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

Thanks for taking some time out today. I'm Kevin McVeigh. I'm part of the research effort here at UBS. We're thrilled to end the day with Intapp. We've got CEO, John Hall; and CFO, Dave Morton; and David Trone, who runs their Investor Relations, does a terrific job. I think, John, this is our third or fourth annual, when we went public in '21. And I always start with the same question because the business has transformed so much.

But what I wanted to do is he closed over at almost $66 today. It's been a really, really terrific IPO through a lot of work. You went public at $26, I think, in 2021. Take us a little bit about the base in Intapp. And I always start because there's -- the models you've executed so well and there's a lot to talk about with Microsoft, KPMG, but maybe just for the audience, talk to the kind of founding of the company a little bit because you've really been there since inception and your vision, and it's obviously been just a terrific, terrific reception in the public markets and really, it's the product and opportunity you folks are executing. So maybe start there. And just -- I'm sorry, if anyone has any questions in the audience, just pass it through, we've got the iPad up here, and we'll try to keep it interactive as possible. But sorry, I didn't mean to cut you off.

No, that's great. We appreciate you having us join you all. The company has had quite a journey in the three years since the IPO. Our company is unusual for a Silicon Valley business because we bootstrapped the company all the way to IPO over almost 20 years, actually. So you're right. I've been there a long time, some of the founders are still running the business today, and we've developed a deep appreciation for this particularly underserved end market, the professional financial services firms. So private capital firms, investment banks, real estate, as well as legal accounting and consulting firms. These large traditionally partnership organizations that we're building a lot of their own software. And this was our investment thesis from the very beginning, why are lawyers and accountants and these folks building their own software. It doesn't make any sense. They had availability of the horizontal system, the CRM and ERP systems for all those years that you still saw this in-house built. And it was proof to us that there was a true purpose-specific, industry-specific category that was being underserved. And so over the years, Intapp built a platform, specifically for this end market, that covers a range of capabilities that the firms need to operate from compliance, one of the early value propositions of the business through business development and their go-to-market and then more recently, collaboration, we'll talk about Microsoft. And these aspects of the business had AI in them, in our solutions from the very beginning. We were from the earliest people who had AI in the markets. It was the machine learning generations before the generative AI era, but we developed a lot of expertise about the opportunity to apply AI in these firms. And we built a whole business. Today, we've grown to 2,650 of the largest firms around the world. And we've been very excited since the IPO to be developing, particularly in the large end of the market. So it's about a $30 billion TAM, about a $15 billion SAM, and about 70% of that SAM is in the largest 2,000 firms. So we've really emphasized the opportunity in the large firms and just this past year, which ended for us in June, we had over 70 firms now paying us 7 figures, and it was a big evolution because we had almost none of those when we first came public 3 years ago. So that's been a big part of the story. And then to your point, we've added some significant enterprise class partnerships, the biggest of which is Microsoft. So they have a very developed vertical go-to-market model generally, but they don't have a vertical sales team for these special professional financial services firms. And we've been able to develop a partnership with them to bring AI along with their Azure and Office 365 and now Copilot solutions that really helps the firms take advantage of those capabilities, but in a compliant way specific for the regulated industries that we serve. And so the Microsoft partnership has been a big part of the post-IPO era. And then KPMG is a second partnership that we developed to really help us serve the enterprise class firms there at scale as well. And then we have about 130 other partners at various sizes that have helped us as we've grown the business. But it's a really different company today with a much different position in the marketplace than when we came public in 2021.

Great. And I think one of the things that as we were going through and it was a really helpful process through the IPO, I think that you folks -- and it really, I think, differentiated you was the focus on the data and the data capture that -- and maybe -- and I think it's important because there's a lot of application players, but your go-to-market has been so unique, particularly on the data aggregation. And it's just a critical part of how these professional services, their go-to-market motion that you help them capture. So maybe talk to that a little bit because I think as the technology evolves and particularly as folks become more generative whether it's through Microsoft or KPMG, but you've always had the focus on the data, which has been a real differentiator, and I think has really helped you from a competitive perspective. So maybe who you historically are capturing or the share shift comes from? And again, I think a big part of it is how important you've been able to leverage that data to help your clients make better decisions.

Yes, that's right. We think that one of the things that makes these firms somewhere between unusual and unique is the richness of data that the professionals in the firms, whether you're talking about investors or people in an advisory role, the emphasis that they have on making sense of data about the outside world, third-party data about all the deals and companies and people that they're trying to navigate through to figure out deals and how to execute them. And then the proprietary historical data that each firm has and really is the core IP of the firm. These firms are very different. From traditional manufacturing retail companies that traditionally built inventory and sold products off of a price list with a SKU through a sales pipeline with a standard price. That model is fantastic for the corporation and traditional CRM and ERP as great as it is, was really designed for that model of organization. These professional firms are totally different. The professionals work together based on their professional expertise and the expertise of their broader team to create value for their clients or their investors, whether they're making deals or investing in companies. And what they trade on is that history of knowledge and their ability to integrate the third-party information about their marketplace and the opportunity place with their history so that they can pitch. Here's what we did like you, 15 times before, we're the right adviser for you or this is the deal that I want to do, and here's the history of deals like this that we've done successfully and here's how I can justify this to the investment committee. That style of work is so unstructured in its information model. And so focused on the comparison of inside and outside data. And through the bootstrap era, we built a platform that was really focused on this. And at the core, one of the real technology moats for the company is the industry graph that we have underlying our platform that was designed from the ground up over many years, replacing this in-house built software to model that data correctly. So we were set up well from the beginning to have a very strong command of this special format of data for the firms and the substance of the data. And then as AI started to roll out in our platform through our own development over many years and now in the generative AI era where we can make sense of all that data for the firms, we're really in an unusual position to create value from this data set that the professionals generate every day in the work that they do.

Let's switch gears a little bit, talking about the remixing of the revenue because, again, at the time of the IPO, it's probably more on-prem than cloud. You've done a nice job remixing that. Maybe talk to that a little bit, and I think you folks strategically were very nimble in terms of not necessarily up charging the shift to the cloud initially. But maybe talk about that shift and where clients are today, I mean it feels like, and these are my words, I think, potentially more acceleration, as some of the generative AI capabilities are housed in the cloud as opposed to on-prem. And I know it's always been more of a client decision, but maybe talk about that evolution a little bit because, again, from a mechanical perspective, it's almost in the market starting to recognize it, but the cloud business has been growing a lot faster than the reported numbers suggest because of the remixing of the on-prem. And obviously, as that gets smaller and actually just helps, but maybe talk to that dynamic a little bit.

Yes. So the company has been in business long enough that we did start the company in the on-premise era, and we had solutions in that format. Over time, even before we came public, we had developed a cloud generation of our technology, and we're selling that. We sell that exclusively. We have some remaining clients who do have some on-premises solutions. When we came public, a lot of the story was really a cloud transformation story, getting through that transformation. We're very excited about the fact that sort of three years in, 92% of our clients now have something in the cloud from us, and it's become more of a mechanical thing to move the last remaining clients. So you do still see some of that, but it's really a cloud story today and an AI story today with a little bit of that. So the revenue mix that you're describing there is that shift towards the cloud. And Dave has done tremendous work since joining us a little over a year ago, helping us to emphasize more clarity about that cloud proportion of the business because it's really become the dominant aspect of the company.

And maybe just since you mentioned, Dave, who is gracious enough to join us, we'll shift to him for a minute. Dave, maybe talk a little bit because with that transition, obviously, in the margin scale, as well as the free cash flow really start to crystallize. So maybe talk to the kind of margin trajectory of the business as well as free cash flow as the businesses scale over time?

Yes. So with that shift in revenue, it's definitely given us an opportunity to show the inherent catalyst of where we view our longer-term growth and our durability in the overall company itself. And so as we continue to have all of our, I'll call it, new development, new product offerings as well as where we continue to work with our existing clients that may be on-prem, and working them through to kind of that cloud, either vis-a-vis assisted them with some incremental budgetary as well as helping them capture the greater exercise on being in the cloud itself. Moving down the line on overall margins and operational efficiencies. Clearly, we've just prioritized where our focuses have been. Our services team, we're breakeven kind of gross margin there. And that's been no small effort, but that's also been getting everybody kind of concentrated on the unique efforts that they need to do to deliver a world-class experience through our existing clients. And we think that's coming through. And then as you work down the P&L, as you narrated on our free cash flow, obviously, we've got great LTV to CAC metrics. We're seeing a lot of productivity from our respective sales teams. I think our go-to-market motion coming out of Q4 of FY '24 was just excellent which gave us a sense of opportunity of where we could go into FY '25. Product and engineering -- first and foremost, we are a product-led growth organization and the amount of new expertise as well as new product offerings and kind of SKU enhancement, if you will, has been nothing less than amazing. And then G&A is actually seeing actual reductions. And so all of that has not only increased our below the line, but as well as our free cash flow that we've been really proud of working.

One thing, I think, and you had a really well-attended Investor Day, you didn't have much in terms of Gen AI. I don't think at least in kind of the forward projections from a leverage perspective on the expense side. So I'm not asking to comment on potential upside, but maybe where is there some opportunity on the Gen AI to leverage some of that cost? And then just with that, maybe another big area of success has been the net revenue retention. You've been able to kind of boost the range and you've settled nicely into that kind of new range. What allowed you to do that? Because I think those are really two important parts of the story as well.

Yes. So Gen AI, we do use it in-house for specific applications. But then also, we've been very purposeful in our investment, not only with some of our key partners, but then with our respective team ourselves. And so anything to throw back into kind of where we've been saving and getting productivity, we have been trying to fund and afford more for our product and engineering teams because this is very important for us. And you can see even in F -- Q4, we talked specifically how much revenue we've seen some slight contributions, meaning it just isn't Vaporware, a free summarization tool, these are very purpose-built specific applications to our end clients that are asking for these. And so we see that continue to go. And so as the top line grows, so too can the investment and everything flows through and becomes a profitable equation with our partners. With respect to -- sorry...

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NRR. So the NRR. With that itself, I mean we've been focusing more on just the cloud NRR because we're not growing the on-prem portion. And so overall, this past quarter it was 114%. But the cloud portion itself was 119% and it's been as high as 121%, 120% and then 119%. And so that's just where you continue to see the power of our go-to-market as well as not only the land, but the expand motion. And so when you think about even going back to our inaugural Investor Day, just our largest 200 accounts that cohort, just the opportunity there was well over $1 billion of opportunity for us to cross-sell and upsell.

And remind us just because you mentioned it, like how do you think about the mix of kind of new logo as opposed to cross-sell? And again, the $1 billion that was the other thing that just from IPO was pretty impressive based on where the revenue is even back then, a little on where it is today, but maybe talk about the new logos as opposed to cross-sell a little bit.

Yes. So each quarter, we have our opportunities and so much at bats, right? But clearly, there's an opportunity for us to get to $1 billion just in incremental net new logos, and there's the opportunity to get to $1 billion of just net expand. I would say, over the past 3 to 4 quarters, more of that activity has been on the net expand, weighted more -- a little more towards that. And that's just because of our naming in the industry, kind of the trust that we have with key clients, us having a very full portfolio and just not being a single point solution. And so that gives us that opportunity. If you think about it, when John spoke about coming to IPO, we were only 50% cloud. Now we're fully cloud transformation. And a lot of their earlier products were back office and middle office. Now when we're talking about the revenue generating, that opportunity there across all of our verticals that we serve there, i.e., DealCloud, that's been giving us a lot of opportunity to, with that specific cloud NRR, the expand motion there.

What's amazing is -- and you're not here talk about valuation. But if you look at just the valuation on the cloud business, how that's scaled hasn't shifted all that much, pretty remarkable given what you've done. Any questions in the audience? Or let me check that. Otherwise, I'm going to keep going. But at this point, I try to -- any questions from the audience? We'll keep going. One thing that I wanted to spend a little bit of time on was you really executed well. And just to frame it a little bit, what always drew me to the story was -- and you do a lot of wonderful things, but the core of what you do in a lot of ways is make very highly compensated people, more efficient, right, with kind of the platform we bring, which I think really resonates, number one. But John, number two, the environment hasn't been terrific. I mean there's been no M&A cycle. The ECM has been really dampened and you powered through that. So maybe talk to that because, again, the operating environment has been okay. It hasn't been great. It feels like that could be something that as we look out, it could create a little bit of a tailwind, and you really haven't had that, number one. And then where I want to spend a lot of time is on the alliances, right? And how you decided to choose Microsoft and KPMG initially and how that scales over time? And then kind of the network effect that, that brings to bear because I think those are -- it becomes its own ecosystem, if you would, that just kind of scales over time. There's a lot there, but I just wanted to kind of...

Well, I think if you just step back and look at the strategy choice, the investment thesis fundamentally. We're targeting a very large historically underserved regulated industry that did not have a technology provider that was really building from the ground up a platform appropriate for them. We always admired Veeva as kind of the pioneers of the vertical industry cloud model. And they had analogous situation. Their industry is a little different. Their industry is a little more consolidated, their end market is a little more consolidated than ours is. But regulated in a different regulation set but analogous. And they proved how significantly, you can penetrate a very highly regulated environment with a purpose-built platform that helps them be more successful and operate more effectively and efficiently. We're doing a very analogous thing for this end market, but the professional financial services firms that we serve are actually 3x the size of Veeva's end market with great admiration for what they've accomplished. So I think if you like the vertical industry cloud model, or the vertical industry AI model. This is a great end market to take in terms of scale. But there's a second reason, which is the firms that we picked do well in good times and bad. Lawyers always get paid regardless of the cycle. The accountants always get paid. And we bootstrapped the business through 2008, through 2020 without ever raising money because these firms are in a position to continue to digitize is. And then the third point is they have been behind in digitalization because the historical systems that were available to them, the horizontal systems were built for the corporate form and not for this partnership model. So as we came along, there was just this latent appetite. People talk about these firms as being very conservative, and that is true. But I think deeper than that, they didn't have something that was for them. And our system really was, and so we were able to step into a delayed digitalization curve inside this market that nobody else had really tapped into before. And then the generative AI component has sort of accelerated that and given us an even stronger value proposition there. So I think the general trend in the industry is digitalization still today, and we benefited for that through the chaos of the past few years. That being said, obviously, a stronger M&A environment and a better environment generally is only going to help us. But we've done well for these firms over many years, and I think are in a great position to continue to do that. Your second question was about the partnerships? The alliance?

The alliance. Microsoft, KPMG.

So we talked a little bit about the Microsoft partnership. It comes in a few components. So we have a technology partnership around Azure. So we're providing Azure-based technology to all of these firms. And that was a big request from all the CIOs in their firm. It's a very Microsoftie-crowd that we serve. So that was positive for them. There's a co-marketing component where Microsoft has really helped us market to the whole industry, they host events in Redmond for us where we can bring the CIOs, and we had the Associate General Counsel of Microsoft come as an example and talk to our legal advisory board and talk about the partnership between the two companies. So a lot of credibility there. And then the big thing is the co-selling. So part of what we've done is make all of our technology available on the Microsoft Azure marketplace. As part of that, we now have access to the minimum Azure spend commitments that have been made. So the MACC agreements that the clients have with Microsoft where they promised to spend $20 million or $50 million or $100 million a year with Microsoft. They can burn that down by buying Intapp's technology now. So that's really removed a lot of the friction in doing deals with our clients. And then more recently, we were very excited that we reached a relationship with Microsoft, where the sellers for Microsoft get full quota credit for selling Intapp software into the marketplace. So we have complete alignment between the Microsoft sales team and the Intapp sales team in calling on these accounts. And each quarter that goes by, there's more and more co-selling happening in all the accounts and there are referrals going back and forth. And as the Microsoft team learns more about what we can do for our joint clients, we're getting referrals even coming in from the Microsoft team. Some of the things that have happened this past year in February, we had our launch of the Intapp Assist generative AI technology brand and a second product called Intapp Walls for Copilot, which is our system that helps the Microsoft Copilot customers take better advantage of Copilot in their environment. Microsoft has an excellent technology there. But one of the tricks with it is that it tells you the absolute truth. And if you are supposed to be walled off or have an information barrier or some sort of MPI protection, you don't want the system to tell each person all the information that it knows. And so Intapp Walls for Copilot is our counterpart solution that goes with Copilot that enables the firms to manage how Copilot will answer questions to each and every. So it makes Copilot compliant with the requirements of this market. And that's been an essential counterpart to Copilot, and the Microsoft sales team for selling in. So there's a lot of positive collaboration going on to help Copilot succeed in these large firms. And then on the Intapp Assist side, we're bringing into our system a whole series of applications from Intapp Assist for DealCloud. Now this recent quarter, we announced Intapp assist for Terms, one of our additional compliance products. These are all systems that the professionals, whether they're investors or bankers or lawyers or accountants can interact with and chat with, and it will help them with their business development activities. It will help them network through the firm's knowledge and expertise, and the people in the firm who knows whom and how to get to this particular deal, how do I understand what the most recent relationships have been, who's talking to my clients somewhere else in the partnership that I might not have known that I need to know as a professional. So there's a whole series of things that we're doing within Intapp Assist that drive Microsoft OpenAI demand and Azure demand with specific applications. So the Microsoft sellers also really like this rolling into the firm. So it's been a very positive relationship there. Your second alliance question was about KPMG. So this was -- we did not have one of the big four SIs of that class when we came public. We always said this was one of the signs that a real market was developing around a new category when the SI started building practices around the rollout of these solutions. And so we were super excited when KPMG agreed to build a business around Intapp. And they're helping us with some of the largest firms in the marketplace, some of the large financial services firms, for example, both to win the business, but also to deploy at scale. And this has been a big theme since the IPO is more and more of the true global enterprise class firms have started rolling Intapp out in various places of the business. And KPMG has been a big part of that, and we're growing the business with them as well as our many other partners.

And I think what's interesting, we talked about this a little bit, but I don't know if there's a way to frame it. It becomes its own distribution channel too in terms of revenue, right? So between Microsoft, KPMG, and just even to your point, like it's a massive addressable market. But it's like our business, right, it's a very small business, right? So if a CFO leaves, they know the product of Intapp, they go somewhere else, you kind of win that business by default. So as you think about the revenue that's against maybe Microsoft or KPMG on a win perspective, is there any way to frame how that's evolved over? Like what percentage of wins or maybe new business is tied to those partnerships?

Yes. We haven't disclosed the percentages there. But the pipeline related to those alliances is growing pretty well each quarter as we get more and more deals under the signature and then deployed, we have more and more referrals that are coming in. And to your point about referrals in the industry, this is a remarkably referral-driven business, so much of our growth as a bootstrap company and now as a public company, comes because deal makers, whether they're investors or advisers working together cross-functionally on these large deals in auctions and other scenarios. Talk to each other, they see what each other is doing with Intapp. And most of our business is coming from people seeing each other's work around the product. It's just been a great end market to serve because it is so collaborative and referral driven. It's really helped us with our go-to-market.

Let's say, they want the interoperability as they're going through the process. Anything we didn't ask or just maybe I'll open it up to the audience as we close it out here, but you folks have really -- it's been a really special story that we think is a lot of room in front of it. But anything that you want to highlight? I mean, it's just been a really, really nice outcome for sure.

Well, we really appreciate the partnership with you all and the relationship. Thank you.

Yes. No, no, happy to do it. Okay. Thank you all.