What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-29 compared with 2023-08-29 · 114 added, 113 removed, 297 unchanged (43% of the section changed)

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point-of-sale mortgage market.

On September 8, 2023, SimpleNexus began operating as SimpleNexus, LLC d/b/a nCino Mortgage, LLC ("nCino Mortgage") as part of our rebranding effort.

We generally offer our solutions on a SaaS basis under multi-year contracts and recognize subscription revenues ratably over the term of the contract.

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Our sales efforts in the U.S.

are organized around FIs based on size, whereas

internationally, we focus our sales efforts by geography.

As of July 31, 2023, we had 239 sales and sales support personnel in the U.S.

are organized around FIs based on size, whereas internationally, we focus our sales efforts by geography.

As of October 31, 2023, we had 232 sales and sales support personnel in the U.S.

and 70 sales and support personnel in offices outside the U.S.

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We expect enterprise FIs to make up a greater proportion of our nCino Bank Operating System sales.

For the three months ended July 31, 2022 and 2023, our total revenues were $99.6 million and $117.2 million, respectively, representing a 17.7% increase.

For the three months ended July 31, 2022 and 2023, our subscription revenues were $84.4 million and $99.9 million, respectively, representing an 18.3% increase.

For the three months ended October 31, 2022 and 2023, our total revenues were $105.3 million and $121.9 million, respectively, representing a 15.8% increase.

For the three months ended October 31, 2022 and 2023, our subscription revenues were $88.3 million and $104.8 million, respectively, representing an 18.7% increase.

Due to our investments in growth, we recorded net losses attributable to nCino, Inc.

of $27.2 million and $15.9 million for the three months ended July 31, 2022 and 2023, respectively.

For the six months ended July 31, 2022 and 2023, our total revenues were $193.8 million and $230.9 million, respectively, representing a 19.1% increase.

For the six months ended July 31, 2022 and 2023, our subscription revenues were $163.6 million and $197.2 million, respectively, representing a 20.5% increase.

of $23.6 million and $16.4 million for the three months ended October 31, 2022 and 2023, respectively.

For the nine months ended October 31, 2022 and 2023, our total revenues were $299.1 million and $352.9 million, respectively, representing a 18.0% increase.

For the nine months ended October 31, 2022 and 2023, our subscription revenues were $251.9 million and $302.0 million, respectively, representing a 19.9% increase.

Due to our investments in growth, we recorded net losses attributable to nCino, Inc.

of $57.9 million and $27.1 million for the six months ended July 31, 2022 and 2023, respectively.

of $81.5 million and $43.5 million for the nine months ended October 31, 2022 and 2023, respectively.

During the third quarter of fiscal 2024, the Company rebranded the SimpleNexus solution to nCino Mortgage, resulting in a change to the trade name useful life.

As a result, the Company recorded accelerated amortization to fully amortize the remaining trade name intangible asset.

The effect of this change in estimate for the three and nine months ended October 31, 2023 was an increase in sales and marketing amortization expense of $10.1 million, which resulted in an increase in loss of operations and net loss attributable to nCino, Inc.

of $10.1 million, or $0.09 per basic and diluted share.

Factors Affecting Our Operating Results

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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 18.7% of total revenues for the three months ended July 31, 2023 and 17.8% for the six months ended July 31, 2023.

In addition, growing our customer base will require us to increasingly penetrate markets outside the U.S., which accounted for 19.2% of total revenues for the three months ended October 31, 2023 and 18.3% for the nine months ended October 31, 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.

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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.

We are currently operating in a higher interest rate environment as the U.S.

Federal Reserve has raised 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 the six months ended July 31, 2023.

and specifically, the demand for mortgages and mortgage-related products and services, which has had a negative impact on our nCino Mortgage business.

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 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 maintain and build on this advantage.

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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:

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• 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.

• Through nCino Mortgage, a digital homeownership solution 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.

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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.

Subscription fees associated with the nCino Bank Operating System are generally billed annually in advance while subscription fees for nCino Mortgage 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.

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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.

We have historically delivered professional services ourselves for community banks and smaller credit unions and nCino Mortgage 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.

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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.

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

We also incur costs associated with access to other platforms.

In addition, cost of subscription revenues includes personnel-related costs associated with delivering maintenance and support services, including salaries, benefits and stock-based compensation expense, travel and related costs, amortization of acquired developed technology, and allocated overhead.

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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 Income (Expense), Net.

Other income (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.

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.

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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

condensed consolidated statements of operations data for three and six months ended July 31, 2022 and 2023 in both dollars and as a percentage of total revenues, except as noted.

Three Months Ended July 31, Six Months Ended July 31,

The following tables present our selected unaudited condensed consolidated statements of operations data for three and nine months ended October 31, 2022 and 2023 in both dollars and as a percentage of total revenues, except as noted.

Three Months Ended October 31, Nine Months Ended October 31,

2022 2023 2022 2023

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Interest expense (580) (854) (1,849) (3,277)

Other income (expense), net (1,014) 469 (2,587) (313)

Other expense, net (2,911) (2,320) (5,498) (2,633)

Loss before income taxes (21,848) (15,395) (77,913) (40,180)

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The Company recognized stock-based compensation expense as follows:

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

($ in thousands) 2022 2023 2022 2023

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The Company recognized amortization expense for intangible assets as follows:

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

($ in thousands) 2022 2023 2022 2023

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Total amortization expense $ 7,068 $ 16,952 $ 21,129 $ 31,101

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2022 2023 2022 2023

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Interest expense (0.6) (0.7) (0.6) (0.9)

Other income (expense), net (1.0) 0.4 (1.3) (0.1)

Other expense, net (2.8) (1.9) (1.8) (0.7)

Loss before income taxes (20.8) (12.6) (26.0) (11.3)

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Net loss (21.6) % (14.1) % (26.7) % (12.6) %

Comparison of the Three and Six Months Ended July 31, 2022 and 2023

Three Months Ended July 31, Six Months Ended July 31,

Comparison of the Three and Nine Months Ended October 31, 2022 and 2023

Three Months Ended October 31, Nine Months Ended October 31,

($ in thousands) 2022 2023 2022 2023

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Subscription Revenues

Subscription revenues increased $15.5 million for the three months ended July 31, 2023 compared to the three months ended July 31, 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, 65.0% was attributable to

increased revenues from existing customers as additional seats were activated in accordance with contractual terms and customers expanded their adoption of our solutions, and 35.0% was attributable to initial revenues from customers who did not contribute to subscription revenues during the three months ended July 31, 2022.

Subscription revenues were 85.2% of total revenues for the three months ended July 31, 2023 compared to 84.8% of total revenues for the three months ended July 31, 2022, primarily due to growth in our installed base.

Subscription revenues increased $33.6 million for the six months ended July 31, 2023 compared to the six months ended July 31, 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, 71.6% was attributable to increased revenues from existing customers as additional seats were activated in accordance with contractual terms and customers expanded their adoption of our solutions, and 28.4% was attributable to initial revenues from customers who did not contribute to subscription revenues during the six months ended July 31, 2022.

Subscription revenues were 85.4% of total revenues for the six months ended July 31, 2023 compared to 84.4% of total revenues for the six months ended July 31, 2022, primarily due to growth in our installed base.

Subscription revenues increased $16.5 million for the three months ended October 31, 2023 compared to the three months ended October 31, 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, 71.1% was attributable to increased revenues from existing customers as additional seats were activated in accordance with contractual terms and customers expanded their adoption of our solutions, and 28.9% was attributable to initial revenues from customers who did not contribute to subscription revenues during the three months ended October 31, 2022.

Subscription revenues were 85.9% of total revenues for the three months ended October 31, 2023 compared to 83.8% of total revenues for the three months ended October 31, 2022, primarily due to growth in our installed base.

Subscription revenues increased $50.1 million for the nine months ended October 31, 2023 compared to the nine months ended October 31, 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, 80.7% was attributable to increased revenues from existing customers as additional seats were activated in accordance with contractual terms and customers expanded their adoption of our solutions, and 19.3% was attributable to initial revenues from customers who did not contribute to subscription revenues during the nine months ended October 31, 2022.

Subscription revenues were 85.6% of total revenues for the nine months ended October 31, 2023 compared to 84.2% of total revenues for the nine months ended October 31, 2022, primarily due to growth in our installed base.

Professional Services and Other Revenues

Professional services and other revenues increased $2.2 million for the three months ended July 31, 2023 compared to the three months ended July 31, 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.

Professional services and other revenues increased $3.5 million for the six months ended July 31, 2023 compared to the six months ended July 31, 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.

Professional services and other revenues increased $0.2 million for the three months ended October 31, 2023 compared to the three months ended October 31, 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.

Professional services and other revenues increased $3.6 million for the nine months ended October 31, 2023 compared to the nine months ended October 31, 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 July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

($ in thousands) 2022 2023 2022 2023

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Cost of Subscription Revenues

Cost of subscription revenues increased $3.6 million for the three months ended July 31, 2023 compared to the three months ended July 31, 2022, generating a gross margin for subscription revenues of 70.3% compared to a gross margin of 69.0% for the three months ended July 31, 2022.

Cost of subscription revenues increased $3.8 million for the three months ended October 31, 2023 compared to the three months ended October 31, 2022, generating a gross margin for subscription revenues of 70.8% compared to a gross margin of 69.6% for the three months ended October 31, 2022.

Costs related to Salesforce user fees increased $2.7 million as we continued to add new customers and sell additional functionality to existing customers and other costs of subscription revenues increased $0.9 million due to costs associated with access to other platforms and data center costs.

Personnel costs, including stock-based compensation expense, increased $0.5 million, mainly from an increase in headcount.

The increase in cost of subscription revenues also included an increase of $0.1 million in allocated overhead costs due to growth supporting our continued business expansion.

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 subscription revenues increased $7.2 million for the six months ended July 31, 2023 compared to the six months ended July 31, 2022, generating a gross margin for subscription revenues of 70.1% compared to a gross margin of 68.4% for the six months ended July 31, 2022.

Cost of subscription revenues increased $11.0 million for the nine months ended October 31, 2023 compared to the nine months ended October 31, 2022, generating a gross margin for subscription revenues of 70.4% compared to a gross margin of 68.8% for the nine months ended October 31, 2022.

Costs related to Salesforce user fees increased $8.2 million as we continued to add new customers and sell additional functionality to existing customers and other costs of subscription revenues increased $1.6 million due to costs associated with access to other platforms and data center costs.

Personnel costs, including stock-based compensation expense, increased $1.3 million, mainly from an increase in headcount.

The increase in cost of subscription revenues also included an increase of $0.3 million in allocated overhead costs due to growth supporting our continued business

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 $3.3 million for the three months ended July 31, 2023 compared to the three months ended July 31, 2022, generating a gross margin for professional services and other revenues of (5.7)% compared to a gross margin of 0.7% for the three months ended July 31, 2022.

For the three months ended July 31, 2023, personnel costs, including stock-based compensation expense, increased $2.6 million for professional services compared to the three months ended July 31, 2022, mainly from an increase in headcount.

Cost of professional services and other revenues increased $1.1 million for the three months ended October 31, 2023 compared to the three months ended October 31, 2022, generating a gross margin for professional services and other revenues of (1.4)% compared to a gross margin of 4.1% for the three months ended October 31, 2022.

For the three months ended October 31, 2023, personnel costs, including stock-based compensation expense, increased $1.1 million for professional services compared to the three months ended October 31, 2022, mainly from an increase in headcount.

The increase in cost of professional services and other revenues also included an increase of $0.3 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 July 31, 2023 was primarily due to a decline in realized effective billing and utilization rates in our professional services teams.

Cost of professional services and other revenues increased $5.5 million for the six months ended July 31, 2023 compared to the six months ended July 31, 2022, generating a gross margin for professional services and other revenues of (5.0)% compared to a gross margin of 1.1% for the six months ended July 31, 2022.

For the six months ended July 31, 2023, personnel costs, including stock-based compensation expense, increased $4.3 million for professional services compared to the six months ended July 31, 2022, mainly from an increase in headcount.

The decrease in our professional services and other gross margin for the three months ended October 31, 2023 was primarily due to a decline in realized effective billing and utilization rates in our professional services teams.

Cost of professional services and other revenues increased $6.6 million for the nine months ended October 31, 2023 compared to the nine months ended October 31, 2022, generating a gross margin for professional services and other revenues of (3.8)% compared to a gross margin of 2.2% for the nine months ended October 31, 2022.

For the nine months ended October 31, 2023, personnel costs, including stock-based compensation expense, increased $5.4 million for professional services compared to the nine months ended October 31, 2022, mainly from an increase in headcount.

The increase in cost of professional services and other revenues also included an increase of $1.0 million in allocated overhead costs due to growth supporting our business.

The decrease in our professional services and other gross margin for the six months ended July 31, 2023 was primarily due to a decline in realized effective billing and utilization rates in our professional services teams.

The decrease in our professional services and other gross margin for the nine months ended October 31, 2023 was primarily due to a decline in realized effective billing and utilization rates in our professional services teams.

Operating Expenses

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

($ in thousands) 2022 2023 2022 2023

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Sales and Marketing

Sales and marketing expenses decreased $0.3 million for the three months ended July 31, 2023 compared to the three months ended July 31, 2022, primarily due to a decrease of $0.6 million in sales-related travel costs, a decrease of $0.3 million in marketing costs, and a decrease of $0.1 million in third-party professional fees.

The decrease in sales and marketing expenses was partially offset by an increase of $0.4 million in personnel costs, including stock-based compensation expense, mainly from compensation increases, the impact of changing our merit cycle from a work anniversary basis to an annual basis, and an increase in expatriate tax equalization expenses offset by a decrease in headcount.

The decrease in sales and marketing expenses was also partially offset by an increase of $0.3 million in allocated overhead costs.

Sales and marketing expenses increased $0.3 million for the six months ended July 31, 2023 compared to the six months ended July 31, 2022, primarily due to an increase of $0.5 million in allocated overhead costs and an increase of $0.5 million in third-party professional fees.

The increase in sales and marketing expenses also included an increase of $0.1 million in personnel costs, including stock-based compensation expense, mainly from compensation increases, the impact of changing our merit cycle from a work anniversary basis to an annual basis, and an increase in expatriate tax equalization expenses offset by a decrease in headcount.

The increase in sales and marketing expenses was partially offset by a decrease of $0.6 million in marketing costs and a decrease of $0.2 million in sales-related travel costs.

Our sales and marketing headcount decreased by 75 from July 31, 2022 to July 31, 2023 primarily due to attrition and our workforce reduction.

Sales and marketing expenses increased $6.0 million for the three months ended October 31, 2023 compared to the three months ended October 31, 2022, primarily attributable to the accelerated amortization expense of $10.1 million to fully amortize the remaining trade name intangible asset as a result of the rebranding of the SimpleNexus solution to nCino Mortgage.

The increase in sales and marketing expenses also included an increase of $0.2 million in allocated overhead costs.

The increase in sales and marketing expenses was partially offset by a decrease of $3.2 million in personnel costs, mainly from a decrease in headcount and a decrease in expatriate tax equalization expenses, offset by a $0.8 million increase in stock-based compensation expense, compensation increases, and the impact of changing our merit cycle from a work anniversary basis to an annual basis.

The increase in sales and marketing expenses was also partially offset by a decrease of $0.6 million in sales-related travel costs, a decrease of $0.3 million in marketing costs, and a decrease of $0.2 million in third-party professional fees.

Sales and marketing expenses increased $6.3 million for the nine months ended October 31, 2023 compared to the nine months ended October 31, 2022, primarily attributable to the accelerated amortization expense of $10.1 million to fully amortize the remaining trade name intangible asset as a result of the rebranding of the SimpleNexus solution to nCino Mortgage.

The increase in sales and marketing expenses also included an increase of $0.7 million in allocated overhead costs and an increase of $0.3 million in third-party professional fees.

The increase in sales and marketing expenses was partially offset by a decrease of $3.1 million in personnel costs, mainly from a decrease in headcount offset by a $1.1 million increase in stock-based compensation expense, compensation increases, the impact of changing our merit cycle from a work anniversary basis to an annual basis, and an increase in expatriate tax equalization expenses.

The increase in sales and marketing expenses was also partially offset by a decrease of $0.9 million in marketing costs and a decrease of $0.8 million in sales-related travel costs.

Our sales and marketing headcount decreased by 61 from October 31, 2022 to October 31, 2023 primarily due to attrition and our workforce reduction.

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 increased $0.2 million for the three months ended July 31, 2023 compared to the three months ended July 31, 2022, primarily due to an increase of $0.7 million in personnel costs, primarily attributable to a $1.7 million increase in stock-based compensation expense, compensation increases, and the impact of changing our merit cycle from a work anniversary basis to an annual basis offset by a decrease in headcount.

The increase in research and development expenses also included an increase of $0.4 million in allocated overhead costs due to growth supporting our continued business expansion, partially offset by a decrease of $1.0 million in third-party professional fees as a result of lower contract research and development spend.

Research and development expenses decreased $0.7 million for the six months ended July 31, 2023 compared to the six months ended July 31, 2022, primarily due to an increase of $0.9 million in allocated overhead costs due to growth supporting our continued business expansion and an increase of $0.3 million in personnel costs, primarily attributable to a $1.8 million increase in stock-based compensation, compensation increases, and the impact of changing our merit cycle from a work anniversary basis to an annual basis offset by a decrease in headcount.

The increase in research and development expenses was partially offset by a $2.0 million decrease in third-party professional fees primarily attributable to reduced contract research and development spend.

Our research and development headcount decreased by 84 from July 31, 2022 to July 31, 2023 primarily due to our workforce reduction.

Research and development expenses decreased $0.4 million for the three months ended October 31, 2023 compared to the three months ended October 31, 2022, primarily due to a decrease of $0.3 million in personnel costs, mainly from a decrease in headcount offset by a $1.4 million increase in stock-based compensation expense, compensation increases, the impact of changing our merit cycle from a work anniversary basis to an annual basis, and a decrease of $0.2 million in third-party professional fees as a result of lower contract research and development spend.

The decrease in research and development expenses was partially offset by an increase of $0.3 million in allocated overhead costs due to growth supporting our continued business expansion.

Research and development expenses decreased $1.2 million for the nine months ended October 31, 2023 compared to the nine months ended October 31, 2022, primarily due to a $2.2 million decrease in third-party professional fees primarily attributable to reduced contract research and development spend, partially offset by an increase of $1.2 million in allocated overhead costs due to growth supporting our continued business expansion.

Personnel costs were comparable for the nine months ended October 31, 2023 compared to the nine months ended October 31, 2022 due to the decrease in headcount offset by a $3.2 million increase in stock-based compensation expense, compensation increases, and the impact of changing our merit cycle from a work anniversary basis to an annual basis.

Our research and development headcount decreased by 86 from October 31, 2022 to October 31, 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 increased $0.7 million for the three months ended July 31, 2023 compared to the three months ended July 31, 2022, primarily due to an increase of $0.7 million in third party professional fees, mostly attributable to the accrual for the proposed settlement agreement of approximately $2.2 million, disclosed in Note 12 "Commitments and Contingencies" of Part I, Item I of this Quarterly Report on Form 10-Q, partially offset by a decrease in third party professional fees and expenses related to other litigation expenses including the government antitrust investigation and related civil action (the "Antitrust Matters").

The increase in general and administrative expenses for the three months ended July 31, 2023 compared to the three months ended July 31, 2022 also included an increase of $0.1 million in allocated overhead and other general and administrative costs and an increase of $0.1 million in personnel costs, mostly attributable to compensation increases and the impact of changing our merit cycle from a work anniversary basis to an annual basis partially offset by a decrease in headcount and a decrease of $0.1 million in stock-based compensation expense.

The increase in general and administrative expenses was partially offset by a decrease of $0.2 million in travel-related costs.

General and administrative expenses decreased $4.0 million for the six months ended July 31, 2023 compared to the six months ended July 31, 2022, primarily due to a decrease of $3.1 million in personnel costs, mostly attributable to a $2.3 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 $1.0 million in third party professional fees for the six months ended July 31, 2023 compared to the six months ended July 31, 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 Antitrust Matters, partially offset by the accrual for the proposed settlement agreement of approximately $2.2 million, disclosed in Note 12 "Commitments and Contingencies" of Part I, Item I of this Quarterly Report on Form 10-Q.

The decrease in general and administrative expenses also included a decrease of $0.3 million in travel related costs, partially offset by an increase of $0.4 million in allocated overhead and other general and administrative costs.

Our general and administrative headcount decreased by 3 from July 31, 2022 to July 31, 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.

General and administrative expenses increased $0.6 million for the three months ended October 31, 2023 compared to the three months ended October 31, 2022, primarily due to an increase of $0.5 million in personnel costs, mostly attributable to compensation increases, the impact of changing our merit cycle from a work anniversary basis to an annual basis, and an increase of $0.2 million in stock-based compensation expense, partially offset by a decrease in headcount.

The increase in general and administrative expenses for the three months ended October 31, 2023 compared to the three months ended October 31, 2022 also included an increase of $0.5 million in allocated overhead and other general and administrative costs.

The increase in general and administrative expenses was partially offset by a decrease of $0.3 million in third party professional fees, due to a decrease in third party professional fees and expenses related to other litigation expenses including the government antitrust investigation and related civil action (the "Antitrust Matters"), partially offset by an increase in other professional fees, and a decrease of $0.1 million in travel-related costs.

General and administrative expenses decreased $3.3 million for the nine months ended October 31, 2023 compared to the nine months ended October 31, 2022, primarily due to a decrease of $2.6 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 $1.3 million in third party professional fees for the nine months ended October 31, 2023 compared to the nine months ended October 31, 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 Antitrust Matters, partially offset by the accrual for the proposed settlement agreement of approximately $2.2 million, disclosed in Note 12 "Commitments and Contingencies" of Part I, Item I of this Quarterly Report on Form 10-Q, and an increase in other professional fees.

The decrease in general and administrative expenses also included a decrease of $0.4 million in travel related costs, offset by an increase of $0.9 million in allocated overhead and other general and administrative costs.

Our general and administrative headcount decreased by 8 from October 31, 2022 to October 31, 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 July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

($ in thousands) 2022 2023 2022 2023

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Interest expense (580) (0.6) (854) (0.7) (1,849) (0.6) (3,277) (0.9)

Other income (expense), net (1,014) (1.0) 469 0.4 (2,587) (1.3) (313) (0.1)

Interest income increased $0.8 million for the three months ended July 31, 2023 compared to the three months ended July 31, 2022, due to increase in our accounts earning interest and increased interest rates.

Interest expense increased $0.4 million for the three months ended July 31, 2023 compared to the three months ended July 31, 2022, due to borrowing 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 $1.5 million in other income (expense), net for the three months ended July 31, 2023 compared to the three months ended July 31, 2022, was primarily driven by intercompany loans and transactions that are denominated in currencies other than the underlying functional currency of the applicable entity.

Interest income increased $1.3 million for the six months ended July 31, 2023 compared to the six months ended July 31, 2022, due to increase in our accounts earning interest and increased interest rates.

Interest expense increased $1.2 million for the six months ended July 31, 2023 compared to the six months ended July 31, 2022, due to borrowing 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 $2.3 million in other expense, net for the six months ended July 31, 2023 compared to the six months ended July 31, 2022, was primarily driven by intercompany loans and transactions that are denominated in currencies other than the underlying functional currency of the applicable entity.

Other expense, net (2,911) (2.8) (2,320) (1.9) (5,498) (1.8) (2,633) (0.7)

Interest income increased $0.6 million for the three months ended October 31, 2023 compared to the three months ended October 31, 2022, due to increase in our accounts earning interest and increased interest rates.

Interest expense increased $0.3 million for the three months ended October 31, 2023 compared to the three months ended October 31, 2022, due to an increase in our financing obligations for leases for which we are considered the owners for accounting purposes.

The decrease of $0.6 million in other expense, net for the three months ended October 31, 2023 compared to the three months ended October 31, 2022, was primarily driven by intercompany loans and transactions that are denominated in currencies other than the underlying functional currency of the applicable entity.

Interest income increased $1.9 million for the nine months ended October 31, 2023 compared to the nine months ended October 31, 2022, due to increase in our accounts earning interest and increased interest rates.

Interest expense increased $1.4 million for the nine months ended October 31, 2023 compared to the nine months ended October 31, 2022, due to borrowing 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 $2.9 million in other expense, net for the nine months ended October 31, 2023 compared to the nine months ended October 31, 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 July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

($ in thousands) 2022 2023 2022 2023

Income tax provision $ 797 0.8 % $ 1,782 1.5 % $ 2,159 0.7 % $ 4,720 1.3 %

Income tax provision was $1.5 million for the three months ended July 31, 2023 compared to a provision of $0.8 million for the three months ended July 31, 2022, and resulted in an effective tax rate of (10.6)% and (3.0)%, respectively.

Income tax provision was $2.9 million for the six months ended July 31, 2023 compared to a provision of $1.4 million for the six months ended July 31, 2022, and resulted in an effective tax rate of (11.9)% and (2.4)%, respectively.

Income tax provision was $1.8 million for the three months ended October 31, 2023 compared to a provision of $0.8 million for the three months ended October 31, 2022, and resulted in an effective tax rate of (11.6)% and (3.6)%, respectively.

Income tax provision was $4.7 million for the nine months ended October 31, 2023 compared to a provision of $2.2 million for the nine months ended October 31, 2022, and resulted in an effective tax rate of (11.7)% and (2.8)%, respectively.

We continue to maintain a valuation allowance against our deferred tax assets in most jurisdictions, including the U.S.

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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

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.

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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 July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

($ in thousands) 2022 2023 2022 2023

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Liquidity and Capital Resources

As of July 31, 2023, we had $98.0 million in cash and cash equivalents, and an accumulated deficit of $337.5 million.

As of October 31, 2023, we had $100.5 million in cash and cash equivalents, and an accumulated deficit of $354.4 million.

Our net losses have been driven by our investments in developing the nCino Bank Operating System and scaling our sales and marketing organization and finance and administrative functions to support our rapid growth.

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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 $30.0 million under the Credit Facility during the six months ended July 31, 2023.

As of July 31, 2023, the Company had no amounts outstanding and no letters of credit issued under the Credit Facility and was in compliance with all covenants.

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 $30.0 million under the Credit Facility during the nine months ended October 31, 2023.

As of October 31, 2023, the Company had no amounts 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.

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The balance of the redeemable non-controlling interest is reported on our balance sheet below total liabilities but above stockholders’ equity at the 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 July 31, 2023, the redeemable non-controlling interest was $3.6 million and $3.0 million, respectively.

As part of our joint venture obligations, we may be required to make an additional cash capital contribution of up to $3.0 million to nCino K.K.

during fiscal 2024.

Summary Cash Flow information for the six months ended July 31, 2022 and 2023 are set forth below:

Six Months Ended July 31,

As of January 31, 2023 and October 31, 2023, the redeemable non-controlling interest was $3.6 million and $3.2 million, respectively.

As part of our joint venture obligations, we made an additional cash capital contribution of $1.0 million to nCino K.K.

during the third quarter of fiscal 2024.

Summary Cash Flow information for the nine months ended October 31, 2022 and 2023 are set forth below:

Nine Months Ended October 31,

($ in thousands) 2022 2023

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Net Cash Provided by Operating Activities

The $43.3 million provided by operating activities in the six months ended July 31, 2023 reflects our net loss of $27.7 million, offset by $53.5 million in non-cash charges and $17.5 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, non-cash operating lease costs, provision for deferred taxes and bad debt.

Cash generated by working capital accounts was principally a function of an $18.4 million decrease in accounts receivable due to the timing of billings and collections from customers, a $13.8 million increase in deferred revenue as we expanded our customer base and renewed existing customers, and a $1.1 million decrease in prepaid expenses and other assets.

The cash generated by working capital accounts was partially offset by a $9.3 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 and changing commission payment plans from a quarterly basis to a monthly basis.

Additional offsets were payments of $3.0 million of capitalized costs to obtain revenue contracts, which consisted primarily of sales commissions, a $2.0 million decrease in operating lease liabilities, and a $1.4 million decrease in accounts payable.

The $10.7 million provided by operating activities in the six months ended July 31, 2022 reflects our net loss of $57.4 million, offset by $52.2 million in non-cash charges and $15.9 million generated by changes in working capital accounts.

The $49.1 million provided by operating activities in the nine months ended October 31, 2023 reflects our net loss of $44.9 million and $0.8 million used in changes in working capital accounts, offset by $94.8 million in non-cash charges.

Cash generated by working capital accounts was principally a function of an $35.5 million decrease in accounts receivable due to the timing of billings and collections from customers, a $3.4 million decrease in prepaid expenses and other assets, and a $1.2 million increase in accounts payable.

The cash generated by working capital accounts was offset by a $23.8 million decrease in deferred revenue due to the timing of billings and revenue recognition and an $8.0 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 and changing commission payment plans from a quarterly basis to a monthly basis.

Additional offsets were payments of $6.0 million of capitalized costs to obtain revenue contracts, which consisted primarily of sales commissions, and a $3.1 million decrease in operating lease liabilities.

The $6.6 million provided by operating activities in the nine months ended October 31, 2022 reflects our net loss of $80.1 million, offset by $79.5 million in non-cash charges and $7.2 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 $30.3 million increase in deferred revenue, as we expanded our customer base and renewed existing customers, and a $5.4 million decrease in accounts receivable due to the timing of billings.

The cash generated by working capital accounts was partially offset by a $9.7 million decrease in accrued expenses and other current liabilities, payments of $4.6 million of capitalized costs to obtain revenue contracts, which consisted primarily of sales commissions, a $2.1 million decrease in operating lease liabilities, a $1.9 million decrease in accounts payable, and a $1.7 million increase in prepaid expenses and other assets.

Cash generated by working capital accounts was principally a function of a $32.5 million decrease in accounts receivable due to collections from customers.

The cash generated by working capital accounts was partially offset by a $9.2 million decrease in accrued expenses and other current liabilities, payments of $8.0 million of capitalized costs to obtain revenue contracts, which consisted primarily of sales commissions, a $3.0 million decrease in operating lease liabilities, a $2.9 million decrease in deferred revenue, a $1.7 million decrease in accounts payable, and a $0.4 million increase in prepaid expenses and other assets.

Net Cash Used in Investing Activities

The $2.8 million used in investing activities in the six months ended July 31, 2023 was comprised of $2.5 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 $9.3 million in investing activities in the six months ended July 31, 2022 for the purchase of property and equipment and leasehold improvements to support the expansion of our business.

The $5.9 million used in investing activities in the nine months ended October 31, 2023 was comprised of $3.1 million for the purchase of property and equipment and leasehold improvements to support the expansion of our business, $2.5 million for the purchase of preferred stock in Rich Data Co, and $0.4 million for the final cash considerations relating to an asset acquisition completed in August 2022.

The $13.8 million used in investing activities in the nine months ended October 31, 2022 was comprised of $13.9 million for the purchase of property and equipment and leasehold improvements to support the expansion of our business and $0.6 million for an asset acquisition completed in August 2022.

The cash used in investing activities was partially offset by $0.7 million received for a net working capital adjustment from our SimpleNexus acquisition.

Net Cash Provided by (Used in) Financing Activities

The $25.7 million used in financing activities in the six months ended July 31, 2023 was comprised principally of payments of $30.0 million on the Credit Facility and principal payments of $0.6 million on financing obligations.

The cash used in financing activities was partially offset by $2.7 million of proceeds from stock issuances under the employee stock purchase plan and $2.2 million of proceeds from the exercise of stock options.

The $3.6 million provided by financing activities in the six months ended July 31, 2022 was comprised principally of $2.4 million of proceeds from stock issuances under the employee stock purchase plan and $1.9 million of proceeds from the exercise of stock options, partially reduced by payments of debt issuance costs of $0.4 million, and principal payments of $0.3 million on financing obligations.

We borrowed and repaid $20.0 million under our revolving credit facility during the six months ended July 31, 2022.

The $24.0 million used in financing activities in the nine months ended October 31, 2023 was comprised principally of payments of $30.0 million on the Credit Facility and principal payments of $0.9 million on financing obligations.

The cash used in financing activities was partially offset by $3.2 million of proceeds from the exercise of stock options, $2.7 million of proceeds from stock issuances under the employee stock purchase plan, and $1.0 million in proceeds from the non-controlling interest in our Japan joint venture.

The $34.6 million provided by financing activities in the nine months ended October 31, 2022 was comprised principally of $50.0 million of proceeds from borrowings on the Credit Facility to expand our liquidity, $3.0 million of proceeds from the exercise of stock options, and $2.4 million of proceeds from stock issuances under the employee stock purchase plan.

The cash provided by financing activities was partially reduced by payments of $20.0 million on the Credit Facility, principal payments of $0.5 million on financing obligations, and debt issuance costs of $0.4 million.

Contractual Obligations and Commitments

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Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be significant.

See Note 7 "Goodwill and Intangible Assets" for a change in estimate related to the useful life of the SimpleNexus trade name during the three months ended October 31, 2023.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis