Absolute Software Corporation

Good afternoon, everyone, and thank you for standing by. Welcome to Absolute Software's Fiscal 2022 Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. If you should need assistance, please signal an operator by pressing star and then zero using a touch-tone telephone. After today's presentation, we will have a question and answer session. To ask a question, you may press star and then one To withdraw your questions, you may press star and two. I would also like to remind everyone that this conference call is being recorded today, Tuesday, May 10, 2022. I would now like to turn the floor over to your host, Ju-Han Kim, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us today. With me on today's call are Christy Wyatt, President and Chief Executive Officer of Absolute Software, and Ron Fiore, Interim Chief Financial Officer. Before beginning our formal remarks, Absolute Software would like to remind listeners that certain portions of today's call may contain forward-looking statements that reflect current views with respect to future events and conditions. Any such statements are subject to assumptions, risks, and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. Any forward-looking statements contained in today's conference call are made as of today's date, Tuesday, May 10, 2022, and Absolute Software undertakes no obligation to update or revise publicly 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. For more information on the assumptions, risks, and uncertainties relating to these forward-looking statements, please refer to the appropriate section of the company's most recent MD&A, which is now available on Absolute Software's website and will also be available on CEDAR and EDGAR. I would now like to turn the call over to Christy Wyatt. Please go ahead.

Thank you, Juwan, and thank you to everyone joining us today. I am pleased to share our strong quarterly results for fiscal year Q3. This quarter, we broke the 200 million annual recurring revenue or ARR mark driven by record enterprise and government ARR growth. We also saw record operating cash flow and delivered our seventh consecutive quarter of Rule of 40 performance. Total ARR growth was 16%, driven by record ARR growth in enterprise and government segment across product lines of 18%. Education ARR represented 22% of the total ARR and grew by 7% year over year, which is consistent with seasonal education purchasing and is also a function of the normalizing demand of the COVID peak during the last March quarter. We continue to see strong levels of engagement as we enter the seasonally strong summer months. Adjusted revenue grew by 18% to $54.5 million, and adjusted EBITDA margin remained strong at 25%. Strong operating cash flow margin of 31% drove cash from operations of $17 million. International continued to contribute to our solid quarterly performance, following heavy investments in our global go-to-market over the past year. As a part of that expansion, we added Nuvius as our dock distributor to assist us in reaching customers in the Benelux region, and more recently, Orca Technology in Australia and New Zealand. We strengthened our business as a result of two key industry trends. The first is a continued shift within enterprise customers away from legacy network and security solutions, toward endpoint security and increasingly zero-trust models. The second key trend is the permanent or ongoing support of hybrid and remote work that is driving towards endpoint and cloud-centric security strategies. As a result, we exited the quarter with 13.6 million active endpoints connecting to our cloud services, an increase of 2 million devices year over year. Before I move on, I want to quickly touch on the tragic situation in the Ukraine. Our core business was not directly affected as we have no operations in either Ukraine or Russia. We have been active in supporting customers who may have employees in the region, and we hope for an early end to the conflict. These horrific events and the escalating cyber events that surround them are a reminder that now more than ever, enterprises need to be vigilant about their security posture and ensure that all critical security controls are in place and effectively protecting the enterprises. the value of self-healing endpoint security has never been clearer or more relevant. Since it has been about a year since the announcement of the NetMotion acquisition, I thought I would provide an update on the critical development work happening across the two key product segments within our business. Absolute Secure Endpoint, which is how we now reference our Absolute Visibility Control and Resilient products, and Absolute Secure Access, our VPN and ZTNA solutions previously known as NetMotion. Let me first start with Absolute Secure Endpoints. We've talked on previous calls about the investments we've been making in intelligence and data analytics based on our unique telemetry. This quarter, we launched Insights for Endpoints, offering IT and security teams the ability to leverage their absolute data to assess devices, applications and data inventory, performance and security trends across their entire device populations. One of our customers, a financial institution in Texas, acquired insights to monitor and manage the health and compliance of critical security controls, including Sentinel-1, Tenable, and CrowdStrike. The ability to analyze this data is enabling them to understand the context around these endpoints and to better understand their security posture. You may recall last quarter I shared with you details about one of our customers who experienced a ransomware attack and how we were able to leverage our unique connection to the device even while it was in a compromised state, to remediate the risk and restore the device without requiring a rebuild of the system. Ransomware attacks continue to rise with some sources reporting that there will be a ransomware attack every two seconds in the next decade. This quarter, we launched a new offering called Ransomware Response, anchored by our patented self-healing technology that can communicate with and control the endpoint to restore health and assist in recovery. We've seen strong customer interest, including one new customer who was previously hit by an attack in which they were unable to quickly recover, and they are now looking to Absolute to monitor and maintain the health of their critical endpoint security solutions and to respond if or when a second attack occurs. A critical part of this solution is the application persistence capability within our Absolute Resilience product to restore and heal critical security controls. We continue to invest in the rapid expansion of our application persistence catalog, which today lists 81% more persistent titles than this time last year. And in parallel, we are enabling new application persistence as a service partners with the ability to integrate their applications independently with the application persistence platform. Which leads me to my second update on Absolute Secure Access products. In our secure access portfolio, we have completed our integration with the application persistence platform, making it the industry's first and only bias-enabled self-healing resilient ZTNA solution. By resilient ZTNA, we mean that it is not only integrated with APaaS, but also that it has a resilient deployment architecture and expanded network and ZTNA policy intelligence. In the first few weeks of availability, we had more than 50 customers activate the self-healing feature, and early feedback has been very compelling. One large construction firm that specializes in standing up major infrastructure projects is leveraging our resilient zero trust capabilities to ensure access permissions are being validated as employees move between networks. And as a result, they are eligible for cybersecurity insurance discounts. We also have a sovereign government customer whose requirement is to split tunnel traffic and only enable access to highly confidential information if the user can successfully re-authenticate. And finally, our customers are sharing their appreciation and their reviews with us, with one international military training organization saying, it's like having another IT person. Our secure access portfolio also achieved two critical security certifications, SOC 2 and Common Criteria EA04+. By achieving these certifications, we are conveying to our customers even more confidence that these capabilities have gone through rigorous standards based testing and review. We are very pleased with the progress of this integration as well as the momentum we are seeing across the industry. In Q3, we were recognized in Gartner's Market Guide for Zero Trust Network Access. Absolute was also recognized for the ninth consecutive quarter as a leader by G2.com in the Spring 2022 Endpoint Management Report. And finally, we were honored to be recognized in G2's 2022 Best Software Awards for the Best Security Products List in the Endpoint Security category. With that, I would like to welcome Ron Feuer, our interim CFO. Many of you may be familiar with Ron, as he was an advisor for Absolute a couple of years ago and was instrumental in the success of our NASDAQ listing. Ron has been a CFO of both public and private software and technology companies for more than 30 years and brings a wealth of experience and stability to Absolute. He will be leading all aspects of finance, tax, and accounting while we complete the search for our permanent CFO. I will now turn the call over to him to review the financial details.