Q3 2024 Earnings Summary
- AvePoint is experiencing consistent high growth across all major geographies—North America, EMEA, and APAC—driven by strong demand for data governance, control, security, and resiliency solutions.
- Improved sales efficiency, due to better productivity from sales reps and a maturing channel strategy, is contributing to margin improvements and profitability.
- Strong net new ARR growth is being driven by a focus on the SMB segment and managed service providers, leading to outsized net new logo acquisitions and ARR growth.
- AvePoint is guiding lower for operating income in Q4 2024, indicating potential margin pressures or increased expenses. CFO James Caci stated, "we definitely are guiding lower for operating income in Q4... we definitely have more marketing spend in Q4 and some other initiatives... Q4 historically has been a higher spend quarter, and that's going to continue this year."
- Gross retention rate remains relatively low at 88%, with the company aiming to reach 90% in the next couple of years. CFO James Caci acknowledged, "we were definitely encouraged to see us pick up here 1% to get to that 88%... we're investing heavily there... we're working toward that 90%, and hopefully, in the next couple of years, we get there." This indicates potential challenges with customer retention that could impact long-term growth.
- Dependence on early-stage AI initiatives poses risks to AvePoint's growth prospects. CEO Tianyi Jiang mentioned that while there is excitement around AI and agents, "right now, we're still in very early innings of agents... If you can't get a good quality output from your current AI deployments given a poor data estate, deploying agents would just make it even worse." Reliance on emerging technologies like Microsoft 365 Copilot may not translate into sustained growth if AI adoption slows.
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Net New ARR Growth
Q: What's driving net new ARR performance?
A: The company is excited about the strong net new ARR growth, driven by multiple strong segments, especially in the SMB segment with a focus on managed service providers. This focus is leading to outsized net new logo acquisitions and net new ARR. Additionally, the platform's strength in governance (control suite) and security (resilience suite) is helping win in the market.
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Q4 Operating Margin Guidance
Q: Should we read into lower Q4 operating margin guidance?
A: The company is guiding lower for operating income in Q4 due to higher spend in that quarter, which is typical historically due to programmatic spend and increased marketing initiatives. Some expenses were also shifted from Q3 into Q4. This is not necessarily indicative of future margins, and they will provide guidance for next year in February.
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Gross Retention Rate Improvement
Q: What's driving the uptick in gross retention rate?
A: The gross retention rate increased to 88%, up from 87%, reflecting strong performance across regions, particularly in the public sector. Improvements in servicing the long-tail ARR base through pooled customer success initiatives also contributed. The company aims to reach a 90% gross retention rate in the medium term, over the next couple of years.
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Impact of AI on Demand
Q: How is AI influencing demand for your products?
A: The proliferation of AI, particularly Microsoft 365 Copilot, is driving increased demand for data governance, control, and lifecycle management. As companies adopt AI, the importance of data quality and data management raises the priority of the company's solutions. The control suite and resilience suite are becoming more critical, with large enterprise deployments underway.
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Sales Efficiency Improvements
Q: What's contributing to improved sales efficiency?
A: Improved sales efficiency results from better productivity among sales reps, both seasoned and new, who are ramping up faster and reaching first sales sooner. The maturing channel strategy, with more business coming through efficient channels, is also contributing to this progress.
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IT Budget Prioritization
Q: Is growth due to IT budget shifts or macro factors?
A: Growth acceleration stems from both the reprioritization of the company's products within IT budgets and the unlocking of budgets. AI experimentation often starts outside traditional IT spend, but firm-wide rollouts tie back to primary budgets, increasing the need for governance and control solutions across industries.
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FX Impact on ARR
Q: What was the FX impact on reported ARR?
A: The foreign exchange impact was about 1%, meaning the ARR would have been approximately 1% higher without FX effects.
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Growth Across Product Suites
Q: Can you provide growth rates across different suites?
A: While specific growth rates are provided annually, the suites are performing similarly to last year. There is increased focus on the control suite from customers, and improvement is expected there, but overall performance is consistent with prior periods, with more emphasis on control.