OSPN - Earnings call transcript Q3 2021

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Operator

Good afternoon. Thank you for standing by and welcome to the OneSpan Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a Question-And-Answer Session. you. Thank Instructions] [Operator call recorded.. today’s is note being Please I to Maxa, your like to Vice conference over hand the first of Relations. would Investor now President speaker today, Joe Please go ahead.

Joe Maxa

the everyone, This investors.onespan.com. Call. is website Investor being be you operator. Relations Earnings can call and and on you, Quarter XXXX Hello, for Thank at joining accessed OneSpan webcast section Third Conference OneSpan’s thank the of

our quarter third the our Interim information, for the Kees results announcing copy issued Interim other on a a including me our To quarter Financial of financial release Chief van release investor and call Jan third Officer, and website. XXXX. results, reflecting a access Steven please afternoon, presentation OneSpan’s press our Joining This today visit Worth, Executive OneSpan Gaalen, after Chief Officer. close, are, market press

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

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

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

Steven Worth

Joe, good for and Thanks joining everyone. call. much, you today’s very us Thank afternoon, on

we fifteen our matches He and Financial get finance saving the to Jan to in and Before to brings where our Kees month. years experience Chief OnSpan. welcome joined into van including Treasurer wealth like needs Jan Kees last cost efforts. a instrumental significant of believe coming I’d CFO in operations Interim months. our as optimize quarter he Gaalen third consulting accounting, results, Jan the company we Kees’ in We streamline well implementing was skill as roles Officer look set and

in process as would the The CEO its began more growth to emphasized departure advance relevant activities. leadership strategies, including sets search Board and which on search, continues skill former has share CEO efficiencies the Our will our transformational of like the update in to the also process demonstrated operational and Board information after That unfolds. August. share

update I’d on progress. action like provide with you to an in Now our plan strategic

markets performance. drive hard our reduce operations leverage best Over improved identify ways work in product cost we our three our to at evaluating been enhance our order have we and our the the and investments months, growth serve, last strengths, portfolio, profile, to

firm. global FTI, transformation our progress industry business We have made in significant consulting members, plan leveraging and a experts, a by action combination internal board formulating of leading analysts

before year and will are of We provide a range cost expected diligently identify action opportunities reduction that take working savings to initial on end.

plan action to are We an also recurring accelerate on revenue growth. our progress making forming

We will coming QX. an on and Day we action to host this in strategic the Investor more you in give months expect early details plan

the have us We additional we where to in uniquely growth. positioned confidence win opportunities to great serve generate are markets our and provide products

performing opportunity revenue to significant and Our are long-term we believe core we well growth. offerings have recurring increase

We product where our and on focus on our competitive can we will capitalize our position growing fastest expand search. market categories

demonstrated our example, management turn which revenue recurring e-signature in to security through had that, execute growth our as effective issues, by to strong Jan we of transition, results, We well a For subscription revenue our our With Kees minutes. year discuss quarter growth and driven are mobile chain internal positioned have supply third a e-signature I’ll market. a had in both extremely few that solutions. hardware this will quarter review in we which ability and

is banking remote the fraud. experience vulnerabilities. widely other solutions risk adopted security the globe. Demand these a XX% Yet analysts. financial forecast, For even and our grew subscription by feedback mobile recent revenue security XX% need recurring of to security internal finance-related mobile apps have customer Mobile year-over-year well and on mitigate revenue We growing will demand growing of the industry applications XXX improve for services solutions driven e-signature for user the and mobile revenue believe based around term into the XX% the to top quarter, the future our with our study faster. license increasing been found and have continue

Our in are during fraud. user remains accelerated recently market-leading is of It solutions for yet Demand risk because moderated success the part improve they are designed mitigate pandemic. the and e-signatures having strong. security that mobile experience to

the on new geographies. in cases, coming Our volumes use in cases opportunities continue indications continue current our use and such increase in based new to and will growing as this years in

are combine as to Two investments traction. and it verifying offerings encrypted online Virtual ability e-signature utilize mortgage the cases. and intends include, to borrowers other are a For The meet provides sign costly that with complete identity of banking This to professionals provides A by and closing verification for virtually example, to that to virtually of transactions that processes. mediated because technology process legal providing supported allow a service community a conduct where our customer using lenders meetings drive customer secure meet the serving bank expand conference launching are customer their will digital with able business room paper-based to more this and gaining digital electronically human virtual room virtual a consuming and lending recent the using a ours individuals. a product product to replacing transaction documents second real that the a the the business. examples our use time identity our verified in-person room video offering is example is in lawyers interaction value such They improve participants. add-on estate room commercial and virtual room high launched experience. and remote businesses to e-signatures complete

and We identity also won our capabilities. recently several verification e-signature contracts integrated that utilize

tighter to outlook results, use Jan bank account openings, take financing. to along agreements opening our before now come Jan you update an include to the on Some through call with cases automobile of and comments provide remote then questions. I’ll I’ll call our financial the the Kees? back insurance pass to and Kees over additional

Jan Kees van Gaalen

the to excited the the million, as and at representing ARR, the XX%, which contributing Thank which annual was of next of DBNE prior strategic total look approximately Jumping our the at compared than of Dollar-based growth be ARR $XXX and to into transformation. year-over-year contracts, existing you, I or ARR here customers, term-based end quarter. specific QX steps the am account recurring forward a XXX% third take as to rate to period. two-thirds in in we quarterly rate define we more within Steven. the team from year to expansion OneSpan XX%. our was for increased subscription net growth results,

programs was pandemic-related last federal handful customer a North by part of which American in in impacted Act. quarter, contracts, in based, it size related to a reduction CARES year-over-year mentioned the As declined government following e-signature

to to Now Term-based software Subscription more driven grew from authentication. license revenue maintenance an XX% increased growth recurring year-over-year year-over-year million, by revenues. X% $XX straight, revenue million. contribution for the accounted solutions cloud of primarily tripled mobile software grew majority to in service security than and $XX and and the e-signature strength revenue their turning

services revenue shipping was revenue. to model growth recurring $XX software a In accounted and XX% towards the record of increased XX% of and business XXXX for XXXX services Total our year supply $XX issues quarter. software revenue to of subscription and third million the and in ago to Hardware grew term-based and services modest chain revenue for licenses. to quarter, We recurring by software our million XX% revenue maintenance accounted $XX during software million. are impacted year-over-year full Total transition XX% expecting quarter year declined as revenue. within revenue XX% continues the and

million. to to product to the in increased before revenue We gross XXXX quarter during fourth XX% XXXX. attributed third depreciation, improve X% margin chain increase $X quarter of EBITDA supply the quarter amortization, brought was to million as our of and adjusted European of million hardware. within is revenue third currently the company year quarter expect addressing XX% items We to hardware for XXXX. and in third favorable in incentive accounting was primarily compared compensation new quarter. non-recurring XXXX. margin earnings long-term quarter ago the third with credibility XX% to have interest, mix taxes, of the compares Total of Adjusted been quarter. as the the in full mix in This software in XX% $XX proactively $X to total in recently a or product The revenue Gross and manufacturer the and compared services sequentially

incentive to the third quarter. loss million cash, in quarter the quarter to GAAP XXXX, same $XX compensation, short-term investments long-term per $XXX per $X.XX XXXX. earnings last XXXX, of tax compared with adjustments negative excludes was equivalents Our Non-GAAP to of of end which the in the in last end the We amortization, of $X.XX share, impact of quarter year. in share cash compared third non-recurring $X.XX quarter XXXX and per as the $XXX million third $X.XX share was at at and and the in quarter the of compared items third ended

in the grew the stock. million approximately we XX% from XXX,XXX year-over-year common which Geographically, used region, in growth benefit to shares repurchase revenue During Americas the of quarter, strong quarter. continued $X.X we to

we the our Asia continued We related see supply grew revenue of by previously. also our Year-to-date, hardware markets, for to issues to headwinds largest EMEA, to region. XX% the exacerbated in accounted revenue. mentioned transition recurring this growth was XX% region models, the which had chain Americas software quarter modest In Pac and

accounted Steven. turn XX% the and and meeting for XX% accounted XX% and will to of XX% I for of declined revenue Pac revenue. EMEA Asia now declined back

Steven Worth

Jan Kees. Thanks,

fourth the strong quarter. from robust demand expect our quarter third see to our through can we results, for is and you into this As carry solutions

are we our such, the expectations. of to raise As our updating guidance midpoint

year $XXX guidance $XXX XX%, be range our and the the $XXX adjusted be range expect our of of XX% million, XX% in to $X we the revenue million compared $XX of to range our million to For currently be to total prior to in range $XXX to million, million. of compared as to prior of million our to guidance EBITDA compared $XX million $XXX to compared range prior prior million full of to to the ARR to to million as in million. range guidance XXXX, as negative in growth $XXX negative of range million revenue $X negative the Recurring million to $XXX negative to be of $XXX guidance to as XX%

that, happy I continue forming shareholder in to Operator? performance, execution delivering enhance and We while long-term are take value. solid Kees we quarter are your to action will and committed Jan our in business third our be to with happy plan the progress And with team’s questions.

Operator

comes Security. Trebnick please Instructions] ahead. first [Operator Colliers question from Catherine, Our go from Catherine

Catherine Trebnick

quarter. Nice Hi.

your until why year? give a Now the complex the phase part the cost-cutting as back first of of ask of on I can give go you forward kind you are end you am of or And you waiting me initiative? why didn’t

Steven Worth

Well, it is November.

to of say, few days. items rich are on pretty are complexity analysis final in to of the we to deep talk through working next work close, other directly are good we XX and and to are about the decisions I items items a independent strategic connected first, our of are XX the are in because some going would displaying there So we decisions nature that layers dive so to business

Catherine Trebnick

are you of Okay. follow-up Which XX% the And you to that the then, question growth. are ARR is, seeing better as back growth XX% components drivers?

Steven Worth

piece then, on of security revenue. piece And historical that’s balance the rate. for – the overall that largely mobile perpetual growth is and drivers if e-signature are addressed Certainly, sales is They a really growth you real driven there. will license major that approximately account our recurring two-thirds maintenance and by

Catherine Trebnick

appreciate Alright. time. Thanks. the I

Steven Worth

Sure. Thank you.

Operator

Our next Gray question BTIG. please from Powell Gray, ahead. comes go from

Gray Powell

question congratulations the taking for the on Thanks and Great. good numbers.

the So, yes – yes, on absolutely.

So, catch-up through, in doubled like into trying off net And how ARR – think QX additions in like about am pace sort activity think QX? net of Thanks. of of seasonality then, ARR in we I Was there to from QX? QX. new delayed should QX the Yes. just any deal

Steven Worth

QX lean I Yes. quarter. subscription large now got numbers that things, Kees deals But this I bit. some working can little subscription of the next a license the also that the where would our a license that say, than quarter our skew may duration think business, got the beginning still can other situations of be individual And in move term end on in bit a you little around are business, was that and bit there renewals in that the we’ve overall, churn year. there into of can

So of can will volatilities to that little bit type that term fund. have be license we of continue a

Gray Powell

on – actually just, get to next I always is a revenue so, side, Great. few moving there my reported leads the And Okay. parts. that question.

start you of should how at shift Just term seen abate this impacting I next know But Like the headline side I expect should growth? from mean, license feel license perpetual multi-year a the to to about transition do the that headwinds XXXX we this think end perpetual revenue year tail early we’ve are you and year? like outlook. we the about ask it’s and on

Steven Worth

over. XXXX. as by by of into that to to you and XXXX. partly multi-year sales we way. little we to have continue in be you that same have in contracts makes perpetual going we relation number I there a much I terms year as the stays can will journey, significance get decrease that The longer bit think in to end that up conversations that transition case-by-case end flexibility enough in overall of whether contracts, that that of yet, Yes, And our end won’t from customers transition more opportunity. by them see contract that’s customers to with to number end sense at XXXX kicked to driven then, with needs the purchase of determining to in finish that – would we entertain we year. is will more team the term small spot start that it have we philosophy will we prefer should the respect be our a the driven by it We term, if line, the to wants over see it’s get and have at will but occur have whether see suspect we’ll given the we a of the are that or historic back the say, year goes continuing report and that basis going bit driven of And particular a we on where contract to have partly a where little the next

Gray Powell

Got it.

Okay.

back say? up it So towards like, Is mean, and in of one I what the thought year you deals it a was that license that sounds there term sort basically like I tick trending sounds are past QX. you in

Steven Worth

Yes. correct. That’s

Gray Powell

Perfect. Okay. much. Thank you very

Operator

have Soderstrom We Sidoti. Anja go question a now with ahead. Please from

Anja Soderstrom

and you my on taking numbers. thank Hey, the good congratulations for question

that mix Can elaborate within looks that gross look? like to the revenue just you how profile were you First that product just hardware. impacting curious the you off the margin and talking mix product margin noted and I mix on favorable was about

Steven Worth

Sure.

from overall more overall So, within the the services. had revenue we of mix, coming and software

with skewed amount. So that process. end that higher higher port where And with short margin products did some the to by some and quarter sales had make the be some mix issues products driven the a those not equal revenue is within mentioned overall small through And we of have by lower products, the quarter higher the chain margins transportation happen part to where margin. this was driver also we just then were that the SKUs of the a it supply shift at of

that happy now. make process end customers we are the to with quarter. up we it But for report So, is did the where something that continues at both that the of had

Anja Soderstrom

market looking know Perfect. that strategy, Thank I you of changed market? you. go of And to has your go I in sales terms then the are to – at team overview strategic anything there now, terms but or of mean, in

Steven Worth

that starting Chief right to guess, changes our Those scenes largely are the new have all sales I are process not made right behind took continued public, now Officer a and XXXX go number planning of over. going on summer of our in to things But budgeting say. would strategy last We deep when are as evolve Revenue the market we now. those conversation, of I

have So, in more think we changes to see will I future.

Anja Soderstrom

a then, Okay. guidance your you. range. Thank just And increased your one, of midpoint sort last of

So that? of you if achieve for you visibility see a kind you full it what What like, in the that pretty do have? quarter. you What pipeline? year, looks fourth will strong the you in And confidence gives have

Steven Worth

quarter. we and our We are will a we in where confident put guidance have solid

But not spend that QX to those the infer report be that factors. the numbers guidance can seasonality projected negative as to to due able You will be yes, will be EBITDA be as was adjusted very and you to that were our adjusted we going heartened - able to EBITDA QX for normal to earlier.

Anja Soderstrom

for That was me. Great. you. Thank Okay. all

Operator

Davidson. open. is D.A. from Kessinger Rudy, Rudy now from comes question next your Our Instructions] [Operator line

Rudy Kessinger

quarter. and look the curious, kind implies million looks congrats it QX, question what expected to taking like guess, I of a it is Hey by QX. as a for of at I guys. QX sequentially on only in guide revenue about and to backing am Thanks increase a recurring good my quarter for I versus

are that what’s went what look, driving that? the factors just that? decline expected Is or to Just into sequentially term

Steven Worth

we – sequential the I think to duration you the is license quarter, due We looking may that of when are prior driven dynamics. off the lot our previous contracts have that. year not understated at a term quarter revenue,

customers starting point and and growth business. what to trying So then, the of finally, renewals see the that’s what’s a and up then from comes add-ons some get existing new to from

goes thought So through. as the that’s process we

Rudy Kessinger

a new room virtual you And Got it. Helpful. couple then, customers. mentioned

your quarter, customer, of couple think last I are you had signed room virtual first pilots. sort in

this So it’s some you of last might some customers on with a customer. customer are e-signature the got about a converted just quarter, doing good Do couple times to virtual who see room room? said you you you customers. you those But that find thought at you virtual quarter a product standard new with see versus that pricing a four also hold

Steven Worth

few Yes, all good a deals premium of examples product, I think the those on and and are since don’t have looking at for we call the exact yes, trials of we today. came converted here them is head. I off that which a of of pricing is in last have customers some we do on the we that’s and to that spoken gave generally correct. particular my those But,

Rudy Kessinger

be And issues quarter and And the expect in most the or QX? potentially then, quarter? made in on the linger do QX or headwind things you in hardware, that to quantify kind to has you do you chain been just the dampen up lastly is of during of could able supply think are was what

Steven Worth

Kees to Jan that. take I’ll let

Jan Kees van Gaalen

Okay.

the but until little think, I really a variability quarter-to-quarter. is been that it – bit bit has of look there little a QX, in nothing

Steven Worth

got in would Yes, to I stuck $X arrived. $X and million what say the boat is million,

believe. us help should that confirmation to So, I get

Rudy Kessinger

Got back That’s it for queue. it. me. That’s in jump I’ll the helpful.

Operator

now remarks. We over will currently management to have no further hand the for questions. any closing I back team

Steven Worth

every and and and course, our of around OneSpan Nothing for of for look say the is employees world we if arrange Joe day. to we are forward can please questions you to a the call directly me to else, thank we investors time here can follow-up and but answer your and next just that customers together. we anything with work And all there our Maxa we

Operator

I for you rest This call. concludes today’s have your and joining a of you hope day. Thank lovely

You may disconnect your now lines.

OneSpan (OSPN) 2 Nov 212021 Q3 Earnings call transcript