OneSpan Inc. Q3 FY2025 earnings call

Recap of Transformation

• 2024 focused on fixing cost structure, 2025 on building growth foundation. Aim to return ~$25M to shareholders by end of 2025. Completed acquisition and strategic investment funded by business cash flow.

Key Initiatives

• Hired new CTO to lead R&D. Acquired Nok Nok in June, with S3 product showing progress. Invested in ThreatFabric in October. Software now over 80% of business, with double-digit subscription revenue and ARR growth.

Business Unit Performance

• Hardware revenue declined due to shift to mobile authentication. Both security and digital agreements business units profitable, with digital agreements delivering record segment operating income. Security absorbed modest cost impact from Nok Nok in Q3, expected accretive in Q4.

Total revenue for the quarter was $57 million, up 1% year-over-year. Subscription revenue grew 12%, led by 13% growth in security and 11% growth in digital agreements. Hardware was less than 20% of the overall business. The cybersecurity business had ARR increase 11% to $115.5 million, revenue decrease 1% to $40.3 million, with subscription revenue growing 13%. The digital agreements business had ARR grow 8% to $65 million, revenue grow 9% to $16.7 million, and delivered record high segment operating income.

Revenue Guidance

• Revised full-year 2025 revenue to $239M-$241M (previously $245M-$251M). Software and services revenue expected $190M-$192M (3%-4% increase). Hardware revenue expected $49M-$50M (16% decline from 2024).

ARR Guidance

• Revised ARR to $183M-$187M (previously $186M-$192M).

Adjusted EBITDA

• Adjusted EBITDA guidance maintained at $72M-$76M.

• Headwinds in hardware business, approximately $2M impact. Lower activity in security net expansions and new logos, particularly in EMEA. Secular shift away from consumer banking hardware tokens impacting revenue.

Q: Impact of banks reducing hardware tokens?

A: Not a jump ball situation, but more opportunity for mobile authentication licenses, though less upfront revenue than hardware tokens.

Q: ARR visibility and Q4 guide?

A: Visibility through weekly calls, considering renewals and pipeline, with active dialogue. Confident in Q4 ARR based on current pipeline and execution.