August 21, 2009 / 2:52 PM / 8 years ago

PREVIEW-Key segments to drive results at Absolute Software

3 Min Read

* What: Q4 results

* When: Tuesday, Aug 25

* Co expected to post loss

* Rev from education, healthcare, govt segments may rise

By Isheeta Sanghi

BANGALORE, Aug 21 (Reuters) - Canada's Absolute Software Corp (ABT.TO), a provider of computer security solutions, will benefit from strength at its key segments in the fourth quarter, but investors will be keenly watching its sales contracts and cash flow when it reports results on Tuesday.

The software-as-a-service company recorded higher sales in the education, healthcare and government segments in the third quarter, driven by strong sales contracts.

"Government, education and healthcare -- those are providing some stability to them and we expect to see that trend continue this quarter," BMO Capital Markets analyst Thanos Moschopoulos told Reuters.

"Those are three areas where you have a higher degree of economic resilience because for the most part it's public sector money that is being used to pay for it."

For the fourth quarter, analysts on average expect the company to post a loss of 2 Canadian cents a share, on revenue of C$14.9 million, according to Reuters Estimates.

Absolute operates across five business verticals, providing solutions related to the security and management of computers and smartphones to the government, home office, corporate, education and healthcare sectors.

Absolute's revenue model differs from others since customers pay for up to three years in advance, and while the company gets the cash up-front, it recognizes revenue over a deferred period of time.

"There tends to be a huge disconnect between the cash flow generation and the GAAP profitability, so as a result it really is the sales contract number and cash flow number that people focus on," Moschopoulos said.

In May, Vancouver-based Absolute forecast full-year sales contracts between C$70 million and C$75 million, and cash flow from operations of C$16 million to C$18 million.

"If renewal/upsell ratios remain consistent with the levels experienced over the past two quarters, management's guidance should be readily achievable," BMO's Moschopoulos said.

Sales contracts should be seasonally stronger in the fourth quarter, but the top end of the sales contract outlook will be difficult to achieve, PI Financial analyst Pardeep Sangha said.

But he remained bullish on the long-term prospects of the company.

"We believe better days are ahead for Absolute driven by a general improvement in the economy just as it enters into its seasonally strongest quarters."

Absolute's shares, which have more than doubled since touching a 52-week low in December, were down 4 Canadian cents at C$5.80 Friday morning on the Toronto Stock Exchange. (Editing by Deepak Kannan)

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