Absolute Software Reports Third Quarter Fiscal 2010 Results

VANCOUVER, May 3 /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 nine-month periods ended March 31, 2010. All figures are in Canadian dollars unless otherwise stated.

    Key Financial Metrics     Q3       Q3      %       YTD      YTD      %
                            F2010    F2009  change    F2010    F2009  change
    Sales Contracts
     reported(1.a)         $15.0M   $16.9M    -11%   $50.3M   $51.6M     -3%
    Sales Contracts
     in constant
     currency(1.b)         $18.2M   $16.9M     +7%   $55.0M   $51.6M     +6%
    Cash from Operating
     Activities(1.a)        $0.2M    $3.1M    -92%    $6.2M   $15.3M    -60%
    Operating cash
     per share(1.a)
      Basic                 $0.01    $0.07    -86%    $0.13    $0.32    -59%
      Diluted               $0.01    $0.06    -83%    $0.13    $0.31    -58%
    Revenue                $16.6M   $13.7M    +22%   $47.5M   $38.9M    +22%
    Net loss               $(0.0M)  $(1.1M)   +97%   $(4.3M) ($18.7M)   +77%
    Loss per share
     (diluted)             $(0.00)  $(0.02)  +100%   $(0.09)  $(0.39)   +77%
    Subscriptions under
     contract                                          5.5M     4.0M    +36%

    Q3-F2010 Highlights:

    -   Deferred revenue was $99.6 million at March 31, 2010, up 12% from
        $88.8 million at March 31, 2009, and 4% from $95.9 million at June
        30, 2009
    -   Cash, cash equivalents & investments (including long-term) were $65.5
        million at March 31, 2010, compared to $68.9 million at June 30, 2009
        due to the use of $10.3 million in the acquisition of LANrev
    -   Launched Computrace LoJack(R) for Laptops product that incorporates
        Intel(R) Anti-Theft Technology for the consumer market
    -   Completed the first phase of integrating the LANrev asset purchased
        in Q2-F2010, including re-branding it as Absolute Manage
    -   Announced the University of Texas' selection of Absolute Manage for
        deployment on all their Mac(R) computers
    -   Subsequent to quarter-end, purchased the technology assets of
        FailSafe(R) and Phoenix Freeze(TM) from Phoenix Technologies

"The PC refresh cycle has yet to gain real traction in the commercial market and overall spending in that segment remains muted, which resulted in lower than expected performance in the quarter," said John Livingston, Chairman and CEO of Absolute. "However, excluding the impact of exchange rate fluctuations, Q3 sales contracts increased 7% from last year reflecting contribution from our investment in the business. Looking toward fiscal 2011, we are optimistic with the outlook for the business and will drive growth through our strong partnerships, extensive product suite, international sales and marketing footprint, and significant renewal opportunity."

Mr. Livingston continued: "Our fourth quarter has already begun to show some improvements in support of our outlook, and is off to a strong start. Subsequent to quarter-end we completed a $1.0 million Sales Contract for Absolute Manage with a U.S. school district and existing Absolute customer. The customer will use Absolute Manage for full lifecycle management of their 18,200 computers. This sale amount will be included in fourth quarter Sales Contracts."

Financial Review

Sales Contracts for Q3-F2010 were $15.0 million compared to $16.9 million in Q3-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 7% in Q3-F2010 compared to the same period last year. The $15.0 million in Sales Contracts is below our preliminary estimate of $15.5 million to $16.0 million (which was provided in our pre-announcement on April 8, 2010), due to quarterly closing adjustments as a result of our normal quarter end review process.

Existing commercial customers continued to produce a majority of sales, generating 73% of Q3-F2010 Sales Contracts. In addition, our international sales grew 140% in constant currency over Q3 last year, increasing to 8% of Q3-F2010 sales, and reaching 7% of sales year-to-date, as we continue to invest in our worldwide capability. In addition, subsequent to quarter end we concluded a five year contract with a corporate customer in the UK that commits them to purchases of Computrace in the range of $200,000 per year over the next five years, and makes them our largest single customer in the EMEA region. The purchases will be included in Sales Contracts annually.

While sales growth has been slowed by the economy and timing of refresh cycles, we have continued to grow our customer base, and now have 1.0 million commercial subscriptions (up 55% from fiscal 2010) and 1.6 million consumer subscriptions (up 198% from fiscal 2010) coming up for renewal in fiscal 2011. With Absolute Manage giving us the potential to sell more products to existing customers, and with computer refresh cycles expected to accelerate, we believe our current customer base provides a solid foundation for growth in fiscal 2011.

Absolute deploys its services through a software-as-a-service ("SaaS") model. A feature of the SaaS model is its potential to generate operating cash flows. Absolute's cash from Operating Activities for Q3-F2010 totaled $0.2 million compared to $3.1 million in Q3-F2009. The reduction reflects management's investment strategy and the weakened U.S. dollar.

Revenue for Q3-F2010 was $16.6 million, an increase of 22% from $13.7 million in Q3-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 Q3-F2010 Sales Contracts is included in deferred revenue on the balance sheet at March 31, 2010, which was $99.6 million, compared to $95.9 million at June 30, 2009.

Absolute generated operating income of $482,000 in Q3-F2010, compared to an operating loss of $1.5 million in Q3-F2009. Excluding stock-based compensation and investment tax credits, the adjusted operating income for Q3-F2010 was $727,000, compared to an operating loss of $1.1 million in Q3 last year. The reduced operating losses relate in part to a $1.4 million warranty adjustment benefit to COS in Q3-F2010, with the remainder of the reduction reflecting increases in revenue from prior period Sales Contract performance and improving gross margins.

GAAP net loss was $32,000 in Q3-F2010 ($0.00 per share), compared to a GAAP net loss of $1.1 million ($0.02 per share) last year. Excluding stock-based compensation, the net income for Q3-F2010 was $463,000, compared to a net loss of $629,000 in Q3 last year. The current quarter improvement was impacted by the factors outlined above, including the benefit of a $1.1 million warranty adjustment, as well as a reduction in other income, primarily from foreign exchange losses and reductions in interest income.

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 March 31, 2010, Absolute's cash, cash equivalents, short-term investments and investments were $65.5 million, compared to $65.0 million at December 31, 2009 and $68.9 million at June 30, 2009. The reduction in cash position from June 30, 2009 is due to the use of $10.3 million in the December 2009 purchase of LANrev.


On April 8, 2010, Absolute revised its guidance for fiscal 2010 as follows:

    -   Sales contracts of $68-72 million (was $76-82 million)
    -   Cash from Operating Activities of $5-7 million (was $8-11 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, May 3, 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, May 10, 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.

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 continued successful integration of recently-acquired products and technologies, an increase in computer refresh/replacement cycles, the attainment of certain subscription targets and company performance, the increased adoption, or attach rates, of the Company's lifecycle management, computer tracking and computer theft recovery solutions, the ability of the Company to achieve its $68-72 million Sales Contracts and $5-7 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.

    Consolidated Balance Sheets
    (Expressed in Canadian dollars) (Unaudited)
                                                             As At
                                                     March 31,       June 30,
                                                         2010           2009
                                                -------------- --------------

      Cash and cash equivalents                  $ 32,305,510   $ 56,078,004
      Short-term investments                        8,778,040      8,743,861
      Accounts receivable, net of
       allowance for doubtful accounts
       of $2,083,000 (2009 - $2,387,000)           10,931,483     15,570,780
      Prepaid expenses and other                    1,245,729        974,564
      Current portion of deferred
       contract costs                               3,980,621      3,609,944
      Current portion of future
       income tax assets                           10,681,537     10,646,521
                                                   67,922,920     95,623,674
    INVESTMENTS                                    24,392,617      4,076,211
    DEFERRED CONTRACT COSTS                         3,623,958      3,765,717
    PROPERTY AND EQUIPMENT                          2,773,598      2,644,275
    FUTURE INCOME TAX ASSETS                       11,657,201     11,081,073
    INTANGIBLE ASSETS                              16,131,676        127,775
                                                 $126,501,970   $117,318,725


      Accounts payable and accrued liabilities   $  6,891,303   $  6,775,466
      Income tax payable                            3,525,000      1,575,000
      Current portion of acquisition payable        1,708,113              -
      Current portion of accrued warranty           5,226,901      5,288,520
      Current portion of deferred revenue, net     51,389,272     46,577,880
                                                   68,740,589     60,216,866

    ACQUISITION PAYABLE                             3,416,227              -
    ACCRUED WARRANTY                                4,992,403      5,963,650
    DEFERRED REVENUE, NET                          48,217,489     49,278,726
                                                  125,366,708    115,459,242


    Share capital                                  44,460,421     41,988,977
    Contributed surplus                            28,056,679     26,822,975
    Deficit                                       (71,381,838)   (66,952,469)
                                                    1,135,262      1,859,483
                                                 $126,501,970   $117,318,725

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

                                Three Months                Nine Months
                              2010          2009          2010          2009
                      ------------- ------------- ------------- -------------

    REVENUE             16,591,201    13,651,444    47,475,908    38,887,933

    COST OF REVENUE      3,523,676     3,530,115    11,080,155    10,454,544

    GROSS MARGIN        13,067,525    10,121,329    36,395,753    28,433,389
      Sales and
       marketing         8,005,609     7,639,246    25,327,575    21,559,911
      Research and
       development       2,099,020     1,801,853     5,756,038     5,245,509
      General and
       administration    2,235,811     1,785,137     6,098,036     5,494,231
      Investment tax
       credits            (250,000)     (100,000)     (750,000)     (775,000)
       compensation        494,747       479,825     1,663,425    15,150,525
                        12,585,187    11,606,061    38,095,074    46,675,176
     (LOSS)                482,338    (1,484,732)   (1,699,321)  (18,241,787)

      Interest and bank
       charges, net        172,087       268,302       524,947     1,232,878
      Foreign exchange
       (loss) gain        (484,407)      330,708    (2,370,864)    2,296,390
      Loss on foreign
       contracts                 -      (286,380)            -    (1,512,500)
       charges                   -             -             -      (989,132)
      Unrealized (loss)
       gain on
       investment          (11,935)      163,450      (159,263)     (754,454)
                          (324,255)      476,080    (2,005,180)      273,182
     INCOME TAXES          158,083    (1,008,652)   (3,704,501)  (17,968,605)
    INCOME TAX EXPENSE    (190,000)     (100,000)     (640,000)     (775,000)
     FOR THE PERIOD        (31,917)   (1,108,652)   (4,344,501)  (18,743,605)
     OF PERIOD         (71,349,921)  (75,992,095)  (66,952,469)  (56,752,618)
       REPURCHASE                -    (6,336,632)      (84,868)   (7,941,156)
     PERIOD           $(71,381,838) $(83,437,379) $(71,381,838) $(83,437,379)

     LOSS PER SHARE   $      (0.00) $      (0.02) $      (0.09) $      (0.39)
     DILUTED            46,467,203    46,671,444    46,203,446    47,582,009

    Consolidated Statements of Cash Flows
    Three and nine months ended March 31, 2010 and 2009
    (Expressed in Canadian dollars) (Unaudited)

                                Three Months                Nine Months
                              2010          2009          2010          2009
                      ------------- ------------- ------------- -------------
      Net loss for
       the period     $    (31,917) $ (1,108,652) $ (4,344,501) $(18,743,605)
      Items not
         of property
         and equipment     355,465       297,161       992,630       792,310
         of intangible
         assets            892,823        31,944     1,243,670        95,832
         compensation      494,747       479,825     1,663,425    15,150,525
        Future income
         taxes             (40,000)     (800,000)   (2,060,000)   (2,100,000)
        Unrealized loss
         (gain) on
         investment         11,935      (163,450)      159,263       754,454
        Realized loss
         on foreign
         contract                -       471,000             -       887,500
      Change in non-cash
       operating working
         receivable        489,207    (1,065,314)    4,639,297     4,971,250
        Prepaid expenses
         and other         163,803       (11,219)     (271,165)       97,339
        Deferred contract
         costs               6,496      (405,006)     (228,918)     (664,370)
        Accounts payable
         and accrued
         liabilities       299,149       561,364        89,036       400,816
        Income tax
         payable           (20,000)      800,000     1,950,000     2,100,000
         warranty       (1,534,029)      399,768    (1,032,866)    2,214,387
         revenue          (846,636)    3,608,586     3,369,839     9,316,183
     ACTIVITIES            241,043     3,096,007     6,169,710    15,272,621
      Property and
       purchased          (353,239)     (286,013)   (1,104,956)   (1,241,572)
      Acquisition of
       LANrev              (30,000)            -   (10,284,256)            -
      Other asset                -       725,374             -             -
      Realized loss on
       foreign exchange
       contract                  -      (471,000)            -      (887,500)
      Proceeds from
       maturities of
       short term
       investments               -     1,749,000     7,311,464     9,980,571
      Purchases of
       short term
       investments         (84,207)   (6,920,621)   (7,504,905)   (9,131,778)
      Proceeds from
       maturities of
       investments               -     7,414,000             -     8,375,000
      Purchases of
       investments         (54,854)   (1,570,140)  (20,316,406)   (5,473,198)
     ACTIVITIES           (522,300)      640,600   (31,899,059)    1,621,523
      Repurchase of
       common shares
       for cancellation          -    (8,365,219)     (101,250)  (10,637,373)
      Issuance of
       common shares       660,482       439,588     2,058,105     1,506,421
     ACTIVITIES            660,482    (7,925,631)    1,956,855    (9,130,952)
     (OUTFLOW)             379,225    (4,189,024)  (23,772,494)    7,763,192
       PERIOD           31,926,285    58,412,515    56,078,004    46,460,299
      END OF PERIOD   $ 32,305,510  $ 54,223,491  $ 32,305,510  $ 54,223,491

%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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