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PI trims price target on Absolute Software, keeps “Buy” rating

Absolute Software

Absolute Software PI Financial analyst David Kwan is staying bullish on endpoint security company Absolute Software (Absolute Software Stock Quote, Chart, News Nasdaq:ABST) after its latest quarterly earnings. In an update to clients on Tuesday, Kwan kept his “Buy” rating but dropped his target price from $20.00 to $19.00 due to share dilution.

Vancouver-based Absolute Software’s Persistence platform, currently embedded in over 500 million devices, gives customers complete visibility and control of their endpoints, even when they are off the corporate network. The company calls its endpoint resilience solution the industry’s only undeletable defence platform, giving a permanent digital tether between enterprise and endpoint.

The company, which announced preliminary numbers in late October for its fiscal first quarter 2021, announced the complete financials for the Q1 this Monday, with revenue climbing 11 per cent year-over-year to $28.5 million and net income down 25 per cent year-over-year to $2.6 million. Adjusted EBITDA was $8.1 million, up from $7.1 million a year earlier.

Looking ahead, management gave a tighter window on revenue for the 2021 fiscal year of between $116 and $118 million (representing annual growth of between 11 and 13 per cent), compared to its previous guidance of between $112 and $118 million. Adjusted EBITDA guidance was shifted from between 20 and 24 per cent of revenue to 21 to 24 per cent of revenue, while cash from operations guidance went from between 22 and 34 per cent of revenue to between 25 and 34 per cent of revenue.

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“Q1 was a solid start to the fiscal year, with increased momentum as we see demand for persistent visibility, control, and resilience accelerate across various segments in response to remote and hybrid work and learning models,” said Christy Wyatt, President and CEO, in a press release. “In addition, our recent listing on NASDAQ and capital raise was a significant milestone for the company and positions us well to be able to respond to the large market opportunity in front of us.”

Absolute finished the Q1 with cash and equivalents of $58.2 million compared to $38.9 million a year earlier. The company completed last month a public offering of shares for gross proceeds of $69 million including over-allotment, with management saying the proceeds will go to general corporate purposes including funding operations, growth initiatives and working capital.

In his report, Kwan noted that the Q1 numbers were in line with the October preliminary results, with the company hitting plus-ten-per-cent year-over-year revenue growth for the first time in five years.

Kwan said Absolute is continuing to see strong tailwinds from the COVID-19 pandemic, with its Education vertical continuing to lead the way. Commercial recurring revenue, which is 97 per cent of revenue, was up 12 per cent year-over-year and six per cent sequentially, while bookings grew by 56 per cent year-over-year to $34.3 million, the second-highest on record for the company following $42.2 million in bookings for the previous quarter.

“The Education market continues to have a solid pipeline with the robust growth experienced in calendar 2020 likely to persist for at least a couple of more quarters with the longer-term outlook now appearing more upbeat as a result of changes in customer behaviour due to COVID,” Kwan wrote.

Overall, Kwan is taking the quarterly financials as having a “slightly positive” impact.

“We note that the Q1 results and the new FY21 guidance range imply a sharp ramp in expenses for the balance of FY21. Some of this increase should come from new hires (as ABST plans to make steady additions to its team) as well as increased costs related to its U.S. listing (estimate of ~$0.6-$0.7M/quarter). That said, we believe ABST should still likely be toward the high-end of its Adj. EBITDA margin guidance (if not above it, as we continue to forecast),” Kwan wrote.

Looking ahead, Kwan has nudged up his revenue forecasts to $117.9 million in fiscal 2021 (was $117.5 million) and $131.3 million in fiscal 2022 (was $129.6 million), while he dropped down his adjusted EBITDA calls due to expected higher expense levels, now calling for $28.6 million in fiscal 2021 (was $29.3 million) and for $31.7 million in fiscal 2022 (was $32.1 million).

Kwan’s new target of $19.00 at press time represented a projected one-year return of 29.2 per cent.

“The reduction to our target price primarily reflects the dilution from the recent equity financing. We continue to remain bullish on ABST given the strengthening growth outlook, robust margins and FCF, pristine balance sheet, and attractive discount valuation,” Kwan wrote.

Earlier this month, Absolute announced that US national healthcare organization Sound Physicians had chosen Absolute Resilience as its remote endpoint security. Sound Physicians routinely processes and stores sensitive patient data protected the US Health Insurance Portability and Accountability Act (HIPAA).

“We are thrilled to partner with Sound Physicians on this vital initiative of ensuring the security and privacy of patients and healthcare providers,” said Randy Turer, VP of Enterprise Sales for North America at Absolute, in a press release. “Knowing where every device is at any point in time, and having the ability to take immediate action to protect the incredibly sensitive data on that device, is critical for all organizations, but it’s especially critical for those that routinely process and store HIPAA- protected PHI.”

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

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