OSPN - Earnings call transcript Q1 2021

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Operator

Good day, and welcome to the OneSpan First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Joe Maxa, Vice President of Investor Relations. Please go ahead, sir.

Joe Maxa

Thank you, operator. you call. the thank XXXX first and conference earnings everyone for OneSpan joining quarter Hello, is webcast at call Relations This being section the accessed of Investor on OneSpan's website investors.onespan.com. and can be

other access today please press results Joining me Officer; information, Mark first quarter for investor issued after our our Hoyt, a Scott release afternoon, To OneSpan's Financial This closed, financial Chief first and quarter Officer. presentation are visit a Chief market a on the website. reflecting Executive Clements, press and our copy call of the OneSpan including release XXXX. announcing our results,

have and Please adjusted or such in and Following of Please measure. this and including full for forward-looking from risks today, a from that discussion company's as forward-looking note Form use expectations financial filed we conference current the on comments on annual expressed statements. expects, U.S. a that and attention these press a for our and are made GAAP statements materially year differ your report statements. anticipates, statements and note been be I on the open measures based events basis during this plans, non-GAAP results prepared to the risks discussed with XX-K uncertainties. Exchange to the uncertainties today's performance, questions. related assumptions. that similar Commission may the financial Securities call actual relate expressed These are direct release and call are outlook and words call words, on believes, for could that will plans, XXXX such Consequently, these future involve statements projects

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

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

Scott Clements

Joe, call much, good Thanks on today. here very and for afternoon, the us joining Thanks everyone.

of ARR quarter XX% to term-based revenue, contracts subscription first recurring in ARR, XX%. the increased our year-over-year XXXX, annual specific During grew excess of and and

XX%, normal as patterns. primarily bookings for transition In total. record were detail this by highest recurring. the accruals, services quarters be to investment, term by pre-pandemic from vacation addition, of few the Profitability XXXX's license we with grew our one-time higher and shy Mark in in our driven made was and shift on in QX expect XXXX to complete financial expenses expect and just quarter We’ve growth license revenue demand was and future typical e-signature revenue, more by return to solutions. but items strong tremendous revenue and will end a software declined to recurring to revenue quarter return materially of record employees XX% our software several third Term progress planned in provide of we levels more the Subscription which in vacation XXXX. QX's during quarter, a minutes. impacted QX his these last history revenue review revenues

quarter. will turn highlights from to I Now business first the

video launched ago, tools, to market, in wealth competitor interactive insurance banking room patch displacing together Instead banking, of Room, trails their apps automobile management be in cases, e-sign customers name securely completely which co-browsing and lending BXC, a is video major Virtual solutions. and retail few. won use e-signature financing subscription contract a conference and end-to-end customers' and conferencing, the particularly proofing, an live and is the of corporate Sign financial solution a with multiple the It important enables which order on getting and to as in e-signature, agreements can high virtual options. via well other organizations of history, collaborate and weeks audit multi-million box unique identity institutions OneSpan recording the we the put to that review as spotlight brand, safely we value our is customers combining a and few And digital leading provider white-labeled QX, to the largest transactions. just During and consumer-facing to out our for dollar to

already will many be interest using are North our e-signature significant solutions. pricing at only for top banks the and have virtual that to solution, for premium a We e-signature from pricing American initial service room compared

We integrating Sign, combined verification remote capabilities newest will online room with which, into virtual our are also capabilities. identity our technology, deliver OneSpan notarization

using an a identity than third orchestration from such QX expect and in proofing single starting offerings increase for many connections guide other XXXX, We to issues fewer expanded be year. that these QX in the to coming and years. as today." In We stated services, from XX% proofing and verification be to identity organizations market identity and trend to vendor customers preparing identity covering Gartner's they with XX% "by affirmation, capabilities OneSpan this are will of parties strong this September XXXX benefit available which is of

account solutions. to respond through for banking increase and fraud hackers we're the in expected a these and believe of takeovers, with focus stimulus which we emergency stolen comment fraud citizens theft There identity opportunities launder on XXXX. for Aite from account mobile, fraud criminal back is a that XXXX in to opening of In believe our and in unemployment new on drive to fraud found complementary our XXXX, cloud We will substantial type stimulus a all well-positioned which victims recent solutions. to looked decline traditional were Next Group, to attacks anti-fraud of portfolio also was from programs. consumer demand government, to and of study funds as XX% some increase hardware want U.S. groups I

Turning to moment. for a hardware

to want of of customers margins. provide which maintenance XX ongoing of contribute our the within are and match streamlining and and software security. sectors and profitable progress also are some and you many some XX a healthcare making combination we require you As realigning revenue I to actually levels level solutions, regulated of maintain to on color the our authentication high all with adjacent Today, top revenue operations verticals our aware, opportunities. upsell cross-selling and are of lower in hardware gross we government that use

March pipeline was XX% XX traction. we Our beginning at entry into of up and gaining these Bookings this up XX% months more XX, are the our approximately ended is early, but than still were in verticals quarter. the

to turn discuss couple to to OneSpan. call the I of would I Mark Before financials, announcements our from through a over go recent like

been SaaS markets are and quarter, at experience. qualified Solutions First, for independent at financial Capers have directors current primarily who Corporation, significant has President appointed financial Board and He cloud the that company's Cloud full end last he and other targeted to the during has Deluxe over to was services our in fintech Garry four Garry industry. where the the SaaS X solutions and highly Division of is operational responsibility of the joins Board Garry added Directors. years.

to private emphasis him is XX, we and our an become new an on behalf greatest company. software important as has contributor transformation to information we shifted OneSpan metrics revenue, of OneSpan's been of Hoyt, the role in services On to disclosure wish CFO, at recurring expanded our announced financial Mark the to Mark and OneSpan, Second, as I'd and April systems relevant a on his leaving like our rebuilt architecture. Mark success. of congratulate CFO

very for We've now the experience begun our We are opening company. of then to during seeking next call you accounting search our process come finance software help solutions along before fortunate will questions. strong continuity update team CFO additional and outlook qualified highly have an provide with and and financials, will on to to comments Mark? provide continue our interim I'll to the our the back through take our transformation cloud a based with Mark candidates deep period. already are that

Mark Hoyt

you the words, Scott. for kind Thank

Before to of and want that OneSpan over collaboration as and to continue that We've I’m I privilege tremendous results, all well-positioned the the the years. serve my get I confident colleagues and for OneSpan want team, the of acknowledge progress the to in been to a made support it company, I thank has is into progress. part transforming that

line Annual XX% with revenue Turning our the quarterly a in to at to rate quarter. recurring $XXX representing million, the growth was XX% rate the XX% of for QX growth target results. of end

rate, net as Our we ARR XXX% expansion in in which existing was dollar from growth year-over-year the define the quarter. first customers, based

revenue. recurring to Turning

contribution increased XXXX revenue an XX% of million. benefited ever. strong to had was to year-over-year which XX% revenue duration compared duration our unusually strong average term highest first the Maintenance quarter, impacted software and and the to included average $X revenue from grew Term-based an first e-signature million term-based software that million. contract first grew quarter demand contract the $XX XXXX.This declined quarter, than the growth revenue This longer cloud license license of quarter pre-pandemic For in still strong in in license to approximately our XX% subscription $X XX% an third quarter from authentication. revenue

revenue negative and operating gross Operating to compared $XX mix. In for toward declined XX% quarter quarter We ended Geographically, our end in balance cash, to was pandemic. expenses of first the XX% revenue $X.XX and consistent interest, long-term total, last first in XXXX. quarter, first in impacted delayed Hardware XX% as in the million We to recurring business first quarter software EMEA, from in quarter quarter to revenue the was $XX the the nonrecurring vacations region. and compares $X XX% This increase with accruals higher-than-expected GAAP services before $X.XX during and this quarter with first first of expectation investment, compensation the quarter we million the for compared from term-based million. Cash and XX% XXXX. attributed million. product to to share continue employees the difference margin was growth to $XX and first loss generated the from higher the first of Adjusted declined operations XXXX will to XXXX. $X million XX% expenses meeting the declined quarter and the the resulted XXXX. of The Pacific of subscription was in the XX% first XX% revenue. taxes, year. in compared margin one-time accounted which incentive at XXXX, to I of QX quarter total per $XXX to first software XX%, total The primarily several short-term from to positive year. transitioning the and earnings revenue ahead the amortization, items depreciation, per $X $XX XX% first XXXX amortization, share excludes In This the $X is services XXXX $X.XX XXXX investments, record quarter from cash in to compares same of Non-GAAP of in last the a EBITDA expenses the equivalents million. Recurring Gross XXXX. significantly quarter Asia Scott. regions first achieve as compensation, revenue items our shift in total to vacation Americas software of mix XXXX first or adjustments impact of respectively. expect compared our planned of earnings for the XX% included share, to incentive revenue model growth moderate to in were due and million. over licenses. of our the for per in XX% adjusted quarter earnings and $XX the QX, revenue to of increased quarter in now million XX% tax recurring nonrecurring turn long-term negative back of was million, by XX% maintenance and GAAP of of XX%

Scott Clements

Mark. Thanks,

but we questions, large year institutions continue, Pacific bit The it global going but is at improved are and on first in in also up of improvements million; we quarter, of full-year should banking other services In current of for The revenue with guidance, expected. be following: I'd new of In still In improving recurring adjusted revenue this in strong improvement of provide The for it Asia year-over-year. uneven. is to are market XXXX, soft the in but to growth America, trends for profitability expect lockdowns a landscape. objectives quarter improving, be recurring expect million North million environment. the outlook progresses. expected $XXX Europe, improvement perspective and substantially, time, to remains to At vaccine economy digitization e-signature to account reaffirming the as ARR to to and million; the $XXX distribution, our to and revenue opening and sequential world $XXX open today's we EBITDA 'XX XX% second like of and of travel to total ARR continued regions, growth the range consisting the physical XX% start with had XX%; $XXX region around economic we to we forward. demand FY approximately breakeven. see a as increase sequentially we as XX%, Before restrictions

recurring revenues we license perpetual model. decline and hardware While to shift to a as continue

software services. from in to profitability quarter second improve contributions expect on We revenue increasing higher the and with

the led hardware as indicated, growth to of we decline in The to second revenues and expected recurring range exceed in for single-digit the is services. software revenue, first-half And continued expect the mid XXXX full half by revenue year. previously

to continue also acceleration revenue of to in we of and full with $XX services increasing bottom-line and to profitability. year $XX expect expect software then in see XXXX, headwind XXXX We million the from growth revenue revenue transition recurring million to for our resulting

positive Our security, value digital experience core solid. productivity, propositions regulatory and compliance remain in user

hardware-centric Our changing positive under and business results. cloud the opportunities. evolved expertise based businesses' matched significant our a risks solutions with with is a Board transition, and of with company and has this software well technology is from addition way experience Along transformation the modern and driving to

XXXX Our the to with along up months, X financial coming to update opportunities solution to plan multiyear that expect value we improve creation. the frame, and growth recurring we we goal to drive XXXX later shareholder our revenue structural profitability profitability revenue greater goals will In as transition be reductions in identifying the we year. X our and and over to you for is further refresh years cost the increased this wraps next and expand portfolio, increased time

to encourage this Operator? taking call will are and Before our be our election, those take remind proxy want everyone annual materials. call the open and we to won't With that, We to but your results outlook. just who questions. for QX to of be interested discuss our happy questions I I meeting I questions, is about visit to www.onespanvalue.com that Mark you

Operator

Andrew question the Nowinski Thank Davidson. Please first you. [Operator Instructions] And will with D.A. come ahead. go from

Andrew Nowinski

start with e-signature will question a the I you. business. Thank Great. on

of could So contract? the any the won the was there in on more details the you length size you provide the contract or record contract maybe of that the quarter,

Scott Clements

Andy, yes, correct? a I contract, think, Mark, X-year that's

Mark Hoyt

initial value the This I was would single-digit millions. is, the And one, that's yes, phase -- mid total project it, correct. of the it's call

Andrew Nowinski

there that still comp? looks had may anything bit Great. tough impacted for thank And is down a was more licenses that this decline the know of you of gears magnitude revenue by shifting term-based demand surprised term-based in have Were you. I decline? hardware Maybe the in you then, said than QX but you other than XXXX, it the the record quarter. term-based like licenses

Scott Clements

at I and No, go so, personally, in think range I we was or the Andy. you don't what back quarter. -- in when Really the expected, it of look think,

-- something QX XXXX out of If you look quarter in went last revenue from so was about in QX at of or it first license I to go and $XXX,XXX million we term year. $X.X last about back the year, think

particularly and magnitude an quarter large around some it things mobile year related increase last So specific like in the was order first security that to that. of contracts,

of real compares XXXX we loaded do back-end and a very had a -- very, we fourth course, as have the of usually strong and results. So -- other sequentially the quarter then,

said So I the in it was in of term his license. think highest as still terms comments, for us Mark third quarter

our the I -- tough business doesn't bumping for So of it's -- outlook real or expectations. up against are yes, but a don't just really we our couple I change compares, think it

Andrew Nowinski

be Great. -- as it bit your you of Is to provide digits. do of you pending guidance? that last me reopen, to possible and there refresh single the maybe Okay. think a pent-up one maybe I just the that starts upside reiterated know cycle for demand economy hardware then for hardware might mid But down quick. guidance for even could little some real And hardware a year

Scott Clements

quarter, I in to I came first think think, Well, think good, pretty relative expectations. I our

come We will are year the that impact go through revenues there. are do this as few really larger a Whether some TBD. we kind the they We -- is timing of opportunities see year. know right there through out to

delivery so cycle, projects of larger a and and these think tend right, to and have so long pretty manufacturing on forth. I

So when right, you go get through a that cycle, it's few through -- you cycle. and months, that

come of some early we some or out to better think if that, too booked enough year, of call hardware. -- performance these of So But in, see the early I could in things really. kind it's it's

know, little category. or you this historically, portfolio a bit the part is of As of a solution volatile a

we later at And that -- this the or is we a -- come so a about the point. hardware in good to quarters year think have feel I later in tends year. but late we've a of two lot hardware. Usually, bigger with -- we And guidance given

I it So put that lot let guess, to there's yet way. a me go,

Andrew Nowinski

sense. Thanks and That best of Mark. a makes Okay. guys lot luck,

Mark Hoyt

Thank you, Andy.

Operator

will come from Gray Please Powell question The go BTIG. ahead. next with

Gray Powell

can. Yes, Okay. Great. a Thanks for just taking if couple, the I questions.

maybe So on question. Andy's follow-up a

that the year? purchase cycles any the it of sectors larger improved recovery playing product the you mean, like lot then portfolio? for over sentiment definitely that your I Do see about banking should And customers year. just the rest decisions of sales we impacting at part seems a So this in think out how or

Scott Clements

better going year. expectation of than quarter. And things that of in is that, pipeline some seen sequentially, is later first stage more in are of in the the we through the terms sales terms get the we continue gates structure sales to I the in Yes, have the of our to we saw our pipeline early think -- pipeline of of

are pipeline. through moving the things So

their improved We have quite has profitability seen, banks, certainly, America North lot. a

you reserves the And account upticks banks put for here year. of that some reversing in large some report the new we As been they've have at up the seen know, they've figures also quarter. some opening those first of last

There a and a then remain in over in that are hand, believe, situation in with our uneven I U.S. do beginning on that hard to couple will, think, issues think a which have coming that the call. there's Brazil, lockdowns areas months, in we the vaccination on a at on Certainly, the they and and have moving see that few coming the I -- are Europe a that we Europe. point. those continuing spikes I the spike believe very one have to forward back we, also now. of do other on effect area better in some in are infection going starting with concerning. to rates is are Japan as and is region right that here I infection concerning, in positive business Japan this And rate.

areas months. So all are see generally expect I and present to coming do in period those think, the we of those, over the progress

in I go see we really last at sequentially said to reason across this I we change conditions So fourth any time. better that as year we the don't year. business that since think the point quarter expected expectation

Gray Powell

Understood.

term really, like should like there guessing would of XXXX on then apples-to-apples way helpful metric. And think answer And then just give really I'm to how for think help us some was it said deals your license say of year? to be you is just a context guidance? license? within of Is duration a how Okay, term about And should sort about versus and I -- color. we last in term that focus constant like kind that think the just duration XX% down impacts the we the sort But duration possible QX. maybe QX that of ARR an that multiyear that's

Mark Hoyt

couple reflects approaching XX is of about about the quarters, seen down which duration license mentioned X-year. for approaching Gray, term that we've we've the the It's months. XX% last

that of to So last a that couple year, an average about QX kind large X-year was because aberration we X.X up years. brought deals had

asking was that one So that's reflected, it's guidance along what what average our for revert sales reflected deals. we in median in with approach back they numbers our And X-year And about in this our it's the our the and -- XXXX. offering and team plan of unusual. quarter, are customers to for saw not to is the X-year duration more as customers

customer have a that pretty request that But X, we if customers towards close we deals lot we headed terms. feel X-year mirroring seeing course, happy X-year deals, Of traffic are to of are to we oblige. subscription-like are

Scott Clements

from have general in really toward -- to move I tried general in we as revenue the that a period I to X-year terms matter minimize course, to one think, think of volatility really, next.

so away -- as And from been gone volatility the that or the keep license improving company also seen. reducing outcome of simple, have revenue to it models, simple as somewhat historic as recurring that get then to we through perpetual transformation and we the really that's could, wanted we've

has So been. goal really what that's the

we some tune to I think look fine as degree. into we potentially could XXXX, that

want on go it. We we're we has purpose away. toward And that's not modulate will to in we customers duration. best course. or will have whether to start that average moved little the tell don't quarters a X-year that to we really a been the a who take bit. love As -- see we continue contract Mark But now, But multiyear said, that and course ahead we believe on we that right we continue them,

Gray Powell

it. Got

helpful. really you much. That’s very Okay. Thank

Mark Hoyt

Thanks, Gray.

Operator

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

Anja Soderstrom

I first for question. a contract had Hi. on Thank e-signature follow-up the mentioned. taking you my just you

this the these contract, But the come of said sort you average in about? context in single You millions. after going mid your was total to how of Or did are kind value deals?

Scott Clements

a a e-signature a in guess, who of cases customer company. I across deployment, had Well, different was that think competitor large customer of a the was use I actually this

were, And that that I seek we decided take win well-positioned alternatives, to so to think, when advantage and customer. they of

think over in value So that contract last or purpose. on average the and come our quite a was up I lot e-signature so, year has

have have chase think, in of part There We pursuing on to, that salespeople going a organization been, the many focused direct there. maybe too small contracts. larger that to tendency our I we're contracts in

And so are. if really is larger of -- we the I put exactly million. million, everybody do they're did refocus it And this The in numbers top on head, let's my I talk know never what sized average way. Mark, don't But those you contracts. know not in that the not

Anja Soderstrom

Okay.

Scott Clements

It's do not it's much not smaller. $X over had that other But -- we have we have million. contracts

the little and business, in But have. remarkable, also go-to-market that is in model. of in indicative progress that product of size. are this both And one of making We terms our the I terms think, we think I our a

Anja Soderstrom

a customers good you case good Okay. are that assume of room your That you there's color. you was in Well, initially, it that And I adjacent then the use finance existing that launched, pushing your are or? to just going in terms for virtual in would after businesses. or meeting other

Scott Clements

other didn't you Could you I Anja, repeat what sorry, I'm hear quite the that? just said. business,

Anja Soderstrom

for that that. how Or case push to to wondering upsell use there's market trying might you a Are -- are broad able going you you to you're would in I existing the adjacent, product that be with assume too. Just customers?

Scott Clements

for that This request that area in high in face of that their more their intimate you best of solution see way, it. of proposition, value we help the definitely conceptualize with transactions. set space, value use personalize -- that's think transaction to -- place when I really sort think, I application can banking product. the strong customers requires across they and customers, opportunities even and many important it of interact to is should you many a customers broad I an a verification And type discussion component of you value our been digital for there. in think demand has is them it. question or a a There's that or have being put there in identity is relationships specific higher so And a No different is negotiation really can to with put where a a cases can agreement

-- much solution. I it's a it's very So horizontal think

think, in the period But the think think really We of about of opportunity health know, just in, and we're will, we in as I in those we well. be early from. come about will you as other opportunities should the government the certainly, because where most here, spaces interested some that be and banking, care -- we certainly of

Anja Soderstrom

you me. Thank all from color. was the for That Okay.

Scott Clements

Anja. Thanks, Right.

Operator

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

Scott Clements

today. all operator, and you call for Thank you, the of joining thanks to

We and think, have much -- year are of this the -- continued progress. we very very looking looking forward, I to the balance

move reflected model investments in see recurring to year we transition revenue of XXXX. that the into our start year growth we to in company materially as can significant really our know, solutions you that go-to-market the rates and incremental complete this and we so are overall As continue be the transition this making and that

thanks evening. and have attention, you all for hope your a good again So

Joe Maxa

Good bye.

Operator

is concluded. attending conference now The today’s for Thank presentation. you

disconnect. now may You

OneSpan (OSPN) 7 May 212021 Q1 Earnings call transcript