INTA - Intapp: Impressive Cloud Play Certainly Its Shares Have Outperformed

2023-04-12 17:31:54 ET

Summary

• Intapp, Inc. has seen growth acceleration in recent times while posting largely break-even results.
• This is impressive, as shares having tripled from their lows has raised expectations a great deal.
• Given all this, I am upbeat on the business, but the strong share price performance has not improved the risk-reward here.

In the summer of 2021, I urged a word of caution on cloud-player Intapp, Inc. ( INTA ) after the business went public. The company provides industry-specific cloud-based software solutions for professionals and financial service industries, to thereby meet the needs of clients, investors and regulators.

A Quick Recap

As indicated above, Intapp, Inc. focuses on a specific set of industry clients, catering these with its specific services though team collaboration, deal workflows and AI to nurture relationships. The potential in these industries - still dominated by manual processes, legacy software solutions and internal software solutions - was huge.

At the time of the offering, some 1,600 professional clients used these services including law firms, accounting firms, private equity firms and investment banks.

The company went public at $26 per share, as the nearly 59 million shares outstanding valued equity at just over $1.5 billion, with the enterprise value coming in around that number. The company generated $143 million in sales in 2019 on which a modest operating loss of $4 million was reported. While a 30% increase in 2020 sales to $187 million looked decent, operating losses increased to $17 million.

For the nine-month period heading up to March 2021, the company grew sales just 10% as operating margins were stable. Given this growth and the losses being reported, I was not necessarily impressed with a 7 times sales multiple in terms of the valuation, even as the technology momentum run was still fully intact.

After all, while the addressable market was huge, it was the 10-15% growth rates which were not too convincing, as the solution did not look that transformative to me.

Bust - Boom

Following the IPO, Intapp, Inc. shares rose to the $40 mark later that summer as shares fell to just $13 a year later in sympathy with the rest of the technology sector and the shares. Ever since, shares have seen a spectacular recovery to $25 by year end 2022, to now trade at levels as high as $45 per share.

If we fast forward to September 2022, when shares hit their lowest levels, we see this coinciding with the timing of the release of the fiscal 2022 results. Reported revenues rose 27% to $272 million amidst strong SaaS growth, offset by a fall in subscription license sales. That was about the good news as GAAP operating losses rose from $23 million to $99 million. While adjusted losses came in at a fraction of this number, I am not happy to adjust for a $77 million stock-based compensation expense.

Moreover, the fiscal 2023 guidance was not too impressive as well, with sales seen up to a midpoint of $326.5 million and adjusted earnings seen around $0.10 per share.

First quarter numbers for the fiscal year 2023 were impressive. Revenues rose nearly 28% to $79.5 million as operating losses of $19.1 million showed some sequential improvements, being a comfortable sign. The company hiked the midpoint of the full year sales guidance to $334 million, although that adjusted losses are now seen around five cents.

Second quarter sales rose 29% to $84.7 million as operating losses were stable around $19.4 million. Amidst these strong results the company hiked the full year sales guidance to $342.5 million with adjusted earnings seen around $6.5 million, equal to $0.04 per share.

With 63 million shares now trading at $45, the equity valuation comes in at just over $2.8 billion. This has pushed up the valuation to more than 8 times sales and non-existing earnings multiple. The reality is that I am puzzled behind the strong share price performance, with shares having tripled from the September lows. This performance stands in sharp contrast to the rest of the sector, albeit that strong top line sales growth has risen to 30% here, being quite impressive, with the company largely posting break-even results.

And Now?

I am impressed with the strengthening Intapp, Inc. operating performance, in terms of solid top line sales growth and largely break-even results being delivered upon. This is noteworthy and a strong achievement in a tough environment, but the counterargument is that the Intapp, Inc. share price performance has been very strong.

In fact, Intapp, Inc. shares appear to have outperformed the operating performance, not creating a compelling risk-reward here, as I am impressed with the share price performance here.

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