Intapp, Inc. Q3 FY2023 Earnings Call

Good day, and thank you for standing by. Welcome to the Intapp Fiscal Third Quarter 2023 Webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Mr. David Trone, Senior Vice President, Investor Relations. Sir, please go ahead.

Thank you. Welcome to Intapp's fiscal third quarter 2023 financial results. On the call with me today are John Hall, Chairman and CEO of Intapp; and Steve Robertson, Chief Financial Officer. During the course of this conference call, we may make forward-looking statements regarding trends, strategies and the anticipated performance of our business, including guidance provided for our fiscal fourth quarter and full year 2023. These forward-looking statements are based on management's current views and expectations and entail certain assumptions made as of today's date and are subject to various risks and uncertainties, including those described in our SEC filings and other publicly available documents that are difficult to predict and could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Intapp disclaims any obligation to update or revise any forward-looking statements, except as required by law. Further on today's call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to Form 8-K furnished with the SEC prior to this call. With that, I'll hand the conversation over to John.

Good afternoon, everyone. Thank you for joining us today as we share the results of our third fiscal quarter. I'm pleased to share that once again, we've achieved strong quarterly results supported by cloud ARR growth, SaaS and support revenue growth, new logos and expansion of our existing client accounts. For those of you who may be new to our story, Intapp targets a very large yet overlooked and underserved $3 trillion industry of professional and financial services firms. Our target industry includes the world's private capital, investment banking, legal, accounting and consulting firms. Most of our target firms were originally set up as partnerships. Within these firms, we target a highly valuable, but deeply underserved user audience: the professional investors and advisers who begin their career as analysts or associates, and develop through their careers to become skilled specialists and knowledgeable experts, eventually becoming partners and directors of their firms. These professionals work every day in cross-specialty teams that support the global industry of deals, disputes and compliance. And the professionals and their firms as a whole have to operate successfully as a highly regulated industry, monitoring and managing consistently with a wide unique range of statutory, professional ethics and client compliance obligations that they must navigate every day. Intapp’s industry cloud has been designed specifically to support the unique operating and compliance needs of these firms. We are highly differentiated from traditional CRM and ERP systems which were built for companies selling tangible products. In contrast, our client’s business is based on leveraging their collective specialized knowledge, expertise, experience and relationships to win business and deliver value for their clients and investors. Our cloud solutions help our clients increase their revenues and returns, operate more efficiently and profitably, manage risk and compliance more effectively and leverage their collective knowledge for competitive advantage. Our applied AI technology activates the power and potential of the firm's data and experience to help drive their important work for their clients. Intapp is leading cloud transformation in this global deal-making legal and advisory industry and our strong Q3 results continue to validate our strategy specifically. Our cloud ARR grew 40% to $206 million. Cloud now represents 65% of our total ARR of $316 million, which is up 24% year-over-year. We earned SaaS and support revenue of $66 million, up 33% year-over-year and total revenue of $92 million, up 32% year-over-year. And we ended the quarter serving more than 2,250 premier firms across our target verticals. Today, I want to highlight three key factors that contributed to our strong quarter. First, I'll review a product update focused on DealCloud adoption, increasing across all of the verticals we serve. Then I'll turn to innovation and our applied AI strategy and discuss enhanced relationship intelligence capabilities to meet the specific needs of our target firms. Lastly, I'll discuss new developments in our partnership with Microsoft. In Q3, we saw continued adoption of our DealCloud solution. We brought DealCloud originally to the private capital and investment banking verticals and now DealCloud adoption is increasing within the legal, accounting and consulting markets. Based on more than 1,000 successful implementations, clients are selecting DealCloud for the embedded best practices that we deliver as industry blueprints. Using DealCloud, our clients can manage their complex web of relationships and leverage collective firm knowledge to better execute their firm's growth strategies. Here are a few examples of DealCloud's progress across the verticals we serve. Benesch, an AmLaw200-firm and long-time Intapp client chose DealCloud to replace its previous CRM. Scott Golin, Chief Strategy and Operating Officer at Benesch told us that the firm chose DealCloud to reduce the administrative burden that comes with managing complex relationships, allowing the firm's professionals to focus on delivering stellar client service. A second example is one of the world's largest accounting firms, and a current Intapp client, who selected DealCloud to modernize the M&A process within its corporate development team. The firm will use DealCloud to drive overall business growth and become more effective at winning M&A. With DealCloud, the firm's professionals will be armed with more timely and tailored market information, enabling them to cover and win more deals. We also continued to acquire new logos and DealCloud's footprint in financial services. In Q3, one of the top 10 private equity firms in the U.S. selected DealCloud to replace its traditional horizontal CRM and multiple homegrown deal management systems. DealCloud will enable a unified firm-level view of deal interactions, while streamlining fundraising and client coverage. Through a highly competitive selection process, the firm chose DealCloud because of its market-leading reputation, its industry-specific capabilities and our unique market expertise. In addition to new sales, we also continue to see DealCloud implementations throughout the quarter, including at leading firms like LGT Capital Partners, a Switzerland-based investment management firm. During this quarter, we expanded our Applied AI capabilities and continue to develop our partnership with Microsoft. We advanced our Applied AI strategy with further enhancements to our relationship intelligence offering, which we've been covering with you. In Q3, we introduced multiple language support for our AI-driven email signature parsing engine that automatically populates key client contact data across multiple languages. The feature further streamlines the work of busy professionals, reducing or eliminating manual data entry and improving data quality and insights, helping us to meet the requirements of our international and global clients. In Q3, we also enhanced DealCloud with embedded document management and collaboration, now a native capability of our client and deal management platform. Our integration with Microsoft Office 365 puts key document and collaboration tools directly in the core deal and client management workflow, helping teams work together on the documents and spreadsheets that are critical to a complex deal engagement or matter. Importantly, the integration also advances our zero-entry strategy, bringing key data into DealCloud automatically, while professionals are working in Microsoft Teams or Office 365. In terms of new developments, in March, Intapp and Microsoft co-hosted a legal CIO Summit at Microsoft's headquarters in Redmond, Washington. CIOs from the world's top law firms took part in an interactive two-day event with topics ranging from the potential of AI innovations like ChatGPT to the increasingly complex regulatory landscape. Harpreet Suri, CIO at Polsinelli, an Am Law 100 firm, told us that she values the unique opportunity our partnership with Microsoft brings to the legal industry. We already provide her firm with purpose-built solutions that help her team execute efficiently, including embedded integration that extends our Microsoft investment. She expressed excitement about the future and leveraging significant AI innovations through her Intapp partnership. Although it did not occur in Q3, I’m also pleased to share that last week, Intapp acquired Paragon Data Labs. Paragon's cloud-based software helps firms track and monitor employee compliance like personal trading and political donations. Paragon enables a firm’s compliance teams to quickly spot and remediate personal conflicts of interest or policy violations. The employee compliance product enhances our existing suite of risk and compliance products, which are all purpose-built for the unique regulatory compliance needs of our client firms. We are pleased to welcome Paragon Co-Founder, Jeff Mitchell and his talented team of product, engineering, support and sales colleagues to Intapp. We are excited to have them on board to help us continue to enhance Intapp's platform's highly differentiated compliance capabilities for this regulated market. I'd like to now highlight a few interesting client wins from Q3 as we continue to add new logos, grow existing client accounts through cross-sell and upsell and expand our international footprint. I'll begin with a notable new logo from a law firm that is blazing a path in the innovative delivery of legal services. The fully virtual law firm Practus selected our Conflicts solutions delivered via the Microsoft Azure cloud. Using this solution, the firm will implement a centralized AI-driven approach to ensure that all ethical business and subject matter conflicts are addressed quickly and confidently. John Lively, Managing Partner and Founder at Practus told us partnering with Intapp will enable our attorneys to maximize the time spent delivering the highest levels of representation that our clients depend on. I'd also like to share a few examples of our ability to grow existing client accounts through cross-sell. First, an Am Law top 25 firm chose to expand its Intapp investment with the goal of creating a more connected firm. They opted to migrate their existing time solution to the cloud and to purchase our risk and compliance suite. Like many firms in the last year, this firm added our Billstream product, which we acquired and talked about in our Q2 call. As you'll remember, Billstream automates critical pre-billing workflows and helps firms improve their revenue realization and profitability by enhancing timeliness and compliance in client billing and efficiency in cash management. Together, these new solutions move this firm toward their goal of integrating all the data across their operations to better empower their attorneys. Another existing client in the AmLaw 100 similarly purchased multiple additional Intapp solutions during the quarter, also including Billstream to replace its previous pre-billing system. With Billstream, the firm will improve revenue realization and strengthen client relationships through faster and more accurate pre-billing practices. Additionally, they selected Intapp workspaces to enhance collaboration across their distributed teams. As you'll recall, we developed Intapp workspaces using technology from our Repstor acquisition in 2021. With solutions that cover risk and compliance, pre-billing, contracting and now collaboration, this large Intapp client is steadily progressing towards their goal of becoming a more connected firm, modernizing how they work by expanding their adoption of the Intapp platform and all of its capabilities. Lastly, a pair of industry awards in the quarter validated both our innovation and DealCloud's continued market leadership. First, Globe St Real Estate Forum named DealCloud a top influencer in commercial real estate technology, and DealCloud was also named the winner in two categories of the 2023 Private Equity Wire European Awards for Best Deal Origination Technology and Best Secure Workflow Management Provider. To conclude, as we near the end of our fiscal year, we're pleased with our consistent growth and performance. Our revenue model is highly predictable, and our durable end market with a $24 billion TAM continues to invest in digital and cloud transformation despite some global economic uncertainty. We continue to add new clients and grow existing accounts, and we’re pursuing the significant long-term growth opportunity ahead to help our industry achieve their cloud transformation goals. Our purpose-built industry cloud platform has compelling value for our client firms, helping them to increase revenues and returns, operate more efficiently and profitably, manage risk and compliance more effectively, and leverage their collective knowledge for competitive advantage. I'd like to thank our clients, partners, investors, Board and our employees whose hard work and dedication led to our strong Q3 performance. Thank you all very much. Okay, Steve, over to you.

Thanks, John, and thanks, everyone, for joining us today. As John noted, we had a strong quarter with our cloud ARR up 40% year-over-year, and our total ARR up 24% year-over-year. Before I go through our financials, I'd like to quickly review a few fundamentals of revenue recognition in our financial model. Just as a reminder, Cloud ARR has recognized its SaaS revenue ratably following a new sale or renewal. On-premises ARR is recognized in two parts, 50% of subscription license revenue recognized upfront at the time of the sale or renewal and 50% of support revenue recognized ratably and included in our SaaS and support revenue volume. Because it is recognized ratably, SaaS and support revenue is more predictable quarter-to-quarter, while subscription license revenue can vary based on the timing of revenue recognition. Moving to our numbers, SaaS and support revenue was $66.1 million, up 33% year-over-year, reflecting both new sales to new clients and upsells and cross-sells to existing clients of Intapp’s purpose-built cloud solutions. Total revenue was $92 million, up 32% year-over-year, driven primarily by continued strong sales of our cloud solutions as well as solid growth in professional services revenue. Subscription license revenue was $13.6 million compared to $10.9 million in the prior year period, reflecting larger CPI-based price increases on annual renewals as well as renewals on certain multiyear contracts. Professional services revenue was $12.4 million, as compared to $9 million in the prior year period, reflecting an increased growth rate consistent with the current pace of software implementations. Overall, we continue to execute our land and expand model, ending the quarter with more than 2,250 clients, 572 of which had ARR of at least $100,000, up from 484 in the prior year period. In addition, we upsold and cross-sold to existing clients, such that our 12-month trailing net revenue retention rate was within our recently increased range of 113% to 117%. Before discussing gross margins, expenses, and profitability, please note that I will be discussing non-GAAP results going forward. As a reminder, our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results, can be found in our earnings press release and its supplemental financial tables. Third quarter results were as follows: Total non-GAAP gross margin was 71.7% as compared to 57.3% in the prior year period, primarily reflecting an increase in our services gross margin and a previously executed organizational realignment of a portion of our client success team from cost of sales to sales and marketing. Non-GAAP operating expenses were $63.1 million, a $14 million increase year-over-year as we continue to invest in sales, marketing, and product development to support our growth. Non-GAAP sales and marketing expense was $27.5 million, a $7.5 million increase year-over-year as a function of increased headcount and related sales commissions to capture new business in our growing markets, along with the previously mentioned organizational realignment. Non-GAAP R&D expense was $20.7 million, a $5.4 million increase year-over-year as we increased headcount and investments in our product roadmap. Non-GAAP G&A expense was $14.9 million, a $1.1 million increase year-over-year, as we continue to see some leverage and scalability in the business. Non-GAAP operating profit was $2.9 million as compared to our third quarter fiscal 2022 non-GAAP operating loss of $2.2 million. Non-GAAP net income per fully diluted share was $0.03 in the third quarter of fiscal 2023 as compared to a loss of $0.04 in the third quarter of fiscal 2022. In terms of the balance sheet, we ended the quarter with $53.2 million in cash and cash equivalents. Now turning to guidance, for the fourth quarter of fiscal 2023, we expect SaaS and support revenue between $67 million and $68 million and total revenue in the range of $92.5 million to $93.5 million. We expect non-GAAP operating profit in the range of $1.5 million to $2.5 million, and non-GAAP per share results in the range of $0.00 to $0.02, using a fully diluted share count weighted for the quarter of approximately 78 million common shares outstanding. For the full year fiscal 2023, we expect SaaS and support revenue of between $251.5 million and $252.5 million and total revenue in the range of $349 million to $350 million. We also expect non-GAAP operating profit to be in the range of $9 million to $10 million and non-GAAP net income per share in the range of $0.07 to $0.09, using a fully diluted share count weighted for fiscal year 2023 of approximately 74 million common shares outstanding. With that, John and I look forward to taking your questions.

Thank you. Our first question will come from Koji Ikeda of Bank of America Securities. Your line is open.

Hey guys. Thanks for taking the questions. So, a couple from me. I just wanted to touch on the resiliency of the end market. Clearly, you guys are operating well here. Have things changed at all? Are you seeing any effects of maybe the banking industry turmoil that might be affecting your target end markets? Just trying to figure out how you guys are seeing the health of your overall target market? Thanks.

Thanks Koji. We're continuing to watch, but no, we have not seen an effect on sales cycles. The industry that we call on has supported us through the last couple of cycles, and we've grown right through previous recessions. So we're optimistic. If you look across our target verticals, the private capital firms tend to do well. We get paid out of their management fee, so that's very stable. The law firms, accounting firms, and consulting firms have always been very stable for us. The one that we do want to watch is investment banking, although our position there tends to be at the midsize. We're growing up into the larger firms more and more. So, we're going to pay attention, but so far, no, we've been doing well.

Got it. And then just one follow-up for me here. Last year on the third-quarter call, I recall Steve gave kind of an early look into fiscal 2024. I don't think I heard you mention it in the prepared remarks. Is that something you're not prepared to give this quarter? And if not, maybe why?

Yes. Koji, that was kind of a one-time thing that we did last year as a courtesy. This quarter, we typically wait until we come back with our full year results and talk about 2024 guidance. We have consistently pointed people to the fact that our total ARR growth is not a bad way to think about our long-term revenue over time and over cycles, and we continue to feel that that's one way to look at it. But no, we're going to give our guidance next time around.

Got it. Thank you. Thanks guys for taking my question.

You bet.

Thank you. Our next question will come from Kevin McVeigh of Credit Suisse AG. Your line is open.

Great. Thanks so much. And just a really terrific job given the current environment. John, if I heard you right, I think you referenced a 1,000 implementations of DealCloud. If I think about that relative to the current client base of about 2,500, is that the right way to think about it, or is it just specific implementations? Is there any way to gauge what percentage of DealCloud is within your existing clients at this point?

Thanks, Kevin. We haven't quoted that number. We are steadily expanding the footprint of DealCloud throughout our marketplace. As we mentioned, we began with DealCloud in the private equity and private capital industry and now we're excited to be bringing it to the legal, accounting, and consulting firms. One of the things that happened in the past couple of quarters is that we started to get more requests for DealCloud by name from the professional services firms. We're very excited about that. It shows the connection of this industry, how the professionals work together across disciplines on Deal teams and other types of projects, and they see each other using DealCloud. Therefore, the decision was made to simplify our branding a little bit, thank you to the OnePlace brand and move to DealCloud across the market, and that's working really well for us. So we're excited about this as one of several growth sectors that we have, and the word of mouth is really supporting the expansion there.

That's terrific. And then just it seems like your relationship with Microsoft is coming closer and closer. With all the incremental optionality on ChatGPT, does that accelerate the linkage with Microsoft? Any thoughts on ChatGPT within the lens of your existing clients as they implement that? It seems like it would benefit the platform overall.

We're very excited about that. We've talked about the overall Microsoft partnership, about almost 18 months in now, where we're pursuing several tracks. One is the technology innovation track, one is go-to-market, and one is co-marketing. On the technology track, we are taking advantage of a wide range of Microsoft technologies, including moving our entire platform to Azure, which is the cloud provider of choice for this industry for several reasons, including its security capabilities. One of the announcements that we made on this call was about one firm, one of the virtual law firms that has adopted DealCloud on Azure, and another firm that's taken up the compliance capabilities on Azure. We’re excited about what's happening there. Regarding ChatGPT and our applied AI technology, we have many capabilities in Applied AI. We've mentioned relationship intelligence and some other applications on the platform. We just had an event in Redmond, Washington with a lot of CIOs from some of the largest law firms in the world, who were looking at the potential to use a wide range of applied AI from Intapp and then ChatGPT. We're actually very excited that Microsoft ended up with that technology, because we think the end market that we serve is particularly high potential for the application of ChatGPT and large language model technology. So nothing to announce today, but a lot of work is happening to take advantage of that partnership with Microsoft.

Terrific. It sounds like you have it all tied to the right horse. So congratulations.

Thank you. And one moment, please for our next question. Our next question will come from Alex Sklar of Raymond James. Your line is open.

Great. Thank you. Two questions on the DealCloud brand consolidation that you've talked about tonight. First, John, I know you have over 90% penetration of those AmLaw 100 firms. Can you just help frame how your business development CRM penetration is within those existing OnePlace Intapp clients? How big of an opportunity is the DealCloud cross-sell? And then I have a follow-up on that.

Thanks, Alex. We have a great opportunity there. As in many of these markets, the traditional solution has been either entirely homegrown or a combination of trying to use traditional horizontal CRM along with a bunch of homegrown technology trying to get it to work for the unique needs of these service both operationally and from a compliance standpoint. With DealCloud, we're bringing to market a system that's purpose-built for these firms. We developed a lot of the platform directly with the CIOs in these firms, helping to commercialize the systems that they had designed in-house that were meant to work for them. There's a real product-market shift for DealCloud across the market. They're generally using older generation CRM. To answer your question specifically, we also serve a broader category than pure CRM because these firms have a very strong knowledge and expertise component, the information that they need to manage. When we bring DealCloud in, it helps them with CRM-type activities and data and work. In addition, there is a broad platform here that supports a range of knowledge management, deal management, and other types of practice management issues. So we think there's a huge opportunity for us to grow inside the market. We’ve built up relationships with these firms over many years. We do have beginning footprints with over 90% of the top AmLaw 100 firms. The cross-sell and upsell opportunity inside those firms is enormous. We've discussed that within our top 100 clients, generally, there's $1 billion of ARR that we can target as we continue to sell our platform. So that reflects much of the cross-sell and upsell opportunities that we can pursue.

Okay. That's great context. Thank you. And then just a quick follow-up on that. Steve, are there any financial benefits or implications you're looking for with that change? Furthermore, the sales and marketing expense growth has somewhat decelerated despite shifting some of that support revenue down there. Can you talk about how you're thinking about sales hiring for the rest of 2023? Thanks.

As far as financial benefits from the Microsoft relationship, we certainly will expect some over time, but we're not in a position now to be granular about that. We do have nice momentum in many parts of the partnership. So we'll probably come back in future quarters and provide more on that topic. Regarding sales and marketing investments, we're continuing to invest in sales and marketing. We are growing our sales reps in particular, in line with the growth rate we've maintained throughout the year. There may be a comparison quarter-over-quarter that looks different, but we are forward investing. Our pipelines are strong, and we want to capture it.

Great. Thank you both.

Yeah.

Thank you. And one moment, please for our next question. The next question will come from Terry Tillman of Truist Securities. Your line is open.

Congratulations on the strong results, John, Steve, and David. My first question is about the consistent addition of over 50 net new customers each quarter, if I'm calculating correctly. I've noticed that the number of customers over 100,000 can fluctuate. Do you anticipate maintaining this level of consistency in attracting new customers? I'm curious because it appears that Microsoft offers various channels for go-to-market support, including KPMG and international expansion. I'm trying to grasp how you plan to balance acquiring new customers with increasing sales of DealCloud to your existing customer base.

Well, Terry, I can address this as well. We are witnessing a consistent influx of new clients, complemented by strong net revenue retention, which are key drivers of our financial model. Microsoft is likely to create opportunities in both aspects, particularly in upselling to existing clients and attracting new ones. I don't foresee any major changes. We are continuing to experience growth on both fronts.

Okay, got it. I will pass it to John. I want to hear his voice. Thank you, Steve. That's helpful. It sounds like more of the same goodness.

Okay. Sorry.

Sorry. No, that's good. So maybe more of the same goodness, then, in terms of balancing new logos. John, regarding your discussions on the uptake of more recent acquired products or organic development like Billstream and the collaborative workspace. Any kind of quantification on those emerging products? Are you able to leverage vendor consolidation due to the economic climate?

Thanks, Terry. We appreciate the market's uptake of both the organically developed technology, for example, the relationship intelligence and applied AI that we've been having good success with, in addition to some of the products we've launched through acquisitions like Billstream and Intapp workspaces. We have a combined strategy. There’s a long history of organic development of the platform specifically designed for this market by working with the CIOs in the market on their in-house designs, but we have also leveraged M&A of technologies that we observe in the marketplace over time to augment the platform. We believe that's one of our platform's strengths that we can integrate technology our clients have recommended. We're excited about the acquisition we just announced on the call, Paragon Data Labs, which provides employee compliance capabilities that we will bring to market. We have a strong footprint in the risk and compliance space, initially for law firms, with a suite of capabilities around ethical walls, information barriers, conflicts of interest, terms of business, and obligations management. We can now enhance our offering with additional employee compliance capabilities, such as personal trading compliance and management that firms must adhere to regularly. This will give us an even richer offering in risk and compliance for the financial services, both private capital and investment banking firms. We will continue to target what the clients need and how we can expand the Intapp platform to provide a more ideal purpose-built system for these partnership firms, helping them with operational and compliance needs as we grow our business, and incorporating applied AI for a more modern experience.

Sounds good. Thanks.

Thank you. Our next question will come from Brian Schwartz of Oppenheimer. Your line is open.

Hi, John and Steve. Thank you for taking my questions this afternoon. John, I wanted to ask you a question on the velocity of the expansion business. Are you seeing any changes to the cadence of when customers are coming back to buy more from you?

We haven't published numbers about that, but we are excited about what happens when you get people to the cloud. The implementation is much easier, clients are reaching success faster, and you generally have opportunities to come back to them for either additional seeds to other groups inside the firm or additional solutions that you can sell into the firm more frequently. This is a big part of our overall strategy. A lot of what these firms appreciate about vendor consolidation is that the Intapp platform brings integrated capabilities that facilitate collaboration within a compliance framework, driving successful outcomes for everyone involved. I do think the cloud transition is a crucial aspect of the expansion’s velocity as we continue to drive that.

Thank you. And then, Steve, one question for you just on the margins in the quarter. The business is showing a lot of margin growth, and I'd like to know, is that all a function of the revenue upside in the quarter, or is the business also seeing greater efficiencies in COGS and other expense lines?

Yes. The answer is both. Clearly, we are bringing to the bottom line the revenue success we experienced. That's for sure. But we're also implementing many internal efficiencies that are starting to bear fruit. We've talked for a while about our services group, which continues to make progress, and you'll start to see that, I think, next year. Our execution is improving in terms of efficiency as we move forward. So it's a little bit of both.

Thank you.

Thank you. One moment, please for our next question. Our next question will come from Parker Lane of Stifel. Your line is open.

Hi, guys. Thanks for taking the question and congrats on the quarter. Steve, I wanted to just go back to that last question there. I know it's too early to give guidance for next year, but how do you think about the mid-term framework of the trade-off between growth and profitability? You just delivered 40% cloud ARR, have a big opportunity in front of you. How much leverage could there be on the sales and marketing line over the next couple of years?

We aim to run the business to minimize that trade-off. We believe we can demonstrate both good sales growth and improving profitability, and that's our objective over the next couple of years. We're now at a point where there's some natural leverage for the business due to our size, along with efficient execution that we're starting to repeat on many fronts. Sales growth looks promising, and we believe we can improve both metrics going forward.

Got it. Understood. Just quickly on Paragon, could you provide a sense of the scale of that business from a headcount and revenue perspective?

Sure. It's a fairly small operation, probably less than 20 people including some contractors, and its revenue is in the low single-digit millions. We think it’s an attractive deal for us, both strategically and financially. So we're excited, but it will start at a relatively smaller level, and we’ll see how we do in working with Intapp to leverage our business.

Got it. Thanks again.

Thank you. One moment for our next question. Our next question will come from Arvind Ramnani of Piper Sandler. Your line is open.

Hi. Thanks for taking my question and let me echo, my congrats on a terrific set of results. As we examine enterprise tech budgets overall, we observe pressure from across the coverage universe, but clearly in your third quarter, you have raised guidance, and it looks like things are going quite well. From all you've said on this call, it appears you're not experiencing that pressure. Can you provide a bit more color on what's driving the robust demand that you're observing from your customer base?

First of all, it's a resilient end market that has supported us through various economic cycles. These firms generally perform well in good times and bad. They're not immune to the economic cycle but are in a better position compared to many others. This has supported us for many years. Furthermore, they have committed to the cloud transition. COVID was significant in setting these firms on a path decisively towards software that had been developed over the years. We provide a true industry cloud system that's designed specifically for their needs, and we have the right product-market fit for their cloud transition. Additionally, if you look at their revenues and profitability, they are among the most successful businesses on the planet, which makes our spend relatively small in comparison to their overall budgets. That provides us with a wonderful opportunity to grow within their budgets as we see consistent uptake. These factors explain the robust demand we’re observing.

Perfect. And then in terms of the value proposition, there's considerable value both as a revenue driver and also from cost savings and compliance. Are your clients now using it for the same reasons or is it shifting more? Do your sales force focus on cost savings, compliance, or revenue opportunities?

The sales team has been outstanding in studying the marketplace, understanding our clients over the years, and establishing relationships where we appreciate each firm’s strategy and priorities. We collaborate with them each year on IT budgets and plans to determine how we can best support each firm. There's a range of value drivers, including revenue growth and coverage programs, operational efficiency, knowledge management, and compliance – all of which are critical. There are several areas we focus on during engagement, and as we approach economic changes, we observe that some firms are placing a stronger emphasis on compliance and efficiency. However, there are still many firms that see a change in the economic cycle as an opportunity to expand revenue-oriented investments and initiatives. Thus, it's still an all-encompassing focus, and we are capable of responding to all of these needs.

Perfect. This is all very helpful. Thank you.

Thank you. This will end Q&A. I would now like to turn the conference back to John Hall for closing remarks.

Okay. Well, thanks very much to all of you for joining us and for following the company. We really appreciate your support and the opportunity to work with each of you, and we will look forward to speaking again with our year-end results on the next call. Thanks very much.

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.