Magnet Forensics' Stunning Q4 Results Warrant Much Higher Takeover Price than C$44.25

• Results Above Management's Own Forecast and Far Higher Than Consensus Estimates place Magnet in Top 1% of all Publicly Traded Software Companies on Rule of 40
• Shareholders urged to Vote the GOLD Proxy AGAINST the Takeover of Magnet Forensics

PALO ALTO, Calif., March 9, 2023 /PRNewswire/ - Nellore Capital Management LLC ("Nellore"), the largest holder of subordinate voting shares ("SV Shares") of Magnet Forensics Inc. (TSX: MAGT) ("Magnet"), today issued a public letter commenting on Magnet's financial results for the fourth quarter of 2024.

Nellore, which owns over 1.3 million SV shares, or approximately 11% of Magnet's ~12.3 million SV shares, alerts all Magnet shareholders to the fact that Magnet's Q4 and FY financial results exceed management's forecast and greatly exceed the consensus street estimates that Magnet used to justify the takeover price of C$44.25.

In particular, Magnet's results beat consensus street estimates as follows:

• Q4 Revenue of US$31mm is 6% higher than Consensus Estimate of US$29mm
• Q4 EBITDA of US$9.5mm is 61% higher than Consensus Estimate of US$5.9mm
• Q4 Free Cash Flow of US$25.2mm is 104% higher than Consensus Estimate of US$12.3mm

Nellore believes that the intrinsic value of Magnet is at the higher end of our range of C$60 to C$70 per share and urges all SV shareholders to use to GOLD proxy to vote AGAINST the proposed takeover by Thoma Bravo, as the financial results deserve a much higher price.

The full text of the letter follows:

Dear fellow shareholders,

Today is a proud day for Magnet shareholders – thank you Adam, Jad, Angelo, Peter and the whole Magnet team. But don't let this be our last earnings report. It is now even more imperative that we demand equal treatment and for full value for our shares. We highlighted yesterday that Thoma Bravo is paying the lowest premium it has ever offered, a meager 15%, for the fastest growing and highest quality company it has ever attempted to buy in Magnet. Don't let it happen, vote AGAINST.

This was the best earnings report Magnet ever delivered and included every highlight that shareholders could have wanted, including:

• The highest EBITDA margins reported as a public company
• Accelerating revenue and ARR growth;
• Expanding gross margins; and
• Strong free cash flow.

Most importantly, the company's revenue and free cash flow both came in 3% higher than its own Q4 forecast¹ provided to Thoma Bravo, CIBC and Morgan Stanley in mid-November, implying in just 6 weeks, they beat their own internal projections. We now believe that the management forecast provided in the circular, which did not reflect full Q4 results, is conservative and expect 2023 revenue to be higher than US$133mm, EBITDA higher than US$30mm and FCF higher than US$33mm. Based on full year 2022 results, Magnet is a Rule of 74 company (41% revenue growth + 33% FCF margins) and Rule of 83 on ARR (50% ARR growth + 33% FCF margins). For these reasons, we believe that if there were no transaction announced on January 20^th, Magnet would actually be trading much higher than current deal price of C$44.25.

We are disappointed by the actions of the Special Committee and its advisors, who have had access to the Q4 results and who continue to justify the transaction on the basis of consensus estimates as of Q3 results. Further, with the hope of leveling the information asymmetry, when we asked to move the record date to either after the Circular was released with Management Forecast or to after Q4 results, the Special Committee did neither.

The Special Committee has tried to brag that they extracted an additional 30% from Thoma Bravo (from C$34.00 to C$44.25) since initial proposal. We believe that 2023 EBITDA estimates today are 50% higher than the $21mm estimate on October 5^th 2022. Thus, relative to the fundamentals, the Special Committee has actually put us in at least a 20% worse position by binding us to C$44.25.

We also sincerely ask all eight research analysts to update your models and price targets according to today's results and put your best independent analysis forward, to help your clients and all minority shareholders realize full value for their Magnet shares.

With momentum continuing to build behind our campaign to secure fair treatment and full value for all SV shareholders, we urge SV shareholders to vote AGAINST the takeover using the GOLD proxy. Please vote before the voting deadline of 5:00 p.m. (Toronto Time) on March 20, 2023.

Sincerely,

Sakya Duvvuru
Founder & Portfolio Manager
Nellore Capital Management LLC

Nellore Capital Management invests in entrepreneurially managed, competitively advantaged technology businesses globally for the long term.

SOURCE Nellore Capital Management LLC

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