Q2 2022 OneSpan Inc Earnings Call
12% growth in subscription revenue to 8.7 million. We run several large multi-year rateable e-cigarette deals during the quarter. Large multi-year on premise contracts, like the one we closed last quarter that resulted in significant upfront revenue, can result in quarter to quarter revenue volatility, inherent with the size of the business. Maybe all subscription revenue recognized this quarter was rateable. Croce margin was 73% compared to 70% last year. The high-grose margin was largely a result of increased scale and efficiencies. Operating income was 0.1 million as compared to negative 0.8 million last year. Increased revenue and gross profit, along with lower operating expenses related to restructuring and foreign exchange, led to the improved performance. As a reminder, we are early in our transformation and plan to invest for growth in this segment, including the hiring of additional talent, to drive top-line growth through increased sales and product development. Now, turning to our security solution segment results. AR grew 18% to 89 million, and that by 35% growth in subscription AR to 57 million. Subtributing revenue grew 39% to 11 million, driven primarily by expansion contracts from existing customers for on-premises, mobile security, and service solutions. Total revenue decreased 1% to 42 million. Total revenue decreased 1% to 42 million.
largely driven by expected decreases in legacy deal flow, perpetual based software maintenance and non-recurring revenues, including Digibus tokens, which account for the largest percentage of this segment's revenue. As we continue to focus on driving subflip-tune revenue, and as the Digibus hardware supply chain improves, we expect to see modest growth in the total security solution through revenue.
Demons for Digipast Ocons is healthy.
Last quarter, we noted risks associated with temporary COVID-19 closures at our contract manufacturing facilities in China, along with delays in deliveries of electronic components to these facilities. While we were able to manage through these risks effectively in Q2, supply chain challenges could impact quarterly DigiPASS revenues by up to 2 million in the second half of the year.
We continue to monitor the situation closely and will work contingency plans to mitigate this potential risk as best as possible.
Security solutions close margin was 66% consistent with a year ago quarter.
Operating income was 8.6 million, and operating margin was 20%. As compared to 10 million and 23% lost here respectively.
The primary difference was due to an increase in severance and related costs.
Turning to the balance sheet.
We ended the second quarter of 2022 with $98 million in cash, cash equivalents and short-term investments. Compared to $98 million at the end of 2021, the total amount of cash was $2.5 billion.
And Andrew's in 20 million at the end of last quarter.
We use 15 million of cash in operations during the quarter, including more than 4 million in non-recarring costs. We also use 5.7 million to re-burch to approximately 400 and 46,000 shares of common stock.
I also want to remind you that we have no long-term debt.
Geographically, our revenue mixed by region in the second quarter of 2022 was 45% from Remia, 37% from the Americas, and 19% from Asia-Pacific.
This compares to 47, 33 and 20% from the same regions in the second quarter of last year, respectively.
That concludes my remarks, Nat.
Thank you, Yankees. We estimate first half 2022 revenue would have been nearly 5 million higher had currency exchange rates in constant as compared to the year ago period. Based on current rates, we expect continued, but somewhat less fx pressure in the second half of the year. We are making initial progress in our transformation and our confidence in our second half outlook. Therefore, we are affirming our foliar 2022 guidance. Therefore, we are affirming our foliar 2022 guidance.
For the full year 2022, notwithstanding FX headwinds, we expect the following. Total revenue to meet or exceed full year 2021 revenue. Total revenue to meet or exceed full year 2021 revenue.
ARR growth to be in the range of 16 to 18 percent.
and adjusted EBITDA to be in the range of negative 5 million to negative 7 million dollars. 7 million dollars.
In closing, the future of one span is bright. We are working hard to improve revenue predictability and to get more bounce contribution across product lines, business segments, and geography that I would like to see over time. I would like to see over time. I would like to see over time. I would like to see over time.
I am pleased by the improved sales performance in operational work that we saw on Q2. I am proud of the team for our progress today.
Moving forward, I am confident in our ability to unlock shareholder value as we increase our focus, leverage our competitive advantages, and enhance our operational performance.
With that, Yankees and I will be happy to take your questions. Operator. Operator.
Thank you. We will now begin the question and answer session.
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briefly to allow clusters to generate and kill.
The first question is from the line of Chan Benet with Craig Hollow. You may proceed.
Great, thanks for taking my questions. Matt, you rattled off a lot of pretty significant, six figures, seven figure multi year wins, which are great. I guess just in terms of.
You know, the new logo pick up if you did see a new logo pick up in the quarter, you know, what were the differentiators in you winning those E sign deals, whether it was consolidation deal or is just a brand new E sign new logo. And second kind of added question to that is... And second kind of added question to that is... And second kind of added question to that is...
Did the security side also from just a pure booking standpoint, um, you know, do better than expectations?
Let me talk to the last first and then I'll get to the signature business. On the security side we are seeing very healthy demand for our DigiPast solutions. Obviously we don't. We haven't historically broken out product line detail at that. But the DigiPast bookings are doing well. We had a book to build issue associated with the supply chain but I can tell you they're very pleased with the performance of the token business.
As the FACs and supply chain issues level out to a doing to anticipate that business being one of growth. We still have lumpiness in the other parts of our business on the subscription side, we did see strength and mobile security and our mobile security products. So security overall had a good quarter from a bookings perspective. On the signature side of things, let me address a new logo and then I'll get to the competitors on why we won.
First of all, historically, the company really hasn't had an enterprise go to market. We've had enterprise go to enterprise products, but the go to market was fragmented across three different sales teams, and we are bringing that together. Over time, you should see an increase of new logos in the enterprise top segment. Now, it is an incredibly important focus area for us. When we have one in the enterprise segment, the relationships have acted like true enterprise customers, where you get that land and expand capability.
We did have a good quarter in new logos, but we need to rebalance the growth in new logos from the bottom half of the pyramid to the higher half of the pyramid by building out our unified voter market. So that's an important focus, focus areas for us over the quarters to come. As far as why we win, I would say there's three key areas. First, increasingly so, the price for value that we offer by having enterprise class solution.
but essentially close to parity and functions with DocuSign, but the pricing flexibility and the modularization of our solutions really is a key driver for us in this market, particularly with tightening economic, tightening economic environment. Now, DocuSign largely has not had a number two competitor of enterprise class and we would like to fill that void. You are starting to see first year.
First time and second time contracts for DocuSign come up for RFP, and we need to effectively compete and get into the consideration phase more than historically the case. But certainly, price per value is, I would say, number one. Number two is our flexibility of integration. We do white label our solution. DocuSign and other competitors of larger size are increasingly falling into top categories of Fission. And when that does happen, transaction rates can go down.
and user experience could can go down as fishing emails associated with platforms get caught in spam and boxes or what have you. So white labeling is incredibly important. That is our positioning ourselves as a digital security company. And we believe that white labeling is a key part of that. I think flexibility is also important. We have an ability to implement our solution in a much more flexible way than other competitors out there. So again, we're seeing good signs for why we're winning.
now we have to get more bats and get higher closure rates. Got it. I appreciate the color. Then maybe one quick follow-up. I heard the FX impact on on REVs, but I didn't hear an FX impact on ARR or subscription ARR. Do you have that?
My junkies you want to take that or it's like me too? It's largely it's largely very similar to what you would have had in the revenue. I got like gnocchies.
Yes, so basically similar to what we saw on the revenue line.
So we get a couple of hundred thousand, and there is our estimate.
Okay, all right. Thanks much. Nice job on the quarter.
Thank you.
Thank you.
The next question comes from the line of gray power with CTIG. You may proceed.
Do we film this down on what you're seeing in Europe ? I think almost 50% of revenue comes from the Amir region. Have you seen any changes in customer behavior or sales cycles there in the last few months? Are sales cycles there in the last few months?
You know, not really. I mean, again, when you look at the business, we have, you know, 55%, you know, by share of revenue coming from AMA, and the most of the AMA business is security. The universe is true of the Americas, 45% and the vast majority of that is digital agreements. But the behavior is similar across both with large enterprise customers. On the security side, again, with the mayor being highly concentrated in security.
Our security solutions, thankfully, are mission critical. They're used for online banking, which in environments like this is actually increasing. And we have a very sticky solution both with our back office, authentication capabilities. And DigiPast tokens that are part of the installed base go to market for these banks. And so we haven't seen any material decline in demand. Actually, we've seen slight upticks in demand, but our ability to fulfill that demand has been hampered by the supply chain. But it is.
That's what we've seen on revenue.
That advice is like $5 million on revenue.
Like that's actually pretty big and that's what it dollar terms.
Okay.
Okay, and then maybe on the cost side. So you call that 1.5 million in outside services and 2.7 million in severance for total of 4.2 million and one-time costs. Is it safe to say that that entire 4.2 million hit the operating cash flow line? And then just how should we think about transition costs for the rest of the year as you try to think about operating cash flow? Okay, as you try to think about operating cash flow.
Yes, so the entire cost hit the operating cash flow line, that is correct.
It's at the end of the material come mosses that we reported.
And you put a rest of the data on still some of the money.
amounts of sevens to come but we currently cannot point whether it will be in Q3 or Q4.
Okay, that's awful. Thank you very much.
You're welcome.
Thank you.
question comes from the line up through the test. The next question comes from the line up through the test. The next question comes from the line up through the test.
Hey guys, thanks for taking my questions. I'm curious on the EVAO guide, you're negative 1.3 million in the first half, you're guiding to a five to seven million loss for the year, so guiding to a step down in the EVAO loss in the second half, despite when you put it together, you've got 17.8 million in annualized cost cuts so far versus 10.8 million as a Q1. You've got more cost cuts that should be flowing through here.
the
The severance, the savings in the second half of the year, I'll recreate it.
to the end of the period. So that's basically the explanation. And so that's basically the explanation.
I'd say there are two other elements that are played there. The timing of the sales and marketing expenses with the build-up, that's going to be subject to our ability to effectively hire a sales team.
Right, the other one is timing. It's not a real better time to exhaust.
And then also there was some new product development focusing in the DA area.
Okay, that's fair. And then Matt, I guess on some of those six and seven figure wins in the quarter, it sounds like for the most part it was e-signature, but of course as you've said pretty frankly, you know, e-signature you kind of view it more as a feature, not a product. So I guess I'm curious, were any of those deals kind of led or did they involve virtual room? And what kind of interests are you seeing in that in the Python conversations you're having?
So we're having, we're seeing significant interest in virtual room, obviously still early days in that I would say the activity in our internal sandbox, which we had not gone say to GA commercial had doubled over the previous quarter, again, but still fairly small. We have a plan on integrating virtual room into our unified go to market and we expect to start seeing business happen in that product skew as we ramp the enterprise sales team. I personally have seen significant interest in it. There are variations of this type of product and very
16, 18% by year end is your expectation at this point for ARR growth to bottom in Q4 and then start to re-accelerate in Q1 as some of the new sales initiatives and reps. Start to ramp up and contribute.
That is the anticipation. Again, we have a couple of puts and takes across the portfolio as I've cleaned up the product portfolio and some of the smaller products. We also have other products that were end of life and in general, the company is largely through its conversion from perpetual to subscription. And if you remember during the investor day, I used the term core AR growth. So I absolutely think it's fair to say that.
It'll let the knee of the curts as we go through Q4 and then we are on almost fully the clear strategic plan where we'll be reporting his Q4.
business model conversion, largely through that.
Great, thanks for taking my question.
Thank you.
Thank you.
Again to ask a question, please press star one.
Third, are no additional questions at this time. I will pass it back to Matthew for me close or marks.
Thank you everyone for joining today. We very much appreciate it and we look forward to sharing with you our continued progress in the quarters to come. Very proud of the work that the team is doing here and you have our full commitment to continue to bring clarity and transparency to the way we're communicating and managing the business and thank you much for your time today.
Speak with the same.
That concludes today's conference calls. Thank you. So much for today's conference playing out, discomfort and suffering.