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Absolute Reports Fiscal 2017 Fourth Quarter and Annual Financial Results
[August 17, 2017]

Absolute Reports Fiscal 2017 Fourth Quarter and Annual Financial Results


Absolute® (TSX:ABT), the standard for endpoint visibility and control, today announced financial results for the three months and fiscal year ended June 30, 2017. All dollar figures are unaudited and stated in U.S. dollars, unless otherwise indicated.

"Over the course of fiscal 2017, we made significant progress on the execution of our long-term growth and profitability objectives, including the achievement of eight percent commercial recurring revenue growth. We also began to realize the benefits of sustained R&D investments with the introduction of new enterprise-class solutions that address urgent customer demands," stated Mr. Geoff Haydon, Chief Executive Officer, Absolute. "The introduction of new capabilities such as always-connected IT asset management, self-healing and mobile endpoint security, and continuous data protection drove customer expansion and the acquisition of prominent new customers. It also led to a significant increase in our pipeline, positioning us for further expected growth and stronger expected cash flow in fiscal 2018."

Q4-F2017 and Fiscal Year Highlights

Financial

  • Q4-F2017 revenue was $23.2 million, representing a year-over-year increase of 5%. Annual revenue was $91.2 million, representing a year-over-year increase of 6% over F2016 Absolute Data and Device Security ("DDS") segment revenue.
  • Commercial recurring revenue in Q4-F2017 increased 8% year-over-year to $21.9 million, while commercial non-recurring and consumer revenue was $1.3 million compared to $1.8 million in Q4-F2016.
  • Annual commercial recurring revenue increased 8% over the prior year to $85.4 million. Commercial non-recurring and consumer revenue was $5.8 million in F2017 compared to $6.8 million in the prior year.
  • The DDS Commercial Annual Contract Value ("ACV") Base(1) of $87.8 million increased 6% or $4.8 million year-over-year and was down $0.4 million sequentially.
  • The enterprise and healthcare portion of the ACV Base increased 10% year-over-year and was unchanged sequentially. The education and government portion of the ACV Base increased by 2% year-over-year and was down $0.4 million sequentially. Enterprise and healthcare customers represented 49% of the June 30, 2017 ACV Base, compared to 47% in the prior year.
  • Net ACV Retention(1) from existing Absolute DDS customers was 99% during Q4-F2017 compared to 100% in Q4-F2016.
  • Incremental ACV from New DDS Customers(1) was $0.8 million in Q4-F2017 compared to $1.8 million in Q4-F2016. Annual ACV from New Customers was $4.4 million, of which 72% was derived from the enterprise and healthcare vertical, compared to $4.3 million in the prior year, of which 55% was from the enterprise and healthcare vertical.
  • Adjusted EBITDA(2) in Q4-F2017 was $2.0 million, or 9% of revenue, compared to $1.9 million, or 9% of revenue, in the prior year period. For the annual period, Adjusted EBITDA was $7.9 million, representing 9% of revenue compared to $11.1 million, or 12% of revenue in the prior year.
  • Cash generated from operating activities in Q4-F2017 was $0.7 million compared to cash used in operating activities of $1.6 million in the prior year period. For the annual period, cash generated from operating activities was $1.0 million compared to $4.9 million in the prior year period. Prior to the payment of reorganization charges, income tax payments and divestiture costs, cash from operating activities was $7.0 million in F2017 compared to $9.0 million in F2016.
  • Total DDS Billings(4) in Q4-F2017 were $29.4 million representing a year-over-year decrease of 2%. For the fiscal year, DDS Billings were $91.6 million, representing a year-over-year increase of 3%.

Technology and Product

  • Delivered market-defining product enhancements including Security Posture and Data Risk dashboards for at-a-glance measures of endpoint health, risk, and compliance-both on and off the corporate network. This enables customers to assess their endpoint security posture, calculate and mitigate data risk, prove compliance and strengthen resiliency.
  • Strengthened our technology partnership with Microsoft by integrating Absolute's unmatched endpoint and data visibility with Microsoft AIP's ability to control and secure files and to provide advanced user-based access control of proprietary data without impacting end user productivity.
  • Debuted Absolute Application Persistence, which extends our embedded self-healing Persistence technology to third-party endpoint management and security applications. This enables IT security professionals to ensure that critical applications can be instantly and automatically repaired to be resilient to malicious attacks or insider threats.
  • Provided faster endpoint data remediation capabilities so that customers can take immediate action when at-risk data is detected on a device. This includes the ability to promptly freeze multiple devices or covertly delete multiple data files before they are accessed.
  • Delivered the first version of Device Usage Reporting, a new offering in our Absolute Device Analytics framework that allows customers to log device usage rates and user activity on each device to properly assess device configuration by users and improve performance.
  • Completed integration with HPE Security ArcSight security information and event management (SIEM), Splunk Enterprise SIEM, and IBM Security QRadar SIEM products to provide seamless endpoint visibility and contextual insights to the majority of the Gartner SIEM Magic Quadrant Leaders.
  • Joined the EdgeX Foundry to help advance and unify standards in IoT and edge computing space.

Operations and Corporate

  • Announced an enterprise-wide deployment of Absolute DDS on more than 100,000 endpoint devices at one of the largest hospital systems in the United States.
  • Expanded research and development capacity in Vietnam and Vancouver, including the opening of a new Vietnam development center, incorporation of a Vietnamese subsidiary. We closed the quarter with 71 R&D-focused employees in Vietnam and 164 in North America.
  • Appointed security industry veteran Todd Chronert to lead enterprise sales for the Americas region.
  • Paid a quarterly dividend of CAD$0.08 per share on our common shares during Q4-F2017 and paid total dividends of CAD$0.32 during the fiscal year.


 

Summary of Key Financial Metrics

 
USD Millions, except per share data   Q4     YTD  
  F2017   F2016   Change   F2017   F2016   Change
Revenue    
DDS Segment(1) $ 23.2 $ 22.0 5 % $ 91.2 $ 86.0 6 %
Total $ 23.2 $ 22.0 5 % $ 91.2 $ 88.8 3 %
 
Adjusted EBITDA(2)(3) $ 2.0 $ 1.9 4 % $ 7.9 $ 11.1 (28 %)
As a percentage of revenue 9 % 9 % 9 % 12 %
 
Net (Loss) Income $ (2.1 ) $ (1.2 ) (72 %) $ (5.0 ) $ 9.7 (151 %)
Per share (basic) $ (0.05 ) $ (0.03 ) $ (0.13 ) $ 0.24
Per share (diluted) $ (0.05 ) $ (0.03 ) $ (0.13 ) $ 0.23
 
Cash from (used in) operating activities $ 0.7 $ (1.6 ) 145 % $ 1.0 $ 4.9 (79 %)
 
Dividends paid $ 2.3 $ 2.4 (0 %) $ 9.5 $ 9.3 2 %
Per share (CAD) $ 0.08 $ 0.08 - $ 0.32 $ 0.31 3 %
 
Cash, equivalents, and investments $ 32.9 $ 47.6 (31 %)
Total assets $ 98.3 $ 114.7 (14 %)
Deferred revenue $ 138.4 $ 138.0 0 %
 
Common shares outstanding     39.7       38.9     2 %            
 

(1)   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.
 
(2) Please refer to "Non-IFRS Measures and Definitions".
 
(3) 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.
 

F2018 Corporate Outlook

For F2018, the Company expects new solution and product releases combined with continued sales productivity improvements to drive growth in revenue and the underlying commercial ACV base. This growth is expected to be driven primarily by the North American enterprise and healthcare verticals, with lower growth rates expected in the education and government verticals.

Revenue

The Company expects total revenue of $96.8 million to $99.2 million, representing 6% to 9% annual revenue growth.

Adjusted EBITDA

The Company expects Adjusted EBITDA margins of 9% to 11%, reflecting margin expansion, which is partially offset by the negative impact of the stronger Canadian dollar on the Company's Canadian-based expenditures.

Cash Flow

The Company expects growth in operating cash flow margins. Cash from operations is expected to be in the range of 13% to 16% of revenue.

Capital expenditures are expected to be between $3.0 million and $3.5 million, relatively consistent with capital expenditures of $3.4 million in F2017.

Quarterly Dividend

On July 20, 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 August 25, 2017 to shareholders of record at the close of business on August 4, 2017.

Quarterly Filings

Management's discussion and analysis ("MD&A") and consolidated financial statements and the notes thereto for the fiscal year ended June 30, 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 Q4-F2017 results on Thursday, August 17, 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 Thursday, August 24, 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 55781496.

A live audio webcast of the conference call will be available at www.absolute.com and http://bit.ly/2w7gN9L. 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 June 30, 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 June 30, 2017 MD&A.

4) Billings

See the "Non-IFRS Measures" section of the June 30, 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 10 of the Notes to the Consolidated Financial Statements), and result from invoiced sales of the Company's products and services.

About Absolute

Absolute is the new standard for endpoint visibility and control, delivering always-connected IT asset management and self-healing endpoint security to protect devices, data, applications and users - on and off the network. Bridging the gap between IT operations and security, only Absolute gives enterprises visibility they can act on to assess every endpoint, remediate vulnerabilities and at-risk data, and ensure compliance in the face of insider and external threats. Absolute's patented Persistence technology is already embedded in the firmware of more than one billion PC and mobile devices and trusted by approximately 18,000 customers worldwide.

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

Consolidated Statements of Financial Position

(Expressed in United States dollars) (Unaudited)

 
  June 30, 2017   June 30, 2016
 
ASSETS
 
CURRENT
Cash and cash equivalents

$

32,511,093

$ 23,092,852
Short-term investments 366,789 11,637,085
Trade and other receivables 19,460,872 21,138,351
Income tax receivable 83,487 -
Prepaid expenses and other   2,419,881       2,379,234  
54,842,122 58,247,522
INVESTMENTS - 12,821,302
PROPERTY AND EQUIPMENT 6,304,152 5,853,222
DEFERRED INCOME TAX ASSETS 22,286,804 22,353,391
INTANGIBLE ASSETS AND GOODWILL   14,894,518       15,382,262  
$ 98,327,596     $ 114,657,699  
 
LIABILITIES
 
CURRENT
Trade and other payables $ 13,079,456 $ 13,942,922
Income tax payable - 5,990,927
Accrued warranty 570,000 460,000
Deferred revenue - current   72,361,648       72,464,399  
86,011,104 92,858,248
 
DEFERRED REVENUE   66,040,653       65,509,763  
152,051,757 158,368,011
COMMITMENTS
CONTINGENCIES
 
SHAREHOLDERS' DEFICIENCY
Share capital 64,875,130 58,607,382
Equity reserve 36,254,893 36,732,175
Treasury shares (499,443 ) -
Deficit   (154,354,741 )     (139,049,869 )
  (53,724,161 )     (43,710,312 )
$ 98,327,596     $ 114,657,699  
 
 

ABSOLUTE SOFTWARE CORPORATION

Consolidated Statements of Operations and Comprehensive (Loss) Income

Three months and year ended June 30, 2017 and 2016

(Expressed in United States dollars) (Unaudited)

 
  Three months ended   Year ended
June 30, June 30,
2017   2016   2017   2016
   
 
REVENUE $ 23,184,480 $ 22,014,524 $ 91,210,550 $ 88,798,508
 
COST OF REVENUE   3,612,129       3,796,794       14,450,858       13,827,785  
 
GROSS MARGIN 19,572,351 18,217,730 76,759,692 74,970,723
 
OPERATING EXPENSES
Sales and marketing 10,862,189 11,329,061 44,381,582 44,834,872
Research and development 4,347,797 2,957,048 17,524,536 12,396,394
General and administration 3,304,667 2,796,982 12,851,255 10,304,742
Share-based compensation   743,888       1,075,013       3,971,161       4,668,476  
  19,258,541       18,158,104       78,728,534       72,204,484  
 
OPERATING INCOME (LOSS) 313,810 59,626 (1,968,842 ) 2,766,239
 
OTHER (EXPENSE) INCOME
Interest income, net 8,200 60,074 81,546 292,602
Foreign exchange loss (79,296 ) (58,350 ) (119,881 ) (684,225 )
Gain on disposal of business unit   -       -       -       14,098,066  
  (71,096 )     1,724       (38,335 )     13,706,443  
 
NET INCOME (LOSS) BEFORE INCOME TAXES 242,714 61,350 (2,007,177 ) 16,472,682
 
INCOME TAX EXPENSE   (2,335,000 )     (1,276,000 )     (2,944,000 )     (6,744,000 )
 

NET (LOSS) INCOME AND

COMPREHENSIVE (LOSS) INCOME

$ (2,092,286 )   $ (1,214,650 )   $ (4,951,177 )   $ 9,728,682  
 
BASIC (LOSS) INCOME PER SHARE $ (0.05 )   $ (0.03 )   $ (0.13 )   $ 0.24  
DILUTED (LOSS) INCOME PER SHARE $ (0.05 )   $ (0.03 )   $ (0.13 )   $ 0.23  
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC   39,183,227       38,827,732       39,082,732       40,486,922  
 
 
ABSOLUTE SOFTWARE CORPORATION
Consolidated Statement of Changes in Shareholders' Deficiency
(Expressed in United States dollars) (Unaudited)
 
  Share Capital        
Number of  
Common Equity Treasury
shares   Amount   reserve   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 884,050 4,969,839 (1,751,984) - - 3,217,855
Shares issued under Employee Share Purchase Plan 125,861 621,880 - - - 621,880
Shares issued under Phantom Share Unit plan 160,552 1,516,167 (1,100,692) - - 415,475
Shares repurchased and cancelled under the Normal Course Issuer Bid (901,500) (422,002) - - (847,333) (1,269,335)
Shares repurchased and cancelled under the Substantial Issuer Bid (6,250,000) (7,685,894) - - (30,603,647) (38,289,541)
Share-based compensation expense - - 4,262,368 - - 4,262,368
Dividends paid - - - - (9,261,204) (9,261,204)
Net income and total comprehensive income -     -     -     -     9,728,682     9,728,682
BALANCE, JUNE 30, 2016 38,881,307   $ 58,607,382   $ 36,732,175   $ -   $ (139,049,869)   $ (43,710,312)
Shares issued on options exercised 661,838 4,039,782 (1,313,196) - - 2,726,586
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 issued under Performance and Restricted Share Unit plan 7,104 35,131 (35,131) - - -
Shares repurchased and cancelled under the Normal Course Issuer Bid (280,100) (449,848) - - (876,845) (1,326,693)
Treasury shares repurchased under the Normal Course Issuer Bid - - - (499,443) - (499,443)
Share-based compensation expense - - 3,152,251 - - 3,152,251
Dividends paid - - - - (9,476,850) (9,476,850)
Net loss and total comprehensive loss -     -     -     -     (4,951,177)     (4,951,177)
BALANCE, JUNE 30, 2017 39,681,749   $ 64,875,130   $ 36,254,893   $ (499,443)   $ (154,354,741)   $ (53,724,161)
 
 
ABSOLUTE SOFTWARE CORPORATION
Consolidated Statements of Cash Flows
Three months and year ended June 30, 2017 and 2016
(Expressed in United States dollars) (Unaudited)
 
 

Three months ended

  Year ended

June 30,

  June 30,
2017   2016   2017   2016
   
OPERATING ACTIVITIES
Net (loss) income $ (2,092,286 ) $ (1,214,650 ) $ (4,951,177 ) $ 9,728,682
Items not involving cash
Amortization of property and equipment 808,239 644,696 2,971,483 2,255,603
Amortization of acquired intangible assets 108,750 125,761 204,676 631,120
Amortization of intangible assets - contract costs and brand 2,250,650 2,173,513 9,017,238 7,921,629
Share-based compensation 743,888 1,075,013 3,971,161 4,262,364
Deferred income taxes 1,368,574 (1,572,000 ) 66,587 (1,847,000 )
Gain on disposal of business unit - - - (14,098,066 )
Transaction fees on disposal of business unit - - - (1,257,910 )
Amortization of investment premium 1,567 257,312 468,452 696,032
Change in non-cash working capital
Trade and other receivables (7,798,007 ) (10,028,453 ) 1,677,479 (237,386 )
Income taxes receivable 146,662 1,508,139 (3,450,524 ) 3,948,796
Prepaid expenses and other (29,194 ) (84,992 ) (40,647 ) (178,373 )
Intangible assets - contract costs and brand additions (2,769,286 ) (3,212,196 ) (8,642,571 ) (10,388,335 )
Trade and other payables 1,715,210 601,109 (800,721 ) 1,619,648
Accrued warranty 80,000 110,000 110,000 90,000
Deferred revenue   6,167,899       8,063,228       428,139       1,726,754  
 
CASH FROM (USED IN) OPERATING ACTIVITIES 702,666 (1,553,520 ) 1,029,575 4,873,558
INVESTING ACTIVITIES
Purchase of property and equipment (319,175 ) (1,683,055 ) (4,287,421 ) (3,370,497 )
Purchase of intangible assets (160,000 ) - (160,000 ) (225,000 )
Proceeds from disposal of business unit - - - 11,046,737
Income taxes paid on disposal of business unit - 5,000,000 (2,623,890 ) -
Proceeds from investments - - 13,218,146 16,700,000
Proceeds from sale of investments - - 10,405,000 -
Purchase of investments   -       -       -       (201,124 )
 
CASH (USED IN) FROM INVESTING ACTIVITIES (479,175 ) 3,316,945 16,551,835 23,950,116
FINANCING ACTIVITIES
Repurchase of common shares for cancellation - (423,780 ) (1,326,693 ) (43,501,944 )
Dividends paid (2,349,244 ) (2,360,025 ) (9,476,850 ) (9,261,204 )
Purchase of treasury shares - - (499,443 ) -
Issuance of common shares   370,035       471,417       3,127,733       3,658,654  
 
CASH USED IN FINANCING ACTIVITIES (1,979,209 ) (2,312,388 ) (8,175,253 ) (49,104,494 )
 
FOREIGN EXCHANGE EFFECT ON CASH   61,798       (52,077 )     12,084       (731,878 )
 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,693,920 ) (601,040 ) 9,418,241 (21,012,698 )
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   34,205,013       23,693,892       23,092,852       44,105,550  
 
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 32,511,093     $ 23,092,852     $ 32,511,093     $ 23,092,852  
 


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