Onespan Earnings Call Highlights Subscription-Led Growth

Onespan ((OSPN)) has held its Q1 earnings call. Read on for the main highlights of the call.

Onespan’s latest earnings call painted a cautiously optimistic picture, with management highlighting robust recurring revenue growth and expanding subscription mix despite some pressure on margins and cash. Executives balanced enthusiasm over digital agreements and cybersecurity momentum with frank acknowledgment of non‑renewals, hardware decline, and integration‑driven cost increases.

Strong ARR Growth and Retention

Onespan’s annual recurring revenue reached $192.1 million, up 14.1% year over year including recent acquisitions and up 24% since March 2024. The company underscored a healthy net retention rate of 105%, with gross revenue retention around 90% overall and an even stronger 94% in its digital agreements segment.

Subscription Revenue Momentum and Mix

Subscription revenue climbed 8.2% year over year to $52.7 million and now represents 80% of total revenue. Management framed this as clear evidence of the shift to recurring and term‑based models, which they see as improving visibility and smoothing out volatility compared with legacy license and hardware sales.

Profitability and Adjusted EBITDA

The company generated adjusted EBITDA of $21.0 million, translating to a margin near 32% and reaffirming Onespan’s status as a cash‑generative software business. Even with incremental costs tied to acquisitions, management emphasized that profitability remains solid and supports continued investment and capital returns.

Digital Agreements Outperformance

Digital agreements continued to outperform, with segment revenue up 11.2% year over year to $17.4 million and ARR rising 9.9% to $67.5 million. Profitability in this business improved sharply as gross margin expanded to 72.5% and operating income jumped to $5.3 million, lifting the operating margin to 30.4%.

Cybersecurity Growth and Diversification

Cybersecurity ARR grew 6.5% to $124.6 million, while subscription revenue in the segment increased about 6.6% to $35.3 million. Growth is being driven by cloud authentication, passwordless offerings, and app shielding, broadening Onespan’s security footprint beyond traditional token‑based solutions.

Strategic Acquisitions and Product Expansion

Management spotlighted the acquisitions of Build 38 and Nok Nok as key to expanding Onespan’s product capabilities in mobile app shielding, telemetry, and passwordless authentication. Combined acquired ARR now stands around $11 million, with Nok Nok’s ARR up roughly 20% since the deal to $9.7 million and Build 38 contributing about $2.8 million.

Cash Generation and Shareholder Returns

Operating activities produced $28.2 million in cash in the quarter, giving Onespan room to both invest and return capital. Over the past three quarters the company repurchased roughly 1.5 million shares for more than $18 million, including $5.4 million in Q1, while also approving a quarterly dividend of $0.13 per share.

Balance Sheet Strength

Onespan closed the quarter with no long‑term debt and overall gross margins of about 74%, a combination that management says preserves flexibility for further M&A and internal investment. The strong margin profile also helps cushion the impact of integration costs and the gradual erosion of higher‑margin hardware revenue.

Compression in Margins and GAAP Profitability

Despite healthy top‑line mix, GAAP operating income slipped to $14.8 million from $17.2 million and non‑GAAP EPS fell to $0.39 from $0.45, with GAAP EPS at $0.30 versus $0.37. Adjusted EBITDA declined from $23 million to $21 million, and the margin compressed from 36.4% to 31.9%, reflecting acquisition‑related and other incremental operating costs.

ARR Headwind from Near-Term Non-Renewals

Management warned of a roughly $3 million ARR headwind in Q2 tied to two contracts not expected to renew, including one around $2 million. The largest customer is transitioning to passwordless solutions, a decision the company noted was largely made before the Nok Nok acquisition and not a reflection of Onespan’s current capabilities.

Continued Secular Decline in Hardware

Hardware revenue fell about 4.3% and now accounts for only roughly 16% of total revenue, underscoring the secular decline in consumer banking tokens. Executives reiterated that hardware will remain a shrinking and lumpy stream, increasing the strategic importance of software, services, and passwordless offerings.

Cash Balance Decline Due to Acquisition and Capital Return

Cash and cash equivalents decreased to $49.8 million from $70.5 million at the end of 2025, primarily due to the Build 38 acquisition and shareholder payouts. The company spent $34.6 million on Build 38 and also funded a $5 million dividend and $5.4 million of share repurchases during the quarter.

Higher Operating Costs from Integrations and Investments

The year‑over‑year decline in operating income was driven by higher expenses from integrating Nok Nok and Build 38, including added headcount and one‑time consulting. Management acknowledged that these investments are weighing on margins near term but argued they are essential to scale the enlarged platform and capture growth.

Limited Near-Term Cross-sell Between Nok Nok and Hardware

So far, Onespan has seen limited cross‑sell between Nok Nok’s software and its existing hardware token base, and management doesn’t see this as a material driver yet. They instead framed cross‑sell as a medium‑term opportunity that could enhance growth once the integrations mature and go‑to‑market motions align.

Seasonal and Timing Risks to ARR Growth

Executives cautioned that ARR acceleration will likely be back‑ended, with most growth expected in the fourth quarter, making results more sensitive to deal timing. This seasonality and the concentration of larger contracts mean investors should expect some quarterly volatility even as the full‑year trend remains positive.

Guidance and Forward-Looking Outlook

Onespan reaffirmed its full‑year 2026 revenue outlook of $244 million to $249 million and adjusted EBITDA of $66 million to $68 million while raising its ARR guidance to $194 million to $198 million. Management expects a $3 million ARR drag in Q2 but anticipates stronger growth in the back half, led by software and services and steady cybersecurity gains as hardware continues its structural decline.

Onespan’s call ultimately balanced confidence in its subscription‑driven transformation with realism about integration costs, hardware headwinds, and contract churn. For investors, the story is one of durable ARR growth and strategic repositioning in digital security and agreements, offset by margin compression and execution risk as the company leans harder into its software future.