OneSpan Inc (OSPN) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the VASCO Data Security International Incorporated first quarter 2010 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded, Tuesday April 27, 2010.

It is now my pleasure to introduce T. Kendall Hunt, Founder, Chairman, and Chief Executive Officer. You may go ahead, sir.

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 the 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 need to brief all of you on forward-looking statements. 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.

Today, we are going to review the results for the first quarter of 2010. As always, we will host a question and answer session after the conclusion of management's prepared remarks. If possible, I'd to budget one hour total for this conference call. If you can limit your questions to one or two, it would be appreciated.

Revenues for Q1 were $23.9 million, an increase of approximately 3% compared to the first quarter of 2009. Q1 2010 was our 29th consecutive positive quarter in terms of operating income. Our business mix between banking, which provides higher volume, lower margin, and non-banking, which provides lower volume, higher margin, resulted in continuing healthy gross margin of 70% for Q1 2010. Our operating income was approximately 3% of revenue.

During the quarter, we sold an additional 438 new accounts, including 52 new banks and 386 new enterprise and application security customers. This compares to the first quarter a year ago in which we sold 357 new accounts, including 51 banks and 306 enterprise security customers. We now have over 9,500 customers, including approximately 1,450 banks, in more than 100 countries.

Although management considers the number of new customers as an indicator of the momentum of our business and effectiveness of our distribution channel, the number of new customers is not indicative of future revenue.

During the first quarter of 2010, our cash increased by 13%, while our working capital balance decreased 1%. At March 31, 2010, our net cash balance was $76 million, and we had approximately $86 million of working capital. This strong cash balance gives us the flexibility to invest in our growth now that the economic storm seems to have abated.

The first quarter of 2010 was challenging due to prospects in the banking market delaying expenditures for new projects and current customers slowing down existing projects. Also contributing to the results was the very strong fourth quarter of 2009, which we believe impacted the number of transactions that normally would have occurred in the first quarter of 2010.

Despite the results of the first quarter, we encouraged by the number of new transactions that are in various stages of discussions or negotiation. We continue to believe that we will return to a trend of solid growth in 2010 over the comparable periods of 2009. We are also continuing to invest in the infrastructure and people needed to support growth in all of our markets as well as the launch of our authentication services business.

Our banking revenue for the first quarter of 2010 increased 2% over the first quarter of 2009. Our enterprise and application security markets, also referred as non-banking, is growing steadily. Year-over-year we had a growth of approximately 6% compared with Q1 2009. We believe this is an encouraging sign for the future growth of this market. We do not believe the results of Q1 are indicative of our performance for the remainder of the year. We expect to deliver stronger results at the year progresses.

Looking forward in the banking market, we are very active in the shift of electronic banking to include transaction signing. VASCO has long -- has a long history of providing strong authentication to the world's leading banks, but fraud does not stop once an order is placed. More advanced attacks like Man in the Browser and Man in the Middle have become common and banks are migrating to secure their transactions with our proven electronic signature functionality.

We have been working closely with some of the world's most respected banks to make our products more intuitive, cost effective, and user friendly. We think this effort will ensure a successful transaction -- transition to transaction signing. As far as enterprise security is concerned, we have strengthened our position in the North American market by signing a distribution agreement with leading distributor Tech Data.

We've also recently announced new products targeting the banking and SME Markets, such as DIGIPASS for Windows Mobile, and we have added Identikey to our DIGIPASS pack product line. We've also increased support for the channel by introducing expanded seal training and Indentikey 3.0 e-learning.

In the application security market, VASCO continues to extend its leadership position within the growing online gaming market. During the past quarter we kept strengthening our customer portfolio in this field. We are securing over 1 million online gamers in a market that is continuing to grow. We are pleased not only to be adding new gaming customers, but also competing on new projects throughout Asia, Europe, and the US. Our customers vary from MMOs, massive multiplayer online, online lotteries, and everything in between.

The increase in fraud within online gaming is creating additional opportunities for VASCO beyond our traditional markets. Most importantly it has validated our strategy to extend our position into other growing markets and expand our portfolio products to include online services requiring authentication. We continue to invest in our authentication services. We expect to launch the first phase of the service toward the end of the second quarter of 2010.

Our investments to date have primarily been in engineering, but as the technical development of our service nears completion, we plan to invest in additional sales and marketing programs to introduce the service to our corporate customers in the first phase and to consumers in the second phase. As always, we want to offer our customers the best possible products and services today, next quarter, and in the future.

At this time I'd like to introduce Jan Valcke, VASCO's President and Chief Operating Officer. Jan?

Thank you, Ken. Ladies and gentlemen, the first quarter of 2010 confirms the trend that became visible in the third quarter of 2009. The crisis has reached its bottom. However, the recovery is slow, especially in the banking and financial markets, which has been and continues to be very important for VASCO's revenue.

Despite the slower turn of the banking market, we are proud that the first quarter of 2010 is profitable with a limited year-over-year growth in the revenue of 3%. In the product field, VASCO continues to strengthen its offering by making DIGIPASS for Mobile available to Windows Mobile users and by adding Identikey to DIGIPASS pack, we expanded the range of our software and server offerings.

Identity server keeps gaining traction in the enterprise security market, enabling us to compete effectively in the larger enterprise niche. In addition to our existing product offerings, VASCO announced DIGIPASS as a service in the first quarter of 2010. We expect the first phase of DIGIPASS as a service to be available to our enterprise customers towards the end of the second quarter. Like most new products, we do not expect that DIGIPASS as a service will have a significant impact on revenues in 2010.

As you may know, DIGIPASS as a service was announced during our February 18th investor summit in New York City. DIGIPASS as a service represents VASCO's in the cloud authentication business model and offers on demand identity and transaction security. With DIGIPASS as a service, we will first target companies, organizations, and in a later phase consumers that want to secure the applications of their choice with best of breed DIGIPASS authentication. [audio ends abruptly]