Release Date: February 27, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• OneSpan Inc (NASDAQ:OSPN) achieved record high adjusted EBITDA in Q4 and for the full year 2024, with Q4 adjusted EBITDA at $20 million or 32% of revenue.
• Annual Recurring Revenue (ARR) grew 8.5% to $168 million, with digital agreements growing by 12% and security by 6%.
• Subscription revenue grew over 30% for both the quarter and the year, accounting for 57% of total revenue, a 12% increase year over year.
• The company generated $12 million in cash from operations in Q4 and $56 million for the year, a significant improvement from the previous year.
• OneSpan Inc (NASDAQ:OSPN) completed multi-year cost savings initiatives, resulting in increased profitability and operational efficiency.

Negative Points

• Total revenue declined by 3% in Q4, despite a 3% growth for the year, due to a decline in hardware and maintenance revenue.
• Hardware revenue declined significantly, with a 36% drop in Q4 and a 23% decline for the full year, impacting overall revenue.
• The transition to SaaS and term software licenses led to a decline in maintenance and support revenues.
• Gross profit margin for digital agreements decreased due to higher cloud platform costs and lower maintenance revenue.
• The company anticipates continued decline in hardware revenues in 2025, impacting overall revenue growth.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Sign with CUBE.

Q: How do you feel about OneSpan's performance today compared to a year ago, and where do you see the most potential for upside in 2025? A: (Victor Lamangele, CEO) We are in a much better position than 12 months ago, having optimized our cost structure to generate increased profits as we grow revenue. We see significant growth potential in our security segment, particularly in authentication solutions, and we are investing in both security and digital agreements. We are cautious with our 2025 guidance due to currency exchange rate fluctuations, but we are optimistic about our growth prospects.

Q: Can you explain the discrepancy between the ARR growth guidance and the total revenue growth guidance for fiscal 2025? A: (Victor Lamangele, CEO and Jorge Martel, CFO) The discrepancy is largely due to the expected decline in hardware revenue, which has been a long-term trend. We have successfully transitioned much of this revenue to software authentication, but we remain realistic about hardware's future. Additionally, revenue recognition for multi-year term licenses affects the revenue growth rate differently than ARR.

Q: Where is OneSpan in its product roadmap and ecosystem expansion? A: (Victor Lamangele, CEO) We are actively expanding our ecosystem, particularly through channel development for workforce authentication. This involves leveraging channel partners to reach more potential customers, as direct sales alone would not be feasible. Progress is ongoing, and we are seeing positive developments.

Q: How is OneSpan performing in terms of acquiring new logos, and what are the expectations for inorganic growth? A: (Victor Lamangele, CEO) New logo growth is more prominent in the digital agreements segment than in security. We see opportunities in workforce authentication and through channel partners. Regarding inorganic growth, we are considering targeted M&A for technology that can enhance our offerings to existing customers rather than large-scale acquisitions.

Q: What are the expectations for net retention rates and cash flow generation in fiscal 2025? A: (Jorge Martel, CFO) We expect net retention rates to remain within the 106-108% range, despite some noise from end-of-life products. For cash flow, we anticipate modest improvements in 2025, building on the strong performance in 2024, while also investing in our security software business.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.