OneSpan Inc. Q1 FY2025 earnings call

• Victor highlighted strong Q1 performance with record adjusted EBITDA of $23 million (36% of revenue) and ARR growth of 9%. Discussed trends affecting revenue: hardware transition leading to lower hardware revenues, transition of legacy perpetual maintenance contracts to term-based subscriptions lowering maintenance revenue, and headwinds from sunsetted products. - In security, subscription revenue grew 7% with headwinds from sunsetted products, on-time renewal rate slipped but key contracts expected to close. In digital agreements, subscription revenue grew 13% from expansion contracts and new logos. Both segments profitable. - Jorge discussed cash generation ($29.4M from operations), balance sheet ($105.2M cash), non-GAAP metrics, and financial outlook noting tariff and FX risks, reaffirmed guidance.

Security: Q1 subscription revenue grew 7%, ARR grew 7% year-over-year to $107 million. Q1 security revenue declined 5% to $47.7 million, security subscription revenue increased 7% to $28.1 million. Q1 2025 gross margin was 76% compared to 74% in Q1 2024. Digital Agreements: Q1 subscription revenue grew 13%, ARR grew 12% to $61 million. Revenue grew 9% to $15.7 million, subscription revenue grew 13% to $15.5 million. First quarter gross margin was 70% compared to 69% in the prior year quarter. Geographically, revenue mix in Q1 2025 was EMEA 49%, Americas 33%, Asia-Pacific 18%, consistent with Q1 2024.

• Expected revenue in range of $245M to $251M, ARR to end year in range of $180M to $186M, adjusted EBITDA in range of $72M to $76M. - Affirmed guidance despite macro uncertainties, noted potential $1M incremental tariff-related costs for full year 2025 due to hardware revenue tariff exposure and FX impacts.

• Tariffs: Single-digit percentage of hardware revenue has tariff exposure, estimated up to $1M incremental costs for full year 2025. - Foreign currency: Significant changes in foreign currency rates could affect results.

Q: On your tariff on the hardware piece, how much of the revenue do you expect to be from Europe?

A: Europe is the largest region for hardware revenue, over 50%, but no tariff impact in 2025 so far from China to EU.

Q: You talked about the two large deals slipping out of Q1 into Q2. Could you quantify the impact of those deals on ARR?

A: The two contracts had expiration end of Q1 but start date April 1st, so no impact on Q1 ARR.

Q: With the adjusted EBITDA margin being so strong in the first quarter, why was it expected to be better for the full year?

A: Q1 tends to be strongest in revenue mix with higher software vs hardware, remaining year mix shifts with hardware headwinds and software revenue decline affecting margin.

Q: What are you doing in terms of trying to get new logos?

A: DA side has more online lead generation, security side uses field sales team and channel partners for big bank deals.

Q: Just what are the net new ARR expectations for the year?

A: Q1 aligned to plan, Q2 growth mid to low single digits, Q3 and Q4 back in line with midpoint guide.

Q: How are you thinking about capital allocation?

A: Board looks at dividend, buybacks, or targeted M&A, more likely M&A on security side to expand capabilities.