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

My name is Koji Ikeda. I am one of the software analysts here at BofA on the enterprise software research team. I am super, super thrilled to have Intapp CEO, John Hall; and SVP of Finance, Jim Stuebner here with us. Thanks so much for doing this. Super, super appreciate it. Excited for this fireside chat.

I'm going to start off with a real high-level question for you. For those in the audience that may not be aware of what Intapp does or new to the story. And for those on the webcast, too, let's just start very high level. What is Intapp? What do you guys do? What is the opportunity that you're addressing? And then maybe just a minute or 2 on yourself, too, on your background.

Okay. Thanks, Koji. Thanks for having us. My name is John Hall, I'm the CEO of Intapp. We are a vertical industry cloud company. For folks who are just meeting us, I often say, hey, our inspiration was Veeva. If you know that company and its focus on the pharmaceutical market, we're very similar, except we focus on an overlooked and underserved segment of the economy, the large partnership firms, the law firms, accounting firms, investment banks, private equity firms. That's the space that we sell into. And we have a little bit of an unusual history as a company, even though we started in Palo Alto right here in Silicon Valley, we bootstrapped finance the business. So we never raised venture capital. We just worked with the CIOs of these firms to commercialize software that they have been building in-house. And so that's really how the company got off the ground and then we started getting referred around to other of the firms in the market.

I wanted to ask you a couple of questions that I've been asking every management team. One on the macro and then one, of course, topic on AI. We'll get to that one. But first on the macro. I've always viewed Intapp as one of those businesses, software companies, that's addressing a vertical industry that's been pretty resilient, all things said since you've gone public. And so I guess the question is, how would you characterize the macro environment January 2023 versus -- I'm sorry, June 2023 versus January 2023 versus maybe a year ago June.

Well, obviously, a lot's happening. You guys are seeing that all across the economy. In our position, I think we've been fortunate. The end market that we sell to has been pretty resilient. And we've had that experience in previous parts of economic cycle. 2008, 2009, we bootstrapped through the business right through that. So I think one of the benefits that we have is that this end market does pretty well in good and bad times. We have been fortunate also, I think, that although we sell to segments of professional and financial services, we've never really targeted the deposit taking part of the banking industry. So that's just good fortune for us that, that hasn't been a part that we've called on. So we haven't seen a lot of pressure. We're watching it carefully, but sales cycles have been pretty good. And I think we've been able to follow through on what COVID did to this market, which had always been pretty slow in technology adoption and movement to the cloud. And 1 of the things that COVID really did was to reorient the IT strategies for these firms to get to the cloud. And I think that's playing through somewhat to our benefit. So we're going to continue to watch, and there's parts inside the industry that might be more or less sensitive to changes in the cycle, but we're doing okay for now.

Would you say overall inbound demand, pipeline generation, sales cycles, pretty much the same today versus a year ago? Any sort of changes there?

Yes. I mean I think the word we've used is steady. We never saw a big acceleration from COVID, and we didn't see a big slowdown from this. It's been pretty consistent.

Yes. Yes, yes. Okay. So moving on to the topic of AI, generative AI, very topical within everything today. I wanted to ask you this question kind of in 3 different ways. So the first question is, how does Intapp think about leveraging AI, generative AI within your platform?

So a couple of things. First of all, we agree that this whole generative AI thing is super exciting. We think this end market that we sell to is actually a pretty good end market with a lot of opportunity for the style of technology to be deployed. We've been through a couple of different technology generations as a company. We've actually been around for almost 20 years. And we look at this very analogously to what happened with mobile. There was a lot of hype early on. But today, if you look at enterprise software, everybody's got to have a mobile component for it to be considered a capable system. We think that's the way that AI is going to play out. In addition, we have an unusual history, I think. We've never been people who are doing the fundamental AI research. We've always been focused on applications, what are the opportunities to apply each generation technology in this market. And the applied AI strategy that we have has been running for quite a few years. 10 years ago, we had the first AI-based system in the market, this market, to do time recording. It was watching, in that year, what all the lawyers were doing electronically, and it would suggest back to them all the things that they should bill for and to make sure that they were billing in a compliant manner. And that system has never one in the market today. We had a system in our conflicts area and our compliance business that cut 70% of the review time to open new engagements for firms by clearing conflicts using a generation of AI/ML technologies. We've been talking on the calls more recently about our relationship intelligence system, which uses AI techniques to survey all the who knows who -- who knows who of information, who knows what information from the big firms and help drive the best possible pursuits of new opportunities. So historically, we've been bringing out AI-based applications as part of our story. And this new technique, this generative AI generation technique is a super exciting new space that we think there's going to be another set of opportunities to deploy some applied AI technology into this market with some special requirements for the end market that we're calling on.

You guys have a partnership, a strategic partnership with Microsoft. And does it extend into open AI? I guess that's first part of the question? And how do you think about leveraging maybe GPT within your offerings, too?

So we're excited about the Microsoft partnership. We've worked with them for many years. But about 18 months ago, we signed a formal agreement with them. It has a couple of different components. There's a technology component that we're talking about here. In addition to working with the Azure platform, we have access to all of Microsoft's existing and roadmap technology, including -- we were sort of excited about this because we had the Microsoft agreement before they won the OpenAI auction, so we kind of lucked out on that one. But a lot of the opportunity to deploy open AI style applications, leveraging information inside of Office 365 and Teams and SharePoint is something that we're looking at very closely. We brought a group of CIOs from some of the big law firms up to Redmond as part of the co-marketing component of our partnership and talked to some of the senior folks in Microsoft's product division and the AI team. And one of the most interesting things that they said was, "Look, we're really excited about this generative AI stuff, but we don't think we're going to be able to use exactly the wide-open, large language model data in our business [Technical Difficulty] information governance. We had a system early on called Intapp Walls that manage all of the access to all of the firm's information. They're looking to us to bring our applied AI expertise and our compliance and confidentiality management expertise together to help create some applied AI applications for the market that are actually compliant with the rules that folks are going to have to live with. So that's sort of the direction that we got from our client base as to the area that we can work on to create the most value for them in this generation.

So thinking about the end market, lots of hyperawareness of AI just starting over the past 6 months. And you sell into very specific verticals, call them the consultants, the law firms, PE, investment banking. How -- the customers that you sell into, the people that you're speaking to, has the conversations changed because of AI? Are they looking at the opportunity differently? Are they looking at Intapp differently? I mean what has AI done to the end market perception of what they need to do with their digital transformations?

Yes. I think they're on a cloud transformation journey already, and we've been benefiting from that. One of the choices we made to help them with that transition is that all of the R&D work that we're doing around AI and other capabilities, we're doing in the cloud generation of our system. So to get access to Intapp's AI capabilities, you need to make the step to the cloud. So that's pulling a lot of folks along. We're excited about that. We're very excited about the potential of this because so many of these folks are knowledge-oriented market surveyors. They produce a lot of information about the market, and then they try to analyze that and pull out trends and insights so they can be better armed when they go to talk to their clients or their investors where they try to target prospects. So the richness of information that these high-end professionals work in is such a rich feeding ground for the AI approach to bring insights out automatically. And so a lot of what's happening right now is brainstorming. A lot of creative people in the market are talking about what are all the different areas that we might be able to apply this next generation of technology to. And then, historically, they had a great software development capability inside these firms. So they're looking at us as the people who really understand enough about the domain to be able to bring some of these new ideas to life.

You mentioned something there about the AI offering's only offered in your SaaS version. And you're of a new model. You have your SaaS, your cloud ARR, but then you also have a lot of other ARR. Do you think generative AI and the topic of AI within your customers might help accelerate transition of, we'll call it, the legacy base over to SaaS? Or how to think about that?

Yes. And just for everybody's knowledge, we started the company before this industry went to the cloud. They weren't ready to go to the cloud when we got started as a bootstrap company. So we had an on-prem generation set of technologies. We switched in the last Big Recession, 2008, 2009 to 100% subscription model. So we're still supporting those clients, but they're paying just like the SaaS model, and then we're encouraging them all to go to the cloud. All of our new sales are in the cloud and have been for a long time. And in fact, most of our clients now are in a hybrid state where they've already started taking up the cloud and they haven't yet finished migrating all of their on-prem systems. So we're in a positive trajectory there already. I think that all the enthusiasm about what we can do with applying generative AI and some of the other AI techniques to the cloud system is a big draw. And it's got so much attention now from the client base. Everybody is trying to figure out how they can use it for their competitive advantage. I think there's a lot of opportunity for us to use that. That being said, we're being pretty consistent in our migration program. We don't want to get ahead of ourselves, but we're moving the client base consistently that way.

Remind me, and I should know this, is that -- is there some sort of uplift when you transition from a legacy offering to the cloud offering? Is it 1 equals 1.5, 1 equals 2? I mean how do you think about that?

So we have a couple of different things that happen. On the surface, we don't ask people to step up just to move to the cloud because I don't want to discourage them from doing it. We want to encourage them from doing it. In practice what happens is we're able to recapture any discount that we had given in the previous generation. We get a CPI uplift. We often sell [ core ] capability as part of that transition. So in the end, we're getting a positive move by moving people over.

Got it. Okay. Last question on kind of the generative AI topic is how do you plan on monetizing it? Is it included within platform offerings and just drive more usage, premium SKU versions, new products? I mean how are you guys thinking about that?

Yes. So I think it will be a mix of those things. We have good experience with a mixed revenue model today. We charge a big portion of our ARR by the user [Technical Difficulty] clearance, and cut the number of people that you needed to clear that business. We actually have a pricing model that's based on the value we created for the firm. So we're going to approach the problem in a pragmatic way in the same way and look at the opportunities. I think we're going to have capabilities that are embedded that help us differentiate. I think we have opportunity to upsell and cross-sell existing clients. I think we'll have new offerings based on this that we can price and use to land new clients as well.

I wanted to ask you a question about trends in the space. Your specific vertical end markets that you're addressing. Is there some sort of gravitation now towards platform? Maybe help me understand, was it more of a best-of-breed point solution approach? And is there something about the Intapp technology specifically today that is resonating maybe the best of your end market?

Yes. So historically, the platform was fundamentally designed to be differentiated from the classic CRM ERP systems, which the market has always had access to but are very costly to deploy. And we discovered as we were building up the system, looking at what the firms had developed in-house, why were they developing the software in-house? Well, it's because the data model for these professional firms is actually quite different from the way the traditional corporation works. You don't have an inventory list and a bill of materials and the standard price list and you're selling products where 1 person owns the account. In these firms, you have a complex ecosystem of players. You have assets that are up for sale and owners and all their advisers and you have all the bidders who are participating, and each of the bidders has their universe of bankers and lawyers and due diligence advisers. So there's this big complex ecosystem of players. And the next day, that same universe of people can be configured completely differently. And people who are bidding against each other the day before can be on the same team the next day. So if you try to model this in the classic CRM ERP system, it just doesn't fit. And so, fundamentally, we have a core purpose built, we call it, an industry graph data model that's meant to capture all this. And so there is a technology and data design moat that's very different from anything you can build with the other systems. And we have the years to build that because we were bootstrapped. So I think that's a real advantage for the company technologically. Today, we've built out a whole universe of applications on top of that data model for a whole range of processes and compliance needs inside the firm. And over the time that the company has grown, different things have taken the forefront of what we've landed with, to your question about what's landing today. Our deal management system, DealCloud, is winning a lot of clients. There's a lot of word of mouth around that across the markets. And our compliance system is winning a lot of clients as the first step into the platform for reasons that you would all recognize, and sometimes those 2 things go together. And then from there, we're able to expand into a lot of other areas of the platform. I will say, to your earlier question about the macro, we also have cost efficiency automation pieces that, in this environment, some firms are more focused on how do we compete and win in a shaky time, other firms are saying, how do we get cost out. So there are components to the platform that have had a little bit of uptick here as we've seen the shakier era for us to bring more of the automation, cost efficiency value proposition to the front.

When -- so you saw in a couple of different end markets, call it, 2 different ones, financial services, professional services. Is the platform the same for both? Is it different platforms? How do we think about the integrations? Just wanted to dig into that a little bit.

Yes. I'm grateful to the previous generation of investors, they allowed us to continue to follow through on our original technology vision to build a true multi-tenant, single SaaS system. We do have a low-code configuration layer that lets us build industry blueprints for all the different types of users and workflows in the system. We do not have custom -- customized software anywhere. This is all a configured platform. So we're benefiting now from some of the applications of that across the markets.

Wanted to ask you one more question before opening it up to the audience for Q&A, if there's any questions from investors out there. But you recently did a raise out there, raised a little bit of money. I read in the prospectus used for general corporate purposes, but of course, I wanted to dig into that a little bit more. Is there any specific -- as you're thinking about the cash, is there anything that you want to specifically use it for? Does it -- invest for growth? I mean how do we think about M&A? Just uses of cash from here on out?

Yes. And we appreciate that we got that done a few weeks ago. If you all had tracked us, at the time, we came public on the last day of our fiscal year, June 30 of 2021, which was one of the biggest days in history. And we didn't get all the fundraising we wanted in that deal, but then we kind of worked our way through in the past 2 years and got to a place here where we can do our first follow-on. We're excited about that. It had a secondary component. Some of our original investors were able to sell a little bit. We raised a little bit of money. We wanted to have a little bit of a stronger cash position on the balance sheet by talking to many of the investors over the past couple of years. We've had some feedback, too, that we can stand to improve our float so that folks who were bigger could come in, and so we were glad that we were able to do that. But we now have a little bit more cash. I feel we're in a good spot. We're also entering an era where maybe some of the smaller company M&A opportunities will come into reasonable valuation ranges. We have used tuck-in acquisitions over the years. We've done 5 or 10 of those and have had good success rolling the technology into our platform and taking it out through our growing client base. So I think while we're very committed to a coherent integrated single platform that's organically developed to have that kind of value proposition, which I think is a competitive advantage for our clients. We also have had some success as a platform strategy to be able to bring in some additional capabilities. And I think we're better positioned to be able to do that now.

Got it. Got it. Any questions from the audience? If there are, just please raise your hand, and we'll get a microphone over to you. I can keep going.

Yes.

Yes. I wanted to ask you a question about how your customers determine ROI with Intapp? What sort of metrics do they look at? What sort of initial pain point solving do they do? And we're like, okay, now we're really getting that value from Intapp. Help us understand what they're trying to solve first, how they view Intapp over kind of that first year and into that second and fourth year?

So it's a broad platform. We have revenue growth capabilities, cost efficiency capabilities and compliance capabilities in the platform, and people can talk to us at the beginning from different perspectives to bring us in. I think the ROI matches that. So more recently, we've had some real interest in the hard ROI aspects of automation. I mentioned the time recording system earlier. We're regularly helping firms find significant numbers of hours that the professionals in these firms might have forgotten to bill because they were at the kid's soccer game on Saturday. And the system recommends back and says, hey, you should make sure you bill for this. And if you multiply that across 1,000 or 5,000 professionals in the firm at x $100 an hour, you get a very strong hard ROI. So that's just one example, and some of our deals are based on that kind of analysis. On the compliance side, obviously, we're helping people to avoid fees and make sure that they stay consistent reputationally with who they want to be. I will say that if somebody has a compliance problem in these areas, we have some of the shortest sales cycles on the planet in that category. On the revenue side, we're obviously helping firms to be more competitive by arming the professionals to win. And so you would build a business case for that and we do about how many -- how much value there is in one more deal, et cetera, such that the firm wins. And it's a little softer, but it is compelling to firms who are trying to put together that kind of case to arm the organization with the best possible information. So the answer is, it depends, or it could be a combination of those as we bring the platform in. But that's what our field organization has really become expert at. We brought our leader over from SAP who ran North America cloud for many years and really understands how to put this kind of enterprise class pitch together for the firms.

Got it. Got it. I want to ask you a couple of questions on growth, vectors of growth. I mean you guys are vertical software addressing multiple verticals. You guys have a platform, lots of different products out there. You address big companies, small companies across your verticals, too. So what type of vector within the growth aspects do you anticipate maybe driving the majority of your growth? Or are you most excited for growth over the next 6 to 12 months? Yes. Just help us understand that.

So I think we're continuing to execute pretty consistently across the market. We have shared some statistics about the relative size of the business. Do you want to talk about that, Jim?

Sure. Yes, we're both in professional services and financial services, and the financial services side is about 1/3 business for us and PS is about 2/3. And yes, to John's point, we're seeing opportunities across both vectors. And with it -- with the consistent cloud platform, we can really sell the subverticals without a lot of additional investment. And real estate is one that we're really excited about now. And, John, what else you might mention in terms of the growth vectors?

I mean it's been interesting as we originally started, we were in the middle of these mid-sized firms. And over the years, as we develop more and more capability, we moved up to some of the very largest firms in the world, KPMG and Carlyle and folks of that caliber. Carlyle is an interesting example because we landed originally with just one of the private equity strategy teams and the neighbor teams inside the firm saw what we were doing and asked us to expand there. And then over time, eventually, we got rolled into their One Carlyle initiative and became a standard for the whole firm. So that's kind of the land-and-expand model in action. And you see that with seat upsells and cross-sells across these different components of the platform inside each of these firms.

Got it. Got it. Jim, you mentioned real estate. And my next question was about potential adjacent verticals. Would you consider real estate within that core vertical strategy that you have now? Is it potentially a new vertical? And as you think about other verticals out there, what sort of properties or functionalities do you think that your platform best address maybe with another vertical out there?

Well, what's happening for us is, as we start to win particularly in these large multi-strategy asset manager organizations, we might start out in private equity. Real estate as an example. One of the firms said, "Hey, we really like your technology. It's differentiated from the classic stuff that we had tried. Can you do real estate, too?" And we had to do some things. We had to get maps into the system, and we had to get geographic information. And we had to get sourcing from all of the real estate databases as an example, to help the investors there be able to do that kind of research and coverage. But once we had done that, and we were able to say yes to this large firm, we actually opened up that whole universe of that strategy area of private capital. And so now, for the real estate community, we have a great solution. Real estate is at a particular time in its cycle. But I think, generally speaking, that's a good example of how we're stepping through other asset classes like private credit or the fund of funds model or some of the GP stakes model. There's a lot of space inside this whole architecture of private capital that we can expand into that way.

You mentioned something right there about being able to plug into data sources. And I recall, we did a headquarter visit, I think, last year. And we talked about data sources, being able to integrate with all these different types, and that's very important for your customers. Is this still a key differentiator for you? How do you think about your data integration strategy from here on out?

So the company actually began with the industry graph data model as a data integration technology originally. So this is very core to the expertise of the business. Over time, as we've grown, we've developed different capabilities around the whole universe of data, and there's a central system today called DataCortex, whose job is to bring in all the third-party data that professionals in these markets need to use specific to their individual specialty or domain. And so for the private equity investors, we're bringing in PitchBook and CapIQ, and for the real estate investors, we're bringing Cherry and all that sort of information, the credit investors, et cetera. And the advisers as well. Interestingly, each of these asset classes has not just the primary investment community, but has the whole universe of bankers and lawyers and accountants and valuation people, the transaction advisory people and corporate financing. So it's a much broader ecosystem actually. And I think that's one of the interesting unique angles that Intapp has been able to take on this market is because we grew up from the core data model, we're able to see the application of this across each of these spaces. And data is a central component of our overall offering.

Got it. Got it. Maybe my last question for you, John, is the partner strategy. I've known you guys since you guys gone public, and I've noticed that the announcements of your partners -- or your partner channel has been expanding over the past 2 years. How do we -- how should we be thinking about the partner channel as a further expansion from here, more and more partners and as a growth driver?

So this has been a central part of our strategy. We have over 100 companies now that are part of Intapp's overall partner program and it's divided among technology partners and data partners and services partners. We do a fair bit of services work ourselves, configuring our platform for our clients. You see that in our professional services revenue line. But we also have a very large portion of the overall services opportunity for our business and our platform being done by these third-party consultants and partnerships. Originally, they were smaller organizations when the company was smaller. But as we've grown, they've grown with us, and we've also recruited more and more of them. To your point, we announced the KPMG partnership a few quarters ago, very excited about that. We did not have a partner of that class when we came public, and we always thought that was one of the milestones that a company starts to achieve when this market opens up and it gets to a certain stage. And so KPMG, in addition to being a client themselves, which we're also very excited about, they're developing a practice area to be deploying DealCloud and Intapp's overall platform to a whole range of usually the larger institutions in the marketplace. And they and Microsoft together have worked with us on some of the very largest investment banks and one of the top 3 strategy consulting firms came on in the past 6 months and some of the largest of the accounting firms outside of the big 4 that they've helped us with. So it's an exciting time to start to see the ecosystem forming around the platform.

That's great. John, we're all out of time. Thanks so much for doing this. Super appreciate it. As always, it was a great conversation.

Okay. Thank you so much.