AvePoint, Inc. — Q1 2023 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 company operates globally in one reportable segment, with products focused primarily on SaaS, term licenses and support, services, and maintenance.
This unaudited Form 10-Q covers the three months ended March 31, 2023, with comparisons to the three months ended March 31, 2022. The filing was signed May 10, 2023.
Financial performance and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $59.6 million | $50.3 million | 18.5% increase |
| SaaS revenue | $35.5 million | $26.6 million | 33.7% increase |
| Term license and support revenue | $10.9 million | $10.2 million | 6.9% increase |
| Services revenue | $9.7 million | $8.9 million | 9.2% increase |
| Maintenance revenue | $3.4 million | $4.6 million | 26.1% decrease |
| Gross profit | $41.7 million | $35.5 million | 17.4% increase |
| Gross margin | 70.0% | 70.6% | 0.6 percentage-point decrease |
| Operating loss | $8.8 million | $13.8 million | Loss narrowed |
| Net loss attributable to AvePoint | $9.2 million | $11.7 million | Loss narrowed |
| Basic and diluted loss per share | $0.05 loss | $0.06 loss | Improved |
| Non-GAAP operating loss | $0.3 million | $5.5 million | Loss narrowed |
| Non-GAAP operating margin | (0.6%) | (11.0%) | Improved |
| Annual recurring revenue | $222.4 million | $177.2 million | 26% increase |
On a constant-currency basis, total revenue increased 23% and SaaS revenue increased 39%. SaaS represented approximately 60% of total revenue, compared with 53% in the prior-year quarter.
Cost of revenue increased 21.1% to $17.9 million, primarily due to higher hosting costs associated with SaaS growth and increased personnel costs. Sales and marketing expense declined 1.3% to $26.9 million, general and administrative expense declined 6.1% to $14.6 million, and research and development expense increased 37.5% to $9.0 million.
Cash flow, liquidity, debt, and balance sheet
- Cash and cash equivalents were $228.8 million at March 31, 2023, compared with $227.2 million at December 31, 2022.
- Short-term investments were $2.9 million, bringing cash, cash equivalents, and short-term investments to approximately $231.7 million.
- Net cash provided by operating activities was $1.3 million, compared with $6.1 million used in the prior-year quarter.
- Net cash provided by investing activities was $0.9 million, compared with $181.5 million used in Q1 2022, when the company made substantial investment purchases.
- Net cash used in financing activities was $0.7 million, primarily reflecting $1.8 million of share repurchases, partially offset by $1.1 million of stock-option exercise proceeds.
- The company had no borrowings outstanding under its revolving credit facility. The facility provides for $30.0 million of borrowing capacity, plus a $20.0 million accordion feature, bears interest at SOFR plus 0.1%, and matures July 7, 2023.
- AvePoint was in compliance with all credit-facility covenants at March 31, 2023 and stated that existing liquidity, operating cash flow, and borrowing capacity should meet working-capital and capital-expenditure needs for at least the next twelve months.
- Total liabilities were $160.2 million and stockholders’ equity was $227.2 million at March 31, 2023. The filing does not report conventional outstanding funded debt at quarter-end.
- Operating lease commitments totaled $19.8 million, including $6.7 million due during the next twelve months.
Material changes versus the prior comparable period
- Growth was led by SaaS, while maintenance revenue continued to decline as the company shifts away from perpetual-license offerings.
- GAAP operating loss improved by approximately $5.0 million, reflecting revenue growth and lower sales and administrative expenses, partly offset by higher research and development costs.
- Non-GAAP operating loss improved substantially to $0.3 million, although the company remained loss-making.
- Operating cash flow improved from a $6.1 million use to a $1.3 million source, primarily due to working-capital timing and collections.
- Cash remained broadly stable despite $1.8 million of share repurchases. The company repurchased 424,876 shares during the quarter at an average price of approximately $4.26 per share; approximately $128.3 million remained available under the $150 million authorization.
- Research and development investment increased substantially to support new offerings and product capabilities.
- The company launched governance, management, data protection, and migration support for Microsoft Power Platform.
Guidance, outlook, commentary, risks, and unusual items
- The filing does not provide a formal full-year revenue or earnings guidance range.
- Management expects maintenance revenue to continue declining as customers migrate toward SaaS and term licenses. Services revenue may fluctuate because it is not inherently recurring.
- Management expects long-term gross-margin improvement as SaaS becomes a larger portion of revenue, but near-term margins may fluctuate with hosting costs, revenue mix, and customer-support and services investments.
- Management identified seasonality: historically, the third and fourth quarters have generated the highest revenue, partly due to customer fiscal-year ends.
- Key risks include intense competition, rapidly changing customer preferences, dependence on cloud and digital-transformation markets, execution of global growth initiatives, employee retention, macroeconomic and geopolitical uncertainty, foreign-exchange movements, and inflation.
- The company has limited and largely immaterial exposure to Russia and Belarus and stated that the Russia-Ukraine conflict had not materially affected results as of the filing date.
- Foreign-currency effects reduced reported growth relative to constant-currency growth; international operations represent a significant portion of revenue and expenses.
- Stock-based compensation was $8.1 million, or a significant portion of the improvement from GAAP operating loss to non-GAAP operating loss. Approximately $98.2 million of unrecognized compensation cost remained for unvested options and RSUs at March 31, 2023.
- Earn-out share liabilities were measured at $6.9 million using a Monte Carlo model and generated an approximately $0.1 million loss in Q1 2023. These valuations depend on subjective assumptions, including volatility and expected term.
- The company reported no material litigation for which a material claim was reasonably possible, probable, or estimable. Letters of credit totaling $2.6 million had been issued in connection with customer agreements.
- Disclosure controls and procedures were deemed ineffective because material weaknesses in internal control over financial reporting continued. The weaknesses relate to financial reporting completeness and accuracy, accounting for nonroutine or complex transactions, and segregation of duties. Management is implementing a remediation plan, but the weaknesses were not yet considered remediated.
Most important facts for investors to verify
- Whether ARR growth of 26% and constant-currency SaaS growth of 39% translate into sustained revenue growth and improved operating profitability.
- The pace of maintenance-revenue decline and the effect of SaaS mix and hosting costs on gross margin.
- Progress toward positive GAAP operating income and the extent to which non-GAAP results depend on excluding recurring stock-based compensation.
- Renewal rates, customer expansion, deferred revenue, and the company’s ability to convert the $238.6 million remaining performance obligation balance into revenue.
- The status and maturity of the $30.0 million credit facility, including covenant compliance and any refinancing or renewal action before July 7, 2023.
- Remediation of the continuing material weaknesses in internal control over financial reporting.
- The potential dilution from approximately 29.4 million outstanding options, 13.2 million RSUs, 17.9 million warrants, and 3.0 million company earn-out securities excluded from diluted EPS because of the net loss.
- Whether share repurchases remain appropriate while the company continues to report GAAP net losses and negative GAAP operating margins.