OneSpan Inc. (OSPN) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presented a mixed outlook. While there is promising growth in digital agreements and subscription revenue, concerns about hardware revenue decline and scaled-back guidance are notable. The Q&A highlighted management's cautious tone and uncertainties in ARR guidance, which could temper investor enthusiasm. The company's strategic shift towards software and mobile authentication is positive, but the transition may take time. Overall, the sentiment is neutral, reflecting balanced positive and negative factors.
Key Financial Performance
Adjusted EBITDA $17.5 million (31% of revenue), a slight increase from $17 million (30.2% of revenue) in the same period last year. This improvement was driven by operational efficiency.
Cash from Operations $11 million, contributing to a record $47 million in cash from operations over the first 9 months of 2025. This was supported by strong profitability and cash generation.
Annual Recurring Revenue (ARR) $180 million, up 10% year-over-year. Growth was driven by subscription revenue increases and customer contract expansions.
Total Revenue $57.1 million, a 1% increase year-over-year. Growth in subscription revenue was offset by a decline in hardware revenue due to a shift towards mobile-first authentication approaches.
Subscription Revenue Grew 12%, including 10% organic growth. This was driven by cloud and on-prem authentication software, mobile app shielding software, and customer contract expansions.
Gross Margin 74%, consistent with last year's Q3. This stability was attributed to product mix.
GAAP Operating Income $8.2 million, down from $11.3 million in Q3 2024. The decline was due to increased operating expenses, including share-based compensation and costs related to the Nok Nok acquisition.
GAAP Net Income Per Share $0.17, down from $0.21 in the same period last year. The decrease was attributed to higher operating expenses.
Non-GAAP Earnings Per Share $0.33, consistent with Q3 2024. This metric excludes long-term incentive compensation, amortization, restructuring charges, and other nonrecurring items.
Cybersecurity Business ARR $115.5 million, up 11% year-over-year. Growth was driven by cloud and on-prem authentication software, app shielding software, and the Nok Nok acquisition.
Cybersecurity Business Revenue $40.3 million, a 1% decrease year-over-year. Subscription revenue growth was offset by a decline in hardware revenue and maintenance services.
Digital Agreements ARR $65 million, up 8% year-over-year. Growth was driven by new SaaS contracts, contract expansions, and increased one-time revenue.
Digital Agreements Revenue $16.7 million, a 9% increase year-over-year. Growth was driven by subscription revenue increases and the transition to a SaaS business model.
Cash and Cash Equivalents $85.6 million at the end of Q3 2025, compared to $92.9 million at the end of Q2 2025 and $83.2 million at the end of 2024. The decrease was due to share repurchases, dividend payments, and acquisition-related payments.
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Operating Highlights
Acquisition of Nok Nok: Acquired Nok Nok in June 2025, adding the FIDO2 software product S3 to the portfolio. Closed two new deals for S3 in the low six-figure range within four months and built a pipeline for Q4. U.S. and Japan are seen as leading markets for FIDO2 adoption.
Strategic Investment in ThreatFabric: Announced a strategic investment and partnership with ThreatFabric to enhance mobile threat intelligence and fraud risk insights. Sales enablement is ongoing, with growth expected in 2026.
Geographic Revenue Mix: Revenue mix was 46% from the Americas, 38% from EMEA, and 17% from APAC. Growth in North America driven by e-signature and mobile application security, while hardware revenue declined in Europe and Asia Pacific due to mobile-first trends.
Profitability and Cash Generation: Generated $17.5 million in adjusted EBITDA (31% of revenue) and $11 million in cash from operations in Q3. For the first nine months, achieved record adjusted EBITDA of $58 million (32% of revenue) and $47 million in cash from operations.
Subscription Revenue Growth: Subscription revenue grew 12% in Q3, with 13% growth in security and 11% in digital agreements. Security subscription growth driven by cloud and on-prem authentication software, and mobile app shielding software.
Shift to SaaS Model: Substantially completed the transition to a SaaS business model in the digital agreements segment, with subscription revenue growing 11% year-over-year.
Capital Allocation Strategy: Returned over $20 million to shareholders in the first nine months of 2025 through share repurchases and dividends. Board approved another $0.12 per share dividend for Q4.
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Risk or Challenges
Secular decline in hardware token business: The company is experiencing a long-term decline in its hardware token business due to banks adopting mobile-first authentication approaches, particularly in EMEA and APAC regions. This has led to a reduction in hardware revenue, which is expected to decline by approximately 16% in 2025.
Regional sales challenges: While there is strong booking in some regions, challenges persist in others, particularly due to the shift away from consumer banking hardware tokens. This uneven performance could impact overall revenue growth.
Increased operating expenses: Operating expenses have increased due to share-based compensation, nonrecurring advisory-related expenses, and costs associated with the Nok Nok acquisition. These expenses have impacted operating income and profitability.
Dilution from Nok Nok acquisition: The acquisition of Nok Nok has led to short-term dilution in operating income, although it is expected to be accretive in Q4 2025. This could pose a risk if the expected accretive benefits are delayed or not realized.
Dependency on subscription revenue growth: The company’s growth is heavily reliant on subscription revenue, which grew by 12% in Q3. Any slowdown in subscription growth could adversely affect overall financial performance.
Decline in maintenance revenue: The sunsetting of the on-premise e-signature product has led to a decline in maintenance revenue, which could impact the digital agreements business.
Economic and market uncertainties: The company’s forward-looking statements acknowledge risks and uncertainties that could materially impact actual results, including economic conditions and market dynamics.
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Guidance & Outlook
Revenue Guidance for 2025: The company updated its revenue guidance for the full year 2025 to be in the range of $239 million to $241 million, down from the previous guidance range of $245 million to $251 million.
Software and Services Revenue: Expected to be in the range of $190 million to $192 million, representing an increase of 3% to 4% in 2025.
Hardware Revenue: Expected to be in the range of $49 million to $50 million, representing an approximately 16% decline from 2024.
Annual Recurring Revenue (ARR): Updated guidance for ARR is in the range of $183 million to $187 million, up from $180 million at the end of Q3 2025, but down from the previous guidance range of $186 million to $192 million.
Adjusted EBITDA Guidance: Maintained in the range of $72 million to $76 million for 2025.
Growth in Subscription Revenue: Subscription revenue grew 12% year-over-year, with 13% growth in security and 11% growth in digital agreements. This trend is expected to continue driving future growth.
FIDO2 and S3 Product Opportunity: The company expects significant growth opportunities for its S3 product as FIDO2 becomes more widely adopted, with initial focus on the U.S. and Japan, and global adoption of Passkeys over the coming years.
ThreatFabric Partnership: The partnership with ThreatFabric is expected to contribute to growth in 2026 by enhancing mobile threat intelligence and fraud risk insights.
Capital Allocation Strategy: The Board will consider additional share repurchases and has approved a $0.12 per share dividend to be paid in the current quarter.
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Shareholder Return Plan
Dividend Payments: The company has approved a $0.12 per share dividend to be paid in the current quarter. Combined with previous quarterly dividend payments, more than $20 million has been returned to shareholders in the first 9 months of 2025.
Share Buyback Program: In Q3 2025, the company used $6 million to repurchase approximately 450,000 shares of common stock. By the end of the year, the company plans to return about $25 million to shareholders through dividends and buybacks.
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Key Q&A
Q:What led to the scaling back of revenue and ARR guidance compared to the previous quarter?
A:The scaling back was due to higher headwinds in the hardware business (about $2 million) and lower activity in the security business, particularly in net expansions and new logos, primarily in EMEA and APAC regions. The company is focusing on enhancing its software product portfolio and positioning for future growth, with software now comprising 80% of the business.
Q:Is the decline in hardware demand a shift or a general decline in demand?
A:The decline in hardware demand is a long-term trend, with customers moving from hardware tokens to mobile authentication. For example, in EMEA and APAC, the percentage of consumers using hardware tokens has dropped from 100% a decade ago to about 20% now. However, the company does not expect hardware usage to drop to zero.
Q:How should gross margin and operating expenses be viewed for the coming quarters?
A:Gross margin for the full year is expected to be around 73%, slightly higher than last year's 72%. Operating expenses will see a modest increase due to the Nok Nok acquisition (around $2 million on a run rate basis) and incremental investments in R&D.
Q:What are the key products expected to drive growth in the next 12 to 24 months?
A:Key products include mobile authentication technology, passkeys with FIDO2 for scalable and low-latency authentication, and digital agreements with AI integration. The company is focusing on broadening its offerings to include these technologies.
Q:What is the outlook for digital agreements?
A:The digital agreements business has been growing in the mid- to upper single digits and is expected to continue strong growth in the next 12 months. AI integration will be a focus area for this product.
Q:Will subscription revenue growth accelerate in 2026 compared to 2025?
A:Yes, the company aims to accelerate subscription revenue growth in 2026, with software as a percentage of revenue expected to increase from 80% to around 82-83%.
Q:Does the company have exposure to federal markets, and has the shutdown impacted them?
A:The company has minimal exposure to federal markets, and the shutdown has not had a material impact.
Q:Has there been any change in competition or market dynamics in software authentication for banks?
A:There has been no significant change in competition. The company believes it is becoming more competitive with new capabilities like S3 and FIDO2.
Q:What progress has been made with channel partners for the FIDO2 push?
A:The company has made progress with channel partners, with one of the first two new logos for FIDO2 coming from a channel partner. Channel partners are expected to play an important role in sales heading into 2026.
Q:What happens when customers stop renewing hardware tokens?
A:When customers stop renewing hardware tokens, it creates an opportunity to upsell mobile security suites. However, this is not always a direct transition, as many customers have already moved to mobile authentication over the years.
Q:What is the visibility on late-stage deals and pipeline for Q4 ARR guidance?
A:The company has good visibility on late-stage deals and pipeline for Q4 ARR guidance, with active discussions and a bottoms-up approach to forecasting. However, some uncertainties remain, such as potential slippage or unexpected contractions.
Q:What is the primary reason for the cut in revenue and ARR guidance for the year?
A:The primary reason is lower activity in net expansions, with new logos contributing to a lesser extent. Additionally, there was a $2 million decline in hardware revenue.
Q:When is traction expected for newer products like S3 and ThreatFabric?
A:Traction for S3 is expected in 2026, with some deals already closed and more in the pipeline. ThreatFabric is also expected to contribute meaningfully in 2026, though its impact will be smaller than Nok Nok.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about the visibility and confidence level in the Q4 ARR guide. While they mentioned having good visibility and active discussions, they acknowledged uncertainties and did not provide specific details or data to support their confidence.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
EMEA APAC
FIDO
Latin America
North America
acquisition
authentication approach
authentication software
bank authentication
booking region
cash generation
cash month
change income
cloud prem
development effort
dividend
extent maintenance
foundation
generation progress
income change
investment ThreatFabric
item
maintenance service
month cash
place
prem authentication
product portfolio
profitability cash
progress term
security North
service revenue
share compensation
share stock
shielding software
shift consumer
signature
token
value proposition
year
OSPN Transcript
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The earnings call presented a mixed outlook. While there is promising growth in digital agreements and subscription revenue, concerns about hardware revenue decline and scaled-back guidance are notable. The Q&A highlighted management's cautious tone and uncertainties in ARR guidance, which could temper investor enthusiasm. The company's strategic shift towards software and mobile authentication is positive, but the transition may take time. Overall, the sentiment is neutral, reflecting balanced positive and negative factors.
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OSPN Slides
OneSpan Q4 2025 slides: software shift drives margin gains to 74%2026-02-26
OneSpan Q3 2025 slides: Subscription growth offsets hardware decline as guidance revised2025-10-30
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OneSpan Q1 2025 slides: Subscription growth offsets overall revenue decline2025-05-01
OSPN Report
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