Absolute Reports Fiscal 2019 First Quarter Financial Results

VANCOUVER, British Columbia – November 2, 2018 – Absolute (TSX: ABT), the endpoint visibility and control company, today announced financial results for the three months ended September 30, 2018. All dollar figures are unaudited and stated in U.S. dollars, unless otherwise indicated.

“We are very pleased to have commenced the fiscal year with strong momentum in both the Enterprise and Government market verticals, while at the same time driving meaningful improvements in profitability,” said Steve Munford, interim chief executive officer at Absolute. “On a combined basis, the Enterprise and Government verticals now account for two-thirds of our business and are expanding at a combined rate of 14%. We are committed to building on this momentum by maintaining our focus on target markets and customers and by leveraging our PC channel relationships, while at the same time optimizing our profitability.”

Key Financial Metrics

• Total revenue in Q1-F2019 was $24.3 million, representing a year-over-year increase of 6%.
• Commercial recurring revenue in Q1-F2019 was $23.2 million, representing a year-over-year increase of 7%.
• The Annual Contract Value (“ACV”) Base at September 30, 2018, was $93.1 million, representing an increase of 5% year-over-year and 2% sequentially.
• The Enterprise sector(1) portion of the ACV Base increased 13% year-over-year and was up 3% sequentially. Enterprise customers represented 53% of the ACV Base at September 30, 2018.
• The Government sector(1) portion of the ACV Base increased 20% year-over-year and was up 5% sequentially. Government customers represented 12% of the ACV Base at September 30, 2018.
• The Education sector portion of the ACV Base decreased 8% from the prior year and decreased 1% sequentially. Education customers represented 35% of the ACV Base at September 30, 2018.
• Net ACV Retention from existing Absolute customers was 101% during Q1-F2019, compared with 100% in Q1-F2018.
• Incremental ACV from New Customers was $1.0 million in Q1-F2019 compared with $0.8 million in Q1-F2018.
• Adjusted EBITDA in Q1-F2019 was $4.1 million, or 17% of revenue, compared with $1.3 million, or 6% of revenue, in Q1-F2018.
• Cash generated from operating activities in Q1-F2019 was $4.0 million compared with $2.1 million in Q1-F2018.
• Absolute paid a quarterly dividend of CAD$0.08 per common share during Q1-F2019.

Note:

Products and Organizational Developments

• In September, Lenovo announced Absolute as a strategic partner for its ThinkShield endpoint security suite. Lenovo has long embedded Absolute Persistence in its laptop products, and will now offer Absolute as a core component of its endpoint security suite to provide IT asset management, automated endpoint hygiene, and continuous compliance to customers worldwide.
• The Absolute Reach Library was expanded with 17 new query and remediation scripts that enable customers to further automate their endpoint management, hygiene, and vulnerability remediation across every endpoint, on and off the corporate network. The new scripts include automated workflows to conduct diagnostics across a fleet of endpoint devices, disable intrusive operating system processes, clear and restore tampered endpoint host files, reset administrative account passwords and modify administrative privileges.

Summary of Key Financial Metrics

F2019 Corporate Outlook

The Company is updating its outlook for F2019 as follows:

• The Company continues to expect revenue to be between $96.0 million and $99.0 million, representing 3% to 6% annual growth;
• The Company is increasing its expectation for Adjusted EBITDA from between 13% and 16% of revenue to between 14% and 17% of revenue;
• The Company continues to expect cash from operating activities to be between 10% and 14% of revenue; and
• The Company continues to expect capital expenditures to be between $3.5 million and $4.0 million.

Quarterly Dividend

On October 19, 2018, the Company declared a quarterly dividend of CAD$0.08 per share on its common shares, payable in cash on November 26, 2018, to shareholders of record at the close of business on November 5, 2018.

Quarterly Filings

Management’s Discussion and Analysis (MD&A) and Consolidated Financial Statements and the notes thereto for the fiscal quarter ended September 30, 2018 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 will hold a conference call to discuss the Company’s Q1-F2019 results on Friday, November 2, 2018, at 8:30 a.m. ET. All interested parties can join the call by dialing 647-427-7450 or 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 Friday, November 9, 2018, at midnight ET. To access the archived conference call, please dial 416-849-0833 or 1-855-859-2056 and enter the reservation code 8690248.

A live audio webcast of the conference call will be available at www.absolute.com and https://bit.ly/2ykLg6Z. 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 on the Company’s website for 90 days.

Non-IFRS Measures and Definitions

Throughout this press release, the Company refers to a number of measures that the Company believes are meaningful in the assessment of the Company’s performance. All these metrics are nonstandard 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 September 30, 2018 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. ACV Base, Net ACV Retention and ACV from New Customers

   As the majority of the Company’s customer contracts are sold under multiyear term licenses, there is a significant lag between the timing of the billing and the associated revenue recognition. As a result, the Company focuses on the aggregate annualized value of its subscriptions under contract, measured by Annual Contract Value, as an indicator of its future revenues.

   The ACV Base measures the amount of recurring annual revenue Absolute will receive from its commercial customers under contract at a point in time, and therefore is an indicator of the Company’s future revenue streams. Net ACV Retention measures the percentage increase or decrease in the Commercial ACV Base at the end of a period for the customers that made up the Commercial ACV Base at the beginning of the same period. This metric provides insight into the effectiveness of Absolute’s customer retention and expansion functions. ACV from New Customers measures the addition to the Commercial ACV Base from sales to new commercial customers during the quarter.

   We believe that increases in the amount of ACV from New Customers, and improvement in the Company’s Net ACV Retention, will grow our Commercial ACV Base and, in turn, our future revenues.

2. Adjusted EBITDA

   Management believes that analyzing operating results exclusive of significant noncash 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 intangible assets and property and equipment, foreign exchange gain or loss, share-based compensation, and restructuring and reorganization charges and post-retirement benefits. The items excluded in the determination of Adjusted EBITDA are share-based compensation, amortization of intangibles, amortization of property and equipment, and restructuring and reorganization charges and certain post-retirement benefits.

3. Adjusted Operating Expenses

   A number of significant noncash or nonrecurring expenses are reported in the Company’s Cost of Revenue and Operating Expenses. Management believes that analyzing these expenses exclusive of these noncash or nonrecurring 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 intangible assets, amortization of property and equipment, and restructuring and reorganization charges and certain post-retirement benefits. For a description of the reasons these items are adjusted, please refer to the “Non-IFRS Measures” section of the September 30, 2018, MD&A.