Q4 2024 OneSpan Inc Earnings Call
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone you will then here in the automated message advising your hand is raised.
To withdraw your question. Please press star one again.
Speaker Change: 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.
Speaker Change: Thank you operator, Hello, everyone and thank you for joining the one spend fourth quarter and full year 2024 earnings conference call.
Speaker Change: This call is being webcast and can be accessed on the Investor Relations section of one spans website at investors that one span dot com.
Speaker Change: Joining me on the call today is Victor <unk>, our Chief Executive Officer, and Jorge Martell, Our Chief Financial Officer.
Speaker Change: This afternoon after market close <unk> issued a press release announcing results for our fourth quarter and full year 2024.
Speaker Change: To access a copy of the press release and other Investor information. Please visit our website.
Speaker Change: Following our prepared comments today, we will open the call for questions.
Speaker Change: 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.
Speaker Change: These statements involve risks and uncertainties and are based on current assumptions.
Speaker Change: Sequentially actual results could differ materially from the expectations expressed in these forward looking statements.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 are year over year basis, unless otherwise indicated.
Speaker Change: The date of this conference call is February 27th 2025.
Speaker Change: Any forward looking statements and related assumptions are made as of this date.
Speaker Change: Except as required by law, we undertake no obligation to update these statements as a result of new information or future events.
Victor: For any other reason I will now turn the call over to Victor.
Victor: Thank you Joe and good afternoon, everyone and thank you for joining us today.
Victor: Im thrilled that we reported another solid quarter of profitability driven by the team's continued hard work and focus on operational excellence.
Victor: We achieved record high adjusted EBITDA in the fourth quarter and for full year 2024.
Victor: Fourth quarter, adjusted EBITDA was $20 million or 32% of revenue in both.
Victor: Units were again profitable on a fully burdened basis.
Victor: <unk>.
Victor: Full year adjusted EBITDA was $73 million were 30% of revenue.
Victor: <unk> grew eight 5% to $168 million, including 12% growth in digital agreements and 6% growth in secured.
Victor: Subscription revenue driven by demand for our software authentication and Esignature solutions grew in excess of 30% for both the quarter and year.
Victor: Subscription revenue for the full year accounted for 57% of total revenue an increase of 12 percentage points year over year.
Victor: Software and services revenue or revenue, including subscriptions, but excluding hardware grew.
Victor: <unk> grew 16% in 2024 and accounted for nearly three quarters of total revenue up from roughly two thirds of revenue in the prior year.
Victor: Total 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've discussed on prior calls and to a lesser extent by a decline in maintenance revenue.
Victor: As we transition to SaaS and term software licenses overtime.
Victor: I continue to be pleased with our cash generation, we generated $12 million in cash from operations in the fourth quarter and $56 million for the year, which is a significant improvement from the prior year.
Victor: Last year, we generated $3 million in cash during the fourth quarter and use $11 million in cash for the year.
Victor: As of December 31, we had $83 million in cash on hand, an increase of $40 million from the beginning of the year.
Victor: During the year, we achieved several significant operational milestones that helped us to achieve the financial results I just discussed and then I believe better positions us to drive increased revenue growth and profitability over the long term.
Victor: Notably our sales team continued focusing on transitioning the company to more higher margin software revenue and successfully closed additional multiyear software term deals, which helped to drive our strong subscription revenue growth and record gross profit.
Victor: For the year.
Victor: We also substantially completed our multiyear cost savings initiatives as discussed last quarter.
Victor: The cost savings related to these initiatives combined with our improved software revenue mix resulted in significant increases in profitability throughout 2024.
Victor: Three additional contributing factors to our strong 2024 results include first a year over year improvement of nearly 700 basis points and our on time renewal rate driven by great work by our renewals team.
Victor: Second improvements in our SaaS offerings.
Victor: R&D team, which resulted in increased operating efficiencies and which were reflected in our higher gross margins.
Victor: And third the sunsetting of certain low return on investment products that we discussed on prior calls, which although this impacted our <unk> and revenue by several million dollars each and also help to improve our operational efficiency and profitability.
Victor: 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 multiyear agreements upon renewal.
Victor: While the 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 call seeds with respect to consumer banking.
Victor: We expect this trend to also impact hardware revenues in 2025.
Victor: In digital agreements Q4 subscription revenue growth was driven by expansion contracts and to a lesser extent new logos.
Victor: Both business units were profitable at the segment level in the quarter and for the year with security continuing to be very profitable.
Victor: Our goal continues to be for both units to deliver growth and strong profitability we.
Victor: We expect to continue to make progress on this goal and our digital agreements business segment in 2025, and we expect to continue driving strong profitability and security.
Victor: 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.
Victor: Though with more modest increases in cash generated from operations and adjusted EBITDA compared to the dramatic improvements we achieved in 2024.
Victor: 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 <unk>.
Victor: <unk> problems.
Victor: 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&D effort.
Victor: Finally, as you are probably aware two weeks ago, we paid the first quarterly cash dividend in <unk> history.
Victor: We plan to announce the timing of our next dividend payment when we report our first quarter results.
Victor: Payment of that dividend is expected to occur in the second quarter of 2025.
Victor: 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.
Victor: Wayne and potential increases in the capital returned to shareholders as well as organic investments in the business and targeted M&A.
Jorge: With that I will turn the call over to Jorge.
Victor: Hey.
Jorge: Thank you Victor and good afternoon, everyone. I am pleased that we reported another strong quarter and full year results.
Jorge: Ah grew eight 5% in 2000 $24 million to $168 million.
Jorge: And our net retention rate was 106%.
Jorge: As compared to last year.
Jorge: NR, primarily benefited from customer expansion contracts and to a lesser extent also benefited from new customers.
Jorge: Growth in IRR, and an IRR, but impacted by churn related to end of life products as discussed on prior calls.
Jorge: Fourth quarter, 2024 revenue was $61 2 million or 3% lower than last year's Q4, primarily due to the previously discussed expected decline in security hardware revenue.
Jorge: Security software and services revenue that is security of revenue, excluding hardware grew 20% and digital agreements revenue grew 8%.
Jorge: For the full year 2024 revenue grew 3% to $243 $2 million driven.
Jorge: Driven by 14% growth in security software and services and 20% growth in digital agreements, partially offset by the expected decline in security hardware.
Jorge: Subscription revenue grew 32% to $36 1 million in the fourth quarter led by 49% growth in security solutions and 15% growth in digital agreements.
Jorge: This strong growth in security and subscription revenue was primarily driven by expansion contracts with existing customers for authentication and transaction signing solutions, including an increase in multiyear term license deals from existing customers.
Jorge: And to a lesser extent the improvement in on time renewals versus the prior year.
Jorge: For the full year 2020 for subscription revenue grew 31% to $139 4 million led by a 33% growth in security solutions, and 28% growth in digital agreements maintenance and support and professional services and other revenues decline in the <unk>.
Jorge: Fourth quarter and for the full year 2024 by the side, primarily due to our transition to SaaS and term software licenses overtime fourth quarter gross margin was 74% compared to 69, 1% in the prior year quarter.
Jorge: For the full year 2024, gross margin was 71, 8% compared to 67, 1% in the prior year period.
Jorge: 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 8 million compare to $1 8 million in the fourth quarter.
Jorge: Of last year.
Jorge: The strong year over year increase was primarily driven by an increase in gross margin and gross profit dollars due to the favorable product mix just discussed a decrease in operating expenses, primarily from lower head count and vendor related cost and lower restructuring costs full year 2020 for gas.
Jorge: GAAP operating income was $44 8 million compared to an operating loss of $28 9 million for the full year 2023.
Jorge: 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.
Jorge: GAAP net income per share was <unk> 72 in the fourth quarter of 2024.
Jorge: This compares to GAAP net income of one <unk> in the fourth quarter of 2023.
Jorge: GAAP net income per share was $1 46.
Jorge: For full year 2024, as compared to a GAAP net loss per share of <unk> 74 for the full year 2023.
Jorge: Fourth quarter on a full year of 2024 GAAP net income per share included income tax benefits up 50 850.
Jorge: <unk> nine respectively related to the release of the valuation allowance the sunsetting and liquidation of our deal flow a 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.
Jorge: Benefits, Jeff mentioned long term incentive compensation amortization restructuring charges other nonrecurring items and the impact of tax benefits was 24 <unk> in the fourth quarter of 2024 and $1 32 for the full year of 2024.
Jorge: This compares to a non-GAAP earnings per share up 19 in the fourth quarter of 2023, and one <unk> for the full year 2023, respectively.
Jorge: Fourth quarter, adjusted EBITDA, and adjusted EBITDA margin was $19 8 million and 32, 4% as compared to $11 2 million and 17, 7% in the same period of last year, respectively.
Jorge: Full year of 2020 for adjusted EBITDA, and adjusted EBITDA margin was $72 $5 million, and 29, 8% compared to $12 million and five 1% in the prior year.
Jorge: Turning to our security solutions business unit.
Jorge: <unk> grew 6% in the fourth quarter to $107 million.
Jorge: Our growth was negatively impacted by approximately one five percentage points towards the relocation of identity verification products to our digital agreements business unit at the beginning of the year.
Jorge: In addition, a headwind related to end of life products was negligible in the quarter and approximately $2 million for the full year of 2024.
Jorge: Fourth quarter and full year 2020 for security to revenue declined 6% to $45 5 million and 1% to $182 2 million.
Jorge: Actively primarily due to the expected decline in hardware revenues.
Jorge: Hardware revenues declined 36% to $14 4 million in the quarter and 23% to $58 9 million for the year.
Jorge: Security subscription revenue increased 49% to $29 million in the fourth quarter and 33% to $80 6 million for the full year 2024, primarily driven by expansion of licenses from existing customers are software based authentication products.
Jorge: Partially offset by the sunsetting of our deal flow solution.
Jorge: Q4, 2024 gross profit margin was 75% as compared to 67% in the same period last year.
Jorge: The increase in margin is primarily attributable to an increase in subscription revenues and favorable product mix and customer mix.
Jorge: Curious solutions operating income in the fourth quarter was $23 3 million or 51% of revenues compared to $24 million or 42% of revenues in Q4 2023.
Jorge: This strong increase in gross profit margin combined with lower operating expenses, primarily attributed to restructuring and other cost reduction activities throughout the majority of the improved performance now turning to digital agreements AOR grew 12% to $61 million AOR growth.
Jorge: <unk> by approximately three percentage points due to the relocation of identity verification products to this business unit at the beginning of 2024.
Jorge: AUR headwind related to end of life product was minimal.
Jorge: $1 million in the fourth quarter and approximately $3 million for the full year 2024.
Jorge: <unk> fourth quarter and full year, 2024 revenue grew 8% and 20% to $15 7 million and $61 million, respectively as compared to the same periods in 2023 the.
Jorge: The increase in revenue for both periods was primarily driven by new contracts and expansion of renewal contracts and to a lesser extent the relocation of identity verification products, partially offset by a reduction in maintenance revenue related to the sunsetting of our own premise esignature product.
Jorge: Subscription revenue grew 15% in Q4 and 28% for the full year 2024 to $15 2 million and $58 8 million respectively.
Jorge: Fourth quarter gross profit margin was 70% as compared to 75% in the prior year quarter.
Jorge: The year over year change was primarily driven by higher cloud platform costs. As a result of increased esignature 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.
Jorge: Was $2 6 million or 17% of revenue as compared to an operating loss of $1 7 million or 5% of revenue in the year ago quarter.
Jorge: 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.
Jorge: We ended the fourth quarter of 2024 with $83 2 million in cash and cash equivalents compared to $42 5 million at the end of 2023 with.
Jorge: We generated $56 million in cash from operations during 2024 and used $9 million in capital expenditures, primarily capitalized software costs, we have no long term debt.
Jorge: Geographically our revenue mix by region in the fourth quarter of 2024 was 48% for EMEA.
Jorge: 36% from the Americas, and 16% from Asia Pacific.
Jorge: This compares to 49%, 34% and 17% from the same ranges in the fourth quarter of last year, respectively.
Jorge: For the full year of 2024, the revenue mix by region was 44% from EMEA.
Jorge: 36% from the Americas, and 20% from Asia Pacific compared to 47%, 34% and 19% from the same regions in 2023, respectively. I will now provide an update to our financial outlook for the full year 2025, we expect.
Jorge: Digital subscription revenue growth.
Jorge: We expect certain perpetual maintenance contracts in our securities segment to transition to off 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.
Jorge: Generation and enable us to return capital to shareholders via quarterly cash dividends are potentially other methods as part of our balanced capital allocation strategy.
Jorge: Full year 2025, we expect.
Jorge: Revenue to be in the range of $245 million to $251 million.
Jorge: <unk> to be in the range of $180 million to $186 million.
Jorge: And adjusted EBITDA to be in the range of $72 million to $76 million.
Jorge: That concludes my remarks Victor.
Victor: Thank you Jorge.
Victor: I want to conclude todays remarks by first thanking the entire <unk> team for delivering a very strong quarter and full year.
Victor: 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.
Victor: We remain committed to delivering value to our customers and to returning value to our shareholders by growing revenue efficiently and profitably.
Victor: We will continue to focus on driving higher margin software revenue and remain committed to driving towards achieving a rule of 40 performance level.
Victor: Jorge and I now will be happy to take your questions.
Victor: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Victor: To withdraw your question. Please press star one on one and Ken.
Victor: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Gray Powell of <unk>. Your line is now open.
Gray Powell: Okay, great. Thanks for taking the question just had a.
Speaker Change: Two or three of them on my side.
Gray Powell: So maybe just kind of.
Gray Powell: Looking back at the last year.
Gray Powell: It looks like your results came in at the high end of your initial guidance.
Gray Powell: 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.
Gray Powell: Where do you think you have the most potential to surprise on the upside if it plays out well in 2025.
Gray Powell: Yes, thanks for the question so.
Gray Powell: We're in a tremendously better shape than we were 12 months ago.
Gray Powell: We were able to get the cost structure of this company in the right spot, where we can generate increased profits as we as we grow revenue.
Gray Powell: There's a couple of things to consider first on the security side.
Gray Powell: 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.
Gray Powell: <unk> software and we can offer multiple use cases across logging 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.
Gray Powell: Ann.
Ann: And we were continuing to invest in digital agreements, but we're going to layer in.
Ann: Additional growth opportunities, we think unsecured.
Ann: So if we look at our.
Ann: At our 2025.
Ann: One of the things when we set the guidance when we look ahead for the year. We were we're doing our budget planning in November and heading into December one of the things we saw.
Ann: Is that the the euro dollar exchange rate shifted quite a bit so one of the things we kept in mind as we were getting set too.
Ann: To tell you how we thought we were going to do for 2025.
Ann: Is that that shift.
Cause us to be a little bit more cautious maybe then than we would've otherwise been so if you look at our business about 40% of our business of our revenue is in euros.
Ann: And we are 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.
Ann: Between $101 10, $1 11 versus 104 105 is about 5 million Bucks. 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're looking at it we're not intending to get into a.
Ann: Our constant currency type analysis, but just I'm, just bringing it up to highlight one of the reasons.
Ann: That we kind of steered towards being prudent in the revenue guidance for 2005.
Speaker Change: Okay. That's helpful. And then maybe a follow up question. So I think I'm, having a little bit of trouble reconciling the AOR guidance in fiscal 'twenty, five which is pretty good at about 10% growth.
Speaker Change: Versus the total revenue guide at only 2% your FX comments help I guess.
Speaker Change: And I know theres not like a direct translation between <unk> and revenue, but I mean does your does your outlook imply that hardware or nonrecurring revenues.
Speaker Change: <unk> declined by 20% or something in 2025 or is there something else going on that potential investment, yes all of them.
Speaker Change: I can 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 has not been a one year.
Speaker Change: Trend, it's been something thats been going to recur for a long time, we've been successful just to be clear and transitioning.
Speaker Change: A lot of that revenue from hardware into software.
Speaker Change: It's a software authentication, but we're definitely.
Speaker Change: 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 all of that will magically turnaround because.
Speaker Change: Because of the calendar flips over from 2425 for I don't know if you want to add additional color.
Speaker Change: So Greg the other thing to consider about that aspect is.
Speaker Change: The the way revenue is recognized toward turn, particularly multi multiyear term licenses on the security software, Brian. So you would have a higher benefit.
Speaker Change: On the revenues.
Speaker Change: The IRR is.
Speaker Change: You only have obviously one year right, but also yes.
Speaker Change: Sorry go ahead or are you going to prevail.
Speaker Change: Yes, I got it understood. So so.
Speaker Change: To this point, we do factor in a little bit of a decline on the.
Speaker Change: On the hardware side, the other thing to balance as well.
Speaker Change: We do have a little bit of end of life going through from a revenue perspective, Greg that is higher than <unk> and.
Speaker Change: And that is because particularly on my guess is probably half and half with the security and NPA are mainly going.
Speaker Change: Going into 2025, where we did recognize.
Speaker Change: Graham and maintenance revenue in the first call. It half of 2024, the <unk> not going to see in 2025, and so those contracts and so the impact was already taken in 2024, but then youre going to see more of that revenue hit in 2025.
Speaker Change: When you look at comparable lease so thats another factor to consider.
Speaker Change: But I think overall to Rick's point, we were trying to be balanced when it came down to the revenue guidance.
Speaker Change: All of these you have to have the.
Speaker Change: Puts and takes on the multiyear the hardware the FX portion of that Vic mentioned, but and then at the end of <unk> that I just mentioned.
Speaker Change: But also keep in mind, we still we still expect to have double digit growth on the subscription revenue for both business units.
Speaker Change: Understood. Okay. Thank you very much.
Speaker Change: Thank you thank you Greg.
Speaker Change: Our next question comes from the line of Catherine <unk> of Rosenblatt Securities. Your line is now open.
Catherine <unk>: So thank you for taking my question can you put some.
Catherine <unk>: Color around where you are in your product roadmap I know last summer there are some interesting products that you're coming out with the new partnerships.
Catherine <unk>: Second part of the question as you were looking to expand your echo system and where are you on that thank you.
Catherine <unk>: Yeah. Thanks, Catherine I mean, both of those things are.
Catherine <unk>: Our ongoing I would say.
Catherine <unk>: We have expanded our ecosystem in terms of our channel development.
Catherine <unk>: And some of this those two things are related so the fido to tokens have application in the workhorse authentication market and Thats a market we want to reach through channel partners, we don't want to.
Catherine <unk>: And I don't think it would be feasible for us to hire enough direct salespeople to try to contact every possible.
Catherine <unk>: Company that might use.
Catherine <unk>: Hardware tokens for workhorse authentication, so we're going to do that through channel partners.
Catherine <unk>: We're continuing to develop that in.
Catherine <unk>: It takes that's not something where you flip the light switch and all of this.
Catherine <unk>: Suddenly you have.
Catherine <unk>: Dozens of channel partners that are hugely productive, it's an ongoing process, but we're making progress on it.
Speaker Change: All right and then the final. One question is you did say that there was some deceleration again in the security hardware correct I did hear that right.
Speaker Change: Is it similar for modeling purposes. It similar to what we saw in 2024 and I'll cede the floor then for someone else.
Speaker Change: Yes, sure I mean, Jorge I don't want to talk on the specifics, but we have we have planned.
Speaker Change: For additional.
Speaker Change: Decline in the traditional hardware consumer banking hardware authentication business, yeah. So I cannot back on Tuesday, So Katherine thanks for the question. So I think when you look at historically over the last.
Speaker Change: Say a decade or so.
Speaker Change: Hardware revenue has been going down about eight or so percent year over year.
Speaker Change: When you look at it from a from that's been put on average for that time period and so we.
Speaker Change: Factors some similar decline in 2025, and Thats part of our guidance.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Anya <unk> of Sidoti. Your line is now open.
Anya: Hello, and thank you for taking my question.
Speaker Change: Congrats on the nice progress.
Anya: Hum.
Anya: Thank you.
Anya: New business net new logos.
Anya: No.
Anya: Like what does estimate may be coming from <unk>.
Anya: Ending with existing cash.
Anya: The next Bill Palestinian logo.
Anya: The funding plan.
Anya: Yeah, so with respect to new logos I think if you look at the growth of the business. There is more new logo growth historically on the da side than on the security side.
Anya: We do see an opportunity in the workforce space to be adding new logos on the.
Anya: Consumer banking authentication, our retail banking authentication, whether it be software.
Anya: Or hardware, that's an area, where I think the customers move switch vendors a whole lot more slowly so.
Anya: It's proportionately harder to get new logos there. It also benefits us because we have a lot of the banks so.
Anya: Our retention rates are good as well.
Anya: But the two areas where that we can expect to see.
Anya: Better new logo performance I think would be in the digital agreement space and then also through channel partners.
Speaker Change: Okay. Thank you and it does not.
Anya: Inorganic.
Anya: Again looking man.
Anya: Bob.
Anya: And on.
Anya: How the market will come along.
Anya: Yeah.
Anya: It's something we <unk>.
Anya: Alluded to I think in the prepared remarks, it's something that we'll certainly consider I would I would.
Anya: The right phrase to think of this as targeted M&A, it's much more likely that we would do something where there is some good or interesting technology that we could sell to our customers and we have thousands of customers and if we can find something valuable for them.
Anya: I think that makes it potentially make sense for us rather than.
Anya: Trying to buy revenue.
Anya: That's unlikely to be something that we're going to.
Anya: Be aiming for so it's more or less going to be targeted.
Anya: That's kind of Super large scale.
Anya: Okay. Thank you that was.
Anya: Hmm.
Anya: Thank you. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Rudy Kessinger da Davidson. Your line is now open.
Andreas: Hi, This is Andreas before really thank you for taking my questions.
Speaker Change: Just a couple ones.
Speaker Change: In terms of your fiscal 'twenty guidance could you maybe expand a little bit on your net retention rates of new low expectations embedded in that.
Speaker Change: Any extra color on it because you guys have been doing well on the new logo side any of those mentioned.
Speaker Change: So any expectations moving forward.
Speaker Change: 25.
Speaker Change: Yes, I can I can answer that that's where the question. So when you look at our NRI number historically they've been operated operating in a tight band of two 1% was 6% to 108, obviously.
Speaker Change: Some of the quarters. This year you could see some.
Speaker Change: Noise I would say.
Speaker Change: Because a couple of things one is the end of life.
Speaker Change: Introduces some noise there, but I think for 2025, you would expect to us to be within the same type of Guy one of six went away it all defense on.
Speaker Change: Some of these.
Speaker Change: Like I said, it, particularly the VA side.
Speaker Change: Under a larger deal than you will see that a little uptick.
Speaker Change: For the full year, we're going to be within that band and so when you have as well as I mentioned in 2025, a little bit of an <unk> impact in there but that.
Speaker Change: That would be.
Speaker Change: No.
Speaker Change: We'll have within the same guy that I said $1 six 108 that will be the guide.
Speaker Change: Thank you.
Speaker Change: Obviously, you guys have been doing great with free cash flow.
Speaker Change: I know you guys are not guiding into it but maybe maybe could you talk about your expectations moving forward like building on the momentum on cash flow generation.
Speaker Change: Yes.
Speaker Change: 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 2020 through 2024 is really really a remarkable.
Speaker Change: For 2025, we expect modest increases in it I also consider address that we're going to be investing as Vic mentioned in our security software business.
Speaker Change: Both on the product side as well as deliver on the channel and so taking that into account I would say modest improvement in the cash flow generation and also the <unk>.
Speaker Change: Free cash flow conversion.
Speaker Change: For either revenue or adjusted EBITDA compared to 2024.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Im showing no further questions at this time I would now like to turn it back to Joe Maxa for closing remarks.
Speaker Change: Thank you everyone for joining us today, we do appreciate your time.
Joe Maxa: Have a nice day.
Joe Maxa: Thank you for your participation in today's conference. This does conclude the program you may now.
Joe Maxa: Disconnect.
Operator: Participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. 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: Thank you, operator. Hello, everyone, thank you for joining the OneSpan Q4 and Full Year 2024 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 Limongelli, our Chief Executive Officer, and Jorge Martell, our Chief Financial Officer. This afternoon, after market close, OneSpan issued a press release announcing results for our Q4 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.
Joe Maxa: 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 US 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 27 February 2025.
Joe Maxa: 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 Limongelli: 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 Q4 and for full year 2024. Q4 adjusted EBITDA was $20 million, or 32% of revenue, and both business units were again profitable on a fully burdened basis. Full year adjusted EBITDA was $73 million, or 30% of revenue. ARR grew 8.5% to $168 million, 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.
Victor Limongelli: Software 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 revenue declined 3% in Q4 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 million in cash from operations in Q4 and $56 million for the year, which is a significant improvement from the prior year. Last year, we generated $3 million in cash during Q4 and used $11 million in cash for the year.
Victor Limongelli: As of 31 December, we had $83 million in cash on hand, an increase of $40 million 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, 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, 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.
Victor Limongelli: 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&D team, which resulted in increased operating efficiencies and which were reflected in our higher gross margins. 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.
Victor Limongelli: 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.
Victor Limongelli: 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&D effort. Finally, as you are probably aware, 2 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 Q1 results. Payment of that dividend is expected to occur in the Q2 of 2025.
Victor Limongelli: Bear in mind that even after paying the quarterly dividend, we expect to be generating additional cash. 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&A. With that, I will turn the call over to Jorge. Jorge?
Jorge Martell: Thank you, Victor. Good afternoon, everyone. I am pleased that we reported another strong quarter and full-year results. ARR grew 8.5% in 2024 to $168 million, 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. Q4 2024 revenue was $61.2 million, 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%.
Jorge Martell: For the full year 2024, revenue grew 3% to $243.2 million, 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 $36.1 million in Q4, 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 signing 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 $139.4 million, led by 33% growth in security solutions and 28% growth in digital agreements.
Jorge Martell: Maintenance and support and professional services and other revenues declined in Q4 and for the full year 2024 by the same, primarily due to our transition to SaaS and term software licenses over time. Q4 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 security segment, including an increase in software and a decrease in hardware revenues. Q4 GAAP operating income was $11.8 million, compared to $1.8 million in Q4 of last year.
Jorge Martell: The strong year-over-year increase was primarily driven by an increase in gross margin and gross profit dollars due to 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 $44.8 million, compared to an operating loss of $28.9 million 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 Q4 2024. This compares to GAAP net income of $0.01 in Q4 2023. 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.
Jorge Martell: Q4 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 Dealflo subsidiary, and the transfer of our security intellectual property from Switzerland to the US 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-reoccurring items, and the impact of tax benefits, was $0.24 in Q4 2024 and $1.32 for the full year 2024. This compares to a non-GAAP earnings per share of $0.19 in Q4 2023 and $0.01 for the full year 2023 respectively.
Jorge Martell: Q4 adjusted EBITDA and adjusted EBITDA margin was $19.8 million and 32.4% as compared to $11.2 million and 17.7% in the same period of last year, respectively. Full year 2024 adjusted EBITDA and adjusted EBITDA margin was $72.5 million and 29.8%, compared to $12 million and 5.1% in the prior year. Turning to our Security Solutions Business Unit, ARR grew 6% in Q4 to $107 million. ARR growth was negatively impacted by approximately 1.5 percentage points due to 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 million for the full year 2024.
Jorge Martell: Q4 and full year 2024 security revenue declined 6% to $45.5 million and 1% to $182.2 million respectively, primarily due to the expected decline in hardware revenues. Hardware revenues declined 36% to $14.4 million in the quarter and 23% to $58.9 million for the year. Security subscription revenue increased 49% to $20.9 million in Q4 and 33% to $80.6 million 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 Dealflo solution. Q4 2024 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.
Jorge Martell: Security Solutions operating income in Q4 was $23.3 million, or 51% of revenues, compared to $20.4 million, or 42% of revenues in Q4 2023. 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. Turning to Digital Agreements. ARR grew 12% to $61 million. ARR growth benefited by approximately 3 percentage points due to the relocation of identity verification products to this business unit at the beginning of 2024. ARR headwind related to end-of-life product was minimal, at $0.1 million in Q4 and approximately $3 million for the full year 2024. Q4 and full year 2024 revenue grew 8% and 20% to $15.7 million and $61 million respectively, as compared to the same periods in 2023.
Jorge Martell: The increase in revenue for both periods was primarily driven by new contracts and expansion of renewal contracts, and to a 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 $15.2 million and $58.8 million respectively. Q4 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 $2.6 million, or 17% of revenue, as compared to an operating loss of $0.7 million, or 5% of revenue, in the year ago quarter.
Jorge Martell: 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 Q4 of 2024 with $83.2 million in cash and cash equivalents, compared to $42.5 million at the end of 2023. We generated $56 million in cash from operations during 2024 and used $9 million in capital expenditures, primarily capitalized software costs. We have no long-term debt. Geographically, our revenue mix by region in the Q4 of 2024 was 48% for EMEA, 36% from the Americas, and 16% from Asia Pacific. This compares to 49%, 34%, and 17% from the same regions in the Q4 of last year respectively.
Jorge Martell: For the full year 2024, the revenue mix by region was 44% from EMEA, 36% from the Americas, and 20% from Asia Pacific, compared to 47%, 34%, and 19% 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.
Jorge Martell: For the full year 2025, we expect revenue to be in the range of $245 to 251 million, ARR to be in the range of $180 to 186 million, and adjusted EBITDA to be in the range of $72 to 76 million. That concludes my remarks. Victor?
Victor Limongelli: 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.
Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Gray Powell of BTIG. Your line is now open.
Gray Powell: Okay, great. Thanks for taking the question. Just had 2 or 3 on my side. 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.
Gray Powell: You basically hit the midpoint on revenue, then you substantially exceeded on EBITDA, like well above what I think anyone was expecting. I guess my question is, how do you feel about things today versus a year ago? Where do you think you have the most potential surprise on the upside if it plays out well in 2025?
Victor Limongelli: Thanks for the question. We're in a tremendously better shape than we were 12 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 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. 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.
Victor Limongelli: We're continuing to invest in digital agreements, but we're going to layer in additional growth opportunities we think on security. If we look at our 2025, one of the things when we set the guidance, when we looked 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. 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. If you look at our business, about 40% of our business, of our revenue is in euros.
Victor Limongelli: We're naturally hedged as a company because we have a couple hundred employees in Europe. This isn't really an EBITDA side of the ledger. On the revenue side, the difference between $1.10, $1.11 versus $1.04 or $1.05 is about $5 million. It's a couple points of growth there. 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 I'm just bringing it up to highlight one of the reasons that we kind of steered towards being prudent in the revenue guidance for 2025.
Gray Powell: Okay. That's helpful. Then, maybe a follow-up question. I think I'm having a little bit of trouble reconciling the ARR guidance for fiscal 2025, 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? Is there something else going on that I'm potentially missing?
Victor Limongelli: Yeah. 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. 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'll magically turn around because the calendar flips over from 2024 to 2025. Jorge, I don't know if you want to add additional color.
Jorge Martell: Yeah. 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, Greg. You would have a higher benefit on the revenue. The ARR is, you only have obviously 1 year, right?
Gray Powell: Yep
Jorge Martell: sorry, go ahead. Were you going to ask something else?
Gray Powell: No, I just said yes. I got it. Understood.
Jorge Martell: To this point, we do factor 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, Greg, that is higher than ARR. That is because, particularly on, I guess it's 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 H1 2024 that you're not going to see in 2025. Those contracts ended. The ARR impact was already taken in 2024. You're going to see more of that revenue hit in 2025 when you look at comparably. That's another factor to consider.
Jorge Martell: I think overall, to this point, we were trying to be balanced when it came down to the revenue guidance. You have the pull temptation on the multi-year, the hardware, the FX exposure that Vic mentioned, and then the end-of-life that I just mentioned. Also keep in mind, we still expect to have double-digit growth on the subscription revenue for both business units.
[Analyst] (D.A. Davidson): Understood. Okay. Thank you very much.
Operator: Thank you.
Victor Limongelli: Thank you, Brad.
Operator: Our next question comes from the line of Catharine Trebnick of Rosenblatt Securities. Your line is now open.
Catharine Trebnick: 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. The second part of the question is, you were looking to expand your ecosystem and where are you on that? Thank you.
Victor Limongelli: Yeah. Thanks, Katherine. Both of those things are ongoing, I would say. We have expanded our ecosystem in terms of our channel development. Those two things are related. 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. We're going to do that through channel partners, and we're continuing to develop that. That's not something where you flip a 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.
Catharine Trebnick: All right. The follow-on question is, you did say that there was some deceleration again in the security hardware, correct? I did hear that right. For modeling purposes, is it similar to what we saw in 2024? I'll cede the floor then for someone else.
Victor Limongelli: Yeah, sure. Jorge, I don't know if you want to talk on the specifics, but we have planned for additional decline in the traditional consumer banking hardware authentication business.
Jorge Martell: Yeah. I can add onto this. Catharine, thanks for the question. 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. We factor some similar decline in 2025, and that's part of our guidance.
Catharine Trebnick: All right. Thank you.
Victor Limongelli: Thank you.
Operator: Thank you. Our next question comes from the line of Anja Soderstrom of Sidoti. Your line is now open.
Anja Soderstrom: Hi, thank you for taking my questions, and congrats on the nice progress here.
Victor Limongelli: Thank you.
Anja Soderstrom: In terms of new logos, it seems like the growth has mainly been coming from expanding with existing customers, but how is the new logo trending for you?
Victor Limongelli: With respect to new logos, I think if you look at the growth of the business, there is 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 switch vendors a lot more slowly. It's proportionately harder to get new logos there. It also benefits us because we have a lot of the banks. Our retention rates are good as well. The two areas where 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: Okay. Thank you. In terms of the 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 Limongelli: Yeah. It's something we alluded to, I think, in the prepared remarks. It's something that we'll certainly consider. I think the right phrase to think of is targeted M&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. We have thousands of customers, and if we can find something valuable for them, I think that 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. It's more likely to be targeted than super large scale.
Anja Soderstrom: Okay. Thank you. That was helpful.
Victor Limongelli: Thank you.
Jorge Martell: Thank you.
Operator: Thank you. Our next question comes from the line of Rudy Kessinger, D.A. Davidson. Your line is now open.
[Analyst] (D.A. Davidson): Hi, this is Andres for Rudy. Thank you for taking my questions. Just a couple ones. In terms of your fiscal 2025 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 just mentioned that. Any expectations moving forward for 2025?
Jorge Martell: Yeah, I can answer that. Thanks for the question. 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 things. One is the end-of-life, obviously, it introduces some noise there. I think for 2025, you would expect us to be within the same tight guide, 106, 108. It all depends on some of these, like I said, particularly the DA side. If we 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. We do have as well, as I mentioned, in 2025, a little bit of end-of-life impacting there.
Jorge Martell: We'll land within the same guide, like I said, $106, $108. That will be the guide, Andres.
[Analyst] (D.A. Davidson): Thank you. 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 Martell: Yeah. 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. The dramatic change you saw from 2023 to 2024 is really remarkable. For 2025, we expect modest increases in it. Also consider, Andres, that we're going to be investing, as Vic mentioned, in our security software business, on both the product side as well as delivering on the channel. 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.
[Analyst] (D.A. Davidson): Thank you.
Jorge Martell: Thank you.
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: Thank you, everyone, for joining us today. We do appreciate your time. Have a nice day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.