Commercial Recurring Revenue Increases 8% Year-Over-Year
Vancouver, Canada: August 17, 2017 – Absolute® (TSX: ABT), the standard for endpoint visibility and control, today announced financial results for the three months and fiscal year ended June 30, 2017. All dollar figures are unaudited and stated in U.S. dollars, unless otherwise indicated.
“Over the course of fiscal 2017, we made significant progress on the execution of our long-term growth and profitability objectives, including the achievement of eight percent commercial recurring revenue growth. We also began to realize the benefits of sustained R&D investments with the introduction of new enterprise-class solutions that address urgent customer demands,” stated Mr. Geoff Haydon, Chief Executive Officer, Absolute. “The introduction of new capabilities such as always-connected IT asset management, self-healing and mobile endpoint security, and continuous data protection drove customer expansion and the acquisition of prominent new customers. It also led to a significant increase in our pipeline, positioning us for further expected growth and stronger expected cash flow in fiscal 2018.”
Q4-F2017 and Fiscal Year Highlights
- Q4-F2017 revenue was $23.2 million, representing a year-over-year increase of 5%. Annual revenue was $91.2 million, representing a year-over-year increase of 6% over F2016 Absolute Data and Device Security (“DDS”) segment revenue.
- Commercial recurring revenue in Q4-F2017 increased 8% year-over-year to $21.9 million, while commercial non-recurring and consumer revenue was $1.3 million compared to $1.8 million in Q4-F2016.
- Annual commercial recurring revenue increased 8% over the prior year to $85.4 million. Commercial non-recurring and consumer revenue was $5.8 million in F2017 compared to $6.8 million in the prior year.
- The DDS Commercial Annual Contract Value (“ACV”) Base(1) of $87.8 million increased 6% or $4.8 million year-over-year and was down $0.4 million sequentially.
- The enterprise and healthcare portion of the ACV Base increased 10% year-over-year and was unchanged sequentially. The education and government portion of the ACV Base increased by 2% year-over-year and was down $0.4 million sequentially. Enterprise and healthcare customers represented 49% of the June 30, 2017 ACV Base, compared to 47% in the prior year.
- Net ACV Retention(1) from existing Absolute DDS customers was 99% during Q4-F2017 compared to 100% in Q4-F2016.
- Incremental ACV from New DDS Customers(1) was $0.8 million in Q4-F2017 compared to $1.8 million in Q4-F2016. Annual ACV from New Customers was $4.4 million, of which 72% was derived from the enterprise and healthcare vertical, compared to $4.3 million in the prior year, of which 55% was from the enterprise and healthcare vertical.
- Adjusted EBITDA(2) in Q4-F2017 was $2.0 million, or 9% of revenue, compared to $1.9 million, or 9% of revenue, in the prior year period. For the annual period, Adjusted EBITDA was $7.9 million, representing 9% of revenue compared to $11.1 million, or 12% of revenue in the prior year.
- Cash generated from operating activities in Q4-F2017 was $0.7 million compared to cash used in operating activities of $1.6 million in the prior year period. For the annual period, cash generated from operating activities was $1.0 million compared to $4.9 million in the prior year period. Prior to the payment of reorganization charges, income tax payments and divestiture costs, cash from operating activities was $7.0 million in F2017 compared to $9.0 million in F2016.
- Total DDS Billings(4) in Q4-F2017 were $29.4 million representing a year-over-year decrease of 2%. For the fiscal year, DDS Billings were $91.6 million, representing a year-over-year increase of 3%.
Technology and Product
- Delivered market-defining product enhancements including Security Posture and Data Risk dashboards for at-a-glance measures of endpoint health, risk, and compliance—both on and off the corporate network. This enables customers to assess their endpoint security posture, calculate and mitigate data risk, prove compliance and strengthen resiliency.
- Strengthened our technology partnership with Microsoft by integrating Absolute’s unmatched endpoint and data visibility with Microsoft AIP’s ability to control and secure files and to provide advanced user-based access control of proprietary data without impacting end user productivity.
- Debuted Absolute Application Persistence, which extends our embedded self-healing Persistence technology to third-party endpoint management and security applications. This enables IT security professionals to ensure that critical applications can be instantly and automatically repaired to be resilient to malicious attacks or insider threats.
- Provided faster endpoint data remediation capabilities so that customers can take immediate action when at-risk data is detected on a device. This includes the ability to promptly freeze multiple devices or covertly delete multiple data files before they are accessed.
- Delivered the first version of Device Usage Reporting, a new offering in our Absolute Device Analytics framework that allows customers to log device usage rates and user activity on each device to properly assess device configuration by users and improve performance.
- Completed integration with HPE Security ArcSight security information and event management (SIEM), Splunk Enterprise SIEM, and IBM Security QRadar SIEM products to provide seamless endpoint visibility and contextual insights to the majority of the Gartner SIEM Magic Quadrant Leaders.
- Joined the EdgeX Foundry to help advance and unify standards in IoT and edge computing space.
Operations and Corporate
- Announced an enterprise-wide deployment of Absolute DDS on more than 100,000 endpoint devices at one of the largest hospital systems in the United States.
- Expanded research and development capacity in Vietnam and Vancouver, including the opening of a new Vietnam development center, incorporation of a Vietnamese subsidiary. We closed the quarter with 71 R&D-focused employees in Vietnam and 164 in North America.
- Appointed security industry veteran Todd Chronert to lead enterprise sales for the Americas region.
- Paid a quarterly dividend of CAD$0.08 per share on our common shares during Q4-F2017 and paid total dividends of CAD$0.32 during the fiscal year.
F2018 Corporate Outlook
For F2018, the Company expects new solution and product releases combined with continued sales productivity improvements to drive growth in revenue and the underlying commercial ACV base. This growth is expected to be driven primarily by the North American enterprise and healthcare verticals, with lower growth rates expected in the education and government verticals.
The Company expects total revenue of $96.8 million to $99.2 million, representing 6% to 9% annual revenue growth.
The Company expects Adjusted EBITDA margins of 9% to 11%, reflecting margin expansion, which is partially offset by the negative impact of the stronger Canadian dollar on the Company’s Canadian-based expenditures.
The Company expects growth in operating cash flow margins. Cash from operations is expected to be in the range of 13% to 16% of revenue.
Capital expenditures are expected to be between $3.0 million and $3.5 million, relatively consistent with capital expenditures of $3.4 million in F2017.
On July 20, 2017, Absolute declared a quarterly dividend of CAD$0.08 per share on the Company’s common shares. The dividend is payable in cash on August 25, 2017 to shareholders of record at the close of business on August 4, 2017.
Management’s discussion and analysis (“MD&A”) and consolidated financial statements and the notes thereto for the fiscal year ended June 30, 2017 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 Q4-F2017 results on Thursday, August 17, 2017 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 Thursday, August 24, 2017 at midnight ET. To access the archived conference call, please dial 416-849-0833 or 1-855-859-2056 and enter the reservation code 55781496.
A live audio webcast of the conference call will be available at www.absolute.com and https://bit.ly/2w7gN9L. 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 June 30, 2017 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:
- 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 June 30, 2017 MD&A.
See the “Non-IFRS Measures” section of the June 30, 2017 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 10 of the Notes to the Consolidated Financial Statements), and result from invoiced sales of the Company’s products and services.