Absolute Software Corp (ABST) 2011 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Absolute Software Corporation third quarter conference call.

At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions.

Before beginning its formal remarks, Absolute would like to remind listeners that certain portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. 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. For more information on the Company's risks and uncertainties relating to these forward-looking statements, please refer to the section of its annual MD&A.

(Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Monday, May 9, 2011 at 5.00 p.m. Eastern time. I would now like to turn the conference over to Mr. John Livingston, Chairman and Chief Executive Officer. Please go ahead sir.

Thanks, Operator. Good afternoon, everyone. With me today in Vancouver today is Errol Olsen, our Chief Financial Officer. I'll begin today's call with an overview of the market and our performance in the quarter. Errol will then review our operational and financial results after which we'll open up the call for your questions.

So first a quick comment on results. As you know, we've been focused on growing sales contracts, increasing cash from operations, and holding the line on costs. And I am sure you will agree that we are beginning to deliver positive results in these areas. We have now achieved three quarters of record sales contracts in a row. Q1 was the best Q1 we've ever had. Q2 was the best Q2 we've ever had, and now Q3 is the best third quarter sales contracts achievement Absolute has ever had. So we're pleased that Absolute has returned to sales contract growth, now growing 19% in constant currency over the same year-to-date period last year.

And our cash generated from operations for the first nine months of this fiscal year is up 27% and already exceeds the cash from operations we generated for the full year in fiscal 2010. So overall, a very solid performance year to date.

Now I want to comment on our four industry trends that are working in Absolute's favor. The first trend, growth in the notebook market. The notebook market is forecast to grow at approximately 15% to 18% per year over the next three years. And according to Intel Corporation, we are into the first third of a refresh cycle that is expected to last at least three years.

Now the customer pain associated with tracking and securing the data on these endpoints remains high. While theoretically relieved in part by encryption, lost notebooks remain a serious potential data compromise issue for large commercial organizations.

Absolute's core persistent tracking device -- device tracking and mobile data protection business helps organizations overcome these challenges and our primary OEMs, Dell, HP, and Lenovo, own 61% of the North American notebook market. So we have excellent access to this customer base and this positions us for continued growth in our core business.

The second trend, massive tablet proliferation. Tablets are creating opportunities for Absolute because these tablets are additional devices that need to be managed and secured. We will continue to see a massive tablet proliferation with a 75% compounded growth rate estimated over the next five years, the majority sold into the consumer market.

In commercial organizations, tablets are being adopted, but more slowly. And typically becoming a companion device to the notebook and desktop PC. Importantly they are not a replacement. For corporations in particular, notebooks remain the must have form factor and we believe the notebook, along with its powerful local processing and storage capabilities will remain a business computing standard for many, many years to come.

The most exciting field dynamic is that customers want to understand the tablet management solutions available in the marketplace, which gives Absolute an avenue to get a project started and often which leads to more opportunity.

The third trend, the shift towards self-encrypting drives will disrupt existing endpoint encryption markets. Absolute believes the new self encrypting drive technology or SED technology, being supported by the industry and introduced by the major computer and drive makers, will displace client encryption solutions being sold today.

Absolute now offers Absolute Secure Drive, a self-encrypting drive management solution and aims to become a leader in the new emerging SED marketplace. Absolute is seeing a pipeline starting to build in this space and with Secure Drive, Absolute's officially in the encryption game.

The fourth trend is that endpoint security and endpoint management continue to merge. The industry has realized you can't secure what you can't manage. So the drive to consolidate security and management functionality under a single pane of glass continues to evolve.

We believe commercial organizations want to maintain similar security and management services across their entire estate of endpoint devices. And they want to be able to do this for their computing assets as well as various types of smart devices. Again, via a single pane of glass.

As we expand upon our single pane of glass vision for security and management across multiple devices, our market grows exponentially. We can leverage the commercial interest in managing mobile devices as the tip of the spear, if you will, to generate new customers for Absolute and to expand into larger existing and more lucrative computing management business.

I would also like to take a minute to touch upon the emergence of cloud computing and what that actually means for the relevance of any endpoint device itself and in turn for Absolute. In short, users are storing record amounts of data on their various endpoint devices, which means endpoints need to be properly tracked, managed, and protected.

Yes, certain applications and data will move to the cloud, however with cloud computing users are still accessing cloud data and then most often are still storing this data, including email, on their notebook and tablet endpoint devices locally.

The smarter the devices become, typically the more likely they are to contain and store sensitive data. That's why OEMs are now shipping self-encrypting drives. Without proper protection, sensitive data end users and corporations are all at risk. So the endpoint does matter. We believe endpoint devices will continue to play an important role in the overall security and management best practices for commercial organizations.

Based on the trends discussed, Absolute will continue to drive success with our anti-theft security solutions and our cross platform computing lifecycle solutions, mobile device management solutions, and self encrypting drive solutions. With a vision to over the short term bring all of our capabilities under a single pane of glass.

Ultimately we believe that our strategy and competitive advantages we can become a leader in this rapidly evolving CAD4 billion endpoint security and management market.

On that note, I'll turn it over to Errol to walk us through our operational and financial results in greater detail. Errol?

Thanks, John, and good afternoon, everyone. As John mentioned, our performance in the quarter was strong. We generated CAD17.2 million in sales contracts, a record third quarter.

Year-over-year sales contracts were up 15% in Canadian dollars and 21% in cost in currency as a result of improvements in nearly all regions and in both our commercial and consumer verticals. For the year-to-date period, sales contracts were up 13% in Canadian dollars and 19% in cost in currency.

Our commercial customer sales have continued to grow and are up 19% for the quarter and 17% year to date in constant currency, on productivity gains, a healthy refresh cycle and product portfolio improvements. It is encouraging to see our efforts to generate productivity gains beginning to take shape, enabling us to generate a 17% sales growth on just a 1% increase in sales and marketing expense.

Importantly, all four commercial verticals -- corporate, education, healthcare, and government -- have performed well during the quarter and year to date. Of particular note, our healthcare business is leading the way with 59% growth year to date and 82% for the quarter. Healthcare has become an exciting vertical for us that's expected to continue to grow, given the current HIPAA and computerized document regulations.

Sales to existing commercial customers continue to be strong. They were CAD12.9 million for the quarter, up 17% from last year and in constant currency were CAD13.7 million, representing a 24% increase. Sales to existing commercial customers represented 75% of Q3 sales contracts compared to 73% last year.

Renewals continued to be a large part of our business. The expiring subscription ratio for the quarter was 1.3 times compared to 1.5 times in Q3 last year. The overall declining trend in the ratio is consistent with the growing size and relative maturity of our customer base, but is also impacted by short-term economic conditions and fluctuations in customer buying power. The ratio is also impacted by our Absolute managed maintenance renewals, which typically would not have a renewal ratio greater than 1 to 1.

The average US dollar selling price for sales to existing commercial customers declined to $34 in Q3 compared to $47.67 in Q3 last year. As mentioned in previous calls, this decline was expected due to there being a higher proportion of lower priced non-theft recovery products in the mix of subscriptions expiring during the second half of fiscal '11.

In addition, many of our apps managed sales in the quarter were to existing customers and the ASP for this product is closer to that of our non-theft recovery products.

Sales to new commercial customers were CAD1.9 million, representing a 13% decrease year-over-year and a 9% decrease in constant currency. On a year-to-date basis, new customer sales were CAD6.1 million, also representing a 13% decrease year-over-year and a 9% decrease in constant currency.

While the dollar values have declined, this is solely due to a lower average deal size. More importantly, the number of new customers added in the quarter and year-to-date is up from last year. This means we've added more customers that we can develop next year to continue our growth trend in existing customer sales.

Looking now at the consumer side of the business, third quarter sales contracts were CAD2.4 million, up 29% compared to Q3 last year or CAD2.5 million in constant currency, up 35% year-over-year. The improvement was largely a result of the continued diversification of the consumer business through non-bundled OEM retail and online channels.

Non-bundled consumer sales were up 48% year-over-year for the quarter and 50% year to date. Bundled sales were also up 20% year-over-year for the quarter as we experienced the tail end of our bundle contracts.

We have also expanded geographically in the consumer business with 18% of year-to-date consumer sales generated from outside North America compared to 4% last year.

During the quarter we announced an exciting expansion of our retail channel with the signing of a partnership agreement with Syx Distribution, a Company that is an affiliate of and distributor for TigerDirect, CompUSA, and CircuitCity.com.

In addition, we recently launched 60 and 90 days free trial programs with a number of PC OEMs, very similar to the approach used by the major anti-virus vendors. We expect these free trials to ship on millions of laptops in calendar 2011 and believe they will enable us to continue growing our non-bundled sales at rates sufficient to offset the anticipated decline in our bundle business.

On the international front, Q3 sales increased 136% to 17% of Q3 sales contracts, up from 8% of sales in Q3 of last year. This increase reflects strong improvements in both the EMEA region and Australia.

In addition to sales contracts, as you all know we consider cash from operating activities to be a key financial and valuation metric for us. In the third quarter we generated CAD2.7 million in cash from operations, up 361% from CAD0.6 million for the same period last year. This year-over-year improvement is a reflection of the leverage that we are starting to realize in the business.

Our adjusted operating expenses, that is cost of sales and operating expenses, but excluding non-cash charges for amortization of acquired intangibles and stock based compensation, were CAD14.6 million in Q3 compared to CAD14.7 million in Q3 of last year.

The current quarter adjusted OpEx reflects a CAD1.6 million positive adjustment for investment tax credits. And excluding this adjustment, our adjusted OpEx was unchanged from Q2, reflecting our efforts to control costs and drive productivity improvements.

On a year-to-date basis, our adjusted OpEx was CAD47.9 million compared to CAD46.3 million in the prior year. The year-over-year increase is primarily due to head count additions that occurred over the first half of last fiscal year as opposed to incremental spending in the current year.

For Q3, predominantly reflecting our 8% increase in revenue and our success in controlling costs, we achieved adjusted operating income, that is GAAP revenue less adjusted OpEx, of CAD3.4 million, a 79% increase over adjusted operating income of CAD1.9 million in Q3 of last year. This is our third consecutive quarter of positive adjusted operating income.

From a balance sheet perspective, we continue to maintain a healthy cash position and no debt. At March 31st, our cash, cash equivalents, investments were CAD53.3 million compared to CAD58.0 million at June 30th. The change in our cash balance predominantly reflects the CAD11.8 million we have spent this year to date as part of our share buyback program, which has been largely offset by the CAD9.1 million of cash generated from operations.

In terms of fiscal 2011 guidance, as we previously stated we expect sales contracts and annual cash from operating activities to grow from the levels achieved in fiscal 2010. With respect to our cost structure, for the final quarter of fiscal 2011 we expect that our adjusted operating expenses will remain within the range experienced in the first three quarters of this fiscal year.

In summary, we are pleased with our strong year-over-year growth in sales contracts, which have been achieved through productivity improvements and which are driving solid improvements in cash from operations.

At this point, I'll turn it over to John to conclude the call.

Thanks, Errol. So to summarize, Absolute is back on a growth trajectory while enhancing itself to compete in a broader context and with much bigger players. The four markets that Absolute serves are slowly combining into one massive market with the convergence of computer management and security markets compounded by new device proliferation we are witnessing a true industry reinvention.

So it's a very exciting time with a CAD4 billion-plus market up for grabs that will shake out over the next three to five years. Absolute is in a strong position as we lead the emerging anti-theft emergency services market. We estimate anti-theft to have the potential to grow to CAD500 million over the next five to seven years. This is a market we invented and we remain the clear leader, leveraging our firmware persistence capability, OEM relationships, and 6 million-unit software and service customer base.

Contrastingly today, Absolute has only a foothold in the CAD2 billion well established computing lifecycle management market. However, Absolute's gaining momentum with customers and industry analysts, a key step in strengthening our competitive position. Most recently, Gartner selected Absolute Manage as one of its Cool Vendors in IT Asset Management.

Finally, we are also well positioned to win business in both the mobile device management and self-encrypting drive management markets. This we estimate is likely another CAD1 billion market opportunity.

Finally, our mission is to see Absolute to continue to grow is business while bringing our comprehensive cross platform functionality under one single pane of glass and to ultimately emerge as the leader in this fast evolving CAD4 billion-plus total market.

That concludes our prepared remarks. Thanks for your continued support of Absolute. Now, Operator, can you open up the call for questions?

(Operator instructions) Tom Liston, Versant Partners.

John, just on the return to fairly robust growth here, is it more purely the refresh cycle for now or is it a little more to do with (inaudible) being concerned about all these devices coming into the workforce and trying to address it? Or is that more of a lagging indicator where they're still trying to get a handle on what their policy is and then go out and buy the software? So in other words, is there maybe a second kick up in growth here or what's really driving most of the overall growth?

Great question, Tom. I think generally it's the fact that notebooks are growing. Obviously we're the clear industry standard when it comes to anti-theft. That's certainly on people's minds as they're grappling with the expanding notebook population with tablets coming onboard as well.

Tablets has been great for us because it's often an opportunity for us to get to know the customer if it's a new customer. And if it's an existing customer we can come in and hopefully expand our solution to cover their tablets as well.

But generally I would say it's the notebook market growing and just the general awareness of anti-theft as a category growing.

And just with the respect to the average selling price, is that just because it happened to be timed at a lot of the non antitheft renewals were coming up? Or were anyone sort of downgrading to lower functionality in that renewal?

The average selling price, as Errol talked about, is coming down because we're selling more Absolute Manage and I have the lower price point. We're also selling more services that don't have recovery attached. So we're selling more Computrace Data Protect, which is our remote deletion service. And we're selling more Absolute Track, which is our inventory management service.

So those services are typically a lower ASP, we're selling more of them, so the ASP's coming down.

And just overall, on the message of single pane of glass, one console, are a lot of CIOs waiting till you've got the Android functionality to make sure the complete platform was built out before they went ahead? Or were there some early sales and no anticipation of that functionality coming up?

Well, I think like you -- what you said earlier, Tom, is we haven't seen corporations adopt en masse yet these tablets. Very, very early still. Folks are bringing them into the organization, they're playing with them, they're getting familiar with what the capability is.

We are seeing some -- definitely seeing some deployment, some in the thousands or some pockets of 10,000-plus deployments, but on the whole corporate America really has not yet adopted the tablet en masse. Not to saw that that will happen over time. So you're in the infancy when it comes to that market and I believe the leader in that market is only a CAD10 million company annually from our market intelligence that we've managed to come by. So while there's a lot of noise about tablets and tablet management, there is -- the truth is it's not generating a lot of sales for people yet.

And finally just on your scalability, I think that account's been in all three areas it's been fairly flat for 12 months and then, Errol, you're basically guiding to flattish Q4 (inaudible). What level do you think in terms of sales contracts can this organization run at? You think there's a bit more to go or you'll have to start the hiring process again soon?

No, we think there's a bit more to go. So, we're not really looking at -- our expenses were -- we're budgeting our expenses to go up slightly next year. But we're trying to hold the expense line and grow the top line.

Yes, just to add to that, Thomas, we did build our sales and marketing infrastructure quite a bit over the last two years. And now what we're starting to see is most of those -- the newer people that we brought onboard are really starting to get up to speed. We're seeing some good growth in pretty much all of our territories. But there's still more growth to go we believe. So in short we do have capacity to increase our sales without significant changes to the cost structure.

Scott Penner, TD Newcrest.

First of all, just to follow on one of Tom's questions. So just to answer the question, the prices on the individual products on the renewals have not been under any pressure. This is solely a mix issue?

Yes, that's right, Scott. We haven't made any changes to our pricing, the discount structure remains as it has been. So really this is a product mix that's driving the ASP.

When you look, Scott, when you look solely at the Computrace line of products, that have recovery included, I believe it's exactly the number -- that it's always been less CAD1.00. So that product line has held its price point.

And what should we look for as far as the ASP next quarter given what you would know about the mix?

Yes, it's going to be -- obviously this is very difficult to predict, Scott. But when I look at the expiring subscriptions, certainly the waiting of non-theft recovery product was probably as high as it's been and to what we're projecting it to be in this past quarter. The proportions start shifting back towards increasing amounts of the theft recovery product.

But it all, of course, does depend on timing. But I'm expecting -- if anything I think that we've probably come near the bottom of where the ASP will land and now going forward it's all product mix dictated. And of course as we layer on Absolute Manage that's going to influence it as well.

The commercial subs expiring for Q4, I think I had penciled in before the quarter about 430,000. What's the number?

Yes, you had penciled in the right number there. It's about 430,000. You can put it in pen now.

And then for next year it was about 1.4, 1.45 on the commercial side?

Yes, that's right. We're still tracking to about 1.45 fiscal 2012 commercial.

And can you give us any more details about the -- just the dichotomy between the new customer revenue and the number of new customers? Maybe talk about the number of new customers, either year-to-date, year-over-year, or in the quarter?

We don't release the actual number of new customers, but the number of new customers actually has come up, so we've penetrated a larger number of new customers for a slightly smaller dollar volume, if you will. Or dollar value. So those new customers will start to buy more units this year and we'll start to mine those customers over the next couple of years going forward.

Last question for you, John. I'm just -- I guess from a different standpoint I'm struggling a little bit to see where you're going to insert yourself in the whole, let's call it the MDM market, although you said the markets are all coming together. I mean when you look at somebody like RIM releasing the capability to manage other devices and you've talked in the past about the difficulty of unseating people like Altiris and the old, let's say a legacy computer management, I mean I'm just -- I'm struggling to see where you're in is going to be and for the large amount of corporations why they wouldn't augment something that they already have, like Altiris, with a solution from RIM or [Good], as you mentioned.

Well, Altiris' of the world are fairly large complex systems, right? So what we've seen -- what we're seeing in the lifecycle management business generally speaking that the predominant players there, customers are not that happy with. Those are large systems, they're high touch systems. Customers are looking for trimmer, easier to use systems like we offer with Absolute Manage. So we've had success with Absolute Manage, we've beaten Altiris, we've beaten LANDesk. We've certainly had some success there. Our pipeline's growing for Absolute Manage. We think we can have a lot more success with Absolute Manage.

And then the nice part about Absolute Manage of course is it extends beautifully to adopt all the Apple iPad devices and the iPhone devices. We're adding Android to Absolute Manage as well, we're adding some other functionality there to take care of all these mobile devices. So I do think we can compete.

When you think about RIM, obviously RIM has a great install base, but they're there to protect their phone business and we're going to be selling through the Dells of the world, the HPs of the world, the Apples of the world, and none of those folks have any interest in necessarily supporting RIM. So I think we've got a very good set of partners that we can go to market with that'll be promoting our solutions. And we'll be promoting their solutions alongside.

And we think we can get our fair share. This is a big market. It's CAD4 billion, CAD5 billion, CAD6 billion market over the next few years. There's no reason why we can't go and get our 10% of it. So that's the job to go do.

Thanos Moschopoulos, BMO Capital Markets.

John, maybe just going back to the topic of the sales to new commercial customers being down year-over-year. You talked about the deal size, the initial deal size being a smaller number than the past. Can you provide some color as to why that's the case? Is it actually the function in terms of how they're rolling out new laptops generally through the organizations?

Thanos, I actually was surprised by the number when we went through it with Errol. But I wouldn't read too much into it. It just seemed to be the buying pattern of the quarter. So I would not read a lot into it. I think the good news is we are bringing a lot of decent sized new customers to the table and they might buy a smaller number of notebooks for their first rollout, but that doesn't mean that they don't have lots of capacity going forward. So I think -- I just wouldn't read anything into that.

The best news is that we're bringing lots of new customers onboard by account, all -- many of those are design wins, so that we're going to be selling Computrace across all the devices that they're purchasing and bringing to the organization. So it's -- on the whole I see it as a positive.

And can you provide more color as to what drove the consumer strength that we saw in the quarter? Is that a function of new marketing programs kicking in?

Yes, the consumer team has done a very, very good job diversifying the consumer business away from our dependence on one large OEM that you know about. So they've done a very good job. When you take out that one deal that we did, that bundle deal we did, when you take that out the consumer business has grown very nicely over the last four years and they have some super initiatives in place with a number of different players to continue to expand that business going forward. So while it won't be significant growth over the next couple of quarters, it will be steady growth for the consumer business over the next few quarters, so we're excited about that. And again, it's diversifying away that one large OEM deal that we had done.

Yes, remind us when that large OEM deal finally comes to conclusion. Will that be sort of mid next year?

No, actually it ran out in Q3.

Okay. So going forward it's no longer an issue as far as year-over-year comps?

Yes, that's right. I mean it's not to say that we won't do any bundles. I wouldn't rule out the possibility of doing another bundled sale or deal, but right now there's none in -- there are none in the works so I wouldn't contemplate any for at least the next couple of quarters.

And then finally can you touch on the education sector since that's traditionally been a very important vertical for you. You mentioned that that's been performing well year-over-year?

It has been, yes. Education was up 15% in the quarter. It's about 10% year to date. And that comes off of, if you'll recall, from Q1, we were flattish in Q1, so 10% year to date reflects some good growth in the last couple of quarters.

Blair Abernethy, Stifel Nicolaus.

John, I'm just wondering if you can give us a sense of -- or a little more color on the product direction and timing as you sort of start to move towards a single pane of glass?

Sure. So what we've done is obviously we've built up our core Computrace business, layered on Absolute Manage to give us the full lifecycle management capability. Now what we layered on is we've layered on the Apple capability, we've layered on some Android capability, and we're laying on some of the other mobile device management capability.

And then what we're doing is we're weaving integration points through both the Computrace model, which is software and service model, and Absolute Manage, which is an enterprise or private cloud model, if you will. So it's about having a single pane of glass up front in terms of user interface and being able to click through layers to get to the capability that you want, whether you want to deploy software locally over your network or you want to track a stolen computer or a stolen device and do some type of emergency service to it over the Internet more broadly speaking. Or through a broadband modem.

So those things are continuing to unfold. Obviously we have different teams working on different pieces of them. And we're bringing them all together. Now hopefully within the next 18-month period to two years we would have that fully integrated solution for customers.

And just on the telecom side of things, the partner traction there, can you just comment on how that's proceeding?

Sure. We are working with, as you know, we're working with Verizon. We have the bill on behalf of a relationship. We have a co-selling relationship with AT&T and a co-selling relationship with Sprint. And then we have other operators in development with different co-selling or bill on behalf of type relationships.

So that's coming along. That takes -- there's a lot of field training happening, et cetera. So that's continuing to take place and we hope to see some growth in that challenge in fiscal 2012.

Pardeep Sangha, PI Financial.

Just with regards to seasonality for Q4, should we be expecting similar sort of seasonal trend? Q4 is always your strongest, your best quarter of the year. Should we be expecting similar sort of Q4?

Yes, I would expect that Q4 is going to follow our traditional seasonality. So on a relative basis compared to the last two quarters it should be stronger.

Just with regards to Absolute Manage in particular, I mean last quarter I think you said that their results were a little bit disappointing. It was sort of how Absolute Manage has kind of gone. Can you talk a little bit about that? I guess sales of that and how the funnel's going on Absolute Manage?

Sure. We had a decent quarter with regards to Absolute Manage sales. And the pipeline is certainly getting stronger for that particular product. So we were encouraged this quarter with what took place in the marketplace and we're definitely encouraged with a number of deals we have in the pipeline for this quarter and do see that pipeline growing.

I mean we do believe that we can be a meaningful player in the computer lifecycle management business. It just takes time because we're not known for that. But we are having success and we are beating out some of the leaders in that market because our system is easier to use and does have the cross platform capabilities. So it's ideal for certain customer bases.

You mentioned something about this free trial to ship on millions of laptops. Can you elaborate on that a little bit more? Which OEMs are you partnering with, if that's possible, or timing, or anything else like that? Like can you just give us some more information on that?

We've developed a service called Absolute Data Protect, and what that is is it's a data deletion type functionality, which we're shipping basically on a trial basis with a number of the Asian OEMs. So we have the Acers and the ASUSs of the world. Those folks are adopting this program, we're excited to support them and those trials will be shipping on millions of units over this calendar year.

So data delete, not the anti theft part of it.

That's right. So we'll do the data deletion as a free trial program and then obviously at the end of the trial customers can upgrade to that service as a paid service and they can also upgrade to our full theft recovery programs.

I believe that that free trial program is going to rollout on about five OEMs. So it's a fairly significant undertaking. We spent a lot of development time building in that type of capability and now it is being -- starting to ship on these different OEMs.

So it's shipping this quarter, Q4? I mean is it starting this quarter Q4?

It is, yes. Different OEMs are coming onboard in Q4.

Lastly here, just you seem to be starting to gain a little bit of traction internationally. Year-over-year sales international seems improving quite a bit. So what are you seeing internationally? I mean what sectors or what's the demand, what products or sectors are driving the international side of it?

We've had really good success in Australia in the education market. We've had good success on the education market in some South American countries and Central American countries. And in EMEA it's a little bit of everything. It's some education, it's some government, it's some commercial organizations. So really a mixture, but both EMEA is up and what we call the rest of world, which is Asia Pacific and the South Americas are up for us. So you're absolutely right, Pardeep, we are definitely experiencing an increase in sales in the international territories.

Sera Kim, GMP Securities.

For Absolute Manage earlier you mentioned that the pipeline's getting stronger. Just wondering, in terms of sales cycle generally, how should we think about it at this -- because you mentioned that it does take time. So is the sales cycle -- does it take longer just because you're trying to sell to -- sell a newer offering to people relative to others that are more established in this space? Or is it generally just longer sales cycles?

I think generally it's longer sales cycles. There's less of an urgency, if you will to a degree because with Computrace the beauty of Computrace is customers have to make a decision before they actually roll the notebook. And there's usually certain outside triggers and when the notebook's going to roll because you have employees waiting for notebooks obviously or waiting for refreshes. So our timing is in conjunction with the deployment of the notebook.

With Absolute Manage, it's more of an install base play and therefore it could happen at any time and customers typically go through larger RFP cycles, and larger test cycles, and competitive comparison cycles. So the Absolute Manage sales cycle is longer. It's typically nine to 12 months, whereas Computrace can be much, much quicker also. We're known on the Computrace side very well and it's fairly -- it's easier for people to make decisions there.

But we are having success and we definitely feel that Absolute Manage is going to be a significant revenue generator for Absolute over the mid term.

And how much of your pipeline is related to Absolute Manage and ASMDM offering?

It's Abs Manage and MDM combined would be between 20% and 25% of the pipe. So it is up from the last couple of quarters where it was closer to about 20%.

And just lastly, I'm just wondering if you can provide some color on what you're seeing in the education market. It was up quarter-over-quarter and year-to-date. And I'm guessing June is probably the seasonally stronger quarter. Have you -- do you have any sense in terms of what next year looks like as you look past the June quarter?

Sera, I think we're just going to see a continued steady growth in the education market. We do have a fairly decent penetration in that market. We're up over 20% attach rate in education in North America. So we already have a fairly significant attach rate there. Can we do more? Certainly. Will we do more? Yes, we will continue to grow that market. We are known as a standard inside the education market. We are adding new school districts that we haven't had in the past so that's a positive. So we see that continuing to grow.

Education has additional needs that are developing. We've actually hired some expertise in that area, folks that were assistant CIOs of education understand the education market very, very well, and the needs of education. So we're going to see if we can add some additional value there.

But obviously education's very dear to our heart because they've been a very, very important customer segment for us. And we still have lots of growth opportunities there.

Scott Penner, TD Newcrest.

Can you just give the head count numbers for the quarter end versus last quarter?

Yes, sure. We were at 339 at the end of the quarter. That's down from December a little bit and it is down slightly from last year. I'm just trying to pull up last year's. Just bear with me one sec. We were at 346 last year.

Maybe -- I mean my question then would be last quarter the commentary was that the operating expenses were a little bit lower than expected because there were some unfilled head count positions you didn't get done in time for the quarter. And now I'm -- I mean I'm (inaudible) little bit to see why the head count is down quarter-over-quarter. And it looked like parsing through the MD&A that sales and marketing was actually up a head versus the other categories all down.

Yes, that's right, Scott. So three months ago I would say it was our intention to add a little bit to the head count. I mean really what transpired during the quarter is as we continually work through our operating structure and continually analyzing every department within the Company, we took the opportunity to do the small organizational changes and that resulted in a little bit -- a small amount of layoffs, around a dozen employees. And that's -- it's really a factor of us just continually looking ahead and looking where we need people, where we could maybe cut back a little bit. And so the head count has become a little bit dynamic in nature, albeit just by a few heads each quarter.

But going forward, I would say by the end of the year, the number -- if it changes it'll change by no more than about 10 employees.

Gabriel Leung, Paradigm Capital.

Just a couple of housekeeping questions. First do you have the figure for Q4 for consumer subs coming up for renewal and also for fiscal '12 as well?

The one thing I would caution is on the consumer business, the expirations really are not a great predictor of where we're going in the consumer business. And that goes back to the whole reason why we're phasing out of the bundled program where the renewal rates are extremely low.

So I can, yes. And in fact it's probably not worthwhile even sharing the number because I don't think it's very relevant for predicting the business.

And just one last thing. Do you have an update on what the tax picture might look like in fiscal '12? And that's it for me. Thanks.

For 2012 we're expecting that we will be paying an immaterial amount of cash taxes right now. And that's just based on the tax losses that we have built up in the US and we've got some tax assets in Canada. And then I expect in 2013 is when we'll start to -- we'll phase in actually paying taxes in 2013.

Pardeep Sangha, PI Financial.

Just a follow-up question. Just with regards to acquisitions. Just wanted to understand. I mean you still have plenty of cash and what's the appetite for acquisitions these days?

We've really -- we've still got some more work to do on -- with Absolute Manage in terms of a full integration. And I think between what we're doing with self-encrypting drives, our Absolute Manage play, the Computrace core business, and the MDM functionality we're building as well, we've got our hands pretty full just making sure all of that stuff really integrates well and has a very nice, easy user interface on the top of it. So that's really what we're focused on.

Not to say that we don't run across things from time to time or we certainly like to see things -- if folks have got things they want to bring into us to look at, we're always open to that. But I just can't see it happening right now. We've really got our hands full with just the integration piece.

And we've got some -- we've got great products. We just need to bring them together and integrate them a little bit more. And I think we can do very, very well in this new security management merge space that also has to support these mobile devices. And we're very close to getting where we want to get to. But let's -- it's going to take us a couple more quarters to get there. So that's what we're focused on.

Any other questions, Operator?

No, there are no further questions at this time. I turn the call back over to you for any closing remarks.

Great. Well, we just quickly want to thank everybody for the continued support of Absolute. And we look forward to reporting to you next -- at the end of Q4 and our year-end. So thank you everybody for your continuous support. Thank you, Operator.

You're welcome. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.