Vasco Q3 net income jumps

Revenue from continuing operations for the third quarter of 2011 increased 57% to $41.4 million from $26.3 million in the third quarter of 2010, and for the first nine months of 2011, increased 59% to $119.6 million from $75.0 million for the first nine months of 2010.

Net income from continuing operations for the third quarter of 2011 was $5.9 million, or $0.15 per diluted share, an increase of $3.7 million, or 172%, from $2.2 million, or $0.06 per diluted share, for the third quarter of 2010. Net income from continuing operations for the first nine months of 2011 was $12.9 million, or $0.33 per diluted share, an increase of $8.8 million, or 211%, from $4.2 million, or $0.11 per diluted share, for the comparable period in 2010.

Net income, which includes the impact of our discontinued operations, for the third quarter of 2011 was $2.2 million, or $0.06 per diluted share. Net income for the first nine months of 2011 was $7.4 million, or $0.19 per diluted share. Net income in 2011 included a net loss of $3.7 million and $5.6 million for the three and nine months ended September 30, 2011, respectively, related to DigiNotar B.V., which ceased operations during the third quarter of 2011. DigiNotar B.V. had been acquired in January 2011 and was declared bankrupt on September 20, 2011 by the Haarlem District Court, The Netherlands.

Other Financial Highlights:
• Gross profit from continuing operations was $27.8 million and $76.1 million for the third quarter and first nine months of 2011, respectively, and was 67% of revenue for the third quarter and 64% of revenue for the first nine months of 2011. Gross profit was $18.5 million, or 71% of revenue, and $52.7 million, or 70% of revenue, for the third quarter and the first nine months of 2010, respectively.
• Operating expenses from continuing operations for the third quarter and first nine months of 2011 were $20.3 million and $60.4 million, respectively, an respectivelvely, an increase of 27% from $16.0 million reported for the third quarter of 2010 and an increase of 26% from $47.9 million reported for the first nine months of 2010.
Operating expenses from continuing operations for the third quarter and first nine months of 2011 included $0.9 million and $2.2 million, respectively, of expenses related to stock-based incentives. Operating expenses for the third quarter and first nine months of 2010 included $0.8 million and $1.9 million, respectively, of expenses related to stock-based incentives.
Operating expenses from continuing operations for the third quarter and first nine months of 2011 also included $0.5 million and $1.5 million, respectively, of expenses related to the amortization of purchased intangible assets. Operating expenses for the third quarter of and first nine months of 2010 included $0.1 million and $0.3 million, respectively, of expenses related to the amortization of purchased intangible assets.
• Operating income from continuing operations for the third quarter and first nine months of 2011 was $7.4 million and $15.7 million, respectively, an increase of $4.9 million, or 196%, from $2.5 million reported for the third quarter of 2010 and an increase of $10.9 million, or 227%, from $4.8 million reported for the first nine months of 2010. Operating income from continuing operations, as a percentage of revenue, for the third quarter and first nine months of 2011 was 18% and 13%, respectively, compared to 10% and 6% for the comparable periods in 2010.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations was $8.0 million and $18.8 million for the third quarter and first nine months of 2011, respectively, an increase of 122% from $3.6 million reported for the third quarter of 2010 and an increase of 156% from $7.3 million reported for the first nine months of 2010.
• Net cash balances at September 30, 2011 totaled $77.5 million compared to $84.6 million and $85.5 million at June 30, 2011 and December 31, 2010, respectively.

Operational and Other Highlights:
• VASCO and Option, a wireless technology company, announce a partnership to co-develop and bring to market Cloudkey®, a mobile security solution that provides simple and secure access to cloud applications and data.
• VASCO launches IDENTIKEY Server 3.3 with PCI DSS compliancy.
• VASCO strengthens presence on US West Coast with San Mateo office.
• VASCO launched DIGIPASS as a Service on Salesforce.com's AppExchange.

Guidance for full-year 2011:

VASCO is revising its guidance for the full-year 2011 as follows:

• Revenue growth from continuing operations is projected to be in the range of 45% to 55% for the full-year 2011 over full-year 2010, as compared to expected full-year revenue growth of more than 40% announced at the end of the second quarter of 2011; and
• Operating margins from continuing operations, excluding expenses related to the amortization of acquisition-related intangible assets, for full-year 2011 are projected to be in the range of 13% to 16% of revenue, compared to 8% to 12% of revenue announced at the end of the second quarter of 2011.

"Revenues for the third quarter of 2011 were the second highest in our company's history and were second only to the previous quarter of 2011," stated T. Kendall Hunt, Chairman & CEO. "Revenues from both the banking and enterprise and application security markets increased substantially over the same periods in 2010. While we were disappointed with the closure of the DigiNotar business, we believe that VASCO's customers understand that the certificate authority business of DigiNotar was separate and distinct from our core authentication business. We continue to experience strong order intake for our authentication products and expect to show strong growth in the fourth quarter of 2011 over 2010."

"The results of the third quarter indicate that we are making progress in a number of important areas," said Jan Valcke, VASCO's President and COO. "Revenue from the banking market grew in most all of our geographic markets, including the European market where the concerns related to sovereign debt have been highly publicized. In addition, we saw strong orders from and shipments to customers in the enterprise and application security market. Our gross margins as a percentage of revenue also showed substantial improvement over earlier quarters of 2011. The improvement in the margin rate can be attributed to shipping orders to a broader base of banking customers, an improved mix of our business associated with the growth in revenues from the enterprise and application security market and improvements we have made in our production scheduling that allows us to reduce our overall freight costs."

Cliff Bown, Executive Vice President and CFO added, "During the third quarter of 2011 our balance sheet remained strong. Our cash balances decreased $7.1 million, or approximately 8%, from June 30, 2011 as we invested in higher levels of inventory to meet the expected demand in the fourth quarter and carried increased receivables related to the strong sales in the third quarter. Our total working capital increased $5.3 million, or 6%, from June 30, 2011 to $99.2 million. The decline in cash also reflected the strengthening of the U.S. dollar compared to other key currencies. The U.S. dollar strengthened approximately 6% to 7% during the third quarter when compared to the Euro and Swiss Franc."