nCino (NASDAQ:NCNO) Posts Better-Than-Expected Sales In Q2 But Quarterly Guidance Underwhelms

Maker of operating system for banks nCino (NASDAQ:NCNO) reported results ahead of analysts' expectations in Q2 FY2024, with revenue up 17.7% year on year to $117.2 million. The company also expects next quarter's revenue to be around $120.5 million, slightly below analysts' estimates. nCino made a GAAP loss of $16.1 million, improving from its loss of $27.4 million in the same quarter last year.

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“We are very pleased with our second quarter results and in particular, the strong rebound in sales activity we saw across the business,” said Pierre Naudé, Chairman and CEO of nCino. “Our profitability again exceeded expectations even as we continue to strategically invest in expanding our platform and solutions. With the liquidity crisis in the U.S. banking industry largely behind us, and financial institutions around the world focused on improving their operational efficiency and customer experience, we look for the momentum we saw in the second quarter to continue for the balance of the year and beyond.”

Founded in 2011 in North Carolina, nCino (NASDAQ:NCNO) makes cloud-based operating systems for banks and provides that software as a service.

Consumers these days are accustomed to frictionless digital experiences from online shopping to ordering food or hailing a cab. Financial services firms are notoriously risk averse in adopting modern software, often lacking the resources or competency to develop the digital solutions in-house. That drives demand for software as a service platforms that allows banks and other finance institutions to offer the digital services without having to run or maintain them.

Sales Growth

As you can see below, nCino's revenue growth has been very strong over the last two years, growing from $66.5 million in Q2 FY2022 to $117.2 million this quarter.

This quarter, nCino's quarterly revenue was once again up 17.7% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $3.56 million in Q2 compared to $4.49 million in Q1 2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that nCino is expecting revenue to grow 14.4% year on year to $120.5 million, slowing down from the 50.3% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 15.7% over the next 12 months before the earnings results announcement.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. nCino's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 59% in Q2.

That means that for every $1 in revenue the company had $0.59 left to spend on developing new products, sales and marketing, and general administrative overhead. nCino's gross margin is poor for a SaaS business and we'd like to see it start improving.

Key Takeaways from nCino's Q2 Results

Sporting a market capitalization of $3.25 billion, nCino is among smaller companies, but its more than $98 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

It was encouraging to see nCino narrowly top analysts' revenue and adjusted EPS expectations this quarter. That really stood out as a positive in these results. On the other hand, free cash flow missed. Also its revenue and non-GAAP operating profit guidance for next quarter underwhelmed. Full year guidance was very slightly raised and roughly in line with expectations. Overall, this was a mixed quarter for nCino, but there were no major surprises. The company is down 1.56% on the results and currently trades at $29 per share.

nCino may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned in this report.