Intapp: A Unique Journey in Legal Software
Some companies are formed around a typical business plan, while others emerge from specific needs. Intapp (NASDAQ: INTA) was created out of a problem faced by a law firm.
In the early 2000s, a small tech company in Silicon Valley was working on a data integration tool. When they attempted to file a patent for their product, the attorney managing their case expressed serious concerns about how poorly his own law firm handled similar matters. He asked, “Can I license this product?” and the rest is history.
Intapp gladly accepted the offer. The chief information officer at that law firm was so impressed with the tool that he decided to leave his job and become Intapp’s very first salesperson, recommending the software to numerous law firms. This effort led to a wave of referrals that helped the company grow.
Interestingly, Intapp never sought venture capital funding, which is quite uncommon for software companies in Silicon Valley. Their first major outside funding came from an IPO in 2021, a turning point that helped establish their position in the market. Over the past two decades, the company has developed a deep understanding of a specific industry, which is now known as their competitive edge.
A Challenging Market to Serve
Intapp creates software for various professional services, including law firms, accounting firms, investment banks, private equity firms, and consultancies. John Hall, the CEO, refers to their customer base as “large partnership firms,” which collectively generate around $4 trillion in annual revenue in the U.S. This market holds great potential but is also quite complex, causing many software companies to hesitate in pursuing it.
While designing a software model isn’t overly complicated, knowing how to determine which of a firm’s thousands of employees should see specific documents is significantly more challenging. Big, broad AI providers lack the specialized data that Intapp possesses.
Introducing Celeste: A New Kind of AI
In February, Intapp launched its new AI platform, Celeste, which became generally available by mid-July. In a conversation with The Motley Fool, Hall made it clear how Celeste differs from other legal AI tools like Harvey and Legora. The key difference lies in permission management.
Generic AI tools provide information simply based on what they’re asked, but this can lead to issues in a legal context. Hall emphasized that while these systems are honest, they might disclose answers to individuals who aren’t authorized to receive that information.
With Celeste, proper permissions are enforced, ensuring that an employee who isn’t allowed access to certain information will receive no answer. This feature keeps the legal firm’s ethical standards intact, and every interaction is recorded for compliance purposes.
Creating a language model that can cater to a firm’s nuanced needs—knowing who should and shouldn’t receive sensitive information—poses its own challenges. However, that is the foundation of Intapp’s business model.
Solid Performance Numbers
As Intapp’s fiscal year closed on June 30, the company reported strong figures. Their annual recurring revenue from cloud services reached $495.7 million, marking a 29% increase from the previous year. Overall, total annual revenue hit $577.8 million, a 15% rise.
Moreover, Intapp reported positive adjusted earnings, with a net income of $103.6 million. Free cash flow reached $144.7 million, which is quite impressive for a growing company. They also saw an increase in clients paying over $1 million a year, climbing from 109 to 142 clients.
As of mid-August, Intapp’s stock had risen about 20% since its last earnings report, although it remains down 16% from its peak last December.
Looking Ahead
Valued at around $3.07 billion, Intapp’s stock trades at about 5.3 times its sales, which isn’t unreasonable considering its consistent growth in the subscription service. Management believes there is a potential market of $50 billion for agent-focused software in the professional services sector. This shows that there is still considerable room for growth.
Although the platform Celeste was only recently launched, its ability to gain traction in the market will be crucial in the coming years. Intapp’s unique approach might prove to be a key advantage as they continue to evolve in a challenging but rewarding industry.
Should You Invest in Intapp?
Before making any investment decisions regarding Intapp, it’s essential to consider expert opinions. According to analysts from The Motley Fool, Intapp isn’t currently among their top recommended stocks, which are said to be poised for long-term growth.
With all these factors in mind, investors should weigh their options carefully before jumping in.
