AvePoint, Inc. — Form 10-Q Summary
Business Context and Reporting Period
AvePoint provides a cloud-native software platform for optimizing IT operations, managing critical data, and securing digital workplaces. The filing covers the quarter and six months ended June 30, 2023, compared with the corresponding 2022 periods. The financial statements are unaudited and prepared under U.S. GAAP.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 |
|---|---|---|---|---|
| Total revenue | $64.9 million | $55.7 million | $124.4 million | $106.0 million |
| SaaS revenue | $38.3 million | $27.6 million | $73.8 million | $54.2 million |
| Gross profit | $45.1 million | $40.1 million | $86.8 million | $75.6 million |
| GAAP gross margin | 69.5% | 72.0% | 69.7% | 71.3% |
| Loss from operations | $(7.1) million | $(11.7) million | $(15.9) million | $(25.6) million |
| Net loss attributable to AvePoint | $(12.6) million | $(9.8) million | $(21.8) million | $(21.5) million |
| GAAP operating margin | (10.9)% | (21.1)% | (12.8)% | (24.1)% |
| Non-GAAP operating income | $2.9 million | $(1.2) million | $2.5 million | $(6.7) million |
| Non-GAAP operating margin | 4.4% | (2.1)% | 2.0% | (6.3)% |
- Annual recurring revenue was $236.2 million at June 30, 2023, up 26% year over year, or 30% on an FX-adjusted basis. Migration products are included in ARR beginning in 2023, with prior periods restated.
- Cash and cash equivalents were $219.7 million, and short-term investments were $3.2 million, at June 30, 2023.
- Net cash provided by operating activities was $9.3 million for the first six months of 2023, compared with $(6.6) million in the prior-year period.
- Cash used in investing activities was $2.4 million, and cash used in financing activities was $13.8 million, including $17.0 million of share repurchases.
- The company had no borrowings outstanding under its $30.0 million revolving credit facility, which has a $20.0 million accordion feature. The facility was scheduled to mature on September 7, 2023 and carried interest at SOFR plus 3.6%.
- Deferred revenue was $102.9 million at June 30, 2023. Remaining performance obligations totaled $266.7 million, with approximately 62% expected to be recognized over the following twelve months.
Material Changes Versus the Prior Comparable Period
- Total revenue increased 16.5% in the second quarter and 17.4% for the six-month period, primarily due to SaaS growth.
- SaaS revenue increased 38.6% in the quarter and 36.2% year to date. SaaS represented approximately 59% of total revenue in both the quarter and six-month period, compared with 50% and 51%, respectively, in the prior-year periods.
- Maintenance revenue declined 23.1% in the quarter and 24.7% year to date as customers transition from perpetual licenses to SaaS and term licenses.
- Gross margin declined 250 basis points in the quarter and 160 basis points year to date, primarily reflecting higher hosting and personnel costs associated with SaaS growth.
- GAAP operating losses narrowed substantially, while non-GAAP operating results improved to profitability. However, net loss attributable to AvePoint increased in the second quarter because of a $4.0 million loss on earn-out and warrant liabilities and a $3.3 million income tax expense.
- Research and development expense increased 14.8% in the quarter and 25.0% year to date, primarily due to higher headcount and personnel costs. Sales and marketing expense was essentially flat, while general and administrative expense declined.
- The company repurchased 3.3 million shares for approximately $17.0 million during the first six months. At June 30, approximately $113.1 million remained available under the $150 million repurchase authorization.
- Stockholders’ equity declined from $229.1 million at December 31, 2022 to $211.1 million at June 30, 2023, while the accumulated deficit increased to $450.8 million.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- The filing does not provide formal full-year revenue or earnings guidance. Management states that existing cash, operating cash flows, and available borrowing capacity are expected to satisfy working capital and capital expenditure needs for at least the next twelve months.
- Management expects continued investment in sales and marketing, research and development, infrastructure, and geographic expansion. These investments may increase costs and pressure operating margins.
- Management expects maintenance revenue to continue declining as the company shifts away from perpetual licenses. Revenue is also subject to seasonality, with historically higher third and fourth quarters.
- Earn-out and warrant liabilities are remeasured at fair value. The earn-out liability increased to $10.9 million from $6.6 million at year-end, generating approximately $4.0 million of expense during the first six months.
- The company recorded $5.3 million of income tax expense for the first six months despite a pretax loss. The effective tax rate was affected by jurisdictional income and losses, foreign inclusions, stock-based compensation, and tax losses for which no benefit was available.
- Stock-based compensation was $17.7 million for the first six months and $9.6 million in the second quarter. Unrecognized compensation costs totaled $21.8 million for unvested options and $66.8 million for unvested RSUs at June 30, 2023.
- Management disclosed continuing material weaknesses in internal control over financial reporting involving financial reporting completeness and accuracy, complex and nonroutine transactions, and segregation of duties. A remediation plan is in progress, but the weaknesses were not yet considered remediated.
- Key risks include intense competition, rapidly changing cloud and software markets, employee retention, macroeconomic and geopolitical uncertainty, foreign-exchange exposure, seasonality, reliance on international operations, credit risk from uninsured cash balances, and possible margin pressure from continued investment.
- No material litigation was reported, and management stated that no material subsequent events occurred after the balance sheet date.
- Because the market value of common stock held by non-affiliates exceeded $700 million, the company expects to become a large accelerated filer and cease being an emerging growth company as of December 31, 2023.
Important Facts for Investors to Verify
- Confirm the status, renewal, or refinancing of the HSBC credit facility, which was scheduled to mature shortly after the reporting date.
- Assess whether ARR growth and SaaS revenue growth are translating into sustainable GAAP profitability and improving gross margins.
- Monitor the pace of maintenance revenue decline and the mix shift toward SaaS and term-license revenue.
- Review the company’s remediation progress for the disclosed material weaknesses in internal control over financial reporting.
- Evaluate the effect of stock-based compensation, earn-out remeasurement, warrant liabilities, and income taxes on reported earnings and cash generation.
- Reconcile the share repurchase program, outstanding options, RSUs, warrants, and earn-out shares when assessing dilution and capital allocation.
- Consider the company’s cash concentration, restricted or locally held foreign cash, operating lease commitments of approximately $18.3 million, and other contingencies.