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Absolute Software: Long-time CEO Retires; Replacement Search Underway




Cantor Fitzgerald Canada


12 Dec 2013





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What Happened: Last night, after the close, Absolute announced the resignation of John Livingston, both as CEO and from the board, effective immediately. Errol Olsen, CFO will be serving as interim CEO. Errol joined Absolute in 2011 and has over 18 years of corporate finance experience. The board has engaged an outside firm to conduct their executive search. While both Errol and Rob Chase, COO are potential internal candidates, our expectation is that it is more likely that the new CEO will be an external candidate. Why it Matters: While abrupt, the news is not entirely unexpected as John had been with Absolute for 20 years and had been focusing more on strategic partnerships (i.e. Samsung) and relationships with large enterprise customers and less on the day-to-day business operations over the past year. We do not expect any radical changes to the company’s overall strategy as Errol, Rob and Thomas Kenny (VP of Global Sales) have been working closely together over the past year to run the day to day business. We do not expect any impact to the quarter or our outlook for the near-term business but expect the stock may trade down marginally on the news. Next Up for Absolute: Next catalysts for Absolute’s stock include 1) Integration of the broader product set (by 2H14), 2) New international wins through the new Apple and Samsung relationships, 3) Expansion of non-OEM VAR network, and 4) increased traction with new asset management products. No Changes to Our Estimates: We continue to expect FY14 sales contract growth of 12.4% to $99.2mn, revenue of $89.8mn, EPS of $0.09 and operating cash flow of $18.2mn. For FY15, we expect sales contract growth of 11.2% to $110mn, revenue of $97.9mn, EPS of $0.09 and operating cash flow of $20.6mn. Valuation/Recommendation: We maintain our Buy rating and our $10.00 target price. Our $10 target price is an implied multiple of 16.4 FY15E P/FCF (comp multiples are currently north of 20x). Absolute is currently trading at 16.9x P/FCF on our FY14 estimate and 14.8x P/FCF on our FY15 estimates.

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