OneSpan Inc.

Welcome to the Q2 2025 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 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 Second Quarter 2025 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 Belangeli, our Chief Executive Officer, and Jorge Martel, our Chief Financial Officer. This afternoon, after market closed, One Spend issued a press release announcing results for our second quarter 2025. 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 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 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 5, 2025. Any forward-looking statements and related assumptions are made as of this date. 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. Hello, everyone, and thank you for joining us on the call today. Before turning to our results, as we are halfway through my second year at the company, I thought I'd take a moment to review our trajectory and the overall position of our business. Last year, as you know, we focused on restructuring OneSpan to enhance its profitability so that it remained viable as a business and continued to be a long-term, reliable partner for our customers. With that accomplished, our focus in 2025 has been on building the foundation necessary for OneSpan to not only be profitable, but also to grow the business and strengthen our product offerings for our customers. Right before the year started, we hired a new CTO, Ashish Jain, to lead our R&D team. Part of our strategy is to augment our increased internal development efforts with targeted M&A so that we can move faster in delivering great products to our customers. You saw that in the second quarter, both with our acquisition of Knock Knock Labs and with the establishment of a new line of credit to facilitate that kind of targeted M&A. As we move through the second half of the year, we will continue to enhance our go-to-market capabilities so that we can deliver our great products to more customers. As we have said previously, our goal is to grow the business while delivering strong profitability and to do both of those things while also returning cash to shareholders. Halfway through my second year, I'm happy to say that our transformation of Wantspan is on track. Looking ahead, Our goal is that by the beginning of next year, we will have made significant progress in evolving our go-to-market capabilities, as well as our product suite under Ashish's leadership, such that we are well positioned to accelerate top-line growth in 2026 as we continue to drive to a Rule of 40 performance. Turning to our results, I'm pleased to report another strong quarter and a solid first half of 2025, reflecting our team's disciplined execution. This focus by our team is driving our strong performance and positions us well to deliver sustained, long-term value for our shareholders. As I mentioned a moment ago, I'm also pleased and excited by our acquisition of Knock Knock Labs during the quarter, which brings to us FIDO2 passwordless authentication software to add to our FIDO2 hardware security keys. We've long been an industry leader in multi-factor authentication and transaction signing technologies. with our solutions widely trusted by many of the world's largest financial institutions for their strong security, flexibility, and innovation. The addition of Knock Knock's FIDO2 software, combined with our recently launched FIDO2 Security Keys hardware, enables the company to provide customers worldwide with the industry's most innovative, comprehensive, and future-ready authentication portfolios. Whether on-prem or in the cloud, OTP or FIDO, software or hardware, including DigiPass and FIDO2 protocols, and Kronto solutions for transaction signing, OneSpan now offers customers maximum flexibility to meet their authentication needs. As you can see, KnockKnock was exactly the kind of targeted acquisition that enhances our product portfolio and delivers value to our customers. With respect to the second quarter, we were solidly profitable in the quarter with adjusted EBITDA of $18 million, or 29.5% of revenue. Also, for the first half of the year, we achieved record adjusted EBITDA of $41 million, representing 33% of revenue, our highest first half performance to date. We ended the quarter with annual recurring revenue of $178 million, up 8% year-over-year, including $8 million from the Knock Knock acquisition. Excluding Knock Knock, ARR grew 3%, in line with the low-to-mid single-digit growth rate that we expected and discussed last quarter. As a reminder, we had a few very large contracts in last year's second quarter which made for a challenging year-over-year ARR comparison this quarter. By the end of 2025, we anticipate our ARR to grow at a mid-single-digit percentage rate from the June 30 ARR level. Subscription revenue grew 22% in the second quarter of 2025, led by 39% growth in security and 5% growth in digital agreements. Security growth was primarily driven by on-prem authentication and app-shielding software. As expected, total revenue declined modestly in the quarter. Strong subscription revenue growth was primarily offset by the three trends we've discussed on prior calls. First, banks in EMEA, and to a lesser extent in APAC, have been adopting mobile-first authentication strategies with respect to consumer banking. This has reduced security hardware revenue over time. Second, our 2024 transition of certain legacy perpetual maintenance contracts to term-based subscriptions lowered maintenance revenue compared to the prior year. Third, revenue was impacted by $1.2 million from sunsetted products. However, this was partially offset by $300,000 of acquired revenue during the quarter. Looking at geographies, in July 2024, we started a dedicated sales effort in North America focused on our security business. I'm pleased to report that that team had a great first half, and we expect continued high performance in that region in the second half of the year. As you know, historically, North America has represented only 10% to 12% of our overall security revenue. So we see that as a growth opportunity heading into 2026. In the first half of 2025, we also saw strong bookings performance in our Latin American region. In terms of the overall outlook, Jorge will provide additional details on the second half in a few minutes. Both business units remain solidly profitable at the segment level, and we believe we are well positioned to achieve our stated goals of delivering growth and strong profitability across both segments. We also continued to generate significant cash from operations. In the first half of the year, we generated $36 million and ended the second quarter with $93 million in cash on hand. As we've discussed previously, our board remains committed to a balanced capital allocation strategy, weighing shareholder returns, organic investments, and targeted M&A. In the first half of the year, we returned cash to shareholders through two quarterly dividend payments of 12 cents per share, which totaled close to $10 million of cash returned to shareholders. The Board has also approved another 12 cents per share dividend to be paid in the current quarter. In addition, we used cash to make the strategic acquisition of Knock Knock consistent with our plan to pursue targeted, technology-driven acquisitions with proven market fit, enabling us to bring additional value-added products to our customers and prospects. We have a strong global customer base and a leading position in the authentication market, With AI increasingly being used to amplify the scale and sophistication of account takeover attacks, we remain focused on innovating to stay ahead of emergent threats and to enable customers to adopt a wide range of flexible, future-proof authentication solutions. As a result, we will continue to invest in internal R&D and explore targeted M&A opportunities to enhance our product portfolio. And we plan to help our clients succeed by continuing to provide them with seamless and secure user solutions to meet their authentication needs and address related security challenges. As we look to the future, we are committed to operational excellence and to driving efficient, sustainable revenue growth while maintaining strong profitability. With that, I'll turn the call over to Jorge.