Absolute Software Reports Fiscal 2014 Second Quarter Results

Vancouver, Canada: February 11, 2014 – Absolute® Software Corporation (“Absolute” or the “Company”) (TSX: ABT), the industry standard for persistent endpoint security and management solutions for computers, laptops and ultra-portable devices and the data they contain, today announced its financial results for the three- and six-month periods ended December 31, 2013. All financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) and are reported in U.S. dollars.

Q2-F2014 Highlights:

• Achieved Sales Contracts of $22.2 million, a year-over-year decrease of 1% compared to $22.5 million in Q2-F2013. The prior year quarter included a $3.5 million dollar deal with a Fortune 100 healthcare customer. Excluding this significant sale in the prior year, Sales Contracts grew 17% reflecting organic growth in all commercial verticals.
• Sales Contracts grew in each of the education, corporate and government verticals. Excluding the significant deal last year, the healthcare vertical also recorded strong growth.
• Commercial Sales Contracts increased by 1% to $21.2 million compared to $20.9M in Q2-F2013. Excluding the multi-million dollar sale recorded in the prior year, commercial sales contracts increased by 22%.
• Sales of Theft Management products were up 9% compared to Q2-F2013, while sales of Device Management and Data Security products decreased 9% over the same period. Excluding multi-million dollar sale recorded in Q2-F2013, Device Management and Data Security products increased 49%.
• International Sales Contracts increased by 53% over Q2-F2013.
• Cash from Operating Activities was $4.4 million, up marginally from $4.2 million in Q2-F2013.
• Paid a quarterly dividend of $2.5 million, or CAD$0.06 per common share.
• Announced the launch of Absolute Safe Schools, a first to market integrated student and device protection solution for mobile student computing.
• Announced the extension of our consumer LoJack for Mobile Devices theft recovery solution to the Samsung GALAXY Note 3 and the Samsung GALAXY Note 10.1 (2014 Edition).

“Our solid Q2 financial results are a reflection of continuing sales momentum in our targeted expansion verticals of corporate and healthcare and strong performance internationally. After removing the impact of a single $3.5 million deal last year, we achieved an impressive underlying year over year growth rate for the quarter of 17%, “ said Errol Olsen, interim CEO of Absolute. “We are seeing the results of our focus on sales execution and expect to continue to realize sales productivity improvements as we continue our push into the value added reseller channel.”

“With three of the main themes in IT today being mobility, data security and application consolidation, Absolute is well positioned for continued growth,” added Mr. Olsen. “As we progress through 2014, we will continue to work to deliver an integrated web console for our Computrace and Absolute Manage products in order to maximize cross-selling opportunities and define ourselves as a leader in the emerging market category of Unified IT.”

Q2-F2014 and F2014 YTD Financial Review

Q2-F2014 Sales Contracts were $22.2 million, down 1% from $22.5 million in Q2-F2013. F2014 year-to-date (“YTD”) Sales Contracts were $46.0 million, up 7% from $43.1 million for the same period in F2013. Excluding the $3.5 million sale recorded in the second quarter of F2013, the underlying year over year growth rate for Sales Contracts was 17% for the quarter and 16% for the YTD period. Invoiced sales in Q2-F2014 were positively impacted by strength across all commercial market verticals and international expansion.

Invoiced sales to commercial customers increased 1% in Q2-F2014 compared to Q2-F2013, and increased 8% for the year to date period. Excluding the multi-million dollar deal recorded in Q2-F2013, sales to commercial customers increased 22% in Q2-F2014 and increased 19% for the YTD period.

Commercial Sales Contracts for Absolute’s Theft Management products(5) were $12.8 million for Q2-F2014. This was up 9% from $11.7 million in Q2-F2013. YTD Commercial Sales Contracts for theft management products were $27.8 million, up 13% from $24.6 million in YTD F2013.

Q2-F2014 Commercial Sales Contracts from Absolute’s Device Management and Data Security products(6) were $8.4 million, down 9% from $9.2 million in Q2-F2013. For the YTD period, Commercial Sales Contracts from device management and data security products were $15.1 million, flat from $15.0 million for the same period in F2013. Excluding the $3.5 million sale recorded in the second quarter of F2013, the underlying year over year growth rate for Device Management and Data Security products was 49% for the quarter and 32% for the YTD period. Underlying growth in this category was driven by strong sales of our Computrace Data Protection product.

International Sales Contracts were $3.8 million in Q2-F2014 (17% of total Sales Contracts), up 52% from $2.5 million in Q2-F2013 (11% of total Sales Contracts). YTD International Sales Contracts were $7.3M million (16% of total Sales Contracts), up 42% from $5.2 million (12% of total Sales Contracts) for the same period in F2013. The Q2 results reflect strong sales growth in our Latin American operation.

For Q2-F2014, Sales Contracts for consumer solutions were $1.0 million (5% of total Sales Contracts), down 35% from $1.6 million (7% of total Sales Contracts), in Q2-F2013. YTD consumer Sales Contracts were $3.1 million (7% of total Sales Contracts), down 11% from $3.5 million (8% of total Sales Contracts), for the same period in F2013, reflecting continued headwinds in the consumer space, including sluggish consumer PC purchases.

Revenue for Q2-F2014 was $21.9 million, a 6% increase from $20.6 million in Q2-F2013. Indicative of the Company’s Software-as-a-Service (SaaS) business model, revenue primarily represents the amortization of deferred revenue balances from recurring term license sales. YTD revenue was $43.5 million, an 8% increase from $40.3 million for the same period in F2013. As a result of the SaaS business model, a majority of revenue (88% for the YTD period) was from the drawdown of deferred revenue balances accumulated to the end of the prior fiscal year.

Adjusted Operating Expenses(3) for Q2-F2014 were $18.3 million. This was up 10% from $16.7 million in Q2-F2013. The increase was primarily attributable to additional sales and marketing headcount in F2014 (including the full year impact of employees hired part-way through F2013) and higher general and administrative expenses owing to a large bad debt reversal, which was originally provided for in Q1- F2013. YTD Adjusted Operating Expenses were $36.7 million, up 6% from $34.7 million for the same period in F2013.

Absolute generated Adjusted EBITDA(4) of $3.5 million in Q2-F2014, down 8% from $3.9 million in Q2-F2013. YTD Adjusted EBITDA was $6.8 million, up 22% from $5.6 million for the same period in F2013.

Absolute recorded net income of $0.2 million, or $0.01 per share, in Q2-F2014, compared to $1.3 million, or $0.03 per share, in Q2-F2013. YTD net income was $1.4 million, or $0.03 per share, compared to net income of $1.7M or $0.04 per share for the same period in F2013. The current year net income reflects the impact of our operating income, a reduction in the foreign exchange gain, and income taxes.

Cash from operating activities was $4.4 million for Q2-F2014, up 4% from $4.2 million in Q2-F2013. YTD cash from operating activities was $9.8 million, up 2% from $9.6 million for the same period in F2013.

At December 31, 2013, Absolute had cash, cash equivalents and investments of $71.7 million compared to $62.9 million at June 30, 2013.

Corporate Outlook

Absolute remains confident in the market opportunity for our solutions. In order to capitalize on this opportunity, we intend to make continued investments, particularly in the key areas of sales and marketing and research and development. For F2014, we expect Sales Contracts to increase over F2013 levels and for cash generated from operating activities, excluding payments related to post-retirement benefits, to grow modestly from F2013 levels.
The Company’s board of directors has initiated a process to recruit a permanent chief executive officer for the company and has engaged an executive search firm to assist in its search.

Quarterly Filings

Management’s discussion and analysis (“MD&A”), consolidated financial statements and notes thereto for Q2-F2014 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 Company’s Q2 F2014 results on Tuesday, February 11, 2014 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 Tuesday, February 18, 2014 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 1-855-859-2056 and enter the reservation code 93075560.

Non-IFRS Measures and Definitions

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 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 Fiscal 2013 Q4 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) Sales Contracts

See the “Subscription Business Model” section of the MD&A for a detailed discussion of why we believe Sales Contracts (also known as “bookings”) provide a meaningful performance metric. Sales Contracts are included in deferred revenue (see Note 11 of the Notes to the Consolidated Financial Statements), and result from invoiced sales of our products and services.

2) 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).

3) 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 share-based compensation, amortization of acquired intangible assets, and amortization of property and equipment. For a description of the reasons these items are adjusted, please refer to the Fiscal 2013 MD&A.

4) Adjusted EBITDA

Management believes that analyzing operating results exclusive of significant non-cash items 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 charges and post-retirement benefits. The non-cash items excluded in the determination of Adjusted EBITDA include share-based compensation, amortization of acquired intangibles, and amortization of property and equipment.

5) Theft Management products

Management defines the Company’s theft management product line as Computrace products that include an investigations and recovery services component.

6) Device Management and Data Security products

Management defines the Company’s device management and data security product line as are defined as our Absolute Manage and Absolute Secure Drive products, as well as Computrace products that do not include an investigations and recovery services component (for example, Absolute Track and Computrace Data Protection).