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. 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, particularly in the section titled “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 Intapp is a leading provider of industry-specific, cloud-based software solutions for the professional and financial services industry globally. We empower the world’s premier private capital, investment banking, legal, accounting, and consulting firms with the technology they need to meet rapidly changing client, investor, and regulatory requirements, deliver the right insights to the right professionals, and operate more competitively. Our Intapp Platform is purpose-built to modernize these firms. The platform facilitates greater team collaboration, digitizes complex workflows to optimize deal and engagement execution, and leverages proprietary AI to help nurture relationships and originate new business. By better connecting their most important assets—people, processes, and data—our platform helps firms increase client fees and investment returns, operate more efficiently, and better manage risk and compliance. 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 enterprise sales model, which targets clients based on end market, geography, firm size, and business need. Historically, most of our clients hosted our software on-premises. However, as we saw the potential for the cloud to impact the professional and financial services industries, we invested in developing a multi-tenant cloud version of our platform and launched our initial software-as-a-service (“SaaS”) solutions in 2017. We recognize revenues from SaaS subscriptions ratably over the term of the contract, while we recognize revenues from the license component of on-premises subscriptions upfront and the support component of such subscriptions ratably over the support term. We generally price our subscriptions based on the modules deployed as well as the number of users adopting our solution. We expect substantially all of our new ARR growth in the future to be from the sale of SaaS subscriptions. We generate a majority of our non-recurring revenues from professional services. Our clients utilize these services to configure and implement one or more modules of the Intapp 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. Recent Developments On July 2, 2021, in conjunction with the IPO, our amended and restated Certificate of Incorporation became effective, pursuant to which our authorized capital stock was increased to 700 million shares of common stock and 50 million shares of preferred stock. On July 2, 2021, we completed our IPO and sold 10,500,000 shares of our common stock at a public offering price of $26.00 per share. The net proceeds to us were $244.8 million, after deducting the underwriters’ discounts and offering expenses payable by us. On July 2, 2021, upon the closing of the IPO, all outstanding shares of Series A and Series A-1 convertible preferred stock were automatically converted into 19,034,437 shares of our common stock on a one-for-one basis. On July 8, 2021, the underwriters of our IPO exercised in full their right to purchase an additional 1,575,000 shares of our common stock at the public offering price of $26.00 per share. The net proceeds to us were $38.2 million, after deducting the underwriters’ discounts. On July 12, 2021, we repaid the outstanding $273.0 million borrowing under the term loan and $5.0 million borrowing under the revolving credit facility from the proceeds of the IPO. As a result, we recognized a loss on extinguishment of debt of $2.4 million on this date in connection with the write-off of the unamortized financing costs related to the term loan. On October 5, 2021, we entered into the Credit Agreement 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. The Credit Agreement also provides that we may seek additional revolving credit commitments in an aggregate amount not to exceed $50.0 million. No amounts have been borrowed under the JPMorgan Credit Facility. 20 Table of Contents In connection with the execution of the Credit Agreement, we also entered into the Security Agreement with the subsidiaries of the Company identified therein and JPMorgan, as collateral agent for the secured parties identified therein. Under the Security Agreement, borrowings under the JPMorgan Credit Facility are secured by a first priority pledge of all of the capital stock of each of our first-tier subsidiaries and the subsidiary guarantors, subject to customary limitations with respect to foreign subsidiaries, and substantially all of our assets (excluding real estate interests) and the subsidiary guarantors. 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 Platform over point solutions, internally developed solutions, and horizontal solutions. Net Revenue Retention. We measure our ability to grow and retain ARR from existing clients using a metric we refer to as net revenue retention. 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 net revenue retention. This metric accounts for changes in our recurring revenue base from capability increases or decreases, seat increases or decreases, price increases or decreases, and client attrition. We have averaged a net revenue retention rate of over 110% in each of the twelve-month periods ended September 30, 2021 and September 30, 2020 due to a steady increase in client adoption of our platform’s capabilities and a low level of client attrition. However, 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 increase investment in sales and marketing to broaden our reach with new clients in the United States and abroad and deepen our penetration with existing clients. We are continuing to increase our general and administrative spending to support our growing operational needs as a public company. With our revenue growth objectives, we expect to continue to make such investments for the foreseeable future. We have a track record of successfully identifying and integrating complementary businesses within the professional and financial services industry and to complement our organic investment in innovation and accelerate growth, we will continue to evaluate acquisition opportunities that help us extend our platform, broaden and deepen our market leadership, and add new clients. COVID-19 effects on demand for our platform. Given the ongoing nature of the COVID-19 pandemic and the risks it poses for business operations and demand for services across all sectors, there is no guarantee with respect to the timing or magnitude of demand recovery in the economy, or in the industry sectors that we serve, which may adversely impact our operating results. Key business metrics We review a number of operating and financial metrics, including the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Annual recurring revenues (“ARR”) ARR represents the annualized recurring value of all active SaaS and on-premises subscription 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 subscription 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 $228.6 million and $179.3 million as of September 30, 2021 and 2020, respectively, an increase of 27%. 21 Table of Contents 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 $125.3 million and $80.1 million as of September 30, 2021 and 2020, an increase of 56%, and represented 55% and 45% of ARR as of the three months ended September 30, 2021 and 2020, respectively. 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, 2021, we had more than 1,950 clients. No single client represented more than 10% of total revenues for the three months ended September 30, 2021 and 2020. 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, 2021 and 2020, we had 446 and 371 clients, respectively, with contracts greater than $100,000 of ARR. Components of Our Results of Operations Revenues We generate recurring revenues from the sale of our SaaS solutions, subscriptions to our term software applications, and from providing support for those applications. We generate non-recurring revenues primarily by delivering professional services for the configuration, implementation and upgrade of our solutions. Our recurring revenues accounted for 87% and 90% of our total revenues during the three months ended September 30, 2021 and 2020, respectively. SaaS and support We recognize revenues from our SaaS solutions ratably over the term of the contract beginning once the SaaS environment is provisioned and made available to clients. The initial term of our SaaS contracts is generally one to three years in duration. Support revenues consist of non-cancelable support which is included with our subscription licenses and entitles clients to receive technical support and software updates, on a when and if available basis. We recognize revenues for support ratably over the term of the support contract which corresponds to the underlying subscription license agreement. We expect to continue to generate a relatively consistent stream of revenues from support services we provide to our existing subscription license clients. However, over time as we focus on new sales of our SaaS solutions and encourage existing subscription license clients to migrate to SaaS solutions, we expect revenues from support to decrease as a percentage of total revenues. Subscription license Our subscription licenses provide the client with the right to functional intellectual property and are distinct performance obligations as the client can benefit from the subscription licenses on their own. The transaction price allocated to subscription license arrangements is recognized as revenues at a point in time when control is transferred to the client, which generally occurs at the time of delivery for a new contract or commencement of the renewal term for renewals. Subscription license fees are generally payable in advance on an annual basis over the term of the license arrangement, which is typically noncancelable. Professional services Our professional services primarily consist of implementation, configuration and upgrade services provided to clients. 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. Our professional services are currently loss making (after allocated overhead for facilities and IT) and accounted for 13% and 10% of our total revenues during the three months ended September 30, 2021 and 2020, respectively. 22 Table of Contents Cost of revenues Our cost of revenues consists primarily of expenses related to providing SaaS subscription, support 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, depreciation of fixed assets, amortization of capitalized internal-use software costs and acquired intangible assets, and allocated overhead. We do not have any cost of revenues related to our subscription licenses. 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 and support Our cost of SaaS and support revenues comprises the direct costs to deliver and support our products, including salaries, bonus, benefits, stock-based compensation, as well as allocated overhead for facilities and IT, third-party hosting fees related to cloud services, amortization of capitalized internal-use software development costs and amortization of acquired intangible assets. Cost of professional services Our cost of professional services revenues comprises the personnel-related expenses for our professional services employees and contractors responsible for delivering implementation, upgrade and migration services to our clients. This includes salaries, benefits, stock-based compensation, and allocated overhead for facilities and IT. We expect the cost of professional services revenues to increase in absolute dollars as we continue to hire personnel to provide implementation, upgrade and migration services to our growing client base. Operating expenses Research and development expense Our research and development expenses comprise costs associated with the development of our software products for sale. The major components of research and development costs include salaries and employee benefits, costs of third-party services, and allocations of various overhead and occupancy 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 expense Our sales and marketing expenses consist primarily of costs incurred for personnel-related expenses for our sales and marketing employees as well as commission payments to our sales employees, costs of marketing events and online advertising, allocations of various overhead and occupancy 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. We expect in the long-term we will see an increase of our sales and marketing expense as we continue to expand our direct sales force to capitalize on opportunities for growth and resume in-person conferences and attendance at trade shows once the COVID-19 pandemic has been brought under control. General and administrative expense Our general and administrative expenses consist primarily of personnel-related expenses as well as professional services and facilities costs related to our executive, finance, human resources, information technology and legal functions. Being a new public company, we expect to incur significant additional accounting and legal costs related to compliance with rules and regulations enacted by the SEC, including the additional costs of achieving and maintaining compliance with the Sarbanes-Oxley Act, as well as additional insurance, investor relations and other costs associated with being a public company. Loss on debt extinguishment Loss on debt extinguishment consists of the write-off of unamortized deferred financing costs upon the repayment of our debt obligations. Interest expense Interest expense, net primarily consists of the interest on our debt, which was repaid in full in July 2021. Other income, net Other income, net consists primarily of realized and unrealized foreign exchange gains and losses resulting from fluctuations in foreign exchange rates on monetary assets and liabilities denominated in currencies other than the U.S. dollar. 23 Table of Contents Income tax benefit ( expense ) Our income tax provision 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 not more likely than not that the deferred tax assets will be realized. Results of Operations The following tables set forth our results of operations for the periods presented, expressed in total dollar terms and as a percentage of total revenues (percentages may not add up due to rounding): Three Months Ended September 30, 2021 2020 (in thousands, except for percentages) Revenues: SaaS and support $ 43,489 70 % $ 33,105 69 % Subscription license 10,584 17 9,996 21 Total recurring revenues 54,073 87 43,101 90 Professional services 8,117 13 5,042 10 Total revenues 62,190 100 48,143 100 Cost of revenues: SaaS and support 11,342 18 9,279 19 Total cost of recurring revenues 11,342 18 9,279 19 Professional services 11,034 18 7,704 16 Total cost of revenues 22,376 36 16,983 35 Gross profit 39,814 64 31,160 65 Operating expenses: Research and development 16,970 27 11,954 25 Sales and marketing 25,645 41 15,338 32 General and administrative 20,830 33 8,144 17 Total operating expenses 63,445 102 35,436 74 Operating loss (23,631 ) (38 ) (4,276 ) (9 ) Loss on debt extinguishment (2,407 ) (4 ) — — Interest expense (159 ) — (6,279 ) (13 ) Other income, net 879 1 268 1 Net loss before income taxes (25,318 ) (41 ) (10,287 ) (21 ) Income tax benefit (expense) 188 — (120 ) — Net loss $ (25,130 ) (40 ) % $ (10,407 ) (22 ) % Comparison of the Three Months Ended September 30, 2021 and 2020 Revenues Three Months Ended September 30, Change 2021 2020 Amount % (in thousands, except for percentages) Revenues: SaaS and support $ 43,489 $ 33,105 $ 10,384 31 % Subscription license 10,584 9,996 588 6 % Total recurring revenues 54,073 43,101 10,972 25 % Professional services 8,117 5,042 3,075 61 % Total revenues $ 62,190 $ 48,143 $ 14,047 29 % Recurring revenues Recurring revenues from the sale of our SaaS solutions, from subscriptions to our term software solutions, and from providing support for these solutions increased by $11.0 million, or 25%, compared to the same period in the prior year. 24 Table of Contents Our SaaS and support revenues grew $ 10.4 million, or 31 %, in the three months ended September 30, 202 1 compared to the three months ended September 30, 202 0, principally due to our trend to migrate more clients from on premise to cloud and increased sales to new clients and additional orders and renewals by existing clients. Subscription license revenues increased $0.6 million, or 6%, in the three months ended September 30, 2021 compared to the prior year, primarily due to additional orders and renewals by existing clients. Professional services Professional services revenues increased by $3.1 million, or 61%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. We saw a slowdown in new sales and related demand for implementation services as well as reduced demand for upgrade services due to COVID-19 in the three months ended September 30, 2020. We saw a recovery and strong growth in demand for implementation, upgrade and migration services in the three months ended September 30, 2021. Cost of revenues and gross profit Three Months Ended September 30, Change 2021 2020 Amount % (in thousands, except for percentages) Cost of revenues: SaaS and support $ 11,342 $ 9,279 $ 2,063 22 % Total cost of recurring revenues 11,342 9,279 2,063 22 % Professional services 11,034 7,704 3,330 43 % Total cost of revenues 22,376 16,983 5,393 32 % Gross profit: SaaS and support 32,147 23,826 8,321 35 % Subscription license 10,584 9,996 588 6 % Total gross profit - recurring revenues 42,731 33,822 8,909 26 % Professional services (2,917 ) (2,662 ) (255 ) 10 % Gross profit $ 39,814 $ 31,160 $ 8,654 28 % Cost of SaaS and support Cost of SaaS and support revenues increased by $2.1 million, or 22%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase can be attributed primarily to increase in royalty expense of $0.7 million relating to third-party products, amortization costs of $0.5 million relating to capitalized software development costs and intangible assets, personnel expense of $0.4 million mainly due to annual pay raises and headcount increases and hosting costs of $0.3 million to support our growth as we scale our business. Cost of professional services Cost of professional services revenues increased by $3.3 million, or 43%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to an increase in personnel costs by $1.5 million due to annual raises and increased headcount, sub-contractor costs of $0.7 million and other overheads of $0.4 million as we expanded our teams to provide implementation and migration services to our growing client base. Gross profit Gross profit increased by $8.7 million, or 28%, primarily driven by the growth in SaaS and support revenues, which was partially offset by increases in professional services costs as we invested in implementation, upgrade and migration services to on-board new clients and to expand our subscription revenues within our existing client base, and royalty expenses to support our growth. 25 Table of Contents Operating expenses Three Months Ended September 30, Change 2021 2020 Amount % (in thousands, except for percentages) Operating expenses: Research and development $ 16,970 $ 11,954 $ 5,016 42 % Sales and marketing 25,645 15,338 10,307 67 % General and administrative 20,830 8,144 12,686 156 % Total operating expenses $ 63,445 $ 35,436 $ 28,009 79 % Research and development expense Research and development expenses increased by $5.0 million, or 42%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Stock-based compensation expense increased by $3.3 million, primarily due to an increase in stock awards granted during fiscal year 2021 combined with an increase in the grant date fair value. Personnel costs increased by $1.2 million due to increased headcount and salary raises. Capitalized software costs increased by $0.5 million and contractor costs increased by $0.4 million due to increased development activity. Sales and marketing expense Sales and marketing expenses increased by $10.3 million, or 67%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Stock-based compensation expense increased by $4.9 million, primarily due to an increase in stock awards granted during fiscal year 2021 combined with an increase in the grant date fair value. Personnel costs increased by $4.1 million due to increased headcount, salary raises and higher sales commissions driven by increased sales. Marketing expenses increased by $0.7 million due to a modest return to in-person activities resulting from the easing Covid-related restrictions on travel and our IPO. General and administrative expense General and administrative expenses increased by $12.7 million, or 156%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily driven by personnel expenses and costs associated with being a public company. Stock-based compensation expense increased by $5.2 million mainly due to an increase in stock awards granted during fiscal year 2021 combined with an increase in the grant date fair value. Third-party professional fees increased by $2.7 million and insurance expense increased by $1.4 million largely due to costs associated with being a public company. Personnel expenses increased by $1.3 million, primarily due to increased headcount and salary raises. Loss on debt extinguishment Three Months Ended September 30, Change 2021 2020 Amount % (in thousands, except for percentages) Loss on debt extinguishment $ (2,407 ) $ — $ (2,407 ) * *Not meaningful Loss on debt extinguishment of $2.4 million during the three months ended September 30, 2021 related to the write-off of unamortized deferred financing costs upon the full repayment of our debt in July 2021. Interest expense Three Months Ended September 30, Change 2021 2020 Amount % (in thousands, except for percentages) Interest expense $ (159 ) $ (6,279 ) $ 6,120 (97 )% Interest expense decreased by $6.1 million in the three months ended September 30, 2021 compared to the three months ended September 30, 2020 due to the full repayment of our debt in July 2021. 26 Table of Contents Other income, net Three Months Ended September 30, Change 2021 2020 Amount % (in thousands, except for percentages) Other income, net $ 879 $ 268 $ 611 228 % Other income, net increased by $0.6 million in the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to unrealized foreign exchange gains arising on our contingent consideration liability balance related to the acquisition of Repstor, which is denominated in British Pounds. Income tax benefit (expense) Three Months Ended September 30, Change 2021 2020 Amount % (in thousands, except for percentages) Income tax benefit (expense) $ 188 $ (120 ) $ 308 (257 )% Income tax benefit was $0.2 million for the three months ended September 30, 2021 compared to an income tax expense of $0.1 million recorded during the three months ended September 30, 2020. Our income tax benefit during the three months ended September 30, 2021 was primarily attributable to an income tax benefit in a number of foreign jurisdictions. Liquidity and Capital Resources Sources of liquidity As of September 30, 2021, we had cash, cash equivalents, and restricted cash of $58.7 million and prior to our IPO in July 2021, had financed our operations primarily through collections from clients, borrowings under our credit facility and the issuance of convertible preferred and common stock. We generally bill and collect from our clients annually in advance. Our billings are subject to seasonality, with billings in the second and fourth quarters substantially higher than in the first and third quarters. We expect that 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 and restricted cash as of September 30, 2021 will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months. In July 2021, we received net proceeds of $283.0 million upon the completion of our IPO. We used $278.0 million of the net proceeds from the offering to fully repay amounts outstanding under our Prior Credit Facility, consisting of $273.0 million outstanding under the term loan and $5.0 million outstanding under the revolving credit facility. On October 5, 2021, we entered into a Credit Agreement 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. The Credit Agreement also provides that we may seek additional revolving credit commitments in an aggregate amount not to exceed $50.0 million. No amounts have been borrowed under the JPMorgan Credit Facility. Future borrowings under the JPMorgan Credit Facility will bear interest, at our election, at an annual rate of either (a) LIBOR 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 our total net leverage ratio. In addition, a commitment fee accrues with respect to the unused amount of the JPMorgan Credit Facility at an annual rate ranging from 0.25% to 0.40%, based on our total net leverage ratio. 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. We continue to assess the effect of the COVID-19 pandemic on our operations. The extent to which the COVID-19 pandemic will impact our business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the continuing spread of the infection, the duration of the pandemic, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. 27 Table of Contents Cash flows The following table summarizes our cash flows from operating, investing, and financing activities for the periods indicated: Three Months Ended September 30, 2021 2020 (in thousands) Cash flow data: Net cash provided by (used in) operating activities $ 4,649 $ (10,827 ) Net cash used in investing activities (863 ) (744 ) Net cash provided by financing activities 13,630 27,833 Effect of foreign exchange rates on cash and cash equivalents (215 ) 30 Net increase in cash, cash equivalents, and restricted cash $ 17,201 $ 16,292 (1) Includes debt-related cash interest payments of $6.0 million and $6.6 million during the three months ended September 30, 2021 and 2020, respectively. Operating activities During the three months ended September 30, 2021, net cash provided by operating activities was $4.6 million, as our operating loss of $25.1 million, was reduced by $29.7 million of adjustments. These adjustments consisted of $24.6 million of non-cash charges (principally comprising stock-based compensation expense, depreciation and amortization and loss on debt extinguishment), and net cash inflow of $5.1 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 $16.8 million due to the timing of billing and collections on our outstanding receivables, partially offset by a decrease in other liabilities of $6.0 million primarily due to a decrease in our accrued interest as our debt under the Prior Credit Facility was repaid in full in July 2021, a decrease in accounts payable and accrued liabilities of $5.5 million primarily due to payments for deferred offering costs and annual bonuses, and an increase in deferred commissions of $1.6 million due to increased sales. During the three months ended September 30, 2020, net cash used in operating activities was $10.8 million, as our operating loss of $10.4 million was increased by $0.4 million of adjustments. These adjustments consisted of $8.0 million of non-cash charges (principally comprising stock-based compensation expense and depreciation and amortization), and a net cash outflow of $8.4 million from net changes in operating assets and liabilities. The net cash outflow from changes in operating assets and liabilities was primarily driven by a decrease in accounts payable and accrued liabilities and other liabilities of $6.6 million due to timing of payments, and a decrease in deferred revenues of $2.0 million due to the timing of invoicing our customers. Investing activities Net cash used in investing activities consists of purchases of property and equipment and capitalization of internal-use software costs. During the three months ended September 30, 2021, net cash used in investing activities was $0.9 million, primarily consisting of capitalized internal-use software costs. During the three months ended September 30, 2020, net cash used in investing activities was $0.7 million, consisting of capital expenditures of $0.4 million on property and equipment and capitalized internal-use software costs of $0.3 million. Financing activities During the three months ended September 30, 2021, net cash provided by financing activities was $13.6 million, primarily comprised of $292.8 million in net proceeds from our IPO completed in July 2021 and $2.3 million of proceeds from stock option exercises, partially offset by $278.0 million used for the repayment of borrowings and $3.4 million of payments related to deferred offering costs in connection with our IPO. During the three months ended September 30, 2020, net cash provided by financing activities was $27.8 million, primarily resulting from $29.0 million in net proceeds from the issuance of common stock and $5.7 million of proceeds from stock option exercises, partially offset by $5.0 million of repayment of borrowings on our revolving line of credit and $1.9 million of payments for the repurchase of common stock. Other non-cash items As of September 30, 2021, in connection with the acquisition of Repstor, we are obligated to make certain earn-out payments for an amount up to $27.6 million if certain performance measures are achieved. The earn-out payments are expected to be paid in the third quarter of fiscal year 2022 and in the first quarter of fiscal year 2023. We also are obligated to pay $2.0 million held back from the purchase consideration in the second quarter of fiscal year 2023. See Note 5 for a discussion of the fair value of liabilities recorded. 28 Table of Contents Non-GAAP F inancial M easures We report our financial results in accordance with GAAP, however, management believes evaluating our ongoing operating results may be enhanced if investors have additional non-GAAP financial measures. Specifically, management reviews non-GAAP gross profit, non-GAAP recurring gross profit, and non-GAAP operating profit, each of which is a non-GAAP financial measure, to manage our business, make planning decisions, evaluate our performance and allocate resources and, for the reasons described below, considers them to be effective indicators, for both management and investors, of our financial performance over time. Non-GAAP gross profit We define non-GAAP gross profit as GAAP gross profit before the portion related to cost of revenues of stock-based compensation expense and amortization of intangible assets. We believe non-GAAP gross profit provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of gross profit. The following table provides a reconciliation of gross profit to non-GAAP gross profit (in thousands): Three Months Ended September 30, 2021 2020 Gross profit $ 39,814 $ 31,160 Adjusted to exclude the following (as related to cost of revenues): Stock-based compensation 748 246 Amortization of intangible assets 1,964 1,752 Non-GAAP gross profit $ 42,526 $ 33,158 Non-GAAP recurring gross profit We define non-GAAP recurring gross profit as GAAP total recurring revenues less GAAP total cost of recurring revenues adjusted for the portion of cost related to stock-based compensation expense and amortization of intangible assets. We believe non-GAAP recurring gross profit provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of recurring gross profit as management is focused on increasing sales associated with our recurring revenue stream. The following table provides a reconciliation of recurring gross profit to non-GAAP recurring gross profit (in thousands): Three Months Ended September 30, 2021 2020 Total recurring revenues $ 54,073 $ 43,101 Total cost of recurring revenues 11,342 9,279 Recurring gross profit 42,731 33,822 Adjusted to exclude the following (as related to cost of recurring revenues) Stock-based compensation 168 42 Amortization of intangible assets 1,964 1,752 Non-GAAP recurring gross profit $ 44,863 $ 35,616 29 Table of Contents Non-GAAP operating profit (loss) We define non-GAAP operating profit (loss) as GAAP operating loss excluding stock-based compensation expense, amortization of intangible assets, change in fair value of contingent consideration and acquisition-related transaction costs. We believe non-GAAP operating profit (loss) provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of GAAP operating loss. The following table provides a reconciliation of GAAP operating loss to non-GAAP operating profit (loss) (in thousands): Three Months Ended September 30, 2021 2020 Operating loss $ (23,631 ) $ (4,276 ) Adjusted to exclude the following (including the portion related to total cost of revenues): Stock-based compensation 19,028 5,096 Amortization of intangible assets 3,309 2,744 Change in fair value of contingent consideration 337 — Acquisition-related transaction costs 81 — Non-GAAP operating profit (loss) $ (876 ) $ 3,564 Contractual Obligations and Commitments During the three months ended September 30, 2021, except as disclosed below, t here were no material changes to our contractual obligations on leases and other contractual commitments as set forth under the caption, “Contractual Obligations and Commitments” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, as reported in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. On July 12, 2021, we repaid in full amounts outstanding under our Prior Credit Facility, consisting of $273.0 million under the term loan and $5.0 million under the revolving credit facility. Unamortized financing costs of $2.4 million were recognized as a loss on debt extinguishment during the three months ended September 30, 2021. The acquisition for Repstor in June 2021 included contingent consideration of up to $27.6 million payable to the former shareholders of Repstor, based on the achievement of certain performance measures. The earn-out payments are expected to be paid in cash of up to $10.8 million in the third quarter of fiscal year 2022 and up to $16.8 million in the first quarter of fiscal year 2023 if the performance measures are achieved. See Note 5 to our unaudited condensed consolidated financial statements for additional information. Indebtedness As of June 30, 2021, we had an outstanding balance under our Prior Credit Facility of $273.0 million under a term loan and $5.0 million under the associated revolving credit facility. As noted above, this was fully repaid in July 2021, using proceeds from the IPO. On October 5, 2021, we entered into a Credit Agreement 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. No amounts have been borrowed under the JPMorgan Credit Facility. Future borrowings under the JPMorgan Credit Facility will bear interest, at our election, at an annual rate of either (a) LIBOR 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 our total net leverage ratio. In addition, a commitment fee accrues with respect to the unused amount of the JPMorgan Credit Facility at an annual rate ranging from 0.25% to 0.40%, based on our total net leverage ratio. Subject to certain exceptions, our total net leverage ratio as of the end of each fiscal quarter may not exceed 3.50 to 1.00. Off-Balance Sheet Arrangements As of September 30, 2021, we did not have any off-balance sheet arrangements. 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. 30 Table of Contents There have been no significant changes in our critical accounting policies or estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, filed with the SEC on September 15, 2021 . 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. Emerging Growth Company Status In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to use this extended transition period to enable us to comply with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our unaudited condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We also intend to rely on certain other exemptions and reduced reporting requirements under the JOBS Act, including: not having to (1) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act or (2) comply with any requirement that may be adopted by Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (1) the last day of fiscal year in which we have more than $1.07 billion in annual revenues; (2) the date we qualify as a “large accelerated filer,” which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of the most recently completed second fiscal quarter, and we have been required to file annual, quarterly and current reports under the Exchange Act for at least twelve months, and we have filed at least one annual report pursuant to the Exchange Act; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (4) the last day of fiscal year ending after the fifth anniversary of our initial public offering.