Vasco's second quarter earnings rise

Revenues for the second quarter of 2006 increased 50% to $18.5 million from $12.3 million in 2005 and, for the first six months of 2006, increased 35% to $32.2 million from $23.8 million in 2005.

Net income available to common shareholders for the second quarter of 2006 was $3.0 million, or $0.08 per diluted share, an increase of $1.4 million or 92% from $1.6 million, or $0.04 per diluted share in 2005. Net income available to common shareholders for the first six months of 2006 was $4.2 million, or $0.11 per diluted share, an increase of $1.2 million or 41% from $3.0 million, or $0.08 per diluted share in 2005.

Financial Highlights:

• Gross profit was $11.9 million or 64% of revenue for the second quarter and $21.3 million or 66% of revenue for the first six months of 2006. Gross profit was $8.0 million or 65% of revenue for the second quarter and $15.3 million or 64% of revenue for the first six months of 2005.
• Operating expenses for the second quarter and first six months of 2006 were $7.8 million and $14.3 million, respectively, an increase of 35% from $5.8 million reported for the second quarter 2005 and an increase of 30% from $11.1 million reported for the first six months of 2005. Operating expenses for the second quarter and first six months of 2006 included $0.4 million and $0.7 million, respectively related to stock-based incentives.
• Operating income for the second quarter and first six months of 2006 was $4.1 million and $7.0 million, respectively, an increase of $1.8 million or 79% from $2.3 million reported for the second quarter of 2005 and an increase of $2.8 million or 66% from the $4.2 million reported for the first six months of 2005. Operating income, as a percentage of revenue, for the second quarter and first six months of 2006 was 22.1% and 21.7%, respectively, compared to 18.5% and 17.7% for the comparable periods in 2005.
• Net income for the second quarter and first six months of 2006 was $3.0 million and $4.2 million, respectively, and compares to net income of $1.6 million reported for the second quarter of 2005 and net income of $3.0 million reported for the first six months of 2005.
• Earnings before interest, taxes, depreciation and amortization was $4.6 million and $6.9 million for the second quarter and first six months of 2006, respectively, an increase of 68% from $2.7 million reported for the second quarter of 2005 and an increase of 34% from $5.1 million reported for the first six months of 2005.
• Net cash balances, cash balances less borrowing under its line of credit, at June 30, 2006 totaled $13.0 million compared to $14.5 million and $14.0 million at March 31, 2006 and December 31, 2005, respectively.

"Our Full-Option, All-Terrain Strategy, introduced in the first quarter of 2006, is being very well received in the market," said Ken Hunt, VASCO's CEO and Chairman. "As evidenced by the record revenue and Digipass units shipped in the second quarter, we are seeing strong and continuing interest in our product in all of our markets, including in the United States. Also, as evidenced by our acquisition of Logico in the second quarter, we are executing our make or buy strategy by adding technology and staff with expertise that will help us meet the growing demand of our customers."

"The results of the second quarter continue the trend of strong growth," said Jan Valcke, VASCO's President and COO. "As two-factor authentication becomes more broadly accepted as a cost-effective means of protecting against identity theft, we are seeing both an increase in the number of deals as well as the size of the deals. Customers particularly like our platform, which allows them to use any of our forms of authentication simultaneously. It allows them to deploy an appropriate, cost-effective method of authentication for each user of their application by selecting the appropriate Digipass product, including Digipass for Web. As a market leader, especially in the banking and financial market, we also are seeing increased interest from distributors, solution partners and companies with complimentary technologies. As we start the third quarter, we have a backlog of firm orders to be shipped in the third quarter of $16.1 million, which is 39% higher than the $11.6 million backlog we had, entering the third quarter of 2005."

Cliff Bown, Executive Vice President and CFO, added, "Our balance sheet continues to be strong as a result of the strong operating performance. We were able to fund our acquisition of Logico from our existing cash balances. In part due to the acquisition of Logico, our net cash balances decreased $1.3 million or 9% from March 31, 2006 while our working capital increased approximately 7% to $20.1 million at June 30, 2006 from $18.7 million at March 31, 2006. Days Sales Outstanding (DSO) in net accounts receivable increased to approximately 81 days at June 30, 2006 from 76 days at March 31, 2006."

Separately, VASCO Data Security International, Inc. (Nasdaq: VDSI), the global number one vendor of strong user authentication and e-signature products, today announced that it has won 15 new U.S. banks in the second quarter of 2006 for corporate banking applications. This is a record in the company's history, and a proof of the fact that VASCO's approach of the U.S. market is working.

VASCO's strategy is to focus on the corporate banking market first. Once a bank has deployed a first batch of Digipass and has integrated VACMAN Controller, it is technically ready for larger deployments in other applications, including retail banking. VASCO expects the first strong authentication projects for retail banking to happen in 2007. The company believes that Digipass for Web will be an important tool to reach that goal.

VASCO's core technology, VACMAN Controller, supports a wide array of client authentication products, hard- and software Digipass, certificates/USB products and password technologies such as TAN- and scratch list. Once the bank has integrated VACMAN Controller for a first application, it can pick the right kind of VASCO client authentication product for the right customer segment. This unique a la carte authentication offering is one of VASCO's great assets and a huge competitive advantage.

"The fact that we won over one U.S. bank per working week during Q2 is clear evidence of the fact that our strategy for the North American market is working," said Jan Valcke, VASCO's President and COO. "Currently, fifty U.S. banks are using VASCO's Digipass and VACMAN Controller or VACMAN Middleware for corporate e-banking, including five top-ten banks. With our array of close to fifty client authentication products, we are ready to make a further push into the U.S. e-banking market."

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