Absolute Software Reports Fiscal 2015 Third Quarter Results

North American Computrace sales continue to fuel growth in Commercial Sales Contracts and
cash from operating activities

VANCOUVER, May 14, 2015 /CNW/ - Absolute® Software Corporation (TSX: ABT), the industry standard for persistent endpoint security and data risk management solutions for computers, laptops, tablets and smartphones, today announced its financial results for the three and nine months ended March 31, 2015. All financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in U.S. dollars.

Key Financial Metrics

Q3 F2015

Q3 F2014

%  change

YTD F2015

YTD F2014

%  change

Sales Contracts^(1)

$21.2M

$20.5M

3%

$72.4M

$66.5M

9%

Cash from operating activities

$5.3M

$3.8M

40%

$20.3M

$13.5M

50%

Operating cash per share^(2)

(basic)

$0.12

$0.09

33%

$0.46

$0.32

44%

(diluted)

$0.11

$0.08

38%

$0.45

$0.31

45%

Revenue

$24.1M

$24.1M

-

$70.3M

$67.6M

4%

Adjusted EBITDA^(3)

$6.8M

$5.2M

32%

$15.1M

$12.0M

25%

Net income

$2.8M

$1.4M

100%

$5.3M

$2.8M

89%

Net income per share

(basic and diluted)

$0.06

$0.03

100%

$0.12

$0.06

100%

Dividends paid

$2.5M

$2.4M

4%

$7.6M

$6.9M

10%

Cash and investments

$86.4M

$74.3M

16%

$86.4M

$74.3M

16%

Deferred revenue

$139.0M

$129.5M

7%

$139.0M

$129.5M

7%

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

Q3-F2015 Highlights:

Sales Contracts

• Total Sales Contracts of $21.2 million, representing 3% year-over-year growth
• Commercial Sales Contracts of $20.4 million, a 4% year-over-year increase
• North American commercial Sales Contracts of $18.1 million, up 9% compared to Q3-F2014
• Computrace Sales Contracts up 9% year-over-year, with Computrace Data Protection⁽⁴⁾ Sales Contracts up 13% year-over-year and Computrace Theft Management⁽⁵⁾ Sales Contracts up 8% year-over-year

Operations and Corporate

• Revenue of $24.1 million, consistent with Q3-F2014
• Adjusted EBITDA of $6.8 million, up from $5.2 million in Q3-F2014
• Cash from Operating Activities of $5.3 million, an increase from $3.8 million in Q3-F2014
• Paid $2.5 million in dividends (CAD$0.07 per common share) during the quarter
• Named former McAfee Chief Technology Officer, Christopher Bolin, as Chief Product Officer

Technology

• Partnered with worldwide mobile device manufacturers, Prestigio and YEZZ, and Latin American manufacturer, Lanix to integrate Persistence® technology
• Expanded partnership with Getac to make Persistence® technology available on Getac's global suite of rugged mobile solutions, including notebooks and tablets
• Announced agreement with HP to install Persistence® technology in a new suite of Education Edition mobile devices
• Launched a self-service portal for end-users with the release of Absolute Manage® 6.7.1

"These results demonstrate the progress we are making in our key strategic areas of focus," said Mr. Geoff Haydon, CEO of Absolute. "We delivered consistent growth in our North American business including the expansion of sales from existing accounts. Our Computrace Data Protection product line achieved double-digit growth and our business within the corporate and healthcare verticals continued to expand. We also maintained our position as a dominant player in the education market."

"Our growing success in the corporate and healthcare segments reflects the magnitude of the security and compliance issues faced by our customers, and the extent to which Absolute is able to help them overcome these challenges," Mr. Haydon added.

Q3-F2015 and YTD F2015 Financial Review
Sales Contracts
Q3-F2015 Sales Contracts of $21.2 million represented an increase of 3% compared to Q3-F2014, while YTD F2015 Sales Contracts of $72.4 million represented an increase of 9% over the prior year period.

Sales Contracts to commercial customers of $20.4 million increased 4% in Q3-F2015 compared to Q3-F2014, and Sales Contracts to commercial customers of $69.5 million for the year-to-date period increased 11% year-over-year. Q3-2015 Sales Contracts for the combined education and government verticals declined 1% compared to the prior year. For YTD F2015, education and government Sales Contracts increased 15%. The combined Sales Contracts for the corporate and healthcare verticals increased 10% for the quarter and 7% for the year-to-date period.

Commercial Sales Contracts for North America increased 9% to $18.1 million in Q3-F2015 and increased 17% to $61.1 million for the year-to-date period.  Commercial Sales Contracts outside North America were down 24% to $2.3 million for the quarter and down 19% to $8.3 million for the year-to-date period. International commercial sales represented 11% of total Sales Contracts for the quarter and 12% of total sales contracts year-to-date.

Computrace Sales Contracts were $17.6 million in Q3-F2015, representing an increase of 9% year-over-year and were $61.2 million for the year-to-date period, representing a 13% year-over-year increase. Within this product category, Sales Contracts for Computrace Data Protection products and services were up 13% in Q3-F2015 as compared to Q3-F2014, and improved 15% on a year-to-date basis. This increase was driven by continued strength within the corporate and healthcare verticals. Sales Contracts for Computrace Theft Management products and services increased 8% in Q3-F2015 compared to Q3-F2014, and were up 11% on a year-to-date basis, reflecting the growth in the Company's North American commercial business.

Sales Contracts for Endpoint Management and Service (Absolute Manage and Absolute Service) products and services were $2.8 million in Q3-F2015, representing a year-over-year decrease of 20%, and reflective of the Company's increased emphasis on its Computrace product line and lower sales of perpetual license products.  For YTD-F2015, Commercial Sales Contracts for Endpoint Management and Service products and services increased 2% to $8.3 million.

Sales Contracts for consumer solutions for Q3-F2015 were $0.8 million (4% of total Sales Contracts), down slightly from $0.9 million (5% of total Sales Contracts) in Q3-F2014. YTD F2015 Sales Contracts for consumer solutions were $2.9 million (4% of total Sales Contracts) down from $4.1 million (6% of total Sales Contracts) for the same period in F2014.

Revenue
Revenue in Q3-F2015 was $24.1 million, in line with $24.1 million in Q3-F2014, reflecting a higher proportion of non-recurring license sales in Q3-F2014. Q3-F2015 Sales Contracts included 95% recurring licenses and services (term licenses and annual maintenance contracts) versus 91% in Q3-F2014. YTD F2015 revenue was $70.3 million, up 4% 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⁽⁷⁾  
Adjusted Operating Expenses for Q3-F2015 were $17.3 million, down 9% from $18.9 million in Q3-F2014, primarily reflecting a positive impact from a weakening Canadian dollar compared to the U.S. dollar.  The Company also benefited from adjustments to its previously recorded investment tax credit estimates within R&D, due to the acceptance of certain historical claims.  For YTD F2015, Adjusted Operating Expenses were $55.3 million, a 1% decrease from $55.6 million in the same period of F2014. As a percentage of revenue, Adjusted Operating Expenses decreased to 72% in Q3-F2015 from 79% in Q3-F2014, and 79% for YTD F2015 compared to 82% for the same period in F2014.

Adjusted EBITDA & Net Income
Absolute generated Adjusted EBITDA of $6.8 million in Q3-F2015, up 32% from $5.2 million in Q3-F2014. For YTD F2015, Adjusted EBITDA was $15.1 million, a 25% increase over $12.0 million for YTD F2014.

Absolute recorded net income of $2.8 million, or $0.06 per share, in Q3-F2015, compared to net income of $1.4 million, or $0.03 per share, in Q3-F2014, primarily reflecting improvements in gross margin, lower Adjusted Operating Expenses and a reduction in foreign exchange losses. YTD F2015 net income was $5.3 million, or $0.12 per share, up from $2.8 million, or $0.06 per share, for the same period in F2014.

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 Dividend
The Company's Board of Directors declared a dividend of $0.07 per common share on April 20, 2015. The $0.07 per share dividend is scheduled to be paid on May 27, 2015 to shareholders of record at the close of business on May 6, 2015. 

Quarterly Filings
Management's discussion and analysis ("MD&A") and interim condensed consolidated financial statements and the notes thereto for Q3-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 Q3 and YTD F2015 results on Thursday, May 14, 2015 at 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 Thursday, May 21, 2015 at midnight.  To access the archived conference call, please dial 416-849-0833, or 1-855-859-2056 and enter the reservation code 39865133.

A live audio webcast of the conference call will be available at www.absolute.com and http://bit.ly/1bZ3m0O.  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 Q3 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 Interim Condensed 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 EBITDA
Management believes that analyzing operating results exclusive of significant non-cash items or items not controllable in the period provides a useful measure of the Company's performance. The term Adjusted EBITDA refers to earnings before deducting interest and investment gains (losses), income taxes, amortization of acquired intangible assets and property and equipment, foreign exchange gain or loss, share-based compensation, and restructuring charges and post-retirement benefits.  The 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. 

4) Data Protection products
Management defines the Company's Data Protection product line as Computrace products that do not include an investigations and recovery services component (for example, Computrace Data Protection).

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) Endpoint Management and Service products
Management defines the Company's Endpoint Management and Service products as Absolute Manage and Absolute Service.

7) 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 Q3 Fiscal 2015 MD&A.

About Absolute Software

Absolute Software Corporation (TSX: ABT) is the industry standard in persistent endpoint security and data risk management solutions for computers, laptops, tablets and smartphones. Persistence® technology from Absolute provides organizations with visibility and control over all of their devices, regardless of user or location. If an Absolute software client is removed from an endpoint, it will automatically reinstall so IT can secure each device and the sensitive data it contains. No other technology can do this. 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.  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. 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)
							March 31, 2015				June 30, 2014
ASSETS
CURRENT
	Cash and cash equivalents						$	44,822,264			$	40,928,539
	Short-term investments							20,026,781				17,537,492
	Trade and other receivables							13,754,178				21,979,235
	Prepaid expenses and other							2,602,633				1,917,665
								81,205,856				82,362,931
INVESTMENTS								21,547,244				15,115,005
PROPERTY AND EQUIPMENT								2,372,476				1,987,544
DEFERRED INCOME TAX ASSETS								19,141,047				19,801,047
INTANGIBLE ASSETS AND GOODWILL								17,642,707				18,535,582
							$	141,909,330			$	137,802,109
LIABILITIES
CURRENT
	Trade and other payables						$	9,539,262			$	10,455,510
	Accrued warranty							280,000				360,000
	Deferred revenue – current							72,121,286				71,144,393
								81,940,548				81,959,903
DEFERRED REVENUE								66,919,441				65,818,337
								148,859,989				147,778,240
COMMITMENTS
CONTINGENCIES
SHAREHOLDERS' DEFICIENCY
	Share capital							60,012,423				52,403,258
	Equity reserve							34,598,951				35,141,530
	Deficit							(101,562,033)				(97,520,919)
								(6,950,659)				(9,976,131)
							$	141,909,330			$	137,802,109

ABSOLUTE SOFTWARE CORPORATION
Consolidated Statements of Operations and Comprehensive Income
Three and nine months ended March 31, 2015 and 2014
(Expressed in United States dollars) (Unaudited)
				Three months ended March 31,				Nine months ended March 31,
				2015		2014		2015		2014
REVENUE				$ 24,086,388		$ 24,085,504		$ 70,343,170		$  67,635,422
COST OF REVENUE				4,252,380		5,038,026		13,376,975		14,455,184
GROSS MARGIN				19,834,008		19,047,478		56,966,195		53,180,238
OPERATING EXPENSES
	Sales and marketing			9,840,649		10,206,925		30,489,297		30,351,683
	Research and development			1,938,958		2,848,813		8,238,904		8,910,518
	General and administration			2,207,709		2,392,085		7,338,136		7,885,325
	Share-based compensation			1,480,650		462,257		2,567,419		1,546,409
				15,467,966		15,910,080		48,633,756		48,693,935
OPERATING INCOME				4,366,042		3,137,398		8,332,439		4,486,303
OTHER INCOME (EXPENSE)
	Interest income, net			69,900		75,255		133,764		170,962
	Foreign exchange (loss) gain			(50,283)		(265,923)		(408,259)		3,200
				19,617		(190,668)		(274,495)		174,162
NET INCOME BEFORE INCOME TAXES				4,385,659		2,946,730		8,057,944		4,660,465
INCOME TAX EXPENSE				(1,594,000)		(1,541,500)		(2,719,000)		(1,898,700)
NET INCOME AND
	COMPREHENSIVE INCOME			$   2,791,659		$   1,405,230		$   5,338,944		$   2,761,765
BASIC AND DILUTED INCOME PER SHARE				$  0.06		$  0.03		$   0.12		$   0.06
WEIGHTED AVERAGE NUMBER OF COMMON
	SHARES OUTSTANDING, BASIC			44,338,575		43,403,638		44,091,137		42,849,883

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		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)
Shares issued on options exercised		141,164		901,214		(320,200)		-		581,014
Share-based compensation		-		-		350,596		-		350,596
Dividends paid		-		-		-		(2,413,178)		(2,413,178)
Net income and total comprehensive income		-		-		-		810,087		810,087
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		1,153,176		6,572,980		(2,096,939)		-		4,476,041
Shares issued on non-standard options exercised		52,250		385,290		(140,388)		-		244,902
Shares issued under Employee Share Purchase Plan		140,479		734,095		-		-		734,095
Shares issued under Performance Share Unit plan		50,000		406,443		(406,443)		-		-
Shares repurchased and cancelled under the Normal
Course Issuer Bid		(384,501)		(489,643)		-		(1,794,075)		(2,283,718)
Share-based compensation		-		-		2,101,191		-		2,101,191
Dividends paid		-		-		-		(7,585,983)		(7,585,983)
Net income and total comprehensive income		-		-		-		5,338,944		5,338,944
BALANCE, MARCH 31, 2015		44,807,619		$ 60,012,423		$  34,598,951		$ (101,562,033)		$  (6,950,659)

ABSOLUTE SOFTWARE CORPORATION
Consolidated Statements of Cash Flows
Three and nine months ended March 31, 2015 and 2014
(Expressed in United States dollars) (Unaudited)
				Three months ended March 31,				Nine months ended March 31,
				2015		2014		2015		2014
OPERATING ACTIVITIES
	Net income			$  2,791,659		$  1,405,230		$  5,338,944		$  2,761,765
	Items not involving cash
		Amortization of property and equipment		415,491		371,281		1,236,515		984,200
		Amortization of acquired intangible assets		557,880		1,211,243		2,926,374		3,613,345
		Amortization of intangible assets – contract costs and brand		1,899,568		1,823,298		5,311,116		4,943,392
		Share-based compensation		1,014,422		462,257		2,101,191		1,546,409
		Deferred income taxes		808,000		1,249,200		660,000		1,026,600
		Non-cash interest and amortization
		of investment premium		246,875		110,508		524,996		399,374
	Change in non-cash working capital
		Trade and other receivables		1,501,442		2,539,925		8,253,052		3,508,703
		Prepaid expenses and other		(427,124)		(192,298)		(684,968)		(166,708)
		Intangible assets – contract costs and brand additions		(2,616,359)		(1,524,514)		(6,766,271)		(5,182,528)
		Trade and other payables		2,202,307		(194,771)		(569,621)		1,227,685
		Income taxes payable		(265,347)		-		-		-
		Accrued warranty		-		70,000		(80,000)		-
		Deferred revenue		(2,876,582)		(3,578,704)		2,077,997		(1,141,039)
CASH FROM OPERATING ACTIVITIES				5,252,232		3,752,655		20,329,325		13,521,198
INVESTING ACTIVITIES
	Purchase of property and equipment			(455,916)		(548,815)		(2,011,532)		(1,204,316)
	Purchase of intangible assets			(185,436)		-		(387,436)		(363,381)
	Proceeds from sales and maturities of short-term investments			7,650,000		-		13,950,000		-
	Purchase of short-term investments			-		-		(5,122,700)		5,203,925
	Purchase of investments			(9,808,666)		-		(18,273,826)		(3,732,293)
CASH USED IN INVESTING ACTIVITIES				(2,800,018)		(548,815)		(11,845,494)		(96,065)
FINANCING ACTIVITIES
	Issuance of common shares			2,916,396		2,030,299		5,559,508		6,833,099
	Dividends paid			(2,451,760)		(2,350,387)		(7,585,983)		(6,844,037)
	Repurchase of common shares for cancellation			(17,113)		-		(2,283,718)		-
CASH FROM (USED IN) FINANCING ACTIVITIES				447,523		(320,088)		(4,310,193)		(10,938)
FOREIGN EXCHANGE EFFECT ON CASH				(70,894)		(188,880)		(279,913)		(201,796)
INCREASE IN CASH AND CASH EQUIVALENTS				2,828,843		2,694,872		3,893,725		13,212,399
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD				41,993,421		41,632,525		40,928,539		31,114,998
CASH AND CASH EQUIVALENTS, END OF PERIOD				$  44,822,264		$  44,327,397		$  44,822,264		$  44,327,397

SOURCE Absolute Software Corporation

Public Relations: Becky Obbema, Interprose, [email protected] or 1 408 778 2024; or Toru Levinson, Absolute Software, [email protected] or 1 604 730 9851 x208; Investor Relations: Kristen Dickson, TMX|Equicom, [email protected] or 1 416 815 0700 x273