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, 2024 filed with the SEC on March 26, 2024. 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 2025" refer to the fiscal year ended January 31, 2025. Overview Through its single software-as-a-service ("SaaS") platform, nCino helps financial institutions ("FI") serving corporate and commercial, small business, consumer, and mortgage customers modernize and more effectively onboard clients, open accounts, make loans and navigate the loan lifecycle, and effectively monitor and manage their portfolio. With the nCino Bank Operating System, FIs can: • digitally serve their clients across lines of business, • improve efficiency, • elevate employee experience and performance, • manage risk and compliance more effectively, • establish an active data, audit, and business intelligence hub, and • embrace the value of intelligent automation and uncover data-driven insights. nCino was originally founded in a bank to improve that FI’s operations and client service. After realizing that 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—were endemic across the financial services industry, nCino 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 become more efficient by providing an end-to-end platform that spans business lines and combines capabilities for a seamless experience. The nCino Bank Operating System was initially designed to help transform commercial and small business lending for community and regional banks. This solution was introduced to enterprise banks in the United States ("U.S.") in 2014, and then internationally in 2017, and has subsequently expanded across North America, Europe, the Middle East, South Africa and Asia-Pacific. Throughout this market expansion, we broadened the nCino Bank Operating System by adding functionality for consumer lending, client onboarding, deposit account opening, analytics and artificial intelligence and machine learning. In fiscal 2020, we made two acquisitions 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. An acquisition in fiscal 2022 expanded our capabilities to the U.S. point-of-sale mortgage market. On March 20, 2024 (the "DocFox Acquisition Date"), we acquired DocFox, Inc. ("DocFox") which provides a solution for automating onboarding experiences for commercial and business banking, for an aggregate preliminary purchase price of $74.3 million. We funded the purchase consideration with $75.0 million borrowed under the 2022 Credit Facility as further described in 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. We have included the financial results of DocFox in our unaudited condensed consolidated financial statements from the DocFox Acquisition Date. We acquired Integrated Lending Technologies, LLC ("ILT") on April 1, 2024 (the "ILT Acquisition Date"), which provides consumer loan origination software that streamlines direct and indirect lending operations, for an aggregate purchase 25 Table of Contents price of $20.0 million in cash. We have included the financial results of ILT in our unaudited condensed consolidated financial statements from the ILT Acquisition Date. See Note 7 "Business Combinations" 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 DocFox and ILT acquisitions. In November 2024, we acquired Artesian Solutions Limited, operating as ("FullCircl"), a UK-based SaaS platform built to help financial institutions automate and accelerate onboarding and improve client lifecycle management. We funded $129.7 million of the purchase consideration with borrowings made in October 2024 under the 2024 Credit Facility as further described in 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. See Note 15 "Subsequent Event" 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 FullCircl acquisition. We generally offer the nCino Bank Operating System on a subscription basis pursuant to non-cancellable multi-year contracts that typically range from three to five years, and we employ a “land and expand” business model. 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 internationally, we focus our sales efforts by geography. As of October 31, 2024, we had 205 sales and sales support personnel in the U.S. and 99 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 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. For the three months ended October 31, 2023 and 2024, our total revenues were $121.9 million and $138.8 million, respectively, representing a 13.8% increase. For the three months ended October 31, 2023 and 2024, our subscription revenues were $104.8 million and $119.9 million, respectively, representing a 14.4% increase. Due to our investments in growth, we recorded net losses attributable to nCino, Inc. of $16.4 million and $5.3 million for the three months ended October 31, 2023 and 2024, respectively. For the nine months ended October 31, 2023 and 2024, our total revenues were $352.9 million and $399.3 million, respectively, representing a 13.2% increase. For the nine months ended October 31, 2023 and 2024, our subscription revenues were $302.0 million and $344.2 million, respectively, representing a 14.0% increase. Due to our investments in growth, we recorded net losses attributable to nCino, Inc. of $43.5 million and $19.3 million for the nine months ended October 31, 2023 and 2024, 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 21.3% of total revenues for the three months ended October 31, 2024 and 20.8% for the nine months ended October 31, 2024. 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, 26 Table of Contents 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 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 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 intend to continue to increase our investment in product development in the coming years to 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 nCino Mortgage. 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 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. 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 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. 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 27 Table of Contents 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. 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 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, which are primarily related to legal, consulting and other professional services fees. We expect general and administrative expenses will decrease as a percentage of revenues over the long term 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. 28 Table of Contents 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 Income (Expense), Net. Other income (expense), net consists primarily of foreign currency gains and losses, the majority of which is due to intercompany transactions 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 condensed consolidated statements of operations data for three and nine months ended October 31, 2023 and 2024 in both dollars and as a percentage of total revenues, except as noted. Three Months Ended October 31, Nine Months Ended October 31, 2023 2024 2023 2024 ($ in thousands, except share and per share amounts) Revenues: Subscription revenues $ 104,759 $ 119,894 $ 301,996 $ 344,211 Professional services and other revenues 17,183 18,903 50,854 55,076 Total revenues 121,942 138,797 352,850 399,287 Cost of revenues: Cost of subscription revenues 30,605 33,769 89,481 98,916 Cost of professional services and other revenues 17,420 19,976 52,779 59,940 Total cost of revenues 48,025 53,745 142,260 158,856 Gross profit 73,917 85,052 210,590 240,431 Operating expenses: Sales and marketing 38,446 29,729 100,551 89,487 Research and development 29,043 33,039 87,127 97,291 General and administrative 19,334 23,108 59,239 66,046 Total operating expenses 86,823 85,876 246,917 252,824 Loss from operations (12,906) (824) (36,327) (12,393) Non-operating income (expense): Interest income 685 482 2,057 1,408 Interest expense (854) (1,653) (3,277) (4,965) Other income (expense), net (2,320) 432 (2,633) (162) Loss before income taxes (15,395) (1,563) (40,180) (16,112) Income tax provision 1,782 2,589 4,720 1,360 Net loss (17,177) (4,152) (44,900) (17,472) Net loss attributable to redeemable non-controlling interest (320) (186) (868) (409) Adjustment attributable to redeemable non-controlling interest (478) 1,286 (526) 2,205 Net loss attributable to nCino, Inc. $ (16,379) $ (5,252) $ (43,506) $ (19,268) Net loss per share attributable to nCino, Inc.: Basic and diluted $ (0.15) $ (0.05) $ (0.39) $ (0.17) Weighted average number of common shares outstanding: Basic and diluted 112,951,553 115,611,833 112,484,017 114,970,622 29 Table of Contents The Company recognized stock-based compensation expense as follows: Three Months Ended October 31, Nine Months Ended October 31, ($ in thousands) 2023 2024 2023 2024 Cost of subscription revenues $ 515 $ 733 $ 1,314 $ 2,088 Cost of professional services and other revenues 2,571 2,940 6,660 8,699 Sales and marketing 4,153 4,394 11,194 12,534 Research and development 4,386 4,208 11,665 13,720 General and administrative 4,198 5,696 11,136 15,974 Total stock-based compensation expense $ 15,823 $ 17,971 $ 41,969 $ 53,015 The Company recognized amortization expense for intangible assets as follows: Three Months Ended October 31, Nine Months Ended October 31, ($ in thousands) 2023 2024 2023 2024 Cost of subscription revenues $ 3,990 $ 4,404 $ 12,431 $ 12,926 Cost of professional services and other revenues 82 82 247 247 Sales and marketing 12,880 2,871 18,423 8,215 Total amortization expense $ 16,952 $ 7,357 $ 31,101 $ 21,388 Three Months Ended October 31, Nine Months Ended October 31, 2023 2024 2023 2024 Revenues: Subscription revenues 85.9 % 86.4 % 85.6 % 86.2 % Professional services and other revenues 14.1 13.6 14.4 13.8 Total revenues 100.0 100.0 100.0 100.0 Cost of revenues (percentage shown in comparison to related revenues): Cost of subscription revenues 29.2 28.2 29.6 28.7 Cost of professional services and other revenues 101.4 105.7 103.8 108.8 Total cost of revenues 39.4 38.7 40.3 39.8 Gross profit 60.6 61.3 59.7 60.2 Operating expenses: Sales and marketing 31.5 21.4 28.5 22.4 Research and development 23.8 23.8 24.7 24.4 General and administrative 15.9 16.6 16.8 16.5 Total operating expenses 71.2 61.8 70.0 63.3 Loss from operations (10.6) (0.5) (10.3) (3.1) Non-operating income (expense): Interest income 0.6 0.3 0.6 0.4 Interest expense (0.7) (1.2) (0.9) (1.2) Other income (expense), net (1.9) 0.3 (0.7) — Loss before income taxes (12.6) (1.1) (11.3) (3.9) Income tax provision 1.5 1.9 1.3 0.3 Net loss (14.1) % (3.0) % (12.6) % (4.2) % 30 Table of Contents Comparison of the Three and Nine Months Ended October 31, 2023 and 2024 Revenues Three Months Ended October 31, Nine Months Ended October 31, ($ in thousands) 2023 2024 2023 2024 Revenues: Subscription revenues $ 104,759 85.9 % $ 119,894 86.4 % $ 301,996 85.6 % $ 344,211 86.2 % Professional services and other revenues 17,183 14.1 18,903 13.6 50,854 14.4 55,076 13.8 Total revenues $ 121,942 100.0 % $ 138,797 100.0 % $ 352,850 100.0 % $ 399,287 100.0 % Subscription Revenues Subscription revenues increased $15.1 million for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, 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, 64.1% 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 35.9% was attributable to initial revenues from customers who did not contribute to subscription revenues during the three months ended October 31, 2023. Subscription revenues were 86.4% of total revenues for the three months ended October 31, 2024 compared to 85.9% of total revenues for the three months ended October 31, 2023, primarily due to growth in our installed base. Subscription revenues increased $42.2 million for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, 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, 67.4% 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 32.6% was attributable to initial revenues from customers who did not contribute to subscription revenues during the nine months ended October 31, 2023. Subscription revenues were 86.2% of total revenues for the nine months ended October 31, 2024 compared to 85.6% of total revenues for the nine months ended October 31, 2023, primarily due to growth in our installed base. Professional Services and Other Revenues Professional services and other revenues increased $1.7 million for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, 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 $4.2 million for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, primarily due to the addition of new customers as well as expanded adoption by existing customers within and across lines of business where implementation, configuration, and training services were required. Cost of Revenues and Gross Margin Three Months Ended October 31, Nine Months Ended October 31, ($ in thousands) 2023 2024 2023 2024 Cost of revenues (percentage shown in comparison to related revenues): Cost of subscription revenues $ 30,605 29.2 % $ 33,769 28.2 % $ 89,481 29.6 % $ 98,916 28.7 % Cost of professional services and other revenues 17,420 101.4 19,976 105.7 52,779 103.8 59,940 108.8 Total cost of revenues $ 48,025 39.4 $ 53,745 38.7 $ 142,260 40.3 $ 158,856 39.8 Gross profit $ 73,917 60.6 % $ 85,052 61.3 % $ 210,590 59.7 % $ 240,431 60.2 % 31 Table of Contents Cost of Subscription Revenues Cost of subscription revenues increased $3.2 million for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, generating a gross margin for subscription revenues of 71.8% compared to a gross margin of 70.8% for the three months ended October 31, 2023. Other costs of subscription revenues increased $1.4 million due to costs associated with access to other platforms and data center costs, as we continued to add new customers and sell additional functionality to existing customers. Personnel costs, including stock-based compensation expense, increased $1.2 million, mainly from an increase in headcount. The increase in cost of subscription revenues also included an increase of $0.5 million in allocated overhead costs due to growth supporting our 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 subscription revenues increased $9.4 million for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, generating a gross margin for subscription revenues of 71.3% compared to a gross margin of 70.4% for the nine months ended October 31, 2023. Other costs of subscription revenues increased $3.5 million due to costs associated with access to other platforms and data center costs and costs related to Salesforce user fees increased $2.2 million as we continued to add new customers and sell additional functionality to existing customers. Personnel costs, including stock-based compensation expense, increased $3.3 million, mainly from an increase in headcount. The increase in cost of subscription revenues also included an increase of $0.5 million in allocated overhead costs due to growth supporting our 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 $2.6 million for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, generating a gross margin for professional services and other revenues of (5.7)% compared to a gross margin of (1.4)% for the three months ended October 31, 2023. For the three months ended October 31, 2024, personnel costs, including stock-based compensation expense, increased $1.9 million for professional services compared to the three months ended October 31, 2023, mainly from an increase in headcount. The increase in cost of professional services and other revenues also included a $0.4 million increase for third-party costs of professional services. Cost of professional services and other revenues increased $7.2 million for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, generating a gross margin for professional services and other revenues of (8.8)% compared to a gross margin of (3.8)% for the nine months ended October 31, 2023. For the nine months ended October 31, 2024, personnel costs, including stock-based compensation expense, increased $6.2 million for professional services compared to the nine months ended October 31, 2023, mainly from an increase in headcount. The increase in cost of professional services and other revenues also included a $0.8 million increase for third-party professional services costs. Operating Expenses Three Months Ended October 31, Nine Months Ended October 31, ($ in thousands) 2023 2024 2023 2024 Operating expenses: Sales and marketing $ 38,446 31.5 % $ 29,729 21.4 % $ 100,551 28.5 % $ 89,487 22.4 % Research and development 29,043 23.8 33,039 23.8 87,127 24.7 97,291 24.4 General and administrative 19,334 15.9 23,108 16.6 59,239 16.8 66,046 16.5 Total operating expenses 86,823 71.2 85,876 61.8 246,917 70.0 252,824 63.3 Loss from operations $ (12,906) (10.6) % $ (824) (0.5) % $ (36,327) (10.3) % $ (12,393) (3.1) % Sales and Marketing Sales and marketing expenses decreased $8.7 million for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, primarily attributable to the decrease in amortization expense of $10.7 million due to no amortization for the SimpleNexus trade name intangible asset as a result of the rebranding of the SimpleNexus solution to nCino Mortgage during the third quarter of fiscal 2024, partially offset by an increase of $0.6 million in amortization expense for the DocFox and ILT acquisitions. The decrease in sales and marketing expenses was also partially offset by an increase of $1.0 million in personnel costs primarily due to an increase in headcount, an increase in stock-based compensation expense, and 32 Table of Contents an increase in tax equalization expense, partially offset by prior year payroll tax adjustments from certain of our foreign subsidiaries. Sales and marketing expenses decreased $11.1 million for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, primarily attributable to the decrease in amortization expense of $11.9 million due to no amortization for the SimpleNexus trade name intangible asset as a result of the rebranding of the SimpleNexus solution to nCino Mortgage during fiscal 2024, partially offset by an increase of $1.7 million in amortization expense for the DocFox and ILT acquisitions. The decrease in sales and marketing expenses also included a decrease of $0.5 million in sales-related travel costs, a decrease of $0.3 million in allocated overhead costs, and a decrease of $0.4 million in personnel costs. The decrease in personnel costs was due to prior year payroll tax adjustments from certain of our foreign subsidiaries offset by an increase in stock-based compensation expense. The decrease in sales and marketing expenses was partially offset by an increase of $0.5 million in marketing costs. Our sales and marketing headcount increased by 7 from October 31, 2023 to October 31, 2024. 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 $4.0 million for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, primarily due to an increase of $2.6 million in personnel costs, mainly from an increase in headcount. The increase in research and development also included an increase of $1.0 million in third-party professional fees primarily attributable to increased contract research and development spend. Research and development expenses increased $10.2 million for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, primarily due to an increase of $7.9 million in personnel costs, mainly from an increase in headcount and stock-based compensation expense. The increase in research and development also included an increase of $1.9 million in third-party professional fees primarily attributable to increased contract research and development spend. Our research and development headcount increased by 24 from October 31, 2023 to October 31, 2024. 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 $3.8 million for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, primarily due to an increase of $2.5 million in personnel costs, mostly attributable to a $1.5 million increase in stock-based compensation expense and headcount. The increase in general and administrative spend also included an increase of $2.1 million in third-party professional fees, mostly attributable to an increase for acquisition-related expenses for DocFox, ILT, and FullCircl, partially offset by a decrease in other professional fees. The increase in general and administrative expenses was partially offset by a decrease of $0.8 million in allocated overhead and other general and administrative costs. General and administrative expenses increased $6.8 million for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, primarily due to an increase of $6.2 million in personnel costs, mostly attributable to a $4.8 million increase in stock-based compensation expense and headcount. The increase in general and administrative spend also included an increase of $2.7 million in third-party professional fees, mostly attributable to an increase for acquisition-related expenses for DocFox, ILT and FullCircl, partially offset by a decrease in expenses related to litigation expenses and other professional fees. The increase in general and administrative expenses was partially offset by a decrease of $2.2 million in allocated overhead and other general and administrative costs. Our general and administrative headcount increased by 15 from October 31, 2023 to October 31, 2024. We expect general and administrative expenses will decrease as a percentage of revenues as we leverage the investments we have made to date. 33 Table of Contents Non-Operating Income (Expense) Three Months Ended October 31, Nine Months Ended October 31, ($ in thousands) 2023 2024 2023 2024 Interest income $ 685 0.6 % $ 482 0.3 % $ 2,057 0.6 % $ 1,408 0.4 % Interest expense (854) (0.7) (1,653) (1.2) (3,277) (0.9) (4,965) (1.2) Other income (expense), net (2,320) (1.9) 432 0.3 (2,633) (0.7) (162) — Interest income decreased $0.2 million for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, due to a decrease in our accounts earning interest. Interest expense increased $0.8 million for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, due to borrowing on our revolving credit facility. The decrease of $2.8 million in other income (expense), net for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, 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 decreased $0.6 million for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, due to a decrease in our accounts earning interest. Interest expense increased $1.7 million for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, due to borrowing on our revolving credit facility. The decrease of $2.5 million in other expense, net for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, was primarily driven by intercompany loans and transactions that are denominated in currencies other than the underlying functional currency of the applicable entity. Income Tax Provision Three Months Ended October 31, Nine Months Ended October 31, ($ in thousands) 2023 2024 2023 2024 Income tax provision $ 1,782 1.5 % $ 2,589 1.9 % $ 4,720 1.3 % $ 1,360 0.3 % Income tax provision was $2.6 million for the three months ended October 31, 2024 compared to a provision of $1.8 million for the three months ended October 31, 2023, and resulted in an effective tax rate of (165.6)% and (11.6)%, respectively. Income tax provision was $1.4 million for the nine months ended October 31, 2024 compared to a provision of $4.7 million for the nine months ended October 31, 2023, and resulted in an effective tax rate of (8.4)% and (11.7)%, respectively. The change in the effective tax rate for the nine months ended October 31, 2024 compared to the effective tax rate for the nine months ended October 31, 2023 was primarily due to a reduction of our valuation allowance offset by profitable foreign jurisdictions and uncertain tax positions. Prior to the DocFox acquisition, we continued to maintain a valuation allowance against our deferred tax assets in several jurisdictions, including the U.S. On the DocFox Acquisition Date, the Company measured and recorded net U.S. deferred tax liabilities, most of which relate to identifiable intangible assets. The deferred tax liabilities recognized provide additional positive evidence that a portion of the Company's U.S. deferred tax assets are realizable. As a result, the Company reduced the valuation allowance by $3.6 million during the first quarter of the Company’s fiscal 2025. 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 34 Table of Contents 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, as discussed below. Non-GAAP operating income. Non-GAAP operating income 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. Non-GAAP operating income is widely used by securities analysts, investors, and other interested parties to evaluate the profitability of companies. Non-GAAP operating income 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. The following table reconciles non-GAAP operating income to loss from operations, the most directly comparable financial measure, calculated and presented in accordance with GAAP (in thousands): Three Months Ended October 31, Nine Months Ended October 31, ($ in thousands) 2023 2024 2023 2024 GAAP loss from operations $ (12,906) $ (824) $ (36,327) $ (12,393) Adjustments Amortization of intangible assets 16,952 7,357 31,101 21,388 Stock-based compensation expense 15,823 17,971 41,969 53,015 Acquisition-related expenses 211 3,423 634 9,410 Litigation expenses 1 153 115 4,502 365 Restructuring and related charges 150 — 627 — Total adjustments 33,289 28,866 78,833 84,178 Non-GAAP operating income $ 20,383 $ 28,042 $ 42,506 $ 71,785 1 Represents legal expenses related to a closed government antitrust investigation and related settled civil action and a dismissed shareholder derivative lawsuit. Liquidity and Capital Resources As of October 31, 2024, we had $257.9 million in cash and cash equivalents. In November 2024, we used approximately $129.7 million of our cash for the FullCircl acquisition. See Note 15 "Subsequent Event" 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 FullCircl acquisition. As of October 31, 2024, we had an accumulated deficit of $369.8 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. 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 starting 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. On March 17, 2024, the Company entered into the Second Amendment for the 2022 Credit Facility which, among other things, increased our borrowing availability to $100.0 million. In March 2024, we borrowed $75.0 million under the 2022 Credit Facility to fund the acquisition of DocFox. In April 2024, July 2024, and October 2024 we repaid $20.0 million, 35 Table of Contents $15.0 million, and $10.0 million, respectively, under the 2022 Credit Facility. On October 28, 2024, the Company entered into the 2024 Credit Facility, which increased our borrowing availability to $250.0 million. The Company borrowed $166.0 million under the 2024 Credit Facility to fund the acquisition of FullCircl and repay the $30.0 million outstanding under the 2022 Credit Facility. The Company expects to pay an additional $15.0 million in two years for the FullCircl acquisition upon the satisfaction and performance of certain warranties and covenants. As of October 31, 2024, the applicable interest rate was 6.72%. The Company had $166.0 million outstanding and no letters of credit issued under the 2024 Credit Facility and was in compliance with all covenants as of October 31, 2024. 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 expect to incur capital expenditures in fiscal 2025 and 2026 for planned office build-outs to accommodate our growth, primarily for an international office, which we estimate to spend approximately $2.0 million and $6.0 million in fiscal 2025 and 2026, respectively. 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 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, 2024 and October 31, 2024, the redeemable non-controlling interest was $3.4 million and $5.2 million, respectively. As part of our joint venture obligations, we made an additional cash capital contribution of $1.0 million to nCino K.K. during the third quarter of fiscal 2024. Cash Flows Summary Cash Flow information for the nine months ended October 31, 2023 and 2024 are set forth below: Nine Months Ended October 31, ($ in thousands) 2023 2024 Net cash provided by operating activities $ 49,137 $ 65,218 Net cash used in investing activities (5,939) (92,755) Net cash provided by (used in) financing activities (24,031) 168,439 Net Cash Provided by Operating Activities The $65.2 million provided by operating activities in the nine months ended October 31, 2024 reflects our net loss of $17.5 million, offset by $88.7 million in non-cash charges and $6.0 million used in 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, partially offset by deferred income taxes and foreign currency losses related to intercompany loans and transactions. Cash used in working capital accounts was principally a function of a $41.6 million decrease in deferred revenue due to the timing of billings and revenue recognition, and an increase of $13.2 million of capitalized costs to obtain revenue contracts, which consisted primarily of sales commissions, a $2.9 million decrease in operating lease liabilities, and a $0.1 million decrease in accrued expenses and other liabilities. The cash used in 36 Table of Contents working capital accounts was partially offset by a $50.2 million decrease in accounts receivable due to the timing of billings and collections from customers, a $1.1 million increase in accounts payable, and a $0.7 million decrease in prepaid expenses and other assets. 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. 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, foreign currency losses related to intercompany loans and transactions, provision for deferred taxes and bad debt. Cash generated by working capital accounts was principally a function of a $35.5 million decrease in accounts receivable due to timing of billings and collections from customers and 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. Net Cash Used in Investing Activities The $92.8 million used in investing activities in the nine months ended October 31, 2024 was comprised of $90.8 million used for the acquisitions of DocFox and ILT, $1.5 million for the purchase of property and equipment and leasehold improvements to support the expansion of our business, and $0.5 million for an asset acquisition. 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 consideration relating to an asset acquisition completed in August 2022. Net Cash Provided by (Used in) Financing Activities The $168.4 million provided by financing activities in the nine months ended October 31, 2024 was comprised principally of $241.0 million proceeds from borrowings on the 2022 and 2024 Credit Facility to fund the acquisition of DocFox and FullCircl, $2.5 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 cash provided by financing activities was partially offset by payments of $75.0 million on the 2022 Credit Facility, payments of debt issuance costs of $1.4 million, and principal payments of $0.9 million on financing obligations. 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. 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. 37 Table of Contents 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, 2024 filed with the SEC on March 26, 2024. 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.