Nov 8, 2016
Executives
Geoff Haydon - CEO Errol Olsen - CFO
Analysts
Doug Taylor - Canaccord Genuity Thanos Moschopoulos - BMO Capital Markets Blair Abernethy - Industrial Alliance Richard Tse - National Bank Financial Michael Kim - Imperial Capital Kevin Krishnaratne - Paradigm Capital
Operator
Good afternoon ladies and gentlemen, and thank you for standing by. Welcome to Absolute Software Corporation’s First Quarter Fiscal 2017 Conference Call.
At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.
Instructions will be provided at that time for you to queue up for questions. 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 quarterly MD&A.
[Operator Instructions]. I’d also like to remind everyone that this conference call is being recorded today, Monday, November 7th, at 5:00 PM Eastern Time.
I’d like to turn the call over now to Mr. Geoff Haydon, Chief Executive Officer.
Please go ahead, sir.
Geoff Haydon
Operator, thank you and good afternoon, everyone. And welcome to our Q1 fiscal 2017 conference call.
Joining me today is Errol Olsen, our Chief Financial Officer. Q1 provided a solid start to Absolute’s year, our results are consistent with our expectations and we are on track to meet out full year outlook.
DDS revenue in Q1 was 22.5 million, up 6% from Q1 in fiscal 2016. Commercial ACV increased by 2% sequentially and by 7% over the trailing four quarters.
New customer ACV this quarter was 1 million and ACV retention from existing customers was 100%, EBITDA was 1.9 million. Q1 results continue to reflect the strong renewal performance.
We also saw an increase in expansion opportunity as customers extended DDS across desktop and other devices and upgraded to our premium product offerings in order to access newer features. New customer acquisition results were concentrated across our key targeted healthcare and corporate verticals driven by the adoption of our recently announced endpoint data discovery and application persistence offerings.
We are also pleased with our progress in executing against our key strategic initiatives, these focus on product development, go-to-market focus and sales execution and I’ll now review specific achievements in each of these areas. Last quarter we announced our plan to increase investment in product development, with a focus on accelerating innovation in two specific areas.
Our SAAS platform and our user awareness offering. Our Software as a Service platform initiative will substantially expand our total available market by delivering new functionality in four primary areas.
First of all we will introduce private and public cloud base versions of our technology in addition to our current hosted platform offerings, which will give us access to new markets that require localized delivery to meet data solvency and compliance regulations. Secondly, our new SAAS platform will be complied with the U.S.
Federal Risk and Authorization Management program or FEDRAMP, enabling us to qualify for a substantially increased federal and state local government market. Thirdly, our new platform expose APIs will extend functionality and intelligence to complementary technology platforms, enhancing the customer value of our solution and enabling strategic alliance in developer programs and manage service partnerships.
Finally our SAAS platform will enable us more easily deliver, new standalone DDS product features allowing us to more directly monetize incremental feature and functions releases. Ultimately our SAAS platform will also be more performance, available, cost efficient and will scale to support our ambitious plan for the future.
Our second area of incremental investment will focus on extending our current end point telemetry capabilities more richly into understanding user behavior and creating a powerful platform to help customers identify and manage insider related risk. This expanded user insight will build on the end point intelligence we already provide to our customers and will to enhanced analytics and investigative capabilities allow them to identify and preemptively respond to potentially risky user behavior patterns.
This capability will substantially enhance our value proposition to both existing and new customers and enable us to capitalize on and to lead a secular shift towards enterprise end point security that is embedded, contextual, productive and optimized for user related risk. We executed strongly against our product development plans in Q1, we signed a lease for our new development facility in Vietnam, hired an experienced site leader and are actively increasing our staff in this location.
To date we’ve hired 15 new people. This expanded development center in conjunction with our facility in Vancouver will enable us to cost effectively accelerate our cadence civilization and a release of marketable new product features.
I will now turn the discussion to product development activity that is contributing to the positive momentum in our current business. Endpoint Data Discovery or EDD is a new feature that was launched in Q4 fiscal 2016.
It is only included in the premium version of our DDS product. In Q1 we saw in increase in both upgrades and new customer adoptions with active base is tripling over the course of the quarter.
In Q1, we also continue to expand our SCCM report and repair business. We’re now working on extending our report and repair offering to support BitLocker, Microsoft’s possible inscription solutions.
BitLocker has an 80% share of the inscription market on windows devices and an install rate of over 65% within our existing customer base. Our BitLocker report and repair solution, which we will launch in Q3 of this year as a discreet product will provide us with a directly incremental sales opportunity to both new and existing customers.
In Q1 we continued to focus investments on those target geographic vertical and horizontal markets that represent the greatest return on investment for Absolute, appropriately these markets led our overall Q1 performance. Most notably Corporate and Healthcare customers represented over two thirds of our new customer ACV.
Customers we acquired were expanded in Q1 included United Continental Airlines, Signa, Deloitte International, Under Armor and the New York Stock Exchange. Within our target markets we continue to see shifts occurring at a favorable to Absolute's opportunity, these include the explosion in the enterprise endpoints being deployed and the shift of information to these devices.
It's now estimated that 45% of corporate data resides on endpoints. Despite this a substantial percentage of these endpoints remain unobservable to those corporate functions responsible for their protection.
These devices are often off the corporate network and frequently exposed by the ineffectiveness of their basic security and management agents which become damaged or disabled due to technical issues, user negligence, non-compliance or malicious behavior. Absolute through it's hardware embedded platform is uniquely positioned to help enterprises overcome this critical source of risk.
A good example of this in Q1 was a large national communication and media company that discovered through a routine inventory check the 10% of their endpoint devices weren't visible through their IT or security management tools. Through an enterprise wide DDS deployment they can now observe all devices and it’s through the effectiveness of the SCCM agents they depend for patching and security functionality.
The up sell of existing customers to new features also started to feature more prominently in our Q1 business. Our larger European transaction was driven by an existing customer that upgraded to Absolute premium to meet he compliance obligations of a large government contract they recently won.
They’ll used EDD to identify and protect sensitive information and application persistence to ensure the effectiveness of their encryption agents. In Q1 we also saw good examples of our sales teams progressing long standing customer adoptions from traditional theft recovery to more valuable stickier use cases.
A large state and local government organization in Texas had invested years ago in DDS as a means to recover stolen laptops, at the time of renewal with a stronger data security agenda, they expand their deployment to all of their desktop devices and activated the SCCM report and repair feature across their entire endpoints populations. These wins also reflect an increased level of proficiency within our field organization at executing against new product introductions.
In Q1 over 90% of our new customer ACV, was driven by the higher value professional and premium versions of DDS which provide access to new features including report more peer [ph] and EDD. The premium version of DDS represented almost 60% of total DDS sales in Q1 up from 30% in Q3 when EDD was introduced.
We also saw an increase in ELA activity and desktop activations in Q1 reflecting expansion opportunities been driven by new features like SCCM and EDD which are most valuable when deployed broadly across an enterprise. In summary, we establish the strong platform in Q1 for the achievement of our 2017 financial objectives.
As importantly, we set the pace for executing against our accelerated product development again that with three primary objectives to substantially increased our total available market opportunity to accelerate new customer acquisition performance through an enhanced set of product offerings and to increased ACV contribution from existing customers by expanding Absolute licenses to new computing platforms and devices and deploying higher price versions of our technology. Through these efforts, we expect to accelerate revenue growth increased operating leverage and put the business firmly a past to accomplishing this long-term operating objective of 20% revenue growth and 20% adjusted EBITDA margins.
I’ll now turn the call over to Errol to discuss our financial results. Thank you.
Errol Olsen
Thanks Geoff. Good afternoon everyone.
Q1 DDS segment revenue of $22.5 million grew 6% year-over-year and increased 2% over the prior quarter. Revenue from recurring subscription was 98% of Q1 total revenue consistent with Q1 of last year.
Our commercial annual contract value base which is a predictor of future recurring revenue increased 2% sequentially in Q1 over the trailing four quarters our commercial ACV based increased by 7%. The increase in the ACV based during the quarter was driven by net ACV retention from existing customers of 100% and $1 million of incremental ACV from new commercial customers.
We continue to land new customers across all verticals with two-thirds of new customer business coming from the target, corporate and healthcare segments, most of which represent substantial expansion and up-sell opportunities. As we develop and grow our portfolio of large enterprise customers.
We do expect that large customer wins overcome in some lumpiness in our reporting new customer metrics, and that this variability should subside overtime as our portfolio of new business grows. From an industry vertical perspective, the combined corporate and healthcare ACV base increased by 1% during the quarter, and increased by 10% over the trailing four quarters.
The combined education and government ACV base increased by 2% in the quarter, and increased by 4% in the trialing four quarters. At September 30, 2016 corporate and healthcare customers represented 47% of our commercial ACV base, and education and government customers represented 53% of the base.
From a regional perspective, North American remains our dominate geography representing 89% of commercial ACV base. DDS segment billing in Q1 were $19.7 million, a 1% increase over Q1 of fiscal 2016.
Reported billings were impacted by previously reported lower expiring contract opportunity in the quarter, which was offset by existing customer expansion and new customer wins. Adjusted EBITDA for the quarter was $1.9 million, which was consistent with the prior quarter and down from 4.3 million in Q1 of last year.
The decrease from the prior year reflects our previously announced increased investments in Research & Development, which manifested in a 5% year-over-year increase in adjusted operating expenses. Additionally the prior year period included $1 million contribution from the endpoint and service management segment, which was divested in Q2 of last fiscal year.
Turning now to cash flow, in Q1 cash recorded cash from operating activities was $1.9 million, this was net of $3.2 million of income tax payments and $800,000 of severance payments, which I will discuss in a little more detail momentarily. Cash from operating activities was $5.9 million prior to these payments.
This compares to a similarly adjusted number of $6.6 million in Q1 of the prior year. Our full time headcount at September 30 was 415 which was down 444 at June 30.
As mentioned on our previous earnings call, we implemented a smaller reorganization during Q1, that effected about 30 positions. The purpose of the reorganization was to align certain thoughts of our sales and development organizations with our increasingly focused go to market and product strategies.
We also hired during the quarter, in line with our plan. However many of these hires have not reflected in the reported head count numbers, due to the factors they started after the end of the quarter or where contractor positions.
As an example the establishment of our Vietnamese legal entities is still in progress, and we have 32 contractors in Vietnam, who are not reflected in our full time head count, but that are reflected in our reported operating expenses. We expect that these contractors will convert to full time employees, once the legal entities are in place.
During Q2, we’ve made departmental adjustments to continue to a line our internal structure with our strategic direction and to continue to optimize productivity throughout the organization. The changes we’ve made post Q1 include and approximately one-third reduction of our laptop investigation team and the completion of the transfer of our CTO, Phil Gardner to an advisory role.
The severance related impact of these changes will be approximately $1.5 million in Q2. We do not expect any further material changes of this nature in fiscal 2017.
Looking now to our forward outlook, our guidance for fiscal 2017 remained unchanged. In terms of top line results, we expect total fiscal 2017 revenue between $92 million and $94.6 million representing 7% to 10% annual DDS segment revenue growth.
We expect revenue to grow at an accelerating rate as we move through the year. We expect adjusted EBITDA margin to 5% to 8%, reflecting relatively stable spending across most departments and increase investment in research and development capacity as we’ve previously discussed.
Our increased investment in R&D will be incremental over the year and will be aligned with revenue performance. We expect cash from operations prior to payments for income taxes and reorganization charges, as a percentage of revenue to be between 8% and 12%.
Reflecting a double digit year-over-year increase in DDS billings. This concludes our prepared remarks for today.
Operator please open up the call for questions.
Operator
[Operator Instructions] Your first question is from Doug Taylor from Canaccord Genuity.
Doug Taylor
You spoke in the previous quarter about Q1 being a challenging comp from our renewal opportunity prospective. Can you just walk us through how that renewal opportunity evolves over the rest of the year?
Errol Olsen
Sure Doug, this is Errol that’s a good question. So yes our renewal opportunities for the year is up mid single digit on average for the year.
It was down mid single-digits in Q1 as we previously mentioned. It's up in Q2 through Q4 and it's up most substantially in Q4, but it'll average mid single for the year.
Doug Taylor
And so, layering on top of that the new ACV adds, I know the renewal opportunity plays a little bit, but seasonality as well. Is Q1 I mean as we build out the model further, expected to be a seasonal low point for new ACV given the summer months in there?
Geoff Haydon
Yes, I would say on average Doug, but the way that we're thinking about ACV growth and it's behavior and expansion through the course of the year, it's in a couple of ways. First of all our existing customer ACV represents our platform for growth, that's been a 100% -- over 100% for the last four quarters.
On average for the last four quarters was a 101%, it was 100% during the last quarter and that represents primarily renewals. There is always an expansion component to that.
Historically expansion meant us going back to our existing customers with our traditional value proposition and trying to drive adoption among a larger number of endpoints. So what we saw in Q1 and expect to continue to see as we move through the year is expansion taking a different form.
First of all, a lot of the features and functions that we're introducing are really designed to be most valuable to a customer when they're deployed across a large number of the endpoints and so we expect to see expansion occurring more organically and expansively to a largely number of endpoints in the future. The other thing that we're expecting to see as we progress through the year is more incremental ACV per endpoint contributed by some of the new features and functions that we've introduced that require a customer to make a discreet purchase to take advantage of.
The BitLocker report and repair is a good example that I referenced during the earning script, application persistence is another one. So we do expect the existing customer ACV over time to expand beyond 100%, now how quickly and how substantially is to be determined because we're in early days in terms of these new features and functions, but we do expect to see that improved throughout the course of the year.
Secondly, we look at new customer ACV and we're really thinking about that in two dimensions, there is the new customer ACV platform that we've established over the last three quarters of about a $1 million. I mean we’ve delivered essentially -- at least $1 million of new customer ACV for the last three quarters, but one exception was Q4 when we had a very substantial pharmaceutical deal that took it to 1.8 million, but that 1 million has proven to be very consistent.
And in Q1 although we didn't see any sizeable deals we added hundreds of new accounts to our portfolio, all of which represent a substantial expansion and up sell opportunity and we saw some very substantial enterprise additions, I referenced to couple of them during the course of the call. So if we continue to drive the 100% existing customer ACV and layer on top of that a $1 million of new customer ACV, that's ACV expansion of 2%, we do that for four consecutive quarters, that's 8% revenue growth effectively.
Now Q4, we saw a very substantial multi-million dollar pharmaceutical deal layered on top of that that added almost another $800,000 of new customer ACV. We didn't see one of those deals in Q1, but every quarter that goes by we're seeing more of those deals and we're becoming better at progressing at them closing them.
These deals do take a long time, the good news is that throughout the course of last year we demonstrated that we've got a value proposition that’s compelling to large enterprises and we've got a technology that readily deployable at scale globally. So we know that we can take these big deals down, but they do take some time.
And as we progress through this year we do expect to be working on more of them, we expected to become more proficient at being able to progress them and close them and we expect them to become an incremental components of that new customer ACV story which will ultimately accelerate ACV as we move through the year. So I don’t think in Q1 seasonality in terms of traditional seasonality in buying patterns and behavior, I think about it more just in terms of what we expect from the various components of ACV accretion as we progress through the next three quarters.
Douglas Taylor
Okay. So 1 million a quarter, as a baseline and then the opportunity for large deals to be added to that is how we should think about it that the right way?
Geoff Haydon
Okay.
Douglas Taylor
Okay. And I’m sorry, you’ve provide this and I missed it.
But what proportion of your existing overall base is still on basic Tier of your product, that there is the opportunity to up-sell to a premium version. Do you have those numbers?
Errol Olsen
Sure. We thought it’s roughly 40% of our customer population is on the standard or profession of the bottom in the middle tier, 60% are on the top tier.
Douglas Taylor
Okay. That's helpful, last question for me.
The reduction in the number of the 1.5 million restructuring, the laptop investigation team you mentioned. Can you help us quantify where the savings, what they are and where they should appear?
That’s it for me, I’ll pass it line after that.
Errol Olsen
Sure. So this is -- the reduction in the investigation team is something that with sales team to our corporate plan for the year and into the guidance that we gave it start of the year.
But in terms of where you should expect to see those cost savings, it’s a large portion of the savings will be in the cost of sales line, we had a savings spread throughout the various line items. Having said that though, I mean, I’m really exciting the cost of sales will be relatively flat through the year going up a little bit as we adds in capacity into our hosted operations primarily and also some additional professional services resources double align with sales of professional services of course.
Sales and marketing, we expect to be relatively flat over the course of the year and the same thing with G&A. So we’re still expecting most of the increased in expenditures for the year to come from the R&D line.
Douglas Taylor
That’s helpful. Thank you.
Operator
The next question is from Thanos Moschopoulos from BMO Capital Markets.
Thanos Moschopoulos
Geoff remind us, in terms of some of new capabilities you’re working on, how should we think about the release cycle? Will you just be progressively reducing -- releasing new features as they’re available or are you on semi-annual releases or annual, how does that work?
Geoff Haydon
No, it’s a good question Thanos, we will be introducing new functionality each quarter, the Microsoft BitLocker and report and repair is planned Q3 announcement and in Q4 we plan to extent report and repair to a couple of other agents, LanDesk and WinMagic [ph], but more notably, we plan to announce the ability to extent or report and repair APIs to any end point agent. So really enhancing the whole report in the period offering.
We also expect to offer in [indiscernible] the EDD offering as we move through the second half of the year connecting it to Microsoft, RMS and really enriching the data security capabilities of that offering introducing some new reporting capabilities, introducing some new remediation options. So there will be a cadence of new offerings as we move through the course of the year.
The EDD announcements are really designed to drive more customers to that premium DDS offering and the report and repair applications persistence offering really designed to add incremental ACV per end point.
Thanos Moschopoulos
And so just to clarify, so the SEC end products is already been launched as a stand along offering or not that at this point?
Geoff Haydon
No we announce that as part of our DDS professional and premium offering in a network to drive more upgrades to those versions and that has worked. We also included in as part of the professional offering and it will be a premium offering secretive, really enhancing our value proposition in new customers, and we’ve seen that take in that been both of the last two quarters over 90% of our new customer ACV, either in food at the SCCM and report and repair or EDD feature.
But as we think about the pace is of innovation moving forward and the value of some of these new offerings, we do believe that there is an opportunity for us to sell them a la carte if you will and generate incremental revenue associated with each of those new feature adoptions.
Thanos Moschopoulos
Okay, it’s approximately a contract duration. I see that it has really changed, it’s at 37 months.
How should we think about that evolving, would you expect that remain consistent? I just thought that it might, start shortening given that your purpose is shift more towards ACV over the bookings numbers?
Errol Olsen
We do continue to expect that contract term to shorten over the course of time. I don’t expect dramatic changes to it in a short team.
But I do expect it to come down from an average of 36 months, down to probably something in a low 30, over the next two to three years.
Operator
The next question is from Blair Abernethy of Industrial Alliance.
Blair Abernethy
Jeff, just wondering if you can give us an update on your partnership activities? You had a number of announcements over the past few quarters.
And I just want to see, what do you think is going really well and what do you think is really having the biggest impact for the business?
Geoff Haydon
It’s good question, so I will think about and describe partnership progress in three areas. I’ll start with OEMs, just because they are our most notable and most substantial partners.
So we have introduced some strengthening of those relationships not only through the continuation of the persistence technology being embedded in new generations of platforms and devices, but we’re finding ways to integrate our technology into a broader set up of offerings that they are coming up with. The Dell data protect inscription offering is a good example, that’s a security offering that they are currently leading with, that includes an element to of our technology.
We are integrated in the HP Tetrapack offering. Lenovo has is gone to market with a WinMagic absolute combination.
So we’re staying some really productive partnering occurring with the OEM that go beyond just that embedded partnership and look to integrate us into a broader product management and security strategy story which is exciting to us. The secondary of partnering that we think about is really and the bar community, the extension of our OEM partnerships and the ignition of some new, info sec specialized bars and we think about those partnerships in terms of the incremental business that they contribute.
So not just in terms of how they fulfill business, but the extent to which they’re actually uncovering new opportunities, that we wouldn’t discover or develop on our own and the volume of that activity was up 45% year-over-year. So that was interesting to us.
The third area is the connection of our DDS and persistent platform to other complementary technologies and that’s probably what you’re referring to most predominantly, we announced the RSA partnership initially and more recently we announced to Splunk partnership and HP Ark [ph] side partnership we’ll announce some additional partnership this quarter and in quarter as we move through the year. And really the purpose of that is to enrich the value of our technology by enabling customers to leverage tools that they've already invested in to make our technology more valuable, all of the announcements that I just referenced really centered around security and event management, they enable customers to consume our telemetry or our intelligence in a reporting format they consider to be acceptable and to enable them to correlate our security intelligence against other feeds, which really improves the signal to noise ratio if you will.
But there are other kind of connections that we're establishing. Other reporting tools, other endpoint management tools, IT service management has emerged as an area of great interest for enterprises, if they want to consume our alerts in work flows and processes and tools that they've already invested in.
All of these really enhance our value proposition to enterprises and in fact we've seen from very good examples, that large Fortune 50 deal that we announced in Q4, one of the -- in fact two of the minimum buyable product requirements were that they can connect our technology to some of the technologies that I described earlier. So in many ways these technologies are getting access to a much larger number of enterprise type opportunities and we'll continue to invest in them accordingly.
Blair Abernethy
Okay that’s great and just a question on pipeline, I guess in terms of how it's been developing this year. I’m wondered if you could just sort of describe the character of the pipeline in terms of verticals where you're seeing more traction, where you're seeing some hesitation or maybe less traction.
I guess I’m also wondering about the education vertical in particular. A lot of this new features and functionality seems almost more appropriate for the enterprise markets, but what's -- how is the education market responding?
Geoff Haydon
So, very positively, I mean education market continues to be a strong market for us. Interestingly the SCCM report and repair feature for example was heavily adopted among education customers.
And some of the newer awareness capabilities that we're developing especially around user behavior or interesting for schools in a different way than they would interesting to an enterprise. Schools are interested in better understanding the relationship between technology and students and learning performance, and our ability to bring some visibility to when-and-how students are using devices and applications and how that's translating into improved performance in graduation rate is, first of all how they better optimize learning effectiveness, but secondly, how they justify additional funding for future one-to-one computing deployments.
So we're actually very pleased with the interest level and adoption of some of the new features and functions in education, but certainly as we start to extend some of the data security features in the richer kind of insider threats offerings we do expect them to be perhaps a little bit more resonant to some of our large enterprise customers. But I want to clarify the education business continues to be a very important and growing business for us and feature very prominently in our thinking around product development investment also.
The Chrome Book offering for example is something that we announced over the last quarter, not with a great deal of fanfare, but we are seeing a shift to new lower cost windows devices in education and Chrome Books and we want to be ahead of that in terms of offering schools solutions that meet their requirements around device safety, around student safety and around some of the other objectives that they've got in terms of the management of that device population.
Operator
The next question is from Richard Tse from National Bank Financial.
Richard Tse
Just kind of curious what's the incremental price difference when you add features like SCCM and the EDD features relative to the formal product?
Geoff Haydon
So, the MSRP is for our basic product just $40 per endpoint for three years, the professional product is $80, the premium product is a $120. Now the one caveat I'll make is that we do have a discount schedule that associates discount levels with volume and we are seeing some of our larger enterprise deals adopting the professional and premium solutions.
So that would indicate that we're getting something less than that MRSP, but the relationship between the three offerings is that it's double for professional and three times for premium.
Richard Tse
And the Vietnam group can you sort of go through again what the focus of that team is going to be in terms of development?
Geoff Haydon
Sure, the primary focus at this point is really around the Software-as-a-Service platform, so that’s first initiative that I described earlier.
Richard Tse
And then beyond just organic push perhaps you can update us on your thinking about acquisitions potentially or is the focus really going to be the organic push this year?
Geoff Haydon
It is on the organic push, but it's also very strongly considering acquisition opportunities and what we're really interested in Richard is talent and technology that can help accelerate our development and de-risk our development schedule. We're not thinking about something that is substantially transformational or massively financially accretive.
We're looking for a talent and technology combination that would help us simply execute more strongly and expeditiously against our product plant.
Operator
[Operator Instructions] The next question is from Michael Kim from Imperial Capital.
Michael Kim
Certainly there has been a pretty commitment focus now on insider thread and ransom ware [ph] and your referenced some of your active [indiscernible] behavior. How you’re viewing the competitive environment, I think number of security measures also looking towards this opportunity and how you might see Persistence technology differentiating?
Errol Olsen
Listen, it has really become one of the prominent security topics and all of the analysts and large enterprises agree the insider threat, understanding it, managing it, remediating it is one of the top enterprise priorities moving forward. What we're seeing is the insider threat category being a very nascent, very fragment category.
What we are seeing is a lot of non-traditional companies kind of pivoting towards the insider threat. At least from the messaging perspective, just in response to the interest level and the opportunity, which is quite surprising.
Some of these coming from very deep exclusive network background talking about insider threats and some other kind of orthogonal players that are demonstrating interest. We think that Absolute is so uniquely positioned to confront the insider threat, to really develop and lead the category around insider threat detection and prevention.
With our physical point of presence obviously embedded on hardware devices, we're under applications, we're under the operating system and just very uniquely positioned to observe insider behavior and to look for indications of risks and to remediate those through a variety of options that we've got and we'll continue to develop. So we're excited at the fact that it is become so prominent and we think the interest level that's been demonstrated by a lot of companies, even traditional companies in the space is a great validation of the opportunity it represents.
Michael Kim
And what do you think of your state of the maturity of your offering and how we might think about that contributing overtime?
Errol Olsen
Well if it’s relatively basic today, I mean, A, we’re embedded, so we’ve got that advantage point, but the telemetry that we collect to simplified. Write, its username, its geo-location, its time of day, it’s what applications are being used, the frequency indurations.
It provides kind of a single dimensional view of the user, but when they combine that with the data and device and application telemetry it becomes quite a bit richer and some of our most prominent large enterprises today are using our technology as a core inside threat defiance advance for that reason. But we think there is an opportunity for us to extend that telemetry as part of our user awareness plan.
We think there is an opportunity for us to introduce a basic analytics capability that will help us define a normal behavior pattern for user and that will look for anomalous behavior indications of risk. We also think there is an opportunity for us to take our investigations tool and to customer enable it, to give enterprises the ability, when they see an indication of risk, to shine a really bright and evasive spot that on that risk to determine if in fact there is inside threat risk occurring, or if an end point is being used as a portal in an developing attack.
So we think we’ve got solution today, but we do think that the user awareness investment that, we’re making this year is going to be substantially enriching it. We think in combination with our embedded position it’s going to be a very uniquely compiling offering.
Michael Kim
Great and then switching gears to the sales organization. Last quarter you talked about nice improvements in sales productivity, can you talk about the focus on increasing your sales capacity and the changes you’ve also made internally to the organization, situated towards either strategic accounts or mid market accounts or by vertical?
Geoff Haydon
So no substantial changes and we continue to sharpen up our traditional focus distinguishing customer acquisition from the renewal and expansion, distinguishing the enterprise from the [indiscernible]. The state and local government in education business, the risk and tuning that’s going on within some of the large metropolitan areas to bring more concentration to the large enterprise opportunity because we know that we can develop and close those.
But the focus really this year is on expanding the productivity of those teams just through tighter operational and execution efforts and surrounding them with stronger support from a pre-sales, from a professional services and the tools prospective.
Operator
The next question is from Kevin Krishnaratne from Paradigm Capital.
Kevin Krishnaratne
Question for you on, just are you seeing any benefit from some of the -- it’s great you’ve been getting some really high profile corporate names in there, you mentioned Under Armor, I know in the past you had Facebook and PayPal. I’m wondering if you’re seeing any benefit in terms of your recognition in the industry for example from winning these mandates is work getting on your offering kind of that way, and in addition to what you’re doing on the sales team side, are you getting any benefit from just the recognition of winning these set of clients?
Errol Olsen
That’s a really good question, we think about it a lot Kevin. I would say that our biggest challenge continues to be awareness.
Our conversation rates from an introductory conversation to some type of follow up activity and ultimately an opportunity that’s forecastable in some form is very high. The biggest challenge for us right now, in terms of accelerating growth is just improving awareness.
Getting in for the more customers, having more conversations, we’re doing -- trying to do a better job of providing our coverage through a more productive demand generation and awareness effort. But the achievements with large notable enterprise is definitely helping.
And I would suggest that its helping in terms of other enterprises hearing about us, because especially in the Bay Area and the two references that you had mentioned earlier PayPal and Facebook, it's a very tight community. So when you win at a very prominent site like a PayPal, I mean it's expected that that you'll get some recognition within that community and we've seen that to a limited extent, but where it’s a lot more powerful is when we're in front of a new prospect and we can reference the fact that we have large customers like the ones that we've announced, it just gives us a level of credibility that’s unique and thankfully a lot of those customers are very enthusiastic adopters of our technology and so been able to leverage them as they reference to further validate their experience with the technology has been a very powerful vehicle for us.
More to accelerate and increase the probability of closing the transaction them expanding awareness, but very valuable.
Kevin Krishnaratne
That’s all great. Again I want to speak back to the Facebook, can you remind us I think the way that your solution was deployed with them was to a specific team or -- a team related to contract workers, is that correct?
And if so I mean are there then opportunities to see further expansion within a company like that and other corporate as well, if it’s done on a team-by-team basis and then work kind of gets out within the organization?
Errol Olsen
So, at high level I will make a positive affirmation of that, the one quantification I’ll make is that we're not in a positive to talk in details about their used case, which evolves and expands overtime. So I can't elaborate on the Facebook deployment or progress that’s occurred around that specifically, but I can't tell you that there is a very predictable pattern that occurs after we penetrate a large enterprise.
And that includes the extension to our endpoints and we expect that as we introduce these new features as I mentioned earlier they're more valuable across a broader endpoint population, we will see more expansion, but what's also exciting is the prospect of being able to go back to that enterprise and sell them incremental offerings on each endpoint which are accretive to ACV.
Kevin Krishnaratne
And then the final one from me I know that the pricing on persistent services, yes, you required the higher up plans and I think it comes with a $3 price point per device. If that's correct and then if you could speak to how the pricing on EDD is now passed the line [ph]?
Geoff Haydon
So, EDB is included in the premium version of the offerings so in order to take advantage of EDB the customer has to upgrade to that premium offering and as I mentioned earlier we saw that adoption rate increase significantly three times over the course of last quarter and EDD now represents -- it represented 60% of our total DDS sales in Q1. So that's how we monetize EDD, as through the upgrade, and as Errol mentioned we've got 40% of our current DDS endpoints not on that premium version.
So view that as an up sell opportunity, but as we consider some of the newer offerings that I referenced earlier like the BitLocker report and repair we view that as an incremental offering that would supplement our professional premium deployment.
Errol Olsen
This is Errol, just to elaborate on that I mean one good way to think about this is that we’ve got our ACV base is already $4.3 million and we have about 6.5 million active units under management so it's comes -- you can do the math, but it works out to a rough average price of around $13. So, the way that we look at things like Persistence services, is the ability to add something that is a $3 MSRP, so ideally about a $1.5 to us on top of that $13 and then that's the right way to look at the accretion.
Operator
There are no further questions at this time. I will turn the call back over to the presenters.
Geoff Haydon
Alright, well listen, let me just take this opportunity to thank everybody for their interest in Absolute and we look forward to speaking with many of you over the coming days and weeks. Thank you and thank you operator.
Operator
You're welcome. This concludes today's conference call.
You may now disconnect.