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Absolute Reports Fiscal 2017 Third Quarter Financial Results
[May 08, 2017]

Absolute Reports Fiscal 2017 Third Quarter Financial Results


Absolute® (TSX: ABT), the self-healing endpoint security company, today announced financial results for the three and nine months ended March 31, 2017. All dollar figures are unaudited and stated in U.S. dollars, unless otherwise indicated.

"Our Q3 results were underscored by strong expansion and upsell activity within customer accounts, demonstrating the inherent opportunities among our customer base and the response to our accelerated product innovation," said Geoff Haydon, Chief Executive Officer, Absolute. "Over the first nine months of fiscal 2017, we demonstrated our ability to execute on multiple growth vectors with both new customer acquisition and existing customer expansion driving year-to-date revenue performance."

Q3-F2017 Highlights

Financial

  • Q3-F2017 Absolute Data and Device Security ("DDS") segment revenue was $23.1 million, representing a year-over-year increase of 7%
  • Commercial recurring revenue of $21.6 million increased 9% year-over-year while commercial non-recurring and consumer revenue was $1.5 million compared to $1.8 million in Q3-F2016
  • Absolute DDS Commercial Annual Contract Value ("ACV") Base(1) of $88.2 million increased 9% or $7.3 million year-over-year and 2% or $2.0 million sequentially
  • The enterprise and healthcare portions of the ACV Base increased 14% year-over-year and by 5% sequentially. The education and government portions of the ACV Base increased by 5% year-over-year and were flat over the course of the quarter. Enterprise and healthcare customers represented 49% of the March 31, 2017 ACV Base, compared to 47% in the prior year
  • Net ACV Retention(1) from existing Absolute DDS customers was 102% during Q3-F2017 compared to 101% in Q3-F2016. Existing customer upgrades and expansions added $1.4 million to the ACV Base during Q3-F2017 compared to $0.4 million in the prior year period
  • Incremental ACV from New DDS Customers(1) was $0.6 million in Q3-F2017 compared to $1.0 million in Q3-F2016. Year-to-date ACV from New Customers was $3.7 million compared to $2.6 million in the prior year period
  • Adjusted EBITDA(2) in Q3-F2017 was $2.3 million, or 10% of revenue, compared to $2.8 million, or 13% of revenue, in the prior year period. The decrease in Adjusted EBITDA reflects increased investment in research and development
  • Cash used in operating activities during Q3-F2017 was $0.4 million compared to cash generated from operating activities of $0.1 million in the prior year period. Prior to payment of reorganization charges of $1.1 million, cash from operating activities in Q3-F2017 was $0.7 million
  • Total Billings(4) were $21.6 million, representing 8% growth over $20.1 million in the prior year period

Technology and Product

  • Released Absolute Application Persistence, extending Absolute's embedded self-healing Persistence technology to third-party management and security applications, enabling IT and security leaders to ensure that critical endpoint controls are resilient to malicious attacks or insider threats
  • Completed integration with IBM Security QRadar security information and event management (SIEM) product. Absolute DDS is now integrated with the majority of the Gartner SIEM Magic Quadrant Leaders

Operations and Corporate

  • Appointed security industry veteran Todd Chronert to lead enterprise sales for the Americas region
  • Expanded R&D capacity in Vietnam and Vancouver in accordance with the Company's F2017 plan, including opening a new Vietnam development center and incorporation of a Vietnamese subsidiary. The Company closed the quarter with 49 R&D employees in Vietnam and 155 in North America.
  • Paid a quarterly dividend of CAD$0.08 per share on our common shares during Q3-F2017 and paid total dividends of CAD$0.24 during the year-to-date period

Summary of Key Financial Metrics



USD Millions, except per share data   Q3     YTD  
F2017   F2016 Change F2017   F2016 Change
Revenue
DDS Segment(i) $ 23.1 $ 21.7 7% $ 68.0 $ 63.9 7%
Total $ 23.1 $ 21.7 7% $ 68.0 $ 66.8 2%
 
Adjusted EBITDA(ii)(iii) $ 2.3 $ 2.8 (18%) $ 6.0 $ 9.2 (35%)
As a percentage of revenue 10% 13% 9% 14%
 
Net (Loss) Income $ (0.2) $ 1.2 (119%) $ (2.9) $ 10.9 (126%)
Per share (basic) $ (0.01) $ 0.03 $ (0.07) $ 0.27
Per share (diluted) $ (0.01) $ 0.03 $ (0.07) $ 0.26
 
Cash (used in) from operating activities $ (0.4) $ 0.1 nm $ 0.3 $ 6.4 (95%)
 
Dividends paid $ 2.4 $ 2.2 7% $ 7.1 $ 6.9 3%
Per share (CAD) $ 0.08 $ 0.08 - $ 0.24 $ 0.23 4%
 
Cash, equivalents, and investments $ 34.6 $ 53.4 (35%)
Total assets $ 93.1 $ 105.0 (11%)
Deferred revenue $ 132.2 $ 129.9 2%
 
Common shares outstanding   39.6   38.8 2%      

i. As a result of the divestiture of the Absolute Manage and Absolute Service business unit on October 5, 2015, the Data and Device Security operating segment solely comprises Absolute's ongoing operations. This measure is specifically related to our DDS operating segment.

ii. Please refer to "Non-IFRS Measures and Definitions".

iii. Adjusted EBITDA in the year to date period of F2016 included a $1.0 million contribution from the Absolute Manage and Absolute Service business unit. This business unit was disposed in Q2-F2016.

Corporate Outlook

Revenue

The Company is narrowing its revenue guidance to the lower end of the previous guidance range reflecting lower than expected professional services and Consumer sales. F2017 total revenue is expected to be between $91.4 million and $92.4 million, representing 6% to 8% annual DDS segment revenue growth.

Adjusted EBITDA

The Company is raising its Adjusted EBITDA guidance to 8% to 9% of revenue.

Cash from Operations

The Company expects cash from operating activities, prior to payments for income taxes and reorganization charges, as a percentage of revenue, to be 7% to 9%.

Capital Expenditures

Capital expenditures are expected to be between $3.8 million and $4.2 million.

Quarterly Dividend
On April 19, 2017, Absolute declared a quarterly dividend of CAD$0.08 per share on the Company's common shares. The dividend is payable in cash on May 29, 2017 to shareholders of record at the close of business on May 9, 2017.

Quarterly Filings
Management's discussion and analysis ("MD&A") and consolidated financial statements and the notes thereto for the fiscal quarter ended March 31, 2017 can be obtained today from Absolute's corporate website at www.absolute.com. The documents will also be available at www.sedar.com.

Notice of Conference Call
Absolute will hold a conference call to discuss the Company's Q3-F2017 results on Monday, May 8, 2017 at 5:00 p.m. ET. All interested parties can join the call by dialing 647-427-7450, or 1-888-231-8191. Please dial-in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until Monday, May 15, 2017 at midnight ET. To access the archived conference call, please dial 416-849-0833 or 1-855-859-2056 and enter the reservation code 5155053.

A live audio webcast of the conference call will be available at www.absolute.com and http://bit.ly/2oPgdfG. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. An archived replay of the webcast will be available on the Company's website for 90 days.

Non-IFRS Measures and Definitions
Throughout this press release, the Company refers to a number of measures which the Company believes are meaningful in the assessment of the Company's performance. All these metrics are non-standard measures under International Financial Reporting Standards ("IFRS"), and are unlikely to be comparable to similarly titled measures reported by other companies. Readers are cautioned that the disclosure of these items is meant to add to, and not replace, the discussion of financial results or cash flows from operations as determined in accordance with IFRS. For a discussion of the purpose of these non-IFRS measures, please refer to the Company's March 31, 2017 MD&A on SEDAR at www.SEDAR.com.

These measures, as well as their method of calculation or reconciliation to IFRS measures, are as follows:

1) Commercial ACV Base, Net ACV Retention, and ACV from New Customers
As the majority of the Company's customer contracts are sold under multi-year term licenses, there is a significant lag between the timing of the Billing and the associated revenue recognition. As a result, the Company focuses on the aggregate annualized value of its subscriptions under contract, measured by Annual Contract Value ("ACV"), as an indicator of its future revenues.

Commercial ACV Base measures the amount of recurring annual revenue Absolute will receive from its commercial customers under contract at a point in time, and therefore is an indicator of the Company's future revenue streams. Net ACV Retention measures the percentage increase or decrease in the Commercial ACV Base at the end of a period for the customers that comprised the Commercial ACV Base at the beginning of the same period. This metric provides insight into the effectiveness of Absolute's customer retention and expansion functions. ACV from New Customers measures the addition to the Commercial ACV base from sales to new commercial DDS customers during the quarter.

We believe that increases in the amount of ACV from New Customers, and improvement in the Company's Net ACV Retention, will grow our Commercial ACV Base and, in turn, our future revenues.

2) Adjusted EBITDA
Management believes that analyzing operating results exclusive of significant non-cash items or items not controllable in the period provides a useful measure of the Company's performance. The term Adjusted EBITDA refers to earnings before deducting interest and investment gains (losses), income taxes, amortization of acquired intangible assets and property and equipment, foreign exchange gain or loss, share-based compensation, and restructuring and reorganization charges and post-retirement benefits. The items excluded in the determination of Adjusted EBITDA are share-based compensation, amortization of acquired intangibles, amortization of property and equipment, and restructuring and reorganization charges and certain post-retirement benefits.

3) Adjusted Operating Expenses
A number of significant non-cash or non-recurring expenses are reported in the Company's Cost of Revenue and Operating Expenses. Management believes that analyzing these expenses exclusive of these non-cash or non-recurring items provides a useful measure of the cash invested in the operations of its business. The items excluded in the determination of Adjusted Operating Expenses are share-based compensation, amortization of acquired intangible assets, amortization of property and equipment, and restructuring and reorganization charges and certain post-retirement benefits. For a description of the reasons these items are adjusted, please refer to the "Non-IFRS Measures" section of the March 31, 2017 MD&A.

4) Billings
See the "Non-IFRS Measures" section of the March 31, 2017 MD&A for a detailed discussion of why the Company believes Cash from Operating Activities is a meaningful performance metric, and the material impact that Billings has on this measure. Billings are included in deferred revenue (see Note 7 of the Notes to the Condensed Consolidated Financial Statements), and result from invoiced sales of the Company's products and services.

About Absolute
Absolute (TSX: ABT) delivers the only self-healing endpoint security solution to provide uncompromised visibility and near real-time remediation of breaches at the source. Absolute's cloud-based platform puts IT and security professionals in absolute control of devices, data and applications - whether on or off the corporate network - to enhance IT asset management, protect sensitive data, reduce insider threats and ensure compliance. Absolute's patented Persistence technology is embedded in the firmware of more than 1 billion PCs and mobile devices from global manufacturers including Acer, ASUS, Dell, Fujitsu, HP, Lenovo, Microsoft, Panasonic, Samsung and Toshiba. Absolute is headquartered in Vancouver, Canada, and has offices around the world. For more information, visit www.absolute.com.

Forward-Looking Statements

This press release contains forward-looking statements and financial outlook that involve risks and uncertainties. These forward-looking statements and financial outlook relate to, among other things, the expected performance, functionality and availability of the Company's services and products, and other expectations, intentions and plans contained in this press release that are not historical facts. When used in this press release, the words "plan," "expect," "believe," and similar expressions generally identify forward-looking statements. These statements reflect the Company's current expectations. They are subject to a number of risks and uncertainties, including, but not limited to, changes in technology and general market conditions. In light of the many risks and uncertainties readers of the press release should understand that Absolute cannot assure them that the forward-looking statements and financial outlook contained in this press release will be realized. Furthermore, the forward-looking statements and financial outlook contained in this press release are made as at the date hereof and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements and financial outlook, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

©2017 Absolute Software Corporation. All rights reserved. Absolute and Persistence are registered trademarks of Absolute Software Corporation. For patent information, visit www.absolute.com/patents. The Toronto Stock Exchange has neither approved nor disapproved of the information contained in this news release.



ABSOLUTE SOFTWARE CORPORATION
Condensed Consolidated Statements of Financial Position
(Expressed in United States dollars) (Unaudited)

  March 31, 2017   June 30, 2016
 
ASSETS
 
CURRENT
Cash and cash equivalents $ 34,205,013 $ 23,092,852
Short-term investments 368,356 11,637,085
Trade and other receivables 11,662,865 21,138,351
Income taxes receivable 230,149 -
Prepaid expenses and other   2,390,687   2,379,234
48,857,070 58,247,522
INVESTMENTS - 12,821,302
PROPERTY AND EQUIPMENT 6,264,072 5,853,222
DEFERRED INCOME TAX ASSETS 23,655,378 22,353,391
INTANGIBLE ASSETS AND GOODWILL   14,324,632   15,382,262
$ 93,101,152 $ 114,657,699
 
LIABILITIES
 
CURRENT
Trade and other payables $ 10,494,806 $ 13,942,922
Income taxes payable - 5,990,927
Accrued warranty 490,000 460,000
Deferred revenue - current   71,286,837   72,464,399
82,271,643 92,858,248
DEFERRED REVENUE   60,947,565   65,509,763
143,219,208 158,368,011
CONTINGENCIES
 
SHAREHOLDERS' DEFICIENCY
Share capital 64,335,516 58,607,382
Equity reserve 35,959,082 36,732,175
Treasury shares (499,443) -
Deficit   (149,913,211)   (139,049,869)
  (50,118,056)   (43,710,312)
$ 93,101,152 $ 114,657,699

ABSOLUTE SOFTWARE CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Income
Three and nine months ended March 31, 2017 and 2016
(Expressed in United States dollars) (Unaudited)

 

Three months ended
March 31,

 

 

Nine months ended
March 31,

 

  2017     2016   2017     2016
 
 
REVENUE $ 23,091,063 $ 21,658,820 $ 68,026,070 $ 66,783,984
 
COST OF REVENUE   3,376,636   3,359,645   10,838,729   10,030,991
 
GROSS MARGIN 19,714,427 18,299,175 57,187,341 56,752,993
 
OPERATING EXPENSES
Sales and marketing 11,104,476 10,497,110 33,519,393 33,505,811
Research and development 3,922,951 3,362,211 13,176,739 9,439,346
General and administration 3,121,113 2,275,311 9,546,588 7,507,760
Share-based compensation   1,009,798   1,589,497   3,227,273   3,593,463
  19,158,338   17,724,129   59,469,993   54,046,380
 
OPERATING INCOME (LOSS) 556,089 575,046 (2,282,652) 2,706,613
 
OTHER INCOME
Interest income, net 25,761 53,231 73,347 232,528
Foreign exchange (loss) gain (11,340) 170,187 (40,585) (625,875)
Gain on disposal of business unit   -   -   -   14,098,066
  14,421   223,418   32,762   13,704,719
 
NET INCOME (LOSS) BEFORE INCOME TAXES 570,510 798,464 (2,249,890) 16,411,332
 
INCOME TAX (EXPENSE) RECOVERY   (797,000)   382,000   (609,000)   (5,468,000)
 
NET (LOSS) INCOME AND

COMPREHENSIVE (LOSS) INCOME

$ (226,490) $ 1,180,464 $ (2,858,890) $ 10,943,332
 
BASIC (LOSS) INCOME PER SHARE $ (0.01) $ 0.03 $ (0.07) $ 0.27
DILUTED (LOSS) INCOME PER SHARE $ (0.01) $ 0.03 $ (0.07) $ 0.26
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC   39,150,654   38,641,924   39,050,786   41,035,963

ABSOLUTE SOFTWARE CORPORATION
Condensed Consolidated Statement of Changes in Shareholders' Deficiency
(Expressed in United States dollars) (Unaudited)

  Share Capital        

Number of
Common
shares

  Amount

Equity
reserve

Treasury
Shares

Deficit Total
 
BALANCE, JUNE 30, 2015 44,862,344 $ 59,607,392 $ 35,322,483 $ - $ (108,066,367) $ (13,136,492)
Shares issued on options exercised 759,350 4,317,142 (1,461,192) - - 2,855,950
Shares issued under Employee Share Purchase Plan 125,861 621,880 - - - 621,880
Shares issued under Phantom Share Unit Plan 160,552 1,503,355 (1,087,880) - - 415,475
Shares repurchased and cancelled under the Normal Course Issuer Bid (816,000) (283,660) - - (561,895) (845,555)
Shares committed to be repurchased under the Normal Course Issuer Bid - (63,000) - - (118,000) (181,000)
Shares repurchased and cancelled under the Substantial Issuer Bid (6,250,000) (7,685,894) - - (30,603,647) (38,289,541)
Share-based compensation - - 3,187,353 - - 3,187,353
Dividends paid - - - - (6,901,179) (6,901,179)
Net income and total comprehensive income -   -   -   -   10,943,332   10,943,332
BALANCE, MARCH 31, 2016 38,842,107 $ 58,017,215 $ 35,960,764   - $ (135,307,756) $ (41,329,777)
Shares issued on options exercised 124,700 665,509 (303,604) - - 361,905
Shares repurchased and cancelled under the Normal Course Issuer Bid (85,500) (75,342) - - (167,438) (242,780)
Share-based compensation - - 1,075,015 - - 1,075,015
Dividends paid - - - - (2,360,025) (2,360,025)
Net loss and total comprehensive loss -   -   -   -   (1,214,650)   (1,214,650)
BALANCE, JUNE 30, 2016 38,881,307 $ 58,607,382 $ 36,732,175 $ - $ (139,049,869) $ (43,710,312)
Shares issued on options exercised 583,625 3,535,299 (1,141,589) - - 2,393,710
Shares issued under Employee Share Purchase Plan 84,455 361,477 - - - 361,477
Shares issued under Phantom Share Unit Plan 327,145 2,281,206 (2,281,206) - - -
Shares repurchased and cancelled under the Normal Course Issuer Bid (280,100) (449,848) - - (876,847) (1,326,695)
Treasury shares repurchased under the Normal Course Issuer Bid - - - (499,443) - (499,443)
Share-based compensation - - 2,649,702 - - 2,649,702
Dividends paid - - - - (7,127,606) (7,127,606)
Net loss and total comprehensive loss -   -   -   -   (2,858,889)   (2,858,889)
BALANCE, MARCH 31, 2017 39,596,432 $ 64,335,516 $ 35,959,082 $ (499,443) $ (149,913,211) $ (50,118,056)

ABSOLUTE SOFTWARE CORPORATION
Condensed Consolidated Statements of Cash Flows
Three and nine months ended March 31, 2017 and 2016
(Expressed in United States dollars) (Unaudited)

  Three months ended March 31,   Nine months ended

March 31,

  2017     2016   2017     2016
 
OPERATING ACTIVITIES
Net (loss) income $ (226,490) $ 1,180,464 $ (2,858,890) $ 10,943,332
Items not involving cash
Amortization of property and equipment 763,475 551,391 2,163,244 1,610,907
Amortization of acquired intangible assets 11,444 125,760 95,926 505,359
Amortization of intangible assets - contract costs and brand 2,280,904 2,001,168 6,766,589 5,748,116
Share-based compensation 1,014,285 1,426,217 3,227,273 3,187,350
Deferred income taxes (1,408,987) 856,000 (1,301,987) (275,000)
Gain on disposal of business unit - - - (14,098,066)
Transaction fees on disposal of business unit - - - (1,257,910)
Amortization of investment premium - 71,315 466,885 438,721
Change in non-cash working capital
Trade and other receivables 2,149,315 596,853 9,475,486 9,791,067
Income taxes receivable 826,688 (1,989,171) (3,597,186) 2,440,657
Prepaid expenses and other (135,020) (210,356) (11,453) (93,381)
Intangible assets - contract costs and brand additions (1,840,714) (2,515,988) (5,873,286) (7,176,139)
Trade and other payables (2,312,666) (432,603) (2,515,933) 1,018,539
Accrued warranty - 30,000 30,000 (20,000)
Deferred revenue   (1,488,301)   (1,595,905)   (5,739,760)   (6,336,474)
 
CASH (USED IN) FROM OPERATING ACTIVITIES (366,067) 95,145 326,908 6,427,078
INVESTING ACTIVITIES
Purchase of property and equipment (885,262) (827,101) (3,968,246) (1,687,442)
Purchase of intangible assets - - - (225,000)
Proceeds from disposal of business unit - - - 11,046,737
Income taxes paid on disposal of business unit - - (2,623,890) -
Proceeds from investments 268,146 8,000,000 23,623,146 11,700,000
Purchase of investments   -   -   -   (201,124)
 
CASH (USED IN) FROM INVESTING ACTIVITIES (617,116) 7,172,899 17,031,010 20,633,171
FINANCING ACTIVITIES
Repurchase of common shares for cancellation (714,653) (623,284) (1,326,695) (43,078,164)
Dividends paid (2,378,728) (2,233,488) (7,127,606) (6,901,179)
Purchase of treasury shares (499,443) - (499,443) -
Issuance of common shares   1,784,650   1,119,553   2,757,698   3,187,237
 
CASH USED IN FINANCING ACTIVITIES (1,808,174) (1,737,219) (6,196,046) (46,792,106)
 
FOREIGN EXCHANGE EFFECT ON CASH   (69,699)   71,002   (49,711)   (679,801)
 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,861,056) 5,601,827 11,112,161 (20,411,658)
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   37,066,069   18,092,065   23,092,852   44,105,550
 
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 34,205,013 $ 23,693,892 $ 34,205,013 $ 23,693,892


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