OneSpan Inc. Form 10-Q for the Quarter Ended March 31, 2025
OneSpan Inc. reported its financial results for the quarter ended March 31, 2025. The company’s revenue increased by 12% year-over-year to $123.6 million, driven by growth in its authentication and identity verification solutions. Net income was $14.1 million, or $0.37 per diluted share, compared to a net loss of $2.1 million, or $0.06 per diluted share, in the same period last year. The company’s gross margin expanded to 74.5% from 72.1% in the prior year, while operating expenses increased by 15% to $54.5 million. As of March 31, 2025, OneSpan had cash and cash equivalents of $143.8 million and total debt of $25 million. The company’s management believes that its strong financial performance and growing demand for its solutions position it for continued growth and profitability in the future.
Overview of the Company’s Financial Performance
OneSpan Inc. is a global provider of software and hardware solutions for digital security, e-signature, and identity verification. The company operates in two main business segments: Security Solutions and Digital Agreements.
For the first quarter of 2025, OneSpan reported total revenue of $63.4 million, a 2% decrease compared to the same period in 2024. This decline was primarily driven by lower hardware sales in the Security Solutions segment, partially offset by growth in the Digital Agreements segment.
Despite the revenue decrease, OneSpan’s gross margin improved to 74% in Q1 2025 from 73% in the prior year period. This was due to favorable product mix and improved operational efficiencies in both business units. Operating expenses also decreased by 10% year-over-year, leading to a 22% increase in operating income to $17.2 million.
The company’s net income for the quarter was $14.5 million, up from $13.5 million in Q1 2024. OneSpan’s balance sheet remained strong, with $105.2 million in cash and cash equivalents as of March 31, 2025.
Revenue and Profit Trends
OneSpan’s revenue is heavily influenced by the timing of orders, shipments, and customer renewals. The company classifies its revenue into two main categories:
Security Solutions: This segment includes OneSpan’s portfolio of software products, SDKs, and Digipass authenticator devices used for multi-factor authentication and transaction signing. Security Solutions revenue decreased 5% year-over-year to $47.7 million, primarily due to lower hardware device sales.
Digital Agreements: This segment provides cloud-based solutions for securing and automating digital agreement and customer transaction lifecycles. Digital Agreements revenue grew 9% to $15.7 million, driven by increased cloud subscription revenue from both new and existing customers.
While Security Solutions remains OneSpan’s larger and more established business, the Digital Agreements segment has been growing at a faster pace. This shift towards more recurring, cloud-based revenue is a positive trend for the company’s profitability and predictability.
OneSpan’s gross margin improved to 74% in Q1 2025, up from 73% in the prior year period. This was primarily due to a higher software to hardware revenue mix in the Security Solutions segment, which has higher gross margins. The Digital Agreements segment also saw an increase in gross margin from 69% to 70%, driven by the growth in higher-margin cloud subscription revenue.
Operating expenses decreased by 10% year-over-year, mainly due to lower sales, marketing, and research and development costs as a result of headcount reductions. This, combined with the improved gross margin, led to a 22% increase in operating income to $17.2 million.
Strengths and Weaknesses
Strengths:
- Diversified business model with two complementary segments (Security Solutions and Digital Agreements)
- Shift towards more recurring, higher-margin cloud-based revenue in the Digital Agreements segment
- Improving gross margins and disciplined cost management leading to stronger profitability
- Solid balance sheet with $105.2 million in cash and cash equivalents
Weaknesses:
- Reliance on hardware sales in the Security Solutions segment, which are more volatile and have lower margins
- Exposure to foreign exchange rate fluctuations, with 84% of revenue generated outside the U.S.
- Ongoing restructuring efforts and associated charges, which have impacted operating expenses
Outlook and Future Prospects
OneSpan’s management is focused on driving profitable growth, with a particular emphasis on expanding its subscription revenue. The company believes that the shift towards cloud-based solutions and recurring revenue in both the Security Solutions and Digital Agreements segments will be a key driver of future success.
In the near term, OneSpan expects to continue its restructuring efforts, which are designed to streamline the business, improve efficiency, and enhance its capital resources. The company plans to incrementally take actions under the restructuring plan until December 31, 2025, when the plan is scheduled to terminate.
Looking ahead, OneSpan’s ability to capitalize on the growing demand for digital security, e-signature, and identity verification solutions will be crucial. The company’s strong market position, diversified product portfolio, and focus on recurring revenue streams position it well to navigate the evolving technology landscape and deliver value to shareholders.
However, the company will need to carefully manage the transition from its legacy hardware-based business to a more software and cloud-centric model, while also addressing the ongoing challenges posed by foreign exchange rate fluctuations and the competitive environment.
Overall, OneSpan’s financial performance in the first quarter of 2025 demonstrates the company’s progress in executing its strategic priorities. By continuing to invest in its core capabilities, optimize its operations, and adapt to changing market dynamics, OneSpan is well-positioned to drive long-term sustainable growth and profitability.
