2019 investor and analyst day · 12/4/2019 · ireland czech rep denmark india malaysia japan...

December 4, 2019

2019 Investor and Analyst Day

Welcome

Joe MaxaDirector of Investor Relations

3

8:30 AM Welcome Joe Maxa - Director of Investor Relations

An Innovative FinTech Leader Scott Clements – Chief Executive Officer

Managing Fraud: The Equilibrium Trace Fooshée – Senior Analyst – Aite Group

TID Platform: The Path to Rapid Growth John Gunn – Chief Marketing Officer

Trusted Identity Solutions Roger Wigenstam –VP of Product Management

10:00AM BREAK (15 minutes)

Solution Demonstration Will LaSala – Director of Security Solutions

Staying at the Forefront of Digital ID Security Benoit Grange – Chief Technology Officer

Compelling Competitive Advantages Dan Dica – Senior VP of Sales

Financial Model & Business Outlook Mark Hoyt – Chief Financial Officer

Q&A Session followed by Lunch

Agenda

4

This presentation contains forward-looking statements within the meaning of applicable U.S. Securities laws, including statements

regarding the potential benefits, performance, and functionality of our products and solutions, including future offerings; our expectations,

beliefs, plans, operations and strategies relating to our business and the future of our business; our acquisitions to date and our strategy

related to future acquisitions; and our expectations regarding our financial performance in the future. Forward-looking statements may

be identified by words such as "seek", "believe", "plan", "estimate", "anticipate", expect", "intend", and statements that an event or result

"may", "will", "should", "could", or "might" occur or be achieved and any other similar expressions. These forward-looking statements

involve risks and uncertainties, as well as assumptions which, if they do not fully materialize or prove incorrect, could cause our results

to differ materially from those expressed or implied by such forward-looking statements. Factors that could materially affect our business

and financial results include, but are not limited to: market acceptance of our products and solutions and competitors’ offerings; the

potential effects of technological changes; our ability to effectively identify, purchase and integrate acquisitions; the execution of our

transformative strategy on a global scale; the increasing frequency and sophistication of hacking attacks; claims that we have infringed the

intellectual property rights of others; changes in customer requirements; price competitive bidding; changing laws, government

regulations or policies; pressures on price levels; impairment of goodwill or amortizable intangible assets causing a significant charge to

earnings; exposure to increased economic and operational uncertainties from operating a global business as well as those factors set

forth in our Form 10K (and other forms) filed with the Securities and Exchange Commission. Our SEC filings and other important

information can be found on the Investor Relations section of our website at investors.onespan.com. We do not have any intent, and

disclaim any obligation, to update the forward-looking information to reflect events that occur, circumstances that exist, or changes in

our expectations after the date of this presentation.

Forward Looking Statements

Scott ClementsPresident and Chief Executive Officer

An Innovative FinTech Leader

6

$15B+ Reduced Fraud Losses1

Identities

Devices

Transactions

OneSpan Protects The World From Digital Fraud

1OneSpan internal estimate

7

Transforming for Growth

High-value Global Customer Base

Competitive Moat

Mobile Security Leadership

Trusted Identity Strategy

Operational Transformation

8

The Future of Financial Services

9

Financial Fraud a Persistent Reality

Total Cybercrime LossesAccount TakeoverNew Account Fraud

>$5B>$3B

$17BU.S Financial Institution Losses1

*Sources: Javelin Strategy & Research, Forbes

1Sources: Javelin Strategy & Research, Forbes

10

PrivacyGDPR, California Consumer Privacy Act, Brazil’s LGPD

SecurityPSD2, eIDAS, U.S. FTC’s Safeguards & Privacy Proposal.

Competition/Open BankingPSD2, Hong Kong MA, UK Open Banking Framework

KYC / AML / CTFEU’s 5th AMLD, Canada FINTRAC

Regulations Growing Impact on Financial Services

Global Open Banking Regulation1

Financial Institution Regulatory Fines2

United States

Canada

Mexico

U.K.

Germany

France

Belgium

Netherlands

Norway

Spain

Italy

Hungary

Sweden

Finland

Ireland

Czech Rep

Denmark

India

Malaysia

Japan

Australia

Hong Kong

23 Countries: >50% of World GDP

$26B

Sources: 1 McKinsey press search; expert interviews2 Duff & Phelps Global Enforcement Review 2018

11

Digital Banking Usage1

Consumers Prefer Digital Banking Channels

Sources:1 McKinsey Global Banking Annual Review 20192 Deloitte Center for Financial Services Analysis

0%

20%

40%

60%

80%

2013 2014 2015 2016 2017 2018

% of population

Consumer priorities for increased mobile use2

52%Stronger

Data Security

44%More Transaction

Choices

41%Easy Login &

Authentication

39%E-Signatures &

Applications

12

Fintech Investment is Accelerating

Global fintech deal funding amount,1

$Billion

5.8

12.2

18.3 18.3

23.5

2014 2015 2016 2017 2018

Digital Bank Cost Advantages –

Only Part of the Story

Sources:1 Cb Insights, KPMG Pulse of Fintech, McKinsey Panorama Digital Attacker

Database & Insights, SNL, Reuters2 McKinsey Global Banking Annual Review 2018

Traditional banks have market, regulatory, and funding

advantages and are engaging FinTechs in numerous ways.

Estimated Acquisition Cost

$ per customer

300

110

5

Traditional Direct Banks Digital Attacker

13

FI’s face a rapidly evolving security technology environment & a shortage of technical talent

Present

Mobile Security

Biometric Orchestration

Realtime Fraud Analysis

1-3 Years

Biometric Fusion

Advanced Adaptive Authentication

Open API Banking

Customer Centric Digitization

3-5 Years

Biometric Vulnerability

NextGen Contextual Authentication

Explainable AI

Self-sovereign ID

The war with criminal hackers and competition for account growth

demands security innovation

Biometrics Artificial Intelligence Identity

14

OneSpan Growth Strategy

OneSpan makes digital banking accessible, secure, easy & valuable

15

OneSpan Trusted Identity Value Propositions Aligned with FI Needs

Secure FrictionlessDigital User Experiences

Regulatory Compliance

Digitization –Productivity & Agility

Platform embedded compliance reduces cost &

complexity

Transparent adaptive security delivers winning

digital user experiences

Orchestrated cloud platform enables consumer

focused digitization & outsource of non-core activities

Realtime transaction level fraud analysis reduces losses,

improves customer experience, meets regulationsFraud/Risk

Management

Trusted Identity Strategy – Banks Focusing on Customer Value Creation

Customer Sign Up

Identity Verification

CustomerOnboarding

Authenticate Transactions

Secure Open Banking Support

Cloud-First & Mobile Centric Platform Strategy

Services Led Business Model

Amplify Privileged Position in Financial Services

Target FinTechs – Platforms and Digital Banks

Secure Agreement Automation Adaptive Auth

TID Platform Services

Fraud & Risk Analysis

16

17

➢ Security/Anti-Fraud hardware/software = $3B

➢ Stand-alone E-signature = $7B

➢ Agreement Automation = $7B

1Source: OneSpan estimates based on data from various government and

other sources such as the US Census Bureau, Eurostat, Bacs, FLA, and

internal company data; Gartner

$17B

Agreement

Automation*

E-Signatures

Security/Anti-

Fraud

>30%

~25-30%

~10%

MarketGrowth1

TID Offerings Significantly Expands Financial Services Addressable Market Opportunity

Financial Services = $17B

TID Solution Platform = $65B

Total Addressable

Market1

2FA Tokens TID

$400M

TAM

18

OneSpan’s Transformation

2020 – 2022Growth & Innovation + Operational Leverage

Open Platform Services

Cloud, Mobile, AI/ML,

>75% Software-Services

Cloud (public/private/hybrid)

Majority recurring revenue

Software 20%+ CAGR

Target 75%

TopicStrategic Theme

Business Model

Technology

Solution Portfolio

Solution Delivery

Revenue Model

Growth Rate

Margin Rate

2017 – 2019Stabilize & Transform for Growth

Product Centric

Tokens, mobile, software

~50% Software-Services

On-premise

Perpetual/License

High single digits CAGR

High 60’s

19

Today’s Presenters

Our Leadership Team

Scott ClementsPresident & CEO

Mark HoytChief Financial Officer

Dan DicaVP Worldwide Sales

Benoit GrangeChief Technology Officer

John GunnChief Marketing Officer

Tracy McCarthyChief Human

Resources Officer

Giovanni VerhaegheVP Corporate Development &

Hardware Operations

Roger WigenstamVP Product Management

Steven WorthGeneral Counsel,

Chief Compliance Officer

©2019 Aite Group LLC.

Aite Group is a global research and advisory firm deliveringcomprehensive, actionable advice on business, technology,and regulatory issues and their impact on the financial servicesindustry. With expertise in banking, payments, insurance,wealth management, and the capital markets, we guidefinancial institutions, technology providers, and consultingfirms worldwide. We partner with our clients, revealing theirblind spots and delivering insights to make their businessessmarter and stronger.

Visit us on the Web and connect with us on Twitter andLinkedIn.

Trace Fooshée

Senior Analyst

[email protected]

+1.857.406.3515www.aitegroup.com

For more information, please contact us at [email protected]

38

http://www.aitegroup.com/

https://twitter.com/AiteGroup

https://www.linkedin.com/company/aite-group?trk=company_logo

http://www.aitegroup.com/


MANAGING FRAUD: THE EQUILIBRIUM

FROM: TO:

39


MARKET FORCES DISRUPTING EQUILIBRIUM

14.7B data records breached since 2013More raw material means more attacks…leads fraud executives to assume that everyone’s identity is compromised

Attacks are increasingly automated, more sophisticated

Additional layers of control = more difficult to manage + more friction

Growth in identity-based fraud rivaling card as preferred attack pattern

Harder to detect and prevent, increases pressure to reduce losses and protect clients, defend reputation

Identity-fraud attacks divided into application fraud and account takeover

Overwhelming focus is to focus investment in authentication and identity verification controls

Pressure to reduce friction in the digital channel is unparalleled across the industry

Creates new investment pools

40


THE RESPONSE: INCREASED INVESTMENT

Source: Aite Group survey of 30 fraud and AML professionals, September 2019Source: Aite Group interviews with 18 of the top 40 US Banks, September 2019

41

John GunnChief Marketing Officer

TID Platform: The Path to Rapid Growth

Forces Impacting Banks Today

Business

Environment

New

Entrants

A New

Defense

Hacking

Attacks

25

Competitive

Rivalry

The Business Environment

26

27

Digitize more

processes to lower

costs and increase

efficiencies

Improve the

customer experience

to reduce churn and

abandonment rates.

Comply with ever-

expanding regulations

and avoid stiff penalties

and fines

Imperatives for financial institutions

“Banks need to dramatically simplify their

business and operating models to enhance

customer service and structurally reduce cost.”

pwc – Retail Banking 2020

Reduce fraud losses

in the face of more

frequent and aggressive

attacks.

“Fintech is eating the world”

New Entrants: Challenger and Neo-banks

24

29

Fintechs with 1M+ users ranked by number of accounts

- Combined total of Quarter-Billion user accounts

- Challenger banks have 30M+ user accounts

- New tools and more funding are accelerating growth

Fintechs are Gaining Momentum

*Source: CB INISGHTS 2019

#4 Financial

#3 Mobile

#2 Cloud

#1 Internet

20102000 20191990

*Source: BAIN CAPITAL VENTURES, LP 2019

The Fourth Platform

26

31

Consumers downloaded more than 200 Billion Apps last year.

The growth of finance Apps has increased 75% since 2016 and is up to 3.4 Billion downloads as of 2018

Fintech will ignite a new explosion in the number of Apps embedded with financial services, all requiring bank-level security.

178.1

205.4

258.2

2017 2018 2022

Annual Mobile App downloads in billions

Source: OneSpan estimate of the growth in mobile apps with embedded financial services

Source: App Annie State of Mobile 2019

Innovation Belongs to Attackers as Well

Hacking Attacks

28

33

A comparison of trends in losses to fraud for 2019 compared to 2018.

20%

46%

29%

50%

60%

19%

65%

19%

20%

24%

6%

15% 4%

10%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2019

2018

2019

2018

Up to 10% or more Up 1% to 9.9% Flat Down 1% to 9.8% Down 10% or more N/A or don't know

Online

Mobile

Source: Aite Group survey of 30 financial fraud professionals, September 2019

Year/Year Fraud and Loss Comparison – Losses are Still Increasing

34

The channels in which fraud losses are increasing the fastest.

19%

20%

29%

38%

38%

44%

60%

65%

31%

31%

38%

20%

6%

8%

8%

23%

23%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ATM

Branch

Contact Center

Mobile

Online

Up to 10% or more Up 1% to 9.9% Flat Down 1% to 9.8% Down 10% or more N/A or don't know


Channel View of Fraud Loss – Online and Mobile Lead

35

Future Attacks will be AI-drivenA huge room full of techies and hackers watching very powerful servers attack each other using AI.

DARPA Cyber Grand Challenge at Defcon 24

How OneSpan stops fraud and delights end users

A New Defense

33

37

To what extent does improving the customer experience influence your FI’s business case for new investments

in each of the following?

Importance of the Customer Experience

72%

77%

24%

23%

4%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2019

2018

Very Important Somewhat Important Not Important

Fraud

Detection

Authentication


38

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 20230

100s

1000s

Fac

tors

of A

uth

entica

tions

From Multi-Factor to Infinite-Factor

Introduction

of AI/ML

Shift to Multifactor

• Unlimited number

of factors of authentication

• Real-time fraud detection

and prevention

• The effective use

of unlimited shared

information

AI and ML enable the future of defense

39

Opportunity Expansion for OneSpan

Two-factor Tokens

Mobile Security Software

In-App Security

Transaction/Authentication

Security Solution

Trx/Auth Security

and Mobile Protection

3 Licenses Total

Trx/Auth and Mobile

Prot. with e-Signature

4 Licenses Total

Trx/Auth and Mobile Prot.

with e-Sig, IAA/RA, Secure

Agreement Automation

7 Licenses Total

Risk Analytics

Secure Agreement

Automation

OneSpan Sign

Two-factor Tokens Two-factor Tokens


In-App Security

Two-factor Tokens


In-App Security

OneSpan Sign

Intelligent

Adaptive Authentication

40

OneSpan Delivers

Relief from the confusion of too many

vendors with unproven solutions.

The broadest portfolio of solutions that

address security and agreement automation.

Rapid implementation from a vendor with

agreements and security approval already

established.

A uniform platform that facilitates

integration of multiple solutions from

different providers.

AI and ML expertise to stop fraud in real

time while enhancing the customer

experience.

Roger WigenstamVice President of Product Management

Trusted Identity Solutions

Trusted Identity Platform

Customer Sign Up

Identity Verification

OnboardingAuthenticate

UsersAuthorize

TransactionsIdentity

Lifecycle

Secure

Agreement

Automation

Intelligent

Adaptive

Authentication

Risk AnalyticsOneSpan Sign Mobile Security Tokens

42

43


Digipass Tokens

TOKENS

44


TOKENSMOBILE

SECURITY

Mobile Security Suite

• Orchestrated

Authentication &

Transaction Signing

• Full range of

authenticators

• Whitebox Crypto

• In-App Protection

45


TOKENSMOBILE

SECURITY

CLOUD AUTHENTICATION

Cloud Authentication

• Turnkey migration to

cloud based multi-factor

authentication

• For mobile and online

applications

• Integrated with Mobile

Security Suite and

Digipass tokens

46


TOKENSMOBILE

SECURITY


RISK ANALYTICS

Risk Analytics

• Digital channels fraud

detection

• Real-time transaction

monitoring

• AI/ML and expert rules

• Forensic analysis & case

management

47


TOKENSMOBILE

SECURITY


RISK ANALYTICS

INTELLIGENT ADAPTIVE AUTHENTICATION

Intelligent Adaptive

Authentication

• Risk-based orchestrated

authentication

• Broadest range

of authenticators

• Identity, device,

application, and

transaction aware

48


TOKENSMOBILE

SECURITY


RISK ANALYTICS


ESIGNATURE

OneSpan Sign

• Optimized for

integrated use cases

• Regulated industries

• Full white labeling

• Visual audit trail

• Advanced and

Qualified Signatures

49


TOKENSMOBILE

SECURITY


RISK ANALYTICS


ESIGNATUREAGREEMENT AUTOMATION

Secure Agreement

Automation

• Account Opening & financial transactions

• ID & document verification

• Facial comparison with liveness detection

• Full audit trail

• Global coverage

50


TOKENSMOBILE

SECURITY


RISK ANALYTICS



REM

OT

E A

CC

ESS

Zero Trust Access

51


TOKENSMOBILE

SECURITY


RISK ANALYTICS



REM

OT

E A

CC

ESS

TID

Solutions

User Experience

Shared Services

Integration Hub

Developer & Community Portal

Orchestration Hub

Reporting & Analytics

Machine Learning

< / >

TID Platform

52

Flexible Deployment Choices

Public Cloud Private Cloud On-premises

User Experience

53

54

OneSpan Solutions...

Secures the complete customer journey

Delivers trusted identities, devices,

applications, and transactions

Offered via software, hardware, cloud,

and on-premise

Proven by 100’s of millions users

Break

We will return shortly

Will LaSalaDirector of Security Solutions

Solution Demonstration

Benoit GrangeChief Technology Officer

Staying at the Forefront of Digital ID Security

Transformed Product Development Capabilities

58

Organization

Tools & Process

People &

Culture

Technology

Integration

Innovation

Technology

Leadership

59

R&D Transformation

• VP R&D

• Chief Architect

• Director CloudOps

• Innovation Leader

World Class R&D

Leadership

• Innovation Center

• Security Competence

Center

• Central Architecture

team

• Global Cloud Ops

• Global UI team

Modern

R&D Structure

• Agile Development

• Continuous

Integration &

Delivery

• State-of-the-Art

Infrastructure

Best of Breed

Process Tools

60

Core Technologies

Mobile app

securityBiometrics

Risk & fraud

analytics

eSignature Identity

verification

Multi-factor

authentication

61

Think Forward: TID Architecture

TID Solutions API

IAA RA SAA …

Mobile Solutions

MSS MAS

Micro Service Layer

Biometric Hub Notification Hub …Containers

Authentication Verification Hub eSignature Risk Engine

Orchestration Engine

Data Persistence Layer

RDBMS NQ SQL IN MEM

TID Platform

Notification Hub

Risk Engine

Authentication ServiceeSignature Hub

PKI Integration

Mobile SDKs

Verification

Hub

Orchestration

Engine

62

Think Forward: TID Integration Hub

64

AI/ML OneSpan Data Strategy

Data

Processing

Transaction

Partner

End Point

Contextual

Audit

eSign

Data Sources

Enhanced Fraud Models

Optimize User Experience

Mobile Device Protection

Secure New Account Opening

Extracted Value

65

Think Forward: Technology Leadership

• Distributed ledger

• Self sovereign identity

• Mobile digital ID

wallet

Decentralized ID

• Explainable AI

• Data anonymization

and privacy

• Deep learning

AI ML

• Zero login

• Biometric/ IoT fusion

• Quantum computing

resistant

Nextgen Access

Dan DicaSenior Vice President of Sales

Compelling Competitive Advantages

67

12 of the top 15 European banks

12 of the top 15 Asia-Pacific banks2

12 of the top 15 North American banks

Global Blue Chip Customer Base

60 of the top 100 Global Banks1

Government, Enterprise and

Insurance – growth opportunity

1 Source: S&P Global Market Intelligence

2 Excludes Chinese banks

42%58%

Software Hardware

60%

13%

27%

Software Hybrid - SW* Hybrid - HW*

68

Adding talent to:

Expand market penetration of

Trusted Identity Platform

Grow recurring revenue

Increase revenue from

strategic accounts

Go-to-Market: Sales Force Transformation

Growth in Quota Carrying Salespeople

2018 2020

*Hybrid refers to salespeople carrying both hardware and software quotas.

Approximately 1/3 of total hybrid sales dollar quota is software.

+40%

2015 2016 2017 2018 2019 YTD*

69

Cumulative Mobile Security

Licenses SoldCustomers Prefer Digital Banking Channels

* Through September 2019

> 100 million

<20 million

70

Mobile Security Licenses and 2FA Tokens Sold

17%

83%

63%

37%

2015 2019

Hardware %Mobile Security %

Nine Months Ended September 30

71

Top 10 Strategic Account Customer

2016 2017 2018 2019

Hardware Server Software Mobile Security Maintenance PS Risk Analytics

86% CAGR

Growth &

New Solutions

Expansion

72

TID Pipeline – Rapid Expansion Around the World

31 December 2018 03 December 2019

Customer: 1

Total Pipeline: 17

Customers: 17

Total Pipeline: 67

73

Addresses fraud, compliance,

costs and growth

OneSpan Solves Interrelated Business Challenges

Customer

Problems Significant account

take over fraud

PSD2 compliance

Mobile channel

protection

Lack of data collection

across apps

No real time session

analysis

Poor UX

Lack of session, user

and device visibility

Fraud prevention

Monitor transactions

and sensitive operations

OneSpan

Solutions

Mobile Security

Software with RASP

Authentication

Mobile channel

protection

Mobile Security

Software

Risk Analytics

Authentication

Mobile Security

Software with RASP

Risk Analytics

Authentication

74

Partner Types

Technology – microservice enablement

Go-to-market – channels / adjacencies

Deployment – professional services

Strategic customer – joint development

Success Criteria

Unique platform offering

Demonstrated market demand

Credible access to key customer sets

Strong partner value proposition

Active partner support model

Ecosystem partner model – Strategic Alliance Function

Go-To-Market DeploymentTechnology Partners

75

CONFIDENCE in the future ...

Blue-chip customers

New solution offerings

Unique position in the market

Performance

The team

Mark HoytChief Financial Officer

Financial Model and Business Outlook

77

Financial Model Drivers

Strong Recurring

Software Growth

Decline

in Hardware

Continued

Investment in

R&D and S&M

Cash Flow –

Growth Similar to

Adjusted EBITDA

78

Revenue Model

$0

$50

$100

$150

$200

$250

$300

2017 2018 2019*

Total Revenue

Hardware Software LicensesMaintenance, Support & Other SubscriptionProfessional Services

$0

$50

$100

$150

$200

$250

$300

2017 2018 2019* 2022**

Total Revenue

Hardware Maintenance & Services Software

$193

$212

$248-$250

* Reflects midpoint of 2019 guidance

** Based on midpoint of target CAGR

$193

$212

$248-$250

Target 2019 – 2022 CAGR

8% - 12%

Revenue Model

79

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

$220

2017 2018 2019* 2022**

Software and Services Revenue

(millions)

Non-Recurring Recurring

$87

$107

Recurring revenue includes subscriptions, term

licenses & software maintenance

* Indication of year over year growth; guidance not provided

** Indication of target 2019 – 2022 CAGR

Target 2019 – 2022 CAGR

Total S&S Revenue: 20% - 25%

Recurring Revenue: 25% - 30%

Targeting Software & Services

Revenue Acceleration

80

2020 Preliminary Reporting Framework

Term LicensesPerpetual

Licenses

Recurring

Revenue

Subscription

ARR

Subscription Maintenance HardwareProfessional

Services

81

Business Outlook

3-Year Targets

Total Revenue 8% - 12% CAGR

S&S Revenue 20% - 25% CAGR

Hardware Revenue (5%) - (10%) CAGR

AEBITDA 20% - 30% CAGR

% of Revenue

Gross Margin ~75%

S&M 24% - 26%

R&D 17% - 19%

G&A 15% - 16%

2019 Guidance

Revenue: $248 - $250 million

Adjusted EBITDA: $26 - $28 million

OneSpan a FinTech LeaderScott Clements, President and CEO

2019 2020 2021 2022

83

Strong Recurring Revenue Growth*

* OneSpan Targets

~75%

Recurring

An Innovative FinTech Leader

Software and Services ~20% CAGR

Expanded Opportunity in FinServ

Multiple Growth Vectors

Trusted Identity Strategy

Increased Innovation

Sustained Growth – Higher Margins

84

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December 4, 2019

2019 Investor and Analyst Day

APPENDIX

87

Non-GAAP Financial Measures

We report financial results in accordance with GAAP. We also evaluate our performance using certain non-GAAP operating metrics such as Adjusted

EBITDA. Our management believes that these measures provide useful supplemental information regarding the performance of our business and

facilitates comparisons to our historical operating results. We believe these non-GAAP operating metrics provide additional tools for investors to use to

compare our business with other companies in the industry. These non-GAAP measures are not measures of performance under GAAP and should not

be considered in isolation, as alternatives or substitutes for the most directly comparable financial measures calculated in accordance with GAAP. While

we believe that these non-GAAP measures are useful within the context described below, they are in fact incomplete and are not a measure that should

be used to evaluate our full performance or our prospects. Such an evaluation needs to consider all of the complexities associated with our business

including, but not limited to, how past actions are affecting current results and how they may affect future results, how we have chosen to finance the

business, and how taxes affect the final amounts that are or will be available to shareholders as a return on their investment. Reconciliations of the non-

GAAP measures to the most directly comparable GAAP financial measures are found below.

We define Adjusted EBITDA as net income (loss) before interest, taxes, depreciation, amortization, long-term incentive compensation, and certain other

non-recurring items, including acquisition related costs, lease exit costs, rebranding costs, and accruals for legal contingencies. We use Adjusted EBITDA

as a simplified measure of performance for use in communicating our performance to investors and analysts and for comparisons to other companies

within our industry. As a performance measure, we believe that Adjusted EBITDA presents a view of our operating results that is most closely related to

serving our customers. By excluding interest, taxes, depreciation, amortization, long-term incentive compensation, and certain other non-recurring items,

we are able to evaluate performance without considering decisions that, in most cases, are not directly related to meeting our customers’ requirements

and were either made in prior periods (e.g., depreciation, amortization, long-term incentive compensation, lease exit costs, reversal of a prior period legal

contingency accrual), or deal with the structure or financing of the business (e.g., interest, acquisition related costs, rebranding costs) or reflect the

application of regulations that are outside of the control of our management team (e.g., taxes). Similarly, we find the comparison of our results to those

of our competitors is facilitated when we do not consider the impact of these items.

Non-GAAP Reconciliation

Reconciliation of Net Income to Adjusted EBITDA

(in thousands, unaudited)

2016 2017 2018 2018 2019

Net income (loss) 10,514$ (22,399)$ 3,846$ (118)$ 3,739$

Interest income, net (785) (1,431) (1,265) (991) (432)

Provision for income taxes 863 30,780 (293) (943) 4,363

Depreciation and amortization / impairment of intangible assets 10,777 10,601 12,138 9,066 8,579

Long-term incentive compensation 4,871 5,372 6,091 4,383 3,316

Reversal of legal accrual - - (900) (900) -

Rebranding costs - - 561 561 -

Acquisition related costs - - 1,087 1,087 -

Lease exit costs - - 315 315 -

Adjusted EBITDA 26,240$ 22,923$ 21,580$ 12,460$ 19,565$

Twelve months ended

December 31,

Nine months ended

September30,

COPYRIGHT AND TRADEMARKSCopyright© 2019 OneSpan North America Inc., all rights reserved. OneSpan™, the “O” logo, “BE BOLD. BE

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