INTA - NASDAQ

Good day, and thank you for standing by. Welcome to the Intapp Fiscal Third Quarter 2023 Webcast. At this time, all participants on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] 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 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’s 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 are or were originally set up as [Technical Difficulty]. Within these firms, we target a very valuable, but deeply underserved user audience. The professional investors and advisers in the partnership who begin their career as analysts or associates, and developed through their careers to become highly skilled specialists and knowledgeable experts, eventually, becoming partners and directors of their firms. These professionals work everyday 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 everyday. 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 a tangible product [ph]. 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 dealmaking 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. And finally, I'll discuss new developments in our partnership with Microsoft. Okay, on product. 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 NTAP client that began with our compliance and time management solutions, 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 letting the firm's professionals focus on delivering stellar client service. A second example is one of the world's largest accounting firms, and a current intact 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 current 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. Okay, turning now to innovation. 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 multiplelanguage support for our AI-driven, email signature parsing engine that automatically populates key client contact data, now across multiple languages. The feature further streamlines the work of busy professionals, reducing or eliminating manual data entry and improving data quality and insights and it helps 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 to work together on the documents and spreadsheets that are critical to a complex deal for 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. And following on from this product example, I'll turn next to some further progress in our strategic partnership with Microsoft. In March, Intapp and the Microsoft co-hosted, a legal CIO Summit, at Microsoft headquarters in Redmond, Washington. CIOs from the world's top law firms, took part in an interactive two-day event with topics that range from the potential of AI innovations like ChatGPT to the increasingly complex regulatory landscape. Harpreet Suri, who is 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 the purpose-built solutions that help her team to execute efficiently, including embedded integration that extends our Microsoft investment. She expressed excitement about the future and leveraging the significant AI innovations through her Intapp partnership. And 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 to track and monitor employee compliance like personal trading and political donations. Paragon enables 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're pleased to welcome Paragon Co-Founder, Jeff Mitchell and his talented team of product, engineering, support and sales colleagues to Intapp. We're excited to have them on board to help us continue to enhance the Intapp platform's highly differentiated compliance capabilities for this regulated market. Okay. 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 up-sell 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 also 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 to improve their revenue realization and profitability by improving the 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's 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. And 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, and modernizing how they work by expanding their adoption of the Intapp platform and all of its capabilities Okay, and last but not least, a pair of industry awards in the quarter validated both our innovation and DealCloud 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 to 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 of 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. Okay. 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, 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 by 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 our 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 road map. 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 and 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. [Operator Instructions] 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 kind of touch on the resiliency of the end market. Clearly, you guys are operating well here. And I think I have you guys this every quarter, but 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 the previous recessions. So, we're optimistic. We have said that 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, the accounting firms, consulting firms have always been very stable for us. The one that we do want to watch this 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. And I don't think I heard you mention it in the prepared remarks and I don't recall seeing it in the presentation either. So, 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, kind of as a courtesy this quarter with an extension out to September until we come back with our -- typically with our full year and talk about 2024 guidance. We have consistently pointed people to the fact that our ARR -- 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 in the 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 about 2,500, is that the right way to think about it, or is it just specific implementations, maybe it's not that pronounced across the overall client base? I guess is there any way to think about what percentage of deal cloud 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, private capital industry and then the investment banking firms. And now we're excited to be bringing it to the legal accounting and consulting firm is one of the things that happened this past couple of quarters is that we really started to get more and 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 disciplinarily on Deal teams and other types of projects and they see each other using DealCloud. And so the decision was to simplify our branding a little bit, say 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 the relationship with Microsoft is coming closer and closer. With all the incremental optionality on ChatGPT, does that accelerate the linkage with Microsoft? And any way to think about ChatGPT within the lens of your kind of existing clients as they implement that because it seems like clearly be a little bit of pace of faster acceleration, which I'd imagine will be better for the platform overall?

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

Terrific. It sounds like you have it 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 90% plus penetration of those AML 100 firms. Can you just help frame how your business development CRM penetration is within those existing one place intact clients? Like how big of an opportunity is the deal cloud 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 some combination of trying to use traditional horizontal CRM plus 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. And with DealCloud, we're bringing to market a system that's purpose-built just for these firms. And as you know, 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 actually were meant to work for their firm. So there's a real product market shift for DealCloud across the market. They are generally on older generation CRM to enter your question specifically. We also are serving a broader category than pure CRM because these firms of a very strong knowledge and expertise component, the information that they need to manage. And so when we bring field Cloud in, it is helping them with CRM type activities and data and work. But in addition, there's a broad platform here that supports a wide range of knowledge management, deal management and other types of practice management issues that the firms have. So we think there's a huge opportunity for us to grow inside the market. We've got a great footprint, as you say we built up relationships with these firms over many years. We do absolutely have beginning footprints with over 90% of the top M100. -- if you want to start there. That was where the company began. But the cross-sell and upsell opportunity inside those firms is enormous. We've talked about the fact that just within our top 100 clients, generally, there's $1 billion of ARR that we can go get if we continue to sell our platform through. So that's a lot of what you heard on my prepared remarks were examples of cross-sell and upsell opportunities to help people appreciate the potential that we have there and deal cloud into the CRM category and into the broader knowledge category is a great example of that.

Okay. That's great context. Thank you. And then just a quick follow-up on that. Steve, are there any financial benefits for implications you're looking for with that change? And then separately, 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.

Yeah. As far as financial benefits from the Microsoft relationship, look, we certainly will expect some over time, but we're not really in a position now to start being granular about any of that. We do have nice momentum in a lot of parts of the partnership. So we'll probably come back in future quarters and talk about that kind of thing, I would think, Alex, as far as sales and marketing investment, we're continuing to invest in sales and marketing. We are growing our sales reps in particular, kind of in the same growth rate that we've been doing for the most of the year here. So there may be a comparison quarter-over-quarter that looks different there, but we are forward investing. We're seeing growth -- our pipelines are strong, and we want to make sure we 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.

Yeah. Hey, John, Steve and David, congrats from me on the strong results. Maybe the first question just relates to -- it's been like clockwork, adding about 50 plus net new customers per quarter if my math is right. Sometimes the 100,000-plus customers can kind of move around a little bit. But as it relates to just bringing net new logos in to the fold, do you see that kind of consistently staying in that current range. The reason I ask this is it seems like Microsoft's got multiple avenues to help you on the go-to-market side, got KPMG, you've got international expansion. Just trying to understand kind of the -- there's a balancing act of maybe new logos going forward and it could step up versus taking DealCloud and just selling a lot more to the installed base? And then I have a follow-up for Steve. Thank you.

Yeah. Well, Terry, I'll take this one, too. I think we do see a steady add of new logos, along with good NRR, sort of the twin engines of the financial model here Microsoft, you're right, there should be opportunities there, but they will be in both areas, right? They will be often in upsell areas with existing clients and in new clients. So I don't expect things to change there. We continue to have growth on both sides of the equation.

Okay. Got it. Well, you took your question. I was going to give it to John. So I want to hear John's voice. Thank you, Steve. That's helpful. It sounds like kind of more of the same goodness.

Okay. Sorry.

Sorry. No, that's good. That's good. So maybe more of the same goodness then in terms of those kind of balances in particular on new logos. Maybe, John, for you, the one thing is you were talking about some uptake on some more recent either acquired products or just kind of organic and M&A oriented development like Billstream and the collaborative workspace. What I'm curious about is any kind of quantification on those emerging products, and are you able to, because of the economic time, start to turn the dials around vendor consolidation play? Thank you.

Thanks, Terry. We appreciate the markets uptake of both the organically developed technology, for example, the relationship intelligence, applied AI that we've been having good success with. In addition to some of the products that we've been able to come out with to acquire technology like Billstream and like Intapp workspaces. We really have a combined strategy. So there's a long history of organic development of the platform. It was designed specifically for this market by working with the CIOs in the market on a lot of the stuff they design in-house, but we have used M&A of key technologies that we observe in the marketplace over time to augment the platform, and we think that's one of the strengths of our platform is that we can integrate technology that often our clients have recommended to us -- with it. We're very excited about this new acquisition that we just announced on this call, Paragon Data Labs, which is a new employee compliance capability that we're going to be able to bring to market here. We've got a very strong footprint in the risk and compliance space, originally for the law firms with a whole set of capabilities around ethical walls, information barriers, conflicts of interest, terms of business, a whole set of issues around obligations management. And now we're able to augment that with a set of employee compliance capabilities like personal trading compliance and other types of adaptation management that the firms need to have everybody perform regularly that will give us an even richer offering in risk and compliance for some of the financial services, both private capital and investment banking firms. So that's another example of a consistent pursuit of what are the areas that the clients are really asking us for? How can we continue to expand the Intapp platform to be even closer to the ideal purpose-built system for these partnership firms? And how do we help them both with their operational needs, but also with their compliance needs as we grow the business and how do we bring applied AI to make that a more modern experience for everybody? So I think you're going to continue to see that. We're going to bring out new organic capabilities and continue to look for great acquisition opportunities to bring technology and as we grow.

Sounds good. Thanks.

Thank you. [Operator Instructions] 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?

Well, 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. People get to success faster and you have an opportunity 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 usually. And this is a big part of our overall strategy and a lot of what these firms to an earlier question about vendor consolidation really like about the Intapp platform and our story, is that we're bringing them an integrated capability that really helps the firm and the professionals inside the firm collaborate successfully within a compliance framework that makes everybody succeed. And so I do think that the cloud transition is an important part of the velocity -- for expansion going forward, and we're continuing 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 just want to know, is that all a function of the revenue upside in the quarter, or is the business also seeing greater efficiencies in the COGS and the expense lines to? Thank you.

Yes. That's -- I think the answer is both. Clearly, we are bringing to the bottom-line, the revenue success were happening. That's for sure. But we're also -- we've got a lot of initiatives internally on efficiency and they're starting to bear some fruit. We've talked for a while about our services group, for example, which continues to make progress, and you'll really start to see that. I think, next year, the way you might normally see services in terms of its P&L and in other parts of the business, our execution is just getting tighter and more efficient as we go forward. So it's a little bit of both, I think, Brian.

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 actually wanted to just go back to that last question there. And I know it's too early to give guidance for next year, but how do you think about sort of the midterm framework of the trade-off between growth and profitability, just delivered 40% cloud ARR, you have a big opportunity in front of you, how much leverage could there actually be here on the sales and marketing line, in particular, over the next couple of years?

Well, I think we're going to try to run the business to -- if you will minimize that trade-off, I think we can show both good sales growth and improving profitability. And that's our objective here over the next couple of years. We're in a position now where there's some natural leverage to the business, if you will, given the size we've gotten to, and some of the efficient execution we're starting to repeat now internally on a lot of fronts. And sales growth looks good here. So I think we're going to march steadily better in both sides of that are going forward here over the next couple of years.

Got it. Understood. Just quickly on Paragon, I was wondering, if you could give us a sense of the scale of that business from a headcount perspective as well as revenue?

Sure. It's fairly small. It's probably less than 20 people and then includes some contractors and its revenue kind of in the low single-digit millions, going forward. We think it's a kind of an attractive deal for us though, both strategically and financially. So we're kind of excited about it, but it's going to start at a relatively smaller place, and we'll see how we do in -- working with Intapp and leveraging our business.

Got it. Thanks again.

Thank you. And 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. Just as we kind of look at enterprise tech budgets, overall, you're seeing quite a bit of pressure from kind of across the coverage universe and some of the checks that we do, but clearly you see a third quarter you have raised guidance, it looks like things are going quite well. And from all that you've said on this call, things are -- you're really not seeing any of that pressure. Can you maybe just provide a little bit more color, because I'm sure you're kind of tuned in to kind of listen to see if there's any kind of pressure that your clients are going to place on buying kind of Intapp, but is there any color you can provide on like what's driving that robust demand that you're seeing from your customer base that would be super helpful?

Sure. Thanks, Arvind. So First of all, it's a pretty resilient end-market that has supported us to the entire food tray era. These firms do well, generally speaking, in good times and bad, they're not immune to the economic cycle, but they definitely are a better place to be compared to many others. So that supported us for many years. In addition, they really have made a commitment to the cloud transition. COVID was particularly important, has an experience in setting these firms on the path decisively to software that they developed over the years, on-prem and we're here with a true industry cloud system that's designed purposely for their needs. And we just have the right product market fit for their cloud transition. And then finally, I think if you look at their revenues and profitability, generally, these are some of the most successful businesses on the planet. And as well as we're doing, we're still a relatively small spend compared to what they're looking at overall. That's a great opportunity for us to grow inside their budget, but we're getting good uptake. And I think those are some of the reasons.

Perfect. And then, just in terms of like kind of the value proposition, right? Like I mean, there's a lot of value both on the -- as a revenue driver, but also from a cost savings, from a compliance perspective, there's kind of multiple kind of like business drivers or kind of value propositions that they'll have. Has that changed or kind of a lot of your clients now kind of using it for the same reasons or is it kind of more kind of interest, or are they kind of -- is your sales force pushing more of your kind of cost savings and compliance or more the revenue part of is it kind of clearly no change over the past like 12 to 18 months?

Well, the sales team has done a fantastic job really studying the marketplace, getting to know these clients over the years and establishing a relationship where we appreciate what each firm's strategy and priorities are. We work with them every year on their IT budget and their plans to figure out how we can best support where each of the firms is. There's a range of value drivers, just as you mentioned, from revenue growth and coverage programs to operational efficiency to knowledge management, institutionalizing the relationships and the knowledge for the firm to ensure against potential turnover. There's some hard ROI components and then obviously, compliance is a must have in good times and bad. So there are several different areas that we look for as we're engaging with the firms, and I think you may say that in some of the firms today, more of the compliance, more of the efficiency value propositions are attractive. But there's also a very strong portion of our market that sees in the change in the economic cycle opportunity for the types of services or the types of investments that they want to make. And so, the revenue-oriented part of our business, the coverage relationship intelligence part of our business has a very strong appeal to firms that see opportunity in this change. So it's still all of the above. And there are certainly shifts that happen, but part of the strength of the company is a focus on these markets and really knowing how to play that in each engagement.

Perfect. This is all, that’s 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.