On Thursday, OneSpan (NASDAQ:OSPN) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

OneSpan reported strong financial performance in Q1 2026, with subscription revenue growing by 8% year over year and an adjusted EBITDA margin of 32%.

The company completed the acquisition of Build38, enhancing its mobile application security offerings, and continued to benefit from last year's acquisition of Knock Knock Labs, which bolstered its passwordless authentication capabilities.

OneSpan's annual recurring revenue (ARR) increased by 14% year over year to $192 million, with notable growth in digital agreements and cybersecurity subscription revenues.

The company returned capital to shareholders through dividends and share buybacks and is committed to maintaining strong profitability and cash generation.

Management reaffirmed full-year 2026 guidance for revenue and adjusted EBITDA, while raising ARR guidance slightly, reflecting confidence in future growth despite anticipated headwinds from non-renewing contracts in their cybersecurity division.

Full Transcript

OPERATOR

Good day and thank you for standing by. Welcome to the Q1 2026 OneSpan earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Joe Maxa, VP of Investor Relations. Please go ahead.

Joe Maxa (Vice President of Investor Relations)

Thank you. Hello everyone and thank you for joining the OneSpan first quarter 2026 earnings conference call. This call is being webcast and can be accessed on the Investor Relations section of OneSpan's website at investors.onespan.com. Joining me on the call today is Victor Lamanjuli, our Chief Executive Officer and Jorge Martel, our Chief Financial Officer. This afternoon after market close, OneSpan issued a press release announcing results for our first quarter of 2026. To access a copy of the press release and other investor information, please visit our website. Following our prepared comments today, we will open the call for questions. Please note that statements made during this conference call that relate to future plans, events or performance, including the outlook for full year 2026 and other long term financial targets, are forward looking statements. These statements involve risks and uncertainties and are based on current assumptions. Consequently, actual results could differ materially from the expectations expressed in these forward looking statements. I direct your attention to today's press release and the Company's filings with the U.S. Securities and Exchange Commission for a discussion of such risks and uncertainties. Also note that financial measures that may be discussed on this call are expressed on a non-GAAP basis and have been adjusted from this related GAAP financial measures. We have provided an explanation for and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings press release and in the investor presentation available on our website. In addition, please note that all growth rates discussed on this call refer to a year over year basis unless otherwise indicated. The date of this conference call is April 30, 2026. Any forward looking statements and related assumptions are made as of this date. Except as required by law, we undertake no obligation to update these statements as a result of new information or future events or for any other reason. I will now turn the call to Victor.

Victor Lamanjuli (Chief Executive Officer)

Thank you Joe. Hello everyone. Thank you for joining us today. We had a good first quarter with strong profitability and solid revenue growth. Indeed, subscription revenue grew 8% year over year and our adjusted EBITDA margin was 32%. I'm also happy to report that notwithstanding the doom and gloom you might hear about software, our gross revenue retention increased again in Q1, reaching 90% for the company as a whole and 94% for our digital agreements business. We also generated healthy cash flows and we returned capital to shareholders via share buybacks, which have totaled approximately 1.5 million shares for more than $18 million over the past three quarters and via an increased quarterly dividend as well. Before reviewing our results in more detail, I'd like to provide an update on our investments and how we are positioning the company for stronger growth over time. First, in Q1 we completed the acquisition of Build38, which brings a fantastic team to OneSpan with deep expertise in mobile threats and mobile application protection and provides customers with telemetry to help them understand the attacks targeting their mobile applications and the environment in which they operate. Keep in mind that the vast majority of consumer banking is now conducted through mobile banking applications, making this a critical attached service for banks to protect. We now offer post compilation application protection, sometimes called post compilation wrapping as well as an SDK based approach through which customers can build in application protection and the telemetry necessary for visibility into the threat environment and overall operating environment. With the addition of build 38's capabilities, I am happy to report that we now offer a comprehensive set of leading mobile application security technologies across the app shielding landscape. Second, I want to update you on the acquisition we completed last year of Knock Knock, Labs,, the pioneer of the FIDO alliance and of passwordless authentication. A fabulous team from Knock Knock, joined our company and together we have grown that business materially, with ARR having increased about 20% in less than 10 months since closing and it has broadened our product set as well. We now have the broadest B2B2C, authentication offering both hardware and software cloud and on prem and OTP and FIDO. Third, we continue to invest in internal research and development in our digital agreements business. We continue to make strides towards our goal of delivering secure seamless agreement workflows purpose built for the financial services industry, combining white label capabilities with embedded security compliance and identity assurance across the eSignature journey. We're also planning to integrate AI driven capabilities to provide deeper insights, streamline decision making and further simplify integration into our customers existing environments. Last but not least, I want to reiterate that neither our digital agreements business nor our cybersecurity business has seat based licensing as the primary revenue model. In cybersecurity, we sell to our customers based on the number of their end users and not based on the number of their employees or seats. Our licenses are tied to the number of consumers using strong authentication or app shielding solutions. Similarly, in digital agreements, the vast majority of our business, about 97% is priced based on the number of expected E signature transactions or documents rather than customer employee counts or user counts. Turning to our results, as mentioned, we started the year with a strong first quarter. We generated $21 million of adjusted EBITDA in the quarter, or 32% of revenue. We ended the first quarter with annual recurring revenue of $192 million, up 14% year over year, inclusive of the uplift from the 2 acquisitions in the past year. This strong ARR growth continues a positive trend as ARR is now up 24% since March 31, 2024. Total revenue grew 4% to $66 million, driven by 11% growth in digital agreements, which had another strong quarter, and 2% growth in cybersecurity. Subscription revenue in digital agreements grew 11% driven by demand for eSignatures, while subscription revenue in Cybersecurity grew about 6.5%, reflecting growth in cloud authentication, passwordless authentication and app shielding. Both business units were solidly profitable at the division level. Overall, the company generated $28 million in cash from operations during the quarter. Our Board remains committed to a balanced capital allocation strategy that considers shareholder returns, organic investment and targeted M&A. In the first quarter, we invested nearly $35 million to acquire Build 38 and returned more than $10 million to shareholders through dividends and share repurchases. Following nearly $32 million returned in 2025, the board has approved a quarterly dividend of $0.13 per share to be paid in the current quarter and will continue to evaluate additional share repurchase opportunities. In summary, we serve a diverse global customer base and we deliver comprehensive offerings in strong B2, B2C authentication, app shielding and E signatures. We are investing internally and through targeted MA to strengthen our portfolio and go to market execution and we continue to make solid progress in building a stronger foundation for growth. We remain committed to maintaining strong profitability, cash generation and returning capital to shareholders. With that, I'll turn the call over to Jorge.

Jorge Martel (Chief Financial Officer)

Thanks Victor, and good afternoon everyone. I'm pleased to report another strong quarter and continued progress in building a solid foundation for future growth. I'm particularly excited about our acquisition of Build38, which strengthens our mobile application security offering and enhances our ability to protect customers and and their customers from increasingly sophisticated AI driven threats. We acquired Build38 on February 27th and as such, our first quarter results include just over one month of Build38's financial contribution. Before turning to our Q1 results, I'd like to briefly highlight a change we made this quarter to how we present revenue by operating segment to better align with how we manage the business and our strategic focus on growing recurring revenues. We now include term maintenance revenue within subscription revenue. As a result, subscription revenue now consists primarily of term licenses for on PREM software, the related maintenance and support revenue and SaaS revenue. In addition, maintenance revenue associated with perpetual licenses and professional services is now presented together better reflecting the continued evolution of our business away from perpetual license arrangements. These changes are presentation only and have no impact on total revenue, operating income or cash flows and prior period results have been updated for comparability. Additional details are included in the revenue tables in today's press release, our Form 10Q and the Investor presentation on our website. With that context, let me turn to our first quarter results. Annual recurring revenue or ARR increased 14.1% with year over year to $192.1 million inclusive of the 2 acquisitions. Our net retention rate was 105%, benefiting from customer expansion contracts. ARR also benefited from new customer additions and M&A first quarter revenue was 65.9 million, an increase of 4.1% compared to last year's Q1, driven by 5.8% growth in software and services revenues, partially offset by a 4.3% decline in hardware revenue. Continuing a long term declining trend in Q1, hardware comprised only 16% of our overall revenue. Subscription revenue grew 8.2% to 52.7 million and accounted for 80% of total revenue. Gross margin was approximately 74% consistent with the prior year period. I'll provide additional detail on these metrics as I review each business division in a couple minutes. First quarter GAAP operating income was $14.8 million compared to 17.2 million in Q1 of last year. The year over year decline in operating income primarily reflects increased operating costs related to the acquisition of Knock Knock and Build38, including headcount and non recurring acquisition related consulting costs as well as certain costs related to organic investments, partially offset by lower share based compensation expenses. GAAP net income per share was $0.30 compared to $0.37 a year ago. Non GAAP net income per share was $0.39 compared to $0.45 in prior year period. First quarter adjusted EBITDA and adjusted EBITDA margin was $21 million and 31.9% compared to 23 million and 36.4% in the first quarter of last year. Turning to our cybersecurity division, CyberSecurity ARR grew 16.5% year over year to 124.6 million, again inclusive of the two acquisitions in the past year. First quarter revenue increased 1.7% to 48.5 million. Subscription revenue grew 6.6% to 35.3 million driven by customer expansions, new logos and M&A partially offset by lower multi year term license revenue. Hardware revenue declined 4.3% which was less than expected due to the earlier than anticipated delivery of certain customer shipments. As expected, perpetual maintenance and services revenue declined as we continue to transition to legacy perpetual contracts to term based arrangements. Gross margin for the CyberSecurity division was 74% compared to 76% in the prior year quarter, primarily reflecting incremental third party license costs as well as subscription and professional services costs. Operating income was 20.8 million or 43% of revenue compared to 24.2 million or 51% of revenue in last year's Q1 driven by increased operating expenses from the acquisitions. The incremental cost of revenues just discussed higher non recurring acquisition related consulting costs and increased investments. Now turning to digital agreements, ARR grew 9.9% year over year to 67.5 million. First quarter revenue grew 11.2% to 17.4 million driven by expansion of renewal contracts, new customer additions, overage fees. Gross margin improved to 72.5% up from 70.3% in the prior year period, reflecting higher revenues and greater efficiency in our cloud infrastructure costs. Operating income was 5.3 million or 30.4% of revenue compared to 3.4 million or 21.5% in the same period last year driven by revenue growth, higher gross margins and a modest decline in operating expenses. Turning to our balance sheet, we ended the first quarter with 49.8 million in cash and cash equivalents compared to 70.5 million at the end of 2025. We generated 28.2 million in operating cash flows during the quarter. Uses of cash included 5 million for our quarterly dividend, 5.4 million to repurchase approximately 510,000 shares of common stock, 34.6 million related to the Bilt 38 acquisition and 2.6 million in capital software development costs, among other things. We ended the quarter with no long term debt. Geographically, revenue in the first quarter of 2026 was 43% for EMEA, 38% from the Americas, 19% from Asia Pacific, compared to 49%, 33% and 18% from the same regions in the first quarter of 2025 respectively. Year over year changes reflect growth in digital agreements and cybersecurity software revenue in the Americas, lower cybersecurity hardware and software revenue in emea, and increased hardware revenue in Asia Pacific. Now turning to some modeling notes and our outlook, we are pleased with our first quarter results and the progress we've made in positioning the company for long term growth. We are affirming our full year 2026 guidance for revenue and adjusted EBITDA, and we are raising our guidance for ARR. We expect continued growth in software and services revenue driven by solid performance in digital agreements and moderate growth in cybersecurity. In cybersecurity, we anticipate a second quarter ARR headwind of approximately $3 million from two contracts not expected to renew. In both cases, the customer is not a bank or a financial institution and the majority of that total is from a customer Moving to Passwordless Authentication With a decision taken a year ago before we had acquired Knock Knock Labs. Indeed, this reinforces our belief that adding noknoc to our product portfolio was the right strategic move, as we expect passwordless authentication to only grow going forward. As such, we expect ARR to grow in the second half of the year, with most of that growth occurring in the fourth quarter quarter. Finally, we also expect the secular shift away from consumer banking hardware tokens to continue for the full year 2026. We expect total revenue to be in the range of 244 to 249 million dollars. We expect software and services revenue to be in the range of 201 to to $204 million. We expect hardware revenue to be in the range of 43 to $45 million. We expect ARR to be in the range of 194 to $198 million as compared to our previous guidance range of 192 to $196 million. And we expect adjusted EBITDA in the range of 64 to $68 million. That concludes my remarks. I will now turn the call back to Victor.

Victor Lamanjuli (Chief Executive Officer)

Thanks Jorge. To recap, we delivered a strong first quarter and over the past year we have better positioned the company to deliver value to customers and create value for shareholders. While we know there is more work ahead, that one good quarter does not make an excellent year, we are encouraged by the progress we have made. Jorge And I will now be happy to take your questions.

OPERATOR

Thank you. At this time we will conduct the question and answer session. We kindly request that each participant ask one question and one follow up question. You may re queue if you have more questions. As a reminder, please mute your line when not speaking. To ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from the line of Eric Supinger of B. Riley Securities,. Your line is now open.

Eric Supinger

Yeah, thanks for taking the questions. First off, when will we start to realize some of the returns that you're making in the operations over the course of 2026? When can we anticipate some acceleration in top line? And do you have a time frame when you can get back to a rule of 40. Delivering on the rule of 40. Yeah, thanks, Eric. I think before getting to the exact timeline for the rule of 40, it's important to highlight the progress we've made. If you look at where we were on the rule of 40 metrics in 2023, I believe the number was 12 on a combined basis, not for one of the metrics. And for the most recent quarter, we were at 36 and 32 last year. So we've definitely made progress. I don't want to pin an exact date on when we'll be at exactly 40, but we're making progress. You see it in our ARR growth. You see it in our subscription growth. Of course, for quite a long time we've had a consumer banking token decline. And you saw hardware decline again year over year. It's now only 16% of our revenue. We feel like we've made some good progress. We've added some real key functionality to our product set and we're investing in go to market as well to continue to try to drive that subscription growth and try to drive the ARR forward. Okay, thank you.

OPERATOR

Thank you. Our next question comes from the line of Rudy Kessinger of DA Davidson. Your line is now open.

Rudy Kessinger

Hey, great. Thanks for taking my questions. First one for me on ARR, just so we can kind of try to get to an organic ARR growth rate. What was the knock knock ARR and build 38 ARR as of the end of Q1.

Jorge Martel (Chief Financial Officer)

Hey Rudy, thanks for the question. So as of the end of Q1, Knock Knock's ARR was 9.7 million, which is an increase from the 8.1 that we acquired already nine months ago, which we feel pretty good about. And Victor alluded to that 20% growth over the last nine and change month. Nine ish months. The bill 38 ARR that we acquired was 2.8 million. So combined it's about 10.9. Call it 11. And so when you look at, you know, ARR growth organic, you know it's about 6, 7, 7%, 7, 8%. Really

Rudy Kessinger

got it. That's super helpful. And the growth on Knock Knock is good to see. Obviously you lap that next quarter as far as organic goes. And then second question for me, obviously just given your guys significant EMEA mix, I'm curious what impacts if any. Maybe it's on the quarter or you're seeing incurring deal conversations just given the conflict in the Middle East right now. Yes, thanks Rudy. The Middle East itself, while the Gulf region itself is a small part of our business, only about 4% of revenue and we're obviously keeping an eye on it like many people are for Europe. I think you'll see in the geographic mix or Jorge talked about the geographic mix, EMEA is a little bit of a smaller portion compared to growth in the Americas. Part of that strategic. We do think we're under indexed to North America when it comes to security in particular. So we feel like we're going to grow faster in North America than we had in the past. And also the Digital Agreements business has been doing well and that's largely a North American business. Overall we're optimistic, I would say about EMEA and cautiously watching the Middle East situation. That's helpful. Thank you guys.

OPERATOR

Thank you. Our next question comes from the line of Gray Powell of btig. Your line is now open.

Gray Powell

Oh great. Thanks for taking the questions. I just had a couple here. So it's good to hear the commentary on Knock Knock. Where are you seeing the strongest pull with Knock Knock within your installed base?

Victor Lamanjuli (Chief Executive Officer)

And then just like when a customer decides to take the product set, just how should we think of the upsell opportunity? Knock Knock I think is an upsell opportunity because people are going to move to passwordless over the coming years. So having that capability is a core part of our offering. So some of that is customer retention. We talked about Gross Revenue Retention (GRR) in the first quarter it was at a very strong level. 94% for Digital Agreements but 88% for security, cybersecurity. So higher than it had been in quite a while. And there's also opportunity to get new customers with Knock Knock's offering as passwordless becomes more and more prevalent. Having a super strong Offering. Having the board seat on the FIDO alliance, having the history with FIDO that Knock Knock had, brings a lot to the table. Geographically, we have seen it so far be stronger in North America, with strength in Japan as well. But we expect it to grow in Europe, ultimately to grow in Latin America and all over the world in five years. People will, everyone will use passkeys and passwords will seem outdated. Okay, that's really helpful. And then I just want to make sure I'm thinking about build 38 correctly. So, I mean, it makes perfect sense on how it can make your existing products better. And this might be a dumb question, but what was the acquisition's main purpose? Is it simply to make you more competitive on the authentication side and to make your existing stuff more compelling, or is it going to ultimately result in another SKU that you can sell to customers and therefore like just something else that can generate revenue? It broadens the offering. So if you think about what our app shielding offering was, first of all, it was through a partner. We had a long partnership in that realm that was successful. But that offering was what is called a wrapping. So you build the application and then after it's compiled, there's a wrapper or protection put around the app and it's useful. It blocks attacks, but it doesn't give you as much information about what type of attacks are coming in, what the operating environment is. And the Build38 approach is different. It has an Software Development Kit (SDK) based implementation where the protection is built into the app and it enables telemetry back from the applications. Remember, they don't control the devices. These are all consumer devices that are using mobile banking apps. It gives them lots of information about the devices themselves and about what attacks are happening. So that has all kinds of implications to broaden the cyber security solution that we're offering customers.

Gray Powell

Understood. Thank you very much. Thank you.

OPERATOR

Our next question comes from the line of Anya Söderström of Sidoti.. Your line is now open.

Anya Söderström

Hi, thank you for taking my question. Just curious, the contracts that are not renewing in second quarter, how big of a shortfall is that? And can you just sort of double click on what gives you confidence in raising the ARR guidance?

Victor Lamanjuli (Chief Executive Officer)

Sure. We've seen good progress with ARR. Those two accounts, I mean, one of them is about $2 million. Right. That decision was taken a year ago for them to move to passwordless. This is a great. It just underscores why the Knock Knock acquisition was important for us. We did not have an offering at the time, so we didn't have the opportunity to even compete effectively as they moved to passwordless. We do now. Unfortunately, that decision had already been taken. So in the short run we're going to have a little bit of a hit as mentioned to ARR. But we do feel good about the growth that we've seen so far, the pipeline and you know, we do have seasonality in our business. We close a lot more business in Q4 than we do in the summer, typically in most years. So we think most of that ARR kind of reinvigoration will happen in the latter part of the year, say September through December.

Anya Söderström

Okay, thank you. And now when you have knock knock, do you feel you're getting better attention since you are having that offering or.

Victor Lamanjuli (Chief Executive Officer)

Well, it's hard to put a precise quantification on it. But if you look at the growth in our grr, I think we are positioned better with our customers. Instead of having technology that maybe a few years ago someone would have viewed as dated, we have up to date market leading technology in critical areas. So that helps customers feel that they should stick with you, that you're going to be a long term solution. And we've seen our GRR go up. I don't think it's only as a result of that because our renewals team has done a great job. We've done better engagement with customers as well, but I think it certainly helps.

Anya Söderström

Okay, thank you. That was all for me.

OPERATOR

Our next question comes from the line of Eric Supinger of B. Riley Securities. Your line is now open.

Eric Supinger

Yeah, thanks again. Follow up here of your Fido 2 customers. How many of them are buying both the knock knock back end software as well as the tokens? To date, not too many. Knock knock of course did not have a token business. So most of them are pure software customers. And that's another area that I think as we look ahead we have an opportunity to do better in. It's something that we're hoping can blunt the decline in the consumer banking tokens as we move forward. Having that broad offering does give flexibility to customers. If they have a portion of their workforce that they want to have hardware authentication for, we can offer that without them needing to go to somebody else, to a hardware only vendor as an example. But to date we haven't had a ton of cross sell on that. It is an opportunity rather than a material contributor at the moment. Is it a synergistic sale where you're able to provide any kind of advantage by using an end to end solution? Or is it just simply standards based and therefore there's no end to end benefit? Well, the Knock Knock offering has advantages. Of course it's an open protocol, the Fido protocol. But the Knock Knock solution has additional technology built in to enable device binding of keys, which financial institutions like a lot. Not to get too much into the weeds, but synced keys synced to Google or other cloud providers can sometimes make banks nervous. And the Knock Knock offering has the ability to have device bound keys so that they are not synced on the software side. On the hardware side it is again, it's an open protocol so they could buy hardware from someone, someone else. It is advantageous in having the same vendor. We do very nice branding on the devices which we have history having done that with banks for many, many years. So to the extent that they like that, it's an appealing offering. But again, open protocol so there's not a vendor lock in situation when it comes to hardware. Very good. Thank you.

OPERATOR

Our next question comes from the line of Catherine Trevnick of Rosenblatt. Your line is now open.

Catherine Trevnick

Yeah, thanks for taking my question. Now, with subscription revenue roughly 80% of total and you have a good track record or it seems like digital agreements and the cybersecurity subscriptions growing, can you kind of lay out a plan for, you know, will it always be 80, 85%? I mean, what's going to happen with the hardware, you think, over the next 12 months? Because I know it's been lumpy and there's obviously some changes and just kind of lay out a roadmap. Thank you.

Victor Lamanjuli (Chief Executive Officer)

So let me just talk about the underlying business trends. The consumer banking tokens, we expect to continue to decline. We don't think they'll go to zero. We think there will be some portion of consumers in Europe and Asia that are using tokens to authenticate because they are doing web banking and they are not doing their banking through a mobile banking app. If you ask banks, a lot of them will say 80% of their traffic is now through their mobile app versus laptops or desktops. The hardware piece, the part that could offset that ongoing decline that's been going on for over a decade is, is the Fido 2 security piece. If we can get that piece to grow, we could offset that growth and keep the hardware business at a stable rate. Of course, most of our focus, most of our attention is on growing the subscription, growing the ARR and driving value that way. Jorge, I don't know if you want to add anything on modeling that would be helpful.

Jorge Martel (Chief Financial Officer)

Yeah. So I think for purposes of 2026, you know we, we didn't change our guide for, for hardware, you know where it goes in 27, 28. You know what he has a crystal ball. I think Victor have some input on that. You know it's obviously still in secular decline but to Victor's point we don't think it's going to go to zero. Right. There's going to be even corporate banking is still done you know through a hardware token is the safest way to do provides transaction signing and things of that nature. And so there will be specifically a pool in a target customer base that will continue to use that device hardware tokens so cannot add more to what you said other than hopefully stabilizes and finds a new baseline soon.

Catherine Trevnick

All right, thank you very much. Sorry to keep asking that question but keeps coming up. Bye bye.

OPERATOR

This concludes the question and answer session. I would now like to turn it back to Joe Maxa for closing remarks.

Joe Maxa (Vice President of Investor Relations)

Thanks for joining today everyone. We look forward to talking with you again next quarter. Have a great evening.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.