Absolute Software Corp (ABST) 2013 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Absolute Software Corporation's fiscal 2013 first quarter conference call. At this time, all participants are in 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 risk 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, Monday, November 5, 2012, at 5 PM Eastern time. I would now like to turn the conference over to Mr. John Livingston, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me today is Errol Olsen, our Chief Financial Officer; and Rob Chase, our Chief Operating Officer. On the call today, we will discuss our Q1 fiscal 2013 results and our acquisition of LiveTime, both of which we announced earlier this afternoon. I'm on the road today in Europe visiting with customers, so Rob and Errol will take you through the prepared remarks. All three of us will then take your questions. With that, I will pass the call to Rob. Rob?

Thanks, John, and good afternoon, everyone. Before I go into details on the quarter, I would like to discuss our acquisition of LiveTime. This is an exciting development for us that adds complementary capabilities to our suite of offerings and significantly expands our addressable market. LiveTime is a SaaS and on-premise provider of IT service support management solutions which are an essential element for IT to become proactive in an organization's business strategy and a key to ensure their organizations are efficient, effective and compliant. This fits perfectly into our product strategy, so now not only can we track, manage and secure, but we can also service any device on any platform.

This transaction makes sense in many ways, but a few key factors that will drive shareholder value include, one, our Absolute Manage customers are asking for service desk functionality, and Gartner has cited the service desk as a shortcoming of our Absolute managed product suite. This transaction quickly fills that gap. So in addition to opening up an entire new market for us, LiveTime should help further boost sales of Absolute Manage. With our sales team already fielding calls from customers for this capability, believe we are ready for this acquisition and that we can quickly ramp up service manager sales via our current customers, partners and team.

Two, we see a major growth opportunity in the ITSSM space through leveraging our combined technology strengths and our sales infrastructure to penetrate this incremental $4 billion market opportunity. There are a number of unique integration points between the products that leverage our persistence, multiple-serve device support and ease of use. We believe that we have built a winning product platform with which we can now emerge as a leader in what is now a combined $8 billion addressable market for Absolute.

And, three, we see a number of similarities between LiveTime and our acquisition of LANrev that gives us confidence that this acquisition will be a resounding success. At an acquisition cost of just under $15 million with a three-year earnout, it is a similar sized acquisition to LANrev; that is, it is at a size which we have experience in integrating. In addition, the product fits perfectly within our product vision, is bought by the same buyers that are customers and has a revenue run rate similar to what LANrev had.

Finally, like LANrev, the acquisition includes a team of key employees who have a similar culture to ours and who are extremely visionary in their space.

Looking ahead, we plan to quickly integrate LiveTime with our other solutions and with our sales, marketing, development and support teams over the next 6 to 12 months and expect the acquisition to be accretive to operating cash flow in fiscal 2014. We will rebrand LiveTime as Absolute Service and Absolute Help. Consistent with our other offerings, Absolute Service and Absolute Help will be differentiated based on ease of use, rapid deployment and will leverage persistence. This provides our customers with the functionality they require straight out of the box without the heavy lifting of professional services and development work that most solutions in the market currently require. This transaction is also consistent with our single pane of glass strategy. In fact, LiveTime has a strong dashboard technology that will accelerate some of the development work that is currently underway with our other products.

We believe LiveTime will prove to be a strong fit culturally with Absolute and expect the business will see an immediate benefit from being part of a larger, well-funded organization that has a strong sales infrastructure. We welcome the LiveTime team to Absolute and look forward to becoming a major player in the ITSSM market.

Now I would like to turn to our performance in the quarter. Our first quarter results were well below our internal expectations. While we had predicted a continuing head wind in the education vertical from iPad cannibalization and the one-to-one student programs, we were surprised by the velocity and magnitude of this shift in our first quarter. It is clear that the entire PC industry was also caught off guard. To compound matters, the federal election and Windows 8 launch also delayed purchasing decisions.

As you know, having predicted this general trend, we have implemented a number of market and product expansion strategies to compensate for this shift. However, while we are seeing good progress there, given that public verticals usually account for a large portion of our Q1 sales, the significant headwinds overshadowed the growth in our expansion areas. That said, we are pleased with the progress we're making in our key expansion areas and are optimistic that we will emerge from the current market trend with a healthy growth profile and a more diversified business with less reliance on the PC market.

Let me take you through our key expansion areas to give you a better understanding of why we remain resolute and excited about our future. Number one, market expansion into corporate and healthcare verticals -- we continue to see greenfield opportunities for our core Computrace solutions in these verticals. Computrace is a must-have layer of best practices for governance, risk management and regulatory compliance, or GRC. No other solution can do what we do with Computrace. Our customers enjoy a reduced risk profile, particularly through a reduction in internal fraud and an increase in their ability to comply with regulations for data security. We're pleased to report that both of these verticals produced a healthy level of growth in our first fiscal quarter despite the drop in overall PC shipments.

Two, international's market expansion -- we continue to invest in building out our international go-to-market capability. Organizations in these markets face the same issues that our US customers do. The need for all of our products is just as compelling. However, our penetration rates are a fraction of what they are in the US. This provides us with a long-term growth opportunity in spite of any softness in PC demand. Our first quarter results certainly supported this market opportunity, posting a 21% increase in sales over last year.

Three, product expansion for Absolute Manage -- our Absolute Manage product line, which includes both PC and mobile device management, is a key to our diversification strategy. We continue to win market share from the competition in this $3 billion market space by leveraging our Computrace persistence capability and our multiple device platform support. With this product, we are skating to where the puck is going. Simply put, security and management are merging, and the computer management and mobile device management spaces are also merging. We are at the forefront of this trend and expect our time to market advantage to win us a leadership share in this space.

We are happy to report that our first quarter results again showed significant growth, particularly in the mobile device management. We believe our acquisition of LiveTime will help to accelerate this growth.

Fourth, our go-to-market capability -- with our expanded product and market efforts, we began expanding our sales teams and our partner network at the end of fiscal 2012. These investments will take time to begin driving growth, but we are confident that they are on the right track. As with any organic sales increase, we expect the new resources to take at least nine months before they become accretive to the business.

I would like to close with a comment on our mobile device strategy. As you know, we are seeing exciting growth in our mobile device management offering. This is an exciting market space and one that we expect to merge with the PC and Mac solutions. But in order to differentiate in this highly competitive space, we are excited to update you on our plans of taking Computrace to the tablet market. We are using an approach similar to the one that we used for netbooks a few years ago. We are tailoring our Computrace service to meet the requirements of this fast-growing segment of the mobile commuting market. Using netbooks as a measure here, we have been able to generate several million dollars of Computrace annually in that part of the market and expect a greater opportunity for tablets.

With our announcement of another persistent win with Fujitsu's new Android tablet in the quarter, we have now added to the persistent positions we have in Windows-based tablets and in the Lenovo/Android-based ThinkPad tablet, and we expect to enhance this with persistence on Windows 8-based devices in the coming quarters.

Our persistence -- once our persistence is in place, it enables us to offer our Computrace services on these devices, which we expect will drive growth in the next back-to-school season.

At this point, I would like to turn the call over to Errol to discuss our financial results for the quarter and our outlook. Errol?

Thanks, Rob. Good afternoon, everyone. As Rob discussed, we faced industry head winds in the quarter which had a significant impact on our financial results. These head winds were evidenced by the significant year-over-year declines in PC shipments reported by our major OEM partners.

Total Q1 fiscal 2013 sales contracts for Absolute were $20.6 million and commercial sales contracts were $18.6 million, both down 19% from Q1 of last year. While many areas of the business were impacted by the industry head winds, some of that downward pressure was offset by growth in the expansion areas of the business.

The benefit of our continued efforts to diversify our sales mix -- sales in the corporate and healthcare verticals, the Absolute Manage product line and within our international business all increased year-over-year. Q1 fiscal 2013 commercial sales contracts for our theft management products were $12.9 million, down 25% compared to Q1 fiscal 2012. Sales of this product category were most significantly impacted by weakness within the North American education sector. Despite the Q1 weakness, we continue to believe that long-term potential for this product category remains robust, particularly as we position this product toward the governance, risk management and compliance space.

Commercial sales contracts for our device management and data security products were $5.8 million, which was essentially flat year-over-year. We had strong Absolute Manage sales, in particular, for our MDM offering, but those were offset by a decline in Computrace data protection, which is more closely tied to the PC refresh cycle.

On the consumer front, sales contracts were $2.0 million, down slightly from $2.4 million in Q1 of last year and reflecting continuing sluggish PC sales in the consumer market.

Turning now to our international business, sales were up 21% year-over-year with international accounting for 13% of total sales contracts.

Now looking at our expenses, our 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 $18.4 million for the quarter. This was up 18% year-over-year and 3% sequentially.

Last quarter, we outlined our plans to invest in key areas of the business to fuel continued growth. While we remain confident in our future opportunities, we have shifted to a more conservative approach to our investment plans for the year. Until conditions improve, we are controlling headcount throughout the organization and intend to offset any incremental investments with cost reductions in other areas of the business.

Industry analysts support our expectation that trends will shift back in our favor over calendar 2013, and therefore we believe that a balanced approach to spending is the right approach in order that we can fully capitalize on opportunities as they arise. Reflecting our year-over-year increase in adjusted OpEx, adjusted operating income was $1.4 million, down 48% from $2.7 million last year.

With our SaaS-based model, we continue to deliver solid cash from operations. It was down slightly to $5.3 million from $5.5 million in Q1 of last year. However, we continued to strengthen our overall cash position, exiting the quarter with cash, cash equivalents and investments of $72.5 million. Our strong cash position acts as a competitive advantage. It is what enabled us to act quickly and efficiently to execute our acquisition of LiveTime subsequent to quarter end. In addition, the solid cash generation of the business and strength of our balance sheet has enabled us to return surplus cash to our investors while still investing in the business to drive growth. We have bought back 8.9 million shares in the past four years under our share buyback program.

Looking forward now, we expect that many of the negative PC industry factors that we experienced in Q1 of this fiscal year will persist through most of the fiscal year. As result, we expect sales contracts in fiscal 2013 to be slightly below fiscal 2012 levels. Taking into account our balanced approach to spending, we expect cash generated from operating activities to decline moderately compared to fiscal 2012.

As Rob mentioned, we are confident that we are positioned for overall long-term growth. Our targeted growth vectors are becoming a larger part of the business. In addition, there's a combination of other factors that we believe will reinvigorate sales toward the end of this fiscal year. They include, first, industry analysts forecast a growth in PC shipments in calendar 2013 which bodes well for our traditional OEM channel business.

Second, anticipated success of new Windows and Android tablets in the education vertical -- we are working with our OEM partners to incorporate our persistence technology in these devices, which will drive Computrace sales.

And third, productivity gains that we expect in the second half of this fiscal year from the sales team expansion that we make in Q4 of last year and early Q1 of this year.

And finally, the expected accretive sales and cash flow from our LiveTime acquisition, which we expect will begin in fiscal 2014. As a result, we expect to return to growth heading into fiscal 2014.

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

(Operator instructions)Tom Liston, Cantor Fitzgerald.

Errol, on your data points there, you talk about flat for your sales, but there is some data with IDC, at least, or forecasts and such, that laptops and notebooks will come back as Windows 8 kind of gets hardened and the like. What are your assumptions around notebook sales going into the first half of next year? And just another theme on more the BYOD side -- what do you think that, where the -- goes from a problem to have real strong take-up on the security side, such that that will start driving the business more?

Sure. I will answer the first half of that question, Tom, and I will turn it over to Rob for the second. Our expectations on just industry PC sales -- the last data that I looked at, at least, was an IDC report from August where they were expecting, in fact, double-digit PC sales beginning in the first calendar quarter of 2013. Now, I know that sometimes the industry analysts will, in fact -- the industry analysts are not always right. So we are applying a little bit of conservatism to those numbers. And that conservatism applies mostly to the timing, where we do expect a rebound. I'm not sure if that's going to happen in the first quarter. We are expecting more towards the second quarter of next calendar year.

And, Tom, can you clarify again your second question?

Yes. So there's not quite two moving parts because they move in parallel, in many cases, but certainly the BYOD trend is slightly cannibalizing laptop sales in some cases, and obviously you have a product offering for that. So when does that we come, that material side of the business, such that it offsets some of the weakness in just overall PC sales?

Well I think, Tom, we've got to look across the board at where we are trying to expand. Obviously, international is one, MDM is one, and certainly that is the most rapidly growing. The BYOD movement is a big piece of that. We believe our vision of being a single platform with Absolute Manage that can manage both your PC and Macs together with those mobile devices is very compelling. And as for our scripted remarks, really we are skating to where the puck is going with that because MDM will become part of either the client management tool space and also part of some other ones as well. But we believe that the lion's share of it will land there, and so we are well ahead of the game.

But really, that part of the business, the management overall is accelerating nicely. Obviously, it posted growth this quarter, so it is catching up. But what you are dealing with is that education obviously is a large piece of the business for us, as you know. And that's where the biggest head wind is. And even when we do win the mobile device management piece, it's obviously at a lower price point.

So it will take a bit of time. And that's how we arrived at basically slightly down for the year as a result.

Okay, and LiveTime -- I checked my notes on LANrev, and out of the gate I didn't have the revenue number. So can you give us a better sense on that and, more importantly, what the stock cash split and earnouts involve, what type of hurdles they have to meet for those?

Certainly, I'll do my best there. So first of all, the revenues are at similar levels to what Absolute Manage was, which is -- call it sub $2 million at the time of acquisition, so around that ball park. And in terms of --

In terms of deal structure, Tom, it's an upfront payment of -- well, exactly $8 million in cash. The earnout is structured over three years. The earnout -- the first two years are cash, with the third year being a share structure. And then with regards to what those earnout targets are, that's not something that we would disclose to the markets.

Are they more revenue or EBITDA driven?

They are sales driven.

Yes, more sales driven, yes -- sales and then overall performance of the team.

Okay. Finally, just on the criteria for other acquisitions, it sounds like you are kind of hinting one will happen here in the not-too-distant future. Can you give us a sense on the pipeline and which ones are close and perhaps how close they are?

Maybe I can answer that one, Rob. So the one that we were talking about in the release we put out a week ago was the LiveTime acquisition. So that one we have now completed. And so that's that, and we will look at other things as they come along, Tom, over the next year.

Okay, thank you.

But, Tom, I did want to just to stress one comment on the education market. As challenging as it has been for us this year with the iPad and iOS, because obviously that's a very competitive market space, managing those devices, we do see, with the introduction of iOS and iOS becoming so popular, there's no question that the OEMs have responded with lowering prices for laptops and things like that.

So we are also seeing plenty of opportunity in education as well. I don't want you to think that education is only buying iOS devices because they are certainly buying PCs as well. There's a lot of value in an Ultrabook or in a PC these days for $500; you can get a lot of computing power there. We. So for every school that is buying iOS devices, there's another school that is buying notebooks. And I think, with Windows 8 being released and now coming out on a tablet form, that we will see some pickup in education, hopefully towards the end of the fiscal year in regards to education and Absolute.

Great, thanks, I'll pass it along.

Blair Abernethy, Stifel Nicolaus.

I have just, I guess, two things -- maybe on the education, following on your comments, John, can you talk a little bit more about renewals in that market, as maybe some of these customers might be hesitating on refreshing their basis?

Well, customers are definitely doing when they are buying PCs, they are doing with Absolute, most definitely. What we have seen over the last quarter, and we saw a little bit last quarter, it's just the popularity of the iOS device has become huge. So we are seeing a lot of educational institutions buying iPads.

However, again, iPads are challenging to manage. They've got their own set of challenges. So I think the education industry, while as interesting and glitzy as the iPad is, and it plays a valuable role in education, it has some issues around servicing and other issues that I think educators are now becoming more familiar with because they have just been buying them over the last nine months or so.

So the PC in education I think is going to make a little bit of a rebound. But again, as I mentioned, we're probably going to have to wait until the end of the fiscal year for that to take place.

Okay, great. And then just on the LiveTime, a couple million dollars in sales. Do they have -- maybe you could just describe for us -- what do they have in terms of installed customer base and sales force in the market now?

So just like the LANrev acquisition, Blair, it's a small team -- a lot of technology folks and support folks, very few sales folks. And so we will be embracing the same model we did with Absolute Manage, which is to use these folks, the teams, the LiveTime teams, continue them on in a support capacity to help our sales team get up to speed and be able to sell it through all of our channels.

And you know what you saw with Absolute Manage acquisition was that just by virtue of being part of the larger organization, it certainly enabled a lot of sales to happen that might have otherwise not. Plus, just getting access through our channels increased the pipeline significantly.

So I think we will see good things here with the acquisition as well. It has the same characteristics and even more so, tightly tied to what we are already doing today than LANrev was at the time. So we feel very good that we will be able to drive success with this.

Okay, great, thanks, guys.

Doug Taylor, TD securities.

Good evening, guys, and congrats on the acquisition. I just wanted to clarify -- sorry if I missed it. Does your guidance assume -- or is it for a slight decline inclusive of LiveTime, or is that excluded from the guidance?

It is inclusive. Basically, what we are saying, Doug, is that this front half of the year obviously has some significant headwinds that will dissipate through the end of the year and we will get back from being approximately -- nearly 20% down that we were this quarter, back to a much smaller decline by the end of the year. So we are expecting LiveTime, the investment in our sales team, our VAR strategy as well, the continued expansion in Manage, any rebound in the education, as John was speaking to, to drive growth in the back half of the year, to go and dig us out from the first half head wind.

Okay, thanks. Just digging into LiveTime a little bit more, geographically what's the distribution there? Is this that much of an international presence, or is this more of a North American play?

They actually have presence in Australia, EMEA and the US. Obviously, I want to say about -- just over half in the US and about a quarter in each of Australia and the UK.

That's helpful, thank you. Was this business growing at a pretty high rate relative to your existing business?

The business was making progress, but it wasn't growing at a rapid rate at the time of acquisition. We believe that that's primarily as a result of their lack of sales infrastructure. So they've got some great, very happy customers. They are fully ITIL certified. Their product stacks up against the best of them, very robust. Like Absolute Manage, it's a very mature and robust product which is not a -- without having a solid sales platform to grow off of, it literally has zero investment in marketing and very little in sales. So we don't necessarily think that their rate of growth at the time of acquisition is representative of anything, other than what you might expect in an organization with very little sales capability.

That's helpful. A question for Errol -- G&A up pretty meaningfully quarter over quarter, and I think there were some one-times in there, if I'm not mistaken, a provision for a specific AR situation. Can you quantify that for us?

Sure. The provision -- if you look at our G&A expense in Q1 compared to what it was in Q4, that delta is largely attributable to that provision. And that was what I would characterize as a one-time provision. It related to an historical AR balance that accumulated over time and we decided that the time was right just to take that provision because the likelihood of recovery just wasn't there.

Okay. So if I take that out and go back to the Q4 level there, is that the operating expense base we should be looking at throughout the year, inclusive of any hiring, offset by savings elsewhere? Is that a good level?

Yes, exactly, Doug. You've hit it there in terms of modeling on a go-forward basis. I'd say that Q4 is probably the most indicative of what our run rate is going forward, and that's prior to the LiveTime acquisition. If you are modeling that out, LiveTime is a small company; it's just under 10 employees that we are taking on. So I think you can work out what a cost structure for that might be.

Alright, that's helpful, I'll pass the line.

Pardeep Sangha, PI Financial.

Just with regards to MDM and Absolute Manage, I just wanted to get a bit more clarity there. You mentioned that they are increasing -- year over year you are seeing increase in that space, but it's still relatively pretty small. Your non-theft recovery side -- segment is $5.8 million this quarter. And in that, you also have some of the data delete stuff as well included in there. So MDM -- it's a small price point, and hence we are not seeing a lot of growth on the revenue side. Absolute Manage -- it's a big pipeline, but it takes a long time to take stuff through the pipeline.

If you can just comment on those two items, MDM, maybe, and Absolute Manage, with regards to what we are seeing here is not a lot of revenue from these two so far.

As you know, the MDM market, as you know, is very competitive. And I believe the last analyst I spoke to, I think the entire market for MDM is around $150 million annually, so it's not a huge opportunity. And as I said, it's extremely competitive. So as you pointed out, the price points are very low. And in some cases, you're going straight to maintenance pricing in a competitive situation. So it's a pretty tough place to make money at.

I think where Absolute is different is we are able to go into a customer and really genuinely talk about, credibly talk about the many devices in the organization, one solution to service them all. And we have had a couple of very nice wins along those lines that you can really look almost as significant pilot projects, which have been very successful. So we have an education customer that has rolled out about 60,000 PCs and Macs and also MDM devices that's extremely pleased with the results that we've shown.

And I think when we look at it like that, we're the only person that we know of in the industry that has got this full coverage for all devices you can bring into an organization. And that message just has not gotten out enough yet. So obviously, we've -- when you have success within a number of specific customers in a specific market like education, you can get some really nice momentum going because it's all word of mouth and the CIOs all work together, they all talk about best practices. And I think that we are going to see some strong momentum from those kinds of customer wins and credible customer deployments that we are having that are in the tens of thousands in terms of units inside that particular customer.

So we've just got to keep having success there and keep spreading the word and keep getting those large wins to support these many types of different operating systems inside these customer bases. And then you get known for that and then you see that market really start to materialize. As you pointed out, this is a very strong pipeline for apps that manage, but it does take a little bit longer, generally, to close than our traditional Computrace business, which is built in and easy to activate and customers are familiar with it.

So longer-term, I think we can be very successful with Absolute Manage and MDM.

And if you can characterize the Absolute Manage pipeline right now, is it pretty much the same in terms of size compared to last quarter? Or is it (multiple speakers) --

No. The opportunities for Absolute Manage and MDM inside our customer base continues to grow. The pipeline continues to grow, and we are seeing opportunities in certain customer segments and in certain customers, well in excess of a $1 million opportunity, into the $2 million and $3 million opportunities. So there's definitely some very significant opportunities there, and you just have to win the opportunity is small and have success in the account and grow with the account as the account grows. And I think we're in a very unique position to do that.

For Errol, just with regards to operating expenses and cost structure, you mentioned that you are shifting to a more conservative approach. If things continue to be sluggish, what is the plan here, a contingency plan here for in terms of operating expenses and going forward, if the market does not respond and you are not able to pick up sales contracts?

Well, certainly, we are watching the business closely as we move forward. Right? it's a very different time for anyone who is operating in the software or the PC, world connected to PCs. So we are monitoring where we are tracking in terms of our sales.

And if our expectations for the year change, certainly if they drop anywhere from where we expect it right now, we will make compensating adjustments to the cost structure.

Okay, that's it for me.

Pardeep, I just want to add one thing there. When we're looking at this opportunity, and John was touching on it, obviously, with Manage, and that does take a bit longer. But again, back to the vectors of international growth, the investment in the sales team, the product suite mix really decoupling us from a lot of the PC head winds, if you will, that MDM being really a tip of the spear that brings us in and creates opportunity for other products, we feel really good about the future and the opportunity there. It's a bit of a -- we look at it more of an isolated issue if you take, clearly, in this education vertical for the most part, that we are compensating for it here. So we want to make sure we do a balanced adjustment is what Errol is getting at. And as much as we can, we want to maintain the ability to attack those vectors where we see that long-term growth opportunity. And that's really the balancing act that we're going to continue balancing against as we move forward.

Thanks.

(Operator instructions) Michael Urlocker, GMP Securities.

First off, can you identify what's the size of the education market in terms of current contracts or current revenue?

On rough numbers, education is approximately 40% of our overall sales, on average.

Okay. And then can you help us understand -- are you seeing price pressure or evidence of churn? And I suspect that might be a controversial question. But if you can offer some insights on that, that would be helpful.

In terms of churn, and John touched on it a little earlier, for our education customers when they are buying the PC, right, in the one-to-one programs or in their standard staff and faculty programs, we are part of the design win. Right? So we haven't seen any churn in terms of customers pulling out of those design wins. What we have seen is, of course, they are buying fewer PCs right now. Part of that is the tablet experience, part of that is waiting for the Windows 8, just invest in tablets now and we will do the next level of investment the following year, perhaps in a different platform, whether that be a different tablet or a PC or what have you.

So anyway, what we are seeing is not really much in the way of churn, but certainly lots in terms -- if you were to define churn on units, than obviously that would be much higher because they are not buying many PCs.

From a pricing perspective, it varies, I would say. Where people continue to see value in the full investigative services, generally speaking, it is well priced relative to the value that they are receiving. And we don't really see too much pressure there. Where we see pressure is obviously some folks want to try and minimize the spend. So they will go to one of our lower cost products, whether that be MDM or they do the Computrace data protection products, which don't include the theft recovery. And indeed, there, we will see there is much lower price points for those solutions. Right?

So it's more of a mix change on the pricing than it is us getting lower for the same service.

That makes sense, thank you. And then my next question is really a question of strategy, perhaps best directed to John. The Company has been seeing a little bit of slower growth rate on its core product. At some times when tech companies experience these sorts of pressures, it can initiate a bit of a rethink on strategy. And at other times when companies see this, it can initiate a period of doubling down the investment and the efforts required to succeed.

John, I wonder if you might offer your perspective on how you interpret this data in terms of actions that the Company might take.

I think, Michael, what we are really focused on is doubling down in terms of our efforts in front of customers. So really, what we are doing, and this is why I am on the road pretty much constantly now, is really making sure that we are getting out in front of customers as much as possible. And there are tremendous opportunities for Absolute, as Rob was getting at. You just need to be in front of customers more. It's a tougher market out there. We have to fight harder. And there's lots of business out there for Absolute. We just have to fight harder for it, and that's it.

And in terms of strategy, what we are doing is we are really building these technologies and we bought LiveTime to add this service component in. So now we have got, really, a complete suite of technologies and products that an educational customer or a state and local customer or a federal customer -- they can deploy all the devices they need to deploy, they can update them, they can patch, they can deploy software to them, they can configure them remotely, they can service the devices, they can secure their mobile devices, they can support BYOD inside their organization, they can sport the corporate owned, personally enabled. They can distribute documents down to all their devices in a secure distributed platform.

So we are trying to build a full end-to-end way of facilitating and using best practices and most efficiently and effectively all of the devices that you have inside your organization and the documents that you want to present and collaborate on as a team, and all those kinds of things.

So it's a full -- we are trying to deliver a full system for usage within the organization. So I think that's the larger strategy -- and also, of course, having persistence as our core underlying differentiator amongst those devices where we can get persistence and pushing forward on that level.

So there's a lot of opportunity out there. You just have to continue to double down your efforts and deliver innovative things to customers. And customers -- they have a tremendous amount of requirements out there and people are still struggling with managing devices. They are still struggling with deploying software to devices.

So there's a lot of opportunity there. You just have to be close to the customer and make sure that you're providing value, I think, ahead of the sale. You have to get in there, you have to be willing to do some work for the customer to show them how well your stuff works, and then you win the deal. And we just have to do more of that.

And as Rob said, we have been making investments in the sales organization. We have grown out the sales organization to 28 teams. We are continuing to invest in the quality of the sales organization. And I think we're going to turn things around here.

Thank you. If I could just play that back to you, I think what you are reminding us is persistence is a core technology. And if I care to observe, persistence would seem to be the core strength of the management team, that you are persistent in your determination here to roll out the full suite of products.

Well said.

We appreciate that, Michael. Thank you.

Thank you.

Gabriel Leung, Paradigm Capital.

I just want to talk about the education market for a second. Aside from Apple iPads, have you seen any other tablet OEM successfully penetrate this vertical? In particular, have you seen any tablet OEM vendor successfully penetrate this vertical where you think, over time, you will get a persistency partnership with?

Well, not yet, Gabe, but I think the exciting thing is, obviously, Windows is -- Microsoft has just released Windows 8. And of course, some of our best partners are coming to the market now with Windows 8 tablets, like Dell, Lenovo, HP. And we are going to be working very closely with them to double down our efforts to make sure that those tablets are in front of educators across North America.

So we will be there to support our Windows-based partners as best we can to ensure that we have a really good shot at winning that business. So that's the plan.

And I think from customers specifically, too, we've heard from numerous customers, Gabe, that today, there really isn't much choice out there. It has been iPad or nothing. But they are looking to -- their strategy was really roll out iPad this year, but they intend to do a multiple-vendor strategy like they do with the PC side. So they are very excited about the Windows tablet coming and also improvements on Android tablets with things like enterprise-level management security that we can give once there's persistence there. So we are very excited about next year's opportunity in that space.

And I know you showed some decent year-over-year growth on the corporate and the healthcare side, but have you seen any early signs of similar sort of cannibalization by tablets within those verticals as well?

I think in the field-based workers, of course, it's a natural to replace with tablets where you can. With folks driving around in trucks all day long, it just makes it much easier for them. However, for the most part, we are seeing it as a complement in most organizations when it comes to, certainly, the knowledge worker -- and me; I won't switch. I will have it as a complement. So I think that it varies. But certainly, our penetration rates with Computrace there are at a much lower level as well than they have been in education. So the efforts we are making there around the governance risk compliance messaging is very exciting because, even with some cannibalization, we still have plenty of opportunity for growth in those segments.

Just one more question, maybe for Errol -- just curious if you have run through an exercise to see what is the minimum level of cash you need to run this business from an operational or working capital perspective. Have you actually done that exercise yet?

Well, I can -- certainly, we do all sorts of modeling internally. What is the minimum level of cash we need? Well, I can tell you Absolute has been generating positive cash flow every quarter for quite some time now, so that minimum is a very low number. I don't want to put out a specific number to you, but I can tell you it's quite low because we do have a lot of confidence in our ability to continue to generate cash going forward.

And I guess the point is, notwithstanding the LiveTime announcement and perhaps some other acquisitions you have in the pipeline, clearly you've got a lot of cash on the balance sheet. You are still going to generate operating cash flow, it sounds like, this fiscal year, despite some head winds. So where does the Board currently stand in terms of possible returning of capital back to shareholders, whether it be in the form of the dividend or a larger share repurchase program?

Unfortunately, that's not something that we can comment on publicly.

I think we can say that, of course, we're looking at many strategies there. Right? But -- and of course, we are continuing with our normal course issuer bid. But as Errol said, other than that, we will keep reviewing those with the Board.

Okay, thanks.

There are no further questions at this time. I turn the call back over to the presenters.

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 Q2 results. Have a good day.

This concludes today's conference call. You may now all disconnect.