Absolute Software Corporation

Geoff Haydon - CEO Errol Olsen - CFO

Doug Taylor - Canaccord Genuity Thanos Moschopoulos - BMO Michael Kim - Imperial Capital David Kwan - PI Financial Richard Tse - National Bank Financial Blair Abernethy - Industrial Alliance Security Kevin Krishnaratne - Paradigm Capital

Thank you, operator, and good afternoon everyone. Welcome to our fiscal 2017 and fourth quarter conference call.

Joining me is Errol Olsen, our Chief Financial Officer. Fiscal 2017 was a very productive year for Absolute as we substantially elevated our ability to compete and to win in the enterprise information security market.

We increased our investment in R&D with the objective of expanding our total available market opportunity completing the establishment and staffing of our Vietnam development facility and our user behavior analytics team. We accelerated the development of new marketable features like application persistence, security posture reporting and student technology analytics and leveraged this innovation to drive the expansion of existing customer deployments and the acquisition of new customers.

We enhanced the value of our technology by integrating it with other complementary applications such as IBM QRadar, Splunk, ServiceNow, and Microsoft Azure making Absolute more valuable to large enterprise customers. Finally, we completed the development of Absolute 7, a definitively compelling enterprise end point visibility and control platform which we announced last month.

From a go-to market perspective, we strengthened our enterprise sales team and improved their performance across both existing customer renewals and expansion and new customer acquisition. Most importantly, we expanded enterprise ACV by 10% and distinguished the enterprise which now represents 49% of our ACV base as our fastest growing business.

For the year, revenue of 91.2 million grew 6%. Adjusted EBITDA of 7.9 million declined from 10.1 million for the DDS business resulting from investment and head count additions in key areas, most notably R&D.

Exiting the year, ACV was 87.8 million, up 6% from fiscal 2016 driven by a combination of new customer wins totaling 4.4 million and 100% annualized customer retention. In Q4, revenue of 23.2 million grew 5% year-over-year with recurring revenue up 8% year-over-year while we added 800,000 of new customer ACV from hundreds of new customers.

Total ACV was 87.8 million, slightly lower than the previous quarter. This resulted from our ACV retention rate dipping to 99% reflecting cyclical budget pressures in some education districts and softness in the Latin American and Asia Pacific region.

As our fiscal 2018 guidance implies however we expect ACV expansion to return moving forward. We enter our new fiscal year with strength and momentum.

Cyber security remains a top enterprise information technology concern with the endpoint emerging as the most prominent focus and one of the fastest growing investment areas. The expanding dark endpoint problem defined as the inability of enterprises to see and control off network devices or devices that are dependent on endpoint security agents that aren't working properly continues to represent one of the most significant and impactful areas of IT vulnerability.

Highly publicized ransomware attacks like Petya and Wannacry have further brought into focus the consequence of outdated or unpatched endpoint agents that aren't being observed or remedied by organizations. The importance of being able to see and to remediate risk across an entire endpoint population not just a subset is beginning to supersede the value of traditional endpoint security and management products.

The emergence of an endpoint visibility and control category recognizes this new reality and is forecasted by Forrester Research to be one of the fastest growing endpoint markets. In the context of this emerging category, Absolute is uniquely positioned.

Our OEM embedded persistence technology advantage will be powerfully enhanced by a recently announced Absolute 7 platform. Absolute 7 is truly a next generation platform for Absolute featuring a new integrated user interface, an enhanced self-healing capability that natively extends persistence to any endpoint agent or application and introduces most significantly our exclusive Absolute reach technology.

Reach will enable enterprises to create and execute customized query and control scripts and to extend these commands to every endpoint everywhere including off network devices and devices whose agents have become damaged or disabled. The introduction of Absolute 7 and Reach represents the culmination of a multi-year stealth development effort and introduces an omnipresent high resolution endpoint visibility and control platform that is extensible into a broad variety of endpoint management security use cases limited only by our customer requirements.

Examples of how this technology was deployed during its beta phase included a large service provider in Europe using Reach to identify devices around the world that we’re communicating with known nefarious IP addresses and then automatically and immediately severing that vulnerability. Another use case deployed by a large North American retail enterprise leveraged Reach to identify endpoints affected by a recent critical Intel firmware vulnerability, sending a message to affected users and disabling affected devices until a firmware update could be executed.

Finally, Reach technology was used by a large North American health care provider to identify endpoint devices that were exposed to the Wannacry attack by looking at and remediating versions of all endpoint agents and patch levels that were vulnerable across a broad variety of operating systems and endpoint types. Reach puts Absolute firmly on a path to define and ultimately lead this emerging endpoint visibility and control market.

And compete successfully with prominent competitors in this space like Tanium. From a go-to market perspective, we entered 2018 with a strengthened enterprise team and business pipeline.

Our enterprise opportunity portfolio was up over 50% year on year and our pipeline of larger deals which we characterize as deals with an ACV value of 500,000 or greater has grown at an even stronger rate. In 2018, we will extend our endpoint visibility and control platform into new and valuable customer use cases including insider threat defense.

We’ll introduce new deployment options for our technology including an on premise version for those companies and countries that require localized delivery. We’ll also continue to integrate our Absolute platform into other complementary technologies deployed within the enterprise to further increase customer value and Absolute stickiness.

Most importantly, we will enable and activate our global enterprise field organization around our new Absolute 7 platform to drive upsell activity among existing customers and the acquisition of new customers to distinguish Absolute as a leader in the emerging endpoint visibility and control category and to help enterprise customers confront and overcome their most prominent source of information risk, the dark endpoint. In 2018, we expect to increase our revenue growth rate to expand both EBITDA and cash margins and to remain firmly on our path to accomplish our long-term operating objective of 20% revenue growth and 20% adjusted EBITDA margins.

Errol over to you.

Thanks Jeff. Good afternoon everyone.

Q4 revenue of $23.2 million grew 5% year over year. Commercial recurring revenue of $21.9 million increased 8% year over year, while commercial nonrecurring and consumer revenue was $1.3 million compared to $1.8 million in the prior year period.

Fiscal 2017 total revenue was $91.2 million representing 6% growth over fiscal 2016 DDS segment revenue, with commercial recurring revenue up 8% year over year. Our commercial ACV base was $87.8 million at June 30 representing a 6% increase over June 30 of last year.

Sequentially, the ACV base was down $400,000 for March 31, reflecting a 99% existing customer retention rate, substantially offset by $800,000 of new customer ACV. Existing customer retention was impacted by the cyclical budgetary pressures in some school districts as Jeff referenced earlier and lower renewal rates in emerging markets.

Additionally, this quarter did not include any new or expansion deals with individual ACV greater than $500,000. However, our pipeline of these large deals is up significantly this year and is expected to contribute to growth in fiscal 2018.

The enterprise and healthcare ACV base increased by 10% year-over-year and was flat sequentially. The education and government ACV base increased by 2% year over year and was down 1% sequentially.

At June 30, enterprise and healthcare customers represented 49% of our commercial ACV base compared to 47% at June 30 of last year. From a geographic perspective, our North American ACV base which accounts for 90% of total ACV was up 6% year over year and unchanged sequentially.

Internationally, the ACV base was up 1% year over year and was down 3% sequentially. Turning to expenditures, total headcount at June 30 was 517 compared to 445 at June 30 last year.

In accordance with our plans, the majority of the increase in headcount was related to expansion of our research and development capabilities, with R&D headcount finishing the year at 235, up from 150 including Vietnam contractors at June 30 of last year. Total Q4 adjusted operating expenses which exclude reorganization and non-cash charges and which are detailed in our MD&A were $21.2 million, up 5% year over year.

For fiscal 2017, total adjusted OpEx was $83.3 million, up 7% year-over-year and reflecting incremental investment in R&D. Adjusted EBITDA for the fourth quarter was $2 million or 9% of revenue and for the year was $7.9 million, also 9% of revenue.

Reported cash generated from operating activities during Q4 was $700,000 and for the year was $1 million. This annual number was net of $2.8 million of reorganization related payments and $3.2 million of income tax payments.

Fiscal 2017 cash generated from operating activities was $7 million prior to these payments. Turning now to our outlook for fiscal 2018, we expect further growth in revenue and ACV by leveraging our existing product and go to market investments, leading to improved operating margins and cash flow generation.

We expect total revenue of $96.8 million to $99.2 million representing 6% to 9% year over year revenue growth. The primary driver for growth is expected to come from the North American enterprise and healthcare market, with modest growth rates in the North American education and government segments as well as from international business.

We expect adjusted EBITDA margins of 9% to 11%, which includes a modest increase in headcount and related operating expense and assumed a negative impact of approximately 2% of revenue from a stronger Canadian dollar. Our forecast uses a Canadian dollar to US dollar exchange rate of $0.78.

Cash from operating activities is expected to grow to 13% to 16% of revenue. This compares to adjusted cash from operations of 8% of revenue in fiscal ‘17.

Capital expenditures are expected to be between $3 million and $3.5 million relatively consistent with capital expenditures of $3.4 million in fiscal ‘17. This concludes our prepared remarks for today, operator please open up the call for questions.

Can you talk about how you expect a release - a platform release like Absolute 7 to impact the pace of upsells, resells or ASP for your product or is it more about improving the renewal rates of your existing customer base. Just talk about how you think that helps you address the addressable market.

Yeah, certainly Doug, and it affects all of those things. So first of all Reach will be included in the premium version of Absolute 7.

Today almost two-thirds of our existing customers operate a version of our DDS platform that is below premium, so there is a considerable upsell opportunity within existing customers that we intend to focus on. Secondly, we believe that Reach and Absolute 7 substantially enriches our value proposition for a new enterprise customer.

And so we expect it once again to improve win rates and accelerate growth in the enterprise around new customer ACV. Certainly also it makes the technology more sticky, so we do expect over time it will impact renewals.

And the final consideration is, with Absolute 7 we've integrated our self-healing endpoint or application persistence offering inside the platform. Historically, we executed application persistence through a light external professional services engagement and customers had to access information regarding that function outside of the DDS dashboard.

And so by making it more integrated, by making it more native, we expect application persistence to be more obvious and accessible to both existing and new customers and as application persistence is an upsell and an opportunity for us to increase ACV per endpoint. So it really affects all of the dynamics, existing customer renewal expansion, upsell and new customer ACV.

Was there, I mean looking at Q4 revenue, it seems like it was a little below the guidance that you provided even back in May, was there something surprising, I mean, I know you mentioned a tough season for budgets for education vertical. I mean that would seem like that's something that you would have experienced with from the past.

Was there something like maybe one deal or something that slipped out of the quarter, a non-renewal that you were expecting that caused that to be a little softer than you’d forecast?

I’ll elaborate, there were two dimensions, one was the ACV, the fact that ACV was flat or just marginally down. Secondly, there were some nonrecurring revenue considerations, I'll ask Errol to elaborate on.

But within SLED, really what we saw was some budget pressures that were unusual in specific districts that are historically large customers and really were expecting those to affect the timing of deals. What we're seeing as they're not spending all of their money in one volume purchase, but perhaps buying incrementally.

There were some other unusual anomalous dynamics within SLED, we had three of our Top Ten education customers replace either superintendents or CIOs that disrupted the timing of renewals. We had just some unusual factors that affected the SLED business marginally that we don't expect to repeat or impact that business considerably moving forward.

With the enterprise business, really Doug, what we didn't see in Q4 that was unusual were large deals. It was really a singles and doubles quarter.

We didn't have a single new customer with ACV of greater than $100,000. That's unusual.

And only two of our expansion deals with enterprise customers were valued at greater than $100,000. So we did a lot of deals, acquired a lot of new customers, drove 800,000 of new customer ACV but it was on the back of a lot of customers and a lot of transactions.

Now notable customers I mean some very prominent names included like PWC, Deloitte, Booz Allen, Facebook expanded again, Hilton, Centene, but we just didn't get the large deal leverage. The good news as I referenced during the prepared script is that our pipeline of large deals and that in all categories greater than 100,000, greater than 250,000 and greater than 500,000 of ACV increased substantially year over year.

So we're in front of more deals and we do expect those to play a more prominent role in future quarters, but just its sporadic at this point. We're just not in front of enough of them to have one land or a couple of them land every quarter, but we expect that to change certainly moving forward.

Do you want - maybe I'll just ask Errol to comment on some of the non-occurring items.

Sure. It’s probably worth just speaking to that, thanks Jeff.

So on a non-recurring, our non-recurring revenue is 1.3 million and a year ago in Q4 it was 1.8. That reduction is a couple of things, half of that non - we call it nonrecurring and other revenue, half of that is our consumer business which we have deemphasized which was down year over year.

There are a couple of other components to that revenue segment, both of which were also down. And that's really where we came in a little bit lower than what we had expected for the quarter.

Our reoccurring revenue was in line with our expectation, which as you know is really just falling off of that opening ACV base.

A last question from me, you have laid out a pretty compelling goal of 20% growth, 20% EBITDA margins, obviously this year is, you know, you're showing some positive steps towards that goal. But can you just remind us what you see as perhaps the biggest hurdles to getting to those types of numbers be on time.

I think its execution ultimately. I mean we now have a product offering that we believe gives us access to upsell and new customer acquisition opportunities.

Our enterprise sales team under the leadership of our new North American enterprise leader has been strengthened, is more mature and we expect to be more productive moving into the new year. And our pipeline is expanded in key areas, most notably large deals as I mentioned earlier.

And finally, we're starting to see some industry dynamics and mega trends that are favorable just the recognition of the importance of some of the unique capabilities that Absolute offers. So really that's the source of our confidence and optimism.

And I’ll just reflect on our enterprise business which is the primary growth engine grew 10% in 2017 and all of the fundamentals that drove that growth in the first three quarters, remember we expanded ACV at an accelerated rate are still relevant. And in fact I would say, it strengthened, if you take a look at product, you take a look at go-to market, you take a look at market conditions.

So moving into the new year that's the source of our optimism and really it comes down now to just getting our global field team across our new platform in front of enough existing and new customers and executing our plays.

Jeff, you announced Absolute 7 last week, did the sales cycle on that effectively just start now or have you been already pitching it with some customers, you mentioned some betas for example.

Yeah, we beta-ed it in Q4, starting in Q4, Thanos. We launched it internally at our global sales event in the third week of July.

We announced it last week in its GA on the 28th of this month. So we're kind of ramping up, but we've started cultivating opportunities really in July at scale.

Going back to your commentary on education, September is obviously a key quarter for education as well. So should we look at maybe the new ACV growth being a little bit muted in the upcoming quarter as well given the dynamic you highlighted in that market?

Not necessarily, not necessarily. We're determining how that's going to play out across the education sector.

What we did observe in Q4 is just - traditionally it's a harvest season where the majority of the opportunity is concentrated. We just saw some more incremental investments in education.

Now once again, the education business is a strong business. It grew in 2017, we expected it to grow this year, the number of total devices shipping into education is increasing substantially from year to year.

The number of Windows devices shipping to schools is increasing. So we're still very optimistic, but we just think that there might be a little bit of a change in the complexion of when and how that business lands, but in terms of how that plays out in Q1 and Q2, it's just it's not clear enough for us to provide any specific guidance.

And then on the international business, obviously you mentioned some headwinds on the emerging markets. But I think your commentary was that international should experience some growth this coming year.

So can you clarify that dynamic?

So modest, so remember over the last few years we've moderated our level of investment in the international business and our expectations of growth from those markets. I mean we’re really focused on concentrating our investment in energy on the North American market which is obviously our largest market.

And so with that said, historically and currently international business is feast or famine, if we get a large deal it affects the business substantially and if we close a large education deal which we did in Australia and Latin America three years ago that we don't renew in its entirety, it affects ACV, but off a small base. Moving into this year, we will continue to concentrate our investment and really igniting the North American market.

But we will continue to execute against the investments that we've made in very specific international geographies. And we do expect growth to accelerate throughout the year, but once again at a modest rate off a modest base.

Our goal this year is to get really critical mass established in terms of North American business performance and moving into the subsequent fiscal year, we hope and expect we're going to be in a position where it makes sense for us to start shifting more investment and elevating our expectations around the international markets.

So just going back to the pipeline growth, can you say a little bit on the drivers, whether it's around large deals or -- and broader coverage of the endpoint population, some of the enterprise customers as well as maybe the early adoption of new products, features, things like EDD and Application Persistence?

I think, it's a couple of things. First of all, with Todd’s addition to the team, he's brought some of his top performers from a previous generation in the organization, have relationships with some large accounts.

I think that's affected our business. He's also concentrated the field enterprise activity around a smaller number of larger accounts in an effort to kind of accelerate the development of large accounts and large opportunities.

The other reality is, we've got a very compelling use case for a large complicated global account around two particular use cases that I think are getting the most traction. One is always connected Asset Management, our ability to provide that complete current absolute source of the truth around all hardware and software characteristics on global endpoints and the second one is application persistence.

Large enterprises typically deploy as we stated before stack of endpoint agents as many, as you know 14 or 15 in highly regulated industries like healthcare and banking and at any point in time, they know that a significant percentage of those aren't effective. And so the application persistence value proposition within a large enterprise seems to be particularly resonant.

The other comment I’ll make is the reach concept was one that we really adopted from our largest customers. We saw repeated interest in and ultimately demand for the ability to customize both our query and control capabilities.

They know that we give them access to every end point, but they wanted some more flexibility in terms of how they leverage that visibility. And so that was an idea that was originally conceived and ultimately driven by some of our largest enterprises and we're hopeful and confident that we will see a high level of interest and activity through reach within that large customer community.

And then behind some of these opportunities, you’ve talked a little about the improvements in go to market. Do you have an early view on trends on conversion rates and sales productivity and how the field sales organization has ramped?

Yeah. I mean we're improving from quarter-to-quarter just in terms of the number of deals, the number of large deals that our reps are in front of.

The variable is how long it's taking us to close the deals. We now have a much more informed and experienced methodology that we're repeating across a large enterprise campaign that specifies what activity occurs at what point in the campaign, what function gets involved when.

So we've got a playbook that is repeatable that we're executing consistently. What's unpredictable around these large enterprises is just how quickly they move.

And so one of the other things that we're thinking a lot about is, how do we increase the banded range of our core business so that we're not as dependent on these large deals being kind of make or break scenario. So yes, we want to put the company in front of more large deals every quarter.

Yes, we believe that through our enriched offering and the maturity of our go to market team, we’re going to get better at winning them more quickly, but the other thing that we're thinking about is just how we continue to expand that core business and so that when we do land a big deal, it drives the kind of growth outcomes that we believe that we're capable of.

And then, you've talked a lot about also ELAs, you’re closing the ELAs in the fourth quarter and how many for the year and are you continuing to see a pivot to ELAs versus say the three year typical deals and less discounting?

Yeah. It’s a good question.

We are. We saw an increase in ELAs in the second half.

I think we did 15 or 16 versus a fraction of that in the first half of the year. What we didn't see in Q4 was a large ELA, like the one that we saw in Q4 a year ago with that large pharmaceutical company, but Michael, we're driving ELAs, I mean we like ELAs.

As we've said in the past, it makes the technology more consumable by a large enterprise. It takes some of the pricing pressure off.

It forces us to go back every year and upsell and expand our presence there, but enterprises buy differently. We've got some very notable large enterprises that we've quoted every quarter as having expanded their deployment like a Facebook for example or a CapitalOne.

So it really depends on the enterprise, what their CapEx and OpEx scenario is, what the preference is, but certainly we will continue to focus on ELAs and we do expect they will play a more prominent role in our large account success moving forward.

And then one last one for Errol, as we look at the guide and the roll off on ACV into Q1, is it your sense that fiscal ’18 could be more second half weighted or look very similar seasonally from 2017 first half versus second half.

Well, I think the best way to look at it is, you're right, we are rolling off a year-over-year ACV growth of 6%. So that's really the starting point, which means we do need to see some acceleration in ACV and corresponding revenue growth over the course of the year in order to hit the midpoint of the guidance.

I’m not sure. Does that answer your question?

Yeah. That makes sense.

And then I guess also on the R&D side, should first quarter see kind of the full run rate or how do you -- was that largely baked into the fiscal fourth quarter.

The first quarter should see the full run rate. We were largely hired up to our plan for fiscal 2017.

There is about a dozen heads in R&D that kind of tripped over into fiscal ’18, but those will come on board early in Q1.

Just following on the last question on the R&D, it looks like you guys, you were targeting to fit by the end of the year, bit short of that, there was four that were added, were those in Vancouver then, I think you had talked about Vietnam being fully staffed.

Yeah. That’s right.

David, we’ve got roughly 100 people in Vietnam now, we're completely staffed in the Vietnam office. So with additional heads, we’ll be in Vancouver.

The distribution in R&D, it's, in rough numbers, it’s about 150 overseas and about -- 100 overseas and 150 in North America.

And in terms of kind of a run rate there, is it -- with the new additions, are we kind of looking in the, call it, 4.5 million to 5 million a quarter type range?

Yeah. Towards the higher end of that range.

Just in terms of the revenues, obviously, not I guess from a growth perspective, where you'd want to be at this point and you kind of talked to them I think in the past, kind of getting in to the double digit range exiting this year. Where do you see that getting pushed out to in fiscal ’18 I guess?

Is it kind of a second half type of thing that you’d expect to get into that range?

I think that that’s a fair perspective. Yes.

I mean, we did, we’re entering the year with a revenue growth rate that's a little lower than what we'd expected at the start of 2017. So it does imply that we start getting closer to this double digit revenue growth rate in the back half of the year.

And if you think the, I guess it does kind of start to improve, like how quickly could we see the revenue growth really start to pick up here, like, is it something that you could see solid double digit growth for the year.

It's not out of scope certainly. It will -- one of the nuances with our business and I suppose with more subscription business is that lag between building ACV and then revenue growth.

But I think that we have, from a product standpoint, from a go to market standpoint, certainly, we have the capabilities to do that as well as we come into the back half of the year and release the on prem version of DDS. It gives us some opportunity to accelerate revenue further.

That kind of ties into my next question, just in terms of kind of the product roadmap, can you kind of talk about some of the new releases that you guys expect over the six to nine months.

Yeah. I would say the three areas that we will focus most significantly on are, a, the platform investments that expand our available market and most notably the introduction of an on premise solution that gives us access to customers in certain geographies that require that localized delivery.

Secondly is the user behavior and analytics capability that enables that insider threat defense use case which we are seeing very prominently across, in particular, large enterprises. And finally, the integration of Absolute 7 with other complementary technologies.

We're really seeing a high level of interest among enterprises in particular to be able to consume our telemetry and other enterprise applications that they're using, whether those are asset management, IT service management, information security, security operations center, applications, so being able to extend and connect our Absolute 7, both visibility and control capabilities to other applications will also feature prominently in our R&D roadmap this year.

Can you give any sense on the timing of when we could see I guess these release I think?

Yeah. Well, I mean, the on premise, we’re looking for an early second half release of that offering.

The user behavior and analytics is really being introduced incrementally. We saw user device awareness announced in Q3 of this year.

That was a component of our user behavior and analytics roadmap. We saw the integration with Microsoft as your information protection, which is also a user centric security capability.

So I think you'll see the functionality around the UBA, enriching incrementally throughout the course of the year. I think it will really achieve critical mass in late this fiscal year.

The enterprise integrations, you also see incrementally. I mean in 2017, we announced a new enterprising integration every quarter and our intention is to continue with that cadence in 2018.

Last question, how seriously are you guys really looking at using your balance sheet, looking at acquisitions to help possibly accelerate the growth, given that the growth has been relative stagnant over the last few years?

Well, we intend we did in 2017 bring the strength of our balance sheet to bear through an increase in organic development and we will continue to look to do that and consider opportunities to accelerate and derisk our organic development plan through the acquisition of talent and technology combination. So that -- our position on that is unchanged.

It's just a function of finding the right target in the right circumstances at the right value.

And how do you guys see the landscape I guess, especially as it relates to valuations which I know have been a challenge?

Yeah. The market sees what we see.

I mean, this is a very relevant segment with a lot of investment flowing into it. So and we’ll have to be very thoughtful about finding that right combination of talent and technology and valuation but we've got some very experienced people including Christopher Bolin as a member of our executive team focused very largely on that, but I mean it's just a function of finding the right target under the right circumstances, but it is a priority of ours to look for those types of opportunities.

Geoff, is there a specific go to market strategy for Reach?

Well, we've really been building it, Richard. I mean, everything that we've been doing around creating our go to market structure over the last two years has been designed to enable us to take an offering of Reach’s materiality to market.

This has been a development effort that's been underway for about 2.5 years. We haven't talked a lot of -- we've talked a lot about visibility and control, but the ability to extend virtually unlimited visibility, query and control, script capabilities to customers is very significant and everything that we've been doing around enterprise, go to market preparedness over the last couple of years was really designed to enable precisely this type of offering.

And then with respect to Absolute 7, is it a fairly easy migration path for your existing customers, as they choose to adopt that new platform here?

Very easy. Seamless.

And then with respect to obviously the number of new products that are coming in the market, when you go forward here, are you in a position to provide color in terms of proportion of revenues those new products are going to generate relative to some of the older products here?

Yeah. We will endeavor to provide some resolution.

I'm not clear on how we’ll measure or report those, but I mean we do want to give indicators of adoption and monetization of new features and functions. So yes, it's our intention to do that, but we're not clear exactly on how we'll do it.

And then the last one for me, with respect to pricing of Absolute 7, can you share with us what that would be relative to some of the existing products?

Yeah. We're not changing our pricing structure for the good better best or the different versions of Absolute 7.

And so the premium version, which includes Reach is still priced at $120 for a three year license per endpoint. And the application persistence extensions beyond the Microsoft extension -- the Microsoft applications like SCCM and BitLocker are priced incrementally.

So if a customer wants to extend persistence to other agents, then that is an additional expense over and above the Absolute 7 license fee.

Just a couple of things, Geoff. The on premise option that you're bringing out, is that something that has been more, is there being customer pull involved or have they been looking forward and is there any opportunity for you to wrap any pro services around that as well?

Definitely. I mean, we think that our pro services opportunities around both the hosted version and the on prem version of our technology, just in terms of kind of optimizing Reach for example in a customer environment based on their asset management and security objectives, but certainly with the on prem version, there will be an additional implementation opportunity.

We're not clear on how significant that will be. I don't regard that as a material opportunity, but the answer is yes.

To your original question, it is largely being customer and geography driven. I mean, there still are customers in certain segments, defense, intelligence, aerospace, banking to a lesser extent but, healthcare, that just require in order to comply with their own policies, in some cases, government imposed policies, they require an on prime solution.

There are certain countries in both Europe and Asia for example that because of data sovereignty laws require a local delivery capability. So yes, it is being market driven not that we're constrained today in terms of available market opportunity, but by having an on prem solution, it does expand our TAM considerably.

And in terms of your go to market and traditionally you’ve worked with the hardware partners to help lead generation so on. Is there any partners on the enterprise software integration side here?

Are there any other ways that we can see you indirectly drive your funnel?

Yeah. And so it's a good question and I think it's related to the question that Richard asked earlier.

I mean, the OEM partners continue to feature very prominently. The second thing we think about is now that we're integrating and extending our platform into other complementary enterprise technologies, we're looking in 2018 to extend those integration partnerships to partnerships that actually involve go to market collaboration, whether it's RSA, whether it's Splunk, whether it's ServiceNow, because of our capacity to enrich their offering, their value to an enterprise customer, we do think there are some opportunities for us to collaborate and get leverage, which will explore.

The other thing that we will focus a little bit more intensively on this year are the information security specific VARs. Those are VARs that we have been working with for some time.

We have signed agreements for companies like [indiscernible] but we're really working very opportunistically with them. We expect that with Reach and the enrichment of our product portfolio that will represent a more compelling partnership opportunity for them this year and so we will increase the level of effort and investment around those partners, very likely moving into the second half of the year.

The primary focus in the first half is just getting an increased level of leverage around the go to market capabilities that we've invested in. That's our sales team, that's our system engineering team, that's our professional services team, the OEMs and the enterprise application partners.

And just one last one for me, any thoughts on the M&A front. You guys have been doing a lot of work internally on your product development and broadening your platform, you're also looking extremely at all to fill holes?

Yeah. As I said earlier, our primary focus to date has really been on organic investment.

We've got and have significantly expanded an outstanding development team and that's reflected in the cadence and the quality of the features and functions, most notably, the Absolute 7 launch and so we haven't felt constrained by our ability to bring new marketable features to market. But now that we're starting to center in on a category that's being recognized that is growing significantly around endpoint visibility in control and starting to bump into or have the potential to bump more frequently into competitors like Tanium, we do think that there's going to be an opportunity for us not only to enrich our organic R&D capabilities, but yes to acquire some talent and technology combinations.

As I said earlier, the trick is just finding the right combination at the right time at the right value. I mean there has been some irrational exuberance I think, reality is starting to set in to some of the companies that we might be interested in, but it's just -- it's got to make sense and when it does, then we'll do the right thing.

But it is a priority

I'm wondering if you can elaborate on the five year educational contract that you closed in the quarter. Any details on that?

Was there any upsell expansion there and just curious if that might have had any sort of impact on ACV in the quarter?

Yes. It was a renewal and expansion.

We can't offer more details than that, but it was a renewal and expansion opportunity and it did affect, I think, because of its materiality both term to a very limited extent to ACV.

And so then following that on with regards to the billings expectations for the year, can you just talk about what the cash flow guidance is implying for billings growth, kind of what the renewal opportunity is looking like, are there any big renewals up due and any elements of working capital, think about with regards to that cash flow guidance.

The implied billings growth for the year is in the mid-teens and there is a quarterly distribution that will impact cash flow. Most of the growth in billings happens over the first three quarters with the fourth quarter being relatively flat year-over-year.

So you'll see the majority of the cash distribution really coming in the second, third and fourth quarters.

I think we were chatting about the reasons for the ACV being down sequentially, we talked about the educational side of things, but can you elaborate a little bit more in the LatAm and the Asia, was that -- why it might have happened softer, was there anything competitive happening there or might it just have been because the focus for you guys have been more on North America, any thoughts on what happened there?

Sure. So outside of North America, especially in developing markets like Latin America and to a large extent in Asia Pacific, a lot of that business has been more historically what I would characterize as more transactional in nature.

It's been large government education tenders which just by their nature are not necessarily renewable just because they're so politically dependent in those regions, specific countries where we've done those deals in the past. It's also, I suppose, a little bit impacted by the fact that we have reduced our investment a little bit over the last 18 months as well internationally, so we're not picking up placement deals for those.

And I guess just the final one for me, I'm just curious on what you're seeing with, let's take a new customer in regards to the device mix. Are you seeing more of the activations skewing towards mobile phone tablet or is it still predominantly laptop with the new ACV.

It's still predominantly laptop. It’s and in fact from a product perspective, 98% of our new business is from the professional and premium versions of the product, which is the highest level of functionality.

All right. Operator, thank you and thank you to everyone on the call for your interest and support and we’ll look forward to speaking with many of you over the coming days.

Thank you again.