OneSpan Inc. Q1 FY2025 earnings

OneSpan's first quarter of fiscal 2025 showed a familiar pattern. Revenue slipped while profit and cash flow improved. Total revenue was $63.4 million, down 2% from the prior-year quarter. Gross profit was $47.1 million, down 0.6% year over year. Gross margin rose to 74.3% year over year. Operating income climbed 21.8% to $17.2 million. Operating margin expanded to 27.1% year over year. Net income was $14.5 million, up 7.7% year over year. Diluted EPS was $0.37, up year over year. The top line decline was modest, but it extended pressure on hardware and perpetual revenue. The profit improvement came from cost control and a richer software mix. Gross margin benefited from favorable product mix and operational efficiencies in both business units.

The recurring revenue base kept growing. Annual recurring revenue reached $168.4 million, up 9% year over year. Net retention rate was 107%. Adjusted EBITDA was $23.0 million, compared with $20.2 million in the prior-year quarter. Non-GAAP net income was $17.7 million, or $0.45 per diluted share, compared with $15.2 million, or $0.39 per diluted share. Both segments were profitable, and Digital Agreements improved from an operating loss in the prior-year quarter. Security Solutions revenue fell on lower hardware volumes and lower perpetual maintenance and professional services, partly offset by higher subscription revenue. Digital Agreements grew on higher cloud subscription revenue from existing customers and new logos. The company has leaned on cost reductions. Average headcount in sales, marketing, support, and operations was 158, down from 183. Research and development headcount averaged 222, down from 250. General and administrative headcount averaged 85, down from 111. Non-GAAP results exclude long-term incentive compensation, amortization of intangibles, restructuring charges, and some non-recurring items.

Cash generation was a bright spot. Operating cash flow was $29.4 million, up 8.9% year over year. Capital expenditures fell 46.6% year over year to $1.6 million. Deferred revenue was $54.8 million, down 7.9% year over year. Remaining performance obligations were $96.4 million, up 10.0% year over year. The company also declared a quarterly dividend of $0.12 per share, payable June 6, 2025 to shareholders of record on May 16, 2025. The dividend is part of a recurring quarterly program initiated in December 2024. Working capital improved, and the balance sheet remains liquid. The deferred revenue decline is worth watching because it can signal renewal timing or billing shifts.

Guidance for the full year 2025 calls for a top-line range of $245 million to $251 million. ARR is expected to be $180 million to $186 million. Adjusted EBITDA is expected to be $72 million to $76 million. OneSpan also changed how it presents non-GAAP results. Starting January 1, 2025, it excludes employer payroll taxes tied to employee stock-based award transactions from non-GAAP measures, and it uses a long-term projected non-GAAP tax rate of 20%. Prior period amounts were adjusted. Those changes matter for comparability. The ARR target implies growth from the first-quarter level of $168.4 million, while the Adjusted EBITDA range points to further profitability gains. Management has not provided a reconciliation of Adjusted EBITDA guidance to GAAP net income because it cannot predict certain items without unreasonable efforts.

The quarter also carried risks. Revenue fell 2% and deferred revenue fell 7.9%. The company faces customer concentration risk, including the loss of one or more large customers. Lengthy sales cycles, competition, and restructuring execution are ongoing concerns. Foreign currency is a live factor: changes in exchange rates negatively affected revenue by approximately $1.1 million in the quarter and ARR by approximately $0.7 million. Tariffs, trade disputes, supply chain disruptions, and security breaches are listed risks. Restructuring charges are expected to continue through December 31, 2025, and the plan has eliminated about 335 positions. The company expects additional restructuring charges related to the 2023 Actions in future periods. Revenue is also heavily influenced by the timing of orders, shipments, and customer renewals, which makes quarterly comparisons volatile. The company notes that a majority of revenue is generated outside the U.S., which adds currency and geopolitical exposure. The company believes its financial resources are adequate to meet operating needs over the next twelve months.