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Shares in cloud banking solutions provider nCino Inc. tumbled Wednesday after the company said its mortgage technology business has been a drag on growth but is expected to pick up once interest rates come down.
In reporting an $11 million second-quarter loss Tuesday, nCino said revenue was up 13 percent from a year ago, to $132.4 million, helping the company trim its Q2 loss by 31 percent from a year ago, when it was $15.9 million in the red.
But nCino Chairman and CEO Pierre Naudé acknowledged in a statement that “some macroeconomic challenges persist, particularly in the U.S. mortgage market and international markets.”
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The company’s guidance for third-quarter revenue of between $136 million and $138 million also disappointed investors.
Shares in nCino down 14% after Q2 earnings
Source: Yahoo Finance.
Shares in nCino, which in the last 12 months have traded for as much as $37.48 and as little as $27.13, fell 14 percent to $29.74 at Wednesday’s close.
NCino, which raised $268.4 million in a July 2020 initial public offering, reported that it had $126.8 million in cash and cash equivalents on hand at the end of July, and repaid $15 million on its revolving credit facility.
Having spent nearly $1 billion to acquire mortgage technology provider SimpleNexus in 2022 as interest rates were starting to climb, the Wilmington, North Carolina-based cloud banking pioneer has found growing the business to be a challenge.
While Q2 subscription revenue across all of nCino’s business lines was up 14 percent to $114 million, mortgage subscription revenue grew by only 4 percent, to $17 million, Chief Financial Officer Greg Orenstein said on a call with investment analysts.
NCino signed six new mortgage customers in the second quarter, four of which were financial institutions, CEO Pierre Naudé told investment analysts. One of the largest homebuilders in the United States began a nationwide rollout of the nCino mortgage solution in July, he said.
One issue nCino has been coping with in trying to grow its mortgage technology business has been “churn.” Even as it signs new mortgage customers, it must cope with the loss of existing clients — in some cases because they’re acquired by competitors or go out of business.
The banking technology provider, which wrapped up its 2024 fiscal year on Jan. 31, saw its customer count shrink during that period, driven by a 9 percent decline in total mortgage customers to 434.
Mortgage customers down on ‘churn’
NCino’s total customer base, which as of Jan. 31, 2024, included 1,149 clients of nIQ, nCino’s artificial intelligence solution. Of the 434 mortgage customers as of Jan. 31, 63 were also nCino Bank Operating System (BOS) customers or portfolio analytics customers. Source: nCino investor presentation.
Naudé said it’s important to keep in mind that SimpleNexus — which nCino acquired in January 2022 for $933.6 million and rebranded as nCino Mortgage in September — primarily served independent mortgage banks (IMBs).
With a tight focus on mortgage lending, some IMBs — also known as non-bank lenders because they lack deposits to loan against — have struggled as elevated mortgage rates curtailed homebuying and refinancing.
But nCino has been successful in broadening the customer base for its mortgage solution by marketing it to its existing banking customers and homebuilders, which are less susceptible to churn.
Pierre Naudé
“Banking is a lot less risky for the mortgage business, because once [a bank buys a mortgage subscription], it stays there,” Naudé said. “It’s not like IMBs, which are doing M&A [mergers and acquisitions] all the time, or shutting down the business.”
Naudé welcomed the recent news that IMBs reported earning a pre-tax profit of $693 per loan during the second quarter following eight straight quarters of net losses.
But he said nCino’s mortgage business is “a lot more balanced now” as it expands beyond SimpleNexus’ IMB customer base. “It’s more growth-oriented, and as soon as this rate cut comes in and the volumes go up, I’m actually highly optimistic that mortgage will start performing at a different level for us.”
NCino’s mortgage clients include Synergy One Lending and Fairway Independent Mortgage Corporation, but most of its revenue comes from providing a range of technology services to global banks like Bank of America, Barclays, Santander, and TD Bank; enterprise banks including Truist Bank and U.S. Bank; regional community banks like WaFd Bank and M&F Bank; and credit unions like Navy Federal Credit Union, SAFE Credit Union and Marine Credit Union.
While nCino saw its customer count drop last year, it boosted the number of clients generating more than $1 million in revenue a year to 86, up from 73 the year before. No single customer represented more than 10 percent of total revenue.
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