I read the nCino S-1 walk-through from Alex Clayton (@afc) of Meritech Capital. Here is a recap of what I took away from it.

[If you are not familiar with his S-1 breakdowns, get acquainted. The archive is a who’s who of SaaS IPOs, many of which go on to become huge success stories: Cloudflare, Datadog, Zoom, Crowdstrike, DocuSign, MongoDB, Zscaler, Elastic, Okta, Alteryx. His S-1 writeups typically serve as the starting point for my own research when it involves an IPO.]

nCino is a SaaS platform, built over Salesforce, that acts as an “operating system” for banks of any size. It is an all-in-one platform that tracks all banking workflows, such as onboarding new clients, account openings, & handles the complexities of loan origination. It has a huge focus on security and in managing regulatory compliance, has a proven ROI, and is extremely sticky.

Beyond that, they have a product line called nCino IQ (nIQ), created from 2 acquisitions, that offers real-time ML/AI analytics and automation over those banking workflows, as well as OCR (reading text from document scans).

Platform

Customers

Founded in 2011, their initial go-to-market focus was in signing up credit unions and small regional banks. In 2014, they went up-market, towards higher-end customers — especially banks >$10B in assets. (Which are very likely those 21 customers spending >$1M in ARR.) Some of the larger customers: TD Bank, SunTrust, Santander, Regions, KeyBank, Bank of the West, Navy Federal CU.

Numbers

FY20 (TTM):
Revenue 138.2M +51%  (92% US, 8% Intl)
  - Sub Revenue 103.2M +60%
ARR 111.8M +57%
RPO 431.5M
Gross Profit 74.1M
Gross Margins 53.6%
Opex 102.3M +50%
Adj Op Loss -20.7M
... margin -15%
CFFO -9M
... margin -6.5%
Sub $NER 147%

Q121: 
Revenue 44.7M +50%   (90.5% US, 9.5% Intl)
  - Sub Revenue 34.8M +66% !!, +600bps seq
  - Pro Svcs +12%
ARR 139.3M +66% !!, +900bps seq
Gross Profit 25.8M 
Gross Margins 57.8% +420bps seq
Opex 30.1M +56%
Adj Op Loss -2.4M
... margin -5%
CFFO 8.4M +71%
... margin 18.8% !! swung pos
Cash 99M

Empl 934
Custs 1180
  - Core Custs 290
    -- Core > 100K 161
    -- Core > 1M 21
  - nIQ 890
Users 35k+

Notes

  • based on Salesforce cloud platform, and Salesforce Ventures was an investor
  • very similar foundation, story & numbers to Veeva (VEEV) when it went public (another platform based on Salesforce)
  • ~79% of total rev is subscription
  • acts as complete all-in-one platform to run operations at any size bank, help manage customer interactions and adhere the workflows to rules/regulations
  • provides 360°view of customers & workflows
  • momentum on the top line: sub rev & ARR growth are accelerating over FY20
  • operating leverage kicking in: cash flows swung positive, and op margins almost there as well
  • sales cycle 6-9mo for small, 12-18mo for large banks
  • implementation is up to 3mo for small, up to 18mo for large banks
  • contracts avg 3-5yr
  • in 10 countries; supports 120+ langs, 140+ currencies
  • lots of room to grow int'l
  • lumpy year - Q1/Q3 stronger, Q2/Q4 lower

Thoughts

We have a company growing subscription revenues & ARR by 66% right now. Top line growth is accelerating, as it swings cash flow positive and is nearing positive operating margins. Gross margins are on the low end of what I like to see, but are rising. Customers clearly love it and spend more and more over time — subscription $NER of 147% is extremely attractive, so it’s clearly doing the expand part of land and expand. It has 3-5 year avg contract length. This has to be an extremely sticky service, as it basically runs the bank's entire operation.

New customers are key, and it is a good sign in how they haven't seen any decision impacts from pandemic (customer delays or cancellations). But it's a heavy lift to sell it into large banks (12-18mo sales process then same for implementation), which is a limiting factor on how fast the customers can grow - especially the big ones that really move the needle.

Interesting company, and clearly is already successful, but probably not at the top of my list given how hard it is to do the land part of that land and expand. The parallels to Veeva are enormous — in both the foundations of the company & its size at IPO, but also in how condensed the customer base is.

Add’l Reading

-muji