Absolute Software Reports Third Quarter Fiscal 2023 Financial Results
- VANCOUVER, British Columbia & SAN JOSE, Calif.--(BUSINESS WIRE)--Absolute Software Corporation (Nasdaq: ABST) (TSX: ABST) (the “Company”), the only provider of self-healing, intelligent security solutions, today announced its financial results for its third quarter fiscal 2023 ended March 31, 2023. All dollar figures are stated in U.S. dollars, unless otherwise indicated. THIRD QUARTER FISCAL 2023 (“Q3 F2023”) OVERVIEW Key Financial Metrics Revenue was $58.8 million for Q3 F2023, an increase of 13% compared to Q3 of fiscal year 2022 (“Q3 F2022”). Adjusted Revenue(1) was $59.2 million for Q3 F2023, an increase of 9% compared to Q3 F2022. Net loss was $4.0 million for Q3 F2023, an improvement of 38% compared to Q3 F2022. Adjusted EBITDA(1) was $15.3 million or 26% of Adjusted Revenue(1) for Q3 F2023, an increase from $13.8 million or 25% of Adjusted Revenue for Q3 F2022. Total ARR(2) on March 31, 2023, was $229.5 million, an increase of 13% compared to Q3 F2022. Enterprise & Government Total ARR increased by 15% year-over-year, representing 79% of Total ARR on March 31, 2023. Education Total ARR increased by 5% year-over-year, representing 21% of Total ARR on March 31, 2023. New Logo ARR(2) was $4.2 million for Q3 F2023, an increase from $3.2 million for Q3 F2022. Net Dollar Retention(2) was 105% for Q3 F2023, a decrease from 107% for Q3 F2022. Cash from operating activities was $14.3 million for Q3 F2023, a decrease of 16% from $17.0 million for Q3 F2022. A quarterly dividend of CAD$0.08 per outstanding common share was paid during Q3 F2023. Notes: (1) Adjusted Revenue and Adjusted EBITDA are non-IFRS measures. Refer to the “Use of non-IFRS measures and key metrics” section of the Q3 F2023 MD&A for further discussion of these measures and the “Results of Operations” section of this MD&A for reconciliation to the nearest IFRS measure. (2) Total ARR, New Logo ARR and Net Dollar Retention are key metrics. Refer to the “Use of non-IFRS measures and key metrics” section of the Q3 F2023 MD&A for further discussion of these measures. FINANCIAL HIGHLIGHTS USD millions, except percentages, number of shares, and per share amounts Q3 F2023 Q3 F2022 Change YTD F2023 YTD F2022 Change Revenue Cloud and subscription services $ 56.2 $ 49.5 14% $ 162.4 $ 137.5 18% Managed professional services 1.1 1.0 10% 3.0 3.0 —% Recurring revenue(1) 57.3 50.5 13% 165.4 140.5 18% Other(1) 1.5 1.5 —% 4.1 4.3 (5%) Total revenue $ 58.8 $ 52.0 13% $ 169.5 $ 144.8 17% Adjusted Revenue(2) $ 59.2 $ 54.5 9% $ 171.0 $ 156.4 9% Total annual recurring revenue (“ARR”)(3) $ 229.5 $ 202.9 13% Net loss $ (4.0) $ (6.5) (38%) $ (20.5) $ (19.1) 7% Per share – basic (0.08) (0.13) (0.39) (0.38) Per share – diluted (0.08) (0.13) (0.39) (0.38) As a percentage of revenue (7%) (13%) (12%) (13%) Adjusted EBITDA(2) $ 15.3 $ 13.8 11% $ 39.6 $ 40.4 (2%) As a percentage of Adjusted Revenue 26% 25% 23% 26% Cash from operating activities $ 14.3 $ 17.0 (16%) $ 30.4 $ 31.1 (2%) Dividends paid $ 3.1 $ 3.2 (3%) $ 9.4 $ 9.5 (1%) Per share (CAD) 0.08 0.08 0.24 0.24 As at March 31, 2023 June 30, 2022 Change Cash, cash equivalents, and short-term investments $ 50.2 $ 64.0 (22%) Total assets 528.1 555.6 (5%) Deferred revenue(4) 208.9 210.5 (1%) Total non-current financial liabilities(5) 262.6 271.4 (3%) Common shares outstanding (millions) 53.1 51.1 4% Notes: (1) Recurring revenue represents revenue derived from cloud services, term-based subscription licenses, maintenance services and recurring managed professional services. Other revenue represents revenue derived from perpetual software licenses, non-recurring professional services and ancillary product lines, including consumer products. (2) Adjusted Revenue, Adjusted EBITDA, and Adjusted EBITDA as a percentage of Adjusted Revenue are non-IFRS measures. Refer to the “Use of non-IFRS measures and key metrics” section of the Q3 F2023 MD&A for further discussion of these measures and the “Results of Operations” section of the Q3 F2023 MD&A for reconciliation to the nearest IFRS measure. (3) Total ARR is a key metric. Refer to the “Use of non-IFRS measures and key metrics” section of the Q3 F2023 MD&A for further discussion of this measure. (4) Deferred revenue includes current and non-current amounts. (5) Total non-current financial liabilities include non-current portion of lease liabilities and long-term debt. Q3 F2023 Business Highlights Announced Federal Risk and Authorization Management Program (FedRAMP) Ready designation for Absolute Secure Endpoint. Continued expanding our Application Resilience™ ecosystem of more than 80 mission-critical applications; new additions included eClinicalWorks, Forescout® SecureConnector, HCL BigFix, IMTLazarus, Pixart® MDM, Plurilock™ CloudCodes™, UNOWHY™, and XM Cyber HaXM. Exited Q3 with more than 14 million active endpoints, a four percent increase year over year. Extended our ASUS OEM relationship to enable them as a global distribution partner. Q3 Industry Awareness Recognized in the Forrester Endpoint Security Landscape Report. Featured in the Forrester TechTide Report for End-User Computing, in the newly established category of “firmware-embedded persistence.” Highlighted in the Forrester Best Practices Report for Securely Offboarding Employees. Named a gold winner in the 2023 Cybersecurity Excellence Awards, with Absolute Ransomware Response named as an industry-leading Endpoint Security product. Named a Leader for the thirteenth consecutive quarter in the G2 Spring 2023 Grid® Report for Endpoint Management and for the third consecutive quarter in the G2 Grid® Report for Zero Trust Networking. Quarterly Dividend On April 19, 2023, we declared a quarterly dividend of CAD$0.08 per share on our common shares, payable in cash on May 24, 2023 to shareholders of record at the close of business on May 11, 2023. Acquisition by Crosspoint Capital Partners, L.P. On May 10, 2023, the Company entered into an Arrangement Agreement with funds affiliated with Crosspoint Capital Partners, L.P. (“Crosspoint”), whereby Crosspoint has agreed to acquire all of the issued and outstanding common shares (the "Common Shares") of the Company (the “Acquisition”). Under the terms of the Arrangement Agreement, Absolute shareholders will receive $11.50 per Common Share in cash on completion of the Acquisition, corresponding to an enterprise value of approximately $870 million, inclusive of the debt. As previously declared, Absolute will be paying a dividend of CAD$0.08 per share on its Common Shares, payable in cash on May 24, 2023 to shareholders of record at the close of business on May 11, 2023. As part of Arrangement Agreement, Absolute will suspend its dividend going forward. The Acquisition, which was approved unanimously by the Board is subject to shareholder approval, court and regulatory approvals and clearance, and other customary closing conditions. Subject to the satisfaction of such conditions, the Acquisition is expected to be completed during the second half of 2023. If the Arrangement Agreement is terminated under certain conditions, either the Company or Crosspoint is required to pay a termination fee; in the case of the Company, the termination fee is $19.0 million, and in the case of Crosspoint, the termination fee is $35.0 million. Quarterly Filings and Related Quarterly Financial Information Management’s Discussion and Analysis (“MD&A”) and Consolidated Financial Statements and the notes thereto for the fiscal period ended March 31, 2023 can be obtained today from Absolute’s corporate website at www.absolute.com. The documents will also be available under Absolute’s SEDAR profile at www.sedar.com and on EDGAR at www.sec.gov. Additionally, the Company today will publish on the Investor Relations section of its website (www.absolute.com/company/investors/) a Q3 F2023 Earnings Presentation and a dashboard of Selected Operating and Financial Metrics. Conference Call The company will not host a conference call to discuss Q3 financial results, previously scheduled for Monday, May 15, 2023 at 5:00 p.m. Eastern Time. About Absolute Software Absolute Software (NASDAQ: ABST) (TSX: ABST) is the only provider of self-healing, intelligent security solutions. Embedded in more than 600 million devices, Absolute is the only platform offering a permanent digital connection that intelligently and dynamically applies visibility, control and self-healing capabilities to endpoints, applications, and network connections - helping customers to strengthen cyber resilience against the escalating threat of ransomware and malicious attacks. Trusted by nearly 21,000 customers, G2 recognized Absolute as a Leader for the thirteenth consecutive quarter in the Spring 2023 Grid® Report for Endpoint Management and for the third consecutive quarter in the G2 Grid Report for Zero Trust Networking. ©2023 Absolute Software Corporation. All rights reserved. ABSOLUTE, the ABSOLUTE logo, and NETMOTION are registered trademarks of Absolute Software Corporation or its subsidiaries. Other names or logos mentioned herein may be the trademarks of Absolute or their respective owners. The absence of the symbols ™ and ® in proximity to each trademark, or at all, herein is not a disclaimer of ownership of the related trademark. Use of non-IFRS measures and key metrics Throughout this press release we refer to a number of measures and metrics which we believe are meaningful in the assessment of the Company’s performance. Many of these measures and metrics do not have any standardized meaning under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board 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. The purpose of these non-IFRS measures and key metrics is to provide supplemental information that may prove useful to readers who wish to consider the impact of certain non-cash or non-recurring items on the Company’s operating performance, and assist in comparison of our operating results over historical periods. Supplementing IFRS disclosures with non-IFRS measures outlined below provides management with an additional view of operational performance by excluding expenses that are not directly related to performance in any particular period. Management uses both IFRS and non-IFRS measures when planning, monitoring and evaluating the Company’s performance. These measures and metrics are as follows: Key Metrics a) Total ARR, Net Dollar Retention, and New Logo ARR As the majority of our customer contracts are sold under prepaid multi-year term licenses, there is typically a significant lag between the timing of the invoice and the associated revenue recognition. As a result, we focus on the annualized recurring value of all active contracts, measured by ARR, as an indicator of our future recurring revenues. ARR includes multi-year and short-term subscriptions for cloud-based services, as well as managed professional services and professional services with terms greater than one year. Both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplying by twelve. We believe that increases in the amount of New Logo ARR, and improvement in our Net Dollar Retention, will accelerate the growth of Total ARR and, in turn, our future revenues. We provide these metrics as they are used to manage the business. We believe there is no similar measure under IFRS to which these measures can be reconciled. Total ARR is a key metric and measures the aggregate annualized recurring revenues of all active contracts at the end of a reporting period. This measure has historically been a good indicator of our future revenue streams. Total ARR will change over a period through the retention, attrition and expansion of existing customers and the acquisition of new customers. Net Dollar Retention is a key metric and measures the percentage increase or decrease in Total ARR at the end of a year for customers that comprised Total ARR at the beginning of the year. We believe this metric provides useful insight into the effectiveness of our activities to retain and expand the ARR of our existing customers. New Logo ARR is a key metric and measures the addition to Total ARR from sales to new customers during a period. We believe this metric provides useful insight into the effectiveness of our efforts to secure revenue from new customers. Non-IFRS Measures a) Adjusted Revenue Adjusted Revenue is a non-IFRS measure that we define as revenue, excluding fair value adjustments relating to acquired deferred revenue. In connection with the acquisition of NetMotion, NetMotion’s deferred revenue was written down to its fair value at the acquisition date. As a result, related revenue in the post-acquisition period does not reflect the full amount of revenue that would otherwise be recognized. We believe excluding fair value adjustments relating to deferred revenue provides a useful measure of the Company’s performance as it allows for comparability across future periods, where revenue recognized would reflect the transaction price, without acquisition-related fair value adjustments. b) Adjusted Gross Margin and Gross Margin % Adjusted Gross Margin is defined as gross margin, adjusted for depreciation and amortization, share-based compensation expense, fair value adjustments relating to acquired deferred revenue, acquisition and integration costs, and non-recurring items. Adjusted Gross Margin % is defined as Adjusted Gross Margin as a percentage of Adjusted Revenue. c) Adjusted Operating Expenses Adjusted Operating Expenses is defined as sales and marketing expense, research and development expense, and general and administrative expense, excluding depreciation and amortization, share-based compensation expense, fair value adjustments relating to acquired deferred commission expense, restructuring or reorganization charges and post-retirement benefits, acquisition and integration costs, litigation costs, impairment losses, and non-recurring items. d) Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) Adjusted EBITDA is a non-IFRS measure that we define as net income before interest income or expense, income taxes, depreciation and amortization, foreign exchange gains or losses, share-based compensation expense, fair value adjustments relating to acquired deferred revenue, fair value adjustments relating to acquired deferred commission expense, restructuring or reorganization charges and post-retirement benefits, acquisition and integration costs, litigation costs, impairment losses, and non-recurring items. Reconciliation of non-IFRS measures from IFRS measures are presented below. Adjusted Revenue (USD millions) Q3 F2023 Q3 F2022 YTD F2023 YTD F2022 Revenue $ 58.8 $ 52.0 $ 169.5 $ 144.8 Adjustments: Fair value adjustments relating to acquired deferred revenue 0.4 2.5 1.5 11.6 Adjusted Revenue $ 59.2 $ 54.5 $ 171.0 $ 156.4 Adjusted Gross Margin (USD millions) Q3 F2023 Q3 F2022 YTD F2023 YTD F2022 Gross margin $ 48.7 $ 42.9 $ 138.4 $ 117.8 Adjustments: Depreciation and amortization(1) 2.7 2.8 8.4 8.4 Share-based compensation 0.7 0.2 2.7 1.5 Fair value adjustments relating to acquired deferred revenue 0.4 2.5 1.5 11.6 Adjusted Gross Margin $ 52.5 $ 48.4 $ 151.0 $ 139.3 Adjusted Gross Margin % 89 % 89 % 88 % 89 % Adjusted Operating Expenses (USD millions) Q3 F2023 Q3 F2022 YTD F2023 YTD F2022 Total Operating Expense $ 46.8 $ 44.5 $ 143.2 $ 126.8 Adjustments: Depreciation and amortization(1) (3.3) (3.3) (10.0) (10.6) Share-based compensation (3.0) (4.3) (15.8) (11.1) Fair value adjustments relating to acquired deferred commission — 0.3 0.1 1.6 Acquisition and integration costs (1.3) (1.7) (3.8) (6.6) Litigation costs (1.9) (0.9) (2.2) (1.3) Restructuring costs (0.1) — (0.1) — Adjusted Operating Expense $ 37.2 $ 34.6 $ 111.4 $ 98.8 (1) Depreciation and amortization includes depreciation of property and equipment, amortization of right-of-use assets, and amortization of acquired intangible assets. Adjusted EBITDA (USD millions) Q3 F2023 Q3 F2022 YTD F2023 YTD F2022 Net loss $ (4.0) $ (6.5) $ (20.5) $ (19.1) Adjustments: Depreciation and amortization(1) 6.1 6.1 18.4 19.0 Share-based compensation 3.7 4.6 18.5 12.6 Interest income (0.2) — (0.5) — Interest expense 7.7 5.1 21.0 15.4 Foreign exchange loss 0.1 0.3 0.1 0.5 Income tax recovery (1.8) (0.6) (4.9) (5.9) Fair value adjustments relating to acquired deferred revenue 0.4 2.5 1.5 11.6 Fair value adjustments relating to acquired deferred commission — (0.3) (0.1) (1.6) Acquisition and integration costs(2) 1.3 1.7 3.8 6.6 Litigation costs 1.9 0.9 2.2 1.3 Restructuring costs 0.1 — 0.1 — Adjusted EBITDA $ 15.3 $ 13.8 $ 39.6 $ 40.4 (1) Depreciation and amortization includes depreciation of property and equipment, amortization of right-of-use assets, and amortization of acquired intangible assets. (2) Costs for Q3 F2023 and YTD F2023 include professional fees and other costs associated with the integration of NetMotion. Costs for Q3 F2022 and YTD F2022 include professional fees and other costs associated with the acquisition and integration of NetMotion. Forward-Looking Statements This press release contains certain forward-looking statements and forward-looking information, as defined under applicable U.S. and Canadian securities laws (collectively, “forward-looking statements”), which relate to future events or Absolute’s future business, operations, and financial performance and condition. Forward-looking statements normally contain words like “will”, “intend”, “anticipate”, “could”, “should”, “may”, “might”, “expect”, “estimate”, “forecast”, “plan”, “potential”, “project”, “assume”, “contemplate”, “believe”, “shall”, “scheduled”, and similar terms and, within this press release, include, without limitation: any statements (express or implied) respecting: Absolute’s future plans, strategies, and objectives, including plans, strategies, and objectives arising out of the COVID-19 pandemic or related to the NetMotion acquisition; projected revenues, expenses, margins, and profitability; future trends, opportunities, challenges, and growth in Absolute’s industry; the impacts of the COVID-19 pandemic on Absolute’s business, operations, prospects, and financial results (including, without limitation, greater/continued remote working and/or distance learning); the increase in volume and range of data breaches and cyber threats; the anticipated operational, financial, and competitive benefits, and synergies of the NetMotion acquisition; Absolute’s ability to grow revenue by selling to new customers and increasing subscriptions with existing customers; Absolute’s ability to renew customers’ subscriptions; Absolute’s ability to maintain and enhance its competitive advantages within its industry and in certain markets; Absolute’s ability to remain compatible with existing and new PC and other device operating systems; the maintenance and development of Absolute’s PC OEM and other channel partner networks; existing and new product functionality and suitability; Absolute’s product and research and development strategies and plans; Absolute’s business development strategies and plans; Absolute’s privacy and data security controls; the seasonality of future revenues and expenses; Absolute’s ability to meet its commitments under and remain in compliance with its the credit agreement with Benefit Street Partners LLC and its affiliates; the future availability of working capital and any required financing; the suspension of our dividend; the addition and retention of key personnel; increases to brand awareness and market penetration; future corporate, asset, or technology acquisitions; strategies respecting intellectual property protection and licensing; active and potential future litigation or product liability; future fluctuations in applicable tax rates, foreign exchange rates, and/or interest rates; the future availability of tax credits; Absolute’s foreign operations; expenses, regulatory obligations, and/or legal exposures as a result of its SEC registration and Nasdaq listing; changes and planned changes to accounting policies and standards and their respective impact on Absolute’s financial reporting; Absolute’s environmental, social, and governance initiatives; macroeconomic uncertainty, including inflationary pressures and risks of economic recession; foreign exchange fluctuations macroeconomic uncertainty, including inflationary pressures and risks of economic recession; foreign exchange fluctuations; the continued effectiveness of Absolute’s accounting policies and internal controls over financial reporting; other aspects of Absolute’s strategies, operations or operating results; the proposed timing and completion of the Acquisition; approval of the Acquisition by two-thirds of the votes by shareholders of the Company at a special meeting of the securityholders of the Company; the satisfaction of the conditions precedent to the Acquisition; timing, receipt and anticipated effects of court and other approvals; the delisting from the TSX and NASDAQ; and the closing of the Acquisition and other statements that are not statements of historical facts. Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and to allow investors and others to get a better understanding of Absolute’s anticipated financial position, results of operations, and operating environment. Readers are cautioned that such information may not be appropriate for other purposes. Forward-looking statements are not guarantees of future performance, actions, or developments and are based on expectations, assumptions and other factors that management currently believes are relevant, reasonable, and appropriate in the circumstances. The material expectations, assumptions, and other factors used in developing the forward-looking statements set out herein include or relate to the following, without limitation: Absolute will be able to successfully execute its plans, strategies, and objectives; Absolute will be able to successfully manage cash flow, operating expenses, interest expenses, capital expenditures, and working capital and credit, liquidity, ARR and market risks; Absolute will be able to leverage its past, current, and planned investments to support growth and increase profitability; Absolute will be able to successfully manage the impacts of COVID-19 on its business, operations, prospects, and financial results; there will continue to be a trend toward mobile computing and remote working and/or distance learning, in the short, medium, and/or long-term, and resulting demand for Absolute’s solutions; Absolute will be able to successfully integrate NetMotion’s operations and realize the expected benefits to Absolute and synergies from the acquisition; Absolute will transition the NetMotion customer agreements to recurring cloud subscriptions; the Absolute-NetMotion combined company’s financial profile will align with Absolute’s forecasts; Absolute will be able to implement its plans, forecasts, and other expectations with respect to the NetMotion acquisition and realize expected synergies; Absolute will be able to grow revenue by selling to new customers and increasing subscriptions with existing customers at or above the rates currently anticipated; Absolute will be able to renew customers’ subscriptions efficiently and cost effectively; Absolute will maintain and enhance its competitive advantages within its industry and certain markets; Absolute will keep pace with or outpace the growth, direction, and technological advancement in its industry; Absolute will be able to adapt its technology to be compatible with changes to existing and new PC and other device operating systems; Absolute will be able to maintain and develop its PC OEM and other channel partner networks; Absolute’s current and future (if any) PC OEM partners will continue to permit embedding of its firmware technology and/or provide distribution and resale support; Absolute’s business development strategies and plans (including, without limitation, enhanced data intelligence, Application Persistence™, and APaaS) will be successful as currently expected; Absolute will be able to maintain or grow its sales to education customers; Absolute’s existing and new products will function as intended and will be suitable for the intended end users; Absolute will be able to design, develop, and release new products, features, and services and enhance its existing products and services; Absolute will obtain prioritization by the United States Federal Risk and Authorization Management Program (“FedRAMP”) certification and achieve greater penetration into government markets; Absolute will be able to protect against the improper disclosure of data it may process, store, and/or manage; Absolute’s revenues will not become subject to increased seasonality; Absolute will meet its commitments under and remain in compliance with its Term Loan Facility; future financing will be available to Absolute on favourable terms, if and when required; fluctuations in applicable tax rates, foreign exchange rates, and interest rates will not have a material impact on Absolute; certain tax credits will remain or become available to Absolute; Absolute will be able to attract and retain key personnel; Absolute will be successful in its brand awareness and other marketing initiatives; Absolute will be able to successfully integrate businesses, intellectual property, products, personnel, and/or technologies that it may acquire (if any other than NetMotion); Absolute will be able to maintain and enhance its intellectual property portfolio; Absolute’s protection of its intellectual property is and will be sufficient and its technology does not and will not materially infringe third-party intellectual property rights; Absolute will be able to obtain any necessary third-party licenses on favourable terms; Absolute will not become involved in material litigation or subject to material adverse judgments, damages awards, or regulatory sanctions; Absolute will be able to successfully manage the additional expenses, regulatory obligations, and legal exposures resulting from its SEC registration and Nasdaq listing; Absolute will not face any material unexpected costs related to product liability or warranties; foreign jurisdictions will not impose unexpected risks; Absolute’s environmental, social, and governance initiatives will deliver positive outcomes; economic and market conditions, as well as macroeconomic uncertainty (including, without limitation, as affected by the COVID-19 pandemic) will not impose unexpected risks or challenges; Absolute will maintain or enhance its accounting policies and standards and internal controls over financial reporting; risks that a condition to closing of the Acquisition may not be satisfied; risks that the requisite securityholder approval, court or other applicable approvals for the Acquisition may not be obtained or be obtained subject to conditions that are not anticipated; the effect of the announcement of the proposed Acquisition on the ability of Absolute to retain and hire key personnel and maintain business relationships with customers, suppliers and others with whom they each do business, or on Absolute’s operating results; the market price of common stock and business generally; potential legal proceedings relating to the proposed Acquisition and the outcome of any such legal proceeding; the inherent risks, costs and uncertainties associated with transitioning the business successfully and risks of not achieving all or any of the anticipated benefits of the Acquisition, or the risk that the anticipated benefits of the Acquisition may not be fully realized or take longer to realize than expected; the occurrence of any event, change or other circumstances that could give rise to the termination of the Arrangement Agreement; the risk that the Acquisition will not be consummated within the expected time period, or at all; competitive changes in the marketplace including, but not limited to, the pace of growth or adoption rates of applicable products or technologies; downturns in the business cycle; and worldwide economic and political disruptions as a result of current events. Although management believes that the forward-looking statements herein are reasonable, actual results could be substantially different due to the risks and uncertainties associated with and inherent to Absolute’s business, including the following risks (as more particularly described and referred to in the “Risk and Uncertainties” section of Absolute’s Q2 F2023 MD&A: that Absolute may not be able to accurately predict its rate of growth and profitability; ARR provides no assurance that actual events will meet the Company’s or management’s expectations; Absolute’s dependence on PC OEMs for embedding its firmware technology; Absolute’s reliance on its PC OEM and other distribution, resale, and other channels; risks related to the COVID-19 pandemic and its impact on Absolute; that Absolute may not be able to successfully integrate NetMotion’s operations; that Absolute may be unable implement its plans, forecasts, and other expectations for the NetMotion acquisition as anticipated, or at all, to realize the expected synergies from the NetMotion acquisition; that the Absolute-NetMotion combined company will not have the projected financial profile and will not experience the expected financial benefits and synergies; that the NetMotion acquisition and integration will disrupt Absolute’s business; that Absolute may be unable to attract new customers or maintain its existing customer base or grow or upgrade the services provided to these customers; that customers may not renew or expand their existing commercial relationship with Absolute; that Absolute may be unable to adapt its technology to be compatible with new operating systems; that Absolute’s business development activities will not advance and deliver the benefits as currently anticipated; that changing buying patterns in the education vertical may adversely impact Absolute’s business; that changing contracting or fiscal policies of government organization may adversely affect Absolute’s business and operations; that changes in macroeconomic conditions may harm our growth strategies and business prospects; that Absolute will not achieve FedRAMP certification, on the timeline currently expected or at all, which may hinder its ability to achieve greater penetration into government markets; risks relating to the evolving nature of the market for Absolute’s products; that Absolute’s software services may contain errors, vulnerabilities, or defects; that Absolute could suffer security breaches impacting the data that Absolute processes and otherwise handles; other risks associated with data security, privacy controls, and hacking; that Absolute’s reputation may be damaged, and its financial results negatively affected, if its internal networks, systems, or data are perceived to have been compromised; that customers may expose Absolute to potential violations of applicable privacy laws; that Absolute’s focus on larger enterprise customers could result in greater costs, less favourable commercial terms, and other adverse impacts to Absolute; risks associated with any failure by Absolute to successfully promote and protect its brands; risks associated with cyclical business impacts on Absolute; Absolute may fail to meet its commitments under or remain in compliance with its Term Loan Facility, which could allow the lenders to accelerate the repayment of the debt or seek other remedies under the Term Loan Facility; future financing that may be required may not be available on favourable terms; risks associated with the competition Absolute faces within its industry; that industry data and projections are inaccurate and unreliable; that Absolute’s research and development efforts may not be successful; risks resulting from interruptions or delays from third-party hosting facilities; that Absolute’s business may suffer if it cannot continue to protect its intellectual property rights; that Absolute may be unable to obtain patent or other proprietary or statutory protection for new or improved technologies or products; risks related to Absolute’s technology incorporating certain “open source” software; that Absolute may be unable to maintain technology licenses from third parties; risks related to fluctuating foreign exchange rates; that the price of Absolute’s common shares may be subject to wide fluctuations; risks related to Absolute’s SEC registration and Nasdaq listing; that Absolute is reliant on its key personnel; that Absolute may be subject to litigation or other dispute resolution from time-to-time; that Absolute may become subject to material adverse judgments, damages awards, or regulatory sanctions; risks related to Absolute’s foreign operations; that Absolute may be unable to successfully manage and/or integrate any future acquisitions; risks related to Absolute’s amortization of revenue over the term of its customer subscriptions including future ARR impact indicating future potential annualized revenue impact; risks related to Absolute’s reliance on its reseller and other partners for billings; income tax related risks; that Absolute may not currently have or maintain adequate insurance coverages for the risks associated with its business; that Absolute may become subject to product liability claims; risks related to Absolute’s reliance on copyrights, trademarks, trade secrets, and confidentiality procedures and similar contractual provisions; risks related to economic and political uncertainty; and Absolute will not be able to maintain or enhance its accounting policies and standards and internal controls over financial reporting.. Additional material risks and uncertainties applicable to the forward-looking statements herein include, without limitation, unforeseen events, developments, or factors causing any of the aforesaid expectations, assumptions, and other factors ultimately being inaccurate or irrelevant. Many of these factors are beyond the control of Absolute. All forward-looking statements included in this press release are expressly qualified in their entirety by these cautionary statements. The forward-looking statements contained in this press release are made as at the date hereof and Absolute undertakes no 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. ABSOLUTE SOFTWARE CORPORATION Condensed Consolidated Statements of Financial Position (Unaudited) (Expressed in thousands of United States dollars, except number of shares) March 31, 2023 June 30, 2022 Assets Current assets: Cash and cash equivalents $ 49,846 $ 63,669 Short-term investments 360 360 Trade and other receivables 43,282 52,722 Income tax receivable 405 1,029 Prepaid expenses and other 8,748 9,086 Contract acquisition assets – current 11,697 9,518 114,338 136,384 Property and equipment 4,352 5,195 Right-of-use assets 7,041 9,456 Deferred income tax assets 51,685 39,428 Contract acquisition assets 5,037 6,213 Intangible assets 104,214 117,537 Goodwill 240,755 240,755 Other assets 650 650 $ 528,072 $ 555,618 Liabilities Current liabilities: Trade and other payables $ 32,955 $ 32,544 Derivative liabilities 401 83 Income tax payable 2,267 2,143 Lease liabilities – current 4,088 4,069 Long-term debt – current 1,538 1,632 Deferred revenue – current 135,193 133,852 176,442 174,323 Lease liabilities 4,341 7,210 Long-term debt 258,229 264,230 Deferred revenue 73,660 76,619 Deferred income tax liability 27,239 30,037 539,911 552,419 Shareholders’ (Deficiency) Equity Share capital 179,708 160,951 Equity reserve 47,637 51,333 Treasury shares (264) (264) Accumulated other comprehensive loss (459) (207) Deficit (238,461) (208,614) (11,839) 3,199 $ 528,072 $ 555,618 ABSOLUTE SOFTWARE CORPORATION Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (Expressed in thousands of United States dollars, except number of shares and per share amounts) Three months ended March 31, Nine months ended March 31, 2023 2022 2023 2022 Revenue $ 58,771 $ 51,985 $ 169,530 $ 144,784 Cost of revenue 10,119 9,098 31,110 27,026 Gross margin 48,652 42,887 138,420 117,758 Operating expenses Sales and marketing 23,114 19,277 68,653 59,838 Research and development 12,949 12,434 40,352 33,949 General and administration 10,817 12,848 34,186 33,124 46,880 44,559 143,191 126,911 Operating income (loss) 1,772 (1,672) (4,771) (9,153) Other (expense) income Interest income 166 2 552 3 Interest expense (7,652) (5,085) (20,979) (15,443) Foreign exchange (loss) gain (88) (326) (122) (478) (7,574) (5,409) (20,549) (15,918) Net loss before income taxes (5,802) (7,081) (25,320) (25,071) Income tax recovery 1,831 624 4,864 5,923 Net loss $ (3,971) $ (6,457) $ (20,456) $ (19,148) Items that may be reclassified subsequently to profit or loss: Unrealized gain (loss) on derivatives, net of tax 290 108 (252) (203) Foreign currency translation — (45) — (63) Total comprehensive loss $ (3,681) $ (6,394) $ (20,708) $ (19,414) Basic net loss per common share $ (0.08) $ (0.13) $ (0.39) $ (0.38) Diluted net loss per common share $ (0.08) $ (0.13) $ (0.39) $ (0.38) Weighted average number of common shares outstanding Basic 52,795,073 50,727,764 52,162,768 50,153,476 Diluted 52,795,073 50,727,764 52,162,768 50,153,476 ABSOLUTE SOFTWARE CORPORATION Condensed Consolidated Statements of Changes in Shareholders’ (Deficiency) Equity (Unaudited) (Expressed in thousands of United States dollars, except number of shares) Share Capital Number of Common shares Amount Equity reserve Treasury shares Accumulated Other Comprehensive Income Deficit Total Balance, June 30, 2021 49,573,829 $ 151,521 $ 46,489 $ (264) $ 188 $ (171,492) $ 26,442 Shares issued on stock option exercise 273,398 1,572 (194) — — — 1,378 Shares issued under Employee Stock Ownership Plan ("ESOP") 94,697 853 — — — — 853 Shares issued under Performance and Restricted Share Unit plan ("PRSU") 1,096,408 6,785 (9,783) — — — (2,998) Share-based compensation — — 13,836 — — — 13,836 Cash dividends — — — — — (9,528) (9,528) Unrealized loss on derivatives, net — — — — (203) — (203) Tax deduction on share issuance costs — (73) — — — — (73) Tax deduction on share based compensation — — (2,441) — — — (2,441) Foreign currency translation — — — — (63) — (63) Net loss — — — — — (19,148) (19,148) Balance, March 31, 2022 51,038,332 $ 160,658 $ 47,907 $ (264) $ (78) $ (200,168) $ 8,055 Balance, June 30, 2022 51,111,769 $ 160,951 $ 51,333 $ (264) $ (207) $ (208,614) $ 3,199 Shares issued under PRSU and Omnibus Equity Incentive Plan 2,008,397 18,973 (22,577) — — — (3,604) Share-based compensation — — 18,626 — — — 18,626 Cash dividends — — — — — (9,391) (9,391) Unrealized loss on derivatives, net — — — — (252) — (252) Tax deduction on share issuance costs — (216) — — — — (216) Tax deduction on share based compensation — — 255 — — — 255 Net loss — — — — — (20,456) (20,456) Balance, March 31, 2023 53,120,166 $ 179,708 $ 47,637 $ (264) $ (459) $ (238,461) $ (11,839) ABSOLUTE SOFTWARE CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited) (Expressed in thousands of United States dollars) Three months ended March 31, Nine months ended March 31, 2023 2022 2023 2022 Cash from (used in): Operating activities: Net loss $ (3,971) $ (6,457) $ (20,456) $ (19,148) Items not involving cash: Depreciation of property and equipment 770 847 2,259 2,575 Amortization of right-of-use assets 916 825 2,841 2,764 Amortization of intangible assets 4,441 4,441 13,323 13,623 Amortization of contract acquisition assets 2,914 3,641 9,592 11,155 Share-based compensation 3,699 4,553 18,453 12,579 Current and deferred income taxes (4,898) (1,275) (14,969) (8,503) Interest expense 7,580 4,999 20,753 15,197 Unrealized foreign exchange loss 69 163 60 65 Changes in non-cash operating working capital: Trade and other receivables 927 1,673 9,440 (3,548) Income tax receivable 895 22 624 (341) Prepaid expenses and other 909 (1,976) 339 (3,155) Contract acquisition assets (2,726) (3,304) (10,595) (11,887) Trade and other payables 942 2,311 239 925 Income tax payable 1,443 109 123 180 Deferred revenue 417 6,474 (1,618) 18,657 Cash from operating activities 14,327 17,046 30,408 31,138 Investing activities: Purchase of property and equipment (329) (247) (1,285) (869) Acquisition of NetMotion — (309) — (342,008) Cash used in investing activities (329) (556) (1,285) (342,877) Financing activities: Dividends paid (3,109) (3,153) (9,391) (9,528) Proceeds from exercise of stock options and ESOP — 415 — 1,793 Tax remittances on share-based compensation (1,402) — (3,386) (354) Payment of lease liabilities (1,153) (864) (3,333) (2,874) Proceeds from long-term debt — — — 269,500 Transaction costs on long-term debt — — — (1,957) Principal repayment of long-term debt (675) (688) (7,037) (2,063) Interest payment on long-term debt (7,212) (4,617) (19,517) (14,042) Cash (used in) from financing activities (13,551) (8,907) (42,664) 240,475 Foreign exchange effect on cash (91) (104) (282) (187) Increase (decrease) in cash and cash equivalents 356 7,479 (13,823) (71,451) Cash and cash equivalents, beginning of period 49,490 61,236 63,669 140,166 Cash and cash equivalents, end of period $ 49,846 $ 68,715 $ 49,846 $ 68,715 Selected Operating & Financial Metrics | Q3 F2023 USD Thousands, except per share data Q3 F2023 Q2 F2023 Q1 F2023 F2022 Q4 F2022 Q3 F2022 Q2 F2022 ARR Total ARR 229,544 225,049 215,741 209,546 209,546 202,890 195,577 yoy growth* 13.1% 15.1% 15.1% 16.0% 16.0% 15.7% 15.4% New Logo ARR 4,187 4,143 4,032 14,485 2,846 3,244 3,663 yoy growth* 29.1% 13.1% (14.8%) 33.5% (13.7%) 5.3% 76.2% Net Dollar Retention 105% 107% 108% 108% 108% 107% 107% # of Active Endpoints 14,152 13,888 14,129 13,615 13,615 13,565 13,336 yoy growth 4.3% 4.1% 13.0% 17.6% 17.6% 17.2% 16.3% TOTAL ARR BY VERTICAL Enterprise & Government 182,393 177,414 169,097 162,957 162,957 158,068 150,632 yoy growth* 15.4% 17.8% 17.5% 17.3% 17.3% 18.5% 16.5% Education 47,151 47,635 46,644 46,589 46,589 44,822 44,945 yoy growth* 5.2% 6.0% 7.1% 11.7% 11.7% 6.9% 11.9% TOTAL ARR BY GEOGRAPHY North America 175,427 172,890 167,163 163,791 163,791 159,220 155,334 yoy growth* 10.2% 11.3% 10.8% 9.8% 9.8% 9.5% 9.4% International 54,117 52,159 48,578 45,755 45,755 43,670 40,243 yoy growth* 23.9% 29.6% 33.0% 45.0% 45.0% 46.1% 46.8% REVENUE Total Adjusted Revenue 59,158 57,695 54,205 210,431 54,001 54,477 52,939 yoy growth* 8.6 % 9.0 % 10.6 % 15.4 % 12.7 % 17.7 % 16.7 % Total Revenue 58,771 57,194 53,564 197,311 52,527 51,985 49,050 yoy growth 13.1% 16.6% 22.4% 63.4% 65.3% 69.6% 64.3% Recurring Revenue 57,280 56,203 51,918 191,555 51,025 50,505 47,642 % of revenue 97.5% 98.3% 96.9% 97.1% 97.1% 97.2% 97.1% yoy growth 13.4% 18.0% 22.5% 63.7% 65.5% 70.1% 64.7% Cloud Services 56,238 55,223 50,984 187,552 50,033 49,503 46,639 yoy growth 13.6% 18.4% 23.2% 66.8% 67.8% 73.2% 68.6% Managed Services 1,042 980 934 4,003 992 1,002 1,003 yoy growth 4.0% (2.3%) (7.2%) (13.1%) (3.2%) (10.3%) (20.1%) Other Revenue 1,491 991 1,646 5,756 1,502 1,480 1,408 % of revenue 2.6% 1.7% 3.1% 2.9% 2.9% 2.8% 2.9% yoy growth 0.8% (29.6%) 20.5% 54.1% 59.9% 54.5% 50.9% Software License 69 113 74 746 203 173 194 yoy growth (60.1%) (41.8%) (58.0%) 100.0% 100.0% 100.0% 100.0% Other 1,422 878 1,572 5,010 1,299 1,307 1,214 yoy growth 8.8 % (27.7) % 32.1 % 34.1 % 38.2 % 36.5 % 30.1 % OTHER METRICS Adj. Gross Margin (non-IFRS) 52,506 50,796 47,709 187,005 47,668 48,385 47,045 Margin % ** 88.8% 88.0% 88.0% 88.9% 88.3% 88.8% 88.9% Adj. EBITDA (non-IFRS) 15,290 12,810 11,473 55,791 15,420 13,785 13,785 Margin % ** 25.8% 22.2% 21.2% 26.5% 28.6% 25.3% 26.0% Adj. EPS (non-IFRS) 0.11 0.05 0.06 0.41 0.08 0.10 0.13 Weighted avg # of shares outstanding - basic 52,795 52,408 51,421 50,381 51,067 50,728 50,073 Weighted avg # of shares outstanding - diluted *** 55,248 54,645 53,764 53,063 53,192 52,556 53,008 Cash From Operating Activities 14,327 904 15,179 39,792 8,653 17,046 14,731 yoy growth (16.0%) (93.9%) (2482.9%) (15.0%) (24.4%) 134.3% 9.9% Cash, cash equivalents, and short-term investments 50,206 49,850 67,609 64,029 64,029 69,075 61,596 yoy growth (27.3%) (19.1%) 21.0% (54.4%) (54.4%) (48.0%) (53.3%) Total Deferred Revenue 208,853 208,438 204,068 210,471 210,471 194,326 187,852 yoy growth 7.5% 11.0% 13.9% 31.4% 31.4% 24.0% 21.9% * Year over year growth for ARR metrics and Total Adjusted Revenue for F2022 is calculated compared to an as-if combined basis for F2021. ** Margin % is calculated as a percentage of Adjusted Revenue. *** Diluted weighted average number of common shares outstanding includes the dilutive effects of stock options, PSUs, and RSUs, for the purposes of determining Adjusted EPS. The amount may differ from diluted weighted average number of common shares outstanding disclosed in the Company’s financial statements, which excludes such dilutive securities when their effects are antidilutive. We define Non-IFRS earnings per share ("Adjusted EPS") as diluted earnings (loss) per share adjusted for foreign exchange gain or loss, depreciation and amortization, share-based compensation expense, fair value adjustments relating to acquired deferred revenue, fair value adjustments relating to acquired deferred commission, restructuring or reorganization charges and post-retirement benefits, acquisition and integration costs, litigation costs, impairment losses, non-recurring items, and income tax effects related to the non-GAAP adjustments. Adjusted EPS is not a standardized financial measure under IFRS and therefore it may not be comparable to similar measures presented by other issuers. We believe this metric provides useful information to investors and others in understanding and evaluating our operating results as it helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that are not indicative of the core operating performance of our business. Adjusted EPS (Non-IFRS) Reconciliation Q3 F2023 Q3 F2022 Diluted loss per share $ (0.08) $ (0.13) Adjustments: Depreciation and amortization(1) 0.11 0.12 Share-based compensation 0.07 0.09 Foreign exchange loss — 0.01 Fair value adjustments relating to acquired deferred revenue 0.01 0.05 Fair value adjustments relating to acquired deferred commission — (0.01) Acquisition and integration costs 0.02 0.03 Litigation costs 0.03 0.02 Income tax effects related to non-GAAP adjustments(2) (0.05) (0.08) Adjusted EPS $ 0.11 $ 0.10 (1) Depreciation and amortization includes depreciation of property and equipment, amortization of right-of-use assets, and amortization of acquired intangible assets. (2) Income tax effects related to non-GAAP adjustments is calculated based on the Company’s statutory tax rate of 27%. Diluted weighted average number of Common Shares outstanding for Adjusted EPS for Q3 F2023 and Q3 F2022 is presented below. Q3 F2023 Q3 F2022 Basic weighted average number of common shares outstanding 52,795,073 50,727,764 Effect of dilutive securities: Stock Option 134,505 69,136 PSU 972,674 720,945 RSU 1,345,781 1,037,798 Diluted weighted average number of common shares outstanding(1) 55,248,033 52,555,643 (1) Diluted weighted average number of common shares outstanding for Adjusted EPS may differ from diluted weighted average number of common shares outstanding disclosed in the Company’s financial statements, which excludes the impact of dilutive securities when their effects are antidilutive.
- 05/15/2023
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