Q4 2021 OneSpan Inc Earnings Call
And accounted for 91% of software and services revenue.
For the year total recurring revenue increased 18% to $120 million coming in at the high end of our guidance range and accounted for 89% of software and services revenue.
Subscription revenue grew 15% to $10 million in the fourth quarter, and 38% to $38 million 40 year.
Growth in Q4, Esignature and cloud authentication was partially offset by a decline in legacy deal flow revenue in.
In addition, the revenue recognition timing of a handful of large subscription contracts adversely impacted our Q4 results.
40 year Esignature SaaS subscription revenue grew 40%.
10 based subscription revenue grew 8% to 9 million in the fourth quarter and 23% to $30 million for the year.
Mobile security and server software were the largest contributors.
Maintenance revenue declined 6% to $13 million in the fourth quarter and grew 4% for the year.
Total company revenue increased 12% to 59 million U S dollars in the fourth quarter and declined 1% to $214 million for the full year 2021.
Hardware revenue grew 51% to $24 million in the fourth quarter and declined 3% to $80 million for the year in line with our expectations.
During the fourth quarter of 2021.
We identified and corrected immaterial prior period classification errors related to certain costs directly attributable to the production and distribution of hardware products.
This resulted in an understatement of product and license cost of goods sold and an overstatement of sales and marketing expense did not however affect overall profitability Adil.
Additional details, including the adjustments to prior periods can be found in our earnings press release and in our 10-K filing published today.
Gross margin in the fourth quarter of 2021.
63% compared to 72% in the fourth quarter 2020.
The difference in gross margin is primarily attributed to product mix with software and services contributing 59% of total revenue in Q4, 'twenty, one as compared to 69% in Q4 'twenty.
We also recognized revenue from a higher mix of lower margin authentication tokens in the quarter and experienced global transportation and supply chain disruptions, which increased our reliance on airfreight.
These supply chain challenges are expected to continue in 2022.
Adjusted EBITDA was negative $1 million for the fourth quarter of 2021.
This compares to a positive $3 million in the fourth quarter of 2020.
Adjusted EBITDA margin was negative 1% in the fourth quarter of 2021 versus positive 6% in the year ago quarter.
For the full year 2021, adjusted EBITDA was negative $5 million and adjusted EBITDA margin was negative 2% outperforming our expectations.
Fourth quarter 2021 income tax expense included an $8 million attributed to an increase in the valuation allowance recorded recorded on U S deferred tax assets.
GAAP loss per share was 35 cents in the fourth quarter 2021, compared to <unk> in the fourth quarter of 2020, non-GAAP loss per share, which excludes long term incentive compensation amortization nonrecurring items and the <unk>.
<unk> after tax adjustments.
24 cents in the fourth quarter of 2021.
Third to our non-GAAP earnings per share of <unk> in the fourth quarter of last year.
We ended the fourth quarter of 2021, with 98 million almost <unk> cash cash equivalents and short term investments.
Impaired to $150 million at the end of last year.
Cash utilized in operations during the year was $3 million.
So during the year, we used on and off of a million dollars to repurchase approximately.
342000 shares of common stock.
Geographically.
Revenue mix by region in the fourth quarter of 2021 was 53% from EMEA.
30% from the America, and 18% from Asia Pacific.
For the full year 2021, the revenue mix by region was 14, 9% from EMEA.
32% from the Americas, and 19% from Asia Pacific.
I will now turn the meeting back to Matt.
Thank you Jan Kees as mentioned previously we will update you on our go forward strategic plan at our Investor day in the second quarter, including how we plan to become more efficient by better focusing and aligning our organization from a go to market perspective.
I do believe we have an opportunity to establish a clear a disruptive leadership position in the markets, we serve by leveraging our strengths and identity security and compliance.
By leveraging our security and transaction signing expertise. We believe we can provide significantly differentiated E signature and other digital physical agreement solutions.
We have work to do including optimizing our solution portfolio.
I'm confident we have the ability to unlock shareholder value by improving our execution in core markets and a better aligning our cost structure and routes to market to our most promising growth opportunities, thereby improving our capital efficiency while.
While we have much of what we need today, we plan to add permanent pieces to drive increased growth and profitability in the coming years.
As you can see we ended the year with solid momentum and have made strong progress in the development of our long term strategic plan, but there is more work to be done in flushing out the details.
Recognizing the work to be done ahead of our mid May Investor day, and the desire to share more fully the details of our long term plan, we will not be providing detailed 2022 guidance at this time.
However, and importantly for 2022, we expect revenue to meet or exceed 2020 one's level.
For adjusted EBITDA to be breakeven or better for the fiscal year.
In closing I'm excited about the future of once again and look forward to discussing the details and metrics of our full year outlook and long term plan at our Investor day adjusted of course.
With that Jan Kees and I'll be happy to take your questions.
Operator.
Thank you if you'd like to ask a question. Please press star followed by one of your telephone keypad.
For any reason you'd like to remove that question. Please press star followed by two again to ask a question press Star one.
Streaming today's call please dial in and into Star one as a reminder, if you're using your smartphone if you're using a speaker phone. Please remember to pick up your handset before asking your question. We will pause briefly as questions are registered.
Our first question is from Chad Bennett.
With Craig Hallum.
Please proceed.
Great. Thanks for taking my questions.
Welcome Matt and.
We look forward to working with you in the future.
So I guess a couple of things first on on the subscription line.
Just in terms of.
I guess first question would be if there's any quantification on on the revenue rec impact on that line from I think you indicated a few large transactions that just timing wise didn't hit in the quarter is there any quantification you could provide there.
No we're not prepared to do that.
Okay.
So.
I guess.
Maybe maybe.
More importantly going forward.
Is there.
How should we view the growth of the subscription business going forward and related to that.
Is there have you have your thoughts changed it seems like you are.
Pretty.
Optimistic about each sign in being able to sell that in more places and in digital agreements being a big part of that and whatnot.
Do you think the growth rate of the E sign business.
Do you think that was a business that kind of had some pull forward in the last four to six quarters, where.
Growth rate of 40% plus is going to be more challenging or how do we think about overall subscription growth going forward.
And we do anticipate sequential growth throughout 2022, and we're working through some of the elements of that mix now when our long term strategic plan.
Absolutely laser focused on the subscription side of the business, but given the continued material portion of our total revenue that does come from hardware, which is perpetual you do see from time to time, a dampening effect with the with the over performance on the hardware line.
Again hardware is not a bad thing as part of our total solution portfolio, but it should be increasing or decreasing portion of our total revenue on a go forward basis, and we're right in the middle of that transition right now, but the real will have much more detailed for you on that plan as we as we disclosed that in the May timeframe.
Got it I appreciate you taking my questions. Thanks.
Thank you Jeff.
Thank you Mr. Bennett for your question.
Our next question is with Stefan Schwartz with BT I E.
Mr. Schwartz. Please proceed.
Okay.
Hi, This is Stefan on for Greg Thanks for taking my question.
Hmm.
Prior to that.
Hi, Thank you so related to the dampening effect created from perpetual.
I wanted to ask how should we think about that shift from perpetual and.
Multiyear term impacting headline revenue growth for the year and how close do you think you are at this point and have that transition.
Okay. Thanks.
Last year was running.
We've largely concluded it transition from the legacy business model. If you will to a subscription based business model as you know the subscription model is comprised of term and it's a more traditional SaaS subscription from our esignature business.
We've largely gone through that migration and what we have now is a laser focus on the elements of <unk> drivers, which are new customer acquisition, obviously better cross selling as I alluded to in my comments and then making sure that we're laser focused on ensuring the customer churn rates are low.
So that's really where I'm. Most excited is not so much moving beyond the business model shift in and of itself, but the operationalized and of our strategy to go drive IRR. We're hard at work doing that now in our long range plan, but also equally important bringing a level of transparency to the investor community about how they should be viewing the business in total.
But also these two different dynamics that exist inside of the company.
Got it thanks and then.
Just one more.
It looks like you had a few.
E signature wins I was hoping maybe you could drill down maybe why you win.
<unk> against <unk>.
Jackie side, which I think you mentioned.
Yes, Im very heartened by what I've seen in here when we do the right things with the right customers the natural behavior of a land and expand in our renewals happening.
I think where we can benefit from as being more focused in the segments.
Our horizontal segmentation, where we where we win the most.
One significant benefit for <unk> relative to the Doctor sign Dr. <unk> was born in more of an SMB environment and real estate and they've worked themselves into a nice enterprise company obviously.
<unk> was born in the enterprise and very discriminating environments, and very complex heterogeneous environments. So I've been pleased to through my customer conversations to feel like we have a significant feature parity in the areas that customers count on most so that the features aren't a big discriminator or lack of a dip.
Perimeter against Dr. <unk>, who is significantly larger, but where we are winning is that we seem to be more enterprise class and working in a heterogeneous environment that has very high regulatory and compliance requirements and in many cases integration requirements in their systems.
As a background I would say that is a unique differentiator for us in addition to our DNA on the identity verification side of the house.
Yes.
Okay got it thank you very much.
Thank you.
Thank you Mr. Swartz for your question.
Our next question is with Catherine Trib Mick.
With colliers.
Mr. <unk>. Please proceed.
Thanks for taking my question.
Mike on the subscription piece of it grew 15% year over year headwind.
You closed the deal with them.
Ended the quarter, what does that growth for the quarter.
Look you are where you would have you had a couple off 12% more.
In terms of the.
The Oss subscription numbers.
Got it and then were there anything outside E signature that would have been in the subscription line or other.
Other men.
Good afternoon.
We've mentioned that there is a little bit of a decrease in the legacy deal flow product.
Okay got it and then on gross margin Youre down to 63% can you give a little bit more detail on that mix shift and where were the low margin is coming from is it from the hardware.
Yes.
It was significantly.
The big.
A big shift in the overall composition.
Software and a higher component of hardware than in the comparable quarter in 2020.
If you normalize it.
We had about.
$1 million two related to increased cost of freight and freight primarily and then we had about $2 5 million ish, which was related to.
A shift to a somewhat lower margin authenticate.
Okay indication products.
And that happens from time to time at year end.
Those are the basic debate components in that.
And that shift is at lower margin.
Alright, thank you.
Thank you Mr. Abney for your question. Our next question is with Anja Soderstrom from Sidoti.
Please proceed.
Alright, Thank you for taking my questions.
None of these questions asked already I just have a question about Bob that you touched on the on what affected the margin for the fourth quarter, but how should we think about the margin performance in 2022, and how much of that is going to be hampered by cost inflation and.
And things like that.
Yes.
We see the impact of airfreight and the reliance on air freight in the hardware side of the house continuing at least into the first quarter, perhaps into the second quarter, but for the full year, we would expect the margins to be quite.
Quite it's quite similar to what we had in the year 2021.
Okay, and the cost saving of $10 million to $15 million for the year, that's mainly going to come from head count.
And the downsizing of the bank.
Yes, so there are two components.
North filling the positions that were opened also.
Unfortunately, having to release some people from the company and the other side of that was also a reduction in real estate leases space predominantly.
And making savings there.
It's important to note that the execution of these actions is still continuing throughout the year. So there will not be realization of the full year benefit of that full amount and we're also obviously right in the middle of our strategic planning process and evaluating whether some of the savings that will be realized will be reinvested into growth growth.
There is and will be prepared to talk in detail about that in the may investor meeting rules.
We're also well provide you with.
A tracker on a quarterly basis, where you can see the.
Savings accrue.
Accruing.
Okay, great. Thank you that was all for me. Thank you.
Thank you Ms pseudo shrunk.
And our next question is with Rudy Kissinger with D. A Davidson. Please proceed.
Thanks for taking my questions I want to go back to subscription just one more time. It has been touched on a couple of times, but.
On the sequential decline and down 4% from Q3, I know typically Q3 Q4. This some overages or users that drives a pretty big sequential growth.
10% and 14% sequential growth each of the last Q4. So is there a way you can quantify how much was that.
The decline from the legacy deal flow product Q3 to Q4.
It's just a bit perplexing that Q4 subscription being even lower than.
Not just Q3 beat in Q2 as well.
Hey, Rudy this is Joe so as you look at the overall numbers, we do have to factor in like you said that deal flow that which came down right.
I think it was in the 20% range. We don't have the exact number in front of us right now, but yes.
<unk> had an overall impact on the subscription line.
Some of the deals that we expected to close early in the quarter were pushed out.
On the on the esignature side to basically the last day of the quarter and into Q1, So we didnt recognize that revenue from those contracts.
Thank you.
Got it and then on the cost cuts to.
Going back to your last comment there.
And then I think you said $10 million to $12 million pretax savings in 'twenty, two but that's not a full year realization. Yet is there can you quantify how much on a full year basis. Those cuts will equate to be I don't know 15, or 20 or somewhat higher than 10 to 12, what would be once you're fully realizing it.
Oh hi.
I think you will see those those cuts realizing in the year 2023 fully.
But for the year 2020 to you you're probably only going to have a percentage say, 30%, 40%, 50% depending on how quickly certain.
Actions can be can be implemented coming through in the in the financial statements.
Okay got it thank you for taking my questions.
Thank you Rudy.
Thank you Mr for your question.
There are currently no further questions waiting at this time, so as a reminder to ask a question press star one.
There are no more questions waiting at this time, so I'd like to pass the conference back over to the management team for closing remarks.
Well, thank you everyone.
I'd like to end on a positive note here that again I am very excited to be at one spam and feel very confident in our ability to deliver.
Quite a detailed view of the business in May.
We've been hard at work at our strategic planning process. We are on track and we have hit all of our internal milestones and deliverables and based on what I see I'm very excited about our path forward and our ability to offer our customers an enhanced value proposition and hopefully look to seeing you all in person if not virtual and the mid may timeframe with much more detail.
Thank you for joining the call today.
That concludes the <unk> fourth quarter 2021 conference call. Thank you for your participation you may now disconnect your lines.
Goodbye.
Okay.
Okay.