Absolute Reports Fiscal 2016 First Quarter Results
Corporate, Technology and Product Initiatives Accelerate
Vancouver, Canada: November 9, 2015 – Absolute® Software Corporation (TSX: ABT), the industry standard for persistent endpoint security and data risk management solutions, today announced its financial results for the three months ended September 30, 2015. All dollar figures are unaudited and stated in U.S. dollars, unless otherwise indicated.
Revenue, Annual Contract Value and Billings
Absolute DDS and Consumer revenue of $21.3 million, representing a year-over-year increase of 4% compared to $20.4 million in Q1-F2015
Total revenue (including Absolute Manage and Absolute Service) of $24.0 million, representing a year-over-year increase of 3% compared to $23.2 million in Q1-F2015
Net ACV Retention(4) from existing Absolute DDS customers was 99%
Additions to the Absolute DDS Commercial ACV Base from new Absolute DDS customers increased approximately 18% to approximately $0.7 million as compared to $0.6 million in Q1-F2015
Combined Absolute DDS and Consumer Billings of $19.5 million, representing a year-over-year decrease of 17% compared to $23.5 million in Q1-F2015
Total Billings (including Absolute Manage and Absolute Service) of $21.3 million, representing a year-over-year decrease of 18% compared to $26.1 million in Q1-F2015
Operations and Corporate
Signed a definitive agreement with HEAT Software for the sale of Absolute Manage and Absolute Service. The sale was completed in October 2015 for gross proceeds of approximately $11.0 million
Launched a substantial issuer bid for CAD $50 million which was successfully completed in October 2015 with the repurchase of 6,250,000 common shares of the company
Announced approval of a normal course issuer bid to repurchase up to 4,041,591 common shares of the company until July 26, 2016
Paid a $2.4 million dividend (CAD $0.07 per common share) during the quarter
Launched Absolute’s new corporate brand identity which reinforces Absolute’s commitment to data and device security
Announced the appointment of Steve Munford, non-executive chairman and former chief executive officer of Sophos, to Absolute’s advisory board
Announced that Phil Gardner, Absolute’s chief technology officer, will transition to an advisory role
Technology and Products
Announced zero-day Persistence® support for Microsoft Windows 10
Released new security functionality that extends Absolute DDS reporting to include the status of Microsoft® System Center Configuration Manager (SCCM) on each device as well as the integration of Absolute alerts with Security Information and Event Management (SIEM) solutions
Announced that Absolute has joined the RSA Ready Technology Partnership program. This collaboration supports the interoperability of endpoint data collected by Absolute within RSA® Security Analytics from RSA, the Security Division of EMC
Announced an agreement with Advanced Micro Devices, Inc. (AMD) to incorporate Persistence® technology by Absolute into AMD chip designs
Announced the release of a new offering to specifically serve healthcare customers. Absolute DDS for Healthcare includes added support that helps customers determine healthcare compliance and regulatory exposure in the event of a security incident
Announced an agreement with Aava Mobile Oy, a leading European mobile device manufacturer, to embed Persistence® technology by Absolute in the firmware of Aava Mobile devices
“Although we encountered sales disruptions associated with the reorganization of our sales force, we continue to execute successfully against our strategic plan to establish Absolute as a global information security leader,” said Mr. Geoff Haydon, chief executive officer, Absolute. “In Q1 this included the strengthening of our sales and product development teams as well as commencing the divestiture of non-core technology assets,” continued Haydon. “We expect the benefits of these actions will materialize as we move through the year. Subsequent to quarter-end we returned C$50 million of surplus cash to shareholders through our Substantial Issuer Bid and increased our quarterly dividend by 14% to C$0.08.”
”Our Persistence technology, embedded in hundreds of millions of endpoint devices, continues to represent a unique and powerful platform for the delivery of information security functionality to our customers. This includes the ability to assess endpoint risk across their entire device populations, and to apply appropriate security measures to protect each endpoint and the data it contains. We look forward to expanding our business across all of the key market segments we’ve identified for growth.”
Q1-F2016 Financial Review
Revenue and Annual Contract Value Performance
Total revenue in Q1-F2016 was $24.0 million, representing a 3% increase over total revenue of $23.2 million in the prior year period. Absolute DDS and Consumer revenue was $21.3 million, compared to $20.4 million in Q1-F2015, representing a 4% year-over-year increase.
Indicative of the Company’s prepaid multi-year term license model, revenue primarily represents the amortization of deferred revenue balances from recurring term license sales from both the current and prior periods. As a result, the company views changes in the Commercial Annual Contract Value (“ACV”) Base(4) as more representative of near term sales performance.
Net ACV Retention from existing customers was 99%. Incremental ACV from new customer acquisition was $0.7 million compared to $0.6 million in Q1-F2015.
Q1-F2016 total Billings of $21.3 million represented a decrease of 18% compared to $26.1 million in Q1-F2015. Combined Absolute DDS and Consumer Billings were $19.5 million, representing a 17% decrease compared to $23.5 million in the prior year period. Billings for commercial customers represented 94% of Q1-F2016 Billings, consistent with 95% in the prior year period.
North American commercial Billings decreased 18% year-over-year to $17.5 million in Q1-F2016, while commercial Billings outside North America declined 26% year-over-year to $2.5 million. International commercial sales represented 12% of total commercial Billings for the quarter.
The decline in North American Billings was attributable to fewer expiring contract opportunities as compared to the prior year, combined with a lower renewal rate. As the company’s weighted average contract term is 36 months, the renewal opportunity in Q1-F2016 corresponded with weak sales performance in Q1-F2013. Additionally, the company believes that the renewals in Q1-F2016 were negatively affected by disruptions related to the reorganization of the North American sales team.
Q1-2016 Billings for the combined education and government verticals decreased 23% compared to the prior year period. Billings for the combined corporate and healthcare verticals decreased 14% compared to the prior year period.
The Company generated 12% of Q1-F2016 Billings from new customers compared to 14% in Q1-F2015. Q1-F2016 Billings included 94% recurring licenses and services (term licenses and annual maintenance contracts), consistent with the prior year.
Adjusted Operating Expenses(5)
Adjusted Operating Expenses for Q1-F2016 were $19.7 million, up 4% from $18.9 million in Q1-F2015. The increase in Adjusted Operating Expenses reflected higher average headcount and increased consulting costs in the current year period. These increases were offset, in part, by weakness in the Canadian dollar. Total headcount was 432 at September 30, 2015 compared to 444 at June 30, 2015 and 415 at September 30, 2014. Adjusted Operating Expenses represented 82% of revenue in Q1-F2016, consistent with the prior year period.
Adjusted EBITDA(1) & Net Income
Absolute generated Adjusted EBITDA of $4.3 million in Q1-F2016, consistent with $4.3 million in Q1-F2015.
Absolute recorded net income of $1.0 million, or $0.02 per share, in Q1-F2016, compared to net income of $0.3 million, or $0.01 per share, in Q1-F2015, primarily reflecting lower income tax expense during the current year period.
The Company expects F2016 revenue for the Absolute DDS and Consumer businesses to increase over F2015 levels. Total revenue for F2016 is expected to decrease from F2015 levels, reflecting the divestiture of the Absolute Manage and Absolute Service product lines in Q2-F2016. Adjusted EBITDA for F2016 is expected to decrease from F2015 levels, reflecting lower total revenue, modestly higher sales and marketing expenses and increased investments in research and development.
The Company has adjusted its expectations for cash flow and now expects F2016 cash from operating activities to decrease from F2015 levels due to slightly higher Adjusted Operating Expenses and Absolute DDS Billings roughly in-line with prior year levels.
Following completion of its Substantial Issuer Bid, as at November 9, 2015 the Company had 38,243,005 common shares outstanding.
On October 20, 2015, Absolute declared a quarterly dividend of CAD$0.08 per share on the Company’s common shares, which represents a 14% increase over the Company’s previous CAD$0.07 quarterly dividend. The dividend is payable in cash on November 27, 2015 to shareholders of record at the close of business on November 6, 2015.
Management’s discussion and analysis (“MD&A”) and consolidated financial statements and the notes thereto for Q1-F2016 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-F2016 results on Monday, November 9, 2015 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, November 16, 2015 at midnight. To access the archived conference call, please dial 416-849-0833, or 1-855-859-2056 and enter the reservation code 56586767.
A live audio webcast of the conference call will be available at www.absolute.com and http://bit.ly/1MddlKi. 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, 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 Q1-F2016 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:
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 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 charges and certain post-retirement benefits.
Billings See the “Subscription Business Model” section of the Q1-F2016 MD&A for a detailed discussion of why the Company believes Billings (formerly referred to as “Sales Contracts”) provide a meaningful performance metric. Billings are included in deferred revenue (see Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements), and result from invoiced sales of our products and services.
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 Q1-F2016 MD&A), the Company uses Cash from Operating Activities as a measure of profitability. Accordingly, Absolute believes 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 weighted average number of shares outstanding for the period (basic), or the fully diluted number of shares using the treasury stock method (diluted).
Commercial ACV Base and Net ACV Retention See the “Subscription Business Model” section of the Q1-F2016 MD&A for a detailed discussion of why we believe Commercial ACV Base and Net ACV Retention provide meaningful performance metrics. Commercial ACV Base measures the amount of recurring annual revenue we will receive from our commercial customers under contract at a point in time, and therefore is an indicator of our 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 our customer retention and expansion functions.
Adjusted Operating Expenses A number of significant non-cash or non-recurring expenses are reported in our 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 Q1-F2016 MD&A.
ABSOLUTE SOFTWARE CORPORATION
Condensed Consolidated Statements of Financial Position (Expressed in United States dollars) (Unaudited)
ABSOLUTE SOFTWARE CORPORATION
Consolidated Statements of Operations and Comprehensive Income Three months ended September 30, 2015 and 2014 (Expressed in United States dollars) (Unaudited)
ABSOLUTE SOFTWARE CORPORATION Consolidated Statements of Changes in Shareholders’ Deficiency (Expressed in United States dollars) (Unaudited)
ABSOLUTE SOFTWARE CORPORATION Consolidated Statements of Cash Flows Three months ended September 30, 2015 and 2014 (Expressed in United States dollars) (Unaudited)
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 organizations to enforce asset management, security hygiene, and data compliance for today’s remote digital workforces. Absolute’s patented Persistence®technology is embedded in the firmware of Dell, HP, Lenovo, and 22 other leading manufacturers’ devices for vendor-agnostic coverage, tamper-proof resilience, and ease of deployment. See how it works atwww.absolute.comand follow us at@absolutecorp.