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OneSpan Reports Results for Second Quarter and First Six Months of 2019; Reiterates Full Year 2019 Guidance

731 Days ago

Second Quarter Financial Results

  • Total revenue grew 13% year-over-year to $56.2 million
  • Adjusted EBITDA of $2.5 million1
  • GAAP loss per share of $0.06
  • Non-GAAP earnings per share of $0.011

CHICAGO, July 25, 2019 (GLOBE NEWSWIRE) -- OneSpan Inc. (NASDAQ: OSPN), a global leader in software for trusted identities, e-signatures and secure transactions, today reported financial results for the second quarter and six months ended June 30, 2019.

“OneSpan’s mobile security software, subscription and hardware revenues all posted double-digit growth in the second quarter,” stated OneSpan CEO, Scott Clements. “Software and services bookings grew in excess of 30% sequentially and hardware bookings remained strong. We expect profitability to improve in the second half of 2019 on higher revenues, increasing contributions from software and services, and lower operating expenses.”

Second Quarter 2019 Financial Highlights

  • Revenue for the second quarter of 2019 was $56.2 million, an increase of 13% from $49.6 million for the second quarter of 2018. Revenue for the first six months of 2019 was $103.8 million, an increase of 9% from $95.0 million for the first six months of 2018.

  • Gross Profit for the second quarter of 2019 was $38.4 million and $69.9 million for the first six months of 2019. Gross Profit for the second quarter of 2018 was $36.0 million and $70.7 million for the first six months of 2018.  Gross margin for the second quarter of 2019 was 68% and for the first six months of 2019 was 67%. Gross margin for the second quarter of 2018 was 73% and for the first six months of 2018 was 74%.

  • GAAP operating loss for the second quarter of 2019 was $2.2 million, and for the first six months of 2019 was $7.7 million. GAAP operating loss for the second quarter of 2018 was $2.6 million, and for the first six months of 2018 was $1.0 million.

  • Adjusted EBITDA for the second quarter of 2019 was $2.5 million, or 5% of revenue, and for the first six months of 2019 was $0.4 million, or less than 1% of revenue. Adjusted EBITDA for the second quarter of 2018 was $5.3 million, or 11% of revenue, and for the first six months of 2018 was $11.5 million, or 12% of revenue.

  • GAAP net loss for the second quarter of 2019 was $2.5 million, or $0.06 per share. GAAP net loss for the first six months of 2019 was $8.1 million, or $0.20 per share. This compares to GAAP net loss of $1.0 million, or $0.03 per share for the second quarter of 2018, and GAAP net income of $0.8 million or $0.02 per share for the first six months of 2018.

  • Non-GAAP net income (loss) for the second quarter of 2019 was $0.6 million, or $0.01 per diluted share, and for the first six months of 2019 was $(2.4) million, or $(0.06) per diluted share. Non-GAAP net income for the second quarter of 2018 was $3.8 million, or $0.09 per diluted share, and for the first six months of 2018 was $8.5 million, or $0.21 per diluted share.
  • Cash, cash equivalents and short-term investments at June 30, 2019 totaled $75.4 million compared to $95.3 million and $99.5 million at March 31, 2019 and December 31, 2018, respectively.

1  An explanation of the use of non-GAAP measures is included below under the heading “Non-GAAP Financial Measures.” A reconciliation of GAAP to non-GAAP financial measures has also been provided in tables below.

Recent Business Highlights

  • OneSpan announced a strategic partnership with Avaloq, a global fintech leader and provider of software as a service (SaaS) and business process as a service (BPaaS) solutions to financial institutions processing more than $4.5 trillion in assets. Avaloq integrated OneSpan anti-fraud solutions into its cloud-based banking platform to enable customers to easily add mobile authentication, transaction signing and multifactor authentication. Avaloq joins a growing portfolio of global alliance partners supporting our Trusted Identity Strategy.
  • The Company’s Intelligent Adaptive Authentication solution won two awards during the second quarter. It was named Best FinTech Solution as part of the 2019 CODiE Awards based on platform flexibility, feature set, usability, security and interoperability. It was also awarded the Frost & Sullivan 2019 Global Customer Value Leadership Award in the risk-based authentication industry based on growth potential, operational efficiency and customer service experience.

  • OneSpan launched its Secure Agreement Automation cloud solution which delivers a digital account opening process and reduces application fraud. By automating and securing the account opening process, financial institutions can bring on new customers within minutes with less risk, lower costs and an improved customer experience.

  • OneSpan released its new Qualified Electronic Signature (QES) capability designed to help European financial services customers comply with the complex eIDAS requirements in a scalable, cost-effective manner. OneSpan is now able to efficiently deliver all three eIDAS e-signature types in its cloud platform.

  • OneSpan elected technology and financial services experts to its Board of Directors. Marc Boroditsky is Senior Vice President of Sales at Twilio Inc., and formerly President and COO of Authy prior to its acquisition by Twilio Inc. Mr. Boroditsky has significant commercial and product experience in cloud and cybersecurity technologies. Dr. Marc Zenner is former managing director and global co-head of Corporate Finance Advisory at J.P. Morgan. Dr. Zenner has extensive investment banking and capital markets experience.

Outlook for Full Year 2019

  • Revenue is expected to be in the range of $229 million to $237 million.

  • Adjusted EBITDA is expected to be in the range of $22 million to $27 million.

Conference Call Details

In conjunction with this announcement, OneSpan Inc. will host a conference call today, July 25, 2019, at 4:30 p.m. ET/22:30 CEST. During the conference call, Mr. Scott Clements, CEO, and Mr. Mark Hoyt, CFO, will discuss OneSpan’s results for the second quarter 2019.

To access the conference call, dial 866-354-0181 for the U.S. or Canada and 1-409-217-8086 for international callers. The conference ID number is 8299295.

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

About OneSpan

OneSpan enables financial institutions and other organizations to succeed by making bold advances in their digital transformation. We do this by establishing trust in people’s identities, the devices they use, and the transactions that shape their lives. We believe that this is the foundation of enhanced business enablement and growth. More than 10,000 customers, including over half of the top 100 global banks, rely on OneSpan solutions to protect their most important relationships and business processes. From digital onboarding to fraud mitigation to workflow management, OneSpan’s unified, open platform reduces costs, accelerates customer acquisition, and increases customer satisfaction. Learn more about OneSpan at OneSpan.com and on TwitterLinkedIn and Facebook.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of applicable U.S. Securities laws, including statements regarding the potential benefits, performance, and functionality of our products and solutions, including future offerings; our expectations, beliefs, plans, operations and strategies relating to our business and the future of our business; our acquisitions to date and our strategy related to future acquisitions; and our expectations regarding our financial performance in the future. Forward-looking statements may be identified by words such as "seek", "believe", "plan", "estimate", "anticipate", expect", "intend", and statements that an event or result "may", "will", "should", "could", or "might" occur or be achieved and any other similar expressions. The forward-looking statements include, but are not limited to, our financial outlook for 2019, and the information included under the caption “Outlook for Full Year 2019”. These forward-looking statements involve risks and uncertainties, as well as assumptions which, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could materially affect our business and financial results include, but are not limited to: market acceptance of our products and solutions and competitors’ offerings; the potential effects of technological changes; our ability to effectively identify, purchase and integrate acquisitions; the execution of our transformative strategy on a global scale; the increasing frequency and sophistication of hacking attacks; claims that we have infringed the intellectual property rights of others; changes in customer requirements; price competitive bidding; changing laws, government regulations or policies; pressures on price levels; investments in new products or businesses that may not achieve expected returns; impairment of goodwill or amortizable intangible assets causing a significant charge to earnings; exposure to increased economic and operational uncertainties from operating a global business as well as those factors set forth in our Form 10-K (and other forms) filed with the Securities and Exchange Commission. In particular, we direct you to the risk factors contained under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K. Our SEC filings and other important information can be found on the Investor Relations section of our website at investors.onespan.com. We do not have any intent, and disclaim any obligation, to update the forward-looking information to reflect events that occur, circumstances that exist, or changes in our expectations after the date of this press release.

OneSpan Inc.
(in thousands, except per share data)

    Three months ended   Six months ended  
    June 30,    June 30,   
  2019   2018  
Product and license   $  40,117     $  34,986     $  71,978     $  68,480    
Services and other      16,117        14,568        31,864        26,506    
Total revenue      56,234        49,554        103,842        94,986    
Cost of goods sold                          
Product and license      13,451        10,391        24,767        18,576    
Services and other      4,429        3,182        9,152        5,732    
Total cost of goods sold      17,880        13,573        33,919        24,308    
Gross profit      38,354        35,981        69,923        70,678    
Operating costs                          
Sales and marketing      16,040        16,622        30,423        30,899    
Research and development      11,977        8,016        22,472        13,813    
General and administrative      10,180        11,210        20,050        21,984    
Amortization / impairment of intangible assets      2,368        2,744        4,716        4,945    
Total operating costs      40,565        38,592        77,661        71,641    
Operating loss      (2,211 )      (2,611 )      (7,738 )      (963 )  
Interest income, net      69        340        204        733    
Other income (expense), net      451        1,399        (100 )      1,779    
Income (loss) before income taxes      (1,691 )      (872 )      (7,634 )      1,549    
Provision for income taxes      770        130        499        759    
Net income (loss)   $  (2,461 )   $  (1,002 )   $  (8,133 )   $  790    
Net income (loss) per share                          
Basic   $  (0.06 )   $ (0.03 )   $  (0.20 )   $  0.02    
Diluted   $  (0.06 )   $ (0.03 )   $  (0.20 )   $  0.02    
Weighted average common shares outstanding                          
Basic      40,038        39,908        40,037        39,902    
Diluted      40,038        39,908        40,037        40,015    

OneSpan Inc.
(in thousands, unaudited)

    June 30,    December 31, 
    2019   2018
Current assets            
Cash and equivalents   $  49,126     $  76,708  
Short term investments      26,296        22,789  
Accounts receivable, net of allowances of $1,857 in 2019 and $1,152 in 2018      68,185        59,631  
Inventories, net      20,220        14,428  
Prepaid expenses      7,016        4,733  
Contract assets      5,167        7,962  
Other current assets      7,516        5,705  
Total current assets      183,526        191,956  
Property and equipment:            
Furniture and fixtures      7,769        7,613  
Office equipment      11,862        11,059  
Total Property and equipment:      19,631        18,672  
Accumulated depreciation      (13,397 )      (12,422 )
Property and equipment, net      6,234        6,250  
Operating lease right-of-use assets      8,278        —  
Goodwill      92,903        91,841  
Intangible assets, net of accumulated amortization      40,571        45,462  
Deferred income taxes      5,594        5,601  
Contract assets - non-current      1,987        3,316  
Other assets      8,080        8,400  
Total assets   $  347,173     $  352,826  
Current liabilities            
Accounts payable   $  11,643     $  7,202  
Deferred revenue      28,322        33,633  
Accrued wages and payroll taxes      12,997        13,932  
Short-term income taxes payable      1,341        6,905  
Other accrued expenses      8,366        9,323  
Deferred compensation      1,029        1,362  
Total current liabilities      63,698        72,357  
Long-term deferred revenue      14,173        10,672  
Lease liability long term      7,474        —  
Other long-term liabilities      5,885        7,075  
Long-term income taxes payable      7,111        7,620  
Deferred income taxes      4,017        2,661  
Total liabilities      102,358        100,385  
Stockholders' equity            
Preferred stock: 500 shares authorized, none issued and outstanding at December 31, 2019 and 2018      —        —  
Common stock: $.001 par value per share, 75,000 shares authorized; 40,342 and 40,225 issued and outstanding at June 30, 2019 and December 31, 2018, respectively      40        40  
Additional paid-in capital      94,272        93,310  
Accumulated income      164,246        172,378  
Accumulated other comprehensive loss      (13,743 )      (13,287 )
Total stockholders' equity      244,815        252,441  
Total liabilities and stockholders' equity   $  347,173     $  352,826  

OneSpan Inc.
(in thousands, unaudited)

    Six months ended June 30,   
    2019   2018  
Cash flows from operating activities:              
Net income (loss)   $  (8,133 )   $  790    
Adjustments to reconcile net income (loss) from operations to net cash provided by (used in) operations:              
Depreciation, amortization, and impairment of intangible assets      5,734        6,020    
Loss (gain) on disposal of assets      —        (49 )  
Deferred tax expense (benefit)      (349 )      (13 )  
Stock-based compensation      1,229        1,809    
Accounts receivable, net      (8,788 )      7,181    
Inventories, net      (5,792 )      (2,414 )  
Contract assets      4,123        (4,282 )  
Accounts payable      4,448        (2,195 )  
Income taxes payable      (5,993 )      (5,946 )  
Accrued expenses      (4,269 )      (347 )  
Deferred compensation      (332 )      (1,069 )  
Deferred revenue      (1,758 )      3,468    
Other assets and liabilities      (2,913 )      (3,599 )  
Net cash used in operating activities      (22,793 )      (646 )  
Cash flows from investing activities:              
Purchase of short term investments      (12,829 )      —    
Maturities of short term investments      9,500        80,000    
Purchase of Dealflo, net of cash acquired      —        (53,065 )  
Additions to property and equipment      (989 )      (3,016 )  
Net cash provided by (used in) investing activities      (4,318 )      23,919    
Cash flows from financing activities:              
Tax payments for restricted stock issuances      (266 )      (233 )  
Net cash used in financing activities      (266 )      (233 )  
Effect of exchange rate changes on cash      (205 )      (269 )  
Net increase (decrease) in cash      (27,582 )      22,771    
Cash, cash equivalents, and restricted cash, beginning of period      77,555        78,661    
Cash, cash equivalents, and restricted cash, end of period   $  49,973     $  101,432    

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

    Three months ended June 30,    Six months ended June 30, 
    2019   2018   2019   2018
Hardware products   $  29,039   $  24,576   $  53,329   $  42,067
Software licenses      11,078      10,410      18,649      26,413
Subscription      5,338      3,818      10,589      6,788
Professional services      848      1,157      1,657      2,121
Maintenance, support and other      9,931      9,593      19,618      17,597
Total Revenue   $  56,234   $  49,554   $  103,842   $  94,986

Non-GAAP Financial Measures

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

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

Adjusted EBITDA

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

Reconciliation of Net Income to Adjusted EBITDA
(in thousands, unaudited)

    Three months ended   Six months ended
    June 30,    June 30, 
    2019   2018   2019   2018
Net income (loss)   $  (2,462 )   $  (1,002 )   $  (8,133 )   $  790  
Interest income, net      (69 )      (340 )      (204 )      (733 )
Provision for income taxes      770        130        499        759  
Depreciation and amortization / impairment of intangible assets      2,872        3,273        5,734        6,020  
Long-term incentive compensation      1,432        1,398        2,487        2,750  
Rebranding costs      —        462        —        522  
Acquisition related costs      —        1,087        —        1,087  
Lease exit costs      —        315        —        315  
Adjusted EBITDA   $  2,543     $  5,323     $  383     $  11,510  

Non-GAAP Net Income (Loss) & Non-GAAP Diluted EPS

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

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

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

We make a tax adjustment based on the above adjustments resulting in an effective tax rate on a non-GAAP basis, which may differ from the GAAP tax rate. We believe the effective tax rates we use in the adjustment are reasonable estimates of the overall tax rates for the Company under its global operating structure.

Reconciliation of Net Income (Loss) to Non-GAAP Net Income (Loss)
(in thousands, unaudited)

    Three months ended   Six months ended
    June 30,    June 30, 
    2019   2018   2019   2018
Net income (loss)   $  (2,462 )   $  (1,002 )   $  (8,133 )   $  790  
Long-term incentive compensation      1,432        1,398        2,487        2,750  
Amortization / impairment of intangible assets      2,368        2,744        4,716        4,945  
Rebranding costs      —        462        —        522  
Lease exit costs      —        315        —        315  
Acquisition related costs      —        1,087        —        1,087  
Tax impact of adjustments*      (760 )      (1,201 )      (1,441 )      (1,924 )
Non-GAAP net income (loss)   $  578     $  3,803     $  (2,371 )   $  8,485  
Non-GAAP net income (loss) per share   $  0.01     $  0.09     $  (0.06 )   $  0.21  
Weighted average number of shares used to compute Non-GAAP diluted earnings per share      40,062        40,045        40,037        40,015  

*The tax impact of adjustments is calculated as 20% of the adjustments in all periods.

Copyright© 2019 OneSpan North America Inc., all rights reserved. OneSpan™, the “O” logo, “BE BOLD. BE SECURE.”™, and DEALFLO™ are registered or unregistered trademarks of OneSpan North America Inc. or its affiliates in the U.S. and other countries. Any other trademarks cited herein are the property of their respective owners.

Investor contact:
Joe Maxa
M: +1-612‑247‑8592
O: +1-312-766-4009

Source: OneSpan Inc.

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