nCino, Inc. (NCNO) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and related notes and other financial information included in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section titled “Risk Factors.” Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Our fiscal year ends on January 31 of each year and references in this Annual Report on Form 10-K to a fiscal year mean the year in which that fiscal year ends. For example, references in this Annual Report on Form 10-K to "fiscal 2023" refer to the fiscal year ended January 31, 2023.

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The following section of this Form 10-K discusses our financial condition and results of operations for fiscal 2023 and 2022 and year-to-year comparisons between fiscal 2023 and 2022. Discussions of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Form 10-K can be found in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SEC on March 31, 2022.

Overview

nCino is the pioneer in cloud banking. Built by bankers for bankers, the nCino Bank Operating System is a single, multi-tenant software-as-a-service (SaaS) solution that helps financial institutions ("FI") modernize, innovate and outperform. A leader in the global financial services technology industry, nCino is a proven partner that has helped more than 1,850 FIs of all sizes and complexities, including global, enterprise, regional and community banks; credit unions; new market entrants; and independent mortgage banks power distinctive experiences, drive growth efficiencies, and run with full integrity. With nCino, FIs can:

•digitally serve their clients across lines of business,

•improve financial results,

•elevate employee experience and performance,

•manage risk and compliance more effectively, and

•establish an active data, audit, and business intelligence hub.

nCino was originally founded in a bank to improve that FI’s operations and client service. After realizing that virtually all FIs were dealing with the same problems—cumbersome legacy technology, fragmented data, disconnected business functions, and a disengaged workforce made it difficult to maintain relevancy in their clients’ lives—we were spun out as a separate company in late 2011. This heritage is the foundation of our deep banking domain expertise, which differentiates us, continues to drive our strategy and makes us uniquely qualified to help FIs cross the modernization divide by providing a comprehensive solution that onboards clients, originates loans, and opens accounts on a single, cloud-based platform.

We initially focused the nCino Bank Operating System on transforming commercial and small business lending for community and regional banks in the United States ("U.S."). We introduced this solution to enterprise banks in the U.S. in 2014, and then internationally in 2017, and have subsequently expanded across North America, Europe and Asia-Pacific ("APAC"). Throughout this market expansion, we broadened the nCino Bank Operating System by adding functionality for consumer lending, client onboarding, deposit account opening, analytics and AI/ML. In fiscal 2020, we acquired nCino Portfolio Analytics, LLC (formerly Visible Equity) and FinSuite as part of our strategy to build out our nIQ capabilities, and we established our nCino K.K. joint venture to facilitate our entry into the Japanese market. Additionally, in January 2022, we acquired SimpleNexus, which expanded our capabilities to the U.S. point-of-sale mortgage market.

We generally offer our solutions on a SaaS basis under multi-year contracts and recognize subscription revenues ratably over the term of the contract. Our customers may initially purchase one of our solutions for implementing a client onboarding, loan origination and/or deposit account opening application in a specific line of business within the FI, such as commercial, small business, consumer, or mortgage. The nCino Bank Operating System is designed to scale with our customers, and once our solution is deployed, we seek to have our customers expand adoption within and across lines of business. For fiscal 2023, we had a subscription revenue retention rate of 148%. See Item 7 of this Annual Report on Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Operating Results—Subscription Revenue Retention Rate” for additional information on subscription revenue retention rates.

We sell our solutions directly through our business development managers, account executives, field sales engineers, and customer success managers. Our sales efforts in the U.S. are organized around FIs based on size, whereas internationally we focus our sales efforts by geography. As of January 31, 2023, we had 267 sales and sales support personnel in the U.S., including SimpleNexus, and 77 sales and support personnel in offices outside the U.S.

To help customers go live with our solutions, we offer professional services including configuration and implementation, training, and advisory services. For enterprise FIs, we generally work with SI partners such as Accenture, Deloitte, and PwC for the delivery of professional services for the nCino Bank Operating System. For regional FIs, we work

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with SIs such as West Monroe Partners, and for community banks, we work with SIs or perform configuration and implementation ourselves. We expect enterprise FIs to make up a greater proportion of our nCino Bank Operating System sales. As a result, we expect the mix of our total revenues to become more heavily weighted toward subscription revenues.

On the Acquisition Date, we acquired SimpleNexus, a leading cloud-based mobile-first homeownership software company in the U.S., for an aggregate purchase price of $933.6 million. As a result of the acquisition, SimpleNexus became a wholly owned subsidiary of nCino, Inc. Our consolidated results of operations for fiscal 2022 and 2023 include the operating results of SimpleNexus from the Acquisition Date. See Note 7 "Business Combinations" of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information. Given it was prior to the Acquisition Date, no operating results for SimpleNexus are included in the comparative period for fiscal 2021. SimpleNexus offers a suite of products that enables loan officers, borrowers, real estate agents, settlement agents and others to easily engage in the homeownership process from any internet-enabled device.

In January 2023, nCino implemented an "in-person first" working environment at the Company's headquarters in Wilmington, N.C., in which full-time employees within Wilmington are expected to return to the office on a full-time basis.

On January 18, 2023, the Company announced a workforce reduction of approximately seven percent 7% and office space reductions in certain markets (collectively, the “Restructuring Plan”) in furtherance of its efforts to improve operating margins and advance the Company’s objective of profitable growth. The Company incurred charges in the fourth quarter of the Company’s fiscal 2023 of $4.8 million in connection with the Restructuring Plan. As of January 31, 2023, the accrual for severance and related benefit costs of $5.0 million for terminated employees was included in accrued compensation and benefits in the consolidated balance sheets and was paid in the first quarter of the Company’s fiscal 2024. The Company paid $0.8 million in the fourth quarter of fiscal 2023 to exercise an early termination clause to exit a facility during fiscal 2024, which was accounted for as a lease modification under ASC 842. See Note 19 "Restructuring" of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

Our total revenues were $204.3 million, $273.9 million, and $408.3 million for fiscal 2021, 2022, and 2023, respectively, representing a 41.4% compound annual growth rate. Our revenues include $3.9 million in revenues from SimpleNexus from the Acquisition Date for fiscal 2022 and $65.4 million for fiscal 2023. Our subscription revenues in fiscal 2021 were $162.4 million or 79.5% of total revenues, $224.9 million or 82.1% of total revenues in fiscal 2022, and $344.8 million or 84.4% of total revenues in fiscal 2023, representing a 45.7% compound annual growth rate. Our subscription-based revenues include $3.7 million from SimpleNexus from the Acquisition Date for fiscal 2022 and $59.8 million for fiscal 2023. Due to our investments in growth, we recorded net losses attributable to nCino in fiscal 2021, 2022, and 2023 of $40.5 million, $49.4 million, and $102.7 million, respectively. Our net losses include the operating results of SimpleNexus from the Acquisition Date.

Factors Affecting Our Operating Results

Market Adoption of Our Solution. Our future growth depends on our ability to expand our reach to new FI customers and increase adoption with existing customers as they broaden their use of our solutions within and across lines of business. Our success in growing our customer base and expanding adoption of our solutions by existing customers requires a focused direct sales engagement and the ability to convince key decision makers at FIs to replace legacy third-party point solutions or internally developed software with our solutions. In addition, growing our customer base will require us to increasingly penetrate markets outside the U.S., which accounted for 15.1% of total revenues for fiscal 2023. For new customers, our sales cycles are typically lengthy, generally ranging from six to nine months for smaller FIs to 12 to 18 months or more for larger FIs. Key to landing new customers is our ability to successfully take our existing customers live and help them achieve measurable returns on their investment, thereby turning them into referenceable accounts. If we are unable to successfully address the foregoing challenges, our ability to grow our business and achieve profitability will be adversely affected, which may in turn reduce the value of our common stock.

Mix of Subscription and Professional Services Revenues. The initial deployment of our solutions by our customers requires a period of implementation and configuration services that typically range from three to 18 months, depending on scope. As a result, during the initial go-live period for a customer on the nCino Bank Operating System, professional services revenues generally make up a substantial portion of our revenues from that customer, whereas over time, revenues from established customers are more heavily weighted to subscriptions. While professional services revenues will fluctuate as a percentage of total revenues in the future and tend to be higher in periods of faster growth, over time we expect subscription revenues will make up an increasing proportion of our total revenues as our overall business grows.

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Subscription Revenue Retention Rate. We believe that our ability to retain and grow subscription revenues from our existing customers over time strengthens the stability and predictability of our revenue base and is reflective of both the adoption curve of customers and the value we deliver to them. We assess our performance in this area using a metric we refer to as subscription revenue retention rate. We calculate our subscription revenue retention rate as total subscription revenues in a fiscal year from customers who contracted for any of our solutions as of January 31 of the prior fiscal year, expressed as a percentage of total subscription revenues for the prior fiscal year. In accordance with this definition, subscription revenues from customers obtained through an acquisition will first be included in the calculation in the fiscal year subsequent to such acquisition, for the periods they were a customer of nCino. Our subscription revenue retention rate provides insight into the impact on current year subscription revenues of:

•the number and timing of new customers and phased activation of seats purchased by them in prior years, which activation schedules can span several fiscal years for larger contracts;

•expanding adoption of our solutions by our existing customers during the current year, excluding any revenues derived from businesses acquired during such year; and

•customer attrition.

For fiscal 2021, 2022, and 2023, we had subscription revenue retention rates of 155%, 133%, and 148%, respectively. The most significant driver of changes in our subscription revenue retention rate each year has historically been the number of new customers in prior years and the associated phased activation schedules for such customers. In addition, because larger FIs tend to make more sizable purchases with longer activation schedules, we expect variability in our subscription revenue retention rates based on the timing and extent of our continued penetration of this portion of the market. The increase in our subscription revenue retention rate for fiscal 2021 was primarily due to accelerated activation of licenses sold in the year for our PPP and Coronavirus Business Interruption Loan Scheme solutions. The moderation in our subscription revenue retention rate for fiscal 2022 was due to a higher mix of new customer sales with prolonged activation schedules. The increase in our subscription revenue retention rate for fiscal 2023 was due to the inclusion of customers who had contracts with SimpleNexus in effect prior to January 31, 2022. Subscription revenues from periods prior to the acquisition were excluded from the calculation for fiscal 2023. Excluding SimpleNexus, the subscription revenue retention rate for fiscal 2023 was 125%. Our use of subscription revenue retention rate has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in adjacent markets may calculate subscription revenue retention rates or similar metrics differently, which reduces its usefulness as a comparative measure.

Long-term ACV Expansion. A key element of our growth strategy is to expand our deployed footprint with a customer after initial adoption. Our customers typically purchase the nCino Bank Operating System for a defined line of business or to support a specific use case and, once deployed, we seek to convince the customer to adopt our solutions within and across additional lines of business. To date, we have been successful in executing our land and expand strategy as a result of the ability of our solutions to streamline workflow, generate meaningful insights for operational improvement, and help drive improved bottom line results. Due to our rapid growth, many of our customers have not yet come up for renewal, so our historical net retention rates may not be predictive of future results. If our customers do not continue to see the ability of our solutions to generate return on investment relative to other available solutions or at all, net retention rates could suffer and our operating results could be adversely affected.

We believe our ACV-based net retention of customers over the long term illustrates our success in executing our land and expand strategy, as it demonstrates growing adoption by existing customers, including price increases but net of attrition. To measure net retention, we categorize customers by the year in which they first contracted for one of our solutions, which we call an annual cohort. For each annual cohort, we measure the total ACV for our most recently completed fiscal year and divide it by the total ACV for such cohort at the end of the initial cohort year. We refer to the resulting quotient as “ACV-based net retention.” In any given period, ACV for a customer represents the annualized subscription fees from the fully activated subscription contracts in effect for such customers at the end of the applicable period. While we expect ACV-based net retention to increase over time for each respective cohort as we execute our land and expand strategy, occasionally ACV-based net retention can moderate from one period to the next, from customer consolidation for example.

The graphic below illustrates our ACV-based net retention for customers initially signed since fiscal 2013. Customers who signed with SimpleNexus prior to January 31, 2022, are included in the fiscal 2022 cohort and customers who

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signed with Portfolio Analytics prior to January 31, 2020, are represented in the fiscal 2020 cohort. Each individual cohort is not necessarily predictive of other or future cohorts.

Annual Contract Value ("ACV")

Interest Rate Environment. We are currently operating in a rising interest rate environment as the United States Federal Reserve raises interest rates as a means to manage inflation. These rate increases have had an impact on the real estate market in the U.S. and specifically, the demand for mortgages and mortgage-related products and services, which has had a negative impact on our SimpleNexus business. We continue to monitor the impact the rise in interest rates and any future rise in interest rates may have on our business.

Continued Investment in Innovation and Growth. We have made substantial investments in product development, sales and marketing, and strategic acquisitions since our inception to achieve a leadership position in our market and grow our revenues and customer base. We intend to continue to increase our investment in product development in the coming years to maintain and build on this advantage. We also intend to invest in sales and marketing both in the U.S. and internationally to further grow our business. To capitalize on the market opportunity we see ahead of us, we expect to continue to optimize our operating plans for revenue growth and profitability.

Components of Results of Operations

Revenues

We derive our revenues from subscription and professional services and other revenues.

Subscription Revenues. Our subscription revenues consist principally of fees from customers for accessing our solutions and maintenance and support services that we generally offer under non-cancellable multi-year contracts, which

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typically range from three to five years for the nCino Bank Operating System and one to three years for SimpleNexus. Specifically, we offer:

•Client onboarding, loan origination, and deposit account opening applications targeted at a FI’s commercial, small business, and retail lines of business, for which we generally charge on a per seat basis.

•nIQ for which we generally charge based on the asset size of the customer or on a usage basis.

•Through SimpleNexus, a digital homeownership platform uniting people, systems, and stages of the mortgage process into a seamless end-to-end journey for which we generally charge on a per seat basis.

•Maintenance and support services as well as internal-use or “sandbox” development licenses, for which we generally charge as a percentage of the related subscription fees.

Our subscription revenues are generally recognized ratably over the term of the contract beginning upon activation. For new customers, we may activate a portion of seats at inception of the agreement, with the balance activated at contractually specified points in time thereafter, to pattern our invoicing after the customer’s expected rate of implementation and adoption. Where seats are activated in stages, we charge subscription fees from the date of activation through the anniversary of the initial activation date, and annually thereafter. Subscription fees associated with the nCino Bank Operating System are generally billed annually in advance while subscription fees for SimpleNexus are generally billed monthly in advance. Maintenance and support fees, as well as development licenses, are provided over the same periods as the related subscriptions, so fees are invoiced and revenues are recognized over the same periods. Subscription fees invoiced are recorded as deferred revenue pending recognition as revenues. In certain cases, we are authorized to resell access to Salesforce’s CRM solution along with the nCino Bank Operating System. When we resell such access, we charge a higher subscription price and remit a higher subscription fee to Salesforce for these subscriptions.

Professional Services and Other Revenues. Professional services and other revenues consist of fees for implementation and configuration assistance, training, and advisory services. For enterprise and larger regional FIs, we generally work with SI partners to provide the majority of implementation services for the nCino Bank Operating System, for which these SI partners bill our customers directly. We have historically delivered professional services ourselves for community banks and smaller credit unions and SimpleNexus has historically provided professional services directly to its customers. Revenues for implementation, training, and advisory services are generally recognized on a proportional performance basis, based on labor hours incurred relative to total budgeted hours. To date, our losses on professional services contracts have not been material. During the initial go-live period for a customer on the nCino Bank Operating System, professional services revenues generally make up a substantial portion of our revenues from that customer, whereas over time, revenues from established customers are more heavily weighted to subscriptions. While professional services revenues will fluctuate as a percentage of total revenues in the future and tend to be higher in periods of faster growth, over time we expect to see subscription revenues make up an increasing proportion of our total revenues.

Cost of Revenues and Gross Margin

Cost of Subscription Revenues. Cost of subscription revenues consists of fees paid to Salesforce for access to the Salesforce Platform, including Salesforce’s hosting infrastructure and data center operations, along with certain integration fees paid to other third parties. When we resell access to Salesforce’s CRM solution, cost of subscription revenues also includes the subscription fees we remit to Salesforce for providing such access. We also incur costs associated with access to other platforms. In addition, cost of subscription revenues includes personnel-related costs associated with delivering maintenance and support services, including salaries, benefits and stock-based compensation expense, travel and related costs, amortization of acquired developed technology, and allocated overhead. Our subscription gross margin will vary from period to period as a function of the utilization of support personnel and the extent to which we recognize subscription revenues from the resale of Salesforce’s CRM solution.

Cost of Professional Services and Other Revenues. Cost of professional services and other revenues consists primarily of personnel-related costs associated with delivery of these services, including salaries, benefits and stock-based compensation expense, travel and related costs, and allocated overhead. The cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscription services due to direct labor costs. The cost of professional services revenues has increased in absolute dollars as we have added new customer subscriptions that require professional services and built-out our international professional services capabilities. Realized effective billing and utilization rates drive fluctuations in our professional services and other gross margin on a period-to-period basis.

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Operating Expenses

Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs of our sales and marketing employees, including salaries, sales commissions and incentives, benefits and stock-based compensation expense, travel and related costs. We capitalize incremental costs incurred to obtain contracts, primarily consisting of sales commissions, and subsequently amortize these costs over the expected period of benefit, which we have determined to be approximately four years. Sales and marketing expenses also include outside consulting fees, marketing programs, including lead generation, costs of our annual user conference, advertising, trade shows, other event expenses, amortization of intangible assets, and allocated overhead. We expect sales and marketing expenses will decrease as a percentage of revenues as we leverage the investments we have made to date.

Research and Development. Research and development expenses consist primarily of salaries, benefits and stock-based compensation associated with our engineering, product and quality assurance personnel, as well as allocated overhead. Research and development expenses also include the cost of third-party contractors. Research and development costs are expensed as incurred. We expect research and development costs will decrease as a percentage of revenues as we leverage the investments we have made to date.

General and Administrative. General and administrative expenses consist primarily of salaries, benefits and stock-based compensation associated with our executive, finance, legal, human resources, information technology, compliance and other administrative personnel. General and administrative expenses also include accounting, auditing and legal professional services fees, travel and other corporate-related expenses, and allocated overhead, as well as acquisition-related expenses, such as legal and other professional services fees. We expect general and administrative expenses will decrease as a percentage of revenues as we leverage the investments we have made to date.

Non-Operating Income (Expense)

Interest Income. Interest income consists primarily of interest earned on our cash and cash equivalents.

Interest Expense. Interest expense consists primarily of interest related to our financing obligations along with interest expense on borrowings, commitment fees, and amortization of debt issuance costs associated with our secured revolving credit facility.

Other Income (Expense), Net. Other income (expense), net consists primarily of foreign currency gains and losses, the majority of which is due to intercompany loans that are denominated in currencies other than the underlying functional currency of the applicable entity.

Income Tax Provision (Benefit). Income tax provision (benefit) consists of federal and state income taxes in the U.S. and income taxes in foreign jurisdictions.

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Results of Operations

The results of operations presented below should be reviewed in conjunction with the financial statements and notes included elsewhere in this Annual Report on Form 10-K. The following tables present our selected consolidated statements of operations data for fiscal 2021, 2022, and 2023 in both dollars and as a percentage of total revenues, except as noted.

The comparability of our operating results is impacted by our SimpleNexus acquisition. In our discussion of changes in our results of operations for our year-to-year comparisons between fiscal 2023 and 2022, we disclose the impact of the growth of revenues from SimpleNexus. Expense contributions from our SimpleNexus acquisition for each of the respective period comparisons generally were not separately identifiable due to the integration of this business into our existing operations.

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The Company recognized stock-based compensation expense as follows:

1Includes $0.2 million benefit incurred for the fiscal year ended January 31, 2023 in connection with the restructuring plan commenced in January 2023. See Note 19 "Restructuring" of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information.

The Company recognized amortization expense for intangible assets as follows:

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Comparison of the Fiscal Years Ended January 31, 2022 and 2023

Revenues

Subscription Revenues

Subscription revenues increased $119.9 million for fiscal 2023 compared to fiscal 2022, due to initial revenues from customers who did not contribute to subscription revenues during the prior period, including customers added as a result of our acquisition of SimpleNexus, and growth from existing customers within and across lines of business. Of the increase, 44.5% was attributable to increased revenues from existing customers as additional seats were activated in accordance with contractual terms and customers expanded their adoption of our solutions, 8.7% was attributable to initial revenues from customers who did not contribute to subscription revenues during the prior period, and 46.8% was attributable to revenues from SimpleNexus. Subscription revenues were 84.4% of total revenues for fiscal 2023 compared to 82.1% of total revenues for fiscal 2022, primarily due to growth in our installed base and SimpleNexus.

Professional Services and Other Revenues

Professional services and other revenues increased $14.6 million for fiscal 2023 compared to fiscal 2022, primarily due to the addition of new customers as well as expanded adoption by existing customers within and across lines of business where implementation, configuration, and training services were required. 36.4% of the increase was attributable to revenues from SimpleNexus.

Cost of Revenues and Gross Margin

Cost of Subscription Revenues

Cost of subscription revenues increased $41.8 million for fiscal 2023 compared to fiscal 2022, generating a gross margin for subscription revenues of 69.2% compared to a gross margin of 71.3% for fiscal 2022. The decrease in gross margin percentage is primarily due to an increase of $14.4 million in amortization expense for acquired developed technology related to the acquisition of SimpleNexus included for a full year in fiscal 2023 compared to less than a month in fiscal 2022. Costs related to Salesforce user fees increased $11.9 million as we continued to add new customers and sell additional functionality to existing customers, and other costs of subscription revenues increased $10.1 million due to costs associated with access to other platforms and data center costs. Personnel costs, including stock-based compensation expense, increased $4.3 million due to an increase in average headcount, including headcount from the acquisition of SimpleNexus contributing for a full year in fiscal 2023 compared to less than a month in fiscal 2022. The increase in cost of subscription revenues also included an increase of $0.8 million in allocated overhead costs due to growth supporting our continued business expansion. We expect the cost of subscription revenues will continue to increase in absolute dollars as the number of users of the nCino Bank Operating System grows.

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Cost of Professional Services and Other Revenues

Cost of professional services and other revenues increased $16.4 million for fiscal 2023 compared to fiscal 2022, generating a gross margin for professional services and other revenues of 0.3% compared to a gross margin of 4.3% for fiscal 2022. For fiscal 2023, personnel costs, including stock-based compensation expense, increased $13.6 million for professional services compared to the prior year period due to an increase in average headcount, including headcount from the acquisition of SimpleNexus contributing for a full year in fiscal 2023 compared to less than a month in fiscal 2022. Also included in the increase in personnel costs is $0.3 million in restructuring costs incurred in connection with the headcount reductions in January 2023. The increase in cost of professional services and other revenues also included an increase of $1.7 million in allocated overhead costs due to growth supporting our business, an increase of $0.8 million in travel-related costs, and a $0.4 million increase in reimbursable travel and related expenses for the professional services organization. The decrease in our professional services and other gross margin for fiscal 2023 was primarily due to a decline in realized effective billing and utilization rates in our professional services teams.

Operating Expenses

Sales and Marketing

Sales and marketing expenses increased $44.8 million for fiscal 2023 compared to fiscal 2022, primarily due to an increase of $24.9 million in personnel costs, including stock-based compensation expense, mainly from an increase in average headcount, including headcount from the acquisition of SimpleNexus contributing for a full year in fiscal 2023 compared to less than a month in fiscal 2022. Also included in the increase in personnel costs is $1.3 million in restructuring costs incurred in connection with the headcount reductions in January 2023. The increase in personnel costs was partially offset by a decrease in expatriate tax equalization expenses compared to fiscal 2022. Amortization expense for acquired customer relationships and trade name increased $8.8 million related to the acquisition of SimpleNexus. The increase in sales and marketing expenses also included an increase of $4.1 million in sales-related travel costs, an increase of $3.4 million in marketing costs primarily attributable to the re-establishment of in-person conferences following COVID-19, an increase of $2.7 million in allocated overhead costs, and an increase of $0.9 million in third-party consulting fees.

Our sales and marketing headcount decreased by 2 from January 31, 2022 to January 31, 2023. In the fourth quarter of fiscal 2023 due to a change in responsibilities, 12 employees moved to our general and administrative department from our sales and marketing department. We expect sales and marketing expenses will decrease as a percentage of revenues as we leverage the investments we have made to date.

Research and Development

Research and development expenses increased $42.2 million for fiscal 2023 compared to fiscal 2022, primarily due to an increase of $41.2 million in personnel costs, including stock-based compensation expense, mainly from an increase in average headcount, including headcount from the acquisition of SimpleNexus contributing for a full year in fiscal 2023 compared to less than a month in fiscal 2022. Also included in the increase in personnel costs is $2.0 million in restructuring costs incurred in connection with the headcount reductions in January 2023. The increase in research and development expenses also included an increase of $3.9 million in allocated overhead costs due to growth supporting our continued business expansion and an increase of $1.0 million in travel-related costs, partially offset by a $4.0 million decrease in third party professional fees as a result of lower contract research and development spend.

Our research and development headcount grew by 32 from January 31, 2022 to January 31, 2023. We expect research and development expenses will decrease as a percentage of revenues as we leverage the investments we have made to date.

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General and Administrative

General and administrative expenses increased $11.9 million for fiscal 2023 compared to fiscal 2022, primarily due to an increase of $19.2 million in personnel costs, including stock-based compensation, from additional headcount as we continued to scale our business, mainly from an increase in average headcount, including headcount from the acquisition of SimpleNexus contributing for a full year in fiscal 2023 compared to less than a month in fiscal 2022. Also included in the increase in personnel costs is $1.2 million in restructuring costs incurred in connection with the headcount reductions in January 2023. The increase in general and administrative spend also included an increase of $2.7 million in allocated overhead and other general and administrative costs and an increase of $0.7 million in travel-related costs. Third party professional fees decreased $10.6 million for fiscal 2023 compared to fiscal 2022, mostly attributable to a decrease in third party professional fees and expenses related to acquisition costs for SimpleNexus and fees and expenses related to the government antitrust investigation and related civil action disclosed in Item 3 "Legal Proceedings" of Part I of this Annual Report on Form 10-K (the "Antitrust Matters") partially offset by an increase in other professional fees.

Our general and administrative headcount grew by 20 from January 31, 2022 to January 31, 2023. In the fourth quarter of fiscal 2023 due to a change in responsibilities, 12 employees moved from our sales and marketing department to our general and administrative department. We expect general and administrative expenses will decrease as a percentage of revenues as we leverage the investments we have made to date.

Non-Operating Income (Expense)

Interest expense increased $1.3 million primarily due to a larger balance on our financing obligations for leases for which we are considered the owners for accounting purposes, and also due to interest expenses associated with a credit agreement for a senior secured revolving credit facility of up to $50.0 million we entered into on February 11, 2022 (the "Credit Facility") that was not in place in the prior comparative year.

Income Tax Provision (Benefit)

Income tax provision was $4.1 million for fiscal 2023 compared to a benefit of $23.8 million for fiscal 2022 and resulted in an effective tax rate of (4.2)% compared to 32.2% in the prior fiscal year. In fiscal 2023, the income tax provision was primarily due to taxes from profitable jurisdictions outside of the U.S., which includes withholding taxes. In fiscal 2022, the income tax benefit was primarily due to the reduction of the valuation allowance from the acquisition of SimpleNexus, offset by a tax provision from profitable jurisdictions outside of the U.S.

See Note 12 "Income Taxes" of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further details on the components of income tax and a reconciliation of the U.S. federal statutory rate to the effective tax rate.

We continue to maintain a valuation allowance against our deferred assets in most jurisdictions, including the U.S. It is determined by management when a valuation allowance should be recorded, utilizing significant judgement and the use of estimates.

Beginning in fiscal 2023, we have adopted, as required, Code Section 174, as amended by the Tax Cuts and Jobs Act of 2017. For U.S. income tax purposes, the option to deduct research and development expenditures is no longer available and thus requires us to capitalize and amortize these expenditures over either a five- or fifteen-year period. This will result in the repartition of our deferred tax asset balances from net operating losses and tax credit carryforwards to non-tax attribute

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deferred tax balances. In addition, this may reduce our operating cash flows in future periods through cash remittances of U.S. federal and state income tax.

Comparison of the Fiscal Years Ended January 31, 2021 and 2022

For a discussion of our results of operations for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021, please refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SEC on March 31, 2022.

Non-GAAP Financial Measure

In addition to providing financial measurements based on generally accepted accounting principles in the United States of America ("GAAP"), we provide an additional financial metric that is not prepared in accordance with GAAP ("non-GAAP"). Management uses this non-GAAP financial measure, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, and to evaluate our financial performance. We believe that this non-GAAP financial measure helps us to identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculations of the non-GAAP financial measure.

Accordingly, we believe that this financial measure reflects our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business and provides useful information to investors and others in understanding and evaluating our operating results, and enhancing the overall understanding of our past performance and future prospects. Although the calculation of non-GAAP financial measures may vary from company to company, our detailed presentation may facilitate analysis and comparison of our operating results by management and investors with other peer companies, many of which use a similar non-GAAP financial measure to supplement their GAAP results in their public disclosures. This non-GAAP financial measure is non-GAAP operating loss, as discussed below.

Non-GAAP operating loss. Non-GAAP operating loss is defined as loss from operations as reported in our consolidated statements of operations excluding the impact of amortization of intangible assets, stock-based compensation expense, acquisition-related expenses, legal expenses related to certain litigation, and restructuring and related charges, resulting from the Restructuring Plan. See Note 19 "Restructuring" of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information on the charges related to the Restructuring Plan. Non-GAAP operating loss is widely used by securities analysts, investors, and other interested parties to evaluate the profitability of companies. Non-GAAP operating loss eliminates potential differences in performance caused by these items that are not indicative of the Company's ongoing operating performance and hinders comparability with prior and future performance.

This non-GAAP financial measure does not replace the presentation of our GAAP financial results and should only be used as a supplement to, not as a substitute for, our financial results presented in accordance with GAAP. There are limitations in the use of non-GAAP measures because they do not include all of the expenses that must be included under GAAP and because they involve the exercise of judgment concerning exclusions of items from the comparable non-GAAP financial measure. In addition, other companies may use other measures to evaluate their performance, or may calculate non-GAAP measures differently, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.

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The following table reconciles non-GAAP operating loss to loss from operations, the most directly comparable financial measure, calculated and presented in accordance with GAAP (in thousands):

1Represents legal expenses related to the Antitrust Matters and a shareholder derivative lawsuit.

2Stock-based compensation benefit of $0.2 million related to restructuring is included on the stock-based compensation expense line item.

Liquidity and Capital Resources

As of January 31, 2023, we had $82.0 million in cash and cash equivalents, and an accumulated deficit of $310.3 million. Our net losses have been driven by our investments in developing the nCino Bank Operating System, expanding our sales and marketing organization, and scaling our finance and administrative functions to support our rapid growth. We expect to continue to incur operating losses on a GAAP basis for the foreseeable future.

To date, we have funded our capital needs through issuances of common stock and operating cash flows. Beginning in the three months ended April 30, 2022 and again during the three months ended October 31, 2022, we supplemented our liquidity with our revolving line of credit. In July 2020, we closed our IPO of 9,269,000 shares of common stock (including shares issued pursuant to the exercise in full of the underwriters' options to purchase additional shares) at a public offering price of $31.00 per share, resulting in aggregate net proceeds to us of $268.4 million after deducting underwriting discounts and commissions. We used a majority of the proceeds from our initial public offering in July 2020, which were in our cash and cash equivalents on the balance sheet, to consummate the acquisition of SimpleNexus in January 2022. We generally bill and collect from our customers annually in advance. Our billings are subject to seasonality, with billings in the first and fourth quarters of our fiscal year substantially higher than in the second and third quarters. Because we recognize revenues ratably, our deferred revenue balance mirrors the seasonality of our billings. In addition, our advanced billing and collection coupled with our recent growth has resulted in our cash used in operating activities generally being less than our net operating losses in recent periods.

On February 11, 2022, we entered into the Credit Facility of up to $50.0 million. We borrowed and repaid $20.0 million under the Credit Facility during the three months ended April 30, 2022 and borrowed $30.0 million during the three months ended October 31, 2022. As of January 31, 2023, the Company had $30.0 million outstanding and no letters of credit issued under the Credit Facility and was in compliance with all covenants. See Note 15 "Revolving Credit Facility" of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information.

We believe that current cash and cash equivalents as well as borrowings available under the Credit Facility will be sufficient to fund our operations and capital requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts to enhance the nCino Bank Operating System and introduce new applications, market acceptance of our solutions, the continued expansion of our sales and marketing activities, capital expenditure requirements, and any potential future acquisitions. We may from time-to-time seek to raise additional capital to support our growth. Any equity financing we may undertake could be dilutive to our existing stockholders, and any debt financing we may undertake could require debt service and financial and operational covenants that could adversely affect our business. There is no assurance we would be able to obtain future financing on acceptable terms or at all.

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nCino K.K.

In fiscal 2020, we established nCino K.K., a Japanese company in which we own a controlling interest, for purposes of facilitating our entry into the Japanese market. We have consolidated the results of operations and financial condition of nCino K.K. since its inception. Pursuant to an agreement with the holders of the non-controlling interest in nCino K.K., beginning in 2027 we may redeem the non-controlling interest, or be required to redeem such interest by the holders thereof, based on a prescribed formula derived from the relative revenues of nCino K.K. and the Company. The balance of the redeemable non-controlling interest is reported on our balance sheet below total liabilities but above stockholders’ equity at the greater of the initial carrying amount adjusted for the redeemable non-controlling interest’s share of earnings or losses and other comprehensive income or loss, or its estimated redemption value. As of January 31, 2022 and January 31, 2023, the redeemable non-controlling interest was $2.9 million and $3.6 million, respectively.

As part of our joint venture obligations, we may be required to make an additional cash capital contribution of up to $5.0 million to nCino K.K. during fiscal 2024.

Cash Flows

Summary Cash Flow information for fiscal 2021, 2022, and 2023 are set forth below.

Net Cash Used in Operating Activities

The $15.4 million used in operating activities in fiscal 2023 reflects our net loss of $101.8 million and $14.9 million used in changes in working capital accounts, partially offset by $101.3 million in non-cash charges. Non-cash charges primarily consisted of stock-based compensation, depreciation and amortization, amortization of costs capitalized to obtain revenue contracts, non-cash operating lease costs, foreign currency losses related to intercompany loans and transactions, deferred income taxes, and provision for bad debt. Cash used in working capital accounts was principally a function of a $26.8 million increase in accounts receivable due to the timing of billings and collections from customers, an increase of $12.2 million of capitalized costs to obtain revenue contracts, which primarily relates to payments for sales commissions as we expand our customer base, a decrease of $4.8 million in operating lease liabilities, a $3.4 million increase in prepaid expenses and other assets, and a $1.2 million decrease in accrued expenses and other current liabilities. The cash used in working capital accounts was partially offset by a $33.5 million increase in deferred revenue, as we expanded our customer base and renewed existing customers.

The $19.2 million used in operating activities in fiscal 2022 reflects our net loss of $50.1 million, partially offset by $24.5 million in non-cash charges and $6.4 million generated by changes in working capital accounts. Non-cash charges primarily consisted of stock-based compensation, deferred income taxes, depreciation and amortization, amortization of costs capitalized to obtain revenue contracts, non-cash operating lease costs, and foreign currency losses related to intercompany loans and transactions. Cash generated by working capital accounts was principally a function of a $24.3 million increase in deferred revenue, as we expanded our customer base and renewed existing customers, a $7.3 million increase in accrued expenses and other current liabilities, and a $4.4 million increase in accounts payable. The cash generated by working capital accounts was partially offset by an increase of $13.5 million in accounts receivable due to the timing of billings and collections from customers, an increase of $11.0 million of capitalized costs to obtain revenue contracts, which primarily relates to payments for sales commissions as we expand our customer base, a decrease of $2.6 million in operating lease liabilities, and a $2.5 million increase in prepaid expenses and other assets.

Net Cash Used in Investing Activities

The $20.7 million used in investing activities in fiscal 2023 was comprised of $18.3 million used for the purchase of property and equipment and the completion of leasehold improvements to our additional headquarter building to support the expansion of our business, $2.5 million for the purchase of preferred stock in Zest AI, and $0.6 million for an asset acquisition completed in August 2022. The cash used in investing activities was partially offset by $0.7 million received for a net working

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capital adjustment from our SimpleNexus acquisition. The $278.5 million used in investing activities in fiscal 2022 comprised of $269.0 million used for the acquisition of SimpleNexus, $5.5 million used for the purchase of property and equipment and leasehold improvements to support the expansion of our business, and $4.0 million used for the purchase of an investment.

Net Cash Provided by Financing Activities

The $36.7 million provided by financing activities in fiscal 2023 was comprised principally of $50.0 million of proceeds from borrowings on the Credit Facility to expand our liquidity, $4.5 million in proceeds from stock issuances under the employee stock purchase plan, and $3.8 million of proceeds from the exercise of stock options. The cash provided by financing activities was partially reduced by payments of $20.0 million on the Credit Facility, principal payments of $1.1 million on financing obligations, and payments of debt issuance costs of $0.4 million. The $15.9 million provided by financing activities in fiscal 2022 comprised principally of $13.9 million of proceeds from the exercise of stock options and $2.5 million in proceeds from stock issuances under the employee stock purchase plan, partially reduced by stock issuance costs of $0.2 million for shares issued in consideration for the SimpleNexus acquisition, and principal payments of $0.3 million on the financing obligation.

Contractual Obligations and Commitments

Our estimated future obligations principally consist of leases related to our facilities, purchase obligations related primarily to licenses and hosting services, financing obligations for leases for which we are considered the owners for accounting purposes, and the Credit Facility. See Note 14 "Leases," Note 15 "Revolving Credit Facility," and Note 16 "Commitments and Contingencies" of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be significant.

We believe that the following accounting policies involve a high degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations. See Note 2 "Summary of Significant Accounting Policies" of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, for a description of our other significant accounting policies. The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.

Revenue Recognition

We derive our revenues from subscriptions and professional services. We recognize revenues when a contract exists between the Company and a customer and upon transfer of control of promised products or services to such customer in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of subscriptions and professional services, which may be capable of being distinct and accounted for as separate performance obligations, or in the case of offerings such as subscriptions, services and support, accounted for as a single performance obligation. Revenues are recognized net of allowances and any taxes collected from customers, which are subsequently remitted to governmental authorities.

We determine revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer;

•Identification of the performance obligations in the contract;

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•Determination of the transaction price;

•Allocation of the transaction price to the performance obligations in the contract; and

•Recognition of revenues when, or as, the Company satisfies a performance obligation

Subscription Revenues

Subscription revenues primarily consist of fees for providing customers access to our solutions, with routine customer support and maintenance related to email and phone support, bug fixes, and unspecified software updates and upgrades released when and if available during the maintenance term. Revenues are generally recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer, which we believe best reflects the manner in which our customers utilize our subscription offerings. Arrangements with customers do not provide the customer with the right to take possession of the software supporting the cloud-based application service at any time and, as a result, are accounted for as a service contract. Generally, our subscription contracts for the nCino Bank Operating System are three years or longer in length, billed annually in advance, are non-cancelable, and do not contain refund-type provisions. Subscription contracts for SimpleNexus typically range from one to three years and are generally billed monthly in advance. Subscription arrangements for the nCino Bank Operating System that are cancelable generally have penalty clauses.

Professional Services and Other Revenues

Professional services and other revenues primarily consist of fees for deployment, configuration, and optimization services, as well as training. The majority of our professional services contracts revenues are recognized over time based on a proportional performance methodology which utilizes input methods. Professional services contracts are billed on a time and materials or fixed fee basis.

Contracts with Multiple Performance Obligations

Most of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (“SSP”) basis. We determine SSP by considering its overall pricing objectives and market conditions. Significant pricing practices taken into consideration include our discounting practices, the size and volume of our transactions, the customer demographic, the geographic area where services are sold, price lists, our go-to-market strategy, historical sales, and contract prices. As our go-to-market strategies evolve, we may modify its pricing practices in the future, which could result in changes to SSP.

Given the variability of pricing, we use a range of SSP. We determine the SSP range using information that may include market conditions or other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of products and services by customer size.

Remaining performance obligations ("RPOs") represent contracted revenues that have not yet been recognized, including deferred revenue and unbilled amounts that we expect will be recognized as revenues in future periods. Our reported RPO balance is influenced by several factors, including the timing of renewals, average contract terms, and foreign currency exchange rates. Because we often enter into large, multi-year contracts and the timing of renewal of these contracts varies by customer, our reported RPOs may fluctuate significantly from period to period, and we do not believe this measure is a useful gauge of our future performance. For these reasons, we do not use RPOs as a tool for managing our business.

Business Combinations

We use our best estimates and assumptions to assign fair value to tangible and intangible assets acquired and liabilities assumed at the acquisition date. The estimates of fair value require management to make estimates of, among other things, future expected cash flows, obsolescence life and factor, and discount rates. The excess of the purchase price over the fair value of net assets acquired is recorded as goodwill. While we use our best estimates and assumptions, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are

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recorded to the Company's consolidated statements of operations. Determining the useful life of an intangible asset also requires judgment as different types of intangible assets have different lives.

Income Taxes

Accrued income taxes are reported as a component of either accounts receivable or other accrued liabilities, as appropriate, in our consolidated balance sheets and reflect our estimate of income taxes to be paid or received.

Deferred income taxes represent the amount of future income taxes to be paid or refunded and are accounted for using the asset and liability method. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. We recognize deferred tax assets for temporary deductible differences and deferred tax liabilities for temporary taxable differences. Deferred tax assets are also recorded for any tax attributes, such as net operating losses and tax credit carryforwards.

A valuation allowance is provided against a deferred tax asset when we determine that it is more likely than not that all, or a portion of, the balance will not be realized. This requires management to utilize significant judgement and the use of estimates. Any realization of the Company’s deferred tax assets is based upon the evaluation of four sources of taxable income, the future reversals of taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years, and tax-planning strategies. At January 31, 2023, we determined that it is more likely than not that the majority of our deferred tax assets will not be realized and as such, recorded a valuation allowance of $138.4 million against our deferred tax assets of $192.4 million as of that date.

The Company is subject to income tax in the U.S., multiple state and local jurisdictions and various foreign countries. The tax laws and regulations in each jurisdiction may be interpreted differently in certain situations, which could result in differing financial results. The Company is required to exercise judgement regarding the application of these tax laws and regulations. Through this judgement process, the Company will evaluate and recognize any tax liabilities related to any income tax uncertainties. Due to the complexity of any uncertainty, the ultimate resolution may result in a remittance that is different from the current estimate of any tax liabilities.

Recent Accounting Pronouncements

See Note 2 "Summary of Significant Accounting Policies" of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted if applicable.