Absolute Software Corp (ABST) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Absolute Software Corporation's second-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 discussions may contain forward-looking statements and 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 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, February 3, 2009, at 8.30 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.

Good morning, everyone, and thank you for joining us to discuss our second-quarter and year-to-date fiscal 2009 results. If you have not already seen it, today's Q2 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 will begin today's call with a review of our quarterly and year-to-date activity. Rob will then review our financial results, after which I will provide some closing comments before opening the call up to questions.

Financial outlook for the balance of this year. As we indicated in our press release today, it is a tough business climate out there, but our business is healthy and our strategic growth prospects have never been better.

However, in the short term, as a result of the challenging business environment and our continued balanced investment in the business, we are revising our sales contract outlook for fiscal 2009 to CAD70 million to CAD75 million and our cash from operations target to CAD16 million to CAD18 million for the year. This reduced cash flow reflects investments we intend to make in order to expand our sales capability, product portfolio, international presence, and worldwide support infrastructure. We believe this expanded capability will further extend our leadership position in the industry.

Second-quarter and year-to-date results. Sales contracts for Q2 were CAD16.5 million, up 10% compared to CAD15 million in Q2 last year. Year-to-date, sales contracts were down 3% to CAD34.7 million.

Cash from operations were CAD3.1 million for the quarter, compared to CAD9.1 million same quarter last year. Year-to-date, cash from operations was CAD12.2 million, compared to CAD18 million last year.

Subscribers. We now have more than 4 million subscribers under management, up from 2.5 million subscribers a year ago.

Product and partner update. During the quarter, Lenovo, Intel, and Absolute rolled out the first notebooks to ship with support for Intel's antitheft protection program. Absolute added embedded firmware support for ASUS. Absolute completed its beta of Computrace Mobile for the BlackBerry platform, with general availability coming soon. This new BlackBerry solution will deliver asset management, data protection, and geolocation for BlackBerrys.

Yesterday, Absolute announced Computrace geolocation, which supports GPS and Google maps, to give customers a real-time mapping view of their laptop population. If a computer goes missing, GPS tracking information may also help expedite the recovery process.

Finally, this morning, we announced Computrace LoJack for Laptops is now available in 1,010 US Best Buy stores and online at bestbuy.com.

Market vertical update. Year-to-date, sales are up in our healthcare and international verticals, but are flat in our education and corporate verticals. Government vertical sales declined by CAD1 million largely due to the fact that we have not had any large orders this year.

Looking forward, with the expected federal government stimulus spending, it is possible we will see a turnaround in this government vertical. The stimulus may also increase sales in our healthcare and education segments. For example, the Obama administration is proposing at least $20 billion for modernizing school classrooms, including providing new computers and installing networks.

Consumer vertical. For the first half of the year, consumer vertical sales are down CAD3.5 million or 37%. This is primarily due to the decline in bundled sales with our largest PC OEM partner. But looking ahead, we are executing on a number of strategies to return consumer to growth, such as today's Best Buy announcement.

International. On the international front, we continue to build awareness and expand our overseas footprint in both EMEA and A-Pac. We see significant opportunity in these markets and will continue to invest in sales and marketing and personnel to support our global effort.

We believe our security tracking solutions are a must-have in this increasingly mobile world. We are continuing to roll out features, products, and worldwide programs to execute on this exciting long-term market opportunity. At this point, I will turn it over to Rob for a closer look at the financials. Rob?

Thanks, John. Good morning and thank you all for joining us today. As noted earlier, we have revised our guidance for this year to sales contracts of CAD70 million to CAD75 million and cash from operations of CAD16 million to CAD18 million. As a software-as-a-service business, we consider these to be our key performance metrics.

The reduced cash flow guidance reflects our decision to maintain an ongoing investment in the business. We believe this to be prudent and expect it to position us for growth when the economy rebounds.

Current period cash from operations was CAD12.2 million year-to-date, compared to CAD18 million in the same period last year. The reduced cash flow is the net impact of our investment in the business; reduced sales contract performance; and an increase in deferred revenue adjustments from prior period sales.

Turning to sales contract performance, we reported a 3% reduction in year-to-date sales or a 12% reduction in US dollar terms. The decline is largely driven by the current economic climate in which both consumer and commercial customers have reined in spending.

Revenue increased 53% year-to-date primarily due to sales contract growth from the last three fiscal years. As a percentage of sales contracts, revenue was 73% compared to 46% in the first half of last year.

This is a key element of our business model. In the long term, we expect our revenue to align with sales contracts and our net profit to align with cash flow.

From a cost perspective, we have increased our investment in two key areas -- sales and marketing, and research and development.

Sales and marketing expenses are up 81% over last year. As a percentage of sales contracts, they have climbed to 40% compared to an average of 25% over the past three years. This reflects efforts to stimulate demand, to establish new worldwide distribution channels, and to ensure that we have the resources in the right places to convert on this worldwide opportunity.

Likewise, we have increased research and development expenses by 86% over last year. As a percentage of sales contracts, they were at 11% compared to an average of 8% over the last three years. We are continuing to add key mobile and data protection features in order to increase the value to our customers; are adding support for new devices like smartphones and netbooks; and are investing in our global expansion infrastructure.

Turning to our loss from operations before stock-based compensation and investment tax credits, we reported a loss of CAD2.8 million for the first half of fiscal 2009 compared to CAD1.9 million last year. The increase is primarily due to foreign exchange, as revenue is recorded at historic exchange rates while expenses are recorded at current exchange rates. With over 95% of our sales and about 50% of our costs in US dollars, this can have a material impact on operating results.

In Q2 2009, the rapid appreciation of the US dollar increased operating expenses by approximately CAD1.3 million. Excluding this impact, the net loss would have been CAD1.5 million or approximately CAD400,000 less than last year.

From a balance sheet perspective, we have ample resources to support our growth plans and manage through this difficult economic period. At December 31, 2008, our cash, cash equivalents, and investments were at CAD71.9 million compared to CAD72.8 million at December 30 and CAD64 million at June 30, 2008.

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

Thanks, Rob. To echo Rob's sentiment, we believe our long-term growth prospects are improving in step with accelerating adoption of mobile computing devices and the security risk these computing devices create. Traditional security measures alone are not up to the task to address these security risks, a fact that was highlighted in the Ponemon Institute Survey findings that we announced last month.

Furthermore, the need to protect laptops and data was demonstrated by the VA, Department of Veteran Affairs, recently -- the recent agreement to pay $20 million in settlements to veterans for potentially exposing them to a possible identity theft. The decision stems from the 2006 loss of just two laptops.

We believe our persistent device and data solutions are uniquely positioned to solve the asset and data theft problem. No one else in the market comes close to offering the comprehensive theft recovery services and remote data protection services that we can deploy through our unique software-as-a-service technology platform and Theft Recovery Team. This remains a significant competitive advantage for Absolute.

While we are working through a tough growth patch, the business remains healthy, and we are sticking to our strategies to grow the business. We intend to continue a balanced investment in our products, people, infrastructure, partners, and customers in order to capitalize on both our near-term and long-term growth opportunities.

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

(Operator Instructions) Tom Liston, Versant Partners.

Hi. Thank you, good morning. First question, just on the guidance. The sales contract figures look in line given the data points in the industry out there; but the cash flow certainly came down, I think more than most of us would have expected. If you look at the revenue line items, it came down around CAD13-ish million on average; and the cash flow came down around CAD13 million.

So can you walk through the comment about you're investing at lower levels, given that it doesn't seem like there is much change to the cash expense plan for the year?

Yes, Tom, it's Rob here. We have certainly had plans to increase investments by a larger amount than what we are doing now, so we have been curtailing where we do additional investment and making sure that we only do what we believe to be the vital investments at this time.

There is a lot more that we would like to do; and as the market rebounds, then perhaps we will be able to do those. But in the meantime, we're making sure just the crucial ones.

As you know, in October, we also did a small reduction in force. That was part and parcel of making sure we had the resources to allocate to where we believe the highest opportunities are.

If we look at it another way, maybe, obviously sales and marketing is up substantially year-over-year. I understand the R&D part. But sales productivity has obviously dropped a material amount.

So why are we adding sales resources if you have what looks like a fair bit of capacity out there, given the amount you've expended year over year and the sales contracts flat for the first six months?

Tom, that's a good question. We are adding it because we still believe that even in this tough environment that there is a lot of business out there to go get.

I know we didn't demonstrate that this quarter. But there is a lot of opportunity there in the US market still for us. We have a very unique value proposition and we just need to stick and stay on course with our business and continue to support the initiatives that we have in place.

With the Intel antitheft initiative, that is very important to us; we need to support that worldwide. We have the Dell ProSupport initiative which is important to us, the HP Care Pack initiatives which are important to us, and all the business that we generate with our OEM partners.

So we need to continue to drive forward with the infrastructure that we have, and that is what we are committed to doing. We believe that as the economy does turn around -- and now, that may take several quarters -- but we will be very well positioned to increase our -- and grow the Company at that point in time.

Okay. Finally, it was Fujitsu, I guess, had an announcement out today, a couple things, talking about mobile, high-speed. Could you comment around if you see the early signs of maybe attach rate increasing there?

The second part of the question, with the rapid rise of netbooks, how do you address that market?

With netbooks, we are putting together a special program and offer with our partners for the netbook market. It's a very exciting market, as you point out. We are seeing some really solid growth numbers there in the netbook market.

Obviously, a key product for the education market, and our education customers are very keen to be able to track and recover the netbook assets. So that is very positive for us.

On the Fujitsu piece, we haven't seen any particular impact that I can point to on that side yet, based on the announcement that came out this morning.

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

Thanos Moschopoulos, BMO Capital Markets.

Hi, good morning. There is obviously a lot of uncertainty in the current economic climate. Some companies, like Microsoft, that used to provide guidance have stopped doing so. Just given that backdrop, can you speak to the level of confidence you have in the updated guidance you provided? What visibility you might have in that.

And in the context of that, what the contracts up for expiry look like over the next couple quarters.

It's Rob here. I am looking at the guidance figures for sales in particular, where most of the uncertainty would be. We certainly have done a significant amount of effort to make sure we have tried to capture the low end of where we would end up.

That implies CAD70 million would actually mean in US dollars our sales reduce over the back half of the year from what they were in the front half. But it is also taking into account that in the back -- or not taking into account therefore in the back half of the year normally we would have a 15% increase in education spending, for example; and also our general business lift in the back half on the commercial side.

So we believe we have been prudent there. We did continue to issue guidance simply because it is only six months left, or actually five months left of the year here, as opposed to a Microsoft or somebody who might have nine months or so, 10 months to go on their year.

So given the proximity to our year-end, we felt prudent to give at least some guidance for the rest of fiscal '09.

Okay. Can you talk about what the renewal base looks like coming up over the next two quarters?

Certainly. First of all, on the commercial side of the house, I think we have in our MD&A there's 297,000 subs coming up for renewal in the back half, versus 204,000 commercial subs that came up in the first half.

On the consumer side of the business, we are looking at 290,000 subs in the back half of the year coming up for renewal.

Okay. Can you update us on what consumer renewals are looking like now that you've had the Digital River up and running for a little while?

We are still working through that, Thanos. It is in the context of a lot of those early consumer customers were customers that got the LoJack for Laptops service included with their Dell CompleteCare subscription or their Dell XPS notebook.

So some of those customers have registered and are renewing. Some of those customers may not have realized they actually have the service and didn't register. So you get various degrees of renewal opportunity there.

Having said that, I can say that the Digital River experience is actually working out fairly well for us, and we certainly are seeing a much greater success and close rate once the customer comes into the shopping cart. Those rates have gone up in terms of our ability to move them through the shopping cart process and actually close the customer and provide service to them.

So, I think we are able to give our customers a better eCommerce experience, and we will keep you posted as we learn more about that process.

Okay. As far as the Best Buy announcement today, does that include any presence with their tech bench offering, as you have in Canada? Or is it for the time being just shelf space we are talking about?

For the time being, this is just shelf space. But it's typically -- Mark Grace, who runs our consumer team, I think has done a very good job of ensuring that we are not just going to be a software product on the shelf. We are either going to be positioned as endcap with visibility to notebooks, or we are actually in position right with the notebooks, which is important.

So we are working closely with Best Buy to make sure that our unique antitheft and computer theft protection service is properly positioned relative to the physical device. So when somebody is buying a new notebook, they are going to be aware of the product and service.

And also different SPFs and promotional programs going through the Best Buy stores to ensure that the sales reps are properly trained and recommending the service to customers as they buy their new laptop, a very important piece of it.

Okay. To be clear, when is that rolling out? Is that in effect as of now? Or is that over the next month or two that you are rolling out across the stores?

No, we are actually up and running in the stores today. So we encourage all listeners to go out and buy at least a three-year subscription of LoJack for Laptops.

Okay, thanks, John. I will pass the line.

Scott Penner, TD Newcrest.

Thanks. Rob, can you just confirm a couple numbers for me to start here? It would appear going through the MD&A and the last quarter's call, that there was about 99,000 commercial expiries in the quarter, up for renewal in the quarter, and 170,000 consumer, which would be about 270,000 for the quarter.

Yes, that is in the range. Yes.

Okay. Which would imply about, I guess, 470,000 new subscriptions for the quarter or an ASP of about CAD35. That does seem to be up.

I guess number one, is that in the ballpark as well?

And then number two, that does seem to be up quite a bit, even given the exchange from Q1. Is that more over -- or is there anything in that? Is it a function of just the lower bundling sales?

I would say, first of all, in the MD&A we actually give the number of units and dollars sold to existing commercial customers. So if you look there you will see the actual ASP on that segment of the business.

We haven't given it on the new business, so that would include consumer and commercial. There has been a change in mix on some of those. The average contract term has dropped down a little bit as a result of the consumer bundles, for example.

But overall, there is, I would say on the quarter, for the most part there wasn't really much in the way of a drop in our ASPs.

Okay. But the 470,000 new subscriptions is, I guess, just by the math, that would work out to be about what it is?

Yes, you are just off a little bit. If you go and look at how many subs were sold to existing commercial customers in that section of the MD&A, you will be able to back into that.

Right, okay. Now just to look at that ASP on the renewal business, because I would assume that is probably a better indication of pricing, it looks to be about CAD49 Canadian for both Q1 and Q2. Is there much of a change there?

I mean, assuming the exchange rate, you would have expected a bit of a bump, perhaps, Q1 to Q2. Has there been any pricing pressure or any further comment there?

No. Year-to-date in FX we have been performing quite well. First half of this fiscal year in US dollar terms it is actually up about $3 a unit. So that is actually up, call it 5%.

So yes -- no, those have trended as per usual. It is, again, and I think that if you look, 65% of our business was from existing commercial customers, so we've had fewer new adds in the quarter. Right?

Right.

Year-to-date. So I mean that is really where the pressure has come. I think that is part and parcel of the economy at large. Just people delaying their purchase decisions and certainly holding off on new initiatives.

Now the new business, I guess new sales to existing commercial customers, looks to be -- or new sales to new customers looks to be about CAD5 million year-to-date.

Is a CAD10 million annualized number a good estimate? Does the pipeline indicate that that number in the back half should be stronger than the first half?

Well, I mean that is anybody's guess. CAD10 million is 20% below what it was last year.

Right.

So, of course, we wouldn't be happy with that; but you have seen across the board major organizations like Intel having 20% declines in the year. So that wouldn't be outside of the realm of reasonability.

Okay. Then on the consumer business, looking back to last quarter, 93,000 subs up for renewal and CAD3.6 million of business in the consumer side. This quarter was CAD3.2 million with 170,000 consumer subs up for renewal.

So is there any comments about whether that renewal business is -- it just appears not to jive given the big bump in the numbers that were available for renewal this quarter.

It's not really so much based on the renewal side of the business from my perspective. I think it is more based on the fact that what we had was -- we had a very large deal with our OEM partner that had a reasonable gross margin involved. And then that deal was renegotiated downwards in terms of the margin.

There is very little margin on it now, but increased units. However, the unit increase was not enough to offset the margin that we no longer have. So that is more what you are seeing in that.

So what the consumer team has been very busy doing is diversifying our consumer business across a lot more distribution channels, so to take the weight and the emphasis off that one deal that we had, that we announced almost a year and a half ago.

So that is what you are seeing, is you are seeing a movement away from that one, depending on that one deal, to really a more stable and well-diversified consumer business. We are certainly making a lot of progress towards getting there, even though I know it is painful in terms of that lucrative business that we lost.

Okay, thanks for that. Then just lastly, John, stepping back a little, the international market still seems to be a huge opportunity. Can you give us some idea of, I guess, the relative traction in the white-label deal?

Then when you talk about investment, on the international side, is it investment in supporting deals like this? Should we expect other deals like this from other OEMs? Or is it in putting direct sales people on the ground?

Well, we are doing both. We need to have international support for sales, service, engineering -- OEM support. So it's a combination of all of those factors.

In EMEA we have about 12 people. We are opening up a small call center there to do direct inside sales support.

Again, it is the same model as North America. We have inside component and outside component. Their job is really to support the OEMs' sales organization, to pull the deals in and pull them through and then feed them back to the OEM community that we work with.

So same model; but we need recovery personnel, we need services, support personnel, multilingual of course. So it is an investment.

However, we are very lucky to have the Intel opportunity that we are supporting and the Dell ProSupport offering that we are supporting, and an HP Care Pack support offering to support that offering as well.

So we've got lots of help from players much bigger than us. Our job is on the ground to make sure it all comes together, and that is what we have to continue to invest in.

And really the time is now to do that, so we have committed to that. We have committed to our partners, and we're maintaining the course there.

Great. Thanks, guys.

Glenn Jamieson, Macquarie Capital Markets.

Thanks. John, can you just touch more on the PC OEM channels, which are very important for you, as you are seeing? Can you remind us on what proportion of your sales and marketing team are directly focused on supporting those distribution channels?

Then does this environment create any opportunities for you, or is it just challenges, in terms of expanding what you are doing through those channels?

Sure, Glenn. So the way that our business works is we have approximately 80 people in the sales organization. That includes channel sales people and business development people.

The majority of their focus -- actually probably 80%, I believe; what is it, 90%, Rob, now of our sales comes through our OEM partners? Is focused on selling through the partnerships, which means working very closely with the OEM sales organizations, with their marketing organizations.

And also we do a lot of marketing and sales ourselves directly out to customers, but we pull everything through the channel to ensure that the channel gets rewarded for the efforts that they make towards our business.

So that is the model. It is a channel-assisted sale, if you will. And that has worked for us to date and we are continuing with that program.

Are there opportunities to kind of enhance what you are doing with the OEMs now that it's harder to generate any kind of incremental sales and you offer some margin to your channel partners?

Or does the uncertainty that is out there just create logistical problems for you in terms of trying to push ahead sales?

No, you know, Glenn, we believe that our longer term, our midterm growth prospects, strategic growth prospects are better than they have ever been. There's some fantastic opportunities for the business out there. That is what keeps us excited and motivated across the OEMs.

So I think the one thing that we have determined is we have a very unique business. This embedded tracking system, the software-as-a-service platform, the unique recovery angle, the ability to provide auditing and remote data protection functionality is very, very unique in the ecosystem that we play in.

So we are continuing to explore that position that we have technically, to see how we can add more value to the OEMs and really help them drive their services programs that they are launching.

That is really very, very important. And then of course, have the whole sales and marketing side as a catalyst to drive the demand for the products and services that we come up with.

So it's a good formula. I think it has served us well to date and will continue to serve us well into the future.

Just a final question on this point. Are the OEMs more receptive now to you providing that type of service to them? Or is there greater demand to differentiate themselves based on what you can bring to the table?

I think there is, Glenn. I think when you consider that obviously the price of hardware continues to come down, so the margins on hardware continue to get squeezed, and I think a bright spot for a lot of our OEM partners is the services side of the business.

And that is what we do. We help OEMs implement the services side of their business in terms of their remote services piece.

So it is a very exciting area that we play in. As I mentioned, we are very unique in the way that we go to market and the way that we deliver the actual service and enable the technology in this software-as-a-service model. So that an OEM can literally sell a SKU of theft recovery or a SKU of data protection or a SKU of asset management just like they would sell a mouse or a keyboard. So it fits in very, very well with their go-to-market.

Okay, thanks. Just one other question. Your share buyback was active in the quarter. I think you bought just over 700,000 shares; it looks like an average price of just under CAD3. Is there any reason for you to change your appetite for your stock?

No, Glenn. Good question. We actually had an automatic plan in place during the last month and a half as well, so we have now purchased just under 1.1 million shares in total for around CAD3.2 million.

We are continuing with that program, so there is no reason for us to curtail that at this point.

Okay, thank you.

Pardeep Sangha, PI Financial.

Thank you. Just a couple questions on the cost side. In sales and marketing is where the most significant cost increases have happened over the last year or so. Going forward, can we kind of expect the sales and marketing to sort of level off at these kinds of levels for the rest of the year?

I think you are going to see the expenses in the front half be consistent with the expenses in the back half, Pardeep.

So you are expecting kind of consistent levels to where they are right now?

Yes, we may have some slight growth, but basically it is consistent levels to what we had in the first half of the year.

Okay. What is your headcount at the end of the quarter? And how many people were -- did you decrease your headcount by during the quarter?

We were at 272 at the end of this quarter; and last quarter, I believe, it was 275 or 277, around there. So net decrease was only a couple of heads, as we did continue to add people in the organization.

Okay, so you had reductions, but then you added as well?

Yes.

In different areas, that's right.

Okay. Any update in terms of Stealth Signal?

No, we're waiting for the Special Master to finish his claim construction report. As you know, the Special Master released the first round of comments.

A year ago.

About a year ago, and both sides had some requests for the Special Master to consider. The Special Master has gone to consider those requests and should be returning with an updated document whenever he does. We have no idea on the timeline.

Okay. Any sort of color you -- my last question is related to any color you want to do with regards to competitive landscape and how -- whether or not this current environment is helping you guys or not helping you guys from a competitive kind of landscape.

I think it would be a very difficult time for a competitor to come into the business. It's a tough market out there obviously to generate sales. So that would make it even more difficult for somebody that didn't have a business to come into this business. So I will just leave it at that.

We don't see any competitors in the market that we actually compete with on a regular basis, so that is about where that stands.

Okay, thanks.

(Operator Instructions)[Jeffrey Keane], William Blair.

Hey, guys. I was wondering if you could talk about linearity within the quarter.

Yes, we had -- distribution was a little bit different from normal. We had 32 -- let's see, 56% of the business came in the first two months; 44% in the month of December, whereas last year, we actually had 51% in the month of December.

Indeed, we saw December finish about CAD1.6 million less than it was in Q2 last year. So certainly the end-of-quarter push was not as significant as we normally would have expected.

Then as far as January so far, has the weakness continued through the January period as well?

January has been pretty much in line with -- on the commercial side of the business, it has been in line with January of last year. Consumer we will be awaiting our reports that come next week, so we don't know exactly where we are at. But certainly, it is more in line with Q2 than Q3 last year at this point.

Great. Could you guys also comment on your thoughts around uses of cash besides stock repurchases?

Well, we don't have any plans for other uses other than stock repurchases at this time and just running the business.

Okay, thanks, guys.

Gabriel Leung, Paradigm Capital.

Hi, just got a couple of housekeeping questions here. First, just on the increase in the bad debt allowance. Where did that hit on the P&L?

The bad debt? It would hit in G&A for the P&L portion, but most of it is actually balance sheet related, so it debits sales to deferred revenue and credit receivables.

Right, so how much of it hit the G&A this quarter?

Negligible.

Negligible? Okay, fair enough. I did notice that G&A was up a little bit sequentially. Anything in there other than just increase in operating costs, I guess?

You know, we did have some increased legal fees and things as well this quarter, outside of our severance-related ones. That is really -- the most meaningful area for us this quarter was on the legal side of the house.

Okay. Then just lastly on the stock-based compensation line, excluding the one-time charge this quarter, what do you expect stock-based comp expense to sort of be over the course of '09?

I don't have that number for you handy right now, Gabe. It was tracking CAD1.5 million per quarter, so it probably will be about half that.

Okay, great. Thanks, guys.

Rob Owens, Pacific Crest.

Yes, good morning, guys. Could you give us some of your thoughts on pricing moving forward? You talked about pricing in the quarter. But with the price of hardware dropping as rapidly as it is, are you getting any pushback on your list price or actual price you are getting for your products on the corporate side? And some thoughts on consumer there as well.

We're not getting any pushback on pricing. I think in conjunction with obviously hardware, hardware is falling, but the perceived value of the information is increasing. So we have been able to maintain our prices, Rob. Really for the last eight years we have never decreased price, so that is maintaining solid.

I think where you see a new offering emerging is for netbooks, where we will have to have a unique price point for netbooks. But that will also have a slightly slimmer feature set as well.

Okay. Then second if you could talk about the pipeline, are you seeing any slippage in your close rates? Are you seeing fewer opportunities? Given your sales model and the fact you go through OEM, are you close enough to understand potentially what some of the delays are out there?

Yes, Rob, I mean, basically the pipeline still remains quite robust. We still are grateful to have a fantastic sales team that is out there working in the field with the OEMs, and they do get a lot of insight into this.

Certainly, we have seen customers delay or get refreshes. They have been delaying some refreshes. They have certainly been pushing some new purchases out.

We are tied to the new notebooks that they do. So if we go into a normal customer and they put us onto a refresh, as they did last year, got us onto 10% of their population, say; and we'd be expecting another one-third of their population to come up for renewal this year, and we would get on those new units.

Those new purchases aren't really happening as regular as they were in the past. So we have certainly seen that.

We have seen some reluctance to -- especially on the large deal size, where people are definitely reluctant to go out in the line on a large purchase. Some of the smaller deals are certainly flowing through as normal.

The one thing we can look at, if you look at our commercial sales alone in US dollar terms for the quarter, for example, they were actually down only 1% over the Q2 of last year. So the commercial team is basically doing pretty much what they are supposed to. And interestingly, the team hasn't really increased that much on that side of the house.

So we are happy with what we have seen there relative to the market, if you will.

Great, thank you.

Madhu Kodali, Fertilemind Capital.

Hi, guys. I was wondering if you could talk about the top two or three customers, or 10% plus, or -- and what they have done now, and what do you see as a current run rate going forward?

We only have one customer, Madhu, that is over 10%, and that would be a large OEM partner that we do business with on the consumer side of our business and the bundled business. That, we know that business has been down for us over the last year and a half.

We are diversifying away from that decrease into some additional and more traditional consumer outlets with new consumer initiatives. So we are trying to mitigate that particular revenue source, if you will.

Having said that, that is still an important revenue source, and we anticipate it continuing to move forward. It is important for us. We just want to add a number of other opportunities to the funnel so that we can broaden our consumer sales base.

The consumer team, it is an excellent team. It's a world-class organization on the consumer side. I have every confidence that that business will be fully diversified and growing within a few quarters.

What revenue did you get, do you think, from this OEM customer last quarter? And what do you see for the year?

In the MD&A, we indicated we did 11% of sales year-to-date are from that particular program; and it is down roughly $3 million from the first half of last year in US dollar terms.

Our consumer business overall is down $3.5 million in US dollar terms, so almost all of that drop in consumer business that you see this quarter is strictly with respect to that bundled program.

When we renegotiated that program last February, we reduced the price for it, anticipating a significant lift in the volume that was done on that program. Of course with the economic headwind, that OEM is not seeing the increases in their volume, so that has fallen through to us.

But that program is continuing at present. We still, as John said, think it is a good program for us; and we are also looking to expand that internationally as well. So more to come on that in the future, but certainly a good one for us.

Are you, John, disappointed with that program after the white-label, moving into the white-label program? That it didn't give you the lift that you expected?

I mean I don't think we are disappointed. You know, you take your wins where you can; and where you can't you try to improve them and turn them around. So we've seen -- the white-label program that we are involved with and is a good program; it is providing us international expansion opportunity.

We have actually seen, when we add our brand to these things, typically the sales opportunities go up because Absolute's got such a good reputation in the theft recovery and remote data protection business. So it is actually better for both partners to do a cobranded solution with Absolute because of our leadership in the market.

That is what we encourage going forward. I think that is what we have learned is -- great, we're happy to do that kind of program; but if you want it to be successful, it actually works better to do a cobranded solution.

But it is a -- there is a lot of good opportunities out there with our OEM partners domestically and internationally, and we are just going to continue to drive them. We are going to continue to drive this very unique position we have in the firmware, the computer, and the ability for us to provide these data protection services on the notebook. And I think the business will grow out of this temporary economic recession we find ourselves in.

Do you have any bundling programs now in works in Europe or elsewhere outside of US?

No, we don't today, but we certainly have opportunities to do that. The one caveat is of course we do have the white-label program; and we also have another OEM that we are looking forward to working with internationally in a quasi-bundled situation.

So those are the two that we have today, and then we have opportunities with others going forward.

Okay. One other question on the -- cellular service providers seem to be expanding their subsidized laptop programs across globally, I guess, in Europe, in Japan and DTT DOCOMO does it. In US also I think some of them started doing it, like giving away a laptop for a dollar and charging them on a monthly subscription just like a phone service.

I was wondering if you guys ever thought about talking to cellular providers? Have you done it? Do you see that as an opportunity with the increase in mobile broadband?

We do see an opportunity there, and we are having a discussion with one of those players. We see that as an exciting opportunity, particularly in the netbook context as well, where the cost of the hardware is almost insignificant. It literally is the cost of a phone, so the phone model makes a lot of sense in that environment. And we have a partner that we are talking to and making progress with.

Okay, it looks like in Europe they already have over 20 million laptop or 3G card subscribers. That is something I don't know if you have targeted that market at all.

Yes, the one conversation we are having is with a provider in Europe.

Oh, okay. Coming back to the question of competitive landscape from the previous question, somebody asked about it. I was wondering if you saw anyone in Europe or outside, and how your patents relate in those countries, if you have any open slots there where somebody can penetrate.

Sure. There's always smaller players, and what happens is when we find a player, we do have an intellectual-property licensing program that we offer folks that want to get into this type of remote monitoring business, remote PC monitoring business. So we make that program available to them, and we do that on a regular basis.

We have patents in the United States, Canada, the United Kingdom, Germany, Japan, Australia; and we have patents pending in many more jurisdictions as well. 16 issued, I believe, 14 pending. And we will continue to grow the intellectual-property base.

So we've got very good, strong coverage domestically and internationally, and we will continue to move forward with our licensing program.

Thank you, John.

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

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

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