OneSpan Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: Fourth quarter adjusted EBITDA was $20 million (32% of revenue) and full-year adjusted EBITDA was $73 million (30% of revenue). ARR grew 8.5% to $168 million. Subscription revenue grew over 30% in Q4 and full year. Software and services revenue grew 16% in 2024, accounting for nearly 3/4 of total revenue.
• Operational Milestones: Substantially completed multiyear cost savings initiatives. On-time renewal rate improved nearly 700 basis points. SaaS offerings improved operating efficiencies. Sunsetting low ROI products. Hired new CTO with digital identity expertise. Paid first quarterly cash dividend in history.

Segment Performance

• Security Solutions: In Q4 2024, revenue was $45.5 million (6% decline) with subscription revenue at $20.9 million (49% growth). ARR grew 6% to $107 million. Full-year 2024 revenue was $182.2 million (1% decline) with subscription revenue at $80.6 million (33% growth). Hardware revenues declined in both quarters and full year.
• Digital Agreements: Q4 2024 revenue was $15.7 million (8% growth) with subscription revenue at $15.2 million (15% growth). ARR grew 12% to $61 million. Full-year 2024 revenue was $61 million (20% growth) with subscription revenue at $58.8 million (28% growth).

Guidance

• 2025 Outlook: Expect double-digit subscription revenue growth. Revenue expected to be in the range of $245 million to $251 million, ARR in the range of $180 million to $186 million, and adjusted EBITDA in the range of $72 million to $76 million. Anticipate continued hardware revenue decline and transition of perpetual maintenance contracts to on-premise subscriptions.

Risks

• Hardware Decline: Continued decline in hardware revenues, particularly in Consumer Banking.
• FX Exposure: Euro-dollar exchange rate shift impacting revenue guidance.
• End-of-Life Products: Impact on revenue recognition from end-of-life products.

Question and Answer

Q: How do you feel about things today versus a year ago and potential upside in 2025?

A: Better shape than a year ago, focusing on Security growth and FX impact considered in guidance.

Q: Reconciling ARR guide vs revenue guide?

A: Hardware decline, multiyear term licenses, and end-of-life products factor into the difference.

Q: New logos trend and inorganic growth?

A: Better new logo opportunities in Digital Agreements and through channel partners; actively considering targeted M&A.

Q: Net retention rates and cash flow expectations for 2025?

A: Net retention rates expected to be within 106%-108%, modest cash flow improvement with investments in Security software.