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Background Note: The following announcement shares the 3Q2022 financial results for the developer of digital investigation software, Magnet Forensics, and may be of interest to legal, business, and information technology professionals operating or investing in the eDiscovery ecosystem. Additionally, a recent post (August 2022) by Tomasz Tunguz, a venture capitalist with Redpoint, provides an interesting consideration that may be of relevance regarding the value of public software companies. The post, titled Growth is No Longer the Best Predictor of a Software Company’s Value, notes that profitability has surged as the most significant correlate and predictor of a public software company’s value.

Press Announcement (November 9, 2022)

Magnet Forensics Announces 2022 Third Quarter Results

Earnings Results Extract

Magnet Forensics Inc. (“Magnet Forensics” or the “Company”) (TSX: MAGT), 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 (“Q3 2022”) and nine months (“YTD 2022”) ended September 30, 2022. Financial references are in U.S. dollars unless otherwise indicated.

Q3 2022 Financial Highlights
(Comparison periods in each case are the three months ended September 30, 2021, unless otherwise stated)

  • Revenue of $25.0 million in Q3 2022, an increase of 41%
  • Gross profit margin of 93% in Q3 2022, unchanged from Q3 2021
  • Net income of $1.4 million in Q3 2022, compared to $2.2 million in Q3 2021
  • Adjusted EBITDA of $5.9 million in Q3 2022, an increase of 25%
  • Annual Recurring Revenue (“ARR”) of $80.9 million as of September 30, 2022, an increase of 50% from the prior year

“We continue to gain momentum with strong top-line growth and bottom-line performance as a result of the investments we’ve made in the business,” said Adam Belsher, CEO of Magnet Forensics. “With today’s results, we are increasing our outlook for the remainder of 2022 and expect to build on this momentum in 2023. Our solutions address the key challenges faced by public safety organizations and private enterprises dealing with digital investigations and incident response. As cybersecurity threats remain top of mind, both the public and private sector are prioritizing cybersecurity within their budgets. Our global addressable market continues to expand across both verticals, given our solutions address the key challenges our customers are facing such as the increased volume of digital evidence, the rise in cyber-breaches and the scarcity of skilled personnel to handle such challenges. By leveraging automation, the cloud, and intuitive workflows, Magnet Forensics’ solutions enable our customers to tackle case backlogs and close threat vectors faster.”

Q3 2022 Highlights
(Comparison periods in each case are the three months ended September 30, 2021, unless otherwise stated)

  • Revenue of $25.0 million, an increase of 41% compared to $17.8 million, primarily due to a $3.9 million increase in Software Maintenance and Support revenue and a $3.4 million increase in License – term 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 60% as of September 30, 2022, compared to 38% at the same point in 2021. Total Recurring Revenue was $21.8 million, representing 87% of total revenue.
  • Annual Recurring Revenue grew to $80.9 million as of September 30, 2022, an increase of 50% compared to $54.0 million as of September 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 profit margin was 93%, unchanged from 93% in Q3 2021.
  • Net Income was $1.4 million, a decrease of $0.8 million compared to $2.2 million in Q3 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 EBITDA was $5.9 million, an increase of 25% or $1.2 million from the prior period, primarily due to operating leverage in the business from the strong revenue growth due to the investments made in Research & Development and Sales & Marketing during the past 12 months.
  • Cash was $122.3 million as at September 30, 2022, compared to $118.1 million as at December 31, 2021, a change of $4.2 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 the Company’s core AXIOM and AXIOM Cyber offerings and the Magnet Digital Investigation Suite (“MDIS”), including AUTOMATE, AUTOMATE Enterprise and REVIEW and as a result of the investments made during the past 12 months in the Sales & Marketing team.
  • The Company’s approach of consistent and rapid innovation supported multiple software updates across its product portfolio, updates included AXIOM 6.6 and AXIOM Cyber 6.6 of its core products and product updates for the Magnet Digital Investigation Suite (MDIS) with new upgrades and innovations of Magnet AUTOMATE, Magnet AUTOMATE Enterprise and Magnet REVIEW.
  • The Company announced the Greater Manchester Police, in conjunction with the U.K.’s Forensic Capability Network, has successfully accelerated its digital investigations into child sexual exploitation by deploying Magnet AUTOMATE. The organization built the foundation to further expand the use of Magnet AUTOMATE into all criminal investigations over the next 12 months. With Magnet AUTOMATE, the Greater Manchester Police completed digital investigations into child sexual exploitation cases 9.5 hours faster on average and processed digital evidence 55% faster during a one-year pilot program.
  • The Company announced its expansion into Australia which strengthens its presence in the Asia-Pacific region with sales and professional services personnel. The Company has been selling its solutions to Australian customers since 2011.
  • IDC MarketScape named Magnet Forensics a “Major Player” in the Worldwide eDiscovery Early Case Assessment Software 2022 Vendor Assessment. The IDC MarketScape evaluates major vendors in the worldwide eDiscovery market based on their capabilities to collect, process, cull and analyze data for investigations and litigations, while also emphasizing strategies that minimize data corpus and mitigate cost.

Financial Outlook

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

  • Revenues of $96.0 – $98.0 million, representing 37% – 39% growth over Fiscal 2021, with the contribution of growth across the four periods distributed similar to prior years, with Q3 and Q4 representing a greater contribution.
  • Adjusted EBITDA of $16.0 – $19.0 million, representing Adjusted EBITDA Margins of 17% – 19%.

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.

Read the original release.

Complete Investor Overview Presentation (PDF) – Mouseover to Scroll


Complete Announcement with Tables (PDF) – Mouseover to Scroll

Magnet Forensics Announces 2022 Third Quarter Results – 110922

Additional Reading

Source: ComplexDiscovery

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