NCINO The following discussion of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes and other financial information included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2021 filed with theSEC onMarch 31, 2021 . 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 Quarterly Report on Form 10-Q and in our 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 onJanuary 31 of each year and references in this Quarterly Report on Form 10-Q to a fiscal year mean the year in which that fiscal year ends. For example, references in this Quarterly Report on Form 10-Q to "fiscal 2022" refer to the fiscal year endedJanuary 31, 2022 . Overview nCino is a leading global provider of cloud-based software for financial institutions. We empower banks and credit unions with the technology they need to meet ever-changing client expectations and regulatory requirements, gain increased visibility into their operations and performance, replace legacy systems, and operate digitally and more competitively. Our solution, the nCino Bank Operating System, digitizes, automates, and streamlines inefficient and complex processes and workflow, and utilizes data analytics and artificial intelligence and machine learning ("AI/ML") to enable financial institutions to more effectively onboard new clients, make loans and manage the entire loan life cycle, open deposit and other accounts, and manage regulatory compliance. We serve financial institution customers of all sizes and complexities, including global financial institutions, enterprise banks, regional banks, community banks, credit unions, and new market entrants, such as challenger banks. Our customers deploy and utilize our digital platform, which can be accessed anytime, anywhere, and from any internet-enabled device, for mission critical functions across their organizations. Built as a single, multi-tenant SaaS platform, the nCino Bank Operating System transforms the way financial institutions operate, go to market, and interact with their clients, while delivering measurable return on investment by enabling them to: •digitally serve their clients across commercial, small business, and retail lines of business, •improve financial results, •operate more efficiently, •manage risk and compliance more effectively, and •establish a data, audit, and business intelligence hub. We were founded in a bank with the goal of improving that institution's operations and client service. Realizing the problems we were addressing were endemic to virtually all banks and credit unions, we were spun out as a separate company in late 2011 with the vision of providing a comprehensive solution to onboard clients, originate any type of loan, and open any type of account 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. We introduced our solution to enterprise banks inthe United States in 2014, and then internationally in 2017, and have subsequently expanded acrossNorth America ,Europe , and APAC. In fiscal 2020, we acquired Visible Equity and FinSuite and combined the acquired technology with certain of our internally-developed technology to launch nCino IQ ("nIQ"). nIQ helps our customers improve operational and financial performance by using AI/ML to increase efficiency through automation and analytics to gain greater insights into their operations and client interactions. The state ofDelaware effected the name change of Visible Equity to nCinoPortfolio Analytics, LLC inApril 2021 . All Visible Equity references throughout this document are one and the same with the new name change nCinoPortfolio Analytics, LLC . We offer our solution on a SaaS basis under multi-year contracts and recognize subscription revenues ratably over the term of the contract. Our customers may initially purchase our solution for client onboarding, loan origination, and/or deposit account opening for a single line of business or geography. Once this initial solution is in production, we seek to deploy additional applications and expand within and across additional lines of business or geographies. The expansion from our 23 -------------------------------------------------------------------------------- Table of Contents original focus on commercial and small business loan origination to retail loan origination, client onboarding, deposit account opening, and, most recently, analytics and AI/ML applications, has enhanced our ability to increase adoption of our solution by our customers. We sell our solution directly through our business development managers, account executives, field sales engineers, and customer success managers. Our sales efforts inthe United States are organized around financial institutions based on size, whereas internationally we focus our sales efforts by geography. To drive growth and serve customers in the EMEA region, we continue to expand headcount in ourUK office. In fiscal 2020, we opened an office inTokyo through our joint venture, nCino K.K., giving us another base of operations in APAC in addition to our Australian offices. As ofOctober 31, 2021 , we had 174 sales and sales support personnel inthe United States , and 76 sales and support personnel in offices outsidethe United States . To help customers go live with our solution and achieve success, we offer professional services including configuration and implementation, training and advisory services. For larger financial institutions, we generally work with system integrators ("SIs") such as Accenture, Deloitte, PwC, andWest Monroe Partners for the delivery of professional services, while we have historically performed professional services for smaller financial institutions ourselves. We expect larger financial institutions to make up a greater proportion of our sales and to increasingly outsource professional services for smaller banks and credit unions to SIs in the future. As a result, we expect the mix of our total revenues to become more heavily weighted toward subscription revenues. To support our growth and capitalize on what we believe is a compelling market opportunity, we have significantly increased our operating expenses across all aspects of our business. In research and development, we have focused on product improvements and the development of new functionality, while simultaneously leveraging the Salesforce Platform such that our development is heavily focused on vertical-specific solutions for financial institutions. Similarly, to grow our customer base, we have invested heavily in sales and marketing both inthe United States and internationally. We have also increased our general and administrative spending to support our growing operations and for operating as a newly public company. For the three months endedOctober 31, 2020 and 2021, our total revenues were$54.2 million and$70.0 million , respectively, representing a 29.1% increase, and our subscription revenues were$43.3 million and$57.1 million , respectively, representing a 31.9% increase. Due to our continuing investment in growth, we recorded net losses attributable to nCino of$9.1 million and$13.6 million for the three months endedOctober 31, 2020 and 2021, respectively. For the nine months endedOctober 31, 2020 and 2021, our total revenues were$147.7 million and$198.9 million , respectively, representing a 34.7% increase, and our subscription revenues were$117.5 million and$162.1 million , respectively, representing a 38.0% increase. We had net losses attributable to nCino of$28.5 million and$42.3 million for the nine months endedOctober 31, 2020 and 2021, respectively. Agreement and Plan of Merger OnNovember 16, 2021 , the Company entered into the Merger Agreement with Parent, SimpleNexus and certain other parties thereto, with the Company and SimpleNexus surviving as wholly-owned subsidiaries of Parent. The Merger Agreement provides, among other things, that on the terms and subject to the conditions set forth therein, the Company will pay to certain securityholders of SimpleNexus and certain blocker entities a total consideration of approximately$1.2 billion , subject to certain customary adjustments. The consideration to be paid to such securityholders will consist, in the aggregate, of approximately 80% Parent Common Stock (at a fixed value of$72.5250 per share, which is the average of the daily volume weighted average prices of the shares of the Company Common Stock for the 20 trading days prior to and includingNovember 12, 2021 ) and approximately 20% in cash, subject to certain customary adjustments. Any securityholder of SimpleNexus or the blocker entities that is not an accredited investor will receive his, her or its portion of the merger consideration solely in cash and the securityholders that are accredited investors will receive proportionally more shares of Parent Common Stock and less cash. A portion of the cash consideration will also be held in escrow to serve as security for the potential payment of a customary post-closing purchase price adjustment, capped at the amount of such escrowed funds. In connection with the transaction contemplated by the Merger Agreement, each share of the Company Common Stock, par value$0.0005 , that is issued and outstanding immediately prior to the effectuation of the merger will automatically convert into an equivalent corresponding share of Parent Common Stock, having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions as the corresponding share of the Company Common Stock being converted. Accordingly, upon the consummation of the merger, the Company's stockholders immediately prior to the consummation of the merger will become the stockholders of the Parent. The stockholders of the Company will not recognize gain or loss forU.S. federal income tax purposes upon the conversion of their shares in connection with the merger. 24 -------------------------------------------------------------------------------- Table of Contents The merger will be conducted pursuant to Section 251(g) of the General Corporation Law of theState of Delaware , which provides for the formation of a holding company without a vote of the stockholders of the constituent corporation. The conversion of stock will occur automatically. Following the consummation of the merger, Parent Common Stock shares will continue to trade on the Nasdaq Global Select Market on an uninterrupted basis under the symbol "NCNO" with a new CUSIP number. Immediately after consummation of the merger, Parent will have, on a consolidated basis, the same assets, businesses and operations as the Company had immediately prior to the consummation of the merger. As a result of the merger, Parent will become the successor issuer to the Company pursuant to 12g-3(a) of the Exchange Act and as a result the Parent Common Stock shares will be deemed registered under Section 12(b) of the Exchange Act. The completion of the merger is subject to customary closing conditions, including, without limitation, (i) the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the absence of any material applicable law or any order that has the effect of enjoining or otherwise prohibiting the completion of the mergers, (iii) the receipt of certain tax opinions, (iv) the absence of a material adverse effect on the Company and SimpleNexus, and (v) the authorization for listing of the shares of Parent Common Stock on Nasdaq. The closing of the transactions contemplated by the Merger Agreement is anticipated to occur in the fourth quarter of the Company's fiscal year, endingJanuary 31, 2022 . Affiliates ofInsight Partners are equityholders of SimpleNexus and certain other parties in connection with the transactions contemplated by the Merger Agreement, and other affiliates ofInsight Partners are currently significant stockholders of the Company. As such, and as a condition and material inducement to the willingness of the Company, Parent and other parties to enter into the Merger Agreement, Parent and the Insight Parties have entered into a restrictive covenant agreement with Parent providing for, among other things, the Insight Parties' agreement not to sell or otherwise directly or indirectly dispose of approximately two-thirds of the shares of Parent Common Stock that will be held by the Insight Parties following the closing of the transactions contemplated by the Merger Agreement, on a pro forma basis, and assuming no sales by the Insight Parties of shares of the Company's Common Stock prior to the closing of the transactions contemplated by the Merger Agreement. Following the closing of the transactions contemplated by the Merger Agreement, approximately one-third of this approximately two-thirds will be released from such restrictions on each of the six, nine and twelve month anniversaries of the closing of the transactions contemplated by the Merger Agreement. Factors Affecting Our Operating Results Market Adoption of Our Solution. Our future growth depends on our ability to expand our reach to new financial institution customers and increase adoption with existing customers as they broaden their use of the nCino Bank Operating System within and across lines of business. Our success in growing our customer base and expanding adoption of our solution by existing customers requires a focused direct sales engagement and the ability to convince key decision makers at financial institutions to replace legacy third-party point solutions or internally developed software with the nCino Bank Operating System. In addition, growing our customer base will require us to increasingly penetrate markets outsidethe United States , which markets accounted for 16.7% of total revenues for the three months endedOctober 31, 2021 , and 15.8% for the nine months endedOctober 31, 2021 . For new customers, our sales cycles are typically lengthy, generally ranging from six to nine months for smaller financial institutions to 12 to 18 months or more for larger financial institutions. Reaching and converting potential customers requires that we continue to invest in the growth and success of our sales force both inthe United States and internationally. In addition, 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 the nCino Bank Operating System by our customers requires a period of implementation and configuration services that can range from as little as three months for community banks to over 18 months for global financial institutions. As a result, during the initial go-live period for a customer, professional services revenues 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. COVID-19 Effects on Demand for Our Solution. To help our customers service demand for Paycheck Protection Program ("PPP") loans under the CARES Act beginning inApril 2020 , we adapted ourSmall Business Administration loan solution to the requirements of the PPP and rapidly introduced it to the market. Using our PPP solution, since the inception of PPP funding, our financial institution customers have processed hundreds of thousands of applications. 25 -------------------------------------------------------------------------------- Table of Contents In light of the extraordinary nature of this market demand, we offered our PPP solution on one- or two-year terms as well as on a multi-year basis co-terminus with existing contracts. Seats for our PPP solution were activated immediately, which caused subscription revenues from these seats to be recognized sooner than is typical with the phased seat activations usually offered to customers. We believe that the emergency purchases of our PPP solution, coupled with the disruptive effect of COVID-19 on the economy more generally, may have the effect of moderating revenue growth rates in fiscal 2022. In addition, our revenue growth rates in fiscal 2023 and our subscription revenue retention rates may be adversely affected upon the expiration of access and use rights to our PPP solution to the extent such rights are not re-purposed for other applications.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 heavily in sales and marketing both inthe United States and internationally to further grow our business and increase our general and administrative spending to support our growing operations and for operating as a newly public company. As such, to capitalize on the market opportunity we see ahead of us, we expect to continue to optimize our operating plans for revenue growth, and as a result continue experiencing operating losses, for the foreseeable future. Components of Results of Operations Revenues We derive our revenues from subscription and professional services fees. Subscription Revenues. Our subscription revenues consist principally of fees from customers for accessing the nCino Bank Operating System and maintenance and support services that we generally offer under non-cancellable multi-year contracts, which typically range from three to five years. Specifically, we offer: •Client onboarding, loan origination, and deposit account opening applications targeted at a financial institution's commercial, small business, and retail lines of business, for which we generally charge on a per seat basis. •nIQ, first introduced in fiscal 2020, for which we generally charge based on the asset size of the customer or on a usage basis. Prior to our acquisitions of Visible Equity and FinSuite in fiscal 2020, they generally licensed their products under annual contracts that could be cancelled on 30-days' notice. We will continue to support these customers under their legacy contracts until such contracts are renewed, cancelled, or expire. •Maintenance and support services as well as internal-use or "sandbox" development licenses, for which we 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. Subscription fees are generally charged annually in advance. 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. 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 Revenues. Professional services revenues consist of fees for implementation and configuration assistance, training, and advisory services. For enterprise and larger regional financial institutions, we generally work with SIs to provide the majority of implementation services, for which these SIs bill our customers directly. We have historically delivered professional services ourselves for community banks and smaller credit unions. Revenues for implementation, training, and advisory services are 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, professional services revenues 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 26 -------------------------------------------------------------------------------- Table of Contents 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 primarily consists of fees paid to Salesforce for access to the Salesforce Platform, including Salesforce's hosting infrastructure and data center operations. 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. 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 Revenues. Cost of professional services 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 gross margin on a period-to-period basis. 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. Beginning with fiscal 2020 and the adoption of Accounting Standards Update (ASU) No. 2014-09, 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 acquired customer relationships, and allocated overhead. We expect sales and marketing expenses will continue to increase as we expand our direct sales teams inthe United States and internationally to address our market opportunity. 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 to continue to increase as we develop new functionality and make improvements to the nCino Bank Operating System. 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, which primarily consists of third-party expenses related to announced acquisitions, such as legal professional services fees. We expect that general and administrative expenses will continue to increase as we scale our business and as we incur costs associated with being a new publicly-traded company, including legal, audit, and consulting fees. Stock-Based Compensation We have historically recorded stock-based compensation expense associated with stock options in cost of revenues and operating expenses as the related options vest. Beginning in the quarter endedJuly 31, 2020 , we recorded stock-based compensation expenses associated with RSUs as cost of revenues and operating expenses as a liquidity-based vesting condition was satisfied upon the IPO. Stock-based compensation expense was$5.3 million and$5.8 million for the three months endedOctober 31, 2020 and 2021, respectively, and$19.6 million and$20.5 million for the nine months endedOctober 31, 2020 and 2021, respectively. After the IPO, stock-based compensation expense for both stock options and RSUs is recognized as the time-based vesting conditions under such awards are met. 27 -------------------------------------------------------------------------------- Table of Contents Results of Operations The results of operations presented below should be reviewed in conjunction with the financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. The following tables present our selected consolidated statements of operations data for three and nine months endedOctober 31, 2020 and 2021 in both dollars and as a percentage of total revenues, except as noted. Three Months Ended October 31, Nine Months Ended October 31, 2020 2021 2020 2021 ($ in thousands, except share and per share amounts) Revenues: Subscription revenues$ 43,279 $
57,085
10,950 12,951 30,245 36,858
Total revenues 54,229 70,036 147,706 198,910
Cost of revenues:
Cost of subscription revenues1 12,380 15,753 34,399 46,007
Cost of professional services revenues1 10,134 11,501 29,568 34,121
Total cost of revenues 22,514 27,254 63,967 80,128
Gross profit 31,715 42,782 83,739 118,782
Operating expenses:
Sales and marketing1 14,175 20,586 42,027 58,227
Research and development1 15,077 19,956 41,334 55,990
General and administrative1 11,251 14,964 29,130 45,931
Total operating expenses 40,503 55,506 112,491 160,148
Loss from operations (8,788) (12,724) (28,752) (41,366)
Non-operating income (expense):
Interest income 78 57 289 173
Interest expense - (379) - (977)
Other income (expense), net (260) (255) 337 (325)
Loss before income tax expense (8,970) (13,301) (28,126) (42,495)
Income tax expense 309 356 709 1,030
Net loss (9,279) (13,657) (28,835) (43,525)
Net loss attributable to non-controlling
interest (292) (389) (700) (1,259)
Adjustment attributable to non-controlling
interest 76 368 343 61
Net loss attributable to nCino, Inc. $ (9,063) $ (13,636) $ (28,478) $ (42,327)
Net loss per share attributable to nCino,
Inc. :
Basic and diluted $ (0.10) $ (0.14) $ (0.33) $ (0.44)
Weighted average number of common shares
outstanding:
Basic and diluted 91,600,203 96,431,082 85,962,141 95,510,413
1Includes stock-based compensation expense as follows:
Three Months Ended October 31, Nine Months Ended October 31,
($ in thousands) 2020 2021 2020 2021
Cost of subscription revenues $ 135 $ 179 $ 438 $ 721
Cost of professional services revenues 810 1,209 3,358 3,881
Sales and marketing 1,157 1,685 4,818 5,415
Research and development 1,066 1,351 4,406 4,580
General and administrative 2,125 1,421 6,593 5,952
Total stock-based compensation expense $ 5,293
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The Company recognized amortization expense as follows:
Three Months Ended October 31, Nine Months Ended October 31,
($ in thousands) 2020 2021 2020 2021
Cost of subscription revenues $ 386 $
388 $ 1,133
417 418 1,252 1,253
General and administrative - - 10 -
Total amortization expense $ 803 $ 806 $ 2,395 $ 2,430
Three Months Ended October 31, Nine Months Ended October 31,
2020 2021 2020 2021
Revenues:
Subscription revenues 79.8 % 81.5 % 79.5 % 81.5 %
Professional services revenues 20.2 18.5 20.5 18.5
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues (percentage shown in
comparison to related revenues):
Cost of subscription revenues 28.6 27.6 29.3 28.4
Cost of professional services revenues 92.5 88.8 97.8 92.6
Total cost of revenues 41.5 38.9 43.3 40.3
Gross profit 58.5 61.1 56.7 59.7
Operating expenses:
Sales and marketing 26.1 29.4 28.5 29.3
Research and development 27.8 28.5 28.0 28.1
General and administrative 20.7 21.4 19.7 23.1
Total operating expenses 74.6 79.3 76.2 80.5
Loss from operations (16.1) (18.2) (19.5) (20.8)
Non-operating income (expense):
Interest income 0.1 0.1 0.2 0.1
Interest expense 0.0 (0.5) 0.0 (0.5)
Other income (expense), net (0.5) (0.4) 0.2 (0.2)
Loss before income tax expense (16.5) (19.0) (19.1) (21.4)
Income tax expense 0.6 0.5 0.5 0.5
Net loss (17.1) % (19.5) % (19.6) % (21.9) %
Comparison of the Three and Nine Months Ended October 31, 2020 and 2021
Revenues
Three Months Ended October 31, Nine Months Ended October 31,
($ in thousands) 2020 2021 2020 2021
Revenues:
Subscription revenues $ 43,279 79.8 % $ 57,085 81.5 % $ 117,461 79.5 % $ 162,052 81.5 %
Professional services
revenues 10,950 20.2 12,951 18.5 30,245 20.5 36,858 18.5
Total revenues $ 54,229 100.0 % $ 70,036 100.0 % $ 147,706 100.0 % $ 198,910 100.0 %
Subscription Revenues
Subscription revenues increased $13.8 million for the three months ended October
31, 2021 compared to the three months ended October 31, 2020 . Of the increase,
75.6% 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 solution, and 24.4% was attributable to
initial revenues from customers who did not contribute to subscription revenues
during the three
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months ended October 31, 2020 . Subscription revenues were 81.5% of total
revenues for the three months ended October 31, 2021 compared to 79.8% of total
revenues for the three months ended October 31, 2020 , reflecting the growth in
our installed base.
Subscription revenues increased $44.6 million for the nine months ended October
31, 2021 compared to the nine months ended October 31, 2020 . Of the increase,
77.0% 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 solution, and 23.0% was attributable to
initial revenues from customers who did not contribute to subscription revenues
during the nine months ended October 31, 2020 . Subscription revenues were 81.5%
of total revenues for the nine months ended October 31, 2021 compared to 79.5%
of total revenues for the nine months ended October 31, 2020 , reflecting the
growth in our installed base.
Professional Services Revenues
Professional services revenues increased $2.0 million for the three months ended
October 31, 2021 compared to the three months ended October 31, 2020 , 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.
Professional services revenues increased $6.6 million for the nine months ended
October 31, 2021 compared to the nine months ended October 31, 2020 , primarily
due to the addition of new customers as well as expanded adoption by existing
customers within and across lines of business where implementation,
configuration and training services were required.
Cost of Revenues and Gross Margin
Three Months Ended October 31, Nine Months Ended October 31,
($ in thousands) 2020 2021 2020 2021
Cost of revenues (percentage shown
in comparison to related
revenues):
Cost of subscription revenues $ 12,380 28.6 % $ 15,753 27.6 % $ 34,399 29.3 % $ 46,007 28.4 %
Cost of professional services
revenues 10,134 92.5 11,501 88.8 29,568 97.8 34,121 92.6
Total cost of revenues $ 22,514 41.5 $ 27,254 38.9 $ 63,967 43.3 $ 80,128 40.3
Gross profit $ 31,715 58.5 % $ 42,782 61.1 % $ 83,739 56.7 % $ 118,782 59.7 %
Cost of Subscription Revenues
Cost of subscription revenues increased $3.4 million for the three months ended
October 31, 2021 compared to the three months ended October 31, 2020 , generating
a gross margin for subscription revenues of 72.4% compared to a gross margin of
71.4% for the three months ended October 31, 2020 . Costs related to Salesforce
user fees increased $2.6 million as we continued to add new customers and sell
additional functionality to existing customers, and personnel costs increased
$0.4 million as we added new employees. Other costs of subscription revenues
increased $0.3 million due to other data center costs. 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.
Cost of subscription revenues increased $11.6 million for the nine months ended
October 31, 2021 compared to the nine months ended October 31, 2020 , generating
a gross margin for subscription revenues of 71.6% compared to a gross margin of
70.7% for the nine months ended October 31, 2020 . Costs related to Salesforce
user fees increased $8.1 million as we continued to add new customers and sell
additional functionality to existing customers, and personnel costs increased
$2.3 million as we added new employees. Other costs of subscription revenues
increased $0.9 million due to other data center costs. 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.
Cost of Professional Services Revenues
Cost of professional services revenues increased $1.4 million for the three
months ended October 31, 2021 compared to the three months ended October 31,
2020 , generating a gross margin for professional services of 11.2% compared to a
gross margin of 7.5% for the three months ended October 31, 2020 . For the three
months ended October 31, 2021 ,
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personnel costs increased $1.2 million primarily due to increased headcount. The
increase in our professional services gross margin for the three months ended
October 31, 2021 was primarily due to an improved mix and use of our billable
resources on our professional services teams.
Cost of professional services revenues increased $4.6 million for the nine
months ended October 31, 2021 compared to the nine months ended October 31,
2020 , generating a gross margin for professional services of 7.4% compared to a
gross margin of 2.2% for the nine months ended October 31, 2020 . For the nine
months ended October 31, 2021 , personnel costs increased $4.4 million for the
professional services team compared to the prior year period primarily due to
increased headcount. The increase in our professional services gross margin for
the nine months ended October 31, 2021 was primarily due to an improved mix and
use of our billable resources on our professional services teams.
We expect the cost of professional services revenues to increase in absolute
dollars in the near term as we add new customer subscriptions where we provide
professional services.
Operating Expenses
Three Months Ended October 31, Nine Months Ended October 31,
($ in thousands) 2020 2021 2020 2021
Operating expenses:
Sales and marketing $ 14,175 26.1 % $ 20,586 29.4 % $ 42,027 28.5 % $ 58,227 29.3 %
Research and development 15,077 27.8 19,956 28.5 41,334 28.0 55,990 28.1
General and administrative 11,251 20.7 14,964 21.4 29,130 19.7 45,931 23.1
Total operating expenses 40,503 74.6 55,506 79.3 112,491 76.2 160,148 80.5
Loss from operations $ (8,788) (16.1) % $ (12,724) (18.2) % $ (28,752) (19.5) % $ (41,366) (20.8) %
Sales and Marketing
Sales and marketing expenses increased $6.4 million for the three months ended
October 31, 2021 compared to the three months ended October 31, 2020 , primarily
due to an increase of $4.7 million in personnel costs resulting mainly from an
increase in headcount on the sales and marketing teams. Also contributing to the
increase in personnel costs was expatriate tax equalization expenses of $1.2
million . The increase in sales and marketing expenses also included an increase
of $1.1 million in marketing costs, an increase of $0.4 million in sales-related
travel costs, and an increase of $0.2 million in allocated overhead costs.
Sales and marketing expenses increased $16.2 million for the nine months ended
October 31, 2021 compared to the nine months ended October 31, 2020 , primarily
due to an increase of $12.9 million in personnel costs resulting mainly from an
increase in headcount on the sales and marketing teams. Also contributing to the
increase in personnel costs was expatriate tax equalization expenses of $2.6
million . The increase in sales and marketing expenses also included an increase
of $2.1 million in marketing costs, an increase of $0.1 million in sales-related
travel costs, an increase of $0.6 million in allocated overhead costs, and an
increase of $0.5 million in outside consulting fees due to growth supporting our
continued business expansion.
Our sales and marketing headcount grew by 52 from October 31, 2020 to
October 31, 2021 . We expect sales and marketing expenses to increase in absolute
dollars as we invest in expanding our customer base and user adoption.
Research and Development
Research and development expenses increased $4.9 million for the three months
ended October 31, 2021 compared to the three months ended October 31, 2020 ,
primarily due to an increase of $4.2 million in personnel costs resulting mainly
from a continued increase in headcount, a $0.6 million increase in allocated
overhead costs due to growth supporting our continued business expansion, and a
$0.1 million increase in third party professional fees attributable to an
increase in contract research and development spend.
Research and development expenses increased $14.7 million for the nine months
ended October 31, 2021 compared to the nine months ended October 31, 2020 ,
primarily due to an increase of $11.1 million in personnel costs resulting
mainly from a continued increase in headcount, a $2.1 million increase in third
party professional fees attributable to an increase in contract research and
development spend, and a $1.5 million increase in allocated overhead costs due
to growth supporting our continued business expansion.
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Our research and development headcount grew by 91 from October 31, 2020 to
October 31, 2021 . We expect research and development expenses to increase in
absolute dollars due to higher headcount as we continue to develop new solutions
and further enhance the nCino Bank Operating System.
General and Administrative
General and administrative expenses increased $3.7 million for the three months
ended October 31, 2021 compared to the three months ended October 31, 2020 .
Personnel costs increased $0.6 million . Excluding the effect of stock-based
compensation expense that is included in personnel costs, personnel costs
increased $1.3 million primarily from additional headcount as we continued to
scale our business. Third party professional fees increased $2.1 million for the
three months ended October 31, 2021 compared to the three months ended October
31, 2020 , mostly attributable to a $2.0 million increase in fees and expenses
related to the Antitrust Matters (defined below) and a $0.9 million increase in
acquisition-related expenses for an announced acquisition, partially offset by a
$0.8 million decrease in other professional fees. Allocated overhead and other
general and administrative costs increased $0.8 million , which includes an
increase in insurance costs associated with being a public company, and an
increase in travel-related costs of $0.2 million . Stock-based compensation
expense, included in personnel costs, decreased $0.7 million overall due to
reversals of stock-based compensation expense as a result of forfeited awards.
General and administrative expenses increased $16.8 million for the nine months
ended October 31, 2021 compared to the nine months ended October 31, 2020 .
Personnel costs increased $3.4 million . Excluding the effect of stock-based
compensation expense that is included in personnel costs, personnel costs
increased $4.0 million primarily from additional headcount as we continued to
scale our business and $0.9 million due to associated employer taxes with the
exercises of certain stock-based transactions. Third party professional fees
increased $9.6 million for the nine months ended October 31, 2021 compared to
the nine months ended October 31, 2020 , mostly attributable to a $8.2 million
increase in fees and expenses related to the Antitrust Matters and a $0.9
million increase in acquisition-related expenses for an announced acquisition.
Allocated overhead and other general and administrative costs increased $3.3
million , which includes an increase in insurance costs associated with being a
public company, and an increase in travel-related costs of $0.4 million .
Stock-based compensation expense, included in personnel costs, decreased $0.6
million overall due to reversals of stock-based compensation expense as a result
of forfeited awards.
Our general and administrative headcount grew by 26 from October 31, 2020 to
October 31, 2021 . We expect general and administrative expenses to increase in
absolute dollars in the near term, primarily due to higher headcount to support
our continued growth, fees and expenses related to the Antitrust Matters, and
additional expenses for our transition to, and continuing costs of, being a
public company.
Effects of COVID-19
COVID-19 began affecting our business in our first quarter fiscal 2021. To date,
we have not experienced a material increase in customers' delaying purchase
decisions or cancellations nor have we had a material impact from vendors and
third-party service providers we rely on. Beginning in mid-March 2020 , we
implemented a company-wide work-from-home requirement for all of our employees
and suspended all work-related travel. We have recently eased some of these
restrictions, but substantially all of our employees continue to work remotely
and work-related travel remains limited. In addition, we shifted most of our
conferences and other marketing events to virtual for the foreseeable future. We
expect these restrictions to stay in effect into future periods. To the extent
COVID-19 has measurably affected our historical financial results, we have noted
such effects in the discussion above. We are aware that there are effects of the
COVID-19 pandemic in terms of efficiency, productivity, workforce retention and
other matters that are not directly measurable. The extent of the impact of the
COVID-19 pandemic on our operational and financial performance will depend on
future developments unknown and unpredictable at this time, including the
ultimate duration, severity and spread of the pandemic, the effectiveness of
COVID-19 vaccinations, the effects of pandemic on financial institutions
generally as well as on our customers, their clients and on our business
partners in particular, restrictions on travel and other actions that may be
taken by governmental authorities and other factors. For further information,
please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Factors Affecting Our Operating Results-COVID-19 Effects
on Demand for Our Solutions" and "Risk Factors-Uncertain or weakened economic
conditions, including as a result of COVID-19, may adversely affect our
industry, business, and results of operations," included in our Annual Report on
Form 10-K for the fiscal year ended January 31, 2021 filed with the SEC on March
31, 2021 .
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Non-GAAP Financial Measure
In addition to providing financial measurements based on 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 unaudited condensed consolidated statements of
operations excluding the impact of amortization of intangible assets,
stock-based compensation expense, acquisition-related expenses, and expenses
related to the government antitrust investigation and related civil action
disclosed in Note 12 "Commitments and Contingencies" of Part I, Item I of this
Quarterly Report on Form 10-Q (the "Antitrust Matters"). 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 variations in the extent to which
intangible assets are identifiable (affecting relative amortization expense). We
do not believe acquisition-related expenses for announced acquisitions and fees
and expenses related to the Antitrust Matters are indicative of the Company's
ongoing operating performance and hinder 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.
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):
Three Months Ended October 31, Nine Months Ended October 31,
($ in thousands) 2020 2021 2020 2021
GAAP loss from operations $ (8,788) $
(12,724)
803 806 2,395 2,430
Stock-based compensation expense 5,293 5,845 19,613 20,549
Acquisition-related expenses - 902 - 902
Fees and expenses related to the Antitrust
Matters - 2,021 - 8,168
Total adjustments 6,096 9,574 22,008 32,049
Non-GAAP operating loss $ (2,692) $ (3,150) $ (6,744) $ (9,317)
Liquidity and Capital Resources
As of October 31, 2021 , we had $381.1 million in cash and cash equivalents, and
an accumulated deficit of $203.3 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 for
the foreseeable future.
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To date, we have funded our capital needs through issuances of common stock and
collections from our customers. 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 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.
We believe that current cash and cash equivalents 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 solution, the continued expansion of our sales and marketing
activities, investments in office facilities and other 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. We currently intend to use cash on our balance sheet to fund the cash
portion of the merger with SimpleNexus.
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, 2021 and October 31, 2021 , the redeemable non-controlling interest
was $3.8 million and $2.4 million , respectively.
Cash Flows
Summary Cash Flow information for the nine months ended October 31, 2020 and
2021 are set forth below:
Nine Months Ended October 31,
($ in thousands) 2020 2021
Net cash provided by operating activities $ 21,147 $ 1,823
Net cash used in investing activities (3,755) (3,640)
Net cash provided by financing activities 269,710
12,439
Net Cash Provided by Operating Activities The$1.8 million provided by operating activities in the nine months endedOctober 31, 2021 reflects our net loss of$43.5 million , offset by$33.3 million in non-cash charges and$12.0 million generated by changes in working capital accounts. Non-cash charges primarily consisted of stock-based compensation, depreciation and amortization, amortization of costs capitalized to obtain revenue contracts and non-cash operating lease costs. Cash generated by working capital accounts was principally a function of a$21.6 million decrease in accounts receivable, a$2.7 million increase in accounts payable and accrued expenses and other liabilities. The cash generated by working capital accounts was partially offset by payments of$5.8 million of capitalized costs to obtain revenue contracts, which consisted primarily of sales commissions, a$3.2 million decrease in deferred revenue, a$1.9 million decrease in operating lease liabilities, and a$1.4 million increase in prepaid expenses and other assets. The$21.1 million provided by operating activities in the nine months endedOctober 31, 2020 reflects our net loss of$28.8 million , offset by$29.0 million in non-cash charges and$20.9 million generated by changes in working capital accounts. Non-cash charges primarily consisted of stock-based compensation, depreciation and amortization, and amortization 34 -------------------------------------------------------------------------------- Table of Contents of costs capitalized to obtain revenue contracts. Cash generated by working capital accounts was principally a function of a$17.7 million decrease in accounts receivable and a$11.4 million increase in our deferred revenue, as we expanded our customer base and renewed existing customers. The cash generated by working capital accounts was partially offset by payments of$4.5 million of capitalized costs to obtain revenue contracts, which consisted primarily of sales commissions, a$2.7 million increase in prepaid expenses and other assets, a$0.9 million decrease in accounts payable and accrued expenses and other liabilities, and a$0.1 million decrease in deferred rent.Net Cash Used in Investing Activities We used$3.6 million and$3.8 million in investing activities in the nine months endedOctober 31, 2021 and 2020, respectively, for the purchase of property and equipment and leasehold improvements to support the expansion of our business. Net Cash Provided by Financing Activities The$12.4 million provided by financing activities in the nine months endedOctober 31, 2021 was comprised principally of$12.6 million of proceeds from the exercise of stock options. The cash provided by financing activities was partially reduced by principal payments of$0.2 million on financing obligations. The$269.7 million provided by financing activities in the nine months endedOctober 31, 2020 was comprised principally of$268.4 million in proceeds from the IPO inJuly 2020 , net of underwriting discounts and commissions, and$3.8 million of proceeds from the exercise of stock options. The cash provided by financing activities was partially reduced by payments of$2.5 million in costs related to the IPO. Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as ofOctober 31, 2021 : Payment due by period (in thousands) Less than 1 to 3 3 to 5 More than 5 ($ in thousands) 1 year years years years Total Operating lease obligations 775 5,762 3,824 2,671 13,032 Financing obligations - leased facility 672 5,485 5,734 35,912 47,803 Purchase commitments 1,073 9,827 4,543 1,104 16,547 Total$ 2,520 $ 21,074 $ 14,101 $ 39,687 $ 77,382 For additional discussion on our leases, financing obligations and other contractual commitments, see Note 11 "Leases", Note 12 "Commitments and Contingencies", and Note 15 "Subsequent Event" of the notes to our unaudited condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates Our unaudited condensed 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. There have been no material changes in our critical accounting policies or estimates as compared to those disclosed in the Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2021 filed with theSEC onMarch 31, 2021 . 35 -------------------------------------------------------------------------------- Table of Contents Recent Accounting Pronouncements See Note 2 "Summary of Significant Accounting Policies" of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted. Emerging Growth Company Status We are an "emerging growth company," as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Based on the market value of our common stock held by non-affiliates as ofJuly 31, 2021 , we will cease to qualify as an emerging growth company as ofJanuary 31, 2022 . Item 3. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. Interest Rate Risk AtOctober 31, 2021 , we had cash, cash equivalents and restricted cash of$381.4 million , which consisted primarily of bank deposits and money market accounts. Interest-earning instruments carry a degree of interest rate risk. However, our historical interest income has not fluctuated significantly. A hypothetical 10% change in interest rates would not have had a material impact on our financial results included in this Quarterly Report on Form 10-Q. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Foreign Currency Exchange Risk Our reporting currency is theU.S. dollar and the functional currency of each of our subsidiaries is its local currency. The assets and liabilities of each of our subsidiaries are translated intoU.S. dollars at exchange rates in effect at each balance sheet date. Revenues and expenses are translated using the average exchange rate for the relevant period. Equity transactions are translated using historical exchange rates. Decreases in the relative value of theU.S. dollar to other currencies may negatively affect revenues and other operating results as expressed inU.S. dollars. Foreign currency translation adjustments are accounted for as a component of accumulated other comprehensive income (loss) within stockholders' equity. Gains or losses due to transactions in foreign currencies are included in "Non-operating income (expense), Other" in our consolidated statements of operations. Furthermore, our customers outside ofthe United States typically pay us in local currency. We have not engaged in hedging of foreign currency transactions to date, although we may choose to do so in the future. We do not believe that an immediate 10% increase or decrease in the relative value of theU.S. dollar to other currencies would have a material effect on operating results or financial condition. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in theSEC's rules and forms, and that such information is accumulated and communicated to the company's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, 36 -------------------------------------------------------------------------------- Table of Contents with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures atOctober 31, 2021 , the last day of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, atOctober 31, 2021 , our disclosure controls and procedures were effective at the reasonable assurance level. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by the Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Limitations on the Effectiveness of Disclosure Controls and Procedures In designing and evaluating our disclosure controls and procedures and internal control over financial reporting, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and our management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures and internal control over financial reporting also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. 37
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