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Magnet Forensics Announces 2021 Fourth Quarter and Year End Results

WATERLOO, Ontario, March 10, 2022--(BUSINESS WIRE)--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, today announced its financial and operational results for the three months ("Q4 2021") and twelve months ("FY 2021") ended December 31, 2021. Financial references are in U.S. dollars unless otherwise indicated.

Q4 and FY 2021 Financial Highlights
(Comparison periods in each case are the three and twelve months ended December 31, 2020, unless otherwise stated)

  • Revenue of $21.4 million in Q4 2021, an increase of 37%; and $70.3 million in FY 2021, an increase of 37%

  • Gross Margin of 93% in each of Q4 2021 and FY 2021

  • Net income of $0.8 million in Q4 2021, a decrease of 82%, and $7.3 million in FY 2021, a decrease of 31%

  • Adjusted EBITDA(1) of $4.7 million in Q4 2021, a decrease of 19%, and $18.6 million in FY 2021, an increase of 21%

  • Annual Recurring Revenue(2)("ARR") of $61.3 million as of December 31, 2021, an increase of 48% compared to December 31, 2020

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"

"Our 48% growth in Annual Recurring Revenue is led by new customer acquisition and expanding our range of solutions and services for our existing customers," said Adam Belsher, chief executive officer of Magnet Forensics. "Digital crimes and cyberattacks are growing at a rapid pace in today’s digitally-connected world. Our suite of digital investigation solutions enables public safety organizations and enterprises to uncover critical digital evidence in a timely and effective fashion so they can solve crimes and identify and close threat vectors. We’re consistently outpacing the growth in our sector, generating profits and cash flows. At the same time, we’re investing in future growth through our R&D efforts and the expansion of our sales and marketing teams. We intend to continue to execute our growth strategy in line with our mission to seek justice and protect the innocent for our customers, the victims they serve and our shareholders."

Q4 2021 Highlights
(Comparison periods in each case are the three months ended December 31, 2020, unless otherwise stated)

  • Revenue of $21.4 million, an increase of 37% compared to $15.6 million, primarily due to a $2.6 million increase in term license revenue and a $3.5 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 $17.6 million, representing 82% of total revenue.

  • Annual Recurring Revenue(2) grew to $61.3 million as of December 31 2021, an increase of 48% compared to $41.3 million as of December 31, 2020. The increase was primarily due to higher License - term revenue due to an overall increase in licenses sold, higher software maintenance and support revenue from growth in the user base and further adoption of the Company’s expanded suite of products.

  • Average Recurring Revenue per Account(2) (ARRPA) grew to $13,500 an increase of 44% compared to $9,400.

  • Gross Margin was 93%, compared to 96%. The change is primarily due to an increase in professional services, which offers lower margin revenue than licence or maintenance and support revenue.

  • Net Income was $0.8 million, a decrease of $3.7 million compared to $4.5 million. The change is primarily due to increased investments in Research & Development and Sales & Marketing, including restricted share unit expenses for 2021 awards in the period. The benefit of $0.5 million in assistance received under certain government programs as a result of the COVID-19 pandemic in the prior period was partially offset by increased gross profit.

  • Adjusted EBITDA1 was $4.7 million, a decrease of $1.1 million from the prior period, primarily due to the investments mentioned above and the assistance received from the government program in the prior period.

  • Cash of $118.1 million, compared to $21.2 million as of December 31, 2020, an increase of $96.9 million, primarily as a result of the net proceeds from the Company’s initial public offering ("IPO") during the fiscal period as well as cash flows from operating activities.

  • The Company’s approach of consistent and rapid innovation supported multiple software updates across its product portfolio.

  • The Company announced the release of Magnet AUTOMATE Enterprise, subsequent to the end of the quarter. Magnet AUTOMATE Enterprise synchronizes detection and incident response solutions to immediately trigger investigations, automates basic and repetitive tasks and enables forensic analysts to simultaneously recover and process evidence from multiple endpoints. This approach reduces the time enterprises need to respond to and recover from cybersecurity incidents.

  • The Company announced a collaboration with NICE, subsequent to the end of the quarter, to digitally transform police case building and investigations and accelerate the pursuit of justice. The integration of NICE Investigate and Magnet REVIEW will enable police agencies to automatically merge digital forensic evidence from Magnet REVIEW with other digital evidence sources in NICE Investigate to streamline case building and investigations.

  • 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, 2022 ("Fiscal 2022") are anticipated to be in the following ranges:

  • Revenues of $91.5 - $93.5 million, representing 30% - 33% growth over Fiscal 2021, with the contribution of growth across the four periods distributed similarly to prior years, including Q4 and Q3 representing a greater contribution and Q1 typically representing the lowest contribution.

  • Adjusted EBITDA(1) of $13 - $15 million, representing margins of 14%-16%.

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 Thursday, March 10, at 8:00 am Eastern Time to discuss its financial results. Mr. Adam Belsher, Chief Executive Officer, Mr. Peter Vreeswyk, Chief Financial Officer, and Mr. Angelo Loberto, Chief Operating Officer, will jointly chair the call. All interested parties can join the call by dialling (888) 440-2132 or (438) 803-0557 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 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 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), 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 twelve months ended December 31, 2021 and December 31, 2020:

Three Months Ended December 31,

Fiscal Year ended December 31,

2021

2020

2021

2020

Net income

$806

$4,543

$7,341

$10,604

Depreciation and amortization(1)

733

512

2,251

1,919

Income tax expense

1,098

7

3,725

1,941

Share-based compensation(2)

1,343

29

2,506

74

Foreign exchange loss (gain)(3)

79

196

69

36

Interest expense

78

124

420

449

Financing-related expenses(4)

90

351

1,569

351

Acquisition-related expenses(5)

459

-

752

-

Adjusted EBITDA

$4,686

$5,762

$18,633

$15,374

1) Depreciation and amortization expenses are primarily related to right-of-use assets and property and equipment. Depreciation and amortization expense for the three months and fiscal year ended December 31, 2021 includes recognized depreciation expense on right-of-use assets of $198 and $810, respectively (December 31, 2020 - $249 and $936). For the three months and fiscal year ended December 31, 2021 interest expense related to lease liabilities was $89 and $369, respectively (December 31, 2020 - $96 and $371).
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 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 IPO, and the Base Shelf Prospectus and public filings, and credit facility agreements, and are considered non-recurring and not indicative of continuing operations.
5) These expenses of $416 and $472 for the three months and fiscal year ended December 31, 2021, respectively, relate to post-combination compensation of certain key employees of such acquired business which represent a portion of the consideration paid that is contingent upon ongoing employment obligations and performance criteria being achieved. Additionally, certain legal fees were incurred for the three months and fiscal year ended December 31, 2021 of $43 and $280, respectively, as a result of the Company’s acquisition of DME.

"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 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 twelve months ended December 31, 2021 and December 31, 2020:

Three Months Ended December 31,

Fiscal Year ended December 31,

2021

2020

2021

2020

Product Type

License - perpetual

$1,490

$2,356

4,803

9,634

License - term

5,850

3,281

16,483

6,560

Software Licenses Total

7,340

5,637

21,286

16,194

Software maintenance and support

11,785

8,311

40,760

29,221

Professional services

2,263

1,639

8,241

5,814

Total Revenue

$21,388

$15,587

70,287

51,229

Less:

License - perpetual

(1,490)

(2,356)

(4,803)

(9,634)

Professional services

(2,263)

(1,639)

(8,241)

(5,814)

Total Recurring Revenue

$17,635

$11,592

57,243

35,781

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.

"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. 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. 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 December 31, 2021 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; 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 December 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.

Consolidated Statements of Financial Position

Expressed in thousands of US Dollars

As at December 31

2021

2020

ASSETS

Current assets

Cash

$

118,058

$

21,205

Accounts receivable

21,249

10,208

Prepaid expenses and other assets

2,989

895

Income taxes receivable

577

-

142,873

32,308

Non-current assets

Property and equipment

2,689

2,583

Right-of-use assets

4,503

5,246

Contract acquisition costs

1,477

767

Acquired intangible assets

5,059

508

Goodwill

1,345

-

Deferred tax assets

4,033

3,882

Total assets

161,979

45,294

LIABILITIES AND EQUITY

Current liabilities

Accounts payable and accrued liabilities

$

10,779

$

5,973

Deferred revenue

43,136

28,356

Government loan payable

514

513

Lease liabilities

989

866

Income taxes payable

-

5,254

55,418

40,962

Non-current liabilities

Deferred revenue

9,566

5,572

Government loan payable

1,295

1,689

Acquisition-related payables

707

-

Lease liabilities

5,853

6,769

Total liabilities

72,839

54,992

Shareholders’ equity (deficiency)

Share capital

91,073

1,977

Contributed surplus

2,795

394

Deficit

(4,728)

(12,069)

Total shareholders’ equity (deficiency)

89,140

(9,698)

Total liabilities and equity

$

161,979

$

45,294

Magnet Forensics Inc.

Consolidated Statements of Income and Comprehensive Income

Expressed in thousands of US Dollars, except per share figures

Year ended December 31

2021

2020

Revenue

$

70,287

$

51,229

Cost of sales

4,594

2,613

Gross profit

65,693

48,616

Expenses

Sales and marketing

22,682

15,673

Research and development

19,572

13,783

General and administrative

11,884

6,130

54,138

35,586

Income before the undernoted items and income taxes

11,555

13,030

Interest expense

420

449

Foreign exchange loss

69

36

Income before income taxes

11,066

12,545

Income tax expense (recovery):

Current

2,095

6,116

Deferred

1,630

(4,175)

3,725

1,941

Net income and comprehensive income

$

7,341

$

10,604

Earnings per share

Basic (1)

0.19

0.33

Diluted (1)

0.18

0.32

1) After giving effect to the amalgamation completed as part of the Pre-IPO 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 Annual Information Form and can be found on SEDAR at www.sedar.com.

Magnet Forensics Inc.

Consolidated Statement of Cash Flows

Expressed in thousands of US Dollars

Years ended December 31

2021

2020

Cash provided by (used in):

Cash flows from operating activities:

Net income (loss)

$

7,341

$

10,604

Adjustments for:

Income tax expense

3,725

1,941

Depreciation of property and equipment

967

776

Amortization of intangible assets

474

207

Interest expense on lease liabilities

369

371

Other interest income

(90)

(23)

Depreciation of right-of-use assets

810

936

Share-based compensation expense

2,506

74

Unrealized foreign exchange loss

29

193

Non-cash interest on government loan payable

123

101

Income recognized on government loan

Payable

-

(37)

Changes in operating assets and liabilities

8,606

8,399

Interest received

90

23

Income taxes paid

(7,272)

(550)

Net cash from operating activities

17,678

23,015

Cash flows from investing activities:

Purchase of property and equipment

(1,073)

(1,807)

Acquisition of business

(3,887)

-

Net cash used investing activities

(4,960)

(1,807)

Cash flows from financing activities:

Proceeds (repayments) of government loan payable

(518)

301

Stock options exercised

561

706

Repurchase of common shares

-

(363)

Shares issued per offering

93,583

-

Share issuance costs

(7,070)

-

Dividends paid

-

(26,000)

Lease incentives received

-

1,166

Interest paid on lease liabilities

(369)

(371)

Principal lease payments

(879)

(718)

Repayment of acquired promissory note

(1,173)

-

Net cash from (used in) from financing activities

84,135

(25,279)

Increase (decrease) in cash

96,853

(4,071)

Cash, beginning of year

21,205

25,276

Cash, end of year

$

118,058

$

21,205

View source version on businesswire.com: https://www.businesswire.com/news/home/20220310005189/en/

Contacts

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