Recently nCino filed their initial S1 statement. Generally it takes companies ~1 month to start trading from the time the first S1 is filed with the SEC. Over the next couple weeks the company will file an amendment to the S1 with a price range. A S1 is a document companies file with the SEC in preparation for listing their shares on an exchange like the NYSE or NASDAQ. S1 documents are often hundreds of pages long, and include information on the company ranging from general overviews, up to date financials, risk factors to the business, cap table highlights and much more. The purpose of the detailed information is to help investors (both institutional and retail) make investment decisions (and to assure that they meet the regulatory requirements to list their shares publicly). There’s a lot of info to digest, so in the sections below I’ll try and pull out the relevant financial information and benchmark it against recent cloud IPOs (44 in total dating back to Workday’s offering in 2012), and come up with my own valuation target.
I wonder about sustainability of recent revenue growth rate, and about their new logo bookings trends. It would have been great if they provided historical bookings trends (both new logo and upsell), but they didn't.
About 19% of their recent quarter y/y ARR growth is inorganic per the S-1 (Visible Equity + Finsuite acquisitions), so their ~50% reported revenue growth rate is closer to ~40%.
~150% net retention is very strong, but this statistic is inflated for nCino compared to other companies for a couple reasons. Their contracts are 3-5 years on average so a lot of their customers haven't come up for renewal yet. Also, it seems like a lot of their upsell growth could be due to contractual phased activation of seats rather than bookings of new products / business lines within the banks. It'd be interesting if they broke out how much of their historical organic growth from existing base is purely due to phased activation vs growth from new products. Also, with net retention rates this high (147%), seems like you'd expect their organic growth rate to be higher than what they've disclosed (40% when you strip out Visible + Finsuite growth).
Also, the last paragraph of page 54 shows that some of the most recent quarter growth is from their emergency PPP solution (solution has shorter contract length than their normal contracts, which will put pressure on retention rate), which may have pulled forward some subscription revenue growth / bookings that would have otherwise been booked later on this year, and they actually warn about moderating revenue growth and retention rates in FY22 (which begins February 2021).
In general, I wonder about how much growth historically compared to expected future growth is through phased activation of seats (this growth is probably part of the reason why their S&M as % of revenue is relatively low, as its cheaper growth than normal upsell + new logo). If they have to rely more so on new logo / new product upsells in the future to keep the growth rate up, may see margins / sales efficiency also decline.
Thank you for the analysis and insights Jamin - great effort! Lets see if the $3-$3.5b prediction holds!
Thanks for posting this, it's interesting
I wonder about sustainability of recent revenue growth rate, and about their new logo bookings trends. It would have been great if they provided historical bookings trends (both new logo and upsell), but they didn't.
About 19% of their recent quarter y/y ARR growth is inorganic per the S-1 (Visible Equity + Finsuite acquisitions), so their ~50% reported revenue growth rate is closer to ~40%.
~150% net retention is very strong, but this statistic is inflated for nCino compared to other companies for a couple reasons. Their contracts are 3-5 years on average so a lot of their customers haven't come up for renewal yet. Also, it seems like a lot of their upsell growth could be due to contractual phased activation of seats rather than bookings of new products / business lines within the banks. It'd be interesting if they broke out how much of their historical organic growth from existing base is purely due to phased activation vs growth from new products. Also, with net retention rates this high (147%), seems like you'd expect their organic growth rate to be higher than what they've disclosed (40% when you strip out Visible + Finsuite growth).
Also, the last paragraph of page 54 shows that some of the most recent quarter growth is from their emergency PPP solution (solution has shorter contract length than their normal contracts, which will put pressure on retention rate), which may have pulled forward some subscription revenue growth / bookings that would have otherwise been booked later on this year, and they actually warn about moderating revenue growth and retention rates in FY22 (which begins February 2021).
In general, I wonder about how much growth historically compared to expected future growth is through phased activation of seats (this growth is probably part of the reason why their S&M as % of revenue is relatively low, as its cheaper growth than normal upsell + new logo). If they have to rely more so on new logo / new product upsells in the future to keep the growth rate up, may see margins / sales efficiency also decline.
Phil Anderson