Good day and welcome to the AvePoint Inc. Q3 2024 Earnings Call. [Operator Instructions] Please note this event is being recorded. I’d now like to turn the conference over to Jamie Arestia, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and welcome to AvePoint’s third quarter 2024 earnings call. With me on the call this afternoon is Dr. TJ Jiang, Chief Executive Officer; and Jim Caci, Chief Financial Officer. After preliminary remarks, we will open the call for a question-and-answer session. 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 material in the webcast is the sole property and copyright of AvePoint with all rights reserved. Please note this presentation describes certain non-GAAP measures, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, and non-GAAP operating margin, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented in this presentation as we believe they provide investors with a means of understanding how management evaluates the company’s operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of these measures to the most directly comparable GAAP financial measures is available in our third quarter 2024 earnings press release, as well as our updated investor presentation and financial tables, all of which are available on our Investor Relations website. With that, let me turn the call over to TJ.

Thank you, Jamie and thank you to everyone joining us on the call today. The third quarter was an exceptional one for AvePoint as we built on the momentum and strength of the first half the year, outperforming our expectations for the seventh consecutive quarter. We also demonstrated meaningful improvement on a number of key financial and operational metrics, which Jim will discuss in more detail. Our results again reflect our steady focus on profitable growth and the ongoing demand for the AvePoint Confidence Platform, which is designed to enhance data security, governance and resilience. While these customer needs are not new, they have never been as high profile or as widespread as they are today. Companies worldwide increasingly are turning to AvePoint as they recognize the importance of high-quality data and the criticality of a robust data management strategy. AvePoint’s unmatched ability to establish these strategies for customers for more than 20 years makes us a perfect fit for this moment, where companies are rethinking data security in the age of generative AI and prioritizing platform solutions that deliver automated value across their multi-cloud environments. These dynamics position AvePoint exceptionally well to capitalize on the tremendous market opportunity ahead of us and provide us the confidence to again raise our expectations for the year. Today, I’ll talk about what we are seeing in the market and some key customer wins in the quarter. I’ll then turn over to Jim to cover our financial performance and updated financial guidance. I recently attended the Microsoft SMC APAC Conference which brings together the top Microsoft partners in the region. A key topic was maximizing the value of Microsoft 365 Copilot in every conversation, whether with members of Microsoft’s executive team or other top partners. It was clear that data security and data…

Thank you, TJ and thank you to everyone for joining this afternoon as we report another quarter of strong results. This strength is evident not only as we review our performance against our guided metrics of revenue and operating income, but also as we go a level deeper and look at our top line results by geography, customer segment and vertical, where the team’s broad-based execution translated into record net new ARR of nearly $19 million in the quarter. We achieved this while closely managing every P&L line and driving significant year-over-year operating leverage, delivering record quarterly non-GAAP operating income of $17.8 million. And in turn, our improved profitability position has led to record cash flow generation as year-to-date we have generated $56.1 million in operating cash flow and $53.8 million in free cash flow. I’ll discuss these items in more detail shortly, but suffice to say, we are investing in profitable growth, executing on our strategic priorities and strengthening our brand, all of which leave us well positioned to continue delivering value to AvePoint’s shareholders while we progress toward our Rule of 40 and GAAP profitability targets in 2025. With that, let’s turn to our results. For the third quarter ended September 30, total revenues were $88.8 million representing year-over-year growth of 22% an acceleration from the second quarter and above the high end of our guidance. SaaS continues to be the driver of our overall business. And in the third quarter, SaaS revenue was $16.9 million growing 45% year-over-year, the highest growth rate we have delivered in 11 quarters. We are also pleased that on a sequential basis, SaaS revenue grew 13% the highest rate we have delivered as a public company and in Q3 SaaS comprised 69% of total revenues compared to 58% a year ago. Moving…

Yes, thank you. [Operator Instructions] And first question comes from Jason Ader with William Blair.

Yes, thank you. Hey, good afternoon, guys. First question, I guess, is, if you would be kind enough to provide any relative growth rates across the different suites that you sell that would be helpful.

Hey, Jason, it’s Jim Caci, thanks. Thanks for the question. So I know that’s something that we’re providing on an annual basis. I would say that, for at least this point, at this point in the year, we would expect to see the suites relatively similar to last year. In terms of comparison. We are seeing, additionally and TJ even mentioned in script, much more focus around control from our customers. So we would expect to see improvement there, but, but overall, similar to what we’ve seen in the past, with, again, a little bit more focus on control.

Okay, excellent, and then quick follow-up, maybe for you. TJ, just as we think about the net new ARR performance and the growth year-over-year, which was, well above total ARR growth. How would you kind of summarize what’s going well for you guys right now? That’s driving this, this net new ARR performance.

Hi, Jason, thank you for question. Yes, we are very excited to see the net new incremental ARR growth. We have multiple strong segments. Historically, we’re very strong in price. We remain so and as discussed in the past calls our strongest, highest growth segmentation come from the SMB segment with our very laser focus on managed service providers as a segmentation, so that continue to drive outsized net new logo acquisitions as well as net new ARR. And just go back to your previous point that Jim answered. So governance and security really go hand in hand together, and governance is really our control suite, and security is really excellent, 5 by the resilience suite, so we see a lot more – our – of our platform strength and play that’s helping us really win in the market.

Alright, thank you.

Thank you. And the next question comes from Brett Knoblauch with Cantor Fitzgerald.

Hi, guys, thanks for taking my question, and congrats on the great quarter. It seems like everything is hitting on all cylinders. TJ, I was wondering if you could maybe point to one or two things that you think is really allowing you guys to deliver the growth you’re getting across all regions, seems like all customer sizes, is only one or two things, maybe the collaboration of AI, that you pointed to, or how should we think about the continued trend there?

Hi Brett. Yes, that’s a good question. We really do see consistent growth, high growth, across all of our major three geographies in North America, EMEA and APAC. What’s driving a lot of growth continue to be what we discussed in the previous quarters of this need for data governance and control and of course, around security and resiliency, so these things continue to be very, very strong growth vectors for us. And lastly, we also have our data migration integration play in modernization that continue to be a massive door opener for us. We see a lot more uptake in Microsoft GenAI capabilities, so that led to migration opportunities as well from other clouds. So, that would never end the migration path between multi cloud environments, between multi hyperscalers. And even within same cloud platforms, there is always divestures, M&As and re-consolidation of tenants and split off tenants. So, that continued to be the tip of the spear for us. So, yes, we are pleased to see all three major product suites and functional areas on our SaaS platform to grow very strongly across all regions.

Thanks. And Jim, a question for you on the gross retention, I think it was the first time we saw that tick up since you guys first started disclosing it a little bit ways back. Anything you can point to that kind of drove that tick up. And is that something we should expect to continue to improve over the immediate-term, or I guess your 90% target there over what timeframe should we expect that?

Yes, great question. So, you are right, that 90% target is, I would say, at this point, probably a medium-term. So, we are looking at the next couple years of trying to get to that 90%. So, we were definitely encouraged to see, us pick up here 1% to get to that 88%. I think we are seeing good performance really, from each region, strong performance in Q3 in our public sector, which continues to outperform kind of the consolidated results, both in GRR and NRR. So, that was a good contributor. We have also made some changes this year in terms of how we think about the long tail kind of that ARR base, that’s doesn’t receive dedicated CS, is maybe a little bit lower in terms of ARR balance, but we have done a bunch of things around pooled CS and really focusing on how we can service that team, and that really customer base better. And we have seen already, the first nine months of this year, we have seen improvement, and we have seen some meaningful improvement in terms of that GRR base. So, that was definitely a contributor. And we are – again, we are investing heavily there, so we would expect to see that continue. So, I think we have made good progress towards that 90%. And we are going to continue to work towards that, and hopefully in the next couple of years, we get there.

Perfect. Thanks. I really appreciate it and congrats again on the quarter.

Thanks Brett.

Thanks Brett.

Thank you. And the next question comes from Nehal Chokshi with Northland Capital Markets.

Yes. Thank you. Congrats on the great results. Hey TJ, so you talked about how GenAI transforms security needs to be data security centric, which I believe is more focused on your resilience suite. And I get that you say that they are the resiliency and control suite work hand-in-hand with respect to AI. But how does Gen – how does GenAI transforms privilege access from user centric to data centric, which would be more focused around your control suite?

Anyhow, great question. So, there is actually a lot of access control and privilege access flavors when it comes to specifically Microsoft 365 Copilot, so – because as you know, that’s actually very much tied to the Office Graph. So, the access of particular assets in the cloud and what kind of assets you have, it’s very important and that’s what drives the Copilot recommendations to a particular user. So, we are seeing very large, obviously, experimentations, but also now increasingly a few large enterprise wide deployments of Microsoft 365 Copilot, on the premises of deploying our control suite. So, we actually announced this in the previous earning as well with a major global financial institution. And in this quarter, we continue to see that with a major customer take up. So, it does go together, both from a permission management, lifecycle governance, as well as security in the resilience side. So, they do really – it’s not just the actual data itself, the quality control, essentially maintaining a high quality daily state, but also the access rights management of that too.

Okay. And then, thanks, thanks TJ. Jim, did you give what was the FX impact on the reported ARR?

The FX impact, no, we didn’t disclose that, but it’s about 1%, the ARR would have been slightly higher by about 1%.

Great. Thank you.

Thanks Nehal.

Thanks Nehal.

Thank you. And the next question comes from Kirk Materne with Evercore ISI.

Yes. Thanks very much and congrats on the results. TJ, can you just – I don’t know if you could parse this out, but I was curious, how much do you think the acceleration is sort of you all getting reprioritized higher in the IT spending budget versus budgets just getting a little bit more unlocked. And I am sure there is a little bit of perhaps both going on, but I was just kind of curious how much of this is really about your products getting pulled faster to the top of the spending list, versus sort of a little bit of a macro unlock potentially?

Yes, Kirk, that’s great question. There is – you are definitely right. There is definitely a little bit of both. Initially, when you talk about AI experimentations, a lot of firms are actually using a separate bucket of budget outside of traditional IT spend to do the experimentation. And once that happens to the extent that the firm decided to do a firm roll out, especially around M365 Copilot, that’s tied to their Office 365, Microsoft Office Cloud spend. Then they actually primarily goes into a primary bucket. So, it’s happening on both sides of the house. It does highlight the need for the importance of governance and control and lifecycle management, something that traditionally only regulated industry, enterprises and government care a lot about, but also everybody cares about it, because as we know, your AI is only as good as the quality of your data. So, that’s definitely raising the priority for all the companies that want to deploy AI to be mindful of their data quality and data state. We actually cited a number of statistics from Gartner and others to say, the quality of the AI experimentation and success rates that folks are seeing are really directly tied to their overall data management posture. So, this is definitely raising the awareness across industries.

Okay. And Jim, just a quick one for you, the implied guide for – just the guide for fourth quarter operating margins. Is there – is that sort of a baseline to think about as we think about next year, just in terms of how you want to start the year? I wasn’t sure if there is any obviously revenue be dropped down this quarter. So, the guidance lower for next quarter, just how should we think about sort of incremental expenses coming into next quarter, and perhaps sort of how we should think about to start counter ‘25 knowing you are not giving official guidance.

Yes, great point. Yes, we will provide guidance for next year, probably in February, but it’s a good point. We definitely are guiding low for operating income in Q4. I don’t know if I would read a ton into that in terms of the expectation moving forward. I think if you look historically, Q4 for us has been a higher spend quarter, and that’s a combination, really of how we budget and how some of what we refer to as programmatic spend. We definitely have more marketing spend in Q4 and some other initiatives. It’s just not necessarily linear throughout the year, so there is definitely some ebbs and flows, and Q4 historically has been a higher spend quarter, and that’s going to continue this year. So, that’s really a function. We also mentioned that we had about a $1 million of spend moved from Q3 into Q4, so that’s also the contributing factor.

Thank you.

Thanks Kirk.

Thank you. And the next question comes from Derrick Wood with TD Cowen.

Great. Thanks guys. This is Cole on for Derrick. Great quarter. TJ, one for you, there has been a lot of buzz around AI agents the past couple of months. How do you think these are going to shape demand for control suite going forward. Do you see adoption of agents as kind of this, like incremental driver on top of copilot, or just I would love to get more color on that.

Yes, that’s a great question. Agents will continue to evolve. There is – actually, it’s still very, very early stages. If you can’t get a good quality output from your current AI deployments, given poor data state, and make – deploying agents would just make it even worse, because there is so much more automation introduced. I would say that what this actually new development and new areas and trending, it’s very exciting for us as overall, a B2B SaaS provider. In that I really think in the next 3 years to 5 years, fundamentally, the way software are being deployed, not only just developed now, everyone is using Copilot, those type of AI accelerated dev tools. It’s going to change right with agents introduction. So, the way software is actually going to be deployed out there will change drastically in the next few years. But right now, we are still in very early innings of agents. And again, it points to, if you want to introduce more automation, intelligent automation, you need to get the core and foundation right. This is why we are becoming more mission-critical with that whole data state management and quality management.

Great. Really helpful. And then Jim, maybe one for you, good margin outperformance, you called out in the prepared remarks a couple of points. I just want to dig in on the improved sales efficiency. Is that just kind of a natural step as you know, reps get more ramped and get more productive. Are there any kind of specific initiatives that are driving this? Thanks.

Yes. No, great question. And I think it’s a little bit of everything you just said. We definitely are seeing better productivity from our reps. I think we pointed to that out in the prior two quarters as well. We have seen that in terms of rep productivity of our longer term reps, but also our newer reps ramping faster and getting to first sale faster. So, that’s definitely been a factor. And then I think it’s also the continued maturing of our channel strategy. We pointed out obviously more and more business coming through the channel, and I think for us, that’s a much more efficient play as well. And I think you are seeing all of that kind of play into our progress.

Great. Thanks guys. Congrats again.

Thank you.

Thank you.

Thank you. And this concludes our question-and-answer session. I would like to turn the comments back over to TJ Jiang for any closing comments.

Thank you for joining us today. Our strong third quarter results underscore our ability to help customers and partners achieve AI driven transformation with comprehensive and scalable data management and governance solutions. Our platform approach and ongoing innovation uniquely position AvePoint to tackle the critical challenges of data security, governance and resilience in today’s complex multi-SaaS digital landscape. In meeting with our management teams, customers and partners worldwide over the last several weeks, I am confident we have the right market position, technology and people to close 2024 strong and seize the massive opportunities ahead of us. We look forward to speaking with you more this quarter. Thank you.

Thank you. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.