With that, we're gonna get into talking some AvePoint here. Let's start off with a little overview of what AvePoint does, what market you're in.
Sure. Well, Derek, thank you so much for having us, and thank you to the TD team. We're a software vendor. We've been in the market for just about, let's say, 20 years. We began in the enterprise content management space. Today we offer a set of applications that help organizations manage their data and govern the data, and we spend a lot of time working with organizations that bring on these digital systems to remain productive, such as Microsoft 365, Google Workspace, Salesforce. These applications typically have users that are moving data within and across the systems. So our application stack really looks at the whole life cycle of that data and helps organizations think about it in three steps: How do I protect the data? How do I prepare the data?
How do I optimize the environment so that, on an ongoing basis, when folks are using the information, the organization is, you know, mitigating risk for data exposure when you know, information is overshared, or when you have more drastic situations, such as a ransomware attack on the information?
And so we bring to market these applications as a SaaS set of products. It's a catalog that also has interoperability. It's built on a data orchestration layer that also builds a knowledge graph. So yeah, it's a good way to help any organization. We're cross-industry as well. We help organizations that are multinational, have offices across many different regions, as well as are also helping a lot of small organizations.
So if I think about, like, Word documents, Teams communications, SharePoint files, like, things like that, that's, like, the unstructured data that you guys help manage secure, archive.
Yeah, correct. So if you think about a normal information worker is doing a number of things, checking email, probably having chats, and working on a set of documents, un structured documents. They might actually be also engaging with a system that has structured data. All of those data characteristics typically have to be governed, and so what does that really mean? It means you have to have controls in place through an automation layer that are letting me know that I'm sharing information with Derek, and Derek is not really part of my department. And so when oversharing happens, and when organizations expose information that shouldn't be exposed, because perhaps it's classified as sensitive, you can get into all kinds of, you know, challenges. We typically work extensively with CISO, security officers, and they think about this, and they have typically a governance model that often has a very big component that should be driven by software.
That is the normal buyer, the CISO?
CISO is a, one of the buyers. We also work extensively with the IT organization. Naturally, the IT organization wants to ensure that when our application is powering the productivity set of services, that, you know, the application is meeting all the security standards and protocols. But typically, CISO, we work extensively with also leaders in the organization that are digital workplace leaders, those that are in charge of empowering the users and improving the user's experience with applications, and those are typically inside the CIO office as well.
Yeah. Okay. With that, let's just talk about, you know, how you've seen the macro play out for you guys over the last year, both when you look at the enterprise and your SMB business.
Sure. We have, I think we mentioned this a few quarters back. The first thing we saw was elongation of sales cycles on the enterprise. Part of it was, more scrutiny on budgets. A lot of organizations were really thinking about, "How do I optimize, and how do I think about cost?" Vendor consolidation is also something we saw. We take advantage of that, given the fact that our, as I mentioned before, the cloud application we have has a set of applications that oftentimes will allow the company to think, "Well, instead of having more vendors, I could really, you know, do it all from this one central management system that AvePoint offers." And so on the macro, we saw sales cycles elongate. We did see budgets being constrained, and that just meant more approval steps in order to get, you know, an application through procurement.
But, you know, the other thing we observed in the last, I would say, probably 15 months, with all of the emphasis on Gen AI capabilities, is an interest and a desire for the organization to, you know, really think about, "Well, even though I'm looking at reducing costs, can I optimize the organization with a new way of doing technology?" And that new way, for many organizations, means using the set of applications that are giving me the central management console that I can then power the productivity set of services and make the information workers, the employees, more productive.
So, it continues. I think this year we're gonna see a little bit more of that. We are seeing a lot of organizations do pilots of GenAI capabilities. Instead of rolling it out to the entire organization, let's do a few tests with small groups and see how that changes the way the department is working, if in fact, it's more efficient. And we feel pretty optimistic that our value proposition is well-positioned for that conversation.
Can you just double-click on that? I mean, so how do you guys help companies roll out GenAI copilots? Obviously, you're working close with Microsoft. They have a big co- Copilot push. Where do you guys come in to be a valuable part of that tech stack, and is it fine-tuning the models to your data? Is it measuring the kinda productivity and usage levels of Copilot? Like, where do you guys come in?
That's a great question. So one easy way to think about it is a 3-step function. One is the pre-preparation of the data estate. We find that many organizations have been sitting on data that's obsolete, should have been archived. We all have files that we keep in different locations. Cleaning up that data estate usually requires a number of steps. We have the ability to actually canvas, do a quick discovery, and in essence, surface out recommendations that give the organization the ability to say, "We should purge this data. We should archive this data." So that prepare state is super important, so we're helping companies in that state.
We usually talk a lot about the next step, which is secure the environment, and what security means, to make it very practical for today's audience, is we all share links with folks, right? "Oh, get the access to this file. Let me give you the link to this file." What's really happening behind the scenes is some of these applications have made it really easy for us to do that sharing action. Behind the scenes, you're breaking all of the access controls of that system, whether I'm working in Google Workspace, or I'm working, let's say, in SharePoint Online with Microsoft.
When that occurs, and you break that link, if I'm now gonna turn on Copilot for you, Derek, what'll happen is you may inadvertently get access to a file that you shouldn't have, because earlier last week, I gave you a link to a file that maybe is highly sensitive and you shouldn't have access to. The prepare state for us was first get rid of data that shouldn't be surfaced. Now in the secure state, what we wanna do is identify where you have these sharing links, clean them up for you, in many cases, let you know where these permission ACLs, Access Control Lists, have been broken, and give you the remediation step.
And so once you are able to make those changes, you can confidently say, "Now, when Derek is using Copilot with his prompts, we are certain that he's not gonna get information that's either old, outdated, should not be used, or information that he should not be, you know, seeing." And then the third step is optimization. So let's say I'm working on a 50-person pilot of Copilot, right? And now I have a 3,000-person organization. The biggest concern is, once I turn it on for everyone, do I have the guardrails in place to actually keep the organization working? And so optimization for us really starts with the digital workspace environment you're working within. And so here's the example: on any given day, you're probably jumping from your email. If you're using a communication tool for meetings, online meetings, you're probably using Teams or Zoom, or let's say you're using even Slack, right?
Some organizations are using Slack to chat with their colleagues. That becomes your digital workspace, and what many don't know is that if you have a software component that can look at that construct and apply a policy, I can now sustain how Derek is working in his workspace. So our product does that. Our product has, i n our control suite, we'd have a governance cloud product that looks at the workspace, and it allows us to deploy a policy, and the policies are really interesting. We do a lot of business, as you probably know, in regulated industries. And so for regulated industries, you have certain rules. Folks in the financial side of the business should really only work on data that has this much retention or is classified as such.
So all of those rules are applied to the workspace, and for us, because we're across multiple cloud sources, we can, you know, identify that that workspace that Derek's working on not only includes the Outlook or the email application, but it also includes a Dropbox application or a Salesforce instance. And so we're governing the way you're behaving and acting on that information. So the sustaining part, which is, the third step, is critical, and our AI readiness campaign that we launched last year is really designed to help organizations through the three steps. So we're in workshops now. We're working with a lot of organizations, and, you know, Microsoft has done a fantastic job, I think, leading with the Copilot. But in many cases, for us, we're also helping organizations that are even interested in doing things with Salesforce Einstein for example, right? Which is their version of, GenAI capability on top of, you know, their applications.
So, the message is that right now people are very much in kinda piloting. They're not spending a ton of money. They're trying to understand the value, so it's not been really a needle mover for you guys in terms of growth. But you're seeing a lot of interest, you're seeing a lot of pilot activity, and that is expected to be maybe more of a growth driver for you down the road?
That's how we like to think of it. You know, one of the opportunities we see is when there's a change, a real transformational change happening in the IT sector. And we've seen it already several times probably in our lifetime. There are going to be new habits formed by users and how they engage with the applications. Generative AI capabilities are starting to do that. So these pilots that are occurring are, I think, first proving that users can adapt this new technology and change the way they work. And I think the second is making an observation as to how do we measure the impact? So we launched in one of our products, a Copilot readiness piece. It's tyGraph Copilot, which is tyGraph.
For those that don't know, is an application that measures users' activity on these applications. It'll tell me things like, "Oh, Jamie's been, you know, spending most of his time in Teams versus, you know, checking his OneDrive, where he has his files," or, "This is the kind of information that Jamie tends to visit on most days." The Copilot piece for us was a way to measure how often is Jamie actually turning on Copilot if he's in his inbox, to summarize his emails.
And from summarizing his emails, is he then moving the output of that into a document that he wants to create? 'Cause m aybe he wants to send an executive brief on a number of emails. And so that tyGraph campaign that we have with that solution we just launched is to help these organizations measure that in these pilots they have an ROI that they can prove so they can confidently say, "Sure, I'm gonna go pony up the $30 or whatever it is per user if they happen to go with Microsoft or any other capability." So we think this year there's a lot of interest. We're fortunate that we were positioned well to first address the challenges you have with your data. The second was, how do you govern the data? And then the third is, how do you, you know, really think about the ROI going forward?
Yeah, that's a great overview. Maybe just to kind of step back, and 'c ause, I mean, you seem very well-positioned. We all know it's really early, but, I mean, you guys have been executing quite well without that as a catalyst for the business. And even, you know, you've seen a lot of other companies have some weakness in the SMB. You guys haven't seen it. Can you just touch on, you know, Q1, what you guys saw, key takeaways, and some of the targets that you've outlined for the year?
Yeah, sure. So maybe I'll start, and then, Jamie?
Yeah.
So a few points on the SMB for us, I think we've been fortunate, as you just mentioned, we haven't seen a slowdown. And for those that are just learning our story, the SMB opportunity has many partners that we work with. And these partners are managed service providers that are taking over the IT services for a company. Really wanna have a technology, a tool set, to go and run IT for that business. And so for us, we've been fortunate that the MSPs, the managed service providers, are still in need and are saying, "We need AvePoint products to be able to run our services." So we're still seeing good growth in that SMB. We believe that that's a good reach for us to get to more market and be able to syndicate, in essence, the value proposition of, of the platform.
Yeah, and then just, I guess, taking a step back, so Q1 was a really, really strong start to the year for us. We exceeded our guidance for revenue and op income. We had really strong total ARR growth of 23%, net new ARR growth was 29%, and we did $10 million. We definitely continue to make progress toward some of our 2025 targets, which we have two. One is to be a rule of 40 company, which for us is the sum of our ARR growth and our non-GAAP operating margin, and then to be GAAP profitable. So we continue to make progress towards those.
And I think it really gets back to what Mario talked about, about sort of the demand environment and sort of all of the, the conversations that we're having with customers, and the variety of use cases that we can address, and, and problems that we can help solve. So the, the last piece is just that, you know, that, that momentum and the pipeline health that we're seeing, really provided us the confidence to raise our, our guidance for the full year for total revenue, from 15%-17%, total ARR from 20%-21%, and then non-GAAP operating margin from 9%-10%. So, after just one quarter, we're, we're happy to be sort of able to, to raise, the full year expectations.
One other metric, I guess, that stood out is the net revenue retention rate, which has been upticking one point sequentially for a few quarters now. What is the underlying driver behind that? And remind us your targets there.
Yeah, so the medium-term target is 110%-115%. And this quarter in Q1 was 110% on an FX adjusted basis. And yes, for the last five quarters, it's increased a point every single quarter. So I think we definitely continue to see really strong upsell trends. The team has done a really good job of certainly going back to customers and selling them more. As we've mentioned, there's a variety of problems that we can come in and help solve. And typically, we're not doing that all at once. It's sort of a process where we show the value, and then the customer buys more.
And so just in Q1, a couple of stats that we felt were noteworthy, if we look at all the dollar value of all upsell deals, was up 25% year-over-year. And then if we look at upsell deals of greater than $100,000, that was up 40% year-over-year. So we're really happy with sort of the commitment we're seeing from existing customers, not just to renew what they have, but to continue to consume more of the platform.
That last stat of 40% growth from upsells to 100,000 customers, is there one area of the portfolio that's seen in particular high demand? I mean, you guys have three kind of core areas. Is there one that you'd call out? I know you didn't mention it on the conference call, but thought I'd ask here.
I mean, I think we continue to see the strongest growth from the Control and the Resilience suites, which, you know, would encompass a variety of different solutions. I don't know if you wanna touch on those.
Yeah, so they work well together. I think the resilience really helps the organization think of some of the perspectives I shared before. What's the life cycle of my data? You know, many don't know this, but there are a lot of organizations that want to apply retention policies. They think of, you know, records management now, I think, has also changed. A record is a chat conversation that I may be having with Jamie. I may have shared some files with him in that conversation. So how do you apply a true retention policy and a records policy to that?
So in our resilience, we have that story, as well as the ability for organizations to, you know, review and think of when I back up data and I think about protecting data, what's more important is that if I need to recover from data because I had a data breach or I had a ransomware attack, how do I find what I'm looking for? What's the most effective way of doing that? So that Resilience story is always part of a conversation we have on enhancing your data protection strategy. The Control for us, hence the name control, was really about what are the controls that I could, you know, really deploy through an automation layer that are not intrusive to user experience, but at the same time, we're giving the organization those guardrails.
So we have some good products in there. We have a very successful product that does the workspace management called the Cloud Governance. We have another one called EnTrust, which gives you the ability to also look at entitlements when organizations are shifting employees around. So they kind of work well together because they come back to this three-step formula I said before. You know, prepare the data, secure it, and also optimize the environment. So we think that that will continue. We, of course, you know, the third, for many that don't know, talks a lot about what are the modern types of applications you should be using in our Modernization suite. That's where the tyGraph for Copilot application sits. And we're doing more. We hope that this change that organizations are going through will also allow us to introduce a lot of extensibility to Copilot for our own application stack.
Great. And like, you guys have had this push to move more into the SMB via MSP partners. What is the, I mean, like, for having policy controls in governed industries in the enterprise makes sense. What's the lure to bring AvePoint in, where, to those small companies that don't necessarily have those regulations that they have to meet?
It's a good question. So our approach has been, you take the enterprise-grade capability, and you fine-tune that in a simple way so that an MSP can package it into their monthly cost to their customer. And by the way, the customer could be a 500-employee, 200, you know, employee, or even smaller, 5-person shop. MSPs are really thinking about, I need to make sure that this business I'm managing the IT for can use all these SaaS applications, and that the data estate is curated and well-manicured. The same principles apply: secure the data, govern it, but it is a simpler set of applications.
What we did is built a product for the MSP, and that product, really, talks back to our cloud platform and gives the MSP the application so they could actually manage all their customers. So that's where, you know, a lot of MSPs saw a different solution coming from AvePoint, and we worked extensively to make sure that they could manage multiple customers. So the architecture of the application is well suited for MSPs.
We're gonna invest more in that, in that product. We also see these assessment kits, r eally fantastic. What they want to do is do a quick discovery of the environment and say, "Look, I turned the application on, and I realized that you probably have a couple of places where we need to clean up your security, and, you know, I'm gonna take care of that for you. And then the customer is like: "Sure, what's the cost?" And it's just, you know, incremental cost to the monthly billing.
Right. Okay. Any questions in the audience? Okay, so maybe just touch a little bit more on go-to-market. So you talked about the MSP channel. Maybe just with respect to direct sales, what's new there? Also, half your business is international. That is, you know, pretty diversified for a company of your size. Just give us a lay of the land on how you have so much international reach as well.
Yeah, I think so I've been with the founding team since you know we were bootstrapping the business, and I think it was a great opportunity for us to go after the enterprise market. How do we reach them where they are? So in order to do that, you do need to have teams that are in different countries and different regions. Today, as you mentioned, we are a global business. You know, through and through, we have teams that are local. This helps us give a better customer experience, so there's that advantage.
But the other is, we are able to build a set of applications that are really addressing challenges that multinationals deal with when they're looking to operate in an environment that has a lot of variations in the regulatory environment. You know, think about now, a lot of countries are still thinking about what are the regulations for AI or the kinds of restrictions we will put in place. And so organizations are concerned about data residency, user residency, right? When a user is engaging with a colleague across borders, you know, what's the regulation? And, you know, we're at a place now where with software, we can really identify those regulations and have the application behave as it should, or have the information protected and actually remain within country. So we've learned a lot by operating in this environment.
I think we also have the benefit that when we see macro, you know, challenges in one, you know, market, we can balance that off with, you know, some positives that we're seeing in another market. I will tell you that a lot of regulation, you know, learnings we get from the EMEA market, we are able to bring back to the U.S. in many cases and vice versa. So there are a lot of benefits to us being, I think, global at our scale.
Okay, great. And maybe touch on the Microsoft partnership. Obviously, that's, I think, your most strategic. First, just like to understand where there's competitive overlap and where you guys come in as really a value add within that ecosystem, and then maybe, like, what are the next kind of platform partners for investors to think about outside of Microsoft?
Sure. The Microsoft opportunity for us was always about competing within the Microsoft ecosystem, not against Microsoft. Over the years, if you track our story, our applications have always been value add to a Microsoft product buyer, whether you're buying Microsoft 365 services or you're actually buying Azure services from Microsoft. Our applications really are there to give you the extra mile of coverage that they're not providing you in first-party tools. So that's the first thing I wanna make clear. The second is, so much has changed. We build on Azure, we extend into Azure, and as a result of it, we have an API framework in our platform that companies can tap into, and that's an advantage to them, especially if they're not invoking, let's say, Azure services.
Because we can invoke Azure services, you can, in essence, get access to information that the organization may not have. We think of today, where we offer, you know, support for M 365, Dynamics, Azure, and we also are, y ou know, when we think about other platform ecosystems, we see an opportunity within Salesforce. You look at the great work that Salesforce has done over the years, building a pretty interesting portfolio of products. And there are a lot of similarities. When you think about the way we govern teams, it really is a way in which we can govern Slack.
When you think about the work we've done for Microsoft Power Platform, and how we can govern how low-code applications are being deployed, and you wanna, you know, understand how that deployment's taking place, you do that through our product. We could do that also as well for Tableau, for instance. So we are now going to be looking more at pushing the application stack to really bring all these capabilities across these other ecosystems that we believe are vibrant enough and have enough market traction.
And it's a win-win for customers that are multi-cloud. When they think about the relationship with AvePoint, they say, "Well, here's a vendor that's actually also multi-cloud. So what I buy from AvePoint, if I, you know, invest in their Cloud Governance product or EnT rust product, it is also gonna work across these other, you know, cloud providers that I do business with." So it's a strategy that we believe makes us more of a mission-critical application and also, I think, gives us the opportunity to really think about, as I said at the beginning, an end-to-end data management and data governance life cycle.
You've even flagged some opportunities within Vertical SaaS, like EdTech and LegalTech, and is that still pretty small, or is it, w here are we in that opportunity?
That opportunity for us was many organizations within industry they think about empowering their business through the same, let's say, productivity tool set. The difference is, a lot of times, the applications are shaped with the, you know, vernacular of that industry. So we began looking at EdTech, as you mentioned, and EdTech was interesting for us, where organizations were turning on instances of Microsoft Teams in a very limited capacity, and were struggling to give faculty and staff and students the ability to share information. And for us, we basically said: "Well, in many ways, that's like a big company, right? That has different departments.
So let's take the same principles and build a set of applications that are designed for faculty and students." And as a result, we built a set of products that are part of our MaivenPoint product line that really are situated to provide course management, curriculum management inside of these productivity applications, like Google Classroom or Microsoft Teams, for example. So it really helps you know, agencies or educational agencies think about these productivity tools for their purpose. We are looking at Fintech as another opportunity for what we do, where we're able to look at a lot of the use cases that are specific to regulating and managing data.
When you think about ransomware attacks, you also think about money laundering types of use cases, and so we've worked with some organizations to build applications on top of our platform. So we do believe it is an opportunity that we will continue to explore. And I think you couple that with everyone's desire to turn on GenAI at the industry, and what does that actually mean for the industry? And so I think there's opportunity there to do some more innovation.
Yeah. Wow. You guys have a lot going on. I guess with one minute left, just to go back to Jamie's kinda point on there, on your 2025 targets, getting to Rule of 40, part of that could, is gonna be through margin expansion, part of that may be through growth acceleration. As you look at the growth acceleration opportunity, what would you flag as, you know, what could be the biggest, drivers?
Yeah. So yeah, just I think quickly, I think one is just the overall demand environment and sort of the platform play that we have, and what we're seeing there, as we've hopefully discussed pretty thoroughly. I think the second is, you know, with our sales reps, we've seen improved productivity, you know, over the last several quarters, and we expect that to continue. And then the third piece would just be, I think, our push to the channel. We've talked a lot about how that can help us extend our reach and either, you know, do more in the regions where we have an established presence, or to sort of gain a foothold in those where we don't have a presence yet.
So we feel like all of that is gonna help accelerate the top-line growth next year. And then the same is true with the margin expansion. I think the channel also provides a lot of efficiencies that we are still starting to realize. And there's just a lot of embedded leverage in the business that we've done a good job, I think, so far, of realizing. It's particularly concentrated in the sales and marketing line, where, you know, our long-term target is 30% of revenues. We finished last year at 37%.
You know, and a lot of this again is sort of the improved productivity. And then the G&A line, you know, we obviously costs were quite high as we went public and have really started to achieve some scale. As that scale continues, those costs don't need to accelerate at the same rate. So we think that, you know, the 10% margin that we're expecting for this year, which we still feel like we can do better on this year, there's more margin expansion to come next year.
Perfect. Great way to end it. Thank you, gentlemen.
Thank you.