Good afternoon and welcome to the AvePoint's Fourth Quarter and Full Year 2021 Earnings Call. For opening remarks and introductions, I will now turn the call over to Marc Griffin, Investor Relations. Please go ahead.

Thank you. Good morning and welcome to AvePoint's fourth quarter and year end 2021 earnings call. Today we'll be discussing the results announced in our press release issued after the market close. With me on the call this afternoon is Dr. TJ Jiang, Chief Executive Officer; and Jim Caci, Chief Financial Officer. TJ will begin with a brief review of the business results for the fourth quarter and full year ended December 31, 2021. Jim will then review the financial highlights for the fourth quarter followed by the company's outlook for the first quarter and full-year of 2022. We will then open up the call for questions. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor Statements contained in our press release for a more complete description. All materials in the webcast are the sole property and copyright of AvePoint with all rights reserved. Please note, this presentation describes certain non-GAAP measures including non-GAAP operating income and non-GAAP operating margin, which are not measures prepared in accordance with the U.S. GAAP. The non-GAAP measures are presented in this presentation as we believe they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from as substitutes for or superior to the financial measures prepared in accordance with U.S. GAAP. Listeners who do not have a copy of the quarter ended December 31, 2021 press release may obtain a copy by visiting the Investor Relations section of the company's website. With that let me turn the call over to TJ.

Thank you, Marc, and thank you to everyone joining us on the call today. I'm very pleased to report that AvePoint's fourth quarter performance was a strong finish to what was a monumental year for the company. It is a profound privilege to see the trusts our customers, partners and shareholders place on us and is a great honor to see how hard and committed AvePoint's employees are in earning and holding that trusts. When we became a public company in July, I committed to fulfill our mission to enable organizations to collaborate with confidence at scale. For our fourth quarter, we delivered SaaS revenue of $24.3 million, up 52% from the same period 2020, and grew total ARR 34% year-over-year to $159.2 million. Our growth reflects the expanding need to secure collaboration data, sustain connections between people and ensure business continuity. In 2021, the world continue to adapt to hybrid work. We helped customers become digitally resilient and build the right foundation for innovation by introducing industry leading solutions and evolving existing ones. By providing better insights and controls security teams, IT operators and business leaders can make better decisions. I'm proud of our commitment to security for ourselves, our customers and our partners. We received authorization to operate under FedRAMP as well as security certifications for ISO and SOC 2 Type II compliance. Our support extends to collaboration on Microsoft, Google and Salesforce clouds. Our fiscal year 2021 results were strong across our key operating metrics as we delivered on growth while remaining free cash flow positive. Revenue grew 27% over last year to $191.9 million with SaaS revenue of $85.6 million, up 64% for the year. These strong results were driven by a go-to-market strategy that is well balanced for solid new logo acquisitions, a growing partner…

Thank you, TJ, and good afternoon, everyone. As I review our fourth quarter results today, please note that I’ll be referring to non-GAAP metrics unless otherwise noted. A reconciliation of GAAP to non-GAAP financials is included in today’s earnings release, which is also available on our website. Before I discuss our fourth quarter results, I want to highlight a change in the timing of revenue recognition we made relating to our term license contracts. This change resulted in the deferral of an additional $4.4 million of revenue that is reflected in our fourth quarter results. We determined that for our term license contracts, we should adjust the percentage of revenue recognized upfront attributable to the license and shift more of the contract value to PCS, which is recognized over the term of the contract. Although this change impacts the timing of revenue recognition, it has no impact on our annualized recurring revenue. We expect to recognize the majority of this additional deferred revenue over the next eight quarters. Additionally, the adjustment to the allocation of contract values will affect the amount of term license revenue we will recognize upfront in 2022 and beyond. Total revenues for the fourth quarter ended December 31, 2021, were $53.8 million, up 17% year-over-year. Within total revenue, SaaS revenue came in at $24.3 million, up 52% year-over-year and constituting 45% of total revenue. Term license revenue came in at $13.7 million, a decline of 13% year-over-year due to the change in the timing of revenue recognition on our term license contracts. Excluding this change, term license revenue would have been $18.1 million or up 15% year-over-year, and our total revenues for the fourth quarter would have been $58.2 million and up 26% year-over-year. As of the quarter-end, we had total ARR of $159.2 million, which…

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Kirk Materne with Evercore ISI. Please proceed with your question.

Yes, thanks. Thanks very much. Jim, maybe just to start off with, when I look at the guidance for calendar 2022 from a revenue perspective, any way you could just quantify what the rev rec change is on that? I mean if I look at your ARR guidance, it looks still very strong, but obviously, the revenue guidance is a little bit below what you guys were thinking earlier. Is that just solely due to the rev rec changes?

Yes. That’s the biggest factor, Kirk, and thanks for the question. That’s definitely the biggest factor affecting revenue going forward. And like you said, it obviously doesn’t affect ARR. We’re feeling really good about that moving forward. This is just obviously the timing of revenue.

That’s helpful. And then maybe, TJ, just for you. You mentioned some of the go-to-market enhancements you’ve been putting in place. Can you just talk about what you’re seeing in your pipeline right now in terms of both net new customer growth and expansion? How do you feel about sort of the net retention ratio being able to continue to push higher from here?

Yes, that’s a great question, Kirk. So on the net new side, we are actually growing very strong. So the new ARR is 50-50 new customers and then from existing customers, that’s the ARR growth. And from the pipeline, we continue to see on plan, very strong for the year and high predictability. On the NRR, we have already indicated that we are working aggressively towards that 120%, and we’re still marching towards that. Some of the things that Jim shared earlier around this whole specialization across sales, farmer versus hunter for the first time, for example, we actually have farmers upsell quotas. So that sharpens the alignment between our sales organization and customer success organization, taking account ownership to result in better retention on the NRR side. And on the new logo side, as I shared also, we’re actually very proud of the fact that half of the new logos today are sourced by our partners. And you remember, our global partner program was launched just in July of last year, 2021. So all of those indicate continued strong momentum. This is why from the forecast perspective, you see that we continue to believe very strongly in our ARR growth. And while the revenue side may have a slight gain due to the revenue recognition, but the overall growth and acceleration of the business continues.

That’s great. Thanks, guys.

Thank you.

Thanks, Kirk.

Our next question comes from the line of Jason Ader with William Blair. Please proceed with your question.

Thanks. Hey, guys. Has anything changed, TJ, in terms of the expectations that you’ve had around mix between term license and SaaS?

So yes, I can go first. So actually, the SaaS mix has gone up. This is also where we’re seeing the positive shift, a lot more SaaS mix. For example, in North America, our SaaS mix – SaaS growth went up 55%. So yes, the SaaS mix is going up. The term mix is going down and with the revenue recognition it’s impacted revenue, as Jim predicted – stated. But for overall, the momentum of the business continue to be very strong.

Great. So is it fair to say then that most of the kind of differential on the revenue guide is due to the rev rec, but there also could be some impact from just overall faster-than-expected mix shift to ratable?

Absolutely. Jason, I think you hit it right on the head. I think it’s predominantly we’re seeing the rev rec impact, but there’s also this shift. And as you know, the more SaaS we’re doing, we’re growing faster on the SaaS piece than the ARR is intact, but it’s obviously having a little slower revenue recognition relating to SaaS as opposed to term. So we’re seeing that a little bit more in our forecast for 2022 than we would have prior.

Great. And then just as a follow-up for you, Jim. I’m wondering if – I guess, philosophically, would you say the company is taking a more conservative tack on guidance, let’s say, where you were pre-IPO? I know you weren’t in place there as a CFO. But can you just talk us through kind of philosophically how you guys are thinking about just setting the bar and setting guidance? And then just as an aside, are you factoring any macro uncertainty into your forecast, especially in your European business, given what’s happening over there?

Yes. So great question. I think in terms of the macro, we have tried to consider some of that in the overall plan that we have and guidance we’ve put forward. Obviously, there’s uncertainties in a lot of factors right now, something we’re continuing to monitor. Fortunately, we don’t really have any business in Russia. So we’re not impacted at all by any of the sanctions put in place, and our legal team is managing that very tightly. I think we have $20,000 of ARR related to that region. So we’re not directly impacted. But as you said, there’s obviously the indirect impact on our European business, and we’ve tried to factor in a little bit for that. And so I would say that we’ve taken that into account. And philosophically, I think we want to be as accurate as we can. We want to be as predictable as we can. And so we’re trying to have that kind of cadence and that kind of rigor around some of the numbers that we’re providing both externally and frankly, internally. We’re putting in a lot more rigor around the operations of the business to make sure that we’re doing that. So I think philosophically, that’s our strategy and our plan, and it goes both externally as well as internally.

Thanks a lot. Good luck, guys.

Thank you.

And our next question comes from the line of Brian Essex with Goldman Sachs. Please proceed with your question.

Hi. Good afternoon. Thank you for taking the question. I’ve got a couple here. Maybe just to start with TJ, you mentioned security and backup as one of the drivers. I guess overall, what are you seeing on your end from a transformation environment with regard to front office versus back office? And then is security playing a material role particularly with the proliferation of ransomware in terms of the driver of your business? Maybe just to kind of like take a step back, post-pandemic acceleration of transformation and any observations you might have in the overall environment from your side would be helpful.

Yes, Brian, that’s a great question. We definitely see a significant uptick on the security concerns. The amount of ransomware attacks that our partners are relating to us is increasing on a fast clip. This is why we also released our ransomware detection features in our backup product. In fact, our resiliency suite that includes backup, compliance and record product, it’s actually now about 50% of our total business. That’s growing very, very quickly. While the fidelity and control side of it are each of about 25%. Previously – last year, we were at 1/3, 1/3, 1/3 situation. So there is a massive increase in security concerns to be able to do proper SaaS backup so that the customers can do in time and also end-user business user-driven restores. This is also why Forrester put us as the top essentially a vendor in the SaaS application backup given our advanced use cases and user restore capabilities and speed to recovery. So yes, that’s very, very important new phenomenon.

Got it. That’s helpful. And then maybe just switching to sales and marketing. Nice color on sales and marketing, head count growth. And I think you noted it was relatively balanced across sales and marketing. Maybe for Jim, what’s embedded in your expectations for fiscal 2022? Do you expect to gross, I guess, quota-bearing reps at the same rate? And would that change at all given FedRAMP authorization and your – any efforts to focus on the federal space?

Yes. So we won’t expect to see the same rate of growth in next year. We’re actually anticipating probably somewhere around 20% to 25% headcount growth, which is far less than what we incurred this year. So we’re still growing, but not nearly at the same pace. And that’s a combination of factors, right? We have a lot of ramped-up reps at this point that are producing quota and giving us that quota capacity we need. We also, as TJ had mentioned, to really embraced the channel partner strategy, which obviously we start to leverage some of our already the investments we’ve previously made in sales and marketing, including people. So we won’t see some of those same investments that we’ve made this past year. But obviously, we’re still growing the group.

Got it. That’s helpful. Thank you very much.

Thank you.

Our next question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Please proceed with your question.

Hi. Can you hear me?

Yes.

Perfect. Thanks so much for taking my question. I guess just also on the guide, what would the guide have been without the rev rec change in TLS. Would that – I guess, can you just quantify the revenue headwind for the full year? Is it closer to, call it, $10 million, $15 million?

Yes. So when we look at it, obviously, there’s lots of factors that go into that. But in our kind of internal kind of budgeting and guidance, it’s roughly around $10 million of potential net impact. So that’s kind of what we’ve factored in. So that’s how you should probably think about it for your purpose.

Perfect. And then maybe just one on the cloud user base. I thought that was a really strong number. I guess what’s kind of baked into your assumptions for the full year? Do you think that $2 million a year is kind of the going rate? Do you think you can accelerate that?

Right now, our business plan projects continue to be the rate of the business. So ARR is forecasted at the midpoint is 34%. So we continue to forecast the user rate to grow that. Obviously, at the same time, we are layering new product. So we are looking to increase ARPU. So yes, but our business plan forecast is that 30% increase.

That’s helpful. Maybe just one more. I think maybe over the last three months or so, you guys launched three new products Confide, Ransomware Detection and Entrust. I guess which one of those products are you kind of most excited for as a contributor to growth over the medium term?

We’re excited for all of them. They actually come together very nicely. So for example, Entrust, we even have a reference customer quote in the release is used by large organizations to do actually tenant – virtual tenant management. So that’s delegation management. And of course, Ransomware Detection goes into the security side of it. So customers when they detect specific signatures of ransom attack can be alerted early and be able to point to the right recovery points to recover very, very quickly. And we support Microsoft 365 now, and then the road map includes Google very short in the second half of the year. And then last Confide is an extension to an industry use case of a secure data collaboration area within Microsoft 365, where all the data resides in tenants, the customers own tenancy and even IT super users don’t have access to that data. So 100% controlled by the business users to do internal/external collaboration with workflows to manage a deal and manage a project. So we’re actually excited about all three product releases. They go well hand-in-hand with our confidence platform around business user, business data, security and governance story.

Welcome. Thanks, TJ. Appreciate it.

Thank you.

Thanks, Brett.

And our next question comes from the line of Nehal Chokshi with Northland Capital Markets. Please proceed with your question.

Yes. Thank you. Nice ARR result there. What were the drivers of the acceleration in ARR growth of 34%? And then also how is linearity in the quarter as well?

Yes. So great question. So in terms of growth, we saw – if you look at the – I think we broke it out in the prepared remarks, but it’s really driven partly by our SMB sector, right, in terms of that growth has really tremendously grown. We’re up 126% there. So that was a big driver. And then even our core ARR was up 31%. So also another big driver of the overall ARR growth. So we saw good growth around the world, particularly in Europe and Asia. We saw a significant growth in ARR. So again, we’re seeing it kind of all over. No one particular driver. We’re seeing – as TJ mentioned, more recently, we’re seeing kind of a shift to some more concerns around security and that seems to be a driver and adding to our ARR as well. So I think it’s kind of across the world. But clearly, our SMB focus now is definitely having an effect, and we’re seeing lots of growth there, and we expect to continue to see that into 2022 as well.

Great. And just to be clear, core ARR in the September quarter, how much was that up year-over-year?

31%. The core ARR was up 31% and the SMB was up 126%.

Yes. That was for the December quarter, but what about for September quarter.

The September quarter? Hand on one sec. Let me get back to you on that one because that – I don’t have those numbers right in front of me, but let me – I can respond back to you on that one.

Okay. All right. I got a couple of other questions. What was the actual percent that’s being shifted from the product to PCS for the term-based licenses?

Great question. So we are going from an average – what used to be was 75% upfront, which would mean 25% was deferred to the PCS. And going forward, that average will go from 75 down to 60% upfront. So we’re going to shift another 15 points going to PCS. And then depending on the length of the contract, some of those will even be greater and could be as low as 50% and just under 50% of upfront. So we kind of shift to almost as much as 50% shifted to PCS. So much – a pretty big significant change from where we’ve been. But I think, again, it actually helps eliminate some of the lumpiness we currently have in the revenue based on the term and kind of spreads it a little bit and smooths it out. And I think in the long term, it will be good for us.

Great. And then bold move on the $150 million repurchase program, definitely applaud that. It’s very awesome. What’s your expectations on the pace of utilization of that?

So it's a great question because we're in the early discussions of that. Obviously, we've got to do a couple of things to make sure and get the mechanics done to have it in place. Right now, we're trying to stay flexible on that and not – we haven't committed to a specific rollout plan yet, but we're going to be working on that here over the next week or so to kind of figure out a strategy that lays it out in exact time frames. But right now, we're just remaining flexible and expect to have a little bit more concrete over the next couple of weeks.

Okay. Great, thank you.

Thank you.

And, I just want to add that with that program, we are still doing other investments in the business, both organic and inorganic growth. You have seen our business continue to generate cash. So we're a cash flow positive business. So even with this program to do stock buyback, if not to, we continue to go aggressively on the other investments to grow the business.

Right, right. I believe that on the prior conference call, you had talked about initial sort of M&A being sub $50 million, getting your feet wet so you should plenty of cash have to do that, right?

That's correct. Exactly.

These are clearly not mutually exclusive by any stream.

And our next question comes from the line of Derrick Wood with Cowen. Please proceed with your questions.

Great, thanks. Hey guys, it's Andrew on for Derrick. I wanted to ask TJ on sales productivity, did that improve versus last quarter and what drove that. And out of the reps you've hired in the second half of 2021, these should be fully ramped by second half of 2022, I would think. So could that help you accelerate in the back half?

Great question. So since our call out on the productivity ramp-up lags in our last earnings call, management have dived deep into this to replicate best practices. For example, we see the best productivity and shortened ramp-up time came from our channel-centric business in Western Europe, specifically in our [indiscernible] and Nordic regions. The logic is pretty simple. When new reps work with existing partners, deals discovery and deal motion are all much faster than direct sales-focused reps who in comparison had to start everything from scratch, thereby having a longer ramp-up time, especially when they work remotely. So we now are aggressively applying the same best practices across our North America sales teams, which historically has been very much directly focused to incentivize also partner co-sell motions as we mentioned in the prepared speech earlier with comp neutrality commission plans. So all these things go hand in hand to drive much faster growth and also lower our overall cost. In the mid-market segment, we are also passing a lot of the service opportunities to our partners. So this will also go into what Jim stated as part of our effort to reduce the percentage of service business in our revenue. So overall, the revenue mix, you will see continue to be much healthier, more profitable, therefore, with continued strong growth on the ARR side.

Great. And then for Jim, forecasted earlier about the net rev retention. And I get that you're moving towards 120%, but any other color on what you're embedding for this year in guidance and how would you rank order the drivers of that improvement, if there's any?

Yes. We're not providing any guidance on NRR right now. But I would say that probably our biggest driver for that is the hunter, farmer kind of specialization that TJ referred to a little bit ago, because I think that gives us the focus we didn't have over the past couple of years of really focusing on that group and really making them aware of predominantly cross-sell opportunities and selling them additional products. And so I think that gives us the greatest opportunity to improve on the NRR. The other thing that we've seen is both this year and what we're expecting to continue to see is our overall gross retention rates have been improving nicely. And so again, that should have a real positive impact moving forward.

Great, thanks guys.

Thank you.

And we have reached the end of the question-and-answer session, I'll now turn the call back over to TJ Jiang for closing remarks.

Great. Well, thank you, everyone, for the good questions, and we look forward to more discussion one-on-one. I just want to cap off the call with – the business momentum is very strong. The adjustments are where we stated. So it's a conscious effort on the management team here to reflect what the market is telling us. Given the current macro conditions, the market is looking for SaaS software companies, are not only high growth, but also profitable. So we took that feedback to heart. Going forward, we're actually taking stock-based comps as a part of our budgeting process, and we are looking to endeavor to reach profitability. Not only are we continuing to be cash flow positive, cash generating, but we are committed to reach profitability in the medium term here so that we're both high growth and a profitable SaaS software company. So that's our state of goal. And we listen to our investors. We listen to our partners and customers, and we are very confident on achieving that and continue to build this very highly resilient, robust global business. So with that, thank you very much, and I hope everyone have a great rest of the week.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.