BusinessWire

OneSpan Reports Results for Second Quarter and First Six Months of 2020

Second Quarter Financial Results


  • Total revenue declined 2% to $55.0 million
  • Recurring revenue grew 35% to $23.2 million1
  • Annual Recurring Revenue (ARR) grew 29% to $90.0 million2
  • Adjusted EBITDA of $3.1 million3
  • GAAP loss per share of $(0.05)
  • Non-GAAP earnings per share of $0.023

CHICAGO--(BUSINESS WIRE)--OneSpan Inc. (NASDAQ: OSPN), the global leader in securing remote banking transactions, today reported financial results for the second quarter and six months ended June 30, 2020.

“During the second quarter, OneSpan made substantial progress in its transition to a recurring revenue dominant software model," stated OneSpan CEO, Scott Clements. "Bookings and revenue from recurring software contracts showed strong double-digit growth as did our software sales opportunity pipeline. Recurring revenue accounted for 76% of total software and service revenue in the quarter with strength in both subscription and term license revenues, offset by declines in perpetual license revenue. With the resurgence of the pandemic and increasing economic uncertainty, we are seeing longer sales cycles for larger complex projects and lower than expected demand for hardware authentication products. Cloud-based offerings such as OneSpan Sign continue to see strong demand.”

Second Quarter 2020 Financial Highlights4

  • Revenue for the second quarter of 2020 was $55.0 million, a decrease of 2% from $56.2 million for the second quarter of 2019. Revenue for the first six months of 2020 was $111.3 million, an increase of 8% from $103.3 million for the first six months of 2019.
  • Gross Profit for the second quarter of 2020 was $36.7 million and $77.0 million for the first six months of 2020. Gross profit for the second quarter of 2019 was $38.3 million and $69.3 million for the first six months of 2019. Gross margin for the second quarter of 2020 was 67% and for the first six months of 2020 was 69%. Gross margin for the second quarter of 2019 was 68% and for the first six months of 2019 was 67%.
  • GAAP operating loss for the second quarter of 2020 was $1.7 million, and for the first six months of 2020 was $0.9 million. GAAP operating loss for the second quarter of 2019 was $2.3 million, and for the first six months of 2019 was $8.3 million.
  • Adjusted EBITDA for the second quarter of 2020 was $3.1 million, or 6% of revenue, and for the first six months of 2020 was $8.3 million, or 7% of revenue. Adjusted EBITDA for the second quarter of 2019 was $2.5 million, or 4% of revenue, and for the first six months of 2019 was $(0.2) million or less than 1% of revenue.
  • GAAP net loss for the second quarter of 2020 was $2.0 million, or $0.05 per share, and $2.0 million, or $0.05 per share for the first six months of 2020. GAAP net loss for the second quarter of 2019 was $2.5 million, or $0.06 per share. GAAP net loss for the first six months of 2019 was $8.6 million, or $0.21 per share.
  • Non-GAAP net income for the second quarter of 2020 was $0.8 million or $0.02 per diluted share, and for the first six months of 2020 was $4.0 million, or $0.10 per diluted share. Non-GAAP net income (loss) for the second quarter of 2019 was $0.5 million or $0.01 per diluted share, and for the first six months of 2019 was $(2.8) million or $(0.07) per diluted share.
  • Cash, cash equivalents and short-term investments at June 30, 2020 totaled $110.8 million compared to $105.3 million and $109.8 million at March 31, 2020 and December 31, 2019, respectively.

     

_________________________

  1. Recurring revenue is comprised of subscription, term-based software licenses, and maintenance revenue.
  2. ARR is calculated as the annualized value of our customer recurring contracts with a term of at least one-year, as of the measuring date. These include subscription, term-based license, and maintenance contracts and exclude one-time fees. To the extent that we are negotiating a renewal with a customer after the expiration of a recurring contract, we continue to include that revenue in ARR if we are actively in discussion with the customer for a new recurring contract or renewal, or until such customer notifies us that it is not renewing its recurring contract.
  3. An explanation of the use of non-GAAP measures is included below under the heading “Non-GAAP Financial Measures.” A reconciliation of GAAP to non-GAAP financial measures has also been provided in tables below.
  4. 2019 results have been revised to correct for certain immaterial errors. For additional information, see the “Revision of Prior Period Financial Statements” section of this press release.

Full Year 2020 Outlook

Given the increased uncertainty about the impact of the pandemic on the global economy and our customers, the Company believes it prudent to withdraw its previously issued full-year guidance. Management will provide additional commentary during its second quarter earnings conference call.

Conference Call Details

In conjunction with this announcement, OneSpan Inc. will host a conference call today, August 11, 2020, at 4:30 p.m. ET. During the conference call, Mr. Scott Clements, CEO, and Mr. Mark Hoyt, CFO, will discuss OneSpan’s results for the second quarter 2020.

To access the conference call, dial 866-270-1533 for the U.S. or Canada and 1-412-317-0797 for international callers. The conference ID number is 10145960.

The conference call is also available in listen-only mode at investors.onespan.com. The recorded version of the conference call will be available on the OneSpan website as soon as possible following the call and will be available for replay for approximately one year.

About OneSpan

OneSpan helps protect the world from digital fraud by establishing trust in people’s identities, the devices they use and the transactions they carry out. We do this by making digital banking accessible, secure, easy and valuable. OneSpan’s Trusted Identity platform and security solutions significantly reduce digital transaction fraud and enable regulatory compliance for more than 10,000 customers, including over half of the top 100 global banks. Whether through automating agreements, detecting fraud or securing financial transactions, OneSpan helps reduce costs and accelerate customer acquisition while improving the user experience. Learn more at OneSpan.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of applicable U.S. Securities laws, including statements regarding the potential benefits, performance, and functionality of our products and solutions, including future offerings; our expectations, beliefs, plans, operations and strategies relating to our business and the future of our business; our acquisitions to date and our strategy related to future acquisitions; and our expectations regarding our financial performance in the future. Forward-looking statements may be identified by words such as "seek", "believe", "plan", "estimate", "anticipate", expect", "intend", and statements that an event or result "may", "will", "should", "could", or "might" occur or be achieved and any other similar expressions. The Company’s auditors have not audited, reviewed, compiled, or applied agreed-upon procedures with respect to the preliminary estimated financial data set forth herein. Important factors that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the completion of the review of the accounting matters identified related to prior periods, including the potential impact on internal control over financial reporting, a material delay in the Company’s financial reporting, including the possibility that the Company will not be able to file its Form 10-Q by the date due or within the five-day extension permitted by the rules of the U.S. Securities and Exchange Commission, and the possibility that the ongoing review may identify errors or control deficiencies in the Company’s accounting practices, as well as those factors set forth in our Form 10-K (and other forms) filed with the Securities and Exchange Commission. The forward-looking statements include, but are not limited to, our financial outlook for 2020, and the information included under the caption “Outlook for Full Year 2020”. These forward-looking statements involve risks and uncertainties, as well as assumptions which, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could materially affect our business and financial results include, but are not limited to: market acceptance of our products and solutions and competitors’ offerings; the potential effects of technological changes; our ability to effectively identify, purchase and integrate acquisitions; the execution of our transformative strategy on a global scale; the increasing frequency and sophistication of hacking attacks; claims that we have infringed the intellectual property rights of others; changes in customer requirements; price competitive bidding; changing laws, government regulations or policies; pressures on price levels; investments in new products or businesses that may not achieve expected returns; impairment of goodwill or amortizable intangible assets causing a significant charge to earnings; exposure to increased economic and operational uncertainties from operating a global business as well as those factors set forth in our Form 10-K (and other forms) filed with the Securities and Exchange Commission. In particular, we direct you to the risk factors contained under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K. Our SEC filings and other important information can be found on the Investor Relations section of our website at investors.onespan.com. We do not have any intent, and disclaim any obligation, to update the forward-looking information to reflect events that occur, circumstances that exist, or changes in our expectations after the date of this press release.

OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months ended June 30,

 

Six Months ended June 30,

 

 

 

2020

 

2019 (1)

 

2020

 

2019 (1)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and license

 

$

35,384

 

$

40,117

 

$

73,644

 

$

71,460

 

Services and other

 

 

19,570

 

 

16,050

 

 

37,680

 

 

31,802

 

Total revenue

 

 

54,954

 

 

56,167

 

 

111,324

 

 

103,262

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

 

 

 

 

 

 

 

 

 

 

 

Product and license

 

 

12,576

 

 

13,451

 

 

23,314

 

 

24,767

 

Services and other

 

 

5,649

 

 

4,429

 

 

10,981

 

 

9,152

 

Total cost of goods sold

 

 

18,225

 

 

17,880

 

 

34,295

 

 

33,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

36,729

 

 

38,287

 

 

77,029

 

 

69,343

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

14,694

 

 

16,040

 

 

29,553

 

 

30,423

 

Research and development

 

 

10,541

 

 

11,977

 

 

20,535

 

 

22,472

 

General and administrative

 

 

10,846

 

 

10,180

 

 

23,114

 

 

20,050

 

Amortization of intangible assets

 

 

2,335

 

 

2,368

 

 

4,689

 

 

4,716

 

Total operating costs

 

 

38,416

 

 

40,565

 

 

77,891

 

 

77,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(1,687)

 

 

(2,278)

 

 

(862)

 

 

(8,318)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

126

 

 

69

 

 

333

 

 

204

 

Other income (expense), net

 

 

509

 

 

451

 

 

171

 

 

(100)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(1,052)

 

 

(1,758)

 

 

(358)

 

 

(8,214)

 

Provision (benefit) for income taxes

 

 

973

 

 

753

 

 

1,663

 

 

353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,025)

 

$

(2,511)

 

$

(2,021)

 

$

(8,567)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.05)

 

$

(0.06)

 

$

(0.05)

 

$

(0.21)

 

Diluted

 

$

(0.05)

 

$

(0.06)

 

$

(0.05)

 

$

(0.21)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

40,028

 

 

40,038

 

 

40,059

 

 

40,037

 

Diluted

 

 

40,028

 

 

40,038

 

 

40,059

 

 

40,037

 

(1) 2019 results have been revised to correct for certain immaterial misstatements. For additional information, see the “Revision of Prior Period Financial Statements” section of this press release.

OneSpan Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, unaudited)

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2020

 

2019 (1)

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and equivalents

 

$

83,984

 

$

84,282

Short term investments

 

 

26,796

 

 

25,511

Accounts receivable, net of allowances of $3,723 in 2020 and $2,524 in 2019

 

 

54,347

 

 

62,405

Inventories, net

 

 

16,443

 

 

19,819

Prepaid expenses

 

 

6,004

 

 

6,198

Contract assets

 

 

6,848

 

 

5,240

Other current assets

 

 

7,261

 

 

6,346

Total current assets

 

 

201,683

 

 

209,801

Property and equipment, net

 

 

12,159

 

 

11,454

Operating lease right-of-use assets

 

 

10,789

 

 

10,580

Goodwill

 

 

91,646

 

 

94,612

Intangible assets, net of accumulated amortization

 

 

30,652

 

 

36,209

Deferred income taxes

 

 

8,039

 

 

7,863

Contract assets - non-current

 

 

3,774

 

 

3,355

Other assets

 

 

9,719

 

 

8,668

Total assets

 

$

368,461

 

$

382,542

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

5,778

 

$

10,835

Deferred revenue

 

 

37,728

 

 

30,338

Accrued wages and payroll taxes

 

 

13,766

 

 

15,415

Short-term income taxes payable

 

 

2,571

 

 

7,410

Other accrued expenses

 

 

9,608

 

 

8,786

Deferred compensation

 

 

1,041

 

 

1,028

Total current liabilities

 

 

70,492

 

 

73,812

Long-term deferred revenue

 

 

10,723

 

 

15,259

Long-term lease liability

 

 

11,749

 

 

11,299

Other long-term liabilities

 

 

8,021

 

 

8,297

Long-term income taxes payable

 

 

5,905

 

 

6,958

Deferred income taxes

 

 

4,364

 

 

4,623

Total liabilities

 

 

111,254

 

 

120,248

Stockholders' equity

 

 

 

 

 

 

Preferred stock: 500 shares authorized, none issued and outstanding at December 31, 2020 and 2019

 

 

 

 

Common stock: $.001 par value per share, 75,000 shares authorized; 40,329 and 40,207 issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

40

 

 

40

Additional paid-in capital

 

 

97,140

 

 

96,109

Accumulated income

 

 

177,166

 

 

179,440

Accumulated other comprehensive loss

 

 

(17,139)

 

 

(13,295)

Total stockholders' equity

 

 

257,207

 

 

262,294

Total liabilities and stockholders' equity

 

$

368,461

 

$

382,542

(1) 2019 results have been revised to correct for certain immaterial misstatements. For additional information, see the “Revision of Prior Period Financial Statements” section of this press release.

OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 

2020

 

2019 (1)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(2,021)

 

$

(8,567)

 

Adjustments to reconcile net income (loss) from operations to net cash provided by (used in) operations:

 

 

 

 

 

 

 

Depreciation and amortization of intangible assets

 

 

6,097

 

 

5,734

 

Loss on disposal of assets

 

 

53

 

 

 

Deferred tax benefit

 

 

(319)

 

 

(349)

 

Stock-based compensation

 

 

2,210

 

 

1,229

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

7,528

 

 

(8,788)

 

Inventories, net

 

 

3,376

 

 

(5,792)

 

Contract assets

 

 

(2,026)

 

 

4,703

 

Accounts payable

 

 

(5,025)

 

 

4,448

 

Income taxes payable

 

 

(5,870)

 

 

(6,139)

 

Accrued expenses

 

 

(791)

 

 

(4,269)

 

Deferred compensation

 

 

13

 

 

(332)

 

Deferred revenue

 

 

2,990

 

 

(1,758)

 

Other assets and liabilities

 

 

(1,834)

 

 

(2,913)

 

Net cash provided by (used in) operating activities

 

 

4,381

 

 

(22,793)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of short term investments

 

 

(14,645)

 

 

(12,829)

 

Maturities of short term investments

 

 

13,340

 

 

9,500

 

Additions to property and equipment

 

 

(2,167)

 

 

(989)

 

Other

 

 

(48)

 

 

 

Net cash used in investing activities

 

 

(3,520)

 

 

(4,318)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Tax payments for restricted stock issuances

 

 

(1,179)

 

 

(266)

 

Net cash used in financing activities

 

 

(1,179)

 

 

(266)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

20

 

 

(205)

 

 

 

 

 

 

 

 

 

Net decrease in cash

 

 

(298)

 

 

(27,582)

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

85,129

 

 

77,555

Cash, cash equivalents, and restricted cash, end of period (1.)

$

84,831

$

49,973

(1) 2019 results have been revised to correct for certain immaterial misstatements. For additional information, see the “Revision of Prior Period Financial Statements” section of this press release.

Revenue by major products and services (in thousands, unaudited):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

2020

 

2019 (2)

 

2020

 

2019 (2)

Hardware products

 

$

24,188

 

$

29,039

 

$

43,926

 

$

53,329

Software licenses (1)

 

 

11,196

 

 

11,078

 

 

29,718

 

 

18,131

Subscription

 

 

6,133

 

 

5,347

 

 

11,840

 

 

10,607

Professional services

 

 

1,326

 

 

848

 

 

2,747

 

 

1,657

Maintenance, support and other

 

 

12,111

 

 

9,855

 

 

23,093

 

 

19,538

Total Revenue

 

$

54,954

 

$

56,167

 

$

111,324

 

$

103,262

(1) Software licenses revenue is earned under both term-based and perpetual license agreements.

Recurring Revenue (in thousands, unaudited):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2020

 

2019 (2)

 

2020

 

2019 (2)

Subscription

 

$

6,133

 

$

5,347

 

$

11,840

 

$

10,607

Term-based software licenses

 

 

4,990

 

 

2,044

 

 

14,194

 

 

2,607

Maintenance, support and other

 

 

12,111

 

 

9,855

 

 

23,093

 

 

19,538

Total Recurring Revenue

 

$

23,234

 

$

17,246

 

$

49,127

 

$

32,752

(2) 2019 results have been revised to correct for certain immaterial misstatements. For additional information, see the “Revision of Prior Period Financial Statements” section of this press release.

Non-GAAP Financial Measures

We report financial results in accordance with GAAP. We also evaluate our performance using certain non-GAAP operating metrics, namely Adjusted EBITDA, non-GAAP Net Income and non-GAAP diluted EPS. Our management believes that these measures provide useful supplemental information regarding the performance of our business and facilitates comparisons to our historical operating results. We believe these non-GAAP operating metrics provide additional tools for investors to use to compare our business with other companies in the industry.

These non-GAAP measures are not measures of performance under GAAP and should not be considered in isolation, as alternatives or substitutes for the most directly comparable financial measures calculated in accordance with GAAP. While we believe that these non-GAAP measures are useful within the context described below, they are in fact incomplete and are not a measure that should be used to evaluate our full performance or our prospects. Such an evaluation needs to consider all of the complexities associated with our business including, but not limited to, how past actions are affecting current results and how they may affect future results, how we have chosen to finance the business, and how taxes affect the final amounts that are or will be available to shareholders as a return on their investment. Reconciliations of the non-GAAP measures to the most directly comparable GAAP financial measures are found below.

Adjusted EBITDA

We define Adjusted EBITDA as net income before interest, taxes, depreciation, amortization, long-term incentive compensation, and certain other non-recurring items, including acquisition related costs, lease exit costs, rebranding costs, and accruals for legal contingencies. We use Adjusted EBITDA as a simplified measure of performance for use in communicating our performance to investors and analysts and for comparisons to other companies within our industry. As a performance measure, we believe that Adjusted EBITDA presents a view of our operating results that is most closely related to serving our customers. By excluding interest, taxes, depreciation, amortization, long-term incentive compensation, and certain other non-recurring items, we are able to evaluate performance without considering decisions that, in most cases, are not directly related to meeting our customers’ requirements and were either made in prior periods (e.g., depreciation, amortization, long-term incentive compensation, lease exit costs, reversal of a prior period legal contingency accrual), or deal with the structure or financing of the business (e.g., interest, acquisition related costs, rebranding costs) or reflect the application of regulations that are outside of the control of our management team (e.g., taxes). Similarly, we find the comparison of our results to those of our competitors is facilitated when we do not consider the impact of these items.

Reconciliation of Net Income to Adjusted EBITDA

(in thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

June 30,

 

 

2020

 

2019 (1)

 

2020

 

2019 (1)

Net loss

 

$

(2,025)

 

$

(2,511)

 

$

(2,021)

 

$

(8,567)

Interest income, net

 

 

(126)

 

 

(69)

 

 

(333)

 

 

(204)

Provision for income taxes

 

 

973

 

 

753

 

 

1,663

 

 

353

Depreciation and amortization of intangible assets

 

 

3,078

 

 

2,872

 

 

6,097

 

 

5,734

Long-term incentive compensation

 

 

1,165

 

 

1,432

 

 

2,880

 

 

2,487

Adjusted EBITDA

 

$

3,065

 

$

2,477

 

$

8,286

 

$

(197)

(1) 2019 results have been revised to correct for certain immaterial misstatements. For additional information, see the “Revision of Prior Period Financial Statements” section of this press release.

Non-GAAP Net Income & Non-GAAP Diluted EPS

We define non-GAAP net income and non-GAAP diluted EPS, as net income or EPS before the consideration of long-term incentive compensation expenses, the amortization of intangible assets, and certain other non-recurring items. We use these measures to assess the impact of our performance excluding items that can significantly impact the comparison of our results between periods and the comparison to competitors.

Long-term incentive compensation for management and others is directly tied to performance and this measure allows management to see the relationship of the cost of incentives to the performance of the business operations directly if such incentives are based on that period’s performance. To the extent that such incentives are based on performance over a period of several years, there may be periods which have significant adjustments to the accruals in the period but which relate to a longer period of time, and which can make it difficult to assess the results of the business operations in the current period. In addition, the Company’s long-term incentives generally reflect the use of restricted stock grants or cash awards while other companies may use different forms of incentives the cost of which is determined on a different basis, which makes a comparison difficult. We exclude amortization of intangible assets as we believe the amount of such expense in any given period may not be correlated directly to the performance of the business operations and that such expenses can vary significantly between periods as a result of new acquisitions, the full amortization of previously acquired intangible assets or the write down of such assets due to an impairment event. However, intangible assets contribute to current and future revenue and related amortization expense will recur in future periods until expired or written down.

We exclude certain other non-recurring items including impacts of tax reform, acquisition related costs, rebranding costs, lease exit costs, and reserves for certain legal contingencies as these items are unrelated to the operations of our core business. By excluding these items, we are better able to compare the operating results of our underlying core business from one reporting period to the next.

We make a tax adjustment based on the above adjustments resulting in an effective tax rate on a non-GAAP basis, which may differ from the GAAP tax rate.


Contacts

Investors:
Joe Maxa
M: +1-612-247-8592
O: +1-312-766-4009
Joe.Maxa@onespan.com


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