AvePoint, Inc. 10-Q Summary
Business context and reporting period
AvePoint provides enterprise collaboration and productivity software through its Confidence Platform, including control, fidelity, and resilience suites supporting Microsoft 365, Google, Salesforce, and other cloud platforms. The filing covers the three and nine months ended September 30, 2022, compared with the same periods in 2021. AvePoint operates as one global reportable segment and became publicly traded in July 2021.
Financial performance and key metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenue | $62.7 million | $53.9 million | $168.7 million | $138.1 million |
| Revenue growth | 16.3% | — | 22.2% | — |
| Gross profit | $45.9 million | $38.7 million | $121.8 million | $100.4 million |
| Gross margin | 73.2% | 71.8% | 72.2% | 72.7% |
| Operating loss | $(7.4) million | $(28.7) million | $(33.0) million | $(45.8) million |
| Net loss attributable to AvePoint | $(7.4) million | $(10.3) million | $(28.9) million | $(27.2) million |
| Loss per share | $(0.04) | $(0.05) | $(0.16) | $(0.47) |
- Revenue mix: Q3 SaaS revenue increased 33.7% to $30.0 million; term license and support increased 4.6% to $18.3 million; services increased 28.4% to $10.5 million. Maintenance declined 29.1% to $3.8 million and perpetual license revenue declined 53.6% to $0.3 million.
- Recurring metrics: Total ARR was $191.7 million at September 30, 2022, up 30% from $147.5 million. Core ARR was $177.5 million, up 27%, and MRR was $14.2 million, up 80%. Core trailing-twelve-month dollar-based net retention was 106%, compared with 110% a year earlier.
- Operating expenses: Q3 sales and marketing expense increased 8.0% to $27.2 million. General and administrative expense decreased 26.4% to $16.4 million, primarily because of lower stock-based compensation. Research and development expense decreased 54.4% to $9.0 million, also reflecting the prior-year one-time stock-based compensation charge.
- Stock-based compensation: Expense was $9.6 million in Q3 and $28.3 million for the nine months, compared with $32.7 million and $50.5 million, respectively, in the prior-year periods.
- Non-GAAP profitability: Non-GAAP operating income was $2.2 million in Q3, or a 3.5% margin, versus $4.0 million and 7.4% in Q3 2021. For the nine months, non-GAAP operating loss was $4.7 million, or a negative 2.8% margin, compared with income of $4.7 million and a 3.4% margin in the prior-year period.
- Cash flow: Nine-month operating cash flow was $(6.9) million, compared with $(4.0) million in 2021. Investing cash flow was $(22.8) million, including $18.6 million for acquisitions and $3.4 million for property and equipment. Financing cash flow was $(17.8) million, primarily due to $19.6 million of share repurchases.
- Liquidity: Cash and cash equivalents were $217.8 million and short-term investments were $2.0 million at September 30, 2022, compared with cash of $268.2 million at December 31, 2021. Management stated that available liquidity, expected operating cash flows, and borrowing capacity were sufficient for at least the next twelve months.
- Debt and commitments: AvePoint had no borrowings under its HSBC revolving credit facility. The facility provides $30.0 million of capacity, plus a $20.0 million accordion feature, matures April 7, 2023, and requires financial covenants. Operating lease liabilities totaled $17.6 million, with approximately $6.2 million due within twelve months.
Material changes versus the prior comparable period
- Revenue growth was led by SaaS and services, consistent with the company’s transition away from perpetual licenses and maintenance.
- Gross margin improved in Q3 but declined modestly for the nine-month period, reflecting higher hosting, personnel, and contracted-hire costs.
- GAAP operating losses narrowed substantially in Q3 and for the nine months, primarily because the prior-year periods included unusually high stock-based compensation. The company remained loss-making on a GAAP basis.
- Cash declined by $50.4 million during the nine months, reflecting operating cash use, acquisitions, capital expenditures, and share repurchases.
- AvePoint completed acquisitions of I-Access, tyGraph, and Essential during 2022. The tyGraph acquisition closed September 12, 2022, for approximately $15.3 million, and the acquisition-date purchase price allocations remained preliminary.
- The company repurchased 3.97 million shares during the nine months at an average price of $4.93, for approximately $19.6 million. The remaining authorization was approximately $130.4 million at September 30, 2022.
- The company adopted the new lease standard on January 1, 2022, recognizing approximately $13.9 million of operating lease right-of-use assets and $14.5 million of lease liabilities at adoption.
Guidance, outlook, commentary, risks, and unusual items
- The filing does not provide explicit quarterly or full-year revenue or earnings guidance. Management expects SaaS and term license and support revenue to increase as a percentage of total revenue, while maintenance and perpetual license revenue continue to decline.
- Remaining performance obligations were $203.3 million at September 30, 2022, including $157.0 million related to SaaS and term license and support. Management expected to recognize approximately 67% over the following twelve months.
- Management identified seasonality, with the third and fourth quarters historically producing the highest revenue, although historical patterns are not necessarily indicative of future results.
- Key risks include intense competition, rapid changes in cloud and customer preferences, global macroeconomic conditions, inflation, foreign exchange, geopolitical disruption including the Russia-Ukraine conflict, employee retention, and the need for continued investment in infrastructure, research and development, sales, and geographic expansion.
- Foreign currency transaction losses were $1.3 million in Q3 and $2.4 million for the nine months. The company also recorded a $6.6 million nine-month gain from the decline in the fair value of earn-out liabilities.
- Redeemable noncontrolling interest increased to $12.7 million. Certain EduTech investors hold put rights that may require AvePoint to repurchase interests beginning December 24, 2022, subject to the applicable contractual terms.
- Disclosure controls and procedures were not effective due to continuing material weaknesses involving financial reporting completeness and accuracy, nonroutine and complex transactions, and segregation of duties. Remediation efforts were underway, but the company provided no assurance regarding the timing or success of remediation.
- No material litigation was reported, and no material subsequent events were identified. Letters of credit totaling $1.8 million were outstanding as security for certain customer agreements.
Most important facts for investors to verify
- Whether ARR growth and 106% net retention translate into sustained revenue growth and improved operating leverage.
- The pace of the SaaS transition and the effect of declining maintenance and perpetual license revenue on gross margins and cash generation.
- Progress toward positive operating cash flow and the impact of acquisitions, lease obligations, and the remaining share repurchase authorization on liquidity.
- The renewal, integration, and performance of the I-Access, tyGraph, and Essential acquisitions, including final purchase price allocations and goodwill or intangible-asset impairment risk.
- Remediation of the disclosed material weaknesses in internal control over financial reporting.
- The maturity and covenant requirements of the HSBC credit facility, including the company’s funding plan after its April 2023 maturity.
- The potential cash obligation associated with EduTech redeemable noncontrolling interests and the dilution or valuation effects of outstanding warrants, options, restricted stock units, and earn-out arrangements.