OneSpan Inc. (OSPN) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed outlook. While there is growth in ARR and Digital Agreements, the decline in GAAP operating income and net income per share, coupled with vague guidance on key metrics like the Rule of 40, suggest a cautious sentiment. The Q&A reveals uncertainties, particularly regarding contract renewals and the Middle East impact. However, shareholder returns and steady cash flow provide some positive offsets. Overall, the sentiment leans towards neutral, with no strong catalysts to suggest significant stock price movement.
Key Financial Performance
Subscription Revenue Grew 8% year-over-year, driven by demand for e-signatures in Digital Agreements and growth in cloud authentication, passwordless authentication, and app shielding in Cybersecurity.
Adjusted EBITDA Margin 32%, compared to 36.4% in the prior year. The decline was due to increased operating costs related to acquisitions and organic investments.
Gross Revenue Retention 90% for the company as a whole and 94% for the Digital Agreements business, reflecting strong customer retention.
Annual Recurring Revenue (ARR) $192 million, up 14% year-over-year, inclusive of uplift from two acquisitions. Growth was driven by customer expansion contracts, new customer additions, and M&A.
Total Revenue $66 million, up 4% year-over-year, driven by 11% growth in Digital Agreements and 2% growth in Cybersecurity.
Cash from Operations $28 million generated during the quarter, reflecting strong cash flow performance.
Share Buybacks and Dividends Returned more than $10 million to shareholders through dividends and share repurchases in Q1, following nearly $32 million returned in 2025.
Cybersecurity ARR $124.6 million, up 16.5% year-over-year, driven by customer expansions, new logos, and M&A.
Digital Agreements ARR $67.5 million, up 9.9% year-over-year, driven by expansion of renewal contracts, new customer additions, and overage fees.
Gross Margin Approximately 74%, consistent with the prior year period, reflecting efficiency in cloud infrastructure costs.
GAAP Operating Income $14.8 million, compared to $17.2 million in Q1 of last year. The decline was due to increased operating costs from acquisitions and organic investments.
GAAP Net Income Per Share $0.30, compared to $0.37 a year ago, reflecting increased operating costs.
Non-GAAP Net Income Per Share $0.39, compared to $0.45 in the prior year period, reflecting increased operating costs.
Cybersecurity Revenue $48.5 million, up 1.7% year-over-year, driven by subscription revenue growth of 6.6%, partially offset by lower multiyear term license revenue.
Digital Agreements Revenue $17.4 million, up 11.2% year-over-year, driven by expansion of renewal contracts, new customer additions, and overage fees.
Operating Cash Flows $28.2 million generated during the quarter, reflecting strong cash flow performance.
Cash and Cash Equivalents $49.8 million at the end of Q1, compared to $70.5 million at the end of 2025, reflecting uses of cash for acquisitions, dividends, and share repurchases.
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Operating Highlights
Acquisition of Build38: Completed acquisition of Build38, enhancing mobile application security offerings with expertise in mobile threats and application protection.
Acquisition of NOK NOK Labs: Acquired NOK NOK Labs, a pioneer in passwordless authentication, growing ARR by 20% in less than 10 months and broadening product offerings.
Digital Agreements Enhancements: Invested in R&D to deliver secure, seamless agreement workflows for financial services, integrating AI-driven capabilities for deeper insights and streamlined decision-making.
Geographical Revenue Distribution: Revenue distribution shifted with 43% from EMEA, 38% from Americas, and 19% from Asia Pacific, reflecting growth in Digital Agreements and Cybersecurity in Americas and increased hardware revenue in Asia Pacific.
Revenue Growth: Total revenue grew 4% to $66 million, driven by 11% growth in Digital Agreements and 2% growth in Cybersecurity.
Subscription Revenue: Subscription revenue grew 8% year-over-year, accounting for 80% of total revenue.
Profitability: Adjusted EBITDA margin was 32%, with $21 million in adjusted EBITDA for the quarter.
Capital Allocation: Invested $35 million in Build38 acquisition and returned over $10 million to shareholders through dividends and share repurchases.
Shift in Revenue Model: Transitioned from perpetual license arrangements to term-based and subscription revenue models, aligning with strategic focus on recurring revenues.
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Risk or Challenges
Customer Contract Non-Renewals: In Cybersecurity, there is an anticipated Q2 ARR headwind of approximately $3 million due to two contracts not expected to renew. One customer is moving to passwordless authentication, a decision made before the acquisition of NOK NOK Labs.
Decline in Hardware Revenue: Hardware revenue declined 4.3% year-over-year in Q1, continuing a long-term declining trend. This reflects a secular shift away from consumer banking hardware tokens.
Increased Operating Costs: Operating income declined year-over-year due to increased costs related to acquisitions (NOK NOK and Build38), including headcount and nonrecurring acquisition-related consulting costs, as well as costs related to organic investments.
Geographic Revenue Decline in EMEA: Lower Cybersecurity hardware and software revenue was reported in the EMEA region year-over-year.
Customer Shift to Passwordless Authentication: A customer shift to passwordless authentication, which occurred before the acquisition of NOK NOK Labs, highlights potential challenges in retaining customers without a comprehensive product portfolio.
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Guidance & Outlook
Annual Recurring Revenue (ARR): The company has raised its guidance for ARR to be in the range of $194 million to $198 million for the full year 2026, up from the previous guidance of $192 million to $196 million. ARR is expected to grow in the second half of the year, with most growth occurring in the fourth quarter.
Total Revenue: Full-year 2026 total revenue is expected to be in the range of $244 million to $249 million. Software and services revenue is projected to be between $201 million and $204 million, while hardware revenue is expected to range from $43 million to $45 million.
Adjusted EBITDA: The company expects adjusted EBITDA for the full year 2026 to be in the range of $64 million to $68 million.
Cybersecurity Division: Moderate growth is anticipated in the Cybersecurity division, despite a second-quarter ARR headwind of approximately $3 million due to non-renewal of two contracts. ARR growth is expected to resume in the second half of the year, driven by passwordless authentication and other offerings.
Digital Agreements Division: Continued growth is expected in the Digital Agreements division, driven by demand for e-signatures and expansion of renewal contracts.
Market Trends: The company anticipates a continued secular shift away from consumer banking hardware tokens, with growth in passwordless authentication expected to increase following the acquisition of NOK NOK Labs.
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Shareholder Return Plan
Quarterly Dividend: The Board has approved a quarterly dividend of $0.13 per share to be paid in the current quarter.
Dividend Returns in 2025: Nearly $32 million was returned to shareholders through dividends in 2025.
Share Buybacks: The company returned capital to shareholders via share buybacks, totaling approximately 1.5 million shares for more than $18 million over the past 3 quarters.
Share Repurchases in Q1 2026: $5.4 million was used to repurchase approximately 510,000 shares of common stock in Q1 2026.
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Key Q&A
Q:When will the company start realizing returns on operations and achieve the Rule of 40?
A:The CEO highlighted progress made on the Rule of 40 metrics, improving from 12 in 2023 to 36 in the most recent quarter. However, he did not provide an exact timeline for achieving the Rule of 40 but emphasized progress in ARR and subscription growth.
Q:What were the ARR figures for NOK NOK and Build38 at the end of Q1?
A:The CFO stated that NOK NOK's ARR was $9.7 million, up from $8.1 million nine months ago, reflecting 20% growth. Build38's ARR was $2.8 million, making a combined total of approximately $11 million. Organic ARR growth was about 7% to 8%.
Q:What impact has the Middle East conflict had on the company's business?
A:The CEO mentioned that the Gulf region accounts for only 4% of revenue. While the company is monitoring the situation, EMEA's revenue share has decreased compared to growth in the Americas. The company is focusing on growing faster in North America.
Q:Where is the strongest pull for NOK NOK within the installed base, and what is the upsell opportunity?
A:The CEO stated that NOK NOK is an upsell opportunity as customers move to passwordless solutions. It helps with customer retention and acquiring new customers. Geographically, it has been stronger in North America and Japan, with expected growth in Europe and Latin America.
Q:What was the main purpose of the Build38 acquisition?
A:The CEO explained that Build38 broadens the company's offering by providing an SDK-based app shielding solution that offers better telemetry and protection compared to the previous wrapping method. This enhances the cybersecurity solution for customers.
Q:What is the shortfall from contracts not renewing in Q2, and what gives confidence in raising ARR guidance?
A:The CEO mentioned a $2 million shortfall from non-renewing contracts, primarily due to a lack of passwordless offerings at the time. However, the company is confident in ARR growth due to a strong pipeline and seasonality, with most growth expected in Q4.
Q:Are customers buying both NOK NOK back-end software and tokens?
A:The CEO stated that not many customers are currently buying both. However, having a broad offering provides flexibility and opportunities for cross-selling in the future.
Q:What is the plan for subscription revenue and hardware over the next 12 months?
A:The CEO expects consumer banking tokens to continue declining but not to reach zero. The FIDO2 security hardware could offset this decline. The focus remains on growing subscription revenue and ARR. The CFO added that hardware is expected to stabilize at a new baseline.
Q:Review of Unclear Management Responses
A:The management avoided providing a direct timeline for achieving the Rule of 40, using vague language about progress instead. Additionally, they did not provide precise quantification on the impact of having NOK NOK on customer retention or the exact future trajectory of hardware revenue beyond general expectations.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ARR acquisition
Agreements Cybersecurity
Cybersecurity ARR
Cybersecurity division
Digital Agreements
FIDO
NOK Labs
acquisition Build
acquisition NOK
acquisition consulting
application protection
application security
arrangement
authentication app
cash flow
compilation
consulting investment
count
customer addition
customer expansion
decision
dividend share
employee
environment
hardware software
income acquisition
majority
margin Cybersecurity
number
passwordless authentication
progress foundation
protection telemetry
repurchase
seat
software service
term license
threat
OSPN Transcript
OneSpan Inc. (OSPN) Q1 2026 Earnings Call Transcript
Unknown4-30
The earnings call presents a mixed outlook. While there is growth in ARR and Digital Agreements, the decline in GAAP operating income and net income per share, coupled with vague guidance on key metrics like the Rule of 40, suggest a cautious sentiment. The Q&A reveals uncertainties, particularly regarding contract renewals and the Middle East impact. However, shareholder returns and steady cash flow provide some positive offsets. Overall, the sentiment leans towards neutral, with no strong catalysts to suggest significant stock price movement.
OneSpan Inc. (OSPN) Q4 2025 Earnings Call Transcript
Unknown2-26
The earnings call presents mixed signals: strong subscription revenue growth and dividend increase are positives, but flat full-year revenue and reduced guidance for 2025 are concerning. The Q&A section highlights efforts to improve sales and marketing, yet economic uncertainty and declining hardware revenue pose risks. The market might react cautiously, leading to a neutral stock price movement.
OneSpan Inc. (OSPN) Q3 2025 Earnings Call Transcript
Unknown10-30
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.
OneSpan Inc. (OSPN) Q2 2025 Earnings Call Transcript
Unknown8-5
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.
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
OneSpan Q2 2025 slides: Subscription revenue grows 22% despite overall decline2025-08-05
OneSpan Q1 2025 slides: Subscription growth offsets overall revenue decline2025-05-01
OSPN Report
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