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LogMeIn, Inc. (NASDAQ:LOGM)

Q4 2013 Earnings Conference Call

February 13, 2014 05:00 PM ET

Executives

Rob Bradley - Director of Investor Relations

Michael Simon - CEO

Jim Kelliher- CFO

Analysts

Matt Hedberg - RBC Capital Markets

Gene Munster - Piper Jaffray

Gregg Moskowitz - Cowen & Company

Raghavan Sarathy - Dougherty & Company

Brad Sills - Maxim Group

John DiFucci - JPMorgan

Tim Klassell - Northland Securities

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the LogMeIn Q4 2013 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, February 13, 2014.

I would now like to turn the call over to our host Mr. Rob Bradley, Director, Investor Relations. Please go ahead, sir.

Rob Bradley

Thank you and good afternoon from Boston's Innovation District. We're pleased that you can join us on our earnings conference call to discuss the results of our quarter and fiscal year end December 31, 2013.

Before we get into the results, let me remind you that some of the statements made during this call may be considered forward-looking statements. These statements include the company's financial guidance for the first quarter of 2014 and full year 2014. The company's security filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made on this call.

Any forward-looking statements are made as of the date hereof and are based on current expectations, estimates, forecasts and projections as well as believes and assumptions of management. The company does not undertake to update any forward-looking statements as a result of new information or future events or developments. The company's filings are available through the company or online.

During the call, non-GAAP financial measures will be used to provide information pertinent to ongoing business performances. Tables reconciling these measures to the most comparable GAAP measures are available in the press release or on our website at www.logmein.com.

Now, I will turn the call over to our CEO, Michael Simon. Michael?

Michael Simon

Good afternoon and thank you for joining us today as we report on LogMeIn's fourth quarter and fiscal year 2013 results. In Q4, we reported strong financial results, delivering revenue and earnings per share that exceeded the high end of our guidance.

Total revenue for the quarter was $45.2 million, up 22% from Q4, 2012, and non-GAAP earnings per share of $0.16, $0.01 above the high end of our guidance. For the year, revenue was $166.3 million, a 20% increase over 2012.

Our growth in both the quarter and the year was due in large part to the continued success of join.me, as well as our ongoing strength in the SMB IT segment. We expect both of these trends to continue and drive growth throughout 2014 and beyond.

Our collaboration cloud proved to be the fastest-growing product cloud in the fourth quarter. Made up of our online meeting product, join.me, our cloud files sync and share product, Cubby, and our LogMeIn Pro remote access product, remains the fastest growing area of our business.

In the fourth quarter, our collaboration cloud grew approximately 32% year-over-year, up from 30% in Q3. Once again, join.me revenue grew by more than 100%, compared to the quarter one year earlier. Conversion rates for join.me also rose as did the average order size as we saw increasing demand for join.me to solve larger business wide collaboration needs at organizations such as Yellow Pages, Orbit and Churchill Downs.

We also unveiled new capabilities in our premium join.me offering to better address the needs of these businesses for companywide collaborations and online meetings. We introduced a feature called meeting recap, which is the latest in a series of new capabilities that leverage our Cubby cloud files sync and share offering to extend collaboration beyond the meeting.

With this new feature, recordings of join.me meetings as well as any file shared during a meeting are instantly stored in the cloud, giving participants an easy way to follow up with other participants. In addition, we bolstered join.me's mobile capabilities through a key update to join.me's popular iPad app. The new update gives mobile professionals the ability to quickly start meetings on their iPad and then pass the presenter role to other participants attending on their iPad or their computer.

Our IT management cloud was another key contributor to growth in the quarter. Our IT management cloud, which includes our Central product as well as are LogMeIn Pro for RMM delivered 30% year-over-year revenue growth. We ended the year with approximately 90,000 SMB IT customers. This is a segment, we believe, will play a key role in our growth as we expand our IT management offerings to help businesses address the challenges inherent in an era defined by the consumerization of IT and to bring your own technology trend.

One key example of this expanding portfolio is our new cloud app management product, AppGuru. This offering is designed specifically to help businesses manage employee, introduce cloud application by giving IT professionals visibility into and management over applications in their workplace.

In Q4, we expanded both its capabilities as well as its catalogue of supported apps. Today, AppGuru’s growing catalog provides out-of-the-box support for more than 50 of the most popular cloud and fast apps on the market. These include Evernote, Basecamp, Box, Jive, Office 365 and Salesforce.com.

Earlier this week, we expanded its presence in the market by rolling it out to a select portion of our overall IT base.

We also view these IT customers as a natural fit for our collaboration products as they are often key influencers in these purchasing decisions. For example, we see our core IT base as an ideal target for the enterprise versions of both Cubby and join.me. We believe our relationship with IT department will help us optimize both our collaboration products for the end-user while meeting IT requirements for manageability and compliance.

Turning to our service cloud, we continue to see strong growth with our BoldChat product. In our service cloud, which includes LogMeIn Rescue and BoldChat, we have an enviable client list that includes many of the world's largest professional helpdesk and contact centers. Companies like Microsoft, Dell, HP, Sutherland, Rackspace and Go Daddy use Rescue as an important tool for customer service.

Today, these types of organizations are expanding the definition of customer support and engagement and this is proving a natural fit for our complementary products like BoldChat. For example, large Rescue customers like Vodafone, Web.com and Frontier Communications are already using BoldChat to better support their customers. By leveraging these existing customer relationships, BoldChat has become one of our fastest growing product and in Q4, we took steps to bolster BoldChat's enterprise capabilities, capabilities, we believe are key to winning large new business opportunities and cross-selling BoldChat into our largest service cloud customer account. We also invested in BoldChat's mobile engagement capabilities to focus on an area that is increasingly critical to today's customer service organization and yet underdeveloped in the market at large.

Another key area of investment for LogMeIn is our Connected Object Cloud, and in particular our Xively platform-as-a-service. The Internet of Things is widely believed to be a transformative market, not just for technology, but for a wide swath of the economy. Xively is tailored for companies that want to create connected products and need to connect to their customers. It is also perfect for companies that want to use connectivity to transform their business processes.

In 2013, our focus was building awareness and establishing thought leadership in the nascent IoT market. We expanded our ecosystem of partnerships to include a strategic relationship with ARM to help businesses accelerate the development of new IoT initiatives. We also and continued to enhance the features of Xively to meet the needs of this dynamic market. We are working with early customers and prospects to adapt Xively to their specific needs. We are already testing the next version of Xively with a select group of customers and we expect the Xively service to continue its rapid pace of innovation.

While the Internet of Things is still in the early days of development, we believe that our early investment in this space has given us distinct advantages to better serve the emerging needs of businesses to create, manage and support customer-connected offering.

Our progress and thought leadership effort have helped elevate LogMeIn visibility in the market, including recognition this week as one of the fast companies 10 most innovative companies in the world for IoT, and we are actively taking steps to bolster expertise as a means of accelerating of Xively's contribution to the business as well as the next generation of LogMeIn's broader portfolio.

As we look ahead to 2014, we believe the need for universal connectivity is growing exponentially as more people want to interact with each other online in a growing array of internet-enabled products around them.

In 2013, we invested in ways that expand the capabilities of our proven Gravity platform to best address tomorrow's connectivity opportunities. In 2014, we will drive growth by focusing on what we see as some of the most favorable opportunities in connectivity. This increased focus also means optimizing our business to best address these opportunities and we have already taken a key step in this direction.

We recently discontinued our free remote access offering LogMeIn Free. While this change disappointed some of our longtime free users, it is an important step in LogMeIn's evolution with three benefits. First, it allows us to focus our premium top of funnel efforts on where they yield the best return. The free version of join.me overshadowed LogMeIn Free as a growth driver. In fact, in 2013 roughly three-quarters of our first-time users of our services were introduced to us via join.me.

Given join.me's disruptive business model and enormous target market, we believe it is much more efficient and attractive funnel on which to develop our marketing and development resources.

Second, the change allows LogMeIn to more effectively target high value mobile professionals versus casual consumer users. We expect to convert more than 100,000 new premium subscribers from this initiative, which will increase our growth by approximately 3% in 2014. As we are continuing to improve the capability for our remote access tool, this move allows us to focus our development effort squarely on enabling mobility and collaboration for the professional user rather than building out features for consumers.

Third, it has helped us migrates key SMB IT users of LogMeIn Free into a better product and a better longer term portfolio. This change has created a pull through to our central IT management product and creates both, add-on and cross-sell opportunities for our sales force.

With the change behind us, we are now focused on key areas of the business that we believe will yield sustained, near-term and longer-term growth. Most notably, fueling join.me's continued rise as the collaboration leader, by helping people connect to each other across devices and locations, increasing our value to SMB IT by helping IT departments connect and manage the growing number and diversity of devices and apps and the workplace, and accelerating our IoT opportunity with Xively by helping companies transform the way they connect, engaged and support their customers and their products.

In short, we believe our core connectivity strength, proven Gravity platform, large SMB IT customer base and the early traction in the IoT have put us in a great position to capitalize on these opportunities in 2014 and beyond.

At this time, I will turn the call over to our CFO, Jim Kelliher more details about our result and outlook.

Jim Kelliher

Thanks, Michael. Thanks all of you for joining us. We are very pleased to report another quarter of financial results, which were above the outlook we provided on our last call. Total revenue for the fourth quarter was $45.2 million, $1 million greater than the high-end of the outlook we provide last quarter.

Adjusted EBITDA margin of 23% of revenue and our non-GAAP operating margin was 19% in of revenue, both greater than the margins implied in our outlook. Non-GAAP net income for the fourth quarter was $3.9 million, exceeding the high end of our outlook and non-GAAP net income per share for the fourth quarter was $0.16 a share, 1% of the high-end of our guidance.

Non-GAAP net income excludes $4.8 million of stock compensation expense, approximately $700,000 of patent litigation related expense and $600,000 of acquisition related costs and amortization. Non-GAAP operating cash flow for the fourth quarter also exceeded our expectations and was $12.8 million, or 28% of total revenue. The GAAP net loss for the fourth quarter was $500,000, or $0.02 per share.

Further reviewing our performance in the fourth quarter, total revenue increased 22% over the fourth quarter of 2012 to $45.2 million from $37 million reported last year. This increase was driven by strong performance in our collaboration cloud.

For the full fiscal year 2013, total revenue was $166.3 million, up 20% from 2012. For the quarter and full fiscal year, international revenue was 34% of total revenue consistent with previous quarters and prior year.

Latin America continues to be our fastest growing international region, but all of our geographic regions experienced growth quarter-over-quarter and year-over-year. Our gross renewal rates were approximately 80% on an annualized basis, consistent with prior period.

On a product line basis, our collaboration cloud revenue was 22% of total revenue in Q4 and 21% of revenue for the full year. Our IT management cloud revenue was 34% of revenue in Q4 and 33% of revenue for the full year and our service cloud revenue was 44% of total revenue in Q4 and 45% for the full year.

We evaluate our business on a non-GAAP basis, which we believe is more representative of how we internally measure our performance. Our non-GAAP results, which exclude stock compensation expense, acquisition related costs and amortization among other things, are reconciled in tables attached to the press release.

Our non-GAAP net income in the quarter were $3.9 million or $0.16 per share, up 1% from the high end of our guidance. This over-delivery was due to exceeding our revenue guidance by $1 million in better than forecast operating margin.

Non-GAAP gross margins in the fourth quarter were 90%, consistent with prior quarters. Our non-GAAP operating margins in the fourth quarter were 19.5%, up more than one percentage point from the outlook we provided and from our operating margins in Q3. Our adjusted EBITDA margin was 23% of total revenue, up 2 percentage points from Q3.

With regards to our expenses, non-GAAP sales and marketing expenses were $21.9 million, both 48% of revenue consistent with the previous quarter, our non-GAAP research and development expenses in the fourth quarter of $6.1 million, or 14% of revenue and our non-GAAP G&A expenses were $3.9 million or 9% of our revenue in the fourth quarter consistent with our third quarter performance.

Turning to the balance sheet, non-GAAP operating cash flow for the fourth quarter was very strong at $12.8 million or 28% of revenue. Non-GAAP free cash flow for the fourth quarter was $11.1 million or 25% of revenue.

We ended the quarter with cash, cash equivalents and marketable securities of $189.6 million. This is a decrease of $9.8 million from the prior quarter as we used $11.5 million to acquire a software asset in our IT management cloud and $10.2 million to repurchase shares. For the full year 2013, non-GAAP operating cash flow was $42.3 million or 25% of revenue.

Totaled accounts receivable were $13 million versus $11.3 million in the prior quarter the increase accounts receivable was largely due to an increase in sales in the fourth quarter versus the previous quarter and accounts receivable days outstanding were 26 days versus the 24 days reported last quarter.

Total deferred revenue in the fourth quarter was $85.2 million, an increase of $4.9 million over the prior quarter and an increase of 22% over the prior year.

Now, let's finish with our outlook for the first quarter and for the full year 2014. For the first quarter of 2014, we expect total revenue to be in the range of $46.8 million to $47.3 million. We are currently targeting adjusted EBITDA for the first quarter in the range of $9.5 million to $10 million, representing an adjusted EBITDA margin of 21% at the midpoint.

Our non-GAAP net income per diluted share, which excludes stock compensation expense and acquisitions related costs and amortization among other things, is expected to be in a range of $0.20 to $0.2, and our GAAP net income per share is expected to be in the range of $0.01 to $0.02.

For the full fiscal year 2014, we expect total revenue to be in the range of $198 million to $202 million, which represents year-over-year growth of 20% at the midpoint. We are expecting adjusted EBITDA for the full year to be in the range of $41 million to $45 million, representing in adjusted EBITDA margin of 22% at the midpoint.

Our non-GAAP net income per diluted share, which excludes stock compensation expense and acquisition related costs and amortization among other things is expected to be in the range of $0.86 to $0.96, and our GAAP net income per share is expected to be in the range of $0.07 to $0.16.

For both, the first quarter and the full fiscal year, non-GAAP net income assumes an effective tax rate of approximately 36% and GAAP net income assumes an effective tax rate of approximately 43%, all our per share amounts are based on an estimated 25 million fully diluted weighted average shares outstanding.

With that, I will now turn the call back to the operator to take any of your questions.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions)

Our first question comes from the line of Matt Hedberg with RBC Capital Markets. Please go ahead.

Matt Hedberg - RBC Capital Markets

Thank you. First of all congratulations on the strong quarter and 2014, I had two quick question on LogMeIn, on the free conversion just a quick clarification, is the $5 million benefit is that a 2014 thing or should we expect further benefits down the road. Then potentially what other products following last year’s RMM conversion, what other applications could eventually convert to a paid-only model?

Michael Simon

Thanks for your question, Matt. The revenue contribution of the change from LogMeIn Free is about 3% of 2014, let's call that at the midpoint $6 million. If we look into 2015, we would expect that it will have a slightly greater contribution for a variety of reasons, including there are some introductory discounting as well we have a full year rather than a fraction of a year, so to recognize revenue. It's not an enormous project for us, but it is a - will contribute to growth we believe this year and next.

The second part of your question on other products, we do still have multiple free products join.me being our flagship free product to this point, which attracts the overwhelming majority of our users and we also do have Cubby and Hamachi as free products. At this point, we do not have a specific plan to convert those to paid only-model.

Matt Hedberg - RBC Capital Markets

That's great. Jim, maybe Jim as a quick follow-up, obviously, the earnings guidance is impressive. I am wondering if you could talk about the rate of hiring next year. How you think about investing to really support this higher demand and higher revenue growth?

Jim Kelliher

Yes. Our rate of hiring will accelerate in 2014 versus 2013. We will add roughly between 20% and 25% to our workforce in 2014 and focus will be really be around the marketing area and the development area, and particularly around the growth areas that Michael talked about, around join.me collaboration area, around the SMB IT product set, and finally and IoT, in the Internet of Things space, so our focus is really around those growth areas that we see.

Matt Hedberg - RBC Capital Markets

Great. Thanks a lot, guys.

Operator

Our next question comes from the line of Gene Munster with Piper Jaffray. Please go ahead.

Gene Munster - Piper Jaffray

Good afternoon all and my congratulations and start off with a question regarding the Access business and as a shift to paid, Michael you talked about the 3% add. Is that something where you feel comfortable as that being the impact 100,000? It seems like it's still a pretty small number relative to the base of the users that are out there I understand there are a lot of free alternatives, but I guess my question is there an opportunity where that number could become a bigger number.

Second, in terms of join.me we’re just hearing a lot more chatter out there with different types of companies using this and feels like it's just kind of getting more, and more traction and can you talk a little bit about just different ways that you can monetize that, maybe in 2014 or 2015. Are there other changes that are coming that you can kind of tweak the product to trying to encourage monetization?

Then of my follow-up question would be on Xively. You are talking about kind of making a different version of the platform and enabling it; when do you think we could start to see a little bit more material revenue. Is it 2016 or beyond? Thanks.

Michael Simon

Thanks, Gene. I'm just trying to unwind those questions. The first one on LogMeIn, the phasing out of LogMeIn Free and it’s worth pointing out our core SMB IT users, which typically purchase Central, will continue to be able to use LogMeIn Free, as it’s now called LogMeIn Basic for them, but that functionality that they can deploy on large numbers of computers is still an important part of the business. In terms of the access side, which we have quantified in our guidance is reflecting roughly $6 million of the 200 or so million in midpoint of our guidance. It's ongoing. The program that will run throughout the year, so there probably is some upside on that, but in terms of where it fits into our guidance it's relatively modest.

Then the next one on join.me, I think the chatter you’re hearing reflect the growth. We do as we have said each and every quarter, LogMeIn's revenue on a year-over-year basis for join.me has grown 100% and we anticipate similar revenue growth rates for join.me in 2014. The type and quality of our users and buyers specifically that we are having in join.me I think it's very encouraging to us. We have been tailoring it to make it a perfect solution for both the offline meeting to online collaboration for business users and I think it is an important part of our growth story as we go into not just 2014, but beyond.

Then finally on Xively, we are really proud of the fact that we have received such an enormous amount of mind share and award in the Internet of Things space for Xively. I think the team here has done a very good job of establishing sort of firm thought leadership in that, but this year it's really – if you think of 2013 and seeing the one-off 2014 is year where it increasingly becomes - it's small because it's starting brand new, but it is meant to be a growth driver for us particularly as we go into 2015 and 2016. This year it’s mostly upside to our guidance, but as we go into next few years, it's an enormous market and we think we can use as a very much a growth driver.

The last point, and I hope I caught all of them, the last point of your question, the last point is in terms that we mentioned in our script a new version of Xively, and we have had the benefit of working with multiple customers and partner on this space and what we are finding is that there's really interesting need, because I believe the platform-as-a-service specifically for companies that are trying to create connected products, and what we’re really pleased is that connectivity isn't just simply oh I need bandwidth, storage and directory services, it's actually a lot more sophisticated and I think it plays very, very nicely into our strength.

If you think about one of LogMeIn's historic franchise has really been connecting large companies to their huge customer base, B2C customer engagements, and I think those type of capabilities which we do very, very well can overlay on our Xively platform to really help our customers deliver not just a good product, but a good overall solution that goes from an Internet-enabled Internet of Things-type solution, but one that can be managed and upgraded and supported in a way that delights their customers. So I do feel that it will start generating revenue this year as planned and it doesn't have to wait till 2016 to really come to maturity.

Gene Munster - Piper Jaffray

Just one follow-up to join.me as far as you see in the next 12 months any new initiatives you are going to do that may kind of encourage monetization?

Michael Simon

Yes, so essentially we feel like there's tremendous opportunities to make join.me a better product. I think it's a strong team here at LogMeIn and it's a very high, if not the highest priority within the company. Certainly, our top three things that you will continue to hear us talk about when we are on the road with investors and when we are talking in earnings call, and when we look at the market was very poorly served. When join.me was launched only about 4% of information workers regularly used online meeting products.

Even though they knew about them, they were familiar with them, but they were sort of ease of use convenience and reliability of the product that wasn't where it needed to be, and what we are finding now is we have been able to bring an enormous group of new users into the online meeting world with joining.

Now as they go from, hey I can actually have a meeting to I want to have a great meeting, working really great audio with great collaboration tools, with content distribution, session recording, mobile-centric activities, we feel like there's a lot of deepwater in the join.me and a rich roadmap that hopefully will continue to see the conversion rates increase as they did throughout 2013.

Gene Munster - Piper Jaffray

Great. Thank you. Congratulations.

Michael Simon

Thank you.

Operator

Our next question comes from the line of Gregg Moskowitz with Cowen & Company. Please go ahead.

Gregg Moskowitz - Cowen & Company

Thank you very much. Good afternoon, guys, and congratulations as well on very good trends for the year. I was just wondering what's in your 2014 guidance, how should we be thinking about growth for collaboration cloud as compared with IT management and service cloud?

Michael Simon

Yes. The growth in the collaboration cloud is, we are fastest growing cloud that in our amounts is growing at 35% to 40%, so that's our fastest growing cloud. IT management continues to grow quite nicely in the mid-20%. Then our service clouds are our slowest growing cloud, but as you know our most popular being the Rescue and BoldChat in it. That's growing in a 5% to 10% range.

Gregg Moskowitz - Cowen & Company

Okay. Thanks. That's helpful and if we go back roughly around $10 million in bookings this year from Xively and AppGuru on a combined basis and which of the two do you think is likely to be the bigger driver in 2014?

Michael Simon

Yes. Gregg, during our last conference call, we indicated that we thought between accurate AppGuru and Xively that they had the potential to generate roughly 10 million in bookings this year, but as we gave our preliminary outlook and our guidance that our preliminary outlook that were discounted in that and similarly with a consistent sort of bias towards conservatism those products are not critical for us to hit our guidance in 2014. We do believe that as those products continue to gain traction through the year, they can provide some upside to our guidance, we still feel like they have great, great potential this year.

Gregg Moskowitz - Cowen & Company

Okay. Thanks Mike. Could I just probably ask one of the quick one. You recently hired a new Chief Marketing Officer, what would have (Inaudible).

Michael Simon

Yes. We recently Living Management in the Global We Recently Been Shown for Our New Chief Marketing Officer and I Think Sean Ford as our new Chief Marketing Officer, and I think Sean's experience which includes both, enterprise and consumer marketing, really a great addition to the LogMeIn team.

Thematically, what I hopeful many of you are hearing is the product and our company and our go-to-market strategies are steadily migrated toward the professional buyer with a considered purchase as opposed simple I am going to convert it for you to user desk. Maybe what's important for LogMeIn a few years ago and so what does join.me for an enterprise, BoldChat for Xively or Cubby for an enterprise, these are products that really benefit from high quality content supported program and other marketing activities that are really would be associated with mission-critical set of products from the buyer standpoint and I think Sean will play a very, very important role in formulating those plans and programs.

Gregg Moskowitz - Cowen & Company

Perfect. Thank you very much.

Operator

Our next question comes from the line of Raghavan Sarathy with Dougherty & Company. Please go ahead.

Raghavan Sarathy - Dougherty & Company

Good afternoon. Thanks for taking my questions. A few questions from my end. First, Michael, as you mentioned some of the feedback maybe the casual users were unhappy about switching to this paid model and some actually indicated that they may not even pay discontinued subscription for our some of the other products, so my first question is what kind of the impacts have you seen on other products. Then second, based on the conversion you have seen so far, what makes some other guys to pay for as opposed to go and adopt something free.

Michael Simon

I think there's going to be part of that question. One is what happened to the conversion rates of our other products and I think short-term that actually have been boosted. There's basically just sort of reemphasized, the vast majority of our free-only users were using join.me the last two years. I think those of you who have been following the last few years of new user growth, really has been driven by join.me and a certain number of our LogMeIn Free user, particularly who use LogMeIn for what we now as sort of friends and family casual support, helping a parent it's helping someone do something on their computer.

Join.me is an ideal solution for that? No, go switch to that. I think it's unlikely those types of users necessarily buy join me just like as unlikely they would buy LogMeIn Free, but that's really fine. Now other types of users, hopefully, we are converting them into a much better product set.

As you might recall, the vast majority of usage of the so-called LogMeIn Free product, people that purchased potential for using as a connected light support product that continued. That has not changed. They continue to be able to do that and we have seen a pretty nice impact thus far by people who probably always should have been on LogMeIn Central from our perspective using this thing as opportunity for them.

The business model changed, which admittedly - it's been disappointing to some of our old free users, but at the same time have been pretty well received by sort of business grade customers who actually are getting a better product, and for what is at the end a very affordable amount of money if you think about from an ROI standpoint.

Raghavan Sarathy - Dougherty & Company

Okay. Then in terms of sort of the conversion, that was the linearity or should we expect to happen maybe in the first quarter and then kind of taper off? Also, just a clarification question. Did you say that you expect a bigger impact next year because of the price increase, automatic price increase?

Michael Simon

It's combination of - there was discount at year trial and there was also the fact that you would have a full year rather than let's say 11 months at the max, so between those two, we think it will continue to be a growth driver for next gen. More important and makes more strategically important I mean we were trying as you would expect is it to improve that user experience so that it's not just the LogMeIn Pro for hundreds of thousands of customers, is worth between $70 and several thousand dollars per year, because it's a much better product, remote printing and to handle file distribution and access very well, have a great sound, high definition video, et cetera, and there are many things that the product can be enhanced with and our goals was actually to not just get them to convert it for one year and this year and next year, they would expect a long tail of renewals and we are seeing that, but it's actually use them as a foundation for our next-generation of product on the people that thought I bought the 12 typically are using it for business and consumers who didn't buy it, typically never would buy it, because that's really not [consumer] facing product.

Raghavan Sarathy - Dougherty & Company

Just one final question. Jim, based on your revenue guidance, how should we think about the deferred revenue growth for the year?

Jim Kelliher

It should grow pretty much in conjunction with revenue guidance, so it should grow at plus the minus 20% on the year-over-year basis. It will be faster in Q1 as we monetize this rebate, but on a year-over-year basis it should marry revenue growth.

Raghavan Sarathy - Dougherty & Company

Thank you.

Operator

Our next question comes from the line of Brad Sills with the Maxim Group. Please go ahead.

Brad Sills - Maxim Group

Congratulations and thanks my question. Just on one join.me, Michael, it sounds like you talked it as a disruptive products to the market, are there any particular vendors or vendors you are seeing that you are migrating from to join.me.

Michael Simon

Join.me historically have been very good at sort of bringing net users into the world on patient. I increasingly this year people are seeing it as a great alternative to legacy product as well. In particular, you would see people migrating off something like a WebEx product that migrate into join.me from certain users it's like night and day really something that was very well received by the employee base and so what we are trying to do is work with not just end users who may have been exposed to join.me free, but IT departments who are often responsible for the centralized purchasing of an online meeting product to make it easier and easier for them to vote by rollout join.me for their enterprise and it's worth noting that join.me for enterprise works really well with AppGuru, which doesn't just give you the ability to purchase, but actually the technology to deploy it, to manage users, manage licenses et cetera in a way that are hopefully very, very attractive to the IT department as well.

Brad Sills - Maxim Group

Great. Thank you. Then just one on AppGuru. Are you finding so far in rollout that there are certain apps that are resonating particularly well where you know SMBs are looking to use AppGuru's advantage is an 80-20 rule, where there are two or three applications. It's a great list. You have mentioned that you received (Inaudible).

Michael Simon

Yes. I mean, essentially if you look at the literally thousands of potential that the first 50 that have been rolled out are very the 80-20 in extreme. It's really much more concentrated, but we have interest in a wide swath, but once I mentioned whether it would be Evernote or Box, some Office 365 and Google apps are very much at the top of the list.

Brad Sills - Maxim Group

Great. Thanks, Michael.

Operator

Our next question comes from the line of John DiFucci with JPMorgan. Please go ahead.

John DiFucci - JPMorgan

Thanks for taking my question. Michael, can you please explain why you're confident you are going to convert free to paid users when there are those products out there that also have a premium model.

I assume and as something you do, it's relatively recent. It's only been a couple of weeks, I assume you have already seen some traction with attitude, so if you could talk to that a little bit.

Then perhaps if you could, you say the guidance implies about $100,000 free to paid subscribers conversion, so you also just said that the vast majority free are connected through LogMeIn Central, so they don't have to upgrade to the paid version and I'm just trying to figure out when we think there is probably over 1.3 million free plug-in for users, but if the vast majority of those are connected through Central, then like what percentage of the free that are connected to one LogMeIn Central is that 100,000? Thank you.

Michael Simon

Yes. Thanks, John. We have a very high degree of confidence on the 100,000 and on the 6 million the 3% of this year I would say that, because you have an enormous sample size, literally hundreds of thousands or millions that we feel like we can project that with a tremendous amount of confidence.

John DiFucci - JPMorgan

Have you seen any traction yet over the last couple weeks with conversions?

Michael Simon

Absolutely. Yes. I mean, if it's not a hope, it's very much. It went live back on January 21st, so we really have a large set of people that have converted.

John DiFucci - JPMorgan

Okay. Great. I think it's just a quick follow-up for Jim. What was that $12 million software asset purchased in the quarter? I know we were expecting it, but I don't know that we ever knew what it is or at least if you can tell us where it's going? What kind of an asset it was?

Jim Kelliher

Sure, John. It's a product that's going to fit within IT management product and work in conjunction with AppGuru, so it's a key component of that. As you know, any time we look at building or buying - we make a [desire] decision and in this case, it accelerated our ability to get AppGuru to market and accelerated our ability to put some really nice features in AppGuru if it doesn't make it a compelling product in the marketplace, so you will see it as part of the IT management cloud and you will see this part of the AppGuru product does.

John DiFucci - JPMorgan

Great. Thanks, guys. Nice job on the quarter.

Michael Simon

Thanks, John.

Operator

Our next question comes from the line of Tim Klassell with Northland Securities. Please go ahead.

Tim Klassell - Northland Securities

Hi. Just sort of some follow-on there on AppGuru. Can you give us an update of what you are thinking both for pricing and how many of your select users have gone live with the product?

Michael Simon

It actually has been rolled out this month and it is live with dozens as opposed to thousand, but it is out there being used and we are getting, I think, very, very useful information on how people will use it.

We haven't announced the pricing, and it the basis for is essentially on a user basis, so it's per users, because actually sort of consistent with the way you would have expect people to license a tool that it is the used per user.

Then just for the what's it's about? It is a subscription product. It is a cloud-based service and you can actually, individuals on this call can actually try it out. It's if you go to AppGuru, site and the features and the 50 apps learning to actually go up in time signup for [yourself.]

Tim Klassell - Northland Securities

Great. Then just quickly on the join.me conversion rate, you say it's picking up. Could you compare that to the traditional conversion rates that we used to monitor for LogMeIn Pro?

Michael Simon

Yes. That's lower and it's not so much at the bottom, how many conferred. It's the fact that the top of the funnel is so enormous, but if I look at how it trended over the last year, it really made very, very good progress in that. Roughly gone up about 50% from when we started, so we feel like it is trending the right way rather smartly.

Tim Klassell - Northland Securities

Is it approaching what LogMeIn Pro was at its prime?

Michael Simon

LogMeIn Pro, as we went on was up 5%, 6% even back then (Inaudible) much lower than that and I think it's structurally different because a that lookout much lower than that I think is structurally different, because a lot of join.me users never even registered, so LogMeIn and you are registering installing and installing it on computer, so I just think it fundamentally would be different, but you know it's in the same order of magnitude, closing, but we wouldn't expect it to be end of 5% or 6% late - but we are pleased with where it's going and it is our fastest growing product and we did - just to reiterate in case some people didn't hear it. We did say that we expected on a revenue basis to continue 100% year-over-year growth this year.

Tim Klassell - Northland Securities

Great. Thank you very much.

Operator

I would now like to turn it back to Mr. Simon for closing remarks. Please go ahead, sir.

Michael Simon

Well, thank you for your questions tonight. We are extremely pleased with our Q4 and fiscal year 2013 results. As we enter 2014, we believe we can deliver sustained revenue growth by focusing on building on join.me's early success and helping people connect to each other across devices and location, increasing our values to SMB IT by helping IT department to better connected to the growing numbers and types of devices in the workplace and accelerating our IoT opportunity with Xively by helping companies transform the way they connect to their customers and their products.

We look forward to sharing our progress on these front when reporter our Q1 results in April. Thank you again for your time this evening.

Operator

Ladies and gentlemen, this conclude the LogMeIn Q4 2013 earnings conference. If you would like to listen to a replay of today's conference, please dial 800-406-7325 and entering the access code of 4664143.

We would like to thank you for your participation. You may now disconnect.

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