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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

OneSpan Reports Results for Fourth Quarter and Full Year 2019; Exceeds Full Year 2019 Financial Guidance

March 3, 2020 GMT

Fourth Quarter Financial Results

-- Q4 Total revenue up 10% to $71.0 million -- Q4 Software revenue grew 63% to $25.5 million1 -- Q4 Adjusted EBITDA of $13.3 million2 -- Q4 GAAP earnings per share of $0.13 -- Q4 Non-GAAP earnings per share of $0.242

2019 Financial Results

-- FY Total revenue up 20% to $254.6 million -- FY Software revenue grew 26% to $79.4 million1 -- FY Adjusted EBITDA of $32.9 million2 -- FY GAAP earnings per share of $0.22 -- FY Non-GAAP earnings per share of $0.542

CHICAGO, March 03, 2020 (GLOBE NEWSWIRE) -- OneSpan Inc. (NASDAQ: OSPN), a global leader in software for trusted identities, e-signatures and secure transactions, today reported financial results for the fourth quarter and full year ended December 31, 2019.

“Our transformation continues to yield positive results as we enjoyed an impressive fourth quarter with software license revenue up 73% and subscription revenue up 37% contributing to total software revenue growth of 63%,” stated OneSpan CEO, Scott Clements. “For the full year, we exceeded the high-end of our previously increased revenue and Adjusted EBITDA guidance. Total revenue increased 20% to $255 million, our highest year ever. Subscription revenue grew 44% and total software revenue grew 26%. We continue to make progress on our TID strategy with additional implementations and a strong pipeline of opportunities for 2020.”

Fourth Quarter and Full Year 2019 Financial Highlights

-- Revenue for the fourth quarter of 2019 was $71.0 million, an increase of 10% from $64.8 million for the fourth quarter of 2018. Revenue for the full year 2019 was $254.6 million, an increase of 20% from $212.3 million for the full year 2018. -- Gross Profit for the fourth quarter of 2019 was $49.6 million and $172.6 million for the full year 2019. Gross Profit for the fourth quarter of 2018 was $42.2 million and $147.5 million for the full year 2018. Gross margin for the fourth quarter of 2019 was 70% and for the full year 2019 was 68%. Gross margin for the fourth quarter of 2018 was 65% and for the full year 2018 was 69%. -- GAAP operating income for the fourth quarter of 2019 was $5.9 million, and for the full year 2019 was $15.3 million. GAAP operating income for the fourth quarter of 2018 was $4.1 million, and for the full year 2018 was less than $0.1 million. -- Adjusted EBITDA for the fourth quarter of 2019 was $13.3 million, or 19% of revenue, and for the full year 2019 was $32.9 million, or 13% of revenue. Adjusted EBITDA for the fourth quarter of 2018 was $9.1 million, or 14% of revenue, and for the full year 2018 was $21.6 million, or 10% of revenue. -- GAAP net income for the fourth quarter of 2019 was $5.1 million, or $0.13 per share. GAAP net income for the full year 2019 was $8.8 million, or $0.22 per share. This compares to GAAP net income of $4.0 million, or $0.10 per share for the fourth quarter of 2018, and $3.8 million or $0.10 per share for the full year 2018. -- Non-GAAP net income for the fourth quarter of 2019 was $9.6 million, or $0.24 per share, and for the full year 2019 was $21.6 million, or $0.54 per share. Non-GAAP net income for the fourth quarter of 2018 was $6.8 million, or $0.17 per share, and for the full year 2018 was $14.5 million, or $0.36 per share. -- Cash, cash equivalents and short-term investments at December 31, 2019 totaled $109.8 million compared to $81.3 million and $99.5 million at September 30, 2019 and December 31, 2018, respectively.

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1 Software revenue is comprised of software license revenue and subscription revenue.2 An explanation of the use of non-GAAP measures is included below under the heading “Non-GAAP Financial Measures.” A reconciliation of GAAP to non-GAAP financial measures has also been provided in tables below.

Guidance Commentary and Full Year 2020 Outlook

In 2020, OneSpan is initiating a program to accelerate its transition to recurring revenue through term license and subscription contracts while deemphasizing perpetual license sales. Over time, this is expected to accelerate the company’s software revenue growth and improve predictability. This transition will have a modest negative impact to the company’s 2020 revenue and Adjusted EBITDA before becoming additive in later periods.

The company also expects 2020 Adjusted EBITDA to be impacted by increased investment in Research & Development and Sales & Marketing to capture growth. This is partially offset by increases in gross margin as the business mix shifts to a higher proportion of revenue from software solutions and less from hardware products.

“With our expanded portfolio of Trusted Identity solutions and the strong momentum in sales of our software and service offerings during the second half of 2019, this is the ideal time to increase our focus on recurring revenue growth,” said Scott Clements.

For the Full Year 2020, OneSpan currently expects:

-- Revenue in the range of $255 million to $265 million. -- Adjusted EBITDA in the range of $24 million to $28 million.

OneSpan Strengthens Board with Appointment of Two New Directors

OneSpan announced in a separate press release issued today, the appointment of two new members to its Board of Directors, effective March 15, 2020. The new directors, Ms. Naureen Hassan and Ms. Marianne Johnson, bring decades of banking, financial and cloud technology experience at leading companies to OneSpan. The appointments of Ms. Hassan and Ms. Johnson expands OneSpan’s Board of Directors from eight to ten members. Conference Call Details

In conjunction with this announcement, OneSpan Inc. will host a conference call today, March 3, 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 fourth quarter and full year 2019.

To access the conference call, dial 866-354-0181 for the U.S. or Canada and 1-409-217-8086 for international callers. The conference ID number is 5429439.

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 enables financial institutions and other organizations to succeed by making bold advances in their digital transformation. We do this by establishing trust in people’s identities, the devices they use, and the transactions that shape their lives. We believe that this is the foundation of enhanced business enablement and growth. More than 10,000 customers, including over half of the top 100 global banks, rely on OneSpan solutions to protect their most important relationships and business processes. From digital onboarding to fraud mitigation to workflow management, OneSpan’s unified, open platform reduces costs, accelerates customer acquisition, and increases customer satisfaction. Learn more about OneSpan at OneSpan.com and on Twitter, LinkedIn and Facebook.

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 forward-looking statements include, but are not limited to, our financial outlook for 2019, and the information included under the caption “Outlook for Full Year 2019”. 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 Twelve Months Ended December 31, December 31, ------------------ ------------------------ 2019 2018 2019 2018 -------- -------- ----------- ----------- Revenue Product and license $ 51,014 $ 47,615 $ 184,173 $ 152,977 Services and other 19,989 17,184 70,397 59,303 - ------ - ------ - ------- - - ------- - Total revenue 71,003 64,799 254,570 212,280 Cost of goods sold Product and license 16,427 17,809 63,393 50,706 Services and other 4,947 4,744 18,569 14,107 - ------ - ------ - ------- - - ------- - Total cost of goods sold 21,374 22,553 81,962 64,813 Gross profit 49,629 42,246 172,608 147,467 Operating costs Sales and marketing 16,924 16,867 61,503 63,805 Research and development 10,035 9,392 42,463 32,197 General and administrative 14,357 9,421 43,897 41,589 Amortization / impairment of intangible assets 2,419 2,465 9,470 9,852 - ------ - ------ - ------- - - ------- - Total operating costs 43,735 38,145 157,333 147,443 - ------ - ------ - ------- - - ------- - Operating income 5,894 4,101 15,275 24 Interest income, net 315 274 747 1,265 Other income (expense), net 1,184 239 (527 ) 2,264 - ------ - ------ - ------- - - ------- - Income before income taxes 7,393 4,614 15,495 3,553 Provision (benefit) for income taxes 2,343 650 6,706 (293 ) - ------ - ------ - ------- - - ------- - Net income $ 5,050 $ 3,964 $ 8,789 $ 3,846 - ------ - ------ - ------- - - ------- - Net income per share Basic $ 0.13 $ 0.10 $ 0.22 $ 0.10 - ------ - ------ - ------- - - ------- - Diluted $ 0.13 $ 0.10 $ 0.22 $ 0.10 - ------ - ------ - ------- - - ------- - Weighted average common shares outstanding Basic 40,076 39,957 40,050 39,932 - ------ - ------ - ------- - - ------- - Diluted 40,176 40,055 40,136 40,046 - ------ - ------ - ------- - - ------- -

OneSpan Inc.CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, unaudited)

December 31, ------------------------ 2019 2018 ----------- ----------- ASSETS Current assets Cash and equivalents $ 84,282 $ 76,708 Short term investments 25,511 22,789 Accounts receivable, net of allowances of $2,524 in 2019 and $1,152 in 2018 62,405 59,631 Inventories, net 19,819 14,428 Prepaid expenses 6,198 4,733 Contract assets 7,058 7,962 Other current assets 6,346 5,705 - ------- - - ------- - Total current assets 211,619 191,956 Property and equipment, net 11,454 6,250 Operating lease right-of-use assets 10,580 — Goodwill 94,612 91,841 Intangible assets, net of accumulated amortization 36,209 45,462 Deferred income taxes 7,863 5,601 Contract assets - non-current 3,565 3,316 Other assets 8,668 8,400 - ------- - - ------- - Total assets $ 384,570 $ 352,826 - ------- - - ------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 10,835 $ 7,202 Deferred revenue 30,338 33,633 Accrued wages and payroll taxes 15,415 13,932 Short-term income taxes payable 7,711 6,905 Other accrued expenses 8,786 9,323 Deferred compensation 1,028 1,362 - ------- - - ------- - Total current liabilities 74,113 72,357 Long-term deferred revenue 15,259 10,672 Long-term lease liability 11,299 — Other long-term liabilities 8,297 7,075 Long-term income taxes payable 6,958 7,620 Deferred income taxes 4,623 2,661 - ------- - - ------- - Total liabilities 120,549 100,385 - ------- - - ------- - Stockholders’ equity Preferred stock: 500 shares authorized, none issued and outstanding at December 31, — — 2019 and 2018 Common stock: $.001 par value per share, 75,000 shares authorized; 40,406 and 40,225 40 40 issued and outstanding at December 31, 2019 and 2018, respectively Additional paid-in capital 96,109 93,310 Accumulated income 181,167 172,378 Accumulated other comprehensive loss (13,295 ) (13,287 ) - ------- - - ------- - Total stockholders’ equity 264,021 252,441 - ------- - - ------- - Total liabilities and stockholders’ equity $ 384,570 $ 352,826 - ------- - - ------- -

OneSpan Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands, unaudited)

Twelve months ended December 31, ------------------------ 2019 2018 ----------- ----------- Cash flows from operating activities: Net income (loss) from operations $ 8,789 $ 3,846 Adjustments to reconcile net income (loss) from operations to net cash provided by (used in) operations: Depreciation, amortization, and impairment of intangible assets 11,545 12,138 Loss (gain) on disposal of assets 69 (49 ) Deferred tax expense (benefit) (1,624 ) (7,431 ) Stock-based compensation 3,368 3,973 Changes in operating assets and liabilities: Accounts receivable, net (3,414 ) (11,960 ) Inventories, net (5,391 ) (2,388 ) Contract assets 655 (3,110 ) Accounts payable 3,628 (1,475 ) Income taxes payable 318 (2,541 ) Accrued expenses (1,286 ) 2,211 Deferred compensation (334 ) (291 ) Deferred revenue 1,465 9,538 Other assets and liabilities 456 (1,235 ) - ------- - - ------- - Net cash provided by operating activities 18,244 1,226 - ------- - - ------- - Cash flows from investing activities: Adjustments to reconcile net income (loss) from operations to net cash provided by (used in) operations: Purchase of short term investments (33,839 ) (22,820 ) Maturities of short term investments 31,399 80,000 Purchase of Dealflo, net of cash acquired — (53,065 ) Additions to property and equipment (7,453 ) (3,685 ) Other — (236 ) - ------- - - ------- - Net cash provided by (used in) investing activities (9,893 ) 194 - ------- - - ------- - Cash flows from financing activities: Tax payments for restricted stock issuances (569 ) (970 ) - ------- - - ------- - Net cash used in financing activities (569 ) (970 ) - ------- - - ------- - Effect of exchange rate changes on cash (208 ) (1,556 ) - ------- - - ------- - Net increase (decrease) in cash 7,574 (1,106 ) Cash, cash equivalents, and restricted cash, beginning of period 77,555 78,661 - ------- - - ------- - Cash, cash equivalents, and restricted cash, end of period $ 85,129 $ 77,555 - ------- - - ------- -

Revenue by major products and services (in thousands, unaudited):

Three months ended Twelve months ended December 31, December 31, ------------------ -------------------- 2019 2018 2019 2018 -------- -------- --------- --------- Hardware products $ 31,649 $ 36,437 $ 127,005 $ 105,560 Software licenses 19,365 11,178 57,168 47,417 Subscription 6,114 4,477 22,250 15,426 Professional services 1,764 2,028 5,759 5,743 Maintenance, support and other 12,111 10,679 42,388 38,134 - ------ - ------ - ------- - ------- Total Revenue $ 71,003 $ 64,799 $ 254,570 $ 212,280 - ------ - ------ - ------- - -------

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 Twelve Months Ended December 31, December 31, --------------------- ---------------------- 2019 2018 2019 2018 ---------- --------- ---------- ---------- Net income $ 5,050 $ 3,964 $ 8,789 $ 3,846 Interest income, net (315 ) (274 ) (747 ) (1,265 ) Provision for income taxes 2,343 650 6,706 (293 ) Depreciation and amortization / impairment of intangible assets 2,966 3,072 11,545 12,138 Long-term incentive compensation 2,008 1,708 5,324 6,091 Non-recurring items 1,250 — 1,250 1,063 - ------ - - ----- - - ------ - - ------ - Adjusted EBITDA $ 13,302 $ 9,120 $ 32,867 $ 21,580 - ------ - - ----- - - ------ - - ------ -

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 Twelve Months Ended December 31, December 31, ---------------------- ---------------------- 2019 2018 2019 2018 ---------- ---------- ---------- ---------- Net income $ 5,050 $ 3,964 $ 8,789 $ 3,846 Long-term incentive compensation 2,008 1,708 5,324 6,091 Amortization / impairment of intangible assets 2,419 2,465 9,470 9,852 Non-recurring items 1,250 (488 ) 1,250 (1,933 ) Tax impact of adjustments* (1,135 ) (835 ) (3,209 ) (3,401 ) - ------ - - ------ - - ------ - - ------ - Non-GAAP net income $ 9,592 $ 6,814 $ 21,624 $ 14,455 - ------ - - ------ - - ------ - - ------ - Non-GAAP net income per share $ 0.24 $ 0.17 $ 0.54 $ 0.36 - ------ - - ------ - - ------ - - ------ - Weighted average number of shares used to compute Non-GAAP 40,176 40,055 40,136 40,046 diluted earnings per share - ------ - - ------ - - ------ - - ------ -

*The tax impact of adjustments is calculated as 20% of the adjustments in all periods.

Copyright© 2020 OneSpan North America Inc., all rights reserved. OneSpan™, the “O” logo, “BE BOLD. BE SECURE.”™, DIGIPASS® and CRONTO® are registered or unregistered trademarks of OneSpan North America Inc. or its affiliates in the U.S. and other countries. Any other trademarks cited herein are the property of their respective owners.

Investor contact:Joe MaxaM: +1-612‑247‑8592O: +1-312-766-4009 Joe.Maxa@onespan.com