Absolute Software Reports Fiscal 2015 Second Quarter Results

Strong corporate and education sales drive a 15% increase in total Commercial Sales Contracts and a 44% growth in cash from operating activities

VANCOUVER, Feb. 12, 2015 /CNW/ - Absolute® Software Corporation (TSX: ABT), the industry standard for persistent endpoint security and management solutions for desktops, laptops, tablets and smartphones, today announced its financial results for the three and six months ended December 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		Q2 F2015	Q2 F2014	%  change	YTD F2015	YTD F2014	%  change
Sales Contracts^(1)		$25.2M	$22.2M	13%	$51.2M	$46.0M	11%
Cash from operating activities		$6.3M	$4.4M	44%	$15.1M	$9.8M	54%
Operating cash per share^(2)
	(basic)	$0.14	$0.10	40%	$0.34	$0.23	48%
	(diluted)	$0.14	$0.10	40%	$0.34	$0.22	55%
Revenue		$23.1M	$21.9M	5%	$46.3M	$43.5M	6%
Adjusted EBITDA^(3)		$4.0M	$3.5M	13%	$8.2M	$6.8M	21%
Net income		$2.2M	$0.2M	1000%	$2.5M	$1.4M	79%
Net income per share
	(basic and diluted)	$0.05	$0.01	400%	$0.06	$0.03	100%
Dividends paid		$2.7M	$2.5M	8%	$5.1M	$4.5M	13%
Cash and investments		$81.7M	$71.7M	14%	$81.7M	$71.7M	14%
Deferred revenue		$141.9M	$133.1M	7%	$141.9M	$133.1M	7%

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

Q2-F2015 Highlights:

Sales Contracts

• Total Sales Contracts of $25.2 million, representing 13% year-over-year growth
• Commercial Sales Contracts of $24.4 million, a 15% year-over-year increase
• North American commercial Sales Contracts of $21.7 million, up 24% compared to Q2-F2014
• 21% year-over-year growth in Device Management and Data Security product Sales Contracts
• 11% year-over-year increase in Theft Management product Sales Contracts

Operations and Corporate

• Revenue of $23.1 million, representing a 5% year-over-year increase
• $6.3 million in Cash from Operating Activities compared to $4.4 million in Q2-F2014
• $2.7 million (CAD$0.07 per common share) dividend paid during the quarter
• Repurchased 349,000 shares under the Company's Normal Course Issuer Bid for an aggregate of $2.1 million
• Appointed industry veterans, Gerhard Watzinger, Art Mesher and Josef Vejvoda to the Company's Board of Directors

Technology

• Expanded Persistence technology to new device models with existing OEM partners HP and Panasonic
• Announced agreement with Google to use the Google Maps™ API for the Geotechnology capability within Absolute Computrace®
• Announced partnership with Latin America's largest computer manufacturer
• Launched the device freeze offline policy for Computrace customers, allowing users to set a timer so that a device will self-secure if it remains offline for a specific period of time
• Extended Computrace Mobile Theft Management service to Chromebooks to provide theft prevention and recovery services to North American K12 organizations for this new form factor
• Announced full support for Mac OS X Yosemite, including the Apple Device Enrollment Program, with the release of Absolute Manage® 6.7

"Customers across all of Absolute's strategic focus areas contributed to our strong results," said Geoff Haydon, CEO of Absolute. "This includes North America, and the education and corporate markets, where Sales Contracts were up significantly. Our revenue growth outpaced the increased level of strategic investments we made internally, translating into year-over-year improvements in both Adjusted EBITDA and cash from operating activities."

"We are confident we are on track to achieve the objectives we set for ourselves at the beginning of the year," said Mr. Haydon. "Our customers continue to deploy new form factors, and require innovative, effective ways to ensure the security and compliance of their deployments. We will keep pace with these requirements through the aggressive expansion of our persistence technology solutions."

Mr. Haydon added, "We will continue to focus on strengthening our position in education, while investing for accelerated growth in the corporate and healthcare market segments. We will increase the awareness of Absolute within new customer segments and different geographies. Finally, we will continue to optimize direct sales and partner productivity in key geographic and vertical markets, with the clear objective of delivering a superior customer experience and sustainable long-term growth."

Q2-F2015 and YTD F2015 Financial Review
Q2-F2015 Sales Contracts of $25.2 million represented an increase of 13% compared to Q2-F2014, while year to date Sales Contracts of $51.2 million represented an increase of 11% over the prior year period.

Sales Contracts to commercial customers increased 15% in Q2-F2015 compared to Q2-F2014 and also increased 15% for the year to date period. The combined education and government verticals increased 16% in Q2-F2015 compared to the prior year and increased 22% for the year to date period.  The combined corporate and healthcare verticals increased 13% for the quarter and increased 6% for the year to date period.

Commercial Sales Contracts for North America increased 24% in Q2-F2015 and increased 21% for the year to date period.  Commercial Sales Contracts outside North America were down 30% for the quarter and down 18% for the year to date period. The year-over-year decrease in the Company's international sales reflect lower sales in the Asia Pacific and Latin America regions attributable to large deals recorded in the prior year that were not replicated in the current year periods.  International sales represented 11% of total Sales Contracts for the quarter and 12% of total sales contracts year to date.

Q2-F2015 Commercial Sales Contracts for Absolute's Device Management and Data Security products⁽⁶⁾  were $10.2 million, up 21% from $8.4 million in Q2-F2014, and were $17.7 million for YTD F2015, a 17% improvement over $15.1 million for YTD F2014. The year-over-year growth for the Q2 and YTD F2015 periods was primarily driven by increased sales of Computrace Data Protection.

Commercial Sales Contracts for Absolute's Theft Management products⁽⁵⁾ were $14.2 million in Q2-F2015, representing an increase of 11% from $12.8 million in Q2-F2014.  YTD F2015 Commercial Sales Contracts for Absolute's Theft Management products⁽⁵⁾ were $31.4 million, up 13% from $27.8 million for the same period in F2014.

Sales Contracts for consumer solutions for Q2-F2015 were $0.8 million (3% of total Sales Contracts), down from $1.0 million (5% of total Sales Contracts) in Q2-F2014. YTD F2015 Sales Contracts for consumer solutions were $2.1 million (4% of total Sales Contracts) down from $3.1 million (7% of total Sales Contracts) for the same period in F2014.

Revenue in Q2-F2015 was $23.1 million, a 5% increase from $21.9 million in Q2-F2014. YTD F2015 revenue was $46.3 million, up 6% compared to the same period in F2014. Indicative of the Company's prepaid Software-as-a-Service (SaaS) business model, revenue primarily represents the amortization of deferred revenue balances from recurring term license sales from both the current and prior periods.

Adjusted Operating Expenses⁽³⁾ for Q2-F2015 were $19.1 million, up 4% from $18.3 million in Q2-F2014.  For YTD F2015, Adjusted Operating Expenses were $38.0 million, a 4% increase over $36.7 million for the same period in F2014. The year-over-year increase primarily reflects an increase in sales and marketing as well as research and development. These increases were offset, in part, by benefits the Company realized as a result of a weakened Canadian dollar, which reduced the costs of the Company's Canadian-based expenditures. As a percentage of revenue, Adjusted Operating Expenses decreased to 83% in Q2-F2015 from 84% in Q2-F2014 and 82% for YTD F2015 compared to 84% for the same period in F2014.

Absolute generated Adjusted EBITDA⁽⁴⁾ of $4.0 million in Q2-F2015, up 13% from $3.5 million in
Q2-F2014. For YTD F2015, Adjusted EBITDA was $8.2 million, a 21% increase over YTD F2014.

Absolute recorded net income of $2.2 million, or $0.05 per share, in Q2-F2015, compared to net income of $0.2 million, or $0.01 per share, in Q2-F2014. YTD F2015 net income was $2.5 million, or $0.06 per share, up from $1.4 million, or $0.03 per share, for the same period in F2014. The year-over-year improvement for the Q2 and YTD F2015 periods reflect revenue growth that outpaced the increase in the Company's Adjusted Operating Expenses, which was partially offset by foreign exchange losses versus foreign exchange gains for the same periods in F2014 as well a year-over-year increase in income taxes.

Quarterly Dividend
The Company's Board of Directors declared a dividend of $0.07 per common share on January 19, 2015. The $0.07 per share dividend is scheduled to be paid on February 27, 2015 to shareholders of record at the close of business on February 6, 2015. 

Corporate Outlook
Management remains confident in Absolute's market opportunity. For F2015, management expects Sales Contracts and Cash from Operating Activities to increase over F2014 levels.

Quarterly Filings
Management's discussion and analysis ("MD&A"), condensed consolidated financial statements and the notes thereto for Q2-F2015 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 Q2 and YTD F2015 results on Thursday, February 12, 2015 at 8:00 a.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 Thursday, February 19, 2015 at midnight.  To access the archived conference call, please dial 416-849-0833, or 1-855-859-2056 and enter the reservation code 71439893.

A live audio webcast of the conference call will be available at www.absolute.com and http://bit.ly/15u9Ilz.  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.

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 Q2 Fiscal 2015 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 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 Q2 Fiscal 2015 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, amortization of property and equipment, and restructuring charges and certain post-retirement benefits. 

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 Absolute Manage and Absolute Service 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 desktops, 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 Enterprise Mobility Management (EMM) 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 EMM Magic Quadrants. Absolute persistence technology is embedded in the firmware of computers, netbooks, tablets and smartphones by global leaders, including Acer, ASUS, Dell, Fujitsu, HP, Lenovo, Microsoft, 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.

Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to, among other things, the expected performance, functionality and availability of our services and products, and other expectations, intentions and plans contained in this press release that are not historical facts. 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.

©2015 Absolute Software Corporation. All rights reserved. Computrace and Absolute are registered trademarks of Absolute Software Corporation. For patent information, visit www.absolute.com/patents. LoJack is a registered trademark of LoJack Corporation, used under license by Absolute Software Corporation. LoJack Corporation is not responsible for any content herein. The Toronto Stock Exchange has neither approved nor disapproved of the information contained in this news release.

ABSOLUTE SOFTWARE CORPORATION
Condensed Consolidated Statements of Financial Position
(Expressed in United States dollars) (Unaudited)
			December 31, 2014	June 30, 2014
ASSETS
CURRENT
	Cash and cash equivalents		$   41,993,421	$    40,928,539
	Short-term investments		19,699,526	17,537,492
	Trade and other receivables		15,248,526	21,979,235
	Prepaid expenses and other		2,175,509	1,917,665
			79,116,982	82,362,931
INVESTMENTS			19,962,710	15,115,005
PROPERTY AND EQUIPMENT			2,290,107	1,987,544
DEFERRED INCOME TAX ASSETS			19,949,047	19,801,047
INTANGIBLE ASSETS AND GOODWILL			17,247,545	18,535,582
			$ 138,566,391	$  137,802,109
LIABILITIES
CURRENT
	Trade and other payables		$     7,087,743	$    10,455,510
	Income taxes payable		265,347	-
	Accrued warranty		280,000	360,000
	Deferred revenue – current		73,849,367	71,144,393
			81,482,457	81,959,903
DEFERRED REVENUE			68,067,942	65,818,337
			149,550,399	147,778,240
SHAREHOLDERS' DEFICIENCY
	Share capital		55,821,186	52,403,258
	Equity reserve		35,082,984	35,141,530
	Deficit		(101,888,178)	(97,520,919)
			(10,984,008)	(9,976,131)
			$ 138,566,391	$  137,802,109

ABSOLUTE SOFTWARE CORPORATION Consolidated Statements of Operations and Comprehensive Income Three and six months ended December 31, 2014 and 2013 (Expressed in United States dollars) (Unaudited)
		Three months ended December 31,		Six months ended December 31,
		2014	2013	2014	2013
REVENUE		$  23,060,268	$  21,861,822	$  46,256,783	$  43,549,918
COST OF REVENUE		4,461,507	4,523,142	9,124,594	9,417,158
GROSS MARGIN		18,598,761	17,338,680	37,132,189	34,132,760
OPERATING EXPENSES
	Sales and marketing	10,239,272	10,292,334	20,648,648	20,144,758
	Research and development	3,139,975	2,934,317	6,299,946	6,061,705
	General and administration	2,655,518	3,439,820	5,130,428	5,493,240
	Share-based compensation	603,585	539,936	1,086,769	1,084,152
		16,638,350	17,206,407	33,165,791	32,783,855
OPERATING INCOME		1,960,411	132,273	3,966,398	1,348,905
OTHER (EXPENSE) INCOME
	Interest income, net	20,898	42,118	63,864	95,708
	Foreign exchange (loss) gain	(84,194)	44,158	(357,979)	269,123
		(63,296)	86,276	(294,115)	364,831
NET INCOME BEFORE INCOME TAXES		1,897,115	218,549	3,672,283	1,713,736
INCOME TAX RECOVERY (EXPENSE)		345,000	6,000	(1,125,000)	(357,200)
NET INCOME AND COMPREHENSIVE INCOME		$   2,242,115	$   224,549	$   2,547,283	$   1,356,536
BASIC AND DILUTED INCOME PER SHARE		$  0.05	$  0.01	$   0.06	$   0.03
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC		43,992,815	42,895,732	43,970,107	42,524,146

ABSOLUTE SOFTWARE CORPORATION
Consolidated Statement 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, 2013	42,052,253	$ 41,690,749	$ 36,542,921	$ (91,835,556)	$ (13,601,886)
Shares issued on employee options exercised	656,287	3,789,331	(1,202,289)	-	2,587,042
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	85,387	351,927	-	-	351,927
Share-based compensation	-	-	1,084,152	-	1,084,152
Dividends paid	-	-	-	(4,493,650)	(4,493,650)
Net income and total comprehensive income	-	-	-	1,356,536	1,356,536
BALANCE, DECEMBER 31, 2013	43,241,677	$ 49,129,665	$  35,312,784	$ (94,972,670)	$ (10,530,221)
Shares issued on options exercised	491,864	2,931,231	(984,107)	-	1,947,124
Shares issued under Employee Share Purchase Plan	62,674	342,362	-	-	342,362
Share-based compensation	-	-	812,853	-	812,853
Dividends paid	-	-	-	(4,763,565)	(4,763,565)
Net income and total comprehensive income	-	-	-	2,215,316	2,215,316
BALANCE, JUNE 30, 2014	43,796,215	$ 52,403,258	$ 35,141,530	$ (97,520,919)	$ (9,976,131)
Shares issued on employee options exercised	532,887	3,139,018	(1,004,927)	-	2,134,091
Shares issued on non-standard options exercised	52,250	385,290	(140,388)	-	244,902
Shares issued under Employee Share Purchase Plan	70,480	379,906	-	-	379,906
Shares repurchased and cancelled under the Normal Course Issuer Bid	(381,762)	(486,286)	-	(1,780,319)	(2,266,605)
Share-based compensation	-	-	1,086,769	-	1,086,769
Dividends paid	-	-	-	(5,134,223)	(5,134,223)
Net income and total comprehensive income	-	-	-	2,547,283	2,547,283
BALANCE, DECEMBER 31, 2014	44,070,070	$ 55,821,186	$  35,082,984	$ (101,888,178)	$ (10,984,008)

ABSOLUTE SOFTWARE CORPORATION
Consolidated Statements of Cash Flows
Three and six months ended December 31, 2014 and 2013
(Expressed in United States dollars) (Unaudited)
				Three months ended December 31,		Six months ended December 31,
				2014	2013	2014	2013
OPERATING ACTIVITIES
		Net income		$  2,242,115	$  224,549	$  2,547,283	$  1,356,536
		Items not involving cash
			Amortization of property and equipment	365,915	289,919	821,024	612,919
			Amortization of acquired intangible assets	1,053,943	1,190,666	2,368,494	2,402,103
			Amortization of intangible assets – contract costs and brand	1,766,620	1,643,830	3,411,548	3,120,094
			Share-based compensation	603,585	539,936	1,086,769	1,084,152
			Deferred income taxes	(1,060,000)	(289,000)	(148,000)	(222,600)
			Non-cash interest and amortization of investment premium	113,608	205,145	278,121	288,866
		Change in non-cash working capital
			Trade and other receivables	2,073,714	(1,193,972)	6,751,611	968,778
			Prepaid expenses and other	153,104	210,024	(257,844)	25,590
			Intangible assets – contract costs and brand additions	(2,125,247)	(1,934,782)	(4,149,912)	(3,658,014)
			Trade and other payables	(989,694)	3,138,017	(2,771,928)	1,422,454
			Income taxes payable	55,347	-	265,347	-
			Accrued warranty	(30,000)	10,000	(80,000)	(70,000)
			Deferred revenue	2,105,727	364,941	4,954,579	2,437,665
CASH FROM OPERATING ACTIVITIES				6,328,737	4,399,273	15,077,092	9,768,543
INVESTING ACTIVITIES
		Purchase of property and equipment		(660,377)	(449,341)	(1,555,616)	(655,501)
		Purchase of intangible assets		(202,000)	(218,506)	(202,000)	(363,381)
		Proceeds from sales and maturities of short-term investments		3,550,000	1,510,000	6,300,000	5,203,925
		Purchase of short-term investments		(5,122,700)	-	(5,122,700)	-
		Purchase of investments		(8,465,160)	-	(8,465,160)	(3,732,293)
CASH (USED IN) FROM INVESTING ACTIVITIES				(10,900,237)	842,153	(9,045,476)	452,750
FINANCING ACTIVITIES
		Issuance of common shares		898,429	2,115,219	2,643,113	4,802,800
		Dividends paid		(2,727,992)	(2,456,084)	(5,134,223)	(4,493,650)
		Repurchase of common shares for cancellation		(2,063,318)	-	(2,266,605)	-
CASH (USED IN) FROM FINANCING ACTIVITIES				(3,892,881)	(340,865)	(4,757,715)	309,150
FOREIGN EXCHANGE EFFECT ON CASH				(65,428)	(42,920)	(209,019)	(12,916)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS				(8,529,809)	4,857,641	1,064,882	10,517,527
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD				50,523,230	36,774,884	40,928,539	31,114,998
CASH AND CASH EQUIVALENTS, END OF PERIOD				$  41,993,421	$  41,632,525	$  41,993,421	$  41,632,525

SOURCE Absolute Software Corporation

Public Relations: Becky Obbema, Interprose, [email protected] or 408.778.2024 or Toru Levinson, Absolute Software, [email protected] or 1 604 730 9851 x208; Investor Relations: Kristen Dickson, TMX Equicom, [email protected] 416.815.0700 x273