OneSpan Inc. [OSPN] Filings

10-Q 1 ospn-20240630.htm 10-Q ospn-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________

FORM 10-Q

_____________________________________

(Mark One)


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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2024


o			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.)

1 Marina Park Drive, Unit 1410

Boston, Massachusetts 02210

(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 Stock, par value $0.001 per share

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 x No o

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 x No o

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 definitions 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. o

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

There were 37,871,062 shares of Common Stock, $0.001 par value per share, outstanding at July 26, 2024.

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OneSpan Inc.

Form 10-Q

For the Quarter Ended June 30, 2024

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PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 3 0 , 2024 and 2023	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 3 0 , 2024 and 2023	5

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 3 0 , 2024 and 2023	6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 3 0 , 2024 and 2023	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39

Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	40

Item 6.	Exhibits	41

SIGNATURES		42

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

OneSpan Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)


	June 30,		December 31,
	2024		2023
ASSETS
Current assets
Cash and cash equivalents	$	63,843	$	43,001
Restricted cash	460		529

Accounts receivable, net of allowances of $1,506 at June 30, 2024 and $1,536 at December 31, 2023	43,799		64,387
Inventories, net	12,507		15,553
Prepaid expenses	6,126		6,575
Contract assets	6,036		5,139
Other current assets	11,096		11,159
Total current assets	143,867		146,343
Property and equipment, net	20,251		18,722
Operating lease right-of-use assets	7,262		6,171
Goodwill	93,072		93,684
Intangible assets, net of accumulated amortization	8,679		10,832
Deferred income taxes	1,693		1,721
Other assets	12,039		11,718
Total assets	$	286,863	$	289,191
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	14,593	$	17,452
Deferred revenue	55,928		69,331
Accrued wages and payroll taxes	12,386		14,335
Short-term income taxes payable	2,521		2,646
Other accrued expenses	8,124		10,684
Deferred compensation	151		382
Total current liabilities	93,703		114,830
Long-term deferred revenue	3,374		4,152
Long-term lease liabilities	7,003		6,824

Deferred income taxes	992		1,067
Other long-term liabilities	3,212		3,177
Total liabilities	108,284		130,050
Commitments and contingencies
Stockholders' equity
Preferred stock: 500 shares authorized, none issued and outstanding at June 30, 2024 and December 31, 2023	—		—
Common stock: $0.001 par value per share, 75,000 shares authorized; 41,510 and 41,243 shares issued; 37,786 and 37,519 shares outstanding at June 30, 2024 and December 31, 2023, respectively	38		38
Additional paid-in capital	120,237		118,620
Treasury stock, at cost: 3,724 shares outstanding at June 30, 2024 and December 31, 2023	(47,377)		(47,377)
Retained earnings	118,960		98,939
Accumulated other comprehensive loss	(13,279)		(11,079)
Total stockholders' equity	178,579		159,141
Total liabilities and stockholders' equity	$	286,863	$	289,191

See accompanying notes to condensed consolidated financial statements.

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OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue
Product and license	$	32,438	$	30,583	$	70,236	$	63,729
Services and other	28,486		25,150		55,531		49,611
Total revenue	60,924		55,733		125,767		113,340

Cost of goods sold
Product and license	11,247		14,038		20,953		25,326
Services and other	9,336		7,401		17,078		14,434
Total cost of goods sold	20,583		21,439		38,031		39,760

Gross profit	40,341		34,294		87,736		73,580

Operating costs
Sales and marketing	10,510		19,713		23,437		39,724
Research and development	8,341		10,090		16,600		19,553
General and administrative	11,557		15,826		21,564		32,479
Restructuring and other related charges	1,711		5,846		3,208		6,552
Amortization of intangible assets	585		583		1,180		1,166

Total operating costs	32,704		52,058		65,989		99,474

Operating income (loss)	7,637		(17,764)		21,747		(25,894)

Interest income, net	521		585		622		1,088
Other income (expense), net	331		29		622		(11)

Income (loss) before income taxes	8,489		(17,150)		22,991		(24,817)
Provision for income taxes	1,936		601		2,970		1,290

Net income (loss)	$	6,553	$	(17,751)	$	20,021	$	(26,107)

Net income (loss) per share
Basic	$	0.17	$	(0.44)	$	0.52	$	(0.65)
Diluted	$	0.17	$	(0.44)	$	0.52	$	(0.65)

Weighted average common shares outstanding
Basic	38,529		40,399		38,229		40,435
Diluted	39,007		40,399		38,680		40,435

See accompanying notes to condensed consolidated financial statements.

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OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net income (loss)	$	6,553	$	(17,751)	$	20,021	$	(26,107)
Other comprehensive income (loss)
Cumulative translation adjustment, net of tax	(488)		1,025		(2,143)		2,740
Pension adjustment, net of tax	(29)		(61)		(59)		(121)
Unrealized gain (loss) on available-for-sale securities	2		1		2		8
Comprehensive income (loss)	$	6,038	$	(16,786)	$	17,821	$	(23,480)

See accompanying notes to condensed consolidated financial statements.

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OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

For the Six Months Ended June 30, 2024:


Description	Common Stock			Treasury - Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Shares	Amount		Shares	Amount








Balance at December 31, 2023	37,519	$	38	3,724	$	(47,377)	$	118,620	$	98,939	$	(11,079)	$	159,141
Net income	—	—		—	—		—		13,468		—		13,468
Foreign currency translation adjustment, net of tax	—	—		—	—		—		—		(1,655)		(1,655)
Share-based compensation	—	—		—	—		1,540		—		—		1,540
Vesting of restricted stock awards	402	—		—	—		—		—		—		—
Tax payments for stock issuances	(153)	—		—	—		(1,595)		—		—		(1,595)

Pension adjustment, net of tax	—	—		—	—		—		—		(30)		(30)
Balance at March 31, 2024	37,768	$	38	3,724	$	(47,377)	$	118,565	$	112,407	$	(12,764)	$	170,869
Net income	—	—		—	—		—		6,553		—		6,553
Foreign currency translation adjustment, net of tax	—	—		—	—		—		—		(488)		(488)
Share-based compensation	—	—		—	—		1,908		—		—		1,908
Vesting of restricted stock awards	29	—		—	—		—		—		—		—
Tax payments for stock issuances	(11)	—		—	—		(236)		—		—		(236)
Unrealized gain (loss) on available-for-sale securities	—	—		—	—		—		—		2		2

Pension adjustment, net of tax	—	—		—	—		—		—		(29)		(29)
Balance at June 30, 2024	37,786	$	38	3,724	$	(47,377)	$	120,237	$	118,960	$	(13,279)	$	178,579

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For the Six Months Ended June 30, 2023:


Description	Common Stock			Treasury - Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Shares	Amount		Shares	Amount








Balance at December 31, 2022	39,726	$	40	1,038	$	(18,222)	$	107,305	$	128,738	$	(14,550)	$	203,311
Net loss	—	—		—	—		—		(8,356)		—		(8,356)
Foreign currency translation adjustment, net of tax	—	—		—	—		—		—		1,715		1,715
Share-based compensation	—	—		—	—		3,812		—		—		3,812
Vesting of restricted stock awards	329	—		—	—		—		—		—		—
Tax payments for stock issuances	(105)	—		—	—		(1,098)		—		—		(1,098)
Unrealized gain (loss) on available-for-sale-securities	—	—		—	—		—		—		7		7
Pension adjustment, net of tax	—	—		—	—		—		—		(60)		(60)
Balance at March 31, 2023	39,950	$	40	1,038	$	(18,222)	$	110,019	$	120,382	$	(12,888)	$	199,331
Net loss	—	—		—	—		—		(17,751)		—		(17,751)
Foreign currency translation adjustment, net of tax	—	—		—	—		—		—		1,025		1,025
Share-based compensation							4,503						4,503
Vesting of restricted stock awards	44	—		—	—		—		—		—		—
Tax payments for stock issuances	(15)	—		—	—		(449)		—		—		(449)
Unrealized gain (loss) on available-for-sale-securities	—	—		—	—		—		—		1		1

Pension adjustment, net of tax	—	—		—	—		—		—		(61)		(61)
Balance at June 30, 2023	39,979	$	40	1,038	$	(18,222)	$	114,073	$	102,631	$	(11,923)	$	186,599

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OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net income (loss)	$	20,021	$	(26,107)
Adjustments to reconcile net income (loss) from operations to net cash used in operations:
Depreciation and amortization of intangible assets	4,145		2,835

Write-off of intangible assets	804		—
Write-off of property and equipment, net	955		2,087
Impairments of inventories, net	—		1,568

Deferred tax benefit	(108)		66
Stock-based compensation	3,448		8,315
Allowance for credit losses	(31)		(49)
Changes in operating assets and liabilities:
Accounts receivable	19,877		27,356
Inventories, net	2,621		(4,299)
Contract assets	(1,666)		(1,017)
Accounts payable	(2,634)		35
Income taxes payable	(107)		(2,638)
Accrued expenses	(4,046)		(1,728)
Deferred compensation	(231)		(122)
Deferred revenue	(13,662)		(13,940)
Other assets and liabilities	(124)		1,248
Net cash provided by (used in) operating activities	29,262		(6,390)

Cash flows from investing activities:

Maturities of short-term investments	—		2,330
Additions to property and equipment	(5,321)		(6,491)
Additions to intangible assets	(39)		(14)
Cash paid for acquisition of business	—		(1,800)

Net cash used in investing activities	(5,360)		(5,975)

Cash flows from financing activities:
Contingent payment related to acquisition	(200)		—
Tax payments for restricted stock issuances	(1,831)		(1,546)

Net cash used in financing activities	(2,031)		(1,546)

Effect of exchange rate changes on cash	(1,098)		624

Net increase (decrease) in cash	20,773		(13,287)
Cash, cash equivalents, and restricted cash, beginning of period	43,530		97,374
Cash, cash equivalents, and restricted cash, end of period	$	64,303	$	84,087

See accompanying notes to condensed consolidated financial statements.

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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 provides security, identity, electronic signature (“e-signature”) and digital workflow solutions that protect and facilitate digital transactions and agreements. The Company delivers products and services that automate and secure customer-facing and revenue-generating business processes for use cases ranging from simple transactions to workflows that are complex or require higher levels of security. The Company’s solutions help its customers ensure the integrity of the people and records associated with digital agreements, transactions, and interactions in industries including banking, financial services, healthcare, and professional services. 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.).

Business Transformation

In December 2021, the Company's Board of Directors approved a restructuring plan (the "restructuring plan") designed to advance the Company's operating model, streamline its business, improve efficiency, and enhance its capital resources. The first phase of this restructuring plan began and was substantially completed during the three months ended March 31, 2022. In May 2022, the Company's Board of Directors announced a three-year strategic transformation plan that began on January 1, 2023 (the "2022 strategic plan"). In conjunction with the 2022 strategic plan and to enable a more efficient capital deployment model, effective with the quarter ended June 30, 2022, the Company began reporting under the following two lines of business, which are its reportable operating segments: Digital Agreements and Security Solutions. For further information regarding the Company’s reportable segments, see Note 3, Segment Information.

During the quarter ended June 30, 2023, the Company determined that it was unlikely to achieve the revenue growth levels set forth in its 2022 strategic plan within the contemplated three-year timeframe. A number of factors contributed to the challenges achieving the originally planned growth levels, particularly in Digital Agreements, on the timeframes set forth in the 2022 strategic plan.

In response to these challenges, the Company modified its strategy to focus more heavily on improving profitability margins across the business. To this end, in August 2023, the Company’s Board approved cost reduction actions (the “2023 Actions”) to seek to drive higher levels of profitability while maintaining the Company’s long-term growth potential.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of OneSpan 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 of America (“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, 2023.

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. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

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Estimates and Assumptions

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP 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 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 (expense) income, net. Foreign exchange transaction gains aggregated to $0.1 million and $0.2 million for the three and six months ended June 30, 2024, respectively. Foreign exchange transaction losses aggregated to $0.2 million and $0.4 million for the three and six months ended June 30, 2023, respectively.

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, 2023 filed with the SEC on March 6, 2024 that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Restricted Cash

The Company is party to lease agreements that require letters of credit to secure the obligations which totaled $0.5 million and $0.4 million at June 30, 2024 and December 31, 2023, respectively. Additionally, the Company maintained a cash guarantee with a payroll vendor in the amount of $0 and $0.1 million at June 30, 2024 and December 31, 2023, respectively. The restricted cash related to the letters of credit and the payroll vendor cash guarantee is recorded in "Restricted cash" on the condensed consolidated balance sheets.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. Public business entities are required to adopt for annual fiscal periods beginning after December 15, 2024 and early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures.

Note 3 – Segment Information

Segments are defined as components of a company that engage in business activities from which they may earn revenues and incur expenses, and for which separate financial information is available and is evaluated regularly by the

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chief operating decision maker (CODM), in deciding how to allocate resources and in assessing performance. The Company’s CODM is its Chief Executive Officer.

•Digital Agreements. Digital Agreements consists of solutions that enable our clients to secure and automate business processes associated with their digital agreement and customer transaction lifecycles that require consent, non-repudiation and compliance. These solutions, which are largely cloud-based, include OneSpan Sign e-signature, OneSpan Notary, and Identity Verification. This segment also includes costs attributable to our transaction cloud platform.

•Security Solutions. Security Solutions consists of our broad portfolio of software products, software development kits (SDKs) and Digipass authenticator devices that are used to build applications designed to defend against attacks on digital transactions across online environments, devices, and applications. The software products and SDKs included in the Security Solutions segment are largely on-premises software products and include multi-factor authentication and transaction signing solutions, such as mobile application security and mobile software tokens.

Segment operating income consists of the revenues generated by a segment, less the direct costs of revenue, sales and marketing, research and development expenses, amortization expense, and restructuring and other related charges that are incurred directly by a segment. Unallocated corporate costs include costs related to administrative functions that are performed in a centralized manner that are not directly attributable to a particular segment.

The tables below set forth information about the Company’s reportable operating segments for the three and six months ended June 30, 2024 and 2023, along with the items necessary to reconcile the segment information to the totals reported in the accompanying condensed consolidated financial statements.


	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except percentages)	2024			2023			2024			2023
Digital Agreements
Revenue	$	15,463		$	11,862		$	29,876		$	23,414
Gross profit (1)	$	9,741		$	8,583		$	19,632		$	17,031
Gross margin	63		%	72		%	66		%	73		%
Operating loss (2)	$	(155)		$	(7,121)		$	(420)		$	(13,154)

Security Solutions
Revenue	$	45,461		$	43,871		$	95,891		$	89,926
Gross profit (3)	$	30,600		$	25,711		$	68,104		$	56,549
Gross margin	67		%	59		%	71		%	63		%
Operating income (4)	$	20,693		$	8,523		$	46,571		$	24,154

Total Company:
Revenue	$	60,924		$	55,733		$	125,767		$	113,340
Gross profit	$	40,341		$	34,294		$	87,736		$	73,580
Gross margin	66		%	62		%	70		%	65		%

Statements of Operations reconciliation:
Segment operating income	$	20,538		$	1,402		$	46,151		$	11,000
Corporate operating expenses not allocated at the segment level	12,901			19,166			24,404			36,894
Operating income (loss)	$	7,637		$	(17,764)		$	21,747		$	(25,894)
Interest income, net	521			585			622			1,088
Other income (expense), net	331			29			622			(11)
Income (loss) before income taxes	$	8,489		$	(17,150)		$	22,991		$	(24,817)

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(1) Digital Agreements gross profit includes intangible asset write-off of $0.8 million and internal capitalized software write-off of $0.7 million (see Note 7, Intangible Assets and Note 8, Property and Equipment, net ) for the three and six months ended June 30, 2024.

(2) Digital Agreements operating loss includes $0.6 million and $1.1 million of amortization of intangible assets expense for the three and six months ended June 30, 2024, respectively, and $0.6 million and $1.1 million of amortization of intangible assets expense for the three and six months ended June 30, 2023, respectively.

(3) Security Solutions gross profit includes $1.6 million of inventory impairments related to discontinuation of investments in our Digipass CX product for the three and six months ended June 30, 2023 (see Note 5, Inventories, net).

(4) Security Solutions operating income includes $1.6 million of inventory impairments and $1.4 million of capitalized software write-offs related to discontinuation of investments in our Digipass CX product for the three and six months ended June 30, 2023 (see Note 5, Inventories, net and Note 8, Property and Equipment, net).

The following tables illustrate the disaggregation of revenues by category and services, including a reconciliation of the disaggregated revenues to revenues from the Company’s two reportable operating segments for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,
	2024				2023
(In thousands)	Digital Agreements		Security Solutions		Digital Agreements		Security Solutions
Subscription	$	14,785	$	14,857	$	10,486	$	12,499
Maintenance and support	490		9,742		1,130		10,473
Professional services and other (1)	188		1,123		246		1,253
Hardware products	—		19,739		—		19,646
Total Revenue	$	15,463	$	45,461	$	11,862	$	43,871


	Six Months Ended June 30,
	2024				2023
(In thousands)	Digital Agreements		Security Solutions		Digital Agreements		Security Solutions
Subscription	$	28,597	$	41,039	$	20,834	$	32,107
Maintenance and support	994		19,808		2,126		20,638
Professional services and other (1)	285		2,728		454		2,669
Hardware products	—		32,316		—		34,512
Total Revenue	$	29,876	$	95,891	$	23,414	$	89,926

(1) Professional services and other includes perpetual software licenses revenue, which was approximately 1% of total revenue for both the three and six months ended June 30, 2024 and approximately 1% of total revenue for both the three and six months ended June 30, 2023.

The Company allocates goodwill by reporting unit, in accordance with Accounting Standards Codification (ASC) 350 – Goodwill and Other. Asset information by segment is not reported to or reviewed by the CODM to allocate resources, and therefore, the Company has not disclosed asset information for the segments.

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Note 4 – Revenue from Contracts with Customers

The following tables present the Company’s revenues disaggregated by major products and services, geographical region and timing of revenue recognition.

Revenue by major products and services


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2024		2023		2024		2023
Subscription	$	29,642	$	22,985	$	69,636	$	52,941
Maintenance and support	10,232		11,603		20,802		22,764
Professional services and other (1)	1,311		1,499		3,013		3,123
Hardware products	19,739		19,646		32,316		34,512
Total Revenue	$	60,924	$	55,733	$	125,767	$	113,340

Revenue by location of customer for the Three and Six Months Ended June 30, 2024 and 2023

We classify our sales by customer location in three geographic regions: 1) EMEA, which includes Europe, Middle East and Africa; 2) the Americas, which includes North, Central, and South America; and 3) Asia Pacific (APAC), which includes Australia, New Zealand, and India. The breakdown of revenue in each of our major geographic areas was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except percentages)	2024			2023			2024			2023
Revenue
EMEA	$	25,194		$	26,539		$	57,036		$	54,359
Americas	21,099			18,331			42,443			38,829
APAC	14,631			10,863			26,288			20,152
Total revenue	$	60,924		$	55,733		$	125,767		$	113,340

% of Total Revenue
EMEA	41		%	48		%	45		%	48		%
Americas	35		%	33		%	34		%	34		%
APAC	24		%	19		%	21		%	18		%

Timing of revenue recognition


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2024		2023		2024		2023
Products and licenses transferred at a point in time	$	32,438	$	30,583	$	70,236	$	63,729
Services transferred over time	28,486		25,150		55,531		49,611
Total Revenue	$	60,924	$	55,733	$	125,767	$	113,340

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Contract balances

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers as of June 30, 2024 and December 31, 2023:


	June 30,		December 31,
(In thousands)	2024		2023
Receivables, inclusive of trade and unbilled	$	43,799	$	64,387
Contract Assets (current and non-current)	$	6,864	$	5,322
Contract Liabilities (Deferred Revenue current and non-current)	$	59,302	$	73,483

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 bill occurs over a 2- to 5-year period. 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, the Company does not adjust the promised amount of consideration for the effects of a significant financing component when it is expected, at contract inception, that the period between the Company's 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. Extended payment terms are not typically included in contracts with customers.

Revenue recognized during the six months ended June 30, 2024 included $48.2 million that was included on the December 31, 2023 consolidated balance sheet in contract liabilities. Deferred revenue decreased in the same period due to timing of annual renewals.

Transaction price allocated to the remaining performance obligations

Remaining performance obligations represent the revenue that is expected to be recognized in future periods related to performance obligations that are unsatisfied, or partially unsatisfied, as of the end of the period. The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2024:


(In thousands)	2024		2025		2026		Beyond 2026		Total
Future revenue related to current unsatisfied performance obligations	$	31,071	$	38,266	$	21,380	$	7,377	$	98,094

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 up to 7 years, which is the determined benefit period based on the transfer of goods or services. The Company determined the period of benefit by taking into consideration the customer contracts, its technology and other factors, including customer attrition. Commissions are earned upon invoicing to the customer. For contracts with multiple year payment terms, because 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” expense in the condensed consolidated statements of operations.

As a 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.

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


(In thousands)	June 30, 2024		December 31, 2023
Capitalized costs to obtain contracts, current	$	3,892	$	3,503
Capitalized costs to obtain contracts, non-current	$	11,126	$	10,766


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2024		2023		2024		2023
Amortization of capitalized costs to obtain contracts	$	942	$	754	$	1,826	$	1,485

Note 5 – 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 first-in, first-out (FIFO) method.

Inventories, net consist of the following:


(In thousands)	June 30, 2024		December 31, 2023
Component parts (1)	$	6,469	$	8,511
Finished goods	6,038		7,042
Total	$	12,507	$	15,553

(1) In conjunction with the Company's decision to discontinue investments in its Digipass CX product (see Note 16 Restructuring and Other Related Charges), non-cash impairment charges of $1.6 million for component parts, net, were recorded in "Product and license cost of goods sold" on the condensed consolidated statements of operations for the three months ended June 30, 2023. In November 2023, the Company launched a new product line, Digipass FX1 BIO, and identified the component parts previously purchased for the Digipass CX products that will be used for Digipass FX1 BIO products. For the year ended December 31, 2023, the Company reversed $1.4 million of the previous write-off to "Cost of goods, sold - Product license" within the consolidated statements of operations.

Note 6 – Goodwill

The following table presents the changes in goodwill during the six months ended June 30, 2024:


(In thousands)	Digital Agreements		Security Solutions		Total
Net balance at December 31, 2023	$	20,893	$	72,791	$	93,684
Foreign currency exchange rate effect	(133)		(479)		(612)

Net balance at June 30, 2024	$	20,760	$	72,312	$	93,072

No impairment of goodwill was recorded during the six months ended June 30, 2024 and 2023.

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Note 7 – Intangible Assets

Intangible assets as of June 30, 2024 and December 31, 2023 consist of the following:


		As of June 30, 2024				As of December 31, 2023
(In thousands)	Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Acquired technology	3 to 7	$	42,248	$	42,082	$	43,869	$	42,712
Customer relationships	5 to 12	34,721		27,020		34,773		25,960
Patents, trademarks, and other	10 to 20	13,112		12,300		13,103		12,241
Total		$	90,081	$	81,402	$	91,745	$	80,913

Amortization expense was $0.7 million and $1.4 million for the three and six months ended June 30, 2024, respectively, compared to $0.7 million and $1.3 million for the three and six months ended June 30, 2023, respectively. Amortization expense includes cost of sales amortization expense directly related to delivering cloud subscription revenue of $0.1 million and $0.2 million for the three and six months ended June 30, 2024, respectively, and $0.1 million and $0.2 million for the three and six months ended June 30, 2023, respectively. Costs are recorded in "Services and other cost of goods sold" on the condensed consolidated statements of operations.

Certain intangible assets are denominated in functional currencies besides the U.S. dollar and are subject to currency fluctuations.

In connection with the continued execution of cost reductions, during the quarter ended June 30, 2024, the Company decided to stop any incremental development investments supporting its previously acquired blockchain technology and related commercial efforts (see Note 16, Restructuring and Other Related Charges). This asset contributed no revenue as it was still in its investment stage. As a result, the Company wrote-off $0.8 million associated with the remaining unamortized value of this intangible asset in "Services and other cost of goods sold" on the condensed consolidated statements of operations for the three and six months ended June 30, 2024.

There were no other write-offs or impairments of intangible assets recorded during the six months ended June 30, 2024 and 2023.

Note 8 – Property and Equipment, net

The following table presents the major classes of property and equipment, net, as of June 30, 2024 and December 31, 2023:


(In thousands)	June 30, 2024		December 31, 2023
Office equipment and software	$	8,799	$	8,574
Leasehold improvements	7,589		7,459
Furniture and fixtures	3,637		3,658
Capitalized software	16,217		12,560
Total	36,242		32,251
Accumulated depreciation	(15,991)		(13,529)
Property and equipment, net	$	20,251	$	18,722

Depreciation expense was $1.4 million and $2.8 million for the three and six months ended June 30, 2024, respectively, compared to $0.8 million and $1.5 million for the three and six months ended June 30, 2023, respectively. Depreciation expense includes cost of sales depreciation expense directly related to delivering cloud subscription revenue of $0.8 million and $1.5 million for the three and six months ended June 30, 2024, respectively, and $0.1 million for both the three and six months ended June 30, 2023. Costs are recorded in "Services and other cost of goods sold" on the condensed consolidated statements of operations.

In connection with the continued execution of cost reductions, the Company decided to stop any incremental development investments supporting its previously acquired blockchain technology and related commercial efforts. As a

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result, the Company wrote-off the internal capitalized software used to build out connection points for its blockchain technology and its e-signature product (see Note 16, Restructuring and Other Related Charges). The total write off amounted to $1.0 million within property and equipment, net, of which $0.7 million was recognized in "Services and other cost of goods sold" on the condensed consolidated statements of operations for the three and six months ended June 30, 2024. The remaining write-off amount of $0.3 million was recognized in "Restructuring and other related charges" on the condensed consolidated statements of operations for the three and six months ended June 30, 2024.

As part of the Company's decision to discontinue investments in its Digipass CX product (see Note 16, Restructuring and Other Related Charges), write-offs of $1.4 million for capitalized software were recorded in "Restructuring and other related charges" on the condensed consolidated statements of operations for the three months ended June 30, 2023.

In conjunction with the Company's Chicago office lease abandonment (see Note 16, Restructuring and Other Related Charges), write-offs of $0.6 million for leasehold improvements and $0.1 million for office equipment and software were recorded in "Restructuring and other related charges" on the condensed consolidated statements of operations for the three months ended June 30, 2023.

Note 9 – Fair Value Measurements

The fair values of cash equivalents, accounts receivables, 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 estimated fair value of 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.

The following tables summarize the Company’s financial assets by level in the fair value hierarchy, which are measured at fair value on a recurring basis, as of June 30, 2024 and December 31, 2023:


	Fair Value Measurement at Reporting Date Using
(In thousands)	June 30, 2024		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 Bills	$	1,999	$	1,999	$	—	$	—


Money Market Funds	$	45,793	$	45,793	$	—	$	—


	Fair Value Measurement at Reporting Date Using
(In thousands)	December 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money Market Funds	$	8,496	$	8,496	$	—	$	—

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The Company classifies its investments in debt securities as available-for-sale. The Company reviews available-for-sale debt securities for impairments related to losses and other factors each quarter. The unrealized gains and losses on the available-for-sale debt securities were not material as of June 30, 2024 and December 31, 2023. The Company did not have any financial liabilities that are measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023.

The Company’s non-financial assets and liabilities, which include goodwill and long-lived assets held and used, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required, the Company would evaluate the non-financial assets and liabilities for impairment. If an impairment was to occur, the asset or liability would be recorded at its estimated fair value.

Note 10 – Allowance for Credit Losses

In accordance with accounting standards updates ("ASU") No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” the Company evaluates its allowance based on expected losses rather than incurred losses, which is known as the current expected credit loss (“CECL”) model. The allowance is determined using the loss rate approach and is measured on a collective (pool) basis when similar risk characteristics exist. Where financial instruments do not share risk characteristics, they are evaluated on an individual basis. The allowance is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The changes in the allowance for credit losses during the six months ended June 30, 2024 were as follows:


(In thousands)
Balance at December 31, 2023	$	1,536
Provision	2
Write-offs	(34)
Net foreign currency translation	2
Balance at June 30, 2024	$	1,506

Note 11 – Leases

Operating lease cost details for the three and six months ended June 30, 2024 and 2023 are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2024		2023		2024		2023
Building rent	$	204	$	478	$	516	$	1,001
Automobile rentals	330		316		677		566
Total net operating lease costs	$	534	$	794	$	1,193	$	1,567

At June 30, 2024, the Company’s weighted average remaining lease term for its operating leases is 5.6 years, and the weighted average discount rate for its operating leases is 6%.

During the six months ended June 30, 2024, there were $1.3 million of operating cash payments for lease liabilities and $2.0 million of right-of-use assets obtained in exchange for new lease liabilities.

In October 2023, the Company signed a lease agreement to lease new office space in Brussels. The lease agreement consisted of a nine-year lease and commenced in the second quarter of 2024.

As part of its multi-year restructuring plan (see Note 16, Restructuring and Other Related Charges), the Company vacated its Chicago office space and abandoned the underlying leases during the three months ended June 30, 2023. The Company accrued a $1.4 million early lease termination fee, which is reflected on the condensed consolidated statements of operations for the three months ended June 30, 2023 in "Restructuring and other related charges". The underlying lease right-of-use asset and lease liability for the Chicago leased office space were written off, and a $0.3 million gain related to

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rent concessions and tenant improvement allowances was recorded on the condensed consolidated statement of operations for the three months ended June 30, 2023 in "Restructuring and other related charges".

Maturities of the Company’s operating leases as of June 30, 2024 are as follows:


(In thousands)	As of June 30, 2024
2024	$	1,137
2025	1,864
2026	1,854
2027	1,671
2028	1,566
Later years	2,167
Less imputed interest	(1,558)
Accrued lease termination fees	714
Total lease liabilities	$	9,415

Note 12 – Income Taxes

The Company’s estimated annual effective tax rate for 2024, before discrete items and excluding entities with a valuation allowance, is expected to be approximately 14%. The Company’s global effective tax rate is lower than the U.S. statutory tax rate of 21% primarily due to the release of valuation allowances for the current year earnings for companies with a valuation allowance, offset by nondeductible expenses. In addition, the Company received a favorable response in connection with its Mutual Agreement Procedure ("MAP") request related to a Belgium audit concluded in 2020. A tax benefit of $1.1 million was recorded for the six months ended June 30, 2024. The ultimate tax expense will depend on the mix of earnings in various jurisdictions. Income taxes, net of refunds, of $4.4 million and $3.8 million were paid during the six months ended June 30, 2024 and 2023, respectively.

Management assesses the need for a valuation allowance on a regular basis, weighing all positive and negative evidence to determine whether a deferred tax asset will be fully or partially realized. In evaluating the realizability of deferred tax assets, significant pieces of negative evidence such as 3-year cumulative losses are considered. Management also reviews reversal patterns of temporary differences to determine if the Company would have sufficient taxable income due to the reversal of temporary differences to support the realization of deferred tax assets.

Certain operations have incurred net operating losses (NOLs), which are currently subject to a valuation allowance. These NOLs may become deductible to the extent these operations become profitable. For each of its operations, the Company evaluates whether it is more likely than not that the tax benefits related to NOLs will be realized. As part of this evaluation, the Company considers evidence such as tax planning strategies, historical operating results, forecasted taxable income, and recent financial performance. In the year that certain operations record a loss, the Company does not recognize a corresponding tax benefit, thus increasing its effective tax rate, or decreasing its effective tax rate when reporting income in a jurisdiction that has a valuation allowance. Upon determining that it is more likely than not that the NOLs will be realized, the Company will reduce the tax valuation allowances related to these NOLs, which will result in a reduction of its income tax expense and its effective tax rate in the period.

Note 13 – Long-Term Compensation Plan and Stock Based Compensation

Under the OneSpan Inc. 2019 Omnibus Incentive Plan, the Company awards restricted stock units subject to time-based vesting, restricted stock units which are subject to the achievement of future performance criteria and restricted stock units that are subject to the achievement of market conditions. The Company also awards a small amount of cash incentive awards under the 2019 Omnibus Incentive Plan, as shown in the table below.

The Company awarded 0.3 million restricted stock units during the six months ended June 30, 2024, subject to time-based vesting. The fair value of the unissued time-based restricted stock unit grants was $3.5 million at the dates of grant and the grants are being amortized over the vesting periods of one to three years.

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The Company awarded restricted stock units subject to the achievement of service and future performance criteria during the six months ended June 30, 2024, which allows for up to 0.1 million shares to be earned if the performance criteria are achieved at the target level. The fair value of these awards was $1.6 million as the dates of grant and the awards are being amortized over the requisite service period of one to three years. The Company currently believes that approximately 100% of these shares are expected to be earned.

The following table summarizes stock-based compensation expense and other long-term incentive plan compensation expense for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2024		2023		2024		2023
Stock-based compensation (1)	$	1,908	$	4,503	$	3,448	$	8,315
Other long-term incentive plan compensation (2)	86		68		167		179
Total compensation	$	1,994	$	4,571	$	3,615	$	8,494

(1) Stock-based compensation declined for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, and was primarily due to the departure of the former CEO and forfeitures reversed upon his termination and timing of annual grants, as well as lower awards granted for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023.

(2) Other long-term incentive compensation consists of immaterial expense for cash incentive awards granted to employees located in jurisdictions where we do not issue stock-based compensation due to tax, regulatory or similar reasons.

Note 14 – Earnings per Share

Basic earnings per share is based on the weighted average number of shares outstanding and excludes the dilutive effect of common stock equivalents. Diluted earnings per share is based on the weighted average number of shares outstanding and includes the dilutive effect of common stock equivalents to the extent they are not anti-dilutive. Because the Company was in a net loss position for the three and six months ended June 30, 2023, diluted net loss per share for the period excludes the effects of common stock equivalents, which are anti-dilutive.

The details of the earnings per share calculations for the three and six months ended June 30, 2024 and 2023 are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2024		2023		2024		2023
Net income (loss)	$	6,553	$	(17,751)	$	20,021	$	(26,107)
Weighted average common shares outstanding:
Basic	38,529		40,399		38,229		40,435
Incremental shares with dilutive effect:
Restricted stock units	478		—		451		—
Diluted	39,007		40,399		38,680		40,435

Net income (loss) per share:
Basic	$	0.17	$	(0.44)	$	0.52	$	(0.65)
Diluted	$	0.17	$	(0.44)	$	0.52	$	(0.65)

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Note 15 – Legal Proceedings and Contingencies

The Company is subject to certain legal proceedings and claims that have arisen in the ordinary course of business. The Company currently does not anticipate that these matters, if resolved against the Company, will have a material adverse impact on its financial results or financial condition.

The Company accrues loss contingencies when losses become probable and are reasonably estimable. As of June 30, 2024, the Company has recorded an accrual of $1.1 million for loss contingencies associated with employment-termination benefits and landlord dispute matters.

The Company does not accrue for contingent losses that, in the judgment of the Company, are considered to be reasonably possible, but not probable. As of June 30, 2024, the Company does not have any reasonably possible losses for which an estimate can be made. Although the Company intends to defend its legal matters vigorously, the ultimate outcome of these matters is uncertain. However, the Company does not expect the potential losses, if any, to have a material adverse impact on its operating results, cash flows, or financial condition.

Note 16 – Restructuring and Other Related Charges

In December 2021, the Company's Board approved a restructuring plan (“Plan”) designed to advance the Company’s operating model, streamline its business, improve efficiency, and enhance its capital resources. As part of the first phase of the Plan, the Company reduced headcount by eliminating positions in certain areas of its organization. The first phase of the Plan began and was substantially completed during the three months ended March 31, 2022.

In May 2022, the Board approved additional actions related to the Plan through the year ending December 31, 2025. This second phase of the Plan consisted primarily of headcount-related reductions and was designed to achieve the same objectives as the first phase of the Plan.

On August 3, 2023, the Board approved additional cost reduction and restructuring actions (the "2023 Actions") to seek to drive higher levels of Adjusted EBITDA while maintaining the Company's long-term growth potential. The Company has incurred and expects to continue to incur restructuring charges in connection with the 2023 Actions, and anticipates that these charges will consist primarily of charges related to employee transition and severance payments, with a significantly smaller amount of charges relating to vendor contract termination and rationalization actions.

In connection with the Plan (including the 2023 Actions), the Company recorded $3.2 million and $4.7 million in restructuring charges for the three and six months ended June 30, 2024 of which $1.5 million is recorded in "Services and other cost of goods sold" in the condensed consolidated statements of operations for both the three and six months ended June 30, 2024 and $1.7 million and $3.2 million is recorded in “Restructuring and other related charges” in the condensed consolidated statements of operations for the three and six months ended June 30, 2024. The Company recorded $5.8 million and $6.6 million for the three and six months ended June 30, 2023, respectively, in “Restructuring and other related charges” in the condensed consolidated statements of operations.

The main categories of charges are in the following areas:

•Employee costs – include severance, related benefits and retention pay costs incurred as a result of eliminating positions in certain areas of the Company. For the three and six months ended June 30, 2024 employee costs were $1.2 million and $2.6 million, respectively. For the three and six months ended June 30, 2023, employee costs were $2.4 million and $3.1 million, respectively. In total, there were approximately 320 employees, across multiple functions, whose positions were made redundant. The $2.0 million current portion of the restructuring liability at June 30, 2024 is included in "Accrued wages and payroll taxes" in the consolidated balance sheet and is expected to be paid within the next 12 months. The $0.5 million non-current portion is included in "Other long-term liabilities" in the condensed consolidated balance sheet and is expected to be paid within the next 24 months.

•Real estate rationalization costs – includes costs to align the real estate footprint with the Company’s needs. During 2023, the Company vacated its Chicago and Brussels office spaces, which resulted in the abandonment and termination of the underlying leases. The Company accrued contract termination fees of $1.4 million for the Chicago office during the three months ended June 30, 2023. The Company terminated its Brussels warehouse lease, effective July 31, 2024, and accrued $0.3 million in settlement

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costs. For the three months ended June 30, 2024, the Company accrued an additional $0.1 million in costs for the Brussels warehouse lease. The $0.3 million current portion of the restructuring liability at June 30, 2024 is included in "Other accrued expenses" in the condensed consolidated balance sheet and is expected to be paid within the next 12 months. The remaining $0.7 million portion is included in "Current lease liabilities" in the condensed consolidated balance sheet and is expected to be paid within the next 12 months. In conjunction with the abandonment of the Chicago lease, the underlying right-of-use asset and liability were written off and a $0.3 million gain was recorded related to rent concessions and tenant improvement allowances for restructuring. The Company wrote off $0.7 million of fixed assets in its Chicago leased office space (see Note 8, Property and Equipment, net).

•Product and services optimization costs - include costs to discontinue products and services that are no longer advancing the Company's operating model. The Company made the decision to stop any incremental development investments supporting its previously acquired blockchain technology, and related commercial efforts. As a result, the Company wrote-off the related acquired technology and previously capitalized software. The Company recorded a $0.8 million write-off of intangible assets in "Services and other cost of goods sold" on the condensed consolidated statements of operations for the three and six months ended June 30, 2024 (see Note 7, Intangible Assets). For capitalized software, the Company recorded a write-off of $1.0 million of property and equipment, net, of which $0.7 million was recognized in "Services and other cost of goods sold" on the condensed consolidated statements of operations for the three and six months ended June 30, 2024 (see Note 8, Property and Equipment, net). The remaining write-off amount of $0.3 million was recognized in "Restructuring and other related charges" on the condensed consolidated statements of operations for the three and six months ended June 30, 2024. During the three months ended June 30, 2023, the Company made the decision to discontinue investments in its Digipass CX product and incurred $1.4 million of write-offs for capitalized software. The charges are recorded in "Restructuring and other related charges" on the condensed consolidated statements of operations for the three months ended June 30, 2023 (see Note 8, Property and Equipment, net).

•Vendor rationalization costs – include costs for contractually committed services the Company is no longer utilizing. For the three and six months ended June 30, 2024, the Company accrued $0.1 million and $0.2 million and for the three and six months ended June 30, 2023, the Company accrued $0.2 million. These costs are included in "Restructuring and other related charges" on the condensed consolidated statements of operations.

The table below sets forth the changes in the carrying amount of the restructuring charge liability for the six months ended June 30, 2024.


(In thousands)	Employee Costs		Real Estate Rationalization		Total
Balance as of December 31, 2023	$	3,130	$	1,885	$	5,015
Additions	2,789		93		2,882
Payments	(3,572)		(795)		(4,367)
Balance as of June 30, 2024	$	2,347	$	1,183	$	3,530

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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

This commentary should be read in conjunction with the condensed consolidated financial statements and related notes thereto of OneSpan for the three- and six-month periods ended June 30, 2024 and 2023 as well as our consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”).

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of applicable U.S. securities laws, including statements regarding the outcomes we expect from our updated strategic transformation plan and cost reduction and restructuring actions approved in August 2023 and in prior periods, including the ability of those actions to allow us to accelerate Adjusted EBITDA growth and drive value creation by growing revenue efficiently and profitably; estimates concerning the timing and amount of savings, Adjusted EBITDA improvements, and/or restructuring charges that may result from our cost reduction and restructuring actions; our plans for managing our Digital Agreements and Security Solutions segments; expectations about trends in our cost of goods sold, gross margin, and sales and marketing, research and development, and general and administrative expenses; the impact of foreign currency rate fluctuations; expectations regarding sources and uses of cash; and our general expectations regarding our operational or financial performance in the future. Forward-looking statements may be identified by words such as "seek", "believe", "plan", "estimate", "anticipate", “expect", "intend", "continue", "outlook", "may", "will", "should", "could", or "might", and other similar expressions. These forward-looking statements involve risks and uncertainties, as well as assumptions that, 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: our ability to execute our updated strategic transformation plan and cost reduction and restructuring actions in the expected timeframe and to achieve the outcomes we expect from them; unintended costs and consequences of our cost reduction and restructuring actions, including higher than anticipated restructuring charges, disruption to our operations, litigation or regulatory actions, reduced employee morale, attrition of valued employees, adverse effects on our reputation as an employer, loss of institutional know-how, slower customer service response times, and reduced ability to complete or undertake new product development projects and other business, product, technical, compliance or risk mitigation initiatives; our ability to attract new customers and retain and expand sales to existing customers; our ability to successfully develop and market new product offerings and product enhancements; changes in customer requirements; the potential effects of technological changes; the loss of one or more large customers; difficulties enhancing and maintaining our brand recognition; competition; lengthy sales cycles; challenges retaining key employees and successfully hiring and training qualified new employees; security breaches or cyber-attacks; real or perceived malfunctions or errors in our products; interruptions or delays in the performance of our products and solutions; reliance on third parties for certain products and data center services; our ability to effectively manage third party partnerships, acquisitions, divestitures, alliances, or joint ventures; economic recession, inflation, and political instability; claims that we have infringed the intellectual property rights of others; price competitive bidding; changing laws, government regulations or policies; pressures on price levels; component shortages; delays and disruption in global transportation and supply chains; impairment of goodwill or amortizable intangible assets causing a significant charge to earnings; actions of activist stockholders; and exposure to increased economic and operational uncertainties from operating a global business, as well as other factors described in the “Risk Factors” section of our most recent Annual Report on Form 10-K. Our filings with the Securities and Exchange Commission (the “SEC”) and other important information can be found in 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 Form 10-Q, except as required by law.

Our website address is included in this Quarterly Report on Form 10-Q as an inactive textual reference only.

Overview

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Agreements, we deliver products and services that automate and secure customer-facing and revenue-generating business processes for use cases ranging from simple transactions to workflows that are complex or require higher levels of security.

Our solutions help our customers ensure the integrity of the people and records associated with digital agreements, transactions, and interactions in industries including banking, financial services, healthcare, and professional services. We are trusted by global blue-chip enterprises, including more than 60% of the world’s 100 largest banks, and we process millions of digital agreements and billions of transactions in more than 100 countries annually.

We offer our products primarily through a subscription licensing model and provide multiple deployment options, including cloud-based and on-premises solutions. Our solutions are sold worldwide through our direct sales force, as well as through distributors, resellers, systems integrators, and original equipment manufacturers.

Business Transformation

We are currently in the midst of a business transformation. In December 2021, our board of directors (“Board” or “Board of Directors”) approved a restructuring plan (the “restructuring plan”) designed to advance our operating model, streamline our business, improve efficiency, and enhance our capital resources. The first phase of this restructuring plan began and was substantially completed during the three months ended March 31, 2022. In May 2022, our Board approved additional actions related to the restructuring plan and we announced a three-year strategic transformation plan that began on January 1, 2023 (the "2022 strategic plan"). In conjunction with the 2022 strategic plan and to enable a more efficient capital deployment model, effective with the quarter ended June 30, 2022, we began reporting under the following two lines of business, which are our reportable operating segments: Digital Agreements and Security Solutions.

When we began the 2022 strategic plan, we expected that we would manage Digital Agreements for accelerated growth and market share gains and Security Solutions for cash flow given its more modest growth profile.

During the quarter ended June 30, 2023, we determined that we were unlikely to achieve the revenue growth levels set forth in our 2022 strategic plan within the contemplated three-year timeframe. A number of factors contributed to the challenges achieving the originally planned growth levels, particularly in Digital Agreements, on the timeframes set forth in the 2022 strategic plan, including: macroeconomic uncertainties in the banking and financial services segments, which have resulted in longer sales cycles and greater price sensitivity on the part of customers; increasing maturity and competitiveness in the market for e-signature solutions; limited awareness of our brand among buyers of e-signature tools; and higher pricing aggressiveness from competitors. These and other factors made it more difficult than we originally anticipated to build our Digital Agreements sales pipeline, generate demand for our Digital Agreements solutions through marketing efforts, and improve our sales force productivity levels.

In response to these challenges in growing our Digital Agreements revenue, we modified our strategy to focus more heavily on improving Adjusted EBITDA margin across the business. To this end, in August 2023, our Board approved cost reduction actions (the “2023 Actions”) to seek to drive higher levels of Adjusted EBITDA while maintaining our long-term growth potential. We intend to continue to pursue the overall strategy set forth in the 2022 strategic plan, including driving efficient growth in Digital Agreements and managing Security Solutions for modest growth and cash flow, while implementing adjustments to our operating model that are intended to achieve greater operational efficiency and strengthen our ability to create value for our shareholders.

Our updated strategy, the 2023 Actions and other cost reduction actions implemented under our restructuring plan originally adopted in December 2021 involve numerous risks and uncertainties. For additional details please see Item 1A, Risk Factors, below and Part 1, Item 1A, Risk Factors in our Form 10-K.

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Restructuring Plan

In December 2021, our Board approved the restructuring plan discussed above. The first phase of this restructuring plan began and was substantially completed during the three months ended March 31, 2022. In May 2022, our Board approved additional actions related to the restructuring plan through the year ending December 31, 2025.

On August 3, 2023, our Board of Directors approved the 2023 Actions. We have incurred and expect to continue to incur restructuring charges in connection with the 2023 Actions, most of which are related to employee transition and severance payments and employee benefits, with a significantly smaller amount of charges related to vendor contract termination and rationalization actions. We currently expect that we will incur restructuring charges of approximately $1.0 million to $2.0 million related to the 2023 Actions in future periods, substantially all of which relate to employee transition and severance payments.

Actions taken under the restructuring plan consist of the following:

•We have reduced headcount by eliminating approximately 320 redundant positions and incurred severance, related benefits, and retention pay costs.

•In June 2023, we vacated our Chicago leased office space and abandoned the underlying leases, and, in future periods, plan to further align our real estate footprint with the Company's operating needs. We recorded lease termination costs, write-offs related to the vacated location's fixed assets, and a gain on the underlying right-of-use asset and liability write-off.

•In June 2023, we made the decision to discontinue investments in our Digipass CX product, which resulted in write-offs of capitalized software.

•In September 2023, we vacated our Brussels office space and terminated the lease. We recorded lease termination costs and a loss on the underlying right-of-use asset and liability write-off.

•We evaluated our vendor spend and updated or eliminated service providers in instances where there are cost-saving opportunities and where redundancies exist. Vendor rationalization costs include costs for contractually committed services the Company is no longer utilizing.

•In June 2024, we made the decision to stop any incremental development investments supporting our previously acquired blockchain technology and related commercial efforts, which resulted in write-offs of such acquired technology and related capitalized software.

We plan to incrementally take actions under the restructuring plan until December 31, 2025, when the plan terminates.

We completed a majority of the workforce reductions planned as part of the 2023 Actions by the end of 2023, and we expect that most of the remaining workforce reductions will occur over the course of 2024. The vendor contract component of the 2023 Actions is planned for completion by the end of 2025.<