OSPN - Earnings call transcript Q3 2020

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Operator

Good day and welcome to the OneSpan Third Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joe Maxa. sir. ahead, go Please

Joe Maxa

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

closed, Clements; OneSpan on access call press a quarter afternoon today and Scott our information, investor the CEO, This third CFO, and visit me release announcing Joining after a release our our market issued press our the results website. Hoyt. Mark is other please copy for of To XXXX.

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

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

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

by and this other assumptions required or note statements for future no undertake information to please date will date, In turn a new of statements made any X, November obligation reason. addition, the events, XXXX, I except we are as With the as any as forward-looking law this over result or conference to that, call call update these of related of is that Scott.

Scott Clements

Joe, thanks here thanks very today. much, good everyone, joining for us and afternoon

Our impact intact. and away continue recurring as security execution Despite revenue shifted for services a core model. expenditures demand near-term of about from temporarily strategy reflected were pandemic the that of remain and continue the the optimistic results in with customers to software getting we our this banking attention their authentication our to some their we dominant transition to to for shift, make drivers progress quarter projects. We the future, and believe solutions our and a

providing near our Let We their global we loan services loss into saw me term with quarter. entered start third quarter severity the adding to levels. billion of the reacted customers in reserve increased as elevated by pandemic by the financial business the what uncertainty outlook, some insight $XX our about to

authentication thick e-signature the most comparison banking of as a to plan number of which drop increase growth in of the distress Account pipeline been were software customer, Payment our hardware a that both and have and to a and other the offerings. opening to seen restricted of difficult comparison. resulting business work Services token major important American in software. authentication or projects, XXXX reallocated in temporarily financial In for cases, do has and opportunity are production of and or -- limiting authentication world, needs. for Celent, and Europe, published their change a also resources reducing other drop us even many QX technologies providers quarter in factors uncertain impacted was around for and identity see also and note strong remained also are closed other online largest the of already expected support We've for operations around challenging. the user drivers hardware projects security a we firm to delays these These South to remote world authentication trends third hardware A OneSpan branch mobile our including addition the a in carries accounts this implementation, account customers priorities distribution of The pressure, It's improvements. advisory makes increases, temporary XXXX. home banks. with Branches enable significant key their dramatic OneSpan. endpoint in Most most in customer for the continuity software license security support that and pandemic is timing sharp IT benefit one-time XXXX, banks confirming budgets OneSpan from employees. services in types The work its COVID-XX thirds been on this implementation our by financial in in cloud verification. demand of customer products. typical record that on-boarding business tokens and the believe mobile example New and banking and financial more will the purchased to for with respected token. the authentication in closed openings digitization churn, branches, for This customer to which during reducing used two in and banks of closed banks for most critical two for often channel that a resulted authentication demand the pandemic study financial authentication IP mobile based of pandemic point to their Directive 'XX of study also The server business compare surge driven the X biggest demand the impact most opening insights most Sign impact a sale institutions which our its This immediate has revenue in found a this with by for made the security

visibility have and digitization our at they customers immediate their pandemic, financial security and remain better gaining and into looking their uncertainties continuity past moved plans. to business we're responses the While XXXX investment are

As today are for updated providing XXXX. and our around a for expectations guidance comments result, XXXX some we

like outlook I'd OneSpan. ahead look you I'm the and tell for about why to optimistic Now

already re As there engaging noted, are and several I've developments. are customers other positive

First, our sales opportunity pipeline is growing. rapidly

moment. I'll Second, line improvements strategies And working. metrics. we're seeing in sequential of are these on top for third, each our touch a

of software So its presently And XX% highest grew opportunity and our at in identity with authentication pipeline first XXXX. our since QX and year-over-year mobile is excess verification, sales levels e-signature, strengthened token sales services pipeline security. of

identity increased during Other XXX% than quarter. an E-signature digitization categories and Subscriptions for product driven more categories the verification. process third solutions, XX% sequentially more quarter-over-quarter modestly. major all in and bookings Second year-over-year, by improve as demand increased such digital urgent

is services Third, margin to progress. continues on to the solutions and strategy our business transform to trying streams and on revenue focus recurring strong

exceed with likely dollar of revenue recurring will annual this year services of grew and accounted and on rate recurring Year-to-date, software revenue our based quarter. Software revenue solid and And XX% in contracts portfolio, revenues ARR growth And several services vertical significant forward. a XXX%. markets that net Recurring XX% the are up at focus We total trends. our also quarter XX%. expansion year-on-year. total for to to new ecosystem and opportunities financial during contracts had developing solution customers access illustrate revenue We're extending beyond services. a our recurring on our wins on by expand partner working increasing the improving and these bookings also our XX%

to see continue Department progress large their digitize continue of they farm programs. with six to for space at the We government Agriculture, in assistance as U.S. the a figure win services

Meanwhile, trusted for the ecosystem and with partners continue multiple technology verification, continues healthcare we announced working e-signature account OneSpanalso solutions login in and for including verification We also prepaid book are identity opening acquired with opportunity service already customer identity closed partners opportunities, our one network as space, America, card new go-to-market telecommunications the the of global digital sales to partnership simultaneously verification, three where super digital figure and partner seven U.S. in customer added also top whom for authentication a we new ID banking e-signature expanding and the contract and pursuing with cloud we've opportunity Latin signing, on-boarding, for several an and ForgeRock cloud-based services. provider. transactions. and our expand,

turn move cloud to in their to we Mark, that over to the note identity want are made call services trusted our pandemic resilience we cloud. institutions agility of envisioned before continue as XXXX. the to The accelerating I financial the strategy in has scalability, Lastly, see infrastructure, and value I and evidence back of the that clear

During cloud at our institution. of deployment quarter, based the we the project financial to-date third U.S. completed largest

financials, momentum Mark? After additional with questions. I'll regulatory still based to While provide cloud on Mark to before you benefit. on back update the update our opening challenges, gaining OneSpan's comments and our there to services call banks other adoption are outlook, come along an some of is

Mark Hoyt

Scott. you, Thank

As Scott of mentioned, for business the near outlook in customers. third term XXXX with uncertainty are around we quarter the

we out, strong experienced ARR revenue a in licensed product of for recurring are equal Once quarter find hardware greater the and our share. as however, contracts value length. spots bright to all active annual reduced annualized one want I do demand some recurring products, point term there growth, or made As to than of year we

QX to to to revenue XX% X% $XX term QX revenue to year-over-year end grew compared of million. due Recurring ARR $XX XXXX, As declined license. from diminished million

total software and total revenue, our revenue the to XX% track total services remain XX% exceed recurring for to accounted when of XX% by on revenue of last at recurring However, services our goal XXXX. We up year. revenue looking for from be and software initial

that may reach this we fact, In goal year.

license like we existing the services decreased becoming revenue third XXX% net based ARR million. majority $XX XX% that XXXX metrics expansion ARR dollar our of third provide to a million. to transition Our additional into company. to revenue insight operational in $XX is Product and year-over-year these while from XX% believe and quarter non-GAAP as results financial other million $XX We and defined quarter. DBNER, for to was major XX% the revenue growth rate the our customers Total increased and declined revenue recurring which

driven the major our revenue in all little orders Scott third the QX about in as base while in components and note, million in QX quarter term strong bit driven year pandemic large on Off $XX This million product reflects revenues was Non-GAAP of XXXX. the revenue recurring revenue declined services the software third third in Subscription the grew grew $X Note XX% more total excludes loss Maintenance to to earnings a three compared quarter was of quarter the in for per year-over-year ago, taxes, categories declined EBITDA QX. or versus mix the the Adjusted bookings included Gross delays and maintenance deadline. million million. total earnings compensation, to share model same in margin Term EBITDA and grew compares $X by subscription declined steep from quarter included third APAC last XXXX subscriptions, was XXXX same year. revenue XX% end QX, software XX% $XX bookings of short $X.XX of tax million. from investments depreciation, and the Cash of from quarter XX% non-recurring $X Asia and revenue of regions software. the in security quarter the last This OpEx compared identity quarter quarter year. to regulation of Cloud Adjusted XX% $XXX last GAAP items growth XX% to respectively. you. improved the the XXXX a attributed third XXXX. declined OneSpan X%, I'll adjusted software in back just end compared third prior $XX share in $XX XXXX earnings PSDX XX% X%. third the million. operations XXXX. in XX% term and $X.XX XX% and was mentioned. which $X the Total third per year. the the projects, The XXXX. detail. growth quarter related during quarter Americas in tilting revenue revenue the and equivalents to for amortization, to from $X.X cash per prior flat e-signature, margin mix, XXXX, comparing share generated in bit million our of towards at talk QX interest, the quarter and long-term our grew third and compared quarter million, long-term and a was the of licenses, items verification, quarter X%, to million year-over-year gross incentive product from Geographically, last million $XX from GAAP million and incentive higher Scott, region. with was was decline of $X.XX to to margin me and hardware XX% primarily before of dollars, in was XX% the contribution in and quarter in third impact revenue $X in $XXX the third is and million. turn grew quarter of meeting increase Again, a in compensation in X% the XX% non-recurring EMEA in third than license services authentication. XX% to amortization, that the quarter Let bookings in XX% adjustments

Scott Clements

Mark. much, very Thanks

demand end As compared I to the the quarter. second to noted visibility earlier, of we have customer improving

quarter, updated and sequential some to as hardware partially be we fourth revenue. Mark XXXX so, And decline XXXX. revenue the views continued a recurring shift a in away to on sharp authentication, we'd you In offset from growth described, and license expect and perpetual year-over-year give like by

services to $XX million of ARR for $XXX hardware to year software we the expect $XX at million, full More of and of $XXX revenue expect revenue XXXX, $XXX million or and We to to XXXX. near $XXX million goal to million. be revenue specifically for million, total are XX% XX%

growth headwind the businesses operate diminish recurring some the to XX%. software the our products, environment. we of projects proceed delayed XX% least indicating software to compared will believe exact as value working XXXX, while is improve point mobile demand propositions that And banks that and are consumer is sales will ARR will recurring are with expect about to and this Banks assess, digital continued pipeline strong, regulatory growth. our pandemic prior course by learning with our account timing user XX%. XXXX, consistent positive intact. end the of security, product overall expect revenue in from experience productivity, into in be is end other banks at degree XXXX. strong and of strategy to Looking difficult target security the to on are and especially and refocus outlook XXXX this long-term financially will in we for XX% the of now transition to We also opportunity to compliance In like by strong This services services that the core how influenced our revenue be of the revenue

in stabilize We to to also next shift our margins. operating XXXX, still in whether mix will area. expect hardware some yet The further it's services that clear well, evaluating We're investment software see year. not revenues expense accretive will we'll that decline for or and be revenue growth gross

to assigned concentration address e-signature We'll sales fraud evolving on access. ecosystem, We market process growth to to increasing product to expect call benefits as are our strengthen customers pandemic, year. our automation technologies structure. for to develop and operation identity and uncertain capacity in markets or engage build solution path our you We'll invest the needs. we'll the on to focusing their demand assessing match this organizational which complimentary overall certainly We'll we’ll the P&L pipeline. services. we're develop. is also hardware three, the authentication update infrastructure expanding progressive future. improvements at continue meantime, our targeted in even four, less effort quarterly of customer point, set we agreement expand of our executive that the in number lead In increase to this solutions, management, differentiation opportunity digitization. on and and token difficult our our to partner we're the focus Number in our Given on-boarding expectations reviewing continue we focused would digital spread continue accessing for revenue use one, financial streamlining high our line. the and on across realigning this with but security, its immediate Number to an our want our areas adjacent four and the to and And I while to and innovation increase verification plans in company note also than portfolio,

remind update prepared our quarter a do to I investor third is now. presentation website Finally, you right available want and we on have that that

your I'd Mark So be Operator? happy with that, and to questions. take

Operator

you. Thank

begin question-and-answer now will question Powell And session. the We [Operator our Instruction] first with go from Gray BTIG. will Please come ahead.

Gray Powell

Thanks question for the taking a just Maybe couple. here.

but three versus did to think do feel you the high and adjusting you So, today months this, business of how job about ago? have to visibility I level good the you six just on a

Scott Clements

from much Scott. because reason It's quarter. did at guidance. the go good was say in now, the at I third three I was the we Gray. what circumstance, in in certainly point normal would But that beginning these uncertainty If at when the hi, the go the our say, were would our projects cases, timing it's those I the when organizations cut And on, are with of before. than of understanding with as it and our say forward. those They business And for through we -- months the plans improved not working to I back home or were had sense very was continuity, what recall, new to would of year. and that ime, a be. mentioned we and in so year, be when visibility better going that I beginning a think from that were really us them other or many Yes, to just you'll plans of as are trouble it right ago. I that that, that projects work beginning areas some would focused their projects. the working significantly in their to having about, certainly, we what, couldn't customers on were tell and knew of lot They They going what saw yet been about we be you

we really around spending quarter very the time for what's So spent for to year. our engaging time have, with our likely the of deeply, of effort, world deal to and for great understand, best do next our think, with and customers very certainly to the fourth degree a organization some all I sales

where the So, I improved end of think be summaries visibility, normally. of in to yet in significantly the short, would from not like world QX, we

Gray Powell

Got Got it. it.

And hardware Okay, that's the business. very on then helpful.

obviously headwinds that So, understand I there. mean,

I me, you think about the pipeline then correct think think has QX for as naturally since of gets is on how you will point? but should push happen? wrong, that best business the if that try to potential the you just will I'm Is something the I more correct? hardware factors? said And that at the that been business economy software that to into some that recover better 'XX. Is Or form

Scott Clements

I really of coming year kind that A of out early So lot pipeline at think That we down e value yes, was pipeline of today really fourth in of is above point year. in the it we in the where time through opportunity every it were nearing that of month the all looked quarter orders Florida we in sort slightly last year. part this bottomed And and the whittling see sales pipeline. the course, quarter. look pipeline, the at last of when every at, and

going We're I take does in that degree stabilization I So, will account significant banks improve -- that take think, read the for mobile hardware pull demand branches opening start to go forward. opportunity and the for on. seeing it to I already for some of to And will to security. well customers is, in demand that some It -- securities so improvements bringing new be trends think some around new into as pipeline to mobile forward. increased as through

services our customers think, you device. we about I data our driving mobile XX%, space if hardware focused of at on in to So nevertheless, looked security. be continue endpoint so software and use the the our growth today And XX% roughly or for still and token

and We offer. It is I understand meaningful engine some So Company to our think of and time have that a growth forward, solutions not that's of now going come for and important that part lot going the we of a mobile really from business. the to our that's have from be really other security understood that will customers. to the quite

answered think question, your I Gray. it's

Operator

King ahead. Please question go Colliers next from Andrew with come Our will Securities.

Andrew King

So, taking thanks for question. my

it of it of sale you’d the doesn't [indiscernible] obviously, sounds But pretty it. to volatility you some important given So, hardware like like that still of the is the piece and unpredictability it. sound customers consider

out to the be margins hardware breaking If really gross more strength what margins to a software you of and behind get to real the of consider seems the little out the bit operating visibility software. business

Scott Clements

the evening, And a have there, things couple wanted add some here. to make you you I'll good of by comments may Andrew, additional way. Mark,

a and I really look don't. a as to team own terms we solutions to the right look So always maximize right assets that and management way of assets say I the at value as constantly what's us as of that trying assess the that, we think what we -- for in the portfolio and our are are -- board

I right somebody executive become to charge in are and taking really the we to see I business. like forward. me level operation talk if how of think the that I said that not operation, experienced we things it put until or itself, they how what think activity streamline business guess, I appropriate script to in to products, would that the focus just, it's that at on reiterate really -- a about the look public. M&A size we how for an private that for of He's going I the conference

all you we want have are that you to about add how steps Mark, forward. going construct business these do, anything don't if think I ultimately that. to we what positive of regardless think I So, to as know

Mark Hoyt

we look And the business focused of have think I shared mean, certainly all have that functions our I mentioned, the Scott and that support that's think And are and one office the challenges hardware things Sure, on that services going lines. looking we software there's business. of of is support plan. we're the at as support the back [indiscernible] more we at is what take necessary down of that to future path headed and look, one say, to we're kind towards I the

Andrew King

banking looking at [indiscernible] briefly just strategy strategy that it going How the then adjust see the vertical. the adjust COVID to typically outsized to go-to-market And do has forward? you world? that

Scott Clements

are really No, thinking I we or wouldn't to trying say in point. that for at -- of sense two products that. one that the markets set These services, where and we us early to or what to where of that whole value that adjust go are much to very were do can to to cases the deliver we the and phases do of financial we're banking, these the set create customer like really trying this products to what governments healthcare, had in things look financial others COVID are that technology outside about similar explore in of another a the a verticals banking of couple at use really without services having -- like

certainly in many high Government, in digital And value focus very be citizen at but So this. digital around same is and not in those way on things the a only these we not own monetary look U.S. in other when world, transactions, the maybe real increased services, governments really ways. a government, their bank, sense there identity, as can spaces like but

our health digital that. like take really, same apply an And of technology area to we where to care, true government. I think the it I telehealth, health care, particularly think vertical much for with holds and that's as like So things it core example, market applies to those, can

that because of the were a boost it's we phases in gotten the I very of think pandemic. early certainly

I having think that guess it's So interest I really the in pandemic demand. is that in driving sense, an impact

good so, be like digitize not in is security almost big -- they their get should it's and sectors and oftentimes, hurry. it mobile, it as do in all the start the always this a early go that they case, when And as And days. to

to to We ones these we there's of So, terms are in business two growing tremendous that they're don't of a I their really are our demand. our much think opportunity. markets, and those or areas, all and have amount large that quite in products change model think address

Operator

Soderstrom come next Anja Our question with will Please ahead. Sidoti. from go

AnjaSoderstrom

Hi, thank for my you good evening, taking question. everyone. And

So to team any of additional to need going just Jason, do after are playing that, sort wanted of that going investments to this in sales you Or do terms to that? out? on Marcus, do see follow you're the up there how

Mark Hoyt

That's good a Anja. Hi, question.

by there. I coverage. And in all, well, do the other a America think world, already government new we're is opportunity market, expanding sales I in not some we trying completely first of there's us the government I think parts the of certainly we have think, in means, North -- any and to but few sector think really an

of any approach bit we where one strategy, scaling go-to-market would healthcare take take think using at that's the build resources, if is because companies I that fragmented that space, really and a be it it's by bit. for efforts terms technology very we that a So partner I our identify in in sales model a already. for, out into And think, probably lot really operating the really market that does would to look and that a in market a And that space. reason players we'll direct exists of

already to one. things telehealth But digitization the add space. partners really we tools present digital the on may have think, the find early the and the approach this likely health and larger that into where right company security will forward I that channel approach can to want we're be to I going maybe like think So our proposition very and value in

AnjaSoderstrom

sort that's effected system. pandemic How's to question And and of that you. that for given build Thank unfortunately? working Okay. us next remote about sort into echo your of really out, segues working partnership the you my

Scott Clements

it No, hasn't. don't it really has, think I

that of the think engaging added different new of quarter, there are come, of a to partners flavors with. in that we've mentioned. a lot of partners we're I I number sort as be and more There'll

problem to and area a any effect great where land So remote biggest that accounts. new the work I've the that from new probably and the team. has heard the not I I customers been pandemic that really to think and trying all is has And degree

think I and do and a in our be customer want you're through trying those network. today. to new digital part big to bigger our our access going our of a a tougher not It's little business we with existing customers got a relationship. part our That's a We customers to new very a longstanding of most build cases, forward. relationships relationships pretty when it we've with business manage lot can

So, something it's a now, us, certainly think helpful but for not I moment. right not problem don't the at significant that

Operator

our like session. turn remarks. any the I Please go would for Clements over closing sir. concludes to to back This Scott question-and-answer ahead, conference

Scott Clements

Thanks thanks call operator and today. for much joining the everybody very

think our pandemic us, has in here for quarter, some grow. really but and really, opportunity in this pipeline really we I the customers continuing the challenges created do third then see to turn

I think revenue we're adjacent thinking our about making in great to transition these spaces. progress recurring on

making progress has challenge. growing period current goal. And very for opportunities. we with only will do think think go look going despite And we're to ones expand on and think So, the And revenue, recurring to to that's best our we're today, of find execute as new deliver that's opportunities I that. to up forward, have our there's tremendous that that great ahead, our and toward I company company as not opportunity our a end we but I stable the continue I against high that and

forward So to you to thanks ahead. in everybody. it. days look talking the many Appreciate And of

Operator

attending The today's has Thank presentation. now conference for concluded. you

You may now Goodbye. disconnect.

OneSpan (OSPN) 2 Nov 202020 Q3 Earnings call transcript