OneSpan Inc.

Previous wording

This commentary should be read in conjunction with the condensed consolidated financial statements and related notes thereto of OneSpan for the three- and nine-month periods ended September 30, 2024 and 2023 as well as our consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”).

Current wording

This commentary should be read in conjunction with the condensed consolidated financial statements and related notes thereto of OneSpan for the three-month periods ended March 31, 2025 and 2024 as well as our consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “Form 10-K”).

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of applicable U.S. securities laws, including statements regarding the outcomes we expect from our updated strategic transformation plan and cost reduction and restructuring actions approved in August 2023 and in prior periods, including the ability of those actions to allow us to accelerate Adjusted EBITDA growth and drive value creation by growing revenue efficiently and profitably; estimates concerning the timing and amount of savings, Adjusted EBITDA improvements, and/or restructuring charges that may result from our cost reduction and restructuring actions; our plans for managing our Digital Agreements and Security Solutions segments; expectations about trends in our cost of goods sold, gross margin, and sales and marketing, research and development, and general and administrative expenses; the impact of foreign currency rate fluctuations; expectations regarding sources and uses of cash; and our general expectations regarding our operational or financial performance in the future. Forward-looking statements may be identified by words such as "seek", "believe", "plan", "estimate", "anticipate", “expect", "intend", "continue", "outlook", "may", "will", "should", "could", or "might", and other similar expressions. These forward-looking statements involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could materially affect our business and financial results include, but are not limited to: our ability to execute our updated strategic transformation plan and cost reduction and restructuring actions in the expected timeframe and to achieve the outcomes we expect from them; unintended costs and consequences of our cost reduction and restructuring actions, including higher than anticipated restructuring charges, disruption to our operations, litigation or regulatory actions, or employee turnover; our ability to attract new customers and retain and expand sales to existing customers; our ability to successfully develop and market new product offerings and product enhancements; changes in customer requirements; the potential effects of technological changes; the loss of one or more large customers; difficulties enhancing and maintaining our brand recognition; competition; lengthy sales cycles; challenges retaining key employees and successfully hiring and training qualified new employees; security breaches or cyber-attacks; real or perceived malfunctions or errors in our products; interruptions or delays in the performance of our products and solutions; reliance on third parties for certain products and data center services; our ability to effectively manage third party partnerships, acquisitions, divestitures, alliances, or joint ventures; economic recession, inflation, and pol…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of applicable U.S. securities laws, including statements regarding our goal of driving profitable, efficient growth in both operating segments, with a particular emphasis on subscription revenue growth; our focus on high-margin software solutions and continued investment in hardware authentication solutions; revenue trends, including revenue expectations for our hardware business; estimates concerning the timing and amount of savings, improvements in Adjusted EBITDA, and/or restructuring charges that may result from our cost reduction and restructuring actions; our plans for managing our Security Solutions and Digital Agreements segments; expectations about trends in our cost of goods sold, gross margin, and sales and marketing, research and development, and general and administrative expenses; the impact of foreign currency rate fluctuations; expectations regarding sources and uses of cash; and our general expectations regarding our operational or financial performance in the future. Forward-looking statements may be identified by words such as "seek", "believe", "plan", "estimate", "anticipate", “expect", "intend", "continue", "outlook", "may", "will", "should", "could", or "might", and other similar expressions. These forward-looking statements involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could materially affect our business and financial results include, but are not limited to: our ability to attract new customers and retain and expand sales to existing customers; our ability to successfully develop and market new product offerings and product enhancements; changes in customer requirements; the potential effects of technological changes; the loss of one or more large customers; difficulties enhancing and maintaining our brand recognition; competition; lengthy sales cycles; unintended costs and consequences of our cost reduction and restructuring actions, including higher than anticipated restructuring charges, disruption to our operations, litigation or regulatory actions, or employee turnover; challenges retaining key employees and successfully hiring and training qualified new employees; security breaches or cyber-attacks; real or perceived malfunctions or errors in our products; interruptions or delays in the performance of our products and solutions; reliance on third parties for certain products and data center services; our ability to effectively manage third party partnerships, acquisitions, divestitures, alliances, or joint ventures; economic recession, inflation, tariffs or trade disputes, and political instability; claims that we have infringed the intellectual property rights of others; changing laws, government regulations or policies; pressures on p…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Our solutions help our customers ensure the integrity of the people and records associated with digital agreements, transactions, and interactions in industries including banking, financial services, healthcare, and professional services. We are trusted by global blue-chip enterprises, including more than 60% of the world’s 100 largest banks, and we process millions of digital agreements and billions of transactions in more than 100 countries annually.

Current wording

OneSpan delivers cutting-edge solutions in two key areas: advanced secure authentication and digital agreements. Our secure authentication solutions protect devices, users, and applications with robust multi-factor and passwordless authentication and other fraud prevention technologies. Our digital agreements solutions combined identity verification, electric signatures, and digital workflows to streamline agreements, enhance compliance, and accelerate business processes. We empower organizations to automate and secure both customer-facing and revenue-generating processes, supporting a wide range of use cases—from simple transactions to complex workflows requiring elevated security. Trusted by global blue-chip enterprises, including more than 60% of the world’s 100 largest banks, OneSpan processes millions of digital agreements and billions of transactions in more than 100 countries annually.

Previous wording

We are currently in the midst of a business transformation. In December 2021, our board of directors (“Board” or “Board of Directors”) approved a restructuring plan (the “restructuring plan”) designed to advance our operating model, streamline our business, improve efficiency, and enhance our capital resources. The first phase of this restructuring plan began and was substantially completed during the three months ended March 31, 2022. In May 2022, our Board approved additional actions related to the restructuring plan and we announced a three-year strategic transformation plan that began on January 1, 2023 (the "2022 strategic plan"). In conjunction with the 2022 strategic plan and to enable a more efficient capital deployment model, effective with the quarter ended June 30, 2022, we began reporting under the following two lines of business, which are our reportable operating segments: Digital Agreements and Security Solutions.

Current wording

We report our financial results under the following two lines of business, which are our reportable segments: Security Solutions and Digital Agreements.

Previous wording

•Security Solutions. Security Solutions consists of our broad portfolio of software products, software development kits (SDKs) and Digipass authenticator devices that are used to build applications designed to defend against attacks on digital transactions across online environments, devices, and applications. The software products and SDKs included in the Security Solutions segment are largely on-premises software products and include multi-factor authentication and transaction signing solutions, such as mobile application security and mobile software tokens.

Current wording

•Security Solutions. Security Solutions consists of our broad portfolio of software products, software development kits (SDKs), and Digipass authenticator devices that are used to build applications designed to defend against attacks on digital transactions across online environments, devices, and applications. The software products and SDKs included in the Security Solutions segment are on-premises and, to a lesser extent, cloud software products, and include multi-factor authentication and transaction signing solutions, such as mobile application security and mobile software tokens.

Previous wording

•Digital Agreements. Digital Agreements consists of solutions that enable our clients to secure and automate business processes associated with their digital agreement and customer transaction lifecycles that require consent, non-repudiation and compliance. These solutions, which are largely cloud-based, include OneSpan Sign e-signature, OneSpan Notary, and Identity Verification. This segment also includes costs attributable to our transaction cloud platform.

Current wording

•Digital Agreements. Digital Agreements consists of solutions that enable our clients to secure and automate business processes associated with their digital agreement and customer transaction lifecycles that require consent, non-repudiation and compliance. These solutions, which are largely cloud-based, include OneSpan Sign e-signature, OneSpan Notary, and Identity Verification.

Previous wording

On August 3, 2023, our Board of Directors approved the 2023 Actions. We have incurred and expect to continue to incur restructuring charges in connection with the 2023 Actions, most of which are related to employee transition and severance payments and employee benefits, with a significantly smaller amount of charges related to vendor contract termination and rationalization actions. We currently expect that we will incur restructuring charges of approximately $0.5 million to $1.5 million related to the 2023 Actions in future periods, substantially all of which relate to employee transition and severance payments.

Current wording

On August 3, 2023, our Board of Directors approved further cost reduction actions (the "2023 Actions"). In connection with the 2023 Actions, we have incurred and expect to continue to incur restructuring charges, most of which relate to employee transition and severance payments and employee benefits, with a significantly smaller amount of charges related to vendor contract termination and rationalization actions. We currently expect that we will incur restructuring charges of approximately$0.1 million to $0.6 million related to the 2023 Actions in future periods, substantially all of which relate to employee transition and severance payments.

Previous wording

We completed a majority of the workforce reductions planned as part of the 2023 Actions by the end of 2023, and we expect that the remaining workforce reductions will occur by the end of 2024. The vendor contract component of the 2023 Actions is planned for completion by the end of 2025.

Current wording

We plan to incrementally take actions under the restructuring plan until December 31, 2025, when the plan terminates. We completed substantially all of the workforce reductions planned as part of the 2023 Actions in 2023 and 2024. The vendor contract component of the 2023 Actions is planned for completion by the end of 2025.

Previous wording

Historically, operating expenses have been impacted by changes in foreign exchange rates. We estimate the change in currency rates during the three months ended September 30, 2024 compared to the comparable prior year period resulted in an increase in operating expenses of less than $0.1 million. We estimate the change in currency rates during the nine months ended September 30, 2024 compared to the comparable prior year period resulted in an increase in operating expenses of less than $0.1 million.

Current wording

Historically, operating expenses have been impacted by changes in foreign exchange rates. We estimate the change in currency rates during the three months ended March 31, 2025 compared to the comparable prior year period resulted in a decrease in operating expenses of less than $0.3 million.

Previous wording

The comparison of operating expenses can also be impacted significantly by costs related to our stock-based and long-term incentive plans. Long-term incentive plan compensation expense includes both stock-based incentives and an immaterial amount of cash-based incentives. During the three months ended September 30, 2024 and 2023, operating expenses included $2.7 million and $1.9 million, respectively, of expenses related to stock-based and long-term incentive plans. During the nine months ended September 30, 2024 and 2023, operating expenses included $6.4 million and $10.4 million, respectively, of expenses related to stock-based and long-term incentive plans.

Current wording

The comparison of operating expenses can also be impacted significantly by costs related to our stock-based and long-term incentive plans. Long-term incentive plan compensation expense includes both stock-based incentives and an immaterial amount of cash-based incentives. During the three months ended March 31, 2025 and 2024, operating expenses included $2.8 million and $1.6 million, respectively, of expenses related to stock-based and long-term incentive plans as well as payroll taxes on employee stock-based awards.

Previous wording

Segment operating income (loss) consists of the revenue generated by a segment, less the direct costs of revenue, sales and marketing, research and development amortization and any impairment charges that are incurred directly by a segment. Unallocated corporate costs include general and administrative expense and other company-wide costs that are not attributable to a particular segment. Financial results by reportable operating segment are included below under Results of Operations.

Current wording

Segment operating income (loss) consists of the revenue generated by a segment, less the direct costs of revenue, sales and marketing, research and development amortization and any impairment charges that are incurred directly by a segment. Unallocated corporate costs include general and administrative expense and other company-wide costs that are not attributable to a particular segment. Financial results by reportable operating segment are included below under Results of Operations. As of December 31, 2024, we adopted ASU 2023-07, Segment Reporting (Topic 280) to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. See Note 3, Segment Information, for additional information.

Previous wording

Our effective tax rate reflects our global structure related to the ownership of our intellectual property (“IP”). The majority of our IP in our Security Solutions business is owned by two subsidiaries, one in the U.S. and one in Switzerland. The e-signature IP in our Digital Agreements business is owned by a subsidiary in Canada. These subsidiaries have entered into agreements with most of the other OneSpan entities under which those other entities provide services to the IP owners on either a percentage of revenue or on a cost plus basis or both. Under this structure, the earnings of our service provider subsidiaries are relatively constant. These service provider companies tend to be in jurisdictions with higher effective tax rates. Fluctuations in earnings flow to the IP owners.

Current wording

Our effective tax rate reflects our global structure related to the ownership of our intellectual property (“IP”). The IP in our Security Solutions business is owned by a U.S. subsidiary. The e-signature IP in our Digital Agreements business is owned by a subsidiary in Canada. These subsidiaries have entered into agreements with most of the other OneSpan entities under which those other entities provide services to the IP owners on either a percentage of revenue or on a cost plus basis or both. Under this structure, the earnings of our service provider subsidiaries are relatively constant. These service provider companies tend to be in jurisdictions with higher effective tax rates. Fluctuations in earnings flow to the IP owners.

Previous wording

As the majority of our earnings are generated outside of the U.S., our consolidated effective tax rate is strongly influenced by the effective tax rate of our foreign operations. Changes in the effective rate related to foreign operations reflect changes in the geographic mix of earnings and the tax rates in each of the countries in which it is earned. The statutory tax rate for the primary foreign tax jurisdictions ranges from 11% to 35%.

Current wording

As the majority of our revenue is generated outside of the U.S., our consolidated effective tax rate is strongly influenced by our foreign operations, including the tax rates in the countries in which we operate and by cross border tax laws in the U.S. Changes in the effective rate related to foreign operations reflect changes in the geographic mix of earnings and the tax rates in each of the countries in which it is earned. The statutory tax rate for the primary foreign tax jurisdictions ranges from 17% to 30%.

Previous wording

During the three months ended September 30, 2024 and 2023, we generated approximately 81% and 83% of our revenues and incurred approximately 58% and 61% of our operating expenses, respectively, outside of the U.S. During the nine months ended September 30, 2024 and 2023, we generated approximately 83% and 82% of our revenues and incurred approximately 60% and 58% of our operating expenses, respectively, outside of the U.S. As a result, changes in currency exchange rates, especially the Euro exchange rate and the Canadian Dollar exchange rate, can have a significant impact on our revenue and operating expenses.

Current wording

During the three months ended March 31, 2025 and 2024, we generated approximately 84% and 84% of our revenues and incurred approximately 58% and 61% of our operating expenses, respectively, outside of the U.S. As a result, changes in currency exchange rates, especially the Euro exchange rate and the Canadian Dollar exchange rate, can have a significant impact on our revenue and operating expenses.

Previous wording

September 30, 2024, approximately 55% of our revenue was denominated in U.S. Dollars, 41% was denominated in Euros and 4% was denominated in other currencies. For the nine months ended September 30, 2023, approximately 52% of our revenue was denominated in U.S. Dollars, 43% was denominated in Euros and 5% was denominated in other currencies.

Current wording

While the majority of our revenue is generated outside of the U.S., a significant amount of our revenue earned during the three months ended March 31, 2025 was denominated in U.S. Dollars. For the three months ended March 31, 2025, approximately 55% of our revenue was denominated in U.S. Dollars, 43% was denominated in Euros and 2% was denominated in other currencies. For the three months ended March 31, 2024, approximately 53% of our revenue was denominated in U.S. Dollars, 43% was denominated in Euros and 4% was denominated in other currencies.

Previous wording

The financial position and the results of operations of our foreign subsidiaries, with the exception of our subsidiaries in Switzerland, Singapore and Canada, are measured using the local currency as the functional currency. The functional currency for our subsidiaries in Switzerland, Singapore and Canada is the U.S. Dollar. Accordingly, assets and liabilities of our foreign subsidiaries are translated into U.S. Dollars using current exchange rates as of the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the year. Translation adjustments arising from differences in exchange rates generated a comprehensive gain of $5.9 million and $3.8 million during the three and nine months ended September 30, 2024, respectively. For the three and nine months ended September 30, 2023, translation adjustments arising from differences in exchange rates generated a comprehensive loss of $2.6 million and comprehensive gain of $0.1 million, respectively.

Current wording

The financial position and the results of operations of our foreign subsidiaries, with the exception of our subsidiaries in Switzerland, Singapore and Canada, are measured using the local currency as the functional currency. The functional currency for our subsidiaries in Switzerland, Singapore and Canada is the U.S. Dollar. Accordingly, assets and liabilities of our foreign subsidiaries are translated into U.S. Dollars using current exchange rates as of the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the year. Translation adjustments arising from differences in exchange rates generated a comprehensive gain of $2.7 million during the three months ended March 31, 2025. For the three months ended March 31, 2024, translation adjustments arising from differences in exchange rates generated a comprehensive loss of $1.7 million.

Previous wording

Gains and losses resulting from foreign currency transactions are included in the condensed consolidated statements of operations in other (expense) income, net. Foreign exchange transaction losses aggregated $2.0 million and $1.8 million for the three and nine months ended September 30, 2024, respectively. For the three and nine months ended September 30, 2023, losses resulting from foreign currency transactions were $0.1 million and $0.5 million, respectively.

Current wording

Gains and losses resulting from foreign currency transactions are included in the condensed consolidated statements of operations in other (expense) income, net. Foreign exchange transaction gains (losses) aggregated $(0.2) million and $0.1 million for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

The following table sets forth, for the periods indicated, selected segment and condensed consolidated operating results.

Current wording

The following table sets forth, for information about the Company's two operating segments, for the periods indicated, and selected segment and condensed consolidated operating results. Unallocated corporate costs include costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment.

Previous wording

Revenue by products and services allocated to the segments for the three and nine months ended September 30, 2024, and 2023 is as follows:

Current wording

Revenue by products and services allocated to the segments for the three months ended March 31, 2025, and 2024 is as follows:

Previous wording

(1) Professional services and other includes perpetual software licenses revenue, which was less than 1% of total revenue for both the three and nine months ended September 30, 2024 and approximately 1% of total revenue for both the three and nine months ended September 30, 2023.

Current wording

(1) Professional services and other includes perpetual software licenses revenue, which was immaterial for the three months ended March 31, 2025 and approximately 1% of total revenue for the three months ended March 31, 2024.

Previous wording

Total revenue decreased by $2.6 million, or 4%, during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Changes in foreign exchange rates as compared to the same period in 2023 favorably impacted revenue by approximately $0.2 million. For the nine months ended September 30, 2024, revenue increased by $9.8 million, or 6%, compared to the nine months ended September 30, 2023. Changes in foreign exchange rates as compared to the same period in 2023 favorably impacted revenue by approximately $0.3 million.

Current wording

Total revenue decreased by $1.5 million, or 2%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Changes in foreign exchange rates as compared to the same period in 2024 negatively impacted revenue by approximately $1.1 million.

Previous wording

•Security Solutions revenue decreased $5.0 million, or approximately 11%, during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease in Security Solutions revenue was primarily attributable to lower volumes of hardware devices sold, and lower maintenance revenue due to our transition from legacy perpetual contracts to subscription licenses, partially offset by an increase in on-premises subscription revenue specific to authentication solution products from existing customer expansions. Changes in foreign exchange rates for the three months ended September 30, 2024 compared to the same period in 2023 favorably impacted Security Solutions revenue by $0.1 million. For the nine months ended September 30, 2024, Security Solutions revenue increased $1.0 million, or 1%, which was driven by an increase in on-premises subscription revenue from existing customer expansion and higher year over year renewals, partially offset by a decline in maintenance revenue, and lower volumes of hardware devices sold. Changes in foreign exchange rates for the nine months ended September 30, 2024 compared to the same period in 2023 favorably impacted Security Solutions revenue by $0.2 million.

Current wording

•Security Solutions revenue decreased $2.7 million, or approximately 5%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The decrease in Security Solutions revenue was primarily attributable to lower volumes of hardware devices sold, and lower perpetual-based maintenance and professional services revenues due to our transition to term licenses and cloud subscription license models. The decrease was partially offset by higher on-premises and cloud subscription revenue from existing customer expansions. Changes in foreign exchange rates for the three months ended March 31, 2025 compared to the same period in 2024 negatively impacted Security Solutions revenue by $1.1 million.

Previous wording

•Digital Agreements revenue increased $2.4 million, or 18%, during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. For the nine months ended September 30, 2024, Digital Agreements revenue increased $8.9 million, or 24%. The increase in Digital Agreements revenue for both periods was primarily attributable to higher cloud subscription revenue from existing customer expansions and new logos. Changes in foreign currency rates compared to the same period in 2023 favorably impacted Digital Agreements revenue by less than $0.1 million for the three months ended September 30, 2024. Changes in foreign currency rates compared to the same period in 2023 favorably impacted Digital Agreements revenue by less than $0.1 million for the nine months ended September 30, 2024.

Current wording

•Digital Agreements revenue increased $1.2 million, or 9%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase in Digital Agreements revenue was primarily attributable to higher cloud subscription revenue from existing customer expansions and, to a lesser extent, new logos, partially offset by lower term-based maintenance revenue due to our transition to cloud subscription licenses. Changes in foreign exchange rates compared to the same period in 2024 negatively impacted Digital Agreements revenue by less than $0.1 million for the three months ended March 31, 2025.

Previous wording

For the three months ended September 30, 2024, revenue generated in APAC was $0.8 million, or 6%, lower than the three months ended September 30, 2023, largely due to a decrease in hardware volumes sold. For the nine months ended September 30, 2024, revenue generated in APAC was $5.3 million, or 16%, higher than the same period in 2023, primarily due to customer expansion in authentication and mobile security solutions products.

Current wording

For the three months ended March 31, 2025, revenue generated in EMEA was $0.8 million, or 3%, lower than the same period in 2024, primarily due to a decrease in hardware revenue due to lower volumes sold.

Previous wording

For the three months ended September 30, 2024, revenue generated in the Americas was $2.1 million, or 11%, higher than the three months ended September 30, 2023. The increase was primarily driven by an increase in Digital Agreements revenue. For the nine months ended September 30, 2024, revenue generated in the Americas was $5.7 million, or 10%, higher than the same period in 2023, primarily due to an increase in Digital Agreements e-signature revenue and software authentication products, partially offset by lower hardware revenue.

Current wording

For the three months ended March 31, 2025, revenue generated in the Americas was $0.2 million, or 1%, lower than the three months ended March 31, 2024.

Previous wording

The following table presents cost of goods sold for our products and services for the three and nine months ended September 30, 2024 and 2023:

Current wording

The following table presents cost of goods sold for our products and services for the three months ended March 31, 2025 and 2024:

Previous wording

The cost of product and license revenue decreased by $3.6 million, or 33%, and $8.0 million, or 22% during the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023. The decrease in cost of product and license revenue for both the three and nine months ended September 30, 2024 was driven primarily by lower hardware revenue and lower third-party license costs, and the $1.6 million inventory non-cash impairment recognized in the prior year in conjunction with the discontinuation of investments in our Digipass CX product.

Current wording

The cost of product and license revenue decreased by $1.0 million, or 10%, during the three months ended March 31, 2025, respectively, compared to the three months ended March 31, 2024. The decrease in cost of product and license revenue for the three months ended March 31, 2025 was driven primarily by lower hardware revenue, partially offset by higher third-party license costs.

Previous wording

The majority of our inventory purchases are denominated in U.S. Dollars. Our sales are denominated in various currencies, including the Euro. The impact of changes in currency rates are estimated to have had an favorable impact on overall cost of goods sold of $0.3 million for both the three and nine months ended September 30, 2024. Had currency rates during the three months ended September 30, 2024 been equal to rates in the comparable period of 2023, the gross profit margin would have been less than 1 percentage point lower, driven by the favorable currency rate impact to revenue. Had currency rates during the nine months ended September 30, 2024 been equal to rates in the comparable period of 2023, the gross profit margin would have been less than 1 percentage point lower, driven by the favorable currency rate impact to revenue.

Current wording

The majority of our inventory purchases are denominated in U.S. Dollars. Our sales are denominated in various currencies, including the Euro. The impact of changes in currency rates are estimated to have had an favorable impact on overall cost of goods sold of $0.2 million for three months ended March 31, 2025. Had currency rates during the three months ended March 31, 2025 been equal to rates in the comparable period of 2024, the gross margin would have been less than 1 percentage point lower, driven by the favorable currency rate impact to revenue.

Previous wording

•Security Solutions gross profit decreased $0.3 million, or 1%, during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Security Solutions gross margin for the three months ended September 30, 2024 was 75%, compared to 67% for the three months ended September 30, 2023. The increase in gross margin was primarily due to higher software versus hardware revenue mix, which has a direct correlation to gross profit. For the nine months ended September 30, 2024, Security Solutions gross profit increased $11.2 million, or 13%, compared to the comparable period in 2023. The increase in gross profit was driven by an increase in subscription revenue, lower third-party license costs, and inventory impairments recognized in the prior year period. Security Solutions gross margin for the nine months ended September 30, 2024 was 72%, compared to 64% for the nine months ended September 30, 2023. The increase in gross margin was primarily due to more favorable revenue mix between software and hardware, more favorable customer mix in our hardware business, lower third-party license costs, and inventory impairments recognized in the prior year period.

Current wording

•Security Solutions gross profit decreased $1.4 million, or 4%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Security Solutions gross margin for the three months ended March 31, 2025 was 76%, compared to 74% for the three months ended March 31, 2024. The increase in gross margin was primarily due to a higher software to hardware revenue mix, which has a direct correlation to gross profit.

Previous wording

Operating expenses decreased by $15.2 million, or 33%, during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. For the three months ended September 30, 2024, changes in foreign exchange rates negatively impacted operating expenses by less than $0.1 million as compared to the same period in 2023. Operating expenses decreased by $48.7 million, or 34%, during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. For the nine months ended September 30, 2024, changes in foreign exchange rates negatively impacted operating expenses by less than $0.1 million as compared to the same period in 2023.

Current wording

Operating expenses decreased by $3.4 million, or 10%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. For the three months ended March 31, 2025, changes in foreign exchange rates favorably impacted operating expenses by less than $0.3 million as compared to the same period in 2024.

Previous wording

Sales and marketing expenses for the three months ended September 30, 2024 decreased by $6.5 million, or 39%, compared to the three months ended September 30, 2023. Sales and marketing expenses for the nine months ended September 30, 2024 decreased by $22.8 million, or 40%, compared to the nine months ended September 30, 2023. The decreases were driven primarily by lower employee compensation costs which included decreases in commissions, salaries, and benefits as a result of headcount reductions, along with decreased consulting and marketing costs related to our strategic plan, and lower travel and entertainment expenses.

Current wording

Sales and marketing expenses for the three months ended March 31, 2025 decreased by $1.5 million, or 11%, compared to the three months ended March 31, 2024. The decreases were driven primarily by lower employee compensation costs which included decreases in commissions, salaries, and benefits as a result of headcount reductions, along with decreased consulting and marketing costs related to our strategic plan, and lower travel and entertainment expenses.

Previous wording

Average full-time sales, marketing, support, and operating employee headcount for the three and nine months ended September 30, 2024 was 148 and 166, respectively, compared to 336 and 357 for the three and nine months ended

Current wording

Average full-time sales, marketing, support, and operating employee headcount for the three months ended March 31, 2025 was 158 compared to 183 for the three months ended March 31, 2024. Average headcount was 14% lower for the three months ended March 31, 2025 compared to the same period in 2024.

Previous wording

Research and development expenses for the three months ended September 30, 2024 decreased by $2.6 million, or 26%, compared to the three months ended September 30, 2023. Research and development expenses for the nine months ended September 30, 2024 decreased by $5.6 million, or 19%, compared to the nine months ended September 30, 2023. The decrease in expense was driven primarily by lower compensation costs as a result of lower headcount and lower consulting expenses related to our strategic transformation plan, partially offset by increased bonus expense accruals.

Current wording

Research and development expenses for the three months ended March 31, 2025 decreased by $0.3 million, or 4%, compared to the three months ended March 31, 2024. The decrease in expense was driven primarily by lower compensation costs as a result of lower headcount and lower consulting expenses related to our strategic transformation plan.

Previous wording

Average full-time research and development employee headcount for the three and nine months ended September 30, 2024 was 228 and 239, respectively, compared to 305 and 313 for the three and nine months ended September 30, 2023, respectively. Average headcount was 25% and 24% lower for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.

Current wording

Average full-time research and development employee headcount for the three months ended March 31, 2025 was 222 compared to 250 for the three months ended March 31, 2024. Average headcount was 11% lower for the three months ended March 31, 2025, compared to the same period in 2024.

Previous wording

General and administrative expenses for the three months ended September 30, 2024 decreased by $0.2 million, or 2%, compared to the three months ended September 30, 2023. General and administrative expenses for the nine months ended September 30, 2024 decreased by $11.1 million, or 25%, compared to the nine months ended September 30, 2023. The decrease in expense for both the three and nine months ended September 30, 2024 as compared to the prior year period was largely driven by lower employee compensation costs, which included a decrease in salaries, payroll taxes, and related benefits as a result of lower headcount. Also, stock-based compensation expense was higher during the quarter due to awards granted to the former interim President and CEO upon accepting the permanent role of President and CEO, but was lower year over year due to lower headcount, including the termination of our former CEO, and lower annual equity awards granted to employees. These decreases were offset by higher bonus accruals and other non-recurring expenses.

Current wording

General and administrative expenses for the three months ended March 31, 2025 decreased by $0.5 million, or 5%, compared to the three months ended March 31, 2024. The decrease in expense for three months ended March 31, 2025 as compared to the prior year periodwas largely driven by lower employee compensation costs, which included a decrease in salaries, payroll taxes, and related benefits as a result of lower headcount as well as lower bonus accruals. This decrease was partially offset by increased stock-based compensation expense and higher consulting costs in 2025 compared to prior year.

Previous wording

Average full-time general and administrative employee headcount for the three and nine months ended September 30, 2024 was 95 and 102, respectively, compared to 136 and 144 for the three and nine months ended September 30, 2023, respectively. Average headcount was 30% and 29% lower for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.

Current wording

Average full-time general and administrative employee headcount for the three months ended March 31, 2025 was 85 compared to 111 for the three months ended March 31, 2024. Average headcount was 23% lower for the three months ended March 31, 2025, compared to the same period in 2024.

Previous wording

Amortization of intangible assets expense for the three months ended September 30, 2024 increased by less than $0.1 million, or 0%, compared to the three months ended September 30, 2023. Amortization of intangible assets expense for the nine months ended September 30, 2024 increased by less than $0.1 million, or 1%, compared to the nine months ended September 30, 2023.

Current wording

Amortization of intangible assets expense for the three months ended March 31, 2025 decreased by less than $0.1 million, or 7%, compared to the three months ended March 31, 2024.

Previous wording

•Security Solutions operating income for the three months ended September 30, 2024 was $20.2 million, which was a year-over-year increase of $4.5 million, or 29%, from the three months ended September 30, 2023. Operating income for the nine months ended September 30, 2024 was $66.8 million, which was a year-over-year increase of $26.9 million, or 68% from the nine months ended September 30, 2023. The increase was largely due to higher subscription revenue and lower sales and marketing expenses, research and development expenses, and restructuring expenses.

Current wording

•Security Solutions operating income for the three months ended March 31, 2025 was $24.2 million, which was a year-over-year decrease of $1.7 million, or 7%, from the three months ended March 31, 2024. The decrease was largely due to lower overall revenue and higher sales and marketing expenses, research and development expenses, and restructuring expenses.

Previous wording

•Digital Agreements operating income for the three and nine months ended September 30, 2024 was $3.4 million and $3.0 million, respectively, compared to an operating loss of $4.7 million and $17.8 million, respectively, for the three and nine months ended September 30, 2023. The improvement in operating income for the three and nine months ended September 30, 2024 was driven by higher overall revenue, lower sales and marketing expenses and research and development expenses, including lower employee compensation costs, marketing expenses, travel and entertainment costs, and lower restructuring expenses, partially offset by the write-off of our acquired blockchain technology and related capitalized software for the nine months ended September 30, 2024.

Current wording

•Digital Agreements operating income for the three months ended March 31, 2025 was $3.4 million, compared to an operating loss of $0.3 million, for the three months ended March 31, 2024. The improvement in operating income for the three months ended March 31, 2025 was driven by higher overall revenue and gross profit and lower sales and marketing and research and development expenses, including lower employee compensation costs, marketing expenses, and travel and entertainment costs, partially offset by increased general and administrative expenses.

Previous wording

Interest income, net, was $0.6 million for both three months ended September 30, 2024 and 2023. Interest income, net, was $1.2 million for the nine months ended September 30, 2024 compared to $1.7 million for the nine months ended September 30, 2023. The decrease in interest income is due to lower average excess cash invested in the periods compared to last year.

Current wording

Interest income, net, was $0.7 million and $0.1 million for the three months ended March 31, 2025 and 2024, respectively. The increase in interest income was due to higher average excess cash invested in the period compared to last year.