Absolute Software Corp (ABST) 2010 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Absolute Software Corporation Third 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, May 3rd, 2010, at 5 p.m. ET.

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

Thank you, operator. Good afternoon, everyone. Thanks for joining us to discuss our third quarter fiscal 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'll provide some closing comments before opening up the call for your questions.

Third quarter business overview -- While sales contracts for Q3 were below expectations, we are continuing to show constant-currency growth of 7% in Q3 and 6% growth year to date, compared to the same periods last year. So let's remember, as we're looking at our numbers, that the underlying business is still growing.

During this challenging economic environment, Absolute has invested to maintain and extend its leadership position in the computer anti-theft business. Absolute believes the computer security and management markets are rapidly consolidating and that commercial customers require a comprehensive, broad set of functionality to enable world-class management and security of remote, mobile and distributed computing environments. This is a multi-billion-dollar market opportunity and Absolute is moving swiftly towards having one of the most exciting, easy-to-use and uniquely persistent solution sets in the end-point management and security marketplace.

Looking forward, we believe the overall market is improving as refresh cycle budgeting is stabilizing. Consequently, we are seeing strengths building in our sales pipeline.

To capture as much near and mid-term business as possible, Absolute has identified four key strategies to drive the business as follows. The first strategic driver to grow and maintain Absolute's leadership in the core anti-theft business.

Computrace remains the world's leading solution for emergency device and data protection services with features that include, among others, remote data deletion and device locking, comprehensive computer theft investigations, forensics and recovery capabilities, persistent tracking, computer inventorying of software license complete and real-time wireless support with enhanced location capabilities.

To strengthen our core business, it's also noteworthy that just after Q3 Absolute purchased FailSafe and Freeze from Phoenix Technologies for cash of $6.9 million US, which further strengthens Absolute's competitive position in this emerging anti-theft business category. In summary, Absolute will continue to drive adoption of Computrace through our valued OEM partners into new and existing customers and prospects.

The second strategic driver for Absolute is to accelerate the adoption of Absolute's life-cycle management business. As you know, with the acquisition of LANrev last December, Absolute entered the computer life-cycle management business. Absolute Manage has three competitive advantages over legacy solutions -- our unique persistence tracking technology, our industry-leading cross-platform integration of both PC and Mac, and our ability to leverage Absolute Manage into our existing customer base.

We believe this strategy is working and subsequent to quarter end, we completed a $1 million sales contract for Absolute Manage with a US school district, an existing Absolute customer. Absolute Manage will provide full life-cycle management for this customer's 18,000 computers.

The third strategic driver for Absolute -- to enhance Absolute's product offerings to include protection for data at rest. This is protecting the information on the actual device. We're in beta now for our encryption and port-protection offerings that will natively be managed via Computrace.

And Absolute has partnered with full-disk encryption companies so that Absolute can provide a one-stop platform for the gold standard in data and privacy protection. This is Computrace anti-theft combined with full data protection through disk encryption.

It's worth noting that Absolute is well positioned to drive many of the exciting new features coming to the encryption market, which include remote auditing of encryption status, locking down encrypted drives should a device be declared lost or stolen and remote deployment and management of encrypted devices.

The fourth strategic driver is to drive and repeat the above strategies in both the EMEA and Asia-Pacific markets.

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

Thanks, John, and good afternoon, everyone. I'll provide some more detail around our sales contracts. Firstly, sales contracts of CAD15 million were below the estimated CAD15.5 million to CAD16 million range we had given in our preliminary announcement on April 8th, due to adjustments made in our normal quarter-end review process. However, it is important to note that we do not give quarterly guidance and, therefore, the primary purpose of that announcement was to adjust our annual guidance. The closing adjustments do not affect this guidance.

In US dollars, sales contracts were up 7% in Q3 and 6% year to date, compared to the same period last year. We drove positive performance in all of our verticals, with the exception of our governmental vertical, which was down $940,000 US, or 67%, from Q3 last year and which is down $1.5 million US, or 45%, year-to-date. However, we had built a reasonable pipeline in our government vertical and in March 2010, we achieved a level of FIPS certification, which as become a prerequisite to closing some of this pipeline business.

In addition, we have hired a leader for our federal sales team that will be starting in May and who we expect to help return our government business to growth in fiscal 2011.

Excluding the government vertical, our sales contracts grew at 16% in Q3 and 10% for the year to date in US dollar terms. On the international front, we recently closed a large corporate customer contract in our EMEA region, worth approximately CAD1 million over a five-year period, which will be reported in sales contracts on an annual basis. This is our largest customer in EMEA and is a promising sign that our efforts overseas are beginning to pay off. International sales were up 140% in Q3 to $1.2 million US and were up 88% for the year to date to $3.2 million US.

We closed the quarter with a subscription base of 5.5 million, up 36% from 4 million at March 31, 2009. This customer base provides us with a significant opportunity for renewals, deeper penetration and cross-selling opportunities for our Absolute Manage solution.

While our expiring subscription ratio has reduced to 1.6 this year from 2-plus historically, with 1 million commercial and 1.6 commercial subscriptions up for renewal in fiscal 2011, it does provide us with a solid base for generating sales growth.

Cash from operating activity was in line with expectations at CAD241,000 in Q3, compared to CAD3.1 million last year and for the year to date was CAD6.2 million, compared to CAD15.3 million. The reduction reflects three main factors -- our continued investment in the business, the impact of the economic downturn on sales performance and the impact of the stronger Canadian dollar.

Total operating costs, excluding stock-based compensation and investment tax credits, were CAD15.9 million in the third quarter, an 8% increase over the prior year, and were CAD48.3 million year-to-date or 13% higher than last year. We have continued our efforts to strategically build out global sales and marketing and research and development capabilities, however we have slowed the rate of increase in our operating expenses and will continue doing so in the coming year. As a result of this and our sales growth strategies, we expect to deliver improved leverage in the business in the coming fiscal year.

Our net loss for the year-to-date period declined to CAD4.3 million from CAD18.7 million last year and our EBIT-- our year-to-date EBITDA, adjusted for stock-based compensation, was CAD333,000 compared to a loss of CAD2.7 million last year. The improved adjusted EBITDA is primarily due to revenue growth of 23%, CAD47.5 million, that was generated by the increases in our deferred revenue balances.

The increase in revenue was, in part, offset by CAD2.4 million of foreign exchange losses, compared to net gains of CAD784,000 last year and by a CAD690,000 reduction in interest income.

From a balance sheet perspective, we have sufficient resources to support our growth plan. At March 31, 2010, our cash, cash equivalents and investments were at CAD65.5 million, compared to CAD68.9 million at June 30th, 2009. The decline from June 30 primarily reflects the CAD10.3 million in cash that we used in the acquisition of LANrev.

In closing, as we look toward fiscal 2011, we are optimistic about our sales growth prospects and our ability to achieve operational efficiencies. At this point, I'll turn it back over to you, John.

Thanks, Rob. To summarize, in constant currency, the business continues to grow. We believe that IT spending is slowly improving and with it that security market spending should accelerate. Our pipeline is improving as we're heading into our seasonally strong quarters, likely with some pent-up computer demand at the commercial level.

Absolute is focused on improving operational effectiveness and has made some significant investments in the business to help deliver our next wave of growth.

Finally, let's always remember that meeting the compliance requirements to manage, secure and support mobile devices is a constant effort for our customers and we believe that Absolute is very well positioned to serve our customers and continue to win in this growing end-point security and management market.

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

(Operator Instructions). Your first question comes from the line of Glenn Jamieson with Macquarie. Your line is open.

Rob, you'd mentioned that the trajectory for operating expense growth in fiscal '11 is going to slow. I'm just wondering if you can give us a bit more detail on that. In the environment where sales a little bit difficult to come by, you obviously have a lot of control over your operating expense base. You've invested heavily for the better of two years now and I'm wondering is the slowdown in expenses tied to you kind of building out what you need to build out or is it more a reflection of the reality that sales have been a little bit disappointing and you're going to try to match your expense base to your sales line so that cash flow does, indeed, improve next fiscal year?

Well, Glenn, I think we're looking at that as basically in the last two years certainly we grew a lot. We've invested significantly and are happy with the infrastructure that we've built to support, especially, our international growth, as well as building out to 25 regions, for example, in our North American sales team, which we think is the right thing to do.

So the-- so the thing is, when you grow that fast and, of course, there's opportunity to improve your efficiencies and do some-- make some savings. Maybe some of the things that you invested in along the way you've learned that you don't necessarily need to do some of those. So I would say, no, it's more of a look at making sure we can increase investment in strategic areas and try to peel back in areas that haven't been as fruitful for us.

Is it reasonable to think about spending in fiscal '11 kind of a similar envelope to what we've seen or should see in fiscal '10? I'm looking for about CAD64 million in terms of your COGS and operating expense. Is it your plan to live within that spending for fiscal '11 and, as you say, kind of reallocate dollars to the places where you think there'll be biggest bang for the buck?

That would be our objective, to try to stick within that.

Okay. And then just a follow-on question. You'd also raised the idea that your renewal rate, that ratio, has dipped to about 1.5 and historically had been closer to 2. Can you just refresh us on the things that you've been investing in and are hopeful will occur in the next few quarters that if we do start to see better sales and get this refresh cycle going in the US commercial market, what are the things that will move that ratio closer to 2, as opposed to 1.5.

Well, certainly the-- as the PC refresh cycle accelerates, we would expect to see some uptick in that, as well, plus it's a factor of new customer acquisition that we've been up to in the prior years. So that does play it on, somewhat. As you know, in the last couple of years, the new customer acquisition has been a bit lighter than historically.

So that's one thing that does weigh on it somewhat, but one of the key things we're looking to assist in growing that existing customer business is the addition of Absolute Manage and giving it time to work it though the pipeline and start to see some of the goodness from that through existing customer purchases who really need both Computrace and Absolute Manage, especially if we can have it under one console for them and leverage our persistence capability across both systems.

So we think that that certainly will help there.

Right. And just one last follow-up question. In terms of your pipeline, to the extent that you're seeing it improve, have you seen the new customer portion of that pipeline improve or is it too early to say that?

Yes, we have. I mean, for the year versus 2009, we've seen an improvement in new customer acquisition, certainly. And nothing that's earth shattering at this stage. But I-- versus Q3 last year, actually, our new customer acquisition is up 51%, which was-- it's $2.2 million US, which is a nice improvement. But year to date, it's still only up about 8%, so it seems to be showing some signs of life here in the current quarter.

Thank you.

Your next question comes from the line of Scott Penner with TD Newcrest. Your line is open.

Thanks. Just to-- first of all, Rob, on the existing commercial subs, what was the US dollar renewal dollar figure versus last year?

The US dollar?

Sorry, the ASP.

Oh, sorry, the ASP. They're both at $45 for both years pretty much, give or take a few pennies. It's actually up a bit this year.

Okay. And then on the consumer business, the MD&A talked about, obviously, the 1.6 million coming up for renewal next year being about three times the amount of the last couple of years. I guess that sort of leads into the question of what's been done on the renewal side, as far as getting registration rates and what were the renewal rates over the past couple of years and what should we look for?

I'd say the renewal rates, up to this point, have not been what we would like them to be. We've been implementing a number of strategies to try and increase that. I don't have a specific percentage for you, because, as you sort of noted, the registration rate will play on it somewhat. It's around the 10% mark, call it, by that's with 50% registration rates on the front end, whereas now we're more in the 70% range.

But, in any event, it is a factor of our interaction with our customer during the life cycle, which we've just added some functionality to improve that relationship-building capability during the life cycle of the sub. And we do expect that to help.

I think the one thing that I've put in the MD&A that you could probably use to help with it somewhat is this comes through in our online sales, which have hovered around CAD400,000 a quarter for the last while. So that's where we would see the increase in that business. So we've got a threefold increase in the opportunity and it's already doing about CAD400,000 a quarter for us.

Okay. And then headcount, I think, up year-over-year was 346 from 296. It looked like sales and marketing was up 21 people, if I've done that right, over that year. Where was the balance, as far as R&D versus admin?

Well, so there's a couple of buckets that we go into from there, as we have the disaster recover team, as well, right, in our customer support side of the business. So, basically, the sales and marketing side went up to 142 from 121 last year in Q3, whereas, on the other side, of course, R&D was a significant increase, as well, from 75 to 91 people. And admin is back at flat, basically, but the rest of it is all in operations, IT support and disaster recovery capability.

Okay. Thanks a lot. Best of luck.

Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets. Your line is open.

Good afternoon. On the consumer side, can you remind us what the split sort of looks like now as far as OEM versus other and can you speak to how your non-OEM business in consumer has been tracking?

Yes, the non-OEM business is up year to date and for the quarter, not substantially. It's basically muted somewhat. I'm searching for my spot report here, but it's sort of up in the 5% range whereas the OEM is, indeed, down year to date. Obviously, a lot of that is the bundled type of business and-- although it has started to come back in the last while and increase in percentage of those sales in the third quarter.

Okay. And then can you speak to, I guess, your progress in trying to further drive the consumer business, outside of the OEM?

A lot of it is hinging upon the renewal strategy. Retail has continued to grow, not overly rapidly. That said, we have recently launched some new programs with OfficeMax and others where we've been able to get some bundles with Norton Antivirus and with--

Trend Micro.

--Trend Micro, as well. So those, I'm sure, will help move the needle on our retail side. But we're in there consistently marketing to them and building up the awareness and that just takes time before we start seeing the return on that. But I would say that, from a strategic focus, the OEMs and the renewals are continuing to be our primary focus for growth of the consumer.

Okay. The gross margin in the quarter was higher than historically. I'm guessing that's because of LANrev. Is this is a good sort of run rate, going forward?

Part of it is because we've had some of the warranty accrual release. Every quarter we look at our warranty accrual and whether or not any adjustments are required. So in this quarter we actually determined that we needed to reduce the accrual rate slightly. And so you're seeing part of the benefit of that in the quarter, as well. That was about CAD1.1 million, so while the year-to-date is probably not too far off, the quarter is a little higher than normal in gross margin perspective.

Okay. That makes sense. And then to what extent do you expect to be able to leverage your channel relationships in further driving Absolute Manage, now that you've enhanced that with LANrev, as well as some of the new offerings you're talking about, like end-point security with encryption. Are your channel partners receptive to that, or is the challenge that, in some cases, they may have already preexisting partnerships in some of those areas?

Thanos, we are pleased with the opportunities that we have to take our existing channel partners and add in encryption solutions and, obviously, Absolute Manage, as well. So we've made some progress getting Absolute Manage SKU'd up at at least one of our OEM partners and we plan on SKU-ing it up at a couple of other ones, as well.

It's a little bit of a different selling model in terms of it tends to also sell into the existing installed base, as well as potentially new units, going forward. So it's suited to both OEM sales channels, but also typical VAR channel.

So that's the Absolute Manage side. On the encryption/data protection side of the equation we would SKU that very similarly to our current business model where it could be installed at the factory, et cetera, and rolled up through the OEMs.

Okay. All right, thanks. That's it for me. I'll pass the line.

Thanks.

Thanks, Thanos.

Your next question comes from the line of Pardep Sangha with PI Financial. Your line is open.

Thank you. Just a couple of-- a few questions here. On the sales and marketing spend, you've ramped it up quite a bit. It seems to have leveled off a little bit here. If you can comment on that? And also, if you can just comment on severance payments. Do we expect those in Q4 and how much?

Sure. On the sales and marketing spend, part of the reason why the spend has gone up, obviously, is we're supporting not only North America but EMEA and Asia-Pacific, as well, so that has definitely gone up. As Rob mentioned, we've come to the point where we're just locking down the costs now and working within this current operating budget that we had basically trailing 12. We're not expanding it, going forward, but refocusing the dollars to the best return possible. So we'll be doing some optimization in that area.

And on the severance, we paid a small amount of severance out to one of the executives and that's about it.

It's in Q4, but it's not-- nothing material that you'll notice.

Okay. And then just to follow up on sort of the spend and your comments about locking down in terms of your spending there, is sort of EPS profitability potentially in the vocabulary these days or no?

Yes, it's certainly starting to be, Pardep. It's a very good question. I mean, as you'll notice, we are EBITDA positive currently, if you adjust out the stock-based comp. So our revenue has grown to a level where we're there now.

Okay. On the competitive side of things, the Phoenix FailSafe acquisition. You've had a few weeks here that you've announced it now. What kind of reaction have you had from OEMs and what kind of-- what new sort of OEM relationships are you looking towards now you've had a bit of time to digest this, a few weeks, anyways.

So, Pardep, as you know, the Phoenix folks with FailSafe had a relationship at Dell. They also had a relationship with Samsung and a relationship with Sony. So I think it's safe to say that we're moving forward with those partners. Obviously, Dell we've had for a long time. In Sony and Samsung we're making some progress with those OEMs and we look forward to delivering solutions through those OEMs in the future.

So the initial discussions with Samsung and Sony have been positive?

Yes and we were already in discussions with Sony previously, as well. So it's-- but this has given us an opportunity to make some headway in with Samsung, for sure. We had worked with them, in the past, as well.

Okay. Last question here. Are you in the appetite for some new acquisitions now? You kind of digested LANrev or what's sort of your thinking on that?

Well, we're really trying to maximize, obviously, LANrev. It's gone extremely well. They-- the LANrev folks have integrated very well into Absolute Software and the acquisition seems to be working really well. We just closed, as we talked about, that CAD1 million deal with an education customer just a week or so ago and we have a very robust pipeline filling up for the Absolute Manage technology.

We have these two data protection products and services that we're releasing to market this quarter, one being an encryption service and also our data-leaking prevention service. So I think we're getting those on the market and we're certainly keeping our eyes open for other technologies that might dovetail well with end-point management and end-point security.

Okay. Thank you very much.

Thanks.

Your next question comes from the line of Sera Kim with GMP Securities. Your line is open.

Hi. Good evening, guys. On the pipeline, are you seeing strength on-- like you mentioned that it's building. So are you seeing strength in any particular vertical? And would you be able to provide how much is US versus international?

So, again, our US sales are typically somewhere in the 90% range. The pipeline will follow those kinds of percentages. And it's in our traditional markets. It's in our education market and our commercial market. Those would be the two markets that would-- The corporate-- sorry, corporate and education would see the most benefit with the pipeline growth.

Okay. And I'm not sure if I missed this, but did you say if your OEM partners at Dell, Lenovo and H-P, was it up or down year-over-year in Q3?

The H-P and Lenovo continue to be strong. They've been growing quite rapidly. I think Lenovo's growing 36% year to date and H-P is about 58%. But I would say that a lot of that growth in H-P was driven by customers-- Dell losing market share to H-P. Basically, our customers that were buying through Dell now happen to be buying H-P and buying our stuff through H-P.

So I would say that H-P is probably pretty much similar to where it was a year ago from new business, but they've been taking a bunch of our Dell business or have done a bunch of the Dell business. So Dell is done, as a result, but H-P and Lenovo are both up.

I would say that as attached-rate level, we've definitely increased it at Lenovo. Dell's held steady and H-P has held pretty steady-- well, it's increased somewhat, but it's held steady outside of the Dell defecting business.

Okay, great. And these percentages, are they at a constant currency?

Yes, constant currency.

Okay and last question, what kind of visibility are you getting from Intel? I'm just wondering when you expect to see meaningful impact for their anti-theft protection technology offering?

Well, they certainly are getting some adoption by the OEMs at this stage. The Lenovo, up to this point, really has been the only one and now we've got some H-P units that are shipping with Intel AT capability and there will be others coming in the next quarter, as well.

So definitely there's been an uptick. There's definitely been an increase in their effort towards it and focus on it, so that's great to see. We've-- we're happy with where our program is with Intel at the moment and believe it's an opportunity to help drive some of our business, based on the extra feature set and tying in with the Intel brand.

We're doing a lot of co-marketing and co-selling with Intel into their customer base and our mutual customer base. So it's working well.

Okay, great. Thank you.

Thanks, Sera.

Your next question comes from the line of Blair Abernathy with TWP. Your line is open.

Thank you. Just a first question, John, if you just explained to us a little bit further what and how you're working with some of the encryption players to put a service out there?

Sure. So with encryption, we have a couple of different things that we're doing. First, we've spent a fair bit of time building an internal solution, which we'll be releasing to market this quarter that's in beta now. We're excited about that solution. It's a volume-based encryption solution, but it's using the Computrace management tools and our ability to interact with the machine, both on the LAN and off the LAN. So that's coming to market shortly.

Then we also have a data leakage prevention solution that's coming to market here shortly, as well. And that allows us to remotely lock ports and ensure that no data is removed from the device without the administrator knowing about it and authorizing it.

So those-- that's the-- sort of the first phase of the strategy and then there would be a second phase where we are partnering with some other folks around full-disk solutions and also Opal-type solutions, as well, to make sure that we catch this new curve that's happening in the encryption market.

There's a big movement towards self- encrypting drives in the encryption market and we want to make sure we're way out in front of that curve. So we're working closely with a number of folks in that area to make sure that we're ahead of the curve there and, of course, that we have full-disk encryption products to sell, as well.

It's very important that we not only protect the physical device, track the physical device in our tamper-resistant persistent manner, but also that we have value around data protection. Because, as you know, a lot of these data breach notification laws and compliance regulations are all around protecting the data on the end point. So we've had to-- we've had to work with some folks to get that kind of protection lined up.

Okay, great. Thank you. That's very helpful. Any-- just switching gears, anything to report or anything to update us on your relationship with Apple?

Nothing, other than working closely with Apple around the Absolute Manage technology and platform that's just so good at letting administrators, Apple administrators, manage both their Macs and their PCs from one console. So that's a wonderful advantage. In fact, this last deal that we won, the reason why we won it is that the educational institution has a mixture of Macs and PCs.

So any organization that's challenged with managing both Macs and PCs needs comparable functionality between the two management systems, the Absolute Manage system does it the best in class, best in the marketplace today. So that was a big deal. It was over CAD1 million and we see a fair few more of them in the pipeline.

Okay, great. And last question, anything to update on the mobile front?

Only that we're continuing to invest in our cellular platform, our enhanced WiFi location capabilities, our GPS location capabilities, our mapping capabilities and our relationship with Qualcomm, very important to the Company. And we are connecting-- connecting those dots back in through the various telcos and hopefully we'll be able to talk a bit more about that next quarter or before next quarter.

Okay, great. Thank you.

Great. Thanks, Blair.

Your next question comes from the line of Tom Liston with Versant Partners. Your line is open.

Hi, thank you. Good afternoon. I'm sorry if this has been asked, but I think the conversation mainly was on Manage with new-ish customers, but can you talk about the approach with existing? I assume you go more direct and is it a case where you're waiting for them to renew the maintenance with existing product and you try to go in before that? And just overall comments about what your install based, traditional install base, is out there using and what does that replacement cycle-- or replacement situation look like.

Hey, Tom. It's really interesting on the computer life-cycle management front that most large organizations, of course, already have a tool that they're using for life-cycle management. But many of the organizations, the customers that we are talking to, are not happy with whatever tool they happen to have. And I won't mention brand names here, but there's a lot of tools out there. No one's particularly happy. And the management of Macs is a huge deficiency in most of the tools that are out in the marketplace today.

So in the education market, where these education institutions have both Macs and PCs, we have a huge advantage there. So we're getting traction with a lot of our large K-12 customers right off the get-go. So this first one was an example in the Northeast, one of our school district customers that we've had for a number of years, as soon as we made them aware that we had the Absolute Manage functionality we were part of the bidding process and as soon as they tested this product, our product, Absolute Manage, over the competitors, we won the business hands-down.

So I think we're in a tremendous-- tremendously good, favorable position here and we're having similar types of experiences happening in other school districts. So this-- we will have several of these types of wins this calendar year and then we'll also have some wins with this product at state and local governments. We'll have some wins in some of the commercial segments that have Macs, publishing segments, things like that. So customers like that.

So it's a great product. It's a great team. The Absolute Manage folks have really integrated well with Absolute. And it's going to do well for us.

And you've changed some pricing on that. And do you-- how is it priced versus the competition right now?

Well, it's definitely cheaper. We've increased the price over what it was sold at before it became Absolute Manage. So we've increased the price over the legacy price point for that product. But at the same time, it's probably half of what a traditional asset management or life-cycle management toolset would go for.

Okay. And just broadly, you've talked a little bit about this, but many of your partners and along with Intel and Microsoft talked a lot about netbooks driving growth on the consumer side. Where are we on the corporate side? Is it-- there seems to be suggestion that's starting to come back, whether it's Windows 7 starting to harden and the service pack being released, and/or budgets being freed up. Where do you see it in your conversations with corporate customers and OEM partners of how that takeup is starting to come?

I think you're seeing the beginnings of the refresh cycle now. So I think they're thinking somewhere between 5% to 15% into the refresh cycle, somewhere on that curve. And certainly budgets are firming up. As we talked about earlier, our pipeline is firming up. So we actually have the largest pipeline we've ever had.

And so we are seeing these budgets firm up and I think it's going to play in our favor for the balance of the year.

So you say you've had the-- you're right now, the largest pipeline in the Company's history? Or the last bit?

Raw pipeline, yes. We have the largest raw pipeline. When you combine our core business, you combine the Absolute Manage business together and with these budgets starting to firm up and we have the largest raw pipeline that we've ever had.

Okay, great. Thanks.

Your next question comes from the line of Richard Tse with National Bank Financial. Your line is open.

Yes, thank you. I just want to sort of reconcile some of the commentary you've made in terms of the delay on a corporate side. We've seem some pretty robust commentary in terms of the PC market this past quarter with respect to shipments of, let's call it, in the range of 20% to 30%. Obviously, you guys had pretty positive constant-currency numbers but not to the degree that the market is showing.

So how do you reconcile what some of that commentary is versus what you're saying in terms of delays? What would sort of cause that to change?

Well, part of, Richard, is that as a service provider we're sort of the last thing to catch the PC as it goes out the door. So when you think about it, for commercial boxes, the Intel, obviously, all the component manufacturers, they're going to be the leading indicator.

And then H-P and Lenovo or Dell's going to be a bit of a leading indicator, because they're selling direct into customers and H-P and Lenovo might be a little bit delayed, because they've got stock out in the channel that's going through before the new demand cycle hits. Or the reverse of that is they might get-- they might have the demand in advance because they're stocking the channel a little bit.

So we also see the latest-- we get it just as it gets out the door. We get on the image. So I think that ours is probably a true reflection of, actually, where we are in the cycle. And, as I said, we think we're somewhere between 5% and 15% of this new refresh cycle, the beginning of that refresh cycle.

Right. So based on that swell that we have here, that's why you're having the commentary in terms of a pickup in the back half of this year, right?

Yes, exactly. And you've got to look, too, at a lot of on the 20% increase you've talked about, as well, there's been a lot of the consumer driving that, also.

Yes.

So there is-- there has, certainly-- we just have, really, as John mentioned, we've got the largest pipeline ever. That wasn't the case a month ago. It really seems to have started picking up here that that pipeline has been growing for us. And I think it's safe to say that during the third quarter we saw a lot of budget discussions going on and people starting to earmark it. Good discussions, but not yet stepping up to the plate and buying.

So I think this-- hopefully this large Absolute Manage is a sign that those things have started to turn for us.

Right. And just one last question. You guys have a lot of balls in the air. You've got this international, the consumer push, you've got the LANrev integration and now the Phoenix assets. What have you done or what do you think you need to do on a management level to make sure you sort of manage all these variables so you don't sort of lose anything in the mix here?

I think we've done what we needed to do, which was, we've actually reduced the size of our management team somewhat and we have the bodies and the people go to and drive the programs, as necessary. So from a management perspective, we have most of what we need, limited hires on that side, to help with the heavy lifting. In the name of efficient-- operational efficiencies.

Okay, thank you.

Thanks, Richard.

(Operator Instructions). Your next question comes from the line Gabriel Leung with Paradigm Capital Your line is open.

Thanks. Just a couple of quick things. John, did you tell us what the duration of that CAD1 million Absolute Manage contract was?

We actually didn't put it in the release, Gabe, and it is more than a year, I believe.

Okay. And then, just in terms of-- just from a bigger picture perspective, what do you think are some of the bigger hurdles right now you're facing in the sales cycle? Is it still capturing the budget dollars or is it more sort of resistances to adoption of the solutions, whether it's because of education or just competing products? Can you talk about what some of your bigger challenges are, right now?

Yes, I think the number one challenge has been budget up to this point and the fact that most customers have been hanging on to their older PCs and just haven't had the approval to spend and upgrade. But hopefully now, with Windows 7 on the market, with the service pack one kind of coming down the pike here fairly shortly, I think some of that budget-- those budget dollars are freeing up. I think that's been a big piece of it.

I think another piece has been, as valuable as our Computrace solution is -- and it's very unique and very valuable -- a lot of people still don't know about it. And so it's continuing to raise awareness that persistent tracking, remote deletion, remote locks, forensics, remote forensic capabilities, all those really helpful technologies are available in an emergency services platform when you lose your device.

So we're constantly trying to evangelize the marketplace, obviously, and then the regulatory environment has written in a loophole, if you will, in legislation that really lets corporate America off the hook if they have encryption. So encryption has increased in terms of its relevance to the market over the last two years, where up to 2007 it really wasn't that relevant. And then 2008-2009 it's really become much more relevant because of this loophole.

So that's why it's so imperative for us, as a company, to ensure that we have encryption components in our solution, which we're doing now. And I think we'll see the-- we'll be the benefactor of that.

That's great. Two more quick things, I guess for Rob. Taxes -- any update on what the fiscal 2010 cash taxes is going to shape up to be? And any commentary on fiscal '11 would be great, as well?

No cash taxes in fiscal '10 and then fiscal '11, we've tried to accrue a couple million there, I think you'll see, in the financials. So that's our best estimate at this point, what we might be incurring for tax.

However, having just purchased the Phoenix assets, as well, we-- that, coupled with the LANrev acquisition, those both will give us some tax shelter, so we might see that come below the CAD2 million there that we've estimated.

Right, okay. And just the last thing, the CAD1.1 million warranty accrual benefit, I guess, that all showed up in the cost of goods, right, Rob?

Yes.

Okay. Perfect. I appreciate it. Thank you.

Thanks, Gabe.

Your next question comes from the line of Sera Kim with GMP Securities. Your line is open.

Hey, guys. Just one follow-up question. Given that you have the largest raw pipeline that you've ever had, I'm just wondering, should we look at seasonality the same way as we look out into fiscal '11?

Yes, I don't think there's any reason at the moment to think the seasonality has changed.

Okay. Okay, thanks for the clarification.

Thanks, Sera.

There are no further questions at this time. I turn the call back over to our presenters.

Thank you, operator. Thank you, everybody, for attending the quarterly business update. We appreciate it and look forward to speaking with you all again soon. Thank you, operator. We're done.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.