Intapp, Inc.

Thank you for standing by and welcome to NTAP's Fiscal Second Quarter 2024 Webcast. At this time, all participants are on a listen-only mode. After the speakers' presentations, there will be a -and-answer session. To enter a question at that time, please press star 1-1 on your telephone. Please be advised that today's call has been recorded. I will now turn the conference over to your host, Mr. David Trone, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Welcome to NTAP's Fiscal Second Quarter 2024 Financial Results. On the call with me today are John Hall, Chairman and CEO of NTAP, 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. NTAP 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 8K 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. Thank

you, David. Good afternoon, everyone. Thank you for joining us today as we share the results of our fiscal second quarter. 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 strategy during the quarter. And 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 second quarter. First, I'll talk about innovation. As I've mentioned, InTap 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 DealCloud. 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 DealCloud 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 February 22nd. 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 NTAAP'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 DealCloud blueprints that enable best practices using applied AI. We delivered new blueprints for legal, private equity, and -to-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, Roan Group, a transatlantic private equity firm, selected DealCloud 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 DealCloud due to lack of adoption among their professionals. They were impressed by DealCloud'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 Alex Partners selected DealCloud 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. And private equity-focused consulting firm Accordion also recently selected DealCloud 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, Aries, and Lopez, who selected InTap to take advantage of our automated time capture functionality. UK-based Marriott Harrison selected InTap time after deciding they required a more efficient, reliable, cloud-based time tracking system. And US-based Porzio, Bromberg, and Newman selected InTap conflicts to help automate the processes associated with managing the firm's high volume of conflicts checks. Additionally, cross-selling and up-selling successes in our existing accounts continue to drive net revenue retention. Let me go through a few expansion examples. Global law firm and longtime InTap risk and compliance client Baker Boss recently replaced a large legacy CRM with DealCloud. The firm selected DealCloud to support its strategic growth plans in the tech and energy sectors. DealCloud's intuitive interface and relationship intelligence capabilities help 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 DealCloud 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. And we continue to see success at the world's largest accounting and consulting firms. One of our existing global accounting clients uses InTap solutions across multiple geographies and has now expanded its use of DealCloud to its Ireland and UK-based corporate finance team. DealCloud will replace the division's legacy CRM, which had proved challenging to maintain and lacked adoption. DealCloud 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 InTap time migrations in the quarter. These include an AmLaw top 10 firm, which purchased InTap time in the cloud to benefit from features like automated data capture, mobile time entry and compliance time. Allen and Ovary, one of the world's top law firms, which typically uses on-prem solutions, completed a straight to cloud implementation for InTap time. And one of the world's largest international law firms completed its migration of InTap time from on-prem to the cloud. In conclusion, we're proud of our strong second quarter 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 InTap 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 .intap.com. Thank you all very much. With that, let me turn it over to Dave to share our Q2 results.

Thanks, John, and thanks everyone for joining us today. I'm pleased to report our solid second quarter 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. Staff and support revenue was $77.1 million, up 25% -over-year, reflecting sales to new clients and expansion of existing clients from both cross-selling and up-selling sales motions. Subscription license revenue was $14.1 million, up 29% -over-year, largely due to several large clients opting for multi-year on-premises renewals. Total recurring revenue was $91.3 million, up 26% -over-year. Professional services revenue was $12.7 million, experiencing a modest 5% -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 -to-value through an expedited implementation process. Total revenue was $103.9 million, up 23% -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 remain strong, contributing approximately 30% of total revenue for fiscal Q2. Q2 non-GAAP gross margin was 73.4%, as compared to .5% in the prior year period. Non-GAAP operating expenses were $68.6 million, a $10.9 million increase -over-year as we continue to invest and go to market and product development to support our growth. As we continue to focus on our operational efficiency, 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 second quarter 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 second quarter, 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% -over-year, and Total ARR was up 21% -over-year. Total remaining performance obligations were $447.6 million, up 15% -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% to 117%. Now, turning to our outlook, for the third quarter of fiscal 2024, we expect fast and support revenue between $80 and $81 million, total revenue in the range of $107.5 to $108.5 million, non-GAAP operating profit in the range of $6 to $7 million, and non-GAAP EPS results of $0.06 to $0.08 using a diluted share count weighted for the quarter of approximately $81 million common shares outstanding. For the full year fiscal 24, we expect we are increasing our fast and support revenue between $312 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 to $426.5 million. We also expect non-GAAP operating profit to be in the range of $27 to $31 million. And non-GAAP EPS in the range of $0.31 to $0.35 using a diluted share count weighted for fiscal year 24 of approximately $81 million common shares outstanding. And as previously noted, NTAP will be hosting our inaugural Investor Day on February 22nd. During this event, we will discuss our key strategic comparatives, metrics, financial and 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.

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 11 on your telephone. Again, to ask a question, please press star 11.

One

moment for

our first question. Our first question comes from a line of Koji Akita of Bank of America. Your

line

is open.

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? Any sort of color there would be helpful.

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 going to do both.

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

Hey, Koji. It's Dave.

Yeah, 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 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 clip rate.

Got it. Thank you. Looking forward to the investor day. Thanks so much.

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

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 what's coming in the pipe on the AI side. As you think about the opportunity within your customers, how do you feel about what gives you the right to win for those AI use cases and what ends up becoming the differentiator for in-tap in the marketplace versus other providers that might be targeting the use cases that you're going after?

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 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. And 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. And 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.

Okay, perfect. That's a couple of contacts there.

And then, Dave, maybe just on the outlook here, just want to make sure that we're 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. Yeah, but how should we be thinking about what that shift would be looking like over time and how conservative that effort is to drive, I guess, more margin out of that as well?

No, for sure, Steve. I think over the long term, as we continue to model out, 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 started seeing some early innings to that. Obviously, we're going to 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 break even margin within that specific profile. And so as we continue to look at the respective levers, both from growth factors as well as contribution margin, that is something that we'll continue to work on longer term. But the overall value and narrative on this value asset is clearly on our SAS growth, which continues to do very, very well and continues to be very, very durable.

Okay, perfect. Thanks for taking the question.

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

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

Yeah, it's a great question. I would tell you we're already started our FY25 planning. And as we continue to look at the envelope and the scope that we're under today, as well as looking at productivity in areas for continued opportunity going forward. And so it's always going to be a balance 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.

Great. Thank you so much.

Thank you. One moment, please.

Our next question comes from the line of Alex

Schaller

of

Raymond James. Your line is open.

Great. Thank you. John and Dave, two part question on DealCloud. You did some brand consolidation efforts last year. There's some nice wins that you announced and prepared remarks this quarter. So John, first for you, can you talk about how much DealCloud 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.

Thanks, Alex. Yes, we consolidated our brands. At the time of our IPO, we had a brand and professional services called One Place that had a history that a lot of firms knew. But the technology that it even it represented was DealCloud technology. And we got we started getting a lot of inbound calls from folks in the legal accounting consulting industries asking for DealCloud 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 DealCloud across our whole market. And so it was a change for some of the people who had gone with the One Place brand initially, but it wasn't a technology change. It was a brand change. And there's a lot of excitement now because we have a broader community of DealCloud 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 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 lot of enthusiasm for DealCloud coming in. So you'll see some more work on the brand simplification as we come out on February 22nd because we really want to help everyone share in that word of mouth across the marketplace that's working for us.

And I would say that's probably where you're going to 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.

Okay, that's great, Keller. 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. It's one of the few positive early developments. We talked about the comparative remarks. Can you just elaborate on what you saw in terms of win rates

versus prior quarters from that strategy? The experience when you come

in and you show a blueprint that specialized, you know, in the previous quarter we talked about private credit, and this quarter we expanded our fund the funds blueprint. 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 recognize, they see that you have a solution that really understands them and not only do you have a broad, you know, universal 2400 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 going to 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 going 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 going to do more. It helps on win rate, 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.

OK,

that's a super helpful concept. Thank you both.

Thank you. One moment, please. Our next question comes from Alana. Sackett Kalia, Barclays, your line is open.

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

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

Hey, John, hey, Dave. Apologies in advance here if some of these questions have been asked. Just kind of hopping into a couple of calls. But John, maybe for you, I guess I wonder how you think about the seasonality here in the cloud business, particularly as we look at net new ARR. We have a really strong start to the year. 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 your customer spending cycles? Just a little bit of color and how you think about the shape of that based on kind of typical seasonality. Does that make sense?

Yes, absolutely. So generally speaking, 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. So 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.

Got it. Got it. That makes sense. Dave, maybe for my follow-up for you, really looking forward to February 22nd. I think there's going to be a lot of fun stuff to talk about. And so if this is too much of a teaser, you let me know. But based on, I guess, for giving you a background coming from so many different SaaS businesses in the past, who do you sort of aspire to? Who do you sort of benchmark in Caps business model to based on where you are in kind of the lifecycle, where you are from a scale perspective, if that makes sense?

It does. And there's a lot of great compras that we aspire to be in the vertical SaaS. And there's a reason for that, right? Because they're very purposeful 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 a very unique base and that in the top couple hundred could be billions of worth of BAM 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 kind of 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 22nd 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.

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

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

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 going to 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?

I think 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 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 going to do about the compliance questions? What are we going to do about the information access questions? Big organization globally with a lot of knowledge buried in our systems. If we point AI at that, how are we going to 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 going to 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, 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.

Got it. That's really great feedback. Thanks for that. I was curious if you could talk about the the in-tep time migration, specifically the large law firms or the ones that have held out and been on premise 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 premise?

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 could 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 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. 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 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 going to go faster here. Makes sense.

Appreciate you guys taking the question. Thank you.

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

Yeah. Hey John, Dave and David. Congratulations from me as well on the solid results in the quarter. I had just two questions. First, does it relate 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.

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. And 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. And 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 it 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.

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.

Yeah, first and foremost, Terry, I still think we're working on some continued operational efficiencies, just normal course. You know, I've been here for six months 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, let me move the needle with standard payment terms of 30, 60 days. You know, clearly that would fall 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.

Understood. See you guys soon. Thanks.

Thank you. One moment, please. Our next question comes from a lot of Matt Van Vliet of BTIG. Yolana's open.

Yeah, good afternoon. 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 overtime as more of the workloads move to the market? Or is it more of a shift 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.

So I think generally I'll

give some color and then Dave you can talk about anything you want to 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 commitments. It is something that's causing us to win in certain large accounts that already have those. And then as I mentioned, we 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 that model may be a major contributor. Dave, do

you want to say more? Yeah, no, John is spot on. When you think about 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 P and L, as John had noted, it's it's very immaterial and dollar for dollar. It's 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.

Okay, very helpful. And then as you look towards the second half of the fiscal year here or out over a longer period of time, where do you stand in terms of your head count 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?

Yeah, I don't think we're going to grow at the levels of revenue per se, either expense or headcount. So you're always going to see some natural leverage coming off the model. As far as headcount going forward, it's primarily going to 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 some small incremental investments on that. And then to the extent that we go further international with a broader scale, and this is a little bit down the road, you can see some incremental investment in that. That's more in sales and marketing and addressing any concerns or any areas of opportunity that we would see there.

Great. Thanks. Look forward to seeing everyone in a couple of weeks.

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

Hey, this is Ari Friedman sitting in for Brian Schwartz. Thanks for taking my question. I had a question just on international. I know you guys had said about 30% of the revenue came from international in F2Q. Were there any geographies that came above your expectations or did all geographies kind of come in line?

Any color

on that

would be helpful. Thanks. Yeah, everything pretty

much came in line. It's a good series of activities. We have opportunities, obviously, going forward. And so, 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 start narrating some of the international areas of opportunity more purposeful -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. Thank you. Thank you.

That does conclude our Q&A session. I'd like to turn the call over to John Hall for any closing remarks.

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 February 22nd. So for now, we'll let you go. Have a great day.

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