Intapp, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended September 30, 2022, compared with the three months ended September 30, 2021. Intapp provides cloud-based software and related services to professional and financial services firms. Amounts below are in U.S. dollars.
Financial and operating performance
| Metric | Q1 FY2023 | Prior-year quarter | Change |
|---|---|---|---|
| Total revenue | $79.5 million | $62.2 million | +28% |
| Recurring revenue | $69.1 million | $54.1 million | +28%; 87% of revenue in both periods |
| SaaS and support revenue | $56.8 million | $43.5 million | +31% |
| Professional services revenue | $10.5 million | $8.1 million | +29% |
| Gross profit / margin | $54.2 million / 68% | $39.8 million / 64% | Margin up about 4 percentage points |
| Operating loss | $19.1 million | $23.6 million | Loss narrowed |
| Net loss | $20.1 million | $25.1 million | Loss narrowed |
| Net loss per share, diluted | $0.32 | $0.42 | Loss per share narrowed |
| Cash provided by operating activities | $3.2 million | $4.6 million | Down $1.4 million |
ARR was $284.3 million at September 30, up 24% year over year; Cloud ARR was $176.2 million, up 41%, and represented 62% of ARR versus 55% a year earlier. Trailing-twelve-month net revenue retention remained above management’s expected 110%–114% range for a fifth consecutive quarter. The company reported over 2,150 clients, including 522 with contracts exceeding $100,000 ARR.
Cash and cash equivalents were $40.3 million, with restricted cash of $3.5 million, at quarter-end. Cash, cash equivalents and restricted cash declined $10.5 million during the quarter. Investing activities used $2.9 million, including $1.7 million for property and equipment and $1.2 million for capitalized software. Intapp reported no outstanding borrowings under its $100 million revolving credit facility and said it was covenant-compliant. Current liabilities were $211.6 million, including $151.3 million of current deferred revenue. The filing does not report a free-cash-flow measure.
Material changes and notable items
- Revenue growth was led by SaaS and support, reflecting new-client sales, expansion within existing clients, and continued migration from on-premise products to cloud solutions. Subscription-license revenue increased 16%, mainly from renewals.
- Gross margin improved to 68% from 64%. Professional services remained loss-making: its gross loss narrowed to $2.5 million from $2.9 million.
- Operating expenses rose 16% to $73.4 million, including higher research and development and sales and marketing spending. A $1.9 million lease-related impairment charge followed the exit from part of the Palo Alto office and an amendment to the lease; management expects lower rent expense for the remainder of FY2023 and noted further exit charges may occur.
- Stock-based compensation was $15.8 million, about 20% of revenue, versus $19.0 million (about 31%) in the prior-year quarter. Non-GAAP operating profit was $1.8 million versus a non-GAAP operating loss of $0.9 million; these adjusted measures exclude specified costs, including stock compensation and the lease impairment.
- Operating cash flow was positive, supported by collections and increased deferred revenue, but was lower than the prior-year quarter. Financing cash use included a $9.3 million final contingent-consideration payment related to the Repstor acquisition.
- Intapp adopted lease accounting standard ASC 842 on July 1, 2022, recognizing $21.3 million of right-of-use assets and $24.7 million of lease liabilities at adoption; comparative prior periods were not restated. At September 30, operating lease liabilities totaled $21.8 million.
Outlook, risks and contingencies
The filing provides no specific quarterly or full-year revenue or earnings guidance. Management expects continued investment in research and development and sales and marketing, anticipates growth in SaaS, and expects professional-services demand to rise with client implementations and migrations. The company believes cash resources and its revolving facility are sufficient for working-capital and capital-expenditure needs for at least the next 12 months, while noting operating losses may continue and future capital needs could require additional financing.
- Management cited economic and inflationary pressures, sales-cycle variability, customer retention and adoption, competition, talent retention, cybersecurity and service disruption, and international operating complexity as risks. It also cautioned that COVID-19 and Russia’s invasion of Ukraine may affect clients, operations, costs and sales cycles.
- Intapp has a $110 million minimum cloud-services spending commitment with Microsoft, with payments expected to begin in January 2023 and the committed period ending December 2028, subject to an extension option.
- A Navatar Group lawsuit against subsidiary DealCloud alleges false advertising and related claims. Intapp says the allegations are without merit and is defending the matter; management stated it did not believe pending litigation would have a material adverse effect.
- Foreign-exchange movements, particularly involving the British pound, contributed to a $0.7 million net other expense. The company does not currently hedge foreign-currency transactions. No material changes to the prior annual report’s risk factors were reported.
Important facts for investors to verify
- Whether ARR, Cloud ARR and retention trends continue, and how much growth reflects cloud migrations versus new or expanded client relationships.
- Whether revenue growth translates into improved GAAP profitability and operating cash generation, considering substantial stock-based compensation and ongoing operating investment.
- Cash needs and liquidity relative to deferred revenue, lease obligations, the Microsoft commitment and any future acquisition or financing plans.
- Progress in improving professional-services economics and maintaining SaaS margins as cloud hosting, personnel and customer-support costs grow.
- Developments in the Navatar litigation, potential additional office-exit charges, and operational or cost effects of economic, currency and geopolitical risks.