OneSpan (US:OSPN)2023-08-10 02:36Financial Data and Key Metrics Changes - Second quarter revenue increased by 6% to $55.7 million, with subscription revenue growing by 16% to $23 million, driven by a 20% increase in e-signature SaaS revenue and a 13% increase in security software revenue [13][86] - Adjusted EBITDA was negative $3.8 million compared to negative $1.5 million in the same period last year, primarily due to investments in sales and marketing [14][89] - Operating income was $8.5 million with an operating margin of 19%, consistent with the previous year [16] - ARR grew by 8% year-over-year to $144 million, with subscription contracts growing by 16% to $112 million [88] Business Line Data and Key Metrics Changes - Digital agreements segment saw ARR grow by 7% year-over-year to $49 million, with subscription ARR increasing by 9% to $43 million [71] - Security solutions segment ARR grew by 9% year-over-year to $96 million, with subscription ARR increasing by 20% to $69 million [90] - The decline in perpetual maintenance ARR is expected to continue as legacy contracts shift to subscription [90] Market Data and Key Metrics Changes - Revenue mix by region in Q2 2023 was 48% from EMEA, 33% from the Americas, and 19% from Asia Pacific, compared to 45%, 37%, and 19% in the same regions in Q2 last year [32] - Increased deal scrutiny and longer sales cycles were noted, particularly in the digital agreements segment, impacting sales and pipeline conversion rates [67][88] Company Strategy and Development Direction - The company is focusing on a five-pillar solution strategy to secure the entire digital transaction lifecycle, emphasizing identity verification and secure transactions [8] - Plans for substantial rightsizing, primarily related to headcount, are in place to achieve adjusted EBITDA targets for 2024 [9] - The company aims to achieve 20% to 23% adjusted EBITDA margin for the full year 2024, with a focus on balancing growth and profitability [24][33] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the macroeconomic environment has affected orders, particularly in the mid-market banking sector, and emphasized the need for efficient execution [10][25] - The company is committed to achieving the Rule of 40, targeting a mix of profitability and growth [43] - Increased scrutiny in deal-making was noted, particularly for new contracts, which has led to delays in decision-making [54][67] Other Important Information - The company plans to return up to $20 million in capital to shareholders by the end of 2023 through stock repurchases or dividends [24] - Actions taken in Q2 resulted in annualized cost savings of $7.9 million, with a target of $50 million to $55 million in total annualized cost savings by the end of 2025 [28] Q&A Session Summary Question: What is driving the improvement in ARR? - Management indicated that the improvement is partly due to easier comparisons and the maturation of sales and marketing efforts, although macroeconomic factors also play a role [4][41] Question: Can you provide details on cost cuts? - Cost cuts will primarily impact sales and marketing, with a focus on refining product-related decisions to enhance efficiency [20][60] Question: What is the outlook for revenue growth in 2024? - The company expects low to mid-single digits revenue growth for 2024, with ARR growth anticipated to be similar [59] Question: How will the company achieve the targeted EBITDA margins? - Management expressed confidence in achieving the targeted EBITDA margins through operational rigor and cost structure adjustments [49][50]