Intapp Inc. Q3 2023 Earnings Call
Good day, and thank you for standing by welcome to the <unk> fiscal third quarter 2023 webcast.
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Please be advised that today's conference is being recorded and I would now like to hand, the conference over to your speaker today at the <unk>.
David <unk> Senior Vice President Investor Relations.
Sir Please go ahead.
Thank you welcome to <unk> fiscal third quarter 2023 financial results.
On the call with me today are John <unk>, Chairman and CEO of <unk>, Steve Robertson Chief Financial Officer.
During the course of this conference call. We may make forward looking statements regarding trends strategies and the <unk>.
The 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 until 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.
In fact 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 form 8-K furnished with the SEC prior to this call.
With that I'll hand, the conversation over to John .
Good afternoon, everyone.
Thank you for joining us today as we share the results of our third fiscal quarter.
I am pleased to share that once again, we've achieved strong quarterly results.
Sorted by cloud AOR growth SaaS and support revenue gross new logos and expansion of our existing client accounts.
For those of you who may be new to our story.
<unk> targets, a very large yet overlooked and underserved three trillion dollar industry.
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 part.
Okay.
Okay.
Okay.
Additional collaborations.
Within these firms, we target a very valuable but deeply underserved user audience.
<unk> investors and advisers in the partnership.
We'll begin their career as analysts or associates and developed through their careers to become highly skilled specialists and knowledgeable experts eventually becoming partners and directors of their firms.
These professionals work everyday in cross specialty teams that support the global industry of deals disputes and compliance.
And the professionals and their firms as a whole has 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 everyday.
Intest industry cloud has been designed specifically to support the unique operating and compliance needs of these firms we.
We are highly differentiated from traditional CRM and ERP systems, which were built for companies selling a tangible.
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.
In fact, as leading cloud transformation in this global Dealmaking legal and advisory industry and our strong Q3 results continue to validate our strategy.
Specifically.
Our cloud <unk> grew 40%.
$206 million.
Cloud now represents 65% of our total IRR of $316 million, which.
Which is up 24% year over year.
We earn 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 2250 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 and our partnership with Microsoft.
Okay on product.
In Q3, we saw continued adoption of our deal cloud solution.
We brought deal cloud originally to the private capital and investment banking verticals and now Youll cloud adoption is increasing within the legal accounting and consulting markets.
Based on more than a thousand successful implementations clients are selecting deal cloud for the embedded best practices that we deliver as industry blueprints.
Using deal cloud 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 deal clouds progress across the verticals we serve.
But Nash and <unk> 200 firm and longtime <unk> client that began with our compliance and time management solutions chose deal cloud to replace its previous CRM.
Scott Golan Chief strategy, and operating officer at the Nash told us that the firm shows deal cloud to reduce the administrative burden that comes with managing complex relationships letting the firms professionals focused on delivering stellar client service.
A second example is one of the world's largest accounting firms and our current intent client coos.
Who selected <unk> cloud to modernize the M&A process within its corporate development team.
The firm will use deal cloud to drive overall business growth and become more effective at winning M&A.
With deal cloud the firms 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 and deal cloud footprint in financial services.
In Q3.
One of the top 10 private equity firms in the U S selected deal cloud to replace its current traditional horizontal CRM.
And multiple homegrown yield management systems.
<unk> cloud will enable a unified firm level view of deal interactions, while streamlining fundraising and client coverage.
Through our highly competitive selection process the firm chose deal cloud because of its market leading reputation.
Industry specific capabilities and our unique market expertise.
In addition to new sales. We also continued to see deal cloud implementations throughout the quarter, including a leading firms like LG <unk> capital partners, a Switzerland based investment management firm.
Okay, turning now to innovation.
During this quarter, we expanded our applied AI capabilities and continue 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 E mail 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.
<unk> key data into deal cloud automatically.
<unk> professionals are working and Microsoft teams our office 365.
And following on from this product example, altern next to some further progress in our strategic partnership with Microsoft.
In March <unk> edge, Microsoft co hosted.
Illegal CIO summit.
At Microsoft headquarters in Redmond, Washington.
Cio's from the worlds top law firms took part in an interactive two day event with topics. It raised from the potential of AI innovations like chat GTT.
The increasingly complex regulatory landscape.
Heartbeat Suri.
Who had CIO at Polsinelli and Am law 100 firm.
Told us that she values the unique opportunity our partnership with Microsoft brings to the legal industry.
We already provide her firm, but the purpose built solutions that help her team to execute efficiently, including embedded integration that extends for Microsoft investment.
She expressed excitement about the future.
And leveraging the significant AI innovations through her intent partnership.
And although it did not occur in Q3 I'm also pleased to share that last week in tap acquired Paragon data labs.
Paragons cloud based software.
Helps firms to track and monitor employee compliance.
Like personal trading and political donations.
Paragon enables firms compliance teams.
So 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 intact.
We're excited to have them onboard to help us continue to enhance the entire 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 conflicts 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 within tap 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 and Am law top 25 firm chose to expand its in tap investment with the goal of creating a more connected firm.
The option 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 build street product, which we acquired and talked about in our Q2 call.
As Youll remember Gulfstream automates critical pre billing workflows and helps firms improve their revenue realization and profitability by improving the timeliness and compliance.
Client billing and efficiency and cash management.
Together these new solutions move this firm towards their goal of integrating all of the data across their operations to better empower their attorneys.
Another existing client and the ammo 100, Similarly purchased multiple additional <unk> solutions during the quarter also including Bill stream to replace its previous pre billing system.
With Gulfstream the firm will improve revenue realization and strengthen client relationships through faster and more accurate pre billing practices.
And Additionally, <unk>.
Selected in tap workspaces to enhance collaboration across their distributed teams.
As Youll recall, we developed in tap Workspaces using technology from a rep store acquisition in 2021.
With solutions that cover risk and compliance pre billing time tracking and now collaboration this large <unk> client is steadily progressing towards their goal of becoming a more connected firm.
And modernizing how they work by expanding their adoption of the entire platform and all of its capabilities.
Okay, and last but not least.
Pair of industry awards in the quarter validated both our innovation.
And Youll clubs continued market leadership.
First Globe Street Real estate Forum named field cloud a top influencer in commercial real estate technology.
And deal Cloud 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.
Thanks, John and thanks, everyone for joining us today.
John noted, we had a strong quarter with our cloud <unk> up 40% year over year, and our total IRR 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, Jeff as a reminder.
Cloud <unk> recognized SaaS revenue Ratably, following a new sale or renewal.
On <unk> <unk> recognized in two parts, 50% and subscription license revenue recognized upfront at the time of the sale of renewal and 50% and our support revenue recognized Ratably and included in our SaaS and support revenue line.
Because it is recognized Ratably 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 $56 1 million up 33% year over year, reflecting both the new sales to new clients and Upsells and cross sells to existing clients and then tax purpose built cloud solutions.
Total revenue was $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 was $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 was $12 4 million as compared to $9 million in the prior year period.
Secondly, an increased growth rate consistent with the current pace of software implementations.
Overall, we continue to execute our land and expand model ending the quarter with more than 2250 clients 572 of which had <unk> of at least $100000 up from 484 in the prior year period.
In addition, we up sold and cross sold our existing clients.
Months trailing net revenue retention rate was within our recently increased range, 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 a reconciliation between GAAP and non-GAAP results can.
Can be found in our earnings press release and 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 the 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 $53 1 million or $14 million increase year over year as we continue 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 head count and related sales commissions to capture new business in our growing markets along with the previously mentioned the organizational realignment.
non-GAAP R&D expense of $20 7 million $5 4 million increase year over year, as we increased head count 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 per fully diluted share was <unk> <unk> in the third quarter of fiscal 2023 as compared to a loss of <unk> 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 'twenty, three we expect SaaS and support revenue between 67% and 68 million and total revenue in the range of $92 five to $93 5 million.
We expect non-GAAP operating profit in the range of one five to $2 5 million and non-GAAP per share results in the range of <unk>.
Zero to <unk> <unk>.
Using a fully diluted share count weighted for the quarter of approximately 78 million common shares outstanding.
For the full year fiscal 'twenty three.
We expect SaaS and support revenue between 251, five and $252 5 million and total revenue in the range of $349 million to $350 million.
We also expect non-GAAP operating profit to be in the range of $9 million to $10 million and non-GAAP net income per share in the range of seven to nine.
Using a fully diluted share count weighted for fiscal year 'twenty three of approximately 74 million common shares outstanding.
With that John and I look forward to taking your questions.
Thank you.
As a reminder to ask a question. Please press star one one on your phone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Standby as we compile the Q&A roster.
And one moment. Please first question.
Our first question will come from Koji Ikeda of.
Bank of America Securities. Your line is open.
Hey, guys. Thanks for taking the questions.
A couple from me I, just wanted to kind of touch on the resiliency of the end market. Clearly you guys are operating well here and I think I have you guys. This every quarter, but have things changed at all are you seeing any effects of maybe the banking industry turmoil that might be affecting your target end markets just trying to figure out how you guys are seeing the health of the.
Your overall target market. Thanks.
Yes.
Thanks Koji.
We're continuing to watch, but no we have not seen any effect on sales cycles.
<unk>.
Industry that we call on.
Has supported us through the last cut.
Couple of cycles, and we've grown right through 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 as their management fee. So thats very stable the law firms.
Accounting firms consulting firms have always been very stable for us. The one that we do want to watch this investment banking, although our position there tends to be at the mid size, we're growing up into larger service more and more.
So we're going to pay attention, but so far no we have been doing well.
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 'twenty four and I don't think I heard you mentioned it in the prepared remarks, and I don't recall seeing it in the presentation, either so is that something youre not prepared to give this quarter and if not maybe why.
Yes, Koji that was kind of a onetime thing that we did last year kind of as a courtesy.
This quarter with with an extension out to September until we come back with our typically with our full year and talk about 24 guidance.
We have.
Instantly pointed people to the.
The fact that our <unk>, our total <unk> 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 when we look at it but we're going to give our guidance in that.
I'm around.
Got it. Thank you thanks, guys for taking my questions.
Okay.
Thank you.
One moment please for our next question.
Our next question will come from Kevin Mcveigh of.
Credit Suisse AG Your line is open.
Great. Thanks, so much and just a really terrific job given the current environment.
John If I heard you right I think you referenced 1000 implementations of deal cloud.
Think about that relative to the current client base is about 2500 is that the right way to think about it or is it just specific implementations, maybe it's not that pronounce.
Pronounced across the overall client base I guess is there any way to think about what percentage of deal clad is within your existing clients at this point.
Thanks, Kevin we haven't quoted that number we are steadily expanding the footprint of deal cost throughout our marketplaces.
We mentioned we began.
With your cloud and 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 consulting firms one of the things that happened. This past couple of quarters is that we really started to get more and more requests for deal cloud by name.
From the professional services firms were very excited about that it shows the connection of this industry. How the professionals worked together cross disciplinary Ali.
On deal teams and other types of projects and they see each other using deal cloud.
And so the decision was to simplify our branding a little bit and say thank you to the one place brand.
Move to deal cloud across the markets and that's working really well for us. So we're excited about this is one of several growth sectors that we have and the word of mouth is really supporting the expansion there.
That's terrific and then just it seems like your relationship with Microsoft is coming closer and closer.
With all the incremental Optionality on chat chat GPP does that accelerate the linkage with Microsoft in any way to think about Chad GPT within the lens of your kind of existing clients as they implement that because it seems like clearly will be a little bit of a pace of faster acceleration, which I would imagine it'll be better for the platform.
Overall.
We're very excited about that we've talked about the overall Microsoft partnership that's about almost 18 months and now where we are.
Pursuing several tracks one is the technology innovation track one is go to market. One is co marketing on the technology track.
Taking advantage of a wide range of Microsoft 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.
The announcements that we made on this call, but it's about one of the firms.
One of the first of all law firms has taken up deal cloud on Azure.
Uh huh.
Another firm has taken up the compliance.
<unk> on Azure. So we're excited about what's happening there in terms of chat GPT in 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 law.
Lot of the Cio's 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 tap and then.
Chuck GPT and the opening of our 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 particularly.
Hi potentials to the application of chat GPT in large language model type technology, 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 where the Microsoft partnership.
Greg It sounds like you're tethered to the right horse so congratulations.
Thank you.
And one moment please for our next question.
Yeah.
Our next question will come from Alex Sklar, Raymond James Your line is open.
Great. Thank you.
Two questions on the deal cloud brand consolidation.
You've talked about.
First John .
I know you have 90% plus penetration of those am law 100 firms can you just help frame how your business development CRM penetration within those existing one place <unk> got clients like how big of an opportunity is that as the deal cloud Cross sell and then I have a follow up on that.
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 deal side, we are 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 CIO and these firms helping to commercialize the systems that they have designed in house that actually.
Went to work for their firm so there's a.
Real product market fit for deal cloud 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 components the information that they need to manage.
And so when we bring fuel cloud in it is helping them with CRM type.
Activities in data and work, but in addition, there is 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 built type relationship.
Some of these firms, but for many years, we do absolutely have beginning footprints with over 90% of the top 100, if you want to start there that was where the company began but the cross sell and upsell opportunity inside those firms is enormous we've talked about the fact that just within our top 100 clients generally there is a 1 billion.
Of that we can go get if we continue to sell our platform through so thats a lot of what you heard on my.
Prepared remarks were.
Examples of cross sell and upsell opportunities to help people appreciate the potential that we have there and feel cloud into the CRM category into the broader knowledge category is a great example of that.
Okay. That's great context. Thank you and then just a quick follow up on that.
Are there any financial benefits implications youre looking forward would that change and then and then separately.
Sales and marketing expense growth is somewhat decelerated. Despite shifting some of that support revenue down. There can you just talk about how youre thinking about sales hiring for the rest of 2023.
Yeah.
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're probably come back in future future quarters and talk about that kind of thing I would take Alex.
As far as sales and marketing investment, yes, we're continuing to invest in sales and marketing we are growing our sales reps in particular.
And the same growth rate that we've been doing for the for the most of the year here.
There may be a comparison quarter over quarter.
That looks different there, but we are we are afforded vesting, we're seeing growth.
Our pipelines are strong and we want to make sure we capture it.
Great. Thank you both.
Yes.
Keith.
And one moment please.
Question.
The next question will come from Terry Tillman of Truth Securities. Your line is open.
Yeah, Hey, John Steve and David Congrats from me on the strong results.
Maybe the first question just relates to it's been like Clockwork, adding about 70, plus net new customers per quarter. If my math is right.
Sometimes the 100 play.
100, K 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 consistent consistently staying in that current range. The reason why I asked US is it seems like Microsoft got multiple avenues to help you on the go to market side got KPMG, you've got international expansion, just trying to understand kind of the there's a balancing act.
Maybe new logos going forward and if it could step up versus taking deal cloud and just selling a lot more to the installed base and then I had a follow up for Steve. Thank you.
Yes, it will carry on actual I'll take this one too I think I think we do see a steady add of new logos along with good <unk> instead of the twin engines of the financial model year, 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 client.
And in new clients so.
I don't expect things to change there we continue to have growth on both sides of the equation.
Okay got it well you took your question I was going to give it to John So I want to hear John Mccoy. So thank you Steve that's helpful.
More of the same goodness, that's alright, that's good it's good.
So maybe more of a thank goodness and then in terms of those kind of balances, particularly around new logos, maybe John for you you know the one thing as you were talking about some uptake as some more recent either acquired products purchased kind of organic and M&A oriented development like Bill stream in a collaborative workspace what I'm curious about is there 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.
Thanks, Terry we appreciate.
The market's uptake of both the organically developed technology for example, the relationship intelligence supplied AI.
We've been having good success with in addition to some of the products that we've been able to come out with two require technology, like Gulfstream and Mike and tough work spaces.
We really have.
Combined strategy. So there is a long history of organic development of the platform. It was designed specifically for this market by working with the CIO is in the market on a lot of the stuff designed in house, but we have used M&A of key technologies that we observed in the marketplace over time to augment the platform and we think that's one of the.
Strength 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.
<unk> 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 adaptation management that the firms need to have everybody perform regularly that will give us an even richer offering and risks and compliance for some of the financial services, both private capital and investment banking firms. So thats another.
Example of our consistent pursuit of.
What are the areas that the clients are really asking us for how can we continue to expand the <unk> platform to be even closer to the ideal purpose spilt 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.
<unk> experience for everybody. So I think you're going to continue to see that we're going to bring out new organic.
The facilities and continuing to look for great acquisition opportunities free technology and as we grow.
Sounds good thanks.
Thank you.
One moment please for our next question.
Our next question will come from Brian Schwartz of Oppenheimer. Your line is open.
Hi, John and Steve. Thank you for taking my questions. This afternoon, John 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.
Yeah.
Okay.
Well, we haven't published.
<unk> 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 seats to other groups inside the firm or additional solutions that she 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 <unk>.
Under consolidation really like about the 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 our compliance framework that makes everybody.
Feed 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.
Thank you and then Steve one question for you just on the margins in the quarter.
The business is showing a lot of margin growth.
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 in the expense lines too.
Yes.
I think the answer is both clearly we are bringing to the bottom line the revenue.
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 Youll really start to see that I think next year.
You might normally see services in terms of its P&L and in other parts of the business our execution is getting tighter and more efficient.
As we go forward so it's a little bit of both I think Brian .
Thank you.
Thank you.
One moment please for our next.
Next question.
Our next question will come from Parker Lane of Stifel.
Your line is open.
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 mid term framework of the trade off between growth and profitability just delivered 40% cloud IRR or do 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.
Well I think we're going to try to run the business too.
To help minimize that tradeoff I think we can show both.
Good sales growth and improving profitability and Thats, what our objective here over the next couple of years, we are in a position now where.
There is some natural leverage to the business. If you will given the size, we've gotten too and some of the efficient execution, we're starting to repeat now internally and a lot of fronts.
And sales growth looks good here so.
We're going to March steadily better in both both sides of that park.
Parker going forward here over the next couple of years.
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 head count perspective, as well as revenue.
Sure.
It's fairly small it's probably less than 20 people then include some contractors.
And its revenue kind of in the low single digit millions.
Going forward, we think it's a 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.
Start at a relatively smaller place and we'll see how we do.
Working within tap and leveraging our business.
Got it thanks again.
Thank you.
And one moment for our next question.
Our next question will come from Arvind <unk> of Piper Sandler Your line is open.
Hi, Thanks for taking my question.
Echo my congrats on a terrific set of results.
Just as we kind of look at.
Enterprise Tech budgets overall youre seeing quite.
Quite a bit of pressure.
From.
Kind of across across our coverage universe and some of the checks that we do.
But.
This is the third quarter you raised guidance.
It looks like things are going quite well.
From what you've said on this call things are.
Youre really not seeing any of that pressure can you, maybe just provide a little bit more color.
Because I am sure Youre kind of tuned in to kind of listen to see if there's any.
Kind of pressure that your clients are going to place on buying kind of intact, but if there's any color you can provide unlike what's driving.
Robust demand that youre seeing.
From a customer base that would be sort of a handful.
Sure. Thanks, Harlan so.
First of all it's pretty resilient end market that has supported us through the entire bootstrap to euro.
These firms do well generally speaking in good times and bad they are 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 hasnt experienced 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've developed over the years on Prem and we're here with a true industry cloud.
System, that's designed purpose perfectly 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 as well as we're doing we're still a relatively small spend compared to what they are 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.
Perfect and then.
Just in terms of like.
The value proposition right like I mean.
There's a lot of value both on the revenue driver, but also from a cost savings from a compliance perspective.
Kind of a multiple.
Kind of like business drivers that kind of value proposition that you'll have.
Has that changed.
Kind of a lot of our clients now.
Using you for the same reasons or is it kind of more.
And of interest.
Is that sales force pushing more of kind of cost savings and compliance are.
The revenue part of it is kind of clearly no change over the past 12 to 18 months.
While the sales team has done a fantastic job.
Really studying the marketplace getting to know these clients over the years in 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 planned figure out how we can best support where each of the firms as there is a range of value driver.
<unk>.
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 insure against potential turnover. There's some hard ROI components and then obviously compliance is a must have in good times and bad. So there are several different areas that we look for is we're engaged.
With the firms and I think you May you may say that in some of the firms today.
More of the compliance more of the efficiency value propositions are attractive, but there is 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 to coverage relationship intelligence part of our business.
<unk> is a very strong appeal to firms that see opportunity and within 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 as a focus on these markets and really knowing how to play that in each engagement.
Terrific. This super helpful. Thank you.
Yeah.
Thank you.
This will end Q&A I would now like to turn the conference back to John Hall for closing remarks.
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.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
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