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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, 2022

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 40,020,902 shares of Common Stock, $.001 par value per share, outstanding at April 29, 2022.

​

​

Table of Contents

OneSpan Inc.

Form 10-Q

For the Quarter Ended March 31, 2022

Table of Contents

​ | ​ | ​
--- | --- | ---
​ | ​
PART I. FINANCIAL INFORMATION | ​
​ | ​ | ​
Item 1. | Financial Statements | ​
​ | ​ | ​
​ | Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2022 and December 31, 2021 | 3
​ | ​ | ​
​ | Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2022 and 2021 | 4
​ | ​ | ​
​ | Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three months ended March 31, 2022 and 2021 | 5
​ | ​ | ​
​ | Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three months ended March 31, 2022 and 2021 | 6
​ | ​ | ​
​ | Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2022 and 2021 | 7
​ | ​ | ​
​ | Notes to Condensed Consolidated Financial Statements (Unaudited) | 8
​ | ​ | ​
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19
​ | ​ | ​
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 30
​ | ​ | ​
Item 4. | Controls and Procedures | 30
​ | ​
PART II. OTHER INFORMATION | ​
​ | ​ | ​
Item 1. | Legal Proceedings | 31
​ | ​ | ​
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 31
​ | ​ | ​
Item 6. | Exhibits | 32
​ | ​
SIGNATURES | 33

​

​

​

2

Table of Contents

OneSpan Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, | ​ | December 31,
​ | ​ | 2022 |  | 2021
ASSETS |  | ​ | ​ | ​ | ​ | ​
Current assets |  | ​ |  |  | ​ |
Cash and equivalents | ​ | $ | 83,645 | ​ | $ | 63,380
Short term investments | ​ |  | 36,302 | ​ |  | 35,108
Accounts receivable, net of allowances of $2,292 in 2022 and $1,419 in 2021 | ​ |  | 35,704 | ​ |  | 56,612
Inventories, net | ​ |  | 10,388 | ​ |  | 10,345
Prepaid expenses | ​ |  | 7,656 | ​ |  | 7,594
Contract assets | ​ | ​ | 5,410 | ​ | ​ | 4,694
Other current assets | ​ |  | 9,591 | ​ |  | 9,356
Total current assets | ​ |  | 188,696 | ​ |  | 187,089
Property and equipment, net | ​ |  | 10,253 | ​ |  | 10,757
Operating lease right-of-use assets | ​ | ​ | 8,849 | ​ | ​ | 9,197
Goodwill | ​ |  | 94,586 | ​ |  | 96,174
Intangible assets, net of accumulated amortization | ​ |  | 19,728 | ​ |  | 21,270
Deferred income taxes | ​ | ​ | 3,679 | ​ | ​ | 3,786
Contract assets - non-current | ​ | ​ | 318 | ​ | ​ | 195
Other assets | ​ |  | 9,802 | ​ |  | 13,803
Total assets | ​ | $ | 335,911 | ​ | $ | 342,271
LIABILITIES AND STOCKHOLDERS' EQUITY | ​ |  |  | ​ |  |
Current liabilities | ​ |  |  | ​ |  |
Accounts payable | ​ | $ | 7,231 | ​ | $ | 8,204
Deferred revenue | ​ |  | 50,988 | ​ |  | 54,617
Accrued wages and payroll taxes | ​ |  | 14,109 | ​ |  | 16,607
Short-term income taxes payable | ​ |  | 735 | ​ |  | 1,103
Other accrued expenses | ​ |  | 7,297 | ​ |  | 7,668
Deferred compensation | ​ |  | 80 | ​ |  | 877
Total current liabilities | ​ |  | 80,440 | ​ |  | 89,076
Long-term deferred revenue | ​ | ​ | 7,326 | ​ | ​ | 9,125
Long-term lease liabilities | ​ | ​ | 9,932 | ​ | ​ | 10,180
Other long-term liabilities | ​ |  | 7,554 | ​ |  | 7,770
Long-term income taxes payable | ​ | ​ | 5,054 | ​ | ​ | 5,054
Deferred income taxes | ​ |  | 2,010 | ​ |  | 1,286
Total liabilities | ​ |  | 112,316 | ​ |  | 122,491
Stockholders' equity | ​ |  |  | ​ |  |
Preferred stock: 500 shares authorized, none issued and outstanding at March 31, 2022 and December 31, 2021 | ​ |  | — | ​ |  | —
Common stock: $.001 par value per share, 75,000 shares authorized; 40,613 and 40,593 shares issued; 40,021 and 40,001 shares outstanding at March 31, 2022 and December 31, 2021, respectively | ​ |  | 40 | ​ |  | 40
Additional paid-in capital | ​ |  | 100,975 | ​ |  | 100,250
Treasury stock, at cost, 592 and 592 shares outstanding at March 31, 2022 and December 31, 2021, respectively | ​ | ​ | (12,501) | ​ | ​ | (12,501)
Retained earnings | ​ |  | 148,387 | ​ |  | 143,173
Accumulated other comprehensive loss | ​ |  | (13,306) | ​ |  | (11,182)
Total stockholders' equity | ​ |  | 223,595 | ​ |  | 219,780
Total liabilities and stockholders' equity | ​ | $ | 335,911 | ​ | $ | 342,271

​

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)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, | ​
​ |  | 2022 |  | 2021 | ​
Revenue |  | ​ |  |  | ​ |  |
Product and license | ​ | $ | 29,485 | ​ | $ | 28,445 | ​
Services and other | ​ |  | 22,962 | ​ |  | 22,330 | ​
Total revenue | ​ |  | 52,447 | ​ |  | 50,775 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cost of goods sold | ​ |  |  | ​ |  |  | ​
Product and license | ​ |  | 9,079 | ​ |  | 10,752 | ​
Services and other | ​ |  | 6,690 | ​ |  | 5,781 | ​
Total cost of goods sold | ​ |  | 15,769 | ​ |  | 16,533 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Gross profit | ​ |  | 36,678 | ​ |  | 34,242 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Operating costs | ​ |  |  | ​ |  |  | ​
Sales and marketing | ​ |  | 15,895 | ​ |  | 17,168 | ​
Research and development | ​ |  | 13,749 | ​ |  | 12,244 | ​
General and administrative | ​ |  | 14,895 | ​ |  | 12,551 | ​
Amortization of intangible assets | ​ |  | 1,382 | ​ |  | 1,573 | ​
Total operating costs | ​ |  | 45,921 | ​ |  | 43,536 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Operating loss | ​ |  | (9,243) | ​ |  | (9,294) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest income (expense), net | ​ |  | (17) | ​ |  | 4 | ​
Other income (expense), net | ​ |  | 15,647 | ​ |  | (362) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Income (loss) before income taxes | ​ |  | 6,387 | ​ |  | (9,652) | ​
Provision (benefit) for income taxes | ​ |  | 1,173 | ​ |  | (501) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net income (loss) | ​ | $ | 5,214 | ​ | $ | (9,151) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net income (loss) per share | ​ |  |  | ​ |  |  | ​
Basic | ​ | $ | 0.13 | ​ | $ | (0.23) | ​
Diluted | ​ | $ | 0.13 | ​ | $ | (0.23) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Weighted average common shares outstanding | ​ |  |  | ​ |  |  | ​
Basic | ​ |  | 39,577 | ​ |  | 39,996 | ​
Diluted | ​ |  | 39,687 | ​ |  | 39,996 | ​

​

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,
​ |  | 2022 |  | 2021
Net income (loss) |  | $ | 5,214 |  | $ | (9,151)
Other comprehensive loss | ​ | ​ | ​ | ​ | ​ | ​
Cumulative translation adjustment, net of tax |  | ​ | (2,020) |  | ​ | (919)
Pension adjustment, net of tax |  | ​ | (25) |  | ​ | —
Unrealized losses on available-for-sale securities | ​ | ​ | (79) | ​ | ​ | (15)
Comprehensive income (loss) |  | $ | 3,090 |  | $ | (10,085)

​

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, 2022:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ |  | ​ | ​ |  | ​ | ​ | ​ | ​ |  |  | ​ |  |  | ​ |  | Accumulated |  |  | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Additional | ​ | ​ | ​ | ​ | Other | ​ | Total
​ | ​ | Common Stock | ​ | Treasury - Common Stock | ​ | Paid-In | ​ | Retained | ​ | Comprehensive | ​ | Stockholders'
Description | ​ | Shares | ​ | Amount | ​ | Shares | ​ | Amount | ​ | Capital | ​ | Earnings | ​ | Income (Loss) | ​ | Equity
Balance at December 31, 2021 |  | 40,001 | ​ | $ | 40 | ​ | 592 | ​ | ​ | (12,501) | ​ | $ | 100,250 | ​ | $ | 143,173 | ​ | $ | (11,182) | ​ | $ | 219,780
Net income (loss) |  | — | ​ |  | — | ​ | — | ​ | ​ | — | ​ |  | — | ​ |  | 5,214 | ​ |  | — | ​ |  | 5,214
Foreign currency translation adjustment, net of tax |  | — | ​ |  | — | ​ | — | ​ | ​ | — | ​ |  | — | ​ |  | — | ​ |  | (2,020) | ​ |  | (2,020)
Restricted stock awards |  | 34 | ​ |  | — | ​ | — | ​ | ​ | — | ​ |  | 1,360 | ​ |  | — | ​ |  | — | ​ |  | 1,360
Tax payments for stock issuances |  | (14) | ​ |  | — | ​ | — | ​ | ​ | — | ​ |  | (635) | ​ |  | — | ​ |  | — | ​ |  | (635)
Unrealized gain (loss) on available-for-sale securities | ​ | — | ​ | ​ | — | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | (79) | ​ | ​ | (79)
Pension adjustment, net of tax |  | — | ​ |  | — | ​ | — | ​ | ​ | — | ​ |  | — | ​ |  | — | ​ |  | (25) | ​ |  | (25)
Balance at March 31, 2022 |  | 40,021 | ​ | $ | 40 | ​ | 592 | ​ | $ | (12,501) | ​ | $ | 100,975 | ​ | $ | 148,387 | ​ | $ | (13,306) | ​ | $ | 223,595

​

​

For the three months ended March 31, 2021:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  |  |  |  | ​ |  | ​ | ​ | ​ | ​ |  |  | ​ |  |  | ​ |  | Accumulated |  |  | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Additional | ​ | ​ | ​ | ​ | Other | ​ | Total
​ | ​ | Common Stock | ​ | Treasury - Common Stock | ​ | Paid-In | ​ | Retained | ​ | Comprehensive | ​ | Stockholders'
Description | ​ | Shares | ​ | Amount | ​ | Shares | ​ | Amount | ​ | Capital | ​ | Earnings | ​ | 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)
Pension adjustment, net of tax |  | — | ​ |  | — | ​ | — | ​ | ​ | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | —
Balance at March 31, 2021 |  | 40,265 | ​ | $ | 40 | ​ | 250 | ​ | $ | (5,030) | ​ | $ | 98,022 | ​ | $ | 164,602 | ​ | $ | (11,154) | ​ | $ | 246,480

​

​

​

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OneSpan Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)
​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31,
​ |  | 2022 |  | 2021
Cash flows from operating activities: |  | ​ |  |  | ​ |
Net income (loss) from operations | ​ | $ | 5,214 | ​ | $ | (9,151)
Adjustments to reconcile net loss from operations to net cash provided by (used in) operations: | ​ |  | ​ | ​ |  |
Depreciation and amortization of intangible assets | ​ |  | 2,097 | ​ |  | 2,310
Loss on disposal of assets | ​ |  | 1 | ​ |  | 22
Gain on sale of equity-method investment | ​ | ​ | (14,810) | ​ | ​ | —
Deferred tax benefit | ​ |  | 794 | ​ |  | (732)
Stock-based compensation | ​ |  | 1,360 | ​ |  | 1,342
Changes in operating assets and liabilities: | ​ |  | ​ | ​ |  | ​
Accounts receivable | ​ |  | 19,893 | ​ |  | 8,554
Allowance for doubtful accounts | ​ | ​ | 666 | ​ | ​ | 34
Inventories, net | ​ |  | (260) | ​ |  | 1,748
Contract assets | ​ |  | (904) | ​ |  | 2,346
Accounts payable | ​ |  | (941) | ​ |  | 140
Income taxes payable | ​ |  | (332) | ​ |  | (1,634)
Accrued expenses | ​ |  | (2,723) | ​ |  | 3,090
Deferred compensation | ​ |  | (797) | ​ |  | (1,527)
Deferred revenue | ​ |  | (5,156) | ​ |  | 322
Other assets and liabilities | ​ |  | (442) | ​ |  | (3,281)
Net cash provided by operating activities | ​ |  | 3,660 | ​ |  | 3,583
​ | ​ | ​ | ​ | ​ | ​ | ​
Cash flows from investing activities: | ​ |  |  | ​ |  |
​ | ​ | ​ | ​ | ​ | ​ | ​
Purchase of short term investments | ​ |  | (15,812) | ​ |  | (25,234)
Maturities of short term investments | ​ |  | 14,500 | ​ |  | 7,565
Additions to property and equipment | ​ |  | (272) | ​ |  | (755)
Additions to intangible assets | ​ |  | (7) | ​ |  | (16)
Sale of equity-method investment | ​ |  | 18,874 | ​ |  | —
Net cash provided by (used in) investing activities | ​ |  | 17,283 | ​ |  | (18,440)
​ | ​ | ​ | ​ | ​ | ​ | ​
Cash flows from financing activities: | ​ |  |  | ​ |  |
Tax payments for restricted stock issuances | ​ |  | (635) | ​ |  | (2,139)
Net cash used in financing activities | ​ |  | (635) | ​ | ​ | (2,139)
​ | ​ | ​ | ​ | ​ | ​ | ​
Effect of exchange rate changes on cash | ​ |  | (45) | ​ |  | (558)
​ | ​ | ​ | ​ | ​ | ​ | ​
Net increase (decrease) in cash | ​ |  | 20,263 | ​ |  | (17,554)
Cash, cash equivalents, and restricted cash, beginning of period | ​ |  | 64,228 | ​ |  | 89,241
Cash, cash equivalents, and restricted cash, end of period (1.) | ​ | $ | 84,491 | ​ | $ | 71,687

​

(1.) | End of period cash, cash equivalents, and restricted cash includes $0.8 million and $0.9 million of restricted cash at March 31, 2022 and March 31, 2021, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.

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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, 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, 2021.

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, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2022, 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. During the three months ended March 31, 2022, we experienced lengthened sales cycles and supply chain constraints in connection with the COVID-19 pandemic. In prior periods, we also experienced reduced demand for certain of our hardware products and software solutions. While we hope that the negative consequences on our business associated with the COVID-19 pandemic will subside, 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 costs directly related to the production and distribution of hardware products. The costs were not properly categorized in prior periods, which led to an understatement of product and license cost of goods sold and an overstatement of sales and marketing expense. There was no impact to previously reported revenue or net income.
​

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

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Annual Reports on Form 10-K for the years ended December 31, 2021 and 2020, or for any quarterly periods included therein or through our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021.
​

The following table presents the effects of the aforementioned revisions on our unaudited condensed consolidated statement of operations for the three months ended March 31, 2022.

​

Condensed Consolidated Statement of Operations (Unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended March 31, 2021
in thousands |  | As Previously Reported |  | Adjustments | ​ | As Revised
Cost of goods sold | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Product and license | ​ | $ | 9,541 | ​ | $ | 1,211 | ​ | $ | 10,752
Total cost of goods sold | ​ |  | 15,322 | ​ | ​ | 1,211 | ​ |  | 16,533
​ | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​
Gross profit | ​ | ​ | 35,453 | ​ | ​ | (1,211) | ​ | ​ | 34,242
​ | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​
Operating costs | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Sales and marketing | ​ |  | 18,379 | ​ | ​ | (1,211) | ​ |  | 17,168
Total operating costs | ​ |  | 44,747 | ​ | ​ | (1,211) | ​ |  | 43,536
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​

​

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 $0.4 million for the three months ended March 31, 2022. Foreign exchange transaction losses aggregated $0.7 million for the three months ended March 31, 2021.

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.

​

​

​

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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, 2021, filed with the SEC on February 22, 2022 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 $0.8 million and $0.8 million at March 31, 2022 and December 31, 2021, respectively.

​

Sale of Equity Method Investment

​

On January 31, 2022, we sold our equity interest in Promon AS (Promon) for $18.9 million, and recorded the gain on sale of $14.8 million in other income (expense) on the Condensed Consolidated Statement of Operations during the three months ended March 31, 2022. Promon is a technology company headquartered in Norway that specializes in mobile app security, whose solutions focus largely on Runtime Application Self-Protection (RASP).

​
Prior to January 31, 2022, we held a 17% interest in Promon and applied the equity method of accounting to our investment in Promon because we exercised significant influence, but not controlling interest, in the investee. 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, 2022 and 2021 as were the relative size of Promon’s assets and operations in relation to the Company’s.
We intend to continue to purchase and integrate Promon’s RASP technology into our customer software solutions.

​

Recently Issued Accounting Pronouncements

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.

​

​

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.

​

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Revenue by major products (in thousands)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Three months ended March 31,
​ | ​ |  | 2022 |  | 2021
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Hardware products | ​ | ​ | $ | 15,352 | ​ | $ | 17,668
Software licenses | ​ | ​ | ​ | 14,133 | ​ | ​ | 10,777
Subscription | ​ | ​ | ​ | 10,117 | ​ | ​ | 8,405
Professional services | ​ | ​ | ​ | 900 | ​ | ​ | 1,402
Maintenance, support, and other | ​ | ​ | ​ | 11,945 | ​ | ​ | 12,523
Total Revenue | ​ | ​ | $ | 52,447 | ​ | $ | 50,775

​

Revenue by location of customer for the three months ended March 31, 2022 and 2021 (in thousands)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | EMEA |  | Americas |  | APAC |  | Total |
Total Revenue: |  | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  | ​
2022 | ​ | $ | 24,876 | ​ | $ | 17,249 | ​ | $ | 10,322 | ​ | $ | 52,447 | ​
2021 | ​ | $ | 26,989 | ​ | $ | 16,528 | ​ | $ | 7,258 | ​ | $ | 50,775 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Percent of Total: | ​ |  |  | ​ |  |  | ​ |  |  | ​ |  |  | ​
2022 | ​ |  | 47 | % |  | 33 | % |  | 20 | % |  | 100 | %
2021 | ​ |  | 53 | % |  | 33 | % |  | 14 | % |  | 100 | %

​

Timing of revenue recognition (in thousands)

​

​ | ​ | ​ | ​ | ​ | ​
​ | Three Months ended March 31,
​ | 2022 |  | 2021
Products and Licenses transferred at a point in time | $ | 29,485 | ​ | $ | 28,445
Services transferred over time | ​ | 22,962 | ​ | ​ | 22,330
Total Revenue | $ | 52,447 | ​ | $ | 50,775

​

Contract balances (in thousands)

​

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

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | March 31, | ​ | ​ | December 31,
in thousands | ​ | 2022 | ​ | 2021
Receivables, inclusive of trade and unbilled | ​ | $ | 35,704 | ​ | $ | 56,612
Contract Assets (current and non-current) | ​ | $ | 5,728 | ​ | $ | 4,889
Contract Liabilities (Deferred Revenue current and non-current) | ​ | $ | 58,314 | ​ | $ | 63,742

​

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.

​

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Revenue recognized during the three months ended March 31, 2022 included $18.9 million that was included on the December 31, 2021 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 | ​ | 2022 | ​ | 2023 | ​ | 2024 | ​ | Beyond 2024 | ​ | Total
Future revenue related to current unsatisfied performance obligations | ​ | $ | 26,140 | ​ | $ | 18,421 | ​ | $ | 9,547 | ​ | $ | 5,581 | ​ | $ | 59,689

​

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 period:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
in thousands | ​ | ​ | ​ | March 31, 2022 | ​ | ​ | December 31, 2021 | ​
Capitalized costs to obtain contracts, current | ​ | ​ | $ | 2,246 | ​ | $ | 2,134 | ​
Capitalized costs to obtain contracts, non-current | ​ | ​ | $ | 8,781 | ​ | $ | 8,675 | ​

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Three months ended March 31, | ​
in thousands | ​ | ​ | ​ | 2022 | ​ | ​ | 2021 | ​
Amortization of capitalized costs to obtain contracts | ​ | ​ | $ | 541 | ​ | $ | 310 | ​
Impairments of capitalized costs to obtain contracts | ​ | ​ | $ | - | ​ | $ | - | ​

​

​

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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,
​ |  | 2022 |  | 2021
​ | ​ | (in thousands)
Component parts | ​ | $ | 4,263 | ​ | $ | 3,841
Work-in-process and finished goods | ​ |  | 6,125 | ​ |  | 6,504
Total | ​ | $ | 10,388 | ​ | $ | 10,345

​

​

Note 5 – Goodwill

Goodwill activity for the three months ended March 31, 2022 consisted of the following:

​

​ | ​ | ​ | ​
in thousands | ​ | ​ | ​
Net balance at December 31, 2021 |  | $ | 96,174
Net foreign currency translation | ​ |  | (1,588)
Net balance at March 31, 2022 | ​ | $ | 94,586

​

No impairment of goodwill was recorded during the three months ended March 31, 2022 or March 31, 2021.

Note 6 – Intangible Assets

Intangible asset activity for the three months ended March 31, 2022 is detailed in the following table.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ |  | ​ | ​ | ​
in thousands |  | Acquired Technology |  | Customer Relationships |  | Other |  | Total Intangible Assets
Net balance at December 31, 2021 | ​ | $ | 753 | ​ | $ | 19,161 | ​ | $ | 1,356 | ​ | $ | 21,270
Additions | ​ |  | 3 | ​ | ​ | — | ​ | ​ | 6 | ​ |  | 9
Net foreign currency translation | ​ |  | (11) | ​ | ​ | (155) | ​ | ​ | (3) | ​ |  | (169)
Amortization expense | ​ |  | (376) | ​ | ​ | (988) | ​ | ​ | (18) | ​ |  | (1,382)
Net balance at March 31, 2022 | ​ | $ | 369 | ​ | $ | 18,018 | ​ | $ | 1,341 | ​ | $ | 19,728
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
March 31, 2022 balance at cost | ​ | $ | 42,903 | ​ | $ | 39,455 | ​ | $ | 13,542 | ​ | $ | 95,900
Accumulated amortization | ​ |  | (42,534) | ​ |  | (21,437) | ​ |  | (12,201) | ​ |  | (76,172)
Net balance at March 31, 2022 | ​ | $ | 369 | ​ | $ | 18,018 | ​ | $ | 1,341 | ​ | $ | 19,728

​

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, 2022 or March 31, 2021.

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Note 7 – Property and Equipment

The major classes of property and equipment are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
in thousands |  | March 31, 2022 |  | December 31, 2021
Office equipment and software | ​ | $ | 14,502 | ​ | $ | 14,327
Leasehold improvements | ​ | ​ | 10,236 | ​ | ​ | 10,296
Furniture and fixtures | ​ |  | 4,198 | ​ |  | 4,223
Total | ​ |  | 28,936 | ​ |  | 28,846
Accumulated depreciation | ​ |  | (18,683) | ​ |  | (18,089)
Property and equipment, net | ​ | $ | 10,253 | ​ | $ | 10,757

​

Depreciation expense was $0.7 million and $0.7 million and for the three months ended March 31, 2022 and March 31, 2021, 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, 2022 and December 31, 2021.

​

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.

​

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The following tables summarize assets that are measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Fair Value Measurement at Reporting Date Using
in thousands | ​ | ​ | March 31, 2022 | ​ | 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 | ​ | $ | 4,010 | ​ | - | $ | 4,010 | ​ | -
Corporate Notes / Bonds | ​ | $ | 9,378 | ​ | - | $ | 9,378 | ​ | -
Commercial Paper | ​ | $ | 9,959 | ​ | - | $ | 9,959 | ​ | -
U.S. Treasury Bills | ​ | $ | 12,955 | ​ | - | $ | 12,955 | ​ | -

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Fair Value Measurement at Reporting Date Using
in thousands | ​ | ​ | December 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 | ​ | $ | 4,038 | ​ | - | $ | 4,038 | ​ | -
Corporate Notes / Bonds | ​ | $ | 9,585 | ​ | - | $ | 9,585 | ​ | -
Commercial Paper | ​ | $ | 8,996 | ​ | - | $ | 8,996 | ​ | -
U.S. Treasury Bills | ​ | $ | 9,990 | ​ | - | $ | 9,990 | ​ | -
U.S. Government Agencies | ​ | $ | 2,499 | ​ | - | $ | 2,499 | ​ | -

​

​

Note 9 – Allowance for credit losses

​

The changes in the allowance for credit losses during the three months ended March 31, 2022 were as follows:

​

​ | ​ | ​ | ​
in thousands | ​ | ​ | ​
Balance at December 31, 2021 | ​ | $ | 1,419
Provision | ​ | ​ | 875
Write-offs | ​ | ​ | 19
Net foreign currency translation | ​ | ​ | (21)
Balance at March 31, 2022 | ​ | $ | 2,292

​

​

Note 10 – Leases

Operating lease cost details for the three months ended March 31, 2022 and 2021 are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Three months ended | ​
​ | ​ | ​ | March 31, | ​
​ |  | 2022 |  | 2021 |
​ | ​ | ​ | (in thousands) | ​
Building rent | ​ | $ | 575 | ​ | $ | 570 | ​
Automobile rentals | ​ | ​ | 220 | ​ | ​ | 333 | ​
Total net operating lease costs | ​ | $ | 795 | ​ | $ | 903 | ​

​

At March 31, 2022, the weighted average remaining lease term for our operating leases is 6.3 years. The weighted average discount rate for our operating leases is 5%.

​

During the three months ended March 31, 2022, there were $0.9 million of operating cash payments for lease liabilities, and $0.4 million of right-of use assets obtained in exchange for new lease liabilities.

​

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Maturities of our operating leases are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of March 31, 2022 | ​ | ​
​ | ​ | ​ | (in $ thousands) | ​ | ​ | ​
2022 | ​ | $ | 2,216 | ​ | ​ | ​
2023 | ​ | ​ | 2,627 | ​ | ​ | ​
2024 | ​ | ​ | 1,885 | ​ | ​ | ​
2025 | ​ | ​ | 1,776 | ​ | ​ | ​
2026 | ​ | ​ | 1,714 | ​ | ​ | ​
Later years | ​ | ​ | 4,391 | ​ | ​ | ​
Less imputed interest | ​ | ​ | (2,333) | ​ | ​ | ​
Total lease liabilities | ​ | $ | 12,276 | ​ | ​ | ​

​

​

Note 11 – Income Taxes

Our estimated annual effective tax rate for 2022 before discrete items and excluding entities with a valuation allowance is expected to be approximately 23%. Our global effective tax rate is higher than the U.S. statutory tax rate of 21% primarily due to nondeductible expenses. Our ultimate tax expense will depend on the mix of earnings in various jurisdictions. Income taxes of $0.3 million were paid during the three months ended March 31, 2022.

​

Management assesses the need for a valuation allowance on a regular basis, weighing all positive and negative evidence to determine whether a deferred tax asset will be fully or partially realized. In evaluating the realizability of deferred tax assets, significant pieces of negative evidence such as 3-year cumulative losses are considered. Management also reviews reversal patterns of temporary differences to determine if the Company would have sufficient taxable income due to the reversal of temporary differences to support the realization of deferred tax assets.

​

Certain operations have incurred net operating losses (NOLs), which are currently subject to a valuation allowance. These NOLs may become deductible to the extent these operations become profitable. For each of our operations, we evaluate whether it is more likely than not that the tax benefits related to NOLs will be realized. As part of this evaluation, we consider evidence such as tax planning strategies, historical operating results, forecasted taxable income, and recent financial performance. In the year that certain operations record a loss, we do not recognize a corresponding tax benefit, thus increasing our effective tax rate, or decreasing our effective tax rate when reporting a loss. Upon determining that it is more likely than not that the NOLs will be realized, we will reduce the tax valuation allowances related to these NOLs, which will result in a reduction of our income tax expense and our effective tax rate in the period.

​

At December 31, 2021, we had deferred tax assets of $43.7 million resulting from US, foreign and state NOL carryforwards of $148.6 million and other foreign deductible carryforwards of $97.5 million. At December 31, 2021, we had a valuation allowance of $31.3 million against deferred tax assets related to certain carryforwards.

​

Note 12 – Long-Term Compensation Plan and Stock Based Compensation (share counts in thousands)

Under the OneSpan Inc. 2019

Omnibus Incentive Plan, we award restricted stock units subject to time-based vesting, restricted stock units which are subject to the achievement of future performance criteria and restricted stock units that are subject to the achievement of market conditions. Other long-term incentive plan compensation expense includes cash incentives.

​

We awarded 183 restricted stock units during the three months ended March 31, 2022, subject to time-based vesting. The fair value of the unissued time-based restricted stock unit grants was $3.0 million at the dates of grant and the grants are being amortized over the vesting periods of one to four years.

​

We awarded restricted stock units subject to the achievement of service and future performance criteria during the three months ended March 31, 2022, which allow for up to 46 shares to be earned if the performance criteria are fully

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achieved. The fair value of these awards was $0.8 million at the dates of grant and the awards are being amortized over the vesting period of three years. The Company currently believes that all of these shares are expected to be earned.

​

During the period ended March 31, 2022, other long-term incentive plan compensation accruals were reversed for certain employees who were severed from the Company. The reversal of the accrued long-term incentive plan compensation for the severed employees offset the expense for the period. The following table details long-term compensation plan and stock-based compensation expense for the three months ended March 31, 2022 and 2021:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31,
​ |  | 2022 |  | 2021
in thousands | ​ | (in thousands)
Stock-based compensation | ​ | $ | 1,360 | ​ | $ | 1,342
Other long-term incentive plan compensation | ​ |  | (136) | ​ |  | 200
Total compensation | ​ | $ | 1,224 | ​ | $ | 1,542

​

​

Note 13 – Earnings per Share (share counts in thousands)

Basic earnings per share is based on the weighted average number of shares outstanding and excludes the dilutive effect of common stock equivalents. Diluted earnings per share is based on the weighted average number of shares outstanding and includes the dilutive effect of common stock equivalents to the extent they are not anti-dilutive. For the three months ended March 31, 2022, the anti-dilutive effect of our securities is immaterial. Because the Company is in a net loss position for the three months ended March 31, 2021, diluted net loss per share for this period excludes the effects of common stock equivalents, which are anti-dilutive.

The details of the earnings per share calculations for the three months ended March 31, 2022 and 2021 are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31,
in thousands, except per share data |  | 2022 |  | 2021
Net loss | ​ | $ | 5,214 | ​ | $ | (9,151)
Weighted average common shares outstanding: | ​ |  |  | ​ |  |
Basic | ​ |  | 39,577 | ​ |  | 39,996
Incremental shares with dilutive effect: | ​ |  |  | ​ |  | ​
Restricted stock awards | ​ |  | 110 | ​ |  | —
Diluted | ​ |  | 39,687 | ​ |  | 39,996
​ | ​ | ​ | ​ | ​ | ​ | ​
Net loss per share: | ​ |  |  | ​ |  |
Basic | ​ | $ | 0.13 | ​ | $ | (0.23)
Diluted | ​ | $ | 0.13 | ​ | $ | (0.23)

​

​

​
Note 14 – Legal Proceedings and Contingencies

We are a party to or have intellectual property subject to litigation and other proceedings that arise in the ordinary course of our business. These types of matters could result in fines, penalties, compensatory or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of each of these matters, including the legal proceedings described below, will have a material adverse effect on the corporation as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our financial results in any particular interim reporting period. Among the factors that we consider in this assessment are the nature of existing legal proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing law and precedent, the opinions or views of legal counsel and other advisers, our experience in similar cases and the experience of other companies, the facts available to us at the time of assessment and how we intend to respond to

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the proceeding or claim. Our assessment of these factors may change over time as individual proceedings or claims progress.

​

Although we cannot predict the outcome of legal or other proceedings with certainty, where there is at least a reasonable possibility that a loss may have been incurred, U.S. GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made. We follow a process in which we seek to estimate the reasonably possible loss or range of loss, and only if we are unable to make such an estimate do we conclude and disclose that an estimate cannot be made. Accordingly, unless otherwise indicated below in our discussion of legal proceedings, a reasonably possible loss or range of loss associated with any individual legal proceeding cannot be estimated.

​

We include various types of indemnification clauses in our customer agreements. These indemnifications may include, but are not limited to, infringement claims related to our intellectual property, direct damages and consequential damages. The type and amount of such indemnifications vary substantially based on our assessment of risk and reward associated with each agreement. We believe the estimated fair value of these indemnification clauses is minimal, and we cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions. We have no liabilities recorded for these clauses as of March 31, 2022.

​

From time to time, we have been involved in litigation and claims incidental to the conduct of our business, such as compensation claims from current or former employees in Europe or commercial disputes with vendors. We expect that to continue. Excluding matters specifically disclosed above, we are not a party to any lawsuit or proceeding that, in management’s opinion, is likely to have a material adverse effect on its business, financial condition or results of operations.

Note 15 – Restructuring Plan
In December 2021, the Board approved a restructuring plan (“Plan”) designed to advance the Company’s model, streamline its business, and enhance its capital resources. The first phase began and was substantially completed during the three months ended March 31, 2022.

​

As part of the first phase of the Plan, we reduced headcount by eliminating positions in certain areas of the Company. The Company incurred severance and related benefits costs, which are recorded in the sales and marketing, research and development, and general and administrative expense financial statement line items in the condensed consolidated income statement for the three months ended March 31, 2022, as follows:

​

​

​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Three months ended
​ | ​ | ​ | March 31,
​ | ​ |  | 2022
in thousands | ​ | ​ | ​
Operating costs | ​ | ​ | ​ | ​
​ | Sales and marketing | ​ | $ | 895
​ | Research and development | ​ | ​ | 1,652
​ | General and administrative | ​ |  | 112
​ | Total restructuring related expenses | ​ | $ | 2,659

​

​

There are $1.6 million of restructuring related expenses recorded in Accrued Wages and Payroll Expenses on the Company’s condensed consolidated Balance Sheet at March 31, 2022.

​

The Company expects to finalize additional details regarding future phases of the multi-year strategic plan during the three months ended June 30, 2022.

​

​

​

​

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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations (in thousands, except headcount, ratios, time periods and percentages)

​

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.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 strategic plans regarding our portfolio, including acquisitions and dispositions; 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", "continue", "outlook", "may", "will", "should", "could", or "might", and other similar expressions. These forward-looking statements involve risks and uncertainties, as well as assumptions that, 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; the impact of the COVID-19 pandemic and actions taken to contain it; our ability to effectively manage acquisitions, divestitures, alliances, joint ventures and other portfolio actions; 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; disruption in global transportation and supply chains; reliance on third parties for certain products and data center services, impairment of goodwill or amortizable intangible assets causing a significant charge to earnings; actions of activist stockholders; and exposure to increased economic and operational uncertainties from operating a global business, as well as those factors described in the “Risk Factors” section of our Annual Report on Form 10-K. Our filings with the Securities and Exchange Commission (the “SEC”) and other important information can be found in 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 Form 10-Q, except as required by law.

​

​

Outlook and Financial Results

​

We continue to actively address the effects of the COVID-19 pandemic and its impact globally. During the three months ended March 31, 2022, we experienced lengthened sales cycles and supply chain constraints in connection with the COVID-19 pandemic. In prior periods, we also experienced reduced demand for certain of our hardware products and software solutions. While we hope that the negative consequences on our business associated with the COVID-19 pandemic will subside, we cannot predict the impact with certainty.
​

In the current and future periods, we may experience weaker customer demand, requests for discounts or extended payment terms, customer bankruptcies, supply chain disruption, employee staffing constraints and difficulties, government restrictions or other factors that could negatively impact the Company and its business, operations and financial results.

​

We believe that we will emerge from these events well positioned for long-term growth, though we cannot reasonably estimate the duration and severity of the pandemic or its ultimate impact on the global economy and our business results. See Part 1 – Item 1A - Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information regarding the potential impact of COVID-19 on the Company.
​

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Restructuring Plan

​

In December 2021, the Board approved a restructuring plan (“Plan”) designed to advance the Company’s model, streamline its business, and enhance its capital resources. The first phase began and was substantially completed during the three months ended March 31, 2022.

​

As part of the first phase of the Plan, we reduced headcount by eliminating positions in certain areas of the Company. The Company incurred severance and related benefits costs, which are recorded in the sales and marketing, research and development, and general and administrative expense financial statement line items in the condensed consolidated income statement for the three months ended March 31, 2022. See Note 15 – Restructuring Plan for additional detail.
The Company expects to finalize additional details regarding future phases of the multi-year strategic plan during the three months ended June 30, 2022.

​

Overview

We design, develop and market digital solutions for identity, security, and business productivity that protect and facilitate electronic transactions via mobile and connected devices. We are a global leader in providing anti-fraud and digital transaction management solutions to financial institutions and other businesses. Our solutions secure access to online accounts, data, assets, and applications for global enterprises; provide tools for application developers to easily integrate security functions into their web-based and mobile applications; and facilitate end-to-end financial agreement automation including digital identity verification, customer due diligence, electronic signature, secure storage and document management. Our core technologies, multi-factor authentication, identity verification and transaction signing, strengthen the process of preventing hacking attacks against online and mobile transactions to allow companies to transact business safely with remote customers.

​

We offer cloud based and on premises solutions using both open standards and proprietary technologies. Some of our proprietary technologies are patented. Our products and services are used for authentication, fraud mitigation, e-signing transactions and documents, and identity management in Business-to-Business (“B2B”), Business-to-Employee (“B2E”) and Business-to-Consumer (“B2C”) environments. Our target market is business processes using electronic interface, particularly the Internet, where there is risk of unauthorized access. Our products can increase security associated with accessing business processes, reduce losses from unauthorized access and reduce the cost of the process by automating activities previously performed manually.

Our Business Model

We offer our products through a product sales and licensing model or through our services platform, which includes our cloud-based service offering.

Our solutions are sold worldwide through our direct sales force, as well as through distributors, resellers, systems integrators, and original equipment manufacturers. Our sales force is able to offer customers a choice of an on-site implementation using our traditional on-premises model or a cloud implementation for some solutions using our services platform.

Industry Growth

We believe the markets for authentication, fraud mitigation, agreement automation, and electronic signature solutions will continue to grow, albeit at different rates, driven by new government regulations, growing awareness of the impact of cyber-crime, increasing focus on the digital experience for mobile and online users, remote working and workflow automation, and the growth in electronic commerce. The issues driving growth are global; however, the rate of adoption in each country is a function of local culture, competitive position, economic conditions, and the use of technology may vary significantly.

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Economic Conditions

Our revenue may vary significantly with changes in the economic conditions in the countries in which we currently sell products. With our current concentration of revenue in Europe and specifically in the banking and finance vertical market, significant changes in the economic outlook for the European banking market may have a significant effect on our revenue.

Cybersecurity Risks

Our use of technology is increasing and is critical in three primary areas of our business:

| 1. | Software and information systems that we use to help us run our business more efficiently and cost effectively;

| 2. | The products we have traditionally sold and continue to sell to our customers for integration into their software applications contain technology that incorporates the use of secret numbers and encryption technology; and

| 3. | New products and services that we introduced to the market are focused on processing information through our servers or in the cloud.

We believe that the risks and consequences of potential incidents in each of the above areas are different.

In the case of the information systems we use to help us run our business, we believe that an incident could disrupt our ability to take orders or deliver product to our customers, but such a delay in these activities would not have a material impact on our overall results. To minimize this risk, we actively use various forms of security and monitor the use of our systems regularly to detect potential incidents as soon as possible.

In the case of products that we have traditionally sold, we believe that the risk of a potential cyber incident is minimal. We offer our customers the ability to either create the secret numbers themselves or have us create the numbers on their behalf. When asked to create the numbers, we do so in a secure environment with limited physical access and store the numbers on a system that is not connected to any other network, including other OneSpan networks, and similarly, is not connected to the Internet.

In the case of our cloud-based solutions, which involve the processing of customer information, we believe a cyber incident could have a material impact on our business. While our revenue from cloud-based solutions comprises a minority of our revenue today, we believe that these solutions will provide substantial future growth. A cyber incident involving these solutions in the future could substantially impair our ability to grow the business and we could suffer significant monetary and other losses and significant reputational harm.

​

To minimize the risk, we review our product security and procedures on a regular basis. Our reviews include the processes and software code we are currently using as well as the hosting platforms and procedures that we employ. We mitigate the risk of cyber incidents through a series of reviews, tests, tools and training. Certain insurance coverages may apply to certain cyber incidents. Overall, we expect the cost of securing our networks will increase in future periods, whether through increased staff, systems or insurance coverage.

While we did not experience any cyber incidents in the first three months of 2022 that had a significant impact on our business, it is possible that we could experience an incident in 2022 or future years, which could result in unanticipated costs.

Currency Fluctuation

During the three months ended March 31, 2022, approximately 88% of our revenue was generated outside of the United States. While the majority of our revenues are generated outside of the United States, a significant amount of

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our revenue earned during the three months ended March 31, 2022 was denominated in U.S. Dollars. During the three months ended March 31, 2022, we estimate that approximately 57% of our revenue was denominated in U.S. Dollars.

In addition, during the three months ended March 31, 2022, approximately 68% of our operating expenses were incurred outside of the United States. As a result, changes in currency exchange rates, especially the Euro exchange rate and the Canadian Dollar exchange rate, can have a significant impact on revenue and expenses.

In general, to minimize the net impact of currency fluctuations on operating income, we attempt to denominate an amount of billings in a currency such that it would provide a hedge against the operating expenses incurred in that currency. We expect that changes in currency rates may also impact our future results if we are unable to match amounts of revenue with our operating expenses in the same currency. If the amount of our revenue in Europe denominated in Euros continues as it is now or declines, we may not be able to balance fully the exposures of currency exchange rates on revenue and operating expenses.

The financial position and the results of operations of our foreign subsidiaries, with the exception of our subsidiaries in Switzerland, Singapore and Canada, 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. Revenues and expenses are translated at average exchange rates prevailing during the period. Translation adjustments arising from differences in exchange rates generated other comprehensive loss of $2.0 million for the three months ended March 31, 2022. Translation adjustments arising from differences in exchange rates generated other comprehensive loss of $0.9 million for the three months ended March 31, 2021. These amounts are included as a separate component of stockholders’ equity. The functional currency for our subsidiaries in Switzerland, Singapore and Canada is the U.S. Dollar.

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 $0.4 million for the three months ended March 31, 2022. Foreign exchange transaction losses aggregated $0.7 million for the three months ended March 31, 2021.

​

Components of Operating Results

Revenue

We generate revenue from the sale of our hardware products, software licenses, subscriptions, maintenance and support, and professional services. We believe comparison of revenues between periods is heavily influenced by the timing of orders and shipments reflecting the transactional nature of significant parts of our business.

| ● | Product and license revenue. Product and license revenue includes hardware products and software licenses, which can be provided on a perpetual or term basis.

| ● | Service and other revenue. Service and other revenue includes subscription solutions (which is our definition of software-as-a-service solutions), maintenance and support, and professional services.

Cost of Goods Sold

Our total cost of goods sold consists of cost of product and license revenue and cost of service and other revenue. We expect our cost of goods sold to increase in absolute dollars as our business grows, although it may fluctuate as a percentage of total revenue from period to period.

| ● | Cost of product and license revenue. Cost of product and license revenue primarily consists of direct product and license costs.

| ● | Cost of service and other revenue. Cost of service and other revenue primarily consists of costs related to subscription solutions, including personnel and equipment costs, and personnel costs of employees providing professional services and maintenance and support.

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Gross Profit

Gross profit as a percentage of total revenue, or gross margin, has been and will continue to be affected by a variety of factors, including our average selling price, manufacturing costs, the mix of products sold, and the mix of revenue among products, subscriptions and services. We expect our gross margins to fluctuate over time depending on these factors.

Operating Expenses

Our operating expenses are generally based on anticipated revenue levels and fixed over short periods of time. As a result, small variations in revenue may cause significant variations in the period-to-period comparisons of operating income or operating income as a percentage of revenue.

Generally, the most significant factor driving our operating expenses is headcount. Direct compensation and benefit plan expenses generally represent between 55% and 65% of our operating expenses, respectively. In addition, a number of other expense categories are directly related to headcount. We attempt to manage our headcount within the context of the economic environments in which we operate and the investments we believe we need to make for our infrastructure to support future growth and for our products to remain competitive.

Historically, operating expenses have been impacted by changes in foreign exchange rates. We estimate the change in currency rates in the first three months of 2022 compared to the same period in 2021 resulted in a decrease in operating expenses of approximately $1.1 million.

The comparison of operating expenses can also be impacted significantly by costs related to our stock-based and long-term incentive plans. Operating expenses for the three months ended March 31, 2022 included $1.4 million and less than $0.1 million, respectively of expenses related to stock-based and long-term incentive plan costs compared to $1.3 million and $0.2 million of stock-based and long-term incentive plan cost for the three months ended March 31, 2021, respectively. Stock-based compensation expense during the three months ended March 31, 2022 was favorably impacted by the forfeiture of unvested awards by certain severed sales management and executive management during the periods, offset by new grants.

| ● | Sales and marketing. Sales and marketing expenses consist primarily of personnel costs, commissions and bonuses, trade shows, marketing programs and other marketing activities, travel, outside consulting costs, and long-term incentive compensation. We expect sales and marketing expenses to increase in absolute dollars as we continue to invest in sales resources in key focus areas, although our sales and marketing expenses may fluctuate as a percentage of total revenue.

| ● | Research and development. Research and development expenses consist primarily of personnel costs and long-term incentive compensation. We expect research and development expenses to increase in absolute dollars as we continue to invest in our future solutions, although our research and development expenses may fluctuate as a percentage of total revenue.

| ● | General and administrative. General and administrative expenses consist primarily of personnel costs, legal and other professional fees, and long term incentive compensation. We expect general and administrative expenses to increase in absolute dollars although our general and administrative expenses may fluctuate as a percentage of total revenue.

| ● | Amortization of intangible assets. Acquired intangible assets are amortized over their respective amortization periods, and are periodically evaluated for impairment.

Interest Income, Net

Interest income, net consists of income earned on our cash, cash equivalents and short term investments. Our cash equivalents and short term investments are invested in short-term instruments at current market rates.

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Other Income (Expense), Net

Other income (expense), net primarily includes exchange gains (losses) on transactions that are denominated in currencies other than our subsidiaries’ functional currencies, subsidies received from foreign governments in support of our research and development in those countries and other miscellaneous non-operational expenses.

Income Taxes

Our effective tax rate reflects our global structure related to the ownership of our intellectual property (“IP”). All our IP in our traditional authentication business is owned by two subsidiaries, one in the U.S. and one in Switzerland. These two subsidiaries have entered into agreements with most of the other OneSpan entities under which those other entities provide services to our U.S. and Swiss subsidiaries on either a percentage of revenue or on a cost plus basis or both. Under this structure, the earnings of our service provider subsidiaries are relatively constant. These service provider companies tend to be in jurisdictions with higher effective tax rates. Fluctuations in earnings tend to flow to the U.S. company and Swiss company. In 2022, earnings flowing to the U.S. company are expected to be taxed at a rate of 21% to 25%, while earnings flowing to the Swiss company are expected to be taxed at a rate ranging from 11% to 15%, plus Swiss federal withholding tax of an additional 5%. A Canadian and UK subsidiary currently sell to and service global customers directly. In addition, many of our OneSpan entities operate as distributors for all of our OneSpan products.

​

As the majority of our revenues are generated outside of the U.S., our consolidated effective tax rate is strongly influenced by the effective tax rate of our foreign operations. Changes in the effective rate related to foreign operations reflect changes in the geographic mix of earnings and the tax rates in each of the countries in which it is earned. The statutory tax rate for the primary foreign tax jurisdictions ranges from 11% to 35%.

The geographic mix of earnings of our foreign subsidiaries primarily depends on the level of pretax income of our service provider subsidiaries and the benefit realized in Switzerland through the sales of product. The level of pretax income in our service provider subsidiaries is expected to vary based on:

| 1. | the staff, programs and services offered on a yearly basis by the various subsidiaries as determined by management, or

| 2. | the changes in exchange rates related to the currencies in the service provider subsidiaries, or

| 3. | the amount of revenues that the service provider subsidiaries generate.

For items 1 and 2 above, there is a direct impact in the opposite direction on earnings of the U.S. and Swiss entities. Any change from item 3 is generally expected to result in a larger change in income in the U.S. and Swiss entities in the direction of the change (increased revenues expected to result in increased margins/pretax profits and conversely decreased revenues expected to result in decreased margins/pretax profits).

In addition to the provision of services, the intercompany agreements transfer the majority of the business risk to our U.S. and Swiss subsidiaries. As a result, the contracting subsidiaries’ pretax income is reasonably assured while the pretax income of the U.S. and Swiss subsidiaries varies directly with our overall success in the market.

In November 2015, we acquired OneSpan Canada Inc. (formerly eSignLive), a foreign company with substantial IP and net operating losses and other tax carryforwards. The tax benefit of the carryforwards has been fully reserved as realization has not been deemed more likely than not.

In May 2018, we acquired Dealflo Limited (“Dealflo”), a foreign company with substantial IP and net operating losses. The tax benefit of existing loss carryforwards at the time of acquisition was not recorded as the Company determined they were not more likely than not to be realized.

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Management assesses the need for a valuation allowance on a regular basis, weighing all positive and negative evidence to determine whether a deferred tax asset will be fully or partially realized. In evaluating the realizability of deferred tax assets, significant pieces of negative evidence such as 3-year cumulative losses are considered.

​

Results of Operations

Revenue

Revenue by Product: We generate revenue from the sale of our hardware products, software licenses, subscriptions, professional services, and maintenance and support. Product and license revenue includes hardware products and software licenses. Service and other revenue includes subscription solutions (which is our definition of software-as-a-service solutions), maintenance and support, and professional services.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Three months ended March 31, | ​
​ | ​ |  | 2022 |  | 2021 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Hardware products | ​ | ​ | $ | 15,352 | ​ | $ | 17,668 | ​
Software licenses | ​ | ​ | ​ | 14,133 | ​ | ​ | 10,777 | ​
Subscription | ​ | ​ | ​ | 10,117 | ​ | ​ | 8,405 | ​
Professional services | ​ | ​ | ​ | 900 | ​ | ​ | 1,402 | ​
Maintenance, support, and other | ​ | ​ | ​ | 11,945 | ​ | ​ | 12,523 | ​
Total Revenue | ​ | ​ | $ | 52,447 | ​ | $ | 50,775 | ​

​

Total revenue increased $1.7 million or 3%, during the three months ended March 31, 2022 compared to the three months ended March 31, 2021, driven primarily by a $6.3 million or 22% increase in recurring revenue, partially offset by a $2.3 million or 13% decrease in hardware revenue and a $1.8 million or 65% decrease in perpetual software license revenue. Recurring revenue is the portion of our revenue subject to future renewal and is comprised of subscription, term-based software licenses, and maintenance, support and other revenue.
​

Product and license revenue increased by $1.0 million or 4% during the three months ended March 31, 2022 compared to the three months ended March 31, 2021, driven by higher software license sales of $3.4 million, partially offset by lower hardware revenue of $2.3 million or 13%. Lower hardware revenue was partially driven by shipping delays related to disruptions in global transportation and supply chains.

​

Services and other revenue increased by $0.6 million, or 3% during the three months ended March 31, 2022 compared to the three months ended March 31, 2021, which was primarily driven by a $1.7 million or 20% increase in subscription revenue, partially offset by reductions in professional services and maintenance, support, and other revenue of $0.5 million and $0.6 million, respectively.

​

We believe comparison of revenues between periods is heavily influenced by the timing of orders and shipments reflecting the transactional nature of significant parts of our business. As a result of the volatility in our business, we believe that the overall strength of our business is best evaluated over a longer term where the impact of transactions in any given period is not as significant as in a quarter-over-quarter comparison.

​

Revenue by Geographic Regions: We classify our sales by customer location in three geographic regions: 1) EMEA, which includes Europe, Middle East and Africa; 2) the Americas, which includes sales in North, Central, and

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South America; and 3) Asia Pacific (APAC), which also includes Australia, New Zealand, and India. The breakdown of revenue in each of our major geographic areas was as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Three months ended March 31, | ​ | ​ | ​ | ​
​ |  | ​ | 2022 |  | 2021 | ​ | $ Change |  | % Change
​ | ​ | ​ | (in thousands) | ​ | ​ | ​ | ​
Revenue |  | ​ |  |  |  | ​ |  |  |
EMEA | ​ | ​ | $ 24,876 | ​ | $ 26,989 | ​ | ($ 2,113) | ​ | (8)%
Americas | ​ | ​ | 17,249 | ​ | 16,528 |  | 721 | ​ | 4%
APAC | ​ | ​ | 10,322 | ​ | 7,258 | ​ | 3,064 | ​ | 42%
Total revenue | ​ | ​ | $ 52,447 | ​ | $ 50,775 |  | $ 1,672 | ​ | 3%
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
% of Total Revenue | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
EMEA | ​ | ​ | 47% | ​ | 53% | ​ | ​ | ​ | ​
Americas | ​ | ​ | 33% | ​ | 33% | ​ | ​ | ​ | ​
APAC | ​ | ​ | 20% | ​ | 14% | ​ | ​ | ​ | ​

​

Revenue generated in EMEA during the three months ended March 31, 2022 was $2.1 million, or 8% lower than the three months ended March 31, 2021, driven primarily by lower hardware sales.

​

Revenue generated in the Americas during the three months ended March 31, 2022 was $0.7 million, or 4% higher than the three months ended March 31, 2021, driven primarily by increases in software license revenue and subscription revenue

Revenue generated in the Asia Pacific region during the three months ended March 31, 2022 was $3.1 million, or 42% higher than the three months ended March 31, 2021, driven by higher revenue from software licenses and subscription.

​

Cost of Goods Sold and Gross Margin

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Three months ended March 31, | ​ | ​
​ |  | ​ | 2022 | 2021 | ​ | $ |  | % Change
​ | ​ | ​ | (in thousands)
Cost of goods sold |  | ​ |  |  |  | ​ |  |  |
Product and license | ​ | ​ | $ 9,079 | ​ | $ 10,752 | ​ | ($ 1,673) | ​ | (16)%
Services and other | ​ | ​ | 6,690 | ​ | 5,781 |  | 909 | ​ | 16%
Total cost of goods sold | ​ | ​ | $ 15,769 | ​ | $ 16,533 |  | ($ 764) | ​ | (5)%
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Gross profit | ​ | ​ | $ 36,678 | ​ | $ 34,242 | ​ | 2,436 | ​ | 7%
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Gross margin | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Product and license | ​ | ​ | 69% | ​ | 62% | ​ | ​ | ​ | ​
Services and other | ​ | ​ | 71% | ​ | 74% | ​ | ​ | ​ | ​
Total gross margin | ​ | ​ | 70% | ​ | 67% | ​ | ​ | ​ | ​

​

The cost of product and license revenue decreased $1.7 million or 16% during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to a 13% decrease in hardware revenue during the period.

​

The cost of services and other revenue increased by $0.9 million, or 16% during the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase in cost of services and other revenue is reflective of higher subscription revenue, which has increased cloud-based infrastructure costs.

​

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Gross profit increased $2.4 million, or 7% during the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Gross profit margin was 70% for the three months ended March 31, 2022, compared to 67% for the three months ended March 31, 2021. The increase in profit margins for the three months ended March 31, 2022 reflects a shift in product mix to increased term-based software and subscription revenue and lower hardware revenue.

​

The majority of our inventory purchases are denominated in U.S. Dollars. Our sales are denominated in various currencies including the Euro. The impact of changes in currency rates are estimated to have decreased revenue by approximately $1.6 million for the three months ended March 31, 2022. Had currency rates in 2021 been equal to rates in 2021, the gross profit margin would have been approximately 3 percentage point higher for the three months ended March 31, 2022.

​

Operating Expenses

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | Three months ended March 31, | ​ | ​
​ | 2022 | ​ | 2021 | ​ | $ |  | % Change
​ | (in thousands) | ​ | ​ | ​ | ​
Operating costs | ​ |  |  | ​ |  | ​ |  |  |
Sales and marketing | $ | 15,895 | ​ | $ | 17,168 | ​ | ($ 1,273) | ​ | (7)%
Research and development | ​ | 13,749 | ​ | ​ | 12,244 |  | 1,505 | ​ | 12%
General and administrative | ​ | 14,895 | ​ | ​ | 12,551 |  | 2,344 | ​ | 19%
Amortization of intangible assets | ​ | 1,382 | ​ | ​ | 1,573 |  | (191) | ​ | (12)%
Total operating costs | $ | 45,921 | ​ | $ | 43,536 |  | $ 2,385 | ​ | 5%

Sales and Marketing Expenses

​

Sales and marketing expenses for the three months ended March 31, 2022 were $15.9 million, a decrease of $1.3 million or 7%, from the three months ended March 31, 2021. The decrease in expense for the three months ended March 31, 2022 compared to the same period in 2021 was driven by lower headcount in conjunction with our restructuring plan, partially offset by severance and related benefits expense recognized during the three months ended March 31, 2022.

​

Average full-time sales, marketing, support, and operating employee headcount for the three months ended March 31, 2022 was 361, compared to 385 for the three months ended March 31, 2021. Average headcount was 6% lower for the three months ended March 31, 2022, compared to the same period in 2021.

Research and Development Expenses

​

Research and development expenses for the three months ended March 31, 2022, were $13.8 million, an increase of $1.5 million, or 12%, from the three months ended March 31, 2021. The increase was driven primarily by $1.7 million of severance and related expenses incurred as part of our restructuring plan.

​

Average full-time research and development employee headcount for the three months ended March 31, 2022 was 367, compared to 349 for the three months ended March 31, 2021. Average headcount was approximately 5% higher for the three months ended March 31, 2022, when compared to the same period in 2021.

​

General and Administrative Expenses

​

General and administrative expenses for the three months ended March 31, 2022, were $14.9 million, an increase of $2.3 million or 19%, from the three months ended March 31, 2021. The increase in general and administrative expenses for the three months ended March 31, 2022 was driven by higher consulting fees related to our strategic action plan and higher bad debt expense, partially offset by the forfeiture of unvested stock based compensation

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and long-term incentive plan benefits by employees who left the company, as well as outside service costs for our proxy contest incurred during the three months ended March 31, 2021.

​

Average full-time general and administrative employee headcount for the three months ended March 31, 2022 was 138, compared to 134 for the three months ended March 31, 2021. Average headcount was approximately 3% higher for the three months ended March 31, 2022, when compared to the same period in 2021.

Amortization of Intangible Assets

​

Amortization of intangible assets for the three months ended March 31, 2022 was $1.4 million, compared to $1.6 million for the three months ended March 31, 2021. Amortization expense decreased 12%, which was driven by certain assets acquired in the Silanis acquisition becoming fully amortized.

Interest income (expense), net

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Three months ended March 31, | ​ | ​
​ |  | ​ | 2022 | 2021 | ​ | $ Change |  | % Change
​ | ​ | ​ | (in thousands) | ​ | ​ | ​ | ​
Interest income (expense), net | ​ | ​ | ($ 17) | ​ | $ 4 | ​ | ($ 21) | ​ | NM

​

Interest income (expense), net was less than $0.1 million for the three months ended March 31, 2022, as compared to less than $0.1 million for the same period in 2021. The fluctuation is reflective of changing interest rates in our cash accounts held in various countries across the globe.

​

Other income, net

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31, | ​ | ​
​ |  | 2022 | ​ | 2021 | ​ | $ Change |  | % Change
​ | ​ | (in thousands) | ​ | ​ | ​ | ​
Other income (expense), net | ​ | $ 15,647 | ​ | ($ 362) | ​ | $ 16,009 | ​ | NM

​

Other income, net primarily includes subsidies received from foreign governments in support of our research and development in those countries, exchange gains (losses) on transactions that are denominated in currencies other than our subsidiaries’ functional currencies, and other miscellaneous non-operational, non-recurring expenses.

Other income (expense), net for the three months ended March 31, 2022 was $15.6 million, compared to $(0.4) million for the comparable period of 2021. The fluctuation was primarily driven by $14.8 million gain on sale of our investment in Promon AS.

​

Provision for Income Taxes

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31, | ​ | ​
​ |  | 2022 | ​ | 2021 | ​ | $ |  | % Change
​ | ​ | (in thousands) | ​ | ​ | ​ | ​
Provision (benefit) for income taxes | ​ | $ 1,173 | ​ | ($ 501) | ​ | $ 1,674 | ​ | NM

​

The Company recorded income tax expense for the three months ended March 31, 2022 of $1.2 million, compared to income tax benefit of $0.5 million for the three months ended March 31, 2021. The expense recorded for the three months ended March 31, 2022 was primarily attributable to the gain recognized on the sale of our investment in Promon.

​

​

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Liquidity and Capital Resources

At March 31, 2022, we had cash balances (total cash and cash equivalents) of $83.6 million and short-term investments of $36.3 million. Short term investments consist of U.S. treasury notes and bills, corporate notes and bonds, and high quality commercial paper with maturities at acquisition of more than three months and less than twelve months.

​

At December 31, 2021, we had cash balances of $63.4 million and short-term investments of $35.1 million.

​

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 $0.8 million and $0.8 million at March 31, 2022 and December 31, 2021, respectively.

​

Our working capital at March 31, 2022 was $108.3 million compared to $98.0 million at December 31, 2021.

​

As of March 31, 2022, we held $70.3 million of cash and cash equivalents in subsidiaries outside of the United States. Of that amount, $69.6 million is not subject to repatriation restrictions, but may be subject to taxes upon repatriation.

​

We believe that our financial resources are adequate to meet our operating needs over the next twelve months.

Our cash flows are as follows:

​

​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31,
​ |  | 2022 | ​ | 2021
​ | ​ | (in thousands)
Cash provided by (used in): |  |  |  |
Operating activities | ​ | $ 3,660 | ​ | $ 3,583
Investing activities | ​ | 17,283 | ​ | (18,440)
Financing activities | ​ | (635) | ​ | (2,139)
Effect of foreign exchange rate changes on cash and cash equivalents | ​ | (45) | ​ | (558)

Operating Activities

Cash generated by operating activities is primarily comprised of net income, as adjusted for non-cash items, and changes in operating assets and liabilities. Non-cash adjustments consist primarily of amortization of intangible assets, depreciation of property and equipment, deferred tax benefit, and stock-based compensation. We expect cash inflows from operating activities to be affected by increases or decreases in sales and timing of collections. Our primary uses of cash from operating activities have been for personnel costs. We expect cash outflows from operating activities to be affected by increases in personnel cost as we grow our business.

For the three months ended March 31, 2022, net cash provided by operating activities was $3.7 million, compared to net cash provided by operating activities of $3.6 million during the three months ended March 31, 2021.

Investing Activities

The changes in cash flows from investing activities primarily relate to timing of purchases, maturities and sales of investments, purchases of property and equipment, and activity in connection with acquisitions. We expect to continue to purchase property and equipment to support the continued growth of our business as well to continue to invest in our infrastructure and activity in connection with acquisitions.

For the three months ended March 31, 2022, net cash provided by investing activities was $17.3 million, compared to net cash used in investing activities of $18.4 million for the three months ended March 31, 2021. Cash provided by investing activities during the three months ended March 31, 2022 was primarily driven by the $18.9 million sale of our investment in Promon AS. Cash used in investing activities during the three months ended March 31,

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2021 was driven by the timing of the purchases and maturities of our short term investments, as well as property and equipment purchases.

Financing Activities

The changes in cash flows from financing activities is primarily related to the purchases of common stock under our share repurchase program and tax payments for restricted stock issuances.

For the three months ended March 31, 2022, net cash used in financing activities was $0.6 million, compared to net cash used in financing activities of $2.1 million for the three months ended March 31, 2021. The decrease is driven by lower tax payments for restricted stock issuances.

Critical Accounting Policy

Our accounting policies are fully described in Note 1 - Summary of Significant Accounting Policies, to our Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021 and Note 2 – Summary of Significant Accounting Policies to our Interim Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022. We believe our most critical accounting policies include revenue recognition, credit losses, and accounting for income taxes.

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in our market risk during the three months ended March 31, 2022. For additional information, refer to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk”, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Item 4 - Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures, (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

The Company carried out an evaluation, under the supervision and with the participation of management, including its principal executive officer and principal interim financial officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Controls

There have been no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended March 31, 2022. We have not experienced any material impact to our internal controls over financial reporting due to COVID-19. We are continually monitoring and assessing the effects of COVID-19 on our internal controls to minimize the impact to their design and operating effectiveness.

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PART II. OTHER INFORMATION

Item 1 - Legal Proceedings

We are a party to or have intellectual property subject to litigation and other proceedings that arise in the ordinary course of our business. These types of matters could result in fines, penalties, compensatory or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of each of these matters, including the legal proceedings described below, will have a material adverse effect on the corporation as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our financial results in any particular interim reporting period.

We cannot predict the outcome of legal or other proceedings with certainty, including the legal proceedings which are summarized in “Note 14 – Legal Proceedings and Contingencies” included in our Notes to Condensed Consolidated Financial Statements, incorporated herein by reference, and “Note 18 – Commitments and Contingencies” in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission. Any reasonably possible material loss or range of loss associated with any individual legal proceeding that can be estimated, is provided in Note 14 to the Condensed Consolidated Financial Statements contained herein.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about purchases by the Company of its shares of common stock during the first quarter of 2022:

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | Total Number | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | of Shares | ​ | Maximum
​ | ​ | ​ | ​ | ​ | ​ | ​ | Purchased as | ​ | Dollar Value of Shares
​ | ​ | Total | ​ | ​ | ​ | Part of Publicly | ​ | that May Yet Be
​ | ​ | Number of | ​ | Average | ​ | Announced | ​ | Purchased Under
​ | ​ | Shares Purchased | ​ | Price Paid | ​ | Plans or | ​ | the Plans or
Period |  | (1) |  | per Share |  | Programs (2) |  | Programs (2)
January 1, 2022 through January 31, 2022 |  | — | ​ | $ | — |  | — |  | 37,498,973
February 1, 2022 through February 28, 2022 |  | — | ​ | $ | — | ​ | — | ​ | 37,498,973
March 1, 2022 through March 31, 2022 |  | — | ​ | $ | — | ​ | — | ​ | 37,498,973

​

(1.) | On June 10, 2021, the Board of Directors authorized a share repurchase program (“program”), pursuant to which the Company can repurchase up to $50.0 million of issued and outstanding common stock. Share purchases under the program will take place in open market transactions or in privately negotiated transactions and may be made from time to time depending on market conditions, share price, trading volume, and other factors. The timing of the repurchases and the amount of stock repurchased in each transaction is subject to OneSpan’s sole discretion and will depend upon market and business conditions, applicable legal and credit requirements and other corporate considerations. The authorization is effective until June 10, 2022 unless the total amount has been used or authorization has been cancelled.

(2.) | There were no shares repurchased under the repurchase program during the first quarter of 2022.

​

​

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Item 6 - Exhibits

Exhibit 31.1 – Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 3, 2022.

Exhibit 31.2 – Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 3, 2022.

Exhibit 32.1 – Section 1350 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 3, 2022.

Exhibit 32.2 – Section 1350 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 3, 2022.

Exhibit 101.INS – Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Exhibit 101.SCH – Inline XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL – Inline XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.LAB – Inline XBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PRE – Inline XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 101.DEF – Inline XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 104 – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

*Certain exhibits, schedules and annexes have been omitted pursuant to Item 601(b)(2) of Regulation S-K. OneSpan undertakes to furnish copies of any such omitted items upon request by the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 3, 2022.

​ | ​
​ | OneSpan Inc.
​ | ​
​ | ​
​ | /s/ Matthew P. Moynahan
​ | Matthew P. Moynahan
​ | Chief Executive Officer (Principal Executive Officer)
​ | ​
​ | /s/ Jan Kees van Gaalen
​ | Jan Kees van Gaalen
​ | Interim Chief Financial Officer
​ | (Principal Financial Officer)
​ | ​
​ | /s/ John Bosshart
​ | John Bosshart
​ | Chief Accounting Officer
​ | (Principal Accounting Officer)

​

​

​

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