Q2 2023 OneSpan Inc Earnings Call
Good day, and thank you for standing by and welcome to the one span second quarter 2023 earnings Conference call.
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After the speaker presentation, there will be a question and answer session.
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Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Joe Maxa V P of Investor Relations.
Please go ahead.
Thank you operator.
Hello, everyone and thank you for joining the <unk> second quarter 2023 earnings conference call.
This call is being webcast and can be accessed on the Investor Relations section of <unk> website at investors <unk> Dot com.
Joining me on the call today is Matt Moynahan, our Chief Executive Officer, and Jorge Martell, Our Chief Financial Officer.
This afternoon after market close <unk> issued a press release announcing results for our second quarter 2023.
To access a copy of the press release and other Investor information. Please visit our web site.
Following our prepared comments today, we will open the call for questions.
Please note that statements made during this conference call that relate to future plans events or performance, including the outlook for full year 2023.
Our long term financial targets are forward looking statements.
These statements involve risks and uncertainties and are based on current assumptions.
Consequently, actual results could differ materially from the expectations expressed in these forward looking statements.
Direct your attention to today's press release, and the company's filings with the U S Securities and Exchange Commission for a discussion of such risks and uncertainties.
Also note that financial measures that may be discussed on this call are expressed on a non-GAAP basis and have been adjusted from a related GAAP financial measure.
Have provided an explanation for and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings press release.
In addition, please note that the date of this conference call is August nine 2023.
Any forward looking statements and related assumptions are made as of this date.
Except as required by law, we undertake no obligation to update these statements as a result of new information or future events or for any other reason.
I will now turn the call over to Matt.
Thank you Joe Good afternoon, everyone. Thank you for joining us.
I would like to begin by providing a progress update on our plan to transform <unk> into an enterprise class company.
The rule of 40 and create meaningful value for our shareholders.
Our now more than two quarters into the plan and the operating visibility we have into the execution of our transformation has increased.
This increased visibility it is now apparent that it will take longer than originally projected for our sales productivity and marketing demand generation engines to mature.
That's abated in part by current market conditions and increased competitive pricing pressure.
As mentioned during previous calls sales productivity and marketing demand generation are the two most important drivers of top line growth in our three year strategic plan.
We believe our five pillar solution strategy designed to enable us to secure an entire digital transaction lifecycle by weaving together identity verification authentication.
Hi assurance virtual collaboration.
E signature and secured transaction evolving.
And it continues to resonate with customers across the globe.
And the need to securely digitize business processes is becoming a must in today's world of generative AI and deep fakes.
Given the visibility we have into our business, coupled with our business strategy and improved operational rigor throughout the company, we have decided to make adjustments to our operating model, including the acceleration of cost reduction initiatives to significantly improve our profitability, while maintaining our long term growth potential.
To that end, we are taking our operating segments to the next logical level to continue driving operational excellence by formally creating two distinct operating business units digital agreements and security solutions, each with a general manager to execute their respective business strategies of driving digital agreements for growth and managing the security.
Segment for cash flow.
We believe these changes will enable the company to achieve 22, 23% adjusted EBITDA margin for the full year 2020 for.
This compares to our previous longer term adjusted EBITDA target range of 10% to 12% in 2025.
We also expect to reach the rule of 40 more quickly than our original plan.
It is also our intention to return up to $20 million in capital to our stockholders by the end of 2023 through stock repurchases dividends or a combination of both.
Going forward, we will provide more detail regarding our strategy to return capital to stockholders consistent with our focus on balancing growth and profitability.
It became clear during the second quarter, but the time to implement a high performing enterprise class sales and marketing engine, primarily in our digital agreements operating segment will take more time, and therefore take more time to achieve our full year 2023 financial targets and consequently, our three year financial targets in this segment.
As a result in late Q2, we proactively took actions in connection with our change of operating model to begin rebalancing our cost structure by accelerating certain cost savings initiatives.
<unk> head count by approximately 5% reduced variable spend across the organization consolidated certain vendors and began the process of closing two offices.
We're also planning additional substantial right sizing before the end of the year, primarily related to head count providing us with the visibility and confidence in our 2024 adjusted EBITDA targets.
We will continue to refine our go to market strategy to efficiently serve new and installed base customers in our core geographic markets.
And digital agreements, we will focus our efforts in common law countries security will continue to be a global in nature, and we will continue to focus our investments on our most promising ROI solutions, such as new self service esignature offering that we plan to rollout in the first half of 2024.
Perhaps most importantly, we are creating a performance based culture across the company.
I am very proud of the work our team is doing and what has been accomplished to date.
Today's economic environment requires strong execution and we are improving every day. We believe we have the right executive team in place and line of sight into what is needed to effectively manage the business with the alignment of our people products and organizational design for efficient growth.
Turning to our Q2 results revenue grew 6% to $56 million.
<unk> grew 8% to $1 $44 million and adjusted EBITDA was negative $4 million security operating segment performed generally as expected.
<unk> and mitigating hacking attacks remains a high priority for our customers driven in part by the proliferation of cyber attacks that continue to make news headlines on a regular basis.
For example in Q2, a large international banking customer purchased additional authentication and mobile security licenses to protect their retail banking customers.
Contract was in the mid six figure ACB range and was the second such order in consecutive quarters from the bank, which we competitively won against multiple firms last quarter, largely due to the strength and flexibility of our mobile solutions.
We continue to have good visibility into DIGIPASS token orders at our large banking customers, who account for the majority of our hardware revenue. We did however, see the macroeconomic environment begin to affect orders to some extent in the mid market banking sector. We continue to watch the market ripple effect of the Midmarket financial crisis very closely.
And our digital agreement segment macroeconomic uncertainties had a more profound effect on us in Q2 as compared to prior quarters.
Increased deal scrutiny and re prioritization of customer investments put pressure on sales cycles deal sizes and pipeline conversion rates for both expansion opportunities and new logos.
One contract I want to highlight is a three year $2 million ACB digital agreements contract that slipped out of Q2 and closed in early Q3. It was with a longtime customer North America that have been using our on premises esignature product, which we communicated at the end of last year, our plans to sunset at the end of this year.
The deal took longer to close than we anticipated primarily due to red tape associated with the size of the contract and the use of the public cloud, which required additional due diligence by the customer.
By upgrading to our leading cloud solution. This customer was able to improve its ROI driven by a reduction in infrastructure costs that more than offset the increase in price per transaction.
I also want to highlight a key win related to our new pricing model, a large customer expecting to see their esignature volumes grow by more than 50% over the next few years because of volume band that allows them to confidently forecast for esignature costs as their volumes grow.
This eliminated the concern of potential catch up or overcharges at their volume forecast were not accurate.
Customer signed a mid seven figure three year contract that increased ACB by nearly 400000.
Next I will provide updates on key product initiatives, we are targeting the general availability of our self service try and buy E signature solution focused on the SMB and commercial market segments in the first half of 2024.
Our recently launched <unk> notary solution initially targeting existing customers is gaining interest and we have signed our first customer.
Currently has more than 50 trials at play and we are working on getting regulatory approval and several additional states.
Also on track to bring secure E vaulting for documents and artifacts based on blockchain technology to market later this year.
Finally, consistent with our pivot to a more highly profitable operating model that includes product rationalization.
Our discontinuing investment in marketing activities for DIGIPASS CX, we plan to repurpose some of these investments into other new products with higher potential ROI opportunities.
In summary, we believe the actions we are taking to drive efficiency across one spin will accelerate our path to become a leaner more efficient and more profitable company.
And provide us with a stronger foundation to achieve our commitment to create and return value to our shareholder base by growing profitably over the long term.
Jorge will now discuss our second quarter financial results in more detail I will then come back and provide an update to our financial outlook.
Alright.
Thank you, Matt and good afternoon everybody.
Before reviewing our second quarter results I want to provide details on the actions we are taking to rebalance our cost structure to drive more efficient topline growth.
The actions we took in the second quarter of 2023 resulted in annualized cost savings of $7 9 million.
As Matt mentioned, we are expanding and accelerating our cost savings initiatives. In addition to the phase III $20 million to $25 million of annualized cost savings target.
An additional $30 million of cost savings.
As a result, we now expect 50% to $55 million in total annualized cost savings by the end of 2025.
We expect to realize the majority of these additional savings, which will be primarily headcount related by this time next year.
The balance of the savings.
Related to vendor consolidation and optimization strategies is expected to be realized by the end of 2025.
Now turning to our results.
Second quarter, <unk> grew 8% year over year to $144 million.
Specific to subscription contracts grew 16% to $112 million and accounted for approximately 78% of total IRR.
Net retention rate or <unk> was 106%.
Similar to last quarter.
MLR were impacted by the macroeconomic environment.
We continue to see increased deal scrutiny and longer sales cycles for salt in more moderate at new business and expansion rates, primarily in our digital agreements operating segment and to a lesser extent in security.
These metrics also continued to be impacted as noted on prior calls from a few large contracts last year and our the assistant to sunset stardom portfolio offerings.
Second quarter revenue increased 6% to $55 $7 million.
Subsequent to <unk> revenue grew 16% to $23 million led by 20% growth in esignature, SaaS revenue and 13% growth in security software.
Maintenance and support revenue declined as expected driven by our strategic decision to sell only new recurring revenue contracts as part of our three year plan.
DIGIPASS token revenue increased 5%.
Second quarter gross margin was 62% compared to 67% in the prior year quarter and was impacted by customer and product mix increases in third party costs increases with electronic components and freight costs in our hardware business and a $1 6 million inventory.
You write off related to DIGIPASS CX.
Operating loss was $17 8 million compared to $8 2 million in the second quarter of last year.
The higher loss was primarily due to a reduction in gross profit dollars and an increase in operating expenses, resulting from increased investment in sales hires contract workers third party marketing fees and <unk> along with increases in non recurring expenses related to our restructuring plan and the assistant to discontinued.
<unk> CX among other things.
These costs were partially offset by an increase in R&D software capitalization costs as compared to the same period of last year.
GAAP net loss per share was <unk> 44 cents in the second quarter of 2023 compared to 23 in the second quarter of last year.
non-GAAP loss per share, which excludes long term incentive compensation amortization restructuring charges other nonrecurring items and the impact of tax adjustments was <unk> 18 in the second quarter.
This compares to non-GAAP loss per share of 10 cents in Q2 of last year.
Second quarter, adjusted EBITDA was negative $3 8 million as compared to negative $1 5 million in the same period of last year.
The year over year change in adjusted EBITDA is primarily related to the investments we've made over the last year, particularly in our sales and marketing functions, including the increased hiring of quota bearing salespeople.
I'll now discuss our second quarter data like <unk> segment results.
<unk> was 7% year over year to $49 million Susquehanna IRR grew 9% to $43 million.
Can you sort of like <unk> revenue increased 13% to $11 9 million.
SaaS subscription revenue grew 20% to $10 5 million and accounted for 100% of the subscription revenue in the quarter.
As discussed previously we will be sunsetting, our on premise version of Esignature solution at the end of this year.
We therefore stopped selling new licenses effective Jan one 2023 and expect minimal on premise subscription revenue this year.
For comparison purposes on premise digital agreements subscription revenue, which is included in our total subscription revenue contributed $4 8 million in fiscal year 2022 us fallouts.
$3 4 million in Q1 point $2 million in Q3, and $1 1 million in Q4, respectively.
Second quarter gross margin was 72% compared to 73% in the prior year quarter.
Operating loss was $7 1 million as compared to an operating loss of $5 million in Q2 of last year, and an operating loss of $6 million last quarter.
As a reminder, beginning last quarter, we will reallocate expenses from our security solutions operating segment to digital agreements, which accounted for the majority of the year over year change.
Slightly lower gross margin this quarter as compared to the same quarter last year combined with increased investment in quota bearing salespeople and increases in sales and marketing travel and entertainment expenses, partially offset by increased capitalization of R&D costs contributed to the change.
Turning to our security solutions segment results.
<unk> grew 9% year over year in the second quarter to $96 million.
Subscription <unk> grew 20% to $69 million and was partially offset by a decline in perpetual maintenance at.
That trend, we expect to continue his legacy perpetual base maintenance contracts shift to subscription contracts overtime.
Revenue increased 4% to $43 9 million.
Subscription revenue grew 13% to $12 5 million, our second highest quarter results. Following a very strong Q1, driven by continued demand for authentication transaction, signing and <unk> solutions, primarily from existing customers.
The growth in subscription revenue was partially offset by expected declines in perpetual maintenance and support professional services and other and legacy software products that we sunset in 2022.
DIGIPASS token revenue increased 5% year over year.
In regards to electronic component shortages and related increases in lead times that impact our DIGIPASS token shipments over the last year I'm pleased that we've been able to increase inventory levels and partner with customers to optimize deliveries, which have now returned to more normalized levels.
Q2, gross margin was 59% as compared to 66% in the same period last year.
The change in margin is primarily related to product and customer mix in our hardware business increased electronic component prices used in DIGIPASS tokens increased freight costs and increase in third party software cost and the inventory write off charge related to the Japan CX.
Operating income was $8 5 million and operating margin was 19% compared to $8 million and 19% in last year's second quarter.
As compared to last year, the discontinuation of DIGIPASS CX impacted operating income by $3 million and was offset by the reallocation of certain expenses to digital agreements and lower amortization as a result of the prior year deal flow intangible asset impairment.
Turning to our balance sheet. We ended the second quarter of 2023 with $83 million in cash cash equivalents and short term investments compared to $98 million at the end of 2022.
Key uses of cash year to date include $6 million for operations $6 5 million for capital expenditures, primarily related to capitalized software $2 8 million in tax payments and 2 million in acquisition related costs.
Timing of collections and an increase in electronic component inventories for our DIGIPASS devices to reduce supply chain risks contributed to changes in cash over the last two quarters.
We have no long term debt.
Geographically our revenue mix by region in the second quarter of 2023 was 48% from EMEA, 33% from the Americas and 19% from Asia Pacific.
This compares to 45%, 37% and 19% from the same regions in the second quarter of last year, respectively.
That concludes my remarks, I'll now turn the call back to Matt.
Thank you Laurie.
I'm confident the actions we are taking to rightsize, our cost structure returned capital to our shareholders and focus on efficient growth are the right operational and strategic decisions for the company and will help one spin unlock shareholder value.
I will now provide our full 2023 guidance and initial 2024 targets.
For the full year 2023, we expect the following.
Revenue to be in the range of $2 26 to $2 $32 million as compared to our previous guidance of $2 32 to $2 $42 million.
<unk> to be in the range of $148 million to $152 million.
As compared to our previous guidance of $157 million to $164 million and adjusted EBITDA to be in the range of zero to $3 million as compared to our previous range of $3 6 million.
For the full year 2024, we are targeting revenue growth in the low to mid single digits range and as I mentioned earlier adjusted EBITDA margin to be in the range of 20% to 23% given.
Given the adjustments we made to our operating model, we are resetting our 2025 financial targets and we'll communicate them at a later date.
Corey I would now be happy to take your questions.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Draw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Okay.
One moment for our first question.
Okay.
Okay.
And our first question comes from Chad Bennett of Craig Hallum. Please go ahead.
Great. Thanks for taking my questions, So Matt I thought win.
When you came into the business and looked at kind of how how you wanted to reorganize the business.
I guess, no I don't know year and a half two years ago. However, long ago. It was.
We thought the two segments actually were.
Pretty synergistic together.
And we kind of reorganized the sales force and enable them and train them to sell all the products across both segments.
Kind of more of the suite approach and so forth and we actually hired salespeople.
That were qualified to do that and accelerated our hiring this year.
The salespeople to do that so.
What has changed in three months.
Hi, good how are you good it's good to speak with you. So the unified Salesforce is the unified unifying our sales force.
There is still intact. When I came in there were three sales forces one for security hardware, one for security software and one for digital agreements and.
And we unified those two account control perspective, where individual seller as you mentioned can go in and sell our products individual sellers will continue to be able to sell all products. So nothing has changed there, but really has changed as you know we came into the business. We simultaneously have been attacking the cost structure, but.
Simultaneously attacking the cost structure, but in parallel.
Vesting in building out the infrastructure for the future.
Key to any growth story really as a productive sales force and our marketing capability to essentially generate demand for those sellers that we've invested in both both are necessary and they both continue to be necessary, but really we have more visibility into is the sum total of the performance of the existing team combined with the.
New sellers, who we do believe bring more directly applicable enterprise application experience.
And their ramp times and so essentially I've taken a look at is the time to execute the transformation. We still believe in our long term growth potential, but when I think about time time value of execution lager, the execution and the more it costs as we go through this and our commitment to the rule of 40. We also have to look at the efficient capital deployment based against.
That timeframe and Thats really what has changed now.
Now we have more visibility as we committed to in previous calls to giving an update on the uptake of that additional sales capacity.
The uptake of the marketing demand generation engine, which was essentially built from scratch.
And in the manner needed to go attack a market and so I would say Craig the only the only real thing.
Chad the only thing that has changed has been the time required to execute the transformation everything else remains intact and this cost rebalancing. If you will is really just to make sure that we're efficiently deploying capital against that timeframe.
Our strategy remains unchanged as I mentioned in the call and the <unk>.
Long term growth potential of digital agreements I believe still remains intact.
Increased focus with the divisional structure, which we started with the segment approach I believe will facilitate that facilitate that uptick.
Okay, and then can you provide some color into where the cost cuts will land in the P&L at least kind of rough ranges of rough numbers I'll.
I'll give you a high level just high level, and then hurricane break it down for a little bit more so obviously parallel to that I think we've put out there at $10 million to $12 million cost savings. We came in at the high end of that that was the initial one that had put in place the right. Upon my arrival and we also extended debt restructuring to other parts of the business.
Rationalizing portfolios et cetera.
You've executed very very well against in that execution gives me good comfort that we'll be able to execute.
This.
Profitable approach as we manage the business for long term.
The increased spend that happened in parallel really driven by the increased investment in sales at market price.
Okay, and so as soon as the call. We are implementing a performance based culture is critical to the future of our company and really any company and so you will see a meaningful reduction in sales and marketing expenses commensurate with what would be efficient spending of capital for the growth rate that those two entities are providing so sales and marketing in parallel we've made.
We talked about in the call some product related decisions to refine our focus.
And to allow us to partner with two close recipe rolled across eight instead of across a very broad portfolio one of those.
DIGIPASS CX cloud based token and we had a few other technical.
Technical decisions internally with regard to certain platforms.
Projects that we're building so I'd say primary messages sales and marketing with the with the product moved very vague.
The next largest area.
Or do you want to give a breakdown a little more detailed level.
Yeah, Hey, Scott how are you to answer the question, yes. So I think you covered it pretty well, but I'll just add a couple of things one is.
I think the lion's share of what.
The cost savings will come from it's going to be on sales and marketing secondly, it would be R&D, but also as G&A. So he's really looking at all of those three opex categories Chad.
Optimizing dose.
Going back to what Matt mentioned is every dollar spent at the company has to have NRI tied to tighter.
Type two.
Products that are going to drive growth top line growth.
And how is the biggest.
Our bank for our Buck.
Ultimately at the end of the day, but it's all the three categories <unk> R&D and G&A will be will be impacted with the majority.
Got it I appreciate the color. Thank you.
Thank you.
One moment for our next question.
And our next question comes from Gray Powell of BPI. Please go ahead.
Great. Thanks for thanks for taking my questions.
A few on my side.
Maybe just to start.
On the top line can you help us think through how much of a.
Our reduction.
It was due to more company specific issues and the ongoing transformation versus.
Weaker than expected macro environment and just more.
Customers delaying decisions.
I can I can take this one Matt.
No.
Greg just to maybe take a step back and so when you look at the IRR.
Over the last couple of quarters ending 8%.
This quarter that deceleration I would say is.
Primarily related to again.
Taking longer the cell phone market AMG is taking longer.
Obviously that's impacted.
Part of part of it is the macro as well, but it's partly that.
The other component that I won't mention as well is it product sunsetting.
That has an impact that's about 2%.
That 8%.
This had an impact on the other component that we mentioned this in the last two or three calls as well, which is the a couple of larger clients that contracted output primarily in Q3, so youll see that for another quarter or so.
And then to a lower extent I would say, but also important to mention is due.
Due to the macro some of the verticals, particularly the VA business and discuss insurance and mortgage.
To see that so like lower levels compared to the last few quarters. So that also again threatened by the macro but as well, particularly impacting those verticals.
And then what are the things just to mention as well is.
And about the macro deal scrutiny, increasing we saw that more pronounced in Q2, particularly in <unk>.
One of the deals that slipped that Matt mentioned slipped from Q2 into Q3.
That deal at $2 million ACB deal.
That would have added another 111.
One five points to it and so I think it's a combination of both great, but I think it's equally macro but also the sales and marketing engine, taking lower than anticipated also.
As dampening that background.
Okay, that's really helpful.
Okay and then just the next one I don't want to get too into the weeds on the math, but if I look at like net new <unk> or like <unk> additions.
So that declined 45% in Q2.
The midpoint of guidance implies you add $5 6 million of new <unk> and <unk>.
Second half of 2023 versus $4 4 million last year.
Understand that you have easier comps. So I guess that helps but can you just sort of help us think about what's driving that improvement and just sort of reaffirm your confidence level there.
Yeah.
Yes, like I said, we have that obviously the deal that I just mentioned.
At the Timberlake suite, that's going out that's going to be part of that.
The remainder to get to that to that of the number for the full year and then the other components are going to be primarily just expansion of existing clients. There is some element of new new logos as well that will that will have but the lion's share of that is going to be the expansion of existing clients.
<unk>.
Okay Cool and then just if I can squeeze in one more I know it's a lot.
Keep taking EBITDA margins from effectively breakeven or I guess slightly better than breakeven this year to 2032.
1% to 23%, it's just like a really big jump.
So how much of that is related to natural leverage in the business <unk>.
The cost that you are reading out from this additional restructuring.
And do you think you can hit that target, even if revenue comes in below expectations again.
Over the next call it six to 18 months.
Yes, I'll take that one so we have I think.
More than English.
Prove dramatically on since you've arrived.
Arrived and we had our team which was really fully intact on January one.
As the operational rigor in the company and the ability to tackle the cost structure in a way that was not previously payable when I came in so I feel very good about that.
<unk> already begun actions and we do anticipate that the vast majority of actions will be completed by the end of this year with some happening in 2024, but we do have line of sight into that and so it might degree of confidence in hitting that range is.
Strong.
And we continue to monitor the macroeconomic environment, but we believe these estimates that we put out there or are executable for sure.
Okay.
Alright, Thank you very much.
Let somebody else ask.
Thank you Barry Thanks Gray. Thank you one moment for our next question.
And our next question comes from Andrew <unk> from of Sidoti. Please go ahead.
Hi, and thank you for taking my questions most of them have been addressed already but I'm just curious about the.
The increase deals quicker.
At this time.
Second quarter being more pronounced with Scott Mark towards the end of the quarter. When did you start seeing that and how has that developed.
Thanks.
I mean, we've had obviously a lot of our a lot of our growth in our E signature business have been driven by installed base customers provide expansion, we've shown that when we get the right customer and the product delivers which it does obviously good things happen right and so with that good there is obviously contractual situations already in place when it comes to a new.
Contract or a migration from on premise to the cloud like was the case mentioned $2 million deal that moved out of Q2 into Q3 that was specifically a result of the.
The size of the deal, but also the number of signatories.
We're required to actually execute that transaction and the number of eyeballs that we're reviewing a given the macroeconomic environment. So it's still deal specific less so when they installed based customers because we have most of the cases, we have vehicles in place already in place most of it is around the new logo business that we would see already migrations from on premise to the cloud.
Okay. Thank you and I will talk to me.
Okay.
Thank you one moment for our next question.
And our next question comes from Rudy Kessinger of D. A Davidson and company. Please go ahead.
Alright, Thank you for taking my questions.
Similar to maybe a couple of other questions that have already been asked.
Matt you've been here now for almost two years and we're still.
Kind of yet to see any improvement on the growth profile I guess I'm just curious.
You started to hire these new reps correct me, if I'm wrong, but in May of 2022, and so if you look at that first wave of reps that you hired and you look at their productivity today.
What would you attribute to those reps not ramping to productivity.
As expected would you attribute to the macro which you attributed to SaaS native met would you attribute it.
I heard you call it competitive pricing pressure, what would you attribute the inability to get.
Some debt that first wave of reps fully ramped and productive to drive faster growth this year not happening shortly.
Sure sure. So I came in number of 29, so it's been about a year and a half.
But in <unk> the plate and.
Put in plan to place the plan in May and began really in the back half of last year, adding additional reps. So as I stood there Rudy in May in New York, we rolled out our three year strategic plan, we had about 40, $43 44 reps and we committed to doubling the sales force by the end of this okay. We did hit that target and so real.
What <unk> seen is a full year of performance in the company across.
Certainly the 45 that were here when I came in.
We are.
Partly through the year, a quarter quarter and a half through that so the ability to go see that performance and that sort of one cohort. If you will and then the second cohort which came in staggered in the back half of last year into this year that has many many dates that would mark there second three three quarter in four quarter anniversary. So that's still flowing through the system, but when you look at the sum total.
All of the performance of the reps I would say, it's multifold really and it really just comes down to the fact that this company's maturing on multiple fronts, but primarily across the sales and marketing demand generation, okay and so.
I'd say, it's not one thing the team has done a good job, but for sure maturing every quarter since I've been here, but the ability to go get those reps ramps and get them the demand with.
With a company, whose brand is still being built.
It's taking more time, and so thats why youre seeing.
Some of the cases some of the restructuring that will be done obviously is going to be related to performance vitamins as any company should have that so I think.
The talent that has come in certainly is augmenting the talent that was here and now we've got to put together the best team, we possibly can to make the salesforce productive, but make sure that the costs are in line with that productivity rate. We had no reason to assume that the existing reps would not be as productive.
And the digital agreement segment, given the tenure of some of those reps, but as we've seen that play out that is not the case and so I would say the sum total of our expense in the sales given the productivity of it is.
A an area we have to rebalance I am confident that we have a good sales team we'd have to make sure that in parallel we are building out the demand generation engine to feed them and to act on it.
I would say, it's a mix of the sales mix of the marketing demand generation that you have to cross.
Those lines have crossed for it to get to normal productivity rates are and where we're still on that journey.
Okay and then.
Given the outlook for 'twenty for low to mid single digits revenue growth should we expect <unk> growth to be roughly similar to that in 'twenty, four or higher or lower and then when you think about getting the rule of 40 should we think of that is now likely being more of a mix of 30 ish percent margin 10%.
Growth as opposed to I think previously that the targets for 2020.
Okay. So I'll take the last two Jorge then you're going to be <unk>. So listen every week since we've come in here, but the new administration. So to speak we're committed to getting to the rule of 40 I think when you looked at the plan that got it close to 30 through a combination of topline growth and adjusted EBITDA. Obviously it was almost a 50 50 split between those two targeting.
Sort of a 2020 rule of 40 as we exited 25 into 26, Okay, and so I think just going back to the time value of execution comment.
Realizing that that was going to take time to achieve our digital agreements.
Three year targets, which is really the growth engine of the business right. We know that security is a different growth profile for it.
We took action are taking action to make sure that we continue on that path to the rule of 40 in half.
The.
The majority of that equation, if you will coming from profitability. Okay. As we get stronger we will obviously appropriately align expenses to that growth profile, but as we stand right now and given the time it will take to get that engine going.
Perfect sense for us to go recalibrate now expenses and profit elements of that equation and target target of getting to that rule of 40, hopefully more quickly, but also in a different way.
Then we previously stated based on the information we have.
And really going back to your first question. So we will be publishing the full 2024 metrics and Kpis later, but I think just to address your question I think that's the right expectation, but like I said.
We're still a little premature from from publishing publishing all the other kpis for 'twenty 'twenty four will do that in due course over the next couple of quarters.
Got it okay. Thank you.
Thank you I would now like to turn the conference back to Matt Monaghan for closing remarks.
Thank you everyone for joining us today very much appreciate your time and very much look forward to our one on one sessions over the course of the next couple of weeks and quarter and look forward to giving you future updates on the company as we progress in our transformation. Thank you for your time today.
This concludes today's conference call. Thank you for participating and you may now disconnect.
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