AvePoint, Inc. Q3 FY2023 earnings

AvePoint reported total revenue of $72.8 million for the fiscal third quarter, up 16% from $62.7 million a year earlier, and $197.2 million for the first nine months, up 16.9%. The revenue mix kept tilting toward subscriptions. SaaS revenue rose 39.9% and represented 58% of total revenue, up from 48% in the prior-year period. Total ARR reached $250.6 million as of September 30, 2023, up 23% from $203.8 million a year earlier and 25% after adjusting for foreign exchange. The quarter also brought the introduction of AvePoint EnPower, a product that helps organizations analyze, govern and optimize SaaS management and operations across Microsoft 365 and Power Platform, along with renewed ISO information security certifications.

Margins tell a mixed story. GAAP gross profit was $52.6 million, up 15.3%, but gross margin of 72.3% slipped 0.4 percentage points from 72.7% as hosting and personnel costs grew. The GAAP operating loss narrowed to $0.3 million from $7.4 million a year earlier, and operating margin of -0.4% compared with -11.8%. Net loss narrowed 43.2% to $4.2 million from $7.4 million, with diluted loss per share of $0.02. Year to date the operating loss narrowed to $16.2 million from $33.0 million, the net loss narrowed to $26.0 million from $28.9 million, and diluted loss per share was $0.14. Stock-based compensation and intangible amortization remain the main bridge to non-GAAP results, where operating income was $9.3 million against $2.4 million a year earlier.

Cash flow improved materially. Operating cash flow was $4.0 million in the quarter against a $0.3 million outflow a year earlier, and $13.3 million for the nine months compared with $6.9 million used in the prior-year period. Capital expenditures, a cash outflow, fell 41.9% to $0.7 million in the quarter and 56.8% to $1.5 million year to date. Deferred revenue of $108.7 million rose 26.4% from a year earlier, and remaining performance obligations were $275.8 million. Cash and cash equivalents were $205.8 million and short-term investments $3.5 million as of September 30, 2023, which the press release reports as $209.3 million of cash and short-term investments. The company also spent $33.6 million repurchasing shares in the first nine months and replaced its matured line of credit with a new $30.0 million HSBC revolver that matures in November 2026.

Guidance covers both the fourth quarter and the full fiscal year. For the fourth quarter of 2023, AvePoint expects year-over-year total revenue growth of 12% at the midpoint and non-GAAP operating income of $8.1 million to $9.1 million. For the full year 2023, the company now expects total ARR of $261 million to $263 million, or 22% growth at the midpoint, revenue growth of 16% at the midpoint, and non-GAAP operating income of $20.0 million to $21.0 million.

Several risks sit under the surface. Dollar-based net retention was 107% as reported and 108% adjusted for FX, while gross retention was 85% as reported and 87% adjusted. Income tax expense rose to $2.8 million in the quarter from $0.3 million, and the effective tax rate was (204.5)% compared with (5.2)%. Management attributes that swing to the mix of pre-tax results across jurisdictions taxed at different rates, foreign inclusions, stock-based compensation, and tax losses for which no benefit can be taken. AvePoint notes that its third and fourth quarters have historically been its highest revenue quarters, so the fourth-quarter guide of 12% growth at the midpoint lands in a seasonally strong period. The usual cloud software pressures apply: competition, currency moves on international revenue, the need to attract and retain employees, and macroeconomic and geopolitical uncertainty, including Russia's ongoing military action against Ukraine. Because the market value of its stock held by non-affiliates passed $700.0 million as of June 30, 2023, AvePoint will be a large-accelerated filer as of December 31, 2023 and will lose emerging growth company status.