Good day and welcome to the AvePoint Inc. Fourth Quarter Fiscal Year 2023 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note that today's event is being recorded. I would now like to turn the conference over to Jamie Arestia, Vice President, Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to AvePoint's fourth quarter and full year 2023 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 uncertainty 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 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. Reconciliation of these measures to the most directly comparable GAAP financial measures is available in our fourth quarter and full year 2023 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. Our fourth quarter was an outstanding close to our strongest year yet as a public company, as we meaningfully outperformed our guidance for all metrics, total ARR, total revenues, and non-GAAP operating margin. Once again, our results were driven by the strength of our platform offering and the customer demand to establish a solid data foundation, in turn allowing our customers to manage and protect critical data, reduce costs, improve productivity and make more informed business decisions. Jim will spend more time on our Q4 results and our initial expectations for 2024, but I would like to spend today on three main topics. First, what we're seeing as the world moves from talking about AI to beginning to apply it at scale. Second, some key customer wins that demonstrate how we are enabling organizations to prepare and fully harness AI to advance their digital workplace. And lastly, several steps we're taking at AvePoint to invest in future innovation. Let's start with AI. AI is not a fad. It is a powerful force that is transforming every industry and every aspect of our lives. Recent research finds that 80% of companies will incorporate generative AI into their businesses by 2026. And it has the potential to collectively add $4.4 trillion to the global economy. And by 2027, sales of generative AI software and services will climb 35% and 42%, respectively. Simply put, this is a tremendous market opportunity and AvePoint will be a key player in driving generative AI adoption across a wide range of businesses in the years to come. What gives us this confidence? There's a catch to all the excitement around AI. AI is only as good as the data that feeds it. And…

Thanks, TJ, and good afternoon, everyone. Thanks for joining us today. As TJ mentioned, Q4 was an outstanding quarter with a number of financial highlights. Before I review our results, I'll spend a few minutes discussing how we evaluate our quarterly performance and also how we think about the long-term market opportunity ahead of us. I want to stress that we constantly balance the two. We recognize the importance of steady, consistent execution, but we also don't simply manage the business for the next 90 days. Our primary goal is to ensure that AvePoint is always positioned for long-term growth and profitability. We spoke about this mindset at our inaugural Investor Day a year ago, which included a deep dive into our business drivers, several new KPIs, updated long-term targets, a review of our capital allocation priorities, and lastly, our target to be GAAP profitable and a Rule of 40 company in 2025. With 2023 now behind us, I'll revisit these with an update on our progress and then turn to our results and our initial expectations for 2024. Let me start by drilling down into our top-line performance, where we continue to execute and demonstrate improvements across the three pillars that drive our business. First, landing new customers. As you know, the market we serve is not constrained by customer segment, industry, or region. We sell to companies of all sizes, in all verticals, and in all areas of the world. To capitalize on this demand, our strategy has been to drive more business through the channel, particularly with small and mid-market customers, as it allows us to further extend our reach and efficiently tap into massive greenfield opportunity we see. When we discussed this at Investor Day in March of last year, we disclosed that we had over…

We will now begin the question-and-answer session. The first question comes from Matt Materne with Evercore ISI, and I'm sorry, that is Kirk Materne. Please go ahead.

Hi, this is Chirag calling in for Kirk. Congratulations on the strong quarter, and thank you for taking the question. So, TJ, are you seeing the increase in demand in AI and Copilot around Microsoft's product suite increase the volume of discussions and revenue opportunity in a significant way for AvePoint today, or are we still really early in the process? And when you think about the medium to long term, how big of a tailwind or uplift do you think this will be for AvePoint's growth? Thank you.

That's a great question. So, the overall macro backdrop hasn't really changed from quarter-to-quarter, but you're absolutely right in that there's tremendous conversations and POCs, proof of concepts, experimentation happening across the board, across all countries and all customer segments. We are involved in a ton of those type of conversations because our solutions are being utilized to enable AI project deployments, especially in the front end, which is data aggregation, cleansing, consolidation, removing out-of-date, trivial, redundant data, and classification, labeling. And then at the tailwind, after the data model has been trained and continued to be updated to model after drifts in concepts, there's also data governance and security. So, a ton of experimentation happening. We have active campaigns around the world with Microsoft regional teams, with global partners, go-to-market partners. But right now it's all experimentation. We see small group deployments, but not enterprise-wide deployments yet. So, right now there's just a lot of activity. We need to be seeing whether this applies to a massive enterprise-wide deployment across the board. Pretty much what your research also talked about, there's going to be a ton of experimentation, small uptake. But we think in the medium term this will have a really big impact to AI adoption. Of course, AppLink is core to that story around data management. So, in the medium term, we're actually very bullish about the outlook.

All right. Thank you.

The next question is from Derrick Wood with Cowen & Company. Please go ahead.

Great. Thanks. TJ, we've heard from many other companies that SMB demand has softened a bit over the last few months. It doesn't sound like you guys are seeing any of that. So, I'm just curious what you think kind of makes your spend more resilient than maybe other software vendors, especially down-market?

Yeah, great question. So, our approach to SMB is really one of MSP, so managed service provider approach, where SMBs don't have IT. So, they rely on managed service providers who actually help them go to cloud and manage all their digital assets in cloud, including things like Microsoft 365 subscriptions, their networks, all their kind of digital asset management. The MSPs became the aggregator, if you will, and end user of our solutions. We actually have a product line for that segment called Elements. It's effectively a MSP singular portal where managed service providers were used to manage hundreds, if not thousands, of tenant data behind the scenes, whether it's data backup or operation management, entitlement management, allocation of licenses, etcetera. And we'll continue to invest in that area as the MSPs continue to become a big segment and view us as a strategic partner. So, for us, because of that, that intermediation, we actually see continued very fast growth. That is our fastest growing segment. And that market is actually quite large. So, we have even small MSPs, less than 50 employees that would do a million ACV with us on a yearly basis because they are so actively using our solution to lower their costs, improve their margins, at the same time providing enterprise-grade data management capabilities for SMB customers. So, yes, I think that's why we're not seeing what you articulated, if vendors have more of a direct relationship with SMB customers. At the same time, this is also, as we articulated over the last few quarters, that this is really greenfield segmentation for us because Apple came from a very large enterprise and regulated industry segment. So, we're truly taking the enterprise-grade SaaS experience and performance and quality to make it available to SMB segment. And that's a really good winning formula along with our platform play. So, yeah, I think overall we'll continue to see very strong demand in that segmentation.

Helpful color. Maybe one for you, Jim. 17% growth in Q4, you're guiding 22% in Q1 and then 15% for the full year. Is that the shape of that growth curve really just because of the seasonal mix around term and kind of how SaaS is flowing through in a different way that term does seasonally or any other dynamics to call out with how that shape of the growth curve looks like for fiscal '24?

[indiscernible] as we're shifting more and more of our revenue to SaaS, up from 50% to 59%. So, as that rolls then into Q1 of this year, we get the benefit of that. So, we're seeing that nice pickup. And then again, over the course of the year, we've seen that throughout the year, so that will be less of an impact for future quarters. But, again, we're seeing nice shift to SaaS and really less and less term and less and less services. So, again, I think that makes it more predictable for us, which is great, and gives us more confidence in that outlook over the years.

Great. Thanks. Congrats.

At this time, we have no further questions. So, this concludes the question-and-answer session. I would like to turn the conference back over to TJ for any closing remarks.

Thank you. We're witnessing a historic shift in the business landscape, driven by the market environment and the technology revolution taking place. The excitement and opportunity are palpable in every interaction I've had so far this year with our teams, customers, and partners. The pace of change, which has always been fast in our industry, is accelerating even more. We have a clear strategy and plan to capitalize on the opportunities in front of us to accelerate the digital workplace for our customers and partners and help them collaborate with confidence and be AI ready in 2024. Thank you for joining us today.

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