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Good day and welcome to the AvePoint, Inc. Third Quarter 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Jamie Arestia, Vice President, Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon and welcome to AvePoint's third quarter 2026 earnings call. With me on the call this afternoon is Dr. T.J. Jiang, Chief Executive Officer, and Jim Kelly, Chief Financial Officer. 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 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 included in this presentation as we believe they provide investors with a meaningful understanding of 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 measures is available in our third quarter 2026 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. Q3 was another strong quarter for AvePoint, driven by $30 million of net new ARR that surpassed last quarter's record.

Total ARR growth was 25% when adjusted for FX, the second straight quarter that this metric has accelerated. At the same time, our ongoing commitment to profitable growth enabled strong cash generation, giving us the flexibility to invest with conviction. And this quarter, we did exactly that, focusing on our go-to-market motion for AgentPulse and our AI trust capabilities. Because the opportunity in front of us is the largest in our company's history. Simply put, AvePoint is the AI trust company. It's this market opportunity that I want to focus on today and why AvePoint is positioned to win it. Let's jump in.

Our customers are no longer asking whether to deploy AI agents. This is already taking place at every customer and prospect we meet. Instead, they face a growing trust gap, the distance between what their AI can reach, do, and decide, and what anyone actually approved. They are asking whether they can trust these agents, a question confirmed by Gartner's findings that only 13% of organizations believe that they have the right agent governance framework in place today. And it's not surprising that they are investing heavily to answer that question. IDC found that enterprises are now allocating nearly 20% of their planned AI spending for governing and securing AI and agents. Our own State of AI Research, which surveyed 750 enterprise leaders across industries and regions, also aligns with these findings. Nearly 9 in 10 organizations experienced at least one AI agent-related security breach in the past 12 months. As we tell enterprise leaders, your AI will find everything you forgot you had.

And our promise to them is simple. We move them from unmanaged AI to measurable trust. These statements are resonating across the market, and it's clear that the demand is there for a complete agent management platform solution, a market that is ours to win.

Why do we believe this? There are 3 main reasons, and our Q3 wins show each of them in action. First, we are platform neutral by design and completely independent of what we govern. Enterprises today rely on multiple platforms and need 1 layer of proof that answers directly to them. Our AgentPulse solution provides centralized agent discovery, governance, and lifecycle control across Microsoft Copilot Studio, Google, Salesforce, Amazon, and now Anthropic's Claude in 1 registry. While native tools govern their respective ecosystems, AvePoint governs all of them.

This platform-neutral posture is winning us large enterprise customers. One of Asia's largest e-commerce companies became a new AvePoint customer this quarter, choosing our Control Plus bundle to secure both Google Workspace and Microsoft 365 across approximately 40,000 users. They replaced their incumbent data security vendor because we could accurately discover sensitive personal information across both clouds, including native local language detection. The deal also shows that our Google momentum extends well into the large enterprise, and it reflects the broader strength we are seeing across Asia Pacific, where SaaS revenue growth accelerated to 28% in constant currency this quarter.

Second, trust starts at the data layer, which has been our focus since founding AvePoint 25 years ago. As we have said many times, an agent is only as trustworthy as the data it can reach. The first step to AI trust is making data AI-ready by finding and fixing oversharing, labeling content, retiring stale or duplicate data, and curating grounding sources. We have spent 25 years managing our customers' most sensitive data, and agents are the next surface area for that same muscle.

One of the leading private research universities in the United States is a good example of the need for AI-ready data ahead of a broader rollout of Copilot and Gemini. They needed to find overshared and sensitive content across Microsoft 365 and Google Workspace with a small IT team supporting 60,000 users across many decentralized departments. They chose AvePoint over a competing data security vendor for our unified governance across both clouds, along with our managed services to add capacity where their team was stretched.

Third, we cover the full agent lifecycle and keep the business resilient. We ensure agents are discovered, owned, scoped, attested, renewed, and retired. And critically, we restore what an agent changed when something goes wrong. One of the largest natural gas infrastructure companies in the United States shows why that matters. A customer since 2023, they discovered roughly 3,000 agents had already been created across their environment with no visibility into who owned them, what data they could reach, or how to manage their lifecycle. They quickly addressed these challenges by upgrading to our Control Complete package in Q3, giving their security, compliance, and IT teams 1 place to govern agents in Microsoft 365 and Power Platform for approximately 7,000 users.

As more organizations face rapid agent sprawl throughout their businesses, we have seen an acceleration in the adoption of AgentPulse. From Q2 to Q3, the number of AgentPulse customers grew by more than 50% and the total number of agents that AgentPulse is managing more than doubled. And during the same time, the percentage of our new ARR tied to control bundles, each of which includes AgentPulse, grew approximately 65%. And with many organizations just beginning to address this growing and evolving risk, we expect the healthy demand trends seen thus far to only continue.

We're also pleased to share that Gartner included AvePoint in its first-ever Magic Quadrant for AI Agent Management Platforms. A year ago, this category barely existed. Today, it is becoming central to how enterprises govern AI agents, and we're proud that AvePoint is part of it.

We also kept up the pace of innovation in Q3. We became the first to market with backup and recovery for Microsoft Copilot Studio agents. We also launched Kinetic Classification, which uses AI to classify data by sensitivity and retention and keeps refining that classification over time so the data agents rely on is labeled correctly. And we expanded governance and protection across Salesforce, ServiceNow, AWS, and Azure.

We also recently announced the AvePoint Trust Platform, extending our platform to the full AI estate, not only to the data and agents, but to the AI models and tools which enterprises are deploying faster than they can govern. The AvePoint Trust Platform is built around 4 disciplines: Observe, Protect, Govern, and Optimize on a governance graph that joins global regulatory intelligence directly to each customer's business context. And the platform is built on the belief that AI is only trusted if you can prove it runs on governed data with least privilege access and can be recovered when it fails. Combined with expanded support for Anthropic's Claude and MCP-connected agents, these enhancements reinforce AvePoint as the AI trust company, and ongoing innovation will only deepen our competitive moat going forward.

These are clearly dynamic and fluid times, but the fundamental needs of our customers have not changed. They require integrated platform solutions for today's toughest data management challenges. And as they accelerate their AI deployments, they need to see every agent, govern it across every platform, and recover when something goes wrong so they can scale AI with confidence. While the short-term winners are those making AI possible, we believe that the long-term AI winners will be those that ultimately make it trustworthy with 1 control plane across the full AI estate. We are well positioned to lead this category as we continue on the path to our $1 billion ARR target by the end of 2029. Thank you again for joining us today. I will now turn it over to Jim.

Thanks, TJ, and good afternoon, everyone. Thanks for joining us today. Throughout 2026, we have consistently demonstrated the strength and durability of AvePoint's financial model, delivering strong recurring revenue growth, expanding GAAP profitability, and meaningful cash generation, while continuing to invest in the opportunities ahead. Our third quarter results represent another step forward in that journey, reinforcing both the growing demand for our platform and our ability to execute consistently across the business. As we look toward the end of the year and beyond, we remain confident in our ability to sustain attractive growth, generate strong cash flow, and drive long-term shareholder value.

Q3 had a number of highlights, including ARR growth of 25% after adjusting for FX, the second straight quarter that the growth of this key metric has accelerated; record net new ARR of $30 million, representing year-over-year growth of 34%, the 14th straight quarter that this metric has been double digits; FX-adjusted gross retention rates reaching 90%, which to remind you, has been our target for several years; and FX-adjusted net retention rates improving to 111%; the fourth straight quarter of GAAP operating margin expansion as Q3 grew more than 130 basis points year over year, and GAAP operating margins are now at 10% on a trailing 12-month basis; and finally, another strong cash flow quarter as we generated more than $31 million of operating cash flow in Q3 and have generated more than $71 million year-to-date.

So with that, let's dive a bit deeper into the quarter. Total revenues in Q3 were $131.1 million, representing 20% growth year over year on a constant currency basis and above the high end of our guidance. On a reported basis, total revenue growth was 19%. Q3 SaaS revenues were $105.5 million, representing 80% of total Q3 revenues and growing 26% year-over-year on both a reported and constant currency basis. Term license and support revenue was $8.9 million, continuing its expected decline and representing 7% of Q3 revenues compared to 11% a year ago. Lastly, services revenues grew 21% year over year to $16.7 million and represented 13% of Q3 revenues, in line with a year ago.

Turning to our revenue performance on a regional basis. In North America, total revenues grew 20% year over year, driven by SaaS revenue growth of 24%. In EMEA, total revenue growth was 21% year over year, driven by SaaS revenue growth of 26%. And in APAC, total revenues grew 18% year over year, driven by SaaS revenue growth of 27%. On a constant currency basis, EMEA SaaS revenue growth accelerated to 28%, while total revenue growth was 22% year over year. And for APAC, SaaS revenue growth accelerated to 28%, while total revenue growth accelerated to 18%.

Switching to ARR, which we believe is the most important metric for investors, we saw strong performance from all 3 regions in Q3 as North America ARR growth accelerated to 23%, EMEA ARR growth was 27%, and APAC ARR growth accelerated to 27% on an FX-adjusted basis. Taken together, we ended Q3 with total ARR of $495.1 million. This represents 27% year-over-year growth and 25% after adjusting for FX, which was an acceleration from Q2. As a result, Q3 net new ARR was a record $30 million, representing growth of 34% year over year. I'd also like to point out that our North America business reached $200 million in ARR in Q3 and congratulate the team on another strong quarter of execution. On a reported basis, North America ARR growth was 23%, EMEA ARR growth was 32%, and APAC ARR growth was 27%.

The broad-based demand we see also applies across our customer segments, each of which grew roughly in line with our total ARR growth. And I would call out a few additional highlights. First, the year-over-year growth in the number of both our enterprise and mid-market customers was the highest we have ever achieved. Second, we ended the third quarter with 976 customers with ARR of over $100,000. This represents 28% growth year over year, which is both an acceleration from Q2 and the highest growth for this metric in 4 years. The 65 net additions to this cohort were also the highest we have ever delivered. And lastly, our larger customer cohorts of greater than $250,000, greater than $500,000, and greater than $1 million of ARR each grew comfortably above 30%.

Taken together, these results continue to show the durable and accelerating enterprise demand for our ability to solve their most critical data management challenges. And similar to last quarter, the strong demand from our enterprise segment was matched by our smaller customers. The year-over-year growth in the number of our SMB end customers was the highest in 8 quarters. Our continued success here is attributable to the rapid growth of our MSP practice, where ARR grew 40% year-over-year in Q3, and to our strategy of driving more business through channel partners. This led to 72% of our Q3 incremental ARR coming through the channel. And as a result, 60% of our total ARR today comes through the channel compared to 56% a year ago. As we continue catering to companies of all sizes, our channel investments will remain a top priority in supporting our commitment to profitable growth.

Turning now to our customer retention rates, which are adjusted for FX. As I mentioned, our Q3 gross retention rate was 90%, and our Q3 net retention rate was 111%, both of which were an improvement from Q2. To remind you, 90%-plus has been our GRR target for several years, and with our actions demonstrating ongoing progression over this time, we are pleased to achieve the goal this quarter. These actions include investments in our customer success teams, especially in North America, where our improved efficiency and greater utilization of telemetry and analytics has driven a meaningful improvement in the retention rates of the accounts where we leverage a pooled customer success strategy. And lastly, we are pleased to achieve this goal while still facing the 2-point headwind from our migration products, given their naturally lower retention rates. On a reported basis, Q3 GRR was 90% and Q3 NRR was 112%, both of which were improvements over Q2.

Turning back to the income statement, Q3 gross profit was $95.4 million, representing a gross margin of 72.8%. This compares to 75.1% a year ago, and while the year-over-year decline is again the result of lower services gross margins, the 83% gross margins on our software products is in line with both the prior quarter and prior year. Q3 operating expenses totaled $73.4 million, or 56% of revenues. This compares to 53% of revenues a year ago, reflecting our increased investments across the business in 2026. As a result, Q3 non-GAAP operating income was $22 million, which represents an operating margin of 16.8% and at the high end of guidance. Importantly, we continue to focus on GAAP profitability through our ongoing management of stock-based compensation, which was 8% of Q3 revenues compared to 10% a year ago. As a result, Q3 GAAP operating margins were 8.7% and expanded more than 130 basis points year over year and are 10% on a trailing 12-month basis. For the Rule of 40, which is the sum of revenue growth and free cash flow margin, we finished Q3 at the Rule of 44 on a trailing 12-month basis.

Turning to the balance sheet and cash flow statement, we ended the quarter with $418.3 million in cash, cash equivalents, and short-term investments. And for the first 9 months of the year, operating cash flow was $71.6 million, or a 19% margin, while free cash flow was $67.7 million, or an 18% margin. This compares to operating cash flow of $55.6 million and free cash flow of $52.6 million in the same period a year ago, representing year-over-year growth of 29% for both metrics.

Turning now to share repurchases, an important pillar of our capital allocation philosophy. In Q3, we spent approximately $31 million to repurchase 2.3 million shares, and combined with our first half actions, we have spent approximately $142 million to repurchase 12.6 million shares this year. Compared to the first 9 months of last year, we have repurchased more than 7 times as many shares at approximately 70% of the cost per share. These repurchases have more than offset the dilution from our employee equity programs, reducing shares outstanding by a net 5 million year-to-date. We have approximately $89 million left in our share repurchase program, and we will continue to be opportunistic in evaluating additional buybacks.

Before I turn to guidance, I'd like to provide 2 additional financial updates. The first is that we recently entered into an agreement with JPMorgan for a new $100 million revolving credit facility, replacing our existing $30 million credit facility at what we believe are very favorable terms. And while we have not needed to leverage these facilities to fund our business, this new upsized facility, alongside our strong cash position, gives us the confidence to continue executing on the 3 key pillars of our capital allocation strategy: investing in the business, strategic M&A, and returning capital to shareholders through share repurchases. And second, we were pleased to be added to the S&P SmallCap 600 Index earlier this week, which is another important step in our evolution as a public company and reflects the continued financial maturity of our business. This is especially true given the index's requirements tied to GAAP profitability, where we have emphasized for many quarters as a differentiator between AvePoint and many other software companies of all sizes.

Turning now to our guidance, where we are again raising our expectations for full-year ARR by $1 million at the midpoint. Additionally, our updated full-year outlook for revenue and non-GAAP operating income includes the full Q3 outperformance relative to guidance, and our outlook for all metrics includes the current expected impact from the fluctuation in foreign exchange rates. As a result, for the fourth quarter, we expect total revenues of $138.4 million to $140.4 million, or growth of 22% at the midpoint, both on a reported and constant currency basis. We expect non-GAAP operating income of $24.7 million to $25.7 million, representing an operating margin of approximately 18% at the midpoint, a step up from Q3, but below the prior year as we continue to invest behind our AI trust capabilities. For the full year, we now expect total ARR of $524.8 million to $528.8 million, reflecting the $1 million raise at the midpoint I just mentioned, which is growth of 26%, both on a reported and FX-adjusted basis. We now expect total revenues of $511.3 million to $513.3 million, or growth of 22% at the midpoint. This includes the Q3 beat of $1.9 million. On a constant currency basis, we continue to expect revenue growth of 21% at the midpoint, although this reflects a modest acceleration from our prior guidance. And lastly, we now expect full-year non-GAAP operating income of $87.5 million to $88.5 million.

We have again included a slide in our investor presentation that provides a walk from our prior full-year guidance in August to today's updated outlook.

In summary, Q3 showed accelerating demand, with FX-adjusted ARR growth accelerating for the second consecutive quarter, record net new ARR and additions to our $100,000 customer cohort, and the achievement of our 90% gross retention target. Importantly, we delivered these while continuing to invest with discipline and return capital to shareholders. And as we look to close out a strong year, we remain focused on profitable growth and on our path to $1 billion of ARR by 2029. Thanks for joining us today. And with that, we would be happy to take your questions. Operator?

[Operator Instructions] The first question comes from Joseph Gallo with Jefferies. Please go ahead.

Okay, we'll move to the next question. The next question comes from Shrenik Kothari with Baird. Please go ahead.

You have been highlighting improving U.S. public sector traction following a difficult period last year with the second half expected to benefit more. It was interesting to hear the wins around multi-cloud, data governance, AI readiness, all of that. It's all really encouraging. Just wanted to understand how much of the recovery and the strength you saw reflects some of these sort of procurements finally converting versus more broadening of demand for the resilience and the AI governance. And as you look into '27, how should we think about the public sector returning to their historical growth contribution and the larger opportunity emerging from these new use cases? And I had a quick follow-up.

Sure, thanks, Shrenik. So I think you're right. We talked about it last quarter and I would describe it similarly that we talked about our public sector in recovery mode this year. And I think we saw that for the first 2 quarters and we saw it again here in the third quarter where we saw really good performance compared to, particularly compared to last year. But I would say there's still room to go. I don't think we're back to 100%. And I think that's both encouraging because we had really nice contribution in Q3, but I think that gives us hope and really optimism for really improved performance in 2027. So I would still have called this year recovery. We're going to see expansion in '27. So we're looking forward to even more contribution in '27.

Great, very helpful. And then on TJ, there's definitely clear substantial interest in agent governance and AgentPulse numbers that you disclose growing 50% sequentially and agents under management doubling or more than doubling. I wanted to understand just this distinction between customers trying to discover these unmanaged agents as illustrated by your example around the energy customer versus those deploying them at scale into business-critical workflows. Like, where are we right now? What are you seeing in respect to that transition happening most rapidly? And is spending being unlocked? Are starting to get unlocked by this kind of more broadening of access or it's still compliance, runway costs, just wanted to understand what are the trends here.

Yes, thanks for that. We see a lot more agents running within enterprise. And again, it could just be smaller workloads. It doesn't necessarily mean the critical workflows that you're referring to. We think that companies actually doing the critical workflows with agents are still, you know, top 1%, if you will. So majority of the organizations are still very much leveraging AI to do basic tasks. And of course, we are there to help them discover and uncover agents and making sure that we can control the risks, lay down the guardrails, and at the same time, we also do this cost analysis for enterprise customers as well.

Thank you. The next question comes from Joe Gallo with Jefferies. Please go ahead.

Hey guys, thanks for the question. And I'm sorry about earlier. My call dropped. TJ, you talked a lot on the call about, you know, being a neutral bodyguard and that's what's needed in agentic security. I know the pitch versus the mega platforms, but when you consider pure play cyber vendors or other cyber resilience vendors, they have a similar pitch in terms of kind of being that neutral bodyguard. So can you just kind of go through a little bit more what the differentiation is there? Is it the depth on Microsoft or what are the 1 or 2 selling points you have against the more pure play cyber vendors in terms of agentic security?

Yes, that's a great question. So if you look at the Gartner Magic Quadrant around agentic management platform, we are 1 of the only 13 vendors listed there, given our rich history around specific unstructured data analysis and also our governance graph that actually tracks various signals and looking at how actually these agents, what system they're touching, what data they're touching. So our grounding is very different than the traditional cyber players. The cyber players are very focused around periphery, very focused on identity management. We are very much focused on data because we come from data content management space. So data access and also what do these agents do in terms of, you know, modifications, changes, and if those cause damages, when we do the remediation. So recovery as well as, of course, cost monitoring. So we think that our approach is very different. It's not a peripheral or aggressive external-facing cyber posture, but more internal collaboration, productivity type of governance. So it's a different perspective. It is a very big space.

That's really helpful. Thank you for that. And maybe just as a follow-up, Jim, you talked about capital allocation. You've obviously leaned into share buybacks, you know, in the past year. But when you think through investing in your internal business, where's the higher ROI? Is it building out the go-to-market and pedal to the metal on that side? Or is it building out the product portfolio with M&A? And is there anything that you need on the agentic side that we should kind of expect you to kind of build out? Thank you.

Well, thanks, Joe. You know, I think the beauty of where we sit today is we do have the flexibility to do more than 1 of the things you mentioned. You know, with our strong balance sheet in terms of our cash position, in terms of our free cash flow generation that we're creating every quarter, we do have a lot of flexibility that we can actually execute on all 3 of our capital allocation strategies. So the first, as you mentioned, investing in the business, I think we've demonstrated that. We talked about it last quarter about some of the investments we're making in our sales and marketing efforts and the go-to-market strategies that we're employing. So I think we want to invest there, and we're doing that. In addition to that, we still have enough capital, obviously, to look at M&A opportunities to provide incremental benefits to the platform that we have and where we can shore it up and where we can add incremental value to it. So we're doing that as well. And then third, we're obviously, as you mentioned, significantly repurchasing our shares and being very opportunistic when we do that. So we've really done all 3. And, you know, I'm happy that we're in a position and business is executing really well that we can do that not only today, but tomorrow. Thank you very much.

Thank you. The next question comes from Adam Holets with Bank of Montreal. Please go ahead.

Hi, thank you for taking the question and congrats on the good results. So I want to ask a question similar to Shrenik on AgentPulse, but I believe last quarter you mentioned you guys offered 2 different flavors of it, you know, 1 for visibility and 1 for more actionable items. I'm curious which 1 is resonating more with your customers? And then secondly, for that more advanced offering, how far down does it go to the path of execution? Thank you.

Great question. So AgentPulse allows the customer to discover agents and then bring them under management, and when there's outages, do remediation. And also importantly, we also support this concept of democratization of agent management, so keeping the human in the loop to bring about good governance posture changes in the enterprise. I think what you're referring to specifically is that previously we had included AgentPulse as part of the Control bundle, and in July we actually made AgentPulse a singular SKU that customers can just deploy as the first solution point. So that's going very well and we think that from a material perspective, it will go into next year. So that's where we will see the good growth impact. But overall, I think from a functionality perspective, it is our overall governance and management posture around AI.

Thank you. The next question comes from Todd Weller with Stephens. Please go ahead.

Thanks for taking the question. TJ, on the resilience side of the business, can you give us an update on kind of the trends you're seeing there, growth trajectory, drivers, and then how much is being driven there from new customer acquisition versus expansion, whether that would be seats or upselling suites?

So yes, on the resiliency side, it's continued to be a very strong grower for us. Along with Control and Modernization, it's really we don't see massive seat expansion. So when we license, we do license based on the entirety of the enterprise employee count. So when we do see expansion from existing customers, it's really more features and SKUs that we upsell. So it's not so much from the seat expansion itself. But then new customers, it's 50-50. We not only grow from our existing customers from upsell and cross-sell of new products, but we also have new customers from new logos that contribute to our new ARR growth.

And are you seeing any AI tailwinds on the resilience side of the house at this point?

Oh, absolutely. We think that part of the reason that resilience continues to be a very important aspect of our platform is that AI tailwind from potential risks and damages that processes operating at machine speed will do. So fundamentally, our history has been in the governance and management and protection of collaboration across human actors. Of course, now it's a step-up into agency, the agentic AI era where these things are operating at machine speed. Same guardrail, same framework. It just elevates up into the AI trust layer that we talk about, the AI Trust Platform.

Thank you. The next question comes from Rudy Kessinger with D.A. Davidson. Please go ahead.

Hey, this is Ben Smith on for Rudy. Thanks for taking the question. And nice to see GRR hit the 90% target there. Where can we go from here? Is it possible that we see further improvement into the low 90s over the next year or so? And then I'd follow up as well.

Thanks for pointing that out again so we can reiterate. Yes, I agree. We're really pleased with the attainment of that 90%. It's been our long-term target now for a couple of years to get to 90%-plus. So really pleased with the team's execution and being able to deliver that 90%. I don't think it's the end. I do think there's still room to go, room for improvement. Some of the things that we've been executing on the last couple of years, I still think there's a lot more we can be doing. So we do think there's improvement. We've invested a lot in technologies, as you know, we've talked about over the past couple of years. And we're going to continue to invest. You may have seen a recent press release that we put out where we added for the first time a Chief Customer Officer, again demonstrating our commitment to ensuring that our customers are receiving the absolute best from us and ensuring they get the full value of our platform and making sure they can take advantage of all we have to offer and solving as many of their challenges as possible. So we're going to continue to invest in this area. And I agree, I think we could definitely see a couple percentage point improvement here over the next couple of years.

Great. Yes, it's nice to hear. And then I know we'll probably get an update at year-end, but is there any color that you can share on how the different suites did in Q3 and year-to-date so far?

Yes, we're seeing really good growth really across all the suites. I mean, TJ just alluded to it. We think obviously that governance alone would be the headline, but I think the AI agentic world now is really focusing people's attention on not only what the agents are doing, but their ability to recover and the resilience that is needed. And so the conversation may start out talking about how are we governing agents, but it quickly goes into other aspects of what the customers actually need, which is really a holistic solution. And so that's been working really well. So we're seeing growth really across all 3 suites in the platform.

Thank you. The next question comes from Jason Ader with William Blair. Please go ahead.

Yes, good afternoon. Thanks. So, TJ, your growth has been incredibly consistent. I'm talking about ARR kind of in that mid-20s range. What would it take for you guys to really accelerate that to, let's say, closer to the high 20s or even 30? Is it a specific SKU? Is it better cross-sell execution or something else that could get you there?

Thank you, Jason. Well, clearly we're also increasing some investments as we started talking about last quarter as well. The reason for that is we do see the market opportunity. We're leaning into that. So the launch of AI Trust Platform is another indication of how we're elevating our overall broader offering to lean into the market opportunity. You will hear more from us in the coming weeks and months as we refine that through Ignite and into next year. We also have an Investor Day coming up in March. Yes, effectively we are aiming to do exactly what you're referring to, to accelerate the growth here because the market opportunity is massive.

Okay, and just to be clear, so you're saying that it'll likely be new AI products? Is that the right way to think about it?

So the bigger TAM is the AI trust opportunity that's layered on top of our data and infrastructure trust and governance. That's for sure.

Got you, okay. And then 1 quick follow-up on the Microsoft relationship. And I'm not sure if you guys said this on the call. I might have missed it. But I think you've said that the $1 billion ARR target in 2029, that does not require a significant expansion into non-Microsoft workloads. Is that correct?

Yes, we always say that for our growth trajectory, we could do it both organically as well as even just focus on our current concentration. We'll be able to do that. Of course, we have more multi-cloud opportunities and now, of course, AI opportunities to lean into. So there's no shortage of growth opportunities here.

And you still stand by the 30% of ARR long-term coming from non-Microsoft workloads?

Up to, yes. We still stand by that, yes.

Okay, thank you.

Yes, and I think as you were saying, Jason, that it could be up to 30%, but it's not a requirement for us to get to our $1 billion as TJ was alluding to, multiple vectors to get there. And again, we just have multiple paths to do that.

Thank you. The next question comes from Kirk Materne with Evercore ISI. Please go ahead.

Yes. Hi, TJ, I was curious to the earlier question on sort of competition with the cyber guys or the traditional cyber guys. I mean, you guys have always come at things from a data perspective, but as people sort of link data with security going forward, is that allowing you to tap into more traditional maybe IT security budgets? Do you see the conversations you have expanding perhaps more outside just the core IT folks into cyber? I was just kind of curious if the broader trends in terms of, you know, as agents come in and the importance of data is getting you into a little bit more of a cyber conversation than you've had previously.

Absolutely, that's actually a very intentional evolution. We historically talked to IT like you mentioned, but more and more we talk to security, talk to CISOs and information security officers because this is an evolving surface area. So what we do obviously is data-centric, but now extending to AI trust that very much has to do with security concerns. And of course, there are a lot of areas that we can expand into, including identity management. So it's a very exciting area. And we're very pleased to see so far the Gartner recognition, but also the industry uptake by both our customers and partners.

Great. And then just as a follow-up, you guys had some really nice momentum in your sort of bigger customers and some of the cohorts of your customers above $100,000. Do you feel like you're taking share there? Meaning, is the growth coming from just the activity level in the market, meaning, or do you feel like you're actually getting more people to kind of consolidate on your platform so it's not just sort of a market dynamic, you're taking share as well? Thanks.

There is definitely a consolidation dynamic here. Increasingly, we see customers prefer platform vendors. Also the trust of regional and international vendors when it comes to enterprise security in cloud, that's paramount. Even in last quarter alone, we've seen some vendors go through some challenges there. So there's platform, there's security credentials and credibility and track record. And also, now with AI really being mainstream, especially in autonomous agents, there's been a balancing of budgets, buckets that we can go after as well.

Thank you. The next question comes from Erik Suppiger with B. Riley. Please go ahead.

Yes, thanks for taking the question. So it looks like you're still standing by your target for '29 for operating margins of 27.5%. Can you talk about the trajectory for getting there? And I think 2026 has been a year of investment. How are you thinking about 2027 in terms of planning how you are spending relative to '26?

Yes, thanks, Erik, for the question. So, you know, obviously it's a little early to be providing guidance for '27, but I appreciate the question in terms of directionally. You're right, '26 was definitely an investment year, so we've definitely stepped back in terms of the operating income. Clearly we're still delivering very nice operating income, but below where we were last year. And that was intentional, an investment year. I do expect us still to be on the trajectory to get to those levels that we have projected for 2029. We've always said it wouldn't necessarily be a linear trajectory. And so, you know, I don't think I'm prepared yet to say exactly what '27 will be, but we do still feel committed to get to those levels by 2029.

And then real quick, just following up on Jason's question. Can we still assume that Microsoft is still 90%-plus of where you're generating your ARR today?

Currently, yes. That ecosystem is where we generate most revenue today.

Thank you. The next question comes from Derek Wood with TD Cowen. Please go ahead.

Great, thanks. Congrats from me. Great to hear the acceleration in AgentPulse. I mean, is most of this coming from the Microsoft ecosystem or are you starting to see more activity in Google? And just like any specific verticals that are proving to be early adopters? And lastly, I mean, as you position more as an agent management platform, are you running into any different types of competitors?

Yes, great question. So definitely not only the Microsoft space when it comes to AgentPulse. The prepared remarks actually cited examples in the Google space as well, as well as Anthropic. So we cover that. And in terms of competitive landscape, this is a very fast-moving and growing area. So there are different vendors going at it from different angles, as I mentioned earlier. Some come from an identity management perspective. Some come from external aggressive attack defense perspective, where we are looking at effectively internal governance and collaboration guardrails where our governance graph essentially allows privacy and cyber teams to actually adhere to EU AI Act, NIST, ISO, and other different good governance controls around AI. So it really runs the spectrum. From an industry perspective, we have grocery chains, we have analyst firms, we have pharma as well as FinServ. So, and also what's really interesting is that we see the sales from a population perspective, we proportionally also come from enterprise as well as medium to small businesses, also North America, EMEA, and Asia. So we actually see demand from all the segments and all the geos we operate in, and that's very encouraging to see.

Right. Jim, follow-up for you. I mean, so we're hearing, I think, the number of agents managed by existing AgentPulse customers doubling. I think that's the second straight quarter where that's been doubling. Just wanted to ask how that translates into revenue. I mean, does revenue scale with agents managed? Are there bands that customers are in and ultimately burst out of? Or are there not really any volume limits right now?

Right now we actually license them just like how we license the rest of our subscription software by number of employees in companies because we see that at these initial stages, it's important to not have any friction and also give customers that predictability of subscription costs. From a budgeting perspective, we see a lot of our CFO approvers much rather the subscription modeling versus consumption. So we're doing right now still seat-based licensing.

Thank you. The next question comes from Joe Vruwink with Scotiabank. Please go ahead.

TJ, you talked about the AgentPulse opportunity, some big platform wins, talked about, you know, winning in larger enterprises. And I think you answered this question just a minute ago, but I guess is AgentPulse helping you get a foot in the door with enterprise customers that maybe historically have been a little bit harder for AvePoint to reach? Any commentary there would be helpful.

Yes, I mean this is actually the exact reason why we made it a unique SKU by itself, because we do see the demand there and opportunity to become a new tip of spear for us to get into new accounts.

Okay, that's helpful. And then 1 for Jim. Last year we saw a really nice jump in 4Q '25 net new ARR. So if seasonality holds, it would seem like there's possibly some upside in 4Q. But any thoughts about what's baked into the 4Q guide would be great to hear.

Yes, so you know, obviously when we exited Q2 and we provided guidance for the second half of the year, we were committing at that point to $60 million of incremental ARR. We just delivered $30 million. And at the time, I had said that it seemed like it was going to be roughly 50-50 between Q3 and Q4. We delivered 30. We're raising our guidance by $1 million for the full year. So, you know, we feel good about that in terms of it's an acceleration, which reflects the momentum we're seeing. But again, we feel good about that number. It would be really good growth for Q4 as well. As you pointed out, Q4 was really strong last year. Q3 was a little stronger this year than last year because of the public sector, but we feel good about the number we just put out for Q4, and we're excited about closing the year strong and delivering another set of really good results.

Very clear. Thank you.

Thank you. And our last question comes from Steven Brunner with Northland Capital Markets. Please go ahead.

Yes, TJ, you mentioned that AgentPulse customers grew more than 50% Q-over-Q. Would I be wrong to assume that that is AgentPulse customers with Control bundles attached, given that AgentPulse wasn't split out until July?

That is correct. So majority of the pickup is the bundle, and the unique SKUs only started in July, yeah.

Is there any possible indication you can give us on how well the standalone has done in 3, 4 months since it's been split out?

Yes, from a pipeline perspective, it's very good. As I mentioned earlier in the Q&A, the actual net closing and revenue impact, we expect more to be next year. And you will hear a lot more from us as part of our AI platform launch to expand these capabilities in the coming months and quarters.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to TJ Jiang, CEO, for any closing remarks.

Thank you for joining us today. I'll close where I started. Q3 was another strong quarter. Record net new ARR, FX-adjusted ARR growth accelerating once again, and our 90% gross retention target achieved, all while we continue to invest with conviction. But what excites me most is what's in front of us. Our customers are no longer asking whether to deploy AI agents. They're asking whether they can trust them. With strengthening demand for AgentPulse and the AvePoint Trust Platform, extending governance across the full AI estate, we're moving our customers from unmanaged AI to measurable trust. This is the largest opportunity in our company's history. We're investing to capture it. AvePoint is the AI trust company, and our conviction in the path to our $1 billion ARR target has never been stronger. Thank you again for joining us today, and we look forward to speaking with you more this quarter.

This concludes today's conference. Thank you for participating. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

Day 1 of [Citi Global Technology Conference]. Fatima Boolani, I jointly head up our software research team, and I'm delighted to have share the stage with me the management team of AvePoint. To my left -- both of you are to my left, CEO and Founder, TJ Jiang; and to his left, Jim Caci, CFO. Thank you so much for being here.

Thank you for having us.

Thank you.

Excellent. Well, I want to set the stage and set the tone just at a 30,000-foot level, just to kind of get the audience level set. What does AvePoint do, core value proposition, and key milestones that you've hit in the last 12 to 18 months?

All right. Yes, AvePoint, we've been in business for 20-plus years. Actually, this is our 25th anniversary. Really focused around productivity workloads, specifically unstructured data, management, governance, protection. And we started in the Microsoft ecosystem in the enterprise content management space. We're the first to invest in Microsoft cloud infrastructure. And today, we're the largest in the Microsoft ecosystem when it comes to Office 365 data management protection and governance. And from the productivity workloads, we also expand into adjacent areas.

Obviously, Google Workspace is another one and increasingly on the compute side, IaaS and PaaS. So GCP, AWS, Azure. And what's happened in the last few years is that while we started in the regulated industry, we help companies have better data hygiene, data protection and governance, who can access what, for how long, from where, et cetera. To now essentially enabling AI very high quality, high confident AI Trust deployment in the sense that AI is only as good as the data you feed it.

Enterprise AI is different than consumer version of AI. You need to have refinement training with your industry knowledge with your specific business knowledge, and this is where proper data curation, data hygiene and access control and also when AI does damage, remediation matter more than ever. So we happen to have the holistic SaaS platform that does all of that. And fast forward to this year, it's a year of AI agents. Last year is token maxing, this year is AI agents where now agents are effectively behaving like your employees, except at machine speed.

So all of the problems that companies had in the past with unintentional access or data leakage of employees or even shadow IT of employees are now happening at machine speed with AI agents. So that's also driving a ton of demand for agent discovery, agent cost management, risk management, remediation, recovery. So that's what we have seen global growth in demand for.

So I think everyone would agree that AI has increased the importance of data governance, data security and control, right? I mean, this is something that you've been working towards for 2.5 decades, right? And so you're at the right place at the right time, took a little bit long, but right place, right time. Where do you see the most durable economic value accruing to you as a company as AI adoption continues to scale by way of more agentic systems, more AI workflows, more productivity benefits from average white-collar workers using AI? How would that most tangibly impact your business? And where would it show up?

So I think the durable growth vector is really -- we are -- you're going to see a more -- new product releases and new capabilities lean into this AI Trust story. And AI Trust is not just about having your house in order when it comes to data. It's also actually data sovereignty, data regulations, compliance and macro-level, country-level sovereignty concerns. So we see a lot more of that coming into play. So for example, even in Europe, many of our customers want their own infrastructure. While they could be using, obviously, American tech, right, whether it's Azure Stack, or Google Stack, but they want to own the key to that infrastructure. So there, you have basically -- for example, in Germany, they have a German sovereign Google instance for Google Cloud. And of course, you have this for Azure as well.

So we see more and more of those type of within-border type of instantiations. And because we've been around for 2-plus decades, we have physical footprint in all those countries and our channel ecosystem and partner ecosystem were able to address those head on and be able to act very much like a local provider. And I think that is also part of that AI trust manifestation. So that's a durable demand. We think while it took us a while, like you mentioned, to get to where we are. We put all the hard work to establish the global footprint, the presence in enterprise as well as SMB and be able to take advantage of this moment. We think the scalable growth and sustainable profitable growth is a story we will continue to lean into.

Can you remind the audience how much you leverage hyperscalers to deliver your portfolio to customers? And how much of these rising demands and expectations and requirements around digital sovereignty and data sovereignty are actually changing the model, the delivery model for you in that you are actually also investing in physical data center footprints? And then, Jim, if you can opine on, does that structurally change how you think about CapEx as well?

So the good news is that we never rely on hyperscalers for our go-to-market. What we offer fundamentally is to our customers. One is to help them maximize their investment into hyperscalers. So in the context of Office 365, for example, Microsoft would like everyone to buy E7 license, but E5 license has been out for quite some time, the total penetration is about 20%, right? We see the E7 will have a similar challenge. So this is where we come in. We say, "Hey, customer, whether you want to use Purview E5 or Agent 365, E7, you have other portion of your enterprise that's using E1 and E3. How do you actually maintain consistency across these things?" So this is where our software actually are very complementary. When there is cyber-attacks, we'll use it. When there's Agent 365 capabilities, we'll use it. When there's not, we then provide that value. That's one.

And two is, we actually help customers do this consistently across multi-cloud because increasingly, customers no longer rely on one hyperscaler and that's strategically important for them, right? So this is where we actually expand to multi-cloud coverage. So both of those things are against what hyperscaler would want themselves. Ideally, they will want to use the most expensive licensing and only use their stack, which the world is not going to do. So thereby lies the opportunity for AvePoint always to provide value for our customers and partners to ultimately maximize this confidence and trust for their tech deployments.

And then maybe just following on in terms of the fixed asset component. So we're truly a SaaS platform, and we're not creating data centers ourselves. And if you looked at our P&L, if you looked at our cash flow statement, you'd see there's no heavy investment being made in infrastructure in that point of view, and we don't see that happening in the future either. So we're not really dependent on creating data centers nor do we have that cash flow burden of funding that.

TJ, you brought up Microsoft. So I wanted to tug at that string a little bit. There is a cooperation, coopetition, sometimes competitive dynamic there. So let's put the facts on the table. Can you help outline and maybe dispel some of the perceptions or misperceptions investors might have in your relationship with Microsoft? Because you just called out Purview. You talked about E5, E7 embedded capabilities, but yet you are still able -- you have been able to build a pretty fantastic business around -- wrapping yourselves around those environments, right? So why does AvePoint and your platform win against the native Microsoft and embedded capabilities? And what gives you the confidence that at some point, Microsoft won't step on the accelerator and encroach very much more into your territory?

Yes. This has been the question for the last 25 years, right? And we're still here. So ultimately, the biggest takeaway should be all hyperscalers or all major vendors for them to be successful, they have an ecosystem. Even Apple, right, and Google and Samsung. Every one of them have ecosystem because as large as that company themselves, they cannot do everything for everyone. So therefore they rely on partners, whether it's for implementation, for delivery or to close the last mile problems or for verticals that they just don't have the bandwidth to invest into. So we are part of the $1 trillion ecosystem, right? That's Microsoft, that's Google. And we feel that we will continue to find ways to thrive by providing -- ultimately, again, going back to my prior point, to help the customer maximize their investment and be multi-cloud. That's by nature, a bit orthogonal to what the hyperscalers will want them to do. So that's one.

And two is, we have a very close relationship on the product side. So we're also a very large customer because our infrastructure sits in GCP, in Microsoft Azure. For Google, we're already their global ISV partner, for Microsoft same. We actually have a bigger economic relationship with them as a customer than the likes of Commvault and Rubrik, who are bigger revenue-size companies just because we are natively cloud, and we consume everything in cloud infrastructure. So from that perspective, we're a big customer.

And secondly, we're a large go-to-market global partner. Every time Microsoft releases new product sets, whether it's Purview or E7 license, Agent 365, and even Backup Express, we are always the go-to-market launch partner because whenever hyperscaler launch new capabilities, they want to bring forth a set of partners and customers who have proved out those capabilities. Say, hey, look, we have partners here to support you. We have customers who have done it. So we are part of that release cycle.

So we always have a look ahead to see what opportunities -- what new economic opportunities that open up for us, while some of the economic opportunities may have closed. So that's always been for a quarter of century, the dynamic at play. I do not see any of that changing as these large hyperscalers continue to maintain their ecosystem to compete with each other. So ultimately, Microsoft's biggest competition is -- was Google, probably now it is Anthropic going forward. So they need to have their ecosystem to flesh out and complete the offering for their customers. And that's where we always have a part to play.

And Jim, just in terms of financial exposure to the Microsoft ecosystem. So we've established that it's maybe a misperception that there is more competitive encroachment and relationship acrimony that is a complete misperception and it's very clear with the way TJ addressed that question. But I think one of the dynamics that from a quantitative perspective that I think would be compelling is how much of the business today is generally exposed to the Microsoft ecosystem, right?

There's a lot of products where data is sprawling for the average organization in IaaS, PaaS or in Teams or Office 365, right? But I know -- I don't want to ask you the leading question, but I know there has been a very specific mandate to diversify away into the explosion of other data stores. So can you give us sort of a milestone marker as to how that's trended financially? And any metrics you can share on the diversification away from Microsoft?

Yes, it's a great question. So you're right. If you go back in history, 100% of our business was tied to let's call it, M365. So we have started to diversify away from that. And again, it's not like we're trying to leave M365. It's just there's massive opportunity everywhere, including M365, but obviously, as TJ mentioned, Google is a great opportunity for us. So now that business, I'll call it, the Google, Salesforce, IaaS and PaaS, which encompasses a variety of companies as well. So that area represents now a little less than 10% of the business. And so we have said all along that by the time we get to 2029 and hit our $1 billion target of ARR that we would expect that business to be greater than 10%, could be approaching as high as 20%.

Now we don't need that part of the business to be growing dramatically to hit our $1 billion target, but we do think there's an opportunity there, really just satisfying our customer demand for our ability to get to those numbers. So right now, that's the trajectory we're on. We do believe it will be in that 10% to 20% range and could be, frankly, could be even greater because the demand is there. It's just a matter of ultimately -- how we ultimately get to that $1 billion, but it will be somewhere in that range.

And I'll just add that our multi-cloud strategy is not just chasing after the next cloud. It's really staying very close to our customers to see what multi-cloud instantiation they have and then go cover that. So effectively, enlarge our footprint in existing accounts and also as a new way to acquire new accounts through our channel. So -- because the market is so disrupted today as technology vendor, the only way to stay ahead of it is to stay very close to our customer. So we can forecast what's going to happen next year, next couple of years, et cetera. So that's how we do it.

And one anecdotal evidence I'll give you is we actually do -- Microsoft, we do provide value in the sense that we also help them light up workloads. So we don't just only do it the other way, help customers save money and not buying E7 licenses. For example, at Citi, before you deployed Copilot for your Teams, your IT team actually deployed our governance solution for teams to make sure the Office Graph permission structure is done properly. So when you do deploy Copilot, it doesn't recommend things that you should not be -- have access to in the first place. So thereby, we actually light up advanced workloads for Microsoft account teams. So that's where they see the net-net mutual benefits what we have to bring to table.

And lastly, I would say there's also this thing called MACC commits, MACC consumption commit. So large accounts will sign deals whether with Microsoft or Google on a dollar value that they will consume of cloud over X number of years to have a certain amount of certainty around cost -- consumption costs. There, we actually -- because we are a marketplace partner, the consumption of our license will actually go towards customers' MACC retirement as well. So increasingly, the symbiotic relationship is even tighter because hyperscalers rely on their channel ecosystem to help them consume more and more of the compute.

And MACC being just a universal terms and conditions structure where you can retire the...

That's right...

Understood. So that's more of a go-to-market?

That's right, yes.

Okay, just taking a step back. So for 25 years, you've been building portfolio and solving the pain points around data security, data control, data governance, and increasingly resilience, right? I mean we saw one of the largest U.S. life science tools and diagnostics companies brought down to its knees because of a cyber-attack and presumably now they're not going to hit their quarterly guidance, right? So it's not when a breach -- if a breach happens, when it happens, so you're going to have to assume it happens. So how do you get back up on your feet, right?

So on that spectrum of data security control, governance and resilience, you've taken a lot of pains to, in some ways, rearchitect the portfolio, but more creating package simplification, go-to-market simplifications around building more bundled approaches to solving these customer pain points. So I'm hoping you can kind of walk us through the specific changes you made in bucketizing certain parts of the portfolio, what that customer journey looks like from going from the good to better to best to the Cadillac version of the bundles and how that's showing up in the financials. Maybe, Jim, I can target this one to you.

Yes. I mean, it's a great point. And we started to employ this bundled strategy, so a little over a year ago. Prior to that, we were selling essentially one-off products. Now you could buy them in groups, right, but there was no strategy around it. So I think that's been a real catalyst. And specifically, we called out this past quarter that roughly about half of our Control Suite pipeline...

Remind us of the tiering of and the branding of it.

Well, it's very much like you just said, there is a good, better, best. And the idea is to allow people to wherever they may be in that journey in terms of we don't want to force people to do one thing, but we do have a history of like, this is kind of what we see our best customers' approach to adopting the technology and that's that good, better, best. And so what we saw in Q2 was that roughly half of our Control Suite kind of pipeline coming from this bundled strategy, which, again, a year into it, is very good. There's an uplift, obviously, in our selling motion in terms of the pricing we're charging our customers. But maybe more importantly, I think it gives a customer a pathway to understand what they should be consuming and why. And creating these bundles makes it easier for them to consume and see the benefits that much faster.

So it's actually, I think, made the selling cycle for our teams easier, but also made the buying experience for our customers easier and more deliberate. And so that seems to be working really well. And we're doing more and more of that bundling not only within a particular suite but cross-suite. More and more, we're seeing people almost like the issues you just raised, people recognize that it's not just about governing the data and somehow that will solve all my problems. I'm going to have an incident, so I need to be able to have my data backed up. I need to be able to recover that data. So the combination of not only the resilience and the governance, it's no longer a one or the other. It's definitely a better together strategy. So that seems to be resonating really well as well.

So what that did is that it lifts the overall value as well. So prior -- so Control Suite is about 26% recurring. Now thanks to this bundling strategy, it's now 40% of the pipeline. So that uplift in dollar value for the control capabilities is what in large part due to also the simplification of licensing.

And it seems like the incidence of cross-suite upsell is still in its early days, right? What are some of the emerging dynamics there as it relates to, hey, if a customer has a Control Suite bundle, and they have opted and -- well, they've seen and looked into kind of the governance suite. They like what they see. What does that typical attach rate look like? And what's the financial upsell value to that cross-suite attach?

It's a great question, and this is partly our thesis, right? You've hit right on it, that we have a platform play that many of our competitors do not have. There are a lot of competitors out there that have point solutions. We believe we truly have a platform strategy, which has multiple as we've combined them into these suites, but we have resilience, we have control and then we have modernization. So as we think about those 3 suites, we still think there's tremendous opportunity because very few customers have all 3 and only about half actually have multiple from both suites or 2 suites. So to us, that is a tremendous opportunity within our existing customer base.

Today, our NRR stands around that 110, 111. We do think we can get that to 115. And I think you touched on it specifically that this is really the strategy of how we get there. We believe we've got solutions across these platforms or our platform in these multiple suites that really allow our customers to take advantage of the solutions we have to solve their problems. And again, we think we're still early because there's so many of our customers that have not taken advantage of that yet. So again, a massive opportunity for us to drive that NRR even higher. So that's something we're really embracing.

So you've got the goods, but clearly, there are some blockers on the other side, where customers are not receiving it at the velocity that you would like, right? So can you help flesh out what the bottleneck of that cross-suite incidence would be? Is it budget? Is it implementation complexity? Is it personnel? Is it the whole notion of, hey, IT budgets are actually getting crowded out. And irrespective of you targeting actually the most important areas of those budgets. The fact of the matter is token pricing and token consumption is still sucking up a lot of the oxygen out of the IT budgetary room. And so what would you say are the principal bottlenecks for you to realize a higher rate of cross-suite attach?

That's a great question. I think, overall, we have a ton of capabilities in the platform. I think historically, the bottleneck has been the -- our ability to have the platform identified proactively, the synergies among different functional areas. And for example, we ingest petabytes of data on a daily basis. The ability to actually -- in an intelligent way to actually kind of highlight different aspects of the platform to do the upsell. That historically has been the human that does that, whether it's customer success or presales or technical account manager.

Increasingly, we're leveraging AI to do that, and we think that's actually going to be a game changer. So we have this called AVA, AvePoint Virtual Assistant. It's actually a -- that sits right on the customer interface. That have proactively suggest now of, hey, there's the risk here, there's remediation needs here and there's overage in license costs and storage costs here that you can go and do savings. And increasingly, we're also making this agentic experience. So we also now have business users because we also track a lot of the use cases and sentiments and activity logs of Office 365, for example, Office Graph.

So now business users can query with [Heather of HR] can query from a productivity perspective directly without going through our UI using agents, right, this agentic experience, using natural language. That also opens the door to more roles that we can address. So increasingly, the way to remove this friction is to remove the human element of it and leveraging much more intelligent contacts and data specific recommendations to target the uplift.

TJ, you brought up agentic AI governance earlier in our conversation. And I think a lot of people don't know that you have a PhD exactly in the nuts and bolts and the guts of this. So as you think about establishing AvePoint as a governance and control layer for agents, how does the technology need to be changed or rearchitected for a fundamentally different computing problem that may look and feel similar to a human user that requires governance or a traditional app that requires governance. But what are some of the technical nuances that you can shed light on? And ultimately, how large do you feel this opportunity can be for you just this AI agentic governance opportunity?

Well, thank you, Fatima for highlighting my humble roots. So I always say, as any part of research project, when it comes to data mining, machine learning, 70-plus percent of the effort is actually around data orchestration, data massaging to make sure that it's clean before you feed it to the AI. So we already do that today, right? I think the acceleration -- the opportunity is -- the problem we address -- you said it actually AvePoint. It looks similar. It's just that this digital worker are now doing -- repeating the similar mistakes but more powerfully because they can see things much faster, patterns much faster than human employees and this digital workforce is actually operating at machine speed.

So the ability to then scale up to that is the biggest opportunity challenge for all vendors, right? So that's happening in security space, that is happening in the data governance space. in the data security posture management space. In fact, today, 60% of all data the enterprise producers are generated by AI. So the volume is going up in a very significant way. So we also see that in the amount of data we manage, and the amount of data we back up the storage optimize and govern today. So that consumption is going up as well. It's not like a token consumption, but it is a sizing consumption that's happening. So to be able to track all this in real time is something that we're actively working on to do.

So -- but the good news is that all this stuff is grounded on the same principles, right, to have highly curated tech and properly managed data estate that has cycle that has attestation cycle, that has accountability and allow business users to add context because IT and security teams would never know what applications, what data sets are meant for by the business. So -- and also your business users are vibe coding things and then they think that can then scale to the enterprise-wide from a security perspective, resiliency perspective.

That's the biggest fallacy I think, in the last 6 months have proven to be the case. You can't just vibe code something and expect it to be pro -- production grade. And that gap is something that we also continue to help with. So the opportunity in front of us is actually very, very large.

I think for a long time, the space that we address, just like my background for a long time is a sleepy town, only hard data nerds and regulated industry people care about it. But now you know what, everybody has to care about it to have a safe and secure AI deployment.

Jim, I want to fold you into this conversation and maybe give you the backdrop of you had your Analyst Day in March of 2025. You set out some important financial targets, $1 billion by 2029. Walk us through how you feel you are approaching those targets, kind of the upside cases, mostly upside cases. And then just around agentic AI governance that wasn't necessarily part of the messaging. So does that help you essentially put your foot on the accelerator? And where would that momentum in contribution show up? Is it your Control Suite pipeline is going to expand because functionally, it can address a lot of the AI governance -- agentic AI governance issues. But yes, just to kind of revisit and take -- do a pulse check on the medium-term targets.

Yes. Great point. You're right. Back in March of '25, we committed to $1 billion of target...

Simpler times...

Simpler times, I think you called me crazy at the time for making a claim out in '29 that we would get to $1 billion. But -- so how are we doing? So here we are a year-plus later, and we needed to achieve a 25% CAGR to get to $1 billion by the end of '29. And so far, we're ahead of pace. So we have this little tracker that we keep track, almost like marching toward the building. And so we're at a pace. So we feel good about that. So what's working? I do think that you're right AgentPulse wasn't a thing when we made that commitment. I do think that's helping accelerate Control Suite in terms of the activity, the pipeline we're seeing coming from that. So that's a positive.

I think across the globe, we've seen really good growth in all 3 of our regions. Now we anticipated that, but again, we're continuing to execute on that. North America, Europe and APAC. I mean those are our 3 major regions, seeing really good growth. Even in some of the smaller segments, those markets, major markets, we're starting to see some nice growth in what we would call the Middle East part of Europe. And again, even with all the conflict that's happening, we're seeing really nice growth there. We're seeing really nice growth in APAC. And again, we continue to see really strong growth in North America. So those segments performed really well and then even across our customer segments.

We looked at that back in '25 and said, "Hey, what's going to happen to these customer segments?" We predominantly were enterprise over 50%, 53% plus mid-market and then SMB was in that 20% range. So we said, "Okay, what does that look like?" We feel like the SMB market has an opportunity to improve. It's our fastest-growing segment. It continues to be the fastest-growing segment, really accelerating by our MSP channel focus. So that's been a really key driver. So I'd say as we think about how are we doing against those targets, I think right now, we're better than on track to where we expected to be. I think AgentPulse/AI governance is a contributor to that. We think that only continues to accelerate. So we feel good about the overall opportunity.

Pipeline looks really healthy. And all of this has been in the midst of the U.S. public sector really not being a strong contributor as it has been over the past 25 years. It didn't have a strong 2026 -- sorry, '25. And even '26 is what we're calling as a return to -- we're kind of on the healing path. We're not quite back to normalcy. So that, to us, feels like another catalyst for growth moving forward. So again, we feel good about the progress and are excited to see what the rest of '26 brings but also '27 as well. We feel good about the progress.

TJ, I wanted to ask you my last question to end our session. AvePoint is your 25-year-old baby, it's your first born, right? You've been working really hard at educating investors and the broader community about the pain points in data security. If I gave you a magic wand, what's one thing you could wish that most investors just catapulted to and you could just take those kind of misperceptions or misunderstandings away.

I think what -- we are focused on execution. We are focusing on what Jim talked about, consistent growth. It's not a TAM. TAM is massive. We can definitely go after that. I think most investors worry about maybe this is a small-sized company. Can they continue repeat this profitable growth at scale? We absolutely can because the TAM is massive and will continue to evolve. And as I mentioned in the earlier statement, the amount of new use cases now, thanks to the emergence of agentic, it's actually even much more than before. And this is how we have executed 14 straight quarters of outperformance, and we'll continue to do that to change the heart -- to win the hearts and minds of investors.

Fantastic. Thank you so much. Appreciate your time.

Thank you.

Thank you, excellent.

Good day, and welcome to the AvePoint, Inc. Second Quarter 2026 Results Conference Call.

[Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Jamie Arestia, Head of Investor Relations.

Thank you, operator. Good afternoon, and welcome to AvePoint's Second Quarter 2026 Earnings Call.

With me on the call this afternoon is Dr. TJ Jiang, Chief Executive Officer; and Jim Caci, Chief Financial Officer. 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, 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 included 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 measures is available in our second quarter 2026 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.

Q2 was another strong quarter for AvePoint, and our results make clear that in today's rapidly evolving AI-dominated business landscape, our customer value proposition is resonating better than ever. This is true for organizations, which are new to AvePoint as well as for our existing customers, which are now consuming even more of the AvePoint Confidence platform.

This broad-based demand is reflected across our second quarter performance, where we once again outperformed all guided metrics, delivered double-digit growth in net new ARR, our 13th straight quarter and achieved several record KPIs.

As Jim and I will discuss, AvePoint has never been in a stronger position to capitalize on the multiple growth opportunities ahead of us. So what is that value proposition for customers? This is where I want to spend my time today. So let's jump in.

The Generative AI represents perhaps the largest technological opportunity of our generation and companies around the world are moving swiftly to ensure that they fully harness its capabilities. In the course of these deployments, employees and organizations of all sizes in all regions and across every industry have moved beyond chatbots and copilots and are now creating autonomous agents that can access sensitive data, make critical decisions and take action across the enterprise.

But as these agents proliferate, new challenges are emerging, and we frequently see that many organizations cannot answer some very basic questions such as how many AI agents are operating in the business and who owns them? What data are they accessing? And are they fully compliant with company policies? What risks are they introducing? And can you proactively recover from any granular damage they cause? What do these agents cost now and at scale? And perhaps most importantly, are these agents delivering measurable business value?

Our customer conversations show that answering these simple question is, in fact, far more difficult because enterprises today are facing a new form of sprawl. Across Microsoft 365, Google Workspace, Salesforce, Copilot Studio and countless custom environments, AI agents are being created faster than organizations can manage them.

As a result, we're seeing the emergence of shadow AI, agents operating outside traditional governance frameworks often with access to sensitive information and little organizational oversight.

Our formal research proves this as well. Our recently published state of AI report, which surveyed 750 global IT leaders found that 88% of organizations reported at least one security incident tied to agents in the past year and that nearly 20% don't know whether their employees are using unsanctioned tools to build AI agents in their own environment.

Without answers to those questions, without trust in this new powerful technology and without the ability to address shadow AI, AI adoption and ROI at scale will eventually hit a wall. It's not surprising, therefore, that nearly 90% of organizations have delayed their AI deployments by an average of 6 months, fighting this lack of trust.

Just as cybersecurity became essential to the Internet and governance became essential to the cloud, trust will become the essential unifying layer for AI. And this is where AvePoint is uniquely positioned.

For 25 years, AvePoint has helped organizations govern, secure and manage their most critical enterprise data. We have built deep expertise in understanding who has access to information, how data is being used and how organizations can scale innovation without scaling risk. That foundation becomes even more valuable in the age of AI because AI agents are only as trustworthy as the data, governance and controls surrounding them.

This is precisely why we launched AgentPulse, which became GA in Q1 as part of the tiered bundles of our Control Suite. At a high level, AgentPulse gives organizations unified visibility, governance and cost control for every AI agent operating across their environment, all from one centralized command center.

And more specifically, AgentPulse can discover previously unknown agents, identify risky permissions, enforce data governance policies, retire unused agents, assign ownership and gain visibility into the true economics of their AI investments.

And critically, our approach is platform neutral. We can do all these things across the most commonly used cloud ecosystems and business applications, distinguishing AvePoint from the more narrowly focused point solutions as well as the individual native capabilities of the hyperscalers. This is the value that only AvePoint can provide today, and we believe will drive incremental demand in the years to come.

Gartner is currently defining a new agent management platform category where it projects that by 2029, enterprise investments will exceed $15 billion and the average Fortune 500 company will be managing 150,000 agents. This creates a powerful strategic position for us because as AI adoption grows, organizations will need more than basic intelligence. They will need the visibility, accountability, compliance and operational control of the AvePoint Confidence Platform, the unifying trust layer for AI.

And importantly, our ongoing innovation ensures that we will capitalize on this durable and growing market opportunity. This includes the launch of AgentPulse on a stand-alone basis in early July as well as our announcement this week at Black Hat of new kinetic classification and rapid recovery intelligence capabilities.

Two solutions which work hand-in-hand to continuously evaluate data sensitivity, provide security teams with a real-time view of their critical data and help them quickly restore it and machine speed when an incident occurs. So that's where we see the market going.

But let me come back to the quarter and share some examples of the team's success with both new logos and existing customers. One of the largest American retail corporations has been a long-time AvePoint customer and in Q2, opened up AI agent building to its 36,000 employees, immediately introducing risks around agent sprawl, cost exposure and compliance.

After evaluating native tools and other leading cybersecurity vendors, they chose AgentPulse through our Control Plus bundle, giving them a single pane glass to immediately inventory, analyze and govern more than 10,000 agents. By becoming the trusted layer beneath their entire agent environment, AvePoint is now critical to how they scale AI safely, deepening a relationship that now spans governance, security and resilience across the organization and elevating this customer into our $1 million ARR cohort.

Similarly, one of the largest dental insurance providers in the United States with more than 12,000 employees faced a lack of visibility and potential sprawl as AI copilots and agents began proliferating across their environment. After evaluating alternative solutions like Agent 365, they selected AgentPulse based on our more actionable governance capabilities and lower overall costs.

This expansion successfully transitioned this existing customer from an a la carte licensing to our Control Plus bundle, validating a land-and-expand motion that extends our trusted governance relationship directly into the management of their emerging AI ecosystem.

Two Canadian corporations became new AvePoint customers in Q2. One, a consumer lender, knew that the native backup and archiving capabilities from Salesforce could not meet their long-term requirements. After successful proof of concept, the organization trusted AvePoint to protect their critical Salesforce data. And since that deployment, we have created new opportunities to expand into Microsoft 365 protection, along with broader governance capabilities from the Control Suite.

Second, a financial services company came to us at Crossroads. Their new CISO paused a planned Copilot deployment until concerns around sensitive information could be addressed. We quickly acted on proof of concept, which provided the visibility and oversight their CISO required, removing a key barrier to AI deployment for this organization. With the confidence to move forward with Copilot across approximately 3,000 employees, the customer is now evaluating additional capabilities within our Resilience suite.

Lastly, one of the world's largest banks signed a 7-figure upsell deal in the quarter, a long-standing customer of all 3 of our suites, they needed to address strict legal requirements for record management and data protection ahead of a multi-petabyte modernization effort.

As part of this expansion, the customer extended their governance and records management capabilities within our Control Suite to include both on-prem and cloud data. By doing so, the organization has further strengthened its governance framework and laid the foundation for secure and compliant AI adoption.

AvePoint's mission has always been to give organizations the confidence to innovate faster while maintaining control of their data, security and compliance obligations. That mission was relevant when we founded the company 25 years ago and is equally critical today as customers rely on us to safely deploy enterprise AI at scale.

We believe the winners of the AI era will not simply be the companies building the most agents. The winners will be the companies enabling enterprises to trust those agents. And as investors evaluate the long-term opportunity in artificial intelligence, we believe one theme will become increasingly clear. The future belongs to trusted AI, and AvePoint is building the unifying trust layer for AI that makes that future possible.

Thank you again for joining us today. I will now turn it over to Jim.

Thanks, TJ, and good afternoon, everyone. Thanks for joining us today.

Those of you who have followed the AvePoint story since our first Investor Day in 2023 know that the pursuit of our longer-term strategic priorities as well as our quarterly results along the way have been driven by a few key mantras. These include our unwavering commitment to profitable growth, our focus on controlling what we can control and the importance of consistent execution and delivering on what we said we'll do.

This mindset allowed us to achieve our longer-term goals of GAAP profitability and the Rule of 40 well ahead of schedule. It has also produced quarterly results consistently highlighted by outperformance on the top and bottom line as well as steady improvements to key customer and operational metrics.

We are pleased to report another set of these results today as Q2 was highlighted by an acceleration of both total ARR growth and total revenue growth after adjusting for FX, record net new ARR dollars and meaningful acceleration of net new ARR growth, strong execution across verticals and customer segments, especially at the enterprise level and our eighth straight quarter of GAAP operating profitability and the ongoing expansion of our GAAP operating margins, even as we continue making incremental strategic investments across the business. So, with that, let's dive in a bit deeper into the quarter.

Total Q2 revenues were $124.5 million, representing 22% growth year-over-year and above the high end of our guidance. On a constant currency basis, total revenue growth accelerated to 21%. Q2 SaaS revenues were $98.5 million, growing 27% year-over-year and representing 79% of total revenues. On a constant currency basis, Q2 SaaS revenues grew 26% year-over-year.

Term license and support revenue was flat year-over-year and represented 8% of Q2 revenues compared to 10% a year ago. And lastly, services revenue were $15.7 million and represented 13% of Q2 revenues compared to 14% a year ago.

Turning to our revenue performance on a regional basis. In North America, total revenue growth accelerated to 23% year-over-year, driven by SaaS revenue growth of 27%. In EMEA, total revenue growth was 27% year-over-year, driven by SaaS revenue growth of 28%. And in APAC, total revenues grew 16% year-over-year, driven by SaaS revenue growth of 27%.

On a constant currency basis, EMEA SaaS revenues increased 26%, while total revenue growth accelerated to 24% year-over-year. And for APAC, SaaS revenues increased 27% on a constant currency basis, while total revenues increased 16%.

Switching to ARR, which we believe is the most important metric for investors, we saw strong performance from all 3 regions in Q2 as North America ARR grew 21%, EMEA ARR grew 34% and APAC ARR grew 25%. Taken together, we ended the quarter with total ARR of $465.1 million. This represents 27% year-over-year growth and 24% after adjusting for FX, both of which are an acceleration from Q1.

As a result, net new ARR in Q2 was a record $29.9 million, representing growth of 35% year-over-year and a meaningful acceleration from last quarter. Additionally, we are pleased that all 3 of our regions are now above $100 million in ARR, as our APAC business achieved this milestone in Q2.

We ended the second quarter with 911 customers with ARR of over $100,000. This represents 26% growth, which is both an acceleration from Q1 and the highest growth for this metric in more than 3 years. And more importantly, our larger customer cohorts of greater than $250,000, greater than $500,000 and greater than $1 million of ARR each grew at or above 30%.

And finally, we are pleased to have added a record number of net new logos for the $250,000, $500,000 ARR cohorts in the quarter. Taken together, these results continue to show the durable and accelerating enterprise demand for our ability to solve their most critical data management challenges.

This ability extends to every customer segment we serve as we also added a record number of net new SMB logos in Q2. Much of this success is attributable to the continued rapid growth of our MSP business and strategy of driving more business through the channel.

At the end of Q2, 59% of our total ARR came through the channel compared to 56% a year ago, and 2/3 of our incremental ARR in Q2 came through the channel. Our MSP segment continues to be one of AvePoint's fastest-growing areas, and we intend to continue investing here to ensure we efficiently capture the enormous market opportunity that it serves.

Turning now to our customer retention rates. Adjusted for the impact of FX, our Q2 gross retention rate was 89% and our Q2 net retention was 110%, both of which were in line with Q1. Similar to prior quarters, our migration products again served as a 2-point headwind to GRR, given their naturally lower retention rates. On a reported basis, Q2 GRR was 89% and NRR was 111%, both of which were also in line with Q1.

Turning back to the income statement. Q2 gross profit was $91.7 million, representing a gross margin of 73.7%. This compares to 74.8% a year ago. And while the year-over-year decline is again the result of lower services gross margins, the 83% gross margins on our software products is in line with both the prior quarter and the prior year.

Q2 operating expenses totaled $71.5 million or 57% of revenues. This compares to 56% of revenues a year ago, reflecting our plan for increased investments across the business in 2026. As a result, Q2 non-GAAP operating income was $20.3 million, which represented an operating margin of 16.3% and was above the high end of our guidance.

And importantly, we continue to focus on GAAP profitability through our ongoing management of stock-based compensation, which was 8% of Q2 revenues compared to 11% a year ago. As a result, GAAP operating margins were 8.2% in Q2 and expanded nearly 130 basis points year-over-year and are now at 10% on a trailing 12-month basis.

For the Rule of 40, which we define as the sum of ARR growth and non-GAAP operating margin, we finished Q2 at the Rule of 45 on a trailing 12-month basis. And using revenue growth and free cash flow margin to calculate the Rule of 40, we finished Q2 at the Rule of 47, again, on a trailing 12-month basis.

Turning to the balance sheet and cash flow statement. We ended the quarter with $417.3 million in cash and cash equivalents. And for the first 6 months of the year, operating cash flow was $40.2 million or a 17% margin, while free cash flow was $37.7 million or a 16% margin.

This compares to operating cash flow of $20.8 million and free cash flow of $18.3 million in the same period a year ago. And lastly, we are pleased that on a trailing 12-month basis, our free cash flow has surpassed $100 million and is at 22% margin.

Over the last few quarters, we have discussed the acceleration of our share repurchases. And last quarter noted that the $60 million that we utilized in Q1 outpaced the entirety of our buyback spend for all of 2025. This pace largely continued in Q2 as we spent approximately $50 million to repurchase another 4.9 million shares.

So, when comparing our year-to-date buybacks with the first half of 2025, we have repurchased nearly 9x as many shares this year at approximately 70% of the cost per share. And through the close of trading on Friday, we have bought another 853,000 shares for approximately $10.7 million.

Taken together, we have spent $121.5 million this year on share repurchases and have approximately $108.6 million remaining in our share repurchase program. These actions reflect our belief in the underlying strength of the business and our commitment to driving shareholder value. And importantly, the buybacks have more than offset the dilutive effects we see from our employee incentive programs.

Turning now to our guidance, where I want to provide some color behind our current expectations. First, we are again raising our full year guidance for ARR, reflecting our momentum and the demand we see.

Second, similar to last quarter, our updated full year guidance for revenue and non-GAAP operating income only includes the Q2 outperformance relative to guidance as we account for the uncertain SaaS and term license revenue mix in the second half and the impact it may have on reported revenues.

Third, given the enormous and rapidly growing market opportunity we currently see, we are increasing our expense plans for the second half of the year with 2 primary areas of focus. The first is technology, where existing investments have already driven rapid productivity improvements for our engineering teams and where further investment will accelerate the R&D transformation and drive similar efficiencies across the business.

And the second area of focus will be our go-to-market motion, where additional support for sales capacity, partner enablement and enhanced brand awareness will allow us to better capture the market demand, support pipeline growth and improve campaign conversions.

And lastly, similar to last quarter, a final point is around FX, where the global nature of our business exposes us to fluctuations in currency exchange rates. Our updated guidance reflects the corresponding incremental FX headwinds we expect for the rest of the year, which more than offset the ARR raise and the Q2 outperformance. In other words, absent the impact of FX, our full year expectations for top line growth have accelerated relative to our guidance last quarter.

As a result, for the third quarter, we expect total revenues of $128.2 million to $130.2 million or growth of 18% at the midpoint. This includes an FX headwind of $2.4 million that is incremental to what was implied in our prior full year revenue guidance.

On a constant currency basis, we expect revenue growth of 19% at the midpoint. We expect non-GAAP operating income of $21 million to $22 million. And for the full year, we now expect total ARR of $522.1 million to $528.1 million or growth of 26% at the midpoint. This includes a $1 million raise from our prior guidance, offset by an incremental FX headwind of $2 million. On an FX-adjusted basis, we expect total ARR growth of 26% at the midpoint, a modest acceleration from our prior guidance.

We now expect total revenues of $508.5 million to $512.5 million or growth of 22% at the midpoint. This includes the Q2 beat of $3.7 million, offset by an incremental FX headwind of $5.6 million. And on a constant currency basis, we now expect revenue growth of 21% at the midpoint, an acceleration from our prior full year expectations.

And lastly, we now expect full year non-GAAP operating income of $86.4 million to $88.4 million, which includes the Q2 beat of $1.2 million, the offsetting FX headwind of $1.9 million and the elevated investments I discussed a moment ago.

Finally, on a Rule of 40 basis, the midpoint of our updated full year guidance is the Rule of 43. We have again included a slide in our investor presentation that provides a walk from our prior full year guidance in May to today's updated outlook.

In summary, this was an excellent quarter from our team with multiple data points confirming that our momentum and success with new and existing customers continues to strengthen. And as we look to the market opportunity ahead of us, we see ample opportunities to continue capitalizing and driving shareholder value, both in the second half of 2026 and in the many years to come.

Thanks for joining us today. And with that, we would be happy to take your questions. Operator?

[Operator Instructions] Our first question comes from Shrenik Kothari with Baird.

TJ, it's really encouraging to see the early AgentPulse traction, particularly the wins. You mentioned customers choosing you for more actionable governance and lower total cost.

You initially bundled AgentPulse within Control and you have since launched it at stand-alone as well. Just curious how much of the pipeline uplift today is directly attributable to AgentPulse? And how are you thinking about stand-alone adoption versus using it to pull customers into the broader Control Plus deployments? Just -- and then a quick follow-up for Jim.

Great. Thanks for the question. Yes, we're very pleased with the reception thus far on the AgentPulse product, definitely driving customer conversations and interest in the bundles. This is also why we actually announced the stand-alone in July because the demand is quite high.

And the number of Control packages customers roughly doubled in Q2 versus prior quarter. And also, our pipeline stats cited last quarter around Control bundles, roughly the same percentage so far this year, but we did note that the average with the AgentPulse in the dollar value of those deals are 2x to 3x larger.

And also, given the latest data, we also see that on average, an AgentPulse customer are managing well over 5,000 agents, AI agents. And what's remarkable is that the number of those agents are growing, doubling every quarter, every 3 months. So, this is something that is definitely a high priority item for our customers, and this is why we made that stand-alone SKU.

Great. Very helpful. And just a quick follow-up for Jim. So, I know you previously had disclosed Control represents roughly 40% of pipeline and today's commentary suggests that the momentum has strengthened further. However, the NRR still remains above around that 110% not yet be moving towards that 115% target that you've set. If you can help just unpack a bit on the dynamics like why this larger expansion as TJ just mentioned, including Control and AgentPulse, not yet sort of translating into stronger expansion? And what should we expect next?

Sure. Thanks, Shrenik. I think maybe to keep in mind, it's still very early in terms of AgentPulse. So, as we mentioned in Q1, it was introduced midway through the quarter. Obviously, we've seen really good pipeline creation and demand for those bundles that TJ referred to, but most of that is still in pipeline. We saw a nice closing and bookings in Q2, but there's still a ton of pipeline.

And in addition to that, we just introduced the stand-alone SKU in July. So, we haven't seen any real impact, obviously, on the Q2 numbers for that, but we do expect to see an impact moving forward. We feel really good about the 110% of NRR where we stand today. We still have that long-term target of 115%. We feel good about that.

So, I do think overtime here, we're going to see our continue moving forward toward that $115 million. So again, I feel good about the pipeline we've created and that the longer-term target that, that will help us achieve the NRR goals that we've set.

Our next question comes from Joseph Gallo with Jefferies.

TJ, I love all the prepared remarks on governance. That was certainly keeping Black Hat. Obviously, it's growing your pipeline. But I wanted to ask like do you think you have the brand awareness in the market where you want it? Is that where the incremental OpEx spend is going? I'm just curious because I imagine it's a tremendously easy cross-sell, but can this also be a net-new logo driver?

That's a great question. I'll go first, and then Jim can chime in.

For sure, in our ecosystem, we have the brand name, especially within the Microsoft Cloud ecosystem. And we have a large team at Black Hat conference as well, and we talked about the new product releases this week around kinetic classification as well as rapid intelligence recovery capabilities. It's all part of our AI trust layer framing that increasingly, customers see our confidence platform as the trust layer for AI to actually confidently scale AI deployment without scaling risks. So, these are really resonating with our customers and partners.

Now in terms of branding outside of our ecosystem, we're definitely going to do more. Jim actually mentioned specifically on this topic around we're going to increase -- we are increasing some of the work on go-to-market, on branding. So our investing for growth because we see the demand in the market. We see the need for our solutions, and we see the actual evidence of growth for our product line. And you will see more product announcements coming as the way to build out this AI trust layer across data, infrastructure, AI and AI agents. So yes, stay tuned to see more of that from us.

Awesome. And then maybe just as a follow-up for Jim. How is U.S. Fed demand? What's the pipeline look like? What are you expecting in the second half of this year? And is that what's giving you the confidence in the ramp in or the acceleration -- the further acceleration in ARR growth constant currency?

Yes. Thanks, Joe. Yes, I think you're spot on. We definitely see pipeline creation really accelerating. So that gives us some confidence. And then also our ARR really is following a trend that we've seen really over the past several years, where Q2 accelerated over Q1.

And then historically, our second half of the year accelerates from the first half of the year. So right now, '26 is playing out exactly that way. We see a nice pipeline acceleration from some of the things TJ mentioned about AgentPulse. Obviously, that's a little bit of a tailwind and pushing that forward.

It's also the reason that we see this demand and this market opportunity, and it's part of the reason we're doubling down and increasing our investment in the second half of the year. So all of that taken together is -- gives us the confidence not only in the growth, but also the reason that we're doubling down on our investment.

Our next question comes from Jason Ader with William Blair.

I was just wondering if you could help us understand how you're positioning versus Agent 365 for Microsoft. And just how to think about any potential headwinds from the E7 bundle where Agent 365 is included. Just help us think through that.

Jason, yes, thanks for the question. We actually mentioned a customer example in the prepared remarks around how customers selected us because we do go -- we can work hand-in-hand with Agent 365, but we also go one level deeper like how we do work with Purview, right? Purview is really at the content level, we're at the workspace level.

And here, we actually -- our delegate administration model, our cross-cloud capabilities and also agent ROIs and be able to track the cost. So all those things we go beyond what the hyperscaler themselves offer and more importantly, is this multi-cloud flavor.

And we also know that Agent 365 stand-alone is about $15 per user. And of course, you have to upgrade to the $99 per user E7 to have it. So there are many customers that have mixed license types. We all know that all customers are going to go even within the organization, everyone go to E7. So there's a lot of opportunity for customers and partners to leverage our capabilities, especially around multi-cloud management at also affordable rate.

Got you. Okay. And could you remind us of the pricing for AgentPulse?

So there's kind of 2 different flavors. So obviously, in the bundle, it's just part of the overall Control Suite bundle. So it's embedded in that pricing. But the -- what we just released in terms of the stand-alone, we essentially have 2 different flavors. So when you think about the base flavor for AgentPulse, it really is providing visibility and observability to the customer so that they can see what's happening in their environment.

And then the step up from that or the more advanced would allow them to actually take action and govern what's happening in their environment. So 2 different price points, a base entry-level price to essentially accommodate visibility and then the actual governance is a second-tier price, both very competitively priced.

We think they're aggressive, not only to attract new customers, but also to help our existing customers take that next step. So again, we think that we've priced it right. Early indications are very positive. So, we're excited about what we're going to see in the future.

Our next question comes from Rudy Kessinger with D.A. Davidson.

This is Ben Smith on for Rudy. Curious on the incremental investments that you're making, do you see that as making investments to meet the ARR guidance for this year? Or is that more intended to drive sustained growth in 2027 and beyond?

Thanks for the question, and I appreciate the clarification. So, we broke those investments into 2 components, really, right, a technology-driven investment and go-to-market motion. I would suggest that the way we're thinking about it is both of those have future -- more future impact than current quarter or even next quarter. The go-to-market motions are investments that are intended to capitalize on what we're seeing in the market and take advantage of that. But obviously, they won't have an immediate impact. They'll have longer-term impact.

And then the technology ones, we're seeing nice efficiency gains from what we've been doing, particularly in our engineering team. And we want to see that continued transformation, not only within the engineering team but beyond. But again, those efficiencies will happen over time, and we'll see those improvements moving forward.

So, I would think about it and the way the company is thinking about it is more of a longer-term impact. And we think about a slight impact on our current operating income results with the intention that this gives us even more confidence of hitting our longer-term operating income targets because of the efficiencies gained and the ability to increase the top line as well.

Our next question comes from Erik Suppiger with B. Riley Securities.

Two follow-up questions. One on the pricing for AgentPulse on the stand-alone. I didn't catch. Did you say that you price that on a per agent basis? Or what is the foundation for that? And then on the operating margin, I'm assuming you're still targeting the 25% to 30% in fiscal '29. Can you just describe what the trajectory for getting there will be? Will it be back-end loaded? Or what should we be thinking about as we get past fiscal '26 here?

Great. Thanks, Erik, for the question. So, I appreciate the clarification on the pricing. So, a great point. What we've tried to do is make it very easy for our customers. And right now, it's being priced on a per seat or per user basis as opposed to a per agent. Some of the feedback we've obviously heard from customers is one of their challenges is even understanding how many agents they have running in their environments. So, to essentially have certainty of pricing, we went at the easiest model possible, which would be the user. So again, that seems to be resonating with customers. So, we think that's the right strategy, at least for today.

On the second question...

Just real quick on that user, is that typically an administrator like 365 administrator? Or who is the typical user that you're selling to there?

No, I think more of the Microsoft licensing model where it would be for the whole enterprise in terms of all users. That would be the...

Got you. Okay.

Which is similar to pricing for other products as well. So then when we think about the operating margins, good question in terms of what we're expecting moving forward. And we haven't changed our long-term targets. And as I mentioned, I think this actually gives us more confidence that we're going to be able to achieve those longer-term targets because of the efficiency we're seeing from some of the investments we're making today.

So, when we think about how that trajectory looks, I don't think it will be -- and we said this right from the start, I don't think it's completely linear. There will be some ups and downs as we move forward towards that goal. I don't think that changes, but I would expect to see improvements over the years. They just won't be at the same rate. But again, we feel really good with those overall targets.

And one of the things that, again, we're even more focused on is GAAP profitability. And you heard me mention earlier about the expansion that we saw in Q2 as well. So, when we look at all of that together, we're excited to be able to hit those longer-term targets. I think the investments we're making today give us -- make that goal even more easier to hit and give us more confidence to achieve that.

Our next question comes from Todd Weller with Stephens.

Could you hit on the Resilience business and talk about kind of the demand trends and drivers you're seeing there? And then related to that, how do you see AI kind of impacting, influencing that business, both from a capabilities perspective, but also from a growth and opportunity perspective?

I'll go first. Yes, the resilience side is still growing very robust. And also from an AI perspective, the AI risks, right? We recently released the state of AI report where we see that 88% of the companies have some sort of AI security incident in the last 12 months.

So, AI risk is real. So, the damage is happening at machine speed. So, this is actually highlighting the need for a very robust resilience capability. We actually include essentially back express and restore express capabilities to restore environments very, very quickly in minutes.

And also give customers the ability to actually prioritize with even recommendations on prioritizing which workloads, which type of functional areas to restore first, the concept of minimal viable company idea in terms of massive outage. So these things are actually happening live.

If you recall the previous earnings, we even talked about how when the conflict in Middle East happened, that really drove a spike for resilience capabilities because of the need to restore entire production environment in a different hyperscaler cloud very, very quickly.

So yes, so AI is actually driving even further need -- heightened need for this. And this is why we released the new products that we announced at Black Hat is leveraging AI capabilities to actually continuously classify and add rich context to your data sets at the same time, be able to identify prioritization of restore capabilities.

And T.J., just a follow-up to that. What are you seeing? Where are we in terms of like AI applications and workload being backed up by kind of AvePoint Resilience solutions?

Yes. We actually back up agents now as well. And then -- so this is what we call IaaS and PaaS. So much of this infrastructure is running in compute cloud, whether it's Azure, GCP or AWS. Those are -- we also actively back up those and then restore them store them to wherever the customer would like, whether it's their own data centers or the same cloud data centers or in a different hyperscaler location for failover capabilities. So that demand is there. So we do more of that today than ever before.

Our next question comes from Joe Vandrick with Scotiabank.

Maybe one for TJ. I mean it seems like we're starting to see an acceleration in how quickly large enterprises are adopting AI. We've seen really strong results at Microsoft with Copilot adoption. You're starting to see it flow through numbers for other software companies like Datadog and Snowflake.

But I guess I'd love to understand what trends you're seeing in your customer base and if this is ringing true for you guys. I know roughly half of AvePoint ARR is mid-market and SMB. So like what does that mean for adoption? Is it taking a little bit longer to show up for these smaller customers than the larger enterprises that you also see because you also have those guys as customers. So what does that mean for AvePoint?

Yes. So the example we give our average AgentPulse customer, they discovered they have at least 5,000 agents and then that number grows doubles every 3 months. We have customers where we're managing hundreds of thousands of agents for them. So that's -- the number of agents now far exceeding the number of employees. Of course, most of these agents are very lightweight, very simple, almost workflow type of agents, not yet full-on virtual employee, nonhuman identity type of robust agents that people spoke of. So that's where we see.

And of course, Microsoft's Copilot, Office Copilot adoption has been very robust. It's gone to now 30 million user seats. And then GitHub Copilot is now 50 million user seats. So that's not just enterprise. It's also medium-sized businesses and SMBs. In fact, in Q2, we added a record number of SMB new logos as well as a record number of 250,000 to 500,000 ARR cohorts. So, we do see success across all the segments.

I don't think it's true that SMBs are not deploying AI faster than enterprise. It's the ability to deploy and launch agents. That's very different this year versus last year, everyone is focused on how many Office Copilot people are deploying. So actually, it's very, very targeted deployment of AI. Of course, last year is also token maxing. This year, it's very, very focused on cost control and making sure that there's intentionality in terms of outcome-based AI deployment. So, this is why the AI trust thing is so important now.

Very helpful. And maybe just one follow-up. You guys continue to improve and add functionality to the Elements platform. Can you talk more about the traction there? And ultimately, how big can this MSP-focused business be for AvePoint?

That's a great question. So right now, MSP is almost analogous to SMB to us. So, SMB is roughly about 20% of our recurring. So, we are adding new capabilities to our Elements platform, even include endpoint management, license management, not so SaaS license management in addition to, of course, agents, AI agent cost management. So that's our fastest-growing segment, as we mentioned a number of times before, and it continues to be.

We think the SMB market segment could be as large as 30% to 40% in the next few years. So, we still have ways to go. In terms of the overall market size, it's massive. So, we cited that we have about 6,000 total partners. I think in the MSP space, we have about 2,000 total partners. But the ecosystem, even just in North America is about 20,000 MSP partners. So, there's still a lot of greenfield for us to go after.

Our next question comes from Nehal Chokshi with Northland Capital Markets.

Congrats on another good quarter. And as always, great clarity on the guidance, including Slide 25 here that bridges the prior guidance and updated guidance and shows that indeed, it's a raise here, excluding the FX impacts. Just to be clear, though, this guidance change, is that reflective of -- or is that inclusive of Q2 outperformance on the ARR side?

Well, again, we don't necessarily guide quarterly, right, on ARR. So, when you say outperformance, we technically guide for the full year on ARR. So, there's not necessarily a beat for the individual quarter.

We were very pleased with the performance of ARR in the quarter. And so that is reflected in our overall change to the guidance in total, where we feel really confident based on the performance in Q2 and what we see for the rest of the year to raise our guidance by $1 million, but I wouldn't say it's specifically just about Q2, though.

And Nehal, thank you for recognizing the slide and the walk that we try and put together. It can be complicated. We understand that. And -- so we appreciate the fact that you recognize and see that. So thanks for mentioning that.

Absolutely. And then TJ, there appears to be new ecosystems that have been born, specifically Anthropic and OpenAI. Do you agree with that assertion? And if so, what are you guys doing to develop products specific to these new ecosystems and go-to-market mechanisms for these new ecosystems?

That's a great question. So we think those are commercially available large language model ecosystems, and they're increasingly in the age of expensive AI tokens, we see more and more customers that are using different providers and different type of models, both private models as well as open source models running their own infrastructure to be much more cost conscious and outcome-driven. So therefore, in leveraging these models, there need to be certain agnostic nature to it to be able to route different type of workloads to different models.

Fundamentally, though, everything these models ground on, especially for the enterprise are the data. So, the foundational data is what we care about, right? We curate that data. We actually add context -- we do this kinetic classification and life cycle management and the recertification of that. So ultimately, whichever provider and whichever large language model that the customer used to refine on will have a better outcome. So, in that way, we are model provider agnostic.

Microsoft also say that as a hyperscaler, they're the one that most neutral to this type of model. So -- but having said that, Anthropic, OpenAI do have now their own B2B ecosystem. So, there is another area that we do work to support. But today, like we mentioned earlier, we do support backing up and restore of agents, those basically VMs and servers and all the data that those agents ground on, including memories, models and skills, right? Those cached data repository that agents will use to be productive.

Just curious, it sounds like -- could you sort of like give your perspective as far as the enterprises that you're working with that is AgentPulse? What's the distribution of agents across these various LLM ecosystems and open source versus closed source versus hyperscaler backed?

That's actually very hard to -- it's very dynamic, honestly, because as I mentioned last year, it was token maxing everyone is just measure simplistically how much token is being consumed as a kind of a proxy for AI intelligent use of AI, right? This year, a lot more cost consciousness towards this. I know even ourselves included.

No CFOs, Jim included, want to be surprised with the token consumption over budget in a very quick order. So, more and more enterprises are actually becoming smarter, -- why is up to the fact that they need to be much more diligent in how to use AI and how to do this in an economic way. So, this whole space is changing very quickly.

So, Nehal, I don't think it's kind of useful to say this is a snapshot. I feel like this dynamic is changing by the quarter. Thinking Machine now has an open-source model, American-made open-source model that a lot of people are now using as alternatives. So, this is a very dynamic space. It's very hard to get concrete data on that.

Our next question comes from Derrick Wood with TD Cowen.

This is Cole on for Derek. TJ, this is kind of a follow-up to an earlier question. But with Mythos and all these new vulnerability concerns, are you guys seeing like incremental demand and pull forward or faster buying cycles from customers?

Yes, that's a great question. This is what we're seeing in terms of this whole AI resilience, so smart recovery and be able to detect damages more in real time, the phrasing is machine speed. So, this is where the demand for resilience is coming in. So, damages have been down now at machine speed. So, recovery has to be done at machine speed. So, it's absolutely driving the demand for resilience as well as, of course, the governance overall, this AI trust layer.

So, you will hear more, again, as I mentioned, product coming from AvePoint in the next months and quarters to really lay out the overall robust offering around AI trust layer. But now with security completely disrupted by attackers that's actually not humans anymore, agents, fleets of agents, this whole AI trust AI recovery capabilities is ever more important.

Our next question comes from Kirk Mattern with Evercore.

This is Vinod on for Kirk. We realize this is a small part of the business right now, but could you maybe talk about your Google Cloud-related business and the growth trends there?

Yes. We're pleased with the Google growth rates. We have seen really good success in North America, in Japan, now starting to see it in EMEA as well.

We actually articulated this earlier also, Google is actually making very good inroads. I personally was at their Google -- next conference a couple of months ago. They're making very good inroads into enterprise. So -- and also our communities, there's a lot of enterprise leaders that we know very well for a decade plus are now leading teams there.

So it's -- the thing is different tech stack, but same problems that they solve. We help customers move data between different hyperscaler data states. The reality is the world is multi-cloud. So we even have customers to have both Google and Microsoft stack running in the cloud. So that side is going well. We're pleased to see the progress. And we're making investment also to make sure that we have this go-to-market success globally.

Great. And one more for me. The environment around us is changing very quickly and rapidly with Mythos, et cetera. Looking back to the end of last year, has anything really surprised you or stood out or been very different than your initial expectations around the topic of shadow AI coming into the year?

Yes, things are moving very fast. So I think everyone's -- every CEO I talk to, there are 2 things that they very much focus on here on fire problem. One is the risk, right, Shadow AI and agent sprawl and of course, around cyber, how AI agents can break in at a much more fast and furious than human actors can do that.

And second one is cost. And AI consumption costs are going through the roof. I know many of our customers talk about their budget kind of blown with the token consumption. So that's something that everyone increasingly need to get a handle around.

So these 2 things, risk and cost is what customers are really very focused on. But the fact remains, right, this AI technology is highly disruptive. It's here, it's real and companies have to use it, but they have to use it in a trusted way so that they don't also, at the same time, scale risk. They need to control risks and control the cost at the same time.

So I think nothing really surprises us per se, but it just -- it seems like the pressure it's even higher this year versus last year, the pressure to not only deploy AI, but also securely and cost effectively.

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

Well, thank you for joining us today. I'll close by sharing where our confidence comes from because I'm coming off a full round of quarterly business reviews with our teams across Americas, EMEA and APAC. And the message from every one of those conversations with our customers, partners and leaders running each of our regions was remarkably consistent.

The disruption created by agentic AI is real and accelerating and organizations everywhere are turning to AvePoint to bring the visibility, governance and above all, the trust this new era demands.

We are executing well on every front, and our business is performing with greater breadth and consistency than ever. That is exactly why we're so bullish on our ability to capitalize on this generational opportunity as the unifying trust layer for AI and why our conviction in the path to our $1 billion ARR target has never been stronger.

Thank you again for joining us today, and we look forward to speaking with you more this quarter.

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

Good day, and welcome to the AvePoint, Inc. Q1 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jamie Arestia, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to AvePoint's First Quarter 2026 Earnings Call. With me on the call this afternoon is Dr. TJ Jiang, Chief Executive Officer; and Jim Caci, Chief Financial Officer. 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 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 substitute 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 measures is available in our first quarter 2026 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. Q1 was a strong start to the year. Our leadership at a critical intersection of data protection and security, combined with the growing demand for AI-ready solutions, allowed us to again exceed our guidance on both the top and bottom line. Q1 also marks our 12th straight quarter of double-digit growth in organic net new ARR, which we delivered while driving more than 730 basis points of GAAP operating margin expansion.

Importantly, we're delivering strong results during a rapid shift in the market. It wasn't long ago that AI discussions with customers focused entirely on models and productivity gains. As AI is becoming deployed more widely and evolves from assistance to autonomous agents, data access increases exponentially and data governance becomes top of mind.

Today, when I meet with customers and partners globally, the question is no longer what can AI do for my organization, but rather, can I trust, govern and operate AI safely and at scale. In short, the conversation has pivoted away from productivity and towards something far more important, enterprise trust in this new enormously powerful technology.

This is where I would like to focus my time today, how organizations can achieve this level of confidence and why AvePoint is uniquely positioned to deliver on this demand. To answer this question, it's first important to understand the AI stack today, which starts with infrastructure, energy, chips, physical compute hardware and so on. These components are important, but it's also fair to say that they are table stakes today and are quickly becoming commoditized.

The real center of gravity, not surprisingly, has shifted to data, the knowledge that powers AI and fuels the next 2 layers, AI models and agentic AI. For every organization, it's here where value is created, but it's also where risk multiplies because every AI system inherits and leverages what sits underneath it and weak data governance and poor data controls lead to bad decisions and security risks, in turn destroying trust.

Ultimately, once trust is lost, AI doesn't scale. This is critical because as AI agents operate more autonomously across enterprise productivity apps, companies truly need a trust layer so that they can scale AI adoption without losing control of data security, privacy and compliance. It's equally critical to understand why it's different now and what exactly has changed for enterprises seeking to govern data. At a high level, the most commonly leveraged productivity tools today like Microsoft 365, Google Workspace, Salesforce and others were originally designed for human productivity and not autonomous AI execution.

As a result, with the rapid emergence of AI tools that are processing more information at greater speeds and scale than ever before, data governance must also evolve. This is exactly where AvePoint comes in, and the customer demand for this trust is the real AI opportunity we see. It's why we're building the trust layer for AI, spanning data, governance, risk and operations so that organizations can deploy AI securely responsibly and with confidence.

We believe that organizations can only trust AI when they prioritize 3 things: first, precisely control what AI can access; second, govern and audit every action AI takes and finally, recover instantly when something goes wrong. This trust layer must do all of these continuously, all while maintaining data lineage across both unstructured and structured data sources. The resulting contextual data is an enormous competitive advantage for AvePoint and truly distinguishes us from legacy point solutions and backup first vendors. This differentiation was also recently validated by Gartner, who specifically cited AvePoint's comprehensive set of capabilities and platform strategy as superior to native offerings like Microsoft's Agent 365.

Let me bring this to life by discussing our integrated approach, along with some specific capabilities and recent enhancements to our platform. First, see. We offer unified real-time visibility across the entire data estate, including what AI agents touch and how access patterns change. New this quarter, organizations can now see across their entire agent stack, including Copilot Studio, Microsoft Foundry, SharePoint Agents and Gemini Enterprise, all within one screen in Agent Plus.

Second, Govern. Our platform provides automated policy enforcement, compliance standards and access controls across every environment and workload, including AI agents acting as virtual employees. This quarter, we launched a new risk definition for AI agents, so organizations can better access more information about agent security and correct problems automatically. This is especially critical because unmanaged agents can lead to runaway costs and expose sensitive data without proper oversight.

Lastly, recover. We ensure granular, automated recovery from any failure, whether caused by ransomware, human error or autonomous AI activity. The speed with which we can do this is unmatched as we can often recover several petabytes of data per hour. Lastly, we made significant investments into Google Cloud Protection this quarter and recently added multi-SaaS backup sources like Okta, Confluence, Jira, DocuSign, monday.com, GitHub and Smartsheet, adding to our growing library of protected data.

This integrated approach, see, govern and recover is powerful because it transforms AI risk into a manageable variable and ensures that the trust layer is a foundation for AI-driven growth, and it is resonating across the market, firmly cementing AvePoint as a foundational infrastructure that enables safe AI deployment at scale.

A great example of this is a U.S. pharmacy benefits manager that became a new AvePoint customer in Q1. They wanted to roll out Copilot but knew they faced data sprawl issues with little visibility and control over 500 terabytes of unclassified data, seeking a single vendor who could address multiple strategic use cases, they purchased our highest tier control bundle along with OPUS from our Resilience suite. Ultimately, choosing AvePoint because our automated governance, life cycle and access controls would enable them to deploy Copilot with confidence and streamline the regulatory audits they face on a regular basis.

They also plan to use our modernization suite for future data consolidation efforts aimed at reducing their tech debt and retiring their on-prem footprint. The customer need to rapidly address multiple strategic use cases is extremely common today given the number of ecosystems and applications our customers are using and the ability of our platform to protect and govern data regardless of where it resides is a unique competitive advantage.

This was the driver for a large transportation and logistics conglomerate, which initially engaged AvePoint during the pandemic to decommission an on-premises data center and migrate roughly 50 terabytes of file share data to Microsoft 365. This effort went beyond the basic migration. The customer needed to preserve permissions, retention policies and governance while modernizing their environment. AvePoint supported this transformation with capabilities spanning modernization, control and resilience, enabling a secure transition to the cloud with strong governance and operational oversight.

As the customer's environment matured, the relationship expanded to include broader governance and data protection. In 2025, when the customer began planning a shift from Microsoft 365 to Google Workspace, AvePoint's multi-cloud capabilities became increasingly strategic. The platform helped prepare data for transition through classification, policy management, insights and cleanup, ultimately leading to a Q4 2025 award for data transformation services supporting the move.

Rather than being displaced, AvePoint's role strengthened providing consistent governance and resilience across cloud environments. This foundation also supports the customers' AI readiness as they adopt Google Workspace and Gemini, ensuring data is trusted, controlled and recoverable. Lastly, the foundation enables real-time situation awareness for the customer, where our platform's advanced reasoning can identify and surface urgent logistics action items, such as a delayed shipment or an unread threat about critical rate change before it is too late.

Looking ahead to a planned 2027 migration into the parent company's Google tenant, the engagement exemplifies AvePoint's land and expand strategy, evolving from monetization to a strategic platform for multi-cloud governance, resilience and AI-enabled collaboration. This need for integrated platform solutions that deliver rapid automated value against multiple strategic use cases is only growing, especially in the highly regulated industry that represents the majority of our business.

For example, effective data governance in the healthcare industry is more than better visibility and oversight. It's about patient safety, regulatory compliance and operational resilience. One of our largest customer recently shared that bundling Agent POS within the broader governance capabilities of our control suite has provided them visibility into thousands of agents without having to make a separate business case related to their MC65 deployment. We're hearing similar feedback from partners.

Our latest report conducted in partnership with Omdia, the leading global channel technology market research firm, revealed that nearly half of MSPs want a complete platform integrated with other core tools and 91% say that integrating data backup and disaster recovery delivers stronger data governance than offering them separately. We saw this many times in Q1 with existing customers who added to their AvePoint deployments, and we continue to believe that our nearly 30,000 customers still represent an enormous growth opportunity for us.

For example, an Austrian luxury goods conglomerate that already own OPUS needed to ensure business continuity as well as tailored lengthier retention policies for their data in M365. With native capabilities not allowing for this level of customization, they purchased cloud backup from our Resilience suite in Q1, and we're now discussing the many strategic use cases that can be addressed with our control suite.

Despite the noise across the software space for the last few quarters, our strategic priorities have not changed and our growing conviction in our 2029 goal of $1 billion in ARR remains as strong as ever. The relentless growth of data and the growing demand for platform solutions that enable AI deployment at scale will ensure that AvePoint remains a top priority for enterprises around the world, and we're excited for a strong 2026.

Thank you again for joining us today. I'll now turn it over to Jim.

Thanks, TJ, and good afternoon, everyone. Thanks for joining us today. Our first quarter results were an excellent start to the year and a continuation of the healthy momentum and market demand with which we closed 2025. As I discussed last quarter, very few software companies have AvePoint's organic growth profile, scaling operating margins and GAAP profitability, material cash flow generation and healthy SaaS KPIs. Our Q1 results once again highlight these strengths and demonstrate our ability to consistently execute on our commitments to shareholders.

Let's turn to the quarter. Total revenues in Q1 were $117.2 million, representing 26% growth year-over-year and above the high end of our guidance. On a constant currency basis, total revenues grew 20% year-over-year. SaaS revenues were $93.4 million, growing 35% year-over-year and representing 80% of total Q1 revenues, surpassing last quarter's record and exceeding our mix expectations. On a constant currency basis, SaaS revenues grew 29% year-over-year. Term license and support revenues declined 29% year-over-year and represented 8% of Q1 revenues compared to 12% a year ago.

I would also point out that beginning this quarter, we are now including our legacy maintenance revenues in the term license and support revenue line item for all periods presented, given that maintenance is immaterial now to our total revenues. Lastly, services revenues grew 33% year-over-year to $14.5 million, representing 12% of Q1 revenues. As a result, 88% of our Q1 revenues were recurring, and on a constant currency basis, services revenues grew 27% year-over-year.

Our healthy momentum is also evident when we look at revenue performance by regions. In North America, total revenue growth was 21% year-over-year, driven by SaaS revenue growth of 32%. In EMEA, total revenue growth was 30% year-over-year, driven by SaaS revenue growth of 39%. In APAC, total revenues grew 28% year-over-year, driven by SaaS revenue growth of 37% and services revenue growth of 46%. On a constant currency basis, EMEA SaaS revenues increased 26%, while total revenues increased 18%. For APAC, SaaS revenues increased 32% on a constant currency basis, while total revenues increased 22%.

The same top line strength by region is evident when looking at ARR. In Q1, North America ARR grew 21%, EMEA ARR grew 32% and APAC ARR grew 27% as we ended the quarter with total ARR of $435.2 million. This represents year-over-year growth of 26% or 23% after adjusting for FX. As a result, net new ARR in Q1 was $18.4 million, representing growth of 17% year-over-year after excluding the $2.8 million of the ARR that was acquired in Q1 of last year. As TJ mentioned, this was our 12th straight quarter of double-digit growth in net new ARR.

Lastly, as of the end of Q1, 58% of total ARR came through the channel compared to 55% a year ago. Last quarter, we called out our consistent success at the enterprise level, and this momentum continued in Q1. We ended the quarter with 863 customers with ARR of over $100,000, a year-over-year increase of 25%, an acceleration from last quarter's record. We are pleased that the growth rates for our larger customer cohorts were all higher than the 25% growth from our $100,000 cohort, demonstrating that we continue to meet the demands of the highly complex organizations looking for single platform vendors that can address multiple strategic use cases.

Turning now to our customer retention rates. Adjusted for the impact of FX, our Q1 gross retention rate was 89%, a 1-point improvement from Q4, while our Q1 net retention rate of 110% was in line with Q4. Similar to prior quarters, our migration products again served as a 2-point headwind to GRR given their naturally lower retention rates. We would not be surprised to see this dynamic continue, especially given the recent elevated demand for migrations we called out last quarter. On a reported basis, Q1 GRR was 89% and NRR was 111%.

Turning back to the income statement. Gross profit for Q1 was $86.1 million, representing a gross margin of 73.4% compared to 75% a year ago. The year-over-year gross margin decline is primarily the result of lower gross margins on our services revenue this year versus a year ago.

Moving down the income statement. Operating expenses in Q1 totaled $65.6 million or 56% of revenues compared to $56.5 million or 61% of revenues a year ago. As a result, Q1 non-GAAP operating income was $20.5 million, representing a 17.5% operating margin as well as year-over-year expansion of 310 basis points. Importantly, our ongoing management of stock-based compensation, which was 6% of Q1 revenues, has driven an even stronger expansion of our GAAP operating margins, which were just under 11% in the quarter and expanded more than 730 basis points year-over-year.

Taken together, these results demonstrate that our investment year is not a retreat from profitability and proves that we can fund our AI road map while simultaneously delivering meaningful leverage across the business. On a Rule of 40 basis, which for AvePoint is the sum of ARR growth and non-GAAP operating margin, we finished Q1 at the Rule of 43. Using the more traditional Rule of 40 components of revenue growth and free cash flow margin, we finished Q1 at the Rule of 51.

Turning to the balance sheet and cash flow statement. We ended the quarter with $444 million in cash and cash equivalents. For Q1, operating cash flow was $24.3 million or a 21% margin, while free cash flow was $23 million or a 20% margin. This compares to operating cash flow of $500,000 and free cash flow of a negative $1 million a year ago.

Last quarter, we discussed the acceleration of our share repurchases, reflecting our belief in the underlying strength of the business and commitment to driving shareholder value. This increased pace continued in Q1 as we repurchased 5.4 million shares for approximately $60.8 million. For reference, we spent approximately $50 million on share repurchases in all of 2025. Through the close of trading on Friday, we have bought another 1.8 million shares for approximately $17.7 million. Given the increased pace of our buying, our Board of Directors has authorized the replenishment of our existing share repurchase program back to $150 million.

I'd like to make 2 additional points on our repurchases, which remain a key pillar of our capital allocation framework. First, they have minimized the dilutive effects that we see from the issuance of shares to employees. Second, we are generating meaningful cash flow even after accounting for repurchases. As our cumulative free cash flow after share buybacks over the last 3 full-years is approximately $78 million.

Turning now to our guidance, where I want to provide some color. First, we are raising our full-year guidance for ARR, which reflects our momentum and healthy demand we see. Second, our updated full-year guidance for revenue and non-GAAP operating income only includes the Q1 outperformance relative to guidance as we account for the increased SaaS mix we now expect for the balance of the year and the impact it may have on reported revenues.

The last point is around FX, where the global nature of our business exposes us to fluctuations in currency exchange rates and the currency headwind we saw in Q1 from the strengthening dollar has continued in Q2. The corresponding incremental FX headwinds we expect for the rest of the year are also reflected in our updated full-year guidance and more than offset the ARR raise and the Q1 outperformance. We have included a slide in our investor presentation that outlines this progression from our original guidance to today's updated outlook.

As a result, for the second quarter, we expect total revenues of $120.3 million to $122.3 million or growth of 19% at the midpoint. On a constant currency basis, we expect revenue growth of 18% at the midpoint. We expect non-GAAP operating income of $18.7 million to $19.7 million. For the full-year, we now expect total ARR of $523.4 million to $529.4 million or growth of 26% at the midpoint. This includes a $0.5 million raise from our prior guidance, offset by an FX headwind of $2.2 million. On an FX-adjusted basis, we continue to expect total ARR growth of 26% at the midpoint.

We now expect total revenues of $509.4 million to $515.4 million or growth of 22% at the midpoint. This includes the Q1 beat of $1.8 million, offset by an FX headwind of $2.9 million. On a constant currency basis, we expect revenue growth of 20% at the midpoint. Lastly, we now expect full-year non-GAAP operating income of $91.5 million to $94.5 million, which includes the Q1 beat of $700,000, offset by an FX headwind of $2.2 million. Finally, on a Rule of 40 basis, the midpoint of our updated full-year guidance is a 44%.

In summary, we are proud of the team's strong start to the year. We are excited for a strong Q2 and 2026 as we are well positioned to capitalize on the enormous market opportunity we see. Thanks for joining us today.

With that, we would be happy to take your questions. Operator?

[Operator Instructions]. The first question comes from Joseph Gallo with Jefferies.

Can you just unpack the 1Q performance a little bit? Was the 23% constant currency ARR growth in line with your expectations? I assume so given you modestly raised the full-year, which is really impressive. Then just maybe just walk us through the confidence in that acceleration from 23% to 26% constant currency throughout the year.

Yes. Thanks, Joe. Short answer is right in line with our expectations coming off of just really providing that guidance in February at the end of February. No real surprise. Obviously, little FX impact, but pretty much right in line with what we expected.

When we think about the full-year kind of accelerating from that 23% to 26%, one of the key things for us is that you may recall last year, we definitely had a lot of uncertainty, and it was a tough year for our U.S. public sector. Now obviously, our public sector is a global business, but we definitely saw some softness last year in our U.S. public sector, particularly in the federal space. What we're seeing this year, and we're already seeing in Q2 is some traction, some pickup. Our pipeline is growing. We see some nice growth rate that's going to propel really the second half of the year, particularly in public sector. That definitely is an impact and will gives us the confidence today to sit here and see that we have a pathway to that 26% growth.

Then just as a follow-up, TJ, you've been tremendously bullish on the potential of AI this quarter, last quarter, quarters before that. I think the last disclosure you gave was Control Suite was growing 18% year-over-year ARR in 4Q. Are we seeing a rebound in those growth rates? Or as investors, what metrics should we be monitoring that correlate with the positive AI message that you're articulating?

That's a great question. First of all, AI is a tailwind for us as we play the infrastructure layer, we talked about the trust layer in the prepared remarks, above the energy, the chips and the data and right beneath the corporate fine-tuned training model and then, of course, AI and workflows. That's the space that we operate, and we're very comfortable in that space to do the end-to-end data curation, management, governance. It's really pervasive across our entire AOS platform.

Now we did announce AgentPulse, that's driving a ton of interest and also actual results. Nearly half of our pipeline now is the control suite. It's really lifting up our overall significance around the end-to-end multi-cloud agent discovery, agent management, agent cost management as well as ultimately shutting down our rogue agents as well as recovering from damages potentially done by agents. Really, we see ourselves as the only end-to-end players in that space to help our customers gain confidence and trust into their enterprise AI deployments.

The next question comes from Shrenik Kothari with Baird.

TJ, you mentioned about the expanded protection into Okta, a bunch of Atlassian offerings, Cosmo CV, etc. Just how should we think about both the overall TAM expansion across the SaaS identity and developer estate as well as potential timing of how this opportunity plays out? Then I had a quick follow-up for Jim.

Yes, that's a great question. Firstly, the reason we supported all these multisources is because that's what we see with our customers. Our customers are multi-cloud, and they also leverage different vendors for different aspects of their data repositories and enterprise needs. We actually see the demand very strong, especially you talk about timing, right? In Q1, when the height of the conflict in the Middle East, many of our MENA as well as so Middle East, North Africa as well as European customers are very, very keenly aware on the data resiliency aspect of it. We actually see tremendous demand in those markets. More demand, not less for resiliency and also into these new data sources. It's actually a very good positive movement for us in that regard as part of our overall platform to drive entire life cycle of resiliency.

Just a quick follow-up, TD and Jim, feel chime like. If AI governance and you went into great detail, it's increasingly mapping to a lot of great outcomes, right, across your offerings, including lower storage, better audit readiness, also reducing agent spend. How do you think about the value capture? I know you have mentioned about potential outcome-based approach and packaging optimization. Where should this consumption or outcome-based pricing first become material? If you can give some anecdotes.

Yes. We actually do more services now as well, as you saw in the Q1 pickup. That's really focused around AI modernization efforts. What our customers discover and our partners is that given our pedigree and our capabilities around day-to-day curation, management and governance, we actually help them lead to much faster, positive and confident AI deployment outcomes. The services component is part of that. It also allow us to stay very close to the customer to see where really the market is moving. Different geos have different characteristics, because we do cover the globe. We're very positive and confident in continuing that type of outcome as a service type of engagement to stay close to the customer.

In terms of licensing, we follow the market makers. In the productivity side, whether it's Office Cloud or Google Workspace, it's very much the whole market is seat-based licensing. On the compute side, whether it's GCP, whether it's Azure, whether it's AWS, that's very much consumption-based. What we look at is IaaS, Infrastructure as a Service, PaaS, Platform as a Service and of course, very much all the agentic work that's very much running on the compute side. That's the consumption side. Of course, we layer in our service -- outcome as a service capabilities to help our customers modernize AI.

I will also say we see the greatest demand from regulated industry because they fundamentally understand this problem set. Rest of the market is still taking time to reach that keen awareness of the need for proper end-to-end data management governance. The regulated industry are moving rather quickly, and we see the chunk of the larger deal engagement happening there. Yes, so that's -- we continue to see a tailwind.

The next question comes from Erik Suppiger with B. Riley Securities.

As customers start adopting AI agents, is there a difference in the way that they prioritize securing primary data versus secondary data?

I think I was just with a sizable customer yesterday. I think the priority of priorities is to guard against and make sure that they enterprises have a handle on now the shadow AI. Everyone -- many people, employees within the organization are doing AI by coding, standing up AI agents with whatever commercial off-the-shelf offering that are out there. That is something that everyone really focused on. First step is to audit and discover and, of course, bring those agentic processes under control. That's what we see.

Also your question around data. Fundamentally, the AI enterprise deployment does ground on good data. Where we see these data silos that's happening and messy data, IoT data redundant as a trigger data, that does lead to inferior outcome when it comes to AI. We really focus around unstructured data. Really helping enterprises look at across their unstructured data repository, which is, again, 80% of all data out there, that's e-mails, that's chat, that's files, that's contracts. That's also the type of data that Gen AI is very good at in shifting through, ingest and be able to inference intelligence out of. It's also that corpus of data set that need to be better curated, better governed. From a risk and compliance perspective, enterprise have more confidence in that AI deployment.

The next question comes from Todd Weller with Stephens.

Could you elaborate on the durability demand you're seeing in the resilience segment, kind of break down how much growth is coming from new customers versus expansion? Then also tie into that the bundling strategy and how that's influencing deal sizes and growth?

Yes, I'll comment on the first part, and then I'll let Jim talk about the financial details. We see very robust growth in the resiliency side, especially as my earlier commentary in the EMEA territories, given the heightened awareness of resiliency when Azure -- when the hyperscaler data centers, in this case, AWS are taken offline, that increases the awareness of failover resiliency. Of course, almost every other day, we read about AI rogue agents going out there and destroying certain significant segment of enterprise infrastructure when it comes to data. That's also very top of mind for our customers. The demand for resiliency is very high.

We have to caveat that it's part of our platform. We view ourselves as really the only vendor out there that does the end-to-end, not only the resiliency to recover a bit, but also obviously, the control, life cycle management, governance, curation of data, but also importantly, governance agents and raising awareness on the cost. The agent cost is actually another very big topic across our enterprise -- all customers because if you're not monitoring the agents, it will go true up as many tokens as you allow it to consume. Agent and token consumption, token optimization is now a very large topic. It's rolled into this whole AI governance topic as well.

Then maybe the other piece to that question about how much is coming from existing customers versus new customers. If you look in general across all our products, we're roughly 60-plus percent is coming from our existing -- or I would say, new ARR is coming from our existing customers, so about 60-plus percent with the balance coming from new customers. Obviously, that fluctuates from quarter-to-quarter. I would say in resilience, we're roughly in that same category, same range. Again, that does fluctuate from quarter-to-quarter, but I would use that as kind of like a baseline.

The next question comes from Derrick Wood with TD Cowen.

TJ, I just wanted to touch on Microsoft starting to see some inflecting adoption of Copilot. They had 5 million seat adds last quarter. Could you give us a sense as to how you've been able to participate in this accelerated activity and if this is driving stronger pipelines? Or is demand kind of being brought more into the Azure AI studio type of environment?

That's a great question. I think $5 million is still a very small fraction of the total deployment seats for MCC 5. We actually see far more what you referred to than the latter, the Copilot Studio deployment of AI for specific use cases. Same thing across Google space. Google Gemini, it's a very, very robust growth, especially in enterprise as well as now in U.S. public sector. We actually see across the spectrum of AI deployments and adoption. That's very exciting. That's very much a tailwind that we actually get involved in. It's more of the overall AI adoption and evolution rather than the specific Office Copilot deployment numbers that's driving our growth.

Jim, maybe one for you. You talked about SaaS mix shift this year versus maybe what you were originally thinking. Can you double-click on that and why it would be higher and what that means in terms of the impact to the on-prem business?

Sure. I'm glad you brought it up, Derrick. Yes, so we noticed that in Q1, definitely of the business that was closing, more of that was showing up as SaaS in terms of just the dynamics as opposed to us having to do revenue recognition as a term license. What that means in the short term is that you're recognizing less revenue upfront. If you remember in that term license scenario, you have a larger percentage recognized immediately and then a smaller percentage recognized ratably over the rest of the contract. Obviously, in the SaaS environment, it's ratable over the whole term.

When that happens, when we see more of a shift or in our case, even from a budgeting point of view, we have to make an assumption as to what that split is going to be on new business. We were assuming a higher percentage of term, which would have resulted in more revenue in the short term. Now this is a good thing long term for us. We want to see more ratable revenue, makes it easier to predict, easier to forecast. In the short term, and even in our guidance for not only Q2, but Q3, we've kind of assumed that this new paradigm for at least what we saw in Q1 would be fairly consistent for the rest of the year.

As a result, the revenue is not going to be what we expected it to be, which is why you see me not raising guidance. I would have liked to have been in a position to raise guidance for revenue, matching what we did with ARR. Because of this mix, I'm actually going to see less of that revenue anticipated growth. We've kind of left guidance the same because we're actually seeing, as TJ mentioned, some additional services revenue, which is nice, and it's above what we had budgeted. That's a little bit of an offset, but this mix shift definitely will result in less revenue coming from the products in the short term. Then obviously, long term, it all evens out.

The next question comes from Kirk Materne with Evercore.

This is Vinod Srinivasaraghavan on for Kirk. Two questions for me. First, as you're kind of going -- undergoing that shift to a channel-first approach, can you give us a sense of how channel partner economics have evolved over time? How are you kind of balancing that with how you compensate your direct sales force?

That's a great question. Channel, we do embrace channel-first strategy, especially in the medium to small customer segments. That's roughly now 50% of our overall recurrent business. Even in enterprise, now we're picking up regional SIs as channel partners, and we're looking at some even bigger sized SIs as go-to-market. Within the channel, there's also the managed service providers as a massive uplift for us, highly sticky segment as intermediary to get into SMB.

We do have a comp neutral philosophy. Our sales orgs are encouraged and embrace our channel as a force multiplier. Overall, the economics of it continue to be fantastic because as we always cited, when we went public in July 2021, our cost of sales and marketing is 41% of our revenue. Latest quarter, it's just covered around 31%. All of that improvement, we credit majority of that is to our channel efficiency, and we'll continue to drive that channel efficiency because channels will allow us to scale.

Importantly, we give much of the simpler service workloads the data migrations and those type of services to the channel. That would then generate service opportunities for the channel. In the MSP segment, we have our large channel partners citing that for every dollar that they spend on our software, they generate $5 of service opportunities for them to better help their customers. That's the incentive really for the channel is to drive additional revenue growth in terms of service revenue for our channel partners.

Overall, the economic model is a nice flywheel. It's growing in all regions. We now see really nice uptick in LATAM. Of course, also in India and in Middle East, we're doing super well. All of that is very much channel-first, channel-led strategy.

Then just one last one for me. As you move to that hybrid seat and kind of outcome consumption-based pricing model, how do you expect that will impact NRR and kind of revenue predictability over the next like 1 to 2 years? Do you expect you have to change your guidance philosophy, maybe widen it over time as a result of that or no?

We don't think so. The outcome-based services, it's really to do the AI modernization, help our customers to really be able to first get their data estate housing order and then help them implement a lot of these AI modernization initiatives. That's going super well. That's our way to stay close to the customer.

We always have a portion of our business now roughly about 12% that's really focused on this top-tier enterprise customers, public sector in terms of that service capabilities and delivery. That has always been our IP generation engine. Today, it's our engine to stay very close to the customer to see where the market is going. The market is highly disruptive. We all know, right? In reality, no one really know what does the market look like 2 years, 3 years out. It's super important for product companies like us that really have a global footprint to have in every region that we operate in an advanced service capability.

Now it's really outcome as a service delivery model to provide that premium service capabilities to stick close to the AI initiatives. That's how we continue to stay very agile and stay in the leading edge of the tech disruption. That doesn't actually impact -- it's only a leading edge, right? The overall 88% of the business is still very much a cloud business. It's a subscription business. Again, as I mentioned earlier, the market makers, the hyperscalers, they determine the paradigm of licensing, whether it's seat count-based or consumption-based. We see that model to be going to be the state of things for the time to come. We don't see that being very different, at least not in the medium term.

The next question comes from Jeo Vandrick with Scotiabank.

TJ, did I hear you say that nearly half the pipeline is coming from the control suite today? Just wanted to clarify that that's right since I think that's about 1/4 of the business as of 4Q.

That is correct. Last quarter, actually, well over 1/4 of new closed deals are control. Now 50% of the pipeline are created with Control. Governance of AI, governance of data, it's very, very much top of mind for customers.

Then maybe one for Jim. Can you talk a little bit about the investments you're making in 2026? Is sales and marketing the main focus for incremental investments just to capture the large market opportunity? How are you measuring ROI there?

Joe, yes, I think you're right, you're spot on. You can even see it in Q1, the step-up in our marketing spend, definitely been a key focus, both sales and marketing. As T.J. mentioned, obviously, we're getting really good leverage from the channel, but that doesn't mean that we're not continuing to invest in our direct teams as well because we are. We're actually able to do both.

We're making nice investments there, both in people, technology and really looking to scale that group. Our goal is not to execute just for 2026, but to get to this goal of 2029. We're making investments really this year that are going to propel the business well beyond '26. We're doing that across the board and that some of the marketing initiatives that we're invested in as well, everything from the account-based programs that we have, all the way to some brand initiatives that we've taken on this year. Again, it's a big focus for us, again, focused on really delivering for 2029 and taking advantage of the market opportunity that you mentioned. We're doing that.

In terms of ROI, obviously, some of these are more tangible than others, but we review these on a periodic basis to make sure that we're getting the expectations. Some of that translates to immediate results. Some of it is more other maybe softer metrics today that lead to those harder metrics later. Again, we're on top of it. We're making those investments. We believe they're required today to hit those goals in the long term.

Next question comes from Stephen Bruno with Northland Capital Markets.

Jim, I'm wondering if you could go through what you -- your expectations for free cash flow for '26 is and what the cadence and sizing of repurchases and your overall capital allocation plan for the year is?

Yes. Thanks for the question. When we think about capital allocation, we've talked about this. We really think of it as 3 different pillars. Obviously, we want to invest in the business itself to make sure that our teams are well equipped, well staffed and can execute to the absolute maximum that they can. We want to first ensure that the business has the resources to do that. That's first and foremost.

Second is we do want to look at opportunities for -- to supplement our internal growth with M&A activities. We have active discussions all year long with a number of target opportunities. M&A is a vital strategy for us. We've done small acquisitions in the past. We've talked about potentially doing larger acquisitions. That fits into our capital allocation strategy, and we're constantly looking at those deals, and making sure that we have proper capital allocated to be able to execute.

Then the third is obviously the repurchases you mentioned. We've obviously, as we talked about earlier, stepped up our buying not only in Q4, but we continued that in Q1 and the beginning of Q2. Again, we have the ability, fortunately, with our strong balance sheet to be able to execute on a variety of these capital allocation strategies, not just one. That's been really good. We'll continue to do that.

I think when we think about how much we're going to do in terms of repurchases, I get this question a lot. I think that's something we're continuously evaluating, and it's in the context of the other 2 pillars that I mentioned. If an M&A opportunity comes along or if we're looking at something, we may dial back repurchases, we may accelerate. We kind of look at it as flexible and taking advantage of the opportunities that present themselves to us.

When we think about free cash flow, you noticed we obviously generated a lot of cash in Q1, and it's really very good, but there are a couple of factors that I just want to point out for our Q1 performance. It really comes down to 3 things. If you compare our generation this quarter to a year ago, pretty significant improvement and really dramatic. I think that's 3 factors.

One, if you looked at our net income in Q1 of this year compared to last year, we've generated an extra $12 million of net income. The business is performing well. That's first and foremost.

Then second, if you think of Q1 of '25, we called out that we had some special onetime payments, really tax-related payments in Q1 of '25 of about $7 million. Again, we didn't have those same payments in '26. We see some nice benefit from that.

Then the third thing I would call out is that in '26, we received some customer payments in Q1 that in prior years would have been received in Q4. That was probably about $6 million. Again, taken all together, the biggest factor is the performance of the business has accelerated. We feel really good about the cash flow generation.

When we think about the full-year, I think we're going to be in line with what we've done in the past, which is we're going to exceed our operating income in terms of cash flow generation. Right now, we're guiding to the low 90s in terms of non-GAAP operating income. I would expect us to be generating free cash flow north of $100 million for the year. Again, we don't specifically guide to it, but in terms of -- just in terms of a range and if you're thinking about modeling or anything else, I would say that's the area that I would be shooting.

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

Thank you for joining us today. We're proud of our first quarter results and raised outlook for the year, which reflects the growing demand for secure, automated and AI-ready solutions. The increasing strategic importance of our platform and its enablement of AI-driven transformation for companies of all sizes and industries around the world ensures a durable competitive moat for AvePoint and only strengthens our conviction in the enormous market opportunity we see.

We're excited for continued momentum in 2026 as we progress toward our $1 billion ARR target. Thank you again for joining us today, and we look forward to speaking with you more this quarter.

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

Welcome to day 2 of Morgan Stanley TMT Conference. My name is Da Wei, morgan Stanley's Southeast Asia TMT analyst based in Singapore. And today, we are very honored to have here with us Jim Caci and Mario Carvajal. Before we begin, let me just read out the disclosure. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

And with that out of the way, I think we're just like set the stage and starting with you, Mario, who is the Chief Strategy and Marketing Officer for AvePoint. How about you give us a brief overview of the company and talk about what are the main problems that you're actually solving for your customers? And then perhaps subsequent to that also talk about what do you see AvePoint's key competitive advantages?

Yes, sure. Hi, everyone. Thank you for having us. Thank you to the Morgan Stanley team and yourself, Da Wei for sitting down and chatting with us. So we're a global provider in modern data protection. We help organizations secure, govern and operationalize their data estates. We primarily focus our efforts on unstructured data, which if you think about unstructured data, it makes up about 80% of an organization's data today. The unstructured data that's coming in through your different applications, whether it's productivity applications, applications that you're using to communicate with your supply chain partners, all of that information needs to be controlled and properly secured.

So our platform, which is the Confidence Platform really helps organizations address 4 key problem areas. One is there's fragmented data that sits in different silos. And oftentimes, it's difficult to see the data, to apply policies. The second challenge is sprawl of information, it could be that you have a lot of access, different accounts accessing information or you have different data repositories. And over time, the digital environment really gets heavy in terms of managing it because you have too much sprawl.

The third problem is that organizations really are struggling to address the loss of data problem, where sometimes you may have corruption to data or you have information that can be encrypted by a ransomware attack and so when you think about the different sources where data is coming from, it's hard to understand where your attack is coming from. And then, of course, there's also the opportunity to help organizations address over sharing of data. If you over share data, you can inadvertently expose sensitive information. This could happen in a conversation you may be having on a chat communications tool. It could also happen where you might be inadvertently sending a file to a supply chain partner.

They share with someone else or it can even happen within your own organization as you're trying to share across departments. So these are data challenges that really affect all kinds of businesses, whether they be enterprise, mid-market or SMB. And so what we do is we provide a security layer of controls and this helps organizations implement policies that help them understand where changes in the information are happening, where overexposure may be happening. And it also helps the organization address data resiliency issues think about an outage that may happen at the data center.

Last year, we saw 2 big outages. One was in AWS, the other was in Azure. And so when you see these outages and you want to recover your data is really important. If you can't recover the data because it's either too large and you can't recover it in time or you certainly need to recover certain elements of that data, the metadata, how do you do it effectively? We provide all of the capability in the Confidence Platform.

And then the last thing I'll leave you with is we also have been helping organizations think about this next step into agentic AI systems where now in order to really advance your efforts in AI tools, you want to make sure your data state is robust, pristine. So we are helping organizations also implement governance for agents and agents are really working across different data sources. They have different identities, and they're creating more and more activity and all of that information and activity needs to be tracked.

And so in the platform, you're also able to understand how agents are communicating across the different data sources, but also you could do things like inventory all your agents and you could also do a lot of roll back, especially if agents go rogue, which is really important now in a phase where organizations are looking to operationalize agentic AI systems.

Thanks, Mario. And if I can just follow up on the discussion on AI, and that's probably the, I think, single most repeated question in this entire conference, probably repeated as much as the disclosure statement at this point. So I think it was also alluded by CEO, TJ who talk about AvePoint positioning as an enabler for AI and you guys actually act as the foundational layer and probably talk about -- a little bit more about these agents, agentic AI and the implications for your business model?

Yes. If we think about data becoming the fuel for AI, the first thing you need to understand is that if you have advanced AI tools and you can't trust the data because it's either not properly classified or the data that the model may be using is incorrectly provisioned or accessed then it's really hard to build trust.

So what we begin to do with organizations is think about how to improve the quality of the data, build a robust data foundation so that you can start to implement AI capabilities. The reason we help organizations get ready for AI is we started shipping probably over 2 years ago, the ability for us to do an AI assessment where we would say, run the tool, let us take a look at where you have vulnerabilities and let us remediate those vulnerabilities on your data estate.

We soon after that started working with companies that were starting to build agents, specifically organizations that really wanted to start automating tasks. And the biggest challenge was if we don't have an inventory of where these agents are and we don't actually track how these agents are interacting across different data repositories, it's going to be really difficult for us to roll back if we have issues. So part of the work that we're doing today, to answer your question is we're helping organizations think about implementing the right controls so that as they build their agentic AI systems or they automate or start working with whether it's frontier models or proprietary models they are confident that they have visibility into how the agents are performing.

And that gives organizations a really good opportunity to not only implement the right controls at the start, but also anticipate regulatory requirements that may be important, especially with companies in regulated industries.

Great. And just as a follow-up to that, based on your conversations with some of your customers, are you seeing any changes in the customer spending behavior and are you -- I mean, there's a lot of talk about AI disruption and whether software will still be relevant. Are you, as a result of that, also seeing any form of pricing pressure. So kind of like split between what type and what actually fundamental that you're actually seeing on the ground based on your conversations with the customers?

Sure. I'll start and I'm sure Jim will add some comments. So we're not seeing major changes in spending. I think what we're seeing is a prioritization that starts with cost consolidation. Vendor consolidation is another way to think about it, where organizations are saying in order for me to have more efficiency in my operations, I probably want to operate it with less vendors. Too many point solutions create a complicated environment.

So a lot of the conversations is how to really optimize the environment with single pane of glass, one type of platform that really helps them across several workloads. In that category, we are well positioned because our platform strategy is to include several workloads, whether you're thinking about recoverability or whether you're thinking about simply looking at cost consolidation. I want to get rid of storage because I want to reduce my storage cost.

So we are working with the clients across different workloads, and that gives us an opportunity to access quite frankly, budgets that may not have been in the hands of the central IT program, budgets that may be sitting with the business because the goal for us is to deliver more value back to the business users through a productivity layer where the application is really operating the environment more effectively and efficiently.

Jim, do you have anything to add?

No, I think those are really good points from Mario, but maybe even just to put a finer point on it, we really haven't seen it impact our results for '25 at all or what we're seeing in pipeline for '26. So I wouldn't want to say that it's all this AI noise is hype. I think that would not be fair or true. But we're not seeing it impact right now our results, and hopefully, we'll have a chance to talk about some of the results for Q4 and the full year. But we're not seeing an impact on the results at this point, and we're still very -- see a lot of growth opportunity moving forward.

Yes. So let's talk about results. So I think you announced your results last week.

We did.

Let me just readthrough some headline numbers. I think which is a good set of numbers. $470 million ARR. SaaS revenue grew 38% for the full year, we're seeing 19% free cash flow margins, and you achieved the Rule of 40 at 46%. So overall, I think pretty solid set of results, you've been executing to your guidance, why don't you share your top takeaways from investors and you spend probably the whole day here talking to a few of them. What's been the main feedback? What do people like, what do people not like?

You're right. We've had a nice set of meetings today. So thank you to Morgan Stanley for setting all that up. And I would say a couple of key takeaways, at least for me, as I think about maybe first just setting the stage for Q4 and the full year. So for us, Q4 was a really strong quarter, which really was an end and a nice way to end a really strong year. So in -- despite all the concerns around public sector and a variety of things, we delivered for the year, 27% ARR growth, 27% revenue growth year-over-year, fourth quarter was accelerating revenue growth.

Fourth quarter was also our 11th straight quarter where we had double-digit ARR growth. So net new ARR growth. So again, really solid performance, really the numbers you pointed out to make that point. One of the things that we've been talking a lot about to investors is we sat here, probably it's over 3 years ago now at our first Investor Day back in -- well, I guess it's almost 3 years. March of 2026, and we made 2 commitments as a management team at that time.

We wanted to focus on profitable growth. So we set 2 targets. One was to be a Rule of 40 company, which at the time, we were essentially a Rule of 20 or 21 company. So that was a massive step forward. And the second was to be GAAP profitable. which at the time, on a trailing 12-month basis, we might have been negative $20 million or $30 million. So significant step and leap to achieve. And I'm happy to report we achieved both of those in 2025, where we were Rule of 46, as you pointed out, on the Rule of 40. So we achieved the 46. And the GAAP profitability, we actually achieved a year early in 2024 and again in '25. And in '25, we accelerated our GAAP operating margin to 7.9%.

So we felt really good about this profitable growth in terms of growing, but also doing it responsibly. And that's been -- for me, that was a key takeaway over the past couple of years really trying to execute and deliver against what we committed to do. And that's some of the feedback we've been receiving after our earnings call last week, which was really very well received in terms of the growth that we put out. We also have from our guidance that we published last week, accelerating top line ARR growth year-over-year going into '26 and also accelerating GAAP profitability.

So an improvement over that 7.9% that we just posted for 2025. So I think both of those were received very well, positive feedback both from our analysts and our shareholder base, lots of good feedback. And even from today's meetings, I think what we put up not only in '25, but what we're expecting to do in '26 was very well received. And again, we believe is very achievable in terms of our execution. Obviously, we have to continue to execute but we've now been executing for really 3 years and feel good about our prospects to continue.

And I think one thing that you mentioned on the earnings call was that you're actually seeing higher demand for migration solutions in 2025. Can you just tell us a little bit more what's actually driving that? And should investors actually expect that to continue? And what would be the implications on your financials?

Yes. So it's a good point. I'm glad you brought it up because -- so migration for us is really just data movement, if you think about it in that context. So there's always going to be data movement. So we believe migration is a key component of just this evolution that we all live in whether we're talking about specifically about AI or just data governance management. There will always be data movement from on-prem to the cloud, cloud to cloud, tenant to tenant, through acquisitions, divestitures, there's always going to be data movement.

So -- but I think, particularly in light of AI and as people think about how important it is to have your data properly curated and that is much easier if it's a little more consolidated in fewer repositories. So we are seeing data movement. It did take a step up really towards the second half of 2025. Which again is good. We're happy to be accommodating our customers in terms of their evolution, in terms of their AI adoption. We're happy to do that. We believe that it gives us an opportunity to not only meet their expectations and exceed them, but also introduce them to our platform in general.

And so it can be a nice entry point for some new customers. And obviously, it's a nice upsell or cross-sell motion for existing customers. So we expect that to continue. We see good healthy demand in our pipeline for those products. So again, we don't see it really backing off dramatically. But again, we've seen healthy demand across our whole platform in terms of the product. So we feel good about the prospects moving into '26 from a pipeline point of view, from a platform point of view. And again, I think we're delivering that value to our customers that they appreciate.

Great. And I think the other thing that was discussed was about potentially evolving into a hybrid pricing model between seat-based and consumption. And this is probably also one of the most debated question among some of the software companies that are here today. Can you tell us more from AvePoint perspective, what the pros and cons of each of those models? And what actually you think work best in today's AI environment?

Do you want me to start that one? I'll start that one, and then Mario can chime in as well. It's interesting. Right now, we have a hybrid model within our organization and have for quite a while, where most of our licensing is still seat-based like most of the hyperscalers, but there is a consumption element to that where it may be more on the compute side. So some of our solutions are more compute-driven. And therefore in those aspects of our products, there is a consumption element. We do think as we continue to move forward with agents. Initially, the hyperscalers talk about those being governed almost like just other seats, other essentially people that are taking actions across the multiple applications.

And so they would treat those to a large degree as additional seats. But eventually, I think it comes down to -- those ultimately go to the value being created by those agents and those solutions and it will become much more value-based. So we are experimenting with some of those pricing models as well. And I think what we see is this will be an evolution. It won't be a -- tomorrow, there's no more seat licenses and everything is consumption, or some other pricing model. We believe it will be an evolution over a period of time.

Now we are in an accelerated time frame where things are moving very quickly, but we still think it's an evolution as the pricing starts to change. And again, our platform is designed very well to be able to monitor all those different scenarios. So we can really price various different ways. We can do seat pricing, consumption pricing, even value. So we think we're positioned well to be able to meet the demand from both our customers and other areas to be able to provide a mechanism of pricing that works in their models, but also works for us as well.

Maybe the only other thing I would add is that the platform, we're in a good position. We've designed it so that you have the right metering. We can understand activity, workloads, as Jim mentioned, if there's a high compute, we could track the activity workload, especially around agents. One thing that's interesting is the more agents that get designed into an agentic architecture, the more activity there will be, the more risk surface there will be. So part of what we want to do is give organizations an opportunity to understand how this sort of evolution, as Jim mentioned, is based on value creation so that when the time comes that we make that shift in product licensing, it just makes sense.

We've been through this before. We were an organization that at one point was selling the software based on servers, right? We would count servers and we do it based on the infrastructure. And at the time, the industry was pretty anxious about a shift to user-based licensing, and we made that shift following the same sort of formula. We work with not only the hyperscalers, but we also work with a lot of organizations that really give us a good pulse on what's the right appetite and when is the right timing to do that shift.

And the fact that already, we can give you workloads where we can track the way you're consuming, whether it's computer storage. I think that gives our customers the confidence that we're there to really create more value for them and ultimately measure the outcomes of the software. And that I think is where people will end up, what are the outcomes, what is that service driving that changes in this material to our business. So that's sort of how we think about it.

Great. And now if you would just take a step back and talk about your positioning and how your relationship has evolved with Microsoft as a partner. I know you've always kind of leveraging the 365 ecosystem, you participated in co-sell programs. And I think recently, there's also this release of their agent and governance capabilities. How do you plug into that product road map? And how has the relationship with Microsoft evolve over time? And what are some of the dependency or risk the investors should be aware of?

Yes. So the relationship always starts with, what does our customer want? And a lot of our customers say, we are making investments into technologies from Microsoft or in some cases, they could also be investing in other providers, such as Google, et cetera. And most of the time, what they want is that the product functions and operates ahead of time, meaning we have a responsibility to make sure we're working with Microsoft Teams to understand where their product is going 2 years ahead of time.

An example of this is our AgentPulse, which we launched in November, at the Microsoft Ignite conference was a product that had already been worked on 2 years prior when we were working with Microsoft on some of the road map that eventually would make its way into the agent control plane they launch as well that you referenced. So it's really important for us that there is a partnership that's strategic at the product level.

But we also have a partnership with them on the go-to-market piece, which is deliver value and incentives. Our products, for example, are available not only on the Microsoft marketplace but they're also available on the Google marketplace, the AWS marketplace. And this is a way to give customers back because these hyperscalers give customers incentives anytime they are buying products on the marketplace.

It basically gives them credits back towards the contracts they may have with the hyperscalers. And then beyond that, we are also doing some really interesting techniques in growing a market where we provide customers an opportunity to onboard sort of capabilities from the Microsoft services that gives the customer a better traction and adoption. So these are all things that I think work really well in the partnership. But I'll also say this that maybe a lot of investors sometimes misunderstand, we're providing a product line that really drives value for the Microsoft productivity cloud, but we also do this for Google. We do it for Salesforce. We do it for other third-party services like Atlassian.

We just launched a number of connectors to DocuSign, Smartsheet, GitHub. Our platform is independent. It is not a platform that really depends on Microsoft capability. We connect to their APIs, and that's how we're able to drive a single pane of glass to give you a security layer on all of the data that's either coming from a Microsoft productivity service or other. And then the fact that we operate our platform on the hyperscaler data centers also creates a really nice relationship with not just Microsoft but also Google and AWS.

So back again to how I started. When you work with customers and you explained this to them, they feel that we're working with a vendor that really understands the ecosystem and that the vendor will be able to help us also in cases where we might have some challenges with first-party products and solutions.

Got it. And turning back to you, Jim as CFO, capital allocation? I know AvePoint always talked about these 3 strategic initiatives, which is investing in R&D for future growth. You guys have done a series of acquisitions over the last couple of years. And as far as share repurchases. So how do you think about prioritization between these 3 initiatives? And I have a follow-up question to that. So we'll start with that first.

Yes, you're right. We think about capital allocation in those 3 pillars, right? One is investing in the business, predominantly R&D, second would be M&A activity in terms of can we supplement our own R&D efforts with inorganic growth that would help us either from a product point of view or even from a customer point of view. And then the third is share repurchases, returning and improving shareholder value by purchasing shares of stock.

So those are the priorities. And arguably, you could say in terms of those -- the priority itself, like, number one, making sure the business is properly funded, two, looking at opportunities to supplement that, and then three, returning value to shareholders through share repurchases. So fortunately, we have a very strong balance sheet. So we ended the year with over $480 million of cash. So that affords us some optionality, right? So we have the ability to do not just pick one of those to actually do, but we can actually do all 3.

And so that's been -- we've done 6 acquisitions to date over the past several years. So we are looking to do even larger acquisitions. I think we've built a little bit of a muscle there in terms of the small ones that we've done. So I believe we can execute and continue to execute on that. And then share repurchases. We spent about $50 million in 2025 on share repurchases. That accelerated really in Q4 and then in Q1 of '26, we already spent $33 million plus on share repurchases, which effectively is repurchasing about 80% of the amount we spent last year.

So again, I think we're executing. We're taking advantage of what we believe is disintermediation in terms of our value, what we're actually executing and delivering, and we'll continue to do that moving forward. But we will do it in a measured approach. Some of you already know that, that's been our mantra probably over the past couple of years with share repurchase, is to take a very measured approach so that we can preserve that really strong balance sheet to take advantage and be opportunistic as opportunities present themselves.

We want to be in a position to act accordingly and whether that's an M&A activity, or stepping up our -- like we're doing this year in '26, we're going to allocate more resources to our marketing spend. So having the ability to really make these investments and having a strong balance sheet gives us the ability to be able to do those things.

Yes. And AvePoint just turned profitable. And at least based on your guidance, it seems like you're going to be a lot more profitable in the coming years. You have a strong balance sheet, you're growing -- you're generating nice free cash flow, at what point the dividend actually comes into the equation?

It's a good point in terms of profitability. Like I mentioned, our GAAP profitability, operating profitability, '24 was the first year where we had crossed that threshold. And actually, we're generating GAAP operating margins, so which is great. We continued that and accelerated that in '25 and we're projecting and guiding to accelerate that even further in 2026. So we feel good about that.

Our free cash flow margins -- free cash flow margins are also very strong. So you're right, we are generating a significant amount of cash we generated this past year, about $80 million of free cash flow and we would expect that to accelerate next year. So again, we're producing a lot of cash. When it comes to dividends, the way we think about dividends is more in line with most software companies here in the states, which would be share repurchases as opposed to a true dividend at least at our stage of life cycle of where we are, where we're still accelerating growth.

We're still looking to continue to be an accelerant. So we don't think about returning capital to shareholders in the form of dividends, but more in the reducing either dilution from our SBC or just reducing shares outstanding by share repurchases. So I would say in the near term, we don't have any plan to be actually issuing an actual dividend, but continuing our share repurchases.

We're just going to take a pause here, we're just under 5 minutes, and I'd like to ask the audience if there are any questions?

[indiscernible]

Yes, sure. So maybe to set the stage, so Copilot is a brand of capabilities. So you have Copilot in the Office suite of applications. You have Copilot Studio, which is really more focused on low-code way for you to enable not only agent development but workflow automation. So if we think about those 2 categories. For us, the opportunity really started when organizations really started saying automation of workflows could really be more driven by agents and that led to conversations on how agentic architectures could work. For us, that was an opportunity to start building our governance framework in the context of agentic architecture. So we're happy about that. I think that gave us an opportunity to work with some large organizations that were first movers.

And this is probably going back 2 years ago. The Copilot inside of 365, for us, that creates another -- it's just another productivity app, where organizations that first turned that on were starting to have concerns, wait, I turned Copilot on, and I'm asking it to go find me the latest employee handbook, and it brings back a bunch of information, and is that information curated, is the information accurate?

Organizations immediately came back to us and said, look, we want to make sure we're looking at our data state and we're putting the right controls in place. Can you help us? So it wasn't that the Copilot was something we were solving. It was that Copilot triggered off a thought in the organization that really said, we probably need to go get data state ready for what's coming. Fast forward 2 years later, we are now in a year where I think a lot of organizations are seeing the opportunity and the possibility to work not just with Copilot but other models.

You see some of the work that Anthropic is doing, trying to come into the enterprise and say, we have an opportunity to help organizations think about proprietary data models. Well, that's good because agentic AI systems will be a combination of advanced AI tools that are homegrown or some that are commercial off the shelf, right? So for us, these are all opportunities to go back and talk to the client about what does it mean to put a set of capability to build the trust layer of your stack.

See, AI has experience layer. We are working more at the trust layer of the stack and for us, it's an opportunity to keep doing the work we've been doing with these organizations and partners. And for us on the innovation side, it gives us enough room to continue bringing not just the governance controls that we're shipping now in AgentPulse, but also think of what comes next. So that's how we think about it. And again, we're still in the early stages, and we believe that the work that Google is also doing, which Google is a partner, and we're doing more to support now Google Gemini.

Their Vertex AI tech stack that gives you an opportunity to build also advanced agents. I think it's also going to be part of the conversation. So we're very much looking forward to it and working with some incredible organizations that are not only experimenting with this, but actually deploying this to transform business processes that are antiquated or that are not giving the organization the efficiency that they're looking for.

And with that, I think we are at time. So thank you all for joining. Jim, Mario, it's been a great pleasure. Thank you, guys.

Thanks for having us. Thank you.

Thank you. Appreciate it.

Good day, and welcome to the AvePoint, Inc. Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Jamie Arestia, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to AvePoint's Fourth Quarter and Full Year 2025 Earnings Call. With me on the call this afternoon is Dr. TJ Jiang, Chief Executive Officer; and Jim Caci, Chief Financial Officer. 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, 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 measures is available in our fourth quarter and full year 2025 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. Our fourth quarter results were a strong conclusion to a outstanding year. Our leading position in mission-critical data management, coupled with market demand for data protection in the AI era, enabled us to accelerate revenue growth, deliver our 11th straight quarter of double-digit growth in net new ARR and achieved double-digit GAAP operating margins.

Very few software companies can point to comparable levels of organic growth, GAAP profitability and strong cash flow generation and even fewer sit at a critical intersection of data protection and security. And importantly, we see healthy demand from companies spanning every size, vertical and region of the world, validating our conviction in a large and growing market for secure, automated and AI-ready data governance and resilience solutions.

This broad-based customer demand isn't surprising as it's clear that AI has transformed the speed, scale and stakes of data security and governance for companies everywhere. Organizations no longer view data governance as simple back-office hygiene, has become the prerequisite for AI and Agentic AI adoption. And our customers and partners continue to tell us the same thing. Before they can deploy AI at scale, they need one company that can secure, govern and operationalize their data with confidence.

In fact, I just met with one of our financial services customers who in Q4 replaced patchwork tools and a vendor they had for over 20 years with AvePoint. Our platform now secures, governs and guarantees data recovery for nearly 100,000 employees who drive $25 billion in annual revenue. That's not a workflow that gets agented away. It's the trust layer that makes enterprise AI possible in the first place. With stories like these, I'll focus today on the durability of our value and share why despite speculation about the future of enterprise software in the context of Agentic AI, AvePoint will capitalize on the AI data protection opportunity in 2026 and the years ahead.

But first, I want to remind you of 3 long-standing trends that you have heard us discuss for years, the relentless growth of data, the complexity of systems and the severe consequences of poor data management. These challenges existed long before AI, but have only accelerated in recent years as data now spans cloud platforms, on-premise systems, third-party tools and AI-driven workflows. AvePoint brings order to this chaos. We ensure that data is reliable, governed and secure, and we have done this for more than 2 decades for thousands of customers. While AI is a powerful tool, enterprise-grade software remains essential for managing complex environments and ensuring regulatory compliance. And if your AI relies on inconsistent or poorly governed data, it becomes a liability rather than an asset.

The AvePoint Confidence Platform is the solution to this challenge. Specifically, it's our platform architecture which determines how effectively organizations can discover, govern, protect and recover data across distributed multi-cloud environments, that not only makes us unique today, but provides a durable competitive moat.

To start, our platform serves as a foundational layer within any data protection framework, acting as the control plane for policy management and real-time remediation and the connectivity tissue for enterprise security operations. By maintaining a robust API framework and interoperability across hybrid cloud environments, we enforce strict identity verification and least privileged access at the data layer and immediately remediate any potential breach or policy violation. This approach was crucial for one of our largest consumer packaged goods customer who faced significant challenges around ransomware threats, intellectual property protection and data access compliance, before launching Copilot.

Using our platform as the core of their data protection strategy, we cleaned up their IoT data, deployed data resiliency across their 13,000 global employees and implemented granular access controls. By starting at the data layer and utilizing our policy management and real-time remediation capabilities, they now have safe, secure and compliant data they can trust to power their businesses.

Our solutions also ensured that proper provable access controls are in place for Copilot and other agents. We can solve challenges like this for thousands of companies because of our platform's ability to define all of their unstructured data and then visualize how its attributes, including sensitivity, intent and lineage, evolve in real time. This contextual data, which is housed with us and which you heard Anthropic discuss on Tuesday as a critical input to their goal of transforming knowledge work, provides AvePoint an enormous competitive advantage because our customers rely on us to govern the data in real time.

Customers today know that proper data governance requires more than logs or snapshots. It requires a live context that our platform provides, that AI cannot deliver on its own and that traditional static databases miss. And it was this technological differentiation that led a large construction company to become a new AvePoint customer in Q4. They were recovering from a major cyber incident and preparing for broader AI adoption, but their core issue wasn't simply storage or cleanup. It was a lack of real-time context into how their sensitive data was evolving and being accessed across their environment.

By deploying our unified platform with live visibility and control across unstructured data, they were able to reduce access fraud and saved up to $1.3 million, improved data quality and most importantly, govern risk as they emerged. With AvePoint as their strategic partner and restored confidence in their data foundation, they are now positioned to safely expand protection across their cloud and Azure workloads.

Our platform is the result of decades of innovation and refinement and today features a layered interoperable architecture built for scale. It also functions as a governance and control layer for Agentic AI, providing the trusted data foundation that agents need to act safely and effectively in the AI era. This includes a business logic layer which defines the security and operational rules required by the customer, a elastic scaling data abstraction layer, which allows the platform to meet massive data surges without performance degradation and AI-specific remediation, which leverages proprietary algorithms to identify threats designed to bypass AI guardrails.

We have always aimed for our innovation to keep up with the larger technological changes taking place. Today, as agents proliferate, the missing layer isn't more AI. Its governance and operational oversight for AI. That's exactly why we built our 6 Command center, AgentPulse, which provides unified visibility, governance and operational oversight for Agentic AI. Affluent customers can now inventory agents across their digital estate, surface usage, risk and cost signals, monitor performance drift and ultimately take action when needed. As companies scale their Agentic AI deployments, AgentPulse becomes the operational cockpit that ensures safety, compliance and measurable value.

And lastly, building on AgentPulse are a new Agentic AI governance and data protection features that we announced earlier this month, which provide customers with better insights about agent security posture and ability to correct security problems directly in the confidence platform, helping them use Agentic AI tools safely and efficiently. In short, no other platform combines modularity with tailored functionality to manage critical data in real time across cloud vendors. This was also validated by Gartner, which referenced AvePoint in their latest research on how to build a strategy for M365 Copilot and Agentic AI in 2026.

And as we continue to introduce extensions to existing cloud services and to new applications, the Confidence platform will further consolidate point solutions to drive a faster ROI, which in turn only deepens our competitive advantage. Our conviction in our platform differentiation is not to suggest that every enterprise software company is immune to disruption from AI. In fact, it's quite the opposite. We believe every company, regardless of industry, will be impacted by AI. But those that use AI to drive innovation as their core competency will be successful in delivering durable growth in the years ahead.

And specific to software, we believe the winners will offer the market 2 things: a true platform offering that provides pricing flexibility and ultimately leans on consumption-based and cost-saving focused licenses; and end-to-end vertical organic integration ranging from development to go-to-market to best-in-class cloud ops and security to continuous enhancements and improvements. We are mindful of this with every strategic decisions we make and we will further differentiate ourselves by leveraging our domain expertise, our extensive partnerships and our global scale and distribution to solidify our leadership position in the responsible and effective deployment of AI across all enterprises.

As technology evolves, we are enhancing our go-to-market strategy to prioritize bundle offerings, building on last year's successful launch of our control and resilience packages. These bundles deliver comprehensive, outcome-based solutions, addressing data cleanup, life cycle management, governance, storage optimization and protection, which customers and partners prefer over fragmented tools. And while we have historically licensed by seat count, we anticipate moving towards a hybrid model that incorporates capacity-based and data volume pricing, especially as AI enhances productivity, but retains user-driven workflows.

In Q4 and throughout 2025, we proved that AvePoint is built for this moment, and our belief in the long-term market opportunity has only strengthened. As organizations modernize their processes and workflows, the need for a secure, governed and resilient data foundation that transforms enterprise data into a secure, high-quality signal for AI, only becomes structurally more important. That's what our platform delivers, making us the trusted long-term partner for our customers.

We have said before that our ambition is big, reaching $1 billion in ARR by 2029, but it's grounded in operational discipline, durable market demand and a platform strategy that is only becoming more relevant as AI adoption grows. And while questions about market cycles or technological disruption will come and go, our conviction in the durability of the market opportunity and our ability to capture it, has never been stronger.

I want to thank the entire AvePoint team for their tireless efforts in making 2025 a exceptional year of execution and continued growth, and we're excited for an even stronger 2026.

Thank you again for joining us today. I will now turn it over to Jim.

Thanks, TJ, and good afternoon, everyone. Thanks for joining us today. Coming into 2025, our outlook reflected 2 central themes: first, the growing customer demand to prepare, secure and optimize their critical data; and second, the ongoing improvement in our ability to efficiently deliver on that demand. These themes gave us the confidence to continue investing in support of our strategic priorities and our 2029 goal of $1 billion in ARR, while remaining committed to delivering ongoing top line growth and margin expansion.

As we recap our fourth quarter and full year results today, we are proud that they validate our strategies and demonstrate our ability to execute on our commitments to shareholders. Q4 had a number of highlights, including acceleration of our revenue growth, our 11th straight quarter of double-digit growth in net new ARR, substantial expansion of both GAAP and non-GAAP operating margins and our continued success selling the AvePoint Confidence platform to large enterprises, reflected in the record number of $100,000 and $250,000 ARR customers added.

We are particularly proud of these accomplishments in light of the 2 goals we set at our first Investor Day 3 years ago, namely that by the end of 2025, we would deliver GAAP operating profitability, and we would be a Rule of 40 company. And while we delivered GAAP profitability in 2024, 1 year ahead of schedule, we delivered on both of these commitments in 2025 with a Rule of 46 and a GAAP operating margin of 7.9% for the year. These accomplishments have only strengthened our conviction in the market opportunity and our ability to execute, and we have even better visibility into the growth vectors that will propel us toward our $1 billion ARR target for 2029.

As TJ mentioned, there are very few software companies that have our organic growth profile, scaling operating margins and GAAP profitability, material cash flow generation and healthy SaaS KPIs. And this exceptional financial position, coupled with the competitive differentiation that TJ discussed, are why we will continue to balance strategic growth investments in our go-to-market capacity and innovation pipeline with a continued commitment to driving operating leverage across the business.

So let's turn to our results. Total revenues for the fourth quarter were $114.7 million, up 29% year-over-year and comfortably above the high end of our guidance. On a constant currency basis, total revenues grew 25% year-over-year, a meaningful acceleration from Q3. SaaS continues to drive our business with Q4 revenue of $88.9 million, growing 37% year-over-year. The strong customer demand for SaaS is also reflected in our revenue mix as it represents 78% of total Q4 revenues, surpassing last quarter's record. And on a constant currency basis, Q4 SaaS revenues grew 33% year-over-year.

Services revenue of $14.6 million represented 13% of total revenues and grew 20% year-over-year, while term license and support revenues grew 7% year-over-year and represented 9% of Q4 revenues compared to 11% a year ago. And lastly, maintenance revenue of approximately $981,000 represented 1% of total revenues and continued its expected decline. As a result, 87% of our Q4 revenues were recurring.

Looking at our geographical performance, we were pleased that each region delivered a strong close to the year. In North America, total revenue growth accelerated to 25% year-over-year, driven by SaaS revenue growth of 34%. In EMEA, total revenue growth accelerated to 39% year-over-year, driven by SaaS revenue growth of 44%. And in APAC, total revenues grew 23% year-over-year, driven by SaaS revenue growth of 32% and service revenue growth of 25%. On a constant currency basis, EMEA SaaS revenues increased 33%, while total revenues increased 28%. And for APAC, SaaS revenues increased 31% on a constant currency basis, while total revenues increased 22%.

We were pleased to see the same strength and balance when looking at ARR. In Q4, North America ARR grew 20%, EMEA ARR grew 32% and APAC ARR grew 34%. Taken together, we ended the year with total ARR of $416.8 million, representing year-over-year growth of 27% or 26% after adjusting for FX. As a result, net new ARR in Q4 was $26.8 million, once again surpassing last quarter's record and representing growth of 48% year-over-year. Lastly, as of the end of Q4, 57% of our total ARR came through the channel compared to 55% a year ago.

Our success at the enterprise level has been consistent for many years, but it was especially notable across our large customer cohorts in Q4. We ended the year with 826 customers with ARR of over $100,000, a year-over-year increase of 24%. This record growth also represented the addition of 64 such customers in Q4, easily surpassing last quarter's record of 41. In addition, we ended the quarter with 298 customers with ARR of over $250,000 as we added 28 such customers in Q4 and 73 for the year, both of which were records.

Lastly, we now have more than 100 customers with ARR of over $500,000 as well as 31 customers with ARR of more than $1 million. Taken together, these results demonstrate that we are meeting the demands of organizations looking for single platform vendors that can address multiple strategic use cases.

Turning now to our customer retention rates. Adjusted for the impact of FX, our Q4 gross retention rate was 88% and our Q4 net retention rate was 110%, both of which were in line with Q3. I want to remind you that GRR factors in account level churn, customer down sell and our migration products, which have naturally lower renewal rates.

This quarter, migration served as a 2-point headwind to GRR. So excluding it, GRR would have been 90%. I also want to point out that in Q3 and Q4, we did see a higher migration contribution than in prior years due to increased customer modernization efforts around AI deployment. While we believe this positions us to potentially cater to additional use cases outside of migration for these customers, this dynamic could put modest pressure on GRR in 2026. On a reported basis, Q4 GRR was 88% and Q4 NRR was 111%, with GRR in line with the prior year and NRR representing a 1-point improvement.

Turning back to the income statement. Gross profit for Q4 was $85.1 million, representing a gross margin of 74.2% compared to 75.5% a year ago. The year-over-year gross margin decline is primarily the result of a higher mix of services revenue this year and the lower relative gross margins on those revenues.

Moving down the income statement. Q4 operating expenses totaled $62.2 million or 54% of revenues compared to $52.8 million or 59% of revenues a year ago. As a result, Q4 non-GAAP operating income was $22.9 million, with our 20% operating margin representing year-over-year expansion of more than 370 basis points.

Sales productivity was a key driver of the increase as this metric improved every quarter over the course of 2025 and was our highest ever in Q4. These improvements, along with our growing channel contribution, continue to drive down our sales and marketing expense as a percentage of revenues, which was 31% for Q4 and 32% for the year. To remind you, our long-term target for this is 30%.

Turning to the balance sheet and cash flow statement. We ended the year with $481 million in cash, cash equivalents and short-term investments. And for the year, cash generated from operations was $85.3 million or a 20% margin, while free cash flow was $81.6 million or a 19% margin.

I also want to call out our remaining performance obligation, which crossed the $0.5 billion mark in Q4, growing 36% year-over-year to $508.1 million. The ongoing strength of this metric reflects the longer term commitments that customers are making and they're investing in our platform as a foundational layer for governing, protecting and operationalizing data as they scale AI across the business.

Lastly, we repurchased 1.7 million shares in the fourth quarter for approximately $22.4 million.

Before I turn to our guidance, I'll briefly recap our full year 2025 results. Total revenues of $419.5 million represented 27% reported growth and 25% constant currency growth, both of which were an acceleration from 2024. SaaS revenues grew 38% year-over-year to $319.2 million and represented 76% of total revenues compared to 70% in 2024 and 59% in 2023. As mentioned, total ARR as of December 31st was $416.8 million, representing growth of 27% or 26% when adjusted for FX. As a result, net new ARR for the full year was a record $89.8 million, representing record growth of 44%. This compares to net new ARR in 2024 of $62.5 million, which grew 25% over 2023.

Full year non-GAAP operating income was $79.2 million or an operating margin of 18.9% compared to $47.6 million in 2024 or a margin of 14.4%. GAAP operating income for the year was $33 million, with GAAP operating margins expanding 570 basis points year-over-year to 7.9%. This expansion was driven by the improvements I discussed earlier, as well as our management of stock-based compensation expense, which is now less than 10% of our revenues and which we expect will further decrease as a percentage of revenue in 2026.

During 2025, we repurchased 3.4 million shares for approximately $50 million. And through the close of trading last week, we have repurchased another 2.8 million shares year-to-date or more than 80% of the total shares repurchased last year for another $33.5 million. Share buybacks remain a key pillar of our capital allocation philosophy, and we intend to remain active and opportunistic in the open market, reflecting our belief in the underlying strength of our business and commitment to driving shareholder value.

And lastly, on a Rule of 40 basis, which for AvePoint is the sum of ARR growth and non-GAAP operating margin, we finished 2025 at the Rule of 46, as I mentioned earlier. This compares to the Rule of 38 for 2024 and the Rule of 31 for 2023.

Turning now to our guidance. For the first quarter, we expect total revenues of $115 million to $117 million or growth of 25% at the midpoint. And on a constant currency basis, we expect revenue growth of 20% at the midpoint. We expect non-GAAP operating income of $19.5 million to $20.5 million. And for the full year, we expect total ARR of $525.1 million to $531.1 million or growth of 27% at the midpoint. On an FX-adjusted basis, we expect total ARR growth of 26% at the midpoint. We expect total revenues of $509.4 million to $517.4 million or growth of 22% at the midpoint. And on a constant currency basis, we expect revenue growth of 20% at the midpoint.

And lastly, we expect full year non-GAAP operating income of $92.6 million to $96.6 million. Finally, on a Rule of 40 basis, the midpoint of our initial full year guidance is a 45.

Before we open it up for Q&A, I want to provide some additional color into our guidance and how we are thinking about Q1 and the year. First, our guidance philosophy remains unchanged. We want to responsibly set expectations that are consistent with the demand trends we are currently seeing. Second, our FX-adjusted ARR guidance for the year is 26% growth, in line with 2025. I also want to remind you that our 2025 ARR included $2.8 million in Q1 from our acquisition of Ydentic. Adjusting for this, our guidance for FX-adjusted ARR growth represents an acceleration over 2025.

Third, the delta between our guidance for ARR and revenue growth is driven by 2 factors: our services business which is excluded from ARR and which we expect to grow at a slower rate than in '25; and our term license revenue where we expect growth to be roughly flat versus 2025 and thus, we'll realize less upfront revenue in 2026.

Lastly, with regard to margins, we expect that 2026 will be an investment year, specifically focused on strengthening our go-to-market strategy through meaningful increases in marketing spend. I want to reiterate that there is no change to our long-term target of 25% to 30% non-GAAP operating margins while reminding you of our prior commentary that the margin trajectory between now and 2029 won't be perfectly linear. And importantly, as I mentioned, we expect the stock-based compensation will further decline as a percentage of revenues in 2026 and thus, GAAP operating margins will, in fact, expand this year.

In summary, we are proud of our fourth quarter and full year 2025 results, which are a testament to the execution of our teams and the growing demand for our platform offering. As we look ahead, our conviction in the market opportunity and our ability to capitalize on it has only grown, and we are excited for another strong year.

Thanks for joining us today. And with that, we would be happy to take your questions. Operator?

[Operator Instructions] The first question comes from Joseph Gallo with Jefferies.

Jim, I want to follow up with something you kind of said at the very end. It was a really, really impressive constant currency ARR guide. And constant currency always makes my head spin a little bit, but I believe it's an acceleration of new constant currency dollar growth versus what you saw this year. So just if you could unpack a little bit more the visibility, confidence and any specific product drivers into that guide?

Yes. Thanks, Jo. And you're spot on. I mean sometimes it does get a little confusing with FX. So definitely appreciate that complexity when we talk about that. But you're right, we're looking at an acceleration in terms of our guidance compared to last year. And so we're excited about that. We're seeing that really across the board. I think one of the things you've probably noticed is that we have this consistent kind of growth across all 3 regions. And that's been very helpful in terms of really that balanced ARR approach, whether it's our regions or even our customer segments and even our verticals. And so we see that same demand moving forward. We see nice pipeline building across all of those metrics. And so that kind of gives us that confidence to see into the future and look at that ARR guidance and feel good that we're going to be able to deliver on that acceleration.

Awesome. No, that's really clear and helpful. And then maybe as a follow-up, TJ, you spent a lot of time talking about AI on the call, and it's certainly been a buzz for the past few years, but you haven't necessarily seen that excitement materialize into revenue for cybersecurity vendors. Are you seeing that now? Or is that still more of a longer term gradual driver?

Yes, we are seeing enterprises, actually all have AI projects and deliver realizations around efficiency, especially easier workloads like coding, customer support, marketing content generation. On the Microsoft side, a lot of folks are conflating the Copilot adoption as synonymous with AI adoption. That's not the case. We actually see companies actually deploying AI in various forms, whereas the broader Copilot usage tend to lag behind even for firms that are fully licensed. We see that this is due to more of the lack of enterprise data readiness, which tend to yield suboptimal experience for rolling out Copilot. And also, this is part of change management. It's tough for a business user to try several times and have some suboptimal output due to lack of high-quality data and some of the inaccuracies. So this led to some trust issues. But these are the exact kind of problems we address for our customers and partners. So we do see tremendous demand in that regard.

The next question comes from Kirk Materne with Evercore ISI.

This is Chirag on for Kirk. Congrats on the quarter. TJ, in your prepared remarks, you touched on developing a hybrid pricing strategy over time that balances seats and usage. Can you speak to where in the platform you might see the opportunity for this over time? And any early feedback from partners or customers?

Yes. Thank you for that question. So today, we already have capacity-based licensing across products like migration and also IaaS and PaaS data protection and governance. So we have extended very much in the compute infrastructure, not only just productivity workloads, that's Office Cloud and Google Workspace, but the compute side, which is Azure, GCP and AWS. So there, it's actually natural for customers to think about consumption-based licensing. And this is also how hyperscalers think about it as well. It's a blend of seat versus consumption-based.

We also see in the age of Agentic AI, where there are more sophisticated agents being deployed, these agents are actually fully licensed to -- from a software perspective, from a licensing perspective, looks like a virtual employee. So you have agents that have a e-mail account, that has a CRM login, that also have access to -- cloud storage access and accounts. So from that perspective, there's also that seat count conversation. But overall, we are very much focused on working with customers regardless of the structure to ensure that they are able to maximize their investment to drive customer value.

So, so far, we haven't seen overall seat count reduction in a major way because that's -- there's a combination of consumption. There's also this virtual AI licensing -- agent licensing. So we'll continue to evaluate and looking at work to be done, not just the people doing it. So this is where the IaaS and PaaS expansion with consumption leaning will be bigger piece of our business going forward.

Sounds good. And if I could just squeeze in one more on that line of thought. AI governance clearly remains a strategic focus. So as we look into 2026, how early are we in terms of customers meaningfully monetizing agent governance? And what are some of the leading indicators that you're seeing that signal that AI-driven use cases are becoming a more material ARR driver rather than AI readiness spending?

That's a great question. I think the buzzword of the year is AI agentic governance. So we have seen -- you've seen Microsoft released their agent governance capabilities. We actually announced our capabilities at the same time, AgentPulse, which covers multi-cloud. And particularly, we're looking at agentic not only governance from a risk exposure perspective, access control, but also the cost. We hear a lot of customers talking about, hey, we got an agent running 24/7 and all a sudden, it's racking up $100,000 bill.

So that cost thing is real, and we are actively working with our partners and customers to monitor and bring in that agent aspect of it. So we're already seeing the beginning of revenue generation from that type of need, but that's definitely something that's very much in demand. There's a ton of experimentation with Agentic AI, as you would expect. So the risk and control and cost, it's very much top of mind for our customers.

The next question comes from Rudy Kessinger with D.A. Davidson.

Congrats on the quarter and the strong guide here. Jim, I appreciate the call out of the inorganic contribution to net new ARR in Q1 last year. I guess, are there any further parameters you could give us to help kind of think about the sequential pacing of net new ARR throughout the year and specifically in Q1?

Yes. Thanks, Rudy. Good question. So I would say we're probably going to be fairly consistent with what we said in the past on this topic. So as you know, we don't guide today to quarterly ARR. But what we've historically seen is that Q1 is generally a step down sequentially from Q4, and it's usually our lowest quarter in terms of ARR. And then we'd see a pickup in Q2 and then the second half of the year is generally stronger than that first half of the year. And so I think we're going to see that same kind of -- that play out exactly similar to what we've seen in the past. So I wouldn't expect any change there. And then you're right, we do have that little bit of a call out from last year. We added that $2.8 million in Q1 last year. So as we think about this year, obviously, we're not going to have that incremental. But again, we feel really good about where we're going to land for Q1 and really the year and feel good about that overall guidance.

Got it. And then I know you called out, you saw higher migration contribution in the second half of '25, and we can see the modernization ARR growth really accelerated. It was close to 40% year-over-year. Your 2026 ARR guide, does that assume that you continue to see growth in that modernization ARR? Or does it moderate a bit? Or what does it assume? Because that reacceleration of growth in that modernization suite is quite the acceleration from the past few years. So I'm curious just what your guide assumes on that front?

[indiscernible]

Yes. Good question. I mean we -- Sure. Go ahead.

Yes, then you can go -- and modernization. So yes, we do see high demand for migration. There's -- so we want to articulate that migration is effectively data movement. Data will never stop moving between different cloud providers, between on-prem legacy to modern workloads in the cloud. You have divestitures, you have acquisitions. So that will continue to happen. That's a very important aspect of our tip of the spear approach to engage partners and customers early. And you have seen since we've gone public, we have actually given much of the service revenue opportunities on modernization, data integration migration to our partners, but that also leaves a tremendous value for us to engage our partners and customers buy our product. And then after that, we have the day 2 solutions around governance, around data protection, ransomware detection and recovery and of course, now with license control, cost control.

So we will continue to see this monetization to be a core part of our platform as a way to engage and expand our footprint. It does -- Jim will talk a bit about the GRR headwind. There's 2 factors. When the migration project is over, what we have in day 2 solutions, if the ARR is less than a migration project on license piece, it will lead to a perceived GRR decline. And that's vast majority of the cases. Very few cases where after migration projects over, we don't have a day 2 solution running in the customer environment.

Yes. The only thing I would add to that because -- I think you did a good job, TJ, of summarizing that -- would be maybe to come back to your question, Rudy, about our expectations for next year. I think we would expect to see the similar kind of growth next year, where, again, we would expect this to be a -- as TJ kind of alluded to, continue to be top of mind for our customers and be part of their strategy. So again, we would expect this to continue to grow. I think as a percentage of our overall ARR, it steps up a little bit. And so we're mindful of that when we think about our GRR, which is why you probably heard us talking about all the GRR initiatives we've had over the past year or so, and we're continuing to work on those. So we believe that with some of those initiatives that we're naturally seeing some pickup in terms of GRR, which will offset any really headwind coming from migration in GRR. But we did want to point it out is just to -- that is what we're seeing, and obviously, those are the dynamics.

The next question comes from Jason Ader with William Blair.

For Jim, just wanted to talk briefly about free cash flow. It looks like it was down a little bit on a dollars basis this year. I think you had initially expected it to be up a bit. Maybe just talk about what is happening there? And then maybe just give us some guidelines for 2026 on free cash flow?

Sure. Yes, I'm glad you brought it up, Jason. So I think maybe 2 things to call out. One is that in '25, we did have at the beginning of the year, some, what I would call, onetime tax payments that needed to be made. And so that definitely brought down some of the free cash flow that we would have otherwise anticipated, and that was to the tune of about $7 million. I think we talked about that in Q1. So that's one factor.

The second factor is we did have a very strong Q4, and we did have a number of opportunities that were actually invoiced in Q4 of this year. And last year, they were actually invoiced in Q3 and collected in Q4. And so those opportunities remained outstanding at the end of this year. And a couple of those had to do with our public sector customers. And so we understand the challenges there. So that also had an impact on our free cash flow because in '24, those would have been collected and in '25, they were still receivables at the end of the year. So that had a little bit of a timing issue. And so again, I don't think there's a challenge or a problem or a concern. And again, when we think about '26, I think our free cash flow is still going to be above what we would consider our non-GAAP operating income. So I think that trend would continue, and we would expect to see that in '26.

Okay. But also fair to say that term biz being a little bit lighter in '26 in the mix impacts your free cash flow because you don't get the cash upfront -- I'm sorry, because you get the cash upfront on the term license and if that's going to be a little bit smaller in the mix, then that will have a headwind to free cash flow, correct?

Well, let me just dive into that a little bit because it's worthwhile. So when we think about that term license, remember, that's only the revenue recognition. That customer is the same as a SaaS customer where we're billing upfront. So it's the same dynamic. It's the same ARR. It's the same billing structure. It's just the revenue recognition on the term, is more upfront as opposed to ratably over the course of the contract. So cash flow is unchanged, but the revenue is different. And so as we see that our term license becomes less and less a percentage of the total, then that does impact the revenue recognized in that year, and it becomes more ratable like SaaS.

Okay. I guess what I was referring to is if you do a 3-year term deal, you do not collect all the cash upfront, you just can collect it annually. Is that the right way to think about it?

That's right. That's the right way to think about it is our multiyear contracts are still paid annually. And then the revenue would be different, obviously, for SaaS versus term.

Okay. Helpful. And then one for TJ. TJ, can you just elaborate on the investments you're making in 2026? You talked about it as an investment year and particularly around your hiring plans? I know there's just a ton of fear out there about jobs and how many jobs are going to be around in 5 years for knowledge workers and engineers, et cetera. Maybe just talk to that in addition to just the specific investments you're making in 2026?

That's a great question. So we're not slowing down on the tech side. We have seen productivity improvements with -- like other tech companies leveraging AI-driven IDEs to get high productivity improvement. In our case, we use GitHub Copilot. So there, we also continue to invest into tech. But at the same time, you've seen in Jim's prepared remarks, we have actually controlled the cost of that very well. So we continue to have the efficiency. So not only do we have tech productivity improvements, but we still monitor the efficiency very carefully because profitable growth is the mantra. So on the tech side, we are not slowing down in terms of, or reducing headcount.

On the non-tech side, we are very actively looking at productivity -- continued productivity improvement, leveraging AI. There's a number of initiatives internally leveraging AI so that we can really continue to accelerate our strong business presence and global go-to-market flywheel that we have going, both for the Enterprise segment as well as the channel and partner investment in the mid-market SMB segment.

And lastly, it's not related to headcount, but from a product perspective, you hear we talk about the scaling of data fabric layer. So that's something we're super excited about. You'll hear more in the coming months. That's -- we -- because we actually have close to a zettabyte of unstructured data that we're now surfacing out to our customers through what we call a new data intelligence as a service offering, that would allow -- in -- combined with AI and UX enhancements, that will allow more real-time unstructured data governance and intelligence at scale to better service more user persona.

So this will massively broaden our data protection and management platforms consumption base and lead to, we believe, much further stickiness and realization of value of our offerings, which is the core of infrastructure -- base level infrastructure for all AI projects and deployments across companies. So all these things you hear me talking is really focused on growth. We think the pie is getting bigger.

The next question comes from Erik Suppiger with B. Riley Securities.

First off, on the operating margin guidance, it looks like it's going to be relatively flat in fiscal '26. What will you change as you get past fiscal '26 so that you can start to expand those margins to get to your target for fiscal '29? And what gives you confidence that you're not going to be -- you're not going to have a slowdown in ARR as you -- as you invest less?

Yes. Great question, Erik. And so I think one of the things that gives us confidence is our history now over the past 3 years of this profitable growth strategy and driving significant ARR growth. And okay, there's a bunch of sirens outside there. So hopefully, you guys aren't hearing that, but all kinds of police [indiscernible] outside. Okay. Great. So I think that gives us confidence, right, that we've executed now over the past 3 years on this growth strategy and delivering both profitability and ARR growth.

And what we've decided to do really for '26 is continue to do that, but look at making some outsized investments, particularly as I called out in the prepared remarks, in marketing in particular, to really take advantage of this dynamic in this environment we're in right now and look to really spend more than we have in the past on marketing and really kind of lean into our go-to-market positioning. So that's different.

Some of the investments that TJ alluded to, both technically for our development teams, but even operationally, we are making investments both in '25 that just passed, but also in '26. And those investments won't really pay significant dividends in '26, but we're talking about operational efficiency from a technology point of view, AI adoption, and those will have benefits going forward. So some of our scalability moving forward should be much more efficient. So that gives me the confidence that '26, although the operating margins are relatively flat, that we will be set up to deliver expanded margins moving forward.

Okay. Very good. And then your growth in your larger customers was very good. Can you comment as to whether or not that's coming more from seat expansion at those customers? Or is that layering on new services? Or is it the combination of the 2?

Yes. So historically, if you look at our NRR, it is mostly coming from cross-selling activities of customers consuming additional products more so than seats. Now the only exception to that is our MSP channel. So generally, our MSPs or more successful MSPs, obviously, they're expanding. They're adding seats that they're managing for their customers. And so we see seat expansion there. But generally, the driver has always been and continues to be adoption of additional components in our platform, and that's been the key driver, and we expect that to continue.

The next question comes from Derrick Wood with TD Cowen.

Congrats on a strong quarter. First one for TJ. Obviously, a lot of concern of software disruption from the LLM vendors as they move up stack into more of the workflow orchestration layer. Obviously, you don't seem to be seeing it at all. But how do you think about the potential risk of these vendors encroaching on your part of the market? And how should we think about your defensibility in these core areas?

Yes, that's a great question. So we always say that we continue to see robust growth. We have multiple vector of growth. So we have continued to accelerate our new logo acquisition. There's still tons of greenfield opportunities, both in existing regions and newer ones from our existing customers. We have a massive upsell opportunity as clearly demonstrated through the new customer acquisitions and the cohort increase in ARR. And of course, our channel, focusing on MSPs, still our fastest-growing segment, unlocking SMB and mid-market. We have not seen slowdown in SMB as some other vendors have seen, and also from a geography perspective.

We attribute this much to our platform expansion of our enhanced products and our capability around the fundamental underbelly, right, of the data curation, data governance and the context of data for which AI grounds on. We even called out Anthropic's identification of that specific critical moat in their Tuesday conversations. And that, we believe, is something that's very, very strong in our perspective as a defensible moat.

And of course, software, we think isn't dead. It's really -- there's going to be far more software to be written. The ability to write software and costs have come down and become easier. So there are a lot more niche areas that can now serve by software. We think there's a infinite amount of software to be written. So AI can definitely lower the barrier to entry.

But for critical enterprise scale data management, you actually need more rigorous approach to this infrastructure for AI, and that's the layer we play in. So we enable high-quality data to give you better AI-driven outcome. And this isn't going to change. So we are seeing tremendous demand and no sign of slowing.

Okay. Great. Yes, probabilistic technology, probably not that great in enterprise security needs and compliance needs, but good to hear. Jim, real quick for you. Could you just comment on how the U.S. Fed business performed relative to expectations and what you're seeing in terms of pipeline and demand?

Yes. So great question. So what we saw in Q4 was, I would say, similar to what we had seen in Q3 in that -- the public sector and particularly Fed space growth rate was lower than North America in general. So -- and that's why -- I think I said in the remarks, we're really pleased that North America still grew 20% despite that. Now having said that, we still are very keen on the public sector. It's a big part of our global strategy, still part of our North America strategy. And for us, there's really multiple components within public sector. We're -- We've all been talking about the federal, and that's really the federal civilian piece of the pub sector, but there's obviously state and local, and there's also Department of Defense.

So those areas of the business, the weakness that we saw this year and kind of anticipated was in that civilian piece. But the other parts of the business are very strong. And obviously, globally, it's still a very key component to our growth strategy in the future. So we're not backing down on public sector. We know it was a tough year, but we're really proud of the team that even in this difficult time executed as well as they did.

And the final question will come from Joe Vandrick with Scotiabank.

I'll keep it to one question. So if I look at the breakdown of ARR, it looks like the Control Suite came down from 28% of the total last year in Q4 to now 26% of total ARR. So can you talk about why the Control Suite net new ARR was maybe a bit weaker than we would have expected given the AI tailwinds? I think we were expecting to accrue in this segment. And why modernization and resilience came in a bit stronger?

So I can start that one, and TJ maybe can jump on. But I think it's twofold, right? First is that TJ touched on, the improvement in migration and kind of the step-up of customers in their journey of trying to take advantage of AI, really making sure that their data is in one place or as few places as possible. And so this idea of migrating your data to be able to accomplish that seems to have resonated and we saw really a step-up of that in Q4, in particular, but really in the second half of the year. So I think that, in general, had an impact on the overall control kind of step down as a percentage. But we don't see that as a real long-term challenge. We think that still governance is key, and we would expect to see continued improvement in that area and going forward. So again, we don't look at this as any kind of indication of what the future holds.

Yes. From my side is -- so we continue to see fairly, very robust demand on the control side for AI governance. As Jim mentioned, because there were more data movement, data migration projects ongoing. And secondly is the average deal size of a control license sale is actually lower than the other modules, but it is our highest margin product due to the amount -- the type of compute and the type of proprietary algorithm that we have to do that to essentially making sure Agentic AI, data access, monitoring, that is all taken care of remediation.

So from that perspective, it may look -- a bit from quarter-to-quarter vary. But overall, it is very much what makes our platform very robust and strong to replace the point solution providers. It is that combination of data analytics, integration migration, data resiliency, recoverability and as well as governance and control. So I won't read too much into the percentages. It's part of our platform, and we also have seen tremendous success in the way we actually start to bundle the platform as a service for our customers and partners.

And then the only thing I would add, Joe, is that overall, year-over-year, it's still growing at roughly 20%. So we're still very proud of that growth rate as well.

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

Thank you. Thank you for spending time with us today. Our results in 2024 is very successful, and we're very proud of our achievement as a team. And also, you have here our growth in 2026, our strong outlook demonstrates our confidence in our ability to continue to deliver profitable growth at even greater scale. As we lean into today's highly disruptive macroenvironment and meet the existing and emerging needs of our customers and partners, we see no signs of our momentum slowing down. The value of our platform and enablement of AI-driven transformation for companies around the world ensures a durable, competitive moat and a vast market opportunity that is ours to capture.

I know I speak for the entire AvePoint team when I say how energized I am for 2026 and the many years ahead of us. So thank you for joining us today, and we look forward to speaking with you more this quarter.

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

Awesome. We will jump on in. Thank you for being here. I'm Roger Boyd. I'm the cybersecurity analyst here at UBS. Happy to have the team from AvePoint here. Thank you, gentlemen.

Thank you. Thanks for having us.

We got Mario at the end over there, then Jim and TJ. So glad to have the team here. And I think maybe just to frame the conversation, maybe to go back a little bit. I mean, AvePoint was founded, I think, 20 years ago, started as an exchange SharePoint backup service. Obviously, that's expanded quite a bit over the past 2 decades. It's a much more comprehensive SaaS and data management platform. For investors who are just coming to the story, can you just kind of go through that time line, what that kind of advancements look like and where you're at today?

Yes. So thank you, Roger, for having us. Yes, we started 20-plus years ago in the -- like you mentioned, SharePoint space, which is Microsoft's enterprise content management platform. And the nature of that is really highly targeted towards regulated industry, very large governments and banks and pharmas. So because of that, we expanded globally. It's a high-touch direct sales process where our value add is to focus on all the data capabilities for that platform. So whether it's data backup, data archiving, data migration, classification labeling and then, of course, build it as a full-fledged document management, record management, knowledge management platform.

And then when Microsoft went to cloud in 2010, 2011, days called BPOS, we invested the earliest because we were able to by staying close to the customer forecast that this is our opportunity to really have a massive expansion of TAM for us. So instead of only focused on regulated industry, enterprise content management play, we were able to -- by shifting to cloud to address the entirety of Office.

So Microsoft Office products, the foundation fabric for collaboration, for multi-editing, for co-authoring is actually SharePoint. So fast forward today, we are the largest SaaS data protection, data management, data governance player for Microsoft Office Cloud. We have our SaaS platform running in Microsoft Azure, which is their compute cloud. And we have a very significant relationship with Microsoft in that regard.

So we're both a large customer of Microsoft as well as global partner. And because of our physical expansion years ago to go after the regulated industry, today, we have about 20% of the overall regulated industry from a user C coverage perspective. But outside the regulated industry, there's still massive headroom for growth in addition to regulated industry.

So that's where we now because we have a global presence and because we also now in the last -- since we've gone public since 2021, invest aggressively into channel to scale. So we're able to not only sell to the Fortune 20, but also to the medium to small businesses. And now industries outside the regulated industry really care about data curation, data quality because of AI. So good data leads to good AI.

And of course, not only have we done the unstructured data governance and management aspect of it, we also get into the space of agentic, so application governance, starting with Power Platforms, Power Apps and now, of course, now agents. So this is the evolution of the company. So while we are still relatively small, about $420 million revenue this year, we have all the markings of a much larger multinational corporation.

Yes. Makes sense. I want to get to agents and AgentPulse in a second. But just to frame out the purview of the company, you talked a lot about the reach you have with Microsoft, but it's expanded beyond that, and it's been much more of a multi-cloud story. What does that percent of business look like that's tied to the Microsoft ecosystem? And how do you think about longer-term targets for the non-Microsoft piece?

Yes. So today, we see fantastic growth in the Microsoft ecosystem and also outside the Microsoft ecosystem because every customer today are, by definition, multi-cloud. Right now, about just over 90% of our revenue come from the Microsoft ecosystem. But what we foresee the opportunity for growth outside of the Microsoft ecosystem could be potentially as high as 30% of our revenue mix by 2029.

Yes. Cool. And then jumping to AgentPulse, relatively new announcement. How does that kind of fit into the broader strategy and the vision for governance and AI in the cloud? And I know it's relatively early, but how have customers responded to that offering? I know some of the parts of the offering have been in the market for a little bit.

Yes. We're very encouraged to see the convergence of the market pretty much shakes out how we have always viewed the continuum of data. First from management, right, data protection, ransomware detection recovery, storage management into then governance, right, who has access to what access control, but then importantly, this delegated administration capabilities of IT doesn't really know what business, how they use data and how they run applications, what purpose there are, especially in a large organization.

So we give that power to the end user, the business users to specify, to quantify and then leveraging a framework, a SaaS framework delegates administration that actually put this all together, right? So Gartner calls it data security posture management. So we start that with data and then we move it into, of course, applications and now agentic.

So from an agent perspective, we're very pleased with the progress. So some of our largest customers, global Fortune 500 as well as the biggest audit firms around the world, they are already actively promoting agents. UBS as well. Last night, I was at the UBS leadership dinner and the top concern for UBS IT leadership is actually how to grapple with, on one hand, businesses want to push more to deploy AI agents to make work more efficient and productive.

On the other hand, we need to -- because UBS is regulated industry, you are -- from a compliance and perspective, is even a higher standard than most other banks. So that become a huge concern, right, guardrails, if you will, around applications, around business processes, around agents.

So this is where we see a common thread across all of our large enterprise customers and even also small- to medium-sized business. We have been doing this for a number of years for Power Platform, Power Apps. And of course, with AgentPulse, we're able to help businesses take stock on all the agents that's running in the environment, not only in the Microsoft ecosystem.

And then once we identify them, discover them, then we bring them under control. So if you think about guardrails around these business processes and these applications, semi-autonomous applications, how long they live for, what kind of other system they can talk with and interchange data with and then what users can have access to them.

So this is very, very important because over time, these agents are going to be much more powerful, the way hyperscalers think about it as full-fledged digital employees. So they will have an identification. They will have a CRM license.

They will have office license, they have an e-mail box, they have a chat persona. And all these are fully licensed as almost if it's a real employee. So that kind of capability and power is something that brings forth a lot more complexity. So this is where we think there's a massive and very quick evolution towards that.

Yes. I wanted to expand on that a little bit and maybe bring Mario to another conversation a little bit, too. But where do you think we are in terms of like the regulatory side of AI? And you talked a bit about being exposed to a lot of regulated verticals and European banks are probably at the high end of that. But how do you see that evolving and potentially being a catalyst for your business and other security firms?

Yes, sure. That's a great question. A good follow-up to what TJ just mentioned. So if you think about regulatory impact on an organization, it starts with is your information secure? What are the policies that you in your industry should be following?

So we actually went through all of this many years back with GDPR when many organizations, especially in the EMEA region, were saying, we need to understand the privacy of security and how do we automate with software, the controls for that. We're basically in a place now where for AI regulation that we're starting to see take shape, you're going to need to have the same type of controls.

Earlier this year, we spent a lot of time working with policymakers, understanding what are the metadata values are you going to need in the application to track the agents and the behavior of agents. So the EU Act, which was just launched in September in the EMEA region, starts to set the framework for how organizations should think about the impact of AI and where regulation should really be applied. We are planning in our product, especially with the AgentPulse launch to help organizations start to track and create an inventory of these agents.

So in the product already, you'll be able to apply metadata that will give you a really good way to apply the regulatory requirements no matter what industry you're in. And Roger, for your audience, it's really important to know that we've been working across regulated industries for many years.

And what we've learned is the best way for us to make sure our product has market fit in those industries is to inject a lot of the regulatory requirements in the software automation layer, which we've done. So ultimately, you'll be able to track the agents, have an audit trail, understand what identity the agent is acting on behalf of and then more importantly, which type of data is the agent using for transfer.

And if it's sensitive data, what's the right classification code. So the idea for us is to do the inventory, make sure that you have that inventory applied in the context of regulation to be able to help organizations. And then the last point is in the U.S. market, regulatory changes are starting to take shape. We see it at the state level. We don't have anything yet at the federal level, but we expect that next year, we'll see some changes there. And we just want to make sure we're ready to help our clients navigate that.

Yes. Makes sense. I wanted to transition a little bit to the business side of things and get Jim involved a little bit. But maybe to just touch on 3Q. I think it was a record quarter for net new ARR. I think the commercial side of the business is doing really well. Can you unpack that a little bit?

And then I think conversely, sounds like U.S. Fed was maybe a little bit weaker, a lot about expected, but how are you thinking about 4Q and into next year and the ability to continue to sell into agencies?

Yes. I mean I'm glad you pointed out. You're right, everything you just said about Q3. The commercial side of the house, very strong, in line with really the growth we saw in Q2, which was really powerful, really strong, 42% kind of net ARR growth. So pretty consistent with that.

And you're right, it was really the public sector and more specifically the federal piece of the business that definitely had weakness, particularly in Q3, but actually for the full year, it's been relatively weak compared to last year in terms of growth rate. So that definitely was the story kind of for the first 9 months of the year. Now despite that, we still had really strong growth overall. So we're really encouraged by that.

And then for Q4, obviously, the government shutdown has kind of come and gone, which is good. And the rest of the business looks really strong. We're -- you mentioned we had record ARR, net ARR growth in Q3. We're expecting another net ARR record in Q4 as well. So again, we see good growth coming from all regions, really all customer segments.

We talk a lot, Roger, about the balance of AvePoint in terms of our diversity and really balance, whether it's customer segments, whether it's geographies, even customers, not any one customer representing more than 2% of the business. So that good diversity continues. And we're going to see nice growth coming from really all sectors of the business in Q4.

So we're excited about the closeout for the year, and I think that will give us nice momentum going into 2026. Really setting up the teams very well for a good year, hopefully, next year. And then that sets us up really well for this goal of getting to $1 billion in 2029. So we're excited about that. Teams are galvanized and really excited to contribute to that goal.

Yes. Awesome. I want to come back to that target in a second. But I think last quarter, you spoke pretty specifically about some of the momentum you have in the channel. And I know that's been an area of investment over the past year and beyond. What's been incremental there? And you've talked a lot about kind of the opportunity with MSPs and MSSPs. Where are you today in that segment, that channel?

Yes, we're still very pleased with the progress there. It's our fastest-growing segment for a vertical. It's our way to unlock SMB, the fat tail, if you will, the market with our enterprise-grade focus. So because SMBs don't have IT and they rely on these outsourced IT to manage all their data estate and cloud assets. So the use case here is really for -- I like how Jim puts it for these MSPs, we are fundamentally a revenue center.

They're leveraging our platforms, what we call the Elements platform, is to actually drive and scale their business to manage hundreds, if not thousands of commercial customers behind the scenes, anywhere from, obviously, data protection, ransomware detection to also governance to also now license management and cost management because a lot of what's happening in cloud is there's compute costs, there's GPU cost, CPU costs, there's also bandwidth costs and storage costs and also license costs.

If you just rely only on the hyperscalers, they will want you to buy the most expensive licensing possible, where we actually have software to say, Hey, this -- John has been licensed fully, but he actually barely uses a portion of his license. And there, there's economic optimization to be done.

And this is something that's super keen to the MSPs. That's where they drive that additional margin for themselves. So this is where we see continued uplifting whereas some of the larger MSPs were experiencing 140% NRR just because how fast they're adding net new seat counts behind it. There's also a bit of a key roll-up in that market where every time they buy a company, they bring forth 100,000 seats, for example.

And these are not big companies, right? So the MSP themselves. But behind the scenes, they're behaving like a very sophisticated, like a UBS type of level because they have hundreds of thousands of users behind the scenes under management. So we continue to be very excited about it. We feel like we're just scratching the surface here.

We have about 3,000 MSP partners in the Microsoft ecosystem. According to Canalys, the total size of the market is at least 10x that. And of course, as we look at the multi-cloud space, there's MSP players in the other ecosystem, AWS and Google, et cetera.

Yes. We're talking with Mario about this last night, but how do you think about the demand for that MSP channel? And it feels like you guys are betting on a horse that is going to continue to accelerate here and especially with concerns around AI, it feels like the security maturity and security posture of SMBs needs to come up. How do you think about that kind of playing out from here?

There are a few pieces that I think we realized would be really important for MSPs. One was managing costs. So we have, as TJ alluded before, not only entitlement management, but cost optimization. So in our platform, MSPs are able to identify for clients, how do I help you reduce cost and that keeps them driving value for their end customers. So that's one side.

The other side of it is empowering the MSPs with a set of capabilities that allows them to stand up security practice. And the security practice could be -- I'm going to protect your data. I'm going to make sure that when you have intent access or when you're sharing data with your supply chain partners, we're tracking, we're monitoring things. So we have that already in the platform.

And then more recently, the desire from MSPs is can they actually be relevant now with AI, right? And so part of what we're doing with AgentPulse is bringing that also into the Element Edition of the platform, where they'll be able to actually do that measurement, that inventory analysis and not only stand up these agents, but also monitor and manage the agents.

And that's taken a big burden off the hands of these companies that are looking to keep their IT staff quite small. So our decision and intention to build more value in that relationship with MSPs is all about giving them the right IP.

Cool. Yes, I want to come back to the $1 billion ARR target, and I think it implies pretty steady mid-20s growth for the next couple of years. A lot of opportunity across the table, but how do you kind of rank the key factors to getting there? What's in the secret sauce?

Yes. Everyone asked that question. So we do actually both the top-down and the bottom-up planning. So Jim can talk about the bottom-up perspective. But from top-down, we see multiple levers of growth. So as we talk about MSP being one segmentation, we think the SMB segment for Microsoft is 40% of their total revenue pie.

For us, it's right now just under 20%. We could potentially -- at the rate it's growing, potentially, it could be easily 30%, if not 40% of our revenue pie in the next 4, 5 years. And then meanwhile, the whole -- I think in aggregate, we're growing mid-20s, as you mentioned. But in addition to that, we also see the multi-cloud side has a very high growth potential.

Today, it's just under 10%. We actually think it could potentially reach 30% in the next 4, 5 years. So that's multi-cloud. And lastly, we also have all these different type of channel play in direct. We have different strength in different markets. So 45% of our recurring is North America, 35% EMEA and then rest -- the balance in APAC.

But every region will have different strength where, for example, in America, we're very strong in direct and SMB is fully channel, but mid-market is still not yet fully channel. We think that once we get that going, that will continue to drive several percentages of higher growth.

And then EMEA, for example, so Western Europe and Middle East is 80% channel today. And enterprise is something that we actually now are investing into to go after the bigger type of customers to drive that stickiness. So that's a growth opportunity for us. Japan, for example, mid-market SMB, it's a new phenomenon because historically, business they are very conservative, but now they're going to cloud in droves, thanks to AI.

We see massive uplift there. In ASEAN, historically, we do services to generate IP, and now we're layering in channel. So we see really quick hockey stick growth in ASEAN markets, including India as well. So Microsoft is doing fantastically well in India, a couple of billion revenue in SMB. And then, of course, Australia. Australia is very much like EMEA. So there's large enterprise component that we can go after.

So net-net, is that if we -- just across all the physical regions that we have presence in, if we're actually firing on all cylinders like we want to in the next couple of years, we would accelerate even our organic growth. And beyond that, of course, we are looking at M&A as well as a way to accelerate the go-to-market for multi-cloud and also enhance our capabilities around DSPM.

So because today, we cover mostly focused on unstructured data, which is 80% of all data, fastest growth in data is unstructured and also most sought after cybersecurity assets from a criminal syndicate perspective are unstructured data because you follow the money, right?

You follow the e-mails, follow the accounts, that's how you do the social type of phishing attacks. But beyond that, there's structured data that we can go after. So there's opportunity there, both organic and inorganic expansion. So amongst all these levers of growth, if we hit all of them, we would grow comfortably faster than what we forecasted.

Awesome. Maybe for Jim, as you think about that $1 billion ARR target and the associated operating profile to it and all these opportunities to invest across multiple areas of the business, how do you think about profitability and balancing that against growth? -- any guardrails to think about as we look at into next year and out to 2019 or 2029?

Yes. It's a great question and one that we actually spent a lot of time lamenting over and making sure we're making the right investments. It wasn't too long ago. It was really 3 years ago.

I'm not sure lamenting is the right [indiscernible].

Well, I mean we spend a lot.

Good problem to have.

Yes. It's a good problem to have. I mean, fortunately, we're -- we've turned the corner, right? If you go back 3 years ago, when we first started talking about this, we were essentially breakeven on an operating margin and growing nicely. But people were asking us at that point, we don't see a path to profitability. How are you going to show us profitability? And so we, at that point, focused on profitable growth as kind of our mantra and really the story, right?

And now you've seen this accelerated operating income to get us to this point. And so you're right, when we think about, hey, how do we move the dials? Can we accelerate the growth, maybe dial back operating income make additional investments. And so you will see us do that over the next couple of years. And the common question we get is, are you going to show this 400 basis point increase year-over-year, and just to bring everyone in.

We've got long-term targets, which is really 2029, getting to this $1 billion, showing operating income at that point of roughly 27% of revenue. And at that point, so the question is how do we get from where we are today to '27? Is it linear? Is it a couple of percentage points a year? And so I would just say that it probably will not be a straight line. There'll be a little sawtooth in there as we make investments.

And so 1 year might only grow 1 point, maybe another year grows 2 percentage points. So -- but having said that, we're constantly managing, hey, where do we need to make the investments, not only for today, but really for that 4-, 5-year period. And this focus on $1 billion may seem a little crazy, but it has given us this unique perspective of making sure we're executing today to give us the best possible chance to hit that $1 billion.

And so as opposed to thinking a quarter in advance or even a year we are evaluating all of our decisions based on like does that get us closer to the 2029 target, which I think is a great way to be aligned as an organization and focus. So you will see us make investments every year, obviously. And in some years, those investments might be slightly greater.

Yes. Makes sense. I wanted to finish with a couple of questions about the demand environment. How do you think about where we are in terms of AI adoption, AI utilization? And how do you think about that driving budget availability for you? And does it look significantly different when you look at heavily regulated verticals versus non?

And I think there's been this debate of, do you see security controls come in before AI adoption or after? Do things have to break before we see some of the security dials get turned on? Just a very broad question, but how are you thinking about that?

That's a very good question. So Microsoft has been touting the Copilot licensing is now $150 million, but the actual consumption is little less than that. However, having said that, we already mentioned it's not to equate AI adoption with Copilot licensing penetration. It's really every companies are now experimenting with AI, whether it's leveraging Copilot Studio to design some applications or agentic AI running around, whether they design the agents via Microsoft stack or other open source stack. The reality is that AI is here. So last night at the dinner with UBS IT leadership, they talk about AI as its own budget. So the intentionality towards that.

Now in terms of your second part of your question of which goes for security or AI, it really depends on the posture of the business. So obviously, for someone like UBS, compliance and security is top of mind that has to go first. It's internal deployments.

We see majority of the company doing more internal deployment than just letting that direct AI capabilities surface out to clients because there's a lot more risk, a lot more liability and that because, again, there's still some of the kinks that need to be solved around accuracy, around whatever offering you use leveraging AI, you still need that human in the middle to make sure that you're providing accurate and highly confident type of services to your clients.

However, we do see a mixed kind of adoption risk posture, if you will, across small businesses and large enterprise. Regular industry, we would we see that has a better job in handling this just because, again, good AI, the predicate to that is good data. So the regulated industry do have, in general, a much better data hygiene practice so then they can deploy AI with much higher confidence than a nonregulated industry. So this, we see, obviously, as a massive opportunity for us.

Awesome. Maybe we'll wrap it there. But TJ, Jim, Mario, thanks for being here.

Thank you, Roger.

Thank you.

All right.

Good afternoon, and welcome to the AvePoint, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Jamie Arestia, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to Appoint Third Quarter 2025 Earnings Call. With me on the call this afternoon is Dr. TJ Jiang, Chief Executive Officer; and Jim Caci, Chief Financial Officer. 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, 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 measures is available in our third quarter 2025 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. As we recap our third quarter earnings. The team's focus and execution drove another strong set of results, enabling AvePoint to once again outperform our guidance for both revenues and non-GAAP operating income. It is clear that our differentiated platform-driven approach to governing and securing critical enterprise data continues to resonate with customers, especially in today's dynamic digital landscape.

Today, I want to talk about the evolving market landscape and how AvePoint is driving value for customers and partners, especially through our approach to governing a agentic AI. I'll also recap a few fantastic customer wins from the quarter. and then turn it over to Jim to cover our financial performance. So let's jump in.

At AvePoint, we believe that AI is a force for great productivity and innovation. But we also know that it introduces risk related to data exposure, compliance gaps and lack of trust. And these apply to every company, regardless of industry, location or size. The addition of agentic AI systems that can automatically execute workflows, interface across apps and architectures and make decisions within defined boundaries only exacerbates these risks. While these capabilities can unlock tremendous value for companies, including improved efficiency, automated decision flows and more rapid scalability of operations, they introduced new layers of complexity for every organization that must be understood and addressed. Our own research highlights this urgency. For example, we recently published our annual report on the state of AI, which surveyed 775 companies of all sizes around the world, spanning highly regulated industries like financial services, health care and the public sector.

Among many key takeaways, we found that 86% organizations have delayed AI rollouts by up to 12 months because of security and governance concerns. This isn't surprising as many of our customers cite the sprawl of sensitive data, driven by a fragmented tech stack and reliance hundreds of SaaS apps and multi-cloud architectures as a top concern. At the same time, agents can easily access sensitive data across SaaS and cloud systems often without full visibility or defined life cycles, in turn, highlighting concerns around data exposure, compliance and lack of auditability. Adequately addressing these vulnerabilities is now business critical, and it is, therefore, no longer a question of if agentic AI will be governed, it's how.

At AvePoint, we believe that organizations must treat a genic AI governance as a first-class discipline, just like data protection, identity and access management and cloud governance. With that in mind, here is our approach to governing agentic AI and how our platform supports customers in this evolving landscape.

First, we provide visibility and life cycle control of agents. We have enhanced the Apple confidence platform to provide deeper visibility into agentic AI and specifically, the life cycle of agents created in environments like Copilot Studio. For example, we now enable organizations to monitor where agents originate, what data they access, what permissions they hold and how they evolve over time. This eliminates shadow agents, operating outside of governance frameworks and ensure auditability, transparency and control throughout the agent life cycle.

Second, we offer unified protection across multi-SaaS, multi-cloud environments. AI agents exist across SaaS applications, infrastructure and data stores. That's why we extended our platform to cover multi-SaaS data protection and most recently announced data backup and protection for applications such as Monday.com. Docusign, Smartsheet, Okta, Confluence and for infrastructure like Google GCP VMs. Our objective is to bring the governance of agentic AI into the same control plane as more traditional data protection and cloud governance tools. so that governance is holistic and not siloed.

Third, we have robust operational metrics and command center insights. Governance isn't just about setting policies, it's about measuring impact. That is why we recently launched our new Operational Efficiency Command Center within the AvePoint confidence platform. It tracks policy violations, agent remediation speed, workspace status and more, helping organizations measure impact, improve governance and elevate this discipline to board level visibility.

Fourth, we embedded responsible AI practices. We believe governance must be built in, not bolted on. That means embedding controls, such as role-based access for agents, segregation of duties, process triggers for agent deployment or retirement and consistent life cycle management. Customers can define and enforce policies around agent creation, data access, auditing, drift monitoring and termination, aligned with industry standards and regulatory expectations. And just as we have helped customers recover from both cyberattacks and operational errors for many years, we offer the same recovery from potential damages done by agents, a capability, which is crucial for any company seeking to establish an AI strategy in a secure, scalable way.

And lastly, through collaboration, effective governance of a agentic AI requires broad collaboration from cloud providers, to SaaS vendors, to internal IT and risk teams. We partner with Microsoft, Google, Salesforce and our growing channel ecosystem to ensure that governance is deeply integrated and that we are enabling a governance culture in every organization. This matters to our customers because the stakes are high and because the upside is significant. We can highlight 4 immediate benefits for them. The first is risk mitigation. Without governance, agentic AI can become a source of data leakage, compliance violations, audit gaps or unintended automation errors. Our platform visibility and control help minimize those risks.

Second, operational efficiency by bringing agent life cycles into governance oversight, enterprises can safely scale automation, avoid ad hoc build-outs, reduce manual overhead and accelerate innovation.

Third, trust and accountability. Executives and Boards are increasingly asking hare governing our AI agents, what oversight exists? Can we explain what they're doing? By using our governance first platform, organizations can build stronger trust with stakeholders and regulators.

And lastly, competitive advantage. Companies that properly govern their agentic AI can confidently move faster and scale smarter. At the same time, organizations that neglect governance face delays, rework or regulatory issues, as I noted earlier.

This platform-driven approach, coupled with our ongoing innovation continues to resonate in the market and led to strong new logo acquisition and the deepening of existing relationships in Q3. One of the largest financial service corporations in the United States and a long-standing member of the Fortune 500 needed to replace their manual data governance solutions for M365 and Power platform before rolling out Copilot. They wanted one solution that could help their IT teams address data cleanup, access management and complex audit needs and AvePoint was the perfect fit. After solving these challenges with our Control Plus bundle, we're already discussing how we can optimize their data storage footprint and proactively manage the life cycle of their data with AvePoint OPUS.

Additionally, one of the world's largest food and beverage companies expanded its partnership with AvePoint in Q3, already using our control suite and OPUS from our Resilient suite they needed enterprise-wide ransomware protection with in-depth restoration controls for SharePoint Online and teams, already impressed by our platform's ease of use, their CISO and IT almonds purchased back up a service securing their most at-risk content and nearly doubling ARR from this strategic account.

Finally, a major Japanese telecommunications company meaningfully expanded its partnership with AvePoint in Q3. Originally, a customer of our backup offerings for Salesforce, they needed to establish data governance controls for teams and SharePoint like and properly managed guest access. AvePoint was the only vendor who could address their multiple data security risks, and they purchased product from our control suite in Q3 to minimize these risks and automate the governance and provisioning of their data repositories.

These new and expanded partnerships are all great examples of how the breadth of the AvePoint Confidence platform enable us to address multiple strategic AI-driven use cases and deliver both immediate and long-term value to our customers. At the same time, AI is rapidly transforming the digital landscape and we recognize that our platform offerings and our approach need to move at the same pace. As we look to the future, we believe there are 3 key areas where governance of agentic AI will evolve and where AvePoint intends to lead.

First, from visibility to autonomous governance. Today, we provide dashboards, metrics and control planes. Next will layer more automated governance workflows, such as agent risk scoring, automated remediation triggers, policy-driven agent retirement.

Second, from enterprise governance to ecosystem governance, Governance will expand beyond internal agents to partner, develop, build agents, federated agents across organizations and cross-cloud agent networks. We are preparing our platform for that complexity, including the recovery capabilities from potential agentic AI damage that I referenced earlier and evaluating a variety of pricing structures for customers.

And lastly, from compliance through strategic governance. Governance cannot be just about meeting controls. It must be a strategic enabler. We will help customers treat agentic AI governance as a business capability that supports innovation, not impede it.

Before I turn the call to Jim, I want to reiterate that agentic AI represents tremendous opportunity. But with that opportunity comes responsibility. At AvePoint, we are committed to ensuring that when organizations adopt these new capabilities, they do so with governance, visibility, shared accountability and resilience built in. Doing so will enable them to unleash innovation with confidence, and we're proud to support our customers on that journey.

Thank you again for joining us today. I will now turn it over to Jim.

Thanks, TJ, and good afternoon, everyone. Thanks for joining us today. Our third quarter results underscore our ability to execute in a dynamic environment and deliver the robust top line growth and margin expansion that we have been committed to for many years. At the same time, we continue to complement this strong financial performance with an operating plan that balances strategic investments in our innovative pipeline and go-to-market capacity, with a relentless focus on driving operating leverage across our business. As a result, we delivered a number of highlights in Q3, including quarterly records for net new ARR, the number of 100,000 ARR customer adds, operating cash flow generation and non-GAAP operating income in both dollars and as a percentage of revenues. We are proud of these achievements, and we know that continued execution against our strategic priorities will be critical as we march toward our 2029 target of $1 billion of ARR.

So let's turn to the quarter. Total revenues for the third quarter were $109.7 million, up 24% year-over-year and 3% above the high end of our guidance. On a constant currency basis, total revenues grew 21% year-over-year.

SaaS delivered another strong quarter with Q3 revenue of $84 million, growing 38% year-over-year. SaaS also represented 77% of total Q3 revenues, our highest ever quarterly mix compared to 69% a year ago. And on a constant currency basis, Q3 SaaS revenues grew 35% year-over-year.

Looking at our other revenue lines, services revenues of $13.8 million represented 13% of total revenues and grew 27% year-over-year and was the second consecutive quarter of services growth exceeding our expectations. And as we expected, Q3 term license and support declined 21% year-over-year and represented 10% of revenues compared to 16% a year ago.

Lastly, maintenance revenue of approximately $840,000 represented 1% of total revenues. And as a result, 87% of our total revenues in the third quarter were recurring.

Turning to our performance on a regional basis. In North America, SaaS revenues grew 36% year-over-year and represented 83% of total North America revenues, which in turn grew 14% year-over-year. As we anticipated, revenue growth in North America was impacted by relative softness in the public sector as U.S. federal agencies navigate a number of changes. North America revenue growth was also impacted by the much lower mix of term license revenue compared to last year. Both dynamics were in line with our expectations. And while the current government shutdown did not affect our Q3 results, we have factored the uncertainty its impact may have on deal timing into our updated outlook for Q4.

In EMEA, SaaS revenues grew 42% year-over-year and represented 89% of of total EMEA revenues, which in turn grew 35% year-over-year. And in APAC, SaaS revenues grew 34% year-over-year and represented 53% of total APAC revenues, which in turn grew 25% year-over-year. On a constant currency basis, EMEA SaaS revenues increased 35%, while total revenues increased 28%. And for APAC, SaaS revenues increased 33% on a constant currency basis, while revenues increased 24%.

We have stressed that ARR is the key metric to assess our performance and we were pleased that all 3 regions again delivered ARR growth above 20%. In Q3, North America ARR grew 21%, EMEA ARR grew 28% and APAC ARR grew 33%. Taken together, we ended the third quarter with total ARR of $390 million, representing year-over-year growth of 26%, both on a reported basis and after adjusting for FX. As a result, net new ARR in Q3 was $22.4 million, surpassing last quarter's record and representing growth of 19% year-over-year. As of the end of Q3, 56% of our total ARR came through the channel compared to 53% a year ago as our strategic priority of driving more business through the channel, which allows us to efficiently realize greater market reach, continues to support our commitment to profitable growth.

Additionally, we ended the third quarter with 762 customers with ARR of over $100,000, an increase of 21% from the prior year. This also represents the addition of 41 such customers in Q3, our highest ever quarterly result, and we are equally pleased that our larger customer cohorts once again delivered even higher growth rates in the quarter, reflecting our ongoing success selling the platform to global enterprises.

Turning now to our customer retention rates. Adjusted for the impact of FX, our dollar-based trailing 12-month gross retention rate for the third quarter was 88%, in line with the prior year. I want to again remind you that our calculation of GRR factors in not only account level churn but also downsell and the performance of our migration products, which have naturally lower renewal rates. This quarter, migration, again, served as a 2-point headwind to GRR, so excluding it, GRR would have been 90%. At the same time, our FX-adjusted net retention rate for the third quarter was 110%, also in line with the prior year. And on a reported basis, Q3 GRR was 88% and Q3 NRR was 110%, both of which represent a 1 point improvement versus the prior year.

While we are pleased with the retention rate improvements since the beginning of 2023, we have also cautioned that these metrics can fluctuate from quarter-to-quarter. In Q3, the expected softness we saw in the public sector was the primary driver in the sequential step down in our retention rates. Nevertheless, we will continue investing across the company to support ongoing progress toward our longer-term targets for GRR and NRR, which to remind you are 90% plus and 115%, respectively.

Turning back to the income statement. Gross profit for Q3 $0.4 million, representing a gross margin of 75.1% compared to 77% in Q3 of 2024. The year-over-year decline in our overall gross margin is primarily the result of a higher mix of services revenues this year and the lower relative gross margins on those revenues.

Moving down the income statement. Operating expenses for Q3 totaled $58.2 million or 53% of revenues compared to $50.5 million or 57% of revenues a year ago. As a result, Q3 non-GAAP operating income was $24.1 million or an operating margin of 22%, our highest yet as a public company. This compares to non-GAAP operating income of $17.8 million in the prior year or an operating margin of 20.1%.

We are especially pleased with the ongoing improvement in our sales and marketing expense, which represented 30% of total revenues in the third quarter. To remind you, 30% is our longer-term target for sales and marketing expense, and we are pleased with the team's ongoing improvement in sales efficiency as well as the growing contribution from the channel, which continues to drive this percentage down.

Turning to the balance sheet and cash flow statement. We ended the third quarter with $472 million in cash, cash equivalents and short-term investments. And for the first 9 months of the year, cash generated from operations was $55.6 million, while free cash flow was $52.6 million. This compares to cash generated from operations of $56.1 million and free cash flow of $53.8 million in the first 9 months of 2024. And to remind you, our year-to-date cash flow generation also includes onetime tax payments in the first quarter of approximately $7 million.

Lastly, we repurchased 528,000 shares in the third quarter for approximately $8.4 million. And year-to-date, we have repurchased 1.7 million shares for approximately $27 million and have approximately $123 million remaining in our authorized share repurchase program.

I would now like to turn to our financial outlook and provide some color into our expectations for the fourth quarter. First, our updated full year guidance for revenue and non-GAAP operating income includes the respective third quarter outperformance relative to guidance. On top of this, we are raising our expectations for revenue and non-GAAP operating income, reflecting the healthy demand we continue to see across the business. And lastly, our guidance also importantly factors in the potential impact to deal timing from the ongoing government shutdown. As you know, the timing of deals has a greater impact on ARR than it does on revenue. And so accounting for this uncertainty, which we believe is prudent is why we have elected to maintain and not raise our full year guidance for ARR.

As a result, for the fourth quarter, we expect total revenues of $110 million to $112 million or growth of 23% to 26%. And on a constant currency basis, we expect revenue growth of 20% to 23%. We expect non-GAAP operating income of $21 million to $22 million or non-GAAP operating margin of 19.1% to 19.6%. For the full year, we continue to expect total ARR of $412.8 million to $418.8 million or growth of 27% at the midpoint. And on an FX-adjusted basis, we continue to expect total ARR growth of 25% at the midpoint. We now expect total revenues of $414.8 million to $416.8 million or a growth of 25.8% at the midpoint. As mentioned, this includes the Q3 revenue beat as well as a $3 million increase from our prior guidance.

On a constant currency basis, we now expect revenue growth of 23.8% at the midpoint compared to 21.5% growth we guided to last quarter. And lastly, we now expect full year non-GAAP operating income of $77.3 million to $78.3 million or an operating margin of 18.7% at the midpoint. This represents year-over-year margin expansion of nearly 430 basis points and includes the Q3 operating income beat as well as a $2.6 million raise from our prior guidance. On a Rule of 40 basis, which for AvePoint is the sum of ARR growth and non-GAAP operating margin, the midpoint of today's full year guidance reflects a 46. This compares favorably to the 44 we guided to last quarter and to the 38 we guided to at the beginning of 2025.

And once again, I would point you to the slides in our current investor presentation, which detail our actual Q3 performance relative to guidance as well as the walk from our prior full year guidance in August to our current full year guidance.

In summary, we are proud of the team's execution in Q3. Our experience in navigating dynamic environments, coupled with the global nature of our business, and the balance it offers across customer segments and verticals position us for continued execution in the quarters and years to come, and we are excited for a strong close to 2025.

Thanks for joining us today. And with that, we'd be happy to take your questions. Operator?

[Operator Instructions] The first question comes from the line of Shrenik Kuitari from Robert Baird.

So TJ, on AI governance right to your point with AI deployments and the AI governance becoming more use case specific versus more broad-based Copilot, of all the use cases across -- you mentioned the reduction of licensing and profit and compliance visibility, what are the pillar AI [indiscernible] use case is driving the most urgency for your buyers today. And then since you highlighted agentic inflection, which use cases you believe are going to be the most critical next year?

That's a great question. Yes, the urgency today is really about AI readiness to roll out AI deployments across the organization with specific use cases. So this means accuracy the data that AI grounds on for refinement, for industry and company-specific private data, that's super important and also for risk control. So AI doesn't recommend things to your employees. That person does not have access to. So this is an immediate activities we help many agencies and government as well as commercial to address.

The next level opportunity, which I mentioned in the prepared remarks, it's AI agents. So from the conversations we have with product teams and business leaders, especially with the hyperscalers, the way everyone is thinking about AI agents in the future is your carbon-based employees are working with AI employees. So everything is behind the scenes is wired up for the AI employees to have cloud access control as well as licensing as well as different data services availability. So full on licensing of this AI agent to us actually come across this continuation of sea counts as well as compute consumption will continue to increase. So that's actually a massive coming opportunity when it comes to agentic AI deployments.

Next question comes from Rudy Kessinger from DA Davidson.

Could you -- Jim, could you maybe quantify just the impact from some of the federal downsell and whatnot in the quarter to your ARR? And maybe also on the gross and net retention rates? And similar question about the maybe extra conservatism in your revised guidance, not for that extra conservatism would you have raised ARR a couple of million or I don't know if there's any additional color or quantification you could give on the federal stuff would be very helpful.

Yes. No, it's a great question, and thanks for letting me expand on that a little bit. So we did touch on this a little bit in the prepared remarks, but definitely, right from the beginning of the year, we had anticipated that there was definitely a lot of uncertainty in the public sector, specifically within federal. All of the discussion from DOGE in terms of that impact or potential impact. And we actually did see some of that in Q3. Some of it was reflected in some of our churn. So it definitely had an impact on our GRR.

I commented that it was probably the impact for the step-down we had of a 1 percentage point going from 89% to 88% in the quarter was really attributable to what we saw coming from public sector.

And then even just in terms of expansion, last Q3 of 2024 was a very strong upsell quarter for our public sector practice. And this quarter, in Q3 2025, we saw a particularly weaker upsell quarter. So again, that impacted our NRR statistics. So we saw a definite impact there. We haven't specifically quantified the impacts or actually how much business we have coming out of the public sector. But again, it is the driver for those 2 statistics and again, was the driver really for the kind of what I would say, the weakness in North America.

I mean we're really pleased that overall, North America grew ARR 21% year-over-year despite the weakness that we saw coming from that federal sector. So again, really pleased with the team and the execution not only in North America, but obviously across the globe and to deliver the 26% growth that we saw. Now we have baked it in, as you alluded to, we baked that into Q4, tried to be as prudent as possible, knowing that we're in the midst of a government shutdown. Fortunately, Q4 is not nearly the growth engine that we would normally expect that we see in Q3 from the federal sector. So there is an impact, but not nearly as significant as Q3.

And obviously, we're hoping that, obviously, the shutdown doesn't continue for the whole quarter. But again, we tried to be conservative and build in that expectation so that we can deliver.

Next question comes from the line of Joseph Gallo from Jefferies.

I've got 2, if that's okay. It was really nice to see the announced new data protection solutions for Monday, Docusign, Smartsheet. When we think about the non Microsoft-related business, how big is that today? And then as we think over the next 12 months, which of those SaaS data stores has the most potential upside? And how big does that mix have to become of non-Microsoft to hit your $1 billion target?

Joe, that's a great question. We always been sharing that just over 90% is coming from the Microsoft tech stack and then the -- less than 10% come from multi-cloud sources. So these additional sources are things we actually have worked with our customers and partners and see the demand of from even our existing customer base. So these are very nice low-hanging fruit sources of SaaS back up to service, ransomware detection and recovery capabilities because we do see a convergence of data protection, data security and data governance. So supporting those sources become key for us.

Having said that, we do see a bigger opportunity for growth in the sources that we support in the Google ecosystem as well as the Salesforce ecosystem. So we'll continue to do that. and they're even more large and deeper sophisticated system that we're looking to extend into like ServiceNow. We said that by 2029, when we get to that $1 billion target ARR target, the non-Microsoft revenue contribution -- ecosystem contribution could be potentially as high as 30%. So that's how we are measuring ourselves and quantifying the progression.

Okay. And then just it was a really strong profit quarter. You mentioned go-to-market efficiencies. Yes, how should we think about sales capacity? Because again, going back to that $1 billion ARR target that implies you keep growth kind of at the same levels. So should we expect less leverage going forward as you invest for growth? Or maybe just kind of help us think through what's the same growth at the current levels for the next couple of years?

Yes, great question. So obviously, we spent a lot of time on this very topic, making sure we have the right capacity in the right places to drive that growth and really capitalize on the opportunities in front of us. So yes, I mean, we're definitely going to be expanding the teams. We've talked about the expansion that we've already made through the channel and how that continues to grow. We would expect to see that continue to accelerate. We do believe that's a more efficient way to market. That does not mean we're not investing in our direct go-to-market strategies. We are doing that as well.

So we're making investments across the board. But again, our long-term goal is to improve on the current kind of operating profitability to continue to see that improve. We've had this mantra for the past couple of years of profitable growth. We've really been maniacal in terms of focused on it. We want to be growing, but we want to be growing responsibly. And we've, I think, demonstrated that now over the past really 10-plus quarters. And I think, again, we'll continue to see that moving forward.

Now it will fluctuate from quarter-to-quarter. It's not linear. Some of our budgeting does vary per quarter. So I would expect to see that kind of fluctuate from quarter-to-quarter, both for profitability and growth. And I think that's okay. Our investments are not linear in nature. So again, I would expect to see that. But the strategy here is we're investing for the long term. Our target is to get to that $1 billion target in 2029. We're making all of our investments today focused on achieving that goal, obviously, taking care of the current periods, but ensuring that everything we're doing today is in pursuit of achieving that longer-term goal.

Next question comes from the line of Erik Suppiger from B. Riley.

I didn't hear anything about the MSSP vertical? And then also, 1 of your peers had discussed shortening of duration of contracts. I'm just curious, did you see any trends in terms of customer duration?

Yes, I'll take the MSP, and then I'll let Jim answer about the origin question. So MSP continued to be our fastest-growing segment. We're very pleased with the progression. And you probably have seen, we have announced a number of new capabilities on the MSP segment via our elements as an MSP offering, but based on our confidence platform. So we're very pleased with the continuation of global MSP growth, and we continue to identify that as our way to really unlock the massive long-tail opportunities in front of us, while we retain our high growth and our enterprise-grade focus around large commercials as well as public sector.

And then on the contract length, so it's interesting, I would say over the past 2 years, prior to this year, we had seen a decline in our average contract length. And this year, for the first time in that 2-year period, each quarter, we've seen a slight improvement in the average contract length. So despite what another company may have referenced for you, we're actually seeing an improvement. That's definitely a lot of hard work from the teams executing showing value and securing those longer-term contracts. So we've actually seen an uptick this year in the length of contract.

Our next question comes from Kirk Materne of Evercore.

Congrats on the results. TJ is sort of a 2-parter for you. I was wondering, how early on are we in terms of some of your customers launching agents into the field? Just -- I'm just kind of curious what percentage or roughly you think of your client base is actually at the stage where they're putting agents out into production?

And then secondly, do they discuss the launch of the production with you in concert, meaning are they putting in governance as they launch them? Or are they sort of just running ahead with agents and then trying to catch up with governance? I realize it might be a mix of both, but I was just kind of curious if you can opine on that a little bit.

That's a great question. So when -- so it is often used word, right? Just like Microsoft Copilot is a term for all AI on the Microsoft stack. Agents, when people talk to agent loosely today is that there's many agents already running in many of our large enterprise customers. In fact, we're working very closely with some of the big 4 auditing firms in term governing their thousands of agents internally. But today, those agents manifest itself as a very small programs that are not really what we -- all the hyperscaler talked about in terms of agentic AI era, a full-fledged employee, digital employees. Those are much, much more sophisticated manifestation that we have not yet seen deployed widely.

So today, these agents running around are similar to low code, no code, like power platform apps, but slightly more intelligent with some natural language interfacing capabilities. Think of them as chat bots and think of them as some automated agents who do some workflow. Think of them as a result of bi-coding by business users, right? There's also saying now bi-coding is dead. People realize actually a lot of these simplistic implementations do not scale at the enterprise level. And when you actually want to have something that's full-fledged digital employees, that's a completely different type of expectation altogether. So that is what we're talking about, wiring up all the licensing and all the consumptions and full on governance. And those people are super, super careful right now with actually instantiating and deploying them and working active conversations with customers to make sure that the guardrail for those type of things are proper.

And we're still a bit away from that. I think overall, as the market. Ignite coming up, Microsoft our biggest trade show, you will hear a lot about that, both from the hyperscalers as well as from us, but there's a lot of intense work go into getting ready for that future where you have full-fledged digital employees. But we're not there yet.

Okay. That's helpful. And then, Jim, I realized the conservatism around the fourth quarter and the Fed makes sense. Do you think the Fed -- are we at a new normal for the Fed, meaning if the government wasn't shut down right now, do you think that some of the volatility in that sector is sort of -- we might be lower or we might be at a lower run rate than where people would have thought a year ago? But I guess, were deals kind of going through as expected before we got to the shutdown?

Well, I definitely think there was uncertainty even before the shutdown. I mean, obviously, there's still activity going on from DOGE. We don't hear about it as much anymore, but there's still activity happening there. I do think there were lots of layoffs, lots of uncertainties. I do think it's still a lot of that. We did hear -- somebody had mentioned to me the other day, did you see any pull-through acceleration into Q3 before the shutdown? We didn't see that, at least for us. But I think there's still some of that uncertainty even if the government is to open up, I don't think we are back to the normal kind of spend maybe from a year ago. So I do still think there's some uncertainty there, and we've tried to factor that in and again, prepare for kind of almost the same that we saw leading up to the end kind of expecting that even when the government reopens.

That's helpful.

I would just highlight that at the end of the day, government continued to modernize, data continue to grow. I think no one should be throwing out here on the federal government. Government is not going to go away. I think the need is still very much there for technology and modernization.

The next question comes from Derrick Wood from TD Cowen.

This is Jared on for Derek. I wanted to ask about the newer resilience optimization and ROI command centers. Are any of these having a material impact on pipeline bookings or maybe even growth yet?

Yes, these are really new capabilities. We're seeing very good uptake. But so far, it's -- we don't actually go into the specific details so soon after a new product release. Normally, we give those type of updates on a potentially annualized basis or at our Investor Day. But yes, we do see we're very encouraged because, again, like you rightly highlighted, cost optimization, cost savings in parallel with security and governance are top of mind for all customers.

Appreciate that. And then for your larger customers, have they been leveraging some of the 4 deployed engineers or I think you call them prototype engineers? Has this been a big piece of the go-to-market motion? And incrementally, have you been looking more towards these types of engineers?

We've been in business for 20-plus years. We chuckle at some of these new buzzwords for deploy engineers are -- we all have a senior level consultants, especially for our largest customers to make sure that they are embedded with our advanced architects and solution consultants, making sure that we understand all the nuances and complexity of their environment and their demand. And that's one way to -- criteria is actually to obviously making sure our softwares are deployed to meet their demand. And two is half the consultants there to make sure we can actually anticipate demand. That's even a higher need. So that has not changed for us and for many of the tech companies. This is why you always see for really grade tech brands. They always have a service component. We also. We also highlighted before, we leveraged services to generate net new IP for our global customers. So that's always been a tech reality. It's just that now there's a new buzzword for it.

The next question comes from Nehal Chokshi of Northland Capital Markets.

Yes. Jim, and you may have already answered this question, so I apologize. But you have a healthy revenue beat and raise, but you're not raising your ARR guidance -- can you help me understand why that is?

Sure. And we kind of touched on it a little bit earlier, but not extensively. So -- and, Nehal, we've chatted about this before. Obviously, you know that ARR is much more susceptible to timing, right, in terms of like if we close a deal on the last day of a quarter, it's a $1 million deal, we have $1 million of ARR and maybe no revenue or 1 day's worth of revenue. If that deal slips 1 day and closes on the day after, we have 0 ARR, but the impact on revenue was very tiny, right, maybe 1 day or no impact.

So when we look at projecting our revenue for Q4, there is a tremendous amount of backlog for our revenue. And yet, we're going to close a ton of new business that will impact ARR, but have a very small impact on revenue. And so it's for that reason, that we feel confident about raising the revenue guidance, but also understanding that there is potentially some flexibility or I would say, some allowing for a variety of outcomes to happen on our deal closing that allows us and really, we want to be prudent about that. And guide to leaving the guidance where it is for ARR, not raising it, but again, still feeling comfortable that the business is strong, has been performing we feel really good about it. So we're going to raise our revenue guidance and also our operating income guidance. So again, it's that dynamic between ARR and revenue. That's the real key driver.

Got it. And then TJ, I touched on this topic last quarter, but I want to ask it from a different angle now. Does the potential rise of privileged access management incur on the turf of data access management where AvePoint really does really well at?

No, absolutely. So there's data access management from a governance perspective. And we obviously have a very unique delegated administration framework where we incorporate business users, contact show knowledge and their role knowledge to help actually be part of the decision-making to enrich the governance overall posture, because IT oftentimes do not know whether specific data or specific even users, what their use cases are and how long these things should be around.

Next question comes from the line of Joe Vandrick of Scotiabank.

So I know we've talked a lot about how well positioned AvePoint is to help enterprises adopt AI. So can you talk more about how AvePoint is incorporating AI into the platform to help drive efficiencies for your own users?

Great question. Yes, we have -- this is something that we're super excited about. So we already announced a slew of product enhancements that leverages AI. What we realize, and this is now a new analysis and thesis is that AI is ultimately the new UI. So when you properly blend AI across your offering, leveraging the complexity and richness of our back-end framework, data structures and all the signals that we collect, we can offer essentially infinitely customizable services to our customers. We already have very large customers that actually come to us and say, "Hey, we actually like your data layer and can you also offer that as a service to us, again, leveraging AI?" It's a super flexible way to cure and extract intelligence from those data layer. So that's something that we're super, super excited about to come out with new offerings that does that.

So we also have beta preview already, for example, our records solution. completely removes any manual work from there where you interact with the software automatically actually identify for your, for example, GO for your industry, what kind of regulation there are and automatically suggest the proper taxonomy and labeling for your data set and also go out and do zero-shot auto discovery and allow the users to actually provide additional feedback, so it refines. So this removes a ton of manual work and even base level knowledge, tediousness of record management out of it. So these are just a few examples of leveraging AI in our product.

Internally, we are absolutely leveraging AI nearly all of our -- well over half of our developer population are now using AI accelerated IDs and we see very good productivity from that, not only from a code development perspective but also from a QA, automated testing cases perspective. So -- and of course, lastly, I would say is from a cloud security and cloud perspective, that's also an area where AI continue to play now ever increasing role to automatically identify risks and potential infiltrations.

We, like many enterprise-grade SaaS vendors, we have instances around the world. We manage hundreds of petabytes of data ingestion on an everyday basis. And we're also monitoring attacks on an everyday basis. So leveraging AI to help us speed up that response rate is something we are also actively deployed. So we're actually very excited about both internal use cases of AI as well as infusing to our product to push out for external use cases. Ultimately, this will generate much more added value for our customers to be able to truly leverage the power of the entire platform instead of just use specific point products.

And I'll just ask one. So I totally understand that the public sector is why the ARR guidance is less unchanged. But then if we just look at the business mix, I mean, if we include state and local, it's, call it, 1/5 of ARR. So what are you seeing in the rest of the business that perhaps doesn't give you that confidence to raise the guide despite what you're seeing in Fed?

And then are there maybe some second degree impacts of the federal uncertainty that you're thinking about? And then just a quick follow-up. If you could update us on some of the solution packages that you talked about earlier this year with the resilience of the control, especially on the Google side, it would be nice to hear if you're seeing any momentum there.

Thanks, Joel. Yes, I mean in response to the ARR, I'd tell you, we are feeling confident. In fact, when I look at what we just did in -- all 3 regions performed greater than 20% year-over-year growth. I think we're still showing healthy growth. We're going to show significant growth for the year. So we feel really good about the guidance. Now we didn't raise it for the reasons I stated in terms of trying to be prudent, understanding that there is an impact from the federal sector.

So that, to me, seems to be the right thing to do. But the rest of the business is performing very well, very nicely. We're excited about that. We see nice growth. And then interestingly enough, I mean, we're somebody just asked me when we walked in what were your 3 key takeaways for the quarter, and it was that one that I just mentioned about the 20% growth or above for each of the 3 regions. Record profitability in terms of operating margins at 22%. And then we don't -- we didn't talk about this at all today, but on a rule of 40 basis, we just posted a 48 for the quarter. So that was something we started talking about 2.5 years ago, almost 3 years ago of getting to the Rule of 40 by the end of 2025. And we're right there in terms of that 48, not only there, but well beyond. So we're actually -- when we look at it in terms of growth, we're excited and we're excited to close out the year strong.

Yes, Joe, and also on the Google side, we're very pleased with our continuation and expansion of offerings we're deepening our relationship there and go to market. And also, our bundles are performing well. They really provide the comprehensive value proposition and help our customers leverage more of our platforms. We're actually surprised to find more and more accounts that have both Microsoft and Google modern workloads in the same companies just across different geos. So that's very interesting to see as well.

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

Thank you. Our third quarter results are further evidence of our ability to help customers and partners achieve AI-driven transformation with comprehensive and scalable data management and governance solutions. Our platform approach and ongoing innovation uniquely position Appoint to tackle the critical challenges of data security, governance and resilience in today's complex multi-SaaS digital landscape. The time I have spent with our global teams over the past few weeks have only strengthened this confidence and excitement for the road ahead. We're focused on a strong close to 2025 and equally energized for the massive long-term opportunity ahead of us. Thank you again for joining us today, and we look forward to speaking with you more this quarter.

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