BlackBerry Ltd (BB) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by.

Welcome to the Certicom Corp.

fiscal 2007 annual and fourth quarter results conference call.

At this time all participants are in a listen-only mode.

Following the presentation we will conduct a question-and-answer session for analysts and institutional investors.

Instructions will be provided at that time for you to queue up for questions.

(OPERATOR INSTRUCTIONS) I would like to remind everyone that this conference call is being recorded today, Thursday, June 7, 2007, at 10 a.m.

Eastern time.

I will now turn the conference over to Dana Broadworth, Account Executive.

Please go ahead.

Good morning and thank you for joining us for Certicom's conference call to discuss the results for the fiscal year and fourth quarter ended April 30, 2007.

On the call from Certicom are Bernard Crotty, President and Chief Executive Officer; Herve Seguin, Chief Financial Officer; and Dr.

Scott Vanstone, founder and Executive Vice President, Strategic Technology.

I will remind you that all dollar amounts discussed today are in U.S.

dollars.

The call is also being webcast live on the Company's website at www.certicom.com.

During the call, management may make projections or other forward-looking statements regarding future events or future financial performance.

Actual performance, events or results may differ materially.

Please refer to the Company's most recent annual report and other documents filed with securities regulators for a discussion of factors that could cause actual results to differ materially from any forward-looking statements.

I will now turn the call over to Bernard Crotty.

Good morning and thank you for joining us.

Please turn to slide number four.

We'll follow the traditional format starting with an overview and a review of the operational highlights for the fiscal year and the fourth quarter.

Herve will then go through a discussion of our financial performance and our outlook for operating expenses.

After a brief summary of the year, we'll be pleased to take your questions at the end of the call.

Please turn to slide number five.

Our annual and fourth quarter results indicated that Certicom's steady progress continues as adoption of ECC becomes widespread.

And we are committed to more rapid and substantial progress going forward.

Certicom's fourth quarter revenue of $6.5 million reflects the timing of contract closings for several large multi-year contracts, which we alluded to in our third quarter earnings release.

The Company's annual results for fiscal 2007 are consistent with the objectives set out in our business plan.

We had a significant increase in the number of design wins this year, with multi-national such as GE, Nokia and WORLDSPACE committing to Certicom's ECC-enabled solutions.

This provides strong evidence of the increasing market adoption of ECC.

Please turn to slide number six.

The patent infringement case against Sony Corporation announced just last week is an example of a situation where we will defend our patent portfolio where necessary.

Please turn to slide number seven and I will go through some of the operational highlights for the fiscal year, which include several recurring revenue contracts with well-known high-tech companies.

First, GE licensed Certicom's ECC technology for its security business.

Nokia licensed Certicom's cryptographic technology in a multi-year contract as the foundation for security in Intellisync Mobile Suite and other messaging and file synchronization products.

Customers using this Nokia product, which include many large multi-nationals, depend on Certicom for secure and reliable wireless communications.

Visto Corporation licensed Certicom's technology and ECC cryptography in a multi-year contract for mobile push email and messaging applications.

The growing value of content being sent across wireless networks demands a reliable security solution that can keep pace with evolving standards and protocols, and we are very pleased to have been selected to supply this security solution to Visto.

Please turn to slide number eight.

Cybertrust, the global information security specialist, licensed Certicom's Suite B power bundle products for use in its range of PKI-based identity management solutions.

NTT and Certicom formed a joint research agreement for ECC digital signature technology.

This agreement brings together two of the world's top cryptographic research teams to create new security technologies for the mobile platform.

Please turn to slide number nine.

WORLDSPACE Satellite Radio, a global leader in satellite-based digital radio services, and Certicom formed a significant licensing agreement which will involve Certicom's Conditional Access System used for securing their broadcast services for the European market.

During the fourth quarter of fiscal '07, we were also successful in securing several recurring revenue contracts with top-tier multi-nationals in a broad range of sectors, including the semiconductor, mobility, government, enterprise and entertainment markets.

Although specific contract details can be not be disclosed due to confidentiality agreements, these agreements contributed to Certicom's fourth quarter revenue and will provide ongoing revenue -- recurring revenue in the form of royalties and annual software support fees.

Please turn to slide number 10.

I also wanted to highlight two developments that occurred subsequent to fiscal year-end.

On the organizational front, Dr.

Matthew Campagna, a security professional with extensive experience in ECC implementation, was appointed Director of Research.

In this role he reports directly to Dr.

Scott Vanstone and his mandate involves the management of Certicom's research team, as well as a significant role in the communication of the Company's technical vision and strategy.

As previously stated, just last week we initiated litigation against Sony Corporation and related Sony companies for patent infringement.

We prefer to resolve patent disputes through commercial discussions and without litigation.

However, in this situation we were left with no alternative but to file suit.

We are confident that we have adequate patent rights and resources to successfully pursue this suit.

I now will pass it over to Herve Seguin to discuss Certicom's financial performance for the year and the quarter.

Thank you, very much, Bernie, and good morning, everyone.

Could you please turn to slide number 11.

Revenues for fiscal 2007 were $21.4 million, compared to $15.1 million for fiscal '06, in line with the objectives set in our business plan, as Bernard mentioned a new moments ago.

Operating expenses were within expectation of $20.1 million compared to $15.2 million the prior year.

The increase in year-over-year operating expenses was mainly due to a planned increase in product development resources, higher sales commissions related to increased revenue and legal expenses related to intellectual property protections.

On a GAAP basis the Company posted a net loss for the year of $3.1 million or $0.08 per basic and fully diluted share.

This compared with a loss of $3.2 million or $0.08 per basic and fully diluted share in fiscal 2006.

Certicom's cash position is very strong at $43.2 million at year-end, compared to $44.3 million at the end of the third quarter and $24.7 million at the end of fiscal 2006.

Please turn to slide number 12 and I'll run through the fourth quarter numbers.

Revenue for the fourth quarter ended April 30th was $6.5 million, up from $5.1 million in the same quarter last year.

As Bernard stated, the quarterly revenue reflects the timing of contract closings for several large multi-year contracts.

Operating expenses for the fourth quarter were $6.3 million.

This compares to $4.5 million for the corresponding quarter of fiscal 2006.

The year-over-year increase was primarily due to the same reasons we just discussed in the full-year review.

The net loss on a GAAP basis for the fourth quarter was $1.2 million or $0.03 per basic and fully diluted share, compared to a net loss of $200,000, which rounded to zero per basic and diluted share in the fourth quarter of fiscal '06.

Can you please turn to slide 13 and I'll discuss our financial outlook.

For the first quarter of fiscal 2008, we expect operating expenses to range from $6.7 million to $7.1 million, including estimated legal expenses ranging from $800,000 to $1.3 million associated with intellectual property protection, and excluding items such as cost of sales, depreciation, amortization, and stock-based compensation.

As we have stated before, Certicom is well positioned to reap the benefits of three primary characteristics; a strong cash position, a debt-free balance sheet, and a steadily increasing base of recurring revenue.

We believe that these attributes provide the Company with ample financial strength and flexibility to continue to successfully execute our growth strategy.

Given the nature of the industry, Certicom's quarterly revenue is subject to some degree of variation on a quarter by quarter basis.

However, management anticipates healthy annual revenue growth on a year to year basis in fiscal 2008.

Now I'll turn the call back to Bernard for closing comments.

Thanks, Herve.

Please turn to slide number 14.

Prior to taking your questions, let me provide a brief summary of our performance in fiscal 2007.

The marked increase in the number of multi-nationals committed to multi-year recurring revenue contracts with Certicom indicates growing adoption of ECC around the world.

In addition to the Company's growing number of licensing agreements, we continue to demonstrate our ECC leadership by collaborating with top-tier technology companies for research and development initiatives.

Certicom continues to make steady progress in its high-growth target markets.

Please turn to slide number 15.

Management intends to continue its focus on leveraging Certicom's position as a global leader in ECC in order to build recurring revenue and sustainable profits for shareholders.

This will involve defending Certicom's patent portfolio where necessary, as demonstrated by our recently announced litigation against Sony.

This litigation provides evidence of our focus on protecting our world-leading intellectual property as part of our overall commitment to more aggressive execution of our growth strategy.

That concludes our formal remarks, now with the operator's assistance, we will be pleased to take your questions.

Thank you.

One moment please.

Ladies and gentlemen, we will now conduct the question-and-answer session.

Please be advised that members of the media and general public will be in a listen-only mode for the duration of the question-and-answer session.

Certicom will be pleased to arrange for any follow-up discussion or interviews of senior management after the call has been completed.

To make these arrangements, please contact John Callahan at 703-234-2357.

Your first question comes from Scott Penner of TD Newcrest, please go ahead.

Thanks.

Bernie, in the past you have given out, I guess as a proxy for growth, the number of design wins that you have had on an annual basis.

Do you have that number for the past year?

We typically disclose that in our annual filings.

We are in the process of preparing that now.

That will be issued in July, in which case we'll have that information available as we did in the prior years.

Okay.

And Herve, what is the recurring revenue, either as a percentage or on an absolute basis?

As a percentage it was approximately 32% this quarter.

Year-over-year will be roughly 40%.

Compares, on an annual basis, about the same as last year, but understand that our -- the common denominator to the calculation went up by 41% so that gives you a sense of the numbers.

So the absolute numbers as calculated is we're slightly over $2 million a quarter in recurring revenues.

So on an annualized basis, we're close to eight.

That compares to about six last year.

Right.

If I look back, you made the comment a couple of quarters ago that the recurring revenue was around 2, or 2.2 I think was the actual number in Q2.

Is there any reason why we haven't really seen that number move up in the past couple quarters?

Just timing.

Okay.

Just timing of some royalty streams coming on board.

Okay.

And just to -- lastly, maybe on the legal expenses.

A couple of things.

One thing, the expenses that you have laid out for us, is that -- would that cover more than one -- more than one legal action, or would there be an additional -- additional charges if you decide to go after other people?

Well, the estimate we're giving you is for the current legal action that we have.

And suffice it to say that we're focusing on what we have right now.

Bernie did mention -- that we will defend where we need to, but the expenses that you see in front of you as a forecast for the coming quarter is strictly on the current action we have outstanding.

Okay.

On the growth in the expenses from Q3 to Q4, how much of that dollar amount is legal expenses?

It would -- trying to think -- it's about $700,000.

For that period of time.

Okay.

Great.

Thank you.

You're welcome.

Your next question comes from Lawrence Rhee of Blackmont Capital, please go ahead.

Lawrence, are you there?

Hi, sorry.

I'm just -- with respect to this $700,000 legal expenses in the quarter, for Q4, that does also relate to Sony specific, I presume.

Yes.

Okay.

Just on another note, just on the press release for the highlights of the year, I noticed that Philips was not included in that list.

Can you just give us an update on what is going on with Philips and the relationship there?

The relationship with Philips is ongoing.

I'm not sure why we wouldn't have included them, because they are an important customer.

One thing is that the -- they are -- there are some delays in the deployment of the DPCP standard and the inclusion of ECC.

As you know, ECC competes in that standard with another technology.

So there's no reason why we wouldn't have included it.

It's just that they didn't generate a tremendous amount of revenue this year.

Got you.

And just with respect to the recurring revenue stream, I guess we're kind of close to that juncture of nine to 12 months in terms of when we expect to see some of the early year-end deals announced last year to kind of contribute to recurring revenues this year.

I assume -- is Q1 kind of the started that or is it still farther out?

Well, we're still a little early to discuss those, but they are still on plan and, as we know, nine to 12 months is a guide.

There's some times when they come in a little earlier and sometimes a little later than that, but we're still confident that some of these streams are coming on board.

Okay, great.

Thanks, guys.

Okay.

Our next question comes from David Wright of BMO Capital Markets, please go ahead.

Thanks, good morning.

Good morning, David.

On the recurring revenue I assume some of that is reported as products and some as services.

Is there a split you could provide us?

We don't provide splits at this point, David, but it's fair to say that we have some that are revenues related to royalties, and there are some others that are related to maintenance agreements, sort of recurring annual updates and hotline support type of services.

Like when they buy a product, and then they pay 20% per year or something --

We have a -- David, we have a program whereby when customers buy a toolkit from us, they can opt, and most people do opt, to take a service agreement that provides them with the ability to get answers if they have any questions on the product, or to get upgrades as we update those products.

And they pay anywhere from 20% to 40% of the value of that kit on an annualized basis, depending on the level of service they choose to take.

Okay, great.

The clarification on an answer about the legal expense in Q4, was about the $700,000.

I just want a clarification, was that for the period of Q3 and Q4?

Or was that solely for Q4?

No, that was the Q4 period.

And as you may understand, that's when activities started on our plan to launch the action at Sony.

Great, Okay.

Was there any extra expense for ForEx or severance for those two items?

On the severance front, as I mentioned on the last -- I think in one of the prior meetings we have had, there are no severance charges in Q4.

I just want to reiterate that under -- Ian is still an employee of the Company, assisting the CEO in a smooth transition, whether it be with Bernie now and the full, I would say -- I'll call it full-time CEO or new CEO later on.

And so to that extent, Ian's expenses get -- or Ian's payments as an employee get expensed as paid.

Okay, great.

As it relates to FX, there have been for us no important or no significant impact on the recent FX changes we have encountered in the market.

We have a very effective hedging program, and -- so we were well positioned for that.

However, as the -- as our contracts expire and we have to buy new hedging contracts, it will be whatever the market will be at that time.

So going into fiscal '08 there will probably be an impact from the higher (Multiple speakers).

There probably will.

And David, just to remind you, we have a hedging program that sees us hedging most of the next quarter's expenses, a little less of the second quarter out, less of the third, less of the fourth, and then every quarter we reset those registers.

So it sees us buying futures contracts roughly the first week of every quarter.

Okay, that's good.

Could -- is there a kind of a time frame that you could outline for us with this Sony action?

I would assume that it maybe come to an agreement on any particular day, but when do you expect a response from them for your action and what other stages are there to talk about?

Well, David, I think on that one, the only reference that we can have at this point are the relevant legal process rules, and so all of those things have to be adhered to from service to Markman hearings et cetera.

The broad framework, as you know, is that that that Markman hearing is in about nine months, potentially.

If it goes to trial it would be 20 months, so we don't have any indications at this point that we should expect anything different.

Of course at the right time and as opportunities present themselves, we'll look to re-engage and negotiate on this front, but it takes two parties to negotiate.

We hope and expect that Sony will be a willing participant in that process as we go forward, but if not, we default to the relevant legal process rules, and we have prepared ourselves to have to take this to the distance.

We're hoping that we can negotiate something soon, but if it doesn't we'll commit to the full process and we'll be successful throughout that process.

Okay.

Could you give us any color on the vertical strategies and maybe government in particular?

Is there any further evidence that people are showing more interest in adopting technologies?

Well, I think we have indicated in the past that we have very strong relationships with various government agencies, including our own Canadian security establishment, and including the National Security Agency in the United States.

NSA standards also apply to communications with NATO countries.

We expect that as a result of interoperability this will drive ECC adoption in those countries as well.

As a result, we believe our technology is positioned for growth in governments around the world.

But at this stage, we don't have anything specific for you other than to confirm the health of the relationships that we have previously spoken to, and to indicate that those relationships have roadways with other governments and we hope and expect that over time that will lead to further opportunities in the government sector.

So have you noticed any increased activity of other NATO countries?

When you say increased activity, there are ongoing discussions and working groups, et cetera, but we don't have a specific -- anything specific that we can discuss today.

Scott, I don't know if you would add anything on that in terms of visibility on standards, working groups, other public activities that we can give a little bit further color on.

No.

Like you say, the activity is certainly increasing.

We're very busy in standards, as are the government agencies, and we work closely with them to get the technology out there.

Okay.

And could you provide any update on the NTT agreement?

You are doing a research and development project with them.

I guess it's probably just getting started, but is there anything this is developing into beyond what you have announced?

Yes, we meet with them quarterly.

Okay.

We alternate between Toronto and Tokyo.

We have had two meetings now, so it takes a while to get things rolling.

But they brought eight researchers over in April and we will likely be back there sometime in July.

So it's going very well.

And are you looking at new product development that they are interested in for their -- for Japan, or is that still being scoped?

We're certainly looking at technologies that will be mutually beneficial, both them and to us.

So it's very much applied research, as opposed to theoretical.

Okay, great.

Thank you very much for your comments.

Yes, and David, obviously with respect to that research initiative, certainly our push, as Scott indicated, is to make this as applied and commercially relevant as possible.

And we have had discussions already about how do we involve end users to make this more relevant.

So I think -- I would just emphasize that this is commercially applicable and commercially realizable research that we're engaged in.

Great.

Great.

Thank you.

Thanks, David.

Your next question comes from Glenn Jamieson of Orion Securities, please go ahead.

Bernie, at the start of the call you made a comment about going forward, your objective as a Company was to deliver more rapid and substantial progress in terms of growing the business.

Can you give us a few specifics of the types of activities we should keep an eye out for?

And maybe break those comments down relative to your existing software business, and then a little bit more color in terms of the patent licensing side of your business.

I think that there is a number of buckets to look at on that, Glenn.

I think first of all, it -- an example would be our step last week to defend our IP.

And as I have indicated before, we want to license, but if we can't, we will defend it.

And I think that's just one example of what we're talking about in terms of more rapid and aggressive development.

I think another example is one that -- and we talked about this before -- is the acquisitions question.

And we are continuing to explore acquisitions that can drive our business forward, and we continue to work on that.

The third bucket is really product development, and we have had some interesting wins over the last year.

I can use an example, such as in the RFID space.

We intend to continue our investment in those areas to drive more opportunities.

And I think that we will -- that's one example, but additional product investment is one area.

The fourth area, as evidenced by the NTT agreement, is really more joint ventures and collaborations to try to extend and grow the business.

So I would look at it from those four buckets, Glenn.

And I think the -- the general answer to your question is those are the four buckets we're going to be exploring -- not exploring, but driving aggressively in those four buckets to develop opportunities.

And everything is on the table as we move forward.

Is it your expectation that to move forward, looking at those four areas, would that require significant incremental investment in terms of people?

Or are you fairly well staffed to go after those opportunities?

That's a great question, Glenn, and it's one that we wrestle with.

I think the answer is that we do not intend to significantly -- we need to have progress in our business and we're committed to progress.

We're committed to top-line growth and to enhance bottom-line performance.

Within that constraint, we will find additional resources to invest in the business.

But we believe the combination of the growth in our business and the benefits of the types of transactions that we're describing will allow us to drive growth within those constraints of both enhanced top-line and improving bottom-line performance.

Okay.

Thanks.

And Herve, a quick question for you.

In the coming fiscal year, should we expect to see the revenue that you describe as recurring grow at a faster rate than the remainder of your business?

That wasn't the case this most recent fiscal year, so is fiscal '08 a year where that dynamic will change, or are we looking out another year or two past the coming year.

Let's understand that last year our recurring revenues grew by one third.

So it was not a small amount.

We expect the same kind of results going into the next year.

As to whether it is going to go up by one third or 50%, it is a little early for us, because we are very dependent on our customers' rollout plans.

But to the extent that they roll out and that they are very successful, we will see that coming on stream in a stronger way than maybe otherwise.

Okay.

But we're looking at it to continue to grow.

That's really our objective.

As you know, we've said all along, that our objective is to grow a very -- is to development a very strong recurring revenue base for the Company.

Right.

Okay, thank you.

Sure.

Next question comes from Paul Bradley of Fraser MacKenzie.

Please go ahead.

Yes, good morning.

I just want to pick up on the previous question.

If you were to look out a year or two and, I don't know, present, say, a pie chart of your sources of revenues, where would you expect those to fall and in roughly what sort of proportions?

Paul, I'm afraid we're going to have to beg off on that one, because that one is -- would be -- it would be only speculation at this point and it's far too early for us to be able to give you that kind of view as to where the revenue will fall.

Maybe put it a different way.

Would you expect the majority of revenues to come from product and product-type sales?

Would you expect a growing proportion to come from pure IP licensing?

Depending on the timing of an eventual arrangement with Sony, that could swing what's going to happen in the next year to two, obviously.

Okay.

But I would think that the -- by and large, I think that a lot of our revenue will come, and a major proportion will come from product, and we include royalty as part of product.

It's really part of that, with a healthy services revenue, because there are customers require some hand-holding in this very complex environment.

Okay, so would it be accurate then to describe it as more of the same, just that the numbers are larger over the next year or two?

That's probably a fair approach.

Again, I'll qualify that by saying some of it depends on what happens in the current legal action.

Okay, I'm come back to that in a moment.

If you look back over growth year-over-year and over the last two years, revenues have grown at roughly 40% per annum.

Is that sustainable, in your opinion, or is that underestimating your capabilities?

There's a tremendous amount of opportunities, so the world is open to us and we have to execute.

Bernie has said that we need to accelerate what we're doing, and we're on a path to do that.

Right.

Okay.

So it's reasonable to use that past two years of growth rates as a benchmark for what we might expect in 2008, 2009?

If you are asking for an answer, I'm not going to provide guidance on that.

Fine.

Okay.

Next question then.

Just on the legal.

You mentioned going into fiscal 2008, first quarter legal expenses.

I think you said somewhere around 1 million.

Is it appropriate to multiply that by four for the full year, or in fact those costs likely to rise through the year?

We -- I wish I could get -- I had a crystal ball and told you where that was going lie.

Right.

We know this quarter here we've had substantial expenses because we were leading to the launch of the action and legal costs are expensive.

Going into the next quarters -- as we determine how the case is progressing, we'll have a better view of what those expenses are.

But it's very difficult because of timing on how the court case will evolve, when and what timing we can expect for expenses to come on board.

Okay.

That's fine, understand that.

Something I just wanted to get back to.

I don't know whether I'm nitpicking a bit here.

I think right at the beginning of the conversation it was stated that you clearly prefer to resolve patent issues by discussion rather than legal approach.

Sort of two questions come to mind out of that.

I just wondered whether you had any examples of where you have done that, or are those examples simply that you have negotiated licensing agreements with people ahead of time, rather than going back afterwards and persuading them that they should be paying you some licensing fees?

Yes, the licenses that we have concluded to date have been put in place short of having to take the litigation step.

Right.

I'm just wondering is that -- but that's retroactive, so you have positively found somebody out there using your technology in a case where you believe they are infringing the patent, and through force of argument you have persuaded them to pay license fees.

Yes, that is correct.

So again, what I would emphasize here is that when we conclude an arrangement like that with a customer, it can look backwards, there may be infringement looking backward, it may be innocent, it may be large, it may be small.

And the most important, or potentially as important, is the go-forward licensing that is the use of that technology going forward.

Our preference, we believe reflecting commercial common sense, is to strike a strong working relationship with a customer and to put in place a license or an agreement, a framework that deals with that full range of situations and provides for a very healthy, strong and growing relationship going forward.

And that's what we're focused on in all of these situations, and it involves a combination where we focus on what the benefits are to the customer, how our technology can assist them in moving forward with our business -- their business, and also reflects the technical background to that, including the nature of the patents and related legal infrastructure.

Okay.

I'm -- I'm just going to go back over some old ground here.

Unfortunately I was actually out of the country last week when you had the conference call on this particular piece of litigation.

Those steps, presumably, had already been gone through with Sony, haven't got anywhere, so it is appropriate to take that to the next stage.

I think that's right, we just weren't able to conclude a negotiated arrangement at this point in time and, as I indicated in my earlier remarks, we felt we didn't have any alternative.

It was the last resort, not the first resort, and we went forward.

And presumably it will mean some months before there is any response from them to your statement of claim.

I think that's possible.

We don't know how Sony will respond to this and the legal rules associated with this apply.

People have time frames within which to do things, and they will be within their rights to extend those out if they so choose.

And that is Sony in North America, not Sony in Japan, or does that require both entities?

I think you should look at it as the group.

Okay, perfect.

One last question, just wanted to understand on this the NTT research relationship there, just to make sure I understand that correctly.

It is applied research but there isn't a specific product that you are working on in doing this work?

Not a narrow, specific product at this point in time.

However, as I had emphasized, we expect that it may lead us in that direction before too long.

Perfect.

Thank you very much.

Your next question from [A.L.

Offere] from Canaccord Adams, please go ahead.

Thank you.

It's Alan, I'm on behalf of Peter Misek.

Just a quick question for you guys.

Since announcing the lawsuit against Sony last week, have you seen any more chatter in your pipeline from your clients?

Have they been more positive in terms of potentially getting deals to close with you?

Or are you seeing push back?

Could just give us more guidance there?

I think by and large we're finding business as usual.

I believe that the marketplace is very sophisticated.

It understands that these sorts of things happen from time to time.

And it's a -- it really is ordinary course of business nowadays.

And so I think people, consistent with that, focus on ordinary course business and we haven't noticed any impact on our activities at this point.

Okay.

And are you guys getting close potentially with other customers that have been in the pipeline for a long time that you are basically getting to a point where you are going to have to also pull the trigger and potentially sue them as well?

Take them to another lawsuit?

Well, at this point with respect to lawsuits we're focused on Sony.

That's the one that we have got out there.

We're going to deal with that one.

I think the general proposition is the one that operates here.

We have our IP, as we have shown with Sony.

If it comes to it, we'll protect it.

But for now we're focused on Sony and that's the lawsuit we're working on.

Okay.

Can you just maybe tell us how many clients you have had in the pipeline that have been there, I guess, for over a 24-month period, large customers that have, I guess, been dragging the discussion along for a long period of time?

We always have a very healthy pipeline that the Company works on, and that pipeline moves over time and moves its normal course.

I don't think it's appropriate for us to discuss the nature of any specific accounts or even the composition of that pipeline.

All I can tell you is we have got a very healthy pipeline.

And as we have discussed over the last few years, that pipeline has really changed in the sense that we see many more multi-national companies in that pipeline, rather than some of the smaller organizations that we have seen in the past.

Okay.

And just one final question for you guys, just on the financials.

We noticed that the services margins were -- declined sequentially -- quite substantially again, closer, I guess, to the second quarter numbers.

Is there anything in those numbers that we should just make note of?

It's mostly timing issues.

We go through some periods of time when we have higher services revenues than others, different times when we conclude certain agreements or conclude the work on them where the revenue is recorded and so is the expenses.

So you'll see that fluctuate from time to time, but generally speaking we have some very high margins as you can see.

Okay, so you are still targeting the, I guess, mid-to high 60% range, close to the 70% from the services business going forward?

Correct.

Correct.

That's all I have.

Higher than that -- higher than that in certain instances.

Okay.

Okay.

Thanks, that's all I had.

Sure.

Your next question comes from Scott Penner of TD Newcrest, please go ahead.

Herve, a couple of quick things.

First of all, the DSO for the quarter seemed a little bit higher.

I know the dollar amounts aren't large, but is this reflective of just a more back-end quarter?

It is.

And let me give you a couple statistics.

Our DSOs are 90 days this quarter.

And that is much higher higher than what we've had in a few quarters behind us.

But I'll give you another metric that I always look at because our orders, like many other high-tech companies or many companies, are very quarter-end focused.

So we have some big orders towards the end of the quarter, we bill them and we can't record them.

One of the other key metrics that I look at is the distribution of my receivables over time.

So in this quarter, we had in excess of 90% of our receivables still current.

So less than 30 days.

That compared last quarter to somewhere in the area of 85%, and last year at this time they were about 80%.

And that changes from quarter-to-quarter.

In all of fiscal 2007, we had an $80,000 charge for uncollectible accounts.

And uncollectible accounts, in our case, is mostly because we think that it's gone on too far and the customer is refusing to pay for some reason, we take a provision for it.

But it's not much when you consider revenues of $21 million.

That's very helpful.

Thanks.

And just -- how should we look at the quarterly stock compensation?

Is this as good as any number to use going forward?

I think you are right.

The stock comp this year is up over last year and that's partly because we're in the third year of a program where we start to expense stock, stock-based compensation.

Prior to that we just -- we would just disclose it in the pro forma.

A few years ago, we prospectively adopted to expense -- expense it.

So this is the third year it comes on board and we should probably see that as being somewhat of a stable number going forward, I think.

Some fluctuation that will be due to the variability of our stock performance, but that's about it.

Okay.

And lastly, on the Sony litigation, if you were to arrive at a licensing agreement prior to any trial action, most of the products involved seem fairly new.

Is it correct for me to probably assume that there wouldn't be, let's say, a large retroactive amount that's booked as -- booked as an IP license?

It would more be on a royalty basis going forward.

I think that's fair.

There's a tremendous opportunity going forward, otherwise we wouldn't be doing what we're doing.

And we think the ROI is very healthy.

But when we start to see all of that equipment sold in Wal-Mart, we'll then understand that there's really wide-spread deployment of the technology, and that's where we're start to see some healthy royal advertise start to kick in.

Right.

Okay, thanks.

(OPERATOR INSTRUCTIONS) Next question comes from Lawrence Rhee of Blackmont Capital.

One more quick question, is there any way you can provide some type of quantum on the number of multi-year multi-million dollar agreements that you signed in Q4?

You kind of alluded to some of the agreements earlier in the quarter.

But if you could provide some type of metric, less than five more than two type of --

We're prohibited by our agreements with our customers to disclose any information related to that.

All I can tell you is that the agreements we signed do have recurring revenue in the form of royalties and they will be coming onstream as those products start to be deployed.

But we really are not at liberty to discuss any more information at this point.

Great.

Thanks.

Mr Crotty, there are no further questions at that time -- you have a question by A.L.

Offere from Canaccord Adams, please go ahead.

Hi, thanks.

Just to follow up on that last question.

Did you guys see -- sorry -- just collecting my thoughts here.

Of the contracts that you signed last quarter that you made the announcement on, do you guys expect -- I'm assuming those contracts are basically in your guidance based on what you gave last quarter.

And I'm just wondering if any of those were either above your expectation that you were able to actually accelerate in the quarter, Or did anything slip through the quarter?

We provided some view two quarters ago as to what our last half was going to be.

And we meet that expectation and it came in as we had planned it.

The timing is not what the investment community would have liked to see.

But we did meet them and they were in line with our internal plans.

Okay.

And just one quick one, you just told the last caller that the recurring revenue stream is going to come on board as usual.

Just a quick question on that.

Did you sign any contracts with any clients that already have your ECC integrated into their products that could increase, actually, revenue stream in the short-term?

Well, if it's in their products we're getting it already.

So the agreements that we would be signing -- and we do sign agreements with existing customers all the time.

Just to repeat our -- for your information is we license our technology on a project by project basis, whether be it a product or a family of products.

And once we sign again then it's for another family of products and the cycle starts again.

Okay.

But in specific to those companies you just announced, there was nothing that was already being shipped with your patents?

That's correct.

Okay.

Thanks, that's all I have.

Mr.

Crotty, there are no further questions at that time, please continue.

Okay.

If there are no further questions, we thank you for your time this morning.

We look forward to speaking with you in September when we report our results for the first quarter of fiscal '08.

Also we hope to see you at our annual general meeting which will take place on Thursday, September 20, 2007, at the Gallery of the TSX Broadcast and Conference Center in Toronto.

More details will follow in due course.

That concludes our call.

Thank you very much.

Ladies and gentlemen, this concludes the conference call for today.

Thank you for participating and please disconnect your lines.