AvePoint, Inc. Price & Performance (AVPT)

After preliminary remarks, we will open the call for a question and answer session. 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. All material in the webcast is the sole property and copyright of AvePoint With All Rights Reserved. Please Note That 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, 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. 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.

A reconciliation of these measures to the most directly comparable GAAP financial measure is available in our fourth quarter and full year 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. Thank you, Jamie, and thank you to everyone joining us on the call today.

I'm fond of saying that at Appoint, we do the hard things first.

By this, I'm referring to strategic decisions we have made in the last twenty plus years since founding the company. Including our decision to sell first to large corporations in highly regulated industries, which required us to build and constantly refine enterprise grade software. Our decision to sell in countries and regions that historically have been hard to break into such as Japan, and our decision to undergo a subscription transition We made these decisions because we're naturally attracted to big challenges. But we also did them as a part of a larger vision to steadily put the pieces in place to support durable profitable growth and to position Appoint to become the world's leading data management software company. As we conclude 2024, and look to 2025 and beyond, We're ready for the next chapter in the AvePoint story. We have been innovating and growing for more than twenty years and we have learned valuable lessons.

In overcoming each of the challenges I just shared. And now, with eight consecutive quarters of exceptional performance behind us, which include accelerating growth, expanding profitability meaningful cash flow generation and steady innovation we are that much closer. To our vision, and to the billion dollar AR company we intend to become. And we're excited to continue this journey with you. So let's turn to the quarter. Q4 was a strong close to an outstanding year for Outpoint. And our results as well as our outlook for 2025 reflect two central themes. First, the growing demand from companies around the world to prepare, secure and optimize their most critical data. And second, the continued improvement in our ability to effectively and efficiently deliver on that demand. We're pleased with the team's steady execution as we continue to capitalize on the enormous opportunity ahead of us. And we look forward to sharing more on this a deeper dive to our business at our next week's Investor Day, Today, I want to focus on the following: First, the current business landscape. Highlighted by the challenges we consistently see our customers facing.

Second, the multiple ways our platform solves these data management challenges and lastly, our Beyond Secure philosophy. Which informs how we think about addressing these needs and partnering Along the way, I will share some key customer wins this quarter. I will then turn it over to Jim to cover our financial performance in more detail. Let's start with the current business landscape. Where Appoint has a unique and all encompassing view of the data management space. [indiscernible] the diversity of our business. This view starts with our end customers. Where we ended the year with more than 25,000 We have customers in the Fortune 50 we have customers with fewer than 50 employees. We serve U. S. Federal agencies and we serve Asian governments. We're just as mission critical for European manufacturing conglomerates as we are for North America credit card companies. The point is AvePoint customers coming all shapes and sizes but they all face the same data management challenges. And it is clear that successfully solving these has never been more urgent than it is today. This is because all competitive business today are propelled by the relentless force of their digital transformations. Which inherently are linked to managing data.

At the heart of their transformations lies data modernization a critical strategy that involves upgrading and optimizing data infrastructure, [indiscernible] and processes. This include hybrid cloud transformation, adopting new data management [indiscernible] and accessibility. Are also trying to transform while dealing with explosive growth of data. Sophisticated cybersecurity threat landscape, complex regulatory environment and the need for automation. And as we have said, AI is only expected to amplify these challenges. Today, rapid innovation is making large language models more accessible leveling the playing field for all participants. More companies will lean into AI adoption, which is unquestionably a good In turn, this shift in value from who has the best model to who has the most high quality data only strengthens Appoint's role in the AI value chain. As companies navigate this rapidly evolving landscape, they need a technology partner can help them thrive securely and efficiently. Appoint is that partner. Our expertise in data security, governance and resilience enables businesses to unlock the full potential of their data to accelerate radical business transformation and to security drive innovation. By integrating cutting edge technologies and robust data management strategies we position businesses for unprecedented success.

So as we look across our global business today, those are the challenges and opportunities our customers are facing.

Now I want to turn to why our platform is the perfect fit for this moment and why we're so excited about the opportunity ahead.

First and foremost, is our platform strategy, ensuring every feature and solution works together to maximize interoperability. As I mentioned a moment ago, there are a number of big problems we can help customers solve. They need to protect their data and ensure that it is backed up and easily recoverable especially given today's heightened level of crippling ransomware attacks and breaches. They need to govern their data and ensure that proper data access policies are in place. They want to archive or dispose of redundant, obsolete or trigger data so they can effectively leverage AI strategies and reduce storage costs. And they need to seamlessly do all of these things for a data estate that is larger and more dispersed ever before. These data management challenges are so big that most software companies only focus on one of them, which is what we see as a AvePoint for customers seeking true platform plays and fewer vendors. As our ability to deliver on this demand again lead to significant expansions and new customer wins this quarter, demonstrating the power of our platform approach. A major global automaker with 60,000 users expanded their relationship with Appoint in Q4. They added our data resilience solutions for their Microsoft and Google environments to ensure compliance with the NIST two Director.

A cybersecurity focus EU regulation. Similarly, American Mortgage Company and a staffing agency became new Appoint customers this quarter being competitive wins over traditional backup vendors who could not offer the same holistic data resilience and data governance approach that Appoint does.

Lastly, a leading global producer of renewable packaging with 100,000 users expanded their Appoint deployment to not only consolidate and protect its data, but to also understand how its employees are adopting and using Microsoft three sixty five Copilot through our Tie Graph product.

The second value proposition we offer are robust data security and data governance policies. That ensure their data is not just protected, but strategically governed. This led to an expansion of our relationship with a leading global bank with more than 100,000 users, which needed to seamlessly monitor storage growth alleviate data sprawl and satisfy security access audits. Another example was a top global consulting firm which needed to strategically govern as Microsoft three sixty five environment before deploying 22,000 Copilot licenses. By expanding their Appoint deployment in Q4, they can now automate policy enforcement, ensure proper permissions are in place, gain visibility into who is sharing data and implement information lifecycle management. All of which will enable them to securely deploy Copilot. Lastly, business continuity has always been a customer priority. But essential to this is our ability to bring data resilience and data quality into a single seamless experience. This led to a significant customer expansion with a Canadian based defense company turning to our resilience and control suites to secure their environment with FedRAMP authorized solutions. Also led to a 30,000 person Australia health organization becoming a new customer Q4. They leveraged our Resilience Suite to quickly achieve Essential A compliance.

And we're already discussing how the governance solutions in our Control Suite can flawlessly work with and build upon our backup solution. Ultimately, Appoint's holistic approach to AI deployment integrates data security, and business continuity solutions into a easy to deploy platform. Making us the preferred vendor for organizations worldwide. This approach is the foundation of our Beyond Secure philosophy and addresses the inadequacies of traditional data management. Which often involves piecemeal solutions that breed complexity and enroll confidence. By comprehensively tackling these challenges, we inspire trust and enable our customers to thrive, focusing on innovation and competitive advantage without worrying about their data. In line with this are two exciting developments. First, our strategic acquisition of Identic, a SaaS company specializing in centralized multi tenant management for Microsoft managed service providers.

MSPs. By integrating Identix advanced automation and IT management capabilities into the next generation of our Element we will drive further competitive differentiation and economic opportunities for MSPs. Ensuring that these valuable partners can deliver exceptional value and innovation to their customers. And second are the release of new data security solutions for Google Workspace and Google Cloud customers.

Reinforcing our commitment to securing and protecting data across multi cloud environments. So we have done the hard things first. And today, Appoint stands at the forefront of addressing the pivotal challenges in data security, governance and resilience. Our innovative platform approach sets us apart from traditional point solutions, enabling our customers to achieve transformative results and give them the confidence to excel in today's digital age. I'm proud of the team's many accomplishments this year, and we're excited to double down and make it even larger impact in 2025. With that, will turn the call over to Jim to discuss our financial performance and 2025 outlook. Thank you, TJ.

And thank you to everyone for joining us this afternoon. Are pleased to deliver another outstanding set of results in Q4. The team's broad based execution enabled us to again outperform our guided growth and profitability metrics.

There are four key takeaways I want to call out for the quarter. First, total ARR group, which accelerated to 24% year over year, and was 25% Second, net new ARR growth which was 30% year over year and just shy of the record 31% growth we delivered in Q3.

Third, both gross and net retention rates improved to all time highs and finally, substantial improvements in both non GAAP operating income and cash flow generation. Another quarter of strong top line growth is a testament to our leadership in the data management space and our platform differentiation, As we continue to see healthy demand from organizations of all sizes in all regions and across all industry verticals.

This demand includes both new customers making larger upfront commitments as well as existing customers looking to expand their deployments and realize even greater value from our solutions. We are equally pleased that our exceptional top line performance is not coming at the expense of profitability.

At our inaugural Investor Day two years ago, we stated that profitable growth was our top priority. Since then, we have committed to balancing strong growth at scale, with improving profitability. And our results in Q4 as well as the previous July are evidence of our ability to deliver on this promise. Our Q4 non GAAP operating margin was 16.2%, comfortably above the high end of our guidance and a meaningful improvement and in turn our improved profitability has led to record cash flow generation as we generated $32,800,000 of operating cash flow in Q4, surpassing last quarter's record and nearly $90,000,000 for the full year. So there's plenty to be excited about.

The demand and the market opportunity are there for us. And our relentless focus on execution and realizing efficiencies across business leave us well positioned to continue driving shareholder value. With that, let's turn to our results. For the fourth quarter ended December 31, total revenues were $89,200,000 representing year over year growth of 20% and above the high end of our guidance. On a constant currency basis, total revenues grew 20% year over year.

Once again, SaaS drove our overall business.

Fourth quarter SaaS revenue was $64,800,000 growing 43% year over year and representing 73% of total Q4 revenues. The highest mix we have delivered yet.

For reference, And on a constant currency basis, SaaS revenues grew 44% year over year. Our other revenue lines continue to perform in line with our expectations. Term license and support declined to $9,400,000 and represented 11% of Q4 revenues. As more customers continue to opt for our SaaS offerings. Maintenance revenue, which is tied to our legacy perpetual licenses, also declined year over year and represented 3% of total Q4 revenues. Lastly, Only non recurring revenue stream, our recurring revenue mix in the fourth quarter was 86%. Switching now to our regional performance, where we continue to see a healthy contribution from all three geographies again driven by SaaS. In North America, SaaS revenues grew 46% year over year and represented 77% of total North America revenues. Which in turn grew 8% year over year. In EMEA, SaaS revenues grew 37% year over year and represented 86% of total EMEA revenues, which in turn grew 29% year over year. And in APAC, SaaS revenues grew 50% year over year and represented 52% of total APAC revenues which in turn grew 30% year over year. Sticking with our regional performance, we again saw strong results when looking at ARR. Which accounts for the different ways we recognize revenue and also focuses on our recurring revenue streams.

This was especially important in North America in Q4. Where our 8% revenue growth was due to much higher SaaS mix as well as a greater shift of services business to partners this year compared to last year. This is why we believe ARR is the best indicator of business momentum. And in Q4, North America ARR grew 21%, At the same time, 24% and 29%. As each region was again a strong contributor to the 24% consolidated ARR growth we reported. Continuing now with total ARR, and other key metrics we assess on a quarterly basis. As of December 31, total ARR was $327,000,000 representing year over year growth of 2425% when adjusted for FX. As a result, Net new ARR in Q4 was $18,100,000 and grew 30% year over year. Additionally, we ended Q4 with six sixty six customers with ARR of over $100,000 a 22% increase from the prior year, and a net addition of 37 such customers from Q3 which surpassed the record 35 that we added last quarter. And lastly, we also are pleased to report that we ended Q4 with two twenty five customers with ARR of over $250,000 which is a 26% increase over 23.

As of the end of Q4, 55% of our total ARR came through the channel compared to 51% a year ago. And for Q4 specifically, 61% of our incremental ARR came through the channel. Compared to 68% for Q3 of twenty twenty four and sixty five percent for Q4 of twenty twenty three. Turning now to our customer retention rates. Which as I mentioned improved to all time highs in Q4. Adjusted for FX, our trailing twelve month gross retention rate for the fourth quarter improved to 89% and our trailing twelve month net retention rate improved to 111%. In both instances, these retention rates were a two percentage point improvement from a year ago and a one percentage point improvement from Q3. On a reported basis, Q4 GRR improved to 88% compared to 86% in Q4 of twenty twenty three and eighty seven percent in Q3. Q4 reported NRR was 110% a two percentage point improvement from a year ago and a one percentage point improvement from the prior quarter. Turning back to the income statement, gross profit for Q4 was $67,300,000 representing a gross margin of 75.5% compared to 75.2% in Q4 of twenty twenty three and to 77% in Q3 of twenty twenty four.

The year over year improvement in our gross margin is primarily the result of our product mix. Where there was a greater mix of SaaS revenue as well as improved SaaS margins, which more than offset the weaker services margin we saw in the quarter. Moving down the income statement, fourth quarter operating expenses totaled $52,800,000 or 59% of revenues compared to $45,800,000 or 61% of revenues a year ago. As a result, Q4 operating income was $14,500,000 an operating margin of 16.2%, a year over year improvement of more than two forty basis points. To remind you, these results are on a non GAAP basis. I also want to point out that Q4 represented our second consecutive quarter of GAAP operating profitability. And also allowed us to deliver GAAP operating profitability for the full year 2024, A year ahead of our 2025 commitment, we made at our inaugural Investor Day. Turning to the balance sheet and statement of cash flows, we ended the fourth quarter with $290,900,000 in cash and short term investments. And as I mentioned, for the twelve months ended December 31, cash generated from operations was $88,900,000 while free cash flow was $85,900,000 This compares to cash generated from operations of $34,700,000 and free cash flow of $32,600,000 in 2023.

And I would point out that our full year free cash flow margin of 26% more than doubled the 12% margin we delivered in 2023. Lastly, I want to provide an update on our publicly traded warrants. First, our cash balance at year end of $290,900,000 includes $17,200,000 of proceeds from warrant exercises in the fourth quarter. And for Q1, another 7,600,000.0 warrants have been exercised through the close of trading on Tuesday, resulting in an additional $87,300,000 of proceeds. This leaves 7,200,000.0 warrants outstanding as of Tuesday. Before I turn to our guidance, I'll briefly recap our full year 2024 results. Total revenues were $330,500,000 representing growth of 22% on a reported and constant currency basis and an acceleration from 2023. Within total revenues, SaaS revenues were $230,700,000 with growth accelerating to 43% For the full year, SaaS revenues represented 70% of total revenues compared to 59% in 2023 and fifty percent in 2022. As mentioned, total ARR as of December 31 was $327,000,000 representing growth of 24% or 25% when adjusted for FX. As a result, net new ARR for the full year was $62,500,000 representing growth of 25%. This compares to net new ARR in 2023 of $49,800,000 which grew 5% over 2022.

Non GAAP operating income for the full year was $47,600,000 or an operating margin of 14.4%, compared to $22,200,000 in 2023 or a margin of 8.1%. And as I mentioned earlier, GAAP operating income for the year was $7,200,000 as we delivered our commitment to GAAP profitability a year ahead of schedule. During the year, we repurchased approximately 3,300,000.0 shares for a total cost of $33,100,000 And lastly, on a rule of 40 basis, which for Adpoint is the sum of ARR growth, and non GAAP operating margin we finished 2024 at 38 compared to 31 for 2023 and 27 for 2022. I would now like to turn to our financial outlook for the first quarter and full year of 2025. For the first quarter, we expect total revenues of $87,800,000 to $89,800,000 or growth of 18% to 21%. And on a constant currency basis, we expect revenue growth of 19% to 22%. We expect non GAAP operating income of $11,100,000 to $12,100,000 And for the full year, we expect total ARR of $401,300,000 to $407,300,000 or growth of 23% to 25%. This implies net new ARR for the year of $77,300,000 or year over year growth of 24% at the midpoint.

Adjusted for FX, We expect total ARR growth of 24% to 26% for the year. We expect total revenues of $380,000,000 to $388,000,000 or growth of 15% to 17%. On a constant currency basis, we expect revenue growth of 17% to 19%. Lastly, we expect full year non GAAP operating income of $52,300,000 to $55,300,000 As we think about the rule of 40, today's full year guidance reflects a range of $37,000,000 to $39,000,000 on a reported basis. And a range of $38,000,000 to 40 when adjusted for FX. In summary, we are extremely proud of our Q4 and full year results. And we look forward to sharing a deeper dive into the business at Monday's Investor Day. Thanks for joining us today. Would be happy to take your questions. Operator? We will now begin the question and answer session. Our first question comes from Jason Adar William Blair.

Please go ahead.

All right. Almost got that right. Hey, guys.

Good afternoon. Just wanted to ask a few questions about the business here. First, can you disclose what your U. S. Federal exposure is? And how are you thinking about that business in light of what's going on in DC right now? Hey, Jason.

Good question. So to start, it's important to know that our federal business our public sector business is a global public sector business. Specifically to U. S. Public sector, we actually have three separate business divisions. That's federal, that's then local, education, as well as DoD. So we're actually taking a look at the specific agencies that are impacted by some of the staff. Reduction initiatives. And also looking at because we have multiyear contracts with government as well, looking at which agencies are due for renewal cycles this year. So all of that, effectively narrowed down to just basically 2% of our total ARR. So, the exposure is around that. Having said that though, while there are staff reduction actions happening, the fundamental requirement of digital transformation, elevating, advancing technology deployments and also AI deployments. Still allow us to have very active conversations with the agencies around their data, ESTAE posture, and their AI readiness capabilities. So there's lots of technology to discussions ongoing.

Okay. Thank you. And then Jim, maybe for you, so your gap between ARR growth and revenue growth in 2024 was what about four AvePoint, something like that? So I'm just looking at at '25 seems like it's a bit of a wider gap. Is there something going on in in 2025 just from a revenue standpoint that is causing that. Is it FX related or any any specific nuances that you can call out would be helpful just in explaining the discrepancy between ARR growth revenue growth in '25.

Yes. I think you touched on a key there. I I do think there's an FX impact for sure. As you know, obviously, we're a global business. Significant portion of our revenues. Are in non USD denominated currencies. So that's definitely a factor. I would say beyond that, there's nothing really to call out or to highlight any other kind of vectors that are creating any disparity there. We are obviously continuing to to see an increase in our ARR particularly when we think of our revenue mix.

Where we think of services as the only component that's not really ARR focused We're definitely seeing that continue to decline as a percentage of the overall revenue. So again, I think nothing really to call out other than the FX. All right. Thank you. And the next question comes from Fatima Boolani with Citi. Please go ahead.

Hi. This is Joel on for Fatima. Thanks for taking our questions here. So maybe one for Jim. So in terms of pricing, it's been great to see the NRR and ARR trajectory over the past several quarters.

But could you characterize perhaps the impact of any price increases on ARR and NRR in 2024? And to the extent that you can quantify any magnitude, that would be very helpful. [indiscernible] Sure.

So in thinking about pricing and really NRR specifically, Joel, we've probably talked about this before. The big driver for us when we think about [indiscernible] is really customers consuming more and more of the platform which is really them consuming additional products more so than more of any one product.

That's the biggest driver behind our NRR growth. Then secondarily, as you alluded to, we do look at prices across multiple different products within our suites And we look obviously at market conditions and where there's there is elasticity to improve pricing, we're doing that. Obviously, we plan competitive markets So I would say in terms of quantification, we did increase prices across multiple products this year. But I would say overall, it's a very small per of our overall improvement in NRR And so I wouldn't think of that as a driver for going forward NRR increases. Think that's really coming from customers consuming more of the platform.

Okay. Got it. Okay. And then on the recent announcement for the data security solutions for Google, hoping you could give us a bit more color maybe TJ on just how big of a step or a leap forward this is in your journey to expand beyond Microsoft environments? And then also if this is perhaps a significant driver to calendar '25 momentum, Yes, Joel.

Great question. So our customers are multi cloud. We talked about this quite a bit before. So that expansion into Google, we have already been covering Google from a backup as a service perspective before. But this time, we're also layering risk intelligence as well as lifecycle management. As well as data analytics and modernization. So essentially full fidelity seamless data migration between the hyperscalers. So we're pretty excited about this expansion that positions us well as a more strategic partner for our customers who are cloud. So yes, it's a really a large new IP expansion versus what we offered before.

Okay, got it. Thank you. Thanks, John.

And the next question comes from Gabriela Borges with Goldman Sachs. Please go ahead. Hi, good afternoon. This is Max Campereaux on for Gabriela.

Thanks so much for taking our questions. [indiscernible] we're hearing a greater number of companies highlight the opportunity in data security posture management I'm curious if you're seeing any change in the competitive environment as more companies are targeting the data security market How is this market evolving given the heightened awareness within the DSPM category specifically? [indiscernible] So, it's always been pretty competitive. We have also continued to evolve our platform. We have definitely a platform approach towards governance and security. So DSPN is an aspect of our platform. So we are also active conversation and coverage bought by Gardner and Forrester and also G2.

These industry analysts. So yes, I mean, landscape continued to be competitive, but we are able to take our enterprise grade platform and win there and then also be able to cross sell and also also expand our segmentation coverage into mid market SMB and do that at a global level. So we're very bullish and confident on where we're going. You'll hear more from us on specific product evolutions at our Monday Investor Day Conference.

So where we'll disclose more details about product and also competitive landscape. We'll welcome you to see you there. Got it. Thank you. Then with regards to your Identiq acquisition, can you elaborate on the integration goals with this company as it relates to your managed services platform? [indiscernible] maybe you could touch on how we should think about your M and A strategy on a go forward basis.

Yes, that's a great question. So we're excited about the acquisition of Identiq.

It's a Netherland company.

They're focused on Microsoft MSPs in terms of identity, security and user management allow us to speed up our IP expansion of our MSP offerings to include more day two, day three solutions. So as I cover in previous earnings before, MSP vertical is a our fastest growing vertical and allow us to become mission critical to this new segment of managed services providers that actually allow us to then getting expand and unlock our reach into SMB and medium sized customers in a very efficient way. We also have this elements go to market platform that solves the go to market, lowers the barrier to entry, digital integration, pool licensing, monthly contracts, to really roll up and get that mission critical usage patterns for the MSPs. So we're very excited about that expansion. In terms of M and A, we will continue to be quite focused on that as well as our organic investment. Again, we'll share more on the strategic vectors of growth at our Investor Day. But you hear from Jim, our latest cash position, we're cash generating. We We have a very healthy balance sheet. We will invest So, profitable growth is the mantra here. But we feel that we have a very strong cash position and we're also expanding and see a very good market position So that also leads to very active M and A targeting today.

Great. Thanks so much. Thank you. Thanks, Max.

And the next question comes from Nehal Chokshi with Wirthlian Capital Markets. Please go ahead. Thank you.

Congratulations on the strong finish here.

I want to go back to Jason's second question.

Regarding the spread between ARR and revenue growth, if I look at it on a constant currency basis, in calendar '24, It looks like the spread is 300 basis AvePoint. And then on a constant currency basis, it's 700 basis points for calendar '25.

So doesn't seem like FX is the main driver of the delta in the increase in spread here. It is element, but not the main driver. So could you maybe my math is wrong or maybe there is something else there that you want to highlight there, Jim? Yes. I mean, I think FX is obviously a key component, but you're right, it's also mix in terms of the different types of revenue that we're seeing and obviously whether that's services, or SaaS. So that's definitely going to play a factor too in terms of obviously the more SaaS, we're creating a little bit more of a dynamic there. Just in terms of the rev rec. You've seen over the past year our term license revenue declining. That gives us that up front bump in the term revenue piece. So as that continues to shrink, and become less a percentage of the total, then we create a little bit more gap between ARR and revenue in the short term And that's partly what you're seeing in addition to the FX in 2025.

Okay. So you would expect the term license decline to accelerate here in calendar twenty five relative to the growth rates on calendar twenty four?

Yes. What we've got in the plan, let's like you've seen over the past couple of years, continue to decline, right? It declined not only as a percentage of revenue, but also in actual dollars. And so we would expect that to continue again in 2025 where we're going to see a further deterioration in dollars and obviously even a greater decline in percentage of revenue. So again, we would expect that for the full year next year. To continue that trend, and obviously have an impact on the mix that we just talked about. Got it. Okay. That makes a lot of sense. And then you following two years of about some of her base points per year of EBIT margin expansion, You're projecting a flattening here in non GAAP EBIT margin Is it basically a signal that, hey, it's time to invest aggressively again? [indiscernible] appreciate you bringing it up because I do think there's a couple AvePoint to make here. [indiscernible] maybe the first point really is our focus has been on profitable growth and I don't want this to take away from our our focus still is on profitable growth. That's first and foremost. Second, you're right, we do see a healthy pipeline We see good momentum in the business that we've been able to execute.

And we feel really good about the demand environment that we see out there. So that does give us some confidence to actually invest And we do think that the third component is it's important make strategic investments and really position us for the long term growth that we do see. Now you're right, two years ago, we talked about profitable growth. We talked about hitting targets of GAAP profitability, which we've already exceeded in a year earlier than anticipated. We focused on being at the rule of 40 in 2025 which again we're still committed to doing. But we do recognize that in order for the long term success, we do need to make investments.

And those are broadly in two key areas. Sales and marketing, we're going to invest additional dollars next [indiscernible] And so again, this kind of sets us up nicely, we think, for the long term growth Now having said that, are going to continue to look and see where we can find efficiencies and still focus on that profitable growth But we're setting ourselves up here with our guidance that we're putting out today that we're focused on profitable growth, but also the long term success of the business.

And if you do deliver top line upside, will you plow that back into further OpEx investments That's a great question. I would say that that's something we'll continue to evaluate similar to we take a very measured approach on investments as you know. I think we've done a good job and demonstrated over the past eight quarters that I think we're able to make those kind of quarter to quarter decisions. We're constantly looking out 12 to twenty four months. So I would say that I don't want to commit to what you just said. I do think there's a balance between over performance of investing that into the future and also recognizing some of that in the current. So I think it could be a mix. But I would say, again, we're really satisfied with the execution in 2024. We've got a good plan for executing in 2025.

And we're excited about delivering against that.

Okay. Thank you. I'll see the floor.

Thanks.

And the next question comes from Kirk Materne with Evercore ISI. Hi. This is Gerard on for Kirk. [indiscernible] congratulations on closing out a very strong fiscal twenty twenty four.

TJ, from your perspective, how much further along are we on the data modernization and AI adoption timeline [indiscernible] versus this time last year, for companies and customers? And where do you still see the largest opportunities that AvePoint can capitalize on over the next year as every company is still looking and trying to figure out how to implement AI in their text stacks. Thank you.

Yes, great question. So with the recent disruption in commoditization and lowering the cost of large language models, We see a lot more excitement from customers. It's really make AI more accessible. However, we from our perspective, say that the experimentation and enterprise rollout still fundamentally depend on data quality, addressing potential loss and oversharing risks, as well as data governance and security, which is our core business. So this we think making large language models more accessible and lower cost is fundamentally a very good thing. And we continue to see and more and more global deployments of AI capabilities especially in the form of Microsoft Copilot and also Google Duet So from that perspective, we are very confident on how we continue to add value because fundamentally your AI is only as good as your data. So that's our wheelhouse. That's something that we've been helping customers solve for the last twenty plus years.

Great. And Jim, maybe one for you. Do you have any comments on seasonality that we should factor in when thinking about the next fiscal year?

Yes, it's a great question. And historically, we have had significant seasonality And I do think that we think about different components, if you think about revenue, I think you're going to see similar seasonality that we've seen in the past. So I think if I were modeling I think that's pretty good guide is that we'd probably see some seasonality that similar to 24. I do think we've talked about ARR before. [indiscernible] it is a little bit more difficult to predict quarter to quarter because of obviously a deal slips one day and and it's in one quarter or it's not in that quarter. So hence, the reason we guide ARR only annually. But I do think that we may start to see a little flattening out of that So but again, I think that's a little too hard to predict. And again, we stick to the annual guidance. And then operating income, I do think here we may see a little bit more flattening out It's still going to be seasonal as you've seen this year, but I do think there's not opportunity for that to be a little bit more flat and kind of be more correlated with the revenue And then maybe just one last comment on ARR.

I mean, I do think similar to last year, where we kind of didn't guide per quarter, but gave some indications that historically Q1 is our lowest ARR quarter Q2 is a little bit better and then the second half of the year is better than the first half and you saw that play out in 2024. And I would I would suggest that that same kind of that mix will probably be similarly played out in 2025.

Really appreciate it.

And the next question comes from Derek Wood with TD Cowen.

Please go ahead.

Great. Thanks, guys. This is Cole on for Derek here.

You've talked about Google a little bit Can you just TJ maybe comment on demand or adoption trends outside of the Microsoft ecosystem across Google and Salesforce, that'd be helpful.

So, yes, we actually see because we have a data on these other ecosystems, there's tons of experimentation The enterprise wide deployment is still in various single percentages in term of total population. But obviously, the opportunity is there. So we also see sales force agent force adoption is also not as fast as they actually would like to see. So there's cautiousness, of course, in the enterprise. Because fundamentally, it's based on how well organizations organize their data.

And to feed them to the AI models for productive output. So that's where this time is spent to actually organize data in a good high fidelity fashion. And this is where governance and data lifecycle and access control of AI become very, very important. And this is where we are involved with a lot of organizations on sorting out that first step.

With most AI deployments, I would say 70% effort is actually data preparation. And data management. And also at output of these AI models, they're increasingly being used as additional inputs. So we see that 10% of unstructured data are also now generated by AI. So this further reinforces the need for industries of companies all industries to make sure that they have a robust data governance and management framework in place so that they can deploy AI. So we see that we're still in the early innings of enterprise wide AI deployments. But we think that given the speed, breakneck speed of improvements in the fundamental AI capabilities, that is coming at an accelerated pace.

Super helpful. And then just one quick follow-up Talked a little bit about investing back into the sales and marketing org.

Could you just break that down for us a little bit Is that across direct sales, channel, Any go to market tweaks that you might be making into next year would be helpful to hear about?

Yes, sure. Mean, I think it's across both of those that you just mentioned. And maybe even beyond that. I do think as we pointed out, we've made significant investments in the channel part of our business and really the indirect sales motion. We'll continue to do that. We're going to expect to see continued progress and improvement in the really the deal flow and the incremental ARR that's coming through the channel. So we would expect that to continue to grow. But obviously, we have a healthy direct business as well. And we're continuing to make investments there. So we're doing that both in terms of people costs technology to help those individuals, as well as marketing dollars to support their efforts and initiatives. So we're really making and plan to be making these investments. And again, most of this will have contribution in 2026 and beyond, for the investments that we make in 2025.

Because most of 2025 is supported by the investments we've made in 2024. So again, this is very much more forward looking but it's across the variety of items you just mentioned. And then also different initiatives as well.

Helpful color. Thanks guys. Thank you.

And the next question comes from Brett Knoblott Cantor Fitzgerald, Hi guys. Thanks for taking my question and congrats on the quarter. Just on your operating income guidance, I think you've kind of just touched on it, but it seems like we're not getting that much margin expansion this year, despite AR growth I guess in terms of your guide, accelerating year over year, How should we think about that when it comes to free cash flow as well? This year free cash flow margin was quite ahead of call it non GAAP operating income margin. Should we expect those to be closer as you look at '25? Yes. Thanks, Brett.

Yes, I think we definitely touched on like you mentioned some of the impact and the investment that we're making that I think do have an impact on the growth So maybe I won't go back and repeat those. But in terms of the cash flow that you referred to, you're right, we had a very strong cash flow generation this year.

I would expect next year that we're in a see improvement in cash flow. Probably not the same acceleration that we saw this year. Obviously, the step up from '23 to '24. As you called out, we 14.4% operating income margins compared to 8.1% in 2023. Obviously, that was a significant contributor to that growth. But I would expect us to see growth in the free cash flow from operations, but also in free cash flow over what we just did in 'twenty four. But again, you're right, it's really our focus on taking that excess profitability, investing it back into the business, and really setting ourselves up for success in 2026 and beyond.

Perfect.

Appreciate it, guys. Thank you. Thanks, Brad. Thanks, Brad.

This concludes our question and answer session. I would like to turn the conference back over to TJ Zheng, CEO, for any closing remarks. Thank you, everyone, for joining us today. As we reflect on our performance in Q4, and the full year, I'm incredibly proud of what we have achieved. Our results underscore the strength of our strategy, and the dedication of our team, over the past month have had the privilege of meeting with our global teams at our twenty twenty five sales kickoffs around the world, These interactions have left me inspired and confidence the right market position and the right technology to continue driving our success. We're excited about the future and the opportunities We look forward to seeing many of you at our Investor Day next week.

Where we will delve deeper into the market landscape our innovative technology and our business and financial outlook. Together, we'll continue to build on our momentum and achieve our ambitious goals.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.