Absolute Software Corp (ABST) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Absolute Software Corporation's fourth quarter and year-end 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 its 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, and could cause actual results to differ materially from those projected in these 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, August 12, 2008 at 10:00 a.m. Eastern time.

I would now like to turn the conference over to Mr. John Livingston, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you, Operator. Good morning, everyone. Thank you for joining us to discuss our fourth quarter and fiscal 2008's results. If you have not already seen it, today's financial press release 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 year and quarter. Rob will then review our financial results, after which I will provide some closing comments before opening up the call for questions.

Full year and fourth quarter results. I am pleased to say that fiscal 2008 was another watershed year. We built new partnerships, developed new technology, grew the team, expanded our customer focus, rolled out a global customer service strategy, and more than doubled our subscriber base -- all while growing sales contracts over 50% last year and almost doubling our free cash flow to C$30 million, also strategically positioning our anti-theft software and service platform for worldwide growth in this current year, fiscal 2009.

Yes, 2008 was another strong year of growth for Absolute. In fact, we have now produced four consecutive years of sales contract growth in excess of 50%. And during the last four years, our cash flow performance has grown from C$1.3 million in fiscal 2005 to C$30 million in fiscal 2008. And our subscriber base has increased from 490,000 subscribers in fiscal 2005 to 3.3 million subscribers at June 30, 2008.

Even with this strong growth, we feel we have only just begun to service the large market opportunity available to us. As a result, we've continued to build the Company to maintain this growth trend in the coming years, and to achieve our 6 million subscriber target by June 30, 2009.

Market opportunity update. The evolution towards mass adoption of antitheft services continues. The increased deployment of laptops, smart phones, and other mobile devices has driven mobile device and Data Protection into the must-have list for CIOs and compliance officers. And we believe the demand for anti-theft solutions will continue to grow in the coming year, in part through increased marketing and media coverage of anti-theft solutions from industry leaders such as Intel, Qualcomm and the world's leading computer manufacturers. An example is our recent announcement today about this participation at Intel's development forum next week.

Partner, ecosystem and programs. As you know, an Absolute key strategy is to partner with industry leaders and translate these relationships into innovative service offerings and meaningful sales opportunities. Examples during the year were Intel announcing its anti-theft platform initiative, which included Absolute as a key collaborative partner. This is Intel's initiative to provide anti-theft support at the chip set level. Currently, we are working with our OEM partners at Intel on integration and go-to-market strategies in line with Intel's expected launch this quarter.

We also announced a partnership with Qualcomm to develop anti-theft and data protection services for their multi-mode, Gobe 3G module that enables real-time services with any network carrier and across multiple PC OM platforms. With this capability, customers can, amongst other things, see their computing assets on a map in real-time. This provides enhanced tracking information and quicker emergency response reaction time. We announced the availability of this service on August 6.

We also established new bundling programs with long-term partners such as HP, Dell, Fujitsu, and recently entered into a private label agreement with one of these OEMs. These innovative relationships are expected to drive subscriber growth and also help us penetrate SMB and international markets.

Growing our customer segments. We continue to generate significant growth in all of our customer segments with 78% of our sales contracts coming from the commercial segment and 22% from the consumer segment. We are pleased to report that the commercial segment of our business outperformed in the fourth quarter, growing 66% over Q3 fiscal 2008 and 56% over Q4 fiscal 2007. As a result, the commercial segment exceeded our expectations for the fiscal year and enabled us to report a new quarterly sales record in Q4.

The key highlights of this segment were two government contracts -- that's a C$1.7 million contract in Q1 and a C$2.1 million contract in Q4.

The consumer segment. Consumer sales increased 65% this year to C$15.9 million and represented 22% of sales. In spite of two specific issues -- the closing of Comp USA, and Dell slowing their Complete Care LoJack sales due to an internal retail expansion plan in the second half of the year. This produced negative consumer growth for Absolute in our third and fourth quarters.

But heading into fiscal 2009, we feel our consumer business is back on track. We have a world-class team in place, looking to expand our presence in new retail outlets, increase our OEM programs, enhance our online sales capability, launch building new initiatives, and capitalize on our renewal customer opportunities. Already in fiscal 2009, we have announced a retail distribution opportunity with costco.com, circuitcity.com and Feature Shop. We are working hard to expand this list.

In terms of managing new consumers sales and renewals, we are partnering with Digital River, the leader in online software sales to retail consumers. This will help us capture a significant share of the 550,000 consumer subscriptions coming up for renewal.

International expansion. On the international front, we continue to invest in the infrastructure to build a very successful global services business. We're gearing up the team and the customer service capability to cover the EMEA and APAC regions. Our efforts to co-support and fit perfectly with the newly launched global private OEM program and Intel's global anti-theft initiatives.

At this point, I'd like to pass it over to Rob to look at select financials in more detail. Rob?

Thanks, John, and good morning, everyone. In fiscal 2008, we continued the growth trend in our key metrics of sales contracts and cash from operations. Despite a temporary slowdown in our consumer sales, and thanks to the continued strength in our commercial verticals, we managed to end the year with a record sales quarter at C$21.5 million.

As a result, fiscal [2000] sales contracts increased to C$72.5 million, a 53% increase over last year. In US dollar terms, we grew sales to 70%, which would have translated to [C$80.6 million] in constant dollar terms.

We generated 59% of our sales contracts from existing commercial customers, compared to 52% last year and 62% in fiscal 2006. This existing customer element is what has enabled us to maintain our growth rates in excess of 50% over the last four years. We believe this to be one of the advantages of our soft business model, and also to be an indication of the valued service we provide to our customers.

On a unit basis, we sold 2.2 million subscriptions in fiscal 2008, an increase of 109% over last year. Of these subscriptions, 991,000 were to existing commercial customers, which is made up of renewals from the 382,000 subscriptions that expired in the period combined with expansions within our existing customer install base.

In fiscal 2009, we expect 500,000 commercial and 550,000 consumer subscriptions to come up for renewal. Based on historic trends, existing customer renewals, and penetration, we expect to generate nearly 1.5 million subscriptions in fiscal 2009 from this customer base.

Turning to our fourth quarter sales contract performance, on a quarterly basis, we delivered solid year-over-year and sequential sales contract growth of 32% and 43%, respectively. This was achieved despite a slowdown in consumer sales which, as expected, declined 32% sequentially and 41% from Q4 last year. However, as John mentioned, we have plenty of activity in the consumer pipeline to return to growth in this segment during fiscal 2009.

Our commercial sales remained strong and was at the high end of our internal expectations, growing 56% over Q4 last year and 66% sequentially. Our Q4 results were boosted by our largest single customer order to date -- a C$2.1 million government contract. We continue to believe that the government vertical will be an important market for us.

Looking to fiscal 2009, we expect sequential growth to continue into our seasonally strong Q1, as we benefit from the launch of several new sales and market initiatives, undertaken ahead of the quarter in both consumer and commercial segments.

Turning now to operating expenses, we will exclude investment tax credits and stock-based compensation for the purposes of this discussion. We have continued to increase operating costs to expand our distribution channels, drive subscriber growth, enhance our support infrastructure and develop new products and services. Total operating expenses as a percent of sales were 57% in fiscal 2008, compared to 54% last year. This is in line with our expectations for fiscal 2008 and was consistent with our target for cash margins of 40% to 43%.

In fiscal 2008, we made significant progress reducing our net loss before stock-based compensation. For the fiscal year, the loss decreased 30% to C$3.4 million, and for the quarter, it dropped 64% to C$734,000. This improving performance is a result of the growth in sales contracts during the past three years, which has caused revenue growth to outpace the growth in expenses.

As a software and service business, cash flow is our key evaluation metric. As such, for fiscal 2008, we are pleased to report a 78% increase in cash from operations to C$30 million or C$0.60 per fully diluted share. Fourth quarter cash from operations was C$5.4 million, up 20% from Q4 last year. The quarterly increase is less pronounced due to a high proportion of sales occurring at quarter end, which also led to an increase in the receivables balance as a percent of sales for the quarter.

Our cash margin, defined as cash from operations as a percent of sales contracts, increased to 41% for the year compared to 36% last year and 19% in fiscal 2006. For fiscal 2009, we expect growth in cash from operations on an absolute and per share basis, and are targeting to generate cash margins in a range of 35% to 40%.

From a balance sheet perspective, we have ample resources to support our growth plans. At June 30, 2008, our cash, cash equivalent and investments grew to C$64 million compared to C$59.4 million at March 31, 2008 and C$34.9 million at June 30, 2007.

In closing, we remained excited with the growth prospects of the business and look forward to reporting our progress in the coming quarters.

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

Thanks, Rob. Absolute's strategy is maintain rapid sales growth and cash flow generation. Data security and data privacy, theft deterrents and theft recovery are critical issues for all mobile device users with laptop -- all mobile device users. The laptop is more prevalent than ever, and smart phones pushing the envelope of form and functionality, we're entering a new phase of growth and development for computer data security services. In this environment, Absolute has the products, the infrastructure, and the business model to support mass adoption and software services model.

We expect fiscal 2009 to be another exciting year for the Company, as we develop and commercialize relationships with new partners like Intel and Qualcomm, as well as expand relationships with existing partners like Dell, HP, and Lenovo.

We will target delivering across the board growth in all of our vertical markets, where we maintain a dominant position due to our proven theft recovery track record and expanding suite of theft deterrents and Data Protection services -- all in a unique software and service model. We have demonstrated repeatedly that we can and will deliver on our promise to protect your assets and to protect your data.

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 questions.

(OPERATOR INSTRUCTIONS). Tom Liston, Versant Partners.

The first question, just on the commercial side, obviously had a large government deal in the quarter but the results even without that were well ahead of what we're looking for. What else is going well there that you can point to?

I think it's a combination of our existing business continuing to grow in terms of renewing and expansion with the existing customers. And the fact that we started investing in the federal segment about 2.5 years ago with a specific federal team. And those efforts are definitely now showing fruit. So that is very positive for us in the federal segment.

We have a product service that's very much required and appreciated in that segment. So, I think you can look for continued growth there.

And then obviously, right across the board with our other segments -- education, state and local government, corporate, health care -- we've added health care -- we're seeing strong performances right across the board in the commercial business segment.

Okay. And going forward with the white label deal, it's obviously up there [with the pro] support with Dell, pretty key that it's obviously a global deal and targeting the small and mid market where you haven't been able to add much, maybe directly target, especially on the global side. What extra infrastructure do you need to really support that global delivery where Dell is taking you into this new territory?

We have a very capable executive in charge of our global customer service and technical support infrastructure. And that team is rolling out support infrastructure worldwide. And so we are able to provide the necessary support for our private label relationship, which is a perfect -- fits perfectly into our larger scale plans to grow our international business as does our Intel relationship as well.

With Dell, they're obviously growing quite robustly internationally or 20% year-over-year -- what are the expectations that they're shipping a lot of units? What can -- how should we look at it in terms of the ramp? Obviously, there is a bit of training to be done and what-have-you. When should we start to see some meaningful revenue coming from that channel?

Well, we kicked off the relationship July 1, and we're certainly seeing a lot of interest coming from that channel. And it's a very exciting business opportunity for us and for our partner.

Okay. And just on the consumer side obviously, there's a bit of weakness there. You've added a couple new channels, but can we expect a bundling deal on that side where it can really kick into gear quite quickly? Or is it more just continue to roll out the different channels and a slow and steady increase?

Well, again, we have extreme confidence in the management team, the consumer management team. And I can assure you that they're extremely capable and are gearing up consumer to be well-diversified across a mix of retail OEM bundling arrangements and electronic capability. So you'll just see that business get back to where it was at the beginning of the last year and start growing steadily from there.

And related to that, Rob made a comment about renewals. What was your experience in Q4 around some of the consumer bundling type renewals? I think there was over -- for this coming year, there is 550,000 coming up for renewal. How many of those are the bundling type? And do you have some good data points now from Digital River, et cetera, on how those are coming through?

Yes, Tom, a majority of those are -- or certainly a large chunk of those are some of the one-year bundling deals for next year. So this is finally we're starting to see some of these start to hit renewal.

What we had in the end of fiscal '07 when we started rolling out that program, most of the early sales were primarily -- had the 30-month average life on them. They're mostly tied to the Complete Care program. They didn't start doing a lot of the one-year bundles until partway through our Q4 last year. So we've seen very little thus far.

But Digital River isn't really -- hasn't been up and running quite yet. It's only just gotten up and running in the last couple of weeks here. So we don't really have any more data for you at this point other than to say we've now gotten all the programs in place that we can go and capitalize on that opportunity.

Okay. Can you just repeat the commentary that you said, 1.5 million subscriptions you believe are coming from renewals as a total?

As a total. Yes, not from renewals, but from a combination of renewals of our commercial and consumer subs that are coming up, plus the deeper penetration into our existing commercial customers. As you know, over the past two years, we will have added a lot of new commercial customers, most of which will have bought subscriptions only for one-third of their population or so. So we will see all of those customers do another year of purchases here, which is what has continued that trend and adds the additional numbers on top of the renewing ones.

Okay, thank you. I'll pass the line.

Thanos Moschopoulos, BMO Capital Markets.

Given the recent performance of the consumer business, are you now expecting a bigger proportion of your 6 million subscriber target will be from corporate rather than the consumer? Or are you really confident that consumer will ramp back up to I guess what your prior expectations have been?

Thanos, yes, we are confident that we will have a high degree of these subscribers coming in from the consumer side of the business. We're certainly well positioned to make that happen in fiscal '09.

Okay. And I guess as we look forward just to Q1, should we think about seasonality there on both consumer and corporate being fairly consistent to what we saw last year? Or will other factors come into play?

I think it's fairly consistent with last year.

Okay. Can you provide some color as to what ASPs look like outside of the bundle deals? Do they continue to hold pretty steady year-over-year?

Yes, they're fairly steady. They're actually about 6% down year-over-year and very similar contract terms. So I'd consider that fairly steady. And that's really just a mix of more of our Computrace Data Protection solution being sold, which is a lower priced product than some of our traditional full service theft recoveries products.

Okay. And I think I've asked you guys this question every quarter, but -- and from your numbers it would seem that you're not seeing any impact from the macroenvironment. Does that continue to be the case? Your customers continue to buy and it's not really been an issue in your sales cycle?

That's correct.

And would that be across all customer segments or across all verticals? Or are there any where you might be seeing a bit of softness?

Thanos, I think generally speaking, because of the data privacy and identity theft issues that we're seeing in the North American market, generally the compliance laws are in place -- our continuing to drive security is one of the top priorities for commercial customers. And therefore, we really have not seen any impact of a slightly slower economy in North America.

Okay. Great. I'll pass the line. Thank you.

Glenn Jamieson, Macquarie Capital Markets.

John, you were talking a little bit about the success you're starting to see in the government market. Given that September is the fiscal year-end, is it possible that some of these larger deals that you've had success winning recently, is there more of that activity that could fall into that quarter?

Well, we're working hard with a number of our government customers to get them properly set up and integrated. So we are just continuing to grow the government segment. And this is obviously an important quarter for government, for federal sales, because of the government year-end, September 30.

Okay. And then you had mentioned that to penetrate that market, you made an investment going back almost two years, 2.5 years ago. And if we look at non-US sales, your international activity, you started investing in that market probably 1.5 years, 2 years ago as well. Can you give us a bit more detail in terms of what kind of contribution you think that segment can make in F '09 in terms of sales relative to what you actually posted in fiscal '08?

Which segment, Glenn?

Anything outside of the US?

International?

Yes.

Well, I'd say international, and if you exclude, say, Canada from that, generated about 3% of our fiscal 2008 sales. So that's around, just shy of C$2 million. I would certainly expect that we'd be able to do significant improvement upon that in fiscal 2009.

And certainly we have expanded the team and I see plenty of opportunity there, especially on the heels of the work that we're doing with Intel and their anti-theft platform. And also with Qualcomm, both of which are exciting -- as exciting internationally as they are domestically. And on top of that, I would say the white label program is another one that's really going to help us drive some international business.

So, we've seen lots of activity. We're well-established, if you will, as a base in the EMEA region. We're actually started to get some good traction in Latin America. And on the Asian side, we started to expand there as well.

If I were to throw out a range of C$5 million to C$10 million in fiscal '09, is that in the ballpark? Is that doable?

Yes.

Yes.

Certainly is.

Okay. In terms of further headcount additions, you've been adding bodies aggressively for the last couple of years. Can you give us a bit more detail on headcount additions, numerically, what you expect to add? And I think some of the focus would be on some of your overseas initiatives, but how many people do you think you will add by the end of this current fiscal year?

So, first of all, it's sort of talk now, that 258 people we had at June 30, in that number, we had grown our international sales team, our international team more than two-fold over the prior year. And we would expect to continue that rate of increase in our international team. We've already increased a lot of our sales and marketing. We do that in advance of the year. That headcount was already up 38% to nearly 100 people.

And we would expect to continue increasing that somewhat throughout the year and then again, toward the end of fiscal '09, of course, we'll do our -- likely start doing our annual increases in headcount in line with our next year targets, which is also why you might have noticed a bit of a drop. It's part of the reason for a bit of a drop in the cash margins in our fourth quarter as per usual.

So yes, we'll be increasing across the board. Probably more people in international and also some of our support things on the back and pro support type staff, and the development team as well for this international support.

Okay. And just one last quarter -- part of the investment you have made in the past is to broaden the suite of services that you can provide beyond your core theft recovery service. I am wondering, if you look at fiscal '09, what you hope to achieve, can you give us a sense of the impact that your non-core theft recovery service will have in fiscal '09? And is that expected to be up in a meaningful way relative to fiscal '08?

I guess I'm thinking about things like your asset tracking service, data delete, even your recently announced handset service.

Yes, Glenn, I think we're going to sell more of all of those services. We certainly have some very large customers looking closely at the Computrace mobile handset service. So that is exciting for us. And then you're going to see -- you'll see some additional services rolling out during the year.

And we're also pleased with -- which we feel that the Qualcomm relationship is strategically important in terms of delivering all of our services in a real-time platform and now adding the GPS capability, which is mapped real-time with Google Maps. So we definitely have new products and services coming out. We have released some recently and those all will help to generate, I think, a very successful 2009.

And I will just add on that, our Data Delete on its own and asset tracking on its own today is probably 10% range of the sales. I think there's definitely an opportunity with the Qualcomm GPS mapping capability and also the Intel sort of deterrents messages around managing their anti-theft platform as well. I think those types of services can help us to do more on the deterrent side, if you will, more asset tracking and deterrents than we do today. Today it's a small segment of the business.

But I think that also gives us the foray into those customers to upsell to our more full service premium packages, including which we talk a lot more about our forensics capability now as well, with our theft recovery team; it is quite a nice security story for corporations worldwide.

Robert Breza, RBC Capital Markets.

One quick question, Rob, one financial question -- as you think about accounts payable, it was up I would say quite a bit higher than what we thought. Can you just tell us what's behind that increase?

Yes, part of it ties to the timing of sales, as you see receivables up as well. So a lot of our commissions and bonuses, et cetera, that would be tied to the sales targets won't have been paid out by year end. So that's certainly generated a lot of it.

We also have a lot of increase in headcount and then just generally increasing in payables as well. So, I mean, it's a combination of factors. Some of it is timing because of the -- tied to the sales side. But I'm not alarmed by the level of payables there. And certainly it's part and parcel with growth in the business.

Okay. That's helpful. John -- and I know Rob talked about the existing customers up for renewal and how that should kind of play out through the year -- given the Intel chip set coming out in Q3 -- calendar Q3, excuse me -- can you walk us through how we should think of the subscribers ramping? Obviously some of that is going to be pulled through with Intel and Qualcomm. So I'd love to just get some color on how we should think about new customers ramping, maybe.

Sure. Well, in regards to Intel, specifically, think of Intel as a giant seeding program, if you will, worldwide. So Intel with the Montevina chip set coming out -- well, you'll hear a lot more about it. We're at the Intel Development Forum Conference next week. And so you'll hear more about it on the 19th of August, through that week.

Intel is going to be raising awareness of anti-theft as a new category worldwide. And as a key service provider, we are going to be there helping customers be able to implement that particular feature. And of course, implement it in a service model.

So I think that will be very meaningful for us in 2009. We probably will get most of that traction coming in the back half of the year, I would imagine, of our fiscal year. And alongside the Intel relationship, of course, Qualcomm providing us the real-time capability with the OEMs that they will be present in, which will be several very large OEMs. We're going to do a lot of close marketing with Qualcomm and the individual OEMs, making customers aware of the Gobe technology that we're very excited about, the enhancement in terms of our services being now real-time. And we think that's going to help us break into the enterprise space more deliberately.

So that's exciting for us. In terms of rolling out subscribers over the year, government is obviously a key focus for us. We are getting a lot of traction right now, so we will be focusing strongly there, particularly in this quarter. And then we'll be -- we'll also be focusing in consumer with [Mark Grace] leading that organization and focused with the educational -- starting to marketing the educational for next year's educational business.

So we will have a very busy 2009. We're very excited about it. I think the Company is truly inspired to go and deliver a great year. And we're very excited with all of our partners and some new services that we'll be coming to market with.

Just to add a little tiny bit to that, Rob, I mean, our commercial segment was our slowest grower in fiscal '08, probably around 30% range. And with the items John was just speaking about, with Intel and Qualcomm coming more towards last quarter of this calendar year and then ramping throughout the rest of our fiscal year, we expect that to really generate a lot more growth in our commercial side of the business this coming year.

Great. That's very helpful. Nice quarter.

Scott Penner, TD Newcrest.

Just, John, to sort of circle back on the consumer business again, you'd mentioned that you expect it to return to I guess kind of the C$5 million a quarter run rate. Should we notionally expect that in the September quarter?

I think we'll be -- well, you know, I think we'll be getting there in September and then we'll continue to move that forward over the year.

Okay. And just looking at the Dell bundle renewals, given the much higher renewal price that you're targeting, what is the renewal rate of the proportion that you need to keep that revenue stream flat? Do you need one-third of those to renew? A half of them?

Yes, I would say combined with the continued Dell program, they are continuing, and I think you will notice a lot more of their XPS units now, for example, are including LoJack, a year of LoJack for laptops. I think actually they sent a flyer out on that just recently.

In any event, so you will see that program continuing combined with the one year subs. We'd probably need about -- to keep it flat with what Dell did this year, probably about 20% range.

Okay. And that concludes the incremental business, not just the renewal?

That's right. So combined of the continuing program and renewals, you'd only need about 20% renewal rates in order to keep that flat around, say, the C$10 million mark.

And Rob, on the consumer side, if we were to take out the Dell bundle, which is broken out in the MD&A, it looks like the balance of consumer is kind of around C$6 million a year. I guess that's kind of everything else other than the Dell bundle. I mean, is that the key growth driver into next year on the consumer side?

Yes, I would say you kind of -- that would be our baseline, if you will. So that was with CompUSA troubles we had, Best Buy Canada, Geek Squad had some good stuff going there -- Apple with [Semantic] Apple bundle in Q1 last year. I think you'll see that bundle again this year. So we have all of those programs minus CompUSA. And CompUSA started having troubles already by our Q2, right?

So basically we've got that C$6 million, if you will, we should be able to reproduce in fiscal 2009. Plus the other C$10 million from Dell, if you will, gets us -- not from Dell specifically, but from the renewals on those one-year ones, plus the new business; you're basically starting at C$0. And any new stuff we add with Future Shop, with Costco.com, with -- if we can get Best Buy US, and Wal-Marts or et cetera, that we've all been working on, all of that's added to business then for fiscal '09.

Right. And just on the -- you mentioned the new business on the Dell bundle side. You said for the year in the MD&A that it was about or the equivalent of about C$10 million in sales contracts. What is the -- and that has dropped off recently -- what is the run rate currently and what do you expect it -- I mean, do you expect it to get back to that C$10 million a year?

The current -- well, I mean, you saw in our Q4, consumer was about C$2.5 million for the quarter, right? And you still have Dell around half of that on the consumer side in that segment in Q4. So I would expect to see both pieces grow in Q1.

Okay. And that growth in the Dell is driven by the arrangement now or is it a factory install rather than a drop in the box?

That's right. And now they have started to increase the volumes again as a result of that factory integration process being completed; plus our team that John mentioned has been working very hard to go and secure as much volume as they can with those programs. So, hence the recent addition or re-introduction of that free year with all XPS units over a certain price points.

Right. Okay. No, that's very helpful. And just on the -- again, Rob, on the tax rate, just sort of remind us or refresh us as to when you expect to be paying cash taxes and what sort of level?

Yes, good question, Scott. You'll notice, of course, in the results we did record a credit to our operating expenses and an offsetting debit to income tax expenses to reflect the investment tax credits that we're now able to utilize in Canada. And I'd expect to see some more of that coming.

But in fiscal 2009, I would expect to pay much, if anything, in the way of cash taxes. However, we would be accruing taxes likely in the range of C$1 million to maximum C$2 million, probably more in the range of C$1 million in fiscal 2009 that would get paid out in fiscal 2010.

Okay. And that will show up at least on the income statement as a provision?

It will show up as a provision. It might be sitting in liabilities, it depends on whether or not we've got other tax assets to record to offset it. But yes, it could show up in the P&L.

Okay. Thanks. That's it. Thank you.

Katherine Egbert, Jefferies.

Just a couple quick ones. I just wanted to confirm that it's only headcount that's driving down the cash margin in the next quarter? That's the only thing there?

Well, in the fourth quarter, the reduction was -- there's a couple of components. One is the large receivables balance we had at the end of the quarter. And again that's more of a timing and sales issue. But also we did increase our headcount spend as well as some marketing dollars on branding exercises we've been doing and other things that we've been endeavoring to do, so that we can take advantage, I think, of the air cover, if you will, around the anti-theft category that we expect to be coming.

So we started to invest a little more on that side. But yes, headcount is the primary driver. And for fiscal 2009, we have guided to 35% to 40% cash margin range, reflecting 60% of our costs are headcount. So that will be, again, the biggest driver. But some of the other drivers will be marketing and promotion around our international expansion. Our deterrents capability worldwide; supporting the white label program worldwide with that expansion. And then you noticed increased marketing awareness in North America as well.

Okay. And then on the cash flow, you had a large number this quarter, which was great. Was there any change in average contract life? And then also with the large receivable balance at the end of the quarter, can we expect cash flow to be up again?

Yes, the average contract life has remained fairly steady, around 30 months. No real change there. In terms of the receivable balances, we would expect to collect most of that outstanding balance in our first quarter here, which, yes, would result in our cash flow increasing over the C$5.4 million you saw in Q4. Return that to growth for sure.

Thanks, Rob. Good job.

(OPERATOR INSTRUCTIONS). Madhu Kodali, Fertilemind Capital.

Congratulations on another outstanding quarter year. Rob was talking about Dell contribution and I think it was Scott Penner who was asking the question. Rob, did you say C$2.5 million in contracts out of the C$21 million you said consumer -- this last quarter?

That's correct, about around the C$2.5 million mark in our fourth quarter.

Okay. And half of that is Dell?

Roughly half would be Dell, yes.

Right. Could you tell me what the total contribution from Dell is for the year entirely? Is it still the C$10 million you guys talked about?

The total contribution from the consumer program with Dell was about 14% of sales. So yes, that is about C$10 million. That's on the consumer side. Of course, we do other business through Dell on the commercial side like we do with all of the OEMs. And that business we consider to be our traditional sold business, if you will, where it's our sales reps that out there are working alongside of Dell and the other OEMs to bring the business through. So you couple that in and Dell continues to be a significant portion over all of our total sales -- our largest distribution channel, if you will.

Right. And besides what you have already announced with Fujitsu and HP bundling programs, are you currently working with any other OEM partners for bundling programs?

Well, we certainly are, but we can't elaborate on those. But we certainly are.

Okay. All right, John, one quick question on the Gobe platform. Is that mutually exclusive off what Intel is doing? Or do you expect both to be on the same platform in certain instances?

It's mutually exclusive except you can certainly have a Gobe chip set operating on, as an example, an HP notebook with an Intel Montevina chip set also running. So, yes, you could deliver an Intel anti-theft service through Absolute in real-time triggered by the Gobe cellular module, yes.

Sure. Okay. On the real-time feature, one of the drawbacks I think in general with (inaudible) has been at least from an investor's view, at least for the data delete part, is that the next time -- you have to wait until the next time the computer connects to the Internet. But this real-time feature, do you think that problem is pretty much resolved? Or do you need to still have the computer up and running to actually implement the data delete functionality?

Well, the computer has to be up and running [if you just want a] data delete functionality. But of course in real-time, you have a chance to implement that functionality as soon as the computer is on and operating.

Right. I would say that it significantly reduces the window. And before, we'd have to wait for a call so the machine could be on long before we ever got a call because it may not be on the Internet. Now we don't have to worry about the aspect. We can -- as soon as it's powered on, we can call it immediately. And in fact, we are calling it continuously in the queue. So as soon as it's powered on, we're there with our data delete command and starting our theft recovery services on the fly. Going the next level of being able to wake the machine when it's off, that's certainly on the roadmap for the future, but requires some of our partners to work together with us as well.

Right. Okay. On the -- could you talk about the mobile Windows platform roll-out? How that is working and what the plans are in terms of rolling out the same thing for other operating systems, Symbian and iPhone kind of platforms?

Certainly. So, our first focus is just our existing customer base that obviously is tracking their notebook assets through our Absolute -- the Computrace customer center and adding the Windows mobile capability there. So it is really just being able to inventory all A and individual users assets through one window, which is quite important and interesting to customers.

Then of course, the data delete functionality and be able to trigger that in an organized manner through one console, organized in a secure manner, is very appealing.

So that's our first roll-out. And then we are obviously pushing hard with handset vendors to be adopted in their RAMs. We are also focused on adding a good, better, best strategy there. So having the basic product has been rolled out now, improving the -- we're adding additional service levels for customers so that we can do more to help protect their devices and give them better assurance and up time with their handsets.

And then we will be rolling out other operating system functionality, probably another full operating system functionality within the end of the year. And I can't tell you which one it is, but a very important one, and then we will continue to go forward.

With Apple, there is some required -- you know, Apple doesn't have really full support yet for software vendors like us that need to have a level of support that can terminate but stay resident, if you will.

Gabriel Leung, Paradigm Capital.

Thanks. Just two quick things. Rob, did you provide the Q4 average selling price and the average contract terms? I might have missed that.

Yes, I believe we recorded -- we've shown that in our back half of our MD&A. Having a quick scan here -- I'm pretty sure it's in there. But if not, see me again, we'll let you know what those are.

That's fine. And John, I'm not sure if you had any early data points from what you're seeing yourself or what your OEM partners are seeing on this year's back to school selling season versus maybe previous years? Any interesting revelations there?

I think it's business as usual for Absolute. I mean, we're seeing steady but growth business in our K-12 market. We have a lot of very loyal customers there that are continuing to expand their populations. We have, I believe, 16 out of the top 25 school districts in the United States as customers that are continuing to expand, renewal, renew their populations. So that's just continuing to grow for us. So I think it's pretty much business as usual in the K-12 category.

Okay, that's great. Thanks.

Hey, Gabe, before you go, so just so we have it all here -- I went online -- the average price in Q4 [lighted] with bundles, et cetera, was C$30.77 and US$30.41 and the average term was about 31 months.

(OPERATOR INSTRUCTIONS). Shao Wang, Lotus Investment.

A couple of things. Anything new on the competitive front? Specific to tech and/or Storage Tech's [black] (inaudible) product but also broadly if you have any comment?

Separately, any updates on the litigation side?

And finally, I can't remember, Rob, did you give a headcount target for the end of FY '09? I missed it, if you did. If not, if you could tell me what it is again. And also, do you have a CapEx target for FY '09? Thank you.

On the competition front, again, we have not seen the Ptech service in the market to date. So that is not an issue for us whatsoever. And again, we believe that we are -- we have the proven track record. We have the recovery organization. We have a sales and marketing infrastructure organization. We have global customer service now. We have deep relationships with the OEMs across the board. We have our RAM bias component is distributed on almost 100 million machines now. And we have complete confidence that our business will continue as it is today with or without Phoenix entering into the market. So that's really not been an issue for us whatsoever.

In terms of litigation against Stealth Signals, that was purchased by Phoenix, we're still waiting for the judge in Houston to adopt the special master's report, which we expect them to do. We just don't have a timeline on that. I believe he's got a busy, busy schedule down in Texas. So we're just waiting to hear from the court and I'm sure we will at some point in time.

In terms of headcount, I'll turn it over to Rob.

Yes, headcount in '09, we're -- we'll be up over 300 people. We're probably average for the year around 320 range. And in terms of CapEx, about the C$2.5 million range is what we're budgeting for next year. Part of the increase is international expansion efforts, et cetera.

Got it. Thank you.

Mr. Livingston, there are no further questions at this time. Please continue.

Okay, well, thank you, Operator. Once again, thank you everyone for taking the time to participate in today's call and we look forward to updating you in the coming quarters.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. You may now disconnect your lines.