Feb 12, 2015
Executives
Geoff Haydon - Chief Executive Officer Errol Olsen - Chief Financial Officer
Analysts
Scott Penner - TD Securities Thanos Moschopoulos - BMO Capital Markets Massimo Voci - Haywood Securities Inc. Pardeep Sangha - PI Financial Michael Kim - Imperial Capital Paul Steep - Scotia Capital Inc.
Andrew McGee - Cormark Securities
Operator
Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Absolute Software Corporation’s Second Quarter 2015 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.
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 call is being recorded today, Thursday, February 12, at 8 AM Eastern Time.
I’d now like to turn the call over to Mr. Geoff Haydon, Chief Executive Officer.
Please go ahead, sir.
Geoff Haydon
Thank you, operator, and good morning everyone. Welcome to our Q2 fiscal 2015 conference call.
Joining me on the call today is Errol Olsen, our Chief Financial Officer. I’ll begin to do is call with a high level overview of Q2.
I’ll then provide an update on the strategic priorities I presented earlier this year. After that, I’ll pass the call over to Errol, who will take a more detailed look at our financials.
We’ll conclude with Q&A. In summary, our financial results for the second quarter were strong with $25.2 million in sales contracts, up 13% from Q2 of last year.
Cash from operating activities was $6.3 million, up 44% from Q2 last year. These results have been driven by strong performance in key areas of strategic focus.
This includes the North American theatre, where our commercial business grew by 24%. This also includes the healthcare and corporate vertical markets, which grew by 13%.
Finally, this includes our device management and data security solutions, which grew by 21%. The strength of our performance in these areas reflects early progress against key strategic initiatives and validates the strong growth potential these market segments of their percent for Absolute.
We remain confident in our ability to achieve the growth expectations we have set for ourselves this year. The intersection of mobility and information security continues to represent one of the most exciting and lucrative information technology market opportunities.
Despite the prominence of mobility, enterprises continue to struggle with the shift to this new platform. The primary challenge remains ensuring the security and compliance of mobile deployments and effectively managing the risk associated with these.
Our strong Q2 results reflect Absolute’s unique ability to help enterprises surmount this. Additional very positive changes in Q2 include the appointments of Gerhard Watzinger, Arthur Mesher and Josef Vejvodia to the Absolute Board of Directors.
These additions represent a substantial enrichment of the Absolute board with a depth of industry and operating experience that will be invaluable to Absolute as we execute our plan to accelerate growth and strengthen our position as an information security market leader. And moving on from Q2 financial results, I want to say thank you to our Absolute employees and partners around the world for your passion, your professionalism, your Q2 results, and for your commitment to finding new and innovative ways to bring value to our customer relationships.
I’d now like to provide an update on our progress against the four strategic priorities I outlined earlier this year. These include product strategy, product market focus, brand awareness and sales productivity.
Our product strategy continues to focus on the monetization of our rich existing product portfolio. The primary initiative here remains the strengthening of the market position for Computrace, with no direct competitor a large base of devices embedded with patented Absolute persistence technology and a robust and increasingly relevant data security solutions steps, Computrace remains our most compelling growth opportunity.
Our Computrace growth focus includes the continued expansion of our Persistence technology into new device form factors, product lines and markets through existing and new OEM partnerships. Progress in Q2 on this front was considerable.
This included the embedding of our Persistence technology into the HP pro-tablet pen and HP education devices as well as the HP pro-slate 10, which represents our first Android Persistence win with HP. Additionally, Panasonic began embedding Absolute Persistence technology into their 3E product line, the semi-rugged hybrid laptops designed specifically for the K12 market.
Absolute also signed an expanded OEM and reseller agreement with GTech, creating a new global partnership that extends the pre-existing OEM agreements to international markets. Finally, we announced a new OEM relationship with Latin America’s largest computer manufacturer, who will embed Absolute Persistence technology into their computing devices.
We expect to announce additional OEM partnerships in Q3. Increasing the activation rates within our embedded device population also continues to be an execution priority.
The progress we made in this area is reflected in the strong Computrace growth we experienced in Q2. Our product strategy will also continue to focus on leveraging our substantial Computrace install base as a platform for up-selling and cross-selling adjacent technologies Absolute Manage and Absolute Service.
As mentioned last quarter, we’ve been targeting a very specific set of existing Computrace customers for Manage and Service cross-selling and we’ve supported the field in this effort through enablement specialist sales support and incentives. The results have been very positive with over 74% of our top 50 Absolute Manage customers coming from our Computrace customer base.
Our investment in product innovation is generating progress within the three primary areas were targeted, elevated functionality of our existing solution set, a unified user experience across all of our solutions and upgrading our SaaS and on-premise delivery platform. Within our existing solution set, we announced an agreement with Google to use the Google Maps API for the Geotechnology capability within Absolute Computrace.
This enhanced Google functionalities supports the global breadth of our customer base and our international growth strategy providing customers around the world with consistently accurate location results for all of their devices. We also launched the device freeze offline policy for Computrace customers, a tier 1 feature that allows users to set a timer so that a device will self-secure if it remains offline for a specific period of time.
This capability secures data on a device that is unassigned, misplaced or neglected, an increasingly common attack factor. Our commitment to strengthening our position in the education sector was underscored in Q2 with the launch of Computrace Mobile Theft Management for Chromebooks.
The service extends our theft prevention and recovery services to this new device form factor with this finding ground within K12 organizations in North America. The unified user experience project continues to progress, with the objective of establishing a common look and feel among Absolute technologies.
Absolute Computrace customers are actively participating in a closed beta program where they are using the new interface as well as the first phase of the DLP set. Feedback to date has been positive with plans to extend this program to all Absolute customers in our fourth quarter.
Work to upgrade our software as a service and on premise delivery platforms is ongoing. Our focus here is on improving the availability, performance and scalability of our SaaS platform enabling the next generation of Absolute application functionality.
The product market strategy has also proceeded to plan, with the primary objective of focusing our investments on a more targeted set of product markets prioritized by the return on investment. The geographic coverage decisions we made in Q1 shifted sales and marketing resources towards major metropolitan centers in North America.
In Q2, we established several new sales teams for example in Toronto, Chicago, and New York. Internationally, we are staying the course on our plan to rationalize coverage and to concentrate investment on a very specific set of company targets.
These include the UK, Germany, and the Nordics in Europe, Brazil and Mexico in Latin America and Japan and Australia in the Asia-Pacific region. We have repurposed international investment to enable us to hire additional sales resources in each of these geographies which we're in the process of completing.
We have also initiated a search for theatre leads in both Europe and Asia in an effort to substantially accelerate the growth of our international business. We are also continuing to execute against our plan to accelerate growth in opportunity rich and underdeveloped verticals such as healthcare and financial services.
Q2 execution included the enablement of our field organization within these vertical markets. Field incentives designed to reward achievement in these markets, working with OEM and VAR partners on go to market initiatives focused on these vertical markets, building professional services offerings that support the regulatory obligations within healthcare and finance, and repurposing sales capacity to intensify our focus on new business development.
This will include the hiring of five additional direct sales resources that will focus exclusively on healthcare opportunities and the expansion of a New York-based financial services team. Our brand awareness strategy continues to focus in defining and elevating the Absolute corporate brand beyond the US education market.
Execution in Q2 involved concentrating marketing resources on this geographic and vertical markets Absolute has prioritized for growth. We have also partnered with [indiscernible] a leading New York branding agency to sharpen Absolute's brand profile.
This work will produce a new Absolute brand that centers on our unique and broadly embed Persistence technology and the use cases this technology enables around information security, regulatory compliance, and mobility. In Q2, we completed the research and discovery phase of this engagement, with the brand strategy development currently underway.
The work to develop a new creative platform will occur in Q4 with the execution of an extensive media campaign scheduled for early Q1 fiscal 2016. Sales productivity continues to be a top priority.
I'm pleased to report that we've seen substantial progress in this area. In Q2, we launched an incentive training and education initiative focused on providing our sales teams with the skills they need to work with customers on achieving information security and compliance objectives within non-education verticals.
To accelerate momentum in this area, we have hired a global director of training and enablement to create and lead ongoing programs that will increase sales effectiveness and productivity. In Q2 we continued our effort to operationalize the changes we made to the sales organisation in Q1.
These changes focused on the elevating effectiveness around our four critical sales activities: optimizing our substantial the newer base, expanding existing Computrace deployments, cross selling our Manage and Service solutions and acquiring new customers. In the first half of this year, we reassigned 15% of our customer base to a more cost-effective inside sales organisation.
I'm pleased to say that we have seen measurable improvements to our renewal and expansion sales to this set of existing customers during the first half. A byproduct of this new structure also is an outside sales organisation that is less involved in the annual activity and more focused on new business development.
In the second half of this year, we will shift 50% of our existing customer base to this inside sales structure. In Q3, we are also realigning the sales organisation.
This will involve a destacking of the historical 1 to 1 inside to outside sales structure and moving to a more leveraged model where multiple outside sales representatives are supported by a single inside salesperson. This new structure will allow us to expand sales coverage in the field.
Our go to market partnerships with OEMs continue to represent a centrally important component of our plan to elevate sales productivity and accelerate growth. We once again intensified our investments in the coverage of both existing and prospective OEMs in Q2 with the primary focus on the geographic vertical markets I highlighted earlier.
Our progress was reflected in the appointment in Q2 of a largest PC manufacturer in Latin America as mentioned earlier and a substantial increase in the attach rates two of our largest existing OEM partners. We also continue to see strong growth within our VAR partner model.
In Q1 we reported that the volume of this type of incremental business exceeded the volume of similar business in the entire second half of 2014. We continue to see improvements in incremental business performance from our VAR partners in Q2.
In summary, we made substantial progress against our key initiatives in Q2. We elevated our effectiveness in delivering innovative and impactful information security solutions to both existing and new customers within our specific target markets.
We will continue to focus on executing against these key initiatives in the second half of this fiscal year with the clear objective of accelerating growth and distinguishing Absolute as a global information technology security leader. With that, I'd like to turn the call over to Errol to discuss our financial results in more detail.
Errol?
Geoff Haydon
Thanks, Geoff. Good morning everyone.
I will now spend a few minutes discussing the key financial metrics for the quarter. Total sales contracts in Q2 were $25.2 million, up 13% from Q2 of last year.
For the first six months of the year, total sales contracts were $51.2 million, up 11% year over year. Most notably, commercial sales contracts in Q2 were up 15% over Q2 of last year and also up 15% year-to-date.
Our commercial sales during the quarter continued to be driven by exceptionally strong performance from our North American commercial sales team. North American commercial sales were up 24% year over year in the second quarter and were up 21% for the first half of the year.
Meanwhile, our international commercial sales were down 30% in Q2 and down 18% in the first six months, with international sales comprising 12% of year-to-date sales contracts. The decline in our international sales reflects the absence of large deals in the current year period.
Nonetheless, returning our international business to consistent growth remains a priority for us. As Geoff mentioned, we are restructuring our international sales and marketing resources in order to concentrate these resources in fewer geographies and where opportunities for market momentum are the strongest.
The intent of these changes is to enable consistent and sustainable long-term growth internationally. From an industry vertical perspective, our education and government business was up 16% in the quarter and up 22% year over year in the first half.
This growth reflects continued strength in the North American education segment which was partially offset by slight declines in the international education and government segments. Within North America, our robust sales in the education market continue to reflect a resurgence of Windows-based tablets and laptops in the K12 sector, increased market penetration and continued cross selling success with our Manage and Service solutions.
Combined sales in our corporate and healthcare vertical were up 13% year over year in the quarter and up expose and in the first six months of the year. Our growth in the quarter reflected particular strength in the North American corporate segment, which was offset in part by a slightly lower average deal size.
Looking at deal sizes, we closed six deals were over $500,000 in the quarter, all of which were in North America. This compares to 5 days in Q2 of last year of which two were in international markets.
Existing customers sales in Q2 continue to be slightly higher than average, just over 85% of our commercial sales compared to approximately 70% in Q2 of last year. Consistent with the prior quarter, higher proportion of existing customers sales in Q2 reflected strong Computrace renewal and expansion as well as continued cross selling of our Manage and Service solutions.
As we progress through our North American sales of the organization and the associated traction dedicated retention and acquisition teams, as well is associated initiatives such as our branding exercise, we expect to increase the proportion of sales from new customers. From a product perspective, our device management and data security product category was up 21% year over year in Q2 and was up 17% for the year-to-date period.
The increase in the quarter was driven primarily by strong Computrace data protection sales. Our Computrace test management offering grew 11% year over year in Q2 and 13% year-to-date, reflecting the strength in education sales.
Now I will take a quick look at our cash from operations. Cash from operating activities was up sharply to $6.3 million in Q2, an increase of 44% compared to Q2 of last year.
For the year-to-date period, cash from operating activities was $15.1 million, up 54% compared to the prior year period. This increase reflects the combination of improved operating margin and strong collections in the quarter.
Adjusted operating expenses were up 4% year over year for the quarter and 4% for the year-to-date period. As a quick reminder, our adjusted operating expenses include cost of sales and operating expenses, but exclude non-cash charges for depreciation, amortization, stock-based compensation and post retirement benefits.
Our increase in adjusted opex for both the quarter and year-to-date periods was a result of higher employee and contractor related costs, which were partially offset by benefits we realized in our Canadian cost base as a result of the decline in the Canadian dollar over the course of the quarter. Canadian-based expenditures account for just below 50% of our total adjusted operating expenses.
Our Q2 adjusted EBITDA increased 13% to $4 million and increased 21% to $8.2 million for the year-to-date period. As a percentage of revenue, adjusted EBITDA improved to 17%, up from 16% in Q2 of last year.
For the year-to-date period, adjusted EBITDA was 18%, up from 16% from the prior year-to-date period. We ended Q2 with cash and investments of $81.7 million.
The primary nonoperational uses of cash during the quarter were for our dividend and our share buyback program. In Q2, we paid $2.7 million in dividend and used $2.1 million through our normal course issuer debt.
In summary, our positive results in Q2 reflect the increasing strength in our business and keep us confident in our ability to continue to execute against our plans. We believe that we have the right strategy, product portfolio, and team for success.
Our outlook for fiscal 2015 remains robust and on track. We continue to expect fiscal 2015 sales contracts and cash from operating activities to increase over fiscal 2014 level.
This concludes our prepared remarks for today. Operator, please open up the call for questions.
Operator
[Operator Instructions] And our first question comes from the line of Scott Penner from TD Securities.
Scott Penner
Geoff, maybe you could again, you laid out a bunch of initiatives which you put in those four buckets, when we are looking externally at the next couple of quarters, what sort of the top two or three that you expect to really drive the growth?
Geoff Haydon
Really all of them, I would suggest are fundamental to our accelerated growth strategy. International markets come to mind as substantially unrealized growth opportunities and a focus in the second half of this year will really be to ignite those in terms of being accretive to our growth performance.
And corporate and healthcare continue to represent substantially unrealized vertical markets. They represent about half of our business today, we saw some good growth with 13% in the second quarter, but we reflect a great deal on the size of those markets, the relevance of what we do in the context of their regulatory requirements and view those as also a primary growth focus.
So those are the two that come to mind as being particularly important for us to accelerate growth in the second half and moving into FY16.
Scott Penner
When you looked at the reexamination of all the different segments of the business, the consumers segment sort of stands out, why I guess for the lack of a better word, why you need to be in that business and then is it margin-dilutive to what you’re doing on the corporate side?
Geoff Haydon
Well, it’s growth-dilutive and margin-dilutive, but we do believe that we’ve got the technology that’s readily monetizable in a consumer context and we also believe that to several of our OEM partners it’s important that we extend our functionality to the consumer devices. And for that reason it’s important for us to try and find a way to profitably remain in that business.
We are pivoting our strategy now to focus much more on the white label partnerships with OEMs and bundled go to market strategies with OEMs, really, leveraging their consumer go to market capabilities as opposed to trying to do the heavy-lifting of market creation and delivery on our own.
Scott Penner
Just one last question and that is I know there is – you guys are looking at the metrics internally very common SaaS metrics internally to help maybe become metrics that you present externally [indiscernible] some of the things you guys have started to track and how may be they’ve changed the way you manage the business internally?
Geoff Haydon
It’s a good question. The metrics really aligned with the key selling activities that I referenced in my sales productivity discussion.
So churn is a primary consideration to the extent to which we are retaining and renewing existing customer relationships. We are looking at expansion vertical slate, very often our technology is brought into a new customer at a very limited deployment following a new set of laptops or tablets or mobile devices.
But eventually over time, we look to customer partnership, so we are really looking closely at the extent to which we are doing that. And new business development, new logos, the extent to which we are establishing new customers in key vertical in geographic markets.
Operator
And our next question comes from the line of Thanos Moschopoulos from BMO Capital Markets.
Thanos Moschopoulos
Geoff, on the international business, it sounds like the slow growth was mostly due to the tough year over year comp, and clearly it’s a focus for you going forward to improve the growth in that business, just in the very near term though, given some of the changes and pulling back in some geographies, might there be continued declines in that business in the second half or should that return to growth very quickly?
Geoff Haydon
Let me speak frankly about the international business performance, we do not have a strong, fundamentally strong international business right now. Our performance is largely dependent on a very discrete set of transactions and when we realize large transactions like we did in Latin America last year, we have a strong year over year performance and when we don’t we don’t.
And so, a big focus moving into the second half is on, as I said earlier, igniting international performance and that will involve rationalization and a concentration of investment in a very specific set of international targets. And does that mean we’re going to have to forego business in some of those secondary geographies that we taste historically, yes, it does.
And do we expect that return on that concentrated investment markets like the UK and Japan is going to materialize immediately in Q3, not necessarily. So I am not going to set specific expectations in terms of international growth in the second half, but we've got some work to do to really establish that as a more fundamentally strong business and a consistently contributing component of our growth story.
Thanos Moschopoulos
And on the education business, it sounds like it was another good quarter, can you expand may be a little on what you are seeing there? You mentioned the launch the launch of your Chromebooks offering, clearly Chromebooks have become a larger part of that markets.
As you look over all at your customers set in the opportunities, how should we think about growth in education over the next year?
Geoff Haydon
Listen, we've been very pleased with the performance of the education and government sector in the first half of this year, led predominately by education. And we are continuing to see positive dynamics around that opportunity.
That includes the introduction and expansion of one-to-one computing programs, so the expansion of the overall market opportunity and the shift very predominately towards Windows-based devices, which obviously are sweet spot of ours. But we do recognize that we are starting to see Chromebooks starting to pervade K12 specifically in a more meaningful way and that's why we've introduced that management solution in an effort to provide solutions to our education customers who are adopting Chromebooks and obviously to capitalize on the opportunity they represent.
Thanos Moschopoulos
Maybe one last one for Errol, the accounts receivable balance was almost at a record low this quarter relative to sales contracts, does that reflect a lower mix of international business or is there some other dynamic there and how should we think about what that might look like going forward as a ratio of sales contracts?
Errol Olsen
Certainly DSOs, I would characterize them as abnormally low. And especially just a factor of timing and payment cycles with our partners and it just so happened that towards the end of the quarter, in a number of payment cycles from couple of partners coincided which brought that the receivables balance down abnormally.
But I would expect that over time, our DSOs will trend back to what we've seen over the last two years.
Operator
And our next question comes from the line of Massimo Voci from Haywood.
Massimo Voci
I just have one question on sort of the sales and marketing side, obviously it looks like efficiency was very strong in the quarter and we are in sort of the early stages of the reorganization that you guys are talking about, be a kind of look at this reorganization is done and you guys have sort of right sized that operation you will start to throw little bit more gasoline on the fire, because we do see that sales and marketing costs have not gone up despite the fact that the sales contracts are very strong. So is that kind of the way you guys are looking at approaching sales and marketing over the next sort of 12 to 18 months?
Geoff Haydon
It is. We believe we’ve got a substantial investment in sales and marketing and the absolute growth is not an elevated level of investment, but in finding ways to the purpose and optimize the headcount and investments that we’ve made.
And that’s what we’re focused on, the sales transformation initiative being the most obvious component of that strategy.
Operator
And our next question comes from the line of Pardeep Sangha from PI Financial.
Pardeep Sangha
Just with regards to seasonality, generally your Q3 sales contracts is lower than your Q2, you’re kind of partly into your Q3 now, give us a sense of how things have been going in Q3 so far and can we expect that sort of seasonality of Q3 being lower, still that sort of seasonality or with all the initiatives that are ongoing and all the work you guys have been doing, all the progress you’re making, can we expect Q3 to be stronger than usual?
Geoff Haydon
It’s a very good question, Pardeep. I think that we will continue to see seasonality in the business, certainly with our public sector business which is predominantly the US education still being about half the business, we will for the foreseeable future we will see our fiscal Q1 and Q4 as being strong.
But as corporate and become larger pieces of our business, the expectation is Q2 will start to become stronger over time. And we are seeing that already.
So the net of that is Q3 should be seasonally weaker and then returning to a stronger quarter in Q4 and Q1.
Pardeep Sangha
And then on the, I think you said approximately 50% of your operating costs are in Canadian dollars, just want to confirm that’s right and also is that applied to your sales and marketing as well? And I mean, you’ve got sales and marketing all around the world, so just want to get a sense of what percentage of your sales and marketing costs are in Canadian dollars?
And then with the decline in the Canadian dollar, how does that impact the sales and marketing cost? I mean, at the one hand you are increasing the marketing costs, so if you can just comment on that?
Geoff Haydon
Sure, you’re right. So your statement is correct, Pardeep, that about 50% of our overall costs are in Canadian dollars and it is that the Canadian proportion is different across the various line items.
So R&D as an example is predominantly in Canadian dollars. Sales and marketing in very rough numbers probably about a third of that would be in Canadian dollars.
Certainly the majority of our marketing spend is in US dollars, our field sales force is predominantly outside of Canada, but we do have an inside sales team in Canada, we do have the majority of our marketing team in Canada as well. So it’s somewhere around 25%, 30% is probably the best way to model that.
Operator
And our next question comes from the line of Michael Kim from Imperial Capital.
Michael Kim
Just to expand on the realignment in international sales organization, is the plan to expand the inside sales part of that team similar to what you’re doing in the North American market or hiring more field sales guys and how do you see the opportunity to leverage the channel?
Geoff Haydon
It’s a good question, Michael. We like our go to market strategy in North America and the way that it’s performed certainly in Q2.
And our objective internationally is to replicate some of that success. And just to clarify, we’ve got some really outstanding people, some very productive partnerships, a very strong international customer base, but it’s been spread thinly over a large number of country targets and hasn’t translated into any form of consistent meaningful growth.
And so the objective once again is to really concentrate effort on a very discrete set of targets and to leverage components of the North American go to market model in those geographies. That includes the introduction of inside sales capability, it includes the expansion or repurposing of direct sales organization with a focus on those vertical targets and it also involves the concentrated focus on the OEM partnerships in particular.
All of our OEM partnerships represent a very strong go to market capability that is under realized in the international markets. So covering those, engaging those, leveraging those will be a key focus of the strategy and then just an elevated quality of execution.
Michael Kim
And is it your sense that there will maybe a great emphasis on smaller deals with shorter sales cycles or continue into some large deals opportunities as well?
Geoff Haydon
It’s going to focus on new business development. And traditionally, our new business development activities result in a relatively modest position with the new account upfront and expansion opportunity over time.
We’ll look for every opportunity to expand those initial deployments and execute some enterprise wide agreements. But generally, new business development activities are associated with the relatively modest upfront position.
Michael Kim
And then switching gears to the corporate healthcare vertical post the handsome hack, are you starting to see some early signs that there might be more budget dollars focused on mobile or are there other priorities that your sense is that will be focused on?
Geoff Haydon
We are seeing very positive dynamics in corporate and healthcare around mobility deployment volumes, around regulatory pressures regarding information security and investment in associated technologies. So we are very optimistic regarding the potential that those vertical represent for Absolute.
Operator
And our next question comes from the line of Paul Steep from Scotia Capital.
Paul Steep
Geoff, maybe you could talk a little bit about the ability of two onboard new reps and how we should think about that, obviously a significant shift in the base in the workload to inside sales, and it looks like there’s some open unfilled positions, how should we think about the pacing of that rollout like clearly the sales transformation is key to part of your plans here?
Geoff Haydon
Yeah, it’s a great question, Paul. One of the things that we discovered when we really dug into the on boarding process is there’s a lot of variability around time to productivity and we’ve hired a lot of people over the last 12 months and so we had a reasonable samples that with which to draw some conclusions.
And that was really the impetus for the hiring of this global training and productivity directors, we want to create an on boarding program that’s more to repeatable, that’s more productive and gets reps up to speed more quickly. There’s too much variability, as I said earlier, to draw any specific conclusions about how long that’s taking people to on-board or how much more quickly we can on-board, but it’s a central focus of ours in the second half to on-board more quickly and I’m hopeful that we will be able to share some positive trending information with you on that moving forward.
Paul Steep
If we think about the branding initiative, how should we think about the spend envelope on that, we’ve seen companies in the past make massive investments and see a limited returns. It sounds like you’re going to put the money you have and reallocate, but I want to make sure we’re all clear that what that number looks like heading into Q1?
Geoff Haydon
As I said earlier, we believe we have a substantial sales and marketing budget portfolio. The challenge historically is that it’s been spread across 133 different countries in a variety of vertical and horizontal markets, so the net result being there’s been very little impact in any of them outside of US education.
And so the priority with respect to the branding initiative is to take that discrete marketing budget and simply concentrate it on the more specific set of geography and vertical targets. I do expect as we start to materialize the program moving into the new year, we’ll see a modest increase, but nothing substantial.
Paul Steep
Okay. So if we sort of go down that path and I guess the last question that it brings to mind out of that is with cash at record all time levels on that basis and you’re looking very focused internally, what are the thoughts for the board in terms of maybe more aggressive return of capital from the firm either in terms of cash redeployment, special dividend, you’ve obviously already been doing lots of good things around the NCIB and the DIF?
Geoff Haydon
We are in a unique position. We've got a very direct relationship between bookings and cash, we've got strong free cash flow as a result and a strong cash position.
And it's enabled us to pursue a fairly diversified capital allocation strategy, to your point, with dividend, NCIP participation and investing in growth. Our focus this year, as I said before and said earlier, is to monetize our existing technology portfolio.
Our next generation of growth is not being inhibited by the lack of access to technology. But as we start to work with more sophisticated and larger enterprises in emerging markets like financial services and healthcare and aerospace and defense, we are starting to see some interesting opportunities that exist around adjacent opportunities.
Opportunities to leverage our Persistence platform and existing application deployment to introduce new functionality. We are also observant of a broad community of early stage innovative companies that have technologies that may help us accelerate development or the realization of some of those adjacent opportunities.
And we are very mindful of our cash position. So I expect as we move into the new year, we will start to think much more specifically about how we put that capital to work in the spirit of accelerating growth and we will provide details of that as that plan realizes.
I will say though in closing, our medium and long-term growth strategy intends to combine strong organic growth with acquisition activity.
Operator
[Operator Instructions] Our next question comes from Andrew McGee from Cormark Securities.
Andrew McGee
Just had a question on the operating costs, you have a number of initiatives underway right now and may be from a different way of asking it is headcount targets, based on what you currently have right now, where you think that you're going to be going forward?
Geoff Haydon
In terms of headcount, certainly you would have observed that headcount has actually been fairly flat over the first half of the year and certainly at a point in time, anyways, there have been dynamics that have been changing the number of over the course of the quarter. But our targets still remain for a headcount increase by the end of the year – there's probably another 30, 35 open positions that we are targeting right now and it's really a question of how quickly we can fill those positions.
Those positions are predominantly weighted toward sales and research and development. So likely, we will finish the year with a headcount somewhere inside of the 440 range if we are successful in filling those positions and then the impact on opex of course will be spread over the course of the back half of the year.
Andrew McGee
And my next question would just be on the competitive environment, maybe just color on that with respect to industry verticals?
Geoff Haydon
Maybe I’ll talk to that. There is no direct functional competitor for our Computrace technology, but having said that, what we’re competing with our alternative forms of protecting mobile deployments endpoints.
Those may involve anti-virus inscription, VPM solutions et cetera. What we’re seeing first of all is a frenetic pace of innovation within fraud community.
There are constantly new factors being introduced which continue to challenge enterprises in highly regulated segments like healthcare and financial services around how to protect their endpoints. And so there’s no point at which an enterprise will wake up and conclude that their endpoints are safe and secure.
We’re seeing a constant source of open-mindedness around new technologies to help protect those mobile deployments against these emerging factors. We believe we have a very unique and compelling technology around endpoint security and really we’re looking to be part of that strategy for healthcare or financial services enterprise.
There’s no silver bullet, there is no one technology that will protect them from existing and emerging attack factors, but we believe we have a very unique and powerful component of what can be infective defense in that strategy for healthcare and financial services customer. Because once again, there’s no technology that is functionally equivalent in terms of being persistent, we’ve got a unique competitive position.
Andrew McGee
And just my last question here is I was hoping if you could provide more color on how you’re able to increase the attach rates with the two OEMs you referred to in your remarks?
Geoff Haydon
Yeah, it’s really a function of a couple of things. I mean, we’ve elevated the coverage of our largest OEM partners and in fact embedded this some headcount that some of those partnerships around product marketing support and technical architecture support, developing go to market strategies and programs that are targeted at the geographies and verticals, but we’re focused on, the net result is that we’re seeing a much higher level of mindshare and fraction and ultimately attach rate performance with that community of OEM partners.
Operator
There are no further questions at this time. I’d like to turn the call back over to the presenters for closing remarks.
Geoff Haydon
So let me just close by saying thank you to everybody that joined us this morning, for your interest in and support of Absolute and we look forward to continuing conversations with you over the coming days and weeks. Thank you.
And thank you, operator.
Operator
You’re welcome. This concludes today’s conference call.
You may not disconnect.