Absolute Reports Fiscal 2020 First Quarter Financial Results
Continued Momentum in Enterprise and Government Sector Sales Combined with Strong Operating Cash Generation
VANCOUVER, British Columbia – November 12, 2019–Absolute(TSX: ABT) (“Absolute” or the “Company”), the leader in endpoint resilience, today announced its financial results for the three months ended September 30, 2019. All dollar figures are stated in U.S. dollars, unless otherwise indicated.
First Quarter Fiscal 2020 Financial Highlights
Total revenue in Q1-F2020 was $25.7 million, representing a year-over-year increase of 6%.
The Annual Contract Value Base(1) (“ACV Base”) at September 30, 2019 was $99.1 million, representing an increase of 7% over the prior year balance and a sequential increase of 1% over Q4-F2019.
The Enterprise sector portion of the ACV Base increased by 11% annually and by 3% sequentially. Enterprise sector customers represented 56% of the ACV Base at September 30, 2019.
The Government sector portion of the ACV Base increased by 13% annually and by 3% sequentially. Government sector customers represented 12% of the ACV Base at September 30, 2019.
The Education sector portion of the ACV Base decreased by 2% annually and decreased by 2% sequentially. Education sector customers represented 32% of the ACV Base at September 30, 2019.
Incremental ACV from New Customers was $1.1M in Q1-F2020, compared to $1.0 million in Q1-F2019.
Net ACV Retention from existing customers was 100% in Q1-F2020, compared with 101% in Q1-F2019.
Adjusted EBITDA in Q1-F2020 was $7.1 million, or 28% of revenue. Adjusted EBITDA – pre-IFRS 16 was $6.6 million, or 26% of revenue, compared to $4.1 million, or 17% of revenue, in Q1-F2019.
Cash generated from operating activities in Q1-F2020 was $7.5 million. Cash from operating activities – pre-IFRS 16 in Q1-F2020 was $7.1 million, compared to $4.0 million in Q1-F2019.
Absolute paid a quarterly dividend of CAD$0.08 per common share during Q1-F2020.
“Q1 was a solid start to the fiscal year; we are pleased with our results, which continue to be accentuated by double-digit growth across enterprise and government businesses and healthy profit margins,” said Christy Wyatt, CEO at Absolute. “As the endpoint continues to be the attack vector of emphasis, we continue to innovate and extend the foundational capabilities of the Absolute platform to deliver a more sophisticated set of solutions. This is enabling our customers to make a fundamental shift, from thinking simply about traditional endpoint security to building true enterprise resiliency.”
In July 2019, we released significant updates to our Enterprise Resilience Edition, simplifying security policy deployments and remote management of device fleets. The new release provides customers with increased operational efficiency, on-demand support through live chat, and automated ability to apply and adjust security policies across computing devices. The release also extended the self-healing capabilities of Application Persistence to the latest versions of Ivanti® Management Suite.
In August 2019, we announced the appointment of Lynn Atchison to our Board of Directors. Ms. Atchison also joined the Audit Committee of the Board. Ms. Atchison is a seasoned technology executive with more than three decades of financial and operational leadership. Most recently, Ms. Atchison was the CFO of Spredfast, a provider of enterprise social media management software. Prior to that, she served as the CFO of the online vacation rental marketplace HomeAway. She also currently serves on the boards of Q2 Software, Convey, and RealMassive, in addition to being a member of original steering committee for [email protected] and an Advisory Board Member of Philanthropitch.
In September 2019, Absolute was recognized as a leader in the G2 Fall 2019 Grid® Report for Endpoint Management Software. The report highlights top-reviewed endpoint management solutions that enable companies to manage and secure endpoint infrastructure and ensure their endpoint protection software is present and healthy. Ninety eight percent of reviewers gave either four-star or five-star ratings for the Absolute platform and 93 percent of total reviewers said they were likely to recommend Absolute.
In September 2019, we introduced a significant redesign of the Absolute console with a new visually-rich, flexible dashboard that includes customizable widgets, reports and alerts. This UI enhancement enables IT and security teams to detect under-utilized devices, quickly spot vulnerabilities, and take immediate action to neutralize risks.
Subsequent to Q1-F2020, we announced the introduction of a new research report titled, “Cybersecurity and Education: The State of the Digital District in 2020,” focused on the state of IT security, staff and student safety, and endpoint device health in K-12 organizations. The report’s findings highlight the crisis the education sector is facing as schools grapple with high levels of risk exposure – driven in large part by complex IT environments and digitally savvy student populations – that have made them a prime target for cybercriminals and ransomware attackers.
Summary of Key Financial Metrics
Please refer to the “Non-IFRS Measures and Definitions” section of this press release for a further discussion on this measure.
Commercial recurring revenue represents revenue derived from Cloud Services (as defined below) and recurring managed professional services, both of which are included as part of our ACV Base. Other revenue represents revenue derived from non-recurring professional services and ancillary product lines, including consumer products.
Throughout this document, “Adjusted EBITDA” is used as a profitability measure. Please refer to the “Non-IFRS Measures and Definitions” section of this press release for further discussion on this measure.
The Company adopted IFRS 16, “Leases”, effective July 1, 2019 using the modified retrospective approach (please refer to the “New Accounting Pronouncements” section of the Q1-F2020 MD&A and to Note 2(e) in the notes to the Q1-F2020 Condensed Consolidated Financial Statements). Accordingly, financial information presented for fiscal 2019 has not been adjusted for the impact of the adoption of IFRS 16. Figures presented that include the title “pre-IFRS 16” represent operating results had IFRS 16 not been adopted, and provide a meaningful comparative to similar operating results for F2019.
F2020 Corporate Outlook
The Company’s outlook for F2020 is unchanged and is as follows:
Revenue is expected to be between $103 million and $106 million, representing 4% to 7% annual growth.
Adjusted EBITDA is expected to be between 18% and 22% of revenue.
Cash from operating activities is expected to be between 16% and 22% of revenue.
Capital expenditures are expected to be between $3.5 million and $4.0 million.
The Company’s forecast for Adjusted EBITDA and cash from operating activities incorporates the impact of IFRS 16, “Leases”, which was adopted July 1, 2019. IFRS 16 is expected to positively impact both F2020 Adjusted EBITDA and cash from operating activities by approximately $2.0 million as a result of amortization of right of use assets and from increased interest expense. See “New Accounting Pronouncements” in the Company’s September 30, 2019 MD&A.
The foregoing expectations constitute forward-looking information and financial outlook and are qualified in their entirety by the cautionary statement below.
On October 21, 2019, the Company declared a quarterly dividend of CAD$0.08 per share on its common shares, payable in cash on November 29, 2019 to shareholders of record at the close of business on November 8, 2019.
Management’s Discussion and Analysis (“MD&A”) and Consolidated Financial Statements and the notes thereto for the fiscal period ended September 30, 2019 can be obtained today from Absolute’s corporate website at www.absolute.com. The documents will also be available under Absolute’s profile at www.sedar.com.
Notice of Conference Call
Absolute will hold a conference call to discuss its Q1-F2020 financial results on Tuesday, November 12, 2019, at 5:00 p.m. ET (2:00 p.m. PT). 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, November 19, 2019, at midnight ET. To access the archived conference call, please dial 416-849-0833 or 1-855-859-2056 and enter the reservation code 8457438.
A live audio webcast of the conference call will be available at www.absolute.com and http://bit.ly/2X8uIKp. 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 that the Company believes are meaningful in the assessment of the Company’s performance. All these metrics are nonstandard 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 MD&A for the period ended June 30, 2019.
These measures, as well as their method of calculation or reconciliation to IFRS measures, are as follows:
ACV Base, Net ACV Retention and ACV from New Customers
As the majority of the Company’s customer contracts are sold under multiyear 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, as an indicator of its future revenues.
The 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 made up 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 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 and Adjusted EBITDA – pre-IFRS 16
Management believes that analyzing operating results exclusive of significant noncash 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 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 intangibles, amortization of property and equipment, and restructuring and reorganization charges and certain post-retirement benefits.
Management believes that presenting F2020 Adjusted EBITDA on a pre-IFRS 16 basis will provide a meaningful comparative to F2019 Adjusted EBITDA.
Absolute Software is a leader in next generation Endpoint Resilience solutions, delivering a unique security platform that unites the power of self-healing devices, applications, and network connectivity. Absolute is the only endpoint security provider embedded in more than half a billion devices that offers a permanent digital connection to see, manage, secure, and automatically heal every device, and provides deep insights into the health of devices, applications, and network connections. We empower customers with the critical capabilities required in a zero-trust world — enabling them to achieve a secure employee experience, a more effective IT department and a more secure organization in the work from anywhere era.
This press release contains certain forward-looking statements and forward-looking information (collectively, “forward-looking statements”) which relate to future events or Absolute’s future business, operations, and financial performance and condition. Forward-looking statements normally contain words like “will”, “intend”, “anticipate”, “could”, “should”, “may”, “might”, “expect”, “estimate”, “forecast”, “plan”, “potential”, “project”, “assume”, “contemplate”, “believe”, “shall”, “scheduled”, and similar terms and, within this press release, include, without limitation, the information under the heading “F2020 Corporate Outlook” and any statements (express or implied) respecting: Absolute’s future plans, strategies, and objectives; projected growth, revenues, margins, Adjusted EBITDA, profitability, expenses, cash from operating activities, capital expenditures, and earnings; existing and new product functionality and suitability; and expectations for the size of the IT security industry. Forward-looking statements, including the F2020 Corporate Outlook, are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and allowing investors and others to get a better understanding of our anticipated financial position, results of operations, and operating environment. Readers are cautioned that such information may not be appropriate for other purposes.
Forward-looking statements are not guarantees of future performance, actions, or developments and are based on expectations, assumptions and other factors that management currently believes are relevant, reasonable, and appropriate in the circumstances. The material expectations, assumptions, and other factors used in developing the forward-looking statements set out herein include or relate to the following, without limitation: Absolute will be able to successfully execute its plans, strategies, and objectives; Absolute will be able to successfully manage cash flow, operating expenses, interest expenses, capital expenditures, and working capital and credit, liquidity, and market risks; Absolute will be able to leverage its past investments to support growth and increase profitability; the size of the IT security industry will be in line with industry experts’ and Absolute’s expectations; Absolute will maintain and enhance its competitive advantages within its industry and certain markets; Absolute will keep pace with or outpace the growth, direction, and technological advancement in its industry; Absolute will be able to adapt its technology to be compatible with changes to existing, and new, operating systems such as Microsoft Windows; Absolute will be able to maintain and develop its partner and reseller network; Absolute’s current and future (if any) OEM partners will continue to provide embedded firmware and distribution and resale support; Absolute’s existing and new products will function as intended and will be suitable for the intended end users; Absolute will be able to design, develop, and release new products, features, and services and enhance its existing products and services; Absolute will be able to protect against the improper disclosure of data it may process, store, and/or manage; Absolute’s revenues will not become subject to increased seasonality; future financing will be available to Absolute on favourable terms if and when required; Absolute will be in a financial position to buy back some of its shares and/or issue dividends in the future; fluctuations in applicable tax rates, foreign exchange rates, and interest rates will not have a material impact on Absolute; certain tax credits will remain or become available to Absolute; Absolute will be able to attract and retain key personnel; Absolute will be successful in its brand awareness and other marketing initiatives; Absolute will be able to successfully integrate businesses, intellectual property, products, personnel, and/or technologies that it may acquire (if any); Absolute will be able to maintain and enhance its intellectual property portfolio; Absolute’s protection of its intellectual property will be sufficient and its technology does not and will not materially infringe third party intellectual property rights; Absolute will be able to obtain any necessary third party licenses on favourable terms; Absolute will not become involved in material litigation; Absolute will not face any material unexpected costs related to product liability or warranties; foreign jurisdictions will not impose unexpected risks; and Absolute will maintain or enhance its accounting policies and standards and internal controls over financial reporting.
Although management believes that the forward-looking statements herein are reasonable, actual results could be substantially different due to the risks and uncertainties associated with and inherent to Absolute’s business, as more particularly described in the “Risk and Uncertainties” section of Absolute’s most recently filed Management’s Discussion and Analysis, which is available at www.absolute.com and under Absolute’s profile on www.sedar.com. Additional material risks and uncertainties applicable to the forward-looking statements herein include, without limitation, unforeseen events, developments, or factors causing any of the aforesaid expectations, assumptions, and other factors ultimately being inaccurate or irrelevant. Many of these factors are beyond the control of Absolute.
All forward-looking statements included in this press release are expressly qualified in their entirety by these cautionary statements. The forward-looking statements contained in this press release are made as at the date hereof and Absolute undertakes no obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by applicable securities laws.