Absolute Software Corp (ABST) 2017 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Absolute Software Corporation's Third Quarter Fiscal 2017 Conference Call. (Operator Instructions)

Before beginning its formal remarks, Absolute would like to remind listeners that certain portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. Any forward-looking statements contained in today's conference call are made as of the date hereof, and Absolute does not undertake any obligation to update publicly or revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. For more information on the company's risks and uncertainties related to these forward-looking statements, please refer to the appropriate section of its Quarterly MD&A and Quarterly Financial Statements, both of which are available on Absolute's website or SEDAR.

I also like to remind everyone that this conference is being recorded today, Monday, May 8 at 5 p.m. Eastern Time.

I would like to turn the call over now to Mr. Geoff Haydon, Chief Executive Officer. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone, and welcome to our Q3 fiscal 2017 conference call. Joining me is Errol Olsen, our Chief Financial Officer.

Q3 represented another quarter of substantial progress across all facets of our business. Our Commercial ACV base exiting the quarter was $88.2 million, increasing 9% year-over-year and 2% sequentially. ACV growth was driven by strong renewal and expansion activity with existing customer ACV of 102%, coupled with new customer ACV of $600,000. Absolute's self-healing endpoint security solution continued to resonate strongly with the market. As a result, Q3 represents our sixth consecutive quarter of sequential growth in ACV and recurring revenue. Importantly, our pace of growth continues to accelerate driven by those specific geographic and vertical markets we have been concentrating our investment in. Most notably, ACV from enterprise and healthcare customers in Q3 grew 14% year-on-year and 5% sequentially.

Absolute, through its entirely unique and broadly embedded Persistence platform, remains uniquely positioned to overcome one of the most prominent, impactful enterprise security challenges, the dark endpoint. This refers to computing devices that are unobservable to the corporate IT function because they are off network or dependent on endpoint management and security agents that have become ineffective or disabled. This endpoint blind spot typically affects a significant percentage of an enterprise's total endpoint population and represents a breeding ground for security breaches.

Absolute's unique capacity to enable our customers to see, assess and remediate endpoint-related risk across their entire enterprise drove our largest Q3 transactions. A Fortune 100 healthcare services company, for example, expanded and upgraded their Absolute deployment in Q3 where we now secure over 200,000 endpoints globally. Through this deployment, Absolute plays a central role in ensuring the compliance and security of patient data and corporate IP residing on endpoints in over 125 countries around the world. This Q3 expansion reflects organic and inorganic growth, the addition of desktops to their ELA and the adoption of valuable new product features centered on data protection. We are also developing a custom integration with this customer's human capital management system in order to increase the security of data associated with gaps due to personnel changes, making Absolute's technology even more strategic.

We also expanded our business in Q3 with a large U.S. healthcare provider comprised of 8 hospitals and only over 36,000 employees. This customer's deployment of 7,000 DDS agents increased by over 5x in Q3, extending Absolute's presence across all endpoint device types. Through this deployment, our customer has substantially improved their overall security posture through off-network device and data visibility and a capacity to remediate endpoint agents that have become disabled or damaged. Additionally, through our Endpoint Data Discovery offering, we are helping to address sensitive data compliance vulnerabilities on both desktops and remote ambulatory offices. Finally, the customer is realizing quantifiably improved operational efficiency and cost containment through hardware assets and software license management.

The strong growth of Absolute's business with both existing and new customers is largely being driven by enhanced innovation and strengthened sales execution against new feature opportunities. I'll now review specific accomplishments in these areas.

Our plan to increase investment in product development during fiscal 2017 is on track with a focus on accelerating innovation in 2 specific areas: Our cloud-based platform and insider threat defense offering. Our Vietnam operation is now an established legal entity, almost fully staffed and productively operational. Our user behavior and analytics development team is also almost fully staffed with critical additions occurring both in Vancouver and the U.S. Errol will elaborate on planned hiring activity during his comments. Given our progress to date, we expect to enter 2018 essentially fully staffed across all functions of our business.

Early expressions of our cloud-based platform are including the introduction of role-based access control. This has been an outstanding request from several of our largest enterprise customers. We are also expanding our integration with other major enterprise technologies. These integrations allow enterprise customers to leverage Absolute's rich telemetry and remediation capabilities across complementary applications, substantially enhancing the usefulness and value of these applications. In Q3, we completed integration with the IBM QRadar Security Incident and Event Management platform and are now integrated with the majority of the Gartner SIEM Magic Quadrant Leaders.

Our user behavior offering was also enriched recently through the announced integration with Microsoft Azure Rights Management. This enables enterprises to control user access to, and the sharing of, sensitive data and to enforce policies around the adoption of Shadow IT.

On educational application of our developing user behavior capabilities was reflected in the introduction of our Student Technology Analytics feature, which enables educators to observe the relationship between students and technology and to associate these usage patterns with student performance.

The ultimate objective of our R&D investment plan remains to substantially increase our total available market and to enable the introduction of rich, monetizable new features as a key driver to accelerating growth. Our most notable Q3 announcement in this area was our Application Persistence offering. This extends Absolute's embedded Persistence technology to any endpoint security and management agent and is available as an incremental upsell to our core DDS product line. To date, we have extended Persistence to 15 different endpoint agents. We continue to believe this unique Absolute concept of self-healing and endpoint agent has the potential to emerge as a de facto standard for enterprise endpoint security architecture.

We continue to see sales productivity improvements throughout our entire global field organization and across each of our key growth drivers: the renewal, expansion and upselling of existing customers and the acquisition of new customers. In Q3, existing customer renewal and expansion played a particularly prominent role in accelerating growth with existing customer ACV expanding to 102%. In addition to the 2 large customer wins I referenced earlier, we had substantial renewal and expansion wins with Facebook, Capital One, Charles Schwab, Advocate Health Care and Baylor Scott & White.

The number of ELAs we closed with existing customers also increased from 0 1 year ago to 9 in Q3 this year, which also reflects broader customer adoption trends and Absolute deployments, independent of a device sale. Expansion within our 20,000 existing customers will continue to play an important role in realizing our growth objectives. We estimate that within our 100 largest enterprise accounts as a representative sample of this segment, that less than 40% of the total available endpoints are activated. Our enriched set of product features is now providing the impetus for productive conversations with these existing customers regarding the activation of the remaining endpoints.

Additionally, many of our newest features are being productized and priced as incremental additions to our core DDS platform, enabling upsell opportunities and a higher ACV yield per endpoint.

New customer acquisition also continues to play a central role in accelerating growth. In Q3, we expanded new customer ACV by $600,000, added hundreds of new customers and deployed our technology at well-known brands such as PwC, NTT, Accretive Health and ExxonMobil. New product features and functions continue to drive this new customer activity with 97% of our new customer ACV represented by premium-featured and priced versions of our DDS solutions.

In summary, we are executing strongly against our innovation agenda and our objective of leveraging new product features as a primary accelerant to growth. Secondly, we continue to demonstrate a substantially strengthened go-to-market capability, improving renewal rates, igniting expansion opportunities and acquiring new customers. As a result, we continue to deliver sequentially improved ACV and recurring revenue growth rates and an accelerated pace.

Moving into Q4 and our new fiscal year, we will continue to focus on improving execution, accelerating growth and expanding both our EBITDA and cash margins. We remain fully on -- I'm sorry, we remain firmly on our path to accomplish our 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 in more detail. Errol?

Thank you, Geoff. Good afternoon, everyone. Q3 DDS segment revenue of $23.1 million grew 7% year-over-year. Commercial recurring revenue of $21.6 million increased 9% year-over-year, while commercial non-recurring and consumer revenue was $1.5 million compared to $1.8 million in the prior year period.

Our Commercial ACV Base was $88.2 million at March 31, representing a 9% increase over March 31 of last year and a 2% increase over the December 31 balance. This represents an acceleration over the 8% annual ACV growth that we reported last quarter and is our highest growth rate since we began measuring this metric. The $2 million sequential increase in the ACV Base was driven by improved customer expansion and upsell performance with an existing customer quarterly retention rate of 102% in Q3, which added $1.4 million to the ACV Base. This included a significant expansion with a North American healthcare services organization, which represented an incremental ACV contribution of more than $500,000. We also added $600,000 of ACV from new customers.

From an industry vertical perspective, the enterprise and healthcare ACV Base increased by 14% year-over-year and by $2 million or 5% sequentially. The education and government ACV Base increased by 5% year-over-year and was flat sequentially. At March 31, enterprise and healthcare customers represented 49% of our Commercial ACV Base compared to 47% at March 31 of last year. Geographically, North America remains our dominant region with 9% year-over-year ACV growth and represents 90% of our Commercial ACV Base.

Turning to expenditures. We have continued our planned expansion of our research and development capabilities. Our R&D headcount at March 31 was 204, up from 150 at June 30 and 165 at December 31, including Vietnam contractors. During Q3, we completed the incorporation of our Vietnamese subsidiary, and all local contractors were converted to permanent employees. We expect to achieve our targeted R&D headcount of approximately 250 by June 30. At that point, our R&D expansion plan will be complete, and we expect to move into fiscal 2018 fully staffed.

Total Q3 adjusted operating expenses, which exclude reorganization and noncash charges and which are detailed in our press release and MD&A, were $20.7 million, relatively flat with the first 2 quarters of this year. Within the research and development line item, during Q3, we recorded a $1 million positive accrual adjustment related to historical investment tax credit claims. Prior to this adjustment, our adjusted operating expenses were $21.8 million. The increase over the prior quarter reflected the increased R&D headcount and the timing of marketing programs. Our total full-time headcount at March 31 was 486 compared to 463, including Vietnam contractors, at June 30 and 448 counted on a similar basis at December 31.

Adjusted EBITDA for the second quarter was $2.3 million or 10% of revenue, up from $1.7 million or 8% of revenue in Q2. Prior to the R&D tax credit adjustment previously referenced, our adjusted EBITDA would have been $1.3 million or 6% of revenue, which was in line with our plan.

Turning to cash flow. Reported cash used in operating activities during Q3 was $400,000. This was net of $1.1 million of reorganization-related payments which were charged to income in prior quarters and was repaid in Q3. Cash generated from operating activities was a positive $700,000 prior to these payments. On a year-to-date basis, cash generated from operating activities was $300,000 and was $6.3 million prior to the payment of prior year income taxes and current year restructuring charges.

DDS segment billings in Q3 were $21.6 million, and the average prepaid contract term was 33 months, slightly lower than our historical average of 36 months. The average term was impacted by a significant annual renewal in Q3 as well as the previously mentioned large healthcare customer expansion, which was also a 1-year renewable ELA.

Looking forward now to the remainder of fiscal 2017 as detailed in our press release and MD&A, we have narrowed our revenue guidance to the lower end of the previous guidance range, reflecting lower-than-expected professional services and consumer revenues. Fiscal 2017 revenue is expected to be between $91.4 million and $92.4 million, representing 6% to 8% annual DDS segment revenue growth. At the same time, we are increasing our fiscal 2017 adjusted EBITDA guidance to 8% to 9% of revenue, and we expect fiscal 2017 cash from operations to be between 7% and 9% of revenue.

This concludes our prepared remarks for today. Operator, please open up the call for questions.

(Operator Instructions) Your first question comes from the line of Doug Taylor from Canaccord Genuity.

Yes. The upsell and resell renewal activity was very impressive this quarter. You recently announced the Security Posture Dashboard which seems like another sweetener to get your customers to move up to higher tiers of your products. Can you talk a little bit about the customer acceptance and feedback of that product, and also how we should be thinking about the breakdown of your customers between the different tiers of your DDS suite right now, so we can think about the opportunity going forward?

Yes, Doug. It's a great question and a great point. I mean, the security posture report is a very good example of a feature that has catalyzed some expansion and upsell opportunities very specifically within existing customers. Essentially, what it does is it provides a very comprehensive snapshot across an entire customer endpoint population of their security posture, the extent to which security technologies that they have invested in are effective in doing what they're supposed to do. And in many cases, the exposure of the deficiencies of those technologies and the vulnerabilities that they represent, act as a compelling event in terms of materializing a new opportunity for us. So there's been a very strong conversion rate of security posture report deployments and new upsell and expansion conversations. Now to your second question about how we envision the breakdown. One of the early stages of understanding what the respective growth rates are going to be between new customer ACV and the existing customer expansion and upsell, over the last couple of quarters, we have introduced our medium-term growth model, which identifies really 4 vectors of growth: the renewal opportunity, the expansion of our technology to additional endpoints within existing customers, the upsell of new features, and of course, the acquisition of new customers. The most significant development this quarter was obviously the fact that we activated and really validated this expansion opportunity. For the first few quarters this year, you'll notice that our existing customer ACV remained at 100%. So the fact that we were able to inflect it to the tune of 102% and add $1.4 million of ACV to our existing customer ACV Base was very exciting to us. But we were also pleased that we continued to deliver strong new customer ACV performance, $600,000 in ACV, over 500 net new customers, many of whom are large enterprises that represent very substantial expansion and upsell opportunities over time. Now we do expect both new customer ACV and existing customer expansion upsell to contribute to our growth performance, and we do expect both of those metrics to improve over time. But the complexion of the new customer versus expansion performance is going to be variable from quarter-to-quarter. And I think the reason for that, largely, is the fact that we have a common customer acquisition team that is targeting both customers that we've never sold to before, so new logos or new customer ACV as well as very large established enterprises where we've activated a very small percentage of the total available opportunity. And so each quarter, each member of that team is going to take a look across their account portfolio and determine where they feel the most immediate return on investment will be. And for some reps, it will be oriented towards new customers. For others, it will be to the expansion of existing customers. So it's early days, so it's hard for us to comment specifically on how we expect the performance to break down between those 2 vectors. But we expect both of them to feature very prominently in our short- and long-term growth story.

Okay. But as we're thinking about the renewal and upsell opportunity, I think in the past, you'd said something like 40% of your installed base was not yet on the premium tier, the products. And obviously a lot of your new development is aimed at getting people to that tier. Can you talk -- just confirm where the -- if that metric is still roughly accurate or if that's changed? And also, I'd be curious to hear the penetration of the use of your product on some of the 15 third-party endpoint agents that you've now got integrated with your platform.

So just some metrics on kind of model the expansion or upsell opportunity, I referenced in the call earlier that our top 100 enterprise accounts, in those accounts, we've activated less than 40% of the total available endpoints. And I would submit those are our most covered accounts. So as we go beyond our top 100 customers, I think you'll see activation rates quite a bit below that. So that is a very substantial expansion opportunity on its own. In terms of upsell, you're right. The 40% is still a relevant figure in terms of customers that have bought DDS but not premium versions of DDS, so there are upsell opportunities within those accounts. There are also opportunities for us to sell Application Persistence, for example, which is an offering that is monetized incrementally on top of DDS. And we've said before, just to provide some context, that on average, we realize about $13 of ACV per existing customer endpoint today. The Application Persistence offering represents rough on top a couple of dollars per agent per endpoint per year. So just to give you some context, there are opportunities for us to quite significantly increase the volume of ACV that we realize per endpoint over time.

Your next question comes from the line of Michael Kim from Imperial Capital.

Just wanted to follow up on the technology integrations that you've talked a little bit about, the SIEM vendors. But I'm curious about on the role-based access controls, how you're working with some of the Identity and access management vendors for human capital management, some of the platform vendors. And lastly, not to get too far into the weeds, user behavior analytics and talk about how you may be integrating with AWS in the future?

Yes. So I think all of the applications and technologies that you referenced represent integration opportunities with us. And that's one of the reasons that we had identified RESTful APIs as one of the primary drivers behind the elevated level of investment that we're making in our cloud-based platform this year. Today, we can extend DDS to just about any complementary application, but it requires a discrete professional services or development effort. What we want to be able to do is enable customers to extend DDS to other applications or architectures within their environment seamlessly and independently. So whether it's the role-based access control, identity and access management, whether it's cloud providers, whether it's IT service management, whether it's the SIEM vendors, all of these surrounding technologies, Michael, benefit from 3 things that DDS provides. One is telemetry across every endpoint, so just that rich comprehensive view across the entire endpoint population; secondly, our ability to remediate risk on an endpoint even if agents have been disabled or even if that device is off the corporate network; and finally, the ability to extend Persistence to other complementary agents that may be subject to attack or being disabled. So right now, these partnership integrations are being announced incrementally quarter-to-quarter. But as we start to express the API family more fully in 2018, we're really putting customers in a position to extend DDS to applications of their choosing in their environment.

And through this API program, do you see an opportunity for co-marketing arrangements and being able to pursue some joint customer opportunities?

Yes, we do. And I expect that in Q4, moving into the new year, you'll start to see some of those announcements. But the primary focus to date has been on the integration of the technologies, either at customer requests or in service of identified customer requirements. But whether it's RSAs, Splunk, HP ArcSight, ServiceNow, any of the integrations that we've announced to date, in effect we're enriching the functionality of their technology in a customer environment. And so we do intend to leverage programs that they've got that drive go-to-market collaboration and ideally put us in a position to realize some leverage from their sales and go-to-market capability. That is the ultimate objective.

Great. And then just switching over to the existing customer ACV, are you seeing EDD continue to drive the shift from professional premium pricing? And also, to what extent is expansion to additional endpoint devices driving some of the existing customer ACV growth?

It's both. It really is both, and I haven't got a specific figure. But I would say, it's probably very evenly divided between expansion. It's probably a little bit more weighted towards additional endpoints, but there is a lot of upsell activity from existing to premium versions of DDS. And also with the new customers I've mentioned earlier, but I'll just emphasize, 97% of our new customer ACV was driven by premium versions, premium-priced versions of DDS. So that also reflects the extent to which we're getting traction with features like EDD.

Your next question comes from the line of David Kwan from PI Financial.

Can you talk about the weak performance that's in the consumer and education market? Just some of the dynamics going on there that led to the revision in the revenue guidance.

Yes. So we didn't reference any weakness in the education business. In fact, our education business ACV is up 5% year-on-year. We continue to see strength in that business and expect to finish strongly in Q4, which is seasonally a strong education quarter. The nonrecurring items that Errol referenced included professional services, which just simply the performance of which didn't meet our expectations in Q3; and secondly, the consumer business, which is a business that we have been deemphasizing. I mean, we've been very explicit about our focus on our commercial business and really investing in the acceleration of its growth, which we saw, obviously across the board in terms of the year-on-year, 9% expansion, but most notably, in the healthcare and enterprise business, which was up 14% year-on-year.

And on the education market, just the news out of Microsoft with their new operating system there, I guess, drive to help regain market share in that market? Can you talk about where you guys are related to this particular opportunity? I know it's still quite early but just the...

Yes. It's a new technology that we do intend to support. It's early days, obviously. It was just announced last week. But it reflects a new development in this lower-end category of education devices, the Google Chromebook being another example. Just with respect to education generally, I mean, we're seeing a general reduction in device pricing in the education business. Thankfully, we've only seen virtually an immaterial reduction in our average selling price to education customers. But we do anticipate that as the price of devices and education continues to erode, there will inevitably be some impact in terms of our average selling price. What we're doing to confront that is really shifting and enriching our value proposition to schools away from simply the recovery of a lost or stolen hardware device to more meaningful, more valuable offerings like our student safety, our Safe Schools initiative; our Student Technology Analytics, which I referenced earlier, which is a very powerful vehicle in terms of helping schools optimize the adoption of technology in terms of the impact on student performance. We're also seeing interest in the security, information security emerging as a more prominent require in large school districts. So we're investing very heavily in the innovation of our education solutions in the spirit of not just maintaining pricing integrity but looking for ways to upsell our education customers over time. The positive impact of this device price erosion is that it's making one-to-one computing programs more accessible to more schools, and we are definitely seeing a substantial increase in just the sheer number of school districts deploying endpoint devices to students and the shipment of education devices across the board.

And have you had, I guess -- had any or I guess probably early discussions with your OEM partners about being positioned for these cheaper laptops, Windows-based laptops that are going to be coming to market?

Yes, very actively. I mean, there are still a very substantial volume of Windows-based shipments going to education. That's what we're most focused on monetizing. But we're working very actively with all our OEM partners on education bundles and on growing our business together across the education segment, taking advantage of the fact that one-to-one computing is becoming more accessible to schools.

And just 2 more questions here. The incremental ACV from new DDS customers was the lowest it's been in a few quarters here. Just wondering if you could comment on the reasons behind that. Was it just lumpiness or something else because I think...

Yes. You know what, I think to a very small extent, a little bit of seasonality. I mean, the first calendar quarter of each year, our Q3 tends to be, certainly in the enterprise and education to a large extent, seasonally -- seasonably slower. But I think what really happened is we've substantially enriched our product offering over the last few quarters, and our customer acquisition reps have recognized that they can leverage these new features as a means of going back to existing customers and engaging those customers in very productive conversations regarding the expansion and upsell within those existing customers. And I think what you saw is just a shift in sales cycles from new customer acquisition activity to the expansion of existing customers. The positive thing is that the net result of both new customer and expansion was that sequentially ACV was up 2.4% and most concentrated in the enterprise business, which was up 5% sequentially. So what we're most focused on is ensuring that the overall performance of the organization is strong, and we believe that we saw that. I mean, we still think that there is substantial under-realized opportunity, both in new customer and expansion, but we were just pleased that we're starting to see that combination of levers being applied more productively.

Okay, yes. Because I think last quarter you talked about kind of over $1 million a quarter type numbers. So is this back then? It sounds like you expect to get north of that [octa] in the coming quarters here?

Yes. No. As I said earlier, it's just not clear to us. We didn't expect that we would have seen $1.4 million in expansion in Q3. Just the volume and extent to which that materialized as quickly as it did was something that we were -- we've had -- that we didn't model that level of expansion performance. And so what's clear is that, as I said earlier, that customer acquisition team is going to make their own decisions each quarter in terms of where they're going to realize their highest return on investment, and it will be a combination of new customer ACV and expansion. We do expect both of those ACV figures to increase over time. But from quarter-to-quarter, there's going to be some variability.

Last question, just on the guidance for this year. I guess towards a higher end of the guidance suggests that you're going to exit the year in or around close to the double, if not the double-digit range. Looking out to next year, is that something that you expect to be able to generate double-digit growth?

So just to clarify the current guidance. From a revenue standpoint, we've guided to the lower end of our previous guidance range. What we expect for next year is, number one, continued revenue acceleration; and number two, a corresponding expansion in EBITDA margins. So from a spending standpoint, we should exit this year fully staffed in R&D. We're not expecting any step increases in expenditures next year. There will be inflationary-type expense increases and some smaller internal initiatives. But we expect that overall, we will see margin expansion next year. I'm not in a position to comment on specifics on what growth rates will be next year. But certainly, we do expect it to, I mean, accelerate off of the 9% that we completed Q3 at on a commercial revenue basis.

Okay. I guess when you adjust out that $1 million from the shredded accrual, you talked about last quarter about margins picking up in Q4. I guess when adjusting for that, would you still say that's a fair statement?

For margins to hit -- sorry, I don't understand the question.

For the margins to pick up in Q4, say...

Yes. No, we do. We expect that Q3 was very likely the trough from a margin standpoint, and they should expand in Q4.

When you exclude that $1 million accrual, right?

Right, good clarification.

(Operator Instructions) Your next question comes from the line of Richard Tse from National Bank.

It's actually Andrew in place of Richard. Just want to talk about the solid upsell activity that you saw in the quarter. Could you help me understand how I should be thinking about the sales and marketing line when it comes to new customer wins versus renewals and upsells and how that might vary on a quarter-to-quarter basis or if at all?

Sure. You won't see much direct correlation between the sales and marketing spend versus the activity between -- the split of the activity between new customer acquisition and existing customer expansion. Most of the variability on that sales and marketing line is really the timing of marketing programs, and then we have sales conferences, our annual global sales meeting in Q1 of each year. But other than that, the way that our commissions are expensed is actually, we capitalize -- we're required to capitalize sales commissions. They're amortized in line with revenues, so the commissions actually do not fluctuate from an expense standpoint from quarter-to-quarter. They do, of course, fluctuate from a cash flow standpoint.

Okay, that's helpful. And then on the new customer wins, if I think about the business internationally, I'm wondering if you can help update on some of the initiatives and the progress that you're seeing outside of North America. And then maybe even if you can help put some context in terms of how that pipeline is developing for new customers.

Yes. It's improving. As you know, this year, we really focused on reestablishing fundamental strength in some very specific international markets, the U.K., for example, prominently in Europe, Mexico in Latin America, Japan and Singapore and Australia, in the Asia-Pacific region. We're still at the early stages, both of investing in those markets and realizing their growth prospects. To date, in Q3, the international business represented probably about 11% or 12% of our total ACV Base, and it was positively accretive to our ACV growth. So the growth of the international business exceeded the growth of the North American business. Now it's a much smaller base, obviously, but it's no longer dilutive. So we're starting to see some early indications of improved international performance. We do expect in 2018 that the international performance will continue to improve. And certainly over the coming years, we expect the international markets to play a very important role in our growth story. I mean, they still represent greenfield opportunities for us. So modest progress, but they are contributing to our accelerated growth, and we expect in '18 they will feature even more prominently.

Okay. And then just last quick one here on the R&D line for this kind of last leg of your staffing expansion. Is the bulk of that going to be in Vietnam? Or will that be in North America?

It will be split between the 2. We have about roughly 70 employees in Vietnam right now. I expect we'll end the year at roughly 100, and the rest of the expansion will be in North America.

There are no further questions at this time. Mr. Geoff Haydon, I turn the call back over to you.

Thank you, operator, and let me just thank everybody once again for your time this afternoon and for your interest in and support of Absolute. We look forward to speaking with many of you in the coming days. Thank you, again.

Thank you. This concludes today's conference call. You may now disconnect.