AvePoint(AVPT) - 2022 Q2 - Quarterly Report

FORWARD-LOOKING STATEMENTS This report contains forward-looking statements regarding business plans and expected results that are subject to significant risks and uncertainties - This Quarterly Report contains forward-looking statements regarding business plans, objectives, and expected operating results, subject to significant risks and uncertainties[7][8][9] - Key factors that could cause actual results to differ materially include the ability to recognize benefits from the Business Combination, future operating/financial results, acquisitions, business strategy, changes in strategy, market acceptance of business model, growth of the cloud industry, competition, ability to attract/retain employees, adaptation to consumer preferences, industry developments, unforeseen business disruptions (e.g, Russia-Ukraine conflict), intellectual property protection, capital requirements, and effects of inflation and foreign currency exchange[9] PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's analysis of financial performance ITEM 1. FINANCIAL STATEMENTS This section presents AvePoint, Inc's unaudited condensed consolidated financial statements for the periods ended June 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets The balance sheets show a slight decrease in total assets and stockholders' equity from December 31, 2021, to June 30, 2022 | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | |:---|---:|---:| | Cash and cash equivalents | $65,062 | $268,217 | | Short-term investments | $181,545 | $2,411 | | Total current assets | $304,296 | $334,156 | | Total assets | $387,921 | $388,738 | | Total liabilities | $138,497 | $133,173 | | Redeemable noncontrolling interest | $12,173 | $5,210 | | Total stockholders' equity | $237,251 | $250,355 | Condensed Consolidated Statements of Operations The statements of operations show increased revenue but also a higher net loss, reflecting growth alongside rising operating expenses | Metric (in thousands, except per share) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|---:|---:|---:|---:| | Total revenue | $55,701 | $45,344 | $105,992 | $84,144 | | Gross profit | $40,274 | $33,624 | $75,935 | $61,646 | | Loss from operations | $(11,743) | $(11,203) | $(25,591) | $(17,134) | | Net loss | $(9,202) | $(11,057) | $(20,255) | $(15,999) | | Net loss attributable to AvePoint, Inc | $(9,829) | $(11,556) | $(21,499) | $(16,895) | | Basic and diluted loss per share | $(0.05) | $(0.36) | $(0.12) | $(0.50) | - Revenue increased by 22.8% for the three months and 26.0% for the six months ended June 30, 2022, compared to the prior year, primarily due to growth in SaaS (34.2% and 39.5% respectively) and services (34.9% and 42.0% respectively)[20][209][227] - Operating expenses increased significantly, with Research and Development growing by 103.2% for the three months and 79.0% for the six months, and General and Administrative increasing by 39.9% and 45.1% respectively, driven by higher personnel costs and public company operating expenses[20][219][222][238][241] Condensed Consolidated Statements of Comprehensive Loss The statements show a total comprehensive loss of $(21,758) thousand for the six months ended June 30, 2022, reflecting net loss and foreign currency adjustments | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|---:|---:|---:|---:| | Net loss | $(9,202) | $(11,057) | $(20,255) | $(15,999) | | Total other comprehensive income (loss) | $225 | $248 | $(1,503) | $5 | | Total comprehensive loss | $(8,977) | $(10,809) | $(21,758) | $(15,994) | | Total comprehensive loss attributable to AvePoint, Inc | $(9,538) | $(11,256) | $(22,927) | $(16,838) | Condensed Consolidated Statements of Mezzanine Equity and Stockholders' Equity These statements detail changes in equity, highlighting a decrease in total stockholders' equity due to net loss and share repurchases | Metric (in thousands, except share amounts) | Balance, December 31, 2021 | Balance, June 30, 2022 | |:---|---:|---:| | Redeemable noncontrolling interest | $5,210 | $12,173 | | Common Stock (shares) | 181,821,767 | 181,330,816 | | Additional Paid-In Capital | $625,056 | $644,931 | | Treasury Stock | $(1,739) | $(11,791) | | Accumulated Deficit | $(375,297) | $(396,796) | | Total Stockholders' Equity | $250,355 | $237,251 | - The company repurchased 1,901,662 shares of common stock for approximately $10,052 thousand during the six months ended June 30, 2022, under its Share Repurchase Program[29][135] - Redeemable noncontrolling interest increased significantly from $5,210 thousand at December 31, 2021, to $12,173 thousand at June 30, 2022, primarily due to the issuance of redeemable noncontrolling interest in EduTech and adjustments to present redemption value[29][140] Condensed Consolidated Statements of Cash Flows The statements indicate a net decrease in cash, driven by significant cash used in investing activities for short-term investments | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|---:|---:| | Net cash used in operating activities | $(6,596) | $(1,921) | | Net cash used in investing activities | $(184,578) | $(2,951) | | Net cash (used in) provided by financing activities | $(8,334) | $2,144 | | Net decrease in cash and cash equivalents | $(203,155) | $(2,774) | | Cash and cash equivalents at end of period | $65,062 | $66,338 | - Investing activities for the six months ended June 30, 2022, included $180,041 thousand in purchases of investments, significantly higher than the $423 thousand in the prior year period[33] - Financing activities shifted from providing $2,144 thousand in cash in 2021 to using $8,334 thousand in 2022, primarily due to $10,042 thousand in common stock repurchases[33] Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures supporting the financial statements, covering accounting policies, business combinations, and other key financial data 1. Nature of Business and Organization AvePoint, Inc is a leading provider of enterprise collaboration and productivity software solutions through its SaaS-based Confidence Platform - AvePoint, Inc (formerly Apex Technology Acquisition Corporation) became the surviving entity after merging with AvePoint US LLC on July 26, 2021, following the Apex Business Combination on July 1, 2021[36] - The company provides enterprise collaboration and productivity software solutions and services, primarily in North America, Europe, Australia, and Asia, through its SaaS-based Confidence Platform[37] - The Confidence Platform offers Control Suite for data governance, Fidelity Suite for data integrity during digital transformation, and Resilience Suite for compliance and business continuity, supporting cloud services like Microsoft 365, Google, and Salesforce[37] 2. Summary of Significant Accounting Policies This section outlines key accounting policies, including the basis of presentation and recently adopted guidance for leases and business combinations - The company adopted ASC 842 (Leases) on January 1, 2022, using the modified retrospective approach, resulting in the recognition of $13.9 million in ROU assets and $14.5 million in lease liabilities, with no significant impact on operations or cash flows[41][43] - Early adopted ASU No 2021-08 (Business Combinations) on January 1, 2022, which requires contract assets and liabilities acquired in a business combination to be recognized and measured in accordance with ASC 606, with no impact on current financial statements[43][44] | Revenue Source | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | |:---|---:|---:|---:|---:| | SaaS | $27,619 | $20,586 | $54,172 | $38,845 | | Term license and support | $14,011 | $11,088 | $24,213 | $19,815 | | Services | $9,848 | $7,302 | $18,773 | $13,218 | | Maintenance | $4,067 | $5,458 | $8,508 | $10,867 | | Perpetual license | $156 | $910 | $326 | $1,399 | | Total revenue | $55,701 | $45,344 | $105,992 | $84,144 | | Metric (in thousands) | January 1, 2022 | June 30, 2022 | Increase/(decrease) | |:---|---:|---:|---:| | Accounts receivable, net | $61,335 | $56,218 | $(5,117) | | Deferred revenue | $82,332 | $80,946 | $(1,386) | | Deferred contract costs | $38,926 | $40,474 | $1,548 | - As of June 30, 2022, the transaction price allocated to remaining performance obligations was $194.3 million, with approximately 66% expected to be recognized over the next twelve months[66] 3. Business Combination This section details the Apex Business Combination and the subsequent acquisition of I-Access Solutions, which expanded the company's SaaS offerings - The Apex Business Combination on July 1, 2021, was accounted for as a reverse recapitalization, with Legacy AvePoint identified as the accounting acquirer, resulting in no goodwill or intangible assets recorded from this transaction[82] - EduTech acquired I-Access Solutions Pte Ltd on February 18, 2022, for approximately $7.1 million, consisting of cash and contingent consideration, to expand SaaS solutions for corporate learning[83] - Following a management changeover on April 15, 2022, the contingent consideration for the I-Access acquisition, including EduTech shares and a put option, was reclassified to mezzanine equity and included in redeemable noncontrolling interest[84] | Acquired Assets / Assumed Liabilities | Preliminary Allocation (in thousands) | |:---|---:| | Accounts receivable, net | $429 | | Goodwill | $4,862 | | Technology and software | $2,750 | | Customer relationship | $646 | | Order backlog | $263 | | Total purchase consideration | $7,109 | 4. Goodwill Goodwill increased to $4.744 million as of June 30, 2022, primarily due to the I-Access acquisition, with no impairment identified | Metric (in thousands) | Goodwill | |:---|---:| | Balance as of December 31, 2021 | $0 | | I-Access acquisition | $4,862 | | Effect of foreign currency translation | $(118) | | Balance as of June 30, 2022 | $4,744 | - Goodwill is primarily attributed to intangible assets not qualifying for separate recognition, such as the acquired workforce and expected synergies from acquisitions[88] 5. Other intangible assets, net Other intangible assets totaled $5.156 million as of June 30, 2022, primarily from the I-Access acquisition | Intangible Asset | Gross Carrying Amount (in thousands) | Accumulated Amortization (in thousands) | Net Carrying Amount June 30, 2022 (in thousands) | Weighted Average Life (in years) | |:---|---:|---:|---:|---:| | Technology and software, net | $3,857 | $(281) | $3,576 | 7.9 | | Content, net | $800 | $0 | $800 | 3.0 | | Customer relationship, net | $630 | $(21) | $609 | 10.0 | | Order backlog, net | $257 | $(86) | $171 | 1.0 | | Total | $5,544 | $(388) | $5,156 | 7.1 | | Year Ending December 31: | Estimated Future Amortization Expense (in thousands) | |:---|---:| | 2022 (six months) | $620 | | 2023 | $1,026 | | 2024 | $912 | | 2025 | $555 | | 2026 | $331 | | Thereafter | $1,712 | | Total | $5,156 | 6. Concentration of Credit Risk The company's credit risk concentration is low, with no single customer accounting for more than 10% of revenue or accounts receivable - No customer accounted for more than 10% of revenue for the six months ended June 30, 2022 and 2021[96] - No customer made up more than 10% of accounts receivable at June 30, 2022 or December 31, 2021[96] 7. Accounts Receivable, Net Accounts receivable, net, decreased to $51.441 million at June 30, 2022, from $55.067 million at December 31, 2021 | Component | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | |:---|---:|---:| | Trade receivables | $32,480 | $38,819 | | Current unbilled receivables | $20,281 | $17,086 | | Allowance for doubtful accounts | $(1,320) | $(838) | | Total Accounts receivable, net | $51,441 | $55,067 | 8. Line of Credit AvePoint maintains an unused $30.0 million revolving line of credit with HSBC, maturing in April 2023 - The company has a revolving line of credit of up to $30.0 million, with an additional $20.0 million accordion feature, with HSBC Ventures Bank USA Inc[104] - Borrowings under the line bear interest at LIBOR plus 3.5% and the line carries an unused fee of 0.5% per year[104] - The line of credit matures on April 7, 2023; as of June 30, 2022, the company has not borrowed under the agreement and is in compliance with all covenants[105][106] 9. Income Taxes The effective tax rate fluctuated due to the mix of pre-tax income by jurisdiction, foreign inclusions, and stock-based compensation | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|---:|---:|---:|---:| | Effective tax rate | 5.6% | 0.7% | 1.2% | 6.5% | - The change in effective tax rates is primarily due to the mix of pre-tax income (loss) results by jurisdictions taxed at different rates, impact of foreign inclusions, and stock-based compensation[107] 10. Leases The company recognizes operating lease right-of-use assets and liabilities for its office space leases | Lease Expense Component (in thousands) | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | |:---|---:|---:| | Lease liability cost | $1,498 | $2,649 | | Short-term lease expenses | $535 | $1,349 | | Variable lease cost | $37 | $69 | | Total lease cost | $2,070 | $4,067 | | Year Ending December 31: | Operating Lease Liabilities Maturity Schedule (in thousands) | |:---|---:| | 2022 (six months) | $2,808 | | 2023 | $5,995 | | 2024 | $4,076 | | 2025 | $2,844 | | 2026 | $2,133 | | Thereafter | $3,249 | | Total future lease payments | $21,105 | | Less: Present value adjustment | $(2,434) | | Present value of future lease payments | $18,671 | - ROU assets obtained in exchange for new operating lease liabilities amounted to $5.7 million for the three months and $6.7 million for the six months ended June 30, 2022[114] 11. Commitments and Contingencies AvePoint is not a party to any material legal proceedings and has guarantees totaling $1.4 million for service agreements - As of June 30, 2022, the Company was not a party to any material litigation for which a material claim is reasonably possible, probable, or estimable, outside of normal business operations[121] - Letters of credit totaling $1.4 million have been issued as security for service agreements in highly regulated sectors, which have not materially affected financial results[122] 12. Earn-Out and Warrant Liabilities Earn-out shares and warrant liabilities decreased, resulting in a gain of $5.8 million for the six months ended June 30, 2022 - Company Earn-Out Shares are derivatives marked to market each reporting period, with fair value determined using a Monte Carlo simulation[125][126] | Metric (in millions) | June 30, 2022 | December 31, 2021 | |:---|---:|---:| | Earn-out shares liabilities | $4.8 | $10.0 | - A gain of approximately $2.6 million for the three months and $5.8 million for the six months ended June 30, 2022, was recognized from the change in fair value of earn-out and warrant liabilities[126][127] 13. Mezzanine Equity and Stockholders' Equity This section details the company's capital structure, including its common stock and a $150 million share repurchase program - As of June 30, 2022, there were 181,330,816 shares of common stock issued and outstanding[130] - The company authorized a $150 million share repurchase program on March 17, 2022, and had repurchased 1,901,662 shares for $10,042 thousand by June 30, 2022[33][135] - Sponsor Earn-Out Shares (2,916,700 shares) are subject to vesting conditions based on stock price milestones or a subsequent transaction, and are classified as equity[132][133] 14. Stock-Based Compensation Stock-based compensation expense totaled $18.678 million for the six months ended June 30, 2022, with significant unrecognized costs remaining | Line Item | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | |:---|---:|---:|---:|---:| | Cost of revenue | $703 | $272 | $1,281 | $362 | | Sales and marketing | $3,396 | $9,791 | $5,858 | $10,902 | | General and administrative | $5,281 | $4,364 | $9,765 | $6,355 | | Research and development | $1,024 | $83 | $1,774 | $180 | | Total stock-based compensation | $10,404 | $14,510 | $18,678 | $17,799 | - As of June 30, 2022, there was $34.2 million in unrecognized compensation costs related to non-vested stock options and $61.2 million for non-vested RSUs[149][150] - The company granted 4,716,194 RSUs under the 2021 Plan during the six months ended June 30, 2022, with a weighted-average grant date fair-value of $5.80 per RSU[150] 15. Financial Instruments This section details the fair value measurement of financial instruments, primarily categorized as Level 2 and Level 3 | Assets (in thousands) | Level 1 | Level 2 | Level 3 | Total | |:---|---:|---:|---:|---:| | U.S treasury bills | $0 | $19,992 | $0 | $19,992 | | Certificate of deposits | $0 | $1,726 | $0 | $1,726 | | Short term investments: U.S treasury bills | $0 | $179,933 | $0 | $179,933 | | Short term investments: Certificate of deposits | $0 | $1,612 | $0 | $1,612 | | Total Assets | $0 | $203,263 | $0 | $203,263 | | Liabilities (in thousands) | Level 1 | Level 2 | Level 3 | Total | | Earn-out shares | $0 | $0 | $4,770 | $4,770 | | Warrant liabilities | $0 | $279 | $0 | $279 | | Total Liabilities | $0 | $279 | $4,770 | $5,049 | - Earn-out shares liabilities are measured at fair value using Level 3 unobservable inputs, while private placement warrants are measured at fair value using Level 2 inputs[155] 16. Segment information AvePoint operates as a single global segment, with performance assessed and resources allocated on a worldwide basis - The company operates in one segment, with its Chief Executive Officer acting as the chief operating decision maker (CODM) for global performance assessment and resource allocation[159] | Geographic Area | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | |:---|---:|---:|---:|---:| | United States | $24,523 | $20,556 | $46,232 | $38,189 | | EMEA | $17,570 | $13,753 | $32,912 | $24,944 | | APAC | $13,608 | $11,035 | $26,848 | $21,011 | | Total revenue | $55,701 | $45,344 | $105,992 | $84,144 | | Country (outside US) | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | |:---|---:|---:|---:|---:| | Germany | $7,947 | $5,553 | $13,918 | $10,279 | | Japan | $4,465 | $4,932 | $10,360 | $9,687 | 17. Loss Per Share Basic and diluted loss per share was $(0.12) for the six months ended June 30, 2022, with potentially dilutive securities excluded due to the net loss | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|---:|---:|---:|---:| | Total net loss available to common shareholders (in thousands) | $(9,829) | $(36,298) | $(21,499) | $(50,431) | | Weighted average common shares outstanding (in thousands) | 182,491 | 101,968 | 182,661 | 101,368 | | Basic and diluted loss per share available to common shareholders | $(0.05) | $(0.36) | $(0.12) | $(0.50) | | Potentially Dilutive Securities (in thousands) | June 30, 2022 | 2021 | |:---|---:|---:| | Stock options | 29,977 | 30,634 | | Restricted stock units | 9,321 | 0 | | Warrants | 17,905 | 0 | | Company Earn-Outs | 3,000 | 0 | | Total potentially dilutive securities | 60,203 | 72,635 | - Potentially dilutive securities were excluded from diluted EPS calculations for all periods presented because the company was in a net loss position, making them anti-dilutive[165] 18. Related Party Transactions AvePoint has indemnification agreements with its executive officers and directors to cover certain legal expenses - The company has indemnification agreements with its executive officers and directors, covering expenses like attorneys' fees, judgments, fines, and settlement amounts[167] 19. Subsequent Events No material subsequent events occurred after June 30, 2022, beyond those already disclosed in the notes - No material subsequent events occurred since June 30, 2022, other than those disclosed in Note 13 (Mezzanine Equity and Stockholders' Equity) and Note 14 (Stock-Based Compensation)[168] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition, results of operations, liquidity, and cash flows Second Quarter 2022 Business Highlights In Q2 2022, AvePoint increased Total ARR by 28%, repurchased shares, and gained inclusion in Russell indexes - Total Annual Recurring Revenue (ARR) increased 28% to $178.2 million in Q2 2022 compared to Q2 2021[171] - The company repurchased approximately 1.9 million shares for about $10 million through June 30, 2022[171] - AvePoint was included in the Russell 3000, Russell 2000, and Russell Microcap Indexes and was a finalist for multiple Microsoft Partner of the Year Awards[171] Overview AvePoint aims to enable secure digital collaboration and ensure business resiliency through its SaaS-based Confidence Platform - AvePoint's strategy focuses on empowering organizations to secure digital collaboration data, sustain connections, and ensure business resiliency[172] - The Confidence Platform, a SaaS solution, supports over 9 million users on cloud services such as Microsoft 365, Google, and Salesforce[172] Our Mission Statement AvePoint's mission is to enable confident collaboration in the modern workplace by securing data and ensuring business continuity - AvePoint's mission is to help organizations collaborate with confidence by securing digital collaboration data, sustaining connections, and ensuring business continuity[174] - The Confidence Platform supports 9 million users globally, manages over 175 PB of content, and is deployed across 14 global data centers with 99.9% uptime, backed by ISO, SOC2 Type II, and FedRAMP certifications[175] - The platform's intelligence engine uses AI to maximize relevant data, provide insights, automate operations, and enable Control, Fidelity, and Resilience software suites to optimize organizational efficiency[175] Key Business Metrics AvePoint uses Total ARR and Core TTM Dollar-Based Net Retention Rate to measure performance, showing continued growth and customer expansion | Metric | June 30, 2022 | June 30, 2021 | |:---|---:|---:| | Total ARR ($ in mil) | $178.2 | $139.0 | | Core TTM dollar-based net retention rate | 106% | 111% | - Total ARR increased 28% year-over-year to $178.2 million as of June 30, 2022[185] - The Core TTM Dollar-Based Net Retention Rate of 106% indicates that the company is effectively maintaining and expanding revenue with its existing customer base[185][188] Components of Results of Operations This section details the components of revenue and expenses, outlining how each contributes to the overall financial results - Revenue is primarily derived from SaaS, term license and support, services, and maintenance, with SaaS and term license and support expected to increase as a percentage of total revenue[192][201] - Cost of revenue includes direct costs for SaaS, term license and support, maintenance, and services, with gross margin expected to fluctuate but increase long-term as product mix shifts towards SaaS and term license and support[193][194][195][197] - Operating expenses (Sales and Marketing, General and Administrative, Research and Development) are expected to increase due to investments in personnel, global expansion, brand awareness, and public company compliance costs[198][199][200] Results of Operations This section provides a detailed comparison of financial performance for the three and six months ended June 30, 2022, versus 2021 Comparison of Three Months Ended June 30, 2022 and June 30, 2021 For Q2 2022, total revenue increased by 22.8% to $55.7 million, but higher operating expenses led to an increased loss from operations | Metric (in thousands) | June 30, 2022 | June 30, 2021 | Change Amount | % Change | |:---|---:|---:|---:|---:| | Total revenue | $55,701 | $45,344 | $10,357 | 22.8% | | Gross profit | $40,274 | $33,624 | $6,650 | 19.8% | | Loss from operations | $(11,743) | $(11,203) | $(540) | 4.8% | | Net loss | $(9,202) | $(11,057) | $1,855 | (16.8)% | | Revenue Source | June 30, 2022 (in thousands) | June 30, 2021 (in thousands) | Change Amount (in thousands) | % Change | |:---|---:|---:|---:|---:| | SaaS | $27,619 | $20,586 | $7,033 | 34.2% | | Term license and support | $14,011 | $11,088 | $2,923 | 26.4% | | Services | $9,848 | $7,302 | $2,546 | 34.9% | | Maintenance | $4,067 | $5,458 | $(1,391) | (25.5)% | | Perpetual license | $156 | $910 | $(754) | (82.9)% | | Total revenue | $55,701 | $45,344 | $10,357 | 22.8% | | Operating Expense (in thousands) | June 30, 2022 | June 30, 2021 | Change Amount | % Change | |:---|---:|---:|---:|---:| | Sales and marketing | $27,174 | $29,001 | $(1,827) | (6.3)% | | General and administrative | $16,322 | $11,664 | $4,658 | 39.9% | | Research and development | $7,892 | $3,883 | $4,009 | 103.2% | Comparison of Six Months Ended June 30, 2022 and June 30, 2021 For the first half of 2022, total revenue increased by 26.0% to $106.0 million, while significantly higher operating expenses led to a larger net loss | Metric (in thousands) | June 30, 2022 | June 30, 2021 | Change Amount | % Change | |:---|---:|---:|---:|---:| | Total revenue | $105,992 | $84,144 | $21,848 | 26.0% | | Gross profit | $75,935 | $61,646 | $14,289 | 23.2% | | Loss from operations | $(25,591) | $(17,134) | $(8,457) | 49.4% | | Net loss | $(20,255) | $(15,999) | $(4,256) | 26.6% | | Revenue Source | June 30, 2022 (in thousands) | June 30, 2021 (in thousands) | Change Amount (in thousands) | % Change | |:---|---:|---:|---:|---:| | SaaS | $54,172 | $38,845 | $15,327 | 39.5% | | Term license and support | $24,213 | $19,815 | $4,398 | 22.2% | | Services | $18,773 | $13,218 | $5,555 | 42.0% | | Maintenance | $8,508 | $10,867 | $(2,359) | (21.7)% | | Perpetual license | $326 | $1,399 | $(1,073) | (76.7)% | | Total revenue | $105,992 | $84,144 | $21,848 | 26.0% | | Operating Expense (in thousands) | June 30, 2022 | June 30, 2021 | Change Amount | % Change | |:---|---:|---:|---:|---:| | Sales and marketing | $54,228 | $48,302 | $5,926 | 12.3% | | General and administrative | $31,864 | $21,956 | $9,908 | 45.1% | | Research and development | $14,294 | $7,985 | $6,309 | 79.0% | Certain Non-GAAP Financial Measures AvePoint uses non-GAAP operating income (loss) and margin to assess performance, excluding stock-based compensation - Non-GAAP operating income (loss) is defined as GAAP operating loss plus stock-based compensation, and non-GAAP operating margin is non-GAAP operating income (loss) divided by revenue[248] | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|---:|---:|---:|---:| | Non-GAAP operating (loss) income (in thousands) | $(1,339) | $3,307 | $(6,913) | $665 | | Non-GAAP operating margin | (2.4)% | 7.3% | (6.5)% | 0.8% | - The reduction in non-GAAP operating margin is primarily due to significant investment in the business and increased expenses related to becoming a publicly traded company[249] Liquidity and Capital Resources As of June 30, 2022, the company had sufficient liquidity with $65.1 million in cash and $181.5 million in short-term investments | Metric (in millions) | June 30, 2022 | |:---|---:| | Cash and cash equivalents | $65.1 | | Short-term investments | $181.5 | - The company has a revolving line of credit of up to $30.0 million with HSBC, which was undrawn as of June 30, 2022, and the company was in compliance with all covenants[252] - Management believes existing cash, investments, operating cash flows, and the credit facility are sufficient to meet working capital, capital expenditure, and debt service obligations for at least the next twelve months[253] Cash Flows For the first half of 2022, cash was primarily used for short-term investments and common stock repurchases | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|---:|---:| | Net cash used in operating activities | $(6,596) | $(1,921) | | Net cash used in investing activities | $(184,578) | $(2,951) | | Net cash (used in) provided by financing activities | $(8,334) | $2,144 | - Net cash used in operating activities for the six months ended June 30, 2022, was $6.6 million, reflecting a net loss of $20.3 million, adjusted for non-cash items and net cash outflows from changes in operating assets and liabilities[256] - Net cash used in investing activities was $184.6 million, primarily due to $179.7 million in purchases of short-term investments[258] Indebtedness AvePoint maintains an unused $30.0 million revolving line of credit with HSBC, maturing in April 2023 - The company has a revolving line of credit of up to $30.0 million, with an additional $20.0 million accordion feature, maturing on April 7, 2023[260] - As of June 30, 2022, the company had no outstanding borrowings under the credit facility and was in compliance with all covenants[261] Leasing Activities The company is obligated under non-cancelable operating leases for office space with total commitments of $21.1 million - The company has non-cancelable operating leases for office space, with initial terms expiring through 2030[262] - As of June 30, 2022, total operating lease commitments are $21.1 million, with $6.1 million due in the next twelve months[262] Operating Segment Information AvePoint operates as a single global segment, with its CEO making resource allocation and performance assessments on a worldwide basis - AvePoint operates in one segment, with its Chief Executive Officer (CODM) making global operating performance assessments and resource allocation decisions[263] - The CODM does not receive discrete financial information about asset allocation, expense allocation, or profitability by product or geography[263] Critical Accounting Policies and Estimates Management makes significant estimates and assumptions, particularly in revenue recognition and the valuation of Company Earn-Out Shares - Key estimates and assumptions are made for revenue recognition, allowance for doubtful accounts, deferred contract costs, goodwill and other intangible assets, income taxes, stock-based compensation, business combination purchase price, and earn-out liabilities[51][264] - Revenue recognition involves judgment in determining distinct performance obligations and allocating transaction prices based on relative standalone selling prices (SSPs), especially for bundled term license and support arrangements[266][267] - Company Earn-Out Shares are treated as derivatives and marked to market using a Monte Carlo simulation, requiring subjective assumptions like expected volatility and term[268][269] Economic Conditions, Challenges, and Risks AvePoint faces challenges from competitive markets, evolving customer preferences, and global macroeconomic and geopolitical factors - The software and cloud-based services markets are dynamic and highly competitive, requiring continuous evolution and adaptation[271] - Global macroeconomic and geopolitical factors, including the Russia-Ukraine conflict, create uncertainty, though the direct economic, financial, and operational exposure to Russia or Belarus is limited and not currently material[273] - International operations contribute a significant portion of revenue and expenses, making the company susceptible to foreign currency exchange rate fluctuations, though a natural hedge exists[274] Seasonality The company's revenue is seasonal, with historically higher revenue in the third and fourth quarters due to customers' fiscal year-ends - Historically, the third and fourth quarters have been the highest revenue quarters, driven by increased sales related to customers' fiscal year-ends[275] - Operating expenses generally increase sequentially due to personnel growth in connection with business expansion[275] Emerging Growth Company Accounting Election As an emerging growth company, AvePoint has elected to use the extended transition period for complying with new accounting standards - AvePoint is an emerging growth company (EGC) and has elected to use the extended transition period for complying with new or revised financial accounting standards[276] - This election means the company adopts new or revised standards at the same time as private companies, potentially affecting comparability with non-EGC public companies[276] Recently Issued and Adopted Accounting Pronouncements Information about recent accounting pronouncements is available in Note 2 of the financial statements ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The company is exposed to market risks from interest rates and foreign exchange rates, with no material changes identified during the period Interest Rate Risk The company's exposure to interest rate risk is minimal due to the short-term nature of its cash and investments - The company's exposure to changes in the fair value of its investment portfolio due to interest rates is not material, given the short-term nature of its cash, cash equivalents, and marketable securities[280] - As of June 30, 2022, the company had no outstanding obligations under its line of credit with HSBC[280] Foreign Currency Exchange Risk Fluctuations in foreign currencies impact the U.S Dollar translation of assets and liabilities of the company's foreign subsidiaries - Fluctuations in foreign currencies impact the U.S Dollar translation of assets and liabilities of foreign subsidiaries, with changes recorded in accumulated other comprehensive income[281] - A hypothetical 10% weaker U.S Dollar would have decreased reported cash, cash equivalents, and marketable securities by approximately $2.6 million as of December 31, 2021[282] Concentration of Credit Risk The company's concentration of credit risk remains low, with no single customer accounting for more than 10% of billings or receivables - No customer accounted for more than 10% of billings for the years ended December 31, 2021 and 2020[283] - No customer made up more than 10% of accounts receivable as of December 31, 2021[283] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls were not effective due to material weaknesses, though a remediation plan is underway Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures were deemed not effective due to material weaknesses, but the financial statements are considered fairly presented - Disclosure controls and procedures were not effective as of December 31, 2021, or during the six months ended June 30, 2022, due to material weaknesses[286] - Despite material weaknesses, the audited Consolidated Financial Statements fairly present the financial position, results of operations, and cash flows in conformity with GAAP[286] Material Weaknesses in Internal Control over Financial Reporting Material weaknesses persist in financial accounting, reporting of nonroutine transactions, and segregation of duties - Material weaknesses identified include issues with the completeness and accuracy of financial accounting, reporting, and disclosures[287] - Deficiencies exist in the identification, review, and accounting for nonroutine and complex accounting transactions[287] - There is a material weakness related to the segregation of duties with respect to the processing of financial transactions[287] Remediation of Material Weaknesses The company is actively implementing a remediation plan that includes hiring experienced personnel and engaging external consultants - Remediation efforts include hiring personnel with technical accounting and financial reporting experience[288] - The company is engaging external consultants to assist with complex accounting matters and establishing formalized internal controls for segregation of duties[288] - Improved accounting and financial reporting procedures are being implemented to enhance completeness and accuracy[288] Changes in Internal Control Over Financial Reporting No material changes in internal control occurred during the period other than the ongoing implementation of the remediation plan - No material changes in internal control over financial reporting occurred during the six months ended June 30, 2022, other than the ongoing implementation of the Remediation Plan[292] Inherent Limitations on Effectiveness of Controls Management acknowledges that no control system can provide absolute assurance against all errors or fraud due to inherent limitations - Management does not expect disclosure controls and procedures or internal control over financial reporting to prevent or detect all errors and fraud[293] - Control systems provide only reasonable, not absolute, assurance, and their effectiveness can deteriorate over time due to changing conditions or compliance levels[293] PART II. OTHER INFORMATION This part covers legal proceedings, risk factors, equity securities sales, and other required disclosures ITEM 1. LEGAL PROCEEDINGS AvePoint is not currently a party to any material legal claims or litigation outside the normal course of business - As of June 30, 2022, AvePoint is not a party to any material asserted, ongoing, threatened, or pending claims, suits, assessments, proceedings, or other litigation for which a material claim is reasonably possible, probable, or estimable, outside of normal business operations[295] ITEM 1A. RISK FACTORS There have been no material changes to the risk factors previously disclosed in the company's Annual Report - No material changes to the risk factors previously disclosed in the Annual Report have occurred since its filing on March 31, 2022[296] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company did not issue unregistered equity securities and repurchased 1.9 million shares under its $150 million program Issuer Purchases of Equity Securities The company repurchased 1.9 million shares for $10.0 million under its $150 million share repurchase program - The Board of Directors authorized a new share repurchase program on March 17, 2022, allowing the company to buy back up to $150 million of Common Stock over three years[299] | Period | Total shares purchased | Average price paid per share | |:---|---:|---:| | April 1, 2022 - April 30, 2022 | 675,000 | $5.0671 | | May 1, 2022 - May 31, 2022 | 540,000 | $5.1446 | | June 1, 2022 - June 30, 2022 | 551,662 | $5.5749 | - As of June 30, 2022, 1,901,662 shares were repurchased under the program, with approximately $139,947,393.29 remaining for future purchases[301] ITEM 3. DEFAULTS UPON SENIOR SECURITIES AvePoint reported no defaults upon senior securities ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to AvePoint ITEM 5. OTHER INFORMATION AvePoint reported no other information ITEM 6. EXHIBITS This section lists the exhibits filed with the Quarterly Report, including officer certifications and Inline XBRL documents - Exhibits include certifications from the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104.1)[304][305][306][307] SIGNATURES The report is duly signed by the Chief Executive Officer and Chief Financial Officer as of August 15, 2022 - The report was signed by Tianyi Jiang, Chief Executive Officer, and James Caci, Chief Financial Officer, on August 15, 2022[312]