Legion Partners’ Thesis on OSPN

Purpose of Transaction.

The Reporting Persons purchased the Shares based on the Reporting Persons’ belief that the Shares, when purchased, were undervalued and represented an attractive investment opportunity. Depending upon overall market conditions, other investment opportunities available to the Reporting Persons, and the availability of Shares at prices that would make the purchase or sale of Shares desirable, the Reporting Persons may endeavor to increase or decrease their position in the Issuer through, among other things, the purchase or sale of Shares in the open market or in private transactions or otherwise, on such terms and at such times as the Reporting Persons may deem advisable.

The Reporting Persons believe that the current market price of the Shares does not reflect the Issuer’s intrinsic value. In the Reporting Persons’ view, one of the key areas that does not appear to be well understood or fully appreciated by the market is the Issuer’s global leadership position in providing fast-growing identity security, anti-fraud and digital transaction management solutions to over 10,000 customers including over half of the top 100 global banks. The Issuer has initiated a number of strategic changes and investments over the past three years, including multiple software acquisitions and the installment of a new management team with software experience.

The Reporting Persons believe the Issuer’s software/recurring revenue has now become the majority of the Issuer’s total revenue, based on 2018 YTD results. The Reporting Persons believe that the Issuer’s software/recurring revenue will continue to accelerate overall revenue growth which should drive significant gross and operating margin expansion. The Reporting Persons believe the Issuer’s Adjusted EBITDA margins could reach approximately 20% in fiscal 2021 compared to 12% in fiscal 2017. Per the Reporting Persons’ estimates, if the Issuer’s software businesses are valued in-line with public comparable peers’ valuation multiples (e.g. enterprise security and software companies), the Issuer’s software businesses alone could represent approximately $1 billion (or $27 per share) in enterprise value by 2021.

The potential value of the software business of $1 billion, when included with the Reporting Persons’ estimate for value of the Issuer’s legacy hardware business of $100 million and sizable cash balance of $92 million, lead the Reporting Persons to believe that the Issuer’s Shares could be worth approximately $33 per share by 2021. The Reporting Persons believe the Issuer’s customer base is highly strategic and valuable, providing a major source of demand for the Issuer’s new software offerings.

The Reporting Persons note that the Issuer’s management team has driven a successful transformational strategy to date, which includes proactively converting licensing software revenue into recurring SaaS revenue. The Reporting Persons are highly focused on collaborating with the Issuer’s management and the board of directors (the “Board”) to promote appropriate recognition of the Issuer’s intrinsic value and the continuation of effective capital allocation. The Reporting Persons may seek to add industry and governance expertise to the Issuer’s Board.

Link to Filing: https://www.sec.gov/Archives/edgar/data/1044777/000092189518002895/sc13d09050026_11012018.htm


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