Absolute Software Reports Third Quarter Fiscal 2010 Results
VANCOUVER, May 3 /CNW/ - Absolute(R) Software (TSX: ABT), the leading provider of firmware-based, patented computer theft recovery, data protection and secure IT asset management solutions, announces its financial results for the three- and nine-month periods ended March 31, 2010. All figures are in Canadian dollars unless otherwise stated.
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Key Financial Metrics Q3 Q3 % YTD YTD %
F2010 F2009 change F2010 F2009 change
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Sales Contracts
reported(1.a) $15.0M $16.9M -11% $50.3M $51.6M -3%
Sales Contracts
in constant
currency(1.b) $18.2M $16.9M +7% $55.0M $51.6M +6%
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Cash from Operating
Activities(1.a) $0.2M $3.1M -92% $6.2M $15.3M -60%
Operating cash
per share(1.a)
Basic $0.01 $0.07 -86% $0.13 $0.32 -59%
Diluted $0.01 $0.06 -83% $0.13 $0.31 -58%
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Revenue $16.6M $13.7M +22% $47.5M $38.9M +22%
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Net loss $(0.0M) $(1.1M) +97% $(4.3M) ($18.7M) +77%
Loss per share
(diluted) $(0.00) $(0.02) +100% $(0.09) $(0.39) +77%
Subscriptions under
contract 5.5M 4.0M +36%
Q3-F2010 Highlights:
- Deferred revenue was $99.6 million at March 31, 2010, up 12% from
$88.8 million at March 31, 2009, and 4% from $95.9 million at June
30, 2009
- Cash, cash equivalents & investments (including long-term) were $65.5
million at March 31, 2010, compared to $68.9 million at June 30, 2009
due to the use of $10.3 million in the acquisition of LANrev
- Launched Computrace LoJack(R) for Laptops product that incorporates
Intel(R) Anti-Theft Technology for the consumer market
- Completed the first phase of integrating the LANrev asset purchased
in Q2-F2010, including re-branding it as Absolute Manage
- Announced the University of Texas' selection of Absolute Manage for
deployment on all their Mac(R) computers
- Subsequent to quarter-end, purchased the technology assets of
FailSafe(R) and Phoenix Freeze(TM) from Phoenix Technologies
"The PC refresh cycle has yet to gain real traction in the commercial market and overall spending in that segment remains muted, which resulted in lower than expected performance in the quarter," said John Livingston, Chairman and CEO of Absolute. "However, excluding the impact of exchange rate fluctuations, Q3 sales contracts increased 7% from last year reflecting contribution from our investment in the business. Looking toward fiscal 2011, we are optimistic with the outlook for the business and will drive growth through our strong partnerships, extensive product suite, international sales and marketing footprint, and significant renewal opportunity."
Mr. Livingston continued: "Our fourth quarter has already begun to show some improvements in support of our outlook, and is off to a strong start. Subsequent to quarter-end we completed a $1.0 million Sales Contract for Absolute Manage with a U.S. school district and existing Absolute customer. The customer will use Absolute Manage for full lifecycle management of their 18,200 computers. This sale amount will be included in fourth quarter Sales Contracts."
Financial Review
Sales Contracts for Q3-F2010 were $15.0 million compared to $16.9 million in Q3-F2009. A majority of Absolute's sales are denominated in U.S. dollars and therefore, periodic fluctuations in the U.S./Canadian exchange rate can impact reported Sales Contract levels. In constant currency, Sales Contracts increased 7% in Q3-F2010 compared to the same period last year. The $15.0 million in Sales Contracts is below our preliminary estimate of $15.5 million to $16.0 million (which was provided in our pre-announcement on April 8, 2010), due to quarterly closing adjustments as a result of our normal quarter end review process.
Existing commercial customers continued to produce a majority of sales, generating 73% of Q3-F2010 Sales Contracts. In addition, our international sales grew 140% in constant currency over Q3 last year, increasing to 8% of Q3-F2010 sales, and reaching 7% of sales year-to-date, as we continue to invest in our worldwide capability. In addition, subsequent to quarter end we concluded a five year contract with a corporate customer in the UK that commits them to purchases of Computrace in the range of $200,000 per year over the next five years, and makes them our largest single customer in the EMEA region. The purchases will be included in Sales Contracts annually.
While sales growth has been slowed by the economy and timing of refresh cycles, we have continued to grow our customer base, and now have 1.0 million commercial subscriptions (up 55% from fiscal 2010) and 1.6 million consumer subscriptions (up 198% from fiscal 2010) coming up for renewal in fiscal 2011. With Absolute Manage giving us the potential to sell more products to existing customers, and with computer refresh cycles expected to accelerate, we believe our current customer base provides a solid foundation for growth in fiscal 2011.
Absolute deploys its services through a software-as-a-service ("SaaS") model. A feature of the SaaS model is its potential to generate operating cash flows. Absolute's cash from Operating Activities for Q3-F2010 totaled $0.2 million compared to $3.1 million in Q3-F2009. The reduction reflects management's investment strategy and the weakened U.S. dollar.
Revenue for Q3-F2010 was $16.6 million, an increase of 22% from $13.7 million in Q3-F2009. Revenue is typically a lagging performance indicator as it is a function of deferred revenue as opposed to sales in the quarter. The majority of the revenue from Q3-F2010 Sales Contracts is included in deferred revenue on the balance sheet at March 31, 2010, which was $99.6 million, compared to $95.9 million at June 30, 2009.
Absolute generated operating income of $482,000 in Q3-F2010, compared to an operating loss of $1.5 million in Q3-F2009. Excluding stock-based compensation and investment tax credits, the adjusted operating income for Q3-F2010 was $727,000, compared to an operating loss of $1.1 million in Q3 last year. The reduced operating losses relate in part to a $1.4 million warranty adjustment benefit to COS in Q3-F2010, with the remainder of the reduction reflecting increases in revenue from prior period Sales Contract performance and improving gross margins.
GAAP net loss was $32,000 in Q3-F2010 ($0.00 per share), compared to a GAAP net loss of $1.1 million ($0.02 per share) last year. Excluding stock-based compensation, the net income for Q3-F2010 was $463,000, compared to a net loss of $629,000 in Q3 last year. The current quarter improvement was impacted by the factors outlined above, including the benefit of a $1.1 million warranty adjustment, as well as a reduction in other income, primarily from foreign exchange losses and reductions in interest income.
Absolute is in a strong financial position, with no debt and the financial resources necessary to fund its operating and capital requirements and to execute on its growth strategies. At March 31, 2010, Absolute's cash, cash equivalents, short-term investments and investments were $65.5 million, compared to $65.0 million at December 31, 2009 and $68.9 million at June 30, 2009. The reduction in cash position from June 30, 2009 is due to the use of $10.3 million in the December 2009 purchase of LANrev.
Guidance
On April 8, 2010, Absolute revised its guidance for fiscal 2010 as follows:
- Sales contracts of $68-72 million (was $76-82 million)
- Cash from Operating Activities of $5-7 million (was $8-11 million)
Management's discussion and analysis (MD&A), consolidated financial statements and notes thereto for the second quarter 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 contents of this release on Monday, May 3, 2010 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 10, 2010 at midnight. To access the archived conference call, please dial 416-849-0833 or 1-800-642-1687 and enter the reservation code 49682867.
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.
(1.a) Absolute refers to "Sales Contracts" (invoiced sales) as a revenue
measure, "Cash from Operating Activities" as a profitability
measure, and "Basic and Diluted Operating Cash per Share" (Cash
from Operating Activities divided by the average shares
outstanding for the period; diluted calculated using the treasury
stock method) as an earnings per share measure. With the exception
of Cash from Operating Activities, these are non-standard measures
under Canadian Generally Accepted Accounting Principals. Absolute
considers these measures to be key performance metrics as
substantially all Sales Contracts in each quarter are deferred on
the balance sheet, while the related costs are expensed in that
same quarter. Refer to the Business Model section in our
Management Discussion and Analysis for more details.
(1.b) Sales Contracts in constant currency refers to the Canadian dollar
sales that would have been reported had the U.S. dollar exchange
rate been unchanged from the rate in the prior year. With
approximately 95% of Sales Contracts in U.S. dollars management
believes this to be a more meaningful evaluation of the underlying
performance of the business.
About Absolute
Absolute Software Corporation (TSX: ABT) is the leader in computer theft recovery, data protection and IT asset management solutions. Absolute Software provides organizations and consumers with solutions in the areas of regulatory compliance, data protection and theft recovery. The company's Computrace software is embedded in the firmware of computers by global leaders, including Acer, ASUS, Dell, Fujitsu, Fujitsu-Siemens, GammaTech, General Dynamics Itronix, HP, Lenovo, Motion, Panasonic and Toshiba, and the Company has reselling partnerships with these OEMs and others, including Apple. For more information about Absolute Software and Computrace, visit www.absolute.com or http://blog.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, a continuing, or increased need for data protection and theft recovery services in difficult economic times, the continued successful integration of recently-acquired products and technologies, an increase in computer refresh/replacement cycles, the attainment of certain subscription targets and company performance, the increased adoption, or attach rates, of the Company's lifecycle management, computer tracking and computer theft recovery solutions, the ability of the Company to achieve its $68-72 million Sales Contracts and $5-7 million Cash from Operating Activities FY 2010 targets, the ability of the Company to successfully execute on its growth strategies, including attracting new retail partners, the demand for its products continuing to increase, stable currency valuations and a sufficiently stable and healthy global economic and business environment, 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 Absolute's current expectations. They are subject to a number of risks and uncertainties, including, but not limited to, changes in technology and general market conditions. In light of the many risks and uncertainties you should understand that Absolute cannot assure you that the forward-looking statements contained in this press release will be realized.
The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control. Such risks and uncertainties include, without limitation, risks associated with increased competition from other producers, the impact of general, economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, changes in federal and provincial tax laws and legislation, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Readers are cautioned that the foregoing list of risks to the Company's performance is not exhaustive and reference is made to the items under "Risk Factors" in the Corporation's Annual Information Form (AIF) for the year ended June 30, 2009. All subsequent forward-looking statements, whether written or oral, attributable to the Corporation or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this MD&A 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.
(C)2010 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. All other trademarks are property of their respective owners. Computrace U.S. patents No. 5,715,174, No. 5,764,892, No. 5,802,280, No. 5,896,497, No. 6,244,758, No. 6,269,392, No. 6,300,863, and No. 6,507,914. Canadian patents No. 2,284,806 and No. 2,205,370. U.K. patents No. EP793823 and No. GB2338101. German patent No. 695 125 34.6-08. Australian patent No. 699045. Japan patent No. JP4067035. The Toronto Stock Exchange has neither approved nor disapproved of the information contained in this news release.
ABSOLUTE SOFTWARE CORPORATION
Consolidated Balance Sheets
(Expressed in Canadian dollars) (Unaudited)
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As At
March 31, June 30,
2010 2009
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ASSETS
CURRENT
Cash and cash equivalents $ 32,305,510 $ 56,078,004
Short-term investments 8,778,040 8,743,861
Accounts receivable, net of
allowance for doubtful accounts
of $2,083,000 (2009 - $2,387,000) 10,931,483 15,570,780
Prepaid expenses and other 1,245,729 974,564
Current portion of deferred
contract costs 3,980,621 3,609,944
Current portion of future
income tax assets 10,681,537 10,646,521
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67,922,920 95,623,674
INVESTMENTS 24,392,617 4,076,211
DEFERRED CONTRACT COSTS 3,623,958 3,765,717
PROPERTY AND EQUIPMENT 2,773,598 2,644,275
FUTURE INCOME TAX ASSETS 11,657,201 11,081,073
INTANGIBLE ASSETS 16,131,676 127,775
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$126,501,970 $117,318,725
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LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 6,891,303 $ 6,775,466
Income tax payable 3,525,000 1,575,000
Current portion of acquisition payable 1,708,113 -
Current portion of accrued warranty 5,226,901 5,288,520
Current portion of deferred revenue, net 51,389,272 46,577,880
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68,740,589 60,216,866
ACQUISITION PAYABLE 3,416,227 -
ACCRUED WARRANTY 4,992,403 5,963,650
DEFERRED REVENUE, NET 48,217,489 49,278,726
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125,366,708 115,459,242
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SHAREHOLDERS' EQUITY
Share capital 44,460,421 41,988,977
Contributed surplus 28,056,679 26,822,975
Deficit (71,381,838) (66,952,469)
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1,135,262 1,859,483
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$126,501,970 $117,318,725
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ABSOLUTE SOFTWARE CORPORATION
Consolidated Statements of Loss and Comprehensive Loss
Three and nine months ended March 31, 2010 and 2009
(Expressed in Canadian dollars) (Unaudited)
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Three Months Nine Months
2010 2009 2010 2009
------------- ------------- ------------- -------------
REVENUE 16,591,201 13,651,444 47,475,908 38,887,933
COST OF REVENUE 3,523,676 3,530,115 11,080,155 10,454,544
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GROSS MARGIN 13,067,525 10,121,329 36,395,753 28,433,389
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EXPENSES
Sales and
marketing 8,005,609 7,639,246 25,327,575 21,559,911
Research and
development 2,099,020 1,801,853 5,756,038 5,245,509
General and
administration 2,235,811 1,785,137 6,098,036 5,494,231
Investment tax
credits (250,000) (100,000) (750,000) (775,000)
Stock-based
compensation 494,747 479,825 1,663,425 15,150,525
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12,585,187 11,606,061 38,095,074 46,675,176
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OPERATING INCOME
(LOSS) 482,338 (1,484,732) (1,699,321) (18,241,787)
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OTHER (EXPENSE)
INCOME
Interest and bank
charges, net 172,087 268,302 524,947 1,232,878
Foreign exchange
(loss) gain (484,407) 330,708 (2,370,864) 2,296,390
Loss on foreign
exchange
contracts - (286,380) - (1,512,500)
Restructuring
charges - - - (989,132)
Unrealized (loss)
gain on
investment (11,935) 163,450 (159,263) (754,454)
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(324,255) 476,080 (2,005,180) 273,182
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INCOME (LOSS) FOR
PERIOD BEFORE
INCOME TAXES 158,083 (1,008,652) (3,704,501) (17,968,605)
INCOME TAX EXPENSE (190,000) (100,000) (640,000) (775,000)
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NET LOSS AND
COMPREHENSIVE LOSS
FOR THE PERIOD (31,917) (1,108,652) (4,344,501) (18,743,605)
DEFICIT, BEGINNING
OF PERIOD (71,349,921) (75,992,095) (66,952,469) (56,752,618)
ADJUSTMENT
RELATED TO SHARE
REPURCHASE - (6,336,632) (84,868) (7,941,156)
DEFICIT, END OF
PERIOD $(71,381,838) $(83,437,379) $(71,381,838) $(83,437,379)
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BASIC AND DILUTED
LOSS PER SHARE $ (0.00) $ (0.02) $ (0.09) $ (0.39)
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WEIGHTED AVERAGE
NUMBER OF
COMMON SHARES
OUTSTANDING,
BASIC AND
DILUTED 46,467,203 46,671,444 46,203,446 47,582,009
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ABSOLUTE SOFTWARE CORPORATION
Consolidated Statements of Cash Flows
Three and nine months ended March 31, 2010 and 2009
(Expressed in Canadian dollars) (Unaudited)
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Three Months Nine Months
2010 2009 2010 2009
------------- ------------- ------------- -------------
OPERATING
ACTIVITIES
Net loss for
the period $ (31,917) $ (1,108,652) $ (4,344,501) $(18,743,605)
Items not
involving
cash
Amortization
of property
and equipment 355,465 297,161 992,630 792,310
Amortization
of intangible
assets 892,823 31,944 1,243,670 95,832
Stock-based
compensation 494,747 479,825 1,663,425 15,150,525
Future income
taxes (40,000) (800,000) (2,060,000) (2,100,000)
Unrealized loss
(gain) on
investment 11,935 (163,450) 159,263 754,454
Realized loss
on foreign
exchange
contract - 471,000 - 887,500
Change in non-cash
operating working
capital
Accounts
receivable 489,207 (1,065,314) 4,639,297 4,971,250
Prepaid expenses
and other 163,803 (11,219) (271,165) 97,339
Deferred contract
costs 6,496 (405,006) (228,918) (664,370)
Accounts payable
and accrued
liabilities 299,149 561,364 89,036 400,816
Income tax
payable (20,000) 800,000 1,950,000 2,100,000
Accrued
warranty (1,534,029) 399,768 (1,032,866) 2,214,387
Deferred
revenue (846,636) 3,608,586 3,369,839 9,316,183
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CASH FROM
OPERATING
ACTIVITIES 241,043 3,096,007 6,169,710 15,272,621
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INVESTING
ACTIVITIES
Property and
equipment
purchased (353,239) (286,013) (1,104,956) (1,241,572)
Acquisition of
LANrev (30,000) - (10,284,256) -
Other asset - 725,374 - -
Realized loss on
foreign exchange
contract - (471,000) - (887,500)
Proceeds from
maturities of
short term
investments - 1,749,000 7,311,464 9,980,571
Purchases of
short term
investments (84,207) (6,920,621) (7,504,905) (9,131,778)
Proceeds from
maturities of
investments - 7,414,000 - 8,375,000
Purchases of
investments (54,854) (1,570,140) (20,316,406) (5,473,198)
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CASH (USED IN) FROM
INVESTING
ACTIVITIES (522,300) 640,600 (31,899,059) 1,621,523
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FINANCING
ACTIVITIES
Repurchase of
common shares
for cancellation - (8,365,219) (101,250) (10,637,373)
Issuance of
common shares 660,482 439,588 2,058,105 1,506,421
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CASH FROM (USED
IN) FINANCING
ACTIVITIES 660,482 (7,925,631) 1,956,855 (9,130,952)
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NET CASH INFLOW
(OUTFLOW) 379,225 (4,189,024) (23,772,494) 7,763,192
CASH AND CASH
EQUIVALENTS,
BEGINNING OF
PERIOD 31,926,285 58,412,515 56,078,004 46,460,299
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CASH AND CASH
EQUIVALENTS,
END OF PERIOD $ 32,305,510 $ 54,223,491 $ 32,305,510 $ 54,223,491
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%SEDAR: 00013849E
For further information: Rob Chase, Chief Financial Officer ([email protected]) or Phone: (604) 730-9851; Dave Mason, Investor Relations ([email protected]) or Phone: (416) 815-0700 x237, Website: http://www.absolute.com
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