VASCO's CEO Discusses Q2 2012 Results - Earnings Call Transcript

VASCO Data Security International, Inc. (VDSI)

Q2 2012 Earnings Conference Call

July 26, 2012 10:00 AM ET

Executives

Kendall Hunt - Chairman and Chief Executive Officer

Jan Valcke - President and Chief Operating Officer

Clifford Bown - Executive Vice President and Chief Financial Officer

Jochem Binst - Director of Corporate Communications

Analysts

Brian Freed - Wunderlich Securities

Joe Maxa - Dougherty & Co.

Frederick Ziegel - Topeka Capital Markets

Scott Zeller - Needham & Co.

Brian Freed - Wunderlich Securities

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the VASCO Data Security International Inc. Q2 2012 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to T. Kendall Hunt, Chairman, Founder, and CEO.

Please go ahead, sir.

Kendall Hunt

Thank you, operator. Good morning, everyone, for those listening in from Europe, good afternoon and from Asia, good evening. My name is Ken Hunt and I am Chairman, Founder, and CEO of VASCO Data Security International, Inc. On the call with me today are Jan Valcke, our President and Chief Operating Officer; and Cliff Bown, our EVP and Chief Financial Officer.

Before we begin the conference call, I would like Jochem Binst, VASCO’s Director of Corporate Communications to brief all of you on forward-looking statements.

Jochem Binst

Thank you Ken. Ladies and gentlemen, statements made in this conference call that relate to future plans, events or performances are forward-looking statements. Any statement containing words such as believes, anticipates, plans, expects and similar words is forward-looking. And these statements involve risks and uncertainties and are based on current expectations. Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. I direct your attention to the company's filings with the U.S. Securities and Exchange Commission for a discussion of such risks and uncertainties in this regard.

At this time I will turn the call back over to Ken.

Kendall Hunt

Thank you Jochem.

Today, we are going to review the results for second quarter of 2012. As always, we will host a question-and-answer session after the conclusion of management's prepared remarks. If possible, I would like to budget one hour total for this conference call. If you can limit your questions to one or two, it would be appreciated.

Overall, we are very satisfied with our Q2 performance. Q2 revenues were $46.6 million, an increase of approximately 11% compared to the second quarter of 2011. Q2 2012 was our 38th consecutive positive quarter in terms of operating income.

Our gross profit for the quarter was approximately 63% of revenue, an improvement of 2 percentage points over the second quarter of 2011. Our operating income continuing operations was approximately 19% of revenue per quarter, an improvement of almost 10 percentage points over the second quarter of 2011.

At June 30, 2012 out net cash balance was $85.1 million, an increase of $648,000 over our balance at December 31, 2011. And we had a $118 million in working capital. The strong cash position and strong balance sheet is an important tool to support VASCO’s future growth. As I mentioned during previous calls, we have two important priorities in 2012. 1) To fortify and enhance the strong position in our core business. 2) To develop our services business.

The result of our core business continues to be very positive. We have demonstrated with our performance in Q2 that somewhat lower results in Q1 2002 were temporary caused by the historical lumpiness of our banking business and manufacturing weakness due to the Chinese New Year, which reduced our available manufacturing days for the quarter.

Our enterprise and applications security business continues to show steady growth. Thanks to previous years investments and people and products. We have not seen any slowing down of our core business. To the contrary, our cumulative order intake through the first six months of 2012 has been substantially stronger than the same period last year. And in fact the strongest first six months in the company’s history.

We started the year with a backlog that was lower the last years. At the end of Q2, we have closed that gap completely and are well underway to reach our 2012 guidance objectives. In the first half of 2012, it does not appear that the sovereign debt issue in the Eurozone has been significant impediment for VASCO’s business.

Our banking business in Europe in still going strong, we have also received orders from banks in countries where the sovereign debt issue seems to be the most severe. A motivating factor for banks to many parts of the world is the fact that internet banking is a very low cost and profitable application.

The cost bases internet banking is very low since banks can eliminate much of their investments in Bricks Mortar and related staff. With VASCO banks can offer their customers security combined with convenience. This is very appealing to many banks and their customers. We also had excellent results from our Asia Pacific operations driven by strong growth and banking in the government sector. Cliff will give you a little more information on our revenue per region.

During Q2, we officially launched MYDIGIPASS.COM and started to address the market with our hosted consumer authentication platform, which provides convenient and secure login services to various web applications. Currently, we have over 200 websites testing, integrating and are using MYDIGIPASS.COM. I believe that this is an impressive number considering the fact that we launched the platform in April of this year. Going forward, we will take numerous actions to make MYDIGIPASS.COM even more attractive for end users and websites including localized and translated versions of the portal, new options functionalities and more.

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