OneSpan Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing also reports fourth-quarter results. OneSpan provides identity, authentication, cybersecurity, e-signature, and digital workflow solutions. Results are reported in Digital Agreements and Security Solutions.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $235.1 million | $219.0 million |
| Gross profit / gross margin | $157.7 million / 67% | $148.6 million / 68% |
| Operating loss | $28.9 million | $27.1 million |
| Net loss | $29.8 million | $14.4 million |
| Adjusted EBITDA (non-GAAP) | $12.0 million | $6.4 million |
| Cash used in operating activities | $10.7 million | $5.8 million |
- Revenue grew 7%; foreign exchange contributed approximately $2.3 million of the increase. Gross margin declined one percentage point, reflecting cost mix and higher cloud-related costs.
- Digital Agreements revenue rose 5% to $50.9 million, but the segment recorded an operating loss of $18.5 million, compared with operating income of $5.3 million in 2022. Security Solutions revenue rose 8% to $184.2 million; operating income increased to $60.2 million from $32.1 million.
- For Q4 2023, revenue was $62.9 million, operating income $1.8 million, and net income $0.4 million. Q4 2022 revenue was $56.6 million; operating and net losses were $4.0 million and $3.1 million, respectively.
- Year-end cash and cash equivalents were $42.5 million, down from $96.2 million; short-term investments were zero. Working capital was $31.5 million, versus $87.6 million. The company had no debt outstanding and said existing cash should fund working capital and capital expenditures for at least 12 months.
- FY2023 investing cash outflow was $12.0 million; financing cash outflow was $32.1 million, including $29.2 million of share repurchases. The company repurchased 2.38 million shares in a December Dutch auction tender offer for approximately $25.0 million.
- ARR was $154.6 million, up 11%; net retention rate was 110%, versus 107% in 2022. These are company-defined operating measures, not GAAP revenue or forecasts.
Material changes and unusual items
- Management concluded in mid-2023 that the original three-year growth targets were unlikely to be achieved on schedule, particularly for Digital Agreements. The strategy shifted toward improving Adjusted EBITDA margin while pursuing efficient Digital Agreements growth and managing Security Solutions for modest growth and cash flow.
- FY2023 restructuring and related charges were $17.3 million, versus $13.3 million. Approximately 270 positions were eliminated across restructuring actions; most 2023 workforce reductions were completed by year-end, with remaining reductions expected in 2024. Management estimated additional 2023 Actions charges of $2 million–$3 million for vendor actions beyond the expected employee-related charges, and expects the broader restructuring plan to continue through 2025.
- Adjusted EBITDA improved despite a larger GAAP net loss. The reconciliation adds back, among other items, restructuring charges, long-term incentive compensation, and other non-recurring items; these exclusions are material when assessing the measure.
- FY2022 included a $14.8 million gain on the sale of the Promon investment, which did not recur in 2023. FY2022 also included a $3.8 million Dealflo intangible impairment. In 2023, the company discontinued investment in Digipass CX and recorded product-related write-offs, partly reversed when components were repurposed.
- On January 4, 2024, CEO Matthew Moynahan was terminated without cause and Victor Limongelli was appointed interim CEO. The company accrued $1.2 million of severance and related benefits at year-end 2023.
- Segment expense allocation methodology changed prospectively in 2023, shifting more costs to Digital Agreements; segment operating results are therefore less directly comparable with 2022.
Outlook, commentary, and risks
- The filing provides no specific numerical revenue or earnings guidance. Management expects cost reductions to lower sales and marketing, research and development, and general and administrative expenses, while continuing investment in products and cloud offerings. Savings, timing, and execution remain uncertain.
- Management cited longer sales cycles and greater price sensitivity among banking and financial services customers, intense e-signature competition, limited brand awareness, and difficulty building pipeline and sales productivity.
- Key risks include customer retention and concentration (top 10 customers generated 22% of revenue), competition, execution and disruption from restructuring, cybersecurity or service interruptions, dependence on third-party hosting and hardware suppliers, foreign exchange exposure, and global privacy and regulatory compliance.
- Legal proceedings are described as ordinary-course matters; management does not expect them to materially affect results or financial condition. The company recorded $1.2 million of probable loss contingencies and reported no estimable reasonably possible losses.
- Management and KPMG concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023. The filing reports no material cybersecurity incidents in FY2023.
Important facts for investors to verify
- Whether Digital Agreements growth, retention, and margins improve under the revised strategy, and how segment allocation changes affect comparisons.
- Whether restructuring delivers durable cost savings without harming sales capacity, product development, customer service, or employee retention; track remaining charges and cash payments through 2025.
- Whether operating cash flow and liquidity stabilize after the substantial cash decline, buybacks, and severance payments; assess the stated 12-month cash sufficiency against actual results.
- How much Adjusted EBITDA improvement reflects sustainable operations versus excluded restructuring, incentive, and other non-recurring costs.
- Progress under interim leadership, the CEO succession process, and execution of product and partner initiatives.
- Revenue-recognition judgments for contracts with software licenses and unique terms; KPMG identified this as a critical audit matter.