OneSpan Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also reports unaudited fourth-quarter results. OneSpan sells digital identity, authentication, fraud-prevention, and e-signature solutions, including hardware, software licenses, subscriptions, maintenance, and services.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $214.5 million | $215.7 million |
| Gross profit / margin | $142.9 million / 67% | $148.1 million / 69% |
| Operating income (loss) | $(26.1) million | $(5.3) million |
| Net income (loss) | $(30.6) million | $(5.5) million |
| Diluted loss per share | $(0.77) | $(0.14) |
| Cash from operating activities | $(2.7) million | $14.9 million |
- FY2021 revenue was nearly flat year over year, but product and license revenue fell 9% to $120.4 million while services and other revenue rose 14% to $94.1 million. Subscription revenue increased 38% to $38.2 million. Management reported recurring revenue grew 18% to approximately $119 million.
- Gross margin declined two percentage points, attributed principally to higher cloud-service and hardware-shipping costs. Operating expenses rose 10% to $169.1 million, including increased personnel, proxy-contest and strategic-plan costs.
- Revenue by region: EMEA $104.9 million, down 10%; Americas $68.6 million, up 29%; APAC $41.0 million, down 10%. EMEA represented 49% of revenue.
- Fourth-quarter revenue was $59.2 million and net loss was $13.8 million; the quarter included a $6.8 million income-tax provision.
- At year-end, cash and cash equivalents were $63.4 million and short-term investments were $35.1 million, versus $88.4 million and $26.9 million, respectively, in 2020. Working capital was $98.0 million, down from $131.9 million.
- OneSpan had no debt outstanding. FY2021 investing cash outflow was $11.0 million and financing cash outflow was $10.4 million, including $7.5 million of share repurchases. The company stated its resources were adequate for operating needs over the next 12 months.
- Purchase obligations totaled $45.6 million; operating lease obligations were $12.7 million. The company reported no off-balance-sheet arrangements.
Changes, outlook, and notable items
- The company continued its shift toward recurring software and subscription revenue; growth in subscriptions and maintenance partly offset declines in perpetual software licenses and hardware. Management expects traditional hardware growth to be minimal or negative over the long term.
- COVID-19-related economic uncertainty contributed to longer sales cycles and weaker demand for some security solutions. The company also cited potential supply-chain, shipping, customer-payment, and staffing disruptions, with the ultimate impact not estimable.
- The Board approved a two-phase, multi-year restructuring plan in Q4 2021 to streamline operations and enhance capital resources. No plan-related actions or charges were recorded in 2021. No numerical financial guidance was provided; management expressed a long-term growth objective.
- CEO and CFO departures occurred in 2021; Matthew Moynahan became CEO in November and Jan Kees van Gaalen became interim CFO in October. Management anticipated a further transformation beginning in 2022. A shareholder proxy contest was settled before the June 2021 annual meeting and generated incremental expense.
- A $15.0 million increase in the valuation allowance on deferred tax assets contributed to the 2021 tax expense despite the pretax loss. At year-end, the income-tax valuation allowance was reported as $35.0 million in the financial-statement note.
- Prior-period statements were revised for immaterial expense-classification errors: hardware production and distribution costs were reclassified from sales and marketing to cost of goods sold. The revisions did not affect previously reported revenue or net income.
- On January 31, 2022, OneSpan sold its 17% Promon investment for $18.9 million and expected to recognize a $14.8 million gain in Q1 2022. It stated it would continue using and integrating Promon technology.
- KPMG issued unqualified opinions on the financial statements and internal controls; management also concluded internal control over financial reporting was effective at year-end. Securities and derivative lawsuits described in the filing were dismissed without prejudice in 2021; management said other proceedings were not expected to have a material adverse effect.
Key investor checks
- Track whether recurring-revenue growth can offset declining perpetual-license and hardware sales, and whether total revenue resumes growth.
- Assess the drivers of the operating-loss expansion, ongoing spending, restructuring execution, and any subsequent restructuring charges or savings.
- Monitor operating cash flow, working capital, cash and investments, and committed hosting, inventory, and other purchase obligations.
- Review realization of deferred tax assets and changes in the valuation allowance, alongside future tax expense and cash taxes.
- Evaluate customer concentration (top 10 customers generated 22% of 2021 revenue), international and currency exposure, supplier and shipping dependencies, cybersecurity risks, and leadership-transition execution.
- Confirm the Promon sale proceeds and gain recognition in subsequent-period financial statements and assess continued access to its technology.