Q1 Results include Record 11% revenue growth; $14.7M in cash from operating activities; and 13% year-over-year growth in Total ARR
VANCOUVER, British Columbia – November 9, 2020 – Absolute Software Corporation (“Absolute” or the “Company”) (TSX: ABST) (Nasdaq: ABST), a leader in Endpoint Resilience™ solutions, today announced its financial results for the three months ended September 30, 2020. All dollar figures are stated in U.S. dollars, unless otherwise indicated.
“Q1 was a solid start to the fiscal year, with increased momentum as we see demand for persistent visibility, control, and resilience accelerate across various segments in response to remote and hybrid work and learning models,” said Christy Wyatt, President and CEO at Absolute. “In addition, our recent listing on Nasdaq and capital raise was a significant milestone for the company and positions us well to be able to respond to the large market opportunity in front of us.”
First Quarter Fiscal 2021 (“Q1-F2021”) Financial Highlights
- Total revenue in Q1-F2021 was $28.5 million, representing a year-over-year increase of 11%.
- Net income in Q1-F2021 was $2.6 million, representing a year-over-year decrease of 25%.
- Total Annual Recurring Revenue (“ARR”) (refer to “Non-IFRS Measures and Key Metrics” below) at September 30, 2020 was $111.7 million, representing an increase of 13% over the prior year balance and a sequential increase of 3% as compared to June 30, 2020.
- The Enterprise & Government portions of Total ARR (refer to “Non-IFRS Measures and Key Metrics” below) increased by 12% annually and by 1% as compared to June 30, 2020. Enterprise & Government sector customers represented 67% of Total ARR at September 30, 2020.
- The Education sector portion of Total ARR (refer to “Non-IFRS Measures and Key Metrics” below) increased by 14% annually and 7% as compared to June 30, 2020. Education sector customers represented 33% of Total ARR at September 30, 2020.
- Incremental ARR from New Customers (refer to “Non-IFRS Measures and Key Metrics” below) was $1.8 million in Q1-F2021, compared to $1.1 million in Q1-F2020.
- Net ARR Retention (refer to “Non-IFRS Measures and Key Metrics” below) from existing customers was 102% in Q1-F2021, compared with 100% in Q1-F2020.
- Adjusted EBITDA (refer to “Non-IFRS Measures and Key Metrics” below) in Q1-F2021 was $8.1 million, or 29% of revenue, up from $7.1 million, or 28% of revenue, in Q1-F2020.
- Cash generated from operating activities in Q1-F2021 was $14.7 million, compared to $7.5 million in Q1-F2020.
- Absolute paid a quarterly dividend of CAD$0.08 per common share during Q1-F2021.
First Quarter Fiscal 2021 Business Highlights
During Q1-F2021, Absolute had the following product and service highlights:
- In August, we announced new platform capabilities enabling IT and Security teams to automatically generate and distribute scheduled reports to help ensure compliance across the enterprise; easily monitor, manage, and secure missing endpoint devices at scale; and understand if critical endpoint controls are healthy and working effectively.
- In September, we were named a Leader in the G2 Summer 2020 Grid Report for Endpoint Management, making this the fifth quarter in a row we’ve been recognized by our customers based on our high levels of customer satisfaction and their likeliness to “recommend” Absolute.
- In September, we announced limited-time offers for customers to purchase critical add-on capabilities, including Absolute's Application Persistence™ service and Absolute Reach® portfolio, previously available only with the Company’s top-tier Resilience edition.
- In September, we also extended, through October 30, 2020, the COVID-19 offers originally announced in April that provide existing customers with the ability to self-heal existing virtual private network (VPN) applications and more seamlessly secure, manage, and patch remote devices at no additional cost.
- In September, we published our second annual Education Endpoint Trends Report, titled ”Distance Learning’s Impact on Education IT.” The research underscored the complexities of K-12 device and data security amidst the sudden shift to remote learning in the wake of the COVID-19 outbreak.
In Q1-F2021 and early in Q2-F2021, we had the following major business and organizational developments:
- In August, we filed a short form base shelf prospectus with the securities regulatory authorities in each of the provinces and territories of Canada except Quebec.
- In October, we appointed Steven Gatoff as Chief Financial Officer. Mr. Gatoff will take his position effective November 10, 2020, and will have responsibility for all global finance, accounting, financial reporting, audit, tax, investor relations, and capital planning functions.
- In October, we completed a public offering of our common shares in the United States and Canada for gross proceeds of approximately $69 million and a corresponding cross-listing of our common shares on the Nasdaq Global Select Market. Our common shares now trade on both the Toronto Stock Exchange and Nasdaq under the symbol “ABST.”
Partner and other highlights in Q1-F2021 included:
- In September, we announced the launch of the new Absolute Partner Program designed to increase revenue opportunities across the Company’s global network of channel partners, resellers, distributors, managed service providers, and system integrators.
- We saw several new market successes with our OEM partners, including strong online promotion with Lenovo as well as new product bundles.
- We saw significant growth in our emerging markets with HP in the Education sector.
- Absolute launched the ‘Blueprint for Success’ program with Dell – designed to help build pipeline across K-12 and higher education opportunities.
Summary of Key Financial Metrics
- Commercial recurring revenue represents revenue derived from “Cloud Services” (as defined in our Q1-F2021 MD&A) and recurring managed professional services, both of which are included as part of Total ARR (see “Non-IFRS Measures and Key Metrics” in this press release). Other revenue represents revenue derived from non-recurring professional services and ancillary product lines, including consumer products.
- Throughout this press release, “Adjusted EBITDA” is used as a profitability measure. Please refer to the “Non-IFRS Measures and Key Metrics” section of this press release for further discussion on this measure.
F2021 Financial Outlook
The Company is updating its previously disclosed financial outlook for F2021 as follows:
- The Company is narrowing its outlook on revenue from $112 million to $118 million (representing 7% to 13% annual growth), to $116 million to $118 million (representing 11% to 13% annual growth).
- The Company is narrowing its outlook on Adjusted EBITDA from 20% to 24% of revenue, to 21% to 24% of revenue.
- The Company is narrowing its outlook on Cash from operating activities from 22% to 34% of revenue, to 25% to 34% of revenue.
- The Company is maintaining its outlook for capital expenditures and expect them to be between $3.0 million and $4.0 million.
The foregoing outlook and expectations constitute forward-looking statements and financial outlook and are qualified in their entirety by the “Forward-Looking Statements” cautionary statement below.
On October 19, 2020, the Company declared a quarterly dividend of CAD$0.08 per share on its common shares, payable in cash on November 30, 2020 to shareholders of record at the close of business on November 13, 2020.
Management’s Discussion and Analysis (“MD&A”) and Consolidated Financial Statements and the notes thereto for the fiscal period ended September 30, 2020 can be obtained today from Absolute’s corporate website at www.absolute.com. The documents will also be available under Absolute’s SEDAR profile at www.sedar.com and on EDGAR at www.sec.gov.
Notice of Conference Call
Absolute will hold a conference call to discuss its Q1-F2021 financial results on Monday, November 9, 2020, 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 Monday, November 16, 2020 at midnight ET. To access the archived conference call, please dial 416-849-0833 or 1-855-859-2056 and enter the reservation code 9415737.
A live audio webcast of the conference call will be available at www.absolute.com and here. 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 for 90 days.
Non-IFRS Measures and Key Metrics
Throughout this press release, the Company refers to a number of measures and metrics that the Company believes are meaningful in the assessment of the Company’s performance. Many of these metrics are non-standard measures under International Financial Reporting Standards (“IFRS”), do not have any standardized meaning under 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 more complete discussion of these non-IFRS measures, please refer to the Company’s MD&A for the period ended September 30, 2020.
These measures and metrics, and their method of calculation or reconciliation to IFRS measures, are as follows:
Total ARR, Net ARR Retention and ARR 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 and generating revenue, measured by Annual Recurring Revenue (“ARR”), as an indicator of its future revenues.
Note that prior to Q4-F2020, we referred to ARR as Annual Contract Value or “ACV”; however, we have changed the nomenclature of this measure as we believe ARR is more aligned with industry norms. There has been no change in the method by which this measure (and related measures below) is calculated.
Total ARR 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 ARR Retention measures the percentage increase or decrease in Total ARR at the end of a period for the customers that made up Total ARR at the beginning of the same period. This metric provides insight into the effectiveness of Absolute’s customer retention and expansion functions. ARR from New Customers measures the addition to the Total ARR from sales to new commercial customers during the period.
We believe that increases in the amount of ARR from New Customers, and improvement in the Company’s Net ARR Retention, will grow Total ARR and, in turn, our future revenues.
The following table provides a reconciliation of our Net Income under IFRS to Adjusted EBITDA:
- Amortization of property and equipment per the Statement of Cash Flows.
- Amortization of right of use assets per the Statement of Cash Flows.
- Share-based compensation per the Statement of Operations.
- Finance income, net per the Statement of Operations.
- Interest on lease liability per the Statement of Operations.
- Foreign exchange loss per the Statement of Operations.
- Income tax expense per the Statement of Operations.