OneSpan Inc.

Good day and thank you for standing by. Welcome to the Q4 2024 One-Spin 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 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 first speaker today, 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 2024 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 Chief Executive Officer, and Jorge Martel, our Chief Financial Officer. This afternoon, after market close, OneSpend issued a press release announcing results for our fourth quarter and full year 2024. 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 2025 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 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 February 27, 2025. 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 for 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 today. I am thrilled that we reported another solid quarter of profitability driven by the team's continued hard work and focus on operational excellence. We achieved record high adjusted EBITDA in the fourth quarter and for full year 2024. Fourth quarter adjusted EBITDA was $20 million or 32% of revenue and both business units were again profitable on a fully burdened basis. Full year adjusted EBITDA was $73 million or 30% of revenue. ARR grew 8.5% to $168 million including 12% growth Subscription revenue, driven by demand for our software authentication and e-signature solutions, grew in excess of 30% for both the quarter and year. Subscription revenue for the full year accounted for 57% of total revenue, an increase of 12 percentage points year-over-year. Software and services revenue, or revenue including subscriptions but excluding hardware, grew 16% in 2024 and accounted for nearly three-quarters of total revenue, up from roughly two-thirds of revenue in the prior year. Total revenue declined 3% in the fourth quarter and grew 3% for the year. Strong growth in subscription revenue in both periods was partially offset by the expected decline in hardware that we discussed on prior calls, and to a lesser extent by a decline in maintenance revenue as we transitioned to SaaS and term software licenses over time. I continue to be pleased with our cash generation. We generated $12 million in cash from operations in the fourth quarter and $56 million which is a significant improvement from the prior year. Last year, we generated $3 million in cash during the fourth quarter and used $11 million in cash for the year. As of December 31st, we had $83 million in cash on hand, an increase of $40 million from the beginning of the year. During the year, we achieved several significant operational milestones that helped us to achieve the financial results I just discussed and that I believe better positions us to drive increased revenue growth and profitability over the long term. Notably, our sales team continued focusing on transitioning the company to more higher margin software revenue and successfully closed additional multi-year software term deals which helped to drive our strong subscription revenue growth and record gross profit for the year. We also substantially completed our multi-year cost savings initiatives as discussed last quarter. The cost savings related to these initiatives combined with our improved software revenue mix resulted in significant increases in profitability throughout 2024. Three additional contributing factors to our strong 2024 results include, first, a year-over-year improvement of nearly 700 basis points in our on-time renewal rate, driven by great work by our renewals team. Second, improvements in our SAS offerings by the R&D team, which resulted in increased operating efficiencies and which were reflected in our higher gross margins. And third, the sunsetting of certain low return on investment products that we discussed on prior calls, which, although this impacted our ARR and revenue by several million dollars each, it also helped to improve our operational efficiency and profitability. Turning to our two business units, in security, Q4 subscription revenue growth was very strong at 49%. primarily driven by continued demand for software authentication solutions from existing customers, including an increase in contracts extending to multi-year agreements upon renewal, perpetual term conversions, and an overall increase in on-time renewals. The decline in hardware revenue was driven by banks in EMEA and, to a lesser extent, in APAC, adopting mobile-first policies with respect to consumer banking. We expect this trend to also impact hardware revenues in 2025. In digital agreements, Q4 subscription revenue growth was driven by expansion contracts and, to a lesser extent, new logos. Both business units were profitable at the segment level in the quarter and for the year, with security continuing to be very profitable. Our goal continues to be for both units to deliver growth and strong profitability We expect to continue to make progress on this goal in our digital agreements business segment in 2025, and we expect to continue driving strong profitability and security. We made dramatic strides in 2024 in terms of cash generation from operations and profitability, and we expect to improve on these metrics in 2025, though with more modest increases in cash generated from operations. improvements we achieved in 2024. The trust placed in us by our tremendous customers including more than 60% of the world's 100 largest banks provides us with an opportunity to increasingly innovate to deliver value-added solutions that help our customers and prospects solve current and emerging business problems. To deliver on that, we recently hired a new CTO with significant digital identity expertise, and we are thrilled to have him leading the R&D effort. Finally, as you are probably aware, two weeks ago, we paid the first quarterly cash dividend in OneSpan's history. We plan to announce the timing of our next dividend payment when we report our first quarter results. Payment of that dividend is expected to occur in the second quarter of 2025. Bear in mind that even after paying the quarterly dividend, we expect to be generating additional cash and the Board will continue to operate with a balanced capital allocation strategy, weighing potential increases in the capital return to shareholders as well as organic investments in the business and targeted M&A. With that, I will turn the call over to Jorge. Jorge?