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

Fatima Boolani, I jointly head up our software research team, and I'm delighted to have -- share the stage with me the management team of APoint. To my left -- both of you to CEO and Founder, TJ Jiang; and to his left, Jim Caci, CFO. Thank you so much for being here.

Thank you for having us.

Thank you.

Well, I want to set the stage and set the tone just at a 30,000-foot level, just to kind of get the audience level side. What does Appoint do core value proposition and key milestones that you've hit in the last 12 to 18 months.

All right. AvePoint will be in business for 20-plus years. Actually, this is our 25th anniversary. Really focused around productivity workloads, specifically unstructured data. management, governance, protection. And we started the Microsoft ecosystem in the enterprise content management space. We're the first to invest in Microsoft cloud infrastructure. And today, we're the largest in the Microsoft ecosystem when it comes to office data management protection and governance. And from the productivity workloads, we also expand into additional areas. Obviously, Google Workspace is another one and increasingly on the compute side,. So GCP, AWS, Azure. And what's happened in the last few years is that while we started in the regular industry, we help companies have better data hygiene, data protection and governance who can access what, for how long, from where, et cetera. To now essentially enabling AI very high quality, high confident I trust deployment in the sense that AI is only as good as the data you feed it. Enterprise AI is different than consumer version of AI. You need to have refinement training with your industry knowledge with your specific business knowledge, and this is where proper data curation, data hygiene and access control and also when AI does damage remediation matter more than ever. So we happen to have the holistic SaaS platform that does all of that. And fast forward to this year, it's a year of AI agents. Last year is token-maxing, this year's agents where now agents are effectively behaving like your employees, except at machine speed. So all of the problems that companies have in the past with intentional access or data leakage of employees or even shadow IT of employees are now happening at machine speed with AI agents. So that's also driving a ton of demand for agent discovery, agent cost management, risk management, remediation, recovery. So that's what we have seen global growth in demand for.

So I think everyone would agree that AI has increased the importance of data governance, data security and control, right? I mean, this is something that you've been working towards for 2.5 decades, right? And so you're at the right place at the right time. took a little bit long. But right place, right time. Where do you see the most durable economic value accruing to you as a company as AI adoption continues to scale by way of more agentic systems, more AI workflows, more productivity benefits from average white collar workers using AI? How would that most tangibly impact your business? And where would it show up?

So I think the durable growth vector is really -- we are -- you're going to see a more new product releases and new capabilities lead to this AI Trust story. And AI Trust is not just about having your housing order when it comes to data. It's also actually data sovereignty, data regulations, compliance and macro level, country-level sovereignty concerns. So we see a lot more of that coming into play. So for example, even in Europe, many of our customers want their own infrastructure. While they could be using, obviously, American tech, right, whether it's Azure Stack, or Google Stack, but they want to own the key to that infrastructure. So there, you have basically -- for example, in Germany, they have a German sovereign Google instance for Google Cloud. And of course, you have this for Azure as well. So we see more and more of those type of within. And because we've been around for decades. We have physical footprint in all those countries and our channel ecosystem and partner ecosystem, we're able to address those head on and be able to act very much like a local provider. And I think that is also part of that AI trust manifestation. So that's a durable demand. We think while it took us a while, like he mentioned, to get to where we are. we put all the hard work to establish the global footprint, the presence in enterprise as well as SMB and be able to take advantage of this moment. We think the scalable growth and sustainable profitable growth is a story we will continue to lay into.

Can you remind the audience how much you leverage hyperscalers to deliver your portfolio to customers? And how much of these rising demands and expectations and requirements around digital sovereignty and data sovereignty are actually changing the model, the delivery model for you in that you are actually also investing in physical data center footprint. And then, Jim, if you can opine on, does that structurally change how you think about CapEx as well?

So the good news is that we never rely on hyperscalers for our go-to-market. What we offer fundamentally is to our customers. One is to help them maximize their investment into hyperscalers. So in the context of Office 365, for example, Microsoft would like everyone to buy E7 license, but E5 license has been out for quite some time, the total penetration is about 20%, right? We see the E7 will have a similar challenge. So this is where we come in. We say, "Hey, customer, whether you want to use purview E5 or agentic 365, E7, you have other portion of your enterprise that's using E1 and E3." How do you actually maintain consistency across these things. So this is where our software actually are very complementary. When there is, we'll use it. there's agent 365 5 capabilities will use it. When there's not, we then provide that value. That's one. And 2 is we actually help customers do this consistently across multi-cloud because increasingly, customers no longer rely on one hyperscaler and that's strategically important for them. So this is where we actually expand to multi-cloud coverage. So both of those things are against what hyperscaler would want themselves. Ideally, they will want to use the most expensive licensing and only use their stock, which the world is not going to do. So thereby lies the opportunity for AvePoint always to provide value for our customers and partners to ultimately maximize this confidence and trust for their tech deployments.

And then maybe just following on in terms of the fixed asset component. So we're truly a SaaS platform, and we're not creating data centers ourselves. And if you looked at our P&L, if you looked at our cash flow statement, you'd see there's no heavy investment being made in infrastructure in that point of view, and we don't see that happening in the future either. So we're not really dependent on creating data centers nor do we have that cash flow burden of funding that?

TJ, you brought up Microsoft. So I wanted to tug that string a little bit. There is a cooperation, cooptition, sometimes competitive dynamic there. So let's put the facts on the table. Can you help outline and maybe dispel some of the perceptions or misperceptions investors might have in your relationship with Microsoft? Because you just called out purview. You talked about E5, E7 embedded capabilities, but yet you are still able -- you have been able to build a pretty fantastic business around wrapping yourselves around those environments, right? So why does AvePoint in your platform win against the native Microsoft and embedded capabilities? And what gives you the confidence that at some point, Microsoft won't stem on the accelerator and encroach very much more into your territory.

Yes. This has been the question for the last 25 years, right? And we're still here. So ultimately, the biggest takeaway should be all hyperscalers or all major vendors for them to be successful, they have an ecosystem. Even Apple, right, and Google and Samsung. Every one of them have ecosystem because as large as that company themselves, they cannot do everything for everyone. So therefore they rely on partners, whether it's for implementation, for delivery or to close the last mile problems or for verticals that they just don't have the bandwidth to invest into. So we are part of the $1 trillion ecosystem, right? That's Microsoft, that's Google. And we feel that we will continue to find ways to thrive to providing -- ultimately, again, going back to my prior point, to help the customer maximize their investment and be multi-cloud. That's by nature, a bit orthogonal to what the hyperscale will want them to do. So that's one. And two is, we have a very close relationship on the product side. So we're also a very large customer because our infrastructure sits in GCP, in Microsoft Azure. For Google, we're already their global ISV partner, for Microsoft same. We actually have a bigger economic relationship with them as a customer than the likes of Commvault and Rubrik, who are bigger revenue-size companies just because we are natively cloud, and we consume everything in cloud infrastructure. So from that perspective, we're a big customer. And Secondly, we're a large go-to-market global partner. Every time Microsoft releases new product sets, whether it's purview or E7 license, agentic 365, and even back at Express, we are always the go-to-market launch partner because whenever hyperscaler launched new capabilities, they want to bring forth a set of partners and customers who have proved out those capabilities. Say, hey, look, we have partners here to support you. We have customers who has done it. So we are part of that release cycle. So we always have a look ahead to see what opportunities -- what new economic opportunity that opens up for us, while some of the economic opportunity may have closed. So that's always been for a quarter of century, the dynamic at play. I do not see any of that changing as these large hyperscaler continue to maintain their ecosystem to compete with each other. So ultimately, Microsoft's biggest competition is was Google probably now it is Anthropic going forward. So they need to have their ecosystem to flush out and complete the offering for their customers. And that's where we always have a part to play.

And Jim, just in terms of financial exposure to the Microsoft ecosystem. So we've established that it's maybe a misperception that there is more competitive encroachment and relationship acrimony that is a complete misperception and it's very clear with the way TJ addressed that question. But I think one of the dynamics that from a quantitative perspective that I think would be compelling is how much of the business today is generally exposed to the Microsoft ecosystem, right? There's a lot of products where data is sprawling for the average organization in IS PAS or in Teams or Office 365, right? But I know -- and I don't want to ask you the leading question, but I know there has been a very specific mandate to diversify away into the explosion of other data stores. So can you give us sort of a milestone marker as to how that's trended financially? And any metrics you can share on the diversification away from Microsoft? .

Yes, it's a great question. So you're right. If you go back in history, 100% of our business is tied to let's call it, M365. So we have started to diversify away from that. And again, it's not like we're trying to leave M365. It's just there's massive opportunity ever, including M365, but obviously, as TJ mentioned, Google is a great opportunity for us. So now that business, I'll call it, the Google sales force IaaS and PaaS, which encompasses a variety of companies as well. So that area represents now a little less than 10% of the business. And so we have said all along that by the time we get to 2029 and hit our $1 billion target of ARR that we would expect that business to be greater than 10% and could be approaching as high as 20%. Now we don't need that part of the business to be growing dramatically to hit our $1 billion target, but we do think there's an opportunity there, really just satisfying our customer demand for our ability to get to those numbers. So right now, that's the trajectory we're on. We do believe it will be in that 10% to 20% range and could be, frankly, could be even greater because the demand is there. It's just a matter of ultimately how we ultimately get to that $1 billion, but it will be somewhere in that range.

And I'll just add that our multi-cloud strategy is not just chasing after the next cloud. It's really staying very close to our customers to see what multicloud they have and then go cover that. So effectively, enlarge our footprint in existing accounts and also as a new way to acquire new accounts through our channel. So because the market is so disrupted today as technology vendor, the only way to stay ahead of it is stay very close to our customer. So we can forecast what's going to happen next year, next couple of years, et cetera. So that's how we do it. And one anecdotal evidence I'll give you is we actually do -- Microsoft, we do provide value in the sense that we also help to light up workloads. So we don't just only do it the other way, how customers save money and not buying E7 licenses. For example, a city before you deployed copilot for our teams, your IT team deployed our governance solution for teams to make sure the office graph permission structure is done properly. So when you do deploy Copal, it doesn't recommend things that you should not be -- have access to in the first place. So thereby, we actually light up advanced workloads for Microsoft account teams. So that's where they see the net-net mutual benefits what we have to bring to table. And lastly, I would say there's also this thing called MAC commits Mac consumption commit. So large accounts will sign deals whether with Microsoft or Google on a dollar value that they will consume of cloud over X number of years. to have a certain amount of certainty around cost consumption costs. There, we actually -- because we are a marketplace partner, the consumption of our license will actually go towards customers' MAC retirement as well. So increasingly, the symbiotic relationship is even tighter because hyperscaler rely on their channel ecosystem to help them consume more and more of the compute.

And Mac being just a universal terms and condition structure, we can retire the understood. So that's more of a go-to-market -- that's right Yes. Just taking a step back. So for 25 years, you've been building portfolio and solving the pain points around data security, data control, data governance, and increasingly resilience, right? I mean we saw 1 of the largest U.S. life science tools and diagnostics companies brought down to its knees because of a cyber attack and presumably now they're not going to hit their quarterly guidance, right? So it's not when a breach -- if a breach happens, when it happens, -- so you're going to have to assume it happens. So how do you get back up on your feet, right? So on that spectrum of data security control, governance and resilience, you've taken a lot of pains to, in some ways, rearchitect the portfolio, but more creating package simplification, go-to-market simplifications around building more bundled approaches to solving these customer pain points. So I'm hoping you can kind of walk us through the specific changes you made in bucketizing certain parts of the portfolio, what that customer journey looks like from going from the good to better to best to the Cadillac version of the bundles and how that's showing up in the financials. Maybe, Jim, I can target this 1 to you.

Yes. I mean, it's a great point. And we started to employ this bundled strategy, so a little over a year ago. Prior to that, we were selling essentially one-off products. Now you could buy them in groups, right, but there was no strategy around it. So I think that's been a real catalyst. And specifically, we called out this past quarter that roughly about half of our control suite pipeline...

Remind us the tiering of and the branding of it. .