Absolute Software Corp (ABST) 2012 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Absolute Software Corporation fiscal 2012 second quarter conference call. At this time, all participants are in listen only mode. Following the presentation, we will conduct a question and answer session. Introductions 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 quarterly MD&A. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Wednesday, February 8, 2012 at 5 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. Earlier today, we released our fiscal 2012 second quarter results. You can find the press release, financial statements and MD&A at Absolute.com.

With me today is Errol Olsen, our Chief Financial Officer. I'll begin today's call with an overview of our performance for the quarter. Errol will review our operational and financial results, and then I'll outline our strategy for the remainder of 2012, after which we'll open up the call for your questions.

As we indicated at the start of this fiscal year we are continuing to execute on our goal to become a global leader in life cycle management and endpoint security market. This is a multi-billion market segment that we are redefining with a leading edge product portfolio and solution portfolio.

We believe we can merge as a leader in this large market by leveraging our sustainable competitive advantages and through focus, innovation and execution. Our recent performance in terms of product, sales and cash flow grow is a strong indication that we're on the right path.

At the close of last quarter's conference call, I indicated five areas that we're executing on. I'd now like to give you a progress update on each of them.

First, to deliver must have solutions to track, manage and secure our customers' computing environments across multiple device form factors. To that end, in the quarter we released Absolute Manage 6.0, which included innovations such as Absolute Safe, our industry first secured document control app for IOS devices. And it also added support for Android devices and subsequent to the quarter we added theft recovery support for Android devices.

We are also addressing the very large pain point many customers are experiencing today with the bring your own device phenomenon taking hold. We'll talk a bit more about that in a few minutes.

Exciting developments, such as these are not the only solidifying -- are not only solidifying our reputation as a leader with market leading innovative solutions, but have resulted in Absolute being placed as a visionary in Gartner's Magic Quadrant for client management tools. The old Life Cycle Management Quadrant.

Gartner has highlighted the value of combining our unique concentrated solutions with client management tools and our ability to manage Macs better than our competitors and to seamlessly support IOS and Android devices along with the traditional desktop and notebook devices, all with one solution.

With Mac growing 44% in the enterprise and IOS and Android devices growing even faster, we see this capability as creating opportunities for us to accelerate our sales growth. We think these are extremely important developments that will help us to continue to win market share from incumbents and the client management tools and MDM market spaces.

Two, advancing our internal sales and go to market strategies. We've continued to focus on sales execution by our current partners and we are expanding our go to market partner ecosystem as well. This focus enabled us to broaden our sales on non-theft recovery products and to expand our international sales opportunity as well.

We have also been working with the traditional OEM partners to capitalize on the Ultrabook device category. With Ultrabooks poised to reignite PC notebook growth, we believe this creates an important driver for growth in our core competence products. We will continue to expand our efforts on this front and expect that we will be very successful in this new category.

Our partner focus has also enabled us to deepen our engagement with our OEMs, which in turn is creating opportunities to work with them on projects like self-encrypting drives as they become more prevalent. We believe this to be an essential component to bringing our Absolute Secure Drive product to market.

Three, to broaden persistence. As you know, persistence is a key differentiator to us. It is what makes our products and solutions more reliable than any other solutions available on the market. It also enables us to do things that other vendors just simply cannot do unless they have the physical device in their hands.

In short, persistence is required to legitimately deliver anti-theft solutions and for organizations to reliably track, manage and secure their entire population of computing devices.

Through working with our OEM partners we have achieved firmware support on hundreds of millions of Wintel computing platforms. And now I've extended this support to Wintel tablet computers and to our first Android tablet device through Lenovo. We will continue to build upon and leverage this persistence capability as a key differentiator and competitive advantage for Absolute and our customers.

Four, enhance customer relationships. One of our strengths Gartner listed in the Gartner Magic Quadrant was that we received the highest marks of any vendor in the quadrant for customer support. We're extremely proud of this fact as we put customers at the center of everything we do. In fact, much of our innovation comes from listening to the pain points of our customers. It is this trusted vendor status that has also enabled us to begin seeing success in cross selling our products into our existing customer base.

We have proven the ability to find unique entry points into our customers with our theft management MDM and Mac management offerings and to expand this position to our entire solution portfolio.

In particular, we see this as an exciting strategy for our MDM solutions, mobile device management solutions, which address an obvious critical pain point for customers today. As a result, our mobile device management solutions are bringing new customers to Absolute at a more rapid rate than our other offerings. While these may be smaller wins to begin with, they have a high potential lifetime value, as these customers are very likely to adopt our other offerings.

We now have over 34,000 commercial customer accounts at Absolute and we have a solid referenceable customer base that are all using solutions of various types from us. This provides us with a fantastic organic growth opportunity. We will continue to focus on providing high-level service to our customers so we can build upon our trusted vendor status and continue our growth trend.

Number five, to grow internationally. Our efforts to expand our international presence have been ongoing focus for a number of years. It would seem we are finally starting to see the results. Our international sales are up 79% year-to-date and are up 98% in our second quarter. It is clear to us that the opportunity for our products is global, but that to unlock that potential we need the right foundation in place. In the last year, we've made significant progress on that front adding partners and resources needed to build a sustainable and significant international presence to augment our North American business.

In addition, we have now recovered devices in 89 countries worldwide, so we have proven our ability to expand our theft management model and solutions as well. We are proud of the results we've posted over the last six quarters as a result of the innovation execution from our team. We will continue to focus on driving solid financial results as we target the leadership position in this large global market.

With that, I'll turn it over to Errol.

Thanks, John, and good afternoon, everyone. Q2 was another solid quarter for Absolute. We delivered $20.7 million in sales contracts, representing 17% growth year-over-year. At the same time, we continued to closely manage our cost structure, resulting in an 87% increase in cash from operations.

Year-to-date, sales contracts were up 19% and cash from operations was up 73%. Commercial sales for the quarter were $18.7 million, up 22% from Q2 of last year and year-to-date were $41.6 million, up 30%. This growth was the result of double-digit increases in all of our target markets and excellent growth in all of our geographic regions.

As in prior quarters, 80% to 85% of our commercial sales have been from existing customers due to both our recurring term license sales, as well as from expansions and sales of new products to existing customers.

Commercial sales contracts for our theft recovery products were down slightly in the quarter at $11.9 million compared to $12.9 million for Q2 of last year. The year-over-year decline was a function of a particularly strong Q2 last year. We had recorded two sizeable wins in the education market last year, which is atypical for Q2 as it is not a seasonally strong quarter for the education market.

Year-to-date, commercial sales contracts for our theft recovery products were up 6% at $29 million. We're confident that demand remains robust for our theft recovery products. They continue to be relevant in the market and we expect our year-to-date growth trend to continue.

In terms of our non-theft recovery products, we had a very strong quarter. Commercial sales were $6.8 million, a record quarter and a 180% increase over Q2 of last year. Commercial sales were up across all of our non-theft recovery products and at 36% of total commercial sales contracts, our non-theft recovery products are becoming a larger proportion of total sales, highlighting our success in diversifying our revenue. Non-theft recovery commercial sales were $12.6 million for the first half of fiscal 2012, up 162% compared to last year.

On the consumer front, Q2 sales contracts were $2.1 million, which was down 16% from $2.5 million in the prior year. This was principally due to the termination of our low-margin OEM hard bundled programs.

Internationally, we're continuing to gain momentum and as a result, international sales are becoming a more significant component of the Absolute growth story. International sales contracts were $4.4 million, up 98% year-over-year. Both EMEA and our APAC LATAM regions contributed to the strong growth. Year-to-date, international sales were $6.6 million, up 79%.

Now, looking now at our operating expenditures for the quarter, adjusted operating expenses, which include cost of sales and operating expenses, but exclude non-cash charges for amortization of acquired intangibles and stock-based compensation, were $15.5 million, a 3% decrease compared to Q2 of last year and flat from Q1 of this year. Year-to-date adjusted operating expenses were $31 million compared to $32.6 million last year.

Year-over-year, our Q2 IFRS revenue increased 9% to $18.4 million and year-to-date revenue was $36.6 million, up 11% from last year. The increased revenue reflects our growth trend in sales contracts from prior quarters, which are accumulated in deferred revenue and drawn over the average contract term of 27 months.

In combination with our reduction in adjusted operating expenses, our increased IFRS revenue drove a $2 million improvement in adjusted operating income. For the quarter, our adjusted operating income was $2.9 million compared to $0.8 million in Q2 of last year. And for the year-to-date period, adjusted operating income was $5.6 million compared to $0.5 million last year. We define adjusted operating income as IFRS revenue, less adjusted OpEx.

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. Reflecting our improved operational performance for Q2 fiscal 2012, we generated $6 million in cash from operations, which was up substantially from $3.2 million for Q2 of last year. And for the year-to-date period, we generated $11.5 million in cash from operating activities, up from $6.7 million for the same period last year.

Looking now to the remainder of fiscal 2012, we expect to continue to grow our sales contracts and cash from operating activities above fiscal 2011 levels. We're seeing continued demand for our theft recovery products, sales activity is increasing for our non-theft recovery products, and we are gaining traction in international markets.

On the cost side, we plan to maintain a tight control on expenses while making targeted operational investments to support our continued growth. We are executing on plans and are confident in the positive returns we will see as a result in the coming quarters.

Now I'll turn the call back over to John.

Thanks, Errol. Over the past few years we've taken the necessary strategic steps to position Absolute as a strong competitor in the multi-billion dollar secure life cycle management market, which is translated into solid year-over-year growth to date in fiscal 2012. We are successfully leveraging our competitive positioning and executing on our business plan and we expect these efforts to fuel growth going forward.

We're focused on driving further improvements in our top line and cash from operating activities by executing on the following strategies. Delivering must have solutions that are redefining the secure life cycle management market. Advancing our sales execution and go to market strategies with our key partners, broadening our firmware peristent support to more computer product lines and more mobile phone factors.

Enhancing our existing customer relationships, cross-selling Absolute Manage into our customer base and growing our international footprint. Through these efforts, as evidenced by our results for the quarter and in addition to Gartner's Magic Quadrant, we're well on our way to becoming the recognized leader in the secure life cycle management.

I'd just like to say we have a fabulous portfolio of solutions right now that really do hit the spot for IT managers that are trying to manage Macs, PCs, Android, Apple, all those devices. This whole bring your own device movement is such a huge pain point for IT and we're able to really help them address it very, very well. We'll talk a bit more about that in some of the questions.

So this concludes our prepared remarks for today. Operator, please open up the call for questions.

(Operator instructions) Thanos Moschopoulos, BMO Capital Markets.

Obviously seeing some very strong strength in your Absolute Manage business. Can you provide a bit more color around what verticals and what types of customers are driving that? At this point, is most of that going to the existing base or is a lot of that strength being driven by brand new customers to Absolute?

Well, it's both, Thanos. I mean I think the Absolute Manage customer base is an enormous customer base. Obviously life cycle management is a mature market. There's billions of dollars worth of products and solutions in that marketplace already.

I would say there's a large portion of those are legacy vendors. I'm sure you know who they are. They're not the easiest products to use; they typically require a lot of people to make them work. We're coming along with an extremely nimble solution, that not only does what they do just as well, if not better, it's certainly easier to use, but it also does it not just for PCs but does it for all the Macs that are coming into the enterprise now as well and into the education market of course. And you can use the same platform to also manage all your IOS devices and you can use the same platform to manage all your Android devices. And you can even secure documents down to these mobile devices to answer the bring your own device movement challenge.

So, I am extremely excited and our entire team is extremely excited with the portfolio solutions we have today to address an extremely large market. And I think we're going to see some significant gain in Absolute Manage market share over the next couple of years.

Thanos, I can just add a little bit of color to John's comments. What we saw is for the first sort of year and a half after the acquisition the majority of our Abs Manage sales, not all, but certainly a greater proportion were going to our install base.

And what we're finding now that is that now that our sales team is getting more confident with the product, that they're stepping outside and we're sort of at a bit of a transition period now where probably half of our sales are to existing customers, half are to new customers. And I think we'll start seeing the pendulum swing further as we get more and more confidence with each sale as the sales force is more confident and willing to step a little bit further out of their comfort zone.

And as we look at the revenue coming from non-theft recovery, how should we think about the split coming from a licensed versus a subscription basis at this point?

Well, the majority of our life cycle management sales are actually being sold on a term license basis.

So more than 50% with a little bit of license component in there.

Yes, that's right. A little bit of license component. Probably 75% terms, 25% traditional perpetual license.

And then from a macro perspective, obviously hearing Microsoft and Intel talking about weakness in PC shipments persisting into this calendar quarter as a result of the hard drive shortage, to what extent are you seeing any impact from overall PC shipments on your business? I mean it looks like you had a good quarter regardless of that, but heading into the next few months, any sort of macro factors when you do to think about on that front?

We're not seeing any impact to us at all.

So then from a seasonality perspective, I think historically you're Q3 tends to be sort of consistent to down slightly from your Q2. Is that reasonable to expect this time around?

I think Q3 -- the seasonality can -- would continue as it has for over the years. Expect similar seasonality, but we're not seeing any -- we're not being impacted by any shortage of hard drives.

Tom Liston, Versant Partners.

Just to expand on the first question of Thanos. With your new 50% issue is new customers -- brand new to Absolute, can you talk more about the go to market strategy? Obviously with your existing base they know you, very familiar with you, et cetera. But certainly it's a pretty crowded landscape out there and obviously you can offer some unique aspects. Certainly the Gartner report will obviously drive some of this. But just talk to lead generation and how you make sure you're in that game.

Yes, it's interesting. It is and isn't a crowded space in a sense. So of course, on the mobile device management front it is super crowded. There's -- you've got your MobileIrons out there, you've got Good Technology, you've got AirWatch, you've got ZenPrise. I mean it is crowded. For smartphone management it's crowded space. However, we can go into a customer and we can talk about how to manage all of their devices. So our new slogan is many devices, one solution. Track, manage and secure with Absolute Software.

So what we can do, we can go into a school district or a corporate customer or healthcare customer and we can help them with the multiple issues that they're experiencing. So not only can we take care of their MDM management and security issues for them, and manage these new devices that are coming into the organization that employees are bringing in, manage those, make sure that those devices are locked down and aren't pulling any corporate information out when they're leaving.

So we can take care of those issues for customers, but we can also address the issues that they're having with Macs coming into the enterprise. And we can address the issues with PCs and some of the legacy issues that they're dealing with with some legacy solutions that they don't like or are hard to manage.

So Tom, even though there's lots of people in the space, there's really nobody in the privileged position that we're in to be able to talk to come and grow with Absolute. Buy us today with your MDM. Buy us for your MDM, but use us for the new Macs that are coming into the environment. Use us for auditing your Microsoft SCCM solution. Use us nimbly to get a certain patch done quickly for your PC population that you typically may use an Alteris or LANDesk solution, but use us because we're so much easier to use.

So I think we're using this MDM strategy as the tip of the spear. Get in the account, help them immediately with tracking their IOS devices and their Android devices. But as soon as we're there, obviously we're evangelizing and helping getting their -- the Mac guys onboard to help manage the Macs, the PC guys onboard to help manage the PCs. So we have a fabulous solution and I just want to make sure I hammer that enough so everybody knows on this call that we really have a fantastic solution and it's extremely timely. And we're getting great feedback from customers on this solution.

And just to take it step further, I think once you get in there I understand and I would bet the win rate's quite, given those dynamics. I was mainly leaning towards how do you improve the chances to bid and make sure you're in the right place at the right time? Because I do believe once you get there you will have a good message and a differentiated message.

So more about just a general -- is it mainly a traditional type lead activity that you're doing? Is there any little secrets that you're able to attack the right customer at the right time? Because like I said, once you're in there I do believe you've got a good chance of winning that deal. So in other words, how do you increase the bid ratio so the win ratio increases?

Well, a lot of it's around awareness, right? So obviously we've been working with Gartner for a couple of years and the marketing organization working together with a development organization. We got on the Gartner in a visionary part of the Gartner Magic Quadrant, so obviously that a huge shot in the arm and a huge awareness creator.

Also, our existing relationships with HP, Dell, Denovo and others are very helpful in terms of introducing to customers. All those organizations need help with how do we help -- they're hearing it from -- everyone's hearing it from their customers. Help me with this pain point around this bring your own device movement. So that's very relevant. Our traditional channels are very relevant.

We're obviously working with some new channels as well. We're bringing on some specialty resellers. Those things all help. We've enhanced our training significantly for partners, we've beefed up our sales engineering team to really be able to head-to-head against Alteris and LANDesk and others.

So it's a whole bunch of things. We've got a bid desk now, so we're bidding on big contracts around the life cycle management solutions. Obviously we're doing lots of search engine optimization and we're doing some banner ads. And we're just working it hard. We've got a very competent sales organization combination inside/outside sales. It's been fully trained. And we're just -- old-fashioned hard work is what's happening at Absolute. And I think there's a bit of inspiration happening here. People are really inspired. We're excited, we feel like we're at the head of -- the beginning of a very, very dynamic change in the marketplace that just is a wonderful thing for Absolute and the solutions that we have today.

So that's kind of where we're at with it.

Pardeep Sangha, PI Financial.

I was wondering if you could talk a little bit about the pipeline -- current pipeline. Is it similar size to last quarter and sort of what sort of percent of that might be non-theft, anti-theft recovery sort of segment?

Well, the pipeline overall continues to grow. It's growing in all geographies in all segments. I'd say some of the areas that are growing more rapidly than others certainly would be in the non-theft recovery category. As managed, the pipe is growing at an accelerated rate. And the international pipe is growing at a rate faster than it is in North America.

But really at this stage that's really all of the detail on the pipe that we want to give at this point, Pardeep.

And in the past you talked about Absolute Manage having a longer sales cycle. Are you still seeing that sort of dynamic? But are you seeing the Absolute Manage sort of coming through the sales cycle and sales coming to fruition? I mean are you seeing that going through the cycle?

We are. And we've brought a lot of customers onboard with Absolute Manage. And a lot of them are using it right out of the gate to -- for mobile device management. So again, back to our strategy here is to make sure that customers -- we get -- even if it's a 500 unit order or a 1,000 unit order or if it's 100 unit order, get customers selecting us to help them manage the iPads, the iPhones and Android devices that are coming in, whether it's a Company paid for device or if it's actually an employee paid for device.

We manage those devices for the organization, they start getting used to the toolset, they start seeing how easy it is update these devices, to patch them and things like that. And now we start working with them closely. Our sales engineers, who are very good. We've really increased the caliber of our sales engineering team over the last 18 months. And a lot of them are from ex-customers that loved the product so much and found so much value they came onboard with Absolute.

And they're going back in, they're sharing their experiences, how they used it inside their organization with these -- with our IT customer set who loves that. They love the fact that they -- that our people understand the challenges that they go through, the very specific challenges that they're dealing with and that our folks can solve those for them.

So I really think we've got the tiger by the tail here. And it's just a matter of time until we -- not only do we gain a lot of these MDM accounts, but we work backward and we -- inside the organization to take over all of their Mac business and all of their PC business. And that's where the big dollars are.

Is there a particular sweet spot, if I can sort of use that term, in terms of number of devices that the end customers are -- need to manage? Is it like 100 to 1,000 devices or is it 1,000 to 10,000? Or is it 10,000 to 50,000? I mean you look at some of your competitors, they have the ability to manage very large deployments and have very large contracts and very large enterprises. Are you guys seeing yourselves kind of getting into small and mid-size organizations? Maybe you can kind of help me understand sort of where's the sweet spot in terms of the number of devices that you're seeing, that you're trying to get your customers.

I mean we're getting into organizations with tens of thousands, in some cases over 100,000 computing devices, right? So, it's just the driver, the initial need is can you help with those 1,000 iPads they've got sitting in the warehouse that I'm too afraid to deploy because I know they're going to -- I can't track them, they're all going to disappear on me. And who knows what kind of information is being saved to those devices? And I have no idea where that information is going to go once it gets on that device.

So let's install Absolute Manage, let's get you set up so you can manage and track those devices, secure the data. You can actually distribute securely documents and media, whatever it happens to be, down to those devices. Be able to set it so that there's actually a personality on that device. So you can put a time based personality configuration on that device so that if the employee comes to work at 9.00, all they see is their work stuff. When they leave the organization at 5.00, the app would basically -- is temporarily suspended and they have access to no more of those documents unless they instruct themselves to do so. And IT can feel safe that that information is safe and it's not falling in the wrong hands or what have you.

So we've got some -- I mean our Absolute management team is fantastic. It's an absolutely fantastic team. I put them -- I think they're the best in the world right now in figuring out the feature sets that people need to manage these mobile devices. And we will have a leading product in this category for many years to come.

In the Gartner report it referenced one of the sort of weaknesses was the lack of an IT service desk offering. Is that something that's on your roadmap when (multiple speakers)?

Yes, they're getting at there is a help desk, right? So we have a partner with help desk, we have Web Help Desk as a partner. I mean that's -- it's a legacy type solution obviously. I mean it's still important, but it's not exactly as exciting as mobile device management and some of the other things that we're doing. So there's plenty of vendors to buy from there. We have a very good partner with Web Help Desk and they do a great job by the way.

And I'd certainly recommend that product to anybody that was looking for a help desk module. But we don't see really the necessity of building a Web Help Desk module at this point in time.

And last question. Anything with regards to your acquisition strategy? You've got plenty of cash, anything that you're thinking about on the horizon on that?

Pardeep, we like to buy inexpensive, if possible, highly -- high quality technology and products, our solution teams that would be sort of 20 people and less that we can integrate into the culture at Absolute and pull that in. Just very similar type of approach that we did with Absolute Manage. It's worked out absolutely fabulously for us and for the Absolute management folks that are all part of the Absolute family now. So those are the kinds of things that we're looking for. It's really, really good technology that brings another leg to our story that we can purchase for $20 million or less.

Scott Penner, TD Securities.

Just first of all, Errol, on the cost side, I guess I was anticipating with the October 1st compensation that you talked about last quarter or some additional sales hires, which it looked like you made, I was anticipating a tick upwards. So maybe you can just talk about what the gives and takes on the cost for the quarter.

Certainly we did have our annual salary increase across-the-board, which was effective October 1st that I mentioned on the last call. That was really offset though by the weakening of the Canadian dollar. With about half of our OpEx in Canadian dollars, we saw weakening of around 3% to 4%. That really offset the impact of the salary changes.

And we've got -- we do have a number of open headcount in the organization. We haven't filled these open headcount as quickly as we would have liked and the reason for that really is that we're looking for some very specialized skills. These are in areas like research and development, as an example, where there's some very specialized skill sets that we're looking for. And unfortunately they're a little bit hard to come by and we're going to hold out until we've got the right people in play.

And I believe you sort of talked about it in the last couple of quarters and at most high single-digit increase in costs year-over-year. Through the first half you were actually down 5%. I know you talked a bit about currency, but -- I mean what should we look for for the year as a whole at this point?

I would say in the backend of the year we will see some cost increases. We've got that open headcount that I talked about. And that's close to -- if you counted the number of open heads in the organization, it's almost an increase of 10% on a body basis, not necessarily on a cost basis. But the second half of the year also tends to be characterized by more marketing activities. There are more trade shows that occur in the second half of the year. We've also -- we have our annual training that we do as a Company for our sales force and for our recovery team as well. So the year will be a little bit more backend loaded.

Now just stepping back a moment, John, you mentioned the tiger by the tail comment. How do you guys internally judge whether you're actually spending at this point enough money to capture the kind of opportunity that would now seem to be out there?

Well, that's a great question. There is a really fantastic opportunity that lies ahead. I think we've got a very well functioning team today. We've got approximately 350 employees. The caliber of those employees has improved substantially in the last two years. We've fully hired the sales engineering team, which is very, very high caliber.

I think we've got a great team. We're certainly adding some -- we'll be adding Absolute Manage resources. We're adding a number of resources at different levels of the organization. We've got the funding to do that, as Errol said. We've got quite a few open spots, probably 30 open spots right now that we haven't filled. So we're being very particular about who we're hiring. We're only hiring A players, obviously. So it's an extremely stable organization, already very good people here. So we'll very selectively hire and grow there.

I don't think -- I think it's the old thing of you can't use nine women to all make a baby in one month to add up to nine months. So I think we've got the people we've got. Didn't explain that very well, but we've got the people we've got and they're good people and we're just improving it steadily. And I don't think we need to go in through anything crazy, but we're certainly continue to support our customers in a world-class way.

And our Absolute Manage team, the speed of innovation that that team is kicking out, I don't think there's another team on the planet, and I'm not joking, that kicks out functionality and features faster than those guys do.

So, we're supporting that. We're going to add some more pieces to that. But that is -- it's a phenomenal team. And I think we're going to get everything we need to customers to capture this full mobile device opportunity and all the cool stuff we can do around the document, secure document distribution and extending that platform out and having that platform available for other devices and multiple devices, et cetera.

I think we can do a lot of that inside our current budgets. Errol, of course, is -- he's cracking the whip over here on expenses. So we're mindful of that. Will we be pushed for more people if we need them? Sure we will.

What level of integration is there right now under the single pane of glass that you've talked about before? Is it now -- I don't think it's one solution yet, but how integrated is the Computrace with the Manage side of things?

Well, it's fairly integrated. I mean Absolute Manage customers can enjoy the Computrace persistence benefits in Absolute Manage, so that's a big step in the right direction. And we have a fast track project here going on at Absolute to bring the two consoles together that we'll see here over the next couple of quarters. So you'll be able to go into your customer center, your web console and basically see all your Absolute Manage information. And also trigger Absolute management functionality down to the Absolute Manage server and have that functionality go ahead and execute and bring a result.

So I think we're moving very quickly towards that single pane of glass vision. And we've got some new development talent that we're bringing onboard to accelerate that. We're going to be running some things in parallel. So you're going to see a fair bit of development here at Absolute. It's pretty intense development work over the next 12 months. And I think at the other end comes the utopia of literally having that single pane of glass as a hosted solution. Single pane of glass as an enterprise solution. And across all devices out there, bringing it all together.

So that's certainly the vision, certainly the direction we're heading in. We're going to get there as soon as we possibly can without killing too many people over here. So but that's what we're driving to and we're very serious about getting there quickly.

And last one for me, John. On the international side, just trying to gauge the level of whether all your products are available internationally across the regions? What really, I guess, for the lack of a better term, is the level of the maturity in the international organization?

Well, if you look at EMEA, and we have 30 people over there in our Redding office, approximately. We've got a very nice little team there. The person, Mike Cholod, that did a great job of managing the inside sales team in Vancouver and previously worked for a number of other security companies here in Vancouver, has headed over to really run that office. And he's a real doer, he gets things done. He's a guy that everybody respects and loves. He's going to do a fantastic job for us over there. So there's a plug for Mike.

But no, we've got the resources over there. Obviously Martin and his organization is based in Germany, so you can imagine the European support that we give our European customers is phenomenal. We've got a great support organization there as well that we're building out in Redding, adding some more sales engineers. So yes, it's -- Europe -- EMEA is on par with North America I'd say from those perspectives.

In terms of ROW, that's probably a little thinner. The ROW team has actually done a fantastic job on the sales front. And we'll be adding to that team as required to support the customers and to continue to live up to the best vendor in the quadrant for support according to Gartner around the client management tools piece.

So, yes, we'll continue to invest in those regions as they continue to deliver dollars to the Company.

Sera Kim, GMP Securities.

Just wanted to touch on the international market a little bit more. Just based on what you've seen in the field so far, are there any particular segments or vertical markets that you think will have a faster take up than -- I mean as I guess when we compare to what we see in North America?

Well, we've certainly -- in ROW it's really all about education. So we've had a lot of Computrace business there securing notebook computers and netbook computers actually in the rest of world, which includes South America, Australia and Asia.

We're also seeing some Absolute Manage business start to take hold in Japan, which is great. We're exploring the opportunities in China, which are quite exciting for us. And so we're certainly spending more time on that and are willing to invest in China to make that happen alongside our OEM partners. So we would go in with our partners that are relevant there in China. And the great opportunity in India for us as well actually. Again, investing alongside our partners, so we certainly don't want to -- we need to leverage our current distribution model.

So there's lots of opportunities. It's a big world, there's lots of opportunity out there and we're leaving no stone unturned.

How much of your pipeline is related to international opportunities?

It's roughly 20% of the pipeline.

So 20% of the pipeline for international and is it still about 30% for Manage?

Roughly, yes.

And just in terms of I guess if we look at -- you mentioned going into some of these countries with partners. Are these PC OEM partners or are these other channel distribution -- channel partners that you guys have been -- I think in the past you have talked about a couple of new partners that you're in discussions with. I'm just wondering if anything has advanced on that front.

Well, certainly in EMEA it's very much reseller partner related, as you know. So we have a number of reseller partners there. We are deliberately adding reseller partners in EMEA. We have Abigail Maines, who runs our channel business, is driving a program there to add more channel players, not only in EMEA, but also rest of world. So we are certainly adding those players, put them in place to help us sell Absolute Manage.

But we don't -- our OEM partners have been extremely loyal to us and have been incredibly important piece of our business. So we're also working very closely with them to distribute not only the Computrace solutions that fit so perfectly with OEMs, but also the Absolute Manage solutions as well. So there's no reason why our OEM partners can't be a very, very significant piece of our Absolute Manage business.

And also, just for clarification, is your Secure Doc, is that part of your existing product offering? So a customer buys a subscription, they get that automatically? Or is that an add-on that customers have to purchase to get access to that feature?

Oh, we're really good at giving stuff that's for free. So, that's a little joke there. But no, it's part of our solution. Again, we're really trying to over service customers. We're really trying to give them a tremendous amount of value to compete against good and others and get into the account. Give the value, get into the account, really get customers appreciative and excited about what Absolute can do for them.

And then have those longer discussions around hey, what are you doing for your Macs? You've got 3,000 Macs, how do we help you there? How do we help you with those 50,000 PCs that have been challenging for you? And there's a lot of legacy vendor dissatisfaction in the marketplace, as we talked about, and we think we can capitalize on that.

So, it's okay to give the milk away for free as long as can make some money on some of the other items. And that's the strategy.

And just, I guess last housekeeping question. Were there any 10% customers in the quarter?

Were there any 10% customers? No.

I don't think so.

So there were no big deals that made up the sales contract number in the quarter?

Well, certainly there was the Queensland deal that we did press release during the quarter. But it did not pass over that threshold.

Paul Steep, ScotiaBank.

John, maybe talk about the split of non-theft. Where we're at in terms of a tipping point. Like obviously on the quarter it's still small, but if we look year-to-date it's starting to make up a bigger proportion. When do you think we get to sort of the tipping point where that becomes the main, sort of the lead product for the organization?

Well, I think that's a little bit of a ways away. In terms of actual dollar revenue are you talking about or in terms of what we're pushing?

I think for focus first maybe. (Multiple speakers)

For focus?

Yes.

For focus, I think we're there now for focus. And the reason why is because it's just so compelling for customers to have one platform to manage all these devices on. I mean it's truly compelling. I was in Los Angeles on Monday visiting customers and I can tell you they just get it. I mean they just get and not only do they get it, they're super excited about it and they really want to move forward in a logical and progressive way to get a deal done, which is fantastic.

So I think it's conceptually or philosophically. The new slogan for the Company is many devices, one solution. So track, manage and secure. So we're there conceptually with moving the organization into that idea that we're going to help track, manage and secure all of their devices. And whether they're company owned or employee owned, we're going to be there for the company documentation to secure it and to manage all those devices.

So, we're there, we can deliver on that promise today. We'll continue to innovate and continue to build on that promise for tomorrow. And but at the same time, we're very thankful and appreciative of a fantastic core business we have with the Computrace side of the house, which is a fantastic technology, a great compliance and governance tool for organizations, a great investigative tool for organizations.

We're getting so much more lift in terms of awareness on the Computrace side of our business as well with law enforcement. We have a new gentlemen running our theft recovery organization, who's done an absolutely fantastic job for us, Ward Clapham. Anyway, Ward is doing just a fantastic job for us and he's really elevating the kind of awareness we're generating in law enforcement, so we're seeing a lot more leads coming back in through law enforcement. They're running into customers with theft problems in their organizations. And we're really becoming much more of a strategic solution for organizations that really want to secure and really want to find out where their vulnerabilities are in terms of loss and theft.

So that's a really important piece of our business, which will continue to grow. So when you combine both of them, we're on extremely solid footing here going forward. And we're just -- we're thrilled to be here. I think we've reinvented the Company over the last couple of years. It -- certainly we went through some hard yards, but we've got a phenomenal solution portfolio and we're here to conquer. We're here to conquer some ground. So I'm putting everybody on notice right now. We're coming. We're coming after Alteris, we're coming after LANDesk, we're coming after them all. And we're going to win.

The second one, just real fast one for Errol. The bundle, the run off on the PCO OEM side. Pretty much done and we've got like one more quarter. The percentage continues to sort of bleed off, so I assume Q3 is going to be the end of that pretty much.

Yes, Paul, you're right. The Q3 will be the end of -- where we've got these difficult year-over-year comparisons. So we will -- just to clarify for everybody actually, in the consumer business, bundle will be -- will remain an important part of the business. It's the way that we do bundles that has changed. Most of the bundles that we do today and that we'll do going forward are soft bundles, which means that we get paid when the customer actually signs up and pays the OEM. We like those types of bundles, they're far more profitable and they deliver a much higher renewal rate than the previous version of bundle, which was a hard bundle and there was no customer opt-in involved. And consequently renewal rates were quite low coming off of that.

Those old bundles, we really finished those in about Q3 of last year. And if you go back and look you'll see that the bundles were pretty high in Q3 as we got the tail end of that.

So it's next quarter where you'll see a difficult year-over-year comparison. Then going forward it's really run rate.

Blair Abernethy, Stifel Nicolaus.

Just a couple of things. Errol, for you first. I may have missed it at the beginning of the call, but can you give us a sense of what the FX impact was on your revenues year-over-year?

Well, the FX -- the impact on revenues is actually pretty low because a majority of -- now that we've converted to US dollars, the FX impact on revenue is very low because the majority of our sales are actually priced in US dollars.

Where we see the FX is really on the operating costs and COGS side of the business, where approximately half of that is denominated in Canadian dollars.

And on your Computrace theft year-over-year growth numbers in Q2. Can you give me those again?

The year-over-year theft recovery growth?

Yes.

So, theft recovery was down 7% in Q2. It's up 6% on a year-to-date basis.

Sorry, I've got a bad line here. Can you say again? In Q2 it was --?

So, theft recovery was down 7% year-over-year in Q2.

Right.

And on a year-to-date basis it was up 6%.

And then looking at sales capacity, how are you guys feeling about your -- I know, John, you're happy with how the organization is operating right now, but at this kind of contract growth rate, how much sales capacity do you have and what are you doing on that front?

Well, we're continuing to analyze and try and project out on our sales forecasts and then the underlying capacity that's required to support that. In North America really what we're looking at is ways to grow North America through splitting, whether it's splitting territories or maybe carving out verticals and adding specialized teams for certain verticals. And then internationally we see opportunities to expand there by both signing resellers as well as adding some headcount on an international basis.

But suffice it say we think that we can continue to grow at our current rates by increasing our cost base, and like I mentioned previously, on a single-digit basis.

And then on the deals you're doing on the Manage side of the business, the term or lease license deals, what's the average time period looking like? Is it a year, two, three years? And is it kind of -- how is it trending?

So the -- on term licenses for Abs Manage, typically they're two to three-year licenses.

So, average year, two and a half, is that a rough --?

Yes, that's probably a good average to use.

Good average? Okay.

Yes.

And then, John, just on the product front, what's next or what do you want to -- what can you reveal about what's coming next on the product front this year?

Well, there's a number of things coming. I mean Martin is really amazing because he always surprises us with something that we didn't even know he was going to do. And he does it sort of.

So anyway, but we're working on a bunch of new functionality in the client management tools area. I'm not going to give any specifics. And we're also working on some additional reporting functionality for our Computrace line of business. We're adding some features there too. And obviously Secure Drive, which we haven't even spoken about is a big initiative for us, so we're continuing to support Secure Drive and continue to drive that forward and hoping to be a really strong go to market partner with Secure Drive with a number of OEMs.

And then we're also coming out with a Windows 8 phone solution to support Windows 8. And of course, supporting Windows 8 as well from a Wintel platform. So there's lots on the docket. There's no shortages of work to do and innovation to keep driving forward.

Gabriel Leung, Paradigm Capital.

I've just got a couple of housekeeping questions. First, looking at the non-theft bookings, are you guys comfortable disclosing how much of that 7 million bookings was life cycle associated or Absolute Manage associated?

No, Gabe, we're not breaking that out at this time.

And then on the cash flow, I think historically there's been a seasonal pattern to your operating cash flow. It's been -- there's been, I guess, less of a pattern over the last few quarters. But can you talk about how we should think about the operating cash flow figure as we go through the remainder of the fiscal year?

Sure. I would expect now that we've got a fairly stable operating structure, we're not making any sort of double-digit changes anywhere. It should be a little bit more predictable and it will really lag our seasonality in sales where with Q4 and Q1 being our seasonally strongest sales quarters, what I would expect is that Q1 and Q2 are really our strongest cash generation quarters. So for the remainder of the year, my expectation would be all things equivalent that cash flow would be a little bit lower than it would be in the first two quarters of the year.

And maybe a last question for you, John. What do you see the systems integrators, I guess, fitting into your MDM growth strategy going forward?

Well, obviously systems integrators can play a great role if they're focused in area they can do a lot for us there. So, there's lots of them. We have a lot of opportunity today just working with the partners that we have today and getting that beachhead, if you will, of customers that love us, right? So that's what we're working on. We're getting that and we've got it on the life cycle management side for Macs and PCs. We've got that's 50, 60, 70 customers that will talk about how much they love the product because it's a -- products and solution, because it's a fantastic solution. It really hits the mark. And it's easy to use, it's easy to deploy, which are key, key pieces of it.

And so now we want to go get those -- that number of customers, plus a whole bunch more on the mobile device management side that also will go to the ends of the earth for Absolute and will join customer advisory boards and do all those kinds of things to help us continue to innovate, be the world leader for mobile device management. So that's what we're working on.

And also the whole area of securing content on the device, which we think we have a great head start on and can continue to embellish that line too. So not only are we securing devices, but really for the first time in 17 years of building this Company, we're also securing content as well.

And there's so many opportunities with securing content, which are very exciting, that we could probably start leveraging the technology in a whole bunch of different areas.

So, we're really excited and that's just not me. That's the entire team. I can tell you the entire organization can feel it, we can feel the opportunity. You can see it in customer's eyes when you go and talk to them about all the issues they're dealing with and these new devices are just opening up a whole other can of issues.

So the fact, again, the fact that we can address PCs, Macs, IOS devices, and Android devices all from one platform is just a winning combination. So, that's -- we're in a very fortunate position and we'll just keep driving forward.

There are no further questions in queue. Mr. Livingston, I return the call to you.

Well, thank you, Operator. And thanks, everyone, for joining us on today's call. We look forward to updating you on our continued progress when we release our third quarter results.

Thank you.

This concludes our conference call. You may now disconnect.