Earnings Call: OneSpan Reports Growth in ARR and Subscription Revenues in Q3

image

Earnings Call: OneSpan Reports Growth in ARR and Subscription Revenues in Q3

OneSpan (OSPN) showcased strong financial performance with remarkable growth in Annual Recurring Revenue (ARR) and subscription revenues, despite an anticipated decrease in hardware sales leading to a decline in total revenues in Q3 2024. The company's adjusted EBITDA reached $17 million, representing 30% of the revenue, and ARR increased by 9% to $164 million.

Additionally, OneSpan reported a significant turnaround with a GAAP net income of $0.21 per share compared to a loss of $0.10 per share in the previous year. The Digital Agreements segment achieved profitability for the first time, while the Security segment maintained its high profitability with an improved gross profit margin. Cash generated from operations for the quarter was $14 million, leaving the company with $77 million in cash.

Key Highlights:

  • OneSpan reported a 9% growth in ARR, reaching $164 million.
  • Total revenue decreased by 4% to $56.2 million, primarily due to the drop in hardware revenue.
  • Subscription revenue grew by 29%, accounting for 60% of total revenue.
  • GAAP net income per share was $0.21, a significant improvement from the previous year's loss of $0.10.
  • Operating income rose to $11.3 million, up from a loss of $4.8 million last year.
  • Full-year revenue guidance was narrowed to between $238 million and $242 million, with adjusted EBITDA estimates increased to $65 million to $67 million.
  • The gross profit margin for the Security segment rose to 75%, with operating income reaching $20.2 million.
  • The ARR for the Digital Agreements unit increased by 16% to $60 million, with revenue growing 18% to $15.4 million.
  • Geographical revenue distribution: 40% EMEA, 39% Americas, 21% Asia Pacific.
  • OneSpan is focused on growing revenue efficiently and profitably while enhancing its partner ecosystem.

Company Outlook: OneSpan narrowed its full-year revenue guidance to between $238 million and $242 million and confirmed its ARR guidance of between $166 million and $170 million. The full-year adjusted EBITDA forecast was raised to between $65 million and $67 million.

Negative Points:

  • Total revenue decreased by 4% primarily due to expected declines in hardware revenue.

Positive Points:

  • Subscription revenue grew by 29% and currently accounts for 60% of total revenue.
  • Both the Digital Agreements and Security segments showed profitability, with the latter achieving a gross profit margin of 75%.

Concerns:

  • The gross profit margin in the Digital Agreements segment showed a slight decline to 72%.

Q&A Highlights: Jorge Martell forecasted an increase in adjusted EBITDA for 2024, with gross margins expected to rise to the low 70s. Strong demand for authentication and mobile application products contributed to a significant sequential increase in subscription revenue for security solutions, which is anticipated to surpass hardware revenue for the first time in 2024. The breakeven point for the Security Solutions business unit is estimated to be in the low to mid $20 million range.

OneSpan's Q3 2024 results reflect a strategic shift toward higher-margin software revenues and a focus on profitability through operational efficiency. By expanding its partner ecosystem and emphasizing expected growth in security subscription revenue, OneSpan positions itself for efficient and profitable revenue growth in the future.

InvestingPro Forecasts: OneSpan's (OSPN) Q3 2024 results align with several key forecasts from InvestingPro. The company's strong financial performance is reflected in its market position with a market capitalization of $627.52 million, supported by strong revenue growth and profitability metrics.

InvestingPro data indicates that OneSpan's trailing twelve months revenue was $247.53 million as of Q2 2024, showing an 8.99% revenue growth. This growth trend is consistent with the reported 9% increase in Annual Recurring Revenue (ARR), reaching $164 million in Q3 2024. The company’s focus on 29% growing subscription revenue, which now constitutes 60% of total revenue, supports this positive trajectory.

The company's profitability stands at a 69.43% gross profit margin as of Q2 2024, aligning with the reported high gross profit margins in both Security and Digital Agreements segments. This profitability is further emphasized by an InvestingPro Tip showing that OneSpan has been profitable over the last twelve months.

Another InvestingPro Tip highlights that OneSpan's net income is expected to increase this year, consistent with the reported GAAP net income of $0.21 per share in Q3 2024—a significant improvement from the previous year's loss. This positive trend is also reflected in the raised adjusted EBITDA forecast for full-year 2024.

InvestingPro provides 11 additional tips for subscribers, offering a comprehensive view of OneSpan's financial health and market position. These insights may provide valuable context for investors assessing OneSpan's potential in light of its recent performance and strategic focus on subscription-based revenue and operational efficiency.