Q3 2024 AvePoint Inc Earnings Call
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Speaker Change: Good day and welcome to the IFPPoint and Q3 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I'd now like to turn the conference over to Jamie Arestia, Investor Relations. Please go ahead.
Jamie Arestia: Thank you, operator. Good afternoon and welcome to AvePoint's third quarter 2024 earnings call.
Jamie Arestia: With me on the call this afternoon is Dr. T.J. Jiang, Chief Executive Officer, and Jim Caci, Chief Financial Officer. After preliminary remarks, we will open the call for a question and answer session.
Jamie Arestia: 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.
Jamie Arestia: All material in the webcast is the sole property and copyright of AvePoint with all rights reserved.
Jamie Arestia: Please note this presentation describes certain non-GAAP measures, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, and non-GAAP operating margin, which are not measures prepared in accordance with U.S. GAAP.
Jamie Arestia: The non-GAAP measures are presented in this presentation as we believe they provide investors with a means of understanding how management evaluates the company's operating performance.
Jamie Arestia: 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.
Jamie Arestia: A reconciliation of these measures to the most directly comparable gap financial measures is available in our third quarter 2024 earnings press release, as well as our updated investor presentation and financial tables, all of which are available on our Investor Relations website.
With that, let me turn the call over to TJ.
TJ: Thank you, Jamie, and thank you to everyone joining us on the call today.
TJ: The third quarter was an exceptional one for our points, as we built on the momentum and strength of the first half of the year, outperforming our expectations for the seventh consecutive quarter.
TJ: We also demonstrated meaningful improvement on a number of key financial and operational metrics.
which Jim will discuss in more detail.
TJ: Our results, again, reflect our steady focus on profitable growth and the ongoing demand for the Apple Inc. Confidence Platform.
which is designed to enhance data security, governance, and resilience.
TJ: While these customer needs are not new, they have never been as high profile or as widespread as they are today.
TJ: Companies worldwide increasingly are turning to AppPoint as they recognize the importance of high quality data and the criticality of a robust data management strategy.
TJ: Appoint unmatchability to establish these strategies for customers for more than 20 years makes us a perfect fit for this moment.
TJ: where companies are rethinking data security in the age of generative AI and prioritizing platform solutions that deliver automated value across their multi-cloud environments.
TJ: These dynamics position Apple exceptionally well to capitalize on the tremendous market opportunity ahead of us and provide us the confidence to again raise our expectations for the year.
TJ: Today, I'll talk about what we are seeing in the market and some key customer wins in the quarter. I'll then turn it over to Jim to cover our financial performance and updated financial guidance.
I recently attended the Microsoft SMC APAC conference.
which brings together the top Microsoft partners in the region.
TJ: A key topic was maximizing the value of Microsoft 365 CoPilot in every conversation.
TJ: Whether with members of Microsoft's executive team or other top partners, it was clear that beta security and beta quality are key to delivering the potential that Gen AI solutions like Copilot offers.
TJ: At the same time, the concept of data security is rapidly evolving in the age of AI. It goes beyond traditional security measures, extending to comprehensive data protection, quality data management, robust data governance, and of course, data security.
TJ: Traditional data security has focused on protecting the parameter, but that approach, while still important, is ultimately insufficient today. With the rise of Gen-AI, businesses must shift to data-centric security, which focuses on protecting the data itself, wherever it resides.
TJ: What do we mean by this? Today, companies require a centralized data security posture.
TJ: uniform approach to data governance, automated business processes, proactive and agile risk response, and the ability to do all these things at scale.
TJ: Essential to this approach is the integration of strong data governance and data protection practices.
TJ: Effective governance ensures that data is properly managed, accessible, and compliant with regulations, while data protection measures like encryption and access controls secure sensitive information.
TJ: Without these practices, the true value of generative AI simply cannot be realized.
Speaker Change: Garner found at least 30% of generative AI projects will be abandoned after approval concepts by the end of 2025 due to poor data quality and inadequate risk controls.
Speaker Change: and by 2027, 60% of organizations will fail to realize the anticipated value of their AI use cases due to incohesive data governance frameworks.
Speaker Change: Seamlessly addressing these widespread problems is precisely what the Apple Incompetence Platform solves.
We enable security, business, and IT leaders.
to automate data governance for unstructured data.
Speaker Change: including the right security controls, business process automation, monitoring, and analytics to simplify data security and successfully implement generative AI.
Speaker Change: Our platform approach, which offers a one-stop solution to the most universal data management challenges, continues to resonate with customers and prospects.
Speaker Change: and led to strong new logo acquisition and significant customer expansions in the third quarter. I want to highlight a few of these wins, which encapsulate organizations of all sizes and verticals from all around the world.
Speaker Change: customer service automation, and risk assessments inherently introduces risks like data privacy breaches, unauthorized access, and bias in AI algorithms.
Speaker Change: This is the exact use case leading to a significant customer expansion with a prominent global online payment processing company.
Speaker Change: Already a customer of our resilient suite, the company required enhanced data security and governance measures before rolling out Microsoft 365 CoPilot to their 40,000 users.
Speaker Change: They purchased three Control-3 products to provide a robust and scalable framework that will drive the success of their AI transformation.
Speaker Change: We also welcomed a Canada-based insurance company with 35,000 users as a new customer in the quarter, which required a robust solution to improve workspace governance attestation across its environment.
Speaker Change: They purchased five products across their control suite to enable comprehensive data access governance, real-time monitoring of their data security posture, and automation of their compliance reporting.
Speaker Change: Switching to the healthcare industry, where safeguarding patient data and complying with strict regulations is non-negotiable.
Speaker Change: To do so, companies must have robust automated data governance and resilient protection plans in place to uphold their organizational reputation and operational viability.
Speaker Change: We welcome the US-based healthcare provider with 35,000 users in the quarter which purchased our entire control suite of products
Speaker Change: to address risks related to their sensitive data. With that point, they can now implement a scalable framework to automate data governance, uncover actionable risk insights, and enable proactive policy enforcement.
reducing data security risk and optimizing their operations.
complying with strict regulations.
is equally critical in the public sector.
Speaker Change: where inadequate data management can result not only in breaches of sensitive citizen information and operational inefficiencies.
Speaker Change: but also undermine public trust and disrupt the delivery of essential services.
Speaker Change: Public sector institutions represent our largest overall vertical and the team had another strong quarter signing new logos and expanding existing customers deployments.
Speaker Change: A major Japanese municipal government with more than 20,000 users implemented the entire control suite in the third quarter, citing our ability to automatically govern data across their large and complex digital environment and support their overall data management goals.
Speaker Change: Sutherland was a key U.S. agency responsible for overseeing judiciary operations.
which faced significant data protection challenges.
Speaker Change: With more than 30,000 users, their existing manual backup process proved cumbersome and unreliable. And the recent loss of critical case information highlighted the need for a more robust solution, especially with increasing ransomware threats.
Speaker Change: They chose Appoint's FedRAMP-certified Secure Data Resilience product to implement an automated, reliable backup system that ensures data integrity and compliance, in turn positioning them to better protect critical information and respond to data loss and external threats.
Speaker Change: We were also pleased that in the third quarter, a U.S. federal agency
Speaker Change: responsible for approximately 2% of our total ARR meaningfully expanded their AdPoint commitment to another 20,000 users.
Speaker Change: Today, they rely on our control and resilience suites to comply with the stringent regulatory requirements for their 115,000 users.
Speaker Change: as the Outpoint Confidence Platform enables them to address complex record management needs, identify and secure sensitive data, and gain control over the workspace provisioning and information lifecycle management.
Speaker Change: The other vertical I would like to quickly highlight is higher education. In the third quarter, we had an eight-figure deal in APAC region with a prominent institution to replace their on-premises system with a modern centralized enterprise student management system with a Maven Point platform.
Speaker Change: This strengthens our role as a key provider of innovative and mission-critical systems that meet the evolving needs of the higher education sector.
Speaker Change: While it's clear our solutions position organizations to deliver meaningful business outcomes in the future, we also can show them a substantial return on their investments right away.
Speaker Change: A great example of this is a leading global design and engineering consultancy based in the UK, which was utilizing a staggering one petabyte of data.
Speaker Change: This overuse was not only costly, but also unsustainable, and they embarked on a rigorous selection process, evaluating solutions from six different vendors.
Speaker Change: They ultimately choose the secure data protection and information management solutions from our Resilient Suite, enabling them to quickly reduce their backup costs, as well as archive and delete their redundant and obsolete data.
Speaker Change: This will immediately translate to substantial cost savings and a more streamlined data management process. And we're already discussing additional products like TiGraph to further enhance their data management capabilities.
Speaker Change: This partnership exemplifies how the breadth of our platform allows us to address multiple complex data challenges while delivering both immediate and long-term value.
Speaker Change: To conclude, Apple is uniquely positioned to address the critical challenges of data security, governance, and resilience.
Speaker Change: Our platform approach and our ongoing innovation differentiates us from the point tools in the market and ensures that our clients can drive transformative outcomes while effectively navigating a complex, multi-SaaS digital landscape.
Speaker Change: I am extremely proud of the team's accomplishments this quarter, and we're excited for a strong close to the year. With that, let me turn the call over to Jim.
Jim Caci: Thank you, TJ, and thank you to everyone for joining this afternoon as we report another quarter of strong results.
Jim Caci: This strength is evident not only as we review our performance against our guided metrics of revenue and operating income, but also as we go a level deeper.
Jim Caci: and look at our top-line results by geography, customer segment and vertical where the team's broad-based execution translated into record net new ARR of nearly 19 million dollars in the quarter.
Jim Caci: We achieved this while closely managing every P&L line and driving significant year-over-year operating leverage, delivering record quarterly non-GAAP operating income of $17.8 million.
Jim Caci: And in turn, our improved profitability position has led to record cash flow generation as year-to-date we have generated $56.1 million in operating cash flow and $53.8 million in free cash flow.
Jim Caci: I'll discuss these items in more detail shortly, but suffice to say we are investing in profitable growth, executing on our strategic priorities, and strengthening our brand.
Jim Caci: all of which leave us well positioned to continue delivering value to AdPoint shareholders while we progress toward our Rule of 40 and Gap Profitability targets in 2025.
Jim Caci: With that, let's turn to our results. For the third quarter ended September 30th, total revenues were $88.8 million, representing year-over-year growth of 22%, an acceleration from the second quarter and above the high end of our guidance.
Jim Caci: SAS continues to be the driver of our overall business, and in the third quarter, SAS revenue was $60.9 million, growing 45% year-over-year, the highest growth rate we have delivered in 11 quarters.
Jim Caci: We are also pleased that on a sequential basis, SAS revenue grew 13%, the highest rate we have delivered as a public company. And in Q3, SAS comprised 69% of total revenues compared to 58% a year ago.
Jim Caci: Moving to our other revenue lines, term license and support was $14.1 million.
Jim Caci: continuing its expected decline, but representing a higher percentage of total revenues than in the first two quarters, given the typically higher demand for term license that we see from our North America public sector customers in Q3.
Jim Caci: Maintenance revenue, which to remind you is tied to our legacy perpetual licenses, also declined as expected year-over-year, both in dollars and as a percentage of revenues, and represented 3% of total Q3 revenues.
Jim Caci: Lastly, services revenue was $10.8 million and represented 12% of total Q3 revenues and continues to trend closer to our longer-term target of 10%.
Jim Caci: And because services is our only non-recurring revenue stream, our recurring revenue mix in the third quarter was 88 percent, representing another record for the business.
Jim Caci: Switching now to our regional performance, where the balance of our geographic footprint is one of the many things that makes AvePoint unique within enterprise software.
Jim Caci: Today, approximately 40% of our revenues come from North America, 30% from EMEA, and 30% from APAC. In the third quarter, we saw strong performance across the board, driven by our SaaS business, which grew above 40% in all three regions.
Jim Caci: In North America, SAS revenues grew 46% year over year and represented 70% of total North America revenues, which in turn grew 19% year over year.
Jim Caci: In EMEA, SAS revenues grew 41% year-over-year and represented 84% of total EMEA revenues, which in turn grew 21% year-over-year.
Jim Caci: And in APAC, SAS revenues grew 50% year-over-year and represented 50% of total APAC revenues, which in turn grew 29% year-over-year.
Jim Caci: The same broad-based strength is apparent when looking at our year-over-year growth in regional ARR, a metric we began disclosing this year to provide a better view of the underlying momentum of the business everywhere we operate.
In Q3, North America ARR grew 20%.
EMEA ARR grew 25%.
Jim Caci: and APAC ARR grew 27% as each region was a strong contributor to the 23% consolidated ARR growth we reported.
Jim Caci: Continuing now with total ARR and other key metrics we assess on a quarterly basis. As of September 30th, total ARR surpassed the $300 million mark, ending the quarter at $308.9 million.
Jim Caci: As mentioned, this represented year-over-year growth of 23%. As a result, net new ARR in Q3 was a record $18.8 million and grew 31% year-over-year, the highest organic growth rate we have delivered as a public company.
Thanks for watching!
Jim Caci: Additionally, we ended Q3 with 629 customers with ARR of over $100,000.
Jim Caci: a 21% increase from the prior year and a net addition of 35 such customers from Q2, which represented the most we have ever added in a single quarter.
Jim Caci: As of the end of Q3, 53% of total ARR came through the channel, compared to 50% a year ago. And for Q3 specifically, 68% of our incremental ARR came through the channel.
Jim Caci: compared to 61% for Q2 of 2024 and 72% for Q3 of 2023.
Jim Caci: Turning now to our customer retention rates. Adjusted for the impact of FX, our trailing 12-month gross retention rate for the third quarter increased to 88%. And we are pleased to see this key metric improved to the highest AvePoint has reported to date.
Jim Caci: At the same time, our FX Adjusted Net Retention Rate for the third quarter was 110%, an improvement from the 108 we delivered a year ago and in line with Q2.
Thanks for watching!
Jim Caci: On a reported basis, Q3 GRR was 87% compared to 85% in Q3 of 2023, and a one-point improvement from the prior quarter.
Jim Caci: Q3 reported NRR was 109% compared to 107% in Q3 of 2023 and in line with Q2.
[inaudible]
Jim Caci: Turning back to the income statement, gross profit for Q3 was $68.4 million, representing a gross margin of 77%, compared to 73.7% in Q3 of 2023 and to 76.2% in Q2 of 2024.
Jim Caci: Similar to the first half of the year, the improvement in our gross margin is primarily the result of our product mix in Q3, as we again had more SAS revenue and less services revenue as a percentage of our overall revenue.
Jim Caci: In addition, we saw improved SAS margins this quarter compared to last year.
Jim Caci: Moving down the income statement, operating expenses for Q3 totaled $50.5 million, or 57% of revenues, compared to $44.3 million, or 61% of revenues, a year ago.
Jim Caci: As a result, Q3 operating income was $17.8 million, or an operating margin of 20.1%, a year-over-year improvement of more than 720 basis points.
Jim Caci: Q3 operating income was well ahead of our guidance, and similar to last quarter, the outperformance was primarily driven by two factors.
Jim Caci: First, the meaningful revenue beat, most of which flowed to the bottom line. And second, improved sales efficiency and prudent expense management across the business.
Jim Caci: These areas of focus were most pronounced at the sales and marketing line, which represented 31% of Q3 revenues, and when looking at our total operating expenses, which, as mentioned, was 57% of Q3 revenues.
Jim Caci: Both of these percentages were the healthiest we have reported as a public company.
Jim Caci: Taken together, our ongoing commitment to profitable growth resulted in another step on our path to full-year GAP profitability.
Jim Caci: And to this point, we are pleased to have achieved GAP profitability in the third quarter as well as for the first nine months of 2024, with cumulative GAP operating income of $2.3 million.
Jim Caci: This compares to a GAAP operating loss of $16.2 million in the first nine months of 2023.
Jim Caci: Turning to the balance sheet and statement of cash flows, we ended the third quarter with $250 million in cash and short-term investments.
Jim Caci: And as mentioned, for the nine months ended September 30th, cash generated from operations was $56.1 million, while free cash flow was $53.8 million.
Jim Caci: This compares to cash generated from operations of $13.3 million and free cash flow of $11.8 million in the first nine months of 2023.
Jim Caci: During the three months ended September 30th, we repurchased 219,000 shares for a total cost of approximately $2.6 million.
Speaker Change: I would now like to turn to our financial outlook, where for the full year, we are pleased to again raise our expectations for total ARR, total revenues, and non-GAAP operating income.
Speaker Change: For the fourth quarter, we expect total revenues of $86.5 million to $88.5 million, or approximately 17% year-over-year growth at the midpoint.
Speaker Change: We expect non-GAAP operating income of $12.6 million to $13.6 million.
Speaker Change: And for the full year, we now expect total ARR of $324.9 million to $326.9 million, or approximately 23% year-over-year growth at the midpoint.
Speaker Change: This implies net new ARR for the year of $61.4 million, or year-over-year growth of 23% at the midpoint.
Speaker Change: We now expect total revenues of $327.8 million to $329.8 million, or approximately 21% year-over-year growth at the midpoint.
Speaker Change: And given these higher top-line expectations, again coupled with our outperformance on profitability this quarter, we now expect full-year non-GAAP operating income
Speaker Change: of $45.8 million to $46.8 million or an operating margin of 14% at the midpoint which represents a year-over-year expansion of 590 basis points.
Thank you for watching!
Speaker Change: Lastly, on a rule of 40 basis, which for AvePoint is the sum of ARR growth and non-GAAP operating margin, our updated guidance today reflects a 37.
Speaker Change: This compares to the 29 that we initially guided for the year in February, to the 31 we guided to in May, and to the 33 that we guided to in August.
Speaker Change: In summary, we are proud of our Q3 results and the team remains laser focused on profitable growth and continued execution as we deliver value to organizations around the world.
Speaker Change: Thanks for joining us today, and with that, we would be happy to take your questions.
Operator.
Speaker Change: Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw it, please press star then 2.
Speaker Change: And this time we will pause momentarily to assemble the roster.
Speaker Change: And the first question comes from Jason Eighty with William Blair.
Thank you for watching!
Yeah, thank you. Hey, good afternoon guys.
Speaker Change: first question I guess is if you would be kind enough to provide any relative growth rates across the different suites that you sell
That would be helpful.
Thank you very much.
Hey Jason, it's Jim Caci, thanks for the question.
Speaker Change: So I know that's something that we're providing on an annual basis.
I would say that...
Speaker Change: you know, for at least this point, at this point in the year, we would expect to see the suites relatively similar to last year.
Speaker Change: in terms of comparison. We are seeing, you know, additionally and TJ even mentioned in the script, much more focus around control from our customers. So we would expect to see improvement there, but overall similar to what we've seen in the past with again a little bit more focus on control.
Speaker Change: Okay excellent and then quick follow-up maybe for you TJ just as we think about
Speaker Change: The net new ARR performance and the growth there year-over-year, which which was you know well above the total ARR growth How would you kind of summarize? What's going well for you guys right now? That's that's driving this this net new ARR performance
Speaker Change: Hi Jason, thank you for your question. Yeah, we are very excited to see the net new incremental AR growth.
Speaker Change: We have multiple strong segments. Historically, we're very strong in enterprise. We remain so. And as discussed in the past calls, our strongest, highest growth segmentation come from the SMB segment.
Speaker Change: with our very laser focus on managed service providers as a segmentation.
So that continued to drive outsized net new.
logo acquisitions, as well as Nanyue ALR.
Speaker Change: and security is really exemplified by the resilience suite. So we see a lot more of our platform strength and play that's helping us really win in the market.
All right, thank you.
Thank you.
Speaker Change: And the next question comes from Brett Doglock with Cantor Fitzgerald.
Thank you.
Speaker Change: Hi guys, thanks for taking my question and congrats on the great quarter. It seems like, you know, everything is hitting on all cylinders. TJ, I was wondering if you could maybe just point to one or two things that you think is, you know, really allowed you guys to...
Speaker Change: Deliver the growth you're getting across all regions. Seems like all customer sizes. Is there one or two things, maybe the proliferation of AI that you could point to or how should we think about that continued strength there?
Speaker Change: Hi, Brett. Yeah, that's a good question. We really do see consistent growth, high growth across all of our major three geographies in North America, EMEA and APAC.
Speaker Change: What's driving a lot of growth continue to be what we discussed in the previous quarters of this
Speaker Change: need for data governance and control and of course around security and resiliency.
Speaker Change: So these things are continuing to be very, very strong growth vectors for us. And lastly, we also have our data migration integration play in modernization that continue to be a massive door opener for us. We see a lot more uptake in.
Speaker Change: cloud environments between multi-hyperscalers and even within same cloud platforms there's always divestitures, MNAs and
Speaker Change: re-consolidation of tenants and split of tenants. So that continues to be the tip of the spear for us. So yeah, we're pleased to see all three major product suites and functional areas on our SaaS conference platform to grow very strongly across our regions.
Speaker Change: Perfect, thanks. And, Jim, a question for you on the gross retention. I think it was the first time we saw that tick up since...
Speaker Change: You guys first started disclosing it a little bit ways back. Anything you can point to that kind of drove that pick up? Is that something we should expect to continue to improve over the immediate term? Or I guess your 90% target there, over what time frame should we expect that?
Speaker Change: Yeah, great question. So you're right, that 90% target is, I would say at this point, probably a medium term. So we're looking at the next couple of years of trying to get to that 90%. So we're definitely encouraged to see, you know, us pick up here 1% to get to that 88.
Speaker Change: I think we're seeing good performance, you know, really from each region, strong performance in Q3 in our public sector, which continues to
Speaker Change: you know, outperform kind of the consolidated results both in GRR and NRR. So that was a good contributor. We've also made some some changes this year in terms of how we think about the long tail, kind of that ARR base that's
Speaker Change: You know doesn't receive dedicated CS is maybe a little bit lower in terms of you know ARR balance But we've done a bunch of things around pooled CS and really Focusing on how we can service that team and that really customer based better
Speaker Change: And we've seen already the first nine months of this year, we've seen improvement.
Speaker Change: And we've seen some meaningful improvement in terms of that GRR base. So that was definitely a contributor
Speaker Change: And we're, again, we're investing heavily there, so we would expect to see that continue. So I think we've made good progress toward that 90%, and we're going to, you know, continue to work toward that, and hopefully in the next couple of years we get there.
Speaker Change: Perfect, thanks. I really appreciate it and congrats again on the quarter.
Thanks, Greg. Thanks, Brett.
Speaker Change: Thank you. And the next question comes from Hao Chokshi with Northern Capital Markets.
www.mytrendyphone.co.uk
Speaker Change: Yeah, thank you, congrats on the great results. Hey TJ, so you talked about how Gen-AI transforms security needs to be data security centric, which I believe is more focused on your resilience suite. And I get that you say that they are...
Speaker Change: The resiliency and control suite work hand-in-hand with respect to AI, but How does Gen, you know, how does Gen IA transform Privilege access from user-centric to data-centric which would be more focused around your control suite?
Speaker Change: Anyhow, great question. So there's actually a lot of access control and privilege access flavors when it comes to specifically Microsoft 365 Copilot.
Speaker Change: So, because as you know, that's actually, it's very much tied to the office graph.
Speaker Change: So the access of particular assets in the cloud and what kind of assets you have is very important and that's what drives the co-pilot recommendations to a particular user. So we've seen very large...
Speaker Change: obviously experimentations, but also now increasingly a few large enterprise-wide deployments of Microsoft CC5 CoPilot.
Speaker Change: on the premises of deploying our control suite. So we actually announced this in the previous earning as well with a major global financial institution. And in this quarter, we continue to see that with a major customer take up. So it does go together both from a...
Speaker Change: Permission Management, Life Cycle Governance, as well as Security in the Resilient side. So they do really, it's not just the...
Speaker Change: you know, the actual data itself, the quality control, essentially maintaining a high quality data estate, but also the access rights management of that too.
Speaker Change: The daily State, but also the access rights management up that too.
Jim Caci: Okay, and then thanks, Thanks T J Jim.
Speaker Change: Okay, and then, thanks TJ. Jim, did you give the what was the effects impact on the reported ARR?
Speaker Change: Did you give the what was the FX impact on the reported they are.
Speaker Change: The FX impact no we didn't disclose that but it's about 1%.
Jim Caci: The FX impact? No, we didn't disclose that, but it's about 1%. The ARR would have been slightly higher by about 1%.
Jim Caci: The <unk> would have been slightly higher by about 1%.
Speaker Change: Great. Thank you.
Great, thank you.
Thank you all.
Speaker Change: Thanks Neil.
Speaker Change: Yeah.
Speaker Change: Thank you and the next question comes from Kirk <unk> with Evercore ISI.
Speaker Change: Thank you and the next question comes from Kirk Maturin with Evercore ISI
Speaker Change: Yes, thanks, very much and congrats on the results.
Thank you for watching!
Speaker Change: Yeah, thanks very much and congrats on the results. TJ, I don't know if you could parse this out, but I was curious...
Speaker Change: Keith I don't know if you could parse this out but I was curious how much do you think the acceleration is sort of you all getting re prioritize higher and the spending budget versus budget is just getting a little bit more on lat am I'm sure, there's a little bit of perhaps both going on but I was just kind of curious how much of this is really about.
Speaker Change: How much do you think the acceleration is sort of you all getting reprioritized higher in the IT spending budget versus Budgets just getting a little bit more unlocked I'm sure there's a little bit of perhaps both going on But I was just kind of curious how much of this is really about your products getting You know pulled faster to the top of the spending list versus sort of a little bit of a macro unlock potentially
Speaker Change: Yeah your products getting pulled faster to the top of the spending less versus sort of a little bit of a macro on loss potentially.
Thank you for watching!
Speaker Change: Yeah, Kirk, that's a great question. You're definitely right. There's definitely a little bit of both.
Speaker Change: Initially when you talk about AI experimentations, a lot of firms are actually using a separate bucket of budget outside of traditional IT spend to do the experimentation. And once that happens, to the extent that the firm decided to do a firm wire rollout, especially around a MCC5 co-pilot that's tied to their Office 365 Microsoft Office Cloud spend,
Speaker Change: then it actually primarily goes into a primary bucket. So it's happening on both sides of the house.
Speaker Change: It does highlight the need for the importance of governance and control and life-cycle management Something that traditionally only regulated industry enterprises and government care a lot about but also and everybody cares about it because
Speaker Change: As we know, your AI is only as good as the quality of your data.
Speaker Change: So, that's definitely raising the priority for all the companies that want to deploy AI to be mindful of their data quality and data use state. We actually cited a number of statistics from Gartners and others.
Speaker Change: to say the quality of the AI experimentation and success rates that folks are seeing are really directly tied to their overall data management posture. So this is definitely raising the awareness across industries.
Speaker Change: And Jim, just a quick one for you. The implied guide for, or just the guide for fourth quarter operating margins.
Speaker Change: Is there, is that sort of a baseline to think about as we think about next year, just in terms of how you want to start the year? I wasn't sure if there was any, obviously...
Speaker Change: Revenue be dropped down this quarter. So the guys lower for next quarter Just how should we think about sort of incremental expenses coming in the next quarter and you know Perhaps sort of how we should think about to start counter 25 knowing you're not giving official guidance
Thank you for watching!
Speaker Change: Yeah, great point. Yeah, we'll provide the guidance for next year probably in February, but But it's a good point. We definitely are guiding lower for operating income in Q4 I don't know if I'd read a ton into that in terms of the expectation moving forward I think if you look historically Q4 for us has been a higher spend quarter
Speaker Change: And that's a combination really of how we budget and how some of our what we refer to as programmatic spend We definitely have more marketing spending Q4 and some other initiatives
Speaker Change: It's just not necessarily linear throughout the year, so there's definitely some ebbs and flows, and Q4 historically has been a higher spend quarter, and that's going to continue this year.
Speaker Change: So that's really a function. We also mentioned that we had about a million dollars of spend moved from Q3 into Q4, so that's also a contributing factor.
Thank you.
Speaker Change: Thank you. And the next question comes from Derek Wood with TD Econ.
Speaker Change: Great, thanks guys. This is Cole on for Derek. Great quarter. TJ, one for you. There's been a lot of buzz around AI agents the past couple of months. How do you think these are going to shape demand for, you know, control suite going forward? Do you see adoption of agents?
Speaker Change: You know, it's kind of this like incremental driver on top of Copilot or just you know, I'd love to get more color on that
Speaker Change: Yeah, that's a great question. Agents will continue to evolve, there's actually...
Speaker Change: It's still in very, very early stages. If you can't get a good quality output from your current AI deployments given poor data use, deploying agents would just make it even worse because there's so much more automation introduced.