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VASCO Reports Results for First Quarter 2014

Revenue from continuing operations for the first quarter of 2014 was $38.8 million, an increase of 10% compared to the first quarter 2013; Operating income from continuing operations for the first quarter of 2014 was $3.9 million, an increase of 43% compa

OAKBROOK TERRACE, Ill. and ZURICH, April 24, 2014 /PRNewswire/ -- VASCO Data Security International, Inc. (NASDAQ: VDSI), today reported financial results for the first quarter ended March 31, 2014.

Revenue from continuing operations for the first quarter of 2014 increased 10% to $38.8 million from $35.4 million in the first quarter of 2013.  Net income from continuing operations for the first quarter of 2014 was $3.5 million, or $0.09 per fully diluted share, an increase of $1.1 million, or 46%, from $2.4 million, or $0.06 per fully diluted share, for the first quarter of 2013.   

Net income, which includes the impact of our discontinued operations, for the first quarter of 2014 was $3.5 million, or $0.09 per diluted share.  Net income for the first quarter of 2013 was $2.8 million, or $0.07 per diluted share.

Financial Highlights:

  • Gross profit from continuing operations was $25.8 million, or 66%, of revenue for the first quarter of 2014.  Gross profit was $23.1 million, or 65%, of revenue for the first quarter of 2013.
  • Operating expenses from continuing operations for the first quarter 2014 were $21.9 million, an increase of 8% from $20.4 million reported for the first quarter 2013.Operating expenses for the first quarter of 2014 included $0.6 million of long-term incentive compensation expenses and $1.1 million of amortization expense related to purchased intangible assets.   Operating expenses for the first quarter of 2013 included $0.8 million of long-term incentive compensation expenses and $0.4 of amortization expense related to purchased intangible assets.
  • Operating income from continuing operations for the first quarter 2014 was $3.9 million, an increase of $1.2 million, or 43%, from $2.7 million reported for the first quarter of 2013.  Operating income as a percentage of revenue in the first quarter 2014 was 10% compared to 8% in the first quarter of 2013.
  • Earnings before interest, taxes, depreciation and amortization from continuing operations were $5.9 million for the first quarter 2014, an increase of 58% from $3.7 million reported for the first quarter of 2013. 
  • Net cash balances, total cash and cash equivalents less bank borrowings, at March 31, 2014 totaled $109.5 million compared to $98.6 million at December 31, 2013.  There were no bank borrowings at either March 31, 2014 or December 31, 2013.

Operational and Other Highlights:

  • VASCO launched a native authentication integration solution for MYDIGIPASS.COM that allows application developers to protect their end users' online identity.  This solution allows users to securely log on from a mobile app by clicking the 'MYDIGIPASS.COM Secure Connect' button.
  • VASCO announced it has been positioned by Gartner, Inc. as a Leader in the Gartner Magic Quadrant for User Authentication.
  • VASCO introduced a customer-centric distribution strategy, aimed at delivering solutions along with high-level pre and post-sales services. The company selected a limited group of high-end security distributors that offer value-added services and can act as an extension of the technical and commercial VASCO team.
  • VASCO announced that system integrator Think Software Services (TSS) is VASCO's new system integrator. TSS is an information technology consulting company and system integrator with a strong foothold in the United Arab Emirates.

Guidance for full-year 2014:

VASCO is increasing its guidance for revenue for the full-year 2014 as follows:

  • Revenue from our traditional business, which excludes our new service product offerings (DIGIPASS as a Service and MYDIGIPASS.COM), is expected to be in the range of $168 million to $172 million, an increase from the range communicated previously of $160 million to $165 million, and
  • Operating income as a percentage of revenue, excluding the amortization of purchased intangible assets, is projected to be in the range of 11% to 13%, which is consistent with the range communicated previously.

"We are very pleased with the results of the first quarter," stated T. Kendall Hunt, Chairman & CEO.  "Not only was the revenue reported for the first quarter of 2014 the best first quarter in our history, we also had the strongest intake of new orders of any quarter in our history.  The increasing demand for our products is coming from both our traditional products as well as our new products using the Cronto technology.  We are also making progress with our cloud-based product offerings.  As noted previously, we do not expect to see any significant revenue from the cloud-based products in 2014, but we continue to believe that it is an important part of our product mix for the future."

"The results for the first quarter reflected a 6% increase in revenues from the Banking market and a 27% increase in revenues from the Enterprise and Application Security market," said Jan Valcke, VASCO's President and COO.  "We believe that the increase in the Enterprise and Application Security market was due primarily to our growing base of maintenance revenues, our increased focus on sales and marketing and a pickup in overall activity in the European and U.S. markets, especially from our distribution network.  While the strong intake of new orders in the first quarter resulted in a strong backlog of orders to be shipped in future quarters to the Banking market, we believe that the Enterprise and Application Security market will also continue to offer opportunities for significant growth."

Conference Call Details

In conjunction with this announcement, VASCO Data Security International, Inc. will host a conference call today, April 24, 2014, at 10:00 a.m. EDT - 16:00h CET.  During the conference call, Mr. Ken Hunt, CEO, Mr. Jan Valcke, President and COO, and Mr. Cliff Bown, CFO, will discuss VASCO's results for the first quarter 2014.

To participate in this conference call, please dial one of the following numbers:

USA/Canada:  +1 800-926-9801
International:  +1 212-231-2934

And mention VASCO to be connected to the conference call.

The Conference Call is also available in listen-only mode on www.vasco.com. Please log on 15 minutes before the start of the Conference Call in order to download and install any necessary software. The recorded version of the Conference Call will be available on the VASCO website 24 hours a day for at least 60 days.

 

VASCO Data Security International, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



Three months ended


March 31,


2014


2013





Revenue

$ 38,823


$ 35,365

Cost of goods sold

13,027


12,278





Gross profit

25,796


23,087





Operating costs:




   Sales and marketing

10,371


9,631

   Research and development

5,141


4,847

   General and administrative

5,273


5,453

   Amortization of purchased intangible assets

1,120


441

          Total operating costs

21,905


20,372





Operating income

3,891


2,715





Interest income, net

24


42

Other income, net

438


149





Income from continuing operations before income taxes

4,353


2,906

Provision for income taxes

827


494









Net income from continuing operations

$ 3,526


$ 2,412

Income (loss) from discontinued operations

(16)


374

Net income

$ 3,510


$ 2,786





Basic net income (loss) per share




   Continuing operations

$ 0.09


$ 0.06

   Discontinued operations

(0.00)


0.01

     Total net income per share

$ 0.09


$ 0.07





Diluted income (loss) per share




   Continuing operations

$ 0.09


$ 0.06

   Discontinued operations

(0.00)


0.01

     Total net income per share

$ 0.09


$ 0.07





Weighted average shares outstanding:




   Basic

39,272


38,687

   Diluted

39,389


39,064

 

     

VASCO Data Security International, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)



March 31,


December 31,


2014


2013


(unaudited)



ASSETS




     Current assets




          Cash and equivalents

$ 109,492


$ 98,607

          Accounts receivable, net of allowance for doubtful accounts

21,438


28,528

          Inventories

25,816


25,653

          Prepaid expenses

2,544


2,719

          Foreign sales tax receivable

583


543

          Deferred income taxes

870


1,634

          Assets of discontinued operations

1,898


1,910

          Other current assets

2,324


2,051

               Total current assets

164,965


161,645





     Property and equipment, net

3,054


3,145

     Goodwill, net of accumulated amortization

23,608


23,532

     Intangible assets, net of accumulated amortization

15,675


16,733

     Other assets, net of accumulated amortization

8,742


6,822

               Total assets

$ 216,044


$ 211,877





LIABILITIES AND STOCKHOLDERS' EQUITY




     Current liabilities




          Accounts payable

$ 6,614


$ 6,378

          Deferred revenue

14,977


15,703

          Accrued wages and payroll taxes

7,608


7,067

          Income taxes payable

3,829


4,087

          Liabilities of discontinued operations

7


30

          Other accrued expenses

4,191


3,841

               Total current liabilities

37,226


37,106





     Deferred compensation

6


115

     Deferred tax liability

320


321

     Other long-term liabilities

65


57

Total liabilities

37,617


37,599





Stockholders' equity




     Common stock

40


40

     Additional paid-in capital

80,432


79,871

     Accumulated income

95,911


92,401

     Accumulated other comprehensive income

2,044


1,966

Total stockholders' equity

178,427


174,278

Total liabilities and stockholders' equity

$ 216,044


$ 211,877

 

Non- GAAP Financial Measures

The Company reports its financial results in accordance with GAAP, but Company management also evaluates its performance using EBITDA, Adjusted Net Income and Adjusted Diluted EPS.  The Company's management believes that these measures provide useful supplemental information regarding the performance of our business and facilitates comparisons to our historical operating results. 

These non-GAAP measures are not measures of performance under GAAP and should not be considered as alternatives or substitutes for the most directly comparable financial measures calculated in accordance with GAAP.   While we believe that these non-GAAP measures are useful within the context described below, they are in fact incomplete and are not a measure that should be used to evaluate our full performance or our prospects. Such an evaluation needs to consider all of the complexities associated with our business including, but not limited to, how past actions are affecting current results and how they may affect future results, how we have chosen to finance the business, and how taxes affect the final amounts that are or will be available to shareholders as a return on their investment.

EBITDA

We define EBITDA as net income from continuing operations before interest, taxes, depreciation and amortization. We use EBITDA as a simplified measure of performance for use in communicating our performance to investors and analysts and for comparisons to other companies within our industry. As a performance measure, we believe that EBITDA presents a view of our operating results that is most closely related to serving our customers. By excluding interest, taxes, depreciation and amortization we are able to evaluate performance without considering decisions that, in most cases, are not directly related to meeting our customers' requirements and were either made in prior periods (e.g., depreciation and amortization), or deal with the structure or financing of the business (e.g., interest) or reflect the application of regulations that are outside of the control of our management team (e.g., taxes). Similarly, we find that the comparison of our results to those of our competitors is facilitated when we do not need to consider the impact of those items on our competitors' results.

Reconciliation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) from continuing operations to net income from continuing operations(in thousands):




 Three months 




 ended March 31, 




2014


2013




 (in thousands, unaudited) 








EBITDA from continuing operations

$   5,895


$       3,737








 Interest income, net 


24


42


 Provision for income taxes 


(827)


(494)


 Depreciation and amortization 


(1,566)


(873)


 Net income from continuing operations 

$   3,526


$       2,412

Adjusted Net Income & Adjusted Diluted EPS

We define Adjusted Net Income and Adjusted Diluted EPS, as net income or EPS from continuing operations before the consideration of long-term incentive compensation expenses and the amortization of purchased intangible assets.  We use these measures to assess the impact of our performance excluding items that though they are recurring, can significantly impact the comparison of our results between periods and the comparison to competitors.

Long-term incentive compensation for management and others is directly tied to performance and this measure allows management to see the relationship of the cost of incentives to the performance of the business operations directly if such incentives are based on that period's performance.  To the extent that such incentives are based on performance over a period of several years, there may be periods which have significant adjustments to the accruals in the period but which relate to a longer period of time, and which can make it difficult to assess the results of the business operations in the current period. In addition, the Company's long-term incentives generally reflect the use of restricted stock grants or cash awards while other Companies may use different forms of incentives the cost of which is determined on a different basis, which makes a comparison difficult.

The Company also excludes amortization of purchased intangible assets because it believes that the amount of such expenses in any given period may not be correlated directly to the performance of the business operations and that such expenses can vary significantly between periods as a result of new acquisitions, the full amortization of previously acquired intangible assets or the write down of such assets due to an impairment event.

 

 Reconciliation of Adjusted Net Income from Continuing Operations to 

    Net Income from Continuing Operations 








 Three months 




 ended March 31, 




2014


2013




 (in thousands, unaudited) 





Adjusted Net Income - continuing operations


$   4,936


$       3,368








 Long-term Incentive Compensation Expense 


(642)


(754)


 Amortization of Purchased Intangible Assets 


(1,120)


(441)


 Tax impact of Adjustments* 


352


239


 Net income - continuing operations 


$   3,526


$       2,412

 

 Reconciliation of Adjusted Diluted EPS from Continuing Operations to 

    Diluted EPS from Continuing Operations 








 Three months 




 ended March 31, 




2014


2013




 (in thousands, unaudited) 








Adjusted Diluted EPS - continuing operations


$     0.13


$         0.08








 Long-term Incentive Compensation Expense 


(0.02)


(0.02)


 Amortization of Purchased Intangible Assets 


(0.03)


(0.01)


 Tax impact of Adjustments* 


0.01


0.01


 Diluted EPS - continuing operations 


$     0.09


$         0.06

* = The tax impact of adjustments is calculated at 20% of the adjustments in all periods

About VASCO:

VASCO is a leading supplier of strong authentication and e-signature solutions and services specializing in Internet Security applications and transactions. VASCO has positioned itself as global software company for Internet Security serving a customer base of approximately 10,000 companies in more than 100 countries, including approximately 1,700 international financial institutions. VASCO's prime markets are the financial sector, enterprise security, e-commerce and e-government.

Forward Looking Statements:
This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933.  These forward-looking statements (1) are identified by use of terms and phrases such as "expect", "believe", "will", "anticipate", "emerging", "intend", "plan", "could", "may", "estimate", "should", "objective", "goal", "possible", "potential", "project"  and similar words and expressions, but such words and phrases are not the exclusive means of identifying them, and (2) are subject to risks and uncertainties and represent our present expectations or beliefs concerning future events. VASCO cautions that the forward-looking statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements.  These  risks, uncertainties and other factors that have been described in our Annual Report on Form 10-K for the year ended December 31, 2013 and include, but are not limited to, (a) risks of general market conditions, including currency fluctuations and the uncertainties resulting from turmoil in world economic and financial markets, (b) risks inherent to the computer and network security industry, including rapidly changing technology, evolving industry standards, increasingly sophisticated hacking attempts, increasing numbers of patent infringement claims, changes in customer requirements, price competitive bidding, and changing government regulations, and (c) risks specific to VASCO, including, demand for our products and services, competition from more established firms and others, pressures on price levels and our historical dependence on relatively few products, certain suppliers and certain key customers. Thus, the results that we actually achieve may differ materially from any anticipated results included in, or implied by these statements. Except for our ongoing obligations to disclose material information as required by the U.S. federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.

This document may contain trademarks of VASCO Data Security International, Inc. and its subsidiaries, including VASCO, the VASCO "V" design, DIGIPASS, VACMAN, aXsGUARD and IDENTIKEY.

For more information contact:
Cliff Bown, +1 630 932 8844 ext. 304, Cliff.Bown@vasco.com

SOURCE VASCO Data Security International, Inc.

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