Tech and fintech companies have not had it easy this year, with inflation and rising interest rates proving to be significant headwinds that made for a difficult operating environment. A scary macro outlook has also led many companies to tighten their belts on the hiring side and lower their full-year guidance on concerns of a deteriorating economy.
But the cloud-based banking tech provider nCino (NCNO 0.51%)seems to be headed in the other direction. The company recently reported solid earnings results and raised its full-year guidance on several fronts. Let's take a look.
For the second fiscal quarter of 2023, which ended on July 31, nCino generated a loss of $0.25 per diluted share on total revenue of roughly $99.6 million. Earnings missed analyst estimates slightly while revenue beat them. But the company grew revenue by 50% from the same quarter one year ago, and subscription revenue grew 57% year over year. NCino also raised its full-year guidance for the fiscal year 2023, which ends Jan. 31, 2023.
|Metrics||Guidance as of June 1||Guidance as of Sept. 1|
|Revenue (in millions)||$401 to $403||$401.5 to $403.5|
|Subscription Revenue (in millions)||$341 to $343||$341.5 to $343.5|
|Non-GAAP Operating Loss (in millions)||-$26 to -$24||-$14 to -$12|
|Non-GAAP Net Loss Per Share||-$0.30 to -$0.28||-$0.19 to -$0.17|
While full-year revenue guidance is only being raised slightly, nCino is significantly narrowing the loss it expects to generate for the year. NCino's CEO Pierre Naude said the company plans to take a "more measured approach" to hiring and that the company sees "plenty of opportunity within our existing employee base to support future growth while driving incremental operating leverage."
NCino is still hiring, however, just at a slower pace. Naude said the company has always spent a higher proportion of its revenue, about 27%, on research and development.
Solid progress in the business
NCino provides core technology to financial institutions all over the world that can automate work processes and improve efficiency. For instance, nCino provides technology that can help automate the loan origination process by removing manual work such as data entry.
This feature, known as automated spreading, speeds up loan underwriting because the software can pull select financial data from a borrower's financial documents and tax returns and quickly input it into nCino's credit system. Automated spreading can cut the time it would normally take to collect and gather this data by 75%, according to the company. During the second fiscal quarter, nCino signed its largest automated spreading deal to date with the Dutch multinational bank Rabobank to help improve its operations in Australia and New Zealand.
Another area the company continues to make good headway in is its mortgage origination platform SimpleNexus. Despite a challenging mortgage market in recent months due to rapidly rising interest rates, nCino signed 26 new customers up for SimpleNexus, which also helps greatly automate the mortgage origination process from start to finish and particularly on the purchase mortgage side, which the market has shifted to.
In difficult times, bank executives may be more prone to start thinking about investing in products like automated spreading and Simple Nexus because efficiency and running a lean organization will be more top of mind. There is less incentive to make operational changes when the good times are rolling. NCino employs a land-and-expand model, so once it can get one of its products in a bank, it is usually able to get more business from that same bank in other areas because of the value of nCino's technology.
Is the stock a buy?
NCino just had a nice quarter that continued to show the market the company can operate in a difficult macro environment. Part of the reason for this is that its products can help banks get more efficient when things get tough. With NCino raising its outlook, focusing more on becoming profitable, and continuing to win key partnerships with new large banks, I do think this stock is a buy right now.