Q - OneSpan

Previous 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”).

Current wording

This commentary should be read in conjunction with the condensed consolidated financial statements and related notes thereto of OneSpan for the three- and six-month periods ended June 30, 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 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.

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 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: difficulties increasing or maintaining our rate of revenue growth; 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, 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 price levels; component shortages; delays and disruption in global transportation and supply chains; impairment of goodwill or amortizable intangible assets causing a significant charge to earnings; actions of activist stockholders; and exposure to increased economic and operational uncertainties from operating a global business, as well as other factors described in the “Risk Factors” section of our most recent Annual Report on Form 10-K (filed with the SEC on February 27, 2025) and Part II, Item IA of our Quarterly Re…

Excerpt shortened here; the source contains the full paragraph.

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 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.

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, transaction signing, and mobile application security solutions.

Previous wording

We seek to drive profitable, efficient growth in both operating segments, with a particular emphasis on subscription revenue growth. Both operating segments were profitable for the quarter ended March 31, 2025, and Security Solutions and Digital Agreements subscription revenue grew 7% and 13% as compared to the quarter ended March 31, 2024, respectively.

Current wording

We seek to drive profitable, efficient growth in both operating segments, with a particular emphasis on subscription revenue growth. Both operating segments were profitable for the three and six months ended June 30, 2025, and Security Solutions and Digital Agreements subscription revenue grew 39% and 5% as compared to the three months ended June 30, 2024, respectively, and 19% and 9% as compared to the six months ended June 30, 2024, respectively.

Previous 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.

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 to $0.5 million related to the 2023 Actions for the remainder of 2025, substantially all of which relate to employee transition and severance payments.

Previous wording

As part of the restructuring plan (including the 2023 Actions), we reduced headcount by eliminating approximately 335 positions. We incurred severance and related benefits costs, recorded in “Restructuring and other related charges” in the consolidated statements of operations.

Current wording

As part of the restructuring plan (including the 2023 Actions), we reduced headcount by eliminating approximately 336 positions. We incurred severance and related benefits costs, recorded in “Restructuring and other related charges” in the consolidated statements of operations.

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 March 31, 2025 compared to the comparable prior year period resulted in a decrease in operating expenses of less than $0.3 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 June 30, 2025 compared to the comparable prior year period resulted in an increase in operating expenses of less than $0.4 million. We estimate the change in currency rates during the six months ended June 30, 2025 compared to the comparable prior year period resulted in an increase in operating expenses of $0.2 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 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.

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 June 30, 2025 and 2024, operating expenses included $3.5 million and $2.0 million, respectively, of expenses related to stock-based and long-term incentive plans. During the six months ended June 30, 2025 and 2024, operating expenses included $6.3 million and $3.6 million, respectively, of expenses related to stock-based and long-term incentive plans.

Previous wording

•General and administrative. General and administrative expenses consist primarily of personnel costs, legal, consulting and other professional fees, and long-term incentive compensation. Our general and administrative expenses may fluctuate as a percentage of total revenue.

Current wording

•General and administrative. General and administrative expenses consist primarily of personnel costs, legal, consulting and other professional fees, transaction related expenses, and long-term incentive compensation. Our general and administrative expenses may fluctuate as a percentage of total revenue.

Previous wording

Interest income, net, consists of income earned on our cash equivalents. Our cash equivalents are invested in short-term instruments at current market rates.

Current wording

Interest income, net, consists of income earned on our cash equivalents, which are invested in short-term instruments at current market rates and interest expense, primarily related to the amortization of debt issuance costs associated with our credit facilities.

Previous wording

Other income (expense), net, primarily includes exchange gains (losses) on transactions that are denominated in currencies other than our subsidiaries’ functional currencies, subsidies received from foreign governments in support of our research and development in those countries and other miscellaneous non-operational expenses.

Current wording

Other (expense) income, net, primarily includes exchange gains (losses) on transactions that are denominated in currencies other than our subsidiaries’ functional currencies, subsidies received from foreign governments in support of our research and development in those countries and other miscellaneous non-operational expenses.

Previous 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.

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 our U.S subsidiaries. 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 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%.

Current wording

Changes in the effective rate 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 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.

Current wording

During the three months ended June 30, 2025 and 2024, we generated approximately 78% and 85% of our revenues and incurred approximately 54% and 60% of our operating expenses, respectively, outside of the U.S. During the six months ended June 30, 2025 and 2024, we generated approximately 81% and 84% of our revenues and incurred approximately 56% 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

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.

Current wording

While the majority of our revenue is generated outside of the U.S., a significant amount of our revenue earned during the six months ended June 30, 2025 was denominated in U.S. Dollars. For the six months ended June 30, 2025, approximately 56% of our revenue was denominated in U.S. Dollars, 41% was denominated in Euros and 3% was denominated in other currencies. For the six months ended June 30, 2024, approximately 54% of our revenue was denominated in U.S. Dollars, 42% 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 $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.

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.

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 gains (losses) aggregated $(0.2) million and $0.1 million for the three months ended March 31, 2025 and 2024, 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 losses aggregated $1.0 million and $1.1 million for the three and six months ended June 30, 2025, respectively. For the three and six months ended June 30, 2024, gains resulting from foreign currency transactions were $0.1 million and $0.2 million, respectively.

Previous 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.

Current wording

The following table sets forth 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

(1) Security Solutions other segment items includes general and administrative expense and restructuring and other related charges for thethree months ended March 31, 2025 and 2024.

Current wording

(1) Security Solutions other segment items includes general and administrative expense and restructuring and other related charges for thethree and six months ended June 30, 2025 and 2024.

Previous wording

(2) Security Solutions operating income includes $0.2 million of total amortization and depreciation expense for the three months ended March 31, 2025 and 2024.

Current wording

(2) Security Solutions operating income includes $0.2 million and $0.4 million of total amortization and depreciation expense for both three and six months ended June 30, 2025 and 2024, respectively.

Previous wording

Security Solutions operating income includes $0.2 million and $1.1 million of restructuring and other related charges for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Security Solutions operating income includes $0.1 million and $0.2 million of restructuring and other related charges for the three and six months ended June 30, 2025, respectively. Security Solutions operating income includes $0.3 million and $1.4 million of restructuring and other related charges for the three and six months ended June 30, 2024, respectively.

Previous wording

(3) Digital Agreements other segment items includes general and administrative expense, restructuring and other related charges, and amortization of intangibles for the three months ended March 31, 2025 and 2024.

Current wording

(3) Digital Agreements other segment items includes general and administrative expense, restructuring and other related charges, and amortization of intangibles for the three and six months ended June 30, 2025 and 2024.

Previous wording

(4) Digital Agreements operating income (loss) includes $1.7 million and $1.6 million of total amortization and depreciation expense for the three months ended March 31, 2025 and 2024, respectively.

Current wording

(4) Digital Agreements operating income includes $1.8 million and $3.5 million of total amortization and depreciation expense for three and six months ended June 30, 2025, respectively. Digital Agreements operating loss includes $1.6 million and $3.2 million of total amortization and depreciation expense for three and six months ended June 30, 2024, respectively.

Previous wording

Digital Agreements operating income (loss) includes $0.2 million and $0.1 million of restructuring and other related charges for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Digital Agreements operating income includes $0.1 million and $0.2 million of restructuring and other related charges for the three and six months ended June 30, 2025, respectively. Digital Agreements operating loss includes $1.2 million and $1.3 million of restructuring and other related charges for the three and six months ended June 30, 2024, respectively.

Previous wording

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

Current wording

Revenue by products and services allocated to the segments for the three and six months ended June 30, 2025, and 2024 is as follows:

Previous 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.

Current wording

(1) Professional services and other includes perpetual software licenses revenue, which was immaterial for the three and six months ended June 30, 2025 and approximately 1% of total revenue for the three and six months ended June 30, 2024.

Previous 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.

Current wording

Total revenue decreased by $1.1 million, or 2%, during the three months ended June 30, 2025 compared to the three months ended June 30, 2024. Changes in foreign exchange rates as compared to the same period in 2024 favorably impacted revenue by approximately $1.2 million. For the six months ended June 30, 2025, revenue decreased by $2.6 million, or 2%, compared to the six months ended June 30, 2024. Changes in foreign exchange rates as compared to the same period in 2024 favorably impacted revenue by approximately $0.1 million.

Previous 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.

Current wording

•Security Solutions revenue decreased $1.2 million, or approximately 3%, during the three months ended June 30, 2025 compared to the three months ended June 30, 2024. The decrease in Security Solutions revenue was primarily attributable to lower volumes of hardware devices sold due largely to the mobile-first trend discussed in the "Overview" section above, and to a lesser extent, lower perpetual-based maintenance due to our transition to term licenses and cloud subscription license models. The decrease was partially offset by higher on-premises license and maintenance revenues, primarily from existing customers, and revenue from customers acquired in our acquisition of Nok Nok Labs. Timing of customer renewals and the transition of certain customers from single-year to multi-year term license contracts positively impacted on-premises revenue in the quarter. Changes in foreign exchange rates for the three months ended June 30, 2025 compared to the same period in 2024 favorably impacted Security Solutions revenue by $1.2 million.

Previous 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.

Current wording

•Digital Agreements revenue increased $0.1 million, or 1%, during the three months ended June 30, 2025 compared to the three months ended June 30, 2024. For the six months ended June 30, 2025, Digital Agreements revenue increased $1.4 million, or 5%. The increase in Digital Agreements revenue for both periods was primarily attributable to higher cloud subscription revenue from existing customer expansions and, to a lesser extent, new logos and overages, 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 favorably impacted Digital Agreements revenue by less than $0.1 million for the three months ended June 30, 2025. 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 six months ended June 30, 2025.

Previous wording

Revenue by Geographic Regions: We classify our sales by customer location in three geographic regions: 1) EMEA, which includes Europe, Middle East and Africa; 2) the Americas, which includes sales in North, Central, and South America; and 3) Asia Pacific (APAC), which also includes Australia, New Zealand, and India. The breakdown of revenue in each of our major geographic areas was as follows:

Current wording

Revenue by Geographic Regions: We classify our sales by customer location in three geographic regions: 1) EMEA, which includes Europe, Middle East and Africa; 2) the Americas, which includes sales in North, Central, and South America; and 3) Asia Pacific (APAC), which also includes Australia and New Zealand. The breakdown of revenue in each of our major geographic areas was as follows:

Previous 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.

Current wording

For the three months ended June 30, 2025, revenue generated in the Americas was $2.8 million, or 13%, higher than the three months ended June 30, 2024, primarily due to an increase in revenue from software authentication products, and to a lesser extent, Digital Agreements revenue. For the six months ended June 30, 2025, revenue generated in the Americas was $2.5 million, or 6%, higher than the same period in 2024, primarily due to an increase in revenue from software authentication products and Digital Agreements revenue, partially offset by lower hardware revenue.

Previous wording

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

Current wording

The following table presents cost of goods sold for our products and services for the three and six months ended June 30, 2025 and 2024:

Previous 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.

Current wording

The cost of product and license revenue decreased by $3.0 million, or 26%, and $3.9 million, or 19% during the three and six months ended June 30, 2025, respectively, compared to the three and six months ended June 30, 2024. The decrease in cost of product and license revenue for both the three and six months ended June 30, 2025 was driven primarily by lower hardware revenue and hardware costs, 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 $0.2 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.

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 unfavorable impact on overall cost of goods sold of $0.2 million for three months ended June 30, 2025 and $0.1 million for six months ended June 30, 2025. Had currency rates during the three months ended June 30, 2025 been equal to rates in the comparable period of 2024, the gross margin would have been less than 1 percentage point higher, driven by the favorable currency rate impact to revenue. Had currency rates during the six months ended June 30, 2025 been equal to rates in the comparable period of 2024, the gross margin would have been less than 1 percentage point higher.

Previous wording

•Digital Agreements gross profit increased $1.1 million, or 11%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Digital Agreements gross margin for the three months ended March 31, 2025 was 70%, compared to 69% for the three months ended March 31, 2024. The increase in gross profit and gross margin was driven by higher cloud subscription revenue, partially offset by lower term-based maintenance revenue.

Current wording

•Digital Agreements gross profit increased $1.4 million, or 14%, during the three months ended June 30, 2025 compared to the three months ended June 30, 2024. Digital Agreements gross margin for the three months ended June 30, 2025 was 71%, compared to 63% for the three months ended June 30, 2024. The increase is primarily attributed to the prior year impact of the 2024 write-off discussed above. For the six months ended June 30, 2025, Digital Agreements gross profit increased $2.5 million, or 13%, compared to the same period in June 30, 2024. Digital Agreements gross margin for the six months ended June 30, 2025 was 71%, compared to 66% for the six months ended June 30, 2024. The increase in gross profit and gross margin was driven by higher cloud subscription revenue and the 2024 write-off, partially offset by lower term-based maintenance revenue.

Previous wording

The following table presents the breakout of operating expenses by category as of March 31, 2025 and 2024:

Current wording

The following table presents the breakout of operating expenses by category for the three and six months ended June 30, 2025 and 2024:

Previous 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.

Current wording

Sales and marketing expenses for the three months ended June 30, 2025 increased by $1.0 million, or 9%, compared to the three months ended June 30, 2024. The increase in expense was driven primarily by increased commissions, stock-based compensation expense and the acquisition of Nok Nok Labs, offset by lower consulting costs. Sales and marketing expenses for the six months ended June 30, 2025 decreased by $0.5 million, or 2%, compared to the six months ended June 30, 2024. The decrease was driven primarily by lower employee compensation costs year-over-year which included decreases in salaries and benefits as a result of headcount reductions, along with decreased consulting and marketing costs, and lower travel and entertainment expenses. The decrease was partially offset by increased commissions, stock-based compensation expense and the acquisition of Nok Nok Labs.

Previous 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.

Current wording

Average full-time sales, marketing, support, and operating employee headcount for the three and six months ended June 30, 2025 was 163 and 160, respectively, compared to 166 and 175 for the three and six months ended June 30, 2024, respectively. Average headcount was 2% and 9% lower for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024.

Previous 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.

Current wording

Average full-time research and development employee headcount for the three and six months ended June 30, 2025 was 228 and 225, respectively, compared to 239 and 245 for the three and six months ended June 30, 2024, respectively. Average headcount was less than 4% and 8% lower for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024.

Previous 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.

Current wording

General and administrative expenses for the three months ended June 30, 2025 increased by $0.2 million, or 2%, compared to the three months ended June 30, 2024. The increase in expense for the three months ended June 30, 2025 as compared to the prior year period was largely driven by increased stock-based compensation expense, the Nok Nok Labs acquisition, and higher consulting costs in 2025 compared to prior year, offset 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. General and administrative expenses for the six months ended June 30, 2025 decreased by $0.2 million, or 1%, compared to the six months ended June 30, 2024. The decrease in expense for the six months ended June 30, 2025 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 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.