AvePoint(AVPT) - 2023 Q4 - Annual Report

Part I Item 1. Business AvePoint offers a cloud-native data management platform and pursues growth through product expansion, market penetration, and strategic acquisitions Company and Platform Overview AvePoint offers the cloud-native 'Confidence Platform' for data management, enabling organizations to manage data, optimize IT, and secure the digital workplace - AvePoint provides a cloud-native data management software platform, the 'Confidence Platform', to help organizations manage and protect data, optimize IT operations, and secure the digital workplace, particularly in hybrid work environments[13] - The company positions itself as a key enabler for enterprise adoption of generative AI by addressing fundamental data management, governance, and compliance challenges[15] - The Confidence Platform is structured into three functional suites: the Control Suite (governance and policy enforcement), the Resilience Suite (security and data protection), and the Modernization Suite (employee productivity and data modernization)[19] - The platform is highly certified, holding ISO 27001:2013, ISO 27017:2015, ISO 27701:2019, HITRUST CSF v11.0.1, SOC 2 Type II accreditation, and FedRAMP (Moderate) Authorization[20] Our Growth Strategy AvePoint's growth is driven by expanding its platform, broadening market presence, increasing customer value, cultivating its partner network, and pursuing strategic acquisitions - Expand the AvePoint Confidence Platform offerings, with a focus on AI-ready solutions and continued support for ecosystems like Microsoft, Salesforce, and Google[25] - Expand market presence by leveraging its global partner ecosystem and direct sales force to attract new customers, particularly small and medium-sized organizations[25] - Increase customer lifetime value through significant investments in its customer success program to reduce churn and drive land-and-expand opportunities[25] - Grow and cultivate its partner and channel network, which is a critical component for driving profitable growth, especially with small and mid-sized customers[25] - Opportunistically pursue strategic acquisitions and investments to acquire complementary products, technologies, and businesses, as demonstrated by four acquisitions in 2022[25] Sales, Marketing and Customers AvePoint employs a global hybrid go-to-market strategy, serving over 21,000 customers across SMB, Mid-Market, and Enterprise segments - The company utilizes a hybrid go-to-market strategy combining a direct sales force with indirect channels, including a partner ecosystem, marketplaces, and a strategic partnership with Microsoft[28] - As of December 31, 2023, AvePoint had more than 21,000 customers in over 100 countries[31] - Customers are classified into three segments: Small Business (SMB) with <500 users, Mid-Market with 500-5,000 users, and Enterprise with >5,000 users[31] Human Capital and ESG The company focuses on attracting talent through its core values, operates a formal ESG program, and maintains strong corporate governance practices - As of December 31, 2023, the company had 2,543 employees globally[39] - The company's core values are Agility, Passion, and Teamwork, which guide its global teams[37] - AvePoint has an internal ESG Committee and has implemented various initiatives, including environmental footprint reduction, philanthropic partnerships (e.g., Girls Who Code), and diversity programs through its IDEA Committee[44][49][50] - The company is a founding member of the AI Trust Foundation, demonstrating its commitment to the safe, ethical, and responsible use of artificial intelligence[54] - Corporate governance practices include a majority-independent Board, independent committees, a public Code of Ethics, and a robust compliance training program[55] Item 1A. Risk Factors The company faces material risks from technology partner dependency, cybersecurity threats, global operations, and identified weaknesses in internal financial controls - A significant risk is the company's dependency on technology partners, especially Microsoft, as the business could be harmed if partners develop competing features or alter terms[85][86][87] - The company's ability to sustain its recent strong growth is not guaranteed and depends on factors like attracting new customers and managing operational demands[91][93] - Cybersecurity threats pose a major risk, as a security compromise could lead to loss of customer data, reputational harm, and significant liabilities[141][142][149] - Management has identified material weaknesses in its internal control over financial reporting, which could result in material misstatements of financial statements[162][163] - International operations expose the company to risks including currency fluctuations, political instability, and complex compliance with foreign laws[128][129] Item 1C. Cybersecurity The company maintains a robust cybersecurity program led by a CISO, with no material threats identified in 2023 - Cybersecurity governance is led by the Chief Risk, Privacy and Information Security Officer (CISO), who reports to the CEO and provides regular updates to the Board[180][181][182] - The company maintains a robust information security program with numerous accreditations, including SOC 2 Type II, HITRUST, FedRAMP, StateRAMP, and multiple ISO certifications[174] - Risk management strategies include regular risk assessments, third-party expert consultations, annual employee training, and incident response simulations[174][176][178] - In 2023, AvePoint did not identify any privacy or cybersecurity threats that materially affected its business strategy, operations, or financial condition[183] Item 2. Properties The company leases and owns approximately 288,100 square feet of office space globally, which is considered adequate for current needs Office and Facility Space as of December 31, 2023 | Location | Owned (sq. ft. in thousands) | Leased (sq. ft. in thousands) | Total (sq. ft. in thousands) | |---------------|------------------------------|-------------------------------|------------------------------| | U.S. | — | 49.8 | 49.8 | | International | 16.4 | 221.9 | 238.3 | | Total | 16.4 | 271.7 | 288.1 | - The company's principal corporate headquarters are in Jersey City, New Jersey, and principal operating offices are in Richmond, Virginia[186] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, no dividends are planned, and share repurchases continued in Q4 2023 under an authorized program - The company's common stock and warrants trade on Nasdaq under symbols AVPT and AVPTW, respectively[193] - AvePoint does not anticipate paying dividends in the foreseeable future, intending to retain funds for business development and growth[195] Share Repurchases in Q4 2023 | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining in Program | |-------------------------------|------------------------|------------------------------|-------------------------------------------| | Oct 1, 2023 - Oct 31, 2023 | 577,145 | $7.0953 | $92,333,439 | | Nov 1, 2023 - Nov 30, 2023 | 27,306 | $7.5507 | $92,127,260 | | Dec 1, 2023 - Dec 31, 2023 | 130,930 | $8.3304 | $91,036,562 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, the company achieved strong revenue growth, significantly improved profitability, and maintained a robust liquidity position with no debt 2023 Business Highlights and Key Metrics In fiscal year 2023, the company reported strong growth in ARR and revenue, alongside significant improvements in operating margin and cash flow 2023 Key Financial Highlights (YoY) | Metric | 2023 Value | YoY Change | |-----------------------------|-----------------|------------| | Total ARR | $264.5 million | +23% | | Total Revenue | $271.8 million | +17% | | SaaS Revenue | $161.0 million | +37% | | GAAP Operating Loss | ($15.4 million) | Improvement| | Non-GAAP Operating Income | $22.2 million | Turnaround | | Cash Flow from Operations | $34.7 million | Turnaround | Results of Operations Total revenue grew 17.0% in 2023, driven by strong SaaS performance, while disciplined expense management led to a significantly narrowed operating loss Revenue by Type (in thousands) | Revenue Type | FY 2023 | FY 2022 | Change | % Change | |---------------------------|-----------|-----------|-----------|-----------| | SaaS | $160,961 | $117,180 | $43,781 | 37.4% | | Term license and support | $52,744 | $57,214 | ($4,470) | (7.8)% | | Services | $44,795 | $41,283 | $3,512 | 8.5% | | Maintenance | $13,325 | $16,662 | ($3,337) | (20.0)% | | Total revenue | $271,825 | $232,339 | $39,486 | 17.0% | Revenue by Geographic Area (in thousands) | Geography | FY 2023 | FY 2022 | Change | % Change | |---------------|-----------|-----------|-----------|-----------| | North America | $118,490 | $102,025 | $16,465 | 16.1% | | EMEA | $81,753 | $71,635 | $10,118 | 14.1% | | APAC | $71,582 | $58,679 | $12,903 | 22.0% | | Total | $271,825 | $232,339 | $39,486 | 17.0% | - Non-GAAP operating income for FY 2023 was $22.2 million (8.1% margin), a significant improvement from a non-GAAP operating loss of $2.9 million (-1.2% margin) in FY 2022, driven by enhanced expense management[248][249] Liquidity and Capital Resources The company maintains a strong liquidity position with significant cash reserves, no debt, and a new $30 million revolving credit facility - As of December 31, 2023, the company had $223.2 million in cash and cash equivalents and no outstanding debt[251] - In November 2023, the company entered into a new Loan Agreement with HSBC for a $30.0 million revolving line of credit with an additional $20.0 million accordion feature[252][253] Summary of Cash Flows (in thousands) | Cash Flow Activity | FY 2023 | FY 2022 | |-------------------------|------------|------------| | Operating Activities | $34,694 | ($774) | | Investing Activities | ($5,648) | ($21,452) | | Financing Activities | ($33,667) | ($17,148) | - Net cash from operating activities was $34.7 million, primarily reflecting a lower net loss and positive changes in working capital, such as a $26.9 million increase in deferred revenue[257] - Net cash used in financing activities was $33.7 million, mainly due to $39.0 million in common stock repurchases[259] Critical Accounting Estimates Critical accounting estimates involve significant judgment in revenue recognition for bundled offerings and the fair value calculation of Company Earn-Out Shares - Revenue Recognition: Judgment is used to determine the standalone selling price (SSP) to allocate transaction prices, particularly for bundled term licenses where observable prices are not available[269][270] - Company Earn-Out Shares: These are treated as derivatives and marked to market each period, with fair value determined using a Monte Carlo simulation that relies on subjective assumptions[271][272] Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are foreign currency exchange risk from international operations and immaterial interest rate risk - Interest Rate Risk: The company believes it has no material exposure to changes in interest rates due to the short-term nature of its cash and investment portfolio[281] - Foreign Currency Exchange Risk: A hypothetical 10% uniform weakening of foreign currencies against the U.S. Dollar would have decreased the reported value of cash, cash equivalents, and marketable securities by approximately $3.4 million as of December 31, 2023[283] - Concentration of Credit Risk: No single customer accounted for more than 10% of billings or accounts receivable for the years ended December 31, 2023 and 2022[284] Item 8. Financial Statements and Supplementary Data This section contains the audited consolidated financial statements, which received an unqualified opinion, and an adverse opinion on internal controls Report of Independent Registered Public Accounting Firm The auditor issued an unqualified opinion on the financial statements but an adverse opinion on internal controls due to a material weakness - The auditor issued an unqualified opinion on the consolidated financial statements[288] - An adverse opinion was issued on the company's internal control over financial reporting as of December 31, 2023[289] - The critical audit matter identified was 'Revenue Recognition – Determination of Standalone Selling Prices (SSP)' due to the high degree of management judgment required[292][294] Consolidated Financial Statements The financial statements show total assets of $442.6 million, a net loss of $21.5 million, and positive operating cash flow of $34.7 million for 2023 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | |-------------------------------|--------------|--------------| | Cash and cash equivalents | $223,162 | $227,188 | | Total Assets | $442,582 | $415,533 | | Total Liabilities | $217,738 | $172,379 | | Total Stockholders' Equity | $218,806 | $229,147 | Consolidated Statement of Operations Highlights (in thousands) | Account | FY 2023 | FY 2022 | |-------------------------------|--------------|--------------| | Total Revenue | $271,825 | $232,339 | | Gross Profit | $194,365 | $166,063 | | Loss from Operations | ($15,351) | ($41,066) | | Net Loss | ($21,501) | ($38,688) | | Basic & Diluted Loss Per Share| ($0.12) | ($0.23) | Notes to Consolidated Financial Statements The notes detail key accounting policies for revenue recognition, business combinations, earn-out liabilities, stock compensation, and income taxes - Revenue Recognition (Note 2 & 3): The company uses judgment to determine the standalone selling price (SSP) for allocating revenue in contracts with multiple performance obligations[351][355] - Business Combinations (Note 3): The 2021 Apex Business Combination was treated as a reverse recapitalization, and several acquisitions in 2022 added to goodwill and intangible assets[383][389][397][398] - Company Earn-Out and Warrant Liabilities (Note 13): Company Earn-Out Shares are classified as a liability and measured at fair value, resulting in an $11.1 million loss from remeasurement in 2023[460][462][464] - Stock-Based Compensation (Note 15): As of Dec 31, 2023, there was $15.7 million in unrecognized compensation cost for stock options and $52.4 million for RSUs[495][501] - Income Taxes (Note 10): A valuation allowance of $22.5 million was recorded against deferred tax assets as of Dec 31, 2023[435] Item 9A. Controls and Procedures Management concluded that disclosure controls were not effective due to a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023, due to a material weakness[536] - The identified material weakness is that the company did not design and implement control activities to address the accuracy and completeness of certain information relevant for financial reporting[542] - The company's independent registered public accounting firm, Deloitte & Touche LLP, issued an adverse opinion on the effectiveness of the Company's internal control over financial reporting[543][548] - A 2024 Remediation Plan is in place to enhance the design of controls, establish additional training, and improve documentation to address the material weakness[545] Item 9B. Other Information The company disclosed a CFO trading plan and a $50 million investment commitment to a growth equity fund - On December 8, 2023, CFO James Caci entered into a Rule 10b5-1 trading plan to sell up to 110,215 shares of common stock between March 2024 and December 2025[557] - On February 28, 2024, the company committed $50 million to the A3 Ventures Fund 1, L.P., a growth equity fund managed by Lumens Capital Partners, Ltd. (LCP), to invest in enterprise software companies[558][560] Part III Items 10-14 Information for these items, covering governance and compensation, is incorporated by reference from the forthcoming 2024 Proxy Statement - Information for Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership), Item 13 (Certain Relationships and Related Transactions), and Item 14 (Principal Accounting Fees and Services) is incorporated by reference from the company's forthcoming 2024 Proxy Statement[563][564][565] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits filed with the report and notes that financial statement schedules have been omitted - The consolidated financial statements are located in Part II, Item 8, and financial statement schedules are omitted[566] - An extensive list of exhibits is filed with or incorporated by reference into the report, including agreements related to the 2021 business combination, equity plans, and the new credit facility[567][568][570] Item 16. Form 10-K Summary This item is not applicable to the company - No Form 10-K summary is provided[582]