Hello, and welcome to today’s OneSpan First Quarter 2022 Earnings Conference Call. My name is Bailey, and I’ll be your moderator for today’s call. I would now like to pass 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 First Quarter 2022 Earnings Conference Call. This call is being webcast and can be accessed on the Investor Relations section of OneSpan’s website. Joining me on the call today is Matt Moynahan, OneSpan's Chief Executive Officer; and Jan Kees van Gaalen, our Interim Chief Financial Officer. This afternoon after market close, OneSpan issued a press release announcing results for our first quarter 2022. 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 2022, are forward-looking statements. These statements use words such as believes, anticipates, plans, expects, projects and similar words, and these statements involve risks and uncertainties 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 Form 10-K and Form 10-Q filings with the US Securities and Exchange Commission for a discussion of such risks and uncertainties. Also note that certain financial measures 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 call is May 3, 2022. 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. Before turning the call over to Matt, I want to remind everyone, we will be hosting an Investor Day in New York City on May 17th. The event will also be webcast on our Investor Relations website. Please contact me at [email protected] if you are interested in attending the live event. I will now turn the call over to Matt.

Thank you, Joe and good afternoon, everyone. Thank you for joining us on the call today. I would like to begin by thanking our talented employees for their extra efforts over the last several months, as we thoughtfully and thoroughly explored, developed and finalized our long-term strategic plan, which we'll discuss in detail at our Investor Day two weeks from today. I've been very impressed with the level of dedication, teamwork and professionalism displayed throughout the process. And I can tell you, enthusiasm is building both internally and with our customers about the direction we are taking. We accomplished a lot over the last several months, all while remaining focused on driving first quarter results, which I will discuss in a few minutes. First, let me provide a glimpse into what you will hear at our Investor Day. We will update you on our go-forward strategy. It will include the following three tenets. First, we will operate as one team spanning the globe united in one go-to-market strategy behind a shared vision and mission. Second, our two solution portfolios, digital agreements and security solutions, will have clear roadmaps, team structures, operational focus and improved execution. And third, we will accelerate our growth in the broader digital agreements category, which includes e-signature, virtual room and other solutions. In addition, we will also return our total security, both hardware and software, to growth and operate in a more capital-efficient way to deliver increasing profitability over our three-year plan. As I mentioned before, we are in a very good position, with the core building blocks in place, to drive the next generation of growth for OneSpan. Digital agreements and cybersecurity are both important markets that will only become increasingly important to enterprises in the years to come. We have a customer base that includes many of the largest and most security-conscious companies in the world, companies that trust us to mitigate their risk of fraud, help them comply with regulations, and deliver user-friendly experiences in their mission-critical business processes, including use cases such as new bank account openings, new customer acquisition, and business-to-business wire transfers. As a result, we plan to aggressively penetrate the broader enterprise segment and tightly integrate our security technologies into our digital agreement solutions as a key and core differentiator in the market. There is a significant opportunity in front of us, and I'm excited to share more details on our strategy and outlook with you soon. Turning to the first quarter, we reported 21% ARR growth and 22% recurring revenue growth, led by strong sales of e-signature solutions. Year-over-year, we saw modest top-line growth with increased operating efficiencies, resulting in improved adjusted EBITDA compared to the first quarter of last year. We won several new logos in the first quarter and expanded our business within both digital agreements and our security solutions. In particular, I'd like to highlight a multi-year seven-figure ACV e-signature contract closed in Q1 with a global revenue lifecycle management company. The company decided to replace its internal e-signature solution in order to meet their growing enterprise customer needs. It was an important competitive win for us. E-signature requirements live in many cloud and SaaS transaction platforms that enable a secure execution of contracts as a core component of their value proposition. Our enterprise-class feature set, ease of integration, and our ability and willingness to white label our solutions were key factors in this win. We believe more such use cases exist as the market matures. In the near term, our selling efforts will continue to focus on providing new and existing customers with our core solutions as we progress in our journey. Stay tuned for more as I look forward to discussing our innovation, go-to-market strategy, and capital realignment plans with you soon. With that, Jan Kees will take you through our financials. Jan Kees?

Thank you, Matt. Annual recurring revenue, or ARR, grew 21% year-over-year in the first quarter to $131 million. ARR specific to SaaS subscription and term-based subscription contracts grew 36% and accounted for approximately 72% of total ARR. DBNE, the dollar-based net expansion rate, which we define as the year-over-year growth in ARR for existing customers, was 115%, consistent with recent quarters. Total recurring revenue, including SaaS and term-based subscription along with maintenance on software licenses, increased 22% year-over-year to $35 million in the first quarter of 2022 and accounted for 95% of software and services revenue. E-signature, SaaS and term-based subscription revenue increased 40% year-over-year in the quarter. SaaS subscription revenue grew 20% to $10 million in the first quarter. Growth in Q1 e-signature continued to be partially offset by a decline in legacy deal flow revenue. Term-based subscription revenue grew 65% to $13 million in the quarter and benefited from a multi-year e-signature on-premises renewal. Server software and mobile security also contributed to the higher-than-typical growth rate. Maintenance revenue declined 5% year-over-year to $12 million as we migrated to more recurring versus perpetual software license models. Total company revenue increased 3% to $52 million in the first quarter. 22% growth in recurring revenue was offset by a decline in non-recurring software, services, and hardware. Gross margin in the first quarter of 2022 was 70% compared to 67% in the first quarter of 2021. The difference in gross margin is primarily attributed to product mix. Software and services contributed a record 71% of total revenue in the quarter as compared to 65% in the first quarter of 2021. Though we continue to experience global transportation and supply chain disruptions, we reduced our reliance on air freight compared to the last quarter. That said, we're not out of the woods yet. I want to note that these risks, along with global electronic component shortages, could impact future quarter results. GAAP operating expenses included $2.7 million of outside services related to our strategic action plan along with related changes to our financial reporting. GAAP operating expenses also included $2.7 million of severance costs and other expenses related to our restructuring plan announced in late Q4 2021. As of March 31st, we had completed substantially all the action items contained in our cost reduction plan announced in Q4 2021. Excluding severance, we achieved cost reductions of $2.7 million in the first quarter, and our own target for total cost reductions of more than $11 million for the full year 2022 is above the midpoint of the plan. Adjusted EBITDA was $0.2 million in the first quarter of 2022. This compares to negative $5.3 million in the first quarter of 2021. Adjusted EBITDA margin was 0.5% in the quarter versus negative 10.4% in the year ago quarter. First quarter other income included a $15 million non-operating gain on the sale of our 17% interest in Promon AS. GAAP earnings per share were $0.13 in the first quarter of 2022 compared to a loss per share of $0.23 in the first quarter of 2021. Non-GAAP loss per share, which excludes long-term incentive compensation, amortization, nonrecurring items, and the impact of tax adjustments, was $0.01 in the first quarter compared to $0.16 in the first quarter of last year. We ended the first quarter of 2022 with $120 million in cash, cash equivalents, and short-term investments compared to $98 million at the end of 2021. Cash generated from operations during the quarter was $4 million. We have no long-term debt. Geographically, our revenue mix by region in the first quarter of 2022 was 47% from EMEA, 33% from the Americas, and 20% from AsiaPac. This compares to 53%, 33%, and 14% from the same regions in the first quarter of last year, respectively. Before I hand the call over to Matt, I want to further comment on our hardware supply chain. Recent temporary COVID-driven closures at our contract manufacturing facilities in China, along with delays in deliveries of electronic components to these facilities, could impact second-quarter hardware revenue by up to $2 million. We are monitoring this situation closely and working on contingency plans to mitigate this as best as possible. Matt?

Thank you, Jan Kees. As you can see, we started the year with solid momentum and we look to keep that momentum going as we begin implementing our strategic plan this quarter. Our strong market position and solution portfolio, along with our talented employees, provide us with a strong foundation to build upon. Though we still have work to do, I believe now more than ever that we will establish a clear and disruptive leadership position in the markets we serve by leveraging our strengths in identity, security, and compliance. I'm confident in our ability to unlock shareholder value as we increase our focus, leverage our competitive advantages, and enhance operational performance as one team. Now turning to our 2022 outlook. We expect revenue for the full year 2022 to meet or exceed our 2021 full-year revenue. At this time, we are finalizing our review of our full-year 2022 adjusted EBITDA outlook in context with our strategic plan, and we'll provide an update at our Investor Day on May 17th. In closing, I remain excited about the future of OneSpan and our opportunity ahead, and I look forward to discussing the details and metrics at our full-year outlook and our long-term plan at our Investor Day in two weeks' time. With that, Jan Kees and I will be happy to take your questions.

Our first question today comes from Stefan Schwarz from BTIG.

Just to start off, I guess, given your exposure to EMEA. I wanted to ask how much of your business, if any, has been impacted by the Russia, Ukraine tensions? And I guess just more broadly, any general commentary on the macro environment in Europe?

First and foremost, from an employee standpoint, we are not exposed, fortunately. We have several Ukrainians living in the US, but we are not exposed to employees in either Russia or over in Ukraine, thankfully, so people are safe. Second, I would describe our exposure to Russia from a business perspective as de minimis, immaterial. We have stopped selling into Russia for several months now, ahead of other American companies; we were early in that cycle. So just consider it immaterial in the larger scheme of things. We have seen use cases for our hardware from customers in Europe who are looking for higher assurance use cases, and this will be a theme going forward with the company. Hardware is something you have on you; it is always more secure than a password. In this particular case, some nations that have seen an influx of Ukrainian refugees and banks supporting those refugees are giving them hardware tokens to ensure they have the highest level of protection. I think it's a good use case that we'll see more of in the future.

And maybe just a follow-up for Jan Kees. Could you provide any kind of directional commentary on your adjusted EBITDA given the last quarter? I think you had said breakeven or higher. Is it lower or higher? Just any color there.

We are still reviewing the EBITDA and the adjusted EBITDA numbers, and we will communicate those during the investor conference in two weeks.

Thank you. The next question today comes from Nick Mattiacci from Craig-Hallum.

So I know that we will get to hear the strategic plan at an Investor Day in a couple of weeks. But it sounds like the plan is already underway and has been communicated internally. I'm curious to hear more about how the culture has changed in the past couple of quarters and how employees are buying into the long-term strategy? And also on that topic, if you could speak about how employee retention has fared recently?

So I've been very pleased with the uptake of the new vision, mission and strategy. We've been hard at work to ensure we have a very clear communication and change management plan internally. Just to give you a sense, we have monthly, if not bi-monthly meetings with everyone in the company, bringing along this process over the past four months since my arrival. I believe that there has been strong reception from the employee population, really because they were lacking direction before. With clarity, people can do their jobs, and good people can get to work. I think you are seeing a groundswell of that. We have, as part of this process beginning in December, made performance management moves, and we’ll continue to do that over the course of the company. From a voluntary attrition perspective, we actually have far below industry averages. I believe people are quite intrigued by what will be rolled out in two weeks in New York. There’s good excitement building for the future of OneSpan from the existing employee population. I’d also say from new recruits that are coming in; you will see new additions to the team at the senior executive level over the coming weeks.

You kind of hit on my next question. I wanted to ask about the build-out of the executive team. I know since the last call, there's been a new CMO. I believe the plan is still to look for a permanent CFO, and are there any other positions in the leadership team you're planning to add?

Yes. Outside of the Head of R&D and our Head of Corporate Development, the rest of the executive team will be new. It's a great opportunity for me to look for the right chemistry for this company, bringing in executives who understand scale while also leading executives. This is an exciting story, but a smaller company. I’m pleased that the reception has been great. You should expect over the near term to see a Chief Product Officer, as well as a new General Counsel and the Head of Compliance joining. There's also an open executive position for the Chief Revenue Officer, and we are making very good progress there. But those three are top of mind for me right now, and you'll see announcements over the near term.

The next question today comes from Rudy Kessinger from D.A. Davidson.

This is Neal filling in for Rudy. I have a question. It seems that subscription revenue has increased by 20% this quarter compared to 15% last quarter. However, it's still slightly below what you achieved in Q3 last year and just $300,000 more than Q2 last year. Could you explain some of the factors influencing this? Specifically, how much of that revenue was generated from PPP loans in Q1 last year, and what is the extent of the decline in revenue from deal flow? I apologize if this was already covered earlier.

Let me start with the deal flow. The deal flow contribution to revenue is relatively small. We've seen a decline in the first quarter, and we expect some further decline during the rest of the year. It's really, really small. Regarding e-signature and subscription revenue, it has slowed somewhat post-COVID. We are working on changes as we proceed to operationalize our new strategy, and this will be discussed with you during the Investor Day in two weeks.

Just to give you a sense, as I mentioned, one of our objectives for Investor Day going forward is to bring crystal clarity to how to look at this business, both at the security side and the digital agreements side of the business. It’s very difficult to unpack the subscription growth. As Jan Kees mentioned in his opening remarks, we do sell, from time to time, term-based subscriptions, which is essentially an on-premises version of our e-signature that is no different other than just the location of the on-premises equipment from our cloud-based version. It is still very much a subscription. We will bring clarity to that at Investor Day, where you'll get good visibility into total subscription growth. It looks lower because we had several sales of our on-premises term-based subscription, compared to how we currently report pure subscription, if that makes sense.

There are no additional questions waiting at this time. So I'd like to pass the conference over to Matthew Moynahan for closing remarks. Please go ahead.

Thank you. And thank you everyone for joining us today. I definitely appreciate your time and attention, and I hope to see many of you in person at our Investor Day in New York City on May 17th, where we look forward to sharing the future of the company that I find particularly exciting. I look forward to seeing you in two weeks' time. Thank you very much for your time.

That concludes today’s call. You may now disconnect your lines.