Absolute Software Corp (ABST) 2010 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Absolute Software Corporation's first quarter 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. (Operator instructions)

I would like to remind everyone that this conference call is being recorded today, Monday, November 2, 2009 at 5:00 PM 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, and thank you for joining us to discuss our first quarter 2010 results. If you have not already seen it, today's 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'll begin today's call with a review of our quarterly activity. Rob will then review our financial results, after which I will provide some closing comments before opening up the call for your questions.

While the economy continues to be a challenge, we are confident that better times are ahead, particularly for PC refresh cycles, based on recent reporting from companies like Intel, HP, Dell, and others. In the meantime, we are showing slight but positive momentum and we believe we are on track with our fiscal 2010 guidance while also making the necessary strategic investments that will accelerate our future growth.

For Absolute, the economic situation is manifested in somewhat slowed new customer adoption and delayed existing customer refresh cycles. But we believe this too will pass, leaving pent up demand as customers and prospects return to their traditional refresh cycles.

As stated recently by Michael Dell, "Never before has there been a larger and older install base of computers. And rest assured there is a refresh coming and it will be significant." In the meantime, we are investing significantly in R&D and business development to properly position Absolute to win as growth returns. And we will continue to leverage our unique, persistent, embedded SaaS technology platform and business model.

Absolute is also busy adding new features and functionality this year in the areas of asset management and data protection that fit naturally into our sales and distribution channel. This is an integral -- this is integral to accelerating our growth as the world of IT moves towards endpoint management and device protection as a single spending category.

First quarter results. Sales contracts for Q1 were CAD19.2 million, up 6% compared to CAD18.2 million in Q1 last year. Cash from operations was CAD4.3 million for the first quarter, down as expected from CAD9.1 million in the first quarter last year. Our contracted subscriber base increased to 4.3 million subscribers from 4.1 million subscribers at June 30, 2009.

Vertical market update, commercial. For the first quarter, overall commercial sales in US dollars were up 8% year-over-year. On a vertical basis, education was up 40% as the education market continues to be a strong vertical for us and is also showing opportunity worldwide. Government and healthcare combined were up 44% although they remain between 10% and 15% of our total sales. Corporate was down 28% year-over-year, due again in large part to tighter corporate spending in this uncertain environment.

Consumer. The consumer market sales were CAD2.6 million, off 28% compared to CAD3.7 million in Q1 last year. Consumer sales were down year-over-year, primarily due to a partner program change with the leading PC OEM. However, consumer sales on a sequential basis improved 50% from Q4 '09. This growth is being driven by sales for newly development in consumer channels and less reliance on any single PC OEM. We have recently launched new programs with Dell, Apple, Best Buy, Digital River, and others. We expect to add our -- which we expect will add to our consumer performance throughout the year.

International. This was a significant area of investment for Absolute in fiscal 2009, and will remain an area of focus for us in fiscal 2010. During the quarter, we expanded our national presence with the opening of our new US headquarters in Austin, Texas, as well as a new regional office in Tokyo, Japan.

Now with five offices around the world, sales distribution agreements with six PC OEMS, international versions of our products, and support capabilities in multiple languages, we feel we have built a solid global footprint and have now completed sales and computer recoveries in most regions of the world.

Product and partner update. We continue to lay the groundwork for growth in spite of the tough economy and launched new programs with HP, Dell, and Lenovo recently. The goal with our PC OEM partners is to drive attach rates to the 12% plus range, the same North American attach rate we have achieved with our biggest OEM partner.

Most of our new partner programs were launched in September and October. Accordingly, while the investment in these programs is being expensed in the current and prior periods, the benefits will not be apparent until future quarters.

In terms of new product initiatives, we introduced a LoJack for laptops offering with a new Dell Inspiron Mini Nickelodeon addition notebooks. We expanded our Geofencing capabilities to include mobile devices, and we're certified as a Windows 7 launch partner. And as a key partner in Intel's antitheft initiative, we demonstrated our Geofencing and antitheft capabilities at the Intel Development Forum in San Francisco.

At this point I'll turn it over to Rob to walk us through the financials. Rob?

Thanks, John. And good afternoon, everyone. As John noted, our results were within the range of our expectations for both sales contracts and cash from operating activities. As a softwares and service business, we consider these to be our key performance metrics. We would like to elaborate on a couple of key statistics regarding our Q1 performance.

Selling to new commercial customers continues to be challenging in this economy. In US dollars, our new commercial customer sales in Q1 were up 12% sequentially to $2.2 million, but were down 22% from Q1 of last year. Meanwhile, our pipeline continues to grow, but the sales cycle has lengthened as these potential customers continue to move with caution. These same refresh cycles also continue to impact our existing customer commercial customer sales, resulting in a decline in our expiring subscription ratio to 1.6 to 1, compared to 2.2 to 1 in Q1 '09. On a positive note, this was sufficient to generate 23% increase in existing customer sales over last year and the expiring subscription ratio improved sequentially from 1.4 to 1 in Q4 '09.

While these cycles are impacting current period sales, we remain optimistic that this is good news for future quarters as the pent up demand begins to release and as our strategic initiatives with our partners and products begin to gain momentum. As a result, we expect this year's seasonality trend for sales contracts to align more with our fiscal 2007 year, in which our partner programs and market trends led to a significant ramp in the back half of the fiscal year.

Turning to our second key performance metric, cash from operating activities was CAD4.3 million compared to CAD9.1 million Q1 '09. This reflects the impact of the economic downturn on sales performance combined with our stated investment strategy. In terms of seasonality, as a result of strong Q1 collections and expected sale seasonality trends, we expect a larger portion of this year's cash flow to come in our fourth quarter.

Turning to our investment levels, total operating costs, excluding stock-based compensation were CAD15.2 million in the first quarter of 2010, an 11% increase over the prior year. Sales and marketing was the primary area of investment where we expanded the sales team to provide greater regional coverage and more touch points with our key PC OEM partners and increased marketing costs to support partner and vertical strategies.

For example, we have recently launched our HP Care Pack offerings and now -- have now included -- has been included in their HP ProtectTools program, both of which are key continuing growth at HP. These programs launched in September and October and required significant investment from us in the -- to develop over the past year.

The same applies to our recent Lenovo Lost & Found program, to our new Dell Nickelodeon program, and to support for Intel's anti theft initiative worldwide. We are funding these investments through our existing business. Had we not been doing these, we estimate that our sales and marketing expense would be in the range of 30% of sales compared to the 42% level in Q1.

From a balance sheet perspective, we have sufficient resources to support our growth plans. At September 30, 2009, our cash, cash equivalents, and investments were at CAD73.9 million compared to CAD68.9 million at June 30, 2009 and CAD72.8 million at September 30th last year. This is after the repurchase of shares during the year under our share buyback plan where we acquired 3.3 million shares at a total cost of CAD10.6 million.

In closing, we have proven the viability of our service offering and seen opportunity to grow our leadership position in a much bigger global market. While the economy remains weak, we are taking an opportunity to shore up the support of our global programs and partners, and to build-out our sales capability.

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

Thanks, Rob. In closing, I want to emphasize that the addressable market for our solutions is very large and growing. By 2013, current global computer shipments are expected to grow 50% from today to approximately 420 million computers worldwide. And portable computers will continue to increase their share of this market from approximately 50% today to 70% by 2013. That means our key market opportunity, portable computers, will almost double to 300 million devices. Every one of these devices represents an opportunity for Absolute.

In summary, we believe that very shortly we will be on track to resume our traditional growth trajectory. During fiscal 2010 we will continue to work on delivering a number of key initiatives.

First, to launch additional OEM programs in North America with the express goal of driving short-term North American attach rates towards the 10% to 12% range.

Second, launching new global OEM programs to increase attach rates in international markets and continue to entrench Absolute as the global market leader.

Third, to fully capitalize on Intel's plan to create further awareness of the anti theft market and support Intel's roll-out of their new chipsets.

Fourth, launching additional asset management and data protection services to enhance Absolute's unique persistent endpoint management and security capabilities.

Fifth, to enhance coverage of the North American market by increasing the number of regional sales teams at Absolute from 22 to 26 for North America.

And finally, six, to establish a growing, fully diversified, and sustainable consumer business without undue reliance on any one single OEM program.

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.

Thank you. (Operator instructions) Your first question comes from Tom Liston from Versant Partners. Please go ahead, sir.

Hi, thank you. Good afternoon.

Good afternoon.

Hi, Tom.

Just on the first number of comments with your partner ecosystem, and the MD&A, and your prepared remarks here with HP, and Lenova, et cetera. What's going to be the big change that takes traditional adoption rates from 4 to 12? Is it more partner education? Is it more marketing? Or what's the big thrust to decide whether you're successful in that market? Have you learned from some of your past deals such that your more confident to get those type of numbers?

We're getting some -- there's some very exciting opportunities really to get on many of the devices that these partners ship. So really the strategy is getting a piece of service on every device shipped with a clear activation plan. And then of course having additional nuggets of value that you're up selling customers to. So I think that is the model that we've moved to over the last couple of quarters. And I would say that now we're really -- have implemented and will implement over the next quarter with our key largest partners.

Okay, so in some circumstances maybe it just wasn't on as many SKUs that they were building up?

Well, I think it -- yes. And think of the -- really the strategy here, as I said is to get an element of service opportunity shipped on every device for a customer. And then of course, have technology services that you can move them up over time.

Okay, so you can segment the market a little better. Okay, just on the overall growth in market, obviously you talked about international growing much faster and Intel and the like have been talking through that extensively. Just overall, where you see in talking directly as OEM customers on specifically the corporate market, a lot of folks are talking early 2010 when it gets started, kind of midway through. Is that consistent with your view? Or is that -- it's days of Windows 7's launch, but could you just talk a little bit about that impact and where you see that market lifting?

I think as Michael Dell talked about it, there's no question that this tough economic time, many customers have put off their refresh cycle. But these devices only have a certain limit to the length of service that they can tolerate and then they need to be replaced. And I think many organizations have extended the lifecycle as far as they can go. They're working with machines that need to be refreshed and it happens to coincide with, I think, one of -- a new operating system from Microsoft, Windows 7. So I think many organizations will be refreshing and including Windows 7 as part of that refresh. And that will be a fairly substantial effort for calendar 2010-2011.

Just quickly, Intel's (inaudible), I think early 2010. Would there be any potential delays with some OEMs waiting for that? Or does it really affect things much?

You mean in terms of Intel's anti theft (inaudible)?

Well, will people wait for some of the increased functionality within Intel 2.0 in early 2010 before designing in your service? Or do you think that affects things at all?

It actually comes out with their next launch of their chip, so in a normal course, the OEMs should be adopting that. And normally that would hit sort of full penetration by mid-year.

Okay, but no one's saying they're kind of waiting to do a full-blown program with you until that comes out.

No, some are doing -- some may do piecemeal, but no one says that they'd wait for a full-blown -- any change in what Intel's offering. I think that they are adopting what Intel's offering today, but some may just do it on certain lines to get go -- at the get go rather than all of them at one time. Right?

Okay, perfect. Thanks. I'll pass the line.

Your next question comes from Glenn Jamieson from Macquarie. Please go ahead, sir.

John, just thinking about the investments that you're making internationally. Can you give us a feel for what you're seeing in some of the markets that you're opening up now that gives you confidence that now is the right time to be making those kind of heavy investments? And our thinking is that next fiscal year for you you're going to see not only sales start to escalate, but the cash burn for that business segment start to moderate as well. Is that consistent with what you're seeing in those markets?

Glenn, I think it is. The international markets are obviously at a different rate of growth. So having just come back from Europe and seeing the -- some of our European customers and meeting with some of our European OEM partners, there's no question that we will be successful in EMEIA and there's a very significant customer base in EMEIA that needs the kinds of services that Absolute has to offer. Asset management and data protection services.

And I think though that the European customer does take a little bit longer lifecycle traditionally than North American customer. And so you do see a slightly longer lifecycle. But we're confident that EMEIA will add to our growth over the next several quarters and become a really decent contributor to the overall bucket of sales for Absolute.

Okay and --

I was going to say, and Asia Pacific, of course, is probably 18 months behind EMEIA, so we have a lot more infrastructure in EMEIA. We have an inside sales organization there, we have an outside sales organization. We have full support, recovery capabilities in EMEIA today. With Asia Pacific, we have those elements, but at a reduced scale. So Asia Pacific is going to take a little longer to manifest. It's probably about 18 months behind EMEIA.

And then we've also been making investments in South America and Central America, Mexico, et cetera. And we actually are seeing some good traction in the Americas as a result of that. So they're -- all those three markets are all new markets for us and I think each one of them is exciting and is definitely worth investing in. And there's quite a few strategic relationships and other kinds of partnerships that we're seeing emerge from those markets as well as sales.

I think that just in from the investment perspective as well, what's different between those is Asia primarily, you require well in advance of any sales you're required to do investments because that's where a lot of the large OEMs are based. And we need to be there and supportive of the programs we're running with them and in support of the Intel anti theft initiatives. So a lot of the investment has gone in toward Asia as well. And it's important to recognize that although EMEIA is much more advanced from a sales perspective and more justified on that basis for the continued investment, Asian markets actually require a much longer lead time for investments.

Okay, thanks for that color. John, can I just go back to your summary remarks and I just want to make sure I've got this right. You were talking about some shorter-term programs that you think are going to propel you towards 10% to 12% North American attach rates. And I think you were suggesting that we'd see some of that activity in this quarter. So did I hear you correctly? And then I assume that what we're talking about here is this idea of a very high volume program with at least one PC OEM that could really move the needle on attach rates quickly.

Well, that's right. That is an exciting model for us is to offer one segment of service to a wide customer base that they can easily adopt and activate. And then that gets them into our program. They immediately see the benefits of the program, start to get value from it right away, and then are offered an opportunity to get a lot more value with really no further effort on their part other than writing a reasonable and cost effective check.

So we believe that that model will help move us towards this 10% to 12% attach rate. We're also expanding the North American sales organization as we talked about from 22 teams to 26 teams, adding some specialists in there as well and continuing to focus on the success we're having in North America and the success we're having with our current customer base.

So the combination of those initiatives we feel can get us to that 10% to 12% attach rate in North America.

Okay, and just one last question. Despite all the investment that we've been talking about, the cash on your balance sheet continues to pile up. And I believe the existing share buyback that you have that you've been very active with expires in a few days time. Can you just update us on your thoughts on a renewal of the share buyback?

That -- we would certainly like to renew that, so we'll follow-up with more on that as the time comes.

Thank you.

Thanks, Glenn.

Your next question comes from Scott Penner from TD Newcrest. Please go ahead.

Thanks. Just to first of all on the existing customers that renewal multiple you've talked about, I know you've done a lot of work on the ROI of your products to your existing customers. How comfortable are you that when there are refreshes being done that you're still on those machines?

Our sales guys definitely keep close contact with these customers as they're going through the rollouts. We generally know when they're occurring. And they are in our CRM. Right? So we know when they're coming up for renewal. We're contacting all of those customers on the way in to renewal, so we know we get all of them. If there's a mid-term renewal, it's harder to track, but normally people are buying a three-year license, and the laptops are lasting near that duration. So our guys are engaging at that point in time and making sure that we get the business.

So you are essentially comfortable that around the two or slightly north of two, where you've been for the past couple of years is still a reasonable longer-term type metric?

Certainly. And we do look at this as people are staving off some of the refresh cycles. That is continuing, and when they are doing them, they're not doing as many. So that's -- so this is a single quarter. It's a little bit harder to get an exact bead on where we'll be heading for the year. We did see it improve upon from Q4. But this will unfold even at the one six level, however, if you go through on the subs that are up for expiries for the year, it still is in line with our guidance target. So we do feel comfortable at the levels now even if it were not to go to the two.

Okay, that's helpful. And then, John, you mentioned in the MD&A talk of the stimulus funding. Along those lines, where are you as far as the salespeople dedicated in something like the healthcare vertical? And any real success stories of note there?

We have had good success in the healthcare market. We haven't really seen the stimulus dollars flowing through yet. We've -- a little bit of it's come through in education. I think there's a fair bit more to come through in the education market and the healthcare market. So there's a lot of folks waiting for those dollars. And hopefully we start to see some of them in the new calendar year.

Now is that part of the -- when you say expanding the sales teams, is that along the vertical lines? Or is that more general?

It's a little bit of a mix, Scott. We are doing some regional deployments of new teams. And we also are focusing some new folks on specific verticals like healthcare and corporate, et cetera. So it depends a lot on the region. A strong state like Texas, we're able to have a more clean separation where we've got teams dedicated to K12, some teams dedicated to corporate, and other teams dedicated to state and local, for example. And then -- so it just depends on the region. But the more robust regions, you're able to specialize a bit more in the focus.

Okay. Rob, just a question on the financials for you, which I'm sure you're going to enjoy. And that is the tax on the cash flow statement of -- about 1.6. Is that anywhere on the income statement? Or where -- does that come straight off the balance sheet?

Yes, on the income statement what we've done is two things. We've accrued a tax. It's combined, first of all, into one line item. Actually for the income taxes, but you also have to pick up the ITCs that are up in the OpEx component. The net of the two is the net difference for tax accrued for the quarter. But what it is is the net of what we've accrued for Q1 performance in terms of our expectations of fiscal 2010 taxes minus the increased asset that we've set up in the quarter. Because as you generate more deferred revenue, you generate further tax assets. So it's a net figure, basically.

What does that mean? Well, what it means is for fiscal 2009, we still have CAD1.5 million in the accruals of potential cash taxes for the year. And we've now accrued another one 1.6 if you will of potential tax dollars that we'll have to pay in fiscal 2010. So that's really what's in there. You can see it on the payables side of the balance sheet.

Right, okay. And then one other thing, John, is that -- is just on the McAfee partnership. Just some update on any traction there or exactly where that stands?

Sure. We're working with McAfee like we would a traditional reseller, attending some of their sales functions, working specific deals through that channel on the commercial side. And on the consumer side, we're still in the early stages of seeing whether or not that's going to have some impact for us. I think it had a little bit more impact this last quarter. But it's been slow going on the consumer side whereas on the commercial side, we've been involved in a little bit more planning and market development with McAfee.

Okay, great. I'll pass the line. Thanks.

Thanks, Scott.

Your next question comes from Thanos Moschopoulos from BMO Capital Markets. Please go ahead, sir.

Hi, good afternoon. Rob, just to clarify your comments on taxes. So what would the actual cash taxes payable for this fiscal year be? Would it be the CAD3 million in -- on the balance sheet?

Yes, cash taxes that would be paid during the year would likely be in the CAD1.5 million to CAD1.6 million range of what was accrued last year. The remainder is what would be paid in fiscal '11 for fiscal 2010.

Okay.

Okay? And likely -- and that is basic -- not quite one quarter, but it's a little bit more than that. But it's -- estimate that we probably have about CAD4 million in taxes to pay in 2011.

Right. Okay. And then just to clarify your comments on seasonality. So therefore it'd be fair to think of Q2 as being sort of 15%-ish down relative to Q1? And then very large proportion of this year's sales contracts in Q4? Is that the right way to look at it?

Yes, when you look at fiscal 2007, the trend was 23% in Q1, 20% in Q2, 22% in Q3, and 35% in Q4. So we really saw a big hockey stick in that year. Certainly whether or not there's a rebalancing in Q3 and Q4 is TBD based on when these refresh cycles start and some of these OEM programs start taking effect. Like the HP Care Pack and ProtectTools programs that we've now launched, those will start benefiting us in early 2010 I would expect. Same with the Intel programs and same with other OEMs. The Lenovo Lost & Found program. All of those just take a little while to get up and running. And we would have liked to have had them out earlier, but as things go, they've only just launched in the last month or so. So --

Okay.

I think those are very significant programs. And we may not have given enough airtime on those programs, but we're very excited about all of those programs. The HP ProtectTools is an extremely exciting program where there's an element of our service released on most HP commercial notebooks. And then it's our job to go out, of course, and make sure that the customers -- HP customers are aware that the element of service is available to them, get them active, get them using our customer center, and get them familiar with some of the other services that we have to offer. So that's a very significant program that we've rolled out inside of HP.

And then we've also rolled out a very unique program for Lenovo around the -- their electronic Lost & Found program, which we're very excited about. And then the Intel anti theft initiative, we really feel that that'll pick up steam for us in the -- in 2010 -- calendar 2010. So there are lots of programs that we've invested a lot of cycles in building and putting in place from a business development perspective that now are coming to fruition.

Okay. And then a continued area of strength that we've seen is the education, government, and healthcare side. Collectively, what do those three represent as far as percentage of the business?

Collectively, they would in -- Q1's always a big higher for education and stuff. But collectively, they're probably up in the 50% range, maybe 60% range. Maybe a little bit more. 50%, 60%.

Okay. And then looking at the pipeline for those, no reason to expect the trends to be any different? It seems that the refresh cycle issue hasn't really been as much of a factor there. So we won't necessarily have a huge uplift when there is a cycle. It's more just ongoing good growth in those segments? Is that the right way to look at it?

No, I think that there's -- they have been impacted by the refresh cycle. I mean they're a big chunk of our existing customer business. So certainly the depressed ratio you see is in part due to education. I can think of a few very large education customers who we've seen very little from in the first quarter here and normally would see a fair chunk. But they've -- especially those based in California regions, they just don't have any budget right now. So as those -- the stimulus dollars come out, I think we've got an opportunity to see a good lift on that existing customer business there in the education side. It is a deep market. There's a lot of opportunity in education, so.

Are you seeing more of -- you had that large netbook deal a few weeks back. Are you seeing other instances where the low price point in netbooks is causing some school districts to look at doing mass rollouts, leading to more such deals possibly for you guys?

Definitely, there's -- there definitely is a lot of activity there. And we feel like we've got a good match with our product now also to help us -- to help make sure that we get on those new netbook rollouts. But certainly, there's a lot of interest and activity there.

Yes, not just domestically, but also internationally as well.

Okay, that's great. Thanks, guys. I'll pass the line.

Thanks, Thanos.

Your next question comes from Paul Steep from Scotia Capital. Please go ahead, sir.

Hi, guys. Two quick questions. Just, Rob, what's the non-bundle ASPs in North America these days running roughly?

Well, the one that we give out basically is our existing commercial customers. And it was CAD53.43 in the first quarter here, which is up from the prior year. In US dollar terms, I think it was about $48.00 and change. So certainly higher than the average we saw last year, which was $44.54. So it went pretty good.

Great. And then just one clarification. On the attach rate, John, you talked lots about it. You gave the one number, I think for Lenovo in here of 4%. Can you just give us a sense of where you're at with the other top two so we can sort of judge where the starting base is? Thanks.

I would say then on the 4% piece, it is an estimate of where we're at with Lenovo. And certainly we believe we have a lot of room to improve there, especially now that we have a Lenovo branded version of our products available subsequent to releasing the ELF program here with them, the electronic Lost & Found.

On the HP side as well, we're definitely toward the lower end, maybe around -- staying around the 4% range that we are at Lenovo. HP's certainly been our fastest growing PC OEM at the moment. And certainly I would say on their way to catch up with, and we hope to catch all of them up, with Dell, who's been performing up toward the 12% range.

Great. That's it. Thanks, guys.

Thanks, Paul.

Your next question comes from Pardeep Sangha from PI Financial. Please go ahead, sir.

All right, thank you. Would you mind giving a bit of an update in terms of the competitive landscape? If you're seeing anything else in there? And also comment in terms of internationally if you're seeing anything on the competitive side.

Okay. We really are not seeing much change in the competitive landscape domestically or internationally. We're far and away the leader in the space, as you know. We really have the IP in this space. We have the real competitive advantage around our precision technology platform. We have a full infrastructure to support millions and millions of devices calling in. We've got a full wireless program, which supports both Qualcomm and Ericsson. On the side -- of the module side, we've got the -- we're supporting the various devices, Blackberry device, Windows devices. We're supporting symbia now as well. We really aren't seeing anybody, Pardeep, in this -- in our core area of embedded tracking and theft recovery, and remote data deletion of any significance in a domestic market or internationally.

Okay. Then can I ask a question around acquisitions? I know in the past you've said that you're not really looking at acquisitions. I was wondering if you'd be looking at potentially broadening out your product portfolio in some ways? I'm thinking perhaps in the asset management area or some other area like that in order to -- an perhaps look at an acquisition for those types of new areas to broaden our product portfolios?

I think for the first time Absolute is looking for smaller -- a smaller tuck-in type acquisition in these areas of data protection and/or asset management. So we're certainly open to and considering a company that would be strong on technology and possibly short on distribution and marketing and sales capability that would fit in with our technology platform that we could easily deploy their solution and manage it from our console, et cetera.

So I think we are in the market and actively looking for something along those lines.

Okay. Any -- and the last question here. Anything with regards to a legal update that you want to give? Anything that's not been disclosed so far?

There's no real news on the Stealth Signal case other than we have a date from the -- from our Houston court to go through a -- sorry, the word escapes me at the moment. A negotiation to see if we can come to an agreement with Stealth Signal. And I think that's booked for the last half of November. So we'll be in San Francisco for that mediation hearing.

Okay, thanks a lot.

Thank you, Pardeep.

Your next question comes from Rob Owens from Pacific Crest. Please go ahead, sir.

Great, thanks. Most of my questions have been answered at this point. I was just curious if you can give us any color on what churn looks like in the consumer market, especially those customers that you acquired via OEM. Thanks.

Yes, Rob. It continues to be less than what we would like it to be. We've been building that for some time. I would say our online business was in consumer. It does continue to grow. It's up about 25% from Q1 of last year. So we're certainly happy to see that. And that is part of getting better at our renewal capability, particularly on those units, as you describe as bundle units. It is harder to get the renewals on someone who didn't pay for it in the first place, but certainly we've seen some improvement there.

It has generated a lift in our online -- a lot of online business that we do. We have some -- lots of ideas and ways to improve upon that. And we're busy implementing each of those strategies one-by-one to go and increase those attach rates. Ultimately we want to -- or the renewal rates. Ultimately we want to see if we can -- it'll get very exciting if we can grow them up to the 30% plus range, then it'll be quite an exciting element of our consumer business.

And given some of the programs you've already put in place, have you seen a meaningful change in those renewal rates? Or is it still very modest?

Yes, I mean it definitely has moved the needle somewhat. It is -- looking directly at it, it's about a 25% increase in the renewal rates in this quarter versus prior quarters. So we are seeing them. But we've done piecemeal some improvements, but some of the bigger improvements are moving through our development pipeline at the moment that we believe will really help move that even further. But so far it's trending 25% better than prior years.

Okay, great. Thanks, Rob.

Thank you.

Thanks, Rob.

Your next question comes from Dushan Batrovic from Canaccord Adams. Please go ahead, sir.

Hi, thank you. I guess first question is what's the risk that the PC upgrade cycle does accelerate but that corporate IT spending doesn't necessarily grow at the same rate? So in other words, PCs do get upgraded, but some of the value added services are possibly cut back?

Dushan, I think there's always that risk. Fortunately for us, as you know, we fit very nicely into a very practical tool to help people protect data, protect privacy. Particularly in the United States there's just so many state regulations now and other regulations that our product just makes so much sense for organizations to have a way to persistently track all of these mobile devices. So we think we have a very compelling argument for corporate customers, and our federal customers, our state and local customers that persistent tracking is here to stay. And that it really is the best practice for CIOs throughout North America and internationally as well.

We're just continuing to evangelize and put that message forward. You really can't afford to roll out your mobile notebooks these days without having a persistent tether to them so that you know where they are at all times. And really, it's the visibility that our corporate customers are buying. The ability to see all of their mobile devices through one console and be able to effect change on those devices pre-theft and post-theft. So there's a high value -- amount of value with our solutions and to date with our existing customers, as they're adopting their -- and rolling out new devices and refreshes, we're being included as we always were.

I might just add one little bit to that too is that we do believe we've built a world-class sales team. Quite proud of ourselves actually. And it's their job to make sure that they're staying close to their OEM partners and know when these rollouts are going on so that they can be there evangelizing and making sure they're pushing the agenda on the Absolute piece so that it doesn't get dropped out last minute of these programs. So we stay very engaged and very close to this -- these cycles.

Okay, and the last one I'll ask is on the consumer side. Just wondering if there's anything else you could point to that sequential growth was pretty good. I mean how much of that was Best Buy? Or is there anything else that you'd want to comment on there?

The Best Buy relationship is coming along, as we would have expected. I mean it is going to take time for it to ramp up and get meaningful. So I'd say at this stage it's on the right path, but not yet producing anything very exciting. It'll take time as -- to continually train these Best Buy reps and continually improve the positioning. And you'll see the returns as a function of that time.

And we always use Apple as prime example of this. And I mean Apple is up significantly this quarter over prior quarters. And in particular in the resale business with them, just because we've been there for a year-and-a-half now, the reps know who we are, they've been trained again, and again, and again. And they've had customers coming back happy and saying my laptop was recovered, et cetera. So it just takes time for that to get through the channels so these people are used to saying, hey, did you get this for your PC? And it just doesn't happen overnight. So Best Buy is up. Apple is up again as well. And we will see that trend continue through the year, I believe.

All right. Thanks very much.

Thanks.

Your next question comes from Troy Crandall from MacDougall. Please go ahead, sir.

Hi, guys. One of the questions I had was could you remind us how many expiries are up for renewal in fiscal 2010?

There's about 670,000.

And that's a mix?

And we had about 165 of those come in the first quarter here.

Okay, great. And most of the other questions have been answered. But you mentioned acquisitions. What do you consider a small acquisition?

A tuck-in, Troy. Something that wouldn't be a material amount of money for Absolute.

So less than CAD5 million type thing?

Maybe a little bit bigger than that. But still relatively small and with a relatively small team that would be easily integrated into Absolute's infrastructure.

Okay, great. Thanks a lot.

Thank you.

Your next question comes from Richard Tse from National Bank Financial. Please go ahead, sir.

Hi, guys. You guys mentioned a sort of number of priorities here. International, expanding US sales group, expanding the OEM relationships. Is there any way you can sort of prioritize what's going to be the major drivers, say the top two of all your strategies going forward in terms of seeing material drivers to the sales contracts?

The -- in our business model, Richard, the main drivers are always the PC manufacturers. So those partners are the partners we're most close to. We have technical relationships, product relationships, sales and marketing relationships with those partners. So we really start there. We start there with the relationship, making sure we can get the technology properly positioned inside the -- each of those partnerships. And activating services on those devices for those partners' customer bases.

So that will be -- that is our key focus. That will be our key driver and we'll be following those partners into the different markets that we serve here in North America, in the EMEIA market, in the Asia Pacific market.

Another clear focus for us in Intel and supporting the Intel anti theft imitative, which we are in -- we believe the best position to do from a practical perspective. So we'll be continuing to drive that as well. So really, that would be number one and number two in terms of the initiatives that we're driving at Absolute.

Okay. And as far as the international business goes, do you give a split in terms of the sales contracts, North America and international? Or no.

We -- I don't think we actually did, but we don't mind giving that. So basically our international sales, if you bear with me for a second, were -- they were about 6% of total sales for the quarter. So they're just up -- they're up slightly. They were 5% last year. In actual fact in US dollar terms, they're up 23% Q1 over Q1 last year.

Right. And how long do you think that you'll sort of -- it'll take to get to, let's call it, 10% to 15% threshold based on your plan today?

I would say it's possible, but unlikely. It's probably somewhere between the 5% and 10% this year. And I think in the prior -- in Q4 we sort of mentioned maybe a CAD5 million to CAD6 million sort of rate for international this year. And hopefully next year is when we see the last in fiscal 2011 when we really see the lift start to take hold with the initiatives we've been rolling out this year.

For international.

Yes, which would basically drive it above the 10% mark.

All right, great. Thank you.

Thanks.

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

Okay. Thank you, Operator. Thank you, ladies and gentlemen. We will now conduct -- well we've conducted a questions and answer session, so with that, I'll say thank you very much and we'll look forward to reporting to you next quarter.

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