IPO done, nCino now has to prove it can turn a profit

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Normally an economic crisis wouldn’t be an ideal time to go public.

But that’s exactly what the fintech company nCino, which helps banks make digital loans, did two weeks ago, and so far that decision doesn’t look like a mistake.

Shares of the Wilmington, N.C., company popped from an opening price of $31 on July 14 to $91 by that afternoon as investors flocked to the promise of an accelerated digital transformation in banking. The stock has since settled back to about $72 per share, but nCino has become one of the most highly valued new “software as a service” companies in the market.

However, nCino hasn’t turned a profit, there are questions about whether its roughly $6.5 billion market valuation may be a bit lofty, and the coronavirus keeps pummeling the economy, making growth plans dicey for many businesses.

Pierre Naudé, president, CEO and co-founder of nCino, said in an interview after its initial public offering that the pandemic is not going to slow the company’s quest to achieve profitability in the next six to eight quarters.

nCino revenues

“We are a growth company — market share matters,” Naudé said. “We want to grow as fast as we can.”

The cloud technology company was started in early 2012 by Live Oak Bancshares in Wilmington to help banking clients transition away from a paper-intensive loan process to one that is mostly online. It was spun off in 2014 when Live Oak went public.

The lending systems nCino offers handle loan originations, account openings and customer relationship functions. As the Small Business Association launched its Paycheck Protection Program in April and lenders were being bombarded with applications for the loans, nCino built a functionality onto its platform to help clients process them. The company ended up assisting with about $50 billion in PPP loans, Naudé said.

The paycheck program “was a good revenue opportunity for us, but it also reemphasized for banks of all sizes the need for digital transformation,” Naudé said. “It’s not a choice anymore. It’s become an imperative.”

Several banks, including Santander Bank and TD Bank, have used nCino’s platform to adapt their legacy systems to offer digital services to commercial banking clients. Naudé said the company is expanding into international markets. Its lending system for mortgages is set to debut in Europe, Canada and Australia in the near future. Two to three years down the line, Naudé said, the company will bring the product to the highly competitive U.S. market for processing digital home loans.

“We focus then on the banks that already have multiple channels deployed from nCino,” Naudé said. “I would just slot mortgage in there as opposed to going to market full blown to try and compete.”

The company continues to operate at a net loss, which is common for software-as-a-service companies that have to spend heavily on growth and the pursuit of new clients. Analysts at D.A. Davidson said in a July 20 note to clients that they “believe the financials are quite solid overall” and that “nCino is succeeding with large U.S. and global banks.”

Revenues in the 2020 fiscal year, which ended Jan. 31, increased about 50% from the previous year. Pete Heckmann, managing director of equities research at D.A. Davidson, said in an email that nCino executives seem “to have built a high-quality growth company” but it was too early to tell if they will make a profit as soon as they expect.

“While we are pleased to see another publicly traded growth name in FinTech, this valuation may prove a challenge to future returns,” D.A. Davidson analysts said in the July 20 research note.

Brisk spending is expected to continue at nCino after it raised roughly $249.8 million in the IPO, and could include an acquisition. Naudé said executives are on the lookout for “architectural gems” they could buy to build out their machine learning and analytics technology to improve the software the company sells to banks.

“We like to go and find these little gem companies that aren’t very big — I don’t like to buy them for their revenue — but for their people, their math skills and their technology,” Naudé said.

For now, the company is focusing on finding more banking clients in a world where employees are expected to be working from home for the foreseeable future. Small-business loan decisions — a process that normally could take two to three days — have taken seven minutes on nCino’s platform, Naudé said.

“This kind of evidence will accelerate the digital transformation,” he said.

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Fintech Digital banking Commercial lending Consumer lending Small business lending Digital mortgages Paycheck Protection Program Coronavirus IPOs