Absolute Software Corp (ABST) 2014 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Absolute Software Corporations first-quarter fiscal 2014 conference call.

At this time all participants 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 related to these forward-looking statements please refer to the section of its quarterly MDNA.

(operator instructions) I'd like to remind everyone this conference call is being recorded today, Wednesday, November 6, at 5 PM Eastern time. I would like to turn the call over to Mr. John Livingston, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you, operator, and good afternoon everyone. And welcome to our Q1 fiscal 2014 conference call.

Today I'm in Budapest; Errol Olson, our Chief Financial Officer and Rob Chase, our Chief Operating Officer, in Vancouver. As mentioned, I'm currently in Europe for customer and partner meetings and for our semiannual European Customer Advisory Board.

As I'm calling from abroad I will pass it over to Rob and Errol to provide our prepared remarks. The three of us will then be available for Q&A.

With that I will turn it over to Rob for an operational update. Rob?

Thanks, John, and good afternoon, everyone. We continue to make progress with our Many Devices One Solution vision, which is transforming Absolute from a PC-centric theft recovery provider to a cross platform must have management and data security platform for mobile computing. As we continue to execute we believe we will increasingly benefit from the macro trends and mobility data security and the convergence of security and management markets.

Further, we see our proven competencies And software-as-a-service mobility and embedded persistence as key differentiators in winning a significant share of the converging multibillion-dollar device and data management and security markets. Progress on our mission is reflected in the 15% year-on-year sales growth we've posted in Q1. The primary growth driver was our core Computrace offerings which are benefiting from mobility, data security and compliance trends.

This was the second consecutive quarter of growth in our core theft management services, which grew 17% over Q1 last year. In addition, we delivered 15% growth in our data security and device management services in part due to the $975,000 Computrace Data Protect, or CDP, sale that we announced today.

This sale was to a new corporate customer in the Asia-Pacific region and was to protect their Windows tablets. CDP continues to be our fastest-growing service and reflects the customer need to maintain visibility of off-network devices through our persistent cloud platform and to prevent data from falling into the wrong hands when those devices are compromised. We believe Computrace is increasingly becoming a must-have layer of any effective security strategy and that continued growth for Computrace will come both from increasing our attach rates to PC shipments and from leveraging our persistence wins on mobile devices to penetrate the tablet and smart phone markets.

While Computrace is the primary driver of the current growth, our Manage, Service and Data loss prevention offerings are expected to become an increasing part of our future growth. These offerings are in highly competitive markets with good greenfield and displacement opportunities.

To date, we have made solid progress in both leveraging these products to acquire new customers and in cross-selling these solutions to existing Computrace customers. We believe that this progress has confirmed our investment thesis and that meaningful acceleration in these solutions will result in delivering them as part of an integrated SaaS platform with Computrace.

Each of the offerings are competitive and their own right but when combined with Computrace they become highly differentiated in ways the competition cannot match. Industry analysts and our customers agree that delivering on this vision will enable Absolute to emerge as a next- generation leader in mobile computing.

To that end, we remain focused on our key strategic initiatives for fiscal 2014 and are accelerating the investment in these initiatives based on the performance to date. The three main initiatives are product integration, sales execution and expansion, and value-added resellers channel development.

With respect to product integration, we are working toward a unified SaaS platform that unlocks the synergies between our services. We will be delivering on this vision incrementally with the most impactful components delivered during calendar 2014.

The components of this vision have already begun to ship with our recently released Web UI for our mobile device management offering. The next version of this UI will set the stage for a software-as-a-service version of our mobile device management solution in the first half of calendar 2014.

In that time frame we will also deliver the first version of our cloud-based endpoint data loss prevention service as a module of Computrace based on the Palisade technology we acquired in June. We will also deliver enhanced integration for Absolute Service with both Computrace and Absolute Manage to enable our customers to optimize their business processes and regulatory compliance.

At the same time we will continue to enhance our best-of-breed products to ensure they remain competitive in their own right. We will also continue to assess these enhancements in context of a make partner or buy framework. As with Palisade and LiveTime we continue to watch for acquisition opportunities that can accelerate our roadmap in an accretive manner.

On the sales side, under the leadership of Thomas Kenny, who came on board last December, we have begun expanding our salesforce and have enhanced and simplified our incentive plan. We are focused on optimizing our go-to-market efforts and aligning our sales teams with our corporate objectives. This means ensuring that our team is selling the entire portfolio of our services, acquiring new customers and maximizing existing customer sales.

We continue to see improved performance from our sales teams. And at the same time we are now hiring to expand the number of teams as part of our overall growth plan.

Sales execution includes continuing to evolve our OEM partnerships. Our persistent technology platform is a unique differentiator for Absolute and now extends beyond PCs to Windows and android tablets from Samsung, Dell, HP, Lenovo, Panasonic, Acer, and Fujitsu.

With embedded persistent support from Samsung, we now have the opportunity to grow with one of the market leaders for tablets and smart phones.

We expect to see impact in our pipeline from this relationship towards the end of fiscal 2014. Initial opportunities are likely to come first from international commercial opportunities followed by North American commercial opportunities as they ramp up their North American salesforce and finally from telco partnerships. We recently launched our consumer offering for Samsung smart phones as part of our strategy to penetrate the telco market.

Our third main initiative is to develop a value added reseller, or VAR channel, to augment our OEM sales. Many of our management and service offerings are well-suited to the VAR channel.

We believe that premium VARs will have a sales force multiplier effect on our sales expansion efforts and see this is as a key initiative to accelerating our growth. We have recently hired a team to focus on this channel and have developed the program and have identified a number of target VARs for this effort.

It is important to note that many of these initiatives will start to add to our sales growth in the back half of fiscal 2014 with the majority of the impact coming in fiscal 2015. In summary, we believe that our sales growth for the quarter demonstrates that we are going to market with the right products at the right time.

Inherent to our solution set are unique competitive advantages that will all be delivered to a single well integrated management console. It is these advantages that we believe will enable us to lead and capture a large share of the exciting and continually evolving multibillion-dollar endpoint management security market.

With that I'll turn it over to Errol to discuss our financial results in greater detail. Errol?

Thanks, Rob. Good afternoon, everyone.

For the quarter total sales contracts were $23.8 million, a 15% year-over-year increase. This rise was driven by strength in all industry verticals in both our theft management and device management and data security product segments and in both domestic and international markets.

Commercial sales contracts for the quarter were $21.7 million, up 16% from the first quarter of fiscal 2013. From an industry vertical perspective, we are pleased to have seen rebound in our North American education and government businesses as well as continued strength in the corporate and healthcare verticals.

Of note, more than 40% of commercial sales came from the combined corporate and healthcare vertical representing approximately the same proportion of sales as the education vertical. This is an indication of the continuing diversification of the business and the growing strength of our solutions in the corporate and healthcare spaces.

International growth was strong with a 32% year-over-year increase, which included the contribution of a sale valued at close to $1 million in the Asia-Pacific region. This particular sale was significant on a number of fronts.

First, it's another indicator of the growing opportunity for Computrace data protection in the corporate sector. Second, it speaks to the relevance for Computrace on tablets and hybrid devices. And finally, it's a demonstration of our growing success in international markets.

Looking now at our product split, first-quarter commercial sales contracts for our theft management products was $15 million, up 17% compared to Q1 of fiscal 2013. Overall demand for our flagship products remains robust both within education and in the corporate and healthcare verticals.

In terms of device management and data security products, we delivered year-over-year sales contract growth of 15% to $6.7 million. This increase was driven primarily by strength in our Computrace data protection product.

On the consumer front, first-quarter sales contracts were $2.1 million, which was up 8% from the first quarter of fiscal 2013 with the increase driven largely by retail sales of our LoJack for Laptops product. We recently launched our consumer theft recovery solution to select Samsung Galaxy phones and tablets and expect that these will contribute to meaningful sales as we build out our telco and mobile retail channels both domestically and abroad.

Now, looking at our operating expenditures, adjusted operating expenses, which include cost of sales and operating expenses but exclude non-cash charges for depreciation, amortization of acquired intangibles and stock-based compensation, were $18.4 million, a 2% increase compared to last year. G&A expenses were lower than the prior year due to a doubtful debt provision taken in the prior year period with the decrease in G&A offset by higher sales and marketing and R&D charges in the current period.

Our first-quarter adjusted EBITDA increased 89% to $3.3 million. Adjusted EBITDA is defined as earnings before interest and taxes depreciation and amortization and adjusted for investment income, foreign-exchange gains and losses, and stock-based compensation.

Cash from operating activities continues to be a key financial evaluation metric for us. In the first quarter of fiscal 2014 we generated $5.4 million in cash from operations, a 1% increase from last year. We ended the first quarter of fiscal 2014 with cash on the balance sheet of $68.5 million compared to $72.5 million at the end of the first quarter of last fiscal year with the decrease reflecting the impact of share buybacks, dividends and the acquisition-related expenditures.

During Q1, we paid CAD0.05 per common share dividend which totaled $2 million. And as you know, subsequent to quarter ends, we raised the dividend level 20% and will be issuing a CAD0.06 per common share dividend at the end of the month.

Looking now to the remainder of fiscal 2014, we remain confident in the market opportunity for our solutions and we 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 a result, we continue to expect sales contracts to increase over fiscal 2013 levels and for cash generated from operating activities to grow modestly from fiscal 2013 levels.

At this point I will turn the call back over to John. John?

Thanks, Errol. Q1 was a good start to the year. We delivered growth in both our theft management and non-theft management segments in all four of our commercial markets, in our consumer market and in our international markets.

As we move through fiscal 2014, our focus will be to maintain this momentum and making enhancements to our sales product development and partner relationships to drive a strong second half to the year. In the face of mounting demand for products that can manage the risk associated with the use of mobile and computing devices, we remain the only company that offers device management coupled with content and application management for all the popular devices -- PCs, Macs, Android, and iOS devices.

We will continue to leverage this distinct competitive advantage to grow our 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.

Maybe first of all on the cost side of things, it was a little bit lower, the operating expenses were a little bit lower than I'd expected. Can you just give me what the employee count was at the end of the quarter versus last quarter and sort of how you feel about the trajectory of expense growth through the year?

We finished the quarter with a headcount just below 400, I think with approximately 393 permanent full-time employees. This was relatively unchanged from where we were at June 30.

I can tell you our plans for the year are to increase our employee base by approximately 10% over the course of the year. We actually did a little bit of hiring towards the end of the first quarter and then you'll see the ramp up accelerating through the back half of Q2 and then be fully at roughly 440 by the end of the calendar year.

So from a cost perspective, just looking out over the course of the year, you can expect our cost structure to ramp in the areas of sales and marketing and R&D. And we'll finish the year in rough numbers roughly at an adjusted OpEx base that's probably around 5% or 6% above our annual adjusted OpEx for last fiscal year.

Okay. I appreciate that.

On the product roadmap over the next couple of quarters, specifically the SaaS version of the mobile device management. It seems in looking out across the market that sort of deployment option is pretty much table stakes for people in the industry these days. Have you found that you've missed out on any deals as a result of maybe not having it right now?

Yes, Scott, definitely we think it's a very important piece to that puzzle. A lot of organizations will get going with the SaaS version at the outset.

Often times, when you get into large implementations they really do need it to be on-prem, so that's where we've been focusing to date. But we also noticed that a lot of the existing customer penetration into Computrace has been with the mobile device management offering.

So lots of greenfield opportunity there. And a SaaS version definitely will help us tap into that and unlock more rapid growth, we believe, in mobile device management.

Just one last question maybe and that's going back let's say three, four years ago on the heavy sales periods of that year and those people coming up for renewal now, I don't know how far in the weeds you want to get with describing this, but has the pricing on a PC for PC, is that still fairly consistent with what it has been and then is the goal of renewal for those customers even though the mix of device management changes, is the dollar renewal pretty much consistent or even growing?

Yes, Scott, that's a very good question. As you know, going back 24 to 36 months ago we were growing at around 20% year-over-year and now we're going to see that showing through in our renewals this year.

In terms of pricing on a PC-to-PC basis, prices are consistent. We've not seen any price depreciation on our PC products.

But certainly if customers are switching from PCs to mobile devices, our pricing on mobile devices is roughly two-thirds of what the pricing is on PCs. And that's where we'll see -- so we've got increased renewal opportunity of 20% but we do expect it will be a little bit lower than the 20% just because of a switch in product base.

Okay. I appreciate it, thank you.

Scott, I might just add one thing to that. I think, generally, you'd expect from a SaaS company to have greater than 90% retention in customers and greater than 100% retention on a dollar value in the renewals and we've been tracking very close to that, usually getting up above the 100% on dollar value.

So that's a bit of renewing those customers on existing OS pricing that's similar, bringing in the mobile piece with the same product, lower price point generally speaking, but then also selling them additional product. So just like any other SaaS company we are seeing having a similar experience.

Thank you.

If I might add one point to that, I think another thing that's really important is this hypergrowth of mobile devices, what we're seeing is a familiarity out there in the marketplace with the ability to remotely delete these devices. And, obviously, that's a core piece of functionality for an MDM product.

It's affecting us in a very positive manner in terms of customers are coming to us now realizing that this ability to delete data on phones is really become an industry standard, but what customers now want in addition is that same functionality on their traditional laptop environment which are still, there's hundreds of millions of laptops out there. And so we've got a lot of customers coming to us and saying, hey, provide us the equivalent on our laptops that we have on our phones in terms of data deletion.

And that's something that really only Absolute provides in a robust manner. So that Computrace data protection product category has become, as Errol mentioned in the call, very popular.

And we're seeing a really enhanced interest throughout enterprise customers really globally in that particular service, which really can be very valuable to us. And it's not core business.

Gabriel Leung, Paradigm Capital.

Congratulations on the quarter. Just a couple of things. First, I was wondering if you guys can talk about whether qualitatively or quantitatively your sort of pipeline of opportunities and maybe the close rates you've been experiencing over the past few months?

Thanks, Dave. Yes, thanks for the congratulations on the quarter as well.

But in terms of close rates there's been really no change from a Computrace perspective. Often times on the Manage side and the Service side, particularly the Service where it's a bit newer for our sales teams, those are a bit longer sales cycles, particularly a lot of those will be in the rip-and-replace type opportunities. They do take time. That said, where there are greenfield opportunities, which in the management space is in the either 5000 C customer base and, of course, in the mobile device management space, those deals can happen very rapidly more like a traditional Computrace cycles.

Any commentary around the pipeline that you're dealing with right now?

Pipeline has been growing nicely for us for all of the products. It continues to be strong and it's, again, we don't generally have massive deals that make up a big portion of it, so we're seeing a nice healthy pipeline, a lot of opportunities big and small but nothing that's substantive relative to that pipeline in itself.

And on the subject of large deals maybe you can chat a bit about the Asia-Pac deal, the sales cycle there timing wise, who you're competing against any other color you'd be willing to share?

John, do you want to take that one and follow on from your CDP comments from earlier?

Yes, sure, I think when it comes to this methodology and technology we've developed for remotely deleting data on Wintel laptop computers or desktop computers, there really is nobody else out there that has a robust method for deleting data off these devices. We wipe the drive six times, we wipe all the caches, we've had a lot of experience and we're doing a very thorough data wipe of these assets.

So we're finding large corporate customers that now are very familiar with what happens on the phone side and the data deletion option on the phone, they're translating that over to the PC population. And as we mentioned, there's still a lot of PCs out there and a lot of laptops out there and they're looking to protect their installed base. And there's much more awareness about data protection, obviously, today than there was even six months ago, a year ago, two years ago, three years ago, etc..

So there's an intensity and an intensifying pressure on organizations to make sure that no data leaks or is compromised during a theft of an asset. So that heightened visibility and concern over data loss is really driving some of these large CDP deals and this insurance company in Japan was just another example of that.

But we're seeing it every quarter, we're seeing a number of these large deals come into play where folks want the CDP. And I can tell you just in this customer advisory board that I'm attending right now here in Europe that we're having some very exciting discussions with some existing customers with some very large opportunities here in terms of the CDP offering. So I think we're going to see continued growth in that particular segment.

That's great. And maybe one last question.

In deals for endpoint lifecycle management or Absolute Manage MDM where you're not successful against your competitors, can you give us a sense of where do you lose out on and what are you guys doing to address some of those deficiencies? That's it for me, thanks.

Sure. We know exactly where we -- first of all, we win a lot of lifecycle management business in terms of -- it still isn't where we want it to be, but we are winning lifecycle management deals.

We're a very nice complement to SCCM, for example. We can be a complement to Altiris and a complement to LANDesk, as well.

We're a very nimble product. We're easy to use. We save a lot of time and energy for IT.

It typically takes three or four days in a larger system. It can literally take two or three hours in an Absolute Manage system.

So we have a very easy to use truly cross-platform system for managing all devices -- PC, Mac, iOS, Android. That in itself, is a very powerful offering and is getting more and more recognition at Gartner and in our customer base and in our prospect base.

So we've got a lot of opportunity with this cross-platform lifecycle management system we have today. But we know there's a couple of features that we want to add to really be able to compete very effectively against Altiris particularly, that's decreasing the market share and having some issues around their new version and customers having to basically rip and replace if they want to install a new version of Altiris.

So there's a big opportunity with Altiris customers, which we're going after. And we're engaging at the VAR level to take us into existing and Altiris customers with our Absolute Manage.

And we're being successful there but there's a couple of features and functionality we want to add. We want to enhance our current PC imaging, for example. We have a PC imaging tool which is great, but in certain environments there's an extra requirement required and we're going to go ahead and fill that gap.

And we also want to fill a third-party patching gap as well that we have. We do a lot of patching already, but there's some third-party patching that we want to add.

And with those two pieces we will be able to head-to-head compete against LANDesk and Altiris and we're very close to doing that. I would say it's about six months away.

And if you look at LANDesk it's somewhere in the region of $200 million in sales. And Altiris is somewhere in the region of a little less than that these days.

So it's a very significant -- and then SCCM is a couple of billion dollars in market opportunity. So it's a very significant market and with our combination of Computrace being persistent, so we can provide persistent lifecycle management, we have something that's extremely unique.

And we also have a better off-network capability than those other products do. So we can service anything that's mobile and moving around. And those are the difficult ones to get out.

So we have a very robust technology. And I think what investors need to know is we've been building up this capability for many years. And I really, truly believe we're getting closer and closer to an inflection point in our business where all of the sudden we're going to see some real traction in the market around lifecycle management and we're getting very close to that point.

That was great. Thanks for the update.

Thanos Moschopoulos, BMO Capital Markets.

Can you provide some color in terms of how the education vertical unfolded during the quarter? It sounds that it went well from a high level but maybe specifically is that really becoming an iPad dominated political?

Was your Apple relationship in go to market really key there in helping you do well in that vertical? Maybe talk about what you're seeing from that perspective, thanks.

Indication was up for a second quarter in a row here which is nice to see it rebounding. I think Errol mentioned that in his prepared remarks. It's due to a number of factors.

There's strong education momentum internationally. We saw that in Q4 more so than Q1.

We had the launch of our mobile theft management solution for iPads in Q4 that's been very beneficial to our education go-to-market strategy. Of course, iOS is continuing to be adopted in education.

In addition we've rolled out our Safe Schools Program, which mirrors our governance risk management and compliance initiatives for corporate and healthcare really bringing a more holistic solution out to our education customers. And that's really resonating and goes across all devices sourcing a lot of demand-gen out of that as well.

Also there has been increased expiries in the quarter in education generally per Scott Penner's comment earlier about the increasing renewals. And generally speaking there's a little bit of a macro environment in education and in government on the US side as last year did have a bit of a headwind with the US federal election cycle.

So all in all there's a lot of positive movement for us in education. And they are adopting mobile devices, a lot of them are going to, we've seen a lot of the Windows x86 tablets coming in. We saw some good deals for that in the quarter.

And, of course, we continue to see PCs and a lot of these educational institutions, as well, particularly on the eastern seaboard there's a lot of regulations that require a fixed keyboard and the ability to hardline as well for Internet. So it continues to be a robust market for us and that showed through both in Q4 and Q1 so far this year.

With education a strong advance we have in the market is the fact that we are cross platform and the other tools aren't. So when you're in the MDM market and you're talking about iOS, these educators and the superintendents and the CIOs in these education schools are concerned about cross-platform considerations.

So they know -- they might want to buy iOS devices today but tomorrow might be Android or it might be back to Wintel, maybe x86. We're seeing some of our customers having rolled out iPads, having some really problematic situations arise because they have 50,000 iPads that kids can easily erase the profile for example, schools lost touch with the ability to deliver educational material down to that iPad, it's basically a rogue device at this point.

And they've lost touch completely with the ability to control it or control the content on the device. So these issues now are starting to really be much more prevalent in the K-12 environment and the CIOs are seeing that iPads are difficult to manage, they're a real challenge.

So there's some advantages for mixing up the environment with some x86 tablets, as well, or maybe adding some Chromebooks and some Wintel Notebooks. So the cross-platform PC, the ability to deliver all of these things, we basically futureproof these organizations in terms of being able to add whatever type of device they want in the future.

With some of the other MDM vendors they're just in the MDM space and they're stuck with your iOS or android but we're able to deliver something cross platform. So that's why we remain very relevant in education particularly.

Okay. That's great.

In your prepared remarks you mentioned that you're continuing to build the pipeline with Samsung. And so can you update us in terms of that relationship, how that's progressing and the types of opportunities you're seeing involved there?

Sure. I think what we said about Samsung was that Samsung has particular strength in the organizational space when it comes to the international markets. So Samsung because of their ability to compete on price and their strong international distribution capability that we see when we're working with Samsung and a number of RFPs that have popped up globally where you're talking about some fairly substantial numbers where Samsung can go in and put forward a very compelling package, for example, for a education customer.

So we're working closely with Samsung in those markets. Samsung is probably earlier in their stage of evolution when it comes to distribution capabilities in the United States.

When you look at our traditional partners like Dell, and Lenovo and HP, they've been in the US market, obviously, for a long time. They have a very heavy infrastructure in terms of stability to support those customers and sell into those customers, and Apple, of course, as well.

So, we're with Samsung where Samsung's gaining traction. And we're very excited particularly to help them in the education market where our persistent solution is so relevant to help these customers not only protect their asset base but also to help them with ensuring that the right content gets delivered down to the device as well and it doesn't become a rogue device.

Great, thanks, John. Congrats to the performance in the quarter. I'll pass the line.

Richard Tse, Cormark Securities.

There's no doubt you guys have a huge edge, I think, given that you have such a sizable PC-base. I'm just wondering if you look at that base what percentage of it has adopted the broader end-to-end platform instead of just managing the PCs from Computrace like end-to-end from the PCs to the actual rollon devices?

Correct me if I don't answer this correctly here for you, Richard, but we've seen about a 10% penetration into our Computrace customer base with our alternate products and management service, etc. So I think we're seeing adoption of the overall platform.

Again, we need to get it fully integrated so we can optimize that penetration so that it is truly a platform experience because right now it still is separate products from an end-user perspective. I think we're fairly happy with the penetration to date but see a great opportunity to accelerate it.

Yes, so if you were to take it up to let's say 100% and I guess this is related to Scott's initial question, does that mean your opportunity is like 2x what it currently is?

If you look at our overall 5 million, 6 million user base out there right of seats under management, you're talking 0.5 million penetration so far. And pretty safe to use $20 to $30 a unit as they start to adopt those platforms, the additional components of the platform.

It's a huge opportunity for us. I don't think we'll get 100% but certainly we should be getting much better than 10% as we get integrated.

And then when you sell the mobile solutions is the approach any different from when you sold on a PC basis? Or do you use the same kind of pitch out there?

It's the same page. It all starts from that umbrella, that vision umbrella of being able to manage and secure your devices and data across any platform.

And then from there we talk about the advantages of persistence that no one else can provide and then, only then do we get into the feature battle against another MDM vendor. We want to make sure that we're talking that bigger vision in everything because we do see that driving additional opportunity for us.

And I think that's probably an interesting segue, too, that managed service in the DLP that we just added, while we see that as a big part of our future growth, maybe we're not seeing those sales fully optimized today but they are impacting Computrace sales by bringing new customers into the fold and increasing awareness of Absolute and that is part of the overall growth story here. At the same time when you look at a deal like the $975,000 deal that we announced today, that's also an example of converging platforms as well.

That is on a Windows tablet device. We fulfilled that solution, that sale, with a traditional PC product as opposed to one of our new mobile products although it's for a mobile device.

These lines are truly converging. It truly is an end-user computing story and that overall increasing market of device shipments whether it's a PC or a tablet or a smart phone, those lines are blurring, the whole thing is speaking to increasing opportunity for us.

Actually just to dovetail what Rob's saying here, I think it's dangerous to think of mobility in mobile platforms as just iOS and Android. These corporations -- our customers, sure they're buying iOS, they're buying Android, they're also buying laptops as well and they're buying some desktops.

So they're enterprise organizations, they're large companies for the most part. They're buying a lot of different form factors that have mobility requirements.

So in that world our cross-platform approach as Rob was getting at is critical. So our ability to go into an organization and say look, maybe you're buying more iOS devices this quarter than you are laptops, but for every 100 iOS devices you're buying you're still buying 20 laptops and maybe you're buying 15 or 20 iOS devices and maybe BYOD employees coming in with a bunch of and other additional mixtures of devices.

So our ability to have full and deep security and management capability across all of these different operating systems is an absolute clear competitive advantage that we have in the market that nobody else has. And that's where we do win. And we're gaining more and more traction on that message and steam and our ability to deliver on that requirement and it's a very real requirement.

So just remember when you're think mobility it includes a spectrum of devices. It's not just one type of device and we solve the spectrum of device management security issues for these organizations.

Okay, and just one last question. Obviously we saw a lot of tech companies attribute some softness to government spending and some of the slowdowns there but you guys had some really good numbers on that side.

I'm assuming it's a situation that if you didn't have that overhang, that government market would have really been big in terms of the growth? Or is it just sort of a function of to a market that they need to be in so that's sort of the growth rates that we can expect going forward here?

You know, I think that we've talked about this for a long time. In some of those markets there's always going to be contracting budgets particularly in education and government and it depends on where you fall on the must-have stack.

For us last year was a tough one in those two verticals. So we are catching up a little bit this quarter.

I think things are certainly better than they were but, of course, they could be better. They're not bland like they were a number of years ago.

Okay, great. Thank you.

(operator instructions) Justin Kew, Cantor Fitzgerald.

First question, can you talk to a little bit about the VAR channel, how you're augmenting the OEM and just about the team that you've brought on and the extent that you can use this as a sales force multiplier?

Yes, great question, Justin. Our VAR team so far actually our intent is to add a team of six people to focus on the VARs for us.

Some of those will be regionally focused to develop relationships with the VARs in each of our major sales regions. And, of course, one of them will be a leadership role.

We've actually hired the leader and we've got three of the other folks onboard and a few more still to go here. But the team's coming together nicely.

Luckily they're starting from a position where we already have about 400 VARs who are in our partner network. The thing is most of them are operating in an order-taker capacity up to this point and really it's about wrapping a program around our offerings with service and manage and the overall vision as they tie in with Computrace and helping those partners to become proactive sellers of Absolute's technology.

Some of them are actually premier resellers for folks like Altiris and things today. And we've got an opportunity to win those folks over from Altiris and thereby get access to that customer base, hopefully, and convert a bunch of those customers.

And really that's the overall strategy. So today we've defined the program, we've targeted about 50 VARs that we really want to go and focus on across North America.

Some of them are national level, some are strictly regional, and many of them, again, are expert already at selling one of our competitors' solutions. So that's the type of vendor VAR we're going after.

A premium VAR we're hoping can do $1 million to $3 million a year for us. I think that's a reasonable expectation from what we've seen.

And we're busy to go and develop as many of those as we can. So you can imagine, obviously, if we can get say 10 or 20 to that level in the next year or so it'll be a great salesforce multiplier for us.

I'd like to add to that too; hang on a second, Justin. Just to say that that we've been doing deep dives of our product feature set in the technology and how it works and how easy it is to use. And we've really impressed some of the largest Altiris VARs in the United States, as an example.

So this is very real for us and very real for the industry and the customers in terms of we've gotten a great audience at the VAR level. They've done deep analysis of our technology.

We've had our sales engineers staff there. We've been there personally.

That's part of my reason for being here in Europe is meeting with a number of VARs in Europe. And they're extremely impressed with our suite of products and feel like this is a very robust platform for them to build a business around to take Absolute's products and services and solutions into their customer base.

And they've got significant customer bases that can really start to add a really nice element of additional recurring revenue for Absolute's business. So we're super excited about the VAR channel and see this is a channel that we would've loved to have had two years ago. Unfortunately, we were little slow getting to the VARs but we feel like now we have exactly what they are looking for.

And our timing couldn't be better with some of the changes that are happening in the MDM. And there's been a lot of VARs that, for example, some of the leaders in the MDM space, the VARs just they don't want to deal with those people anymore, they've had bad experiences, they've had some of those folks take deals direct, they feel that they've been burned a little bit.

And some of those products are having problems with scaling. So we're coming in maybe a little bit later, but we're coming in with extremely solid platform which is giving the VAR a lot of confidence about really doing something very unique and special with Absolute to take us into their customer base.

So I think we feel genuinely excited and very optimistic of where we are with the VAR program. And we've got a great VAR leader, a new gentleman that we've brought on that TK has brought in from past lives, if you will, and who's extremely strong, has a fantastic attitude, is running really hard at the VAR market and I think you're going to see some real tangible success here in the coming quarters. So it's very exciting for us and a much-needed channel for Absolute.

Okay, and I guess just to follow on from that then, is international a big part of the VAR strategy as well? Because I mean (multiple speakers)

Most definitely. International's all about VARs. VARs are absolutely key to the international market space.

So, yes, we have distributors in Europe and Asia. We also have a VAR network here and we have some key VARs that we're growing that are very influential, have a lot of deep customer relationships, and you'll hear a lot more about that in the coming quarters.

Excellent. And just on the last question, the last time we spoke there was a lot of excitement or a lot of prospect and promise with international, the educational market and with larger deals coming to fruition.

Is there any update you can give on that end? I know you spoke to Thanos's question slightly but bit of a detail (multiple speakers)

We sure can. Those deals are still there and we've actually had some very good progress on a number of them.

You'll hear more news as news breaks on those deals. We hope to be able to make some announcements here on some of that stuff in the near term.

But we've certainly seen these deals are, they are some of them are very large. And when you're dealing with millions of devices, they are political, they do take a long time, there's very significant requirements posted.

It's a long-term RFP process, there's obviously a lot of vendors involved, Microsoft there with the Surface, Apple's there with the iOS devices, and of course Samsung's there with Android devices, you've got regional Android device manufacturers often competing. But in the educational area where we play a unique role in we've made sure that persistence in our ability to persist those devices is a key requirement.

So I think we're going to see some of those things come to fruition and some of them are going to play into next year, but they're not disappearing. So we're going to get some of them, we're going to get some now, some we're not going to get, but we're going to get some.

And others are going to postpone to next year. But overall, they're going to be very positive for Absolute over the next few years.

Excellent. Great, thank you very much.

There are no further questions at this time.

Great. Well, thank you everybody for joining our fiscal year 2014 first-quarter call and we look forward to reporting to you next quarter.

Thanks everyone.

Thank you.

This concludes today's conference.

Thanks operator.