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Magnet Forensics Announces Second Quarter 2021 Results

08/10/2021

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 (“Q2 2021”) and six-months (“YTD 2021”) ended June 30, 2021. Financial references are in U.S. dollars unless otherwise indicated.

Q2 2021 Financial Highlights
(Comparison periods in each case are the three months ended June 30, 2020, unless otherwise stated)

  • Revenue of $16.5 million, an increase of 42%
  • Gross Margin of 94%
  • Net income of $1.6 million, a decrease of 45%
  • Adjusted EBITDA (1) of $4.4 million, unchanged
  • Annual Recurring Revenue (2) (“ARR”) of $49.6 million, an increase of 48%

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"

“We continue to win new customers and grow our existing accounts which drove growth of 42% in the quarter. This performance grew our ARR to nearly $50 million. Our pipeline of new opportunities is robust and the new offerings we have launched are gaining traction in the market, building on the momentum of our flagship products, Magnet AXIOM and Magnet AXIOM Cyber,” said Adam Belsher, CEO of Magnet Forensics. “As public safety organizations and private enterprises manage the challenges of digital crimes and cyberattacks, our innovative solutions and comprehensive approach to digital investigations positions us to compete and win in this growing market.”

Q2 2021 Highlights
(Comparison periods in each case are the three months ended June 30, 2020, unless otherwise stated)

  • Revenue of $16.5 million, an increase of 42% compared to $11.6 million, primarily due to a $2.3 million increase in term license revenue and a $2.7 million increase in software maintenance and support revenue as a result of growth within the Company’s customer base, partially offset by a decrease in perpetual license revenue. The transition to a greater proportion of term license revenue compared to perpetual license revenue is part of the Company’s strategy to increase term license contracts. Total Recurring Revenue(1) was $13.3 million, representing 81% of total revenue.
  • Annual Recurring Revenue(2) grew to $49.6 million, an increase of 48% compared to $33.5 million.
  • Gross Margin was 94%, compared to 95%, consistent with the prior period.
  • Net Income was $1.6 million, a decrease of $1.3 million compared to $2.9 million. The change is primarily due to the benefit of $1.5 million in assistance received under certain government programs as a result of the COVID-19 pandemic in the prior period as well as an increase in general and administrative expenses related to the IPO in 2021, which were partially offset by increased gross profit.
  • Adjusted EBITDA1 was $4.4 million, unchanged from the prior period.
  • Cash of $108.8 million, compared to $21.2 million as of December 31, 2020, an increase of $87.6 million, as a result of the net proceeds from its initial public offering (“IPO”) during the quarter.
  • The Company’s approach of consistent and rapid innovation supported multiple software releases during the quarter, including version 5.0 of its flagship Magnet AXIOM product for public safety continued, the launch of its Magnet Digital Investigation Suite and new releases of its Magnet AXIOM Cyber for private enterprises.
  • The Company announced a collaboration with London’s Metropolitan Police and Microsoft Azure to transform how police agencies investigate crimes with relevant digital evidence from smartphones and computers with the adoption of Magnet REVIEW. Users will be able to leverage REVIEW’s analytical tools to identify and report on critical evidence in a timely manner. REVIEW allows investigators to collaborate with technical personnel in the digital forensic lab and other units remotely, in a secure fashion, while maintaining the forensic integrity of the evidence.
  • 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.

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"

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 $65.5 - $67.5 million, representing 28%-32% growth over Fiscal 2020
  • Adjusted EBITDA(1) of $11.7 - $13.7 million, representing margins of 18%-20%.

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, Tuesday, August 10, 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 (877) 284-0335 or (873) 415-0272 with the conference identification of 9480214. 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 of the investor relations section of Magnet Forensics’ website at https://investors.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 and six months ended June 30, 2021 and June 30, 2020:

   

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2021

2020

 

2021

2020

Net income

 

$1,590

$2,915

 

$4,368

$4,065

Depreciation and amortization(1)

 

486

473

 

990

941

Income tax expense

 

601

930

 

1,608

1,298

Share-based compensation(2)

 

467

7

 

521

29

Foreign exchange loss (gain)(3)

 

67

71

 

132

(382)

Interest expense

 

128

114

 

256

204

Transaction-related expenses(4)

 

1,084

-

 

1,382

-

Adjusted EBITDA

 

$4,423

$4,510

 

$9,257

$6,155

1)

 

Depreciation and amortization expenses are primarily related to right-of-use assets and property and equipment. Depreciation and amortization expense for the three and six months ending June 30, 2021 includes recognized depreciation expense on right-of-use assets of $196, and $415 (June 30, 2020 - $204 and $489). For the three and six months ended June 30 ,2021 interest expense related to lease liabilities was $100, and $191 (June 30, 2020 - $90, $177).

2)

 

These expenses represent non-cash expenditures recognized in connection with the issuance of share-based compensation to our employees and directors.

3)

 

These losses (gains) relate to foreign exchange translation on financial assets and liabilities.

4)

 

These expenses include certain professional, legal, consulting and accounting fees, certain employee compensation, and listing fees that are specific to the IPO and preparation for public filing and are considered non-recurring and not indicative of continuing operations.

“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 and six months ended June 30, 2021 and June 30, 2020:

   

Revenue

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2021

2020

 

2021

2020

Product Type

 

 

 

 

 

 

License - perpetual

 

$1,231

$1,846

 

$2,472

$5,088

License - term

 

3,696

1,357

 

6,755

2,073

Software Licenses Total

 

4,927

3,203

 

9,227

7,161

Software maintenance and support

 

9,580

6,923

 

18,365

13,488

Professional services

 

1,957

1,440

 

3,534

2,641

Total Revenue

 

$16,464

$11,566

 

$31,126

$23,290

Less:

 

 

 

 

 

 

License - perpetual

 

(1,231)

(1,846)

 

(2,472)

(5,088)

Professional services

 

(1,957)

(1,440)

 

(3,534)

(2,641)

Total Recurring Revenue

 

$13,276

$8,280

 

$25,120

$15,561

   

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 June 30, 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 release is expressly qualified by the foregoing cautionary statements.

 

Magnet Forensics Inc.
Condensed Consolidated Interim Statements of Financial Position
As at June 30, 2021 and December 31, 2020
Expressed in thousands of US Dollars (Unaudited)

 

 

 

 

 

 

 

June 30, 2021

 

December 31, 2020

 

ASSETS

 

 

 

 

Current assets

 

 

 

 

Cash

 

$

108,851

 

$

21,205

Accounts receivable

 

 

12,328

 

 

10,208

Prepaid expenses and other assets

 

 

2,048

 

 

895

Income taxes receivable

 

 

783

 

 

-

 

 

 

124,010

 

 

32,308

Non-current assets

 

 

 

 

Property and equipment

 

 

2,538

 

 

2,583

Right-of-use assets

 

 

4,831

 

 

5,246

Contract acquisition costs

 

 

964

 

 

767

Acquired intangible assets

 

 

404

 

 

508

Deferred tax assets

 

 

5,081

 

 

3,882

Total assets

 

 

137,828

 

 

45,294

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable and accrued liabilities

 

 

6,740

 

 

5,973

Deferred revenue

 

 

30,792

 

 

28,356

Government loan payable

 

 

527

 

 

513

Lease liabilities

 

 

909

 

 

866

Income taxes payable

 

 

-

 

 

5,254

 

 

 

38,968

 

 

40,962

Non-current liabilities

 

 

 

 

Deferred revenue

 

 

7,107

 

 

5,572

Government loan payable

 

 

1,530

 

 

1,689

Lease liabilities

 

 

6,463

 

 

6,769

Total liabilities

 

 

54,068

 

 

54,992

 

 

 

 

 

Shareholders’ equity (deficiency)

 

 

 

 

Share capital

 

 

90,571

 

 

1,977

Contributed surplus

 

 

890

 

 

394

Deficit

 

 

(7,701)

 

 

(12,069)

Total shareholders’ equity (deficiency)

 

 

83,760

 

 

(9,698)

Total liabilities and equity

 

$

137,828

 

$

45,294

Magnet Forensics Inc.
Condensed Consolidated Interim Statements of Income and Comprehensive Income
Three and six months ended June 30, 2021 and 2020
Expressed in thousands of US Dollars, except per share figures (Unaudited)

   

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

2021

 

2020

 

2021

 

2020

Revenue

 

$

16,464

 

$

11,566

 

$

31,126

 

$

23,290

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

975

 

 

629

 

 

1,707

 

 

1,311

Gross profit

 

 

15,489

 

 

10,937

 

 

29,419

 

 

21,979

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Sales and marketing

 

 

5,069

 

 

3,318

 

 

9,221

 

 

7,496

Research and development

 

 

4,498

 

 

2,514

 

 

8,336

 

 

6,661

General and administrative

 

 

3,536

 

 

1,076

 

 

5,498

 

 

2,637

 

 

 

13,103

 

 

6,907

 

 

23,055

 

 

16,794

Income before the undernoted items and income taxes

 

2,386

 

 

4,030

 

 

6,364

 

 

5,185

 

 

 

 

 

 

 

 

 

Interest expense

 

 

128

 

 

114

 

 

256

 

 

204

Foreign exchange (gain) / loss

 

 

67

 

 

71

 

 

132

 

 

(382)

Income before income taxes

 

 

2,191

 

 

3,845

 

 

5,976

 

 

5,363

 

 

 

 

 

 

 

 

 

Income tax expense (recovery):

 

 

 

 

 

 

 

 

Current

 

 

94

 

 

1,038

 

 

1,100

 

 

1,449

Deferred

 

 

507

 

 

(108)

 

 

508

 

 

(151)

 

 

 

601

 

 

930

 

 

1,608

 

 

1,298

 

 

 

 

 

 

 

 

 

Net income and comprehensive income

$

1,590

 

$

2,915

 

$

4,368

 

$

4,065

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

Basic (1)

 

 

0.04

 

 

0.09

 

 

0.12

 

 

0.13

Diluted (1)

 

 

0.04

 

 

0.09

 

 

0.12

 

 

0.12

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.
Condensed Consolidated Interim Statement of Cash Flows
Expressed in thousands of US Dollars (Unaudited)
Six months ended June 30, 2021 and 2020

 

 

 

Six months ended June 30,

 

 

2021

 

2020

 

 

 

 

 

Cash provided by (used in):

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

Net income

 

$

4,368

 

$

4,065

Items not involving cash:

 

 

 

 

Income tax expense

 

 

1,608

 

 

1,298

Depreciation of property and equipment

 

 

470

 

 

348

Amortization of intangible assets

 

 

105

 

 

103

Depreciation of right-of-use assets

 

 

415

 

 

489

Share-based compensation expense

 

 

521

 

 

29

Unrealized foreign exchange loss (gain)

 

 

224

 

 

(392)

Non-cash interest on government loan payable

 

 

65

 

 

52

Interest expense on lease liabilities

 

 

191

 

 

177

Changes in operating assets and liabilities

 

 

1,034

 

 

264

Income taxes paid

 

 

(6,697)

 

 

(34)

Net cash from operating activities

 

 

2,304

 

 

6,399

 

Cash flows from investing activities:

 

 

 

 

Purchase of property and equipment

 

 

(425)

 

 

(1,587)

Net cash used investing activities

 

 

(425)

 

 

(1,587)

 

Cash flows from financing activities:

 

 

 

 

Proceeds (repayments) of government loan payable

 

 

(258)

 

 

502

Stock options exercised

 

 

139

 

 

-

Repurchase of common shares

 

 

-

 

 

(344)

Shares issued per offering

 

 

93,583

 

 

-

Share issuance costs

 

 

(7,070)

 

 

-

Lease incentives received

 

 

-

 

 

1,166

Interest paid on lease liabilities

 

 

(188)

 

 

(177)

Principal payments on lease payments

 

 

(439)

 

 

(322)

Net cash used in financing activities

 

 

85,767

 

 

825

 

 

 

 

 

Increase (decrease) in cash

 

 

87,646

 

 

5,637

Cash, beginning of period

 

 

21,205

 

 

25,276

Cash, end of period

 

$

108,851

 

$

30,913

 

Neil Desai
Tel: 226-243-6337
PR@magnetforensics.com

Source: Magnet Forensics

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