Absolute Software Reports Second Quarter Fiscal 2011 Results

Adjusted Operating Income of $1.7 million for the Quarter

VANCOUVER, Jan. 31 /CNW/ - Absolute® Software Corporation ("Absolute" or the "Company") (TSX: ABT), the leading provider of firmware-based, patented, computer theft recovery, data protection and secure computer lifecycle management solutions today announced its financial results for the three- and six-month periods ended December 31, 2010. All dollar amounts are in Canadian dollars unless otherwise stated.

Key Financial Metrics Q2-
Sales Contracts reported(2) $17.9M $16.1M +12% $39.8M $35.3M +13%
Sales Contracts in constant currency(3) $18.7M $16.1M +16% $41.8M $35.3M +18%
Cash from Operating Activities $3.1M $1.8M +77% $6.4M $6.5M (3%)
Operating cash per share(1)            
        Basic $0.07 $0.04 +50% $0.14 $0.14 -
        Diluted $0.07 $0.04 +100% $0.14 $0.14 -
Revenue $17.9M $15.8M +13% $35.2M $30.9M +14%
Net loss $(1.5M) $(2.3M) +35% $(2.9M) $(4.3M) +35%
Loss per share (basic and diluted) $(0.03) $(0.05) +40% $(0.06) $(0.09) +33%
Adjusted Operating Income (Loss)(5) $1.7M $(0.5M) nm $2.0M $(0.7M) nm
Cash, cash equivalents, and investments $53.3M $65.0M (18%)      
Deferred revenue $107.0M $100.5M +6%      

(1)(2)(3)(5) - Please refer to "Non-GAAP Measures"

Q2 F2011 Highlights

  • Sales contracts were $17.9 million ($18.7 million in constant currency) compared to $16.1 million in Q2-F2010, representing an increase of 12% (16% in constant currency) and a record second quarter performance.
  • Commercial sales were $15.4 million ($16.1 million in constant currency), representing an increase of 17% (22% in constant currency) compared $13.2 million in Q2-F2010.
  • Adjusted Operating Income(5) was $1.7 million compared to a loss of $0.5 million in Q2-F2010, reflecting a 13% increase in GAAP revenue and a 1% reduction in Adjusted Operating Expenses(4).
  • Launched Absolute Manage Mobile Device Management (MDM) for Apple® iOS 4 devices (iPhone®, iPad™ and iPod  touch®).
  • Introduced Remote File Retrieval, a data leakage prevention (DLP) feature, for Computrace® .
  • Closed the quarter with a subscription base of 6.0 million, up 20% from 5.0 million computers at December 31, 2009.
  • Re-commenced the Company's Normal Course Issuer Bid, repurchasing 1.7 million shares in the quarter.

"We have achieved strong sales contract growth for the first half of fiscal 2011, which demonstrates the start of a return on the investments we have made in the business over the past few years," said John Livingston, Chairman and CEO of Absolute. "Our market-leading suite of end point security and management solutions is uniquely positioned to enable corporations and public entities to protect and manage the diverse populations of smart phones, tablet computers, netbooks and laptops that have transformed the mobile computing landscape.  With the shift toward mass mobility continuing to accelerate, we believe we are well positioned for continued growth."

Financial Review
Sales Contracts for Q2-F2011 were $17.9 million ($18.7 million in constant currency), an increase of 12% (16% in constant currency) from $16.1 million in Q2-F2010. The increase was primarily driven by strong performance in the Company's commercial businesses, which saw year-over-year constant currency growth of 22% in Q2-F2011. Sales Contracts for the year-to-date ("YTD") period in F2011 were $39.8 million ($41.8 million in constant currency), an increase of 13% (18% in constant currency) compared to $35.3 million in the same period of F2010. For the YTD period, the Company's commercial businesses increased 16% in constant currency from the same period of F2010.

Consumer sales in Q2-F2011 decreased 14% (10% in constant currency) from Q2-F2010, reflecting the company's intention to reduce certain bundled sales with OEM partners. For the YTD period, consumer sales increased 24% (30% in constant currency) from the same period of F2010.  Within the consumer segment, non-bundled sales increased by 73% (81% in constant currency) in Q2-F2011 compared to Q2-F2010 and increased by 42% (50% in constant currency) for the comparative YTD period.  Consumer solutions were 17% of Q2-F2011 sales, compared to 16% in the same period of F2010 and were 14% of Q2-F2011 sales, compared to 18% in Q2-F2010.

Existing commercial customers continued to produce a majority of Absolute's sales, generating 75% of Q2-F2011 Sales Contracts (67% in Q2-F2010). For the YTD period, existing commercial customers generated 73% of Sales Contracts (71% in the same period of F2010).

International sales increased to 13% of Q2-F2011 sales, up from 7% of sales in Q2-F2010 and increased to 9% of sales for the F2011 YTD period, up from 6% in the F2010 YTD period.

Revenue for Q2-F2011 was $17.9 million, an increase of 13% from $15.8 million in Q2-F2010. Revenue is typically a lagging performance indicator as it is a function of deferred revenue as opposed to invoiced sales in the quarter. For the YTD period, revenue was $35.2 million in F2011, an increase of 14% from $30.9 million in the same period of F2010. The majority of the revenue from Q2-F2011 Sales Contracts is included in the deferred revenue on the balance sheet at December 31, 2010, which was $107.0 million, compared to $102.8 million at June 30, 2010.

The Company generated an Adjusted Operating Income(5) of $1.7 million in Q2-F2011 compared to an Adjusted Operating Loss of $0.5 million in the prior year.  The improvement in Adjusted Operating Income reflects the 13% increase in revenue combined with the Company's ongoing focus on cost control.  Adjusted Operating Expenses(4)  of $16.2 million in Q2-F2011 decreased 1%  compared to Q2-F2010.  For the YTD period, the Adjusted Operating Profit was $2.0 million compared to $0.7M in the prior year.  Adjusted Operating Expenses for the F2011 year to date period increased 5% in F2011 compared to the same period in F2010. For the remainder of F2011, the Company expects quarterly Adjusted Operating Expenses to remain in the range experienced in the first half of F2011.

Quarterly Filings
Management's discussion and analysis ("MD&A"), consolidated financial statements and notes thereto for Q2-F2011 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, January 31, 2011 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 7, 2011 at midnight. 

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.newsire.ca. To access the archived conference call, please dial 416-849-0833 or 1-800-642-1687 and enter the reservation code 15630151.

Non-GAAP Measures
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 Canadian Generally Accepted Accounting Principles ("GAAP"), and may not be identical 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 Canadian GAAP.  For a discussion of the purpose of these non-GAAP measures, please refer to the Company's First Quarter MD&A on SEDAR at www.SEDAR.com.

These measures, as well as their method of calculation or reconciliation to GAAP measures, are as follows:

1)     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 MD&A), we use Cash from Operating Activities as a measure of profitability. Accordingly, we believe 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 average number of shares outstanding for the period (basic), or using the treasury stock method (diluted).

2)     Sales Contracts

See the "Subscription Business Model" section of the MD&A for a detailed discussion of why we believe Sales Contracts ("bookings") provide a meaningful performance metric.  Sales Contracts are a component of deferred revenue (see Note 3 of the Notes to the Interim Consolidated Financial Statements), and result from invoiced sales of our products and services.

3)     Sales Contracts in constant currency

Approximately 95% of our Sales Contracts are denominated in U.S. dollars, and we believe this is important to consider when evaluating underlying sales performance. Sales Contracts in "constant currency" refers to the Canadian dollar sales that would have been reported had the average U.S. dollar foreign exchange rate been unchanged from the rate in the comparable period(s) of F2010, and is calculated by applying the appropriate U.S. dollar foreign exchange rate from the comparable period to the current period sales denominated in U.S. dollars.

The average U.S. dollar to Canadian dollar exchange rate on sales was 1.012 in Q2-F2011 compared to 1.056 in Q2-F2010.

4)     Adjusted Operating Expenses

A number of significant non-cash expenses are reported in our Cost of Revenue and Operating Expenses.  Management believes that analyzing these expenses exclusive of these non-cash items provides a useful measure of the cash invested in the operations of its business.  The non-cash items excluded in the determination of Adjusted Operating Expenses are stock-based compensation and amortization of acquired intangible assets. For a description of why these items are adjusted, please refer to the Second Quarter MD&A.

5)     Adjusted Operating Income (Loss)

Management believes that analyzing operating results exclusive of the significant non-cash items noted above provides a useful measure of Company's performance. Adjusted Operating Income (Loss) refers to GAAP operating income excluding charges for stock-based compensation and amortization of acquired intangible assets.

About Absolute Software

Absolute Software Corporation (TSX: ABT) is the leader in tracking, managing and protecting computers and mobile devices. The Company's Computrace, Absolute Manage and LoJack for Laptops solutions provide theft recovery, data protection and computer lifecycle management capabilities to organizations and consumers. The Company's software agent is embedded in the firmware of computers by global leaders, including Acer, ASUS, Dell, Fujitsu, 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, visit www.absolute.com and 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, 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 fact. 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 contained in this press release will be realized.

©2011 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. U.S. patents No. 5,715,174, No. 5,764,892, No. 5,802,280, No. 5,896,497, No. 6,087,937, No. 6,244,758, No. 6,269,392, No. 6,300,863, No. 6,507,914, No. 7818557, No. 7818803. Canadian patents No. 2.211.735, No. 2,284,806 and No. 2,205,370. U.K. patents No. EP793823, No. GB2298302 and No. GB2338101. German patent No. 695 125 34.6-08. Australian patent No. 699045. Japanese patent No. JP4067035. The Toronto Stock Exchange has neither approved nor disapproved of the information contained in this news release.

Consolidated Balance Sheets
(Expressed in Canadian dollars) (Unaudited)

      December 31,
June 30,
  Cash and cash equivalents   $  28,666,871 $  28,078,851
  Short-term investments   816,239 6,420,210
  Accounts receivable, net of allowance for doubtful accounts of $1,924,000 (2010 - $1,935,000)   13,725,784 13,888,239
  Prepaid expenses and other   1,179,598 1,149,428
  Current portion of deferred contract costs   4,396,605 4,038,159
  Current portion of future income tax assets   10,420,679 9,904,709
      59,205,776 63,479,596
INVESTMENTS     23,835,580 23,527,677
DEFERRED CONTRACT COSTS     3,696,403 3,744,051
PROPERTY AND EQUIPMENT     2,474,955 2,754,271
FUTURE INCOME TAX ASSETS     10,846,013 10,308,983
INTANGIBLE ASSETS     17,860,180 20,477,801
      $ 117,918,907 $ 124,292,379
  Accounts payable and accrued liabilities   $   8,758,320 $   8,183,219
  Income tax payable   1,819,000 1,575,000
  Current portion of acquisition payable   1,701,536 1,728,607
  Current portion of accrued warranty   4,549,039 4,702,888
  Current portion of deferred revenue, net   55,195,628 52,411,595
      72,023,523 68,601,309
ACQUISITION PAYABLE     1,712,791 3,457,214
ACCRUED WARRANTY     4,370,646 4,518,461
DEFERRED REVENUE, NET     51,758,722 50,346,988
      129,865,682 126,923,972
Share Capital     44,286,266 44,888,407
Contributed Surplus     29,993,604 28,393,491
Deficit     (86,226,645) (75,913,491)
      (11,946,775) (2,631,593)
      $  117,918,907 $ 124,292,379

Consolidated Statements of Operations and Comprehensive Loss
Three and six months ended December 31, 2010 and 2009
(Expressed in Canadian dollars) (Unaudited)


Three months ended
December 31,
Six months ended
December 31,
      2010 2009 2010 2009
REVENUE     $ 17,883,739 $ 15,837,648 $ 35,232,572 $ 30,884,706
COST OF REVENUE     4,672,198 3,233,121 9,558,777 6,367,242
GROSS MARGIN     13,211,541 12,604,527 25,673,795 24,517,464
  Sales and marketing   8,108,240 9,152,200 17,388,680 17,321,967
  Research and development   2,968,822 2,596,855 6,002,261 4,846,255
  General and administration   2,232,735 1,945,225 3,889,264 3,862,223
  Investment tax credits   (410,000) (250,000) (806,000) (500,000)
  Stock-based compensation   1,060,962 582,217 1,724,499 1,168,678
      13,960,799 14,026,497 28,198,704 26,699,123
OPERATING LOSS     (749,258) (1,421,970) (2,524,909) (2,181,659)
OTHER EXPENSE            
  Interest income, net   153,820 195,152 342,661 352,860
  Foreign exchange loss   (748,506) (487,210) (925,435) (1,886,456)
  Gain (loss) on investments   286,934 (282,898) 287,499 (147,329)
      (307,752) (574,956) (295,275) (1,680,925)
NET LOSS BEFORE INCOME TAXES     (1,057,010) (1,996,926) (2,820,184) (3,862,584)
INCOME TAX (EXPENSE) RECOVERY     (430,000) (280,000) 3,000 (450,000)
NET LOSS AND COMPREHENSIVE LOSS     $ (1,487,010) $ (2,276,926) $ (2,817,184) $ (4,312,584)
BASIC AND DILUTED LOSS PER SHARE              $ (0.03) $ (0.05)   $  (0.06) $  (0.09)

Consolidated Statements of Changes in Shareholders' Deficiency
(Expressed in Canadian dollars) (Unaudited)

  Share Capital      
  Number of Common shares Amount Contributed Surplus Deficit Total
BALANCE, JUNE 30, 2009 45,694,350 $41,988,977 $  26,822,975 $ (66,952,469) $  1,859,483
Shares issued on options exercised 741,552 1,659,071 (259,911) - 1,399,160
Shares issued under Employee Share Purchase Plan 231,188 786,895 - - 786,895
Shares repurchased and cancelled under the Normal Course Issuer Bid (238,000) (202,086) - (807,141) (1,009,227)
Shares issued on warrants exercised 400,000 655,550 (255,550) - 400,000
Stock-based compensation expense recorded on Option and Purchase Plans - - 2,085,977 - 2,085,977
Net loss - - - (8,153,881) (8,153,881)
BALANCE, JUNE 30, 2010 46,829,090 $44,888,407 $  28,393,491 $ (75,913,491) $ (2,631,593)
Shares issued on options exercised 142,300 348,642 (124,386) - 224,256
Shares issued under Employee Share Purchase Plan 94,864 337,716 - - 337,716
Shares issued for acquisition payable 166,666 876,667 - - 876,667
Shares repurchased and cancelled under the Normal Course Issuer Bid (2,549,950) (2,165,166) - (7,495,970) (9,661,136)
Stock-based compensation expense recorded on Option and Purchase Plans - - 1,724,499 - 1,724,499
Net loss - - - (2,817,184) (2,817,184)
BALANCE, DECEMBER 31, 2010 44,682,970 $  44,286,266 $  29,993,604 $ (86,226,645) $ (11,946,775)

Consolidated Statements of Cash Flows
Three and six months ended December31, 2011 and 2010
(Expressed in Canadian dollars) (Unaudited)

      Three months ended
December 31,
Six months ended
December 31,
    Notes 2010 2009 2010 2009
Net loss     $ (1,487,410) $ (2,276,926) $ (2,817,184) $ (4,312,584)
Items not involving cash            
  Amortization of property and equipment   402,581 334,527 792,587 637,165
  Amortization of intangible assets   1,394,576 318,904 2,779,964 350,848
  Stock-based compensation   1,060,962 582,217 1,724,499 1,168,678
  Future income taxes   (550,000) (480,000) (1,053,000) (2,020,000)
  (Gain) loss on investments   (286,934) 282,898 (287,499) 147,329
  Unrealized foreign exchange loss (gain)   (54,405) - (54,405) -
  Non-cash interest expense   31,912 - 31,912 -
Change in non-cash working capital            
  Accounts receivable   1,260,298 368,291 633,725 4,498,054
  Prepaid expenses and other   (108,599) (409,763) (30,170) (434,968)
  Deferred contract costs   41,983 (68,245) (310,798) (235,414)
  Accounts payable and accrued liabilities   951,959 2,138,969 810,735 50,144
  Income tax payable   570,000 510,000 244,000 1,970,000
  Accrued warranty   (129,648) 32,487 (301,664) 501,163
  Deferred revenue   51,209 444,721 4,195,769 4,216,474
CASH FROM OPERATING ACTIVITIES     3,148,884 1,778,080 6,358,471 6,536,889
  Purchase of property and equipment   (246,268) (480,793) (513,274) (751,717)
  Purchase of intangible assets   (162,342) - (162,342) -
  Acquisition payable   (872,333) (10,254,256) (872,333) (10,254,256)
  Proceeds from sales and maturities of short-term investments   1,183,631 5,006 6,368,986 7,311,464
  Purchase of short-term investments   (97,466) (7,420,699) (477,516) (7,420,699)
  Purchase of investments   (54,987) (152,898) (307,903) (20,261,552)
CASH (USED IN) FROM INVESTING ACTIVITIES     (249,765) (18,303,640) 4,035,618 (31,376,760)
  Repurchase of common shares for cancellation   (6,269,015) (101,250) (9,661,136) (101,250)
  Issuance of common shares   68,707 545,401 561,971 1,397,623
CASH (USED IN) FROM FINANCING ACTIVITIES     (6,200,309) 444,151 (9,099,165) 1,296,373
FOREIGN EXCHANGE EFFECT ON CASH     (532,518) (159,725) (706,904) (608,221)
(DECREASE) INCREASE  IN CASH AND CASH EQUIVALENTS     (3,833,708) (16,241,134) 588,020 (24,151,719)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     32,500,579 48,167,419 28,078,851 56,078,004
CASH AND CASH EQUIVALENTS, END OF PERIOD     $  28,666,871 $ 31,926,285 $  28,666,871 $ 31,926,285

SOURCE Absolute Software Corporation

For further information:

Public Relations:
Kate Lee, Affect Strategies
klee@affectstrategies.com or 212.398.9680

Investor Relations:
Dave Mason, CFA, The Equicom Group
dmason@equicomgroup.com or 416.815.0700 x237

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