Absolute Software Corporation

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

Richard Tse - Cormark Securities Michael Kim - Imperial Capital, LLC Thanos Moschopoulos - Capital Markets Paul Steep - Scotia Capital Pardeep Sangha - PI Financial Unidentified Analyst -

Thank you, operator. And good afternoon, everyone.

Welcome to our Q4 fiscal 2015 conference call. Joining me on the call today is Errol Olsen, our Chief Financial Officer.

Q4 represented the conclusion of an important and transformation year for Absolute. I'd like to take this opportunity to recap the significance to the changes that occurred in fiscal 2015 and how our execution against key strategic initiatives has positioned us strongly for the future.

We concentrated our focus in 2015 on those product areas that represent the greatest level of differentiation and opportunity for Absolute growth. We improved our bench strength in key areas of the organization.

These included our Board, advisory board, senior leadership, sales, product management and development. We rationalized our market focus and concentrated our investment on those specific geographies and vertical market that represent the highest return on investment.

Finally, we substantially completed the reorganization of our North American sales team. This included defining, executing and staffing our next generation sales structure with the clear objective of increasing productivity and accelerating growth.

Despite the significance to the changes we made in fiscal 2015, I'm pleased to report we delivered growth across all key financial metrics. These include billings, revenue, Annual Contract Value, free cash flow and EBITDA.

We anticipated the strategic changes we made in 2015 would be disruptive to some short-term results. This disruption was reflected in our Q4 billing's performance which contracted by 6%.

This decline was a function of two things. Our international business which we are moving quite to fix and our new business development performance which was affected by the final stage of our sales force re organization.

On a positive note, we've seen some early indicators of progress in key performance areas. Q4 customer renewal rates were strong.

We also grew our Commercial Annual Contract value base by 2%. The business continues to generate strong cash flow.

Cash from operating activities was $2.7 million, up 42% from Q4 last year. As a result we finished the quarter with no debt and $85.8 million of cash in investments, up 17% from last year.

We further enriched our leadership structure with the addition of Steve Munford to our Advisory Board. Steve is a prominent figure in the each information security industry with strong operating and leadership experience.

As the Chief Executive Officer at Sophos he was simply involved in driving growth and distinguishing Sophos as a global endpoint security leader. He is currently the Director of the Sophos Board.

Along with our Toby Autry, Steve will provide valuable guidance to Absolute in several key areas. These include product market strategy, operating effectiveness and the productive deployment of capital in the spirit of accelerating growth.

Moving into the new year with the changes made to our strategy and our structure, Absolute is uniquely and powerfully positioned to capitalize on one of the most exciting and lucrative areas of information technology, enabling enterprises to embrace and expand mobility while achieving critical security and compliance objectives. Our Board of Directors recognizes the strength of Absolute's opportunity.

As a reflection of this confidence, CAD$50 million have been allocated to repurchase Absolute shares in Q1. Additionally, the Board intends to increase the quarterly dividend going forward from $0.07 to $0.08 per common share.

Our current cash position combined with strong cash flows allows us to execute these capital initiatives while investing in future growth. Before reviewing our strategic priorities in more detail, I want to say thank you to Absolute employees and partners for your outstanding efforts in helping our customers around the world achieve the most critical endpoint and information security objective.

I'll now provide a more detailed description of our progress against our four key strategic priorities. Product strategy, product market focus, brand awareness and sales productivity.

In Q4, we further clarify our product strategy by announcing our intend to divest the Absolute managed and Absolute service product lines we are now singularity focused on strengthening Absolute's position as the data and device security leader. This was an important decision for several reasons.

First of all, DDS, formerly knows as Computrace is our core business representing almost 90% of revenue and over 95% of our customers. Secondly, this protection of endpoints and information that reside on them leverages our Persistent's platform, one of our most unique and powerful competitive advantages.

Finally, with the emergence of mobility as the new enterprise computing standard, the growth of information on these mobile endpoints and the increasing consequence of data breaches endpoint and information security has become a top business spending priority. With this clarified focus, we are in a position to think much more innovatively and ambitiously about a longer term plan to monetize the unique capabilities of DDS and our broadly embedded Persistent's platform.

This includes our ability to maintain the integrity of endpoint software agents and elevate the visibility too and security of endpoint devices that are both on and off the network. Christopher Bolin or our new Chief Product Officer will be sharing our plan to do this during our upcoming Analyst and Institutional Investor Day in Toronto on September 16.

Our narrower product focus also allows us to intensify investment in DDS product development. This is already resulted in shorter development cycles and the accelerated delivery of innovation to our customers and partners.

This was evidenced in our most recent product announcements which included zero day support to Windows 10, a health check capability for Microsoft SCCM and the integration of critical DDS endpoint intelligence to industry standard Security Incident and Event Management or SIEM platform. This SIEM announcement is particularly noteworthy.

Being able to consume critical absolute endpoint intelligence using industry leading security management platforms and to correlate this information against other security feeds for risk assessment has been an ongoing request from some of our largest healthcare and corporate customers. This capability resulted in a partnership of RSA to integrate Absolute endpoint intelligence into the RSA security analytics monitoring platform.

Our joint customers can now assess endpoint risks and remediate security incidents more effectively and within the broader context of the RSA security analytics environment. This work represents an elevated commitment by Absolute to collaborate with other information security leaders on technology integration and go-to-market strategy partnering.

In addition to enriching the customer value of DDS, these partnerships showcase our technology to a much larger base of potential customers. We've also been able to accelerate the progress of the new DDS user interface and the DLP or endpoint data discovery integration.

Both initiatives are now on track to launch in open data in early October based on positive, constructive feedback from our close data participants. In 2016, we will continue our focus on innovation.

Increasing the functionality and value we deliver to customers, finding new use cases for our unique technology and expanding our reach into targeted vertical markets in order to accelerate growth. Our product market strategy continues to concentrate investment and energy on geographic and vertical market that represent the greatest return.

In North America, during Q4, we progressed the shift of sales and marketing resources to those metropolitan centers where our opportunity is most concentrated. We also substantially completed our North American sales reorganization which I'll detail shortly.

In our international theaters, we are looking to accelerate growth by implementing the go-to-market blueprint we've developed and executed in North America. This includes the appointment of theatre lead that resides within their geographic areas of responsibility.

We have outstanding track records of building strongly performing teams and businesses. I'm pleased to announce we've done this in both Europe and the Asia Pacific regions with the appointment of James Pattinson and Thierry Regnier respectively.

Our international go-to-market plan also include the coverage of our OEM bar and distribution partners. The establishment of inside sales capability and the expansion of qualified direct sales leaders, strengthening and leveraging these areas in our international theatres will be a top priority in 2016.

Our new branding strategy was launched on July 22nd at our global sales meeting in Vancouver. It is intended to clarify Absolute's focus on data and device security.

The new Absolute brand is being backed by an extensive media campaign with the objective of elevating our profile in our specific target markets and supporting the new customer acquisition efforts of our sales team. The media campaign has been active for lasted month, we've already seen website traffic rise almost 20% and lead generation up by over 10% predominantly in our targeted verticals.

We anticipate these numbers will continue to climb as we increased impressions within our targeted audience segment and contribute to the depth of our sales pipeline. We initiated the sales reorganization in 2015 which was substantially completed in Q4.

The impetus for this reorganization was to increase the productivity of our sales organization. During the last few years, almost half of our revenue has been spent on sales and marketing.

Despite this, quarterly growth has been inconsistent with annual growth rates never exceeding 10%. We had a highly stack sales organization that was optimized around the renewal of existing customer contracts.

We needed to create a more substantial, dedicated new business development capability. The initial stage of this reorganization was the reassignment of existing customers to sales team that specializes in the retention and expansion of these relationships.

We've already seen a positive outcome from this change in terms of the sales cost on this business and strong customer retention levels as mentioned earlier. The final stage of the reorganization involved the creation at a customer acquisition team and the transition of all non-customer accounts to this team.

This included the appointment of three highly qualified regional directors supported by a team of direct sales people with rich background in information security and new business development. I am pleased to say this organization is now fully staffed and operational.

One of the primary performance challenges we had in Q4 was our business development activity in North America. We believe this was largely a function of the existing sales team anticipating the transition of non-customer account to the newly created business development on July 1st.

Simply put, existing sales team work spending time on prospecting a customer base they would have to hand off to another team moving into the new year. The sales reorganization was an ambitious initiative but a necessary one.

It was originally intended at the beginning of the year to take 18 months to complete. Based on the success of the changes we made in the first half of the year, we made the decision to accelerate the process and execute the final stage of transformation by July 1st.

While this pace and the final stage of the transformation was disruptive, we are now moving into the new year with the go-to-market structure that is aligned with industry best practice and will enable us to execute more productivity against our next generation of growth. Our focus has shifted from reorganization to the execution and the performance of the new sales structure.

Almost 40% of the North American sales organization has been in the rolls for less than six months. In support of their success, we've recently completed a global field enablement program in partnership with Force Management, a sales effectiveness organization that worked with many of the most productive sales team in our industry.

We expect the productivity of the new sales organization to increase as we move through fiscal 2016. In summary, 2015 was a transformational year for Absolute.

We defined our core product strategy. We redefined our brand accordingly.

We organized key resources around targeted geographic and vertical markets and substantially completed our sales transformation. While these changes have impacted some short-term results, they were thoughtful and necessary.

We have moved into fiscal 2016 with a strong, strategic organizational and operating platform. A platform that will enable us to achieve our two primary objectives.

To accelerate growth and to distinguish Absolute as a leading provider of innovative, impactful endpoint device data security solutions. Now I'd like to turn the call over to Errol to discuss our financial results in more detail.

Errol?

Thanks, Geoff. Good afternoon, everybody.

Fiscal 2015 was a successful year for Absolute. While executing significant organizational changes to support our strategic focus, we continue to grow the business for the 3% increase in revenue and a 5% expansion of our underlying commercial ACV base.

From a profitability standpoint, we increased our adjusted EBITDA by 5% and grew our cash from operating activities by 49%. In Q4, total billings which we previously referred to as sales contract were $29 million, down 6% from Q4 of last year.

However, this billing metric could be misleading. And in the case of Q4 does not capture the success we are having in growing the business.

We are therefore expanding the metrics that we provide in order to offer greater transparency into our performance. These annual contract value or ACV metrics aligned more directly with revenue growth.

They are critical performance metrics underlying our subscription business model and they are key focus for management. ACV based metrics also enable us to drill deeper to measure our success on key customer focus activities.

These key activities, new customer acquisition and existing customer retention and expansion, drive long-term revenue growth. And ultimately allow us to maximize the lifetime value of our customers.

So in contrast to the 6% decline in total billings, we successfully grew our commercial business in Q4. Net ACV retention from existing customers was strong at approximately 102%.

And as early indicator of the benefit of the restructuring of our North American sales team. We also added an incremental $0.5 million of ACV from new commercial customers.

Overall, we grew our commercial ACV base by 2% over the course of Q4. Billings of course due remain an important metric for us as they are aligned with cash generation and they are also unique element of Absolute's business with our prepaid, multiyear subscription license model.

Turning back to Q4. We experienced some weakness in our commercial billings which accounted for 97% of our total billings.

Absolute DDS formerly known as Computrace represented 87% of commercial billings and was down 7% year-over-year. In Q4, 7% of our commercial billings were from new customers.

This compares to 17% in the prior year period. This being the primary reason for the year-over-year decline in billings.

As Geoff previously mentioned, we believe that this decline in new customer acquisition was impacted by the reorganization of the North American sales team, which we implemented over the course of fiscal 2015 and which was substantially completed in Q4. Internationally, our Q4 commercial billings were down 9% year-over-year and represented 10% of total commercial billings.

This weakness was consistent with the performance of our international business throughout fiscal 2015. With the appointment of new sales lead for APJ and EMEA, we are confident that we will bring these businesses back to growth as we progressed through fiscal 2016.

From a market vertical perspective, in Q4, the combined education and government vertical was up 3% year-over-year, while the combined corporate and healthcare vertical was down 20% year-over-year. With the decline being correlated to lower new customer business.

The process to divest our end point management and service products which we announced last month is ongoing. The asset and liabilities of these businesses are now presented separately on our balance sheet.

But the operations do not qualify discontinued operations in our statement of operations. The Q4 billings from endpoint management and service products were unchanged year-over-year.

Turning now to revenue. IFRS revenue in Q4 was $23.3 million which was flat compared to Q4 of last year.

Our DDS revenue increased year-over-year. However, this increase was offset by decreased revenue from our Absolute managed and consumer product lines.

With the decreased in Absolute managed being related to lower perpetual license sales in the current period. Overall, 96% of total Q4 billings were recurring licenses compared to 95% in Q4 of last year.

I'll now turn to our adjusted operating expenses which are defined in our press release and MD&A. Adjusted OpEx in Q4 was $21.2 million, up 11% from $19.1 million in the prior year quarter.

The increase in adjusted OpEx reflects increased headcount and marketing program spend as well as the fact the prior year period included$900,000 positive adjustments for investment tax credit in R&D. These increases were partially offset by a decline in the Canadian Dollar which accounted for approximately $1 million in savings year-over-year.

As a reminder Canadian-based expenditures account for approximately 50% of our total adjusted OpEx. For fiscal 2015, adjusted OpEx operating expenses were $76.5 million, a 2% increase from $74.7 million in fiscal 2014, reflecting overall increased employee headcount which was offset by foreign exchange savings.

Our headcount at June 30 was 444 compared to 413 in the prior year. Looking now to fiscal 2016, we remain confident in a marketing opportunity for Absolute DDS.

For fiscal 2016, we expect to grow our commercial ACV base revenue and billings as related to Absolute DDS with growth accelerating over the year as our new acquisition teams come up to speed. We plan to expand our presence in the enterprise market particularly in the healthcare and financial services verticals, launch new products and features such as DDS for healthcare and integration with third party SIEM systems and establish additional partnerships with leading security service providers.

We therefore plan to invest incrementally in research and development and sales and marketing to support this growth while remaining disciplined on our overall spending. Cash generated from operating activities excluding income tax related items, is expected to remain relatively consistent with fiscal 2015.

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

Yes. Thanks.

Geoff, given that you guys are few months in the quarter, can you give us any color on the billings given that sales transition is arguably behind you now?

Yes. The sales trans-- completing the sales transition is behind us.

But I want to emphasize once again, I mean that was a material transformation and was intended to create a go-to-market platform that will enable medium and longer term growth. It wasn't a transformation that we expected would impact Q1 for example.

So as Errol mentioned we are intending and expected to grow the business year and we expect to see that growth materialize as we progress through the year as those new teams become productive Richard.

Okay. That's helpful.

If you are targeting all the changes you done a lot, how far do you think you are in terms of those changes? Are you kind of -- are you 70% there or like 90% there like I am trying to get a gauge of how much more is left to do before we can just see things start taking off here?

Yes. I mean in North America I would suggest the structural changes have occurred.

I mean we expect there is a lot of on boarding that needs to be done. There is going to be some tweaking and tuning as we learn from the new structure.

But the intension at this point is to really focus on executing and monetizing that new structure. Internationally, we got some additional work to do.

We have appointed leadership but we got some work in terms of creating the go-to-market structure that I defined earlier. Getting the OEMs covered, getting our buying and distribution partners covered, spending our sales capacity.

So that's going to be a longer journey.

And I know you shared some metrics in terms of the progress you made. I think you said the web traffic is up by 20%.

If we look forward for the rest of the year and I guess going to next year, what quantity of metrics will you be providing and things that we should be tracking to see the --I guess the success of those transitions happening and working.

Yes. We are really focused on the metrics that Errol described earlier is the expansion of our existing customer ACV performance, the growth of our ACV base generally in addition to billings and cash flow and profitability figures.

Okay. And I guess one for Errol, you talked about investment in R&D and sales and marketing, can you give us an order of magnitude of what those increases are going to be?

Just help us out in terms of modeling the numbers here for next year.

Sure, Richard. So there are number of dynamics at play when we think about our cost structure.

I mean the first being the divesture of the management service business. So with the management and service business, when we announced that, I think we pointed out in the release that was a breakeven business for us.

When we look at the cost structure of that business about -- it was $11 million booking business, about 60% of our cost structure were direct cost above 40% were indirect and allocated cost. Those direct costs go away immediately at the time of the divesture which in timing is TBD --the other 40% are indirect and allocated.

We will have a portion of what I would characterize a stranded over heads with the divesture. That amount is probably approximately $2.5 million.

Our headcount was 444 at June 30th; approximately 40 of those people are associated with the management service business. So really the base DDS headcount is somewhere close to 400.

We expect our headcount to increase over the course of the year by roughly 15% throughout the year. So this is probably evenly spread over the next 10 months.

The net of all of these is that we expect our adjusted OpEx to increase year-over-year that increase is likely to be -- well it be in the single digit sort of mid single digit increase. Like I mentioned in my prepared script, we are expecting our cash flow to remain relatively consistent with the prior year, prior to payment of income taxes.

Okay. And sort of to Geoff, you mentioned in the call that the company formally had investment in sales and marketing and yet they were yielding a result with the low growth, so I know you guys are not providing specific numbers in terms of a guidance but broadly speaking, if you look at the next 12 to 24 months, what do you think is a reasonable target or where you will be happy in terms of growth?

Is that 15% number or 20% number likely, what are you guys having for --?

Yes. I would say in terms of organic growth, Richard, 20% is a medium term objective.

Now how long that's going to take to materialize, is it two years, it is three years, I mean it is really going to depend largely obviously on quickly those new structures starts to produce at a higher level, but that is in terms of organic growth, that is an objective but we've got for the medium term.

Okay, great. And one last question, perhaps an update on the competitive landscape here.

And something that you guys haven't chatted about in sometime. And that's it.

Thank.

Yes. What I mean there is a lot of activity happening competitively; thankfully there are still no direct functional equivalent to our DDS solution.

What we are competing with is other technologies that enterprises are considering to protect their endpoint. The good news is that the pace of innovation in our business continues to be driven by the fraud community so there is a never point where an enterprise declares victory over fraud, so they are very open minded to considering new innovative approaches to protecting the endpoints and that affords us an opportunity.

The other comment I make is there is no silver bullet that enterprise is used to protect endpoints. There are applying defense and depth and layered approaches to security.

We just want our technology to one of the technologies that they consider, so other technologies that they would consider would include inscription to factor authentication, containerization, look there is variety of endpoint technologies and we just want to establish DDS as one of them and given some of the unique capabilities that we got that embedded persistent technology on those endpoints and our ability to retain a connection within endpoint device even if it is off the network that is continue to be unique and something that we are looking to leverage competitively.

Hi, guys. First question on capital allocation with the increase in dividend and the buyback announced.

You may be could talk a little bit about your capital allocation priorities and how you are thinking about balance that with internal organic investments and acquisitive growth?

Hey, Michael. Good question.

We have a unique position. We got strong cash position in addition of business that continues to generate strong cash flow.

And so we pursued historically a diverse capital allocation strategy which is included dividends. We've been active with our buybacks and obviously building our war chest to invest in accelerated growth.

This quarter represented the unique opportunity I think for a couple of reasons that was the trigger for the said in particular. A, we are anticipating some proceeds from the divesture but also we sat down as the Board recently and just concluded that the best deployment of our share plus capital was the repurchase of Absolute stock.

We are left after the said announcement with the strong capital position as Errol indicated. We are looking forward to continued strong free cash flow performance this year.

And we are looking to continue to fortify that war chest and believe that we are well positioned from a capital perspective to execute against our growth and acquisition plans. As we move into the new year, we continue to focus more intensively on considering our acquisition strategy in the immediate term, we are focused on completing the divesture and really executing this new go-to-market platform but under Christopher Bolin leadership we now have a longer-term strategy centered data and device security that we can start to consider acquisitions in the context with a higher level of confidence.

So we will keep you posted on that progress certainly at the Investor event in Toronto in September. Christopher will be providing some context just in terms how we are thinking about that longer-term strategy and how about might inform our thoughts regarding acquisition targets.

Great. And then regards to the SIEM integration, obviously a lot of -- a pretty large vendors out there.

With some of the technology integration opportunities do you think that also may create some go-to-market synergies as well and being able to leverage some of those channels.

We do. We absolutely do.

So that the companies that you are referencing obviously include RSA most notably but there is Swank Edge, HP Auxite Pirate [ph] quite a number of notable security analytics solution providers that represent integration opportunities for us. In the immediate term we are just looking to enrich our value proposition to an enterprise that deploys one of these SIEM solutions but ultimately we absolutely believe that there maybe some opportunities for us to collaborate in go-to-market partnership and to leverage some of the field capabilities of this large organizations.

Great. And if I could just add one more question about international sales work.

Do you think sort of the changes that need to take place internationally will be on the same scale of disruption as you saw in North America in the short term or just given that it is a little bit in different state of development that we might expect a shorter time horizon to rework?

Yes. It won't involve the same level of disruption, but it is not going to be a short term return.

Thankfully we haven't got organizations that are resizable and as established as our North American team to restructure. We've just got some building to do.

We started that this year, Michael, with the appointment of the theater leads in Europe particular we started to make some investments in some of the areas that I described earlier. We've appointed some under cover the OEM; we've hired some under cover the buy and distribution community.

We've hired inside sales lead, we've expanding our direct sales capabilities, and so it is more about building and on boarding and making productive structures that we need to go- to-market in international theater as opposed to massive transformations.

Hi, good afternoon. Geoff, it might be a bit premature to ask this question since you just made all these changes to the new business development team but currently what are you seeing in the pipeline as far as interest level across the key verticals that you are focused on?

Which areas would currently represent the areas of particular strength which is there?

That's a good question, Thanos. So we are mainly focused on a variety of metrics around that new business development team starting with activity levels, physical activity levels, the number of converted first meetings and the pipeline opportunities, proof of concept activity, Ebel activity, pilot activity and we are starting to see the pipeline materializing as you would expect them and it is progressing from week to week, from month to month.

This is a relatively new team, so we are looking for that level of activity and growth. And thankfully it is also aligned with the verticals that we are targeting.

And it is not surprising, they really been given a charter to focus on in healthcare and corporate segments which we believe is our largest unrealized opportunity and the kind of activity in the pipeline aligns with that vertical focus .

Okay. And in terms of the education and market, any particular change there in recent weeks, recognizing this primarily I guess more focused on renewals net market?

Well, of the common link and education as it continues to be a top priority for us. We talk a lot about healthcare and corporate but I want to make sure people understand that the education business continues to be over half of our business, it grew consistently every quarter this year.

And continues to represent a very substantial unrealized growth opportunity. I mean we are very proud of the work that we done in the top and 100 school districts but there are hundreds of school districts that we haven't touched that aren't our customers.

And we continue to see an explosion in one-to-one computing program being deployed. So continuing to cover that education segment as a very important charter for us.

That's going to be done primarily through the inside sales team focused on existing -- [Technical Difficulty] education account and a field organization that is focused on our existing large account and growing our business in the education segment.

Great. And a couple of Errol, the guidance call for a cash flow to be relatively consistent prior to taking taxes into account.

So that said how should we think about taxes for 2016?

So it is good question, Thanos. You will see on our balance sheet that we do have provision for about $2 million of tax is payable this year.

That $2 million will be paid out this fiscal year. And I expect over the course of the year, I mean we are moving obviously into a cash taxable position and will be accruing taxes into single digital tax rate throughout this year.

And over the next two years my expectation remains it will become fully taxable as we move into fiscal 2018. So just continue in next year.

Okay. And then on the OpEx guidance, I am not sure and just to clarify on that.

You talked about a mid single digit increase when all said and done and so what was that assuming regarding the disposition of the assets.

Yes. That's a year-over-year number.

And I'll just clarify where that increase is coming from. And it is coming specifically from two areas.

One is sales and marketing and most of that cost structure is already built into the base and those are the heads that we hired over the course of the fiscal year and primarily in a back half of the year and in Q4. So that cost base is already built in.

We also have some additional marketing spend associated with our awareness campaigns. So that's about half the increase, the other half of the increase is in R&D where we believe that we have been under spending in R&D.

We believe that we need to be more innovative as an organization. We need to bring new capabilities, new features to market at a more rapid clip, and we compare ourselves to our competitors need for sec space certainly you will see that our R&D spend historically has been much lower than the averages in that space.

So we do need to bring it up a bit and that's the other half of that increase.

Okay. But is that increase includes or excludes the businesses that you are looking to dispose?

It is net of it. Net of its division.

Okay. One last one for Geoff.

Geoff, have you seen any changes in the overall spending environment in recent weeks or is that pretty consistent for fiscal last couple of quarters?

It is consistent, Thanos and continues to be strong. I mean the drivers around our business on all fronts whether it is the deployment of mobile devices, whether it is the volume of information, the concentration of that information on endpoint devices that the level of threat, the consequences of data breaches I mean all of those drivers continues to inform a very strong market opportunity for us.

Great, thanks. Geoff, maybe to talk just for your top three priorities are in 2016 and heading into 2017?

I think it is clear from the call though I just want just recap and make sure we got all them.

Yes. So Paul it really aligns very tightly with the initiatives that I described earlier.

I mean now that we declared a commitment to DDS for the first time in view certainly since my arrival, we are in a position to start thinking much richly about our longer-term products strategy. We've made the security declaration, now we need to think about what angles specifically we are really going to center on.

We reflect the great deal on the materiality of that embedded device population and how we leverage that platform to further inform enterprises about the risk that exist on their endpoints and how to remediate that risk. But in terms of more specific definition of how we are going to approach that, that will be a top priority.

That will include not just organic development priorities but the acquisition considerations. The second priority is clearly the monetization of the North American go-to-market structure.

We've made substantial investments and substantial changes to that capability, executing it, accelerating the growth of the North American business is a top priority and obviously the international markets are very closely behind those. They have been a drag on growth every quarter this year.

I know from a great deal of personal experience and all of the analysts reports that we read that there is tremendous opportunity that exist for us in international market. And so building the right teams and driving the right level of execution and performance in those geographies is also a top priority.

Okay. And just wrap growth expectations for 2016; is it fair to think about the overall year as heavily backend loaded to Q4 of next year in terms of how we should think about billing's growth as the year progresses?

Is it right to think about that would be in a low to very low single digit position over the first few quarters of the year as people wrap up the speed? What are the expectations we should have on sales?

So, Paul, you know we don't provide specific guidance but I would submit that directionally that is a reasonable expectation. We are moving into the organization --sorry into the year with the very nascent new business development organization structure that's recently been substantially completed and we are expecting to see performance increases throughout the year largely in the second half of the year.

And then the final one just on the NCIB post the --is the Board committed to reestablishing the NCIB after that space provide after market support. Thanks.

That we will have to review that, Paul. It is too early to make that declaration right now.

Right now we are just focusing on executing the SIB first.

Hi, good afternoon. Just with regards to the timing of the divestment of the two business units, are you still expecting both by the end of this calendar year?

So I haven't made a statement in terms of when we are expecting that divesture to be completed. I will tell you that we've appointed bankers, we've got process underway, we've seen early indications of interest on several parties, but in terms of completion timeline, it is speculative at this point, Pardeep.

And with one being going any faster than the other? Any reason why one will go faster than the other?

Well the ideal actually for us is to sell both as integrated business units and that's how we are approaching it.

Okay. My next question is around the international operations.

Quite often instead of lumping them together and I am just sort of trying to understand what would you see as a top two or three countries of focus internationally?

So in Europe it is the UK primarily, Germany and Nordics. In Asia it is Japan and Australia.

Okay. The last question is for Errol.

Cash flow from operation is up 49% year-over-year, can you just sort of give us an estimate kind of what that increase would have been if you instead of now take out the exchange rate like on a cost and currency kind of basis what that number have been?

So our -- we estimate our savings year-over-year from the decline in the Canadian dollar to be about CAD$3 million.

Good afternoon, gentlemen. Thanks for taking my questions.

If it takes let say 12 months to fix the international business to where you like it, how big can you grow that business as a percentage of revenue I guess longer term? Can you get it there 30% or 40% of revenue in three or four years?

Well, that is the objective. I mean I having spend a great deal of my career building leading an international businesses I submit that almost half of the total dollars that are relevant to our business are spent outside of the US so certainly a 30% or 40% , our total business objective have been three or four year timeframe is reasonable.

And then if you get that, do you think you can get to sort of mid 20% EBITDA margins at that point?

Yes. We do.

And on the M&A front, I mean or even on the hiring side I guess, has been a tough find talent and where are you looking with regards to either company specific or product specific for where you sort of hiring these info sec experts?

It is a great question. Listen, there is voracious demand for the talent that we are after, so these searches have been very intensive in terms of time and effort.

Our priority was to get the leadership established and thankfully we expected each of the leaders to be able to recruit from their community and we've seen them build their teams quickly on the basis of people that they have worked with or that have worked for them historically. The profile really centers on people with an information and security background or enterprise software background or SaaS background with a really strong domain experience around new business development.

So companies would range anywhere from RSA to Websense to Bluecoat to MacAfee, I mean there is just in terms of the security profile but it is a broad set of background.

I mean learning curve should be a lot less steeper than just getting generic enterprise software guy or --

You have a whole organization was build with the objective of a quick ramp, so hiring leaders that could build teams quickly of the right types of people and having sales team that are well connected in their respective geographies that can get us in front of right customer contacts quickly. So we believe that we've made the right decisions for that reason.

Now we just we got up and execute right.

And then just on the cost structure for these guys. I mean are you pay note on the sort of first year ACV on under three year contract or the clawback of customers either they leave after their first year, I mean how is the cost structure to get these guys incented so you can hit your targets?

That's it for me.

So I'll just talk about high level and I'll ask Errol to elaborate. So the teams that are focused on existing customer business are compensated on the basis of ACV.

So our objective is to maximize ACV performance. There is a bonus for multiyear contracts but we are to find balance billings performance with strong ACV performance.

The new business development teams are focused on billings once again with bonuses for annual contract value performance so we want to generate new billings but we want to do so in a way that's accretive to ACV.

Yes. I'd just add might that just quick on comment around the increased discipline that we are also putting in terms of sales compensation and ensuring that incentives are aligned with ACV growth.

And I'll just give an example. One would be that we are no longer copying for renewal that are brought in more than 60 days in advance and I mean that's something that historically -- that's generally been a practice that's been exception going forward obviously bringing contract renewals in early does nothing to increase ACV.

And so we are putting more restrictions around those types of activities as well.

Yes. And just to comment we have introduced a new metric this quarter ACV specifically both existing customer ACV and growth of the total ACV base.

I mean the ultimate long-term objective is to drive accelerated revenue growth in ACV; strong ACV performance is going to enable that more directly. To Errol's point, when you are SaaS company focused on billing's performance, there is a lot of room for dysfunction where people will bring four-five contract upfront with a massive concession that looks good today in terms of billing performance but really debilitate ACV and revenue performance over time.

So we are trying to drive a much more balanced and responsible approach to billing's growth but that ACV accretiveness ultimately going to enable accelerated revenue growth over time.

Thanks. Just a follow up on the Dutch auction.

Geoff, if you look at the size of Dutch auction and afterward your cash was base in $35 million -$40 million range, what would be your base operating cash level and then what is your approach for your view on M&A over the next couple of years?

So I can answer the first part of that Blayer, so you are right prior to the divesture of the management service businesses it is -- if you do the math and we fully spent CAD$50 million that would bring our cash down to roughly $40 million. And then anything that we receive from the divesture would be accretive to that.

Our base level, our base requirement of cash is fairly low for our business. We are constantly as you know going back many, many years have been generating positive cash from operations every single quarter.

So our base requirements are quite low. It is important to us though that we maintain some powder that we can use for acquisitions.

And that's why we certainly would not want to bring it in any lower and we expect that with our free cash flow generation going forward we can add to that $40 million base. And we do intend to be acquisitive, Blayer, just to reemphasize that statement and the objective is to remain with a capital structure that will enable the kind of accelerate growth that we are looking to invest in.

Okay, great. And the changes this morning announced Phil Gardner stepping out as the advisor role, what sort of make up of your R&D leadership now or your plans with that going forward?

Yes. We made a lot of investments and additions to that during the course of the year.

Most notably the appointment obviously of Christopher Bolin as our Chief Product Officer. He was the CTO at MacAfee; he was the EDP of worldwide product operations at MacAfee for years up until their acquisition by Intel.

He has been busy building and enriching the strength of his team including the appointment of chief architect to focus on the Persistent's platform who was looking at strengthening the team that's focused on that technology and that remains the unique competitors with advantage and we want to continue to extend that Persistent's platform into new OEM partnership, into devices and perhaps to persist application, other than Absolute application at some point. And so Phil will continue to be actively involved in enabling that team and supporting it on an ongoing basis as an advisor but we've made substantial investments in enriching our technology and product development capabilities throughout the course of the year and we will continue to do so as Errol referenced earlier.

Okay. That's great.

And one last one for me just blue skiing yet over the -- as you turn your sales force on again in the US restructured on and build out the international sales force, is there a point Geoff which you can see given as SaaS model that you would consider giving revenue or billing's guidance?

It is too early to say Blayer. I wouldn't rule out possibility out but at this point we are not prepared to do that but certainly we will keep you posted on any progress that we make around our preparedness to do that.

All right. Well, listen, operator thank you and I thank all of our participants today for your interest and support of Absolute.

And we look forward to seeing ideally many of you at our upcoming Investor and Analyst event in Toronto on September 16. Thank you again.