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Actionable news in VDSI: VASCO Data Security International, Inc.,

VASCO Data Security: An Emerging Leader In Financial Industry Network Secuity

Summary

Despite a slight shortfall in Q2, new products and market opportunity make VDSI a Buy.

Mgmt focus on software and recurring revenue oriented products spurs improving margins.

eSignLive gaining traction and accelerating market penetration.

VASCO Data Security International (NASDAQ:VDSI)

In the second fiscal quarter ending June 2016, VASCO reported 16% higher revenue than the prior quarter. We reiterate our BUY rating on VDSI and maintain our price target at $25.00.

52-Week Range

$12.35 - $21.35

Long-Term Debt

-0-

Shares Outstanding

39.8 million

Debt/Equity

0.0 %

Insider/Institutional

25.0% / 67.8%

ROE (NYSE:LTM)

9.2%

Public Float

29.7 million

Book Value/Share

$6.40

Market Capitalization

$685.6 million

Daily Volume

312,000

Click to enlarge

FYE Dec

FY 2015A

FY 2016E

FY 2017E

EPS ($)

ACTUAL

CURRENT

PREVIOUS

CURRENT

PREVIOUS

Q1 Mar

$0.34A

$0.06A

$0.06A

$0.10E

$0.14E

Q2 Jun

$0.35A

$0.07A

$0.14E

$0.15E

$0.17E

Q3 Sept

$0.28A

$0.07E

$0.15E

$0.15E

$0.19E

Q4 Dec

$0.09A

$0.07E

$0.15E

$0.15E

$0.20E

Year*

$1.06A

$0.27E

$0.49E

$0.55E

$0.71E

P/E Ratio

16.3x

63.2x

31.3x

Change

NM

-74.2%

101.8%

Click to enlarge

FYE Dec

FY 2015A

FY 2016E

FY 2017E

Revenue ($ mil.)

ACTUAL

CURRENT

PREVIOUS

CURRENT

PREVIOUS

Q1 Mar

$65.1A

$46.8A

$46.8A

$56.1E

$55.3E

Q2 Jun

$65.4A

$54.3A

$54.5E

$65.2E

$64.0E

Q3 Sept

$60.0A

$54.0E

$57.0E

$64.8E

$66.8E

Q4 Dec

$50.9A

$53.4E

$59.5E

$64.1E

$69.6E

Year*

$241.4A

$208.5E

$218.0E

$250.2E

$255.7E

Change

NM

-9.8%

-

17.4%

-

Click to enlarge

* Numbers may not add up due to rounding.

Highlights

Company Description

VASCO Data Security International, Inc. designs and markets hardware and software used to secure access to the information assets of banking, retail and other enterprises. The Company operates in fourteen countries in North America, Europe, Asia, the Middle East and South America. Revenue is generated through the sale of hardware, licenses of software and the provision of design and maintenance services.

VASCO reported higher sales in the second quarter when compared to 1Q16. However, operations are still normalizing after working through a large order for authentication devices during the prior year.

The Company is executing on its strategy to build a business model with recurring revenue software-based solutions, which will help improve margins. A number of new products and product extensions were released during the quarter. During the 2Q16 earnings conference call, management reiterated sales guidance for FY16 in a range of $205 million to $215 million and operating profit margin excluding the amortization of intangible assets in a range of 10% to 12% of revenue. In our view, a debt-free balance sheet and excess cash resources above working capital requirements suggest VASCO is in a good position to invest in new technologies and acquire market share. Our estimates for FY16 have been revised downward in the wake of 1H16 financial results. Nonetheless, our analysis still supports the view that VASCO's product line and market strategy are capable of generating strong cash flow and earnings.

SECOND QUARTER 2016 FINANCIAL RESULTS

The financial report for the second quarter ending June 2016 was a story of 'normalized' operations. Sales in the quarter totaled $54.3 million, compared to $65.4 million in the same quarter last year. In the year-ago period, the Company was working through a significant order for its flagship DIGIPASS authentication devices as one of its largest customers, Rabobank, updated its security solution to include VASCO's new Cronto visual authentication technology. The recently acquired Silanis operation contributed to the full quarter period ending June 2016. However, management did not disclose detailed sales figures related specifically to Silanis'...


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