Issue #83: A Digital Security Business Exploring Blockchain and A Successful Pivot to Healthcare Education

Summary

OneSpan Inc. is a digital security and e-signature software company serving over 4,000 enterprises, including 60% of the world’s largest 100 banks. It has focused on growing recurring revenue, now boasting $164M in annual recurring revenue. Supported by a strong balance sheet, with assets nearly triple its liabilities, and its first-ever quarterly dividend, OneSpan is poised for growth as it taps into a $16 billion market opportunity and expands its portfolio, including blockchain-based storage through its ProvenDB acquisition.

Adtalem Global Education is a leading provider of healthcare-focused education through institutions like Chamberlain University, Walden University and its medical and veterinary schools. Adtalem’s focus on healthcare education capitalizes on industry tailwinds including 1.9 million projected U.S. healthcare job openings annually. This has driven over 10% annual enrollment growth and an average 16% revenue CAGR since 2020. Adtalem has also increased profitability in recent years. With strong free cash flow averaging 15% of annual revenue, Adtalem has initiated share buybacks and has room to further reinvest or acquire new universities.


OneSpan, Inc. ($OSPN)

$18.02- Share price at time of writing

Source: tradingview.com

Summary:

  • Share price at the time of writing: $18.02
  • OneSpan ($OSPN) is a digital security and e-signature software provider serving over 4,000 enterprises in over 100 countries.
  • The demand for digital security and authentication solutions is expected to grow at a 16.7% CAGR through 2030, with OneSpan estimating a $16 billion total addressable market opportunity.
  • Backed by a strong balance sheet – assets nearly triple liabilities – OneSpan announced its first quarterly dividend this Monday, signaling financial confidence.
  • Its recent ProvenDB acquisition opens doors to blockchain-based document storage, making OneSpan well-positioned for growth as digital security demand rises.

What they do:

OneSpan ($OSPN) is a digital security and e-signature software company. The company helps businesses protect and streamline digital transactions across industries like financial services, healthcare and professional services.

OneSpan reports revenues across two segments: 

  • Security Solutions: revenues from software product portfolio, software development kits (SDKs) and Digipass hardware authenticator devices. This segment includes OneSpan Identity Verification, OneSpan Cloud Authentication and its Mobile Security Suite. Security Solutions accounted for ~72% of revenues last year.
  • Digital Agreements: revenues from OneSpan’s digital agreements segment which include OneSpan e-signature, OneSpan Notary and OneSpan Trust Vault. Digital Agreement revenues made up for the remainder of OneSpan’s total revenues.

Across both segments, the company generates revenues through a subscription model, as well as through professional services. Its security solution segment also earned the majority of its revenues through hardware sales last year.

Founded in 1997 and publicly traded since 2000, OneSpan serves over 1,000 financial institutions and enterprises in over 100 countries, including more than 60% of the world’s largest 100 banks. It earned the bulk of revenue last year from the EMEA region, followed by the Americas and APAC regions.

What the market is saying:

$OSPN has only gotten mentioned sporadically, however where it does, discussion is around its growth potential. Investors liken it to Docusign and are excited to see how OneSpan can take market share.

Source: quiverquant.com

A recent comment from Reddit:

I found OneSpan $OSPN as a possible candidate to compete with DocuSign. A lot of banks and health care use it for their security purposes already. TTM revenue sits at $263M. This stock trades at 4.41X TTM revenue. To compare, DocuSign trades at around 38X. What a difference!

  • [deleted]

💸 Signal: Over 6% of the company’s stock is owned by insiders.

Why $OSPN could be valuable:

Industry

OneSpan operates in both the digital security sector, taking a specific niche as a provider of both digital verification software and hardware. It lists its markets to specifically be called the “agreement automation”, “e-signatures” and “anti-fraud” markets. The company competes with some very well-known names, including Adobe, Docusign and PandaDoc. Despite that, OneSpan has successfully grown to now be used by over 4,000 enterprises worldwide, where it sees over 10 billion authentication transactions a year.

As businesses across financial services, healthcare, and government sectors increasingly move online, the demand for digital security and authentication solutions is projected to grow by a staggering 16.7% CAGR from now until 2030. OneSpan itself estimates that it has a total addressable market opportunity of at least $16 billion.

In addition to its current products, OneSpan continues to invest in growing its portfolio in order to expand its addressable markets. Last year, it acquired ProvenDB, a startup that provides storage and vaulting for digital documents using blockchain technology. 

Financials

OneSpan earns revenue through both a subscription model and from one-off product and service sales. Last quarter, it generated almost two-thirds (61%) of its revenues from subscriptions – a number it has been working to grow due to its recurring nature. As of that quarter, its annualized recurring revenue amounted to $164m – around 71% of its total revenues last year.

$OSPN TTM revenues per quarter from 2009 to October 1, 2024:

Source: macrotrends.com

While OneSpan generates the majority of revenues from its security solutions, its digital agreements segment recorded the bigger year-on-year increase in revenues (22% vs. 3%). This is good news for OneSpan, given that its gross profit margin for digital agreements (74%) is higher than the other (65%).

Despite growing revenues however, OneSpan has recorded annual net losses since 2020. Over that time, the company had been posting higher SG&A expenses while also nearly doubling its R&D expenses since 2017. But while that may be worrying, its bottom line has also been hit by restructuring and acquisition-related expenses in the last two years, which tend to be one-off costs. This likely stemmed from its takeover of ProvenDB.

As if to prove that, OneSpan posted its second consecutive quarterly net income last quarter.

Source: macrotrends.net

OneSpan’s latest balance sheet shows a strong position, with total assets ($289m) nearly triple that of total liabilities ($95m). Its current assets alone would also comfortably cover it ($142m). 

As a sign of confidence, OneSpan announced its first ever quarterly dividend on Monday this week, with the aim to make that a regular payout to shareholders.

Price action

$OSPN has performed strongly this year, currently up 82% year-to-date and trading close to its 52-week high. The consensus analyst price target shows that the current share price is close to its fair value.

What the risks are:

1️⃣ Competitive niche: Despite specializing in a niche, OneSpan competes for market share with some of the biggest names in the software industry. Arguably, its competitors, especially Adobe and Docusign, have a stronger presence in the market.

2️⃣ Inconsistent profitability: OneSpan hasn’t consistently recorded annual net income. The ongoing net losses could limit the company’s ability to invest in critical innovation and compete effectively in the rapidly evolving digital security market. 

3️⃣ Lack of operating cash flow: OneSpan hasn’t recorded positive cash flows from its operating activities. This financial strain could force OneSpan to seek additional external funding through debt or equity offerings, potentially diluting shareholder value or increasing financial leverage. Similarly, this leads to concerns about the viability of ongoing dividend payments.

Bottom line: OneSpan ($OSPN) is a digital security and e-signature software company serving over 4,000 enterprises across 100+ countries, including 60% of the world’s top 100 banks. The company earns revenue through subscriptions, professional services and product sales, now recording $164M in annualized recurring revenue. Its balance sheet is strong with assets nearly triple liabilities. The company recently declared its first-ever quarterly dividend, showcasing confidence in its financial position. OneSpan estimates a $16 billion total addressable market and continues to expand its portfolio, including its acquisition of ProvenDB for blockchain-based document storage.


Adtalem Global Education Inc. ($ATGE)

$86.11 – Share price at time of writing

Source: tradingview.com

Summary:

  • Share price at the time of writing: $86.11
  • Adtalem Global Education ($ATGE) is a leading education technology and services company, specializing in healthcare education through institutions like Chamberlain University, Walden University and its medical and veterinary schools.
  • Its programs focus heavily on the healthcare sector, which is set to benefit heavily from higher employment demand.
  • This strategy has driven over 10% enrollment growth year-over-year and an average 16% CAGR in revenues since 2020.
  • $ATGE has risen approximately 50% year-to-date and is currently trading near its all-time highs. However, the consensus analyst price target suggests there may still be further upside potential for the stock.

What they do:

Adtalem Global Education ($ATGE) is an education technology and services company with a strong emphasis on healthcare education. Its family of institutions offers programs for nursing, medicine, veterinary medicine and more. 

Adtalem delivers educational services through five key institutions across the US and the Caribbean – Chamberlain University, Walden University, American University of the Caribbean School of Medicine, Ross University School of Medicine, and Ross University School of Veterinary Medicine. Currently, collectively serving over 80,000 students across multiple campuses and online platforms.

Adtalem reports revenues in three segments:

  • Chamberlain: revenues from Chamberlain University, which offers graduate and postgraduate degrees and certifications for nursing and healthcare through its 23 campuses and online. Last financial year, Chamberlain contributed approximately 40% of Adtalem’s total revenues.
  • Walden: revenues from Walden University, which offer a wide range of education programs from criminal justice to public health. Walden and its subsidiaries were acquired by Adtalem in 2021. The segment contributed about 38% of Adtalem’s total revenues last year. 
  • Medical and Veterinary: the rest of Adtalem’s schools and programs are consolidated into this segment, which makes up for the remaining portion of Adtalem’s revenues.

Each of the segments unsurprisingly generate a large bulk of their revenues from tuition and fees.  

Founded in 1973, Adtalem became the first publicly traded education provider on the Nasdaq in 1991. Previously known as DeVry Education Group, Adtalem took on its new name in 2017.

What the market is saying:

$ATGE as a stock doesn’t get too many mentions on social media. Most of the discussion is around how Adtalem is as an education provider.

Source: quiverquant.com

A comment from Reddit:

It looks to me to be a strong company sitting on a bunch of cash with a great revenue stream and a good looking K-1 statement.

— donutshopcoffee

Why $ATGE could be valuable:

Industry

Adtalem operates in the higher education industry, offering programs that prepare students for essential careers, particularly in healthcare. The company’s institutions focus on high-demand sectors expected to see significant job growth. With critical shortages in fields such as healthcare, nursing and specialized medical training in the US, Adtalem’s acquisition of Walden University and the addition of sought-after nursing programs at Chamberlain University were both timely and highly strategic moves. With these programs, 90% of Adtalem’s student enrollment had become healthcare focused.

Employment in the US healthcare industry is projected to grow much faster than average over the next decade. The US Bureau of Labor Statistics expects the country to see around 1.9 million new jobs annually. Similarly, the healthcare education sector is expected to see a 13% CAGR over the next few years, which puts Adtalem in a strong position to capitalize on industry tailwinds. This growth has already been positive for Adtalem with enrollments growing over 10% year-on-year. 

Financials

Over the last decade, $ATGE had seen years of falling revenues – a result of a mix of regulatory scrutiny and lawsuits. Since then, it had sold off its troubled DeVry University and worked to restore student and investor confidence in its business. Its recent decision to focus on its programs on the healthcare sector has paid off.

Since 2020, $ATGE has recorded an average 16% CAGR to its annual revenues. Its most recent quarter (ending September 30, 2024) showed a year-on-year revenue increase of 13%.

$ATGE’s TTM quarterly revenue from 2009 to October 1, 2024:

Source: macrotrends.net

Additionally, Adtalem has worked to improve gross profit margins over the years. It has grown to its highest in a decade, hitting over 55% last year. The company has especially focused on increasing its EBITDA margins, which as of last quarter was 23% – up 1.40% year-on-year.

As a result, Adtalem’s bottom line has also grown in recent years.  $ATGE’s quarterly net income from 2009 to October 1, 2024:

Source: macrotrends.net

But perhaps what really shines for Adtalem is its cash flow statement. Other than in FY 2022 when it acquired Walden University, Adtalem had recorded extremely strong positive free cash flows (FCF). On average, it has recorded annual FCF equal to 15% of annual revenues since 2020. High FCF is a great metric for companies, as it allows them the freedom to reinvest, look into acquisitions, or reward shareholders. So far, Adtalem has chosen to use these funds for the latter through its share buyback program.

Price action

$ATGE is up around 50% year-to-date, trading near all time highs. The consensus analyst price target shows that $ATGE’s share price may still have room to grow.

What the risks are:

1️⃣ Troubled past: While it has been nearly a decade since then, Adtalem (formerly DeVry) experienced a troubled past of student lawsuits and regulatory issues. Its current financial performance has still not caught up to its numbers prior to the issues, and its past may still be weighing on the minds of some investors.

2️⃣ Dependence on federal financial aid: A significant portion of Adtalem’s revenue relies on students receiving federal financial aid. Any reduction in available aid, changes in eligibility criteria or delays in disbursement could lead to decreased enrollment and revenue.

3️⃣ High competition: Adtalem faces increasing competition from traditional universities, community colleges and online education providers. Competitors offering similar programs at lower costs or with greater flexibility could erode Adtalem’s market share.

Bottom line:  Adtalem Global Education ($ATGE) is a leading education technology and services company in the US and in the Carribbeans. Adtalem generates revenues from three key segments: Chamberlain, Walden and Medical & Veterinary programs. Following years of declining revenues due to regulatory challenges, Adtalem refocused on the healthcare sector, benefiting from strong industry tailwinds, such as a projected 1.9 million new U.S. healthcare jobs annually. This strategic pivot has driven 10%+ enrollment growth year-over-year and an average 16% CAGR in revenues since 2020. Adtalem also boasts robust free cash flow, averaging 15% of annual revenues since 2020, enabling share buybacks and further strengthening its financial position.

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