TORONTO–(BUSINESS WIRE)–Magnet Forensics Inc. (“Magnet Forensics” or the “Company”) (TSX:MAGT), a developer of digital investigation software that acquires, analyzes, reports on, and manages evidence from digital sources, today announced its financial and operational results for the three months ended March 31, 2021 (“Q1 2021”). Financial references are in US dollars unless otherwise indicated.
Q1 2021 Financial Highlights
(Comparison periods in each case are the three months ended March 31, 2020, unless otherwise stated)
Revenue of $14.7 million, an increase of 25% Gross Margin of 95% Net income of $2.8 million, an increase of over 140% Adjusted EBITDA(1) of $4.8 million, an increase of 194% Annual Recurring Revenue(2) of $44.2 million, an increase of 46% (1) Non-IFRS measure. See “Non-IFRS Measures” and the reconciliation to the most directly comparable IFRS measure included in this press release
(2) Key Performance Indicator. See “Key Performance Indicators”
“Magnet Forensics won new customers and expanded our existing accounts in Q1 across our public and private sector markets. This delivered topline growth of 25% in the quarter and increased our annual recurring revenue to $44 million for the end of the period,” said Adam Belsher, CEO of Magnet Forensics. “Our innovative solutions help our customers investigate cyberattacks and digital crimes, which is a large and growing market. We have the technology, the team and with our recent IPO, the capital, to aggressively pursue this market.”
Q1 2021 Highlights
(Comparison periods in each case are the three months ended March 31, 2020, unless otherwise stated)
Revenue of $14.7 million, an increase of 25% compared to $11.7 million, primarily due to a $2.2 million increase in software maintenance and support revenue as a result of growth within the Company’s customer base. Total Recurring Revenue(1) was $11.8 million, representing 81% of total revenue. Annual Recurring Revenue(3) (“ARR”) grew to $44.2 million, an increase of 46% compared to $30.2 million. Gross Margin was 95%, compared to 94%, maintained primarily due to operating leverage in the business as revenue grew more than the relative size of staffing and infrastructure to service the Company’s customer base. Net Income was $2.8 million, an increase of over 140% compared to $1.2 million, primarily due to revenue growth. Adjusted EBITDA1 was $4.8 million, an increase of 194% compared to $1.6 million, primarily due to revenue growth and improved operating performance. Cash of $16.6 million, compared to $21.2 million as of December 31, 2020, a decrease of $4.6 million, primarily from making certain corporate income tax payments. The Company raised net proceeds of $87.6 million ($107.8 million Canadian dollars) from its initial public offering (“IPO”) subsequent to the end of the quarter, and Company’s Subordinate Voting Shares began trading on the Toronto Stock Exchange under the symbol “MAGT” on April 28, 2021. The Company continued its rapid and consistent pace of innovation with multiple software releases across its portfolio, including its flagship Magnet AXIOM product for public safety organizations and its Magnet AXIOM CYBER product for private enterprises. The Company won new customers across each of its public safety and private enterprise markets, including Europe, Asia and North America. The Company expanded its accounts with key public and private sector customers that drove increased revenue as customers expanded their adoption of the Company’s software solutions Financial Outlook
Revenue and Adjusted EBITDA for the year ended December 31, 2021 (“Fiscal 2021”) are anticipated to be in the following ranges:
Revenues of $64.5 – $66.5 million, representing 26%-30% growth over Fiscal 2020 Adjusted EBITDA(1)of $9.7 – $11.2 million, representing margins of 15%-17%. (1) Non-IFRS measure. See “Non-IFRS Measures” and the reconciliation to the most directly comparable IFRS measure included in this press release
Notice of Conference Call
Magnet Forensics will host a conference call, today, Thursday, May 13, at 8: 00 am Eastern Time to discuss its financial results. Mr. Adam Belsher, Chief Executive Officer, and Mr. Angelo Loberto, Chief Financial Officer and Chief Operating Officer, will co-chair the call. All interested parties can join the call by dialling (844) 949-4800 or (639) 491-2377 with the conference identification of 2164817. Please dial in 15 minutes prior to the call to secure a line. A live audio webcast of the conference call will also be available from the Events page under the Investor menu on www.magnetforensics.com.
About Magnet Forensics
Founded in 2010, Magnet Forensics is a developer of digital investigation software that acquires, analyzes, reports on, and manages evidence from digital sources, including computers, mobile devices, IoT devices and cloud services. Magnet Forensics’ software is used by more than 4,000 public and private sector customers in over 90 countries and helps investigators fight crime, protect assets and guard national security.
Non-IFRS Financial Measures
This press release contains certain non IFRS measures, specifically Adjusted EBITDA and Total Recurring Revenue. These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. These non-IFRS measures are used to provide investors with supplemental measures of the Company’s operating performance and liquidity and thus highlight trends in its business that may not otherwise be apparent when relying solely on IFRS measures. The Company also believe that securities analysts, investors, and other interested parties frequently use non-IFRS measures in the evaluation of issuers. The Company’s management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts, and to determine components of management and executive compensation.
“Adjusted EBITDA” represents net income (loss), and net income (loss) as a percentage of total revenue, respectively, adjusted to exclude depreciation and amortization, income tax expense (recovery), stock-based compensation expense, foreign exchange loss (gain), interest expense (income), and certain transaction-related expenses that are one-time or non-recurring in nature. The Company uses Adjusted EBITDA as a supplemental measure to review and assess operating performance, assess its ability to generate cash-based earnings, as well as provide a more complete understanding of factors and trends affecting the Company’s business that may not otherwise be apparent when relying solely on IFRS measures.
The following table reconciles net income to Adjusted EBITDA for the three months ended March 31, 2021 and March 31, 2020:
In thousands of US dollars
Three Months Ended March 31,
2021
2020
Net income
$2,778
$1,150
Depreciation and amortization
504
468
Income tax expense
1,007
368
Stock-based compensation
54
22
Foreign exchange loss (gain)
65
(453)
Interest expense
128
90
Transaction-related expenses
298
–
Adjusted EBITDA
$4,834
$1,645
“Total Recurring Revenue” represents the total revenue recognized during the period from contract elements that are recurring in nature, and includes revenues recognized as “License – term” and “Software maintenance and support” under term license contracts (“Term License Contracts”) and revenue recognized as “Software maintenance and support” from term subscriptions for software maintenance and support (“Software Maintenance and Support”) purchased by customers under perpetual licenses (“Perpetual Licenses”). The Company believes that Total Recurring Revenue is an indicator of business expansion and provides visibility into its ability to generate predictable cash flows.
Term License Contracts and subscriptions for Software Maintenance and Support provide that customers must renew their contract upon expiry, permit customers to terminate their contracts for convenience and do not contain penalty provisions in the event of early termination, though customers that terminate early are not entitled to refund of amounts paid under the contract. The Company facilitates customer renewals generally through automatic delivery of renewal notifications sent in advance of renewal dates, followed by a personal contact from a member of the Company’s sales team. Based on the Company’s past experience, early terminations by customers have not been material and a significant majority of customers renew their contracts upon expiry.
The following table presents Revenue and Total Recurring Revenue for the three months ended March 31, 2021 and March 31, 2020:
Revenue
Three Months Ended March 31, 2021
2020
Product Type
License – perpetual
$1,241
$3,242
License – term
3,059
716
Software Licenses Total
4,300
3,958
Software maintenance and support
8,785
6,565
Professional services
1,577
1,201
Total Revenue
$14,662
$11,724
Less:
License – perpetual
(1,241)
(3,242)
Professional services
(1,577)
(1,201)
Total Recurring Revenue
$11,844
$7,281
Key Performance Indicators
The Company monitors Annual Recurring Revenue as one of a number of performance indicators to help it evaluate its business, measure its performance, identify trends affecting its business, and formulate strategic plans. Each of these key performance indicators utilizes revenue from contract elements that are recurring in nature, which include Term License contracts and subscriptions for Software Maintenance and Support, and excludes non-recurring Perpetual License fees and training and implementation fees.
“Annual Recurring Revenue” is defined as the annualized value of contracted recurring revenue from all customers that have contracts for the Company’s products and services as at the date being measured. The Company calculates Annual Recurring Revenue by dividing the contracted recurring revenue of each customer contract in effect as at the measurement date by the term of the contract, expressed in years. The Company’s calculation of Annual Recurring Revenue assumes that active customers will renew their contracts with it at the time of renewal. Based on the Company’s past experience, a significant majority of customers renew their contracts upon expiry. In addition, while subscription agreements may be subject to price increases on renewal, the Company do not assume price increases on subscription agreements when calculating Annual Recurring Revenue. The Company believes that Annual Recurring Revenue is an indicator of business expansion and provides visibility into its ability to generate predictable future cash flows.
Forward-Looking Information
This press release contains “forward-looking information” and “forward-looking statements” (collectively, “forward-looking information”) within the meaning of applicable securities laws. Forward-looking information includes or may relate to the Company’s financial outlook for Fiscal 2021 (including revenues, net income and Adjusted EBITDA) and anticipated events or results and may include information regarding its financial position, business strategy, growth strategies, addressable markets, budgets, operations, financial results, taxes, dividend policy, plans and objectives. Particularly, information regarding the Company’s expectations of future results, performance, achievements, prospects or opportunities or the markets in which we operate is forward-looking information.
In some cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects”, “is expected”, “an opportunity exists”, “budget”, “scheduled”, “estimates”, “outlook”, “forecasts”, “projection”, “prospects”, “strategy”, “intends”, “anticipates”, “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or, “will”, “occur” or “be achieved”, and similar words or the negative of these terms and similar terminology. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s current expectations, estimates and projections regarding future events or circumstances.
Forward-looking information is necessarily based on a number of opinions, estimates and assumptions that we considered appropriate and reasonable as of the date such statements are made, and is subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to the factors described in the “Summary of Factors Affecting our Performance” section of the Company’s MD&A for the three months ended March 31, 2021 and in the “Risk Factors” section of the Company’s Supplemented PREP Prospectus dated April 28, 2021, which is available under the Company’s profile on SEDAR at www.sedar.com. Certain assumptions in respect of, among other things, the Company’s ability to build its market share, retain existing customers and attract new customers; the Company’s ability to retain key personnel; the Company’s ability to maintain and expand geographic scope; the Company’s ability to execute on its growth strategies; the Company’s ability to maintain and protect its intellectual property rights and proprietary information; the Company’s ability to prevent unauthorized access to or disclosure, loss, destruction or modification of data, through cybersecurity breaches or computer viruses disrupting the functionality of the Company’s products; the Company’s ability to obtain additional financing and maintain existing financing on acceptable terms; currency exchange and interest rates; the impact of competition; changes and trends in the Company’s industry and the global economy, including the impact of the ongoing COVID-19 pandemic; and changes in laws, rules, regulations, and global standards, are material factors made in preparing forward-looking information and management’s expectations.
If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. The opinions, estimates or assumptions referred to above are described in greater detail in the “Summary of Factors Affecting our Performance” section of the Company’s MD&A for the three months ended March 31, 2021 and should be considered carefully by prospective investors.
Although the Company has attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other risk factors not presently known to the Company or that the Company presently believes are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. No forward-looking statement is a guarantee of future results. Accordingly, you should not place undue reliance on forward-looking information, which speaks only as of the date made. The forward-looking information contained in this press represents the Company’s expectations as of the date of hereof (or as of the date they are otherwise stated to be made), and is subject to change after such date. However, the Company disclaims any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws.
All of the forward-looking information contained in this MD&A is expressly qualified by the foregoing cautionary statements.
Magnet Forensics Inc.
Consolidated statements of financial position
As at March 31, 2021 and December 31, 2020
Expressed in thousands of US dollars (Unaudited)
March 31, 2021
December 31, 2020
ASSETS
Current assets
Cash
$
16,637
$
21,205
Accounts receivable
9,895
10,208
Prepaid expenses and other assets
2,033
895
28,565
32,308
Non-current assets
Property and equipment
2,489
2,583
Right-of-use assets
5,027
5,246
Contract acquisition costs
745
767
Acquired intangible assets
456
508
Deferred tax assets
3,881
3,882
Total assets
41,163
45,294
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities
3,601
5,973
Deferred revenue
27,887
28,356
Government loan payable
519
513
Lease liabilities
825
866
Income taxes payable
973
5,254
33,805
40,962
Non-current liabilities
Deferred revenue
5,930
5,572
Government loan payable
1,608
1,689
Lease liabilities
6,672
6,769
Total liabilities
48,015
54,992
Shareholders’ equity (deficiency)
Share capital
1,994
1,977
Contributed surplus
445
394
Retained earnings (deficit)
(9,291)
(12,069)
Total shareholders’ equity (deficiency)
(6,852)
(9,698)
Total liabilities and equity
$
41,163
$
45,294
Magnet Forensics Inc.
Consolidated statements of income and comprehensive income
Three months ended March 31, 2021 and 2020
Expressed in thousands of US dollars, except per share figures (Unaudited)
Three months ended March 31, 2021
2020
Revenue
$
14,662
$
11,724
Cost of sales
732
682
Gross profit
13,930
11,042
Expenses
Sales and marketing
4,152
4,178
Research and development
3,838
4,147
General and administrative
1,962
1,562
9,952
9,887
Income before the undernoted items and income taxes
3,978
1,155
Interest expense
128
90
Foreign exchange (gain) / loss
65
(453)
Income before income taxes
3,785
1,518
Income tax expense (recovery):
Current
1,006
411
Deferred
1
(43)
1,007
368
Net income and comprehensive income
$
2,778
$
1,150
Earnings per share
Basic (1)
0.08
0.04
Diluted (1)
0.08
0.03
Note:
(1)
After giving effect to the amalgamation completed as part of the Pre-Closing Reorganization, including a conversion of the Company’s pre-closing common shares on a one-to-three basis. Additional information related to Magnet Forensics Inc. and the Pre-Closing Reorganization completed can be found within the Prospectus and can be found on SEDAR at www.sedar.com.
Magnet Forensics Inc.
Consolidated statement of cash flows
Three months ended March 31, 2021 and 2020
Expressed in thousands of US dollars (Unaudited)
Three months ended March 31,
2021
2020
Cash provided by (used in):
Cash flows from operating activities:
Net income
$
2,778
$
1,150
Items not involving cash:
Income tax expense
1,007
368
Depreciation of property and equipment
233
131
Amortization of intangible assets
52
52
Depreciation of right-of-use assets
219
285
Stock-based compensation expense
54
22
Unrealized foreign exchange loss (gain)
99
(461)
Non-cash interest on government loan payable
33
26
Interest expense on lease liabilities
91
87
Changes in operating assets and liabilities
(3,470)
(524)
Income taxes paid
(5,105)
(10)
Net cash from operating activities
(4,009)
1,126
Cash flows from investing activities:
Purchase of property and equipment
(139)
(400)
Net cash used investing activities
(139)
(400)
Cash flows from financing activities:
Repayments of government loan payable
(125)
(160)
Stock options exercised
14
–
Repurchase of common shares
–
(344)
Interest paid on lease liabilities
(91)
(87)
Lease payments
(218)
(110)
Net cash used in financing activities
(420)
(701)
Increase (decrease) in cash
(4,568)
25
Cash, beginning of period
21,205
25,276
Cash, end of period
$
16,637
$
25,301