What happened
Shares of Absolute Software (ABST +0.00%) were down about 17% as of 11:24 a.m. EDT today following the company's quarterly earnings release last night.
The small-cap cybersecurity platform reported numbers that might be seen as solid in an absolute sense but came in well short of analyst expectations. Unsurprisingly, the earnings miss on both the top and bottom lines sent the stock downward the following day.
NASDAQ: ABST
Key Data Points
So what
In the quarter that ended in December, Absolute grew adjusted revenue by 9.1% over the prior year to $57.7 million, missing expectations by $1.64 million. Adjusted (non-GAAP) earnings per share came in at $0.05, only half of the $0.10 expected. The growth figure marked a noticeable deceleration from the mid-teens increases seen in prior quarters over the past year.
It should be noted that the company's annualized recurring revenue (ARR), which is perhaps a better indicator of growth, was up a more encouraging 15%. Enterprise and government spending was up 18% and contributed 79% of Absolute's ARR. The education sector lagged at just 6% growth, making up 21% of ARR.
For full-year 2023, which ends in June for Absolute, management projects 10% to 12% revenue growth along with an adjusted EBITDA margin (earnings before interest, taxes, depreciation, and amortization) in the range of 23% to 25%.
President and CEO Christy Wyatt said, "We posted a solid performance this quarter against a challenging macro backdrop." The company's chief financial officer, Jim Lejeal, added, "While we are not immune to the macro environment, we remain confident in our ARR growth outlook, and are taking measures to ensure that we maintain strong margins while continuing to invest in our go-to-market initiatives that position the company for long-term success."
It sounds as if Absolute is running into the same headwinds that are plaguing other software and cybersecurity providers this earnings season. While cybersecurity risk is no doubt front and center for businesses of all sizes, the challenging interest-rate environment and the anticipation of potential recession are lengthening sales cycles. Companies are either delaying purchases or looking to trim subscriptions across their employee bases.
Now what
Absolute is a smaller company, but it's also cheaper than most cybersecurity leaders. The stock trades at just about 2 times this year's revenue projections, which is not very expensive compared to its larger, better-known peers. Furthermore, the company is profitable on an adjusted basis and is cash-flow positive -- and it actually pays a dividend that yields about 2.5%. That's certainly not too shabby for value investors looking for exposure to the cybersecurity space.
However, Absolute also has about $258 million in debt against $49 million in cash and pays out a lot of its cash flow as dividends. That appears to be the hallmark of a more mature company, not the high-growth opportunity seen in other leading cybersecurity players.
Absolute might be an intriguing value play in the cybersecurity space today, which is rare. However, there are plenty of other cybersecurity vendors with larger scale and more resources in Absolute's main areas of endpoint protection and zero-trust security, so it's still unclear how effectively this small company will compete with bigger rivals.
