10-Q: OneSpan Q3 2025: Mixed Results Amid Strategic Shifts

OneSpan reports a slight revenue increase for Q3 2025, driven by Digital Agreements growth and foreign exchange benefits, despite a decline in net income and Security Solutions revenue.

Summary

• Total revenue increased by 1% to $57.056 million for the three months ended September 30, 2025, compared to $56.242 million in the prior year, favorably impacted by $1.3 million from foreign exchange rates.
• Total revenue decreased by 1% to $180.265 million for the nine months ended September 30, 2025, compared to $182.008 million in the prior year.
• Net income for the three months ended September 30, 2025, was $6.514 million ($0.17 diluted EPS), down from $8.273 million ($0.21 diluted EPS) in the prior year.
• Net income for the nine months ended September 30, 2025, was $29.361 million ($0.76 diluted EPS), up from $28.294 million ($0.73 diluted EPS) in the prior year.
• Security Solutions revenue decreased by 1% for the three months and 3% for the nine months, primarily due to lower hardware sales driven by a 'mobile-first' trend.
• Digital Agreements revenue increased by 9% for the three months and 6% for the nine months, driven by higher cloud subscription revenue.
• Gross profit increased by 1% to $42.003 million for the three months and 3% to $133.061 million for the nine months, with gross margin improving to 74% for the nine months from 71%.
• Operating income decreased to $8.227 million for the three months from $11.252 million, but increased to $35.915 million for the nine months from $32.999 million.
• Adjusted EBITDA increased to $17.5 million for the three months and $58.2 million for the nine months.
• Acquired Nok Nok Labs, a provider of passwordless software authentication solutions, on June 4, 2025, for $18.4 million.
• Entered into a $100.0 million revolving credit facility with MUFG Bank on June 23, 2025.
• Repurchased 0.4 million shares of common stock for $6.3 million during the three months ended September 30, 2025, with approximately $43.7 million remaining under the program.
• Obtained a 15% equity stake in ThreatFabric, a mobile threat intelligence company, for $11.7 million on October 6, 2025.
• The restructuring plan is expected to incur minimal charges (less than $0.1 million to $0.2 million) for the remainder of 2025 and will terminate by December 31, 2025.

Sentiment

Score: 6

Explanation: The company shows mixed results with strong growth in Digital Agreements and improved year-to-date profitability metrics, alongside a decline in quarterly net income and Security Solutions revenue. Strategic acquisitions and investments are positive, but the slight dip in NRR and ongoing restructuring indicate areas requiring careful monitoring.

Positives

• Digital Agreements revenue grew 9% for the three months and 6% for the nine months, primarily due to higher cloud subscription revenue from existing customer expansions and new logos.
• Nine-month net income increased to $29.361 million from $28.294 million, and diluted EPS increased to $0.76 from $0.73.
• Nine-month gross profit increased by 3% to $133.061 million, with gross margin improving to 74% from 71% in the prior year period.
• Nine-month operating income increased to $35.915 million from $32.999 million.
• Adjusted EBITDA increased to $17.5 million for the three months and $58.2 million for the nine months, indicating improved operational efficiency.
• Annual Recurring Revenue (ARR) grew 10% year-over-year to $180.2 million at September 30, 2025.
• Net Retention Rate (NRR) of 103% indicates continued revenue growth from the existing customer base.
• Maintained a strong cash position with $85.554 million in cash and cash equivalents as of September 30, 2025.
• The acquisition of Nok Nok Labs expands passwordless authentication capabilities, aligning with market trends.
• Secured a new $100.0 million revolving credit facility, enhancing financial flexibility and liquidity.
• Active share repurchase program demonstrates commitment to returning value to shareholders.

Negatives

• Net income for the three months ended September 30, 2025, decreased to $6.514 million from $8.273 million in the prior year.
• Security Solutions revenue decreased by 1% for the three months and 3% for the nine months, primarily due to lower hardware sales driven by a 'mobile-first' trend.
• Total revenue for the nine months ended September 30, 2025, decreased by 1% compared to the prior year.
• Operating income for the three months ended September 30, 2025, decreased to $8.227 million from $11.252 million.
• Foreign exchange transaction losses aggregated $0.2 million for the three months and $1.3 million for the nine months ended September 30, 2025.
• Interest income, net, decreased for the three months to $0.388 million from $0.624 million.
• Net Retention Rate (NRR) decreased to 103% at September 30, 2025, from 106% at September 30, 2024, primarily due to a decrease in expansion contracts and an increase in contracts that reduced in value.

Risks

• Difficulties increasing or maintaining the rate of revenue growth.
• Ability to attract new customers and retain and expand sales to existing customers.
• Ability to successfully develop and market new product offerings and product enhancements.
• Potential effects of technological changes.
• Loss of one or more large customers.
• Difficulties enhancing and maintaining brand recognition.
• Competition in the market.
• Lengthy sales cycles.
• Challenges retaining key employees and successfully hiring and training qualified new employees.
• Security breaches or cyber-attacks.
• Real or perceived malfunctions or errors in products.
• Interruptions or delays in the performance of products and solutions.
• Reliance on third parties for certain products and data center services.
• Ability to effectively manage third-party partnerships, acquisitions, divestitures, alliances, or joint ventures.
• Economic recession, inflation, tariffs or trade disputes, and political instability.
• Claims of infringing the intellectual property rights of others.
• Changing laws, government regulations, or policies.
• Pressures on price levels.
• Component shortages, delays, and disruption in global transportation and supply chains.
• Impairment of goodwill or amortizable intangible assets causing a significant charge to earnings.
• Actions of activist stockholders.
• Exposure to increased economic and operational uncertainties from operating a global business.
• Changes in currency exchange rates, especially the Euro and Canadian Dollar, can significantly impact revenue and operating expenses, particularly if revenue in Europe denominated in Euros declines or cannot fully balance operating expenses in that currency.

Future Outlook

OneSpan expects to incur minimal restructuring charges (less than $0.1 million to $0.2 million) for the remainder of 2025, primarily related to employee transition and severance payments, with the restructuring plan terminating by December 31, 2025. The vendor contract component of the 2023 Actions is also planned for completion by the end of 2025. The acquisition of Nok Nok Labs is anticipated to provide customers with a wider range of flexible, adaptable authentication options. Management believes that financial resources are adequate to meet operating needs over the next twelve months and expects continued investment in infrastructure and potential acquisitions. The impact of the One Big Beautiful Bill Act (OBBBA) is not expected to be material to the condensed consolidated financial statements.

Management Comments

• We seek to drive profitable, efficient growth in both operating segments, with a particular emphasis on subscription revenue growth.
• Both operating segments were profitable for the three and nine months ended September 30, 2025.
• Security Solutions and Digital Agreements subscription revenue grew 13% and 11% as compared to the three months ended September 30, 2024, respectively, and 17% and 10% as compared to the nine months ended September 30, 2024, respectively.
• We expect that the technology acquired in the acquisition [Nok Nok Labs] will provide OneSpan's customers with a wider range of flexible, adaptable authentication options.
• We believe that the overall strength of our business is best evaluated over a longer term where the impact of transactions in any given period is not as significant as in a quarter-over-quarter comparison.
• We believe that our financial resources are adequate to meet our operating needs over the next twelve months.

Industry Context

The 'mobile-first' trend in consumer banking is significantly impacting the Security Solutions segment, leading to a reduction in sales of traditional hardware authenticator devices as banks increasingly adopt software authentication solutions on mobile devices. This reflects a broader industry shift towards more convenient, software-based security. The acquisition of Nok Nok Labs, a FIDO authentication provider, and the equity stake in ThreatFabric (mobile threat intelligence) align with the growing demand for advanced, passwordless, and mobile-centric security solutions in the cybersecurity and digital identity space. The growth in Digital Agreements, particularly cloud subscription revenue, reflects the ongoing digital transformation across industries, where businesses are increasingly adopting e-signatures, identity verification, and digital workflows to streamline operations and enhance compliance.

Comparison to Industry Standards

• The Net Retention Rate (NRR) of 103% at September 30, 2025, while a slight decrease from 106% in the prior year, remains above 100%, which is generally considered a healthy indicator for SaaS and subscription-based businesses, suggesting customer value expansion.
• The gross margin of 74% for the nine months ended September 30, 2025, is strong for a software and security solutions provider, reflecting efficient cost management relative to revenue generation.
• The strategic shift towards 'mobile-first' authentication and cloud-based digital agreements, as evidenced by the Nok Nok Labs acquisition and ThreatFabric investment, aligns with broader industry trends in cybersecurity and digital transformation, where companies like Okta, DocuSign, and various identity and access management (IAM) providers are focusing on similar areas. The filing does not provide direct comparative metrics for these specific companies.

Legal Proceedings

• Subject to certain legal proceedings and claims that have arisen in the ordinary course of business, which are not anticipated to have a material adverse impact on financial results or condition.
• Accrued $0.5 million for loss contingencies associated with employment-termination benefits and employee-related taxes as of September 30, 2025.
• No reasonably possible losses for which an estimate can be made as of September 30, 2025.

Stakeholder Impact

• Shareholders are impacted by quarterly dividends ($0.12/share), an active share repurchase program ($6.3 million repurchased in Q3, $43.7 million remaining), and mixed financial performance (Q3 net income down, YTD net income up).
• Employees are affected by the ongoing restructuring plan, which has eliminated approximately 341 positions across multiple functions, with associated severance and transition payments.
• Customers are expected to benefit from expanded product offerings through strategic acquisitions (Nok Nok Labs) and investments (ThreatFabric), aiming for a wider range of authentication options and enhanced security.
• Creditors, specifically MUFG Bank, are involved through the new $100.0 million revolving credit facility, with OneSpan reporting compliance with all covenants as of September 30, 2025.

Next Steps

• Continue to incur minimal restructuring charges (less than $0.1 million to $0.2 million) for the remainder of 2025.
• Incrementally take actions under the restructuring plan until its termination on December 31, 2025.
• Complete the vendor contract component of the 2023 Actions by the end of 2025.
• Evaluate the impact of ASU 2024-03 (Disaggregation of Income Statement Expenses) on consolidated financial statements and disclosures, effective for annual periods beginning after December 15, 2026.
• Evaluate the impact of ASU 2025-05 (Credit Losses for Accounts Receivable) on consolidated financial statements and disclosures, effective for annual periods beginning after December 15, 2025.
• Evaluate the impact of ASU 2025-06 (Internal-Use Software) on consolidated financial statements and disclosures, effective for annual periods beginning after December 15, 2027.
• Finalize the initial accounting for the Nok Nok Labs acquisition, with measurement period adjustments potentially recorded in fiscal year 2025, but no later than one year from the acquisition date.
• Release the $2.7 million Holdback Amount from the Nok Nok Labs acquisition to security holders 18 months after the acquisition date (June 4, 2025).
• Pay the quarterly cash dividend of $0.12 per share on December 5, 2025, to shareholders of record as of November 14, 2025.

Key Dates

Recommendation

While OneSpan demonstrates strong year-to-date financial improvements, particularly in gross margin and Adjusted EBITDA, the quarterly decline in net income and Security Solutions revenue, coupled with a slight decrease in NRR, presents a mixed picture. Strategic acquisitions and investments are positive for long-term growth, but the 'mobile-first' trend impacting hardware sales in Security Solutions requires careful monitoring. The company is undergoing a restructuring, which can create short-term uncertainties. A 'hold' recommendation is appropriate as the company navigates these transitions, with investors awaiting clearer signs of sustained, broad-based growth and successful integration of new technologies.

Keywords

Secure authentication, Digital agreements, E-signature, Passwordless authentication, FIDO, Mobile-first, Cloud solutions, Cybersecurity, Fintech, Software, SaaS, Enterprise software, Fraud prevention, Identity verification, OneSpan, Nok Nok Labs, ThreatFabric, SEC filing, 10-Q, Financial results, Q3 2025, Revenue, Net income, Adjusted EBITDA, ARR, NRR, Share repurchase, Dividends, Credit facility