OneSpan Inc. Stock

Good day, everyone. Welcome to the OneSpan Quarter 3 2026 Earnings Call.

[Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time.

I would now like to turn the call over to Joe Maxa, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone. Thank you for joining the OneSpan Third Quarter 2026 Earnings Conference Call.

This call is being webcast and can be accessed on the Investor Relations section of OneSpan's website at investors.onespan.com.

Joining me on the call today is Victor Limongelli, our Chief Executive Officer; and Jorge Martell, our Chief Financial Officer. This afternoon, after market close, OneSpan issued a press release announcing results for our third quarter of 2026. To access a copy of the press release and other investor information, please visit our website. Following our prepared comments today, we will open the call for questions.

Please note that statements made during this conference call that relate to future plans, events or performance, including the outlook for full year 2026 and other long-term financial targets are forward-looking statements. These statements involve risks and uncertainties and are based on current assumptions.

Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. I direct your attention to today's press release and the company's filings with the U.S. Securities and Exchange Commission for a discussion of such risks and uncertainties.

Also note that certain financial measures that may be discussed on this call are expressed on a non-GAAP basis and have been adjusted from a related GAAP financial measure. We have provided an explanation for and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings press release and in the investor presentation available on our website.

In addition, please note that all growth rates discussed on this call refer to a year-over-year basis unless otherwise indicated. The date of this conference call is October 29, 2026. Any forward-looking statements and related assumptions are made as of this date. Except as required by law, we undertake no obligation to update these statements as a result of new information or future events or for any other reason.

I will now turn the call over to Victor.

Thank you, Joe. Hello, everyone. Thank you for joining us today.

Our goal for 2026 was to deliver solid performance while positioning the company for future growth. We are achieving those goals. We had an excellent third quarter with 12% revenue growth, including 16% subscription revenue growth and a 12% increase in operating income.

Before diving into the details, I want to take a moment to thank the entire OneSpan team for all of their efforts in delivering these results and also to underscore the progress we have made as a business, achieving a Rule of 42 performance level in Q3, whereas just a few years ago, in 2023, OneSpan performed at a Rule of 12 level.

Looking at Q3 specifically, I'm happy to report that both business units grew at a double-digit rate with Digital Agreements up 14% and Cybersecurity up 11%. Our overall gross margin also improved, rising to 76.3% compared to 73.6% in the year ago period. And we achieved a company-wide GRR of 91% in Q3, evidence of our stronger customer engagement and our delivery of better customer experiences across both our Cybersecurity and Digital Agreements business units.

With respect to the other part of our goals, that is positioning the company for future growth, we made great progress in that area in Q3 as well. In July, we launched the DigipassONE platform in our Cybersecurity business. DigipassONE brings together our suite of security solutions, including DigipassONE Authenticate, the industry's broadest customer authentication capabilities, spanning hardware, software, on-prem, in the cloud, OTP and Passkeys.

DigipassONE Protect, our mobile application protection portfolio, providing continuous in-app protection, active defense and real-time threat visibility.

DigipassONE Verify, a new offering that provides support for digital credentials and verification capabilities across multiple wallet ecosystems, which will be a key requirement for banks in Europe.

And DigipassONE Insights, another new offering that will deliver cross-platform analytics and visibility that will provide enriched insights and actionable intelligence from telemetry spanning the entire platform, providing value not only to our customers' authentication teams, but to their broader security teams as well.

You are all familiar with OneSpan as an authentication provider, but I want to take a moment to talk about DigipassONE Verify, which we plan to release early next year. As an important reminder, the European digital identity regulation will require banks to support digital identity wallets for customer onboarding and authentication by December 2027.

We remain actively engaged with the ecosystem as verifiable credentials and digital wallets develop, and we plan to support the first country-specific wallets slated to be released early next year.

We are encouraged by the discussions that we have seen around DigipassONE Verify and expect this to be an important offering as these wallets become more broadly available. As you know, we have a broad customer base of European banks, and we expect this offering to be a particular interest in that market.

We also continue to see encouraging interest in DigipassONE Protect and our expanded capabilities introduced with our acquisition of Build38. As more consumer banking actions move to mobile applications, there is increased recognition of the importance in protecting these applications and the users from attacks and fraudulent behavior. Our expanded portfolio now offers both a post-compilation or wrapping approach and an SDK approach to provide next-gen in-app protection capabilities.

Turning to Digital Agreements. We also made meaningful progress during the quarter. Earlier this month, we announced exciting advancements and innovations that we are adding to OneSpan Sign, expanding the value it brings to e-signatures and the workflows involved with high-value agreements. We continue to focus on purpose-built features and functions that serve the broader financial services vertical where security, compliance and assurance are core requirements.

Our recent e-signature innovations are focused on 3 key areas, making agreements easier and faster to complete, strengthening identity and document assurance without adding unnecessary friction and better connecting completed agreements into the systems and processes that drive the next business action in our customers' workflows. This includes investments in a redesigned user experience, AI-assisted capabilities such as automatic document validation as well as advanced identity verification and expanded integration capabilities.

We are encouraged by continued healthy gross retention metrics and customer activity we are seeing, including expansion and longer-term contract commitments from large customers. During the third quarter, a major banking customer of our Digital Agreements business meaningfully expanded its contract in both term and in size, moving from overages under the previous contract into a multiyear contract that will support their continued growth and utilization of OneSpan Sign.

Stepping back, we are encouraged by the progress we are making as a company overall, both in Q3 and more broadly over the past few years. We believe we are investing in the right strategic areas and putting the pieces in place to enable growth over the longer term. And we're proud that we are able to do so while also improving in the day-to-day execution of the business.

Please note that the Board has approved a quarterly dividend of $0.13 per share to be paid in the current quarter, and we'll continue to evaluate additional share repurchase opportunities. Since the beginning of last year, we have returned $55 million or just under $1.50 per share to our shareholders through dividends and share repurchases. In summary, we had an excellent quarter and continue to strengthen the business and position OneSpan for durable long-term growth.

With that, I'll turn the call over to Jorge.

Thanks, Victor, and good afternoon, everybody.

I'm pleased to report another strong quarter and continued progress in positioning OneSpan for long-term growth. Q3 revenue was $63.9 million, an increase of 12% compared to last year's third quarter. Subscription revenue grew 16% to $51.5 million and hardware revenue grew 7%. This growth was partially offset by an expected decline in perpetual maintenance revenue as customers move to term licenses.

For the quarter, subscription revenue increased to 81% of total revenue, up from 78% in the prior year quarter, while hardware and perpetual maintenance revenues accounted for a combined 19% of total revenue as compared to 22% in last year's Q3.

Annual recurring revenue or ARR also continued to grow, increasing 8.5% year-over-year to $195.5 million. ARR growth was driven by expansion of existing customer contracts and new logos as well as Build38, which contributed approximately 1.5 percentage points. ARR increased $5.9 million sequentially, consistent with the expectation we shared last quarter of sequential quarterly growth in the second half of the year. Our net retention rate, or NRR, was 105%, up from 103% last quarter.

Third quarter gross margin was 76.3% compared to 73.6% in Q3 of last year. GAAP operating income was $9.2 million compared to $8.2 million in Q3 2025. The year-over-year improvement reflects higher revenue and gross profit, partially offset by increased operating costs related to Build38, organic investments, including certain costs related to go-to-market leadership and higher share-based compensation expense and bonus accruals.

GAAP net income per share was $0.20 compared to $0.17 in the third quarter of last year. Non-GAAP net income per share was $0.35 compared to $0.33 in last year's Q3. Adjusted EBITDA and adjusted EBITDA margin were $19.3 million and 30.1%, respectively. This is compared to $17.5 million and 30.7% in the same period last year.

Next, I will discuss the third quarter financial results for our 2 business divisions, starting with Cybersecurity. Cybersecurity revenue increased 11.3% to $44.9 million. Subscription revenue increased 17.4% to $32.5 million, primarily driven by customer expansion contracts, including an increase in multiyear term license revenue, new logos, M&A, new products and an increase in past to renewal catch-up revenue as compared to last year's third quarter. As a reminder, multiyear term license and catch-up revenue can vary from quarter-to-quarter.

Hardware revenue grew 7% to $10.5 million, largely due to certain customers requesting earlier-than-anticipated deliveries of Digipass tokens, which we had expected to ship in Q4. As discussed last quarter, Q3 is typically our seasonally low hardware quarter, but deliveries were higher than we expected this year due to the timing of these shipments.

Our full year 2026 hardware outlook has not changed, which means we now expect a correspondingly lower hardware contribution in Q4 than previously forecast. Perpetual maintenance revenue in Cybersecurity declined as expected. ARR for the Cybersecurity division increased 10.1% year-over-year to $127.2 million.

Gross margin was 77% compared to 74% in the prior year quarter. The increase in gross margin primarily reflects increased subscription revenue and a more favorable mix of hardware devices shipped, partially offset by incremental amortization of acquired software related to Build38.

Operating income was $18.5 million or 41% of revenue compared to $16.7 million or 41% of revenue in last year's Q3. The year-over-year increase in revenue and gross margin was partially offset by higher operating expenses related to Build38 and higher organic investments to help drive future growth.

Now turning to Digital Agreements. Revenue grew 13.5% to $19 million, driven by overages, expansion of renewal contracts and new customer additions. As we discussed previously, overage revenue can be a positive indicator of transaction volume growth that can lead to expansion with existing customers.

As Victor mentioned earlier, a large customer generating overages renewed during the third quarter with a materially larger annual commitment. As a result, overage revenue from that customer has ended and revenue from them is now ratable. This also led to a sequential decline in overage revenue in Q3, and we expect a further sequential decline in overage revenue in Q4 towards more typical levels.

ARR grew 5.7% year-over-year to $68.4 million. As a reminder, overages are not included in ARR or NRR. Gross margin improved to 74%, up from 72% in the prior year period, primarily reflecting higher revenue, including overage revenue and greater efficiency in our cloud infrastructure costs.

Operating income was $6.9 million or 37% of revenue compared to $4.2 million or 25% of revenue in the same period last year. The strong improvement in operating income was primarily driven by revenue growth and higher gross margin.

Turning to our balance sheet. We ended the third quarter with $51.4 million in cash and cash equivalents and $5 million outstanding under our credit facility, which was repaid subsequent to quarter end. This compares to $43.3 million in cash and cash equivalents and $5 million of outstanding debt at the end of the second quarter of 2026.

During the quarter, we generated $16.5 million in operating cash flows. Primary uses of cash includes $4.8 million for our quarterly dividend and $2.9 million for capitalized software development costs. By geographic region, revenue in the third quarter of 2026 was 43% from the Americas, 37% from EMEA and 20% from Asia Pacific compared to 46%, 38% and 16%, respectively, in the third quarter of 2025. Revenue increased year-over-year across all 3 regions, led by APAC, followed by EMEA and the Americas.

Now turning to some modeling notes and our outlook. For the full year 2026, we are increasing our guidance to reflect our strong third quarter results and updated expectations for the remaining of the year. In Q4, we now expect software and services revenue to be higher than previously forecast, partially offset by lower hardware revenue due to the timing of shipments discussed earlier. As a result of this shift in revenue mix, we now expect a higher Q4 gross margin with a full year gross margin slightly above 74%.

More specifically, for the full year 2026, we expect total revenue to be in the range of $254 million to $258 million as compared to our previous guidance range of $248 million to $252 million. We expect software and services revenue to be in the range of $208 million to $210 million as compared to our previous guidance range of $202 million to $204 million. We expect hardware revenue to be in the range of $46 million to $48 million, unchanged from our previous guidance.

We expect ARR to be in the range of $197 million to $201 million as compared to our previous guidance range of $194 million to $198 million. And we expect adjusted EBITDA to be in the range of $72 million to $76 million as compared to our previous guidance range of $67 million to $71 million.

That concludes my remarks. I will now turn the call back to Victor.

Thanks, Jorge.

To recap, we are pleased with our third quarter results and the progress we continue to make across the business. We are executing well while continuing to invest in the opportunities we believe can drive stronger growth over time. At the same time, we continue to deliver solid profitability and return capital to shareholders. We remain focused on executing our strategy and creating long-term value.

Jorge and I will now be happy to take your questions.

[Operator Instructions] Our first question comes from Erik Suppiger with B. Riley Securities.

Yes. Can you hear me okay?

Yes, we can hear you Erik.

Great. Erik we can hear you.

Congrats and good to see the upgraded system here. On the hardware, can you comment how you're thinking about hardware going forward? I know you're not guiding for fiscal '27, but are you thinking at this point that hardware is at a sustainable level? Are the FIDO2 tokens enabling you to offset any of the legacy declines?

Yes. Thank you very much for the question. So we used to talk about hardware saying if we could just offset the decline and be flattish, it would really improve our business. And we're starting to see that. I think if you look at our guidance for the year, it implies being down just a couple -- just a few percent from last year.

And of course, we're not giving 2027 guidance yet, but we do think that we have a much more sustainable hardware business at the level we're currently at, and some of that will come from the FIDO2 security keys increasingly in '27 and subsequent years.

Can you give any update specific to the FIDO2 tokens? How are those -- how is that business performing?

Erik, it is definitely picking up speed, and I expect that when we get to next quarter, we'll be able to give you a lot more details on that. To date, the business through the first 3 quarters, it is still overwhelmingly related to our older banking tokens.

Good. Congratulations.

Thank you.

Our next question comes from Gray Powell with U.S. Bank BTIG.

Okay. Great. And yes, congratulations on the good set of numbers. It was really nice to see, particularly after some of the results we saw yesterday.

Thank you, Gray. Thanks.

Yes, absolutely. Okay. So it was really good to see the improvement in net new ARR in the Cybersecurity division. And look, I know that like over the last 12 months, there have been some quasi onetime issues there. Just where are we now? Like do you think that the business is in a good spot? And should the success you saw in Q3 be more indicative of your performance going forward?

Gray, yes. So the -- again, we're not going to give 2027 guidance, but we do feel better about the business than we did 6 months ago, 12 months ago. The launch of DigipassONE, I want to touch upon this a little bit. It certainly helps in our conversations with customers. You see things like our GRR going up as we are investing in solutions for them, and they feel more comfortable with the direction we're headed in.

But bear in mind that 2 of the 4 components of DigipassONE are not out yet. We're expecting to release Verify in Q1 and then subsequently after that, we'll release Insights. So we think there is an opportunity, as we said in the prepared remarks, to drive faster growth for the business overall. So the framework and the preparatory work, we feel like we've done a lot of that, and we're looking forward to continuing to improve the business.

And by the way, I mentioned at the beginning, I'm really proud of the team. We've improved OneSpan, both on the Digital Agreements and Cybersecurity business a lot over the last few years. So very proud of that.

Our next question comes from Rudy Kessinger with D.A. Davidson.

A lot of mentioned that the quarter certainly looks like a strong quarter here. A few questions for me. Firstly, just on the strong net ARR in the quarter, any color you can share on just how broad-based that was or concentrated it was, what products really drove that and just the mix between new logos and expansion activity that drove the net new ARR.

Yes. Thanks, Rudy, for the question.

Yes, Jorge, go ahead.

Yes, I can give you a little color. So no, look, I think we're very proud of the metric going back to 8.5% of ARR and net new ARR to your point, $5.8 million for this quarter. So the -- largely, the product set is the existing products and kind of the legacy products that we normally sell licenses, on-prem, OCA, et cetera.

We did have a little bit of a contribution from the new products for Build38 and ThreatFabric as well through the partnership, but that was not overwhelmingly what drove the number up. So I think it's -- we see progress there, which is what I would characterize the progress on the new products. Hopefully, we can continue to accelerate those, but largely it's the existing products.

And primarily, as you know, our net new ARR or ARR growth primarily comes from expansion of existing business on both Digital Agreements on transaction volumes. And Victor alluded to the large expansion that we closed this quarter -- and we signaled in terms of the overages from last quarter, and we say normally that is a leading indicator for expansion. So that was the case for that large customer, which we're pleased with.

And then on the security side, again, the expansion also came from existing customer base. And it's good to see when customers are renewing, they renew with this expansion not only in certain regions, it is spading across all the regions that we normally see. So we're pretty pleased with that.

Yes, Rudy, I was going to just add to what Jorge said. I said this is not a revenue number. But on a bookings basis, we did very well across many geographies. It wasn't just one geography or one area. So it was great to see.

Got it. Okay. Super helpful. Yes. I guess for me, similar maybe a question to Gray, I believe you asked it. I think the question on a lot of investors' minds is when can $5 million plus of net new ARR quarter to come the average or just the base, if you will. It's certainly been lumpy over the last few years. You have some new products that you've launched, still some underway. I guess I hear your comments that you sound better than 6, 12 months ago. I guess, I don't know, does 2027 feel like the year where really we can kind of escape kind of the growth ranges that we've been in and see some acceleration? Or just how should we think about that at this stage?

Yes. No, I understand the question, of course. And we haven't, as a business completed, finalized our 2027 planning. So it would be completely premature for us to be giving specific guidance for '27. However, we are introducing new products, right? And you can see the strategy on the Cybersecurity side, you can see the strategy of DigipassONE, where we want to provide more value to our customers and earn more revenue from them by providing more capabilities. And so we'll be doing that.

Now keep in mind, you know this, I'm sure we're dealing with many of the companies you cover. You introduced a new product in Q1. The sales cycles at large banks are not 60 days. They tend to be longer than that. So it will take a little while for that to have a revenue impact, but we do think it's going to help the business overall. It does -- as I mentioned, it does help the renewal rates and the GRR. And obviously, once you start lending those deals, it helps NRR as well. So we feel like we're going in the right direction.

And also, the Digital Agreements business has been introducing new products as well, new capabilities, I should say, on the platform, and we think that's going to help that business as well. So we feel good about the trajectory, I would say, without getting into the specifics of 2027 growth rates.

Our next question comes from Anja Soderstrom with Sidoti.

Congrats on the nice progress here.

Thank you.

I'm just curious, the ARR growth is slowing down a little bit in the fourth quarter. Is there any seasonality there? Or how should we think about that?

Anja, thanks for the question. So when you look at the guide that we put in, so 199 at the midpoint, so that implies a 6.5% year-over-year growth. I think we obviously -- this is where we feel comfortable with. Hopefully, we can exceed it, Anja.

But I think there's a lot of indications as well. We mentioned last quarter, a couple of the large churns that we had, some of those related to the past before we acquired the business. So those are going to continue to be with us for the next couple of quarters still, Anja. So those are factored in.

And so I would say we should expect to see a relatively consistent number what we saw this quarter. Hopefully, we can do a little better, but that's the midpoint of what we decided to guide towards, Anja.

Okay. And then -- can you just bucket your growth with existing customers versus adding new logos?

So largely, when we -- as I mentioned before, largely the ARR at this point, I think maybe you should unpack it by the 2 business units. So when it comes to security, it is largely an expansion driver when it comes to ARR. And as I mentioned, a little bit contribution -- a little bit of the contribution came from the new products.

And we -- so our goal is to continue to expand that contribution from new products into the customer base. Of course, we like to have new logos. But just because of the market share that we have in some regions, new logos tend to be, particularly in security, a lower contribution to the mix.

On the dealer agreement side, the new logo contribution is slightly higher, maybe it's 20% to 30% when it comes to ARR growth. And we want to continue to get that contribution because it is a land and expand, Anja, as we mentioned before, DA is completely land and expand. We got to land and then expand them. But at this point, it's still largely an expansion from ARR. We are running go-to-market initiatives to accelerate the new logo contribution and landing. And so that's all I can tell you at this point. I don't know if you have any other thoughts.

No, that's accurate. And I alluded to this a few minutes ago, when you're talking about large banks, the sales cycles tend to be kind of lengthy. So new logos will be harder to come by. And when you have -- we have 60 of the 100 biggest banks in the world as customers. So we already have the majority of the top 100.

Of course, we're trying to get new logos, and we do. We do add new logos, but most of our growth comes from existing customers, which is why our strategy is to add value, add products and have more to sell them because that's the most straightforward way to drive higher growth in the business.

Your final question comes from Catherine Trebnick with Rosenblatt Securities Inc.

A couple of product questions. For clarification, passkeys, does that cannibalize the Digipass hardware? Or does a hybrid model protect that revenue? And then I got a couple of few others.

Yes, Catherine, great question. So there is a mix of use cases by our customers. Some people prefer hardware authentication. Passkeys are certainly a modern authentication method that are safe and convenient. And so there's going to be a mix. It kind of depends on the end market, the geography and also the use case.

Hardware authentication is not inconvenient if you're doing your banking in front of a big screen, multiple monitors with a desktop or laptop computer, you keep your hardware token in the drawer, you pull it out, you authenticate, super safe and not inconvenient. So you see that proportionately more in corporate than you do in retail banking, for example. And it also varies greatly by geography. Hardware is much more prevalent in Europe and in APAC and much less so in North America, for example.

Okay. And then Digital Agreements, just for my knowledge or everybody, are those AI features priced separately? Or are they bundled when you sell that? And congratulations on that order. That sounds really good.

We have, to date, bundled the capabilities to create differentiation in the marketplace and TBD on how we handle future enhancements, but that's what we've done to date.

There are no further questions at this time. I will now turn the call back to Joe Maxa for closing remarks.

Thank you, everyone. We look forward to updating you again next quarter. Have a great night.

The call has concluded. Thank you for joining. You may now disconnect.

Hi everyone and thank you for joining us. Today, we're going to share the latest OneSpan Sign innovations and show how we're extending e-signature into the broader digital agreement workflow. The focus today is practical, reducing the manual work that slows customer agreements, making those agreements easier to complete and strengthening trust in the people and documents behind them. You're going to see a mix of available capabilities, early access innovations and product direction, and we'll be sure to be clear about the status of each as we go.

I'm joined by a fantastic team of OneSpan Sign experts with Carolyne Moran, Vidushi Yadav, Ralitsa Miteva, Laurence Soucy and Candice Mueller, who will take us through the innovations and explain what they mean for real agreement workflows. Rather than covering the features in isolation, we will connect each one to a familiar challenge such as preparing an agreement, collecting the right documents, helping a signer understand the terms, verifying identity or even reviewing potential document issues.

We'll start with the bigger picture, how OneSpan Sign supports the work surrounding the signature. Then we'll move through the innovations in three key areas: speed, experience, and security. Then we'll use demonstrations and examples to show how these capabilities fit in to existing workflows. And we'll finish with live Q&A. So please feel free to submit questions at any point during the session.

Now before we dive into the innovations, I'd like to welcome our Vice President of Product, Carolyne Moran. Hi, Carolyne. Before we dive into today's innovations, let's level set for anyone joining us for the first time. Can you tell us a little bit about OneSpan Sign and what sets it apart from other solutions in the market?

Thanks, Scott. And yes, I absolutely can. And thank you, everybody, for joining us today. At a high level, OneSpan Sign helps organizations manage the agreement process from preparing and sending agreements to verifying signer identity, collecting signatures and routing completed agreements into downstream business systems.

What really does set OneSpan apart is how we build trust into every agreement without compromising the user experience and our technology has been proven in the most demanding highly regulated environments. That being said, we combined our industry-leading security foundation with these capabilities to help organizations defend against evolving fraud threats while moving business processes forward with confidence.

For many years, organizations have relied on e-signature to digitize the final step of an agreement. But today, customers are realizing that there's so much more than just a digital signature. The digital signature is pure security, but there are so many processes that happen. So what I'd like to say is that, that signature block at the end is really only one piece of the hundreds of flows that happened before to make it happen. Our customers really value our ability to deliver fully branded experiences that meet complex regulatory requirements. They rely on comprehensive APIs that we provide for seamless integration. And we also have a handy support team ready to help you at any moment, and we also have industry expertise whenever you need.

That's why evolving our Digital Agreements portfolio is necessary. We're expanding beyond the signing moment to address the broader challenges that happen before and after signing is captured, whether it's helping users complete forms accurately, providing AI-powered insights to understand agreements faster, validating information early in the process or connecting agreements downstream in your processes, we're focused on helping organizations drive better business outcomes from every agreement at every moment.

So what's interesting is when we did take the time to speak with our customers, we consistently heard three major priorities: speed, experience, and security. Those priorities became the foundation for how we approached our innovations and where we focus on outcomes versus individual features. If you think about it, first, customers want to move faster by reducing manual work, eliminating avoidable delays and accelerating business processes. Take, for example, Auto-Field Placement. During document preparation, it helps really to get things done quick. You may have hundreds of documents that you need to prepare depending on your lines of business and large contracts with many signature and data fields can take time. We at OneSpan can help you place those fields and then have you validate and get you going really quickly to send your agreements out for signature.

Second, they want to create better experiences for employees, partners and users because every point of friction can impact completion rates and satisfaction. So not only do we create great experiences for our customers, we also think of your customers. In the digital world, you can still receive documents, and that's why we've introduced, for example, AI summary and questions. This way, the signer can easily guide themselves through the entire document process. Imagine there's 20, 30 pages and you have questions or you're not sure what you're seeing, you can easily use our AI summary tool. This way, it makes things much more impactful and also avoids delays in signing.

And third, they need to maintain the highest levels of security, trust, and compliance in an environment where fraud and regulatory pressures continue to increase. Our Not In Good Order suite helps eliminate risks live as they are happening. So imagine you need attachments or requirements in order to validate the user. If someone uploads a tampered or an incorrect file, you don't have to search and validate it. We will send you an alert the moment we identify that there's a potential risk involved.

What this all means is that under Speed, we're helping organizations remove bottlenecks and get agreements completed faster. Under Experience, we're reducing friction and making agreement processes easier and more intuitive for everyone involved. And under Secure, we're helping organizations strengthen trust, combat evolving fraud threats and meet the demands of highly regulated environments.

Now that being said, I'd like to turn it over to Ralitsa, who will help us uncover our first innovations under Speed outcomes. Thank you.

Thank you, Carolyne. Good morning, good afternoon, good evening, everyone. If I ask you right now to think about e-signature, you probably picture a customer signing a contract. But here is a thing. That moment takes just a few seconds. What takes days, sometimes weeks is everything around it. Think about what needs to happen before an agreement is even signed. Teams create and maintain templates. They need to map fields, pull data from CRM and other business systems, set up the right workflow, the authentication methods. After the agreement is signed, information needs to go back to the system of record. Agreements are archived. And often, signature needs to trigger the next step in the business process.

So when you look at the entire journey, there is still a lot of manual setup and effort involved for administrators, developers, and business owners. And of course, AI has the potential to change that. In fact, adoption is already high. McKinsey reports that 88% of organizations use AI regularly in at least one business function. But here is the challenge. Using AI is one thing, scaling it is another. Only 23% have started scaling agentic AI in their organizations. And analysts are already warning us that by the end of next year, we may see a large portion of these AI projects being canceled and not only because of escalating costs, which is probably what you're thinking about, but also due to inadequate risk controls.

So that's particularly important when we are talking about Digital Agreements because agreements are not just another business process. They require a high level of trust. They are legally binding, tied to identity, dependent on clear evidence, auditability. So the opportunity is not to simply automate and to kind of move faster, but it's to do that while remaining secure, compliant, transparent, and accountable. And that's really what I want to show you next with the innovations we are introducing in this section.

So let's get started. Today, if you are sending the same document again and again, you probably would think to create a template, right? And that works well for documents that we use all the time. But what about all the rest? What about the form that is updated every quarter or the document that you just need to send once or twice a year. In those cases, creating and maintaining templates doesn't make a lot of sense, right? Then you probably will do this manually.

From customers, we hear there are two types of documents that are creating the most friction. The first one is the fillable PDFs as we call them. Many organizations still have these old forms that were created years ago in tools like Acrobat with fields that are already embedded in the document. The second one is the structured documents. So think about contract exports from Word. So like a one-off agreement or simply a document that changed quickly to justify creating a template, what we spoke about earlier. There are no fields, no tags, nothing that you can reuse. So every time we need to practically start from scratch. And this is where Auto-Field Placement capability comes in.

Coming early next year, this feature is addressing both of these scenarios. So when a document already has a structure such as PDFs or tags or placeholders saying, like, 'sign here', OneSpan Sign automatically detects that structure and place the appropriate fields where they belong. When no structure exists, AI analyzes the document and suggests where fields should be placed. Senders simply they need to review and to approve this. So the goal is less manual setup, less effort and a faster path to sending the agreement.

Our next innovation is part of our early access program in Q1 and addresses a challenge that we have heard from customers like so many times, and you probably recognize it as well. Signing doesn't happen in isolation, as we say. Think about your signing workflows are connected to CRM, HR, IT systems, document repositories, loan origination systems, insurance applications and many, many other applications. So that's great, right, until something changes. Maybe you need a new workflow, maybe there is a new business requirement, new regulation or just you introduce a new system.

So suddenly, a simple change means a problem because you need to wait for IT, for developers, for resources, the vendor maybe need to make some modification. And even maybe sometimes there is a connector, but maybe it doesn't fit actually your use case. This is the challenge Self-Serve Integration Studio is designed to address. It is available directly within OneSpan Sign and gives administrators access to an integration library in a low-code, no-code environment to build, configure and adapt to workflows. So you don't necessarily need to start from scratch, so don't worry. You can start from a prebuilt template and customize it to fit your process. So you can create also entirely new workflows or anything that you need. What it means is for you, more flexibility, you have more freedom to automate signing workflows in different parts of your business.

Second, speed, changes are just happening faster. Low operational costs because there is less reliance on specialized development skills and less customer integration work. And I think the bigger point here is that your business doesn't stand still. Your processes are constantly evolving. So your signing workflows should be able to evolve as well. Self-Serve Integration Studio is putting more of that control directly in your hands.

Our next innovation is one that I'm particularly excited about. It's something which is fundamentally different. So far, we have talked about innovations that help people to complete individual steps, right, to do things just faster. But let me ask you a different question. What if the process didn't have to wait for somebody to take the next step at all. That's where our first agentic workflows capability comes in. So as we discussed earlier, signing itself is not really the bottleneck, delays happen before and after the e-signature. So we are working towards allowing organizations to connect AI agents to agreement workflows, helping processes move across systems while keeping people involved where it matters most.

So how does it work? The solution is built on the open Model Context Protocol, MCP. It is a governed integration layer, which allows standardized MCP authorization practices to help organizations securely connect the AI agents they already use. So practically, to make this a little bit more tangible, imagine simply telling your agent, send the updated conditions to this customer list using our approved template and apply our authentication policy. Pretty simple, right? The agent can coordinate the processes across connected systems, gather information, initiate the workflows, keep the teams informed. Through MCP, it can involve trusted OneSpan Sign capabilities such as agreement preparation with the existing templates, signer authentication, signature collection. OneSpan governs how those agreement-related actions are being performed. Compliance teams on your side define the rules, maintain visibility into exceptions and stay in control of how agents operate.

So, for me, this is really an opportunity because you can embrace speed with confidence. The goal, as we said earlier, is not simply to move faster, but to preserve trust, security and oversight. This is our first step into agentic agreement workflows, and we're excited to bring this to you as part of our early access program in Q1 next year.

And with that, I will hand it over to Candice, who will take us through the innovations we are introducing in the Experience category. Candice, over to you.

Thanks, Ralitsa. Well, you covered a lot of great innovations there in our Speed category. Now as you've mentioned, we're going to move into Experience. And one of the things that both Ralitsa and Carolyne mentioned is that customers really tell us several times that while e-signature has simplified the signing experience, the broader journey basically creates friction for both senders and signers. And so for senders, this really sits around preparing agreements, collecting supporting documentation and managing the manual processes. And for signers, navigating complex agreements and really understanding what is required and completing multiple steps can lead to confusion, delays and even abandonment.

At OneSpan, we believe a great digital experience should actually go beyond e-signature, making the entire experience easier. And why does this matter? While even with digitization of e-signatures, banks are still seeing issues with customer abandonment in digital workflows due to complexity. Capgemini's Global Banking report cited that nearly half of all customers abandon an onboarding process. Now what's really behind this drop-off?

Well, Capgemini cited that banks responded with the findings that 75% of customers actually often submit incomplete documentation causing significant delays and 61% of banks are really overwhelmed by the sheer volume of applications that they receive due to lack of automation. So that's why we're introducing the innovations designed to simplify the agreement preparation to help streamline workflows and help signers move forward with greater clarity and confidence.

So the first feature that I'd like to share with you is Flexible Attachment Flow. And if we think about one of the biggest bottlenecks to completing digital agreements, we hear consistently that collecting and approving documentation at the right time creates significant delays. And so think about a mortgage application. Before an agreement can be finalized, a bank needs the supporting documents such as proof of income and identification. Teams can end up chasing these documents over e-mail, SMS or a separate portal. And too often, what they receive comes back missing, wrong and that further delays the signing process.

Well, today in OneSpan, you can actually specify documents needed as part of the signing flow. Signers are prompted to upload them after they've signed. But we've actually heard from you that use cases such as onboarding, documents are really collected upfront before the e-signature. So with our Flexible Attachment Flow capabilities, we're excited to announce that organizations will be able to request documentation directly within the agreement workflow. They can review what's been submitted and accept or return documents before releasing the agreement for signature. The result is a more connected experience with fewer handoffs, less rework and greater control over the entire process.

So first, you can collect before you commit. You can ask signers to upload what you need right upfront. So an agreement is only signed once right when the paperwork is in hand. Second, you can review and validate all of this in one place, so you can accept or return each document before signing is released right within the transaction. And third, you can make any of the key documents mandatory and keep collection review and decisions in one secure auditable record. This will replace scattered e-mails, SMS and third-party portals that you might be using today. And this all stays within a familiar OneSpan transaction, so nothing changes for your existing workflows. And this feature is in active development, and it's coming soon.

The next feature we are excited to announce today is Self-Service Template Ingestion. So when we first look at how -- when you migrate new use cases over to OneSpan, this feature is going to significantly help. So most organizations have dozens, sometimes hundreds of templates, especially for complex workflows, including loan agreements, account opening forms, policy documents and such. So each form has multiple field elements, including signature fields, initials, dates, signer roles and really a lot of rules, too, that took time to create. Rebuilding all of this by hand is slow, it's tedious, and it's also very easy to make mistakes. A missed field or wrong signing order can mean a document has to be sent again or worse, it gets completed inaccurately.

So Self-Service Template Ingestion makes it easy to import and convert templates in seconds, whether you're importing one file or multiple. You can upload a single file or in a batch. So OneSpan reads the template and recreates the supported elements for you automatically. The document signature blocks are mapped and retained during the upload. This even saves effort on any document design work because every field is automatically mapped. You save manual effort. Teams move from rebuilding the same fields over and over to simply focus on reviewing and testing and you also gain better accuracy. Because fields are mapped automatically, you reduce the risk of small errors that can creep in when people create templates by hand. The goal here is really that switching should feel like an easy project that you can plan effortlessly and not feel like you have a mountain to climb. And this feature is available today.

Now we'll look at how OneSpan Sign is improving the customer experience. I'm deeply passionate about how we help our customers gain more effortless experience when they interact with our brand. And so think about the last time you've signed something important. It could be a mortgage, an insurance policy or a new account agreement. You were probably faced with dozens of pages of legal language. And did you read every word? Most of us don't. So one of the biggest complaints we hear from signers is that they are signing a legally binding agreement. And often, it's very difficult to fully understand what they're agreeing to.

AI signer summary makes the entire experience easier for the customer. When a customer opens an agreement, they're presented with a clear plain language summary that explains what the document is about and highlights the key terms they need to understand. And if they have questions such as, 'What is my interest rate?' or 'What terms am I committing to?', they can simply ask in their own words and receive answers based directly on the contents of their agreement without ever leaving the signing experience.

Now there is also a very important distinction that I'd like to call out today. AI signer summary is designed to explain an agreement not to interpret the terms and conditions. So it will never offer legal or financial advice. Its role is to help signers better understand the information contained in the document, with responses grounded in the agreement itself. And rather than having customers copy sensitive information and put them into an external AI tool to get answers, this capability brings that experience directly into the signing workflow within an environment governed by the organization.

And when customers can easily understand what they're signing, they can move forward with greater confidence. And for organizations, this means the potential for fewer abandoned transactions, fewer clarification calls and a smoother signing experience from start to finish. This is also in development and coming soon.

Now to Vidushi, we have another category I'd love to transition over to you for our Secure section.

Thanks, Candice, and hello, everyone. So we are living in a time where trust is being redefined, and there are two shifts that are driving it. The first one, all of us are aware is AI, right? That has made deception cheap so much so that close to 40% of the attacks targeting organizations are driven by AI. A convincing face, a voice or a document can now be produced in minutes. So it looked real. It's no longer proof of anything. But the same technology that enables fraudsters also powers the defense, right? AI that can tell a live human from a synthetic one and spot a document that was quietly altered.

The second shift is that identity is going digital. The ID cards that we always carried in our physical wallets are now also being issued directly to our phones. In United States, mobile driving license from more than 20 states are now being accepted at TSA checkpoints at over 250 airports. In Canada, Alberta now offers a mobile health card to all residents. And in Europe, every member state by regulation must offer their citizens a digital identity wallet by end of this year.

So fraud is getting smarter and so are the tools to stop it. But an important point is that a signature on its own can't tell you who really signed or whether what they are sent is genuine. That takes confidence in two things. First, who is signing and how they prove it; and second, what they are sending. The art is applying the right checks in proportion, matching the controls to the risk so that a routine acknowledgment doesn't feel like a border crossing. It's key to get that balance right, so trust speeds up agreements instead of slowing them down.

So let's start with the first question, which is who is signing and how do they prove it, and it starts with Identity Verification. So earlier, I said it looked real, it's no longer proof of anything, and that's exactly the problem Identity Verification in OneSpan Sign is built for, and we are making it even stronger. So first, stopping fraud at the source. So fraudsters today, they are very intelligent, right? They don't just hold up a photo to the camera. They use deep fakes, they use AI-generated faces and videos that look and move like real people. Certified Liveness Detection is built to catch exactly this, and it confirms that it is a real life person in front of the camera.

Sometimes the signer is asked to make a simple movement like tilting their head, and that challenge changes every session, so it cannot be predicted or replayed. There are other checks also that quietly run in the background that look at things like skin texture, light reflection, tiny natural movements and the 3D shape of the face. These are the details a photo video or a synthetic face struggles to fake. But we're not stopping there. Attackers have now also started to use injection attacks, feeding fake video directly into the verification flow, so it never passes through the camera at all. Protecting against this remains our top priority and already planned on the road map.

But these checks actually only work if people actually finish them, right? So we have removed the moments where signers tend to drop off. For example, their country is automatically selected based on their geo-location. If they start on a laptop, they scan a QR code and they carry on their phones. And they capture their identity document holding the phone upright the way they naturally would.

Last but not the least, we catch mismatches early. We automatically compare the country the signer selects with the ID document they provide and flag anything that doesn't line up. The result is a stronger confidence in who's signing and an experience your customer can actually get through.

So a lot being said, let's transition and let me show you what this experience actually looks like. So meet Mike, Mike is applying for a loan to purchase a camper. So this is a high-value transaction. Therefore, the financial institution requires Mike to verify his identity before he gets access to the documents for signing. Mike prepares his government issue ID and other attachments that are needed by the workflow and he starts the process. As you saw, the country is automatically selected based on Mike's geo-location, but he can change it. So Mike basically follows the clear in-app guidance and instructions and takes the picture of his identity document.

However, as you will see that the document was rejected because the country didn't match with what he had selected. This time around, Mike makes sure that he selects the right country and the document and repeats the same steps and takes the picture of the front and the back of his driving license. So once the document capture is done, Mike then proceeds to a facial scan. So here, we first start with a passive liveness check where the AI analyzes the micro movements and light reflections. It is automatically followed by an active liveness check that prompt Mike to follow the instructions on the screen. So Mike is now verified and he gets access to the loan agreement for his final signature.

So now let's talk about where identity is heading next and how we are preparing for it. So you just saw how our IDV works, right, a document capture, liveness detection and checks that confirm the signer is who they say they are. So this is the foundation and it will continue to be, but at the same time, something new is emerging. So governments around the world are now starting to issue digital versions of IDs and digital credentials like mobile driving license that people would carry on in their phone wallets. The adoption is still early and it differs by region and countries, but more people will carry their ID this way over the coming years. And we want at OneSpan Sign to be ready for that.

So we have been exploring what that experience could look like. So imagine a signer who has a digital license on their phone. When they need to verify, the wallet opens and shows exactly what is being asked for, maybe just their name and whether their license is valid or not. They approve with Face ID and they're basically done. Their date of birth, their address on the identity document, the license number, they stay private because they were never requested. So what does this mean for you, right? It means more choice for your signers. So those with a digital credential or a digital ID can use it, but everyone else can continue with IDV as they do today.

It's a faster and a much simpler experience that helps more people complete the process. It's a strong identity assurance with signers sharing only the information you actually need. And the confidence that as a digital identity evolves, your signing process evolves with it without you having to rebuild anything. And that's exactly what we are building towards. One platform that supports the full range of ways that people prove who they are. So that's how we know who's signing, but even a real person can upload a wrong document or wrong utility bill that has been altered.

So next, Laurence will talk more about how to make sure what they are sending is right and real.

Okay. Thank you, Vidushi, and hey, everyone. So for our next innovation, first, let's just acknowledge once again the fact that in financial services, most agreements can't move without supporting documents. You need proof of income, you may need a government ID, might need a bank statement as part of the process. And when one of them is wrong, it's actually the full agreement that can come back Not In Good Order. So that's NIGO. It's the catch-all term for an agreement that can't move forward as submitted. And it's common too.

Industry estimates that about 20% to 40% of wealth management account opening submissions come back Not In Good Order. And I'm sure you probably have seen it happen, too. For instance, a simple example, think about an agreement that's come back from review and a supporting document was attached that is not recent enough. What happens then? It's the whole workflow that is stopping. Someone has to e-mail the customer, there's wait time, there's back and forth. There's a review step all over again. So every loop costs staff time and it costs also customer patience. You may end up with some applicants that never come back or pursue the process because of the back and forth.

And I think most of the organization also treat this as a review problem or just review friction. But catching an error late doesn't actually prevent it. The problem started earlier when the document was submitted. So that's actually where we should start fixing this. So our NIGO Document Validation functionality will actually prevent your team from chasing, missing or wrong documents and help them focus on the ones that actually need a human decision. And here's how it works.

So as soon as a document is uploaded by a signer, our system will leverage its AI to classify it. Is this the ID you ask for? Or is it just a random document that was attached by mistake. The signer will find out right away on the spot if it's the wrong document while they're still in the signing session, so they can correct it and upload the right one at that exact moment. So right there, you can see it prevents a whole lot of back and forth where your team are just chasing the right document.

Then from there, our system will perform verification checks on the submitted document. Has it expired? Is it recent enough? Is the image quality good enough? Or is it too blurry or maybe it's cut out halfway. So when your reviewer will actually open the file, they will be able to preview these results right next to the actual document. They see the failures coming first, then anything that might just need a closer look, then everything that actually passed. So your reviewers can go straight to the one or two things that need their judgment instead of having to manually recheck everything.

From there, our system also extracts the data from these documents, things like the names, the dates, maybe a document number, an income number. And we're making that available through our API. So it can be used to actually populate other downstream systems automatically instead of having someone manually going in and retyping everything. And lastly, the reviewer can mark each of these documents as verified or they can reject it and ask for a new one. But either way, we're going to be capturing this directly in the audit trail. So it contains a proof of who checked what and at what time.

So the result with that functionality is you have actually fewer agreements that are coming back Not In Good Order. Your reviewers are spending more time on the documents that actually need them. And this functionality is actually available today in our early access program, and it's coming to general availability early next year.

So if we move on to the next one, it's actually very closely related. We just saw how NIGO Document Validation will tell you whether a document is the right one, if it's complete enough and matches your requirement. But it doesn't tell you whether it's a real document. And I think that matters more every month. Faking a bank statement used to take skill. Today, anyone can edit one or you can use AI to generate the document in what, seconds. So a document can be the right type. It can be perfectly readable. It can look in good order, but it can still be forged.

So we're actually adding Tamper Checks layer on top of that validation. And how it works, so it examines each PDF that your client will submit as an attachment and look for signs that it's been altered or not. So think about bank statement, pay stub or a utility bill. They should all be coming from legit sources. They should not be edited. So our Tamper Checks will actually look for signs that it was edited after the document was created. It will look for signs that the source doesn't match what it claims to be, that maybe the dates don't add up in that document or maybe that it looks like it's been AI generating. So anything suspicious is actually flagged for your reviewer in the preview panel before a document is accepted.

And it will not reject anything by itself. It's also tuned in to not flag everything. So a clean document will actually go through, but a questionable one will get a second look instead of just slipping by. We're basically giving you the signal that something may be off with a document, and it's your team to decide what they want to do with this. So we just saw how the NIGO Document Validation ask, is this the right type of document? Is this complete enough? Our Tamper Checks will ask, is it genuine? And I think that, that second question is just getting harder and harder to answer by eye every day.

So we're going to take a look at how this looks like in practice. And the first thing you need to do is to set up and specify your attachment requirement. So if we start here the video, you can see I have my transaction in OneSpan Sign. I've added my recipient, and I can go and add my attachments requirements in that specific menu.

For the sake of that example, I'm adding a couple of different documents. And you can see we have a drop-down here that will contain a lot of different document type. We're supporting today about 15 different document types that ranges from the usual one passport, driver's license up to things such as T4, void check, property insurance documents. So the variety is pretty large. And the last thing we're doing here is checking that little box, verify document. That is important, and it's actually what will trigger our classification of the document, the extraction of the data and all the verification checks. So once that is set up, then we can look what is happening next.

So we have our attachments now that are specified. And next step as a signer, I will receive an e-mail from my bank that is telling me I have to upload something and I have some documents to sign. So I will most likely click in the link, and I will arrive in the upload portal.

So if we go to the next one and start this. So as the signer, I arrive in this portal. I can see clearly what are the requirements, what are the documents I need to upload. So I'm proceeding with that, and I will get warnings in case something is actually wrong. So for that one, example, it's asking me for a driver's license. I've selected a document that is not a driver's license. Clearly, I see the label here. We couldn't identify this as a driver license. I can go ahead. I know that I made a mistake, I can replace it on the spot and continue my test, continue my upload. So we can see how just this step will be preventing a lot of back and forth and a lot of loop with the sender.

So here, we're continuing the upload. I'm finishing this, and we're going to move to the sender view of the transaction. So as the sender, I'm entering my transaction. And right away, I see on the spot all the documents that have been provided with a status pill. I can enter each one individually. I see what has passed, I see the extracted data and I can mark it as approved. For the second one, you see it's the driver license. I had the warning. It appears to be expired. I still see the extracted data, the rest of the verification check that passed, but I'm probably going to reject this one.

Then the third one, there's a little something here as well. It's telling me that the document may be too old. It's older than 6 months, older than my requirements. Maybe for the purpose of this document, I only needed a proof of address and it's fine, I'll accept it. And the last one, well, a lot of things are going wrong with this. Document is too old, and you can see the authenticity cannot be confirmed. So the Tamper Checks showing sign that it's been altered. We see the source was different. We've seen it was edited after the creation, which looks really suspect. So I'm going to go ahead and reject those documents there.

So you can see that as a sender throughout the transaction, I stayed in control of the decisions. I got the signals I needed to speed up the review process. I could see even more information than I could have seen by eye, and I still get to decide if I accept it, reject it, and it stays within the same agreement workflow. Once again, all of that is available today in our early access program and coming to general availability early next year.

So with that, that was our innovation. I will get back to you, Scott.

Excellent. Thank you so much. And that wraps up our demos for today. We hope you've enjoyed getting a closer look at what's new with OneSpan Sign and how these enhancements can help you get even more from the platform. If you'd like to explore any of these features further, we've included a QR code linking to additional resources, including our latest release notes and product documentation. And whether you're already using OneSpan Sign or exploring what it can do for your organization, our team is here to help. We'd be happy to answer your questions, discuss your specific needs or walk you through a more personalized demo.

And before I move to Q&A, I would like to take a moment to thank today's presenters for sharing the latest digital agreement innovations.

Now we'd love to focus on answering your questions about what we've covered in today's webinar. So please feel free to type your questions in the chat. All right. Let's take a look. So first question, how do you see MCP benefiting integrations?

All right, Scott, I'll take that one. I think the honest answer is that integrations today are built completely by people, right? Someone writes code against an API, someone has to maintain it. And then every single time you do new features or have a new launch, you have to update it. It's an extremely manual process, right? And that's fine if you have a couple of integrations. But when you have a whole suite of them and you want to expand that, it just doesn't scale to the number of places an agreement actually needs to be.

What MCP or Model Context Protocol interface changes is the unit. Instead of managing or shipping a connector that a developer builds and maintains, you expose that capability that an AI agent can discover and call on its own. Prepare an agreement, pull its status, assemble from one document or a template or a layout, you can then have the agent figure out what that sequence is and what is the right way to get it developed and pushed through. And it can automatically take some of the features and functionalities that you're adding.

So we do believe that the goal is to make sure that the AI agent learns and we trust it and we believe that it can build, but it's about getting the scalability and meeting the market needs that we have out there. While maintaining, again, I want to be clear on our Self-Service Integrations, there's a middle layer where people will still use these while some are moving to the MCP agentic, and we want to make sure that we manage both overall.

Excellent. And semi-related from all the innovations and functionality being discussed, is there a list of items of which will be available via the API?

I can.

Go for it.

Yes, so all our features, like we always aim to have it available via API and UI. So to your question, all the innovations that you see, they will always be available via API. It might happen in phases. But as and when we launch it, our release notes will be clear on what's supported. But yes, long story short, it will always be supported by API as well.

Yes, exactly. It's always easier to show things through the UI as they're coming up. But yes, we're 100% making them available and again, across the point, not just the APIs when you're integrated through our integrations even if they're not through the MCP.

Excellent. Next question. Does NIGO Document Validation only work for attachments? And how will it work with the Flexible Attachment Flow?

So I can take that one, Scott. It's a good question. So today, the Document Validation is focused on attachment. So really, it's the supporting documents that your signer uploads. It will work hand-in-hand with the Flexible Attachment Flow that you've seen also earlier. So whether you collect documents or the attachments before signing, after signing or if you wanted to have a review before signing, our systems will run at the time of uploads in every cases.

So basically, whatever task order you'll choose, the signer will get that instant guidance as they upload, your senders will see the validation results, the extraction. It always stays invisible and it doesn't block. And I want to say as well, it's really just the starting point. I think our vision here is to keep expanding what 'In Good Order' is and what it means.

The next frontier is probably the agreement data itself. We're already thinking -- imagine a cross-document validation scenario, right? Our system would read the data on the uploaded attachment will compare it against the data in an agreement and would like flag the discrepancies before they even become a problem. So if a name or an address on an uploaded ID doesn't quite match what would be on the agreement or maybe it's a case where an income figure on a pay stub is off versus what the application states, even minor variation, it could get surfaced and corrected upfront and added to the list of verification checks we're doing.

So it's really the direction we're building towards. It's catching not just bad documents, but just inconsistent data across the agreements.

Excellent. Thank you. Next question, Auto-Field Placement. Will AI investigate the document? How is this done? Is the document kept on OneSpan servers or their servers? And how to save it and send your document to the AI servers?

I can probably take that one. Let me just reread the questions. So the AI Auto-Field Placement, I think it's important to understand it work as an addition to documents that may have already a structure where fields could be automatically detected and extracted. So what we're building is kind of two phases to where there's a non-AI layer, which is just figuring out if there's already a structure in the document and placing fields for that.

The AI portion, it reads a document to understand the content, understand where fields should be placed and assign the proper recipient. But it's not using any data for training. Everything is encrypted it's only at the time of processing the agreement. So I don't know if it answers your question, but we're complying to the highest level of security there as with any of our features. The data stays within the proper region and environment. So that's how I would respond to it. Obviously, more details and documentation will be made available as we kickstart the process of early access program for that and are closer to general availability.

Thank you, Laurence. Our next question, does the MCP agentic workflow replace or build on top of Workato development?

Okay. I can take that one, Scott. So James, we actually have a dual strategy with integrations, right? We know that MCP and agentic workflows is something everyone is looking at, it's still some time that everyone starts adopting it. So MCP, of course, we are focusing on it and having an EAP early next year. But at the same time, we know that customers as yourself and others still want to create this integration that suits your business case, right?

So long story short, our MCP agent workflow doesn't replace our Workato or iPaaS-led Self-Serve Integration Studios. But in the near future, we are looking at how can we build on top of our Workato to give more MCP capabilities in your hands. So more coming on both MCPs as well as our iPaaS MCP strategy in the future.

Yes. I think overall, there's a lot of questions around the API and even the features that we do. Our goal is to make sure that we integrate seamlessly with how your organization is set up and making sure that if you need this type of integration, if you need that type, we want to make sure that we can meet those needs of our ICP and even those outside of it.

Excellent. Next question, for checking identity while using 2-factor authentication via SMS, are you going to provide an API to connect to different SMS providers?

I can take that, Vidushi, if you want. At the moment, no, we do have providers that we work with in order to make sure that we stay secure and compliant on our side and also address how we want to manage the current workflows that come in. So right now, this is why we've made sure that it's really about streamlining within the way the integrations work.

There's a lot of complications that people don't understand that when you have your own SMS and you use it for multi-lines of business, when you actually opt out of one SMS type of notification, you actually close the entire loop hole on that. So that's a little bit where we stand now. It doesn't mean the doors are always closed. There might be a business case in the future, but we're always open to talk about that from a product perspective.

Thank you, Carolyne. Next question, Identity Verification, NIGO Document Validation, Tamper Checks. They both seem to check ID and documents. What's the difference? And do we need both?

I can take that one. And I think that's a great question and a valid question because at first glance, it does look like it's the same thing, but actually, they are very different. So Identity Verification focuses on the signer or the person, right? It confirms that the signer is who they say they are.

On the other hand, Not In Good Order document validation focuses on the paperwork and the attachments that the signer provides, right? So it confirms that a proof of income or a utility bill that you requested your signer for is actually real, right? It's current. It's not expired, and it's not been altered at all. So there are use cases where we know that our customers will use both. You could consider maybe a loan application where your signer first need to verify his identity, and then he needs to provide a proof of income or a proof of address as a supporting attachment that needs to be verified for its validity and that it's genuine.

Excellent. Thank you, Vidushi. So I want to just say thank you for all the excellent questions. It is about time for us to wrap. If you have any further questions after the webinar, please feel free to reach out to the OneSpan team, and we will be sending the recording out within the next 24 hours. Thank you so much, and have a great rest of your day.

Thank you. Good day and thank you for standing by. Welcome to the One Span Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again.

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Joe Maxa, VP of Investor Relations. Please go ahead.

Thank you, Operator. Hello, everyone. Thank you for joining the OneSpan Second Quarter 2026 Earnings Conference Call. This call is being webcast and can be accessed on the Investor Relations section of OneSpan's website at investors.onespan.com. Joining me on the call today is Victor Lomongeli, our Chief Executive Officer, and Jorge Martel, our Chief Financial Officer. Afternoon, after market close, OneSpan issued a press release announcing results for our second quarter of 2026. To access a copy of the press release and other investor information, please visit our website. Following our prepared comments today, we will open the call for questions. Please note that statements made during this conference call that relate to future plans, events, or performance, including the outlook for full year 2026 and other long-term financial targets are forward-looking statements. statements involve risks and uncertainties and are based on current assumptions.

Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. I direct your attention to today's press release and the company's filings with the U.S. Securities and Exchange Commission for a discussion of such risks and uncertainties. Also note that certain financial measures that may be discussed on this call are expressed on a non-GAAP basis and have been adjusted from a related GAAP financial measure. You provided an explanation for and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings press release and in the investor presentation available on our website. In addition, please note that all growth rates discussed on this call refer to a year-over-year basis unless otherwise indicated. The date of this conference call is August 4th, 2026.

Any forward-looking statements and related assumptions are made as of this date. Except as required by law, we undertake no obligation to update these statements as a result of new information or future events or for any other reason.

And I'll turn the call over to Victor. Thank you, Joe. Hello, everyone. Thank you for joining us today. We had a strong second quarter, including subscription revenue growth of 11% and solid profitability with an adjusted EBITDA margin of 28%. Before reviewing our results in more detail, I'd like to spend a few minutes discussing our recently launched DigiPAS 1 authentication platform, which represents an important milestone in OneSpan's evolution. DigiPASS One unifies the innovations from our Knock Knock Labs and Build 38 acquisitions with OneSpan's existing capabilities. delivering a single integrated platform solution. DigiPASS One includes four components, DigiPASS One Authenticate, DigiPASS One Verify, DigiPASS One Protect, and DigiPASS One Insights. First and foremost, DigiPath 1 Authenticate builds on the foundation of the world's broadest suite of authentication functionality, including pass keys, FIDO2 security keys, hardware tokens, mobile authenticators, and software authenticators, to deliver secure phishing-resistant login and transaction signing.

Banks and other high-value, high-trust customers gain the flexibility to support different users, devices, and authentication preferences through a unified platform. DigiPASS One Verify expands the platform with our new capabilities for verifiable credentials and digital wallets. Verifiable credentials are designed to improve onboarding, authentication, and trust by enabling cryptographically secure and tamper-proof identity verification. SpeedGPAS One Protect strengthens the offering with our mobile application shielding technology. Delivered via both SDKs and post-compilation app wrapping, it protects mobile apps against tampering, abuse, and runtime threats, promoting reliability and trustworthiness for users. Last, but not least, DigiPASS One Insights ties it all together with telemetry and analytical insights across authentication flows and application protection signals so that customers can better react to imminent threats or challenging operating environments. Looking ahead, over the next few years, we expect consumers to begin using agents to conduct banking and other high-value transactions, and we further expect that the development of this new channel for customer interaction will augment, not replace, the existing channels of in-premise. person, online and mobile.

In other words, in the future, banks will continue to engage with their customers across branches, websites and mobile apps while adding a new category of agent-driven banking interactions. DigiPath One provides the foundation to help banks and other high-value, high-trust businesses authenticate customers, verify intent, and protect transactions across both existing and emerging channels. We see the shift to agentic-driven interactions in the future as an opportunity to extend our offering and further strengthen our value to our customers. Stepping back, the launch of DigiPath 1 is a key milestone in a broader platform strategy that strengthens our ability to innovate, deepen customer relationships, address new market opportunities, and support long-term growth. Turning to our digital agreements business, where we focus on delivering secure, seamless agreement workflows purpose-built for financial services and other highly regulated industries. We believe our combination of white label these signatures, identity verification and workflow automation provides a meaningful differentiator in the market. In addition, we are investing in AI-enabled capabilities designed to help customers improve efficiency, gain deeper insights from agreement workflows, deliver a better end-user experience, seamlessly integrate with agentic workflows, and simplify deployment within existing environments.

Turning to our results, as mentioned, we had a solid second quarter, including generating $17 million of adjusted EBITDA, or 28% of revenue. ended the second quarter with annual recurring revenue of $190 million, up 7% year over year. Total Q2 revenue grew 1% to $60.5 million, and second quarter subscription revenue grew 11% to $47 million and accounted for 77% of total revenue, up from 70% in last year's Q2. Both business units continued to be solidly profitable at the division level. supporting our board's commitment to a balanced capital allocation strategy that considers shareholder returns, organic investment, and targeted M&A. In the second quarter, we returned almost $8 million to shareholders through dividends and share repurchases. And on an aggregate basis over the last four quarters, the total return to shareholders exceeds $40 million, or over a dollar per share. The Board has also approved a quarterly dividend of 13 cents per share to be paid in the current quarter and will continue to evaluate additional share repurchase opportunities. In summary, we continue to make progress in building a stronger foundation for future growth.

We have expanded our capabilities through targeted acquisitions and internal innovation. both of which are evidenced in the launch of DigiPath 1. We remain focused on serving our customers now and investing for the future in order to be able to continue delivering value to them for years to come.

With that, I'll turn the call over to Jorge. Thanks, Victor, and good afternoon, everyone. I'm very pleased to report another strong quarter and continue progress in building a solid foundation for growth. particularly excited about our recent launch of DigiPath 1, our platform strategy built to help customers modernize authentication and address other security needs without disrupting existing systems, user experience, or business operations. Turning to our results, annual return on revenue, or ARR, increased 6.7% year-over-year to $189.7 million, driven by expansion of existing customer contracts, new logos, and the acquisition of Bill 38. Our net retention rate, or NRR, was 103%. Due to revenue was 60.5 million, an increase of 1% compared to last year's second quarter, driven by 11% growth in subscription revenue, partially upset by a decline in hardware revenue due to the fact that significant hardware revenue had to pull forward into Q1, which we discussed with you last quarter, as well as a decline in perpetual maintenance revenue as customers continue to move to term licenses. For the quarter, as Victor mentioned, subscription revenue increased to 77% of total revenue, up from 70% in the prior year quarter.

While hardware and perpetual maintenance revenues accounted for a combined 23% of total revenue as compared to 30% in last year's Q2. Gross margin was 73.6% compared to 73.5% in Q2 of last year. GAAP operating income was $8.7 million compared to $10.5 million in Q2 2025. The year-over-year change primarily reflects increased operating costs related to our recent acquisitions, including headcount, as well as certain cost-related go-to-market leadership and other organic investments. Gap net income per share was 18 cents compared to 21 cents in the second quarter of last year. Non-GAAP net income per share was 30 cents compared to 34 cents in last year's Q2. Adjusted EBITDA and adjusted EBITDA margin were $16.9 million and 27.9% respectively.

This is a very important factor compared to 17.6 million and 29.5% in the same period last year. Next, I will discuss the financial results for our two business divisions starting with cybersecurity. Cybersecurity ARR grew 7.4% year-over-year to $123 million, inclusive of the $3 million headwind we discussed last quarter and the acquisition of Bill 38. Revenue decreased 7.5% to $40.9 million. Subscription revenue grew 2.5% to $27.2 million, driven by customer expansion contracts, new logos, as well as revenue from our acquisitions of NUCNUC and Bill 38, partially offset by lower year-over-year multi-year term license revenue, and lower past-due renewal catch-up revenue this quarter compared to last year's second quarter as we continue to improve our on-time renewal performance. As noted, hardware and perpetual maintenance revenue declined as suspected. Growth margin for the cybersecurity division was 73% compared to 74% in the prior year quarter, primarily reflecting incremental third-party license costs and incremental amortization of capitalized software costs from the building. the Bill 38 acquisition.

Operating income was $13.8 million or 34% of revenue compared to $19.8 million or 45% of revenue in last year's Q2. The year-over-year change was driven by the differences in revenue and gross margin just discussed, an increase in operating expenses from acquired companies, and increased organic investments. Now turn into digital agreements. ARR grew 5.3% year-over-year to $66.7 million. Revenue grew 25.2% to $19.5 million, driven by strong overage revenue, expansion of renewal contracts, and new customer additions. are encouraged by the strong overage revenue because it is a positive indicator of transaction volume growth which often results in expansion contracts with existing customers due to higher utilization rates. We expect additional overages in the third quarter of 2026, but not to the same extent as in Q2. As a reminder, overages are not including NARR or NRR. Gross margin improved to 74.7%, up from 71.4% in the prior year period, primarily reflecting higher revenue, including overage revenue.

Operating income was $7 million or 35.7% of revenue compared to $2.9 million or 18.4% of revenue in the same period last year. The strong improvement in operating income was primarily driven by revenue growth, higher gross margin, and a modest decline in operating expenses, primarily reflecting higher internal software capitalization costs. Turning to our balance sheet, we ended the second quarter with $43.3 million in cash and cash equivalents and $5 million outstanding under a credit facility compared to $49.8 million in cash and cash equivalents and no outstanding debt at the end of the first quarter. During the quarter, our primary cash outflows, including $4.8 million for our quarterly dividend, $2.9 million to repurchase approximately 230,000 shares of common stock, and $3 million for capitalized software development costs. Operating cash flow was a modest outflow of $0.1 million, primarily reflecting normal networking capital fluctuations. By geographic region, revenue in the second quarter of 2026 was 46% from the Americas, 35% from EMEA, and 19% from Asia Pacific, compared to 40%, 39%, and 21% from the United from the same regions in the second quarter of 2025, respectively. The year-over-year changes in revenue by region primarily reflect growth in digital agreements and cybersecurity software in the Americas, which is consistent with our investment strategy and plan.

Lower cybersecurity, hardware, and software revenue in EMEA partially offset by growth in digital agreements. agreements and lower hardware revenue in Asia Pacific, partially offset by an increase in cybersecurity software. Now turn into some modeling notes and our outlook. We are pleased with our second quarter results and the progress we've made in positioning the company for long-term growth. For the full year 2026, we are increasing our revenue guidance primarily to reflect higher volumes and consumption in our e-signature business that is suspected to result in incremental contract overages, along with an increase in expected hardware revenue in the second half of the year, primarily Q4, due to increased hardware bookings in the first half of the year as compared to our plan. Our current hardware revenue forecast calls for about one-third of the second half hardware revenue to be recognized in Q3, which is consistent with the last couple of years showing Q3 as the seasonally lowest of the four quarters, followed by a much stronger fourth quarter. More specifically, for the full year 2026, we expect total revenue to be in the range of $248 million to $252 million as compared to our previous guidance range of $244 million to $249 million. We expect software and services revenue to be in the range of $202 million to $204 million as compared to our previous guidance range of $201 to $204 million.

We expect hardware revenue to be in the range of $46 to $48 million as compared to our previous guidance range of $43 to $45 million. We expect ARR to be in the range of $194 million to $198 million. And we expect adjusted EBITDA to be in the range of $67 to $71 million as compared to our previous guidance range of $64 million to $68 million. That concludes my remarks. I will now turn the call back to Victor.

Thanks Jorge. To recap, we are pleased with our second quarter results and the progress we continue to make across the business. We are serving our customers with mission-critical solutions, investing in areas where we see meaningful growth opportunities, and maintaining the financial discipline that enables us to return capital to shareholders. We believe Wanspan is becoming a stronger and more focused company, and we remain committed to creating long-term value for our customers and shareholders.

Jorge and I will now be happy to take your questions. Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Gray Powell from US Bank. Please go ahead.

Great, thanks for taking the question. Maybe a couple on my side. and more of a high-level question, I guess. Just thinking out like over the next year or two, as hardware becomes a smaller component of the business, how should we think about the potential for growth to improve on a sustainable basis? And then just more specifically, what are like the two or three things that need to happen for OneSpan to sustainably get revenue growth back into the, you know, call it mid to high single digits on an organic basis. Okay.

Yes, thanks, Gray. So I think you're familiar with this. We've certainly talked about it in the past, and you can see it in the numbers. Over time, our software business has been growing, and we had an offset, a negative offset from the hardware business. for quite some time. And we felt like if we could get the hardware business stable, maybe have some revenue coming from the newer security keys, as well as stabilization in the overall hardware business, that that growth would show up, overall growth would show up as a result of the software growth. So we've seen, you see in the subscription revenue numbers, you see it in the ARR numbers, we've been having solid software growth and we expect that to continue. Obviously we're not giving guidance for next year, but we have some exciting things happening in terms of our product portfolio, the new DigiPASS One, platform and we have emerging technologies with digit pass one verify as well So as well as new hires that we've announced On the go-to-market side new head of marketing new channel leader, etc so we are taking all those steps to build for additional growth and get those targets that.

that you're talking about. Okay, that's helpful. And then just, I guess a separate question. So look, I know DigiPASS One has only been out a couple of weeks. Anything you can say on early feedback or customer interest? And then just trying to think through like, what kind of ASP up left you think that could create for the platform and the potential for net retention.

rates to improve off of current levels. Yes, so if you think about the platform, we had a very strong authentication offering, which we strengthened considerably about a year ago, a little over a year ago, when we bought Knock Knock and added the... the passkey capability. So we have that strong authentication platform, and we have been providing app shielding, what we're calling DIGPASS 1 for 10, for some time, but now we own the technology with the acquisition of Bill 38. So those are cross opportunities go going to all the banks that we have and adding app shielding, and a potential new capability, not a potential, a new capability that we're developing to past one verify so those are cross opportunities if you think about how to increase revenue growth rates you're either selling existing things to new customers or new things to existing customers or or existing things to new customers as well. But the easiest path there is going to be a cross-sell, is to sell new things to existing customers. And that's what we're trying to do to drive up the attach rate with DigiPath One Protect to start down the path of an attach rate with DigiPath One Verify since that's new. And both of those give us an opportunity because we do have this great customer base built out over many years.

And that's where we see the most straightforward way to increase the software growth rates.

Understood. Okay, thank you. Thank you. Our next question comes from Catherine Trebnick from Rosenblatt. Please go ahead.

Well, thanks for taking my question. You frame the age in driven interactions as incremental in the channel. I know you just released this product. So any specific use cases that your marketing team has identified that you're going after, like high-value payments, dispute resolution? And then what are you actually seeing in the budget for 26, or should we really think of this more like a 27 item? And then, Rarity, Brad? my question on the ASP. So thanks, Catherine. And then how do you change your goals?.

So, go ahead. To clarify, are you asking about DigiPest 1 Verify? Yes. Yes, so that's a new capability. We're doing POCs with customers in the second half of the year. We at least an early release version of that in June. And we expect to be learning a lot more about budgets as we go through the process. I think you know this, but in general, oh, go ahead. Sorry. Sure.

I don't know, I'm just trying to figure out what use cases you'd be targeting with that and how different that is from what you're currently selling.

So if you think about what it's doing, there is a... European digital identity regulations, the countries have to have wallet specifications done by the end of the year. Obviously, that's going to be many, many different wallets. You have Google and Apple as well. And then banks are going to have to accept them by the end of 27. So we see this as just such a great compliment to our authentication offering, because people are going to, in a cryptographically tamper-proof way, prove their identity, which is obviously super important in onboarding. and in general and authentication. So we see this as an add on that a lot of banks, well first of all in Europe are going to be, they're going to be regulatory drivers behind it, but also in other markets it's going to be a super helpful way to make for more secure interactions with your customers.

Now, in terms of budgets for it, there our regulatory drivers in 27. Most of our, probably over half of our bookings come between September and Labor Day and the end of the year. So we're heading into our busy season in terms of sales. And I would say we don't have a clear read on 2027 budgets from our customers yet because we're focused, as you might imagine, I can't imagine very much on closing 2026 business. But the POCs and the interest we're seeing from customers are a good sign. Okay, very good. Thank you. Thank you.

Our next question comes from Eric Suppager from B. Riley Securities. Please go ahead.

Yes, thanks for taking the question and congrats on a good quarter and getting DigiPASS 1 out. Just following up on Catherine's question, what adoption, what are the use cases for banks banks that are using AI agents for banking. And then I'm just curious on the digital agreement side, was the overage associated with a particular account or is this more of a broader trend? It seemed like it was a particularly strong quarter and you're talking about some strength in Q3.

So what's driving that? Yes, so I'll let Jorge answer the overage question, but let me talk about AI agents. So what we believe will occur, so if you think about mobile banking apps, the most common activities that are undertaken by customers are things that are pretty straightforward, checking their balance, sending money to a friend or payment for something, monitoring transactions that have hit or not hit their account, and We think that agents will do, not all of it, right? I think this is going to be a new channel for banks, not a everything will happen with agents. So if you fast forward, you know, four or five years, then banks are interacting with customers in their physical branches. Some people still go into those, a few people at least. through websites, on a laptop or desktop, through a mobile banking app, which is very, very common today, but also through agentic workflows. Now, the ability for a bank to accept those agentic workbook for a consumer to have an agent that they use to hit multiple different accounts and for the bank to be able to authenticate that this agent is authorized to act on behalf of this consumer and to verify intent, you know, there's work to be done on those things. channel is absolutely coming. One of the things that we offer to banks and other high-trust, high-value customers is this breadth of offering. So we're not offering just pass keys or just protection for your mobile banking app, but across the ways that you interact with your customers. need multiple vendors for this consumer customer interaction you can use one span and cover well we don't cover branches I guess but you can cover all of the digital channels.

Yes, I can jump in and address the over the question, Eric. Thanks for that question. So look, I think we're pretty happy in terms of how DA performed for the quarter, 25% growth. Even if you exclude the overages, which were about year-round growth, we're pretty happy or a year higher by two and change a million, you still get to a growth, Eric, of double digit, 11.3%, which is pretty encouraging. And again, when you think about, take a step back and think about how are these overages generated, they're generated because our clients are over utilizing our development transactions they committed, which is a good thing. thing. Arguably, you can think about overages as a leading indicator for ARR if you would, because often happens that overages then translate into higher expansion contracts now part of ARR. At this point, if it's an overage, it's not part of ARR, so it's not part of NRR and So you can think about overages leading indicator for ARR and then leading indicator for revenue. So we feel good about that.

Obviously happy with the performance. And yes, it did come from, I would say, a couple of customers primarily. Eric, we normally have a run rate of overages for the full year, year now, probably about a million to a million five. I think this year we're obviously going to exceed that that amount for the second half of the year is going to be much less than we that we recognize so far in the first half. But nonetheless, you know, we feel feel good about over this. We like over this not only because his revenue, but is is leading into for activity in our platform. Okay, and then we're quick on.

Yep. One last one on the hardware. It looks like you're looking for a pretty strong second half. Is that driven by FIDO2, or is there anything that's incrementally picking up in the second half within the hardware? Yes.

Yes, we, I can, I can add. Oh, go ahead, Ori. Go ahead. Sorry, just real quickly. So, yes, so we increased our guidance for hardware from 44 midpoint to now 47, Eric. The primary reason for that is, I guess, a couple things. One is we saw better activity or higher activity compared to our plan bookings in this case. In the first half of the year, which gives us confidence in terms of when these orders are going to get delivered. The earlier we have the bookings, the higher likelihood that those bookings will get delivered in year.

And so for that reason, we increased our, you know, have a better disability and then increase our guidance as well.

Yes, I was going to say the 502 security keys, we see an avenue for that even within banking to make sure that we're not make for easier login primarily not exclusively primarily in a corporate banking market um Where hardware is a little bit stronger in corporate banking than in consumers, consumers tend to use a mobile banking app. Many, many corporate customers, if they're a Treasury Department or something like that are doing their online banking in front of a big screen where a hardware device is... not inconvenient. They keep it in their desk drawer and then they use it when it's time to log in and time for transaction signing as well. So we see the FIDO token opportunity there as well, looking ahead to 27. Which is one of the reasons we feel good about, well, better than we have in the past about hardware, about being able to have that be a, you know, a flattish business rather than a declining business. Obviously we haven't given 27 guidance, but, you know,.

it's encouraging what we've seen in 26 on the hardware side okay and and it sounds like it's finally the 502 is offsetting the decline in the legacy hardware.

Is that right? It's promising on the banking side overall and getting hardware to a – You know, it was quite a large business a decade ago. So getting it to a flash, or potentially even growing if things go really well, business really helps the overall number. Even though, of course, software is the overwhelming majority of our business. it helps to not to have a decline in a segment. Very good. Thank you.

Thanks, Eric. Thank you. Thank you. Our next question comes from Rudy Kessinger from DA Davidson. Please go ahead. Thank you.

Hey guys, great. Thank you for the question. Just one for me. What did renewals look like in the quarter? I know the overage is good, the hardware looks like it's better, but if you look at ARR, it's a ticket step down quarter-by-quarter, your expansion rate stepped down a couple points quarter-by-quarter as well. So what do renewals look like or any color on the quarter-by-quarter declines in those metrics? Okay.

Yes, I can give you some commentary. Rudy, thanks for the question. So, look, I think GRR metrics for the businesses were, I'd say, relatively consistent. I think these are agreements, wasn't the 93ish percent. And the GRR for security business was in the kind of 86-ish percent, Rudy. So relatively consistent, you know, within the band. As we mentioned, sequentially, we were going to have a hit of about $3 million just sequential Q1 to Q2. And that's already part of these numbers.

As we go in. to the second half of the year, you know, we expect to see sequential increases on both VA and security. But overall, I think I would say healthy renewal rates, we're getting more proactive. The team is doing a fantastic job at being proactive, reaching out to customers, and trying to secure, you know, those renewals as early as possible. And it gives us visibility into the timing. And one of the things that you also notice in my prepared remarks is that year over year, we did have less call it catch from the revenue from passive renewal just year over year. And that's also an indication that as we get better at renewals and those renewals are getting timely renewed, then you're not going to see this incremental lumpiness if you would, because renewals are getting close to past due. And so that's also another sign that, you know, the team is doing great on renewals and we're improving those metrics.

Thanks, Rudy. Thank you. Our next question comes from Anya Soderstrom from Siddoti.

Thank you for taking my questions. Most of them have been addressed already, but I'm just curious in terms of M&A, you've been quite acquisitive over the past couple of years. What's your appetite for more acquisitions and what would you be looking for?.

Well, we're certainly, as you can tell by the last 13 or 14 months, we're certainly open to the idea. if it fits into our product strategy. And you can see, I'm really happy with the way we were able to take those two and fold it into our overall offering with DigiPass One. You can see how that strengthens the overall business. We're going to continue to be opportunistic and look for, you know, the term we've used is targeted M&A. We want to be, prudent in how we do it and not reckless. So we're definitely going to be looking for things that fit in well and that, uh, you know, makes sense for us. And then the other thing, really kudos to our team and the teams from Knock Knock and Build 38 that joined us because the integrations have done very well.

We've been able to build a unified team, I think, and, you know, retain talent and all those things have been good proof points for us to make us, you know, Continue to think that that's a viable strategy. In terms of what we would be looking for, you know, I don't want to disclose too much in that area, but you can see, I think, strategically where we're headed. So things that fit into our overall strategy, we'll continue to look for them.

And how do you see the market has developed over the past couple of months? Has the valuation come down or come up? What do you think?.

Well, it's not like we're – it's not like – I don't know if we're the right person to ask on the month-by-month, you know, M&A market because we're looking, but we're not actively bidding every month on a business. Overall, I think we were very, very happy with the talent that we acquired and the technology we acquired with the deal earlier this year in March with Bill 38, as well as last summer with Knock Knock. And we'll continue to look.

Okay, thank you. And also, I'm just curious about the update to your go-to-market leadership and marketing. How is that evolving? And when do you expect to see some tangible results from those changes?.

changes. Yes, I mean, look, we're already seeing results. I mean, the DigiPath 1 launch was a I don't think would have gone as well or as smoothly without our new head of marketing. So the impact's already being felt. panel and marketing are both super important. I think it's fair to say, if you think about a nine to 12 month sales cycle for most of our customers and our deals, I think the impact's more in 27 than in 26 in terms of tangible revenue. But in terms of execution, we're already seeing an impact.

Okay, thank you. That was all for me. Thanks, Amin. Thank you.

This concludes the question and answer session. I would now like to turn it back to Jo for closing remarks.

Thank you, everyone, for joining us today. We look forward to updating you again next quarter. Have a nice evening.

Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good day and thank you for standing by. Welcome to the Q1 2026 OneSpan Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Joe Maxa, VP of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining the OneSpan First Quarter 2026 Earnings Conference Call. This call is being webcast and can be accessed on the Investor Relations section of OneSpan's website at investors.onespan.com.

Joining me on the call today is Victor Limongelli, our Chief Executive Officer; and Jorge Martell, our Chief Financial Officer.

This afternoon, after market closed, OneSpan issued a press release announcing results for our first quarter of 2026. To access a copy of the press release and other investor information, please visit our website. Following our prepared comments today, we will open the call for questions.

Please note that statements made during this conference call that relate to future plans, events or performance, including the outlook for full year 2026 and other long-term financial targets are forward-looking statements. These statements involve risks and uncertainties, and are based on current assumptions. Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. I direct your attention to today's press release and the company's filings with the U.S. Securities and Exchange Commission for a discussion of such risks and uncertainties.

Also note that financial measures that may be discussed on this call are expressed on a non-GAAP basis and have been adjusted from this related GAAP financial measure. We have provided an explanation for and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings press release and in the investor presentation available on our website.

In addition, please note that all growth rates discussed on this call refer to a year-over-year basis unless otherwise indicated.

The date of this conference call is April 30, 2026. Any forward-looking statements and related assumptions are made as of this date. Except as required by law, we undertake no obligation to update these statements as a result of new information or future events or for any other reason.

I will now turn the call to Victor.

Thank you, Joe. Hello, everyone. Thank you for joining us today. We had a good first quarter with strong profitability and solid revenue growth. Indeed, subscription revenue grew 8% year-over-year, and our adjusted EBITDA margin was 32%.

I'm also happy to report that notwithstanding the doom and gloom you might hear about software, our gross revenue retention increased again in Q1, reaching 90% for the company as a whole and 94% for our Digital Agreements business. We also generated healthy cash flows, and we returned capital to shareholders via share buybacks, which have totaled approximately 1.5 million shares for more than $18 million over the past 3 quarters and via an increased quarterly dividend as well.

Before reviewing our results in more detail, I'd like to provide an update on our investments and how we are positioning the company for stronger growth over time. First, in Q1, we completed the acquisition of Build38, which brings a fantastic team to OneSpan with deep expertise in mobile threats and mobile application protection, and provides customers with telemetry to help them understand the attacks targeting their mobile applications and the environment in which they operate. Keep in mind that the vast majority of consumer banking is now conducted through mobile banking applications, making this a critical attack surface for banks to protect.

We now offer post-compilation application protection, sometimes called post-compilation wrapping as well as an SDK-based approach through which customers can build an application protection and the telemetry necessary for visibility into the threat environment and overall operating environment. With the addition of Build38's capabilities, I am happy to report that we now offer a comprehensive set of leading mobile application security technologies across the app shielding landscape.

Second, I want to update you on the acquisition we completed last year of NOK NOK Labs, a pioneer of the FIDO Alliance and of passwordless authentication. A fabulous team from NOK NOK joined our company. And together, we have grown that business materially with ARR having increased about 20% in less than 10 months since closing. And it has broadened our product set as well. We now have the broadest B2B2C authentication offering, both hardware and software, cloud and on-prem and OTP and FIDO.

Third, we continue to invest in internal research and development. In our Digital Agreements business, we continue to make strides towards our goal of delivering secure, seamless agreement workflows purpose-built for the financial services industry, combining white label capabilities with embedded security, compliance and identity assurance across the e-signature journey.

We're also planning to integrate AI-driven capabilities to provide deeper insights, streamline decision-making and further simplify integration into our customers' existing environments.

Last but not least, I want to reiterate that neither our Digital Agreements business nor our Cybersecurity business has seat-based licensing as the primary revenue model. In Cybersecurity, we sell to our customers based on the number of their end users and not based on the number of their employees or seats.

Our licenses are tied to the number of consumers using strong authentication or app shielding solutions. Similarly, in Digital Agreements, the vast majority of our business, about 97%, is priced based on the number of expected e-signature transactions or documents rather than customer employee counts or user counts.

Turning to our results. As mentioned, we started the year with a strong first quarter. We generated $21 million of adjusted EBITDA in the quarter or 32% of revenue. We ended the first quarter with annual recurring revenue of $192 million, up 14% year-over-year, inclusive of the uplift from the 2 acquisitions in the past year. This strong ARR growth continues a positive trend as ARR is now up 24% since March 31, 2024. Total revenue grew 4% to $66 million, driven by 11% growth in Digital Agreements, which had another strong quarter, and 2% growth in Cybersecurity.

Subscription revenue in Digital Agreements grew 11%, driven by demand for e-signatures, while subscription revenue in Cybersecurity grew about 6.5%, reflecting growth in cloud authentication, passwordless authentication and app shielding. Both business units were solidly profitable at the division level. Overall, the company generated $28 million in cash from operations during the quarter.

Our Board remains committed to a balanced capital allocation strategy that considers shareholder returns, organic investment and targeted M&A. In the first quarter, we invested nearly $35 million to acquire Build38 and returned more than $10 million to shareholders through dividends and share repurchases following nearly $32 million returned in 2025. The Board has approved a quarterly dividend of $0.13 per share to be paid in the current quarter, and we'll continue to evaluate additional share repurchase opportunities.

In summary, we serve a diverse global customer base, and we deliver comprehensive offerings in strong B2B2C authentication, app shielding and e-signatures. We are investing internally and through targeted M&A to strengthen our portfolio and go-to-market execution, and we continue to make solid progress in building a stronger foundation for growth. We remain committed to maintaining strong profitability, cash generation and returning capital to shareholders.

With that, I'll turn the call over to Jorge.

Thanks, Victor, and good afternoon, everyone. I'm pleased to report another strong quarter and continued progress in building a solid foundation for future growth. I'm particularly excited about our acquisition of Build38, which strengthens our mobile application security offering and enhances our ability to protect customers and their customers from increasingly sophisticated AI-driven threats. We acquired Build38 on February 27. And as such, our first quarter results include just over one month of Build38's financial contribution.

Before turning to our Q1 results, I'd like to briefly highlight a change we made this quarter to how we present revenue by operating segment. To better align with how we manage the business and our strategic focus on growing recurring revenues, we now include term maintenance revenue within subscription revenue. As a result, subscription revenue now consists primarily of term licenses for on-prem software, the related maintenance and support revenue and SaaS revenue.

In addition, maintenance revenue associated with perpetual licenses and professional services is now presented together, better reflecting the continued evolution of our business away from perpetual license arrangements. These changes are presentation only and have no impact on total revenue, operating income or cash flows, and prior period results have been updated for comparability. Additional details are included in the revenue tables in today's press release, our Form 10-Q and the investor presentation on our website.

With that context, let me turn to our first quarter results. Annual recurring revenue, or ARR, increased 14.1% year-over-year to $192.1 million, inclusive of the 2 acquisitions. Our net retention rate was 105%, benefiting from customer expansion contracts. ARR also benefited from new customer additions and M&A. First quarter revenue was $65.9 million, an increase of 4.1% compared to last year's Q1, driven by 5.8% growth in software and services revenues, partially offset by a 4.3% decline in hardware revenue.

Continuing a long-term declining trend in Q1, hardware comprised only 16% of our overall revenue. Subscription revenue grew 8.2% to $52.7 million and accounted for 80% of total revenue. Gross margin was approximately 74%, consistent with the prior year period. I'll provide additional detail on these metrics as I review each business division in a couple of minutes.

First quarter GAAP operating income was $14.8 million compared to $17.2 million in Q1 of last year. The year-over-year decline in operating income primarily reflects increased operating costs related to the acquisition of NOK NOK and Build38, including headcount and nonrecurring acquisition-related consulting costs as well as certain costs related to organic investments, partially offset by lower share-based compensation expenses.

GAAP net income per share was $0.30 compared to $0.37 a year ago. Non-GAAP net income per share was $0.39 compared to $0.45 in prior year period. First quarter adjusted EBITDA and adjusted EBITDA margin was $21 million and 31.9% compared to $23 million and 36.4% in the first quarter of last year.

Turning to our Cybersecurity division. Cybersecurity ARR grew 16.5% year-over-year to $124.6 million, again, inclusive of the 2 acquisitions in the past year. First quarter revenue increased 1.7% to $48.5 million. Subscription revenue grew 6.6% to $35.3 million, driven by customer expansions, new logos and M&A, partially offset by lower multiyear term license revenue. Hardware revenue declined 4.3%, which was less than expected due to the earlier-than-anticipated delivery of certain customer shipments. As expected, perpetual maintenance and services revenue declined as we continue to transition legacy perpetual contracts to term-based arrangements.

Gross margin for the Cybersecurity division was 74% compared to 76% in the prior year quarter, primarily reflecting incremental third-party license costs as well as subscription and professional services costs. Operating income was $20.8 million or 43% of revenue compared to $24.2 million or 51% of revenue in last year's Q1, driven by increased operating expenses from the acquisitions, the incremental cost of revenues just discussed, higher nonrecurring acquisition-related consulting costs and increased investments.

Now turning to Digital Agreements. ARR grew 9.9% year-over-year to $67.5 million. First quarter revenue grew 11.2% to $17.4 million, driven by expansion of renewal contracts, new customer additions and overage fees. Gross margin improved to 72.5%, up from 70.3% in the prior year period, reflecting higher revenues and greater efficiency in our cloud infrastructure costs. Operating income was $5.3 million or 30.4% of revenue compared to $3.4 million or 21.5% in the same period last year, driven by revenue growth, higher gross margins and a modest decline in operating expenses.

Turning to our balance sheet. We ended the first quarter with $49.8 million in cash and cash equivalents compared to $70.5 million at the end of 2025. We generated $28.2 million in operating cash flows during the quarter. Uses of cash included $5 million for our quarterly dividend, $5.4 million to repurchase approximately 510,000 shares of common stock, $34.6 million related to the Build38 acquisition and $2.6 million in capital software development costs, among other things. We ended the quarter with no long-term debt.

Geographically, revenue in the first quarter of 2026 was 43% for EMEA, 38% from the Americas, 19% from Asia Pacific compared to 49%, 33% and 18% from the same regions in the first quarter of 2025, respectively. Year-over-year changes reflect growth in Digital Agreements and Cybersecurity software revenue in the Americas, lower Cybersecurity hardware and software revenue in EMEA, and increased hardware revenue in Asia Pacific.

Now turning to some modeling notes and our outlook. We are pleased with our first quarter results and the progress we've made in positioning the company for long-term growth. We are affirming our full year 2026 guidance for revenue and adjusted EBITDA, and we are raising our guidance for ARR. We expect continued growth in software and services revenue, driven by solid performance in Digital Agreements and moderate growth in Cybersecurity.

In Cybersecurity, we anticipate a second quarter ARR headwind of approximately $3 million from 2 contracts not expected to renew. In both cases, the customer is not a bank or a financial institution and the majority of that total is from a customer moving to passwordless authentication with a decision taken a year ago before we had acquired NOK NOK Labs. Indeed, this reinforces our belief that adding NOK NOK to our product portfolio was the right strategic move as we expect passwordless authentication to only grow going forward. As such, we expect ARR to grow in the second half of the year with most of that growth occurring in the fourth quarter.

Finally, we also expect the secular shift away from consumer banking hardware tokens to continue. For the full year 2026, we expect total revenue to be in the range of $244 million to $249 million. We expect software and services revenue to be in the range of $201 million to $204 million.

We expect hardware revenue to be in the range of $43 million to $45 million. We expect ARR to be in the range of $194 million to $198 million as compared to our previous guidance range of $192 million to $196 million. And we expect adjusted EBITDA in the range of $64 million to $68 million.

That concludes my remarks. I will now turn the call back to Victor.

Thanks, Jorge. To recap, we delivered a strong first quarter and over the past year, we have better positioned the company to deliver value to customers and create value for shareholders. While we know there is more work ahead that one good quarter does not make an excellent year, we are encouraged by the progress we have made.

Jorge and I will now be happy to take your questions.

[Operator Instructions] Our first question comes from the line of Erik Suppiger of B. Riley Securities.

First off, when will we start to realize some of the returns that you're making on the -- in the operations over the course of 2026? When can we anticipate some acceleration in top line? And do you have a time frame when you can get back to a Rule of 40 -- delivering on the Rule of 40?

Yes. Thanks, Erik. I think before getting to the exact timeline for the Rule of 40, it's important to highlight the progress we've made. If you look at where we were on the Rule of 40 metrics in 2023, I believe the number was 12 on a combined basis, not for one of the metrics. And for the most recent quarter, we were at 36 and 32 last year. So we've definitely made progress. I don't want to pin an exact date on when we'll be at exactly 40, but we're making progress. You see it in our ARR growth. You see it in our subscription growth.

Of course, for quite a long time, we've had a consumer banking token decline, and you saw hardware decline again year-over-year. It's now only 16% of our revenue. We feel like we've made some good progress. We've added some real key functionality to our product set. And we're investing in go-to-market as well to continue to try to drive that subscription growth and try to drive the ARR forward.

Our next question comes from the line of Rudy Kessinger of D.A. Davidson.

First one for me on ARR, just so we can kind of try to get to an organic ARR growth rate. What was the NOK NOK ARR and Build38 ARR as of the end of Q1?

Rudy, thanks for the question. So as of the end of Q1, NOK NOK's ARR was $9.7 million, which is an increase from the $8.1 million that we acquired really 9 months ago, which we feel pretty good about. And Victor alluded to that 20% growth over the last 9 and change months, 9-ish months. The Build38 ARR that we acquired was $2.8 million, Rudy. So combined, it's about $10.9 million, call it, $11 million. And so when you look at ARR growth organic, it's about 7% to 8%.

Got it. That's super helpful. And the growth on NOK NOK is good to see. Obviously, you lap that next quarter as far as organic goes.

And then second question for me. Obviously, just given your guys' significant EMEA mix, I'm curious what impacts, if any, maybe you saw in the quarter or you're seeing in current deal conversations just given the conflict in the Middle East right now?

Yes. Thanks, Rudy. The Middle East itself -- well, the Gulf region itself is a small part of our business, only about 4% of revenue. And we're obviously keeping an eye on it like many people are.

For Europe, I think you'll see in the geographic mix or Jorge talked about the geographic mix, EMEA is a little bit of a smaller portion compared to growth in the Americas. Part of that strategic, we do think we're under-indexed to North America when it comes to security in particular. So we feel like we're going to grow faster in North America than we had in the past. And also the DA business has been doing well, and that's largely a North American business.

Overall, we're optimistic, I would say, about EMEA and cautiously watching the Middle East situation.

Our next question comes from the line of Gray Powell of BTIG.

I just had a couple here. So it's good to hear the commentary on NOK NOK. Where are you seeing the strongest pull with NOK NOK within your installed base? And then just like when a customer decides to take a product set, just how should we think of the upsell opportunity?

NOK NOK, I think, is an upsell opportunity because people are going to move to passwordless over the coming years. So having that capability is a core part of our offering. So some of that is customer retention. We talked about GRR in the first quarter. It was at a very strong level, 94% for DA, but 88% for security, Cybersecurity, so higher than it had been in quite a while. And there's also opportunity to get new customers with NOK NOK's offering as passwordless becomes more and more prevalent, having a super strong offering, having the Board seat on the FIDO Alliance, having the history with FIDO that NOK NOK had brings a lot to the table.

Geographically, we have seen it so far be stronger in North America with strength in Japan as well. But we expect it to grow in Europe, ultimately, to grow in Latin America and all over the world. In 5 years, people -- everyone will use passkeys and passwords we'll see and outdated.

Okay. That's really helpful. And then I just want to make sure I'm thinking about Build38 correctly. So I mean, it makes perfect sense on how it can make your existing products better. This might be a dumb question, but what was the acquisitions main purpose? Is it simply to make you more competitive on the authentication side and to make your existing stuff more compelling? Or is it going to ultimately result in another SKU that you can sell to customers and therefore, like I just said, something else that can generate revenue?

It broadens the offering. So if you think about what our app shielding offering was, first of all, it was through a partner. We had a long partnership in that realm that was successful. But that offering was what is called a wrapping. So you build the application and then after it's compiled, there's a wrapper or protection put around the app. And it's useful; it locks attacks, but it doesn't give you as much information about what type of attacks are coming in, what the operating environment is.

And the Build38 approach is different. It has an SDK-based implementation where the protection is built into the app, and it enables telemetry back from the applications. Remember, they don't control the devices. These are all consumer devices that are using mobile banking apps. It gives them lots of information about the devices themselves and about what attacks are happening. So that has all kinds of implications to broaden the Cybersecurity solution that we're offering customers.

Our next question comes from the line of Anja Soderstrom of Sidoti.

Just curious, the contracts that are not renewing in the second quarter, how big of a shortfall is that? And can you just sort of double-click on what gives you confidence in raising the ARR guidance?

Sure. We've seen good progress with ARR. Those 2 accounts -- I mean, one of them is about $2 million, right? That decision was taken a year ago for them to move to passwordless. This is a great -- it just underscores why the NOK NOK acquisition was important for us. We did not have an offering at the time. So we didn't have the opportunity to even compete effectively as they move to passwordless. We do now. Unfortunately, that decision had already been taken.

So in the short run, we're going to have a little bit of a hit, as mentioned, to ARR, but we do feel good about the growth that we've seen so far, the pipeline. And we do have seasonality in our business. We closed a lot more business in Q4 than we do in the summer, typically in most years. So we think most of that ARR kind of reinvigoration will happen in the latter part of the year, say, September through December.

Okay. And now when you have NOK NOK, do you feel you're getting better attention since you are having that offering or...?

Well, it's hard to put a precise quantification on it. But if you look at the growth in our GRR, I think we are positioned better with our customers. Instead of having technology that maybe a few years ago, someone would have viewed as dated, we have up-to-date market-leading technology in critical areas. So that helps customers feel that they should stick with you, that you're going to be a long-term solution. And we've seen our GRR go up. I don't think it's only as a result of that because our renewals team has done a great job. We've done better engagement with customers as well, but I think it certainly helps.

Our next question comes from the line of Erik Suppiger of B. Riley Securities.

A follow-up here. Of your FIDO2 customers, how many of them are buying both the NOK NOK back-end software as well as the tokens?

To date, not too many. It's -- the NOK NOK, of course, did not have a token business. So most of them are pure software customers. And that's another area that I think as we look ahead, we have an opportunity to do better in. It's something that we're hoping can blunt the decline in the consumer banking tokens as we move forward.

Having that broad offering does give flexibility to customers if they have a portion of their workforce that they want to have hardware authentication for. We can offer that without them needing to go to somebody else to a hardware-only vendor as an example. But to date, we haven't had a ton of cross-sell on that. It is an opportunity rather than a material contributor at the moment.

Is it a synergistic sale where you're able to provide any kind of advantage by using an end-to-end solution? Or is it just simply standards-based and therefore, there's no end-to-end benefit?

Well, the NOK NOK offering has advantages. Of course, it is an open protocol, fire protocol, but the NOK NOK solution has additional technology built in to enable device binding of keys, which financial institutions like a lot, not to get into too much into the weeds. But sync keys sync to Google or other cloud providers can sometimes make banks nervous. And the NOK NOK offering has the ability to have device bound key so that they're not synced on the software side.

On the hardware side, it is -- again, it's an open protocol. So they could buy hardware from someone else. It is advantageous in having the same vendor. We do very nice branding on the devices, which we have history having done that with banks for many, many years. So to the extent that they like that, it's an appealing offering. But again, open protocol, so it's not -- there's not a vendor lock-in situation when it comes to hardware.

Our next question comes from the line of Catharine Trebnick of Rosenblatt.

Now with subscription revenue roughly 80% of total and you have a good track record or it seems like Digital Agreements and the Cybersecurity subscriptions growing, can you kind of lay out a plan for -- will it always be 80%, 85%? I mean what's going to happen with the hardware you think over the next 12 months? Because I know it's been lumpy and there's obvious some changes and just kind of lay out a road map.

So let me just talk about the underlying business trends. The consumer banking tokens, we expect to continue to decline. We don't think they'll go 0. We think there'll be some portion of consumers in Europe and Asia that are using tokens to authenticate because they're doing web banking and they're not doing their banking through a mobile banking app. You ask banks, a lot of them will say 80% of their traffic is now through the mobile app versus laptops or desktops.

The hardware piece, the part that could offset that ongoing decline that's been going on for over a decade, is the FIDO2 security piece. If we can get that piece to grow, we could offset that growth and keep the hardware business at a stable rate. Of course, most of our focus -- most of our attention is on growing the subscription, growing the ARR and driving value that way.

Jorge, I don't know if you want to add anything on modeling, that would be helpful.

Yes. So I think for purposes of '26, Catharine, we didn't change our guide for hardware. Where it goes in '27, '28, nobody has a crystal ball. I think Victor have some input on that. It's obviously still in secular decline. But to Vic's point, we don't think it's going to go to 0, right? There's going to be -- even corporate banking is still done through a hardware token is the safest way to do providers transactions and things of that nature. And so there will be specifically a pool and a target sort of customer base that will continue to use that device, right, hardware token. So I cannot add more to what you said, Vic, other than hopefully stabilizes and continue a new baseline soon.

This concludes the question-and-answer session. I would now like to turn it back to Joe Maxa for closing remarks.

Thanks for joining today, everyone. We look forward to talking with you again next quarter. Have a great evening.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Q4 2025 OneSpan Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand your conference over to your first speaker today, Joe Maxa, VP of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining the OneSpan Fourth Quarter and Full Year 2025 Earnings Conference Call. This call is being webcast and can be accessed on the Investor Relations section of OneSpan's website at investors.onespan.com.

Joining me on the call today is Victor Limongelli, our Chief Executive Officer; and Jorge Martell, our Chief Financial Officer.

This afternoon, after market close, OneSpan issued a press release announcing results for our fourth quarter and full year 2025. To access a copy of the press release and other investor information, please visit our website. Following our prepared comments today, we will open the call for questions.

Please note that statements made during this conference call that relate to future plans, events or performance, including the outlook for full year 2026 and other long-term financial targets are forward-looking statements. These statements involve risks and uncertainties and are based on current assumptions.

Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. I direct your attention to today's press release and the company's filings with the U.S. Securities and Exchange Commission for a discussion of such risks and uncertainties.

Also note that certain financial measures that may be discussed on this call are expressed on a non-GAAP basis and have been adjusted from a related GAAP financial measure. We have provided an explanation for and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings press release and in the investor presentation available on our website. In addition, please note that all growth rates discussed on this call refer to a year-over-year basis unless otherwise indicated.

The date of this conference call is February 26, 2026. Any forward-looking statements and related assumptions are made as of this date. Except as required by law, we undertake no obligation to update these statements as a result of new information, or future events or for any other reason.

I will now turn the call to Victor.

Thank you, Joe. Hello, everyone, and thank you for joining us today. Before reviewing our Q4 results, I would like to begin today's call with an overview of OneSpan, sharing how we look at the business and the key characteristics that we think are important and which investors may also consider in port.

First and foremost, OneSpan is a software business with over 80% of revenue in 2026 expected to be derived from software. Hardware this year will be less than 20% of our business, down from over 50% in 2019 and over 1/3 of the business as recently as 2022. However, it's important to note that in addition to strengthening our overall authentication and transaction signing functionality, the hardware portion of our business delivers attractive cash generation that supports our software growth and overall profitability.

Second, within our software business, we operate in 2 areas: Cybersecurity and Digital Agreements. I will address each in turn. In Cybersecurity, we provide value to our customers in 2 critical areas. Our first focus area is B2C or consumer authentication, particularly for banking and financial institutions. We differentiate ourselves by offering the industry's broadest portfolio for end-user log-in, corporate banking access and transaction signing.

Each authentication method delivers a balance of security characteristics and user experience, and we pride ourselves on providing a wide range of options, including onetime pass codes, SMS, Pass Keys and 502 security piece. Additionally, our solutions are available both on-premises and in the cloud to meet the diverse needs of our customers.

The second critical area of our Cybersecurity value to customers extends beyond authentication into the adjacent area of mobile application protection. Since most consumer banking and a great deal of retail is now conducted via mobile apps. As you know, we have been offering app shielding capabilities for many years. but the threat landscape is evolving rapidly, and we're seeing an increase in sophisticated attacks. As a result, we recognize that app shielding is a critical area where we need to invest more deeply.

To that end, we recently announced a definitive agreement to acquire Build38 to strengthen our app shielding offering. This acquisition will enable deeper integration with our customers' mobile applications and will allow us to dynamically update our detection methods. Over time, it also creates an opportunity to combine the signals detected across our broader mobile portfolio, giving us the ability to deliver richer insights and more robust protection for our customers. With respect to timing, we expect the acquisition to close this quarter.

Importantly, in both critical areas, consumer authentication and app shielding. We sell to our customers not based on the number of seats or users employed by our customers but rather based on the number of their end users, either consumers using strong authentication or the number of consumers using mobile apps. Over time, as consumers move towards employing agents to say, conduct banking for them or do online shopping for them, there is potential for us to strengthen our value proposition to our customers. by being able to offer more authentication and more app protection to enable their consumers to engage with them safely.

In the coming years, we expect the development and growth of consumer AI agents to increase demand by our banking and financial services customers for strong authentication and application protection. In a similar way, the ease by which deep fakes can be created using AI will likely drive demand for secure authentication, which will manifest itself in a variety of ways, including the establishment of digital credentials or wallets by various governments.

Turning to our DA business. We deliver enterprise-grade e-signature and related functionality through a stable, reliable SaaS platform, which offers a secure audit trail, white labeling flexibility, industry-leading price value and consistently high customer satisfaction. This functionality powers critical business processes for our customers, such as account opening, loan origination and the like. If those business processes are interrupted or unreliable, our customers lose meaningful revenue and importantly, reputation as well.

We've invested years in building a highly reliable, secure and high-performance platform. replicating this level of maturity internally would be a substantial undertaking for any enterprise. Indeed, if I were an enterprise relying on this proven functionality from OneSpan, I would think long and hard before building this type of critical functionality myself. In addition, while we can't predict the future, we can see that our gross retention rate in our DA business improved by over 4% in 2025 compared to 2024 and is now over 90%, which indicates that more customers are satisfied with our offering.

Looking ahead, we are continuing to invest in internal development efforts within the DA business to further strengthen our offering and expand the value we deliver. As part of this, we're planning to integrate AI-driven capabilities to provide deeper insights, streamlined decision-making, and make our platform even easier to integrate into our customers' existing environments.

As I shared last quarter, we are in a far stronger operating position today than we were just a couple of years ago. Both divisions, Cybersecurity and Digital Agreements are now solidly profitable. In fact, in 2025, we generated nearly $60 million in cash from operations. We have pursued a balanced capital allocation strategy, returning nearly $32 million to shareholders in 2025 between dividends and buybacks and also completing the Nok Nok acquisition the strategic investment in ThreatFabric and soon the acquisition of Build38 without drawing on our credit facility.

In addition to strengthening our value proposition for customers and prospects through internal innovation, targeted M&A and strategic partnerships, we're also making disciplined investments in sales and marketing, including the hiring of our new Chief Revenue Officer in December.

Turning to our results. I'm pleased the team's hard work and focus on operational excellence drove a strong quarter and a record year of profitability. Before getting into the specifics, I would like to note that we had a strong finish at the end of Q4, resulting in about $3 million of revenue coming in Q4 and that we typically would have expected to come in Q1 2026. So a great job by our sales and renewals teams in closing out the year.

The net result is that it makes our 2025 finish a little better than we would have expected and correspondingly makes 2026 a little lighter than we would have expected. But of course, we always want to close deals as soon as possible. So we're pleased that the business came in by the end of December.

In Q4, we generated $19 million of adjusted EBITDA and or 31% of revenue. For the year, we generated $78 million of adjusted EBITDA or 32% of revenue. We ended the quarter and year with annual recurring revenue of $187 million, up 11.5% year-over-year. This includes 12% growth in Cybersecurity and 10% growth in Digital Agreements. In fact, the $187 million of ARR at year-end is a real marker of our progress over the past couple of years. since we started 2024 with only $155 million of ARR.

Q4 software and services revenue grew 4% year-over-year and total revenue in the quarter grew 3% to $63 million, driven by 11% growth in digital agreements, which had a solid quarter all around. Q4 Cybersecurity revenue was flat year-over-year. For the full year 2025, our software revenue, not including services, grew by 6.4% and including 8% in DA and 6% in Cybersecurity. Indeed, overall subscription revenue grew 12%, with DA subscription revenue growing 11% and Cybersecurity subscription revenue grew 13%, driven by increases in both cloud and on-prem authentication software and mobile app shielding software.

Overall, company revenue in 2025 was flat due to the 17% decline in hardware revenue as a result of the long-term secular decline in consumer banking tokens, as consumers shift to mobile banking and bank shift to mobile authentication. For the year, software and services accounted for 80% of revenue up from 76% in 2024. The growth in software was primarily driven by growth in subscription revenue. Both business units were solidly profitable at the division level for the quarter and year.

Looking ahead, I'm excited about our opportunities to drive growth in our software business. Some of the investments I discussed are already modestly contributing to revenue as well as ARR. And we expect additional contributions as we move through 2026 and into next year. We will also continue investing in sales and marketing as well as R&D, and we will continue to evaluate targeted M&A to drive further growth. These investments, which we believe are necessary to drive stronger growth in the years ahead and enable us to achieve our long-term goal of sustainable Rule of 40 performance will have a modest near-term impact on profitability. Jorge will discuss this in more detail in a few minutes as he walks through our guidance.

Our Board remains committed to a balanced capital allocation strategy, weighing shareholder returns, organic investments and targeted M&A. Accordingly, the Board will consider additional share repurchases and for 2026 has also approved an increase in our quarterly dividend from $0.12 a share to $0.13 per share reflecting an annualized dividend rate of $0.52 per share, representing an increase of 8%.

In summary, we continue to make solid progress in building a stronger foundation for growth and we remain committed to maintaining strong profitability and cash generation while returning capital to shareholders.

With that, I'll turn the call over to Jorge.

Thank you, Victor, and good afternoon, everyone. I am pleased that we reported a strong quarter and full year of adjusted EBITDA and cash generation. Combined with our strong balance sheet, this performance enabled us to invest in the business throughout the year organically and through M&A to support our long-term growth foundation while also returning cash to shareholders.

As Victor mentioned, we intend to continue leveraging our strong balance sheet and cash generation for these purposes, including funding our planned acquisition of Build38. As a reminder, the first quarter of the year is typically our strongest for cash generation, and we also have an untapped $100 million revolver.

In the fourth quarter, our net retention rate was 104%, up from 103% last quarter. We ended the year with ARR of $187 million, up 11.5% year-over-year. Q4 revenue was $62.9 million, an increase of 3% compared to last year's Q4. Full year 2025 revenue was $243.2 million, the same as the prior year reflecting an increase in software and services revenues of 5.3% and a decrease in hardware revenues of 16.6%.

Q4 subscription revenue grew 7% to $38.6 million. Full year subscription revenue grew 12% to $156.1 million. Gross margin was approximately 74% in the fourth quarters of both years. Gross margin for the full year 2025 was 74% and compared to 72% for the full year 2024.

I'll provide a more detailed discussion on our financial metrics during my review of each business division in a few minutes. Fourth quarter GAAP operating income was $12.5 million compared to $11.8 million in Q4 of last year. The year-over-year increase in operating income reflects higher revenue and gross profit, partially offset by a slight increase in operating expenses. The increase in Q4 operating expenses primarily reflects higher headcount, including head count expenses resulting from the acquisition of Nok Nok and the nonrecurring acquisition-related consulting costs partially offset by a lower share-based compensation expense, bonus accruals and favorable software capitalization costs.

Full year 2025 GAAP operating income was $48.4 million compared to $44.8 million for the full year 2024. The increase in 2025 reflects an increase in gross profit driven by favorable product and customer mix, partially offset by an increase in operating expenses. The increase in full year operating expenses was impacted by the same items in Q4's OpEx as well as lower restructuring costs year-over-year.

GAAP net income per share was $1.13 in Q4 2025 as compared to $0.72 in Q4 2024. GAAP net income per share was $1.88 for the full year 2025 as compared to $1.46 for the full year 2024. Fourth quarter and full year 2025 GAAP net income per share included income tax benefits related to the release of valuation allowance. Fourth quarter and full year 2024 GAAP net income per share also included income tax benefits related to the release of valuation allowance, the subset and liquidation of our deal flow subsidiary and the transfer of our Cybersecurity intellectual property from Switzerland to the U.S. as part of our restructuring efforts. We adjusted for these tax benefits in non-GAAP EPS.

Beginning in the first quarter of 2025, we made changes to our non-GAAP net income and non-GAAP net income per share reporting framework to better reflect our profitability trajectory and to ensure consistency of interim periods going forward. We have provided additional details regarding these changes in quarterly earnings releases and investor presentations.

In 2025, our non-GAAP earnings per share were $0.36 in the fourth quarter and $1.49 for the full year. In 2024, our non-GAAP earnings per share were $0.38 for the fourth quarter and $1.42 for the full year. Fourth quarter adjusted EBITDA and adjusted EBITDA margin was $19.4 million and 30.9% as compared to $20 million and 32.7% and in the same period of last year, respectively. Full year 2025 adjusted EBITDA and adjusted EBITDA margin was $77.6 million and 31.9% in compared to $73.4 million and 30.2% in the prior year.

Turning to our Cybersecurity division. ARR grew 12% on a year-over-year basis in the fourth quarter to $120 million. Fourth quarter Cybersecurity revenue was $45.4 million or basically flat with the prior year quarter. Subscription revenue grew 1% and compared to a very robust 49% in the fourth quarter of last year, which was particularly strong, driven by expansion of customer software licenses, including robust growth from multiyear contracts.

For the full year 2025, Cybersecurity revenue declined 2.5% to $177.7 million, primarily due to the expected decline in hardware partially offset by 13% growth in subscription revenue, which was driven by expansion of licenses, new logos and the acquisition of Nok Nok.

Q4 gross profit margin was 74% as compared to 75% in Q4 last year. The difference from last year is primarily attributed to incremental third-party software costs, partially offset by favorable hardware product and customer mix. Full year 2025 gross profit margin was 74% as compared to 73% for the same period last year. The increase in gross margin is primarily attributable to more favorable product mix, including more favorable hardware product and customer mix, partially offset by an increase in third-party software costs.

Q4 operating income was $19.4 million or 43% of revenue compared to $23.3 million or 51% of revenue in 2024. Full year operating income was $80 million or 45% of revenue compared to $90 million or 49% of revenue in 2024. The year-over-year change in both periods was primarily due to increases in operating expenses from Nok Nok, investments made in people costs across sales and R&D and incremental third-party sulfur costs, partially offset by lower restructuring costs.

Now turning to Digital Agreements. ARR grew 10% to $67 million, Fourth quarter and full year 2025 revenue grew 11% and 7% to $17.5 million and $65.5 million, respectively, as compared to the same period in 2024. The increase in revenue for both periods was driven by expansion of renewal contracts, new contracts and an increase in overages and other onetime revenues, partially offset by a reduction in maintenance revenue due to the sunsetting of our on-prem e-signature product.

Subscription revenue grew 14.5% in Q4 and 11% for the full year 2025 to $17.4 million and $65.2 million, respectively. Q4 gross profit margin was 74% as compared to 70% in Q4 last year. Full year 2025 gross profit margin was 72% as compared to 68% for the full year 2024. The increase in gross margin for both periods was driven by increases in revenue, including increases in overages and other onetime revenues and lower cloud costs. Digital Agreement also had a $1.5 million asset write-off in the second quarter of 2024, which impacted the 2024 gross margins by approximately 2.5 percentage points.

Q4 operating income was a record $5.6 million or 32% of revenue compared to $2.6 million or 17% of revenue in the same period last year. Full year 2025 operating income was $16 million or 24% of revenue compared to $5.6 million or 9% of revenue in 2024. The year-over-year improvement in performance for both periods was driven by increases in revenue and gross profit and decreases in operating expenses.

Turning to our balance sheet. We ended the fourth quarter of 2025 with $70.5 million in cash and cash equivalents compared to $83.2 million at the end of 2024. For the year, we generated $15.5 million in operating cash flow and uses of cash in 2025 included $18.5 million to pay our quarterly dividends, $13.1 million to repurchase approximately 1 million shares of our common stock, $14.7 million related to our acquisition of Nok Nok and $11.6 million to acquire a 15% ownership of ThreatFabric among other things. We have no long-term debt at the end of 2025.

Geographically, our revenue mix for the full year 2025 by region was 42% for EMEA, 39% from the Americas, 19% from Asia Pacific compared to 44%, 36% and 20% for the same regions in 2024, respectively. The year-over-year changes by region were primarily driven by growth in Digital Agreements and Cybersecurity software revenue in the Americas and lower hardware revenues in both Europe and Asia Pacific consistent with mobile first trends in those regions.

Moving to some modeling notes and our financial outlook. We are very pleased with our Q4 and full year profitability and cash generation. as well as the progress we've made in positioning the company for long-term growth. The investments we've made recently and those planned for this year are allowed to drive higher software revenue growth in the future and to enable us to achieve long-term sustainable Rule of 40 performance. Specifically for this year, we are planning on making incremental internal investments of approximately $5.5 million in our sales and marketing and product and R&D organizations. These investments will have a near-term impact on our profitability in 2026.

Additionally, we are expecting the pending Build38 acquisitions to dilute adjusted EBITDA this year in the range of $3 million to $4 million. Regarding revenue, in 2026, we expect growth in software and services, driven by a solid performance in Digital Agreements and moderate growth in Cybersecurity.

In Cybersecurity, we anticipate contributions from our newer offerings to increase as the year progresses. We are also forecasting lower revenue from multiyear term licenses primarily due to the lower visibility into expansion and our conversions from annual licenses at this early time of the year. In addition, we accept a secular shift away from consumer banking hardware totes to continue in 2026.

More specifically, for the full year 2026, we expect software and services revenue to be in the range of $201 million to $204 million, representing 4% to 5% growth. We expect hardware revenue to be in the range of $43 million to $45 million, a decline of 8% to 12% year-over-year. We expect total revenue to be in the range of $244 million to $249 million, representing a 0% to 2% growth. We expect ARR to be in the range of $192 million to $196 million or 3% to 5% growth year-over-year. And we expect adjusted EBITDA in the range of $64 million to $68 million, inclusive of the impact of the pending Build38 acquisition I mentioned earlier.

That concludes my remarks. I will now turn the call back to Victor.

Thanks, Jorge. I want to conclude today's remarks by thanking the OneSpan team for delivering a good quarter including a great finish to the quarter and a solid full year. Their hard work over the course of 2025 and has put the company in a much better position to drive increased growth and profitability over the long term.

We are making great progress in strengthening our growth foundation. Compared to this time last year, we've enhanced our B2C authentication offerings with the addition of the leading 502 platform. We plan to expand and enhance our mobile app protection capabilities with the acquisition of Build38, and we've expanded our capabilities to detect and help prevent complex attacks through our strategic investment in and partnership with ThreatFabric. We're also working hard to improve our go-to-market capabilities so that we can capitalize on our expanded and improved customer value prop.

Jorge and I will now be happy to take your questions.

[Operator Instructions] Our first question comes from Catherine Trebnick from Rosenblatt Securities. One moment please. It looks like she did not want to ask a question, so we will take another question. Our next question comes from the line of Trevor Rambo from BTIG.

This is Trevor on for Gray Powell. Some nice results in Q4. So maybe touching on that. So we're almost about 2 months through now in your fiscal Q1. And to that extent, can you comment or give us some more color on what you've seen at the start of this year in terms of demand? And maybe how has that demand environment been for you guys started this year compared to almost the same time period at the start of last year?

Thanks, Trevor. Yes, I mean, we finished -- we mentioned on call, we finished the year strongly. So we had literally like the last couple of days of the year, some good business that came in that probably would have more naturally occurred in Q1. So that was a great finish to the year. And I think in terms -- I mean it's early, it's still February, but I think we're off to a reasonable start in terms of building pipeline for the year.

We have a new CRO, I think you know that we hired in December, and he's going to be also making hires on the marketing side and making investments on the marketing side. And so over the course of the year, we expect to start to see the benefits of that as we move through the year. Of course, it's not like flipping a light switch where you hire somebody new, and all of a sudden, all this business funds in, it's a 6- to 9-month sales cycle, but we do expect to see benefits from that in the second half of the year.

Okay. Great. That's good color. And maybe just 1 more for me. So on the hardware side, it looks like you guys saw some outperformance there. in the quarter, I mean, relative to previous quarters. Was that where the pull forward was with revenue? And then maybe on the second half of that question, we look into 2026 in the guidance that implies the hardware at the midpoint declines by around 10%. Is there a reason why the bleeding has slowed there? I mean if I look, hardware has gone from down 22% in fiscal '24, then down 16.5% last year and then now down 10%. So maybe some more color on the puts and takes of the hardware business going into 2026 would also be helpful.

So I think it's important to remember what's driving this. I mean this is going to go way back, but if you go back 25 years ago, hardware authentication for online banking on computers, on a web banking or laptop or desktop was growing like crazy. And over the last decade, that shift has gone over to mobile banking, mobile applications being used for consumer banking. And in terms of where that ultimately ends up, it depends on where it ends up. In a lot of markets, it's 80% mobile. Consumer banking is 80%, mobile use, 20% web.

And if that stabilizes or if it starts to decline less than the decline in consumer banking tokens will lessen. So far, I mean, again, it's early but I think Q1 looks reasonable, maybe down a little bit from last Q1, but in line with what we guided to for the full year.

Yes. Trevor, I just want to add to what Vic just mentioned. So in Q4, hardware landed pretty much where we expected it. If you look at our Q3 guide with respect to hardware, we ended the year at 49%, which is what we were expecting. So we ended up pretty much there. And just want to clarify what we call pull forward. So the incremental per million that Victor alluded during his remarks, that we're not on the hardware side. We're on the software side, on the security side. I just want to clarify that point.

Yes, good point, Jorge. I should have mentioned that, Trevor. Of course, we have to ship the hardware to recognize the revenue. So that was on the software side late in the year.

Our next question comes from Anja Soderstrom from Sidoti. .

Congrats on the nice progress in the fourth quarter. I'm curious with the new CRO coming on board. What we expect from him sort of implementing in terms of the sales or marketing that you haven't done before that you expect to see results from?

Yes. Thank you. It's a great question. So just as a reminder, when we went through our restructuring to cut costs, One of the things we did was I was running sales directly. And having Shaun on board is a huge benefit because he's able to focus full-time hours a week on sales execution on pipeline development on review of any accounts that may be at risk. So the ability to really add focus and discipline, I think, is one of the things we're going to see from Shaun.

And then he also owns all of go-to-market. So improving our lead generation ultimately leading to pipeline ultimately leading to closed business. Of course, that will take a while, as I mentioned, a 6- to 9-month sales cycle, sometimes longer but we expect to see improvements in all those areas over time.

Okay. And then also in terms of the acquisition of Build38, how do you have come about? How should we think about further M&A opportunities? Are there any sort of capabilities that you currently feel that you are missing that you're actively looking that might help you accelerate?

Yes. Let me address that a little bit. Strategically, what we're trying to do with these acquisitions is find a good valuable technology that could solve problems for our customers ideally in our core areas and things like authentication or app shielding, we're not looking to buy customers. So we're not looking to buy revenue. We're looking to buy technology that is modern and valuable it solves problems.

And then we have a lot of customers and then ultimately sell that to our customers and new customers as well, and therefore, take that technology and get it more widely distributed. That's the goal. So these -- both of these companies, Nok Nok and Build38 really weren't -- they didn't have a ton of revenue, but they had spent a lot of time and a lot of investment building great technology, and that's really what we're looking for.

Okay. And just one last one as we have all this AI discussion. How do you see AI as an opportunity for Montana so maybe as a potential threat?

Thanks, Anja. Obviously, this has been all over the news in the software market in 2026. A couple of things. When you look at areas like app shielding, it's really cutting edge. If you're taking existing code and you're building an application shielding offering, next week, next month, the month after that, there were new cutting-edge exploits that you have to be on top of. So if we get to AGI, it's a totally different story. But the way things stand now, we think that, that is fairly well insulated. And even things like authentication, these are critical consumer interactions, enabling them to do business, and it just seems like the risk is super high for somebody to try to build their own.

On the opportunity side, you have things that aren't so common now but will likely be coming over the next 3, 4 years of consumers employing agents to interact with their banks to do shopping in retail, and that's going to increase the need for authentication far above what it is today. So over the longer run, we think there's going to be quite a bit of opportunity to deliver more value.

[Operator Instructions] At this time, I'm showing no further questions. So this does conclude the question-and-answer session. I would now like to turn it back to Joe Maxa, VP of Investor Relations, for closing remarks.

Thanks, everyone, for joining us today. We look forward to providing another update next quarter. Have a great day.

Thank you, and thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the OneSpan Third Quarter 2025 earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Joe Maxa, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining the OneSpan Third Quarter 2025 Earnings Conference Call. This call is being webcast and can be accessed on the Investor Relations section of OneSpan's website at investors.onespan.com. Joining me on the call today is Victor Limongelli, our Chief Executive Officer and Jorge Martell, our Chief Financial Officer. This afternoon, after market close, OneSpan issued a press release announcing results for our third quarter 2025. To access a copy of the press release and other investor information, please visit our website.

Following our prepared comments today, we will open the call for questions. Please note that statements made during this conference call that relate to future plans, events or performance, including the outlook for full year 2025 and other long-term financial targets are forward-looking statements. These statements involve risks and uncertainties and are based on current assumptions. Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements.

I direct your attention to today's press release and the company's filings with the U.S. Securities and Exchange Commission for a discussion of such risks and uncertainties. Also note, that certain financial measures that may be discussed on this call are expressed on a non-GAAP basis and have been adjusted from a related GAAP financial measure. We have provided an explanation and reconciliations of these nonfinancial measures to the most directly comparable GAAP financial measures in the earnings press release and in the investor presentation available on our website.

In addition, please note that all growth rates discussed on this call refer to a year-over-year basis unless otherwise indicated. The date of this conference call is October 30, 2025. Any forward-looking statements and related assumptions are made as of this date. Except as required by law, we undertake no obligation to update these statements as a result of new information, or future events or for any other reason.

I will now turn call over to Victor.

Thank you, Joe. Hello, everyone, and thank you for joining us today. Before turning to our results, I'd like to recap our progress in the transformation of OneSpan. 2024 was about fixing the cost structure of the business ensuring that we could operate both business units in a profitable manner. The OneSpan team did a great job working through those challenges, and we entered this year in a much improved operating position. In fact, that improved operating position will enable us to return about $25 million to shareholders between dividends and buybacks by the end of this year.

And in addition, we also completed an acquisition and made a strategic investment, all funded by cash generated by the business.

In 2025, as we have discussed previously, has been about putting the pieces in place while continuing to operate with strong profitability to enable growth, it has been a remarkable year in that respect. Indeed, today, we announced that our software business now over 80% of the overall business delivered double-digit subscription revenue growth and ARR growth.

Turning to the specific components that we've been putting in place to drive growth. First, right before the year started, we hired [indiscernible], a shifting to lead our R&D efforts and improve our internal development efforts. Second, in June, we acquired Nok Nok bringing the best FIDO2 software product called S3, to our portfolio. I'm happy to report that in the first 4 months since the acquisition we've already closed 2 new logos for S3, both in the low 6-figure range, and we have built additional pipeline for Q4. We believe that there is a large opportunity in the coming years for S3 as FIDO2 becomes more widely adopted.

Initially, we see the U.S. and Japan as the leading markets for FIDO2. But over the coming years, we expect passkeys to become the standard around the world. Third, in October, we announced a strategic investment in and partnership with ThreatFabric to further enhance our value proposition to customers by offering mobile threat intelligence and fraud list insights. We are in the midst of sales enablement so that our team can effectively sell the ThreatFabric products and are optimistic that those products will add to growth in 2026.

Finally, you should not, in any way, consider OneSpan to be finished in our efforts to improve the value that we provide to customers and hence our growth prospects as a business. We are working on additional initiatives. While there might not be announcements each and every quarter, we will never be done improving our value proposition to customers, whether through internal development, through acquisitions or through strategic partnerships. And we expect these efforts to drive growth, particularly in our software business, as we continue to work towards achieving a Rule of 40 performance loan. .

Turning to our results. I'm pleased with the team's efficiency which drove another strong quarter of profitability and cash generation, including $17.5 million of adjusted EBITDA or 31% of revenue and $11 million in cash from operations. I'm especially proud that over the first 9 months of the year, we generated record adjusted EBITDA of $58 million, representing $32 million revenue and $47 million in cash from operations.

We ended the quarter with annual recurring revenue of $180 million, up 10% year-over-year. In regards to revenue, we have seen strong bookings in certain regions, including our security business in North America, our Latin America business the southern portion of our EMEA region. I'm also heartened by the progress in APAC, and our DA business grew subscription revenue by double digits. And as I mentioned a few minutes ago, we're encouraged by the progress we've seen with our new S3 product acquired as part of the Nok Nok deal.

With respect to hardware, as we have discussed many times, there has been a long-term secular shift away from consumer banking tokens. To the point in the first 9 months of the year, hardware was less than 20% of our overall business. That trend is part of what drives us to broaden and strengthen our product offerings. In the quarter, toll revenue grew 1% to $57 million, driven by double-digit organic subscription revenue growth. This growth was primarily offset by a reduction in security and hardware revenue due to the shift described earlier, in consumer banking strategies in EMEA and APAC, where banks continue adopting mobile-first authentication approaches.

Subscription revenue grew 12%, led by 13% growth in security, and 11% growth in digital agreements. The increase in security subscription revenue was driven by both cloud and on-prem authentication software along with mobile app shielding software. Both business units remained solidly profitable at the segment level with digital agreements delivering record high segment operating income. Security absorbed a modest cost impact from the Nok Nok business in Q3, although we expect it to be accretive to securities operating income in Q4.

As I mentioned earlier, we continue to generate significant cash from operations, $47 million in the first 9 months of the year, and we ended the third quarter with $86 million in cash on hand. In Q3, we used $6 million to repurchase shares of our common stock. And combined with our quarterly dividend payments, we returned more than $20 million to shareholders in the first 9 months of 2025. We also used cash to make the strategic acquisition of Nok Nok and after the third quarter ended, to obtain a 15% equity stake in ThreatFabric. Our investment in ThreatFabric as well as our acquisition of Nok Nok in Q2 and our internal development efforts are designed to enhance our product portfolio and move faster to deliver great products that provide additional value to our customers.

To that end, we will continue investing in internal R&D and pursuing targeted technology-driven investments with proven market day to enhance our product portfolio. Our Board remains committed to a balanced capital allocation strategy, weighing shareholder returns, organic investments and targeted M&A. Accordingly, the Board will consider additional share repurchases and has approved another $0.12 per share dividend to be paid in the current quarter.

In summary, we're in solid progress in building the foundation for growth in our journey towards achieving Rule of 40 performance. At the same time, we remain committed to driving efficient revenue growth while maintaining strong profitability and cash generation and returning capital to shareholders.

With that, I'll turn the call over to Jorge.

Thank you, Victor, and good afternoon, everyone. I am pleased that we reported another strong quarter of adjusted EBITDA and cash generation and that we are making good progress in building our long-term growth foundation. Before I review our third quarter results, I want to remind you that our acquisition of Nok Nok Labs which closed in June 2025, modestly contributed to our Q3 operating results this year, but did not contribute to the same period in 2024.

ARR increased 10% to $180 million, and NRR, our net retention rate increased sequentially to 103%. Third quarter revenue was $57.1 million, an increase of 1% compared to last year's Q3. Subscription revenue grew 12% and including 10% organically and was largely offset by the secular decline in our hardware token business, which is directly related to banks continuing with a mobile-first authentication approach and, to a lesser extent, maintenance and professional services revenues. Third quarter gross margin was 74%, consistent with last year's Q3.

GAAP operating income was $8.2 million compared to $11.3 million in Q3 of last year. The change in operating income primarily reflects an increase in operating expenses, including share-based compensation and other nonrecurring items, along with the expected dilution related to our acquisition of Nok Nok. As a reminder, we expect the acquisition of Nok Nok be accretive to earnings in Q4 2025. GAAP net income per share was $0.17 as compared to $0.21 in the same period last year.

Earlier this year, we made changes to our non-GAAP net income and non-GAAP net income per share reporting framework to better reflect our profitability trajectory and to ensure consistency across interim periods in 2025 and in future years. Please refer to our 2025 quarterly earnings releases and investor presentations for additional details. Non-GAAP earnings per share was $0.33 in both the third quarter of 2025 and 2024. This metric excludes long-term incentive compensation and related payroll taxes, amortization, restructuring charges and other nonrecurring items and the impact of tax adjustments.

Adjusted EBITDA and adjusted EBITDA margin was $17.5 million and 30.7% compared to $17 million and 30.2% in the same period of last year.

Turning to our cybersecurity business. ARR increased 11% to $115.5 million. Revenue decreased 1% to $40.3 million. Subscription revenue grew 13% driven by cloud and on-prem authentication software, including a modest contribution from Nok Nok and app shielding software. This growth was offset by the expected decline in hardware revenue and, to a lesser extent, maintenance and professional services revenues.

Subscription revenue primarily benefited from expansion of licenses and to a lesser extent, new logos. The acquisition of Nok Nok and conversion of customer contracts to multiyear terms. Gross margin was 74.4%, and similar to last year's third quarter gross margin of 74.7%. The change in gross margin was primarily driven by product mix. Operating income was $16.7 million or 41% of revenue compared to $20.2 million or 49% of revenue in the prior year quarter. The year-over-year change primarily reflects increased operating expenses related to the Nok Nok acquisition, higher share-based compensation and other nonrecurring expenses, such as advisory related expenses.

Turning to digital agreements. ARR grew 8% to $65 million. Revenue grew 9% to $16.7 million. New SaaS contracts, expansion of renewal contracts and an increase in onetime revenue was partially offset by reduced maintenance revenue from the sunsetting of our on-prem e-signature product. Subscription revenue grew 11% year-over-year to $16.7 million. Maintenance and support revenue was negligible compared to $0.3 million in Q3 of last year. The year-over-year decline is attributed to the sunsetting of our on-premise e-signature solution.

As mentioned previously, we have financially completed the transition to a SaaS business model in our digital agreements business. Gross margin was 72% and consistent with last year's third quarter. Segment operating income was $4.2 million or 25% of revenue compared to $3.4 million or 22% of revenue in Q3 of last year. The year-over-year increase in operating income was driven by increased revenue.

Now turning to our balance sheet. We ended the quarter with $85.6 million cash and cash equivalents compared to $92.9 million at the end of Q2 and $83.2 million at the end of 2024. We generated $11 million in operating cash flow during the quarter. Uses of cash in the quarter included $6.3 million to repurchase approximately 450,000 shares of common stock, $4.7 million to pay our quarterly cash dividend and $1.9 million deferred consideration payment related to our acquisition of Nok Nok among other items. We have no long-term debt as of the end of Q3 2025.

Geographically, our revenue mix was 46% from the Americas, 38% from EMEA and 17% from APAC. This compares to 39%, 40% and 21%, respectively, in the third quarter of last year. The year-over-year changes by region were primarily driven by growth in the e-signature business and mobile application security in North America. The acquisition of Nok Nok in June 2025, which has its largest presence in North America, growth in hardware revenue in Latin America and a decline in hardware revenues in both Europe and Asia Pacific, consistent with mobile first strength in those regions.

Moving to some modeling notes on our financial outlook. We are very pleased with our Q3 profitability and cash generation and the progress we've made in positioning the company for long-term growth. As Victor mentioned, we are seeing strong bookings in most geographic regions but have also seen challenges in some regions largely due to the secular shift away from consumer banking hardware tokens. We are working hard to improve our sales momentum in all regions and believe the steps we have taken this year, combined with our continuous focus on improving the value proposition we provide to customers better positions us for stronger growth in future years.

For the full year 2025, we are updating our revenue guidance to be in the range of $239 million to $241 million as compared to our previous guidance range of $245 million to $251 million. We expect software and services revenue to be in the range of $190 million to $192 million, representing an increase of between 3% and 4% in 2025. We also expect hardware revenue to be in the range of $49 million to $50 million, representing an approximately a 16% decline from 2024. As Victor mentioned previously, OneSpan as a business is approximately 80% software and 20% hardware. We are updating our ARR guidance to be in the range of $183 million to $187 million, up from $180 million at the end of the third quarter as compared to our previous guidance range of $186 million to $192 million, and we are maintaining our adjusted EBITDA guidance in the range of $72 million to $76 million.

That concludes my remarks. I will now turn the call over to Victor.

Thanks, Jorge. To recap, we are making progress in strengthening our foundation for long-term growth. while continuing to deliver strong profitability and cash generation and returning capital to shareholders. We are working hard to deliver greater value to our customers and to create value for our shareholders.

Jorge and I will now be happy to take your questions.

At this time, we'll conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Anja Soderstrom with Sidoti.

I'm just curious, what are you saying now compared to last quarter that led you to scale back on the revenue and ARR guidance, if you can just double to that a bit more.

There were some feedback. So can you repeat your question for me?

Yes. Can you just sort of double-click on what you're seeing now compared to last quarter that led you to scale back on the revenue and ARR guidance for the year?

Yes, I can start, and then Vickie, you want to chime in as well. So there's a couple of things, Anja. First is we saw a little bit of a higher headwinds with respect to our hardware business, about a couple of million dollars. I think the other large component was on the security business, specifically we saw lower activity with respect to net expansions and new logos, primarily net expansions as we have a large market share in our secure business are North America. So I think EMEA and APAC have some of that, primarily EMEA.

Now I don't think -- I think it's an important thing to understand a couple of questions. One is, when we think about I'm [indiscernible] some feedback. One is when you think about where we are with our guide -- our updated guidance of, say -- at the midpoint, that is modestly lower versus prior year you're about 1% lower, Anjau. And I think we need to take a step back in terms of understanding the position of the company is today versus what it was, say, 12 months ago. We've done a lot of good work, as Victor mentioned in his remarks with respect to building the foundation for growth, the Nok Nok acquisition that we did very, very good capabilities that we're adding to our product portfolio.

ThreadFabric strategic investment that we are very excited about as well. So we're looking at enhanced. We've been enhancing our product portfolio this year to deliver on that software. And it's really when you think about what we've done is primarily on the software areas, right? So we really enhanced our software product portfolio and capabilities to really position the company for future growth in the next few years. And so more and more as the hardware sector, the client continues. So that's going to be less and less impactful to us. And we mentioned this software is about 80% of our business, hardware is 20% and potentially lower in the next few quarters.

And all of this with, obviously, the strong cash flow generation and profitability and that we should expect to continue. And so I just want to take a step back and walk you through it because what we're doing is really transforming the product capabilities for the organization. And so the decline in the guide, although due to partly the hardware and also a little less activity, we're really thinking about 2025 as a foundation here to build in blocks from our product capability. I don't know Vicky if you have any additional thoughts.

Yes. Let me just add to what Jorge said. So obviously, the specifics you gave are correct. But if I zoom out a little bit and just think about the business from when I joined almost 2 years in a few months, and 2 years ago, about 1/3 of our revenue was hardware. And now it's about 20%. We ended 2023 years ago with AR of $155 million and the midpoint of our guidance for the last quarter would have us ending up at $185 million, so $155 million to $185 million. And a couple of years ago, from a product standpoint, we had not introduced any new capabilities in quite some time. In fact, you saw sunsetting products so it was important for us to, first of all, build the foundation of profitability so that we could invest back in the business while returning capital to shareholders. .

And we've started to do that, not just with the acquisition and the strategic investment, but also internally with the hiring of a new CTO and internal investment. And so that's what we're working on to transform the business. And keep in mind, that the Nok Nok acquisition happened in June, the ThreadFabric strategic investment was October. So we'll get some positive impact from Nok Nok but we expect to in the future and ThreatFabric is largely a 2026 story. And we're continuing to work on other things as we continue to try to improve the value proposition that we're offering to our customers.

Okay. And then in terms of the hardware, do you see that being shipped out to the right? Or is it just sort of a decline in demand overall?

Well, if you talk to our customers, 10 to 12 years ago, customers in EMEA and in APAC, they might have had 100% of their consumers. -- using consumer banking tokens to long to authenticate. I was in Europe last month, and we had a meeting with 8 banks and we were surveying them. What percentage are using hardware now it was about 20%. So most of their customers have moved over to mobile authentication. And we see that in our business. Look at our business 10 years ago took what it is on the hardware side, it's probably 20% of the sites. We don't think that number is going to 0, by the way. There are people who prefer hardware, and we don't -- maybe that goes down to 15% of their consumers or 12%. So we don't think it's going to sterile. But that's been a long-term trend. And it's important for us to manage around that, not only with our mobile authentication offerings that we entered just years ago, but also with newer protocols like FIDO that we acquired through the Nok Nok acquisition.

And then in terms of the margin, how should we think about that? It seems like even though we'll have more hardware in the fourth quarter, this quarter compared to last year's fourth quarter. The gross margin is going to be higher. I get it right here. But how should we think about the gross margin altogether? And then also on the operating expenses. Do you see that now after you done all your tops, how should we think about growth in that in the coming years?

Yes, I can answer that. That's the question. So from a hardware perspective, I think it's probably going to be even with last year, Anja, the hardware revenue, we mentioned that during the last call in terms of the split and that we see what we have today. And then from a gross margin perspective, is going to be, I would say, probably similar to last year's Q4, Anja. And so that will put the full year gross margin in around 73-ish percent slightly higher than last year's, which I think was [indiscernible] and then from an operating expense perspective, one thing to keep in mind in the year-over-year is the Nok Nok acquisition.

So for the quarter, it's around -- I'm just going to do a round number. It's around $2 million on a run rate basis that we'll be adding year-over-year. And then obviously, we've done some also incremental investments in R&D and things like that. And I don't expect it sequentially to increase dramatically compared to what you saw in Q3. but there will be maybe a modest increase because of that.

Our next question comes through the line of Catherine Trebnick with Rosenblatt Securities.

Can you just in a snapshot, your product road map, where you feel that the deficiencies, these headwinds that you've been experiencing just really, what are the 2 or 3 products do you think in the next 12 to 24 months are going to make up for this gap we've been having.

Yes, sure. Let me talk a little bit about that. I don't know that I would describe it as a deficiency. We have very good mobile authentication technology. But as you know, multifactor authentication has been for a long time. Everyone is familiar with getting in the U.S., you get an SMS text message with it or you might get an e-mail and overseas onetime passcodes are widely used as well, although not SMS. So everyone is very familiar with multifactor authentication. So that protocol or approach has been widely adopted.

And as Jorge mentioned, we have good market share there. And even our NRR in security in Q3, I think it was 101 or it will be about 101 for the year. So it's very solid. But over time, technology has changed, and we're seeing that with the adoption of passkeys. With FID02, we're going to see much broader adoption of passkeys as we move through the rest of the decade. And we think it's important for us to broaden our offering so that we have not just the mobile authentication on top of the hardware authentication that existed many years ago and still exists for a portion of their customers but also enables passkeys at a very, very scalable level. It also has very good latency and we've proven it out at scale with many different customers. So we think that's going to be a very interesting area for growth.

That was very helpful. And then anything you can add on digital agreements and what you're seeing there? And how you expect growth there to pan out in the next 12 months?

Yes. We've been doing pretty well there. I think if you look at the growth, it's been in the mid- to upper single digits, and we expect it's October 30. So you can't be too certain about how Q4 is going to go, but we feel pretty good about the Q4 pipeline. And we think we have an opportunity to not just expand with customers we already have, but also to land some new ones. And that's an area where our internal development, I mentioned internal development, and that's an area where we'll be using AI in the product more in the coming 12 months. That's an area for us, a focus area for us in the coming months. So we think that's going to be a strong product, continue to be a strong product.

And obviously, we're always trying to do better and have better results. But I think we're making very good progress on the DA business. And the other piece, Catherine, on the DA business, Jorge mentioned this, is record operating income this quarter, I think, 25%. So when you layer that on top of the growth there, the numbers start to -- that business starts to look more and more appealing.

The next question comes from the line of Erik Suppiger with B. Riley Securities.

First off you're taking a lot of steps this year to start accelerating growth as you get into '26 and it's mostly on the software side, can we assume that your subscription revenue growth in '26 should accelerate over '25, if we anticipate double-digit growth in '25. Can it accelerate from there in '26.

Jorge, I don't know if you want to talk about the specifics, but that's absolutely, our aim is to continue to improve the software business. I think software as a percentage of revenue, we're at 80% now, and it probably gets to, I don't know, 82% or 83% next year. Jorge, I don't know if you want to talk to any of the specifics on...

Yes. So I think just the one thing that I would add is Erik, is the -- I think the subscription, yes. I think when you look at the different components of revenue for security, you have to take into account maintenance and some of that -- those dynamics in terms of the perpetual term -- so main will be a little bit choppy, right? But I think if you are focused on the subscription security as a [indiscernible], et cetera.

Okay. Good. Good. I know you don't have much exposure to federal, but any comments on federal and if the shutdown is giving you any pause? .

I would say no. I think we're lucky in that sense, Erik, that we really haven't felt it. We have a little bit exposure in our digital Remis business but it has not been anything material at all luckily, not in wood. And so I think from that standpoint, the shutdown has been a nonevent for us.

Okay. And then lastly, just a follow-up on Catherine's question. What is -- is there any change or any -- has there been any intensity of competition? Or has the market dynamics changed at all in terms of software solution -- software authentication for banks? Is there any change in that market?

No. I think if you actually look at our business, we've been doing quite well in North America. We started in North American security sales effort about 15 months ago, July of '24. But that's a small -- historically, a small portion of our business. So although the -- there's been good progress, it's from a small base. So we're doing well there. We've mentioned on previous calls quite a few times, I think, that the economic environment in Europe was a little bit more challenging for us. And I think that that's historically been a very large part of our business. So I think that has impacted us to a certain extent, it hasn't been the strongest economy there.

Okay. But it's not -- there's no particular change from a competitive perspective? .

No. No. If anything, I think we're becoming more competitive as we add new capabilities I've mentioned that pretty a few times, but it has some large customers that were going to start rolling out. And I think it overall helps our competitive position compared to 6 months ago.

Then last question. In terms of the FIDO2 push, how -- what progress have you made with channel partners? Have you been -- what progress have you made with channel partners on that front?

Well, I want to talk in general about the FIDO2 push in the S3 product. I mentioned we got our first 2 new logos, which is good within within 4 months of closing the deal. And we have others in line, some of which are from channel partners. One of those 2 actually was from a channel partner, 1 of those 2 new lots I mentioned. And we think that, that is obviously going to be an important method for sales heading into 2026. That product, I mean, just to FIDO2 is an open protocol, right? So you can stand up your FIDO2 server if you want. But what you get from is S3 is extreme scalability, where you can scale it up to millions and millions and millions of users.

I alluded to this earlier, you get excellent performance with respect to latency. A great management console to make it easy to administer and also flexible deployment. This is something that we're well known for. You can deploy it in the cloud or on-prem and there with both deployment modes. So it's a very appealing offering, I think, in the financial services world because some banks, as everyone knows, some large banks still prefer on-prem. So we give them maximum flexibility.

Are those customers buying the tokens from you as well, the FIDO2 tokens?

So the FIDO2 tokens, this is an interesting another area, right? So we started developing those internally. That was internal development. And we feel good about that business as we move forward. We have quite a bit of time. We're expecting orders. We've gotten some orders already. And we expect that to be a more meaningful revenue contribution in 2026 than it is today. So if you think about consumer banking tokens, if that continues to decline, the FIDO2 security keys could perhaps offset some of the secular consumer banking token decline.

The next question comes to the line of Gray Powell with BTIG.

Okay. Great. look, I only have one question, but I'm going to break it down into 27 parts. Is that okay? .

Sure, right. Go ahead. Okay.

Now just -- okay, so just really just 2 questions on my side. And more or less hit on this. When a customer elects to not renew hardware tokens, I'm going to assume it creates an opportunity to upsell your mobile security suite and then I just -- like, is that the case, like it is a direct shot? Or is there more of a jump ball situation where you have to find off that customer from other competitors?

Well, it could be a jump ball situation. But in a lot of these cases, I alluded to customers saying they have 20% of their consumers using hardware. So in many cases, it's already happened. They were a dozen years ago at 100% of their consumers using hardware. And now they've moved over to mobile for the majority of their consumers, younger consumers, new accounts, and they might have been 5 years ago, 40% of their consumers using hardware. And so that number has been declining over time. It does tend, by the way, to have heavier use cases in the corporate banking market where you might see 50% of consumers -- not consumers, but companies using hardware tokens, why is that the case? .

Well, corporate banking very often still happens in front of a large screen in front of a computer, not on a mobile phone. The more you're using a mobile phone, the more mobile authentication is likely to be used. So Gray, when you see a bank go from 3% consumer banking token, to 20%. It's not really a jump ball situation. Yes, there's more opportunity for mobile, authentication licenses. But we're not getting as much revenue upfront from those as we are from the hardware tokens.

Understood. That's helpful. And I guess maybe the bigger question for me personally, just on the ARR side, can you talk about the visibility you have on late-stage deals and pipeline just like the overall confidence level you have in the Q4 ARR guide just because it does imply a decent uptick in the pace of net adds from what we've seen the last 4 or 5 quarters. And look, I know it's Q4, which is some seasonality. But any color there would be greatly appreciated. .

Jorge, you can talk about the model. I'm happy to talk about the outlook. So go ahead, and I'll let you start.

Well, I think -- so from a model perspective, so we obviously take into account what is going to renew, Greg, what is the potential expansion based on opportunities that we see in pipeline and obviously, talking to our sales leaders and all that. So we have weekly call, we have the ability to that. And that is part of how we build our ARR forecast, okay? What is the risk? Is there any slippage going in it, obviously, as you know, with term and something falls out of it for more than 90 days, we take it out of ARR. And so it's an active -- it's an active discussion that comes in with the sales to understand what is the potential rate, what is the potential expansion. And this applies to both business units. These are agreements as well as security. And it's an active dialogue. And so it is sort of like a bottoms up if you where we try to -- we model a forecast, it is when it's Q1 or the same quarter, it is sort of a bottoms up, Greg, and it's all about execution, making sure that we can close those. And not everything is going to be perfect like everything else. Sometimes it's art, it's not a science, but we try to -- so we do have I would say, within the quarter, some visibility, right?

There are some bluebirds that happen that we don't anticipate. Like we mentioned, the HDFC situation last quarter. And sometimes, we see some contraction. And that's because our sales leader or the client is not -- they don't know yet. So those we have less visibility. But for the most part, I think within the quarter, we have a fair amount of visibility.

So I'll turn it to you Vik to talk about the other component?

Yes. I mean, we feel pretty good about it. I mean it's it's October 30. So we have pretty good visibility. You don't know for sure what's going to close. I think our sales team, and if you could go back in time, 12 months to now feels a lot better about our competitive position. I mean we've introduced the FIDO security keys. We bought Nok Nok. We have the Threat fabric. There's a lot of exciting stuff happening and a lot of good conversations happening. You can't book exciting conversations and people feeling good about things, but it's definitely an optimistic side.

The last question comes from the line of Rudy Kessinger with D.A. Davidson.

Kind of just a follow-up to some questions have been asked. Just with respect to the cut for this year, specifically on revenue and ARR, is that more so related to gross churn? Is it more so related to lower than previously expected new logo or lower than expected -- lower than previously expected cross-sell and upsell.

Jorge, I can give you the details. Go ahead, Jorge.

Yes. Thank you. Thank you, Victor. So it is primarily related to lower activity in net expansions. We did have, I would say, this quarter in Q3 that impacted one contraction. But I think overall, taking a step backward, it is primarily the lower activity for expansions. [indiscernible] to a lesser extent, but it's primarily more than their expansions.

Well, and also hardware, right, to a certain extent versus we have $2 million of hardware lower than -- on the revenue side, yes.

Yes. Okay. And I guess, as we think about maybe '26, I mean do you feel like -- give us maybe kind of a time line maybe for when you think you might start to see some more traction in some of these newer products and maybe you might be able to reignite growth here? .

Yes. So let me talk a little bit about I think we're going to see traction in '26 with S3. I think we've already seen traffic with a couple of deals closing and more pipeline in Q4. But keep in mind that if that business grows 30% or 40% next year. That will be a vast acceleration over what they were doing prior to the acquisition. But that will have a $3 million or $4 million impact on our business in terms of bookings. So the scale of it will take a little bit of a while to build, even if we can accelerate growth to a much faster growth rate than the business was before or than we have been as a business over the past number of years.

ThreatFabric is our partnership and an investment. And that's going to -- it's a little bit harder to tell because it's only been 3 weeks but we think that will contribute not as meaningfully as knock. But for our business, like every bit of improvement helps. If we pick up $3 million or $4 million of ARR somewhere, I think that is a real positive for us overall. And of course, we're not -- we alluded to this on the prepared remarks, we're not just doing one thing. We're working on lots of different things, trying to get lots of -- we can score a bunch of netting a bunch of singles. It doesn't all have to be a home run.

This does conclude the question-and-answer session. And I'd now like to turn it back to Joe Maxa for closing remarks.

Thank you, everyone. I'm glad you could join us today. We look forward to sharing our results with you again next quarter. Have a great night. .

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.