Absolute Software Corp (ABST) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Absolute Software Corporation first quarter results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions.

Before beginning its formal remarks, Absolute would like to remind listeners that certain portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in forward-looking statements. For more information on the Company's risks and uncertainties relating to these forward-looking statements, please refer to the section of its annual MD&A.

(OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded today, Tuesday, November 6, 2007, at 10:00 AM Eastern time. I would now like to turn the conference over to Mr. John Livingston, Chairman and Chief Executive Officer. Please go ahead, Sir.

Good morning everyone and thanks for joining us to discuss our first quarter fiscal 2008 results. We issued our results of our press release this morning. If you did not receive the release, it can be found on our website at absolute.com, along with our MD&A and financial statements.

With me today is Rob Chase, Absolute's Chief Financial Officer. I would like to begin today's call with an overview of our achievements for the first quarter. Rob will then review our financial results, after which I will provide some closing comments before opening the call up to questions.

First quarter results -- the strong business momentum continues. First quarter sales contracts were C$21 million, up 88% over the same quarter last year and we generated cash from operations of C$8.9 million, up 92% from the same quarter last year. The first quarter represented the 12th straight quarter of year-over-year sales contract growth of 50% or more and the 13th straight quarter of positive cash flow.

To put the quarterly growth in perspective, we sold almost as much in this quarter as we did in the entire year of fiscal 2006. Strong subscriber growth continues. We added 561,000 customers subscriptions in the first quarter, up from 191,000 in the same period last year. Based on this Q1 run rate, we're now achieving attach rates of approximately 7% on new laptop sales in North America. We ended the quarter with approximately 2.1 million subscribers under management, up from 810,000 at the end of the same period last year and up from 1.6 million at June 30.

First quarter highlights -- partner ecosystem. In the first quarter, we built on the early success of our Computrace LoJack for laptops bundle with Dell by extending coverage to Dell's Canadian consumers. This program has the potential to generate approximately C$1 million or more new subscribers for each year it remains active and it was a key contributor to our Q1 growth.

Also in the first quarter, we completed bundling agreements with HP Notebooks' offer to U.S. federal teleworkers and a Symantec LoJack rebate promotion for Apple users. Right after the quarter end, we also announced a second marketing agreement involving HP. With this arrangement, HP is now offering Computrace Professional through HP Care Pack services and an extended warranty type program which targets small and medium-size business owners.

BIOS support -- in Q1, we also announced expanded support for Computrace in the BIOS firmware for HP consumer notebooks. The expansion of our relations with HP by a consumer BIOS and HP Care initiatives is an important component of our overall growth strategy. Now eight major PC OEMs provide embedded BIOS support for Computrace LoJack and we expect over 35 million laptops to ship Computrace LoJack-ready worldwide in calendar 2007. We estimate that this will bring our total embedded footprint inside laptops to approximately 70 million worldwide by year end.

While we continue to focus on our PC OEM partners and working directly with them to maximize customer adoption, we have also begun to expand our partner ecosystem to include value-added resellers, system integrators, retailers and other industry-leading technology players. We see accelerating demand in all four market segments. The evolution towards mass adoption continues. We continue to see strong activity and a broadly diversified revenue based across all four of our declared customer segments.

The Corporate segment, driven by data privacy concerns and data protection legislation, our corporate customer vertical delivered sales of C$5.4 million for the quarter, up 10% over the same quarter last year, and accounted for 26% of our total business. Our corporate pipeline is very healthy and continues to grow in terms of the number and size of opportunities.

The Education segment -- expanded student laptop programs and the need for educators to track and protect their investment continues to drive opportunities in the Education segment. Education sales contracts were C$6.5 million for the quarter, up 74% over the same quarter last year and accounted for 31% of our total business.

The Consumer segment -- our bundling agreements with the PC OEM partners, along with the ongoing concern over identity theft, is driving the opportunity. Consumer sales contracts were C$5.8 million for the quarter, up 178% over the same period last year and accounted for 27% of our total business. As mentioned, to help support our growth objectives, we're also working to expand our presence in certain retail stores. Currently, we're being sold at OfficeMax, CompUSA and the Apple Stores.

The Government segment -- this segment was very active in the first quarter. We announced a contract with the State of Georgia to provide discount pricing to staff of faculty at 35 state-wide universities, with upside to cover students attending those schools. We also signed a C$1.7 million three-year agreement to provide Computrace Complete to a major federal government agency. This is to date the largest single contract in Absolute's history.

Finally, government sales contracts were C$3.3 million, up 650% over the same period last year, and accounted for 16% of our total business. Again, we continue to build an exciting pipeline of prospects in the government market.

International expansion -- as indicated on prior calls, the UK and the broader European market are facing similar data privacy concerns as we are here in North America. We continue to invest in overseas sales and recovery team capabilities and are generating approximately 2% of sales contracts from our European operations. We expect this market to provide a significant growth opportunity for us moving forward.

At this point, I would like to pass it over to Rob to look at selected financials in more detail. Rob?

Thanks, John, and good morning everyone. As I mentioned by John, Q1 sales contracts increased 88%, which actually equates to a 103% increase in U.S. dollar terms. This reflects the devaluation of the U.S. dollar and the fact that over 90% of our sales are in the U.S. Maintaining this high rate of sales growth is in part due to our SAS business model, which results in significant recurring sales to existing customers. In Q1, we generated 59% of our sales from existing commercial customers compared to 52% for last fiscal year and 62% the year before. We believe this trend to be a testament to the value-added service that Absolute's team provides. We pride ourselves on helping our customers protect and manage their IT assets and have recovered approximately 3600 computers for our customers, and currently we're recovering hundreds per month in addition to completing [like potentially] compromised data.

On a unit basis, 254,000 of the 561,000 gross subscriptions sold in Q1 were to existing customers. This is made up from renewals from the 68,000 expiring subscriptions, along with the expansion of units sold to existing customers.

In the coming quarters of fiscal 2008, we have an additional 452,000 subscriptions expiring that will help us to maintain a solid baseline of sales to existing customers. However, an increasing number of these will be consumer renewals in the third and fourth quarters so will not necessarily follow the same trend as we have seen in Q1.

From a seasonality perspective, approximately 74% of Q1 sales were to Education, Government and Consumer customers, all of which tend to have purchasing cycles concentrated in the summer months. Accordingly,our seasonal trend has continued with a strong Q1 performance, and as a result we expect our second quarter sales trend to be consistent with that of prior years. Last year, we had second quarter sales declining 16% from Q1.

We reported a reduced average selling price of C$37.38 per unit in Q1, down from C$58.31 last year, despite the average contract terms being consistent at about 33 months. A majority of the decrease is a result of the Dell consumer bundled program, combined with the devaluation of U.S. dollar and volume pricing for large commercial sales, such as the C$1.7 million government sale we announced in October.

Turning now to our investment levels, we have continued investing to build our distribution channels, generate sales and subscriber growth, expand our support infrastructure and develop new technology services and platforms. As a result, total operating expenses, including cost of goods sold and SG&A, increased 76% over Q1 last year to C$9.7 million. However, total operating expenses actually declined to 46% of sales contracts from 50% last year. We believe this to be a positive indicator of our performance and the scalability of the business. It is this investment that has enabled us to generate our sales growth and to build a pipeline to continue this growth in the future. Importantly, we have funded this investment from current operations and have achieved increasing cash flows in the process. As a SAS company, cash flow is our key valuation metric, so we're pleased to report a 92% increase in cash from operations to C$8.9 million, or C$0.38 per share. As a percentage of sales, cash margins increased to 43% in Q1 compared to 42% in Q1 last year and 36% in fiscal '07. Consistent with last year, we expect our cash margins to normalize toward our 30 to 35% guidance range as we continue increasing on investment levels through the year in order to continue our growth trend into fiscal 2009.

Turning quickly to our balance sheet, we have ample resources to support our growth plans. At September 30, 2007, we had cash and short-term investment balances totaling C$44 million, up from C$34.9 million at June 30, 2007 and C$21.5 million at September 31 -- 30 '06.

In closing, we remain excited with both the near and long-term growth prospects of the business and look forward to reporting on our progress in the coming quarters.

At this point, I will turn it back over to you, John.

Thanks, Rob. Absolute's strategy is to maintain growth and cash flow. We believe that we were at an inflation point in the development of this unique computer theft protection category. Media outlets, capital markets, computer manufacturers, and most importantly, customers, have embraced secure asset tracking, mobile data protection and computer theft recovery as must-have solutions to protect computers and data. This is a market that Absolute invented, developed and one in which we have built a substantial and sustainable competitive advantage.

Our unique combination of strategic partnerships, growing customer base, scalable software-as-a-service infrastructure, patented and proven technology and credible track record represent a significant barrier to entry for competitors. These strengths, coupled with a strong balance sheet, support our growth plans and a driven team position us very well for continued dominance of our rapidly expanding category.

As we pursue our goals of higher attach rates, we will focus on five primary growth strategies. One -- to continue to embed and leverage Computrace in firmware; two, to continue to launch sales and marketing initiatives with our computer manufacturing partners; three, to continue to deepen our sales and marketing activity in our current market segments; four, to continue to license, grow and protect our IT and patent portfolio; five, to continue to invest in new products and services, leveraging our core technology platform and to secure new devices.

Thank you again for your support and for attending today's call. Operator, at this time, we'd like to open up the call for for questions.

(OPERATOR INSTRUCTIONS) Scott Penner, TD Newcrest.

Just first of all, I want to ask about the cash margin guidance. Given the margin this quarter and the growth that is expected in the business this year, and obviously the margin leverage of the Company, it's just a little bit surprising you would maintain the guidance at 30 to 35%. So I just wanted to get a feel as to whether this is just a conservative outlook, or whether there is any large spending projects that we don't know about.

When you look at the cash margin, you will see we did 43% this year versus 42% in Q1 last year, so we're actually right on track with where we were in the prior year. What we allow for in the latter half of the year, you could call it conservative I suppose. But what we allow for is the continued investment throughout the year. And indeed, our focus is to go and really drive this category. That takes additional people and investment to do so, and it also takes investment in our technology and partnerships. So we are continuing to do that and we will continue to increase our cost base over the year as we prepare for our fiscal '09.

And on the international aspect of the business, John, you mentioned the 2% of sales contracts. Are you still comfortable as a management team with targeting that 5% to 10% of sales contracts internationally this year? And I guess how should we expect that to roll out? Is it going to ramp as the quarters go on?

Scott, yes, you will see it ramp as the quarters go on, and we are comfortable with that 5% to 10% number of our total sales contracts for the year coming in from international markets. We have invested fairly significantly over the last year in the international team. They have now spent enough time in terms of -- we've got some very nice sized customers in the pipeline that are coming close to maturity in that market and we're really getting traction there in Europe. There is no reason why we shouldn't be doing that 5% to 10% this fiscal year.

Okay. What are the next steps, and any anticipated timing of the Stealth signal litigation? I see in the MD&A that there was the claimed construction hearing. Maybe you could just go over what was learned at that hearing, and then what the timing is like from here?

Sure. The Stealth litigation is still in its -- I would call it early stages. Basically, we went through a hearing, it involved a special master who is appointed by the judge in the case to really get inside in a deeper way the technology that Absolute has and the patents that Absolute has, and also the brand patent that was acquired by Stealth and to really understand what the patents cover and what the claims cover and how to construe the claims for the court. So we had that hearing, and we're very pleased with how the hearing went and felt that our technology and our patents and our claims were well understood by the special master. And we feel very confident that when the special master's report does materialize that I think it will be very favorable to Absolute and will put things in perspective. But we don't know when that report will be released. We are just waiting to see when that takes place, and it should be here before the end of the year.

Lastly, Rob, and then I will turn it over. What is the -- any update on the expected [incurrence] of cash taxes and what we should be modeling as to when and at what percentage your tax rates comes?

Obviously it's a bit of a function of growth as the faster we accelerate growth, we actually made it stave some of it off. But in any event, likely in fiscal '09, the taxes we're estimating around 3% to 5% of sales contracts. Whether or not those will actually end up being paid in '09 is another matter. Likely, the cash won't flow out until 2010. But at this point, that looks like when we'll start seeing some tax in the equation.

And that is -- irrespective of when they're paid, that is the cash tax that will be payable at some point?

Yes. And basically what we have said is that at the beginning of this fiscal year or after our Q4 results was that we would be holding our margins this year steady at the 30% to 35% guidance that we gave, anticipating that we would have cash taxes coming into the fold eventually and would be able to maintain those guidance margins even in the face of the cash tax.

Ranjit Narayanan, [MGI] Securities.

On the Dell LoJack bundle, in terms of how the program is tracking, if my calculation is correct, approximately 260,000 subscribers in Q1 were from this bundle. Is this in line with your expectations? And also, when does Dell exercise its renewal option?

Ranjit, I think your numbers are pretty close to how the bundle with Dell is rolling out, and we believe it is on track and we are pleased with the performance there. We have every reason to expect that -- it is a two-year contract that we've signed with Dell, so we anticipate that just to continue through the second year and we are excited about the relationship.

John, could you also give us an update on your R&D initiatives, especially with regard to your wireless solutions? Any detail on the product roadmap? What is the launch time frame for the solution? And any color on your go to market strategy would be useful.

Sure. We're on track with our wireless development and we're developing products in two areas there. And we will be -- we are actually -- we have completed most of the work there and we'll be demo'ing that the our respective partners very shortly, and that is really all I can say about that, Ranjit.

Fair enough. And with respect to Q2 seasonality, last year, the sequential drop in sales contracts was around 17%. With your Consumer business now ramping up, could we expect seasonality this year to be a little less pronounced?

Ranjit, I would expect seasonality to sort of at this point stay in line with prior the period. While Consumer should have a strong turnout this quarter, it's also important to remember that Q1 is also a strong consumer quarter with back to school. Plus, with the government spending as well as a new factor this fiscal year, with government coming into the fold in a much bigger way at 16% of sales this quarter. So we would expect then to see our seasonality to continue consistent with last year.

And, Rob, on the stock-based compensation expense, there was a sequential uptick. Any color what's going on here?

Well, you know, it's a function of the stock price as well. So that's part of it. The actual calculation just spits out a larger number. But also, we have significantly increased our headcount and we were at 190 people at the end of September versus 169 at June 30. And I would say we are probably at about 200 today. So we have significantly increased our employee base, which of course we do give people hiring grants as well. And at the end of last fiscal year, we also did a grant to all staff, and so you're seeing a bit of that starting to come through as well.

Last question. Have you made any additions to your sales and marketing team. And also, what was your quota-carrying headcount at the end of Q1? Was is what it was at the end of Q4? Also, any color on your hiring plans going forward would be good. Thanks.

Ranjit, we have expanded the sales organization. As you know, we've hired Kevin Shabow, who's Director of Sales for Gateway, and we're very pleased third-party have him join us as our vice president of sales for North America with Rich Cohen, who has done a fantastic job for us, moving up to the senior vice president of sales role for sales worldwide. So we are investing in our sales organization. We've also expanded our coverage from 13 territories in the United States to 22 territories in the U.S., just recently as of June 30. So now, those investments are starting to pay dividends.

So we have almost doubled the investment in the sales organization really in the last 12 months, and I think that is a very, very prudent investment. We are also expanding the marketing team. The marketing team has probably doubled. It's probably somewhere -- it's around 12 persons now. 1.5 years ago, it was more in the 6-person range. So that's just to support all of the opportunities we have at the various OEMs to integrate with their marketing programs and the direct marketing that we do to advocate the computer theft protection category. So you're seeing a healthy investment. I would say just as a ballpark, we've probably doubled our expenditures in the sales and marketing area well over last year. So we're continuing to invest there and the market is certainly demanding that we do that.

Thank you.

Tom Liston, Versant Partners.

Just on the Phoenix piece, obviously launched -- formally launched FailSafe in the last week or so. What are you hearing out there from either OEMs or end customers, and how do you anticipate them trying to gain market share?

Tom, we can't really comment too much on Phoenix because we really haven't seen anything in the market. I think we have heard Phoenix make a lot of promises to a lot of people about a lot of products, but we have not seen anything yet. So we're just waiting to see. We're just focused on our business, Tom, and our stuff works great. The OEMs trust it, it's on millions of computers. We have the full software as an infrastructure -- service infrastructure to take all the calls. It's a real proven, reliable and incredible platform that Absolute has developed. Phoenix has some things on the drawing board and may be coming to the market with a product, but we have not seen anything yet. So we'll see what happens.

Okay. And just on the adoption rate, I can't remember exactly what it was last year, but I think it was in the 4%, 4.2% type of thing, and it looks like you are tracking to 6.5%, 7% this Q1. Where do you anticipate that going in the next 12 months or so? Can you see that trend towards 10%?

We certainly can, and over -- in several years, and of course that -- none of us are sure how quickly it's going to happen, but over the next number of years, we see that tracking well in through the teens into the 20s and hopefully into the 30s in terms of attach rates, and certainly with key partnerships could even get in the 40s and the 50% attach rates over time. We have created -- we invented this mobile theft protection category. We are now on 2 million units. As I mentioned, we have a very credible platform to deliver security services in this software-as-a-service-model. We are the leader in the category, we have the embedded solution in the firmware, the computer that works and is trusted by the OEM partners. And it has taken us years to develop to this point. And I think with the right partners coming on board in the future, when if they do to help us get to those exciting attach rates, I think we're well positioned to go ahead and do that.

And just on the recent bundling agreements, we're hearing the Symantec Apple bundle was quite strong. Can you comment on that, and are you talking about moving to a similar type of deal on the PC side? And just comment on the HP relationship. That has obviously started up here late in that quarter, and talk about how that moved along.

We're very pleased with the Symantec Apple rebate program, and I think it has been very good for Symantec. It has helped us with our sales across the Apple Stores. It has helped us get a lot of visibility inside of Apple, and it has been a very, very good program. And of course, it was extended beyond the back-to-school period right through to the end of this year and it's highly likely that we would continue to extend that type of promotion to other partners. So that is business in the normal course. And, sorry, what was your other question Tom?

Just on HP and how that agreement went.

HP is obviously has seen tremendous growth in the last few quarters. They're a great partner for Absolute. We're very excited about the HP Care initiative that they have gone ahead and now offered the Computrace Professional product as an option on HP Care and are aggressively marketing that out to their small-business, medium-size business customers. So that is exciting for us. We did a nice bundle in the federal segment for the teleworking community, so that was an excellent bundle with HP. And we'll just continue obviously to support HP and our other PC OEM partners as we go forward.

And finally, just on that Government sector, what is the key driver of that? Is this initial deal of C$1.7 million, was it sort of classified as an early adopter within that segment? And what's going to drive other agencies to really pick this up in the next 12 months?

The federal agencies, and actually it extends to the state and local agencies as well, they're under a tremendous pressure to ensure that information that is contained on laptops, whether it's personal information, employee information, citizens information, patient information, is kept confidential and private. And there has been some huge stories in the media of exposures of information unfortunately falling into the wrong hands. So there's a lot of pressures on the agencies. And you look at mobility and this huge trend towards mobility and teleworking, and exactly the opposite trend is how to lock down and secure the information on these mobile computers. So there's a bit of a conflict here and the federal agencies are no different than we see in business or we see in the Consumer segment, is these portable computers, these notebook computers, are very easy to lose, misplace and become stolen. So there is pressure for agencies to protect them, and they are looking at two things -- full disk encryption and Absolute's Computrace theft protection system. So we see tremendous opportunity in the federal segment and the state and local segment to help these government agencies security the data on these notebook computers.

Thanos Moschopoulos, BMO Capital Markets.

Can you talk about what impact if any the Canadian dollar is having? You reiterated your margin targets despite the strong appreciation that the dollar has had. Is that just prudent expense management on your part, or just reflective of the scale that you're realizing in the business? Can you comment on that?

The Canadian dollar, or more accurately, like in say, the increasing Canadian dollar and the declining U.S. at the same time has been -- it has obviously taken a bit of steam off our growth. We would have grown 103% had the U.S. dollar stayed equal strength. But still, we do have 50% of our cost at least, actually a bit more than that now in -- denominated in U.S. dollars, so we have a natural hedge there which is part of why we can maintain the margins at the same time as we see the declining U.S. dollar. In addition, the gain as you noted, it is indeed part of our leverage in our business and economies of scale that we gain as we grow and it's up to us to manage our costs accordingly. And indeed, we do have discretion at some of the costs that we decide to take on as a business. So we do have some leeway to work with there as well.

As far as the subscriber target, it wasn't specifically mentioned. So just to be clear, are we still looking at 4 million subscribers by 2009?

Yes, we're looking at exceeding that number.

And regarding the asset-backed commercial paper, just to clarify, was the C$2.1 million mentioned in the MD&A -- was that the entire amount that you owned?

Yes, that is correct. That is the entire amount that we have exposure on, and we have written down that by $300,000. And as far as we know from updates we have had, we believe we are in -- that our loss, any loss on that, would not be more than what we took at the write-down.

It's likely that we'll earn the full principle back with all the interest, but we've taken a write-down to be conservative in case that is not the case.

And in your prepared remarks, you talked about developing the VAR and the and the SI channel. Can you talk about what you're doing on that front, and when we might start to see some business ramping from there?

Sure. As an example, we have a dedicated persona now at CDW in the Chicago office that's focused on growing that specific channel, so we're starting to focus more on the VARs and system integrators as part of the overall strategy.

As you know, HP and Lenovo and Panasonic sell a lot of their machines through VARs and system integrators, as well as -- Dell is considering that channel as well. So, we need to make sure that we provide the ground and the field support there inside that channel to pull our solutions through. And the timing for us couldn't be better in terms of supporting that channel. And I think it's going to be very good for us to be there.

Paul Steep, Scotia Capital.

John, maybe you can just talk a little bit, there's been some changes out there in the environment, even last night, obviously with McAfee and SafeBoot and Symantec and Vontu. And while they are in a different place, I think it would be great to hear your view, given that you've worked with Symantec, as to how this sort of affects your partnership and how it maybe helps strengthen it or develop it further?

Sure. Well, both McAfee and Symantec are obviously leaders in the security space, and I think McAfee's acquisition of SafeBoot was a very good acquisition. SafeBoot is a leading full-disk encryption vendor. They have done a great job of making full-disk encryption fairly easy to manage and I think McAfee made a very prudent investment there. And it also helped McAfee build a relationship with HP, which I think is strategic for McAfee.

In terms of how we play with SafeBoot, we're a great complement. For organizations that deploy full-disk encryption, that really is aimed at the external theft problem so that if a computer is stolen from a vehicle or stolen out of a hotel room and it has a password and it has full-disk encryption on it, the thief is never going to get to the data. So that's very, very important in today's -- with data privacy regulations we have today.

Where we protect of course is we protect against the internal theft scenario where the person may have access to the password, and in most cases does in an internal theft scenario. And that is where we were able to do our data delete and/or recover the stolen asset and get it back and make sure and also see whether any of the data was actually compromised on the computer, whether the file system was accessed, et cetera, and report back and give that customer a clean bill of health in regards to whether there was a compromise on that particular asset.

In terms of Symantec, obviously they acquire a lot of companies and they're looking for companies in the data security space, and I think Vontu is another good example and a good acquisition strategy for Symantec. And we're just focused on our niche. It's an extremely exciting time for Absolute. We have our head down and we are looking how we can partner with Symantec and McAfee, as with others that play in this market.

I should have been more clear on the question on this part. They've obviously both committed to like a stronger endpoint security strategy with these acquisitions and stepped up. I have not heard them say anything. If they made any sort of indication to you in terms of you're sort of the missing piece on that part of the endpoint, as you said in your comments. Any sense of where they are going or move on to the next question?

I think that we're not really that concerned with McAfee and Symantec. They're great companies and they're headed in the direction that they're headed in, and they're doing what they're doing. What we're doing is we're becoming the industry standard for computer theft protection, so your asset tracking and data production. So we are just head-down building our business and growing our business. So that's what we're up to. And, obviously, we are partnered with Symantec. We may do some other things with other folks along the way and we're just going to continue to see this become an industry standard. That is our focus.

Fair enough. Just two other quick ones. I guessed you talked actually two seconds ago, but the attach rate and bumping that up. What should the key milestones we should be having our eyes on here for the next year in terms of driving that higher attach rate? How much of the higher attach rate is predicated on major new win, or how much of it's just blocking and tackling?

That's a great question. I think there's opportunities for both. Every day, we do the blocking and tackling and I think we can get a long way blocking and tackling, just the basic small deals that help launch 100,000 units here or 200,000-300,000 units there. Those are the smaller deals that we can do with partners, OEMs and many, many other partners in and around this space. I like to describe it as that we're sitting in the middle of an intersection with our theft theft management solution, and then on the four corners of the intersection, we have the PC OEMs on one corner, we have the software security vendors like McAfee and Symantec on another corner and others. We have the infrastructure players, the hard drive folks, the other people that are involved in the computer industry. And then we have finally another category, the ISPs and just other people that we can deliver services to. So we're seeing the entire infrastructure of those four corners come to Absolute because theft protection has become so important. When they look at the market and they look who's credible, who has actually delivered this service credibly, whose whose code works, whose code is on 2 million-plus computers, who has got the intellectual property to back it up. All of those elements -- who's got the brand, who's got the sales team, the sales team to pull through the sales. They look at all of those pieces, they realize that really Absolute Computrace LoJack solution is the right one for them to really get behind the leader in the market, which is us. So I think we'll just continue to see both the blocking and tackling deals come out, and also the big opportunities are there. And it's up to Absolute to work really hard to make sure they come to fruition.

Great. Two quick clarifications. One, the HP telework, just what is the timing on the endpoint of that bundle before obviously HP (inaudible) sort of reassess and look to go deeper or further?

That bundle was until October 31, I believe, so it would be officially over now. I believe -- I think it's still available in certain circumstances. So that's where that is at.

And the other real fast one was just -- we got sort of the Dell bundle number. Could you give us a sense -- you've historically provided the total OEMs sales via or sort of through Dell as a whole, just to get a sense of where the other businesses are building.

On the overall OEM business, we're generating 86% of our sales through OEM channels. Dell continues to be the lion's share of that. We did break out separately the 17% of sales that were from the Dell bundle. And that's the scenario that they are the customer in this case, if you will. So that is what we've disclosed. And in terms of the other OEMs, they are continuing to come up. They are more in the 10% range of sales for the HP Gateway and Lenovo each, with Dell being the difference.

Howard Lis, JMP Securities.

A couple of questions. First, I just wanted to ask you a little more detail on your consumer segment sales. You've disclosed it was 45% of the subscription units in the first quarter and you mentioned that in the latter half of this year, an increasing number of your base or contracts that are expiring are coming from the Consumer segment. How many of the 2.1 million would you estimate are from the Consumer segment?

Howard, just to correct you there, it's 27% --

No, that's sales, he said units, so units is 45%. But yes, and if you look at fiscal '07, it was 33% I believe. So we basically in the prior-year would have been down in the 20s. So it's -- to figure out what's in our subscriber base, it's a blend of the three really, which puts us around that 30% mark, so approximately one-third of our subscriber base would be Consumer now would be my estimate. And the reason I said there will an increasing -- so, this has only just started happening really, the ramp on that in the last -- since really that Dell bundle, to a significant extent. So where we'll see some increasing consumer renewal opportunities is on any of the one-year subscriptions that we've done through Dell that started sort of the spring of calendar '07. So that is where we will see some of those starting to come in full. But, overall, our average contract life on that business is still around the 30-month mark. So most of it will be a few years out before we really know what renewal rates are on that consumer Side.

Okay, that kind of addressed my second part of the question was -- I wanted to get a get sense of how many of those are under one-year subscription, so it's probably somewhere around, 20 or 25%?

Those Consumer ones, yes.

Okay, great. The other thing you mentioned earlier is about investing in new products and services on an ongoing basis. Aside from the kind of wireless application you've talked about in the past, what are the other things you're looking at or working on?

Well, Howard, there's quite a lot we can do in the whole area of helping organizations manage their security policies, down to the desktop, ensuring that -- it's really an extension of what we do today, just ensuring the right software is executing on these units. So that's an area we can continue to roll out value. We can also roll out and we are rolling out value for specific segments, enhancing the reporting that we provide certain segments. For example, the Education segment, K-12 requires specific reporting that we can help them with. They also have requirements to notify students in sort of a public broadcast system time requirement where they can instant message everybody with a computer if there's a school message that's required to be broadcast. Our technology can download and deliver those kinds of messages as well. So there's a lot of different areas that we are producing additional value on the back of the Computrace technology platform that we have embedded in these computers.

Final topic, I know an number of folks have asked about Phoenix on the competitive front. Just in terms of other competition, we came across something recently, I'm just wondering what you have heard or know about it in terms of a Sprint and Alcatel-Lucent offering called SprintSecure Laptop Guardian. It's a much more intertwined solution with a wireless connection card that the user has to have in the device in its laptop, and then it's just a server as well, and obviously a small monthly fee. But it does address the whole issue about GPS tracking of lost or stolen laptops, has the downloading capabilities and a whole bunch of other fairly sophisticated applications. Have you come across this? Have you heard about it, and what segments does this in your mind present a viable competitor for you guys?

That's a great question Howard. We are actual lead part of the Alcatel-Lucent offering, and there is -- we're working with Alcatel-Lucent and they're keeping a special channel open for Absolute so that we can provide our tracking solution and our other services on that down through the card onto that particular notebook that is being protected in the services model. So we are formally a part of that program. They're really launching a couple of different phases, and I think you'll hear more about Absolute's participation in the next announcement with Alcatel-Lucent.

Robert Breza, RBC Capital Markets.

Good morning, John, Rob, congratulations on a strong quarter. John, maybe can you talk a little bit about maybe longer-term when you looked at your key segments -- Corporate, Education, Consumer, Government -- is there anything from a trend perspective that you would say the mix maybe changes as we get into the back of the year? Or obviously, the investments you made in driving the Consumer and Government are paying off. But should those trends continue, or should we see any kind of major shift?

That is a great question, Rob. I think you're going to continue to see the Government and Consumer segments probably outpace Education and Corporate in terms of their growth, because they're fairly recently coming onstream and they are obviously accelerating quicker because they're on a smaller base. But in my mind, at the end of the day, there is really the three strongest horses will be the Corporate, the Government and the Consumer segments. And Education, while it's a very strong market for Absolute and will continue to grow, I think as we became mainstream and fully adopted as a category amongst organizations, you will see that the Corporate segment and the Government segment running about even with the Consumer segment, a very large segment as well. And then we'll have a very strong market in Consumer too. So really, we should roll out very similarly to laptop sales because we are valid across all of the segments and there's good reasons for purchasing the Computrace theft protection system for each of the segments. So when you look at Dell or HP, typically they're selling 60% of their notebook base into the commercial market and 40% into the consumer market. And I think ultimately that is where we will end up. And then, you can split the commercial out really -- probably the Corporate and Government market take 40% each of that 60%, with Education taking 20% long-term.

Glenn Jamieson, Orion Securities.

John, just on the idea of you developing additional services, right now the vast majority of your sales come from your core theft recovery service. If we look out a few years, what proportion of your sales do you think could be generated by other services, either your data delete service, asset tracking or some of the things that you're working on? And the other thought is, I think in all cases, these services don't require any physical intervention on your part to deliver the service. So does that improve your scalability, or would it allow you to enter new geographic markets maybe quicker than you would otherwise if you only had the core theft recovery product to offer?

I think that's a very good question, Glenn. There's no question that with the recovery team, there are some scalability issues there. I think we're managing them well. We've grown our recovery team now to about 30 persons and we'll continue to invest in it. I think the recovery, the physical recovery of computers, is very important because it really gives organizations insight into how the computer went missing. Who took computer inside the organization? And we've had so many customers be incredibly thankful that we've actually found the source of the internal theft, because that person that's inside of that organization is not just stealing computers, they're stealing computers, they're stealing other things, they're potentially compromising data. We actually sourced an individual very recently for a large health care company that was an employee of that company, not only was stealing computers, but was also actually on the network stealing customer records and selling them on the black market on the Internet. So actually having the tie-in with law-enforcement, the way that we do is I believe a real strategic advantage for Absolute, so we'll never be giving that up. We'll always be there to physically [lias] with law-enforcement and to recover those computers.

But Glenn, your point is a valid one. There are a lot of services we can do on-demand in this software-as-a-service model as we have this communication layer with the endpoint device. And as soon as it goes in the wild or if it has become somewhat compromised, we from our data center can effect change on that notebook. So there's a lot of services that we can roll out in the future. And ultimately, theft recovery will probably be a smaller percentage of our business than what it is in the future. But I just cannot give you strict percentages. But we have some very exciting new features that we are working on that will be coming to the market over the next calendar year.

Okay. Is there anything different in the way that you would go about selling and distributing those services if you compare the way to go managing your sales channels with the theft recovery service?

You know, Glenn, I think that in international markets, you're going to lean more on the reseller community, which is a very important community in the international markets. But here in the United States and Canada, we have great relationships with these OEM partnerships and we will really continue to push the business through our very valued OEM partnerships, and their resellers.

Troy Crandall, MacDougall, MacDougall & MacTier.

I guess most of my questions have been answered, but just a quick question on the R&D pipeline, just a little more detail. I was wondering, with Apple due to release the [API] on the iPhone in February and possibly even the iTouch, just given the Wi-Fi capabilities that they have there, is there a possibility that you guys might be developing something to work on that?

We really are consciously keeping our roadmap a little more confidential than we would in the past. I think it's fair to say that you know we have a very good product for the Apple platform. It's the same operating system that the iPhone uses. So obviously that puts us in a very good position for delivering a credible service in that market, and I will leave it at that.

(OPERATOR INSTRUCTIONS). Gentlemen, there no further questions at this time. Please continue.

Thank you operator. Once again, thanks for taking the time to participate in today's call. We look forward to updating you in the coming quarters.

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