Intapp, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Notes Regarding Forward-Looking Statements The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes and other financial information included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 filed with the Securities and Exchange Commission (the “SEC”) on August 26, 2024. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K, particularly in the section titled “Cautionary Note regarding Forward-Looking Statements" and "Risk Factors.” Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Unless otherwise noted, any reference to a year preceded by the word “fiscal” refers to the fiscal year ended June 30 of that year. Overview We are a leading global provider of AI-powered solutions for professionals at advisory, capital markets and legal firms. Our software helps professionals unlock their teams’ knowledge, relationships, and operational insights to increase value for their firms. Using the power of Applied AI, we make firm and market intelligence easy to find, understand, and use. With Intapp’s portfolio of vertical SaaS solutions, professionals can apply their collective expertise to make smarter decisions, manage risk, and increase competitive advantage. The world’s top firms — across accounting, consulting, investment banking, legal, private capital, and real assets — trust Intapp’s industry-specific platform and solutions to modernize and drive new growth. Highlights for the three months ended September 30, 2024 During the three months ended September 30, 2024, we generated total revenues of $118.8 million with a gross margin of 73%. Our operating cash flow was $24.4 million. Total cash and cash equivalents as of September 30, 2024 were $253.8 million. Our remaining performance obligations, which represent all future revenue under contract yet to be recognized, were $549.4 million as of September 30, 2024. How We Generate Revenue We generate revenues primarily from software subscriptions, typically with one-year or multi-year contract terms. We sell our software through a direct sales model, which targets clients based on end market, geography, firm size, and business need. We recognize revenues from SaaS subscriptions ratably over the term of the contract, while we recognize revenues from the license component of on-premise subscriptions upfront and the support component of such subscriptions ratably over the support term. We generally price our subscriptions based on the number of users adopting our solution and the modules deployed. We expect the vast majority of our new ARR (as defined below) growth in the future to be from the sale of SaaS subscriptions. We generate service revenues primarily from professional services. Our clients utilize these services to configure and implement one or more modules of the Intapp Intelligent Cloud platform, integrate those modules with the existing platform and with other core systems in their IT environment, upgrade their existing deployment, and provide training for their employees. Other professional services include strategic consulting and advisory work, which are generally provided on a standalone basis. Key Factors Affecting Our Performance Market Adoption of our Cloud Platform. Our future growth depends on our ability to win new professional and financial services clients and expand within our existing client base, primarily through the continued acceptance of our cloud business. Our cloud business has historically grown faster than our overall business, and represents an increasing proportion of our ARR. We must demonstrate to new and existing clients the benefits of selecting our cloud platform, and support those deployments once live with reliable and secure service. From a sales perspective, our ability to add new clients and expand within existing accounts depends upon a number of factors, including the quality and effectiveness of our sales personnel and marketing efforts, and our ability to convince key decision makers within professional and financial services firms to embrace the Intapp Intelligent Cloud platform over point solutions, internally developed solutions, and horizontal solutions. If our clients do not continue to see the ability of our platform to generate return on investment relative to other software alternatives, net revenue retention could suffer and our operating results may be adversely affected. Continued Investment in Innovation and Growth. We have made substantial investments in research and development and sales and marketing to achieve a leadership position in our market and grow our revenues and client base. We intend to continue to invest in research and development to build new capabilities and maintain the core technology underpinning our differentiated platform. In addition, we expect to invest in sales and marketing to broaden our reach with new clients in the U.S. and abroad and deepen our penetration with existing clients. With our revenue growth objectives, we expect to continue to make such investments for the foreseeable future. We intend to continue to gradually increase our general and administrative spending to support our growing operational needs. 17 Table of Contents We have a track record of successfully identifying and integrating complementary businesses within the professional and financial services industry. To complement our organic investment in innovation and accelerate our growth, we will continue to evaluate acquisition opportunities that help us extend our platform, broaden and deepen our market leadership, and add new clients. Key Business Metrics We review a number of operating and financial metrics, including the following key metrics to help us evaluate our business, measure our performance and the effectiveness of our sales and marketing efforts, identify trends affecting our business, formulate business plans and budgets, and make strategic decisions. Annual Recurring Revenues (“ARR”) ARR represents the annualized recurring value of all active SaaS and on-premise license contracts at the end of a reporting period. Contracts with a term other than one year are annualized by taking the committed contract value for the current period divided by number of days in that period then multiplying by 365. As a metric, ARR mitigates fluctuations in revenue recognition due to certain factors, including contract term and the sales mix of SaaS contracts and licenses. ARR does not have any standardized meaning and may not be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenues and deferred revenues and is not intended to be combined with or to replace either of those elements of our financial statements. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our clients. ARR was $417.2 million and $350.1 million as of September 30, 2024 and 2023, respectively, an increase of 19%. Cloud ARR Cloud ARR is the portion of our ARR which represents the annualized recurring value of our active SaaS contracts. We believe Cloud ARR provides important information about our ability to sell new SaaS subscriptions to existing clients and to acquire new SaaS clients. Cloud ARR was $309.1 million and $242.5 million as of September 30, 2024 and 2023, respectively, an increase of 27%, and represented 74% and 69% of ARR as of September 30, 2024 and 2023, respectively. Net Revenue Retention ("NRR") We measure our ability to grow and retain ARR from existing clients using a metric we refer to as NRR. We calculate this by starting with the ARR from the cohort of all clients as of the twelve months prior to the applicable fiscal period, or prior period ARR. We then calculate the ARR from these same clients as of the current fiscal period, or current period ARR. We then divide the current period ARR by the prior period ARR to calculate the NRR. This metric accounts for changes in our recurring revenue base from cross-sell (additional solution capabilities sold), upsell (additional seats sold), price changes, and client attrition (including contraction of solution capabilities, contraction of seats and client churn). We upsold additional seats and cross-sold new solutions to our existing clients such that our trailing twelve months’ NRR as of September 30, 2024 was 114%, which is within our expected range of 113% to 117%. Cloud NRR Cloud NRR is the portion of our NRR which represents the net revenue retention of our SaaS contracts. We calculate Cloud NRR by starting with the Cloud ARR from the cohort of all clients as of the twelve months prior to the applicable fiscal period, or prior period Cloud ARR. We then calculate the Cloud ARR from these same clients as of the current fiscal period, or current period Cloud ARR. We then divide the current period Cloud ARR by the prior period Cloud ARR to calculate the Cloud NRR. Our trailing twelve months’ Cloud NRR as of September 30, 2024 was 119%. Number of Clients We believe our ability to increase the number of clients on our platform is a key indicator of the growth of our business and our future business opportunities. We define a client at the end of any reporting period as an entity with at least one active subscription as of the measurement date. As of September 30, 2024, we had over 2,600 clients. No single client represented more than 10% of total revenues for either of the three months ended September 30, 2024 and 2023. Our client base includes some of the largest and most reputable professional and financial services firms globally. These clients have the financial and operating resources needed to purchase, deploy, and successfully use the full capabilities of our software platform, and as such, we believe the number of our clients with contracts greater than $100,000 of ARR is an important metric for highlighting our progress on the path to full adoption of our platform by our professional and financial services clients. As of September 30, 2024 and 2023, we had 707 and 626 clients, respectively, with contracts greater than $100,000 of ARR. 18 Table of Contents Components of Our Results of Operations Certain prior period amounts reported thereto have been reclassified to conform to the current year presentation. Effective July 1, 2024, we adjusted the classification of support services related to subscription license to be included within “license” on the unaudited condensed consolidated statements of operations. Prior to July 1, 2024, support services related to subscription license was included in a line item entitled “SaaS and Support.” The presentation of cost of revenues has been conformed to reflect the changes related to the presentation of revenues. Such reclassifications related to the presentation of revenues and cost of revenues effective as of July 1, 2024 and did not affect total revenues, operating income, or net income. There was no change to the revenue recognition policy, except for the change in classification noted herein. Revenues We generate revenues from the sale of our SaaS solutions and premium support services related to SaaS, and subscriptions to our term software applications and support services related to licenses. We generate professional services revenues primarily by delivering professional services for the configuration, implementation and upgrade of our solutions. SaaS SaaS revenues include subscription fees from clients accessing our SaaS solutions, premium support services related to SaaS, and updates, if any, to the subscribed service during the subscription term. We recognize SaaS revenues ratably over the contract term beginning on the commencement date of each contract, which is the date when the service is provisioned and made available to our clients. The initial term of our SaaS contracts is generally one to three years in duration. License License revenues include subscription fees from providing clients with the right to functional intellectual property where clients can benefit from the subscription licenses on their own and support services related to the licenses, which entitles clients to receive technical support and software updates, on a when and if available basis. We recognize license revenues related to subscription fees at a point in time when control of our term software application is transferred to the client, which generally occurs at the time of delivery or upon commencement of the renewal term. License fees are generally payable in advance on an annual basis over the term of the license arrangement, which is typically non-cancelable. We recognize License revenues related to support ratably over the term of the support contract which corresponds to the underlying license agreement. We expect to continue to generate a relatively consistent stream of license revenues from our existing license clients. However, over time as we focus on new sales of our SaaS solutions and encourage existing license clients to migrate to SaaS solutions, we expect revenues from license to decrease as a percentage of total revenues. Professional Services Our professional services primarily consist of implementation, configuration and upgrade services provided to clients and others. These engagements are billed to clients either on a time and materials or milestone basis; revenues are recognized as invoiced or in proportion to the work performed, respectively. We expect the demand for our professional services to increase due to client growth and the need for implementation, upgrade, and migration services for new and existing clients. This demand will be affected by the mix of professional services that are provided by us versus provided by our third-party implementation partners, reflecting our strategy to de-emphasize professional services revenue. Cost of Revenues Our cost of revenues consists primarily of expenses related to providing SaaS solutions, premium support services related to SaaS, support services related to license and professional services to our clients, including personnel costs (salaries, bonuses, benefits and stock-based compensation) and related expenses for client support and services personnel, as well as cloud infrastructure costs, third-party expenses, amortization of capitalized internal-use software costs and acquired intangible assets, and allocated overhead costs. We expect our cost of revenues to increase in absolute dollars as we expand our SaaS client base over time as this will result in increased cloud infrastructure costs and increased costs for additional personnel to provide technical support services to our growing client base. Cost of SaaS Our cost of SaaS revenues comprises the direct costs to deliver and support our SaaS solutions and premium support services related to SaaS, including personnel costs, allocated overhead costs for facilities and IT, third-party hosting fees related to cloud services, amortization of capitalized internal-use software costs and amortization of acquired intangible assets. Cost of License Our cost of license revenues comprises the direct costs to support our license, including personnel costs, and allocated overhead costs for facilities and IT. 19 Table of Contents Cost of Professional Services Our cost of professional services revenues comprises the personnel-related costs for our professional services employees and contractors responsible for delivering implementation, upgrade and migration services to our clients. This includes personnel costs and allocated overhead costs for facilities and IT. We expect the cost of professional services revenues to increase in absolute dollars as we continue to hire personnel and engage contractors to provide implementation, upgrade and migration services to our growing client base. Operating Expenses Research and Development Our research and development expenses consist primarily of personnel-related costs for engineering and product development employees, costs of third-party services, and allocations of various overhead, cloud hosting costs and facilities costs. We expect our research and development expenses to continue to increase in absolute dollars for the foreseeable future as we continue to dedicate substantial internal resources to develop, improve and expand the functionality of our solutions. Sales and Marketing Our sales and marketing expenses consist primarily of costs incurred for personnel-related costs for our sales and marketing employees as well as sales commissions and benefits, costs of marketing events and online advertising, allocations of various overhead and facilities costs and travel and entertainment expenses. We capitalize client acquisition costs (principally commissions paid to sales personnel) and subsequently amortize these costs over the expected period of benefit. In the medium-term, we expect to see an increase in sales and marketing expense as we continue to expand our direct sales force to take advantage of opportunities for growth and increase in in-person meetings, conferences, and attendance at trade shows. General and Administrative Our general and administrative expenses consist primarily of personnel-related costs as well as professional services and facilities costs related to our executive, finance, human resources, information technology and legal functions. As a public company, we expect to continue to incur significant accounting and legal costs related to compliance with rules and regulations enacted by the SEC, including the costs of maintaining compliance with the Sarbanes-Oxley Act, as well as insurance, investor relations and other costs associated with being a public company. Interest and Other Income (Expense), Net Interest and other income (expense), net consists primarily of interest income from our cash and cash equivalents, non-cash interest expense related to the amortization of deferred financing costs, and gains and losses from foreign currency transactions. Income Tax Expense Our income tax expense consists of an estimate of federal, state, and foreign income taxes based on enacted federal, state, and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred tax assets will not be realized. 20 Table of Contents Results of Operations The following tables set forth our results of operations for the periods presented, expressed in total U.S. dollar terms and as a percentage of our total revenues (percentages may not add up due to rounding): Three Months Ended September 30, 2024 2023 (in thousands, except for percentages) Revenues: SaaS $ 76,876 65 % $ 58,913 58 % License 28,492 24 28,051 28 Professional services 13,437 11 14,611 14 Total revenues 118,805 100 101,575 100 Cost of revenues (1) : SaaS 15,318 13 12,711 13 License 1,752 1 1,702 1 Professional services 14,864 13 17,160 17 Total cost of revenues 31,934 27 31,573 31 Gross profit 86,871 73 70,002 69 Operating expenses (1) : Research and development 32,427 27 28,496 28 Sales and marketing 37,760 32 34,419 34 General and administrative 23,938 20 21,052 21 Total operating expenses 94,125 79 83,967 83 Operating loss (7,254 ) (6 ) (13,965 ) (14 ) Interest and other income (expense), net 3,422 3 (943 ) (1 ) Net loss before income taxes (3,832 ) (3 ) (14,908 ) (15 ) Income tax expense (688 ) (1 ) (413 ) — Net loss $ (4,520 ) (4 ) % $ (15,321 ) (15 ) % (1) Amounts include stock-based compensation expense as follows: Three Months Ended September 30, 2024 2023 Cost of SaaS $ 664 1 % $ 413 1 % Cost of license 189 — 128 — Cost of professional services 1,379 1 1,333 1 Research and development 4,624 4 4,646 5 Sales and marketing 5,738 5 5,339 5 General and administrative 7,395 6 6,898 6 Total stock-based compensation expense $ 19,989 17 % $ 18,757 18 % Comparison of the Three Months Ended September 30, 2024 and 2023 Revenues Three Months Ended September 30, Change 2024 2023 Amount % (in thousands, except for percentages) Revenues: SaaS $ 76,876 $ 58,913 $ 17,963 30 % License 28,492 28,051 441 2 % Professional services 13,437 14,611 (1,174 ) (8 )% Total revenues $ 118,805 $ 101,575 $ 17,230 17 % 21 Table of Contents SaaS revenues increased by $18.0 million, or 30%, in the three months ended September 30, 2024 compared to the same period in the prior year, due to sales to new clients and expansion of existing clients from both cross-selling and upselling sales motions. The continuation of clients migrating from using our on-premise license solutions to our cloud solutions also contributed to the growth. License revenues increased by $0.4 million, or 2%, in the three months ended September 30, 2024 compared to the same period in the prior year. Professional services revenues decreased by $1.2 million, or 8%, in the three months ended September 30, 2024 compared to the same period in the prior year. The decrease in professional services revenue was primarily due to change in mix of resource delivery to our third-party implementation partners. Cost of Revenues and Gross Profit Three Months Ended September 30, Change 2024 2023 Amount % (in thousands, except for percentages) Cost of revenues: SaaS $ 15,318 $ 12,711 $ 2,607 21 % License 1,752 1,702 50 3 % Professional services 14,864 17,160 (2,296 ) (13 )% Total cost of revenues 31,934 31,573 361 1 % Gross profit: SaaS 61,558 46,202 15,356 33 % License 26,740 26,349 391 1 % Professional services (1,427 ) (2,549 ) 1,122 (44 )% Gross profit $ 86,871 $ 70,002 $ 16,869 24 % Cost of SaaS Cost of SaaS revenues increased by $2.6 million, or 21%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase can be attributed to increases in amortization of acquired intangible assets of $0.6 million, allocated overhead costs of $0.5 million, royalty expenses of $0.5 million, cloud hosting costs of $0.4 million and personnel-related costs of $0.4 million as a result of increased headcount. Cost of License Cost of license revenues remained relatively flat for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Cost of Professional Services Cost of professional services revenues decreased by $2.3 million, or 13%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to decreases in personnel-related costs of $1.6 million as a result of decreased headcount, allocated overhead costs of $0.3 million and $0.2 million in travel related expenses. Gross Profit Gross profit increased by $16.9 million, or 24%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Of this increase, $15.4 million was attributable to growth in SaaS revenues and a decrease in SaaS costs as a percentage of related revenues and $1.1 million was attributable to a decrease in professional services costs as a percentage of related revenues. 22 Table of Contents Operating Expenses Three Months Ended September 30, Change 2024 2023 Amount % (in thousands, except for percentages) Operating expenses: Research and development $ 32,427 $ 28,496 $ 3,931 14 % Sales and marketing 37,760 34,419 3,341 10 % General and administrative 23,938 21,052 2,886 14 % Total operating expenses $ 94,125 $ 83,967 $ 10,158 12 % Research and Development Research and development expenses increased by $3.9 million, or 14%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Personnel-related costs increased by $2.5 million due to annual salary increases and increased headcount. Contractor costs increased by $0.6 million as we increased contractor resources to support on-going development of our cloud offerings. Allocated overhead costs increased by $0.6 million due to increased headcount. Sales and Marketing Sales and marketing expenses increased by $3.3 million, or 10%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Personnel-related costs increased by $2.5 million primarily due to annual salary increases and increased headcount. Sales commissions increased by $0.7 million primarily driven by increased sales. Stock-based compensation expense increased by $0.4 million, primarily due to an increase in stock awards granted. General and Administrative General and administrative expenses increased by $2.9 million, or 14%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This was primarily driven by an increase of $2.2 million in personnel-related costs primarily due to annual salary increases and increased headcount. Stock-based compensation expense increased by $0.5 million, primarily due to an increase in stock awards granted. Interest and Other Income (Expense), Net Three Months Ended September 30, Change 2024 2023 Amount % (in thousands, except for percentages) Interest and other income (expense), net $ 3,422 $ (943 ) $ 4,365 (463 )% The change in interest and other income (expense), net, was primarily due to gains from foreign currency transactions and an increase in interest income as we increased our cash held in money market funds. Income Tax Expense Three Months Ended September 30, Change 2024 2023 Amount % (in thousands, except for percentages) Income tax expense $ (688 ) $ (413 ) $ (275 ) 67 % Income tax expense was $0.7 million for the three months ended September 30, 2024, compared to an income tax expense of $0.4 million for the three months ended September 30, 2023. Our income tax expense during the three months ended September 30, 2024 and 2023 was primarily attributable to income tax expense in a number of U.S. state jurisdictions and foreign jurisdictions. 23 Table of Contents Liquidity and Capital Resources Sources and Uses of Liquidity As of September 30, 2024, we had cash and cash equivalents of $253.8 million. We finance our liquidity needs primarily through collections from clients and the issuance of equity securities. We generally bill and collect from our clients annually in advance. Our billings are subject to seasonality with billings in the fourth quarter higher than in the other quarters. Operating losses could continue in the future as we continue to invest in the growth of our business. We believe our existing cash and cash equivalents as of September 30, 2024, along with our JPMorgan Credit Facility described below, will be sufficient to meet our working capital and capital expenditure needs for the next twelve months and beyond. On October 5, 2021, we entered into a Credit Agreement, as amended on June 6, 2022 and further amended on November 17, 2022, with a group of lenders led by JPMorgan. The Credit Agreement provides for a five-year, senior secured revolving credit facility of $100.0 million with a sub-facility for letters of credit in the aggregate amount of up to $10.0 million. As of September 30, 2024, no amounts have been borrowed under the JPMorgan Credit Facility. See Note 10, Debt , to our unaudited condensed consolidated financial statements for additional information. Our primary uses of cash include personnel-related expenses, third-party cloud infrastructure expenses, research and development, sales and marketing expenses, overhead costs and acquisitions we may make from time to time. Our future capital requirements will depend on many factors, including, but not limited to, our ability to grow our revenues and the timing and extent of investment across our organization necessary to support growth in our business. In addition, we may in the future enter into arrangements to acquire or invest in complementary businesses or technologies. We may need to seek additional equity or debt financing in order to meet these future capital requirements. If we are unable to raise additional capital when desired, or on terms that are acceptable to us, our business, financial condition and results of operations could be adversely affected. Cash Flows The following table summarizes our cash flows from operating, investing, and financing activities for the periods presented (in thousands): Three Months Ended September 30, 2024 2023 Net cash provided by operating activities $ 24,446 $ 11,612 Net cash used in investing activities (2,785 ) (3,002 ) Net cash provided by financing activities 21,531 1,691 Effect of foreign currency exchange rate changes on cash and cash equivalents 2,285 261 Net increase in cash, cash equivalents and restricted cash $ 45,477 $ 10,562 Operating Activities During the three months ended September 30, 2024, net cash provided by operating activities was $24.4 million, as our operating loss of $4.5 million was reduced by $29.0 million of adjustments. These adjustments consisted of $25.3 million of non-cash charges (principally comprising of stock-based compensation, depreciation and amortization and amortization of operating lease right-of-use assets) and net cash inflow of $3.7 million from net changes in operating assets and liabilities. The net cash inflow from changes in operating assets and liabilities was primarily driven by a decrease in accounts receivable of $30.2 million due to the timing of billing and collections on our outstanding receivables and a decrease in unbilled receivables of $0.5 million, offset by a decrease in deferred revenue of $17.3 million due to the timing of invoicing to our clients, a decrease in accounts payable and accrued liabilities of $8.1 million primarily due to timing of payments and a decrease in operating lease liabilities of $1.3 million due to lease payments. During the three months ended September 30, 2023, net cash provided by operating activities was $11.6 million, as our operating loss of $15.3 million was reduced by $26.9 million of adjustments. These adjustments consisted of $22.8 million of non-cash charges (principally comprising stock-based compensation expense and depreciation and amortization), and net cash inflow of $4.1 million from net changes in operating assets and liabilities. The net cash inflow from changes in operating assets and liabilities was primarily driven by a decrease in accounts receivable of $23.5 million due to the timing of billing and collections on our outstanding receivables, offset by a decrease in accounts payable and accrued liabilities of $11.3 million primarily due to payments for annual bonuses, an increase in unbilled receivables of $3.9 million due to the timing of invoicing to our clients, a decrease in other liabilities of $1.6 million due to the timing of payments, a decrease in operating lease liabilities of $1.6 million due to lease payments, and an increase of $1.3 million in prepaid expenses and other assets due to the timing of payments. Investing Activities Net cash used in investing activities consists of purchases of property and equipment, leasehold improvements, and capitalized internal-use software costs. 24 Table of Contents During the three months ended September 30, 2024, net cash used in investing activities was $2.8 million, consisting of capitalized internal-use software costs of $1.5 million, $0.9 million working capital adjustment related to a prior acquisition and capital expenditures of $0.4 million on property and equipment largely of computer equipment. During the three months ended September 30, 2023, net cash used in investing activities was $3.0 million, consisting of capitalized internal-use software costs of $1.9 million and capital expenditures of $1.1 million on property and equipment largely of computer software and development costs. Financing Activities During the three months ended September 30, 2024, net cash provided by financing activities was $21.5 million, primarily comprised of $22.9 million of proceeds from stock option exercises offset by a $1.4 million payment for contingent consideration related to a prior acquisition. During the three months ended September 30, 2023, net cash provided by financing activities was $1.7 million, primarily comprised of $2.3 million of proceeds from stock option exercises, offset by $0.6 million of payments related to deferred offering costs in connection with our follow-on public offering. Material Cash Commitments There have been no significant changes in our material cash requirements from those disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the SEC on August 26, 2024. Indebtedness On October 5, 2021, we entered into a Credit Agreement, as amended on June 6, 2022 and further amended on November 17, 2022, with a group of lenders led by JPMorgan. The Credit Agreement provides for a five-year, senior secured revolving credit facility of $100.0 million with a sub-facility for letters of credit in the aggregate amount of up to $10.0 million. We were in compliance with all of the covenants as of September 30, 2024. As of September 30, 2024, no amounts have been borrowed under the JPMorgan Credit Facility. Critical Accounting Policies and Estimates The process of preparing our unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions we believe to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on an ongoing basis and are revised when necessary. Actual amounts may differ from these estimates and judgments. There have been no material changes to our critical accounting policies or estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the SEC on August 26, 2024. Recent Accounting Pronouncements See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding recent accounting pronouncements and our assessment of their impact. 25 Table of Contents Item 3. Quantitative and Qualitati ve Disclosures About Market Risk We are exposed to market risks in the ordinary course of our business, including foreign currency exchange, credit, inflation, and interest rate risks. Foreign Currency Exchange Risk Our reporting currency is the U.S. dollar and the functional currency for all of our foreign subsidiaries is the U.S. dollar, except Rekoop Ltd., which uses the British pound. The majority of our revenue and expenses are denominated in U.S. dollars. However, we have foreign currency risks as we have contracts with clients and payroll obligations and a limited number of supply contracts with vendors which have payments denominated in foreign currencies. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in foreign exchange gains and losses related to changes in foreign currency exchange rates. We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future. Our exposure to foreign currency exchange risk relates primarily to our accounts receivable, cash balances, other employee compensation related obligations and lease liabilities denominated in currencies other than the U.S. dollar. If a hypothetical 10% change in foreign currency exchange rates were to occur in the future, the resulting gain or loss would be immaterial on our operating results over the next twelve months. Credit Risk We routinely assess the creditworthiness of our clients. We have not experienced any material losses related to non-payment of receivables from individual or groups of clients due to loss of creditworthiness during the three months ended September 30, 2024 and 2023. Clients representing in excess of 10% of our accounts receivable balance at September 30, 2024 and June 30, 2024 were zero and one, respectively. Due to these factors, management believes that we do not have additional credit risk beyond the amounts already provided for collection losses in our accounts receivable. Inflation Risk We do not believe that inflation has had a material effect on our business, results of operations, or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs, particularly if inflationary pressures occur during an economic downturn. Further, our clients may not buy new products or may refrain from expanding current product usage as a result of the impact of increasing costs on their spend. These matters could harm our business, results of operations, or financial condition. Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our cash held in cash deposits and cash equivalents invested in money market funds and our senior secured revolving credit facility of up to $100.0 million. As of September 30, 2024, we had cash and cash equivalents of $253.8 million held with multiple high credit quality financial institutions, including investments in money market funds. Our investments are subject to market risk due to changes in interest rates, which may affect our interest income. A hypothetical 100 basis points increase or decrease in interest rates would not have a material impact on our operating results or the fair value of our cash and cash equivalents over the next twelve months. As of September 30, 2024, we had no outstanding loan balance under our senior secured revolving credit facility. Future borrowings under this facility will accrue interest at a variable rate based on, at our election, either (a) an adjusted secured overnight financing rate (SOFR, as described in the Credit Agreement) plus a percentage spread (ranging from 1.75% to 2.50%) or (b) an alternate base rate (as described in the Credit Agreement) plus a percentage spread (ranging from 0.75% to 1.50%), in each case based on the Company’s total net leverage ratio. As a result, we will be exposed to increased interest rate risk if we draw down on the facility. For further information refer to Note 10, Debt , in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024 for further information on the Credit Agreement and the Security Agreement. 26 Table of Contents