OSPN - Earnings call transcript Q2 2024

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, and thank you for standing by. Welcome to the Q2 2024 OneSpan Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Joe Maxa, Vice President of Investor Relations.

Joe Maxa

Thank you, operator. Good afternoon, everyone, and welcome to the OneSpan Second Quarter 2024 Earnings Conference Call. press webcast of be afternoon, SEC OneSpan's close, issued being Investor on after announcing is a OneSpan section filed second Relations website a results call for and with quarter accessed can the market Form our This X-K and XXXX. the release at investors.onespan.com. This

January access announcing CEO. the Victor since Limongelli of company a Victor In interim please appointment Victor To Martell, investor our release, today's of been X, Form X-Ks, press to XXXX. addition, on Jorge a the company's separate visit call. Form President and copy the and file plans X-K CFO, will has the this me afternoon other Limongelli as information, join CEO website. our and

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

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

obligation XXXX. Any Except of information these as In call any call this statements and indicated. The as forward-looking date. over required otherwise to X, or no the result other please or this reason. I is as new are year-over-year turn law, a date future made conference of Victor. growth this events to rates on for we related to update refer assumptions that discussed undertake basis now August note will call all by addition, a unless statements of

Victor Limongelli

Joe, you, today. joining everyone, and thanks, Thank for the call

X it's to OneSpan's Over momentum the pleasure I'm improved honored going, felt been and got to role with the that the side side way team, last I'm looking I'm by months, making know further a and keep same performance. to OneSpan permanent. real I've as work the forward them my Board excited improvements. to we've operational in the

million, made X% included a As this XX% $XX significant and revenue strong year, adjusted you or growth, EBITDA progress second know, of growth, revenue. underscored of we've quarter, ARR XX% by which

in $X ended as hand. in to generated operations used from prior-year period we the quarter the million a And cash $XX also second compared cash we in We cash. in quarter, million $XX on million tremendous with the improvement when

the excellence accountability profitable is operational on focus throughout driving Our growth. and company

XXXX, we've In X/X was X about years, business total and revenue the half business. of look hardware. software, is and years software grow continued few is XX% past in XX% to split of first approximately the our if we've ago, services the Over of our X/X hardware where revenue. at approximately you software And point reached comparison, the

customers well our can ahead great stay response with our working continue company so we second team in during The to internal in improve sales executed to feedback. higher-margin to to has job of transitioning coming plan. hard very in has been performance team customer close that our quarter Our to revenue. sales done team more particular, the In software a bookings sales the

performance. you As the might I'm imagine, with team's very pleased

renewals the by renewal renewals to strides performance strong fashion. has team rate closing has on-time timely and renewals team. good improved good the sales of XXXX, testament within to Year-to-date, days in and of date to also rate in year-over-year. our addition progress renewals improved made work the team, a compared maintenance XX a our due closed the our of That is In the

Our make through has margins operational year. and the increased to the to of reflected continued remainder in we efficiency we see SaaS our improvements R&D move expect team to gross offerings, improved as

and reenergized enhancements FIDO hardware R&D new on our products ahead, and such I fair think to in tokens. team security it's Looking is is, say, as working

the grew we by to have costs, Turning agreements discuss delivered units. and transition business Jorge In substantially agreements team a which business. profitable, the in digital quarter detail. Agreements, second onetime our will became model. completed in SaaS our strongly to our X Digital Digital with more I'm thrilled excluding

and with be second par business. logos. and, were subscription quarter our to strong revenue to mid-single-digit XXXX. ARR growth a contracts strongly extent, primarily new continued growth In for Our driven overall was business profitable growth expansion revenue our growth lesser rate also and a rates to expectation on unit, we strong by revenue low- saw It Security

is more been would make every delivered. as that are and strong the well and occur and in is sales business be have say our but That QX it and the ARR of strong great, have am, challenging. team deals goal course, to might certainly cash profitability, QX. in the we'd improved closed It earlier, closed opportunity, there were to expected that much rather have closed on the to to that flow, course, does and team well we QX deals way the with too our Our goal. I as both growth units growth thrilled of achieving quarter deliver that profitability but

in particularly of quarter, strong is not bookings for seasonality, third a the quarter us. addition, terms typically In

year, over the to term with life as year, end that the expect double-digits maintenance performance, decline the up coupled conversions. our perpetual of to subscription somewhat, the largely to as to due we the product expect prior Given half revenue we of well context, strong for balance be the of while first revenue Dealflo

our hardware second the addition, visibility That our the both in given half schedules, a we to anticipated both quarters. be fourth as and third and units into compared customer year. in hardware delivery pipeline hardware profitable revenues said, current decline the expect business prior we anticipate In to in

adjusted be So our full-year previously higher we EBITDA forecast. than expect to now

operational excellence turn to I profitability the we achieve efficient revenue will help growth commitments. With ensure Finally, Jorge? needs, remain I'd to over capital desire annual like Overall, driving our return to to with note that of that, committed a a cash the to those call Board flow year plans end our capital by factors shareholders. to we generation to to and and Jorge. review and undertake cash balancing

Jorge Martell

cost and on Victor, from efforts providing our good you, reduction a realized million second start everyone. activities. Thank by the in I'll in restructuring afternoon, quarter achieve track annualized end Cumulative brief $X.X savings cost our by our annualized savings update cumulative $XX.X We of XXXX. of of year. the annualized to $XX We in million cost we are this totaled million. goal on believe savings

our ARR Now XXX%, net up grew to and quarter turning XX% last our million, $XXX retention from quarter. results. to second XXX% rate was

units. the in and from in increase customers digital both Difficulty] agreements business expansions we increases contract in During saw existing strong [Technical strong new in ACV quarter, a

million, revenue Digital quarter growth from to last same by Solutions XXXX Digital revenue Hardware XX% including in subscription driven modest strong compared to which $XX.X XX% and and revenue period was decline by we to growth Security year, million was SaaS Agreements. Subscription growth the X% grew Security and Second from Solutions year-over-year. growth $XX.X XX% grew offset in partially in a revenue, Agreement. model. design license growth by in as revenue The X% to XX% as subscription maintenance a is transition flat

Second was XXXX X.X QX Gross points XXXX XX.X% by and by to margins XX.X% percentage onetime due in compared quarter percentage costs. impacted points X.X quarter. gross to in QX prior-year margin the in were

due partially by driven product to the gross these Excluding in revenue, capitalized was depreciation costs. favorable on primarily an margin of onetime costs, in by growth based offset increase subscription software increase mix

Second led million income with in operating last income profit the $X.XX to a to $X.XX of in earnings the and operating XXXX GAAP quarter second in $X.XX Non-GAAP period a XXXX. compared non-GAAP operating $X.XX $XX.X primarily to in second $X.X was year. in performance. GAAP XXXX. net share of net per million to year. costs, lower the revenue of loss the combined quarter Increases of of margin, headcount-related compares same quarter share This in expenses, share loss per costs second lower an gross of a quarter in improved per per of decrease the share was second last restructuring quarter loss the and from GAAP compared was

same compared year, quarter period and EBITDA to EBITDA was last margin Second and of in negative negative adjusted million respectively. X% $XX.X the XX.X% $X.X million and adjusted

X.X verification impacted to X% grew in to growth Turning business to points percentage year. Security to million. negatively at second this ARR of products digital approximately $XXX was unit ARR Solutions relocation the unit. our of business the identity beginning the agreements quarter due our by

XX% growth X% Second support by quarter and subscriptions, on-premise $XX.X revenue to than with by solutions. by revenue revenue from XX% less increased token primarily authentication driven gross offset of licenses Subscription XXXX. prior customers declines million increase the year-over-year from million. existing contracts. $XX.X in $X expansion million, was of to to to primarily Maintenance increased attributable XX% favorable $X.X the basically profit at for million declined from margin XXXX The expected is quarter revenue second legacy customer margin $XX.X hardware and was to million. QX compared Digipass perpetual with mix. in year flat the product as

million profit cost in throughout margin margin to primarily to write-off last In attributed improved was activities and impacted XX% X.X addition, increases $XX.X million expenses, of percentage points year's QX restructuring revenue reduced XX% was The to inventory an operating the second majority and XXXX gross performance. quarter. combined by and approximately margin, compared other operating gross related with charge. $X.X income Operating the was and reduction in

percentage to for the agreements ARR of $XX million. of Turning to this by ARR points grew digital verification agreements our to results benefited growth X year. business. to XX% identity products our relocation approximately at the beginning digital due financial

Second QX much renewal new XX% the products. in revenue, lesser grew extent, primarily and expansion Subscription the XXXX quarter of to to both XXX% million, by prior-year XX% in revenue and of identity and million. driven grew verification a contracts, relocation both to quarter, $XX.X $XX.X cloud-based of contracts solutions consisting

the compared prior-year profit as gross Second XX% in XX% quarter was quarter. to margin

discontinue blockchain the to a we Vault decision During product. quarter, R&D our investments in made Trust

The and by offset partially other an revenue and operating expenses, driven by was of to in would performance attributed Excluding higher. been an QX of gross loss to Operating points $X.X related Digital XX decision, operating as compared million $X.X QX in onetime in to was and cost increase improved primarily Agreements' last increase revenues. was have decrease activities costs a XXXX year. an restructuring in million percentage reduction this margin loss cost

costs onetime approximately been would Excluding Agreements' have operating income quarter Digital positive. million, XXXX of $X.X second

Now $XX.X $X sheet. equivalents primarily turning capital and to XXXX. and the XXXX ended operations We with million compared end in our the from software used expenditures, during balance at million $X We cash in to generated million quarter of costs. $XX.X million cash in capitalized the cash quarter of second

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

For reaffirming previously issued the are full revenue year guidance. our XXXX, we

products, contraction to adjusted our operating million specifically, related year the to cash. That than $XXX end partially half range More We guidance previous guidance reflect guidance of to revenue concludes end of to $XXX in million, we more we remarks. and reflect range to strength, of continue compared $XX are be we $XX to and year-to-date compared million, $XXX million our are in its million adjusted million; range as be guidance $XXX range increasing year to sunset Absent repurchases, my our range of to ARR EBITDA million. of to $XX the to EBITDA $XX second ARR by the offset million; an $XX to our expect previously leverage. increasing as of with in to $XXX million increase the to Victor? million to in previous million to share $XXX expect the some

Victor Limongelli

Jorge. excellent quarter We first an half had XXXX. and second Thanks, of

excellent Looking to an efforts excited more we now be leading the our creating to focus year, to continue in to value thereby going we're and our value OneSpan we team, our to half to and take do of delivering have be and to deliver your for that and at shareholders. Jorge I on happy questions. customers will the know order I'm proud work year. second the

Operator

this Gray At we'll with conduct BTIG. question Instructions] you. comes a time, the Powell [Operator of Our Thank first from question-and-answer line session.

Gray Powell

good the results. Okay. of Congratulations on set

Victor Limongelli

Thank you.

Gray Powell

Yes, absolutely.

at CEO I for start you've maybe now. X OneSpan been So to months mean off. Victor, as

X good be want there changed, where that maybe focus to areas Do you level of posted major You needs you see increase are anything and reports. investments? to your or any

Victor Limongelli

Yes.

really talk We're history, on me the overall and our side. My about results. background, happy has with software ARR those been Let XX-plus software years, strength our my business. in growth the

to And business have and business, I that. not -- didn't -- I is, some but investment SaaS said do newer could and have for we investment some needs on know that that's smooth it's as from margin do that well. benefit a we'll is tremendous have a up think We've customers product But XXXX business. doing a Security overall, plan. business we starting relationships long are we're years. hardware, profitable. set and I I'm business with both strides many these made we our goal do continue business, So to business say, on it's very as like that growing me. the are and we And units ratable liking to refreshes. The It's over good good to before a additional there. I've that, And

Gray Powell

Understood.

a then the to And helpful. it's this fairly quarter quarters but more general, than ARR added the software, prior been this I of And prepared or X just the QX net remarks, call, combined. That's far. just so Okay. you you new on across mean in kind alluded rough

has So I And the what changed the surprised the most? business? mean, What upside? like, anything you within drove

Victor Limongelli

on -- you beneficial think good X.XX, the look for out if is those of one had And me we of there really I It's results, Security NRR, we strong the the well. business. We it, business. results, you on commented. of Well, much, course, the at at that both and types lot And much strength but X.XX, to X.XX, was ARR. ranges, you're easier really the But it's of grow results right? NRR had mentioned as sides to thing a if stands as

It a really the job So team. by that was great. tremendous was

Operator

Davidson. from line question Rudy the Our comes next D.A. of Kessinger with

Rudy Kessinger

congrats Victor, title. the And permanent on

Victor Limongelli

you. Thank Thanks, Rudy.

Rudy Kessinger

ARR new you want to of of over I added this X of quarters dig in the more that's combined. And Yes. question. it's figure. more you well, that just kind -- million ARR, to NRR, on net equal your Gray's new last a kind $XX.X than TTM about ARR

quarter increase massive For TTM price NRR you to jump X a percentage points either probably some pretty customer in suggests or X expansion. had

had what's unpack So maybe or expansions any the in Because the and the new significant of half concentration and of kind could ARR you the relative are second net numbers you talk ARR jump just to quarters or and the $XX several and large pull-forwards maybe guide. implied just pretty what? in some past to relative million to

Victor Limongelli

a by a really ton to business, bit. any remarks in wants prepared great I dive team. second was the Jorge really the We was little let Rudy. and I'll the some a large of deals, into including in but the that by performance this team address, it numbers he the strong performance to Thanks, bookings Yes. sales quarter. alluded closed

Jorge Martell

Yes.

that deal expansion. Just one Vic, saw that, so to deal that's In a we cross-sell. to was and did great see particular, low-X-figure we add really, more

we part side saw house. of so them on on of And the the the DA that's NRR -- the

We this great last or We in similar quarter. in quarter. saw products expansion also back saw authentication traction software

of Rudy, was seen that this past. material other meaningful. lower about thing was number. have we we was $X.X see this really in more million was stronger. Last quarter that consider It the life quarter the and not quarter. a Partly little also, churn is to This end contraction did a But quarter

and saw We And think lower both of we That so alluded I great also sides. churn contraction. we expansion. in really DA to benefited I the but cross-sell on that house, the had side

we So around. all benefited

Rudy Kessinger

the just net a question. got was a from right? cross-sell, I've low-X DA quick another new of then cross-sell that A low-X-figure that on Okay. on ARR single and And figures follow-up

Jorge Martell

Correct.

Victor Limongelli

Yes.

Rudy Kessinger

the had licenses. helpful. in I multi-year That's guide understand guide, massive some EBITDA the term then And like Okay. you QX, -- I guess

bit Second it still, going versus be half seems as I a actually second It seasonality-wise. cuts coming you're second to half, it $XX be EBITDA be the are saying you've the sounds in the got OpEx it implies stronger. like the to roughly your think going up steps lower typically guide million in the is half, first Obviously, cost But gross in half. margins in. hardware second half, would to $XX in million than

that unpack bit So just could you a well? as

Jorge Martell

chime in Yes, can I here.

So I said than to have, the adjusted have going a on little revenue. depending obviously, more But Rudy. EBITDA number we be heavily to but it's is think you EBITDA

year-over-year we expect related declines based obviously customer to in do on said, revenue right? stability the today. business the Victor the when we deliveries. And As hardware primarily deliveries, have we we recognize So the scheduled that's

a lumpy So business as Rudy, we that. it's because of mentioned,

lead for those right? You to have and effort do a lot base, a whole of with lead transfer times it's and then customer basis. -- it production that then takes consistent correlating our So deliveries on a

numbers like continue update end a guys more that cautious and on we because to we hardware Obviously, So we'll about We you side we have the and our forecast. progress. guide. to the on range, that revenue been to is little sort the what uncertainty according of of high make hope of to raised as be our continue

Operator

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

Anja Soderstrom

[Indiscernible], the and the Victor. on quarter great Congratulations

Victor Limongelli

Thank Thank you much. very you.

Anja Soderstrom

you're For changes this organization. within the undertaking sales of quarter,

in changes do your by is execution much how tailwind think? versus So of this driven demand you

Victor Limongelli

pull to apart. it's Well, hard that

performance DA security in was business. better. has We the across both the did and board. I think the It see good executed team in

that happy that we're demand. how how of hard to So precise if a that. I on know much due to engaging say is I it's really number give don't could underlying I'm you demand with and them. time versus execution. and seeing what I you making spending on we can problems number a them give can't sure customers we're for But face-to-face solve with meeting with precise

Anja Soderstrom

Understood. better customers macro macro what of that you the maybe. the and the the once execution do ask still getting And up you're see environment Okay. me way for challenging? How a Like eventually, And hopefully, let running you? improving, you and... as and environment in engine is

Victor Limongelli

question. a That's good

is Europe it's it's that deep like a either. a and us, not great, For in deep, been recession huge hasn't European the economy but market,

So about I right? through If I it's macro also don't environment on some to that great, the might fantastic, we lift, economies execute economy but like to like this. isn't, unless severe having have I the hurts. provide it's don't the the think Great worst booming, talk recession, that obviously, extremes, is to able experienced far -- a are macro Recession. there's or a software run if This be company I I mean, public from mean, economies through have the with

guess. So make I sense? Does view as okay, that I it

Anja Soderstrom

of you you Are for already? here in cost looking still your the terms kind year. And almost sounds of further target it it pushing Yes. reached the you've ways or savings, like for potential been

Victor Limongelli

one? Jorge, do you that want to cover

Jorge Martell

Yes.

DA, a related the be both perspective. of mandate So before, cost business there, couple to, Anja, again, these growing we was is -- XX that mentioned -- we're last having lot the profitably. and they earnings lot A a which announced incremental almost calls of impacted the that we as of that had, from savings

so now we're And there.

obviously, incremental of well. fine-tuning, be think, overall It in right? corporate be as I X units, Now business or X could there terms will

got about to lights expand put I but it. part We've improve -- of to be don't conscious the running It's operating of trying we right? business, and and margins. sort will like that just So just think neon on

point, more -- expect So to will coming be, than sort almost continue fine-tuning but to number rather so... think we're another we're like there, huge I it your out, I of

Anja Soderstrom

in you that or... be there them. products on of side, Will invest And mentioned increases you because then and some cost have the any cost Victor, significant will

Victor Limongelli

on We -- a keep alluded his are expenses. to trying trying comments, close Jorge in eye as we're to

incremental done most for There we're the haven't our trying may XXXX small our investment to planning But in yet. team. area. be that We direct a part,

think strong biggest rather We're that into We have team. can have I than at for a to customers benefit areas the don't it. just approach. that's the dollars trying throwing our right direct them

Operator

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

Joe Maxa

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

Operator

This does program, you. and you now Thank the disconnect. conclude may

OneSpan (OSPN) 1 Aug 242024 Q2 Earnings call transcript