Good day and welcome to the AvePoint Inc. Fourth Quarter 2024 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I’d now like to turn the conference over to Jamie Arestia, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and welcome to AvePoint’s fourth quarter and full-year 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 fourth quarter and full-year 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. I am fond of saying that at AvePoint, “we do the hard things first.” By this, I am referring to strategic decisions we have made in the last 20-plus years since founding the company, including: our decision to sell first to large corporations in highly regulated industries, which required us to build and constantly refine enterprise-grade software; our decision to sell in countries and regions that historically have been hard to break into, such as Japan; and our decision to undergo a subscription transition without borrowing money. We made these decisions because we are naturally attracted to big challenges. But we also did them as part of a larger vision to steadily put the pieces in place to support durable, profitable growth at scale, and to position AvePoint to become the world’s leading data management software company. As we conclude 2024 and look to 2025 and beyond, we are ready for the next chapter in the AvePoint story. We have been innovating and growing for more than 20 years, and we have learned valuable lessons in overcoming each of the challenges I just shared. And now, with eight consecutive quarters of exceptional performance behind us, which include accelerating growth, expanding profitability, meaningful cash flow generation, and steady innovation, we are that much closer to our vision, and to the billion-dollar ARR company we intend to become. And we are excited to continue this journey with you. So let’s turn to the quarter. Q4 was a strong close to an outstanding year for AvePoint, and our results as well as our outlook for 2025 reflect two central themes: First, the growing demand from companies around the world to prepare, secure and optimize their most critical data. And…

Thank you, TJ, and thank you to everyone for joining us this afternoon. We are pleased to deliver another outstanding set of results in Q4. The team’s broad-based execution enabled us to again outperform our guided growth and profitability metrics, and there are four key takeaways I want to call out for the quarter: First, total ARR growth, which accelerated to 24% year-over-year, and was 25% when adjusted for FX. Second, net new ARR growth, which was 30% year-over-year and just shy of the record 31% growth we delivered in Q3. Third, both gross and net retention rates improved to all-time highs; and finally, substantial improvements in both non-GAAP operating income and cash flow generation. Another quarter of strong topline growth is a testament to our leadership in the data management space and our platform differentiation, as we continue to see healthy demand from organizations of all sizes, in all regions, and across all industry verticals. This demand includes both new customers making larger upfront commitments, as well as existing customers looking to expand their deployments and realize even greater value from our solutions. We are equally pleased that our exceptional topline performance is not coming at the expense of profitability. At our inaugural Investor Day two years ago, we stated that profitable growth was our top priority. Since then, we have committed to balancing strong growth at scale with improving profitability, and our results in Q4, as well as in the previous seven quarters are evidence of our ability to deliver on this promise. Our Q4 non-GAAP operating margin was 16.2%, comfortably above the high end of our guidance and a meaningful improvement from a year-ago. And in turn, our improved profitability has led to record cash flow generation, as we generated $32.8 million of operating cash flow in…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jason Ader with William Blair. Please go ahead.

All right. Almost got that right. Hey guys. Good afternoon. Just wanted to ask a few questions about the business here. First, can you disclose what your U.S. Federal exposure is and how are you thinking about that business in light of what’s going on in DC right now?

Hey, Jason. Good question. So to start, it’s important to know that our federal business, our public sector business is a global public sector business. Specifically to U.S. public sector, we actually have three separate business divisions that’s federal, that’s state and local education, as well as DOD. So we actually taking a look at the specific agencies that are impacted by some of the staff reduction initiatives. And also looking at because we have multi-year contracts with government as well, looking at which agencies are due for renewal cycles this year. So all of that effectively narrowed down to just basically 2% of our total ARR. So the exposure is around that. Having said that though, while there are staff reduction actions happening, the fundamental requirement of digital transformation, elevating, advancing technology deployments and also AI deployments still allow us to have very active conversations with the agencies around their data, [state postures] and their AI readiness capabilities. So there’s lots of technology discussion ongoing.

Okay. Thank you. And then, Jim, maybe for you, so your gap between ARR growth and revenue growth in 2024 was what about 4 points, something like that. So I’m just looking at 2025, it seems like it’s a bit of a wider gap. Is there something going on in 2025 just from a revenue standpoint that is causing that? Is it FX related or any specific nuances that you can call out would be helpful just in explaining the discrepancy between ARR growth and revenue growth in 2025?

Yes. I think you touched on a key there. I do think there’s an FX impact for sure. As you know, obviously, we’re a global business, significant portion of our revenues are in non-USD denominated currencies. So that’s definitely a factor. I would say beyond that, there’s nothing really to call out or to highlight any other kind of vectors that are creating any disparity there. We are obviously continuing to see an increase in our ARR and particularly when we think of our revenue mix, where we think of services as the only component that’s not really ARR focused, we’re definitely seeing that continue to decline as a percentage of the overall revenues. So again, I think nothing really to call out other than the FX.

All right. Thank you.

And the next question comes from Fatima Boolani with Citi. Please go ahead.

Hi. This is [Joel] on for Fatima. Thanks for taking our questions here. So maybe one for Jim. So in terms of pricing, it’s been great to see the NRR and ARR trajectory over the past several quarters. But could you characterize perhaps the impact of any price increases on ARR and NRR in 2024? And to the extent that you can quantify any magnitude, that would be very helpful. And then I got a quick follow-up?

Sure. So in thinking about pricing and really NRR specifically, Joel, we’ve probably talked about this before. The big driver for us when we think about NRR is really customers consuming more and more of the platform, which is really them consuming additional products more so than more of any one product. So that’s the biggest driver behind our NRR growth. And then secondarily, as you alluded to, we do look at prices across multiple different products within our suites. And we look obviously at market conditions and where there’s elasticity to improve pricing, we’re doing that. Obviously, we plan competitive markets. So I would say in terms of quantification, we did increase prices across multiple products this year. But I would say overall, it’s a very small percentage of our overall improvement in NRR. And so I wouldn’t think of that as a driver for going forward NRR increases. I think that’s really coming from customers consuming more of the platform.

Okay, got it. Okay. And then on the recent announcement for the data security solutions for Google, hoping you could give us a bit more color and maybe TJ. On just how big of a step or a leap forward this is in your journey to expand beyond Microsoft environments? And then also if this is perhaps a significant driver to calendar 2025 momentum?

Yes, Joel, great question. So our customers are multi-cloud. We talked about this quite a bit before. So that expansion into Google, we have already been covering Google from a backup-as-a-service perspective before. But this time we’re also layering risk intelligence as well as lifecycle management, as well as data analytics and modernization. So essentially full fidelity seamless data migration between the hyperscalers. So we’re pretty excited about this expansion that positions us well as a more strategic partner for our customers who are multi-cloud. So yes, it’s a really a large new IP expansion versus what we offered before.

Okay. Got it. Thank you.

Thanks, Joel.

And the next question comes from Gabriela Borges with Goldman Sachs. Please go ahead.

Hi, good afternoon. This is Max Gamperl on for Gabriela. Thanks so much for taking our questions. TJ, we’re hearing a greater number of companies highlight the opportunity in data security posture management. I’m curious if you’re seeing any change in the competitive environment as more companies are targeting the data security market. How is this market evolving given the heightened awareness within the DSPM category specifically?

Yes. So it’s always been pretty competitive. We have also continued to evolve our platform. We have definitely a platform approach towards governance and security. So DSPM is an aspect of our platform. So we are also active conversation and coverage brought by Gartner and Forrester and also G2, these industry analysts. So yes, I mean, the landscape continue to be competitive, but we are able to take our enterprise grade platform and win there and then also be able to cross-sell and also expand our segmentation coverage into mid-market SMB and do that at a global level. So we’re very bullish and confident on where we’re going. You’ll hear more from us on specific product evolutions at our Monday Investor Day conference. So we will disclose more details of our product and also competitive landscape. So we’ll welcome you to see you there.

Got it. Thank you. And then with regards to your Ydentic acquisition, can you elaborate on the integration goals with this company as it relates to your managed services platform? And maybe you could touch on how we should think about your M&A strategy on a go forward basis?

Yes, that’s a great question. So we’re excited about the acquisition of Ydentic. It’s a Netherlands company. They’re focused on Microsoft MSPs in term of identity, security and user management. They allow us to speed up our IP expansion of our MSP offerings to include more day two, day three solutions. So as I cover in previous earnings before, MSP vertical is our fastest growing vertical and allow us to become mission critical to this new segment of managed services providers that actually allow us to then getting expand and unlock our reach into SMB and medium sized customers in a very efficient way. We also have this Elements go-to-market platform that solves the go-to-market, lower the barrier to entry, digital integration, pool licensing, monthly contracts to really roll up and get that mission critical usage patterns for the MSPs. So we’re very excited about that expansion. In term of M&A, we will continue to be quite focused on that as well as our organic investment. Again, we’ll share more on the strategic vectors of growth at our Investor Day, but you hear from Jim, our latest cash position where we’re cash generating, we have a very healthy balance sheet, we will invest for growth. So profitable growth is the mantra here, but we feel that we have a very strong cash position and we’re also expanding and see a very good market position. So that also leads to very active M&A targeting today.

Great. Thanks so much.

Thank you.

Thanks, Max.

And the next question comes from Nehal Chokshi with Northland Capital Markets. Please go ahead.

Thank you. And congratulations on a strong finish here. I want to go back to Jason’s second question regarding the spread between ARR and revenue growth. If I look at it on a constant currency basis, in calendar 2024, it looks like the spread is 300 basis points. And then on a constant currency basis, it’s 700 basis points for calendar 2025. So it doesn’t seem like FX is the main driver of the delta in the increasing spread here. It is an element, but not the main driver. So could you – maybe my math is wrong or maybe there is something else there that you want to highlight there, Jim?

Yes. I mean, I think FX is obviously a key component, but you’re right, it’s also mix in terms of the different types of revenue that we’re seeing and obviously whether that’s services or SaaS. So that’s definitely going to play a factor too in terms of – obviously the more SaaS, we’re creating a little bit more of a dynamic there just in terms of the rev rec. You’ve seen over the past year, our term license revenue declining. That gives us that upfront bump in the term revenue piece. So as that continues to shrink and become less a percentage of the total, then we create a little bit more gap between ARR and revenue in the short-term. And that’s partly what you’re seeing in addition to the FX in 2025.

Okay. So you would expect the term license decline to accelerate here in calendar 2025 relative to the growth rate you saw in calendar 2024?

Yes. What we’ve got in the plan, like you’ve seen over the past couple of years, we’ve seen that term license continue to decline, right. It declined not only as a percentage of revenue, but also in actual dollars. And so we would expect that to continue again in 2025 where we’re going to see a further deterioration in dollars and obviously even a greater decline in percentage of revenue. So again, we would expect that for the full-year next year to continue that trend and obviously have an impact on the mix that we just talked about.

Got it. Okay. That makes a lot of sense. And then following two years of about 700 basis points per year of EBIT margin expansion, you’re projecting a flattening here and non-GAAP EBIT margin. Is it basically a signal that, hey, it’s time to invest aggressively again?

So great question, Nehal, and I appreciate you bringing it up because I do think there’s a couple of points to make here. One, and maybe the first point really is our focus has been on profitable growth and I don’t want this to take away from our focus still is on profitable growth. So that’s first and foremost. Second, you’re right, we do see a healthy pipeline. We see good momentum in the business that we’ve been able to execute and we feel really good about the demand environment that we see out there. So that does give us some confidence to actually invest. And we do think that the third component is it’s important to make strategic investments and really position us for the long-term growth that we do see. Now you’re right, two years ago, we talked about profitable growth. We talked about hitting targets of GAAP profitability, which we’ve already exceeded in a year earlier than anticipated. And we focused on being at the Rule of 40 in 2025, which again we’re still committed to doing. But we do recognize that in order for the long-term success, we do need to make investments. And those are broadly in two key areas, sales and marketing, we’re going to invest additional dollars next year and also in R&D. And so again, this kind of sets us up nicely, we think, for the long-term growth. Now having said that, we’re going to continue to look and see where we can find efficiencies and still focus on that profitable growth, but we’re setting ourselves up here with our guidance that we’re putting out today that we’re focused on profitable growth, but also the long-term success of the business.

And if you do deliver topline upside, will you plow that back into further OpEx investments?

That’s a great question. I would say that that’s something we’ll continue to evaluate similar to – we take a very measured approach on investments as you know. I think we’ve done a good job and demonstrated over the past eight quarters that I think we’re able to make those kind of quarter-to-quarter decisions. We’re constantly looking out 12 to 24 months. So I would say that I don’t want to commit to what you just said. I do think there’s a balance between over performance of investing that into the future and also recognizing some of that in the current. So I think it could be a mix. But I would say, again, we’re really satisfied with the execution in 2024. We’ve got a good plan for executing in 2025 and we’re excited about delivering against that.

Okay. Thank you.

Thanks.

And the next question comes from Kirk Materne with Evercore ISI. Please go ahead.

Hi. This is Chirag on for Kirk. Thanks for taking the question and congratulations on closing out a very strong fiscal 2024. TJ, from your perspective, how much further along are we on the data modernization and AI adoption timeline today versus this time last year for companies and customers? And where do you still see the largest opportunities that AvePoint can capitalize on over the next year as every company is still looking and trying to figure out how to implement AI in their tech stacks? Thank you.

Yes, great question. So with the recent disruption in commoditization and lowering the cost of large language models, we see a lot more excitement from customers to really make AI more accessible. However, we from our perspective, we say that the experimentation and enterprise rollout still fundamentally depend on data quality, addressing potential loss and oversharing risks, as well as data governance and security, which is our core business. So this we think making large language models more accessible and lower cost is fundamentally a very good thing. And we continue to see and more and more global deployments of AI capabilities, especially in the form of Microsoft Copilot and also Google Duet. So from that perspective, we are very confident on how we continue to add value because fundamentally your AI is only as good as your data. So that’s our wheelhouse and that’s something that we’ve been helping customers solve for the last 20-plus years.

Great. And Jim, maybe one for you. Do you have any comments on seasonality that we should factor in when thinking about the next fiscal year?

Yes, it’s a great question. And historically, we have had significant seasonality. And I do think that when we think about different components, if we think about revenue, I think you’re going to see similar seasonality that we’ve seen in the past. So I think if I were modeling, I think that’s pretty good guide is that we’d probably see some seasonality that’d be similar to 2024. I do think we’ve talked about ARR before that it is a little bit more difficult to predict quarter-to-quarter because of obviously a deal slips one day and it’s in one quarter or it’s not in that quarter. So hence the reason we guide ARR only annually. But I do think that we may start to see a little flattening out of that. But again, I think that’s a little too hard to predict. Again, we stick to the annual guidance. And then operating income, I do think here we may see a little bit more flattening out. It’s still going to be seasonal as you’ve seen this year, but I do think there’s an opportunity for that to be a little bit more flat and kind of be more correlated with the revenue. And then maybe just one last comment on ARR. I mean, I do think similar to last year where we kind of didn’t guide per quarter, but gave some indications that historically Q1 is our lowest ARR quarter, Q2 is a little bit better. And then the second half of the year is better than the first half and you saw that play out in 2024. And I would suggest that that same kind of that mix will probably be similarly played out in 2025.

Got it. Really appreciate it. Thank you.

And the next question comes from Derrick Wood with TD Cowen. Please go ahead.

Great. Thanks guys. This is Cole on for Derrick here. You’ve talked about Google a little bit. Can you just TJ maybe comment on demand or adoption trends outside of the Microsoft ecosystem across Google and Salesforce, that’d be helpful.

So yes, we actually see because we have a data on these other ecosystems, there’s tons of experimentation. The enterprise-wide deployment is still in various single percentages in term of total population, but obviously the opportunity is there. So we also see Salesforce, Agentforce adoption is also not as fast as they actually would like to see. So there’s cautiousness, of course, in the enterprise because fundamentally it’s based on how well organizations organize their data and to feed them to the AI models for productive output. So that’s where this time is spent to actually organize data in a good high-fidelity fashion. And this is where governance and data life cycle and access control of AI become very, very important. And this is where we are involved with a lot of organizations on sorting out that first step. With most AI deployments, I would say 70% effort is actually data preparation and data management. And also at the output of these AI models, they’re increasingly being used as additional inputs. So we see that 10% of unstructured data are also now generated by AI. So this further reinforces the need for industries, companies, all industries to make sure that they have a robust data governance and management framework in place so that they can deploy AI. So we see that we’re still in the early innings of enterprise-wide AI deployments. But we think that given the speed, breakneck speed of improvements in the fundamental AI capabilities, that is coming at an accelerated pace.

Super helpful. And then just one quick follow-up. Talked a little bit about investing back into the sales and marketing org. Could you just break that down for us a little bit? Is that across direct sales channel, any go-to-market tweaks that you might be making into next year will be helpful to hear about?

Yes, sure. I mean, I think it’s across both of those that you just mentioned and maybe even beyond that. I do think, as we pointed out, we’ve made significant investments in the channel part of our business and really the indirect sales motion. We’ll continue to do that. We’re going to expect to see continued progress and improvement in the really the deal flow and the incremental ARR that’s coming through the channel. So we would expect that to continue to grow. But obviously, we have a healthy direct business as well and we’re continuing to make investments there. So we’re doing that both in terms of people costs, technology to help those individuals, as well as marketing dollars to support their efforts and initiatives. So we’re really making and plan to be making these investments. And again, most of this will have contribution in 2026 and beyond for the investments that we make in 2025, because most of 2025 is supported by the investments we’ve made in 2024. So again, this is very much more forward looking, but it’s across the variety of items you just mentioned and then also different initiatives as well.

Helpful color. Thanks guys.

Thank you.

And the next question comes from Brett Knoblauch with Cantor Fitzgerald. Please go ahead.

Hi, guys. Thanks for taking my question and congrats on the quarter. Just on your operating income guidance, I think you kind of just touched on it, but it seems like we’re not getting that much margin expansion this year despite ARR growth, I guess, in terms of your guide accelerating year-over-year. How should we think about that when it comes to free cash flow as well? This year free cash flow margin was quite ahead of non-GAAP operating income margin. Should we expect those to be closer as you look at 2025?

Yes. Thanks, Brett. Yes, I think we definitely touched on, like you mentioned, some of the impact and the investments that we’re making that I think do have an impact on the growth. So maybe I won’t go back and repeat those. But in terms of the cash flow that you referred to, you’re right, we had a very strong cash flow generation this year. I would expect next year that we’re going to see improvement in cash flow, probably not the same acceleration that we saw this year. Obviously, the step up from 2023 to 2024, as you called out, 14.4% operating income margins compared to 8.1% in 2023. Obviously, that was a significant contributor to that growth. But I would expect us to see growth in the cash flow from operations, but also in free cash flow over what we just did in 2024. But again, you’re right, it’s really our focus on taking that excess profitability, investing it back into the business and really setting ourselves up for success in 2026 and beyond.

Perfect. I appreciate it guys. Thank you.

Thanks, Brett.

Thanks, Brett.

This concludes our question-and-answer session. I would like to turn the conference back over to TJ Jiang, CEO for any closing remarks.

Thank you, everyone, for joining us today. As we reflect on our performance in Q4 and the full-year, I am incredibly proud of what we have achieved. Our results underscore the strength of our strategy and the dedication of our team. Over the past month, I have had the privilege of meeting with our global teams at our 2025 sales kickoffs around the world. These interactions have left me inspired and confident that we have the right people, the right market position, and the right technology to continue driving our success. We are excited about the future and the opportunities that lie ahead. We look forward to seeing many of you at our Investor Day next week, where we will delve deeper into the market landscape, our innovative technology, and our business and financial outlook. Together, we will continue to build on our momentum and achieve our ambitious goals. Thank you.

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