OneSpan Inc. Q2 FY2025 earnings call

Key Points:

• Victor highlighted the focus on restructuring to profitability, hiring a new CTO, and the acquisition of Nok Nok Labs to enhance the authentication portfolio. He mentioned building go-to-market capabilities for growth in 2026.
• Jorge reported strong quarter results, ARR growth, NRR of 101%, revenue details by segment, balance sheet status, and financial outlook. He discussed the impact of the Nok Nok acquisition on ARR and provided guidance on revenue, ARR, and adjusted EBITDA.
• Emphasis on operational excellence, commitment to profitability, and strategic acquisition to bring additional value-added products to customers.

In the second quarter, Security Solutions had ARR of $114.5 million, up 9% year-over-year (excluding Nok Nok, up 2%), with revenue declining 3% to $44.2 million. Segment operating income was $19.8 million (45% of revenue). Digital Agreements had ARR growing 4.5% to $63 million, revenue growing 1% to $15.6 million, and segment operating income of $2.9 million (18% of revenue). Overall, second quarter revenue was $59.8 million, down 2% year-over-year. ARR was $178 million, up 8% including the $8 million from the Nok Nok acquisition.

Guidance Details:

• Revenue guidance maintained in the range of $245 million to $251 million.
• ARR guidance increased to $186 million to $192 million due to the Nok Nok acquisition, partially offset by customer contractions.
• Adjusted EBITDA guidance maintained in the range of $72 million to $76 million, with the Nok Nok acquisition expected to be slightly accretive to adjusted EBITDA in the fourth quarter of 2025.

Risks:

• Macro factors such as tariffs, federal cuts, and uncertainty in customer buying behavior.
• Contraction from a few customers impacting ARR.
• Hardware revenue headwinds due to banks moving to a mobile-first authentication approach.

Q: On this acquisition, how competitive will it make OneSpan and is it for new landings or upsell to existing banking customers?

A: Jorge stated the acquisition is about cross-sell opportunity into existing customer base, leveraging the long tenured customer base and experienced team from Nok Nok Labs.

Q: How should we think about the ARR guidance increase of about $6 million when Nok Nok added about $8 million in the second quarter?

A: Jorge explained Nok Nok added about $8 million to ARR, with the remaining $2 million due to customer contractions like a bank selling operations and another customer with internal delays.

Q: Can you give more color on macro impacts in the quarter and customer buying behavior, and if it spilled over into Q3?

A: An unidentified representative said tariff impact was minimal, federal cuts had a small impact, Europe was weaker but Americas were better, and overall performance was solid with no major spillover into Q3 yet.

Q: Can you dive deeper into evolving the go-to-market program by start of next year?

A: An unidentified representative said it involves putting additional resources where things are going well, like splitting sales teams and refining approaches for better results.

Q: Can you quantify the contraction from the two large customers and the upsell opportunity with Nok Nok?

A: Jorge said the contraction from the two customers was about $3 million, and the upsell opportunity with Nok Nok relates to offering a complete FIDO authentication solution to existing customers over the next few years.