OSPN - Earnings call transcript Q1 2024

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Operator

Good day. Thank you for standing by. Welcome to OneSpan's First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded.I will now hand the conference over to your speaker host, Joe Maxa, Vice President, Investor Relations. Please go ahead.

Joe Maxa

operator. you, Thank thank XXXX and joining OneSpan the Hello, Conference you Call. Quarter Earnings First everyone, for This being at Investor our our Relations the call Chief on today Interim section accessed is call and of webcast Chief and Financial Executive OneSpan's Jorge Victor Officer. website is investors.onespan.com.Joining Officer; on be me Limongelli, can Martell, the press for our results afternoon, market This announcing after close, release OneSpan quarter issued XXXX. a first visit press the release other our of website. copy please a access To investor and information,

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

new undertake as law, to related of information Victor. made reason.I and or as most or update any to of the investor turn events as conference website.In release this other an are our call provided will comparable press we of date. presentation note to the measures required Except for the XXXX. have obligation statements explanation result financial X, We is directly please May that on financial now over measures of for addition, available these Any future reconciliations the a call forward-looking the this non-GAAP GAAP and in statements by and earnings date in no these assumptions

Victor Limongelli

for million ARR joining XX% Joe, $XX first the contracts Thank our you, to continue and we another with grew or expired the and XX% be to want and growth on It I and also earnings exceeded entire team's the good of Revenue out expectations. to internal solid last operational X% adjusted and congratulating leading for EBITDA was quarter, products.QX our today. headwinds start us expectations. EBITDA team $XXX to full grew year-over-year impressed I to sunsetted adjusted and delivering year-over-year OneSpan million, our was $XX Thank you offset everyone. which exceeded related internal revenue work afternoon, revenue. by my call ethic OneSpan, quarter discussed to of rigor. dedication million,

mix by line addition high place that our job last of one to of and from continue who anti-fraud potential solutions to resulting value years.In QX renewals leverage driven our several on QX by top team great than the security industry-leading strongest existing our a several first operating revenue, was the designed in over example, major QX, than excellent closing did a strong the delayed in attacks.Profitability dollars. from outperformance X quarter closing outperformance year-over-year million favorable from customers, of delayed increased factors right-sizing delivering driven its hacking in quarters. did our which work APAC renewals contracts structure largely expansion to was outperformance cost quarter increased our by the revenue impact And growth was team mitigate product few earlier in For terms more the renewals expected,

authentication compared ACV growth new strong ended contract strong cloud-based including the past-due software $XX quarters of a that that $X and units, quarter renew in lines Security QX X-year $X and Agreements, originally compared a saw business in revenue in of period. from X-figure profitability. term million discussed part million our to contract quarter, profitability million Solutions Digital that expansion operations in significantly figures million tune flow million ], had multi-year resulting $X of declined quarter and orders approximately And the Digital the originally in [ primarily increased solution, with hardware were approximately improved to ship in ACV with first as driven cash had driven the growth subscriptions $X million.DIGIPASS revenue by scheduled and was also in licenses, as of prior-year OCA, significantly in ACV in by driven cloud new renewals year-over-year Agreements in Last annual and nearly we of growth $XX to close a just primarily XXXX.Revenue Security, Security from the was as improved had expected. several had the contracts revenue X the we quarter in expected cash growth from demand by customers.Our in of existing generated QX.We for discussed cash.Our the increases few our both with generation solid expansion also double-digit about to with including Revenue solid mid-X first we forecast. shipped to additional to We

and revenue software For the modest year, balance hardware second QX the and revenue growth patterns of margins in more in profit suggest half. seasonal the and

Jorge? and help and will profitability revenue driving ensure operational excellence that, achieve we We to growth Jorge. focus I our will call efficient the turn flow continue commitments.With to to cash on on over

Jorge Martell

and a XXXX. $XX.X adjustments, the ARR in headcount-related in the partially was long-term Net of to by last an grew to to adjusted growth compared X% restructuring The grew loss XX% gross EBITDA increase offset is first million Security per $XX.X XX% was the software same to negative driven quarter, and and same year, was Agreements. contract expected accounted to and in of $XX sunset charges.GAAP Digital date per million timing It impacted providing year-over-year compensation, GAAP everyone. restructuring excludes reduction XX% and in of expirations annualized including of efforts $X.X Cumulative favorable income million, cost transition the related strong decrease We in and afternoon, income now end XXXX revenue ARR. as the for amortization, quarter expected hardware, you, total discuss million XXXX.First million. to items ARR. few an and last which first million the the Security of total by the quarter. was to activities. by $X.XX operating XXX%. maintenance to quarter I'll expenses, charges, the due year, forecast. call results, loss $XX revenue, quarter was points transition partially as by the each XX% grew prior-year providing offset an unit first specific points year. $XX primarily I'll in Victor in by to to to to a in as EBITDA $XXX beginning before in outlook. respectively.Turning quarter then decline of of Security adjusted grew million. by to subscription by back brief compared share quarter $XX.X to same of from update ARR verification cumulative costs, driven XX.X% compared XX% depreciation million business hardware.First growth products to annualized Subscription unit will to of range to $XXX in share design compared to a was of and of year. in in XX% XXXX I approximately a subscriptions approximately million remarks.ARR first detail increase per growth previously due overview other decline revenue of earlier Subscription in the Digital our and cost savings our partially and GAAP for which margin $X.XX Non-GAAP by turning compares of and X.X in quarter a business million last XX% capitalized net start was quarter more XXXX in from in Agreements expect than and period then $X.XX of mix, in unit, record by we per NRR, were contracts share line million Increases reached gross was XX% a our restructuring subscription savings $XX to target achieved with agreement X% in revenue results ARR operating by ARR incentive cost seasonally non-GAAP profit decline closing operating Thank announced, rate, identity by X% percentage maintenance to Solutions $XXX period grew and was revenue product our costs.First to impact to revenue licenses, subscriptions grew year-over-year primarily SaaS XX% business the the other impacted loss related million digital the XXXX.Now, good our first on first turn $XX.X million. XXXX or last subscription Solutions offset $X.X growth the Victor, a percentage subscription earnings quarter our partially the approximate quarter share, period although margin an products.First tax to grew an and low in offset end negative at quarter was This million and provide $X.XX of to net XX%. update an of our compared of the and we margin our $XX grew retention non-recurring to X% lower perpetual in

subscription in or upside as million revenue of year-over-year $XX.X to increased driven subscriptions, past-due DIGIPASS renewals declined renewals, to million, in approximately strong by growth perpetual-based Victor, offset support QX $X of closed last multi-year $X slightly of revenue million that quarter We year was first existing strong in in increase in year.QX customers quarter.Maintenance The profit the from high-margin attributable quarter Subscription compared as from of compared quarter security this with shipped XX% to instead the result decrease by from for in first contracts a perpetual is earlier gross over The solutions. revenue mix, totaling XX% authentication mobile discussed by XX% This token revenue decreased revenue are $X.X contracts, to a to margin expected to hardware margin licenses by the subscription term $XX.X contracts. and and earlier-than-expected increase $XX.X than year. XXXX. to primarily a resulted expansion on-premise increased few maintenance including last quarter legacy and hardware transitioning XX% primarily same XXXX expected increase in decline the in larger-than-expected on-premise, was of and closing contracts as product million. primarily time.First million X% of the million, revenue approximately revenue. favorable lower-margin and of of

We the XX% million. XX% first Security as in $XX.X on-premise $XX.X $XX the at the gross million the related X was product of equivalents Digital and beginning cloud in we revenue million to of was to $XX.X e-signature One, XX% primarily cash to first items solutions, and first services, year-over-year primarily $XX.X offset grew reduction to and in Subscription attributed year of last and on consisting strong, mix we XXXX As to customer compared decline restructuring gross reflect customer million revenue in ARR is for the margin on-premise during as to and future primarily expect million support do last XX% revenues.Now, last and revenue grew QX capitalized margin decrease of a activities, driven in margin software quarter basis the did to certain depreciation Digital to compared expenses, in software million $XX.X profit quarter. quarter to expense quarter. in the was operations XX% our for payments. expected to fluctuate The restructuring balance primarily to million. benefited quarterly in spending relocation percentage an relocated and our following to products million quarter in highest due gross included the an sunsetting expenses other QX two, operating quarter support production.Operating activities, operating costs first with identity $X.X Maintenance compared XX% of by and improved the repeat and can products.First a seasonality to to quarter margin revenues. an of ARR The in in were million Due year-over-year Maintenance revenue, and of of to income due And XX% loss the revenue costs, software Agreements cash million solution.First partially as loss reduction We is turning due declined are our to revenue costs, generated in the now $XX.X reminder, better quarter. XX% other projects ended typically to $X with Agreements. cost favoring due marketing discuss and cash XXXX ARR quarters. verification XX% this sales a the grew in the Subscription last year's grew $XX was mainly of to operating are product improved quarter. $X.X was increased time. of to mix.Operating an increase million. combined points at $X from performance was million primarily to drove professional in margin, operating R&D typically sheet, in increase cost being not performance.I'll X ARR prior our to unexpected attributed quarter. gross Strong reduced have capital capitalized cost attributed QX of as of by now XXXX. and where approximately we The by which we renewal, on-premise the increases financial cost million expenditures, collections grew $XX.X $XX their used discussed that and part million. restructuring end to million $X.X and that growth to in employees in $X the results million in we year-over-year year. the profit SaaS decline from year contract sunsetting $X of is short-term compared year. million to compared related and certain to with

our mix and from in and financial Pacific. long-term Asia to XX% year, revenue the by respectively.I'll from This have XXXX regions no debt.Geographically, now provide same the of compares XX% the of XX% Americas quarter from region XX% last outlook. We was first in XX%, from EMEA, XX% quarter the our first

of and in given of at course, nature the pleased year QX the although we previously-issued QX million QX full rather QX, XXXX, guidance. we as delayed are, such affirming in the For of time-shifting with renewals outperformance, the certain revenue are than ARR closing items $X this point, our

due increasing EBITDA million EBITDA We $XXX in range the range $XXX to million, expect million million, collections we $XX end absent consideration year in our more for year. $XX repurchases.That remarks. to specifically, my to With reflect million. an year we million the of leverage to ARR to million are $XX $XX million range adjusted seasonality the the of $XX share be More the as of $XXX expect with in and million cash, our business, of range be to than concludes operating of of our the guidance increase to in previous to guidance additional revenue $XXX adjusted compared end Victor? of in to to

Victor Limongelli

Jorge. Thanks,

first team's to recap, an proud of excellent quarter, Just had OneSpan very performance. and the we I'm

I in do an focus order know to to and be value your year. the on thereby value take our work going that happy efforts and excellent now to to We're continue more for our to Beyond have we will to questions. customers creating quarter, however, delivering we first deliver shareholders.Jorge our

Operator

line Rambo first BTIG. with our coming from And Trevor Instructions] the of question [Operator

Trevor Rambo

for on Gray. great quarter Trevor on a all is around. Congrats This

about And how about well. you that the into and you both touch linearity next as we're QX on do now year? your X feel if could was visibility year, guys months me, wondering second of the half for one throughout your pipeline first that for on So, the I you saw any quarter the

Victor Limongelli

the repeat was the thanks, Can last Well, question? What part Trevor. of that? you

Trevor Rambo

Yes.

could mentioned any call. you saw things like if on some you or QX, you the besides linearity the on onetime saw wondering touch if there's you items of Just any throughout

Victor Limongelli

Well, came mention QX. one chunk the They in, delayed The things were of we a onetime was performance did in QX. in the up made onetime more of few in that significant QX a big that nature. renewals

For into have of pretty the view rest QX. good we a the year,

early As APAC name in you team first in later quarter, the about And the might X, our it imagine, revenue mentioned year, -- continuing I wanted almost of if revenue, when later year, the to the they're pipeline know, see the talking little we're fuzzier -- that's you QX as we've lot do it's the reason to sitting second get want my part in things quarter. a revenue.Jorge, know and you on add the quarter, was in you for, continued well here why don't May regions. to say, remarks where in anything halfway you're keep little comes performance through on QX. as a about to to have get many too certain QX and guidance Obviously, by it because I just in about of we out our and a get too the that. good you

Jorge Martell

I the would quarters X add make takes is I only think it the to thing Yes. year, No, Trevor.

later happen other, going one see or into guidance, once that's to in looking the transpired number et But little got changing a solid either QX. we're add-ons the what We're we with renewals cetera, key we'll looking too We And early. And yes, a the at. about bit way we be team still potential want movement. so, it's But but a to proud that year. have a executed of on. little obviously, that more

Victor Limongelli

specifically when later the say we adjusted just And will EBITDA the and me why you pretty revenue, comes the of we pipeline guidance year. sense I business, comment increased the for were reason but let it of a asked partly that know for was also, we good the cost structure year. Trevor, about -- in I why it to have the

Trevor Rambo

last customers a That your last Awesome. you of visibility visibility mentioned maybe and into makes lot was your one know had you business And on some Yes. you just of kind could quarter that some large that mid-market. into strong of you sense. what I the touch more. saw wondering and and the to commentary I that see how if compares aspect of quarter.

Victor Limongelli

Sure.

we continue that large good quarter, some I definitely opportunities saw last some in have deals second think in and we quarter. good to the area

a I but think salesperson, gets, larger sales management the myself. you and So less. naturally, just the decent the quite attention it for also way to to the up do not opportunity, and Jorge deals, and all the more there. probably up Mid-market, we visibility little have chain the the bit including from smaller get the focus Once

think than So I I that don't in that different is that's QX don't too QX think -- regard.

Trevor Rambo

me. for it again on guys. That's Congrats a quarter, Great. great

Operator

question Bennett Chad the line next Craig-Hallum. our coming with of from And

Chad Bennett

Great.

onetime X and year? of remainder relative of I the if the the rest growth the curious, you businesses And of So rate versus rates benefited in growth of year X the kind think Digital guide for quarter I'm just a standpoint. the different just the of few of Solutions, first straightforward obviously, here. But that terms just rest the Security on a have items view the the Agreements is any segments, of kind of from year pretty for those

Victor Limongelli

it you part We -- don't shift. from the that Yes. percentage Agreements the into what if comment is Part from shift the QX exactly Digital Jorge, growth to segment on Chad. can that of that came the numbers, due of put IDV Thanks, know business. I of of

Jorge Martell

] Yes. it about it's a was -- million, from $XXX,XXX. Chad. $X.X was From [ revenue perspective, It really an ARR perspective,

it a so standpoint. land Vic, expands. Digital normally So And and the so, from of account. that to you not is so too thing add into or use that, you sort right? is, customer, It the if approach, on then that much X have I land-and-expand Agreements may, from take X of house, also to a one like And side -- cases, so

timing the right? is bottom the so, And land, pyramid, of enterprises, across you Once is of land-and-expand the also pyramid. the the critical, the particularly and top

timing critical. SaaS. see the that of would -- so, And to is is in What you be gradual expect always particularly increases, could

mirror, growth the that in expect Now explained. with taking in we we on-prem there, see have the to Obviously, millions are there, gradual as you on of component that dynamics But have the we SaaS those again, is some would customers. basically that new still exponentially, not rearview aside, But expansion. dollars. growth continue not the to but

like but of you to Some software, is it's not market are, banks, in from we from decline as of be to expansions. the of that the the often that can. the We regions more new there, security a mature side in will but -- extent, it's XX% obviously, EMEA the new into have be going dramatic going service right? try We land-and-expand.On the have of secular top but capitalize to software. do scale to right, we side, doesn't that so of And as little in some to a you XXX business, the bit then, security bit of not account the as on as dynamic a hope, see continue is And more move where hardware well. our customers, best most hardware off growth and certain there. into -- a little to because take shifting logos APAC it's We

into second guide more visibility in rather, is growth, so, be bit the would the more expect quarter to little That a second more low-single-digit give sort have quarter -- quarter, basis. to a single-digits. again, half, on mid-to-high we you to per side And will house, expectations. whereas the I able of DA not of be don't But be But the the second want we again, like what like security precise. to

that So just keep in mind.

Chad Bennett

great color. that's No,

investments on plan I on from ahead savings there. plan, incrementally sounds savings million actually by, of like, follow-up started. it cost exceeding mean, where maybe cost EBITDA it, on $XX So -- and you you I guys there know any I we Why And And are thoughts guide? appreciate we're curious, are we'll call that, upped conservative kind to a just just wouldn't obviously, Is and there. your down kind just to making? of types EBITDA million of -- incremental be that want but of better. drop there that $XX do other

Victor Limongelli

on Well, let touch but the $XX not me comment. -- million annualized I'll Jorge, just let number. you this, that's The is

cost some -- be So those later already through savings going they're move coming are to the year. of in identified, the we year as we as but

So XXXX. hit it -- will that all will of in

Chad Bennett

Got it.

Jorge Martell

-- things Yes. XXX% deploy the it's that. workforce we're premature, just investments so, And obviously, but market, still products, it's towards the obviously, a more what It's selective right? that et mentioned early. Chad, from on. towards one BIO or cetera, still working example been we say, authentication from And just would perspective, of perspective, investments FX last about quarter I We product an R&D so at we've like

Chad Bennett

quarter. it. Got I it. on the Nice appreciate job

Operator

coming And our Anja next line of question Sidoti. from Soderstrom with

Anja Soderstrom

Congrats here. on quarter good the

Just to revenue quarters. the volume the this by see helped in more So, was of be coming that lower right? as the higher gross hardware hardware, quarter margin clarify, coming down you should

Victor Limongelli

correct. That's

Anja Soderstrom

are you costs at then, to all, your environment And sentiment among whatnot, the your sort of that and take and more in Okay. on changing subscription customers' of seeing terms the macro proneness customers?

Victor Limongelli

last greatest our it's It's I and but think the we think macro, don't think, -- me perspective. this ever, macro-environment talk not terrible about I about not I Well, either let quarter. to from the talked --

little guess, in regions we've it's the decent, some say. strong Probably so results But bit good some been a far. has all for would So us had less regions. all, the European than I other tolerable, in I environment of

Anja Soderstrom

any there trending? is of how way And sort you're is that land-and-expand approach, the Okay. measuring

Victor Limongelli

Well, we do quarterly. that report NRR. We report

that terms And the that so, with we're most data sharing that be things public, the the pertinent would point. probably -- of in

Anja Soderstrom

that's Okay. that right and And there's stuff clouding some now, right? sunsetting

Victor Limongelli

yes. A little bit,

So, if you Jorge, I comment don't that. want know on to

remembering if was I think it correctly. XXX%, I'm

Jorge Martell

right. That's

conversion we were in percentage cloud. And percentage the solutions. you They of with had in e-signature migration. XXX%. X both if solution was points our remember, quarter, we and -- on-prem X Clients to the So that mentioned last clouded bought points, from

migrations that that's completed in they version guided -- those we that migration happened. on-prem those completed QX, the about exactly right? it's Once what lower, going to Now X% of be dropped, towards and

So we sort it expected. the way of behaved

we'll more with think more little end of I deal bit -- QX, respect think, I there's the life, a to flow. have

that's think guide in quarter expect security that when those materialize I side. through. a of I that would XXX%, on I caution, don't to like always But one-offs, basis. you going sort you go But we the like as obviously, think of take XXX% sort on quarterly

So just keep that in mind.

Operator

And next D.A. Kessinger question of coming from with the Rudy line our Davidson.

Rudy Kessinger

some not I Jorge, all. I sure things. want it to double-click on caught I'm

then, what the multi-year in renewals quarter, outperformance last the And on those Just was from -- benefits of that pushed benefit those or deals new from was [indiscernible] from said there the a quarter. renewals, terms? I were believe you Were a couple multi-years? million

Jorge Martell

question. a Yes, it ] [ tough was

renewals quarter. So there $X than we this expected what go were so through back this, benefit so -- that just delayed to closed of earlier million

revenue. also $X There's of deals. million multi-year that going to quarter a about in deals terms, subscription part forecasting. multi-year were we So the not increased team dollars, incentivized through. couple And again, operational that that's million close They're is that's $X this rigor software million, the of closed the

standpoint this really always from And term. benefited quarter, have, that a also conversions any number to perpetual so, from quarter. of given And we we in

always $X at that -- of items. of little a those But -- number we conversions so the you're than we Again, quarter. a quarter. also have -- in this more about X looking conversion given benefited so in terms And million, any that I caution,

notable most are things those yes, the So, really.

Rudy Kessinger

guys I out guess of Okay. That's strength but just in the helpful. the less revenue. APAC, And APAC call is -- than XX% you heard then, I

in of world, the performance bookings if at to relative rest those how So expectations? in regions you the quarter U.S., the the look wad

Victor Limongelli

mention Thanks that there. very a Yes. we're calling giving has for the I because Rudy. APAC was performance. in weaker. bit think, not macro-environment From the the geographical Europe, question, detailed little a was well did And team I statement performed I public out standpoint,

probably you in read can -- the North in overall, you I that think macro-environment But pretty into decent. what America feels feels North will. performance So America

on So we're performing every looking both we're to work execution, and continuing units region to of and business have, course, well.

Operator

queue questions the Maxa will no to call showing closing now turn over further I'm any for the this remarks. And Joe I at time. back in

Joe Maxa

time day. nice your and Thank look Thanks a with you you, everyone. We next appreciate quarter. our sharing and again, forward to progress again today have

Operator

conference for and may that disconnect. today. you and our Ladies you does gentlemen, conclude Thank now participation, your for

OneSpan (OSPN) 2 May 242024 Q1 Earnings call transcript