OneSpan Inc. 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The filing also reports unaudited fourth-quarter results. OneSpan provides digital agreement, e-signature, identity verification, and authentication products, primarily to financial institutions and other enterprises.
Key financial results
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $219.0 million | $214.5 million |
| Gross profit / margin | $148.6 million / 68% | $142.9 million / 67% |
| Operating loss | $(27.1) million | $(26.1) million |
| Net loss | $(14.4) million | $(30.6) million |
| Operating cash flow | $(5.8) million | $(2.7) million |
| Adjusted EBITDA (non-GAAP) | $6.4 million | $(5.1) million |
- FY 2022 revenue grew 2%; foreign exchange movements reduced reported revenue by approximately $12.2 million. Revenue from subscriptions rose 30% to $89.2 million, while hardware revenue fell 7% to $73.5 million.
- Digital Agreements revenue increased 19% to $48.4 million, with a 77% gross margin and $5.3 million operating income. Security Solutions revenue decreased 2% to $170.6 million; gross margin was 65% and operating income was $32.1 million.
- Annual recurring revenue (ARR) was $138.7 million, up 12%; foreign exchange reduced ARR by about $3.9 million. Net retention rate declined to 107% from 115%.
- Fourth-quarter revenue was $56.6 million versus $59.2 million a year earlier; operating loss was $4.0 million and net loss was $3.1 million, compared with a $13.8 million net loss in Q4 2021.
Liquidity, cash flow, and capital
- At year-end, cash and cash equivalents were $96.5 million and short-term investments were $2.3 million, compared with $63.4 million and $35.1 million, respectively, in 2021. Working capital was $86.7 million, down from $98.0 million.
- Investing activities provided $46.6 million, principally reflecting $18.9 million of proceeds from selling the Promon investment and investment maturities. Operating activities used $5.8 million; financing activities used $7.3 million, including $5.7 million of share repurchases.
- OneSpan reported no debt outstanding. Operating lease liabilities totaled $10.7 million. Management said existing cash and investments were expected to cover working capital and capital expenditure needs for at least 12 months.
- The company authorized repurchases of up to $50 million through May 11, 2024; 0.4 million shares were repurchased for $5.7 million during 2022. No dividend was paid, and none was anticipated in the foreseeable future.
Changes, unusual items, and management outlook
- The three-year strategic transformation plan began January 1, 2023. Management intends to prioritize Digital Agreements growth and market share, while managing Security Solutions primarily for cash flow; plans include expanding enterprise sales, partnerships, product development, and a next-generation transaction-cloud platform.
- Management expects sales and marketing spending to increase to support the go-to-market plan. Semiconductor procurement costs, inflationary pressures, and supply-chain disruption were expected to continue into 2023; the company was managing inventory and considering shifting more hardware manufacturing from China to Romania or other locations.
- FY 2022 included a $14.8 million gain on the sale of the Promon equity investment, which materially reduced the reported net loss. The sale generated $18.9 million in proceeds; OneSpan said it intended to continue integrating Promon’s mobile security technology.
- The company recorded a $3.8 million impairment of Dealflo customer relationships after announcing the product would be sunset by December 31, 2023, and $9.5 million of restructuring charges. Approximately 100 positions were eliminated; further restructuring actions may continue through 2025.
- In February 2023, OneSpan completed its $2.0 million ProvenDB asset acquisition, intended to support blockchain-based secure document storage. The acquisition was subsequent to year-end and is not reflected in 2022 financial statements.
- No specific financial guidance for 2023 is provided in the filing. Management cited customer demand, particularly for e-signature and security offerings, but cautioned that execution, salesforce expansion, product development, and macroeconomic conditions could affect results.
Risks, contingencies, and controls
- Key risks include executing the transformation, growing and retaining customers, competing with larger providers, long enterprise sales cycles, reliance on hardware suppliers, component shortages, cybersecurity incidents, service interruptions, foreign exchange exposure, and global regulatory and privacy compliance.
- Approximately 23% of 2022 revenue came from the ten largest customers. About 83% of revenue was generated outside the United States; the company does not use foreign-exchange contracts or other hedging strategies.
- Purchase obligations were $24.6 million, including $17.4 million for hosting arrangements. Legal proceedings were described as ordinary-course matters; a $1.5 million loss-contingency accrual was recorded, and management did not expect the matters to materially affect results or financial condition.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of December 31, 2022.
Important facts for investors to verify
- Whether Digital Agreements growth and ARR gains continue, and whether the decline in net retention stabilizes.
- Whether reported profitability and cash generation improve without reliance on the Promon sale gain and other adjustments.
- Progress on the transformation plan, salesforce expansion, transaction-cloud platform, and planned Digipass CX launch.
- Effects of currency movements, hardware supply constraints, higher component costs, and inventory levels on revenue, margins, and cash flow.
- Timing and costs of the Dealflo sunset and restructuring actions, and the integration and spending associated with ProvenDB.