OneSpan Inc. (NASDAQ:OSPN) is a leading provider of security, identity, electronic signature, and digital workflow solutions that protect and facilitate digital transactions and agreements. The company's comprehensive suite of products and services cater to a diverse range of industries, including banking, financial services, healthcare, and professional services, helping customers ensure the integrity of digital interactions and transactions.

Business Overview

OneSpan operates through two primary business segments: Digital Agreements and Security Solutions. The Digital Agreements segment offers cloud-based solutions that enable clients to secure and automate their digital agreement and customer transaction lifecycles, including e-signature, notary, and identity verification services. The Security Solutions segment provides a broad portfolio of software products, software development kits, and hardware authenticator devices that defend against attacks on digital transactions across online environments, devices, and applications.

OneSpan's solutions are delivered through a subscription-based licensing model, providing customers with flexible deployment options, including cloud-based and on-premises implementations. The company's global footprint spans over 100 countries, with a customer base that includes more than 60% of the world's 100 largest banks.

Financials

In the fiscal year 2023, OneSpan reported annual revenue of $235.1 million, a decrease of 1.7% compared to the previous year. The company's net loss for the year was $29.8 million, compared to a net loss of $26.1 million in the prior year. Operating cash flow was negative $10.7 million, and free cash flow was negative $23.3 million.

For the first quarter of 2024, OneSpan reported revenue of $64.8 million, a 13% increase compared to the same period in the prior year. The company's net income for the quarter was $13.5 million, a significant improvement from the net loss of $8.4 million reported in the first quarter of 2023. Operating cash flow was $27 million, and free cash flow was $21.7 million.

Segmental Performance

In the first quarter of 2024, the Digital Agreements segment reported revenue of $14.4 million, a 25% increase year-over-year. This growth was primarily driven by a 33% increase in subscription revenue, which now accounts for the majority of the segment's revenue. The Security Solutions segment reported revenue of $50.4 million, a 9% increase compared to the same period in the prior year. This growth was largely attributable to a 34% increase in subscription revenue, partially offset by a 15% decline in DIGIPASS hardware revenue.

Gross margins for the Digital Agreements and Security Solutions segments were 69% and 74%, respectively, in the first quarter of 2024. The improvement in Security Solutions' gross margin was primarily due to a favorable product mix, including a higher proportion of subscription revenue and lower hardware sales.

Geographical Performance

OneSpan's revenue is diversified across three major geographical regions: EMEA (Europe, Middle East, and Africa), the Americas, and Asia Pacific (APAC). In the first quarter of 2024, the company generated 49% of its revenue from EMEA, 33% from the Americas, and 18% from APAC. This represents a slight shift from the prior-year period, where EMEA accounted for 48% of revenue, the Americas 36%, and APAC 18%.

The APAC region delivered its strongest quarter in terms of year-over-year growth in more than three years, driven by increased demand for authentication solutions and higher customer purchase volumes of hardware products. The EMEA region experienced a 5% decline in revenue, primarily due to lower mobile solution product sales and reduced hardware volumes from existing customers. The Americas region, on the other hand, saw a 15% increase in revenue, largely driven by growth in the Digital Agreements segment.

Liquidity

As of June 30, 2024, OneSpan had $63.9 million in cash and cash equivalents, compared to $42.5 million at the end of 2023. The company generated $27 million in cash from operations during the first quarter of 2024, a significant improvement from the $6.4 million used in the same period last year. OneSpan has no long-term debt on its balance sheet.

Outlook

For the full year 2024, OneSpan is affirming its previously issued revenue guidance of $238 million to $246 million and increasing its adjusted EBITDA guidance to $51 million to $55 million, up from the previous range of $47 million to $52 million. The company expects to end the year with more than $70 million in cash, absent any additional share repurchases.

Risks and Challenges

OneSpan operates in a highly competitive and rapidly evolving digital security market, which presents several risks and challenges. The company faces competition from both established players and emerging startups, which could impact its market share and pricing power. Additionally, the company's success is dependent on its ability to continuously innovate and adapt its product offerings to meet the changing needs of its customers. Regulatory changes and data privacy concerns also pose risks that the company must navigate.

Conclusion

OneSpan is well-positioned to capitalize on the growing demand for digital security and identity solutions. The company's diversified product portfolio, subscription-based business model, and global customer base provide a solid foundation for growth. While the company faces some near-term headwinds, its focus on operational excellence, cost optimization, and strategic investments in its Digital Agreements and Security Solutions segments position it well to navigate the evolving digital security landscape and deliver value to its shareholders.