A Primer on AvePoint
Reference article explaining the mechanics of the company
Introduction
AvePoint (AVPT) is a leading data management services provider with a huge market opportunity as few organizations have the required data management practices in place to deal with the explosion in data, increasing cybersecurity threats, dispersed resources, and experimentation with gen-AI.
Its solutions are gaining new relevance with the advent of GenAI use in enterprise, as the results are only as good as the quality of the data it’s based on.
The company offers three different SaaS suites, offering a one-stop-shop platform for data management and providing vendor consolidation.
Customers are migrating to the cloud, using its SaaS platform which grows at twice the revenue growth rate and boosts margins.
The company produces impressive (20%) growth, expanding gross margins, significant operating leverage, and rapidly increasing cash flow.
For investment implications stay tuned for our Quick Take
The Market
There are multiple secular tailwinds propelling demand:
Data quality is key for GenAI solutions so AvePoint's platforms gained new relevance as these platforms help companies manage their data better, resulting in reduced cost, increased productivity, and better decision-making, increasingly crucial in the age of GenAI (Q3CC):
Garner found at least 30% of generative AI projects will be abandoned after proof-of-concepts by the end of 2025 due to poor data quality and inadequate risk controls. And by 2027, 60% of organizations will fail to realize the anticipated value of their AI use cases due to incohesive data governance frameworks.
Indeed, emerging technologies like AI-driven agents only reinforce the need for quality data management (Q3CC):
Agents will continue to evolve. There is - actually, it's still very, very early stages. If you can't get a good quality output from your current AI deployments, given poor data state, and make - deploying agents would just make it even worse.. if you want to introduce more automation, intelligent automation, you need to get the core and foundation right. This is why we are becoming more mission-critical with that whole data state management and quality management.
Products
AvePoint Confidence Platform is designed to help organizations manage and protect their data, optimize IT operations, reduce costs, and improve workplace security. The platform consists of three modules:
1) Control Suite providing an automated framework for governance and policy enforcement with service like operationalizing collaborative workspaces, regulatory compliance automation, access and risk management and cost optimization.
2) Resilience Suite focuses on data protection and compliance with data protection regulations, providing services like Backup-as-a-Service, data classification, storage optimization and Information lifecycle management.
3) Modernization Suite focuses on digitizing legacy data and business processes into user-friendly applications
Each of these modules exists of numerous products (‘point solutions’) that can be bought separately but the platform approach provides additional benefits:
These services integrate with third-party cloud vendors like Microsoft, Salesforce, Google, AWS, Box, and Dropbox and have some industry-specific tailoring.
The company is a close partner of Microsoft, winning its sixth Microsoft Partner of the Year Award.
SaaS, maintenance, service, and term license and support are the reporting segments, only services create non-recurring revenues.
The suites offer solutions to a series of data management problems like:
These solutions produce an immediate ROI, as was demonstrated by a leading global design and engineering consultancy in the UK (Q3CC):
...was utilizing a staggering 1 petabyte of data. This overuse was not only costly, but also unsustainable and they embarked on a rigorous selection process, evaluating solutions from 6 different vendors. They ultimately choose the secure data protection and information management solutions from our resilience suite, enabling them to quickly reduce their backup costs as well as archive and delete their redundant and obsolete data. This will immediately translate to substantial cost savings and a more streamlined data management process and we are already discussing additional products like tyGraph to further enhance their data management capabilities.
Business model
Subscription-Based Licensing: AvePoint primarily licenses its products based on the number of users. Some products also include consumption-based components. Recurring revenue is 88% of revenue (Q3/24), with services (12% of revenue) the only non-recurring component.
Customer Success Program: The company invests significantly in its customer success program, aiming to increase customer satisfaction, reduce churn, and create opportunities for upselling and cross-selling within its existing customer base.
Partner Ecosystem: AvePoint leverages a robust partner network to reach new markets and expand its customer base. This includes working with managed service providers (MSPs) to target the SMB market.
Strategic Acquisitions: While most of AvePoint's current offerings were developed organically, the company considers strategic acquisitions and investments to be an important part of its growth strategy.
The latest acquisition was Ydentic, a SaaS company specializing in centralized multi-tenant management for Microsoft Managed Services Providers (MSPs).
Verticals: Public sector institutions represent its largest overall vertical.
Approximately 40% of revenues come from North America, 30% from EMEA and 30% from APAC (Q3/24).
Competition
The main competitors are Microsoft’s Purview, IBM’s Cloud Pak, Cohesity, and Own Data Platform.
AvePoint’s strength is its seamless integration with Microsoft products (Teams, SharePoint, OneDrive, etc.) that go beyond Microsoft’s own solutions such as cross-tenant migration and compliance auditing. Microsoft’s Purview lacks AvePoint’s automated remediation capabilities, for instance.
AvePoint is also very strong in segments where compliance (like HIPAA, and GDPR) is crucial.
There are some areas where some competitors match up, for instance, Own Data Platform offers lower initial investment for SMBs, and given AvePoints reliance on the Microsoft ecosystem might hinder its adoption in multi-vendor environments, where clients also rely on non-Microsoft applications like SalesForce or ServiceNow.
There are reports from the likes of Forrester and Gartner on the company’s website, but you need to have accounts at these organizations, to access these.
Growth drivers
Data management market growth estimates between 10.5% and 12.8% CAGR, no surprise given the exploding data needs and relevance for organizations.
Proliferation of multi-cloud environments; 90% of enterprises use a multi-cloud approach which adds complexity and risks cloud misconfiguration.
New logos; the company is still winning new big customers, they describe five big wins in the Q2/24CC, and even more in the Q3/24CC.
New products, the company introduced Opus (information lifecycle management with three different functionalities around record management, retention archiving, and classification infused with AI) and tyGraph (analytics for CoPilot). Both products have been well received, according to the Q2/24CC.
Vendor consolidation is a desire of many organizations and AvePoint’s platform plays right into this.
Upselling, given that there are so many products, and new demands for data management (multi-cloud, gen-AI, vendor consolidation etc.) there is ample scope for cross and upselling, witness the NRR of 108% in FY23.
Generative AI; according to Gartner’s five-stage digital workplace model, less than 2% have reached the critical fourth stage where successful integration of generative AI happens, so this opens up a new demand driver as more companies want to experiment with generative AI.
Shift to the cloud
88% of the company’s revenue is recurring (Q3/24) with services the only non-recurring revenue category. Many of its customers are moving from premise to its cloud platform, with SaaS revenues as a percentage of revenues steadily increasing to 69% of revenue in Q3/24, up from 58% in Q3/23:
This move is also boosting margins with high-margin SaaS growth (45% in Q3/24) double the revenue growth (22%):
Generative AI
Customers want to experiment with LLMs, 83% of organizations plan to increase their AI spending (according to a report the company released in April 2024). However, AI requires data and data management, and many companies (Q1CC):
before implementing AI, 71% of organizations were concerned about data privacy and security and 61% were worried about the quality and categorization of their internal data.. nearly half of the organizations lack basic measures such as archiving and retention policies, and just 29% of organizations use automation... more than 40% of the companies today manage at least 500 petabytes of data, and they're seeing that growth accelerate due to AI.
Management argues that a healthy data state is essential to effective AI strategy and (Q1CC):
organizations with mature information management strategies are 1.5 times more likely to realize benefits from AI than those with less mature strategies.
When organizations have their data management ducks in a row, they can reap the benefits of AI (Q1CC):
Gartner finds AI can drive productivity gains by up to 20%. Why does that matter? Research show that more than 60% of a typical workday is lost to repetitive and mundane tasks, that knowledge workers spend 25% of their time searching for information, and they use the average of six apps to eight apps to complete a single process.
Gartner came up with a five-stage model assessing the maturity of digital workplaces and argues that (Q2CC, our emphasis):
the successful integration of generative AI happens at the fourth stage, and only after organizations have modernized their infrastructure and data to keep pace with technological changes. So where are most organizations today? Gartner's recent assessment shows nearly 85% of organizations are still in the first two stages and are just starting to take action to modernize their data. And less than 2% have reached that critical fourth stage, where the successful integration of generative AI can occur.
Management is prepared for this (Q2CC):
This is where AvePoint comes in. Our approach manages our customers’ entire data estate, which often spans multiple cloud environments, ensuring their data is ready for AI and can remain competitive in a rapidly evolving digital landscape. This is why we continue to see a healthy pipeline and demand for our platform. Our unique ability to solve a wide swath of technical challenges, in turn enabling AI adoption across the enterprise, is something that no other software provider can match.
AvePoint is integrating AI into its operations and solutions in several ways. The company recognizes the potential of generative AI to drive competitive advantage and value creation by extracting greater value from complex datasets, making informed business decisions, reducing employee workloads, and improving overall customer experience. However, they also acknowledge that successfully leveraging AI depends on addressing data management challenges.
Here's how AvePoint is utilizing AI:
AI Integration: AvePoint has an "AvePoint AI program aimed at integrating AI into everything we do".
tyGraph Product: AvePoint introduced new advanced analytics capabilities for Copilot for Microsoft 365 in their tyGraph product. This helps companies identify areas of high collaboration to better prepare for Copilot readiness.
AI-readiness solutions: AvePoint offers solutions that help organizations prepare, secure, and optimize data for AI.
Opus: AvePoint Opus streamlines data management policies, providing better visibility into data utilization, improving data quality and lowering the risk of breaches. Opus includes functionalities around record management, retention archiving, and classification, all infused with AI.
Data-centric security: With the rise of GenAI, businesses must shift to data-centric security, which focuses on protecting the data itself wherever it resides.
AI Deployment Challenges: AvePoint is aware of the challenges in AI deployment, including change management and ensuring a solid business ROI.
Data Governance: AvePoint's platform enables security, business, and IT leaders to automate data governance for unstructured data, including security controls, business process automation, monitoring, and analytics to simplify data security and successfully implement generative AI.
One customer in the health and life sciences industry using Copilot for Microsoft 365, AvePoint (Q1CC):
With AvePoint policies, AvePoint cloud governance, and AvePoint MyHub, the company is drastically reducing the risk of exposing sensitive information, streamlining their workspace policies, and securing data access, so the company's 15,000 employees can utilize Copilot.
While IT budgets might be under pressure, AI experimentation is just starting and is more often coming from the business, not the IT side, so the company is in the first innings of what seems to be a significant new opportunity.
It now seems that previously AvePoint had to go to prospective customers, given the need for data management tools to underpin AI, prospective customers now come to AvePoint (Q1CC):
So that's really the sea change that we see before we have to educate customers the need for data management and governance and security, and today they're actually coming to us through ask for that.
Finances
After a few lean quarters growth has accelerated to 20%+ with total ARR up 23% reaching $308.9M, and record net new ARR of $18.8M, up 31% y/y.
Margins are increasing (see graph above) as well as cash flow:
Stay tuned for our Quick Take with investment implications