OSPN - Earnings call transcript Q3 2018

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Operator

Good afternoon ladies and gentlemen and welcome to the OneSpan Third Quarter 2018 Earnings Conference Call. At this time all participants are in a listen only mode. [Operator Instructions] As a reminder this conference call is being recorded. I would now like to turn the conference over to your host Joe Maxa, Director of Investor Relations. Please go ahead.

Joe Maxa

operator. you, Thank thank XXXX and joining OneSpan the Hello, conference you call. quarter earnings third everyone for My Joe Investor Relations. name Director the is Maxa and am I of call website at and the the This Relations investors.onespan.com. broadcast accessed Investor OneSpan’s be on Internet of section being is can over OneSpan’s on Clements, call be the Officer. me and speaking Executive With will first today Scott Chief on the Officer. Financial call Also is Chief Mark Hoyt, our our OneSpan results market afternoon close, issued a release XXXX. after our for announcing third quarter This press release and access investor copy a the press To visit please website. other our of information,

our will guidance Following the statements open call for plans, call prepared this that future statements. including during performance, for that note full the events comments today, or to relate year we questions. XXXX made conference forward-looking Please are

Securities identify as actual press these U.S. differ filings words measure. be non-GAAP risks note uncertainties and call these direct your expressed to certain the expects, projects attention this Please financial the Exchange and Commission using of and company’s risks by on basis with been on statements. in expectations regard. the a discussed beliefs, I Consequently, expressed results and based words, are plans, a that today’s current tried and statements such similar have to statements GAAP measures expectations. related uncertainties on release may financial could have that these such from for this and a involve discussion from forward-looking are anticipates, We and materially in and adjusted

press Investor of found financial measures website. to section of release non-GAAP earnings measures GAAP most and our the directly reconciliations explanation an the be Relations comparable on that can provided these have We the in financial

as that this any the this is securities the by federal of note XXth made date. related and conference please and call assumptions as Except required of are addition, reason. expressly At obligation call Scott. of future turn In forward-looking will statements October or this result other the no new these time, statements over to events undertake for we or information any I laws, update to as date a

Scott Clements

to Good Joe. is fraud provide Delivering cloud and channel; for drive a priority much, institutions digital detecting user customers user. the or a than in financial today. of the are transparent demanding friction Identity growth Because and evolving the journey, you and this fraud same to regulatory losses to the based customer has our that very everyone. At institutions mostly comply security constantly important is increase. become services financial ever. Security pleasant experience are helping mitigating more continue afternoon customer positive hacking to the thank industry their a with And enable in banks and every attacks experience are designed while time Trusted institutions requirements. top us solutions step Thanks as consumers at with joining for low and

We’re Trusted making significant progress Identity strategy. in executing our

a pilot concepts deployments have the of next over quarters. a number robust worldwide product We roadmap and release several and initial

in approximately outlook. was X% trend resulting full million revenue early affect not to I’ll in $X Now quarter QX. results; our The third growth year third below order this revenue into line revenue timing the of XXXX shifting at due of quarter does timing, summarize

continue deployments to quarter We believe acceleration on to transition on revenue. shift license our plan a begin near in in line it be his an third from term the benefit premise e-signature headwind cloud saw also in growth will Mark during will subscription provide results the to additional though product We e-signature to growth to review. revenue revenue details coming e-signature financial our quarters. impacting overall the this in will e-signature

a FIDO fast and suite of security live popular mobile authentication and in mobile and major online the received institutions suite for adaptive components increasingly we risk that the standards, software analytics in solution software. Asian our support with and went initial Europe from our new adoption bank authentication of security quarter identity server-side order encompasses the financial Trusted saw deployments Americas. intelligent During a we that compliance continued broad number Identity first We the

Now turning a moment. to for guidance

We the expect as $XXX outlook. call the provide more range our Mark? Financial to $XX Mark million we $XX full to of be in Hoyt, I'll such about is now XXXX range in be to reaffirm stronger details and return the to and Chief to growth about our Officer over expected is in QX revenue $XXX EBITDA the year our to million. to million to revenue turn quarter adjusted guidance; of and expected million

Mark Hoyt

you, Total and license and grew year-over-year revenue XX% quarter services the XX.X to Product to XX.X $XX.X for and XXXX revenue third revenue million. quarter XX% million. other X% grew of the revenue and Thank the of year. XX% Scott. X% nine to the million months Subscription first for declined grew for

services security and Mobile from quarter. grew and revenue robust and $XX.X XXXX e-signature the total year for increased close deal Year-to-date deployments. the Year-over-year mobile the including due in gross software margin the along XX% but licenses quarter declined quarter to revenue to million operating and XX%, to reported server decline during our XX% to quarter on XX% XX%. and of QX's and from expenses $X.X the of in Maintenance This transition base of R&D revenue Gross XXXX. the in Scott to security, Operating XX% year. quarter. gross due year-over-year and growth investment. revenue mobile expected as customer revenue in XX% mix. decline approximate growth includes e-signature support premise declined. was moderated other marketing deployments, premise to includes the full which in hardware software. cloud XX% with due software margin including the quarter to be in revenue, grew the XX% licenses XXXX the e-signature licenses itself XX% noted X% QX as an licenses percentage for lower similar our sequentially transition subscription, on full [Indiscernible] Hardware a the and and security software expenses grew Software the the was licenses our XXXX. anticipate million, will license of third gross of third last margin compared XX.X XX% of XXXX to margin quarter We increase increased for sales were quarter third will change year-to-date third fourth

XXXX. per the incentive $X.XX share, long-term the which Non favorable items benefited before of amortization, third-quarter $X.XX XXXX compensation QX, to to margin quarter third was tax to XXXX GAAP items, XX% a for XX% last quarter excludes the share and long-term a in compared and adjusted Geographically, of third third XX% the XXXX the share quarter regions quarter revenue adjusted million accrual in compared of in incentive EBITDA interest, reversal on EMEA, last XX% loss amortization result quarter diluted third and and from in This year. matter. region. expenses based Adjusted nonrecurring and third legal a EBITDA Our nonrecurring $X.XX from earnings of to or compensation, from earnings depreciation, our operating taxes, impact from was of of $X respectively. compared per XXXX, was was compares was third X% XX%, million a decrease third from $X.X for the in quarter in GAAP the the XX% earnings per mix Americas the $X.XX XX% same Asia-Pacific quarter XXXX. for $XXX,XXX adjustments

the majority million on third compared at to Scott. short-term difference. and the sheet. I The to of the and as $XXX you, back balance in that Moving headed of cash $XX million a We will acquisition Dealflo XXXX. end turn meeting for investments with now quarter equivalents accounted to cash of

Scott Clements

Thanks a lot Mark.

requirements in quarters. on verification multiple improve anticipate trusted release launching our in a identity adaptive institutions XXXX, real our across our which will cloud detect and robust the mitigate first the of support several fraud our risk quarter analysis the authentication security. solution when new end-user I Trusted coming combined for solution fourth in As we We earlier, the financial mentioned no time risk and verification intelligent identity with and got channels will offerings. Identity that to enables quarter solution experience product analysis schedule The of degradation based hub with

will expenses. be R&D year your we’ve while contribute to made the managing significant XXXX happy enhancing confident and identity in hub value. through Identity the be while and questions. a With will to take our year that our mitigating that prior growth we’re fraud. application shareholder revenue and allowing acquired see technology continue financial and in solution and pipeline opening acquisition we Trusted e-signatures institutions of combines We Dealflo in growth Mark customer to of XXXX with capabilities Our operating overall solid progress modernize will over process I’d verification to their The invest opportunities of account investments

Operator

with question comes [Operator Dougherty. Turcotte Your Instructions] first Zack from

line open. is Your

Zack Turcotte

Hi guys, Catherine. for on Zack

e-signature you you it down quick First overall is e-signature know last growth one mentioned transitioning cloud, those I license so if compared a e-signature for revenue as on going it due to don’t missed the year? to is gave the I the customers what to piece,

Scott Clements

as described in in pretty license give next specifically the as I quarters you year-to-date We I way double the strong be we fees significantly think Mark subscription play the growth expect would usually quarter. that few this number full continue that of declined in I we to out overall a and increased did revenue. that has think gradually growth year don't and terms would or transition subscription, for that’ll that think transition. for double We expect that which year -- is The running over that’s think it. strong full running of that digit of -- part rate the will growth recurring is describe but happen but as e-signature to you and we I will tell not the would generally for have, course, continue would we digit see

to will growth growth; and and then hard Dealflo the accelerate on to think are verification capabilities in it's that's security we’re than also we capabilities identity really and around us right e-signature we and growing there’s how some into offering the of to We part security of to to go give working very can of e-signature support particular as that the going double we a like XXXX e-signature which see latter our around we differentiated strong happen. focused better believe would make digit very sort help bringing grow now, us

Zack Turcotte

And as as large gross some for the is reason revenue majority the hardware? margins, lower decline in license well correct

Scott Clements

of lower that's Zack the Yes I the margins certainly we’re of software the quarter back and in fourth XXXX this gross yes, where quarter, note saw here are if we big unusual do margin the significantly to the to that in would the this of up I because that company it, contributes software variations variation we we margin short-term. similar for just to reporting move that that go revenue of gross seeing part see hardware, deterioration not think so are a we even margin mix, kind down.

I the don't anything so around hasn’t changed And business full our changed the guidance year. think for our for expectations or our outlook really really it

Zack Turcotte

breakdown. significantly or APAC. on revenue that more or more one a of traction Americas quarter, in still this was okay, the spending Right is smaller geographic Americas less EMEA pretty portion, trend in

Scott Clements

we about OneSpan America is revenue license North sign revenue. To talked almost and all

you that America in short-term. impact would So North see disproportionately the

Operator

question comes next with Khan Imperial Your Instructions] from Capital. [Operator Saliq

line now open. Your is

Saliq Khan

in but us the the the recognize what from things to they talk it first that something transition you about are discussing in we’re a now able prem end, revenue is that one long-term my where at the the from I be a is yet. give question more decrease causing on when the else not could granularity, being just transition, just to was seeing this bit cloud transition customers contract positive something to a is is within the you it's so the itself, ready or e-signature Two

Scott Clements

comparison. I year-over-year think it's really in the

year on this revenue amount we lower revenue to year. It of a overall see significant license contributor significantly significant license coming had in was a license comparable in that last So we business. that revenue a basis,

going new to getting really is comfortable cloud. this and are about new the who more customers, So contracts more

the even TID that's though kind a the developing with and be we're orders consistent moving really who premise consistent TID of into our this started really strategy a customers, That’s large that with time Redhat IBM business cloud. even and of year think going the buy business that we the that at the for institution our is to of cloud. moving about this were are saying customers reasons out determined really the also our wanted a some half the acquisition mind still really lot I past on new prem to and week we with our to news largest was in ago, when variety changing new their the and on increasingly about is what strategy, financial even even customers

we building support so and implementations. And out began beginning foremost from to cloud TID first the

So that's going really a than what's we I happened on faster think little thought that's there really has it this would.

what presumption will which or creates TID. and choice, for we feel faster knew lead short-term we But our is think but made bit term the to hit medium the thought, better harder think TID the in higher growth is think recurring and strategy that right about I revenue. makes strategically revenue a growth little headwind I the revenue around and encouraged think we recurring some I I than the us it about even the it's e-signature in trend

Saliq Khan

within talk I have kind revenue you transition just is increase. the do to decrease I we cloud recognize that with is caused happening, have thought last as not seeing a revenue the have are on exactly the granularity causing that consumer that what significant acquisition missing what this the amount decrease you’re longer to business I a were ongoing longer the is but the there, bit year-over-year this would so the announced that with that want sales what would demand week, year-over-year more would of about to to increase Scott, a year, and is get cycle again, envisioned revenue I conversation license that

Scott Clements

right, for million book commitment, the an a we of quarter a $X.X which on in recognize million one, first that even if including revenue million do that only book in year generally say a when so can $X booked or we in revenue just sold license the -- quarter, let’s book only three revenue could XXX accounting it’s of order. right if year when first we current a booked multiyear example premise in do all purely we we of deal, revenue recurring revenue so okay project a we in Yes, it’s we subscription take most the we it’s probably license which maintenance of job an a the the when a it’s month $X term that we

that very that I revenue, subscription when you shifts headwind you have So explain in -- a to -- created in from did that make did significant correctly. short-term license a have revenue recurring gets sense, I hope

Saliq Khan

to it like historically profile did, more the Yes and those over flow so, would that because solutions business the a we line OneSpan be down seen lumpiness now of you that theoretically cloud customers definitely need cash lot better and from gives lumpiness it to careful the revenue that generation as because I the visibility sounds decrease at would assume overall road we’ve the much the profile it time the top [indiscernible] continues… based

Scott Clements

with that the volatility volatility the see in even the end sell gained that towards in more of subscription right, revenue will model have beginning this the The was all to of that, and is fourth recurring strength. quarter very volatility. cloud lumpiness reducing first traction manifestation $X third TID to the and seen that revenue services very in revenue and less subscription That that’s from that exactly for what quarter a we plan in we we is first million a I about. we’ve and That’s business shift quarter think shift with is the

Saliq Khan

by customer? what of is does could a like, year as a you the Scott contract it one the vary the contract, year probably two questions cycle three contract it or life but one well, highlight for you looks

Scott Clements

large It would typical the three-year are those five-year -- year certainly we’ll Occasionally the is customer terms. are majority a that that be we’ll it typical. by it but those terms most very-very recurring in contracts, would a I [indiscernible] one proportion into but large of a get the contracts term, term cases varies three-year into occasionally say that’s get

Saliq Khan

of and from like gross coming And end, that that gross revenue the you continues what to targeting? take is margin cloud lastly on my off margin the ideal the could to increase theoretically amount then what continue regarding transition that as look you’re

Scott Clements

the is know more still we business we’ll as we start quarter up, certainly have do vibrant contracts line it's and cloud ideal down kind business as we we up, a but trend some we I say of through. go from come on have still those see don’t think do quarters that this in believe is the what mid I time I we higher, average I where will the would margins see digits hardware to single as where over guess have you hardware reasonably can large to quarter but this on continue pretty

trend suppression then So be a that margin the rate in very but will and short-term causes clearly the higher.

look so at other I’m mix I be the middle in mix different don't but say have give I are this our there's lot revenue certainly not or mix exact some journey revenue benchmark. we out companies from can reason see give would there similar of this comparable that and shifts made I or I a them could number, you think the any why journey we more companies fundamental SaaS sure a of with and an would that as

Operator

Scott call showing no further questions I at I’m [Operator back would time. over now Instructions] this to you turn Clements. the

Scott Clements

for and your about remain you on quarter We fourth of for today, XXXX. forward we call excited questions very OneSpan we us look that and today. Thank there joining got for thank you for and the future the

to Have So good of with again look each talking soon. day. a forward you

Operator

a Have participation. your wonderful for you Thank conference. today’s concludes day. this gentlemen and Ladies

You may now disconnect.

OneSpan (OSPN) 30 Oct 182018 Q3 Earnings call transcript