Company closes transformative year with record F2022 revenue of $197.3 million, with accelerated Enterprise and Government ARR growth of 17%, up from 11% in prior year
Achieves second consecutive year of Rule of 40
VANCOUVER, British Columbia and SAN JOSE, Calif. – August 23, 2022 – Absolute Software Corporation (Nasdaq: ABST) (TSX: ABST) (the “Company”), the only provider of self-healing, intelligent security solutions, today announced its financial results for its fourth quarter and full-year fiscal 2022 ended June 30, 2022. All dollar figures are stated in U.S. dollars, unless otherwise indicated.
“This year was the strongest in recent history – driven by the strong customer demand and our team’s continued focus and execution, we are ending the year with our successful integration of NetMotion almost complete and very well-positioned for success in fiscal 2023,” said Christy Wyatt, President and CEO of Absolute Software. “Security and IT teams are increasingly acknowledging the need for both cyber defense as well as cyber resilience and, as a result, the industry is increasingly aware of the value in our unique intelligent, self-healing security solutions. We intend to continue investing in growth through F2023, while maintaining focus on meeting the Rule of 40 for the year.”
Fourth Quarter (“Q4”) and Full-Year Fiscal 2022 (“F2022”) Financial Highlights
- Revenue was $52.5 million for Q4 F2022 and $197.3 million for F2022, an increase of 65% and 63% respectively, compared to the same period of the previous fiscal year.
- Adjusted Revenue(1) was $54.0 million for Q4 F2022 and $210.4 million for F2022, an increase of 70% and 74% respectively, compared to the same period of the previous fiscal year. Adjusted Revenue(1) for Q4 F2022 and F2022 increased by 13% and 15% respectively, compared to Q4 F2021 and F2021 revenue on an as-if combined basis without factoring in acquisition related adjustments(2).
- Net loss was $5.3 million for Q4 F2022 and $24.5 million for F2022, compared to net loss of $3.0 million for Q4 F2021 and net income of $3.7 million for F2021.
- Adjusted EBITDA(1) for Q4 F2022 was $15.4 million or 29% of Adjusted Revenue(1), compared to $8.0 million or 25% of Adjusted Revenue for Q4 F2021. Adjusted EBITDA(1) for F2022 was $55.8 million or 27% of Adjusted Revenue(1), compared to $31.9 million or 26% of Adjusted Revenue for F2021.
- Total ARR(4) as of June 30, 2022 was $209.5 million, representing an increase of 70% over the prior year reported ARR, and an increase of 16% compared to an as-if combined basis for June 30, 2021(3).
- The Enterprise & Government portions of Total ARR increased by 99% year over year, and by 17% compared to an as-if combined basis for June 30, 2021(3). The Enterprise & Government portion represented 78% of Total ARR as of June 30, 2022.
- The Education sector portion of Total ARR increased by 12% year over year, and by 12% compared to an as-if combined basis for June 30, 2021(3). The Education sector portion represented 22% of Total ARR as of June 30, 2022.
- Net Dollar Retention(4) was 108% for Q4 F2022, an increase from 106% for Q4 F2021.
- Cash from operating activities was $8.7 million for Q4 F2022 and $39.8 million for F2022, a decrease of 24% and 15% respectively from $11.4 million for Q4 F2021 and $46.8 million for F2021. Cash was negatively impacted as a result of one of our largest partners having a one-time migration of their payment system, which caused a delay in payment and pushed it into the following quarter. This payment has been subsequently received. Had it not been for that, our cash balance would have been approximately $72 million.
- A quarterly dividend of CAD$0.08 per outstanding common share was paid in Q4 F2022.
- Adjusted Revenue and Adjusted EBITDA are non-IFRS measures. Refer to the “Use of non-IFRS measures and key metrics” section of the F2022 MD&A for further discussion of these measures and the “Results of Operations” section of this MD&A for reconciliation to the nearest IFRS measure.
- Q4 F2021 and F2021 revenue on an as-if combined basis includes the combined revenue of Absolute and NetMotion for Q4 F2021 and F2021, as if the acquisition of NetMotion occurred on July 1, 2020. Revenue attributable to Absolute Software is reported under IFRS and revenue attributable to NetMotion is reported under US GAAP. The amount does not include US GAAP to IFRS adjustments, which are deemed immaterial.
- June 30, 2021 ARR on an as-if combined basis combines the historical ARR of Absolute and NetMotion at June 30, 2021, as if the acquisition of NetMotion occurred on July 1, 2020.
- Total ARR and Net Dollar Retention are key metrics. Refer to the “Use of non-IFRS measures and key metrics” section of this MD&A for further discussion of these measures.
Selected Quarterly Information
USD millions, except percentages, number of shares, and per share amounts
- Recurring revenue represents revenue derived from cloud services, term-based subscription licenses, maintenance services and recurring managed professional services. Other revenue represents revenue derived from perpetual software licenses, non-recurring professional services and ancillary product lines, including consumer products.
- Adjusted Revenue, Adjusted EBITDA, and Adjusted EBITDA as a percentage of Adjusted Revenue are non-IFRS measures. Refer to the “Use of non-IFRS measures and key metrics” section of the F2022 MD&A for further discussion of these measures.
- Total ARR is a key metric. Refer to the “Use of non-IFRS measures and key metrics” section of the F2022 MD&A for further discussion of this measure.
- Deferred revenue includes current and non-current amounts.
- Total non-current financial liabilities include non-current portion of lease liabilities and long-term debt.
Q4 F2022 Business Highlights
Business and organizational developments:
- In April, we launched operations in Australia and New Zealand, as well as expanded operations across Europe, the Middle East and Africa (EMEA), as a result of continued demand for our intelligent, self-healing security solutions.
- In May, we were named the winner of a Bronze Stevie® Award, part of the 20th Annual American Business Awards®, in the category of Company of the Year - Computer Software.
- In June, we were named the winner of two Global InfoSec Awards by Cyber Defense Magazine (CDM) for ‘Most Comprehensive Endpoint Security’ and ‘Market Leader - Zero Trust at RSAC.’
- In June, Absolute completed a reorganization to consolidate and integrate NetMotion Software, Inc. (“NetMotion”) into Absolute creating a more efficient operating structure going forward.
Product and service highlights:
- In Q4, we reached13.6 million active endpoints across our global customer base – an increase of 18% year over year.
- In Q4, we added 11 mission-critical applications to our Application Persistence™ ecosystem, including BlackBerry CylancePROTECT® and Ivanti Neurons for Unified Endpoint Management (UEM), enabling joint Absolute Resilience™ customers to ensure they remain healthy and undeletable.
- In April, we delivered enhancements to our Secure Access product portfolio, including self-healing Zero Trust Network Access (ZTNA); a resilient deployment architecture; and expanded network and ZTNA policy intelligence.
- In April, we launched Absolute Ransomware Response, enabling customers with the capabilities and services needed to strengthen ransomware preparedness and accelerate endpoint recovery.
Partner and other highlights:
- In Q4, we partnered with Lenovo to launch Lenovo Smart Lock Services, powered by Absolute, and the Lenovo Commercial Vantage Program.
- In April, we named Orca Tech as Australia and New Zealand distributor, as well as appointed new sales leadership, to accelerate growth and awareness in the region.
- In June, we announced Ericom, Utopic, and WinMagic® as new partners leveraging Absolute Application Persistence-as-a-Service (APaaS) to strengthen resiliency of their endpoint applications.
- In June, we published ‘The Value of Zero Trust in a Work-from-Anywhere World’ report, revealing the increased risk exposure organizations face amid the shift to distributed and hybrid work.
F2022 Business Highlights
Business and organizational developments:
- In July 2021, we completed the acquisition of NetMotion.
- In F2022, we made key executive appointments, including Ron Fior as Interim Chief Financial Officer (CFO), Peter Chess as General Counsel and John Herrema as Executive Vice President of Product and Strategy. In addition, Andre Mintz joined our Board of Directors.
- In F2022, we were featured as a Representative Vendor in the Gartner "Market Guide for Zero Trust Network Access” (ZTNA) report.
- In F2022, we were recognized as a winner or finalist in 13 award programs - including BC Tech’s ‘Technology Impact Awards,’ G2’s 2022 Best Software Awards, the CRN® 2022 Partner Program Guide, and the Gartner Peer Insights Customer Choice Awards - and were named a Leader in the G2 Summer 2022 Grid® Report for Endpoint Management for the 10th consecutive quarter.
Product and service highlights:
- In F2022, we grew the total number of mission-critical applications in our Application Resilience library to more than 60.
- In F2022, we launched Application Persistence-as-a-Service (APaaS) – empowering ISVs and system manufacturers to leverage Absolute’s firmware-embedded, self-healing device connection to strengthen the resiliency of their mission-critical applications. We also announced APaaS partnerships with leading ISVs including Plurilock, Smart Eye Technology, Ericom, WinMagic, and Utopic Software.
- In F2022, we continued to deliver a steady cadence of product innovations, including:
- The first combined product milestone following our acquisition of NetMotion, with the launch of the industry’s first self-healing Zero Trust platform.
- Absolute Insights™ for Endpoints and Networks, enabling customers to analyze critical performance metrics spanning endpoints, users, applications, and network connections.
- Enhancements to our Secure Endpoint product portfolio, including the Absolute DataExplorer™ tool and enhanced geolocation capabilities.
- Critical certifications for our Secure Access product line, including Common Criteria Evaluation Assurance Level (EAL) 4+ - the highest certification level recognized under the Common Criteria program for software products - and the completion of a System and Organizational Controls (SOC 2) Type I audit.
- A new K-12 offering, Absolute Resilience for Student Devices, enabling education IT teams with critical capabilities to better manage and secure 1:1 device programs.
Partner and other highlights:
- In F2022, Absolute continued to be included as a key component in the global security portfolios of Dell, Lenovo, and HP.
- Named as a strategic security partner by Lenovo in the launch of their global ‘Everything-as-a-Service’ strategy and Lenovo Smart Lock Services.
- Partnered with HP to launch a successful retail bundle on QVC in North America and turn on factory activation for consumer devices in EMEA.
- In F2022, we continued to scale our business in international markets, appointing the Nuvias Group as distributor in the DACH region, expanding on the previous distribution agreements in the UK and Benelux.
- In F2022, AT&T named our Secure Access platform as a key solution helping to power FirstNet®, the only nationwide network built for America’s first responders.
F2023 Financial Outlook
The Company’s financial outlook for its 2023 fiscal year (July 1, 2022 – June 30, 2023) is as follows(1):
- Full-year F2023 adjusted revenue(2) is expected to be in the range of $241.5 million to $246.5 million; this equates to a full-year F2023 adjusted revenue growth of approximately 14.8% to 17.1% (3).
- Full-year F2023 Adjusted EBITDA(2) margin, calculated on adjusted revenue, is expected to be in the range of 21.0% to 24.0%.
- The Company does not provide a reconciliation of forward-looking non-IFRS financial measures to the most directly comparable IFRS financial measure because it is unable to predict certain items contained in the IFRS measures without unreasonable efforts.
- Adjusted revenue and adjusted EBITDA are non-IFRS measures. Please refer to “Use of non-IFRS measures and key metrics” section in this earnings release or our most recent MD&A for further discussion of these measures.
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. The purpose of this financial outlook is to provide readers with disclosure regarding management’s current reasonable expectations and plans for F2023. Readers are cautioned that this financial outlook may not be appropriate for other purposes.
On July 20, 2022, we declared a quarterly dividend of CAD$0.08 per share on our common shares, payable in cash on August 26, 2022 to shareholders of record at the close of business on August 11, 2022.
Quarterly Filings and Related Quarterly Financial Information
Management’s Discussion and Analysis (“MD&A”) and Consolidated Financial Statements and the notes thereto for the fiscal period ended June 30, 2022 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. Additionally, the Company today will publish on the Investor Relations section of its website (www.absolute.com/company/investors/) a Q4 F2022 Earnings Presentation and a dashboard of Selected Operating and Financial Metrics.
Absolute Software will host a conference call on Tuesday, August 23, 2022 at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) to discuss its results and business outlook. The call will be accessible by dialing 1-844-763-8274 or 1-412-717-9224; participants should ask to join the Absolute Software call. A live audio webcast of the conference call will also be available via the Absolute Investor Relations website.
The conference call will be archived for replay until Tuesday, August 30, 2022. To access the archived conference call, please dial 855-669-9658 or 1-877-344-7529 and enter the reservation code 4165976. To access the replay using an international dial-in number, please use this link. An archived replay of the audio webcast will be available for one year.
Use of non-IFRS measures and key metrics
Throughout this press release we refer to a number of measures and metrics which we believe are meaningful in the assessment of the Company’s performance. Many of these measures and metrics do not have any standardized meaning under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board 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.
The purpose of these non-IFRS measures and key metrics is to provide supplemental information that may prove useful to readers who wish to consider the impact of certain non-cash or non-recurring items on the Company’s operating performance, and assist in comparison of our operating results over historical periods. Supplementing IFRS disclosures with non-IFRS measures outlined below provides management with an additional view of operational performance by excluding expenses that are not directly related to performance in any particular period. Management uses both IFRS and non-IFRS measures when planning, monitoring and evaluating the Company’s performance.
These measures and metrics are as follows:
a) Total ARR, Net Dollar Retention, and New Logo ARR
As the majority of our customer contracts are sold under prepaid multi-year term licenses, there is typically a significant lag between the timing of the invoice and the associated revenue recognition. As a result, we focus on the annualized recurring value of all active contracts, measured by Annual Recurring Revenue (“ARR”), as an indicator of our future recurring revenues. ARR includes multi-year and short-term subscriptions for cloud-based services, as well as managed professional services and professional services with terms greater than one year. Both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplying by twelve. We believe that increases in the amount of New Logo ARR, and improvement in our Net Dollar Retention, will accelerate the growth of Total ARR and, in turn, our future revenues. We provide these metrics as they are used to manage the business, however we believe there is no similar measure under IFRS to which they would be reconciled.
Total ARR is a key metric and measures the aggregate annualized recurring revenues of all active contracts at the end of a reporting period, and therefore is an indicator of our future revenue streams. Total ARR will change over a period through the retention, attrition and expansion of existing customers and the acquisition of new customers.
Net Dollar Retention (previously “Net ARR Retention”) is a key metric and measures the percentage increase or decrease in Total ARR at the end of a year for customers that comprised Total ARR at the beginning of the year. This metric provides insight into the effectiveness of our activities to retain and expand the ARR of our existing customers.
New Logo ARR (previously “ARR from New Customers”) is a key metric and measures the addition to Total ARR from sales to new customers during a period.
a) Adjusted Revenue
Adjusted Revenue is defined as revenue, excluding fair value adjustments relating to acquired deferred revenue. In connection with the acquisition of NetMotion, NetMotion’s deferred revenue was written down to its fair value at the acquisition date. As a result, related revenue in the post acquisition period does not reflect the full amount of revenue that would otherwise be recognized. We believe excluding fair value adjustments relating to deferred revenue provides a useful measure of the Company’s performance as it allows for comparability across future periods, where revenue recognized would reflect the transaction price, without acquisition-related fair value adjustments.
b) Adjusted Gross Margin and Gross Margin %
Adjusted Gross Margin is defined as gross margin, adjusted for depreciation and amortization, share-based compensation expense, fair value adjustments relating to acquired deferred revenue, and non-recurring items. Adjusted Gross Margin % is defined as Adjusted Gross Margin, as a percentage of Adjusted Revenue.
c) Adjusted Operating Expenses
Adjusted Operating Expenses is defined as sales and marketing expense, research and development expense, and general and administrative expense, excluding depreciation and amortization, share-based compensation expense, fair value adjustments relating to acquired deferred commission expense, restructuring or reorganization charges and post-retirement benefits, and non-recurring items.
d) Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)
As of June 30, 2022, we have updated our definition of Adjusted EBITDA to separately identify adjustments for acquisition and integration costs, litigation costs and impairment losses. In prior periods, adjustments for acquisition, integration and litigation costs were included within ‘non-recurring items’. This change was made to provide users with more relevant, disaggregated information for certain costs which we believe to be outside of our core business activities. We believe this change will result in improved period over period comparability. There were no changes to our Adjusted EBITDA for the current period and comparative periods as a result of this change in definition.
Adjusted EBITDA is defined as net income before interest income or expense, income taxes, depreciation and amortization, foreign exchange gains or losses, share-based compensation expense, fair value adjustments relating to acquired deferred revenue, fair value adjustments relating to acquired deferred commission expense, restructuring or reorganization charges and post-retirement benefits, acquisition and integration costs, litigation costs, impairment losses, and non-recurring items.
We believe Adjusted EBITDA provides a useful measure of the Company’s performance, as it helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that are not indicative of the core operating performance of our business.
Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other IFRS financial measures. Some of the limitations of Adjusted EBITDA are that it excludes recurring expenses for interest payments, does not reflect the dilution that results from share-based compensation, and does not reflect the cost to replace amortized property and equipment and right-of-use assets. It may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure.
Reconciliation of non-IFRS measures from IFRS measures are presented below.