nCino (NASDAQ:NCNO) posts better-than-expected Q2 revenue, but shares fall

Banking software company nCino (NASDAQ:NCNO) reported better-than-expected Q2 CY2024 results, with revenue growing 12.9% year-over-year to $132.4 million. On the other hand, its revenue forecast for the next quarter was less impressive, coming in 1.2% short of analysts’ estimates. It posted non-GAAP earnings of $0.14 per share, an improvement from the loss of $0.14 per share in the year-ago quarter.

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nCino (NCNO) Q2 CY2024 Highlights:

• Gain: $132.4 million vs. analyst estimates of $131.1 million (1% better)

• Adjusted operating result: $19.3 million vs. analyst estimates of $17.93 million (7.6% better)

• Earnings per share (non-GAAP): $0.14 vs. analyst estimates of $0.13 (9.8% better)

• The company confirmed its full-year sales forecast from $541.5 million at the midpoint

• Gross margin (GAAP): 59.3%, in line with the same quarter last year

• Free cash flow margin: 3.4%, down from 42.2% in the previous quarter

• Market capitalization: $3.99 billion

WILMINGTON, NC, Aug. 27, 2024 (GLOBE NEWSWIRE) — nCino, Inc. (NASDAQ: NCNO), a pioneer in cloud banking for the global financial services industry, today announced financial results for the second quarter of fiscal year 2025, ended July 31, 2024. “We are pleased to report that we have once again exceeded our quarterly guidance for total revenue, subscription revenue, and non-GAAP operating income,” said Pierre Naudé, chairman and CEO of nCino.

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

Banking software

Consumers today are accustomed to frictionless digital experiences, from shopping online to ordering food or hailing a cab. Financial services firms are notoriously risk-averse when adopting modern software, and often lack the resources or competence to develop digital solutions in-house. That’s driving demand for software-as-a-service platforms that allow banks and other financial institutions to offer digital services without having to run or maintain them themselves.

Sales growth

As you can see below, nCino’s 28.3% annual revenue growth over the past three years has been impressive, with revenue this quarter reaching $132.4 million.

This quarter, nCino’s quarterly revenue has once again increased by 12.9% year-over-year. We can see that nCino’s revenue has increased by $4.32 million in Q2, which is about the same growth rate as in Q1 CY2024. This steady quarter-over-quarter growth shows that the company can maintain its steady growth trajectory.

The next-quarter forecast suggests that nCino expects revenue to grow 12.3% year over year to $137 million, a slowdown from the 15.8% year over year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company had expected revenue to grow 15% over the next 12 months before the earnings announcement.

The story continues

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Cash is king

If you’ve been following StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that ultimately, cash is king and that you can’t use accounting profits to pay the bills.

nCino has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 14.2% over the past year, outperforming the broader software sector.

nCino’s free cash flow was $4.56 million in Q2, which equates to a margin of 3.4%. The company’s profitability declined, as it was down 6 percentage points from the same quarter last year, which prompts us to pay closer attention. Short-term fluctuations are typically not a big deal as investment needs can be seasonal, but we’ll keep an eye on whether the trend continues into future quarters.

Analysts predict that nCino’s cash conversion will improve in the coming year. Their consensus estimates imply that its free cash flow margin will rise to 16.7% from 14.2% for the past 12 months, giving it more cash to invest.

Key Takeaways from nCino’s Q2 Results

It was encouraging to see nCino narrowly beat analysts’ revenue expectations this quarter. On the other hand, its revenue forecast for the next quarter fell short and gross margin declined. Overall, this quarter could have been better. The stock fell 9.4% to $31.25 immediately following the results.

nCino may have had a tough quarter, but does that actually create an opportunity to invest? When making that decision, it’s important to consider valuation, business quality, and what happened in the last quarter. We cover that in our actionable full research report, which you can read here, for free.