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VASCO Reports Results for Second Quarter and First Six Months of 2017

  • Q2 Total revenue of $45.7 million
  • Q2 GAAP operating income (loss) of $(0.4) million
  • Q2 GAAP earnings per share of $0.00
  • Q2 Non-GAAP earnings per share of $0.071

OAKBROOK TERRACE, Ill. and ZURICH, Switzerland, July 27, 2017 (GLOBE NEWSWIRE) -- VASCO Data Security International, Inc. (NASDAQ:VDSI), a global leader in digital solutions including identity, security and business productivity, today reported financial results for the second quarter and six months ended June 30, 2017.

“We saw continued progress in developing VASCO’s software and services-centric offerings with strong year-over-year growth. We were also pleased with the results in our hardware business with a sequential quarter increase in revenue,” stated T. Kendall Hunt, VASCO Chairman & CEO. “Our gross margins remained above 70 percent, approximately three percent above the second quarter of last year, in part because of our strong software sales. During the quarter we took some actions to realign our resources and increase our focus on delivering innovative solutions that respond to online and mobile threats by enabling orchestration of multiple anti-fraud capabilities in a more unified manner.”

Revenue for the second quarter of 2017 decreased 16% to $45.7 million from $54.3 million in the second quarter of 2016, and for the first six months of 2017, decreased 13% to $87.7 million from $101.1 million for the first six months of 2016.

Net income for the second quarter of 2017 was $0.1 million, or $0.00 per fully diluted share. This is a decrease of $2.7 million from $2.8 million, or $0.07 per fully diluted share, for the second quarter of 2016. Net income for the first six months of 2017 was $0.7 million, or $0.02 per fully diluted share, a decrease of $4.3 million from $5.0 million, or $0.13 per fully diluted share, for the comparable period in 2016.

Operating income (loss) for the second quarter of 2017 was $(0.4) million, a decrease of $3.8 million from $3.4 million reported for the second quarter of 2016. Operating income (loss) for the first six months of 2017 was $(0.1) million, a decrease of $6.6 million, from $6.5 million reported for the first six months of 2016. Operating income as a percentage of revenue for the second quarter and first six months of 2017 was -1% and 0%, respectively, compared to 6% for both comparable periods in 2016.

Non-GAAP net income, which excludes both long-term incentive compensation and amortization of intangible assets, for the second quarter of 2017 was $2.5 million, or $0.06 per fully diluted share, a decrease of $3.5 million from $6.1 million, or $0.15 per fully diluted share, for the second quarter of 2016. Non-GAAP net income, which excludes both long-term incentive compensation and amortization of intangible assets, for the first six months of 2017 was $5.7 million, or $0.15 per fully diluted share, a decrease of $5.9 million from $11.7 million, or $0.30 per fully diluted share, for the first six months of 2016.

1 An explanation of the use of non-GAAP measures is included below under the heading “non-GAAP Financial Measures.” A reconciliation of GAAP to non-GAAP financial measures has also been provided in tables below.

Other Financial Highlights

  • Gross profit was $32.0 million, or 70% of revenue, for the second quarter of 2017 and $62.0 million, or 71% of revenue, for the first six months of 2017. Gross profit was $36.6 million, or 67% of revenue, for the second quarter of 2016 and $68.7 million, or 68% of revenue for the first six months of 2016.
  • Operating expenses for the second quarter and first six months of 2017 were $32.4 million and $62.1 million, respectively, a decrease of 2% from $33.2 million reported for the second quarter and comparable to $62.2 million reported for the first six months of 2016.
  • Earnings before interest, taxes, depreciation and amortization (EBITDA) was $2.6 million and $5.7 million for the second quarter and first six months of 2017, respectively, a decrease from $6.3 million reported for the second quarter of 2016 and a decrease from $12.4 million reported for the first six months of 2016.
  • Cash, cash equivalents and short-term investments at June 30, 2017 totaled $156.2 million compared to $146.0 million and $144.2 million at March 31, 2017 and December 31, 2016, respectively.

Operational and Other Highlights

  • VASCO announced eSignLive for Salesforce CPQ on the Salesforce AppExchange to deliver increased efficiency, reduced risk and an improved customer experience during the sales process.
  • VASCO launched overlay detection as a new RASP feature in DIGIPASS for Apps to help protect mobile applications from increasingly common mobile app overlay attacks such as the Android Marcher malware.
  • VASCO announced the appointment of Jeff Cole as Chief Information Officer.

Guidance for full-year 2017
VASCO is maintaining guidance for the full-year 2017 as follows:

  • Revenue is expected to be in the range of $180 million to $190 million; and
  • Operating income as a percentage of revenue, excluding amortization of purchased intangible assets, is projected to be in the range of 1% to 5%.

Conference Call Details
In conjunction with this announcement, VASCO Data Security International, Inc. will host a conference call today, July 27, 2017, at 4:30 p.m. EDT/22:30h CEST. During the conference call, Mr. Ken Hunt, Chairman and CEO, Mr. Scott Clements, President and COO, and Mr. Mark Hoyt, CFO, will discuss VASCO’s results for the second quarter and first six months of 2017.

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

USA/Canada: 800-768-5901
International: + 1-212-231-2935

The Conference Call is also available in listen-only mode on ir.vasco.com. The recorded version of the Conference Call will be available on the VASCO website as soon as possible following the call and will be available for replay for at least 60 days.

About VASCO
VASCO is a global leader in delivering trust and business productivity solutions to the digital market. VASCO develops next generation technologies that enable more than 10,000 customers in 100 countries in financial, enterprise, government, healthcare and other segments to achieve their digital agenda, deliver an enhanced customer experience and meet regulatory requirements. More than half of the top 100 global banks rely on VASCO solutions to protect their online, mobile, and ATM channels. VASCO’s solutions combine to form a powerful trust platform that empowers businesses by incorporating identity, fraud prevention, electronic and transaction signing, mobile application protection and risk analysis. Learn more about VASCO at VASCO.com and on Twitter, LinkedIn and Facebook.

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, including, without limitation the guidance for full year 2017. 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 have been described in our Annual Report on Form 10-K for the year ended December 31, 2016 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. These risks, uncertainties and other factors include VASCO’s ability to integrate eSignLive into the global business of VASCO successfully and the amount of time and expense spent and incurred in connection with the integration; the risk that the revenue synergies, cost savings and other economic benefits that VASCO anticipates as a result of this acquisition are not fully realized or take longer to realize than expected. 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.


VASCO Data Security International, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
2017 2016 2017 2016
Revenue
Product and license $ 34,472 $ 45,804 $ 66,032 $ 84,535
Services and other 11,222 8,489 21,626 16,525
Total revenue 45,694 54,293 87,658 101,060
Cost of goods sold
Product and license 11,045 15,714 20,585 28,525
Services and other 2,601 2,028 5,113 3,881
Total cost of goods sold 13,646 17,742 25,698 32,406
Gross profit 32,048 36,551 61,960 68,654
Operating costs
Sales and marketing 15,339 15,659 29,043 28,528
Research and development 6,320 6,242 12,176 11,807
General and administrative 8,588 9,062 16,441 17,392
Amortization of purchased intangible assets 2,201 2,202 4,399 4,427
Total operating costs 32,448 33,165 62,059 62,154
Operating income (loss) (400) 3,386 (99) 6,500
Interest income, net 340 166 630 275
Other income, net 373 252 588 614
Income before income taxes 313 3,804 1,119 7,389
Provision for income taxes 203 979 436 2,365
Net income $ 110 $ 2,825 $ 683 $ 5,024
Net income per share:
Basic income (loss) per share $ 0.00 $ 0.07 $ 0.02 $ 0.13
Diluted income (loss) per share $ 0.00 $ 0.07 $ 0.02 $ 0.13
Weighted average common shares outstanding:
Basic 39,797 39,710 39,783 39,695
Diluted 39,842 39,769 39,843 39,762

VASCO Data Security International, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
2017 2016
(unaudited)
ASSETS
Current assets
Cash and equivalents $ 56,402 $ 49,345
Short term investments 99,814 94,856
Accounts receivable, net of allowance for doubtful accounts
of $649 in 2017 and $535 in 2016 28,315 36,693
Inventories 17,675 17,420
Prepaid expenses 3,642 3,249
Other current assets 4,655 5,596
Total current assets 210,503 207,159
Property and equipment, net 3,290 3,281
Goodwill 55,763 54,409
Intangible assets, net of accumulated amortization 42,212 46,549
Other assets 17,212 15,872
Total assets
$ 328,980 $ 327,270
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 8,377 $ 8,915
Deferred revenue 30,588 36,364
Accrued wages and payroll taxes 11,227 10,894
Income taxes payable 1,881 4,594
Other accrued expenses 5,193 5,464
Deferred compensation 824 1,729
Total current liabilities 58,090 67,960
Other long-term liabilities 9,489 1,878
Deferred income taxes
821 853
Total liabilities
68,400 70,691
Stockholders' equity
Common stock 40 40
Additional paid-in capital 88,358 87,481
Accumulated income 179,234 178,551
Accumulated other comprehensive loss (7,052) (9,493)
Total stockholders' equity 260,580 256,579
Total liabilities and stockholders' equity
$ 328,980 $ 327,270


Non-GAAP Financial Measures
The Company reports its financial results in accordance with GAAP, but Company management also evaluates its performance using certain non-GAAP operating metrics, namely EBITDA, non-GAAP Net Income and non-GAAP 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. The Company also believes these non-GAAP operating metrics provide additional tools for investors to use to compare its business with other companies in its industry.

These non-GAAP measures are not measures of performance under GAAP and should not be considered in isolation, 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. Reconciliations of the non-GAAP measures to the most directly comparable GAAP financial measures are found below.

EBITDA
We define EBITDA as net income 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 the comparison of our results to those of our competitors is facilitated when we do not consider the impact of those items on our competitors’ results.


Reconciliation of Net Income to Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA)
(in thousands, unaudited)
Three months Six months
ended June 30, ended June 30,
2017 2016 2017 2016
Net Income $ 110 $ 2,825 $ 683 $ 5,024
Interest income, net (340) (166) (630) (275)
Provision for income taxes 203 979 436 2,365
Depreciation and amortization 2,625 2,655 5,258 5,275
EBITDA $ 2,598 $ 6,293 $ 5,747 $ 12,389


Non-GAAP Net Income & Non-GAAP Diluted EPS
We define non-GAAP Net Income and non-GAAP Diluted EPS, as net income or EPS 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 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.

We also exclude amortization of purchased intangible assets as we believe 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. However, purchased intangible assets contribute to current and future revenue and related amortization expense will recur in future periods until expired or written down. Finally, we make a tax adjustment based on the above adjustments resulting in an effective tax rate on a non-GAAP basis, which may differ from the GAAP tax rate. We believe the effective tax rates we use in the adjustment are reasonable estimates of the overall tax rates for the Company under its global operating structure.


Reconciliation of Net Income to Adjusted Net Income
(in thousands, unaudited)
Three months ended Six months ended
June 30, June 30,
2017 2016 2017 2016
Net Income $ 110 $ 2,825 $ 683 $ 5,024
Long-term Incentive Compensation 832 1,845 1,932 3,878
Amortization of Purchased Intangible Assets 2,201 2,202 4,399 4,427
Tax impact of Adjustments* (607) (809) (1,266) (1,661)
Adjusted Net Income $ 2,536 $ 6,063 $ 5,748 $ 11,668


Reconciliation of Diluted EPS to Adjusted Diluted EPS
(unaudited)
Three months ended Six months ended
June 30, June 30,
2017 2016 2017 2016
Diluted EPS $ 0.00 $ 0.07 $ 0.02 $ 0.13
Long-term Incentive Compensation 0.02 0.04 0.05 0.10
Amortization of Purchased Intangible Assets 0.06 0.06 0.11 0.11
Tax impact of Adjustments* (0.02) (0.02) (0.03) (0.04)
Adjusted Diluted EPS $ 0.06 $ 0.15 $ 0.15 $ 0.30


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

Copyright © 2017 VASCO Data Security, Inc., VASCO Data Security International GmbH. All rights reserved. VASCO®, DIGIPASS®, CRONTO®, and eSignLive™ are registered or unregistered trademarks of VASCO Data Security, Inc. and/or VASCO Data Security International GmbH, or Silanis Technology Inc. in the U.S. and other countries.


For more information contact: John Gunn +1-847-370-1486 john.gunn@vasco.com

Source:VASCO Data Security International, Inc.