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01/11 11:06
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
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.
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.
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.
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.
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.
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.
The earnings call presents a mix of positive and negative signals. Strong financial performance is evident with record high EBITDA and improved margins. However, there are concerns about declining security solutions revenue, and uncertainties around the impact of the Nok Nok acquisition. The Q&A reveals muted macroeconomic impacts and potential cross-selling opportunities, but lacks clarity on certain risks. These mixed signals suggest a neutral market reaction, with the stock price likely remaining stable in the short term.
The earnings call presented mixed results: strong adjusted EBITDA and cash flow, but a slight revenue decline and ongoing hardware revenue challenges. The Q&A highlighted uncertainties, such as tariffs and unclear M&A strategies. Despite dividend payments and a balanced shareholder return plan, the lack of significant positive catalysts and potential risks from economic factors and product transitions suggest a neutral stock price outlook. Without a market cap, the reaction is assumed moderate.
The earnings report shows strong financial performance, with significant improvements in operating income, net income, and cash flow. Despite a decline in hardware revenue, the company is successfully transitioning to software, with strong subscription revenue growth and improved margins. The Q&A reveals a realistic approach to challenges and a focus on growth areas like Security and Digital Agreements. While there are some concerns about hardware revenue decline, the overall sentiment is positive, driven by strong financial metrics, optimistic guidance, and strategic focus on software expansion.
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