Intapp - Q2 2024

Transcript

Operator (participant)

Thank you for standing by, and welcome to Intapp's fiscal Q2 2024 webcast. At this time, all participants are on a listen-only mode. After the speakers' presentations, there'll be a question-and-answer session. To enter a question at that time, please press star one one on your telephone. Please be advised that today's call is being recorded. I would now turn the conference over to your host, Mr. David Trone, Senior Vice President, Investor Relations. Please go ahead.

David Trone (SVP of Investor Relations)

Thank you. Welcome to Intapp's fiscal Q2 2024 financial results. On the call with me today are John Hall, Chairman and CEO of Intapp, and David Morton, 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 third quarter and full year 2024. 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. As a reminder, all of our financial figures we will discuss today are non-GAAP, except for revenue and revenue growth and remaining performance obligations. Our GAAP financial results, along with reconciliations of GAAP to non-GAAP financial measures, can be found in today's earnings release and its supplemental financial tables, which is available on our website and as an exhibit to the Form 8-K furnished with the SEC prior to this call, or a supplemental financial presentation, which is available on our website. With that, I'll hand the conversation over to John.

John Hall (Chairman and CEO)

Thank you, David. Good afternoon, everyone. Thank you for joining us today as we share the results of our fiscal Q2. I'm pleased to share our strong results, supported by innovation, new logos, and expansion of our existing accounts around the world. In Q2, our cloud ARR grew to $256.1 million, up 34% year over year. Cloud now represents 70% of our total ARR of $365 million. In the quarter, we earned SaaS and support revenue of $77.1 million, up 25% year over year, and total revenue of $103.9 million, up 23% year over year. We released new Applied AI capabilities, and we built on the initial success of our industry solution strategy during the quarter.

We announced that our inaugural Investor Day will take place February 22nd. The date also marks our Intelligence Applied Launch Day, when we'll unveil a host of new applied AI capabilities, as well as our AI roadmap and a new brand identity to our clients, partners, and investors. We're excited to share these developments with all of you. Now, I'll share a few highlights from our fiscal Q2. First, I'll talk about innovation. As I've mentioned, Intapp has been embedding industry-specific AI throughout our platform and solutions for more than 10 years now. We've infused our solutions with AI technology, including automation, machine learning, deep learning, and now generative AI, to help our clients use their data to improve critical processes and make better, faster decisions. During this quarter, we enhanced our relationship intelligence feature with new AI capabilities that automate contact and company creation within Deal Cloud.

The feature captures key contacts and companies directly from client interactions, enriches and validates information via third-party data, and then adds it directly to the platform. This helps professionals prioritize and act on their most promising opportunities and helps keep the entire firm's latest insights and relationships up to date. It's another example of our zero entry philosophy. We're delivering greater value to busy professionals while relieving them from manual tasks or typing. We're now deploying this at firms ranging from 10 to 5,000 seats, including one of the largest firms in the world, who is using the solution across 40 countries. A great example from this quarter is McCabe's Lawyers, who added relationship intelligence to their Deal Cloud instance to support their lawyers as they deepen their relationships with clients.

As I mentioned at the top of the call, we'll be revealing a broad set of AI capabilities at Intelligence Applied Launch Day on 22 February . We will showcase how generative AI can help our clients drive incremental productivity, enable broader firm-wide transformation, and do so with compliance and trust. During Q2, we worked closely with firms in our AI Early Adopter Program to use and provide feedback on these new features, which we're excited to now bring to all our clients. Working closely with our clients to understand their needs has always been integral to Intapp's product development approach. We're ensuring that new applied AI capabilities are purpose-built for our client firms' most pressing and industry-specific needs. We're also continuing to expand our portfolio of industry solutions.

We're growing our capabilities for each of the subverticals that we serve, with specific Deal Cloud blueprints that enable best practices using Applied AI. We delivered new blueprints for legal, private equity, and fund of funds. The latest release also included several enhancements to existing blueprints, as well as an accelerated deployment path for clients seeking best practices and an even faster time to value. We also extended our blueprint strategy to our Data Cortex technology, which supports faster integration with our many data partners, helping both new and existing clients enrich their data with critical market and contact intelligence. Our initial win rates, accelerated deployments, and increased client satisfaction show us that our industry solution strategy of packaging best practice blueprints will serve us well and drive growth.

As an example, this quarter, Ropes & Gray, a transatlantic private equity firm, selected Deal Cloud to replace its aging homegrown CRM using our private equity blueprint. Clients leveraging these blueprints deploy in roughly half the time and gain access to the best practices we have learned over thousands of deployments. With dozens more blueprints in the pipeline, we intend to build on our successes with continued expansion and enhancement of this offering. Okay, moving to Q2 wins and implementations. I'll share some examples of how we're continuing to grow our client base and expand existing accounts. I'm pleased to share that we again welcomed new clients across every vertical that we serve. Here are just a few highlights. In our investment banking client base, global investment banking firm Livingstone Partners, replaced a legacy cloud-based CRM with Deal Cloud due to lack of adoption among their professionals.

They were impressed by Deal Cloud's tailored platform and numerous Microsoft integrations, and they anticipate significant efficiency gains. We saw expansion in our consulting client base with new logos that included these two firms. Global consulting firm AlixPartners selected Deal Cloud to replace a legacy CRM. With technology purpose-built for the complexity of their work, the firm's corporate development team will have greater visibility into pipeline and be better able to execute deals. Private equity-focused consulting firm, Accordion, also recently selected Deal Cloud to support their growth strategy and promote collaboration among teams. They chose us over a generic cloud-based CRM because of our expertise in the market and our software's ability to suit their specific needs.

We have also seen marked growth in the legal market this quarter, with the addition of several new clients, including Panama-based Galindo, Arias & López, who selected Intapp Time to take advantage of our automated time capture functionality. U.K.-based Marriott Harrison selected Intapp Time after deciding they required a more efficient, reliable, cloud-based time tracking system. U.S.-based Porzio, Bromberg & Newman selected Intapp Conflicts to help automate the processes associated with managing the firm's high volume of conflicts checks. Additionally, cross-selling and upselling successes in our existing accounts continue to drive net revenue retention. Let me go through a few expansion examples. Global law firm and longtime Intapp risk and compliance client, Baker Botts, recently replaced a large legacy CRM with Deal Cloud. The firm selected Deal Cloud to support its strategic growth plans in the tech and energy sectors.

Deal Cloud's intuitive interface and relationship intelligence capabilities helped drive their selection. The firm believes they'll help its lawyers develop new business, deepen client relationships, and take market share from its competitors. Investment banking firm and Deal Cloud client, Union Square Advisors, selected our employee compliance offering to replace their previous solution. They chose our software as it offered an easier, more modern way to automate personal compliance tasks and monitor trade activity. We continue to see success at the world's largest accounting and consulting firms. One of our existing global accounting clients uses Intapp solutions across multiple geographies and has now expanded its use of Deal Cloud to its Ireland and UK-based corporate finance team. Deal Cloud will replace the division's legacy CRM, which had proved challenging to maintain and lacked adoption.

Deal Cloud was selected over two large horizontal CRM options based on our ability to deliver capabilities tailored to their transaction advisory business. This is a great example of the power of our industry solution blueprints to meet the specific needs of even the largest and most complex professional firms. Finally, cloud wins and implementations continue to affirm our strategy, as shown through a number of new Intapp Time migrations in the quarter. These include an Am Law top 10 firm, which purchased Intapp Time in the cloud to benefit from features like automated data capture, mobile time entry, and compliance time. Allen & Overy, one of the world's top law firms, which typically uses on-prem solutions, completed a straight-to-cloud implementation for Intapp Time. One of the world's largest international law firms completed its migration of Intapp Time from on-prem to the cloud.

In conclusion, we're proud of our strong Q2 performance, and we're optimistic about our continued growth opportunities. As our Q2 highlights illustrate, we continue to grow by adding new purpose-built capabilities to our platform, positioning us to help lead our industries to harness the power of Generative AI, and we can't wait to share our new Applied AI capabilities, AI roadmap, and new brand identity in greater detail just a few weeks from now. We see continued opportunity to drive growth, adding new clients across a broad TAM and expanding within our existing client base. We're serving a durable end market with our subscription revenue model and industry-specific cloud platform. We have a great growth opportunity to drive AI, cloud adoption, and modernization across all the industries we serve.

As always, I'd like to thank our clients, our partners, our investors, our board, and our global Intapp team for their teamwork and dedication. We hope you all join us on the 22nd for our Investor Day. You can find the link to the webcast on our website at investors.intapp.com. Thank you all very much. With that, let me turn it over to Dave to share our Q2 results.

Dave Morton (CFO)

Thanks, John, and thanks, everyone, for joining us today. I'm pleased to report our solid Q2 performance, driven by strong revenue growth, expanding customer base, and enhanced operational efficiency within the quarter. These achievements collectively position us to extend our leadership as we embark on an exciting market opportunity in fiscal Q3 and Q4 of 2024 and beyond. SaaS and support revenue was $77.1 million, up 25% year-over-year, reflecting sales to new clients and expansion of existing clients from both cross-selling and upselling sales motions. Subscription license revenue was $14.1 million, up 29% year-over-year, largely due to several large clients opting for multiyear on-premises renewals. Total recurring revenue was $91.3 million, up 26% year-over-year. Professional services revenue was $12.7 million, experiencing a modest 5% year-over-year increase.

This growth rate is in line with our deliberate strategic shift to de-emphasize professional services, opting instead to better leverage the strength of our partner network. The success of our industry solutions further contributes to clients realizing quicker time to value through an expedited implementation process. Total revenue was $103.9 million, up 23% year-over-year, driven primarily by sales of our cloud solutions and growth of subscription license revenue. Our international businesses provides a growth opportunity to further expand and invest in the use of our platform outside of the U.S. Revenue from our international operations remained strong, contributing approximately 30% of total revenue for fiscal Q2. Q2 non-GAAP gross margin was 73.4%, as compared to 71.5% in the prior year period.

Non-GAAP operating expenses were $68.6 million, a $10.9 million increase year-over-year, as we continue to invest in go-to-market and product development to support our growth. As we continue to focus on our operational efficiencies, non-GAAP operating profit was $7.6 million, as compared to $2.8 million in the prior year period. Non-GAAP diluted EPS was $0.11 in the Q2 of fiscal 2024, as compared to $0.03 in the prior year period. Free cash flow, which is defined as our cash flow from operations less capital expenditures, was $11.8 million for the Q2 or 11% of total revenue. We exited the quarter with $166.4 million of cash and cash equivalents....

Turning to our key metrics, cloud ARR was up 34% year-over-year, and total ARR was up 21% year-over-year. Total remaining performance obligations were $447.6 million, up 15% year-over-year. Overall, we continue to execute our land and expand model, ending the quarter with more than 2,400 clients, 649 of which had ARR of at least 100K, up from 561 in prior year period. Our net revenue retention rate underscores our ability to retain and steadily expand business with our existing customers. This key metric was 115%, which continues to track within our range of 113%-117%. Now, turning to our outlook.

For the third quarter of fiscal 2024, we expect SaaS and support revenue between $80 million and $81 million, total revenue in the range of $107.5 million-$108.5 million, non-GAAP operating profit in the range of $6 million-$7 million, and non-GAAP EPS results of $0.06-$0.08, using a diluted share count weighted for the quarter of approximately 81 million common shares outstanding. For the full year fiscal 2024, we expect we are increasing our SaaS and support revenue of between $312 million and $316 million. Due to our intentional shift in the revenue contribution mix, specifically reducing the emphasis on professional services, we are maintaining our total revenue in the range of $422.5 million-$426.5 million.

We also expect non-GAAP operating profit to be in the range of $27 million-$31 million, and non-GAAP EPS in the range of $0.31-$0.35, using a diluted share count weighted for fiscal year 2024 of approximately 81 million common shares outstanding. As previously noted, Intapp will be hosting our inaugural Investor Day on February 22. During this event, we will discuss our key strategic imperatives, metrics, financial targets, while providing a comprehensive overview of our company's trajectory and future plans. We look forward to sharing valuable insights with stakeholders on this significant occasion. Thank you, and I will now turn the call back to the operator.

Operator (participant)

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star one one on your telephone. Again, to ask a question, please press star one one. One moment for our first question. Our first question comes from the line of Koji Ikuta of Bank of America. Your line is open.

Koji Ikuta (Director of Enterprise Software Equity Research)

Hey, John. Hey, Dave. Thanks for taking the questions. A couple from me. First one on AI, you know, excited to hear about the AI launch day, and wanted to actually follow up on a monetization question I asked you last year at our tech conference. So thinking about this AI launch day, you know, how are you planning on monetizing these new AI products? Are you introducing new premium SKUs? I mean, are they add-on SKUs or something else? You know, any sort of color there would be helpful.

John Hall (Chairman and CEO)

Hi, Koji. Thank you. Yes, we will have a mix. So some of the capabilities will be included in our offerings that people have subscriptions today, but we will also be introducing additional SKUs based on some of the more advanced capabilities that clients have been asking for. So we're gonna do both.

Koji Ikuta (Director of Enterprise Software Equity Research)

Got it. Got it. Wanted to shift the next question over to net revenue retention. You know, once again, in the range here of 113-117. Just trying to triangulate a little bit of the contributions of net revenue retention, maybe split between a couple of vectors, you know, professional services versus financial services, and then maybe of the cross-sell of DealCloud versus anything else, and how all those are playing into net revenue retention.

Dave Morton (CFO)

Hey, Koji, it's Dave. Yeah, we'll, we'll give some additional color to that at our upcoming Investor Day. I don't want to front run any of those key metrics. We'll also be articulating what that NRR looks like just for off-prem as well. You know, albeit not everything's created equal, and clearly, those that are advancing at a quicker rate of pace on the off-prem cloud solution, native solution, you know, obviously, that should have a higher click rate.

Koji Ikuta (Director of Enterprise Software Equity Research)

Got it. Thank you. Looking forward to the Investor Day. Thanks so much.

Operator (participant)

Thank you. One moment, please. Our next question comes from the line of Steve Enders of Citi. Your line is open.

Steve Enders (Equity Research Analyst, Software)

Okay, great. Thanks for taking the questions and for having me on the call today. I guess maybe just to start, you know, intrigued to hear more about, you know, what's coming in the pipe on the AI side. As you think about the opportunity within your customers, yeah, how do you feel about what gives you, I guess, the right to win for those AI use cases? And what ends up becoming the differentiator for Intapp in the marketplace versus other providers that might be, you know, targeting the use cases that you're going after?

John Hall (Chairman and CEO)

Yeah. Thanks, Steve, and welcome. We're excited to be working with you. The positioning of the company overall and the positioning of our Applied AI strategy are the same, which is we specialize in these professional and financial services firms, the way that they work, the uniqueness of the partnership model, and the high-end advisors and investors that work in these firms, and the way that they work on complex deals, engagements, matters. Our whole angle on Applied AI is to build all the capabilities of AI technologically into specific industry solutions that meet the needs of each of the practice areas, each of the deal types, each of the investment strategy teams, in a way that feels compelling to the professional because somebody has really taken the time to understand how they work.

It's a huge differentiator for us that we've built the whole company with both technologists from Silicon Valley, but also a huge population of people who have come from these firms themselves, so that the solutions that we design for the end users really speak directly to them when they see it for the first time, and the same thing for the Applied AI generation of our industry solutions.

Steve Enders (Equity Research Analyst, Software)

Okay, perfect. That's helpful context there. And then, Dave, maybe just on the outlook here, just wanna make sure that we're, you know, thinking about the puts and takes in the right way. It seems like there's a shift going away from services, and that's the main, I guess, headwind or impact. But how should we be thinking about, you know, what that shift would be looking like over time, and then, you know, how considered that effort is to drive, I guess, more margin out of that as well?

Dave Morton (CFO)

No, for sure, Steve. I think it, you know, over the long term, as we continue to model out, you know, obviously we'll be looking to partner more and more with the economy that we continue to build up with the likes of, partners within our ecosystem. And so I think you've started seeing some early innings to that. Obviously, you know, we're gonna continue to be at the forefront and touch point with our respective clients. Think of more of a longer-term model as a CSAT versus a revenue driver. And then we're also our path to, you know, break even margin within that specific, profile. And so as we continue to look at the respective levers, both from growth vectors as well as, contribution margin, you know, that is something that we'll continue to work on, longer term.

But the overall value and narrative on, you know, this, this value asset is clearly on our SaaS growth, which continues to do very, very well and continues to be very, very durable.

Steve Enders (Equity Research Analyst, Software)

Okay, perfect. Thanks for taking the question.

Operator (participant)

Thank you. One moment, please. Our next question comes from the line of Doug Bruhl of JPMorgan. Your line is open.

Doug Bruhl (Equity Research Analyst)

Hey, thanks for taking my question, and congrats on the results. So looking at sales and marketing, seeing a bit of a decel in growth here. So maybe question, how are you thinking about balancing investing in growth versus realizing profitability?

Dave Morton (CFO)

Yeah, it's a great question. I, I would tell you, we're already started our FY 2025 planning. You know, as we continue to look at the envelope and the scope that we're under today, as well as looking at productivity and areas for continued opportunity going forward. And so it's always gonna be a balance of driving that additional leverage. And we think we can continue to scale, not only with the investments that we've made, over the past year or two, and then continue to monetize that and hopefully see the rate of pace go from there.

Doug Bruhl (Equity Research Analyst)

Great. Thank you so much.

Operator (participant)

Thank you. One moment, please. Our next question comes from the line of Alex Sklar of Raymond James. Your line is open.

Alex Sklar (VP, Application Software Equity Research)

Great, thank you. John and Dave, two-part question on Deal Cloud. You did some brand consolidation efforts last year. There's some nice wins that you announced in prepared remarks this quarter. So John, first for you, can you talk about how much Deal Cloud drove those wins versus kind of what your prior offering was to the professional services market in the past? And David, any financial benefit you've seen so far in the model from that brand consolidation? Thanks.

John Hall (Chairman and CEO)

Thanks, Alex. Yes, we consolidated our brands. At the time of our IPO, we had a brand in professional services called OnePlace that had a history that a lot of firms knew, but the technology that it represented was Deal Cloud technology. And we started getting a lot of inbound calls from folks in the legal, accounting, consulting industries asking for Deal Cloud by name. So we just made a pragmatic decision to say, "Oh, we can simplify branding here and get some leverage, word of mouth, on Deal Cloud across our whole market." And so it was a change for some of the people who had gone with the OnePlace brand initially, but it wasn't a technology change, it was a brand change.

There's a lot of excitement now because we have a broader community of Deal Cloud users that are coming together at our events, our user conferences, our advisory boards, who are all sharing best practices across these firms. There's been a lot of enthusiasm that we actually have uncovered an underserved community here who have different professional specialties with a lot of deep expertise in each area. But if you actually step back and look at the way that the firms go to market, they pursue opportunities in the marketplace, they pursue clients, the huge network of relationships among all these people. It's not a linear sales model. All these firms share a very networked model, going to market and uncovering opportunities through referrals and each other. They love talking to each other.

So I actually think the brand consolidation has turned out to be a net positive for DealCloud, and we were excited to be able to name a bunch of firms this quarter, who, I'm very grateful, said, "Hey, you can talk about us," because there's a, there's a growing community of folks who really see this as the next generation. And now that we're bringing the applied AI in, in relationship intelligence, which I talked about specifically, but more broadly to the DealCloud platform and the rest of the offerings that we have, there's a, a lot of enthusiasm for DealCloud coming in. So you'll see some more work on the brand simplification as we, as we come out on, 22 February, because we really want to help everyone share in that word of mouth across the marketplace that's, that's working for us.

Dave Morton (CFO)

I would say that's probably where you're gonna see that manifest in the P&L the most, is that opportunity cost of winning and being able to focus all your efforts as we continue to cross-sell and upsell across our various industries that we serve using the same technology.

Alex Sklar (VP, Application Software Equity Research)

Okay. That's great color. We'll look for more there in the coming quarters then. John, the other thing, you mentioned on the new blueprint strategy or the somewhat new blueprint strategy, initial win rates is something that you're seeing track higher, as one of the few positive early developments you talked about in the prepared remarks. Can you just elaborate on what you saw in terms of win rates versus prior quarters from that strategy?

John Hall (Chairman and CEO)

The experience when you come in and you show a blueprint that's specialized... You know, in the previous quarter, we talked about private credit, and this quarter we expanded our fund-of-funds blueprint. You, you, you're getting more and more specific to each of the professional teams and the way that they talk and the way that they work and They see that you have a solution that really understands them, and not only do you have a broad, you know, universe of 2,400 clients, but you've got 100 clients just like them and the types of work that they do. And it just makes a huge psychological impression at the first moment to really appreciate our industry expertise, but then it also gives confidence that we're gonna be able to deploy and get them up and running quickly.

And so a lot of it is time to value for them, as well as the confidence that we're gonna be able to support them and enable them over time. So we have seen strong responses, both at the early end of the funnel and in any competitive conversations that come in later in the process when people need to show that they've shopped. There's just nothing like what we're showing to this type of professional as we deploy. So we're very enthusiastic about this blueprint strategy, and we're gonna do more. It helps on win rate, it helps on time to value, it helps on services and getting our costs down to help people be successful, and that's part of the model here. So we're big believers in where this is going.

And then now the whole Applied AI strategy is rolling under this blueprints idea, so we really want to bring Applied AI out specific to each of the professionals' workflows.

Alex Sklar (VP, Application Software Equity Research)

Okay. That's, that's super helpful context. Thank you both.

Operator (participant)

Thank you. One moment, please. Our next question comes from the line of Saket Kalia of Barclays. Your line is open.

Saket Kalia (Director, Equity Research)

Okay, great. Hey, guys, thanks for taking my questions here. How are you?

John Hall (Chairman and CEO)

Hi, Saket. It's good to talk to you.

Saket Kalia (Director, Equity Research)

Hey, hey, John. Hey, Dave. Apologies in advance here, if some of these questions have been asked. Just kinda hopping a couple calls. But John, maybe for you, you know, I guess I wonder how you think about the seasonality here in the cloud business, particularly as we look at net new ARR. You know, we had a really strong start to the year. You know, net new ARR was down a little bit sequentially. Is that sort of in line with kind of the shape that you think about in the business or in line with sort of you know, your customer spending cycles?

Just a little bit of color on how you think about the shape of that based on kind of typical seasonality. Does that make sense?

John Hall (Chairman and CEO)

Yes, absolutely. So generally speaking, you know, our year ends in June, and some of the clients have figured that out, so we tend to have different patterns across the quarters. Some of their years end now, some of them in the UK end in April. So there is some fluctuation from quarter-to-quarter. I think in this quarter we had strong results. We also saw a little bit of a mix evolution. The professional services firms like legal, accounting, consulting, were strong. We were very interested to see the economic reports about the hiring there. That kind of matched when we saw it come out. We also saw in investment banking a little bit of budget management from some of the large firms, and we saw the economic reports and some of the news about that, and that made sense to us after the quarter was over.

I think we've benefited from some of our diversification across these firms. We've talked about that as a durable model, and we've grown through lots of different parts of the economic cycle consistently because of this. But there was some of that in this quarter's results that we worked through.

Saket Kalia (Director, Equity Research)

Got it. Got it. That makes sense. Dave, maybe for my follow-up for you, really looking forward to February twenty-second. I think there's gonna be a lot of fun stuff to talk about. And so if this is too much of a teaser, you let me know. But you know, based on, I guess, given your background coming from so many different SaaS businesses in the past, who do you sort of aspire to? Who do you sort of benchmark Intapp's business model to, based on where you are in kind of the life cycle, where you are from a scale perspective, if that makes sense?

Dave Morton (CFO)

It does, and there's a lot of great comparables that we aspire to be in the Vertical SaaS. And there's a reason for that, right? Because they're very purposefully built, and they've had many years of success. And so we follow in some of those footsteps as we look at kind of our evolution and kind of where we're headed to. You know, clearly, we have very unique base, and that in the top couple hundred could be billions worth of SAM with our respective clients, but we also have somewhat of a longer tail and uniqueness about us that, you know, we've got the opportunity to go and serve those respective markets as well. And so it's kinda going through that evolution as we apply resources and we serve these greater clients.

So, you know, we're pretty excited to talk more about that coming on the twenty-second and kind of where we're putting more of that wood behind that arrow. But clearly, you've seen the resiliency within our model across both ends of that spectrum that we've articulated in some of these customer examples or client examples.

Saket Kalia (Director, Equity Research)

Got it. Very helpful. Thanks, guys. Looking forward to the 22nd.

Operator (participant)

Thank you. One moment, please. Our next question comes on the line of Parker Lane of Stifel. Your line is open.

Parker Lane (Director, Equity Research, Applications Software)

Yeah, hi, guys. Thanks for taking the questions here. John, you guys have been doing Applied AI for a while, but clearly you're bringing a lot more AI solutions to the market. We'll see those later this month. Curious if you could talk about, I guess, the acceptance or willingness of your different end markets to leverage AI in their workflows. Is the feedback there generally positive? Do you think there's a big opportunity in the near term, or is it gonna take some time for people to really trust what's going on behind the scenes, get their hands on these tools before you see budgets starting to free up around AI?

John Hall (Chairman and CEO)

I think it's a mix. There's some early adopters who are really enthusiastic because they just feel how big a potential there is for AI to make its way into these knowledge-based professionals. So much of their work is about surveying large sets of data, regardless of their area of expertise. They're looking across large areas of data to try to develop a point of view, either for a deal investment decision or for advice to their clients. And then from a daily workflow standpoint, so much of what they do is unstructured information processing to come back to clients and orchestrate deals and all these different types of advisory activities that they do, that there's a lot of excitement about the broad potential, particularly early now, of the generative AI story.

So there's some early folks who are in, and then there's some more pragmatic folks who are saying, "This is all great. I believe it, but what are we gonna do about the compliance questions? What are we gonna do about the information access questions? We're a big organization globally with a lot of knowledge buried in our systems. If we point AI at that, how are we gonna make sure that we comply with all the regulatory obligations and the client obligations that we have?" And so this is an area that we're very focused on because we've had such a strong position in the compliance aspect of these industries and their information for so many years. We think we can bring a unique value proposition that has all the potential of AI applied in industry-specific ways.

But one of the core issues in industry-specific applications around AI here is the compliance and trust set of concerns. So this is a theme you're gonna hear from us. This is where we're going, is to bring a more compliant story to the whole AI opportunity. And we think that will lower the barriers and the concerns that anybody might have. And so in terms of timeline, you know, we're, we're not making specific commitments today, but I think we can do all the work to get the fastest AI deployment in these firms through that perspective.

Parker Lane (Director, Equity Research, Applications Software)

Got it. That's really great feedback. Thanks for that. I was curious if you could talk about the Intapp Time migration, specifically the large law firms or the ones that have held out and been on-premises in the past. Why now is the simple question? Why, what incentive are people seeing to move to the cloud, and what drives that inside of the laggards that you still have remaining on-premises?

John Hall (Chairman and CEO)

Yeah, it's been interesting. I think, you know, we've talked a little bit about the fact that when everybody had to go home for COVID, a lot of these firms had a wake-up moment because people couldn't get access and have the right experience for all their traditional in-house built or on-prem solutions. So I think that was a permanent change in the mindset, and the firms have made a cloud-first or a cloud-only commitment coming out of that. Even the most, sort of legacy environments have made that commitment. What's happening now is firms have had a couple of years to get their IT projects organized, their priorities rolling through, clear everything out, and actually start making the meaningful moves to the cloud. So we do, you know, encourage our firms to do that.

We haven't gotten really prescriptive that they must do it on a particular timeline yet, and yet a lot of them have flipped and are started pulling us into the market, and I think it's just a great sign. I think that the firms are going cloud, and we're getting into a stronger and stronger position to help them benefit from, from all the new technology, and particularly all the AI technology, that you can really only get in a cloud platform. So it's just the normal development of the market, and I think this is gonna go faster here.

Parker Lane (Director, Equity Research, Applications Software)

Makes sense. Appreciate you guys taking the question. Thank you.

Operator (participant)

Thank you. One moment, please. Our next question comes from the line of Terry Tillman of Truist Securities. Your line is open.

Terry Tillman (Managing Director, Application Software and SaaS Equity Research)

Yeah. Hey, John, Dave, and David. Congratulations from me as well on the solid results in the quarter. I had just two questions. First, as it relates to just the ongoing relationship at multiple levels with Microsoft. So whether it's Azure Marketplace, you know, and being able to use prepaid cloud spend and just them influencing business, how is that shaping up? And then I had a follow-up question for Dave.

John Hall (Chairman and CEO)

Yeah, thanks, Terry. The Microsoft relationship is continuing to grow and develop. We're forming more and more relationships on the ground in each of the accounts. We had some really exciting wins here in this quarter, where some firms already had minimum Azure commitment contracts with Microsoft, and they used that to buy from us. Then we even had some firms that realized they could do that, and they signed up for contracts because they were going to buy into F, and they could get some additional benefits from Microsoft. So there's a lot of positive feedback going between our field and Microsoft's field on this point, and I think it is helping us.

Terry Tillman (Managing Director, Application Software and SaaS Equity Research)

That's great to hear. Thanks for that, John. I guess maybe the follow-up question for Dave. You know, any way to think about seasonality or just free cash flow the rest of the year as we move into the next couple quarters of the second half? And then, you know, what-- or maybe what's the relationship of EBIT to free cash flow conversion? Just trying to understand a little bit more how we should think about our free cash flow. Thank you.

Dave Morton (CFO)

Yeah, I, first and foremost, Terry, I, I still think we're working on some continued operational efficiencies, just normal course. You know, I've been here for six months, and, and we're just trying to get a little more cadence and some constants around just normal things, such as our receivables and simple things like that, right? Which, you know, at face value, doesn't really, you know, come up with a lot, but then there's still a lot of opportunity for us to move forward. So I would say that seasonality will, in theory, come more apparent when we get into FY 25, about midway through the year. And then we can look at, okay, on a normal course, how's our respective business that leads in?

John already oriented around in June for EMEA and others, as well as December here for US. And so as we continue to look at some of those bigger accounts, that may move the needle with standard payment terms of, you know, 30, 60 days. You know, clearly, that would follow in the following quarters. So something we can come back and talk a little bit more, a little more in detail here in a quarter or two.

Terry Tillman (Managing Director, Application Software and SaaS Equity Research)

Understood. See you guys soon. Thanks.

Operator (participant)

Thank you. One moment, please. Our next question comes from the line of Matt Van Fleet of BTIG. Your line is open.

Matt Van Fleet (Application Software Analyst)

Yeah, good afternoon, and thanks for taking the question. Maybe a quick follow-up on the Microsoft partnership from Terry's question here. But as you think about sort of the overall contribution margin, when you're getting customers to come through that channel and really leverage some of those existing contracts or prepaid spend, is there a specific margin uplift we can think about, or is it more of an over time as more of the workloads move to Azure, that you just gain the leverage on the gross margin side? Just help us think about sort of the dollar for dollar on a direct sale versus one that comes through the Microsoft channel.

John Hall (Chairman and CEO)

So I think generally... I'll give some color, and then Dave, you can talk about anything you wanna add. The relationship so far has had a relatively small fraction of our overall business coming through this channel in that sort of way around the Azure commitment. It is something that's causing us to win in certain large accounts that already have those. And then, as I mentioned, we've started to see some more firms come on board. It's not our overall model today, but I think there's opportunity to continue to grow the contribution that comes from the Microsoft relationship in each and every deal as we grow the business. So I think it's early days, generally, on this model.

At the same time, we're getting a lot of energy and visibility and buzz working with them and meeting a lot of the clients that they have, and working together in a lot of the regions around the world where they have a strong footprint, and they have Azure capabilities. So I think it is a net positive today, even though we're early in the place where that model may be a major contributor. Dave, do you wanna say more?

Dave Morton (CFO)

Yeah. No, John, John is spot on. When you think about, you know, some of the larger enterprise in the respective industries that we serve, not only is it check the box, but it's also a great avenue for additional conversations of what can foreshadow opportunities on both ends. And so I think that's been a great series of conversation points. When you think about just overall impact in today's PNL, as John had noted, it's very immaterial, and dollar for dollar, it's same. And so, like, we're looking longer term and how we continue to evolve both of these relationships and get some materiality that we could give some additional color on.

Matt Van Fleet (Application Software Analyst)

Okay, very helpful. And then as you look towards the second half of the fiscal year here, or, you know, out over a longer period of time, where do you stand in terms of your headcount and the needs to continue to expand that? What areas of the business do you expect to continue to sort of grow more or less in line with revenue growth? And what areas do you have enough scale now that you can really kind of build into?

Dave Morton (CFO)

Yeah, I don't think we're gonna grow at the levels of revenue per se, either expense or headcount. So you're always gonna see some natural leverage coming off the model. As far as headcount going forward, it's primarily gonna be in your product and engineering as we talk about these different items that we continue to bring online. So we talked about the investment within AI as well as the industry solutions that we've narrated on, and so that's been a good series of early-day investments. And then moving back over, we've narrated a little bit about our partner economy, and so we can see, you know, some small incremental investments on that.

And then to the extent that we go further international with a broader scale, and this is, you know, a little bit down the road, you can see some incremental investment in that. That's more in, sales and marketing in addressing any concerns that or any areas of opportunity that we would see there.

Matt Van Fleet (Application Software Analyst)

Great, thanks. Look forward to seeing everyone in a couple weeks.

Operator (participant)

Thank you. One moment, please. Our next question comes from the line of Brian Schwartz of Oppenheimer. Your line is open.

Ari Friedman (Director, Equity Research)

Hey, this is Ari Friedman sitting in for Brian Schwartz. Thanks for taking my question. I had a question just on, like, international. I know you guys had said about 30% of the revenue came from international in FQ2. Were there any geographies that came, like, above your expectations, or did all geographies kind of come in line? Any color on that would be helpful. Thanks.

Dave Morton (CFO)

Yeah, everything pretty much came in line. You know, it's a good series of activities. You know, we have opportunities obviously going forward, and so, you know, as we continue to expand on that. I would say in the past, some of those opportunities have been more opportunistic versus purposeful, and I think you'll hear us start narrating some of the international areas of opportunity more purposeful, vis-a-vis us, going direct versus being pulled in on some of our hub and spoke with accounts. So, hopefully, that gives you some additional color on that.

Ari Friedman (Director, Equity Research)

Thank you.

Operator (participant)

Thank you. Okay, that does conclude our Q&A session. I'd like to turn the call over to John Hall for any closing remarks.

John Hall (Chairman and CEO)

Okay, thanks, everyone. We appreciate your attention and your questions, and we have a great Q2 behind us, and we're excited to talk to you again this month at Investor Day on 22 February. So for now, we'll let you go. Have a great day.

Operator (participant)

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.