Good afternoon, and thank you for attending today's OneSpan Fourth Quarter 2021 Conference Call. My name is Jason, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to Joe Maxa, Vice President of Investor Relations. Joe, please proceed.
Thank you, operator. Hello, everyone, and thank you for joining the OneSpan Fourth Quarter and Full Year 2021 Earnings Conference Call. This call is being webcast and can be accessed on the Investor Relations section of OneSpan's website at investors.onespan.com. Joining me on the call today is Matthew Moynahan, OneSpan's Chief Executive Officer, and Jan Kees van Gaalen, our Interim Chief Financial Officer. This afternoon, after market close, OneSpan issued a press release announcing results for our fourth quarter and full year 2021. To access a copy of the press release and other investor information, please visit our website. Following our prepared comments today, we will open the call for questions. Please note that statements made during this conference call that relate to future plans, events or performance, including the outlook for full year 2022 are forward-looking statements.
These statements use words such as believes, anticipates, plans, expects, projects, and similar words, and these statements involve risks and uncertainties and are based on current assumptions. Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. I direct your attention to today's press release and the company's Form 10-K filing with the U.S. Securities and Exchange Commission for a discussion of such risks and uncertainties. Also note that certain financial measures that may be discussed on this call are expressed on a non-GAAP basis and have been adjusted from a related GAAP financial measure. We have provided explanation for and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings press release. In addition, please note that the date of this conference call is February 22, 2022.
Any forward-looking statements and related assumptions are made as of this date. Except as required by law, we undertake no obligation to update these statements as a result of new information or future events or for any other reason. With that, I will turn the call over to Matt.
Thank you, Joe, and good afternoon, everyone. Thank you for joining the call today. Today's call, I will cover a handful of topics, including our Q4 results, our value proposition and relevant growth drivers, and a few key customer wins. Equally important, I will provide an update on the progress with our long-range strategic planning efforts. After that, Jan Kees will walk you through our financials before opening the call to questions. First, I would like to begin by sharing my perspective on the company. I joined OneSpan at the end of November, and I'm excited by the strength of our solution portfolio and market position, as well as the potential to enhance our operations and overall customer value proposition.
Two months into my tenure, I have to say that I'm encouraged by the progress we've made on the development of our long-term strategic plan, and I've been impressed by the talented people in our company who will execute on the opportunities that lie ahead of us. I am also confident in our ability to drive revenue growth while increasing profitability as we transition to the next generation of OneSpan. I joined the company because OneSpan has an exciting and relevant value proposition. I truly believe we can unlock significant shareholder value by increasing our focus, leveraging our competitive advantages to improve our growth profile, all the while enhancing our operational performance and capital efficiency. We operate in two important markets, in cybersecurity and digital agreements, both of which will only become more important to enterprises in the years to come.
We also have a tremendous asset in our top-tier customer base that includes many of the largest and most security-conscious companies in the world, companies that trust us to mitigate their risk of fraud and help them comply with regulations while delivering compelling user experiences across such technologies as e-signature, identity verification, video signing, mobile authentication, mobile app shielding, transaction signing, and more. Turning to the quarter, Q4 revenue of $59 million ARR and adjusted EBITDA exceeded our expectations. In December, we announced a cost savings plan that is expected to result in pre-tax savings of approximately $10 million-$12 million for fiscal year 2022, primarily from headcount-related actions and reduction in leased office spaces. Now turning to our strategic action plan. We've made significant progress in the evaluation of our markets, prioritizing our product portfolio, and aligning our investments and operations to execute against our most compelling opportunities.
We are on track to update you on the details of our go-forward strategy at our Investor Day in mid-May. Stay tuned for more information. Today, I would like to share with you my initial observations. In short, I believe we have a strong suite of e-signature and security solutions that provide us with a solid platform to both enhance our go-to-market and also introduce new innovative solutions that will deepen our customer relationships. We also believe we can establish a clear and disruptive leadership position in the markets we serve by leveraging our identity, security, and compliance DNA to deliver trusted agreements and transactions as a core differentiator. We're fortunate to have a strong market position as we progress in our transformational journey. Our selling efforts will continue to focus on providing new and existing customers with our core security and e-signature solutions.
We will strengthen our go-to-market strategy with an increased focus on account expansion, cross-selling, new customer targeting, and creating sales leverage through strategic alliances, such as our recently announced partnership with Smart Communications. This partnership combines their smart digital forms with OneSpan Sign to improve the customer experience, increase application completion rates, and reduce document errors while maintaining the strictest security and compliance standards. We expect to form additional partnerships, including OEM relationships, in the coming months. We also have a significant opportunity to drive increased demand for our security and e-signature solutions. Recent customer wins demonstrate our value as a strategic provider of essential solutions that enable our customers to execute trusted and user-friendly digital agreements and transactions. Improving the end user's experience is as important to our customers as is mitigating the risk of fraud.
The need to comply with government regulations is a key driver of innovation in our markets. A recent study found 85% of global banks need technology vendors to be trusted advisors to help navigate the changing regulatory environment. Top challenges for financial institutions are fraud, safeguarding sensitive data, and keeping pace with changes in consumer privacy laws. To help them comply with regulations, banks are partnering with trusted companies like OneSpan to put innovative solutions such as digital remote identity verification in place. In the fourth quarter, as customers continued to roll out our mobile and other security solutions, we also closed a number of six-figure e-signature contracts driven by increased transaction volumes, expansions to additional business units, and competitive displacements, including from DocuSign. Let me provide you with a few examples.
First, a major digital security customer in the U.K. increased its annual commitment nine-fold to approximately $900,000 ACV. Similarly, a major e-signature customer in the U.S. expanded its e-signature deployment to $1 million. A major leading global HR and temporary staffing firm selected OneSpan Sign over their previous well-known e-signature provider in a mid-six-figure ACV deal. Lastly, a major North American and longtime digital security banking customer selected OneSpan Sign with identity verification over their incumbent provider for use in their insurance arm. OneSpan's trusted provider status in this $300,000 ACV deal was a key reason for the win. Beyond our strong product portfolio, we have a significant opportunity to become leaner, our costs with our growth opportunities. I look forward to addressing more details on these topics at our upcoming investor day.
With that, Jan Kees will now take you through our financials. Jan Kees?
Thank you, Matt. Good afternoon, everybody. For the full year 2021, we exceeded the high end of our revenue and adjusted EBITDA guidance ranges provided to you in early November. Annual recurring revenue or ARR grew 20% year-over-year to $125 million and came in at the high end of our guidance range. ARR specific to SaaS subscription and term-based subscription contracts grew in excess of 30%. Total ARR DBNE, or dollar-based net expansion rate, which we define as the year-over-year growth in ARR from existing customers, was 115% in the fourth quarter. Total recurring revenue, which consists of SaaS and term-based subscription and maintenance licenses, increased 4% year-over-year to $32 million in the fourth quarter of 2021, and accounted for 91% of software and services revenue.
For the year, U.S. dollars, coming in at the high end of our guidance range and accounted for 89% of software and services revenue. SaaS subscription revenue grew 15% to $10 million in the fourth quarter, and 38% to $38 million for the year. Growth in Q4 e-signature and cloud authentication flow revenue. In addition, the revenue recognition timing of a handful of large subscription contracts adversely impacted our Q4 results. For the year, e-signature SaaS subscription revenue grew 40%. Term-based subscription revenue grew 8% to $9 million in the fourth quarter, and 23% to $30 million for the year. Mobile security and server software were the largest contributors.
Maintenance revenue declined 6% to $13 million in the fourth quarter. Total company revenue increased 12% to $59 million in the fourth quarter, and declined 1% to $214 million for the full year 2021. Hardware revenue grew 51% to $24 million in the fourth quarter, and declined 3% to $80 million for the year, in line with our expectations. During the fourth quarter of 2021, we identified and corrected immaterial prior period classification errors related to certain costs directly attributable to the production and distribution of hardware products. This resulted in an understatement of product and license cost of goods sold and an overstatement of sales and marketing expense. It did not, however, affect overall profitability.
Additional details, including the adjustments to prior periods, can be found in our earnings press release and in our 10-K filing published today. Gross margin in the fourth quarter of 2021 was 63%, compared to 72% in the fourth quarter 2020. The difference in gross margin is primarily attributed to product mix, with software and services contributing 59% of total revenue in Q4 2021, as compared to 69% in Q4 2020. We also recognized revenue from a higher mix of lower margin authentication tokens in the quarter and experienced global transportation and supply chain disruptions, which increased our reliance on air freight. These supply chain challenges are expected to continue in 2022. Adjusted EBITDA was -$1 million for the fourth quarter of 2021, quarter of 2020.
Adjusted EBITDA margin was -1% in the fourth quarter of 2021 versus 6% in the year ago quarter. For the full year 2021, adjusted EBITDA was -$5 million and adjusted EBITDA margin was -2%, outperforming our expectation on income tax expense, which included an $8 million attributed to an increase in the valuation allowance recorded on U.S. deferred tax assets. GAAP loss per share was -$0.35 in the fourth quarter 2021 compared to $0.04 in the fourth quarter of 2020. Non-GAAP loss per share, which excludes long-term incentive compensation, amortization, non-recurring items, and the impact of tax adjustments, was -$0.24 in the fourth quarter of 2021 compared to non-GAAP earnings per share of $0.03 in the fourth quarter of last year.
We ended the fourth quarter cash equivalents and short-term investments compared to $115 million at the end of last year. Cash utilized in operations during the year was $3 million. Also, during the year, we used $7.5 million to repurchase approximately 342,000 shares of common stock. Geographically, our revenue mix by region in the fourth quarter of 2021 was 53% from EMEA, 30% from the Americas, and 18% from Asia Pacific. It was 49% from EMEA, 32% from the Americas, and 19% from Asia Pacific. Thank you. I will now turn the meeting back to Matt.
Thank you, Jan Kees. As mentioned previously, we will update you on our go-forward strategic plan at our Investor Day in the second quarter, including how we plan to become more efficient by better focusing and aligning our organization from a go-to-market perspective. I do believe we have an opportunity to establish a clear and disruptive leadership position in the markets we serve by leveraging our strengths in identity, security, and compliance. For instance, by leveraging our security and transaction signing expertise, we believe we can provide significantly differentiated e-signature and other digital agreement solutions. While we have work to do, including optimizing our solution portfolio, I am confident we have the ability to unlock shareholder value by improving our execution in core markets and better aligning our cost structure and routes to market to our most promising growth opportunities, thereby improving our capital efficiency.
While we have much of what we need today, we plan to add pertinent pieces to drive increased growth through profitability in the coming years. As you can see, we ended the year with solid momentum, and have made strong progress in the development of our long-term strategic plan. There is more work to be done in fleshing out the details. Desiring to share more fully the details of our long-term plan, we will not be providing detailed 2022 guidance at this time. However, and importantly, for 2022, we expect revenue to meet or exceed 2021's level, and for adjusted EBITDA to be break even or better for the fiscal year.
In closing, I'm excited about the future of OneSpan and look forward to discussing the details and metrics of our full year outlook and long-term plan at our Investor Day in just a quarter's time. With that, Jan Kees and I will be happy to take your questions. Operator?
Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. If you're streaming today's call, please dial in and enter star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question is from Chad Bennett with Craig-Hallum Capital Group. Chad, please proceed.
Great. Thanks for taking my questions. Welcome Matt, and look forward to working with you in the future. Subscription line. Just in terms of, you know, I guess first question would be if there's any quantification on the recurring revenue impact on that line, from I think you indicated a few large transactions that just timing wise didn't hit in the quarter. Is there any quantification you could provide there?
Not gonna do that.
Okay. I guess more importantly going forward, how should we view the growth of the subscription business going forward? Related to that, have your thoughts changed? It seems like you're pretty optimistic about e-sign and being able to sell that in more places and digital agreements being a big part of that and whatnot. Do you think the growth rate of the e-sign business, you know, do you think that was a business that, you know, kinda had some pull forward in the last 4-6 quarters challenging? Or how do we think about overall subscription growth going forward?
We do anticipate sequential growth throughout 2022, and we're working through some of the elements of that mix now in our long-term strategic plan. I am absolutely laser focused on the subscription side of the business. Given the continued material portion of our total revenue that does come from hardware, which is perpetual, you do see from time to time a dampening effect with the overperformance on the hardware line. Again, hardware is not a bad thing as part of our total solution portfolio, but it should become a increasing or decreasing portion of our total revenue on a go-forward basis. We're right in the middle of that transition right now. We'll have much more detail.
Got it. Appreciate you taking my questions. Thanks.
Thank you.
Thank you, Mr. Bennett, for your question. Our next question is with Stefan Schwarz with BTIG. Mr. Schwarz, please proceed.
Hi, this is Stefan on for Gray. Thanks for taking my question. You know, I wanted to ask,
Hi, Stefan.
Hi. Thank you. Related to the dampening effect created from perpetual and multi-year term impacting headline revenue growth for the year, and how close do you think you are at this point to the end of that transition?
I think last year was when we largely concluded a transition from the legacy business model, if you will, to a subscription-based business model. As you know, the subscription model is comprised of term and I'd say more traditional SaaS subscription from our e-signature business. I would say we've largely gone through that migration, and what we have now is a laser focus on the position, obviously better cross-selling, as I alluded to in my comments, and then making sure that we're laser focused on ensuring customer churn rates are low. Okay. That's really where I'm most excited, is not so much, you know, moving beyond the business model shift in and of itself, but the operationalizing of our strategy to go drive ARR.
We're hard at work, you know, doing that now in our long range plan community about how they should be viewing the business in total, but also these two different dynamics that exist inside of the company.
Got it. Thanks. Just one more. Looks like you had a few e-signature wins. I was hoping maybe you could drill down maybe why you win, you know, particularly against DocuSign, which I think you mentioned.
Yeah, I am very heartened by what I've seen in here. When we do the right things with the right customers, the natural behavior of a land and expand and a renew is happening. I think where we can benefit from is being more focused in the segments of our horizontal segmentation, where we win the most. What's one significant benefit for OneSpan relative to DocuSign? You know, DocuSign was born, you know, in more of an SMB environment in real estate, and they've worked themselves into a nice enterprise company, obviously. OneSpan and very complex heterogeneous environments.
I've been pleased to, through my customer conversations, to feel like we have significant feature parity in the areas that customers count on most, so that the features aren't a big discriminator or lack of a discriminator against DocuSign, who is significantly larger. Where we are winning is that we seem to be more enterprise class in working in compliance requirements and in many cases, integration requirements in their systems. That is our background. I would say that is a unique differentiator for us in addition to our DNA on the identity and verification side of the house.
Got it. Thank you very much.
Thank you.
Thank you, Mr. Schwarz, for your question. Our next question is with Catharine Trebnick, with Colliers. Ms. Trebnick, please proceed.
The subscription SaaS piece of it grew 15% year-over-year. Had you closed these deals or moved them into the quarter, what would that growth been for the quarter?
Look, you would have, you'd have a couple other percent more in terms of the OSS
Got it. Were there anything outside e-signature that would have been in the subscription line or other software-
Yeah, we've mentioned that there is a little bit of a decrease in the legacy deal flow product.
Okay, got it. On gross margin on that, mix shift and where the low margin is coming from. Is it from the hardware or is it...
There was significantly a big shift in the overall composition with less software and a higher component of hardware than in the comparable quarter in 2020. If you normalize it, we had about $1.2 million related to increase. Then we had about $2.5 million-ish, which was related to a shift to a somewhat lower margin authentication products. That happens from time to time at year-end. Those are the big components in that shift in that lower margin.
All right. Thank you.
Your question. Our next question is with Anja Soderstrom from Sidoti. Please proceed.
Hi. Thank you for taking my question. A lot of these questions have been asked already. I just have a question about, I guess you touched on what affected the margin for the fourth quarter, but how should we think about the margin performance in 2022 and how much of that is gonna be hampered by cost inflation and things like that?
Of air freight and the reliance on air freight in the hardware side of the house, continuing at least into the first quarter, perhaps into the second quarter. For the full year, we would expect the margins to 21%.
Okay. The cost saving of $10 million-$15 million for the year, that's mainly gonna come from headcount and downsizing of the space?
Yes. There are two components. A, in not filling the positions that were old people from the company. The other side of that was also reduction in real estate leases, space predominantly, and making savings there.
It's important to note that the execution of these actions is still continuing throughout the year, so there will not be realization of a full year benefit of that full amount process and evaluating whether some of the savings that will be realized will be reinvested into growth areas. We'll be prepared to talk in detail about that in the May investor meeting.
Yeah. We'll provide you with a tracker on a quarterly basis where you can see the savings accruing.
Okay, great. Thank you. That was all.
Thank you, Ms. Soderstrom.
Thank you.
Our next question is with Rudy Kessinger with D.A. Davidson. Please proceed.
Thanks for taking my questions. I wanna go back to subscription just one more time. I know it's been touched on a couple times, but on the sequential decline, averages or usage, that drives a pretty big sequential growth, 10% and 14% sequential growth each of the last Q4s. Is there a way you can quantify just, I mean, how much? It's just a bit perplexing, the Q4 subscription being even lower than, not just Q3, but even Q2 as well.
Yeah. Hey, Rudy, this is Joe. As you look at the overall numbers, we do have to factor in, like you said, that deal flow which came down. Yeah, that had an overall impact on the subscription line. Some of the deals that we expected to close early in the quarter pushed out on the e-signature side to that revenue from those contracts.
Got it. Then on the cost cuts, just going back to your last comment there, it's not a full year realization yet. Can you quantify how much on a full year basis those cuts will equate to, be it I don't know, 15 or 20 or, I mean, somewhere higher than 10-12? What will it be once you're fully realizing it?
Well, I think you'll see those cuts realizing in the year 2022. You're probably only going to have a percentage, say 30, 40, perhaps 50%, depending on how quickly certain actions can be implemented, coming through in the financial statements.
Okay. Got it. Thank you for taking my question.
For your question. There are currently no further questions waiting at this time. As a reminder, to ask a question, press star one. There are no more questions waiting at this time, so I'd like to pass the conference back over to the management team for closing remarks.
I'd like to end on a positive note here that, again, I'm very excited to be at OneSpan and feel very confident in our ability to deliver a quite detailed view of the business in May. We've been hard at work at our strategic planning process. We are on track, and we have hit all of our internal milestones and deliverables. Based on what I see, I'm very excited about our path forward and our ability to action, if not virtual, in the mid-May timeframe with much more detail. Thank you for joining the call today.
That concludes the OneSpan Fourth Quarter 2021 Conference Call. Thank you for your participation. You may now disconnect your lines.