nCino, Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended October 31, 2022. nCino provides cloud-based software to financial institutions. The 2022 results include SimpleNexus from its January 7, 2022 acquisition; the comparative 2021 periods do not, limiting year-over-year comparability.
Key financial metrics
| Metric | Three months ended Oct. 31, 2022 | Three months ended Oct. 31, 2021 | Nine months ended Oct. 31, 2022 | Nine months ended Oct. 31, 2021 |
|---|---|---|---|---|
| Revenue | $105.3m | $70.0m | $299.1m | $198.9m |
| Subscription revenue | $88.3m | $57.1m | $251.9m | $162.1m |
| Gross profit / margin | $62.1m / 59.0% | $42.8m / 61.1% | $174.5m / 58.3% | $118.8m / 59.7% |
| Operating loss | $18.4m | $12.7m | $70.7m | $41.4m |
| Net loss attributable to nCino | $23.6m | $13.6m | $81.5m | $42.3m |
| Loss per share, basic and diluted | $0.21 | $0.14 | $0.74 | $0.44 |
| Non-GAAP operating income (loss) | $2.5m | $(3.2)m | $(3.9)m | $(9.3)m |
Amounts are rounded. Revenue increased 50.3% in the quarter and 50.4% year to date. Subscription revenue grew 54.7% and 55.5%, respectively; SimpleNexus contributed $16.9m of quarterly revenue and $48.2m year to date. Subscription revenue represented 83.8% of quarterly revenue, versus 81.5% a year earlier. Lower gross margin reflected, among other factors, acquired-technology amortization and weaker professional-services utilization.
For the nine months, operating cash flow was $6.6m, compared with $1.8m in 2021; investing cash flow was $(13.8)m and financing cash flow was $34.6m. Cash and cash equivalents were $106.5m at October 31, 2022; cash, cash equivalents and restricted cash totaled $111.8m. The company had $30.0m drawn on its $50.0m revolving credit facility, with $20.0m available, and reported covenant compliance. Total liabilities were $255.2m, including financing obligations and the revolver. Remaining performance obligations were $919.2m; approximately 66% was expected to be recognized within 24 months.
Material changes and management commentary
- SimpleNexus acquisition-related revenue and expenses are significant contributors to reported growth and cost increases. Acquired intangible amortization was $7.1m for the quarter and $21.1m year to date; stock-based compensation was $12.5m and $38.5m, respectively.
- Quarterly non-GAAP operating income was $2.5m, but GAAP operating loss was $18.4m. The non-GAAP measure excludes intangible amortization, stock-based compensation, acquisition-related expenses and antitrust-related fees and expenses.
- Management expects operating losses to continue for the foreseeable future, while stating current cash and available credit should fund operations and capital requirements for at least 12 months. It expects higher fiscal 2023 capital expenditures for office build-outs, with approximately $4.3m remaining at October 31.
- Management cited rising U.S. interest rates and weaker mortgage demand as a negative for SimpleNexus. It continues to invest in product development, sales and marketing, while expecting those operating expenses to decline as a percentage of revenue over time.
- A new approximately 90,000-square-foot office building was completed and occupied in November 2022. The company expects to record an estimated $23.0m construction liability as a financing obligation. It also invested $2.5m in Zest AI preferred shares on November 1, 2022.
- Other income/expense was $(2.9)m in the quarter and $(5.5)m year to date, primarily due to foreign-exchange effects on intercompany loans. Adoption of U.S. tax-code Section 174 requires capitalization and amortization of research and development expenses and could increase future cash tax payments.
- Legal matters include a Department of Justice investigation and related class-action litigation concerning hiring and wage practices, plus a stockholder derivative action concerning the mergers. The company has not accrued a loss and says it cannot estimate a possible loss range; outcomes remain uncertain.
Risks, contingencies and outlook
The filing gives no specific revenue or earnings guidance. Growth depends on adoption by new and existing financial-institution customers, lengthy sales cycles, and successful implementation; management also notes competitive, execution and profitability risks. Mortgage-market weakness, foreign-exchange movements, acquisition accounting, continuing operating losses, stock-based compensation and planned facility spending are relevant considerations. The credit facility has a $50.0m minimum consolidated-liquidity covenant and is secured by substantially all personal property of the borrower and guarantors. The company may also be required to contribute up to $5.0m to its Japanese joint venture during the current fiscal year. Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Investor verification checklist
- Separate organic growth from SimpleNexus contributions and assess the acquisition’s effect on margins and cash generation.
- Track subscription growth, remaining performance obligations, customer expansion, and professional-services utilization and margin.
- Reconcile GAAP losses with non-GAAP results, including the scale and persistence of excluded amortization, stock compensation and legal expenses.
- Monitor cash use, revolver borrowings, covenant liquidity, office-building financing obligations, and the company’s expected capital and tax cash outlays.
- Follow developments in the DOJ investigation, class action and derivative suit, for which the company has not estimated potential losses.
- Assess the effect of mortgage-market conditions, foreign exchange, and the Japanese joint-venture redemption and potential funding obligations.