Absolute Reports Fiscal 2017 First Quarter Results
DDS Revenues Increase 6%
Vancouver, Canada: November 7, 2016–Absolute®(TSX: ABT), the industry standard for persistent endpoint security and data risk management, today announced its financial results for the three months ended September 30, 2016. All dollar figures are unaudited and stated in U.S. dollars, unless otherwise indicated.
1. As a result of the divestiture of the Absolute Manage and Absolute Service business unit in Q2-F2016, the Data and Device Security operating segment solely comprises Absolute’s ongoing operations. As a result, the analysis of the Company’s operating performance in this press release will be primarily focused on the results from the Data and Device Security operating segment. This measure is specifically related to the Company’s DDS operating segment.
2. Throughout this document,“Adjusted EBITDA”is used as a profitability measure and “Billings” is used an indicator of future cash flows. Please refer to the “Non-IFRS Measures” and “Subscription Billings” sections of the Company’s MD&A for further discussion on these measures.
3. Adjusted EBITDA in Q1-F2016 included a $1.0 million contribution from the Absolute Manage and Absolute Service business unit. This business unit was disposed in Q2-F2016.
4. Per share figures for Q1-F2017 reflect a reduced number of outstanding common shares following the Company’s purchase of 6,250,000 common shares under a Substantial Issuer Bid completed in Q2-F2016, in addition to the retirement of 901,500 common shares under a Normal Course Issuer Bid that commenced in Q1-F2016.
5. In Q1-F2017, cash from operating activities is net of $3.2 million of income tax payments and $0.8 million of reorganization-related payments. The comparable figures for Q1-F2016 were $0.9 million and $0.7 million, respectively.
Key Financial Metrics
Absolute Data and Device Security (“DDS”) segment revenue of $22.5 million, representing a year-over-year increase of 6% compared to $21.3 million in Q1-F2016. Recurring revenue increased 6% year-over-year and represented 98% of Q1-F2017 revenue
Absolute DDS Commercial annual contract value (“ACV”) Base of $84.3 million increased sequentially by 2% and by 7% over the trailing four quarters
Net ACV Retention from existing Absolute DDS customers was 100%, while incremental ACV from new DDS customers was $1.0 million, with corporate and healthcare customers representing approximately two-thirds of ACV from New Customers
Adjusted EBITDA was $1.9 million, representing 8% of revenue
DDS segment Billings were $19.7 million, representing a year-over-year increase of 1% compared to $19.5 million in Q1-F2016
Cash from operating activities was $1.9 million, and was $5.9 million prior to payment of income taxes of $3.2 million and reorganization charges of $0.8 million
Technology and Products
Announced new functionality that detects data at risk on endpoints associated with cloud storage applications. This new capability allows organizations to remotely secure data stored in the cloud and beyond the corporate network
Delivered interoperability with the HPE Security ArcSight and the Splunk®Enterprise Security Information and Event Management (“SIEM”) platforms
Introduced Chromebook®web filtering for education customers
Extended the Company’s embedded footprint with Persistence®technology in the newly released Lenovo Tab3 10 Business tablet
Operations and Corporate
Began R&D expansion in Vietnam including a new facility lease, new site manager, and a dedicated recruitment initiative to increase headcount in Vietnam by 50 people
Implemented a normal course issuer bid to purchase up to 2,643,256 of Absolute’s common shares until August 28, 2017
Paid a quarterly dividend of CAD$0.08 per share on our common shares
“Driven by new customer wins, strong renewal rates and significant upgrades across some of our largest healthcare and education accounts, our commercial ACV base improved 2% during the quarter and revenue increased 6% year-over-year,” said Geoff Haydon, Chief Executive Officer, Absolute. “It’s clear that our value proposition is increasingly resonating with new customers and that our existing client base is willing to upgrade to access the new DDS features and capabilities we have introduced to date.”
“Our R&D investment plan is on track, enabling us to accelerate our product strategy, which in combination with our strengthened go-to-market capabilities, will further enhance our competitive position in the information security market,” continued Mr. Haydon. “We believe that the returns from these investments will be apparent over the second half of F2017 and into the next year as we pursue our growth and profitability objectives.”
Q1-F2017 Financial Review
Absolute DDS and Consumer revenue in Q1-F2017 was $22.5 million compared to $21.3 million in Q1-F2016, representing a 6% year-over-year increase. DDS segment revenue from recurring licenses was 98% in Q1-F2017 in line with Q1-F2016. Total revenue in Q1-F2017 was $22.5 million, representing a 6% decrease from total revenue of $24.0 million in Q1-F2016, with the decrease being entirely attributable to the divestiture of the Company’s Endpoint and Service Management segment on October 5, 2015.
Annual Contract Value(1)
The Q1-F2017 DDS Commercial ACV Base of $84.3 million increased 2% over Q4-F2016 and 7% over the trailing four quarter period.
From a market vertical perspective, the combined corporate and healthcare DDS ACV Base increased by 1% in Q1-F2017 and increased by 10% over the trailing four quarter period. The combined education and government DDS ACV Base increased by 2% in Q1-F2017 and increased by 4% over the trailing four quarter period. At September 30, 2016, corporate and healthcare customers represented 47% of the DDS ACV Base and education and government customers represented 53%.
For North America, the DDS ACV Base increased 1% sequentially in Q1-F2017 and increased by 7% over the trailing four quarter period. Internationally, the DDS ACV Base increased 3% sequentially in Q1-F2017 and increased 5% over the trailing four quarter period. At September 30, 2016, North American customers accounted for 89% of the Company’s DDS ACV Base and international customers accounted for the remaining 11%.
Net ACV Retention(1) from existing DDS commercial customers was 100% in Q1-F2017, and was 101% in the trailing four quarter period.
ACV from New Customers(1) was $1.0 million in Q1-F2017, approximately two-thirds of which was from corporate and healthcare customers.
Absolute DDS and Consumer Billings were $19.7 million in Q1-F2017, representing a 1% increase compared to $19.5 million in Q1-F2016. The year-over-year change in Billings was impacted by a lower renewal base compared to the prior year period, while the weighted average contract term was relatively consistent with the prior year period, at 37 months in Q1-F2017 compared to 36 months in Q1-F2016.
Adjusted Operating Expenses(3)
Adjusted Operating Expenses for Q1-F2017 were $20.6 million, which represented an increase of 5% over $19.7 million in Q1-F2016. The year-over-year increase primarily reflected increased investment in research and development headcount and contractor costs, in line with the Company’s F2017 investment plans.
Adjusted EBITDA(2)& Net Income
Absolute generated Adjusted EBITDA of $1.9 million, or 8% of revenue, in Q1-F2017 compared to $4.3 million, or 18% of revenue, in Q1-F2016. Adjusted EBITDA was impacted during the period by the increased investment in research and development, as well as the fact that Q1-F2016 included a $1.0 million Adjusted EBITDA contribution from the Absolute Manage and Absolute Service business unit.
The Company recorded a net loss of $0.8 million, or ($0.02) per basic share, in Q1-F2017, compared to net income of $1.0 million, or $0.02 per basic share, in Q1-F2016.
F2017 Corporate Outlook
The Company’s outlook for F2017 is unchanged.
The Company expects total revenue between $92.0 million and $94.6 million, representing 7% to 10% annual DDS segment revenue growth. Revenue is expected to grow at an accelerating rate through the year, driven by new customer acquisition, existing customer expansion and continuing sales productivity improvements.
The Company expects Adjusted EBITDA margins ranging from 5% to 8%, reflecting relatively stable spending across most departments and increased investment in research and development. Investment in research and development will accelerate product innovation, as well as the migration of all product offerings to Absolute’s next-generation service platform. These investments will facilitate greater scalability and operating efficiency, support the rapid deployment of new services across Absolute’s customer base and liberate resources currently required to support two platforms.
Cash from Operations
The Company expects cash from operations, prior to payments for income taxes and reorganization charges, as a percentage of revenue to be between 8% and 12%, reflecting a double-digit year-over-year increase in Billings.
Capital expenditures are expected to be between $3.9 million and $4.4 million, with the spending largely related to upgrades and expansion of the Company’s hosted data centres, office expansion and ongoing hardware refresh cycles.
On October 20, 2016, Absolute declared a quarterly dividend of CAD$0.08 per share on the Company’s common shares. The dividend is payable in cash on November 25, 2016 to shareholders of record at the close of business on November 4, 2016.
Management’s discussion and analysis (“MD&A”) and consolidated financial statements and the notes thereto for the fiscal quarter ended September 30, 2016 can be obtained today from Absolute’s corporate website atwww.absolute.com. The documents will also be available atwww.sedar.com.
Notice of Conference Call
Absolute will hold a conference call to discuss the Company’s Q1-F2017 results on Monday, November 7, 2016 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 14, 2016 at midnight. To access the archived conference call, please dial 416-849-0833, or 1-855-859-2056 and enter the reservation code4508154.
A live audio webcast of the conference call will be available atwww.absolute.comandhttps://bit.ly/2ebd7Qg. 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 September 30, 2016 MD&A on SEDAR atwww.SEDAR.com.
These measures, as well as their method of calculation or reconciliation to IFRS measures, are as follows:
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.
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.
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 September 30, 2016 MD&A.
Billings See the “Non-IFRS Measures” section of the September 30, 2016 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 7 of the Notes to the Condensed Consolidated Financial Statements), and result from invoiced sales of the Company’s products and services.
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.
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.