CIBC UpgradeEQUITY RESEARCH
March 10, 2022 Earnings Update
MAGNET FORENSICS INC.
Executing On The Opportunity
Our Conclusion
Magnet Forensics posted a Q4 beat, with the company seeing a solid
demand environment. The recent focus on cyber crimes is driving enterprise demand for more proactive cyber solutions, while Magnet’s public sector base continues to see growth from cross-selling and upselling Magnet’s full suite of solutions. We see the company as well positioned to benefit from accelerating demand given heightened cybersecurity awareness and see upside from partnerships and potential M&A. We retain our Outperformer rating, raising our price target to C$34 (prior C$33) on our revised forecast.
Key Points
Q4/21 Results A Beat, 2022 Solid Guidance: Magnet reported solid Q4
results, with net revenue that was 12% above consensus and EBITDA
margins that were 840 bps above expectations. Magnet also announced
2022 guidance, with the midpoint of revenue 5% above consensus and the midpoint of EBITDA margin guidance 80 bps below as the company
continues to invest for growth.
Seeing Upside From Enterprise: With the frequency and scale of cyber
crime increasing, Magnet is seeing solid growth from the enterprise market. We expect enterprise to become an increasing percentage of Magnet’s business, with its private sector Axiom Cyber solution typically selling for twice the ARR of its public sector solution. We expect the company to continue to upgrade its enterprise customers from Axiom to Axiom Cyber and to see growth from upselling additional solutions, including the recently released Magnet Automate Enterprise, which automates certain security functions and accelerates cybersecurity investigations.
Building Out The Partner Channel: Post Q4, Magnet announced a
partnership with NICE, which will integrate Axiom into NICE Investigate. The partnership builds on Magnet’s Microsoft relationship, and we see upside as the company develops both strategic and reseller relationships.
Investing For Growth: Magnet is looking to add roughly 140 people to its
headcount in 2022 after adding +120 employees in 2021. The headcount
additions will be primarily in sales and marketing and R&D. Magnet is looking to fill out its enterprise sales team given solid demand and continues to expand the product suite sold into enterprise, with competitors focused primarily on point solutions. On the public sector side, Magnet is focused on building out its end-to-end solution, allowing the company to drive strong upsell and net revenue retention, which was +120% in F2021.
M&A Is Upside: Magnet continues to be a solid organic growth story. Post
IPO, we believe that the company may become more active on the M&A
front, looking to augment existing capabilities with tuck-in acquisitions in the $5 million to $20 million range. With $118 million in net cash at the end of Q4, we see the potential for between ~$2/share and $11/share upside from capital deployment on M&A.