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Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Dec. 31, 2019	Mar. 01, 2020	Jun. 30, 2019
Document And Entity Information
Document Type	10-K
Document Period End Date	Dec. 31, 2019
Entity Registrant Name	OneSpan Inc.
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		40,271,211
Entity Central Index Key	0001044777
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Public Float			$ 460,536,053

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Current assets
Cash and equivalents	$ 84,282	$ 76,708	$ 78,661
Short term investments	25,511	22,789
Accounts receivable, net of allowances of $2,524 in 2019 and $1,152 in 2018	62,405	59,631
Inventories, net	19,819	14,428
Prepaid expenses	6,198	4,733
Contract assets	7,058	7,962
Other current assets	6,346	5,705
Total current assets	211,619	191,956
Property and equipment, net	11,454	6,250
Operating lease right-of-use assets	10,580
Goodwill	94,612	91,841	56,332
Intangible assets, net of accumulated amortization	36,209	45,462	$ 37,888
Deferred income taxes	7,863	5,601
Contract assets - non-current	3,565	3,316
Other assets	8,668	8,400
Total assets	384,570	352,826
Current liabilities
Accounts payable	10,835	7,202
Deferred revenue	30,338	33,633
Accrued wages and payroll taxes	15,415	13,932
Short-term income taxes payable	7,711	6,905
Other accrued expenses	8,786	9,323
Deferred compensation	1,028	1,362
Total current liabilities	74,113	72,357
Long-term deferred revenue	15,259	10,672
Long-term lease liability	11,299
Other long-term liabilities	8,297	7,075
Long-term income taxes payable	6,958	7,620
Deferred income taxes	4,623	2,661
Total liabilities	120,549	100,385
Stockholders' equity
Preferred stock: 500 shares authorized, none issued and outstanding at December 31, 2019 and 2018
Common stock: $.001 par value per share, 75,000 shares authorized; 40,406 and 40,225 issued and outstanding at December 31, 2019 and 2018, respectively	40	40
Additional paid-in capital	96,109	93,310
Accumulated income	181,167	172,378
Accumulated other comprehensive loss	(13,295)	(13,287)
Total stockholders' equity	264,021	252,441
Total liabilities and stockholders' equity	$ 384,570	$ 352,826

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance for doubtful accounts	$ 2,524	$ 1,152
Preferred stock, shares authorized	500	500
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	40,207,000	40,225,000
Common stock, shares outstanding	40,207,000	40,225,000

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Revenue
Total revenue	$ 254,570	$ 212,280	$ 193,291
Cost of goods sold
Total cost of goods sold	81,962	64,813	58,777
Gross profit	172,608	147,467	134,514
Operating costs
Sales and marketing	61,503	63,805	58,994
Research and development	42,463	32,197	23,119
General and administrative	43,897	41,589	37,400
Amortization / impairment of intangible assets	9,470	9,852	8,809
Total operating costs	157,333	147,443	128,322
Operating income	15,275	24	6,192
Interest income, net	747	1,265	1,431
Other income (expense), net	(527)	2,264	758
Income before income taxes	15,495	3,553	8,381
Provision (benefit) for income taxes	6,706	(293)	30,780
Net income (loss)	$ 8,789	$ 3,846	$ (22,399)
Net income (loss) per share
Basic (in dollars per share)	$ 0.22	$ 0.10	$ (0.56)
Diluted (in dollars per share)	$ 0.22	$ 0.10	$ (0.56)
Weighted average common shares outstanding
Basic (in shares)	40,050	39,932	39,802
Diluted (in shares)	40,136	40,046	39,802
Product and license
Revenue
Total revenue	$ 184,173	$ 152,977	$ 147,257
Cost of goods sold
Total cost of goods sold	63,393	50,706	48,333
Services and other
Revenue
Total revenue	70,397	59,303	46,034
Cost of goods sold
Total cost of goods sold	$ 18,569	$ 14,107	$ 10,444

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$ 8,789	$ 3,846	$ (22,399)
Other comprehensive income (loss)
Cumulative translation adjustment, net of tax	1,543	(5,516)	4,029
Pension adjustment, net of tax	(1,551)	797	313
Comprehensive income (loss)	$ 8,781	$ (873)	$ (18,057)

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - USD ($) shares in Thousands, $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Income	Accumulated Other Comprehensive Income (Loss)	Total
Balance at Dec. 31, 2016	$ 40	$ 87,481	$ 178,550	$ (12,910)	$ 253,161
Balance (in shares) at Dec. 31, 2016	40,097
Change in Stockholders' Equity
Net income (loss)			(22,399)		(22,399)
Foreign currency translation adjustment, net of tax				4,029	4,029
Restricted stock awards		3,466			3,466
Restricted stock awards, Shares	(11)
Tax payments for stock issuances		(640)			(640)
Pension adjustment, net of tax				313	313
Balance at Dec. 31, 2017	$ 40	90,307	156,151	(8,568)	237,930
Balance (in shares) at Dec. 31, 2017	40,086
Change in Stockholders' Equity
Cumulative impact of change in accounting principles, net of tax			(12,381)		(12,381)
Net income (loss)			3,846		3,846
Foreign currency translation adjustment, net of tax				(5,516)	(5,516)
Restricted stock awards		3,973			3,973
Restricted stock awards, Shares	139
Tax payments for stock issuances		(970)			(970)
Pension adjustment, net of tax				797	797
Balance at Dec. 31, 2018	$ 40	93,310	172,378	(13,287)	252,441
Balance (in shares) at Dec. 31, 2018	40,225
Change in Stockholders' Equity
Net income (loss)			8,789		8,789
Foreign currency translation adjustment, net of tax				1,543	1,543
Restricted stock awards		3,368			3,368
Tax payments for stock issuances		(569)			(569)
Tax payments for stock issuances, Shares	(18)
Pension adjustment, net of tax				(1,551)	(1,551)
Balance at Dec. 31, 2019	$ 40	$ 96,109	$ 181,167	$ (13,295)	$ 264,021
Balance (in shares) at Dec. 31, 2019	40,207

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities:
Net income (loss) from operations	$ 8,789	$ 3,846	$ (22,399)
Adjustments to reconcile net income (loss) from operations to net cash provided by (used in) operations:
Depreciation, amortization, and impairment of intangible assets	11,545	12,138	10,601
Loss (gain) on disposal of assets	69	(49)	185
Deferred tax expense (benefit)	(1,624)	(7,431)	13,053
Stock-based compensation	3,368	3,973	3,466
Changes in operating assets and liabilities:
Accounts receivable, net	(3,414)	(11,960)	(8,428)
Inventories, net	(5,391)	(2,388)	5,380
Contract assets	655	(3,110)
Accounts payable	3,628	(1,475)	(1,013)
Income taxes payable	318	(2,541)	11,926
Accrued expenses	(1,286)	2,211	2,514
Deferred compensation	(334)	(291)	(77)
Deferred revenue	1,465	9,538	3,704
Other assets and liabilities	456	(1,235)	(1,285)
Net cash provided by operating activities	18,244	1,226	17,627
Cash flows from investing activities:
Purchase of short term investments	(33,839)	(22,820)	(178,658)
Maturities of short term investments	31,399	80,000	195,000
Purchase of Dealflo, net of cash acquired		(53,065)
Additions to property and equipment	(7,453)	(3,685)	(3,088)
Other		(236)	(456)
Net cash provided by (used in) investing activities	(9,893)	194	12,798
Cash flows from financing activities:
Tax payments for restricted stock issuances	(569)	(970)	(640)
Net cash used in financing activities	(569)	(970)	(640)
Effect of exchange rate changes on cash	(208)	(1,556)	(469)
Net increase (decrease) in cash	7,574	(1,106)	29,316
Cash, cash equivalents, and restricted cash, beginning of period	77,555	78,661	49,345
Cash, cash equivalents, and restricted cash, end of period	85,129	77,555	78,661
Supplemental cash flow disclosures:
Cash paid for income taxes	$ 7,839	$ 10,884	$ 6,427

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 1 – Summary of Significant Accounting Policies

Description of the Company

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

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

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.

Reclassifications

Certain amounts from prior years have been reclassified to conform to current year presentation.

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 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. Revenues 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 or (losses) resulting from foreign currency transactions were $1.5 million, $0.2 million, and $0.5 million in 2019, 2018, and 2017, respectively, and are included in other income (expense), net in the consolidated statements of operations.

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.

Revenue Recognition

Under ASC 605 – For the Year ended December 31, 2017

Prior to January 1, 2018 we recognized revenue in accordance with ASC 985-605, Software – Revenue Recognition, ASC 985-605-25, Revenue Recognition – Multiple Element Arrangements and Staff Accounting Bulletin 104.

Product and License Revenue includes hardware products and software licenses. Services and Other includes software as a service (“SaaS”), maintenance and support, and professional services.

Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection of the revenue is probable.

In multiple-element arrangements, some of our products are accounted for under the software provisions of ASC 985-605 and others under the provisions that relate to the sale of non-software products.

In our typical multiple-element arrangement, the primary deliverables include:

1. a client component (i.e., an item that is used by the person being authenticated in the form of either a new standalone hardware device or software that is downloaded onto a device the customer already owns);

2. host system software that is installed on the customer’s systems (i.e., software on the host system that verifies the identity of the person being authenticated) or licenses for additional users on the host system software if the host system software had been installed previously; and

3. post contract support (PCS) in the form of maintenance on the host system software or support.

Our multiple-element arrangements may also include other items that are usually delivered prior to the recognition of any revenue are incidental to the overall transaction such as initialization of the hardware device, customization of the hardware device itself or the packaging in which it is delivered, deployment services where we deliver the device to our customer’s end-use customer or employee and, in some limited cases, professional services to assist with the initial implementation of a new customer.

In multiple-element arrangements that include a hardware client device, we allocate the selling price among all elements, delivered and undelivered, based on estimated selling price of all of the elements. In multiple-element arrangements that include a software client device, we continue to account for each element under the current standards of ASC 985-605 related to software. When software for the client device and host software are delivered elements, we use the Residual Method for determining the amount of revenue to recognize for token and software licenses if we have vendor-specific objective evidence (“VSOE”) for all of the undelivered elements. Any discount provided to the customer is applied fully to the delivered elements in such an arrangement. VSOE for undelivered elements is established using the “bell curve method.” Under this method, we conclude VSOE exists when a substantial majority of PCS renewals are within a narrow range of pricing. The estimated selling price of PCS items is based on an established percentage of the user license fee attributable to the specific software. In sales arrangements where VSOE of fair value has not been established, revenue for all elements is deferred and amortized over the life of the arrangement.

For transactions other than multiple-element arrangements, we recognize revenue as follows:

1. Product and License Revenue: Revenue from the sale of computer security hardware or the license of software is recorded upon shipment, or upon delivery based on the underlying contract terms. No significant obligations or contingencies exist with regard to delivery, customer acceptance or rights of return at the time revenue is recognized.

2. SaaS: We generate SaaS revenues from our cloud services offerings. SaaS revenues include fees from customers for access to the OneSpan Sign (formerly eSignLive) suite of solutions. Our standard customer arrangements generally do not provide the customer with the right to take possession of the software supporting the cloud-based application service at any time. As such, these arrangements are considered service contracts and revenue is recognized ratably over the service period of the contract.

3. Maintenance and Support Agreements: Maintenance and support agreements generally call for us to provide software updates and technical support, respectively, to customers. Revenue on maintenance and technical support is deferred and recognized ratably over the term of the applicable maintenance and support agreement.

4. Professional Services: We provide professional services to our customers. Revenue from such services is recognized during the period in which the services are performed.

We recognize revenue from sales to distributors and resellers on the same basis as sales made directly to customers. We recognize revenue when there is persuasive evidence that an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection of the revenue is probable.

For large-volume transactions, we may negotiate a specific price that is based on the number of users of the software license or quantities of hardware supplied. The per unit prices for large-volume transactions are generally lower than transactions for smaller quantities and the price differences are commonly referred to as volume-purchase discounts.

All revenue is reported on a net basis, excluding any sales taxes or value added taxes.

Under ASC 606 – For the Years ended December 31, 2019 and December 31, 2018

On January 1, 2018, we adopted FASB Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers”, or “Topic 606” using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under FASB ASC Topic 605 “Revenue Recognition ” and FASB ASC Topic 985-605 “ Software-Revenue Recognition ” (“Topic 605”). We recorded a net increase to opening Accumulated Income of $11.9 million, net of tax, as of January 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact primarily related to the accounting impacts of our customer contracts that include a term license to our software, as well as the impact of accounting for costs incurred to obtain our contracts. We determine revenue recognition through the following steps:


	·		Identification of the contract, or contracts, with a customer;
	·		Identification of the performance obligations in the contract;
	·		Determination of the transaction price;
	·		Allocation of the transaction price to the performance obligations in the contract; and
	·		Recognition of revenue when, or as, we satisfy a performance obligation.

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services, which excludes any sales incentives and amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

Nature of Goods and Services

We derive our revenues primarily from Product and License Revenue, which includes hardware products and software licenses, and Services and Other, which is inclusive of software-as-a-service (which we refer to as “subscription”), maintenance and support, and professional services.

Product Revenue: Revenue from the sale of security hardware is recorded upon shipment, which is the point at which control of the goods are transferred and the completion of the performance obligation, unless there are specific terms that would suggest control is transferred at a later date (e.g. delivery). No significant obligations or contingencies typically exist with regard to delivery, customer acceptance or rights of return at the time revenue is recognized. Customer payments normally correspond with delivery.

License Revenue: Revenue from the sale of software licenses is recorded upon the latter of when the customer receives the ability to access the software or when they are legally allowed to use the software. No significant obligations or contingencies exist with regard to delivery, customer acceptance or rights of return at the time revenue is recognized. Contracts with customers for distinct licenses of intellectual property include perpetual licenses, which grant the customer unlimited access to the software, and term licenses which limit the customer’s access to the software to a specific time period. The typical term license length is 3 years. Customer payments normally correspond with delivery for perpetual licenses. For term licenses, payments are made either on installment or upon initial delivery. In limited circumstances, we integrate third party software solutions into our software products. We have determined that, consistent with our conclusion under prior revenue recognition rules, generally we act as the principal with respect to the satisfaction of the related performance obligation and record the corresponding revenue on a gross basis from these transactions. The fees paid to the third parties are recognized as a component of cost of goods sold when the revenue is recognized.

Subscription Revenue: We generate subscription revenues from our cloud services offerings. Subscription revenues mostly include fees from customers for access to the OneSpan Sign and Dealflo solutions. Our standard customer arrangements do not provide the customer with the right to take possession of the software supporting the cloud-based application service at any time. As such, these arrangements are considered service contracts and revenue is recognized ratably over the service period of the contract or based on customer usage. Customer payments are normally in advance for an annual subscription period.

Maintenance, Support and Other: Maintenance and support agreements generally call for us to provide software updates and technical support, respectively, to customers. The annual fee for maintenance and technical support is recognized ratably over the term of the maintenance and support agreement as this is the period the services are delivered. Customer payments are normally in advance for annual service.

Professional Services: Professional services revenues are primarily comprised of implementing, automating and extending business processes, technology infrastructure, and software applications. Professional services revenues are recognized over time as services are rendered, usually over a period of time that is generally less than a few months. Most projects are performed on a time and materials basis, while a portion of revenues is derived from projects performed on a fixed fee. For time and material contracts, revenues are generally recognized and invoiced by multiplying the number of hours expended in the performance of the contract by the contractual hourly rates. For fixed fee contracts, revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours to complete the services. Customer payments normally correspond with delivery.

Significant Judgments

We enter into contracts to deliver a combination of hardware devices, software licenses, subscriptions, maintenance and support and, in some situations, professional services. The Company evaluates the nature of the goods or services promised in these arrangements to identify the distinct performance obligations. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a hardware client device and licenses to host software are sold in a contract, they are treated as a single performance obligation because the software license is deemed to be a component of the hardware that is integral to the functionality of the hardware that is used by our customers for identity authentication. When a software client device is sold in a contract with host software, the licenses are considered a single performance obligation to deliver the authentication solution to the customer. In either of these types of arrangements, maintenance and support and professional services are typically distinct separate performance obligations from the hardware and software solutions. Our contracts to deliver subscription services typically do not include multiple performance obligations; however, in certain limited cases, customers may purchase professional services that are distinct performance obligations.

For contracts that contain multiple performance obligations, the transaction price is allocated to the separate performance obligations based on their estimated relative stand-alone selling price (“SSP”). Judgment is required to determine the SSP of each distinct performance obligation. We determine SSP for maintenance and support and professional services based on observable inputs; specifically, the range of prices charged to customers to renew annual maintenance and support contracts and the range of hourly rates we charge our customers in standalone professional services contracts. In instances where SSP is not directly observable, and when we sell at a highly variable price range, such as for transactions involving software licenses or subscriptions, we determine the SSP for those performance obligations using the residual method.

Cash and Cash Equivalents

Cash and cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash equivalents are high-quality short term money market instruments and commercial paper with maturities at acquisition of three months or less. Cash and cash equivalents are held by a number of U.S. and non-U.S. commercial banks and money market investment funds. During the year ended December 31, 2018, we entered into a new lease agreement that required a letter of credit in the amount of $0.8 million to secure the obligation. The restricted cash related to this letter of credit is recorded in other non-current assets on the Consolidated Balance Sheet as of December 31, 2019 and December 31, 2018.

Short Term Investments

Short term investments consist of U.S. treasury bills and notes, U.S. government agency notes, corporate notes, and high quality commercial paper with maturities at acquisition of more than three months and less than twelve months. Fair value is determined using Level 2 inputs as defined by ASC 820, Fair Value Measurements.

Accounts Receivable and Allowance for Doubtful Accounts

The credit worthiness of customers (including distributors and resellers) is reviewed prior to shipment. A reasonable assurance of collection is a requirement for revenue recognition. Credit limit adjustments for existing customers may result from the periodic review of outstanding accounts receivable. The Company records trade accounts receivable at invoice values, which are generally equal to fair value.

We maintain allowances for estimated losses resulting from the inability of our customers to make payments for goods and services. We analyze accounts receivable balances, customer credit-worthiness, current economic trends and changes in our customer payment timing when evaluating the adequacy of the allowance for doubtful accounts. The allowance is based on a specific review of all significant past-due accounts. If the financial condition of our customers deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

Inventories, consisting principally of hardware and component parts, are stated at the lower of cost or net realizable value. Cost is determined using the first-in-first-out (FIFO) method. We write down inventory when it appears that the carrying cost of the inventory may not be recovered through subsequent sale of the inventory. We analyze the quantity of inventory on hand, the quantity sold in the past year, the anticipated sales volume in the form of sales to new customers as well as sales to previous customers, the expected sales price and the cost of making the sale when evaluating the valuation of our inventory. If the sales volume or sales price of a specific model declines significantly, additional write downs may be required.

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets ranging from three to ten years. Leasehold improvements are depreciated over the lesser of the remaining lease term or 10 years. Additions and improvements are capitalized, while expenditures for maintenance and repairs are charged to operations as incurred. Gains or losses resulting from sales or retirements are recorded as incurred, at which time related costs and accumulated depreciation are removed from the accounts.

Equity Method Investment

We apply the equity method of accounting to our investment in Promon AS (Promon), because we exercise significant influence, but not controlling interest, in the investee. Promon is a technology company headquartered in Norway that specializes in mobile app security, whose solutions focus largely on Runtime Application Self-Protection (RASP). We exercise significant influence over Promon as a result of our 17% ownership interest in Promon, our representation on Promon’s Board of Directors, and the significance to Promon of our business activities with them. We integrate Promon’s RASP technology into our software solution, which are licensed to our customers. Under the equity method of accounting, the Company’s proportionate share of the net earnings (losses) of Promon is reported in other income (expense), net in our consolidated Statements of Operations. The impact of the proportionate share of net earnings (losses) were immaterial for the years ended December 31, 2019, 2018 and 2017 as were the relative size of Promon’s assets and operations in relation to the Company’s. The carrying value of our equity method investment is reported in other noncurrent assets in the consolidated Balance Sheets and is reported originally at cost and adjusted each period for the Company’s share of the investee’s earnings (losses) and dividends paid, if any. The Company also assesses the investment for impairment whenever events or changes in circumstances indicate that the carrying value of the investment may not be recoverable. The Company did not record any impairment charges during the years ended December 31, 2019, 2018 or 2017. The Company recorded $3.5 million in costs of sales in 2019 for license fees owed to Promon for use of their software and technology. The Company owed Promon $2.2 million as of December 31, 2019, which is included in accounts payable and accrued liabilities.

Cost of Goods Sold

Included in product and license cost of goods sold are direct product costs. Cost of goods sold related to service revenues are primarily costs related to subscription solutions, including personnel and equipment costs, and personnel costs of employees providing professional services and maintenance support.

Research and Development Costs

Costs for research and development, principally the design and development of hardware, and the design and development of software prior to the determination of technological feasibility, are expensed as incurred on a project-by-project basis.

Software Development Costs

Software development costs are accounted for in accordance with ASC 985-20, Costs of Software to be Sold, Leased, or Marketed. Research costs and software development costs, prior to the establishment of technological feasibility, determined based upon the creation of a working model, are expensed as incurred. Our software capitalization policy defines technological feasibility as a functioning beta test prototype with confirmed manufacturability (a working model), within a reasonably predictable range of costs. Additional criteria include receptive customers, or potential customers, as evidenced by interest expressed in a beta test prototype, at some suggested selling price. Our policy is to amortize capitalized costs by the greater of (a) the ratio that current gross revenue for a product bears to the total of current and anticipated future gross revenue for that product or (b) the straight-line method over the remaining estimated economic life of the product, generally two to five years, including the period being reported on.

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. During 2018, the Company recognized a $1.2 million government subsidy from a foreign government in support of our advancement authentication technology, which is included in other income (expense), net on the statement of operations for the year ended December 31, 2018.

Income Taxes

As a global company, we calculate and provide for income taxes in each tax jurisdiction in which we operate. The provision for income taxes includes the amounts payable or refundable for the current year, the effect of deferred taxes and impacts from uncertain tax positions. Our provision for income taxes is significantly affected by shifts in the geographic mix of our pre-tax earnings across tax jurisdictions, changes in tax laws and regulations, and tax planning opportunities available in each tax jurisdiction.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement and tax bases of our assets and liabilities and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those differences are expected to be recovered or settled. Valuation allowances are established for deferred tax assets when it is more likely than not that a tax benefit will not be realized. We recognize the effect of a change in tax rates on deferred tax assets and liabilities and in income in the period that includes the enactment date.

We recognize tax benefits for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in our income tax returns that do not meet these recognition and measurement standards. Assumptions, judgments, and the use of estimates are required in determining whether the “more likely than not” standard has been meet when developing the provision for income taxes.

We monitor for changes in tax laws and reflect the impacts of tax law changes in the period of enactment.

Fair Value of Financial Instruments

At December 31, 2019 and 2018, our financial instruments were cash and equivalents, short term investments, accounts receivable, accounts payable and accrued liabilities. 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 values of the financial instruments were not materially different from their carrying amounts at December 31, 2019 and 2018. See Note 8 - Fair Value Measurements for additional detail.

Accounting for Leases

All of our leases are operating leases.

Under ASC 840 – For the Years ended December 31, 2018 and December 31, 2017;

Rent expense on facility leases is charged evenly over the life of the lease, regardless of the timing of actual payments. We relocated one of our principal executive offices from Oakbrook Terrace, Illinois to Chicago, Illinois during 2018 and recognized $0.3 million of lease exit costs in general and administrative expense on the statement of operations for the year ended December 31, 2018.

Under ASC 842 – For the Year ended December 31, 2019:

The Company adopted ASC Topic 842, Leases as of January 1, 2019, using the modified retrospective approach. Prior period amounts were not adjusted. In addition, the Company elected the following practical expedients:

The package of practical expedients permitted under the transition guidance within the new standard. The practical expedient package applies to leases commenced prior to adoption of the new standard and permits companies not to reassess whether existing or expired contracts contain a lease, the lease classification, and any initial direct costs for existing leases.

The short-term lease practical expedient, which allowed the Company to exclude short-term leases from recognition in the consolidated balance sheets;

We have lease agreements that contain lease and non-lease components. For automobile leases, we account for lease and non-lease components together. For office leases, we account for these components separately using a relative standalone selling basis; and

We apply the portfolio approach to automobile leases with similar characteristics that commence in the same period.

The adoption of this accounting standard resulted in the recording of Operating lease right-of-use (“ROU”) assets and Operating lease liabilities of $9.2 million and $11.0 million, respectively, as of January 1, 2019. The difference between the asset and liability is a result of lease incentives, such as tenant improvement allowances, and deferred rent on the balance sheet at transition. The adoption of ASC Topic 842 had no impact on Retained earnings. See Note 9 – Leases for additional information.

Impairment of Long-Lived and Intangible Assets

Definite-lived intangible assets include proprietary technology, customer relationships, and other intangible assets. Intangible assets other than patents with definite lives are amortized over the useful life, generally three to seven years for proprietary technology and five to twelve years for customer relationships. Patents are amortized over the life of the patent, generally 20 years in the U.S. Intangible assets arising from business combinations, such as acquired technology, customer relationships, and other intangible assets, are originally recorded at fair value.

Long-lived assets, including property, plant and equipment, operating lease right-of-use assets, definite-lived intangible assets being amortized and capitalized software costs, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset group may not be recoverable. An impairment loss shall be recognized if the carrying amount of a long-lived asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that an impairment loss has occurred, the loss is measured as the amount by which the carrying amount of the long-lived asset group exceeds its fair value. Long-lived assets held for sale are reported at the lower of carrying value or fair value less cost to sell.

Goodwill

Goodwill represents the excess of purchase price over the fair value of net identifiable assets acquired in a business combination. We assess the impairment of goodwill and intangible assets each November 30 or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company’s impairment assessment begins with a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. The qualitative assessment includes comparing the overall financial performance of the reporting unit against the planned results used in the last quantitative goodwill impairment test. Additionally, the reporting unit’s fair value is assessed in light of certain events and circumstances, including macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity- and reporting unit specific events. The selection and assessment of qualitative factors used to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying value may involve significant judgments and estimates. If it is determined under the qualitative assessment that it is more likely than not that the fair value of the reporting unit is less than its carrying value, then a two-step quantitative impairment test is performed. Under the first step, the estimated fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. If the estimated fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation in acquisition accounting. The residual amount after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit under the two-step assessment is determined using a combination of both income and market-based variation approaches. The inputs and assumptions to valuation methods used to estimate the fair value of the reporting unit involves significant judgments.

We operate in one reporting unit and had no goodwill impairment recorded for the years ended December 31, 2019, 2018, and 2017.

Stock-Based Compensation

We have stock-based employee compensation plans, described in Note 11 – Long-Term Compensation Plan and Stock Compensation. ASC 718, Stock Compensation requires us to estimate the fair value of restricted stock granted to employees, directors and others to record compensation expense equal to the estimated fair value. Compensation expense is recorded on a straight-line basis over the vesting period for time-based awards and performance awards with cliff vesting provisions and on a graded basis for performance awards with graded vesting provisions. Forfeitures are recorded as incurred.

Retirement Benefits

We record annual expenses relating to defined benefit pension plans based on calculations which include various actuarial assumptions, including discount rates, assumed asset rates of return, compensation increases, and turnover rates. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends. The effects of gains, losses, and prior service costs and credits are amortized over the average service life. The funded status, or projected benefit obligation less plan assets, for each plan, is reflected in our consolidated financial statements using a December 31 measurement date.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. Since that date, the FASB has issued additional ASU’s clarifying certain aspects of ASU 2016-02. The new guidance supersedes the lease guidance under FASB Accounting Standards Codification (“ASC”) Topic 840, Leases, resulting in the creation of FASB ASC Topic 842, Leases. The guidance requires a lessee to recognize on the Balance Sheet a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both finance and operating leases. Subsequent guidance issued after February 2016 did not change the core principle of ASU 2016-02. The Company adopted ASC Topic 842 effective January 1, 2019, using the modified retrospective method, which did not require the Company to adjust comparative periods. See the Accounting for Leases section of this note for additional information.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The new guidance provides financial statement users with improved information about the expected credit losses on trade receivables and other financial instruments held by a reporting entity at each reporting date. The amendments in this update replace the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company expects to adopt the standard on a modified retrospective basis and is still evaluating the impact of adopting ASU 2016-13 on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment. This standard eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (i.e. Step 2 of the current guidance), instead measuring the impairment charge as the excess of the reporting unit's carrying amount over its fair value (i.e. Step 1 of the current guidance). The guidance is effective for us beginning in the first quarter of 2020, and should be applied prospectively. Early adoption is permitted for impairment testing dates after January 1, 2017. We are currently evaluating the effect, if any, that the ASU will have on our consolidated financial statements and related disclosures.

Effective January 1, 2018, we adopted ASU 2016-01, Financial Instruments – Overall, which revises the classification and measurement of investments in equity securities. ASU 2016-01 requires that equity investments, except those accounted for under the equity method of accounting, be measured at fair value and changes in fair value are recognized in net income. ASU 2016-01 also provides a new measurement alternative for equity investments that do not have a readily determinable fair value (cost method investments). These investments are measured at cost, less any impairment, adjusted for observable price changes. Effective January 1, 2018, we elected to record our equity investment that does not have a readily determinable fair value using the alternative measurement method. Accordingly upon adoption, we recorded a cumulative effect adjustment to increase opening accumulated income at January 1, 2018 by $0.5 million, net of tax, as required for our equity investments with no readily determinable fair value to reflect the investment at approximate fair value.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee share-based payment accounting, which is intended to reduce the cost and complexity of accounting for, and improve financial reporting for share-based payments to nonemployees for goods and services. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. The guidance should be applied prospectively and early adoption is permitted. We adopted this standard on January 1, 2019 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) which amends ASC 820, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted for removed or modified disclosures, and delayed adoption of the additional disclosures until their effective date. We are currently evaluating the effect that the ASU will have on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14), which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, and earlier adoption is permitted. We are currently evaluating the effect that the ASU will have on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement , which helps entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (CCA) by providing guidance for determining when an arrangement includes a software license and when an arrangement is solely a hosted CCA service. Under ASU 2018-15, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. The new standard is effective for us on January 1, 2020. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. Entities can choose to adopt the new guidance prospectively to eligible costs incurred on or after the date this guidance is first applied or retrospectively. We expect to implement the guidance prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the effect that the ASU will have on our consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes. The ASU’s amendments are based on changes that were suggested by stakeholders as part of the FASB’s effort to reduce the complexity of accounting standards while maintaining or enhancing the helpfulness of information provided to financial statement users. The new standard is effective for us on January 1, 2021. We are currently evaluating the effect that the ASU will have on our consolidated financial statements and related disclosures.

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.

Inventories, net

12 Months Ended

Dec. 31, 2019

Inventories, net

Inventories, net

Note 2 – 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:


	December 31,
	2019		2018
	(in thousands)
Component parts	$	7,429	$	5,445
Work-in-process and finished goods		12,390		8,983
Total	$	19,819	$	14,428

Business Acquisitions

12 Months Ended

Dec. 31, 2019

Business Acquisitions

Business Acquisitions

Note 3 – Business Acquisitions

On May 30, 2018, OneSpan acquired the remaining interest in Dealflo Limited and its subsidiaries (“Dealflo”), increasing our ownership percentage to 100% from 1%. Dealflo, formerly a privately-held company based in the United Kingdom, provides identity verification and end-to-end financial agreement solutions. Upon acquisition, Dealflo became a wholly-owned subsidiary of OneSpan.

Dealflo’s total purchase price consideration was $53.9 million, net of $5.7 million of cash acquired. The total purchase price consideration includes $53.1 million of cash paid to acquire the remaining 99% interest in Dealflo, as well as $0.8 million of fair value of our previous 1% ownership interest. As described in Note 1 – Summary of Significant Accounting Policies, upon the adoption of ASU 2016-01 on January 1, 2018 the book value of this ownership interest was increased by $0.5 million to record the equity investment at $0.8 million within our consolidated financial statements.

This acquisition is accounted for as a business combination using the acquisition method of accounting, which requires the net assets acquired and liabilities assumed to be recognized at their fair values on the acquisition date.

During the year ended December 31, 2019, we recorded certain measurement period adjustments to amounts previously reported, comprised primarily of a $1.8 million increase to the deferred tax liability and a $0.6 million increase to other current assets. The effect of the measurement period adjustments recorded before the measurement period ended during the year ended December 31, 2019 have been determined as if such adjustments had been accounted for at the acquisition date. The net effect of the measurement period adjustments increased goodwill by $1.1 million. The measurement period adjustments did not result in material income statement effects for the year ended December 31, 2019. The measurement period closed on May 30, 2019.

The following table summarizes our final allocation of the purchase price consideration based on the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (net of cash acquired):


		Total
		(in thousands)
Acquired tangible assets	$	2,700
Acquired identifiable intangible assets		17,900
Liabilities assumed		(6,041)
Goodwill		39,295
Total purchase price consideration	$	53,854

The excess of purchase consideration over net assets assumed was recorded as goodwill, which represents the strategic value assigned to Dealflo, including expected benefits from synergies resulting from the acquisition, as well as the knowledge and experience of the workforce in place. In accordance with applicable accounting standards, goodwill is not amortized and will be tested for impairment at least annually, or more frequently, if certain indicators are present. Goodwill and intangible assets related to this acquisition are not deductible for foreign tax purposes.

Based on the final results of the acquisition valuation, $17.9 million of the purchase price consideration has been allocated to identifiable intangible assets. The following table summarizes the major classes of intangible assets, as well as the estimated weighted-average amortization periods:


		Estimated Fair Value	Weighted Average Amortization Period
Identifiable Intangible Assets		(in thousands)	(Years)
Customer relationships	$	11,800	7
Technology		5,900	4
Trademarks		200	3
	$	17,900

The results of operations of Dealflo subsequent to the acquisition date have been included in the consolidated statement of operations of the years ended December 31, 2019 and December 31, 2018. The acquisition related costs directly attributable to the business combination of $1.1 million, including professional fees, and other direct expenses, were expensed as incurred and included in general and administrative expense in the consolidated statement of operations for the year ended December 31, 2018.

Unaudited Pro Forma Financial Information

The following presents the unaudited pro forma combined results of operations of the Company with Dealflo for the years ended December 31, 2018 and 2017, assuming Dealflo was acquired at the beginning of 2017, and after giving effect to certain pro forma adjustments. Pro forma adjustments for the year ended December 31, 2018 reflect estimated amortization expense for intangible assets purchased of $1.3 million, the elimination of $0.2 million of revenue related to intercompany transactions, and the elimination of $1.1 million of non-recurring acquisition-related costs. Pro forma adjustments for the year ended December 31, 2017 reflect estimated amortization expense for intangible assets purchased of $3.2 million, the addition of $1.1 million of non-recurring acquisition-related costs, the elimination of $0.5 million of revenue related to intercompany transactions, and a $0.6 million reduction of revenue to reflect the estimated fair value adjustment of acquired deferred revenue.

These unaudited pro forma results are not necessarily indicative of the actual consolidated results of operations had the acquisition actually occurred on January 1, 2017 or of future results of operations of the consolidated entities (in thousands except per share data):



	2018		2017
	(in thousands)
Revenue	$	219,847	$	198,717
Net loss		(6,164)		(32,990)
Basic net loss per share		(0.15)		(0.83)
Diluted net loss per share		(0.15)		(0.83)
Shares used in computing basic and diluted net loss per share		39,932		39,802

Revenue

12 Months Ended

Dec. 31, 2019

Revenue

Revenue

Note 4 – Revenue

We recognize revenue in accordance with ASC 606 “Revenue from Contracts with Customers” (“Topic 606”), as described in Note 1 – Summary of Significant Accounting Policies. As described in Note 1, the Company adopted Topic 606 on January 1, 2018, using the modified retrospective method. The cumulative effect of initially applying Topic 606 was an adjustment to the opening balance of Accumulated Income of $11.9 million, net of tax, as of January 1, 2018.

Significant Impacts of Adoption

Term Licenses

For revenues generated from arrangements that included term licenses to our software, the Company previously

recognized revenue ratably over the term of the contract when vendor-specific objective evidence (“ VSOE”) did not exist for all undelivered elements. Under Topic 606, these licenses are considered licenses of functional intellectual property, which requires recognition at the point in time all of the revenue recognition criteria per Topic 606 are met, which for the Company is generally when the customer is provided access to the software and the license term has commenced. No significant obligations or contingencies exist with regard to delivery, customer acceptance or rights of returns at the time revenue is recognized. We have established a stand-alone selling price (SSP) for all other performance obligations in the contract. Accordingly, the Company now recognizes revenue from these licenses, based on the residual approach due to highly variable pricing, at the beginning of the license period and recognizes the transaction price allocated to the other performance obligations in the contract (typically maintenance and support) over the period in which those performance obligations are satisfied. This is consistent with the method of recognizing revenue for perpetual licenses of intellectual property. Fees paid to third party software providers in term license arrangements are recognized when the term license revenues are recognized. For large-volume transactions, we may negotiate a specific price that is based on the number of users of the software license or quantities of hardware supplied. The per unit prices for large-volume transactions are generally lower than transactions for smaller quantities and the price differences are commonly referred to as volume-purchase discounts.

Sales Commissions

The Company incurs incremental costs related to commissions, which can be directly tied to obtaining a contract. For commissions earned by sales personnel, the Company previously expensed these amounts when they were earned by the employees. As a result of adopting Topic 606, the Company now capitalizes commissions associated with new customers and amortizes the costs over a period in which the Company is expected to benefit, which can be up to seven years. The amortization is reflected in Sales and Marketing in the statement of operations. For certain contracts, any commission that is subject to a service period, such as continued employment, is expensed as incurred within Sales and Marketing in the statement of operations.

Disaggregation of Revenues

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

Revenue by major products and services (in thousands)


		Twelve months ended December 31,
	2019		2018			2017*
Hardware products	$	127,005	$	105,560	$	105,867
Software licenses		57,168		47,417		41,390
Subscription		22,250		15,426		10,296
Professional services		5,759		5,743		4,891
Maintenance, support and other		42,388		38,134		30,847
Total Revenue	$	254,570	$	212,280	$	193,291

Revenue by location of customer for the years ended December 31, 2019, 2018, and 2017 (in thousands)



	EMEA			Americas			APAC			Total
Total Revenue:
2019	$	147,027		$	61,577		$	45,966		$	254,570
2018	$	103,293		$	54,979		$	54,008		$	212,280
2017*	$	92,859		$	52,981		$	47,451		$	193,291


Percent of Total:
2019		58	%		24	%		18	%		100	%
2018		49	%		26	%		25	%		100	%
2017*		48	%		27	%		25	%		100	%

*Amounts for the year ended December 31, 2017 are presented under ASC 605 and ASC 985-605.

Timing of revenue recognition (in thousands)


	Year ended December 31,
	2019		2018
Products and Licenses transferred at a point in time	$	184,173	$	152,977
Services transferred over time		70,397		59,303
Total Revenue	$	254,570	$	212,280

Contract balances

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


		December 31,
	2019		2018
Receivables, inclusive of trade and unbilled	$	62,405	$	59,631
Contract Assets (current and non-current)	$	10,623	$	11,278
Contract Liabilities (Deferred Revenue current and non-current)	$	45,597	$	44,305

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

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

Revenue recognized during the twelve months ended December 31, 2019 included $34.7 million that was included on the December 31, 2018 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	2020		2021		2022		Beyond 2022		Total
Future revenue related to current unsatisfied performance obligations	$	11,295	$	7,682	$	5,951	$	10,986	$	35,914

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. Under Topic 606, 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. 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 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.

The following tables provide information related to the capitalized costs and amortization recognized in the period:



in thousands		December 31, 2019		December 31, 2018
Capitalized costs to obtain contracts, current	$	676	$	413
Capitalized costs to obtain contracts, non-current	$	3,222	$	2,150


		Year ended December 31,
in thousands		2019		2018
Amortization of capitalized costs to obtain contracts	$	495	$	283
Impairments of capitalized costs to obtain contracts	$	-	$	-

Topic 606 Adoption impacts on Financial Statements

The following tables summarize the impacts of adopting Topic 606 on the Company’s consolidated financial statements as of December 31, 2018 and for the year ended December 31, 2018.

Balance Sheet (in thousands)


	December 31, 2018
	As Reported		Adjustments		Balances without the adoption of Topic 606
ASSETS
Current assets
Accounts receivable, net of allowance	$	59,631	$	(331)	$	59,300
Contract asset		7,962		(7,962)		—
Other current assets		5,705		(703)		5,002
Total current assets		191,956		(8,996)		182,960
Deferred income taxes		5,601		587		6,188
Contract asset - non-current		3,316		(3,316)		—
Other assets		8,400		(289)		8,111
Total assets	$	352,826	$	(12,014)	$	340,812
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Deferred revenue	$	33,633	$	3,019	$	36,652
Short-term income taxes payable		6,905		(1,209)		5,696
Other accrued expenses		9,323		(116)		9,207
Total current liabilities		72,357		1,694		74,051
Deferred revenue - non-current		10,672		3,391		14,063
Deferred income taxes		2,661		(424)		2,237
Total liabilities		100,385		4,661		105,046
Stockholders' equity
Accumulated income		172,378		(16,675)		155,703
Total stockholders' equity		252,441		(16,675)		235,766
Total liabilities and stockholders' equity	$	352,826	$	(12,014)	$	340,812

Statement of Operations (in thousands)


	Year ended December 31, 2018
	As Reported		Adjustments		Balances without the adoption of Topic 606
Revenue
Product and license	$	152,977	$	2,365	$	155,342
Services and other		59,303		(5,772)		53,531
Total revenue		212,280		(3,407)		208,873

Cost of goods sold
Product and license		50,706		605		51,311
Services and other		14,107		—		14,107
Total Cost of goods sold		64,813		605		65,418

Gross profit		147,467		(4,012)		143,455

Operating Costs
Sales and marketing		63,805		1,108		64,913
Total operating costs		147,443		1,108		148,551

Operating income (loss)		24		(5,120)		(5,096)

Income (loss) before taxes		3,553		(5,120)		(1,567)

Provision (benefit) for income taxes		(293)		(365)		(658)

Net income (loss)	$	3,846	$	(4,755)	$	(909)

Basic EPS	$	0.10			$	(0.02)
Diluted EPS	$	0.10			$	(0.02)

The adoption of Topic 606 did not impact total operating, investing or financing cash flows in the statement of cash flows.

Goodwill

12 Months Ended

Dec. 31, 2019

Goodwill

Goodwill

Note 5 – Goodwill

Goodwill activity for the two years ended December 31, 2019 consisted of the following:


in thousands
Net balance at December 31, 2017	$	56,332
Additions		38,167
Net foreign currency translation		(2,658)
Net balance at December 31, 2018	$	91,841
Adjustment to provisional estimate of acquisition date fair values		1,128
Net foreign currency translation		1,643
Net balance at December 31, 2019	$	94,612

Certain portions of goodwill are denominated in local currencies and are subject to currency fluctuations. No impairment of goodwill was recorded during the years ended December 31, 2019, 2018, or 2017.

Intangible Assets

12 Months Ended

Dec. 31, 2019

Intangible Assets

Intangible Assets

Note 6 – Intangible Assets

Intangible asset activity for the two years ended December 31, 2019 is detailed in the following table;



in thousands	Acquired Technology		Customer Relationships		Other		Total Intangible Assets
Net balance at December 31, 2017	$	6,946	$	22,544	$	8,398	$	37,888
Additions-Acquisition		5,900		11,800		200		17,900
Additions-Other		109		—		150		259
Impairment		—		—		(478)		(478)
Net foreign currency translation		(239)		(486)		(8)		(733)
Amortization expense		(3,921)		(3,450)		(2,003)		(9,374)
Net balance at December 31, 2018		8,795		30,408		6,259		45,462
Net foreign currency translation		120		118		(21)		217
Amortization expense		(3,461)		(3,642)		(2,367)		(9,470)
Net balance at December 31, 2019	$	5,454	$	26,884	$	3,871	$	36,209

December 31, 2019 balance at cost	$	42,647	$	39,505	$	13,710	$	95,862
Accumulated amortization		(37,193)		(12,621)		(9,839)		(59,653)
Net balance at December 31, 2019	$	5,454	$	26,884	$	3,871	$	36,209

Certain intangible assets are denominated in local currencies and are subject to currency fluctuations. Additions - Acquisitions refers to intangible assets acquired in the acquisition of Dealflo described in Note 3 – Business Acquisitions and include capitalized technology, trademarks, and customer relationships.

As a result of the Company rebranding, the values of certain intangible assets were written down during the second quarter of 2018, and impairment charges of $0.5 million were recorded for the twelve months ended December 31, 2018.

Expected amortization of the intangible assets for the years ended:


December 31, 2020	$	9,460
December 31, 2021		5,794
December 31, 2022		4,663
December 31, 2023		4,054
December 31, 2024		4,014
Thereafter		7,603
Subject to amortization		35,588
Trademarks		621
Total intangible assets	$	36,209

Property, Plant and Equipment

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment

Property, Plant and Equipment

Note 7 – Property and Equipment

The major classes of property and equipment are as follows:


in thousands	December 31, 2019		December 31, 2018
Office equipment and software		14,595		11,059
Leasehold improvements		9,417		4,784
Furniture and fixtures		3,717		2,829
Total		27,729		18,672
Accumulated depreciation		(16,275)		(12,422)
Property and equipment, net	$	11,454	$	6,250

Depreciation expense was $2.1 million, $2.3 million, and $1.8 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Fair Value Measurements

12 Months Ended

Dec. 31, 2019

Fair Value Measurements

Fair Value Measurements

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 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.

The following tables summarize assets that are measured at fair value on a recurring basis as of December 31, 2019 and December 31, 2018:


		Fair Value Measurement at Reporting Date Using
in thousands	December 31, 2019	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	9,225	-	9,225	-
Corporate Notes / Bonds	8,169	-	8,169	-
Commercial Paper	3,482	-	3,482	-
U.S. Treasury Bills	2,385	-	2,385	-
U.S. Government Agencies	2,249	-	2,249	-


		Fair Value Measurement at Reporting Date Using
in thousands	December 31, 2018	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	8,920	-	8,920	-
Corporate Notes / Bonds	7,934	-	7,934	-
Commercial Paper	2,952	-	2,952	-
U.S. Treasury Bills	2,983	-	2,983	-

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Leases

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Leases

Note 9 – Leases

As mentioned in Note 1 – Summary of Significant Accounting Policies, the Company adopted ASC Topic 842, Leases on January 1, 2019, using the modified retrospective approach. The adoption of this accounting standard resulted in the recording of operating lease right-of-use (“ROU”) assets of $9.2 million in Operating lease right-of use assets, and operating lease liabilities of $2.5 million and $8.5 million in Other accrued expenses and Long-term lease liabilities, respectively, as of January 1, 2019, to capture the cumulative effect of the standard. The difference between the asset and liability is a result of lease incentives, such as tenant improvement allowances, and deferred rent on the balance sheet at transition.

The Company leases certain real estate and automobiles. Leases with an initial term of 12 months or less (“short-term leases”) are not recorded on the consolidated balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company determines if an arrangement is a lease at inception. All of our leases are operating leases.

Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Company’s leases do not provide an implicit rate of return, the Company uses its imputed collateralized rate based on the information available at the commencement date in determining the present value of lease payments. Operating lease ROU assets are comprised of the lease liability plus prepaid rents and are reduced by lease incentives or deferred rents. The Company has lease agreements with non-lease components which are not bifurcated.

Some of our leases include one or more options to renew, with renewal terms that can extend the lease from one to five years. The exercise of a lease renewal option typically occurs at the discretion of both parties. Certain leases also include options to purchase the leased property at fair value. For purposes of calculating operating lease liabilities, lease terms are deemed not to include options to extend the lease termination until it is reasonably certain that the Company will exercise that option. Certain of the Company’s lease agreements include payments adjusted periodically for inflation based on the consumer price index. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating lease cost details for the year ended December 31, 2019 are as follows:


	Year ended December 31,
	2019
	(in thousands)
Building rent	$	3,397
Automobile rentals		1,531
Total net operating lease costs	$	4,928

Short term lease costs and variable lease costs recognized during the year ended December 31, 2019 are

immaterial.

Supplemental consolidated balance sheet information related to our operating leases is as follows:


	December 31, 2019
in thousands
Leases
Assets		10,580
Operating lease assets	$	10,580

Liabilities
Current
Operating lease liabilities	$	2,636

Noncurrent
Operating lease liabilities		11,299
Total lease liabilities	$	13,935

The weighted average remaining lease term for our operating leases is 6.7 years. The weighted-average discount rate for our operating leases is 5%.

Supplemental consolidated cash flow information related to leases is as follows:


	Year ended
	December 31, 2019
		(in $ thousands)
Supplemental cash flow and other information related to leases was as follows:

Operating cash payments from operating leases	$	3,731

ROU assets obtained in exchange for new operating lease liabilities	$	4,924

Maturities of our operating leases are as follows:


	As of December 31, 2019
		(in $ thousands)
2020	$	3,245
2021		2,784
2022		2,422
2023		1,909
2024		1,183
Later years		5,004
Less imputed interest		(2,612)
Total lease liabilities	$	13,935

Disclosures related to periods prior to adoption of ASU 2016-02

Operating lease rent expense was $4.9 million for the year ended December 31, 2018 and $3.8 million for the year ended December 31, 2017. Future minimum lease are as follows:


	As of December 31, 2018
		(in $ thousands)
2019	$	3,817
2020		3,081
2021		2,671
2022		2,244
2023		1,941
Later years		8,870
Minimum lease commitments	$	22,624

During the year ended December 31, 2018, we entered into a new lease agreement of which a portion commenced during the three months ended September 30, 2019, and remainder will commence during the three months ended March 31, 2020. We estimated as of January 1, 2019 and December 31, 2019 that the undiscounted future minimum obligations related to the portion of the lease not yet commenced to be approximately $7.4 million and $2.0 million, respectively. The $7.4 million obligation is disclosed as part of our future minimum lease obligations table above.

Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

Note 10 – Income Taxes

Tax Reform enacted on December 22, 2017 introduced significant changes to U.S. income tax law. Effective in 2018, Tax Reform reduces the U.S. statutory tax rate from 35% to 21% and created new taxes on certain foreign-sourced earnings which are referred to as the global intangible low-taxed income tax (“GILTI”). In addition, in 2017 we were subject to a one-time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax.

Due to the timing of the enactment and the complexity involved in applying the provisions of Tax Reform, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements as of December 31, 2017. As we collected and prepared necessary data, and interpreted the additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we made adjustments, over the course of the year, to the provisional amounts, including refinements to deferred taxes. The accounting for the tax effects of Tax Reform was completed as of December 31, 2018.

Tax reform required us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. We recorded a provisional amount for our one-time transitional tax liability and income tax expense of $18.2 million as of December 31, 2017. During 2018 we recorded a measurement period adjustment of $2.5 million, as a reduction to the provisional estimates recorded at the end of 2017 due to the release of regulations on the one-time transition tax which reduced long term taxes payable. After the utilization of existing tax credits, we expect to pay U.S. federal taxes of approximately $10.1 million over eight years related to the repatriation tax.

Due to the change in the statutory tax rate from Tax Reform, we remeasured our deferred taxes as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a deferred tax expense of $2.3 million to reflect the reduced U.S. tax rate and other effects of Tax Reform as of December 31, 2017. During 2018, we recorded an adjustment of $0.5 million as a reduction of the provisional estimate which reduced current taxes payable.

As a result of Tax Reform, earnings of all foreign subsidiaries have been designated as available for distribution. Previously, earnings of certain foreign subsidiaries were deemed permanently reinvested. During the fourth quarter of 2017, we provisionally provided deferred income tax expense of $7.3 million for foreign taxes on distributions from foreign subsidiaries previously designated as permanently reinvested. No adjustment was made during 2018.

The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company could be subjected to incremental U.S. tax on GILTI income beginning in 2018. FASB Topic 740 allows the company to treat GILTI as either a deferred tax asset or liability or to account for the impacts in the period in which it is incurred. The Company has elected to account for GILTI tax in the period in which it is incurred.

Income before income taxes was generated in the following jurisdictions:


	For the year ended December 31,
	2019		2018		2017

U.S.	$	3,223	$	(4,347)	$	(1,877)
Non-U.S.		12,272		7,900		10,258
Total	$	15,495	$	3,553	$	8,381

For the years ended December 31, 2019, 2018, and 2017, domestic income excludes intercompany dividend income of $6.3 million, $133.3 million, and $0, respectively. The provision (benefit) for income taxes consists of the following:


	For the year ended December 31,
	2019		2018		2017
Current:
Federal	$	433	$	(3,792)	$	14,299
State		107		97		141
Foreign		7,790		10,833		3,287
Total current		8,330		7,138		17,727

Deferred:
Federal		(970)		(333)		6,043
State		24		15		(200)
Foreign		(678)		(7,113)		7,210
Total deferred		(1,624)		(7,431)		13,053
Total	$	6,706	$	(293)	$	30,780

Our U.S. federal statutory rate for 2019 and 2018 was 21%. For 2017, our U.S. statutory rate was 35%. The differences between the income tax provisions computed using the statutory federal income tax rate and the provisions for income taxes reported in the consolidated statements of operations are as follows:


	For the year ended December 31,
	2019		2018		2017

Expected tax at statutory rate	$	3,255	$	747	$	2,933
Foreign taxes at other rates		(982)		(1,308)		(3,139)
US tax on foreign earnings, net of foreign tax credits		—		—		(226)
Valuation allowances on NOL carryforwards		2,042		2,894		3,997
US tax reform - deemed repatriation		—		(2,534)		18,472
US tax reform - changes in indefinite reinvestment assertion		—		—		7,281
US tax reform - deferred tax expense from tax rate change		—		(462)		2,339
State income taxes, net of federal benefit		108		(79)		(59)
Uncertain tax positions		1,845		—		—
Disallowed expenses and other		438		449		(818)
Total	$	6,706	$	(293)	$	30,780

Significant components of our deferred tax assets and liabilities are as follows:


	As of December 31,
	2019		2018
Deferred tax assets:
Stock and long-term compensation plans	$	2,405	$	2,284
Foreign NOL & other carryforwards		24,240		23,785
US state NOL carryforwards		670		842
Deferred revenue		684		627
Pension liability		1,509		1,078
Lease liability		2,807		—
Amortization and depreciation		586		770
Accrued expenses and other		562		1,138
Total gross deferred tax assets		33,463		30,524
Less: Valuation allowance		(17,255)		(15,170)
Net deferred income tax assets	$	16,208	$	15,354

Deferred tax liabilities:
Accruals	$	740	$	549
Foreign tax on unremitted foreign earnings		2,058		1,650
Right of use asset		2,124		—
Intangible assets		8,046		10,215
Deferred tax liabilities	$	12,968	$	12,414

Net deferred tax assets (liabilities)	$	3,240	$	2,940

Deferred tax assets and liabilities are netted by tax jurisdiction.

At December 31, 2019, we had foreign and state net operating loss (NOL) carryforwards and other foreign deductible carryforwards as shown in the following table:


	Carryforward		Expiration
NOL Carryforward
Canada	$	50,191	2025-2039
United Kingdom		4,592	None
Other foreign		7,039	None
Canada province		50,499	2025-2039
U.S. states		8,961	2020-2030
		121,282
Other Carryforwards
Canada		17,332	None
Canada province		31,463	None
Canada (credit)		1,962	2036
		50,757

	$	172,039

The net change in the valuation allowance for the years ended December 31, 2019 and December 31, 2018 were increases of $2.1 million and $2.4 million respectively. Valuation allowances are reviewed on a regular basis and adjustments made as appropriate. The increase in the valuation allowance in 2019 reflects NOLs and credits for which the realization is not more likely than not. The change in the valuation allowance also reflects other factors including, but not limited to, changes in our assessment of our ability to use existing NOLs and other deduction carryforwards, changes in currency rates, and adjustments to reflect differences between the actual returns filed and the estimates we made at financial reporting dates. For all other deferred tax assets, the Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

Our policy is to record interest and penalties on income taxes as income tax expense. We provided $0.2 million in 2019 and less than $0.1 million during each of the years ended December 31, 2018, and 2017.

ASC 740, Income Taxes sets a “more likely than not” criterion for recognizing the tax benefit of uncertain tax positions. As of December 31, 2019, 2018, and 2017, we had reserves of $2.9 million, $0.4 million, and $0.1 million, respectively.


	As of year ended December 31,
	2019		2018		2017
Reserve at beginning of year	$	427	$	107	$	662
Increases related to prior year tax positions		2,500		427		7
Lapse of statute of limitations		(4)		(107)		(562)
Total	$	2,923	$	427	$	107

We file income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. We are subject to examination of our income tax returns by the IRS and other tax authorities. During the second quarter of 2018, the Belgian tax authorities commenced an audit covering income tax returns filed for the years 2015-2018. During the fourth quarter of 2019, the scope of the audit expanded to also include income tax returns filed for the years 2013 and 2014. While we believe the positions we took were supportable under Belgian tax law, in lieu of extending the audit process or pursuing litigation, we negotiated a settlement with the Belgian tax authorities during the fourth quarter of 2019, and booked an accrual adjustment related to the settlement. The settlement agreement was signed and payment was made in January 2020.

We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management's expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs. Included in the balance of unrecognized tax benefits as of December 31, 2019 is $2.1 million, of tax benefits that, if recognized, would affect the effective tax rate.

We estimate that our unrecognized tax benefits as of December 31, 2019 will decrease by approximately $2.7 million in the next 12 months.

Our primary tax jurisdictions and the earliest tax year subject to audit are presented in the following table.


Australia		2011
Austria		2013
Belgium		2013
Canada		2015
Netherlands		2014
Singapore		2014
Switzerland		2017
United Kingdom		2018
United States		2016

Stock Compensation Plans

12 Months Ended

Dec. 31, 2019

Stock Compensation Plans

Stock Compensation Plans

Note 11 – Stock Compensation Plans (sharecounts in thousands)

The Company has a share-based compensation plan, the OneSpan Inc. 2019 Omnibus Incentive Plan (“2019 Plan”), which was approved by its Shareholders in June 2019 under which the Board of Directors may grant share-based awards including restricted stock units (RSUs) and performance restricted stock units (PSUs). Awards were previously granted under the OneSpan Inc. 2009 Equity Incentive Plan (“2009 Plan”), and included Restricted Stock Awards (RSAs) and performance restricted stock units (PSUs). The 2009 Plan terminated on December 31, 2018, and no additional securities remained for issuance.

The 2019 Plan may provide performance incentives to employees and non-employee directors, consultants and other key persons of the Company. The plan is administered by the Compensation Committee as appointed by the Board of Directors and is intended to be a non-qualified plan.

As of December 31, 2019, the remaining number of shares allowed to be issued under the 2019 Plan was 4.6 million shares of the company’s common stock, representing 11% of the issued and outstanding shares of the company as of such date.

The following table details long-term compensation plan and stock-based compensation expense for the years ended December 31, 2019, 2018, and 2017.


	For the year ended December 31,
	2019		2018		2017
in thousands
Restricted stock	$	3,368	$	3,973	$	3,466
Long-term compensation plan		1,955		2,118		1,906
Total compensation	$	5,323	$	6,091	$	5,372

Time-Based Restricted Stock Awards

Time-based restricted stock awards granted to non-employee directors vest on the first anniversary date of the grant. Awards granted to certain executive officers vest in equal semi-annual installments over four years. Awards granted to certain other employees vest ratably over a four-year period with the first one-fourth of the grant vesting one year after the date of the grant. Shares are subject to forfeiture if the service period requirement is not met. Compensation expense was $0.5 million, $2.0 million, and $2.1 million for 2019, 2018, and 2017, respectively. Tax benefit related to the compensation expense was $0.2 million, $0.5 million, and $0.6 million for 2019, 2018, and 2017, respectively. The following table summarizes the time-based restricted stock activity for the year ended December 31, 2019.


		Weighted-		Weighted-
		average		average
		remaining		grant date
(in thousands)	Shares	term (years)		fair value
Outstanding at January 1, 2019	241	2.17	$	15.08
Shares vested	(116)			15.20
Shares forfeited	(4)			17.75
Outstanding at December 31, 2019	121	1.71	$	14.88

The unamortized future compensation expense for time-based restricted stock awards was $1.2 million at December 31, 2019.

Time-Based Restricted Stock Units settled in stock

Upon approval of the 2019 Plan, the Company began granting certain eligible employees RSUs that settle in Company stock. RSUs granted to non-employee directors vest on the first anniversary date of the grant. Awards granted to certain executive officers vest in equal semi-annual installments over four years. Awards granted to certain other employees vest ratably over a four-year period with the first one-fourth of the grant vesting one year after the date of the grant. Shares are subject to forfeiture if the service period is not met. Compensation expense was $1.0 million for 2019, and the related tax benefit was $0.3 million. The following table summarizes the time-based restricted stock activity for the year ended December 31, 2019:


		Weighted-		Weighted-
		average		average
		remaining		grant date
(in thousands)	Shares	term (years)		fair value
Nonvested, January 1, 2019	—	—	$	-
Shares vested	(21)			13.69
Shares awarded	211			13.77
Shares forfeited	—			-
Nonvested, December 31, 2019	190	2.54	$	13.78

The unamortized future compensation expense for time-based restricted stock units was $2.1 million at December 31, 2019.

Performance-Based Restricted Stock Units settled in stock

Performance-based restricted stock units granted to executive officers and certain other employees were subject to achievement of three year performance criteria established by the Board of Directors. Under certain grants, earned shares related to three-year targets cliff vest upon fulfillment of the performance criteria and completion of the three-year period. Shares are subject to forfeiture if the performance criteria and service period are not met.

Compensation expense in 2019, 2018, and 2017 was $1.8 million, $2.0 million, and $1.3 million. Tax benefit related to the compensation expense was $0.2 million, $0.5 million, and $0.5 million for 2019, 2018, and 2017, respectively.

The following table summarizes activity related to unvested performance restricted stock shares during 2019:


		Weighted-		Weighted-
	Total	average		average
	Unvested	remaining		grant date
(in thousands)	Shares	term (years)		fair value
Unearned, January 1, 2019	330	1.45	$	15.07
Shares vested	(9)			27.13
Shares awarded	226			14.12
Shares forfeited	(55)			14.65
Unearned, December 31, 2019	492	1.25	$	14.46

Unamortized future compensation expense for performance-based restricted stock was $3.1 million at December 31, 2019.

Earnings per Common Share

12 Months Ended

Dec. 31, 2019

Earnings per Common Share

Earnings per Common Share

Note 12 – Earnings per Common Share (sharecounts in thousands)

Basic earnings per share is based on the weighted average number of shares outstanding and excludes the dilutive effect of unvested common stock equivalents. Diluted earnings per share is based on the weighted average number of shares outstanding and includes the dilutive effect of unvested common stock equivalents to the extent they are not anti-dilutive. Because the Company was in a net loss position for the year ended December 31, 2017, diluted net loss per share for this period excludes the effects of common stock equivalents, which are anti-dilutive.

A reconciliation of the shares included in the basic and fully diluted earnings per share calculations is as follows:


	For the year ended December 31,
in thousands, except per share data	2019		2018		2017
Net income (loss)	$	8,789	$	3,846	$	(22,399)
Weighted average common shares outstanding:
Basic		40,050		39,932		39,802
Incremental shares with dilutive effect:
Restricted stock awards		86		114		—
Diluted		40,136		40,046		39,802

Net income (loss) per share:
Basic	$	0.22	$	0.10	$	(0.56)
Diluted	$	0.22	$	0.10	$	(0.56)

Employee Benefit Plans

12 Months Ended

Dec. 31, 2019

Employee Benefit Plans

Employee Benefit Plans

Note 13 – Employee Benefit Plans

U.S. Plan

We maintain a defined contribution pension plan for U.S. employees established pursuant to Section 401(k) of the Internal Revenue Code. The plan allows voluntary employee contributions and discretionary employer contributions. For the years ended December 31, 2019, 2018, and 2017, we expensed contributions of $0.3 million, $0.3 million, and $0.2 million, respectively.

Non-U.S. Plans

We are subject to national mandatory pension systems and other compulsory plans, or make contributions to social pension funds based on local regulations. When our obligation is limited to the payment of the contribution into these plans or funds, the recognition of such liabilities is not required.

In addition, we have, in some countries, defined benefit plans consisting of final retirement salary and committed pension payments.

In Switzerland, the pension plan is a cash balance plan where contributions are expressed as a percentage of the pensionable salary. Contributions to Swiss plans are paid by the employees and the employer. The pension plan guarantees the amount accrued on the members’ savings accounts, as well as a minimum interest on those savings accounts. The plan assets are held in guaranteed investment contracts.

We also maintain a pension plan for our Belgian employees, in compliance with Belgian law. Contributions to Belgium plans are paid by the employees and the employer. Certain features of the plans require them to be categorized as defined benefit plans under ASC 715 due to Belgian social legislation, which prescribed a minimum annual return of 1.6% on employer contributions and 1.6% for employee contributions. The plan assets are held in guaranteed investment contracts.

The Company also includes a liability related to obligations to provide retirement benefits to employees who retire from the Company’s French subsidiary, as required by law. Per French regulations, each employee is entitled to a lump sum payment upon retirement based on years of service and salary at retirement. Benefit rights vest upon the statutory retirement age of 62. The obligation recorded represents the present value of amounts the Company expects to pay.

Components of net periodic pension cost included in earnings:


	Year ended December 31,
	2019		2018		2017

Service cost (gross)	$	1,164	$	1,281	$	1,397
Interest cost		234		199		188
Expected return on plan assets		(242)		(327)		(199)
Amortization of unrecognized actuarial gain		(22)		18		45
Net periodic pension cost	$	1,134	$	1,171	$	1,431

The net unfunded status of the Non-U.S. pension plans is as follows:


	As of December 31,
	2019		2018
Fair value of plan assets	$	14,159	$	12,823
Projected benefit obligation		(21,759)		(18,173)
Net unfunded benefit obligation	$	(7,600)	$	(5,350)

Net unfunded benefit obligation is recorded as other long-term liabilities in our consolidated Balance Sheets.

The change in the fair value of plan assets is as follows:


	Year ended December 31,
	2019		2018

Fair value of plan assets at January 1	$	12,823	$	12,390
Employee contributions		485		506
Actual return on plan assets		908		904
Benefits (paid), net of transfers		(977)		(1,601)
Employer contributions		977		971
Foreign exchange adjustment		(57)		(347)
Fair value of plan assets at December 31	$	14,159	$	12,823

The change in benefit obligations is as follows:


	Year ended December 31,
	2019		2018

Benefit obligations at January 1	$	18,173	$	18,308
Gross service cost		1,164		1,281
Interest cost		234		199
Employee contributions		485		506
Actuarial (gains)/losses		2,763		(672)
Plan amendment		—		560
Benefits (paid), net of transfers		(977)		(1,601)
Foreign exchange adjustment		(83)		(408)
Benefit obligations at December 31	$	21,759	$	18,173

Our investment policy meets our responsibility under local social legislation and aligns plan assets with liabilities, while minimizing risk. For the years ended December 31, 2019 and 2018, plan assets are invested in guaranteed investment contracts. Fair value of guaranteed investment contracts is surrender value. Fair value for the year ended December 31, 2019 was determined using Level 3 inputs as defined by ASC 820, Fair Value Measurements. Changes in our plan assets are attributable to benefit payments and contributions as we have not actively traded our assets during the years ended December 31, 2019 and December 31, 2018.

Other

The accumulated benefit obligation for the plans were $20.3 million and $16.5 million as of December 31, 2019 and 2018, respectively.

The Company expects to pay $1.0 million of contributions over the next twelve months.

The amounts reclassified out of other comprehensive income during the twelve months ended December 31, 2019, 2018, and 2017 were not material.

Actuarial Assumptions

Certain actuarial assumptions such as the discount rate and the long-term rate of return on plan assets have a significant effect on the amounts reported for net periodic cost and the benefit obligation. The assumed discount rates reflect the prevailing market rates of a universe of high-quality, non-callable, corporate bonds currently available that, if the obligation were settled at the measurement date, would provide the necessary future cash flows to pay the benefit obligation when due. In determining the long-term return on plan assets, the Company considers long-term rates of return of comparable low risk investments, such as Euro AA bonds.

The following weighted-average assumptions between all plans were utilized in the pension calculations:


	As of December 31,
	2019			2018
	(%)
Discount rates	0.15	-	0.70	0.90	-	1.80
Inflation	1.00	-	2.00	1.00	-	2.00
Expected return on plan assets	1.25	-	2.00	1.30	-	2.00
Rate of salary increases	2.00	-	2.80	2.00	-	2.80

Projected future pension benefits as of December 31, 2019:


2020	$	452
2021		549
2022		769
2023		667
2024		568
Beyond		4,460

Geographic, Customer and Supplier Information

12 Months Ended

Dec. 31, 2019

Geographic, Customer and Supplier Information

Geographic, Customer and Supplier Information

Note 14 – Geographic, Customer and Supplier Information

We classify our sales by our customers’ locations in three geographic regions: 1) EMEA, which includes Europe, the Middle East, and Africa; 2) the Americas, which includes sales in North, Central, Latin and South America and Canada; and 3) Asia Pacific, which includes Australia and India.


	Europe,
	Middle East,
	Africa (EMEA)		Americas		Asia Pacific		Total
2019
Revenue	$	147,027	$	61,577	$	45,966	$	254,570
Gross profit		99,689		41,752		31,167		172,608
Long-lived assets		8,085		13,240		709		22,034

2018
Revenue	$	103,293	$	54,979	$	54,008	$	212,280
Gross profit		71,840		38,204		37,423		147,467
Long-lived assets		7,665		4,247		155		12,067

2017
Revenue	$	92,859	$	52,981	$	47,451	$	193,291
Gross profit		61,506		41,491		31,517		134,514
Long-lived assets		8,437		897		68		9,401

For the years 2019, 2018, and 2017, our top 10 customers contributed 29%, 24% and 27%, respectively, of total worldwide revenue. The majority of our hardware products are assembled by four independent factories in Southern China.

Commitments and Contingencies	12 Months Ended
Commitments and Contingencies	Dec. 31, 2019
Commitments and Contingencies
Commitments and Contingencies	Note 15 – Commitments and Contingencies The company leases office space and automobiles under operating lease agreements. See Note 9 – Leases for future minimum rental payments required under non-cancelable leases. At December 31, 2019, we have purchase obligations of $28.5 million, including $14.0 million of inventory purchase obligations which are expected to be consummated in the next 12 months, $12.8 million of committed hosting arrangements which will be used in the next one to four years, and $1.7 million for other software agreements related to the administration of our business which range from one to five years. 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 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 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 December 31, 2019. On March 14, 2017, a complaint was filed in the United States District Court for the District of Massachusetts, captioned StrikeForce Technologies, Inc. v. Vasco Data Security International, Inc., et al., claiming the Company infringed on certain patent rights of the plaintiff. On May 8, 2017, the Company answered the complaint denying the allegations of patent infringement. The parties then engaged in motion practice and discovery in the case. The plaintiff has also brought suit against various other companies in the cybersecurity industry. In one such suit in the federal district court for the Central District of California, on December 1, 2017, the court granted defendant’s motion to dismiss, finding that the StrikeForce asserted claims are invalid. StrikeForce appealed such decision. In light of such ruling, on December 20, 2017, the court in the Company’s case granted a stay of the proceedings pending the appeal in the related case. On April 16, 2019, the Court dismissed the claims of StrikeForce against us with prejudice. We consider this case to be closed. From time to time, we have been involved in the litigation incidental to the conduct of our business. Excluding matters 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.

Quarterly Results of Operations (unaudited)

12 Months Ended

Dec. 31, 2019

Quarterly Results of Operations (unaudited)

Quarterly Results of Operations (unaudited)

Note 16 – Quarterly Results of Operations (unaudited)

The quarterly results of operations are as follows:


	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
2019
Total revenues	$	47,608	$	56,234	$	79,725	$	71,003
Gross profit		31,569		38,354		53,056		49,629
Operating costs		37,096		40,565		35,937		43,735
Operating income (loss)		(5,527)		(2,211)		17,119		5,894
Provision (benefit) for income taxes		(272)		770		3,864		2,343
Net income (loss)		(5,671)		(2,461)		11,872		5,050
Net income/(loss) per share:
Basic	$	(0.14)	$	(0.06)	$	0.30	$	0.13
Diluted	$	(0.14)	$	(0.06)	$	0.30	$	0.13

2018
Total revenues	$	45,432	$	49,554	$	52,495	$	64,799
Gross profit		34,697		35,981		34,543		42,246
Operating costs		33,049		38,592		37,657		38,145
Operating income		1,648		(2,611)		(3,114)		4,101
Provision (benefit) for income taxes		629		(872)		(1,702)		650
Net income (loss)		1,792		(1,002)		(908)		3,964
Net income/(loss) per share:
Basic	$	0.04	$	(0.03)	$	(0.02)	$	0.10
Diluted	$	0.04	$	(0.03)	$	(0.02)	$	0.10

Related Party	12 Months Ended
Related Party	Dec. 31, 2019
Related Party
Related Party	Note 17 – Related Party In August 2017, Able N.V. (“Able”), a wholly-owned subsidiary, was sold to an employee of Able for a de minimis amount. The operating results of Able through the date of sale are included in the consolidated financial statements as of December 31, 2017, and for the year ended December 31, 2017, and is not significant to our consolidated results. In addition, our 2017 results include a loss on sale of approximately $0.2 million, recorded in general and administrative expense. Concurrent with the sale, we provided Able an unsecured line of credit of 1.5 million Euro ($1.8 million at an exchange rate of $1.18 dollars per Euro). Interest accrued at the rate of 2% per annuum. Beginning in August 2017, Able could take advances against the line of credit for a period of eighteen months followed by twelve quarterly repayments. The credit line expired during the year ended December 31, 2019, and no advancements were made. In addition we entered into a transition services agreement with Able whereby we agreed to provide certain administrative services for a period of three months and Able agreed to provide office space and consulting services for an agreed upon periodic fee as long as the services are provided.

Schedule II - Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2019

Valuation and Qualifying Accounts

Valuation and Qualifying Accounts

SCHEDULE II

ONESPAN INC.

VALUATION AND QUALIFYING ACCOUNTS

Allowance for doubtful accounts for trade receivables.




			Provision		Foreign
	Beginning		for Bad		Currency	Ending
For the year ended December 31,	Balance		Debts	Chargeoffs	Translation	Balance
2019	$	1,152	2,215	(843)	—	$	2,524
2018	$	520	871	(239)	—	$	1,152
2017	$	535	120	(137)	2	$	520

See accompanying independent auditors’ report.

Summary of Significant Accounting Policies (Policies)