Absolute Software Reports Fiscal 2014 Third Quarter Results

Growth Driven by Strength in North American Education and Corporate Markets

VANCOUVER, May 12, 2014 /CNW/ - Absolute® Software Corporation ("Absolute" or the "Company") (TSX: ABT), the industry standard for persistent endpoint security and management solutions for computers, laptops and ultra-portable devices and the data they contain, today announced its financial results for the three- and nine-month periods ended March 31, 2014. All financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in U.S. dollars.

Key Financial Metrics	Q3 F2014	Q3 F2013	% change	YTD F2014	YTD F2013	% change
Sales Contracts^(1)	$20.5M	$19.0M	+8%	$66.5M	$62.1M	+7%
Cash from operating activities	$3.8 M	$4.8M	(22%)	$13.5M	$14.4M	(6%)
Operating cash per share^(2)     (basic)     (diluted)	$0.09 $0.08	$0.12 $0.11	(25%) (27%)	$0.32 $0.31	$0.34 $0.34	(6%) (9%)
Revenue	$24.1M	$20.9M	+15%	$67.6M	$61.2M	+11%
Adjusted EBITDA^(3)	$5.2M	$2.9M	76%	$12.0M	$8.5M	+41%
Net income (loss)	$1.4M	$(0.5)M	nm	$2.8M	$1.3M	114%
Net income (loss) per share     (basic and diluted)	$0.03	$(0.01)	nm	$0.06	$0.03	100%
Dividends paid	$2.4M	$2.1M	nm	$6.9M	$2.1M	nm
Cash, cash equivalents  and investments	$74.3M	$61.3M	+21%	$74.3M	$61.3M	+21%
Deferred revenue	$129.5M	$126.5M	+2%	$129.5M	$126.5M	+2%

(1)(2)(3) - Please refer to "Non-IFRS Measures and Definitions"

Q3-F2014 Highlights:

• Sales Contracts increased by 8% to $20.5 million compared to $19.0 million in Q3-F2013.
• Driven by strong growth in education and corporate verticals, Commercial Sales Contracts increased by 10% to $19.6 million compared to $17.8 million in Q3-F2013.
• Sales of Theft Management products increased by 2% compared to Q3-F2013, while sales of Device Management and Data Security products increased by 24% over the same period.
• International Sales Contracts increased by 5% compared to Q3-F2013.
• Cash from Operating Activities was $3.8 million compared to $4.8 million in Q3-F2013.
• Paid a quarterly dividend of $2.4 million, or CAD$0.06 per common share.
• Achieved inclusion for the first time in Gartner, Inc.'s Magic Quadrant for Content-Aware Data Loss Prevention.
• Expanded embedded persistence technology into the firmware of additional Samsung Galaxy mobile devices including the Galaxy S5, NotePRO, and TabPRO.
• Released Absolute Manage 6.4.2, which included support for Apple's streamlined Device Enrollment Program.
• Appointed Sal Visca, an experienced technology executive, to the Company's Board of Directors.

"Strong performance in the North American education and corporate verticals drove our top-line growth in the quarter," said Errol Olsen, interim CEO of Absolute. "Our device management and data security solutions delivered strong growth, led by sales of Absolute Manage and record performance of our MDM product. Looking forward, against the backdrop of a continued shift toward mobile computing, increasing requirements for data security and growing demand for simplified IT management, our product portfolio is uniquely positioned to address today's top priorities for IT and security managers."

Q3-F2014 and F2014 YTD Financial Review
Q3-F2014 Sales Contracts were $20.5 million, up 8% from $19.0 million in Q3-F2013. Sales Contract growth in Q3-F2014 reflected strength in the education and corporate vertical markets. F2014 year-to-date ("YTD") Sales Contracts were $66.5 million, up 7% from $62.1 million for the same period in F2013. Of note, Q2-F2013 included a $3.5 million deal with a Fortune 100 healthcare customer. Excluding this significant sale, the underlying year over year growth rate for Sales Contracts was 14% compared to the prior YTD period.

Invoiced sales to commercial customers increased 10% in Q3-F2014 compared to Q3-F2013, and increased 9% for the YTD period.  Commercial Sales Contracts for Absolute's Theft Management products⁽⁵⁾  were $11.7 million for Q3-F2014, representing an increase of 2% from $11.5 million in Q3-F2013. YTD Commercial Sales Contracts for theft management products were $39.5 million, up 10% from $36.0 million in YTD F2013.

Q3-F2014 Commercial Sales Contracts from Absolute's Device Management and Data Security products⁽⁶⁾ were $7.9 million, up 24% from $6.3 million in Q3-F2013. For the YTD period, Commercial Sales Contracts from device management and data security products were $22.9 million, up 7% from $21.3 million for the same period in F2013. Growth in this category during the quarter was driven by strong sales of Absolute Manage and Mobile Device Management ("MDM") products.

International Sales Contracts were $3.1 million in Q3-F2014 (15% of total Sales Contracts), up 5% from $2.9 million in Q3-F2013 (15% of total Sales Contracts). YTD International Sales Contracts were $10.4 million (16% of total Sales Contracts), up 25% from $8.3 million (13% of total Sales Contracts) for the same period in F2013. The lower growth rate in Q3-F2014 relative to the first half of the year reflects the absence of any large individual sales in the quarter.

Sales Contracts for consumer solutions were $0.9 million (5% of total Sales Contracts), down 23% from $1.2 million (6% of total Sales Contracts), in Q3-F2013. YTD consumer Sales Contracts were $4.1 million (6% of total Sales Contracts), down 14% from $4.7 million (8% of total Sales Contracts), for the same period in F2013.

Revenue for Q3-F2014 was $24.1 million, a 15% increase from $20.9 million in Q3-F2013. Indicative of the Company's Software-as-a-Service (SaaS) business model, revenue primarily represents the amortization of deferred revenue balances from recurring term license sales. YTD revenue was $67.6 million, an 11% increase from $61.2 million for the same period in F2013.

Adjusted Operating Expenses⁽³⁾ for Q3-F2014 were $18.9 million, up 6% from $17.9 million in Q3-F2013. The increase was primarily attributable to additional sales and marketing and research and development headcount in F2014, which was partially offset by a decline in the Canadian dollar. YTD Adjusted Operating Expenses were $55.6 million, up 6% from $52.6 million for the same period in F2013.

Absolute generated Adjusted EBITDA⁽⁴⁾ of $5.2 million in Q3-F2014, up 76% from $2.9 million in Q3-F2013. YTD Adjusted EBITDA was $12.0 million, up 41% from $8.5 million for the same period in F2013.

Absolute recorded net income of $1.4 million, or $0.03 per share, in Q3-F2014, compared to a net loss of $0.5 million, or $(0.01) per share, in Q3-F2013. YTD net income was $2.8 million, or $0.06 per share, compared to net income of $1.3M or $0.03 per share for the same period in F2013. The current YTD net income reflects the impact of higher IFRS operating income, less the impact of a reduction in the foreign exchange gain and income tax expense.

Cash from operating activities was $3.8 million for Q3-F2014, down 21% from $4.8 million in Q3-F2013.  YTD cash from operating activities was $13.5 million, down 6% from $14.4 million for the same period in F2013. Cash from operating activities reflects the payment of $1.4 million of post-retirement benefits during Q3-F2014.

At March 31, 2014, Absolute had cash, cash equivalents and investments of $74.3 million compared to $62.9 million at June 30, 2013.

Corporate Outlook
Absolute remains confident in the market opportunity for its solutions. For F2014, management expects Sales Contracts to increase over F2013 levels and for cash generated from operating activities, excluding payments related to post-retirement benefits, to approximate F2013 levels.

The Company's Board of Directors has initiated a process to recruit a permanent chief executive officer for the Company and has engaged an executive search firm to assist in its search.

Quarterly Filings
Management's discussion and analysis ("MD&A"), consolidated financial statements and notes thereto for Q3-F2014 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 Company's Q3 F2014 results on Monday, May 12, 2014 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 19, 2014 at midnight.

A live audio webcast of the conference call will be available at www.absolute.com and www.newswire.ca.  Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast.  An archived replay of the webcast will be available for 365 days at www.newswire.ca. To access the archived conference call, please dial 416-849-0833, or 1-855-859-2056 and enter the reservation code 40677510.

Non-IFRS Measures and Definitions
Throughout this press release, we refer to a number of measures which we believe are meaningful in the assessment of the Company's performance. All these metrics are non-standard measures under 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 Fiscal 2013 Q4 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) Sales Contracts
See the "Subscription Business Model" section of the MD&A for a detailed discussion of why we believe Sales Contracts (also known as "bookings") provide a meaningful performance metric.  Sales Contracts are included in deferred revenue (see Note 7 of the Notes to the Interim Consolidated Financial Statements), and result from invoiced sales of our products and services.

2) Basic and diluted Cash from Operating Activities per share
As a result of the nature of our revenues (please refer to "Subscription Business Model" in the MD&A), we use Cash from Operating Activities as a measure of profitability. Accordingly, we believe that Cash from Operating Activities per share is a meaningful indicator of profitability per share. Cash from Operating Activities per share is calculated by dividing Cash from Operating Activities by the weighted average number of shares outstanding for the period (basic), or the fully diluted number of shares using the treasury stock method (diluted).

3) Adjusted Operating Expenses
A number of significant non-cash or non-recurring expenses are reported in our Cost of Revenue and Operating Expenses.  Management believes that analyzing these expenses exclusive of these non-cash or non-recurring 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 charges and certain post-retirement benefits. For a description of the reasons these items are adjusted, please refer to the Fiscal 2013 and Q3-Fiscal 2014 MD&A.

4) Adjusted EBITDA
Management believes that analyzing operating results exclusive of significant non-cash items 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 charges and post-retirement benefits.  The non-cash items excluded in the determination of Adjusted EBITDA include share-based compensation, amortization of acquired intangibles, and amortization of property and equipment.

5) Theft Management products
Management defines the Company's theft management product line as Computrace products that include an investigations and recovery services component.

6) Device Management and Data Security products
Management defines the Company's device management and data security product line as are defined as our Absolute Manage and Absolute Secure Drive products, as well as Computrace products that do not include an investigations and recovery services component (for example, Absolute Track and Computrace Data Protection).

About Absolute Software
Absolute Software Corporation (TSX: ABT) is the industry standard in persistent endpoint security and management for computers, laptops, tablets and smartphones. The Company, a leader in device security and management tracking for 20 years, has over 30,000 commercial customers worldwide. Absolute's solutions - Computrace®, Absolute Manage®, Absolute Service and Absolute LoJack® - provide organizations with actionable intelligence to prove compliance, securely manage BYOD, and deliver comprehensive visibility and control over all of their devices and data. Absolute is positioned on three Gartner, Inc. Magic Quadrants - the Magic Quadrant for Client Management Tools ("CMT"), the Magic Quadrant for Mobile Device Management ("MDM") Software, and the Magic Quadrant for Content-Aware Data Loss Prevention. Absolute is one of only four vendors to be recognized on both the CMT and MDM Magic Quadrants based on providing customers with the ability to secure and manage many different types of devices using a single solution. Absolute persistence technology is embedded in the firmware of computers, netbooks, tablets and smartphones by global leaders, including Acer, ASUS, Dell, Fujitsu, HP, Lenovo, Motion, Panasonic, Samsung, and Toshiba, and the Company has reselling partnerships with these OEMs and others, including Apple. For more information about Absolute Software, visit www.absolute.com.

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to, among other things, the expected performance, functionality and availability of our services and products, and other expectations, intentions and plans contained in this press release that are not historical fact. When used in this press release, the words "plan," "expect," "believe," and similar expressions generally identify forward-looking statements. These statements reflect our current expectations. They are subject to a number of risks and uncertainties, including, but not limited to, changes in technology and general market conditions. In light of the many risks and uncertainties you should understand that we cannot assure you that the forward-looking statements contained in this press release will be realized. Furthermore, the forward-looking statements contained in this press release 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.

©2014 Absolute Software Corporation. All rights reserved. Computrace and Absolute are registered trademarks of Absolute Software Corporation. LoJack is a registered trademark of LoJack Corporation, used under license by Absolute Software Corporation. LoJack Corporation is not responsible for any content herein. U.S. patents No. 5,715,174, No. 5,764,892, No. 5,802,280, No. 5,896,497, No. 6,087,937, No. 6,244,758, No. 6,269,392, No. 6,300,863, No. 6,507,914, No. 7,818,557, No. 7,818,803, No. 7,945,709, No. 8,062,380, No. 8,234,359, No. 8,241,369, No. 8,307,055, No. 8,332,953, No. 8,346,234, No. 8,362,901, No. 8,418,226, No. 8,419,806, No. 8,441,348, No. 8,510,825, No. 8,556,991, No. 8,566,961, No. 8,606,971 and No. 8,625,799. Canadian patents No. 2,211,735, No. 2,284,806, No. 2,205,370, No. 2,771,208 and No. 2,733,222. U.K. patents No. EP0793823, No. GB2298302, and No. GB2338101. German patent No. 69512534. Australian patent No. 699045. Japanese patents No. 4067035, No. 5220924 and No. 5363305. Mexican patents No. 297,406 and No. 306,287. Russian patent No. 2,460,220. 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)
		March 31, 2014				June 30, 2013
ASSETS
CURRENT
	Cash and cash equivalents	$	44,327,397		$	31,114,998
	Short-term investments		20,503,772			13,165,606
	Trade and other receivables		14,708,432			18,196,955
	Prepaid expenses and other		1,879,696			1,712,988
			81,419,297			64,190,547
INVESTMENTS			9,430,378			18,639,550
PROPERTY AND EQUIPMENT			2,068,544			1,294,249
DEFERRED INCOME TAX ASSETS			19,313,447			20,340,047
INTANGIBLE ASSETS AND GOODWILL			19,049,327			21,933,959
		$	131,280,993		$	126,398,352
LIABILITIES
CURRENT
	Trade and other payables	$	10,670,126		$	8,943,682
	Accrued warranty		420,000			420,000
	Deferred revenue - current		69,263,758			68,093,937
			80,353,884			77,457,619
DEFERRED REVENUE			60,231,759			62,542,619
			140,585,643			140,000,238
COMMITMENTS
CONTINGENCIES
SHAREHOLDERS' DEFICIENCY
	Share capital		51,502,044			41,690,749
	Equity reserve		35,111,134			36,542,921
	Deficit		(95,917,828)			(91,835,556)
			(9,304,650)			(13,601,886)
		$	131,280,993		$	126,398,352

 

ABSOLUTE SOFTWARE CORPORATION Consolidated Statements of Operations and Comprehensive Income Three and nine months ended March 31, 2014 and 2013 (Expressed in United States dollars) (Unaudited)
			Three months ended March 31,						Nine months ended March 31,
			2014			2013			2014			2013
REVENUE		$	24,085,504		$	20,856,826		$	67,635,422		$	61,193,945
COST OF REVENUE			5,038,026			5,386,853			14,455,184			15,030,679
GROSS MARGIN			19,047,478			15,469,973			53,180,238			46,163,266
OPERATING EXPENSES
	Sales and marketing		10,206,925			9,616,885			30,351,683			28,646,857
	Research and development		2,848,813			2,654,631			8,910,518			8,420,787
	General and administration		2,392,085			2,303,024			7,885,325			6,219,470
	Share-based compensation		462,257			594,203			1,546,409			1,741,125
			15,910,080			15,168,743			48,693,935			45,028,239
OPERATING INCOME			3,137,398			301,230			4,486,303			1,135,027
OTHER (EXPENSE) INCOME
	Interest income, net		75,255			22,072			170,962			148,335
	Foreign exchange gain		(265,923)			(395,583)			3,200			147,185
	Loss on investments		-			-			-			(29,627)
			(190,668)			(373,511)			174,162			265,893
NET INCOME (LOSS) BEFORE INCOME  TAXES			2,946,730			(72,281)			4,660,465			1,400,920
INCOME TAX EXPENSE			(1,541,500)			(380,880)			(1,898,700)			(110,393)
NET INCOME (LOSS) AND  COMPREHENSIVE INCOME (LOSS)		$	1,405,230		$	(453,161)		$	2,761,765		$	1,290,527
BASIC AND DILUTED INCOME (LOSS)  PER SHARE		$	0.03		$	(0.01)		$	0.06		$	0.03
WEIGHTED AVERAGE NUMBER OF  COMMON SHARES OUTSTANDING,  BASIC			43,403,638			41,353,659			42,849,883			42,515,841

 

ABSOLUTE SOFTWARE CORPORATION Consolidated Statements of Changes in Shareholders' Deficiency (Expressed in United States dollars) (Unaudited)
	Share Capital
	Number of Common shares			Amount			Equity reserve			Deficit			Total
BALANCE, JUNE 30, 2012	43,757,803		$	38,625,463		$	35,751,185		$	(79,141,256)		$	(4,764,608)
Shares issued on options exercised	439,400			2,584,503			(805,180)			-			1,779,323
Shares issued under Employee Share   Purchase Plan	144,046			612,121			-			-			612,121
Shares repurchased and cancelled   under the Normal Course Issuer Bid	(2,812,900)			(3,191,146)			-			(10,314,109)			(13,505,255)
Shares issued on acquisition payable	166,668			827,434			-			-			827,434
Share-based compensation	-			-			1,741,125		-				1,741,125
Dividends paid	-			-			-			(2,069,333)			(2,069,333)
Net income and total comprehensive   income	-			-			-			1,290,527			1,290,527
BALANCE, MARCH 31, 2013	41,695,017		$	39,458,375		$	36,687,130		$	(90,234,171)		$	(14,088,666)
Shares issued on options exercised	357,236			2,232,374			(698,135)			-			1,534,239
Share-based compensation	-			-			553,926			-			553,926
Dividends paid	-			-			-			(2,049,310)			(2,049,310)
Net income and total comprehensive   income	-			-			-			447,925			447,925
BALANCE, JUNE 30, 2013	42,052,253		$	41,690,749		$	36,542,921		$	(91,835,556)		$	(13,601,886)
Shares issued on employee options   exercised	1,006,987			5,819,348			(1,866,196)			-			3,953,152
Shares issued on non-standard options   exercised	447,750			3,297,658			(1,112,000)			-			2,185,658
Shares issued under Employee Share   Purchase Plan	148,061			694,289			-			-			694,289
Share-based compensation	-			-			1,546,409			-			1,546,409
Dividends paid	-			-			-			(6,844,037)			(6,844,037)
Net income and total comprehensive   income	-			-			-			2,761,765			2,761,765
BALANCE, MARCH 31, 2014	43,655,051		$	51,502,044		$	35,111,134		$	(95,917,828)		$	(9,304,650)

 

ABSOLUTE SOFTWARE CORPORATION Condensed Consolidated Statements of Cash Flows Three and nine months ended March 31, 2014 and 2013 (Expressed in United States dollars) (Unaudited)
				Three months ended March 31,						Nine months ended March 31,
				2014			2013			2014			2013
OPERATING ACTIVITIES
	Net income (loss)		$	1,405,230		$	(453,161)		$	2,761,765		$	1,290,527
	Items not involving cash
		Amortization of property and equipment		371,281			334,548			984,200			1,006,323
		Amortization of acquired intangible assets		1,211,243			1,716,307			3,613,345			4,661,384
		Amortization of intangible assets - contract costs and brand		1,823,298			1,528,874			4,943,392			4,435,065
		Share-based compensation		462,257			594,203			1,546,409			1,741,125
		Deferred income taxes		1,249,200			(70,689)			1,026,600			(1,041,176)
		Loss on investments		-			-			-			29,627
		Unrealized foreign exchange gain		-			-			-			(277,892)
		Non-cash interest and amortization of investment premium		110,508			77,045			399,374			270,332
	Change in non-cash working capital
		Trade and other receivables		2,539,925			3,602,449			3,508,703			5,077,121
		Prepaid expenses and other		(192,298)			32,224			(166,708)			373,288
		Intangible assets - contract costs and brand additions		(1,524,514)			(1,557,643)			(5,182,528)			(4,793,488)
		Trade and other payables		(194,771)			857,929			1,227,685			752,337
		Accrued warranty		70,000			(44,000)			-			(114,000)
		Deferred revenue		(3,578,704)			(1,822,773)			(1,141,039)			957,866
CASH FROM OPERATING ACTIVITIES				3,752,655			4,795,313			13,521,198			14,368,439
INVESTING ACTIVITIES
	Purchase of property and equipment			(548,815)			(181,778)			(1,204,316)			(726,598)
	Acquisition of LiveTime			-			-			-			(8,000,000)
	Purchase of intangible assets			-			-			(363,381)			(25,000)
	Acquisition payable (LANrev)			-			-			-			(833,333)
	Proceeds from sales and maturities of short-term investments			-			(15,280,000)			5,203,925			(15,280,000)
	Purchase of investments			-			-			(3,732,293)			8,039,727
CASH USED IN INVESTING ACTIVITIES				(548,815)			(15,461,778)			(96,065)			(16,825,204)
FINANCING ACTIVITIES
	Repurchase of common shares for cancellation			-			(88,920)			-			(13,504,414)
	Issuance of common shares			2,030,299			1,936,455			6,833,099			2,390,581
	Dividends paid			(2,350,387)			(2,069,333)			(6,844,037)			(2,069,333)
CASH USED IN FINANCING ACTIVITIES				(320,088)			(221,798)			(10,938)			(13,183,166)
FOREIGN EXCHANGE EFFECT ON CASH				(188,880)			(83,737)			(201,796)			(165,936)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				2,694,872			(10,972,000)			13,212,399			(15,805,867)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD				41,632,525			40,578,280			31,114,998			45,412,147
CASH AND CASH EQUIVALENTS, END OF PERIOD			$	44,327,397		$	29,606,280		$	44,327,397		$	29,606,280

SOURCE: Absolute Software Corporation

Public Relations:
Becky Obbema, Interprose
[email protected] or 408.778.2024
or
Marina Guy, Absolute Software
[email protected] or 604.730.9851 x107 

Investor Relations:
Dave Mason, CFA, TMX | Equicom
[email protected] or 416.815.0700 x237