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
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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. Read the rest of this transcript for free on seekingalpha.com