Intapp, Inc. (INTA) Earnings Call Transcript

All right. Good afternoon, and welcome. My name is Doug Bruehl, and I have the pleasure of hosting CEO, John Hall; and CFO, Steve Robertson today from Intapp. So we'll do about 25 minutes of prepared questions and save the final 10 to 15 minutes for Q&A from the audience. So thank you both very much for being here today.

So to start off, can you give us sort of a broad update on the business since you were here a year ago, both from the product front as well as the -- how you're viewing the sales environment?

Sure. Thanks for having us, Doug. So we've continued to execute consistently. We are just finishing our second year as a public company this quarter. So we're kind of a new name to a lot of people, and it's exciting to meet everybody. The model is a land-and-expand model for the professional and financial services firms, the big partnership firms with a cloud software platform, and we're adding about 50 new clients a quarter. We ended with 2,250 this past quarter. So we've made some good progress in the market. We've added some more capabilities to our flagship product, DealCloud, which is getting a lot of word of mouth across all the markets that we serve. We actually this year made a simplification decision in our branding. We simplified to just use DealCloud as our cloud brand across all the markets that we serve. That's mainly because we had inbound requests for DealCloud by name from even the law firms, the accounting firms. So we were excited to be able to do that. We've done a lot of work on our applied AI strategy. So we've rolled out more solutions based on that system, relationship intelligence, one of the systems that helps our firms do coverage programs and drive revenue. It's been very popular. We integrated a couple of acquisitions in the last year. So Repstor that we bought just before we went public, which helps us integrate with Microsoft Teams and the whole Office 365 environment is one of them. And then Billstream was a system that we acquired a little while back that helps do more operational efficiency type work for the clients. And then 2 big partnerships that we had just signed when we got together last year, but Microsoft and KPMG both signed up as partners. We made a lot of progress in the past year with those 2. We can talk more about that.

Great. And so for those less familiar with your story, why would a customer choose Intapp over a more generalized CRM provider like Salesforce?

So we bootstrap finance the company. It's kind of unusual for a Silicon Valley company, but we did that by working directly with the CIOs, originally with the big law firms. And one of the things we observed is that they were building a lot of their own software. And I always took this as a sign, why are these firms building software when they have all of the CRM and ERP systems available to them. And as we got to know the firms and started doing more and more for them, we came to appreciate that as good as the classic CRM and ERP systems are, they really are not built for this partnership form, all of the knowledge and expertise that the professionals and these firms have to manage and rely on to do their coverage and deal pursuits and deal execution. And one of the key issues is the actual data model at the core of the classic CRM and ERP systems is very different. The classic systems are built to run a pipeline, selling widgets off of a price list, to bill materials, the classic ideas for how you run a corporate model. For the partnership firms, they don't do that at all. They participate in these large auctions. They may be bidders or they may be advisers to some of the bidders on auctions. They generate a lot of expertise in that. And then the next day, the same group of participants can be configured in a completely different way, working together on a different deal in the next day and the next day. And so the knowledge base that you're trying to build up in one of these large professional financial services firms is entirely different from a classic CRM or ERP system. So at the core of our platform, we have the industry graph data model that we started when we were very small and on top of that, a strong compliance capability. So a lot of the differentiation for what we're doing is compliance for this regulated industry. And we kind of take as our inspiration Veeva, which is in a different end market, obviously, but similarly, an industry cloud for a highly regulated end market that is highly differentiated from the classic horizontal systems. And people see our system from the market and say, oh, this one was built for us. And that's the story.

Great. So broadly speaking, what events over the past year, whether they're geopolitical, economic, technological, have really affected your go-to-market strategy and capabilities, if at all?

So COVID made a big impression on our end market. There were still some firms that were kind of reluctant to go to the cloud. After COVID, that all changed, everybody had to go work from home and they needed to get to the cloud. So I think we're benefiting long term over that permanent change in the marketplace. We've been fortunate in the banking crisis world. We don't sell to the firms that take deposits, any of the banks that are in that space. So we're nearby, but we've been very grateful that our business has managed to move through the uncertainty pretty smoothly. In fact, we think that the end market that we're selling to has shown a lot of resilience here, and we have a history of working with these firms through some of the ups and downs. The 2008, 2009 recession, we bootstrapped business right through that and never raised money and grew the business that way and same thing at the beginning of COVID. So we feel pretty good that the lawyers always get paid. The accountants always get paid. There's a lot of strength in the end market that we're selling to.

Fantastic. And turning to product development, what does that road map look like over the next few quarters?

We have a lot going on. Strong organic R&D program has always been our strategy. We have a very strong Advisory Board from the Chief Information Officers of all of our target firms who help set the priorities for our organic R&D investment. They tell us what they're willing to pay for. So we've got that history as a bootstrap company. But we're doing a lot of applied AI work. Our relationship intelligence system is one. We've expanded that most recently into multiple languages to support our global clients. So we're doing AI against all of the communication activity of the firms in a compliant way to help with relationship intelligence. We also just did an acquisition here a few weeks ago in the compliance category, a company called Paragon, that's going to help us do employee compliance. So all of the trading compliance that the financial firms have to do and increasingly, the professional firms as well, the attestations and everything that folks have to do to make sure that they're keeping up with the rules. So a couple of different areas.

Great. And maybe sticking with Paragon for a second. What was sort of the logic or the fit behind that deal?

Our model for M&A has always been -- and we've done a handful of technology tuck-ins over the years. We have experience doing that. It's a real platform. But our model has been that we take recommendations from our clients themselves. So the Advisory Boards are a big influence over how we deploy capital. We've always been very capital efficient in the way that we've grown the business. But if we can find something that we've already integrated with in one of our client locations that the clients will say, hey, we would rather buy this from you as part of an integrated platform than as a separate system, that gives us a lot of focus on that. And then we do make the choice to fully integrate that technology into our platform. So it's a single cloud system that the client experiences as a single platform rather than a roll-up strategy, for example.

Great. Great. And sticking with cloud. Cloud ARR is now roughly about 2/3 of your total at the moment. How do you see this share continuing to grow?

Yes, I think we see cloud ARR continuing to grow very steadily here. It's all we sell now and have been selling for the last couple of years, strictly all new business is cloud. So -- and we migrate our existing customers to the cloud on a regular basis. But in terms of the percentage growth, it will move up a few points every year, a couple of points each quarter on average as the volume continues to grow. So that's the steady trajectory of the business in terms of cloud.

Great. And as you see a customer migrate to the cloud, are you getting any revenue uplift from that transition?

We -- in a practical sense, we do because often the migration takes place at the time when the client has bought some new cloud capability, and that seems to be the right time to then migrate existing on-premises capability they've already had, which in some cases, may have been for 10 or 12 or more years, we have some very long-standing clients. Technically, the swap could be at the same price because we don't explicitly charge a different price at the moment. We recognize there's a lever we could potentially pull over time in that regard. But for now, we're migrating steadily when the customers are ready and, as I said, typically, when we're selling new capability, which is an uplift for the business.

Okay. And let's shift to competitive dynamics. What companies do you see most in competitive opportunities? And how are your win rates when you go up in those sort of competitive sales?

So we put our competitors into 3 buckets. The first is the in-house developed, usually on-premises generation software. This was the original competitor, and there's still a surprising amount of that out there. So we replace that pretty consistently. The second group, there are a lot of small relatively undercapitalized point solutions scattered all across the market. They could be started by a consultant or started by a former practitioner. We integrate with some of those. Some of them make good M&A candidates for us. But our value proposition versus that model is that we're not asking the CIO to string together all kinds of different applications to create an experience with the professionals. We bring an integrated platform to the table. And then the third category are the traditional horizontal suppliers. So Salesforce, Microsoft Dynamics, SAP, all excellent software, but that style of CRM, ERP system has been available for a long time, and yet the firms are still building their own compliance and operational systems. So our offering is a fully purpose-built system that has compliance built in for the market versus those, and we have very strong win rates versus those. In fact, if someone has tried one of those and not had good adoption from the professionals, we have a particularly strong win rate. So I think as the market develops, we're in a stronger position.

Great. And sticking with those different segments, what areas are you seeing as sort of the best opportunities for upsell within those respective buckets?

So we're winning a fair amount with our DealCloud solution on the one hand and our compliance solution on the other. That's usually how we land. Often, they're together because in this market, there's a very interesting dynamic where if you want to do revenue management and optimize where you take your clients in most of the work that you're doing, you're going to prevent yourself from taking other types of work. So you need to be able to continuously weigh all the opportunities in the marketplace against each other so that you could take the clients that you then have to be loyal to and you're conflicted out of other business. So that's a big driver for us is that integration of the revenue-oriented coverage program and the compliance conflicts management system, and nobody else does anything like that. So those grow once we get them in place. And then we have a cross-sell program to all sorts of other solutions like the relationship intelligence solution, our collaboration and content system, which does a lot of the documents and provisioning in teams in a compliant way and then a whole series of other opportunities.

Great. And then shifting to everyone's favorite topic of this conference. As you think about building out your platform, where do you think the market demand lies in terms of areas you're working on for AI incorporation?

So I think we're a little unusual in the sense that we had one of the first AI applications in this market. Maybe 11 years ago, we built a time recording system that watched all the activity that at that time the lawyers that were our end market, all the things that they did, and it recommended back to them, here's what you should bill. And it also would say, by the way, you're trying to staff this person on this project, and you've already signed an outside counsel guideline or an engagement letter that promises not to put a first-year associate on this type of work or you won't get paid. So we had an AI running in the background, that was sort of the genesis of our whole system, and we had a little AI team even back then. And over time, we really have watched as the AI opportunity has grown inside these firms. We really think it's going to be like mobile. When mobile was first coming out, it was hype and everybody was into it. But today, you really have to have a mobile solution embedded in every enterprise application. It's just taken for granted. And we think that's what AI is going to do. So we're not doing core AI research. Our approach is to look at all of the AI technologies that are being developed out there and really understand the applications of that for a monetizable solution inside the firms where we can really create value. So our whole framing of that we call applied AI. And so you'll see that continue. We're doing a lot of work now with this Microsoft partnership with some of the AI technologies they have. We feel kind of fortunate that they ended up winning the OpenAI auction because we already have the agreement with them, and now we have access to all of that. So we think it's a great opportunity. And one of the important things about AI going forward for this market is the compliance question. How do you make sure that these large language models and all the styles of AI that take advantage of large data sets fit within the compliance, confidentiality management requirements of these very specialized firms and all the client information and market information that they're in possession of? So I think our position as the compliance company for a lot of these things is going to be a very valuable way to help the firms get real solutions out of applied AI.

Great. And I think that's a fantastic sort of summary of AI and how you're incorporating it. But kind of thinking of the long-term opportunity, how is that sort of affecting or shaping your perceptions of how it can sort of grow your overall TAM?

Yes. So we have experience with solutions, AI-based solutions. Our compliance business has a conflicts AI solution today, and that's been in the market for 5 or 7 years. That actually automates away a lot of the first pass work that the traditional conflicts analysts used to have to do when firms were vetting new business. And we can cut 70% of the human labor and 70% of the clearance time for firms to accept new business. And in a lot of these highly competitive markets, the firms actually compete on how fast they can clear the conflicts process. And so we've made a big impression on the market with that type of solution. I think that's just throughout the marketplace here. We also have a pricing model and a revenue model that goes with that. So rather than price by the user in that scenario, we're looking at more of a value-based price for the value that we create for the firm. And I think that's a good experience for us as we look at some of these bigger AI opportunities.

Great. And then shifting to sort of the reverberations from the regional bank events in the first quarter, particularly with sort of their effects on deal activity. How are you seeing this affect overall demand, if at all?

So we're watching carefully as everyone is. We have not seen a lengthening of sales cycles. We've been doing pretty well in this environment. We think our experience as a bootstrap company through the previous recessions gives us good evidence that we've got a strong client base and a strong value proposition here. We have strong retention as well. We have said the lawyers and the accountants have a pretty stable revenue line, independent of the macro cycle. The private capital firms, which are a decent part of our business, we get paid out of their operating income from the 2% assets under management fees. So it's not really transaction driven. We think that's a source of stability for us. We have said if there is an area in our targets that we're watching, it's the investment banks, and we'll have to see how that goes. We do feel fortunate that we've mainly been in the midsize M&A boutiques so far. Although interestingly, just in the past couple of quarters with Microsoft and KPMG, we've sold some of the big investment banks. So we're hopeful that we're kind of early enough in the cycle that we can continue to pursue that and we won't be hit on the edges from what's happening to those folks, but we're going to watch.

Great. And then maybe a follow-up to that. Since you reported your last quarter results across all sectors outside of financial services as well, what are you seeing in sort of the change or the delta in the macro since you last reported?

I would say not much. I mean what John just described is what we're seeing. We are seeing good pipelines and good sales cycles and good opportunities in really all of our subverticals. So we'll continue to execute on that, take advantage of it.

Great. Then kind of looking at the long-term opportunity, how are you thinking about your sort of revenue deceleration now versus what you think you can attain on a long-term basis? Can you potentially reaccelerate? Or are you kind of comfortable at this level of growth versus margins?

Well -- so we think our growth rate continues to be good. And I think what we've done is tended to point people more towards our ARR growth rate, total ARR growth rates if they're thinking about long-term revenue growth because ARR tends to smooth out some of the anomalies we have in our revenue accounting. We do have a subscription license line that's a little lumpy because that's the on-premises business that we're just renewing now. But since we have kind of mid- to high 90s gross retention rates, we're renewing that every year. And that can be a little lumpy because of how we need to recognize the revenue. So we focus on that. We're going to continue to invest in sales and marketing because we do see strong growth opportunities. So we want to continue that momentum. And I think you referenced profitability. We're going to steadily march higher in profitability as well because we see an opportunity for that kind of balanced profitable growth here for the business. So that's the game plan we're executing on.

And I think if you look at our history, the bootstraps tradition is in the company culture. We never really burned a lot of money. So this change in the macro environment has been something that we've been able to absorb, I think, better than folks who were on a venture model. The other thing I would say is that some of the sales process shifts as the macro changes. We're fortunate that we have a broad enough platform that helps with revenue growth and operational efficiency and compliance that you might see a little bit of the emphasis in our sales motion shift to support the situation that an individual firm is in, but there's a strong demand across the cycle, at least so far that we've seen.

Great. And then at this point, I'm going to pause for any questions we have for anyone in the audience. Yes?

Can you talk about just the type of law firm that you have most of your business with? Is it bigger firms? How do you price it? And how far [ could you penetrate in the ] legal community a smaller firm could you get to?