Absolute Software Corp (ABST) 2013 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to Absolute Software Corporation's fiscal 2013 second-quarter conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

Before beginning its formal remarks, Absolute would like to remind listeners that certain portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. For more information on the Company's risks and uncertainties relating to these forward-looking statements, please refer to the section of its quarterly MD&A.

(Operator Instructions). I would like to remind everyone that this conference call is being recorded today, Tuesday, February 12, 2013, at 5PM 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 thanks for joining us on our fiscal 2013 second-quarter results conference call. With me today in Vancouver is Errol Olsen, our Chief Financial Officer, and Rob Chase, our Chief Operating Officer. I will take you through the trends and strategies the Company is executing against, and Errol will discuss our financial results, and then we will all be available for your questions.

This is a very exciting time to be in the device management security industry. The rate of industry change is unprecedented. And the major trends are facilitating opportunity for Absolute. Let's quickly review these trends and how Absolute is strategically positioned to leverage them.

Trend one -- mobility is accelerating. As Dr. Paul Jacobs, the CEO of Qualcomm, states, we are now all part of the born mobile generation. In fact, there are over 1 million smartphones activated every day, almost as many live Internet connections as people on the planet. This massive move towards mobility consumerization of IT requires organizations to change the way they support their mobile workforce and the born mobile generation. It also creates a huge challenge for IT personnel as they are now responsible and likely accountable for computing environments they no longer control.

Trend two -- data breaches are on the rise. Reported data breaches are up almost 1000% over the past 10 years, according to a recent survey which interviewed 508 North American and European IT security executives about threats experienced in the past 12 months. 34% reported the highest source of data breach is loss or theft of a corporate asset. This was followed by 28% reporting inadvertent misuse by insiders. Absolute's core business directly helps mitigate both these threats and could be helpful in up to 80% of the threat scenarios cited by the executives interviewed.

Trend three -- data privacy regulations are intensifying. While mobility is accelerating and data breaches are on the rise, the regulatory backdrop is intensifying. Organizations in their IT infrastructure must support these new mobile devices' use cases to ensure business success. However, they must also ensure that governance, risk management compliance standards are fully met.

There are tremendous conflicting pressures from both of these powerful trends. Mobility often requires flexibility and openness, while data security regulations require visibility and control to ensure risks are known, managed, and ultimately that the data is secure.

Trend number four -- endpoint management and security are converging. Desktops, laptops, ultrabooks, tablets, and smartphone devices have all become business mission critical. Today's mobile workforce requires companies to support these new mobile devices in conjunction with traditional laptop computers in order to compete. At the same time, the lines between these devices are blurring as the computing capability is merging.

It is this device convergence that is driving the customer requirements across platform management and security for multiple operating systems and form factors. However, today IT is being forced to adopt multiple point products to address each form factor. This is an unacceptable paradigm as organizations are under pressure to do more with less and to find ways to consolidate features and functionality.

As a result, industry analysts are prescribing the convergence of endpoint management security. In fact, they are calling for the $2.5 billion client management tools market, the $500 million mobile device management market, and the $1.5 billion service management market to converge. This is an exciting time for Absolute as this convergence is the foundation of our vision and has guided our innovation, which now has us uniquely placed at the epicenter of this major IT paradigm shift.

Strategy one -- Absolute will continue to innovate. Absolute has been managing and securing mobile devices in the cloud for almost 20 years. We understand the complexities of managing devices and operating outside the local area network. And we have developed and delivered much industry innovation and technical leadership in the mobile marketplace.

Our flagship Computrace solution is an industry standard for theft and loss management, remote forensics investigations, and mobile data security. Through innovation, Computrace has evolved from a theft recovery solution for laptops to essential layer of governance, risk management, compliance for the desktop, laptop, and tablet computing environments. In fact, we invented remote data delete in 2001 and have since evolved as the most comprehensive, complete, and robust remote data delete solution on the market today. Our recent $3.5 million healthcare win is an example of the importance of this solution.

As Absolute continued to grow, our customers requested that we add client management and mobile enterprise management functionality to leverage our mobile mobility expertise and fulfill our customer needs. Absolute Manage is the only cross-platform solution for managing PC, Mac, iOS, and Android devices through a single console. Only Absolute can provide a comprehensive and robust solution set for seamlessly keeping all these essential devices both productive and secure.

Further, with Absolute Manage 6.2, we have once again leapt ahead of the competition in the mobile enterprise management space. Here's a few of the exciting document distribution innovations we've recently added -- a new, easy-to-use Web user interface for customers to manage both their old devices in either SaaS or on-premise model. We added both mobile content management and mobile application management functionalities to support both iOS and Android devices to enable secure delivery and management of content, in-house, and third-party apps. And we added content access and delivery capability for iOS and Android devices as well to enable end-users to access the content they need without compromising company data. They can download the data either through an Absolute drag-and-drop interface or directly through Microsoft's SharePoint.

In addition, in Q2 we completed the acquisition of LiveTime Software for $8 million and subsequently launched our Absolute Service Solution. This is another example of innovation through understanding our customers' needs.

While the $1.5 billion IT service management space is exciting in its own right, it is now the combination of Computrace, Absolute Manage, and Absolute Service that makes this acquisition truly groundbreaking. Industry analysts are calling for the IT service and the client management tool markets to merge, and we are now once again at the forefront of another critical trend.

Think of Absolute Service as helping customers optimize and operationalize both Computrace and Absolute Manage. Absolute Service adds integrated workflow and business processes to streamline and optimize IT management and security solutions. As a result, we've already seen an encouraging response from our customers for this new solution.

Strategy two -- persistence everywhere via Absolute's persistence platform. At the heart of Absolute's innovation is our persistence platform. We invented persistence, because we understand how difficult it is to keep an accurate track of mobile devices and correspondingly the data on them. Our persistence platform has become a PC standard and has been shipped on more than 500 million devices from the world's leading computer manufacturers.

We are excited to report that this standard is now expanding to the latest mobile devices, which sets the stage for us to provide unrivaled mobile solutions. We are now embedded in Panasonic and Fujitsu's Android tablet and the Lenovo Android-based ThinkPad tablet. We are also persistent on Dell, Lenovo, and HP Windows 8-based tablet devices. Look for more persistent device wins in the coming quarters, including smartphones.

With persistent in place on these new mobile devices, not only can we extend our innovative solutions, but our mobile enterprise management solutions will stand out over any mobile competitor.

Strategy three -- enhancing Absolute's go-to-market. With such a strong set of solutions for healthcare, corporate, and public customers, we have further invested in our go-to-market leadership. We recently added Thomas Kenny as Executive Vice President and General Manager of Global Sales and Marketing, and Todd Awtrey, Vice President of Sales for America, to both join us from a world-leading PC OEM.

In order to best facilitate a cohesive go-to-market approach, we've consolidated the channel sales and marketing under Thomas' leadership. We also named John Sarantakes Senior Vice President and General Manager of Europe, Middle East, and Africa to help replicate our North American success in the EMEA region.

Mark Grace remains the sales leader in the APJ region in the consumer business, reporting to Thomas and successfully driving new revenue from several new international markets. Abigail Maines is driving Absolute's OEM and VAR programs. Ab is doubling down on Absolute's efforts to recruit, train, and manage a meaningful group of VARs to accelerate our Absolute Manage, mobile enterprise management, and Absolute Service Solutions in both North America and EMEA.

From a marketing perspective, Absolute has repositioned Computrace as a governance, risk management and compliance solution. By nature, Computrace is proving to be the ultimate governance, risk management and compliance solution for the endpoint device. Once a customer activates the Computrace agent, it enables a persistent digital tether to the device wherever it travels anywhere in the world. Computrace gives organizations best practices, visibility control over the endpoint and its operation. There is no better solution today to ensure compliance and manage the inherent risks associated with endpoint computing.

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, John. Good afternoon, everybody. We are pleased and encouraged by the return to topline sales growth that we achieved in the second quarter. At 8% overall and 12% for our commercial business, our year-over-year growth in the second quarter was fueled by continued success in the targeted expansion areas of the business, specifically the corporate and healthcare verticals.

Most notably, we signed a Computrace agreement in the fourth quarter with a Fortune 100 healthcare company. At $3.5 million, it is the largest single win we have recorded to date. This is a key milestone in our drive to replicate a must-have standard across both the healthcare and corporate verticals, just as we've done in the education market.

Sales for our device management and data security products were also up compared to Q2 of last year. These positive sales trends more than offset the broader industry headwinds that we continued to face in the quarter, mainly lower PC shipments and some reallocation of education sector IT budgets toward iOS devices.

Q2 fiscal 2013 commercial sales contracts for our theft management products were $11.7 million, down 2% compared to Q2 of fiscal 2012, as sales for this product category are most significantly affected by weakness within the education sector. We believe that long-term potential for this product category remains robust as the benefits of our product offer for governance, risk management and compliance are increasingly resonating with potential and existing customers, especially in the corporate and healthcare markets.

Commercial sales contracts for our device management and data security products were $9.2 million, an increase of 36% over Q2 of last year. Sales for all of our device management and data security products were up year over year, most notably our Computrace data protection offering, which was included in the multimillion-dollar healthcare win.

On the consumer front, sales contracts were $1.6 million, down from $2.1 million in Q2 of last year, reflecting the continuing macro trend of sluggish consumer PC sales.

And turning now to our international business for the quarter, sales were $2.5 million. This was down from $4.4 million in international sales last year. However, we announced a sizable win in Australia in Q2 of fiscal 2012 that had a significant impact on our international sales performance last year.

Now looking at our expenses, as we said last quarter, while we remain confident in our future growth opportunities, we have shifted to a more balanced approach to spending for the year. We did increase our investment in the business toward the end of last fiscal year, primarily adding to our sales and development teams, which was reflected in our year-over-year results.

However, as we stated last quarter, we are currently controlling expense growth throughout the organization. Our adjusted operating expenses, which include cost of sales and operating expenses, but exclude noncash charges for amortization of acquired intangibles and stock-based compensation, were $17.1 million for the quarter. This was up 10% year over year and down 7% sequentially. We would expect our go-forward quarterly expenses to be around the average of Q1 and Q2.

With our SaaS-based model, we continue to deliver solid cash from operations. Q2 cash from operations was $4.2 million, down from $6.0 million in Q2 of last year, with the decline largely due to sales weakness experienced in Q1 of this year.

We continue to maintain a solid cash position, exiting the quarter with cash, cash equivalents and investments of $57.1 million. The primary use of cash in the quarter was $8 million utilized in the acquisition of LiveTime and $10.6 million utilized for our share buyback program.

As we demonstrated with the LiveTime acquisition in November, our strong cash position acts as a competitive advantage. We are able to act quickly and efficiently to execute on strategic acquisitions. In addition, the solid cash generation of the business and the strength of our balance sheet have enabled us to return surplus cash to our investors while still investing in the business to drive growth. Over the past three years, we have returned $43 million to our shareholders through our share buyback program. In addition, we recently declared a quarterly cash dividend of $0.05 per common share, a strong testament to our ongoing confidence in the long-term growth prospects and continued cash generation of the business.

Looking forward, despite the year-over-year topline growth that we realized in the quarter, we expect negative PC industry factors will likely persist through most of the fiscal year. And therefore, we continue to expect sales contracts and cash generated from operating activities for fiscal 2013 to be modestly below fiscal 2012.

However, looking longer term, as John mentioned, we are confident that we are positioned for overall growth. We have the right products, competitive advantages, and team to capitalize on the opportunities that accelerating mobility is creating in the marketplace. We continue to make progress in the expansion areas of the business. And we plan to work to continue to deliver on all these fronts, with a close eye on managing our costs. With these factors in mind, we expect to return to consistent 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.

Thank you. Good afternoon. John, just first on the big win, and just overall maybe talk about the environment -- you might want not to talk too specifically about this win, but obviously it's the biggest in the Company's history. Is there a bit of a pivot going on in the industry where compliance is finally resonating in a real way, and these broad-based deals like this? And you've talked specifically about some of the competition in this, and what was unique, given the size of this deal?

Sure, Tom. Healthcare particularly has these very high regulatory environments. So this particular organization is a healthcare organization, and they understand that governance, risk management and compliance is extremely important for their industry. And they are willing to go add an additional layer of security, if you will, on top of their encryption program to ensure that all of their mobile devices -- they have about 100,000 devices -- are visible to the organization, and they are able to exert some control over those devices, as required in emergency situations.

So I think it's a very -- we've repositioned Computrace as a governance, risk management and compliance tool or solution. And that is resonating out in the corporate and in the healthcare space. And when you think about it, we are really the perfect governance, risk management and compliance tool for the endpoint, because there's no other market -- there's no other product solution on the market that allows -- gives you a digital tether to that device, so that anywhere in the world, wherever it goes, you're always remaining in contact with it and can wipe the data remotely, which is part of the key.

So we see lots of upside in healthcare market. It's actually almost as big as our education market today, which is amazing. And the healthcare -- or, sorry, the corporate market as well is a growth opportunity for Absolute. So there's lots of growth for us just in that traditional laptop market, and then of course you add in the tablet market as well, and things get even more promising.

Was there significant competition on this deal, or was it a fairly unique offering that you delivered to them?

Well, as you know, we are very unique in terms of persistent data protection and device protection solutions. But we did have a little bit of competition on that deal, but when the customer dug into it, they realized that the alternatives really had no experience in the industry, whereas we've had almost 20 years' experience in this industry. So even though our product was priced significantly above the competition, we were chosen as the successful vendor.

Okay. And then on that theme, you talked a little about being persistent in smartphones. What can you tell us about that roadmap, if at all?

Well, just to say that in general, when you look at the device convergence that's happening out there, obviously part of our strategy is persistence everywhere. So to take that industry standard that Absolute has built for the laptop and desktop market and now successfully migrate it into tablets, Android tablets and Windows tablets, and then of course eventually migrate that into the smartphone market as well, Android, Windows, etc., so we are pushing very hard with our business development relationships to ensure that the folks that make those kinds of devices know about our solutions and can make good decisions around including us into their future.

And finally, just on LiveTime, it's only been a few months, but what can you tell about that integration and the take-up there?

Well, I am super-pleased with LiveTime. I think LiveTime is a very practical solution. It's very enterprise-friendly. Many large organizations, of course, have service desk solutions that require -- that do workflow mapping and help to automate the intelligence, automate the resolution of helpdesk tickets and workdesk tickets, not dissimilar to a ServiceNow-type organization.

So we have a very, very flexible platform. It's 14 years of technology in the making. It comes and presupports our Absolute Manage solution, as well as many of the other leading lifecycle management solutions that are out there. It does it in a very easy-to-use and often surprises the customers at how quickly they can roll it out inside their organization.

So we are very excited about Absolute Service and we think it was a great acquisition. And we think it's going to do very well for Absolute. And as we talked about on the call -- and Rob has a point -- it -- go ahead, Rob.

No, I was just going to say, when we acquired LiveTime, we thought we were getting a solution that was very robust and comprehensive, yet it didn't have much sales. It definitely did a technology-first company, just like Absolute Manage was. So we definitely have been pleasantly surprised. It certainly has proven thus far to be just that. When we take it in front of our customers and show them the capabilities, they are actually very surprised by just how much is under the hood there. And it's been a fantastic transition for us so far, great customer adoption already, or interest. So we expect very good things from that as we go forward.

Great. Thank you very much.

Interestingly enough, there's a lot of legacy service desk products out there from various vendors that just haven't adopted for mobile environments, and haven't adopted their ability to integrate with other lifecycle management solutions, whereas Absolute service has. So often we go into a customer and they are very pleasantly surprised at the capability of the service. I think there's a lot of low-hanging fruit for Absolute and with Absolute Service.

Very good. Thank you very much.

Scott Penner, TD Securities.

Thanks, good afternoon. Just wanted to, I guess, go back, first of all, to that the health deal and just ask whether this was an existing Computrace customer, and whether there is an opportunity, you think, for an MDM component to this.

Well, this -- no, this was a new Computrace customer. But there's certainly opportunities to continue to deepen the relationship with this customer. We are very excited and pleased to have this customer onboard, and we will be working very closely with them to manage and secure their laptop fleet. And I believe it will be a long, successful relationship, and there will be lots of opportunities to bring in new services down the road, Scott.

And I noticed that you guys added 11, it looked like, salespeople, or at least people in the sales and marketing organization in Q2, as you did in Q1. Have you got that segment of the organization pretty much where you want it?

Yes, hey, Scott, this is Errol. Yes, I would say that at this point we've got it where we want it. We've got the capacity to meet our sales goals for the next six months or so. So we don't expect any other changes. And what you saw for Q1 going into Q2 was just -- it's a large organization, so the numbers do tend to fluctuate a little bit. But that was really the completion of the territory expansion that we embarked on in Q4.

Okay. Just stepping back a second, John, just when you think about all your base of existing customers and their renewal of your services, is it fair to describe it that the pricing on the renewal is relatively the same, notwithstanding that they may pay less for the hardware, but that generally speaking you're seeing a bit of a mix shift to where somebody that may have had 1000 laptops maybe takes 900 now and replaces them with 100 tablets, and there's a -- and you're attempting to backfill that tableted option with additional services?

Yes, I think that's a fair comment. I think our ASPs have stayed relatively constant over the years and remain so.

Yes, it's [solely eliminated] education, though we are seeing in most of the other verticals that those tablets are an additional device, as well as the PC companion device. So it's a bit of a mixed bag, but of course, where we feel any issue is on the education side, where they are doing that trend in the 1-to-1 learning initiatives.

And just lastly, on the international business, just wondering what you can tell us about progress there and where the additional investments are going at this point.

Sure. We've opened up Asia-Pacific, obviously, Japan. So this last past quarter, we actually did quite a bit of mobile device management business in Japan. We got a nice piece of revenue from China. We are doing business in India and Malaysia. So that market is, interestingly enough, very much a more traditional laptop market. And our antitheft solutions there are resonating very well with customers. And I think we're going to continue to see growth in APJ.

In EMEA, similar -- a little bit more of a complex market, obviously, in Europe, with France and Spain and some of the regions under some economic duress. They are not quite as buoyant as we would like to see it there. But we've got a very, very good group of core customers in Europe. And I think over time, especially with John Sarantakes there now full time focusing on that market, you'll see those sales in EMEA start to climb.

Great, thank you.

Thanos Moschopoulos, BMO Capital Markets.

John, on LiveTime, can you clarify whether that's broadly rolled out to the salesforce at this point? And then, from a technical perspective, what will be the timeframe for integrating that into the rest of your product portfolio?

Well, surprisingly enough, it actually came already integrated. So it already had the back-end integration to pull forward all of the Absolute Manage data into Absolute Service. So they have done a very good job on the technical side of prewiring for all of the major lifecycle vendors that are out there, including Absolute Manage. So, literally, it's a plug-and-play for us to integrate between the two products. So that's Absolute Service.

And in terms of customers, yes, we just came back from our regional sales meeting a week and a half ago, and Absolute Service was very much front and center in terms of the training requirements that were delivered there. And we are getting traction today with a number of our existing customers with Absolute Service. And I think we are going to do quite well with that solution set.

And I've mentioned it's a great opener for a customer, because it gets us into an enterprise-type customer, whether it's corporate healthcare, a large government organization, and then we can quickly come in relatively shortly thereafter and say, hey, if you just snapped in Absolute Manage, the amount of data that you're going to get and be able to facilitate through your service solution is going to be fabulous for your organization. And I think that makes a lot of sense for customers.

Okay. And then, can you update us on the education vertical? Obviously it's been a challenge. What are you currently seeing in that market, and when do you think that might start to stabilize?

Well, I think it's going to stabilize for us shortly. We are not standing still in education. We've rallied the troops to think hard about how we can be very relevant in education. So you can look for some future announcements around that in order for how we're going to address education and reestablish our relevance there with respect to tablets inside education. So we'll be keeping you posted on that as news breaks. But we feel bullish about education next fiscal year.

I'll just add a little bit of color to that, actually, John. One thing we found interesting in the quarter was in North America, we actually were up in the education vertical. We are still making inroads into new educational districts and increasing our penetration in that market, in spite of these headwinds.

Yes, I think the other thing that's worth adding is the three Microsoft-based tablets that are just shipping Windows 8 now, through HP, Lenovo, and Dell, all have Absolute persistent in those tablets form factors. So it's really the first -- this is really the first year that a Microsoft-based tablet will be getting introduced to CIOs and superintendents of school districts as a legitimate alternative to a very well-accepted iPad solution in schools, probably at a cheaper price point.

And that's going to be very good for Absolute, because, of course, we are persistent in all those devices. And as you know, we've had many CIOs in education tell us that without Computrace as a part of their infrastructure, the notebook infrastructure, they just were not able to roll out a mobile program inside that school district. And we believe that the same goes for tablets.

So for successful tablet installations and rollouts, we believe that Computrace will be a core component of that, and that now that we are persistent in these Microsoft form factors through Dell, HP, and Lenovo, I think you'll see things bouncing back for us next year in education.

Okay. And one last one for me -- can you talk about how your go-to-market and scaled strategy might change under Thomas Kenny's leadership, or is it a little too early to comment on that?

Well, I think we are all very impressed with Thomas and his leadership capabilities. He comes from an OEM that did a lot of work with the channel. He's very channel-friendly. So his number one initiative, right off the top, is to get our VAR program going much more aggressively, not dissimilar to some of our competitors who have very aggressive VAR programs.

So you'll see a real focus on the VAR program initiative. You'll see a focus on training the sales organization. And you'll see a focus on customer relationships and visits. So just the sheer number of customer visits and relationships and interaction I think will improve and increase quite significantly under Thomas' leadership, and I might say under Todd Awtrey's leadership as well -- extremely customer focused and loves to spend time with customers. So that's going to look very good on Absolute for North America.

Great. Thanks, John. I'll pass the line.

Blair Abernethy, Stifel Nicolaus.

Thanks very much. Just a quick question on the LiveTime contribution in the quarter. Can you just give us a sense of the magnitude of revenue and expenses that ran through your books in Q2?

Sure. So I think right after the acquisition, I think we gave a little bit of color on what their run rate was and said they were doing just under $2 million a year when we bought them. So you can just extrapolate out from that. We didn't make any major changes in the business over the six weeks that we had them on board.

And then on the expense side, LiveTime had approximately 10 employees that we brought on board. So the run rate OpEx we brought on board was just under $2 million. So same thing, you can just do the calculation from that. Does that answer your question?

Yes -- no, that's fine. And in the quarter, your G&A was down pretty significantly sequentially. What was going on there?

Sure. Well, what happened in the first quarter of this year, we took a provision for a historic accounts receivable that we weren't confident that we would be able to collect. So we took a provision of about $800,000 in the first quarter. In the second quarter, we actually were successful in collecting that receivable, so that $800,000 provision was reversed. That's why G&A looks low in the quarter.

Okay, perfect. And then just on the large deals, just wondering if you could give us a little more color on the quarter and your pipeline in terms of the number of -- let's call them, define them as $1 million-plus deals in the pipeline. How is it looking out there in the healthcare vertical and in education and government?

Most of our deals still remain in the $7 million range, Blair. And pipeline-wise, things are going very well. The pipeline is robust and continues to grow. But there's not a lot of $3.5 million deals in the pipeline. So we're always happy when we can close one of those. There are some large deals. But, interestingly, we do have customers that spend north of $1 million with us every year in recurring business. So it varies, but to have a single order like that out of the gate with a customer is -- that's very unusual.

I think that now that we have repositioned Computrace as a governance, risk management and compliance tool, we are much -- it's much easier for us to get the attention of senior leadership inside large organizations. So we are able to -- there is something in it for legal; there is something in it for finance; there is something in it for the risk management office, much more so than in the past.

So in this framing, we are getting to the right people that are understanding Computrace better and understanding the capability it brings to a large organization. So I think our ability to get additional large deals is improved, and we are certainly -- we certainly have the sales executive presence now as well to engage with those kinds of customers at a very high level and to win those deals. So, hopefully, we're going to see some more of them.

Okay, great. Thanks very much, guys.

Richard Tse, Cormark Securities.

Thank you. I guess a follow-up question to Scott's question earlier in regards to the tablet form factors versus PC. So would you say that the pricing on that would be very similar to the historical PC market, or is that going to be different here going forward?

I think it's a little bit lower. Obviously, the tablet is a lower-priced device. So in conjunction, our average selling price would likely be lower on a tablet. I don't have the number right in front of me, but I think it's -- what is it, 20% lower or something?

Yes, it's 20% to 30% lower, Richard, but -- although one thing to keep in mind, though, is over the last few years, we have seen some migration from laptops to netbooks. And the price point from netbooks to tablet is virtually the same as far as our Computrace product goes.

Okay. So if you look at the theft management line here of $11.7 million, give us some color as to the PC versus other devices mix.

Yes, you know, actually, that's not some color I have handy right now.

Okay. And I guess related to that, if you look at the big healthcare deal that you won, that's across all form factors, right?

Yes, laptops and tablets, correct.

Okay. How long would something like that have taken to negotiate?

I think those kinds of larger deals are typically 24- to 18-month sales cycle. They can happen sooner and quicker, but typically they are a longer sales cycle.

Okay. And then finally, with respect to I guess the cost base to support the theft management business before, is there an opportunity to kind of reallocate some of those costs to the other lines to get a bit more leverage out of the model here?

Our theft recovery options just bring a tremendous amount of value to the equation. And we are very fortunate; we have a very, very strong leader in Ward Clapham, who, if the cycle's available, the theft recovery team really helps with some of the sales efforts and evangelizes to the customer within their law enforcement and security departments and teams. So I see that -- it's just we reshape and reutilize that person's focus towards selling to a prospect if they've got time away from their recovery efforts.

Yes, when our sales guys are approaching a new prospect, they'll go with the entire portfolio of products. And where they eventually land, whether it's the theft management or just a simple Computrace Data Protect really depends on the customer. Internally, our incremental costs between those two product lines are really just that recovery group. And you need to also keep in mind that last year, theft management product, it did grow 7%. And that growth is really what you're seeing as we are selling theft management into the corporate and healthcare verticals. And that's offsetting some of the attrition from education.

I think also, with the plans that we have for theft recovery for Computrace for tablets, if you will, we see the requirement for those theft recovery options to go up, not down, and the revenue to match with it.

Okay, great. Thank you.

(Operator Instructions). Pardeep Sangha, PI Financial.

Thank you. Just with regards to some of your commentary in terms of bullishness for next fiscal year, can I interpret that as this summer we should expect the education vertical to really bounce back for you guys with your HP, Dell, Lenovo initiatives, the Windows 8 tablet? We should expect this summer to be a very strong summer, and hence your Q1 should be a very good Q1? Is this how I should be interpreting this?

You know, Pardeep, I do believe that now that we have a strong offering for education with HP, Dell, and Lenovo devices, and likely some additional functionality for other tablets as well, I believe that we certainly have the potential to have a very strong education season this go-round. So I don't think that's unreasonable, your statement.

And then just with regards to your pipeline, you commented the big pipeline, robust, continues to grow. Some sort of color with regards to what the pipeline would be in terms of breakdown from, let's say, theft recovery versus Absolute Manage type of product in your pipeline?

Yes, I don't think we are going to separate that out for you at this point.

Okay. Last question here, just on acquisitions, your current view on acquisitions, and are you sort of digesting the LiveTime Absolute Service thing now, or are you still out there kind of looking for more acquisitions, or your current pipeline for acquisitions?

I think today, we are digesting. We've got three very strong properties here -- the Computrace property, the Absolute Manage MDM, and we've added so much MDM functionality in the last three months, quite incredible for a small team of developers to have done as much development work as they have done. We've got full support across Android and iOS for content distribution and publishing, through SharePoint and other Web user interfaces. We've got a very competitive product to the leaders in that MDM space.

So now that we have the Web interface, I think you're going to see -- we're going to see a lot more business in that space, which is exciting for us. Again, we are so well positioned. We are the only real vendor that can say -- that can answer the many devices coming into an organization, one solution to view them all, manage them all, secure them all through Absolute Manage.

So we think we are in a very good position with the products and platforms that we have today. I'm not sure that we need to do any acquisitions at the moment. We are quite happy with what we have and the team that we've got and the development organization that we have. So I think we are quite comfortable just to continue to build on what we currently own. Not to say that we aren't looking. We certainly do encourage the bankers, if they have some good companies out there that they come across at $25 million or less valuation, that they come and make those available to us and have conversations with us about their existence.

Okay. Thanks a lot, guys.

Paul Steep, Scotia Capital.

Thanks. On the education side, John, maybe you can talk a little bit about how we should think about that in Q1. Should we think that there might be bundle deals, bundle-type deals with some of those OEMs that would be going into the market? Or is it going to be the traditional strategy that you've migrated to on the Computrace side?

Yes, the bundle deals are more of a consumer phenomenon typically. And we are doing some work on the billing side of things to enable more aggressive consumer bundles. But putting that aside, the education business is typical account by account, building relationships with our key education accounts, and then continuing to grow it out that way.

Okay. So no push-through with one of the major OEMs to put your stuff on their paper, is more what I was thinking about in terms of for the back-to-school season this year?

Yes, typically, we drive the demand from a customer, and then the OEM fulfills.

And actually, I guess the second one for me would be, what's education in the mix rate now, Errol, in terms of the total base of business?

Sure. It's obviously lower for the first six months of this year. As a proportion of the total -- as a proportion of the commercial business, let me put it that way, it's been about 40% for the first six months of the year.

Okay. And then I guess if we think about that health deal, how is it allocated in the table in terms of theft management versus MDM? Did it all go in the MDM line?

It all -- yes, it all went into the device management and security category, that's right.

That's what I thought. And I guess the last one for you, John, just in terms of the dividend and a buyback, maybe you can talk a little bit about the Board's thinking in terms of how you sort of thought about the levels that you set, because obviously there's still substantial free cash flow that's going to come out of the business this year, and where that capital is going to go, since it sounds like acquisitions may be slow for just a little bit.

Well, I think we've -- traditionally, we've always been aggressive on the share buyback. In fact, I believe from the beginning of the Company being public all the way through today, I think we've bought back approximately 19 million shares over the course of the Company's history. I'm being corrected here.

11 million shares.

11 million shares. Are you sure, including the split and everything? I think it's actually 19 million. Okay. Well, my CFO is probably -- I'd go with the CFO on this one. 11 million.

But anyway, we've had a substantial buyback over the years, and that's always served us extremely well. We have 42 million shares outstanding, so we would have had somewhere around 55 or so million shares outstanding. So we've been able to give back to shareholders through buybacks traditionally. I think the new shareholders that we have on the Board, Eric and Gregg, have brought some great ideas to the Company, and actually is going very, very well there. We are thrilled to have them on the Board. And they've got a lot of experience with dividends, especially in the Canadian marketplace. We know that it's important to Canadian institutional investors to have a dividend. So we felt that we are confident in the business. Obviously, it generates a lot of cash free cash flow. And we thought it would be very appropriate to send some of that cash back to our loyal shareholders.

That's great. Thanks, guys.

Scott Penner, TD Securities.

Hey, Errol, just one quick follow-up on taxes, because I know you love to talk about it. Just looking at the fact that your tax credits cover off the current taxes right now, is that the case through the end of this year, through the end of next year, and then how -- what is the sort of trajectory up until, let's say that 25% tax rate?

Sure. Well, with the acquisition of LiveTime, that was an asset acquisition. So it actually bought us a tax base. And that will push out for at least another year as far as when we actually have to start paying cash taxes. So right now, I'm expecting no cash taxes this year, no cash taxes in fiscal 2014, and then we will start transitioning in fiscal 2015. And I expect we will probably be fully taxed at about the 25% rate going into 2016.

Great. Thank you.

And we have no further questions at this time. We turn the call back to our 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 Q3 results, fiscal 2013 results. Have a good day.

And this concludes today's conference call. You may now disconnect.