Intapp, Inc.

Moat: 2/5

Understandability: 4/5

Balance Sheet Health: 3/5

Intapp, Inc. is a leading global provider of AI-powered software solutions for professionals in the accounting, financial, and legal services industries. It aims to boost profitability, productivity, and compliance for these firms.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Intapp offers specialized cloud software solutions tailored for the professional and financial service sectors. The company is primarily focused on serving clients in the accounting, financial, and legal sectors, targeting professionals who require complex analysis and risk management. Intapp’s software solutions seek to help firms streamline their operations, improve their efficiency, and stay compliant.

While they target professional and financial service sectors, a significant portion of their revenue comes from legal firms.

Revenue Streams

Intapp generates revenue primarily through subscription fees for its software platforms, supplemented by revenue from professional services and support. This includes implementation, configuration and training for client use.

The majority of revenues comes from subscription, which is good as that provides a recurring revenue stream and makes the business less prone to fluctuations in the economy.

The industries Intapp serves have seen the following trends:

  • Technological Integration: Adoption of cloud technologies and AI-powered solutions.
  • Focus on Compliance: Increased emphasis on data privacy and compliance requirements.
  • Remote Work: Flexible and remote work strategies are becoming more prevalent.
  • Data Security: Increased concerns about cybersecurity and data breaches.
  • Competition: Competition in the software space is increasing.

These market dynamics shape the demand for solutions that enhance security and efficiency.

Competitive Landscape

The market is quite competitive with well-established players such as LexisNexis and other financial data providers. In addition there are new entrants to the market creating more competition. The competition is intense, and these players offer similar solutions. Intapp tries to differentiate itself by offering innovative and specific tailored solutions to different segments of their business.

The key risk is competition, companies can try to copy each others’ processes and services.

What Makes Intapp Different?

  • Industry-Specific Solutions: Intapp focuses on professional and financial service sectors rather than offering solutions across all sectors, allowing them to provide more tailored products.
  • Integration with AI: Intapp leverages AI to automate core business tasks and workflows, which helps clients with data management and processing.
  • Focus on Long-term Value: Intapp works with the client to implement, enhance and then provide support for a more efficient system.

The above should create better solutions for their clients and improve retention.

Financial Analysis

Intapp’s financial performance is shown in their most recent 10-Q and 10-K reports:

  • Revenue: In the third quarter of 2023, Intapp recorded a revenue of $80.6 million (an 18% growth)
  • Operating Expenses: Total operating expenses of $68 million in the same quarter.
  • Net Loss: The company recorded a net loss of $19.2 million in the third quarter, which is a huge loss.
  • Cash Flow: Positive cash flow from operations at $31.6 million for the three months ending September 30, 2023 and $75.5 million for the nine months.
  • Cash Holdings: At end of September 2023, the company held $254.9 million of cash and cash equivalents.
  • Long-term Debt: Has relatively minimal long-term debt obligations.
  • Shareholder Equity: The company had $384 million in equity in the most recent quarter.

The company is not profitable at the moment, due to high research, development, and acquisitions expenses. Cash from operations remain positive.

The company is working towards profitability in the future, by cutting down on their expenses.

Moat Analysis

Intapp has a “Narrow Moat” at 2/5, due to factors that offer some, but not strong enough, protection against competition:

  • Switching Costs: Intapp benefits from moderate switching costs, with its customers (mostly legal firms) implementing enterprise solutions that integrate into their day-to-day. If those integrated solutions become an integral part of the business’s core structure, switching costs increase, as switching to a competitor can be disruptive and time-consuming. However, most of their customers are used to changing software and therefore switching costs aren’t as sticky.
  • Network Effects: As Intapp grows, its solutions become more useful for clients that want to connect and collaborate. But those effects are currently not that significant compared to other competitors. Also, these network effects are often not closed, that’s why competitors can provide similar solutions.
  • Intangible Assets: Intapp has brands such as “Intapp Intelligent Cloud” or “Integration Engine”, but they are not very important for companies that operate in the software space. Therefore, Intapp’s brand value is not that big in determining the overall value. Moreover, as a software company, many of their R&D and tech related assets will quickly depreciate with time. * Scale: Intapp does have scale due to having a large client base, but its size alone, doesn’t give that much of a moat against competition as other players are also rapidly growing in this market.
  • Cost Advantages: Intapp doesn’t have any significant cost advantages, which limits its ability to have pricing power against competition.

While they do have some competitive advantages, competitors have shown to be able to replicate them, making Intapp not as durable and moat not that wide.

Moat Risks

The following risks can damage the moat:

  • Rapid technological change: The company operates in a fast paced industry. New technologies might quickly make the current moat obsolete if it doesn’t keep up with competition.
  • Competitor offerings: Competitors can make their offers more valuable by integrating with AI and creating cheaper solutions.
  • Industry shifts: If there is shift in business practices that reduces the value of their software.

Business Resilience

  • Stable revenues: Recurring revenue model increases its resilience against short term economic factors.
  • Specialized solutions: Focus on niche sector reduces the risk of competition.
  • Client concentration: As the company has many large and prominent companies as clients, it reduces the volatility in its cash flows.

While Intapp might be well established in the legal sector, it still has more to prove in other sectors and must try to get more diversification in its client base.

Understandability Rating

Intapp is rated a 4 / 5 in understandability, because while the core business model is easily understood, there is complexity when diving deeper:

  • Software Business: The business model of a software company that sells SaaS solutions is well understood.
  • Targeted Industry: Intapp is focused in certain niches (legal, financial, and accounting), thus is more understandable than if the company was operating in many industries.
  • Different Revenue Streams: The company generates revenues from both subscriptions and services. It can be a little complicated for people to fully understand, how much of the revenue is subscription based.
  • Valuation: Estimating the exact value can be hard due to the high amount of R&D, and intangible assets the company carries.

The company is relatively understandable, but not as easy compared to consumer brands.

Balance Sheet Health

Intapp’s balance sheet is rated a 3/5, as it has some positive attributes but also has some risks:

  • Positive Cash Flow from Operations: Has consistent positive cash flow from operations. This is an important aspect for long-term sustainability.
  • Good Liquidity: The company holds a good amount of cash and cash equivalents, enabling it to cover short term liabilities and invest in growth and acquisitions.
  • Minimal Debt: Debt is not a large part of its structure.
  • Not Profitable: the company is still losing money, but aims to turn that around in future years.
  • Acquisitions: They have a tendency of buying other companies, which results in goodwill expenses which are hard to quantify.

While the company isn’t doing badly, it is losing money, and this is a risk, as the company might run out of cash if it doesn’t turn profitable soon enough.

Recent Concerns and Management View

  • High Sales Costs: Even though revenue has continued to grow rapidly, the sales costs have remained high. Intapp hopes to remedy that by making its sales processes more efficient.
  • High G&A and R&D Expenses: Intapp is spending large sums of money on G&A and R&D, which leads to overall losses. Management plans to use AI and operational streamlining to make its operations more efficient and reduce expenses.
  • Acquisition Costs: Intapp has historically acquired other companies, so it’s critical that the company integrates its acquisitions more effectively. Management has already taken some steps in doing so by restructuring how the acquisition’s management operates, among other things.
  • Stock Dilution: Management uses stock options for its employees which reduces the value of shares over time. This means investors have to contend with dilution of shares.

Management has laid out a plan that focuses on cutting down costs, making processes more efficient, integrating acquisitions correctly, and other factors that should improve the overall financial performance of the company.

This report was made with the information provided and should not be taken as a recommendation for any particular action.