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Magnet Forensics Announces 2022 Second Quarter Results

08/10/2022

Magnet Forensics Inc. (“Magnet Forensics” or the “Company”) (TSX: MAGT), a developer of digital investigation solutions for more than 4,000 enterprises and public safety organizations in over 100 countries, today announced its financial and operational results for the three months (“Q2 2022”) and six months (“YTD 2022”) ended June 30, 2022. Financial references are in U.S. dollars unless otherwise indicated.

Q2 2022 Financial Highlights
(Comparison periods in each case are the three months ended June 30, 2021, unless otherwise stated)

  • Revenue of $23.1 million in Q2 2022, an increase of 41%
  • Gross Margin of 93% in Q2 2022, compared to 94% in Q2 2021
  • Net income (loss) of $(1.0) million in Q2 2022, compared to $1.6 million in Q2 2021
  • Adjusted EBITDA 1 of $3.5 million in Q2 2022, compared to $4.4 million in Q2 2021
  • Annual Recurring Revenue 2 (“ARR”) of $73.7 million as of June 30, 2022, an increase of 49% from the prior year

1) Non-IFRS measure. See "Non-IFRS Financial Measures" and the reconciliation to the most directly comparable IFRS measure included in this press release
2) Key Performance Indicator. See "Key Performance Indicators"

“With continued strong demand in our end markets across both private enterprise and the public sector, we delivered 41% topline growth in the quarter. Cybercrime and crimes with digital evidence associated with them continue to grow globally. Our customers are investing in solutions that support their missions to solve crimes and protect corporate assets, despite the current macro-economic headwinds,” said Adam Belsher, CEO of Magnet Forensics. “We have increased our topline growth outlook for 2022. We are prudently managing our investments in future growth and we are prioritizing key investments, based on the positive unit economics of our suite of innovative solutions and our proven capability to expand within a new account once we land them. With our consistent ARR growth of nearly 50% and positive Adjusted EBITDA1, our ability to scale the business profitably is a key differentiator for our shareholders.”

Q2 2022 Highlights
(Comparison periods in each case are the three months ended June 30, 2021, unless otherwise stated)

  • Revenue of $23.1 million, an increase of 41% compared to $16.5 million, primarily due to a $4.0 million increase in software maintenance and support revenue and a $2.7 million increase in term license revenue, each of which are a result of growth within the Company’s customer base. 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. This transition to term-based products has increased the proportion of term license support as a percentage of total Software Maintenance and Support revenue to 56% as of June 30, 2022, compared to 33% at the same point in 2021. Total Recurring Revenue1 was $20.0 million, representing 86% of total revenue.
  • Annual Recurring Revenue2 grew to $73.7 million as of June 30, 2022, an increase of 49% compared to $49.6 million as of June 30, 2021. The growth in ARR was primarily due to higher License - term revenue due to an overall increase in licenses sold and higher Software maintenance and support revenue from growth in the user base.
  • Gross Margin was 93%, compared to 94%. The change is primarily due to increased growth in Software License and Software Maintenance and Support Revenue, partially offset by the increased professional services, which is lower margin revenue than licence or maintenance and support revenue, and software maintenance and support cost of sales.
  • Net Income (loss) was $(1.0) million, a decrease of $2.6 million compared to $1.6 million in Q2 2021. The change is primarily due to increased investments in Sales & Marketing and Research & Development, including restricted share unit expenses for awards granted since IPO, as well as acquisition-related expenses.
  • Adjusted EBITDA1 was $3.5 million, a decrease of $1.0 million from the prior period, primarily due to investments mentioned above.
  • Cash of $116.0 million, compared to $118.1 million as of December 31, 2021, a change of $2.1 million.
  • The Company won new customers across each of its public safety and private enterprise markets, including Europe, Asia, and North America.
  • The current prospect pipeline is robust and continues to build based on interest in: 1) the Company’s core Magnet AXIOM and Magnet AXIOM Cyber offerings; 2) the Magnet Digital Investigation Suite (MDIS); and 3) with the investments made during the past 12 months in Sales & Marketing team.
  • The Company’s approach of consistent and rapid innovation supported multiple software updates across its product portfolio, including updates to its core products Magnet AXIOM and Magnet AXIOM Cyber and product updates for the Magnet Digital Investigation Suite (MDIS) with new innovations of Magnet AUTOMATE and Magnet REVIEW.

1) Non-IFRS measure. See "Non-IFRS Financial 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

The Company updated its outlook for Revenue and Adjusted EBITDA for the year ended December 31, 2022, which are anticipated to be in the following ranges:

  • Revenues of $92.5 - $94.5 million, representing 32% - 34% growth over Fiscal 2021, with the contribution of growth across the four periods distributed similar to prior years, with Q4 and Q3 representing a greater contribution.
  • Adjusted EBITDA1 of $13.75 - $15.75 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, Wednesday, August 10, at 8:00 am Eastern Time to discuss its financial results. Mr. Adam Belsher, Chief Executive Officer, and Mr. Peter Vreeswyk, Chief Financial Officer, will jointly chair the call. All interested parties can join the call by dialling (438) 803-0557 or (888) 440-2132 with the conference identification of 9128531. 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 100 countries and helps investigators fight crime, protect assets and guard national security.

Non-IFRS Financial Measures
This press release contains certain non-IFRS financial 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 believes 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) as a percentage of total revenue, respectively, adjusted to exclude depreciation and amortization, income tax expense (recovery), share-based compensation expense, foreign exchange loss (gain), interest expense (income), certain financing-related expenses that are non-recurring in nature, and certain acquisition-related expenses that are non-recurring in nature and not indicative of continuing operations. 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, 2022 and June 30, 2021 (expressed in thousands of US dollars):

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2022

2021

 

2022

2021

Net income (loss)

($1,018)

$1,590

 

($1,912)

$4,368

Depreciation and amortization1

880

486

 

1,648

990

Income tax expense (recovery)

(719)

601

 

(1,197)

1,608

Share-based compensation2

1,863

467

 

3,886

521

Foreign exchange loss (gain)3

263

67

 

626

132

Interest expense (income)

(17)

128

 

65

256

Financing-related expenses4

45

1,084

 

63

1,382

Acquisition-related expenses5

2,165

-

 

2,734

-

Adjusted EBITDA

$3,462

$4,423

 

$5,913

$9,257

________________

Notes:
(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 ended June 30, 2022 includes recognized depreciation expense on right-of-use assets of $216 and $417 (June 30, 2021 - $196 and $415). For the three and six months ended June 30, 2022 interest expense related to lease liabilities was $83 and $169 (June 30, 2021- $100 and $191).
(2) These expenses represent non-cash expenses recognized in connection with the issuance of share-based compensation to employees and directors, excluding share-based compensation related to acquired businesses of $320 and $366, for the three and six months ended June 30, 2022.

(3) These losses 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 financing activities including the Company’s initial public offering (“IPO”) completed on May 3, 2021, the base shelf prospectus filed on October 29, 2021 and public filings, and credit facility agreements, and are considered non-recurring and not indicative of continuing operations.

(5) These expenses relate to post-combination compensation of acquired businesses, which represent a portion of the consideration paid that is contingent upon ongoing employment and performance criteria being achieved, including share-based compensation. Additionally, these expenses include certain professional, legal, consulting, accounting, advisory, and other fees incurred in connection with acquisition and other strategic opportunities pursued as part of the Company’s growth strategy. These expenses 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 management with visibility into its ability to generate predictable cash flows.

Term License Contracts and subscriptions for Software Maintenance and Support must be renewed 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 the renewal dates, followed by a personal contact from a member of the Company’s sales team. Based on the Company’s experience, early terminations by customers have not been material and a significant majority of customers renew their contracts upon expiry.

The following table reconciles Total Recurring Revenue to total revenue for the periods indicated (expressed in thousands of US dollars):

Revenue

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2022

2021

 

2022

2021

Product Type

 

 

 

 

 

License - term

$6,346

$3,696

 

$11,028

$6,755

License - perpetual

959

$1,231

 

1,392

2,472

Software Licenses Total

7,305

4,927

 

12,420

9,227

Software maintenance and support- term

7,585

3,174

 

13,880

5,717

Software maintenance and support- perpetual

6,026

6,406

 

12,349

12,648

Software Maintenance and Support Total

13,611

9,580

 

26,229

18,365

Professional services

2,231

1,957

 

4,284

3,534

Total Revenue

$23,147

$16,464

 

$42,933

$31,126

Less:

 

 

 

 

 

License - perpetual

(959)

(1,231)

 

(1,392)

(2,472)

Professional services

(2,231)

(1,957)

 

(4,284)

(3,534)

Total Recurring Revenue

$19,957

$13,276

 

$37,257

$25,120

 

Key Performance Indicators
The Company monitors 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. Our key performance indicators may be calculated in a manner different than similar key performance indicators used by other companies and may be adjusted in certain cases related to acquired businesses.

“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 does not assume price increases on subscription agreements when calculating Annual Recurring Revenue. In the event of an acquisition, management includes the annualized value of recurring revenue from contracts with a commencement date subsequent to the acquisition date. 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 2022 (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. This forward looking information includes, but is not limited to, information regarding the Company’s expectations of future results, performance, achievements, prospects or opportunities or the markets in which it operates; expectations regarding the growth of cybercrime and crimes with digital evidence; expectations regarding customer investment in solutions to solve crimes; expectations regarding the Company’s ability to scale its business profitability and its implication for shareholders; the Company’s strategy with respect to term license contracts; expectations regarding the robustness and continued growth of the current prospect pipeline; the outlook for Revenue and Adjusted EBITDA for the year ending December 31, 2022, including anticipated ranges; and the usefulness of the Company’s key performance and non-IFRS measures and the frequency of use of non-IFRS measures by third parties.

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 the Company 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 and six months ended June 30, 2022 and in the “Risk Factors” sections of the Company’s Annual Information Form dated March 9, 2022, which are 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, and increase revenue associated with those 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 and six months ended June 30, 2022 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
Expressed in thousands of US Dollars (Unaudited)
As at June 30, 2022 and December 31, 2021

 

 

 

 

 

 

 

 

June 30, 2022

December 31, 2021

 

 

ASSETS

 

 

 

 

Current assets

 

 

 

 

Cash

 

 

$

116,028

 

$

118,058

 

Accounts receivable

 

 

 

19,054

 

 

21,249

 

Prepaid expenses and other assets

 

 

 

3,302

 

 

2,989

 

Income taxes receivable

 

 

 

1,187

 

 

577

 

 

 

 

 

139,571

 

 

142,873

 

Non-current assets

 

 

 

 

Property and equipment

 

 

 

2,842

 

 

2,689

 

Right-of-use assets

 

 

 

4,085

 

 

4,503

 

Contract acquisition costs

 

 

 

1,831

 

 

1,477

 

Acquired intangible assets

 

 

 

6,375

 

 

5,059

 

Goodwill

 

 

 

1,455

 

 

1,345

 

Deferred tax assets

 

 

 

5,727

 

 

4,033

 

Total assets

 

 

 

161,886

 

 

161,979

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Current liabilities

 

 

 

 

Accounts payable and accrued liabilities

 

 

 

8,221

 

 

10,779

 

Deferred revenue

 

 

 

45,185

 

 

43,136

 

Government loan payable

 

 

 

506

 

 

514

 

Lease liabilities

 

 

 

972

 

 

989

 

 

 

 

 

54,884

 

 

55,418

 

Non-current liabilities

 

 

 

 

Deferred revenue

 

 

 

8,093

 

 

9,566

 

Government loan payable

 

 

 

1,074

 

 

1,295

 

Acquisition-related payables

 

 

 

867

 

 

707

 

Lease liabilities

 

 

 

5,301

 

 

5,853

 

Total liabilities

 

 

 

70,219

 

 

72,839

 

 

 

 

 

Shareholders’ equity (deficiency)

 

 

 

 

Share capital

 

 

 

91,760

 

 

91,073

 

Contributed surplus

 

 

 

6,547

 

 

2,795

 

Retained earnings (deficit)

 

 

 

(6,640

)

 

(4,728

)

Total shareholders’ equity (deficiency)

 

 

 

91,667

 

 

89,140

 

Total liabilities and equity

 

$

161,886

 

$

161,979

 

Magnet Forensics Inc.

Condensed Consolidated Interim Statements of Income and Comprehensive Income

Expressed in thousands of US Dollars, except per share figures (Unaudited)

Three and six months ended June 30, 2022 and 2021

 

 

 

Three months ended June 30,

Six months ended June 30,

 

 

 

2022

 

 

2021

 

2022

 

 

2021

Revenue

 

$

23,147

 

$

16,464

$

42,933

 

$

31,126

 

 

 

 

 

 

Cost of sales

 

 

1,575

 

 

975

 

3,080

 

 

1,707

Gross profit

 

 

21,572

 

 

15,489

 

39,853

 

 

29,419

 

 

 

 

 

 

Expenses

 

 

 

 

 

Sales and marketing

 

 

9,887

 

 

5,069

 

18,243

 

 

9,221

Research and development

 

 

8,253

 

 

4,498

 

15,517

 

 

8,336

General and administrative

 

 

4,923

 

 

3,536

 

8,511

 

 

5,498

 

 

 

23,063

 

 

13,103

 

42,271

 

 

23,055

Income (loss) before the undernoted

items and income taxes

 

(1,491

)

 

2,386

 

(2,418

)

 

6,364

 

 

 

 

 

 

Interest expense (income)

 

 

(17

)

 

128

 

65

 

 

256

Foreign exchange loss

 

 

263

 

 

67

 

626

 

 

132

Income (loss) before income taxes

 

(1,737

)

 

2,191

 

(3,109

)

 

5,976

 

 

 

 

 

 

Income tax expense (recovery):

 

 

 

 

Current

 

 

547

 

 

94

 

595

 

 

1,100

Deferred

 

 

(1,266

)

 

507

 

(1,792

)

 

508

 

 

 

(719

)

 

601

 

(1,197

)

 

1,608

 

 

 

 

 

 

Net income (loss) and comprehensive

income (loss)

$

 

(1,018

 

)

 

$

 

1,590

 

$

 

(1,912

 

)

 

$

 

4,368

 

 

 

 

 

 

Earnings (loss) per share

 

 

 

 

 

Basic (1)

 

 

(0.02

)

 

0.04

 

(0.05

)

 

0.12

Diluted (1)

 

 

(0.02

)

 

0.04

 

(0.05

)

 

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.

Magnet Forensics Inc.

Condensed Consolidated Interim Statement of Cash Flows

Expressed in thousands of US Dollars (Unaudited)

Six months ended June 30, 2022 and 2021

 

 

 

Six months ended June 30,

 

 

2022

2021

 

 

 

 

Cash provided by (used in):

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

Net income (loss)

 

$

(1,912

)

$

4,368

 

Items not involving cash:

 

 

 

Income tax expense (recovery)

 

 

(1,197

)

 

1,608

 

Depreciation of property and equipment

 

 

616

 

 

470

 

Amortization of intangible assets

 

 

615

 

 

105

 

Interest expense on lease liabilities

 

 

169

 

 

191

 

Other interest income

 

 

(224

)

 

-

 

Depreciation of right-of-use assets

 

 

417

 

 

415

 

Share-based compensation expense

 

 

4,252

 

 

521

 

Unrealized foreign exchange loss (gain)

 

 

(112

)

 

224

 

Other non-cash interest

 

 

120

 

 

65

 

Changes in operating assets and liabilities

 

 

(795

)

 

1,034

 

Interest received

 

 

224

 

 

-

 

Income taxes paid

 

 

(829

)

 

(6,697

)

Net cash from operating activities

 

 

1,344

 

 

2,304

 

 

Cash flows from investing activities:

 

 

 

Purchase of property and equipment

 

 

(769

)

 

(425

)

Acquisition of business and intangible assets

 

 

(1,882

)

 

-

 

Net cash used in investing activities

 

 

(2,651

)

 

(425

)

 

Cash flows from financing activities:

 

 

 

Repayments of government loan payable

 

 

(257

)

 

(258

)

Stock options exercised

 

 

187

 

 

139

 

Shares issued per offering

 

 

-

 

 

93,583

 

Share issuance costs

 

 

-

 

 

(7,070

)

Interest paid on lease liabilities

 

 

(169

)

 

(188

)

Principal lease payments

 

 

(484

)

 

(439

)

Net cash from (used in) financing activities

 

 

(723

)

 

85,767

 

 

 

 

 

Increase (decrease) in cash

 

 

(2,030

)

 

87,646

 

Cash, beginning of period

 

 

118,058

 

 

21,205

 

Cash, end of period

 

$

116,028

 

$

108,851

 

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

Source: Magnet Forensics

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