Absolute Software Corp (ABST) 2018 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Absolute Software Corporation's First Quarter fiscal 2018 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 being made as 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 relating 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'd also like to remind everyone that this conference call is being recorded today, Monday, November 13, at 5 p.m. Eastern time. I would now like to turn the call over to Mr. Geoff Haydon, Chief Executive Officer. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Welcome to our Q1 fiscal 2018 conference call. Joining me is Errol Olsen, our Chief Financial Officer.

Our first quarter was marked by the launch of Absolute 7, representing the culmination of a multiyear development effort, which integrated and enriched every aspect of our endpoint visibility and control platform. Early reactions have been extremely positive by our customers, prospects and partners as well as industry analysts and influencers.

Looking at aggregate results this quarter, ACV of $88.5 million grew 5% year-over-year. Commercial recurring revenue of $21.8 million also grew 5%. EBITDA of $1.3 million fully reflects the cost impact of the expansion of our R&D and product development team in fiscal 2017.

Enterprise ACV was $44.6 million. This is up 12% year-over-year and $1.4 million or over 3% sequentially. For the first time in our history, the enterprise business now represents more than 50% of our total ACV base. This enterprise performance was largely driven by continued strong expansion activity within existing accounts.

Enterprise customers we acquired or expanded in Q1 included Mercedes, Rolls-Royce, US Foods, DreamWorks, Facebook, the SEC, Cigna, Fidelity, Standard Life, Amazon and Nestlé, representing adoption across a broad variety of vertical segments. The common theme remained a prominent requirement for a richer, real time endpoint visibility and control capability with business cases centering around always connected IT asset management, self-healing endpoint security and continuous data visibility and protection.

The number of new customer on expansion deals with an ACV value of greater than $100,000 increased by over 50% in Q1, reflecting progress in larger deployments. Our pipeline of major deals, which we defined as a deal with $500,000 of ACV and above, also grew substantially in Q1. These deals continue to take longer to close than we had originally expected.

While we remain focused on driving large ELA outcomes, we are equally focused on establishing initial deployments within large enterprises as expansion basis for future growth. A repeatable lifetime value of a customer journey is reflected in our largest social media customer, whose deployment has expanded every quarter for the last 12 quarters with a number of endpoints licensed increasing by more than 6x during the last -- during that time.

Public ACV this quarter was $43.8 million, down just over 1% year-on-year and 2% sequentially. This contraction reflected some cyclical dynamics, including the impact of a shift in our education offering. With the introduction of Student Technology Analytics and our Chromebook solution, our value proposition to longstanding customers in the K-12 education segment has evolved from the protection of hardware devices to the extension of visibility and control capabilities across Windows, Mac, Android and Chromebook platforms. This is driving more large opportunities in aggregate, including several major deals, which we expect will close over time.

With the launch of Absolute 7, we are seeing a sharp increase in interest from buyers in the municipal and state government public sectors. These are relatively new segments to Absolute and represent a market opportunity that is almost 5x the size of our traditional education or K-12 market. The public business continues to represent a growth opportunity for Absolute, and we expect it to contribute to ACV expansion in the remaining quarters this year.

The dark endpoint, which refers to devices that are off a corporate network or dependent on software agents that have become compromised or disabled, continues to represent one of the most epidemic and impactful IT vulnerabilities. Forrester has recognized the prominence of this challenge and this opportunity with the emergence of the endpoint visibility and control category, recently forecasted to grow by 23% compounded annual growth rate over the next 5 years. Through the investments we have made over the last few years in developing our Absolute 7 platform, enabled by our broadly embedded Persistence technology, Absolute is powerfully positioned to define and to lead this important segment.

Our Absolute 7 launch introduced 3 important capabilities to our customers: a contemporary, intuitive user interface that makes our broad range of visibility and control functions more obvious and accessible; an integrated application for systems offering that allows customers to automatically reinstall any damaged or disabled endpoint agents from within the Absolute 7 platform; and Absolute Reach, which empowers customers to execute highly customized query or control commands and to extend these commands to every endpoint, everywhere. The result is an always connected, high-resolution, intelligent endpoint visibility and control platform that can be applied to a virtually unlimited number of valuable customer use cases.

These currently include hardware asset management, application management, software license optimization, sensitive data identification and protection, vulnerability management, ransomware containment, Shadow IT control, user behavior analysis and overall security hygiene. Our objective and our expectation is that our enriched platform is going to improve renewal rates, expand our offering to more endpoints across a customer environment, increase our existing customer ACV per endpoint through the upsell to new premium features and substantially improve our customer acquisition effectiveness. In Q1, there were several very early examples of where this occurred.

One of the world's largest cable companies tripled their deployment from 15,000 devices to 45,000 devices and upgraded to the resilient or premium version of Absolute 7. Their original deployment was built on a business case around reducing the attrition of newly deployed devices. The Q1 expansion was driven by an initiative to extend richer visibility and control and Absolute Reach across multiple additional operating divisions.

One of the world's largest professional services and advisory firms made the decision to deploy Absolute 7 across their U.S. and Indian operations with an initial deployment of 31,000 devices. This is being driven by security and compliance considerations and the enablement of a largely mobile workforce.

Finally, a large U.S. health-care customer tripled the size of their deployment and upgraded to the resilience version, reflecting their adoption of Absolute Reach and Application Persistence features as a global standard for endpoint protection. This deployment was driven by their legal obligation to protect patient information across a largely mobile workforce and their off-network devices.

Through the remainder of fiscal 2018, we will further extend our Absolute 7 endpoint visibility and control platform to new, high-value customer use cases, including insider threat defense. We'll also progress our plan to introduce new platform deployment options, including an on-premise version of the Absolute platform that will give us access to markets that require localized delivery. Finally, we'll continue our efforts to integrate our endpoint visibility and control platform into other complementary enterprise technologies further enhancing customer value.

While our updated guidance reflects a temporary setback in public and longer sales cycles, we fully expect our growing pipeline will translate into accelerating ACV and revenue growth as we move through the year and continued progress against our long-term operating objective of 20% revenue growth and 20% adjusted EBITDA margins.

Over to you, Errol. Thank you.

Thanks, Geoff. Good afternoon, everyone.

Q1 commercial recurring revenue of $21.8 million grew 5% year-over-year, in line with the recent increases in our Commercial ACV base. Total revenue of $23 million grew 2% year-over-year, reflecting the commercial recurring revenue growth offset by a $400,000 decline in consumer and other revenue.

Our Commercial ACV base was $88.5 million at September 30, representing a 5% increase over September 30 of last year. Sequentially, the ACV base was up 1% from June 30, reflecting a 100% existing customer retention rate and $800,000 of new customer ACV.

Looking at ACV performance by vertical. The enterprise ACV base, which includes enterprise and health-care customers, increased by 12% year-over-year and was up 3% sequentially. This increase was driven by existing customer expansion activity in North America, where enterprise ACV was up 4% sequentially. Deals in the $100,000 to $500,000 range dominated this quarter's expansion and new sales activity.

The public sector ACV base decreased by 1% year-over-year and was down 2% sequentially. This decrease was primarily attributable to the North American K-12 vertical as compared to the enterprise vertical where the value of our solutions is associated with the protection of information. In the K-12 space, many of our customers have historically associated the value of our solutions with the protection or recovery of a device. As a result, declining device prices in K-12 have led to pressure on our average selling prices or ASP. While this phenomenon has been happening for some time, until recently, the ASP compression has been offset by unit growth as lower device prices have enabled schools to purchase more devices.

In Q1, the negative impact of ASP declines was greater than the gains from unit growth. However, with our recent product enhancement, such as device usage analytics that are targeted at shifting our value proposition in the education market and by pursuing alternative licensing models, such as enterprise license agreements, we believe that we can counter the recent headwinds in education. Additionally, we are increasing our focus on the substantial growth opportunities in other public sector segments, such as state and local governments, the market sizes of which are substantially larger than education and where our value proposition mirrors that of the enterprise vertical. In terms of our mix of business, at September 30, enterprise customers represented just over 50% of our Commercial ACV base compared to 47% at September 30 of last year.

From a geographic perspective, our North American ACV base, which accounts for 90% of total ACV, was up 6% year-over-year and up 1% sequentially. Internationally, the ACV base was down 2% year-over-year and was flat sequentially.

Turning to expenditures. Total Q1 adjusted operating expenses, the calculation of which is detailed in our MD&A and press release, were $21.7 million, up 5% year-over-year and reflecting our fiscal 2017 R&D headcount expansion, the impact of which was partially offset by lower marketing program expense in the current quarter. Total headcount at September 30 was 505 compared to 415 at September of last year.

Adjusted EBITDA for Q1 was $1.3 million or 6% of revenue compared to $1.9 million or 8% of revenue in Q1 of last year. The decline in margin is the result of our R&D expansion as previously mentioned. With this expansion activity now complete, we expect to see margin improvement over the course of the year.

Cash generated from operating activities during Q1 was $2.1 million compared to $1.9 million in Q1 of last year. The fiscal 2017 figure was net of restructuring and income tax payments totaling $4 million.

Looking now to our outlook for fiscal 2018. We've revised our outlook based on our Q1 results and observed trends, including continued pipeline growth in the enterprise vertical but recognizing longer sales cycles and weaker-than-expected near-term performance in the public sector. We've lowered our revenue expectation to $94 million to $96 million, representing 3% to 5% year-over-year growth. Our guidance for adjusted EBITDA margins remains unchanged at 9% to 11% of revenue. We've lowered our cash from operating activities guidance to 9% to 12% of revenue. Our expectations for capital expenditures are unchanged at 3 -- between $3 million and $3.5 million.

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

(Operator Instructions) Your first question is from Doug Taylor from Canaccord Genuity.

I wonder if you could expand a bit on the guidance changes here and reconcile a couple of things for me. Specifically, I mean, what's changed in the last couple months when you had 6% year-over-year commercial ACV growth in the books going into the year and you're now targeting 3% to 5% growth, and you had 100% renewal rate. Why would it be a less than 6% overall revenue growth? Could you help us think about what's going on there?

Sure, Doug. This is Errol. So I mean, this is really an outcome of, I suppose, one of the reporting challenges with the ratable revenue recognition model where our revenue -- most of our revenue from the year is coming off of our opening ACV balance and our first quarter ACV performance. ACV performance with each subsequent quarter has less and less of an impact on our annual revenue. So another way to think about it is that we expect our ACV growth for the year, the growth rate, to be greater than our revenue growth rate for the year. Does that make sense?

Yes. And I guess I'm still having trouble because we had 6% year-over-year growth kind of in the books at the beginning of the year. Like with 100% renewal rate, do you anticipate losing any substantial customers now over the course of the year in the education vertical? Anything like that?

No, no. Not at all. It's really -- it might be better to walk through this after the call, but it's really a function of how the revenue works its way in. So our expectation is continue to have existing customer retention of at least 100% every quarter this year. We also expect to add ACV every quarter this year, so we expect ACV growth every quarter. But the reason that the revenue growth plays out the way that it does is it really just -- because of the fact that as we add ACV -- think of it this way, when we add ACV in Q1, 3/4 of that is reflected in our revenue for the year. When we add ACV in Q2, only half of that increment is reflected in revenue for the year. And that's why the revenue growth lags the ACV growth.

And Doug, (inaudible) we did not expand ACV in Q1 as substantially as we had expected to originally. I tried to provide some perspective on kind of where the shortfalls occurred or what some of the short-term challenges were that we confronted in public and the length of time it's taking to get large deals done in enterprise. But the revenue outlook is a residual of the ACV performance in Q1.

Okay. So I mean, you're attributing it more to a timing issue on when that new revenue is coming in rather than anything else?

Correct.

That's a good way to phrase it.

And then the cash flow guidance update, I mean, can you just help us reconcile if EBITDA margin guidance is unchanged. Perhaps you said this in your remarks, but I didn't catch it. Why would the cash flow guidance be substantially lower? Is there an item that dropped in there that you weren't anticipating?

The reason for that is that our ACV shortfall and the shortfall relative to our expectations in Q1 was primarily attributable to the public sector and specifically to North American education. And that's the one segment of our business that has -- tends to have the longest contract terms. So the shortfall in ACV is also a pretty significant shortfall in our TCV, our total contract value, as well. And it had a more material impact on cash flow than it did on ACV because of the longer contract terms in education.

Your next question is from Michael Kim with Imperial Capital.

Just on the enterprise vertical and some of the (inaudible) with regards to the pipeline of large deals. What's your sense of the productivity curve and if you're seeing kind of a repeatable playbook to maybe drive sales cycle a little bit shorter? And how are you seeing that starting to develop?

Sure. Good question. Thanks, Michael. So a couple of comments in enterprise. First of all, we feel that we are moving into Q2 with the strongest enterprise product offering that we've ever had. And we saw some improved performance really across the spectrum. The enterprise ACV expanded by over 3%. Just to put that in perspective, in Q1 of the last 2 years, we expanded enterprise ACV by just over 1%, so a good pace moving into the new year. And that was led by the North American enterprise business, which is the most mature version of our enterprise business, which grew at almost 4% ACV expansion. The other comment I'll make is that our pipeline of enterprise deals continues to expand substantially from quarter-to-quarter, and the concentration of that opportunity tends to be in the larger ACV opportunity. The other thing I'll comment on in terms of the pipeline is how diverse it is. And I've tried to capture that in my prepared remarks earlier. But we're really seeing a broad variety of verticals represented in that enterprise pipeline. The other reality is that we continue to be more mature and productive experience at executing against those enterprise opportunities and continue to refine a repeatable playbook that we can use to drive deals forward. We do expect larger deals to continue to play an important role in our growth story. But one of the things that we discovered really, with more consistency over the last couple of quarters, is a different play that seems to be driving enterprise adoption, and that's the land-and-expand play. So rather than pushing up against a multimillion-dollar enterprise deal, which would eventually close, we're deploying our technology in a limited form and demonstrating its value to a customer. When we ignite a deployment of endpoints, typically we're able to educate them on some type of vulnerability that exists that they may not have known about. And then we have help them kind of remediate that and demonstrate the value of the platform. And subsequently, they will pretty predictably expand that deployment until, ultimately, ideally, it's deployed across the enterprise. I referenced one example of where that's happened earlier in my prepared remarks. And so I expect that, that land-and-expand play will feature much more prominently in the growth of our enterprise business where we get an initial deployment activated and just continue to expand that over time. But having said that, we've got a very substantial portfolio of large deals. We're as well prepared to execute against that as we've ever been. And we do expect that large deals will continue to feature prominently in our growth story. But what we've tried to do is to design a plan and set expectations that were less dependent on those.

And some of the expectations built around integrating with complementary technologies and opportunity for go-to-market collaborations with guys like Splunk and ServiceNow. How do you see that developing?

So we're seeing that really happening opportunistically. So a lot of the integrations, the most requested integrations have occurred, which were largely in the security and event management space, in the ITSM space more recently. And what we've seen is collaboration in the field where we're able to enrich the value proposition of a complementary technology, and they're able to do so for us. We're seeing reps working together around large accounts really opportunistically. We do have business development activities underway at each of these integrated partners with the objective of establishing a more structured go-to-market collaboration, which we believe that we will ultimately reveal over time.

Great. And then just on a market perspective at Ignite, I think Microsoft introduced comanagement of Win 10 devices with Intune and SCCM. Kind of curious where Absolute 7 might fit within that context.

Yes, as a complementary application, Intune is highly dependent on SCCM. And one of the most demanded Application Persistence offerings of ours is the extension to Microsoft SCCM. It's a notably critical but corruptible agent. And we've seen a lot of interest in customers and extending our Application Persistence capability to that agent. But it's also complementary in that Intune is really an endpoint management application. It offers very limited functionality in terms of visibility and control. We're in a position to extend our telemetry to an Intune deployment to enrich its functionality. We can extend Application Persistence to SCCM, as I mentioned earlier, and the net result is, we believe, and a lot of our largest customers believe, a very powerful complementary technology.

Your next question comes from Thanos Moschopoulos with BMO Capital Markets.

Maybe just to clarify a point. Your commentary about longer sales cycles. Does that apply to education? Or does it apply across enterprise as well?

It really is a dynamic that we're seeing play out in different forms. I think in education, it has less to do with the size of deals and more to do with what's driving them. We've been busy over the last several quarters or years really evolving and enriching our value proposition to a school to become less dependent on that traditional kind of insurance or theft recovery value proposition to one that's more valuable and enjoying. We evolved it into student safety and recently and much more richly, into this idea of Student Technology Analytics. And I can tell you, I'm playing a very active personal role in several of our large transactions in the education community. And that storyline, that ability to associate the usage of a device with student performance is a very powerful one. And so with the introduction of Student Technology Analytics and our ability to extend that capability to a variety of endpoint platforms, including Chromebooks, I mean, we've really started to lead with that as a value proposition in education over the last couple of quarters. And there are just -- it's a different sale. It's a newer story. It's involving additional people. And they're just taking a little bit longer to close because it's a relatively nascent sales motion. But we expect that as temporary. And now that we've kind of institutionalized this as a value proposition and a sales motion, we'll see that correct itself in future quarters. The other comment I'll make about SLED is what we discovered through a much more rigorous analysis of our SLED position is that a lot of the commentary that I'm making about SLED is really occurring in our market space. But our market space is quite a limited one in the context of the public market. Even in education, we estimate that we've activated 1 out of every 3 available devices in the K-12 market, which is our core business. With the release of Absolute 7, we've really stimulated a lot of interest in other public markets like the state and local government. I referenced it earlier. Absolute 7 is a very compelling story for a municipal or a state government user as it turns out. And as we started to really further analyze that market and that opportunity, we discovered that it is a multiple of our traditional education business in terms of total available opportunity. So back to your original question, the SLED deals are taking -- or the education deals are taking a little bit longer to close. That's largely a function of the fact that we're executing kind of a new value proposition and sales motion, but we continue to believe the SLED market, the public market overall represents a strong, enduring growth opportunity for Absolute.

And to clarify, so that commentary, though, does not apply to enterprise? Is there any lengthening of sales cycles in enterprise or no?

No. The thing that's happened in enterprise is that we went through a series of quarters during our last fiscal year where we closed at least one major deal, which is valued at over $500,000 of ACV and above. We just -- we didn't do that this quarter. And we expected that we would. We didn't. We're tending to either drive land-and-expand development of those opportunities or we expect to close more of those deals in future quarters. So there is a time delay in some of our larger enterprise deals also.

Okay. And can you remind us what the renewal opportunity looks like this year compared to last year?

Sure. It's up -- the renewal was up double digits in Q1. In fact, Q1 rate through Q3, it's up double digits, kind of high-teens range. And then it's roughly flat in Q4.

Your next question is from Blair Abernethy from Industrial Alliance.

Geoff, you haven't touched too much on the health-care vertical. I wonder if you can give us an update on how things are looking there?

It's a really good call-out, Blair. And I didn't simply because we were so impressed. We've been excited by the variety of verticals that encompassed our enterprise business this quarter. But health care is our second-largest vertical and remains one of our fastest-growing noneducation verticals. We see the drivers in that vertical continuing to be very compelling, just the sheer volume of endpoints being deployed, the dependence of health-care providers on those endpoints, the information, intensity of technology deployments in those environments and, obviously, the regulatory pressures that exist. I mean, it's one of the most regulated industries in terms of the protection and privacy of information. The consequence of not protecting information is among the highest of the verticals that we operate in. And we do see that continuing to be a very strong performer in our enterprise portfolio and expect it will continue to.

Okay. And in the past, you've had some large deals there. Are there still opportunities for $500,000, $1 million transactions, even though I know you're trying to break them down a bit?

Yes, there absolutely are. I will tell you that health care is very prominently represented in that portfolio of major deals that I referenced earlier. We will do everything we can to execute ELAs and to drive a major $500,000 deal or above in one transaction. But if we conclude that it's simply more productive for us to land and expand, I think you'll see a combination of activity within that segment, but there are absolutely major deal opportunities in health care for us.

Okay, great. And then just over on the Application Persistence side, looking at whether it's custom apps or in-house developed apps for large enterprises, can you just give us a sense of what's happening there? Are you starting to see traction with people wanting to persist their custom apps?

Yes. So a couple of things have happened that are quite exciting. First of all, as I referenced earlier, with the Absolute 7, the Application Persistence offering is integrated into that platform. So historically, it was executed as a professional services offering in order to manage, deploy, or report on Application Persistence activity. Customers had to stand up the dashboard that was independent of our customer center. The new Application Persistence offering is integrated as part of the Absolute 7 platform. And what we're focused on now is continuing to extend that offering to as many endpoint agents as possible. You may or may not have noticed that we've introduced a variety of Application Persistence modules, data protection device management, endpoint protection, Microsoft applications and VPN. And our objective is to qualify a set of agents in each of those modules and charge customers. I think it's -- on average, the MSP is about $6 or $7 per agent -- or per module per endpoint per year and to monetize Application Persistence as an incremental ACV opportunity on top of the Absolute 7 platform. And we think that, once again, by having Application Persistence integrated into Absolute 7, it will be more obvious and more accessible to customers. And we do expect to see a dramatic increase of the adoption of that feature. And we have already seen in the short time that -- Absolute 7 was only introduced in early last quarter, it only became generally available on September 18. So it really had an immaterial impact on our results in Q1, but we did see a substantial improvement in the pipeline for Application Persistence even in the short time that we introduced that feature and do expect that the performance of that offering will begin to impact our ACV results overall more materially.

(Operator Instructions) The next question is from David Kwan with PI Financial.

Wondering, when do you think we could maybe start to see a material improvement in revenues and ACV that's being driven by Absolute 7, and I guess, included with that, Absolute Reach? And kind of related to that, ultimately, when do we think we could see the -- your revenue get into that double-digit range?

Well, we won't get more specific about our double-digit -- or our long-term operating model expectations that we already have, but we think it'll be incremental. I mean, we know from experience in selling an enterprise Software-as-a-Service platform to a large potential customer that there is a journey that we typically go on where we introduce the technology. We demonstrate it. We do a proof-of-concept and a proof-of-value, build a business case and, ultimately, deploy it either in an initial land-or-expand form or as an ELA. So we expect that Absolute 7 will impact the results this year, but I think the impact will be incremental from quarter-to-quarter. I mean, we're doing everything we can to accelerate that impact. We came into the new year with a very strong focus on activating our entire global go-to-market engine around Absolute 7, starting in early July. But I think that it will likely impact ACV expansion incrementally as we move through the year.

Part of that education process is causing some of those longer sales cycles, people just getting more familiar with the new platform?

I thought a lot about that and looked for indications of that. I mean, it's entirely conceivable that when you introduce a platform that is materially different and improved relative to our traditional platform that it's going to introduce some overhead and some delays in terms of a large enterprise campaign. And I'm certain if that happened, it would be very temporary if it did. But I think generally the reaction has been so positive and enthusiastic that it's been difficult for me to lean on that as an explanation for the deferral of some transactions. But I'm certain that it has affected some of our large deals. In some cases, the due diligence process begins again as you introduce a new platform, a set of features or functions, but that would be very temporary if it did occur.

Just on the ACV side, last couple quarters here have been, I guess, disappointing kind of sub-million-dollar quarter range here, and that was preceded by actually some -- I think some pretty good quarters. So what do you attribute that to, that kind of dropoff in the last few quarters here? And ultimately, it sounds like your pipeline is pretty good, some large deals in there. Is it kind of looking out later this year where we could hopefully see sustained performance of north of $1 million -- at least $1 million a quarter?

Yes. So I tried to provide some context on that earlier, and SLED, I referenced some cyclical developments. So we did see some budget uncertainty in deferrals. We saw some turnover in key roles within some of our larger education customers where superintendents or CIOs were replaced, which did affect some activity in Q4 and Q1. We're through that. I think the pivot in education away from staff recovery to a richer, more valuable, more enduring value proposition that centers on visibility, control and Student Technology Analytics probably had a short-term impact on that business in Q4 and Q1, but we do we expect that business to rebound and contribute to growth for the remainder of the year. In enterprise, we think that Q4 was anomalous. We saw enterprise start to perform again this quarter. And the over 3% in Q1, as I referenced earlier, that's a good start to the year wherein in the 2 previous years when we measured and reported on ACV, the enterprise ACV basic expanded by just over 1%. Here in North America, it's almost 4%. The missing component, the difference between 4% and something much more substantial was simply a major deal, and I tried to provide some context on the major deal activity. We're in front of more than we've ever been in front of. We've never had a stronger offering or playbook or capacity to execute against those large transactions but, a, they are taking longer to close; and b, we're choosing to land and expand across more of them because we just feel that, that over time will be a more productive sales motion. So that combination of activities, I think, it compressed some of the ACV performance in Q4 and Q1, but we do expect that ACV performance to continue to improve as we move through the year.

How much would you say that is a reflection of your sales team and kind of where they are in terms of the maturity and the ramp? Like where do you see them right now versus where you think they should be, I guess?

Well, I think we're probably at 75% of hitting terminal velocity around our new platform. We've got an outstanding enterprise go-to-market capability under Sean Maxwell and Todd Chronert, I mean, we have evolved and elevated the capabilities of that team dramatically. I think the big change that's occurred around that business over the last 3 to 6 months has just been the introduction of a new platform. There's been a lot of enablement work done across the sales team, across the SC and professional service organization and really activating them around the new platform, the new set of value propositions, the business cases that we can now build with this platform capability. And I think that as we move into Q2, in the second half, we'll continue to see the performance of that team improve.

And final question just relates to -- I guess, sounds like an increased focus on state and local government market. Is that something that effectively you can just utilize your existing team? Or do you need to bring in some new people?

No. We've got a lot of experience around it. It's ironic, but I think just because of our heritage and education, the fact that our penetration of that education market is still so limited despite the maturity of it, we have tended to really overfocus on education as part of our broader SLED go-to-market plan. The state and local business represents less than 1/5 of that SLED business. And as I said earlier, with the introduction of Absolute 7, it seems to have just stimulated a very high level of interest in that segment. We're seeing a lot of activity and conversations underway within the state and local government, and that prompted us to poke at it a little more diligently in terms of understanding just how big it was and could be, and that's when we discovered that it's a multiple of our education business. So we have the go-to-market capability to cover that segment. I think what you'll see is a more intensive focus on the development of it in the context of a broader public strategy.

There are no further questions at this time. I will turn the call back over to the presenters.

Thank you, operator, and thank you, everyone, for your time and your interest and support today. And I know we'll look forward to speaking with many of you over the coming hours and days. Thanks again.

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