Good day, and thank you for standing by. Welcome to the OneSpan Third Quarter 2025 Earnings Conference Call. 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.

Thank you, operator. Hello, everyone, and thank you for joining the OneSpan Third Quarter 2025 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 closed, OneSpan issued a press release announcing results for our third quarter 2025. To access a copy of the press release and other investor information, please visit our website. Following our prepared comments today, we will open the call for questions. Please note that statements made during this conference call that relate to future plans, events or performance, including the outlook for full year 2025 and other long-term financial targets are forward-looking statements. These statements involve risks and uncertainties and are based on current assumptions. Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. I direct your attention to today's press release and the company's filings with the U.S. Securities and Exchange Commission for a discussion of such risks and uncertainties. Also note that certain financial measures that may be discussed on this call are expressed on a non-GAAP basis and have been adjusted from a related GAAP financial measure. We have provided an explanation for and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings press release and in the investor presentation available on our website. In addition, please note that all growth rates discussed on this call refer to a year-over-year basis unless otherwise indicated. The date of this conference call is October 30, 2025. Any forward-looking statements and related assumptions are made as of this date. Except as required by law, we undertake no obligation to update these statements as a result of new information or future events or for any other reason. I will now turn the call over to Victor.

Thank you, Joe. Hello, everyone, and thank you for joining us today. Before turning to our results, I'd like to recap our progress in the transformation of OneSpan. 2024 was about fixing the cost structure of the business, ensuring that we could operate both business units in a profitable manner. The OneSpan team did a great job working through those challenges, and we entered this year in a much-improved operating position. In fact, that improved operating position will enable us to return about $25 million to shareholders between dividends and buybacks by the end of this year. And in addition, we also completed an acquisition and made a strategic investment, all funded by cash generated by the business. In 2025, as we have discussed previously, has been about putting the pieces in place while continuing to operate with strong profitability to enable growth. It has been a remarkable year in that respect. Indeed, today, we announced that our software business, now over 80% of the overall business, delivered double-digit subscription revenue growth and ARR growth. Turning to the specific components that we've been putting in place to drive growth. First, right before the year started, we hired a new CTO, Ashish Jain, to lead our R&D efforts and improve our internal development efforts. Second, in June, we acquired Nok Nok, bringing the best FIDO2 software product called S3 to our portfolio. I'm happy to report that in the first 4 months since the acquisition, we've already closed 2 new logos for S3, both in the low 6-figure range, and we have built additional pipeline for Q4. We believe that there is a large opportunity in the coming years for S3 as FIDO2 becomes more widely adopted. Initially, we see the U.S. and Japan as the leading markets for FIDO2, but over the coming years, we expect Passkeys to become the standard around the world. Third, in October, we announced a strategic investment in and partnership with ThreatFabric to further enhance our value proposition to customers by offering mobile threat intelligence and fraud risk insights. We are in the midst of sales enablement so that our team can effectively sell the ThreatFabric products and are optimistic that those products will add to growth in 2026. Finally, you should not in any way consider OneSpan to be finished in our efforts to improve the value that we provide to customers, and hence, our growth prospects as a business. We are working on additional initiatives. While there might not be announcements each and every quarter, we will never be done improving our value proposition to customers, whether through internal development, through acquisitions or through strategic partnerships. And we expect these efforts to drive growth, particularly in our software business as we continue to work towards achieving a Rule of 40 performance. Turning to our results. I'm pleased with the team's efficiency, which drove another strong quarter of profitability and cash generation, including $17.5 million of adjusted EBITDA or 31% of revenue and $11 million in cash from operations. I'm especially proud that over the first 9 months of the year, we generated record adjusted EBITDA of $58 million, representing 32% of revenue and $47 million in cash from operations. We ended the quarter with annual recurring revenue of $180 million, up 10% year-over-year. In regards to revenue, we have seen strong bookings in certain regions, including our security business in North America, our Latin America business and the southern portion of our EMEA region. I'm also heartened by the progress in APAC. And our DA business grew subscription revenue by double digits. And as I mentioned a few minutes ago, we're encouraged by the progress we've seen with our new S3 product acquired as part of the Nok Nok deal. With respect to hardware, as we have discussed many times, there has been a long-term secular shift away from consumer banking tokens to the point that in the first 9 months of the year, hardware was less than 20% of our overall business. That trend is part of what drives us to broaden and strengthen our product offerings. In the quarter, total revenue grew 1% to $57 million, driven by double-digit organic subscription revenue growth. This growth was primarily offset by a reduction in security hardware revenue due to the shift described earlier in consumer banking strategies in EMEA and APAC, where banks continue adopting mobile-first authentication approaches. Subscription revenue grew 12%, led by 13% growth in security and 11% growth in digital agreements. The increase in security subscription revenue was driven by both cloud and on-prem authentication software, along with mobile app shielding software. Both business units remained solidly profitable at the segment level, with digital agreements delivering record high segment operating income. Security absorbed a modest cost impact from the Nok Nok business in Q3, although we expect it to be accretive to Security's operating income in Q4. As I mentioned earlier, we continue to generate significant cash from operations, $47 million in the first 9 months of the year, and we ended the third quarter with $86 million in cash on hand. In Q3, we used $6 million to repurchase shares of our common stock and combined with our quarterly dividend payments, we returned more than $20 million to shareholders in the first 9 months of 2025. We also used cash to make the strategic acquisition of Nok Nok and after the third quarter ended, to obtain a 15% equity stake in ThreatFabric. Our investment in ThreatFabric as well as our acquisition of Nok Nok in Q2 and our internal development efforts are designed to enhance our product portfolio and move faster to deliver great products that provide additional value to our customers. To that end, we will continue investing in internal R&D and pursuing targeted technology-driven investments with proven market fit to enhance our product portfolio. Our Board remains committed to a balanced capital allocation strategy weighing shareholder returns, organic investments and targeted M&A. Accordingly, the Board will consider additional share repurchases and has approved another $0.12 per share dividend to be paid in the current quarter. In summary, we're making solid progress in building the foundation for growth in our journey towards achieving Rule of 40 performance. At the same time, we remain committed to driving efficient revenue growth while maintaining strong profitability and cash generation and returning capital to shareholders. With that, I'll turn the call over to Jorge.

Thank you, Victor, and good afternoon, everyone. I am pleased that we reported another strong quarter of adjusted EBITDA and cash generation and that we are making good progress in building our long-term growth foundation. Before I review our third quarter results, I want to remind you that our acquisition of Nok Nok Labs, which closed in June 2025, modestly contributed to our Q3 operating results this year, but did not contribute to the same period in 2024. ARR increased 10% to $180 million, and NRR, our net retention rate, increased sequentially to 103%. Third quarter revenue was $57.1 million, an increase of 1% compared to last year's Q3. Subscription revenue grew 12%, including 10% organically and was largely offset by the secular decline in our hardware token business, which is directly related to banks continuing with a mobile-first authentication approach and to a lesser extent, maintenance and professional services revenues. Third quarter gross margin was 74%, consistent with last year's Q3. GAAP operating income was $8.2 million compared to $11.3 million in Q3 of last year. The change in operating income primarily reflects an increase in operating expenses, including share-based compensation and other nonrecurring items, along with the expected dilution related to our acquisition of Nok Nok. As a reminder, we expect the acquisition of Nok Nok to be accretive to earnings in Q4 2025. GAAP net income per share was $0.17 as compared to $0.21 in the same period last year. Earlier this year, we made changes to our non-GAAP net income and non-GAAP net income per share reporting framework to better reflect our profitability trajectory and to ensure consistency across interim periods in 2025 and in future years. Please refer to our 2025 quarterly earnings releases and investor presentations for additional details. Non-GAAP earnings per share was $0.33 in both the third quarter of 2025 and 2024. This metric excludes long-term incentive compensation and related payroll taxes, amortization, restructuring charges, and other nonrecurring items and the impact of tax adjustments. Adjusted EBITDA and adjusted EBITDA margin was $17.5 million and 30.7% compared to $17 million and 30.2% in the same period of last year. Turning to our cybersecurity business. ARR increased 11% to $115.5 million. Revenue decreased 1% to $40.3 million. Subscription revenue grew 13%, driven by cloud and on-prem authentication software, including a modest contribution from Nok Nok and app shielding software. This growth was offset by the expected decline in hardware revenue and to a lesser extent, maintenance and professional services revenues. Subscription revenue primarily benefited from expansion of licenses and to a lesser extent, new logos, the acquisition of Nok Nok, and conversion of customer contracts to multiyear terms. Gross margin was 74.4%, similar to last year's third-quarter gross margin of 74.7%. The change in gross margin was primarily driven by product mix. Operating income was $16.7 million or 41% of revenue compared to $20.2 million or 49% of revenue in the prior year quarter. The year-over-year change primarily reflects increased operating expenses related to the Nok Nok acquisition, higher share-based compensation, and other nonrecurring expenses, such as advisory-related expenses. Turning to digital agreements. ARR grew 8% to $65 million. Revenue grew 9% to $16.7 million. New SaaS contracts, expansion of renewal contracts, and an increase in onetime revenue was partially offset by reduced maintenance revenue from the sunsetting of our on-prem e-signature product. Subscription revenue grew 11% year-over-year to $16.7 million. Maintenance and support revenue was negligible compared to $0.3 million in Q3 of last year. The year-over-year decline is attributed to the sunsetting of our on-premise e-signature solution. As mentioned previously, we have substantially completed the transition to a SaaS business model in our digital agreements business. Gross margin was 72%, consistent with last year's third quarter. Segment operating income was $4.2 million or 25% of revenue compared to $3.4 million or 22% of revenue in Q3 of last year. The year-over-year increase in operating income was driven by increased revenue. Now turning to our balance sheet. We ended the quarter with $85.6 million in cash and cash equivalents compared to $92.9 million at the end of Q2 and $83.2 million at the end of 2024. We generated $11 million in operating cash flow during the quarter. Uses of cash in the quarter included $6.3 million to repurchase approximately 450,000 shares of common stock, $4.7 million to pay our quarterly cash dividend, and $1.9 million deferred consideration payment related to our acquisition of Nok Nok among other items. We have no long-term debt as of the end of Q3 2025. Geographically, our revenue mix was 46% from the Americas, 38% from EMEA, and 17% from APAC. This compares to 39%, 40%, and 21%, respectively, in the third quarter of last year. The year-over-year changes by region were primarily driven by growth in the e-signature business and mobile application security in North America. The acquisition of Nok Nok in June 2025, which has its largest presence in North America, growth in hardware revenue in Latin America and a decline in hardware revenues in both Europe and Asia Pacific, consistent with mobile-first strength in those regions. Moving to some modeling notes on our financial outlook. We are very pleased with our Q3 profitability and cash generation and the progress we've made in positioning the company for long-term growth. As Victor mentioned, we are seeing strong bookings in most geographic regions, but have also seen challenges in some regions, largely due to the secular shift away from consumer banking hardware tokens. We are working hard to improve our sales momentum in all regions and believe the steps we have taken this year, combined with our continuous focus on improving the value proposition we provide to customers better positions us for stronger growth in future years. For the full year 2025, we are updating our revenue guidance to be in the range of $239 million to $241 million as compared to our previous guidance range of $245 million to $251 million. We expect software and services revenue to be in the range of $190 million to $192 million, representing an increase of between 3% and 4% in 2025. We also expect hardware revenue to be in the range of $49 million to $50 million, representing an approximately 16% decline from 2024. As Victor mentioned previously, OneSpan as a business is approximately 80% software and 20% hardware. We are updating our ARR guidance to be in the range of $183 million to $187 million, up from $180 million at the end of the third quarter and as compared to our previous guidance range of $186 million to $192 million. And we are maintaining our adjusted EBITDA guidance in the range of $72 million to $76 million. That concludes my remarks. I will now turn the call over to Victor.

Thanks, Jorge. To recap, we are making progress in strengthening our foundation for long-term growth while continuing to deliver strong profitability and cash generation and returning capital to shareholders. We are working hard to deliver greater value to our customers and to create value for our shareholders. Jorge and I will now be happy to take your questions.

Our first question comes from Anja Soderstrom with Sidoti.

I'm just curious, what do you think now compared to last quarter that leads you to scale back on the revenue and ARR guidance? If you can just double-click on that a bit more.

Okay. Anja, could you please repeat your question for me?

Can you elaborate on what you're seeing now compared to last quarter that leads you to scale back on the revenue and ARR guidance for the year?

Yes, I can start and then Vicky can add if needed. There are a few factors at play, Anja. Firstly, we experienced a bit more headwind in our hardware business, around a couple of million dollars. Additionally, we noticed decreased activity in our security business, particularly with net expansions and new client acquisitions, mainly in EMEA and APAC regions, with EMEA being more affected. It's crucial to understand our updated guidance, currently at about $240 million at the midpoint, which is slightly lower than last year, about 1% less. We need to reflect on the company's position today compared to 12 months ago. As Victor pointed out, we've made significant progress in establishing a foundation for growth, such as the Nok Nok acquisition, which greatly enhances our product portfolio, along with our strategic investment in ThreatFabric that we are very enthusiastic about. This year, we are focused on enhancing our software offerings, which now represent about 80% of our business. The hardware segment constitutes around 20%, and that could decrease in the upcoming quarters. Despite these changes, we expect to maintain strong cash flow generation and profitability. I wanted to convey that we're actively transforming our product capabilities. Although we’re revising our guidance partly due to hardware performance and some reductions in activity, we are viewing 2025 as a foundational year for our product capabilities. Vicky, do you have anything else to add?

Yes. I want to add to what Jorge mentioned. The details he provided are accurate. However, if I look at the business from my perspective since joining nearly 2 years ago, I see significant changes. Two years ago, roughly one-third of our revenue came from hardware, and now that figure is about 20%. We ended 2023 with an annual recurring revenue of $155 million, and our guidance midpoint for the last quarter suggests an ending of $185 million. A few years back, we hadn't introduced new product capabilities for some time, and in fact, we were discontinuing products. Therefore, it was crucial for us to establish a foundation for profitability, allowing us to invest back into the business while also returning capital to our shareholders. We have begun this process through acquisitions and strategic investments, as well as internally by hiring a new CTO and focusing on internal investments. This is part of our effort to transform the business. It’s important to note that the Nok Nok acquisition occurred in June, and our strategic investment in ThreatFabric was in October. We anticipate receiving some positive impact from Nok Nok soon, with greater benefits expected in the future, while ThreatFabric will largely come into play in 2026. We are also continuing to work on other initiatives to enhance the value we provide to our customers.

Okay. And then in terms of the hardware, do you see that being shifted out to the right? Or is it just a sort of a decline in demand overall?

If you speak to our customers from 10 to 12 years ago in EMEA and APAC, they often had all of their consumers using hardware tokens for authentication. When I was in Europe last month and spoke with eight banks, they indicated that roughly 20% of their customers are still using hardware. Most customers have transitioned to mobile authentication. Comparing our business now to a decade ago, the hardware segment has likely shrunk to about 20% of its former size. We believe this number won’t reach zero, as some individuals still prefer hardware. It may decline to around 15% or 12%, but it won't completely disappear. This has been a long-term trend, and it’s crucial for us to adapt accordingly, not only through our mobile authentication offerings launched a few years back but also by leveraging new protocols like FIDO, which we gained from our Nok Nok acquisition.

Okay. Regarding the margin, how should we approach that? It appears that despite having more hardware in the fourth quarter compared to last year’s fourth quarter, the gross margin is expected to be higher. How should we view the overall gross margin? Additionally, with the recent cost cuts, what are your expectations for growth in operating expenses in the coming years?

Yes, I can answer that, Anja. Thanks for the question. From a hardware perspective, I think revenue will likely remain even with last year. We mentioned this in the last call regarding the split. As for gross margin, it will probably be similar to last year's fourth quarter, putting the full year gross margin around 73%, slightly higher than last year's 72%. Regarding operating expenses, it's important to consider the Nok Nok acquisition, which will add about $2 million on a run rate basis year-over-year for the quarter. Additionally, we have made some incremental investments in R&D and other areas. I don't anticipate a dramatic sequential increase compared to Q3, but there may be a slight uptick because of this.

Our next question comes from the line of Catharine Trebnick with Rosenblatt Securities.

Can you just in a snapshot, your product roadmap where you feel that the deficiencies, these headwinds that you've been experiencing, just really what are the 2 or 3 products you think in the next 12 to 24 months are going to make up for this gap we've been having?

Yes, let me address that. I wouldn't label it as a deficiency. We have excellent mobile authentication technology. Multifactor authentication has been established for quite some time, and many people are accustomed to receiving an SMS or text message in the U.S. Alternatively, overseas, one-time passcodes are popular, although not typically via SMS. Multifactor authentication is widely recognized and adopted, and as Jorge pointed out, we hold a strong market share in that area. Our net revenue retention in security for the third quarter was approximately 101%, which reflects stability. However, technology evolves, and we're witnessing changes with the increased use of passkeys. With FIDO2, we anticipate broader adoption of passkeys in the coming years. It's essential for us to expand our offerings beyond just mobile authentication and the traditional hardware authentication that still serves some customers. We aim to support passkeys in a highly scalable manner, ensuring low latency, proven at scale with various clients. We believe this will present significant growth opportunities.

That was very helpful. And then anything you can add on digital agreements and what you're seeing there and how you expect the growth there to pan out in the next 12 months?

Yes. We've been doing quite well in that area. The growth has been in the mid- to upper single digits, and while it's October 30 and we can't be entirely certain about Q4, we feel optimistic about the Q4 pipeline. We believe there are opportunities not only to expand with existing customers but also to attract new ones. We'll be focusing on internal development, leveraging AI in our products more over the next 12 months. We see this as a key focus area moving forward, and we anticipate that our products will remain strong. We're continually striving for better results, and I believe we are making significant progress in the Digital Agreements business. Additionally, as Jorge highlighted, we achieved record operating income in this quarter, around 25%. When you consider that alongside the growth, the potential of this business becomes increasingly appealing.

The next question comes from the line of Erik Suppiger with B. Riley Securities.

First off, you're taking a lot of steps this year to start accelerating growth as you get into '26, and it's mostly on the software side. Can we assume that your subscription revenue growth in '26 should accelerate over '25 if we anticipate double-digit growth in '25, can it accelerate from there in '26?

Jorge, I don't know if you want to talk about the specifics, but that's absolutely our aim is to continue to improve the software business. I think software as a percentage of revenue, we're at 80% now, and it probably gets to, I don't know, 82% or 83% next year. Jorge, I don't know if you want to talk to any of the specifics on.

Yes, I would like to add that when considering the various elements of revenue for security, maintenance must be factored in along with other dynamics related to professional services. Maintenance may be somewhat inconsistent, but I believe that subscription security is a reasonable focus for assessment.

Okay. Good. Good. I know you don't have much exposure to federal, but any comments on federal and if the shutdown is giving you any pause?

We have a ton of exposure. Yes, go ahead, Jorge.

Sorry I would say, no, I think we're lucky in that sense, Erik, that we really haven't felt it. We have a little bit of exposure in our digital agreements business, but it has not been anything material at all, luckily, knock on wood. And so I think from that standpoint, the shutdown has been a nonevent for us.

Okay. And lastly, as a follow-up to Catharine's question, has there been any change or increased intensity in competition in the software authentication market for banks? Has there been any shift in that market?

No, I think if you actually look at our business, we've been doing quite well in North America. We started a North American security sales effort about 15 months ago, in July of 2024. However, that's historically been a small portion of our business. So while there has been good progress, it's from a small base. We're performing well there. We've mentioned on previous calls that the economic environment in Europe has been somewhat more challenging for us. Historically, that region has represented a significant part of our business, and I believe this has affected us to some extent, as the economy there has not been particularly strong.

Okay. But there hasn't been any specific change from a competitive perspective?

No. No. If anything, I think we're becoming more competitive as we add new capabilities. I've mentioned S3 a few times, but it has some large customers that we're going to start rolling out. And I think it overall helps our competitive position compared to 6 months ago.

In terms of the FIDO2 push, what progress have you made with your channel partners on that front?

I want to discuss the FIDO2 initiative and the S3 product. We've successfully acquired our first two new clients within four months of finalizing the deal, and we have more potential clients in the pipeline, including some from our channel partners. One of those new clients actually came through a channel partner. We believe this will be a crucial sales strategy leading into 2026. FIDO2 is an open protocol, allowing users to set up their own FIDO2 servers if they choose. However, the S3 product offers exceptional scalability, capable of supporting millions of users. As I mentioned earlier, it provides excellent performance in terms of latency, a user-friendly management console, and flexible deployment options. We are well-known for this versatility, allowing deployments in both cloud and on-premises setups, catering to customers who prefer either option. This flexibility makes our offering particularly attractive in the financial services sector, as some large banks still favor on-premises solutions.

Are those customers buying the tokens from you as well, the FIDO 2 tokens?

So the FIDO2 tokens, this is an interesting another area, right? So we started developing those internally. That was internal development. And we feel good about that business as we move forward. We have quite a bit of pipeline. We're expecting orders. We've gotten some orders already. And we expect that to be a more meaningful revenue contribution in 2026 than it is today. So if you think about consumer banking tokens, if that continues to decline, the FIDO2 security keys could perhaps offset some of the secular consumer banking token decline.

The next question comes from the line of Gray Powell with BTIG.

Okay. Great. Look, I only have one question, but I'm going to break it down into 27 parts. Is that okay?

Sure, Greg. Go ahead.

So really just 2 questions on my side. And you more or less hit on this. When a customer elects to not renew hardware tokens, I'm going to assume it creates an opportunity to upsell your mobile security suite. And then I'd just like to understand is that the case like is a direct shot? Or is there more of a jump ball situation where you have to send off that customer from other competitors?

It could be a competitive situation. Many customers have mentioned that around 20% of their users are still utilizing hardware. In fact, years ago, they had nearly 100% of their users on hardware, but now a significant portion has transitioned to mobile, especially among younger users and new accounts. Just five years back, about 40% of their users were on hardware, and that percentage has been decreasing over time. It's important to note that heavier usage still tends to be in the corporate banking sector, where around 50% of companies utilize hardware tokens. This is largely because corporate banking typically occurs on larger screens in front of computers rather than on mobile devices. The more mobile usage increases, the higher the likelihood of mobile authentication being adopted. Therefore, when we observe a bank reducing from 40% to 20% in consumer banking tokens, it isn't simply an easy transition. While there is an increased opportunity for mobile authentication licenses, we are not receiving as much revenue upfront from those as compared to hardware tokens.

Understood. That's helpful. And I guess maybe the bigger question for me personally is just on the ARR side. Can you talk about the visibility you have on late-stage deals and pipeline, just like the overall confidence level you have in the Q4 ARR guide, just because it does imply a decent uptick in the pace of net adds from what we've seen the last 4 or 5 quarters. And look, I know it's Q4, which is some seasonality. But any color there would be greatly appreciated.

Yes, I can start.

Jorge, would you like to discuss the model? I'm also ready to share insights on the outlook. Please, go ahead and begin.

From a model perspective, we take into account what is going to renew and the potential for expansion based on opportunities we see in the pipeline, along with insights from our sales leaders during our weekly calls. This process is essential in building our ARR forecast. We assess risks, including any potential slippage, and if a term falls out for more than 90 days, we remove it from ARR. It's an active discussion with sales leaders to understand potential risks and expansions, applicable to both business units and security agreements. Our forecasting approach is largely bottoms-up, especially for the current and next quarter. Execution is key to closing these deals. While not everything will go perfectly, we do have some visibility within the quarter. Unexpected wins, like the HDFC situation last quarter, can occur, but we also experience some contraction due to uncertainties from our sales leaders or clients. Overall, we maintain a fair amount of visibility within the quarter. Now, I'll hand it over to Vik to discuss the other component.

Yes, we feel quite confident about the current situation. It's October 30, and we have good visibility. While we can't predict with certainty what will close, our sales team feels much more positive about our competitive position compared to a year ago. We have introduced the FIDO security keys, acquired Nok Nok, and partnered with ThreatFabric. There's a lot of exciting developments and productive conversations taking place. While we can't quantify the enthusiasm of these discussions, the overall sentiment is optimistic.

The last question comes from the line of Rudy Kessinger with D.A. Davidson.

Following up on some previous questions, regarding this year's revenue and ARR cut, is it primarily due to increased gross churn, or is it more related to lower than expected new logo acquisitions or less than anticipated cross-sell and upsell opportunities?

Yes. Jorge can give you the details. Go ahead, Jorge.

Yes. So it is primarily related to lower activity in net expansion. We did have, I would say, this quarter in Q3 that impacted one contraction. But I think overall, taking a step back, Rudy, it is primarily the lower activity for expansion. New logos was is to a lesser extent, but it's primarily more the net expansions, Rudy.

Well, and also hardware, right, to a certain extent, have $2 million lower than.

Yes, as we look ahead to 2026, could you provide a timeline for when you expect to see more traction with some of these newer products and potentially reignite growth?

Yes. I believe we'll start to see progress with S3 in 2026. We've already had some success with a couple of deals closing and a growing pipeline for Q4. It's important to note that if this business grows by 30% or 40% next year, that would represent a significant acceleration compared to its performance before the acquisition. This growth could result in a $3 million or $4 million impact on our bookings. However, building the scale will take some time, even if we can speed up growth significantly compared to previous years. ThreatFabric is a partnership and investment, and since it's only been three weeks, it's tougher to gauge its impact. We anticipate it will contribute, but not as significantly as Nok Nok. Still, any improvement we achieve is beneficial. Gaining an additional $3 million or $4 million in annual recurring revenue would be a positive overall. As mentioned in our prepared remarks, we're not focusing on just one area; we’re pursuing various initiatives, aiming for several incremental gains. It doesn't all have to be a major success.

This does conclude the question-and-answer session. And I'd now like to turn it back to Joe Maxa for closing remarks.

Thank you, everyone. I'm glad you could join us today. We look forward to sharing our results with you again next quarter. Have a great night.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.