nCino delivered strong Q2 results, exceeding guidance on key metrics and showing momentum in its US business.
Top Takeaways
- US business accelerating, with gross bookings up 36% YoY in first half
- International pipeline growing but more challenged than US market
- Transition to platform pricing model underway, expected to drive future growth
- New AI-powered Banking Advisor product gaining early traction
- Mortgage business stabilizing, positioned for growth when rates decline
Summary
nCino reported Q2 subscription revenue of $113.9 million, up 14% year-over-year, and total revenue of $132.4 million, up 13% YoY. Both metrics exceeded the high end of guidance. Non-GAAP operating income was $19.3 million, also ahead of expectations. CEO Pierre Naude commented:
We are very pleased with our second quarter financial results, once again exceeding our guidance for both subscription and total revenues, as well as for non-GAAP operating income.
Main Themes
- Guidance: Maintained full-year revenue outlook, raised non-GAAP operating income guidance
- Competition: Positioned as market leader, especially in US
- Economy: Improved sentiment in US financial services industry
- New Products: Early traction for AI-powered Banking Advisor offering
- Market Opportunity: Expanding beyond commercial lending into consumer, deposits
- International: Pipeline growing but more challenged than US market
Insights
- US enterprise and community/regional businesses both over 50% to annual gross bookings goals
- Non-commercial products now over 50% of total bookings
- 40% of US mortgage logos and 45% of revenues now on new pricing model
- Banking Advisor signed 8 deals in first quarter of general availability
- DocFox acquisition exceeding expectations in commercial onboarding
Market Opportunity
nCino is expanding beyond its core commercial lending focus into consumer lending, deposit account opening, and mortgage origination. The company signed 8 new consumer lending and 5 new deposit account opening customers in Q2. Management sees significant growth potential in these adjacent markets, particularly as banks seek to improve efficiency and customer experience across product lines.
Market Commentary
The US financial services industry sentiment has improved significantly from a year ago. Bank balance sheets are generally healthy and net interest margin headwinds are abating. This is driving increased investment in technology and automation. The international markets nCino operates in remain more challenged, but pipelines are growing.
Customer Behaviors
Financial institutions are increasingly adopting multiple nCino solutions to create a unified platform across product lines. This trend is driving higher customer lifetime value and stickiness. For example:
A $20 billion bank became one of our largest portfolio and lendings customers, expanding their adoption from commercial lending and deposit account opening to also include portfolio analytics for CRE stress testing.
Economy Insights
While the US market is showing strength, international markets face more headwinds:
In the United States, sentiment in the financial services industry has improved quite a bit from a year ago, with FI balance sheets generally healthy and net interest margin headwinds abating. Buying behavior in both the US enterprise and community and regional markets accelerated in the first half of fiscal 2025.
Industry Insights
The mortgage origination industry is stabilizing after a challenging period:
We maintain our view that US mortgage revenues will be dilutive to overall growth for nCino this fiscal year, but we expect interest rate cuts to be a catalyst for reaccelerated growth in this business starting in the fourth quarter, and as we look into next year consistent with our previous comments.
Key Metrics
Financial metrics:
- Subscription revenue: $113.9 million, +14% YoY
- Total revenue: $132.4 million, +13% YoY
- Non-GAAP operating income: $19.3 million, +72% YoY
- Non-GAAP operating margin: 15%, up from 10% in Q2 FY24
KPIs:
- Remaining performance obligation (RPO): $1.04 billion, +12% YoY
- International revenue: $27.5 million, +25% YoY (21% of total revenue)
- Net bookings: +17% YoY in first half
Competitive Differentiators
- Single platform approach across commercial, consumer, and mortgage lending
- AI-powered Banking Advisor for intelligent automation
- Strong position in US community and regional bank market
- Growing international presence, especially in English-speaking markets
- Ability to significantly reduce implementation timelines for customers
Key Risks
- Slower adoption in international markets
- Continued headwinds in mortgage business until interest rates decline
- Potential disruption from transition to platform pricing model
- Competition from legacy vendors and new entrants in banking technology
- Macroeconomic uncertainty impacting financial institutions’ technology spend
Analyst Q&A Focus
- Timing and impact of platform pricing transition
- Growth expectations for mortgage business as volumes recover
- International market challenges and growth strategy
- Competitive landscape in US and international markets
- Adoption trends for new products like Banking Advisor and DocFox
nCino Summary
nCino delivered strong Q2 results driven by accelerating growth in its US business and early traction for new products. The company is well-positioned to benefit from improving sentiment in the financial services industry and increasing demand for digital transformation. Key areas to watch include the rollout of platform pricing, recovery in the mortgage business, and traction in international markets. nCino’s expansion beyond commercial lending into consumer and deposit products provides significant growth potential if execution remains strong.
