AI assistant
Absolute Software Corporation — Interim / Quarterly Report 2021
Feb 9, 2021
44958_rns_2021-02-09_5f9fcdca-8313-4ebf-9143-234c854426cc.pdf
Interim / Quarterly Report
Open in viewerOpens in your device viewer
Interim Condensed Consolidated Financial Statements of
ABSOLUTE SOFTWARE CORPORATION
Three and six months ended December 31, 2020 and 2019
(Unaudited)
ABSOLUTE SOFTWARE CORPORATION Condensed Consolidated Statements of Financial Position
(Expressed in United States dollars unless otherwise noted) (Unaudited)
| Notes ASSETS CURRENT Cash and cash equivalents (Note 12) Short-term investments (Note 3) Trade and other receivables (Note 4) Income tax receivable Prepaid expenses and other Contract acquisition assets – current (Note 5) PROPERTY AND EQUIPMENT RIGHT OF USE ASSETS (Note 6) DEFERRED INCOME TAX ASSETS (Note 11) CONTRACT ACQUISITION ASSETS (Note 5) GOODWILL LIABILITIES CURRENT Trade and other payables (Note 7) Income tax payable Lease liabilities – current (Note 8) Deferred revenue – current (Note 10(b)) LEASE LIABILITIES (Note 8) DEFERRED REVENUE (Note 10(b)) SHAREHOLDERS’ EQUITY (DEFICIENCY) Share capital (Note 9(b)) Equity reserve Treasury shares Accumulated other comprehensive income Deficit |
December 31, 2020 June 30, 2020 |
|---|---|
| $ 131,624,219 $ 29,727,498 359,832 17,350,152 22,287,648 28,990,235 545,291 111,769 5,276,540 2,541,183 8,323,010 7,501,339 |
|
| 168,416,540 86,222,176 4,435,336 5,563,327 11,359,960 9,181,927 22,357,305 22,278,745 6,274,576 5,842,845 1,100,000 1,100,000 |
|
| $ 213,943,717 $ 130,189,020 |
|
| $ 21,736,334 $ 20,129,253 22,777 382,041 2,532,627 1,724,730 86,028,052 80,843,795 |
|
| 110,319,790 103,079,819 10,433,103 8,411,101 68,060,788 61,759,629 |
|
| 188,813,681 173,250,549 |
|
| 147,976,213 81,890,311 41,127,123 38,523,835 (263,840) (263,840) 590,038 — (164,299,498) (163,211,835) |
|
| 25,130,036 (43,061,529) |
|
| $ 213,943,717 $ 130,189,020 |
SUBSEQUENT EVENTS (Note 15)
Approved on behalf of the Board on February 8, 2021:
(signed) “Daniel P. Ryan” (signed) “Lynn Atchison”_ Daniel P. Ryan, Director Lynn Atchison, Director
See accompanying notes to the Interim Condensed Consolidated Financial Statements.
- 1 -
ABSOLUTE SOFTWARE CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Income Three and six months ended December 31, 2020 and 2019
(Expressed in United States dollars unless otherwise noted) (Unaudited)
| Notes REVENUE COST OF REVENUE GROSS MARGIN OPERATING EXPENSES Sales and marketing Research and development General and administration Share-based compensation (Note 9(h)) OPERATING INCOME OTHER EXPENSE Finance income, net Interest expense – lease liabilities Foreign exchange loss NET INCOME BEFORE INCOME TAXES INCOME TAX EXPENSE (Note 11) NET INCOME UNREALIZED GAIN ON DERIVATIVES, NET OF TAX COMPREHENSIVE INCOME BASIC INCOME PER SHARE DILUTED INCOME PER SHARE WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC DILUTED |
Three months ended December 31, Six months ended December 31, |
|---|---|
| 2020 2019 2020 2019 |
|
| $ 29,857,255 $ 25,797,614 $ 58,352,812 $ 51,450,103 3,355,200 3,022,265 6,470,607 6,255,632 |
|
| 26,502,055 22,775,349 51,882,205 45,194,471 |
|
| 10,190,776 9,521,739 20,274,315 19,040,524 5,824,261 4,185,723 10,885,955 7,925,309 4,855,655 4,111,620 8,298,684 7,436,477 2,553,776 1,070,385 5,146,781 2,237,186 |
|
| 23,424,468 18,889,467 44,605,735 36,639,496 |
|
| 3,077,587 3,885,882 7,276,470 8,554,975 |
|
| 3,429 128,605 25,365 240,746 (142,685) (126,727) (281,334) (257,928) (299,711) (40,426) (485,938) (53,245) |
|
| (438,967) (38,548) (741,907) (70,427) |
|
| 2,638,620 3,847,334 6,534,563 8,484,548 (736,000) (1,137,000) (2,030,000) (2,323,000) |
|
| 1,902,620 2,710,334 4,504,563 6,161,548 559,811 — 590,038 — |
|
| $ 2,462,431 $ 2,710,334 $ 5,094,601 $ 6,161,548 |
|
| $ 0.04 $ 0.06 $ 0.10 $ 0.15 |
|
| $ 0.04 $ 0.06 $ 0.09 $ 0.14 |
|
| 48,982,816 41,722,849 45,801,889 41,723,856 |
|
| 52,246,460 43,859,350 49,065,830 43,848,893 |
See accompanying notes to the Interim Condensed Consolidated Financial Statements.
- 2 -
ABSOLUTE SOFTWARE CORPORATION Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)
(Expressed in United States dollars unless otherwise noted) (Unaudited)
| BALANCE, JUNE 30, 2019 Shares issued on options exercised Shares issued under Employee Share Purchase Plan (“Prior ESOP”) Shares issued under Performance and Restricted Share Unit plan (“RSU”) Share-based compensation Dividends paid Net income and total comprehensive income BALANCE, DECEMBER 31, 2019 Shares issued on options exercised Shares issued under Prior ESOP Shares issued under RSU Shares repurchased and cancelled Share-based compensation Dividends paid Net income and total comprehensive income BALANCE, JUNE 30, 2020 Shares issued for cash (Note 9(b)) Share issuance cost Shares issued on options exercised Shares issued under Employee Stock Ownership Plan Shares issued under RSU Share-based compensation Dividends paid Net income and total comprehensive income BALANCE, DECEMBER 31, 2020 |
Share Capital |
|---|---|
| Number of Common shares Amount Equity reserve Treasury shares Accumulated Other Comprehensive Income Deficit Total |
|
| 41,645,552 $ 76,778,014 $ 36,744,933 $ (359,973) $ — $ (163,778,642) $ (50,615,668) 135,862 912,602 (161,710) — — — 750,892 35,963 180,842 — — — — 180,842 483,927 2,395,678 (2,493,580) 96,133 — — (1,769) — — 2,032,226 — — — 2,032,226 — — — — — (5,021,806) (5,021,806) — — — — — 6,161,548 6,161,548 |
|
| 42,301,304 80,267,136 36,121,869 (263,840) — (162,638,900) (46,513,735) 150,406 1,149,183 (254,527) — — — 894,656 36,060 188,230 — — — — 188,230 56,425 301,671 (301,671) — — — — (8,700) (15,909) — — — (32,919) (48,828) — — 2,958,164 — — — 2,958,164 — — — — — (5,013,177) (5,013,177) — — — — — 4,473,161 4,473,161 |
|
| 42,535,495 81,890,311 38,523,835 (263,840) — (163,211,835) (43,061,529) 6,272,727 68,999,997 — — — — 68,999,997 — (5,120,793) — — — — (5,120,793) 75,244 557,956 (106,708) — — — 451,248 30,508 165,662 — — — — 165,662 263,725 1,483,080 (1,483,080) — — — — — — 4,193,076 — — — 4,193,076 — — — — — (5,592,226) (5,592,226) — — — — 590,038 4,504,563 5,094,601 |
|
| 49,177,699 $ 147,976,213$ 41,127,123 $ (263,840) $ 590,038$ (164,299,498) $ 25,130,036 |
See accompanying notes to the Interim Condensed Consolidated Financial Statements.
- 3 -
ABSOLUTE SOFTWARE CORPORATION Condensed Consolidated Statements of Cash Flows
Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
| Notes OPERATING ACTIVITIES Net income Items not involving cash Depreciation of property and equipment Amortization of right of use assets (Note 6) Amortization of contract acquisition assets (Note 5) Share-based compensation (Note 9(h)) Deferred income taxes (Note 11) Interest Unrealized foreign exchange loss Change in non-cash working capital Trade and other receivables Income tax receivable Prepaid expenses and other Contract acquisition assets incurred (Note 5) Trade and other payables Income tax payable Accrued warranty Deferred revenue CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of property and equipment Proceeds from maturities of short-term investments Purchase of short-term investments CASH FROM (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Dividends paid (Note 9(g)) Issuance of common shares (Note 9(b)) Cost of common share issuance Payment of lease liabilities (Note 8) CASH FROM (USED IN) FINANCING ACTIVITIES FOREIGN EXCHANGE EFFECT ON CASH INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS, END OF PERIOD |
Three months ended December 31, Six months ended December 31, |
|---|---|
| 2020 2019 2020 2019 |
|
| $ 1,902,620 $ 2,710,334 $ 4,504,563 $ 6,161,548 811,436 846,050 1,677,649 1,671,194 606,691 413,336 1,096,502 826,673 2,632,390 2,103,603 5,172,455 4,352,898 2,553,776 1,070,385 5,146,781 2,237,186 (594,560) (108,615) (78,560) (476,396) 272,932 (100,165) 244,269 (199,272) 325,119 65,631 481,683 56,840 1,657,214 (555,165) 6,702,588 5,962,202 (409,634) 84,406 (433,522) 599,146 (1,205,136) 808,900 (2,735,357) 1,162,717 (3,586,236) (1,669,443) (6,425,857) (3,092,689) 3,017,263 (1,251,078) 1,753,183 (3,813,540) (135,115) 21,932 (359,264) 35,592 (83,409) (290,085) (115,000) (210,585) 5,644,921 (1,976,458) 11,485,416 (5,622,269) |
|
| 13,410,272 2,173,568 28,117,529 9,651,245 |
|
| (147,523) (713,409) (1,093,394) (2,362,562) 6,594,202 16,410,000 17,027,384 23,280,000 — (13,796,274) — (25,581,776) |
|
| 6,446,679 1,900,317 15,933,990 (4,664,338) |
|
| (3,011,850) (2,512,563) (5,592,226) (5,021,806) 69,325,213 905,135 69,701,544 1,056,261 (5,120,793) — (5,120,793) — (746,693) (417,862) (1,207,653) (827,727) |
|
| 60,445,877 (2,025,290) 57,780,872 (4,793,272) |
|
| 25,561 78,181 64,330 67,250 80,328,389 2,126,776 101,896,721 260,885 51,295,830 16,824,648 29,727,498 18,690,539 |
|
| $131,624,219 $ 18,951,424 $131,624,219 $ 18,951,424 |
SUPPLEMENTAL CASH FLOW INFORMATION (NOTE 12)
See accompanying notes to the Interim Condensed Consolidated Financial Statements.
- 4 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements
Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
1. NATURE OF OPERATIONS
Absolute Software Corporation (the “Company”) was incorporated under the predecessor statue of the British Columbia Business Corporation Act on November 24, 1993. The Company’s principal business activity is the development, marketing, and provision of a cloud-based service that supports the management and security of computing devices, applications, and data for a variety of organizations globally. The Company’s differentiated technology is rooted in its patented Persistence® technology, which is embedded in the firmware of laptop, desktop, and tablet devices by almost every major global computer manufacturer. Enabling a permanent digital tether between the endpoint and the organization that distributed it, the Company provides IT and security personnel with connectivity, visibility, and control, whether a device is on or off the corporate network, and empower them with Self-Healing Endpoint™ security to ensure mission critical applications remain healthy and deliver intended value. The Company markets its solutions through PC OEMs, distributors, value added resellers, and directly to its customers, who include corporations, government entities, educational institutions, and consumers. While the majority of the Company’s sales are generated in North America, the Company’s products are also available internationally through resellers in Europe, the Middle East and Africa, as well as the Asia-Pacific and Latin American regions. The Company’s head office and principal address is Suite 1400, Four Bentall Centre, 1055 Dunsmuir Street, PO Box 49211, Vancouver, British Columbia, Canada, V7X 1K8. The Company trades on the TSX and the Nasdaq under the symbol “ABST”.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These unaudited interim condensed consolidated financial statements are prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting , as issued by the International Accounting Standards Board (“IASB”). These unaudited interim condensed consolidated financial statements are prepared on a basis consistent with the accounting policies disclosed in the audited consolidated financial statements for the fiscal year ended June 30, 2020.
These unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries; however, they do not include all disclosures normally provided in annual consolidated financial statements and should be read in conjunction with the annual consolidated financial statements as at and for the year ended June 30, 2020. Interim results are not necessarily indicative of the results expected for the fiscal year.
- 5 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Significant accounting judgments
The critical judgments that the Company’s management has made in the process of applying the Company’s accounting policies, apart from those involving estimations (Note 2(c)), that has the most significant effect on the amounts recognized in the Company’s consolidated financial statements, are related to:
-
i) the determination of the functional currency for the Company and its subsidiaries;
-
ii) the determination of the ranges of the Standalone Selling Prices of its subscription revenues; and
-
iii) the determination of the Standalone Selling Price of its professional services revenues.
(c) Key sources of estimation uncertainty
The preparation of these interim consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from these estimates. The interim consolidated financial statements include estimates which, by their nature, are uncertain.
The impacts of such estimates are pervasive throughout the interim consolidated financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both current and future periods.
Significant assumptions about the future and other sources of estimation uncertainty that management has made at the date of the statement of financial position, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, include, but are not limited to, the following:
-
the assessment of the carrying values of allowances for unrecoverable accounts receivable and assets;
-
the assessment of the Company’s incremental borrowing rate related to the recognition of lease liabilities;
-
the assessment of renewal and termination options related to the recognition of right of use assets and lease liabilities;
-
the inputs used in accounting for share-based compensation in the statement of operations and comprehensive income;
-
the recognition and recoverability of the Company’s deferred tax assets; and
-
the evolving and future impacts of the global COVID-19 pandemic.
-
6 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Adoption of Future Accounting Standards
Certain pronouncements have been issued by the IASB that are issued but not yet effective. There are currently no such pronouncements that are expected to have a significant impact on the Company's consolidated financial statements upon adoption.
3. SHORT-TERM INVESTMENTS
The Company’s short-term investments are comprised of the following:
| Investment grade securities Term deposits |
December 31, 2020 $— 359,832 $ 359,832 |
June 30, 2020 |
|---|---|---|
| $ 16,990,320 359,832 $ 17,350,152 |
4. TRADE AND OTHER RECEIVABLES
The Company’s trade and other receivables are comprised of the following:
| Trade receivables Other receivables Allowance for doubtful accounts |
December 31, 2020 | June 30, 2020 |
|---|---|---|
| $ 21,443,617 1,159,127 (315,096) $ 22,287,648 |
$ 28,882,013 423,318 (315,096) $ 28,990,235 |
At December 31, 2020, 2% of the Company’s accounts receivable balance is over 90 days past due (June 30, 2020 – 1%). As at December 31, 2020, 45%, 28%, and 8% (June 30, 2020 – 55%, 16%, and 16%) of the receivable balances are owing from three OEM and distributor partners.
- 7 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
5. CONTRACT ACQUISITION ASSETS
The following table provides a reconciliation of contract acquisition assets for the six months ended December 31, 2020 and the year ended June 30, 2020:
| Balance, beginning of period Contract acquisition costs incurred Amortization Balance, end of period Less: current portion |
December 31, 2020 $ 13,344,184 6,425,857 (5,172,455) 14,597,586 (8,323,010) $ 6,274,576 |
June 30, 2020 |
|---|---|---|
| $ 11,905,831 10,032,390 (8,594,037) |
||
| 13,344,184 (7,501,339) $ 5,842,845 |
6. RIGHT OF USE ASSETS
The following table provides a reconciliation of right of use assets for the six months ended December 31, 2020 and the year ended June 30, 2020:
| Balance, beginning of period Additions Amortization Balance, end of period |
December 31, 2020 December 31, 2020 $ 9,181,927 3,274,535 (1,096,502) $ 11,359,960 |
June 30, 2020 June 30, 2020 |
|---|---|---|
| $ 8,917,373 2,194,817 (1,930,263) $ 9,181,927 |
7. TRADE AND OTHER PAYABLES
The Company’s trade and other payables are comprised of the following:
| Payroll and employee benefits Trade payables Deferred share units Customer deposits Accrued liabilities Accrued warranty Sales taxes payable |
December 31, 2020 $ 7,990,341 3,865,155 3,821,711 4,157,053 1,630,854 18,000 253,220 $ 21,736,334 |
June 30, 2020 |
|---|---|---|
| $ 9,669,919 4,173,555 3,684,643 1,686,813 527,374 133,000 253,949 $ 20,129,253 |
- 8 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
8. LEASE LIABILITIES
The following table provides a reconciliation of lease liabilities for the six months ended December 31, 2020 and the year ended June 30, 2020:
| Balance, beginning of period Addition Principal payments on lease liabilities Interest payments on lease liabilities Unrealized foreign exchange loss on lease liabilities Balance, end of period Less: current portion |
December 31, 2020 $ 10,135,831 3,274,535 (1,207,653) 281,334 481,683 $ 12,965,730 (2,532,627) $ 10,433,103 |
June 30, 2020 |
|---|---|---|
| $ 9,699,651 2,465,218 (2,351,819) 619,398 (296,617) |
||
| $ 10,135,831 (1,724,730) $ 8,411,101 |
9. SHARE CAPITAL
- (a) Authorized
100,000,000 common shares, no par value
(b) Issued and outstanding
On October 30, 2020, the Company completed an underwritten public offering in the United States of America and Canada of 6,272,727 common shares at a price of $11.00 per common share, for aggregate gross proceeds of $68,999,997. Costs of the underwriting fees and expenses were $5,120,793.
During the six months ended December 31, 2020, the Company issued 75,244 common shares on exercise of employee stock options for total proceeds of $451,248. An amount of $106,708 related to the original fair value of the options was transferred from equity reserve to common shares upon exercise.
During the six months ended December 31, 2020, the Company issued 30,508 common shares pursuant to its Employee Share Ownership Plan (the “ESOP”) for total proceeds of $165,662.
During the six months ended December 31, 2020, the Company issued 263,725 common shares pursuant to its Performance and Restricted Share Unit (“PRSU”) Plan with a fair value of $1,483,080.
During the six months ended December 31, 2019, the Company issued 135,862 common shares on exercise of employee stock options for total proceeds of $750,892. An amount of $161,710 related to the original fair value of the options was transferred from equity reserve to common shares upon exercise.
- 9 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
9. SHARE CAPITAL (Continued)
During the six months ended December 31, 2019, the Company issued 35,963 common shares pursuant to its prior employee share ownership plan (the “Prior ESOP”) for total proceeds of $180,842.
During the six months ended December 31, 2019, the Company issued 483,927 common shares pursuant to its PRSU Plan with a fair value of $2,493,580.
(c) Stock Option Plan
The Company’s share-based compensation plans include an Employee Stock Option Plan (“Option Plan”).
In 2001, the Company’s Board of Directors adopted the Option Plan (as amended in 2007, 2009, 2015 and 2018). Under the Option Plan, the maximum number of common shares reserved for issuance is limited to 12% of the number of common shares outstanding, less the amount that are issuable under the Company’s other stock-based compensation plans (note 9(f)). On this basis, at December 31, 2020, the maximum number of common shares available under the Option Plan was 2,656,697 (June 30, 2020 – 2,324,924), of which 1,942,570 remained available for grant thereunder.
Terms and conditions of options granted under the Option Plan are determined solely by the Board of Directors, in accordance with the Option Plan. Under the Option Plan, the exercise price of each option equals the last closing market price of the Company’s common shares before the grant date. The term of option grants may not exceed 7 years from the date of grant of the option. Options are generally granted with a four year vesting period (25% vesting on each anniversary date).
The following table summarizes activity under the Option Plan for the six months ended December 31, 2020 and 2019:
| Outstanding, beginning of period Exercised Forfeited Expired Outstanding, end of period |
Six months ended December 31, | Six months ended December 31, |
|---|---|---|
| 2020 Number of options Weighted average exercise price (CAD) 791,171 $ 7.87 (75,244) 7.98 (1,800) 7.46 — — 714,127 $ 7.86 |
2019 | |
| Number of options Weighted average exercise price(CAD) |
||
| 1,151,213 $ 7.82 (133,612) 7.38 (56,974) 7.50 (6,250) 7.10 |
||
| 954,377 $ 7.91 |
- 10 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
9. SHARE CAPITAL (Continued)
(d) Performance and Restricted Share Unit Plan
The Company’s share-based compensation plans also include a PRSU Plan. Under the PRSU Plan, the Company may issue Performance Share Units (“PSU”s) and Restricted Share Units (“RSU”s).
In 2016, the Company’s shareholders ratified the PRSU Plan (as amended in 2018). Under the PRSU Plan, the maximum number of common shares reserved for issuance is limited to 12% of the number of common shares outstanding, less the amount that are issuable under the Company’s other stock-based compensation plans (note 9(f)), and the Phantom Share Unit Plan. On this basis, at December 31, 2020, 2,766,113 (June 30, 2020 – 3,963,088) common shares were eligible for grant under the PRSU Plan, of which 1,942,570 remained available for grant thereunder.
In addition, the Company has a Market-based PRSU Plan (“Market PRSU Plan”). Shares issued pursuant to the Market PRSU Plan will be acquired, at the Company’s election, under the terms of permissible share buyback mechanisms and will not be issued from treasury.
Terms and conditions of PSUs and RSUs granted are determined by the Board of Directors in accordance with the PRSU Plan.
Performance Share Units
Under the PRSU Plan, PSUs are issued to eligible persons and typically vest after a three year period (100% cliff vesting on the third anniversary date). The number of PSUs that ultimately vest is based on an Adjustment Factor, as determined by the Board of Directors at the date of grant, and can range from 0% to 200% of the number of units initially granted. The expiry date of the PSU grants is generally December 31 of the tenth year from the date of grant.
The following table summarizes PSU activity under the PRSU Plan for the six months ended December 31, 2020 and 2019:
| Outstanding, beginning of period Granted Exercised Forfeited Outstanding, end of period |
Six months ended December 31, 2020 2019 Number of units Number of units 617,373 312,404 220,531 407,955 — (18,910) (14,361) (115,289) 823,543 586,160 |
Six months ended December 31, 2020 2019 Number of units Number of units 617,373 312,404 220,531 407,955 — (18,910) (14,361) (115,289) 823,543 586,160 |
|---|---|---|
| Number of units |
||
| 312,404 407,955 (18,910) (115,289) 586,160 |
None of the outstanding PSUs at December 31, 2020 were issued pursuant to the Market PRSU Plan.
- 11 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
9. SHARE CAPITAL (Continued)
Fair values – Performance Share Units
The total fair value of PSUs granted under the PRSU Plan in the six months ended December 31, 2020 was $2,591,755 (2019 - $3,183,955). The weighted average grant date fair value of PSUs granted during the six months ended December 31, 2020 was $12.14 (2019 - $7.93). At December 31, 2020, 17,571 of the outstanding PSUs had vested.
The adjustment factor will be performance. The fair value of the PSUs granted was estimated on the grant date using a Monte Carlo simulation model, taking into account the fair value of the Company’s common shares on the date of grant, potential future dividends accruing to the PSU holder’s benefit, and encompassing a wide range of possible future market and Company performance conditions.
Restricted Share Units
Under the PRSU Plan, RSUs are issued to eligible persons and typically vest in tranches over a three year period (33.3% vesting on each anniversary date). The expiry date of the RSU grants is generally December 31 of the year in which the tranche vests.
The following table summarizes RSU activity under the PRSU Plan for the six months ended December 31, 2020 and 2019:
| Outstanding, beginning of period Granted Released Forfeited Outstanding, end of period |
Six months ended December 31, 2020 2019 Number of units Number of units 1,811,963 1,282,298 601,944 830,702 (263,725) (466,007) (48,591) (171,576) 2,101,591 1,475,417 |
Six months ended December 31, 2020 2019 Number of units Number of units 1,811,963 1,282,298 601,944 830,702 (263,725) (466,007) (48,591) (171,576) 2,101,591 1,475,417 |
|---|---|---|
| Number of units |
||
| 1,282,298 830,702 (466,007) (171,576) 1,475,417 |
None of the outstanding RSUs at December 31, 2020 were issued pursuant to the Market PRSU Plan
Fair values – Restricted Share Units
The total fair value of RSUs granted under the PRSU Plan in the six months ended December 31, 2020 was $6,631,726 (2019 - $4,827,359). The weighted average grant date fair value of RSUs granted during the six months ended December 31, 2020 was $11.39 (2019 - $5.97) At December 31, 2020, 294,019 of the outstanding RSUs had vested.
- 12 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
9. SHARE CAPITAL (Continued)
The fair value of the RSUs granted was estimated on the grant date using the fair value of the Company’s common shares on the date of grant and potential future dividends accruing to the RSU holder’s benefit.
(e) Deferred Share Unit Plan
The Company’s share-based compensation plans also include a Deferred Share Unit (“DSU”) Plan. The DSU Plan is a cash-settled share based compensation plan.
In 2016, the Company’s shareholders ratified the DSU Plan. Terms and conditions of DSUs granted are determined by the Board of Directors.
Under the DSU Plan, DSUs are issued to eligible persons and generally vest over a one year period (25% per three months). DSUs are not eligible for redemption until the unitholder ceases to be an eligible person. The term of the DSU grants is coterminous with the date the unitholder ceases to be an eligible person.
The following table summarizes activity under the DSU Plan for the six months ended December 31, 2020 and 2019:
| Outstanding, beginning of period Granted Released Outstanding, end of period |
Six months ended December 31, 2020 2019 Number of units Number of units 377,612 340,862 3,905 13,600 (60,365) (48,312) 321,152 306,150 |
Six months ended December 31, 2020 2019 Number of units Number of units 377,612 340,862 3,905 13,600 (60,365) (48,312) 321,152 306,150 |
|---|---|---|
| Number of units |
||
| 340,862 13,600 (48,312) 306,150 |
Fair values – Deferred Share Units
The total fair value of DSUs granted under the DSU Plan in the six months ended December 31, 2020 was $40,271 (2019 - $48,123). The weighted average grant date fair value of DSUs granted during the six months ended December 31, 2020 was $10.31 (2019 - $6.81). The fair value owing was marked to market at December 31, 2020, and as a result, at that date, the total liability carried within Accounts Payable and Accrued Liabilities related to the DSU Plan was $3,821,711 (June 30, 2020 - $3,684,643).
(f) Employee Share Ownership Plan and Prior ESOP
The Company’s share-based compensation plans also include the ESOP.
In 2020, the Company’s shareholders ratified the ESOP. Previous to December 31, 2019, the Company had the Prior ESOP, which was adopted in 2004.
- 13 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
9. SHARE CAPITAL (Continued)
The terms of the ESOP allow employees to purchase up to 350,000 common shares from treasury at a 15% discount from the market price. Each employee can allocate an annual maximum of CAD $15,000 per year to the purchase of common shares through two, six month offering periods per year. The ESOP became effective January 1, 2020, and on that date, the Prior ESOP lapsed.
During the six months ended December 31, 2020, 30,508 common shares (2019 – 35,963 common shares under the Prior ESOP) were issued from treasury under the ESOP at a weighted average price of $5.43 (2019 - $5.03) per share. In addition, on January 28, 2021, 37,581 common shares were issued for the six month offering period ended December 31, 2020.
As a result, at December 31, 2020, 319,492 common shares were available for grant under the ESOP.
(g) Dividends
In the six months ended December 31, 2020, the Company declared two quarterly dividends of CAD$0.08 per share on its common shares, amounting to $5,592,226. The dividends were paid in cash to shareholders of record at the close of business on August 12, 2020 and November 13, 2020, respectively.
In the six months ended December 31, 2019, the Company declared two quarterly dividends of CAD$0.08 per share on its common shares, amounting to $5,021,806. The dividends were paid in cash to shareholders on August 29, 2019 and November 29, 2019.
(h) Share-based compensation
The Company’s share-based compensation for the three and six months ended December 31, 2020 and 2019 was comprised as follows:
| Restricted share units Performance share units Stock option plan Employee share purchase plan Deferred share unit plan |
Three months ended December 31, Six months ended December 31, |
|---|---|
| 2020 2019 2020 2019 |
|
| $ 1,635,959 $ 791,099 $ 3,252,702 $ 1,556,044 418,889 174,348 817,444 365,138 30,648 20,275 63,184 83,714 47,018 13,891 59,744 27,330 421,262 70,772 953,707 204,960 |
|
| $ 2,553,776 $ 1,070,385 $ 5,146,781 $ 2,237,186 |
- 14 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
9. SHARE CAPITAL (Continued)
The Company’s share-based compensation was attributable to the following areas for the three and six months ended December 31, 2020 and 2019:
| Cost of revenue Sales and marketing Research and development General and administration |
Three months ended December 31, Six months ended December 31, |
|---|---|
| 2020 2019 2020 2019 |
|
| $ 363,252 $ 80,403 $ 647,733 $ 145,739 801,212 599,380 1,640,578 946,628 384,130 242,297 770,489 501,544 1,005,182 148,305 2,087,981 643,275 |
|
| $ 2,553,776 $ 1,070,385 $ 5,146,781 $ 2,237,186 |
(i) Treasury shares
During 2017, the Company acquired 104,567 treasury shares for a total cost of $499,443. The treasury shares are presented as a component of shareholder’s deficiency. The treasury shares were purchased pursuant to a TSX Normal Course Issuer Bid order to fund the Company’s Market PRSU Plan (note 9(d)). At December 31, 2020, the Company held 60,942 treasury shares with a cost of $263,840 (2019 - $263,840).
10. REVENUE
(a) Disaggregated revenue
The table below provides a disaggregation of our overall revenues for the three and six months ended December 31, 2020 and 2019:
| Cloud services Managed services Professional services Other |
Three months ended December 31, Six months ended December 31, |
|---|---|
| 2020 2019 2020 2019 |
|
| $ 27,667,839 $ 23,845,687 $ 54,047,416 $ 47,447,901 1,255,801 1,013,759 2,466,529 2,014,479 |
|
| 28,923,640 24,859,446 56,513,945 49,462,380 48,616 47,938 90,826 212,526 884,999 890,230 1,748,041 1,775,197 |
|
| $ 29,857,255 $ 25,797,614 $ 58,352,812 $ 51,450,103 |
- 15 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
10. REVENUE (Continued)
(b) Deferred revenue
The following table provides a reconciliation of deferred revenue balances to invoiced billings, revenue, and other adjustments for the six months ended December 31, 2020 and 2019, and comparative balance sheet information for the year ended June 30, 2020:
| Balance, beginning of period Billings Revenue recognized Balance, end of period Less: current portion |
December 31, 2020 $ 142,603,424 69,838,228 (58,352,812) 154,088,840 (86,028,052) $ 68,060,788 |
June 30, 2020 |
|---|---|---|
| $ 134,427,961 112,846,232 (104,670,769) 142,603,424 (80,843,795) $ 61,759,629 |
In the six months ended December 31, 2020, revenue recognized included $48,790,136 (2019 – $45,325,533) that was included in deferred revenue at the beginning of the period.
The Company’s deferred revenue is scheduled to be recognized in the years ended June 30, as follows:
| 2021 2022 2023 2024 2025 |
$ 52,291,413 55,771,824 31,064,820 11,690,940 3,269,843 $ 154,088,840 |
|---|---|
11. INCOME TAXES
The Company operates in various tax jurisdictions, and accordingly, the Company’s income is subject to varying rates of tax. Losses incurred in one jurisdiction cannot be used to offset income taxes payable in another. The Company’s ability to use income tax losses and deferred income tax deductions is dependent upon the profitable operations of the Company in the tax jurisdictions in which such losses or deductions arise. The Company’s interim tax provisions are estimated based on the expected effective tax rates applicable to the Company’s operations for the year ended June 30, 2020.
- 16 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
11. INCOME TAXES (Continued)
The Company’s income tax expense was comprised as follows:
| Current income tax recovery (expense) Deferred income tax (expense) recovery |
Three months ended December 31, Six months ended December 31, |
|---|---|
| 2020 2019 2020 2019 |
|
| $ (1,537,000) $ 35,000 $ (2,666,000)$ (439,000) 801,000 (1,172,000) 636,000 (1,884,000) |
|
| $ (736,000) $ (1,137,000) $ (2,030,000) $ (2,323,000) |
Income tax expense for the three and six months ended December 31, 2020 and 2019 differs from that calculated by applying statutory rates for the following reasons:
| Income before income taxes Combined Federal and Provincial income tax rate Expected tax expense at statutory rate Permanent differences Foreign income tax effected at lower rates Impact on deferred income tax assets of changes in foreign exchange rates Income applied to previously unrecognized tax assets Amounts (under) over provided for in prior years Total income tax expense |
Three months ended December 31, Six months ended December 31, |
|---|---|
| 2020 2019 2020 2019 |
|
| $ 2,638,620$ 3,847,334 $ 6,534,563 $ 8,484,548 27.00% 27.00% 27.00% 27.00% |
|
| (712,427) (1,038,780) (1,764,332) (2,290,828) (79,952) (79,636) (361,348) (184,000) 10,972 26,182 15,043 49,200 45,000 65,000 79,000 35,000 407 649 1,637 1,305 — (110,415) — 66,323 |
|
| $ (736,000) $ (1,137,000)$ (2,030,000) $ (2,323,000) |
At December 31, 2020, the Company had total net deferred tax assets of $22,357,305 (June 30, 2020 - $22,278,745), primarily related to deferred revenue balances, current income tax receivable of $545,291 (June 30, 2020 – $111,769), primarily related to tax instalments paid, and current taxes payable of $22,777 (June 30, 2020 - $382,041) in other foreign jurisdictions. In the three and six months ended December 31, 2020 and 2019, the Company’s current tax payable is partially offset by estimated investment tax credit (“ITC”) receivable balances. The ITCs were credited against research and development expenses, as the credit is generated by certain eligible scientific research and development expenditures (“SRED”).
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and during the loss carry-forward periods. Management considers the scheduled reversal of deferred tax assets and liabilities, projected future taxable income, and tax planning strategies in making this
- 17 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements
Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
11. INCOME TAXES (Continued)
assessment. The amount of the deferred tax asset considered realizable could change materially in the near term based on future taxable income during the carry-forward period.
The Company’s operations are conducted in a number of countries with complex tax legislation and regulations pertaining to the Company’s activities. Any reassessment of the Company’s tax filings by the tax authorities may result in material adjustments to net income or loss, deferred tax assets and operating loss carry-forwards.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Composition of cash and cash equivalents
| Cash Cash equivalents |
December 31, 2020 $ 117,717,715 13,906,504 $ 131,624,219 |
June 30, 2020 |
|---|---|---|
| $ 24,672,338 5,055,160 $ 29,727,498 |
Other cash flow information
| Cash paid (received) for income taxes Cash paid for interest Non-cash investing and financing activities Accrued purchases of property and equipment, net |
Three months ended December 31, Six months ended December 31, |
|---|---|
| 2020 2019 2020 2019 |
|
| $ 972,817 $(170,887) $ 1,541,455 $ (27,456) $— $ 126,727 $— $ 257,928 $ (8,585) $ (395,430) $ 543,737 $ 1,626,782 |
- 18 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
13. FINANCIAL INSTRUMENTS
The fair value and notional amount of derivative financial instruments outstanding are comprised of the following:
| he fair value and notional amount of derivative omprised of the following: |
financial instruments outstanding are | standing are |
|---|---|---|
| Cash Cash equivalents Fair value of derivatives designated as cash flow hedges Notional amount |
December 31, 2020 June 30, 2020 $ 117,717,715 $ 24,672,338 13,906,504 5,055,160 $ 131,624,219 $ 29,727,498 Derivative Assets |
June 30, 2020 |
| December 31, 2020 June 30,2020 |
||
| $ 590,038 $— $ 14,700,000 $— |
During the six months ended December 31, 2020, $119,955 (December 31, 2019 - $nil) in hedging gains have been recognized in operating expenses. The fair values of derivative assets are measured using Level 2 fair value inputs. Derivative assets are included in trade and other receivables.
(a) Foreign exchange
The Company enters into foreign exchange forward contracts to minimize its exposure to foreign exchange rate risks. These contracts have been designated as cash flow hedges. The maturity dates of these instruments range from January 2021 to August 2021. As at December 31, 2020, the net unrealized gain on these forward contracts was $590,038 (June 30, 2020 – $nil). Unrealized gains were recorded in trade and other receivables and other comprehensive income (“OCI”). As at December 31, 2020, the Company estimates that 100% of net unrealized gains/losses on these forward contracts will be reclassified into income (loss) within the next twelve months.
For the three and six months ended December 31, 2020, a gain of $559,811 and $590,038 respectively relating to the effective portion was recognized in OCI and there was $nil reclassified from OCI into income relating to the ineffective portion.
(b) Credit risk
The Company is exposed to credit risk on derivative financial instruments arising from the potential for counterparties to default on their contractual obligations. The Company mitigates this risk by limiting counterparties to highly rated financial institutions and by continuously monitoring their creditworthiness. The Company’s exposure to credit loss and market risk will vary over time as a function of currency exchange rates. The Company measures its counterparty credit exposure as a percentage of the total fair value of the applicable derivative instruments. Where the net fair value of derivative instruments with any counterparty is negative, the Company deems the credit exposure to that counterparty to be $nil. As at December 31, 2020, the Company had a credit risk exposure to counterparties with outstanding or unsettled foreign
- 19 -
ABSOLUTE SOFTWARE CORPORATION Notes to the Condensed Consolidated Financial Statements
Three and six months ended December 31, 2020 and 2019 (Expressed in United States dollars unless otherwise noted) (Unaudited)
13. FINANCIAL INSTRUMENTS (Continued)
exchange derivative instruments of $590,038 on a notional amount of $14,700,000 relating to derivative assets (June 30, 2020 – $nil).
14. SEGMENTED INFORMATION
Entity wide disclosures
Geographic revenue information is based on the location of the customer invoiced. Long-lived assets include non-current contract acquisition assets, property and equipment, right of use assets and goodwill.
| Three months ended December 31, Six months ended December 31, 2020 2019 2020 2019 Revenue United States $ 24,907,538 $ 22,133,019 $ 49,011,856 $ 44,189,377 Rest of world 4,457,680 3,149,518 8,290,675 6,238,301 Canada 492,037 515,077 1,050,281 1,022,425 $ 29,857,255 $ 25,797,614 $ 58,352,812 $ 51,450,103 December 31, 2020 June 30, 2020 Long-lived assets Canada $ 10,838,605 $ 12,201,188 United States and rest of world 12,331,267 9,486,911 $ 23,169,872 $ 21,688,099 |
Three months ended December 31, Six months ended December 31, |
Three months ended December 31, Six months ended December 31, |
Three months ended December 31, Six months ended December 31, |
|---|---|---|---|
| 2020 | 2019 2020 2019 |
||
| $ 24,907,538 4,457,680 492,037 |
$ 22,133,019 $ 49,011,856 $ 44,189,377 3,149,518 8,290,675 6,238,301 515,077 1,050,281 1,022,425 |
||
| $ 29,857,255 | $ 25,797,614 $ 58,352,812 $ 51,450,103 |
||
| December 31, 2020 $ 10,838,605 12,331,267 $ 23,169,872 |
June 30, 2020 | ||
| $ 12,201,188 9,486,911 $ 21,688,099 |
15. SUBSEQUENT EVENTS
(a) Employee Share Purchase Plan
On January 29, 2021, 37,581 common shares were issued pursuant to the Employee Share Purchase Plan.
(b) Quarterly dividend
On January 20, 2021, the Company declared a quarterly dividend of CAD$0.08 per share on its common shares, payable in cash on February 26, 2021 to shareholders of record at the close of business on February 12, 2021.
- 20 -