OneSpan (OSPN) - 2025 Q2 - Quarterly Results

Company Overview and Q2 2025 Highlights OneSpan achieved strong Q2 2025 profitability, strengthened its product portfolio with the Nok Nok Labs acquisition, and provided updated financial guidance CEO Statement and Strategic Focus CEO Victor Limongelli reported a strong quarter, enhancing the product portfolio with Nok Nok Labs' FIDO2 authentication and pursuing profitable growth through performance improvement and strategic acquisitions - CEO Victor Limongelli reported a strong quarter of profitability and strengthened the product portfolio by acquiring Nok Nok Labs, adding FIDO2 passwordless authentication software[3] - OneSpan will continue to focus on improving performance and evaluating targeted inorganic opportunities to drive profitable, efficient revenue growth[3] Second Quarter 2025 Financial Highlights OneSpan reported a 38% year-over-year increase in operating income to $10.5 million, despite a 2% decrease in total revenue to $59.8 million, with subscription revenue growing 22% YoY and ARR increasing 8% YoY to $177.8 million Q2 2025 Key Financial Metrics | Metric | Q2 2025 | YoY Change | | :----------------------- | :---------- | :--------- | | Operating Income | $10.5 million | +38% | | Total Revenue | $59.8 million | -2% | | Subscription Revenue | $36.2 million | +22% | | Annual Recurring Revenue (ARR) | $177.8 million | +8% | | Net Retention Rate (NRR) | 101% | N/A | Q2 2025 and Q2 2024 Comparative Financials | Metric | Q2 2025 | Q2 2024 | YoY Change | | :----------------------- | :---------- | :---------- | :--------- | | Total Revenue | $59.8 million | $60.9 million | -2% | | Security Solutions Revenue | $44.2 million | N/A | -3% | | Digital Agreements Revenue | $15.6 million | N/A | +1% | | Gross Profit | $44.0 million | $40.3 million | +9.2% | | Gross Margin | 73% | 66% | +7 pp | | Operating Income | $10.5 million | $7.6 million | +38.2% | | Net Income | $8.3 million | $6.6 million | +25.8% | | Diluted EPS | $0.21 | $0.17 | +23.5% | | Non-GAAP Net Income | $13.3 million | $12.2 million | +9.0% | | Non-GAAP Diluted EPS | $0.34 | $0.31 | +9.7% | | Adjusted EBITDA | $17.6 million | $16.2 million | +8.6% | Recent Business Highlights Key business developments include the acquisition of Nok Nok Labs to enhance FIDO passwordless authentication, securing a new $100.0 million five-year syndicated revolving credit facility for general corporate purposes and strategic growth, and the declaration of a quarterly cash dividend of $0.12 per share - Acquired Nok Nok Labs, a leading provider of FIDO passwordless software authentication solutions, to broaden the multi-factor authentication portfolio[7] - Entered into a $100.0 million, five-year syndicated revolving credit facility for general corporate purposes, including strategic growth priorities[7] - Declared a quarterly cash dividend of $0.12 per share, payable September 5, 2025, to shareholders of record as of August 15, 2025[7] About OneSpan OneSpan specializes in security authentication, identity, electronic signature, and digital workflow solutions, serving global blue-chip enterprises, including over 60% of the world's largest 100 banks, across 100+ countries - OneSpan provides security authentication, identity, electronic signature, and digital workflow solutions to protect and facilitate digital transactions and agreements[18] - The company serves global blue-chip enterprises, including over 60% of the world's largest 100 banks, processing millions of digital agreements and billions of multi-factor authentication transactions annually in 100+ countries[18] Condensed Consolidated Financial Statements This section provides OneSpan's condensed consolidated statements of operations, balance sheets, and cash flows for the second quarter and six months ended June 30, 2025 Condensed Consolidated Statements of Operations For Q2 2025, total revenue decreased 2% YoY to $59.8 million, while gross profit increased to $44.0 million (73% gross margin), operating income rose 38% to $10.5 million, and net income increased 27% to $8.3 million, resulting in diluted EPS of $0.21, with six-month totals of $123.2 million revenue, $22.8 million net income, and $0.59 diluted EPS Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------- | :-------- | :-------- | :-------- | :-------- | | Total Revenue | $59,843 | $60,924 | $123,209 | $125,767 | | Cost of goods sold | $15,876 | $20,583 | $32,151 | $38,031 | | Gross profit | $43,967 | $40,341 | $91,058 | $87,736 | | Operating income | $10,506 | $7,637 | $27,688 | $21,747 | | Net income | $8,342 | $6,553 | $22,847 | $20,021 | | Diluted EPS | $0.21 | $0.17 | $0.59 | $0.52 | Condensed Consolidated Balance Sheets As of June 30, 2025, total assets increased to $357.1 million from $338.7 million at December 31, 2024, with cash and cash equivalents rising to $92.9 million from $83.2 million, while total liabilities decreased to $114.6 million from $126.2 million, and total stockholders' equity increased to $242.5 million from $212.5 million Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | June 30, 2025 | Dec 31, 2024 | | :-------------------- | :-------------- | :------------- | | Total Assets | $357,099 | $338,734 | | Cash and cash equivalents | $92,886 | $83,160 | | Accounts receivable, net | $35,064 | $56,229 | | Goodwill | $103,262 | $92,365 | | Total Liabilities | $114,592 | $126,204 | | Deferred revenue (current) | $54,460 | $67,465 | | Total Stockholders' Equity | $242,507 | $212,530 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities increased to $35.6 million from $29.3 million in the prior year, while net cash used in investing activities significantly increased to $15.5 million, primarily due to $12.1 million cash paid for an acquisition, and net cash used in financing activities also increased to $12.2 million, mainly due to dividends paid Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | 6M 2025 | 6M 2024 | | :-------------------------------- | :-------- | :-------- | | Net cash provided by operating activities | $35,583 | $29,262 | | Net cash used in investing activities | $(15,540) | $(5,360) | | Cash paid for acquisition of business, net | $(12,052) | $0 | | Net cash used in financing activities | $(12,167) | $(2,031) | | Dividends paid | $(9,196) | $0 | | Net increase in cash | $9,555 | $20,773 | | Cash, cash equivalents, end of period | $92,886 | $64,303 | Segment Performance Analysis This section analyzes the financial performance of OneSpan's Security Solutions and Digital Agreements operating segments, detailing revenue, gross margin, and operating income trends Operating Segments Overview OneSpan operates two reportable segments: Security Solutions and Digital Agreements, with Security Solutions focusing on multi-factor authentication and mobile application security, and Digital Agreements providing cloud-based e-signature, notary, and identity verification solutions - OneSpan reports financial results under two operating segments: Security Solutions and Digital Agreements[28] - Security Solutions offers software products, SDKs, and Digipass authenticator devices for multi-factor authentication, transaction signing, and mobile application security, primarily on-premises[31] - Digital Agreements provides largely cloud-based solutions including OneSpan Sign e-signature, OneSpan Notary, and Identity Verification, enabling secure and automated digital agreement and customer transaction lifecycles[31] Security Solutions Segment Performance In Q2 2025, Security Solutions revenue decreased 3% YoY to $44.2 million, but its gross margin improved to 74% from 67% in Q2 2024, with operating income at $19.8 million, and six-month revenue reaching $91.9 million with a 75% gross margin Security Solutions Segment Performance (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------- | :-------- | :-------- | :-------- | :-------- | | Revenue | $44,235 | $45,461 | $91,948 | $95,891 | | Gross profit | $32,822 | $30,600 | $68,907 | $68,103 | | Gross margin | 74% | 67% | 75% | 71% | | Operating income (loss) | $19,799 | $20,692 | $43,958 | $46,571 | - Security Solutions operating income includes $0.1 million and $0.2 million of restructuring and other related charges for the three and six months ended June 30, 2025, respectively, a decrease from $0.3 million and $1.4 million in the prior year periods[34] Digital Agreements Segment Performance Digital Agreements revenue increased 1% YoY to $15.6 million in Q2 2025, with a significant improvement in gross margin to 71% from 63% in Q2 2024, reporting an operating income of $2.9 million, a substantial turnaround from an operating loss of $0.2 million in Q2 2024, and six-month revenue of $31.3 million with a 71% gross margin Digital Agreements Segment Performance (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------- | :-------- | :-------- | :-------- | :-------- | | Revenue | $15,608 | $15,463 | $31,261 | $29,876 | | Gross profit | $11,145 | $9,741 | $22,151 | $19,633 | | Gross margin | 71% | 63% | 71% | 66% | | Operating income (loss) | $2,879 | $(155) | $6,245 | $(420) | - Digital Agreements operating income includes $0.1 million and $0.2 million of restructuring and other related charges for the three and six months ended June 30, 2025, respectively, a significant decrease from $1.2 million and $1.3 million in the prior year periods[35] Revenue by Major Products and Services For Q2 2025, Security Solutions' hardware products revenue decreased significantly to $14.0 million from $19.7 million YoY, while its subscription revenue increased to $20.6 million from $14.9 million, and Digital Agreements' subscription revenue slightly increased to $15.6 million from $14.8 million, with similar growth trends for the six months ended June 30, 2025 Q2 2025 and Q2 2024 Revenue by Type (in thousands) | Revenue Type (in thousands) | Q2 2025 (Security Solutions) | Q2 2024 (Security Solutions) | Q2 2025 (Digital Agreements) | Q2 2024 (Digital Agreements) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Subscription | $20,602 | $14,857 | $15,574 | $14,785 | | Maintenance and support | $8,666 | $9,742 | $25 | $490 | | Professional services & other | $951 | $1,123 | $9 | $188 | | Hardware products | $14,016 | $19,739 | — | — | | Total Revenue | $44,235 | $45,461 | $15,608 | $15,463 | 6M 2025 and 6M 2024 Revenue by Type (in thousands) | Revenue Type (in thousands) | 6M 2025 (Security Solutions) | 6M 2024 (Security Solutions) | 6M 2025 (Digital Agreements) | 6M 2024 (Digital Agreements) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Subscription | $48,674 | $41,039 | $31,119 | $28,597 | | Maintenance and support | $16,650 | $19,808 | $49 | $994 | | Professional services & other | $1,545 | $2,728 | $93 | $285 | | Hardware products | $25,079 | $32,316 | — | — | | Total Revenue | $91,948 | $95,891 | $31,261 | $29,876 | Financial Outlook This section presents OneSpan's updated full-year 2025 financial guidance, including projections for revenue, Annual Recurring Revenue (ARR), and Adjusted EBITDA Full Year 2025 Guidance OneSpan updated its full-year 2025 financial guidance, expecting revenue in the range of $245 million to $251 million, raising Annual Recurring Revenue (ARR) guidance to $186 million to $192 million, and projecting Adjusted EBITDA between $72 million and $76 million Full Year 2025 Financial Guidance | Metric | Full Year 2025 Guidance | Previous Guidance | | :---------------- | :---------------------- | :---------------- | | Revenue | $245 million - $251 million | N/A | | ARR | $186 million - $192 million | $180 million - $186 million | | Adjusted EBITDA | $72 million - $76 million | N/A | Non-GAAP Financial Measures This section outlines OneSpan's non-GAAP financial measures, including recent changes in presentation and detailed reconciliations for Adjusted EBITDA and Non-GAAP Net Income Changes in Presentation of Non-GAAP Measures Effective January 1, 2025, OneSpan began excluding employer payroll taxes related to employee stock-based awards from non-GAAP results and now uses a 20% long-term projected non-GAAP tax rate for Non-GAAP Net Income calculations, with prior periods adjusted to reflect these changes - Effective January 1, 2025, employer payroll taxes related to employee stock-based award transactions are now excluded from non-GAAP results (Adjusted EBITDA, Non-GAAP Net Income, Non-GAAP Net Income Per Diluted Share)[8] - A long-term projected non-GAAP tax rate of 20% is now used for Non-GAAP Net Income and Non-GAAP Net Income Per Diluted Share, providing better consistency across interim reporting periods, with prior period amounts adjusted[9][10] Employer Payroll Taxes Related to Stock-Based Awards (in millions) | Item | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :------------------------------------------------ | :-------- | :-------- | :-------- | :-------- | | Employer payroll taxes related to stock-based awards | $0.2 million | < $0.1 million | $0.7 million | $0.4 million | Adjusted EBITDA Reconciliation Adjusted EBITDA for Q2 2025 was $17.6 million, up from $16.2 million in Q2 2024, and $40.7 million for the six months ended June 30, 2025, compared to $36.4 million in the prior year, with this non-GAAP measure excluding specific items to provide a clearer view of operational performance Adjusted EBITDA Reconciliation (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------- | :-------- | :-------- | :-------- | :-------- | | Net income | $8,342 | $6,553 | $22,847 | $20,021 | | Provision for income taxes | $2,227 | $1,936 | $5,587 | $2,970 | | Depreciation and amortization | $2,456 | $2,063 | $4,585 | $4,145 | | Long-term incentive compensation and related payroll tax expense | $3,678 | $2,017 | $6,926 | $4,063 | | Restructuring and other related charges | $88 | $3,218 | $534 | $4,734 | | Other non-recurring items | $1,579 | $906 | $1,618 | $1,077 | | Adjusted EBITDA | $17,638 | $16,172 | $40,673 | $36,388 | - Adjusted EBITDA is defined as net income before interest, taxes, depreciation, amortization, long-term incentive compensation and related payroll tax expense, restructuring and other related charges, and certain non-recurring items[41] Non-GAAP Net Income and Per Diluted Share Reconciliation Non-GAAP Net Income for Q2 2025 was $13.3 million, up from $12.2 million in Q2 2024, with Non-GAAP diluted EPS of $0.34, and for the six months ended June 30, 2025, Non-GAAP Net Income was $31.0 million, compared to $27.4 million in the prior year, with Non-GAAP diluted EPS of $0.79, excluding specific items and applying a 20% non-GAAP tax rate Non-GAAP Net Income and Per Diluted Share Reconciliation (in thousands, except per share) | Metric (in thousands, except per share) | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------------------------- | :-------- | :-------- | :-------- | :-------- | | Net income | $8,342 | $6,553 | $22,847 | $20,021 | | Long-term incentive compensation and related payroll tax expense | $3,678 | $2,017 | $6,926 | $4,063 | | Amortization of intangible assets | $685 | $666 | $1,241 | $1,381 | | Restructuring and other related charges | $88 | $3,218 | $534 | $4,734 | | Other non-recurring items | $1,579 | $906 | $1,618 | $1,077 | | Non-GAAP provision for income taxes (20%) | $(3,320) | $(3,059) | $(7,751) | $(6,849) | | Non-GAAP net income | $13,279 | $12,237 | $31,002 | $27,397 | | Non-GAAP net income per share, diluted | $0.34 | $0.31 | $0.79 | $0.71 | - Non-GAAP Net Income and Per Diluted Share exclude long-term incentive compensation, amortization of intangible assets, restructuring costs, and certain other non-recurring items, using a 20% long-term projected non-GAAP tax rate[45][46][47][48] Additional Information This section provides details regarding the Q2 2025 conference call and important disclosures concerning forward-looking statements Conference Call Details OneSpan hosted a conference call on August 5, 2025, at 4:30 p.m. EDT, with CEO Victor Limongelli and CFO Jorge Martell, to discuss the Q2 2025 results, with access details available on the investor relations website - OneSpan hosted a conference call on August 5, 2025, at 4:30 p.m. EDT, with CEO Victor Limongelli and CFO Jorge Martell, to discuss Q2 2025 results[12] - Conference call details and webcast replay are available on the OneSpan investor relations website at investors.onespan.com[13] Forward-Looking Statements The press release contains forward-looking statements regarding 2025 financial guidance, the impact of the Nok Nok acquisition, plans for inorganic opportunities, and future operational/financial performance, which involve risks and uncertainties detailed in the company's SEC filings - This press release contains forward-looking statements regarding 2025 financial guidance, the impact of the Nok Nok acquisition, plans for evaluating inorganic opportunities, and general operational/financial performance[20] - Forward-looking statements involve risks and uncertainties, such as ability to attract/retain customers, product development, technological changes, competition, and economic conditions, as detailed in Form 10-K and 10-Q filings[20]