nCino, a vertical SaaS company that offers an operating system for banks, filed for a $100M IPO (placeholder figure) and plans to trade on the Nasdaq under the ticker "NCNO". nCino is the 3rd SaaS company to file this year after Procore and ZoomInfo (NasdaqGS:ZI). While ZoomInfo had a successful offering Procore raised more money instead of opting for an IPO. Bank of America is leading nCino's IPO. nCino offers an "operating system" for banks and credit unions and becomes the system of record for financial institutions and their customers. The company manages all aspects of a customers' workflows such as onboarding new clients, making loans, opening accounts, and managing regulatory compliance, all in one digital platform that connects front, middle and back office employees and third parties across business lines. The company's entire platform is built on the Salesforce platform (similar to Veeva) and has deep ties with Salesforce (Salesforce Ventures is also an investor). While financial institutions are not known for being tech-forward, nCino wants to change that and their mission is to "transform financial services through innovation, reputation and speed." nCino started with commercial and small business lending for community/regional banks and launched their solution to enterprise banks in 2014. The company serves financial institutions of all sizes including enterprise banks, regional banks, community banks, credit unions, and new market entrants such as challenger banks.
nCino's traction is impressive; they did $138.2M of revenue in FY'20 (fiscal year ending January 31st), up 51% YoY, and did $44.7M of revenue in FY Q1'21, up 50% YoY. The company ended FY'20 with 1,180+ total customers across 10 countries. nCino ended last quarter at $139.3M of implied ARR (quarterly subscription revenue * 4), up 66% YoY. The company is based in Wilmington, North Carolina, and has 934 full-time employees. nCino was started and spun out in 2011 and incorporated in 2013. Their name, nCino, was a play on the Spanish word for “Live Oak”.
nCino's bank operating system provides client onboarding, loan origination, deposit account opening, analytics and AI/ML on a single platform across commercial, small business, and retail lines of business. It's an all-in-one platform that offers all the mission-critical functionality a bank needs to operate and serve customers. The product is built and hosted on the Salesforce platform and has a variety of applications (more below).
Given the nCino applications are all built on the same platform, they share the same underlying system so there aren't data silos and the product offers process automation, compliance and risk management tools, auditing, analytics, enterprise-wide content management system, and a 360-degree client view. This also gives consumers a better experience as nCino users can find consumers across systems. nCino leverages open APIs and other productized integrations to help customers centralize all their data by bringing together disparate data sources into the core nCino product.
Summary Metrics and GTM (Go-to-Market)
Almost 80% of nCino's revenue is subscription in nature and subscription fees are charged annually in advance. The company sells its product through a direct sales force which has historically focused on the U.S. market but the company has recently expanded their focus to international markets. They had 140 sales and sales support personnel in the U.S. and 54 outside the U.S. Given the breadth of the product, implementation can take 3 months for a community bank but over 18 months for a large, global financial institution. ~20% of the company's revenue last quarter was professional services, which has come down as a percent of total revenue over the past few years. nCino also uses SI's (systems integrators) to help integrate customers (over 1,500 SI consultants have completed their training program). Given the large lift to install and onboard the product, contracts range from 3-5 years and the company uses a land-and-expand model to increase revenue and adoption within their customers (more data on cohorts later in this post). For example, they formally launched a retail lending solution in May 2018 and have 33 customers using both commercial and retail loan origination applications. The company also resells Salesforce's products into deals. Client onboarding, loan origination, and deposit account opening applications are charged on a per-seat basis. nIQ is priced on the asset size of the customer or on a usage-basis. Subscription gross margins are in the high 60's / low 70's and professional services GAAP gross margins were ~11% last quarter. Subscription net revenue retention rates are high and was 147% in FY'20. Taking their implied ARR and dividing by total customers, the average customer pays ~$95K (as of FY'20). Although this number is skewed by nIQ customers, of which there are 890. There are 290+ core operating system customers. They don't provide the revenue break outs so it's hard to know what the average core banking customer pays, but it's likely significantly more than $95K. Of the 290+ core banking customers, 161 are paying $100K+ in subscription revenue per year and no customer was over 10% of total revenues last year. 21 customers pay more than $1M/year. Below are more stats on the business as well as industry stats from the S-1:
nCino estimates the total market for their bank operating system to be more than $10B. Financial institutions, of which there are 28,000 globally are not known as being technology-forward companies and operate under intense regulatory scrutiny, making adopting new technologies difficult, but the budgets are massive. Gartner estimates that software global enterprise IT spending within the banking market was ~$63B in 2018, of which ~$18 billion was for vertical-specific software. Overall, IDC estimates SaaS revenues from banking is projected to grow from $13B in 2018 to $29B in 2023, representing a CAGR (compound annual growth rate) of 17%. nCino gathers the $10B figure from a 2019 study by Grata, a third party market research firm. Given nCino's 290+ bank operating system and 28,000 total institutions, nCino is just over 1% penetrated from a customer perspective.
nCino does not call out any competitors by name in their S-1 and that the primary competition for their product are point solutions and sometimes internally built products from the banks themselves. nCino does expect competition to increase but believe their focus on a holistic product suite on one platform and banking expertise / reputation is a competitive advantage.
nCino has been acquisitive over the past year and has spent ~$85M acquiring two businesses in the last 12 months. Detail is below and they acquired FinSuite and Visible Equity as part of their strategy to build out their nIQ product's capabilities. nIQ was launched in 2020 and is nCino's AI/ML (artificial intelligence and machine learning) driven analytics product. 15%+ (~$6M) of nCino's subscription revenue growth in FY'20 was attributable to revenues from Visible Equity and FinSuite.
Investors and Ownership
nCino discloses they have raised $240.4M in capital from common stock issuances and according to Pitchbook, they have raised $205.1M. Investors include Insight, Bessemer, Salesforce Ventures, T.Rowe Price, Wellington, and others. 5%+ pre-offering institutional investor shareholders include Insight (46.6%), Salesforce Ventures (13.2%) and Wellington (9.5%). The last round of funding was an $80M round led by T. Rowe Price in September of 2019. Given the partnership, nCino notes that Salesforce has invested $72M and that they bought an additional $9M through secondary transactions. Given they own 13.2%, that implies a cost basis of ~$614M. Insight, the largest shareholder, acquired 63% of their total shares at an $8.00 per share price ($190M+), less than half of the most recent tender offer in 2018 and well below the last round in September of 2019 of $21.75, so will likely have a significant gain on the IPO. Using the most recent round price, the implied basic market cap would be ~$1,775M.
% Ownership, Pre-Offering
Financials and Other Metrics Outputs
nCino is on the smaller end of the 2019 cohort of SaaS IPOs in terms of revenue. They did $153.1M of LTM total revenue compared to a median of $242M for the 2019 cohort. The company has strong expansion characteristics with 147% subscription net revenue retention rates and lowering losses. They're growing fairly efficiently for such long sales cycles; their implied months to pay back, which is the inverse of a CAC ratio (implied net new ARR multiplied by gross margin divided by sales and marketing spend of the prior quarter), was at a 15-month median over the past 7 quarters. Given the long sales cycles and large deals / implementation times, their revenue is lumpy in nature so paybacks are less relevant. The company disclosed they have raised $240.4M, has $99M in cash and spent $54M in cash for acquisitions, so has burned ~$88M to get to almost $140M in implied ARR, at 1.6x ratio of implied ending ARR / implied burn at IPO, which is impressive. Outputs of other metrics are below:
Historical P&L & Metrics ($000's)
Quarterly Revenue ($M)
Implied Ending ARR ($M)*
nCino added $27.5M of implied net new ARR over the past quarter and $55.2M over the past year.
Quarterly GAAP Gross Margin and Operating Expenses as a % of Revenue
GAAP Gross Margin Mix
Gross margins are increasing as more revenue is coming from subscriptions vs. professional services.
GAAP and Non-GAAP Operating and Net Income / (Loss) Margins
nCino's losses are narrowing as revenue continues to scale.
Subscription and Professional Services % Revenue Mix
nCino is generating more of their revenue from subscriptions over the past few years.
U.S. and International % Revenue Mix
International markets are a large area of opportunity and expansion for nCino and while small, they're growing rapidly.
Subscription Revenue Net Retention Rates and Cohorts
nCino has very strong subscription net revenue retention, but it has come down over the past 3 years as the company's install base has grown.
The company also discloses ACV-based net retention by cohort in the graphic below which illustrates their land-and-expand model.
Sales Efficiency and Payback Periods
nCino doesn’t release customer counts by quarter, but the below output plots their implied months to payback using the inverse of a CAC ratio (net new ARR multiplied by gross margin divided by sales and marketing spend of the prior quarter). The magic number is defined as net new ARR divided by sales and marketing spend of the prior quarter. I don't think this metric is as useful for nCino since the company has long sales cycles and lumpier quarter-over-quarter growth, but the median months-to-pay-back over the disclosure period is 15 months*.
Cash Flows ($M)
Quarterly GAAP P&L (000's)
nCino will trade like other high-growth SaaS companies: on a multiple of forward revenue. The output below uses NTM (next-twelve-months) revenue based on an illustrative range of growth rates and comparable EV (enterprise value) / NTM revenue multiples from other public, high-growth SaaS businesses. It also includes an implied ARR multiple range. As mentioned in other posts, companies do not release projections or guidance in S-1's. Given the massive up swell on SaaS valuations over the past 4-5 months (Meritech Enterprise Comps), we're slightly off all-time-highs but still way ahead of historical averages. I suspect nCino will trade somewhere in the middle of the range of public high-growth SaaS companies.
nCino is an impressive vertical SaaS company. As we saw with Procore earlier this year, cloud-based / SaaS software is disrupting and finding its way into every industry. Even with the heavy regulatory and operational complexity of financial institutions, nCino's product is bringing banks into the digital age with their holistic cloud suite of products. Given consumers' desire for more modern and digital-only banking experiences, nCino is on the right side of history and will likely continue to benefit from the digital transformation of the industry, of which they are a key enabler. The opportunity for them is massive and given the limited international expansion to date, they have a lot of room to grow. While sales cycles and implementations are long, the product is very sticky and likely extremely difficult to switch away from. nCino is deeply entrenched in their customers and are effectively selling them more products. Investors will dig into the gross margins, which are lower than a typical SaaS company and sales cycles. At ~$150M of LTM revenue, they're on the smaller end of SaaS IPOs so the story around their leadership position in the market will be more forward-looking. Veeva, another vertical SaaS company built on the Salesforce platform that went public in Oct-2013 had $168M of LTM revenue and is now at $1.2B of LTM revenue (Veeva's implied ARR at IPO quarter was $136M vs. $139M for nCino). Veeva is up 12x+ from their IPO price and nCino will surely use them as an analog in their pitch to investors. nCino is the leading vertical SaaS player in their industry and riding the right trends; investors will certainly want to be a part of the story and they should trade well as a public company.
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