Q1 2022 OneSpan Inc Earnings Call
It will include the following three tenants.
We will operate as one team spanning the globe United in one go to market strategy behind a shared vision and mission.
Second our two solution portfolios digital agreements and security solutions, well, that's clear roadmaps team structures operational focus and improved execution.
And third we will accelerate our growth in the broader digital agreements category, which includes esignature virtual room and other solutions.
In addition, we will also return our total securities both hardware and software to growth and operate in a more capital efficient way to deliver increasing profitability over a three year plan.
As I mentioned before we are in very good position with the core building blocks in place to drive the next generation of growth for one spin.
Digital agreements and cyber security are both important markets that will only become even more important to enterprises in the years to come.
We have a customer base that includes many of the largest and most security conscious companies in the world.
Companies that trust us to mitigate the risk of fraud help them comply with regulations and deliver user friendly experiences and their mission critical business processes, including use cases, such as new of Bangkok Bank account openings, new customer acquisition and business to business wire transfers as a result, we plan to aggressively.
We penetrate the broader enterprise segment and tightly integrate our security technologies into our digital agreement solutions as a key and core differentiator in the market there.
There is a significant opportunity in front of us and I'm excited to share more details on our strategy and outlook with you soon.
Turning to the first quarter, we reported 21% <unk> growth and 22% recurring revenue growth led by strong sales of Esignature solutions.
Year over year, we saw modest topline growth with increased operating efficiencies, resulting in improved adjusted EBITDA as compared to the first quarter of last year.
We won several new logos in the first quarter and expanded our business within both digital agreements and our security solutions and.
Particular, I'd like to highlight a multiyear seven figure ACB esignature contract closed in Q1 with a global revenue lifecycle management company.
The company decided to replace its internal esignature solution in order to meet their growing enterprise customer needs. It.
It was an important competitive win for us and I want to explain why.
E signature requirements slipping in many cloud and SaaS transaction platforms that enable the secure execution of contracts as a core component of their value proposition.
Our enterprise class features set ease of integration and our ability and willingness to white label. Our solutions were key factors in this win.
We believe more such use cases exist as the market matures.
In the near term our selling efforts will continue to focus on providing new and existing customers with our core solutions as we progress on our journey.
Stay tuned for more as I look forward to discussing our innovation go to market strategy and capital realignment plans with you soon.
With that Jan Kees will now take you through our financials.
Keith.
Thank you Matt.
Annual recurring revenue or <unk>.
<unk> grew 21% year over year in the first quarter to $131 million.
AAR specific to SaaS subscription and term based subscription contracts.
Grew 36% and accounted for approximately 72% of total <unk>.
DBM.
Dollar based net expansion rate, which we define as the year over year growth in AAR from existing customers was 115% consistent with recent quarters.
Total recurring revenue, including SaaS and term based subscription along with maintenance on software licenses increased 22% year over year to $35 million in the first quarter of 2022 and accounted for 95% of software and services revenue.
Esignature SaaS and term based subscription revenue increased 40% year over year in the quarter.
South subscription revenue grew 20% to $10 million in the first quarter growth in Q1, esignature continued to be partially offset by a decline in legacy deal flow revenue.
Term based subscription revenue grew 65% to $13 million in the quarter and benefited from a multiyear E signature on premises renewable.
And for software and mobile security also contributed to the higher than typical growth rate.
Maintenance revenue declined 5% year over year to $12 million as we migrate to more recurring versus perpetual software license models.
Total company revenue increased 3% to $52 million in the first quarter.
22% growth in recurring revenue.
Offset by a decline in nonrecurring software services and hardware.
Gross margin in the first quarter of 2020% to 70%.
Compared to the 67% in the first quarter of 2021.
The difference in gross margin is primarily attributed to product mix.
Software and services contributed a record of 71% of total revenue in the quarter as compared to 65% in the first quarter of 2021.
We continue to experience global transportation and supply chain disruptions.
We reduced our reliance on the airfreight as compared to the last quarter.
That said, we're not out of the woods, yet and I want to note. These risks along with global electronic component shortages.
Could impact future quarter results.
GAAP operating expenses included $2 $7 million of outside services.
Related to our strategic action plan, along with related changes to our financial reporting.
GAAP operating expenses also included $2 7 million of severance costs and other expenses related to our restructuring plan announced in late Q4 2021.
As of March 31.
We have complete we have completed substantially all of the action items contained in our cost reduction plan announced in Q4 dollars 21.
Excluding severance we achieved cost reductions of $2 7 million in the first quarter and are on target for total cost reductions of more than $11 million for the full year 2022 above the mid point of decline.
Adjusted EBITDA was <unk> 2 million in the first quarter of 2022. This compares to a negative $5 3 million in the first quarter of 2021.
Adjusted EBITDA margin was 5% in the quarter versus negative 10, 4% in the year ago quarter.
First quarter. Other income included a 15 million nonoperating gain on the sale of our 17% interest in promo on the highest.
GAAP earnings per share were 13 cents in the first quarter of 2022.
Impaired to a loss per share of <unk> 23.
In the first quarter of 2021.
non-GAAP loss per share, which excludes long term incentive compensation.
Amortization.
Nonrecurring items and the impact of tax adjustments.
One <unk> in the first quarter compared to 16 <unk> in the first quarter of last year.
We ended the first quarter of 2022 with $120 million in cash cash equivalents and short term investments compared to $98 million at the end of 2021.
Cash generated from operations during the quarter was $4 million.
We have no long term debt.
Geographically our revenue mix by region in the first quarter of 2022 was 47% from EMEA, 33% from the Americas and 20% from Asia Pac.
This compares to 50 333 and 14% from the same regions in the first quarter of last year, respectively.
Before I hand, the call over to Matt.
I want to further comment on our hardware supply chain.
Recent temporary COVID-19 driven closures at our contract manufacturing facilities in China.
Longer delays in deliveries of electronic components to these facilities.
Could impact second quarter hardware revenue by up to $2 million.
We are monitoring this situation closely and working contingency plans to mitigate this as best as possible.
Matt.
Thank you Jan Kees.
As you can see we started the year with solid momentum and we look to keep that momentum going as we began implementing our strategic plan this quarter.
Our strong market position and solution portfolio, along with our talented employees provide us with a strong foundation to build upon that.
But we still have work to do I believe now more than ever that we will establish a clear and disruptive leadership position in the markets, we serve by leveraging our strengths and identity security and compliance.
And I am confident in our ability to unlock shareholder value as we increase our focus leverage our competitive advantages and enhance our operational performance as one team.
Now turning to our 2022 outlook, we expect revenue for the full year 2022 to meet or exceed our 2021 full year revenue.
At this time, we are finalizing our review of our full year 2022, adjusted EBITDA look in context with our strategic plan and we'll provide an update at our Investor day on May 17th.
In closing I remain excited about the future of one spent and our opportunity ahead and look forward to discussing the details and metrics that our full year outlook and our long term plan at our Investor day in two weeks time.
With that Jan Kees and I will be happy to take your questions.
Operator.
Thank you.
I'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Then please press star followed by two.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question today comes from Stephen Schwartz from BTG. Please go ahead. Your line is now open.
Hey, great. Thank you I'm on for Greg Thanks for taking my question.
Just to start off I guess.
Given your exposure to EMEA I wanted to ask how much of your business. If any has been impacted by the Russia, Ukraine tensions and I guess just any.
More broadly any general commentary on the macro environment in Europe .
Yes, Thank you well first and foremost from an employee standpoint.
We're not exposed Fortunately now we have several ukrainians living in the U S. But we are not exposed from employees.
Russia or over in Ukraine, Thankfully, so people are safe.
Our disk.
Describe our exposure to Russia from a business perspective beds, a de minimus immaterial, we have stopped selling into Russia for several months now ahead of actual.
The other American companies, we're early in the cycle on that and so I'm just considered immaterial in the larger scheme of things we have seen.
Use cases for our hardware from customers in Europe , who are looking for higher assurance use cases, and this will be a theme going forward with the company.
Hardware something you have on <unk> is always more secure than a password.
In this particular case, some nations who have been seeing an influx of Ukrainian refugees and bank supporting.
Do those refugees are giving them hardware tokens.
To make sure that they have the highest level of protection I think it's a good use case and that you will see more of it in the future.
Got it that's interesting thanks, and maybe just a follow up.
For Jan Kees.
<unk>.
Could you provide any kind of directional commentary on your adjusted EBITDA.
Given the last quarter I think you had.
At breakeven or higher is it lower or higher.
Any color there.
Keith you may be on mute.
My apologies.
We are still reviewing the EBITDA and the adjusted EBITDA.
Numbers and we will communicate those.
During the Investor Conference and now in two weeks.
Got it alright, thank you.
Youre welcome.
Yeah.
Thank you.
Next question today comes from Nick <unk> from Craig Hallum. Nick. Please go ahead. Your line is now open.
Hi, This is Nick <unk> on for Chad. Thanks for taking our questions. So I know that we will get to hear the strategic plan at our Investor day in a couple of weeks, but it sounds like the plan is already underway and has been communicated and inherently I'm curious to hear more about how the culture has changed in the past couple of quarters and how employees are buying it.
So long term strategy.
And also on that topic, if you could speak about how employee retention has fared recently.
Both great questions. So I've been very pleased with the uptake of the new vision mission and strategy we have been.
Hard at work to make sure we have a very crisp communication and change management plan internally and so we have I'll just give you a sense we have.
Monthly if not by monthly meetings with everybody in the company, bringing them along this process over the past four months since my arrival.
I do believe that there has been a strong reception.
From the employee population really because they were lacking the direction before and so I think with clarity people can do their jobs and then you look at people get to work and so I think youre seeing a groundswell of that we have obviously as part of this process.
Beginning in December have made.
Performance management moves and we will continue to do that over the course of the company, but from a voluntary attrition, we actually have a far below industry averages I believe people are quite intrigued by what is going to be rolled out in two weeks time.
In New York and there is a good excitement building for the future of one spend from the existing employee population, but I'd also say from new recruits that are coming in you will see new additions to the team at the senior executive level over the over the coming weeks and I'm pleased to say that that message has been resonating externally as well.
Internally.
Yeah.
Yes, you kind of hit on my next question.
Wanted to ask about the build out of the executive team I know since the last call you announced a new CMO.
I believe the plan is still still look for a permanent CEO CFO .
And then there are there any other positions of the leadership team Youre planning to add.
Yes.
Outside of the head of R&D, and our head of corporate development.
The balance of the executive team will be new.
Great opportunity for me to go look at the right chemistry for this company, where we're bringing in executives who understand scale, but at the same time to roll up their sleeves executives. This is.
An exciting story, but a smaller company and so I'm very pleased that the reception has been great you should expect over the near term to see a chief product officer.
As well as the new General counsel and head of compliance joining there is also an open executive position for the CF. The CRA Chief revenue officer, and we're making very good progress there, but those three are top of mind for me right now and you will see announcements over the near term.
Got it thank you.
Thank you.
Yeah.
Thank you.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
The next question today comes from Rudy Caisson, Jeff from da Davidson Rudy. Please go ahead. Your line is now open.
Hey, guys. This is Neil on for Judy.
I just had one question.
So it looks like subscription revenue bounce back a little up 20% this quarter versus 15% last quarter.
But still a hair below what you guys did in Q3 of last year.
And yes, 300, K above what you guys did in Q2 of last year I was just wondering if you guys could walk through some of the puts and takes there.
How much of that revenue was there from PPP loans in Q1 of last year.
And how much revenue alright.
Alright, I'm sorry, how much is the revenue from deal flow.
Declining and apologies if I missed that in the beginning.
Yeah.
Because when you want to take that.
Peter.
Why don't you start let me start with the deal flow.
Hello Gil.
Always contribution to revenue is relatively small.
And we've seen a decline during the first quarter and we expect some further decline during the rest of the year.
It's really really small.
With regards to E signature or subscription revenue.
It has slowed somewhat.
First cohort.
We do.
Sure.
Work on changes that we are going to Oprah Oprah operational operationalized, our new strategy.
And this will be discussed with you during investor day in two weeks.
Yes, just give you a sense of as I had mentioned one of our objectives for Investor day going forward just to be crystal clarity.
Look at this business both that.
On the security side as well as you said the signature or what we're calling digital agreement side of the house and so it's very difficult to unpack the subscription growth. If you look at what we benefited from as.
Jan Kees mentioned in his opening remarks, we do sell from time to time term based subscriptions, which is essentially an on premise version of our <unk> segment that really is no different other than just the location of the.
<unk>.
The customer premises equipment.
From from our cloud based okay, it's still very much a subscription so.
We will bring clarity to that in your Investor day, where you'll get a good visibility into total subscription subscription growth it looks it looks lower because we had a.
Several sales of our on premise term based subscription versus as we currently report pure subscription if that makes sense.
Got it that makes sense and that's it for me. Thank you guys.
Thank you Randy.
Thank you.
A reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Yeah.
There are no additional questions waiting at this time, so I'd like to pass the conference over to Matthew Monaghan for closing remarks. Please go ahead.
Thank you and thank you everyone for joining us today definitely appreciate your time and attention and I hope to see many of you in person at our Investor Day in New York City on May 17th where we are.
I look forward to sharing with clarity.
Future of the company and one that I find particularly exciting and I look forward to seeing you in two weeks short ton. Thank you very much for your time.
That concludes today's conference call.
You may now disconnect your lines.
Okay.
Yeah.
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