Q3 2023 OneSpan Inc Earnings Call
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[music].
Speaker 1: you
Speaker 2: Good day, and thank you for standing by. Welcome to the Q3 2023 One-Span Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-1-1 on your telephone. You will then hear an automated message boasting that your hand is raised.
Good day and thank you for standing by welcome to the Q3 2023, one span earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
We'll then hear an automated message spicing that your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Joe Maxa, Vice President of Investor Relations. Please go ahead.
Speaker 2: to withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Joe Maxo, Vice President of Investor Relations. Please go ahead.
Thank you operator, Hello, everyone and thank you for joining the <unk> third quarter 2023 earnings conference call.
Speaker 3: Thank you, operator. Hello, everyone, and thank you for joining the OneSpan third quarter 2023 earnings conference call. This call is being webcast and can be accessed on the investor relations section of OneSpan's website at investors.onespan.com.
This call is being webcast and can be accessed on the Investor Relations section of <unk> website at investors <unk> Dot com.
Speaker 3: Joining me on the call today is Matt Moynihan, our Chief Executive Officer, and Jorge Martel, our Chief Financial Officer.
Joining me on the call today is Matt Moynahan, our Chief Executive Officer, and Jorge Martell, Our Chief Financial Officer.
Speaker 3: This afternoon, after market close, OneSpan issued a press release announcing results for our third quarter, 2023. To access a copy of the press release and other investor information, please visit our website.
This afternoon after market close <unk> issued a press release announcing results for our third quarter 2023 to access a copy of the press release and other Investor information. Please visit our website.
Speaker 3: Following our prepared comments today, we will open the call for questions.
Following our prepared comments today, we will open the call for questions. Please.
Speaker 3: Please note that statements made during this conference call that relate to future plans, events or performance, including the outlook for full year 2023 and longer term financial targets are forward looking state.
Please note that statements made during this conference call that relate to future plans events or performance, including the outlook for full year 2023 and longer term financial targets are forward looking statements. These statements involve risks and uncertainties and are based on current assumptions.
Speaker 3: These statements involve risks and uncertainties and are based on current assumptions.
Speaker 3: Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements.
Consequently, actual results could differ materially from the expectations expressed in these forward looking statements I 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.
Speaker 3: I direct your attention to today's press release and the company's filings with the US Securities and Exchange Commission for discussion of such risks and uncertainty.
Speaker 3: Also note that certain 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.
Also note that certain 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.
Speaker 3: We 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.
We 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.
Speaker 3: In addition, please note that the date of this conference call is November 8, 2023. Any forward-looking statements and related assumptions are made as of now.
In addition, please note that the date of this conference call is November eight 2023.
Any forward looking statements and related assumptions are made as of this date.
Speaker 3: 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. Thanks.
Except as required by law, we undertake no obligation to update these statements as a result of new information future events or for any other reason.
I will now turn the call over to Matt.
Thank you Joe Good afternoon, everyone and thank you for joining US we announced important changes to our operating model last quarter to help us drive more efficient revenue growth increased profitability and enhanced shareholder value.
Speaker 4: We announced important changes to our operating model last quarter to help us drive more efficient revenue growth, increased profitability and enhanced shareholder value.
Speaker 4: I'm pleased to tell you we made good progress towards these objectives in the third quarter, including the execution of significant cost reduction activities and the appointments of general managers for our two operating-
I am pleased to tell you we made good progress towards these objectives in the third quarter, including the execution of significant cost reduction activities and the appointments of general managers for our two operating business units.
Speaker 4: We are working hard toward our commitment of achieving the rule of 40 and our driving toward our aspirational goal of attaining a level of 30% under the rule of 40 framework by the time we exit 2024.
We are working hard towards our commitment of achieving the rule of 40 and are driving towards our aspirational goal of attaining a level of 30% under the rule of 40 framework by the time, we exit 2024.
Speaker 4: Third quarter revenue grew 3% year over year to $59 million. ARR grew 10% to $59 million in 2018.
Third quarter revenue grew 3% year over year to $59 million.
<unk> grew 10% to $150 million and adjusted EBITDA was $6 3 million or 11% of revenue.
Speaker 4: and adjusted EBITDA with 6.3 million or 11% of revenue.
Speaker 4: I am pleased by the 11% adjusted EBITDA margin reported, driven primarily by our focus on operational rigor and our cost reduction emissions.
I am pleased by the 11% adjusted EBITDA margin reported driven primarily by our focus on operational rigor and our cost reduction initiatives.
Speaker 4: During the quarter, he reduced head count by approximately 15% resulting in the annualized cost savings of more than $20 million. This was in addition to the approximate 5% head count reduction be completed in Q2. And we are planning further right sizing before the end of this year. Jorge will provide more details on our annualized cost savings during his financial- financial-
During the quarter, we reduced head count by approximately 15%, resulting in an annualized cost savings of more than $20 million.
This was in addition to the approximate 5% head count reduction we completed in Q2.
And we are planning further right sizing before the end of this year.
Jorge will provide more details on our annualized cost savings during this financial review, including our expectation to achieve approximately $58 million of cumulative savings by the end of 2023.
Speaker 4: including our expectation to achieve approximately $58 million of cumulative savings by the end of 2023.
Speaker 4: Based on our Q3 results and our plan to execute on additional cost savings, I believe we have positioned OneSpan to achieve our full year 2024 targeted adjusted EBITDA margin of at least 20%.
Based on our Q3 results and our plan to execute on additional cost savings I believe we have positioned <unk> to achieve our full year 2024 targeted adjusted EBITDA margin of at least 20%.
Speaker 4: We are closely monitoring our go-to-market metrics, including sales productivity and marketing efficiency, along with our revenue.
We are closely monitoring our go to market metrics, including sales productivity and marketing efficiency, along with our revenue growth.
Speaker 4: If necessary, we plan to further address our cost model to achieve our profitability.
If necessary we plan to further address our cost model to achieve our profitability commitments to.
Speaker 4: Turning to our two operating segments, digital agreements and security.
Turning to our two operating segments digital agreements and security solutions in the third quarter, we transitioned from segment reporting to formally creating two distinct operating business units each with a general manager.
Speaker 4: In the third quarter, we transitioned from segment reporting to formally creating two distinct operating business units, each with a general man.
Speaker 4: Samir Hajarnas has been appointed General Manager of Digital Agreements, and Mahmoud Sami Ibrahim, named General Manager of our Security.
Samir <unk> has been appointed general manager of digital agreements and Mahmud Sammy Abraham named General manager of our security solutions unit Sumit.
Speaker 4: Samir and Sammy are seasoned executives with relevant domain expertise.
Samir and Sami are seasoned executives with relevant domain expertise and are focused on driving operational excellence as they execute their respective business strategies of driving digital agreements for efficient growth and security solutions for cash flow during.
Speaker 4: and are focused on driving operational excellence as they execute their respective business strategies of driving digital agreements for efficient growth and security solutions for cash.
Speaker 4: During the quarter, both segments performed generally as expected, with revenue growth driven primarily by expansion and existing costs.
During the quarter both segments performed generally as expected with revenue growth driven primarily by expansion at existing customers and profitability benefiting sequentially from higher gross margin and lower operating expenses among other items and.
Speaker 4: profitability benefiting sequentially from higher gross margin and lower operating expenses.
Speaker 4: In digital agreements, we continue to see increased deal scrutiny and reprioritization of customer investments driven by the macro economic concerns.
In digital agreements, we continue to see increased deal scrutiny and re prioritization of customer investments driven by the macroeconomic uncertainties. This.
Speaker 4: This is putting pressure on sales cycles, deal sizes, and pipeline conversion rates for both expansion opportunities and new logo.
This is putting pressure on sales cycles deal sizes and pipeline conversion rates for both expansion opportunities and new logos that said, we had a solid sequential SaaS revenue growth of 11% in Q3, which included a three year $2 million ACB contract that we have discussed in the last quarter that moved out of Q2.
Speaker 4: That said, we had a solid sequential SaaS revenue growth of 11% in Q3, which included a three year, $2 million ACD contract that we have discussed in the last quarter that moved out of Q2 and closed in early Q3.
And closed in early Q3.
Speaker 4: I would like to highlight one additional customer, a large US bank that upgraded from our on-premises form factor to our leading cloud e-cogniz-
I would like to highlight one additional customer a large U S bank that upgraded from our on premise form factor to our leading cloud esignature solution. The customer issued an RFP as part of their transition to the cloud and chose <unk> over our key competitors in a three year upper six figure ACB deal that begins in Q4.
Speaker 4: The customer issued an RFP as part of their transition to the cloud and chose one spin over our key competitors in a three year upper six figure ACV deal that begins in Q4.
Speaker 4: The customer specifically noted the important role that one spans high-quality customer service played in their final decision. This customer also valued...
The customer specifically noted the important role that <unk> high quality customer service played in their final decision.
This customer also valued our virtual technology and signed a low six figure ACB deal to begin using it along with our cloud based esignature solution in a separate line of business, replacing one of our major competitors in Q3 they.
Speaker 4: and find a low six figure ACV deal to begin using it along with our cloud-based eSignature solution and a separate line of business replacing one of our major competitors.
They will also be Trialing, one span notary beginning in Q4.
Speaker 4: As mentioned in prior calls, new logo attainment and increased sales productivity are core to our digital agreements growth.
As mentioned in prior calls new logo attainment and increased sales productivity are core to our digital agreements growth strategy. We continue to focus on brand recognition as well as sales enablement and training to improve the productivity of our sellers and enable them to more aggressively generate and close enterprise new business opportunity.
Speaker 4: We continue to focus on brand recognition, as well as sales, enablement and training to improve the productivity of our sellers and enable them to more aggressively generate and close enterprise new business up.
These.
Speaker 4: Our value proposition, including our five-pillar solution strategy of identity verification, authentication, high assurance virtual collaboration, e-signature, and secure transaction evolving is very different from other e-signature companies in the market, and it continues to gain interest and set us apart.
Our value proposition, including our five pillar solution strategy of identity verification.
Identification high assurance virtual collaboration Esignature and secure transaction evolving is very different from other esignature companies in the market and it continues to gain interest and set us apart.
Speaker 4: In fact, he was recently named a leader in the IDC market scape, worldwide, he signature software vendor assessment for 2023, and were recognized for our quote, white glove service to all customers to ensure their success, while making it easy without sacrificing the security necessary to perform high assurance and direct.
Fact, we were recently named a leader in the IDC market Scape worldwide Esignature software vendor assessment for 2023, and we're recognized for our quote White glove service to all customers to ensure their success, while making it easy without sacrificing the security necessary to perform high assured.
Interactions there.
Speaker 4: The report highlighted one spans expertise in heavily regulated industries, customization and white labeling cable.
The report highlighted one spans expertise in heavily regulated industries customization and white labeling capabilities, while calling out a robust audit trail is a key differentiator, stating once band provides a single audit trail of the entire agreement process from identity verification and authentication to signature.
Speaker 4: while calling out a robust autotrail of the key differentiator, stating, once fans provide the single autotrail of the entire Green Impress.
Speaker 4: from identity verification and authentication to.
Speaker 4: The audit trail is constantly embedded within the signed document for easy, one-click verification.
The audit trail is constantly embedded within the sign document for easy one click verification.
Speaker 4: We are the only company in the industry focused on securing the entire digital transaction life cycle. And we believe the cyber threat environment is moving to our direction.
We're the only company in the industry are focused on securing the entire digital transaction lifecycle and we believe the cyber threat environment is moving in our direction.
We're also working to improve our go to market demand engine and are excited by our new partnership with an external demand generation agency. We believe this new agency has a stronger understanding of our business strategy market position and value proposition than our previous partner.
Speaker 4: We're also working to improve our go-to market demand engine and are excited by our new partnership with an external demand generation.
Speaker 4: We believe this new agency has a stronger understanding of our business strategy, market position, and value proposition than our previous partners.
Speaker 4: We're demonstrating innovation by bringing next generation capabilities to market, such as one span trust fault that we launched last week. I'm excited about this new capability, which helps guarantee the integrity and long-term viability of documents through the use of immutable storage capabilities based on blocks.
We're demonstrating innovation by bringing next generation capabilities to market such as one spend trustful that we launched last week I'm excited about this new capability, which helps guarantee the integrity and long term viability of documents through the use of immutable storage capabilities based on blockchain technology.
Speaker 4: TrustFault allows organizations to keep their digital agreements protected against tacking, data breaches, and emerging technologies like quantum computing that can pose security risks throughout the lifetime of a dog.
Trust fault allows organizations to keep their digital agreements protected against tacking data breaches and emerging technologies like quantum computing that can pose security risks throughout the lifetime of a document and.
Speaker 4: And we continue to put the one spend notary infrastructure in place to broaden the addressable market for us.
And we continue to put the one spin notary infrastructure in place to broaden the addressable market for our solution. It is currently.
Speaker 4: It is currently available for use in 28 states, which is more than our largest competitor, and we are targeting availability for approximately 40 U.S. states by the end of the first quarter, 2024. As a reminder, most states require a certification, which is done in a state by state base.
Available for use in 28 states, which is more than our largest competitor.
We're targeting availability for approximately 40 U S states by the end of the first quarter 2024.
As a reminder, most states require certification, which is done on a state by state basis. Currently one spend notary has a handful of paying customers and about 50 customers with end market proof of concept.
Speaker 4: Currently, One Spend Notary has a handful of paying customers, and about 50 customers with in-market proofs of credit.
Speaker 4: Lastly, and perhaps most importantly, we continue to target the first half of 2024 for general availability of our self-service try-and-buy e-signature solution focused on the SMB and commercial market segments.
Lastly, and perhaps most importantly, we continue to target the first half of 2024 for general availability of our self service try and buy E signature solution focused on the SMB and commercial market segments.
I'll now spend a few minutes on our security solutions segment.
Speaker 4: In security solutions, we continue to see subscription license expansion opportunities from existing customers, primarily for our mobile security and authentication solutions.
And security solutions, we continue to see subscription license expansion opportunities from existing customers, primarily for our mobile security and authentication solutions to mitigate potential hacking attacks.
Speaker 4: Security subscription revenue grew 20% year over year in the quarter, driven by demand for authentication, transaction signing, and app shielding.
Security subscription revenue grew 20% year over year in the quarter driven by demand for authentication transaction, signing an app shielding solutions DIGIPASS token revenue declined 5%, primarily due to product mix and timing of order shipments as compared to the prior year period.
Speaker 4: Did you pass token revenue decline 5% primarily due to product mix and timing of order shipments as compared to the prior year period?
Speaker 4: Visibility in the DigiPass orders remain strong at our large banking customers, though we continue to see, to some extent, the macroeconomic environment affecting orders in the mid-market banking sector. We are watching the market ripple effect on the mid-market financial sector very closely.
Visibility into DIGIPASS orders remained strong at our large banking customers. So we continue to see to some extent the macroeconomic environment affecting orders in the mid market banking sector.
Watching the market ripple effect on the Midmarket financial sector very closely.
Speaker 4: Top priorities in our security solution segment include deepening our relationships with strategic accounts, re-engaging the channel, and bringing new relevant solutions to market.
Top priorities in our security solutions segment include deepening our relationships with strategic accounts re engaging the channel and bringing new relevant solutions to market.
Speaker 4: We have a history of supporting our customers in times of new regulation, and have another opportunity to do so with the forthcoming PSD3 regulation in the European Union, which we plan to support with our mobile software and DigiPath security solutions, including forthcoming new solutions.
We have a history of supporting our customers in times of new regulation and have another opportunity to do so with the forthcoming PSD III regulation in the European Union, which we plan to support with our mobile software and DIGIPASS security solutions, including forthcoming new solutions.
Speaker 4: We also continue to focus our discussions with customers around their future mobile authentication strategies, whether mobile first, mobile only, or a hybrid approach using mobile and digipass tokens.
We also continue to focus our discussions with customers around their future mobile authentication strategies, whether mobile first mobile only or a hybrid approach using mobile and DIGIPASS tokens.
Speaker 4: And we're excited to be launching a new channel program, which we plan to announce in the coming
And we're excited to be launching a new channel program, which we plan to announce in the coming weeks.
Speaker 4: plan to grow our new channel partner network in the coming years and enable it to sell all of our solutions, expanding our market and helping.
Plan to grow our new channel partner network in the coming years and enable it to sell all of our solutions, expanding our market and helping us grow our topline.
Speaker 4: We also plan to bring new solutions to market to support our channel.
We also plan to bring new solutions to market to support our channel program, including an offering targeting workforce authentication named DIGIPASS FX one buyout.
Speaker 4: including an offering targeting workforce authentication named DigiPath FX1Bio. We plan to provide you with more information on this new device in the near future.
We plan to provide you with more information on this new device in the near future.
Next I want to provide an update on our capital allocation plans, we used $3 $5 million in cash to repurchase common stock during the third quarter.
Speaker 4: We use $3.5 million in cash to repurchase common stock during the third quarter. We expect to announce in the next week a modified Dutch auction tender offer to repurchase approximately $20 million of our common stock, consistent with our plan to return capital to shareholders as we seek to balance revenue growth and profitability.
Spec to announce in the next week, a modified Dutch auction tender offer to repurchase approximately $20 million of our common stock consistent with our plan to return capital to shareholders as we seek to balance revenue growth and profitability.
Speaker 4: I believe the actions we are taking to right size our cost structure, return capital to shareholders, and focus on efficient growth of the right operational and strategic decisions for OneSpan, it will help us to achieve our commitment to create and return value to our shareholders. With that, I will turn the call over to Jorge.
I believe the actions we are taking to rightsize, our cost structure returned capital to shareholders and focus on efficient growth the right operational and strategic decisions for one spin it will help us to achieve our commitment to create and return value to our shareholders.
With that I will turn the call over to Jorge to review our financials.
Alright.
Speaker 5: Thank you, Matt and good afternoon. Everybody before reviewing our 3rd quarter results. I want to provide an update on the actions. We are taking to rebalance our cost structure to drive more efficient top line growth. For simplicity, we are providing combined total annualized cost savings for the cost reduction actions. We announced last quarter and phase 2 of our restructuring plan announced in May of 2020.
Thank you, Matt and good afternoon, everybody before reviewing our third quarter results I want to provide an update on the actions. We are taken to rebalance our cost structure to drive more efficient top line growth.
Simplicity, we are providing combined total annualized cost savings for the cost reduction actions, we announced last quarter and the Soc two of our restructuring plan announced in May of 2022.
Speaker 5: As Matt mentioned, we reduced headcount by approximately 15% in the 3rd quarter and was mostly related to the cost reduction actions we announced last quarter and resulted in annualized cost savings of approximately 21 million.
As Matt mentioned, we reduced head count by approximately 15% in the third quarter and it was mostly related to the cost reduction actions, we announced last quarter and resulted in annualized cost savings of approximately $21 million.
Speaker 5: Total annualized cost savings achieved in the third quarter, including headcount reduction.
Total annualized cost savings achieved in the third quarter, including head count reductions.
Speaker 5: vendor consolidation, and other optimization strategies were approximately 24.
Vendor consolidation and other optimization strategies were approximately $24 million.
Speaker 5: cumulative annualized cost savings as of the end of the third quarter, where approximately 43 million. We expect to execute an approximately 50 million of additional cost savings in the current quarter, mostly labor related, bringing total annualized cost savings to approximately 58 million by the end of 2020.
Cumulative annualized cost savings as of the end of the third quarter were approximately $43 million.
We expect to execute an approximately $50 million of additional cost savings in the current quarter, mostly labor related bringing total annualized cost savings to approximately $58 million by the end of 2023.
Speaker 5: Over the course of the last few months, we have firmed up incremental vendor-related savings and other cost optimization strategies. And now, expect to achieve total annualized cost savings of 60 to 65 million by the end of 2025, or approximately 10 million more than the 50 to 55 million range with this cost-class quarter, which included a level of conservatory.
Over the course of the last few months, we have firmed up incremental vendor related savings and other cost optimization strategies and now expect to achieve total annualized cost savings of 60% to $65 million by the end of 2025 or approximately $10 million more than the $50 to 55.
The range, we discussed last quarter.
Included a level of conservatism.
Speaker 5: The 10 million increase is due to a stronger line of side into our cost savings targets, which had already been incorporated into our 2024 adjusted EBITDA margin target range of 20 to 23%.
$10 million increase is due to a stronger line of sight into our cost savings targets, which had already been incorporated into our 2024, adjusted EBITDA margin target range up 20% to 23%.
Turning to our third quarter results.
Speaker 5: The third quarter ARR grew 10% over year to 150 million.
Quarter, Anr grew 10% year over year to $150 million.
Speaker 5: ARR is specific to the subscription contract, grew 17% to $119 million, and accounted for approximately 79% of total ARR.
So there are specific to subscription contracts grew 17% to $119 million and accounted for approximately 79% of total IRR.
Net retention rate or <unk> was 108%.
Speaker 5: Net retention rate or NRR was 180.
Speaker 5: Similar to prior quarters, ARR and NRAR were impacted by the macroeconomic environment with increased field scrutiny and longer sales cycles resulting in more moderate new business at expense.
Similar to prior quarters.
And in Iran were impacted by the macroeconomic environment with increased scrutiny and longer sales cycles for assaulting with more moderate new business and expansion rates.
Speaker 5: These metrics also continue to be impacted by our decision to sons that serve in portfolio offerings last.
These metrics also continued to be impacted by our decision to sunset certain portfolio offerings last year.
Third quarter revenue increased 3% to $58 8 million.
Speaker 5: The third quarter revenue increase 3% to $58.8 million.
Speaker 5: Subscription for revenue grew 18% to 26.2 million, led by 20% growth insecurity software, and 15% growth in the signature SaaS revenue.
Susquehanna revenue grew 18% to $26 2 million led by 20% growth in security software and 15% growth in esignature SaaS revenue.
Speaker 5: perpetual several licenses and maintenance and support revenue decline as suspected By our strategic decision to sell only new recurrent revenue contracts a spot of a three-year plan Did you pass token ravine?
Perpetual software licenses and 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 did.
Could you pass token revenue declined 5%.
Third quarter gross margin was 62, 9% compared to 6% to 7% in the prior year quarter.
Speaker 5: The third quarter gross margin was 69%, compared to 67% in the prior year quarter. Primarily by favorable product mix and improved hardware marks.
Primarily by favorable product mix and improved hardware margin.
Speaker 5: I'll provide additional comments and gross margin by offering segmented.
I'll provide additional comments on gross margin by operating segment in a few minutes.
Speaker 5: Operating loss was 4.8 million compared to 5.6 million in the third quarter of last.
Operating loss was $4 8 million compared to $5 6 million in the third quarter of last year.
Speaker 5: Increases in revenue and growth, profit margin, where mostly offset by increases in operating expenses, resulting from higher head-candulated costs and increases in TNE.
Increases in revenue and gross profit margin were mostly offset by increases in operating expenses, resulting from higher headcount related costs and increases in <unk> expenses.
Speaker 5: Pat Netlots per share was 10 cents in the third quarter of 2023, compared to 18 cents in the third quarter of last.
GAAP net loss per share was <unk> 10 in the third quarter of 2023 compared to 18 in the third quarter of last year.
non-GAAP earnings per share, which excludes long term incentive compensation amortization restructuring charges other nonrecurring items and the impact of tax adjustments was <unk> nine in the third quarter. This compares to non-GAAP earnings per share of <unk> in Q3 of last year.
Speaker 5: Non-cap earnings per share, which excludes long-term and set to compensation, amortization, restructuring charges, other non-recurrent items, and the input of tax adjustments was $0.9 in the third quarter. This compares to non-cap earnings per share of $0.3 in key three of life.
Speaker 5: The third quarter adjusted EBDA was 6.3 million as compared to 4.5 million in the same period of flash.
Third quarter, adjusted EBITDA was $6 3 million as compared to $4 5 million in the same period of last year.
Speaker 5: The third quarter to adjusted EBITDA, benefit is from approximately 2.3 million in one time items, most of which were driven by an adjustment to bonus accruals and to a lesser extent, and immaterial catch-up adjustment from prior period multi-year agreement. I'll now discuss.
Third quarter adjusted EBITDA benefited from approximately $2 3 million onetime items, most of which were driven by an adjustment to bonus accruals and to a lesser extent, an immaterial catch up adjustment from a prior period multiyear agreement.
I will now discuss our third quarter <unk> segment results.
Speaker 5: ARR grew at 13% year over year to 51 million. Subscription ARR grew 50% to 47.
<unk> percent year over year to $51 million subscription <unk> grew 50% to $47 million.
Speaker 5: Digital agreements revenue increased 7% to 13 million.
Did your agreements revenue increased 7% to start 10 million SaaS subscription revenue grew 15% to 11 7 million and accounted for nearly 100% of subscription revenue in the quarter.
Speaker 5: The SAS subscription revenue grew 15% to 11.7 million, and accounted for nearly 100% of the subscription revenue in the quarter.
Speaker 5: As discussed previously, we are soon studying our on-premise version of our eSignature solution at the end of 2023 and stop selling new licenses effectively January 1st.
As discussed previously we are sun setting our on premise version of our esignature solution at the end of 2023 and stop selling new license is effective January one.
Speaker 5: The expect minimal on-premise subscription revenue for the full year price.
<unk> minimal on premise as percent of revenue for the full year 2023.
For comparison purposes.
Speaker 5: comparison purposes on premise digital agreement subscription revenue which is including our total subscription revenue Contributed 4.8 million for the full year 2022 Including 1.1 million in the fourth quarter or last
This digital agreements subscription revenue, which is included in our total subscription revenue contributed $4 8 million for the full year 2022, including $1 1 million in the fourth quarter of last year.
Speaker 5: The third quarter gross profit margin was 75% as compared to 80% in the prior year quarter. Gross margin in the prior year period benefited by approximately six points due to a one-time credit for my Kabao service profile.
Third quarter gross profit margin was 75% as compared to 80% in the prior year quarter gross margin in the prior year period benefited by approximately six points due to a onetime credit from a cloud service provider.
Speaker 5: Operating loss was 4.7 million as compared to an operating profit of 2.2 million in Q3 last year and an operating loss of 7.1 million less
Operating loss was $4 7 million as compared to an operating profit of $2 2 million in Q3 last year and that operating loss of $7 1 million last quarter.
Speaker 5: As a reminder, in key one of this year, we reallocate expenses from our security solutions operating segment to digital agreements, which are counted for the majority of the year-over-year change in profitability in the quarter.
As a reminder, in Q1 of this year, we reallocate our expenses from our secure solutions operating segment.
Our agreements, which accounted for the majority of the year over year change in profitability in the quarter.
Speaker 5: Lower growth margin, combine with increased sales headcount and increase in sales and market and travel and entertainment expenses, contributed to the change.
Lower gross margin combined with increased sales head count and an increase in sales and marketing travel and entertainment expenses contributed to the change.
Turning to our security solutions segment results.
Speaker 5: ARR 9% is over a year in the third quarter to 98 million.
<unk> grew at 9% year over year in the third quarter to $98 million.
Speaker 5: Subscription a R? R throughw 18% to seminy two million and was partially offset by declining perpetual maintenance R? R at trend. We expect to continue as legacy perpetual based maintenance contracts shift to subscription contracts over time, revenue increased.
Christian <unk> or 18% to $72 million and was partially offset by a decline in perpetual maintenance IRR at Sam We expect to continue his legacy perpetual base maintenance contracts shift to subscription contracts overtime.
Revenue increased 2% to $45 8 million.
Speaker 5: Subscription revenue increased 20% to $14.4 million, our second highest quarterly result, following a strong first half.
Subscription revenue increased 20% to $14 4 million, our second highest quarterly result, following a strong first half of the year.
Strength in Q3 subscription revenue in the quarter and year to date continue to be driven by demand for authentication transaction, signing <unk> solutions, primarily from existing customers.
Speaker 5: That's ranked in Q3, subscription revenue in the quarter and year today continue to be driven by the man for authentication, transactions signing, and app shielding solutions, primarily from existing costs.
Speaker 5: The Grilled in Q3 subscription revenue was upset partially by expected declines in perpetual software and lower volumes of hardware.
The growth in Q3 subsequent <unk> revenue was offset partially by the expected declines in perpetual software and lower volumes of hardware sold.
Q3, gross profit margin was 6% to 7% as compared to 64% in the same period last year.
Speaker 5: Q3 gross profit margin was 67% as compared to 64% in this same period of lash.
Speaker 5: The increase in margin is primarily attributable to an increase in stress-crison revenue and the 5-point increase in hardware margin.
The increase in margin is primarily attributable to an increase in Susquehanna in revenue and a five point increase in hardware margin.
Speaker 5: I want to remind you that DigiPass token delivers return to normalized levels beginning last quarter and the hardware margins can fluctuate in any given quarter based on product and cost.
I want to remind you that DIGIPASS token delivers returned to normalized levels of <unk> in the last quarter and the hardware margins can fluctuate in any given quarter based on product and customer mix.
Speaker 5: Operating income was 15.7 million and operating margin was 34
Operating income was $15 7 million and operating margin was 34% compared to $5 7 million and 13% in last year's third quarter.
Speaker 5: to 5.7 million and 13% in last views of third quarter.
Speaker 5: an increase in revenue and gross profit margin, a reallocation of certain expenses to digital agreements, and a 3.8 million impairment charge related to the sunsetting of non-core assets last year accounted for the majority of the increase.
An increase in revenue and gross profit margin the reallocation of certain expenses to DHL agreements and that $3 8 million impairment charge related to the sunsetting of noncore assets last year accounted for the majority of the increase.
Turning to our balance sheet.
Speaker 5: We ended the third quarter of 2023 with 68.5 million in cash, cash requirements and short-term investments. Compared to 90 million...
We ended the third quarter of 2023 was $68 $5 million in cash cash equivalents and short term investments compared to $98 million at the end of 2022.
Speaker 5: He uses of cash, year-to-date include approximately 9 million in capitalized expenditures from early capitalized software costs, 9 million in
Can you use of cash year to date include approximately $9 million in capitalized expenditures, primarily capitalized software costs $9 million and restructuring payments to $1 million in acquisition related costs, $3 5 million to repurchase common stock.
Speaker 5: 2 million in acquisition related costs, 3.5 million to repurchase common stock, and 8 million from changes in networking capital.
An $8 million from changes to net working capital.
We have no long term debt.
Speaker 5: consistent with the changes to Napa and Model, used by the general popular cash flows from operations in Q4 2023 and in 2020.
Consistent with the changes in operating model, we expect to generate positive cash flows from operations in Q4, 2023 and 2024.
Speaker 5: Geographically, our revenue mixed by region in the 3rd quarter of 2023 was 45% from EMEA, 34% from the Americas, and 21% from Asia Pacific.
Geographically our revenue mix by region in the third quarter of 2023 was 45% from EMEA, 34% for the Americas and 21% from Asia Pacific.
Speaker 5: This compares to 45%, 36% and 19% from the same regions in the third quarter of last year respectively. I will now provide an update to our financial outlook.
This compares to 45%, 36% and 19% from the same regions in the third quarter of last year, respectively.
I will now provide an update to our financial outlook.
For the full year 2023, and we expect.
Speaker 5: Revenue to be in the range of 228 to 232 million dollars as compared to our previous guidance range of 226 to 232 million.
Revenue to be in the range of $228 million to $232 million.
As compared to our previous guidance range of $226 million to $232 million.
Speaker 5: ARR to be in the range of 148 to 152.
<unk> to be in the range of $148 million to $152 million.
Speaker 5: and adjusted EBITDA to be in the range of 2 to 4 million dollars up from our previous guidance range of 0 to 3 million.
And adjusted EBITDA to be integrating $2 million to $4 million up from our previous guidance range of zero to $3 million.
Speaker 5: As discussed previously, our business can be affected by the time and of contrast of products.
As discussed previously our business can be affected by the timing of contracts. Some product mix. In Q4, we are expecting pressure on hardware margins due to a less favorable mix of customers and products.
Speaker 5: Thank you for your respect and pressure on hardware margins due to a less favorable mix of customers and products.
Speaker 5: We're also expecting a decrease in digital agreements gross margin due to an increase in the number of states and of capitalized software costs, which we begin.
We're also expecting a decrease in <unk> gross margin due to an increase in the amortization of capitalized software costs, which we began capitalized last year.
We've also discussed our plan to sunset. Our on premise you have seen that trend legacy deal flow solutions at the end of this year, which along with some expected contraction from a few security solution with customers.
Speaker 5: We've also discussed our plan to sunset our on-premise e-signature and legacy deal flow solutions at the end of this year, which, along with some expected contraction from a few security solution customers, may impact ARR and NRR in Q4 2023 and Q1 2021.
<unk> and NR in Q4 2023 in Q1 2024 for example, some customers purchased our cloud E signature solution in prior quarters due to the planned sunsetting of our on premise solution customers are running both <unk> seen it reverses as they migrate to the cloud.
Speaker 5: For example, some customers purchased our cloud EC into solution in prior quarters due to the planned sunsetting of our on-premise solution. These customers are running both EC into versions as they migrate to the cloud.
Speaker 5: Re-espeed contraction from these customers as their own premise contracts expiring.
We expect contraction from these customers as their on premise contracts expiring in Q4.
Speaker 5: We also expect some contraction in Q1 from customers migrating from on-premise, eSignature, and DealFloat to other solutions.
We also expect some contraction in Q1 from customers migrating from on premise <unk> and deal flow to other solutions.
Turning to our full year 2020 for outlook.
Speaker 5: Your heart to work on our budget, which will be completed by the end of this year, and we'll need approval by the board into course. We are targeting full year 2024 revenue growth in the low to mid-single digit range, and full year 2024 adjusted even a margin in the range of 20 to 23%.
Hard to work on our budget, which will be completed by the end of this year and we will need approval by the board in due course, we are targeting full year 2020 for revenue growth in the low to mid single digit range and full year 2024, adjusted EBITDA margin in the range of 20% to 23% at.
Speaker 5: Accordingly, we expect to turn our cash from operations in the range of 32 to 36 million by the end of 2024 excluding restructuring related payments, MNA activities and return of capital to share.
Accordingly, we expect to generate cash from operations in the range of $32 million to $36 million by the end of 2024, excluding restructuring related payments M&A activities and return of capital to shareholders.
Speaker 5: That concludes my remarks. I'll now turn the call back to Matt.
That concludes my remarks, I'll now turn the call back to Matt.
Speaker 4: Thank you, Horay. I'm very proud of the work our team is doing to transform one span into an enterprise class company with a performance based culture. We are committed to creating a returning value to our shareholders by growing revenue efficiently and profitably. Horay and I will now-
Thank you Lori I'm very proud of the work our team is doing to transform <unk> into an enterprise class company with a performance based culture.
We're committed to creating and returning value to our shareholders by growing revenue efficiently and profitably.
And I will now be happy to take your questions.
Speaker 2: As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. One moment.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
One moment for our first question.
Our first question will be coming from Gray Powell of BT AIG. Your line is open.
Speaker 2: Our first question will be coming from gray PAL of BTIG, a minus...
Speaker 3: Great thanks for taking the question. I have a few on my end, but before I get into it, just congratulate congratulations on what looks like a fairly clean quarter.
Great. Thanks for taking the question I have a few armani and before I get into it just congratulate congratulations on what looks like a.
Fairly clean quarter.
Speaker 3: So yeah, just to start off, a number of other tech companies are talking about how they're seeing macro headwind get worse in October . I just wondered if you could talk about the linearity that you saw throughout two, three, and then just providing color in what you've seen like the last 30 or 40 days and just your overall confidence level in terms of your visibility on demand.
So yes, just to start off.
A number of other tech companies are talking about how they're seeing.
Macro headwinds get worse in October.
Im just wondering if you could talk about the linearity.
That you saw throughout Q3, and then just provide any color on what you've seen like the last 30 or 40 days and just your overall confidence level in terms of your visibility on.
On demand.
Hey, Greg how are you it's Matt.
Speaker 4: I feel I don't think there's any been a material change over the course of the year. We've seen this over the past two or three quarters and we continue to see, I would say, somewhat consistent macroeconomic, you know, challenges. Obviously, we've mentioned some of the lengthening deals, sales cycles.
I feel I don't think theres any been any material change over the course of the year. We've seen this over the past two to three quarters and we continue to see I would say somewhat consistent macroeconomic challenges.
Challenges, obviously, we mentioned.
The new deals.
Sales cycles, some deal prioritization and da which is more typical than it would be in the cyber side of the house.
Speaker 4: Some deal prioritization in DA, which is more typical than it would be in the cyber side of the house. We could use it as a side to the online banking. The one area that we do believe is having a slight increasing effect.
And tied to online banking the one area that we do believe is having.
A slight increasing effect.
Speaker 4: is in the mid-market financial sector, particularly as it relates to the purchase of hardware tokens. We're hard at work launching a new channel program that should get us more visibility into that particular sector, but I would say that would be the only one that there's a question mark for me, has it worsened or not, and we'll have more visibility I'm sure next quarter, particularly after the release of this new program, channel program, which should give us more visibility with those partners who control most of that volume for us.
As in the mid market financial.
Sector, particularly as it relates to the purchase of hardware tokens, we're hard at work launching a new channel program that should get us more visibility into that particular sector.
But I would say that would be the only one but there's a question Mark for me Hasnt worsened or not and we'll have more visibility I'm sure next quarter, particularly after the.
Release of this new program Channel program, which should give us more visibility with those partners, who control most of that volume for us.
Okay. That's really helpful. And then I think you may have kind of sort of answered. This one on the prepared remarks, but I just want make sure I have it correct.
Speaker 6: I kind of sort of answered this one on the prepared remarks, but I just want to make sure I have it correct.
Speaker 6: Sure. All right. So, net new AR additions bounce back pretty nicely in Q3. You added just over 5 million of net new AR. I know there was some deals slip from Q2 to Q3 that probably helped that number. But the high end of guidance implies that you only add.
Alright, so net new additions bounce back pretty nicely in Q3, you added just over 5 million of net new <unk> I know there was some deal slipped from Q2 to Q3 that probably helped that number.
But the high end of guidance implies that youre only add $2 million in Q4. So is there any reason to think that's not just a conservative number.
Speaker 6: $2 million in Q4. So is there any reason that I think that's not just a conservative number? I know you talked about the sun setting issues, so I just wanna make sure that I'm sort of thinking about the ARR-10 lines correctly.
I know you talked about the sunsetting issues. So I just I just want to make sure that I'm sort of thinking about that.
Our trend lines correctly, yes, we have I think I think that's fair to say I mean, we do have a couple of mitigating impacts here. It's Ed. So Jorge mentioned, we sort of have a double bump going on right now, whereas we've been migrating.
Speaker 4: Yeah, we have, no, I think that's fair to say. I mean, we do have a couple of mitigating impacts here. It's as Jorge mentioned, we sort of have a double bump going on right now, where we've been migrating both on both the e-signature and the security side of the house. Obviously migrating from perpetual to subscriptions in the e-signature side of the house. So we oftentimes during the migration from an on-premise to a cloud-based installation, you run both in parallel. So there's a tail where we're sort of getting the double benefit of both contracts in place at the same time.
On both the esignature and the security side of the house, obviously migrating from perpetual to subscription and the signature side of the house and SaaS. So we oftentimes during the migration from an on premise to a cloud based installation you run both in parallel so there's a tail.
Sort of getting the double benefit of both contracts.
In place at the same time, and so we do anticipate as customers roll off of on Prem and the maintenance associated with that to the cloud application that theres, a little bit of a headwind or a dampening effect I should say associated with that we also have.
Speaker 4: And so we do anticipate as customers roll off of on-prem and the maintenance associated with that to the cloud.
Speaker 4: application that there's a little bit of a headwind or dampening effect I should say associated with that.
Speaker 4: We also have a couple of planned downsizing, one of our banking customers has selling off some international assets, for example, which is really obviously uncontrollable. And the big thing, Gray, is really just the importance of getting into logo acquisition engine going.
Couple of planned downsizing in one of our banking customers.
At some international assets for example, which is really obviously uncontrollable and Thats a big thing.
Gray is really just the importance of getting a new logo acquisition engine going.
Speaker 4: right and so you know the biggest area for us, given our size is the index that we have to drive ARR and NRR associated with new logo X.
And so the biggest area for us given our size as the <unk>.
Index that we have to drive IRR net or are associated with new logo acquisition right and so again, we've seen some lengthening in sales cycles. So I think all of those dampening effects suggests that we're being.
Speaker 4: Right. And so again, we've seen some lengthening in sales cycles. So I think all those dampening effects, you know, suggest that we're being, you know, prudent and where we are right now, given that we are at the midpoint of the range. But I don't think your comment's unwarranted if we continue to perform the way we think we will this quarter.
Prudent and where we are right now given that we are at the midpoint of the range, but I don't think youre comments on warranted. If we continue to perform the way we think we will this quarter.
Alright, perfect and then last one on my side I know a couple of here.
Speaker 6: Perfect. Then last one on my side, I know that's a couple of here. Just looking at slide 19, that summary is really helpful on the cost reduction actions. Back in the envelope map, it looks like you're going to generate maybe, and you know, if I just kind of look at like four year 23 versus four year 24, looks like you're going to get like an extra 40 million or so in cost savings. And that pretty much gets you to your e-pick.target. Is that directionally correct?
Looking at Slide 19 that some reason really helpful on the cost reduction actions back.
Back of the envelope math, it looks like you're going to generate maybe if I just.
Kind of look at like full year 'twenty three versus full year 'twenty four it looks like youre going to get like an extra $40 million or so in cost savings and that pretty much gets you to your EBITDA target is that Directionally correct.
Speaker 5: Hey Greg, this is Jorge. How are you? I'm a little under the weather. Yeah, so I think, you know, just to maybe get the back. So we're planning by the end of this year to be at 43 million. And that's the sum of 19 that we had.
Hey, Greg This is Jorge how are you and I apologize because I'm a little under the weather. So I think just to maybe take a step back. So we are planning by the end of this year to be at $43 million and Thats. The sum of 19 that we had.
Speaker 5: entering Q3 and we executed a 24 million in Q3 that gets you to that 43 million. We plan to execute as I mentioned an incremental 15 that gets you to the 58 million that you see on that slide 19 of the investor deck.
Entering Q3, and we executed on $24 million in Q3 that gets you to that $43 million, we plan to execute US I mentioned, an incremental 15 that gets you to the $58 million that you see on that slide 19 of the investor deck.
Speaker 5: And the range that we're looking at is 6 to 65. Now going back to how we laid this out. So we had clear identification of the sources that this is going to come out. Some of the war that we've done over the past couple of months, last quarter, firmed up. Some of these specific numbers in terms of the makeup of the mix between headcount and vendors, et cetera.
And the range that we're looking at 60 to 65 now going back to to sort of how we laid this out so we had clear.
One of the sources that this is going to come out.
Some of the.
The work that we've done over the past couple of months last quarter for not firmed up some of these.
Specific numbers in terms of the makeup of the mix between head count and vendors et cetera, and so so we guided to that number so the 6% to $65 has already been included in the 20% to 23%.
Speaker 5: And so, so we guided to that number. So the 60 to 65 is already been included in the 20 to 23 person.
Speaker 7: Got it. Okay. Yeah. I was trying to factor in like sort of the timing of when they were doing, but it might be easier for me just to take it after the call. Yeah. I've been on there long enough.
Got it okay, Yes, I was trying to factor in like sort of the timing of when they layered in but.
It might be easier for me just to take it after the call.
I've been out there long enough.
Speaker 4: You know, we'd have to do great. There's just some dynamics with the sources of those spend, particularly as it relates to some of the some of the savings associated with the vendor community that obviously is a little bit longer tail and a different layering in as far as when the impact takes place. We'll be happy to walk through it in detail with you after the call.
Yes, happy too great and Theres, just some dynamics with the sources of both spend particularly as it relates to some of the some of the savings associated with the vendor community that obviously, it's a little bit longer tail and a different layering in as far as when the impact takes place will be happy to walk through it in detail with you after the call.
Alright, Thanks, a lot.
Speaker 2: Again, ladies and gentlemen, if you would like to ask a question, please press star one one on your telephone and wait for your name to be announced.
Thank you.
Again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone and wait for your name to be announced.
One moment our next question.
Speaker 2: Our next question will come from Andres Zaderstrom of Sidoti. Your line is open.
Our next question will come from Anja Soderstrom of Sidoti Your line is open.
Speaker 8: Hi, thank you for taking my question and congrats on the good performance here against your challenging backdrop. In terms of the scrutinizing of projects and longer sales cycle, do you see that have to come worse or is it the same or is it improving?
Hi, Thank you for taking my question and congrats on a good.
Format.
I guess here challenging backdrop.
In terms of that.
Scrutinizing, our projects and longer sales cycle do you see it.
Worse or is it the same or is it improving.
Speaker 4: No, I think it's largely the same this year. Certainly, it was worse than last year for us, and we started calling it out this year. But I don't think there's been any, you know, material change in that. Again, I think the challenge with the Eastern Inter business as we've talked about, I would say it's important. Obviously, every business is going through some sort of digital transformation.
No I think it's I think it's largely the same this year.
Really.
It was worse than last year for us when we started calling it out this year, but I don't think theres been any material change in that again I think the challenge with the E signature business as we've talked about I would say it's important obviously every business is going through some sort of digital transformation.
Speaker 4: And it's strategic in the long term, but in certain macroeconomic cycles, you know, when an IT budget is being chopped from the top 10 to top 7 to top 5, you know, there's just the question whether e-signature is the area they're going to invest their calories, particularly if there's an incumbent in place.
It's strategic in the long term, but in certain macroeconomic cycles, when an it budget being.
The chart on the top 10 to top 7% top five Theres just the question whether esignature is the area. They are going to invest their calories, particularly if there is an incumbent in place already right. So I'd say it really is the macroeconomic.
Speaker 4: Right, so I'd say it really is the macroeconomic, you know, challenges on where it meets.
Challenges.
Where it meets a particular incumbent and the ability to unseat them in that environment and now we are seeing some benefits from our new pricing model, which hopefully plays a role and provides an incentive for some of these enterprises to see material savings by moving but nonetheless, they do have to apply resources to make that migration.
Speaker 4: you know a particular incumbent and the ability to unseat them in that environment. And now we are seeing some benefits from our new pricing model which hopefully plays a role in it and provides an incentive for some of these enterprises to see material savings by moving. But nonetheless they do have to apply I.T. resources to make that migration happen.
Speaker 4: and so we continue to see that happening. And I would expect that to the first half of next year.
And so we continue to see that happening and I would expect that through the first half of next year to some degree.
Speaker 8: Okay, thank you. And I think it said you cut about 50% of headcount in the quarter. Where did most of the cuts come from? And then how's your sales organization ramping up?
Okay. Thank you and I think you said you cut about 50% of head count in the quarter.
Where did most of the cuts come from and then how is the sales organization ramping up.
Speaker 4: Sure, so just walk through the high level math and hurry, please feel free to dive in, you know, so, you know, out of total expenses that came through about half of them came from.
Sure. So I'll just walk through the high level math and Jorge please feel free to dive in so sort of total expenses that came through but half of them came from.
Speaker 4: the digital agreement side of the house but thirty percent of them came from security and twenty percent from gna and uh... we can go to let or a walk through some of the details on that but let me just give you the high-level narrative
The digital agreement side of the house, but 30% of them came from security and 20% from G&A and <unk>.
<unk> walked through some of the details on that but let me just give you the high level narrative on the digital agreement side of the house, obviously, we committed since day, one to profitable growth digital agreements was always going to be the primary growth engine given the size of the esignature market and security obviously, we're going to have consistently run for cash flow on the VA side of things in addition to the macro.
Speaker 4: On the digital agreement side of the house, obviously we, you know, committed since day one to profitable growth.
Speaker 4: Digital agreements was always going to be that primary growth engine given the size of the signature market and Security obviously we're going to consistently run for cash flow on the DA side of things in addition to the macroeconomic You know is clear for us that the operating leverage that we thought may be there From cross-selling into our installed base essentially turn into a completely new sale
Economic is clear for us that the operating leverage that we thought may be there from cross selling into our installed base essentially turned into a completely new sale.
Speaker 4: Okay, given the distance between the buying centers and the influencers on the security side of the house, we're seeking signature side of the house. And so we rebalanced our sales capacity, not just in the direct sellers, but also with the sales development reps and the sales engineering community attached to the sellers.
Okay, given the distance between the buying centers of influences on the security side of the house sourcing esignature side of the house and so we rebalanced our sales capacity.
Just in the direct sellers, but also with the sales development Rep 70 sales engineering community attached to those sellers to really make sure that we focus really on.
Speaker 4: to really make sure that we focus really on less than much the one-standard 1,000, which we spoke about before, which was 1,000 top install-based customers, to really, as we created this new digital agreement, division on the top 500 install-based customer for digital agreements.
Less so much the ones 1000, which we spoke about before which was a 1000 top installed base customers, who really as we created this new digital agreements division on the top 500 installed base customers for digital agreements, which have really been driving our growth. So the increased focus on the installed base of the digital agreement.
Speaker 4: which have really been driving our growth. So the increased focus on the installed base of the digital agreement community, coupled with our execution, I would say, of a more focused go-to-market, which focused on tier one and common law.
Coupled with our execution I would say a bit more focused go to market, which focused on tier one common law countries really provided us the opportunity to reduce the size of the salesforce and the marketing spend associated with those other countries, where we werent seeing material growth and really having a more focused effort. Thank.
Speaker 4: really provided us the opportunity to reduce the size of the sales force and the marketing spend associated with those other countries where we weren't seeing material growth and really having a more focused effort.
Speaker 4: sure that North America and Canada, which are the common law countries with exceptional product market fit, get the lion's share of our
Making sure that North America.
Canada with the common law countries, whether it's exceptional product market fit.
Speaker 4: I will continue to sell the product globally, but the way we're serving that market is slightly different. And we'll continue to evolve as we get a more cost-effective approach with the self-serve try and buy model coming in Q2 of next year. So I would just say it was rebalancing and refocusing of the DA business to ensure that we get that beachhead of growth in common law countries that allow us to get some of the sales capacity across the town executive sales engineering and SDR.
The lion's share of our attention and we will continue to sell the product globally, but the way we are serving that market is slightly different and we will continue to evolve as we get a more cost effective approach with the self serve drybulk try and buy model coming in Q2 of next year. So I would just say it was rebalancing and refocusing of the VA business to ensure that we get that that beachhead of growth.
And Commonwealth countries that allow us to do some of the sales capacity across the account executive sales engineering STR.
Inside of <unk>.
Speaker 5: In only a just to add to your first to Matt and to your first question. So in terms of this split, SNM, so sales and market in what's about plus to 40% then is R&D about 27% and then GNA about 15% and then there's vendors that go across these three sections. That's about 20% of the savings. And as Matt said, digital agreements is about 50% of the total savings combined.
And just to add to your first Tom add into your first question. So in terms of the split.
<unk> market in what's about close to 40% then its R&D about 27% and then G&A about 15% and then Theres vendors that go across these three section thats about 20% of the savings and as Matt said.
These are agreements.
About 50% of the total savings.
Combined so.
Speaker 8: Okay, thank you. And also, I think your literature in your remarks for that, but for the fourth quote you're implying with the full year guidance on the Adjusted EBITDA that will be lower. Is that because of those one time items in the third quarter or?
Okay. Thank you.
Well, so I think you alluded to it in your remarks, but.
For the first quarter that you're implying with that full year guidance on the adjusted EBITDA that will be lower is that the cost of those one time items in the third quarter.
Speaker 5: Yeah, yeah, no, thanks for the question, Ania. So I think there's two or three dynamics that I think is important to explain.
I think that's upfront, yes, yes, I don't think Thats why the question. So I think there's two or three dynamics that.
It's important to explain.
Speaker 5: One is the visibility that we have into the, particularly the hardware margins, which is very dependent on the customer mix, as I mentioned. So this quarter, we benefited from that, particularly because a larger portion of the orders went to APAC, which have a higher margin. In Q4, we have this ability, that mix is gonna shift. And so that's gonna have an impact, unfavorable impact on the hardware margins.
One is the visibility that we have into the particularly the hardware margins.
Is very dependent on the customer it makes us I mentioned, so this quarter, we benefited from that particularly because a larger portion of the orders went to APAC, which have a higher margin in Q4, we have this ability.
That makes it is going to shift and so thats going to have an impact on.
Favorable impact on the hardware margins.
Speaker 5: The second component is the increased amortization of CAP software. As I mentioned, that is going to impact our DA. Also, security to a larger set is going to be DA. And so the mixer revenue does impact profitability. And so I think you're going to continue to see these restortioning taking whole taking place and all the effects coming down, but these other dynamics on the profitability side will impact that numbering.
A second component is the increased amortization of cap software as I mentioned that is going to impact our da.
<unk> security, but.
Larger studies going BDA.
And so the mix of revenue does impact profitability and so I think you're going to continue to see lease restructuring taken whole, taking place and opex coming down but these other dynamics on the profitability side will impact.
That number in Q4.
Speaker 8: Okay thank you and then one lastly on capital allocation and the Dutch auction tender offer. What made you decide for that and what are some other options and you acquired ProvenDB, is there other acquisitions in the pipeline or how do you think?
Okay. Thank you and then one last one on capital allocation in the Dutch Dutch auction tender offer.
Hi.
And what made you decide for that and what are some other options.
You acquired proven DBS to add acquisitions in the pipeline.
How youre thinking about that.
Speaker 4: We continue to look at the tuck-in acquisitions for short, we're hard to work at that and are committed to our overall strategy. We do believe is prudent, particularly with this pivot to the new operating model, Anya, that we have the flexibility given that we have proven since day one, our ability control cost, and that's the one thing we've been very, very consistent. And we've simply changed the capital allocation model from investing more and make materially in sales and marketing.
We continue so we can do to continue to look at tuck in acquisitions for sure.
Look at that and they are committed to our overall strategy. We do believe it is prudent and particularly with this pivot to the new operating model that.
That we have the flexibility given that we have proven since day, one our ability to control costs and that's the one thing we've been very very consistent and we've simply changed the.
Capital allocation model from investing more make materially in sales and marketing to having that cash on the balance sheet. In addition to the operating model pivot that we felt comfortable going and returning $20 million ish. If you will to this Dutch tender offer that does not mean, we're not continuously looking for tuck in acquisitions. In fact this environment is.
Speaker 4: to having that cash in the balance sheet, in addition to the operating model pivot, that we feel comfortable going and returning, you know, 20 million-ish, if you will, through this Dutch tender offer. That does not mean we're not continuously looking for tuck-in acquisitions. In fact, you know, this environment is quite favorable for those, but obviously you want that fit to be truly strategic like the proven DV acquisition was, and we're gonna hold out until that becomes the case.
Quite favorable for those but obviously you want that to be truly strategic like the proven DB acquisition wise and we're going to hold out until that becomes the case.
Okay. Thank you that was all for me thank.
Speaker 2: Thank you, and I would now like to turn the conference back to Matt for closing remarks.
Thank you.
Thank you.
Yes.
And I would now like to turn the conference back to Matt for closing remarks.
Speaker 2: Thank you everyone for joining. I really appreciate your time today and attention. I look forward to sharing progress with you next quarter and thank you all and have a nice day and a big thank you to the OneSpan team as well for all the hard work over the past quarter. Thank you everyone. And this concludes today's conference call. Thank you for participating. You may now disconnect.
Thank you everyone for joining really appreciate your time today and attention I look forward to sharing progress with you next quarter and thank you all and have a nice day and a big Thank you to the <unk> team as well for all the hard work over the past quarter. Thank you everyone.
And this concludes today's conference call. Thank you for participating you may now disconnect.
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Thank you.
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Speaker 9: And.