OneSpan updates 2025 guidance to $239M–$241M revenue and $183M–$187M ARR as software drives growth

Earnings Call Insights: OneSpan Inc. (OSPN) Q3 2025

MANAGEMENT VIEW

* CEO Victor Limongelli highlighted the completion of a business transformation focused on profitability and operational efficiency, stating, "That improved operating position will enable us to return about $25 million to shareholders between dividends and buybacks by the end of this year." Limongelli emphasized the growing importance of software, now over 80% of the business, and reported "double-digit subscription revenue growth and ARR growth."
* The company completed an acquisition of Nok Nok, introducing the S3 FIDO2 software product, and made a strategic investment in ThreatFabric during the quarter. Limongelli explained, "We acquired Nok Nok, bringing the best FIDO2 software product called S3 to our portfolio... we've already closed 2 new logos for S3, both in the low 6-figure range."
* A new CTO, Ashish Jain, was brought on board to lead R&D and internal development. Limongelli noted, "We are working on additional initiatives...whether through internal development, through acquisitions or through strategic partnerships."
* CFO Jorge Martell reported, "ARR increased 10% to $180 million and NRR...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."

OUTLOOK

* The company updated its full-year 2025 revenue guidance to $239 million to $241 million, revised down from a previous range of $245 million to $251 million. Software and services revenue is expected to be $190 million to $192 million, up 3% to 4%, while hardware revenue guidance is $49 million to $50 million, projecting a 16% decline from 2024.
* The company updated its ARR guidance to $183 million to $187 million, compared to the previous range of $186 million to $192 million. Adjusted EBITDA guidance remains at $72 million to $76 million.
* Martell stated, "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."

FINANCIAL RESULTS

* Total revenue for Q3 was $57.1 million, up 1% year-over-year. Subscription revenue rose 12% while hardware continued its secular decline, now less than 20% of overall business.
* Gross margin was 74%, consistent with the prior year. GAAP operating income was $8.2 million compared to $11.3 million in Q3 last year.
* GAAP net income per share was $0.17, down from $0.21 in the same period last year. Non-GAAP earnings per share remained flat at $0.33.
* Adjusted EBITDA was $17.5 million, or 30.7% margin. The company ended the quarter with $85.6 million in cash and no long-term debt.
* The security segment reported ARR of $115.5 million, a revenue decrease of 1% to $40.3 million, and subscription revenue growth of 13%. Digital agreements ARR grew 8% to $65 million, with revenue up 9% to $16.7 million and segment operating income at $4.2 million.

Q&A

* Anja Soderstrom, Sidoti & Company, LLC, asked about the reasons for the scaled-back revenue and ARR guidance. Martell responded that "higher headwinds with respect to our hardware business, about a couple of million dollars," and "lower activity with respect to net expansions and new logos, primarily net expansions as we have a large market share in our security business outside of North America" were the main factors.
* Soderstrom inquired about hardware trends, to which Limongelli explained, "Most of their customers have moved over to mobile authentication. And we see that in our business...we don't think that number is going to 0."
* Soderstrom also asked about margins. Martell replied, "From a gross margin perspective, it's going to be, I would say, probably similar to last year's Q4...full year gross margin in around 73-ish percent, slightly higher than last year's."
* Catharine Trebnick, Rosenblatt Securities Inc., questioned the product roadmap and digital agreements growth. Limongelli pointed to the S3 product and FIDO2 protocol as growth drivers and noted internal development, particularly in AI for digital agreements.
* Erik Suppiger, B. Riley Securities, asked about accelerating software growth in 2026. Limongelli confirmed, "That's absolutely our aim is to continue to improve the software business."
* Suppiger also asked about competitive intensity. Limongelli stated, "If anything, I think we're becoming more competitive as we add new capabilities."
* Gray Powell, BTIG, asked about ARR visibility and pipeline confidence. Martell described a "bottoms up" approach to forecasting and said, "We have a fair amount of visibility."
* Rudy Kessinger, D.A. Davidson, asked if the revenue and ARR reduction was due to churn or lower expansion. Martell clarified, "It is primarily related to lower activity in net expansion."

SENTIMENT ANALYSIS

* Analysts' tone was neutral to slightly negative, pressing for details on guidance reductions and sources of future growth. Soderstrom and Kessinger both questioned the drivers behind the updated outlook.
* Management maintained a confident but measured tone in prepared remarks, focusing on transformation, growth opportunities, and operational strength. In the Q&A, management was more defensive, emphasizing long-term strategy and product enhancement.
* Compared to the previous quarter, both analysts and management were more focused on headwinds and guidance adjustments, with less emphasis on near-term growth optimism.

QUARTER-OVER-QUARTER COMPARISON

* The company reduced full-year revenue and ARR guidance in Q3 compared to Q2, with management attributing the change mainly to hardware headwinds and slower net expansion in security.
* Strategic focus remained on software growth, M&A, and product innovation, with the addition of the ThreatFabric partnership and ongoing integration of Nok Nok's S3 product.
* Analysts in both quarters pressed for specifics on growth, pipeline, and product roadmap, but the Q3 call featured more discussion of headwinds and mitigation strategies.
* Management's tone shifted from highlighting transformation progress in Q2 to managing expectations and addressing challenges in Q3.

RISKS AND CONCERNS

* Ongoing secular decline in hardware revenue as banks shift to mobile-first authentication, especially in EMEA and APAC, remains a challenge.
* Management cited lower net expansion activity in security and pressure on new logo wins as key headwinds.
* The company is mitigating risks by investing in product development, pursuing acquisitions, and expanding its software portfolio.

FINAL TAKEAWAY

Management emphasized that OneSpan is solidifying its foundation for future growth through strategic investments in software, targeted acquisitions, and enhanced product offerings, while navigating ongoing hardware headwinds and reduced expansion activity. The company expects these initiatives to drive higher-value software growth and position OneSpan for improved performance in the coming years, maintaining a focus on profitability and shareholder returns.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/ospn/earnings/transcripts]

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