OneSpan Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited consolidated results; comparisons are with the corresponding 2021 periods. OneSpan provides digital agreement, identity, authentication, and transaction-security solutions.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $57.1m | $52.3m | $162.4m | $155.3m |
| Gross profit / margin | $38.4m / 67% | $36.4m / 70% | $110.6m / 68% | $105.5m / 68% |
| Operating loss | $(5.6)m | $(2.0)m | $(23.1)m | $(20.2)m |
| Net loss | $(7.2)m | $(1.0)m | $(11.3)m | $(16.8)m |
| Net loss per share | $(0.18) | $(0.02) | $(0.28) | $(0.42) |
Q3 revenue rose 9%; nine-month revenue rose 5%. Foreign exchange reduced revenue by about $4.5m and $9.3m, respectively. Q3 gross margin declined three percentage points, principally because of higher hardware component and freight costs. Nine-month gross margin was unchanged.
Segments: Digital Agreements revenue grew 20% in Q3 and 21% year to date; Q3 operating income was $2.2m versus less than $0.1m. Security Solutions revenue grew 7% in Q3 but 1% year to date; operating income declined to $5.7m in Q3 from $10.7m and to $21.4m year to date from $25.6m. Digital Agreements gross margin improved to 80% in Q3; Security Solutions margin fell to 64% from 69%.
Cash, liquidity and balance sheet
At September 30, 2022, cash and cash equivalents were $81.8m and short-term investments were $11.8m, totaling $93.6m, versus $98.5m at year-end 2021. Working capital was $89.8m, down from $98.0m. The balance sheet reports no borrowings; lease liabilities totaled $10.7m, including current and long-term portions. Total liabilities were $104.6m and equity was $194.9m.
For the first nine months, operating cash flow was negative $13.7m, compared with negative $4.4m a year earlier. Investing activities provided $39.5m, including $18.9m from the Promon investment sale; financing activities used $6.8m, including share repurchases and tax payments on restricted stock. Management said available cash and investments should cover liquidity needs for the next 12 months.
Material changes, outlook and risks
- Transformation and restructuring: A three-year plan announced in May 2022 prioritizes Digital Agreements growth, Security Solutions cash generation, enterprise sales, product development, and efficiency. About 100 positions were eliminated. Restructuring charges were $2.7m in Q3 and $8.0m year to date; $3.6m remained accrued at quarter-end, expected to be paid by September 2023. Further costs may arise through 2025.
- Unusual items: The January sale of the Promon investment generated a $14.8m gain, supporting the lower year-to-date net loss; it is not recurring operating revenue. A $3.8m impairment fully wrote off Dealflo customer-relationship intangibles after the company announced a gradual product sunset, with customer contracts ending by December 31, 2023.
- Business and cost pressures: Semiconductor shortages, higher component and freight costs, supply-chain disruption, inflation, and a strong U.S. dollar affected results. The company expected elevated semiconductor procurement and broader supply-chain costs to continue through 2022. Management noted customer demand, particularly for e-signature and mobile/authentication offerings.
- Outlook and uncertainty: No quantified full-year revenue or earnings guidance is provided in the filing text. Management describes planned investment in sales, marketing, R&D, and its cloud platform. Risks include execution of the transformation, hiring and market acceptance, competition, cyber threats, supply constraints, macroeconomic and geopolitical conditions, foreign exchange, and possible further asset impairment.
- Other disclosures: The company recorded a $1.3m accrual for probable legal losses within an estimated $1.3m–$2.0m range and did not expect legal matters to materially affect results. Management concluded disclosure controls were effective; no material change in internal control was reported. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether Digital Agreements growth and improved segment profitability persist, and whether Security Solutions margins recover.
- Operating cash burn, deferred-revenue trends, and liquidity after the one-time Promon proceeds.
- Costs and execution progress for the transformation and restructuring, including planned sales-force and product investment.
- Hardware demand, component availability, freight costs, and currency effects on revenue, margins, and cash flow.
- Customer and revenue effects of the Dealflo sunset, and whether further impairment or restructuring charges arise.