Q3 2024 Intapp Inc Earnings Call

Participants

David Trone; Senior Vice President, Investor Relations; Intapp Inc

John Hall; Chairman of the Board, Chief Executive Officer; Intapp Inc

David Morton; Chief Financial Officer; Intapp Inc

Natalie Howe; Analyst; Bank of America

Kevin McVeigh; Analyst; UBS

Steven Enders; Analyst; Citi

Parker Lane; Analyst; Stifel

Saket Kalia; Analyst; Barclays

Alexander Sklar; Analyst; Raymond James

Dominic Mansour; Analyst; Truist Securities

Matt VanVliet; Analyst; BTIG

Ari Friedman; Analyst; Oppenheimer & Co Inc

Presentation

Operator

Good day and thank you for standing by. Welcome to the Intapp fiscal third-quarter 2024 webcast. (Operator Instructions) Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your first speaker today, David Trone, Senior Vice President of Investor Relations. David, please go ahead.

David Trone

Thank you. Welcome to Intapp fiscal-third quarter 2024 financial results. On the call with me today are John Hall, Chairman and CEO of Enpath, 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 fourth 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 and 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 total 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 the supplemental financial tables, which is available on our website and as an exhibit to the Form eight K furnished with the SEC prior to this call for a supplemental financial presentation, which is available on our website.
With that, I'll hand the conversation over to John.

John Hall

Thank you, David. Good afternoon, everyone. Thank you for joining us. As we shared the results of our fiscal third quarter. We had an exciting quarter filled with events and announcements that I'll recap for you today. In Q. three, we announced the release of new generative AI capabilities designed for the specialized needs of our target markets. We hosted our inaugural Investor Day. We held successful client and partner events. We acquired AI. provider Delphi, and we updated our applied AI intelligence applied brand. And we also drove strong results through the acquisition of new logos and the expansion of our existing accounts around the world. In Q3, our cloud ARR grew to $274.2 million, up 33% year over year. Cloud now represents 72% of our total ARR of $382.7 million in the quarter, we earned SaaS and support revenue of 80.8 million, up 22% year over year and total revenue of $110.6 million, up 20% year over year.
Before I go deeper into our third quarter highlights. You may have seen that just last week we announced the acquisition of Transform Data International, a lot of time into a partner that builds and implements enterprise collaboration technology. We believe the combination of Intel Solutions and TDI.'s domain expertise will optimize our clients' work within Microsoft applications, facilitating collaboration and laying the groundwork for the use of more advanced AI tools like copilot, we're pleased to welcome CDI. seemed intact.
Now I will turn to our Q3 highlights beginning with product innovation. In February, we celebrated intelligence Applied's launch day at NASDAQ Marketplace in New York. After ringing the opening bell, we held Investor Day, followed by a standing-room-only client event. There. We unveiled our intelligent supply strategy, which further strengthens our commitment to leading vertical AI. for the markets we serve. We also released a set of new applied AI capabilities under our Internap assist product brand. I'm pleased to be able to share a bit more about these with you now.
First, we launched Enpath assist for deal cloud, which integrates AI into everyday workflows, save professionals time by generating deal company and meeting summaries and creating relevant, personalized, targeted e-mail outreach, leveraging our partnership with Microsoft. The solution uses both Azure open AI and in TAP's proprietary firm data within SteelCloud to generate much more knowledgeable language about the firm's deals, clients and engagements, a significant advantage that helps the AI. deliver more relevant, accurate results for our professionals on the first trial is help assist Video Cloud is now generally available and it has already been adopted by clients, including corporate law firm, A&L, Goodbody and the investment team at US Realty Advisors who chose SteelCloud to replace of legacy horizontal CRM that required modification to meet the firms' need. USRA. view deal cloud as a long-term investment to future-proof their business and our platform stood out due to its real estate blueprints, impressive roster of client adopters and now new applied AI features like Enpath assist the power of generative. Ai depends on data, which is why we released interim data as a solution available to all deal cloud clients in SAP data augments firm's internal intelligence with information on more than 85 million companies and 200 million contacts plus even more connectivity with third party data partners. This nucleus of core data is critical to our application of generative AI so that our results are specific accurate, relevant and actionable drawing on our successful partnership with Microsoft, we welcome their executives to the stage at our launch event as we shared the release of Intact walls for copilot a new solution that combines the power of Microsoft technology with our industry-specific expertise and innovation in regulated markets, information security, Internap has loan helps firms take control of their sensitive information with our wall solution in tap walls helps control access to information for each professional based on their unique rights under their clients and regulatory obligations and tap walls for copilot extensibility to AI., giving firms visibility and control over the data that copilot is authorized to access and surface for each user. It processes complex, overlapping policies and rules governing each professional and the firm's body of work and translates firm policies into native security controls for each system that may contain sensitive information. Whilst for copilot is yet another example of the combined power of Microsoft technology with InTEST's industry-specific expertise and innovation.
Yes, our partnership with Microsoft continues to add value. In other in March, technology leaders from some of the world's most prominent accounting consulting and law firms attended our second annual CIO. summit in Redmond. During this two day event, CEOs in top leaders and Microsoft executives dug into the key issues they face today, including innovation, best practices and change management needed to support these markets.
As we move into the generative AI. Europe attendees were enthusiastic about both the events and the potential for continued innovation between our organizations returning to our launch event.
The last new solution we revealed originated from a market research initiative that we conducted last year with DCM insights. We studied business development behaviors and habits at partner-led firms. The research findings identified with strong data that professionals who behave as activators, people who make understanding and connecting with networks part of their daily habits tend to be the most successful in their firms. Using this research, we developed and launched the activator experience for deal cloud to help facilitate professionals successful behaviors and habits using AI powered signal solution helps each professional to be more conscious and consistent in these behaviors to drive more success and their business development activities.
Finally, we shared that Internap was acquiring for LIN based Delphi, a cutting edge organization that applies AI across public data, ensuring that firmer graphic data is collected, structured and presented to professionals with critical provenance in an era where more and more content is AI generated, provenance is critical and its significance can't be understated in our industries who make foundational promises of trust and accuracy each day. The acquisition of Delphi is a big step forward for inTEST AI. strategy. Delphi brings a brilliant team of data scientists, AI engineers and researchers who further augment our already rich AI talent. We believe Delphi's AI models and tech stack. We'll help form the next generation of our data foundation intelligence applied launch. There was a big day judging from the response it was for our clients as well. Reinforcing our vertical AI. positioning and offerings has led with groundswell of activity, creating even more applied AI conversations in an already active client base and spurring new meetings and demonstration requests. The strong interest only reinforces how well-positioned we are to take advantage manage at this moment through our applied AI strategy.
Okay. Turning now to client wins, I'd like to share just a few examples of how we're continuing to grow our client base and expand our global reach. First, I'm pleased to share that we continued to grow our client base with new logos, including a leading European consulting firm who purchased in TAP collaboration. It is now live on thousands of seats across A-Pac Amea and Lat-Am with a North American go-live planned this year, they selected Intacct collaboration to help manage teams, sprawl, automate team governance and streamline asset archiving. They are now managing their proposals projects and exceptions on SharePoint and teams within our solutions. Additionally, in Q3, several firms became new clients after having tried to use a horizontal legacy CRM to meet their industry-specific needs needs, which proved unsuccessful. A few examples of this real asset investment firm van gate who selected deal cloud based on our industry expertise and specialized focus and our ability to support their specific asset management workflows, private equity for our firm flex supply, Ford, who selected deal cloud to centralize firm deal and industry intelligence SteelCloud went out over other solutions due to its market-leading brand and ease of use for the firm's professionals and generate capital to replace their legacy CRM with SteelCloud to manage the needs of their investor coverage, Capital Markets and Investments team SteelCloud has the ease of use and out of the box purpose-built features that their previous system lacked. Additionally, cross-selling and upselling success in our existing accounts continued to drive net revenue retention. For example, investment banking firm, Perella Weinberg, who were already live on our Conflicts solution now added in tap walls. The firm will use walls to create necessary barriers around sensitive information, manage SharePoint permissions and security and track user activity to maintain regulatory compliance and the firm's own risk and compliance requirements.
As exciting as the second example of cross-selling and upselling law, firm Warner Norcross and Judd, a long-time user of our time solution added deal cloud and our Conflicts solution to support its firm-wide growth strategy.
Tom semantic, Borders Director of Business Development and Marketing shared that as part of the strategy, the firm encourages its attorneys to deepen their relationships with current clients while also nurturing their networks to source new business. He believes that SteelCloud will help attorneys facilitate growth by providing relationship management, intelligence and outreach capabilities, all in one, easy-to-use platform and the third example, UK-based law firm DAC. Beechcraft added our collaboration solution to its Instant Internet stack, which already included into time and SteelCloud David aired the firm's IT Director. So they are looking to better leverage their investment in Microsoft three 65 to align with how they believe their lawyers will use AI innovations like Microsoft copilot. They believe the work in TAP is doing to deliver legal specific modern work tools in partnership with Microsoft. We'll help safely drive innovation across the firm. And in a large final example, one of the world's largest accounting firms, an existing internal client selected our employee compliance offering to automate the auditor independence attestation process. Previously, the firm had relied on a time-consuming, error-prone manual process that required data entry duplication, navigation of multiple systems and poor data quality.
In conclusion, we're proud of our strong third quarter performance, and we're pleased with the level of continued innovation and meaningful touch points that we achieved with clients, partners and investors over the course of the quarter. We are also pleased with the response and interest in our new intelligence, applied AI capabilities and optimistic about our continued growth opportunities with them. With our intelligent supply strategy, we believe that we are well poised to be the vertical, a leader for the industries we serve. As always, I'd like to thank our clients, our partners, our investors, our Board and our global Enpath team for their teamwork and dedication. Thank you all very much.
Okay, Dave, over to you.

David Morton

Thanks, John. And thanks, everyone, for joining us today. I also want to express my gratitude to all who participated in or listened to our inaugural Investor Day this past February. We are thrilled about the strong trajectory and future of this company.
To that end, I'm pleased to report our solid third quarter performance, driven by strong cloud ARR growth and expanding customer base and enhanced operational efficiency within the quarter. These achievements collectively position us to further extend our leadership as we embark on an exciting market opportunity in our fiscal Q4 2024 and beyond SaaS and support revenue was $80.8 million, up 22% year over year, reflecting sales to new clients and expansion of existing clients from both cross selling and upselling sales motions. Subscription license revenue was $16.5 million, up 22% year over year, largely due to a couple of large clients opting for multiyear on-premise renewals. With that said, 91% of our clients have at least one cloud module. We will continue to temper our multiyear renewals as we work with our clients to transition their on-prem to cloud in the coming year.
Professional services revenue was $13.3 million, marking a 7% year over year increase. This growth rate aligns with our deliberate strategic shift to deemphasize professional services. The ongoing success of our industry solutions further contributes to clients realizing quicker time to value through an expedited implementation process. Total revenue was $110.6 million, up 20% year over year, driven primarily by sales of our cloud solutions and growth of subscription license revenue. Our international business presents a growth opportunity to expand and invest in utilization of our platform.
Beyond the US, revenue generated from our international operations remained robust, accounting for approximately 30% of total revenue for fiscal Q3. Our partner co-sell motion is gaining significant traction, driven by a partner influence and sourcing and the adoption of some of our partner products. I'm pleased to announce that we have recently onboarded six new partners further enriching our network. Additionally, we have strengthened our relationships with five existing partners, enhancing our ecosystem even further to 125. In total, Q3 non-GAAP gross margin was 75.1% as compared to 71.7% in the prior year period. Non-gaap operating expenses were $71.9 million, an $8.8 million increase year over year as we continue to invest in product development and go-to-market to support our growth as we continue to focus on our operational efficiency Our non-GAAP operating profit was $11.2 million as compared to $2.9 million in the prior year period. Non-gaap diluted EPS was $0.14 in the third 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 $16.1 million for the third quarter or 15% of total revenue. We exited the quarter with 187.4 million of cash and cash equivalents.
Turning to our key metrics. Cloud ARR was up 33% year over year, and total ARR was up 21% year over year. Total remaining performance obligations were $467.9 million, up 23% year over year. Overall, we remain committed to executing our land-and-expand model concluding the quarter with over 2,450 clients. And among those 673 had annual recurring revenue of at least 100 k., up from 572 in the previous year. 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%. Our cloud and our RAQ. three FY. 24 was 120%.
Now turning to our outlook for the fourth quarter of fiscal 24, we expect SaaS and support revenue of between 83.5 and $84.5 million and total revenue in the range of 111 to 112 million. Non-gaap operating profit in the range of 10.5 to $11.5 million and non-GAAP EPS results of 11 to $0.13 using a diluted share count weighted for the quarter of approximately 81 million common shares outstanding for the full year fiscal 24, we expect fast and support revenue of between 314.5 and $315.5 million and increasing our total revenue in the range of 427 to $428 million. We also expect non-GAAP operating profit to be in the range of 35.5, 36.5 million and non-GAAP EPS in the range of 42 to $0.44 using a diluted share count weighted for fiscal year 24 of approximately 81 million common shares outstanding.
Thank you, and I will now turn the call back to the operator.

Question and Answer Session

Operator

(Operator Instructions) Koji Ikeda, Bank of America.

Natalie Howe

Hey, this is Natalie. How on for Koji And congrats on the quarter. I wanted to ask about your levers for margin expansion expansion because you guys have really done a nice job there, especially in sales and marketing? And going forward, how do you balance investing in the platform and AI with margins?

John Hall

Thanks, Natalie. And we have a strong opportunity to take advantage of this moment in generative, AI and AI more generally. And I think that this launch that the team executed in February was an excellent moment to communicate to the market. How far we had come in bringing applied AI throughout the platform. You really saw the culmination of quarters and quarters of work there. And I'm so proud and thankful the product team and the launch team for helping us communicate. So clearly what we can do for this special market with applied AI. So you're going to see that as the beginning of an ongoing roadmap under this intelligence applied strategy to continue to bring out more and more applied AI generative AI capabilities throughout all of the products. In fact, the Internap assist product brand, we talked about in TAP assist for deal cloud. But we also talked about the fact that in the future you will see in TAP assist for additional components of the platform. So we're committed to a roadmap of increasing capability using this applied AI moment and technology throughout the platform.

Natalie Howe

That being said, I do think we're getting good leverage. Dave, you can talk a little bit more about this as we grow for a whole variety of reasons. And we shared at Investor Day that we're going to continue to demonstrate some of that as the model scales?

David Morton

Yes, you're absolutely correct, John. We've been working really diligently within the respective teams on just enhancing our own operational efficiency as we continue to scale to the $1 billion attributes that we discussed on February 22nd. So you can view that across all of our defense types across the P&L, whether it be product and engineering, sales and marketing as well as G&A. So there's more to come there as we manage those respective levers and processes.
With respect to our own product and offerings, we've been working really hard with the respective teams on our pricing and packaging and what have you to make sure that we can monetize the user Specter respective feature sets that we brought forward here in this current quarter as well as into FY 25.

Natalie Howe

Great. Thank you. That's all from me.

Operator

Kevin McVeigh, UBS.

Kevin McVeigh

Thanks so much, Jim and my congratulations as well. Hey, I don't know this before, but you know, it seems like the Microsoft alliance and the KPMJKPM. alliances continue to scale with which we really think it is just a terrific opportunity.
Steve, is there any way to maybe frame how much revenue comes from them today.
And are you starting to see some of the implementation work go through KPMJ.?
And is that helping drive some of the leverage you saw in the quarter because obviously there was a a nice outcome on the leverage as well as revenue.
I wanted to start there, if we could, for sure, Tom, we haven't talked about the absolute opportunity or the pipe that they brought, but just know that it is starting to become on a more enhanced motion course. But we're still very early innings, but we like these respective partnerships and more and we'll continue to use this as an accelerator as we discussed going forward.

David Morton

So.

David Trone

Okay, great. And then when you think about ARM, yes, I guess to go to those on prem renewals on how should we think about the timing on that, though, just given how much emphasis has been from a G&A perspective, how are you balancing those on-prem with the Gen-i opportunity more products yet?
It's a nice balance. In fact, if you want access to the newer technology, you need to be in the cloud. And so it's a push-pull motion. When we come back around and F Q4 and provide FY 20 five's annual guidance, we'll provide some more insight into that as what it what it means for that specific line item. But just know that behind the scenes, operationally, the team is working very hard with our respective clients and supporting their narrative or trying to accelerate that motion to go more and more into the cloud.

Kevin McVeigh

Super helpful and again, congratulations,

Operator

Steve Enders, Citi.

Steven Enders

Okay, great. Thanks, Ron. Thanks for taking the questions here. I guess maybe just to start, I guess would be good to hear what you're kind of hearing out there and kind of the macro environment in the deal environment? And I guess maybe how it's changed versus some of the maybe maybe weakness you're seeing in Financial Services last quarter. And then I guess as well, like I think the SaaS and support line maybe is kind of more in line with what we typically are typically seeing the execution there so business, but anything to call out to one and that may have kind of impacted that line in the quarter here?

John Hall

Yes, I think, Steve, so we look at the market opportunity as a meaningful underserved industry that traditionally did not benefit from the digital transformation movement that benefited every other industry because these firms are organized in a special way as partnerships and because the type of work that they do is not selling widgets to a sales force, but they are developing and working with clients for investment opportunities, deals on the basis of their expertise. And so the space here is pretty significant for us to grow both in new client acquisition and in client expansion. And one of the things we emphasize on investor day is how significant the SAM and TAM really are for this underserved space that I think people have kind of overlooked. We've got excellent examples now, and we talked about some of them in the script here of firms that are meaningfully expanding their footprint across our platform. And we think that's going to be a very strong growth driver for us.
As we grow the business in terms of the macro, I think we've shared with you all that there are areas of our market that have survived very well through some very turbulent times more turbulent than this. And we've actually successfully bootstrapped the business all the way through the 2008 recession and other periods because the law firms always do well, the accounting firms always do well, more and more of the professional services firms that we sell to have a very stable business. We said if there's any place that there is some potential variability for us. It's probably investment banking. We talked about that. But, you know, a lot of the firms that we talked about on the last call did come through and buy for us. We actually talked about one of them here in the script and some of them we're still working on. So it's a pretty good setup for us as far as growth goes looking forward and we were cautious as always, and we tried to be prudent, but I think we've got a very good story to tell. And this intelligence applied launch event really put us into a conversation with so many of these firms that are trying to figure out how do they take advantage of AI in their specialized industry that's highly regulated, how do they do it? And I think we brought a whole recipe for them to how to get their professionals empowered with applied AI in a way that actually works for their marketplace and we continue to roll that out. So we're encouraged.

Steven Enders

Okay, great. That's helpful context there on similar, I guess you have coming off coming off of that event where you kind of seemed the most, are there any particular products or solutions that are seeing kind of the most interest coming off of that customer event? And I think you mentioned you're beginning to see a groundswell of interest and you have an increase in conversations, I guess, in any way to kind of frame how you're kind of viewing the time line or potential impact of those conversations converting?

David Morton

Yes. So one of the things that has really helped us, and I think this is not a surprise. The whole world's been talking about generative AI for a year or more, and everyone is super excited about it because they've gotten to drive that consumer experiences. What we we're really finding is that the firms are looking two suppliers like us with a real knowledge of the workflows and the data and the users in these industries and in our industry solution strategy and our blueprints that we bring out for how do they practically take advantage of the generative AI opportunity in a trusted way that's consistent with their compliance and regulatory obligations. This is kind of the trick here for this specialized industry is how do you bring a practical set of answers to people where they can get real value out of the potential of this in a DNA trusted way. And so we've seen good response, very exciting conversations across the board, whether it's in TAP assist for deal cloud, our internal data solution, which provides a foundation for a lot of the applied AI that we're rolling out, the Intel walls for copilot solution, the activator experience, Video Cloud, which is helping the firms with business development These are all areas that we've had very strong response. And in fact, we're having multiple conversations with the same firm across different aspects of this. And I think as we continue to roll out more of the applied AI capabilities across different aspects of the platform. You'll see it become a bigger and bigger central component of what these firms are trying to do so very exciting times for us to be bringing all this out. It was one of the biggest quarters we ever had from a release standpoint, I just can't say enough about what the team did to get these products into the marketplace. It was off now.

Steven Enders

That's a that's great to hear. So I'm yes, I appreciate you, Christian, you taking the questions.

Operator

Parker Lane, Stifel.

Parker Lane

Jordan, thanks for taking the question here. Looking at the 100 k. or customer adds compared to last year, looks like you're tracking slightly ahead, John, is that reflective of you guys are landing larger with either bigger clients or more product initially or is the majority of that continue to come from long-standing customers who are just naturally expanding with you?

John Hall

Well, it's a little of both. We are landing larger accounts has been a conscious strategy of ours to move into some of the larger enterprise class firms. And when you land even with one component of the platform there, they are bigger deals. They take a little bit longer to land and they take a little bit longer to get up and running, but they're bigger deals. But that number is also influenced by the fact we have a lot of cross-sell and upsell that happen. So we can land it under 100 k. and expand within the account and it will move over that number. And you'll see that change too. So you get a little bit of both in that increase.

Parker Lane

Understood. And then, Dave, one for you, real quick professional services. I know you guys are sort of deemphasizing the component that you do that, what's the ideal mix of your buys going forward over the sort of mid to long term of professional services revenue as a percentage of the total business? Thanks.

David Morton

Yes, I would say over the longer term, it should be in the range of 10% or less. And as we navigate that between here and the future and obviously facilitating our clients first, well, we'll continue to get in that zone, but that's kind of where we're headed.

Parker Lane

Understood. Appreciate the feedback.

Operator

Saket Kalia, Barclays

Saket Kalia

Hi, guys. Thanks for taking my questions here, and I apologize in advance. I joined late. So apologies if these were these were asked, John, maybe maybe for you, and you're great to see that the net new ARR on cloud kind of kind of bounce back compared to what we saw in Q2. I'm curious as we've sort of had 90 days to look back on Q2, I mean, I think we talked about maybe just the Investment Bank vertical being a little a little softer and anything that you've kind of learned post mortem on what maybe drove that, what I'll call a dip in sort of net new ARR and then sort of the commensurate recovery that we've seen here?
second?

John Hall

Well, we did talk about the fact that at the end of the year, people were doing some budget management and looking carefully. And what we saw was that some of the deals that pushed came in. So we were very excited to see that it was a good sign that people are committed to making this transition and for large deals, particularly to the earlier point, as those become a bigger part of our story, they have a little bit more variability in their cycle. But when they come in, they can really help. So we're excited about the progress that we're making there. And I think it's a good sign more generally, SCREAM.

Saket Kalia

That's great. To hear, Dave, maybe for my follow-up for you. And I know that we don't we don't guide to ARR or net new ARR, but yes.
Is there are there any sort of broad brushes that you could give us here in Q4 weather seasonality or product launches or any any way that you kind of help us think about sort of net new ARR here in the June quarter just as we sort of fine-tune our models?

David Morton

Yes. Thanks, Eric.
We're still looking at how we're monetizing a lot of our new product offerings as John had narrated on. I think it was probably one of our biggest releases ever in the history of events happened. So there's a lot of opportunity there for us as we think about not only in Q4, but also as we enter FY 25 and really galvanize the opportunity ahead of us as well as the market and client need. And so there was a lot of puts and takes to that. But I think where you're seeing us come off is on more of a succession and really embarking are taking kind of what we learned and see in that market and continue to build ahead into this into this next 90 days. And so again, we're going to continue to be very prudent, but then also drive towards the plan as we put forward here today.

Saket Kalia

Makes sense. Thanks very much, guys.

Operator

Alex Sklar, Raymond James.

Alexander Sklar

Great. Thank you from John. First one for you. Just on the TDI. acquisition, bolstering the collaboration products where you had a nice large customer win with collaboration this quarter. Can you just tell us what this acquisition does in terms of maybe driving more penetration of your collaboration product broadly? Is that kind of the thought here? And then, Dave, any color on the financial contribution in the fourth quarter kind of annual revenue from from Delphi or TDI. going forward?

John Hall

Thanks.
Thanks, Alex. So we're very excited about the team from TDI. joining us. They have particular expertise in collaboration solutions for several of our end markets, including legal. They had been working with us in a partnership for a very long time, and their technology was actually developed to work with ours. So this is a great example of using M&A selectively to really strategically expand quickly some of the capabilities that our platform can bring to market in specific segments. So that's absolutely the goal that matches our Microsoft partnership as well. This is very much about helping our clients to get the most leverage out of their Microsoft three, 65 investment, which has just taken over the market and to bring the features and capabilities that you need as a professional services firm for a law firm or an investment bank or a private capital firm to really start to manage your knowledge and your content successfully in Microsoft three, 65 in a compliant and organized way. And so it's a very close acquisition that should really help us as we continue to grow that, that component of our strategy.

Alexander Sklar

Okay. Great. And then, Tom, I guess one for you, Dave, just it's been over a I think it's just been just over a year now since you've kind of updated that NRR range, so one, 13 to one 17. And as you look kind of over the next 12 months or whatever time frame you want to think about patient, but from the pipeline and another. Is that still the right range to think about for? And or are there any other puts and takes to be aware of? Thanks.

David Morton

Sorry, I didn't unmute button. But as we think about those puts and takes the one 13, one, 17 arm, you know, that's very much operationalized within the company. I think the math that works quite candidly, more focused on is the cloud NRR and continue to drive that motion because that's the real behavior set. And so we'll move a lot of our on-prem to our.
Yes, on-prem to cloud. That gives us an additional opportunity there as well as facilitate broader portfolio of conversations with our existing clients. And so I still think there's an opportunity across all of our product suites that we offer to all of our clients, and nobody is really fully saturated. And so we just view that kind of more of a as a guiding post here for us as we transition more and more to the cloud.
Okay.

Alexander Sklar

Great color. Thank you, both. Congrats on the quarter.

Operator

Terry Tillman, Truist Securities.

Dominic Mansour

Hi, this is Dominic Mansour on for Terry. Thanks for taking the question. So considering firms previously, so considering first previously voiced concerns with using Gen-i, especially those within highly regulated industries. I'm just wondering if you've heard any feedback on walls or copilot calming these fears? And could you double-click on how customers have been using this product thus far and how it's affected that Telenor that hesitation?

John Hall

Thanks, Dominic. Yes, we're very excited about this because two reasons one, the issue of generative A., I have everyone interested and excited. People really do believe in these end markets that that generative a Idera is going to transform the way that the professionals execute their work, people aren't really debating whether that's going to happen. The big discussion is how and in what areas and to your point, what kind of governance and information security and compliance capabilities are the new systems going to need to have in order to enable people to successfully use this. And so you're hearing a lot of themes from us that are very specific and steeped in our history of compliance information governance, specifically for these professional firms.
So the issue of provenance, you heard me talk about in the Delphi acquisition story and then walls. He's a well established product line for us. We really define this category for these end markets where they're looking for semantically based information governance. That's very distinct from the traditional and information security type of solutions that you might see in the horizontal markets. These professional firms really need a system that understands what a inflammation barrier is the kinds of semantic taxonomy that you need to really enforce those kinds of walls. And we have a great portfolio of reference customers that have been working with us in this area for a long time. So it was very natural for them to see us as the people that could bring a solution for the generator they hire and how we can help them roll out Microsoft, copilot and other general AI solutions successfully. So we've had very positive conversations across the board and we have had firms start to say, you know, we don't think that we can out copilot without having a solution like this, given the regulatory obligations that we live with that, it's not a shortcoming of the excellent coproduct technology. It's just that if you look at the way the firms do their information governance, they have to put something like this in place to be able to take advantage of Copart's capabilities. So we're excited about where this Qingdao.

Dominic Mansour

Thank you.

Operator

Matt VanVliet, BTIG.

Matt VanVliet

Yes, next question comes from Matt bandwidth at BTIG., your line is open figure approvers, Brigham aggression from obviously, the Applied AUO's strategy was just launched recently, but curious on how you're planning to fully monetize sort of a lot of these product releases. Are you anticipating having sort of standalone SKUs that are premium modules to what you're offering now? Or is this really about enhancing the value of the product out there being able to sell more product to existing customers and sort of wrapped within that, should we think about this being able to push that cloud NRR number higher throughout this year as existing customers take on more and more of the applied AI?
Thanks, Matt. So as far as monetization goes, it's a mix. So we have some of the capabilities that we announce we are including because we want to help firms take advantage of applied AI and use it inside our system. We think it's a differentiator. We think we want to be the company that is the vertical leader for them. And we also have a strategic interest, particularly with things like intent, data in getting more data into their environment that we can run a eye on and then bring in third party additional data to help augment the and information that the firms are using AI to to analyze and work with. So there's a component that's included. But in addition, we absolutely are creating standalone skews for several of these components. And it's early. You know, we just announced this in February, and we've been working with customers early on. We've got a ton of interest. And of course, we announced some of the wins, not all of them, but we announced some of the wins on the call to help see help everybody see, but this is real. At the same time, we're going to be prudent about how fast this goes. We need to sort of understand exactly what the rollout experiences like we want to make sure that we continuing our tradition of doing a great job with that to get the right clients with the right references working across the market. So it's a product rollout, like any other that takes the normal kind of time to get folks up and running. But I think generally speaking, it's a it's a great portfolio of new launches for us and should support us as we grow.

David Trone

Very, very helpful.
And then I guess as you're looking at kind of the year plus ahead, as we go into the fourth quarter here planning for fiscal 25, how should we think about headcount growth and maybe more specifically headcount growth in the go-to-market organization? Do you need to add overlay teams or any kind of sales specialists around the applied AI feature set? And so how should we think about sort of go-to-market headcount more broadly?
Yes.
I think we'll continue to be very thoughtful about our productivity, our cost of acquisition. We're not really looking to add anymore overlays into support of applied AI per se from we've got really good coverage today across each of the verticals that we serve, as well as the naming conventions of how we look at whether it be named accounts and or the long tail of opportunities. And so my point being is yes, there will be some investments as we continue to invest for growth as we have this year. But it's not going to be out in front of revenue or any other metric.

Natalie Howe

Great.
Thank you.

Operator

Brian Schwartz with Oppenheimer & Co.

David Trone

Hey, this is Ari. Friedman sitting in for Brian Schwartz.

Ari Friedman

Thanks for taking my question.
I was wondering if you could kind of double-click on like the AI and modernization. I was wondering like is the budget for like the ICUs and a I had a product net new budget like that is being created internally at these companies or do you have to like display some sort of other IT budget or software budget in order to sell it? Thanks.
Thanks, Ari. I think the answer is both of those things. There are firms who through their innovation initiatives have decided that the innovation they want to invest in is a high base, which you would expect, but they absolutely do have a high budgets in many of the firms and that's exciting as well. I think the AI capabilities are increasingly key differentiators across all of the traditional business application categories in these markets that we've served and others have served for a long time. And so the ability to bring a coherent integrated industry specific recipe for applied AI generative, AI to these firms, I think is increasingly going to be a critical differentiator on win rates and the trust of the firms, they're really buying into a modern environment. So we are committed to both. We want to go help the firms who are really trying to push AI into new areas and discover the best applications of this new potential technology for the specific industry solutions, blueprints workflows for the professionals in a way that other companies, we think don't have the industry expertise to really do for this market as well. And in addition, we want to make sure that our whole platform is market-leading and competitive because we really understand how to use applied a exit to maintain our competitive advantage generally and continue to to be the innovators in the space. So we're going to do both.
Thank you.

Operator

This concludes our question and answer session. I would now like to turn it over to John Hall for closing remarks.

David Trone

Okay. Well, thank you, everyone. We appreciate your attention and your questions.
We have a great Q3 behind us. We're very proud of our accomplishments, and we're excited about what's coming next. Thank you for your time, and we'll look forward to talking to you all again next quarter.

Operator

Thank you again for participation in today's conference. This does conclude the program. You may now disconnect.