AvePoint, Inc. — Form 10-Q Summary
Business context and reporting period
AvePoint provides enterprise collaboration and productivity software, including SaaS solutions supporting Microsoft 365, Google, Salesforce and other cloud platforms. Its offerings address data governance, migration, compliance, resiliency and productivity through the Confidence Platform and Control, Fidelity and Resilience suites. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, with comparisons to the prior-year periods.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $55.7 million | $45.3 million | $106.0 million | $84.1 million |
| Gross profit | $40.3 million | $33.6 million | $75.9 million | $61.6 million |
| Gross margin | 72.3% | 74.2% | 71.6% | 73.3% |
| Operating loss | $(11.7) million | $(11.2) million | $(25.6) million | $(17.1) million |
| Net loss | $(9.2) million | $(11.1) million | $(20.3) million | $(16.0) million |
| Net loss attributable to AvePoint | $(9.8) million | $(11.6) million | $(21.5) million | $(16.9) million |
| GAAP loss per share | $(0.05) | $(0.36) | $(0.12) | $(0.50) |
Revenue increased 22.8% year over year in the quarter and 26.0% for the six-month period. Q2 revenue consisted of SaaS of $27.6 million, term license and support of $14.0 million, services of $9.8 million, maintenance of $4.1 million and perpetual licenses of $0.2 million. SaaS revenue increased 34.2% in Q2 and 39.5% year to date. ARR increased 28% to $178.2 million at June 30, 2022, while core trailing-twelve-month dollar-based net retention declined to 106% from 111%.
Profitability remained negative. Six-month operating expenses increased 28.9% to $101.5 million, including sales and marketing of $54.2 million, general and administrative of $31.9 million and research and development of $14.3 million. Stock-based compensation was $10.4 million in Q2 and $18.7 million year to date. Non-GAAP operating loss was $1.3 million in Q2 and $6.9 million year to date; non-GAAP operating margins were negative 2.4% and negative 6.5%, respectively.
Cash and cash equivalents were $65.1 million at June 30, 2022, compared with $268.2 million at December 31, 2021. Short-term investments increased to $181.5 million from $2.4 million, leaving cash, cash equivalents and short-term investments of approximately $246.6 million. Six-month operating cash flow was negative $6.6 million, investing cash flow was negative $184.6 million, and financing cash flow was negative $8.3 million. The investing outflow primarily reflected purchases of short-term investments, along with acquisition and capital expenditures.
AvePoint had no borrowings under its HSBC revolving credit facility. The facility provides capacity of up to $30.0 million, plus a $20.0 million accordion feature, bears interest at LIBOR plus 3.5%, and matures April 7, 2023. The company reported compliance with its covenants and stated that available liquidity and borrowing capacity should satisfy working capital, capital expenditure and debt-service needs for at least the next twelve months.
Material changes versus the prior comparable period
- Revenue growth was led by SaaS, term license and support, and services; maintenance revenue declined 25.5% in Q2 and 21.7% year to date, while perpetual-license revenue declined 82.9% and 76.7%, respectively.
- Gross margin declined 190 basis points in Q2 and 170 basis points year to date, primarily reflecting higher hosting, services and personnel costs.
- Q2 sales and marketing expense declined 6.3% because of lower stock-based compensation, but underlying personnel, marketing and travel costs increased. Six-month sales and marketing expense increased 12.3%.
- Six-month general and administrative expense increased 45.1%, and research and development expense increased 79.0%, reflecting public-company costs, higher headcount, expansion and product development.
- The company recorded a $5.9 million year-to-date gain from reductions in the fair value of earn-out and warrant liabilities, including a $2.6 million Q2 gain. This non-operating item reduced reported net loss but is subject to market-based valuation assumptions.
- AvePoint acquired I-Access through its EduTech subsidiary in February 2022 for preliminary consideration of approximately $7.1 million, including $1.5 million cash and $5.6 million of contingent consideration. The purchase price allocation remained preliminary at quarter-end.
- The company repurchased 1.9 million shares for approximately $10.0 million during the first six months under a $150 million authorization. It disclosed an additional 1.8 million shares repurchased after June 30 at an average price of $4.62.
- The company adopted lease accounting on January 1, 2022, recognizing operating lease right-of-use assets of $13.9 million and lease liabilities of $14.5 million at adoption.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide a clear formal revenue, earnings or cash-flow guidance range. Management expects SaaS and term license and support revenue to become a larger portion of the business, while maintenance and perpetual-license revenue continue to decline. Management also expects services revenue to fluctuate because it is not inherently recurring and states that investments in infrastructure, research and development, sales and marketing and geographic expansion may continue to pressure operating margins.
Important risks include intense competition in cloud software, rapidly changing customer preferences, employee recruitment and retention, macroeconomic and geopolitical uncertainty, foreign-exchange exposure, inflation, seasonality and dependence on continued customer adoption of cloud platforms. The company reported limited and largely immaterial exposure to Russia and Belarus at the filing date and stated that the Russia-Ukraine conflict was not materially affecting operations at that time.
Internal controls remain a significant concern. Management concluded that disclosure controls and procedures were not effective as of December 31, 2021 and during the six months ended June 30, 2022 because of continuing material weaknesses involving financial reporting completeness and accuracy, nonroutine and complex transactions, and segregation of duties. A remediation plan is in progress, but management could not estimate when all weaknesses will be remediated and gave no assurance that remediation will be successful.
Other contingencies include redeemable noncontrolling interests of $12.2 million related to EduTech, including put-option features, $21.1 million of future operating lease payments, and $1.4 million of letters of credit. The company reported no material litigation and no defaults under senior securities.
Investor verification checklist
- Verify whether ARR growth and 106% net retention continue to translate into reported revenue growth and improving operating leverage.
- Monitor the shift toward SaaS and term license revenue, and the continuing decline in maintenance and perpetual-license revenue.
- Assess cash burn, investment maturities and liquidity after the $10.0 million share repurchase and additional post-quarter repurchases.
- Review the preliminary I-Access purchase-price allocation, contingent consideration and EduTech redemption obligations.
- Separate recurring operating performance from the $5.9 million fair-value gain on earn-out and warrant liabilities and from substantial stock-based compensation.
- Track remediation of the material weaknesses in internal control over financial reporting.
- Review the HSBC facility’s covenant requirements and April 2023 maturity, notwithstanding that no borrowings were outstanding at quarter-end.