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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Absolute Software Corporation's Third Quarter Fiscal 2021 Conference Call. Before beginning its formal remarks, Absolute would like to remind listeners that the -- that certain portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events and conditions. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements.Any forward-looking statements contained in today's conference call are made as at the date hereof and Absolute does not undertake any obligation to update publicly or to revise any of the included forward-looking statements whether as a result of new information, future events, or otherwise except as may be required by applicable security laws.For more information on the assumptions, risks, and uncertainties related to these forward-looking statements, please refer to the appropriate section of the company's Q3 fiscal 2021 MD&A, which is now available on the Absolute website -- Absolute Software's website and will be available on SEDAR and EDGAR. I'd also like to remind everyone this conference call is being recorded today, Tuesday, May 11 at 5:00 p.m. Eastern Time.I'd now like to turn the conference over to Christy Wyatt, President and Chief Executive Officer. Please go ahead.
Thank you, operator. Good afternoon, everyone, and thank you for joining us for Absolute Software's Q3 fiscal 2021 conference call. Joining me on the call today will be our CFO, Steven Gatoff. In addition to announcing a solid quarter, we are very excited to announce that we've entered into a definitive agreement to acquire NetMotion, a provider of security solutions to the world's growing remote workforce. With the combination of Absolute's Endpoint Resilience, NetMotion's network resilience, and our collective data and intelligence capabilities, Absolute will create a first-of-its-kind solution that will deliver always-on connectivity, unmatched visibility, control, and resilience.Today, we will first take you through our strong Q3 results and the continued positive trends in our business, and then I will review the rationale and strategic fit for acquiring NetMotion. I'll be joined by NetMotion's CEO, Christopher Kenessey, who will share with you a bit more about the company, and then Steven will take us through the financial benefits of the transaction.Q3 was another strong quarter for Absolute reporting record ARR revenue and adjusted EBITDA for the third consecutive quarter. We had a $2.9 million of ARR in Q3 and exited the quarter with ARR of $120.4 million, up a record 19% year-over-year, and driven by an 18% increase in active devices. We reported record revenue growth of 18% with continued strength and adjusted EBITDA margins and solid cash flow. These consistently strong numbers are a direct reflection of our ability to execute and the strong demand for Endpoint Resilience capabilities as organizations across all industries are under pressure to adopt -- adapt to the new remote and hybrid working models.Growth in Q3 was driven by a series of new customer wins as well as expansions across our existing customers, notably across insurance, health care, and manufacturing industries. Our investments and innovation continue to pay off enabling our customers with solutions that provide intelligence and resilience for the applications they're running across their organization.In Q2, we expanded web usage analytics for both Enterprise and Education customers, delivering deeper historical analytics and insights into usage patterns to make better-informed decisions on the applications on their devices. Since then, the adoption of this capability is exceeding our expectations with 152% increase in Q3 on more than 2.5 million devices across all market segments, including both Enterprise and Education.We also added more mission-critical applications to our growing Application Persistence library, leveraging the power of Absolute's persistent self-healing connection to monitor the health report and repair critical applications on the device. New titles include Fortinet for client, Lenovo's Device Intelligence and Palo Alto Networks' GlobalProtect security platform to name a few. As the only provider of Application Persistence, we continue to see more customers adopting this critical capability particularly to ensure Endpoint management and VPN tools remain healthy and undeletable across their Enterprise.This quarter, we saw a 20% increase in activations of Application Persistence being used for Tanium and a 42% increase in customers persisting Cisco AMP. In terms of adding Netskope and Palo Alto GlobalProtect to our portfolio, we've seen a 27% increase in the activations of Netskope and a 50% increase of activations focused on the healing of Palo Alto GlobalProtect. We are excited to release our custom rules engine, which monitors and alerts on a wide range of endpoint events such as IP address changes, removal of device hardware or the disabling of security controls. Customers leverage this capability to monitor and respond to suspicious device activity; for example, the security admin can be alerted on suspicious events such as encryption being deactivated, a hard drive being removed, the device moving outside of the geo-fence boundary or someone to attempt -- someone attempting a factory reset. The admin can then take remediation actions through Absolute Reach or freeze.We continue to see momentum in our growing partner and channel programs with a 20% increase in the number of elite and premier partners. And we were also honored to be acknowledged for this program in Channel Reseller News' 2021 Partner Program Guide, a list of distinguished partner programs from leading technology companies. In Q3, we also enjoyed a number of additional recognitions, one in particular was from Canada's Globe and Mail, as a result of our commitment to workplace diversity. Absolute was recognized in The Globe and Mail's 2021 Women Lead Here list, an annual editorial benchmark that identifies best-in-class executive gender diversity in corporate Canada.In summary, it was another very strong quarter for us marked by continued execution and market momentum. Our unique and differentiated resilience capabilities are accelerating our customers' ability to stand up their new work-from-anywhere strategies, ensure their devices, data, and applications are secure, and delivering their intended value.I'll now turn the call over to Steven to take us through the Q3 financials in more detail.
Thanks, Christy. Good afternoon, everyone. We appreciate you joining us. We're very excited about both our Q3 results and the compelling addition to our platform of the NetMotion acquisition. It's a terrific business and fit and we look forward to going through it with you.With that, let's first look at the solid results being driven by our SaaS model in the third fiscal quarter ended March 31, 2021. Beginning with our ARR, our record results this quarter were driven by strong growth in our Education sector, which was up 35% year-over-year. The growth reflects the trend that we've seen develop over the last few quarters as our Education customers continue to execute their digital transformation strategies on top of the robust support that the sector is getting in funding.Performance in Enterprise & Government remained solid in Q3 with ARR growing approximately 12% year-over-year consistent with last quarter. As we've noted during our last few calls, there remain some lingering COVID-related headwinds in a few Enterprise verticals including health care, prop services, and retail. We continue to experience solid growth in financial services and government and we remain focused on accelerating our overall growth trajectory. Insofar as our goal presence, we continue to see strong demand where international ARR comprised approximately 30% of our year-over-year growth. We also saw strong results in net dollar retention that continue to expand and came in at 110% in Q3 versus 101% in the prior year. This all culminated in a strong top line result, as Christy mentioned, with total revenue coming in at $30.7 million, up 18% year-over-year.Looking at spend and profitability, total non-IFRS operating expenses in Q3 was $19.2 million, up modestly from the prior fiscal Q2 as we invested in sales head count and go-to-market activity as well as increased costs associated with being an U.S.-listed company, as we expected. This all culminated in an adjusted EBITDA margin of 25% in Q3, ahead of expectations on both the timing of hiring and some good fundamental expense management. We ended the quarter with 530 employees, up marginally from the December quarter-end. Finally, we generated $7.3 million in cash from operations in Q3 and we exited the quarter with $132.4 million of cash and no debt.As you can see in our financial results, the past several quarters, we're excited about the powerful growth trajectory that we're on, having achieved significant growth in ARR, revenue, and adjusted EBITDA. We're continuing to invest in order to capitalize on multiple growth drivers including channel and global expansion, cross-selling of the platform and analytics, and an exciting pipeline of new products. Importantly, we also continue to be committed to driving profitable growth and so we focus on delivering revenue growth and healthy adjusted EBITDA margins.With that, let's turn to our financial outlook for our current end of year -- fiscal year ended June 30, 2021. We expect the power of our SaaS model to drive solid results as we continue to invest in our business. We expect some increased spend over the prior Q3 and Q4 in 2 important areas: sales and marketing in head count and program spend, and engineering in new product and platform trajectory. And so considering all this, we are raising our financial outlook for the full year fiscal 2021 ending June 30, 2021 as follows. We're raising our revenue guidance and expect full year total revenue to be in the range of $119 million to $120 million. This equates to a full year fiscal 2021 revenue growth of approximately 14% to 15%. We're raising expectations for adjusted EBITDA margin for fiscal 2021 and anticipate that to be in the range of 24% to 25%. We're also raising guidance for cash from operating activities margin to be in the range of 32% to 35%. And finally, we are maintaining our expectations for capital expenditures for the full fiscal year 2021 to be in the range of $3 million to $4 million.That completes our review of our Q3 earnings results and so I'll hand it back over to Christy to dive into the NetMotion acquisition.
Thank you, Steven. The past 12 months have been transformative in so many ways for our industry. One of the most visible among these is the impact on how companies look at how they work and how they secure their enterprise in the face of broad mobility. According to Gartner, 90% of businesses are preparing for employees to work remotely even once COVID-19 vaccines are widely available. To support the new hybrid work paradigm, businesses continue reimagining endpoint access and network security to support the new work-from-anywhere era.Another long-standing effect of the past year is the need for greater operational agility. As workers were sent home on a moment's notice, IT organizations globally were tested in ways we've never seen before to mobilize the workforce at scale and with velocity. Many realize that one side of the building they lost much of the visibility and control they previously had. Organizations today realize that the world can change on a dime and the foundation of their endpoint management strategy needs to be flexible and able to respond, without compromising either the security posture or the user experience, which brings me to the third macro trend.For so long as an industry we have focused on the detection and remediation of risk. We've added layers and layers of technology on these devices designed to protect the data. But as we know that protection is only effective if those controls remain installed, running and healthy. We've talked many times about the dark endpoint dynamic and its effects on the security posture of the Enterprise. When critical controls go offline or a device is no longer visible or able to connect, the data and the user are vulnerable. For the past year, we've seen a new level of accountability for IT organizations to not just install security but to ensure that it is working even in the face of adversity.So it is against that backdrop that I would like to announce the acquisition of NetMotion. Absolute assigned a definitive agreement to acquire NetMotion, a provider of security solutions for the world's growing remote workforce. Under the terms of the agreement, Absolute will acquire all issued and outstanding shares of privately-held NetMotion for approximately $340 million in cash. We see this transaction as a natural adjacency for our business that will position us to lead in the new work-from-anywhere era, and to define a new standard of endpoint resilience that enables the hybrid working world. Importantly, this transaction creates compelling financial benefits for our shareholders. Going forward, the transaction is accretive to ARR revenue, adjusted EBITDA, and adjusted EBITDA margin. This strengthens our commitment to the Rule of 40 and our continued goal of delivering balanced growth and profitability. We expect the transaction to close in 4 to 6 weeks subject to anticipated regulatory approvals.From a strategic point of view, this transaction is a really pivotal moment for our company. What we gain by the addition of NetMotion is really remarkable and how well it lines up with the future of our space. Endpoint resilience has become critical to effective remote work and as we look out to the emergence of the work-from-anywhere era, we see endpoint resilience playing an increasingly vital role in helping organizations deliver secure and productive experiences.We're going to go through a lot today but what I really want you to understand about this transaction is really 4 key themes. First, acquiring NetMotion and adding network access capabilities is the natural evolution of Endpoint Resilience to meet the changing needs of our customers. Second, we are well-positioned to create a unique offering in the high growth SASE and ZTNA markets where endpoint resilience is vital to raising the bar on security without compromising productivity. Third, we are positioned to secure a highly relevant and differentiated position in mobile as our customers manage a multi-device world. And fourth, we are positioned to create a platform that delivers unmatched capability to the remote work experience with data and analytics.Together we take 2 companies with really compelling IP and unique customer value that were tailormade for the exponential growth of the hybrid work model and we work to blend the best of endpoint resilience with connection resilience. Our combined company has the potential to have a truly unique set of solutions that address what our customers need now and well into the future. This combination is about combining resilient secure endpoints and resilient secure network access to ultimately create a happier hybrid employee and more effective IT department and a more secure organization.I spoke earlier about the mobilization of the workforce in 2020 and the permanent shift that has occurred in how companies think about work today. Prior to 2020, remote work was quite rare. One study found that about 90% of employees rarely or never worked from home. For organizations that meant that remote work was a small group with a defined connection to corporate assets from a limited set of devices and if it was an inefficient user experience for the worker, then so be it.The office or physical place space also played a large role in the company's digital security strategy as so many end-users were on-campus and therefore protected by the local network. Overnight, we all saw that completely reversed. One study estimated that 96% of companies are willing to offer flexible work options moving forward. Remote work went from a separately managed security and compliance process to really the center of the working experience. And this has long-term implications for how organizations address security and productivity that are only still just emerging. But one of the obvious outcomes is that work can happen anywhere on a broader number of devices providing that they can connect.Organizations today are racing to catch up on this new paradigm. The near-term imperatives are some of the tailwinds that we've talked quite a bit about in this past year. Organizations today are asking themselves how can I mobilized my entire workforce, how can I deliver a great experience, how do I remediate issues when devices go dark, how can I proactively ensure security regardless of the location. This has led to a race for point solutions for specific problems, but at the same time, we're seeing our customers starting to ask himself bigger questions about what's coming next, a recognition of the lasting and revolutionary impact of the work-from-anywhere era, questions like how do I secure corporate access to assets across the cloud, on-premise and in the datacenter with a hybrid multi-device workforce. How do I harden security in this now work-from-anywhere era without degrading the user experience, and how can I improve the remote work experience, how can I get data and analytics about what's really going on with those devices?These forces are what bring us here today. These questions can be boiled down to 2 things. How do I make sure my employees have a resilient secure set of devices that I can trust, and how do I make sure that they are consistently and securely connected to the network? What has also emerged is that so often securing the network connection comes at the expense of a sub-optimized user experience. Sluggish connections, poorly performing applications, or even losing the ability to connect to the enterprise completely leaving the employee exposed and unproductive. We believe a zero-trust security posture necessary for any SASE evolution cannot be achieved if the network can't trust the data coming from the endpoint.By connecting visibility, control, and self-healing between the network and the endpoint, you can significantly harden security while simultaneously improving the experience through resilient self-healing endpoints, and Absolute is uniquely positioned with this acquisition to deliver unique value in helping customers make this transition. And in doing so, we can accelerate our strategy to become a highly relevant player in this high-growth market.Endpoint resilience and network access play an integral role together to meet the needs of the work-from-anywhere era. You can see that this combination creates a significant amount of expanded opportunity for our combined company. With NetMotion, we expand our core total addressable market from the $68 billion endpoint security market to a $111 billion combined endpoint security and network access market. We've talked about this before but this market consists of well-identified business drivers that are contributing to our strong business momentum. What I really want to underscore is the position we gain in what we call the secure access market, which looks at the key components of zero trust in SASE that we just talked about, with NetMotion, we'll create a highly compelling competitively advantaged offering in a market segment that's growing at a 28% compound average growth rate. That is why acquiring NetMotion made so much sense to us. We can deliver broad benefits to our customers in a really critical part of the market.Now in a second, I'll get into more detail about what our combined platform will have the opportunity to do together. But first I'd like to introduce Christopher Kenessey, NetMotion's CEO, who will take you through a bit more about NetMotion and the success and innovation they've delivered to the market.
Thank you, Christy. I'm extremely excited about the opportunity that this combination presents. As we embarked on this process of identifying our next partner through this new chapter of accelerated growth, it was important that we found someone who shared our vision for security and compliance in the work-from-anywhere world.Absolute immediately stood out from all the other suitors based on their myopic focus providing next-generation solutions to better manage endpoint security without impacting the user experience. It's been a pleasure working with Christy and the team these past few weeks and has underscored our belief that joining Absolute is the best next chapter for NetMotion.Let me tell you a little bit about our company. NetMotion Software is a Seattle-based organization with 185 employees around the world. Our vision is to secure Enterprise predators while optimizing network performance and most importantly improving user experiences. NetMotion is the only secure access platform that combines security, visibility, and policy management to provide the best most secure customer experiences.NetMotion's leading unified SASE platform combines 3 key elements, zero trust network access, otherwise known as the ZTNA, digital experience monitoring, and a highly optimized Enterprise VPN delivering uncompromising and secure network access in the most rigorous customer environments. Our platform successfully supports over 1 million workers and 3,000 organizations. We are particularly proud of our Net Promoter Score of 91, which has led to one of the best gross retention rates in the industry. Additionally, 4 out of 5 of the largest U.S. airlines are our customers, 2 out of 3 of the largest logistics providers, and 85% of all first responders across North America. I'll take a moment to explain exactly how NetMotion works. NetMotion allows Enterprises to allow to access critical Enterprise resources, whether they are in the cloud, on-premise or third-party hosting applications like Salesforce, Office 365, et cetera. Our platform not only provides the access but actively optimizes the network traffic to get more of the network that anyone. The users immediately notice an improved user experience going about their daily tasks based on these network optimizations.Here are a few examples. A large financial service provider decided to send their global call center employees home one COVID day, and almost immediately noticed a degraded user experience and employee satisfaction hit due to the dropped calls and poor voice quality on their laptop-based smartphones. Via our network optimizations, we immediately improved the user experience and more importantly employee productivity.Another example is one of the largest law firms in the world recently deployed us and a senior partner with able to access and download content from their document management system, while on an international flight. The partner could never do this before and it's a great example of our ability to optimize the most-poor performing networks.Finally, based on our distributed architecture, we have unprecedented visibility into the device, the network, and more importantly the user experience. This allows IT teams to better understand user experience concerns, user behavior and the performance of critical IT assets. The unique dataset that we collect is extremely complementary to the unique dataset that Absolute collects and the future potential of mining the combined dataset is tantalizing. In summary, our technology drives improved security, user experience, reliability and enhances the ROI of modern edge networks.NetMotion is well-positioned for growth in this work-from-anywhere era. First, we bring the compelling value to multiple buyers. The SMB-IT manager overcoming connectivity issues, upgrading secure access solutions, and enabling remote working, or Enterprise network infrastructure leads looking at adopting zero trust solutions but would love to get a quick win along the way with the next generation VPN to actually improve the end-user experience. All of this while beginning the journey of SASE.Second, we have a highly efficient channel model tied to inside sales and corporate and Enterprise sales force. We have core strategic partnerships with leading network providers in NetMotion's core geographical markets, a well-established presence in the research community and extensive integrations enhanced by hardware, UEM, identity, and other technology alliances. Third, we have a clearly defined customer value proposition. Our technology delivers better mobile experience, better visibility across the mobile networks, and perhaps more importantly, it is perfectly positioned to enable a VPN to SASE transmission. I'll close by saying all of us in NetMotion are incredibly excited to join the Absolute team. Our shared vision and complementary technology make this the perfect combination.And now, I'll hand it back to Christy.
Thank you, Christopher. All of us at Absolute are thrilled to welcome the NetMotion team to the Absolute family. Sorry, we had a small delay in the system here. I'd like to share a little bit more detail about how the addition of NetMotion to the Absolute family of products creates a truly unique offering in the emerging evolution of modern Endpoint Resilience.Absolute as an endpoint-centric security company and is the leader in Endpoint Resilience solutions. Most importantly, we have the industry's only end avoidable defense platform embedded in over 0.5 billion devices. This gives organizations complete connectivity, visibility, and control with an ability to self-heal mission-critical applications so that they remain healthy and deliver intended [Technical Difficulty] For customers, this firmware embedded connection enables us to capture data intelligence on the device ranging from its location and usage to its health status and security posture. We also offer real endpoint remediation and control tools such as Reach to help configure and maintain endpoint security posture.And finally, but most importantly, we are able to deliver Endpoint Resilience, a connection that can self-heal critical applications and enables the device to heal itself. When you think about it from a user standpoint, our solution's really focused on productivity. We try to keep the employees' device running securely and effectively to optimize the user experience.One of the things that we got most excited about when we were getting to know NetMotion was how philosophically aligned our 2 companies are. As we talk about visibility and control of devices and applications, NetMotion has been focused on visibility and control of your connection. And as we think about self-healing applications, they think about self-healing connections leveraging their unique traffic shaping IP. They too were solving customer problems and remote working by prioritizing a focus on intelligence, control, and resilience. As you've just heard, they offer incredible data on network connectivity, user experience, and location along with real granular policy control that can enable zero trust access and restrict applications. And much like us, they have a similar resilience capability in their network connection continuity. NetMotion really solves the modern user access challenge and if we are solving for productivity, then NetMotion is solving for connectivity. Trying to keep the user herself safely and consistently connected to the network to optimize the user experience.Based on the momentum we discussed in this quarter's earnings, that won't surprise anyone to see how both of our companies are meeting the near-term imperatives of our work-from-anywhere world and that we've seen that in our results. And with this transaction, we position ourselves to deliver solutions that address many of the key customer pain points that we discussed earlier.As we head into the new work-from-anywhere era, this transaction is about creating something new that meets the demands of what's next. That is next-generation Endpoint Resilience. Endpoint and its health and status and security have become central to any successful organization. But in this new hybrid work-from-anywhere era, the endpoint is always on the move, always under attack, and always changing. We can simplify the complexity of this dynamic by extending all the work we're doing on endpoint in connecting it to the network. With NetMotion, Absolute will deliver the next generation of Endpoint Resilience that maximizes security with uncompromised productivity.We'll dive a little bit more into zero trust and SASE in a second but I really want to underscore the potential scope of the solutions that we can collectively bring to bear on critical customer problems. For example, organizations will need to collect, visualize, and analyze data about all aspects of their end users' digital work experience. Together with NetMotion, Absolute will be able to offer a unique view into the remote work experience by delivering deep insights into the device, the applications, and the network. And with firmware-embedded control paired with granular network policy control, the organization can significantly enhance its security posture, improve the user experience, and enhance overall compliance.As we've discussed, the SASE transition is coming as organizations catch up to the sudden work-from-anywhere resolution but we recognize that while SASE is the future, most organizations will have to adapt a thoughtful multi-year process to move from the traditional VPNs to SASE position. With NetMotion, we are positioned to offer a rich suite of solutions to guide that transition all within one platform. According to Gartner by 2024, at least 40% of Enterprises will have explicit strategies to adopt SASE.To really understand how our combined products deliver unique value into the rapidly growing ZTNA and SASE markets, we'll spend just a few more minutes on our differentiated approach. Zero trust and SASE center around how you can establish trust with an endpoint and especially one that is on the move in accessing a mix of corporate assets in the cloud, on-premise, or in a data center.Your standard zero trust model right now enables access to corporate resources by authenticating the user based on meeting certain policies and context requirements. And that context is typically some combination of location and identity. I think it's an oversimplification to say that an endpoint access solution that goes offline cannot facilitate access. Therefore, the first step for us is really to make the VPN client itself resilient to self-healing.In a world where an employee could be anywhere, being able to simply connect to the network is critical and by integrating Application Persistence with NetMotion's endpoint assets, we can ensure that the end user's ability to connect is not compromised. Additionally, once connected maintaining that connection and ensuring performance even as the employee moves around networks and locations is one of the strong differentiators of the NetMotion product. This is exactly what NetMotion does and is one of the drivers behind their high customer NPS scores and net retention.As I mentioned earlier, zero trust solutions also rely on context or details or data about the endpoint status to establish trust. Frequently this context is somewhat limited to things like identity and location, which on their own could be a relatively low bar from a security standpoint. But given our unique position on the device, there is a lot more data in context we can contribute to that equation. With the unique data sets provided by both Absolute and NetMotion, details like device health, security posture, version of security solutions, or many others can become factors in providing a better context for establishing trust.And if the security posture of the device can be context for access, then by leveraging Application Persistence to ensure that applications are installed and effective will mean that more users with greater security compliance, will be able to simply connect. That's better security better user experience and less work for IT.Putting it all together, let me give you a quick hypothetical situation that I think can really bring home how compelling this offering could be. It's Sunday night and the employees' device is being updated with a number of patches pushed out from IT earlier in the week. And as it so often does, something that has happened in the patching process which has impacted the antivirus software and left it corrupted. What's more, because the patch process was unsuccessful, the device failed to re-encrypt, and the laptop now represents a high level of security risk.In this scenario, if the zero trust network access with the endpoint connection knows the laptop is compromised, that can prevent access to corporate applications until the device has been successfully remediated. And what's more, with Application Persistence, we can actually restore the missing security controls on the laptop automatically by repairing or re-installing the antivirus or encryption, protecting the data and restoring the user's ability to connect safely.In this situation, instead of having to bring the laptop to an office for repair or even to coordinate with IT at all, the endpoint is self-healing and resilient to the event, and the users back online.Now, I want to switch gears for a moment and talk a little bit about how we plan to approach this market opportunity. We have identified clear go-to-market product synergies that will provide near and long-term growth opportunities for the combined company. We expect to accelerate NetMotion's bookings momentum through leveraging Absolute's large existing Enterprise and government customer base and leveraging our channels. Additionally, we expect to bolster Absolute's growth profile through selling, through NetMotion's channels and approaching NetMotion's installed base of iOS and Android devices.As we've talked about today, we see compelling long-term product synergies between our 2 companies. And our plan is to have our teams quickly work on projects related to these 2 areas. And as we approach that opportunity, bringing together Absolute and NetMotion's broad and complementary channel partnerships, expands our market reach significantly.Absolute brings relationships with major laptop and tablet OEMs while NetMotion has strong relationships with mobile carriers and resellers worldwide. These 2 channels will be powerful partnerships in the ongoing evolution of securing the work-from-anywhere era. We both bring a complementary land and expand strategy with direct sales teams that work with channels to enhance retention and support improved renewals.You heard from Christopher earlier but I really want to underscore how excited we are to have the NetMotion team join Absolute. The potential of this combination is going to be unlocked through the collaboration of these teams and I couldn't be more encouraged with how well our teams have collaborated even just in getting to this moment today.I'm going to turn it over to Steven in the moment but I want to wrap it up by where we started with our 4 key themes for today. I hope you can see what we gain in the addition of the NetMotion acquisition and how it's really remarkable and how well it lines up to the future of our space. First, acquiring NetMotion and adding network access capabilities is critical to achieving our Endpoint Resilience strategy based on the exciting new dynamics of the work-from-anywhere era.Second, we are positioned to accelerate into delivering Endpoint Resilience solutions that can create incredibly compelling SASE and zero trust solutions for these high growth markets. Third, we are positioned to approach a highly relevant and differentiated position in mobile as our customers manage a multi-device world. And fourth, we are positioned to create a platform with the data and control capabilities to significantly improve the ever-changing hybrid work experience. A huge benefit for organizations as we started down this journey into the work-from-anywhere era.This is a company that will be perfectly suited to meet the incredible challenges and opportunities in front of our customers and this combination is about resilience secure endpoints and resilient secure network access to ultimately create a half-year hybrid employee and more effective IT department in a more secure organization.And so with that, I'd like to hand it back over to Steven.
Thanks, Christy. Let's get right into the financial impact of acquiring NetMotion. We benefit immediately by creating a scaled business with $175 million ARR book of business and revenue. As Christy talked about the acquisition of NetMotion positions us in new compelling and high growth markets to further support our revenue growth trajectory. The acquisition also provides us with meaningful revenue diversity that helps derisk and drive our long-term growth profile.Our already solid profitability gets further bolstered by the attractive profitability profile of NetMotion. We expect that to flow through to cash generation that will enable flexibility in our capital allocation to further create stockholder value. And finally, the acquisition fundamentally strengthens our Rule of 40 execution as we will be a stronger, more diversified business with improved revenue scale and growth and we'll be able to deliver in that revenue growth from the strong foundation of profitability.We wanted to provide some visibility to NetMotion's financial profile. Over the last 12 months ended March 31, 2021, NetMotion generated approximately $60 million in revenue and ended the period with an ARR base of approximately $55 million. Adding to this nice revenue profile, they delivered strong profitability of 30% adjusted EBITDA margins and $50 million in operating cash flow. These results are on a stand-alone and U.S. GAAP basis and do not include any potential closing adjustments, GAAP to IFRS or purchase accounting adjustments.Two of the key drivers of NetMotion's compelling financial profile are the company's strong Net Promoter Scores from customers and its solid net dollar retention that's in excess of 115%. This is a testament to the stickiness of their product and high customer satisfaction particularly seen and their premium-priced product in the market. We also wanted to note that NetMotion is in the process of 2 important expansions of their business that will further support the scalability of their model and then also has an impact on revenue accounting. The first evolution is that the company has begun moving its customer base from a historical software license and maintenance model to a recurring subscription model.The NetMotion team started this important journey right before the pandemic and migrating existing on-prem customers from license to on-prem subscriptions. While they paused a bit on moving customers this past year as everyone dealt with the pandemic, they have turned now to only selling the subscription model to new customers. The second transition naturally follows the dynamic of selling subscription offerings and there's one of the strong core engineering and operational skill sets that Absolute brings to the story, that is, that NetMotion is beginning to transition its product delivery to the cloud from a historically on-prem installation. Absolute obviously has a lot of prowess as a cloud business in our management team is particularly experienced in these migrations. And so we look forward to driving these transitions and growth initiatives together with the NetMotion team.A final point on these business model migrations is that there are some specific accounting associated with these transitions. The revenue recognition treatment for an on-prem customer involves some level of upfront revenue recognition of the subscription commitment under the relatively new 606 guidelines. This contrasts with the typical ratable revenue recognition of cloud subscription arrangements or even the ratable treatment of on-prem maintenance revenue recognition. We, of course, look forward to sharing more with you on this as the transaction closes.One thing that we did want to share with you though on the financial side of the acquisition is an early view of what Absolute Software is expected to look like on an initial pro forma basis around some of the key metrics. Based on a trailing 12-month basis, we expect to be a $175 million ARR platform with about the same scale of revenue notably gaining scale and an important revenue diversity and acquiring that motion.As Christy noted, we expect reduced reliance on the Education space. While it has certainly been a terrific driver of growth this past year, going forward, we're pleased to diversify our growth and revenue portfolio in more Enterprise offerings. And importantly, the pro forma business is also expected to deliver significantly higher levels of adjusted EBITDA and operating cash flow. While these metrics, as I mentioned, don't include any adjustments for purchase accounting or adjustments for the company's U.S. GAAP accounting into our IFRS translation, what you can see clearly is the scale, revenue diversity, and the foundation of profitability of Absolute Software going forward. We look forward to sharing more of that as I mentioned with the close of the acquisition.What we did also want to provide you with is some color on what we see as the financial impact of the acquisition on a go-forward basis from a macro perspective, a dynamic that reflects our enthusiasm for the asset, and what we believe we're uniquely able to do together with NetMotion. In a nutshell, we're excited about the NetMotion business and our bringing our unique firmware-embedded resiliency to it. Following the close of the transaction, we expect this trend -- the acquisition to be accretive on a forward-looking basis to ARR growth, revenue growth, and adjusted EBITDA margin. Again, more on this, more details after the transaction closes.With that, let's briefly overview the economics of the overall transaction. As noted, the transaction is a $340 million all-cash acquisition of NetMotion and through which NetMotion will become a wholly-owned U.S. subsidiary of Absolute Software. The transaction is subject to standard closing adjustments and mechanics which we anticipate could happen toward the end of June. We are financing the acquisition through a $270 million term loan from Benefit Street Partners and $65 million in cash from our balance sheet. The term loan is a 6-year tenure, there is a coupon of LIBOR plus 600 basis points, it's callable at 101 and 1 year and contains reasonably standard covenants and terms.Importantly, we believe that the strong profitability profile of the combined pro forma business supports the approximately 4.5x leverage at closing and enables us to delever going forward with our target to attain a net debt to adjusted EBITDA ratio that's below 2x in a 2-year time frame. On the topic of return of capital, our ongoing cash dividend payments remain in place. We believe the acquisition financing and capital structure strategy offers us the ability to finance the transaction quickly and efficiently from a cost of capital standpoint and helps reduce stockholder dilution while comfortably allowing for deleveraging as we move forward. All to the benefit of stockholder equity value.As we've talked about today, we're very excited about the NetMotion business, the terrific team of people who will be working with, and the strategic and financial merits of the acquisition. We think this is an obvious adjacency for us to accelerate our Endpoint Resilience strategy and meet customer needs and the new work-from-anywhere era. Absolute Software benefits meaningfully in bolstering our market and growth opportunity, the diversity of our revenue, and our overall scale all on a foundation of profitability. We see Absolute providing a highly attractive investment profile starting with a proven leadership team and adding a balanced path of revenue growth and profitability.Historically, we've delivered key and compelling solutions to drive Endpoint Resilience and we've benefited from long-term durable tailwinds as a result. With the addition of NetMotion, we'll be able to compete an additional emerging high-growth market segments like ZTNA and SASE and even further enhance our growth and profitability profile and value to stockholders.With that, we appreciate your time and support and we're glad to open the call for any questions. Operator?
[Operator Instructions] Our first question comes from the line of Adam Tindle from Raymond James.
Okay. Congrats on the results and the acquisition from a position of strength here. Christy, I just wanted to start, you had previously thought that there might be more tuck-in type acquisitions but this is certainly bigger than that. Is there something that changed to drive you to do something a little bit more meaningful and specifically wondering you've partnered with SASE vendors like in Net Scope, for example, whether some learnings in those partnerships that got you more confident to make this big move here?
No, it's a great question, and thank you. So I think this past year has really been unprecedented and I realize that's a highly overused word. If you remember at the very beginning of the pandemic, one of the first areas where we saw organizations struggle was keeping their employees connected and we made Application Persistence for VPN available for free to our customers. I do want to be really clear, there is no backing away from the partnerships we already have with Net Scope and others. We're still very much committed to working with those vendors under the Application Persistence program. But what we did see was this really integral link connected to Endpoint Resilience. If we're really going to make devices self-healing and deliver great security with great user experience, we can't ignore the network's piece. What we saw more often than not was it really was the network that was affecting, not just the user experience, but whether a device could connect to actually heal or be able to remediate what's going on it. So I think that's the first. I think we saw an acceleration in the market and a tremendous amount of opportunity around the space, especially as we've seen organizations really lean in towards this margin.
And maybe just as a follow-up. You talked about how it strengthens the claim into a Rule of 40 company. I'm wondering if you could maybe outline a little bit more detail on the planned investments and synergy expectations post-acquisition. You talked about around $50 million of trailing 12-month EBITDA but with those expectations, would you expect that to grow at a rate of ARR higher or lower based on the planned investments in the combined entity?
Yes, hey it's Steven. Good question indeed. As Christy talked about in our view of this right was that it's a really compelling acquisition for us in so many ways, particularly on their synergy side, mostly on the revenue and go-to-market synergy side. And so we've been excited to do that, we're -- been digging into it with C.K. and Justin and CFO and team and we'll definitely provide more visibility and color rather to that when we issue our guidance for the full year and then obviously it goes without saying after we close the transaction and we actually own the asset. But we are pretty bullish on the combination and the ability to get value from our own cross-selling of products on each side as well as the combination of the 2 capabilities into new products. And so it's a multi-vector support to the synergy growth over time.
Our next question comes from the line of Mike Walkley from Canaccord Genuity.
Congrats on the strong results and the acquisition, certainly, transformative. Just trying to get a better feel for NetMotion. Who do they see as the most direct competitor and are they more zero trust or they also providing SASE features such as secure web gateway, cloud firewall, CASB, some of those type offerings also?
I can answer. From the NetMotion perspective, we have a couple of things our competitors based on the different product that we're taking to market. On the ZTNA side of things, we often run into Palo Alto or Zscaler, on the VPN side of things, well, many times compete against Cisco AnyConnect or Pulse Secure. And as you started looking at kind of what's SASE really is, which is the convergence of networking and security, there is a bunch of different elements to it and between the VPN to ZTNA transition to hit some of our features that help from a an endpoint's firewall and endpoint's secure web gateway perspective, and then also kind of our in-depth experience monitoring perspective, we've got some pretty compelling value add for the journey to SASE. And so we do consider ourselves a SASE vendor and we speak to it from a couple different perspectives as I've just outlined.
And just a follow-up question for me, I guess maybe for Steven. Just given NetMotion, you have $55 million ARR with the transition from perpetual to SASE, is this in the very early innings and this will be a headwind for year-over-year reported revenue growth as they to go through the transition or are they pretty far along in that process already?
Yes, Mike, good question. So there's 2 migrations, right? There is the migration to cloud and the migration of their on-prem customers to subscription. And the short answer is we see this as accretive to our revenue growth and ARR growth on a go-forward basis that we'll get into next year and that's a function of the growth profile, as well as the accounting that we talked about.
And just want to clarify one thing. I think Christy answered in the earlier question that this doesn't impact at all any of your persistent partnerships, that you think they will all be fine with that given NetMotion will like we compete with some of your persistent partners?
I think that from our perspective, the core resilience, it's very similar to kind of some of the future overlap we see with for example other endpoint management solutions. Our commitment to resilience is to create self-healing capabilities no matter what stack you have. So if you're using one of our partner solutions and you want to leverage our platform to make that solution self-healing as well, we probably wouldn't have the same level of data and visibility that we would have on an integrated solution. But we know that this is a very early phase within this market and so we're going to see a lot of diversity. And that really is just a part of kind of being foundational within an ecosystem. So again, similar to what we see in UEM, where our approach is great, let's make that UEM persistent, let's figure out how we can do better integration with those vendors. Our approach into other partners in this space would be exactly the same. I don't think we ever approach a customer assuming that we're going to sort of own the complete stack and that's why being easy to integrate into the Enterprise is going to be incredibly critical.
And then the next question -- ask 1 more question and pass it on. Maybe just going back to the strong quarter. I guess on just the Education market. Very strong 35% ARR growth and realized with the acquisition will become a smaller piece of your market. But how do you see kind of that business growing as you're starting to lap the COVID or school-from-home era has just been a great growth driver and just wondering how we should think about that going forward.
It's a great question and I've said, we continue to see a lot of strength in that market. I don't think we've seen that change in the past quarter clearly as demonstrated by our results. We have said at some point when these Educational institutions get to the other side of their digital transformation, we would expect to see some leveling off but from where we sit today, we continue to see stable and building pipeline in that segment.
That's encouraging to hear and congrats on everything.
Thank you.
And our next question comes from Scott Berg from Needham.
Congrats on a good quarter and interesting acquisition here. I guess I'll start with the acquisition really quick is, Christy, the -- well, call it the endpoint access market is highly competitive. I know Christy, as the company's CEO, you talked about some of the competitors that they compete with out there. If you were to look at NetMotion, what's the kind of the one feature functionality component to their platform that you were most impressed with that says, hey, this is super differentiated relative to that competitive end market?
I think there's 2 pieces, unfortunately, there is not one. I think the first is the unique IP they have in the ability to shape the traffic that really impacts the user experience. So in this past year, we've all been at home, you've been on a Zoom call, you have a bunch of applications running. The ability to actually optimize the traffic that goes to the applications you need at that moment, especially when some of them are in the cloud and some of them are behind the firewall and then a variety of different places, it's not an easy thing to do. And honestly, that's where a lot of what I'd call, legacy VPN solutions fall flat. And I think the second part of -- second but connected part of that is really the resilience piece. There are some unique IP around how you move between networks and even if you're not leaving your home, depending on what's going on in your homes, other people are jumping on and off the network, you could be changing network connections, the network could glitch out for a moment. The ability to survive that and actually keep a seamless user experience and a seamless security experience I think was incredibly compelling. And so it would be a mistake to think of this as us kind of going backwards into the VPN market. I think we're really going into the spacing forwards and saying listen, it's going to take the industry a couple of years to kind of get to what's next in modern connectivity strategies and we're looking at building blocks. We think Enterprise resilience is about creating controls that don't fail and we can make controls that don't fail from an application and advice perspective and they bring a lot to the table with creating that same resilience on the network.
And then, Steven, as a follow-up, if you look at your net revenue retention in the quarter, obviously, fantastic at $110 million especially relative to where the company has been in the last couple of 3, 4 years. Can you help us understand where the improvements are coming from, is it more better retention driving that number up, maybe you're having better upsell or cross-sell successes from these customers lately? Any maybe color there would be helpful.
Sure. Scott, good question. And the dynamic is really what we have talked about probably the last quarter or 2, which is the improvement really has come from a solid fundamental singles and doubles type of seeing improvement in the core renewal rate. The expansion side of the business, the economic model of land and expand continues to be fairly robust this quarter, last quarter. Now -- and that part of the model is working really nicely. And what we've done and we've talked a little bit about this with you obviously and others that we really restructured how we cover customers, how we incent our sales force, how we partition our sales force between bringing in new logos and upselling customers versus renewing our customer base. And we're just getting more time under our belt and more experience with our teams in covering our customers so that we're seeing a steady-Eddie increase in core renewal rates a little by little. And that's what continues to bump up the total net dollar retention sequentially quarter-after-quarter.
Our next question comes from the line of David Kwan from TD Securities.
Congratulations on a great quarter and it looks like a great acquisition here as well. Wondering if you could maybe talk about the integration of Endpoint with this acquisition, whether it'd be from a platform perspective or just the company's overall employees, et cetera
David, sure, we're happy to. So clearly we're only in the integration exploration conversation. So I -- it just has to caveat with that. I think we're clearly not directly connected to one another's businesses but I think our philosophy as we go into this is that they're doing a really great job with their business for at least from a selling and marketing perspective. We want them to continue to do a great job with their business and so we'll use the first couple of quarters to really focus on driving performance in the market while our back-end product teams are working on some of these early products projects that I talked a little bit about earlier. So you wouldn't expect to see sort of a big integration on day 1, we're very lucky that we have a team that is been through a fair number of these and understand a lot of the risks around them. And so we're taking a very pragmatic approach, I think on both sides to really be thoughtful about how we work our way through this.
Okay. And then can you maybe talk about cost synergies like is there -- are you expecting much in terms of cost? I hear you talked about as a pro forma numbers. I assumed it's kind adding 1 plus 1. Is there anything beyond that in any meaningful way that you think you could realize with the combined company?
David, yes. It's a good question, and there are certainly to be some cost synergies, right, at the base level of putting 2 functioning companies together. Dare I say there are certain positions that you don't need 2 of, right? And so we'll work through that together in the most efficient way. But as Christy and C.K. both talk to, the adjacency of these 2 businesses and the synergy of the product and the value prop to customers makes this much more of a revenue expansion and synergy story than it does put into massively overlapping things together and you could rip a whole bunch of cost out. Like this is not really that movie, there is definitely some cost synergies and efficiencies to be extracted but that's not the driver, it's more a driver of the revenue top line synergy.
I guess last question for me just on the Enterprise and the government vertical. The growth has been kind of steady there in low double-digit range. I know COVID's impacted some of the verticals like health care and retail and professional services. Could you really -- well that growth is getting upwards in the -- kind of the mid to high teens and even 20% at some point over the next couple of years or should we be kind of expecting kind of low double-digit type gross rate?
I can start that with talking a little bit about what's going on in that market and then, Steven, feel free to chime in. So we're in a very unusual period. I think we were seeing growth rates of 14%, 16% on Enterprise a year ago. I think as we talk about on each of these calls, we've seen a number of segments that slowed down retail and a number of others that it's sort of one-off hits here or there. But that hasn't dampened our sort of view on what the long-term outlook is. We've talked a little bit about some of the new product introductions and some of the new innovations we're working on that are affecting let's face the investments we're making on net retention as Steven announced some of the additional international markets that we've been hiring and standing up and sending people into. So I don't think our view on the post-COVID world has gone down in any way. I think we still strongly believe that long-term, the right place in the Rule of 40 for us is 2020 and that's independent of whatever we would do from an M&A perspective.
Yes, and to add, it's a good question, David. Christy's good point is that the growth that we've seen and that we expect to have and that we invest in is around some of our Enterprise customers as well. Obviously, we cover the gamut of Enterprise mid-market as the small business customers. And we've seen some nice traction in the Enterprise as you said, overall and by sector. And so at some point, we do expect some of the pressure that is pulling down some of the sectors in general and then maybe even offsetting some of the large growth sectors to abate so that we can start seeing lift in the overall portfolio.
And the last question we have comes from the line of Thanos Moschopoulos from BMO Capital Markets.
Congrats on the quarter and on the deal. In terms of the license to SASE transition, can you just clarify, will existing NetMotion customers be required to move to a subscription model from the license model? And then just in terms of typically at a 12-month contract term what does the average look like?
Sure. And we can tag team on this with C.K. for sure. But my learning and understanding and spending bunch of time with their CFO, who is a great guy as they approach the transition pre-pandemic, it was really more of our work with customers constructively to move them over. And then as a lot of first responders, health care organizations, government organizations were -- and larger Enterprise were dealing with the pandemic, the view was let's not force people over. So it's being done in a very thoughtful collaborative way with customers. And I think as I mentioned, the view is that the on-prem is no longer sold to new customers. And so it's really a story of how that gets migrated over the next year going plus going forward.
Just as Steve highlighted, we've had a -- just a lot of organic momentum, people moving from their traditional perpetual maintenance, perpetual licenses to subscription and since momentum has been there, we've just been encouraging it but in conjunction with the absolute our team, who will look to see if we want to accelerate that or keep as is but either way, it's certainly heading in the right direction.
And then in terms of terms. There are typically people going 12-month terms on new deals or what does look like?
Yes, it is traditionally 12-month terms.
Okay. In terms of go-to-market, you mentioned that it's a high channel element but what does the mix look like as far as channel versus direct within that motion?
Yes, so currently today it's -- Steven, I don't know if you want to speak to the exact percentages but it's off -- it's -- we're heavily channel-focused organization. It's one of the decisions I made 5 years when I joined the decision -- when I joined the business to decide whether one of your channel organization or not. And so we've invested heavily in the channel. And I think it's one of the things that makes us unique and it's one of the things that Christy and I started speaking early on. I think that's quite excited about because it's not only do we have that kind of traditional value-added resellers like to CDW's of the world, we've got a really global channel go-to-market around carriers as well. And so we've got really trusted channel partners like AT&T, like Verizon, like Rogers, Deutsche Telekom and a variety of others in those markets and so not only is that a great middle market for NetMotion as we were seeing on but we also look at the broad platform that Absolute has as well, we think that's where we'll be able to bring quite a bit of value to the table.
Then finally from a vertical perspective. You're being clearly at the lower level of Education exposure. But just otherwise any key vertical differences to call-out. Is it probably instigated across other verticals or any specific verticals to highlight in terms of NetMotion's current mix?
Yes, so when it came to the verticals. First, I'd like to speak to kind of the vertical overlap and that's one of the things that with Sandra, Christy, and I talked about right away that and Steven, that we thought was pretty exciting is one of our core markets is first responders. And so that's a market that both organizations have a lot of strength and experience in and great customers. And then the other was legal, which is one of our fastest-growing markets. And one of the examples I referenced before was one that's on the international flight trying to download the file. And so, we think that's an area that we're both be able to uniquely benefit each other. And then outside of that, we've got a lot of great customers in the airline industry, in logistics. So we feel that that's an additional value that we can bring over. And then as you mentioned, we haven't traditionally done a lot in the Education space.
And at this current time, there are no other questions in queue.
All right. I want to thank everybody for spending a fair amount of time with us this afternoon and we'll look forward to speaking with you all very soon.
This does conclude today's conference. You may all now disconnect.