Apex Treasury Corp (APXT) 2021 Q3 法說會逐字稿

Good morning, everyone, and welcome to the AvePoint Third Quarter 2021 Earnings Call. For opening remarks and introductions, I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Thank you, and good morning. With me today from AvePoint are: TJ Jiang, Chief Executive Officer; and Jim Caci, Chief Financial Officer. TJ will begin with a brief review of the business results for the third quarter ended September 30, 2021. Jim will then review the financial results for the third quarter followed by the company's outlook for the fourth quarter and full year of 2021. We will then open the call for questions.

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, this presentation describes certain non-GAAP measures, including 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 the means of evaluating and understanding how the company's 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. Listeners who do not have a copy of the quarter ended September 30, 2021 press release may obtain a copy by visiting the Investor Relations section of the company's website. Now I'd like to turn the call over to TJ.

Thank you, Erica, and good morning, everyone. Welcome to our third quarter earnings call. Our team delivered again record results with revenue of $54 million up 36% year-over-year, driven by continued strong demand from customers to make their digital collaboration more compliant, productive and secure. Subscription revenue grew 79% year-over-year, representing 74% of our total revenue in the quarter compared to 56% of total revenue a year ago. Organizations accelerated their shift to cloud-based collaboration in response to hybrid work demands.

However, many organizations still have a long road ahead of them. This shift hasn't been easy, complex requirements, prolific amounts of legacy data and processes all create challenges. Our migration and transformation products allow us to capture the customer as they begin their cloud journey. We then address additional needs with our platform as they mature their SaaS operations. As a result, our subscription growth is a healthy mix of our product portfolio.

For example, we recently completed a 3-year digital transformation initiative for a critical U.S. government agency with more than 100,000 users and one of the largest on-premise collaboration environments in the world. This long-time customer also successfully transitioned from leveraging our hybrid software to our FedRAMP Authorized SaaS platform this quarter. which enables them to collaborate securely and prevent data loss in Microsoft 365.

We're proud that our technology enables our customers' mission and that government officials are safer thanks to the security, availability and integrity of their sensitive data during and after their cloud transformation. Total ARR, an important indicator to track the health of our business grew 32% over year. We had great momentum in our business in the third quarter with a number of customers spending more than $100,000 in ARR, up 37% year-over-year. The tailwind of organizations maturing their SaaS operations will continue in 2022, which will drive demand for data protection as a service, governance and compliance products.

This is supported by the continued growth we're seeing in the amount of data managed by our platform, which exceeds hundreds of petabytes of data. Extreme flexibility will define the post-pandemic workplace and continue to drive a seismic shift in how organizations automate their SaaS operations across collaboration services. Gartner predicts public cloud spending will exceed 45% of all enterprise IT spending by 2026, up from less than 17% in 2021. With that increased spend on SaaS, IS, PaaS, and more, we believe organizations will be pressured to justify these investments, optimize their spend, all while keeping security risk as low as possible.

One size fits all collaboration management settings are too clumsy for the post-pandemic workplace. Each region, department and even project team needs specific digital workspace settings, and they need it done quickly and accurately. It's just not efficient or effective for humans to do this manually within each collaboration technology using native capabilities in a siloed ad hoc fashion.

For example, this past quarter, a U.S.-based consumer packaged goods organization with more than 100,000 global employees decided to leverage multiple solutions within our platform to create more agility within their IT operation model. By automating Microsoft 365 digital workspace, life cycle and access controls, our technology is enabling faster collaboration with less risk that results in an estimated $11 million savings of operational costs over 3 years.

Our customer success investments continue to drive improved year-over-year results with net dollar retention rate of 110%, up 4 percentage points from 1-year ago. Jim will elaborate on some of the sequential movement, but it remains a strategic priority as we believe our deep customer relationships are a competitive advantage, and our post-purchase initiatives are a key differentiator. 8 out of the 10 biggest upsells this quarter were with customers that have been with us for more than 5 years and we're one of the only companies in our space to offer standard 24/7 world-class live person support.

We're continuing to expand our SaaS and data management platform to deliver compelling industry and business-centric solutions. By doing so, our platform is stickier and our customers receive even more value from their AvePoint investments. One of those current industry-focus area is education and career training. We're excited to announce that we have been awarded a SGD 37 million contract from lead agency Temasek Polytechnic to deploy integrated SaaS training management platform for career professionals.

The platform will be powered by AvePoint EduTech and available to 6 institutions of higher learning in Singapore as part of the government's drive to build relevant future skills through continuing education and training CET. Today, 9 out of 10 Singapore workers see an urgent need to upscale. By investing in a training management platform, Temasek Polytechnic and the 5 additional IHLs cement their dedication to providing quality continuous education as part of the overall Singapore goal. The platform will give over 100,000 learners access to a catalog of 44,000 courses designed to teach them a variety of professional skills in both digital and hybrid learning environments.

I have shared how AvePoint is expanding our indirect sales channel as part of our go-to-market strategy to scale our business. And in the third quarter, we maintained triple-digit growth in our monthly recurring revenue tied to our managed services provider business. According to IDC and Gartner, $1 Microsoft spend generates $9.5 in total ecosystem economic opportunity for the partner community. Channel partners can capture that 9.5x multiplier when working with AvePoint through attach selling or through a wide variety of managed and professional service opportunities that AvePoint products drive.

We believe these channel source deals will minimize competitive threats and result in reduced sales cycles. That said, it will take time for our channel partners to ramp up productivity. And as such, while we may have incremental pipeline build across a subset of partners, we do not expect to see material contribution from the partner channel until second half 2022. As this program builds, we expect long tail partners to contribute smaller opportunities first followed in the midterm by larger MSPs who consistently sell into larger accounts.

For example, a new logo was sourced by a key partner in Germany. This retail organization has launched a proof of concept to consolidate their customers' collaboration data and implement a data protection program to meet their retention and GDPR requirements. AvePoint solutions will help this partner's IT team, scale and increase margins by providing self-service recovery for tens of thousands of end users.

Finally, I'm excited by our product investment this last quarter. Cloud backup for Google Workspace was released in our global distribution network to expand our market reach of our multi-cloud backup as a service offerings. In Q4, we will be promoting that offer with integrated go-to-market campaigns. We also released Cense, a solution to help organizations optimize Microsoft 365 license utilization. Long term, Cense will also be available to other cloud services. All this would not have been possible without the amazing people I get to work with every day. Thank you to my fellow AvePointers. I've never been more excited in our 20-year journey.

With that, I'll turn it over to Jim to discuss our financial results in more detail.

Thank you, TJ, and good morning, everyone. Before we begin, I'd like to take a moment to express how exciting it is to return to AvePoint. I've always been a strong believer in the long-term growth prospects of the market and AvePoint's unique position within the industry. Our continued execution against our targets resulted in another strong quarter of growth. As I review our third quarter results today, please note that I'll be referring to non-GAAP metrics, unless otherwise noted. A reconciliation of GAAP to non-GAAP financials is included in today's earnings release, which is available on our website.

Total revenues for the third quarter ended September 30, 2021, were $54 million, up 36% year-over-year. Within this subscription revenue, which includes both SaaS and term license revenue was $40 million, constituting 74% of total revenue up 79% year-over-year. Our continued execution against our targets resulted in another strong quarter of growth. As TJ mentioned earlier, subscription revenue has become a much more substantial share of our overall revenue year-over-year. SaaS revenue was $22 million, constituting 42% of total revenue and up 59% year-over-year.

Term license revenue constituting 32% of total revenue was up 114% year-over-year as a result of the timing of hybrid cloud projects and a seasonally stronger third quarter for U.S. federal public sector customers, given their fiscal year-end and their propensity to do on-premises and hybrid deals versus SaaS only. As a reminder, the SaaS portion of our subscription revenue is recognized ratably over the length of the contract, while the term license subscription has a higher percentage of revenue recognized upfront.

As a result of this, revenue may fluctuate and we believe that ARR is a more useful metric to track period-to-period progress of our business as it provides a more relevant comparison of the aggregate growth in our SaaS and term license revenue streams. As of the quarter end, we had total ARR of $148 million, which grew 32% from the prior year period and includes 316 customers with ARR of over $100,000, up 37% from prior year period.

TJ mentioned earlier, we are seeing consistent ARR account growth as customers mature their SaaS operations and our average core ARR per account at the end of the quarter was approximately 36,500, which represents an increase of 27% year-over-year. We highlighted that in the third quarter, our core dollar-based net retention rate was 110%, an improvement of 4 percentage points since last year. It is important to point out, we do expect some slight fluctuations from quarter-to-quarter as we saw this quarter, our net retention rate was down 1 percentage point from Q2 2021. Overall, the NRR trend is where we expect, and we anticipate continued improvement in Q4 as we refine our processes and invest in our customer success, technologies and team.

Now let's review the income statement in more detail. Gross profit in the quarter was $41 million, representing a gross margin of 76% compared to 75% in the year ago period. This margin improvement is due to the continued shift in mix of our revenue towards subscription and away from maintenance and services. Subscription revenue gross margin improved to 87% in Q3, up from 86% in the year ago period. We expect to see our overall gross margins remain at approximately these levels or slightly higher going forward.

As service revenue, our lowest margin business is shifted to our partner channel and becomes a smaller percentage of our total revenue. Sales and marketing expenses were $23 million or 43% of revenue compared to 35% of revenue a year ago. This represents an increase of $9.1 million year-over-year or 65%. This increase was driven by an increase in headcount and personnel-related expenses as we expanded our sales and customer success organizations as well as an additional marketing spend as we invested in both our direct sales and channel strategies.

We have grown our sales and marketing headcount by over 50% during the past year, and have increased our marketing spend by 113% year-over-year. We intend to continue to invest in sales and marketing as we further drive awareness in the market and leverage our industry-leading position to capture significant opportunity in front us.

R&D expense was $5 million or 9% of revenue compared to 7% in the year-ago period. The increase was driven by investments in product innovation, resulting in additional development costs and additional headcount. We believe these investments support our solution sales approach, designed to deliver multiproduct deals. G&A expense was $9 million or 17% of revenue compared to 13% in the year-ago period.

The increase in G&A expense largely reflects an increase in people and infrastructure-related expenses associated with our public company readiness and ramp-up efforts, including headcount increases of approximately 25%. We expect that the rate of expense growth will decrease in future periods. Non-GAAP operating income was $4 million or 7.4% of revenue compared to $7 million in the year-ago period.

Turning to the balance sheet and cash flow. We ended the quarter with $262 million in cash and short-term investments. Cash used in operations was $2 million in the quarter, while free cash flow, which includes CapEx was a negative $2.5 million. This negative free cash flow was primarily driven by the timing of a number of large expenses related to our conversion from being private to being public.

I would now like to turn to our outlook for the fourth quarter and the full year 2021. For the fourth quarter, we expect revenue of $56.4 million to $58.4 million and non-GAAP operating profit of breakeven to $1.5 million. Our current outlook for fourth quarter operating profit reflects additional fourth quarter operating expenses, primarily relating to accelerating our marketing investments. We believe our Q4 financial guidance reflects our ability to continue capitalizing on the growing demand for our platform. For the full year, we expect revenue of $194.4 million to $196.4 million and a non-GAAP operating profit of $4.7 million to $6.2 million.

In summary, we are pleased with our third quarter results as the ongoing execution of our go-to-market strategy and investments in the business continue to drive our growth.

With that, we'll open up the call for questions. Operator?

(Operator Instructions)

The first question is from Brian Essex from Goldman Sachs.

Maybe TJ, if we could start with you around how the puts and takes that you've seen in the business over the past quarter, if we look at the business from a I guess, segment perspective of transformation, governance and compliance, where have you seen the greatest adoption? And where do you anticipate that strength will be going forward?

Brian, so from the mix of these 2, 3 segments, they are pretty consistent throughout the quarter. We continue to see folks are going to cloud. We actually -- we'll send you the research report on that. 92% of the enterprise are today multi-cloud and 82% are hybrid, and also 63% of enterprise employees saying that they prefer remote work, these are Mackenzie reports. So these are major trends that we continue to see in the field where enterprises are getting folks to go -- use more enterprise cloud collaboration platforms. So regardless of the hybrid work situation of folks return to work partially, at the end of the day, cloud is here to stay. And our value proposition is, firstly, to move enterprise to cloud faster. And secondly, once they're in the cloud, to really focus around the collaboration, security and governance workloads. So from that perspective, we see the mix to be consistent previous quarters and even going to 2022, we see very similar trends.

Got it. That's super helpful. And maybe just one follow-up on net retention rate. What were some of the primary puts and takes there if we think about churn versus cross-sell versus upsell? Maybe just help us unpack that a little bit and understand some of the moving factors underlying that number.

Brian, this is Jim. Thanks for the question. So it's a good one, right? And we expect to see, as I said earlier, we kind of expect to see some fluctuation from quarter-to-quarter, right? It's not a completely stable environment in terms of some customers. And what we really saw in Q3 was really a couple of customers, right, that we're kind of working with in their journey. And if those customers had converted, and we're still working with them and we expect to conclude with them in Q4, we would have been consistent around 111% net retention rate. So we don't really see any real massive change other than a couple of large customers, again, that we're really partnered with them, right? So we're working with them as they evolve on their cloud journey. And so we're not pushing them. We're not forcing them. And -- but we're hoping that obviously in Q4, we're going to conclude with them in terms of their next steps. So if they had been either converted or we had excluded them, we would have been right at the 111% retention, which we saw in Q2.

Great. And can you maybe just expand on the term converted? Is this they've gone through transformation and then you're going to upsell across the platform? Or just to get a better understanding of that description?

Yes. There's multiple scenarios. There's some regulated customer as well as government customers going from fully on-prem environments to government data centers or to public cloud. So there's that transition period where we actually get involved on the transformation project, but the recurring revenue piece for the on-prem environment had to shift over to the cloud stuff. So therefore, there is some contract renegotiation effectively to make sure that they're licensed properly for the full SaaS management licensing. So there's -- that's one scenario. So essentially, transforming from on-prem to cloud scenario.

The other scenario we have seen is essentially collapsing of multiple environments into singular tenants, or vice versa with single tenants getting to multi-tenant. So these are either consolidation of environments into cloud of multiple on-prem environments and -- or in the divestiture situation. So this introduces again, these type of conversations on the renewals. So what Jim is referring to is essentially that we had a couple of situations like that that's now pushed into Q4, where we continue to work with the customer to guide them. But overall, our guidance remain is that we are, from an NRR perspective, moving to the right and up direction. And our goal is to get to the industry best practice of 120% NRR.

The next question is from Jason Ader from William Blair.

First question for me is just on a housekeeping item, which is, is there any impact from FX in the quarter?

Yes. No significant impact from FX.

Okay. Do you price in dollars globally?

So in dollars, we price -- now in selected regions, we use local currency. So in U.S., we use dollars. In Japan, we use yen. In Singapore, we use Singapore dollars. In Germany, we actually use euros. In Britain -- U.K., we use pounds. So we actually use -- for the major markets we service, we use the local currencies. In Australia, Australian dollar. Yes. But we have not seen major FX impact.

Okay. And then just, TJ, on the on the quarter, can you talk about some of the highest growth products in the quarter? Where were you really excited by the growth and then maybe some comments on growth by vertical or by region, just sort of differences across verticals and regions where you're seeing the strength right now?

Yes. So that's a great question. So from a product perspective, clearly, we have the government side. Q3 is the fiscal year-end for U.S. federal government. So there, we actually picked up a very nice 7-figure deal, as I mentioned in the earnings call script of an existing customer, more than 100,000 employees going to FedRAMP Authorized environments. And also from overall region perspective, we have very strong showing in APAC as well as EMEA regions also in the Q3, again, demonstrating this company's unique position as a truly global distributed business. We're 45% of our business in North America and then nearly 30% in Europe and rest of it in APAC.

We continue to see strength in terms of -- you asked about vertical solution. So we announced this large education solution deal. That's a Microsoft Office 365 and Teams integrated higher education solution target to institute of higher learning. That revenue recognition will come in the Q4 and subsequent because it is a multiyear deal as typical with government organizations, but we see a really big uptake in the education space. We're also seeing really good growth in the manufacturing and automotive space, especially in Germany, which we'll share in more detail later. But overall, again, regulated industry, government and now education are the verticals that's growing very well for us.

Great color. And then on the product side, any more detail there? I know Teams governance has been really strong. Any other specific products that you want to call out?

Yes. It's Teams governance, it's backup as a service that continue to go very strong. Again, the amount of data, we actually touch hundreds of petabytes of data. And it's really the unique offering and positioning of our platform, where we always have this migration and integration story. We always have the backup as a service story, data protection and of course, now Teams governance and security. Increasingly, we do see customers also coming to us for essentially ransomware attack recovery story that ties very, very well with our backup-as-service story. We did release new product this quarter.

In Q3, we released the Google Workspace backup service offering in addition to Salesforce backup as a service. That's now picking up growth as well. We have seen 3x increase in pipeline for those products, new products. Also, lastly, we released a new product called Cense, which is in the Microsoft 365 license and entitlement management space. And that's also a big demand within the enterprise segment, where you're talking about tens of thousands of employees and what kind of license and what kind of entitlement to allot to in a much more dynamic and resource based way versus manual and script-driven. So we're very, very excited about that product set, and we're also now actively working to expand that product set to cover other costs.

Great. And then lastly for me, for Jim. Do you have any early view on 2022 for us? I mean you talked -- I know pre-IPO about kind of a 30% ARR growth being sustainable? Do you -- are you able to reiterate that? Any just early view on 2022?

Sure. I think it's early, as you say, but we're pretty confident that, that mark is not going to change. We're pretty bullish on keeping that 30%. We feel pretty strongly about that. So I don't see any change there. But we're working through 2022, and we'll have some more insight in the future. But yes, I would say you could -- that 30% is pretty consistent. We see that going forward.

And this is 30% ARR as well as revenue growth.

The next question is from Kirk Materne from Evercore ISI.

TJ, Microsoft obviously just held its Ignite conference. Was there anything coming away from that from your perspective that you're bullish on? I know you guys have a very tight relationship. But was there anything incrementally or incremental coming out of that conference that you would maybe highlight in terms of your opportunity over the next year?

Yes. We think Microsoft continued to evolve quickly in providing value-added services and features to the customer set. There is a very, very aggressive push on their side on the Zoom compete. So we see that Microsoft continue to strengthen their dominance in the enterprise space. To that regard, we see more convergence around governance, and also office for the frontline workers as a way to make a more accessible Microsoft solutions. And this, for us, is only helping to enlarge our total addressable market and also raise the more need for governance solutions because now these Microsoft 365 cloud solutions are much more accessible to the frontline workers folks that doesn't even have computers they're just using mobile devices and tablets.

So overall, we see the opportunity to -- for our growth to continue to enlarge and strengthen. And insofar as what Microsoft releases new services, we are always constantly looking at ways to make it more efficient in our SaaS offering to leverage those services. For example, more snapshot APIs are available for us to do backup services far more efficiently. So in the cloud space, it's all about consumption. At the same time, we're actually aggressively working to lower the cost of running our SaaS solutions as well. There's a lot of economy scale and experience that gets built over time. So overall, we'll continue to innovate our productivity solutions.

That's great. And can you just talk about -- obviously, I think 2 quarters ago, Microsoft talked about only about 8% of its base was on the E5 version of Microsoft 365. When they're discussing sort of upselling them from E3 to E5. Is that an opportunity for you to engage with those customers as well as they look to take a sort of deeper or extend the relationship with Microsoft? Are you able to sort of dovetail on those sort of, I don't know, call it Microsoft upgrade discussions?

Oftentimes, we're viewed by the customer as more of a kind of neutral and strategic outside partner in this sense. We, first and foremost, help our customers maximize their ROIs on Microsoft tech investment to the extent that it makes sense for them. And also, we do actually have set up bundles and offerings for E1, E3, E5 license types. What we see out there is really a mixed license type reality. Most large enterprises will have a mixed proportional, where being E5 being the smallest percentage of the information workers for the C-suite and senior executives, leveraging all the advanced functionality.

So that's the reality. It's actually pretty messy out there in terms of these type of deployment scenarios that actually allow us to really help. So often, we also help customers to advance their workloads, with Governor solutions to, again, address that mixed license type scenarios. So yes, we see opportunity for sure from these motions to go to different license types, but we also see that in reality, in out there. It's not very realistic to move everyone, especially large organizations to single license types, and this is where we really help kind of unify that governance story.

Right. And then just one last one for me for Jim. Jim, just -- you obviously talked about sort of the hybrid deals you did in the third quarter on a term license front. I assume if we're thinking about the fourth quarter, that was a bit of a, I don't want to call it spike, but a bit of a jump in term license that you're not necessarily assuming will carry forward into the fourth quarter. Can you just talk about that? I guess, I know you're not guiding explicitly but qualitatively, how we should be thinking about term licenses? Jumps around that obviously has an impact on your guidance as well?

Yes. And I think that's why we were trying to -- we didn't obviously raise guidance in Q4. Obviously, the terms in Q3 had a little bit of a spike, as you noticed, even a little bit more than we had expected. We do expect Q4 to have a strong term component, again, kind of we've seen that in the past. So I would expect to see some comparable to Q3. But again, we're kind of there to support the customer on their cloud journey. And so there's a little bit of variability there in terms of do they go complete SaaS? Do they stay hybrid? So we're working through some of those things, which again is why we didn't want to really change the guidance at all for Q4. But again, I would say it'd be similar to Q3 from an expectation point of view, I'd keep that in mind.

I would just highlight that regardless of term of -- Yes. So I'll just add, layer or more color. So regardless -- irregardless of term or SaaS, at the end of the day, it's all subscription license. It's only term when the customer also have some data on-prem that they are protecting. But vast majority of the workload and data that we're helping our customers to manage and work on are in the cloud. So just because they have pieces and bits of things on-prem, it becomes a term license. Nonetheless, it's all subscription, and we believe that ARR, annual recurring revenue, is the right way to guide -- to see guidance towards the growth of our business because that cuts across this revenue recognition issue for term 606.

The next question is from Derrick Wood from Cowen and Company.

Great. I guess on that, staying on that topic around ARR, if I look at net new ARR, it was about $8.5 million in Q3, and it was down from about $10 million in Q2. A year ago, you had seen sequential growth in net new ARR. So can you just talk about whether this was a surprise or what seasonal factors we should be thinking about in Q3 and maybe why that was down sequentially? And then any color on how to think about Q4 would be helpful as well.

Derrick, thanks for the question. I think as we're thinking about it, our goal is in the beginning of the year, were really to achieve kind of 30% year-over-year, which we've done. So I feel -- I think we feel really good about that. We've added a bunch of salespeople to the team, as we've mentioned previously, and we're expecting them to really have that impact. So I don't know if there's any specific color around Q3, but we are definitely expecting to see improvements in that number as we move forward into Q4. And as all these kind of the salespeople we've added become more ramped and kind of get to their fully ramped stage.

Yes. From my side, I would just layer in the color here is. We have increased our client-facing workforce by 50% in the last 9 months. One of the things that did catch us off guard a bit is the prolonged ramp-up period. This is actually what we recognize essentially at the beginning of Q3 already was that when everyone is working remote, essentially all the new hires that we made that come into the organization are all working remote. Most of them have yet to meet their hiring managers or their team colleagues. And we all know, as human beings, we actually all learn better in person, doing those activities and learn through experience than just attending webinars, attending video calls.

So there's definitely a bit of that COVID kind of video call fatigue happening. So we're addressing that very aggressively. We have gone back into hybrid work mode in Q4. That means employees coming back to -- when they are near one of our many offices around the world, when allowed, especially in regions with high vaccination rates, then they can actually come back 2 days a week to work with their team, to ramp up more effectively. So that's something we're actively addressing. And at the same time, even in Australia, for example, in Melbourne, they're still going through bouts of lockdowns.

So that's not helpful. but we do recognize that even with the best technology in collaboration, which we're obviously the forerunner here, these still cannot replace in-person interactions at a certain juncture, especially for the new hires to ramp up. So that's something that we see, and that have some proxy relation to your question of hey, your net new NRRs are not increasing as fast as before, and we're working aggressively to address that.

Yes, that makes a lot of sense. So what -- I mean the time to ramp to productivity has gotten a little bit longer. I guess, since you've hired so many so much capacity over the last 9 months. I mean, when do you see that kind of being more impactful to the model? Is it kind of first half next year? Do you see that coming more into Q4 this year? Any more color on timing?

Right. So it's not accident that we continue to guide ARR and revenue of 30% growth year-over-year. And while we increased our client facing by 50%. So we did create some buffer for us ourselves. And we see that we'll work through the kinks in Q4. And next year, we should be back to the ramp-up expectations. But overall, our business model we shared, is consistent and opportunity in front of us, great for long term. So this is really just a short-term kind of phenomenon that we're experiencing.

Makes sense. Maybe squeeze one more on this $30 million contract. Pretty impressive win. Can you walk us through what technology of yours that they're that you're going to be using to help build this and why you won this contract?

Yes, that's a great question. So this is actually a displacement of AWS. We actually built over the -- we started back in 2016, as we previously shared, our overall SaaS platform is one of data management and governance solution. And on top of that platform because we do all these data orchestrations and data insight, we start to then surface out and get into business solutions. So we have business solutions around end-user chatbots to restore their data, and we have now insights and policies, the end user that we can engage end users directly with.

And along that line, we start to do vertical solutions. So in manufacturing, for example, for automotive, we're now getting to the space of deal rooms as well as board meeting solutions, again, because of the massive adoption of Microsoft Cloud out there. And in education, specifically, we have learning management, exam management and this new deal, it's really based on top of that and in addition to do some dynamics 365 integration that allow us to do also training management. So it's really leveraging our existing solution in education space exam management as well as learning management. Those are existing SaaS offerings.

And we -- because we integrate and write on top of the Microsoft Cloud, which itself, it's innovating, integrating very fast and also leveraging such as Azure cognitive services, to do machine learning, to do predictive analytics around our natural language processing, to essentially have smart teaching assistants to offer students different type of services through a single channel instead of going to different portals to access different services by the school and also doing digital exams online.

And all of that integrates into this cohesive learning management solution that sits on top of Microsoft Cloud because the schools already have Microsoft Cloud deployed, and then that's an integrated solution that actually displaces AWS out of that account. So it's actually a massive overall education win as well as for our Singapore team to win this. It is based on our existing solutions.

Derrick, one more thing to add to that. One more thing, just thinking about the models and stuff. So this is a 5-year deal that TJ is referring to. And we would expect in very little additional revenue in Q4. Q4 really is the planning phase of the project. And ultimately, the rollout of the technology will be planned, and then ultimately, we'll have a better sense as to what that revenue recognition looks like over the next 5 years. So I would say that just for modeling purposes, Q4 will be very little impact.

(Operator Instructions)

The next question is from Nehal Chokshi from Northland Capital Markets.

[Brian], you're new to AvePoint, I'd love to hear your perspective on any changes that you plan to bring to AvePoint?

Nice to meet you, and thanks for the question. Yes. I think, again, I was with AvePoint several years ago. And so coming back is a little bit of a homecoming. Obviously, the team has done a great job growing the business and really executing really well. So I don't think there's any major changes. I think it's just continuing to step up our game in terms of even being more successful and executing better. And now as a public company, obviously, we've got some additional responsibility to you guys and to the public at large. And obviously, all the necessary required filings and stuff. So I think we're really just trying to again improve on what's already been -- what AvePoint has been executing on. So I don't think any major changes I do think we want to just continue to execute and execute at a high level.

I just want to highlight that, Jim, because he's been with us before and knowing a lot of our leadership team, along with Sophia, who's now our Chief Accounting Officer. Literally, he's able to hit the ground running at 60 miles an hour here, and it's perfect. There's no reintroduction of the company or when folks having conversations, our sales leaders, our Chief Technology Officers, even folks that's working on the M&A side, they can have a very, very direct and in tune conversations without going through that phase of, hey, who are you, getting to know you, that kind of thing. But overall, you noticed that we now have over $260 million cash on the balance sheet. We are actively enlarging the finance team to make sure that we deploy those capital effectively to bring shareholder value.

And then in the quarter, your incremental ARR was a very healthy $8 million. But that is a tick below the past 2 quarters of $10 million. So can you just talk a little bit about the how you feel you did on that incremental ARR performance relative to prior quarters?

Yes. I mean, from my perspective, we -- you see our year from a seasonality perspective, we actually -- second half year has bigger numbers than first, and we did had a tremendous ARR growth and second half performance last year and similarly this year. So relatively speaking, it's -- it may seem to be a bit of a compression, but overall guidance is the same for the year. We will be 30% revenue as well as ARR growth.

Okay. I guess the question is, is that why does it seem to be a bit of a compression? Is there some sort of I don't know, some sort of artifact in there? Or is there something actually fundamental that happened?

I think it's really -- I mean, last Q3 and Q4, very, very strong quarters and similarly this year. So I don't think there's too much to read into it. There is a bit to read into the net new NRR that we just discussed. It has to do with a bit of prolonged ramp-up period for the new hires. But we're very confident that we'll work through that -- those kinks this quarter.

Got it. Okay. Yes. And I think that is a very good point that the year ago, September and December quarters were very strong. And with that in mind, the reason why those were very strong was because Teams was just starting to really ramp here. What are you seeing in terms of Teams' adoption at this point in time? Are you seeing it be still continue to penetrate a lot of new organizations? Or is it more about it going deeper and thus being the catalyst to a greater compliance stature that organizations are taking?

That's a great question, Nehal. So we continue to see this $250 million monthly active Teams users to pick up more advanced workloads. The default usage pattern for Teams has been just video call and chats. And increasingly, we see adoption going further, which are, quite honestly, in many cases, enabled by our product for example, the advanced workloads like document sharing, co-authoring editing internal, external sharing, usually are enabled when the CISO and risk officers are more comfortable with the security and governance infrastructure laid out, especially in large enterprises.

So there, we actually enable advanced workloads. So we see that the total user continue to increase as Microsoft, you've probably seen some of the signaling coming from them to even further aggressively push Teams, especially remember the cloud PC initiative, where every instance of Cloud PC will come bundled in with Teams. So we will see the Teams number continue to increase. But where we really provide value is to get that advanced workloads going. And also we -- from a channel collaboration requires data, life cycle management, and this is the exact value our platform provides.

This concludes the question-and-answer session. I would like to turn the conference back over to TJ Jiang for any closing remarks.

Well, thank you, everyone, for attending our Q3 Earnings Call. We had a really strong quarter, and we continue to be very bullish and confident in our execution. The market in front of us is massive. So we actually are building up and ramping up our workforce to address that, to take advantage of our first mover event in the Microsoft enterprise SaaS space as well as our platform advantage where we do have a truly differentiated offering around collaboration, security and governance. And with that, we look forward to everyone, and wishing you a good happy holiday season and the new year. I believe the next time we'll sync and talk to each other will be for the year-end earnings. So thank you for your attending our earnings call. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.