
| Basic and diluted loss per share | $(0.15) | $(0.21) | $(0.39) | $(0.74) |
| Non-GAAP operating income (loss) | $20.4 | $2.5 | $42.5 | $(3.9) |
Revenue increased 15.8% in Q3 and 18.0% for the nine-month period year over year. Subscription revenue grew 18.7% and 19.9%, respectively; management attributed most of the subscription increase to expansion by existing customers, with the remainder from customers not contributing in the prior-year periods. Subscription revenue was 85.9% of Q3 revenue. International revenue was $23.4 million in Q3, or 19.2% of total revenue.
Gross margin improved, while professional services gross margin weakened to negative 1.4% in Q3 and negative 3.8% for the nine months, which management attributed primarily to lower billing and utilization rates. Subscription gross margin improved to 70.8% in Q3 and 70.4% for the nine months. Operating expenses were $86.8 million in Q3 and $246.9 million for the nine months. The reported non-GAAP measure excludes specified items, including stock-based compensation and intangible amortization; it is not a substitute for GAAP results.
Cash, liquidity and obligations
- Cash and cash equivalents were $100.5 million at October 31, 2023, versus $82.0 million at January 31, 2023. Cash, cash equivalents and restricted cash totaled $105.8 million, including $5.3 million of restricted cash.
- Operating cash flow was $49.1 million for the nine months, compared with $6.6 million in the prior-year period. Investing cash outflow was $5.9 million; financing cash outflow was $24.0 million, principally reflecting repayment of $30.0 million on the revolving facility.
- The $50.0 million revolving credit facility had no borrowings and $50.0 million of available capacity at quarter-end. It matures February 11, 2024 and requires at least $50.0 million of defined consolidated liquidity. The company reported covenant compliance.
- Financing obligations were approximately $54.5 million, primarily for facilities accounted for as owned assets; operating lease liabilities totaled approximately $10.0 million. Total liabilities were $235.7 million.
- Current assets were $190.9 million and current liabilities $173.0 million. Deferred revenue was $130.3 million. Remaining performance obligations were $917.1 million; the company expects to recognize approximately 68% within 24 months and 28% in the following 25–48 months.
Material changes, outlook and risks
- Q3 operating and net losses improved year over year, but the company remained GAAP loss-making. Management expects GAAP operating losses to continue for the foreseeable future.
- The SimpleNexus solution was rebranded as nCino Mortgage. The change in trade-name useful life caused $10.1 million of accelerated amortization in Q3, increasing operating and net loss by $10.1 million, or $0.09 per share. The remaining trade-name asset was fully amortized.
- Management said cash on hand and available facility borrowings should fund operations and capital needs for at least 12 months. It expects to continue investing in product development and sales and marketing while optimizing plans for growth and profitability; the filing provides no specific revenue or earnings guidance.
- Management noted higher interest rates have negatively affected U.S. mortgage demand and the nCino Mortgage business. New-customer sales cycles are lengthy, particularly for larger financial institutions. Professional-services utilization and billing rates, customer adoption, international expansion, and the ability to reach sustainable profitability remain relevant business risks.
- The company accrued approximately $2.2 million for a proposed settlement of an employee hiring and wage antitrust class action; court approval remained pending. The DOJ investigation into hiring and wage practices closed in February 2023 with no fines or penalties. A separate shareholder derivative action remains at a preliminary stage; the company did not accrue a loss because it could not reasonably estimate one.
- The company’s risk factors were reported as having no material changes from its FY2023 Form 10-K. Disclosure controls were assessed as effective; management reported no material change to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether subscription growth and customer expansion continue, and whether the company converts its $917.1 million of remaining performance obligations into recognized revenue as expected.
- Whether professional-services utilization and margins recover from negative levels.
- Progress toward GAAP profitability, including the ongoing effect of stock-based compensation and amortization on reported results.
- Repayment, renewal or replacement of the revolving facility before its February 2024 maturity, and continued compliance with its liquidity covenant.
- Final court approval and payment of the proposed $2.2 million settlement, and developments in the shareholder derivative litigation.
- The scale and impact of dilution: 5.8 million nonvested RSUs were outstanding, and $155.3 million of unrecognized RSU compensation expense was expected to be recognized over a weighted-average 2.90 years.