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spk03: Good day and thank you for standing by. Welcome to the NTAP Fiscal Third Quarter 2023 webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1 1 on your phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. 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.
spk04: Thank you.
spk00: Welcome to Intap's fiscal third quarter 2023 financial results. On the call with me today are John Hall, Chairman and CEO of Intap, 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. INTAP 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 the forum aka furnished with the SEC prior to this call. With that, I'll hand the conversation over to John.
spk05: 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, Intap 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 partnerships, not corporations. Within these firms, we target a very valuable but deeply underserved user audience, the professional investors and advisors in the partnership who begin their career as analysts or associates and develop through their careers to become highly skilled specialists and knowledgeable experts in eventually becoming partners and directors of their firms these professionals work every day 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 the wide, unique range of statutory, professional ethics, and client compliance obligations that they must navigate every day. Intep'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 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. Intap is leading cloud transformation in this global deal-making, 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 deal cloud adoption, increasing across all 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 a thousand 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 BealCloud's progress across the verticals we serve. Finesh, an AMLAW 200 firm and longtime Intap client that began with our compliance and time management solutions, chose BealCloud to replace its previous CRM. Scott Golan, Chief Strategy and Operating Officer at Banesh, 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 Intac 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 continue to acquire new logos and expand 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 DeoCloud 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 DeoCloud 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 continued 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 multiple language 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 deal cloud 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 or engagement or matter. Importantly, the integration also advances our zero entry strategy, bringing key data into deal cloud 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, Intap and Microsoft co-hosted a legal CIO summit at Microsoft's 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 Polsonelli, an Anilaw 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 solution that help her team to execute efficiently, including embedded integration that extends her Microsoft investment. She expressed excitement about the future and leveraging the significant AI innovations through her Intap partnership. And although it did not occur in Q3, I'm also pleased to share that last week Intap 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 firms' 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 Intab. We're excited to have them on board to help us continue to enhance the Intab 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 PRACTICE. selected our conflict solutions delivered via the Microsoft Azure Cloud. Using the 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 Practice, told us, quote, partnering with Intap 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 AMLAW top 25 firm chose to expand its Intap 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 AMLO 100 similarly purchased multiple additional Intap 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 Intap Workspaces to enhance collaboration across their distributed teams. As you'll recall, we developed Intap Workspaces using technology from our Rep Store acquisition in 2021. With solutions that cover risk and compliance, pre-billing, time tracking, and now collaboration, this large Intap client is steadily progressing towards their goal of becoming a more connected firm and modernizing how they work by expanding their adoption of the Intap 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's continued market leadership. First, Globe Street 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.
spk07: 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 is recognized as SaaS revenue, ratably, following a new sale or renewal. On-premises ARR is recognized in two parts, 50% as subscription license revenue, recognized up front at the time of the sale or renewal, and 50% as support revenue, recognized ratably and included in our SaaS and support revenue lines. Because it is recognized relatively, 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 of Intap's purpose-built cloud solutions. Total revenue is $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 is $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 multi-year contracts. Professional services revenue is $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 continued 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 the 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 67.3% 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 continued 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 made investments in our product roadmap. Non-GAAP G&A expense was $14.9 million, a $1.1 million increase year-over-year, as we continued 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 for 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 23, we expect SAS and support revenue between $67 and $68 million and total revenue in the range of $92.5 to $93.5 million. We expect non-GAAP operating profit in the range of $1.5 to $2.5 million, and non-GAAP per share results in the range of $0 to $0.02, using a fully diluted share count weighted for the quarter of approximately 78 million common shares outstanding. For the full year of fiscal 23, we expect SaaS and support revenue between $251.5 and $252.5 million, and total revenue in the range of $349 to $350 million. We also expect non-GAAP operating profit to be in the range of $9 to $10 million, and non-GAAP net income per share in the range of $0.07 to $0.09, using a fully diluted share count weighted for fiscal year 23 of approximately 74 million common shares outstanding. With that, John and I look forward to taking your questions.
spk03: Thank you. As a reminder, to ask a question, please press star 1 1 on your phone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Stand by as we compile the Q&A roster. And one moment, please, for our first question. Our first question will come from Koji Akita of Bank of America Securities. Your line is open.
spk12: 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. You know, clearly you guys are operating well here. And, you know, I think I ask you guys this every quarter, but have things changed at all? You know, are you seeing any effects of maybe the banking industry turmoil that might be affecting your target end markets? Just trying to figure out, you know, how you guys are seeing the health of your overall target market. Thanks.
spk05: Thanks, Koji. You know, 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 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 is 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.
spk12: Got it. And then just one follow-up from me here. Last year on the third quarter call, I recall Steve gave kind of an early look into fiscal 24 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?
spk07: Yeah Koji that was kind of a one-time thing that we did last year kind of as a courtesy this quarter with a with an extension out to September you know until We come back typically with our full year and talk about 24 guidance. We have consistently pointed people to the fact that 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.
spk12: Got it. Thank you. Thanks, guys, for taking my questions.
spk07: You bet.
spk03: Thank you.
spk04: One moment, please, for our next question.
spk03: Our next question will come from Kevin McVey of Credit Suisse AG. Your line is open.
spk10: Great. Thanks so much, and just a really terrific job given the current environment. John, if I heard you right, I think you referenced 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 DealCloud is within your existing clients at this point?
spk05: 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 firms. One of the things that happened this past couple 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 cross-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 markets, and that's working really well for us. 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.
spk10: That's terrific. And then just seems like the relationship with Microsoft is coming closer and closer. You know, with all the incremental optionality on chat GPT, does that accelerate the linkage with Microsoft in any way to think about chat GPT within the lens of your kind of existing clients as they implement that? Because it seems like clearly there'll be a little bit of pace of faster acceleration, which I'd imagine will be better for the platform overall.
spk05: 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 a 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's 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 firms, one of the virtual law firms that has taken up BealeCloud on Azure and Another firm has 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 InCAP, and then ChatGPT and the open AI 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 technologies. 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 through the Microsoft partnership.
spk10: Sounds like you're tethered to the right horse, so congratulations.
spk02: Thank you.
spk03: And one moment, please, for our next question. Our next question will come from Alex Sklar of Raymond James. Your line is open.
spk01: Great. Thank you. Two questions on the deal cloud brand consolidation that you've talked about tonight. First, John, I know you have 90% plus penetration of those AMLA 100 firms. Can you help frame how your, your business development CRM penetration is within those existing one place in-tap clients? Like how big of an opportunity is the, is the deal cloud cross bill? And then I have a follow-up on that.
spk05: 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 firms, both operationally and from a compliance standpoint. And with DLTOT, 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 fit for DealCloud across the market. They are generally on older generation CRM, to answer your question specifically. We also are serving a broader category than pure CRM because these firms have a very strong knowledge and expertise component to the information that they need to manage. And so when we bring DealCloud 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've built up relationships with these firms over many years. We do absolutely have beginning footprints with over 90% of the top ML100, if you want to start there. That was where the company began. But the cross-sell and up-sell opportunity inside those firms is enormous. We've talked about the fact that just within our top 100 clients, generally, there's a billion dollars 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 up-sell opportunities to help people appreciate the potential that we have there. And BealCloud into the CRM category and into the broader knowledge category is a great example of that.
spk01: Okay, that's great context. Thank you. And then just a quick follow-up on that. Steve, are there any financial benefits or 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.
spk07: Yeah. As far as financial benefits from the Microsoft relationship, look, we – 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, yeah, 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.
spk01: Great.
spk07: Thank you both. Yep.
spk03: 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.
spk08: Yeah. Hey, John, Steve, and David, congrats for 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 100K plus customers can kind of move around a little bit, but as it relates to just bringing net new logos into the fold, Do you see that kind of consistently staying in that current range? The reason why I ask this is it seems like Microsoft's got multiple avenues to help you on the go-to-market side. You've got KPMG. You've got international expansion. Just trying to understand kind of the balancing act of maybe new logos going forward and if it could step up versus, you know, taking deal cloud and just selling a lot more to the install base. And then I had a follow-up for Steve. Thank you.
spk07: Yeah, well, Perry, 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. You know, 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.
spk08: Okay, got it. Well, you took a question I was going to give 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. No, that's all right. No, it's good. It's good. So maybe more of the same goodness than in terms of those kind of balances, particularly around new logos. Maybe, John, for you, you know, the one thing is you were talking about some uptake of some more recent either acquired products or just kind of organic and M&A-oriented development like Billstream and the collaborative workspaces. What I'm curious about is any kind of quantification on those emerging products, and are you able to, because of the economic times, start to turn the dials around vendor consolidation play? Thank you.
spk05: Thanks, Terry. We appreciate the market's 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 through acquired technology, like Billstream and like Intep 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 designed 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 you know 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 attestation management that the firms need to have everybody perform regularly. that will give us an even richer offering in risks 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 Intep 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 in as we grow.
spk08: Sounds good. Thanks.
spk02: Thank you.
spk03: One moment, please, for our next question. Our next question will come from Brian Schwartz of Oppenheimer. Your line is open.
spk11: 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?
spk05: 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 feeds through other groups inside the firm or additional solutions that you can sell into the firm more easily. 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 Intep 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.
spk11: Thank you. And then, Steve, one question for you just on the margins in the quarter. You know, 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, too? Thank you.
spk07: Yeah, I think the answer is both. Clearly, we are bringing to the bottom line the revenue upside. 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 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 you know our execution is just getting tighter and and more efficient as we go forward. So it's a little bit of both, I think, Brian.
spk01: Thank you.
spk03: Thank you. One moment, please, for our next question. Our next question will come from Parker Lane of Stifel. Your line is open.
spk06: Yeah, 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 a midterm framework of the trade-off between growth and profitability? You 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?
spk07: Well, I think we're going to try to run the business to, you know, if you will, minimize that tradeoff. 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, Parker, going forward here over the next couple of years.
spk06: 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.
spk07: Sure. It's fairly small. It's probably less than 20 people and inclusive contractors. and its revenue kind of in the low single digits, millions, you know, going forward. We think it's 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 INTAP and leveraging our business.
spk06: Got it. Thanks again.
spk03: Thank you. And one moment for our next question. Our next question will come from Arvind Ramnani of Piper Sandler. Your line is open.
spk09: 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, you know, kind of across the coverage universe and some of the checks that we do. But in the third quarter, you have raised guidance. You know, it looks like things are going quite well. And from all that you've said in this call, things are, you know, 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 uh, kind of pressure that, uh, your, your clients are going to, uh, place on, on buying, uh, kind of in depth, but, um, there's any color you can provide on like what's driving that, uh, robust demand that you're seeing, uh, you know, from, from a customer base that would be super helpful.
spk05: Sure. Thanks Arvind. So first of all, it's a pretty resilient end market that has supported us through the entire bootstrapped 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 as an experience in setting these firms on the path decisively to finally move to the cloud. As they do that, they have to get all of this in-house built 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 it's 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.
spk09: Perfect. And then just in terms of the value proposition, there's a lot of value both as a revenue driver, but also from a cost savings, from a compliance perspective. the kind of multiple kind of like business drivers or kind of value propositions that you'll have. Has that changed? You know, are kind of a lot of your clients now kind of using you for the same reasons or is it kind of more kind of interest or are they kind of, you know, is your sales force pushing more of your kind of cost savings and compliance or more the revenue part or is it kind of really no change over the past like 12 to 18 months?
spk05: 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 plan 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's 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.
spk09: Perfect. This is super helpful. Thank you.
spk03: Thank you. This will end Q&A. I would now like to turn the conference back to John Hall for closing remarks.
spk05: 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.
spk03: This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.
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