nCino, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes and other financial information included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended January 31, 2023 filed with the SEC on March 28, 2023 . The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K, particularly in the section titled “Risk Factors.” Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Our fiscal year ends on January 31 of each year and references in this Quarterly Report on Form 10-Q to a fiscal year mean the year in which that fiscal year ends. For example, references in this Quarterly Report on Form 10-Q to "fiscal 2024" refer to the fiscal year ended January 31, 2024. Overview nCino is the pioneer in cloud banking. Built by bankers for bankers, the nCino Bank Operating System is a single, multi-tenant software-as-a-service (SaaS) solution that helps financial institutions ("FI") modernize, innovate and outperform. A leader in the global financial services technology industry, nCino is a proven partner that has helped more than 1,850 FIs of all sizes and complexities, including global, enterprise, regional and community banks; credit unions; new market entrants; and independent mortgage banks power distinctive experiences, drive growth efficiencies, and run with full integrity. With nCino, FIs can: • digitally serve their clients across lines of business, • improve financial results, • elevate employee experience and performance, • manage risk and compliance more effectively, and • establish an active data, audit, and business intelligence hub. nCino was originally founded in a bank to improve that FI’s operations and client service. After realizing that virtually all FIs were dealing with the same problems—cumbersome legacy technology, fragmented data, disconnected business functions, and a disengaged workforce made it difficult to maintain relevancy in their clients’ lives—we were spun out as a separate company in late 2011. This heritage is the foundation of our deep banking domain expertise, which differentiates us, continues to drive our strategy and makes us uniquely qualified to help FIs cross the modernization divide by providing a comprehensive solution that onboards clients, originates loans, and opens accounts on a single, cloud-based platform. We initially focused the nCino Bank Operating System on transforming commercial and small business lending for community and regional banks in the United States ("U.S."). We introduced this solution to enterprise banks in the U.S. in 2014, and then internationally in 2017, and have subsequently expanded across North America, Europe, and Asia-Pacific ("APAC"). Throughout this market expansion, we broadened the nCino Bank Operating System by adding functionality for consumer lending, client onboarding, deposit account opening, analytics and AI/ML. In fiscal 2020, we acquired nCino Portfolio Analytics, LLC (formerly Visible Equity) and FinSuite as part of our strategy to build out our nIQ capabilities, and we established our nCino K.K joint venture to facilitate our entry into the Japanese market. Additionally, in January 2022, we acquired SimpleNexus, which expanded our capabilities to the U.S. point-of-sale mortgage market. We generally offer our solutions on a SaaS basis under multi-year contracts and recognize subscription revenues ratably over the term of the contract. Our customers may initially purchase one of our solutions for implementing a client onboarding, loan origination, and/or deposit account opening in a specific line of business within the FI, such as commercial, small business, consumer, or mortgage. The nCino Bank Operating System is designed to scale with our customers, and once our solution is deployed, we seek to have our customers expand adoption within and across lines of business. We sell our solutions directly through our business development managers, account executives, field sales engineers, and customer success managers. Our sales efforts in the U.S. are organized around FIs based on size, whereas 21 Table of Contents internationally, we focus our sales efforts by geography. As of April 30, 2023, we had 244 sales and sales support personnel in the U.S. and 73 sales and support personnel in offices outside the U.S. To help customers go live with our solutions, we offer professional services including configuration and implementation, training, and advisory services. For enterprise FIs, we generally work with system integration ("SI") partners such as Accenture, Deloitte, and PwC for the delivery of professional services for the nCino Bank Operating System. For regional bank FIs, we work with SIs such as West Monroe Partners, and for community banks, we work with SIs or perform configuration and implementation ourselves. We expect enterprise FIs to make up a greater proportion of our nCino Bank Operating System sales. As a result, we expect the mix of our total revenues to become more heavily weighted toward subscription revenues. Our employee headcount decreased by 76 as of April 30, 2023 compared to April 30, 2022 primarily due to our workforce reduction announced in the fourth quarter of fiscal 2023. For the three months ended April 30, 2022 and 2023, our total revenues were $94.2 million and $113.7 million, respectively, representing a 20.7% increase. For the three months ended April 30, 2022 and 2023, our subscription revenues were $79.2 million and $97.3 million, respectively, representing a 22.9% increase. Due to our investments in growth, we recorded net losses attributable to nCino, Inc. of $30.7 million and $11.2 million for the three months ended April 30, 2022 and 2023, respectively. Factors Affecting Our Operating Results Market Adoption of Our Solution . Our future growth depends on our ability to expand our reach to new FI customers and increase adoption with existing customers as they broaden their use of our solutions within and across lines of business. Our success in growing our customer base and expanding adoption of our solutions by existing customers requires a focused direct sales engagement and the ability to convince key decision makers at FIs to replace legacy third-party point solutions or internally developed software with our solutions. In addition, growing our customer base will require us to increasingly penetrate markets outside the U.S., which accounted for 16.9% of total revenues for the three months ended April 30, 2023. For new customers, our sales cycles are typically lengthy, generally ranging from six to nine months for smaller FIs to 12 to 18 months or more for larger FIs. Key to landing new customers is our ability to successfully take our existing customers live and help them achieve measurable returns on their investment, thereby turning them into referenceable accounts. If we are unable to successfully address the foregoing challenges, our ability to grow our business and achieve profitability will be adversely affected, which may in turn reduce the value of our common stock. Mix of Subscription and Professional Services Revenues. The initial deployment of our solutions by our customers requires a period of implementation and configuration services that typically range from three months to 18 months, depending on the scope. As a result, during the initial go-live period for a customer on the nCino Bank Operating System, professional services revenues generally make up a substantial portion of our revenues from that customer, whereas over time, revenues from established customers are more heavily weighted to subscriptions. While professional services revenues will fluctuate as a percentage of total revenues in the future and tend to be higher in periods of faster growth, over time we expect subscription revenues will make up an increasing proportion of our total revenues as our overall business grows. Macroeconomic Environment. We are currently operating in a rising interest rate environment as the U.S. Federal Reserve raises interest rates as a means to manage inflation. These rate increases have had an impact on the real estate market in the U.S. and specifically, the demand for mortgages and mortgage-related products and services, which has had a negative impact on our SimpleNexus business. Additionally, liquidity issues faced by certain FIs in the U.S., including Silicon Valley Bank, Signature Bank and First Republic Bank (the "Impacted FIs") have created turmoil and uncertainty surrounding the financial services industry. These Impacted FIs are customers of ours, collectively representing less than 3% of our total revenues for the year ended January 31, 2023. We have a large and diversified customer base of all types and sizes around the globe, and no individual customer represented more than 10% of the Company's revenue for our first quarter of fiscal 2024. We will continue to monitor the impact the macroeconomic environment may have on our business. Continued Investment in Innovation and Growth . We have made substantial investments in product development, sales and marketing, and strategic acquisitions since our inception to achieve a leadership position in our market and grow our revenues and customer base. We intend to continue to increase our investment in product development in the coming years to 22 Table of Contents maintain and build on this advantage. We also intend to invest in sales and marketing both in the U.S. and internationally to further grow our business. To capitalize on the market opportunity we see ahead of us, we expect to continue to optimize our operating plans for revenue growth and profitability. Components of Results of Operations Revenues We derive our revenues from subscription and professional services and other revenues. Subscription Revenues . Our subscription revenues consist principally of fees from customers for accessing our solutions and maintenance and support services that we generally offer under non-cancellable multi-year contracts, which typically range from three to five years for the nCino Bank Operating System and one to three years for SimpleNexus. Specifically, we offer: • Client onboarding, loan origination, and deposit account opening applications targeted at a FI’s commercial, small business, and retail lines of business, for which we generally charge on a per seat basis. • nIQ for which we generally charge based on the asset size of the customer or on a usage basis. • Through SimpleNexus, a digital homeownership platform uniting people, systems, and stages of the mortgage process into a seamless end-to-end journey for which we generally charge on a per seat basis. • Maintenance and support services as well as internal-use or “sandbox” development licenses, for which we generally charge as a percentage of the related subscription fees. Our subscription revenues are generally recognized ratably over the term of the contract beginning upon activation. For new customers, we may activate a portion of seats at inception of the agreement, with the balance activated at contractually specified points in time thereafter, to pattern our invoicing after the customer’s expected rate of implementation and adoption. Where seats are activated in stages, we charge subscription fees from the date of activation through the anniversary of the initial activation date, and annually thereafter. Subscription fees associated with the nCino Bank Operating System are generally billed annually in advance while subscription fees for SimpleNexus are generally billed monthly in advance. Maintenance and support fees, as well as development licenses, are provided over the same periods as the related subscriptions, so fees are invoiced and revenues are recognized over the same periods. Subscription fees invoiced are recorded as deferred revenue pending recognition as revenues. In certain cases, we are authorized to resell access to Salesforce’s CRM solution along with the nCino Bank Operating System. When we resell such access, we charge a higher subscription price and remit a higher subscription fee to Salesforce for these subscriptions. Professional Services and Other Revenues . Professional services and other revenues consist of fees for implementation and configuration assistance, training, and advisory services. For enterprise and larger regional FIs, we generally work with SI partners to provide the majority of implementation services for the nCino Bank Operating System, for which these SI partners bill our customers directly. We have historically delivered professional services ourselves for community banks and smaller credit unions and SimpleNexus has historically provided professional services directly to its customers. Revenues for implementation, training, and advisory services are generally recognized on a proportional performance basis, based on labor hours incurred relative to total budgeted hours. To date, our losses on professional services contracts have not been material. During the initial go-live period for a customer on the nCino Bank Operating System, professional services revenues generally make up a substantial portion of our revenues from that customer, whereas over time, revenues from established customers are more heavily weighted to subscriptions. While professional services revenues will fluctuate as a percentage of total revenues in the future and tend to be higher in periods of faster growth, over time we expect to see subscription revenues make up an increasing proportion of our total revenues. Cost of Revenues and Gross Margin Cost of Subscription Revenues . Cost of subscription revenues consists of fees paid to Salesforce for access to the Salesforce Platform, including Salesforce’s hosting infrastructure and data center operations, along with certain integration fees paid to other third parties. When we resell access to Salesforce’s CRM solution, cost of subscription revenues also includes the subscription fees we remit to Salesforce for providing such access. We also incur costs associated with access to other platforms. In addition, cost of subscription revenues includes personnel-related costs associated with delivering maintenance 23 Table of Contents and support services, including salaries, benefits and stock-based compensation expense, travel and related costs, amortization of acquired developed technology, and allocated overhead. Our subscription gross margin will vary from period to period as a function of the utilization of support personnel and the extent to which we recognize subscription revenues from the resale of Salesforce’s CRM solution. Cost of Professional Services and Other Revenues . Cost of professional services and other revenues consists primarily of personnel-related costs associated with delivery of these services, including salaries, benefits and stock-based compensation expense, travel and related costs, and allocated overhead. The cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscription services due to direct labor costs. The cost of professional services revenues has increased in absolute dollars as we have added new customer subscriptions that require professional services and built-out our international professional services capabilities. Realized effective billing and utilization rates drive fluctuations in our professional services and other gross margin on a period-to-period basis. Operating Expenses Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs of our sales and marketing employees, including salaries, sales commissions and incentives, benefits and stock-based compensation expense, travel and related costs. We capitalize incremental costs incurred to obtain contracts, primarily consisting of sales commissions, and subsequently amortize these costs over the expected period of benefit, which we have determined to be approximately four years. Sales and marketing expenses also include outside consulting fees, marketing programs, including lead generation, costs of our annual user conference, advertising, trade shows, other event expenses, amortization of intangible assets, and allocated overhead. We expect sales and marketing expenses will decrease as a percentage of revenues as we leverage the investments we have made to date. Research and Development. Research and development expenses consist primarily of salaries, benefits and stock-based compensation associated with our engineering, product and quality assurance personnel, as well as allocated overhead. Research and development expenses also include the cost of third-party contractors. Research and development costs are expensed as incurred. We expect research and development costs will decrease as a percentage of revenues as we leverage the investments we have made to date. General and Administrative. General and administrative expenses consist primarily of salaries, benefits and stock-based compensation associated with our executive, finance, legal, human resources, information technology, compliance and other administrative personnel. General and administrative expenses also include accounting, auditing and legal professional services fees, travel and other corporate-related expenses, and allocated overhead, as well as acquisition-related expenses, such as legal and other professional services fees. We expect general and administrative expenses will decrease as a percentage of revenues as we leverage the investments we have made to date. Non-Operating Income (Expense) Interest Income. Interest income consists primarily of interest earned on our cash and cash equivalents. Interest Expense. Interest expense consists primarily of interest related to our financing obligations along with interest expense on borrowings, commitment fees, and amortization of debt issuance costs associated with our secured revolving credit facility. Other Expense, Net. Other expense, net consists primarily of foreign currency gains and losses, the majority of which is due to intercompany loans that are denominated in currencies other than the underlying functional currency of the applicable entity. Income Tax Provision. Income tax provision consists of federal and state income taxes in the U.S. and income taxes in foreign jurisdictions. Results of Operations The results of operations presented below should be reviewed in conjunction with the financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. The following tables present our selected unaudited 24 Table of Contents condensed consolidated statements of operations data for three months ended April 30, 2022 and 2023 in both dollars and as a percentage of total revenues, except as noted. Three Months Ended April 30, 2022 2023 ($ in thousands, except share and per share amounts) Revenues: Subscription revenues $ 79,189 $ 97,340 Professional services and other revenues 15,022 16,332 Total revenues 94,211 113,672 Cost of revenues: Cost of subscription revenues 25,510 29,157 Cost of professional services and other revenues 14,792 17,031 Total cost of revenues 40,302 46,188 Gross profit 53,909 67,484 Operating expenses: Sales and marketing 29,339 29,941 Research and development 29,115 28,195 General and administrative 22,686 17,975 Total operating expenses 81,140 76,111 Loss from operations (27,231) (8,627) Non-operating income (expense): Interest income 2 537 Interest expense (638) (1,379) Other expense, net (1,573) (782) Loss before income taxes (29,440) (10,251) Income tax provision 563 1,393 Net loss (30,003) (11,644) Net loss attributable to redeemable non-controlling interest (344) (280) Adjustment attributable to redeemable non-controlling interest 1,029 (121) Net loss attributable to nCino, Inc. $ (30,688) $ (11,243) Net loss per share attributable to nCino, Inc.: Basic and diluted $ (0.28) $ (0.10) Weighted average number of common shares outstanding: Basic and diluted 109,998,637 112,032,536 The Company recognized stock-based compensation expense as follows: Three Months Ended April 30, ($ in thousands) 2022 2023 Cost of subscription revenues $ 376 $ 314 Cost of professional services and other revenues 1,871 1,629 Sales and marketing 3,371 3,211 Research and development 2,832 3,000 General and administrative 4,850 2,711 Total stock-based compensation expense $ 13,300 $ 10,865 25 Table of Contents The Company recognized amortization expense for intangible assets as follows: Three Months Ended April 30, ($ in thousands) 2022 2023 Cost of subscription revenues $ 4,262 $ 4,251 Cost of professional services and other revenues — 82 Sales and marketing 2,771 2,772 Total amortization expense $ 7,033 $ 7,105 Three Months Ended April 30, 2022 2023 Revenues: Subscription revenues 84.1 % 85.6 % Professional services and other revenues 15.9 14.4 Total revenues 100.0 100.0 Cost of revenues (percentage shown in comparison to related revenues): Cost of subscription revenues 32.2 30.0 Cost of professional services and other revenues 98.5 104.3 Total cost of revenues 42.8 40.6 Gross profit 57.2 59.4 Operating expenses: Sales and marketing 31.1 26.3 Research and development 30.9 24.8 General and administrative 24.1 15.8 Total operating expenses 86.1 66.9 Loss from operations (28.9) (7.5) Non-operating income (expense): Interest income — 0.5 Interest expense (0.7) (1.2) Other expense, net (1.7) (0.7) Loss before income taxes (31.3) (8.9) Income tax provision 0.6 1.2 Net loss (31.9) % (10.1) % Comparison of the Three Months Ended April 30, 2022 and 2023 Revenues Three Months Ended April 30, ($ in thousands) 2022 2023 Revenues: Subscription revenues $ 79,189 84.1 % $ 97,340 85.6 % Professional services and other revenues 15,022 15.9 16,332 14.4 Total revenues $ 94,211 100.0 % $ 113,672 100.0 % Subscription Revenues Subscription revenues increased $18.2 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, due to initial revenues from customers who did not contribute to subscription revenues during the prior period, and growth from existing customers within and across lines of business. Of the increase, 69.3% was attributable to increased revenues from existing customers as additional seats were activated in accordance with contractual terms and 26 Table of Contents customers expanded their adoption of our solutions, and 30.7% was attributable to initial revenues from customers who did not contribute to subscription revenues during the three months ended April 30, 2022. Subscription revenues were 85.6% of total revenues for the three months ended April 30, 2023 compared to 84.1% of total revenues for the three months ended April 30, 2022, primarily due to growth in our installed base. Professional Services and Other Revenues Professional services and other revenues increased $1.3 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, primarily due to the addition of new customers as well as expanded adoption by existing customers within and across lines of business where implementation, configuration, and training services were required. Cost of Revenues and Gross Margin Three Months Ended April 30, ($ in thousands) 2022 2023 Cost of revenues (percentage shown in comparison to related revenues): Cost of subscription revenues $ 25,510 32.2 % $ 29,157 30.0 % Cost of professional services and other revenues 14,792 98.5 17,031 104.3 Total cost of revenues $ 40,302 42.8 $ 46,188 40.6 Gross profit $ 53,909 57.2 % $ 67,484 59.4 % Cost of Subscription Revenues Cost of subscription revenues increased $3.6 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, generating a gross margin for subscription revenues of 70.0% compared to a gross margin of 67.8% for the three months ended April 30, 2022. Costs related to Salesforce user fees increased $2.8 million as we continued to add new customers and sell additional functionality to existing customers and other costs of subscription revenues increased $0.6 million due to costs associated with access to other platforms and data center costs. We expect the cost of subscription revenues will continue to increase in absolute dollars as the number of users of the nCino Bank Operating System grows. Cost of Professional Services and Other Revenues Cost of professional services and other revenues increased $2.2 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, generating a gross margin for professional services and other revenues of (4.3)% compared to a gross margin of 1.5% for the three months ended April 30, 2022. For the three months ended April 30, 2023, personnel costs, including stock-based compensation expense, increased $1.7 million for professional services compared to the three months ended April 30, 2022, mainly from an increase in headcount. The increase in cost of professional services and other revenues also included an increase of $0.4 million in allocated overhead costs due to growth supporting our business. The decrease in our professional services and other gross margin for the three months ended April 30, 2023 was primarily due to a decline in realized effective billing and utilization rates in our professional services teams. Operating Expenses Three Months Ended April 30, ($ in thousands) 2022 2023 Operating expenses: Sales and marketing $ 29,339 31.1 % $ 29,941 26.3 % Research and development 29,115 30.9 28,195 24.8 General and administrative 22,686 24.1 17,975 15.8 Total operating expenses 81,140 86.1 76,111 66.9 Loss from operations $ (27,231) (28.9) % $ (8,627) (7.5) % 27 Table of Contents Sales and Marketing Sales and marketing expenses increased $0.6 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, primarily due to an increase of $0.6 million in third-party professional fees and an increase of $0.4 million in sales-related travel costs. The increase in sales and marketing expenses was partially offset by a decrease of $0.3 million in personnel costs, including stock-based compensation expense, mainly from a decrease in headcount offset by compensation increases, the impact of changing our merit cycle from a work anniversary basis to an annual basis, and a decrease of $0.3 million in marketing costs. Our sales and marketing headcount decreased by 58 from April 30, 2022 to April 30, 2023 primarily due to our workforce reduction and employees that moved to our general and administrative department due to a change in responsibilities. We expect sales and marketing expenses will decrease as a percentage of revenues as we leverage the investments we have made to date. Research and Development Research and development expenses decreased $0.9 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, primarily due to a decrease of $1.0 million in third-party professional fees as a result of lower contract research and development spend and a decrease of $0.4 million in personnel costs, including stock-based compensation expense, mainly from a decrease in headcount offset by compensation increases and the impact of changing our merit cycle from a work anniversary basis to an annual basis. The decrease in research and development expenses was partially offset by an increase of $0.5 million in allocated overhead costs due to growth supporting our continued business expansion. Our research and development headcount decreased by 58 from April 30, 2022 to April 30, 2023 primarily due to our workforce reduction. We expect research and development expenses will decrease as a percentage of revenues as we leverage the investments we have made to date. General and Administrative General and administrative expenses decreased $4.7 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, primarily due to a decrease of $3.2 million in personnel costs, mostly attributable to a $2.1 million decrease in stock-based compensation expense, and a decrease in headcount partially offset by compensation increases and the impact of changing our merit cycle from a work anniversary basis to an annual basis. The decrease in general and administrative spend also included a decrease of $1.7 million in third party professional fees for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, mostly attributable to a decrease in third party professional fees and expenses related to acquisition costs for SimpleNexus and fees and expenses related to the government antitrust investigation and related civil action disclosed in Note 12 "Commitments and Contingencies" of Part I, Item I of this Quarterly Report on Form 10-Q (the "Antitrust Matters"), partially offset by an increase in other professional fees. The decrease in general and administrative expenses was partially offset by an increase of $0.3 million in allocated overhead and other general and administrative costs. Our general and administrative headcount decreased by 8 from April 30, 2022 to April 30, 2023 primarily due to our workforce reduction which was partially offset by employees that moved from our sales and marketing department to our general and administrative department due to a change in responsibilities. We expect general and administrative expenses will decrease as a percentage of revenues as we leverage the investments we have made to date. Non-Operating Income (Expense) Three Months Ended April 30, ($ in thousands) 2022 2023 Interest income $ 2 — % $ 537 0.5 % Interest expense (638) (0.7) (1,379) (1.2) Other expense, net (1,573) (1.7) (782) (0.7) Interest income increased $0.5 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, due to increase in our accounts earning interest and increased interest rates. Interest expense increased $0.7 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, due to borrowing 28 Table of Contents on our revolving credit facility and an increase in our financing obligations for leases for which we are considered the owners for accounting purposes. The decrease of $0.8 million in other expense, net for the three months ended April 30, 2023 compared to the three months ended April 30, 2022 was primarily driven by intercompany loans and transactions that are denominated in currencies other than the underlying functional currency of the applicable entity. Income Tax Provision Three Months Ended April 30, ($ in thousands) 2022 2023 Income tax provision $ 563 0.6 % $ 1,393 1.2 % Income tax provision was $1.4 million for the three months ended April 30, 2023 compared to a provision of $0.6 million for the three months ended April 30, 2022, and resulted in an effective tax rate of (13.6)% and (1.9)%, respectively. We continue to maintain a valuation allowance against our deferred tax assets in most jurisdictions, including the U.S. It is determined by management when a valuation allowance should be recorded, utilizing significant judgement and the use of estimates. We have adopted, as required, Code Section 174, as amended by the Tax Cuts and Jobs Act of 2017. This will result in the repartition of our deferred tax asset balances from net operating losses and tax credit carryforwards to non-tax attribute deferred tax balances. In addition, this may reduce our operating cash flows in future periods through cash remittances of U.S. federal and state income tax. Non-GAAP Financial Measure In addition to providing financial measurements based on GAAP, we provide an additional financial metric that is not prepared in accordance with GAAP (non-GAAP). Management uses this non-GAAP financial measure, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, and to evaluate our financial performance. We believe that this non-GAAP financial measure helps us to identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculations of the non-GAAP financial measure. Accordingly, we believe that this financial measure reflects our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business and provides useful information to investors and others in understanding and evaluating our operating results, and enhancing the overall understanding of our past performance and future prospects. Although the calculation of non-GAAP financial measures may vary from company to company, our detailed presentation may facilitate analysis and comparison of our operating results by management and investors with other peer companies, many of which use a similar non-GAAP financial measure to supplement their GAAP results in their public disclosures. This non-GAAP financial measure is non-GAAP operating income (loss), as discussed below. Non-GAAP operating income (loss). Non-GAAP operating income (loss) is defined as loss from operations as reported in our unaudited condensed consolidated statements of operations excluding the impact of amortization of intangible assets, stock-based compensation expense, acquisition-related expenses, legal expenses related to certain litigation, and restructuring and related charges. See Note 15 "Restructuring" of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the charges related to restructuring. Non-GAAP operating income (loss) is widely used by securities analysts, investors, and other interested parties to evaluate the profitability of companies. Non-GAAP operating income (loss) eliminates potential differences in performance caused by these items that are not indicative of the Company's ongoing operating performance and hinders comparability with prior and future performance. This non-GAAP financial measure does not replace the presentation of our GAAP financial results and should only be used as a supplement to, not as a substitute for, our financial results presented in accordance with GAAP. There are limitations in the use of non-GAAP measures because they do not include all of the expenses that must be included under GAAP and because they involve the exercise of judgment concerning exclusions of items from the comparable non-GAAP financial measure. In addition, other companies may use other measures to evaluate their performance, or may calculate non-GAAP measures differently, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. 29 Table of Contents The following table reconciles non-GAAP operating income (loss) to loss from operations, the most directly comparable financial measure, calculated and presented in accordance with GAAP (in thousands): Three Months Ended April 30, ($ in thousands) 2022 2023 GAAP loss from operations $ (27,231) $ (8,627) Adjustments Amortization of intangible assets 7,033 7,105 Stock-based compensation expense 13,300 10,865 Acquisition-related expenses 1,497 211 Litigation expenses 1 1,732 1,145 Restructuring and related charges — 239 Total adjustments 23,562 19,565 Non-GAAP operating income (loss) $ (3,669) $ 10,938 1 Represents legal expenses related to the Antitrust Matters and a shareholder derivative lawsuit. Liquidity and Capital Resources As of April 30, 2023, we had $98.1 million in cash and cash equivalents, and an accumulated deficit of $321.7 million. Our net losses have been driven by our investments in developing the nCino Bank Operating System, expanding our sales and marketing organization, and scaling our finance and administrative functions to support our rapid growth. We expect to continue to incur operating losses on a GAAP basis for the foreseeable future. To date, we have funded our capital needs through issuances of common stock including our initial public offering in July 2020, operating cash flows, and during fiscal 2023, our revolving line of credit. We generally bill and collect from our customers annually in advance. Our billings are subject to seasonality, with billings in the first and fourth quarters of our fiscal year substantially higher than in the second and third quarters. Because we recognize revenues ratably, our deferred revenue balance mirrors the seasonality of our billings. In addition, our advanced billing and collection coupled with our recent growth has resulted in our cash used in operating activities generally being less than our net operating losses in recent periods. On February 11, 2022, we entered into the Credit Facility of up to $50.0 million. We borrowed and repaid $20.0 million under the Credit Facility during the three months ended April 30, 2022 and borrowed $30.0 million during the three months ended October 31, 2022. We repaid $15.0 million under the Credit Facility during the three months ended April 30, 2023. As of April 30, 2023, the Company had $15.0 million outstanding and no letters of credit issued under the Credit Facility and was in compliance with all covenants. See Note 11 "Revolving Credit Facility" of the notes to our unaudited condensed consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q for more information. We believe that current cash and cash equivalents as well as borrowings available under the Credit Facility will be sufficient to fund our operations and capital requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts to enhance the nCino Bank Operating System and introduce new applications, market acceptance of our solutions, the continued expansion of our sales and marketing activities, capital expenditure requirements, and any potential future acquisitions. We may from time-to-time seek to raise additional capital to support our growth. Any equity financing we may undertake could be dilutive to our existing stockholders, and any debt financing we may undertake could require debt service and financial and operational covenants that could adversely affect our business. There is no assurance we would be able to obtain future financing on acceptable terms or at all. nCino K.K. In fiscal 2020, we established nCino K.K., a Japanese company in which we own a controlling interest, for purposes of facilitating our entry into the Japanese market. We have consolidated the results of operations and financial condition of nCino K.K. since its inception. Pursuant to an agreement with the holders of the non-controlling interest in nCino K.K., beginning in 2027 we may redeem the non-controlling interest, or be required to redeem such interest by the holders thereof, based on a prescribed formula derived from the relative revenues of nCino K.K. and the Company. The balance of the redeemable non-controlling interest is reported on our balance sheet below total liabilities but above stockholders’ equity at the 30 Table of Contents greater of the initial carrying amount adjusted for the redeemable non-controlling interest’s share of earnings or losses and other comprehensive income or loss, or its estimated redemption value. As of January 31, 2023 and April 30, 2023, the redeemable non-controlling interest was $3.6 million and $3.2 million, respectively. As part of our joint venture obligations, we may be required to make an additional cash capital contribution of up to $5.0 million to nCino K.K. during fiscal 2024. Cash Flows Summary Cash Flow information for the three months ended April 30, 2022 and 2023 are set forth below: Three Months Ended April 30, ($ in thousands) 2022 2023 Net cash provided by operating activities $ 1,248 $ 31,303 Net cash used in investing activities (4,694) (1,961) Net cash provided by (used in) financing activities 258 (13,856) Net Cash Provided by Operating Activities The $31.3 million provided by operating activities in the three months ended April 30, 2023 reflects our net loss of $11.6 million, offset by $24.7 million in non-cash charges and $18.3 million generated by changes in working capital accounts. Non-cash charges primarily consisted of stock-based compensation, depreciation and amortization, amortization of costs capitalized to obtain revenue contracts, foreign currency losses related to intercompany loans and transactions, and non-cash operating lease costs. Cash generated by working capital accounts was principally a function of a $18.3 million decrease in accounts receivable due to the timing of billings and collections from customers and a $16.8 million increase in deferred revenue, as we expanded our customer base and renewed existing customers. The cash generated by working capital accounts was partially offset by a $13.2 million decrease in accrued expenses and other current liabilities which includes payments of approximately $5.0 million for severance and other employee costs associated with the restructuring plan. Additional offsets were a $1.2 million increase in prepaid expenses and other assets, payments of $1.0 million of capitalized costs to obtain revenue contracts, which consisted primarily of sales commissions, a $1.0 million decrease in operating lease liabilities, and a $0.3 million decrease in accounts payable. The $1.2 million provided by operating activities in the three months ended April 30, 2022 reflects our net loss of $30.0 million, offset by $26.8 million in non-cash charges and $4.5 million generated by changes in working capital accounts. Non-cash charges primarily consisted of stock-based compensation, depreciation and amortization, amortization of costs capitalized to obtain revenue contracts, foreign currency losses related to intercompany loans and transactions, and non-cash operating lease costs. Cash generated by working capital accounts was principally a function of a $22.4 million increase in deferred revenue, as we expanded our customer base and renewed existing customers, and a $0.5 million decrease in accounts receivable due to the timing of billings. The cash generated by working capital accounts was partially offset by a $10.8 million decrease in accrued expenses and other current liabilities, a $2.3 million decrease in accounts payable, payments of $2.2 million of capitalized costs to obtain revenue contracts, which consisted primarily of sales commissions, a $2.0 million increase in prepaid expenses and other assets, and a $1.2 million decrease in operating lease liabilities. Net Cash Used in Investing Activities The $2.0 million used in investing activities in the three months ended April 30, 2023 was comprised of $1.6 million for the purchase of property and equipment and leasehold improvements to support the expansion of our business and $0.4 million for the final cash considerations relating to an asset acquisition completed in August 2022. We used $4.7 million in investing activities in the three months ended April 30, 2022 for the purchase of property and equipment and leasehold improvements to support the expansion of our business. Net Cash Provided by (Used in) Financing Activities The $(13.9) million used in financing activities in the three months ended April 30, 2023 was comprised principally of payments of $15.0 million on the Credit Facility and principal payments of $0.2 million on financing obligations. The cash used in financing activities was partially offset by $1.4 million of proceeds from the exercise of stock options. The $0.3 million provided by financing activities in the three months ended April 30, 2022 was comprised principally of $0.8 million of proceeds 31 Table of Contents from the exercise of stock options, partially reduced by payments of debt issuance costs of $0.4 million, and principal payments of $0.2 million on financing obligations. We borrowed and repaid $20.0 million under our revolving credit facility during the three months ended April 30, 2022. Contractual Obligations and Commitments Our estimated future obligations principally consist of leases related to our facilities, purchase obligations related primarily to licenses and hosting services, financing obligations for leases for which we are considered the owners for accounting purposes and the Credit Facility. See Note 10 "Leases," Note 11 "Revolving Credit Facility," and Note 12 "Commitments and Contingencies" of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. Critical Accounting Policies and Estimates Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be significant. There have been no material changes in our critical accounting policies or estimates as compared to those disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2023 filed with the SEC on March 28, 2023. Recent Accounting Pronouncements See Note 2 "Summary of Significant Accounting Policies" of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted, if applicable. -Item 3. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. Interest Rate Risk At April 30, 2023, we had cash, cash equivalents and restricted cash of $103.5 million, which consisted primarily of bank deposits and money market funds. Interest-earning instruments carry a degree of interest rate risk. However, our historical interest income has not fluctuated significantly. A hypothetical 10% change in interest rates would not have had a material impact on our financial results included in this Quarterly Report on Form 10-Q. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. On February 11, 2022, we entered into a senior secured revolving credit facility of up to $50.0 million. Borrowings bear interest, at the Company's option, at: (i) a base rate equal to the greater of (a) the lender’s “prime rate,” (b) the federal funds rate plus 0.50%, and (c) the BSBY rate plus 1.00%, plus a margin of 0.00% (provided that the base rate shall not be less than 0.00%); or (ii) the BSBY rate (provided that the BSBY shall not be less than 0.00%), plus a margin of 1.00%. As a result, we are exposed to increased interest rate risk as we make draws. At April 30, 2023, we had $15.0 million outstanding under the Credit Facility. We are exposed to the risk of increasing interest rates as the Credit Facility is at a variable interest rate. As of April 30, 2023, the applicable interest rate was 5.91%. A hypothetical 100 basis point change in interest rates would not have had a material impact on our financial results included in this Quarterly Report on Form 10-Q. See Note 11, "Revolving Credit Facility" of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. 32 Table of Contents Foreign Currency Exchange Risk Our reporting currency is the U.S. dollar and the functional currency of each of our subsidiaries is its local currency. The assets and liabilities of each of our subsidiaries are translated into U.S. dollars at exchange rates in effect at each balance sheet date. Revenues and expenses are translated using the average exchange rate for the relevant period. Equity transactions are translated using historical exchange rates. Decreases in the relative value of the U.S. dollar to other currencies may negatively affect revenues and other operating results as expressed in U.S. dollars. Foreign currency translation adjustments are accounted for as a component of accumulated other comprehensive income (loss) within stockholders’ equity. Gains or losses due to transactions in foreign currencies are included in non-operating income (expense), other in our unaudited condensed consolidated statements of operations. Furthermore, our customers outside of the U.S. typically pay us in local currency. We have not engaged in hedging of foreign currency transactions to date, although we may choose to do so in the future. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have a material effect on operating results or financial condition.