OneSpan (OSPN) 1 Aug 24 2024 Q2 Earnings call transcript

In the recent Q2 2024 earnings call, OneSpan Inc., a leading provider of digital identity and e-signature solutions, painted a picture of a company on the mend, showcasing impressive revenue and profitability growth. The call, led by the newly appointed President and CEO, Victor Limongelli, was a testament to the company's operational excellence and strategic moves that are poised to drive sustainable growth.

Impressive Q2 Performance

OneSpan reported a robust 9% revenue growth and a 15% increase in Annual Recurring Revenue (ARR) for the quarter, driven by the company's strategic focus on software and services, which now account for three-quarters of the total revenue. The transition to higher-margin software revenue has been a significant achievement, with the sales team executing well, particularly in the second quarter, which saw bookings coming in ahead of expectations. This performance was underpinned by a strong renewals team that has made strides in closing maintenance renewals on time, reflecting a solid customer base and loyalty.

Operational Excellence and Accountability

OneSpan's commitment to operational excellence and accountability is evident in its financial metrics. The company generated $2 million in cash from operations in Q2 2024, a significant improvement over the prior-year period, and ended the quarter with $64 million in cash on hand. This financial discipline, coupled with a focus on reducing costs, has led to an adjusted EBITDA of $16 million or 27% of revenue. The company's strategic cost reduction efforts have yielded $73.5 million in annualized savings, with an additional $8.5 million achieved in the second quarter alone.

Strategic Transition and Future Outlook

The call also highlighted strategic moves that are expected to drive future growth. One such move is the transition of identity verification products to the digital agreements business unit, which is now profitable, excluding onetime costs. This shift reflects the company's commitment to leveraging its digital capabilities to deliver value to customers and drive growth. The company also expects to see improved operational efficiency and increased gross margins as it moves towards a SaaS model.

Navigating Challenges

Despite the positive momentum, OneSpan acknowledged the challenges ahead, particularly in the second half of the year. The company anticipates a decline in hardware revenues due to scheduled customer deliveries, reflecting the lumpy nature of the hardware business. However, the company remains optimistic about maintaining profitability in both the third and fourth quarters.

Analyst Insights and Outlook

During the call, analysts probed deeper into the company's performance and strategy. Gray Powell of BTIG was particularly interested in Victor Limongelli's plans for the business, noting the impressive ARR growth and the company's strategic focus on software and services. Rudy Kessinger of D.A. Davidson delved into the details of the $10.3 million net new ARR, highlighting the impact of a large cross-sell deal and lower churn. Anja Soderstrom of Sidoti questioned the impact of macroeconomic conditions on the business and the company's cost savings efforts.

Conclusion

OneSpan's Q2 2024 earnings call was a testament to the company's strategic focus on operational excellence, software transition, and cost reduction. The company's impressive financial performance, coupled with its strategic moves, positions it well for future growth. However, challenges remain, particularly in the hardware business, which underscores the need for continued operational focus and strategic agility. As OneSpan moves into the second half of the year, it will be interesting to see how it navigates these challenges and continues to drive growth.