nCino, Inc. — Q2 Fiscal 2024 Form 10-Q
Reporting period: Three and six months ended July 31, 2023; comparisons are with the corresponding 2022 periods. nCino provides cloud-based SaaS software and related services to financial institutions. Fiscal year ends January 31.
Financial performance and position
| Metric | Three months ended July 31, 2023 | Six months ended July 31, 2023 |
|---|---|---|
| Total revenue | $117.2 million, up 17.7% | $230.9 million, up 19.1% |
| Subscription revenue | $99.9 million, up 18.3% | $197.2 million, up 20.5% |
| Professional services and other revenue | $17.3 million | $33.7 million |
| Gross margin | 59.0%, versus 58.6% | 59.2%, versus 57.9% |
| Operating loss | $14.8 million, versus $25.0 million | $23.4 million, versus $52.2 million |
| Net loss attributable to nCino | $15.9 million; diluted loss per share $0.14 | $27.1 million; diluted loss per share $0.24 |
| Non-GAAP operating income | $11.2 million, versus a $2.8 million loss | $22.1 million, versus a $6.5 million loss |
Subscription revenue represented 85.2% of Q2 revenue, compared with 84.8% a year earlier. Management attributed subscription growth to existing-customer expansion and new customers. Subscription gross margin improved to 70.3% in Q2 from 69.0%; professional-services gross margin fell to negative 5.7% from positive 0.7%, primarily due to lower billing and utilization rates. Stock-based compensation was $15.3 million for the quarter and $26.1 million for the six months.
Cash flow and liquidity: Operating cash flow was $43.3 million for the six months, versus $10.7 million; investing cash outflow was $2.8 million and financing cash outflow was $25.7 million. Cash and cash equivalents were $98.0 million at July 31; cash, cash equivalents, and restricted cash totaled $103.4 million. Accounts receivable was $80.9 million and current deferred revenue was $169.3 million.
Debt and obligations: The company repaid $30.0 million drawn on its $50.0 million revolving facility and had no facility borrowings at July 31, with $50.0 million of available capacity. It reported $54.8 million of financing obligations, primarily related to facilities accounted for as owned assets, and $9.3 million of operating lease obligations. The credit agreement requires at least $50.0 million of consolidated liquidity; nCino reported covenant compliance.
Material changes and management commentary
- Revenue growth and improved operating results reduced GAAP operating and net losses year over year. Operating expenses were nearly flat in Q2, while revenue increased.
- Six-month operating cash flow improved, helped by collections and higher deferred revenue; cash from operations also includes significant non-cash expenses, including stock-based compensation.
- A fiscal 2023 restructuring included an approximately 7% workforce reduction and office-space reductions. The related severance accrual was paid in Q1 fiscal 2024. Restructuring charges were $0.5 million in the first half of fiscal 2024.
- Management expects GAAP operating losses to continue for the foreseeable future, but believes cash and available borrowing capacity will fund operations and capital requirements for at least 12 months. No numeric revenue or earnings guidance is provided in this filing.
Outlook, risks, and unusual items
- Management cites long sales cycles, customer adoption and implementation execution, competition, and the need to expand internationally as factors affecting growth and profitability. International markets generated 18.7% of Q2 revenue.
- Higher interest rates have weakened U.S. mortgage demand, negatively affecting SimpleNexus. Management also monitors financial-sector liquidity concerns; the named affected institutions collectively accounted for less than 3% of fiscal 2023 revenue.
- A proposed settlement of approximately $2.2 million in an employee hiring and wage-practices class action was accrued at July 31, 2023 and remains subject to court approval. The related DOJ investigation closed in February 2023 without fines or penalties. A separate shareholder derivative lawsuit remains unresolved; the company says a potential loss cannot be reasonably estimated and has not accrued for it.
- nCino may be required to contribute up to $3.0 million to its Japanese joint venture during fiscal 2024. Investors in that venture may exercise redemption rights beginning in 2027.
- The company reports no material changes to its previously disclosed risk factors. It identifies foreign-exchange and interest-rate exposure and says it does not currently hedge foreign-currency transactions.
Key investor verification points
- Confirm whether the proposed $2.2 million class-action settlement receives court approval and whether the derivative litigation develops into an estimable exposure.
- Track professional-services utilization and margins, and whether subscription growth continues to offset weak mortgage demand.
- Assess the sustainability of operating cash flow, including the effects of customer collections, deferred revenue, and non-cash compensation.
- Review cash availability and compliance with the $50.0 million consolidated-liquidity covenant, especially as the revolving facility matures in February 2024.
- Monitor stock-based compensation, dilution, and future cash or share requirements related to the Japanese joint venture.