Intapp, Inc. (INTA) Earnings Call Transcript & Summary

All right. Good morning, everyone. Thank you for joining us today. My name is Maya Kilcullen. I work on the software team at JPMorgan. And today, I am joined by Intapp CEO, John Hall; and CFO, Steve Robertson. Could the 2 of you just take a few minutes to introduce yourselves?

Sure. Good morning, Maya. My name is John Hall. I'm the CEO at Intapp. I've been with the company for about 15 years. I joined the founding group in Palo Alto. We have an unusual company for Silicon Valley because we bootstrapped the business without ever raising a dime of venture capital all the way to IPO. We built a vertical industry cloud for a very special market: the professional and financial services firms of the world. So think of the big partnership firms. There's about a $3 trillion dealmaking industry that surrounds the private capital crowd, all the investors and the advisers who serve that group. We've built the business, building a system for them that addresses a lot of the shortcomings that they experienced with traditional CRM ERP systems that were really built for a different industry, built for traditional product company, corporation that sells widgets through a pipeline with maybe a bill of materials. Totally different operational model from the way that these private capital and advisory firms work. These large partnerships really require a system that's built for them. And you can see this because of the long history that the firms have had building their own software despite having had access to this other type of software that they've had over the years. So today, we operate around the world, 40 countries. We're doing in the $250 million range. Steve can talk about that. And we're excited to be here.

Thank you.

Hi. Yes, Steve Robertson, I'm -- I've been with Intapp for over 6 years now with John, helping build out this business. Prior to that, I've been CFO of a number of companies in Silicon Valley and insurance and legal and data and analytics and software. And long ago, I was an investment banker in New York and -- but I've transplanted to the West Coast.

So can you just set the stage a little bit in terms of the competitive landscape? I mean you talked about how a lot of these more generalized systems don't fit for this industry. So who are you competing against?

There's 3 sets of competitors that we look at. The first are the in-house systems that the firms have built. And this is actually the majority of the market that we sell to. And I've always taken it as a sign that the firms have not been able to get what they're looking for from the traditional CRM ERP systems, which have been around in different iterations for 30 years. The second group are point solutions that are developed for the market but are delivered from relatively small, undercapitalized companies. And we think that, that fragmented market is a good opportunity for us from an M&A perspective in the future. But the third category are the traditional big horizontal players, Salesforce, SAP, Microsoft Dynamics, which are excellent pieces of software. We're not anti them in any way. It's just that they're not designed for this market. The data model that underlies them doesn't fit the complex many-to-many relationship model that these firms actually use when they try to cover their market, look for opportunities, and it doesn't model the expertise and the experience and the history of the firm, which is really the way that these professional partnerships go to market and compete as an institution. And our organization built a system that the data model is actually the industry graph data model that was designed from the ground up to model these complex many-to-many relationships. So in each of those areas, we compete with a purpose-built enterprise class cloud system versus the in-house offerings with a comprehensive platform that serves the firm end-to-end versus the point solution competitors and built for purpose with the right data model and the right expertise coming from the company versus the horizontal players.

And for a company that has an in-house system in place, what typically sparks the decision to switch to a platform like Intapp?

I think the biggest thing is that historically, there wasn't an off-the-shelf system that was built for them. So they had to invest internally. Today, there's a big move to relook at a long history of in-house development as firms move to the cloud. So a lot of the pipeline for us are firms who are evaluating, do they want to try to rebuild all of their in-house infrastructure again in the cloud this time. And here we are offering a system that's built just for them, and it's opening up the whole market for us.

Great. I also just want to remind the audience that you can submit any questions online through the conference website, but also feel free to just throw your hand up, and we have mics that we can bring around as well. So speaking of the cloud, so the majority of your ARR is now in the cloud. Do you see a path to get to 100% cloud ARR? And what does that look like?

Yes. The opportunity is to replace all the in-house systems. The firms have really made a big shift from an orientation towards on-premises software to the cloud over the past few years for several reasons. Regulatory restrictions that people were worried about data security, data sovereignty have really been well addressed now by the cloud level technologies. And COVID has actually made a significant impact on these firms. A lot of them were caught by surprise when they had to get everybody to work from home overnight and not enabling the professionals to have access to information that they needed and being able to collaborate with each other in the way that they, needed. And there's a generational shift going on as well. So there's a whole generation that just expects to have a different style of interaction with technology. So we do believe from a market perspective, there's a cloud trend that has really taken over, and we're playing into that.

And Steve, maybe could you give a little bit of color around what is the revenue uplift look like when you see a switch to the cloud?

Well, typically, when we switch to the cloud, we're migrating customers at the same time we're selling new capabilities. Often a customer has been on-premise for a long time with one of our solutions, then we will sell a new solution as they expand the use of the platform. And at that time, it makes sense for the client or the customer to go ahead and migrate their on-premises. So the uplift comes primarily from the sale of the new capability in that fashion. We do occasionally migrate folks straight across without a new sale, and there can be an uplift there. And there's some opportunity to do something vis-à-vis pricing there, and that's a lever we haven't necessarily pulled yet because strategically, we want to get everybody to the cloud as soon as it makes sense for them and for us.

Got it. And then just more broadly, when you look at your cloud wins, what does that mix look like between existing customers moving over to the cloud and then new customers?

New logos, new customers? Yes. It's been pretty balanced over the last few quarters, a few -- couple of years. What we're seeing now is a part of the strength of the market that we're excited about and we're investing to capture is it's ticking up a little bit in favor of upsells and cross-sells. I mean it's just we are fairly underpenetrated in this market. And there's a lot of opportunity. When we landed a customer, it starts a process that gives us an opportunity to sell more capability in terms of a cross-sell and bring more users on board. So it's ticking up in favor really, more than 50% of that, and you see that in our net retention ratio.

And could you maybe give a couple of examples of what cross-sell activities look like?

Well, we -- for example, we might have landed with our risk suite, which is kind of market-leading in all respects, and people upsell to their deal management system. And in the CRM side of the house, the marketing business development, that's one that's quite common. And maybe, John, you could elaborate on others, but there's -- we can sell and upsell and cross-sell a lot of different ways. So...

So just turning to maybe some more macro focus. If we do move into a recession, how do you see that impacting the buying behavior of major customers, particularly on the PE side?

So one of the things that we've noticed as we bootstrapped the company over the years, these firms obviously are affected by recessions. But compared to a lot of the vertical end markets that you might look at otherwise, these folks are actually particularly resilient in a downturn. The private capital firms change the valuations of the deals that they do, but they actually spend a lot of time doing coverage, looking for great opportunities in a downturn to invest in, and they have a lot of dry powder to invest. So we've seen a strong growth pattern for our company. Through both of the last 2 recessions, we never had to raise money because the clients continue to not only pay us but add to their platform. The second factor would be a lot of the firms actually look at the opportunity of a downturn to automate costs out of their environment, and we found a lot of uptick in the advisory firms as that happened to folks through the past couple of recessions that we grew through that as well.

And then just more broadly within financial services, can you just talk about the demand environment that you're seeing now between the different subsectors?

Well, it's good across the board. We definitely see a strong year-over-year trend in the private capital firms. There's a secular trend there, 20% growth, give or take, for the whole industry. More firms, more funds, bigger funds, more people entering that style of asset management, and it's pulling us in as a system that's really built for them. And then from there, the dealmakers that make up that community bring in all the advisory firms that support all those types of deals, and we get introduced in that way to the advisory firms, and then we expand through those to the different practice areas of the organization. So it's really the ecosystem surrounding private capital that's driving a lot of our secular growth.

Great. And so the financial services sector is the newer industry for you guys. But looking at the more penetrated professional services, what is really the opportunity that remains there? What are -- I know you highlighted a little bit about some of the cross-sell opportunities, but could you could just talk more about what is the opportunity that remains within those customers?

Yes. Taking, for example -- well, in professional services, generally, most of which is legal because that's where we started and we have a very good presence there, we have only sold on average, a little bit more than 3 of the 11-or-so modules that we offer, which are packaged into 4 solutions, which comprise the platform. So it's early innings in terms of penetration. We have landed at most of the top firms, but there's plenty of room to go. And our top 100 customers today, if we just sold all of them the full platform and all users and one thing that's on the drawing board, we think that's $1 billion opportunity right there, just our top 100 existing customers. So a lot of upside there. So we're not as -- some sense that we're penetrated, but no, we've landed a lot of places. We're not penetrated.

We have some examples that we talked about in the IPO and in the quarter since of clients who have fully adopted the platform. So The Carlyle Group is a good example. They started out as a small land opportunity where we won just a particular investing team that had a particular strategy. The rest of the organization saw that and liked the system that we had put in and adopted us as part of their One Carlyle initiative across the whole firm. Baker McKenzie, one of the biggest law firms in the world, similar story. We've worked with for a decade or so. Started off with just the compliance system doing conflicts clearance for that large global firm. And over time, they adopted more and more modules on the platform. So we're fully deployed there. So we have a few good examples of full deployment of the system and all the modules through. But on the whole, the market is wide open for us to penetrate the accounts where we just have a footprint in some of these large global firms.

Can you maybe break down the structure of the sales team and how you execute that land and expand strategy?

So as we approached the IPO, we put in place some leadership from SAP to lead our go-to-market team that had experience with their cloud systems for parts of this market as well as leadership from IBM Global Services as we started to win more and more large firms. We brought in some leaders from organizations that had the experience to do global deployments. They've built a go-to-market organization that is set up first by industry. So folks who will call on private capital firms, speak that language versus the law firm's language versus the accounting firm's language. Within that, we have a geographic structure and a firm size structure because selling to the very largest firms has a certain sales motion and selling to the long tail of midsized firms. So we actually have a very significant part of our business that is the midsize and smaller firms who want to be like the big guys and, now with the cloud platform, have an opportunity to bring that on in a way that they never could have afforded to do when all that could serve the market was the in-house built solutions, which was really limited to the top. So I think we've actually expanded the available market size. It's about $24 billion a year, we think, in software that we can go get.

Great. And then can you maybe just talk a little bit about the hiring plans for 2022? And then any impact you're seeing from wage inflation or just retention efforts that might impact those plans?

Yes, sure. I mean we are continuing to hire, and we've had some very good success actually, particularly in sales where some of the competitors of ours have said, look, we want to come join the winning team, and we're quite happy with some of the people we've been able to get. But sure, generally, it's a tougher market. And so it has been a little bit slower here and there. And there's a little bit of wage pressure. But I feel -- we feel like we're able to hire fairly well where we want to and need to. So we're not too troubled by it. We're keeping an eye on it. And of course, this current market environment may actually start to go the other way. We have a feeling. So we'll see how it goes, but we're doing all right in terms of hiring.

Can you talk a little bit more to just broadly about your growth outlook for 2022? And what are the main drivers behind there?

Well, we said recently, we think looking out to our fiscal '23, which includes the calendar '22 that you're referring to, we think we're going to be -- we're going to target a 20% growth there. I think that growth is very strong right now in our business across the board, both new logos the cross-sell and upsell business, both financial services, which John talked about, and our professional services business. So we feel like the reception and the desire to get to the cloud and the momentum is strong across the board for us. So all drivers are working pretty well right now.

Okay. So just going back to when you win a new logo, can you then talk about what is actually the process of moving their systems onto the Intapp platform and how that might differ if they were previously using an in-house solution versus a more generalized platform like a Salesforce?

So we have a significant portion of our business that is replacing the in-house systems. We also have a significant portion of our business that is replacing traditional CRM systems like Salesforce. In fact, a lot of folks, as we've gone through the road show and investor meetings over the years this past year, have nodded when we said that systems like Salesforce or SAP or Dynamics have not really been adopted very well by the professionals who are actually out in the world doing deals in each of the firms that they work with. And it's that dissatisfaction among the professionals talking to the IT departments inside the firm that have precipitated a lot of pipeline for us, particularly as we become more and more known and people hear from their peers and their colleagues working on deals or in other aspects of the firm that were available. So the process to get from one to the other sort of depends on whether it's one of those 2 tracks. In the on-premises bespoke systems project, we will engage with the IT department and do a whole review of what the system is. Truthfully, that tends to be at the largest firms because those are the ones who could afford to build their own in-house systems in the first place. A lot of the engineering features that we have in the platform have come from those exact projects. So we're picking up a lot of the expertise in fragments of the market that we get to with each and every deal that comes into the platform, and then we can offer to the whole marketplace. So that's been sort of the bootstrap model from the beginning, client-led, working with folks who had pioneering in-house technology but who wanted to move to a commercial supplier. With that as sort of the leading edge, we'll go and look at systems like Salesforce or SAP or Dynamics, and we're actually able to offer an incredibly competitive built-for-purpose system that's very differentiated from the traditional sales [ pitch ] they would get from one of those traditional CRM providers. And a lot of the deals that we're doing are people who have tried to implement the other model and not been able to get the adoption from the professionals that they had hoped for. And we bring them our system and show them how the industry graph data model and all the roles for each of the people and all the processes actually understand what they're trying to do, and they don't have to cobble together something on top of a traditional sales pipeline-oriented CRM to get it to understand the expertise and the coverage model and the organizational model of the partnership firm, and we're able to win in the RFP.

And as you move to execute that strategy of 100% cloud ARR, what needs to be done on the back end in terms of investments in the cloud infrastructure? And can you put that into the context of how that might impact margins?

Yes, sure. Well, I mean, we will continue to invest. We've been forward investing a bit in our cloud infrastructure already because we're -- all new sales and renewals at this point are in the cloud, 1 or 2 minor exceptions, perhaps every quarter. And I think we will continue to invest to make sure that we can accommodate all of our business in the cloud. I think that margins are probably going to stay flattish or tick down a little bit. It's certainly more expensive to build the cloud versus having an on-premise deployment. But on the other hand, -- there's a fair amount of efficiency that we start to see, both in our own releasing of upgrades to our products in the product cycle and for the implementations of the new sales that will happen as we build out and ramp up and cross-sell the platform. So we think that's a balancing act, a little more cost in the cloud but some efficiency we pick up, both ourselves and our client base, should be a fairly balanced combination in our opinion.

Great. I just want to pause again quickly to see if we have any questions from the [ crowd. ] Okay. Again, feel free to throw your hand up at any time. Can you talk a bit about what do you see as the biggest barriers from the customer perspective to wanting to make that switch?

I think historically, I mentioned regulation. One of the big impediments to this market historically for the on-premises software was a concern about data privacy, data sovereignty. If you think about the information that these firms manage, it's actually quite important to the clients that they serve and the investors that they serve. And they've been careful and they're by profession careful. Over the past 5 years, a lot of the regulatory regimes around the world, the GDPR rule in Europe, for example, have made much more clear. It's been figured out how firms can get their data into the cloud in a compliant way, and a lot of the cloud infrastructure providers have reached a scale where they actually have locations where they can meet the requirements like data sovereignty in Germany, where you have to keep your data there if you're going to use a cloud system. So a lot of that has been figured out. And as a result, the CIOs have really shifted their orientation away from needing it on-premises for regulatory reasons to being able to take advantage of all the benefits of the cloud. I also think there's a impetus now to try to create a competitive environment in the war for talent. The CIOs are part of the suite of executives who are trying to figure out in this increasingly mobile lateral movement of professionals from firm to firm, how do they create an environment that really attracts professionals. And there's the technology experience that the younger people are really looking for. But there's also the embedded expertise of the whole firm as an institution. If you're one of the top dealmakers and you're looking for where you're going to go as the next step in your career, one of the things that you want to be able to pitch to your clients or your investors is the full knowledge that you can leverage not just of yourself and your expertise, but all of your colleagues around the world of the firm platform that you're joining. And so a lot of the firms are trying to create a knowledge experience that really helps to institutionalize the expertise across all the professionals around the world and make that available and leverageable by each of the professionals who are pursuing deals in the marketplace. And it's only through technology that you can really do that for these large global firms. So a lot of the value proposition for us is how do we help each professional be the best that they can be individually with their expertise and make the best possible impression on their deal and have the best chance of winning their deal through their own knowledge but also leveraging the whole community of professionals that are in their firm across the platform in the right way at the right moment. And a lot of what our system is doing is helping each professional releverage that collective knowledge of the firm. So it drives a lot of the demand for firms who are looking at ways to try to compete in the war for talent.

Great. And can you talk a little bit about the international opportunity, how you identify which countries or regions you want to enter? And then looking ahead, what looks attractive right now?

So we have a bootstrap culture. We've been client-driven from the beginning. So early on, we were in North America, and we went to the U.K., but a lot of those firms have operations and professionals working all around the world. So we went to Australia and New Zealand about 10 years ago. And from those 3 locations, we really started to get pull from adjacent areas. So today, we're selling in Continental Europe more and more; South Africa; increasingly, parts of the Middle East. Asia, we've sold our first firm in Japan a couple of quarters ago and are expanding there. Singapore is a big area for us, Hong Kong. So you can think of the money centers around the world where these professional partnership firms operate, folks here would be very familiar with all the places that we go, and it's those locations that we see a lot of growth, too.

And when you're entering into a new market, are you going after both the professional services firms or legal firms as well as financial services? Or do you typically start with one and then follow the other? Or does it really just depend on the region?

Today, we do. At the beginning -- at the very early days of the company, we were in the legal market first, and we expanded, as you mentioned, to the private capital firms and some of the investment banking advisory firms more recently. But even that is 4 or 5 years past now. And so today, when we enter the markets, it's with the full suite across all the firms. The other thing that we've discovered as we built the company is although it's true that the professionals have their own training and background in each of their professional areas of expertise, whether it's investing or banking or law, it really is a surprisingly connected ecosystem of folks. You'll see people knowing each other and referring deals across the professions. There's not a bright line among these firms. We look at it as a single dealmaking industry. And it's actually interesting that the social community is actually very connected. We can't tell you how many people you meet who -- one of the spouses is a banker and the other one is a lawyer or one is an investor and the other one works at an accounting firm. Like it just -- it's one community of professionals, and we get a lot of word of mouth that I think is one of the reasons why we were able to bootstrap the company into a relatively large market that had not been captured before. Because these folks really do work together to facilitate the world's deals.

Great. So we have a few minutes left. I just wanted to do a last call for any questions from the audience at all. All right. Can -- I want to turn to you guys for any closing remarks and anything you want to make sure that the crowd takes away.

Anything you'd say?

Well, we're -- business is good and momentum is strong. So we'd welcome your interest in the company. Now we're -- nothing else, I think. We feel good where we are. We're going to continue to invest to capture this growth right now. It seems like the right thing to do. And the markets will hopefully take care of themselves well these days.

Yes. We went public on one of the busiest days in history, and there's a lot of opportunity for folks out there. But I actually think if you look at us, bootstrapped company, cash flow positive, if you like the vertical industry cloud model, this end market is actually one of the most resilient end markets that you could pick to go through a potential downturn on the other side. We've successfully grown through recessions ourselves without raising venture capital. We expect that to continue. So there's a lot of opportunity for us, I think, and we'd be excited to work with folks.

Great. John, Steve, thank you so much, and thank you, everyone, for joining.

Thank you.