Commercial Recurring Revenue Increases 9% Year-Over-Year
Vancouver, Canada: May 8, 2017 –Absolute® (TSX: ABT), the self-healing endpoint security company, today announced financial results for the three and nine months ended March 31, 2017. All dollar figures are unaudited and stated in U.S. dollars, unless otherwise indicated.
“Our Q3 results were underscored by strong expansion and upsell activity within customer accounts, demonstrating the inherent opportunities among our customer base and the response to our accelerated product innovation,” said Geoff Haydon, Chief Executive Officer, Absolute. “Over the first nine months of fiscal 2017, we demonstrated our ability to execute on multiple growth vectors with both new customer acquisition and existing customer expansion driving year-to-date revenue performance.”
- Q3-F2017 Absolute Data and Device Security (“DDS”) segment revenue was $23.1 million, representing a year-over-year increase of 7%
- Commercial recurring revenue of $21.6 million increased 9% year-over-year while commercial non-recurring and consumer revenue was $1.5 million compared to $1.8 million in Q3-F2016
- Absolute DDS Commercial Annual Contract Value (“ACV”) Base(1) of $88.2 million increased 9% or $7.3 million year-over-year and 2% or $2.0 million sequentially
- The enterprise and healthcare portions of the ACV Base increased 14% year-over-year and by 5% sequentially. The education and government portions of the ACV Base increased by 5% year-over-year and were flat over the course of the quarter. Enterprise and healthcare customers represented 49% of the March 31, 2017 ACV Base, compared to 47% in the prior year
- Net ACV Retention(1) from existing Absolute DDS customers was 102% during Q3-F2017 compared to 101% in Q3-F2016. Existing customer upgrades and expansions added $1.4 million to the ACV Base during Q3-F2017 compared to $0.4 million in the prior year period
- Incremental ACV from New DDS Customers(1) was $0.6 million in Q3-F2017 compared to $1.0 million in Q3-F2016. Year-to-date ACV from New Customers was $3.7 million compared to $2.6 million in the prior year period
- Adjusted EBITDA(2) in Q3-F2017 was $2.3 million, or 10% of revenue, compared to $2.8 million, or 13% of revenue, in the prior year period. The decrease in Adjusted EBITDA reflects increased investment in research and development
- Cash used in operating activities during Q3-F2017 was $0.4 million compared to cash generated from operating activities of $0.1 million in the prior year period. Prior to payment of reorganization charges of $1.1 million, cash from operating activities in Q3-F2017 was $0.7 million
- Total Billings(4) were $21.6 million, representing 8% growth over $20.1 million in the prior year period
Technology and Product
- Released Absolute Application Persistence, extending Absolute’s embedded self-healing Persistence technology to third-party management and security applications, enabling IT and security leaders to ensure that critical endpoint controls are resilient to malicious attacks or insider threats
- Completed integration with IBM Security QRadar security information and event management (SIEM) product. Absolute DDS is now integrated with the majority of the Gartner SIEM Magic Quadrant Leaders
Operations and Corporate
- Appointed security industry veteran Todd Chronert to lead enterprise sales for the Americas region
- Expanded R&D capacity in Vietnam and Vancouver in accordance with the Company’s F2017 plan, including opening a new Vietnam development center and incorporation of a Vietnamese subsidiary. The Company closed the quarter with 49 R&D employees in Vietnam and 155 in North America.
- Paid a quarterly dividend of CAD$0.08 per share on our common shares during Q3-F2017 and paid total dividends of CAD$0.24 during the year-to-date period
Summary of Key Financial Metrics
The Company is narrowing its revenue guidance to the lower end of the previous guidance range reflecting lower than expected professional services and Consumer sales. F2017 total revenue is expected to be between $91.4 million and $92.4 million, representing 6% to 8% annual DDS segment revenue growth.
The Company is raising its Adjusted EBITDA guidance to 8% to 9% of revenue.
Cash from Operations
The Company expects cash from operating activities, prior to payments for income taxes and reorganization charges, as a percentage of revenue, to be 7% to 9%.
Capital expenditures are expected to be between $3.8 million and $4.2 million.
On April 19, 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 May 29, 2017 to shareholders of record at the close of business on May 9, 2017.
Management’s discussion and analysis (“MD&A”) and consolidated financial statements and the notes thereto for the fiscal quarter ended March 31, 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 Q3-F2017 results on Monday, May 8, 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 Monday, May 15, 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 5155053.
A live audio webcast of the conference call will be available at www.absolute.com and https://bit.ly/2oPgdfG. 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 March 31, 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 March 31, 2017 MD&A.
See the “Non-IFRS Measures” section of the March 31, 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 7 of the Notes to the Condensed Consolidated Financial Statements), and result from invoiced sales of the Company’s products and services.