nCino reported q2 results after hours. I am surprised by the lack of attention on this board as this company meets all criteria: SaaS, leader in its space (Bank operating system), very strong revenue growth, wide moat (you don’t switch your operating system each year), accelerating revenue growth and also very close to positive non-gaap operating income.
Highlights from the press release:
Revenues: Total revenues for the second quarter were $48.8 million, a 52% increase from $32.0 million in the second quarter of fiscal 2020. Subscription revenues for the second quarter were $39.4 million, up from $23.1 million one year ago, an increase of 70% year-over-year. ----- Subs revenue is what matters here. Revenue is up 52% because of lower growth in professional services, which is low margin anyway. Revenue growth will probably accelerate in the future as subs revenue becomes a bigger portion of total revenue. In fact this is already happening now as Q1 revenue growth was 50%.
Loss from Operations: GAAP loss from operations was ($15.7) million compared to ($7.9) million in the second quarter of fiscal 2020. Non-GAAP operating loss was ($1.6) million compared to ($5.3) million in the second quarter of fiscal 2020
Net Loss Attributable to nCino: GAAP net loss attributable to nCino was ($14.6) million compared to ($8.5) million in the second quarter of fiscal 2020. Non-GAAP net loss attributable to nCino was ($581) thousand compared to ($5.8) million in the second quarter of fiscal 2020. — Almost profitable
Stock is up 6% after hours.
I will update this post tomorrow with additional data (it’s midnight here in Europe) and also main points from the earnings call. I am long nCino 13%.
If you want an impression from the CEO, he did a recent interview with CNBC Africa (he is South African): https://www.cnbcafrica.com/videos/2020/08/18/chris-bishop-in…
I want to point out one thing: NCNO uses Salesforce platform. Veeva Systems Inc also uses Salesforce platform. Veeva increased 530% since 2014. That’s a 36% per year ROI. We should not underestimate NCNO. NCNO is growing much faster than Veeva. I expect NCNO to out perform Veeva.
NCNO is interesting and seems like a solid company. I was long from $72 shortly after the post IPO sell off and luckily sold on the exuberance last week above $100. I would like to buy back in, but the stock is a tad expensive still above $80. Although I do see why due to extremely high product stickiness once they land in each new bank.
Cloud72- I would not try to compare VEEV returns to NCNO just because they both are based on the Salesforce platform. Salesforce learned their lesson after VEEV and doesn’t give away those type of gravy train deals anymore where it gave VEEV a stranglehold in pharma/life sciences space. NCNOs setup with Salesforce is not anywhere near as lucrative (see their gross margins). Also VEEV valuation after their IPO was a lot lower than NCNOs current valuation. That will put a damper on NCNO returns. Not to say they won’t have good returns in the coming ears. These types of companies are no secret anymore.
NCNO’s Q2 subscription revenue is inflated by both one-off “activating PPP & forgiveness deals immediately” (which generally takes six to nine months for community and regional banks and 12 to 24 months for enterprise customers and CFO commented “not subject to our usual phased activation approach”) for about 3m and another 2.6m from 2 acquisitions. If you take these 2 out, their organic subscription revenue growth would have been 46%.
Still not that attractive for me to pull the trigger.
I’ve just read the Q2 transcript and here are my notes:
• Built by Bankers, for Bankers.
• nCino’s retail loan origination system was named best-in-class by IT Group
• October release will be the first full integration of nIQ into the nCino bank operating system
• 1100 financial institution existing customers; 28,000 financial institutions worldwide potential customers
• 147% subscription revenue retention rate for fiscal 2020 (higher than normal due to PPP revenue)
• International revenues increased 103% year-over-year
• Outlook for the full fiscal year (January 31, 2021) is as follows; total revenues of $193 million to $194 million
• non-GAAP operating loss for fiscal 2021 to be $22 million to $23 million
- Based on $7.06B market cap, 36x revenue multiple using revenue projected up to January 2021
- If it can manage 50% growth y/y, then forward revenue multiple would be 24x
- The PPP and forgiveness revenue will be repurposed to other seats (whatever that means); bottom line is that the revenue is projected to be recurring (but not immediate say in Q3)
- nCino culture seems to be excellent
- High glassdoor rating; CEO with 99%
- Glassdoor reporting hiring surge; Linkedin position listings are mostly within the last 2 weeks
- Digital transformation for banks take time; so we might just be seeing a bit of a delay compared to other sectors
- Guidance for Q3 was a bit soft, but perhaps when the Q3 results come out, the Q4 guidance will be stronger
- Stock price forecast low of $90 and high of $100 by 6 analysts