Absolute Software Corp (ABST) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Absolute Software Corporation third-quarter results conference call. (Operator Instructions).

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 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. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time.

I would like to remind everyone that this conference call is being recorded today, Tuesday, May 5, 2009 at 8:30 AM Eastern time. I will now turn the conference over to Mr. John Livingston, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us to discuss our third-quarter and year-to-date fiscal 2009 results. If you have not already seen it, today's Q3 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 up the call for your questions.

Third-quarter and year-to-date results. While the economic environment remains challenging, we are on track with our current fiscal 2009 guidance, which is sales contracts of CAD70 million to CAD75 million and cash from operations of CAD16 million to CAD18 million. Sales contracts for the third quarter were CAD16.9 million, up 13% over CAD15 million for the same quarter last year. Year-to-date sales contracts were up 1% to CAD51.6 million. Cash from operations was CAD3.1 million for the quarter compared to CAD6.6 million last year. Year-to-date cash from operations was CAD15.3 million compared to CAD24.7 million last year.

In addition, our subscriber base is up 41% to 4.1 million subscribers from 2.9 million subscribers a year ago.

Vertical market update. Consumer. The consumer vertical has been the most challenging market vertical for Absolute. Year-to-date consumer sales are down CAD5.1 million. This is primarily due to a lower activity and lower pricing with respect to a key bundled sales program with our largest PC OEM partner. Against the backdrop of a weak economy, program volumes have not increased sufficiently to offset this. However, looking ahead we are executing on a number of strategies to return this vertical to sequential growth. Our recent announcement with McAfee and our initiative with Best Buy are examples of the new consumer programs that we have underway.

Commercial. The good news is that despite this difficult economy, our commercial sales are up over last year. We believe this is promising as commercial sales have always been the main sales driver for Absolute. Fortunately towards the end of March, we found business budgets that had been frozen over the last six months begin to thaw. It seems that certain corporate education, healthcare and government accounts are slowly able to spend again. We are hopeful that this will continue into Q4 and beyond.

International. On the international front, we continue to build awareness to expand our overseas footprint. In particular, we are seeing some exciting opportunities in Europe, South America and Australia. Our focus to date has been the commercial verticals, and we are also planning to launch our international consumer offerings this current quarter. We are fully committed to this international opportunity, and we will continue to invest in sales, marketing and support to globalize our business.

Product and partner updates. It was a busy quarter with a number of exciting products and partnerships being developed as follows. One, we added Wi-Fi geo-location capabilities to Computrace, which further supports our IP tracking, GPS and Google Mapping capability, giving customers an accurate real-time view of their laptop population. Two, we launched Computrace Mobile for the Blackberry platform, which delivers asset management data protection and geo-location tracking for the Blackberry. Three, we expanded our consumer retail presence with distribution at over 1000 Best Buy stores and online at bestbuy.com. Four, we made significant enhancements to the Absolute Customer Center related to security, management and usability features. We also increased support to 10 languages to better serve clients around the globe. Five, we increased the number of OEMs providing for more support for Computrace to 11. Six, we furthered a number of initiatives with Intel and in support of Intel's antitheft protection program.

And subsequent to the quarter-end, we announced a McAfee partnership to offer consumers our Computrace LoJack for laptops via the McAfee website, and we also launched our Computrace for Netbooks offering.

At this point I will turn it over to Rob for a closer look at the numbers. Rob?

Thanks, John. Good morning, everyone, and thank you all for joining us today. As John noted, we believe we are on track to reach our fiscal 2009 guidance for sales contract and cash from operations. As a software as a service business, we consider these to be our key performance metrics.

Sales contracts are in line with our expectations, increasing 1% for the year-to-date and 13% for the quarter relative to last year. This translates to a reduction of approximately 10% from last year in US dollar terms. However, we are encouraged by a number of positive signs within our various market segments. We have seen a rebound in our commercial sales and despite fewer large deals, we have managed to increase commercial sales in US dollars by 1% year-to-date and by 8% for the quarter compared to the same period last year.

From a commercial vertical perspective, our strongest performance has been in education and healthcare, which are up 11% and 25% respectively for the year. We believe this trend has us well-positioned heading into our fourth quarter.

In addition, our existing customer penetration ratio in Q3 was 3.1 new subs for every expiring sub expiring -- bringing our year-to-date ratio to 2.5, up from 2.2 last quarter. Hopefully this is a sign that customers are beginning to return to their traditional PC refresh cycles.

So the US dollar sales decline is isolated to our consumer vertical, which in US dollars is down 45% year-to-date and 66% for Q3 relative to last year. The good news here is that the decline is primarily due to reduced bundled sales of a particular OEM. Conversely efforts to diversify our consumer business have resulted in a 15% increase in retail sales and a 20% increase in online sales over Q3 last year.

As mentioned by John, we expect our new distribution channels of Best Buy and McAfee, along with other consumer initiatives, to further contribute to replacing the reduced bundle activities.

Cash from operations was CAD15.3 million year-to-date compared to CAD24.7 million last year. The reduction reflects increases in our spending levels in line with our growth strategy without a corresponding increase in sales contracts. We expect our cash margins to improve as the economy rebounds and our strategic initiatives begin to be reflected in sales.

Revenue increased 35% year-to-date, primarily due to sales contract growth from the last three fiscal years. As a percentage of sales contracts, revenue was 75% compared to 52% in the first nine months of the last year. This is a key element to 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 74% over last year. This reflects efforts to stimulate demand and develop global partnerships and presence. While the return on this investment has yet to be realized, we believe the increases are necessary for our long-term growth. Likewise, we have increased research and development expenses by 63% over last year. R&D initiatives are focused on globalization and on adding key mobile and data protection features in support for new devices like smartphones and netbooks.

As a result, we reported a loss from operations before stock-based compensation and investment tax credits of CAD3.9 million for the first nine months of fiscal 2009 compared to CAD2.4 million last year. From a balance sheet perspective, we have sufficient resources to support our growth plans and manage through this difficult economic period.

On March 31, 2009, our cash, cash equivalents and investments were CAD67.2 million compared to CAD71.9 million at December and CAD64 million at June 30, 2008. The current period cash balances are net of our share buyback plan, under which we have purchased 3.3 million shares for retirement at a cost of CAD10.6 million since November 2008. Most of these purchases were done in our third quarter.

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

Thanks, Rob. So to summarize, year-to-date our commercial business has been steady, and we are now heading into our seasonally strong fourth quarter. We have many exciting opportunities emerging throughout all segments of the business in both the domestic and international markets. We believe Absolute's unique computer security tracking solutions are a must have in this increasingly mobile world, and we will continue to fund the rollout of features, products and worldwide programs to execute on our significant long-term market opportunity.

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). Glenn Jamieson, Macquarie Capital Markets.

John, for you to get to your full-year sales guidance, it implies that your fourth-quarter sales are going to be up pretty sharply sequentially. I'm wondering is your expectation that is going to come again primarily from the commercial market? You said education and health has been good for you and are seasonally strong in that period, or is there going to be some assistance from the consumer business? I guess what I'm asking there is CAD1.5 million of sales in the March quarter, has that business bottomed in your view?

Well, I think it has bottomed. On the consumer side, we are pursuing this diversification strategy. We have been pursuing that for a couple of quarters now, and we have a very capable team there that is executing on that strategy, and I think we will be able to improve on what we did last quarter, and I think you will see a very strong commercial performance through the North American sales organization. And I also think we will see a strong performance from the international team. So when you add it all up, we are feeling pretty good about Q4.

And then if we go back historically, the September quarter for you has also traditionally been strong, one of the stronger quarters over the year. Are things lining up for that to be the case this year? I'm wondering if that is the case, how much of that would be day-to-day business versus some of the more strategic things you have been working on?

Well, it will always be a combination, but it will be very similar to Q4. We will expect the North American sales organization to carry most of that load, and they are very capable of doing that. And then we will have a decent contribution from consumer and from international as well.

Okay. And one last question. Your operating expense base is up about 45% year over year. So two questions there. One is, do you see that base increasing significantly in the near term, or do you have enough headcount and infrastructure to kind of drive the numbers we are talking about here?

And the second question is, what level of sales do you think that infrastructure and headcount can actually support?

Indeed, the increase in fiscal 2009 we would expect a lower on a percentage basis increase next year. We would anticipate increases, however, as we continue to roll out on our plan here. One of the key things we have been watching is to make sure that our commercial business starts returning to the type of yield that we are used to on our salespeople in terms of performance, and indeed, we started to see that happen again here, which gives us confidence to be able to add some new sales heads to help us drive the numbers. And likewise, as John mentioned on consumer, we have invested in a number of strategies and programs there that we do expect to start producing for us, and the same would go for international. I mean it is currently at about 4% of sales versus 3% of sales year-to-date last year at this point. So it has not increased significantly, but we do see some good signs on the horizon there for international and we are continuing to go down that path. So just finally I would add that there is a number of partner programs we are working on worldwide with our PC OEM partners, and we're excited about the opportunities we have to go forward with them.

And just in terms of sales dollars that you could support a year ago on a much smaller cost base, CAD70 million of sales seem to be what you were coming in at. With expenses up 40%, 45%, can you look for that kind of increase in sales, or is there greater leverage or less leverage as the Company gets bigger?

I would say it is more dependent upon the economy at this stage. We have certainly seen, as I mentioned, the yields starting to improve again on our people, and I believe we have -- in normal times we would have much more capacity with the base that we have now. It is adding new customers. For example, acquisition seems to be an area where you have got to spend a little bit more these days. The yield is not as high, and hopefully we will see that start to turn around as the economy revives.

Thanos Moschopoulos, BMO Capital Markets.

You mentioned that business conditions are beginning to thaw and that you are seeing an improvement in the yields in your sales force. Can you just comment a bit on linearity in the quarter and just expand on that point as far as what you're seeing in business conditions?

Yes, actually it really was interesting for the quarter on the commercial side of the business we did see it being ahead most of the quarter versus last year. So it was, as it turns out, fairly linear. However, the thaw really seemed to have taken place more so in March. The general sentiment out there really seemed to start to change at that point in time. As you know, a lot of our sales happened and continued to happen at the end of the quarter. And so it is pretty crucial for us that we see March being a stronger quarter, and indeed, this time that sentiment did seem to change at that point in time.

Okay. And is your sense that that trend might be continuing into April as well from what you are seeing?

Thus far.

Okay. There seems to be a sequential increase in ASPs on the subscriptions sold to the existing base. Any color there? Is the average term extending, or why would that go up?

Actually our average terms continue to hold fairly steady. It really just depends on the mix. I think last year there was a little bit more asset tracking type business in the third quarter. So that would likely be part of it in terms of those renewal subscriptions. So yes, so that is -- some of that fluctuation is not necessarily by design I guess you would say.

Okay. Can you disclose how much your PC -- your large partner OEM deal accounted for in this quarter in the same quarter a year ago?

It was down significantly. Actually in US dollar terms, it was down 85% I believe, and the third quarter is 60% year-to-date. And, as a percentage of sales, it is down getting closer to the 5% range now more or less. So it is significantly reduced and exposure there obviously then decreased with it.

Okay. And you had a tax recovery in the quarter. Can you provide us with an update as to what your GAAP tax situation should look like going forward?

Yes, the tax recovery is a very minor item obviously. The main thing to think about is cash taxes going forward. At this point it is still looks like cash taxes that we will pay for fiscal 2009, which will be paid during fiscal 2010 is around CAD2 million to CAD2.5 million, and likely we would have to make installments of a similar amount during fiscal 2010 as well.

Okay. And then on the GAAP side, though, more recoveries or how should we think about that?

Yes, we have a significant amount of timing differences as our deferred revenue is on the balance sheet for accounting but being taxed for tax purposes. So we will continue to accrue an asset, tax asset at that time.

Okay. Thanks. I will pass the line.

(Operator Instructions). Scott Penner, TD Newcrest.

Just on the commercial business, what about the pipeline of new business opportunities? It looked like that was the business to new commercial customers was pretty flat with Q2. Did you see any pickup towards the end of the quarter on that?

I would say the new customer, commercial customer business has been the area most hit by the economic conditions. And I think it also shows up in our large deal business as well, and large deals are down over 20%. And last year we had a CAD1.7 million deal to this point, as well as numerous other ones in the CAD500 million range, and we just have not seen anything like that this fiscal year.

So I think it's more that when these new customers are coming on, they are coming on for smaller amounts, and that is probably a big part of it. But indeed, the new customer acquisition is down fairly significantly relative to last year, and we are working on improving that. Obviously I think that the thaw in the economy is the critical piece to getting that one improving.

Now when you talked about adding or possibly adding salespeople, what are the updates I guess on just a total headcount basis of where you are right now and what you are targeting going forward?

Well, on the sales side of the house, we currently have 74 people on the sales team. Plus, of course, we have a business development and consumer team as well and a marketing team on top of that. You add it all in, it is about 121 people, and we do expect to add some more people in the direct sales bucket. They will be supporting our channel programs and our partners as we roll out some new initiatives here in the coming quarters. And basically the objective at this stage is to add some of those people to get ready for Q1 so we can make sure we continue our strong Q1 growth.

Right. John, can you just expand a little bit on the expansion of the consumer offerings that you have mentioned internationally, just how aggressive you are going to be? What countries are up first and then what the distribution strategy is?

Sure. We are excited about the international opportunity for consumer. Obviously that will be something we roll out in conjunction with our OEM partners. EMEA is the obvious choice to focus there right off the bat, but we are also getting a fair bit of interest from Australia, as well as South America. So there is opportunity in those three markets, and we will be putting programs together with our current OEM partners to reach that customer base and also some of the retailers as well.

I think on the Best Buy, for example, over the next four weeks coming here, we will be launching an in-store program with Best Buy to educate the blue shirts, if you will, and assist in the merchandising to help drive sales to the sell-through. Plus, in April we launched on the bestbuy.com with our own brand, page and banner placement. So things are moving in the right direction there on a micro level, if you will. And then also doing some great things with Fry's as well. So there's a lot of initiatives going on within that consumer vertical.

And lastly, I wanted to ask on the Best Buy arrangement, can you just remind me the chronology of when you had the end cap in place during the quarter or if it was during the quarter, and then whether you saw any sort of material pickup in sales once you had that in place?

Yes, so we launched with Best Buy in February, as you know, and that really just got us positioning on their shelves. The end cap is still a work in progress, and hopefully we will see that coming. As we mentioned, the things we can control at this stage are in the next four weeks here we will be launching an in-store program, which may or may not include an end cap position at this point, but we are working toward that. It has certainly been delayed over when we had hoped it would have been initially there. So --

Pardeep Sangha, PI Financial.

I would like to get maybe a bit of an update in terms of net books and mobile, what the activities are doing, what are the promotions, and kind of how you are marketing is going with Netbooks and Mobile?

What we are seeing in the netbook market, primarily for our customer base, it relates to education, and we are seeing a number of our educational customers roll netbooks out and are very concerned about the mobility of the netbook, the information on the netbook, and want to ensure that their netbook population is secured and also has a guarantee associated with it should it be lost or stolen.

So we have a very good and compelling program for netbooks, specifically for education. We are also seeing some corporate and healthcare adoption in that customer base as well, and it is just rolling out through our normal PC OEM partners.

How are the OEMs excited about netbooks, and how are the OEMs sort of adopting or kind of accepting the whole netbook side of things? Netbooks have obviously been very big for the OEMs. How do you fit into their plans for that?

Well, we are just rolling out alongside netbooks as we would notebooks. Obviously netbooks are increasing substantially in sales and interest. It fits very nicely with our education vertical. So that is where we are primarily focused. That is the customer segment that we are seeing the most uptake. So we have rolled out a specific netbook strategy and a netbook offering for education, which is a slightly slimmed down version of our traditional Computrace service. But it's at a more compelling price point, and we are seeing good uptake in that offering.

I would also add on that, that the OEMs in general, of course, they have been pushing this segment, and in fact, you have started to see them add enough features to the products so that the price gets almost up to a laptop price, which is very interesting because people are using these as a third device but want to be able to do everything they do on their laptops, just want to have a smaller form factor when they are traveling at times.

So certainly all the same concerns are there from a marketing standpoint. The OEMs seem to be doing a good job of evolving this category, and I would say that it is certainly, as opposed to cannibalizing, has been an additive introduction in the mobile space. So it has been pretty exciting I think. There has been markets out there internationally and in education, which were previously not reachable with traditional laptops, and now that has opened them up. So it has been good.

And then on the mobile side for like Blackberry and smartphones, what are you seeing there and what kind of activity are you guys engaging in there?

Well, I think it is still very early in that market, but we are marketing our Computrace BlackBerry solutions and we will continue to do so. Hopefully we will get some additional uptake here in the coming quarters.

Okay. Any comments on the competitive landscape, anything that you are seeing, any sort of changes in the environment at all?

You know, nothing material.

Okay. Any next steps with regards to the Stealth Signal litigation?

Not at this time. We are just moving through that in normal course.

So basically just waiting for a trial date at this point?

Yes, the special master has come through with his latest claim construction, so we are putting -- we are working through that and then looking for a trial date at that time.

Good. Final question. What was the total headcount at the end of the quarter?

296.

296? Okay. Thank you very much.

Robert Breza, RBC Capital Markets.

This is actually Matt Hedberg sitting in for Rob. I wanted to drill down a little bit more on the federal space. Can you talk about how you are thinking about that with all the stimulus dollars being thrown at the global economic issues right now?

Sure. We have a federal team, I believe, of four people. So we are just going through our normal sales strategy, which is on an account by account basis. We are seeing a decent amount of federal business. It is in, as Rob said, it is in small amounts. But I would say that we see a broadening adoption across various agencies in the US federal government. So that is exciting for us. I think the word is getting out that we have a very unique approach to securing mobile devices, and it is something that is getting some traction in the Fed space. So we are just moving through a normal course of business in the Fed space at the moment. Rob, do you have any other --?

Yes, just to add, I mean certainly we have seen our Fed space actually being stronger than last year when you consider we have not had any large deals like the CAD1.7 million deal we had last year was in the Fed space, and this year the largest federal deal was some CAD250,000. And yet we are flat with last year to date. So overall we are pretty happy with that, and I think that speaks to some of the changes that are coming with the stimulus package, and at the same time as bringing out that stimulus package, there have been some additional changes in the legislation or proposed changes and/or tweaks, if you will, to the privacy regulations, which have I think helped us in the healthcare vertical as well.

And I guess finally adding to that, tied to the federal stimulus spending education as well with that vertical being up 11%, it is over CAD1 million up in US dollars year-to-date. That is in part due to the stimulus spending. So definitely it has been a net positive for us thus far.

And then one last question on the McAfee relationship, I know it is still early there. But can you give us a sense for how you think about that ramping maybe throughout FY -- or in calendar year '09 or calendar year 2010?

Sure. There's both a commercial opportunity and a consumer opportunity with McAfee. Obviously we have this consumer relationship. You can buy the Computrace LoJack for laptops at mcafee.com. We are also working with McAfee on their ePolicy Orchestrator initiative as well. So we are plugging into that McAfee single pane of glass, if you will. We are excited about that, and we see some synergies with McAfee, some other areas of their business as well.

So they are a good strong partner for Absolute. We have a lot in common in terms of our customer base and our focus, and we are pursuing those opportunities with McAfee in their reseller channel.

Excellent. Thanks a lot and nice quarter.

Rob Owens, Pacific Crest Securities.

A question on the commercial side of your business. Do you have a sense of how much of your business is tied to new PC sales versus your ability to go in and penetrate an existing base of PCs?

Sure. It has always traditionally been focused on new PC sales. So that is where we focus. We do win from time to time in the installed base as well. But typically by just particularly on the education markets are available on -- sorry, on new units as they are adopted into the enterprise.

Are there any plans or strategies to try to detach the business from the PC cycle and really focus more on the installed base at this point?

Yes, we are going after installed base, as well as the new unit business, and that is just on an account by account basis.

Let's say part of that, too, goes to some of the initiatives we are doing like with McAfee who tends to sell well into commercial businesses whether that be on new books or not, and additionally we are working with other resellers both domestically and globally who have the ability to go and who are programmed, if you will, to go sell into organizations across their population as opposed to focusing more on the new rollouts.

Madhu Kodali, Fertilemind Capital.

A few questions actually. I was wondering if you ever disclosed information as to the break between commercial subscribers and consumer subscribers?

No, we have not been disclosing that. We continue to disclose in the MD&A mainly just information on our existing commercial customers. We like to watch that ratio on the expiries to how many new subs we sell into that group.

On the expiry for the commercial, taking into consideration the commercial customers that are existing customers, I think in the past you have indicated approximately 501,000 customers are going to be coming up for renewal for 2009.

Yes.

But I'm looking at the data now. You have 281,000 that expired this quarter, and you are communicating that 221,000 will expire next quarter. Just these two quarters alone is almost 600,000. Adding Q1 and Q2 it is more than 700. I was wondering is there something going on there?

Nothing going on there. This is a year-to-date number, the 281.

281 is the year-to-date?

Yes, 281 is year-to-date, and 221 is coming up in Q4. So that brings you up to the 500.

Okay. Sorry. That is my mistake. So on the consumer side, 548 still holds than?

Yes.

On the churn? Okay.

Yes. So we have going into Q4, the grand total coming out for expiry is 322,000 subs. That includes consumer and commercial combined.

Right. Okay. And coming back to the Dell bundled program, when you guys launched back in 2007, you had those bundled promotions and more than probably roughly half of them that were non-(inaudible). So all those guys are all churned off now? Do you have any more left on the subscriber count number?

Yes, a lot of those were three-year deals.

Three-year, okay.

Yes. So those will another year before they really show up in larger numbers, and then I would say in this year, this fiscal year, it transitioned to a higher concentration of one-year deals. So meaning fiscal 2010, we will have the convergence of both the one-year deals from this year coming up for renewal and the three-year deals coming up from three years ago.

Okay. Could you maybe talk a little bit about how the HP relationship is focusing, and have they passed the 10% sales?

Yes, HP has certainly passed 10%, I believe. Just one second, let me get my correct sheet here. But the last I checked, it was on target, and certainly HP has been our strongest growing OEM year-to-date. We are continuing to -- yes, HP is up around the 15% mark now, and they have been continuing to grow better than any other OEM at present, and we are excited about the opportunities and the initiatives that we will be rolling out with them in the near future. So I continue to advance that relationship.

And what percentage of sales does Dell constitute now?

It is still in that 50% range.

50% range? Okay.

And again, now almost all of that now or a large majority of it, 95%, is in the commercial side where our sales teams are shepherding those deals through.

And typically commercial deals are three-year contracts, or you have -- (multiple speakers)

Yes, we continue to see an average around three years on the commercial deals.

Aram Fuchs, Fertilemind Capital.

I was wondering if you can just talk about the differences between the way you expect the European market to evolve and the North American and how the North American market evolve? Specifically how do you communicate the benefits of your products, and how do you follow the distribution change?

It is a similar model that they are following. We have a sales organization. It is a combination of an inside and outside team. I think it has been very challenging for the European team to get traction up to this point. We have only just come out with full language support. So now we are available in 10 languages, and that is going to assist them greatly. We have just opened up a small office in Amsterdam to locate our inside sales team. We have got a few people working from that location. So now we will have inside/outside coverage. We have relationships with our OEM partners. We are driving programs through those OEM partners into the customer base.

So it's a very similar model to the US model. It made -- it does include a little bit more of an emphasis on the reseller channel because of the reseller -- the importance of the reseller channel in Europe. But other than that, I think it is very similar. It is very similar.

I think European customers take a little longer to get on board with the products and services in general. But once they are onboard, they are customers for a long time.

So we see a lot of opportunity in Europe, South America and other locations. I think we are as bullish on the international side of our business than we have ever been. So we are excited going forward, and we have a good team. We have invested quite heavily in the international markets, not only on the sales from the sales perspective or from an operations perspective, from a marketing perspective and a business development perspective.

So we are putting in a fair bit of investment dollars internationally. We are also tracking the Intel Antitheft initiative, which is a global initiative, and supporting that on a worldwide basis, as well as a number -- two specific OEMs that are also rolling out international programs. So international is very, very important to Absolute. We will continue to invest there, and that is some of the increased expenditure you are seeing this year, of course, is in these international markets.

Okay. And then a question about the federal. You had mentioned that you are usually tied to new laptop sales and that federal -- the big contracts have not been around this year. Is that just -- can I connect the two? Are they buying fewer laptops at a time? Is it that simple? Maybe you can talk about that.

Well, I think that is part of it. The federal business tends to come in that September 30 quarter. That is the year-end for the federal government, as you know, and that is when those larger opportunities tend to become available. However, we have gotten a lot more traction across a much more diverse base of federal customers. But it is for small beginning portions and divisions of agencies and certain locations of agencies, etc. But we are slowly penetrating that base, and there is a lot of interest in the federal space in our products and services. I think it is a matter of time, and we will become much more prolific in that segment.

Great. Over the last few quarters, you have mentioned that you thought Digital River would help you with renewals and other synergies due to the fact that you would be in their shopping cart. I was just wondering if you could comment on what you think about Digital River now?

I mean from the online perspective, we are up 20% through the quarter and 26% year-to-date. So I think that is partly attributable to the Digital River capability. We certainly -- it has been rolling out now since August. I mean there have been a few hiccups along the way, but they have been responsive, and we have been improving the operation of that cart each period. So I think it is a bit of a trial and error and learning process, so we are certainly happy with where it is at the moment and think that it is doing the job it needs to do.

And then regarding your cash balance, do you have a number where you think you would feel comfortable about? And if that number is lower than where it is right now, what are you going to do with the cash going forward?

Well, I think as long as we have a relatively good coverage of our deferred revenue, we feel like we are in good shape from a cash perspective. So just about CAD100 million in deferred revenue now. Cash balances of CAD40 million are probably sufficient. We do have 62 and change, if you will, and we have been continuing with our share buyback. That has been the focus of this point. We have been doing prudent investment in the business and will continue to do so. But the objective here is to continue generating cash flow. So in the meantime, we will keep that money available for strategic things as they come up.

(Operator Instructions). Shao Wang, Lotus Investment Management.

On your accounts receivable reserves, I notice more of the several companies in the March quarter have seen their reserves go up as a percentage of accounts receivable. Yours went down sequentially. I'm wondering if there is a story there that you could explain?

Separately given where you are targeting cash margin for fiscal '09, I'm wondering if you change -- and I'm not looking for guidance -- I am wondering if you could change what you think your long-term cash margin target might be?

And finally, last quarter you did give a number for -- you had a question about linearity. You had a question -- I'm wondering last quarter you gave a number for a percent of your business that came in the first two months. I wonder if you have a similar number for the first two months of the March quarter?

So on the receivable side, we actually, as we said, we have been trying to make sure that we are extremely conservative in these times with respect to our receivables provisions, and we had some of those receivables actually come in that we had reserved for, and that is why you have seen it change that way. We don't generally just do a percentage basis. We try and specifically identify as much as possible.

So you have seen some of those things actually come in. So we are a little bit better than expected there. But we continue to watch it very closely, and I think we feel we are at a good level with where our bad debt provision is currently.

Turning to the cash margin from a long-term perspective, this year's guidance implies 23%, 24% cash margin range, which is obviously significantly down from the 41% we achieved in the prior year. We will be targeting to increase that over time. As the market heals, we believe we can do better than the 23%, 24%. Where that long-term settles is TBD obviously, especially once tax enters into the equation, I think that with tax in certainly the 23% range, we are feeling pretty good. But I think there is opportunity to increase it. Just the 41% did not have any taxes in it, right?

Do you think 30 to 35 is realistic with tax, cash tax?

It is achievable, but I would say that it is going to take awhile for the market to heal and start to prove that out again. But we certainly feel good at the 23% to 24% range currently before taxes. So we will continue to watch that, but I don't have a specific for you. I think we ought to wait and see how this market rebounds.

And then in terms of the allocation of business across the quarter, this was a pretty traditional quarter for us. Our first month is always strong, fairly strong. Our second month is a quieter month, and then we have the strong finish at the end. It continued with that this quarter, and I don't have it in front of me unfortunately right now. But I do believe it was the 50% mark plus in the third month of the quarter.

Okay. Got it. And, as I remember, it was something like 56% in the first two months of the December quarter.

Yes, December definitely switched around a little bit. It just got back to normal course a little more, and I think that is again attributable to sentiments seeming to change a bit in the March quarter and the month of March.

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

Thanks, operator. Well, everybody, once again, thank you for taking 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 participating. You may now disconnect your lines.