OneSpan (OSPN), a global leader in digital security and electronic signature solutions, held its Q2 2024 earnings press conference, highlighting strong financial performance and organizational updates. Victor Limongelli, who has served as interim CEO since January, has been confirmed as president and CEO. The company reported a 9% increase in revenue and a 15% increase in annual recurring revenue (ARR), as well as a significant increase in adjusted EBITDA, which reached $16 million. With a strategic shift toward software, which now accounts for 75% of total revenue, OneSpan expects full-year double-digit growth in subscription revenue. Despite expectations of a decline in hardware revenue, the company stuck to its guidance for the current year, forecasting revenue of $238 million to $246 million and ARR of $166 million to $170 million.
Main results
- Victor Limongelli has been confirmed as president and CEO of OneSpan.
- Q2 revenue grew 9%, with a 15% increase in ARR.
- Adjusted EBITDA was $16 million and cash from operations was $2 million.
- Software and services now account for 75% of total revenue.
- For the full year, double-digit growth in subscription revenues is expected, while hardware revenues may decline.
- OneSpan plans to review its capital allocation later this year, focusing on shareholder returns.
- Full-year revenue guidance was reaffirmed, with increased ARR and adjusted EBITDA projections.
Company perspectives
- OneSpan expects continued growth in software revenue, with double-digit growth in subscription revenue for the full year.
- The company expects to meet full-year revenue guidance of $238 million to $246 million.
- ARR is expected to end the year between $166 million and $170 million.
- Adjusted EBITDA is expected to be between $55 million and $59 million.
- The company will review its cash generation and capital needs, with the goal of returning capital to shareholders.
Bearish highlights
- Maintenance and support revenues had a slight decrease due to a decrease in legacy lifetime contracts.
- Gross profit margin for the digital deals industry fell to 63% from 72% due to halted R&D investments.
Positive highlights
- Second quarter revenue for Authentication Solutions rose 19% to $14.9 million.
- Digipass hardware tokens revenue remained stable at $19.7 million.
- Gross profit margin increased to 67%, from 59% last year.
- Operating income more than doubled to $20.7 million from $8.5 million in Q2 2023.
- ARR from digital deals grew 25% to $61 million, a 30% increase over Q2 revenue.
Shortcomings
- No significant losses were recorded during the phone call to present the results.
Highlights from the questions and answers
- The company discussed the “discontinuous” nature of its business, with revenue recognition affected by lead times and deadlines.
- There is caution about earnings uncertainty in the hardware sector, but optimism remains at the high end of forecasts.
- Changes in the sales organization are welcome, as performance remains solid in the security and digital deals sector.
- The European market, although not developing, is not in a serious recession and the macroeconomic context is described as “good”.
- Cost savings are close to the target, and future adjustments are likely to be small rather than large.
- Small incremental investments can be made in product areas that provide customer benefits.
OneSpan ended the quarter with $64.3 million in cash and equivalents and no long-term debt. Geographically, revenues were distributed 41% in the EMEA area, 35% in the Americas and 24% in the Asia-Pacific area. The company’s focus on cost reduction and targeted investments reflects a strategic approach to navigating the current economic landscape while prioritizing customer value. The management team expressed gratitude for the participants’ efforts and plans to share further progress in the next quarter.
Insights from InvestingPro
OneSpan’s (OSPN) recent Q2 2024 earnings press conference highlighted a company in a strong financial position, with a clear strategic focus on software and services. To better understand OneSpan’s market position and its future potential, we turn to InvestingPro’s insights for additional context.
InvestingPro data shows that OneSpan has a market capitalization of $549.89 million, reflecting the company’s market valuation. With a P/E ratio of 34.76 and a trailing twelve-month to Q2 2024 adjusted P/E ratio of 20.46, the company is trading at a multiple that indicates investors expect profitable earnings growth. Furthermore, the PEG ratio of 0.23 suggests that OneSpan’s stock price is undervalued relative to its expected earnings growth, making it potentially attractive to valuation investors.
The company’s revenue growth was also solid, rising 8.99% over the trailing twelve months in Q2 2024, in line with the 9% increase reported in Q2. This growth is supported by a strong gross profit margin of 69.43%, which indicates good cost management and a stable business model.
InvestingPro’s recommendations highlight several key points that may be encouraging to investors. Management’s aggressive share repurchase initiative indicates confidence in the company’s value and future prospects. In addition, OneSpan’s balance sheet is healthy and has more cash than debt, providing flexibility and financial stability. Finally, the company has posted strong returns over the past month and past three months, with price returns of 14.96% and 17.19% respectively, suggesting positive market sentiment.
For readers interested in a more in-depth analysis of OneSpan’s financial health and market potential, additional advice is available InvestingProwhich offers more detailed analysis and investment considerations.
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