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    SEC Form 10-Q filed by OneSpan Inc.

    5/1/25 5:12:58 PM ET
    $OSPN
    EDP Services
    Technology
    Get the next $OSPN alert in real time by email
    ospn-20250331
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    Table of Contents
    UNITED STATES
    SECURITIES AND EXCHANGE COMMISSION
    Washington, D.C. 20549
    _____________________________________
    FORM 10-Q
    _____________________________________
    (Mark One)
    xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2025
    OR
    oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    FOR THE TRANSITION PERIOD FROM _______ TO
    Commission file number 000-24389
    _____________________________________
    OneSpan Inc.
    (Exact Name of Registrant as Specified in Its Charter)
    _____________________________________
    Delaware36-4169320
    (State or Other Jurisdiction of
    Incorporation or Organization)
    (I.R.S. Employer
    Identification No.)
    1 Marina Park Drive, Unit 1410
    Boston, Massachusetts 02210
    (Address of Principal Executive Offices) (Zip Code)
    (312) 766-4001
    (Registrant’s telephone number, including area code)
    _____________________________________
    Securities registered pursuant to Section 12(b) of the Act:
    Title of each class:Trading SymbolName of each exchange on which registered:
    Common Stock, par value $0.001 per shareOSPNNasdaq
    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer ,a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
    Large accelerated fileroAccelerated filerx
    Non-accelerated fileroEmerging growth company o
    Smaller reporting companyo
    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
    There were 38,230,467 shares of Common Stock, $0.001 par value per share, outstanding at April 24, 2025.


    Table of Contents
    OneSpan Inc.
    Form 10-Q
    For the Quarter Ended March 31, 2025
    Table of Contents
    PART I. FINANCIAL INFORMATION
    Item 1.
    Condensed Consolidated Financial Statements (Unaudited)
    Condensed Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024
    3
    Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2025 and 2024
    4
    Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2025 and 2024
    5
    Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2025 and 2024
    6
    Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024
    7
    Notes to Condensed Consolidated Financial Statements
    8
    Item 2.
    Management’s Discussion and Analysis of Financial Condition and Results of Operations
    20
    Item 3.
    Quantitative and Qualitative Disclosures about Market Risk
    33
    Item 4.
    Controls and Procedures
    34
    PART II. OTHER INFORMATION
    Item 1.
    Legal Proceedings
    34
    Item 1A.
    Risk Factors
    34
    Item 2.
    Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
    34
    Item 6.
    Exhibits
    36
    SIGNATURES
    37
    2

    Table of Contents
    PART I. FINANCIAL INFORMATION
    Item 1. Financial Statements (Unaudited)
    OneSpan Inc.
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (In thousands, except par value)
    (Unaudited)
    March 31,December 31,
    20252024
    ASSETS
    Current assets
    Cash and cash equivalents$105,211 $83,160 
    Accounts receivable, net of allowances of $1,147 at March 31, 2025 and $1,600 at December 31, 2024
    29,595 56,229 
    Inventories, net11,028 10,792 
    Prepaid expenses6,327 6,547 
    Contract assets10,587 8,687 
    Other current assets7,811 9,479 
    Total current assets170,559 174,894 
    Property and equipment, net21,105 20,966 
    Operating lease right-of-use assets7,865 7,725 
    Goodwill94,200 92,365 
    Intangible assets, net of accumulated amortization6,923 7,481 
    Deferred income taxes20,573 20,516 
    Other assets12,585 14,787 
    Total assets$333,810 $338,734 
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
    Accounts payable$12,005 $13,310 
    Deferred revenue51,850 67,465 
    Accrued wages and payroll taxes9,540 13,793 
    Short-term income taxes payable6,166 4,403 
    Dividend payable193 4,765 
    Other accrued expenses7,263 6,339 
    Deferred compensation19 200 
    Total current liabilities87,036 110,275 
    Long-term deferred revenue2,933 3,390 
    Long-term lease liabilities6,908 6,932 
    Deferred income taxes3,771 3,680 
    Other long-term liabilities2,043 1,927 
    Total liabilities102,691 126,204 
    Commitments and contingencies
    Stockholders' equity
    Preferred stock: 500 shares authorized, none issued and outstanding at March 31, 2025 and December 31, 2024
    — — 
    Common stock: $0.001 par value per share, 75,000 shares authorized; 41,881 and 41,782 shares issued; 38,157 and 38,058 shares outstanding at March 31, 2025 and December 31, 2024, respectively
    38 38 
    Additional paid-in capital123,983 122,534 
    Treasury stock, at cost: 3,724 shares outstanding at March 31, 2025 and December 31, 2024
    (47,380)(47,380)
    Retained earnings165,746 151,256 
    Accumulated other comprehensive loss(11,268)(13,918)
    Total stockholders' equity231,119 212,530 
    Total liabilities and stockholders' equity$333,810 $338,734 
    See accompanying notes to condensed consolidated financial statements.
    3

    Table of Contents
    OneSpan Inc.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (In thousands, except per share data)
    (Unaudited)
    Three Months Ended
    March 31,
    20252024
    Revenue
    Product and license$37,240 $37,798 
    Services and other26,126 27,045 
    Total revenue63,366 64,843 
    Cost of goods sold
    Product and license8,718 9,706 
    Services and other7,557 7,742 
    Total cost of goods sold16,275 17,448 
    Gross profit47,091 47,395 
    Operating costs
    Sales and marketing11,457 12,927 
    Research and development7,928 8,259 
    General and administrative9,547 10,007 
    Restructuring and other related charges421 1,497 
    Amortization of intangible assets556 595 
    Total operating costs29,909 33,285 
    Operating income17,182 14,110 
    Interest income, net692 101 
    Other income (expense), net(9)291 
    Income before income taxes17,865 14,502 
    Provision for income taxes3,360 1,034 
    Net income$14,505 $13,468 
    Net income per share
    Basic$0.38 $0.35 
    Diluted$0.37 $0.35 
    Weighted average common shares outstanding
    Basic38,10638,060
    Diluted39,02738,463
    See accompanying notes to condensed consolidated financial statements.
    4

    Table of Contents
    OneSpan Inc.
    CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (In thousands)
    (Unaudited)
    Three Months Ended March 31,
    20252024
    Net income$14,505 $13,468 
    Other comprehensive income (loss)
    Cumulative translation adjustment, net of tax2,674 (1,655)
    Pension adjustment, net of tax(24)(30)
    Comprehensive income$17,155 $11,783 
    See accompanying notes to condensed consolidated financial statements.
    5

    Table of Contents
    OneSpan Inc.
    CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
    (In thousands)
    (Unaudited)
    For the Three Months Ended March 31, 2025:
    DescriptionCommon StockTreasury - Common StockAdditional
    Paid-In
    Capital
    Retained
    Earnings
    Accumulated
    Other
    Comprehensive
    Income (Loss)
    Total
    Stockholders'
    Equity
    SharesAmountSharesAmount
    Balance at December 31, 202438,058$38 3,724$(47,380)$122,534 $151,256 $(13,918)$212,530 
    Net income— — — — — 14,505 — 14,505 
    Foreign currency translation adjustment, net of tax— — — — — — 2,674 2,674 
    Stock-based compensation— — — — 2,776 — — 2,776 
    Vesting of restricted stock awards179 — — — — — — — 
    Tax payments for stock issuances(80)— — — (1,327)— — (1,327)
    Dividends declared ($0.12 per share)
    —— ———(15)—(15)
    Pension adjustment, net of tax— — — — — — (24)(24)
    Balance at March 31, 202538,157$38 3,724$(47,380)$123,983 $165,746 $(11,268)$231,119 




    For the Three Months Ended March 31, 2024:
    DescriptionCommon StockTreasury - Common StockAdditional
    Paid-In
    Capital
    Retained
    Earnings
    Accumulated
    Other
    Comprehensive
    Income (Loss)
    Total
    Stockholders'
    Equity
    SharesAmountSharesAmount
    Balance at December 31, 202337,519$38 3,724$(47,377)$118,620 $98,939 $(11,079)$159,141 
    Net income—— —— — 13,468 — 13,468 
    Foreign currency translation adjustment, net of tax—— —— — — (1,655)(1,655)
    Stock-based compensation—— —— 1,540 — — 1,540 
    Vesting of restricted stock awards402— —— — — — — 
    Tax payments for stock issuances(153)— —— (1,595)— — (1,595)
    Pension adjustment, net of tax—— —— — — (30)(30)
    Balance at March 31, 202437,768$38 3,724$(47,377)$118,565 $112,407 $(12,764)$170,869 
    See accompanying notes to condensed consolidated financial statements.
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    OneSpan Inc.
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (In thousands)
    (Unaudited)
    Three Months Ended March 31,
    20252024
    Cash flows from operating activities:
    Net income$14,505 $13,468 
    Adjustments to reconcile net income from operations to net cash used in operations:
    Depreciation and amortization of intangible assets2,129 2,082 
    Loss on disposal of asset36 — 
    Deferred tax expense (benefit)75 (80)
    Stock-based compensation2,776 1,540 
    Provision for (recovery of) credit losses(453)(63)
    Changes in operating assets and liabilities:
    Accounts receivable27,756 31,468 
    Inventories, net203 623 
    Contract assets93 (376)
    Accounts payable(1,437)(5,137)
    Income taxes payable1,757 1,915 
    Accrued expenses(3,641)(4,758)
    Deferred compensation(181)(317)
    Deferred revenue(16,593)(13,547)
    Other assets and liabilities2,341 142 
    Net cash provided by operating activities29,366 26,960 
    Cash flows from investing activities:
    Additions to property and equipment(1,626)(3,045)
    Additions to intangible assets(19)(35)
    Net cash used in investing activities(1,645)(3,080)
    Cash flows from financing activities:
    Dividends paid(4,587)— 
    Contingent payment related to acquisition— (200)
    Tax payments for restricted stock issuances(1,327)(1,595)
    Net cash used in financing activities(5,914)(1,795)
    Effect of exchange rate changes on cash244 (734)
    Net increase in cash22,051 21,351 
    Cash, cash equivalents, and restricted cash, beginning of period83,331 43,530 
    Cash, cash equivalents, and restricted cash, end of period$105,382 $64,881 
    See accompanying notes to condensed consolidated financial statements.
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    OneSpan Inc.
    Notes to Condensed Consolidated Financial Statements
    (Unaudited)
    Unless otherwise noted, references in this Quarterly Report on Form 10-Q to “OneSpan,” “Company,” “we,” “our,” and “us,” refer to OneSpan Inc. and its subsidiaries.

    Note 1 – Description of the Company and Basis of Presentation

    Description of the Company
    OneSpan delivers cutting-edge solutions in two key areas: advanced secure authentication, which is provided through its Security Solutions business unit, and digital agreements, which is provided through its Digital Agreements business unit. The Company's secure authentication solutions protect devices, users, and applications with robust multi-factor and passwordless authentication and other fraud prevention technologies. Its digital agreements solutions combine identity verification, electronic signatures, and digital workflows to streamline agreements, enhance compliance, and accelerate business processes. OneSpan empowers organizations to automate and secure both customer-facing and revenue-generating processes, supporting a wide range of use cases—from simple transactions to complex workflows requiring elevated security. OneSpan has operations in Austria, Australia, Belgium, Canada, China, France, Japan, The Netherlands, Singapore, Switzerland, the United Arab Emirates, the United Kingdom (U.K.), and the United States (U.S.).
    Dividends
    During the three months ended March 31, 2025, the Company paid its quarterly cash dividend declared on December 16, 2024, as part of a recurring quarterly dividend program. The initial quarterly cash dividend of $0.12 per share was paid to shareholders of record as of the close of business on January 31, 2025. The declaration and payment of future dividends is subject to the sole discretion of the Board of Directors.
    Basis of Presentation and Principles of Consolidation
    The accompanying unaudited condensed consolidated financial statements include the accounts of OneSpan and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
    In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of the interim periods presented. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.
    The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
    Estimates and Assumptions
    The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
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    Foreign Currency Translation and Transactions
    The financial position and results of operations of the majority of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. Accordingly, assets and liabilities are translated into U.S. dollars using current exchange rates as of the balance sheet date. Revenue and expenses are translated at average exchange rates prevailing during the year. Translation adjustments arising from differences in exchange rates are charged or credited to other comprehensive income (loss). Gains and losses resulting from foreign currency transactions are included in the condensed consolidated statements of operations in other (expense) income, net. Foreign exchange transaction gains (losses) aggregated to $(0.2) million and $0.1 million for the three months ended March 31, 2025 and 2024, respectively.
    Note 2 – Summary of Significant Accounting Policies
    There have been no changes to the significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 27, 2025 that impact the Company’s condensed consolidated financial statements and related notes.
    Restricted Cash
    The Company is a party to lease agreements that require letters of credit to secure the obligations which totaled $0.2 million at both March 31, 2025 and December 31, 2024. The restricted cash related to the letters of credit will be held for a period greater than 12 months, and, therefore, is recorded as "Other assets" on the condensed consolidated balance sheets.
    Other Accrued Expenses
    Other accrued expenses consist of the following:
    (In thousands)March 31, 2025December 31, 2024
    Current operating lease liabilities$1,997 $2,351 
    Accrued sales tax and VAT460 1,127 
    Other accrued expenses4,078 1,980 
    Accrued professional fees728 881 
         Total$7,263 $6,339 
    Recently Issued Accounting Pronouncements
    From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date.
    In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. Public business entities are required to adopt for annual fiscal periods beginning after December 15, 2024 and early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.
    In November 2024, the FASB issued ASU 2024-03, Comprehensive Income (Topic 220) – Disaggregation of Income Statement Expenses, to improve financial reporting by requiring disclosures in the notes to financial statements about specific types of expenses included in the expense captions presented on the face of the statement of operations. The requirements of the ASU are effective for annual reporting periods beginning after December 15, 2026, and for interim reporting periods beginning after December 15, 2027, with early adoption permitted. The requirements are able to be applied prospectively with the option for retrospective application. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements and related disclosures.
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    Note 3 – Segment Information
    Segments are defined as components of a company that engage in business activities from which they may earn revenues and incur expenses, and for which separate financial information is available and is evaluated regularly by the chief operating decision maker (CODM), in deciding how to allocate resources and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company's reportable segments are businesses units that offer different products and services and are as follows:
    •Security Solutions. Security Solutions consists of our broad portfolio of software products, software development kits (SDKs), and Digipass authenticator devices that are used to build applications designed to defend against attacks on digital transactions across online environments, devices, and applications. The software products and SDKs included in the Security Solutions segment are on-premises and, to a lesser extent, cloud software products, and include multi-factor authentication and transaction signing solutions, such as mobile application security and mobile software tokens.
    •Digital Agreements. Digital Agreements consists of solutions that enable our clients to secure and automate business processes associated with their digital agreement and customer transaction lifecycles that require consent, non-repudiation and compliance. These solutions, which are largely cloud-based, include OneSpan Sign e-signature, OneSpan Notary, and Identity Verification.
    Segment operating income (loss) consists of the revenues generated by a segment, less the direct costs of revenue, sales and marketing, research and development expenses, general and administrative expenses, restructuring and other related charges, and amortization of intangible assets expense that are incurred directly by a segment. Sales and marketing and research and development expenses were determined to be significant segment expenses. Unallocated corporate costs include costs related to administrative functions that are performed in a centralized manner that are not directly attributable to a particular segment.
    The tables below set forth information about the Company’s operating segments for the three months ended March 31, 2025 and 2024, along with the items necessary to reconcile the segment information to the totals reported in the accompanying condensed consolidated financial statements.
    Three Months Ended March 31, 2025
    (In thousands, except percentages)Security SolutionsDigital AgreementsCorporate and OtherTotal
    Revenue$47,713 $15,653 $— $63,366 
    Cost of goods sold11,628 4,647 — 16,275 
    Gross profit36,085 11,006 — 47,091 
    Gross margin76 %70 %*74 %
    Sales and marketing6,872 3,402 1,183 11,457 
    Research and development4,919 3,006 3 7,928 
    Other segment items (1)(3)134 1,231 9,159 10,524 
    Operating income (loss) (2)(4)24,160 3,367 (10,345)17,182 
    Interest income, net692 
    Other income (expense), net(9)
    Income before income taxes$17,865 
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    Three Months Ended March 31, 2024
    (In thousands, except percentages)Security SolutionsDigital AgreementsCorporate and OtherTotal
    Revenue$50,429 $14,414 $— $64,843 
    Cost of goods sold12,926 4,522 — 17,448 
    Gross profit37,503 9,892 — 47,395 
    Gross margin74 %69 %*73 %
    Sales and marketing6,544 5,230 1,153 12,927 
    Research and development4,000 4,231 28 8,259 
    Other segment items (1)(3)1,081 696 10,322 12,099 
    Operating income (loss) (2)(4)25,878 (265)(11,503)14,110 
    Interest income, net101 
    Other income (expense), net291 
    Income before income taxes$14,502 
    *Percentage not meaningful.
    (1)     Security Solutions other segment items includes general and administrative expense and restructuring and other related charges for the three months ended March 31, 2025 and 2024.
    (2)     Security Solutions operating income includes $0.2 million of total amortization and depreciation expense for both the three months ended March 31, 2025 and 2024.
    Security Solutions operating income includes $0.2 million and $1.1 million of restructuring and other related charges for the three months ended March 31, 2025 and 2024, respectively.
    (3)     Digital Agreements other segment items includes general and administrative expense, restructuring and other related charges, and amortization of intangibles for the three months ended March 31, 2025 and 2024.
    (4) Digital Agreements operating income (loss) includes $1.7 million and $1.6 million of total amortization and depreciation expense for the three months ended March 31, 2025 and 2024, respectively.
    Digital Agreements operating income (loss) includes $0.2 million and $0.1 million of restructuring and other related charges for the three months ended March 31, 2025 and 2024, respectively.
    The following tables illustrate the disaggregation of revenues by category and services, including a reconciliation of the disaggregated revenues to revenues from the Company’s two reportable operating segments for the three months ended March 31, 2025 and 2024:
    Three Months Ended March 31,
    20252024
    (In thousands)Security SolutionsDigital AgreementsSecurity SolutionsDigital Agreements
    Subscription$28,072 $15,545 $26,182 $13,812 
    Maintenance and support7,984 24 10,066 505 
    Professional services and other (1)594 84 1,605 97 
    Hardware products11,063 — 12,576 — 
    Total Revenue$47,713 $15,653 $50,429 $14,414 
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    (1) Professional services and other includes perpetual software licenses revenue, which was immaterial for the three months ended March 31, 2025 and approximately 1% of total revenue for the three months ended March 31, 2024.
    Asset information by segment is not reported to or reviewed by the CODM to allocate resources, and therefore, the Company has not disclosed asset information for the segments.
    Note 4 – Revenue from Contracts with Customers
    The following tables present the Company’s revenues disaggregated by major products and services, geographical region and timing of revenue recognition.
    Revenue by major products and services
    Three Months Ended March 31,
    (In thousands)20252024
    Subscription$43,617 $39,994 
    Maintenance and support8,008 10,571 
    Professional services and other (1)678 1,702 
    Hardware products11,063 12,576 
    Total Revenue$63,366 $64,843 
    (1) Professional services and other includes perpetual software licenses revenue, which was immaterial for the three months ended March 31, 2025 and approximately 1% of total revenue for the three months ended March 31, 2024.
    Revenue by location of customer
    We classify our sales by customer location in three geographic regions: 1) EMEA, which includes Europe, Middle East and Africa; 2) the Americas, which includes North, Central, and South America; and 3) Asia Pacific (APAC), which includes Australia, New Zealand, and India. The breakdown of revenue in each of our major geographic areas was as follows:
    Three Months Ended March 31,
    (In thousands, except percentages)20252024
    Revenue
    EMEA$31,006 $31,842 
    Americas21,095 21,344 
    APAC11,265 11,657 
    Total revenue$63,366 $64,843 
    % of Total Revenue
    EMEA49 %49 %
    Americas33 %33 %
    APAC18 %18 %
    Timing of revenue recognition
    Three Months Ended March 31,
    (In thousands)20252024
    Products and licenses transferred at a point in time$37,240 $37,798 
    Services transferred over time26,126 27,045 
    Total Revenue$63,366 $64,843 
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    Contract balances
    The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers as of March 31, 2025 and December 31, 2024:
    March 31,December 31,
    (In thousands)20252024
    Receivables, inclusive of trade and unbilled$29,595 $56,229 
    Contract Assets (current and non-current)$10,860 $10,686 
    Contract Liabilities (Deferred Revenue current and non-current)$54,783 $70,855 
    Contract assets relate primarily to multi-year term license arrangements and the remaining contractual billings. These contract assets are transferred to receivables when the right to bill occurs over a 2- to 5-year period. The contract liabilities primarily relate to the advance consideration received from customers for subscription and maintenance services. Revenue is recognized for these services over time.
    As a practical expedient, the Company does not adjust the promised amount of consideration for the effects of a significant financing component when it is expected, at contract inception, that the period between the Company's transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less. Extended payment terms are not typically included in contracts with customers.
    Revenue recognized during the three months ended March 31, 2025 included $34.2 million that was included on the December 31, 2024 consolidated balance sheet in contract liabilities. Deferred revenue decreased in the same period due to timing of annual renewals.
    Transaction price allocated to the remaining performance obligations
    Remaining performance obligations represent the revenue that is expected to be recognized in future periods related to performance obligations that are unsatisfied, or partially unsatisfied, as of the end of the period. The following table includes expected revenue to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2025:
    (In thousands)202520262027Beyond 2027Total
    Future revenue related to current unsatisfied performance obligations$46,735 $34,754 $11,695 $3,243 $96,427 
    The Company applies practical expedients and does not disclose information about remaining performance obligations (a) that have original expected durations of one year or less, or (b) where revenue is recognized as invoiced.
    Costs of obtaining a contract
    The Company incurs incremental costs related to commissions, which can be directly tied to obtaining a contract. The Company capitalizes commissions associated with certain new contracts and amortizes the costs over a period of up to 7 years, which is the determined benefit period based on the estimated customer relationship period or customer benefit period. The Company determined the period of benefit by taking into consideration the customer contracts, its technology and other factors, including customer attrition. Commissions are earned upon invoicing to the customer. For contracts with multiple year payment terms, because the commissions that are payable after year 1 are payable based on continued employment, they are expensed when incurred. Commissions and amortization expense are included in “Sales and Marketing” expense in the condensed consolidated statements of operations.
    As a practical expedient, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period for the assets that the Company otherwise would have recognized is one year or less. These costs are included in “Sales and Marketing” expense in the condensed consolidated statements of operations.
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    The following tables provide information related to the capitalized costs and amortization recognized in the current and prior period within "Other current assets" and "Other assets" on the condensed consolidated balance sheets:
    (In thousands)March 31, 2025December 31, 2024
    Capitalized costs to obtain contracts, current$4,541 $4,478 
    Capitalized costs to obtain contracts, non-current$11,960 $12,431 
    Three Months Ended March 31,
    (In thousands)20252024
    Amortization of capitalized costs to obtain contracts$1,167 $884 
    Note 5 – Inventories, net
    Inventories, net, consisting principally of hardware and component parts, are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (FIFO) method.
    Inventories, net consist of the following:
    (In thousands)March 31,
    2025
    December 31,
    2024
    Component parts$4,661 $4,385 
    Finished goods6,367 6,407 
    Total $11,028 $10,792 
    Note 6 – Goodwill
    The following table presents the changes in goodwill during the three months ended March 31, 2025:
    (In thousands)Security SolutionsDigital AgreementsTotal
    Net balance at December 31, 2024
    $71,760 $20,605 $92,365 
    Foreign currency exchange rate effect1,435 400 1,835 
    Net balance at March 31, 2025
    $73,195 $21,005 $94,200 
    No impairment of goodwill was recorded during the three months ended March 31, 2025 and 2024.
    Note 7 – Intangible Assets, net
    Intangible assets, net as of March 31, 2025 and December 31, 2024 consist of the following:
    As of March 31, 2025As of December 31, 2024
    (In thousands)Useful Life (in years)Gross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
    Customer relationships
    5 to 12
    $34,897 $28,897 $34,653 $28,091 
    Patents, trademarks, and other
    10 to 20
    13,364 12,441 13,356 12,437 
    Total$48,261 $41,338 $48,009 $40,528 
    Amortization expense was $0.6 million and $0.7 million for the three months ended March 31, 2025 and 2024, respectively. Amortization expense includes cost of sales amortization expense directly related to delivering cloud subscription revenue of $0 and $0.1 million for the three months ended March 31, 2025 and 2024, respectively, and are recorded in "Services and other cost of goods sold" on the condensed consolidated statements of operations.
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    Certain intangible assets are denominated in functional currencies besides the U.S. dollar and are subject to currency fluctuations.
    There was no impairment of intangible assets recorded during the three months ended March 31, 2025 and 2024.
    Note 8 – Property and Equipment, net
    The following table presents the major classes of property and equipment, net, as of March 31, 2025 and December 31, 2024:
    (In thousands)March 31, 2025 December 31, 2024
    Office equipment and software$8,904 $8,658 
    Leasehold improvements7,768 7,639 
    Furniture and fixtures3,600 3,519 
    Capitalized software20,745 19,298 
    Total41,017 39,114 
    Accumulated depreciation(19,912)(18,148)
    Property and equipment, net$21,105 $20,966 
    Depreciation expense was $1.6 million and $1.4 million for the three months ended March 31, 2025 and 2024, respectively. Depreciation expense includes cost of sales depreciation expense directly related to delivering cloud subscription revenue of $1.1 million and $0.7 million for the three months ended March 31, 2025 and 2024, respectively, and are recorded in "Services and other cost of goods sold" on the condensed consolidated statements of operations.
    Note 9 – Fair Value Measurements
    The fair values of cash equivalents, accounts receivables, and accounts payable approximate their carrying amounts due to their short duration. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing base upon its own market assumptions.
    The estimated fair value of financial instruments has been determined by using available market information and appropriate valuation methodologies, as defined in ASC 820, Fair Value Measurements. The fair value hierarchy consists of the following three levels:
    •Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.
    •Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived primarily from or corroborated by observable market data.
    •Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
    The following tables summarize the Company’s financial assets by level in the fair value hierarchy, which are measured at fair value on a recurring basis, as of March 31, 2025 and December 31, 2024:
    Fair Value Measurement at Reporting Date Using
    (In thousands)March 31, 2025Quoted Prices in Active Markets for
    Identical Assets (Level 1)
    Significant Other Observable Inputs
    (Level 2)
    Significant Unobservable Inputs (Level 3)
    Assets:
    U.S. Treasury Bills$28,670 $28,670 $— $— 
    Money Market Funds$57,095 $57,095 $— $— 
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    Fair Value Measurement at Reporting Date Using
    (In thousands)December 31, 2024Quoted Prices in Active Markets for
    Identical Assets (Level 1)
    Significant Other Observable Inputs
    (Level 2)
    Significant Unobservable Inputs (Level 3)
    Assets:
    U.S. Treasury Bills$3,500 3,500 $— $— 
    Money Market Funds$51,690 $51,690 $— $— 
    The Company classifies its investments in debt securities as available-for-sale. The Company reviews available-for-sale debt securities for impairments related to losses and other factors each quarter. The unrealized gains and losses on the available-for-sale debt securities were not material as of March 31, 2025 and December 31, 2024. The Company did not have any financial liabilities that are measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024.
    The Company’s non-financial assets and liabilities, which include goodwill and long-lived assets held and used, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required, the Company would evaluate the non-financial assets and liabilities for impairment. If an impairment was to occur, the asset or liability would be recorded at its estimated fair value.
    Note 10 – Allowance for Credit Losses
    In accordance with accounting standards updates ("ASU") No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” the Company evaluates its allowance based on expected losses rather than incurred losses, which is known as the current expected credit loss (“CECL”) model. The allowance is determined using the loss rate approach and is measured on a collective (pool) basis when similar risk characteristics exist. Where financial instruments do not share risk characteristics, they are evaluated on an individual basis. The allowance is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
    The changes in the allowance for credit losses during the three months ended March 31, 2025 were as follows:
    (In thousands)
    Balance at December 31, 2024$1,600 
    Provision for (recovery of) credit loss(328)
    Write-offs(125)
    Balance at March 31, 2025$1,147 
    Note 11 – Leases
    Operating lease cost details for the three months ended March 31, 2025 and 2024 are as follows:
    Three Months Ended
    March 31,
    (In thousands)20252024
    Building rent$231 $312 
    Automobile rentals264 347 
    Total net operating lease costs$495 $659 
    At March 31, 2025, the Company’s weighted average remaining lease term for its operating leases is 5.0 years, and the weighted average discount rate for its operating leases is 6%.
    During the three months ended March 31, 2025, there were $0.5 million of operating cash payments for lease liabilities and $0.3 million of right-of-use assets obtained in exchange for new lease liabilities.
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    Maturities of the Company’s operating leases as of March 31, 2025 are as follows:
    (In thousands)As of
    March 31, 2025
    2025$1,782 
    20262,339 
    20271,946 
    20281,840 
    20291,045 
    Later years1,352 
    Less imputed interest(1,399)
    Total lease liabilities$8,905 
    Note 12 – Income Taxes
    The Company’s estimated annual effective tax rate for 2025, before discrete items is expected to be approximately 19%. The Company’s global effective tax rate is lower than the U.S. statutory tax rate of 21% primarily due to the impact of foreign operations, the release of valuation allowances for the current year earnings for companies with a valuation allowance, offset by nondeductible expenses. The ultimate tax expense will depend on the mix of earnings in various jurisdictions. Income taxes, net of refunds, of $1.7 million and $0.9 million were paid during the three months ended March 31, 2025 and 2024, respectively.
    Management assesses the need for a valuation allowance on a regular basis, weighing all positive and negative evidence to determine whether a deferred tax asset will be fully or partially realized. In evaluating the realizability of deferred tax assets, significant pieces of negative evidence such as 3-year cumulative losses are considered. Management also reviews reversal patterns of temporary differences to determine if the Company would have sufficient taxable income due to the reversal of temporary differences to support the realization of deferred tax assets.
    Certain operations have incurred net operating losses (NOLs), which are currently subject to a valuation allowance. These NOLs may become deductible to the extent these operations become profitable. For each of its operations, the Company evaluates whether it is more likely than not that the tax benefits related to NOLs will be realized. As part of this evaluation, the Company considers evidence such as tax planning strategies, historical operating results, forecasted taxable income, and recent financial performance. In the year that certain operations record a loss, the Company does not recognize a corresponding tax benefit, thus increasing its effective tax rate, or decreasing its effective tax rate when reporting income in a jurisdiction that has a valuation allowance. Upon determining that it is more likely than not that the NOLs will be realized, the Company will reduce the tax valuation allowances related to these NOLs, which will result in a reduction of its income tax expense and its effective tax rate in the period.
    Note 13 – Long-Term Compensation Plan and Stock Based Compensation
    Under the OneSpan Inc. 2019 Omnibus Incentive Plan, the Company awards restricted stock units subject to time-based vesting, restricted stock units which are subject to the achievement of future performance criteria and restricted stock units that are subject to the achievement of market conditions. The Company also awards a small amount of cash incentive awards under the 2019 Omnibus Incentive Plan, as shown in the table below.
    The Company awarded 0.3 million restricted stock units during the three months ended March 31, 2025, subject to time-based vesting. The fair value of the unissued time-based restricted stock unit grants was $4.8 million at the dates of grant and the grants are being amortized over the vesting periods of one to three years.
    The Company awarded restricted stock units subject to the achievement of service and future performance criteria during the three months ended March 31, 2025, which allows for up to 0.3 million shares to be earned if the performance criteria are achieved at the target level. The fair value of these awards was $5.7 million as the dates of grant and the awards are being amortized over the requisite service period of one to three years. The Company currently believes that approximately 100% of these shares are expected to be earned.
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    The following table summarizes total compensation expense for the three months ended March 31, 2025 and 2024:
    Three Months Ended March 31,
    (In thousands)20252024
    Stock-based compensation$2,776 $1,540 
    Other long-term incentive plan compensation (1)14 81 
    Total compensation $2,790 $1,621 
    (1) Other long-term incentive compensation consists of immaterial expense for cash incentive awards granted to employees located in jurisdictions where we do not issue stock-based compensation due to tax, regulatory or similar reasons.
    Note 14 – Earnings per Share
    Basic earnings per share is based on the weighted average number of shares outstanding and excludes the dilutive effect of common stock equivalents. Diluted earnings per share is based on the weighted average number of shares outstanding and includes the dilutive effect of common stock equivalents to the extent they are not anti-dilutive.
    The details of the earnings per share calculations for the three months ended March 31, 2025 and 2024 are as follows:
    Three Months Ended
    March 31,
    (In thousands, except per share data)20252024
    Net income $14,505 $13,468 
    Weighted average common shares outstanding:  
    Basic38,106 38,060
    Incremental shares with dilutive effect:
    Restricted stock units921 403
    Diluted39,027 38,463
    Net income per share:  
    Basic$0.38 $0.35 
    Diluted$0.37 $0.35 
    Note 15 – Legal Proceedings and Contingencies
    The Company is subject to certain legal proceedings and claims that have arisen in the ordinary course of business. The Company currently does not anticipate that these matters, if resolved against the Company, will have a material adverse impact on its financial results or financial condition.
    The Company accrues loss contingencies when losses become probable and are reasonably estimable. As of March 31, 2025, the Company has recorded an accrual of $0.6 million for loss contingencies associated with employment-termination benefits and employee related taxes.
    The Company does not accrue for contingent losses that, in the judgment of the Company, are considered to be reasonably possible, but not probable. Although the Company intends to defend its legal matters vigorously, the ultimate outcome of these matters is uncertain. However, the Company does not expect the potential losses, if any, to have a material adverse impact on its operating results, cash flows, or financial condition. As of March 31, 2025, the Company does not have any reasonably possible losses for which an estimate can be made.
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    Note 16 – Restructuring and Other Related Charges
    In 2021 and 2022, the Company's Board of Directors approved cost reduction actions designed to streamline its business and improve efficiency. On August 3, 2023, the Board approved further cost reduction actions (the "2023 Actions") to seek to drive higher levels of Adjusted EBITDA while maintaining the Company's long-term growth potential. The Company has incurred and expects to continue to incur restructuring charges in connection with the 2023 Actions, and anticipates that these charges will consist primarily of charges related to employee transition and severance payments, with a significantly smaller amount of charges relating to vendor contract termination and rationalization actions.
    In connection with the Plan (including the 2023 Actions), the Company recorded a total of $0.4 million and $1.6 million in restructuring charges for the three months ended March 31, 2025 and 2024, respectively. Approximately less than $0.1 million is recorded in "Services and other cost of goods sold" in the condensed consolidated statements of operations for both periods while the remaining amounts of $0.4 million and $1.5 million is recorded in “Restructuring and other related charges” in the condensed consolidated statements of operations for the three months ended March 31, 2025 and 2024.
    The main categories of charges are in the following areas:
    •Employee costs – include severance, related benefits and retention pay costs incurred as a result of eliminating positions in certain areas of the Company. For the three months ended March 31, 2025 and 2024 employee costs were $0.3 million and $1.4 million, respectively. In total, there were approximately 335 employees, across multiple functions, whose positions were made redundant. The $0.6 million current portion of the restructuring liability at March 31, 2025 is included in "Accrued wages and payroll taxes" in the consolidated balance sheet and is expected to be paid within the next 12 months.
    •Real estate rationalization costs – includes costs to align the real estate footprint with the Company’s needs. During 2023, the Company vacated its Chicago and Brussels office spaces, which resulted in the abandonment and termination of the underlying leases. In August 2024, the Company finalized its early termination agreement with the Chicago office landlord to terminate and release any further obligations for either party. The remaining contract termination fees of $0.5 million were paid in January 2025 and no liability was outstanding as of March 31, 2025.
    •Vendor rationalization costs – include costs for contractually committed services the Company is no longer utilizing. The Company recognized $0.1 million and $0 of vendor rationalization costs for the three months ended March 31, 2025 and 2024, respectively. These costs are included in "Restructuring and other related charges" on the condensed consolidated statements of operations.
    The table below sets forth the changes in the carrying amount of the restructuring charge liability for the three months ended March 31, 2025.
    (In thousands)Employee CostsReal Estate RationalizationTotal
    Balance as of December 31, 2024$1,257 $525 $1,782 
    Additions316 — 316 
    Payments(998)(525)(1,523)
    Balance as of March 31, 2025$575 $— $575 
    Note 17 – Subsequent Events
    On May 1, 2025, the Board of Directors declared a quarterly cash dividend of $0.12 per share as part of the Company's recurring quarterly dividend program initiated in December 2024. This dividend will be paid on June 6, 2025 to shareholders of record as of the close of business on May 16, 2025. The declaration and payment of future dividends is subject to the sole discretion of the Board of Directors.
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    Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
    Unless otherwise noted, references in this Quarterly Report on Form 10-Q to “OneSpan,” “Company,” “we,” “our,” and “us” refer to OneSpan Inc. and its subsidiaries.
    This commentary should be read in conjunction with the condensed consolidated financial statements and related notes thereto of OneSpan for the three-month periods ended March 31, 2025 and 2024 as well as our consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “Form 10-K”).
    Cautionary Note Regarding Forward-Looking Statements

    This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of applicable U.S. securities laws, including statements regarding our goal of driving profitable, efficient growth in both operating segments, with a particular emphasis on subscription revenue growth; our focus on high-margin software solutions and continued investment in hardware authentication solutions; revenue trends, including revenue expectations for our hardware business; estimates concerning the timing and amount of savings, improvements in Adjusted EBITDA, and/or restructuring charges that may result from our cost reduction and restructuring actions; our plans for managing our Security Solutions and Digital Agreements segments; expectations about trends in our cost of goods sold, gross margin, and sales and marketing, research and development, and general and administrative expenses; the impact of foreign currency rate fluctuations; expectations regarding sources and uses of cash; and our general expectations regarding our operational or financial performance in the future. Forward-looking statements may be identified by words such as "seek", "believe", "plan", "estimate", "anticipate", “expect", "intend", "continue", "outlook", "may", "will", "should", "could", or "might", and other similar expressions. These forward-looking statements involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could materially affect our business and financial results include, but are not limited to: our ability to attract new customers and retain and expand sales to existing customers; our ability to successfully develop and market new product offerings and product enhancements; changes in customer requirements; the potential effects of technological changes; the loss of one or more large customers; difficulties enhancing and maintaining our brand recognition; competition; lengthy sales cycles; unintended costs and consequences of our cost reduction and restructuring actions, including higher than anticipated restructuring charges, disruption to our operations, litigation or regulatory actions, or employee turnover; challenges retaining key employees and successfully hiring and training qualified new employees; security breaches or cyber-attacks; real or perceived malfunctions or errors in our products; interruptions or delays in the performance of our products and solutions; reliance on third parties for certain products and data center services; our ability to effectively manage third party partnerships, acquisitions, divestitures, alliances, or joint ventures; economic recession, inflation, tariffs or trade disputes, and political instability; claims that we have infringed the intellectual property rights of others; changing laws, government regulations or policies; pressures on price levels; component shortages; delays and disruption in global transportation and supply chains; impairment of goodwill or amortizable intangible assets causing a significant charge to earnings; actions of activist stockholders; and exposure to increased economic and operational uncertainties from operating a global business, as well as other factors described in the “Risk Factors” section of our most recent Annual Report on Form 10-K. Our filings with the Securities and Exchange Commission (the “SEC”) and other important information can be found in the Investor Relations section of our website at investors.onespan.com. We do not have any intent, and disclaim any obligation, to update the forward-looking information to reflect events that occur, circumstances that exist or changes in our expectations after the date of this Form 10-Q, except as required by law.

    Our website address is included in this Quarterly Report on Form 10-Q as an inactive textual reference only.
    Overview
    OneSpan delivers cutting-edge solutions in two key areas: advanced secure authentication and digital agreements. Our secure authentication solutions protect devices, users, and applications with robust multi-factor and passwordless authentication and other fraud prevention technologies. Our digital agreements solutions combined identity verification, electric signatures, and digital workflows to streamline agreements, enhance compliance, and accelerate business processes. We empower organizations to automate and secure both customer-facing and revenue-generating processes, supporting a wide range of use cases—from simple transactions to complex workflows requiring elevated security. Trusted by global blue-chip enterprises, including more than 60% of the world’s 100 largest banks, OneSpan processes millions of digital agreements and billions of transactions in more than 100 countries annually.

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    We offer our products primarily through a subscription licensing model and provide multiple deployment options, including cloud-based and on-premises solutions. Our solutions are sold worldwide through our direct sales force, as well as through distributors, resellers, systems integrators, and original equipment manufacturers.
    We report our financial results under the following two lines of business, which are our reportable segments: Security Solutions and Digital Agreements.
    •Security Solutions. Security Solutions consists of our broad portfolio of software products, software development kits (SDKs), and Digipass authenticator devices that are used to build applications designed to defend against attacks on digital transactions across online environments, devices, and applications. The software products and SDKs included in the Security Solutions segment are on-premises and, to a lesser extent, cloud software products, and include multi-factor authentication and transaction signing solutions, such as mobile application security and mobile software tokens.
    •Digital Agreements. Digital Agreements consists of solutions that enable our clients to secure and automate business processes associated with their digital agreement and customer transaction lifecycles that require consent, non-repudiation and compliance. These solutions, which are largely cloud-based, include OneSpan Sign e-signature, OneSpan Notary, and Identity Verification.

    We seek to drive profitable, efficient growth in both operating segments, with a particular emphasis on subscription revenue growth. Both operating segments were profitable for the quarter ended March 31, 2025, and Security Solutions and Digital Agreements subscription revenue grew 7% and 13% as compared to the quarter ended March 31, 2024, respectively.
    Restructuring Plan
    In 2021 and 2022, our Board approved cost reduction actions designed to advance our operating model, streamline our business, improve efficiency, and enhance our capital resources.
    On August 3, 2023, our Board of Directors approved further cost reduction actions (the "2023 Actions"). In connection with the 2023 Actions, we have incurred and expect to continue to incur restructuring charges, most of which relate to employee transition and severance payments and employee benefits, with a significantly smaller amount of charges related to vendor contract termination and rationalization actions. We currently expect that we will incur restructuring charges of approximately $0.1 million to $0.6 million related to the 2023 Actions in future periods, substantially all of which relate to employee transition and severance payments.
    We plan to incrementally take actions under the restructuring plan until December 31, 2025, when the plan terminates. We completed substantially all of the workforce reductions planned as part of the 2023 Actions in 2023 and 2024. The vendor contract component of the 2023 Actions is planned for completion by the end of 2025.
    As part of the restructuring plan (including the 2023 Actions), we reduced headcount by eliminating approximately 335 positions. We incurred severance and related benefits costs, recorded in “Restructuring and other related charges” in the consolidated statements of operations.
    Components of Operating Results
    Revenue
    We generate revenue from the sale of our subscriptions, maintenance and support, professional services, and Digipass hardware products. We believe comparison of revenues between periods is heavily influenced by the timing of orders and shipments, reflecting the transactional nature of significant parts of our business.
    •Product and license revenue. Product and license revenue includes Digipass hardware products and software licenses, which are provided on a perpetual or term basis subscription model.
    •Service and other revenue. Service and other revenue includes solutions that are provided on a cloud-based subscription model, maintenance and support, and professional services.
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    Cost of Goods Sold
    Our total cost of goods sold consists of cost of product and license revenue and cost of service and other revenue. We expect our cost of goods sold to increase in absolute dollars as our business grows, although it may fluctuate as a percentage of total revenue from period to period.
    •Cost of product and license revenue. Cost of product and license revenue primarily consists of direct product and license costs, including personnel costs, production costs, freight, and inventory write-off adjustments for discontinued products and services.
    •Cost of service and other revenue. Cost of service and other revenue primarily consists of costs related to cloud subscription solutions, including personnel and equipment costs, depreciation, amortization, and personnel costs of employees providing professional services and maintenance and support.
    Gross Profit
    Gross profit is revenue net of the cost of goods sold. Gross profit as a percentage of total revenue, or gross margin, has been and will continue to be affected by a variety of factors, including our average selling price, manufacturing costs, the mix of products sold, and the mix of revenue among products, subscriptions and services. We expect our gross margins to fluctuate over time depending on these factors.
    Operating Expenses
    Our operating expenses are generally based on anticipated revenue levels and fixed over short periods of time. As a result, small variations in revenue may cause significant variations in the period-to-period comparisons of operating income or operating income as a percentage of revenue.
    Generally, the most significant factor driving our operating expenses is headcount. Direct compensation and benefit plan expenses generally represent between 50% and 60% of our operating expenses. In addition, a number of other expense categories are directly related to headcount. We attempt to manage our headcount within the context of the economic environments in which we operate and the investments we believe we need to make for our infrastructure to support future growth and for our products to remain competitive.
    Historically, operating expenses have been impacted by changes in foreign exchange rates. We estimate the change in currency rates during the three months ended March 31, 2025 compared to the comparable prior year period resulted in a decrease in operating expenses of less than $0.3 million.

    The comparison of operating expenses can also be impacted significantly by costs related to our stock-based and long-term incentive plans. Long-term incentive plan compensation expense includes both stock-based incentives and an immaterial amount of cash-based incentives. During the three months ended March 31, 2025 and 2024, operating expenses included $2.8 million and $1.6 million, respectively, of expenses related to stock-based and long-term incentive plans as well as payroll taxes on employee stock-based awards.

    Our operating expenses consist of:

    •Sales and marketing. Sales and marketing expenses consist primarily of personnel costs, commissions and bonuses, trade shows, marketing programs and other marketing activities, travel, outside consulting costs, and long-term incentive compensation. Our sales and marketing expenses may fluctuate as a percentage of total revenue.
    •Research and development. Research and development expenses consist primarily of personnel costs and long-term incentive compensation. Our research and development expenses may fluctuate as a percentage of total revenue.
    •General and administrative. General and administrative expenses consist primarily of personnel costs, legal, consulting and other professional fees, and long-term incentive compensation. Our general and administrative expenses may fluctuate as a percentage of total revenue.
    •Amortization of intangible assets. Acquired intangible assets are amortized over their respective amortization periods and are periodically evaluated for impairment or changes in estimated useful life.
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    •Restructuring and related charges. Restructuring and other related charges consist of employee costs which include severance, retention pay, and related benefits incurred from headcount reductions as part of our restructuring plan, including the 2023 Actions; real estate rationalization costs incurred to optimize our real estate footprint which include lease contract termination costs, asset impairment charges, and lease right-of-use asset and lease liability write-off gains or losses; product and services optimization costs incurred to advance our operating model which include write-offs of capitalized software assets no longer in use; write-offs of acquired blockchain technology and related capitalized software due to the discontinuation of incremental development investments and related commercial efforts; and vendor rationalization costs for contractually committed services the Company is no longer utilizing. We plan to incrementally incur additional restructuring costs through December 31, 2025, when the restructuring plan terminates and the 2023 Actions are completed.
    Segment Results
    Segment operating income (loss) consists of the revenue generated by a segment, less the direct costs of revenue, sales and marketing, research and development amortization and any impairment charges that are incurred directly by a segment. Unallocated corporate costs include general and administrative expense and other company-wide costs that are not attributable to a particular segment. Financial results by reportable operating segment are included below under Results of Operations. As of December 31, 2024, we adopted ASU 2023-07, Segment Reporting (Topic 280) to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. See Note 3, Segment Information, for additional information.
    Interest Income, Net
    Interest income, net, consists of income earned on our cash equivalents. Our cash equivalents are invested in short-term instruments at current market rates.
    Other Income (Expense), Net
    Other income (expense), net, primarily includes exchange gains (losses) on transactions that are denominated in currencies other than our subsidiaries’ functional currencies, subsidies received from foreign governments in support of our research and development in those countries and other miscellaneous non-operational expenses.
    Income Taxes
    Our effective tax rate reflects our global structure related to the ownership of our intellectual property (“IP”). The IP in our Security Solutions business is owned by a U.S. subsidiary. The e-signature IP in our Digital Agreements business is owned by a subsidiary in Canada. These subsidiaries have entered into agreements with most of the other OneSpan entities under which those other entities provide services to the IP owners on either a percentage of revenue or on a cost plus basis or both. Under this structure, the earnings of our service provider subsidiaries are relatively constant. These service provider companies tend to be in jurisdictions with higher effective tax rates. Fluctuations in earnings flow to the IP owners.
    As the majority of our revenue is generated outside of the U.S., our consolidated effective tax rate is strongly influenced by our foreign operations, including the tax rates in the countries in which we operate and by cross border tax laws in the U.S. Changes in the effective rate related to foreign operations reflect changes in the geographic mix of earnings and the tax rates in each of the countries in which it is earned. The statutory tax rate for the primary foreign tax jurisdictions ranges from 17% to 30%.
    Impact of Currency Fluctuations
    During the three months ended March 31, 2025 and 2024, we generated approximately 84% and 84% of our revenues and incurred approximately 58% and 61% of our operating expenses, respectively, outside of the U.S. As a result, changes in currency exchange rates, especially the Euro exchange rate and the Canadian Dollar exchange rate, can have a significant impact on our revenue and operating expenses.

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    While the majority of our revenue is generated outside of the U.S., a significant amount of our revenue earned during the three months ended March 31, 2025 was denominated in U.S. Dollars. For the three months ended March 31, 2025, approximately 55% of our revenue was denominated in U.S. Dollars, 43% was denominated in Euros and 2% was denominated in other currencies. For the three months ended March 31, 2024, approximately 53% of our revenue was denominated in U.S. Dollars, 43% was denominated in Euros and 4% was denominated in other currencies.

    In general, to minimize the net impact of currency fluctuations on operating income, we attempt to denominate an amount of billings in a currency such that it would provide a natural hedge against the operating expenses being incurred in that currency. We expect that changes in currency rates may impact our future results if we are unable to match amounts of revenue with our operating expenses in the same currency. If the amount of our revenue in Europe denominated in Euros continues as it is now or declines, we may not be able to balance fully the exposures of currency exchange rates on revenue and operating expenses.

    The financial position and the results of operations of our foreign subsidiaries, with the exception of our subsidiaries in Switzerland, Singapore and Canada, are measured using the local currency as the functional currency. The functional currency for our subsidiaries in Switzerland, Singapore and Canada is the U.S. Dollar. Accordingly, assets and liabilities of our foreign subsidiaries are translated into U.S. Dollars using current exchange rates as of the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the year. Translation adjustments arising from differences in exchange rates generated a comprehensive gain of $2.7 million during the three months ended March 31, 2025. For the three months ended March 31, 2024, translation adjustments arising from differences in exchange rates generated a comprehensive loss of $1.7 million.

    Gains and losses resulting from foreign currency transactions are included in the condensed consolidated statements of operations in other (expense) income, net. Foreign exchange transaction gains (losses) aggregated $(0.2) million and $0.1 million for the three months ended March 31, 2025 and 2024, respectively.
    Results of Operations
    The following table sets forth, for information about the Company's two operating segments, for the periods indicated, and selected segment and condensed consolidated operating results. Unallocated corporate costs include costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment.
    Three Months Ended March 31, 2025
    (In thousands, except percentages)Security SolutionsDigital AgreementsCorporate and OtherTotal
    Revenue$47,713 $15,653 $— $63,366 
    Cost of goods sold11,628 4,647 — 16,275 
    Gross profit36,085 11,006 — 47,091 
    Gross margin76 %70 %*74 %
    Sales and marketing6,872 3,402 1,183 11,457 
    Research and development4,919 3,006 3 7,928 
    Other segment items (1)(3)134 1,231 9,159 10,524 
    Operating income (loss) (2)(4)24,160 3,367 (10,345)17,182 
    Interest income, net692 
    Other income (expense), net(9)
    Income before income taxes$17,865 
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    Three Months Ended March 31, 2024
    (In thousands, except percentages)Security SolutionsDigital AgreementsCorporate and OtherTotal
    Revenue$50,429 $14,414 $— $64,843 
    Cost of goods sold12,926 4,522 — 17,448 
    Gross profit37,503 9,892 — 47,395 
    Gross margin74 %69 %*73 %
    Sales and marketing6,544 5,230 1,153 12,927 
    Research and development4,000 4,231 28 8,259 
    Other segment items (1)(3)1,081 696 10,322 12,099 
    Operating income (loss) (2)(4)25,878 (265)(11,503)14,110 
    Interest income, net101 
    Other income (expense), net291 
    Income before income taxes$14,502 
    *Percentage not meaningful.
    (1)     Security Solutions other segment items includes general and administrative expense and restructuring and other related charges for the three months ended March 31, 2025 and 2024.
    (2)     Security Solutions operating income includes $0.2 million of total amortization and depreciation expense for the three months ended March 31, 2025 and 2024.
    Security Solutions operating income includes $0.2 million and $1.1 million of restructuring and other related charges for the three months ended March 31, 2025 and 2024, respectively.
    (3)     Digital Agreements other segment items includes general and administrative expense, restructuring and other related charges, and amortization of intangibles for the three months ended March 31, 2025 and 2024.
    (4) Digital Agreements operating income (loss) includes $1.7 million and $1.6 million of total amortization and depreciation expense for the three months ended March 31, 2025 and 2024, respectively.
    Digital Agreements operating income (loss) includes $0.2 million and $0.1 million of restructuring and other related charges for the three months ended March 31, 2025 and 2024, respectively.
    Revenue
    Revenue by products and services allocated to the segments for the three months ended March 31, 2025, and 2024 is as follows:
    Three Months Ended March 31,
    20252024
    (In thousands)Security SolutionsDigital AgreementsSecurity SolutionsDigital Agreements
    Subscription$28,072 $15,545 $26,182 $13,812 
    Maintenance and support7,984 24 10,066 505 
    Professional services and other (1)594 84 1,605 97 
    Hardware products11,063 — 12,576 — 
    Total Revenue$47,713 $15,653 $50,429 $14,414 
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    (1) Professional services and other includes perpetual software licenses revenue, which was immaterial for the three months ended March 31, 2025 and approximately 1% of total revenue for the three months ended March 31, 2024.
    Total revenue decreased by $1.5 million, or 2%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Changes in foreign exchange rates as compared to the same period in 2024 negatively impacted revenue by approximately $1.1 million.
    Additional information on our revenue by segment follows.
    •Security Solutions revenue decreased $2.7 million, or approximately 5%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The decrease in Security Solutions revenue was primarily attributable to lower volumes of hardware devices sold, and lower perpetual-based maintenance and professional services revenues due to our transition to term licenses and cloud subscription license models. The decrease was partially offset by higher on-premises and cloud subscription revenue from existing customer expansions. Changes in foreign exchange rates for the three months ended March 31, 2025 compared to the same period in 2024 negatively impacted Security Solutions revenue by $1.1 million.
    •Digital Agreements revenue increased $1.2 million, or 9%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase in Digital Agreements revenue was primarily attributable to higher cloud subscription revenue from existing customer expansions and, to a lesser extent, new logos, partially offset by lower term-based maintenance revenue due to our transition to cloud subscription licenses. Changes in foreign exchange rates compared to the same period in 2024 negatively impacted Digital Agreements revenue by less than $0.1 million for the three months ended March 31, 2025.
    Our revenue is heavily influenced by the timing of orders and shipments, as well as the timing of customer renewals in any given period. As a result, we believe that the overall strength of our business is best evaluated over a longer term where the impact of transactions in any given period is not as significant as in a quarter-over-quarter comparison.
    Revenue by Geographic Regions: We classify our sales by customer location in three geographic regions: 1) EMEA, which includes Europe, Middle East and Africa; 2) the Americas, which includes sales in North, Central, and South America; and 3) Asia Pacific (APAC), which also includes Australia, New Zealand, and India. The breakdown of revenue in each of our major geographic areas was as follows:
    Three Months Ended March 31,
    (In thousands, except percentages)20252024
    Revenue
    EMEA$31,006 $31,842 
    Americas21,095 21,344 
    APAC11,265 11,657 
    Total revenue$63,366 $64,843 
    % of Total Revenue
    EMEA49 %49 %
    Americas33 %33 %
    APAC18 %18 %
    For the three months ended March 31, 2025, revenue generated in EMEA was $0.8 million, or 3%, lower than the same period in 2024, primarily due to a decrease in hardware revenue due to lower volumes sold.
    For the three months ended March 31, 2025, revenue generated in the Americas was $0.2 million, or 1%, lower than the three months ended March 31, 2024.
    For the three months ended March 31, 2025, revenue generated in APAC was $0.4 million, or 3%, lower than the three months ended March 31, 2024, largely due to a decrease in hardware revenue due to lower volumes sold.
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    Cost of Goods Sold and Gross Margin
    The following table presents cost of goods sold for our products and services for the three months ended March 31, 2025 and 2024:
    Three Months Ended March 31,
    (In thousands, except percentages)20252024
    Cost of goods sold  
    Product and license$8,718 $9,706 
    Services and other7,557 7,742 
    Total cost of goods sold$16,275 $17,448 
     Gross profit$47,091 $47,395 
    Gross margin
    Product and license77 %74 %
    Services and other71 %71 %
    Total gross margin74 %73 %
    The cost of product and license revenue decreased by $1.0 million, or 10%, during the three months ended March 31, 2025, respectively, compared to the three months ended March 31, 2024. The decrease in cost of product and license revenue for the three months ended March 31, 2025 was driven primarily by lower hardware revenue, partially offset by higher third-party license costs.
    The cost of services and other revenue decreased by $0.2 million, or 2%, during the three months ended March 31, 2025, compared to the three months ended March 31, 2024.
    Gross profit decreased slightly by $0.3 million, or 1%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Gross margin was 74% for the three months ended March 31, 2025, compared to 73% for the three months ended March 31, 2024. The increase in gross margin was primarily driven by favorable product mix and improved operational efficiencies in both business units.
    The majority of our inventory purchases are denominated in U.S. Dollars. Our sales are denominated in various currencies, including the Euro. The impact of changes in currency rates are estimated to have had an favorable impact on overall cost of goods sold of $0.2 million for three months ended March 31, 2025. Had currency rates during the three months ended March 31, 2025 been equal to rates in the comparable period of 2024, the gross margin would have been less than 1 percentage point lower, driven by the favorable currency rate impact to revenue.
    Additional information on our gross profit by segment follows.
    •Security Solutions gross profit decreased $1.4 million, or 4%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Security Solutions gross margin for the three months ended March 31, 2025 was 76%, compared to 74% for the three months ended March 31, 2024. The increase in gross margin was primarily due to a higher software to hardware revenue mix, which has a direct correlation to gross profit.
    •Digital Agreements gross profit increased $1.1 million, or 11%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Digital Agreements gross margin for the three months ended March 31, 2025 was 70%, compared to 69% for the three months ended March 31, 2024. The increase in gross profit and gross margin was driven by higher cloud subscription revenue, partially offset by lower term-based maintenance revenue.
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    Operating Expenses
    Operating expenses decreased by $3.4 million, or 10%, during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. For the three months ended March 31, 2025, changes in foreign exchange rates favorably impacted operating expenses by less than $0.3 million as compared to the same period in 2024.
    The following table presents the breakout of operating expenses by category as of March 31, 2025 and 2024:
    Three Months Ended March 31,
    (In thousands)20252024
    Operating costs
    Sales and marketing$11,457 $12,927 
    Research and development7,928 8,259 
    General and administrative9,547 10,007 
    Restructuring and other related charges421 1,497 
    Amortization of intangible assets556 595 
    Total operating costs$29,909 $33,285 
    Sales and Marketing Expenses
    Sales and marketing expenses for the three months ended March 31, 2025 decreased by $1.5 million, or 11%, compared to the three months ended March 31, 2024. The decreases were driven primarily by lower employee compensation costs which included decreases in commissions, salaries, and benefits as a result of headcount reductions, along with decreased consulting and marketing costs related to our strategic plan, and lower travel and entertainment expenses.
    Average full-time sales, marketing, support, and operating employee headcount for the three months ended March 31, 2025 was 158 compared to 183 for the three months ended March 31, 2024. Average headcount was 14% lower for the three months ended March 31, 2025 compared to the same period in 2024.
    Research and Development Expenses
    Research and development expenses for the three months ended March 31, 2025 decreased by $0.3 million, or 4%, compared to the three months ended March 31, 2024. The decrease in expense was driven primarily by lower compensation costs as a result of lower headcount and lower consulting expenses related to our strategic transformation plan.
    Average full-time research and development employee headcount for the three months ended March 31, 2025 was 222 compared to 250 for the three months ended March 31, 2024. Average headcount was 11% lower for the three months ended March 31, 2025, compared to the same period in 2024.
    General and Administrative Expenses
    General and administrative expenses for the three months ended March 31, 2025 decreased by $0.5 million, or 5%, compared to the three months ended March 31, 2024. The decrease in expense for three months ended March 31, 2025 as compared to the prior year period was largely driven by lower employee compensation costs, which included a decrease in salaries, payroll taxes, and related benefits as a result of lower headcount as well as lower bonus accruals. This decrease was partially offset by increased stock-based compensation expense and higher consulting costs in 2025 compared to prior year.
    Average full-time general and administrative employee headcount for the three months ended March 31, 2025 was 85 compared to 111 for the three months ended March 31, 2024. Average headcount was 23% lower for the three months ended March 31, 2025, compared to the same period in 2024.
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    Restructuring and Other Related Charges
    Restructuring and other related charges for the three months ended March 31, 2025 decreased by $1.1 million, or 72%, compared to the three months ended March 31, 2024, driven by minimal headcount reduction and vendor rationalization costs in 2025 compared to severance costs of $1.4 million incurred in 2024.
    Amortization of Intangible Assets
    Amortization of intangible assets expense for the three months ended March 31, 2025 decreased by less than $0.1 million, or 7%, compared to the three months ended March 31, 2024.
    Segment Operating Income (Loss)
    Information on our operating income (loss) by segment follows.
    •Security Solutions operating income for the three months ended March 31, 2025 was $24.2 million, which was a year-over-year decrease of $1.7 million, or 7%, from the three months ended March 31, 2024. The decrease was largely due to lower overall revenue and higher sales and marketing expenses, research and development expenses, and restructuring expenses.
    •Digital Agreements operating income for the three months ended March 31, 2025 was $3.4 million, compared to an operating loss of $0.3 million, for the three months ended March 31, 2024. The improvement in operating income for the three months ended March 31, 2025 was driven by higher overall revenue and gross profit and lower sales and marketing and research and development expenses, including lower employee compensation costs, marketing expenses, and travel and entertainment costs, partially offset by increased general and administrative expenses.
    Interest income, net
    Three Months Ended March 31,
    (In thousands)20252024
    Interest income, net$692 $101 
    Interest income, net, was $0.7 million and $0.1 million for the three months ended March 31, 2025 and 2024, respectively. The increase in interest income was due to higher average excess cash invested in the period compared to last year.
    Other Income (Expense), net
    Three Months Ended March 31,
    (In thousands)20252024
    Other income (expense), net$(9)$291 
    Other income (expense), net, primarily includes subsidies received from foreign governments in support of our research and development in those countries, exchange gains (losses) on transactions that are denominated in currencies other than our subsidiaries’ functional currencies, and other miscellaneous non-operational, non-recurring expenses.
    Other income (expense), net, for the three months ended March 31, 2025 and 2024 was less than $(0.1) million and $0.3 million, respectively.
    Provision for Income Taxes
    Three Months Ended March 31,
    (In thousands)20252024
    Provision for income taxes$3,360 $1,034 
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    We recorded income tax expense of $3.4 million and $1.0 million for the three months ended March 31, 2025 and 2024, respectively. Higher income tax expense for the three months ended March 31, 2025 was primarily attributable to an increase in income before taxes and a $1.1 million tax benefit recorded during the three months ended March 31, 2024 in connection with a Mutual Agreement Procedure request. In addition, the prior year tax reflected valuation allowance releases for entities with income and a valuation allowance.
    Liquidity and Capital Resources
    At March 31, 2025, we had cash and cash equivalent balances of $105.2 million. Our cash and cash equivalents balance includes money market funds and U.S. treasury bills with maturities at acquisition of less than three months.
    At December 31, 2024, we had cash and cash equivalent balances of $83.2 million.
    We are party to lease agreements that require letters of credit to secure the obligations which totaled $0.2 million at both March 31, 2025 and December 31, 2024. The restricted cash related to the letters of credit will be held for a period greater than 12 months, and therefore, is recorded as "Restricted cash" and a long-term asset on the condensed consolidated balance sheets.
    As of March 31, 2025, we held $42.8 million of cash and cash equivalents in subsidiaries outside of the United States. Of that amount, $41.9 million is not subject to repatriation restrictions, but may be subject to taxes upon repatriation.
    We believe that our financial resources are adequate to meet our operating needs over the next twelve months.
    Our cash flows are as follows:
    Three Months Ended March 31,
    (In thousands)20252024
    Cash provided by (used in):
    Operating activities$29,366 $26,960 
    Investing activities(1,645)(3,080)
    Financing activities(5,914)(1,795)
    Effect of foreign exchange rate changes on cash and cash equivalents244 (734)
    Operating Activities
    Cash used in operating activities primarily consists of net income, as adjusted for non-cash items, and changes in operating assets and liabilities. Non-cash adjustments consist primarily of allowance for credit losses, amortization of intangible assets, deferred taxes, depreciation of property and equipment, and stock-based compensation. We expect cash inflows from operating activities to be affected by increases or decreases in sales and timing of collections. Our primary uses of cash from operating activities have been for personnel and vendor costs. We expect cash outflows from operating activities to be affected by changes in personnel costs and the timing of payment of expenditures.
    For the three months ended March 31, 2025, $29.4 million of cash was provided by operating activities. This was driven by a net income for the period and a decrease in our accounts receivable balance, partially offset by a decrease in deferred revenue. For the three months ended March 31, 2024, $27.0 million of cash was provided by operating activities.
    Our working capital at March 31, 2025 was $83.5 million compared to $64.6 million at December 31, 2024. The increase was driven by lower deferred revenue, accrued wages and payroll taxes, and other accrued expenses and increased cash and cash equivalents, partially offset by lower accounts receivable.
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    Investing Activities
    The changes in cash flows from investing activities primarily relate to timing of purchases, maturities and sales of investments, purchases of property and equipment, capitalized software activities, and activity in connection with acquisitions. We expect to continue to purchase property and equipment to support the growth of our business as well as to continue to invest in our infrastructure and activity in connection with acquisitions.
    For the three months ended March 31, 2025, net cash used in investing activities was $1.6 million, compared to net cash used in investing activities of $3.1 million for the three months ended March 31, 2024. Cash used in investing activities primarily consisted of additions to property and equipment.
    Financing Activities
    The changes in cash flows from financing activities primarily relate to a dividend, the purchases of common stock under our share repurchase program and tax payments for restricted stock issuances.
    Cash of $5.9 million used in financing activities during the three months ended March 31, 2025 was attributable to dividends paid and tax payments for stock issuances. Cash of $1.8 million used in financing activities during the three months ended March 31, 2024 was attributable to tax payments for stock issuances and cash paid for the holdback component of a prior year acquisition.
    Key Business Metrics and Non-GAAP Financial Measures
    In our quarterly earnings press releases and conference calls, we discuss the below key metrics and financial measures that are not calculated according to generally accepted accounting principles (“GAAP”). These metrics and non-GAAP financial measures help us monitor and evaluate the effectiveness of our operations and evaluate period-to-period comparisons. Management believes that these metrics and non-GAAP financial measures help illustrate underlying trends in our business. We use these metrics and non-GAAP financial measures to establish budgets and operational goals (communicated internally and externally), manage our business and evaluate our performance. We also believe that both management and investors benefit from referring to these metrics and non-GAAP financial measures as supplemental information in assessing our performance and when planning, forecasting, and analyzing future periods. We believe these metrics and non-GAAP financial measures are useful to investors both because they allow for greater transparency with respect to financial measures used by management in their financial and operational decision-making and also because they are used by investors and the analyst community to help evaluate the health of our business.
    Annual Recurring Revenue
    We use annual recurring revenue, or ARR, as an approximate measure to monitor the growth of our recurring business. ARR represents the annualized value of the active portion of SaaS, term-based license, and maintenance and support contracts at the end of the reporting period. ARR is calculated as the approximate annualized value of our customer recurring contracts as of the measurement date. These include subscription, term-based license, and maintenance and support contracts and exclude one-time fees. For term-based license arrangements, the amount included in ARR is consistent with the amount that we invoice the customer annually for the term-based license transaction. A customer with a one-year term-based license contract will be invoiced for the total value of the contract at the beginning of the contractual term, while a customer with a multi-year term-based license contract will be invoiced for each annual period at the beginning of each year of the contract. For contracts that include annual values that increase over time because there are additional deliverables in subsequent periods, we include in ARR only the annualized value of components of the contract that are considered active as of the date of the ARR calculation. We do not include the future committed increases in the contract value as of the date of the ARR calculation.

    We consider a contract to be active from when the product or service contractual term commences (the “start date”) until the right to use the product or service ends (the “expiration date”). Even if the contract with the customer is executed before the start date, the contract will not count toward ARR until the customer right to receive the benefit of the products or services has commenced.

    31

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    To the extent that we are negotiating a renewal with a customer within 90 days after the expiration of a recurring contract, we continue to include that revenue in ARR if we are actively in discussions with the customer for a new recurring contract or renewal and the customer has not notified us of an intention not to renew. We exclude from the calculation of ARR renewal contracts that are more than 90 days after their expiration date, even if we are continuing to negotiate a renewal at that time.
    ARR is not calculated based on recognized or unearned revenue and there is no direct relationship between revenue recognized in accordance with ASC 606 and the Company’s ARR business metric. We believe ARR is a valuable operating measure to assess the health of our SaaS, term-based license, and maintenance and support contracts because it illustrates our customer recurring contracts as of the measurement date. ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates, and does not include revenue from perpetual licenses, purchases of Digipass authenticators, training, professional services or other sources of revenue that are not deemed to be recurring in nature.
    ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue as ARR is an operating metric and is not intended to be combined with or replace these items. Investors should consider our ARR operating measure only in conjunction with our GAAP financial results.

    At March 31, 2025, we reported ARR of $168.4 million, which was 9% higher than ARR of $154.6 million at March 31, 2024. Changes in foreign exchange rates during the three months ended March 31, 2025 as compared to the prior year negatively impacted ARR by approximately $0.7 million. ARR growth was primarily driven by an increase in subscription contracts and new logos.
    Net Retention Rate
    Net Retention Rate, or NRR, is defined as the approximate year-over-year percentage growth in ARR from the same set of customers at the end of the prior year period. It measures our ability to increase revenue across our existing customer base through expanded use of our platform, offset by customers whose subscription contracts with us are not renewed or renew at a lower amount. Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with customers. NRR is an important way in which we track our performance in this area.
    We reported NRR of 107% at both March 31, 2025 and 2024. Year-over-year, NRR was primarily impacted by the same factors that affected ARR, as discussed above.
    Adjusted EBITDA
    We define Adjusted EBITDA as net income before interest, taxes, depreciation, amortization, long-term incentive compensation and related payroll tax expense, restructuring and other related charges, and certain non-recurring items, including acquisition related costs, rebranding costs, and non-routine shareholder matters. Adjusted EBITDA is a non-GAAP financial metric. We use Adjusted EBITDA as a simplified measure of performance for use in communicating our performance to investors and analysts and for comparisons to other companies within our industry. As a performance measure, we believe that Adjusted EBITDA presents a view of our operating results that is most closely related to serving our customers. By excluding interest, taxes, depreciation, amortization, long-term incentive compensation and related payroll tax expense, restructuring costs, and certain other non-recurring items, we are able to evaluate performance without considering decisions that, in most cases, are not directly related to meeting our customers’ requirements and were either made in prior periods (e.g., depreciation, amortization, long-term incentive compensation and related payroll tax expense, non-routine shareholder matters), deal with the structure or financing of the business (e.g., interest, one-time strategic action costs, restructuring costs, impairment charges) or reflect the application of regulations that are outside of the control of our management team (e.g., taxes). In addition, removing the impact of these items helps us compare our core business performance with that of our competitors.
    32

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    The following table reconciles net income as reported on our condensed consolidated statements of operations to Adjusted EBITDA:
    Three Months Ended March 31,
    (In thousands)20252024
    Net income$14,505 $13,468 
    Interest income, net(692)(101)
    Provision for income taxes3,360 1,034 
    Depreciation and amortization of intangible assets (1)2,129 2,082 
    Long-term incentive compensation and related payroll tax expense (2)3,248 2,046 
    Restructuring and other related charges (3)446 1,516 
    Other non-recurring items (4)39 171 
    Adjusted EBITDA$23,035 $20,216 
    (1) Includes cost of sales depreciation and amortization expense directly related to delivering cloud subscription revenue of $1.1 million and $0.8 million for the three months ended March 31, 2025 and 2024, respectively, and are recorded in "Services and other cost of goods sold" on the condensed consolidated statements of operations.
    (2) Long-term incentive compensation and related payroll tax expense includes stock-based compensation and related payroll tax expense, and cash incentive grants awarded to employees located in jurisdictions where we do not issue stock-based compensation due to tax, regulatory or similar reasons. The immaterial expense associated with these cash incentive grants was less than $0.1 million and $0.1 million for the three months ended March 31, 2025 and 2024, respectively.
    Starting January 1, 2025, employer payroll taxes related to employee stock-based award transactions are included in long-term incentive compensation and related payroll tax expense. Prior period amounts have been adjusted to reflect these changes. We are excluding these payroll taxes from Adjusted EBITDA results since they are tied to the timing and size of the vesting of the underlying stock-based awards and the price of our common stock at the time of vesting, which may vary from period to period independent of our operating performance. Employer payroll taxes related to employee stock-based award transactions amounted to $0.5 million and $0.4 million for the three months ended March 31, 2025 and 2024, respectively.
    (3) Includes restructuring and other related charges of less than $0.1 million for both the three months ended March 31, 2025 and 2024. These charges are recorded in "Services and other cost of goods sold" on the condensed consolidated statements of operations.
    (4) For the three months ended March 31, 2025 and 2024, other non-recurring items consist of less than $0.1 million and $0.2 million, respectively, of fees related to non-recurring projects.

    Adjusted EBITDA for the three months ended March 31, 2025 was $23.0 million compared to $20.2 million for the three months ended March 31, 2024. The increase was driven largely by lower operating expenses as described elsewhere in this Item 2. Year-over-year changes in foreign exchange rates unfavorably impacted Adjusted EBITDA by approximately $0.3 million for the three months ended March 31, 2025.
    Critical Accounting Policies
    Our accounting policies are fully described in Note 1, Summary of Significant Accounting Policies, to our Consolidated Financial Statements in our Form 10-K for the year ended December 31, 2024 and Note 2, Summary of Significant Accounting Policies, of our interim Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for the three months ended March 31, 2025.
    Item 3 - Quantitative and Qualitative Disclosures about Market Risk
    There have been no material changes in our market risk during the three months ended March 31, 2025. For additional information, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk, included in our Form 10-K.
    33

    Table of Contents
    Item 4 - Controls and Procedures
    Management’s Evaluation of Disclosure Controls and Procedures
    Our management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2025. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2025, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports we file or submit under the Exchange Act, and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
    Changes in Internal Controls
    There have been no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the three months ended March 31, 2025.
    PART II. OTHER INFORMATION
    Item 1 - Legal Proceedings
    We are subject to certain legal proceedings and claims incidental to the operation of our business. We are also subject to certain other legal proceedings and claims that have arisen in the ordinary course of business that have not been fully adjudicated. We currently do not anticipate that these matters, if resolved against us, will have a material adverse impact on our financial results.
    For further information regarding our legal proceedings and claims, see Note 15, Legal Proceedings and Contingencies, included in Part I, Item 1, Condensed Consolidated Financial Statements, of this Quarterly Report on Form 10-Q.
    Item 1A – Risk Factors
    Except as set forth below, there have been no material changes in or additions to the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 27, 2025.
    Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, could have a material adverse impact on our business.

    Our Digipass authentication devices are assembled by third-party manufacturers located in China and Romania, using components from suppliers in a wide range of geographic locations, including China. The U.S. presidential administration recently imposed new or additional tariffs on foreign goods, including very high tariffs on certain Chinese imports. Although sales to U.S. customers account for a small portion of our Digipass sales, these tariffs could negatively impact our financial results. In some cases, we may not be able to pass the cost of the tariffs to our customers, which would negatively affect our profit margin. Even if we can pass on these costs, the tariffs and the economic uncertainty they cause may discourage customers from placing Digipass orders or lead them to decrease or delay such orders. Additional expansion of or increases to tariffs would exacerbate these impacts. Although we are planning measures to mitigate the potential impact of the China tariffs on our business, including moving more of our Digipass production to Romania, these measures are unlikely to fully offset the impact, particularly in the near term.

    In addition, in response to tariffs, other countries have implemented, or may implement in the future, retaliatory tariffs on U.S. goods. Political tensions as a result of trade policies could reduce trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets, which could in turn have a material adverse impact on our business and financial condition.

    Item 2 – Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
    34

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    The following table provides information about purchases by the Company of its shares of common stock during the first quarter of 2025:

    Period
    Total Number of Shares Purchased (1)
    Average Price Paid per Share
    Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
    Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
    January 1, 2025 through January 31, 2025—$— —$— 
    February 1, 2025 through February 28, 2025— $— — $— 
    March 1, 2025 through March 31, 2025— $— — $— 
    (1)    On May 9, 2024, the Board of Directors terminated the stock repurchase program adopted on May 11, 2022 and adopted a new stock repurchase program under which the Company is authorized to repurchase up to $50.0 million of our issued and outstanding shares of common stock. Share purchases under the program will take place in open market transactions, privately negotiated transactions or tender offers, and may be made from time to time depending on market conditions, share price, trading volume, and other factors. The timing of the repurchases and the amount of stock repurchased in each transaction is subject to our sole discretion and will depend upon market and business conditions, applicable legal and credit requirements, and other corporate considerations. The authorization is effective until May 9, 2026 unless the total amount has been used or authorization has been cancelled.
    35

    Table of Contents
    Item 6 - Exhibits
    Exhibit 10.1 2025 Management Incentive Plan of the Registrant*
    Exhibit 10.2 Form of 2025 Time-Based RSU Agreement (Executive) under the Registrant’s 2019 Omnibus Incentive Plan*
    Exhibit 10.3 Form of 2025 Performance-Based RSU Agreement under the Registrant’s 2019 Omnibus Incentive Plan*
    Exhibit 10.4 Form of 2025 Time-Based RSU Agreement (General) under the Registrant’s 2019 Omnibus Incentive Plan*
    Exhibit 31.1 – Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 1, 2025.
    Exhibit 31.2 – Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 1, 2025.
    Exhibit 32.1 – Section 1350 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 1, 2025.
    Exhibit 32.2 – Section 1350 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 1, 2025
    Exhibit 101.INS – Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
    Exhibit 101.SCH – Inline XBRL Taxonomy Extension Schema Document
    Exhibit 101.CAL – Inline XBRL Taxonomy Extension Calculation Linkbase Document
    Exhibit 101.LAB – Inline XBRL Taxonomy Extension Label Linkbase Document
    Exhibit 101.PRE – Inline XBRL Taxonomy Extension Presentation Linkbase Document
    Exhibit 101.DEF – Inline XBRL Taxonomy Extension Definition Linkbase Document
    Exhibit 104 – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
    *Compensatory plan or management contract.____________
    36

    Table of Contents
    SIGNATURES
    Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 1, 2025.
    OneSpan Inc.
    /s/ Victor Limongelli
    Victor Limongelli
    President and Chief Executive Officer
    (Principal Executive Officer)
    /s/ Jorge Martell
    Jorge Martell
    Chief Financial Officer
    (Principal Financial and Accounting Officer)
    37
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    • OneSpan Inc. filed SEC Form 8-K: Entry into a Material Definitive Agreement, Creation of a Direct Financial Obligation, Financial Statements and Exhibits

      8-K - OneSpan Inc. (0001044777) (Filer)

      6/24/25 4:01:25 PM ET
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    • OneSpan Inc. filed SEC Form 8-K: Leadership Update, Submission of Matters to a Vote of Security Holders, Financial Statements and Exhibits

      8-K - OneSpan Inc. (0001044777) (Filer)

      6/10/25 4:59:35 PM ET
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    • SEC Form SD filed by OneSpan Inc.

      SD - OneSpan Inc. (0001044777) (Filer)

      5/30/25 4:30:07 PM ET
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    $OSPN
    Insider Purchases

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    • Mcconnell Michael J bought $49,150 worth of shares (5,000 units at $9.83), increasing direct ownership by 7% to 73,849 units (SEC Form 4)

      4 - OneSpan Inc. (0001044777) (Issuer)

      3/18/24 4:06:01 PM ET
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    • Zenner Marc bought $24,716 worth of shares (2,500 units at $9.89), increasing direct ownership by 5% to 56,159 units (SEC Form 4)

      4 - OneSpan Inc. (0001044777) (Issuer)

      3/14/24 4:09:26 PM ET
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    • OneSpan Appoints Identity Expert Ashish Jain as CTO

      Accomplished Technology Executive Joins OneSpan to Drive Next Phase of Innovation OneSpan Inc. (NASDAQ:OSPN), a leader in securing digital banking transactions and eSignatures, today announced the appointment of Ashish Jain as Chief Technology Officer (CTO). Mr. Jain will lead OneSpan's global engineering organization, partner with senior leaders to set and execute the company's innovation vision and strategy and oversee the development and delivery of OneSpan's security and digital agreements products and services. Widely regarded as one of the top digital identity experts in the industry, Mr. Jain brings over two decades of experience leading product management, engineering, and opera

      12/18/24 8:00:00 AM ET
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    • OneSpan Integrates with Ping Identity to Enable Frictionless Digital Experiences

      OneSpan Inc. (NASDAQ:OSPN) announced a new integration with Ping Identity, a leader in securing digital identities for the world's largest enterprises, now listed on the Ping Identity Integration Directory. Through this strategic partnership, Ping Identity will now offer OneSpan's FIDO-enabled solutions to eliminate passwords and benefit from stronger authentication. OneSpan joins a growing list of technology partners developing integrations through the Ping Identity Global Technology Partner Program. Partner solutions built on the Ping Identity Platform are helping organizations compete in a new digital era where user experience is increasingly important, and security cannot be sacrifice

      11/19/24 8:00:00 AM ET
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    • Natural Gas Services Group, Inc. Announces the Appointment of Jean Holley to its Board of Directors

      Midland, Texas, Nov. 01, 2024 (GLOBE NEWSWIRE) -- Natural Gas Services Group, Inc. ("NGS" or the "Company") (NYSE:NGS), a leading provider of natural gas compression equipment, technology, and services to the energy industry, announced today that its Board of Directors has appointed Jean Holley as a Director, effective November 1, 2024. In connection with the appointment, the Company increased the size of its Board from six to seven directors. "We are excited to welcome Jean to NGS's Board of Directors," stated Justin Jacobs, Chief Executive Officer of NGS. "Jean is an accomplished executive with significant expertise across a number of businesses and disciplines which we

      11/1/24 3:03:59 PM ET
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    • OneSpan Accelerates FIDO Leadership With Acquisition Of Nok Nok Labs

      Acquisition strengthens OneSpan's commitment to powerful, flexible authentication solutions OneSpan Inc. (NASDAQ:OSPN) today announced the acquisition of Nok Nok Labs Inc., a leading provider of FIDO passwordless software authentication solutions. By joining forces with Nok Nok, OneSpan is driving the industry towards a more secure future, enabling customers to adopt a wide range of flexible, future-proof authentication options. Combined with OneSpan's recently launched FIDO2 security keys, this strategic acquisition enables the Company to provide customers worldwide with the industry's most innovative, comprehensive, and future-ready authentication portfolio. Whether on-premises or in

      6/5/25 8:30:00 AM ET
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    • OneSpan Reports First Quarter 2025 Financial Results

      First quarter operating income increased 22% year-over-year to $17.2 million First quarter revenue decreased 2% year-over-year to $63.4 million First quarter subscription revenue increased 9% year-over-year to $43.6 million Annual Recurring Revenue (ARR) increased 9% year-over-year to $168.4 million1 Net Retention Rate (NRR) of 107%2 OneSpan Inc. (NASDAQ:OSPN) today reported financial results for the first quarter ended March 31, 2025. "We reported another solid quarter that resulted in record high operating income and strong cash generation," stated OneSpan CEO, Victor Limongelli. "The OneSpan team has done a great job in continuing to optimize our cost structure as we build fo

      5/1/25 4:01:00 PM ET
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    • OneSpan to Announce First Quarter Financial Results on May 1, 2025

      OneSpan Inc. (NASDAQ:OSPN), a leader in securing digital banking transactions and eSignatures, today announced it will release its first quarter 2025 financial results after the market close on Thursday, May 1, 2025. OneSpan will host a conference call that day at 4:30 p.m. ET to discuss the results. A live webcast of the conference call will be accessible from the OneSpan investor relations website at investors.onespan.com. Shortly after the conclusion of the call, a replay of the webcast will be available on the same website. For investors and analysts accessing the conference call by phone, please use this registration link to receive dial-in details. OneSpan encourages participants to

      4/10/25 8:00:00 AM ET
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    $OSPN
    Large Ownership Changes

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    • Amendment: SEC Form SC 13G/A filed by OneSpan Inc.

      SC 13G/A - OneSpan Inc. (0001044777) (Subject)

      11/12/24 4:45:11 PM ET
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    • Amendment: SEC Form SC 13G/A filed by OneSpan Inc.

      SC 13G/A - OneSpan Inc. (0001044777) (Subject)

      11/4/24 1:17:16 PM ET
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    • Amendment: SEC Form SC 13G/A filed by OneSpan Inc.

      SC 13G/A - OneSpan Inc. (0001044777) (Subject)

      10/25/24 9:59:46 AM ET
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