What Onespan (OSPN) Said on Its Q3 Earnings Call

Key Points

• OneSpan delivered strong Q3 growth: Revenue rose 12% to $63.9 million, driven by double-digit gains in Cybersecurity and Digital Agreements, while subscription revenue increased 16% and gross margin expanded to 76.3%.
• Profitability and recurring metrics improved: ARR grew 8.5% to $195.5 million, net retention reached 105%, adjusted EBITDA increased to $19.3 million, and operating cash flow totaled $16.5 million.
• The company raised its 2026 outlook: OneSpan now expects revenue of $254 million to $258 million, ARR of $197 million to $201 million, and adjusted EBITDA of $72 million to $76 million. Hardware revenue guidance was unchanged as some token deliveries shifted into Q3 from Q4.

Onespan NASDAQ: OSPN reported third-quarter 2026 revenue growth of 12%, supported by double-digit gains in both its Cybersecurity and Digital Agreements businesses, while raising its full-year revenue, annual recurring revenue and adjusted EBITDA outlook.

Revenue for the quarter totaled $63.9 million, compared with the prior-year period. Subscription revenue increased 16% to $51.5 million and represented 81% of total revenue, up from 78% a year earlier. Hardware revenue rose 7%, while perpetual maintenance revenue declined as customers continued to transition to term licenses.

Chief Executive Officer Victor Limongelli said the company delivered “an excellent third quarter,” citing 14% growth in Digital Agreements revenue and 11% growth in Cybersecurity revenue. He also highlighted a companywide gross retention rate of 91% and gross margin expansion to 76.3% from 73.6% a year earlier.

ARR, Profitability and Cash Flow

Annual recurring revenue, or ARR, rose 8.5% year over year to $195.5 million. Chief Financial Officer Jorge Martell said ARR growth was driven by expansions within existing customer contracts, new customer additions and the Build38 acquisition, which contributed about 1.5 percentage points to ARR growth. Net retention rate was 105%, compared with 103% in the previous quarter.

GAAP operating income increased to $9.2 million from $8.2 million in the third quarter of 2025. GAAP earnings per share rose to $0.20 from $0.17, while non-GAAP earnings per share increased to $0.35 from $0.33. Adjusted EBITDA totaled $19.3 million, compared with $17.5 million a year earlier, although adjusted EBITDA margin narrowed slightly to 30.1% from 30.7%.

The company generated $16.5 million in operating cash flow during the quarter and ended the period with $51.4 million in cash and cash equivalents. OneSpan had $5 million outstanding under its credit facility at quarter-end, which it repaid after the quarter closed.

OneSpan’s board approved a quarterly dividend of $0.13 per share. Limongelli said the company has returned $55 million to shareholders through dividends and stock repurchases since the beginning of 2025, or just under $1.50 per share.

Cybersecurity Revenue Benefits From Expansions

Cybersecurity revenue increased 11.3% to $44.9 million. Subscription revenue within the division grew 17.4% to $32.5 million, driven primarily by customer expansion agreements, multi-year term-license revenue, new customers, acquisitions and new products. Hardware revenue rose 7% to $10.5 million.

Martell said certain customers requested earlier-than-expected Digipass token deliveries, shifting some hardware revenue that had been anticipated in the fourth quarter into the third quarter. As a result, OneSpan expects a lower hardware contribution in the fourth quarter, though its full-year hardware outlook remains unchanged.

Cybersecurity ARR rose 10.1% to $127.2 million. The unit’s gross margin increased to 77% from 74%, reflecting a greater mix of subscription revenue and more favorable hardware shipments, partly offset by amortization associated with Build38. Operating income for the division was $18.5 million, or 41% of revenue, compared with $16.7 million in the prior-year quarter.

During the quarter, OneSpan launched its DigipassONE platform, which combines its authentication, mobile application protection, credential-verification and analytics offerings. Limongelli said the company plans to release DigipassONE Verify early next year and DigipassONE Insights afterward.

Limongelli said the company expects its verification offering to be particularly relevant for European banks as the European Digital Identity Regulation requires banks to support digital identity wallets for customer onboarding and authentication by December 2027.

In response to analyst questions, Limongelli said the company believes its hardware business has become more sustainable, with FIDO2 security keys expected to contribute increasingly in 2027 and later years. However, he said the hardware business through the first three quarters remained predominantly tied to older banking-related products.

Digital Agreements Margin Expands

Digital Agreements revenue grew 13.5% to $19 million, driven by customer overages, expansion renewals and new customer additions. ARR for the unit increased 5.7% to $68.4 million.

Martell said a major banking customer that had generated overage revenue signed a renewed contract during the quarter with a materially larger annual commitment. The customer’s revenue will now be recognized ratably under the multi-year contract, resulting in lower overage revenue in the fourth quarter as overages return toward more typical levels.

Digital Agreements gross margin rose to 74% from 72%, aided by higher revenue and improved cloud infrastructure efficiency. Operating income increased to $6.9 million, or 37% of revenue, from $4.2 million, or 25% of revenue, a year earlier.

Limongelli said OneSpan is adding capabilities to OneSpan Sign aimed at improving agreement completion, strengthening identity and document assurance, and connecting completed agreements with customers’ downstream systems and processes. The investments include a redesigned user experience, AI-assisted document validation, identity-verification features and broader integrations. He said the company has generally bundled these capabilities to date as part of its product differentiation strategy.

Full-Year Outlook Raised

OneSpan raised its 2026 outlook following the third-quarter performance. The company now expects:

• Total revenue of $254 million to $258 million, up from prior guidance of $248 million to $252 million.
• Software and services revenue of $208 million to $210 million, compared with prior guidance of $202 million to $204 million.
• Hardware revenue of $46 million to $48 million, unchanged from prior guidance.
• ARR of $197 million to $201 million, up from $194 million to $198 million previously.
• Adjusted EBITDA of $72 million to $76 million, compared with prior guidance of $67 million to $71 million.

Martell said the revised outlook reflects higher expected fourth-quarter software and services revenue, partly offset by lower hardware revenue because of the earlier token shipments. The company expects full-year gross margin to be slightly above 74%.

About Onespan (NASDAQ:OSPN)

OneSpan Inc NASDAQ: OSPN provides digital identity, authentication and electronic signature solutions for organizations that need to secure online transactions and interactions. Its technology is designed to help businesses verify users, protect accounts and transactions, and meet security and compliance requirements across digital channels.

The company's offerings include DIGIPASS authentication products, mobile and hardware authenticators, transaction-signing tools, adaptive authentication and identity verification capabilities.

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