Onespan reports results for second quarter and first six months of 2020
Chicago--(business wire)--onespan inc. (nasdaq: ospn), the global leader in securing remote banking transactions, today reported financial results for the second quarter and six months ended june 30, 2020. “during the second quarter, onespan made substantial progress in its transition to a recurring revenue dominant software model," stated onespan ceo, scott clements. "bookings and revenue from recurring software contracts showed strong double-digit growth as did our software sales opportunity pipeline. recurring revenue accounted for 76% of total software and service revenue in the quarter with strength in both subscription and term license revenues, offset by declines in perpetual license revenue. with the resurgence of the pandemic and increasing economic uncertainty, we are seeing longer sales cycles for larger complex projects and lower than expected demand for hardware authentication products. cloud-based offerings such as onespan sign continue to see strong demand.” second quarter 2020 financial highlights4 revenue for the second quarter of 2020 was $55.0 million, a decrease of 2% from $56.2 million for the second quarter of 2019. revenue for the first six months of 2020 was $111.3 million, an increase of 8% from $103.3 million for the first six months of 2019. gross profit for the second quarter of 2020 was $36.7 million and $77.0 million for the first six months of 2020. gross profit for the second quarter of 2019 was $38.3 million and $69.3 million for the first six months of 2019. gross margin for the second quarter of 2020 was 67% and for the first six months of 2020 was 69%. gross margin for the second quarter of 2019 was 68% and for the first six months of 2019 was 67%. gaap operating loss for the second quarter of 2020 was $1.7 million, and for the first six months of 2020 was $0.9 million. gaap operating loss for the second quarter of 2019 was $2.3 million, and for the first six months of 2019 was $8.3 million. adjusted ebitda for the second quarter of 2020 was $3.1 million, or 6% of revenue, and for the first six months of 2020 was $8.3 million, or 7% of revenue. adjusted ebitda for the second quarter of 2019 was $2.5 million, or 4% of revenue, and for the first six months of 2019 was $(0.2) million or less than 1% of revenue. gaap net loss for the second quarter of 2020 was $2.0 million, or $0.05 per share, and $2.0 million, or $0.05 per share for the first six months of 2020. gaap net loss for the second quarter of 2019 was $2.5 million, or $0.06 per share. gaap net loss for the first six months of 2019 was $8.6 million, or $0.21 per share. non-gaap net income for the second quarter of 2020 was $0.8 million or $0.02 per diluted share, and for the first six months of 2020 was $4.0 million, or $0.10 per diluted share. non-gaap net income (loss) for the second quarter of 2019 was $0.5 million or $0.01 per diluted share, and for the first six months of 2019 was $(2.8) million or $(0.07) per diluted share. cash, cash equivalents and short-term investments at june 30, 2020 totaled $110.8 million compared to $105.3 million and $109.8 million at march 31, 2020 and december 31, 2019, respectively. _________________________ full year 2020 outlook given the increased uncertainty about the impact of the pandemic on the global economy and our customers, the company believes it prudent to withdraw its previously issued full-year guidance. management will provide additional commentary during its second quarter earnings conference call. conference call details in conjunction with this announcement, onespan inc. will host a conference call today, august 11, 2020, at 4:30 p.m. et. during the conference call, mr. scott clements, ceo, and mr. mark hoyt, cfo, will discuss onespan’s results for the second quarter 2020. to access the conference call, dial 866-270-1533 for the u.s. or canada and 1-412-317-0797 for international callers. the conference id number is 10145960. the conference call is also available in listen-only mode at investors.onespan.com. the recorded version of the conference call will be available on the onespan website as soon as possible following the call and will be available for replay for approximately one year. about onespan onespan helps protect the world from digital fraud by establishing trust in people’s identities, the devices they use and the transactions they carry out. we do this by making digital banking accessible, secure, easy and valuable. onespan’s trusted identity platform and security solutions significantly reduce digital transaction fraud and enable regulatory compliance for more than 10,000 customers, including over half of the top 100 global banks. whether through automating agreements, detecting fraud or securing financial transactions, onespan helps reduce costs and accelerate customer acquisition while improving the user experience. learn more at onespan.com. forward looking statements this press release contains forward-looking statements within the meaning of applicable u.s. securities laws, including statements regarding the potential benefits, performance, and functionality of our products and solutions, including future offerings; our expectations, beliefs, plans, operations and strategies relating to our business and the future of our business; our acquisitions to date and our strategy related to future acquisitions; and our expectations regarding our financial performance in the future. forward-looking statements may be identified by words such as "seek", "believe", "plan", "estimate", "anticipate", expect", "intend", and statements that an event or result "may", "will", "should", "could", or "might" occur or be achieved and any other similar expressions. the company’s auditors have not audited, reviewed, compiled, or applied agreed-upon procedures with respect to the preliminary estimated financial data set forth herein. important factors that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the completion of the review of the accounting matters identified related to prior periods, including the potential impact on internal control over financial reporting, a material delay in the company’s financial reporting, including the possibility that the company will not be able to file its form 10-q by the date due or within the five-day extension permitted by the rules of the u.s. securities and exchange commission, and the possibility that the ongoing review may identify errors or control deficiencies in the company’s accounting practices, as well as those factors set forth in our form 10-k (and other forms) filed with the securities and exchange commission. the forward-looking statements include, but are not limited to, our financial outlook for 2020, and the information included under the caption “outlook for full year 2020”. these forward-looking statements involve risks and uncertainties, as well as assumptions which, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. factors that could materially affect our business and financial results include, but are not limited to: market acceptance of our products and solutions and competitors’ offerings; the potential effects of technological changes; our ability to effectively identify, purchase and integrate acquisitions; the execution of our transformative strategy on a global scale; the increasing frequency and sophistication of hacking attacks; claims that we have infringed the intellectual property rights of others; changes in customer requirements; price competitive bidding; changing laws, government regulations or policies; pressures on price levels; investments in new products or businesses that may not achieve expected returns; impairment of goodwill or amortizable intangible assets causing a significant charge to earnings; exposure to increased economic and operational uncertainties from operating a global business as well as those factors set forth in our form 10-k (and other forms) filed with the securities and exchange commission. in particular, we direct you to the risk factors contained under the captions "risk factors" and "management's discussion and analysis of financial condition and results of operations" in our form 10-k. our sec filings and other important information can be found on the investor relations section of our website at investors.onespan.com. we do not have any intent, and disclaim any obligation, to update the forward-looking information to reflect events that occur, circumstances that exist, or changes in our expectations after the date of this press release. onespan inc. condensed consolidated statements of operations (in thousands, except per share data) (unaudited) three months ended june 30, six months ended june 30, 2020 2019 (1) 2020 2019 (1) revenue product and license $ 35,384 $ 40,117 $ 73,644 $ 71,460 services and other 19,570 16,050 37,680 31,802 total revenue 54,954 56,167 111,324 103,262 cost of goods sold product and license 12,576 13,451 23,314 24,767 services and other 5,649 4,429 10,981 9,152 total cost of goods sold 18,225 17,880 34,295 33,919 gross profit 36,729 38,287 77,029 69,343 operating costs sales and marketing 14,694 16,040 29,553 30,423 research and development 10,541 11,977 20,535 22,472 general and administrative 10,846 10,180 23,114 20,050 amortization of intangible assets 2,335 2,368 4,689 4,716 total operating costs 38,416 40,565 77,891 77,661 operating loss (1,687) (2,278) (862) (8,318) interest income, net 126 69 333 204 other income (expense), net 509 451 171 (100) loss before income taxes (1,052) (1,758) (358) (8,214) provision (benefit) for income taxes 973 753 1,663 353 net loss $ (2,025) $ (2,511) $ (2,021) $ (8,567) net loss per share basic $ (0.05) $ (0.06) $ (0.05) $ (0.21) diluted $ (0.05) $ (0.06) $ (0.05) $ (0.21) weighted average common shares outstanding basic 40,028 40,038 40,059 40,037 diluted 40,028 40,038 40,059 40,037 (1) 2019 results have been revised to correct for certain immaterial misstatements. for additional information, see the “revision of prior period financial statements” section of this press release. onespan inc. condensed consolidated balance sheets (in thousands, unaudited) june 30, december 31, 2020 2019 (1) assets current assets cash and equivalents $ 83,984 $ 84,282 short term investments 26,796 25,511 accounts receivable, net of allowances of $3,723 in 2020 and $2,524 in 2019 54,347 62,405 inventories, net 16,443 19,819 prepaid expenses 6,004 6,198 contract assets 6,848 5,240 other current assets 7,261 6,346 total current assets 201,683 209,801 property and equipment, net 12,159 11,454 operating lease right-of-use assets 10,789 10,580 goodwill 91,646 94,612 intangible assets, net of accumulated amortization 30,652 36,209 deferred income taxes 8,039 7,863 contract assets - non-current 3,774 3,355 other assets 9,719 8,668 total assets $ 368,461 $ 382,542 liabilities and stockholders' equity current liabilities accounts payable $ 5,778 $ 10,835 deferred revenue 37,728 30,338 accrued wages and payroll taxes 13,766 15,415 short-term income taxes payable 2,571 7,410 other accrued expenses 9,608 8,786 deferred compensation 1,041 1,028 total current liabilities 70,492 73,812 long-term deferred revenue 10,723 15,259 long-term lease liability 11,749 11,299 other long-term liabilities 8,021 8,297 long-term income taxes payable 5,905 6,958 deferred income taxes 4,364 4,623 total liabilities 111,254 120,248 stockholders' equity preferred stock: 500 shares authorized, none issued and outstanding at december 31, 2020 and 2019 — — common stock: $.001 par value per share, 75,000 shares authorized; 40,329 and 40,207 issued and outstanding at june 30, 2020 and december 31, 2019, respectively 40 40 additional paid-in capital 97,140 96,109 accumulated income 177,166 179,440 accumulated other comprehensive loss (17,139) (13,295) total stockholders' equity 257,207 262,294 total liabilities and stockholders' equity $ 368,461 $ 382,542 (1) 2019 results have been revised to correct for certain immaterial misstatements. for additional information, see the “revision of prior period financial statements” section of this press release. onespan inc. condensed consolidated statements of cash flows (in thousands, unaudited) six months ended june 30, 2020 2019 (1) cash flows from operating activities: net loss $ (2,021) $ (8,567) adjustments to reconcile net income (loss) from operations to net cash provided by (used in) operations: depreciation and amortization of intangible assets 6,097 5,734 loss on disposal of assets 53 — deferred tax benefit (319) (349) stock-based compensation 2,210 1,229 changes in operating assets and liabilities: accounts receivable, net 7,528 (8,788) inventories, net 3,376 (5,792) contract assets (2,026) 4,703 accounts payable (5,025) 4,448 income taxes payable (5,870) (6,139) accrued expenses (791) (4,269) deferred compensation 13 (332) deferred revenue 2,990 (1,758) other assets and liabilities (1,834) (2,913) net cash provided by (used in) operating activities 4,381 (22,793) cash flows from investing activities: purchase of short term investments (14,645) (12,829) maturities of short term investments 13,340 9,500 additions to property and equipment (2,167) (989) other (48) — net cash used in investing activities (3,520) (4,318) cash flows from financing activities: tax payments for restricted stock issuances (1,179) (266) net cash used in financing activities (1,179) (266) effect of exchange rate changes on cash 20 (205) net decrease in cash (298) (27,582) cash, cash equivalents, and restricted cash, beginning of period 85,129 77,555 cash, cash equivalents, and restricted cash, end of period (1.) $ 84,831 $ 49,973 (1) 2019 results have been revised to correct for certain immaterial misstatements. for additional information, see the “revision of prior period financial statements” section of this press release. revenue by major products and services (in thousands, unaudited): three months ended june 30, six months ended june 30, 2020 2019 (2) 2020 2019 (2) hardware products $ 24,188 $ 29,039 $ 43,926 $ 53,329 software licenses (1) 11,196 11,078 29,718 18,131 subscription 6,133 5,347 11,840 10,607 professional services 1,326 848 2,747 1,657 maintenance, support and other 12,111 9,855 23,093 19,538 total revenue $ 54,954 $ 56,167 $ 111,324 $ 103,262 (1) software licenses revenue is earned under both term-based and perpetual license agreements. recurring revenue (in thousands, unaudited): three months ended june 30, six months ended june 30, 2020 2019 (2) 2020 2019 (2) subscription $ 6,133 $ 5,347 $ 11,840 $ 10,607 term-based software licenses 4,990 2,044 14,194 2,607 maintenance, support and other 12,111 9,855 23,093 19,538 total recurring revenue $ 23,234 $ 17,246 $ 49,127 $ 32,752 (2) 2019 results have been revised to correct for certain immaterial misstatements. for additional information, see the “revision of prior period financial statements” section of this press release. non-gaap financial measures we report financial results in accordance with gaap. we also evaluate our performance using certain non-gaap operating metrics, namely adjusted ebitda, non-gaap net income and non-gaap diluted eps. our management believes that these measures provide useful supplemental information regarding the performance of our business and facilitates comparisons to our historical operating results. we believe these non-gaap operating metrics provide additional tools for investors to use to compare our business with other companies in the industry. these non-gaap measures are not measures of performance under gaap and should not be considered in isolation, as alternatives or substitutes for the most directly comparable financial measures calculated in accordance with gaap. while we believe that these non-gaap measures are useful within the context described below, they are in fact incomplete and are not a measure that should be used to evaluate our full performance or our prospects. such an evaluation needs to consider all of the complexities associated with our business including, but not limited to, how past actions are affecting current results and how they may affect future results, how we have chosen to finance the business, and how taxes affect the final amounts that are or will be available to shareholders as a return on their investment. reconciliations of the non-gaap measures to the most directly comparable gaap financial measures are found below. adjusted ebitda we define adjusted ebitda as net income before interest, taxes, depreciation, amortization, long-term incentive compensation, and certain other non-recurring items, including acquisition related costs, lease exit costs, rebranding costs, and accruals for legal contingencies. we use adjusted ebitda as a simplified measure of performance for use in communicating our performance to investors and analysts and for comparisons to other companies within our industry. as a performance measure, we believe that adjusted ebitda presents a view of our operating results that is most closely related to serving our customers. by excluding interest, taxes, depreciation, amortization, long-term incentive compensation, and certain other non-recurring items, we are able to evaluate performance without considering decisions that, in most cases, are not directly related to meeting our customers’ requirements and were either made in prior periods (e.g., depreciation, amortization, long-term incentive compensation, lease exit costs, reversal of a prior period legal contingency accrual), or deal with the structure or financing of the business (e.g., interest, acquisition related costs, rebranding costs) or reflect the application of regulations that are outside of the control of our management team (e.g., taxes). similarly, we find the comparison of our results to those of our competitors is facilitated when we do not consider the impact of these items. reconciliation of net income to adjusted ebitda (in thousands, unaudited) three months ended six months ended june 30, june 30, 2020 2019 (1) 2020 2019 (1) net loss $ (2,025) $ (2,511) $ (2,021) $ (8,567) interest income, net (126) (69) (333) (204) provision for income taxes 973 753 1,663 353 depreciation and amortization of intangible assets 3,078 2,872 6,097 5,734 long-term incentive compensation 1,165 1,432 2,880 2,487 adjusted ebitda $ 3,065 $ 2,477 $ 8,286 $ (197) (1) 2019 results have been revised to correct for certain immaterial misstatements. for additional information, see the “revision of prior period financial statements” section of this press release. non-gaap net income & non-gaap diluted eps we define non-gaap net income and non-gaap diluted eps, as net income or eps before the consideration of long-term incentive compensation expenses, the amortization of intangible assets, and certain other non-recurring items. we use these measures to assess the impact of our performance excluding items that can significantly impact the comparison of our results between periods and the comparison to competitors. long-term incentive compensation for management and others is directly tied to performance and this measure allows management to see the relationship of the cost of incentives to the performance of the business operations directly if such incentives are based on that period’s performance. to the extent that such incentives are based on performance over a period of several years, there may be periods which have significant adjustments to the accruals in the period but which relate to a longer period of time, and which can make it difficult to assess the results of the business operations in the current period. in addition, the company’s long-term incentives generally reflect the use of restricted stock grants or cash awards while other companies may use different forms of incentives the cost of which is determined on a different basis, which makes a comparison difficult. we exclude amortization of intangible assets as we believe the amount of such expense in any given period may not be correlated directly to the performance of the business operations and that such expenses can vary significantly between periods as a result of new acquisitions, the full amortization of previously acquired intangible assets or the write down of such assets due to an impairment event. however, intangible assets contribute to current and future revenue and related amortization expense will recur in future periods until expired or written down. we exclude certain other non-recurring items including impacts of tax reform, acquisition related costs, rebranding costs, lease exit costs, and reserves for certain legal contingencies as these items are unrelated to the operations of our core business. by excluding these items, we are better able to compare the operating results of our underlying core business from one reporting period to the next. we make a tax adjustment based on the above adjustments resulting in an effective tax rate on a non-gaap basis, which may differ from the gaap tax rate. we believe the effective tax rates we use in the adjustment are reasonable estimates of the overall tax rates for the company under its global operating structure. reconciliation of net income to non-gaap net income (in thousands, unaudited) three months ended six months ended june 30, june 30, 2020 2019 (1) 2020 2019 (1) net loss $ (2,025) $ (2,511) $ (2,021) $ (8,567) long-term incentive compensation 1,165 1,432 2,880 2,487 amortization of intangible assets 2,335 2,368 4,689 4,716 tax impact of adjustments (2) (700) (760) (1,514) (1,441) non-gaap net income (loss) $ 775 $ 529 $ 4,034 $ (2,805) non-gaap net income (loss) per share $ 0.02 $ 0.01 $ 0.10 $ (0.07) weighted average number of shares used to compute non-gaap diluted earnings per share 40,204 40,062 40,264 40,037 (1) 2019 results have been revised to correct for certain immaterial misstatements. for additional information, see the “revision of prior period financial statements” section of this press release. (2) the tax impact of adjustments is calculated as 20% of the adjustments in all periods. revision of prior period financial statements as previously announced, the company identified immaterial errors related to certain contracts with customers involving term software licenses in prior period results previously reported. the net contract assets that originated from a portion of these contracts in prior periods were not properly accounted for in subsequent periods, which caused overstatements of revenue. the cumulative overstatements of revenue totaled $2.2 million from the first quarter in the year ended december 31, 2018 to the quarter ended march 31, 2020, representing less than 0.5% of total revenue in that time frame. the company believes these errors to be immaterial. to correct these immaterial errors related to prior periods, the company adjusted the prior period revenue and related amounts in this earnings press release and expects to adjust the prior period revenue and related amounts in future filings with the sec. the following table presents the effects of the aforementioned revisions to our total revenue in prior periods. three months ended march 31, december 31, september 31, june 30, march 31, december 31, september 31, june 30, march 31, 2020 2019 2019 2019 2019 2018 2018 2018 2018 as previously reported $ 56,492 $ 71,003 $ 79,725 $ 56,234 $ 47,608 $ 64,799 $ 52,495 $ 49,554 $ 45,432 adjustments (122) (472) (34) (67) (512) (483) (326) (48) (87) as revised $ 56,370 $ 70,531 $ 79,691 $ 56,167 $ 47,096 $ 64,316 $ 52,169 $ 49,506 $ 45,345 copyright© 2020 onespan north america inc., all rights reserved. onespan™ is a registered or unregistered trademark of onespan north america inc. or its affiliates in the u.s. and other countries.
