Good day, and welcome to the AvePoint, Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jamie Arestia, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to AvePoint's Second Quarter 2025 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 on 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 second quarter 2025 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 as we recap our outstanding second quarter results, highlighted by outperformance on the top and bottom line, as well as continued improvement on a number of key financial and operational metrics. Q2 also represents a major milestone for AvePoint, our first quarter to surpass $100 million in revenues. The entire AvePoint team deserves credit for this achievement, which reflects the enormous market opportunity ahead of us and marks another step on our path to $1 billion in ARR by 2029. This achievement is not just a financial milestone. It's a reflection of the innovation that powers the AvePoint Confidence Platform as well as the trust of our customers and partners placing us. That's why I want to spend my time today discussing our ongoing innovation, which has only accelerated in recent years. Today, these efforts have positioned us squarely at the intersection of data, security and AI and continue to drive the steady, consistent execution you have come to expect from AvePoint. I'll also share some meaningful customer wins and expansions during the quarter and then turn the call over to Jim to recap our financial performance and updated outlook for the year. We know that innovation has always been essential to maintaining our competitive edge. But what's clear from every customer conversation today is that the data management challenges we're solving from AI governance and training data provenance to model explainability, responsible surveillance or simply the need to reduce costs are now front and center in enterprise strategy. At the same time, organizations are realizing that tackling data management, governance, compliance and security in isolation just doesn't cut it anymore. These functions need to work together. That's why we have built our platform around a…

Thanks, TJ, and good afternoon, everyone. Thanks for joining us today as we review our strong second quarter results, which once again are a testament to the team's broad-based execution as we efficiently deliver on the growing demand for our platform. We are proud to deliver another quarter, reflecting our unwavering commitment to profitable growth, but we also have stressed our focus on investing for the future and capturing the long-term opportunity we see. Among many highlights this quarter, these mantras are reflected in our accelerated ARR growth, substantial operating margin expansion and continued improvements on key operational metrics, which demonstrate strong engagement with both new and existing customers. These achievements are delivering shareholder value now while also positioning us for success in many years to come. So let's turn to the quarter. Total revenues for Q2 were $102 million, up 31% year-over-year and above the high end of our guidance. On a constant currency basis, total revenues grew 27% year-over-year. SaaS delivered an exceptional quarter with Q2 revenue of $77.3 million, representing sequential growth of 12% and year-over-year growth of 44%. On a constant currency basis, Q2 SaaS revenues grew 40% year-over-year. Lastly, SaaS comprised 76% of total Q2 revenues, our highest ever quarterly mix. This compares to 69% a year ago. Looking at our other revenue lines. Term license and support declined 19% year-over-year in Q2 as we expected. And looking at our combined SaaS and term license revenues or what we consider our subscription revenues, these grew 33% year-over-year in Q2, which was the fifth straight quarter this metric has accelerated. Maintenance revenues decreased year-over-year to $1.3 million or 1% of total revenues. And lastly, services revenue were $14.5 million or 14% of Q2 revenues. As a result, 86% of our total Q2 revenues were recurring. Our…

[Operator Instructions] Our first question comes from Joseph Gallo of Jefferies.

Jim, I appreciate your prudence commentary embedded into guidance. Can you just talk about macro, both for commercial and the government vertical? What are you seeing today? And then are you embedding that it gets worse? Maybe just unpack a little bit about how you see federal shaping up next quarter.

Yes. Thanks for the question, Joe. If you think back to how we thought about guidance really at the beginning of the year, we knew at that point that there was a ton of uncertainty with the new administration coming in, the discussions around DOGE, clearly, the focus on reducing spend and really going into that. So, we were really conscious of building that into our guidance really from the beginning of the year. And so we focused on that, at least from the federal point of view. So, we haven't really seen any change to that in terms of our guidance. We're still kind of really considering the same kind of aspects that we thought about a number of months ago. We haven't seen that get worse. And again, we feel really good about that piece. And on the commercial side, as you saw from our last quarter, we're seeing really nice progress and nice growth and nice demand really across the board, both geographically. We see nice growth in North America, EMEA and APAC. And then also, we're seeing really strong and healthy growth across all 3 customer segments. So from that point of view, we really haven't seen any change on the federal side. And it's obviously one of the reasons that we're actually increasing guidance is seeing that healthy demand continuing, obviously, not only in Q2, but we're seeing that for the rest of the year as well.

No, that's great to hear and helpful. As a follow-up, can you just talk through your go-to-market investments, both on the channel side and direct? You raised operating margin guidance, which is great. So, I'm just curious how we should think about sales capacity and headcount going forward?

Yes, great question. Again, we spend a lot of time thinking about capacity, efficiency. And we've seen a couple of things over the past -- really past 2 years, and I've talked about it a few other times, too, that we've seen really the efficiency of our sales teams improve and we measure that in a few different ways. Obviously, you can see it in the bottom line in the P&L, where we're reducing our sales and marketing spend as a percentage of revenue, obviously, heading toward our target of 30%, getting down to 32% this year. That's, I would say, at the macro level, at the highest level. But underneath that, what we see is performance-based improvements, things like time-to-first sale in terms of ramping quota for new reps. And then in terms of execution and delivery against quota for our experienced reps, all 3 of those categories are making significant improvements and we're really pleased with the progress that we've seen there, particularly over the past couple of years and that's really continued. And then when we think about capacity, what we try and do is really look out as far as possible in terms of where we need our salespeople today to be delivering not only next quarter, not only next 6 months, but really thinking a year to 2 years ahead, do we have the capacity to deliver what we believe are the numbers we need to be achieving? So, we've really got a global effort around that and really focused on ensuring that we have not only the right products, but also the right quality and quantity of resources to deliver against those targets.

Our next question comes from Joe Vandrick of Scotiabank.

TJ, I wanted to ask what's the biggest theme driving customer conversations as of today? Is it AI readiness in general? Is it Microsoft Copilot governance or backup or maybe cyber resilience? I know you touched on all of those on the call. So -- or maybe is it something else? Would love to hear your thoughts there.

Yes. Thanks for the question. Yes, every company continues to focus on security threats as well as AI deployment capabilities. So, that is consistent with prior quarters. And we're also seeing that AI is starting to roll out more widely as we had discussed. So, this applied to companies literally every region, vertical and size. And this is where AvePoint help them curate and secure their data. So, governance of data estate is still central to an enterprise's strategy, and that really plays to our strength and it's being embraced by organizations everywhere. So, we're now seeing the flywheel of our scale growth on a global level, but the highlighted questions are still -- concerns from companies are still the same. It's security and AI.

Okay. That makes sense. And one for Jim. I think this is the second quarter in a row where you've left the constant currency ARR guide unchanged, but you've increased the constant currency revenue guide. So, just curious what's driving the discrepancy? There may be outperformance from services revenue or ASC 606 driving that, if you could touch on that.

Yes. I think, number one, if you'll be able to see in some of the investor materials that we are actually raising our guidance around ARR. So, you'll actually see that from an operational performance. There is a little bit of headwind there on the FX. So, you'll see an improvement there when you look at the detail. And I think it's what you see in the 24% to 26% is really more of a rounding issue. We're actually improving and raising the guidance. But from a rounding point of view, it stays the same percentages. So that's part of it. And then you're right, we did have -- part of the beat in Q2 was from services, but we're seeing really strong performance in SaaS. And again, we're really pleased with the performance in Q2 and really excited about the expectations we're setting for the second half of the year.

Our next question comes from Kirk Materne of Evercore ISI.

This is Chirag on for Kirk. So TJ, you talked about your multi-cloud governance strategy with companies such as Salesforce and Google. Can you touch on how early you all are in this opportunity and what needs to happen on your end and perhaps from a channel end to move the needle in terms of revenue and just overall influence here?

Thank you. Great question. So, we have already been supporting Backup-as-a-Service for the Google Workspace ecosystem as well as Salesforce ecosystem. And we also mentioned that outside of the Microsoft Cloud, ecosystem, our coverage is about less than 10% of our revenue today. So, we already have meaningful revenue there. Specifically, you asked about the governance capabilities that we're rolling out that we announced most recent quarter. We're very excited about that, be able to roll that out to work with our partners around the world to go to market and really take advantage of our great reputation and capabilities in the Microsoft Cloud world when it comes to data curation, data governance and apply that to a multi-cloud setup. So, those are still in early stages, but it is worth, again, reiterating, we have already done very meaningful revenue in the multi-cloud space with Backup-as-a-Service, Migration-as-a-Service. Now, we're layering in with Governance-as-a-Service also.

All right. And maybe one more. Just looking out into the second half of the year, where do you see the largest opportunities for AvePoint to capitalize on as every company is looking to implement AI in their tech stacks?

Yes. You see -- we have already talked a lot about Agentic AI governance. That's the very hot topic. We have already done this in prior with the Power Platform governance, low-code and no-code application governance. And now we're working very closely with some of our largest global customers around Agentic governance. So, this is actually a fantastic growth area. We're very excited about the results we're seeing in the field. So, we think that this is something that's going to be a theme carrying forward in the next few quarters.

Our next question comes from Jason Ader of William Blair.

Just wanted to ask a couple of things. First, just on the MSP business, the Elements business. I think you've said historically, that was around 15% of ARR. Any update there would be helpful. Any comments on the growth of that particular chunk of the business?

Yes, Jason, great question. So, we comment on the SMB segment. It's about 19% of our total recurring. MSP is part of that. It's not the whole subset of SMB, but MSP is a major portion of that and they become our intermediary to unlock the SMB market. That continues to grow very robustly. It's actually our fastest-growing vertical. We have made a number of major product expansions into the MSP offering, collectively is known as the Elements Platform. And also in the prepared remarks, you will hear that -- you heard that we actually apply some of the MSP use cases now to our enterprise customers when it comes to configuration, multi-tenant baseline management. So, there are actually really interesting new use cases that we developed and deployed for our MSP partners are now finding great ROI and use in the enterprise segment as well. So yes, we're very excited about the MSP vertical. It continued to be our fastest growing.

And the $100 million in ARR, is that the entire SMB? Or is that...

That's the mid-market.

That wasn't clear.

Yes. We -- so that's -- enterprise for us is 5,000 employee and above. Mid-market is 500 to 5,000 and SMB is $500 and below. So, we stated before that enterprise is about 53% of our total ARR. SMB is 19%, and remainder is mid-market. And mid-market have exceeded $100 million ARR.

Okay. I got you. All right. And then one last one for you, TJ. Just -- you talked about on the NRR momentum, how the team is doing a better job of selling more of the portfolio to existing customers, can you talk about a couple of the hits there, the products that the team is doing a particularly good job of cross-selling?

Yes. It's really the control suite. It is the fastest growing -- continue to be, although resilience is also growing north of 20%. So it's really -- we think about this as a platform play. Gartner calls it Data Security Posture Management. So it is governance, it is security, it is data protection, ransomware detection and recovery. We consider that a platform play that where we do the really good land and expand and leverage the power of the platform. But now increasingly, conversation, especially in the enterprise segment is led by governance, as I mentioned earlier, especially focused on Agentic governance.

Our next question comes from Nehal Chokshi of Northland Capital Markets.

Congratulations on another set of great results. A couple of questions. First one is that your dollar-based net revenue retention rate increased to 112% from 111% a quarter ago. And I don't believe that it is gross revenue retention rate driven because that was flat Q- on-Q. So, can you give us some color as far as what is driving that improved DBNR?

Sure. I mean, I can add a few things and then maybe TJ can add too. So, appreciate you pointing that out, Nehal. But yes, TJ covered a couple in the prepared remarks, and we talked about some of the customers really expanding with us. We did have a number of large deals in the quarter, continuing to expand with our existing customer base. We also had really good NRR growth across all 3 of our customer segments. Again, good cross-selling for us, we would really say that cross-sell motion of customers adopting and utilizing additional products within the platform. So again, it's been across the board. North America was very strong. EMEA is strong as well and APAC. So, we had some really nice wins and again, across industry segments as well. So again, we had really good performance across all those aspects of the business. And NRR was just another one of those in terms of this cross-sell motion to existing customers.

Okay. Great. So it sounds like it's broad-based that's driving that basically, no single driver?

That's right.

Okay. And then based on recent M&A activity, it seems like identity and access management is at the precipice of inflection driven by Agentic AI. Is there a corollary with respect to data access management space that AvePoint is still well known for?

Yes, that's a great question. Well, first of all, we're very excited to see our area of focus have a lot of activity and vendors looking to expand offerings to make it more of a platform play. Yes, we're no different. We've been -- we have done 6 acquisitions to date, and we'll remain acquisitive and have a strong balance sheet, as you can see, and we're growing profitably. So, we'll remain -- continue on the lookout for partners and customers to offer additional capabilities on our platform, ideally organically integrate onto our platform to offer additional functionality. So yes, excited to see the activity in our space. This overall umbrella of data protection, posture management is a key growth area for us.

I guess what I'm trying to point out is that policy creation and enforcement works across identity and data. And therefore, if identity is at an inflection point, does that mean also data access management must be at an inflection point?

Yes. I think you also called this out in your report, the delegated administration model that we have that's very unique that allow the end users to take on the accountability and responsibility to actually help the CISO teams, the security teams as well as IT teams to actually achieve a better quality data state faster. So you're absolutely right. So the data governance and control is very, very critical now, especially with AI refinement and AI deployments.

Our next question comes from Gabriela Borges of Goldman Sachs.

TJ, I always appreciate your comments about AI adoption given the unique points of visibility that you have. What I want to ask you is about the durability of growth in the control suite. Do you think we're going through a period of time where new customer lands, customer cross-sell on control is particularly elevated because 2025 is the year where enterprises are waking up and really pushing to get their different data strategy sorted out before AI adoption such that we have a slowdown over the next 3 years? Or do you see enough in the installed base that this kind of momentum can be durable for several years and maybe several quarters as well?

Thank you, Gabriela. Great question. We actually think we're still in the early innings. While Microsoft have announced Copilot deployment, have a step-up function, is still in the low double digits. There's -- also previous quarter, we highlighted that it's not correct to just associate companies' AI adoption with their Copilot deployment because there's -- Microsoft's overall AI moniker is Copilot. There's Office Copilot. There's GitHub Copilot. And then, of course, there's general cognitive services that's basically the front end to back-end commercially available large language models. So, we see up to 80% of companies are deploying some sort of AI, and that is what get us into and involve into the conversations. And as the Office Copilots continue to increase in penetration, we see more areas for our coverage. So, I think we're still in the early innings. I don't see this slowing down anytime soon.

Excellent. Jim, the follow-up is for you. Could you just remind us what drove the services outperformance in the quarter and outsized growth relative to trend line?

Yes. So really, we have a global services business. We do some projects, more almost SI work in some parts of the world. And we had a bunch of those projects conclude in the quarter that gave us some outsized performance in terms of revenue. So, that contributed a little bit to the performance beat. We did expect those. We had planned for those. But again, it was nice to see them finally conclude and close out in Q2.

Our next question comes from Derrick Wood of TD Cowen.

This is Cole on for Derrick. TJ, I think this is kind of a follow-up to a question that was asked earlier. But can you just talk about how customer spend levels change as they move from getting ready to roll out production use cases for Copilot or even agents? And then once they're into production, like how their level of spend changes with AvePoint?

Yes. We have seen spend level increasing with the focus around governance and also Agentic governance. I think last year is a year of experimentation. This year is a year of rollout. So, experimentation typically come from just a separate bucket, but the rollout formally formalizes a spend for all AI-related work streams. So, we think that's a positive from our perspective. This is also why we continue to see our governance suite to be the fastest-growing of our offerings.

Super helpful. And then, Jim, just one for you. You noted some longer-term contracts. Anything in particular driving that?

Not any one thing. We've seen, again, across the board, our average contract length increasing, which was nice to see. I think I've probably shared on a number of calls that over the past 2 years, as people were really tightening their belts and looking at their budgets, it's been a battle in terms of getting people to sign longer-term contracts. We put some effort around that, some structure and some discipline. I think it still makes sense for companies to committing longer term, particularly with some of the solutions we have. They shouldn't be solutions that are easily replaced or changed. So it makes sense to be signing. We saw a nice uptick this year, but it literally was across the board, not just 1 or 2 customers, but we saw a nice uptick. And again, we want to continue to see improvements there and hope to see that going forward.

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

Thank you. Before we close, I want to take a moment to reflect on what this quarter truly represents. Surpassing $100 million in quarterly revenue is a defining milestone for AvePoint and a clear signal our strategy is working. It's a testament to the strength of our platform, the trust of our customers and partners and the consistent execution of our global teams. Over the past several weeks, I've sat down with our regional leaders during quarterly business overviews around the world. What's clear is that our teams are energized, aligned and laser-focused on the opportunity ahead. We're not just reacting to market shifts. We're anticipating them and building the solutions our customers and partners need to thrive in an AI-driven multi-cloud world. We remain confident in our ability to scale this momentum. Our path to $1 billion in ARR by 2029 is grounded in the progress we're making every quarter, and we'll continue to pursue that goal with the same discipline that's driven our profitable growth to date while accelerating innovation that sets us apart. Thank you again for joining us today, and we look forward to speaking with you more this quarter.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.