OneSpan (OSPN) Q2 2025: ARR Jumps $8M on Knock Knock Labs Acquisition, Cross-Sell Engine Primed for 2026
OneSpan’s Q2 2025 marks a strategic inflection, with the Knock Knock Labs acquisition adding $8 million in annual recurring revenue (ARR) and setting the stage for a cross-sell push into its 1,000+ global bank customer base. Margin expansion and disciplined cost control underpin solid profitability, while leadership signals a pivot from restructuring to growth mode. With a refreshed product suite and targeted M&A, OneSpan is positioning for accelerated top-line growth in 2026 as the authentication landscape evolves.
Summary
- Acquisition-Driven ARR Expansion: Knock Knock Labs adds FIDO2 software and $8 million ARR, broadening OneSpan’s authentication portfolio.
- Profitability Anchors Transformation: Margin gains and cash generation reinforce the company’s balanced capital allocation and Rule of 40 ambitions.
- Growth Foundation for 2026: Go-to-market investments and cross-sell pipeline set up a new phase of revenue acceleration next year.
Business Overview
OneSpan delivers digital security and e-signature solutions, specializing in authentication software and hardware for financial institutions and enterprises. The company operates two primary segments: Security Solutions (multi-factor authentication, transaction signing, and related hardware/software) and Digital Agreements (e-signature and workflow automation). Revenue is generated from subscriptions, hardware sales, and maintenance, with a customer base spanning over 1,000 banks globally.
Performance Analysis
OneSpan’s Q2 saw a modest 2% revenue decline as anticipated hardware headwinds and sunsetting legacy products offset robust 22% subscription revenue growth. The Security Solutions segment posted a 3% revenue decline but achieved 39% subscription growth, driven by multi-year renewals and expanded licenses. Digital Agreements revenue grew 1%, with new SaaS contracts and renewals largely offsetting declines from sunsetting on-premise solutions.
Gross margin expanded to 73% from 66% a year ago, reflecting a favorable shift toward higher-margin software and reduced hardware sales. Adjusted EBITDA margin reached 29.5%, with both business units solidly profitable at the segment level. Cash flow from operations was strong, enabling dividend payments, the Knock Knock Labs acquisition, and leaving $93 million in cash on hand. Notably, ARR rose 8% to $178 million, with $8 million attributable to Knock Knock Labs, while organic ARR growth was 3%, consistent with management’s prior guidance.
- Subscription Revenue Acceleration: 22% growth highlights successful shift to recurring software, offsetting hardware decline.
- Margin Leverage: Gross margin improvement driven by mix shift and absence of last year’s asset write-offs.
- Segment Profitability: Both Security and Digital Agreements delivered positive operating income, underscoring operational discipline.
EMEA weakness and hardware contraction persist as legacy headwinds, but Americas and Latin America outperformed, and the North America security sales team’s expansion is already yielding results. The company’s net retention rate (NRR) held at 101%, despite $3 million in ARR contraction from two large customers. Dividend payments and a new $100 million credit facility reinforce financial flexibility for future growth and M&A.
Executive Commentary
"With that accomplished, our focus in 2025 has been on building the foundation necessary for OneSpan to not only be profitable, but also to grow the business and strengthen our product offerings for our customers. Right before the year started, we hired a new CTO, Ashish Jain, to lead our R&D team. Part of our strategy is to augment our increased internal development efforts with targeted M&A so that we can move faster in delivering great products to our customers."
Victor Belangeli, Chief Executive Officer
"We acquired Knock Knock on June 4th. As such, our second quarter results include Knock Knock's financials from the acquisition date or for about a month. ARR grew 8% to $178 million, including $8 million from the Knock Knock acquisition. Our net retention rate, or NRR, was 101%."
Jorge Martel, Chief Financial Officer
Strategic Positioning
1. FIDO2 Expansion and Authentication Leadership
Knock Knock Labs, FIDO2 software provider, brings future-ready passwordless authentication to OneSpan’s portfolio, complementing existing FIDO2 hardware and DigiPass solutions. This move positions OneSpan as a comprehensive authentication partner, offering flexibility across software, hardware, and protocols for global banks facing rising cyber threats.
2. Cross-Sell Engine and Installed Base Leverage
With over 1,000 global banking clients, the company’s legacy customer base is a strategic asset for cross-selling new authentication modules. Management emphasized that the primary rationale for the Knock Knock Labs deal is technology and cross-sell potential, not immediate revenue, with the most meaningful impact expected in 2026 and beyond as integration and sales alignment progress.
3. Go-to-Market Realignment and Regional Focus
The split of North American sales into dedicated security and digital agreements teams is already driving improved performance. The Americas now represent 40% of revenue, up from 35% last year, while EMEA softness persists. New sales resources and refined approaches are expected to accelerate new logo wins and expansion, especially in North America and Latin America.
4. Capital Allocation and M&A Readiness
With $93 million in cash and a $100 million credit facility, OneSpan is equipped for continued M&A. The board’s balanced approach includes dividends, organic investment, and targeted acquisitions to enhance the product suite and sustain growth.
5. Margin and Profitability Discipline
Gross margin expansion and cost control have driven record first-half EBITDA and set a foundation for scalable growth. Management’s focus on Rule of 40 (growth plus margin at or above 40%) signals ongoing commitment to profitable expansion.
Key Considerations
OneSpan’s Q2 2025 is a transition quarter, with operational discipline and product expansion converging to set up a new phase of growth. Investors should weigh the following:
Key Considerations:
- Cross-Sell Timing: Knock Knock Labs’ ARR is immediate, but the technology’s real revenue impact depends on execution of cross-sell into the existing customer base, likely ramping in 2026.
- Hardware Revenue Headwinds: Mobile-first authentication adoption by banks continues to erode hardware sales, with management expecting stabilization only in late 2025.
- Geographic Mix Shift: Americas outperformance and EMEA softness may persist, impacting revenue composition and growth trajectory.
- Capital Flexibility: Ample cash and new credit lines support ongoing M&A and shareholder returns, but disciplined deployment is critical for value creation.
Risks
Legacy customer contraction, as seen with $3 million ARR loss from two large clients, underscores exposure to bank consolidation and implementation delays. Hardware revenue decline remains a structural risk as mobile-first authentication proliferates. Integration of acquisitions and realization of cross-sell potential are execution-dependent, with timing risk around when ARR expansion translates to sustained top-line growth. EMEA weakness and competitive dynamics in authentication software also warrant close monitoring.
Forward Outlook
For Q3 and Q4 2025, OneSpan guided to:
- Return to positive revenue growth in the second half, with hardware headwinds persisting in Q3 but improving in Q4.
- Double-digit subscription revenue growth for the full year, with modest incremental revenue from Knock Knock Labs.
For full-year 2025, management maintained guidance:
- Revenue of $245 to $251 million.
- Adjusted EBITDA of $72 to $76 million.
- ARR guidance raised to $186 to $192 million, reflecting Knock Knock Labs’ contribution offset by customer contractions.
Management highlighted several factors that will shape results:
- Cross-sell ramp from Knock Knock Labs expected to be more material in 2026.
- Go-to-market investments and pipeline momentum in North America and Latin America provide upside for next year.
Takeaways
OneSpan’s transformation is entering a critical phase, with ARR growth and margin expansion offsetting legacy headwinds. The company’s ability to monetize its expanded authentication suite across its installed base will be the key determinant of sustained growth into 2026.
- Knock Knock Labs Acquisition: Immediate ARR boost and FIDO2 capability set the stage for long-term cross-sell, not short-term revenue lift.
- Margin Expansion and Profitability: Operational discipline is delivering record EBITDA, supporting both reinvestment and shareholder returns.
- 2026 Growth Setup: Watch for evidence of pipeline conversion and cross-sell traction as the main catalyst for accelerating top-line growth next year.
Conclusion
OneSpan’s Q2 2025 demonstrates a business in transition, with strategic M&A and margin gains laying the groundwork for a new growth phase. The company’s execution on cross-sell and go-to-market initiatives will determine if its product expansion translates to sustainable revenue acceleration in 2026 and beyond.
Industry Read-Through
OneSpan’s pivot to FIDO2 and passwordless authentication signals a broader shift in the digital security sector, as financial institutions accelerate adoption of mobile-first and software-based solutions. Legacy hardware vendors face structural headwinds, while those with strong installed bases and M&A agility are best positioned to capture the next wave of authentication spend. Margin expansion through software mix and disciplined capital allocation are emerging as key differentiators as the industry consolidates around comprehensive, flexible security platforms.