INTA - Intapp May Have Upside From Partnerships

2023-11-17 15:13:32 ET

Summary

• Intapp, Inc. has beaten revenue and earnings estimates in its Q1 2024 financial results.
• Intapp provides enterprise information platform solutions for professional and financial service firms.
• The global market for professional service firm software is expected to reach $25.3 billion by 2030, driving growth for Intapp.
• The firm has potential upside from various partnerships, but I'm Neutral [Hold] on Intapp, Inc. for the near term.

Quick Take On Intapp

Intapp, Inc. ( INTA ) reported its FQ1 2024 financial results on November 11, 2023, beating both revenue and consensus earnings estimates.

The firm provides enterprise information platform solutions for professional and financial service firms.

I previously wrote about INTA with a Hold outlook based on good growth and expanding total addressable market ("TAM"), but cautioned with heavy operating losses.

While operating losses have made some progress, I remain cautious about Intapp, Inc. in the near term.

My outlook on INTA is Neutral [Hold] until management makes further progress on reducing operating losses.

Intapp Overview And Market

California-based Intapp has developed a cloud-based platform of software solutions for professional and financial services firms.

The firm is led by CEO John Hall, who has been with Intapp since 2007 and was previously an early senior executive at VA Linux Systems.

The company’s primary offerings include:

• DealCloud

• Collaboration and Content

• Risk and Compliance

• Operations and Finance.

According to a 2022 market research report by Grand View Research, the global market for professional service firm software is expected to reach $25.3 billion by 2030.

This represents a forecast CAGR of 11.9% from 2023 to 2030.

The primary reasons for this expected growth are the continuing need to improve operational efficiency by financial and professional service firms in order to improve profitability.

Also, cloud-based solutions have become more popular among many customers due to their low up-front cost. The regions of North America and Europe are expected to retain their lead in demand through 2025.

More recently, the inclusion of machine learning, artificial intelligence and robotics process automation has improved service provider offerings and their value to customers.

Major competitive or other industry participants include:

• Projector PSA

• ChangePoint

• NetSuite OpenAir

• Appirio

• Microsoft

• FinancialForce

• ConnectWise

• Tenrox

• Others.

Intapp’s Recent Financial Trends

Total revenue by quarter (blue columns) has continued to grow steadily; Operating income by quarter (red line) has remained negative but has made slow and uneven progress toward breakeven.

Gross profit margin by quarter (green line) has trended slightly higher in recent quarters; Selling and G&A expenses as a percentage of total revenue by quarter (amber line) have dropped materially more recently, a positive signal of improving efficiencies in generating revenue.

Earnings per share (Diluted) have remained negative but are trending toward breakeven, although that goal remains some distance away.

(All data in the above charts is GAAP.)

In the past 12 months, INTA’s stock price has risen 77.04% vs. the gain of much larger firm Wolters Kluwer ( WOLTF ) of 17.97%:

For balance sheet results, the firm ended the quarter with $141.5 million in cash and equivalents and no debt.

Over the trailing twelve months, free cash flow was $34.2 million, during which capital expenditures were $1.7 million. The company paid $70.8 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For Intapp

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha.)

INTA’s most recent unadjusted Rule of 40 calculation was 15.1% as of FQ1 2024’s results, so the firm needs improvement in this regard, per the table below:

(Source - Seeking Alpha.)

Commentary On Intapp

In its last earnings call (Source - Seeking Alpha ), covering FQ1 2024’s results, management’s prepared remarks highlighted the release of new AI capabilities in its platform and increasing its relationship with Microsoft’s Azure OpenAI platform.

It delivered its first generative AI feature, the first among several, to assist clients in creating content based on context and historical firm data.

Also related to Microsoft was a change in seller incentives, resulting in the firm closing "a large Intapp collaboration and content deal in the consulting vertical, via the Azure marketplace with the support and assistance of Microsoft’s team."

The firm also expanded its partner program outside of Microsoft, now with more than 100 partners.

Analysts asked leadership about the Microsoft relationship, growth in larger clients and expansion into additional sub-verticals beyond core markets.

Management said that growth in larger clients is coming from new logos and expanding relationships with existing clients.

The firm has seen positive traction with additional sub-verticals such as corporate development and private credit.

Total revenue for FQ1 2024 rose an impressive 27.8% year-over-year, while gross profit margin grew by 0.7%.

The firm’s net revenue retention rate "continues to track within our range of 113% to 117%," indicating reasonably good sales and marketing efficiency.

Selling and G&A expenses as a percentage of revenue dropped by 10.4% YoY, a positive result showing increasing efficiency in this regard.

Operating losses were reduced by 18.6% to ($14 million) for the quarter.

The company's financial position is good, with ample liquidity, no debt and good positive free cash flow.

However, INTA’s Rule of 40 performance has been in need of significant improvement, mostly due to its operating losses.

Looking ahead, fiscal 2024’s topline revenue growth rate is expected to be 37.4%, which, if achieved, would represent an acceleration in revenue growth rate versus fiscal 2023’s growth rate of 26.9%.

Regarding valuation, the market is valuing INTA at an EV/Sales multiple of around 6.9x on TTM revenue growth rate of 28.9% against a median Meritech SaaS Index implied ARR growth rate of around 19% ( Source ).

The Meritech Capital Index of publicly held SaaS application software companies showed an average forward EV/Revenue multiple of around 8.6x on October 13, 2023, as the chart shows here:

So, by comparison, INTA is currently valued by the market at a discount to the broader Meritech Capital SaaS Index, at least as of October 13, 2023, despite producing a higher topline revenue growth rate.

While the potential for upside exists, especially through its partnerships with Microsoft and KPMG, the company is only making incremental progress toward operating breakeven, which is still far away.

Until there’s a more meaningful move closer to operating breakeven, my outlook on INTA is Neutral [Hold].

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