Absolute Software Reports Second Quarter Fiscal 2010 Results

VANCOUVER, Feb. 1 /CNW/ - Absolute(R) Software (TSX: ABT), the leading provider of firmware-based, patented computer theft recovery, data protection and secure IT asset management solutions, announces its financial results for the three- and six-month periods ended December 31, 2009. All figures are in Canadian dollars unless otherwise stated.

    
                               Q2       Q2      %      YTD      YTD      %
    Key Financial Metrics    F2010    F2009  change   F2010    F2009  change
    -------------------------------------------------------------------------
    Sales Contracts
     reported(1.a)          $16.1M   $16.5M     -3%  $35.3M   $34.7M      2%
    Sales Contracts in
     constant currency(1.b) $18.5M   $16.5M    +12%  $36.8M   $34.7M      6%
    -------------------------------------------------------------------------
    Cash from Operating
     Activities(1.a)         $1.6M    $3.1M    -48%   $5.9M   $12.2M    -51%
    Operating cash per
     share(1.a)
      Basic                  $0.04    $0.06    -33%   $0.13    $0.25    -48%
      Diluted                $0.03    $0.06    -50%   $0.12    $0.24    -50%
    -------------------------------------------------------------------------
    Revenue                  15.8M   $13.1M    +21%  $30.9M   $25.2M    +22%
    -------------------------------------------------------------------------
    Net loss                $(2.3M) $(15.5M)   +85%  $(4.3M) ($17.6M)   +76%
    Loss per share
     (diluted)              $(0.05)  $(0.32)   +84%  $(0.09)  $(0.37)   +76%

    Q2-F2010 Highlights:

    -   Grew contracted subscription base by 24% to 5.0 million, from
        4.0 million in Q2-F2009
    -   Deferred revenue was $100.5 million at December 31, 2009, compared to
        $99.6 million at September 30, 2009
    -   Cash, cash equivalents & investments (including long-term) were
        $65.0 million at December 31, 2009, compared to $73.9 million at
        September 30, 2009 due to the use of $10.3 million in the acquisition
        of LANrev
    -   Acquired LANrev, a comprehensive asset management product, began
        rebranding it as Absolute Manage, and achieved its first sales
    -   Launched a new Device Freeze feature for Computrace(R)
    -   Expanded availability of Computrace solutions for HP Care Pack
        Services
    -   Introduced Lenovo Lost & Found for ThinkPad laptops
    -   Announced Normal Course Issuer Bid ("NCIB") for up to 3,337,617
        common shares
    -   Subsequent to quarter end, launched Computrace LoJack(R) for Laptops
        product that incorporates Intel(R) Anti-Theft Technology for the
        consumer market
    

"Q2 sales contracts were down 3% in Canadian dollars, but were up 12% in constant currency over last year despite the continued weakness in commercial market spending," said John Livingston, Chairman and CEO. "We believe this performance reflects our stated investment strategy. With a large commercial customer base, new and expanded programs with our partners, an established worldwide presence, and our acquired Absolute Manage product, we are well positioned to accelerate our sales growth. As we head into the second half of fiscal 2010, while we believe favorable market trends are now beginning from renewed PC refresh cycles, Windows(R) 7 purchases, and increased stimulus spending, the timing and impact is uncertain. In addition, the continued devaluation of the U.S. dollar has led us to adjust our guidance targets for the year based on a U.S. dollar exchange rate of $1.05, versus a rate of $1.10 used at the beginning of the year. At this stage, we are more likely to be at the lower end of the adjusted ranges."

Mr. Livingston continued: "One of the key strategic investments we made last quarter was the acquisition of the LANrev product. We are excited by the early signs of success of this offering. In the quarter, we generated overall sales that exceeded our expectations and that included sales into our existing customer base. We also expect to complete phase one of our integration plan in calendar Q1, which consists of rebranding the product as Absolute Manage as well as some product integration."

Financial Review

Sales Contracts for Q2-F2010 were $16.1 million compared to $16.5 million in Q2-F2009. A majority of Absolute's sales are denominated in U.S. dollars and therefore, periodic fluctuations in the U.S./Canadian exchange rate can impact reported Sales Contract levels. In constant currency, Sales Contracts increased 12% in Q2-F2010 compared to the same period last year. The increase from the prior period in constant dollar terms is primarily due to growth in the commercial segment and expansion of the Company's international presence.

Despite weak commercial market spending, commercial sales were up 14% year-over-year in constant currency. This was driven by a 52% (constant currency) increase in education vertical sales in the U.S., a 149% (constant currency) increase in rest-of-world sales and the introduction of Absolute Manage. Commercial sales to existing customers continued to show strength, generating sales of $10.9 million for the quarter, up 11% (constant currency) compared to Q2-F2009. "We are encouraged by our performance to date," said Rob Chase, CFO at Absolute, "as our key sales ratios have begun to turn positive. In particular, our expiring commercial subscription renewal ratio has trended up to 1.7x from a low in Q4-F2009. This is a positive sign for next year's sales growth as we currently have 902,000 subscriptions expiring in fiscal 2011, a 36% increase over fiscal 2010."

Absolute deploys its services through a software-as-a-service ("SaaS") model. A feature of the SaaS model is its ability to generate operating cash flows. Absolute's cash from Operating Activities for Q2-F2010 totaled $1.6 million compared to $3.1 million in Q2-F2009. The reduction reflects management's investment strategy and the weakened U.S. dollar, which has resulted in a foreign exchange loss of $1.9 million. Cash from Operating Activities on a diluted share basis was $0.03 in Q2-F2010, compared to $0.06 in Q2-F2009.

Revenue for Q2-F2010 was $15.8 million, an increase of 21% from $13.1 million in Q2-F2009. Revenue is typically a lagging performance indicator as it is a function of deferred revenue as opposed to sales in the quarter. The majority of the revenue from Q2-F2010 Sales Contracts is included in deferred revenue on the balance sheet at December 31, 2009, which increased to $100.5 million from $99.6 million September 30, 2009, and compared to $95.9 million at June 30, 2009.The GAAP net loss in Q2-F2010 was $2.3 million ($0.05 loss per share) compared to a net loss of $15.5 million ($0.32 loss per share) in Q2-F2009. The reduced loss is primarily due to the cancellation of employee stock options that resulted in a one-time stock-based compensation charge of $12.0 million in Q2-F2009. Excluding the one-time charge, the Q2-F2010 net loss was lower by $1.2 million compared to Q2 last year, primarily due to increased revenue and operating margins.

Absolute is in a strong financial position, with no debt and the financial resources necessary to fund its operating and capital requirements and to execute on its growth strategies. At December 31, 2009, Absolute's cash, cash equivalents, short-term investments and investments were $65.0 million, compared to $73.9 million at September 30, 2009. The reduction in cash position is due to the use of $10.3 million in the purchase of LANrev.

Guidance

In August 2009, Absolute issued its fiscal 2010 financial guidance for the year and stated it was based on a U.S. dollar exchange rate of $1.10. With the continued devaluation of the U.S. dollar, we are adjusting our guidance based on a current exchange rate of $1.05, and at this stage are more likely to be at the lower end of the adjusted range. Adjusted for current exchange rates, our fiscal 2010 guidance becomes:

    
    -   Sales contracts of $76-82 million (was $80 - $86 million)
    -   Cash from Operating Activities of $8-11 million (was $12 -
        $15 million)
    

Management's discussion and analysis (MD&A), consolidated financial statements and notes thereto for the second quarter 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 Software will hold a conference call to discuss the contents of this release on Monday, February 1, 2010 at 2:00 p.m. PT (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, February 8, 2010 at midnight. To access the archived conference call, please dial 416-849-0833 or 1-800-642-1687 and enter the reservation code 49682867 followed by number sign.

A live audio webcast of the conference call will be available at www.absolute.com and www.newswire.ca. 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 365 days at www.newswire.ca.

    
    1.a Absolute refers to "Sales Contracts" (invoiced sales) as a revenue
        measure, "Cash from Operating Activities" as a profitability measure,
        and "Basic and Diluted Operating Cash per Share" (Cash from Operating
        Activities divided by the average shares outstanding for the period;
        diluted calculated using the treasury stock method) as an earnings
        per share measure. With the exception of Cash from Operating
        Activities, these are non-standard measures under Canadian Generally
        Accepted Accounting Principals. Absolute considers these measures to
        be key performance metrics as substantially all Sales Contracts in
        each quarter are deferred on the balance sheet, while the related
        costs are expensed in that same quarter. Refer to the Business Model
        section in our Management Discussion and Analysis for more details.

    1.b Sales Contracts in constant currency refers to the Canadian dollar
        sales that would have been reported had the U.S. dollar exchange rate
        been unchanged from the rate in the prior year. With approximately
        95% of Sales Contracts in U.S. dollars management believes this to be
        a more meaningful evaluation of the underlying performance of the
        business.
    

About Absolute

Absolute Software Corporation (TSX: ABT) is the leader in computer theft recovery, data protection and IT asset management solutions. Absolute Software provides organizations and consumers with solutions in the areas of regulatory compliance, data protection and theft recovery. The company's Computrace software is embedded in the firmware of computers by global leaders, including Acer, ASUS, Dell, Fujitsu, Fujitsu-Siemens, GammaTech, General Dynamics Itronix, HP, Lenovo, Motion, Panasonic and Toshiba, and the Company has reselling partnerships with these OEMs and others, including Apple. For more information about Absolute Software and Computrace, visit www.absolute.com or http://blog.absolute.com/.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to, among other things, a continuing, or increased need for data protection and theft recovery services in difficult economic times, the attainment of certain subscription targets and company performance, the increased adoption of the Company's data protection and theft deterrence products, the ability of the Company to achieve its $76-82 million Sales Contracts and $8-11 million Cash from Operating Activities FY 2010 targets, the ability of the Company to successfully execute on its growth strategies, including attracting new retail partners, the demand for its products continuing to increase, stable currency valuations and a sufficiently stable and healthy global economic and business environment, and other expectations, intentions and plans contained in this press release that are not historical fact. When used in this press release, the words "plan," "expect," "believe," and similar expressions generally identify forward-looking statements. These statements reflect Absolute's 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 Absolute cannot assure you that the forward-looking statements contained in this press release will be realized.

The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control. Such risks and uncertainties include, without limitation, risks associated with increased competition from other producers, the impact of general, economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, changes in federal and provincial tax laws and legislation, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Readers are cautioned that the foregoing list of risks to the Company's performance is not exhaustive and reference is made to the items under "Risk Factors" in the Corporation's Annual Information Form (AIF) for the year ended June 30, 2009. All subsequent forward-looking statements, whether written or oral, attributable to the Corporation or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this MD&A 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, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

(C) 2010 Absolute Software Corporation. All rights reserved. Computrace and Absolute are registered trademarks of Absolute Software Corporation. LoJack is a registered trademark of LoJack Corporation, used under license by Absolute Software Corporation. LoJack Corporation is not responsible for any content herein. All other trademarks are property of their respective owners. Computrace U.S. patents No. 5,715,174, No. 5,764,892, No. 5,802,280, No. 5,896,497, No. 6,244,758, No. 6,269,392, No. 6,300,863, and No. 6,507,914. Canadian patents No. 2,284,806 and No. 2,205,370. U.K. patents No. EP793823 and No. GB2338101. German patent No. 695 125 34.6-08. Australian patent No. 699045. Japan patent No. JP4067035. The Toronto Stock Exchange has neither approved nor disapproved of the information contained in this news release.

    
    ABSOLUTE SOFTWARE CORPORATION
    Consolidated Balance Sheets
    (Expressed in Canadian dollars) (Unaudited)
    -------------------------------------------------------------------------
                                                            As At
                                                 December 31,        June 30,
                                                        2009            2009
                                                -------------   -------------
    ASSETS

    CURRENT
      Cash and cash equivalents                 $ 31,926,285    $ 56,078,004
      Short-term investments                       8,705,768       8,743,861
      Accounts receivable, net of allowance
       for doubtful accounts of $2,164,000
       (2009 - $2,387,000)                        11,420,690      15,570,780
      Prepaid expenses and other                   1,409,532         974,564
      Current portion of deferred contract
       costs                                       3,894,761       3,609,944
      Current portion of future income tax
       assets                                     10,662,417      10,646,521
    -------------------------------------------------------------------------
                                                  68,019,453      95,623,674
    INVESTMENTS                                   24,337,763       4,076,211
    DEFERRED CONTRACT COSTS                        3,716,314       3,765,717
    PROPERTY AND EQUIPMENT                         2,775,823       2,644,275
    FUTURE INCOME TAX ASSETS                      11,636,321      11,081,073
    INTANGIBLE ASSETS                             16,994,499         127,775
    -------------------------------------------------------------------------
                                                $127,480,173    $117,318,725
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES

    CURRENT
      Accounts payable and accrued liabilities  $  6,592,154    $  6,775,466
      Income tax payable                           3,545,000       1,575,000
      Current portion of purchase price payable    1,708,113               -
      Current portion of accrued warranty          5,524,067       5,288,520
      Current portion of deferred revenue, net    50,996,667      46,577,880
    -------------------------------------------------------------------------
                                                  68,366,001      60,216,866
    PURCHASE PRICE PAYABLE                         3,416,227               -
    ACCRUED WARRANTY                               6,229,266       5,963,650
    DEFERRED REVENUE, NET                         49,456,729      49,278,726
    -------------------------------------------------------------------------
                                                 127,468,223     115,459,242
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY

    Share capital                                 43,845,884      41,988,977
    Contributed surplus                           27,515,987      26,822,975
    Deficit                                      (71,349,921)    (66,952,469)
    -------------------------------------------------------------------------
                                                      11,950       1,859,483
    -------------------------------------------------------------------------
                                                $127,480,173    $117,318,725
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    ABSOLUTE SOFTWARE CORPORATION
    Consolidated Statements of Loss and Comprehensive Loss
    Three and six months ended December 31, 2009 and 2008
    (Expressed in Canadian dollars) (Unaudited)
    -------------------------------------------------------------------------

                                 Three Months                 Six Months
                              2009          2008          2009          2008
                      ------------- ------------- ------------- -------------

    REVENUE             15,837,648    13,127,441    30,884,706    25,236,489

    COST OF REVENUE      3,802,066     3,600,744     7,556,479     6,924,429
    -------------------------------------------------------------------------

    GROSS MARGIN        12,035,582     9,526,697    23,328,227    18,312,060
    -------------------------------------------------------------------------

    EXPENSES
      Sales and
       marketing         9,152,200     6,996,446    17,321,967    13,920,664
      Research and
       development       2,027,910     1,740,668     3,657,018     3,443,656
      General and
       administration    1,945,225     1,989,333     3,862,223     3,709,096
      Investment tax
       credits            (250,000)     (675,000)     (500,000)     (675,000)
      Stock-based
       compensation        582,217    13,110,373     1,168,678    14,670,700
    -------------------------------------------------------------------------
                        13,457,552    23,161,820    25,509,886    35,069,116
    -------------------------------------------------------------------------
    OPERATING LOSS      (1,421,970)  (13,635,123)   (2,181,659)  (16,757,056)
    -------------------------------------------------------------------------

    OTHER INCOME (EXPENSE)
      Interest and
       bank charges,
       net                 195,152       512,432       352,860       964,577
      Foreign exchange
       (loss) gain        (487,210)    1,049,534    (1,886,456)    1,965,682
      Gain (loss) on
       foreign exchange
       contracts                 -    (1,226,120)            -    (1,226,120)
      Restructuring
       charges                   -      (989,132)            -      (989,132)
      Unrealized loss
       on investment      (282,898)     (493,815)     (147,329)     (917,904)
    -------------------------------------------------------------------------
                          (574,956)   (1,147,101)   (1,680,925)     (202,897)
    -------------------------------------------------------------------------
    LOSS FOR PERIOD
     BEFORE INCOME
     TAXES              (1,996,926)  (14,782,224)   (3,862,584)  (16,959,953)
    INCOME TAX EXPENSE    (280,000)     (675,000)     (450,000)     (675,000)
    -------------------------------------------------------------------------
    NET LOSS AND
     COMPREHENSIVE LOSS
     FOR THE PERIOD     (2,276,926)  (15,457,224)   (4,312,584)  (17,634,953)
    DEFICIT, BEGINNING
     OF PERIOD         (68,988,127)  (58,930,347)  (66,952,469)  (56,752,618)
    ADJUSTMENT ON
     SHARE REPURCHASE      (84,868)   (1,604,524)      (84,868)   (1,604,524)
    DEFICIT, END OF
     PERIOD           $(71,349,921) $(75,992,095) $(71,349,921) $(75,992,095)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      BASIC AND
       DILUTED LOSS
       PER SHARE      $      (0.05) $      (0.32) $      (0.09) $      (0.37)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    WEIGHTED AVERAGE
     NUMBER OF COMMON
     SHARES
     OUTSTANDING,
     BASIC AND
     DILUTED            46,228,164    48,105,228    46,074,434    48,027,394
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    ABSOLUTE SOFTWARE CORPORATION
    Consolidated Statements of Cash Flows
    Three and six months ended December 31, 2009 and 2008
    (Expressed in Canadian dollars) (Unaudited)
    -------------------------------------------------------------------------

                                 Three Months                 Six Months
                              2009          2008          2009          2008
                      ------------- ------------- ------------- -------------

    OPERATING ACTIVITIES
    Net loss for the
     period           $ (2,276,926) $(15,457,224) $(4,312,584) $(17,634,953)
    Items not
     involving cash
      Amortization of
       property and
       equipment           334,527       265,341       637,165       495,149
      Amortization of
       intangible
       assets              318,904        31,944       350,848        63,888
      Stock-based
       compensation        582,217    13,110,373     1,168,678    14,670,700
      Future income
       taxes              (480,000)   (1,300,000)   (2,020,000)   (1,300,000)
      Unrealized loss
       on investment       282,898       493,815       147,329       917,904
      Realized loss
       on foreign
       exchange
       contract                  -       416,500             -       416,500
    Change in
     non-cash
     operating
     working capital
      Accounts
       receivable          329,984       387,126     4,150,090     6,202,940
      Prepaid expenses
       and other          (409,763)       25,571      (434,968)      108,558
      Deferred
       contract costs      (68,245)      (36,115)     (235,414)     (259,364)
      Accounts payable
       and accrued
       liabilities       2,017,551       (50,138)     (210,113)     (326,924)
      Income tax
       payable             510,000     1,300,000     1,970,000     1,300,000
      Accrued warranty      32,487       954,661       501,163     1,814,619
      Deferred revenue     444,721     2,942,025     4,216,474     5,707,597
    -------------------------------------------------------------------------
    CASH FROM OPERATING
     ACTIVITIES          1,618,355     3,083,879     5,928,668    12,176,614
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
      Property and
       equipment
       purchased          (480,793)     (249,660)     (751,717)     (955,559)
      Acquisition of
       LANrev          (10,254,256)            -   (10,254,256)            -
      Other asset                -      (725,374)            -      (725,374)
      Realized loss
       on foreign
       exchange
       contract                  -      (416,500)            -      (416,500)
      Proceeds from
       maturities of
       short term
       investments           5,006     6,661,000     7,311,464     8,231,571
      Purchases of
       short term
       investments      (7,420,699)   (1,190,081)   (7,420,699)   (2,211,157)
      Proceeds from
       maturities of
       investments               -       961,000             -       961,000
      Purchases of
       investments        (152,898)   (1,780,704)  (20,261,552)   (3,903,058)
    -------------------------------------------------------------------------
    CASH (USED IN)
     FROM INVESTING
     ACTIVITIES        (18,303,640)     3,259,681  (31,376,760)      980,923
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
      Repurchase of
       common shares
       for
       cancellation       (101,250)   (2,272,154)     (101,250)   (2,272,154)
      Issuance of
       common shares       545,401       173,171     1,397,623     1,066,833
    -------------------------------------------------------------------------
    CASH FROM (USED
     IN) FINANCING
     ACTIVITIES            444,151    (2,098,983)    1,296,373    (1,205,321)
    -------------------------------------------------------------------------
    NET CASH
     (OUTFLOW) INFLOW  (16,241,134)    4,244,577   (24,151,719)   11,952,216
    CASH AND CASH
     EQUIVALENTS,
     BEGINNING OF
     PERIOD             48,167,419    54,167,938    56,078,004    46,460,299
    -------------------------------------------------------------------------
    CASH AND CASH
     EQUIVALENTS, END
     OF PERIOD        $ 31,926,285  $ 58,412,515  $ 31,926,285  $ 58,412,515
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

%SEDAR: 00013849E

SOURCE Absolute Software Corporation

For further information: For further information: Rob Chase, Chief Financial Officer (rchase@absolute.com) or Phone: (604) 730-9851; Dave Mason, Investor Relations (dmason@equicomgroup.com) or Phone: (416) 815-0700 x237; Website: http://www.absolute.com

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