OneSpan Reports Second Quarter 2023 Financial Results; Accelerates Plan to Drive Adjusted EBITDA Growth

OneSpan Inc. (Nasdaq: OSPN), the digital agreements security company, today reported financial results for the second quarter ended June 30, 2023.

“We continued to make good progress during the quarter on transforming OneSpan into an enterprise-class company with increased operational rigor across the organization. Our visibility into the execution of our transformation has increased meaningfully over the first two quarters of the plan, and it is apparent that maturing our sales productivity and marketing demand generation engine will take longer than we originally expected, exacerbated in part by current market conditions,” stated OneSpan CEO, Matt Moynahan. “We believe our five-pillar solution strategy, designed to secure an entire digital transaction lifecycle is sound, as it continues to resonate with customers and serves as a foundational element of our transformation strategy. With this backdrop, we are making adjustments to our operating model that are intended to accelerate adjusted EBITDA growth, enable us to return capital to shareholders, and drive value creation by growing profitably over the long term.”

Key Financial Results

Second Quarter 2023 Financial Highlights

• Total revenue was $55.7 million, an increase of 6% compared to $52.8 million for the same quarter of 2022. Digital Agreements revenue was $11.9 million, an increase of 13% year-over-year. Security Solutions revenue was $43.9 million, an increase of 4% year-over-year.

• ARRincreased 8% year-over-year to $144.4 million.

• Gross profit was $34.3 million, or 62% gross margin, compared to $35.5 million, or 67% in the same period last year.

• Operating loss was $17.8 million, compared to operating loss of $8.2 million in the same period last year.

• Net loss was $17.8 million, or $(0.44) per diluted share compared to net loss of $9.4 million, or $(0.23) per diluted share in the same period last year. Non-GAAP net loss was $7.4 million, or $(0.18) per diluted share, compared to net loss of $4.0 million, or $(0.10) per diluted share, in the same period last year.³

• Adjusted EBITDA was $(3.8) million compared to $(1.5) million in the same period last year.³

• Cash, cash equivalents and short-term investments were $83.1 million at June 30, 2023 compared to $98.5 million at December 31, 2022 and $97.8 million at June 30, 2022.

Restructuring Plan Expansion

As part of the adjustments to our operating model to focus on profitable long-term growth, OneSpan’s Board has approved additional cost reduction actions. OneSpan anticipates that these actions, which are expected to consist primarily of workforce reductions, will result in approximately $30 million of annualized savings by the end of 2025, and total expected savings in the range of $50 million to $55 million when combined with the expected savings from the Company’s restructuring plan originally adopted in December 2021. In addition, we believe these savings will result in OneSpan achieving an adjusted EBITDA margin of 20% to 23% for the full year 2024. The Company preliminarily estimates that it will incur from $15 million to $20 million in restructuring charges associated with the additional cost reduction actions. Please see the Company’s Form 8-K to be filed August 9, 2023 with the U.S. Securities & Exchange Commission for further information about these additional actions.

Financial Outlook

For the full year 2023, OneSpan expects:

• Revenue to be in the range of $226 million to $232 million, as compared to our previous guidance range of $232 million to $242 million

• ARR to be in the range of $148 million to $152 million, as compared to our previous guidance range of $157 million to $164 million

• Adjusted EBITDA to be in the range of $0 million to $3 million, as compared to our previous guidance range of $3 million to $6 million³

For the Full Year 2024, OneSpan is targeting:

• Revenue growth in the low to mid single digits

• Adjusted EBITDA margin to be in the range of 20% to 23%³

Conference Call Details

In conjunction with this announcement, OneSpan Inc. will host a conference call today, August 9, 2023, at 4:30 p.m. ET. During the conference call, Mr. Matthew Moynahan, CEO, and Mr. Jorge Martell, CFO, will discuss OneSpan’s results for the second quarter 2023.

For investors and analysts accessing the conference call by phone, please refer to the press release dated July 17, 2023, announcing the date of OneSpan’s second quarter 2023 earnings release. It can be found on the OneSpan investor relations website at investors.onespan.com.

The conference call is also available in listen-only mode at investors.onespan.com. Shortly after the conclusion of the call, a replay of the webcast will be available on the same website for approximately one year.

____________________________________________

1. ARR is calculated as the approximate annualized value of our customer recurring contracts as of the measurement date. These include subscription, term-based license, and maintenance and support contracts and exclude one-time fees. To the extent that we are negotiating a renewal with a customer within 90 days after the expiration of a recurring contract, we continue to include that revenue in ARR if we are actively in discussion with the customer for a new recurring contract or renewal and the customer has not notified us of an intention to not renew. See our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 for additional information describing how we define ARR, including how ARR differs from GAAP revenue.
2. NRR is defined as the approximate year-over-year growth in ARR from the same set of customers at the end of the prior year period.
3. An explanation of the use of Non-GAAP financial measures is included below under the heading “Non-GAAP Financial Measures.” A reconciliation of each Non-GAAP financial measure to the most directly comparable GAAP financial measure has also been provided in the tables below. We are not providing a reconciliation of Adjusted EBITDA guidance to GAAP net income, the most directly comparable GAAP measure, because we are unable to predict certain items included in GAAP net income without unreasonable efforts.

About OneSpan

OneSpan helps organizations accelerate digital transformations by enabling secure, compliant, and refreshingly easy customer agreements and transaction experiences. Organizations requiring high assurance security, including the integrity of end-users and the fidelity of transaction records behind every agreement, choose OneSpan to simplify and secure business processes with their partners and customers. Trusted by global blue-chip enterprises, including more than 60% of the world’s largest 100 banks, OneSpan processes millions of digital agreements and billions of transactions in 100+ countries annually.

For more information, go to www.onespan.com. You can also follow @OneSpan on Twitter or visit us on LinkedIn and Facebook.

Forward-Looking Statements

This Press Release contains forward-looking statements within the meaning of applicable U.S. securities laws, including statements regarding our plan to drive adjusted EBITDA growth; the outcomes we expect from our recently approved cost reduction actions, including the ability of those actions and our prior restructuring plan to enable us to accelerate adjusted EBITDA growth, enable us to return capital to stockholders, and drive value creation by growing profitably over the long term; estimates concerning the timing and amount of savings, adjusted EBITDA margin and/or restructuring charges that may result from the recently approved cost reduction actions and our prior restructuring plan; our 2023 financial guidance and our financial expectations for 2024; 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", “confident”, 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. Important factors that could materially affect our business and financial results include, but are not limited to: our ability to execute our strategic transformation plan, or restructuring plan and the recently approved cost reduction actions in the expected timeframes and to achieve the outcomes we expect from them; unintended costs and consequences of our restructuring plan and our planned cost reduction 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 effectively develop and expand our sales and marketing capabilities; our ability to hire, train, and retain sales and other employees necessary to implement our strategic transformation plan; our ability to successfully develop and market new product offerings and product enhancements; the loss of one or more large customers; difficulties enhancing and maintaining our brand recognition; competition; lengthy sales cycles; departures of senior management or other key employees; changes in customer requirements; interruptions or delays in the performance of our products and solutions; real or perceived malfunctions or errors in our products; the potential effects of technological changes; economic recession, inflation, and political instability; our ability to effectively manage third party partnerships, acquisitions, divestitures, alliances, or joint ventures; security breaches or cyber-attacks; claims that we have infringed the intellectual property rights of others; litigation or regulatory actions; price competitive bidding; changing laws, government regulations or policies; pressures on price levels; component shortages; delays and disruption in global transportation and supply chains; reliance on third parties for certain products and data center services; 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, as updated by the “Risk Factors” section of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023. 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 press release, except as required by law.

Unless otherwise noted, references in this press release to “OneSpan”, “Company”, “we”, “our”, and “us” refer to OneSpan Inc. and its subsidiaries.