AvePoint, Inc. (AVPT) Earnings Call Transcript & Summary

Hi, and welcome to the Software Summit of Jefferies. I'm Joe Gallo, and we're excited to have Dr. TJ Jiang, CEO and Co-Founder at AvePoint. He may be the most educated person that I'm hosting today, with many different degrees and a PhD. TJ, thanks for coming. I'm going to kick it over to you. You're going to give a presentation, and then, we'll have time for Q&A at the end.

Thank you, Joe. It's a pleasure to be here. Thank you for having us. Yes, I'll go over a 10-minute overview on AvePoint and give folks some updates on where we're going and where we're seeing the market, and then we'll go into Q&A. Great. So just a quick background for those of you who are not familiar with AvePoint. We actually -- it's a company that's founded in 2001. The genesis of that was actually 9/11. I was with Lehman Brothers at the time, writing in trading systems for our program trading on the equities desk. My office is 40th floor of North Tower. So that, obviously, is a life-changing event. Everyone on my floor went -- survived and went through the experience. So for me, it was a life-changing event as well. I left Wall Street and decided to go back to school. First, MBA and then doctorate in machine learning and data mining, NYU. In the -- around the same time, my co-founder, Kai, whom I became friends with in the first job out of my college years, at Bell Labs, Lucent. He also found himself in need of a new job, so he decided to start this company. So we really started with a guy doing full-time in summers in the library and me, working part time as [ glass ] student. We're started in the space of exchange data backup because we knew B2B software very well. We knew nothing about B2C. However, even in 2002, the exchange market was quite crowded. Microsoft released this solution called Project Tahoe. It was actually the precursor of the ECM product and platform, which is SharePoint. We actually started to cover that because they use the same data format. Fast-forward to 2003, when they came out with the second version, we became the only one in the world that provided a migration platform, first version to second version, to do the data schema mapping and all the data migration, the hard work. So since then, we have become known as a company that's very focused on technical details. We became the largest data management product company in the Microsoft ECM space. And because ECM is targeted very much towards large enterprise and high touch, so we actually expanded into 14 countries. Today, 45% of our revenue is in North America, 30% in Western Europe and then 25% in APAC. And then the other major pivotal moment happened in the company history was post-2010 when Microsoft started to signal to invest towards cloud. We recognized early on that the Microsoft Cloud is going to be a game-changer, allow them to really continue their dominance in the enterprise space. And that for us, it's a game-changer in which it'll allow us to expand our TAM, total addressable market, from just ECM, SharePoint data management, to the entirety of Microsoft Office. So fast-forward to today, with Microsoft Teams, their video, chat, collaboration, killer product, every -- anything you do in Teams to share content, share documents or co-author or version control or in Microsoft Exchange or OneDrive or SharePoint Online, you have to go through SharePoint. So that really plays well into our wheelhouse. We are able to really expand our play as a SaaS provider now in cloud to manage hundreds of petabytes of data for our enterprise customers, for all of the workloads in Microsoft 365, so Exchange, OneDrive, Teams, SharePoint Online, Yammer, Projects. The data we talk about, it's what we call business data. It's not the database machine-generated data, but more on the unstructured: e-mails, files, chats, contracts, legal agreements. So those business data are the things that we manage and govern and do provision and security control for our customers. And also, in 2014, we embarked on this subscription conversion journey. So it took us 4 years to do it because we decided not to borrow money. So we built this business with just $60 million of primary capital, very capital efficient and no debt. So 2019 was the first year we came out of the subscription conversion as a business model to suffer through that cash crunch. And then, '19, we started to grow again very well, just like before 2014, predictable growth, and our revenue grew 15%. Our ARR grew close to 30%. And then now, today, we're in 2021, we went through 2.5 years, 10 consecutive quarter of record growth, 30% ARR growth. Revenue-wise, it was 25% last year, revenue growth and this year is 30% and EBIT positive. So last year's 12% EBITDA margins. This year, 10%. So we are really in that Rule of 40 as a SaaS B2B software company. So very exciting as now we're a public company since July 2. We have close to $270 million on our balance sheet, no debt, fast growth, global platform, global presence. And now we're ready to really hit the market to grow faster to address this massive TAM. So a bit of a background on what exactly we do. I think most of you here know the industry trends very well, one of explosive data enterprise data growth, and most of that is shifting through cloud. And of course, most large enterprises that we address have complex environments, hybrid, multi-cloud environments. And of course, Microsoft collaboration, specifically Teams, went from 20 million users now to 250 million users in a matter of 1.5 years. So that's the premises for the market. Now what do we do? What Gartner calls SaaS as a management platform, is essentially this capability to ingest information to drive discovery. And this is very, very important across all the SaaS business applications. So today, we offer migration as a service, information and data governance and service, and working with partners to do endpoint and application security as a service as well. So the solution we have, we call it confidence, SaaS Management Platform, which is powered by our AvePoint online services, is a SaaS platform, which we have already put in production and servicing over 8 million enterprise users over the last 8-plus years already. It has a secure and scalable architecture, 14 instances around the world to solve the data sovereignty concerns and also FedRAMP-authorized, which itself is a 3-year process to be able to locate our software in a SaaS instance, in FedRAMP-authorized data centers, the Arlington, Virginia servicing U.S. government agencies, SO compliant, ISO certification. So this whole idea of going to enterprise SaaS is not something you can turn on a dime. It's not only a technology transformation with continuous integration, continuous development, which we actually update our software every 2 to 4 weeks for all of our clients. But it's also 24/7 cloud operation, cloud security and certifications -- security certifications and FedRAMP certifications, to get into all the different government data centers. So that actually takes years to build. And that bake into this early mover advantage for us in the enterprise space. And also, at the same time, because we hold so much data, we have hundreds of petabytes of data from our customers, and there are also 100 petabytes of data that customer is actually storing in their own on-prem for data's continuity purposes, storage or AWS, Amazon or Azure, EA or Box and Dropbox. We don't actually store, but we touch, because of this data security and governance play. So from that, we have this data orchestration engine that surfaces out automation around governance, around security control, offer insights, who use what, when? Where did your users accessed Box? Where did your user access OneDrive? Where did you user their access Google Drive, et cetera? And we're going to surface that out and also offer self-service for end user around data recovery and data governance. All of this is obviously driven by machine learning to provide user and business insight, which is near and dear to my heart given my graduate studies. At the end of the day, we have this data orchestration engine that, again, hundreds of petabyte data, introducing automation around security and governance and then ultimately provide insight and self-service. So today, we sell to the back office. Our end users are IT. So the buyers are CIO, CIO minus one. And the provers our security and risk and privacy officers, with our confidence SaaS management platform. But we're also now able to surface our offering to business users, front office. So I'll discuss that in turn here. So on the back office, our product, this is new classification we have done. It's about 1/3 of our revenue, software and service included, across each one of these suites: control, fidelity and resiliency. So control is really a talk about data, life cycle management, provisioning, who has access to what and providing insights around policies to say, hey, these are potential vulnerabilities and there's too much oversharing here, you need to shut that off or have it go through a recertification process, and all of that is automated. We also got into the space of license and entitlement management. Because think of a customer like Nestle, customer orders 300,000 seats. Most of the users there don't have a laptop or a computer. They have just tablets or phone. So they will be in [ kiosk ] license with Microsoft 365. And some of them will be the E5, the Cadillac version of the license type. But how do you license users? We can do a more intelligent allocation based on their usage patterns, based on what features they use and not use and provide a maximum ROI for our customers to maximize their investment across license types, but also very importantly, across multi-cloud in terms of labeling, classifying and shut-off access or turnaround access. Think about part of your organization may be using Box and part of your organization may be using OneDrive. And how do you actually allow assets across different assets, data silos and also how do you actually organize that access cohesively across multi-cloud? Migration is actually a space where -- so on the control side, just like on the resiliency side, we actually license for all the employees in the organization. Unlike Salesforce, which just license by a number of salespeople or marketing people. We license, the way Microsoft licensed, all the employees that have licenses for Office 365 and Microsoft 365. That's how we license. On the migration side, we actually have 10 separate SKUs. Because we've been around for a long time, we understand all the legacy ECM platform out there, whether it's OpenText, Notes, HP TRIM, all the different type of file shares, FileNet, all the type of different e-mail systems. So we do the migration there to cloud, but also, very importantly, more and more, is migration service, cloud to cloud. So for example, we're the first vendor to provide Slack to Teams migration. We obviously do Box and Dropbox. And also within Microsoft 365, there's tenant-to-tenant migration, consolidation, divestiture, merger/acquisitions. For example, Shell has actually been our customer for 10-plus years, and they never stopped migrating from different systems, from different cloud assets. And we have another, [ M&C ] that has 72 tenants, separate tenants on the same Microsoft Cloud because they bought all these companies and became this conglomerate. So all these nuanced use cases for enterprise, we already addressed. On the resiliency side, we talk about backup as a service, archiving as a service, record as a service. Living on fact of the hundreds of petabytes data we back up on a daily basis. The biggest workloads we back up is actually Exchange Online. Even though we started in the Teams governance and security space getting there, and then we were able to expand to backup Teams, chat, channels, documents and then extend to OneDrive and extend to Exchange. We also back up, by the way, Salesforce, as well as Google Workplace. So -- but the #1 workload is actually Exchange. That also shows and indicate the power of the platform. So we don't just do one thing, we do all of it and provide a multi-cloud approach. And what's really interesting that we continue to grow our business is the surfacing of this data orchestration capability to the end users. So predominantly, the buyers are IT and power users. But now we're also servicing chat bots and MyHub, which is one of the very few security-certified Teams apps. So now with Windows, you should buy Cloud PC. Every instance Windows deployed out there has Teams baked in. Teams is a new killer app from Microsoft. And of course, we are one of the very few security-certified apps in Teams. So MyHub is actually the #1 popular hub in Japan, as well as top 5 globally. So it's something that we roll out in a premium model. We are now getting really great usage from our business users. As Microsoft now increasing price across the license type by 10% to 20%, we're also looking at a way to monetize that. On the left side, we also have now industry solutions. These are already multimillion revenue-generating -- reoccurring revenue generating solutions that's again tied in with our data orchestration and SaaS data management platform on top of Microsoft Teams. That allow us to go -- surface out vertical solutions to the business users. So that's what we do. From a market perspective, it's a massive market. We have already indicated that we're going to grow from over $8 million to $50 million, which is actually only 10% of the Microsoft forecasted growth for Microsoft 365. So it's a massive market. Once we get there, we'll be a $1 billion recurring business. From a segmentation perspective and this would be my last slide, and I'll open, Joe -- we'll have to start questions. We have 3 distinct segments of go-to-market. Enterprise is 10,000 users and above companies. And there, that's 60% of our business today. And a deal cycle is about 6 months. And an average deal size is anywhere from $100,000 ACV to a couple of million dollar ACV, annual contract value. We also do services there. Our overall service mixture, right now, is about 20% of our revenue, 80% is recurring software subscription sale. And that service percentage is going to go down to 10% as we offload a lot of services in the mid-market to 100% channel. So that's enterprise. That's field sales. Mid-market is inside sales targeting 500 employees to 10,000-employee-sized companies Deal cycle is shorter, much shorter, less than 3 months. And before, we had a mix of direct North America, indirect channel, international. Since July, we made it all international. We're offloading all services to partners, so really scaling through that. In the 1.5 months since we launched the program, we signed up 400 net new partners. And each partner, if they just give us half a salesperson, we'll be able to double our sales organization in one go, in 1.5 months. And we were able to generate net new 7-digit pipeline already in 1.5 months. We're very excited about that segment because, literally, we're bringing business to the partners, bringing them service opportunities. In exchange, they're their bringing customers, their relationship, that actually speeds up the sales process. So now mid-market is 100% channel. And that's 35% of our business today. The 5% is SMB, which we only started 2 years ago, organically, ourselves. We never sell to SMB. As you can imagine, we are very much focused on data governance and security for a large enterprise. But what we have found is that since we've done the SaaS, SMB is coming to us. SMB don't have IT. They have these service partners that they outsource to, so what they call managed service providers. These folks are doing monthly contracts, whereas mid-market enterprise is yearly, multiyear contract. We have blended average 2.25 years. SMB is monthly contracts. They're buying through these digital marketplaces without human involvement. We're already in 100 digital marketplaces around the world. We're growing at 3 digits year-over-year. It's very fast growth. Because in one single pane of glass, we offer these MSPs, backup as a service, governance as a service, entitlement license management service, migration as a service. And now we also opened APIs so they can be DevOp partners. They can generate their own IP, provide their own IP and then provide better service to their SMB customers. That's growing so fast for us. We estimate that could become 1/3 of our business in the medium term. And for Microsoft -- why are we so bullish? Because for Microsoft, that's 40% of their market from a subscription seat count perspective. And that's also the same market that Datto and [ we ] make 100% of the revenue in. So it's a huge market. We're just scratching the surface, but we're growing very, very fast. So all 3 segments have different flavors, but all have very strong growth tailwind here. So with that, Joe, let's open up for questions. I think...

I've been having technical difficulties. I apologize for that. So I think, and you touched on it a little bit. I think one of the -- you're assuming different growth drivers, right, like new logos, but also just expanding within Microsoft. You have 8 million seats there. There's over 300 million commercial seats. Maybe just talk about how you get to your targets and where that can eventually go? What are the inhibitors that there?

Right. So we have, again, major growth drivers. Different segments have different drivers. So enterprise space, on average, itself, they buy about 2 out of the 3 suites, so we can sell additional suites as well as this business application side that I talked about. So that's acceleration there. Mid-market is scaling through channel partners. We expect the pace of customer acquisitions to speed up significantly and be able to outreach the market in a big way. Because, again, even at 8 million users, like you already pointed out, the market is 280 million, close to 300 million users. So we're just scratching the surface. And nobody has more. So it's really a game of market share grab right now in the medium term. And SMB, of course, also digital acceleration, monthly contracts and high retention logo there. Also, another major thing that we do is we're able to increase our NRR by focusing on customer success investment to cover our customers to make sure we have really good upsell, cross-sell opportunities, keeping customer happy, renewal contracts. There, we already made very good progress in the last few years, and we're very bullish to get that to 120%. So that means just focused on existing customers, that revenue will grow 20% year-over-year. So right now, we are very much in that Rule of 40 for SaaS, B2B software companies. And with a massive market, with the first-mover advantage or platform manage, we're very bullish to maintain that growth profile going forward.

We've experienced this with companies we cover, but I mean, this is a very competitive space. Maybe you mentioned 2: VM and Datto, but how do you differentiate -- is it -- and I imagine you have to differentiate with MSPs in the channel. So I guess maybe just talk through that it's not simply just increasing your direct sales force and driving ?

Ultimately, Joe, the power comes from the platform. So this interplay , as I mentioned earlier, for example, our backup as a service, #1, we're close is Exchange. And most people are surprised by that because they've known us as Teams governance, security and SharePoint data management company. The interplay between our platforms where we can classify, [ tag ] as and retire active data by as much as 90%, therefore, reducing the footprint of active data management and back up by up to 90%, it's a powerful driver. We're able to help customers manage entitlement and license maximization across license types, and then provide consistency across cloud as another major differentiator. In terms of the compete landscape specifically, there's no singular competitor that does everything we do. We have point competitors. In the enterprise space where we do 60% of our revenue, we -- in migration, we were will run into Quest, for example. In backup, we run into Combo. And in data and production, we run into a space that Varonis does make a play. But however we do things very differently, and those folks are also very late to the cloud game. So as I mentioned at the beginning of the talk, it's difficult and takes time to actually be true enterprise-grade SaaS. Varonis today is not a SaaS. So why does SaaS resonate better for the customer? Because you have this evergreen feature of releasing new product and features based on telemetry every 2 to 4 weeks to all your customers. So that kind of pace is something that the old style on-prem dedicated hosting software vendors, their yearly release cycles or multiyear release cycles. It's just very, very difficult to keep up. So we're actually playing a different, essentially, strategy here. Therefore, we actually don't see much competition in the enterprise space. In the SMB space, you're absolutely right, there's SaaS players like Datto and others. And our story there is a differentiated story because we don't just do, again, backup service, we also do security and governance service, migration service, entitled management service. Our whole point is to be the single , single payment glass for MSPs to manage hundreds of tenants, to manage differentiated offering. And also, very importantly, opening API tied to them, to make them DevOp our partners to us, so they can release new cycles every 2 to 4 weeks. It's a very, very powerful value proposition.

Awesome. I -- unfortunately, I think we're running up on time. But really appreciate the time today, TJ. Thanks for joining the conference and look forward to watching you guys in the future.

Thank you, Joe. It's a pleasure Thank you very much.