10-Q 1 ospn-20220331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM       TO      

Commission file number 000-24389

OneSpan Inc.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE

36-4169320

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

121 West Wacker Drive, Suite 2050

Chicago, Illinois 60601

(Address of Principal Executive Offices) (Zip Code)

(312) 766-4001

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Shares

OSPN

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer ,a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  No

There were 40,020,902 shares of Common Stock, $.001 par value per share, outstanding at April 29, 2022.

OneSpan Inc.

Form 10-Q

For the Quarter Ended March 31, 2022

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2022 and 2021

4

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three months ended March 31, 2022 and 2021

5

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three months ended March 31, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2022 and 2021

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

30

Item 4.

Controls and Procedures

30

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 6.

Exhibits

32

SIGNATURES

33

2

OneSpan Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

March 31,

December 31, 

2022

    

2021

ASSETS

 

Current assets

 

  

 

  

Cash and equivalents

$

83,645

$

63,380

Short term investments

 

36,302

 

35,108

Accounts receivable, net of allowances of $2,292 in 2022 and $1,419 in 2021

 

35,704

 

56,612

Inventories, net

 

10,388

 

10,345

Prepaid expenses

 

7,656

 

7,594

Contract assets

5,410

4,694

Other current assets

 

9,591

 

9,356

Total current assets

 

188,696

 

187,089

Property and equipment, net

 

10,253

 

10,757

Operating lease right-of-use assets

8,849

9,197

Goodwill

 

94,586

 

96,174

Intangible assets, net of accumulated amortization

 

19,728

 

21,270

Deferred income taxes

3,679

3,786

Contract assets - non-current

318

195

Other assets

 

9,802

 

13,803

Total assets

$

335,911

$

342,271

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

7,231

$

8,204

Deferred revenue

 

50,988

 

54,617

Accrued wages and payroll taxes

 

14,109

 

16,607

Short-term income taxes payable

 

735

 

1,103

Other accrued expenses

 

7,297

 

7,668

Deferred compensation

 

80

 

877

Total current liabilities

 

80,440

 

89,076

Long-term deferred revenue

7,326

9,125

Long-term lease liabilities

9,932

10,180

Other long-term liabilities

 

7,554

 

7,770

Long-term income taxes payable

5,054

5,054

Deferred income taxes

 

2,010

 

1,286

Total liabilities

 

112,316

 

122,491

Stockholders' equity

 

  

 

  

Preferred stock: 500 shares authorized, none issued and outstanding at March 31, 2022 and December 31, 2021

 

 

Common stock: $.001 par value per share, 75,000 shares authorized; 40,613 and 40,593 shares issued; 40,021 and 40,001 shares outstanding at March 31, 2022 and December 31, 2021, respectively

 

40

 

40

Additional paid-in capital

 

100,975

 

100,250

Treasury stock, at cost, 592 and 592 shares outstanding at March 31, 2022 and December 31, 2021, respectively

(12,501)

(12,501)

Retained earnings

 

148,387

 

143,173

Accumulated other comprehensive loss

 

(13,306)

 

(11,182)

Total stockholders' equity

 

223,595

 

219,780

Total liabilities and stockholders' equity

$

335,911

$

342,271

See accompanying notes to unaudited condensed consolidated financial statements.

3

OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

(unaudited)

March 31,

    

2022

    

2021

Revenue

 

  

 

  

 

Product and license

$

29,485

$

28,445

Services and other

 

22,962

 

22,330

Total revenue

 

52,447

 

50,775

Cost of goods sold

 

  

 

  

Product and license

 

9,079

 

10,752

Services and other

 

6,690

 

5,781

Total cost of goods sold

 

15,769

 

16,533

Gross profit

 

36,678

 

34,242

Operating costs

 

  

 

  

Sales and marketing

 

15,895

 

17,168

Research and development

 

13,749

 

12,244

General and administrative

 

14,895

 

12,551

Amortization of intangible assets

 

1,382

 

1,573

Total operating costs

 

45,921

 

43,536

Operating loss

 

(9,243)

 

(9,294)

Interest income (expense), net

 

(17)

 

4

Other income (expense), net

 

15,647

 

(362)

Income (loss) before income taxes

 

6,387

 

(9,652)

Provision (benefit) for income taxes

 

1,173

 

(501)

Net income (loss)

$

5,214

$

(9,151)

Net income (loss) per share

 

  

 

  

Basic

$

0.13

$

(0.23)

Diluted

$

0.13

$

(0.23)

Weighted average common shares outstanding

 

  

 

  

Basic

 

39,577

 

39,996

Diluted

 

39,687

 

39,996

See accompanying notes to unaudited condensed consolidated financial statements.

4

OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

Three months ended March 31, 

    

2022

    

2021

Net income (loss)

 

$

5,214

 

$

(9,151)

Other comprehensive loss

Cumulative translation adjustment, net of tax

 

(2,020)

 

(919)

Pension adjustment, net of tax

 

(25)

 

Unrealized losses on available-for-sale securities

(79)

(15)

Comprehensive income (loss)

 

$

3,090

 

$

(10,085)

See accompanying notes to unaudited condensed consolidated financial statements.

5

OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

For the three months ended March 31, 2022:

    

    

    

    

    

    

    

    

Accumulated

    

    

Additional

Other

Total

Common Stock

Treasury - Common Stock

Paid-In

Retained

Comprehensive

Stockholders'

Description

Shares

Amount

Shares

Amount

Capital

Earnings

Income (Loss)

Equity

Balance at December 31, 2021

 

40,001

$

40

592

(12,501)

$

100,250

$

143,173

$

(11,182)

$

219,780

Net income (loss)

 

 

 

 

5,214

 

 

5,214

Foreign currency translation adjustment, net of tax

 

 

 

 

 

(2,020)

 

(2,020)

Restricted stock awards

 

34

 

 

1,360

 

 

 

1,360

Tax payments for stock issuances

 

(14)

 

 

(635)

 

 

 

(635)

Unrealized gain (loss) on available-for-sale securities

(79)

(79)

Pension adjustment, net of tax

 

 

 

 

 

(25)

 

(25)

Balance at March 31, 2022

 

40,021

$

40

592

$

(12,501)

$

100,975

$

148,387

$

(13,306)

$

223,595

For the three months ended March 31, 2021:

    

    

    

    

    

    

    

    

    

    

Accumulated

    

    

Additional

Other

Total

Common Stock

Treasury - Common Stock

Paid-In

Retained

Comprehensive

Stockholders'

Description

Shares

Amount

Shares

Amount

Capital

Earnings

Income (Loss)

Equity

Balance at December 31, 2020

 

40,103

$

40

250

(5,030)

$

98,819

$

173,731

$

(10,220)

$

257,340

Net income (loss)

 

 

 

 

(9,151)

 

 

(9,151)

Foreign currency translation adjustment, net of tax

 

 

 

 

22

 

(919)

 

(897)

Restricted stock awards

 

248

 

 

1,342

 

 

 

1,342

Tax payments for stock issuances

 

(86)

 

 

(2,139)

 

 

 

(2,139)

Unrealized gain (loss) on available-for-sale securities

(15)

(15)

Pension adjustment, net of tax

 

 

 

 

 

 

Balance at March 31, 2021

 

40,265

$

40

250

$

(5,030)

$

98,022

$

164,602

$

(11,154)

$

246,480

6

OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three months ended March 31,

    

2022

    

2021

Cash flows from operating activities:

 

  

 

  

Net income (loss) from operations

$

5,214

$

(9,151)

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

 

 

  

Depreciation and amortization of intangible assets

 

2,097

 

2,310

Loss on disposal of assets

 

1

 

22

Gain on sale of equity-method investment

(14,810)

Deferred tax benefit

 

794

 

(732)

Stock-based compensation

 

1,360

 

1,342

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

19,893

 

8,554

Allowance for doubtful accounts

666

34

Inventories, net

 

(260)

 

1,748

Contract assets

 

(904)

 

2,346

Accounts payable

 

(941)

 

140

Income taxes payable

 

(332)

 

(1,634)

Accrued expenses

 

(2,723)

 

3,090

Deferred compensation

 

(797)

 

(1,527)

Deferred revenue

 

(5,156)

 

322

Other assets and liabilities

 

(442)

 

(3,281)

Net cash provided by operating activities

 

3,660

 

3,583

Cash flows from investing activities:

 

  

 

  

Purchase of short term investments

 

(15,812)

 

(25,234)

Maturities of short term investments

 

14,500

 

7,565

Additions to property and equipment

 

(272)

 

(755)

Additions to intangible assets

 

(7)

 

(16)

Sale of equity-method investment

 

18,874

 

Net cash provided by (used in) investing activities

 

17,283

 

(18,440)

Cash flows from financing activities:

 

  

 

  

Tax payments for restricted stock issuances

 

(635)

 

(2,139)

Net cash used in financing activities

 

(635)

(2,139)

Effect of exchange rate changes on cash

 

(45)

 

(558)

Net increase (decrease) in cash

 

20,263

 

(17,554)

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

 

64,228

 

89,241

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

$

84,491

$

71,687

(1.)End of period cash, cash equivalents, and restricted cash includes $0.8 million and $0.9 million of restricted cash at March 31, 2022 and March 31, 2021, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.

7

OneSpan Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Unless otherwise noted, references in this Quarterly Report on Form 10-Q to “OneSpan,” “Company,” “we,” “our,” and “us,” refer to OneSpan Inc. and its subsidiaries.

Note 1 – Description of the Company and Basis of Presentation

Description of the Company

OneSpan Inc. and its wholly owned subsidiaries design, develop, market and support hardware and software security systems that manage and secure access to information assets. OneSpan has operations in Austria, Australia, Belgium, Canada, China, France, Japan, The Netherlands, Singapore, Switzerland, the United Arab Emirates, the United Kingdom (U.K), and the United States (U.S.).

In accordance with ASC 280, Segment Reporting, our operations are reported as a single operating segment. The chief operating decision maker is the Chief Executive Officer who reviews the statement of operations of the Company on a consolidated basis, makes decisions and manages the operations of the Company as a single operating segment.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of OneSpan and its subsidiaries and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of the interim periods presented. All intercompany accounts and transactions have been eliminated. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2022, particularly in light of the novel coronavirus (COVID-19) pandemic and its effects on domestic and global economies.

We continue to actively address the effects of the COVID-19 pandemic and its impact globally. During the three months ended March 31, 2022, we experienced lengthened sales cycles and supply chain constraints in connection with the COVID-19 pandemic. In prior periods, we also experienced reduced demand for certain of our hardware products and software solutions. While we hope that the negative consequences on our business associated with the COVID-19 pandemic will subside, we cannot predict the impact with certainty.

Revision of Previously Issued Financial Statements

We have revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10-Q related to immaterial errors. The errors relate to certain costs directly related to the production and distribution of hardware products. The costs were not properly categorized in prior periods, which led to an understatement of product and license cost of goods sold and an overstatement of sales and marketing expense. There was no impact to previously reported revenue or net income.

We evaluated the aggregate effects of the errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108 and, based upon quantitative and qualitative factors, determined that the errors were not material to the previously issued financial statements and disclosures included in our

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Annual Reports on Form 10-K for the years ended December 31, 2021 and 2020, or for any quarterly periods included therein or through our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021.

The following table presents the effects of the aforementioned revisions on our unaudited condensed consolidated statement of operations for the three months ended March 31, 2022.

Condensed Consolidated Statement of Operations (Unaudited)

Three Months Ended March 31, 2021

in thousands

    

As Previously Reported

    

Adjustments

As Revised

Cost of goods sold

Product and license

$

9,541

$

1,211

$

10,752

Total cost of goods sold

 

15,322

1,211

 

16,533

 

 

Gross profit

35,453

(1,211)

34,242

 

 

Operating costs

Sales and marketing

 

18,379

(1,211)

 

17,168

Total operating costs

 

44,747

(1,211)

 

43,536

Principles of Consolidation

The consolidated financial statements include the accounts of OneSpan Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Foreign Currency Translation and Transactions

The financial position and results of the operations of the majority of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. Accordingly, assets and liabilities are translated into U.S. Dollars using current exchange rates as of the balance sheet date. Revenue and expenses are translated at average exchange rates prevailing during the year. Translation adjustments arising from differences in exchange rates are charged or credited to other comprehensive income (loss). Gains and losses resulting from foreign currency transactions are included in the condensed consolidated statements of operations in other income (expense), net. Foreign exchange transaction losses aggregated $0.4 million for the three months ended March 31, 2022. Foreign exchange transaction losses aggregated $0.7 million for the three months ended March 31, 2021.

The financial position and results of our operations in Singapore, Switzerland, and Canada are measured in U.S. Dollars. For these subsidiaries, gains and losses that result from foreign currency transactions are included in the consolidated statements of operations in other income (expense), net.

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Note 2 – Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 22, 2022 that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Cash, Cash Equivalents and Restricted Cash

We are in lease agreements that require letters of credit to secure the obligations. The restricted cash related to these letters of credit is recorded in other non-current assets on the Condensed Consolidated Balance Sheet in the amounts of $0.8 million and $0.8 million at March 31, 2022 and December 31, 2021, respectively.

Sale of Equity Method Investment

On January 31, 2022, we sold our equity interest in Promon AS (Promon) for $18.9 million, and recorded the gain on sale of $14.8 million in other income (expense) on the Condensed Consolidated Statement of Operations during the three months ended March 31, 2022. Promon is a technology company headquartered in Norway that specializes in mobile app security, whose solutions focus largely on Runtime Application Self-Protection (RASP).


Prior to January 31, 2022, we held a 17% interest in Promon and applied the equity method of accounting to our investment in Promon because we exercised significant influence, but not controlling interest, in the investee. Under the equity method of accounting, the Company’s proportionate share of the net earnings (losses) of Promon is reported in other income (expense), net in our condensed consolidated Statements of Operations. The impact of the proportionate share of net earnings (losses) were immaterial for the three months ended March 31, 2022 and 2021 as were the relative size of Promon’s assets and operations in relation to the Company’s.

We intend to continue to purchase and integrate Promon’s RASP technology into our customer software solutions.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, our management believes that the issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

Note 3 – Revenue

We recognize revenue in accordance with ASC 606 “Revenue from Contracts with Customers” (“Topic 606”), as described below.

Disaggregation of Revenues

The following tables present our revenues disaggregated by major products and services, geographical region and timing of revenue recognition.

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Revenue by major products (in thousands)

Three months ended March 31, 

    

2022

    

2021

Hardware products

$

15,352

$

17,668

Software licenses

14,133

10,777

Subscription

10,117

8,405

Professional services

900

1,402

Maintenance, support, and other

11,945

12,523

Total Revenue

$

52,447

$

50,775

Revenue by location of customer for the three months ended March 31, 2022 and 2021 (in thousands)

    

EMEA

    

Americas

    

APAC

    

Total

 

Total Revenue:

 

  

 

  

 

  

 

  

2022

$

24,876

$

17,249

$

10,322

$

52,447

2021

$

26,989

$

16,528

$

7,258

$

50,775

Percent of Total:

 

  

 

  

 

  

 

  

2022

 

47

%  

 

33

%  

 

20

%  

 

100

%

2021

 

53

%  

 

33

%  

 

14

%  

 

100

%

Timing of revenue recognition (in thousands)

Three Months ended March 31,

2022

    

2021

Products and Licenses transferred at a point in time

$

29,485

$

28,445

Services transferred over time

22,962

22,330

Total Revenue

$

52,447

$

50,775

Contract balances (in thousands)

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.

March 31,

December 31,

in thousands

2022

2021

Receivables, inclusive of trade and unbilled

$

35,704

$

56,612

Contract Assets (current and non-current)

$

5,728

$

4,889

Contract Liabilities (Deferred Revenue current and non-current)

$

58,314

$

63,742

Contract assets relate primarily to multi-year term license arrangements and the remaining contractual billings. These contract assets are transferred to receivables when the right to billing occurs, which is normally over 3-5 years. The contract liabilities primarily relate to the advance consideration received from customers for subscription and maintenance services. Revenue is recognized for these services over time.

As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less. We do not typically include extended payment terms in our contracts with customers.

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Revenue recognized during the three months ended March 31, 2022 included $18.9 million that was included on the December 31, 2021 balance sheet in contract liabilities. Deferred revenue increased in the same period due to timing of annual renewals.

Transaction price allocated to the remaining performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

in thousands

2022

2023

2024

Beyond 2024

Total

Future revenue related to current unsatisfied performance obligations

$

26,140

$

18,421

$

9,547

$

5,581

$

59,689

The Company applies practical expedients and does not disclose information about remaining performance obligations (a) that have original expected durations of one year or less, or (b) where revenue is recognized as invoiced.

Costs of obtaining a contract

The Company incurs incremental costs related to commissions, which can be directly tied to obtaining a contract. The Company capitalizes commissions associated with certain new contracts and amortizes the costs over a period of benefit based on the transfer of goods or services that we have determined to be up to seven years. The amortization is reflected in Sales and Marketing in the Statements of Operations. We determined the period of benefit by taking into consideration our customer contracts, our technology and other factors, including customer attrition. Commissions are earned upon invoicing to the customer. For contracts with multiple year payment terms, as the commissions that are payable after year 1 are payable based on continued employment, they are expensed when incurred. Commissions and amortization expense are included in Sales and Marketing expenses on the condensed consolidated statements of operations.

Applying the practical expedient, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period for the assets that the Company otherwise would have recognized is one year or less. These costs are included in Sales and Marketing expense in the condensed consolidated statements of operations.

The following tables provide information related to the capitalized costs and amortization recognized in the current and prior period:

in thousands

March 31, 2022

December 31, 2021

Capitalized costs to obtain contracts, current

$

2,246

$

2,134

Capitalized costs to obtain contracts, non-current

$

8,781

$

8,675

Three months ended March 31,

in thousands

2022

2021

Amortization of capitalized costs to obtain contracts

$

541

$

310

Impairments of capitalized costs to obtain contracts

$

-

$

-

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Note 4 – Inventories, net

Inventories, net, consisting principally of hardware and component parts, are stated at the lower of cost or net realizable value. Cost is determined using the FIFO method.

Inventories, net are comprised of the following:

March 31, 

December 31, 

    

2022

    

2021

(in thousands)

Component parts

$

4,263

$

3,841

Work-in-process and finished goods

 

6,125

 

6,504

Total

$

10,388

$

10,345

Note 5 – Goodwill

Goodwill activity for the three months ended March 31, 2022 consisted of the following:

in thousands

Net balance at December 31, 2021

    

$

96,174

Net foreign currency translation

 

(1,588)

Net balance at March 31, 2022

$

94,586

No impairment of goodwill was recorded during the three months ended March 31, 2022 or March 31, 2021.

Note 6 – Intangible Assets

Intangible asset activity for the three months ended March 31, 2022 is detailed in the following table.

    

in thousands

    

Acquired Technology

    

Customer Relationships

    

              Other              

    

Total Intangible Assets

Net balance at December 31, 2021

$

753

$

19,161

$

1,356

$

21,270

Additions

 

3

6

 

9

Net foreign currency translation

 

(11)

(155)

(3)

 

(169)

Amortization expense

 

(376)

(988)

(18)

 

(1,382)

Net balance at March 31, 2022

$

369

$

18,018

$

1,341

$

19,728

March 31, 2022 balance at cost

$

42,903

$

39,455

$

13,542

$

95,900

Accumulated amortization

 

(42,534)

 

(21,437)

 

(12,201)

 

(76,172)

Net balance at March 31, 2022

$

369

$

18,018

$

1,341

$

19,728

Certain intangible assets are denominated in functional currencies besides the U.S. dollar and are subject to currency fluctuations. No impairment of intangible assets was recorded during the three months ended March 31, 2022 or March 31, 2021.

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Note 7 – Property and Equipment

The major classes of property and equipment are as follows:

in thousands

    

March 31, 2022

    

December 31, 2021

Office equipment and software

$

14,502

$

14,327

Leasehold improvements

10,236

10,296

Furniture and fixtures

 

4,198

 

4,223

Total

 

28,936

 

28,846

Accumulated depreciation

 

(18,683)

 

(18,089)

Property and equipment, net

$

10,253

$

10,757

Depreciation expense was $0.7 million and $0.7 million and for the three months ended March 31, 2022 and March 31, 2021, respectively.

Note 8 – Fair Value Measurements

The fair values of cash equivalents, receivables, net, and accounts payable approximate their carrying amounts

due to their short duration. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing base upon its own market assumptions.

The Company classifies its investments in debt securities as available-for-sale. In accordance with ASU 2016-13, Measurement of Credit Losses on Financial Instruments, we review available-for-sale debt securities for impairments related to losses and other factors each quarter. Unrealized gains and losses are recorded to other comprehensive income. The unrealized gains and losses on the available-for-sale debt securities were not material as of March 31, 2022 and December 31, 2021.

The estimated fair value of our financial instruments has been determined by using available market information and appropriate valuation methodologies, as defined in ASC 820, Fair Value Measurements. The fair value hierarchy consists of the following three levels:

Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived primarily from or corroborated by observable market data.
Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

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The following tables summarize assets that are measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021:

Fair Value Measurement at Reporting Date Using

in thousands

March 31, 2022

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Assets:

U.S. Treasury Notes

$

4,010

-

$

4,010

-

Corporate Notes / Bonds

$

9,378

-

$

9,378

-

Commercial Paper

$

9,959

-

$

9,959

-

U.S. Treasury Bills

$

12,955

-

$

12,955

-

Fair Value Measurement at Reporting Date Using

in thousands

December 31, 2021

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Assets:

U.S. Treasury Notes

$

4,038

-

$

4,038

-

Corporate Notes / Bonds

$

9,585

-

$

9,585

-

Commercial Paper

$

8,996

-

$

8,996

-

U.S. Treasury Bills

$

9,990

-

$

9,990

-

U.S. Government Agencies

$

2,499

-

$

2,499

-

Note 9 – Allowance for credit losses

The changes in the allowance for credit losses during the three months ended March 31, 2022 were as follows:

in thousands

Balance at December 31, 2021

$

1,419

Provision

875

Write-offs

19

Net foreign currency translation

(21)

Balance at March 31, 2022

$

2,292

Note 10 – Leases

Operating lease cost details for the three months ended March 31, 2022 and 2021 are as follows:

Three months ended

March 31, 

    

2022

    

2021

    

(in thousands)

Building rent

$

575

$

570

Automobile rentals

220

333

Total net operating lease costs

$

795

$

903

At March 31, 2022, the weighted average remaining lease term for our operating leases is 6.3 years. The weighted average discount rate for our operating leases is 5%.

During the three months ended March 31, 2022, there were $0.9 million of operating cash payments for lease liabilities, and $0.4 million of right-of use assets obtained in exchange for new lease liabilities.

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Maturities of our operating leases are as follows:

As of March 31, 2022

(in $ thousands)

2022

$

2,216

2023

2,627

2024

1,885

2025

1,776

2026

1,714

Later years

4,391

Less imputed interest

(2,333)

Total lease liabilities

$

12,276