Absolute Software Corp (ABST) 2013 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Absolute Software Corporation's fiscal 2013 fourth-quarter and year-end 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 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 risk 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, August 12, 2013 at 5 PM Eastern Standard Time. I would now like to turn the conference over to Mr. John Livingston, Chairman and Chief Executive Officer. Please go ahead, Mr. Livingston.

Thank you, operator. Good afternoon, everyone and welcome to our Q4 fiscal 2013 conference call. With me today in Vancouver is Errol Olsen, our Chief Financial Officer and Rob Chase, our Chief Operating Officer.

Simply put, fiscal 2013 was a transformational year for Absolute. We made two acquisitions, we enhanced our product portfolio and we began important strategic initiatives with both Samsung and Apple, two of the most relevant device companies in the world. We also brought strong executive sales leadership to our worldwide business with the addition of Thomas Kenny earlier in the year to head up our global sales and marketing organization.

In short, we went from being a PC-centric company to a uniquely positioned PC, tablet, smartphone, device management and data security company. In fact, we are the only software vendor that provides natively designed cross-platform support for all endpoint device form factors. And now, we are positioned to take advantage of the exciting smartphone and tablet growth that is dominating the device market. Never before has our Many Devices. One Solution vision run more true for our customers and our team at Absolute.

The market opportunity has expanded. As a result, I believe the overall market opportunity for Absolute has never been stronger than it is today. In the global commercial upmarket, approximately 290 million PCs, 276 million tablets and 1.8 billion phones are expected to ship in 2014. With the right products, unique competitive advantages and a proven track record, Absolute has solidified our ability to attain a leadership position within this dynamic multibillion-dollar market.

While our business has evolved, one thing remains the same -- our customers' ongoing need to adopt mobility and manage and secure each and every device and its data. Organization has continued to be faced with budgetary constraints on one hand and the need for increased security and management requirements on the other. It's trends like these, including the bring your own device or BYOD phenomenon, that continues to keep our business exciting, relevant and full of opportunity.

Absolute's competitive position has strengthened. We have established a number of sustainable competitive advantages that we believe will enable Absolute to continue our momentum as the next generation leader in this converging market -- first, our ability to provide customers with a single integrated solution with full security and management capabilities that span their entire endpoint device population. This is unique and critically important. The many successful customer rollouts, new customer acquisitions and positive industry analyst feedback we have received over the year is a good indication of just how strongly our Many Devices. One Solution vision is working and resonating.

Second, our unique persistence technology platform. Now, our persistence technology is available to Samsung, Dell, HP, Lenovo, Panasonic, Acer and Fujitsu on Android and Windows x86 tablet platforms. Our persistence on these device platforms is fundamental to our success within verticals such as education, government, healthcare and the other commercial market segments that continue to deploy large numbers of a combination of devices, including tablets, smartphones and netbooks.

Third, during the year, we also launched Computrace mobile desk management for the iPad, an industry first for Apple customers, which allows organizations to safely and securely deploy and secure large volumes of iPads.

Fourth, as the endpoint security, client management, Mobile Device Management and general IT service managements continue to converge and merge, our acquisition of LiveTime and Palisade Systems has also proved beneficial. Announced in November, LiveTime was launched and rebranded as Absolute Service. We remain encouraged by our growing sales pipeline as sales remain on track to more than double from preacquisition levels.

We also acquired the data security and data loss prevention assets from Palisade Systems, further broadening our data security capability and enhancing our ability to search, discover, catalog and most importantly protect the data on the endpoint.

Reflecting the evolutionary steps we have taken, ever important industry recognition came from Gartner this year. Absolute now is included in the Visionaries Quadrant at the Gartner Magic Quadrant for client management tools and also the Niche Quadrant of the Magic Quadrant for Mobile Device Management software. Only four companies have made both of these Magic Quadrants, which is very significant given that these quadrants are expected to merge.

Momentum is reflected in recent financial performance. Looking at our financial performance, our fiscal year got off to a slow start due to headwinds from general declines in PC shipments and the strong iPad penetration in our core market education. However, we were able to rebound from this to close the year with 10% growth in our fourth quarter to generate sales contracts in line with fiscal last year. We will carry this strong momentum into our fiscal 2014 driven by the resurgence in our education vertical on the back of our mobile desk management and mobile device persistence wins and a continuing penetration into corporate and healthcare verticals on the back of our increasing relevance for endpoint data security and governance, risk management and compliance solutions.

Samsung and mobile devices. Our overall business is also benefiting from the theft epidemic facing the smartphone industry. This trend has helped Absolute to increase our attach rates to PC shipments as organizations have now begun to realize the importance of having a lock, locate and delete capability not only for their smartphones and tablets, but also for their PC infrastructure as well.

As the inventor of this capability in 2001 for the PC infrastructure and as the only vendor in the world with persistence, our Computrace data protection solution has emerged as one of our fastest-growing solutions. The mobile theft epidemic has also led to extend our embedded persistence wins on Samsung smartphones and tablets. This has extended one of our core competitive advantages with the world's largest mobile device manufacturer.

While this has had little impact on our sales to date, we expect commercial and consumer sales momentum to build on Samsung devices towards the end of fiscal 2014, particularly as we continue to build out our go-to-market relationship with Samsung. The platform for growth is in place. Overall, we believe that our sales growth for the year validates that we are going to the market with the right products and solutions at the right time.

Inherent to our solution set are five unique competitive advantages as we spoke of -- full cross-platform support, our unique persistence technology, our unique Mobile Theft Management offering and our new DLP capability to protect data on the endpoint and finally, our ability to leverage our technology and go-to-market relationships with some of the world's largest device makers. It is these advantages we believe that will enable Absolute to lead in an exciting and continually evolving multibillion-dollar endpoint management and security market. With that, I will turn it over to Errol to discuss our financial results in greater detail. Errol?

Thanks, John. Good afternoon, everyone. Q4 saw sales growth in all of our key market verticals and productlines. After a soft start to the year in Q1, we saw momentum generally build throughout the year, which culminated in a strong Q4. We will look for these trends to continue into fiscal 2014 as we focus on execution of our sales strategy.

For the year, total sales contracts were $88.4 million, relatively flat from fiscal 2012 as the shift in North American education spending to iPad devices had a significant impact on first-half sales and slow global PC shipments were an overall headwind to the business. However, the impact of these headwinds began to dissipate in the back half of the year as product releases, including Computrace persistence on Android and Win 8 tablets, combined with the impact of our recent investments in sales and marketing began to impact the top line.

Q4 sales contracts of $26.2 million represented record quarterly sales for the Company and 10% growth over the prior-year quarter. Commercial sales contracts for the fiscal year were $82.3 million, up 1% from fiscal 2012. Once again, we saw strength in Q4 with commercial sales contracts for the quarter at $25.0 million, up 10% from Q4 of last year.

As mentioned earlier, we generated sales contract growth in all four commercial verticals in the fourth quarter with particularly strong growth continuing in the commercial verticals of corporate and healthcare. Importantly, this strength across all our channels is not simply the reflection of a few large contract wins. Instead, it was the result of strong business activity across the board. This diversified activity points to better business execution and our overall broadened product portfolio.

Fiscal 2013 commercial sales contracts for our theft management products were $52.8 million, down 8% compared to fiscal 2012. However, in Q4, commercial sales contracts of theft management products increased 8% to $16.8 million, demonstrating that these products continue to be relevant, particularly with the growing market awareness about the data and compliance risks associated with lost or stolen devices.

In terms of our device management and data security products, we delivered significant year-over-year sales contract growth. At $29.6 million for the year and $8.2 million for Q4, sales contracts for our device management and data security products were up 23% and 15% year-over-year respectively. Importantly, the growth within this category is coming from all associated products, including Absolute Manage, Absolute Manage Mobile Device Management, Absolute Service and Computrace data protection.

On the consumer front, annual sales contracts were $5.9 million, which was down 18% from fiscal 2012. Q4 consumer sales were $1.2 million, up 5% from Q4 of last year. Lower PC sales have in general been a drag on sales in the consumer segment. However, with our LoJack products now available for Android tablets in conjunction with our recent partner agreement with Samsung, we believe we are doing the right things to kickstart this segment of our business.

Now, looking at our operating expenses, our adjusted operating expenses, which include cost of sales and operating expenses, but exclude non-cash charges for amortization expense and stock-based compensation, were $71.4 million, a 14% increase compared to last year. In the fourth quarter, adjusted OpEx was $18.8 million, a 7% increase from the prior-year period. The year-over-year changes were largely the result of increased investments in sales and marketing and research and development to support our growth initiatives, as well as higher acquisition-related and other professional fees in G&A.

Our fiscal 2013 adjusted EBITDA remains relatively flat at $11.7 million. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization and adjusted for investment income, foreign exchange gains and losses and stock-based compensation. Adjusted EBITDA increased to 58% compared to Q4 of last year at $3.2 million.

Cash from operating activities continues to be a key financial evaluation metric for us. In fiscal 2013, we generated $17.5 million in cash from operations, a 7% decrease from the prior year and consistent with our expectations. For Q4, cash from operating activities was $3.2 million, down 33% compared to Q4 of last year. We ended fiscal 2013 with cash on the balance sheet of $62.9 million compared to $69.9 million at the end of fiscal 2012. However, it is important to note that we spent $13.5 million in fiscal 2013 on our share buyback program. And we also instituted a dividend policy in fiscal 2013, which utilized another $4.1 million. We believe we have sufficient cash and cash generating resources on hand to fund the continued growth of the business and sustain our dividend.

Looking now to fiscal 2014, we remain confident in the market opportunity for our solutions and intend to make continued investments, particularly in the key areas of sales and marketing and research and development, in order to fully capitalize on this opportunity. As such, we expect sales contracts to increase over fiscal 2013 levels and for cash generated from operating activities to increase moderately over fiscal 2013 levels. At this point, I will turn the call back over to John. John?

Thanks, Errol. Finally reflecting on our mobile device and data protection transformation, I believe the strength of our results as we exit the fiscal year is a testament to our growing momentum. We delivered both in our commercial markets, our Mobile Theft Management markets, device management markets and data security services markets. In fact, in all of our key verticals and in our international markets as well.

What we provide is what customers are gravitating towards and that is one solution to manage and secure all of their endpoint devices. Now, as we enter fiscal 2014, our focus will be on maintaining this momentum and executing on our sales plan to drive further growth in the business and generate shareholder value. This concludes our prepared remarks for today. Operator, please open up the call for questions.

(Operator Instructions). Scott Penner, TD Securities.

Thanks. John, just, first of all, could you give us an update just given we are heading into the education season now on the uptake in the iPad solution?

Sure. We have had some key wins at fairly large customers with our Mobile Theft Management solution that is queued up at Apple and we have a lot of interested customers in that solution that are deploying significant volumes of iPads.

And in the -- Errol, if you could give us a little bit more on the expense plans into the next year, I guess, relative to whether you feel right now you have got the proper infrastructure in place to support the growth to come out of the Samsung and Apple relationships.

Yes, hi, Scott. I think that we do have sufficient capacity within the organization and in the dev group to support the initiatives with Samsung and Apple. The cost structure that we exited the year, our adjusted OpEx in Q4, I think that is fairly indicative of our run rate going forward for at least the next couple of quarters. Mind you there will be some gives and takes between those lines. I think that our G&A was running a little bit higher than normal just due to a few oneoff type things. But in terms of our overall adjusted OpEx, it is probably a good number to model from for the near term.

And when we are thinking about the ramp in the Samsung relationship, you mentioned growing throughout fiscal year 2014. I mean what kind of milestones could we look for from the outside into whether this is successful? Are you going to start to give updates on sales progress or really what are some of the milestones?

Well, Scott, I think the way you can look at it is we have a very good working relationship with the engineering team at Samsung and we are just growing that go-to-market relationship. So I think the milestones are significant wins with Samsung likely in the international markets where Samsung is extremely strong. So we will -- if there is anything that is material in that area, we will certainly let you know and that would be a milestone you'd look for.

Okay. I will pass the line. Thank you.

Thanos Moschopoulos, BMO Capital.

Hi, good afternoon. Maybe just following on Scott's question on the education vertical, was the real story there the new ILS offering or are you also seeing some attach in education in other areas like with Android and Windows tablets?

So, Thanos, I think there is a few things happening. One thing that is happening is now we do have a product for the iOS environment, which is fabulous and our traditional Computrace customers that have relied on us for many, many years to protect their mobile device population are purchasing that service from us. So we are optimistic in regards to our Mobile Theft Management service for the year. So that is the first thing.

You are also seeing a number of the testing requirements, particularly in the Northeast, northeastern United States require a keyboard. So there has been a fair few notebooks shipping in a number of the markets across the country. And obviously, that is business as usual for Absolute. So we are recapturing a piece of that business.

And then we are certainly seeing a number of educational customers really seriously considering Samsung in the educational realm and that is playing well for us as well. And of course, we also support our traditional OEMs like Dell, HP and Lenovo for Windows-based tablets and Android tablets. So we are able to address almost all of the education market, whereas we really couldn't say that last year. And that is a very significant and improved position we have as we go forward. So I would look to, as Errol said, I would look to the education market normalizing as we are used to it in years past.

Okay, that's great. And in your prepared remarks, you mentioned healthcare as an area of strength. Can you talk about what you are seeing specifically in the healthcare market, maybe provide some color around either the growth rate you saw in that vertical during the quarter or how large that vertical is as a proportion of your business?

It is a very exciting vertical for us and I think to what we were talking about in the prepared remarks is just this notion that, as smartphones particularly have brought the concept of a remote and the power of a remote data deletion type technology to the market, and particular to the IT organizations, that is becoming a standard now in the healthcare market. So yes, encryption is there, but folks understand that encryption does have a lot of vulnerabilities in terms of it may very well be that the person that has taken the encrypted device is the one that knows the password. So you really don't have -- you need that second level of protection.

And so Absolute, particularly in the healthcare segment, which has a lot of governance and risk, risk management issues associated with that segment as we know with HIPAA, etc., we are becoming a standard in terms of that remote deletion and persistent tracking capability. So healthcare can be a very, very significant market for us and it is trending in that direction.

Great. Maybe just one last one for me. Just to be clear, were there any seven-figure deals in the quarter?

No, there are no seven-figure deals in the quarter. Something I think that is really worth noting for the quarter is the fact that we didn't rely on large kind of oneoff type deals. It was all just consistent, a lot of volume, just a lot of good deals anywhere in kind of the $50,000 to $250,000 range for the most part.

I will just add to that as well, Thanos. I think the improved sales execution that Thomas Kenny is bringing to the table is gratefully benefiting the organization.

That is good to hear. Thanks, guys. I will pass the line.

Blair Abernethy, Stifel.

Thanks very much. Nice quarter, guys. So John, I just wondered if we could take the conversation up a little bit here, up a level a little bit. In terms of your business in the past before the last couple of acquisitions in the last two years, much of the Computrace business was tied directly to PC sales, laptop refreshes in your customer base. As you look into your pipeline sitting here today, can you frame up for us sort of how much of it is driven just by pure laptop versus maybe mix environments or some of the new environments, new operating systems like iOS?

I would say about 70% is still the PC business in terms of -- that's easy business for us to do. Obviously, we are embedded in every notebook virtually made. So that is our core, that is still a core piece of the business. But then the next 30% is really the new areas, which are the new tablets, the iOS opportunity, the Android opportunity and the service opportunity, as well as the MDM, Absolute Manage and the new DLP opportunities that we are seeing. So we really are converting our business into this new territory and able to continue to do that with, I believe, a good amount of certainty and reliability.

Okay, great. And then on the PC market sitting here mid-2013 here, are you feeling that the PC -- the client and sales that we have seen in the last 24 months in that market, has that headwind fully abated for you at this point or is it still pushing you back or how are you feeling about the PC market?

Well, it's much better than it was this time last year. So there is still 279 million laptops shipping or PCs shipping worldwide next year. So it is still a very significant market, but the good thing is is that not only are we able to be talking about leveraging that market, but we are also leveraging now the tablet market, which is another 200 and whatever it was devices and then the phone market as well.

So this whole idea of the vision is it really doesn't matter what device the organization is bringing in or the employees of the organization are bringing in, we are able to manage it, secure it, have it properly registered, enable the device to come onto the organization's infrastructure and we play a much more significant role today than we did two years ago in terms of enabling organizations to have a mobile infrastructure.

So we feel very good in terms of where our position is. And this Palisades acquisition didn't really get a lot of press particularly, but it is extremely significant. Rob, I want to, again, call you out for a great job that you did pulling that into the organization. And we are super, super excited about Palisades. It gives us DLP capability, integrated in with Computrace.

So now that we can go out and do DLP for our corporate and healthcare customers, which is very significant, show organizations where their sensitive data is, discover it for them, catalog it for them, give them full reports and if they see it is on devices it shouldn't be on then, of course, we can actually delete, take the action proactively to delete all information and then actually even with persistence report back to show that that data deletion has been successful. So the Company has got some real legs here as we move forward into the next couple of years.

Okay, great. Thank you. One last quick one for me. I don't know, Errol, if you have this stat around, but in terms of the deals you have booked in the quarter, do you have a percentage breakout of how many of the deals are with new customers versus existing customers?

Well, just broadly I think it's a range. We are starting to trend a little bit more to a greater percentage of deals that are coming from new customers. Traditionally, roughly, depending on the quarter, 75% to 85% of our business is existing and I would say, in the last quarter, we were closer to the 75% mark.

Okay, great. Thank you, guys.

Justin Kew, Cantor Fitzgerald.

Great, thank you very much. Really good quarter, John and Errol. So just the first question on the outlook for 2014, talking about 2014 being above 2013, how much of the Samsung relationship are you building in? I mean I guess it is kind of along the question that Scott asked earlier, but can you give any sense of how much contribution will come from that relationship?

Justin, we are not building too much into fiscal 2014 and the reason why is -- as we mentioned, really the technology relationship has gone first, so we have a very good relationship with Samsung on the technology side, a very capable team obviously in Korea that we are working very closely with in terms of the persistence and some of the new market opportunities. So you have got to build it into the devices first and then, over time, we are being introduced to their go-to-market organization in America and internationally.

So I think what you are going to see is, all of a sudden, we will do a deal with Samsung into a Samsung Absolute customer and it could be significant. It could be a 50,000 unit opportunity, it could be 100,000, it could be 0.5 million unit opportunity and global. So there is a lot of very large opportunities out there, particularly in the education market where Samsung Absolute combination offers a very compelling value proposition to an international educational customer where, for a couple hundred bucks a unit, or whatever the price is, $250 or whatever it is, they are going to get a fabulous tablet with a great Android operating system and full tracking and deletion and recovery capability.

So I think we are looking at these opportunities and we are going to market with Samsung in these international markets to capitalize on those kinds of deals. So as soon as we close one of those types of deals, obviously, we will be letting the market know, but there is quite a few of those kinds of opportunities out there.

Okay. So what I am hearing is that they may not necessarily be baked into the -- I'm using air quotes here with my fingers -- the guidance of being higher. So there could be significant upside if those do land in 2014. Would that be a good characterization?

I think that there is definitely upside there if they land in 2014 and we are working on some of them now, but it is a little hit or miss in the international market. Sometimes the European countries can't get budgets and things like that, but certainly the appetite to roll let's say an inexpensive tablet across a large student population I think is a trend in the international education community that will continue for 2014, 2015, 2016, 2017.

So you will see more and more of these emerging countries want to roll out technology to their student population. And they are going to a want to keep track of it. They are going to want to be able to recover if it gets lost or stolen, etc. So it is a very nice fit for our business and we think it will become meaningful over time.

Excellent. And then my next question was just earlier this year in January when you announced the very large or the largest deal in your history, the $3.5 million with the healthcare with the Fortune 500 healthcare company, you had specified back then that this would fall into Q4. Did it fall outside of the quarter?

No, no. That deal was actually -- it was calendar Q4.

Oh, calendar Q4. Okay, okay. And have you kind of seen any additional -- kind of within your pipeline -- deals kind of similar scale now that that was under your belt?

Well, those kinds of deals do exist, Justin, obviously and a large enterprise deal like that does take some time because they are significant, but we certainly have those kinds of opportunities in front of us as we go forward.

Okay, thank you very much.

Thanks, Justin.

(Operator Instructions). Pardeep Sangha, PI Financial.

Thank you. Just with regards to the education vertical, just trying to understand this a little bit better, in terms of your pipeline, how would you characterize existing customers versus new customers, existing customers being customers that perhaps you've sold the Computrace for PCs in the past and now they are going to the mobile device sort of products? So existing customers versus brand-new customers in the education market in your pipeline, how do you characterize that?

I think that is right and anybody that has bought from us in the past is an existing customer. As we know, we have tens of thousands of those existing customers and many of them are continuing to buy notebook computers for a variety of reasons. Some reasons are regulatory reasons and then the price of these notebooks will continue to come down, down, down. So they are almost the same price as an iPad.

So there is a lot of value in a traditional notebook for a student in terms of the typing side of the equation and just general wear and tear, etc. They are easier to manage and secure. So there are a lot of good reasons why educators roll out notebook computers and then also depending on the school and the objectives, obviously, iPads make a lot of sense as well. And so do Android tablets and Microsoft tablets do too.

So we play across all of them and we are working very hard with our educational customers to provide a lot of value around the device tracking and management, but also helping the administration secure the school and the students. So we actually provide some training modules as well to the schools to help them mitigate some of the issues regarding theft of these devices and we have really a full safe schools, safe communities program that we roll out and Mobile Theft Management and traditional device management is a big piece of that.

So would you have -- right now, would you say you have more distinct customers in your pipeline or new customers in the education vertical?

Pardeep, I think really right now what we are seeing is education, obviously, has a lot of expirations in the period coming up, so we expect a lot of existing customer business in Computrace. Some of that, as John is getting at, will be coming from the mobile side of the house as they will adopt mobile in place of a PC.

That has held pretty steady I think compared to last year, which is where we saw the drop-off and that is why you saw the growth in the current quarter, Q4. But also, internationally, I mean that is all brand-new customer business primarily. There is a lot of opportunity there on the international scale from education and finally, there remains a lot of greenfield opportunity in the education segment for our Absolute Manage and Absolute Service products as well. So that will be a mix of selling to existing Computrace and also bringing completely new customers into the mix.

So, certainly, we are not penetrated 100% with Computrace into the education sector, even in North America and we will continue to see new there, but a large majority of North America is going to be from existing customers.

Okay. On the international markets, like for next year -- I mean, in the past, you have mentioned that Asia-Pac and Latin America seem to be getting a lot of traction. Those are kind of key areas you are seeing growth in. For next year, for fiscal 2014, what are the key sort of international markets, how would you characterize each of the international markets for fiscal 2014?

Well, I think we have got, as you mentioned, I mean Latin America, there is some very large opportunities there, which are exciting and there seems to be budget there, which is always a good thing. Obviously, we see some significant opportunities in Asia-Pacific. Mark Grace, our head of the rest of the world, who is handling Asia-Pacific, doing a great job, is in Singapore right now and we are seeing a lot of opportunities over there.

And then on the EMEA side, there are some very significant opportunities, particularly in emerging countries that really see the need to roll out an inexpensive device across a very large number of students, but they want to make sure that they can track it, they can recover it and then they can secure the student and the data. So these are very common themes and I think we are going to see some wins this year in these international markets in some larger deals based on what we have seen over the last -- the pipeline that has been developing over the last 12 months.

And in these international markets, is it really education and healthcare that you are leading with? Is that really where your focus is in these international markets? And then follow up with other verticals afterwards?

Yes, I think that is fair. Education first and foremost just because that is a lot of our history and background, but we are also seeing it come from -- we are seeing some financial institutions, we are seeing a pretty broad array of commercial organizations and healthcare as well, oil companies, gas companies. It is a fairly -- financial services companies -- it is a fairly broad mix of organizations.

Okay. I just want to follow up on a question that was asked earlier. You mentioned that -- I don't know if I understood this properly, but you mentioned like the core assembly percent of your business, the core being sort of Computrace, is that relating to the pipeline as well today? Like I mean, in the pipeline, do you really see 70% of your business still the core?

No, I think what we said was 70% of our business is being rolled out to notebook type computing environments. But that doesn't necessarily mean it is just Computrace. It can be a whole spectrum of things. So even if you are going into -- if we are rolling out Absolute Manage, for example, inside an organization or a significant number of those legacy devices that an organization has are going to be PCs and Macs. They just are and the new stuff that is coming in is -- can be tablets and phones, etc. But you are still on the early side of these smaller devices being rolled out inside an organization. It is obviously very prevalent, but the numbers are still small.

Okay, thanks for clarifying that one. Thanks. That is it for me.

Okay, thanks, Pardeep.

Gabriel Leung, Paradigm Capital.

Thanks. Since we are almost at the one-year anniversary, do you mind giving us an update on how things progressed with LiveTime, first of all? And secondly, I guess with Palisade out in the wings now, are there any major holes or do you feel there are any major holes in the area of device management platform that needs to be addressed over the near term?

It's Rob here, Gabe. On the LiveTime aspect, we remain very bullish and excited about that acquisition. It certainly filled a major need for us from a customer and product perspective and as we mentioned in the prepared remarks, it is on track to more than double what it did in its biggest year ever prior to acquisition.

So following a similar trajectory to what we saw with Absolute Manage and maybe just a little bit faster actually than what we saw there. So we are very happy it. The team remains intact and really a lot of the focus there is on integrating with Computrace and Absolute Manage. That was the vision at the time we acquired it, to enable us to generate workflows that automate and optimize the use of Computrace and Absolute Manage in our customer environment. So that is coming along very nicely.

On the Palisade side, again, we are very excited. We didn't talk too much about it on the call, but certainly just being part of a bigger organization has benefited the sales pipeline for that organization. But as we get disintegrated with Computrace toward the back half of the year, we think it will be very exciting to have a cloud version of endpoint DLP with a persistent agent that maintains it on that endpoint. We think that that ties in perfectly to what customers are already looking to us for in the governance, risk, compliance aspect around data that drills that large deal that we saw mid-year as well last year. So that will be exciting for us. We do need to get those things operationalized and unlock a lot of the opportunity there before turning our heads to another acquisition. We will continue to look, but I think that we look opportunistically at this time and there is nothing glaring in terms of product holes we need to fill, just things we could accelerate.

That is great. And one question for Errol. In your cash flow guidance for fiscal 2014, what are you assuming in terms of cash taxes? And that is it for me. Thanks a lot.

Sure. So fiscal 2014, I am not expecting that we will incur any cash taxes. I think it will start transitioning into a cash taxable position in fiscal 2015 and then over the next kind of three years from there, 2015 to 2018. So think of it as zero cash taxes in the current year, maybe single digit cash taxes in fiscal 2015 and then moving upwards after that to reach our effective tax rate over time, which is 25% in British Columbia.

Great, thank you.

Richard Tse, Cormark Securities.

Yes, thanks. Errol, what percentage of your current earning base is in the education vertical today?

Well, right now, I think, for the year, education is roughly -- it is roughly a third, just over a third of our business and followed very closely by corporate.

Okay. And then when you look at the education market today, I am just trying to get a sense of what the shift towards tablets are. Would you say that a number of your existing customers have shifted? I'm trying to get a feel for what percentage that would be.

I would say it is about 20% probably. 20% to 25%.

So when they do make that shift, they would have to rebuy, I guess, so to speak, a license or a SaaS agreement or how does that work?

Well, they don't rebuy. They just buy another -- they just buy another license for the new device that they would regardless of whatever type of device it is. So they just buy it. I mean really there is -- the way that Absolute is positioned today and there is a lot of educational CIOs that we speak to that would tell us this. Without Absolute providing persistence and some ways of tracking, recovering and giving visibility and control, it is very difficult for educators to roll out devices inside these organizations.

So we have about 25% of the educational market. We have, I believe it is 21 out of 25 of the top educational institutions in America. So a very significant business there that we have built over many years with a very stable clientele. And now, they are adopting, obviously, our technologies and products and solutions for these new devices that they are rolling out as they roll them out. So that business will continue to grow for us and I think that just generally with more devices coming into education than ever before because the price of these devices is coming down, that is just more opportunity for Absolute.

And then you magnify that when you look out to international markets that have never before really considered to the same extent that they are now some very large rollouts in terms of opportunity for Absolute. So the education market should grow for us on a gross dollar basis in fiscal 2014.

Okay. And then you guys obviously made a smart move endorsing your business here. As you have made those moves, obviously the competitive landscape has likely changed a little bit in terms of who you see. Have there been any sort of surprises on that front relative to the usual suspects that you have seen in the past or is it pretty much really not competitive to your persistent technology?

In the persistent tracking remote (inaudible) deletion and recovery business, we are very, very unique, obviously and that business is solid and it is fairly easy for us to win in that business. I think the other area where we win is the cross-platform business, the fact that, with one solution, you can manage really any type of device that is coming into the organization. That is a very important capability that customers are asking for more and more. So they don't want one solution to manage their legacy devices, their PC clients and a different solution to manage their new mobile device clients. They want one solution to manage all their clients.

So Air-Watch goes into a new customer and says, hey, we can manage a third of your clients. Well, that is not all that compelling. We can go -- Absolute can go in and we can say, hey, we can manage all of your clients. And that is much, much more compelling because the different devices are coming out all the time, different operating systems are coming out all the time and we are able to future proof these customers against whatever device choice they may require in the future. And that resonates very well with education customers, corporate customers, healthcare customers, etc.

So I think Gartner talks about convergence of client management tools and Mobile Device Management. So we are seeing that continue to accelerate and as it does, it is a convergence, it is a perfect -- we are out ahead of the convergence. So as that takes place, they are coming to Absolute to solve that problem. And others like an Air-Watch or others, they don't have that solution set.

So we are very well-positioned and it is not a bolt-on situation with Absolute; it is a true natively designed product platform. So it is super easy to use. You can use a Mac server, you can use a PC server, full, full support for everything PC, Mac, Android, iOS, Windows 8 all from one console. It is a very, very attractive solution set.

Okay. And then one final question here, Errol. In terms of the quarter, how much contribution did LiveTime and Palisade contribute?

Sure. Well, I think when -- I don't want to give out specific numbers on those, but I think when we bought LiveTime, we had indicated it was around a $2 million run rate business and as Rob indicated, we are on track to double that. Palisades, really -- Palisades happened very late in the quarter and really didn't have any contribution. In fact, with Palisade specifically, we don't expect a meaningful contribution until we roll out the endpoint deal to the agent midway through the fiscal.

Great, thank you.

Scott Penner, TD Securities.

One follow-up, John. That is when the speculation that Samsung is about to or is in discussions to win some of these major federal US government contracts, just hypothetically at what point does Absolute get inserted into that sales cycle? I would imagine there is an RFP and I am just curious when do you know about a deal like that and when are you involved?

Well, I am not going to talk about specific to Samsung, but I'll just talk about generally what happens with any of our OEM partners is, as they are going through a sales cycle, particularly with tablets, which are extremely easy to lose and unfortunately be stolen, when that topic comes up, we trust that our partners will mention our services and then bring us in as a subject matter expert to speak directly with whoever the customer is.

So, obviously, in a federal case, we have a federal team that is based in the DC area and down in Austin, Texas that work on a lot of those customers. Obviously, we have worked with some of those organizations on the recovery side, getting devices back for those organizations, but also those organizations, working with them and actually getting a different -- a third-party's customer device back. So it is a symbiotic relationship with the OEM where they -- should they determine that the customer needs a service like Absolute provides, they bring us in as the subject matter expert.

And what, if anything, have you seen the pressure on the renewal prices given the declines that you mentioned in the notebook prices for like-to-like functionality? Has there been a similar amount of pressure or what has that experience been?

No, we really haven't seen pricing pressure. As you see, the MSPs or the three prices for Computrace have held pretty solid for many years. Obviously, we charge less for tablets than we do for notebook computers because there is a lower value attached, but typically these devices have held -- our services have held pretty constant.

I think the school education market, they are buying us for two things. They are buying us, one, to keep track of the asset certainly and recover it if it is lost or stolen. They are also buying us to push forward, if you will, their security envelope around the students and the school. And this is very important and (inaudible), who leads our recovery and investigations team, has done an excellent job interfacing with our K-12 customers to really understand how we can help make the entire school environment more safe. And that is a big focus for Absolute. So to take our core Computrace and other technologies and services and really wrap it into a bigger -- most importantly, the goal is to keep the schools and extended community safe. And so we are very busy working on that program.

I appreciate it. Thank you.

Mr. Livingston, there are no further questions at this time. Please proceed.

Well, thank you, operator and if there are no further questions at this time, we will look forward to reporting to our shareholders and interested parties in another quarter or so. Thank you very much, everybody. We appreciate it.

Ladies and gentlemen, this concludes your conference call today. We thank you for participating and we ask that you please disconnect your lines.