Absolute Reports Fiscal 2020 Third Quarter Financial Results
Maintains Revenue and Increases Outlook on EBITDA
VANCOUVER, British Columbia – May 11, 2020 –Absolute(TSX: ABT) (“Absolute” or the “Company”), the leader in Endpoint Resilience™, today announced its financial results for the three and nine months ended March 31, 2020. All dollar figures are stated in U.S. dollars, unless otherwise indicated.
“Amidst the impact of COVID-19, Absolute remains focused on ensuring the health and safety of our employees, helping our customers quickly mobilize their endpoint strategies to remote work and distance learning programs, and swiftly responding to our customers’ other needs,” said Christy Wyatt, President and CEO of Absolute. “We continued to see steady growth, while exceeding our expectations on EBITDA in the third quarter. Whether it’s hybrid remote work or the evolution of learning environments, there’s never been a more critical time for the undeletable endpoint defense that only Absolute can provide.”
Third Quarter Fiscal 2020 Financial Highlights
Total revenue in Q3-F2020 was $26.1 million, representing a year-over-year increase of 5%. Year-to-date total revenue was $77.5 million, representing an increase of 5% over the prior year-to-date period.
The Annual Contract Value Base (“ACV Base”) at March 31, 2020 was $101.4 million, representing an increase of 7% over the prior year balance and a sequential increase of 1% over Q2-F2020.
The Enterprise & Government portions of the ACV Base, combined, increased by 13% annually and by 2% sequentially. Enterprise & Government sector customers represented 70% of the ACV Base at March 31, 2020.
The Education sector portion of the ACV Base decreased by 7% annually and was flat sequentially. Education sector customers represented 30% of the ACV Base at March 31, 2020.
Incremental ACV from New Customers was $1.0 million in Q3-F2020, compared to $1.1 million in Q3-F2019.
Net ACV Retention from existing customers was 100% in Q3-F2020, compared with 99% in Q3-F2019.
Adjusted EBITDA in Q3-F2020 was $6.1 million, or 23% of revenue. Adjusted EBITDA – pre-IFRS 16 was $5.5 million, or 21% of revenue, compared to $5.8 million, or 23% of revenue, in Q3-F2019. Year-to-date Adjusted EBITDA was $19.3 million, or 25% of revenue. Year-to-date Adjusted EBITDA – pre-IFRS 16 was $17.9 million, or 23% of revenue, compared with $14.4 million, or 20% of revenue, in the prior year-to-date period.
Cash generated from operating activities in Q3-F2020 was $3.7 million. Cash from operating activities – pre-IFRS 16 in Q3-F2020 was $3.3 million, compared to $0.9 million in Q3-F2019. Year-to-date cash from operating activities was $13.4 million. Year-to-date cash from operating activities – pre-IFRS 16 was $12.1 million, compared with $6.8 million in the prior year-to-date period.
Absolute paid a quarterly dividend of CAD$0.08 per common share during Q3-F2020.
In January 2020, we announced the appointment of Dianne Lapierre as Chief Information Officer.
In January 2020, we enhanced our customers’ license management workflow within the Absolute console for easier and simplified license expiration visibility.
In January 2020, we added historical event capabilities, enabling IT and security administrators with greater visibility and audit historical information on device events.
In January 2020, we made available Absolute Secure Channel, delivering secure and remote access to the firmware layer across endpoint devices and strengthening the foundation of firmware-level protections.
In February, during RSA® Conference 2020, Absolute previewed new research from our upcoming 2nd Annual State of Endpoint Resilience Report that highlighted Windows 10 as dominant the Enterprise OS, but revealed 80% of Windows 10 devices are running on a version more than one year old.
In March 2020, we took significant measures to assist our existing customers in the face of the global COVID-19 outbreak, providing access to certain critical capabilities at no additional charge:
We provided certain customers with premium features to ‘persist,’ or proactively repair and reinstall, their existing virtual private network (VPN) applications, ensuring uninterrupted remote access to corporate and school networks, business and education applications as well as data for remote workers.
We provided certain customers with free access to a comprehensive library of automated, custom workflows, accelerating their ability to proactively pinpoint vulnerabilities and quickly take remedial action, whether a device is on or off the corporate network.
In March 2020, Absolute was featured in Lenovo’s ‘Partner Stimulus Package,’ offering a new Device-as-a-Service solution aimed at work-from-home.
Summary of Key Financial Metrics
Commercial recurring revenue represents revenue derived from Cloud Services (as defined in our Q3-F2020 MD&A) 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” section below and in our Q3-F2020 MD&A for further discussion on this and other non-IFRS measures.
The Company adopted IFRS 16, “Leases”, effective July 1, 2019 using the modified retrospective approach (please refer to the “New Accounting Pronouncements” section of our Q3-F2020 MD&A and to Note 2(e) in the notes to the Q3-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 is updating its outlook for F2020 as follows:
The Company is maintaining its outlook on revenue, continuing to expect revenue to be between $103 million and $106 million, representing 4% to 7% annual growth.
The Company is increasing its expectation for Adjusted EBITDA from between 18% and 22% of revenue to between 21% and 25% of revenue.
The Company continues to expect cash from operating activities to be between 16% and 22% of revenue.
The Company is decreasing its expectation for capital expenditures from between $3.5 million and $4.0 million to between $3.0 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 our March 31, 2020 MD&A.
The foregoing expectations constitute forward-looking statements and financial outlook and are qualified in their entirety by the cautionary statement set out at the beginning of this MD&A.
On April 20, 2020, the Company declared a quarterly dividend of CAD$0.08 per share on its common shares, payable in cash on May 29, 2020 to shareholders of record at the close of business on May 8, 2020.
Share Buyback Program
As a measure of prudence while we monitor developing market conditions, the Company will temporarily suspend repurchases of its common shares under its current normal course issuer bid (the “Bid”). The Bid was initially announced by press release on September 27, 2019 and is set to expire on September 30, 2020. Except as set out in this press release, the Company is not in possession of any material non-public information at this time.
Management’s Discussion and Analysis and Interim Condensed Consolidated Financial Statements and the notes thereto for the fiscal period ended March 31, 2020 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 Q3-F2020 financial results on Monday, May 11, 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, May 18, 2020 at midnight. To access the archived conference call, please dial 416-849-0833 or 1-855-859-2056 and enter the reservation code 8335599.
A live webcast and replay will be accessible from Absolute's Investor Relations website 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 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 property and equipment and right of use assets, 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 property and equipment and right of use assets, 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 is a leader in Endpoint Resilience solutions and the industry’s only undeletable defense platform embedded in over a half-billion devices. Enabling a permanent digital tether between the endpoint and the enterprise who distributed it, Absolute provides IT and Security organizations with complete connectivity, visibility, and control, whether a device is on or off the corporate network, and empowers them with Self-Healing Endpoint®️ security to ensure mission-critical apps remain healthy and deliver intended value.
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, including plans, strategies, and objectives arising out of the COVID-19 pandemic; the impacts of the COVID-19 pandemic on Absolute’s business, operations, and financial results; projected growth, revenues, margins, Adjusted EBITDA, profitability, expenses, cash from operating activities, capital expenditures, and earnings; existing and new product functionality and suitability; expectations for the size of the IT security industry, including as a result of COVID-19; and Absolute’s strategies and plans for its current share buyback program. 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 the impacts of COVID-19 on its business, operations, and financial results; the impacts of the COVID-19 pandemic on Absolute’s business, operations, and financial results will not impact its current outlook for F2020; 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 will be able to maintain or grow its sales to education customers; 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’s suspension of purchases under its current share buyback program is a prudent measure at this time; Absolute will be in a financial position to 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; Absolute will maintain or enhance its accounting policies and standards and internal controls over financial reporting; and Absolute will be able to recruit and hire a suitably qualified new Chief Financial Officer on the timeline currently intended.
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 Q3-F2020 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.