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, with a focus on SaaS and Microsoft-related environments. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenue | $72.8 million | $62.7 million | $197.2 million | $168.7 million |
| SaaS revenue | $41.9 million | $30.0 million | $115.7 million | $84.1 million |
| Gross profit | $52.6 million | $45.6 million | $139.4 million | $121.2 million |
| GAAP gross margin | 72.3% | 72.7% | 70.7% | 71.9% |
| GAAP operating loss | $(0.3) million | $(7.4) million | $(16.2) million | $(33.0) million |
| GAAP operating margin | (0.4)% | (11.8)% | (8.2)% | (19.6)% |
| Net loss attributable to AvePoint | $(4.2) million | $(7.4) million | $(26.0) million | $(28.9) million |
| Loss per share | $(0.02) | $(0.04) | $(0.14) | $(0.16) |
- Q3 revenue increased 16.0%; nine-month revenue increased 16.9%.
- Q3 SaaS revenue increased 39.9% and represented 58% of total revenue, compared with 48% in the prior-year quarter. Nine-month SaaS revenue increased 37.5% and represented 59% of revenue.
- Q3 gross margin declined modestly, while the nine-month margin declined 120 basis points, primarily reflecting higher hosting and personnel costs associated with SaaS growth.
- Non-GAAP operating income was $9.3 million in Q3, compared with $2.4 million in Q3 2022. For the nine-month period, non-GAAP operating income was $11.9 million versus a $4.3 million loss in 2022. These measures exclude stock-based compensation and acquired-intangible amortization.
- Net cash provided by operating activities was $13.3 million for the first nine months of 2023, compared with $6.9 million used in the prior-year period. Stock-based compensation of $27.0 million and other noncash items were significant contributors to operating cash flow.
- Cash and cash equivalents were $205.8 million at September 30, 2023, compared with $227.2 million at December 31, 2022. Short-term investments were $3.5 million. Total cash, cash equivalents, marketable securities, and short-term deposits were reported at $209.3 million.
- Cash used in financing activities was $29.8 million, primarily due to $33.6 million of share repurchases. Approximately $96.4 million remained available under the $150 million repurchase authorization at September 30, 2023.
- A prior $30.0 million revolving credit facility, with a $20.0 million accordion feature, matured on September 7, 2023; no borrowings were outstanding. On November 3, 2023, the Company entered into a replacement facility with similar capacity that matures November 3, 2026. No borrowings had been made under the replacement facility as of the filing.
Material changes versus the prior comparable period
- Growth continued to shift the revenue mix toward SaaS, while term license and support revenue declined 10.9% in Q3 and 4.8% for the nine-month period. Maintenance revenue declined 16.6% in Q3 and 22.1% for the nine-month period as the Company moves away from perpetual licenses.
- Services revenue increased 7.0% in Q3 and 6.1% for the nine-month period, but management notes that services are not inherently recurring and may fluctuate.
- Operating performance improved materially: the Q3 GAAP operating loss narrowed to $0.3 million from $7.4 million, and the nine-month loss narrowed to $16.2 million from $33.0 million.
- Income tax expense increased to $2.8 million in Q3 and $8.1 million for the nine-month period, compared with $0.3 million and $0.1 million, respectively, in the prior-year periods. Management attributed the changes primarily to jurisdictional income and loss mix, foreign inclusions, stock-based compensation, and tax losses for which no benefit was available.
- The fair value of earn-out share liabilities increased to $13.8 million from $6.6 million at December 31, 2022, producing a $2.8 million Q3 loss and a $6.8 million nine-month loss from earn-out and warrant liabilities.
- The Company repurchased 5.98 million shares during the first nine months at an average price of $5.62 per share, compared with 3.97 million shares repurchased in the prior-year period.
- Total annual recurring revenue increased 23% year over year to $250.6 million as of September 30, 2023; management reported 25% growth on an foreign-exchange-adjusted basis.
Guidance, outlook, commentary, risks, and unusual items
- The filing does not provide a clear quantitative revenue, earnings, or cash-flow guidance range.
- Management expects continued SaaS growth and believes gross margin should improve over the long term as SaaS becomes a larger portion of revenue, although near-term margins may fluctuate with hosting costs, revenue mix, and investment in customer support and services.
- Management expects maintenance revenue to continue declining as customers transition from perpetual licenses to SaaS and term licenses.
- The Company believes existing cash, operating cash flow, short-term investments, and available credit capacity are sufficient for working-capital and capital-expenditure needs for at least the next twelve months.
- Material risks include intense competition in cloud software, rapidly changing customer preferences, dependence on qualified personnel, macroeconomic and geopolitical uncertainty, foreign-exchange exposure, international cash-transfer restrictions, and potential increases in operating costs from product, infrastructure, marketing, and geographic investments.
- Internal control over financial reporting and disclosure controls were not effective as of December 31, 2022 and during the nine months ended September 30, 2023 because of continuing material weaknesses involving financial reporting completeness and accuracy, complex or nonroutine transactions, and segregation of duties. Management is implementing a remediation plan, but the weaknesses are not yet considered remediated.
- The Company reported no material litigation outside the ordinary course of business. Letters of credit totaling $3.1 million supported certain customer contingency agreements.
- Operating lease commitments totaled $17.1 million, including $6.1 million due within twelve months. Approximately $7.0 million of cash was held at entities subject to restrictions on transferring funds out of their countries.
- The Company expects to become a large accelerated filer and cease being an emerging growth company as of December 31, 2023, based on its public float.
Important facts for investors to verify
- Confirm the sustainability of 37% to 40% SaaS growth and the conversion of ARR growth into recognized revenue and operating cash flow.
- Monitor gross-margin trends as hosting expenses and SaaS-related personnel costs increase.
- Assess the impact of continued share repurchases, stock-based compensation, outstanding options, restricted stock units, warrants, and potential earn-out shares on per-share value and dilution.
- Review the terms, collateral package, and covenant requirements of the November 3, 2023 HSBC credit facility, including the absence of borrowings to date.
- Track remediation of the material weaknesses in internal control before the Company transitions to large-accelerated-filer requirements.
- Evaluate the sustainability of non-GAAP profitability relative to GAAP losses and the significant stock-based compensation adjustments.
- Consider tax-rate volatility, foreign-currency effects, restricted international cash, and the Company’s continuing operating losses when assessing liquidity and valuation.