Market Overview

Absolute Reports Fiscal 2018 Fourth Quarter and Annual Financial Results

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Reports 12% Growth in Enterprise ACV Base(1)
and 13% Q4 Adjusted EBITDA
(2)
Margin

Absolute (TSX:
ABT), the endpoint visibility and control company, today announced
financial results for the three months and fiscal year ended June 30,
2018. All dollar figures are unaudited and stated in U.S. dollars,
unless otherwise indicated.

"Our fourth-quarter performance was highlighted by continued momentum
within our Enterprise sales teams, including particularly strong
performances in the healthcare, financial services and professional
services verticals," said Steve Munford, interim chief executive officer
at Absolute. "Moving into our new fiscal year, we expect to increase our
emphasis on these verticals while leveraging our strong OEM channel
relationships to drive new customer acquisition opportunities.
Incremental investments in these focus areas will be funded within our
existing cost structure, meaning continued operating margin expansion as
our top line continues to grow."

Key Financial Metrics

  • Commercial recurring revenue in Q4-F2018 was $22.9 million,
    representing a year-over-year increase of 5%. F2018 commercial
    recurring revenue was $88.9 million, increasing 4% over F2017.
  • Total revenue in Q4-F2018 was $24.1 million, representing a
    year-over-year increase of 4%. F2018 total revenue was $93.6 million,
    representing an increase of 3% over the prior year.
  • The Commercial Annual Contract Value (ACV) Base(1) at June
    30, 2018, was $91.5 million, an increase of 4% year-over-year and 1%
    sequentially.
  • The Enterprise portion of the ACV Base increased 12% year-over-year
    and was up 2% sequentially. Enterprise customers represented 53% of
    the ACV Base at June 30, 2018, compared with 49% in the prior year.
    The Public Sector portion of the ACV Base decreased 3% year-over-year
    and increased 1% sequentially.
  • Net ACV Retention from existing Absolute customers was 101% during
    Q4-F2018, compared with 99% in Q4-F2017.
  • Incremental ACV from New Customers was $0.8 million in Q4-F2018, and
    was $3.4 million in F2018, compared with $0.8 million and $4.4 million
    in the respective periods of F2017.
  • Adjusted EBITDA in Q4-F2018 was $3.1 million, or 13% of revenue,
    compared with $2.0 million, or 9% of revenue, in Q4-F2017. For F2018,
    Adjusted EBITDA was $9.2 million, or 10% of revenue, compared with
    $7.9 million, or 9% of revenue in the prior year.
  • Cash generated from operating activities in Q4-F2018 was $5.0 million
    compared with $0.7 million in Q4-F2017. For F2018, cash generated from
    operating activities was $12.5 million, compared with $1.0 million in
    the prior year period. The Q4-F2018 and F2018 figures were net of a
    tax refund of $2.3 million and the F2017 figure was net of
    reorganization and income tax payments of $6.0 million.
  • Absolute paid a quarterly dividend of CAD$0.08 per common share during
    Q4-F2018.

Products and Organizational Developments

  • In April 2018, we announced the General Data Protection Regulation
    ("GDPR") Data Risk and Endpoint Readiness Assessments to help global
    organizations identify and secure their sensitive data and devices in
    order prepare for the commencement of GDPR. The assessment delivers a
    measurable estimate of risk and actionable recommendations to improve
    endpoint hygiene as well as insights into where sensitive data is at
    risk of being accessed, stored or shared.
  • In April 2018, the Absolute platform was recognized by three award
    programs. Cyber Defense Magazine's 2018 InfoSec Awards recognized the
    Absolute platform at RSA Conference 2018 as a winner in Endpoint
    Security. The Absolute platform was also named a Bronze winner in the
    14th Annual 2018 Info Security Products Guide's Global Excellence
    Awards in the endpoint security category. Finally, the Absolute
    platform, featuring Reach, was also recognized recently as a finalist
    in endpoint security by the 2018 Cybersecurity Excellence Awards.
       

Summary of Key Financial Metrics

 

               
USD Millions, except per-share data Q4 YTD
  F2018   F2017   Change   F2018   F2017   Change
Revenue    
Commercial recurring(1) $ 22.9 $ 21.9 5 % $ 88.9 $ 85.4 4 %
Other $ 1.2 $ 1.3 (11 %) $ 4.7 $ 5.8 (19 %)
Total $ 24.1 $ 23.2 4 % $ 93.6 $ 91.2 3 %
 
Adjusted EBITDA(2) $ 3.1 $ 2.0 57 % $ 9.2 $ 7.9 16 %
As a percentage of revenue 13 % 9 % 10 % 9 %
 
Net Income (Loss) $ 2.6 $ (2.1 ) 222 % $ 3.1 $ (5.0 ) 163 %
Per share (basic) $ 0.06 $ (0.05 ) $ 0.08 $ (0.13 )
Per share (diluted) $ 0.06 $ (0.05 ) $ 0.08 $ (0.13 )
 
Cash from (used in) operating activities $ 5.0 $ 0.7 611 % $ 12.5 $ 1.0 1119 %
 
Dividends paid $ 2.5 $ 2.3 6 % $ 10.1 $ 9.5 6 %
Per share (CAD) $ 0.08 $ 0.08 - $ 0.32 $ 0.32 -
 
Cash, equivalents and short-term investments $ 34.3 $ 32.9 4 %
Total assets $ 97.0 $ 98.3 (1 %)
Deferred revenue $ 139.2 $ 138.4 1 %
 
Common shares outstanding     40.2       39.7     1 %            
 
1.   Commercial recurring revenue represents revenue derived from term
licenses and recurring managed services, both of which are included
as part of our Commercial ACV Base. Other revenue represents revenue
derived from professional services and ancillary product lines,
including consumer products.
2. "Adjusted EBITDA" is used as a profitability measure. Please refer
to the "Non-IFRS Measures" section of the Company's June 30, 2018
MD&A for further discussion on this measure.
 

F2019 Corporate Outlook

The Company's outlook for F2019 is as follows:

  • Revenue is expected to be between $96.0 million and $99.0 million,
    representing 3% to 6% annual growth;
  • Adjusted EBITDA is expected to be between 13% and 16% of revenue;
  • Cash from operating activities is expected to be between 10% and 14%
    of revenue; and
  • Capital expenditures are expected to be between $3.5 million and $4.0
    million.

Quarterly Dividend

On July 23, 2018, the Company declared a quarterly dividend of CAD$0.08
per share on its common shares, payable in cash on August 23, 2018, to
shareholders of record at the close of business on August 2, 2018.

Quarterly Filings

Management's Discussion and Analysis (MD&A) and Consolidated Financial
Statements and the notes thereto for the fiscal year ended June 30, 2018
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 Q4-F2018
results on Monday, August 13, 2018, at 5:00 p.m. ET. All interested
parties can join the call by dialing 647-427-7450 or 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, August 20,
2018, at midnight ET. To access the archived conference call, please
dial 416-849-0833 or 1-855-859-2056 and enter the reservation code
2580187.

A live audio webcast of the conference call will be available at www.absolute.com
and https://bit.ly/2JswxK1.
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, the Company refers to a number of measures that the Company
believes are meaningful in the assessment of the Company's performance.
All these metrics are nonstandard 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
June 30, 2018 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) Commercial ACV Base, Net ACV Retention and ACV from New Customers
As
the majority of the Company's customer contracts are sold under
multiyear term licenses, there is a significant lag between the timing
of the billing and the associated revenue recognition. As a result, the
Company focuses on the aggregate annualized value of its subscriptions
under contract, measured by Annual Contract Value, as an indicator of
its future revenues.

Commercial ACV Base measures the amount of recurring annual revenue
Absolute will receive from its commercial customers under contract at a
point in time, and therefore is an indicator of the Company's 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 made up the Commercial ACV Base at the beginning of the
same period. This metric provides insight into the effectiveness of
Absolute's customer retention and expansion functions. ACV from New
Customers measures the addition to the Commercial ACV Base from sales to
new commercial customers during the quarter.

We believe that increases in the amount of ACV from New Customers, and
improvement in the Company's Net ACV Retention, will grow our Commercial
ACV Base and, in turn, our future revenues.

2) Adjusted EBITDA
Management believes that analyzing
operating results exclusive of significant noncash 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 and reorganization 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 and
reorganization charges and certain post-retirement benefits.

3) Adjusted Operating Expenses
A number of significant
noncash or nonrecurring expenses are reported in the Company's Cost of
Revenue and Operating Expenses. Management believes that analyzing these
expenses exclusive of these noncash or nonrecurring 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 "Non-IFRS Measures" section of the June 30, 2018,
MD&A.

About Absolute
Absolute provides visibility and resilience
for every endpoint with self-healing endpoint security and
always-connected IT asset management to protect devices, data,
applications and users — on and off the network. Bridging the gap
between security and IT operations, only Absolute gives enterprises
visibility they can act on to protect every endpoint, remediate
vulnerabilities, and ensure compliance in the face of insider and
external threats. Absolute's patented Persistence technology is already
embedded in the firmware of PC and mobile devices and trusted by over
12,000 customers worldwide. For the latest information, visit www.absolute.com
and follow us at @absolutecorp.

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 the Company's
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 the Company'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, readers of the press release should
understand that Absolute cannot assure them 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 of 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.

©2018 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
Consolidated
Statements of Financial Position

(Expressed in United
States dollars) (Unaudited)

 
June 30, 2018   June 30, 2017
 
ASSETS
 
CURRENT
Cash and cash equivalents $ 33,956,988 $ 32,511,093
Short-term investments 372,316 366,789
Trade and other receivables 17,302,871 19,460,872
Income tax receivable 345,228 83,487
Prepaid expenses and other   2,455,977       2,419,881  
54,433,380 54,842,122
PROPERTY AND EQUIPMENT 5,962,829 6,304,152
DEFERRED INCOME TAX ASSETS 23,318,605 22,286,804
INTANGIBLE ASSETS AND GOODWILL   13,316,129       14,894,518  
$ 97,030,943     $ 98,327,596  
 
LIABILITIES
 
CURRENT
Trade and other payables $ 13,676,397 $ 13,079,456
Income tax payable 407,226 -
Accrued warranty 270,000 570,000
Deferred revenue – current   75,325,574       72,361,648  
89,679,197 86,011,104
 
DEFERRED REVENUE   63,861,112       66,040,653  
153,540,309 152,051,757
COMMITMENTS
CONTINGENCIES
 
SHAREHOLDERS' DEFICIENCY
Share capital 68,362,445 64,875,130
Equity reserve 36,972,197 36,254,893
Treasury shares (359,973 ) (499,443 )
Deficit   (161,484,035 )     (154,354,741 )
  (56,509,366 )     (53,724,161 )
$ 97,030,943     $ 98,327,596  
 
 

ABSOLUTE SOFTWARE CORPORATION
Consolidated
Statements of Operations and Comprehensive Income (Loss)

Three
months and year ended June 30, 2018 and 2017

(Expressed
in United States dollars) (Unaudited)

   

Three months ended
June 30,

 

Year ended
June 30,

2018   2017   2018   2017
   
 
REVENUE $ 24,075,168 $ 23,184,480 $ 93,621,832 $ 91,210,550
 
COST OF REVENUE   3,347,432       3,612,129       14,361,888       14,450,858  
 
GROSS MARGIN 20,727,736 19,572,351 79,259,944 76,759,692
 
OPERATING EXPENSES
Sales and marketing 10,213,879 10,862,189 40,912,473 44,381,582
Research and development 4,818,759 4,347,797 20,054,992 17,524,536
General and administration 3,408,748 3,304,667 12,358,472 12,851,255
Share-based compensation   1,409,027       743,888       3,055,632       3,971,161  
  19,850,413       19,258,541       76,381,569       78,728,534  
 
OPERATING INCOME (LOSS) 877,323 313,810 2,878,375 (1,968,842 )
 
OTHER EXPENSE
Interest income, net 86,204 8,200 145,872 81,546
Foreign exchange loss   (122,679 )     (79,296 )     (164,394 )     (119,881 )
  (36,475 )     (71,096 )     (18,522 )     (38,335 )
 
NET INCOME (LOSS) BEFORE INCOME TAXES 840,848 242,714 2,859,853 (2,007,177 )
 
INCOME TAX RECOVERY (EXPENSE)   1,711,000       (2,335,000 )     251,000       (2,944,000 )
 
NET INCOME (LOSS) AND

COMPREHENSIVE INCOME (LOSS)

$ 2,551,848     $ (2,092,286 )   $ 3,110,853     $ (4,951,177 )
 
BASIC INCOME (LOSS) PER SHARE $ 0.06     $ (0.05 )   $ 0.08     $ (0.13 )
DILUTED INCOME (LOSS) PER SHARE $ 0.06     $ (0.05 )   $ 0.08     $ (0.13 )
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC   40,204,331       39,183,227       40,028,465       39,082,732  
 
 

ABSOLUTE SOFTWARE CORPORATION
Condensed
Consolidated Statement of Changes in Shareholders' Deficiency

(Expressed
in United States dollars) (Unaudited)

         
Share Capital

Number
of
Common
shares

  Amount  

Equity
reserve

 

Treasury
shares

  Deficit   Total
 
BALANCE, JUNE 30, 2016 38,881,307 $ 58,607,382 $ 36,732,175 $ - $ (139,049,869 ) $ (43,710,312 )
Shares issued on options exercised 661,838 4,039,782 (1,313,196 ) - - 2,726,586
Shares issued under Employee Share Purchase Plan 84,455 361,477 - - - 361,477
Shares issued under Phantom Share Unit plan 327,145 2,281,206 (2,281,206 ) - - -
Shares issued under Performance and Restricted Share Unit plan 7,104 35,131 (35,131 ) - - -
Shares repurchased and cancelled under the Normal Course Issuer Bid (280,100 ) (449,848 ) - - (876,845 ) (1,326,693 )
Treasury shares repurchased under the Normal Course Issuer Bid - - - (499,443 ) - (499,443 )
Share-based compensation expense - - 3,152,251 - - 3,152,251
Dividends paid - - - - (9,476,850 ) (9,476,850 )
Net loss and total comprehensive loss -       -       -       -       (4,951,177 )     (4,951,177 )
BALANCE, JUNE 30, 2017 39,681,749     $ 64,875,130     $ 36,254,893     $ (499,443 )   $ (154,354,741 )   $ (53,724,161 )
Shares issued on options exercised 334,750 2,219,174 (568,506 ) - - 1,650,668
Shares issued under Employee Share Purchase Plan 99,477 440,714 - - - 440,714
Shares issued under Phantom Share Unit plan 50,812 297,786 (297,786 ) - - -
Shares issued under Performance and Restricted Share Unit plan 107,243 602,822 (751,474 ) 139,470 - (9,182 )
Shares repurchased and cancelled under the Normal Course Issuer Bid (49,800 ) (73,181 ) - - (172,243 ) (245,424 )
Share-based compensation expense - - 2,335,070 - - 2,335,070
Dividends paid - - - - (10,067,904 ) (10,067,904 )
Net income and total comprehensive income -       -       -       -       3,110,853       3,110,853  
BALANCE, JUNE 30, 2018 40,224,231     $ 68,362,445     $ 36,972,197     $ (359,973 )   $ (161,484,035 )   $ (56,509,366 )
 
 

ABSOLUTE SOFTWARE CORPORATION
Condensed
Consolidated Statements of Cash Flows

Three months and
year ended June 30, 2018 and 2017

(Expressed in United
States dollars) (Unaudited)

   
Three months ended

June 30,

  Year ended

June 30,

2018   2017   2018   2017
   
OPERATING ACTIVITIES
Net income (loss) $ 2,551,848 $ (2,092,286 ) $ 3,110,853 $ (4,951,177 )
Items not involving cash
Amortization of property and equipment 823,524 808,239 3,215,924 2,971,483
Amortization of acquired intangible assets - 108,750 51,250 204,676
Amortization of intangible assets – contract costs and brand 2,274,011 2,250,650 9,129,915 9,017,238
Share-based compensation 979,924 743,888 2,335,070 3,971,161
Deferred income taxes (2,521,194 ) 1,368,574 (1,031,801 ) 66,587
Amortization of investment premium - 1,567 - 468,452
Change in non-cash working capital
Trade and other receivables (2,889,564 ) (7,798,007 ) 2,158,001 1,677,479
Income taxes receivable 1,559,235 146,662 (261,741 ) (3,450,524 )
Prepaid expenses and other (33,949 ) (29,194 ) (36,096 ) (40,647 )
Intangible assets – contract costs and brand additions (2,059,926 ) (2,769,286 ) (7,602,776 ) (8,642,571 )
Trade and other payables 1,281,365 1,715,210 589,445 (800,721 )
Income taxes payable 407,226 - 407,226 -
Accrued warranty (70,000 ) 80,000 (300,000 ) 110,000
Deferred revenue   2,696,681       6,167,899       784,385       428,139  
 
CASH FROM OPERATING ACTIVITIES 4,999,181 702,666 12,549,655 1,029,575
INVESTING ACTIVITIES
Purchase of property and equipment (188,599 ) (319,175 ) (2,909,081 ) (4,287,421 )
Purchase of intangible assets - (160,000 ) - (160,000 )
Income taxes paid on disposal of business unit - - - (2,623,890 )
Proceeds from investments - - - 13,218,146
Proceeds from sale of investments   -       -       -       10,405,000  
 
CASH (USED IN) FROM INVESTING ACTIVITIES (188,599 ) (479,175 ) (2,909,081 ) 16,551,835
FINANCING ACTIVITIES
Dividends paid (2,496,900 ) (2,349,244 ) (10,067,904 ) (9,476,850 )
Repurchase of common shares for cancellation - - (245,424 ) (1,326,693 )
Purchase of treasury shares - - - (499,443 )
Issuance of common shares   126,205       370,035       2,151,073       3,127,733  
 
CASH USED IN FINANCING ACTIVITIES (2,370,695 ) (1,979,209 ) (8,162,255 ) (8,175,253 )
 
FOREIGN EXCHANGE EFFECT ON CASH   (15,989 )     61,798       (32,424 )     12,084  
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,423,898 (1,693,920 ) 1,445,895 9,418,241
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   31,533,090       34,205,013       32,511,093       23,092,852  
 
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 33,956,988     $ 32,511,093     $ 33,956,988     $ 32,511,093  

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