Absolute Software Corporation (TSX: ABST) is engaged in next-generation Endpoint Resilience solutions and delivers a unique security platform to the end users who are connected through laptops, desktops, and tablet devices from the leading global computer manufacturers.

Key Highlights:

• Consistent growth in ARR: The company reported constant growth in annual recurring revenue (ARR) supported by improved demand dynamics from Enterprise & Government, and Education segments. Moreover, growth in ARR denotes performance stability, due to the repetitive income and is a key positive. Notably, in Q2FY22, the company reported its ARR of USD 150.6 million (~77% of total ARR) from Enterprise & Government segment, rose from USD 77.6 million as on Q2FY21, driven by higher customer satisfaction across all the product lines.

                             Source: Company Presenation

• Revised FY22 Guidance: The company has revised its FY22 guidance and expects a higher adjusted EBITDA margin of 22% to 24%, from the earlier guidance of 19% to 21%. This indicates better cost centre and improved product-mix, which is a key positive. Adjusted revenue is expected in between USD 206 to 208 million, upgraded from earlier guidance of USD 204.5 million to 207.5 million.

Source: Company Presentation

• Growth in Endpoints: At the end of Q2FY22, the company registered ~13.4 million active endpoints across the globe, reflecting an increase of 16% on y-o-y basis. This was supported by the company’s strategy of streamlining management of remote device fleets for the customers. An increase in active endpoint denotes enhanced business propositions due to increase in the number of end users.

              Source: Company Presentation

• Completion of the System and Organization Controls Type I audit: Recently, the company reported that it has successfully completed the System and Organization Controls (SOC 2) Type I audit for the NetMotion software, which was acquired by ABST in July 2021. This is certified by the American Institute of Certified Public Accounts (AICPA) after a rigorous and independent audit done by the committee. While this certification is expected to provider higher security to the end users.

Q2FY22 Financial Highlights: (in USD thousands)

Q2FY22 Income Statement Highlights (Source: Company Report)

• ABST announced its quarterly result, wherein the company posted its revenue of USD 49.0 million in Q2FY22, surged from USD 29.8 million in pcp. The growth was driven by strong growth from the Cloud and subscription services.
• Gross margin stood at USD 39.6 million in Q2FY22, significantly higher than USD 26.1 million in Q2FY21, thanks to the elevated income partially offset by higher cost of revenue.
• The company reported an increase in the input costs, which resulted to a significantly higher operating expenses of USD 42.2 million in Q2FY22, as compared to USD 23.0 million in pcp. This resulted to an operating loss of USD 2.6 million, as compared to an operating profit of USD 3.0 million in pcp.
• Net loss was reported at USD 5.1 million, as compared to a net profit of USD 1.9 million in pcp. This was primarily due to an operating loss as mentioned above coupled with significantly higher interest expense (USD 5.2 million v/s USD 0.1 million in pcp.)

    Valuation Methodology (Illustrative): EV to Sales- based

 Analysis by Kalkine Group

Stock Recommendation:

In H1FY22, the company reported its dividend distribution of USD 6.3 million, which is significantly higher than USD 5.5 million in H1FY21. This is impressive as most of the companies are lowering their dividend payment in order to retain liquidity.  We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Sierra Wireless Inc, Everbridge Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of ABST at the last closing price of CAD 10.96 on March 30, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 30, 2022). Analysis by Kalkine Group

  Technical Analysis Summary:

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