OSPN - Earnings call transcript Q4 2024

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Operator

Good day, and thank you for standing by. Welcome to the Q4 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. Please go ahead.

Joe Maxa

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

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

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

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

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

Victor Limongelli

Joe, solid we in Fourth profitability, was quarter for Thank in the X.X% burdened the and We was XXXX. year XX% work for increase of Agreements XX basis. driven I you driven software, quarter EBITDA including afternoon, of another by Full team's achieved that a authentication adjusted Subscription operational of grew revenue. accounted full excess of Digital for $XX XX% million, percentage $XXX reported in adjusted our growth am $XX revenue, quarter and XX% were in growth record on today. and profitable Security. Subscription both or of the and grew you, revenue, year year-over-year. solutions X% year. units thrilled quarter million high demand revenue, year an of continued points XX% excellence. fourth for EBITDA adjusted for and and or XX% Thank fully by revenue EBITDA full to joining on both for good e-signature total million focus everyone. ARR business again and hard the us

operations on X% total prior XX% year. revenue X/X the but and prior a fourth revenue in growth grew from nearly subscriptions, hardware, and revenue and revenue, of in periods fourth and the million calls, grew million both year. in the including accounted used in revenue million generated transitioned year, term in $XX Software Last year. during XXXX is improvement we to the the X/X be we expected discussed cash continue the year. to for revenue services hardware cash a revenue significant our decline pleased in excluding the and in decline by software partially offset $XX cash licenses X% a the roughly generated Strong for as cash We prior to of by in from $X with for time. I year, that maintenance Total and we fourth quarter subscription over generation. or in lesser declined and SaaS million quarter for extent, up in which from quarter $XX was the in

on $XX million the year. XX, December of of the beginning $XX As increase an we million hand, had in from cash of

term. Notably, to results our long believe us us profitability During positions and the and I operational discussed, several revenue revenue the company additional growth multiyear that year, achieved which higher-margin sales financial revenue our better helped subscription and strong year. just milestones record software that deals, term growth over we closed for the profit significant focusing to achieve drive on team I to software helped more the increased the drive gross transitioning continued and successfully to

XXXX. Three ARR increased on discussed the our it operating and our this profitability. impacted offerings which in we to improved nearly increases margins; XXXX strong savings software in gross results prior of to We great low several our renewal reflected last sunsetting driven first, resulted each, basis combined operational in higher a and revenue rate, as improvement team, throughout mix year-over-year efficiency that to work helped factors third, our cost calls, products of cost in and additional also substantially significant include: in related return improve initiatives improvements certain discussed multiyear completed on-time initiatives, by these which, our revenue resulted by by our by contributing profitability quarter. savings points and dollars second, although our with also team; investment efficiencies the SaaS on our million our XXX which renewals The R&D were in

lesser in an extent, revenue consumer revenue with agreements X a driven conversions very QX to in The by solutions renewals. was on-time units. In policies renewal, XX%, driven Turning to in demand banking. EMEA adopting increase software extending in overall at to perpetual an including in existing banks contracts mobile-first APAC, primarily term to growth authentication increase strong our was business and multiyear subscription upon decline Security, continued customers, by and for respect hardware from

QX expect by logos. year, hardware at also profitable the a were business revenue We Digital continuing was segment and to expansion Both units new XXXX. In subscription to growth Agreements, level contracts in to extent, lesser the Security with and quarter in for very trend driven this impact the revenues be profitable.

for goal growth to units and Our to profitability. continues deliver be both strong

the The world's prospects that, largest the our business us generated driving progress an in made have in deliver business We to placed thrilled CTO trust expect XXXX. in banks, XX% on on To to than help goal by in dramatic opportunity profitability we make Security. We Agreements strides strong expect more our terms emerging in XXXX, R&D to us to effort. digital and increasingly continue our including in with Digital recently segment continue that this XXXX and of adjusted to the customers, XXX EBITDA significant in increases innovate on we with and expect current generation we dramatic cash achieved deliver and profitability, solutions tremendous compared a provides operations improve to these with value-added him in XXXX, are problems. hired in from improvements operations and customers to we cash from we new though leading and metrics more and to solve modest identity of expertise,

weighing dividend plan results. quarter are even and ago, M&A. With additional report Jorge. X of we in the of dividend quarter a you well shareholders to to expected our paid the quarterly dividend, next will when cash, in is the increases XXXX. generating Bear potential over cash capital that probably our first payment timing the after expect as the targeted the weeks history. allocation the we be in investments turn announce in first dividend to I to strategy, return quarterly call with that as aware, second operate we capital organic that, as We occur and in business paying Payment will continue Finally, of to OneSpan's Jorge? Board mind the to balanced

Jorge Martell

Thank and to grew was strong X.X% retention year XXXX am good I everyone. and XXX%. full and our results. quarter reported in million, you, rate that $XXX ARR pleased another Victor, we afternoon, net

ARR primarily to prior products from on services Agreements revenue, and NRR quarter expansion XXXX million calls. Fourth to from lower last churn QX, As due related ARR lesser Security than primarily Growth software discussed benefited expected year's contracts by is X% revenue discussed previously decline Security excluding in revenue the or customer and also NRR was impacted that end-of-life X%. compared hardware, and $XX.X Digital revenue. hardware benefited XX% extent, new revenue, and customers. to ARR Security year, in last grew as a to and was grew

million decline Solutions $XXX.X For by growth revenue in by growth Security in existing extent, prior XX% XXXX, hardware. Subscription offset and in XX% the by grew XX% driven to the grew The driven in the an in and in strong $XX.X the the growth Authentication Agreements, partially renewals Digital expansion Security a lesser Digital XX% million, term primarily including Agreements. customers to in quarter, multiyear and full license contracts revenue Signing year. X% increase was expected improvement subscription growth XX% deals Solutions, Transaction with customers and Services existing in from fourth year to Software in Security and led Security growth on-time versus for revenue by

primarily due prior services XX% XX% growth the growth For transition XX% the the licenses to and for Agreements. Maintenance in and million, in quarter Security subscription in XX% and quarter was fourth over full year design, declined compared to and to our software by Fourth revenues year Digital Solutions grew $XXX.X year quarter. professional and term margin and revenue XXXX, XX.X% by gross to XXXX full in SaaS time. led other support the

$XX.X product lower the product was for combination the increase margin revenue year full the the compared operating of primarily liquidation prior to sunsetting the and income efforts. Non-GAAP and XX.X% excludes in XXXX. and million and in was and $X.XX and The mix favorable period. margin both was to in software XXXX, respectively. earnings lower fourth to a was a quarter and $X.XX This and headcount per year, in year significant our the full period, periods of operating for XX.X% by the For XXXX. XX.X% full $X.XX including within full U.S. and XXXX. allowance, period XXXX increase decrease gross mix, impact Switzerland year the in our transfer margin mix in driven nonrecurring full year the decrease an $XX.X earnings benefits of expenses XXXX Full The for million of the compared $XX.X $X.XX amortization, compares for year-over-year XXXX. of for Fourth $X.XX the quarter release per the quarter income GAAP $XX the $X.XX year was XX.X% benefits compared improvement other the income was tax in respectively, incentive per last million $X.XX QX like share long-term lower million restructuring subsidiary EBITDA XXXX share property GAAP year share of tax significantly respectively. $XX.X and share per the charges, net and as adjusted to of non-GAAP was the costs full gross favorable of compared quarter Full XXXX. year. and million $X.XX XXXX and to and net the our a by adjusted adjusted $X.XX, costs. costs. GAAP items year million as primarily share, net revenues. Fourth of restructuring XXXX, by to net quarter an the was increase an to gross margin intellectual compares vendor-related and of which was income GAAP increased compared year dollars GAAP quarter XXXX in segment, X.X% loss income from was loss driven restructuring as income was to $X.XX Dealflo part the of in just from The included income full fourth fourth hardware driven in a in to the and Security and profit of share strong just gross in of year last discussed, This favorable compared fourth of quarter net $XX.X million GAAP year. operating mentioned, tax per in to a benefits due operating Fourth EBITDA $XX.X same $X.X increase the EBITDA compensation, Security primarily for of prior income related restructuring year margin EBITDA and year-over-year lower million XXXX GAAP the adjusted and our product per quarter valuation expenses, to fourth operating of the XX.X%

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

partially related negligible expansion products, declined to and In revenues million year. Security the XXXX, ARR full $XX.X in X% and $XXX.X sunsetting Solutions same revenue the profit the quarter Security compared quarter primarily gross increase for activities and Dealflo hardware $XX.X Solution. year. the QX compared gross operating $XX.X performance. million to XX% existing million offset subscription income $XX.X XX% primarily revenues million subscription and products of by or attributed drove full million declined quarter to margin, due authentication to year for the and million XX% increase in and margin in the in $XX.X product $XX.X to favorable XX% expenses, the full the operating lower licenses of fourth last or restructuring improved of to The addition, in customer the driven and the mix. with increase margin million XX% software-based revenue for in to to in to increased combined $X Fourth XX% was of strong XX% XX% respectively, of reduction $XX.X in headwind revenues from primarily Hardware our other X% customers quarter for Security in revenues. end-of-life profit quarter in the expected majority primarily cost as fourth million to revenues year to attributable year XXXX. million, the an was and XXXX mix XXXX QX The decline was period by approximately to XXXX. is

and of by in Agreements. of points revenue $X.X compared Digital grew verification benefited and income operating $X.X this grew products operating an $XX transition a to in by as change to respectively, software approximately the identity and ARR in X% The in $XX.X the XX% due XX% ARR to X to an an Fourth business in XX% in million year performance and The unit compared percentage growth turning relocation million, depreciation in improvement result year XX% Now the grew to gross minimal million. and revenue costs. full revenue in year-over-year quarter ARR of the and in in $X prior was XXXX periods at approximately verification cost to end-of-life transaction ago expenses, for year product. Subscription year e-signature the loss expansion decrease maintenance to and related other quarter the margin QX XX% was or the products quarter. of million capitalized was full XXXX. The driven a beginning respectively. to on-premise of licenses higher XX% was full as quarter headwind was maintenance driven year-over-year and the of platform million revenue by revenue renewal by both to increased identity and for quarter. $XX.X increase volumes, a in of as of reduction primarily lesser XXXX Agreements profit cloud costs fourth Fourth to related $X.X increase as million million we or $XX.X lower year at Digital activities. driven to the and attributed partially operating revenue restructuring $XX a revenue XXX% primarily was SaaS compared for and to extent, XX% as the contracts of relocation by sunsetting contracts XXXX. reduction products, new to to revenue e-signature same our million increase million, of periods X% offset primarily XXXX.

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

Pacific. We XX% and year, to XX%, compares the the and Geographically, in This was of from Americas; region from quarter revenue the XX% in fourth of by from EMEA; have XX% fourth same no regions XXXX quarter mix last the long-term XX% Asia XX% debt. for our respectively.

by to year XX% Americas; mix same the compared Asia the XXXX, was revenue XX% the regions and For the and from from an respectively. I XX% from from XX%, outlook. region our XX% in XXXX, full provide Pacific EMEA; now XX% update to will financial

For double-digit the full expect subscription year XXXX, revenue growth. we

to subscription us as and methods XXXX. in on to capital in to and focus contracts mentioned, as achieve return capital quarterly maintenance cash revenue profitability perpetual transition certain via Victor a on-premise strong generation of our continue to segment and to for other in year strategy. excellence potentially strong us We expect recent We Security the operational trend will to believe allocation balanced licenses, another enable and hardware shareholders enable of cash part dividends our

in year be full to million to of concludes $XX million $XXX EBITDA we the the $XX of million. That $XXX For to be in revenue range XXXX, adjusted the and $XXX expect the of to range ARR $XXX remarks. million, to in my million range be Victor? million to

Victor Limongelli

shareholders drive profitably. committed our to us has increased term. We in Thank delivering quarter OneSpan first by conclude value work Their delivering you, the revenue remarks rigor growing very hard quarters Jorge. and much over thanking want and to returning long entire operational dedication I a and and by to growth our over to and value full the team today's to last strong customers efficiently for better year. position profitability several remain a to the to

be level. Jorge performance We software will remain a your driving questions. revenue to will driving higher-margin Rule focus to take committed and achieving continue I, and XX on happy to now of towards

Operator

the comes from [Operator Instructions] of of Powell line question BTIG. Gray Our first

Gray Powell

Okay.

my side. or Just X on had X

it the year, of in your initial back So guidance. like at looks looking at end high kind maybe your of results the last came ARR just

midpoint well basically I what revenue, on You anyone the like and think was exceeded above hit you substantially EBITDA, on then expecting.

So I surprise ago? you feel do where XXXX? well in think things if most guess out is, plays question the upside potential you to do you a today on year And my how about versus the have it

Victor Limongelli

for Thanks the Yes. question.

ago. to a structure able couple spot than the can revenue. There's company better to increased this we shape of the right in a in We months we where as were of generate we we're things cost get XX So grow tremendously profits consider. were

First, on authentication have it's solution. broad realize important very the Security I side, to we a that think

about and If offering, support and hardware think can we authentication cases multiple Retail you and we're we transaction We and what offer serve FIDO, we workforce have across we cases. signing. On-prem Cloud, and have use emerging software, Banking, OTP use and Corporate login,

in So we in. And be and opportunity continuing area to feel business Agreements, an to we're additional growth we're like going in a that we're opportunities, to but we grow layer to Security. on think, it's good going investing have we going forward, invest Digital

one So of at December. rate the quite the heading guidance, for were year, we the shifted we the when and the XXXX, that doing our planning into look if things And a our when things ahead November one in saw set we of budget exchange looked bit. is we euro-dollar we

in to we we bit of a little cautious thought would So have more maybe that mind than the to how to tell be otherwise things XXXX we do were were is that, been. for shift getting we we one going you caused us set kept as

of our couple So hundred our hedged our revenue in company in euros. a of we -- is because we're business business, employees naturally if a XX% And of you have Europe. about as look at

million. and difference of XXX and [ about side, side EBITDA an the ledger. But on revenue really the the ] isn't this $X.XX XXX is $X between versus $X.XX So

So there. it's growth couple of of a points

revenue reasons on bringing currency looking the little as steered well, up of analysis. to just So to intending just you into were kind But a we type I'm in mind guidance that constant towards in it. give that just at we how kept prudent being one not highlight to for get We're we of context 'XX. a the -- it

Gray Powell

And maybe a follow-up Okay. That's helpful. then question.

pretty reconciling versus the good little I'm a X%. at for 'XX, of the about total think ARR I growth fiscal bit So guide XX% trouble revenue guide which at having only is

nonrecurring I on Your Or I potentially between XX% like there's FX in something But a guess comments else missing? hardware mean, imply and there translation help. but and going ARR direct not I'm or that by does revenues like outlook -- is your revenue, or that XXXX? declined I know something

Victor Limongelli

the year, as Yes. last I'll the if Jorge on that's clear, mean, it's business, side, It's trying software at hardware the But not in time. for been long hardware comment that well. we're into just from had let I going a been We've been like definitely on trend. you X-year a but successful, be been to we look transitioning But realistic. definitely something software to lot a authentication. of be revenue to decline

last imprudent add you look you to was we around that 'XX "Oh, flips year, decline thought business hardware, because the there color? say, if and to in want be know to over from big If 'XX." Jorge, calendar it I turn a additional at the don't would magically will

Jorge Martell

Yes.

So other licenses is way about to for multiyear software, the on Security Gray. the particularly term recognized Gray, aspect term, that thing consider the revenue is

go have X also ahead, to benefit would sorry, a But And only you you you -- revenue. add have the is going year, something obviously were then the ARR right? on -- So higher else?

Gray Powell

I No, just Understood. yes. it. got I said

Jorge Martell

factor little So of bit we a the to in do we hardware point, on side. -- a decline Vic's

maintenance and DA going in see XXXX of or first, Security little XXXX. revenue DA, And where going half within thing through because particularly The than half is XXXX, perspective, from call as did I balance on to have well going it, recognize that that ARR. is that you're half other mainly a we in -- the to DA guess, probably life and not end in Gray, this guess, and we on-prem bit of a case, I to revenue it's do higher is

And ended. so contracts those

in comparatively. revenue look see XXXX when more you already XXXX, was then you're impact that in So hit if going at the of to taken ARR -- but

hardware, we to on revenue I be the were But you consider. But puts -- the mentioned. to FX So think it takes the business subscription factor when to to guidance. still overall, these Vic's the we and point, on revenue -- balanced the multiyear, trying came both life down the that's to All units. another then that I the expect mentioned, for also of in keep have just growth exposure that and Vic but end mind, double-digit have

Operator

Our next of question from the Rosenblatt comes line of Trebnick Catharine Securities.

Catharine Trebnick

Can some map? you color are the were are in second question you put were you last expand around your the part you know that where road looking is there summer, partnerships. And product I coming where in that? were some on new products and interesting with you your of out ecosystem to

Victor Limongelli

those Yes. Catharine. mean both say. would I are of Thanks, I things ongoing,

have of our We channel terms ecosystem our in development. expanded

things those this are some related. -- And of X

feasible market, every tokens in market application So I the would salespeople contact to hire us company want FIDOX tokens authentication. don't reach to Workforce workforce enough for for and that's think to direct use we be want an to, Authentication might channel have the possible to and it hardware partners. We a through try don't that

an to channel and dozens ongoing flip It's productive. all do going have light it on not a and partners of hugely a sudden, progress something we're that we're we're are it. to continuing making So -- process, takes but where you of that. And partners, that that's switch channel through you develop

Catharine Trebnick

hear it we I'll right. purposes, some was hardware, modeling is And XXXX? All right. And in I for Security someone say again cede in saw did for similar correct? And similar the follow-on is, deceleration floor it's then then there to the that that what did else. the question you

Victor Limongelli

the on sure. mean, Banking -- you additional have Hardware for specifics, business. we Authentication Yes, Consumer in traditional don't I planned want if talk Jorge, hardware to but know I decline the

Jorge Martell

Yes.

So I think. context, can I add

question. thanks the Catharine, So for

that So so, X-or-so-percent that from I going when think about down the period. if look hardware revenue over been you decade the standpoint on has look you time for last, at year-over-year or average at historically say, it

similar And guide. part in so XXXX, and of we our factored some that's decline

Operator

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

Anja Soderstrom

Congrats the progress on here. nice

expanding customers. of trending In growth logo But coming is like seems you mainly new you? has terms -- new existing from for the it logos, been how the with

Victor Limongelli

Yes.

of the I in side. So side new than you We adding business, to do on space growth there's growth logo Security historically logos, with the the to DA see workforce at new the respect think more the on logos. look new an if be opportunity

whether where a Banking be that's move area it think vendors an the I software On hardware, lot or the Authentication, slowly. Consumer switch more Banking Authentication, customers Retail

So it's there. benefits harder we because proportionately lot to It logos a get have banks. new the us of also

retention performance, see better rates we think, through good be that the channel to X new expect areas partners. So our well. where as can But and also the I logo space are would then Agreement in Digital

Anja Soderstrom

there? what inorganic terms actively Okay. are And seeing And is growth, you in you and there? terms of trending looking are how in of opportunities how market the

Victor Limongelli

something would makes we there's to the it's likely think of And we to, think that interesting be much where find certainly Yes. phrase to can buy think, do them, if that's I customers. that we more targeted be could I that something for is I potentially sell for. rather that some valuable of for or mean -- I revenue, sense trying we'll than the would in something think remarks, customers. have we're consider. unlikely It's It's thousands right to something I aiming something going our alluded to prepared to that we technology good we M&A. us

more it's be than super of likely large scale. kind So to targeted

Operator

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

Unknown Analyst

Rudy. [ This for ] Andres is

ones. couple of a Just

new because just 'XX on extra could your the guys logo guidance, been color retention of a expectations rates you expand your that. in Any on you terms mentioned little that? maybe have In well net doing bit fiscal embedded and side, new you logo

forward 'XX? any for moving So expectations

Jorge Martell

answer can for I Yes, question. Thanks that. the

expect like said, when Obviously, deal, would look end land historically, life, the XXX%. operating some to you you same particularly things. the of noise tight introduces One there. on us the quarters see NRR side, could I numbers within all be tight of you on I year, larger of they've uptick. of bit depends of But It that some to for at a these, this because band couple will our you I then of think some a see XXX%, between been some in guide, XXX%. you is obviously, will XXX% a I in say, XXXX, within So the think noise, a DA would little

that the year, full we're going within be For to band.

And land that will do I'd that XXX%, have bit But say, we'll XXXX, be Andres. end-of-life a so be the within think will guide, there. XXX%, mentioned, as as well, in -- guide, impacting of I the we I little same

Unknown Analyst

guys you been cash doing talk know guys you momentum on on flow. flow have moving forward, the it, obviously, free maybe could guiding I building And expectations generation? great with your but into And not are about like you cash

Jorge Martell

Yes. for cash we're flow the this pleased kudos with entire of generation. team all Listen, to of the obviously And pretty our execution that.

from change to remarkable. saw is really, really So dramatic you XXXX XXXX the

consider the that well For XXXX, we we're on product a software going it. bit as Andres, Also investing, modest the on increases side little be expect channel. Vic in Security our in business as to mentioned, on as both

to revenue the the modest so into or account, cash that taking improvement also adjusted And conversion compared and XXXX. I say, cash flow flow EBITDA from free either in generation would

Operator

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

Joe Maxa

Thank you, We your appreciate Have a nice day. everyone, today. do for joining time. us

Operator

today's conference. your the conclude for program. in participation This does you Thank

disconnect. You may now

OneSpan (OSPN) 27 Feb 252024 Q4 Earnings call transcript