Earnings call transcript: OneSpan Q4 2024 earnings miss; stock dips

OneSpan Inc (NASDAQ:OSPN) released its fourth-quarter 2024 earnings, reporting an earnings per share (EPS) of $0.24, slightly below the forecasted $0.25. The company’s revenue surpassed expectations, reaching $61.2 million against a forecast of $58.18 million. Despite the revenue beat, OneSpan’s stock fell 5.03% in after-hours trading to $15.40, reflecting investor concern over the EPS miss. According to InvestingPro analysis, OneSpan currently appears undervalued based on its Fair Value metrics, with the company maintaining a "GOOD" overall financial health score.

Key Takeaways

• OneSpan reported a revenue increase of 3% for the full year 2024.
• EPS for Q4 2024 fell short of expectations by $0.01.
• Stock declined 5.03% in after-hours trading following the earnings release.
• The company ended the year with $83.2 million in cash and no long-term debt.
• Positive growth in subscription revenue, up 31% year-over-year.

Company Performance

OneSpan demonstrated robust performance in 2024, with a full-year revenue of $243.2 million, marking a 3% increase compared to the previous year. The company has successfully grown its subscription revenue by 31%, reaching $139.4 million. This shift aligns with OneSpan’s strategic transition from hardware to software solutions, a move that has also seen the company expand its authentication solutions across various use cases.

Financial Highlights

• Revenue: $61.2 million for Q4 2024, exceeding the forecast of $58.18 million.
• EPS: $0.24, slightly below the $0.25 forecast.
• Adjusted EBITDA: $73 million for the full year, representing 30% of revenue.
• Annual Recurring Revenue (ARR): $168 million, an 8.5% increase year-over-year.

Earnings vs. Forecast

OneSpan’s Q4 2024 EPS of $0.24 missed the forecast by $0.01, resulting in a 4% negative surprise. However, the company outperformed on revenue, beating expectations by approximately 5.2%. This mixed performance may have contributed to the stock’s decline in after-hours trading.

Market Reaction

Following the earnings announcement, OneSpan’s stock fell 5.03% in after-hours trading to $15.40. This decline comes despite the company’s revenue beat, indicating investor concerns over the EPS miss and potential challenges in maintaining profitability. While the stock has experienced recent volatility with a -8.94% return over the past week, it has demonstrated strong long-term performance with a 72.19% return over the past year. Analyst price targets range from $15 to $23, suggesting potential upside from current levels. For comprehensive analysis of OneSpan’s valuation and future prospects, visit InvestingPro to access the detailed Pro Research Report, part of our coverage of 1,400+ US stocks.

Outlook & Guidance

For 2025, OneSpan projects revenue between $245 million and $251 million, with an ARR target of $180 million to $186 million. The company aims to maintain its focus on subscription revenue growth and operational excellence. However, management has expressed caution regarding revenue guidance due to currency exchange rate fluctuations.

Executive Commentary

CEO Victor Lamongile stated, "We’re in a tremendously better shape than we were twelve months ago," highlighting the company’s strategic progress. He emphasized OneSpan’s commitment to delivering value both to customers and shareholders by growing revenue efficiently.

Risks and Challenges

• Currency Exchange Rates: Fluctuations in the EUR/USD exchange rate could impact revenue.
• Decline in Hardware Revenue: Continued decrease in hardware sales, particularly in consumer banking, could affect overall revenue.
• Competitive Pressure: Increasing competition in the authentication and digital agreements markets may challenge OneSpan’s market share.
• Economic Uncertainty: Broader macroeconomic pressures could influence customer spending and investment decisions.

Q&A

During the earnings call, analysts questioned the company’s cautious revenue guidance and potential impacts of currency fluctuations. Management addressed these concerns by emphasizing a focus on operational efficiency and targeted M&A to drive future growth.

Full transcript - OneSpan Inc (OSPN) Q4 2024:

Conference Operator: Good day, and thank you for standing by. Welcome to the Q4 twenty twenty four OneSpan Earnings Conference Call. At this time, all participants are in a listen only mode.

Joe Maxa, Vice President of Investor Relations, OneSpan: Call.

Conference Operator: 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.

Joe Maxa, Vice President of Investor Relations, OneSpan: Thank you, operator. Hello, everyone, and thank you for joining the OneSpan fourth quarter and full year twenty twenty four 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 Lamongile, our Chief Executive Officer and Jorge Martel, our Chief Financial Officer. This afternoon, after market close, OneSpan 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 a 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 02/27/2025. 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 or future events or for any other reason. I will now turn the call over to Victor.

Victor Lamongile, Chief Executive Officer, OneSpan: 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 $20,000,000 or 32% of revenue and both business units were again profitable on a fully burdened basis.

Full year adjusted EBITDA was $73,000,000 or 30% of revenue. ARR grew 8.5% to $168,000,000 including 12% growth in digital agreements and 6% growth in security. 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 (ETR:SOWGn) 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 (EPA:TTEF) 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 transition to SaaS and term software licenses over time. I continue to be pleased with our cash generation. We generated $12,000,000 in cash from operations in the fourth quarter and $56,000,000 for the year, which is a significant improvement from the prior year. Last year, we generated $3,000,000 in cash during the fourth quarter and used $11,000,000 in cash for the year.

As of December 31, we had $83,000,000 in cash on hand, an increase of $40,000,000 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 SaaS offerings by the R and 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 and adjusted EBITDA compared to the dramatic 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 and 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 twenty twenty five. 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 and A. With that, I will turn the call over to Jorge.

Jorge?

Jorge Martel, Chief Financial Officer, OneSpan: Thank you, Victor, and good afternoon, everyone. I am pleased that we reported another strong quarter and full year results. ARR grew 8.5% in 2024 to $168,000,000 and our net retention rate was 106%. As compared to last year, ARR and NRR primarily benefited from customer expansion contracts and ARR to a lesser extent also benefited from new customers. Growth in ARR and NRR was impacted by churn related to end of life products as discussed on prior calls.

Fourth quarter twenty twenty four revenue was $61,200,000 or 3% lower than last year’s Q4, primarily due to the previously discussed expected decline in security hardware revenue. Security software and services revenue that is security revenue excluding hardware grew 20% and digital agreements revenue grew 8%. For the full year 2024, revenue grew 3% to $243,200,000 driven by 14% growth in security software and services and 20% growth in digital agreements, partially offset by the expected decline in security hardware. Subscription revenue grew 32% to $36,100,000 in the fourth quarter led by 49% growth in security solutions and 15% growth in digital agreements. The strong growth in security subscription revenue was primarily driven by expansion contracts with existing customers for authentication and transaction sign in solutions, including an increase in multi year term license deals from existing customers and to a lesser extent the improvement in on time renewals versus the prior year.

For the full year 2024, subscription revenue grew 31% to one hundred and thirty nine point four million dollars led by 33% growth in security solutions and 28% growth in digital agreements. Maintenance and support and professional services and other revenues declined in the fourth quarter and for the full year 2024 by design, primarily due to our transition to SaaS and term software licenses over time. Fourth quarter gross margin was 74% compared to 69.1% in the prior year quarter. For the full year 2024, gross margin was 71.8% compared to 67.1 in the prior year period. The increase in gross margin for both periods was primarily driven by a favorable product mix within our securities segment, including an increase in software and a decrease in hardware revenues.

Fourth quarter GAAP operating income was $11,800,000 compared to $1,800,000 in the fourth quarter of last year. The strong year over year increase was primarily driven by an increase in gross margin and gross profit dollars through the favorable product mix just discussed, a decrease in operating expenses, primarily from lower headcount and vendor related costs and lower restructuring costs. Full year 2024 GAAP operating income was $44,800,000 compared to an operating loss of $28,900,000 for the full year 2023. The significant year over year improvement was driven by the combination of increased revenue and like the Q4 period, favorable product mix, significantly lower operating expenses and lower restructuring costs. GAAP net income per share was $0.72 in the fourth quarter of twenty twenty four.

This compares to GAAP net income of 0.01 in the fourth quarter of twenty twenty three. GAAP net income per share was $1.46 for full year 2024 as compared to a GAAP net loss per share of $0.74 for the full year 2023. Fourth quarter and full year 2024 GAAP net income per share included income tax benefits of $0.58 and $0.59 respectively, related to the release of the valuation allowance, the sunsetting and liquidation of our deal flow subsidiary and the transfer of our security intellectual property from Switzerland to The U. S. As part of our restructuring efforts.

Non GAAP earnings per share, which excludes the income tax benefits just mentioned, long term incentive compensation, amortization, restructuring charges, other non recurring items and the impact of tax benefits was 0.24 in the fourth quarter of twenty twenty four and $1.32 for the full year 2024. This compares to a non GAAP earnings per share of $0.19 in the fourth quarter twenty twenty three and $0.01 for the full year 2023 respectively. Fourth quarter adjusted EBITDA and adjusted EBITDA margin was $19,800,000 and 32.4% as compared to $11,200,000 and 17.7% in the same period of last year respectively. Full year 2024 adjusted EBITDA and adjusted EBITDA margin was $72,500,000 and 29.8% compared to $12,000,000 and 5.1% in the prior year. Turning to our Security Solutions business unit, ARR grew 6% in the fourth quarter to $107,000,000 ARR growth was negatively impacted by approximately 1.5 percentage points through the relocation of identity verification products to our digital agreements business unit at the beginning of the year.

In addition, ARR headwind related to end of life products was negligible in the quarter and approximately $2,000,000 for the full year 2024. Fourth quarter and full year 2024 secondurity revenue declined 6% to $45,500,000 and 1% to $182,200,000 respectively, primarily

Andres, Analyst, D.A. Davidson: due

Jorge Martel, Chief Financial Officer, OneSpan: to the expected decline in hardware revenues. Hardware revenues declined 36% to $14,400,000 in the quarter and 23% to $58,900,000 for the year. Security subscription revenue increased 49% to 20,900,000 in the fourth quarter and 33% to $80,600,000 for the full year 2024, primarily driven by expansion of licenses from existing customers for software based authentication products, partially offset by the sunsetting of our deal flow solution. Q4 twenty twenty four gross profit margin was 75% as compared to 67% in the same period last year. The increase in margin is primarily attributable to an increase in subscription revenues and favorable product mix and customer mix.

Techuria Solutions operating income in the fourth quarter was $23,300,000 or 51% of revenues compared to $20,400,000 or 42% of revenues in Q4 twenty twenty three. The strong increase in gross profit margin combined with lower operating expenses primarily attributed to restructuring and other cost reduction activities drove the majority of the improved performance. Now turning to digital agreements, ARR grew 12% to $61,000,000 ARR growth benefited by approximately three percentage points through the relocation of identity verification products to this business unit at the beginning of twenty twenty four. ARR headwind related to end of life products was minimal at $100,000 in the fourth quarter and approximately $3,000,000 for the full year 2024. Fourth quarter and full year 2024 revenue grew 820% to 15,700,000 and $61,000,000 respectively as compared to the same periods in 2023.

The increase in revenue for both periods was primarily driven by new contracts and expansion of renewal contracts

Andres, Analyst, D.A. Davidson: and to a

Jorge Martel, Chief Financial Officer, OneSpan: lesser extent the relocation of identity verification products, partially offset by a reduction in maintenance revenue related to the sunsetting of our on premise e signature product. Subscription revenue grew 15% in Q4 and 28% for the full year 2024 to $15,200,000 and $58,800,000 respectively. Fourth quarter gross profit margin was 70% as compared to 75% in the prior year quarter. The year over year change was primarily driven by higher cloud platform costs as a result of increased e signature transaction volumes, lower maintenance revenue as we transition to 100% SaaS licenses and an increase in depreciation of capitalized software costs. Digital agreements operating income was $2,600,000 or 17% of revenue as compared to an operating loss of $700,000 or 5% of revenue in the year ago quarter.

The year over year improvement in performance was driven by an increase in revenue and a decrease in operating expenses, primarily attributed to restructuring and other cost reduction activities. Turning to our balance sheet, we ended the fourth quarter of twenty twenty four with $83,200,000 in cash and cash equivalents compared to $42,500,000 at the end of twenty twenty three. We generated $56,000,000 in cash from operations during 2024 and used $9,000,000 in capital expenditures, primarily capitalized software costs. We have no long term debt. Geographically, our revenue mix by region in the fourth quarter of twenty twenty four was 48% for EMEA, 30 6 Percent from The Americas and 16% from Asia Pacific.

This compares to 49%, thirty four % and seventeen % from the same regions in the fourth quarter of last year respectively. For the full year 2024, the revenue mix by region was 44% from EMEA, 30 6 Percent from The Americas and 20% from Asia Pacific compared to 47%, thirty four % and nineteen % from the same regions in 2023 respectively. I will now provide an update to our financial outlook. For the full year 2025, we expect double digit subscription revenue growth. We expect certain perpetual maintenance contracts in our security segment to transition to on premise subscription licenses and as Victor mentioned for the recent trend in hardware revenue to continue in 2025.

We believe our strong focus on operational excellence will enable us to achieve another year of strong profitability and cash generation and enable us to return capital to shareholders via quarterly cash dividends and potentially other methods as part of a balanced capital allocation strategy. For the full year 2025, we expect revenue to be in the range of $245,000,000 to $251,000,000 ARR to be in the range of $180,000,000 to $186,000,000 and adjusted EBITDA to be in the range of $72,000,000 to $76,000,000 That concludes my remarks. Victor?

Victor Lamongile, Chief Executive Officer, OneSpan: Thank you, Jorge. I want to conclude today’s remarks by first thanking the entire OneSpan team for delivering a very strong quarter and full year. Their hard work and dedication to operational rigor over the last several quarters has us in a much better position to drive increased growth and profitability over the long term. We remain committed to delivering value to our customers and to returning value to our shareholders by growing revenue efficiently and profitably. We will continue to focus on driving higher margin software revenue and remain committed to driving towards achieving a rule of 40 performance level.

Jorge and I now will be happy to take your questions.

Conference Operator: Thank you. At this time, we will conduct the question and answer session. Our first question comes from the line of Gray Powell of BTIG. Your line is now open.

Gray Powell, Analyst, BTIG: Okay, great. Thanks for taking the question. Just had two or three on my side. So maybe just kind of looking back at the last year, looks like your results came in at the high end of your initial ARR guidance. You basically hit the midpoint on revenue and then you substantially exceeded on EBITDA like well above what I think anyone was expecting.

So I guess my question is, how do you feel about things today versus a year ago? And where do you think you have the most potential to surprise on the upside if it plays out well in 2025?

Victor Lamongile, Chief Executive Officer, OneSpan: Yes. Thanks for the question. So we’re in a tremendously better shape than we were twelve months ago. We were able to get the cost structure of this company in the right spot where we can generate increased profits as we grow revenue. There’s a couple of things to consider.

First on the security side, I think it’s important to realize that we have a very broad authentication solution. If you think about what we’re offering, we have on prem and cloud, we support OTP and FIDO, hardware and software. And we can offer multiple use cases across login, transaction signing. We serve retail and corporate banking and we have emerging workforce authentication use cases. So we feel like we have a good opportunity to grow that business going forward and it’s an area we’re going to be investing in.

And we’re continuing to invest in digital agreements, but we’re going to layer in additional growth opportunities we think on security. So if we look at our 2025, ’1 of the things when we set the guidance, when we look ahead for the year, we were doing our budget planning in November and heading into December. And one of the things we saw is that the euro dollar exchange rate shifted quite a bit. So one of the things we kept in mind as we were getting set to tell you how we thought we were going to do for 2025 is that that shift caused us to be a little bit more cautious maybe than we would have otherwise been. So if you look at our business about 40 of our business of our revenue is in euros and we’re naturally hedged as a company because we have a couple of hundred employees in Europe.

So this isn’t really an EBITDA side of the ledger. But on the revenue side, the difference between $1.1 and $1.11 versus $104 or $105 is about $5,000,000 So it’s a couple of points of growth there. So we kept that in mind as well just to give you a little context on how we were looking at it. We’re not intending to get into a constant currency type analysis, but just to I’m just bringing it up to highlight one of the reasons that we kind of steer towards being prudent in the revenue guidance for ’25.

Gray Powell, Analyst, BTIG: Okay. That’s helpful. And then maybe a follow-up question. So I think I’m having a little bit of trouble reconciling the ARR guide for fiscal twenty twenty five, which is pretty good at about 10% growth versus the total revenue guide at only 2%. Your FX comments help, but I guess and I know there’s not like a direct translation between ARR and revenue, but I mean does your outlook imply that hardware or non recurring revenues like decline by 20% or something in 2025 or is there something else going on that I’m potentially missing?

Victor Lamongile, Chief Executive Officer, OneSpan: Yes, I’ll let Jorge comment as well. But I mean, definitely on the hardware side, like if you look at the business, we had the decline last year, but it’s not been a one year trend. It’s been something that’s been going on for a long time. We’ve been successful, just to be clear, in transitioning a lot of that revenue from hardware into software, to software authentication. But we’re definitely trying to be realistic.

If you look at the business last year, there was a big decline in hardware. We thought it would be imprudent to say, oh, that will magically turn around because the calendar flips over from ’24 to ’25. Ori, I don’t know if you want to add additional color.

Jorge Martel, Chief Financial Officer, OneSpan: Yes. So Greg, the other thing to consider about that aspect is the way revenue is recognized for term, particularly multi year term licenses on the security software, right? So you would have a higher benefit on the revenue. And then the ARR is you only have obviously one year, right? But also sorry, go ahead.

You’re going to ask something else?

Joe Maxa, Vice President of Investor Relations, OneSpan: No, I just said yes. I got it. Understood.

Jorge Martel, Chief Financial Officer, OneSpan: So to this point, we do factored in a little bit of a decline on the hardware side. The other thing to balance as well is we do have a little bit end of life going through from a revenue perspective, right, that is higher than ARR. And that is because particularly on my guess is probably half and half with the security and DA or mainly DA, I guess, in this case going to 2025 where we did recognize on prem and maintenance DA revenue in the first, call it, half of 2024 that you’re not going to see in 2025. And so those contracts ended, so the AR impact was already taken in 2024, but then you’re going to see more of that revenue hit in 2025, if when you look at comparably. So that’s another factor to consider.

But I think overall to Vik’s point, we were trying to be balanced when it came down to the revenue guidance. All these you have the potentiation on the multiyear, the hardware, the FX exposure that Vik mentioned, but and then the end of life that I just mentioned. But also keep in mind, we still expect to have double digit growth on the subscription revenue for both business units.

Gray Powell, Analyst, BTIG: Understood. Okay. Thank you very much.

Conference Operator: Thank you.

Jorge Martel, Chief Financial Officer, OneSpan: Thank you, Brent.

Conference Operator: Our next question comes from the line of Catherine Trebnick of Rosenblatt Securities. Your line is now open.

Catherine Trebnick, Analyst, Rosenblatt Securities: Thank you for taking my question. Can you put some color around where you are in your product roadmap? I know last summer there were some interesting products that you were coming out with and new partnerships. And the second part of the question is you were looking to expand your ecosystem and where are you on that? Thank you.

Victor Lamongile, Chief Executive Officer, OneSpan: Yes. Thanks, Catherine. I mean, both of those things are ongoing, I would say. We have expanded our ecosystem in terms of our channel development. And some of this those two things are related.

So the FIDO2 tokens have an application in the workforce authentication market and that’s a market we want to reach through channel partners. We don’t want to and I don’t think it would be feasible for us to hire enough direct salespeople to try to contact every possible company that might use hardware tokens for workforce authentication. So we’re going to do that through channel partners and we’re continuing to develop that. And it takes that’s not something where you flip the light switch and all of a sudden you have dozens of channel partners that are hugely productive. It’s an ongoing process, but we’re making progress on it.

Catherine Trebnick, Analyst, Rosenblatt Securities: All right. And then the follow on question is, you did say that there was some deceleration again in the security hardware, correct? I did hear that right. And is it similar for modeling purposes, it’s similar to what we saw in 2024 and I’ll cede the floor then for someone else.

Victor Lamongile, Chief Executive Officer, OneSpan: Yes, sure. I mean, Jorge, I don’t know if you want to talk on the specifics, but we have planned for additional decline in the traditional hardware consumer banking hardware authentication business?

Jorge Martel, Chief Financial Officer, OneSpan: Yes. So I can add context, so Catherine, thanks for the question. So I think if you look at historically over the last, say, decade or so, the hardware revenue has been going down about 8% or so year over year, when you look at it from that standpoint on average for that time period. And so we factor some similar decline in 2025 and that’s part of our guide.

Catherine Trebnick, Analyst, Rosenblatt Securities: All right. Thank you.

Conference Operator: Thank you. Thank you. Our next question comes from the line of Anja Soderstrom of Sidoti. Your line is now open.

Anja Soderstrom, Analyst, Sidoti: Hi. Thank you for taking my questions and congrats on the nice progress here. It seems like new business new logos, it seems like you the growth has mainly been coming from expanding with existing customers, but how is the new logo trending for you?

Victor Lamongile, Chief Executive Officer, OneSpan: Yes. So with respect to new logos, I think if you look at the growth of the business, there’s more new logo growth historically on the DA side than on the security side. We do see an opportunity in the workforce space to be adding new logos. On the consumer banking authentication, retail banking authentication, whether it be software or hardware, that’s an area where I think the customers move switch vendors a lot more slowly. So it’s proportionally harder to get new logos there.

It also benefits us because we have a lot of the banks. So our retention rates are good as well. But the two areas where that we can expect to see better new logo performance, I think would be in the digital agreement space and then also through channel partners.

Anja Soderstrom, Analyst, Sidoti: Okay. Thank you. And in terms of inorganic growth, how actively are you looking there? And what are you seeing in terms of opportunities? And how the market is coming there?

Victor Lamongile, Chief Executive Officer, OneSpan: Yes. It’s something we alluded to, I think in the prepared remarks. It’s something that we’ll certainly consider. I would I think the right phrase to think of is targeted M and A. It’s much more likely that we would do something where there’s some good or interesting technology that we could sell to our customers.

I mean, we have thousands of customers and if we can find something valuable for them, I think that makes potentially makes sense for us rather than trying to buy revenue. That’s unlikely to be something that we’re going to be aiming for. So it’s more likely to be targeted than kind of super large scale.

Anja Soderstrom, Analyst, Sidoti: Okay. Thank you. That was helpful.

Victor Lamongile, Chief Executive Officer, OneSpan: Thank you. Thank you.

Conference Operator: Thank you. Our next question comes from the line of Rudy Kessinger, D. A. Davidson. Your line is now open.

Andres, Analyst, D.A. Davidson: Hi, this is Andres for Rudy. Thank you for taking my questions. Just a couple of ones. In terms of your fiscal twenty twenty five guidance, could you maybe expand a little bit on your net retention rates and new logo expectations embedded in that? Any extra color because you guys have been doing well on the new logo side, you guys mentioned that.

So any expectations moving forward for 2025?

Jorge Martel, Chief Financial Officer, OneSpan: Yes, I can answer that. That’s for the question. So when you look at our NRR numbers historically, they’ve been operating within a tight band between 106 to 108. Obviously, I think in some of the quarters this year, you could see some noise, I would say, because of a couple of things. One is the end of life, obviously, it introduces some noise there.

But I think for 2025, you would expect to us to be within the same tie guide 01/2006, ’1 hundred and ’8. It all depends on some of these, like I said, in particular the DA side, you will land a larger deal, then you will see that a little bit of uptick. For the full year, we’re going to be within that band. And so we do have as well, as I mentioned in 2025, a little bit of end of life impacting there. But I think that will be will end up being the same guide, I’d say 01/8000 that will be the guide, Inves.

Andres, Analyst, D.A. Davidson: Thank you. And obviously, you guys have been doing great with free cash flow. I know you guys are not guiding into it, but maybe could you talk about your expectations moving forward like building on the momentum on cash flow generation?

Jorge Martel, Chief Financial Officer, OneSpan: Yes. Listen, we’re pretty pleased with our cash flow generation and all of this, obviously, kudos to the entire team for the execution of that. So the dramatic change you saw from 2023 to 2024 is really, really remarkable. For 2025, we expect modest increases in it. Also consider, Andres, that we’re going to be investing, as Zig mentioned, in our security software business on both on the product side as well as delivering the channel.

And so taking that into account, I would say modest improvement in the cash flow generation and also the free cash flow conversion from either revenue or adjusted EBITDA compared to 2024.

Andres, Analyst, D.A. Davidson: Thank you.

Victor Lamongile, Chief Executive Officer, OneSpan: Thank you.

Conference Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back to Joe Maxa for closing remarks.

Joe Maxa, Vice President of Investor Relations, OneSpan: Thank you everyone for joining us today. We do appreciate your time. Have a nice day.

Conference Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.

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