Summary
OneSpan's first quarter of 2021 showed a business in transition. Total revenue fell 9.9% to $50.8 million from $56.4 million in the prior-year quarter. The drop came from lower perpetual software license and hardware revenue, while recurring revenue kept growing. Recurring revenue rose 12% to $28.9 million. Annual recurring revenue jumped 29% to $108.5 million, and dollar-based net expansion was 119%. Gross profit fell 12.0% to $35.5 million from $40.3 million. Gross margin slipped to 69.8% from 71.5%, a decline of 1.7 percentage points. Management tied the margin pressure mostly to product mix and lower product and license margins.
Profitability moved sharply lower. The company reported an operating loss of $9.3 million, compared with operating income of $0.8 million in the first quarter of 2020. Operating margin was -18.3%, down 19.8 percentage points from 1.5%. GAAP net loss was $9.2 million, or $0.23 per diluted share, a swing from near break-even in the same quarter last year. Adjusted EBITDA was $(5.3) million, compared with $5.2 million a year earlier. On a non-GAAP basis, the net loss was $6.2 million, or $0.16 per diluted share, compared with non-GAAP net income of $3.3 million, or $0.08 per diluted share. Operating costs grew as OneSpan added staff in sales, marketing, support and research and development, while general and administrative spending rose only slightly.
Cash generation improved. Operating cash flow was $3.6 million, up from a use of $2.4 million in the prior-year quarter. Capital expenditures were $0.8 million, down 50.2% from $1.5 million. Deferred revenue rose 13.1% to $54.8 million from $48.5 million. Remaining performance obligations stood at $49.7 million. The company said its financial resources are adequate to meet operating needs over the next twelve months.
Guidance points to more of the same mix shift. For the full year 2021, OneSpan reaffirmed its outlook and expects ARR growth of 22% to 26%, with adjusted EBITDA approximately break-even. For the second quarter of 2021, the company guides to ARR growth of 25% to 30%, and to recurring revenue rising both sequentially and year over year. Perpetual license and hardware revenue are expected to decline as the shift to a recurring model continues. Second quarter profitability is expected to improve on higher revenue with a larger contribution from software and services. Revenue in the second half of 2021 is expected to exceed first half revenue. Hardware revenue is expected to decline in the mid-single digit range for the full year. The CEO said the company expects to be materially complete with its recurring revenue transition by the end of 2021.
Risks remain significant. COVID-19 has lengthened sales cycles and reduced demand for some security solutions, especially hardware authentication products, and it has delayed certain software implementations. Currency is another swing factor. About 86% of revenue was generated outside the United States, and roughly 48% of revenue was denominated in U.S. dollars. About 70% of operating expenses were incurred outside the United States. Foreign exchange transaction losses and translation adjustments also weighed on results. The company also faces cybersecurity risk, especially around cloud-based solutions. OneSpan revised prior period financial statements to correct immaterial errors. Activist stockholders and the related proxy solicitation add another layer of uncertainty.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $50.8M | $52.9M | -4.1% | $56.5M | -10.1% |
| Gross profit | $35.5M | $39.3M | -9.7% | $40.4M | -12.3% |
| Gross margin | 69.8% | 74.2% | -4.4 pp | 71.5% | -1.7 pp |
| Research & development | $12.2M | $10.0M | +22.2% | $10.0M | +22.5% |
| Sales & marketing | $18.4M | $16.7M | +9.9% | $14.9M | +23.7% |
| General & administrative | $12.6M | $12.5M | +0.5% | $12.3M | +2.3% |
| Total operating expenses | $44.7M | $41.3M | +8.3% | $39.5M | +13.4% |
| Operating income (loss) | -$9.3M | -$2.0M | -355.4% | $947.0K | -1081.4% |
| Operating margin | -18.3% | -3.9% | -14.4 pp | 1.7% | -20.0 pp |
| Net income (loss) | -$9.2M | -$1.8M | -421.1% | $98.0K | -9437.8% |
| Net margin | -18.0% | -3.3% | -14.7 pp | 0.2% | -18.2 pp |
| Diluted EPS | -$0.23 | -$0.04 | -$0.19 | $0.00 | -$0.23 |
Risks
The filing states the COVID-19 pandemic has materially affected how the company and its customers operate, and the duration and extent of the impact on future results remains uncertain. The company experienced lengthened sales cycles and reduced demand for some security solutions beginning in Summer 2020 and continuing through the remainder of 2020.
MD&A says the most significant pandemic impact has been a drop in demand for hardware authentication products and delays in implementing certain software solutions. The company may continue to experience weaker customer demand, requests for discounts or extended payment terms, and delayed purchasing decisions.
Gross margin was 69.8% in FY2021 Q1, down 1.7 percentage points from 71.5% in FY2020 Q1, and operating margin was -18.3%, down 19.8 percentage points from 1.5%. Operating income swung to a loss of $9.29 million in FY2021 Q1 from income of $0.82 million in FY2020 Q1.
Hardware products revenue decreased 10% in the three months ended March 31, 2021 compared to the prior-year period, reflecting lower demand as customers shift to electronic solutions. COVID-19 also caused some delays and increased costs in fulfilling hardware orders, and future supply chain problems could prevent satisfying customer orders.
Software licenses revenue decreased 42% in the three months ended March 31, 2021 compared to the prior-year period, and perpetual software license revenue decreased $6.5 million. The decrease was due to pre-pandemic demand in the prior-year period, and software project implementation delays may persist.
Approximately 86% of revenue and 70% of operating expenses were outside the United States in the three months ended March 31, 2021, so changes in the Euro and Canadian Dollar exchange rates can significantly impact revenue and expenses. Foreign exchange transaction losses were $0.7 million in the three months ended March 31, 2021 compared to $0.5 million in the prior-year period.
EMEA represented 53% of total revenue in the three months ended March 31, 2021, and EMEA revenue decreased 20% compared to the prior-year period. The company notes concentration of revenue in Europe and specifically the banking and finance vertical market, where significant changes in the economic outlook may have a significant effect on revenue.
MD&A says a cyber incident involving cloud-based solutions, which process customer information, could have a material impact on the business and impair future growth. While no cyber incidents in the first three months of 2021 had a significant impact, the company expects the cost of securing its networks to increase in future periods.
Operating expenses increased 13% in the three months ended March 31, 2021 compared to the prior-year period, driven by higher headcount, while revenue decreased 9.9%. MD&A notes operating expenses are generally fixed over short periods, so small revenue variations may cause significant variations in operating income.
The company revised prior period financial statements to correct immaterial errors, as described in Note 1. This may indicate internal control or reporting process weaknesses that could affect future financial reporting.
SaaS KPIs
All quarters →Annual Recurring Revenue (ARR)
Adjusted EBITDA
Dollar-based net expansion (DBNE)
Recurring Revenue
Summary, forecast, risks and KPIs are extracted from OneSpan Inc.'s SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.