Summary
OneSpan's fiscal 2023 second quarter showed a business still spending heavily on its transformation while revenue growth remained uneven. Revenue was $55.7 million for the quarter and $113.3 million for the first six months. Gross profit was $34.3 million in the quarter, down 3.4% from the prior-year quarter, and $73.6 million for the first half, up 1.9% year over year. Gross margin was 61.5% for the quarter and 64.9% for the first half. The company reported an operating loss of $17.8 million for the quarter, wider than the prior-year quarter, and a first-half operating loss of $25.9 million, wider than the prior-year first half. Net loss was $17.8 million for the quarter, wider than the prior-year quarter, and $26.1 million for the first half, wider than the prior-year first half. Diluted EPS was negative $0.44 for the quarter, a wider loss than the prior-year quarter, and negative $0.65 for the first half, a wider loss than the prior-year first half.
Operating margin was negative 31.9% for the quarter and negative 22.8% for the first half. Operating cash flow was negative $19.6 million for the quarter, down 31.3% from the prior-year quarter, and negative $6.4 million for the first half, up 43.4% from the prior-year first half. Capital expenditures were $3.4 million for the quarter, up 346.2% from the prior-year quarter, and $6.5 million for the first half, up 524.7% from the prior-year first half. Deferred revenue was $57.3 million at June 30, 2023, up 3.4% from the prior-year quarter. Remaining performance obligations were $64.7 million, up 1.8% from the prior-year quarter.
The quarter's operational story was mixed. Digital Agreements revenue grew, helped by higher cloud subscription revenue, but the segment posted an operating loss. Security Solutions revenue also grew, supported by on-premises term subscription and hardware, and the segment stayed profitable. Annual recurring revenue was $144.4 million at June 30, 2023, up 8% from $134.3 million a year earlier. Net retention rate was 106%, down from 116% a year earlier. Adjusted EBITDA was negative $3.8 million for the quarter, compared with negative $1.5 million in the prior-year quarter, and negative $5.5 million for the first half, compared with negative $1.3 million in the prior-year first half. Management tied the weaker adjusted EBITDA to higher operating expenses, including more spending on sales and marketing and executive compensation.
The company is still working through a multiyear transformation. In May 2022, it announced a three-year strategic plan that began January 1, 2023. During the second quarter, management concluded it will take longer than expected to reach the revenue growth levels in that plan. It cited macroeconomic uncertainty, longer sales cycles, greater customer price sensitivity, a more mature and competitive e-signature market, and more aggressive competitor pricing. On August 3, 2023, the board approved cost reduction actions intended to drive higher adjusted EBITDA. OneSpan preliminarily estimates $15 million to $20 million in total restructuring charges, mostly workforce related. The workforce component is expected to be substantially complete by mid-2024, and the vendor contract component by the end of 2025. Risks include execution of the strategic plan, restructuring disruption, employee attrition, loss of institutional knowledge, slower customer service, and reduced product development capacity. The company also faces foreign exchange exposure, with most revenue generated outside the U.S., and it continues to evaluate its real estate and product portfolio, including the decision to discontinue investments in Digipass CX.
Liquidity remains a watch item. The company believes its financial resources are adequate to meet operating needs over the next twelve months. The broader risk list includes litigation or regulatory actions, security breaches or cyber-attacks, supply chain constraints, component shortages, and reliance on third parties for certain products and data center services. Management also flagged that changes in foreign currency rates, especially the Euro and Canadian Dollar, can significantly affect revenue and operating expenses.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $55.7M | $57.6M | -3.3% | — | — |
| Gross profit | $34.3M | $39.3M | -12.7% | — | — |
| Gross margin | 61.5% | 68.2% | -6.7 pp | — | — |
| Research & development | $10.1M | $9.5M | +6.6% | — | — |
| Sales & marketing | $19.7M | $20.0M | -1.5% | — | — |
| General & administrative | $15.8M | $16.7M | -5.0% | — | — |
| Total operating expenses | $52.1M | $47.4M | +9.8% | — | — |
| Operating income (loss) | -$17.8M | -$8.1M | -118.5% | — | — |
| Operating margin | -31.9% | -14.1% | -17.8 pp | — | — |
| Net income (loss) | -$17.8M | -$8.4M | -112.4% | — | — |
| Net margin | -31.9% | -14.5% | -17.3 pp | — | — |
| Diluted EPS | -$0.44 | -$0.21 | -$0.23 | — | — |
| Net retention rate | 106.0% | 108.0% | -2.0 pp | — | — |
Risks
During the quarter ended June 30, 2023, OneSpan determined it will take longer than originally expected to achieve the revenue growth levels in its Strategic Plan, citing a more time-consuming build of the Digital Agreements sales pipeline, demand generation, and sales force productivity. The company also pointed to macroeconomic uncertainties, longer sales cycles, greater customer price sensitivity, increasing maturity and competitiveness in e-signature, and higher pricing aggressiveness from competitors in recent months.
On August 3, 2023, the Board approved cost reduction Actions expected to incur $15 million to $20 million in total restructuring charges, primarily workforce-related, with the workforce component substantially complete by mid-2024. The company warns these Actions and the prior restructuring plan may yield higher than anticipated charges, operational disruption, litigation or regulatory actions, reduced employee morale, attrition of valued employees, loss of institutional know-how, slower customer service, and reduced product development.
The risk factors and MD&A highlight increasing maturity and competitiveness in the e-signature market and higher pricing aggressiveness from competitors in recent months, which could pressure growth and pricing in OneSpan's Digital Agreements segment.
During the first six months of 2023, OneSpan operated under uncertain market conditions influenced by instability in parts of the banking sector, supply chain constraints, inflation, and general economic concerns. Customers increased scrutiny on spending decisions, which resulted in longer sales cycles for both existing customer and new customer opportunities.
Net Retention Rate was 106% at June 30, 2023 and 116% at June 30, 2022, impacted by foreign exchange rate effects, longer sales cycles, contract renewal timing, a small number of lost contracts in 2022, and the decision to discontinue certain product portfolio offerings. This measures OneSpan's ability to grow revenue from existing customers through expanded use and renewals.
SaaS KPIs
All quarters →Annual Recurring Revenue (ARR)
Adjusted EBITDA
Net Retention Rate (NRR)
Summary, forecast, risks and KPIs are extracted from OneSpan Inc.'s SEC filings for Q2 FY2023 (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.