0001044777-26-000019
SEC filingRevenue grew 4% YoY to $65.9M driven by subscription growth, but operating income fell 14% due to higher costs from acquisitions and investments.
For the three months ended March 31, 2026, total revenue increased 4% to $65.9 million from $63.4 million in the prior year. The growth was driven by subscription revenue gains in both segments, partially offset by lower hardware and multi-year term license revenue. Foreign exchange had a favorable impact of $2.7 million on revenue. Gross profit rose 3% to $48.5 million, with gross margin flat at 74%. Gross margin dynamics varied by segment: Cybersecurity margin declined 2pp to 74% due to higher third-party license and cloud costs, while Digital Agreements margin improved 2pp to 72% on higher cloud subscription revenue.
Operating income decreased 14% to $14.8 million from $17.2 million, reflecting a 464 basis point decline in operating margin. The primary drivers were higher sales and marketing expenses (up 11% to $12.7 million) and research and development expenses (up 15% to $9.1 million), fueled by organic hires, headcount from the two recent acquisitions (Nok Nok Labs and Build38), and increased compensation costs. General and administrative expenses also rose 15% to $11.0 million, partly due to acquisition-related advisor fees. Net income fell 20% to $11.6 million.
Cybersecurity: Revenue grew 2% to $48.5 million, with subscription revenue up 7% from acquisitions and existing customer expansions. However, hardware revenue declined and multi-year term license revenue was lower due to renewal timing. Gross margin contracted to 74% from 76% due to higher cloud and third-party license costs. Operating income decreased 14% to $20.8 million as higher S&M and R&D expenses outpaced revenue growth.
Digital Agreements: Revenue increased 11% to $17.4 million, entirely from higher subscription revenue (up 11% to $17.4 million) driven by existing customer expansions and overages. Gross margin improved to 72% from 70% due to scale benefits in cloud subscription. Operating income rose 57% to $5.3 million, aided by higher gross profit and lower operating expenses, including reduced R&D and restructuring costs.
Management emphasizes a focus on driving profitable, efficient growth, particularly subscription revenue. Both segments were profitable for the quarter. The Acquisitions are expected to contribute to subscription revenue growth and expand the product portfolio. Foreign exchange remains a variable, with a $1.0 million unfavorable impact on operating expenses. The company expects continued investment in sales, marketing, and R&D to support growth, while managing headcount and expenses. No specific quantitative guidance was provided for future periods, but ARR growth of 14% to $192.1 million signals strong recurring revenue momentum. Adjusted EBITDA declined 9% to $21.0 million due to higher costs, but management believes financial resources are adequate for the next twelve months.
As of March 31, 2026, OneSpan held $49.8 million in cash and cash equivalents, down from $70.5 million at year-end 2025, primarily due to the Build38 acquisition and share repurchases. Total assets were $383.1 million, with goodwill increasing to $128.1 million (from $103.8 million) largely from the Build38 purchase. Shareholders' equity remained stable at $272.0 million. The company had no borrowings under its $100.0 million revolving credit facility (entered June 2025), with only $0.4 million in outstanding letters of credit. Deferred revenue (current and long-term) totaled $63.1 million, reflecting typical seasonal renewal patterns.
No material purchase commitments, supply agreements, or long-term contractual obligations were disclosed in the Notes. Operating lease liabilities totaled $7.96 million, with maturities extending through 2030 and beyond. The company had no probable or reasonably estimable loss contingencies as of March 31, 2026.
During Q1 2026, OneSpan repurchased 0.5 million shares for $5.4 million under its May 2024 share repurchase program, leaving $31.5 million of authorization remaining. Quarterly dividends of $0.13 per share ($4.96 million total) were paid, a 8.3% increase from $0.12 per share in Q1 2025. Capital expenditures totaled $3.1 million (4.7% of revenue), including additions to capitalized software and equipment. No debt was issued or repaid during the quarter; debt issuance costs of $1.6 million were capitalized (net of amortization).
The Cybersecurity segment generated $48.5 million in revenue (73.6% of total) with a 74% gross margin and operating income of $20.8 million (42.8% margin). Digital Agreements contributed $17.4 million (26.4% of revenue) with a 72% gross margin and operating income of $5.3 million (30.5% margin). Geographically, EMEA remained the largest region at 43% of revenue ($28.5 million), followed by Americas at 38% ($25.1 million), and APAC at 19% ($12.3 million). Revenue growth was led by Digital Agreements (+11.2% YoY) and Cybersecurity (+1.7% YoY).
Operating cash flow (CFO) of $28.2M was slightly below net income of $11.6M, reflecting strong working capital inflows, particularly from accounts receivable ($24.0M) and contract assets ($5.4M), partially offset by a decline in deferred revenue ($12.6M). The CFO-to-net-income ratio of 2.4x indicates high cash conversion quality, though the deferred revenue drop may signal a shift in billing or contract timing.
Capital expenditures (capex) of $3.2M (PP&E and intangibles) were nearly double the prior year's $1.6M, representing 11.3% of CFO. The company also spent $34.6M on a business acquisition, driving total investing cash outflow to $37.8M. Free cash flow (CFO minus capex) was $25.0M, but after including acquisition spend, the net cash position declined by $20.7M.
Capital returns included $5.0M in dividends and $5.4M in share repurchases, totaling $10.4M, which was fully covered by operating cash flow. The company ended the quarter with $49.8M in cash, cash equivalents, and restricted cash.
Anomalies: The large acquisition outlay ($34.6M) is a one-time investing activity. The deferred revenue decline of $12.6M is notable and may warrant monitoring for revenue recognition trends.