Absolute Software Corporation

Geoff Haydon - Chief Executive Officer Errol Olsen - Chief Financial Officer

Richard Tse - Cormark Securities Curtis Cheam - BMO Capital Markets Massimo Voci - Haywood Securities Inc. Pardeep Sangha - PI Financial Michael Kim - Imperial Capital, LLC Doug Taylor - TD Securities Justin Kew - Cantor Fitzgerald

Thank you, operator, and good afternoon everyone. Welcome to our Q3 fiscal 2015 conference call.

Joining me on the call today is Errol Olsen, our Chief Financial Officer. The call will begin with a high level overview of Q3.

Then I will provide a quarterly update on our strategic priorities. After that I’ll pass the mic over to Errol who will provide a more detailed review of our financials.

We will conclude with Q&A. I am pleased with the progress we made in Q3 against our key areas of strategic focus.

These include the expansion of our business in North America, growth within the corporate and healthcare segments and an increase in Computrace sales specific to information security. For the quarter Absolute reported total sales of $21.2 million an increase of 3% from the same quarter last year.

Most importantly our overall North American commercial business grew by 9%, this reflected a strong performance in the healthcare and corporate segment. These segments combine now represent half of our overall commercial sales.

Healthcare which has been a primary growth focus for Absolute perform particularly well, of our top 20 North American deals in Q3 25% with healthcare organizations. Our overall Computrace business also continued to grow this quarter with year-over-year sales increases for both our Computrace Data Protection and Computrace Theft Management products.

In particular the strength of our Computrace Data Protection sales reflects the significant enterprise data protection opportunity and Absolute’s unique ability to help organizations overcome the security and compliance challenges inherent to mobility. Our international commercial business declined by 24%.

As discussed during the last quarters call this reflects historic deficiencies in our international go-to market strategy. I’ll discuss our plans to overcome these later in the call.

In addition to growing sales we continue to generate strong cash flow. Cash from operating activities was $5.3 million up 40% from Q3 last year.

As a result we finished the quarter with $86.4 million of cash and no debt. EBITDA finished at $6.8 million up 32% from last year reflecting positive operating leverage resulting from a more thoughtful focused product market strategy.

In terms of personnel, strengthening the leadership team at Absolute continues to be a top priority. Over the past year, we have added a number of talented individuals to the leadership team, the Board of Directors and in an advisory capacity.

This effort was highlighted in Q3 with the appointment of Christopher Bolin as our Chief Product Officer. Prior to joining Absolute, Christopher was the Chief Technology Officer and the Vice President of Worldwide Product Operations at McAfee.

During his tenure he helped to grow security product revenues to more than $2 billion distinguishing McAfee is one of the world's most prominent information security companies. I am also pleased to announce that Art Coviello has joined Absolute as an advisor with more than 20 years of information security leadership experience, most recently as the Executive Chairman of RSA and Executive Vice President of EMC.

Art’s influence and expertise have distinguished him as one of the industry's most respected and recognized leaders. Through these appointments we have substantially enriched Absolute’s leadership team in areas that are critical to realizing our enormous growth potential.

These include information security, product market strategy, operating effectiveness, international expansion and the productive deployment of capital in the spirit of accelerating growth. When I consider the caliber of our employee base, the depth of our leadership team and the prominence of our board and advisory additions I believe we have one of the strongest teams in the industry.

And moving on from Q3 financial results I want to close by saying thank you to the Absolute employees and partners around the world for your continued outstanding efforts and results. I’d now like to provide an update on our progress against our four stated strategic priorities.

Product strategy, product market focus, brand awareness and sales productivity. I’ll start with product strategy.

A simple tenant of our product strategy continues to be the strengthening of our core Computrace business Absolute’s most compelling growth opportunity. Traditional endpoint security solutions are highly dependent on software agents that are vulnerable to correction, compromise and often easily disabled.

The ability of our persistence technology to maintain the integrity of Computrace and other software agents is a unique Absolute competitive advantage. It allows us to offer an increasingly sophisticated set of security and compliance capabilities.

These includes proof that complimentary security solutions are properly installed and working insight to the security pasture of a device that’s off network, non-compliant behavior by end-users and many other conditions that will trigger proactive works to IT and potentially preempt the security incident. It also provides us with the intriguing opportunity to potentially extend persistence to other software agents.

In Q3 we continue to expand our OEM partnership community and the number of endpoint devises on which our persistence platform is embedded. This included a new partnership with YEZZ a leading worldwide mobile brand that innovatively designs smartphones and tablets that will ship with persistence technology embedded in the firmware.

We also announced a similar alliance with Lanix, Mexico’s largest domestically owned electronic company. Finally, Prestigio is partnered with us to deliver persistence technology within Prestigio multi-tab Windows 8 tablets.

This is a key alliance as Prestigio expands its presence across emerging markets in Europe. Establishing these OEM partnerships beyond North America represents a foundational element of our international growth plan embedding our persistence platform on generations of new device types and gaining access to rich established local rents to market.

Increasing the activation rates within our embedded device population also remains an execution priority. Our continued progress on this front is reflected in the strong year-over-year growth in your Q3 Computrace sales.

Our product strategy will also continue to focus on leveraging our substantial Computrace install base as a platform for up-selling and cross-selling adjacent technologies Absolute Manage and Absolute Service. The close beta program for the unified user experience project is concluding and we are transitioning now to an open beta program.

This will allow all of our Computrace customers to use the new interface design as well as the first phase of the DLP feature set. This inclusive cycle will provide us with direct feedback from a broader set of customers so we can implement the final round of feature refinement prior to launch.

The DLP feature set enriches the value of our Computrace product line providing us with incremental business and enhanced information security capabilities as we concentrate our focus on heavily regulated industries. The addition of Christopher Bolin to the leadership team is a significant event for Absolute.

His appointment will allow us to clarify an admittedly fragmented product strategy and the final longer-term technology opportunities and objectives. This chart will also include improving our capacity to execute against both organic and acquired technology opportunities.

Our product market strategy continues to focus on investment on markets and product offerings that represent the greatest return on investment. During Q3 we continued the shift of sales and marketing resources to those cities in North America that represents the greatest concentration of opportunity.

These resources are unplaced and actively ramping up. By the end of the year we will have a direct presence in 80% of these metropolitan centers up from less than 60% at the beginning of the year.

Internationally as mentioned earlier we are systematically executing key elements of the go-to-market strategy we have proven through our North American business success. In Europe in Q3 this involved introducing direct coverage of both local OEM and VAR partnerships the establishment of an inside sales capability, the expansion of our direct sales coverage capacity in those European geographies we’re targeting for growth.

We will also be appointing a European theatre lead to be based in Europe. We have identified a short list of prospective candidates for this role with the objective of an appointment in Q4.

In the Asia-Pacific region I'm pleased to announce we have appointed Thierry Regnier as the Vice President Asia-Pacific and Japan. Thierry’s background includes extensive experience with Dell and in-building and leading information security businesses within the region.

Thierry’s priority will be to execute key elements of the Absolute global go-to-market strategy in his respective country targets. This will be the first time Absolute has had an established theatre lead within the strategically important Asia-Pacific region.

From a vertical perspective as mentioned earlier we continue to progress key initiatives designed to accelerate growth in key corporate and healthcare markets. These include field enablement and incentive programs targeting these segments working with OEMs and VAR partners on industry optimized solutions and vertically targeted go-to-market initiatives executing professional services offerings that support regulatory obligations within healthcare and finance and repurposing sales capacity to intensify our focus on new business development.

We are completing the hiring of our five additional direct sales resources that will focus exclusively on healthcare opportunities and will continue the expansion of our New York based financial services team. Our branding strategy is almost complete.

Our new creative platform is in development with an extensive media campaign scheduled to launch before the next earnings call. Our message will focus on the prominence of Absolute’s unique embedded persistence technology and its application around securing information, ensuring compliance and enabling mobility.

The objective is to define and elevate our profile in our key target geographic and vertical markets enabling our sales organization and partners to spend less time educating prospects and more time identifying, developing and closing opportunities. The media campaign includes specific tools for lead generation which will further improve our existing strong sales pipeline.

Finally, sales productivity remains a top priority. In July of last year we reassigned a portion of our existing customer base to a more cost-effective inside sales organization.

As a result in every quarter this year we’ve seen measurable improvements to both renewal and expansion business within these accounts. Based on the success we’ve shifted additional accounts in Q3 to the specialized renewal and expansion model.

Our inside sales organization is now responsible for managing almost half of our entire existing customer business. We also completed the work to de-stack our historical one-to-one inside, outside sales structure.

Today, multiple outside sales representatives are supported by a single inside salesperson enabling us to expand the sales coverage capacity in the field. In Q3 we hired a Global Director of Training and Enablement to create and lead ongoing programs that will increase sales effectiveness.

His priorities have included a complete redesign of our field on boarding process in an effort to accelerate the times of revenue of new employees. Additionally, we've engaged force management and industry-leading sales effectiveness team to help us define and enable our field organization around the information, security and compliance use cases that are most relevant to healthcare and corporate prospects.

This program will be rolled out across the Absolute’s sales organization and actively implemented by August. We also continue to see strong growth within our VAR partner model.

Our incremental VAR sales in Q3 were greater than those sales to the entire first half of this year. Well, we have made and we will continue to make significant changes throughout the organization, the business remains resilient adjusting to our new strategy and producing positive results against our key initiatives even while those changes are underway.

We will continue to execute against our key initiatives in the final quarter of this fiscal year. Our objective remains to accelerate growth and to distinguish Absolute as a global IT security leader.

Now I would like to turn the call over to Errol to discuss our financial results in more detail. Errol?

Thanks Geoff. Good afternoon, everyone.

I’ll now spend a few minutes discussing the key financial metrics for the quarter. Total sales contract in Q3 were $21.2 million up 3% from Q3 of last year.

For the first nine months of the year total sales contract were $72.4 million up 9% year-over-year. As Geoff as mentioned these results reflect continued strength within our core North American commercial business, our Computrace product line and our targeted verticals in healthcare and corporate.

Q3 North American commercial sales were up 9% year-over-year, while our international commercial business was down 24%. From a product perspective total Computrace sales which comprised 86% of our total commercial sales in the quarter were up 9% year-over-year with Computrace data protection continuing to show accelerated growth up 13% year-over-year and Computrace test management sales up 8% year-over-year.

Our Absolute Manage and Service businesses show the combined decline of 20% year-over-year in Q3, reflecting our increased emphasis on Computrace as well as the fact that there was a higher than average proportion of our Absolute Manage perpetual licenses booked in the prior year quarter. Looking at industry verticals in Q3 we achieved a 10% year-over-year increase in the combined corporate and healthcare verticals while the combined education and government verticals were down 1% year-over-year.

The decline in these latter verticals is primarily reflective of our international performance in the quarter. From a deal composition perspective we closed three deals over $500,000 in the quarter all of which were in North American education this compares to one deal over $500,000 in Q3 of last year, which was in the North American commercial vertical.

Existing customer sales in Q3 were higher than average at 88% of our commercial sales compared to a trailing eight quarter average of 83%. Consistent with the prior quarter our higher proportion of existing customer sales in Q3 reflected strong Computrace renewal and expansion and an early indication of performance by our newly formed retention sale teams.

I would also like to discuss our revenue performance in the quarter. IFRS revenue in Q3 was $24.1 million, which was flat compared to Q3 of last year.

The reason for this is that sales contracts in the prior year period included higher than average percentage of perpetual licenses, which were recognized upfront. Our typical sales mix is approximately 95% recurring licenses from term subscriptions and maintenance contract.

The current quarter was consistent with this average. However the prior year quarter was approximately 91% recurring.

I will now turn to our adjusted operating expenses which are defined in our press release and in our MD&A. Adjusted OpEx was $17.3 million down 9% from $18.9 million in the prior year quarter.

The decrease in adjusted OpEx reflects cost savings in a lower Canadian dollar as well as an adjustment to previously recorded estimates of Canadian tax credits within R&D due to the acceptance of historical claims. As a reminder Canadian-based expenditures account for just below 50% of our total adjusted operating expenses.

Looking now to the remainder of the year our outlook continues to be for fiscal 2015 sales contracts and cash from operating activities to increase over fiscal 2014 levels. We are on track in terms of progress against our stated objectives of refining product strategy, concentrating our product market focus, building brand awareness and improving sales productivity all of which are aimed to enable consistent accelerated growth and to distinguish Absolute as a global information security leader.

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

Yes, thank you. Geoff just curious to see how much do guys have in terms of the headcount additions in terms of building out the sales force and other related areas?

Sure. Actually Richard this is Errol.

I can respond to that one. We have a total of about 30 open positions across the organization close to half of those are in the sales organization so there's just roughly a dozen people in the sales organization rest of those 30 are primarily in the R&D group.

Okay. And so I guess related to that how should we look at the cost base going out for the next few quarters, would that be sort of scaling up you know I guess where would it hit - it would be the next quarter the quarter after or just trying to sort of finalize the model here?

Sure, sure and of course we’re finalizing our model internally as well as we approach the end of the fiscal year, but I can tell you I mean there are few dynamics at play here one is the increase in headcount, we’ll finish the year with - like I mentioned if we sell all those, the headcount is about 30 additional staff we've also got a branding initiative that Geoff mentioned which kicking in Q1 of next year and then of course there is the interplay with currency. It’s difficult to put all this together right now we’re just managing through the relationship obviously between marketing programs and sales spend, but we do expect cost to increase next year over this year, but it’s difficult to quantify exactly how much at this stage.

Okay, and Geoff you mentioned earlier on the call that international was down and you talked about some of the historical deficiencies. Can you maybe give us a sense of when do you think that business is going to through base itself and where we’ll see growth?

Yes, I think certainly towards the end of our next fiscal year. I mean our history internationally has been largely reactive and opportunistic and as I mentioned during the call last quarter, our performance depends almost entirely on a couple of large deals and when they hit we have a strong quarter, when they don't, we don't.

And so the objective once again is to leverage the experience that we've had here in North America in terms of a best practice based go-to market structure. And I outlined the key [indiscernible] that and where we’re at in terms of executing them starting in Europe and moving into Asia now under our newly appointed leader.

But it’s not a short-term fix. I mean I can tell you having spend the majority of my career building and leading teams and businesses in the international markets I mean it's not something I expect it’s going to affect our performance in Q1.

I mean it is going to be a sustained investment and I expected to start to impact results as I say in the second half of next year.

Great. And just one last question in terms of verticals I know you guys are strong in health and education, what would you guys consider as the next two verticals where there is some big opportunity that you're trying to go after?

It’s a good question, Richard. We worked closely with Gartner in Q1 to really understand how our opportunity is distributed both geographically and vertically and what was clear is that the education market is a strong market it continues to grow strongly particularly here in North America it's underdeveloped relative to its overall growth potential internationally, it’s a completely nascent market.

So education will continue to be a key focus, healthcare was natural. We estimate based on the Gartner input that it's about three times the size of the education market.

So that really consumed a lot of our vertical expansion focus in the first half of this year. Financial services is the logical next one.

Once again it's a multiple of both the education and healthcare vertical markets and that will be an increasingly predominant focus of ours as we move into the new fiscal year. We’re trying to do this very thoughtfully and incrementally I mean certainly we have a robust business than other verticals like aerospace and defense and oil and gas and retail and pharmaceutical.

So we’re continuing to develop those, but it's really just a function of intensity and we’re trying to be very specific about which vertical markets really ignite in a meaningful ways. So financial services would be the next one.

That’s great. Thanks guys.

Thank you.

Hello, this is Curtis on for Thanos. Can you just describe maybe qualitatively held the current pipeline in the education vertical to shaping up heading into the upcoming selling season?

Yes, strongly. I mean it is a seasonal business as you know the Q4 education business tends to be stronger than certainly Q3 and we are expecting to see that in the fourth quarter.

Okay, and I guess just a follow-up on Richard's question when you first outline your targeted strategy you had identified aerospace and defense in addition to healthcare and finance, would you be planning on forming sales teams as you did with the healthcare and finance for those verticals?

It’s a good question. Our objective in the first half of this year was to really develop a rich repeatable process for igniting a new vertical market that involves sending our entire product management development teams to our largest existing healthcare customers understanding how they are using the technology, how they are deriving value from it and really informing our thinking around how to position our existing technologies, but how to evolve and optimize them for the healthcare use case.

We then spent a lot of time in energy enabling our sales team, enabling our partners, directing them through incentives at vertical at the healthcare market. We created some healthcare specific professional services offerings, we introduced some new global support some after sales support programs that were specific to healthcare requirements.

So it's a fairly substantial body of work to go through that and our objective in the first half was to develop that repeatable model and to apply to healthcare which we’ve done with very successful preliminary results. Our objective in the second, the next phase of that will target financial services, we do regarding aerospace and defense is a very lucrative segment, it continues to be active for us, but it’s just once again a function of our level of concentration and commitment.

We are trying to be very specific about how we expand that vertical ignition program. It’s too early to determine at this point if we will require specialized sales teams for aerospace and defense.

We discovered through our interaction with our large healthcare customers that there were compliance, requirements and just a vernacular and an application domain knowledge that was unique to healthcare that would be a value for us to establish in the field. We may or may not make that same discovery in other verticals, but we’ll certainly keep you posted on as we progress those.

Okay, thank you all. I’ll pass the line.

Hey, thanks guys. My first question is on the Geoff your comments on extending Persistence to other – to potential to other software agents in the sort of initial comments.

Was that you know targeted towards you know potential development of other solutions internally at Absolute, or is it going to be more in conjunction with potential other security partners selling into your customer base.

It could be both Massimo it’s a good question I mean our discovery in interacting with our largest and most sophisticated enterprise customers is that they’re struggling with the vulnerability of endpoint agents whether those are security or management related. And our ability to maintain the integrity of an endpoint agent is something that is very unique and very powerful.

To date we've applied to Absolute technology exclusively it’s certainly our intention to look for additional ways to extend and leverage that Persistence technology around a more robust Absolute application portfolio but it does occurred to us that there maybe an opportunity for us to monetize that technology and to expand our Persistence platform adoption through collaboration of partnerships with other security and management companies. So we have actually appointed some business development team members over the last two quarters to begin helping us really scope out that opportunity and to determine if and how we commercialize it in a meaningful way.

Great and does that extend you know sort of my question is does that kind of an extension on the brand awareness program that you are talking about and sort of you know increasing the profile of Absolute within the security community?

Yes the branding initiative certainly would do that a primary objective of the branding initiative is not to fuel the expanded Persistence program, I mean we’re really thinking about our business today and elevating our prominence within vertical markets that have an appetite for technologies that were selling today.

And so when you talk about that brand awareness are you talking more about with potential customers and as you said new vertical markets or would it also be targeted at your partners and sort of increasing the amount of penetration you have I mean with your OEM partners.

Well it is a good question. It’s really targeted at the end-user community I mean it really ultimately is a brand awareness and demand creation vehicle.

So the objective would be to elevate our profile within specific set of vertical in geographic markets to make it easier for our own salespeople and our partners to develop the business in those verticals. So I think a byproduct of that would be more productive partner relationships and higher tax rates with the OEMs.

Okay and one final question maybe for Errol on the R&D tax credits in the quarter I think it was up from about 300,000 last year to about 1.1 million you talked about it being an adjustment of some outstanding issues that you had. Do you expect that to normalize going forward?

Yes I think that the run rate that were expecting going forward is somewhere between 350 and 400 a quarter.

Okay, great. I’ll pass the line.

Thanks, guys.

Great, thanks, Massimo.

Thank you, Massimo.

Thank you and good afternoon. When you first came on board Geoff you mentioned that for acquisitions – not focus on acquisition initially you’re going to focus more on sort of building up the internal capabilities of the company and the growth strategy et cetera.

Now that you’ve been that for a bit we are starting to see some of the results of the changes you made in the sales strategy et cetera. Do you see yourself looking a bit more towards the outside in terms of potential acquisitions again and since you do have a large cash position here?

The answer is yes. So through once again our interaction with these very sophisticated enterprise customers we’re discovering some interesting requirements that align very tightly with our core persistence platform, we’re also observing some very interesting innovative technologies emerging in the early stage company community that that may represent interesting targets for us.

The other development is now that with Christopher Bolin on board we’re starting to create a medium – a more detailed medium and long-term product strategy and that’s going to provide us with the context within which we can consider acquisitions in a more informed way. So certainly as we move into the new year that will be an increasing focus for us.

Okay, and for Errol, can you just summarize a little bit headcount on end of the quarter and where you are right now?

Sure, yes total headcount at the end of the quarter is about 425 employees, our targets for the end of the year is just around 460 just below that. And as I mentioned previously that delta in headcount is primarily in sales and marketing and R&D.

So we finished the quarter with about a 177 people in sales and marketing. So you can add another dozen on to that and we finish with 121 in R&D and there's about another 15 on top of that, that are open right now.

Okay, just sort of rough sort of estimate you just trying to understand a little bit sort of your level of engagement internationally, what sort of is your percentage of employees that are in North America versus international, outside of North America?

Sure, – to split the 425 roughly 250 of those would be in Canada and then in the U.S. there is probably a 100 with the remainder spread internationally, I’m off a little bit on that, but those are rough numbers.

So I mean going forward some of the comments you guys made in terms of international expansion and new leadership in Asia-Pacific I see that as a sort of a key initiatives sort of next year and that's where we could see some additional costs and some additional sort of headcount et cetera and increasing until the marketing is that fair to say?

Yes, it is and actually just before I answer that just going back if I might have misunderstood your previous question partly, if the question was on field of sales and marketing usually two-thirds of those are in the U.S. of 177.

And then going back – can you repeat the second question.

Yes, with regards to international expansion I mean you’ve hired some new leadership in Asia-Pacific and there is definitely some expansion happening from your perspective in terms of expanding your international sales team et cetera just give us a sense of that, how aggressive on the international expansion?

Sure, internationally its primarily redeployment, when we look forward into next fiscal year it’s where our investment is you can look to two things one is the marketing branding initiative, we have yet to quantify exactly what that will be. And then the second will be we can expect some additional spend in the R&D front as well and that’s just headcount related.

Okay, thanks again.

Thank you.

Thanks Pardeep.

Hi Geoff.

Hey, Michael.

Just I wanted to go over the results for Absolute Manage and Absolute Service was there a change in the mix or the up-sell, cross-sell activity and any comments you can share on competitive re-pricing actions?

Yes, just once again a review of our product strategy I mean we’re endeavoring to really strengthen Absolute, the objective is to build a platform that will enable sustain consistent accelerated growth and we are trying to do that in a very thoughtful specific way. One of my observations when I join the company as I think we tried to fight, too many fights and too many different fronts and moving forward we just want to be a lot more specific about what we focus on.

From a technology perspective I’ve been very explicit about our commitment to leading with Computrace, that is the business that represents 85% of our bookings, 95% of our customers that leverages our unique persistence technology, it brings the collective mass to the OEMs to bear because they're embedding our persistence technology on their endpoint devices to enable the security use case. And we just think the information security market opportunity is phenomenal.

So we really centralized our technology focus over the last nine months on the Computrace business and keep in mind we got a sales organization that has a charter that spends all the product categories and I think one of the consequences of that Computrace focus has been uncertainty focusing on the manage and service business and we saw that reflected results in Q3.

Got it. And then switching gears to education you know any thoughts on new device form factors specifically Computrace or Chromebooks.

Are you seeing that primarily in North America or you know also some international opportunities that you drive expand into – some of your channels there?

Well we see a lot of opportunities for new device form factors in educational both domestically and internationally. Especially as companies like HP start to develop some very robust education specific product families that were centrally supporting from Persistence perspective.

Chromebook the challenge with the architecture today there isn’t a unique identifier that we can leverage as part of a Computrace technology but we continue to work both with Google and in the market to apply pressure to Google through customers that are interested in having our technology applied to Chromebooks in an effort to establish a partnership, but nothing to announce on that front at this point.

Okay, we’ll look for that. And then just lastly as you switch the open beta now for unified UI any commentary initial commentary on the feedback from some of the folks in the closed beta and how you can see that start to translate into sort of a broader coverage with the Computrace customer set?

Yes, its been very positive just at a high level the user interface and the extension of the functionality to include the DLP as an example particularly in healthcare which you’d expect as a highly regulated market would be interested in that kind of functionality, but very positive feedback and that's why we been able to transition to a much broader community of open beta targets.

And how long do you expect open beta to run for?

It really will depend on the progress that we make through that open beta I mean the objective would be to move into the new fiscal year with some of that functionality productize but I will have to keep you posted on progress just given our history truthfully with that technology I want to be very careful about for setting specific commitments before we get through early stages anyway of the open beta.

Okay well great. We will look forward to GA later hopefully later in the year, early next year.

Thanks Michael.

Thanks.

Thanks good evening Geoff and Errol. I am appreciate the extra granularity you’re providing on data protection versus manage and service business lines.

I mean when do you think there will be renewed focus on growing those assets, you’ve articulated your decision to folks on Computrace in the near-term I just want to know I mean when that comes back onto the Radar.

Yes, its I haven’t got a specific response to that Doug, it something we’re certainly thinking about but we still believe we’re in a position right now where we got a very unique, very compelling competitively differentiated solution with Computrace in a very rich market target with around information security and highly regulated vertical market. So at least at this point moving into the fourth quarter our intention is to continue to concentrate our focus on realizing the growth potential the Computrace represents.

And in that scenario assuming that normalizing for some of the large one-time perpetual sales would you expect that business to be flattish is that a reasonable assumption?

That’s a reasonable assumption.

Okay, somebody hasn’t been talked about that in a while is the impact of PC sales overall backdrop on your business is the XP, the end of the XP refresh cycle, something that you've seen impact your sales contracts at all.

It isn’t, our tax rate is still so modest Doug, truthfully that it’s difficult to point to a macroeconomic trends or PC shipment forecast as an inhibitor to our growth opportunity. Our growth opportunity is execution down today not PC unit down.

So the shorter – or the long answer I’m sorry is no we haven't seen that infringe in our growth opportunity.

Perfect, that’s helpful. Maybe my last question then for Errol I think in the last quarter you spoke about working capital being a little bit lower than what is typical for your business.

I wonder if you’ll just update us on how you think about where you're sitting with your working capital levels, receivables and things like that at this point three months later. I’ll pass the line, thanks.

Sure, Doug. We finished the quarter with once again a lower than average DSO and I would still say that we are below what I would expect is a go forward trends, so our DSO at the end of the quarter was 59, our historical average is 65.

We certainly are improving on the collections front, but having said that I think we’re still going to trend up into the low 60s going forward. And then on the other side of the working capital equation on the accounts payable, our DPO'S were a little bit higher than average I think we average kind of mid-40s and we were in high-40s, so just a little bit off of that.

Thank you.

Thanks, Doug.

Thanks, Doug.

Yes, thanks. I just had a follow-up here on the renewal.

Did you guys give a number in terms of the renewal rates this quarter versus what it was on trailing two or three quarters?

No, Richard, it is not a stat that we provide. I can tell you from a customer retention standpoint where we’re always well above 90%.

When we look at our renewals and our business is a little bit unique in terms of how we license on devices more often in order to replacement rather than a renewal, it’s a very similar cycle, but the difference there being that there is a built-in expansion at the same time. So we've always been higher than a 100% when we look at expiries versus renewal or versus new purchases rather both in terms of dollars and in terms of units, but we don't publicly disclose the exact dollars or percentages.

So when you guys refer to measurable improvements and renewals. Can you give us a sense of what that would for percentage terms like a 5%, 10% or just measurable?

Sure, so we are seeing the improvements and this is in the first group our transformation and what we call our SMB group that we started with in July 1 of this year where we took the bottom 15% of our customer base based on annual contract value. And the improvement that we saw within there was I mean it was somewhere in the kind of the 5% to 10% range.

Okay and then just last question here is that when you talk about the sales contract last year at a higher proportion of perpetual was that relate to Absolute Manage or what product line?

It was, our Computrace product is as you know is a SaaS product and it's very rare for us to have a perpetual license for Computrace with Absolute manage it’s a non-prime product and roughly half of our sales on average would be perpetual, the other half would be term licenses even though it’s a non-prime product, but it was specifically last year that higher percentage of perpetual is directly related to manage.

Okay, thank you.

Great thank you very much. Good evening Geoff and good evening Errol.

Hi, Justin

My question is around the large transactions just wanted to get a sense of how the pipeline looks for large transactions and also large transactions outside of the educational vertical?

Yes, we are seeing strength and growth in our large transactions as we move into Q4 and look at that the first half of 2016. I think it’s largely a function of our focus on some of the vertical markets that I mentioned earlier particularly healthcare and financial services.

So we’re seeing an increase both in Q4 and moving into the new year and we’re optimistic as our market development activities in those vertical continues to progress that we’ll see more large deal activity. They tend to be fairly substantial in terms of endpoint quantity.

Yes, and just to add a little bit more color to it, Justin this is Errol when we look at our large deals I mean given the metric in terms of deals over 500,000, but as we look down sort of in the $100,000 to $500,000 what we are seeing is certainly a change in the composition of that mix. We are seeing more and more corporate healthcare deals in there and I think Geoff mentioned in his prepared remarks that 25% of our top 20 deals were actually in healthcare, so that is certainly one change we are seeing the pipeline as well.

And can you comment on the sales cycle I mean do you find that they – where they could be or would you like them to be shortening up?

It’s a great question it’s something that we track a great deal versus a lot of variability within the sales cycle and it really – it depends a lot on where the customers add in terms of their buying cycle if it's an attachment to an OEM sale or if it's a response to a security event we’ve seem some very substantial deals around quickly, but I would say on average it probably takes three to four quarters for a net new opportunity to go from conception to close.

Okay so from - on the large deal front and kind of the changes that you've been making over the last 12, four or five quarters that we should be well into seeing the fruits of those in terms of large deals?

Correct.

Okay, and just in terms of the changes that you've been making on the sales side and moving their customers to inside sales now that you by Q3 half of your customers will be shifted across, is that where in terms of the experience you had so far is that kind of way you want to be or…

I think we are just reviewing that right now and I just – I want to just walk through the materiality of some of the changes that occurred in the sales organization I made them earlier, but I just in operational have a very deep appreciation for what's involved and I think it’s worth highlighting. Just in the last three months we dismantled that one-to-one inside to outside sales team and we purposed that much smaller inside sales team to support much larger field organization.

We shifted 30% of our total business from the field organization to an inside sales team and in fact have repurposed and/or replaced a very substantial percentage of our field organization once again in the spirit of putting the right talent in front of the right opportunity. In preparation of the call Errol and I did an analysis and determined that we’ve get about a third of our – both our outside and inside sales organization having been with the company for less than six months.

So we’ve made some very positive changes to the organizational structure and the organization generally that we’re very excited about as we move into the new year just in seeing those resources on board and start to deliver more productively.

Good. And just the last question I have just on the roadmap you talked about in the MD&A about Computrace event cooling, what are the features or what are the areas you don’t have to be specific, but what are the features or product enhancements or functionality all customers looking for?

Well, that’s big one and it’s actually driving a lot of activity and opportunity for us right now and I’ll just – I’ll frame it up in terms of the use case many of our largest customers are deploying that specific feature in the spirit of what they call adaptive security and essentially what it enables them to do is to define a risk profile of an endpoint device, it may be geolocation based, it maybe it is a device encrypted, is it being used by unknown username as they are calling in from a known IP address. And if any of those parameters are violated the enterprises altered and to make a decision as to whether or not remediation is required, it may involve locking the device, it may involve geolocating and recovering it, it may involve deleting information on it if they’re concerned that the risk threshold is exceeded, but that alerting capability has tremendous potential in our view and is being adopted very broadly and very innovatively by some of our largest customers.

So that’s a big focus as we move into Q4 is on really prioritizing that adaptive security use case and monetizing it in a more meaningful way.

Okay. Thank you very much Geoff.

Thanks Errol.

Thank you.

Thanks, Justin. End of Q&A

All right. Well listen thank you operator and I want to say thank you to everybody that joined us for the call today for your interest in Absolute and for your time.

Thank you, good evening.