OSPN - Earnings call transcript Q1 2019

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Operator

Good day, ladies and gentlemen. This is your conference operator. At this time, I would like to welcome everyone to the OneSpan First Quarter 2019 Earnings Conference call. [Operator instructions] Thank you. I would now like to turn the call over to Joe Maxa, Director of Investor Relations.

conference. your begin may You

Joe Maxa

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

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

filed these the Meeting company's discussion been with and XXXX the tried forward-looking as that of adjusted non-GAAP financial and is anticipates, US direct a OneSpan's attention words regard. OneSpan's forth words Shareholders Consequently, expectations. your and expects, risks on XXXX in filing discussed be differ officers that using press Securities Commission Information I have and in on related statement. GAAP from uncertainties We to financial could on believes, the basis uncertainties executive expectations held may similar from Annual the these to such are expressed expressed a XXXX. proxy involve as Commission statements materially XX, to today's set and of measures April statement release this June Please regarding and call for based directors, projects US such and Securities director certain risks Exchange and measure. statements with in current on have names nominees for plans, of Exchange the these be XX, note a and identify are the by and on actual results

an the most We have earnings provided financial reconciliations measures these explanation financial of and in release. to comparable non-GAAP press measures GAAP directly the

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

Scott Clements

I'm afternoon, so much, everyone. today. Good you Thanks speak of very the have pleased to opportunity all to Joe. with

base our for order XX%. authentication customer the by in deadline expect on growth revenue now plan Payment company growing and were financial revenue met with Hardware investments PSDX. September than grow the hardware European more Directive for of to to First-quarter institutions the their XXXX we hardware our to their a robust with period orders the compliance modestly or of two year. same Services double for quarter full X% in strong focused at provide hardware full overall

XXXX license security results quarter-to-quarter variation. of revenue Mobile from toward software Mobile expected, of XXXX normal first suite quarter-to-quarter we licenses revenue over and after the strong XXXX. year year quarter within suite from revenue an first shifts the away e-signature North the extremely first-quarter and of first a XXXX were declined declined quarter range in subscriptions. quarter American business first license after As of software record varies quarter as security

up level, quarter, of subscription software in we'll return level. to and higher of opportunity security of record XX% XX% total balance OneSpan recurring pipeline. revenue the revenue the and maintenance second quarter to the the grew on mobile Subscription revenue OneSpan's of trend XX% a our in consisting materially The first mix the year-over-year from a hardware though quarter than and year. profitability and revenue accounted in suppressed quarter in total to on margins grew impact by license total expect for quarter, first in strong over last double-digit revenue continue a XX% XXXX, first higher We line driven growth margin based of the and sign revenue gross Dealflo.

and to XXXX course improve We software from contribution expect over increasing of and the revenues profitability revenue on higher services.

little Now a environment's bit a broader business. about moment more regulatory take to the and I'd on speak impact to our PSDX like

PSDX authentication payment and both in consumer multi-factor make to First requires and authentication accounts transaction data-specific access customer payments online dynamic to banking. commercial

providing authentication to to timeline September, short a all hardware date customers. as unprotected methods, in are As authentication result, demand the banks previously as QX. their upgrading in drove well high The for non-compliant compliance authenticators

analysis and EU officially authentication first the analytics the by risk with than GDPR of comply analytics A The also to real-time, quarter. risk risk older in transaction-based use analytics privacy our uses attack for solution step-up data order solution citizens. launched transaction evaluate better and customer new personal risk respond and as organizations evolving help helps Second, learning in and institutions approaches. static offering the risk to requires requirements of PSDX rules-based financial machine application support provided to vectors that cases was protecting

execution inside suite. cloning our mobile and requires security protected operate a PSDX by Third, mobile applications be supported to secure environment as against to

XXXX positive mobile on We and forward. this impacts our in security result to sales requirement expect in

protections consumers in for America continues is that growing global Asia, a other North support which digital developments has trend regions increase ways our Latin to commerce, and for there America, to Finally, and are and in shape regulatory influenced business. positive

of satisfied for analysis. relationships, approach and being secure our a battle diligence. by due identity kind soon waged has regulations Authority coming This And service lasting like and demand for increasing of These regulators liability In financial risk the prove These quality our trusted Monetary fraud long-term the banks evolving guidance biometric encourage where transactions the consumers, commerce intelligent believe our offerings adaptive growth of calling mobile that drivers for low risk authentication friction regulatory adopting that on devices, capabilities. environment, provide transparent solutions well institutions providers. to are based for user automation enhanced protect complex the For deep banking agreement financial of match Singapore, in will analytics aggressive we help great account is threat mobile identity example, for best the years. a of The demands Monetary delivered software potential security, regulatory customer verification and requirements. are examples fraud Authority Mexico, customers of consumers Hong cloud with real-time which to digital as and emerging confidence for joined our benefit innovative losses. and us require them remain monitoring be are or opening, digital provided meet demonstrates the which requirements is Kong our offerings, intact. authentication the our solutions that and competition service the that face will new by have to authentication using among and e-signature the The use and in risk-based moving in the experience, or is no as include our which digital

excess to that the solution verification, are customer Dealflo capabilities and in Our identity designed acquired in integrated on we secure improved into transparently technologies abandonment an has consumer XXXX. addressing commonly and security solution regulatory and agreement and transaction security This The automation reduce rates XX%. of e-signature offering false experience positives requirements. also combines costly builds by that OneSpan's

XXXX. TID a call now a consistent the financial have open pilot and pipeline growing with expectations expanding Mark of and come opportunities, We turn call an provide quarter, to comments we to number then guidance the about before I'll our back questions. additional provide Mark? and for to of deployments and to the some production few I'll details over global

Mark Hoy

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

year over in year. year hardware previously, a primarily year, of grew in increased OneSpan Subscription XX% line discussed As XX% driven sequentially XX% strong over sign excess our Dealflo by revenue expectatons. grew grew European revenue customers. and with

XX% year. license year Software revenue declined over

customers our in As from recurring in are now in prior through our the led we solutions This year-over-year e-signature license decline shift deploying primarily in the a expected to an new model. on-premise American revenue North license cloud revenue quarter. discussed calls,

Maintenance, support $X.X services other XX% decline software a saw to license as increased revenue, Scott earlier. declined security XX% our million. We mobile also discussed revenue in Professional revenue $XXX,XXX. to and

gross margin. to Moving

increase to margin, The decline acquisition fourth XXXX to expenses $XX that an cost quarter was new For due the of discussed of software by solutions of the to the of compared XX% last the $XX year in our last first in The R&D QX driven Operating in investments XX% quarter million, gross year. XXXX. Dealflo. the sales from first increase had reported lower in cloud-based license XXXX, related the were margin quarter and million and in quarter largely for of gross we year-over-year increase XX% we was year-over-year primarily first in quarter. and percentage last of of XX% infrastructure

compares adjusted first Non-GAAP the quarter amortization, the of first excludes $X.XX operating non-recurring quarter $X.XX XX% long-term items, revenue a XXXX, EBITDA EBITDA quarter for expect of primarily last the the GAAP share, compared positive Geographically, share XX% or per incentive share moderate depreciation, to from included over was million share driven per Adjusted loss lower license the in expenses of of $X.XX sales. $X.X compared mix was earnings and quarter margin which to non-GAAP impact and rate EMEA, XXXX, from long-term This tax earnings and of XX% amortization, $X.X in compared We was the the below with compensation the the quarter to $X.XX XX% XXXX. year, million, region. rate XXXX first growth Asia-Pac incentive balance in comp, XX%, the the by quarter same interest, negative the in first than first year. adjustments, per XX% in lower XXXX. of and negative loss first quarter per QX the difference, earnings of items before taxes, from of growth. X%, non-recurring to of of first was Adjusted the our regions for the the respectively. of last of XX% to Americas revenue well

sheet. balance the to Moving

We balances. a quarter, on payable effect levels to during ERP admitted typical do have our million We these short-term quarter of million you. new balances balance. system expect accounted accounts toward cash, is QX. the a $XX and the compared to acquisition in We million ended back end and in receivable trend the of had Scott, with which cash end of majority to equivalents year-over-year the $XX at meeting short-term $XXX at and XXXX QX Dealflo last investments, accounts year. The of the the for

Scott Clements

our Okay. spending from Thanks, executives authentication banking learning a institutions, a increasing I'm hardware priorities here. we and solid solid wrap-up of investment secure and to biometrics qualified on strong technologies, that with based the XXXX, sorry, one and XXX reported ISMG adaptive XXXX. profitability few in automation According With and service items is balance a the of of software of increased their A analytics. and solutions recent our with release authentication the anticipate growth top our new risk for e-signature, machine XX% to bookings opportunity and leading customer agreement over Mark. methods experience financial offerings, along improving survey of pipeline a upcoming e-signature start

guidance affirm million. full-year be expected range be million the million with and we revenue to our to to expected and such, in to $XXX of XXXX adjusted range $XX EBITDA in million the EBITDA $XXX adjusted As $XX revenue of

and our of existing CEO a director allocation board by Marc acquisition co-head cybersecurity acquisition is to complements the bring board being the at questions an I JP banking and highlight to Morgan. and cloud capital today at to nominated questions, a is of a in Twilio and Authy has formerly at of academic we that wealth capital finance to Marc sales Dr. to want open Twilio. the Mark to former program. pior and With time. I that product at new and to candidates who He had made call nominations two be to the this of technologies. I is will of directors, significant members He Zenner commercial Hill, Kenan-Flagler Business happy global strengths of strategy experience our and Also along policy its managing announcement president our we Boroditsky president vice markets corporate Carolina experience senior make Before important that, advisory and our and experience contributions a extensive expect background Both University with Chapel your our them investment at of take School. business distinguished to

Operator

have a Trebnick from We ask from line your question instructions] the question. of Catharine Dougherty. [Operator Please

Catharine Trebnick

provide can Hi. think around -- headwind over up, will Thanks is your license this And year be Thank XX% XX% this Mine positive have question. XX to with that? which other and taking do long you. How you -- with you subscription around? any for year used us details the my year. revenue headwind that to do you year has down persistent over

Scott Clements

Sure, we third really that's we e-signature reminded started quarter you. we of talking about, this you? hear is quarters booked large the that very, of How quarter that very few place a And to Sure. course are that's shift about from quarter reported very orders, in Yeah, a our fourth for really a And line. XXXX. three Catharine. license the in set strong last the this were first here from now year think that of first and expecting to to taking in related exist product by projects driven in the license I headwind really on actually Nice quarter.

XXXX of is type of completed, that a the just which quarter really headwind. we quarter first last The of

have 'XX, the -- but we the license 'XX than in bit in a quarter. much little think or had it a but first little it's I license for revenue quarter revenue we was e-signature lower of of at second

really expect is where the see that. QX would we quarter So final to

Catharine Trebnick

have launching. the several And that Thanks. products question right. new then you other All is, you're

generate generate XX months? So how long marketing Is some nine-month from sales new will the it you to do think process, to you for launches? take six-month, a of of to that revenue type

Scott Clements

Yeah.

really product. authentication As and solutions customers deployed time. have long. and in be third quite you implementation a production in of are deployments large of being year. last delivered actually on the We know first I period We the think cycles quarter These cycles are in some launched over adaptive buying solution can the do institutions, already the that

the can of be number a have We in the risk for for phase that others analytics same product. who The said are pilot offering.

think as first two. for in those, who the out first number coming And new We both on which really more new than in and quarter, the I have Agreement that. a quarter at of risk here phase some happening the customers out of was Automation opportunity of quickly two, engagements are electronic in the the in second probably capabilities Those just region latter qualified move well in would world. forward analytics as actually every e-signature. are pipelines products customer the pilot have really are good The we and then coming that

continues our and Our that new revenue we has XXXX and objective be products to goal have in for these from will XXXX. been

that expectations modest set have for We revenue.

customers we continue from with products in new to we XXXX for We areas, see existing and as expect these of have, do, we in to deliver for our in do and and enhanced see we expect versions contribution accelerate want these that new XXXX larger growth we business that and revenue some we engage as products. these increasingly we products to new features do but

Operator

Sidoti line of question comes Co. Soderstrom next the from & Anja Your from

is line Your now open.

Anja Soderstrom

software follow-up headwinds. about to a, question the wanted -- just So with Christina's

and are that in that now going we sort behind see of first shouldn't the quarter more to Just forward. confirm much of left those

Scott Clements

look right. quarter suite. Yes, terms mentioned easily It sign. back 'XX, quarter if I of security revenue. very in I a think go of -- that's actually and had XXXX extremely was it we was the mobile We highest we security mobile at for the as was also strong suite It the quarter first very, for of OneSpan strong

comparisons So we it if QX more do forward. expect certainly and favorable into do we

majority that behind and in that believe And the of performance is so start QX, better QX, us see we should we QX. license license, to do

Anja Soderstrom

a we this it little as or, feels were bit like or coming slight a you a a as a year and the anticipated came to little modest regulations for it's to that growth talk in you full than going rather surprise guess. then, bit And this products be elevated new Was higher continuing hardware expecting that you about had in I the with decline.

that? should how So think about we

Scott Clements

Yes.

let is just have That I me business we overtime, still So declining assumption. of all, long-term hardware first is the that say the view that case. planning the our think of still modestly

think this did driven PSDX opportunity expect year. opportunity we I to hardware significant see

In maybe they decided that hard have a bit frankly, they they quarters I the terms in of as the as than a any over, of that. that quarter as little of weren't institutions event regarding far couple deadline really appeared softer bit to little would institutions hard was past authentication treat the they think order a in the a regarding, as we want expected. a more to patterns, certainly over it and probably first deadline are really is a compliant. I out to it's could a it hit they but deadline that deadline of amount deadline lot thought that September that want first pretty think spread become hard be are a that really sure be I a of concerned, to deadline of the meet whether or little We lot meet. more would

it, between order for customers hardware it deploy close it of to kind to September you pushes happens, time takes us ship inventory, -- pretty that the of bank's the when pretty it an in and all the to when of timeline the the summertime, manufacture you looked the it, the into of that get sort so getting And period. at

lot So to done I was this institutions in it was orders of get QX the time just time in a really get to like think at. order they felt that the

we into a taper that second in we So But fourth be for a go do as revenue actually expect then the year the as look quarter half line we as quarter, as trend want the than saw of second to see we factor business. back base, of well the decline quarter to in one the quarter. longer-term would I additional do more third on first point you toward the I hardware and say of we here life stronger the in we years -- second the even the start we'll expect did hardware period quarter sold are 'XX very strong that of into maybe to that, devices medium to revenue term and probably the off on in to XXXX, maybe 'XX. we we end and the is coming also for hardware

around pretty hardware you years will view. of little good years a Some a who remember point from as have been longer of those

And devices years that hardware, and five -- five-year that about already six those life a six-year or our ago. we our where customers that know have we're we to generally things sold for so so we're years, all that talking replacements battery of those customers period getting into

maybe think to again some I what think I we go think and the in that's we're a XXXX. I the be up gradual in year. year of we and like the decline little time. benefit to for and and have get think long hardware that start when projecting rate will moderate So into be hardware will as going sort second this talking to that's why smarter business of But probably probably Nevertheless, that of not into at a will see about we we pace a to -- think then start the we that more -- half decline XXXX I this bit something when hardware and we from forward, about

Anja Soderstrom

and the think not So you happen to year? reorders year those then are next going this

Scott Clements

start No, for those earnest ago, from until the next in and reorders the year few devices in really XXXX. I won't think a years

the... think don't I So

Anja Soderstrom

But still reorders year be next think down to even going be this hardware you you see is coming in? may though

Scott Clements

for guess right no of deadline, like kind best replacement specific for PSDX. those our That's -- now, there there's deadline that because is will

that expect would we over to slowly time. [indiscernible] So

Operator

comes question from ask the of Your National question. Securities. next Galinko from line Matthew your Please

Matthew Galinko

for Was to a taking of Hey, Maybe couple being the that anything follow-up cycle would the something of -- accelerated XXXX. cause It just the there first I XXXX, -- that in saw? of a guess kind good from refresh afternoon. questions pretty about was thinking me. what Thanks you're reorders. pace conversation prior a around that or XXXX how different the different there is about refresh than you deployment interesting

Mark Hoy

then, back around wasn't best. my I do Well, so I'll

XXXX They going they the the these and Okay? I what fail back run battery will same all but 'XX, not course, don't know will exactly a time, was pattern devices, to are in right. at time. of over happen

will a customers a, with customers. the a that they that do make just want proactively their tokens do Some replacement existing to decision are of

example, for do banks Japanese some think I that. are likely So to

they Some that maybe gradually will the went different as more take as battery a replace and out view others devices. devices, will

pattern but a So over period. like, know what that I'm exactly happened three-year look to the we to is related reorders about don't talking going really something that

expect that in of necessarily kind a not repeat would I don't, to to happen, period. I So two-year

timeline. maybe I out play think it a it's probably will similar

that it replaced them I those will, portion of think mobile time. The be shift is here tokens I think other tokens those remember over mobile that that don't, will some security replaced a hardware by to proportion that mobile suite suite. of thing by replacement hardware probably hardware still, in I of new be to But will will security devices. of majority the devices security will some

keep in well. as mind So to want we do that

Matthew Galinko

the you sense what a was security you you. whether if under would then accounting on maybe license the on can reported had of under if been business, Thank XXX? that, the the mobile just have recognized line have in than a decline you higher it. number question an XXX, And that Got license or say quarter do

Mark Hoy

buried in what MSS Yes, is we in if for revenue XXX. license saw XXX look would you it asking versus would what year. last thought But have Thank dusting I that QX, that like the of under Mark. QX you're off we XXX? been, this that

Matthew Galinko

yes. Correct,

Mark Hoy

Yes.

an on XXX or XXX. apples-to-apples under basis we're So

both. these So as like the two, to we for compare I'd use metrics same

not delta have the, So the years. impacted would would it impacted the between not have it two

Scott Clements

Between XXXX with was and XXXX, XXX positive revenue. this license

the by was, now how remember it held should some be 'XX I XXXX. helped It the first degree degree apples-to-apples. QX to XXX. to So quarter much, change it some don't was but was to QX, But 'XX, said, QX comparing as to Mark

Matthew Galinko

Okay. though. forget okay, thanks it for Yes, we'll I you ever for the well don't I'll the, think XXX clarification. But what Thanks know there. leave

Operator

follow-up Soderstrom of have We Co. & a line the from Sidoti question from Anja

Your line now open. is

Anja Soderstrom

Yes, the of it since come guidance, and about year sort How for of and bit this line. hi. margins softer the up was had think the is quarter and should though affecting software maintaining or the question guidance for, for it you're the that we to the came of make going full in rest your for in just and in I in a stronger or? a terms margins guess, regarding little the revenue year terms the of even hardware I margins in

Scott Clements

about comments. exactly some would we a plan, I crack maybe at way. Mark think hardware, software take almost mix I'll quarter of a the first lower one Yeah. have this assume additional that constructed of to the When plan It higher mix we and the constructed for that. will the that number revenue plan, and it and it, a delivered. we did equal had think I

than expected. the I quarter margins in have the would in So a that bit think we coming lower little

is full year that at less laid year, hardware now really that shifted the to On expected the latter looked we when We've we the we had what year. we of so forward out way and plan, hand, in the the in on part little see first stronger other a the hardware be the happening part. the maybe

when positive look of actually and it that but has the impact QX business. and -- a in margin the first gross impact a quarter, to rate to we comes has start So QX negative the at when

QX I through strong. bit we I will revenue part grow services still go do the we year, of a the QX. So expect the nicely into see over hardware But think QX, well and to described really QX if as moderate expect quite little to half the we be second as software this and earlier company

higher see QX we of mix and in growth a this we'll and and or in improved terms software half, So maybe certainly depending in the margins hardware second services will see, that on revenue. an moderation on based

Operator

are [Operator time. at continue. you There Speakers, this may no further instructions] questions

Scott Clements

joining all good and look Thank you your afternoon and over thank much you Thanks us very of be you Well OK. I and questions everyone your a today. talking for taking forward evening. for the days talking wish you more questions. many to we'll know to coming I OneSpan. about I again.

Operator

your for everyone you participation. Thank call. conference today's concludes This

now You disconnect. may

OneSpan (OSPN) 11 May 192019 Q1 Earnings call transcript