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A quick take on Intapp
Intapp(NASDAQ: INTA) released its first quarter 2023 financial results on November 7, 2022, beating revenue and EPS estimates.
The company provides a business information platform for professional and financial services businesses.
Intapp posted solid growth by expanding its total addressable market, but operating losses remain heavy in a punishing market.
I’m waiting for INTA, but interested investors might argue for a promising prospect.
Intapp Overview and Market
Intapp, based in Palo Alto, Calif., was founded to develop a cloud-based solutions platform for professional and financial services companies.
Management is headed by Managing Director John Hall, who has been with the company since 2007 and was previously one of VA Linux Systems’ first senior executives.
The company’s main offerings include:
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DealCloud – Solution for financial services firms
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OnePlace – Management of law firm clients and assignments
According to a 2019 market research report by Grand View Research, the global software market for professional services firms is expected to reach $16 billion by 2025.
This represents a projected CAGR of 11.7% from 2020 to 2025.
The main drivers of this expected growth are the continued need to improve the operational efficiency of financial and professional services companies in order to improve profitability.
Additionally, cloud-based solutions have become more popular with many customers due to their low initial cost. Regions in North America and Europe are expected to maintain their lead in demand through 2025.
Major competitors or other industry participants include:
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PSA projector
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ChangePoint
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NetSuite Open Air
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Appirio
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Microsoft (MSFT)
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FinancialStrength
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ConnectWise
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Tenrox
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Others
Intapp’s recent financial performance
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The total turnover per quarter increased according to the following graph:
Total revenue for the 9 quarters (Financial Modeling Preparation)
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Gross profit margin per quarter increased over the last reporting period:
Gross profit for the 9 quarters (Financial Modeling Preparation)
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Selling, G&A expenses as a percentage of total revenue per quarter varied according to the table below:
9 Quarter Sales, G&A % of revenue (Financial Modeling Preparation)
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The operating result per quarter deteriorated sharply over the last six quarters:
9 quarter operating profit (Financial Modeling Preparation)
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Earnings per share (diluted) also remained strongly negative:
Earnings per share over 9 quarters (Financial Modeling Preparation)
(All data in the graphs above are in accordance with GAAP)
Over the past 12 months, INTA’s stock price is down only 2% compared to the US S&P 500 index decline of around 19.7%, as shown in the chart below. below:
52-Week Stock Price Comparison (Looking for Alpha)
Valuation and other measures for Intapp
Below is a table of relevant capitalization and valuation figures for the company:
|
Measure [TTM] |
Amount |
|
Enterprise Value / Sales |
5.3 |
|
Enterprise value / EBITDA |
-19.7 |
|
Revenue growth rate |
26.6% |
|
Net profit margin |
-32.7% |
|
% EBITDA GAAP |
-27.1% |
|
Market capitalization |
$1,571,297,408 |
|
Enterprise value |
$1,543,908,160 |
|
Operating cash flow |
$12,802,000 |
|
Earnings per share (fully diluted) |
-$1.54 |
(Source – Financial Modeling Preparation)
The Rule of 40 is a software industry rule of thumb that states that as long as the combined revenue growth rate and EBITDA percentage rate are equal to or greater than 40%, the company is on a trajectory acceptable growth/EBITDA.
INTA’s last GAAP 40 calculation was negative (0.5%) in the first quarter of 2023, so the company performed poorly in this regard, according to the table below:
|
Rule of 40 – GAAP [TTM] |
Calculation |
|
Recent Rev. Growth % |
26.6% |
|
% EBITDA GAAP |
-27.1% |
|
Total |
-0.5% |
(Source – Financial Modeling Preparation)
Comment on Intapp
In its latest earnings call (Source – Seeking Alpha), covering Q1 2023 results, management highlighted the broad application of machine learning [AI] technologies in its system “to address additional compliance issues specific to the industries we serve.”
The company also continues to invest in expanding its capabilities within its strategic Microsoft partnership, allowing employees of companies with significant compliance requirements to share documents with the Microsoft Teams system.
Management also noted a recent win in the consulting sector, where the company is looking to expand its business.
In terms of its financial results, total revenue increased 28% year-over-year, while gross profit margin increased due to an increase in its services gross margin and reallocation from part of its customer success team to sales and marketing.
The company’s net retention rate over the last twelve months was 114%, indicating an increase in sales and marketing effectiveness.
However, the company’s Rule of 40 results needed significant improvement, with good revenue growth but poor operating results.
General and administrative expenses as a percentage of revenue have decreased compared to several quarters ago, but still remain at a historically high level.
Operating losses also remain very high, as does negative earnings per share.
For the balance sheet, the company ended the quarter with $40.3 million in cash and cash equivalents and no long-term debt.
Over the past twelve months, free cash flow was $10.6 million, of which capital expenditures were $2.2 million. INTA paid $74.3 million in stock-based compensation in the prior year.
Looking ahead, management expects fiscal 2023 revenue to be $334 million in the middle of the range.
As for valuation, the market values INTA at an EV/Sales multiple of around 5.3x.
The SaaS Capital Index of publicly held SaaS software companies showed an EV/Average Revenue multiple of around 6.3x as of November 30, 2022, as shown in the chart here:
SaaS Capital Index (SaaS Capital)
So, by comparison, INTA is currently valued by the market at a discount to the broader SaaS Capital Index, at least as of November 30, 2022.
The main risk to the company’s outlook is an increasingly likely macroeconomic slowdown or recession, which could accelerate discounts to new customers, produce slower sales cycles and reduce its revenue growth trajectory.
A potential upside catalyst for the stock could include a “short and shallow” slowdown or pause in the rising cost of capital, leading to less downward pressure on valuation multiples.
Intapp is showing promise, especially with its recent partnership announcements with Microsoft and KPMG, so it’s only just getting started.
Although the company has sufficient resources, it still generates significant operating losses in a market that punishes these companies.
The stock has done well over the past few quarters, topping the S&P 500 trend line, so maybe the market knows a winner is brewing here.
I’m more cautious, so my view is a Hold on INTA; however, interested investors could start picking here as they wish.