Summary
OneSpan reported third quarter revenue of $58.8 million, taking nine-month revenue to $172.2 million. The recurring part of the business kept growing faster than the whole. Annual recurring revenue rose 10% to $149.8 million, while the net retention rate slipped to 108% from 109% a year earlier. The two segments moved in different directions. Digital Agreements revenue rose 7% and Security Solutions revenue rose 2%, leaving the mix still weighted toward the older authentication and hardware business.
Gross profit was $40.7 million for the quarter, up 5.8% from $38.4 million a year earlier, and gross margin came in at 69.1%. Nine-month gross profit was $114.2 million, up 3.3%, at a 66.4% gross margin. Below the gross line the picture is mixed. The quarterly operating loss narrowed to $4.8 million from $5.6 million in the prior-year quarter, but the nine-month operating loss widened to $30.7 million from $23.1 million. Net loss was $4.1 million, or $0.10 per diluted share, compared with a loss of $7.2 million, or $0.18 per diluted share, a year earlier. For the first nine months, the net loss widened to $30.2 million, or $0.75 per diluted share, from $11.3 million, or $0.28 per diluted share, in 2022.
Cash generation is the sore spot. Operating cash flow was negative $7.4 million for the quarter, down from negative $2.4 million in the prior-year quarter, and negative $13.8 million for the first nine months, down from negative $13.7 million. Capital expenditures were $2.5 million in the quarter and $9.0 million year to date, up 68.7% and 254.7% respectively. Deferred revenue ended September at $55.3 million, up 8.9% year over year, and remaining performance obligations were $69.4 million, up 8.3%. Cash, cash equivalents and short-term investments totaled $68.5 million at September 30, 2023, down from $98.5 million at December 31, 2022 and $93.6 million a year earlier.
Guidance moved up modestly. For the full year 2023, management put the top line in a range of $228 million to $232 million, against a prior range of $226 million to $232 million, with ARR of $148 million to $152 million and Adjusted EBITDA of $2 million to $4 million versus the earlier $0 million to $3 million. For the full year 2024, management is targeting low to mid single digit revenue growth and an Adjusted EBITDA margin of 20% to 23%.
Non-GAAP results look better than the reported ones. Adjusted EBITDA was $6.3 million for the quarter against $4.5 million in the same period last year, and non-GAAP net income was $3.6 million, or $0.09 per diluted share, versus $1.3 million, or $0.03 per diluted share. Restructuring and other related charges of $6.5 million in the quarter are the main bridge between the two views. OneSpan has cut roughly 240 positions under its restructuring plan, and the cost reduction actions approved on August 3, 2023 are expected to carry $11 million to $12 million of employee transition and severance charges, with about 85% of the planned workforce reductions completed by the end of 2023.
Execution risk hangs over the plan. In June 2023, management said the revenue growth levels contemplated by the strategic plan will take longer to reach, pointing to longer sales cycles, greater price sensitivity, a maturing and more competitive e-signature market, and more aggressive pricing from competitors. ARR for the fourth quarter of 2023 and the first quarter of 2024 will be pressured as customers finish migrating from the on-premises e-signature product to the cloud version, and by expected contraction from a small number of security solutions customers. The company also plans a modified Dutch auction tender offer for about $20 million of its common stock within the next week, part of the repurchase program announced in May 2022.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $58.8M | $55.7M | +5.6% | $57.1M | +3.0% |
| Gross profit | $40.7M | $34.3M | +18.6% | $38.4M | +5.8% |
| Gross margin | 69.1% | 61.5% | +7.6 pp | 67.3% | +1.9 pp |
| Research & development | $10.1M | $10.1M | +0.4% | $9.5M | +6.2% |
| Sales & marketing | $16.7M | $19.7M | -15.5% | $15.3M | +9.2% |
| General & administrative | $11.6M | $15.8M | -27.0% | $11.8M | -2.2% |
| Total operating expenses | $45.5M | $52.1M | -12.7% | $44.1M | +3.2% |
| Operating income (loss) | -$4.8M | -$17.8M | +73.0% | -$5.6M | +14.8% |
| Operating margin | -8.2% | -31.9% | +23.7 pp | -9.8% | +1.7 pp |
| Net income (loss) | -$4.1M | -$17.8M | +76.7% | -$7.2M | +42.6% |
| Net margin | -7.0% | -31.9% | +24.8 pp | -12.6% | +5.6 pp |
| Diluted EPS | -$0.10 | -$0.44 | +$0.34 | -$0.18 | +$0.08 |
| Net retention rate | 108.0% | 106.0% | +2.0 pp | — | — |
Risks
OneSpan said in June 2023 it will take longer than originally expected to achieve Strategic Plan revenue growth, citing macroeconomic uncertainties that led to longer sales cycles and greater customer price sensitivity, increasing maturity and competitiveness in e-signature, and higher competitor pricing aggressiveness. Digital Agreements operating loss was $4.7 million for the three months ended September 30, 2023 versus operating income of $2.2 million in the prior-year period.
The August 2023 cost reduction actions are expected to incur approximately $11 million to $12 million of employee transition and severance charges, with roughly 85% of planned workforce reductions completed by the end of 2023 and most remaining reductions in 2024. OneSpan warns of higher-than-anticipated charges, operational disruption, attrition of valued employees, reduced morale, slower customer service, and reduced product development capacity.
During the first nine months of 2023, OneSpan operated under uncertain market conditions influenced by banking-sector instability, inflation, geopolitical instability, and general economic concerns. Customers increased scrutiny on spending decisions, resulting in longer sales cycles for existing and new customer opportunities.
ARR was $149.8 million at September 30, 2023, up 10% from $135.8 million at September 30, 2022, but OneSpan expects ARR for Q4 2023 and Q1 2024 to be impacted by contraction from customers migrating from on-premises e-signature to the cloud and from a small number of security solutions customers.
The strategic plan and 2023 Actions require hiring, training, and retaining sales and other employees, while restructuring has already reduced headcount and may cause further attrition of valued employees and loss of institutional know-how. MD&A notes additional headcount reduction occurred in September 2023 due to restructuring actions.
OneSpan faces increasing maturity and competitiveness in the e-signature market and higher pricing aggressiveness from competitors. This pressure contributed to delays in achieving planned Digital Agreements revenue growth and could limit pricing and expansion.
Cash and cash equivalents declined to $68.5 million at September 30, 2023 from $96.2 million and $2.3 million of short-term investments at December 31, 2022. Operating cash flow was negative $13.8 million for the nine months ended September 30, 2023, and working capital fell to $54.7 million from $87.6 million at December 31, 2022.
OneSpan generated approximately 83% of Q3 2023 revenue and incurred 61% of operating expenses outside the U.S., so changes in Euro and Canadian Dollar exchange rates can significantly affect revenue and expenses. Management said if Euro-denominated revenue in Europe continues or declines, it may not fully balance currency exposure on revenue and operating expenses.
The restructuring plan includes discontinuing investments in Digipass CX, which resulted in a $1.6 million inventory impairment in the nine months ended September 30, 2023, and sun-setting the on-premises e-signature product. These actions contributed to Digital Agreements gross margin declining to 74% for the nine months ended September 30, 2023 from 77% in the prior-year period.
SaaS KPIs
All quarters →Annual Recurring Revenue (ARR)
Net Retention Rate (NRR)
Summary, forecast, risks and KPIs are extracted from OneSpan Inc.'s SEC filings for Q3 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.