Absolute Reports Fiscal 2016 First Quarter Results

Corporate, Technology and Product Initiatives Accelerate

VANCOUVER, Nov. 9, 2015 /CNW/ - Absolute® Software Corporation (TSX: ABT), the industry standard for persistent endpoint security and data risk management solutions, today announced its financial results for the three months ended September 30, 2015. All dollar figures are unaudited and stated in U.S. dollars, unless otherwise indicated.

                         
Key Financial Metrics           Q1
F2016
    Q1
F2015
    %  change
Revenue           $24.0M     $23.2M     3%
Adjusted EBITDA(1)           $4.3M     $4.3M     2%
Net income           $1.0M     $0.3M     232%
Net income per share                        
  (basic and diluted)           $0.02     $0.01     nm
Billings(2)           $21.3M     $26.1M     (18%)
Cash from operating activities           $5.0M     $8.7M     (43%)
Operating cash per share(3)                        
  (basic)           $0.11     $0.20     (43%)
  (diluted)           $0.11     $0.20     (43%)
Dividends paid           $2.4M     $2.4M     (1%)
Cash and investments           $83.7M     $80.3M     4%
Deferred revenue           $133.5M     $139.8M     (4%)

(1), (2), (3) - Please refer to "Non-IFRS Measures and Definitions"

Q1-F2016 Overview:

Revenue, Annual Contract Value and Billings

  • Absolute DDS and Consumer revenue of $21.3 million, representing a year-over-year increase of 4% compared to $20.4 million in Q1-F2015
  • Total revenue (including Absolute Manage and Absolute Service) of $24.0 million, representing a year-over-year increase of 3% compared to $23.2 million in Q1-F2015
  • Net ACV Retention(4) from existing Absolute DDS customers was 99%
  • Additions to the Absolute DDS Commercial ACV Base from new Absolute DDS customers increased approximately 18% to approximately $0.7 million as compared to $0.6 million in Q1-F2015
  • Combined Absolute DDS and Consumer Billings of $19.5 million, representing a year-over-year decrease of 17% compared to $23.5 million in Q1-F2015
  • Total Billings (including Absolute Manage and Absolute Service) of $21.3 million, representing a year-over-year decrease of 18% compared to $26.1 million in Q1-F2015

Operations and Corporate

  • Signed a definitive agreement with HEAT Software for the sale of Absolute Manage and Absolute Service.  The sale was completed in October 2015 for gross proceeds of approximately $11.0 million
  • Launched a substantial issuer bid for CAD $50 million which was successfully completed in October 2015 with the repurchase of 6,250,000 common shares of the company
  • Announced approval of a normal course issuer bid to repurchase up to 4,041,591 common shares of the company until July 26, 2016
  • Paid a $2.4 million dividend (CAD $0.07 per common share) during the quarter
  • Launched Absolute's new corporate brand identity which reinforces Absolute's commitment to data and device security
  • Announced the appointment of Steve Munford, non-executive chairman and former chief executive officer of Sophos, to Absolute's advisory board
  • Announced that Phil Gardner, Absolute's chief technology officer, will transition to an advisory role

Technology and Products

  • Announced zero-day Persistence® support for Microsoft Windows 10
  • Released new security functionality that extends Absolute DDS reporting to include the status of Microsoft® System Center Configuration Manager (SCCM) on each device as well as the integration of Absolute alerts with Security Information and Event Management (SIEM) solutions
  • Announced that Absolute has joined the RSA Ready Technology Partnership program. This collaboration supports the interoperability of endpoint data collected by Absolute within RSA® Security Analytics from RSA, the Security Division of EMC
  • Announced an agreement with Advanced Micro Devices, Inc. (AMD) to incorporate Persistence® technology by Absolute into AMD chip designs
  • Announced the release of a new offering to specifically serve healthcare customers. Absolute DDS for Healthcare includes added support that helps customers determine healthcare compliance and regulatory exposure in the event of a security incident
  • Announced an agreement with Aava Mobile Oy, a leading European mobile device manufacturer, to embed Persistence® technology by Absolute in the firmware of Aava Mobile devices

"Although we encountered sales disruptions associated with the reorganization of our sales force, we continue to execute successfully against our strategic plan to establish Absolute as a global information security leader," said Mr. Geoff Haydon, chief executive officer, Absolute. "In Q1 this included the strengthening of our sales and product development teams as well as commencing the divestiture of non-core technology assets," continued Haydon. "We expect the benefits of these actions will materialize as we move through the year. Subsequent to quarter-end we returned C$50 million of surplus cash to shareholders through our Substantial Issuer Bid and increased our quarterly dividend by 14% to C$0.08."

"Our Persistence technology, embedded in hundreds of millions of endpoint devices, continues to represent a unique and powerful platform for the delivery of information security functionality to our customers. This includes the ability to assess endpoint risk across their entire device populations, and to apply appropriate security measures to protect each endpoint and the data it contains. We look forward to expanding our business across all of the key market segments we've identified for growth."

Q1-F2016 Financial Review

Revenue and Annual Contract Value Performance
Total revenue in Q1-F2016 was $24.0 million, representing a 3% increase over total revenue of $23.2 million in the prior year period. Absolute DDS and Consumer revenue was $21.3 million, compared to $20.4 million in Q1-F2015, representing a 4% year-over-year increase.

Indicative of the Company's prepaid multi-year term license model, revenue primarily represents the amortization of deferred revenue balances from recurring term license sales from both the current and prior periods. As a result, the company views changes in the Commercial Annual Contract Value ("ACV") Base(4) as more representative of near term sales performance.

Net ACV Retention from existing customers was 99%. Incremental ACV from new customer acquisition was $0.7 million compared to $0.6 million in Q1-F2015. 

Billings
Q1-F2016 total Billings of $21.3 million represented a decrease of 18% compared to $26.1 million in Q1-F2015. Combined Absolute DDS and Consumer Billings were $19.5 million, representing a 17% decrease compared to $23.5 million in the prior year period. Billings for commercial customers represented 94% of Q1-F2016 Billings, consistent with 95% in the prior year period. 

North American commercial Billings decreased 18% year-over-year to $17.5 million in Q1-F2016, while commercial Billings outside North America declined 26% year-over-year to $2.5 million. International commercial sales represented 12% of total commercial Billings for the quarter.

The decline in North American Billings was attributable to fewer expiring contract opportunities as compared to the prior year, combined with a lower renewal rate.  As the company's weighted average contract term is 36 months, the renewal opportunity in Q1-F2016 corresponded with weak sales performance in Q1-F2013. Additionally, the company believes that the renewals in Q1-F2016 were negatively affected by disruptions related to the reorganization of the North American sales team.

Q1-2016 Billings for the combined education and government verticals decreased 23% compared to the prior year period. Billings for the combined corporate and healthcare verticals decreased 14% compared to the prior year period.

The Company generated 12% of Q1-F2016 Billings from new customers compared to 14% in Q1-F2015. Q1-F2016 Billings included 94% recurring licenses and services (term licenses and annual maintenance contracts), consistent with the prior year.

Adjusted Operating Expenses(5)  
Adjusted Operating Expenses for Q1-F2016 were $19.7 million, up 4% from $18.9 million in Q1-F2015. The increase in Adjusted Operating Expenses reflected higher average headcount and increased consulting costs in the current year period.  These increases were offset, in part, by weakness in the Canadian dollar. Total headcount was 432 at September 30, 2015 compared to 444 at June 30, 2015 and 415 at September 30, 2014.  Adjusted Operating Expenses represented 82% of revenue in Q1-F2016, consistent with the prior year period.

Adjusted EBITDA(1) & Net Income
Absolute generated Adjusted EBITDA of $4.3 million in Q1-F2016, consistent with $4.3 million in Q1-F2015.

Absolute recorded net income of $1.0 million, or $0.02 per share, in Q1-F2016, compared to net income of $0.3 million, or $0.01 per share, in Q1-F2015, primarily reflecting lower income tax expense during the current year period.

Corporate Outlook
The Company expects F2016 revenue for the Absolute DDS and Consumer businesses to increase over F2015 levels. Total revenue for F2016 is expected to decrease from F2015 levels, reflecting the divestiture of the Absolute Manage and Absolute Service product lines in Q2-F2016.  Adjusted EBITDA for F2016 is expected to decrease from F2015 levels, reflecting lower total revenue, modestly higher sales and marketing expenses and increased investments in research and development. 

The Company has adjusted its expectations for cash flow and now expects F2016 cash from operating activities to decrease from F2015 levels due to slightly higher Adjusted Operating Expenses and  Absolute DDS Billings roughly in-line with prior year levels.

Following completion of its Substantial Issuer Bid, as at November 9, 2015 the Company had 38,243,005 common shares outstanding.

Quarterly Dividend
On October 20, 2015, Absolute declared a quarterly dividend of CAD$0.08 per share on the Company's common shares, which represents a 14% increase over the Company's previous CAD$0.07 quarterly dividend. The dividend is payable in cash on November 27, 2015 to shareholders of record at the close of business on November 6, 2015.

Quarterly Filings
Management's discussion and analysis ("MD&A") and consolidated financial statements and the notes thereto for Q1-F2016 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 Q1-F2016 results on Monday, November 9, 2015 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, November 16, 2015 at midnight.  To access the archived conference call, please dial 416-849-0833, or 1-855-859-2056 and enter the reservation code 56586767.

A live audio webcast of the conference call will be available at www.absolute.com and http://bit.ly/1MddlKi.  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, we refer to a number of measures which we believe 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 Q1-F2016 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:

1) 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 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 charges and certain post-retirement benefits. 

2) Billings
See the "Subscription Business Model" section of the Q1-F2016 MD&A for a detailed discussion of why the Company believes Billings (formerly referred to as "Sales Contracts") provide a meaningful performance metric.  Billings are included in deferred revenue (see Note 8 of the Notes to the Interim Condensed Consolidated Financial Statements), and result from invoiced sales of our products and services.

3) Basic and diluted Cash from Operating Activities per share
As a result of the nature of our revenues (please refer to "Subscription Business Model" in the Q1-F2016 MD&A), the Company uses Cash from Operating Activities as a measure of profitability. Accordingly, Absolute believes that Cash from Operating Activities per share is a meaningful indicator of profitability per share. Cash from Operating Activities per share is calculated by dividing Cash from Operating Activities by the weighted average number of shares outstanding for the period (basic), or the fully diluted number of shares using the treasury stock method (diluted).

4) Commercial ACV Base and Net ACV Retention
See the "Subscription Business Model" section of the Q1-F2016 MD&A for a detailed discussion of why we believe Commercial ACV Base and Net ACV Retention provide meaningful performance metrics.  Commercial ACV Base measures the amount of recurring annual revenue we will receive from our commercial customers under contract at a point in time, and therefore is an indicator of our 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 our customer retention and expansion functions.

5) Adjusted Operating Expenses
A number of significant non-cash or non-recurring expenses are reported in our 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 Q1-F2016 MD&A.

About Absolute

Absolute Software Corporation (TSX: ABT) is the industry standard in persistent endpoint security and data risk management solutions for computers, laptops, tablets and smartphones. Persistence® technology from Absolute provides organizations with visibility and control over all of their devices, regardless of user or location. If an Absolute client is removed from an endpoint, it will automatically reinstall so IT can secure each device and the sensitive data it contains. No other technology can do this. Persistence technology is embedded in the firmware of computers, netbooks, tablets and smartphones by global leaders, including Acer, ASUS, Dell, Fujitsu, HP, Lenovo, Microsoft, Panasonic, Samsung, and Toshiba, and the Company has reselling partnerships with these OEMs and others, including Apple. For more information about Absolute, visit www.absolute.com.

Forward-Looking Statements

This press release contains forward-looking statements and financial outlook that involve risks and uncertainties. These forward-looking statements and financial outlook relate to, among other things, the expected performance, functionality and availability of our services and products, and other expectations, intentions and plans contained in this press release that are not historical facts. When used in this press release, the words "plan," "expect," "believe," and similar expressions generally identify forward-looking statements. These statements reflect our current expectations. They are subject to a number of risks and uncertainties, including, but not limited to, changes in technology and general market conditions. In light of the many risks and uncertainties you should understand that we cannot assure you that the forward-looking statements and financial outlook contained in this press release will be realized. Furthermore, the forward-looking statements and financial outlook contained in this press release are made as at the date hereof and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements and financial outlook, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

©2015 Absolute Software Corporation. All rights reserved. Absolute and Persistence are registered trademarks of Absolute Software Corporation. For patent information, visit www.absolute.com/patents. The Toronto Stock Exchange has neither approved nor disapproved of the information contained in this news release.

ABSOLUTE SOFTWARE CORPORATION                  
Condensed Consolidated Statements of Financial Position                  
(Expressed in United States dollars) (Unaudited)                  
    September 30, 2015         June 30, 2015
                   
ASSETS                  
                   
CURRENT                  
  Cash and cash equivalents     $ 42,132,833     $   44,105,550
  Short-term investments       17,666,547         17,795,777
  Trade and other receivables       12,477,032         20,900,965
  Prepaid expenses and other       2,233,634         2,200,861
  Assets held for sale       4,158,701         3,374,672
        78,668,747         88,377,825
INVESTMENTS       23,886,341         23,857,518
PROPERTY AND EQUIPMENT       2,739,082         2,846,511
DEFERRED INCOME TAX ASSETS       21,043,391         20,506,391
INTANGIBLE ASSETS AND GOODWILL       14,074,751         14,302,372
      $ 140,412,312     $   149,890,617
                   
LIABILITIES                  
                   
CURRENT                  
  Trade and other payables     $ 10,296,541     $   15,903,629
  Income taxes payable       1,127,539         2,042,131
  Accrued warranty       410,000         370,000
  Liabilities associated with assets held for sale       8,547,089         9,394,624
  Share repurchase liability       37,959,308         -
  Deferred revenue - current       67,878,389         68,745,515
        126,218,866         96,455,899
DEFERRED REVENUE       65,619,746         66,571,210
        191,838,612         163,027,109
CONTINGENCIES                  
                   
SHAREHOLDERS' DEFICIENCY                  
  Share capital       52,538,228         59,607,392
  Equity reserve       36,096,123         35,322,483
  Deficit       (140,060,651)         (108,066,367)
        (51,426,300)         (13,136,492)
      $ 140,412,312     $   149,890,617
                   

                       
ABSOLUTE SOFTWARE CORPORATION                      
Consolidated Statements of Operations and Comprehensive Income
Three months ended September 30, 2015 and 2014                      
(Expressed in United States dollars) (Unaudited)                      
                       
            2015     2014
                       
REVENUE           $ 23,983,081     $ 23,196,515
                       
COST OF REVENUE             3,450,898       4,663,087
                       
GROSS MARGIN             20,532,183       18,533,428
                       
OPERATING EXPENSES                      
  Sales and marketing             11,792,277       10,409,376
  Research and development             2,998,292       3,159,971
  General and administration             2,811,870       2,474,910
  Share-based compensation             1,044,870       483,184
              18,647,309       16,527,441
                       
OPERATING INCOME             1,884,874       2,005,987
                       
OTHER INCOME (EXPENSE)                      
  Interest income, net             96,803       42,967
  Foreign exchange loss             (77,348)       (273,785)
              19,455       (230,818)
                       
NET INCOME BEFORE INCOME TAXES             1,904,329       1,775,169
                       
INCOME TAX EXPENSE             (890,000)       (1,470,000)
                       
NET INCOME AND TOTAL COMPREHENSIVE INCOME           $ 1,014,329     $ 305,169
                       
BASIC AND DILUTED INCOME PER SHARE           $ 0.02     $ 0.01
                       
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
  OUTSTANDING, BASIC
            44,340,918       43,947,400
                       

                                 
ABSOLUTE SOFTWARE CORPORATION
Consolidated Statement of Changes in Shareholders' Deficiency
(Expressed in United States dollars) (Unaudited)
                                 
        Share Capital                  
        Number of
Common
shares
  Amount   Equity reserve   Deficit   Total
                                 
BALANCE, JUNE 30, 2014       43,796,215   $ 52,403,258   $ 35,141,530   $ (97,520,919)   $ (9,976,131)
Shares issued on options exercised       302,875     1,780,289     (544,627)     -     1,235,662
Shares issued on non-standard
  options exercised
      52,250     385,290     (140,388)     -     244,902
Shares issued under Employee
  Share Purchase Plan
      70,480     379,906     -     -     379,906
Shares repurchased and cancelled
  under the Normal Course Issuer Bid
      (32,400)     (42,195)     -     (161,092)     (203,287)
Shares committed to be repurchased
  under the Normal Course Issuer Bid
      -     (452,419)     -     (1,628,483)     (2,080,902)
Share-based compensation       -     -     483,184     -     483,184
Dividends paid       -     -     -     (2,406,231)     (2,406,231)
Net income and total comprehensive
  income
      -     -     -     305,169     305,169
BALANCE, SEPTEMBER 30, 2014       44,189,420   $ 54,454,129   $ 34,939,699   $ (101,411,556)   $ (12,017,728)
Shares issued on options exercised       919,926     5,209,625     (1,702,532)     -     3,507,093
Shares issued under Employee
  Share Purchase Plan
      69,999     354,189     -     -     354,189
Shares issued under Performance
  Share Unit plan
      50,000     406,443     (406,443)     -     -
Shares repurchased and cancelled
  under the Normal Course Issuer Bid
      (367,001)     (14,745)     -     (93,501)     (108,246)
Shares committed to be repurchased
  under the Normal Course Issuer Bid
      -     (802,249)     -     (3,136,278)     (3,938,527)
Share-based compensation       -     -     2,491,759     -     2,491,759
Dividends paid       -     -     -     (7,735,158)     (7,735,158)
Net income and total comprehensive
  income
      -     -     -     4,310,126     4,310,126
BALANCE, JUNE 30, 2015       44,862,344     $59,607,392   $ 35,322,483   $ (108,066,367)   $ (13,136,492)
Shares issued on employee options
  exercised
      54,425     309,456     (112,079)     -     197,377
Shares issued under Employee
  Share Purchase Plan
      67,411     359,596     -     -     359,596
Shares repurchased and cancelled
  under the Normal Course Issuer Bid
      (678,700)     (53,474)     -     (168,796)     (222,270)
Shares committed to be repurchased
  under the Substantial Issuer Bid
            (7,684,742)           (30,463,035)     (38,147,777)
Share-based compensation       -     -     885,719     -     885,719
Dividends paid       -     -     -     (2,376,782)     (2,376,782)
Net income and total comprehensive
  income
      -     -     -     1,014,329     1,014,329
BALANCE, SEPTEMBER 30, 2015       44,305,480   $ 52,538,228   $ 36,096,123   $ (140,060,651)   $ (51,246,300)
                                 

                       
ABSOLUTE SOFTWARE CORPORATION                      
Consolidated Statements of Cash Flows                      
Three months ended September 30, 2015 and 2014                      
(Expressed in United States dollars) (Unaudited)                      
                       
            2015     2014
OPERATING ACTIVITIES                      
                       
  Net income           $ 1,014,329     $ 305,169
  Items not involving cash                      
    Amortization of property and equipment             526,103       455,109
    Amortization of acquired intangible assets             115,876       1,314,551
    Amortization of intangible assets - contract costs and brand             1,894,791       1,644,928
    Share-based compensation             885,719       483,184
    Deferred income taxes             (537,000)       912,000
    Non-cash interest and amortization of investment premium             100,407       164,513
  Change in non-cash working capital                      
    Trade and other receivables             8,423,933       4,677,898
    Prepaid expenses and other             (32,773)       (410,948)
    Intangible assets - contract costs and brand additions             (2,608,077)       (2,024,665)
    Trade and other payables             (1,263,585)       (1,782,236)
    Income taxes payable             (914,592)       210,000
    Accrued warranty             40,000       (50,000)
    Deferred revenue             (2,666,125)       2,848,852
                       
CASH FROM OPERATING ACTIVITIES             4,979,006       8,748,355
                       
INVESTING ACTIVITIES                      
                       
  Purchase of property and equipment             (447,143)       (895,239)
  Proceeds from maturities of short-term investments             -       2,750,000
                       
CASH (USED IN) FROM INVESTING ACTIVITIES             (447,143)       1,854,761
                       
FINANCING ACTIVITIES                      
  Dividends paid             (2,376,782)       (2,406,231)
  Issuance of common shares             382,371       1,744,684
  Repurchase of common shares for cancellation             (4,349,266)       (203,287)
                       
CASH USED IN FINANCING ACTIVITIES             (6,343,677)       (864,834)
                       
FOREIGN EXCHANGE EFFECT ON CASH             (160,903)       (143,591)
                       
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS             (1,972,717)       9,594,691
                       
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD
            44,105,550       40,928,539
                       
CASH AND CASH EQUIVALENTS, END OF PERIOD           $ 42,132,833     $ 50,523,230
                     
                   

 

SOURCE Absolute Software Corporation

For further information:

Public Relations: Becky Obbema, Interprose, becky.obbema@interprosepr.com or 1 408 778 2024; or Toru Levinson, Absolute, tlevinson@absolute.com or 1 604 730 9851 x208; Investor Relations: Kristen Dickson, NATIONAL Equicom, kdickson@national.ca or 1 416 848 1429


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