Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OneSpan Inc (OSPN, Financial) reported a solid profitable quarter with an adjusted EBITDA of $17 million, representing 30% of revenue.
- The digital agreements segment was profitable for the first time on a fully burdened basis, including corporate allocations.
- Subscription revenue grew 29% and accounted for 60% of total revenue, indicating strong growth in recurring revenue streams.
- The company generated $14 million in cash from operations in the third quarter and $43 million year to date, showing significant improvement from the prior year.
- OneSpan Inc (OSPN) achieved substantial cost savings, realizing $3 million in annualized cost savings in Q3, bringing cumulative savings to $76.5 million since May 2022.
Negative Points
- Overall revenue declined by 4%, primarily due to an anticipated decline in hardware sales.
- ARR growth was impacted by approximately $2 million from products that were sunsetted, contributing to top-line and ARR headwinds.
- The security business unit experienced an 11% decline in revenue, primarily due to a decrease in hardware revenues.
- Maintenance revenue declined as the company continued transitioning to a SaaS and subscription license model.
- The company anticipates a continued decline in hardware revenues into the next fiscal year, which may challenge security growth in the near term.
Q & A Highlights
Q: Can you give us an update on your ecosystem and building that out?
A: Victor Limongelli, CEO: We are focusing on extending our reach through partners, particularly to address the midmarket and smaller banks more efficiently. While we have made progress, the impact is expected in the future rather than in the current numbers. We have started signing up partners and have a new leader of the channel in Europe, with more developments expected as we move into 2025.
Q: How is the overall macro environment now compared to earlier in the year, and what are your expectations for the hardware business?
A: Victor Limongelli, CEO: In the retail consumer banking segment, especially in Europe and Asia Pacific, there is a shift towards mobile authentication. Corporate banking, however, still relies more on hardware. Our solution allows banks to use the same authentication back-end for both hardware and software, which is advantageous. We expect hardware revenues to continue declining modestly year-over-year.
Q: How are you thinking about sustaining margins and reaccelerating top-line growth?
A: Victor Limongelli, CEO: We aim to achieve the Rule of 40 through a combination of operating income and growth. We are exploring ways to grow faster, such as through partner channels and new offerings. While we haven't finished budgeting for 2025, we are looking to grow faster. We believe we can improve operating income further, although progress will be more challenging from here.
Q: Are cost savings coming through faster than expected, and how do they impact adjusted EBITDA?
A: Jorge Martell, CFO: The team executed well, with some savings realized earlier than expected, contributing to the favorable change in adjusted EBITDA guidance. Some savings were unplanned, identified through process improvements and operational efficiencies. We are also seeing benefits from real estate footprint adjustments.
Q: With hardware becoming a smaller part, do you expect gross margin to be higher and contribute to EBITDA?
A: Jorge Martell, CFO: We expect gross margins to be in the low 70s, an increase from previous expectations. This is driven by a favorable mix of APAC clients and improvements in both digital agreements and security business units.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
