OSPN - Earnings call transcript Q3 2024

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Operator

Good day, and thank you for standing by. Welcome to the OneSpan Q3 2024 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. Please go ahead.

Joe Maxa

Thank you, operator. welcome OneSpan and Earnings Quarter everyone, Call. Conference afternoon, to Third the XXXX Good being can investors.onespan.com. webcast the is call This and section OneSpan's Investor be of website at Relations on accessed

Victor information, copy Joining the XXXX. our investor and Martell, and press visit closed, Chief me our third release of To website. release market Chief Officer. This other after issued call is quarter Jorge afternoon, on Financial the OneSpan our Executive press Limongelli, please today announcing Officer; a our access a for results

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

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

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

Victor Limongelli

anticipated you Thank thrilled revenue, decline and both for year profitable. that to segment the to XX% discussed you, operational in in to full X%, revenue guidance am our was the we to our million the on XX% and or the due our EBITDA profitable revenue quarter's by Overall, corporate Agreements that of profitable. We and services and I X%, focus had revenue. continued was revenue business on everyone. driven accounted including the first us accounted Joe. time third total quarter. units burdened profitable guidance on fully hard for pleased Hello, team's revenue grew line call XX% with $XXX particularly Security we and XX% were a approximate that XX% implied Subscription for strong by $XX double-digit last hardware excellence. of range solid today. of revenue. subscription Total $XXX and on grew joining reported Thank segment highly million. Digital the XX% call. is work quarter, another of allocations, ARR Adjusted in I'm software growth be basis, grew ARR primarily X% for that million declined

associated and revenue return and few track are XX% million low We expected. $X approximately As products. on and have impacted sequentially growth quarter, guidance year they therefore, to achieve were our XXXX low full some top QX though part believe want large than on remind some ARR and that we was everyone last driven of to products we range. I that ARR growth a products earlier ARR sunsetted, in we ARR a we investment closed line reminder, previously deals saw the from ARR, by sunsetted. headwinds, contributed by

believe operating better already of in increased benefiting from efficiencies portfolio the the and products these are sunsetting profitable drive from coming positioned profitability are years. perspective from growth to we and increased We a product

generate quarter cash. million and million during $XX improvement the million operations year. first third from from through We in cash generated cash used million we months. continue significant We $XX $XX which the in X and the a year, in cash Last strong to in is the prior year-to-date, third quarter $X

continue cash on company. September the of focus accountability $XX As excellence we had we to operational on hand. XX, in throughout million And and

they've feedback. to we For customers example, can response hard and to software customer to in company our more to stay sales our transitioning revenue, the close improve on continue team working higher-margin focus to that been continues to performance so

starting continues efficiencies reflected team margins. renewals And increased fashion. to renewals percentage closing make is we in in Year-to-date, points improved renewal timely XXXX. which are in continuing to on-time operational our a through our SaaS maintenance to make our offerings, to team to higher see Our rate several strides gross R&D improvements compared

Turning quarter. Agreements, contracts the of driven Digital to BUs by and a logos. to revenue with lesser units. the third In by in delivered ARR course, and X our both expansion thrilled business extent I'm, was new profitability growth

growth Security as will of for terms will of help quarter impact year business growth. In and revenue primarily subscription double-digit of have end our the QX but QX, was expect to limited unit, authentication it customers. In on ARR, our existing we In ARR be typically of another is. QX seasonality stronger revenue expect our QX, by bookings, than subscription driven we revenue. solutions QX This

anticipate delivery revenue pipeline in EMEA the fourth and compared total and banking. to with to quarter, number a like banks consumer security of a customer Asia Pacific to extent adopted schedules, our quarter year. Over respect mobile-first hardware time, lesser last of last However, given as into our in visibility have and policies in we a decline hardware anticipated

continue revenues decline ready hardware although ahead, initial not next year to year-over-year. provide guidance, will Looking to our are we year fiscal for view modestly suggests 'XX

we profitability, have I our in on are well and we position growth achieving on Our near way provided deliver believe both we that revenues. the given to and is more hardware, the challenging focus to be as strong growth context software increased are to I may profitability driving drive goal and term higher-margin business goal. Security just but strong a growth units around long-term in

For significantly the the year XXXX, forecast. full given our dramatic of have than we terms EBITDA expect strides be we previously profitability, in to made adjusted higher

double-digit in addition, to revenue. we continue strong In growth expect subscription

now given our the prior However, full we expect revenue year range. half guidance in to into of visibility lower increased our fall our hardware, revenue

needs, generation quarter, turn capital undertake desire Finally, Jorge? to those Board over as the of and a with year-end return a balancing shareholders. With factors the call that, plans capital by I noted to review to last Jorge. our I cash to will

Jorge Martell

everyone. Thank you, and Victor, good afternoon,

to we significant I results, third of us over last worked our highlight during our the capture profitability. substantial financial has the quarter the our improve team's completion operating cost to of reduction multiyear efforts with the meaningfully pleased reviewing Before cost very as helped initiatives. want couple I'm which savings years,

of goal year-end million During $X $XX million XXXX annualized to quarter, cost cost cumulative the we savings exceeding of $XX.X million our to annualized to third savings, in approximately realized cumulative and XXXX, back bringing cost year-to-date million. May dating annualized $XX our savings

to million ARR grew Now, our results. rate X% XXX%. retention net third and was quarter turning $XXX to our

Growth lesser primarily ARR customers. from ARR to compared customer benefited expansion in NRR also typical contracts products. As extent to churn and and ARR a by and from offset NRR partially last and new in related to an benefited year, end-of-life increase churn was

by XX% expected last the QX, in decline Within Security services and Third lower XX% Digital X% license Maintenance primarily in Security million, decline a a and revenue growth revenue. revenue revenue Subscription due X%. as quarter our to by to continued XX% grew unit, software to was to than Security in Digital and XXXX Solutions model. offset SaaS revenue of $XX.X year's subscription business was Agreements declined in grew design grew revenue $XX.X and million, hardware transition we XX%. XX% growth including Agreements.

Third segment, increase primarily increase capitalized including and margin the prior product in The increase in XX.X% in decrease in an Digital software an favorable by mix quarter. Agreements. software by depreciation compared costs in within partially to year in quarter was offset margin Security our hardware, gross gross was driven a XX.X% of

non-GAAP and Third year. decrease quarter an the increase lower improvement operating to gross profit in year. $X.XX third million was restructuring XXXX. dollars in year-over-year third last per of loss product was net of compared and to period the costs. GAAP $X.XX expenses by was the lower in XXXX. quarter $X.XX the income same quarter per million loss The earnings vendor-related to a third the in per quarter primarily $X.X a to of discussed, due income Non-GAAP compared of $XX.X a favorable XXXX of GAAP in of of per costs, compares This earnings in the was share just an from share net GAAP operating share headcount primarily share driven $X.XX in last mix third operating quarter

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

of unit. our points approximately the Agreements the in was unit $XXX the X.X identity by negatively of X% quarter year. our grew to percentage impacted Turning relocation business Security Digital products business ARR third to through million. at Solutions growth the verification to beginning ARR

and headwind $X.X products was year-to-date. quarter ARR the $X addition, to related approximately In in end-of-life million million

line in hardware with expectations by software-based to in the margin $XX.X $XX.X primarily to $XX.X to increased of licenses. customer in to other attributable as quarter. declined the primarily and expenses perpetual The margin the maintenance expansion to and increase revenues and Security due to XX% of XX% mix. Operating attributed was for from to activities discussed was in favorable income legacy of existing gross enhancement improved is we in revenue revenues XX% previously. million, million, operating Security $XX.X decrease and was our XXXX licenses and last operating compared profit quarter declined support gross term million Third our margin was XX% restructuring XX% reduced segment XX% we primarily million. Security XXXX. drove majority declined margin in reduction performance. as third combined product million to compared contracts authentication The year's XX% to expected to Maintenance primarily year-over-year in cost the profit with customers revenue subscription continued QX revenue by $XX.X and transition Hardware driven design solutions. quarter third

verification Agreements headwind third and was X the $X.X by year-to-date. agreements Turning business in relocation ARR million percentage Digital identity to than related approximately the of ARR million quarter growth year. to of products end-of-life the at due quarter to the ARR grew digital points XX% beginning million. unit. to $XX our less to benefited the products approximately in $X

of relocation million, new XX% the $XX.X revenue consisting revenue contracts renewal to XX% SaaS identity Third of products. Subscription to driven revenue grew verification $XX lesser XXX% expansion primarily a grew million. by quarter of and contracts to and extent,

or $X.X operating gross in million significant year. Third XX% compared quarter gross other revenue improvement operating quarter. profit and primarily to was prior loss increase revenue million by revenue an in XX% of to to driven cost margin year-over-year depreciation XX% $X.X reduction as profit or decrease driven in was the in dollars, attributed performance costs. compared by income an along capitalized activities. of and of Operating last expenses, software in in change as was an primarily XX% increase was restructuring QX The of a The with year

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

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

of in XXXX, For revenues. offset the are anticipated previously hardware reflect our reduction the partially full token previously stronger year shipments, to subscription than issued narrowing a we range expected by guidance revenue

the range range $XXX guidance of range in are EBITDA to year driven anticipated million improved million. to $XX to we of guidance $XXX be and million the the as in the operating savings to are our million $XXX in guidance specifically, million EBITDA range million $XX previous to increasing $XX $XXX and Victor? to of compared ARR our end of million reflect concludes revenue to expect leverage affirming We initiatives. More we million originally guidance our $XXX compared remarks. $XX adjusted as of of our stronger to million. That than million our adjusted be to my range significantly ARR previous to to $XXX cost execution by

Victor Limongelli

the proud work I has Jorge. stronger team. on much entire OneSpan in rigor and operational resulted you, the company. am focus Their last quarters over very several a hard of Thank

and generate to compared more cash much ability Our to has recent as profitable years. we significantly improved are

Looking to and efficiently our value returning committed to to shareholders to profitably. Jorge and delivering ahead, I our questions. we value growing be to are will now and revenue your customers take by happy

Operator

question Securities. of First from Catharine Trebnick Rosenblatt Instructions] comes [Operator line the of

Catharine Trebnick

talked lot you've a focus update the was interesting I you stock. came when that Can that of that us So you back execution. areas about to are think was I and out? with where one on an ecosystem on Because your the give I building covering thought

Victor Limongelli

front, partners. that And in than to but more want reported. would that the have in we business we date extend the say is past. reach is progress impact through the by I some our to future It's grow ways on working to we the numbers not the the of in one Yes,

midmarket direct And we over when -- deal as more efficient the biggest scale, it's for the XX force with So that of have customers. to work about for banks XXX talk partners. talk as sales and a through example, that of banks about to we having we force. sales an can we banks, direct But other -- banks way lower our us, address

sign So to we've partners. started up

I We as in continue Europe, have that of a to new the move develop channel see into XXXX. leader and we to expect

Catharine Trebnick

right. All

on or impact revenue? positive X it's of So -- a quarter impact more type out of X

Victor Limongelli

Certainly.

on productive signing is they're So impact getting them up for revenue. what's some partners, to and takes time and it probably trained, them even before longer now going materially

Operator

Our from BTIG. next line the question Trevor comes of of Rambo

Trevor Rambo

Powell. Gray on results. for on Congrats solid Trevor is some This

churn I to you the but about hardware business So on kind of you're and it during seeing to That guys remarks. now earlier customer guys in color And overall touched on would what a I you be you into know as know because add And in prepared are bit the the how say prepared year? in seeing you now macro year? next going the more is will could that well compared you some little start, forward great. some what remarks, mentioned environment the around

Victor Limongelli

in segment Sure. definitely going more than years hardware, lesser in was done so so things Pac, With going and In on still couple ago, to a and a respect consumer in front there's Europe in in a while. on. computer. of that has extent Corporate for a a corporate authentication to Less been there some retail Asia there's the trend banking of banking screen, banking. be tends front to of mobile

I amenable more than it's banking. to consumer So hardware, think,

solution bank we -- that our decade, use And a and hardware -- hardware, back-end see been enable software. in look authentication hardware that same them both for if enables a you The you can long-term that's over trend. So can we if you the last back them some is in that the to see our use is advantage numbers. to going have

all. OneSpan, if their handle they have easy consumers the having So have they're a hardware for different to to hardware and mobile needs handle back-end, back-ends versus authentication then competitor with to have want any with if go one customers majority going going can at for the their maybe they that, needs of X who administer,

helps there's that the our makes still in think It having Trevor. I software So hardware sense, some if strength offering. long-term actually offering,

Trevor Rambo

makes just sense. color. more. then one that's that good Yes, Yes, And some maybe

earlier expected. ramping initiatives, adjusted really and the operating both You you've guys And than your throughout finishing some nice initially margins the both did you year. EBITDA cost-cutting that jobs with been

your guys sustain thinking both but about margins, moving forward, to ability line the this how guess I reaccelerate also those fiscal we finish are year? next as into top growth year head you So and

Victor Limongelli

Great Yes. question.

don't some to the there much growth. of sense And EBITDA. generate and So to of of we'll leverage makes get as We we it think I think think by course, value we don't a we're want get all it operating to be operating going XX. income, having -- through Rule combination

out whether faster whether we partner yet, XXXX for given through we with little respect in we're grow And but we a think are new for our think budgeting are don't looking better. the bit relationships existing channel, haven't certainly grow definitely through we But here that's expansion at and, income, offerings, customers. faster. With peak harder. that looking of will a fact, to to it's there. haven't to from We finished XXXX can fair do to operating on ways at a So our progress it's say be we guidance

We're negative go XXs. additional upper jump, to thing So we to we're make EBITDA. adjusted to XXs not from think XXs Like do we it's but to one can progress. not the go going going make upper obviously from same to

Trevor Rambo

quarter. on Congrats nice a again

Operator

next Our Anja Soderstrom Sidoti. from comes of the question line of

Anja Soderstrom

nice the on Congrats progress here.

is So the are more you than seeing it is initially Or savings more cutting, that thought? cost -- coming you faster? or through

Jorge Martell

here, It I can jump is Vic. in --

So both, it's little of a Anja.

well. team the executed very So

we a quarter. and for the had plan, So particularly third second

those savings expected. of than earlier Some we came in

you so the And we for obviously, then adjusted EBITDA numbers in guide the changed see And reflected favorably. that sure. that

more are we some we unplanned So also it sure -- how work then and smarter, some of that as savings identify do do make trying how efficiently. we of that we always can identified you do to things is

So these come you led process efficiencies vendors some operational of through or either to light. to that just improvements

estate of accelerating of also, to you or terms those And certain have increasing of on into so like comes plan. And extent, in of some fruition that idea those some of footprint, some real that some is may to an a savings. but

but of planned. may the be bit in new, of contribute to terms not little mix So than maybe a vendors that nature savings be different originally different of may the the it maybe

of So these. both we'll take

Anja Soderstrom

and maybe adjusted that increase the smaller do contribute on is the about as to hardware Or operating expect a and EBITDA we gross part the EBITDA? does now, And the -- to be side? think Okay. margin becoming with higher you also mostly it that

Jorge Martell

talking You're about XXXX? for

Anja Soderstrom

'XX?

Jorge Martell

'XX. For

that So bit. maybe little to unpack a

in of like QX. overall, increasing I to our low we're a in bit -- terms going saw to benefit So little just we're think the you that expectation the XXs,

I a units, in DA that hardware. the will APAC is XXs. and because business mix low the talked about We clients If guess -- actually the Hardware at come increasing look with Security be DA you of X of better margin. both

So an improvement bit that's of little there. driving a

just discussion that from of So answer low we question, a from say the to maybe XXs, XXs. going the high had ago now your likely think earlier I in can it's couple the to be quarters guess we I

it's So overall. an increase

Anja Soderstrom

in how Security the Okay. think should forward? jump that And there What in about the jump subscription, drove the And Solutions going that? a nice then was sequentially. we

Jorge Martell

missed the question, first of you repeat can I the Sorry, Anja, part that?

Anja Soderstrom

how The jump what going about Security the we sequentially should subscription jump, And drove for think the in that? that forward? Solutions,

Jorge Martell

Yes. cross-sell progress demand customer authentication our No, very good existing also to base. for on we Anja, we application continue to products mobile the side that see products,

what so primarily revenue. on And subscription that that is drove the

in of licenses a adoption, So lot seeing particular. good we're new

of are perpetual those term. Some obviously conversions on the to

And see tend so to those upside to we conversions. price

benefited either quarter So also or the that sequentially. year-over-year

Victor Limongelli

that. me add comment a let Anja, to

exceed that subscription. XXXX, top hardware the you that, security when and security look and you count first revenue about maintenance If And software at revenue. X/X's it's our just of support on is time BU will subscription

that has of the leverage certainly helped that So BU. operating

Anja Soderstrom

the be Okay. level in Security Solutions? what profitable do sort expect to And at you of revenue

Jorge Martell

Yes.

X -- of that So our generates the that Security Solutions profit. know, most as the highest you is the was one BUs, --

that doing look can business mid the low in you a if probably head, good is Anja, revenue looking the at math probably you're numbers. just But for unit, number. for here just a to at -- just mid-XXs If you my at look look mean, try -- to I breakeven

yes. -- on So a quarterly basis,

Sorry.

clarify that. Just to

Operator

turn am further questions time. for Joe this now at I closing showing no to like to back I would Maxa remarks. it

Joe Maxa

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

Operator

program the in disconnect. This All conference. does you for conclude you Thank may right. and your now participation today's

OneSpan (OSPN) 30 Oct 242024 Q3 Earnings call transcript