Absolute Software Reports Second Quarter Fiscal 2022 Financial Results

VANCOUVER, British Columbia and SAN JOSE, Calif. – February 8, 2022 – Absolute Software Corporation (Nasdaq: ABST) (TSX: ABST) (the “Company”), a leader in self-healing Zero Trust solutions, today announced its financial results for its second quarter fiscal 2022 ended December 31, 2021. All dollar figures are stated in U.S. dollars, unless otherwise indicated.

“Our results this quarter, and our overall first half performance, demonstrate steady, consistent growth as we see strong demand for both our resilient endpoint and secure access platforms,” said Christy Wyatt, Absolute Software’s President and CEO. “As the global shift to hybrid and remote work continues, more companies are migrating to endpoint-centric security strategies that include zero trust. We are well-positioned to continue to deliver profitable growth as the only endpoint security solution embedded into the firmware of over a half a billion devices, capable of enabling a highly optimized user experience.”

• Revenue in Q2 F2022 was $49.0 million, representing 64% growth compared to Q2 of fiscal year 2021 (“Q2 F2021”).
• Adjusted Revenue⁽¹⁾ in Q2 F2022 was $52.9 million, representing 77% growth compared to Q2 F2021 Adjusted Revenue, and 17% growth compared to Q2 F2021 revenue on an as-if combined basis without factoring in acquisition related adjustments(2).
• Net loss in Q2 F2022 was $5.1 million, compared to net income of $1.9 million in Q2 F2021.
• Total ARR⁽⁴⁾ at December 31, 2021 was $195.6 million, representing 66% growth over the prior year reported ARR, and growth of 15% compared to an as-if combined basis for Q2 F2021⁽³⁾.
• The Enterprise & Government portions of Total ARR grew by 94% over the prior year, and by 17% compared to an as-if combined basis for Q2 F2021⁽³⁾. The Enterprise & Government portion represented 77% of Total ARR at December 31, 2021.
• The Education sector portion of Total ARR grew by 13% year over year and, and by 12% compared to an as-if combined basis for Q2 F2021⁽³⁾. The Education sector portion represented 23% of Total ARR at December 31, 2021.
• New Logo ARR⁽⁴⁾⁽⁵⁾ was $3.7 million in Q2 F2022, compared to $1.5 million in Q2 F2021. New Logo ARR grew by 76% compared to an as-if combined basis for Q2 F2021.
• Net Dollar Retention⁽⁴⁾⁽⁶⁾ was 107% in Q2 F2022, compared to 109% in Q2 F2021.
• Adjusted EBITDA⁽¹⁾ in Q2 F2022 was $13.8 million or 26% of Adjusted Revenue⁽¹⁾, compared to $8.0 million or 27% of Adjusted Revenue in Q2 F2021.
• Cash from operating activities was $14.7 million in Q2 F2022, an increase from $13.4 million in Q2 F2021.
• A quarterly dividend of CAD$0.08 per outstanding common share was paid in Q2 F2022.

USD millions, except percentages, number of shares, and per share amounts

Business and organizational developments:

• In Q2 F2022, Absolute was recognized by G2 as a Leader in its Winter 2022 Endpoint Management and Zero Trust Networking Grid Reports – reflecting continued customer satisfaction across product lines.
• In October, we announced key findings from a new research report titled ‘The Future of Work,’ which revealed that over 80% of organizations surveyed plan to adopt a hybrid or Work from Anywhere model in 2022.
• In November, Absolute was named as a finalist in BC Tech’s ‘Technology Impact Awards’ for the second consecutive year, in the category of ‘Company of the Year – Anchor Success’.

Product and service highlights:

• In Q2, we reached nearly 13.4 million active endpoints across our global customer base – an increase of approximately 1.8 million endpoints, or 16%, year over year.
• In Q2, we grew our catalogue of Application Persistence™ titles by 88% year over year.
• In October, we delivered the first combined product innovation milestone following our acquisition of NetMotion Software, adding the self-healing power of Application Persistence to NetMotion’s Zero Trust Network Access (ZTNA) solution to launch the industry’s first self-healing Zero Trust platform.
• In November, we launched Application Persistence-as-a-Service (APaaS) - empowering Independent Software Vendors (ISVs) and system manufacturers to leverage Absolute’s firmware-embedded, self-healing device connection to strengthen the resiliency of their mission-critical applications. We also named Plurilock Security and Smart Eye Technology as initial partners leveraging APaaS to help ensure their apps remain healthy and undeletable across their entire customer base.
• In November, we continued streamlining management of remote device fleets for our customers, delivering additional enhancements to core capabilities around wiping and decommissioning devices in response to today’s heightened threat landscape for endpoints.
• In December, we made available a new K-12 offering, Absolute Resilience for Student Devices, specially designed to enable school IT teams with the critical capabilities needed to better manage 1:1 device programs in hybrid learning environments.

Partner and other highlights:

• In Q2, we continued to scale our business in international markets, signing a new distribution agreement with Nuvias in Benelux and launching with FVC in the Middle East (Dubai).
• In Q2, we extended our reach and enablement capabilities with HP by launching a successful retail bundle on QVC in North America and turning on factory activation for consumer devices in EMEA.

The Company’s updated financial outlook for its 2022 fiscal year (July 1, 2021 – June 30, 2022) is as follows⁽¹⁾:

• Increased full-year F2022 adjusted revenue⁽²⁾ to be in the range of $206 million to $208 million; this equates to a full-year F2022 adjusted revenue growth of approximately 13% to 14% ⁽³⁾.
• Increased full-year F2022 Adjusted EBITDA⁽²⁾ margin, calculated on adjusted revenue, to be in the range of 22% to 24%.

The foregoing outlook and expectations constitute forward-looking statements and financial outlook and are qualified in their entirety by the “Forward-Looking Statements” cautionary statement below. The purpose of this financial outlook is to provide readers with disclosure regarding management’s current reasonable expectations and plans for F2022. Readers are cautioned that this financial outlook may not be appropriate for other purposes.

Quarterly Dividend

On January 20, 2022, we declared a quarterly dividend of CAD$0.08 per share on our common shares, payable in cash on February 25, 2022 to shareholders of record at the close of business on February 11, 2022.

Quarterly Filings and Related Quarterly Financial Information

Management’s Discussion and Analysis (“MD&A”) and Consolidated Financial Statements and the notes thereto for the fiscal period ended December 31, 2021 can be obtained today from Absolute’s corporate website at www.absolute.com. The documents will also be available under Absolute’s SEDAR profile at www.sedar.com and on EDGAR at www.sec.gov. Additionally, the Company today will publish on the Investor Relations section of its website (www.absolute.com/company/investors/) a Q2 F2022 Earnings Presentation and a dashboard of Selected Operating and Financial Metrics.

Conference Call

Absolute Software will host a conference call on Tuesday, February 8, 2022 at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) to discuss its results and business outlook. The call will be accessible by dialing 1-844-763-8274 or 1-412-717-9224; participants should ask to join the Absolute Software call. A live audio webcast of the conference call will also be available via the Absolute Investor Relations website.

The conference call will be archived for replay until Tuesday, February 15, 2022. To access the archived conference call, please dial 855-669-9658 or 1-877-344-7529 and enter the reservation code 8413923. To access the replay using an international dial-in number, please use this link. An archived replay of the webcast will be available for one year.

Use of non-IFRS measures and key metrics

Throughout this press release we refer to a number of measures and metrics which we believe are meaningful in the assessment of the Company’s performance. Many of these measures and metrics do not have any standardized meaning under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and are unlikely to be comparable to similarly titled measures reported by other companies. Readers are cautioned that the disclosure of these items is meant to add to, and not replace, the discussion of financial results or cash flows from operations as determined in accordance with IFRS.

The purpose of these non-IFRS measures and key metrics is to provide supplemental information that may prove useful to readers who wish to consider the impact of certain non-cash or non-recurring items on the Company’s operating performance, and assist in comparison of our operating results over historical periods. Supplementing IFRS disclosures with non-IFRS measures outlined below provides management with an additional view of operational performance by excluding expenses that are not directly related to performance in any particular period. Management uses both IFRS and non-IFRS measures when planning, monitoring and evaluating the Company’s performance.

These measures and metrics are as follows.

Key Metrics

1. Total ARR, Net Dollar Retention, and New Logo ARR

   As the majority of our customer contracts are sold under prepaid multi-year term licenses, there is typically a significant lag between the timing of the invoice and the associated revenue recognition. As a result, we focus on the annualized recurring value of all active contracts, measured by Annual Recurring Revenue (“ARR”), as an indicator of our future recurring revenues. ARR includes multi-year and short-term subscriptions for cloud-based services, as well as, managed professional services and professional services with terms greater than one year. Both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplying by twelve. We believe that increases in the amount of New Logo ARR, and improvement in our Net Dollar Retention, will accelerate the growth of Total ARR and, in turn, our future revenues. We provide these metrics as they are used to manage the business, however we believe there is no similar measure under IFRS to which they would be reconciled.

   Total ARR is a key metric and measures the aggregate annualized recurring revenues of all active contracts at the end of a reporting period, and therefore is an indicator of our future revenue streams. Total ARR will change over a period through the retention, attrition and expansion of existing customers and the acquisition of new customers.

   Net Dollar Retention (previously “Net ARR Retention”) is a key metric and measures the percentage increase or decrease in Total ARR at the end of a year for customers that comprised Total ARR at the beginning of the year. This metric provides insight into the effectiveness of our activities to retain and expand the ARR of our existing customers.

   New Logo ARR (previously “ARR from New Customers”) is a key metric and measures the addition to Total ARR from sales to new customers during a period.

Non-IFRS Measures

1. Adjusted Revenue

   Adjusted Revenue is defined as revenue, excluding fair value adjustments relating to acquired deferred revenue. In connection with the acquisition of NetMotion, NetMotion’s deferred revenue was written down to its fair value at the acquisition date. As a result, related revenue in the post acquisition period does not reflect the full amount of revenue that would otherwise be recognized. We believe excluding fair value adjustments relating to deferred revenue provides a useful measure of the Company’s performance as it allows for comparability across future periods, where revenue recognized would reflect the transaction price, without acquisition-related fair value adjustments.

2. Adjusted Gross Margin and Gross Margin %

   Adjusted Gross Margin is defined as gross margin, adjusted for depreciation and amortization, share-based compensation expense, fair value adjustments relating to acquired deferred revenue, and non-recurring items. Adjusted Gross Margin % is defined as Adjusted Gross Margin, as a percentage of Adjusted Revenue.

3. Adjusted Operating Expenses

   Adjusted Operating Expenses is defined as sales and marketing expense, research and development expense, and general and administrative expense, excluding depreciation and amortization, share-based compensation expense, fair value adjustments relating to acquired deferred commission expense, restructuring or reorganization charges and post-retirement benefits, and non-recurring items.

4. Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)

   Adjusted EBITDA is defined as net income before interest income or expense, income taxes, depreciation and amortization, foreign exchange gains or losses, share-based compensation expense, fair value adjustments relating to acquired deferred revenue, fair value adjustments relating to acquired deferred commission expense, restructuring or reorganization charges and post-retirement benefits, and non-recurring items.

   We believe Adjusted EBITDA provides a useful measure of the Company’s performance, as it helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that are not indicative of the core operating performance of our business.

   Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other IFRS financial measures. Some of the limitations of Adjusted EBITDA are that it excludes recurring expenses for interest payments, does not reflect the dilution that results from share-based compensation, and does not reflect the cost to replace amortized property and equipment and right-of-use assets. It may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure.

   Reconciliation of non-IFRS measures from IFRS measures are presented below.

Adjusted Revenue

Adjusted Gross Margin

Adjusted Operating Expenses

Adjusted EBITDA