OSPN - Earnings call transcript Q2 2019

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Operator

Hello and welcome to the OneSpan Second Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions]

I'd now like to introduce your host for today's call, Joe Maxa.

begin. may You

Joe Maxa

Investor Hello, on OneSpan operator. name thank for OneSpan's and investors.onespan.com. Director you Joe broadcast at is Thank the website Investor over quarter everyone, Relations XXXX the internet of the am second and be My This earnings joining call Maxa, being accessed you, can I and Relations. the conference is of call. section

information, on Chief call speaking and visit Mark website. With results me press To Executive will copy the XXXX. please Scott Financial Officer. Clements, call release access second-quarter Also after OneSpan of Chief our on our press first OneSpan's afternoon market is investor be Hoyt, today announcing This and issued release our a the Officer. for close, a other

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

to expressed involve anticipates, statements. statements plans, Consequently, could from We have and current believes, such and based these projects and expectations forward-looking on differ identify words using tried results are words, the expectations. similar and expects, in as uncertainties risks these actual by statements materially these

related risks a I that such are adjusted non-GAAP call measures U.S. and company's today's financial discussed financial uncertainties Securities Please on direct a your this that a press be have the certain of attention in basis the filings been on and for expressed with measure. to release and from discussion Exchange note may Commission and this GAAP regard.

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

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

Scott Clements

Joe, everyone. afternoon, us reported both growth XX% including up growth second very Thanks in quarter, Thanks hardware for subscription here good double-digit with year-over-year. XX% the today. revenue nearly year-over-year and software. software in hardware much, with joining in XX.X% growth up remained Bookings software, nearly XX% and We strong and

our have on offset EBITDA that Adjusted expenses. of million double In higher million Agreement higher Identity solution the and Automation Trusted already partially launched digits. Secure by to improved $X.X margin, in the customer operating sequentially $X.X based we numbers opportunities quarter, gross pipeline second a

quarter, During to to our support also we the key technologies. an extending Adaptive authentication Authentication OneSpan all update Intelligent released solution,

Intelligent Automation pipeline exceeds Risk Agreement Adaptive and including overall Trusted Analytics presently opportunities XX, solutions. of Identity Our global Authentication,

customer opportunities from institutions Tier range banks. to These small X global

We be end to pipeline TID deployments in occurring and XXXX, double to continue of grow production with revenue expect XXXX. by the in contribution our material the digits for to

requirements Signature meet of capability in European with strengthened Europe e-signature a Asia. scalable product for our Electronic manner. now for can release quarter, our we the classifications more line three of of efficient During regulation and Qualified all the e-signature and We eIDAS the the

pipeline pipeline of international Partly as -- opportunities international a I e-signature expanding result, products should've our our expanding. said of e-signature is is

Customer be for CODiE Value Best feedback security Adaptive with we award Authentication Award. and the their continue on to by Solution Sullivan and industries customer Leadership solutions. new SIIA positive recognized to our the was by the for Intelligent new our software addition with FinTech recognized Frost In solutions, & Global

of with Trusted recently in more ecosystem core Avaloq, access. banking to a negotiation. to We European solutions. recently expanding our and expand at Identity hard work announced relationship other also our provider are were as market solutions partnerships yet we're unannounced partner software-as-a-service enable finalized new Finally, our a Several and major

over call provide few before questions. about back guidance the to Mark? opening comments the turn and additional now come call to provide financial and Mark I'll to details a then the I'll to quarter,

Mark Hoyt

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

million, Software license revenue grew Mobile Security double-digit the Suite. growth X% including to $XX in

support margin XX%, $XX increased finally, professional prior grew for to revenue million; $X.X XX% XX% X% XX% XX% of and in was million. revenue million; of $X.X subscription quarter XXXX. second maintenance, to second services to the declined to revenue quarter compared XXXX $XXX,XXX. revenue Hardware grew the Gross quarter and to and And other the XX% in

and The were XXXX infrastructure mix, for by X% an last with costs the Operating year-over-year cloud-based of QX year. driven increase changes the affecting increased million reported revenue quarter sequential were in $XX million, of year-over-year change. expenses primarily $XX from second

in research development. investments by driven largely was increase and year-over-year The

XXXX. was second million XX% quarter with the approximate incentive half to in of than compared total Adjusted XXXX. million, earnings $X.X the lower expenses or line items and Adjusted depreciation taxes, compensation of those half amortization, second the in EBITDA expect X%, and first operating long-term margin We interest, to in nonrecurring plan $X.X year. XXXX second quarter adjusted EBITDA, the before was and of

XXXX, year. of impact share, second of compared share was quarter quarter and the quarter $X.XX the same to of of the second adjustments in compared long-term Non-GAAP for nonrecurring items year. excludes to amortization, GAAP which in comp, loss last XXXX, last incentive the earnings $X.XX was of quarter per tax the second $X.XX in per $X.XX

Our by of to timing first quarter, the inventories of the and payables consumed buildup working million of cash near-record primarily in the receivables to by due in orders response and the in the balances year. capital hardware $XX declined half

to cash a We with in two recovery over normalize next the capital expect balances working commensurate balance. quarters

and XX% the same the the QX, Pacific regions revenue the from XX% compares Europe, quarter from and XX% region. for XX% Asia respectively. and in Middle Americas; mix last our Africa; This Geographically, second XX% included to XX%, East from

I will meeting the you, now Scott. back to turn

Scott Clements

The Mark. for year in a positive Thanks, is progressing manner OneSpan.

XXXX. hardware software the double-digit and revenue year full We growth for both for expect

strong bookings year opportunities the Our pipeline support a and the our first of solid half optimism. of in

Hardware revenues from before to the of PSDX-driven in third demand QX. end benefit quarter will softening through the continue

we second operating anticipate adjusted half higher of will the increasing For growth EBITDA XXXX, leverage. and solid result from revenue

stronger revenue We in consistent on in QX margin gross expect primarily will with with QX, be QX changes returning based in mix. margin

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

the found our of is visible. channel. remain for the to of look mobile future, the in studies we have becoming Demand urgent drivers growth mobile incidence Recent that As most the company are security exploding, last for doubling accounting attacks year. nearly is These billions attacks every in of financial malware of one-third all approximately malware now malware dollars year. the mobile institutions the with of causing number identity

overwhelming banking other majority reverse of to injection mobile Meanwhile, vulnerable are engineering attacks. code an still research and applications shows

see mobile advanced our broad mobile are in such Our opportunity we technologies prevention. security fraud offerings effective additional preventing attacks, expand to in and

other around impact regulatory transaction-based risk on requirement to the that and regions follow world for positive suit. are the we likely authentication customer anticipate analysis are a having our Turning European business, to and strong regulation, PSDX

their than Financial one-time many verification, transaction SMS-based for various secure method institutions passwords login methods as plans and are a across authentication Europe are drop less technologies. responding that with OneSpan's to announced And governments for the and they improve citizens. do to to same own that to the and around to need finally regulations world are identity the getting laws act message security their establish

With that, Mark take I and be happy to will your questions.

Operator

the from B. line with Instructions] Riley. question of [Operator first Dan comes Our Drawbaugh

Your line is open.

Dan Drawbaugh

question, for there? provide the how Avaloq? smaller? if about Can to with there's us think to sounds like like opportunities partnership? larger opportunity the we Thanks you Or or pipeline. sort -- start with the revenue Anything little be to be and appreciate for can Avaloq way that more a on Can about of and would taking doing useful. color potential in on exactly well, similar-sized came stuff hey, there other just guys, I Would the you I'd that there's the some time. any guys. help It start

Scott Clements

don't but multiple a access wide strategy Avaloq we the think ecosystem open on identity Dan. as cloud-based we give partners really can number you particular, trusted revenue I platforms core range the more strategy, these of a and to Sure, build the part business. in across a is Yes, really and of specific model phases tools mobile of partnership

up to Secure channel recognition. bolster new It and example, our partnerships our Trusted extends it technology and scanning data solutions, solutions, us open for provide Risk will with ID to to that will into Agreement ID companies and that partners extends Identity include So that Automation that capabilities, us. technology markets these companies for provide Analytics our help

do so, this. relatively I OneSpan. do the really think the manifestation but lot year of new theme the is this products of did it in a new last more is us and or not of that of a to is a for this, strategy -- the Historically, this allow company

solutions system. to and only online-only customer think that products relevant our participants as participants and banks really and the payment not Identity about traditional that products we of and so -- other in the are -- Analytics in Trusted And Authentication non-traditional types of the Adaptive Intelligent new financial are emergence for base, Risk also and but

So this is how it. we think about

of them we much go technology maybe accessing new with partner fantastic will past. will working opportunities integration -- for that number the where right Europe. are be market And not us with penetrated Avaloq to now and in a do building and with spaces we quite then think across that We them other business as a of that our into in be have we what are partners there part

core And part strong to company. it's how So I the top-line want think that's continue growth the drive for to a we strategy. of

Dan Drawbaugh

Okay, great. color. thanks the for That's

you little color about Software particular to a the for call thinking nice what And the in in quarter. you the security you'd are give licenses rebound had Can Anything us license year out? business? there? of like the a balance mobile in more

Scott Clements

-- the I security, think was of order magnitude slow rights. first in I based of Yes, certainly, that it's terms quarter the in increase authentication a the hardware on think partly mobile was quarter and

institutions, quarter see quite as So of much order were first and during I on them security. very didn't think the that focused that starting. mobile many We

to mobile that that exactly the and as we're mobile away. third expected demand we the for and not normalize I The quarter got said the think a applications what end is fundamental the think of second I and going into more at quarters, seeing. security bit little we that's we security

XXXX, growth of there across to growth in mobile year. I'm product, customer relevant full which for certainly we and excess really we going was same do expect will So it in security, it's growth us get real that extraordinary, combination is XX%. to you of in the not and out opportunity, base a space. that going unique deliver XXXX security, it's our will a of continuing do to we But mobile our capabilities be I expect that the highly think opportunity rate that growing that forward we almost, saw double-digit a of for platform that is in double-digit tell because

Dan Drawbaugh

guys. back queue. going great. Okay, to Thanks in much I'm very time, step for the

Scott Clements

Yes.

Operator

Thank you.

from with of comes the Sidoti. question next Our Soderstrom Anja line

line Your open. is

Anja Soderstrom

Hey. thank taking and you quarter. everyone. on Good good afternoon, And a congratulations questions my for

So I wanted to start…

Scott Clements

Anja. Hi,

Anja Soderstrom

of XX pipeline talking about said. that future, would wanted I -- you How over for the Hi. and should think that just revenue? I affect how the to in it realization you I TID would platform, when mentioned and pipeline think XX the about revenue about the start affect of the customers

Scott Clements

that year. goals in beginning in new year and revenue the are of saying the consistent the will what terms contribution objectives I these this from be with We solutions we've of XXXX. since been pretty Yes, do it's there expect of think course for what our some

material more We that become certainly expect to in XXXX.

banks, when fairly and and implementing financial like systems that, new know, are projects. things probably long-cycle are they institutions you As products

that There's there's prototype a full implementation can and before or a production. number usually there's a into selection take deployment then a pilot period of months,

type month unusual not sort be to twelve six, it's these start So before up. of really you projects scale them to for nine,

I think that that projects is the comments every pipeline, at quite in mentioned I look first in of and in really so we Asia, covers very largest, bit it of when in the are in little as of respect. It all, pipeline some a the in in Latin And earlier. that diverse, to America, is the number North in the Europe, of institutions small world region broad America, very very

and think Authentication. are the right So two of I that biggest drivers pipeline Risk now Intelligent Adaptive Analytics

have launched solutions more bit of little couple other The a been recently.

think I but Agreement now, Automation, filling just pretty well out are we're pipelines of those so And Agreement gate on Secure the Automation.

number single-digit in have -- we production of are already. that so a that of do customers number customers And a

of third would some into see we'll quarter, will into fourth and in double we those And somewhere in production and additional I -- the these production in customers the go quarter of number the digits the that low into get expect in QX. terms

of time. mix. we you will a There contracts recurring-revenue revenue so over contribution, Now these many the type as gradually know, builds be and will be

these So will more but a is toward some be we of opportunity, major recurring license revenue. more emphasis of really the

So then we'll see start over that XXXX. revenue build to

Anja Soderstrom

could Okay, the little gross a talk thank about you. margin. we bit And then if

off quarter, continue you fourth And You the expect in with third be hardware then of third sort and wane quarter quarter. I think second the quarter of to in to orders line into said. the sort

gross at cloud is investment margin? the bit make I in gross When we cycle of a going sort how should gross expected. infrastructure done had margin is about margin I impact fourth the quarter being that going how think least But that's So the we And with how going than forward? out? And that? the guess to lower to the are

Scott Clements

Sure.

if margin. better, So like like that than just maybe will or probably in and on fourth look the said we more is you QX quarter QX QX better comment then need neighborhood, to. more Mark What will the maybe here, little that and QX a in jump in QX. a look gross

driven by And really is that just being mix.

Hardware year. a grow the and make software time. contribution expect significant first services at very strong very, QX. see to in half the We have for do in of will hardware the We to continue orders same

strong and be to grow. then hardware continue and And fourth should services software will not as in the quarter

that up cloud the a customer, a So on very year. as cloud and region, next understand that impact you you And margin really the infrastructure. we or when the cloud new a deployments, set quarters. new is cost, cloud have think a that an far stand couple would new of simple margins as means new that of guess location to say, in the often new that's explanation then shifts have And -- for I having over as this the

volume, start to services then sort so you We fixed don't then like but that, own that get we add customers, still costs, AWS, over are I more like more usually. cloud costs what We're working guess, fixed call and on. nevertheless, through as to provider, And of up there add those customers things running. might and you and amortize revenue

we of that's seeing new So that in number products the of a you're really and the regions in different course the launching is and world. effect of are solutions

a this initial production. that's actually we to think varies more certain get have when in customers depending place. products less in the get or first year. It And make and we infrastructure start We to we that then when I had expected cloud little to what on bit investment launch

Dan Drawbaugh

research year. the rate it that, Or... development for expect Should same for second the the last after to on level what of remainder one about and Okay, the stay quarter? And question of thank and run sort you. the

Mark Hoyt

little We see expect too but R&D half far are to off not in in second a the from where the second costs of bit quarter. we temper the year,

Anja Soderstrom

me. thank you. all for Okay, is That

Mark Hoyt

Thank Anja. you,

Scott Clements

Thank you.

Anja Soderstrom

you. Thank

Operator

from [Operator Galinko instructions] of Our next Matthew the with Securities. National comes line question

open. is line Your

Matthew Galinko

taking Hey. questions. Good my Thanks guys. for afternoon,

Scott Clements

Matthew. Hey,

Matthew Galinko

into pipeline? in you going significant is which think premise, the as in Europe, say cloud now. Or is of talked that I e-signature will out? to can One, slower ramp kind pipeline How be predominantly of in you the shake you. Or that for couple Europe look think versus terms awaited a just So cloud? about does long the be you I

Scott Clements

Yes.

So to in affair first I not would global Europe. more it's fore. all, It's are the limited than that. a Certainly, say to opportunities of Asia coming

to or I a a think little bit will in North higher respects are broader -- of it's So do than that for America to some And on-premise Europe. just deals. be outside there license propensity customers

really expect exclusively, in say I gotten toward a projects weighted cloud America, cloud-based. to heavily implementations. significant would but completely be America them in North we've are and We of new North to do not SaaS proportion

I be had in -- I half license North guess, be be of will more America. America between will I would I somewhere probably be we'll of guess, more outside than subscription, little if America. to North guess projects be think, see, and certainly still but license would -- would more time over say it'll probably that'll and XX% balanced than outside XX% still will North I type a more

Matthew Galinko

obviously, Can given -- how this the that Trusted Got security kind to is much there. the suite evolution about resurgence versus going the willing much toward you ongoing how we've just it, hardware invest of And thank talk Identity then to you. started has the talk in on products? business mobile you line, R&D are seen And of continuing in year?

Scott Clements

won't Well, I but more to try could I give -- little I'll no, color. -- say guess I'm not a I just

Mark Hoyt

no. say Don't

Scott Clements

perhaps think all, not they I to of And modest this that that. think hardware it a R&D. characterize say consume businesses consumes of terms me think, would it Hardware in about as R&D it I Hardware, other of with no, of Let's would or I first right? -- consumes. amount the it's level -- way. similar start product I let

projects, on-premise toward has authentication there TID shift a e-signature. to balance In our continues be -- software e-signature shift is to in There robust to of of R&D. the to investment a relatively -- level The R&D products. some projects been going TID-related and significant of legacy

that some and things platform. with doing significant are that pretty We product

and categories. level high two include when say would development at And solutions I and as TID R&D that, now two the I platform so well remaining a also in of our e-signature. those of the investment biggest in commitment as are consumers say right then of that particular I dollars TID,

Mark Hoyt

more are and which to and And little e-signature, one's think difficult just really of of on working want a and more Mr. blending here for these because say it's closely those for we I add say teams to TID, benefit bit ones no. Galinko's for one's Actually, reason becoming delineate more I'll for so together. which here. there's which mobile, The more projects, R&D

Scott Clements

I ones components. common go products, of new platform to the designs legacy start forward, of we common interface we'll Yes, and see have right. these That's many think and some products, in infrastructure only not some cases, to user for start the as

trying balance decisions to us decisions, speed to allow with we're our be we're more across -- become to So of in investment market to leveraging portfolio. trying R&D the solution good that terms cost-effective

Matthew Galinko

Got the it answer. That's appreciate it. me. Really for

Scott Clements

Sure. Thanks.

Mark Hoyt

Matt. Thanks,

Operator

Thank you.

from follow-up B. Dan a Drawbaugh have We Riley. with

open. line Your is

Dan Drawbaugh

sneaking Hey. priorities. Thanks to for in capital-deployment on up I me here. back follow just wanted

as What a mentioned You from PSD thinking inventory the hardware kind half the going? there balance seeing are ran demand. right far a cash know Or you quarter anything capital in? be you pipeline recovery on What what looking priorities now? should as an are this are working where on focused you you're standpoint. I second sort the up the of are Is acquisition in the on at? about that of and

Scott Clements

week. with it's we talk something that Matt. Matthew. had good discussion about last I said this lot. So fact, a We, our in question, a It's board a about

Mark Hoyt

Matt. said You

Scott Clements

last still on sorry, call. the I'm

Sorry, Dan.

Dan Drawbaugh

It's fine.

Scott Clements

best it most about a as with do last we we our the basis that we about return investment do think on shareholders. for capital the most cash How We quarter, creates we value? the So shareholder pretty just can every from where the get we week discounted on a board think flow robust value had create can essentially, allocation. discussion

at you growth that when venture investment we the of private as from into massive lot are that in, space the the and capital, the are security of know And from cyber a that's equity rate going we space -- look companies amount we seeing.

shareholders. to return opportunity the customers, not and of substantial to feel I'm get to us, constrained opportunity that, don't really the expand do. afield talking grow our value a deliver we things is our about and do know how business that is in business We through value of before that to our course, and go There and grow far real to terms the set that. have we and to

feel opportunities return, significant think as we time and capital-allocation see and do will growth capital other or I to those at diminished you investment, these such tell significant opportunities uses is best our that that growth as cash growth consider access to create that I and number of generate to priority. our value. shareholder them and either we to that then so can And are at we ability the accelerated one that, we impaired, allocation real is for will continue the we to opportunity -- obviously look alternative

practice, I do an here. call would M&A We it have active

landscape gaps gaps are strategy, strategy, or have in the the reviewing around in the in not constantly the We strategy. gaps secure to that understanding the us, but ability we maybe our a the

and priorities we from And strategy the to growth, really so where that, things. starts our opportunity acquisition target partnership result -- on our there. those capture we priorities identify really those and and it based can And accelerate really itself, value ability our

don't the we find we We don't the good do we'll and think, consider -- those. see to course do we opportunity, alternatives. way a find be return them, That other prudent about we don't thoughtful if want investment. we I them that of When and in on of or this, level then with thought discipline right

the think I the reason So prioritization for would describe prioritization. our only the I way not maybe that but that's

investment organic sense. when cash growth investment, time, the most -- M&A And the seems we of like the delivering makes at back in shareholders are -- alternatives that of terms and consider it right we all using to

Dan Drawbaugh

color. Thanks for much the very Understood.

Scott Clements

Yes. Thanks, Dan.

Operator

Scott for remarks. to now turn showing call no back I Clements closing this questions to I'm further at time. would the like over

Scott Clements

much today. joining thanks very on our call us for Well,

the we on do we third intend for here. I what and had solid half and to about It a excited year we're this is quarter quarter of XXXX. think track the second of

you So us. we appreciate joining

then and and our input from we We open company make. get you the choices from and remain our we respect to direction company. many our investors, that feedback to thought the our the the appreciate and strategy do of certainly that We who from analysts cover of with

want Thanks, that for So a you I you of rest thank again. your have look to to getting good forward I day. more. feedback all hope and

Operator

gentlemen and participating. today’s for that Thank you Ladies concludes conference.

now a have You Everyone day. may disconnect. wonderful

OneSpan (OSPN) 28 Jul 192019 Q2 Earnings call transcript