Absolute Software Corporation (NASDAQ:ABST) Q4 2022 Earnings Conference Call August 23, 2022 5:00 PM ET
Company Participants
Joo Kim – Investor Relations, MKR Group
Christy Wyatt – President and Chief Executive Officer
Ron Fior – Interim Chief Financial Officer
Conference Call Participants
Mike Walkley – Canaccord Genuity
Adam Tindle – Raymond James
Thanos Moschopoulos – BMO Capital Markets
Scott Berg – Needham
David Kwan – TD Securities
Operator
Good afternoon everyone and thank you for standing by. Welcome to the Absolute Software’s Fiscal 2022 Fourth Quarter and Full Year Financial Results Conference Call. All participants are in a listen-only mode. [Operator Instructions] I would also like to remind everyone that this conference call is being recorded today Tuesday August 23, 2022.
I would now like to turn the floor over to your host Joo-Hun Kim, Vice President of Investor Relations. Please go ahead.
Joo Kim
Good afternoon and thank you for joining us today. With me on today’s call are Christy Wyatt, President and Chief Executive Officer of Absolute Software; and Ron Fior, Interim Chief Financial Officer. Before beginning our formal remarks, Absolute Software would like to remind listeners that certain portions of today’s call may contain forward-looking statements that reflect current views with respect to future events and conditions. Any such statements are subject to assumptions, 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 of today’s date, Tuesday, August 23, 2022.
And Absolute Software undertakes no obligation to update or revise publicly 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 securities law. For more information on the assumptions, risks and uncertainties relating to these forward-looking statements, please refer to the appropriate section for the company’s most recent MD&A which is now available on Absolute Software’s website and will also be available on SEDAR and EDGAR.
I would now like to turn the call over to Christy Wyatt. Please go ahead.
Christy Wyatt
Thank you, Joo-Hun. And good afternoon to everyone joining us today. I am pleased to announce a solid fiscal Q4 to close out what has been a truly transformative year for Absolute. Fiscal 2022 was our second consecutive full year operating as a Rule of 40 company. We exited fiscal 2022 a different company than we did exiting fiscal ‘21. On as-if combined basis, our ARR is now $210 million versus $123 million ending fiscal ‘21 and adjusted EBITDA is $56 million, up more than 75% from the prior year’s $32 million. On as-if combined basis, we saw ARR growth of 16% annually with increasing strengths in the enterprise and government sectors of our business at over 17% at the end of the year, up from 11% at the end of fiscal ‘21. We saw our customer base exit the year at more than 17,000 representing a cloud active endpoints population of more than 13 million, an 18% increase over the prior year.
In addition, our NPS scores across our products are at record levels. For the year, we achieved total adjusted revenue of approximately $210 million representing more than 15% growth year-on year. And we delivered adjusted EBITDA margin of 27%. We exited this year with solid balanced profitable growth. And while we still have more work to do to accomplish our long-term goals, we are confident we can deliver another Rule of 40 year for Absolute. We have now nearly completed the integration and end of the year with a common platform and a common product strategy. We’ve made continued considerable progress on our persistence platform and ecosystem. And our go-to- market teams have made great strides in building out our security selling teams. Our acquisition of NetMotion is working our OEM and our partnerships and the investments we’ve made internationally are all paying off handsomely as well.
We are undoubtedly in a better position today in every respect than we have been during my time here, including growth, profitability, product scale, and go-to-market. This is thanks to all of the hard work of our employees through fiscal 2022. I am more confident than ever in the unique opportunity in front of us and our ability to impact the market as the only provider of resilient self-healing, security solutions embedded in over a half a billion devices. Throughout the course of the pandemic, we had firsthand knowledge of the strains being placed on organizations as they had transitioned to working from home. We also witnessed the increase in the number of attacks and successful breaches elevating the threat risk within our customers’ environments. We knew these pressures would accelerate the need to modernize network architectures to ensure employees and devices remain connected and secure even when outside of a secure office setting. Organizations are increasingly aware of the compliance drift between what security applications they have purchased and installed versus what is actively protecting them in their environment today, and it remains our believe that both IT and security teams increasingly recognize the need to strengthen both cyber defense as well as cyber resilience to ensure the company is better protected from increasingly sophisticated breaches. We introduced one of our first product integrations when we incorporated our application resilience technology with NetMotion’s network resilience capabilities, now rebranded as Secure Access, our network access solutions uniquely give organizations the ability to support remote worker productivity, with an engaging user experience, while improving the security posture with its zero trust capabilities, and bringing the concept of resilience into the high growth zero trust market.
Throughout the year, we’ve made remarkable progress on the platform across both our secure endpoint and Secure Access portfolios, we have brought new capabilities to customers, including enabling them with ransomware recovery tools, alerting end users of a possible attack even when other tools are also under attack. Our application resilience library now encompasses over 60, industry leading and critical endpoint applications. And we’ve leveraged our unique data and intelligence capabilities to deliver insights for endpoints and network insights, data visibility products that enable customers to track and analyze critical health and performance metrics across endpoints users’ applications and network connections. We are making solid progress within our Absolute Persistence as a Service Program having seen our first licensees commercialize and begin to ship actively self-healing solutions.
In parallel, we continue to make progress, migrating our services to the public cloud, thus opening the market even further for our solutions. Fiscal 2022 has been a significant year of milestones as we execute our vision of leveraging persistence, resilience and intelligence to enable an ecosystem of intelligent self-healing security products.
On the go-to-market front, a significant focus for fiscal 2022 was to integrate and build a world class security focused selling organization. I am extremely proud of the team’s focus and execution driving momentum for both our secure endpoint and Secure Access portfolios. And I am pleased with the progress we have made. Our customer success team delivered the best retention metrics we have ever seen across all of our products, which contributed to record levels of enterprise and government net dollar retention, and continued — our continued investment in our OEM and distribution channels was a key driver and growing new logo ARR by 70% in fiscal ‘22 versus fiscal ‘21. Through the year, we maintain strong momentum in our international ARR growth, which has been a key pillar of our growth strategy. As fiscal ‘23 is well underway, our focus is shifting to demand generation in support of accelerated growth. In Q4 of fiscal 2022, we began significantly expanding our SDR teams to improve legion pipeline. We’ll also investing in an expanded team of cybersecurity and cyber resilience experts available within our professional services offerings to expand our engagement with CISOs at larger enterprises.
This team has deep domain knowledge and experience in cybersecurity and cyber resilience, and are working with customers as we grow our offerings and solutions. We continue to make great progress in our FedRAMP certification work, and we expect lead generation activity to increase in advance of receiving a full certification which we hope to see later this year. Looking forward, we are excited about the opportunity ahead of us, there is no better evidence of the progress we are making in our transformation than by looking at how our customers are using Absolute products today. As an example, a large professional services firm with over 100,000 endpoints expanded its relationship with Absolute in the quarter seeking to improve their security and compliance posture and reduce operational costs. Leveraging Absolute’s Persistence ensures that all of their devices have been patched to minimize vulnerabilities and decrease the number of their noncompliant endpoints at risk. A global mid-market investment bank is now adding Secure Access Cloud as a key component in their network architecture. They are an existing Secure Access on-premise customer that is feeling the pressure of increasing numbers of work from anywhere employees and the ever growing threat landscape that comes with it. This is required them to modernize their network architecture by using Secure Access, which also includes leveraging the cloud to cover their branch offices more cost effectively.
And finally, a European financial services institution selected Absolute Secure Access as they were moving away from their legacy Citrix environment and had already begun their ZTNA journey into the cloud. And existing Zscaler Internet Access customer, the customer ran a careful evaluation process comparing Secure Access and other solutions including Zscaler Private Access, they chose Absolute to run alongside their Zscaler Internet Access because of user experience, rich data insights, pricing, configuration flexibility and cost. These three very recent examples demonstrate how our customers are using Absolute in ways that address their most current and pressing cybersecurity needs. The great work we’ve made on the platform is also beginning to be recognized in the industry as a whole.
Earlier this year, Gartner recognized Absolute in the Market Guide for Zero Trust Network Access. And just last month, Forrester named our self-healing technology in a report featuring top capabilities needed in the new work from anywhere era. Customers voted absolute on G2 as one of the top 50 security products of the year, and Absolute was recognized by G2 to as a leader in endpoint management for the 10th consecutive quarter. At this year’s RSA Conference in June, Absolute was recognized for two categories in the Global InfoSec Awards, the most comprehensive endpoint security solution and for being a market leader in zero trust. With the market moving directly towards us, the industry is beginning to recognize our unique capabilities around resilient zero trust. The evidence is starting to show in our sales pipeline, our coverage ratio has never been higher, as at least in the years I’ve been here. And we are seeing deals that are larger, more strategic and involve some of the very largest global institutions. Because of this, we intend to continue investing in growth through fiscal 2023 while maintaining our status as a Rule of 40 company.
Before handing it over to Ron, I want to share with you that the personal enthusiasm that I’ve expressed on this call is really only matched by the tremendous energy and momentum inside the company right now. After multiple years of a pandemic induced absence, we held our annual company kickoff in July. Considering the circumstances we actually took the opportunity to invite the entire Absolute employee population to Vancouver. The theme of our event was no limits. And we took the opportunity to celebrate both the tremendous progress we’ve made, as well as to focus on the opportunity ahead of us. It was well worth the investment as an energized and united us in a way that no zoom meeting ever could, the company has energized and focused as one team focused on achieving our goals for fiscal 2023 and beyond.
With that, let me turn it over to Ron for the financial details.
Ron Fior
Thanks, Christy. Good afternoon, everyone. And thank you for joining us. On the call today, I will provide some financial highlights for the full year fiscal 2022, go over our Q4 results and then provide guidance for the fiscal year 2023. As a reminder, we are reporting revenue on an adjusted basis that excludes any IFRS purchase accounting impact on deferred revenue. In addition, our year-over-year comparisons are based on as-if combined basis that includes the net motion results of the year ago period in fiscal 2021 but does not factor in any US GAAP to IFRS adjustments. You can find the pro forma combined fiscal 2021 financial results in the business acquisition report that we filed in September of 2021, available in the investor relations section of our website and on SEDAR and EDGAR.
Total adjusted revenue for fiscal 2022 came in at $210.4 million. The high end of our guidance range of $209.5 million to $210.5 million and up 15.4% for the year. Consistent with the 15.4% we reported for fiscal 2021. The acceleration and revenue rate over fiscal 2021 was driven by the strength of our recurring revenue subscription model and the acceleration and ARR growth we saw throughout the year. We also saw benefits to revenue of $4 million that can be attributed to the accounting treatment of multiyear contracts and migrations of our Secure Access product. Total ARR broke the $200 million mark in fiscal 2022 and ended the year at $210 million, up 16% year-over-year. ARR grew in fiscal ‘22 with — ARR growth in fiscal 2022 was driven primarily by our enterprise and government sector, which grew 17.3% of 10.7% in the prior fiscal year, partially offset by the performance in our education vertical, which still grew a healthy 11.7% but faced the tough comp.
As you may recall in Q4 of fiscal ‘21, a pandemic related surge in education spending delivered a 21% growth rate for that segment of our business in that quarter. Education ARR now represents 22% of total ARR versus 78% for enterprise and government. The strong ARR growth was composed of record new logo ARR of $14 million versus $8.5 million last year, and net dollar retention that grew to 108% from 106% at the end of fiscal 2021. The 200 basis point increase belies improvements we have made in enterprise and government customer retention, which are higher than the corporate average, but partially hidden by the tougher education costs. Investments we have been making in our international go-to-market are also paying on. I would like to remind everyone that unlike revenue, ARR is free of the accounting complexities found in our revenue line. Management believes this metric provides a more meaningful and transparent view of the combined business over time. It’s also a key measure of how management performance is measured internally. And we believe it is the best metric for investors to measure the sales performance of the company. Fiscal 2022 adjusted EBITDA came in at $55.8 million or 26.5% of adjusted revenue. That was also above our guidance range of 24.5% to 25.5%, and showed a strong and consistent margin level with the prior year. The over performance is reflective of both our disciplined operational expense management, and the tight labor market that existed through most of fiscal ’22 that caused us to come in under our hiring targets.
We have seen our ability to hire talent improve in recent months and we exited the year with approximately 740 employees. We continue to invest in new product and spend and balancing growth with profitability. Looking at our Q4 results, adjusted revenue was $54 million, up 12.7% from Q4 fiscal ‘21 impacted by the tough education comp, and fewer Secure Access conversions, the solid revenue performance was driven by continued growth in our total ARR base. As more customers move to the cloud, and we see the contract term stabilize versus pre-acquisition term length, we expect to see the normalization of revenue growth rates to ARR growth rates return. At the end of Q4, approximately 73% of the Secure Access ARR portfolio was on subscription arrangements, up slightly from the prior quarter. As I mentioned earlier, we saw that — we saw solid 16% ARR growth, primarily driven by accelerating growth in our enterprise and government. Enterprise and government secure endpoint and Secure Access ARR performance was similar and consistent with last quarter.
Education ARR growth was 11.7% and return to solid sequential growth as we enter the seasonally strong Summer and Fall education quarters. New logo ARR was strong with a strong $2.8 million while net dollar retention rose to 108% driven by improving sales execution in our enterprise and government go-to-market teams. Adjusted EBITDA for Q4 was $15.4 million, a margin of 28.6% on adjusted revenue. The better than anticipated results came from a combination of discipline and operating expenses, and annual bonus accrual reversals. Near the end of Q4, we saw the talent market open and we were able to acquire new talent positioning us well for fiscal ‘23. The investments were primarily in go-to-market and research and development. Cash flow from operations for the quarter was $8.7 million and cash, cash equivalents and short-term investments was $64 million versus $69 million in the prior quarter. The lower than expected cash from operations was a result of one of our largest partners having a onetime migration of their payment systems, which caused the delay in payment and pushed it into the following quarter. This payment has subsequently been received, had it not been for that our cash balance would have been approximately $72 million.
With respect to our debt servicing, our coupon increased by 25 basis points since the last call resulting in approximately $200,000 in additional interest expense for the quarter. Given our strong cash flow from operations, and our expectation of continued profitable growth, we are confident in our ability to service the debt while continuing to pay the dividend and organically delever the balance sheet as we continue to build our cash balance.
Now let’s turn to the financial outlook for the year ahead. Firstly, I want to provide some context into how we derived our forecasts. The combination of our fiscal 2022 ARR growth and the continued acceleration of the growth in fiscal ‘23 will drive revenue growth in fiscal ‘23. Please note the fiscal 2022 revenue accounting treatment of approximately $4 million of Secure Access migrations and multiyear deals will impact revenue linearity in 2023. We have already migrated over 73% of Secure Access customers to subscription. Given the pace of migrations is slowing, we do not anticipate these conversions to recur at the same dollar levels in fiscal ‘23 as they did in fiscal ’22, making for some harder comparisons particularly in the first half of the year. As Christy discussed earlier, we are in the progress of migrating our platform into the public cloud. As a result, we expect to incur additional cost of goods sold as we will be running our data centers at the same time as incurring cloud costs. As a result, gross margins will be negatively impacted by 200 basis points in fiscal ‘23, but are expected to return to normal levels once the migration is completed by the end of calendar 2023.
Finally, it has now been a year since we closed our merger with NetMotion, but there remains approximately $3 million of deferred revenue purchase accounting write-down left on the balance sheet. As a result, we will continue to provide guidance for adjusted revenue for fiscal ’23 through the — though the differences between these and our IFRS revenue will continue to shrink, and should be relatively immaterial by the end of the fiscal year.
So with that, on to the guidance. For fiscal ‘23, we expect adjusted revenue to be in the range of $241.5 million to $246.5 million, representing revenue growth of 14.8% to 17.1% year-on-year. Adjusted EBITDA is expected to be between 21% and 24%. While we did not guide for ARR growth, we do believe it will be higher than revenue growth. And given the investments we have and continue to make in the go-to-market organization and marketing revenue should continue to accelerate in 2023 and trend towards 20% by the end of the year. I would also like to provide some further color on Q1. Recall the Q1 2022 benefited from a large multi-year NetMotion deal that we set out at $1.2 million incremental revenue in that quarter. While we expect revenue to grow sequentially through fiscal ’23, year-on-year comparisons will be somewhat impacted by multi-year contracts and the timing of renewals and migrations.
In addition, as Christy discussed earlier, we invited all the employees of Absolute to Vancouver to attend our company kickoff face-to-face for the first time since the onset of the pandemic. The cost of this event was approximately $1 million higher than our usual kickoff. And you will see this one time impact on in its entirety in fiscal Q1 of 2023.
In conclusion, I want to remind everyone that our guidance reflects management strategy of profitable growth and balances our goal of accelerating top line growth while maintaining strong profitability and cash flow.
With that, let me turn the call over to the operator to begin the question and answer session.
Question-and-Answer Session
Operator
[Operator Instructions]
And our first question will come from Mike Walkley with Canaccord Genuity.
Mike Walkley
Thanks. Congratulations on the strong close to fiscal ‘22. And I thought the initial ‘23 guidance was quite strong given the macro backdrop. Christy, my question to you is just sounds like there is a lot of momentum in the company from your kickoff and expanding sales team. Is there any pushback you’re getting, any concerns at all in terms of deal scrutiny? Feedback from your sales force with some of your customers?
Christy Wyatt
Hi, Mike, thank you. So we are watching it very carefully. I think that similar to when we went into the pandemic, our expectation as we go forward is that we’ll we may see it in some vertical markets. But overall, we’ve seen cybersecurity as a whole remain somewhat robust. So we are watching it closely. I think we intended to when giving guidance, we tended to give a bit of a range. So there is some accommodating for softness in there. But this is certainly not kind of the downside scenario that we’re talking about right now. So we’ll continue to watch it as it unfolds. We haven’t seen it yet.
Mike Walkley
Great. Thanks. And then Ron, as follow up to you, I think I guess Christy also, it sounds like you had some good momentum in hiring in Q4. And, Ron, thanks for all the puts and takes and how to think about building the model for the year. But is it still going to be kind of a front end loaded hiring environments just ongoing momentum in hiring or is it more evenly spread throughout the year in terms of guidance?
Christy Wyatt
I’ll take the first shot at that Mike. So we, I think we did a bunch of investments at the end of Q4 in sort of preparation for coming into Q1. So we talked about backfilling some of the open technical roles as that talent became available and then building some of our SDR and go-to-market capability to position as well as we came into this year. So you will see some of that cost because a lot of that was back loaded in the end of Q4, you will see some of that cost show up more in Q1. But I’d say our hiring is somewhat slowed for the first half of the fiscal year and you’ll likely see us sort of take another look at that as we get ready for the second half.
Mike Walkley
Great, thanks. Last question for me. I’ll jump into queue, just given the guidance kind of mid to higher teens. How should we think about enterprise and government? Can that be closer to 20%? Or maybe asked another way what are you thinking about for education growth in terms of that guidance?
Ron Fior
Well, I mean, right now, it’s already at, it was at 17.6%. And we think it’ll accelerate from there. So pretty close to the 20%.
Christy Wyatt
Probably is that we are trending consistently in that direction on enterprise and governments. And of course, education as we said before, we expect sort of, to continue to stabilize, it may sort of trend up or down a little bit. But high single digits to low double digits is sort of our expectation based on seasonality.
Operator
Our next question will come from Adam Tindle with Raymond James.
Adam Tindle
Okay, thanks. Good afternoon, and congrats on the second consecutive year of Rule of 40, Christy. You mentioned acquisition of NetMotion is working and wondered if you could maybe double click on forward initiatives that you’re contemplating, particularly in the fiscal ‘23, to keep pushing that further. And I guess more specifically we’ve talked in the past about some potential for incentive changes around cross-sell potential changes to comp plans or other ideas to drive further synergy. Just wondering what you’re contemplating, as you try to drive NetMotion synergies further.
Christy Wyatt
Hi, Adam, thank you. So if I were to sort of broadly describe where we ended in the year, I think that we’ve integrated the teams, as we’ve described before, in North America, the Secure Access team has still been largely a specialist overlay team. We expect that to somewhat continue as we come into the first half of this fiscal year. I think that we’ve seen some nice success coming out of kickoff in convergence of messaging and starting to put some broader incentives around cross- selling and introducing both technologies. One of the nice things that we’re coming into this year with is really not just a solid sort of consistent messaging framework, but also the sort of integration of persistence with the Secure Access products. And so that’s really a great proof point on both sides, for the selling teams to be able to demonstrate how these products come together. As we go through the year, as we talked a little bit about, you’ll see us focus a little bit more on taking that messaging and really bringing it out to customers, I keep calling us the coolest security company that nobody’s ever heard of. We don’t think we can close all of that gap in a year. But you will see us lean in a little bit more on that demand generation. I sort of view the first couple of years I was here, really focusing on product development against the strategy. I think this past year was a year where we really invested and tried to tee up our selling organization to come into this year. And I think what you’ll see us talk a little bit more about is kind of the marketing and the brand gap, and how do we better tell our story for some of that organic demand generation, as we come into the year.
Adam Tindle
And just building on that. I mean, you mentioned the Zscaler example where you’re basically tethering to them or deploying alongside them, I think some of us had thought of NetMotion, or the Secure Access product is sort of a displacement or direct competitor to Zscaler. So maybe you can talk a little bit more now that this is out in the field more, some examples or how you’re thinking about not necessarily going to head-to-head against big players like that, but perhaps, working alongside them.
Christy Wyatt
Absolutely. So companies like Zscaler, or Palo Alto, there’s a number of them. Clearly, these are larger organizations that have a broad portfolio and in many different parts of the overall framework. And so, there may be areas where we do have competition, and this particular customer case we were competing for one part of the deployments. But in the end, we ended up deploying alongside to the rest of their solution. And I think you’re going to see that a lot from us. And that really is, I think, honestly part of the strategy around endpoint resilience. We’ve seen that with secure endpoint with companies like Tanium, or some of the other endpoint management solutions, where if there’s an overlap and some of our features, but and you may choose one or the other, there is still the core of our platform that is applicable to a whole host of these different customer environments. And once we sort of have that broader conversation about what endpoint resilience can really look like there’s still often a role for us there.
Adam Tindle
And while Zscaler in Palo Alto sit at the cool table. So that should help you in your journey. Thank you.
Operator
Our next question will come from Thanos Moschopoulos with BMO Capital Markets.
Thanos Moschopoulos
Hi, good afternoon and symbolically congrats on the quarter and on the guidance. In terms of the integration of NetMotion, is there anything left to do on the technical sides? Any sense or [Inaudible] at this point?
Christy Wyatt
Hi, Thanos. Absolutely. So we just launched the first piece of the integration this past or this — in fiscal 2022. I think a next another sort of interesting area where we’re investing is in bringing the datasets together. So how do we get that holistic view of risk by looking at both the NetMotion data and the Absolute data in the same place? And so that’s one area. I think the second interesting area for us is some level of coordination around enforcement. So if you set policies, taking contemplating that broader data set how do they then do respond to that risk? Can you respond by limiting network access, by limiting the device, by freezing the device altogether. And so there’s many steps, I think, on this milestone or on this investment and milestones on this journey, and we’re really just getting started. But the nice part about these two solutions is that they do coexist quite nicely. Now that we have some, some of the self-healing pieces sort of connected together.
Thanos Moschopoulos
And you’ve recently launched the ransomware products, maybe early days, but any initial impact [Inaudible] in the field.
Christy Wyatt
We’ve seen strong interest in the ransomware product. And we’ve seen that also sort of demonstrated in some of the pipeline, I think that what has been interesting, and I think I’ve talked a little bit about this before is that ransomware is a nice proof point for some of the broader services and some of the broader resilience capabilities on the platform. And so oftentimes ransomware can be a conversation that helps us open up a discussion with an organization, but the broader opportunity may show up in full resilience deployment, or are other pieces within the portfolio. So we are seeing some nice, early pipeline activity around them. And we’ll continue to come back and share some customer success stories as we go further.
Thanos Moschopoulos
Then finally, in terms of the go-to-market investments, Christy you mentioned certainly focus on more demand generation, within go-to-market any other key priorities of investments in terms of where you’re may be hiring and spending.
Christy Wyatt
I think the two we touched on at a high level, the first was around the FTRS. And I think that’s a, we had some success with FTRS, late last year, but this is really a much more significant investment and kind of formalization of that program. So we’re looking forward to that. I think the second piece is really around services. And so we brought in a new PS leader I think, end of Q3 sometime, maybe earlier in Q3. Again, for a background within a coming from a larger cybersecurity organization very familiar with using data and analytics and that consultative selling model and really the kind of bringing us closer in that partnership with that customer. And so that’s another area where we have been putting in some investments, you’ll see us continue to invest in international as nicely as we did last year. It’s still on a small base. And so there’s lots of headroom and opportunity there for us to grow there as well.
Operator
Our next question will come from Scott Berg with Needham.
Scott Berg
Hi, everyone, congrats on the great quarter. Thanks for taking my questions. I have a couple, Christy, first of all, wanted to start off with your comment on coverage ratios, have never been higher. Think I’ve got that quoted, right at least? How should we think about that comment with regards to kind of the legacy Absolute product set or the NetMotion product set, or how much of that record high coverage ratio is driven by maybe customers looking at the combined solution today?
Christy Wyatt
Hi, Scott, it’s a great question. So this is really about us investing in visibility into our pipeline and our dimension activities. So coverage ratio, as we’re sort of describing it is really for sort of the coverage against our target, and do we see nice deals building in the pipeline before we come into the quarter. And so this really, I think, speaks to the investments we’ve made. I think Matthew and some of the sales operations leadership that he’s brought in over the past year have really put lot of discipline and focus in sort of pipeline hygiene and how we’re tracking and getting visibility much earlier on. And so having, I think, a finer level understanding of what’s coming, especially those deals coming, sort of, there’s sort of the deals that are coming through our OEM partners, and there’s those that are coming from our direct selling team. And we’ve seen both of those builds nicely and in sort of different ways. So that’s what I was describing with that comment.
Scott Berg
Got it, helpful. And then from a kind of a clarification perspective, Ron, your deferred revenue increased for [Tech Difficulty] most that I can remember in history here, is that related to that late payment that you have to call out with regards to cash flows, or is there another reason for the for the spike in Q4?
Ron Fior
For the deferred revenue itself?
Scott Berg
Yes, that’s correct.
Ron Fior
You broke up when you were speaking when your question was coming, sorry.
Scott Berg
Yes, specifically on the deferred revenue and had a nice sequential increase from Q3. That was a little bit more than historical trends. Just didn’t know if that was related to that payments that was delayed or was it something else.
Ron Fior
It did not relate to the payment, it was just kind of normal course of events for the deals that were built and when they came in through the quarter.
Operator
[Operator Instructions]
Our next question will come from David Kwan with TD Securities.
David Kwan
Good afternoon. And I was wondering, Christy, if you could talk about what kind of customer feedback that you’re getting when you’re going out there selling to joint out Absolute and motion platform? Is there still a lot of education evolved here? And maybe are their customers looking to see on offer some other solutions? Like are there gaps in the offering that they’re looking for?
Christy Wyatt
Hi, David. I don’t know that I could call out any sort of gaps in the integrated platform. We certainly have aspirations around the broader resiliency T&A offering. And so but I don’t think that in the early days of us having the sort of the connected conversation with both products in our portfolio, that there’s necessarily sort of glaring, missing components to the suite, I would say that the customer feedback has been pretty consistent. We commented on the scripts that are NPS scores. This is — this was really just a tremendous quarter tremendous year for us on NPS on both product portfolios, and customers continue to give us great feedback around the user experience, and the deployment flexibility around the Secure Access products. And, of course, on the resilience and self-healing piece there is this we’ve had quotes I think I’ve shared with you in the past it’s like having another IT person. So once people really understand the self-healing piece, there’s this it’s relatively self-explanatory. I think one of the areas that we were quite excited this year, as I mentioned a little bit in the script is some of the analysts’ feedback that we’ve been getting of industry analysts. So we did start making an investment, end of Q3 early Q4, in our investment in the Gartner and Forrester programs, and really kind of moving ourselves closer to some of those discussions. And we were very pleased with both the Gartner in the Forrester call outs on our capabilities and how customers are responding to them.
David Kwan
It’s helpful. Thanks, Christy. And when you look at the education business, DCF being kind of chunky going forward. I know there’s a lot of government funding that’s out there, and in there to certain extent, there’s obviously seasonality as well. But are you seeing funds starting to get that are kind of flow through the system? I know there was an issue in certain parts of last year.
Christy Wyatt
I think chunky is probably a good word. I think seasonality is another one, education has always had sort of its own nice natural cycle. And it was a little bit distorted with some of the pandemic funding. We are seeing in North America, there is still a fair amount of funding out there, it is shifting a little bit away from enabling students to the broader digital digitization, if you will of the school, so teachers and administrators and really more of that kind of enterprise deployment. So we do still believe that this can remain sort of a healthy stable market, and we do still see a fair amount of opportunity internationally, right. So there are some areas that are maybe not quite as far ahead in their sort of digitization of students and so that continues to represent some nice opportunities for us as well. So I think I said in my script we, long term believe it sort of stays in this high single digits, low double digits, but there is some of that variability quarter to quarter that still — 0:39:57.0
David Kwan
Thanks. And last question. Is there any update on the CFO search?
Christy Wyatt
So I have no announcement for you today other than to say we’ve met some great candidates, we have some folks who are in later stages of the conversation. And so we’ll be back to update you shortly as soon as we have a final answer for us. I promise I’m not dragging this out just to keep Ron here, although that’s what he’s asking again.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Christy Wyatt for any closing remarks.
Christy Wyatt
I want to thank everybody again for joining us today. And as I take inventory of everything we achieved in fiscal 2022. I can’t help but be proud of what our team accomplished. Since I arrived almost four years ago, we’ve gone from only a modest growth to successfully delivering Rule of 40 for two full fiscal years, despite many macro events and pressures. As I look forward, I feel confident in our ability to execute and continue to build upon what we’ve already accomplished accelerating ARR growth while maintaining strong profitability. One final note, we did announce earlier in the month that we will be hosting an Analyst Day on September 13 in New York City. Our plan is to share more details about growth trends, product innovation and our evolving and expanding go-to-market. I hope I’ll see everybody there in person or on the webcast. Thank you.
Operator
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
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