Absolute (TSX: ABT), the endpoint visibility and control company, today announced financial results for the three months ended September 30, 2018. All dollar figures are unaudited and stated in U.S. dollars, unless otherwise indicated.
“We are very pleased to have commenced the fiscal year with strong momentum in both the Enterprise and Government market verticals, while at the same time driving meaningful improvements in profitability,” said Steve Munford, interim chief executive officer at Absolute. “On a combined basis, the Enterprise and Government verticals now account for two-thirds of our business and are expanding at a combined rate of 14%. We are committed to building on this momentum by maintaining our focus on target markets and customers and by leveraging our PC channel relationships, while at the same time optimizing our profitability.”
Key Financial Metrics
- Total revenue in Q1-F2019 was $24.3 million, representing a year-over-year increase of 6%.
- Commercial recurring revenue in Q1-F2019 was $23.2 million, representing a year-over-year increase of 7%.
- The Annual Contract Value (“ACV”) Base at September 30, 2018, was $93.1 million, representing an increase of 5% year-over-year and 2% sequentially.
- The Enterprise sector(1) portion of the ACV Base increased 13% year-over-year and was up 3% sequentially. Enterprise customers represented 53% of the ACV Base at September 30, 2018.
- The Government sector(1) portion of the ACV Base increased 20% year-over-year and was up 5% sequentially. Government customers represented 12% of the ACV Base at September 30, 2018.
- The Education sector portion of the ACV Base decreased 8% from the prior year and decreased 1% sequentially. Education customers represented 35% of the ACV Base at September 30, 2018.
- Net ACV Retention from existing Absolute customers was 101% during Q1-F2019, compared with 100% in Q1-F2018.
- Incremental ACV from New Customers was $1.0 million in Q1-F2019 compared with $0.8 million in Q1-F2018.
- Adjusted EBITDA in Q1-F2019 was $4.1 million, or 17% of revenue, compared with $1.3 million, or 6% of revenue, in Q1-F2018.
- Cash generated from operating activities in Q1-F2019 was $4.0 million compared with $2.1 million in Q1-F2018.
- Absolute paid a quarterly dividend of CAD$0.08 per common share during Q1-F2019.
Note:
(1) In Q1-F2019, we modified the allocation of some customer accounts between industry verticals, primarily the allocation of some quasi-governmental organizations from the Enterprise vertical to the Government vertical, which was previously included in the Public vertical. This reallocation was applied retrospectively, and has resulted in a revision to previously reported ACV Base and ACV Base growth figures for those verticals in historical periods. Please refer to the “Annual Contract Value Base” section of our September 30, 2018 MD&A.
Products and Organizational Developments
- In September, Lenovo announced Absolute as a strategic partner for its ThinkShield endpoint security suite. Lenovo has long embedded Absolute Persistence in its laptop products, and will now offer Absolute as a core component of its endpoint security suite to provide IT asset management, automated endpoint hygiene, and continuous compliance to customers worldwide.
- The Absolute Reach Library was expanded with 17 new query and remediation scripts that enable customers to further automate their endpoint management, hygiene, and vulnerability remediation across every endpoint, on and off the corporate network. The new scripts include automated workflows to conduct diagnostics across a fleet of endpoint devices, disable intrusive operating system processes, clear and restore tampered endpoint host files, reset administrative account passwords and modify administrative privileges.
Summary of Key Financial Metrics | |||||||||||
USD Millions, except per share data | Q1 | ||||||||||
F2019 | F2018 | Change | |||||||||
Revenue | |||||||||||
Commercial recurring(1) | $ | 23.2 | $ | 21.8 | 7 | % | |||||
Other | 1.1 | 1.2 | (10 | %) | |||||||
Total | $ | 24.3 | $ | 23.0 | 6 | % | |||||
Adjusted EBITDA(2) | $ | 4.1 | $ | 1.3 | 221 | % | |||||
As a percentage of revenue | 17 | % | 6 | % | |||||||
Net Income (Loss) | $ | 1.3 | $ | (0.1 | ) | 975 | % | ||||
Per share (basic) | $ | 0.03 | $ | (0.00 | ) | ||||||
Per share (diluted) | $ | 0.03 | $ | (0.00 | ) | ||||||
Cash from operating activities | $ | 4.0 | $ | 2.1 | 94 | % | |||||
Dividends paid | $ | 2.5 | $ | 2.5 | (2 | %) | |||||
Per share (CAD) | $ | 0.08 | $ | 0.08 | |||||||
Cash, equivalents and short-term investments | $ | 34.6 | $ | 32.8 | 6 | % | |||||
Total assets | $ | 91.4 | $ | 94.0 | (3 | %) | |||||
Deferred revenue | $ | 135.8 | $ | 136.6 | (1 | %) | |||||
Common shares outstanding | 40.4 | 39.9 | 1 | % | |||||||
1. Commercial recurring revenue represents revenue derived from Cloud services and recurring managed professional services, both of which are included as part of our ACV Base. Other revenue represents revenue derived from non-recurring professional services and ancillary product lines, including consumer products.
2. “Adjusted EBITDA” is used as a profitability measure. Please refer to the “Non-IFRS Measures” section of our September 30, 2018 MD&A for further discussion on this measure.
F2019 Corporate Outlook
The Company is updating its outlook for F2019 as follows:
- The Company continues to expect revenue to be between $96.0 million and $99.0 million, representing 3% to 6% annual growth;
- The Company is increasing its expectation for Adjusted EBITDA from between 13% and 16% of revenue to between 14% and 17% of revenue;
- The Company continues to expect cash from operating activities to be between 10% and 14% of revenue; and
- The Company continues to expect capital expenditures to be between $3.5 million and $4.0 million.
Quarterly Dividend
On October 19, 2018, the Company declared a quarterly dividend of CAD$0.08 per share on its common shares, payable in cash on November 26, 2018, to shareholders of record at the close of business on November 5, 2018.
Quarterly Filings
Management’s Discussion and Analysis (MD&A) and Consolidated Financial Statements and the notes thereto for the fiscal quarter ended September 30, 2018 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 Q1-F2019 results on Friday, November 2, 2018, at 8:30 a.m. ET. All interested parties can join the call by dialing 647-427-7450 or 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 Friday, November 9, 2018, at midnight ET. To access the archived conference call, please dial 416-849-0833 or 1-855-859-2056 and enter the reservation code 8690248.
A live audio webcast of the conference call will be available at www.absolute.com and https://bit.ly/2ykLg6Z. 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 that the Company believes are meaningful in the assessment of the Company’s performance. All these metrics are nonstandard 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 September 30, 2018 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) ACV Base, Net ACV Retention and ACV from New Customers
As
the majority of the Company’s customer contracts are sold under
multiyear 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, as an indicator of
its future revenues.
The 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 made up 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 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 noncash 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 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 intangibles, amortization of property and equipment, and
restructuring and reorganization charges and certain post-retirement
benefits.
3) Adjusted Operating Expenses
A number of significant
noncash or nonrecurring expenses are reported in the Company’s Cost of
Revenue and Operating Expenses. Management believes that analyzing these
expenses exclusive of these noncash or nonrecurring 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 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 September 30, 2018, MD&A.
About Absolute
Absolute empowers more than 12,000 customers
worldwide to protect devices, data, applications and users against theft
or attack—both on and off the corporate network. With the industry’s
only tamper-proof endpoint visibility and control solution, Absolute
allows IT to enforce asset management, security hygiene, and data
compliance for today’s remote digital workforces. Patented Absolute
Persistence™ is embedded in the firmware of Dell, HP, Lenovo, and 26
other manufacturers’ devices for vendor-agnostic coverage, tamper-proof
resilience, and ease of deployment. See how it works at www.absolute.com
and follow us at @absolutecorp.
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 of 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.
©2018 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) | ||||||||
September 30, 2018 | June 30, 2018 | |||||||
ASSETS | ||||||||
CURRENT | ||||||||
Cash and cash equivalents | $ | 34,243,219 | $ | 33,956,988 | ||||
Short-term investments | 372,316 | 372,316 | ||||||
Trade and other receivables | 12,199,738 | 17,302,871 | ||||||
Income tax receivable | 298,189 | 345,228 | ||||||
Prepaid expenses and other | 2,485,367 | 2,455,977 | ||||||
Contract acquisition assets – current | 6,655,880 | 6,810,142 | ||||||
56,254,709 | 61,243,522 | |||||||
PROPERTY AND EQUIPMENT | 5,601,521 | 5,962,829 | ||||||
DEFERRED INCOME TAX ASSETS | 23,403,605 | 23,318,605 | ||||||
CONTRACT ACQUISITION ASSETS | 5,007,395 | 5,405,987 | ||||||
GOODWILL | 1,100,000 | 1,100,000 | ||||||
$ | 91,367,230 | $ | 97,030,943 | |||||
LIABILITIES | ||||||||
CURRENT | ||||||||
Trade and other payables | $ | 11,634,399 | $ | 13,676,397 | ||||
Income tax payable | 39,362 | 407,226 | ||||||
Accrued warranty | 200,000 | 270,000 | ||||||
Deferred revenue – current | 74,515,608 | 75,325,574 | ||||||
86,389,369 | 89,679,197 | |||||||
DEFERRED REVENUE | 61,333,525 | 63,861,112 | ||||||
147,722,894 | 153,540,309 | |||||||
CONTINGENCIES | ||||||||
SHAREHOLDERS’ DEFICIENCY | ||||||||
Share capital | 69,258,391 | 68,362,445 | ||||||
Equity reserve | 37,439,680 | 36,972,197 | ||||||
Treasury shares | (359,973 | ) | (359,973 | ) | ||||
Deficit | (162,693,762 | ) | (161,484,035 | ) | ||||
(56,355,664 | ) | (56,509,366 | ) | |||||
$ | 91,367,230 | $ | 97,030,943 | |||||
ABSOLUTE SOFTWARE CORPORATION | ||||||||
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) | ||||||||
Three months ended September 30, 2018 and 2017 | ||||||||
(Expressed in United States dollars) (Unaudited) | ||||||||
2018 | 2017 | |||||||
REVENUE | $ | 24,303,565 | $ | 22,997,690 | ||||
COST OF REVENUE | 3,288,404 | 3,562,767 | ||||||
GROSS MARGIN | 21,015,161 | 19,434,923 | ||||||
OPERATING EXPENSES | ||||||||
Sales and marketing | 9,625,200 | 10,390,581 | ||||||
Research and development | 5,026,406 | 5,416,253 | ||||||
General and administration | 3,111,003 | 3,123,450 | ||||||
Share-based compensation | 1,319,525 | 827,359 | ||||||
19,082,134 | 19,757,643 | |||||||
OPERATING INCOME (LOSS) | 1,933,027 | (322,720 | ) | |||||
OTHER INCOME (EXPENSE) | ||||||||
Interest income, net | 75,683 | 6,333 | ||||||
Foreign exchange loss | (39,039 | ) | (86,030 | ) | ||||
36,644 | (79,697 | ) | ||||||
NET INCOME (LOSS) BEFORE INCOME TAXES | 1,969,671 | (402,417 | ) | |||||
INCOME TAX (EXPENSE) RECOVERY | (706,000 | ) | 258,000 | |||||
NET INCOME (LOSS) AND TOTAL COMPREHENSIVE INCOME (LOSS) | $ | 1,263,671 | $ | (144,417 | ) | |||
BASIC AND DILUTED INCOME (LOSS) PER SHARE | $ | 0.03 | $ | (0.00 | ) | |||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC | 40,305,695 | 39,783,566 | ||||||
ABSOLUTE SOFTWARE CORPORATION | |||||||||||||||||||||||
Condensed Consolidated Statement of Changes in Shareholders’ Deficiency | |||||||||||||||||||||||
(Expressed in United States dollars) (Unaudited) | |||||||||||||||||||||||
Share Capital | |||||||||||||||||||||||
Number | Amount | Equity | Treasury | Deficit | Total | ||||||||||||||||||
BALANCE, JUNE 30, 2017 | 39,681,749 | $ | 64,875,130 | $ | 36,254,893 | $ | (499,443 | ) | $ | (154,354,741 | ) | $ | (53,724,161 | ) | |||||||||
Shares issued on options exercised | 206,375 | 1,365,891 | (264,069 | ) | - | - | 1,101,822 | ||||||||||||||||
Shares issued under Employee Share Purchase Plan | 47,616 | 198,875 | - | - | - | 198,875 | |||||||||||||||||
Shares issued under Phantom Share Unit Plan | 9,358 | 54,077 | (54,077 | ) | - | - | - | ||||||||||||||||
Share-based compensation | - | - | 665,077 | - | - | 665,077 | |||||||||||||||||
Dividends paid | - | - | - | - | (2,515,853 | ) | (2,515,853 | ) | |||||||||||||||
Net loss and total comprehensive loss | - | - | - | - | (144,417 | ) | (144,417 | ) | |||||||||||||||
BALANCE, SEPTEMBER 30, 2017 | 39,945,098 | $ | 66,493,973 | $ | 36,601,824 | $ | (499,443 | ) | $ | (157,015,011 | ) | $ | (54,418,657 | ) | |||||||||
Shares issued on options exercised | 128,375 | 853,283 | (304,437 | ) | - | - | 548,846 | ||||||||||||||||
Shares issued under Employee Share Purchase Plan | 51,861 | 241,839 | - | - | - | 241,839 | |||||||||||||||||
Shares issued under Phantom Share Unit plan | 50,812 | 297,786 | (297,786 | ) | - | - | - | ||||||||||||||||
Shares issued under Performance and Restricted Share Unit plan | 97,885 | 548,745 | (697,397 | ) | 139,470 | - | (9,182 | ) | |||||||||||||||
Shares repurchased and cancelled under the Normal Course Issuer Bid | (49,800 | ) | (73,181 | ) | - | - | (172,243 | ) | (245,424 | ) | |||||||||||||
Share-based compensation expense | - | - | 1,669,993 | - | - | 1,669,993 | |||||||||||||||||
Dividends paid | - | - | - | - | (7,552,051 | ) | (7,552,051 | ) | |||||||||||||||
Net income and total comprehensive income | - | - | - | - | 3,255,270 | 3,255,270 | |||||||||||||||||
BALANCE, JUNE 30, 2018 | 40,224,231 | $ | 68,362,445 | $ | 36,972,197 | $ | (359,973 | ) | $ | (161,484,035 | ) | $ | (56,509,366 | ) | |||||||||
Shares issued on options exercised | 29,875 | 204,819 | (58,268 | ) | - | - | 146,551 | ||||||||||||||||
Shares issued under Employee Share Purchase Plan | 45,616 | 202,653 | - | - | - | 202,653 | |||||||||||||||||
Shares issued under Performance and Restricted Share Unit plan | 89,958 | 488,474 | (488,474 | ) | - | - | - | ||||||||||||||||
Share-based compensation | - | - | 1,014,225 | - | - | 1,014,225 | |||||||||||||||||
Dividends paid | - | - | - | - | (2,473,398 | ) | (2,473,398 | ) | |||||||||||||||
Net income and total comprehensive income | - | - | - | - | 1,263,671 | 1,263,671 | |||||||||||||||||
BALANCE, SEPTEMBER 30, 2018 | 40,389,680 | $ | 69,258,391 | $ | 37,439,680 | $ | (359,973 | ) | $ | (162,693,762 | ) | $ | (56,355,664 | ) | |||||||||
ABSOLUTE SOFTWARE CORPORATION | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
Three months ended September 30, 2018 and 2017 | ||||||||
(Expressed in United States dollars) (Unaudited) | ||||||||
2018 | 2017 | |||||||
OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | 1,263,671 | $ | (144,417 | ) | |||
Items not involving cash | ||||||||
Amortization of property and equipment | 886,446 | 746,696 | ||||||
Amortization of intangible assets | - | 36,250 | ||||||
Amortization of contract acquisition assets | 2,227,803 | 2,268,274 | ||||||
Share-based compensation | 1,319,525 | 665,077 | ||||||
Deferred income taxes | (85,000 | ) | (992,000 | ) | ||||
Change in non-cash working capital | ||||||||
Trade and other receivables | 5,103,133 | 4,483,236 | ||||||
Income tax receivable | 47,039 | 67,494 | ||||||
Prepaid expenses and other | (29,390 | ) | (182,693 | ) | ||||
Contract acquisition assets incurred | (1,674,949 | ) | (2,034,446 | ) | ||||
Trade and other payables | (1,536,042 | ) | (804,383 | ) | ||||
Income tax payable | (367,864 | ) | - | |||||
Accrued warranty | (70,000 | ) | (220,000 | ) | ||||
Deferred revenue | (3,095,312 | ) | (1,827,689 | ) | ||||
CASH FROM OPERATING ACTIVITIES | 3,989,060 | 2,061,399 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of property and equipment | (1,420,867 | ) | (916,388 | ) | ||||
CASH USED IN INVESTING ACTIVITIES | (1,420,867 | ) | (916,388 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Dividends paid | (2,473,398 | ) | (2,515,853 | ) | ||||
Issuance of common shares | 194,454 | 1,272,295 | ||||||
CASH USED IN FINANCING ACTIVITIES | (2,278,944 | ) | (1,243,558 | ) | ||||
FOREIGN EXCHANGE EFFECT ON CASH | (3,018 | ) | (10,039 | ) | ||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 286,231 | (108,586 | ) | |||||
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD | 33,956,988 | 32,511,093 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 34,243,219 | $ | 32,402,507 | ||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20181102005097/en/
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