Q3 2021 AvePoint Inc Earnings Call

November 15, 2021

[music].

Good morning, everyone and welcome to the AV 0.3rd quarter, 2021 earnings call.

For opening remarks, and introductions I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Thank you and good morning, with me today from half point or T. J, John Chief Executive Officer, and Jim Cathy <unk> Chief Financial Officer.

Jake will begin with a brief review of the business results for the third quarter ended September 32021.

Jim will then review the financial results for the third quarter, followed by the company's outlook for the fourth quarter and full year 2021, We will then open the call for questions.

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.

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 the company's 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.

Listeners, who do not have a copy of the quarter ended September 32021 press release may obtain a copy by visiting the Investor Relations section of the company's website.

Now I'd like to turn the call over to T. J.

Thank you Erica and good morning, everyone.

Welcome to our third quarter earnings call.

Our team delivered again record results with revenue of 54 million up 36% year over year, driven by continued strong demand from customers to make their digital collaboration more compliant productive and secure.

Subscription revenue grew 17, 9% year over year, representing 74% of our total revenue in the quarter compared to 56% of total revenue a year ago.

Organizations accelerated their shift to cloud based collaboration in response to a hybrid work demands. However, many organizations still have a long road ahead of them.

This shift Hasnt big easy complex requirements.

Prolific amounts of legacy data and processes all create challenges.

Our migration and transformation products allow us to capture that customer as they begin their cloud journey. We then address additional needs with our platform as they mature their SaaS operations as a result, our subscription growth is a healthy mix of our product portfolio for <unk>.

Example, we recently completed a three year digital transformation initiative.

Critical U S government agency with more than 100000 users and one of the largest on premise collaboration environments in the world.

This long time customer also successfully transitioned from leveraging our hybrid software to our fat ramp authorized SaaS platform this quarter, which enables them to collaborate securely and prevent data loss in Microsoft which is five.

We're proud that our technology enables our customers mission and that government officials are safer thanks to the security availability and integrity of their sensitive data during and after their cloud transformation.

A R. A important indicator to track the health of our business grew 32% year over year, we had great momentum in your business in the third quarter with a number of customers spending more than $100000.

Are up 37% year over year.

The tailwind of organizations maturing their SaaS operations will continue in 2022, which will drive demand for data protection as a service governance and compliance products. This is supported by the continued growth we're seeing in the amount of data managed by our platform, which exceeds hundreds of petabytes of data.

Extreme flexibility will define the post pandemic workplace and continue to drive a seismic shift in how organizations automate their SaaS operations across collaboration services.

Gartner predicts public cloud spending will exceed 45% of all enterprise it spending by 2026 up from less than 17% in 2020 one.

With that increased spend on SaaS I as Paas and more we believe organizations will be pressure to justify these investments optimize their spend all while keeping security risk as low as possible.

One size fits all collaboration management settings are too clumsy for the post pandemic workplace each region Department and even project team meet specific digital workspace settings, and they need it done quickly and accurately.

Just not efficient or effective for humans to do this manually within each collaboration technology using native capabilities in a siloed at hog fashion.

For example, this past quarter, a U S based consumer packaged goods organization with more than 100000 global employees decided to leverage multiple solutions within our platform to create more agility within their it operation model.

By automating, Microsoft <unk>, five digital workspace lifecycle and access controls our technology is enabling faster collaboration with less risk that results in an estimated $11 million savings of operational cost over three years.

Our customer success investments continue to drive improved year over year results with net dollar retention rate of 110% up four percentage points from one year ago.

Jim will elaborate on some of the sequential movement, but he remains a strategic priority as we believe our deep customer relationships are a competitive advantage and our post purchase initiatives are a key differentiator.

Eight out of the 10 biggest upsells this quarter were with customers that have been with us for more than five years and we're one of the only companies in our space to offer standard 24 by seven World Class live person support.

We're continuing to expand our SaaS and data management platform to deliver compelling industry and business centric solutions Baidu.

By doing so our platform is stickier and our customers receive even more value from their app point investments.

One of those current industry focus area is education and career training. We're excited to announce that we have been awarded a 37 million Singapore dollar contract from lead agency Temasek Polytechnic good deploy integrated SaaS training management platform for career professionals.

Platform will be powered by Apple and your tech and available to six institutions of higher learning in Singapore as part of the government's drive to build relevant future skills through continuing education and training C E T.

Today nine out of 10, Singapore workers see an urgent need to upscale by investing in a training management platform Temasek Polytechnic and the five additional I H Els cement their dedication to providing quality continuous education as part of the overall Singapore goal.

I have one more gave over 100000 learners access to a catalog of 44000 courses designed to teach them a variety of professional skills in both digital and hybrid learning environments.

I've shared how our points expanding our indirect sales channel as part of our go to market strategy to scale, our business and in the third quarter, we maintained triple digit growth in Europe.

Monthly recurring revenue tied to our managed services provider business.

According to IDC and Gartner one dollar of Microsoft spend generated 9.5 dollars total ecosystem economic opportunity for the partner community chat.

Channel partners can capture that nine five X multiplier when working with a point through attach selling or through a wide variety of managed and professional service opportunities the outpoint products drive.

We believe these channel sourced deals will minimize competitive threats and resulting in reduced sales cycles.

That said it will take time for our channel partners to ramp up productivity and as such while we may have incremental pipeline build across a subset of partners. We do not expect to see material contribution from the partner channel until second half 2022.

This program builds we expect long tail partners to contribute smaller opportunities first followed in the midterm by larger msp's, who consistently sell into larger accounts.

For example, a new logo was sourced by a key partner in Germany.

This retail organization has launched a proof of concept to consolidate their customers' collaboration data and implement a data protection program to meet their retention and G. D. P. R requirements. Our point solutions will help desk partners I T team scale and increased margins by providing self service recovery for.

Tens of thousands of end users.

Finally, I'm excited by our product investment this last quarter.

Backup of Google Workspace was released in our global distribution network to expand our market reach of our multi cloud backup as a service offerings. In Q4, we will be promoting that offer with integrated go to market campaigns. We also really sense a solution to help organizations optimize.

Please describe license utilization.

Term sense will also be available to other cloud services.

All of this would not have been possible without the amazing people I get to work with every day. Thank you to my fellow eye pointers I've never been more excited in our 20 year journey.

With that I'll turn it over to Jim to discuss our financial results in more detail.

Thank you T J and good morning, everyone before we begin I'd like to take a moment to express how exciting it is to return to a point.

I've always been a strong believer in the long term growth prospects of the market and add points unique position within the industry.

Our continued execution against our targets resulted in another strong quarter of growth as a review of our third quarter results. Today. Please note that I'll be referring to non-GAAP metrics unless otherwise noted a reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available.

On our website.

Total revenues for the third quarter ended September 32021 were $54 million up 36% year over year within this subscription revenue, which includes both SaaS and term license revenue was 40 million.

Constituting 74% of total revenue up 79% year over year, our continued execution against our targets resulted in another strong quarter of growth as T. J mentioned earlier subscription revenue has become a much more substantial share ever of our overall revenue year over year.

<unk>.

SaaS revenue was 22 million constituting 42% of total revenue and up 59% year over year term license revenue constituting 32% of total revenue was up 114% year over year as a result of the timing of hybrid cloud projects.

In a seasonally stronger third quarter for U S federal public sector customers given their fiscal year end and their propensity to do on premises and hybrid deals versus SaaS only.

As a reminder, the SaaS portion of our subscription revenue is recognized ratably over the length of the contract while the term license subscription has a higher percentage of revenue recognized upfront as a result of this revenue may fluctuate and we believe that a R. R is a more useful metric to track peer.

To period progress of our business as it provides a more relevant comparison of the aggregate growth in our SaaS and term license revenue streams.

As of quarter end, we had total a R. R of $148 million, which grew 32% from the prior year period and includes 316 customers with a R. R of over $100000 up 37% from prior year period T. J mentioned earlier, we are seeing.

Consistent air our account growth as customers mature their SaaS operations and our average core <unk> per account at the end of the quarter was approximately 36500, which represents an increase of 27% year over year.

We highlighted that in the third quarter, our core dollar based net retention rate was 110% an improvement of four percentage points since last year.

It is important to point out we do expect some slight fluctuations from quarter to quarter as we saw this quarter. Our net retention rate was down one percentage point from Q2 2021 overall the NR trend is where we expect and we anticipate continued improvement in Q4 as we refer.

Our processes and invest in our customer success technologies and team.

Now, let's review the income statement in more detail gross profit in the quarter was 41 million, representing a gross margin of 76% compared to 75% in the year ago period.

This margin improvement is due to the continued shift in mix of our revenue towards subscription and away from maintenance and services subscription revenue gross margin improved to 87% in Q3 up from 86% in the year ago period, we expect to see our overall gross margins remained at approximately.

These levels or slightly higher going forward as service revenue, our lowest margin business is shifted to our partner channel and becomes a smaller percentage of our total revenue.

Sales and marketing expenses were $23 million or 43% of revenue compared to 35% of revenue a year ago. This represents an increase of $9 1 million year over year or 65%. This increase was driven by an increase in head count and personnel related expense.

<unk> as we expanded our sales and customer success organizations as well as an additional marketing spend as we invested in both our direct sales and channel strategies we.

We've grown our sales and marketing head count by over 50% during the past year and have increased our marketing spend by 113% year over year, we intend to continue to invest in sales and marketing as we further drive awareness in the market and leverage our industry, leading position to capture significant opportunity in front of us.

R&D expense was $5 million or 9% of revenue compared to 7% in the year ago period. The increase was driven by investments in product innovation, resulting in additional development cost and additional head count. We believe these investments support our solution sales approach designed to deliver multi.

<unk> product deals.

G&A expense was $9 million or 17% of revenue compared to 13% in the year ago period. The increase in G&A expense largely reflects an increase in people and infrastructure related expenses associated with our public company readiness and ramp up efforts, including head count.

<unk> of approximately 25%, we expect that the rate of expense growth will decrease in future periods.

Non-GAAP operating income was $4 million or 7.4% of revenue compared to $7 million in the year ago period.

Turning to the balance sheet and cash flow, we ended the quarter with $262 million in cash and short term investments cash used in operations was $2 million in the quarter, while free cash flow, which includes capex was a negative $2 5 million.

This negative free cash flow was primarily driven by the timing of a number of large expenses related to our conversion from being private to being public.

I would now like to turn to our outlook for the fourth quarter and the full year 2021 for the fourth quarter. We expect revenue of $56 4 million to $58 4 million and non-GAAP operating profit of breakeven to $1 5 million our current outlook for fourth quarter operating profit reflects additional fourth quarter.

Operating expenses, primarily relating to accelerating our marketing investments, we believe our Q4 financial guidance reflects our ability to continue capitalizing on the growing demand for our platform.

For the full year, we expect revenue of $194 4 million to $196 4 million and a non-GAAP operating profit of $4 7 million to $6 2 million. In summary, we are pleased with our third quarter results as the ongoing execution of our go to market strategy and investments in the.

<unk> continued to drive our growth.

With that we'll open up the call for questions operator.

Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging everquest, if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.

We will pause for a moment as callers trying to kid.

The first question is from Brian Essex from Goldman Sachs. Please go ahead.

Yeah.

Hey, good morning, and thank you for taking the question.

T J, if we could get to start with you round.

How the puts and takes that you've seen in the business over the past quarter. If we look at the business from a <unk>.

Segment perspective transformation governance, and compliance wherever you're seeing the greatest adoption and you know.

Where do you anticipate that strength will be going forward.

Good morning, Brian.

So from the mix of these three segments, they're pretty consistent throughout the quarter.

We continue to see folks are going to cloud.

We actually send you the research report on that 92%.

The enterprise start today, multi cloud and 82% are hybrids.

And also 63% of enterprise employees, saying.

Saying that their preferred remote work VSAT Mackenzie reports. So these are major trends out we continue to see in the field where enterprises are.

Getting folks to go use more.

Enterprise cloud collaboration platforms, so regardless of the hybrid.

Work situation, our folks return to work partially.

And then a day cloud is here to stay and buy.

Our value proposition is firstly to move enterprise to cloud faster and secondly, once they're in the cloud to really focus around the collaboration security and governance workloads. So from that perspective, we see the mix to be consistent previous quarters, and even going into 2022, we see very similar trends.

Got it that's super helpful and maybe just.

One follow up on a net net retention rate what were some of the primary puts and takes there if we think about churn versus cross sell versus upsell.

Maybe just help us unpack that a little bit and understand some of the moving factors underlying that number.

Yeah, Hey, Brian This is Jim Thanks for the question.

So it's it's a good one right.

And we expect to see as I said earlier, we kind of expect to see some fluctuation from quarter to quarter right. It's not a completely stable environment in terms of some customers and what we really saw in Q3.

It was really a couple of customers right that that we're kind of working with and their journey and if those customers had converted and we're still working with them and we expect to conclude with them in Q4, we would've been consistent around 111% net retention rate. So we don't really see any any real massive change other than a couple of large.

Customers again that that were really partnering with them right. So we're working with them as they as they evolve on their cloud journey, and so we were not pushing them or not forcing them and but we're hoping that obviously in Q4, we're going to conclude with them in terms of their next steps. So if they had to be either converted or we'd excluded.

Them, we would've been right at the 111% retention, which we saw in Q2.

Great and you can maybe just expand on the the term converted as this they've gone through transformation and then you're going to cross sell up sell across our platform or just to get a better understanding of that description.

Yes, there's multiple scenarios, there's some regulated customer as well as government customer going from fully on prem environments to government data centers or to public cloud. So there's that transition period.

Where.

We actually get involved on the renovation project by the recurrence recurring revenue piece for their on Prem.

<unk> had to shift over to the cloud stuff. So therefore.

There are some contract.

Renegotiation effectively to make sure that where they're licensed properly for the full SaaS management licensing so their SaaS one scenario.

So essentially.

Transfer transforming from on Prem to cloud.

Scenario the other scenario, we have seen is essentially collapsing.

Multiple environments into singular tenants.

Or vice versa, where singular tenants get into multi tenant. So these are either consolidation of environments into cloud of multiple on premise environments.

And or in.

In divestiture situations. So these introduces again these type of conversations on the renewals so what jim's referring to is.

Essentially we had a couple of situations like that that's now pushed into Q4, where we continue to work with the customer to guide them, but overall our guidance remain as that we are from our perspective.

Moving to the right in the up direction and our goal is to get to the industry best practice and 120% and our.

Yeah.

Got it very helpful color. Thank you T J.

The next question is from Jason Ader from William Blair. Please go ahead.

Thank you good morning, everyone.

First question for me is just on a housekeeping item, which is is there any impact from FX in the quarter.

Yeah, no significant impact from FX.

Okay and do you do you price in dollars globally.

So in dollars we price in.

In select regions, we use local currency so in U S.

We use dollars in Japan, we use yen.

Singapore using $1 in Germany, we actually use our euros in Britain.

We use pounds, so we actually use.

The major market with service, we use the local currencies and Australia, Australia dollar yeah. So far we have not seen a major FX impact.

Okay.

Okay, and then just T J on the.

On the quarter can you talk about some of the highest growth products in the quarter, you know where where you really.

I'm excited by the growth and then maybe some comments on growth by vertical or by region, just sort of differences across verticals and regions, where you're seeing the strength right now.

Yeah. So that's a great question so from a.

Product perspective, clearly we have the government side Q3 is the fiscal year end for U S. Federal government. So there we actually picked up a very nice a seven figure deal as I mentioned in the earnings call script.

They are existing customer more than 100000 employees go into fat ramp authorized environments.

And also from overall region perspective, we have very strong showing in APAC.

As well as EMEA regions also in Q3.

Again, demonstrating this company is unique.

Our position as a truly global.

Distributor business, where 45% of our business North America, and the nearly 30% in Europe and rest of it in APAC.

We continue to see strength in terms of you've asked about vertical solutions.

So we announced this a large education solution deal that's a Microsoft office issued five and teams integrated higher education solution targets two is to show a higher learning.

That revenue recognition will come in the Q4 and subsequent because it is a multiyear deal as typical with our government organizations.

We see really big uptake in the education space.

We're also seeing really good growth in the manufacturing and automotive space, especially in Germany, which will share in more detail later, but overall again, it's a regulated industry government and now education are the verticals that are growing very well for us.

Oh, great color. Thank you and then on the product side.

Any any more detail there I know teams governance has been really strong any other specific products that you want to call out.

Yeah his team's governance as backup as a service that continues to go very strong, but again the amount of data, we actually touches hundreds of petabytes of data.

And it's really the unique.

Offering and positioning of our platform, where we always have this migration integration story, we always have the backup as a service story data protection and of course now teams governance and security increasingly we do see customers also coming to us.

For essentially ransomware attack recovery story that ties very very well with our backup as a service story, we did release new product this quarter.

In Q3, we released a Google workspace backup a service offering in addition to Salesforce and backup as a service that is now picking up.

Growth is well we have seen three acts.

Increase in.

In pipeline for those products New products also lastly, we released a new product called <unk>, which is in the Microsoft <unk> five license entitlement management space and that's also a big demand within the enterprise segment, where youre talking about tens of thousands of employees and what kind of license and what kind of entitlement to a lot.

Are you in a much more dynamic and our resource base.

Based way versus manual script, driven so we're very very excited about that product set and we're also now actively working to expand that product set to cover other clouds.

Great and then lastly for me for Jim.

Do you have any early view on 2022.

For Us I mean, I know you.

I know pre IPO about kind of a 30% per our.

Growth being sustainable do you.

Are you able to reiterate that or any just early view on 2022.

Sure I think it's early as you say, but we're pretty confident that that that market is not going to change we're pretty bullish on on keeping that 30%.

We feel pretty strongly about that so I don't I don't see any change there, but we're working through 2022, and we'll have some more insight in the future, but but yeah I would say you could that 30% ish.

It's pretty consistent and we see that going forward and this is 30% as well as revenue growth.

Fantastic. Thank you guys.

Thank you Jason.

The next question is from Kirk <unk> from Evercore ISI. Please go ahead.

Yeah. Thanks, very much to do you know Microsoft obviously, just held its ignite conference.

Was there anything coming away from that from from your perspective that you're bullish on I know you guys have a very tight relationship but was there anything incrementally are incremental coming out of that conference that you maybe highlight in terms of your opportunity over the next year.

Yeah, we think of Microsoft continue to evolve quickly and providing value added services and features.

The customer said there is a very very aggressive push on their side on the on zoom competes so we see that Microsoft continue to strengthen their dominance in the enterprise space.

To that regard, we see more convergence around governance and also office for the frontline workers as a way to make it more accessible Microsoft solutions and this for US is oney, helping to enlarge our total addressable market and also rise raise the more need for <unk>.

Governance solutions because now these Microsoft Sushi five cloud solutions are much more accessible to the frontline workers folks that doesn't even have computers, they're just using mobile devices and tablets. So overall, we see the opportunity to.

For our growth to continue to enlarge and strengthened.

And in so far as what Microsoft releases, New services, we are always constantly looking at ways to make it more efficient in our SaaS offering to Leverages services. For example, more snapshot Apis are available for us to do backup services far more efficiently. So in the cloud space. It's.

All about consumption at the same time, we actually aggressively working to.

Lower the cost of running our SaaS solutions as well, there's a lot of economy of scale and experience that gets built over time.

So overall, we'll continue to innovate our productivity solutions.

That's great and can you just talk about obviously I think two quarters ago with Microsoft.

It's about only about 8% of its base was on the five version of Microsoft 365.

When theyre discussing sort of up selling them for me <unk> five is that an opportunity for you to engage with those customers as well as they look to take a sort of deeper or you extend the relationship with Microsoft or are you able to sort of dovetail.

Dovetail on those on those or I won't call them I guess upgrade.

Gotcha.

Yeah.

Oftentimes, we're viewed by the customer as more of a kind of neutral and strategic outside partner in this sense. We are first and foremost help our customers maximize their rois on Microsoft Tech investment.

To the extent that it makes sense for them and also we do actually have.

Setup bun those and offerings for E. One E. Three five license types, what we see out there is really a mixed licensing type reality. Most large enterprises will have a mixed proportional we're being <unk> being the smallest percentage of the information workers for the C suite and senior executives.

Leveraging all of the advanced functionality. So that's the reality, it's actually pretty messy out there in term of these type of deployment scenarios that actually allow us to really help.

So often we also help our customers to advance their workloads with Governor solutions to again address that mixed license type scenarios. So yeah, we see opportunity for sure from these motions to go to a different license types, but we also see that in reality.

In there.

Out there it's not.

Very realistic to move everyone, especially large organizations to single license types and this is where we really help.

Kind of unify that governance story.

Right and then just one last one for me for Jim Jim Just you, obviously talked about sort of a hybrid deals you did in the third quarter on a term license front I assume if we're thinking about the fourth quarter that was a bit of a I won't call. It spike, but a bit of a jump in term license that you're not necessarily assuming will carry forward.

Into the fourth quarter can you just talk about that I guess, I know, you're not getting explicitly but qualitatively how we should be thinking about term license as you know it jumps around but obviously has an impact on the on your guidance as well.

Yeah, and I think I think that's why we were trying to we didnt, obviously raised guidance in Q4, obviously.

Obviously, the terms in Q3 have a little bit of a spike as you noticed even a little bit more than we had expected we.

We do expect Q4 to have a strong terms component again kind of we've seen that in the past. So I would expect to see some comparable to Q3, but again, we're kind of there to support the customer on their cloud journey, and so theres a little bit of variability there in terms of do they go complete SaaS do they stay hybrid so we're working.

Through some of those things, which again is why we didn't want to really change the guidance at all for Q4.

But again I would say it would be similar to Q3 from an expectation point of view.

I'd keep that in mind.

I would just highlight that regardless.

Oh.

Yeah. So I'll just add a layer on more color, so regardless irregardless of term or SaaS. Even today, it's all subscription license. It's the only term when the customer also have some data on prem that they're protecting but vast majority of the workflow and data that we're helping our customers to manage and work.

On or in the cloud.

So just because they have peace in bits.

Things on Prem it becomes a term license nonetheless, it's all subscription and we believe that a our annual recurring revenue is the right way to guide.

To see guidance towards the growth of our business because that cuts across this revenue recognition issue for term 606.

Yep got it thanks, guys appreciate it.

Hi.

The next question is from Derrick Wood from Cowen and company. Please go ahead.

Oh, great. Thanks for taking my questions I guess on that.

Just staying on that topic around <unk>, if I look at the net new air are.

$8 5 million in Q3 and was down from about $10 million of Q2.

A year ago, you had seen.

Sequential growth in net new <unk>. So can you just talk about whether this was a surprise or.

What's the seasonal factors, we should be thinking about in Q3, and maybe why that was down sequentially and then any color on how to think about Q4, it would be helpful as well.

Yeah, Hey, Derik. Thanks, Thanks for the question.

I think as we're thinking about it our goals in the beginning of the year, we're really to achieve kind of 30% year over year, which we've we've done so I feel I think we feel really good about that.

We've added a bunch of salespeople to the team as we've mentioned previously and we're expecting them to to really have that impact. So I don't know if there's any specific color around Q3, but we are definitely expecting to see improvements in that number as we move forward into Q4 and as all these kind of the.

Salespeople, we've added become more ramped and kind of get to their fully ramp stage.

Yeah from my side I would just layer in the color here.

We have increased our client facing workforce by 50% in the last nine months.

One of the things that did.

Catch us off guard a bit.

The prolonged ramp up period.

This is actually well we recognize essentially at the beginning of Q3 already was that when everyone's working remote.

Essentially all of the new hires that we made that coming into the organization.

We're all working remote most of them have yet to meet their hiring managers or their team colleagues and we all know as human beings, who actually all learned better in person.

Those activities and learn through experience than just attending Webinars attending video cost so theres definitely a bit of that COVID-19.

Kind of.

Video call fatigue happening.

So we were adjusting that very aggressively we have.

Back into hybrid work mode.

In Q4 that means employees coming back to to win their near one of our many offices around the world wouldn't allow especially in regions with high vaccine vaccination rates.

Then they can actually come back two days a week to work with their team to ramp up more effectively so that's something we're actively addressing and at the same time.

Even in Australia for example in Melbourne, they are still going through a balance of Lockdowns. So that's not helpful. But we do recognize that even with the best technology and collaboration which were obviously the forerunner here.

Do you still cannot replace in person interactions.

Certain juncture, especially for the new hires to ramp up so that's something that we see and that have some proxy relation to your question of Hey, you know your net new <unk>.

Not increasing as fast as before and we are working aggressively to address that.

Yeah that makes a lot of sites or so.

What.

The time to ramp the productivity has gotten a little bit longer.

I guess since you've hired so many so much.

Capacity over the last nine months, but what do you see that kind of being more impactful of the model is it is it kind of first half next year do you see that more into Q4 this year any.

More color on timing.

Right. So it's not accident that we continue to.

Guide.

<unk> and revenue of 30% growth year over year.

And while we increase our client facing by 50%. So we did create some buffer for us ourselves and.

We see that we'll work through the Kinks.

In Q4 and <unk>.

Next year, we should be.

<unk> be back to to the ramp up expectations.

But overall our business model.

We shared is consistent and the opportunity in front of US great for a long term. So this is really just a short term kind of phenomenon that were experiencing.

Great Lakes, that's maybe squeeze one more on this $30 million contract pretty impressive win can you walk us through what technology of yours that there.

Youre going to be using to help build this and why you won this contract.

Yeah. That's a great question. So this is actually a displacement of AWS.

We actually built over the we starting back in 2016 of.

As we previously shared our overall SaaS platform as one of data management and governance solution and on top of that platform because we do all these data orchestration and.

Data insights, we start to then surface out and get into business solutions. So.

So we have business solutions around.

End user chop boss to restore their data and we have now insights and policies.

That end user that we can't engage end users directly with them.

And along that line, we started to do vertical solutions. So your manufacturing for example for automotive we're now getting into this space.

Deal rooms, as well as for meeting solutions again because.

The massive adoption of Microsoft cloud out there and your education, specifically, we have learning management exam management and this new.

Deal, it's really based on top of that and in addition to do some dynamics <unk> integration that allow us to do also training management. So it's really leveraging our existing solution of in <unk>.

<unk> space.

Exam management as well as learning management, those existing SaaS offerings, and we because we integrate and right on top of the Microsoft cloud which itself.

Innovating and integrating very fast and also leveraging such as Azure cognitive services to do machine learning to do predictive analytics around our natural language processing.

Two essentially have smart teaching assistance to offer student.

Type of services through a single channel instead of going to a different portals to access different services by the school.

And also.

Doing digit exams online and all of that integrates into this cohesive learning management solution that sits on top of Microsoft Cloud because school has already have Microsoft cloud deployed and then that's a integrated solution that actually displaces AWS out of that account. So it's actually a massive.

Overall education win as well as for our.

Singapore team.

Q2, two windows it is based on our existing solutions.

Okay.

One more thing to that.

Yep.

One more thing just thinking about the models and stuff. So this is a five year deal that T. J is referring to and we would expect in very little additional revenue in Q4 Q4 really is the planning phase of the project.

And ultimately the rollout of the technology will be planned and then ultimately we'll have a better sense as to what that revenue recognition looks like over the next five years. So I would say that just just for modeling purposes, Q4 will be very little impact.

That's helpful. Thank you.

As a reminder, it is star one to ask a question.

The next question is from the House, Josh Joshi from Northland Capital markets. Please go ahead.

Yes. Thank you.

Brian you're you're new to add point I'd love to hear your perspective on any changes that you plan to bring to a point.

Nice to meet you and thanks for the question.

Yes, I think.

Again.

I was with <unk> several years ago, and so so coming back is a little bit of a homecoming.

Obviously the team has done a great job.

Growing the business and really executing really well so I don't I don't think there's any major changes.

It's just continuing to stir.

Step up our game in terms of.

Even being more successful in executing better and now as a public company. Obviously, we've got some additional responsibilities both to you guys into the public at large.

Obviously, all of the necessary required filings and stuff. So I think we're really just trying to again improve on what's already been.

What point has been executing on so I don't think any major changes I do think we want to just continue to execute and execute at a high level.

And good.

Good morning T. J I just wanted to highlight that Jim because he has been with us before and knowing a lot of our leadership team along with Sofia, who is our chief accounting officer literally he's able to hit the ground running at 60 miles an hour here and it's perfect.

Theres no reintroduction of the company or when folks having conversations our sales leaders, our chief technology officers, even folks that are working on the M&A side. They can have very very direct and.

In June conversations without going through that phase of Hey, how are you getting to know you that kind of thing but overall.

You notice that we now have over $260 million cash on our balance sheet. We are actively enlarging the finance team to make sure that we deploy those capital effectively too.

Bring shareholder value.

Great.

And then in the quarter your incremental <unk> was a very healthy $8 million.

But that is a tick below the past two quarters or $10 million.

So can you just talk a little bit about the.

How do you feel you did all that incremental IRR performance relative to prior quarters.

Okay.

Yes, I mean from my perspective.

You see our year from a seasonality perspective, we actually second half years bigger numbers than first and we did had a tremendous <unk>.

Growth in second half performance last year and similarly this year so relatively speaking it's a may.

May seem to be a bit of a compression, but overall guidance is the same for the year, we will be 30% revenue as well as our growth.

Okay. I guess the question is is that why does it seem to be a bit of a compression is there some sort of.

I don't know.

So some sort of artifact in there or is there something that's really fundamentally what happened.

I think it's really.

Last Q3, and Q4 are very very strong quarters.

And similarly this year, so I don't think there is.

Too much.

To read into it there is a bit to read into the new net new NR that we just discussed and it has to do with a bit of a prolonged ramp up period for the new hires but we're very confident that we'll work through that those kinks this quarter.

Got it okay, Yeah, and I think that it was a very good point that.

A year ago number in December quarters were very strong.

With that in mind, but the reason why those were very strongly because our teams was just starting to really ramp here.

What are you seeing in terms of teams adoption at this point in time are you, saying it would be.

Still continue.

That's right a lot of new organizations or is it more about going deeper and us being the catalyst to greater compliance.

Stature that organizations are taking.

That's a great question anyhow. So we continue to see this 250 million monthly active teams users to pick up more advanced workloads. The default usage pattern for teams has been just video call and chats and increasingly we see adoption going further which are.

A cry honestly in many cases enable by our product for example, the advanced workloads like document sharing co authoring editing internal external sharing.

Usually our enabled when the CSO and risk officer more comfortable with the security and governance infrastructure laid out, especially in large enterprises. So there we actually enabled advanced workloads. So we see that the total user continue to increase as Microsoft you've probably seen some of the signaling coming from them to even.

Further aggressively pushed teams, especially you remember of the cloud.

PC initiative, where every instance of <unk>.

<unk> PC will come bundled in with teams. So we will see the team's number continue to increase.

But where we really are.

Provide value is to get that advanced workloads going and also we are from a channel collaboration.

<unk> requires data lifecycle management and this is the exact value our platform provides.

Great. Thank you.

Yeah.

This concludes the question and answer session I would like to turn the conference back over to T. J Chang for any closing remarks.

Well. Thank you everyone for attending our Q Q3 earnings call.

We had a really strong quarter and we continue to be very bullish and confident in our execution. The marketing in front of US is massive so we actually are building up and ramping up our workforce to address that to take advantage of our first mover.

In the Microsoft Enterprise SaaS space as well as our platform advantage, where we do have truly differentiate offering around collaboration security and governance and with that we look forward to everyone.

Everyone and wishing you a.

Good happy holiday season, and the new year I believe the next time, we'll sync and talk to each other will be for the year end.

Yes.

Earnings So thank you for for your attending our earnings call. Thank you.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Okay.

Yeah.

Yes.

Yeah.

Yes.

[music].

Good morning, everyone and welcome to the AV 0.3rd quarter, 2021 earnings call.

For opening remarks, and introductions I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Thank you and good morning with me today from that point, our T J job, Chief Executive Officer, and Jim Cathy <unk> Chief Financial Officer.

TJ will begin with a brief review of the business results for the third quarter ended September 32021.

Jim will then review the financial results for the third quarter, followed by the company's outlook for the fourth quarter and full year 2021, We will then open the call for questions. Please.

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.

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.

Listeners, who do not have a copy of the quarter ended September 32021 press release may obtain a copy by visiting the Investor Relations section of the company's website.

Now I'd like to turn the call over to T. J.

Thank you Erica and good morning, everyone welcome to our third quarter earnings call.

Subscription revenue grew 79% year over year, representing 74% of our total revenue in the quarter compared to 56% of total revenue a year ago.

Organizations accelerated their shift to cloud based collaboration in response to a hybrid work demands. However, many organizations still have a long road ahead of them.

This shift hasnt been easy complex requirements.

Prolific amounts of legacy data and processes all create challenges.

Example, we recently completed a three year digital transformation initiative.

Critical U S government agency with more than 100000 users and one of the largest on premise collaboration environments in the world.

Total a are a important indicator to track the health of our business grew 32% year over year, we had great momentum in your business in the third quarter with a number of customers spending more than $100000.

<unk> up 37% year over year.

Extreme flexibility well defined the post pandemic workplace and continue to drive a seismic shift.

Organizations automate their SaaS operations across collaboration services.

Gartner predicts public cloud spending will exceed 45% of all enterprise it spending by 2026 up from less than 17% in 2020 one.

That increased spend on SaaS I S Paas and more we believe organizations will be pressure to justify these investments optimize their spend all while keeping security risk as low as possible.

One size fits all collaboration management settings are too clumsy for the post pandemic workplace each region Department and even project team needs specific digital workspace settings, and they need it done quickly and accurately.

It's just not efficient or effective for humans to do this manually within each collaboration technology using native capabilities in a siloed ad hoc fashion.

Our customer success investments continue to drive improved year over year result, with net dollar retention rate of 110% up four percentage points from one year ago, Jim will elaborate on some of the sequential movement, but it remains a strategic priority as we believe our deep customer relationships.

On a competitive advantage and our post purchase initiatives are a key differentiator.

Eight out of the 10 biggest upsells this quarter or with customers that have been with us for more than five years and we're one of the only companies in our space to offer standard 24 by seven World Class live person support.

We're continuing to expand our SaaS and data management platform to deliver compelling industry and business centric solutions by doing so our platform is stickier and our customers receive it even more value from their app point investments.

One of those current industry focus area is education and career training. We're excited to announce that we have been awarded a 37 million Singapore dollar contract from lead agency Temasek Polytechnic could deploy integrated SaaS training management platform for career professionals.

The platform will be powered by Apple and your tech and available to six institutions of higher learning in Singapore as part of the government's drive to build relevant future skills through continuing education and training CET.

Today nine out of 10, Singapore workers see an urgent need to upscale by investing in a training management platform Temasek Polytechnic and the five additional I H aus cement their dedication to providing quality continuous education as part of the overall Singapore goal there.

The platform will gave over 100000 learners access to a catalog of 44000 courses designed to teach them a variety of professional skills in both digital and hybrid learning environments.

I've shared how our points expanding our indirect sales channel as part of our go to market strategy to scale, our business and in the third quarter, we maintained triple digit growth in our monthly recurring revenue tied to our managed services provider business.

According to IDC or Gartner, one dollar of Microsoft spend generated $9 $5 in total ecosystem economic opportunity for the partner community.

Channel partners can capture that nine five X multiplier when working with a point through attached selling or through a wide variety of managed and professional service opportunities that I point products drives.

We believe these channel sourced deals will minimize competitive threats and resulting in reduced sales cycles that said it will take time for our channel partners to ramp up productivity and as such while we may have incremental pipeline build across a subset of partners. We do not expect to see material contribution from the partner channel until.

Half 2022.

This program builds we expect long tail partners to contribute smaller opportunities first followed in the midterm by larger msp's, who consistently sell into larger accounts.

For example, a new logo was sourced by a key partner in Germany.

This retail organization has lots of proof of concept to consolidate their customers collaboration data and implement a data protection program to meet their retention and GDP are requirements. Our point solutions will help desk partners I T team scale and increased margins by providing self service recovery.

Tens of thousands of end users.

Finally, I am excited by our product investment this last quarter.

Backup for Google Workspace was released in our global distribution network to expand our market reach of our multi cloud backup as a service offerings. In Q4, we will be promoting that offer with integrated go to market campaigns.

We also really sense a solution to help organizations optimize Microsoft <unk> five license utilization.

Long term sense, who will also be available to other cloud services.

All of this would not have been possible without the amazing people I get to work with every day. Thank you to my fellow eye pointers I've never been more excited in our 20 year journey.

With that I'll turn it over to Jim to discuss our financial results in more detail.

Thank you T J and good morning, everyone before we begin I'd like to take a moment to express how exciting it is to return to a point.

I've always been a strong believer in the long term growth prospects of the market and add points unique position within the industry.

Website.

Total revenues for the third quarter ended September 32021 were $54 million up 36% year over year within this subscription revenue, which includes both SaaS and term license revenue was $40 million.

SAS.

Revenue was 22 million constituting 42% of total revenue and up 59% year over year term license revenue constituting 32% of total revenue was up 114% year over year as a result of the timing of hybrid cloud projects.

In a seasonally stronger third quarter for U S federal public sector customers given their fiscal year end and their propensity to do on premises and hybrid deals versus SaaS only.

To period progress of our business as it provides a more relevant comparison of the aggregate growth in our SaaS and term license revenue streams.

As of quarter end, we had total.

<unk> of $148 million, which grew 32% from the prior year period and includes 316 customers with <unk> of over $100000 up 37% from prior year period T. J mentioned earlier, we are seeing consistent AAR, our account growth as <unk>.

Customers mature their SaaS operations, and our average core <unk> per account at the end of the quarter was approximately 36500, which represents an increase of 27% year over year.

We highlighted that in the third quarter, our core dollar based net retention rate was 110% an improvement of four percentage points since last year. It is important to point out we do expect some slight fluctuations from quarter to quarter as we saw this quarter, our net retention rate was down 1%.

Point from Q2, 2021 overall, the NR trend is where we expect and we anticipate continued improvement in Q4, as we refine our processes and invest in our customer success technologies and team.

Now, let's review the income statement in more detail gross profit in the quarter was 41 million, representing a gross margin of 76% compared to 75% in the year ago period. This margin improvement is due to the continued shift in mix of our revenue towards subscription and away from maintenance and services.

<unk> subscription revenue gross margin improved to 87% in Q3 up from 86% in the year ago period, we expect to see our overall gross margins remain at approximately these levels or slightly higher going forward as service revenue, our lowest margin business a shift.

Two our partner channel and becomes a smaller percentage of our total revenue.

As we expanded our sales and customer success organizations as well as an additional marketing spend as we invested in both our direct sales and channel strategies, we've grown our sales and marketing head count by over 50% during the past year and have increased our marketing spend by 113% year over year.

We intend to continue to invest in sales and marketing as we further drive awareness in the market and leverage our industry, leading position to capture significant opportunity in front of us.

R&D expense was $5 million or 9% of revenue compared to 7% in the year ago period.

The increase was driven by investments in product innovation, resulting in additional development cost and additional head count. We believe these investments support our solution sales approach designed to deliver multi product deals.

<unk> of approximately 25%.

We expect that the rate of expense growth will decrease in future periods.

Non-GAAP operating income was $4 million or seven 4% of revenue compared to $7 million in the year ago period.

This negative free cash flow was primarily driven by the timing of a number of large expenses related to our conversion from being private to being public.

I would now like to turn to our outlook for the fourth quarter and the full year 2021 for the fourth quarter. We expect revenue of $56 4 million to $58 4 million and non-GAAP operating profit breakeven to $1 5 million our current outlook for fourth quarter operating profit reflects additional fourth quarter.

<unk> continued to drive our growth.

With that we'll open up the call for questions operator.

Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request if they're using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.

We will pause for a moment as callers trying to cure.

First question is from Brian Essex from Goldman Sachs. Please go ahead.

Hey, good morning, and thank you for taking the question maybe T. J, if we could start with you round.

How the puts and takes that you've seen in the business over the past quarter. If we look at the business from that.

Segment perspective transformation governance, and compliance wherever you're seeing the greatest adoption and.

Where do you anticipate that strength will be going forward.

Good morning, Brian.

So from the mix of these three segments they are pretty consistent throughout the quarter.

We continue to see folks are going to cloud.

We actually send you the research report on that 92% of the enterprise today, multi cloud and 82% are hybrid.

And also 63% of enterprise employees.

Saying that their preferred remote work. These dunn Mckenzie reports. So these are major trends that we continue to see in the field, where enterprises are getting folks to go use more.

<unk> cloud collaboration platforms, so regardless of the hybrid.

<unk> situation of folks return to work partially.

And then today cloud is here to stay and.

We see very similar trends.

Got it that's super helpful and maybe just one.

One follow up on a net net retention rate what were some of the primary puts and takes there if we think about churn versus cross sell versus upsell.

Just help us unpack that a little bit and understand some of the moving factors underlying that number.

Yeah, Hey, Brian This is Jim Thanks for the question.

So it's a good one right.

And we expect to see as I said earlier, we kind of expect to see some fluctuation from quarter to quarter right. It's not a <unk>.

<unk> stable environment in terms of some customers and what we really saw in Q3.

It was really a couple of customers right that that we're kind of working with and their journey.

And if those customers had converted and we're still working with them and we expect to conclude with them in Q4, we would've been consistent around 111% net retention rate. So we don't really see any any real massive change other than a couple of large customers again that that were really partner with them right. So we're working with them as they as.

They involve on their cloud journey, and so we are not pushing them or not forcing them and but we're hoping that obviously in Q4, we're going to conclude with them in terms of their next steps. So if they had to be either converted or we had excluded them, we would've been right at the 111% retention, which we saw in.

Q2.

Great and you can maybe just expand on the the term converted as this they've gone through transformation and then youre going to cross sell up sell across the platform or just to get a better understanding of that description.

Yes, there's multiple scenarios, there's some regulated customer as well as government customer going from fully on prem environments to government data centers or to a public cloud. So there is that transition period.

Where.

We ask you to get involved on the renovation project by the recurrence recurring revenue piece for their on Prem environment had to shift over to the cloud stuff. So therefore.

There are some contract.

Renegotiation effectively to make sure that where they're licensed property for the full SaaS management licensing. So there's that's one scenario.

So essentially.

Transforming from on Prem to cloud.

Scenario the other scenario, we have seen as.

Collapsing.

Multiple environments into singular tenants.

Or vice versa.

Tenants get into multi tenant so these are.

Consolidation of environments into cloud of multiple on premise environments.

And our.

In the divestiture situation. So these introduces again these type of conversations on the renewals so what jim's referring to is.

Moving to the right in the up direction and our goal is to get to the industry best practice and 120% and our.

Yeah.

Got it very helpful color. Thank you T J.

The next question is from Jason Ader from William Blair. Please go ahead.

Thank you good morning, everyone.

First question for me is just on.

A housekeeping item, which is is there any impact from FX in the quarter.

Yes, no significant impact from FX.

Okay and do you do you price in dollars globally.

So in dollars we price.

In select regions, we use local currency so in U S.

We use dollars in Japan, we use yen.

Singapore using $4 in Germany, we actually use euros in Britain.

Okay, we use pounds, so we actually use.

The major market, we serve as we use the local currencies and Australia I was trying to dollar yeah.

We have not seen a major FX impact.

Okay.

Then just T J on the.

On the quarter can you talk about some of the highest growth products in the quarter, you know where where you really.

Excited by the growth and then maybe some comments on growth by vertical or by region, just sort of differences across verticals and regions, where you're seeing the strength right now.

Yeah. So that's a great question so from a product.

Product perspective, clearly we have the government side Q3, as the fiscal year end for U S. Federal government. So there we actually picked up a very nice seven figure deal as I mentioned in the earnings call script.

Existing customer more than 100000 employees go into fat ramp authorized environments.

And also from overall region perspective, we have very strong showing in APAC.

As well as EMEA regions also in Q3.

Again, demonstrating this company is unique.

<unk> position as a truly global.

Distributor business or 45% of our business North America, and the nearly 30% in Europe and rest of it in APAC.

We continue to see strength in terms of you've asked about vertical solutions.

So we announced this large education solution deal that's a Microsoft office six five and teams integrated higher education solution targets two is to show a higher learning.

That revenue recognition will come in the Q4 and subsequent because it is a multiyear deal as typical with government organizations.

We see really big uptake in the education space.

We're also seeing really good growth in the manufacturing and automotive space, especially in.

Germany, which will share in more detail later, but overall.

Again, it's a regulated industry government and now education are the verticals that is growing very well for us.

Great color. Thank you and then on the product side.

Any any more detail there I know teams governance has been really strong any other specific products that you want to call out.

Yeah his team's governance as backup as a service that continue to go very strong, but again the amount of data, we actually touches hundreds of petabytes of data.

And it's really the unique offering and positioning of our platform, where we always have this migration and integration story, we always have the backup as a service story data protection and of course now teams governance and security increasingly we do see customers also coming to us.

For essentially ransomware attack recovery story that ties very very well with our backup as a service story, we did released new product this quarter.

In Q3, we released the Google Workspace backup service.

Offering in addition to Salesforce and backups.

Backup as a service that is now picking up.

Growth is well we have seen <unk>.

Increase.

In pipeline for those products New products also lastly, we released a new product called <unk>, which is in the Microsoft <unk> license entitlement management space and Thats also a big demand within the enterprise segment, where youre talking about tens of thousands of employees and what kind of license and what kind of entitlement to a lot too.

In a much more dynamic and our resource base.

Based way versus manual script, driven so we're very very excited about that product set and we're also now actively working to expand that product set to cover other clouds.

Great and then lastly for me for Jim.

Do you have any early view on 2022 for us.

I know pre IPO about kind of a 30% per our.

Growth being sustainable do.

Are you able to reiterate that or any just early view on 2022.

Sure I think it's early as you say, but we're pretty confident that that that market is not going to change we're pretty bullish on on keeping that 30%.

We feel pretty strongly about that so I don't I don't see any change there, but but we're working through 2022, and we'll have some more insight in the future, but but yeah I would say you could.

That 30%.

It's pretty consistent and we see that going forward and this is 30% as well as revenue growth.

Fantastic. Thank you guys.

Thank you Jason.

The next question is from Kirk <unk> from Evercore ISI. Please go ahead.

Yeah, Thanks very much.

Microsoft Obviously, just held its ignite conference. It was there anything coming away from that from from your perspective that you're bullish on I know you guys have a very tight relationship but was there anything incrementally are incremental coming out of that conference that you maybe highlight in terms of your opportunity over the next year.

Yeah, we think of Microsoft continue to evolve quickly and providing value added services and features.

The customer said there is a very very aggressive push on their side on the on zoom competes so we see that Microsoft continue to strengthen their dominance in the enterprise space.

To that regard, we see more convergence around governance and also office for the frontline workers as a way to make it more accessible Microsoft solutions and this for US is only helping to enlarge our total addressable market and also rise raise the more need for <unk>.

Governance solutions, because now these Microsoft <unk> cloud solutions are much more accessible to the frontline workers folks that doesn't even have computers, they're just using mobile devices and tablets. So overall, we see the opportunity to.

For our growth to continue to enlarge and strengthen.

And in so far as what Microsoft releases, New services, we are always constantly looking at ways to make it more efficient in our SaaS offering to leverage those services. For example, more snapshot Apis are available for us to do backup services far more efficiently. So in the cloud space. It's.

All about consumption at the same time, we actually aggressively working too.

Lower the cost of running our SaaS solutions as well there is a lot of economy of scale and experience that gets built over time.

So overall, we'll continue to innovate our productivity solutions.

That's great and can you just talk about obviously I think two quarters ago, Microsoft talks about only about 8% of its base was on the five version of Microsoft 365.

When they are discussing sort of up selling them for me <unk> five is that an opportunity for you to engage with those customers as well as they look to take a sort of deeper or extend the relationship with Microsoft or are you able to sort of.

Dovetail on those on those or I won't call them I guess upgrade.

Discussions.

To the extent that it makes sense for them and also we do actually have.

Setup fund those and offerings for E. One E. Three five license types, what we see out there is really a mixed licensing type reality. Most large enterprises will have a mixed proportional we're being <unk> five being the smallest percentage of the information workers for the C suite and senior executives.

Leveraging all of the advanced functionality. So that's the reality, it's actually a pretty messy out there in term of these type of deployment scenarios that actually allow us to really help.

So often we also help our customers to I've asked their workloads with Governor solutions to again address that mixed license type scenarios. So yes, we see opportunity for sure from these motions to go to a different license types, but we also see that in reality.

In there.

There is not.

Very realistic to move everyone, especially larger organizations to single license types and this is where we really help.

Kind of unify that governance story.

Great and then just.

One last one for me for Jim Jim Just you, obviously talked about sort of a hybrid deals you did in the third quarter on a term license front I assume if we're thinking about the fourth quarter that was a bit of a I won't call. It spike, but a bit of a jump in term license that you're not necessarily assuming will carry forward into the fourth quarter can you just talk about that I guess I know you know.

Getting explicitly but qualitatively how we should be thinking about term license as you know it jumps around but obviously has an impact on the on your guidance as well.

Yeah, and I think I think that's why we were trying to we didnt, obviously raised guidance in Q4, obviously.

Obviously, the terms in Q3 have a little bit of a spike as you noticed even a little bit more than we had expected we.

Through some of those things, which again is why we didn't want to really change the guidance at all for Q4.

But again I would I would say it would be similar to Q3 from an expectation point of view.

I'd keep that in mind.

I would just highlight that regardless.

Paul.

Yeah.

Layer on more color, so regardless irregardless of term or SaaS or in a day. It is all subscription license and it's the only term when the customer also have some data on prem that they're protecting but vast majority of the workflow and data that we're helping our customers to manage and work on or in the cloud.

So just because they have peace.

Things on Prem and it becomes a term license nonetheless, it's all subscription and we believe that.

Annual recurring revenue is the right way to guide.

To see guidance towards the growth of our business because that cuts across this revenue recognition issue for terms 606.

Got it thanks, guys appreciate it.

Alright.

The next question is from Derrick Wood from Cowen and company. Please go ahead.

Great. Thanks for taking my questions I guess on that.

Just staying on that topic around <unk>, if I look at net new <unk>.

$8 5 million in Q3, and it was doubtful about $10 million in Q2.

A year ago, you had seen.

Sequential growth in net new <unk>. So can you just talk about what whether this was a surprise or what the seasonal factors, we should be thinking about in Q3, and maybe why that was down sequentially and then any color on how to think about Q4, it would be helpful as well.

Yeah, Hey, Derek Thanks for the question.

I think as we're thinking about it our goals at the beginning of the year, we're really to achieve kind of 30% year over year, which we've we've done so I feel I think we are feel really good about that we've added a bunch of salespeople to the team as we've mentioned previously and we're expecting them to.

To really have that impact so I don't know if theres any specific color around Q3, but we are definitely expecting to see improvements in that number as we move forward into Q4 and as all these kind of the salespeople, we've added become more ramped and kind of get to their fully ramp stage.

Yeah from my side I would just layer in the color here.

We have increased our client facing workforce.

By 50% in the last nine months.

One of the things that did.

Catch us off guard a bit as the prolonged ramp up period.

This is actually what we recognize essentially at the beginning of Q3 already was that when everyone's working remote.

Essentially all of the new hires that we made that coming into the organization.

We're all working remote most of them have yet to meet their hiring managers or their team colleagues and we all know as human beings were actually all learn better in person.

Doing those activities and learn through experience than just attending webinars attending video cost so theres definitely a bit of that COVID-19.

Kind of.

Video call fatigue happening.

So we are addressing that very aggressively we have.

Back into hybrid work mode in.

In Q4 that means employees coming back to to when they are near one of our many offices around the world wouldn't allow especially in regions with high vaccine vaccination rates.

Then they can actually come back two days a week to work with their team to ramp up more effectively so that's something we're actively addressing and at the same time.

Even in Australia for example in Melbourne, they are still going through about so.

Lockdowns. So that's not helpful. But we do recognize that even with the best technology and collaboration which were obviously the forerunner here.

Do you still cannot replace in person interactions.

Certain juncture, especially for the new hires to ramp up so that's something that we see and that have some proxy relation to your question of Hey, you are net new and ours are not increasing as fast as before and we are working aggressively to address that.

Yeah that makes a lot of sense and so.

What.

I mean, the time to ramp the productivity has gotten a little bit longer.

I guess since you've hired so many so much capacity over the last nine months ago, where do you see that kind of being more impactful to the model as it got a first half next year do you see that coming more into Q4 this year any.

More color on timing.

Right. So it's not accident that we continue to guide.

And revenue of 30% growth year over year.

And while we increase our client facing by 50%. So we did create some buffer for us ourselves and.

We see that we'll work through the Kinks.

In Q4 and.

Next year, we should.

<unk> be back to to the ramp up expectations.

But overall our business model.

We shared is consistent and opportunity in front of US great for long term. So this is really just a short term kind of phenomenon that were experiencing.

Right makes sense.

Maybe squeeze one more on this $30 million contract pretty impressive win can you walk us through what technology of yours that there.

Youre going to be using to help build this and why you won this contract.

Yeah. That's a great question. So this is actually a displacement of AWS.

We actually built over the we starting back in 2016 of as we previously shared our overall SaaS platform as one off data management and governance solution and on top of that platform because we do all these data orchestration and.

Data insights, we start to then surface out and get into business solutions. So.

So we have business solutions around.

And use R chop off to restore their data and we have now insights and policies.

That end user that we can't engage end users directly with <unk>.

And along that line, we started to do vertical solutions. So <unk> manufacturing for example for automotive we're now getting just space.

Deal rooms, as well as for meeting solutions again because.

The massive adoption of Microsoft cloud out there and your education, specifically, we have learning management exam management and this new.

Deal, it's really based on top of that and in addition to do some dynamics <unk> integration that allow us to do also training management. So it's really leveraging our existing solution in.

In education space.

Exam management as well as.

Learning management, those are existing SaaS offerings, and we because we integrate and right on top of the Microsoft cloud, which itself. It's innovating integrating very fast and also leveraging such as Azure cognitive services to do machine learning to do predictive analytics around natural language.

Processing.

<unk> essentially have smart teaching assistance to offer student.

Type of services through a single channel instead of going to different corridor assets different services by the school.

And also.

Doing digital exams online and all of that integrates into this cohesive learning management solution that sits on top of Microsoft Cloud because school has already have Microsoft cloud deployed and then that's the integrated solution that actually displaces AWS out of that account. So it's actually a massive.

Overall education win as well as for our.

Singapore team.

222, when does it is based on our existing solutions.

Okay.

One more thing to that yes.

Yes.

One more thing just thinking about the models and stuff. So this is a five year deal that T. J is referring to and we would expect very little additional revenue in Q4 Q4 really is the planning phase of the project.

That's helpful. Thank you.

As a reminder, it is star one to ask a question.

The next question is from the House, Josh Joshi from Northland Capital markets. Please go ahead.

Yes. Thank you.

Brian Youre, new to add point I'd love to hear your perspective on any changes that you plan to bring to a point.

Nice to meet you and thanks for the question.

Yes, I think again.

<unk>.

I was with <unk> several years ago, and so so coming back is a little bit of a homecoming obviously the team has done a great job.

Growing the business and really executing really well so I don't I don't think there's any major changes.

It's just continuing to stir.

Step up our game in terms of <unk>.

<unk> been being more successful in executing better and now as a public company. Obviously, we've got some additional responsibilities both to you guys and to the public at large.

Obviously, all the necessary required filings and stuff. So I think we're really just trying to again improve on what's already been.

What point has been executing on so I don't think any major changes I do think we want to just continue to execute and execute at a high level.

And.

There is no reintroduction of the company or when folks having conversations our sales leaders, our chief technology officers, even folks that are working on the M&A side. They can't have very very direct and.

In June conversations without going through that phase of Hey, who are you getting to know you that kind of thing but overall.

You'll notice that we now have over $260 million cash on our balance sheet. We are actively enlarging the finance team to make sure that we deploy those capital effectively too.

Bring shareholder value.

Great.

And then in the quarter your incremental <unk> was a very healthy $8 million.

But that is a tick below the past two quarters at $10 million.

So can you just talk a little bit about the.

How do you feel you did all of that incremental <unk> performance relative to prior quarters.

Okay.

Yes, I mean from my perspective.

We see our year from a seasonality perspective, we actually second half years bigger numbers them first and we did had a tremendous AAR.

Growth in second half performance last year and similarly this year so relatively speaking it's a.

It may seem to be a bit of a compression, but overall guidance is the same for the year, we will be 30% revenue as well as our growth.

Okay. I guess the question is is that why does it seem to be a bit of a compression is there some sort of.

I don't know.

So some sort of artifact in there or is there something that's really fundamental to happen.

I think it's really I mean last Q3, and Q4 are very very strong quarters.

And similarly this year. So I don't think there is a.

Too much.

Got it okay, Yeah, and I think that is a very good point that.

A year ago, Yes number of December quarters were very strong.

And with that in mind, but the reason why those were very strong with because.

Teams was just starting to really ramp here.

What are you seeing in terms of teams adoption at this point in time are you seeing it would be.

We still continue penetrating a lot of new organizations or is it more about going deeper and us being the catalyst to greater compliance.

Stature that organizations are taking.

That's a great question anyhow. So we continue to see those 250 million monthly active teams users to pick up more advanced workloads. The default usage pattern for teams has been just video call and chats and increasingly we see adoption going further which are.

Chronically in many cases enable by our product for example, the vast workloads like document sharing co authoring editing internal external sharing.

Usually our enabled when the CSO and risk officer are more comfortable with the security and governance infrastructure laid out, especially in large enterprises. So they're way actually enabled advanced workloads. So we see that the total user continue to increase as Microsoft you've probably seen some of the signaling coming from them to even.

Further aggressively pushed teams, especially you remember that cloud.

PC initiative, where every instance of <unk>.

<unk> PC will come bundled in with teams. So we will see the team's number continue to increase.

Where we really.

<unk> provide value is to get that.

<unk> workloads going and also from a channel collaboration.

Requires data lifecycle management and this is the exact value our platform provides.

Great. Thank you.

This concludes the question and answer session I would like to turn the conference back over to T. J Zhang for any closing remarks.

Well. Thank you everyone for attending our acute Q3 earnings call. We had a really strong quarter and we continue to be very bullish and confident in our execution. The market in front of US is massive so we actually are building up and ramping up our.

Workhorse to address that to take advantage of our first mover.

In the Microsoft Enterprise SaaS space as well as our platform advantage, where we do have.

Have truly differentiate offering around collaboration security and governance and with that we look forward to us.

Everyone and wishing you a.

Good happy holiday season, and the new year I believe the next time, we'll sync and talk to each other will be for the year end.

Yes.

Earnings. So thank you for your attending our earnings call. Thank you.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Q3 2021 AvePoint Inc Earnings Call

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