Earnings Call Transcript - INTA Q2 2025

Operator, Operator

Good day, and thank you for joining us. Welcome to the Intapp Fiscal Second Quarter 2025 Webcast. All participants are in a listen-only mode. Please note that this conference is being recorded. Following the speaker's presentation, there will be a question-and-answer session. I would now like to turn the conference over to our speaker today, David Trone, Senior Vice President, Investor Relations.

David Trone, Senior Vice President, Investor Relations

Thank you. Welcome to Intapp's fiscal second quarter 2025 financial results. On the call with me today are John Hall, Chairman and CEO of Intapp, and David Morton, 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 third quarter and full year 2025. These forward-looking statements are based on management's current views and expectations, 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, including non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP diluted net income per share, and free cash flow. As a reminder, all of our financial figures we will discuss today are non-GAAP except for revenue and revenue growth, cash and cash equivalents, and total and current remaining performance obligations. Our GAAP financial results, along with reconciliations of GAAP to non-GAAP financial measures, can be found in today's earnings release and its supplemental financial tables, which is available on our website, and as an exhibit to the Form 8-K furnished with the SEC prior to this call or a supplemental financial presentation, which is available on our website. With that, I'll hand the conversation over to John.

John Hall, Chairman and CEO

Thank you, David. Good afternoon, everyone. Thank you for joining us today as we share the results of our fiscal second quarter. I'm pleased to announce that once again, we've achieved strong quarterly results, driven by cloud Annual Recurring Revenue (ARR), new AI capabilities, new partnerships, new clients, expanded client accounts, and global cloud migrations. I'll provide details on these growth drivers during the call. In Q2, our cloud ARR reached $331 million, reflecting a 29% increase year-over-year. Cloud now accounts for 76% of our total ARR, which stands at $437 million. This quarter, we generated SaaS revenue of $80 million, up 27% year-over-year, and total revenue of $121 million, an increase of 17% year-over-year. Now, let's look at some highlights from our fiscal second quarter. I'll begin with our ongoing success in our vertical AI roadmap, particularly in applied AI innovation and its practical applications in the daily workflows of professionals. This quarter, we launched a new AI-powered search feature within Intapp Assist for DealCloud, enhancing the use of generative AI in professionals' daily tasks. Using natural language queries, professionals can now easily access multiple types of DealCloud information for more complex inquiries. This capability aids in discovering and analyzing client and deal intelligence across intricate data sets, allowing professionals to apply wider firm-wide insights to their work. We've also strengthened DealCloud's integration with Microsoft Outlook, enabling professionals to work more seamlessly without the need to switch between applications. Additionally, we've developed a new integration that allows users to utilize DealCloud's relationship intelligence features within Google Calendar and Gmail, reducing the need for manual data entry and app switching. Lastly, we've enhanced Intapp Walls for Copilot to include comprehensive risk assessment data. This solution not only controls the data that Copilot can access for each professional but also alerts compliance teams to potential oversharing and security risks among the vast amount of documents stored in OneDrive. This is yet another way we're facilitating the secure adoption of AI for our clients and solidifying our partnership with Microsoft. Speaking of partnerships, our alliances and partner ecosystem remain a critical component of our company's strategy and our Intapp Intelligent Cloud. Since launching our updated and expanded partner program at the beginning of last fiscal year, we've observed strong growth in our partnerships, which are now 20% higher than a year ago, totaling 137 data, technology, and services partners. Last quarter, we formed several notable new integration partnerships, including Prongs, a commercial real estate data management platform, and Pass-Through, a SaaS-based investor onboarding platform. Both partners integrate with Intapp DealCloud to enhance capabilities for fund managers and investors in real estate and private capital. Additionally, our partnership with Microsoft continues to serve as a growth driver and differentiator for our business. In Q2, we assisted several clients in purchasing Intapp solutions through the Azure marketplace. For instance, one of the world's largest investment banks expanded its adoption of Intapp DealCloud as part of its contract renewal this quarter. The availability of our solutions on the Azure marketplace enabled the client to utilize some of their pre-committed Microsoft spending to acquire our technology. This deal exemplifies how our partnership with Microsoft adds value for our clients. Now, let’s look at Q2 wins, including new clients, expansions, and cloud migrations. I'm excited to share that we are continuing to grow by adding new clients. In accounting and consulting, new firms are embracing solutions across our product offerings. For example, Alvarez & Marsal, a global consulting firm, selected Intapp DealCloud to support its expanding corporate finance practice group with managing origination, sales pipeline, and deal workflows. Milsted Langdon, a U.K.-based accounting firm, opted for Intapp collaboration to automate workspace governance, gaining better structure and control in collaboration. Furthermore, Armanino, a top 20 accounting firm in the U.S., chose Intapp conflicts as its centralized solution for efficiently and accurately identifying and resolving conflicts of interest. We're observing a similar trend in the legal sector, with new law firms also selecting Intapp solutions. [indiscernible] has implemented Intapp compliant solutions to support and enhance its robust new business intake processes, aiming to uphold its leading position in delivering a seamless and efficient intake experience while improving workflows and risk management across the board. Colin Biggers & Paisley adopted cloud-based Intapp Time to modernize its timekeeping practices. Sackers selected Intapp DealCloud for its powerful enterprise relationship management capabilities. Additionally, new financial services firms are moving away from legacy CRM solutions to Intapp DealCloud, aiming to centralize information, improve utilization, and minimize manual processes. This quarter, we secured wins with the investment banking division of a major U.S. bank, asset management firm Cartesia, and a burgeoning European private equity firm. We view this trend as a significant growth area for Intapp. Our efforts in cross-selling and upselling within our existing accounts have yielded strong cloud net revenue retention. I'll mention some notable examples. Law firms continue to incorporate DealCloud into their Intapp solution stack, including three clients from the Am Law 100. Troutman Pepper Locke selected DealCloud as its unified system for ERM, CRM, event management, and business development needs. A Global 50 law firm transitioned from its legacy CRM to DealCloud with Intapp Assist for enhanced CRM accessibility and AI capabilities. Blank Rome, a long-time user of Intapp Time and compliance solutions, added DealCloud and [DealStream] (ph) to modernize its marketing, business development, and pre-billing technologies, while also migrating its existing Intapp portfolio to the cloud for improved data integration and maximizing synergies across the Intapp platform. Large accounting and consulting firms continue to adopt additional solutions. Apreo integrated Intapp conflicts to streamline operations, enhance tracking of gifts and entertainment compliance, and reduce manual reporting. Additionally, one of the big three consulting firms replaced its legacy compliance system with Intapp employee compliance for increased automation and scalability. Another large global consulting firm added Intapp Walls and Intapp collaboration to ensure compliance in using Microsoft Teams and to transform its Microsoft 365 platform into a compliance-focused collaboration solution. A big four client firm has also expanded its use of Intapp DealCloud, extending access to professionals in Ireland to facilitate more efficient deal-making and global collaboration. We are witnessing success with legal clients migrating their Intapp solutions to the cloud this quarter. For instance, an Am Law 50 firm is transitioning Intapp Time to the cloud and also adding Intapp DealCloud to centralize lawyer and key client plans. Finally, [indiscernible] is migrating both Intapp Time and Intapp DealStream to the cloud for further process optimization. In conclusion, we are proud of our strong performance this second quarter and remain optimistic about future growth opportunities. As demonstrated by our Q2 results, we are expanding by introducing new capabilities and enhancing our worldwide enterprise go-to-market efforts. We see ample opportunities to attract new clients across a wide Total Addressable Market and to provide greater value by expanding within our current clientele. We're serving a robust end market through our subscription revenue model, industry-specific cloud platform, and applied AI and compliance capabilities. We have a significant opportunity to advance AI, cloud adoption, and modernization across all the industries we serve. As always, I want to express my gratitude to our clients, partners, investors, board members, and our global Intapp team for their collaboration and dedication. Thank you all very much. David, over to you.

David Morton, Chief Financial Officer

Thanks, John, and thank you to everyone for joining us today. I'm pleased to report a strong second quarter performance, driven by robust cloud adoption across Intapp's vertical-specific offerings and expanding enterprise client base and continued improvements in operational efficiency. As we enter the second half of fiscal 2025, we are well positioned to capitalize on multiple growth levers and drive sustained profitability at scale. Let's begin with the fiscal Q2 results. SaaS revenue was $80 million, up 27% year-over-year, driven by new client acquisitions, contract expansions, and the migration of on-premise products to the cloud. As of December 31, 92% of our clients had adopted at least one cloud module. License revenue, which represents the combined on-prem revenue, was $28 million in fiscal Q2, approximately flat year-over-year. While price increases and contract expansions contributed positively, these were offset by client migrations to the cloud, reflecting the ongoing transition to our SaaS offerings. Professional services revenue totaled $13.2 million, up 4% year-over-year. Our strategic decision to outsource more activities to partners has allowed us to place greater emphasis on enhancing client satisfaction and driving co-sell pipeline generation supporting our long-term growth objectives. Total revenue was $121.2 million, up 17% year-over-year, driven primarily by sales of our cloud solutions. Revenue from our international operations accounted for almost a third of our total revenue this quarter and continues to provide growth opportunities. International revenue grew 24% year-over-year in Q2. As highlighted in recent quarters, we continue to invest in and expand our alliances and partner ecosystem around Intapp. Our network now includes 137 data, technology, and service partners, reflecting our significant growth. Notably, our co-sell partners, which grew 30% year-over-year in Q2, are playing an increasingly pivotal role in client acquisition and retention through their implementation and expertise and value-added integrations. Our enhanced partner program bolsters capabilities for deal generation, technology, data, and implementation, and we remain optimistic about their ongoing impact on our growth strategy. As we continue to emphasize our product-led growth strategy, our new vertical SaaS AI offerings include Intapp Assist, now featuring our term SKU and Intapp Walls for Copilot continue to make contributions in the quarter. While we are still in the early stages of product rollout, pipeline development, and client provisioning, we remain excited about the growth prospects ahead. Q2 non-GAAP gross margin was 76.7%, up from 73.4% in the prior year period, reflecting progress toward breakeven professional services gross margins and optimizing the relative top line contribution from that business. Non-GAAP operating expenses totaled $74.1 million compared to $68.6 million in the prior year period, reflecting our continued investment in our product-led growth. As we continue to focus on our operational efficiency, non-GAAP operating income was $18.9 million as compared to $7.6 million in the prior year period. Non-GAAP diluted EPS was $0.21 in the second quarter of fiscal 2025 as compared to $0.11 in the prior year period. Free cash flow, which is defined as our cash flow from operations less capital expenditures, was $25.2 million for the second quarter or 21% of total revenue. We exited the quarter with $285.6 million of cash and cash equivalents. Turning to our key metrics. Cloud ARR was up 29% year-over-year, while total ARR was up 20% year-over-year. Total remaining performance obligations were $615.3 million, up 37% year-over-year. Our go-to-market sales strategy remains focused on landing new logos and we ended the quarter with over 2,650 clients. Of these, 728 had an annual recurring revenue of at least $100,000, up from 649 in the previous year. Our 119% cloud net revenue retention rate in Q2 highlights our ability to retain and steadily grow business with existing cloud clients. Now turning to our outlook. For the third quarter of fiscal 2025, we expect SaaS revenue of between $84 million and $85 million. As these are newly provided revenue outlook metrics, we'll also be providing the implied year-over-year growth outlook of between 27% and 28%. Total revenue in the range of $128.3 million and $129.3 million, non-GAAP operating income in the range of $18.5 million and $19.5 million, and non-GAAP EPS results of $0.21 to $0.23 using a diluted share count weighted for the quarter of approximately 84 million common shares outstanding. For the full fiscal 2025, we expect SaaS revenue of between $328.8 million and $332.8 million. And as these are newly provided revenue outlook metrics, we're also providing the implied year-over-year growth outlook of between 27% and 28%. Total revenue in the range of $498.5 million and $502.5 million. We also expect non-GAAP operating income in the range of $7.2 million and $74.2 million, and non-GAAP EPS in the range of $0.83 to $0.87 using a diluted share count weighted for fiscal year 2025 of approximately 84 million common shares outstanding. Thank you. And I'll now turn the call back to the operator.

Operator, Operator

Thank you. Our first question comes from Alexei Gogolev with JPMorgan. You may proceed.

Alexei Gogolev, Analyst

Hello, everyone and congratulations for great results. John, I was wondering if there has been any change to your guidance philosophy. Do you feel that you now have more visibility and can guide more accurately? Because it seems like in the past, there were more significant beats. And in terms of the demand environment, I think I recall that on the last earnings call, you suggested that demand is very strong and the pipeline is the strongest you've seen in history. Is that still the case? And if you could provide maybe some more color on top of what you said during your prepared remarks?

John Hall, Chairman and CEO

Sure. Thanks, Alexei. I'll take the beginning, and then Dave, you can address some of the guidance questions. The quarter was very strong. The pipeline is strong, and we actually brought in quite a few large deals. We did go through the organizational change that we talked about in the last quarter. And what we saw was a little bit of a back-end loading of deals. So we had a lot of deals in December this quarter. But overall, demand is very good. The AI is being taken up very well. We talked about some new capabilities with Intapp Assist that have been adopted rapidly by the client base. The DealCloud with Outlook integration is very strong, and we announced Walls for Copilot capabilities to extend to OneDrive and some other areas, which were all very well received. So I'm optimistic about where we stand. Dave, do you want to talk about the philosophy?

David Morton, Chief Financial Officer

Yes. Thanks, John. Yes, I would just echo the same thing. And then with respect to the guide itself, we continue to provide a very prudent guide that we have a lot of visibility in. We came into the quarter with a lot of pipe to convert. Very impressed with the teams for being able to enable that and convert that. We also have to remember that specifically with SaaS at times, if it's so back-end loaded, the revenue yield on that is slim to none. In many cases, you may be only getting a day or two of revenue in that instance, or there could have been some deals that were signed that actually have a January 1st, 2025 start date. And you kind of see that when you start triangulating the different metrics as a public SaaS company; you could step back and look at our RPOs, our current RPOs, our billings, our deferred revenue, and on and on. It all correlates to the same attribute of having a very strong quarter that the team executed very well against.

Alexei Gogolev, Analyst

And a quick follow-up on your gross margins. It seems like another very strong quarter improving sequentially. It appears that service gross margins were improving as well. I was wondering if you have any midterm trajectory that you can share with us because you now have three quarters sequentially of profitable services gross margins. Where do you see them in the midterm?

David Morton, Chief Financial Officer

We haven't updated our formal metrics since we've just reached breakeven. I want to recognize that the team has been exceeding expectations and has contributed to profitability. Our primary focus has always been on enhancing customer satisfaction rather than just top-line growth or profitability. However, the alignment and economics have provided us with some leverage, and I'm very pleased with the results.

Operator, Operator

Thank you. Next question comes from Parker Lane with Stifel. You may proceed.

Parker Lane, Analyst

Hi, guys. Thanks for taking the questions. John, you've been working on the enterprise account go-to-market motion over the last couple of years, and that was a big emphasis on last quarter's call. Just wondering if there's any update on how those additional resources are assisting there and whether or not there's been any incremental hiring or it's mostly been sort of shifting folks around and getting them really centered in on those large deal opportunities?

John Hall, Chairman and CEO

Thanks, Parker. I'm very pleased with the way that the group went through that update to the organization. We wanted to emphasize more coverage in the large enterprise accounts because there's so much TAM there for us to continue to go pursue both landing new accounts and expanding within existing clients among those firms. And we did successfully make that change in Q1. In Q2, there were some account transitions that were still going on, but by the middle of the quarter, everything was done, and we saw some very good results from the team there in December, people working together. We have continued to invest in the sales and marketing organization. We have a lot of growth ahead of us, and so we're going to be conscious about doing that. But we're also seeing very good results from the folks that we have in the field, and I'm very grateful to the hard work that people put in and some of the really significant successes that we had there in December. So I'm very proud of the group.

Parker Lane, Analyst

Thanks, John. David, I think it was last year at the Analyst Day, you talked about 300 to 500 basis points of margin expansion being sort of the guiding principle here. It looks like you're set to run a little above that even at the midpoint of this guide. Can you just talk about some of the puts and takes there that have you delivering ahead of expectations this year and what we should expect going forward?

David Morton, Chief Financial Officer

Yes. Thanks, Parker. We're able to really optimize our G&A function a lot sooner than had originally intended. And then obviously, with services coming on top of that with the breakeven to slight positive has yielded that opportunity set where we will continue to invest and just a reminder to everybody, we continue to be a product-led growth organization. And so we will continue to invest in our product and engineering as well as our go-to-market functions where we see opportunities. And since we see a lot of opportunities, we'll continue to drop some amount of dollars in those functions as we continue to scale towards that $1 billion and in that long-term model that we articulated back on February 22 when it was.

Operator, Operator

Thank you. Our next question comes from Koji Ikeda with Bank of America. You may proceed.

Natalie Howe, Analyst

Hey, this is Natalie Howe on for Koji. Thank for taking my questions. So it's good to hear that there's healthy traction in your partnerships, especially with Microsoft. I wanted to ask how you see those partnerships evolving from here? And how does your AI strategy come into play? I know you mentioned that there were some AI products that are also in the marketplace there. So will it potentially accelerate momentum in that?

John Hall, Chairman and CEO

Thanks, Natalie. Yes, the partners ecosystem, the alliances ecosystem that we have been investing to develop over the past few years is a core part of the strategy so much of our opportunity in the market can be positively influenced by great relationships with many of the expertise partners that we have in each of the verticals. Microsoft, obviously, is the largest relationship that we have and extremely strategic to us. We've been doing a lot of work with them on AI in this market, in particular, how do we apply all of the technology that's increasingly available to specific business problems in these firms. And so the partner system is helping bring us opportunities. It's also helping us deploy our software with particular solutions as we roll them out, could be Intapp Assist for DealCloud or for terms or Walls for Copilot or additional Intapp Assist capabilities that we have coming up. And Microsoft is actually working directly with us in their engineering team because of the closeness of the relationship and the importance of this market to make sure that we can bring not only Copilot but all of our technology into those firms in very specific applied applications that create value for the clients. And we've had a very positive reaction from the CIOs and the users and the executives in our client firms to the strength of our relationship; we will co-sell with them, co-demonstrate with them and then deploy together, and it gives the clients a lot of confidence that we have an enterprise-grade solution that is really unavailable anywhere else in the marketplace. So we're very excited about that ecosystem strategy.

Operator, Operator

Thank you. Our next question comes from Terry Tillman with Truist Securities. You may proceed.

Terry Tillman, Analyst

Hi, John, Dave, and David. Thanks for taking my questions. First question is just on the strength in the Cloud ARR, just kinds of extrapolating off of that. Is there probably an expectation that there's going to be some seasonality and some lumpiness, and maybe Q4 is kind of the strongest quarter? And related to that first question, is there anything kind of baked in on some of your larger kind of on-prem customers maybe converting by the fourth quarter? And then I have a follow-up.

David Morton, Chief Financial Officer

Hey, Terry, it's Dave. Let me take the initial and then John can add some comments there. Yes, we are seeing a seasonality form, specifically in and around December and June quarters with our respective clients. And so coming off of a year ago, we feel very successful with where we've been able to do. And even if you look at our first half of this fiscal year, we are actually ahead of our first half last fiscal year. And so even though we didn't get off to the best start for this fiscal year, we feel that we've overcome that and then some and we'll continue to see what portends for us in the back half of our fiscal 2025. With respect to the on-prem to cloud transition, as I've indicated previously, we had a couple in flight this past quarter that we've started the initiation. That work will time out in the next six to nine months, and then you'll see the full rateability in cloud ARR as well as in the SaaS revenue line. And so we'll continue to keep you updated as we continue to progress, but more and more of those deals and transitions are happening that will impact favorably to fiscal—the back half of fiscal 2025.

Terry Tillman, Analyst

That's great. And then maybe the follow-up question. Thank you for that, David. John, you talked about a variety of DealCloud wins in legal and then obviously, some customers moving to the cloud. I think you mentioned the time example, and I'm probably short-shifting in terms of all the other stuff you talked about. But what I'm curious about is sometimes in the past, I have investors say, is the legal part of the business, the slower growth kind of more about part of their business, I'm curious if there's an inflection point or kind of an improving growth trend line in the legal side of your business, whether it's because either shift to cloud, AI, DealCloud, etc? Just maybe you could share a little bit more on the vitality on growth on the legal side. Thank you.

John Hall, Chairman and CEO

Thank you for picking up on that, Terry. It was a very strong quarter across the board, but we wanted to highlight some really exciting trends in legal and accounting consulting for just this reason because there have been questions about this. The underlying industries that we are serving are doing very well, and they themselves are optimistic about what the next few years pretend for activity that will drive their business, and they're looking to invest in technology to support their growth as firms. And we're perfectly positioned to bring modern cloud AI to these firms in an industry-specific way, and we've established now a reputation over many years as the trusted partner of them and of important players like Microsoft to be able to bring the modern systems to them in an industry-specific solution. So I do think there are important things happening in many of these end markets because of the uptick in optimism more generally. And I think that plays through for us.

Operator, Operator

Thank you. Our next question comes from Saket Kalia with Barclays. You may proceed.

Saket Kalia, Analyst

Great. Hey, guys. Thanks for taking my questions here. John, maybe for you, just maybe hitting on that point around conversions. This was one of the bigger sort of declines that we've seen in on-premise ARR, which is great, right, because it sounds like there's healthy conversion activity. There was healthy conversion activity here in Q2. Can you just maybe talk about any changes that Intapp is making to drive that? And how you think about sort of the journey for that on-premise space going forward?

John Hall, Chairman and CEO

Thanks, Saket. Yes. Obviously, this is a smaller and smaller part of our business as we continue to sell only cloud and grow the cloud business. But moving these important clients to the cloud is an important part of our operating plan. We talked in February at Investor Day about our intention to put an official program in place this fiscal year, and we've done that. We have an executive leading this with a group that's focused on helping the law firms to make the migration. They want to go. One of the things that we try to emphasize as well is how many of our clients have cloud already. So that number was in the 92% this quarter. But we're excited about how receptive they are. It's more of a practical program, how do they prioritize this project among their various IT projects to move. And the more of the AI technology that we bring to the cloud and the more eager the firms are to get that AI working to support various activities inside their own firm, the more attractive it is on the business side for them to move in addition to just the IT project of consolidation. So I think that's really helping us and the Microsoft partnership is part of that, too, because now people can use the MAC agreements with Microsoft to move many of our firms an increasing number of our firms have those. So it's all part of a general trend that we're optimistic is going to help us move these people and help them become even more successful with the more modern solution that we have in the cloud.

Saket Kalia, Analyst

Got it. Got it. That makes sense. Dave, maybe for my follow-up for you on that same topic. Can you just talk a little bit about just the high-level economics of a conversion? I mean, should we think about a conversion sort of being one-for-one from on-premise to SaaS? Or is there additional value that you're able to deliver in those conversions?

David Morton, Chief Financial Officer

Yes. Saket, we've started commenting over the last 90 days that there is additional value, either through contract compliance, either through upsell, and then obviously through the opportunity of cross-sell. And what we've experienced thus far is a nominal 20% upside that we've been seeing at this point in time.

Operator, Operator

Thank you. Our next question comes from Steve Enders with Citi. You may proceed.

Steve Enders, Analyst

Okay. Great. Thanks for taking the questions here. I guess to start, I want to follow up on some of the prior commentary on the go-to-market changes and the impact that's having. I guess, are we at this point kind of like broadly through the changes in the account structure? And I guess, secondarily, is there maybe any flow-through or still kind of like any catch-up spend that could potentially come in here in the next couple of quarters as some of those changes kind of still come into effect?

John Hall, Chairman and CEO

Thanks, Steve. No, we are through and it took us a quarter, quarter and a half, and the team did a great job of making that change, and we saw some really positive results from the accounts that folks were working with in December. We are going to continue to invest in sales and marketing generally. And Dave, you can talk about that but for this particular transformation, we're done.

David Morton, Chief Financial Officer

Yes. Sorry, Steve, I was just going to add that as part of our normal business operations, we will keep investing in our sales and marketing. This may include a slight increase in marketing efforts and adding more personnel to ensure productivity as we begin to scale and prepare for fiscal year 2026.

Operator, Operator

Thank you. Our next question comes from Alex Sklar with Raymond James. You may proceed.

Alex Sklar, Analyst

Thank you. Dave or John, on the strong cloud net revenue retention expansion this quarter, any change between the buckets of cross-sell, upsell pricing retention in the second quarter or year-to-date? And then, John, specifically on cross-sell, you had that slide at the Investor Day showing how under-penetrated you were on DealCloud and some of those services and legal base really nice quarter this quarter on that. How big of an opportunity is that DealCloud cross-sell within kind of that late-stage pipeline?

David Morton, Chief Financial Officer

Well, Alex, I'll answer the first part. There was no material change from kind of how we view the cross-sell, upsell opportunities that make up that overall cohort. I'll tell you, we like the success across all. Churn continues to be very low for us in absolute Gross Revenue Retention (GRR) dollars, if you will. So that motion, that enterprise motion continues to work very, very well for us. And then John?

John Hall, Chairman and CEO

Yes. Thanks, Alex. The message at Investor Day was absolutely the scale of cross-sell, upsell opportunity that we have across all of our markets. We have a land and expand model, as we've talked about. For legal, specifically and DealCloud in legal or DealCloud in professional services more broadly, it's a huge opportunity. The firms there have built a lot of in-house software, or they have tried to use the horizontal classic CRM systems for a business model that is entirely different than a Salesforce selling widgets from a price list, which is an excellent design if that's your business model. But for these professionals who sell their expertise and advisory services, and each relationship is unique in each deal that they do, each engagement that they do is custom negotiating with a custom engagement letter and what they're going to deliver is unique. There's a totally different model that you need at the data level, at the process level, at the user perspective. And now with AI, how do you apply AI to really supercharge the way that these professional firms work, and they're some of the largest businesses on the planet. It's 3% of the global economy in these firms. So we think it's a massive opportunity to bring a purpose-built go-to-market system that supports growth for these firms, which is what they're facing now. Now with an AI set of capabilities that should enable these professionals to network among themselves and bring the expertise of their partners, the full weight of the firm's knowledge and expertise to each engagement. So each client gets the full benefit of the firm's collective knowledge that is not what a classic horizontal CRM is designed to do. And it is exactly what DealCloud is designed to do. So we're very excited. It took us a little while to get the early adopters and get the references and get the AI in and get everybody understanding what the transformation opportunity was, but it's really starting to pick up. And so we were very excited to go through the list of those names on the call.

Alex Sklar, Analyst

Okay. Great color. And then just a follow-up to kind of Steve's question before, but on the improved bookings exiting December, is the comment you were trying to make that you're seeing productivity back at levels before the changes in place? Or is there still some expectation that you can get productivity even higher from some of the changes around territories and more enterprise reps broadly as we kind of think about third quarter and fourth quarter? Thanks.

John Hall, Chairman and CEO

I believe we have successfully completed our transformation, and we've seen positive results following that. We're optimistic about our potential for strong performance in 2025 and 2026, especially in large accounts. We've ensured that we are addressing those opportunities effectively. Our productivity is solid, and as we engage more with these large accounts, the scale of deals will significantly contribute to our productivity metrics. I'm very proud of our team's efforts; they've worked hard to build a substantial pipeline and secure numerous deals this quarter, which is encouraging. Overall, we have a positive outlook and a lot of enthusiasm about our direction.

Alex Sklar, Analyst

Okay, great. Thank you both.

Operator, Operator

Thank you. Our next question comes from Brian Schwartz with Oppenheimer & Company. You may proceed.

Brian Schwartz, Analyst

Yes. Hi, thanks for taking my questions. John, just following up on the last question, are you seeing the linearity revert back to more historical trends here in fiscal Q3 versus what you saw in Q2 from the sales reorganization?

John Hall, Chairman and CEO

In terms of linearity per quarter, Dave, do you want to talk about the quarters and how are we describing them?

David Morton, Chief Financial Officer

Yes. So if it's—Brian, if it's within the quarter, yes, I mean we're off to a good start. And so we're very confident in the prudent guide that we've given. With respect to last quarter, there was just a lot about deal activity. And yes, we had a good start, but I'll tell you a lot of that came at the end of the year with everything else going on in everybody's daily life and whatnot. So I'm glad that the team executed and converted that pipe. Do we see kind of that plan at this level? No, we shouldn't be as back-end loaded in our March quarter versus where we were at last December.

Brian Schwartz, Analyst

Good. And then in terms of deal sizes, because it sounds like you're closing a lot of deals out there. Are you seeing average deal sizes increase, too?

John Hall, Chairman and CEO

As we land some of the large accounts, that will drag up your average calculation. Now we said over the quarters that the larger accounts are harder to predict which quarter they're going to land in. So there's some inherent lumpiness. And as we shift business more and more towards the large Total Addressable Market (TAM) opportunity in the large end of the market or at least proportionally. So you're going to see some variability from quarter to quarter in large deals landing. But yes, on average, if you step back and look over a year or so or more, you should see numbers pick up because that's where we're investing to put more people and deals, and that's where the TAM is really significant.

Brian Schwartz, Analyst

Last question for me. John, maybe just very high level here on just what you're seeing from —hearing from customers in terms of the macro outlook. Is it your sense that people are more optimistic? And does the macro feel better to you today than it did last time we spoke three months ago? Thanks again for taking my questions.

John Hall, Chairman and CEO

Thanks, Brian. Well, I think the underlying trend for us is still digitalization for this underserved industry. These firms historically have not been successful with the classic horizontal systems and yet they have the same need for enterprise software and cloud solutions and AI as all the other businesses in the world, and they see it out there and they want it for themselves versus building in-house, but they needed somebody built for them. So I think the general growth trend for us is that we're selling into a market that actually is a little behind some of the other markets. But the people there are extremely highly compensated, highly valuable workers who are doing very important deal advisory legal work for the large corporate clients around the world, and they benefit significantly when their work is better supported, better automated through technology. That being said, there are some secular trends in each of the end markets that have supported us, private capital, in particular, being just a growth industry as more of the world's investment dollars shift to alternatives. That's really helping that whole market for us as a business. And then the advisory services that we sell to have some very strong growth trends. There's a lot of consolidation. Actually, it's one of the fundamental drivers for us is the accounting industry, but also the legal industry in order to serve the more significant corporate clients, they want to have a larger global footprint. So there's a natural incentive for these firms to form larger and larger enterprise class solution providers in and of themselves. And that drives natural demand for software to enable those firms and those partners to collaborate around the world. So there's a lot of reasons structurally. And then I think this more recent thing with optimism is also true. I mean we've heard it from our own clients, and they're translating that from their clients flowing through to their business. So I think we're in a good spot here.

Operator, Operator

Thank you. I would now like to turn the call back over to John Hall for any closing remarks.

John Hall, Chairman and CEO

Okay. Well, thanks, everyone. We appreciate your attention and your questions. We have a great Q2 behind us, and we're excited about our continued momentum in fiscal 2025. Thanks, again, for your time today, and we look forward to talking to you next quarter.

Operator, Operator

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.