AvePoint, Inc. 10-Q Summary
Business context and reporting period
AvePoint provides enterprise collaboration and productivity software, with emphasis on SaaS solutions for data protection, governance, migration, compliance and management across Microsoft 365, Dynamics 365, Salesforce and Google Workspace. The filing covers the three and nine months ended September 30, 2021, with comparisons to the same periods in 2020.
AvePoint completed its business combination with Apex Technology Acquisition Corporation on July 1, 2021 and became a Nasdaq-listed public company. The transaction was accounted for as a reverse recapitalization, with Legacy AvePoint treated as the accounting predecessor. The transaction generated approximately $204.5 million of net cash consideration and incurred approximately $56.2 million of transaction costs.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $53.9 million | $39.8 million | $138.1 million | $105.4 million |
| Gross profit | $38.7 million | $29.5 million | $100.4 million | $75.7 million |
| Gross margin | 71.8% | 74.2% | 72.7% | 71.8% |
| Loss from operations | $(28.7) million | $(6.0) million | $(45.8) million | $(4.6) million |
| Net loss | $(9.8) million | $(12.2) million | $(25.8) million | $(4.9) million |
| Net loss attributable to AvePoint | $(10.3) million | $(12.2) million | $(27.2) million | $(4.9) million |
| Loss per share | $(0.05) | $(0.20) | $(0.47) | $(0.30) |
| Net cash from operating activities | Not separately provided | Not separately provided | $(4.0) million | $11.1 million |
Q3 revenue increased 35.5%, driven by SaaS revenue of $22.4 million, up 59.0%, and term license and support revenue of $17.5 million, up 113.9%. Services revenue declined 25.1% to $8.1 million, while maintenance and OEM revenue declined 12.6% to $5.3 million. For the first nine months, revenue increased 31.0%; SaaS revenue rose 70.0% and term license and support revenue rose 60.2%.
GAAP operating margins were negative 53.2% in Q3 2021 and negative 33.2% for the first nine months, compared with negative 15.1% and negative 4.4%, respectively, in the prior-year periods. Non-GAAP operating income was $4.0 million in Q3 and $4.7 million for the first nine months, versus $7.4 million and $11.6 million, respectively, in the prior-year periods. Non-GAAP operating margin declined to 7.4% in Q3 and 3.4% year to date.
Stock-based compensation was $32.7 million in Q3 and $50.5 million for the first nine months, including significant one-time compensation charges related to pre-business-combination awards. The company also recognized a $13.7 million gain from changes in the fair value of earn-out and warrant liabilities, including a $12.5 million earn-out liability gain and a $0.6 million warrant liability gain.
At September 30, 2021, cash and cash equivalents were $260.7 million and short-term investments were $1.6 million, compared with $69.1 million and $1.0 million, respectively, at December 31, 2020. Total assets were $380.2 million. The company had no borrowings outstanding under its $30.0 million revolving credit facility and was in compliance with its covenants. The facility matures April 7, 2023 and bears interest at LIBOR plus 3.5%, with a 0.5% unused fee.
Material changes versus the prior comparable period
- Revenue growth accelerated through SaaS and term license adoption, while legacy perpetual license and maintenance revenue continued to decline.
- Gross margin decreased in Q3 because of higher hosting costs, service delivery costs and stock-based compensation; the nine-month gross margin improved modestly year over year.
- Operating expenses increased materially: Q3 sales and marketing rose 15.4%, general and administrative rose 112.3%, and research and development rose 554.3%. The increases reflected hiring, expanded marketing, public-company costs and substantial stock-based compensation.
- Operating cash flow declined from $11.1 million provided in the first nine months of 2020 to $4.0 million used in the first nine months of 2021, despite higher revenue.
- Financing cash flow was $197.6 million, primarily reflecting the business combination and related equity financing, partially offset by transaction costs, preferred-stock redemptions and payments to Legacy AvePoint shareholders and option holders.
- Accumulated deficit increased from $299.8 million at December 31, 2020 to $367.2 million at September 30, 2021.
Guidance, outlook, risks and unusual items
The filing does not provide a clear formal GAAP or non-GAAP financial forecast for full-year 2021. Management expects continued investment in sales and marketing, research and development, international expansion and public-company infrastructure. Management believes existing cash, operating cash flows and borrowing capacity will be sufficient for working capital, capital expenditures and debt service for at least the next twelve months.
- ARR was $147.5 million at September 30, 2021, compared with $111.6 million a year earlier. Core trailing-twelve-month dollar-based net retention was 110%, compared with 106%.
- Remaining performance obligations were $175.4 million, including $134.5 million from SaaS and term license and support. Approximately 65% was expected to be recognized over the following twelve months.
- Management expects SaaS and term license and support revenue to increase as a percentage of total revenue, while perpetual license and maintenance revenue trend downward.
- COVID-19 increased demand for collaboration, security and governance solutions, but continued pandemic, macroeconomic, supply, customer spending and collection uncertainty could affect future results.
- Key risks include reliance on Microsoft and other technology partners, competition, cybersecurity and data privacy exposure, third-party hosting dependence, foreign currency and international operating risks, seasonality, customer renewal risk and a history of operating losses.
- Management concluded that disclosure controls were not effective as of September 30, 2021 because of material weaknesses involving financial accounting and reporting completeness and accuracy, nonroutine transactions and events, and segregation of duties. Remediation was underway, but the filing provides no estimated completion date or assurance of successful remediation.
- The company had no material litigation outside the ordinary course of business reported as of the filing date. Contractual commitments included approximately $17.4 million of future operating lease payments and $10.2 million of purchase commitments, primarily due in 2023.
Most important facts for investors to verify
- Whether strong SaaS and term-license growth can continue while services, perpetual license and maintenance revenue decline.
- The extent to which stock-based compensation, public-company expenses and ongoing hiring continue to pressure GAAP margins and cash flow.
- Progress and independent validation of remediation efforts for the disclosed material weaknesses in internal controls.
- Cash conversion, accounts receivable collection and the sustainability of positive non-GAAP operating income given negative GAAP operating cash flow.
- The valuation and future dilution implications of 31.2 million outstanding options, 17.9 million warrants, 3.0 million potential earn-out shares and other equity awards.
- Reliance on Microsoft integrations, third-party cloud hosting and compliance with evolving cybersecurity and privacy requirements.