P12MP12MP12MP9Mtruetruetrue4035600000000001044777--12-312021Q1falsetrueus-gaap:OtherAssetsNoncurrentus-gaap:OtherAssetsNoncurrentLarge Accelerated Filer00us-gaap:LicenseAndServiceMemberus-gaap:LicenseAndServiceMemberDEP1Y0001044777ospn:RestrictedStockSubjectToTimeBasedCriteriaMemberospn:TwoThousandAndNineteenOmnibusIncentivePlanMember2021-01-012021-03-310001044777ospn:RestrictedStockSubjectToFuturePerformanceCriteriaMemberospn:TwoThousandAndNineteenOmnibusIncentivePlanMember2021-01-012021-03-310001044777us-gaap:RestrictedStockMember2021-01-012021-03-310001044777us-gaap:RetainedEarningsMember2021-03-310001044777us-gaap:AdditionalPaidInCapitalMember2021-03-310001044777us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-310001044777us-gaap:RetainedEarningsMember2020-12-310001044777us-gaap:AdditionalPaidInCapitalMember2020-12-310001044777us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001044777ospn:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2020-03-310001044777ospn:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310001044777us-gaap:RetainedEarningsMember2020-03-310001044777us-gaap:AdditionalPaidInCapitalMember2020-03-310001044777us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310001044777ospn:CumulativeEffectPeriodOfAdoptionAdjustmentMember2020-03-310001044777us-gaap:RetainedEarningsMember2019-12-310001044777us-gaap:AdditionalPaidInCapitalMember2019-12-310001044777us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001044777us-gaap:TreasuryStockCommonMember2021-03-310001044777us-gaap:CommonStockMember2021-03-310001044777us-gaap:TreasuryStockCommonMember2020-12-310001044777us-gaap:CommonStockMember2020-12-310001044777us-gaap:CommonStockMember2020-03-310001044777us-gaap:CommonStockMember2019-12-310001044777srt:MinimumMemberospn:RestrictedStockSubjectToTimeBasedCriteriaMemberospn:TwoThousandAndNineteenOmnibusIncentivePlanMember2021-01-012021-03-310001044777srt:MaximumMemberospn:RestrictedStockSubjectToTimeBasedCriteriaMemberospn:TwoThousandAndNineteenOmnibusIncentivePlanMember2021-01-012021-03-310001044777ospn:RestrictedStockSubjectToPerformanceCriteriaMemberospn:TwoThousandAndNineteenOmnibusIncentivePlanMember2021-01-012021-03-3100010447772024-01-012021-03-3100010447772023-01-012021-03-3100010447772022-01-012021-03-3100010447772021-01-012021-03-310001044777us-gaap:TransferredOverTimeMember2021-01-012021-03-310001044777us-gaap:TransferredAtPointInTimeMember2021-01-012021-03-310001044777ospn:SubscriptionMember2021-01-012021-03-310001044777ospn:ServicesMember2021-01-012021-03-310001044777ospn:ProductsMember2021-01-012021-03-310001044777ospn:MaintenanceSupportMember2021-01-012021-03-310001044777ospn:LicensesMember2021-01-012021-03-310001044777ospn:ServiceAndOtherMemberus-gaap:ScenarioAdjustmentMember2020-01-012020-03-310001044777ospn:ServiceAndOtherMembersrt:ScenarioPreviouslyReportedMember2020-01-012020-03-310001044777ospn:ProductAndLicenseMembersrt:ScenarioPreviouslyReportedMember2020-01-012020-03-310001044777us-gaap:TransferredOverTimeMember2020-01-012020-03-310001044777us-gaap:TransferredAtPointInTimeMember2020-01-012020-03-310001044777ospn:SubscriptionMember2020-01-012020-03-310001044777ospn:ServicesMember2020-01-012020-03-310001044777ospn:ProductsMember2020-01-012020-03-310001044777ospn:MaintenanceSupportMember2020-01-012020-03-310001044777ospn:LicensesMember2020-01-012020-03-310001044777us-gaap:LeaseholdImprovementsMember2021-03-310001044777us-gaap:FurnitureAndFixturesMember2021-03-310001044777ospn:OfficeEquipmentAndSoftwareMember2021-03-310001044777us-gaap:LeaseholdImprovementsMember2020-12-310001044777us-gaap:FurnitureAndFixturesMember2020-12-310001044777ospn:OfficeEquipmentAndSoftwareMember2020-12-310001044777us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001044777us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001044777us-gaap:BuildingMember2021-01-012021-03-310001044777ospn:AutomobileMember2021-01-012021-03-310001044777us-gaap:BuildingMember2020-01-012020-03-310001044777ospn:AutomobileMember2020-01-012020-03-310001044777us-gaap:RetainedEarningsMember2021-01-012021-03-310001044777us-gaap:RetainedEarningsMember2020-01-012020-03-310001044777us-gaap:OtherIntangibleAssetsMember2020-12-310001044777us-gaap:DevelopedTechnologyRightsMember2020-12-310001044777us-gaap:CustomerRelationshipsMember2020-12-310001044777us-gaap:OtherIntangibleAssetsMember2021-03-310001044777us-gaap:DevelopedTechnologyRightsMember2021-03-310001044777us-gaap:CustomerRelationshipsMember2021-03-310001044777us-gaap:AccountingStandardsUpdate201613Member2021-01-012021-03-310001044777us-gaap:AccountingStandardsUpdate201613Member2021-03-310001044777us-gaap:AccountingStandardsUpdate201613Member2020-12-310001044777ospn:ServiceAndOtherMember2021-01-012021-03-310001044777ospn:ProductAndLicenseMember2021-01-012021-03-310001044777ospn:InvestmentInPromonMember2021-01-012021-03-310001044777ospn:ServiceAndOtherMember2020-01-012020-03-310001044777ospn:ProductAndLicenseMember2020-01-012020-03-310001044777ospn:InvestmentInPromonMember2020-01-012020-03-310001044777us-gaap:ScenarioAdjustmentMember2020-01-012020-03-310001044777srt:ScenarioPreviouslyReportedMember2020-01-012020-03-310001044777us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2021-03-310001044777us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasuryBillSecuritiesMember2021-03-310001044777us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-03-310001044777us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2021-03-310001044777us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2021-03-310001044777us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2021-03-310001044777us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasuryBillSecuritiesMember2021-03-310001044777us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-03-310001044777us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2021-03-310001044777us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2021-03-310001044777us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2020-12-310001044777us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasuryBillSecuritiesMember2020-12-310001044777us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-12-310001044777us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2020-12-310001044777us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2020-12-310001044777us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2020-12-310001044777us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasuryBillSecuritiesMember2020-12-310001044777us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2020-12-310001044777us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2020-12-310001044777us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2020-12-310001044777us-gaap:DevelopedTechnologyRightsMember2021-01-012021-03-310001044777us-gaap:CustomerRelationshipsMember2021-01-012021-03-3100010447772021-03-3100010447772020-12-310001044777ospn:InvestmentInPromonMember2021-03-310001044777us-gaap:CommonStockMember2021-01-012021-03-310001044777us-gaap:CommonStockMember2020-01-012020-03-310001044777us-gaap:ScenarioAdjustmentMember2020-03-310001044777srt:ScenarioPreviouslyReportedMember2020-03-3100010447772020-03-310001044777us-gaap:ScenarioAdjustmentMember2019-12-310001044777srt:ScenarioPreviouslyReportedMember2019-12-3100010447772019-12-310001044777us-gaap:EMEAMember2021-01-012021-03-310001044777srt:AsiaPacificMember2021-01-012021-03-310001044777srt:AmericasMember2021-01-012021-03-310001044777us-gaap:EMEAMember2020-01-012020-03-310001044777srt:AsiaPacificMember2020-01-012020-03-310001044777srt:AmericasMember2020-01-012020-03-310001044777us-gaap:OtherIntangibleAssetsMember2021-01-012021-03-310001044777srt:MinimumMember2021-01-012021-03-310001044777srt:MaximumMember2021-01-012021-03-310001044777us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001044777us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-3100010447772020-01-012020-03-3100010447772021-05-0100010447772021-01-012021-03-31xbrli:sharesiso4217:USDxbrli:pureiso4217:USDxbrli:shares

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM       TO      

Commission file number 000-24389

OneSpan Inc.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE

36-4169320

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

121 West Wacker Drive, Suite 2050

Chicago, Illinois 60601

(Address of Principal Executive Offices) (Zip Code)

(312) 766-4001

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Shares

OSPN

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer ,a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  No

There were 40,265,066 shares of Common Stock, $.001 par value per share, outstanding at May 1, 2021.

Table of Contents

OneSpan Inc.

Form 10-Q

For the Quarter Ended March 31, 2021

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020

3

Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2021 and 2020

4

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three months ended March 31, 2021 and 2020

5

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three months ended March 31, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2021 and 2020

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

31

Item 4.

Controls and Procedures

31

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 6.

Exhibits

35

SIGNATURES

36

2

Table of Contents

OneSpan Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

March 31,

December 31, 

2021

    

2020

ASSETS

 

Current assets

 

  

 

  

Cash and equivalents

$

70,819

$

88,394

Short term investments

 

44,388

 

26,859

Accounts receivable, net of allowances of $4,170 in 2021 and $4,135 in 2020

 

47,892

 

57,537

Inventories, net

 

11,346

 

13,093

Prepaid expenses

 

7,587

 

7,837

Contract assets

5,090

7,202

Other current assets

 

9,602

 

6,256

Total current assets

 

196,724

 

207,178

Property and equipment, net

 

11,722

 

11,835

Operating lease right-of-use assets

10,559

11,356

Goodwill

 

97,453

 

97,552

Intangible assets, net of accumulated amortization

 

25,697

 

27,196

Deferred income taxes

7,450

7,030

Contract assets - non-current

1,363

1,877

Other assets

 

11,509

 

11,179

Total assets

$

362,477

$

375,203

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

5,788

$

5,684

Deferred revenue

 

43,162

 

43,417

Accrued wages and payroll taxes

 

15,231

 

13,649

Short-term income taxes payable

 

967

 

2,618

Other accrued expenses

 

9,379

 

8,334

Deferred compensation

 

75

 

1,602

Total current liabilities

 

74,602

 

75,304

Long-term deferred revenue

11,651

11,730

Long-term lease liabilities

11,661

12,399

Other long-term liabilities

 

10,249

 

10,423

Long-term income taxes payable

6,095

6,095

Deferred income taxes

 

1,739

 

1,912

Total liabilities

 

115,997

 

117,863

Stockholders' equity

 

  

 

  

Preferred stock: 500 shares authorized, none issued and outstanding at December 31, 2021 and 2020

 

 

Common stock: $.001 par value per share, 75,000 shares authorized; 40,265 and 40,103 shares issued; 40,265 and 40,103 shares outstanding at March 31, 2021 and December 31, 2020, respectively

 

40

 

40

Additional paid-in capital

 

98,022

 

98,819

Treasury stock, at cost, 250 and 250 shares outstanding at March 31, 2021 and December 31, 2020, respectively

(5,030)

(5,030)

Retained earnings

 

164,602

 

173,731

Accumulated other comprehensive loss

 

(11,154)

 

(10,220)

Total stockholders' equity

 

246,480

 

257,340

Total liabilities and stockholders' equity

$

362,477

$

375,203

See accompanying notes to unaudited condensed consolidated financial statements.

3

Table of Contents

OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

(unaudited)

Three months ended

March 31,

    

2021

    

2020

Revenue

 

  

 

  

 

Product and license

$

28,445

$

38,260

Services and other

 

22,330

 

18,110

Total revenue

 

50,775

 

56,370

Cost of goods sold

 

  

 

  

Product and license

 

9,541

 

10,738

Services and other

 

5,781

 

5,332

Total cost of goods sold

 

15,322

 

16,070

Gross profit

 

35,453

 

40,300

Operating costs

 

  

 

  

Sales and marketing

 

18,379

 

14,859

Research and development

 

12,244

 

9,994

General and administrative

 

12,551

 

12,268

Amortization / impairment of intangible assets

 

1,573

 

2,354

Total operating costs

 

44,747

 

39,475

Operating income (loss)

 

(9,294)

 

825

Interest income, net

 

4

 

207

Other income (expense), net

 

(362)

 

(338)

Income (loss) before income taxes

 

(9,652)

 

694

Provision (benefit) for income taxes

 

(501)

 

690

Net income (loss)

$

(9,151)

$

4

Net income (loss) per share

 

  

 

  

Basic

$

(0.23)

$

(0.00)

Diluted

$

(0.23)

$

(0.00)

Weighted average common shares outstanding

 

  

 

  

Basic

 

39,996

 

40,127

Diluted

 

39,996

 

40,338

See accompanying notes to unaudited condensed consolidated financial statements.

4

Table of Contents

OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

Three months ended March 31, 

    

2021

    

2020

Net income (loss)

 

$

(9,151)

 

$

4

 

Other comprehensive loss

Cumulative translation adjustment, net of tax

 

(919)

 

(4,278)

 

Unrealized gains (losses) on available-for-sale securities

(15)

Pension adjustment, net of tax

 

 

(6)

 

Comprehensive income (loss)

 

$

(10,085)

 

$

(4,280)

 

See accompanying notes to unaudited condensed consolidated financial statements.

5

Table of Contents

OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

For the three months ended March 31, 2021:

    

    

    

    

    

    

    

    

    

Accumulated

    

    

Additional

Other

Total

Common Stock

Treasury - Common Stock

Paid-In

Accumulated

Comprehensive

Stockholders'

Description

Shares

Amount

Shares

Amount

Capital

Income

Income (Loss)

Equity

Balance at December 31, 2020

 

40,103

$

40

250

(5,030)

$

98,819

$

173,731

$

(10,220)

$

257,340

Net income (loss)

 

 

 

 

(9,151)

 

 

(9,151)

Foreign currency translation adjustment, net of tax

 

 

 

 

22

 

(919)

 

(897)

Restricted stock awards

 

248

 

 

1,342

 

 

 

1,342

Tax payments for stock issuances

 

(86)

 

 

(2,139)

 

 

 

(2,139)

Unrealized gain (loss) on available-for-sale securities

(15)

(15)

Balance at March 31, 2021

 

40,265

$

40

250

$

(5,030)

$

98,022

$

164,602

$

(11,154)

$

246,480

For the three months ended March 31, 2020:

    

    

    

    

    

    

    

    

    

    

Accumulated

    

    

Additional

Other

Total

Common Stock

Treasury - Common Stock

Paid-In

Accumulated

Comprehensive

Stockholders'

Description

Shares

Amount

Shares

Amount

Capital

Income

Income (Loss)

Equity

Balance at December 31, 2019

 

40,207

 

40

$

96,109

$

179,440

$

(13,295)

$

262,294

Cumulative effect of change related to adoption of ASU 2016-13, net of tax

(254)

0

(254)

Net income

 

 

 

 

4

 

 

4

Foreign currency translation adjustment , net

 

 

 

 

 

(4,278)

 

(4,278)

Restricted stock awards

 

168

 

 

1,350

 

 

 

1,350

Tax payments for stock issuances

 

(61)

 

 

(293)

 

 

 

(293)

Pension adjustment, net of tax

(6)

(6)

Balance at March 31, 2020

 

40,314

$

40

$

97,166

$

179,190

$

(17,579)

$

258,817

6

Table of Contents

OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three months ended March 31,

    

2021

    

2020 (1)

Cash flows from operating activities:

 

  

 

  

Net income (loss) from operations

$

(9,151)

$

4

Adjustments to reconcile net income (loss) from operations to net cash provided by (used in) operations:

 

 

  

Depreciation and amortization of intangible assets

 

2,310

 

3,019

Loss on disposal of assets

 

22

 

88

Deferred tax benefit

 

(732)

 

(306)

Stock-based compensation

 

1,342

 

1,350

Changes in operating assets and liabilities:

 

 

Accounts receivable, net

 

8,588

 

(1,817)

Inventories, net

 

1,748

 

1,445

Contract assets

 

2,346

 

(442)

Accounts payable

 

140

 

(1,663)

Income taxes payable

 

(1,634)

 

(4,735)

Accrued expenses

 

3,090

 

(2,104)

Deferred compensation

 

(1,527)

 

418

Deferred revenue

 

322

 

4,166

Other assets and liabilities

 

(3,281)

 

(1,775)

Net cash provided by operating activities

 

3,583

 

(2,352)

Cash flows from investing activities:

 

  

 

  

Purchase of short term investments

 

(25,234)

 

(6,642)

Maturities of short term investments

 

7,565

 

6,500

Additions to property and equipment

 

(755)

 

(1,516)

Other

 

(16)

 

(13)

Net cash provided by (used in) investing activities

 

(18,440)

 

(1,671)

Cash flows from financing activities:

 

  

 

  

Tax payments for restricted stock issuances

 

(2,139)

 

(293)

Net cash used in financing activities

 

(2,139)

(293)

Effect of exchange rate changes on cash

 

(558)

 

(342)

Net increase (decrease) in cash

 

(17,554)

 

(4,658)

Cash, cash equivalents, and restricted cash, beginning of period

 

89,241

 

85,129

Cash, cash equivalents, and restricted cash, end of period (1.)

$

71,687

$

80,471

(1.)End of period cash, cash equivalents, and restricted cash includes $0.9 million and $0.8 million of restricted cash at March 31, 2021 and March 31, 2020, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.

7

Table of Contents

OneSpan Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Unless otherwise noted, references in this Quarterly Report on Form 10-Q to “OneSpan,” “Company,” “we,” “our,” and “us,” refer to OneSpan Inc. and its subsidiaries.

Note 1 – Description of the Company and Basis of Presentation

Description of the Company

OneSpan Inc. and its wholly owned subsidiaries design, develop, market and support hardware and software security systems that manage and secure access to information assets. OneSpan has operations in Austria, Australia, Belgium, Brazil, Canada, China, France, Japan, The Netherlands, Singapore, Switzerland, the United Arab Emirates, the United Kingdom (U.K), and the United States (U.S.).

In accordance with ASC 280, Segment Reporting, our operations are reported as a single operating segment. The chief operating decision maker is the Chief Executive Officer who reviews the statement of operations of the Company on a consolidated basis, makes decisions and manages the operations of the Company as a single operating segment.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of OneSpan and its subsidiaries and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of the interim periods presented. All intercompany accounts and transactions have been eliminated. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021, particularly in light of the novel coronavirus (COVID-19) pandemic and its effects on domestic and global economies.

We continue to actively address the effects of the COVID-19 pandemic and its impact globally. Beginning in the Summer of 2020 and continuing through the remainder of 2020, we experienced lengthened sales cycles and reduced demand for some of our security solutions due to economic uncertainty connected to the COVID-19 pandemic. While we hope that the negative consequences on our business associated with the COVID-19 pandemic will subside in 2021, we cannot predict the impact with certainty.

Revision of Previously Issued Financial Statements

We have revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10-Q related to immaterial errors. The errors relate to certain contracts with customers involving term-based software licenses and related maintenance and support services. 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 in prior periods.

We evaluated the aggregate effects of the errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108 and, based upon quantitative and qualitative factors, determined that the errors were not material to the previously issued financial statements and disclosures included in our

8

Table of Contents

Annual Reports on Form 10-K for the years ended December 31, 2019 and 2018, or for any quarterly periods included therein or through our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

The following tables present the effects of the aforementioned revisions on our unaudited condensed consolidated statement of operations for the three months ended March 31, 2020, our unaudited condensed consolidated statement of comprehensive loss for the three months ended March 31, 2020, our unaudited condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2020, and our unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2020 (in thousands).

Condensed Consolidated Statement of Operations (Unaudited)

Three Months Ended March 31, 2020

in thousands

    

As Previously Reported

    

Adjustments

As Revised

Revenue

 

  

 

  

Product and license

$

38,260

$

$

38,260

Services and other

 

18,232

(122)

 

18,110

Total revenue

 

56,492

(122)

 

56,370

Gross Profit

 

40,422

(122)

 

40,300

Operating income

 

947

(122)

 

825

Income before income taxes

 

816

(122)

 

694

Provision for income taxes

 

718

(28)

 

690

Net Income

98

(94)

4

9

Table of Contents

Condensed Consolidated Statement of Comprehensive Loss (Unaudited)

Three Months Ended March 31, 2020

in thousands

As Previously Reported

    

Adjustments

As Revised

Net income

$

98

$

(94)

$

4

Comprehensive loss

(4,186)

(94)

(4,280)

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

Total Stockholders' Equity

in thousands

    

As Previously Reported

    

Adjustments

As Revised

Balance at December 31, 2019

$

264,021

$

(1,727)

$

262,294

Net income

98

(94)

4

Balance at March 31, 2020

$

260,639

$

(1,822)

$

258,817

Condensed Consolidated Statement of Cash Flows (Unaudited)

Three months ended March 31, 2020

in thousands

As Previously Reported

    

Adjustments

As Revised

Cash flows from operating activities:

 

  

 

  

Net income

$

98

$

(94)

$

4

Changes in operating assets and liabilities:

 

  

 

 

  

Contract assets

 

(564)

 

122

 

(442)

Income taxes payable

(4,707)

(28)

(4,735)

Net cash used in operating activities

 

(2,352)

 

 

(2,352)

Principles of Consolidation

The consolidated financial statements include the accounts of OneSpan Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Foreign Currency Translation and Transactions

The financial position and results of the operations of the majority of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. Accordingly, assets and liabilities are translated into U.S. Dollars using current exchange rates as of the balance sheet date. Revenue and expenses are translated at average exchange rates prevailing during the year. Translation adjustments arising from differences in exchange rates are charged or credited to other comprehensive income (loss). Gains and losses resulting from foreign currency transactions are included in the condensed consolidated statements of operations in other income (expense), net. Foreign exchange transaction losses aggregated $0.7 million for the three months ended March 31, 2021 and $0.5 million for the three months ended March 31, 2020.

The financial position and results of our operations in Singapore, Switzerland, and Canada are measured in U.S. Dollars. For these subsidiaries, gains and losses that result from foreign currency transactions are included in the consolidated statements of operations in other income (expense), net.

10

Table of Contents

Note 2 – Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 25, 2021 that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

Cash, Cash Equivalents and Restricted Cash

We are in lease agreements that require letters of credit to secure the obligations. The restricted cash related to these letters of credit is recorded in other non-current assets on the Condensed Consolidated Balance Sheet in the amounts of $0.9 million and $0.8 million at March 31, 2021 and December 31, 2020, respectively.

Equity Method Investment

We apply the equity method of accounting to our investment in Promon AS (Promon), because we exercise significant influence, but not controlling interest, in the investee. Promon is a technology company headquartered in Norway that specializes in mobile app security, whose solutions focus largely on Runtime Application Self-Protection (RASP). We exercise significant influence over Promon as a result of our 17% ownership interest in Promon, our representation on Promon’s Board of Directors, and the significance to Promon of our business activities with them. We integrate Promon’s RASP technology into our software solution, which are licensed to our customers. Under the equity method of accounting, the Company’s proportionate share of the net earnings (losses) of Promon is reported in other income (expense), net in our condensed consolidated Statements of Operations. The impact of the proportionate share of net earnings (losses) were immaterial for the three months ended March 31, 2021 and 2020 as were the relative size of Promon’s assets and operations in relation to the Company’s. The carrying value of our equity method investment is reported in other noncurrent assets in the condensed consolidated Balance Sheets and is reported originally at cost and adjusted each period for the Company’s share of the investee’s earnings (losses) and dividends paid, if any. The Company also assesses the investment for impairment whenever events or changes in circumstances indicate that the carrying value of the investment may not be recoverable. The Company did not record any impairment charges during the three month periods ended March 31, 2021 and 2020. The Company recorded $1.6 million and $1.2 million in costs of sales during the three months ended March 31, 2021 and March 31, 2020, respectively for license fees owed to Promon for use of their software and technology. The Company owed Promon $2.7 million as of March 31, 2021, which is included in accounts payable and accrued liabilities.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Simplification for Accounting for Income Taxes, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2020-12 was effective beginning January 1, 2021. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and can be applied through December 31, 2022. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, our management believes that the issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

11

Table of Contents

Note 3 – Revenue

We recognize revenue in accordance with ASC 606 “Revenue from Contracts with Customers” (“Topic 606”), as described below.

Disaggregation of Revenues

The following tables present our revenues disaggregated by major products and services, geographical region and timing of revenue recognition.

Revenue by major products (in thousands)

Three months ended March 31, 

2021

    

2020

Hardware products

$

17,668

$

19,738

Software licenses

10,777

18,522

Subscription

8,405

5,707

Professional services

1,402

1,421

Maintenance, support and other

12,523

10,982

Total Revenue

$

50,775

$

56,370

Revenue by location of customer for the three months ended March 31, 2021 and 2020 (in thousands)

EMEA

    

Americas

    

APAC

    

Total

Total Revenue:

 

  

 

  

 

  

 

2021

$

26,989

$

16,528

$

7,258

$

50,775

2020

$

33,604

$

12,333

$

10,433

$

56,370

Percent of Total:

 

 

 

 

2021

 

53

%  

 

33

%  

 

14

%  

 

100

%

2020

 

59

%  

 

22

%  

 

19

%  

 

100

%

Timing of revenue recognition (in thousands)

Three months ended March 31, 

2021

2020

Products and Licenses transferred at a point in time

$

28,445

$

38,260

Services transferred over time

22,330

18,110

Total Revenue

$

50,775

$

56,370

Contract balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.

March 31,

December 31,

2021

2020

Receivables, inclusive of trade and unbilled

$

47,892

$

57,537

Contract Assets (current and non-current)

$

6,453

$

9,079

Contract Liabilities (Deferred Revenue current and non-current)

$

54,813

$

55,147

12

Table of Contents

Contract assets relate primarily to multi-year term license arrangements and the remaining contractual billings. These contract assets are transferred to receivables when the right to billing occurs, which is normally over 3-5 years. The contract liabilities primarily relate to the advance consideration received from customers for subscription and maintenance services. Revenue is recognized for these services over time.

As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less. We do not typically include extended payment terms in our contracts with customers.

Revenue recognized during the three months ended March 31, 2021 included $15.0 million that was included on the December 31, 2020 balance sheet in contract liabilities. Deferred revenue increased in the same period due to timing of annual renewals.

Transaction price allocated to the remaining performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

in thousands

2021

2022

2023

Beyond 2023

Total

Future revenue related to current unsatisfied performance obligations

$

17,467

$

15,600

$

10,020

$

6,652

$

49,739

The Company applies practical expedients and does not disclose information about remaining performance obligations (a) that have original expected durations of one year or less, or (b) where revenue is recognized as invoiced.

Costs of obtaining a contract

The Company incurs incremental costs related to commissions, which can be directly tied to obtaining a contract. The Company capitalizes commissions associated with certain new contracts and amortizes the costs over a period of benefit based on the transfer of goods or services that we have determined to be up to seven years. The Amortization is reflected in Sales and Marketing in the Statements of Operations. We determined the period of benefit by taking into consideration our customer contracts, our technology and other factors, including customer attrition. Commissions are earned upon invoicing to the customer. For contracts with multiple year payment terms, as the commissions that are payable after year 1 are payable based on continued employment, they are expensed when incurred. Commissions and amortization expense are included in Sales and Marketing expenses on the condensed consolidated statements of operations.

Applying the practical expedient, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period for the assets that the Company otherwise would have recognized is one year or less. These costs are included in Sales and Marketing expense in the condensed consolidated statements of operations.

The following tables provide information related to the capitalized costs and amortization recognized in the current and prior periods:

in thousands

March 31,  2021

December 31, 2020

Capitalized costs to obtain contracts, current

$

1,380

$

1,222

Capitalized costs to obtain contracts, non-current

$

5,635

$

5,464

13

Table of Contents

Three months ended March 31, 

in thousands

2021

2020

Amortization of capitalized costs to obtain contracts

$

310

$

169

Impairments of capitalized costs to obtain contracts

$

-

$

-

Note 4 – Inventories, net

Inventories, net, consisting principally of hardware and component parts, are stated at the lower of cost or net realizable value. Cost is determined using the FIFO method.

Inventories, net are comprised of the following:

March 31, 

December 31, 

    

2021

    

2020

(in thousands)

Component parts

$

5,372

$

5,439

Work-in-process and finished goods

 

5,974

 

7,654

Total

$

11,346

$

13,093

Note 5 – Goodwill

Goodwill activity for the three months ended March 31, 2021 consisted of the following:

in thousands

Net balance at December 31, 2020

    

$

97,552

Net foreign currency translation

 

(99)

Net balance at March 31, 2021

$

97,453

No impairment of goodwill was recorded during the three months ended March 31, 2021 or March 31, 2020.

Note 6 – Intangible Assets

Intangible asset activity for the three months ended March 31, 2021 is detailed in the following table.

    

in thousands

    

Acquired Technology

    

Customer Relationships

    

              Other              

    

Total Intangible Assets

Net balance at December 31, 2020

$

2,277

$

23,200

$

1,719

$

27,196

Additions

 

2

14

 

16

Disposals

(21)

(21)

Net foreign currency translation

 

17

66

(4)

 

79

Amortization expense

 

(387)

(999)

(187)

 

(1,573)

Net balance at March 31, 2021

$

1,909

$

22,267

$

1,521

$

25,697

March 31, 2021 balance at cost

$

43,405

$

40,055

$

13,555

$

97,015

Accumulated amortization

 

(41,496)

 

(17,788)

 

(12,034)

 

(71,318)

Net balance at March 31, 2021

$

1,909

$

22,267

$

1,521

$

25,697

Certain intangible assets are denominated in functional currencies besides the U.S. dollar and are subject to currency fluctuations. No impairment of intangible assets was recorded during the three months ended March 31, 2021 or March 31, 2020.

14

Table of Contents

Note 7 – Property and Equipment

The major classes of property and equipment are as follows:

in thousands

    

March 31, 2021

    

December 31, 2020

Office equipment and software

$

13,788

$

13,540

Leasehold improvements

10,388

10,593

Furniture and fixtures

 

3,875

 

3,827

Total

 

28,051

 

27,960

Accumulated depreciation

 

(16,329)

 

(16,125)

Property and equipment, net

$

11,722

$

11,835

Depreciation expense was $0.7 million and $0.7 million for the three months ended March 31, 2021 and March 31, 2020, respectively.

Note 8 – Fair Value Measurements

The fair values of cash equivalents, receivables, net, and accounts payable approximate their carrying amounts

due to their short duration. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing base upon its own market assumptions.

The Company classifies its investments in debt securities as available-for-sale. In accordance with ASU 2016-13, Measurement of Credit Losses on Financial Instruments, we review available-for-sale debt securities for impairments related to losses and other factors each quarter. Unrealized gains and losses are recorded to other comprehensive income. The unrealized gains and losses on the available-for-sale debt securities were not material as of March 31, 2021 and December 31, 2020.

The estimated fair value of our financial instruments has been determined by using available market information and appropriate valuation methodologies, as defined in ASC 820, Fair Value Measurements. The fair value hierarchy consists of the following three levels:

Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived primarily from or corroborated by observable market data.
Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

15

Table of Contents

The following tables summarize assets that are measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:

Fair Value Measurement at Reporting Date Using

in thousands

March 31, 2021

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Assets:

U.S. Treasury Notes

$

2,439

-

$

2,439

-

Corporate Notes / Bonds

$

13,307

-

$

13,307

-

Commercial Paper

$

7,596

-

$

7,596

-

U.S. Treasury Bills

$

4,824

-

$

4,824

-

U.S. Government Agencies

$

16,223

-

$

16,223

-