May 11, 2016
Executives
Geoff Haydon - CEO Errol Olsen - CFO
Analysts
Thanos Moschopoulos - BMO Capital Markets Doug Taylor - Canaccord Genuity Paul Steep - Scotia Capital Inc. Blair Abernethy - IA Securities Kevin Krishnaratne - Paradigm Capital Richard Tse - Cormark Securities
Operator
Good morning ladies and gentlemen, and thank you for standing by. Welcome to Absolute Software Corporation's Third Quarter Fiscal 2016 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 like to remind everyone that this conference call is being recorded today, Tuesday, May 10th, at 8:30 AM Eastern Time. I'd like to turn the call over now to Mr.
Geoff Haydon, Chief Executive Officer. Please go ahead, sir.
Geoff Haydon
Thank you, operator. Good morning, everyone.
Welcome to our Q3 fiscal 2016 conference call. Joining me today is Errol Olsen, our Chief Financial Officer.
I am pleased to report. We continue to demonstrate substantial quarterly progress both in terms of executing against key strategic initiatives and in demonstrating improved financial results associated with the changes we've made to our business.
Growth this quarter was driven by the strong performance of our targeted health care and corporate businesses, improved productivity by our customer acquisition team and the enrichment of our core persistence in DDS product offerings. Q3 DDS revenue was $21.7 million up 2% from Q3 fiscal 2015.
Recurring revenue represented 99% of Q3 revenue and grew 5% year on year. Commercial ACV increased by 2% globally as well as in North America.
This reflected an improved performance in existing customer net ACV retention of 100% both globally and in North America. New customer ACV was over $1 million.
DDS billings in Q3 were $20.1 million representing a 9% increase from Q3 2015. We continue to build momentum in the areas of product and market focus.
I remain confident both billings and ACV will expand into Q4 and fiscal year 2017. These strength in results will continue to reflect Progress against our strategic priorities which I will now summarize.
Our product strategy continues to focus on enabling enterprises to understand and manage end point in Information related risk by leveraging our pervasively embedded and entirely unique Absolute persistence technology. In support of this in Q3 We made major announcements that extend Absolute capabilities Around Our two product functionality pillars persistence and awareness.
Persistence refers to absolute ability to maintain the effectiveness of an endpoint agent. Through our OEM factory embedded position on an endpoint device, we are uniquely able to report on the effectiveness of endpoint agents and repair or replace agents that have become damaged or disabled.
Up until recently this persistent capability focused exclusively on the protection of absolute DDS agent. We are now focusing on extending this capability to enable enterprises to sustain other endpoint agents.
Two recent major announcements reflect the progress we're making in this area. Firstly in Q3 we officially launched our Microsoft SCCM repair feature.
This allows us to provide full cycle support to our customers who rely on Microsoft SCCM to manage their end point. This includes reporting on the presence and help of an SCCM software agent and repairing it if it is not operating properly.
Market interest has been significant but this new capability. This reflects the ubiquitous nature of SCCM within enterprises.
By leveraging absolute to maintain an active effective SCCM agent. Our customers can reliably and resiliently execute the configuration patching and protection of other endpoint agents that depend on SCCM for management.
Since its introduction a few short months ago Absolute SCCM features have been deployed on over 2.6 million Customer devices. This represents the fastest new feature adoption in absolute history.
Secondly in April we officially launched our persistent services offering, extending our persistence functionality to any endpoint agents or application. This enables enterprises to ensure that business critical endpoint applications remain installed and effective Executing an automatic reinstallation of the application If it missing, damaged or removed.
This capability materially enhances the value of end point Application investments Enterprises have made. Our business pipeline for persistent services is growing quickly.
One of our first customer deployments is allegiance, the largest privately held staffing company in the world. They are leveraging the service to maintain their corporate VMs VPN software Over fifteen thousand endpoints across hundreds of offices around the world.
This allows them to provide secure network access to the remote workforce with no interruptions to productivity or unapproved work around. These Q3 persistent platform announcements are significant.
For the first time we are monetizing our persistence capabilities in the context of non-absolute software applications. With our persistence technology embedded in over a billion devices, this materially expands our total available market opportunity.
As importantly it is our belief that persistence has the potential to emerge as an unparalleled new standard for enterprise end point application positioning Absolute as a default and point security technology and a critical Enterprise defense layer. Realizing the revenue opportunities associated with our persistence platform will be a top absolute priority.
In addition to focusing directly on driving Enterprise adoption we will explore partnering opportunities with software vendors enabling them to offer persistent versions of their applications and leveraging this capability as their competitive advantage. Our second area of product focus is awareness.
This refers to the ability of our DDS agent to catch a rich end point telemetry that enterprises can leverage to assess the risk profile of a user or a device. Traditionally Absolute telemetry focused on device characteristics and user properties.
With the deployment of endpoint, data discovery or EDD, Enterprises can now observe and point data attributes. EDD is highly customizable and enables a customer to identify any information on an end point they consider to be sensitive.
EDD extends this oversight to devices of the corporate network a traditional and substantial blind spot for enterprises. This is a powerful differentiator for Absolute.
By combining end point data observations with other device and user telemetry our customers can identify and determine the potential severity of an endpoint security incident. They can then leverage Absolute remediation technology to execute an appropriate response Based on the level of risk assessed.
This combination of capabilities is foundational to understanding and managing Insider threat related risk. The last few months have represented an enormously productive period of product innovation.
The richness and cadence of feature and function announcements are the direct result of our decision to focus singularly undated and device security and the hire one of the most prominent and experienced product in development leadership teams in the industry. The market's response to our new offerings has been enthusiastic resulting in a steadily growing pipeline of sales opportunities.
Perhaps most excitingly we are seeing adoption activity well beyond our traditional OEM attached Business where DDS is bundled with the hardware order. While this part of our business remains strong our customers are increasingly recognizing these new absolute features are most valuable when deployed broadly throughout an organization.
This is driving increased customer interest in Enterprise wide deployments and reducing our dependence on traditional attachments to new devices. We will continue to invest and leverage product innovation as a primary growth driver.
Enriching a roadmap with marketable features, executing predictably against our commitments and leveraging our new features to impact renewal. Expansion and new customer acquisition performance.
As stated in previous quarters we continue to focus our go to market and investments on those specific geographic and vertical markets that represent the greatest return on investment for absolute. As a result these target markets are leading absolute's accelerated growth.
Corporate and health care billings were up 25% year-on-year. Additionally over 80% of our new customer ACV were from corporate and health care customers.
In addition to strong overall results we are encouraged by the caliber of customer adoption. In Q3 we executed our largest non-education renewal ever.
With one of the biggest health care coverage and benefits providers in the United States. In their environment DDS has been deployed to an Enterprise license agreement to assess the risk profile of a user based on their employment status and point usage patterns and to remediate any risk associated with malicious or negligent insiders.
Our largest new customer win was with PayPal one of the most prominent online payment platforms in the world serving customers in over two hundred countries. They are deploying DDS as a standard to identify and manage Information risk associated with employee and contractor and point use.
These use cases centering around information protection and insider threat related risk are prominent among large new Enterprise users. Another common theme is the adoption of Absolute technology in stages.
Notable new customers in previous quarters this year that expanded their deployments into Q3 included Facebook, PRow price and capital one. In Q3 we continued to see performance improvements reflected throughout our reorganized and increasingly productive sales organization.
The inside sales teams which we created in the second half of last year to cover existing SMB and enterprise account exceeded their objectives for the third consecutive quarter. The strategic account team which we introduced into Q1 of this year to manage the renewal expansion of our largest accounts also perform strongly expanding ACV for the second consecutive quarter.
Finally the new customer acquisition team continued to progress strongly delivering a building performance up 78% over Q2. Over a third of our entire field organization met or exceeded their objectives in Q3.
The continual increase in the productivity of this team remain a top priority. Our focus in Q4 is on supporting our sales organization with the capabilities required to most productively engage large enterprise accounts and the sophisticated use cases they represent.
This includes enriching and expanding both pre-sales and professional services capacity to execute the product demonstrations proof of concept and multi-platform solution implementations which are characteristic of our more prominent new customer win. In summary, we entered Q4 with a substantially elevated and demonstrated capacity to innovate and execute.
Most notably we have the strongest set of product offerings in our history. Leveraging our persistence platform optimized around end point related insider threat detection and protection and increasingly validated by some of the most discriminating and sophisticated Enterprises in the world.
I expect results will continue the strengthen Q4 and throughout Fiscal year 2017. Now I'd like to turn the call over to Errol to discuss our financial results in more detail.
Errol?
Errol Olsen
Thanks Geoff. Good morning everyone.
Q3 DDS Segment revenue of $21.7 million grew 2% year-over-year. Recurring revenue in Q3 grew 5% year-over-year and 99% of this quarter's DDS revenue was derived from occurring term licenses As compared to 95% in Q3 of fiscal 2015.
Year to date DDS segment revenue was $63.9 million at 3% year-over-year increase. Within our Absolute DDS segment during Q3 our commercial ACV base increased 2% globally and also increased 2% in North America.
On a year-to-date basis, the DDS ACV base increased 2% globally and 4% in North America. Q3 net ACV rotation from existing customers was 101% both globally and in North America.
In terms of new customer performance during Q3 we added $1 million of incremental ACV from new customers globally of which 80% Related to customers from the corporate and health care verticals. This compares to 74% from the vertical thing Q2 and 36% in Q1.
Our adjusted EBITDA for the third quarter was $2.8 million which was down from $6.8 million in Q3 of last year. Year to date adjusted EBITDA was down from $9.2 million was down from $15.1 million in the prior year.
The decrease in EBITDA is reflective of the removal of endpoint in service management revenue while adjusted operating expenses which are defined in our press release and MD&A were up 9% year-over-year in Q3 and were up 4% year to date. The expense increase is due primarily to investment in our significantly enhanced Product development capability which Geoff highlighted our revamped sales teams and increased marketing activity.
Additionally Q3 of last year included the impact of a $700,000 positive adjustment to R&D investment tax credit accruals. Our headcount at March 31 with 427 which was up from 411 at the December 31 and relatively flat compared to 425 at March 31of last year.
Turning now to cast flow. Q3 cash from operating activities with $0.1 million down from $5.3 million in Q3 Of last fiscal year.
At a high level cash flow for the quarter is reflective of a prior quarter billing of $19 million which were largely collected Q3 Offset by $18.8 million of adjusted operating expenses in the current quarter which were mostly paid in the quarter. With other changes being related to working capital.
DDS segment billings in Q3 were $20.1 million, a 9% increase over Q3 of fiscal 2015. Commercial billing for North America were also up 9% year-over-year And represented 90% of total commercial billing.
International commercial billings were up 13% year-over-year. With the increase coming primarily from our Latin American operations.
From a market vertical perspective billings from the combined corporate healthcare verticals increased 25% year-over-year and represented 58% of our total commercial billing for the quarter. Billing from the education and government vertical were down 7% year-over-year with the decrease being primarily related to North American government market.
Looking now to our outlook for the remainder of fiscal 2016. Our expectations for the year remain generally unchanged.
We expect fiscal 2016 revenue for the absolute DDS and consumer businesses to increase over fiscal 2015 level but for total reported revenue to decrease year-over-year reflecting the divestiture of the endpoint and service management products segment. We expected EBITDA for fiscal 2016 to decrease from fiscal 2015 reflecting the lower total revenue and a slight increase in adjusted operating expenses.
We expect absolute DDS billings for Q4 Fiscal 2016 to increase over Q4 fiscal 2015 level And for a full year 2016 absolute DDS billings to be roughly in line with fiscal 2015 level. Cash from operating activities for Q4 fiscal 2016 and.
For full year fiscal 2016 are affected to be below comparable fiscal 2015 level reflecting the previously described changes In addition to working capital movements. And finally capital expenditures for fiscal 2016 will be highly concentrated in the fourth quarter with the expected Q4 CapEx of $2 million to $2.5 million.
These expenditures relate primarily to our hosted infrastructure and our Vancouver office expansion. This concludes our prepared remarks for today.
Operator Please open up the call for questions.
Operator
[Operator Instructions] Your first question comes from Thanos Moschopoulos with BMO Capital, Please go ahead.
Thanos Moschopoulos
Hi, good morning. Your guidance calls for a strong billings growth next quarter.
Can you speak your level of confidence regarding that, is that being driven by a large renewal opportunity or you're also looking for a significant uptick in new customer acquisition as well.
Geoff Haydon
That's a good question, it's a combination of both I mean We are expecting a strong willed performance are expiring bases up in Q4 over Q4 year ago we're seeing good momentum Throughout both of the, or all of the renewal and expansion teams as I mentioned, in obviously we're looking to continue to increase the momentum in performance of the new customer acquisition team. And just a common in that we don't normally provide quarterly guidance.
Obviously there are conclusions being drawn from the statement that we've made about the year performance and I'll restate. We expect our billings this year to be roughly in line with our billings last year and when I say roughly that allows in our view a margin for error of 1% to 2% but we do expect to finish roughly in line with our billings for comments from last year.
Thanos Moschopoulos
Okay, great. And then in terms of your persistence services; can you talk about the pipeline that you're seeing there and with the sales cycles be comparable to your broader DDS offering or would they be any difference and as far as the vertical make up anything you highlight on that front.
Geoff Haydon
It's a really good question. It's too early to determine what the average sales cycle is.
I will say that we've seen very enthusiastic immediate response to that launch as I mentioned we've already deployed the technology lean just so we've got a strong pipeline of both moving into Q4 in the new year and we're very optimistic about the growth prospects of that offering. We really view with this having a couple of implications.
First of all, it substantially enhances our total available market opportunity. We also view it as an opportunity to make our offering our core operating stickier within an enterprise which should positively impact renewal rate.
The persistent service offering is also an offering that benefits from broader adoption of enterprise so we're looking for it also to contribute to our expansion efforts and most perhaps notably it's a very compelling discussion for a new customer, a new prospect. So what we're seeing is a very high conversion rate between persistence services conversations and pipeline opportunities.
It's too early to say how quickly those are going to convert Thanos but we're very optimistic about the prospects of that business.
Thanos Moschopoulos
Great. And then finally it was nice to see the international growth this quarter.
Is staff business starting to find its footing or was that more driven by a one off deal?
Geoff Haydon
You know we are rebuilding and establishing strong fundamentals internationally as I've mentioned many times and that involves essentially replicating the go to market structure that we've built and refined here in North America that includes the appointment of leaders in international theatres and includes the coverage of our OEM partners. The creation of an inside sales team and the establishment of a direct sales presence in those specific countries that were targeting for growth, we are well underway at doing that in all of our international theaters and the objective alternately Is to drive a more consistent and predictable accelerated growth.
It's too early to say that the work that we've done in rebuilding those businesses is impacting results in Q3 or Q4. We're still highly dependent on one theater or a couple of large deals to drive.
The proponents of the international business we really expect the investments that we've made in international theaters to start to pay off throughout fiscal 2017.
Thanos Moschopoulos
Great, thanks Geoff. I will pass it on.
Geoff Haydon
Thanks, Thanos.
Operator
And your next question comes from Doug Taylor with Canaccord. Please go ahead.
Doug Taylor
Thanks, good morning. I'll keep pressing on the persistence services piece I think it's particularly important to the long term outlook your story on the Microsoft SCCM uptakes been pretty impressive.
I mean how should we view that as showing up in your financial results, I mean is this part of what's driving that net retention rate higher As customers upgrade to a higher tier? Or is it factoring into your new customer conversations?
Can you expand on that?
Geoff Haydon
Doug, it's a really good question I'll comment. So it's offered that in both our professional and premium DDS offering that SCCM and report repair capability and that represents the majority of our current customer base.
So that launch at least initially has been largely deployed by a combination of existing and new customers but very largely by existing customers. It's too early to say that it impacted renewals in Q3 but our expectation is that by activating that feature it makes the technology stick you're an existing customer environments and we do expect that it will impact renewal rates moving forward.
The other comment to make about the SCCM feature is that it is the most notable feature in terms of being the most valuable when it is deployed broadly across an enterprise. The whole purpose of it is to help customers identify whether they have SCCM agents that are not active or a fact of.
And so what we have seen in the short term is an impact on the adoption rates throughout existing customers and we do expect it will materially impact expansion rates In future quarters. Finally, it has emerged as one of the most compelling new features for customer prospects so it is definitely contributing substantially to the development of the pipeline and we are optimistic that it will drive a new customer acquisition activity moving into Q4 in the new year.
Doug Taylor
Okay. Question for Errol, at what working capital can you use a jerk around quite a bit or expecting some sort of stabilization there in Q4?
I think your guidance would suggest some working capital investment again in the quarter but correct me if I'm wrong, how do you expect that to flow through into the New Year?
Errol Olsen
Sure, you're right over the last couple of quarters both Q2 and Q3 I think that our working capital with a little bit a typical with our DSOs lower than our traditional average and DPOs were actually little bit higher. I do expect those ratios to normalize in Q4 and going into the New Year.
Doug Taylor
Okay. Last question for me should we imply from your comments lower OpEx growth than we had previously This year and That still imply a pretty big ramp seasonal ramp in Q4 in OpEx from some seasonal?
Errol Olsen
You're right. In that there were there, we do expect a seasonal ramp in OpEx.
Overall we expect our annual OpEx for fiscal 2016 still to be up low single digits over fiscal 2015 and I will take the opportunity to speak a little bit about what we expect going into fiscal 2017. We're not expecting any sort of stepping increases in investment.
We do believe that we have capacity in the organization and particularly within our go to market Infrastructure. So we expect our fiscal 2017 less than 10% increase in OpEx going into the year and through the year.
Doug Taylor
That addresses my next question. Alright I will pass it on.
Operator
Your next question comes from Paul Steep with Scotia Capital. Please go ahead.
Paul Steep
Thanks, Geoff can you talk a little bit about new customer acquisition and progress There The team's been making and Maybe confirm as well that Billings in the quarter look like complete $3 million to new customers?
Geoff Haydon
So yes that's correct. We saw very positive progress in both billings and new customer ACV throughout the course of the quarter and not just in terms of the Absolute dollars but the caliber of customers that we're starting to penetrate and the sophistication and type of deployments that they're characterized by.
You know this Insider threat the extension of persistence the use cases that we're really focused on driving the next generation of growth. We learned a lot As well about what's involved in penetrating some of these large multinational Enterprises.
Very often when we approach them for the first time you know they may not have heard of us, they may not be familiar with or believe that our technology is embedded on their devices. There is a lot of work involved in terms of demonstrating the technology, evaluating it doing a proof of concept in their environment where we act, where they exercise the technology you know very substantially, They audit our service platform, they review our security posture.
I mean they're introducing some new legal and commercial arrangements that we haven't been confronted with historically so I'll say that we learned a great deal in addition to progressing the new customer acquisition activity financially we really matured and strengthened as an organization. And our objective moving into Q4 in the New Year is to continue to expand and accelerate our capacity to execute against the types of substantial customers that I highlighted during the course of the script earlier.
Paul Steep
Great. And then the last two for me.
If you've seen any experienced any change in the length of contracts that clients are taking in and secondly if you could just recap what headcount levels have been at? Think Based on the prior answer to Doug it sounds like that level is going to be stable but it would be just great to follow up thanks.
Errol Olsen
Sure in terms of average contract length we did see a decrease in average contract in Q3. And the average contract was 32 months which compares to our historical average of 36.
If you recall last quarter we were at 35 and I did make a comment that historically the average contract tends to fluctuate between 35 and 37. So there has been a decrease, we do expect that over time our average contract length will come down.
I don't expect it to come down dramatically and certainly not a short-term. But as we increase our expansion into the corporate healthcare verticals and we're deploying more broadly an enterprise license type agreement, I do expect we'll see more annual contract with large customers like we did with the large healthcare customer that renewed this year but I just want to reiterate that we expect that these will be additive.
I don't expect any sort of cannibalization of our traditional prepaid model, and the fact I expect it will continue to expand in that prepaid model as well. And so with the second part of the question -- headcount, so for headcount we were 427 at March 31, I expect we'll end the year somewhere around 440 to 450.
And for fiscal 2017 it's a little too early for me to project out what the headcount might be for next year.
Paul Steep
No problem. Thanks.
Geoff Haydon
Thanks, Paul.
Operator
Your next question comes from Blair Abernethy with IA Securities. Please go ahead.
Blair Abernethy
Geoff, I'm wondering if you could dive in a little bit more on to the government vertical side of things, it seems -- sounds like it was a little bit weak there. Can you just explain what's going on and how you think in that vertical some of your new products are going to be playing?
Geoff Haydon
Blair it's a great question. I will suggest that our government business is modest -- our investment in our government business is modest.
And it is not a strong business fundamentally. Where we close a large deal, the performance is good.
When we don't it isn't -- as it was in this quarter. One of the observations that our new Chief Commercial Officer has made in a short time he has been with the company is the federal and state and local government, both represent substantial growth opportunities for Absolute.
And as we move into the New Year, we are looking at elevating our level of investment in and presence around both, federal and state and local government. We'll do so thoughtfully as we have done internationally but we do believe there is an opportunity for us to build once again a stronger fundamental capability around the public sector and to deliver more predictable and consistent, and certainly more impressive results around both, federal and state and local.
Blair Abernethy
Okay, that's great. And shifting to this commentary you've made around partnering with software companies or OEM-ing your technology into other software companies.
Can you -- I know it's early days but do you have a sense as to how soon we might see some developments on that side and how fast I could ramp up?
Geoff Haydon
Yes, it's speculative at this point, we just announced the offering. Recently as you know, we've seen substantial activity within the enterprise sector which has been our first wave of growth focus is to drive enterprise adoption.
In conjunction with that we have deployed a team of business development leads to focus on identifying and starting to engage prospective targets but it's too early to say Blair how quickly we're going to be able to materialize those but I can tell you that we regard this whole persistence opportunity as being substantial as I referenced earlier, not just in terms of total available market opportunity but just in terms of strategic importance. We really do believe the capacity to hardwire an endpoint application has the potential to emerge as a very broadly adopted enterprise standard.
And so our growth track will focus both on driving adoption directly with enterprises, driving adoption with enterprises through our traditional partnership with OEMs and bars but as well looking to very actively engage ISV partnership. So that's a top priority, I just -- I can't tell you how quickly it's going to materialize in the form of a partnership or in terms of additional revenue.
Blair Abernethy
Okay, fair enough. Thanks very much.
Geoff Haydon
Thank you.
Operator
Your next question comes from Kevin Krishnaratne with Paradigm Capital. Please go ahead.
Kevin Krishnaratne
Good morning, guys. A question for you on the profile of some of the new clients.
You said that you're winning -- you mentioned that PayPal and Facebook; I'm wondering if you can speak about any change in the type of devices that new clients like these are taking? I know you're traditionally a laptop -- majority of your devices out there are laptops but is there a shift in more cell phones or tablets and anything that you can comment on used cases, what they are seeing, why they -- why these companies would be moving to your solution?
Are they seeing an explosion in data on their devices and the need to secure that? Just want to understand some of the changing dynamics that you're seeing with some of the new customers.
Geoff Haydon
No, it's a great question. I mean we're seeing a couple of dynamics, first of all, an explosion, just in the sheer number of devices; desktops, laptops, tablets, smartphones and typically users possessing a multiple and combination of those devices.
We're seeing obviously a substantial increase in the growth of enterprise information but also a fundamental shift in information towards endpoints from data centers and I think one of the large analysts referenced that almost a third of enterprise information now resides exclusively on endpoint. So all of these dynamics are driving growth and investment and the types of technologies that we're selling laptops, typically predominate adoptions but because once again of the features pictures that we're introducing like SCCM, life persistence, it's really driving a much broader adoption of technology throughout an enterprise; for example, we're starting to see a lot of desktop activity.
The agents, the challenge with agents and applications and end points is not limited to laptops so for the first time we've started to see substantial expansion in the desktop environment which is quite unique. We're certainly seeing an accelerated adoption in tablets and smartphones and we do regard that as a tremendous growth opportunity for us moving forward but once again, one of the fundamental design objectives for new features and functions is to drive broad adoption.
We want to announce features that customers will benefit the most from deploying them across their entire endpoint population that is the ultimate objective from our perspective, both in terms of our technology development and our sales execution.
Kevin Krishnaratne
That's great to hear. And I guess, nice to see all the great product launches, and I know you've had some previous launches with respect to RSA and on the previous call you noted that there might have been some prospective customers who may have been using the RSA dashboard, may have been reluctant to add another dashboard like Absolute.
Any any commentary on now with the RSA integration any the evidence of customers warming up to taking your solution that may have not otherwise been?
Geoff Haydon
Yes, definitely. And without getting specific several of our large new enterprise users are also RSA customer.
I regard it the ability to feed our telemetry to an incident event management platform like our a sales is being tables takes in the enterprise, we've been told that by several of our large enterprise users and some of the enterprise users that had challenged us to provide that functionality historically are now adopting our technology and consuming our telemetry through their analytics platforms. RSA represents the most progressed partnership but I'll tell you also that we're making our telemetry available in an industry standard Syslog where matic can be consumed by just about any analytics or instant event management platform.
But we will look to establish and progress other partnerships with other prominent analytics companies in the spirit of driving tighter integration for customers and also ultimately ideally leveraging go to market capabilities through some of these partnerships but this idea of connecting our persistence in DDS technology to other ecosystem partnerships is really central to our growth strategy. One of the things we like about the persistence services is that it's not only a compelling offering on its own but it really enriches the value proposition of other companies that are selling end point technology.
So we view that as a very substantial ecosystem. We also think about the incident event management in analytics firms as potential partners and other security providers and in our view the more technologies -- complementary technologies, we can integrate DDS or persistence into the more valuable -- our valued proposition is for an enterprise.
Kevin Krishnaratne
Great, thanks for that and now just one final one, perhaps for Errol. Just on the billings strength in the quarter.
Any kind of one-time items to think about I know -- I think on the last call you'd mentioned that there might have been a shifting of a large deal from Q2 into Q3, was any of that evident in the quarter and is there any way to quantify that number. Just kind of want to get a sense of what more normalized billings might have looked like?
Errol Olsen
Sure. There was one large customer, their renewal shift is from Q2 into Q3.
The original renewal was about $1.2 million renewal, that customer actually expanded as well by about 30%. That would be the only lumpiness that I would call out in the billings for the quarter.
Kevin Krishnaratne
Okay, great. Thanks a lot guys.
Errol Olsen
Thank you, Kevin.
Operator
[Operator Instructions] Your next question comes from Richard Tse with Cormark Securities. Please go ahead.
Richard Tse
As you look at the new persistence services businesses, can you maybe give us a sense of how the revenue model works on that? Is it similar to the former businesses and maybe it's just a bit of color on that, please.
Geoff Haydon
Now it is a fixed price per agent per end-point per year. And so it is incremental who are traditional DDS offering which is exciting but it all also represents an opportunity to engage or activate a new customer.
So we're thinking about that offering also is kind of a land and expand opportunity, an opportunity to get to our technology embedded on set of enterprise and then to watch our other DDSP driven functions overtime but it is incremental to our traditional DDS business.
Richard Tse
So in the case of the Microsoft CCME to the 2.6 million devices deployed, what would the revenue opportunity be if all those were activated?
Geoff Haydon
I haven't got that figured out at the top of my head, I just -- we haven't done that calculation and preparation for this but I'll state again, the majority of those just given the time that announcement has been or that offering has been and the market has been adopted by existing customers. So we expect the impact of that -- as I said earlier, to be on renewals and certainly on expansion overtime but I think that it will also drive a lot of our new customer acquisition conversations and opportunities moving forward.
But I just -- I can't comment Richard on how material that's going to be from a specific revenue perspective.
Richard Tse
Okay. And then it looks like one of the good investment in terms of building out the product portfolio beyond DDS, if you look ahead to the next year what proportion of your revenue do you expect to come from these new products here versus the older ones?
Geoff Haydon
I don't have a number because we really view these as part of our core product platform. Extensions of our core product platform so we're not thinking about these in terms of discrete components although we will model those out for planning purposes.
But we're really thinking about these as enrichments of and extensions of our core persistence in DDS platform so we're not -- we're not thinking of them in terms of -- discrete offerings so I guess I haven't got the number that I can share with you Richard.
Richard Tse
Okay, no problem.
Geoff Haydon
Other than with all of these offerings expand, they increase the stickiness of our technology, they will drive broader expansion and they sharpen our spear in terms of our new customer acquisition value proposition. So in our view the way that we're thinking about all of these is a means of accelerating growth.
Richard Tse
Okay. And just last one for me and it's maybe for Errol.
The CapEx increase in Q4 outside of the investment into the new office, what would that look to be dedicated to? I think you said that you're building up for data center, maybe a bit of color on that please.
Errol Olsen
Sure. I mean this is -- a lot of it is related to hardware refreshed within our data center and also increasing the scalability within the data center.
So these are things like servers and server licenses, and that's about roughly half of that CapEx number for Q4.
Richard Tse
Okay, great. Thank you.
Errol Olsen
Thanks, Richard.
Operator
And there are no further questions at this time. I will now turn the call back over to Mr.
Haydon.
Geoff Haydon
All right, well listen, let me close by saying thank you to everybody in the call for your continued support and interest, and we'll look forward to speaking with you in the coming days. Thank you.
Operator
And ladies and gentlemen, this concludes today's conference call. You may now disconnect.