OneSpan Inc.

Good day and thank you for standing by. Welcome to the OneSpan fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the 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 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 Joe Maxa, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Hello, everyone, and thank you for joining the OneSpan fourth quarter and full year 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 Victor Lamondule, our Interim Chief Executive Officer, and Jorge Martel, our Chief Financial Officer. This afternoon, after market closed, OneSpend issued a press release announcing results for our fourth quarter and full year 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 2024 and other long-term financial targets, are 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 March 6, 2024. 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 Victor.

Thank you, Joe. And good afternoon, everyone. Thank you for joining us. I would like to begin today's call by sharing my perspective on OneSpan. When I joined the company two months ago, I was already impressed with its strong customer relationships, solution set, and the difficult but important decisions it had made to right-size its cost structure and refocus on driving efficient revenue growth, profitability, and cash flow. Today, I'm even more impressed. We have great assets to build upon, including more than 60% of the world's largest banks as customers, industry-leading authentication and transaction signing technologies, and an enterprise-class e-signature solution. And we have talented employees across the organization. I have met many of them in my first two months and have seen firsthand their strong work ethic and dedication to operational excellence. In the short run, we are focused on continuing our operational improvements, which began last year. Over the longer run, we will work towards identifying those areas in which our offerings put us at a competitive advantage vis-a-vis other providers. I have been with OneSpan only a couple of months. but I'm confident that we will be able to reorient our offerings over time towards areas more highly valued by our customers and prospects. Turning to our fourth quarter results. First, I want to congratulate the team on a solid quarter. Their hard work across the board in 2023 resulted in a strong end to the year, including 11% year-over-year revenue growth to $63 million, 11% ARR growth to $155 million, an adjusted EBITDA of $11.2 million, or 18% of revenue, representing our highest quarterly adjusted EBITDA margin in several years. During the quarter, we reduced headcount by approximately 5% and executed on several vendor-related savings as well, resulting in annualized cost savings of more than $15 million. For the year, annualized cost savings from our cost reduction actions totaled more than $58 million, Jorge will provide more details on our annualized cost savings during his financial review. Turning to our business units, during the quarter, both segments had double-digit year-over-year revenue growth, driven primarily by expansion of existing customers and a sequential increase in profitability, which benefited from increased revenue and lower operating expenses, partially attributed to restructuring activity. Revenue in our security solutions business unit was primarily driven by financial services customers who value our industry-leading software and hardware solutions to mitigate potential hacking attacks. Growth in software was driven by expansion of mobile security and authentication licenses from existing customers. We also had a significant security software win in the healthcare vertical with an existing e-signature customer. This customer signed a three-year upper six-figure contract for our mobile security, cloud authentication, and identity verification solutions for an electronic prescribing of controlled substances use case. We saw double-digit growth in DigiPass hardware tokens in the fourth quarter, which benefited in part from a few hardware deals that were originally expected to close in the first quarter of 2024. Looking at the rest of 2024, and similarly to last year at this time, Visibility into DigiPath's orders is strong at our large banking customers, which account for the majority of our hardware revenue. We have less visibility in the mid-market banking sector, particularly due to macroeconomic conditions in that segment over the past 12 months. In 2023, we saw a shift in hardware demand towards our more sophisticated Kronto devices into a combination of mobile and hardware endpoint authentication solutions. We expect this trend to continue in 2024. This year, we plan to continue focusing on customer expansion opportunities and in driving new logo growth. We're also rebuilding our channel network to help grow our top line and plan to introduce new products such as DigiPass FX1 Bio, which was announced last quarter and targets the workforce authentication market. Turning to our digital agreements business unit, In the fourth quarter, we saw the expansion of several six- and seven-figure renewal contracts from enterprise customers willing to spend on important projects with strong ROI. For example, a three-year customer contract for renewal in the financial services industry more than doubled in size to high single-digit millions over the term of the subscription. This customer is using our e-signatures in more than 100 use cases across its organization and commented on the outstanding level of support from our professional services and support teams, the ease of integration, and great ROI. New logo attainment and increased sales and marketing productivity remain core to our long-term digital agreements growth strategy. We expect improved performance from our sales team this year, have a goal of continuous improvement, and will strive to deliver more value to our customers every month. Next, I'll summarize our goals and objectives before turning the call over to Jorge to review our financials. We are committed to achieving the Rule of 40. In recent quarters, we made several changes to accelerate this path, including the creation of two business units to help drive operational excellence, significant rightsizing to better align our costs with our growth profile, an increased focus on operational rigor across the company, and the sunsetting of solution offerings with low ROI, to name a few. We are driving towards our goal of attaining a level of 30% under the Rule of 40 framework by the time we exit this year. I am working with the team to better leverage our competitive advantages and improve our growth profile as we mature our sales and marketing organizations, focus on streamlining our cost structure, and enhance our operational efficiency. As you can see from our Q4 results, we are making progress and I believe we are positioned to achieve our 2024 targets. However, we still have work to do and will continue to closely monitor our go-to-market metrics to help ensure we achieve our profitability commitments. Regarding capital allocation, we used more than $29 million in cash to repurchase common stock in 2023. including the $25 million modified Dutch auction tender offer we completed in December. We expect to consider returning additional capital to shareholders in future quarters as we balance revenue growth, profitability, and cash generation. I believe our decisions to focus on driving efficient revenue growth with increased profitability and cash generation are the right strategic and operational decisions for OneSpan. and 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. Jorge?