OneSpan Inc.

Good day, and thank you for standing by. Welcome to the Q3 2023 One Span Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Joe Maxa, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Hello, everyone, and thank you for joining the OneSpan Third Quarter 2023 Earnings Conference Call. This call is being webcast and can be accessed on the Investor Relations section of OneSpan's website at investors.onespan.com. Joining me on the call today is Matt Moynihan, our Chief Executive Officer, and Jorge Martel, our Chief Financial Officer. This afternoon, after market close, OneSpan issued a press release announcing results for our third quarter 2023. To access a copy of the press release and other investor information, please visit our website. Following our prepared comments today, we will open the call for questions. Please note that statements made during this conference call that relate to future plans, events, or performance, including the outlook for full year 2023 and longer-term financial targets, or forward-looking statements. These statements involve risks and uncertainties and are based on current assumptions. Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. I direct your attention to today's press release and the company's filings with the U.S. Securities and Exchange Commission for discussion of such risks and uncertainties. Also note that certain financial measures that may be discussed on this call are expressed on a non-GAAP basis. and have been adjusted from a related GAAP financial measure. We have provided an explanation for and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings press release. In addition, please note that the date of this conference call is November 8, 2023. Any forward-looking statements and related assumptions are made as of this date. Except as required by law, We undertake no obligation to update these statements as a result of new information or future events or for any other reason. I will now turn the call over to Matt.

Thank you, Joe. Good afternoon, everyone, and thank you for joining us. We announced important changes to our operating model last quarter to help us drive more efficient revenue growth, increase profitability, and enhance shareholder value. I'm pleased to tell you we made good progress towards these objectives in the third quarter, including the execution of significant cost reduction activities and the appointments of general managers for our two operating business units. We are working hard toward our commitment of achieving the Rule of 40 and are driving toward our aspirational goal of attaining a level of 30% under the Rule of 40 framework by the time we exit 2024. Third quarter revenue grew 3% year over year to $59 million. ARR grew 10% to $150 million and adjusted EBITDA was 6.3 million, or 11% of revenue. I am pleased by the 11% adjusted EBITDA margin reported, driven primarily by our focus on operational rigor and our cost reduction initiatives. During the quarter, we reduced headcount by approximately 15%, resulting in an annualized cost savings of more than $20 million. This was in addition to the approximate 5% headcount reduction we completed in Q2. and we are planning further rightsizing before the end of this year. Jorge will provide more details on our annualized cost savings during his financial review, including our expectation to achieve approximately $58 million of cumulative savings by the end of 2023. Based on our Q3 results and our plan to execute on additional cost savings, I believe we have positioned OneSpan to achieve our full year 2024 targeted adjusted EBITDA margin of at least 20%. We are closely monitoring our go-to-market metrics, including sales productivity and marketing efficiency, along with our revenue growth. If necessary, we plan to further address our cost model to achieve our profitability commitments. Turning to our two operating segments, digital agreements and security solutions. In the third quarter, we transitioned from segment reporting to formally creating two distinct operating business units, each with a general manager. Samir Hajarnas has been appointed General Manager of Digital Agreements, and Mahmoud Sami Ibrahim named General Manager of our Security Solutions Unit. Samir and Sami are seasoned executives with relevant domain expertise and are focused on driving operational excellence as they execute their respective business strategies of driving digital agreements for efficient growth and security solutions for cash flow. During the quarter, both segments performed generally as expected. with revenue growth driven primarily by expansion at existing customers and profitability benefiting sequentially from higher gross margin and lower operating expenses, among other items. In digital agreements, we continue to see increased deal scrutiny and reprioritization of customer investments driven by the macroeconomic uncertainties. This is putting pressure on sales cycles, deal sizes, and pipeline conversion rates for both expansion opportunities and new logos. That said, We had a solid sequential SaaS revenue growth of 11% in Q3, which included a three-year, $2 million ACV contract that we have discussed in the last quarter that moved out of Q2 and closed in early Q3. I would like to highlight one additional customer, a large US bank that upgraded from our on-premises form factor to our leading cloud e-signature solution. The customer issued an RFP as part of their transition to the cloud and chose OneSpin over our key competitors, in a three-year upper six-figure ACV deal that begins in Q4. The customer specifically noted the important role that OneSpan's high-quality customer service played in their final decision. This customer also valued our virtual technology and signed a low six-figure ACV deal to begin using it along with our cloud-based e-signature solution in a separate line of business, replacing one of our major competitors in Q3. They will also be trialing OneSpan Notary beginning in Q4. As mentioned in prior calls, new logo attainment and increased sales productivity are core to our digital agreements growth strategy. We continue to focus on brand recognition as well as sales enablement and training to improve the productivity of our sellers and enable them to more aggressively generate and close enterprise new business opportunities. Our value proposition, including our five pillar solution strategy of identity verification, authentication, high assurance virtual collaboration, e-signature, and secure transaction evolving is very different from other e-signature companies in the market, and it continues to gain interest and set us apart. In fact, we were recently named a leader in the IDC Marketscape Worldwide e-signature software vendor assessment for 2023, and were recognized for our, quote, white glove service to all customers to ensure their success while making it easy, without sacrificing the security necessary to perform high assurance interactions. The report highlighted One Span's expertise in heavily regulated industries, customization, and white labeling capabilities, while calling out a robust audit trail as a key differentiator, stating, One Span provides a single audit trail of the entire agreement process, from identity verification and authentication to signature. The audit trail is constantly embedded within the signed document for EZ, one-click verification. We are the only company in the industry focused on securing the entire digital transaction lifecycle, and we believe the cyber threat environment is moving in our direction. We're also working to improve our go-to-market demand engine and are excited by our new partnership with an external demand generation agency. We believe this new agency has a stronger understanding of our business strategy, market position, and value proposition than our previous partner. We're demonstrating innovation by bringing next-generation capabilities to market, such as One Span Trust Vault that we launched last week. I'm excited about this new capability, which helps guarantee the integrity and long-term viability of documents through the use of immutable storage capabilities based on blockchain technology. Trust Vault allows organizations to keep their digital agreements protected against hacking, data breaches, and emerging technologies like quantum computing. that can pose security risks throughout the lifetime of a document. And we continue to put the One Spend Notary infrastructure in place to broaden the addressable market for our solution. It is currently available for use in 28 states, which is more than our largest competitor, and we are targeting availability for approximately 40 U.S. states by the end of the first quarter of 2024. As a reminder, most states require certification, which is done on a state-by-state basis, Currently, OneSpan Notary has a handful of paying customers and about 50 customers within market proofs of concept. Lastly, and perhaps most importantly, we continue to target the first half of 2024 for general availability of our self-service try-and-buy e-signature solution focused on the SMB and commercial market segments. I'll now spend a few minutes on our security solution segments. In security solutions, we continue to see subscription license expansion opportunities from existing customers, primarily for our mobile security and authentication solutions to mitigate potential hacking attacks. Security subscription revenue grew 20% year over year in the quarter, driven by demand for authentication, transaction signing, and app shielding solutions. DigiPass token revenue declined 5%, primarily due to product mix and timing of order shipments as compared to the prior year period. Visibility into DigiPath orders remain strong at our large banking customers, though we continue to see, to some extent, the macroeconomic environment affecting orders in the mid-market banking sector. We are watching the market ripple effect on the mid-market financial sector very closely. Top priorities in our security solutions segment include deepening our relationships with strategic accounts, re-engaging the channel, and bringing new relevant solutions to market. We have a history of supporting our customers in times of new regulation and have another opportunity to do so with the forthcoming PSD3 regulation in the European Union, which we plan to support with our mobile software and DigiPath security solutions, including forthcoming new solutions. We also continue to focus our discussions with customers around their future mobile authentication strategies, whether mobile first, mobile only, or a hybrid approach using mobile and DigiPath tokens. And we're excited to be launching a new channel program, which we plan to announce in the coming weeks. We plan to grow our new channel partner network in the coming years and enable it to sell all of our solutions, expanding our market and helping us grow our top line. We also plan to bring new solutions to market to support our channel program, including an offering targeting workforce authentication named DigiPath FX1 Bio. We plan to provide you with more information on this new device in the near future. Next, I want to provide an update on our capital allocation plans. We used 3.5 million in cash to repurchase common stock during the third quarter. We expect to announce in the next week a modified Dutch auction tender offer to repurchase approximately 20 million of our common stock, consistent with our plan to return capital to shareholders as we seek to balance revenue growth and profitability. I believe the actions we are taking to right-size our cost structure return capital to shareholders, and focus on efficient growth of the right operational and strategic decisions for OneSpan that will help us to achieve our commitment to create and return value to our shareholders. With that, I will turn the call over to Jorge to review our financials. Jorge?