Absolute Software Reports Second Quarter Fiscal 2011 Results

Vancouver, Canada: January 31, 2011 – Absolute® Software Corporation (“Absolute” or the “Company”) (TSX: ABT), the leading provider of firmware-based, patented, computer theft recovery, data protection and secure computer lifecycle management solutions today announced its financial results for the three- and six-month periods ended December 31, 2010. All dollar amounts are in Canadian dollars unless otherwise stated.

• Sales contracts were $17.9 million ($18.7 million in constant currency) compared to $16.1 million in Q2-F2010, representing an increase of 12% (16% in constant currency) and a record second quarter performance.
• Commercial sales were $15.4 million ($16.1 million in constant currency), representing an increase of 17% (22% in constant currency) compared $13.2 million in Q2-F2010.
• Adjusted Operating Income⁽⁵⁾ was $1.7 million compared to a loss of $0.5 million in Q2-F2010, reflecting a 13% increase in GAAP revenue and a 1% reduction in Adjusted Operating Expenses⁽⁴⁾.
• Launched Absolute Manage Mobile Device Management (MDM) for Apple® iOS 4 devices (iPhone®, iPad™ and iPod  touch®).
• Introduced Remote File Retrieval, a data leakage prevention (DLP) feature, for Computrace® .
• Closed the quarter with a subscription base of 6.0 million, up 20% from 5.0 million computers at December 31, 2009.
• Re-commenced the Company’s Normal Course Issuer Bid, repurchasing 1.7 million shares in the quarter.

“We have achieved strong sales contract growth for the first half of fiscal 2011, which demonstrates the start of a return on the investments we have made in the business over the past few years,” said John Livingston, Chairman and CEO of Absolute. “Our market-leading suite of end point security and management solutions is uniquely positioned to enable corporations and public entities to protect and manage the diverse populations of smart phones, tablet computers, netbooks and laptops that have transformed the mobile computing landscape.  With the shift toward mass mobility continuing to accelerate, we believe we are well positioned for continued growth.”

Sales Contracts for Q2-F2011 were $17.9 million ($18.7 million in constant currency), an increase of 12% (16% in constant currency) from $16.1 million in Q2-F2010. The increase was primarily driven by strong performance in the Company’s commercial businesses, which saw year-over-year constant currency growth of 22% in Q2-F2011. Sales Contracts for the year-to-date (“YTD”) period in F2011 were $39.8 million ($41.8 million in constant currency), an increase of 13% (18% in constant currency) compared to $35.3 million in the same period of F2010. For the YTD period, the Company’s commercial businesses increased 16% in constant currency from the same period of F2010.

Consumer sales in Q2-F2011 decreased 14% (10% in constant currency) from Q2-F2010, reflecting the company’s intention to reduce certain bundled sales with OEM partners.  For the YTD period, consumer sales increased 24% (30% in constant currency) from the same period of F2010.  Within the consumer segment, non-bundled sales increased by 73% (81% in constant currency) in Q2-F2011 compared to Q2-F2010 and increased by 42% (50% in constant currency) for the comparative YTD period.  Consumer solutions were 17% of Q2-F2011 sales, compared to 16% in the same period of F2010 and were 14% of Q2-F2011 sales, compared to 18% in Q2-F2010.

Existing commercial customers continued to produce a majority of Absolute’s sales, generating 75% of Q2-F2011 Sales Contracts (67% in Q2-F2010). For the YTD period, existing commercial customers generated 73% of Sales Contracts (71% in the same period of F2010).

International sales increased to 13% of Q2-F2011 sales, up from 7% of sales in Q2-F2010 and increased to 9% of sales for the F2011 YTD period, up from 6% in the F2010 YTD period.

Revenue for Q2-F2011 was $17.9 million, an increase of 13% from $15.8 million in Q2-F2010. Revenue is typically a lagging performance indicator as it is a function of deferred revenue as opposed to invoiced sales in the quarter. For the YTD period, revenue was $35.2 million in F2011, an increase of 14% from $30.9 million in the same period of F2010. The majority of the revenue from Q2-F2011 Sales Contracts is included in the deferred revenue on the balance sheet at December 31, 2010, which was $107.0 million, compared to $102.8 million at June 30, 2010.

The Company generated an Adjusted Operating Income⁽⁵⁾ of $1.7 million in Q2-F2011 compared to an Adjusted Operating Loss of $0.5 million in the prior year.  The improvement in Adjusted Operating Income reflects the 13% increase in revenue combined with the Company’s ongoing focus on cost control.  Adjusted Operating Expenses⁽⁴⁾  of $16.2 million in Q2-F2011 decreased 1%  compared to Q2-F2010.  For the YTD period, the Adjusted Operating Profit was $2.0 million compared to $0.7M in the prior year.  Adjusted Operating Expenses for the F2011 year to date period increased 5% in F2011 compared to the same period in F2010. For the remainder of F2011, the Company expects quarterly Adjusted Operating Expenses to remain in the range experienced in the first half of F2011.

Quarterly Filings

Management’s discussion and analysis (“MD&A”), consolidated financial statements and notes thereto for Q2-F2011 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 Software will hold a conference call to discuss the contents of this release on Monday, January 31, 2011 at 2:00 p.m. PT (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, February 7, 2011 at midnight.

A live audio webcast of the conference call will be available at www.absolute.com and www.newswire.ca.  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 for 365 days at www.newswire.ca. To access the archived conference call, please dial 416-849-0833 or 1-800-642-1687 and enter the reservation code 15630151.

Non-GAAP Measures

Throughout this press release, we refer to a number of measures which we believe are meaningful in the assessment of the Company’s performance. All these metrics are non-standard measures under Canadian Generally Accepted Accounting Principles (“GAAP”), and may not be identical 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 Canadian GAAP.  For a discussion of the purpose of these non-GAAP measures, please refer to the Company’s First Quarter MD&A on SEDAR at www.SEDAR.com.

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

1. Basic and diluted Cash from Operating Activities per share

   As a result of the nature of our revenues (please refer to “Subscription Business Model” in the MD&A), we use Cash from Operating Activities as a measure of profitability. Accordingly, we believe that Cash from Operating Activities per share is a meaningful indicator of profitability per share. Cash from Operating Activities per share is calculated by dividing Cash from Operating Activities by the average number of shares outstanding for the period (basic), or using the treasury stock method (diluted).

2. Sales Contracts

   See the “Subscription Business Model” section of the MD&A for a detailed discussion of why we believe Sales Contracts (“bookings”) provide a meaningful performance metric.  Sales Contracts are a component of deferred revenue (see Note 3 of the Notes to the Interim Consolidated Financial Statements), and result from invoiced sales of our products and services.

3. Sales Contracts in constant currency

   Approximately 95% of our Sales Contracts are denominated in U.S. dollars, and we believe this is important to consider when evaluating underlying sales performance. Sales Contracts in “constant currency” refers to the Canadian dollar sales that would have been reported had the average U.S. dollar foreign exchange rate been unchanged from the rate in the comparable period(s) of F2010, and is calculated by applying the appropriate U.S. dollar foreign exchange rate from the comparable period to the current period sales denominated in U.S. dollars.

   The average U.S. dollar to Canadian dollar exchange rate on sales was 1.012 in Q2-F2011 compared to 1.056 in Q2-F2010.

4. Adjusted Operating Expenses

   A number of significant non-cash expenses are reported in our Cost of Revenue and Operating Expenses.  Management believes that analyzing these expenses exclusive of these non-cash items provides a useful measure of the cash invested in the operations of its business.  The non-cash items excluded in the determination of Adjusted Operating Expenses are stock-based compensation and amortization of acquired intangible assets. For a description of why these items are adjusted, please refer to the Second Quarter MD&A.

5. Adjusted Operating Income (Loss)

   Management believes that analyzing operating results exclusive of the significant non-cash items noted above provides a useful measure of Company’s performance. Adjusted Operating Income (Loss) refers to GAAP operating income excluding charges for stock-based compensation and amortization of acquired intangible assets.