Summary
OneSpan reported third quarter revenue of $57.1 million, up 9.3% from $52.3 million in the same quarter last year. Subscription revenue grew 25% year over year. Currency took a large bite out of the top line. Management said changes in foreign exchange rates cut revenue by about $4.5 million and reduced annual recurring revenue by roughly $3.3 million. ARR still grew 14% to $135.8 million, and the dollar-based net expansion rate was 109%. The CEO pointed to solid bookings and said the investments being made in sales, marketing and product development should support sustainable ARR growth over the long term. The company now runs two segments, Digital Agreements and Security Solutions, and intends to manage the first for growth and the second for cash flow.
Digital Agreements, which holds the cloud e-signature and transaction products, grew faster than the rest of the business, helped by a richer mix of cloud subscription revenue and a one-time incentive credit from a cloud services provider. Security Solutions, which carries the hardware and on-premises software portfolio, grew more slowly and its economics weakened as hardware material and freight costs rose. The filing ties that segment's profit decline to an intangible asset impairment, weaker perpetual license revenue and higher material and freight costs. On a consolidated basis, gross profit was $38.4 million, up 5.6%, while gross margin slipped to 67.2% from 69.6%. Management said currency rates alone cost about 3 percentage points of gross margin in the quarter.
Profitability moved the wrong way on a GAAP basis. Total operating loss widened to $5.6 million from $2.0 million, and operating margin fell to negative 9.8% from negative 3.9%. Net loss was $7.2 million, or $0.18 per diluted share, compared with $1.0 million, or $0.02 per diluted share, a year earlier. Operating expenses rose 15%, and the quarter absorbed $3.8 million of intangible asset impairment, $2.7 million of restructuring charges and $3.1 million of long-term incentive compensation. Adjusted EBITDA, a non-GAAP measure, was $4.5 million against $1.7 million a year earlier. Non-GAAP net income was $1.3 million, or $0.03 per diluted share, versus $1.2 million, or $0.03 per diluted share.
The nine-month picture looks better than the quarter. Revenue through September 30 was $162.4 million, up 4.5%, and the year-to-date net loss narrowed to $11.3 million from $16.8 million. Diluted loss per share for the nine months improved to $0.28 from $0.42. Net cash used in operating activities was $13.7 million compared with $4.4 million a year earlier, and capital expenditures were $2.5 million, up from $1.5 million. Deferred revenue at September 30 was $50.8 million, down 3.0% year over year, while remaining performance obligations rose 24.9% to $64.1 million. Cash, cash equivalents and short-term investments totaled $93.6 million. The company repurchased $5.7 million of stock in the nine months, less than the $7.5 million bought back a year earlier.
Full year 2022 guidance calls for revenue to meet or exceed full year 2021 revenue. ARR growth guidance was cut to 12% to 13% from an earlier range of 16% to 18%, reflecting an estimated 3% to 4% impact from foreign exchange, strategic portfolio changes and a tougher macroeconomic environment. Adjusted EBITDA guidance moved to $1 million to $3 million from a prior range of negative $5 million to negative $7 million. Risks include continued currency pressure, semiconductor and supply chain constraints, inflation, the Russia-Ukraine conflict, competition, the need to hire and train sales staff, and activist stockholders. The company has cut about 100 positions under its restructuring plan and expects to incur more restructuring costs through December 31, 2025.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $57.1M | — | — | $52.3M | +9.3% |
| Gross profit | $38.4M | — | — | $37.4M | +2.7% |
| Gross margin | 67.3% | — | — | 71.6% | -4.3 pp |
| Research & development | $9.5M | — | — | $11.4M | -16.0% |
| Sales & marketing | $15.3M | — | — | $15.5M | -1.4% |
| General & administrative | $11.8M | — | — | $11.2M | +5.4% |
| Total operating expenses | $44.1M | — | — | $39.4M | +11.7% |
| Operating income (loss) | -$5.6M | — | — | -$2.0M | -179.0% |
| Operating margin | -9.8% | — | — | -3.9% | -6.0 pp |
| Net income (loss) | -$7.2M | — | — | -$975.0K | -638.6% |
| Net margin | -12.6% | — | — | -1.9% | -10.7 pp |
| Diluted EPS | -$0.18 | — | — | -$0.02 | -$0.16 |
Risks
Supply chain disruption and semiconductor component shortages, including manufacturing lockdowns in China, have increased material and freight costs and are expected to continue throughout 2022. Gross margin for the quarter ended September 30, 2022 was 67.2%, down 2.4 percentage points from 69.6% in the prior-year quarter, partly due to higher hardware materials and freight costs.
A strong U.S. dollar and foreign currency rate changes negatively impacted revenue by $4.5 million and $9.3 million for the three and nine months ended September 30, 2022, respectively, and are expected to continue to impact operating cash flows and net income throughout 2022. The company generates approximately 85% of revenue outside the United States.
The company is executing a three-year strategic transformation plan with a new CEO and executive team, including a restructuring plan that eliminated approximately 100 positions and incurred $8.0 million of restructuring charges for the nine months ended September 30, 2022. Execution risks include hiring and training sales employees, generating market demand, and managing two new reportable segments.
In July 2022, the company notified customers of its intent to gradually sunset the Dealflo solution leading up to December 31, 2023, and recorded a $3.8 million impairment charge on the entire remaining Dealflo customer relationships intangible asset during the three months ended September 30, 2022. This creates risk of customer attrition and revenue loss in the Digital Agreements segment.
Revenue is heavily influenced by the timing of orders and shipments, and Digital Agreements growth was partially offset by delays in certain customer renewals, non-renewal of several contracts, and contraction from existing customers reducing purchase volumes. This can affect period-to-period comparability, particularly over shorter timeframes.
The ongoing Russia-Ukraine conflict could materially and adversely affect operations if it escalates or expands, with potential impacts including increased volatility in capital and commodity markets, rapid regulatory changes such as sanctions, supply chain challenges, inflationary pressures, and increased cybersecurity incident risk.
Net cash used in operating activities was $13.7 million for the nine months ended September 30, 2022, compared to $4.4 million for the nine months ended September 30, 2021, down $9.25 million or 208.9%. The company expects foreign exchange and supply chain pressures to continue impacting operating cash flows.
The company experienced departures of its previous CEO, CFO, and several other senior executives during 2021 and early 2022, and is building a new executive team. Stock-based compensation expense increased to $3.1 million and $5.6 million for the three and nine months ended September 30, 2022, respectively, partly for new grants to newly hired executives and long-term retention.
SaaS KPIs
All quarters →Annual Recurring Revenue (ARR)
Adjusted EBITDA
Summary, forecast, risks and KPIs are extracted from OneSpan Inc.'s SEC filings for Q3 FY2022 (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.