Absolute Software Corporation

Good afternoon, everyone, and thank you for standing by. Welcome to Absolute Software's fiscal 2023 first quarter results conference call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone thumb. To withdraw your question, please press star then two. I would also like to remind everyone that this conference call is being recorded today, November 8th, 2022. I would now like to turn the floor over to your host, Joo 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 Fior, 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, November 8, 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 law. 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 CDAR and EDGAR. I would now like to turn the call over to Christy Wyatt. Please go ahead.

Thank you to everyone joining us today for Absolute Software's Q1 Fiscal 2023 Earnings Call. As a part of today's call, we will cover the results as well as three important themes, the diversity of our customer base, investments we have made in the business, and how we're faring amidst macroeconomic concerns. First, our results. In Q1, we delivered consistent and steady year-on-year ARR growth of 15% and adjusted EBITDA margin of 21%. As we shared in our last call, this quarter we made a one-time investment in our company kickoff, as well as sales headcount investments to support growth later in the year, which was partly responsible for the downtick in EBITDA margin. We fully expect to maintain our Rule of 40 operating model for the full fiscal year, as we have previously discussed. Enterprise and government sector ARR growth continued to be strong and expanded as a percentage of our total revenue. The sector increased 18% year on year, despite being a seasonally slow quarter for the enterprise. Demand was particularly healthy for secure endpoint solutions for both security and IT use cases, as we continue to improve our customer-focused go-to-market motion. Our solid execution was also reflected on our customer satisfaction results. We continue to see our NPS score strengthen, setting another record this quarter. We were also recognized as a leader for the 11th consecutive quarter by G2.com in the Fall 2022 Endpoint Management Report, and for the second consecutive quarter as a leader in the Zero Trust Networking Grid Report. We also saw some nice mentions from industry analysts, including a feature in Forrester's The Future of Endpoint Management report, and Cuppinger-Cole, who named Absolute an overall leader in their 2022 Leadership Compass Zero Trust Network Access report. Finally, our active endpoint growth increased by 13% year-on-year and is now more than 14 million devices actively connecting to our cloud services. At our recent Financial Analyst Day in New York, we showed both the vertical market diversity in our business, as well as the diversity of our go-to-market channels, with just over 50% of our sales going through our OEM partners. One of the verticals that continues to grow nicely is healthcare. As an example, this quarter, we helped a large medical device company to improve their visibility, reporting, and compliance capabilities across more than 40,000 devices in a highly regulated environment. Their focus was ensuring their critical tools for endpoint encryption and device management remain healthy and operational, as well as the ability to remediate in the event that they need to protect intellectual property and other sensitive data on the endpoints. Another strong vertical for us in the quarter was professional services, where we saw yet another large global professional services organization with an extremely large hybrid workforce leverage absolute resilience for four critical applications to improve productivity and decrease the risk profile of remote work. Very much like Genpak, the customer who spoke at our investor day, this customer is taking advantage of the full suite of our secure endpoint capabilities. Turning to education, consistent with our view that education will remain at a high single digit, low double digit market for us, we saw 7% year-on-year growth as the segment continues to decrease as an overall percentage of our total revenue. We did see some effect of ongoing supply chain issues with our OEM partners resulting in some deals being pushed out or in some cases, shifting the mix from PCs to Chromebooks as they were more readily available. Like many of our education customers, one large US school district this quarter was seeing missing device rates in the teens. They turned to our resilience for Chromebooks offering across their 75,000 new student Chromebooks to help them identify lost or stolen devices and they are leveraging our professional services team to manage their growing device fleet and assist with recovering those devices at the end of the school year. While secure access experienced some summer seasonality, especially in Europe, we are happy with the growing set of opportunities, especially in transportation and logistics, where we saw several key design wins with major airlines, as well as continued strength in the state and local government segment. One of the key wins this quarter in our secure access portfolio included a large multi-county police force in the UK where we replaced their underperforming legacy VPN product with our persistent self-healing secure access solution, ensuring first responders are able to access mission critical applications in rural remote areas known for having poor cellular coverage and assuring officers can securely communicate with one another in pursuit of their safety and of those they are serving in the community. Staying on secure access for a moment, we are seeing accelerated demand for our cloud hosted secure access offering. With its near instant time to deployment, ability to scale with business demands and lower cost of ownership versus an on-premise solution, our cloud SA offering gives enterprises the ability to scale remote and hybrid work initiatives, as well as quickly implement a ZTNA solution across the company with our best in class user experience. While it was a small part of the overall SA business when we acquired NetMotion, cloud deployments are growing quickly and we expect cloud to be a material driver of new secure access ARR this fiscal year, as well as an efficient delivery vehicle as our OEM partners are bringing SA online. In addition to growing OEM support for our SA portfolio, we also added British Telecom and Ingram Micro US to the growing carrier and reseller partner community. The second theme I want to discuss today is around the investments we continue to make in our team. In our last call, we discussed investing early in the new fiscal year to set us up for growth in the second half. We accomplished that by filling quota carrying and key R&D positions at the end of Q4 and early in Q1, ensuring that teams were staffed and ready to execute against our first half plan. We also wanted to ensure that most of our employees could be on board in time to attend our company kickoff. Our company kickoff was a powerful start to our year, enabling the entire Absolute team to train, spend time on the Absolute story and with one another. These costs are all now fully baked into Q1 results and will produce continued revenue impact in the remainder of the fiscal year. As we continue to focus on driving awareness and demand for Absolute, we welcomed Alice Hansen as our new Chief Marketing Officer this quarter. Filling out the final pieces for our executive team this year, we also announced industry veteran Sameer Sharif to Chief Information Security Officer, and we promoted Mark Grace to Chief Revenue Officer as Matthew Schoenfeld exited the business to pursue a new opportunity. Mark has unparalleled knowledge and roots in Absolute's business and is known for his outstanding leadership and for building high-performance go-to-market teams. And finally, last week, we announced that Jim LeGille will be joining us as our new CFO. Jim is a seven-time CFO with a proven track record in financial leadership at SaaS companies and a passion for helping software businesses scale. I look forward to you meeting Jim after he starts with us on December 5th. While we are seeing steady demand for our solutions, we continue to monitor external market conditions closely and we remain confident in the financial outlook we provided last quarter based on our growing enterprise business and the diversity within that business. In New York, we talked about our customers and prospects need to adopt resilient first strategies, given the growing threat landscape and sophistication of cyber attacks. With the investments we've made, we're seeing the strategic impact that absolute self-healing intelligent security solutions are contributing to our 18,000 customers around the world and the massive opportunity in front of us with our unbreakable connection embedded in more than 600 million devices. steady execution, balancing profitability, cash generation, and growth to deliver value for our shareholders. Before I hand it over to Ron, I want to express my gratitude and sincere thanks to him. As you all know, Ron stepped in as interim CFO earlier this year, and has played a critical role in helping to drive our business. He's had a tremendous impact, and we have appreciated his support as we've conducted our CFO search. With that, I would like to hand it over to Ron for more details on the financials.