Good day, and welcome to the AvePoint Inc. Fourth Quarter 2022 Earnings Call. Please note this event is being recorded. I would now like to turn the conference over to Jamie Arestia of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to AvePoint's Fourth Quarter and Full Year 2022 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 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 the means of evaluating and 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 2022 earnings press release as well as our updated investor presentation, both of which are available in the Investor Relations section of our website. With that, let me turn the call over to TJ.

Thanks, Jamie, and thank you to everyone joining us on the call today. Our fourth quarter was a strong close to 2022, our first full year as a public company, where, despite an uncertain macro environment, our results continue to underscore the ongoing need for organizations around the world to optimize and secure the digital workplace. Fourth quarter highlights included 32% ARR growth and 26% revenue growth, both adjusted for the impact of foreign exchange. And while Q4 non-GAAP operating income came in below guidance, this was entirely due to the one-time expenses related to the workforce reduction we announced in December. While these charges negatively impacted the fourth quarter, they position us well for improved efficiency in 2023 and beyond as we are laser-focused on profitability and margin expansion. Given now we plan to hold our very first Investor Day on March 22, where we'll provide a much deeper dive into our business and strategy, our remarks today will be fairly brief. But we look forward to sharing with you our view of the market opportunity, our strategy for capturing it, and our longer-term financial outlook in two weeks. Today, I want to take a step back and remind you of the importance of what we do. AvePoint provides a cloud-native software platform that organizations rely on to optimize operations, manage critical data, and secure the digital workplace. This has made us a software vendor of choice for more than 20 years. But today, as we look at the headlines around us, be it the macroeconomic uncertainty I just mentioned, the need to reduce costs, or a cyber threat landscape that is only becoming more dangerous, we believe the need for our platform has never been greater. As companies around the world embrace the new normal of hybrid work, they must build and deliver a new seamless workplace experience for knowledge workers, centered around an extensive portfolio of SaaS solutions and productivity applications aimed at improving collaboration across the organization. The adoption of this portfolio of solutions, which has been generally described as digital transformation, is a substantial and ongoing challenge for most organizations. For decades, companies relied upon only a small number of multipurpose on-premises applications to drive business outcomes. However, to build and deliver an efficient digital workplace today, companies must address this abundance of applications and the associated explosive growth and sprawl of data with a platform offering that is well governed, fit for purpose, easy to use, and built on automation. This is where AvePoint comes in. AvePoint's confidence platform empowers organizations of all sizes in all regions and across industries to optimize SaaS operations and secure collaboration in the digital workplace. Our customers depend on AvePoint's confidence platform to rapidly reduce costs, improve productivity, and make more informed business decisions. And given that we remain in the early innings of digital transformation, we only expect this need to grow in the years to come. Before I turn the call over to Jim, I want to spend a few minutes highlighting a few key customer wins in Q4. A leading British multinational retailer became an AvePoint customer in Q4. Their deployment of Microsoft 365 was aimed at improving collaboration but also led to substantial excess storage costs associated with stale data. Our strong relationship with the managed service provider in the region enables us to discuss how the AvePoint confidence platform can help them archive their data. In turn, this tactical conversation naturally led to a more strategic one, focusing on the value provided by our governance, cloud records, and data protection solutions. Today, 16,000 users are taking advantage of the AvePoint confidence platform to implement end-to-end lifecycle and information management. At the same time, we are already discussing the implementation of an enterprise-wide solution to protect the customer's data in Azure and Power Apps. We also remain significantly underpenetrated with our existing customer base, and the team had another strong quarter closing expansion opportunities. A great example of this is a leading international mining company headquartered in the U.S., a long-time AvePoint customer. We started with a competitive win to help the company swiftly preserve data integrity and ensure business continuity with our migration product following the completion of a divestiture. Once we proved our value, the customer turned to our cloud governance offering to ensure that their Microsoft 365 environment was secured for its 40,000 employees around the world. More recently, they asked how we could address the potential risks associated with 13,000 contractors accessing their cloud environment, as their manual efforts to do so were resource-heavy and inefficient. In the fourth quarter, they purchased our policies and insights product and will use its reporting capabilities to rapidly understand usage trends, freeing up resources to focus on other high-value priorities. At the same time, we're already discussing how our data protection and information management solution can provide even more value from the AvePoint Confidence Platform. Lastly, I want to call out a groundbreaking project we're starting for the Monetary Authority of Singapore, our third-largest customer in the country. An AvePoint customer for more than a decade, they recently announced plans to launch a digital platform for global financial institutions to share customer and transaction data with the dual goals of preventing money laundering and terrorism financing as well as protecting client privacy. This project, where regulators and global banks share data, is a national priority and the first of its kind in the world, and it will leverage our platform technology to ensure that proper security controls and regulatory frameworks are in place. AvePoint won a highly competitive bidding process, which included the Big 4 and the largest system integrators in Singapore, and we look forward to sharing more about our critical role in this next level of fintech innovation. These are just a few examples of how our proven technology provides our customers with more efficient and secure operations every day. In summary, Q4 was a strong close to 2022. While we're mindful of near-term economic uncertainty, we remain excited about the opportunities we see in 2023 and beyond, and I want to thank the entire AvePoint team for their tireless efforts this past year. With that, I'll turn it over to Jim to discuss our financial results in more detail.

Thank you, TJ, and good afternoon, everyone. As I review our fourth quarter and full year 2022 results today, please note that I'll be referring to non-GAAP metrics unless otherwise noted. For the fourth quarter ended December 31, 2022, total revenues were $63.6 million, up 18% year-over-year and up 26% in constant currency. Within total revenue, Q4 SaaS revenue was $33 million, up 36% year-over-year and up 46% in constant currency. We are pleased to see the continued strong growth of our SaaS revenues, which constituted 52% of total Q4 revenues compared to 45% of total revenues last year. Looking at the business geographically, we again saw healthy performance across all regions, especially as we look at the growth in our SaaS business. In North America, SaaS revenues grew 39%, while overall revenues grew 28%. In EMEA, SaaS revenues grew 48%, while total revenues grew 19% on a constant currency basis. And in APAC, SaaS revenues grew 53%, while total revenues grew 32% on a constant currency basis. As of December 31, 2022, total ARR was $201.7 million, representing growth of 27% from the prior year, and up 32% adjusted for the impact of foreign exchange. At the end of Q4, average core ARR per account was $41,479, an increase of 10% year-over-year. We ended the quarter with 439 customers with ARR of over $100,000, up 31% from the prior year period. Our core ARR dollar-based net retention rate for the quarter was 105% and 108% when adjusted for the impact of foreign exchange, in line with our FX-adjusted NRR from a quarter ago. Turning back to the income statement, gross profit for Q4 was $46.1 million, representing a gross margin of 72.4% compared to 73.5% in Q4 2021. The slight year-over-year gross margin decline is the result of the impact of foreign exchange as well as our product mix with SaaS representing a higher portion of our total revenues this quarter versus last year. Operating expenses for Q4 totaled $44.7 million, or 70% of revenues compared to $38.2 million or 71% of revenues a year ago. As a result, Q4 non-GAAP operating income was $1.4 million, or an operating margin of 2.2%. Our operating income included one-time expenses associated with the reduction in workforce we announced in December, which totaled approximately $3.1 million in the quarter, and primarily related to severance and other compensation benefits. Excluding this impact, Q4 non-GAAP operating income would have been $4.5 million or an operating margin of 7%, which was ahead of our guidance. While our operating expenses through the first three quarters of 2022 grew 30% year-over-year, Q4 operating expenses grew only 17%, reflecting our focus on expense management and excluding the $3.1 million one-time charge I just mentioned, Q4 operating expenses grew only 9% year-over-year. Turning to the balance sheet and cash flow, we ended the year with $229.8 million in cash and short-term investments. For the 12 months ended December 31, 2022, cash used in operations was approximately $800,000, while free cash flow was negative $4.6 million. Lastly, with regard to our stock repurchase program, we bought back a small number of shares in Q4 and through the full year, we repurchased just over 4 million shares at an aggregate price of approximately $19.9 million. Our program remains open, but as we discussed last quarter, we continue to take a more measured approach to buybacks with a focus on managing our cash and prioritizing strategic investments in the business, including M&A opportunities that further our growth. I'll now briefly recap our full year 2022 results. Total revenues were $232.3 million, representing growth of 21% and growth of 29% on a constant currency basis. Within total revenues, SaaS revenues were $117.2 million, representing growth of 37% and growth of 46% on a constant currency basis. For the full year, SaaS revenues represented 50% of total revenues, the highest annual contribution we've shown from our fastest-growing revenue segment. As mentioned, total ARR as of December 31 was $201.7 million, representing growth of 27% and growth of 32% adjusted for the impact of foreign exchange. Non-GAAP operating margin was a negative 1.2%, primarily driven by higher R&D investments we discussed throughout the year. Excluding the one-time expenses in Q4, our full year non-GAAP operating margin was slightly positive. This result was within our original guidance range from a year ago and ahead of the updated guidance we provided last quarter. I would now like to turn to our outlook for the first quarter and full year of 2023. For the first quarter, we expect total revenues of $57.5 million to $58.5 million or approximately 15% year-over-year growth. We expect a non-GAAP operating loss of negative $2 million to a negative $1 million. For the full year, we expect total ARR of $238.4 million to $244.4 million or approximately 20% year-over-year growth. We expect total revenues of $253.8 million to $260.8 million or approximately 11% year-over-year growth, driven in part by our continued shift to SaaS, consistent with the strong growth we saw in 2022. And most importantly, we expect non-GAAP operating income of $12 million to $15 million. While the uncertain macro environment and the potential for a wider range of outcomes are reflected in our top-line guidance, we are laser-focused on profitability and controlling the controllable, and we plan to show approximately 650 basis points of year-over-year operating margin expansion in 2023. Lastly, our improved profitability should also lead to better cash flow from our operations this year. In summary, we are proud of our 2022 results. As TJ mentioned, while we are mindful of today's uncertain macroeconomic environment, we remain focused on consistent, steady execution as we position the company to successfully navigate any economic conditions. Thanks for joining us today, and we look forward to seeing you in person at our Investor Day on March 22 in New York. With that, we'd be happy to take your questions.

Our first question comes from Jason Ader from William Blair.

Just wanted to drill down a little bit on the SaaS mix. So where do you expect SaaS mix to go in 2023? And do you expect it to be a headwind at all to revenue growth just given the mix shift away from some of the upfront revenue recognition?

Jason, I'll start with that. It's a great question, and I think you're correct. We are forecasting an ARR growth of about 20% for the year, while revenue growth is expected to be slightly lower at 11%. The main factor contributing to this is what you mentioned. We anticipate continued acceleration in the SaaS area. Although the SaaS growth will not affect our ARR, due to our revenue recognition across multiple line items, we will experience some challenges with revenue growth.

Got you. So is the revenue growth rate of 11% in constant currency?

Yes. So that is assuming that we're effectively using the FX rates at the end of December. So we've kind of pegged to that and assuming that we're matching to that for all of 2023.

Understood. Okay. So one quick follow-up on SaaS. What is your outlook on gross margins this year, considering the lower margins associated with SaaS?

Yes. No, great question. So actually, the biggest impact for us on margins really comes from the services mix, which is obviously our least margin-contributing piece of our revenue. And so we're going to expect to see a little bit of a decline in the overall percentage of revenue that services makes up next year. So that actually has a favorable impact. And then as you said, the SaaS is a little bit less. So the increase in SaaS kind of offsets that. So what we're thinking about for next year is that margin stays roughly about the same that we have for '22.

Got you. Okay. And then one last question for you, TJ. Can you discuss some of the impacts from a macro perspective that have been observed in your business? Additionally, has there been any noticeable difference across geographies, sectors, customer sizes, and so on?

Yes, Jason. So 60% of our revenue comes from the enterprise segment, and that's the segmentation where we do see prolonged procurement cycles. There's a lot more focus this year around vetting out investment from a customer side. This is actually where we help customers maximize their existing investment in the cloud. The overall tenor of customers' demand in cloud is still very strong, given everything we have seen coming out of even ChatGPT, the infusion of that into Microsoft Office services. We see the market from the customer perspective, going to cloud. It's a very natural next step to leverage those capabilities, ultimately making collaboration more efficient. And this is where we actually help them secure and govern better with a lot more generative data. So for our overall tenor of the business climate for us has remained very strong.

Our next question comes from Gabriela Borges from Goldman Sachs.

I'll pick up on the last question. So TJ, I think you mentioned the 60% of the business that's enterprise. What are you seeing in the other 40% from a macro standpoint? So more on the SMB side?

Yes. So mid-market and SMB, our mid-market is about 30-plus percent and SMB is north of 15% now. And we continue to see no slowdown there. SMB is a smaller portion of our business, but the velocity continues to be the fastest-growing segment for us just because the market is so big. There, we really leverage the channel. So SMB is 100% channel, mid-market outside the U.S., it's pretty much 100% channel already. From there, we actually see continued good motion around deal cycles and volume so far.

Okay. That's great. And the follow-up is on how you're thinking about margins for this year. So we have the margin commentary. Tell us a little bit more about where you are able to find efficiencies in your business mix. And what are essentially the investment priorities that you're continuing to channel OpEx toward?

Thank you, Gabriela. Regarding our operating margin, the main factors contributing this year will be efficiencies in sales, marketing, and general administration. This year marks our first complete year as a public company without any lingering effects from previous years. Last year was our first full year, but the comparison was against only part of the prior year being public. Therefore, we won't see the same incremental changes from 2022 to 2023 that we experienced from 2021 to 2022. This will naturally create some efficiencies in G&A as we move beyond our initial public status. We're anticipating significant synergy and efficiency in this area. Similarly, in sales and marketing, we are focusing on becoming as efficient as possible, with a greater reliance on our channel partners enhancing our effectiveness. These two aspects are expected to be the main contributors. In terms of research and development, we will continue to invest heavily as we pursue our strategic goals, with no expected slowdown in that area moving forward. So, we are anticipating improvements in both sales and marketing as well as G&A.

That makes sense. I'll ask one more question about R&D priorities. Can you provide more details on the milestones we should expect this year outside of the Microsoft 365 ecosystem? Also, share more about your plans regarding other ecosystems you have mentioned in the past.

Yes, Gabriela, I'll take this one. So we have seen a meaningful uptick in the Salesforce ecosystem as well as on the Google side. In fact, we will discuss a lot more of this in our upcoming Investor Day on March 22, along with the segmentation commentary I just made. So we look forward to briefing you all in much more detail on March 22.

Our next question comes from Fatima Boolani from Citi.

This is on for Fatima. So maybe, TJ, sorry, I want to start off. As ransomware attack volumes, while still elevated, have really come down from the very peak level for the past few years, from your vantage point, and really appreciate the macro comments, how has this trend impacted customer purchasing behavior, especially around the urgency for data protection and backup? And maybe any commentary around changes in conversions that have impacted your guidance outlook as well.

Thank you. That's a great question. So yes, we continue to see the cyber landscape, threat landscape to be highly elevated and it matters very much to our customers. In fact, with the SMB offer, we have this ransomware recovery warranty for our customers. This topic made backup in service a must-have for whether it's enterprise customers or SMB customers, able to recover your data point in time and very quickly upon an attack. Our software actually detects ransomware attacks in action to elevate and alert our customers and allow them to successfully roll back to a point in time. So yes, that is absolutely one of the key drivers pushing towards our protection area of offering. Having said that, we also extend that coverage as the end-to-end lifecycle provisioning and governance, even extending into applications like Power Apps. So that's how we actually, as a vendor, differentiate in the space.

And then maybe one more, if I could. On your go-to-market refinements to really drive more indirect business, is there anything you guys could share on just early customer feedback, any quantifiable metrics that we could wrap our heads around, I guess, to drive more channel business and any sort of details around win rates, the competitive landscape updates there would be much appreciated.

Yes, we will discuss all those details on March 22. A short summary is that it's always a competitive market. As we expand our intellectual property, we will encounter more point solution providers. Our advantage comes from being the singular platform provider, and in that regard, we don't have a focused competitor. However, we will go over all of this, including indirect and direct win rates and the competitive landscape, at our Investor Day on March 22.

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

Your AR results relative to the prior guidance include 400 basis points of FX. So on the 500 basis points reported, effectively, you're saying that your ARR came in $1 million above your expectations on a constant currency basis. Is that correct?

Nehal, it's Jim. So you're going to have to work those numbers back to me again. So you just you shot off a few of those. So...

We want to make sure we heard those right, Nehal. You broke up a little bit.

Yes. I just want to make sure we're following.

Got you. So your ARR results relative to prior guidance include 400 basis points of FX, where the range was $202 million to $206 million. But you reported that you had 500 basis points of the FX headwind as opposed to 400 basis points you had guided on an as-is basis. So adjusting for that incremental FX that you saw, is it then correct to say that your ARR result was $1 million above your midpoint guidance?

I think we can take this offline with you. I don't think that's a correct conclusion because...

That's not how we're viewing it, that we're $1 million above. So we did have a stronger FX impact in Q4, as I kind of alluded to before, but I'm not getting the same $1 million.

I think the difference is you're applying that across all of the ARR, where 50% of our revenue is in USD. That's not impacted by FX; the yen and the euro and the Aussie dollars, et cetera, are impacted by the FX, yes.

I’m happy to discuss this in more detail, Nehal, but we’re not experiencing the full $1 million impact. What TJ mentioned might reflect the impact, and I’m glad to go through that with you.

Okay. And then your calendar '23 guidance embeds how much FX impact on the ARR?

Yes. So it is definitely built into there because when we look at ARR, so I think we've talked about this before. So we're adjusting ARR as those customers come up for renewals, those contracts come up for renewal. So there is anticipated FX impact in '23 related to those contracts that will be renewed, but not nearly the same impact that we had in '22, but it's definitely a couple of percentage points that it's going to impact '23 on the ARR side. But we baked that into currently. We baked that into the guidance. So what we're providing in terms of our guidance on ARR, including that 20% growth, has already factored in as we look at the runoff of those contracts, and we've already baked in the FX adjustment, assuming that the rates as of the end of December '22 would have held. So we're already adjusting for that in our guidance for the 20% growth.

And how would you expect the incremental ARR through the quarters of calendar '23 to flow? Similar to the proportionality you saw during calendar '22 or any sort of material differences that you'd like to call out here?

Yes. I think we'd see similar. The one call out would be, obviously, Q3 of '22, we had the acquisition of TyGraph. So that had an artificial bump in terms of if you're trying to project now '22 to '23 ARR growth. So I would just call that out. And then I would expect to see similar to '22, but I would also expect to see incremental growth as we continue to move through the year. But I would say, similar to '22, yes.

Our next question comes from Brett Knoblauch from Cantor Fitzgerald.

I have noticed that over the last three quarters, our SaaS gross margins have been on the decline. Can you explain how we should anticipate this trend moving forward? Also, was this decline primarily due to foreign exchange factors, or could you help clarify that for me?

Sure, Brett, that's a great question. I see it in two ways. First, yes, foreign exchange impacted us. One of our main costs is storage related to SaaS, which is all in USD. We don’t benefit from the favorable FX changes on the revenue side when it comes to our SaaS costs, so that's definitely a factor. The second point is that we are expanding and growing, which means we are using much more storage. We recently renegotiated our storage contracts, and that has had a positive effect. We expect this to continue to benefit us moving forward. However, we are being cautious as we continue to grow and incur more costs. The unit economics should become more favorable as we progress.

Perfect. Understood. And I might have missed this, but did you break out what core ARR and channel ARR was?

I don't think we did. And again, I think I'll kind of defer that one to our Investor Day. We're going to spend a lot more time talking about the business, how we're looking at the business, and how we'll be looking at going forward. So I would just say, stay tuned for that, and we'll talk a lot more on March 22.

Perfect. Understood. And I guess maybe just a general kind of macro question. Have you seen any change in the macro environment from maybe a pipeline perspective or demand or deal cycle length perspective? And is it getting better out there? Is it the same? I guess, what are you seeing as we're now almost, I guess, more than two months through the year?

Yes. No, great question, Brett. I think when we looked at our guidance for '23 as we kind of wrapped up really '22, we were definitely starting to see at the tail end of '22 some sales cycle elongation, right, where we were seeing that in some deals. So as we looked at '23, we've kind of factored that into our guidance for '23, anticipating that just based on the macro environment, what we're all seeing in the broader picture, that we would expect that would continue, and we've kind of baked that into the guidance, which obviously you see. And I would say in Q1, we are seeing some of that. So I don't think we were wrong to kind of bake that into the guidance.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to TJ Jiang for any closing remarks.

Thank you. I just want to conclude by saying that despite the current challenges in today's business climate, I am more energized than ever. During our 2023 sales kickoffs in North America, EMEA, Japan, Singapore, and Australia, I could feel the passion and excitement from our teams. Together, we're committed to continue advancing our mission to enable companies to collaborate with confidence, stronger and faster. We remain excited for the many opportunities ahead of us to help companies digitally transform their workplaces, and we look forward to sharing our priorities in greater detail at our first Investor Day in New York on March 22. Thank you to all who have registered, and for those who haven't, please be sure to register on our Investor Relations website. With that, thank you for joining us today.

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