OneSpan Inc.

Good day, and thank you for standing by. Welcome to the Q2 2024 One Span Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during that session, you'll need to press star 11 on your telephone, and you'll then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Joe Maxa, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to the OneSpan second quarter 2024 earnings conference call. This call is being webcast and can be accessed on the investor relations section of OneSpend's website at investors.onespend.com. This afternoon, after market closed, OneSpend issued a press release and filed a form 8K with the SEC announcing results for our second quarter 2024. In addition, the company plans to file a separate Form 8-K this afternoon, announcing the appointment of Victor Lamangeli as president and CEO. Victor has been the company's interim CEO since January 4, 2024. To access a copy of the press release, Form 8-Ks, and other investor information, please visit our website. Victor Lamangeli and our CFO, Jorge Martel, will join me on today's call. Following prepared comments, 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 filing 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 and in the investor presentation available on our website. In addition, please note that all growth rates discussed on this call refer to a year-over-year basis unless otherwise indicated. The date of this conference call is August 1st, 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 thanks, everyone, for joining the call today. Over the last seven months, I've gotten to know the OneSpan team, and it's been a real pleasure to work side by side with them as we've improved OneSpan's operational performance. I'm looking forward to further improvements, I'm excited to keep the momentum going, and I'm honored that the Board felt the same way in making my role permanent. As you know, we've made significant progress this year, underscored by a strong second quarter, which included 9% revenue growth, 15% ARR growth, and adjusted EBITDA of $16 million, or 27% of revenue. We also generated $2 million in cash from operations in the second quarter, a tremendous improvement as compared to the prior year period when we used $20 million in cash. and we ended the quarter with $64 million in cash on hand. Our focus on operational excellence and accountability throughout the company is driving profitable growth. Over the past few years, we've continued to grow our software business, and in the first half of 2024, we've reached a point where software and services is approximately three quarters of total revenue, and hardware is about one quarter of revenue. In comparison, if you look at our business three years ago, the split was approximately 64% software, 36% hardware. Our sales team has done a great job in transitioning the company to more higher margin software revenue. In particular, our sales team executed very well during the second quarter with bookings coming in ahead of our internal plan. the sales team has been working hard to stay close to customers so that we can continue to improve our performance in response to customer feedback as you might imagine i'm very pleased with the team's performance in addition to the strong performance by the sales team our renewals team has made strides in closing maintenance renewals in a timely fashion year to date our on-time renewal rate has improved compared to 2023 and the rate of renewals closed within 30 days of the due date also improved year over year. That is good progress and a testament to the good work of our renewals team. Our R&D team has continued to make improvements to our SAS offerings, and we expect to see improved operational efficiency reflected in increased gross margins as we move through the remainder of the year. Looking ahead, our R&D team in security is, I think it's fair to say, re-energized and is working on enhancements and new products such as FIDO hardware tokens. Turning to our two business units, I'm thrilled with the second quarter delivered by our team in the digital agreements business. Digital agreements grew strongly and became profitable, excluding one-time costs. which Jorge will discuss in more detail. In digital agreements, we have substantially completed our transition to a SaaS model. Our strong second quarter revenue and ARR growth rates were driven primarily by expansion contracts and, to a lesser extent, new logos. In our security business unit, we saw strong subscription revenue growth And overall revenue growth was on par with our low to mid single-digit growth rate expectation for 2024. It also continued to be a strongly profitable business. Our goal is to have both business units deliver growth and profitability, and we are well on our way to achieving that goal. I am, of course, thrilled with the strong ARR growth and our improved profitability and cash flow, as well as the strong sales quarter the team delivered. It would be too much to say the team closed every opportunity, but there were certainly deals that closed in Q2 that might have been expected to occur in Q3. That is great, of course, in that we'd rather have the deals close earlier, but it does make Q3 more challenging. In addition, the third quarter, in terms of seasonality, is typically not a particularly strong bookings quarter for us. Given that context, coupled with the strong first half performance, for the balance of the year, we expect our subscription revenue to be up double digits over the prior year, while we expect maintenance revenue to decline somewhat, largely due to the end of life of the deal flow product as well as perpetual to term conversions. In addition, given our current visibility into our hardware pipeline and anticipated customer hardware delivery schedules, we anticipate a decline in hardware revenues in the second half as compared to the prior year. That said, we expect both business units to be profitable in both the third and fourth quarters. so we now expect our full-year adjusted EBITDA to be higher than previously forecast. Finally, I'd like to note that the Board plans to undertake, by year end, a review of our cash generation and capital needs, balancing those factors with a desire to return capital to shareholders. Overall, we remain committed to operational excellence and to driving efficient revenue growth to help ensure we achieve our annual profitability and cash flow commitments. With that, I will turn the call over to Jorge.