nCino (NASDAQ:NCNO) Stock Plummets 15% Despite Beating Q2 Earnings: What Investors Need to Know
WILMINGTON, N.C. - nCino, Inc. (NASDAQ:NCNO), a leading cloud banking software provider, experienced a significant 15% drop in its stock price despite surpassing Wall Street's expectations on both revenue and earnings per share (EPS) for the second quarter.
The company's adjusted EPS for Q2 was $0.14, slightly above the consensus estimate of $0.13. Revenue reached $132.4 million, marginally exceeding the analysts' forecast of $131.06 million and marking a 13% year-over-year increase.
Despite these positive results, nCino's third-quarter guidance underwhelmed investors. The company projected Q3 revenue to range between $136 million and $138 million, falling short of the $138.6 million consensus. Additionally, the forecasted adjusted EPS of $0.15-$0.16 was on par with the analysts' estimate of $0.16.
One of the key metrics, Remaining Performance Obligations (RPOs), increased by 12% year-over-year but declined by 2.6% from the previous quarter. According to analysts at Needham, this decline is a primary factor behind the stock's pullback. They also noted that while the first quarter of fiscal year 2025 was a record sales quarter for nCino, quarterly bookings can vary significantly.
"We note that Q1 2025 was a record sales quarter for NCNO and bookings can be lumpy on a Q/Q basis," they added. "We believe execution remains strong as reflected in the solid outlook and pace of deal wins and recommend investors buy on the weakness."
nCino's subscription revenue grew by 14% year-over-year to $113.9 million, with notable strength in its U.S. enterprise and community banking segments. Pierre Naudé, Chairman and CEO of nCino, expressed satisfaction with the company's performance, stating, "We are pleased to report that we again exceeded quarterly guidance for total and subscription revenues as well as non-GAAP operating income. While some macro-economic challenges persist, particularly in the U.S. mortgage market and international markets, we have a positive outlook on the second half of the year."
The company maintained its full fiscal year 2025 revenue guidance of $538.5-$544.5 million and ended the quarter with $126.8 million in cash and equivalents after repaying $15 million on its revolving credit facility.
Stephens analysts noted that while the strong bookings momentum from Q1 did not continue as anticipated, they see several catalysts that could drive an acceleration in subscription revenue and improve operating leverage over the medium term. Nevertheless, they cautioned about risks such as elongated sales cycles, an uncertain interest rate environment, and the variability of international markets.
Analysis: Breaking It Down for Everyone
What Happened?
- Stock Drop: Despite strong quarterly performance, nCino's stock fell over 15%.
- Earnings Beat: The company reported Q2 EPS of $0.14, beating the $0.13 expectation. Revenue was $132.4 million, slightly above the $131.06 million expected.
- Guidance Disappointment: Q3 revenue forecast of $136-$138 million fell short of the $138.6 million consensus. EPS forecast of $0.15-$0.16 matched expectations.
Why Did the Stock Drop?
- RPO Decline: A 2.6% quarterly drop in RPOs, despite a 12% year-over-year increase, raised concerns.
- Quarterly Variability: Analysts pointed out that nCino's bookings can be inconsistent from quarter to quarter.
Key Metrics:
- Subscription Revenue: Increased by 14% YoY to $113.9 million.
- Cash Position: Ended Q2 with $126.8 million in cash, after repaying $15 million in debt.
Expert Opinions:
- Needham Analysts: Recommend buying on the weakness, highlighting strong execution and deal wins.
- Stephens Analysts: Cautiously optimistic but aware of risks like sales cycles and international market variability.
What Does This Mean for You?
- Investors: The stock decline might present a buying opportunity, given the strong underlying performance.
- Risk Factors: Be aware of the risks related to sales cycles, interest rates, and international markets.
- Long-Term Outlook: Positive, especially with expected catalysts for subscription revenue growth and operating leverage improvements.
Understanding these dynamics can help you make more informed decisions about your investments and financial strategies.