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T.Kendall HuntFounder, Chairman and CEO
VASCO, the Full-Option, All-Terrain Authentication Company
November 2009
2VASCO Investor Presentation
Forward Looking Statements
Statements made in this presentation that relate to future plans, events or performances are forward-looking statements within the meaning of Section 21e of the Securities and Exchange Act of 1934 and section 27a of the Securities Act of 1933. 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” and “goal” 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. I direct your attention to the company’s filings with the securities and exchange commission for a discussion of such risks and uncertainties in this regard.
3VASCO Investor Presentation
Corporate Information
4VASCO Investor Presentation
Corporate Profile
Global company with worldwide HQ in the United States and international HQ in Switzerland
Listed on Nasdaq: VDSI
Leading supplier of strong authentication and e-signature solutions and services specializing in Internet security applications
Over 9,000 customers in 100+ countries, including almost 1,350 financial institutions
Revenue compound annual growth rate of 42% over 5-year period through 2008
27 consecutive profitable quarters through Q3 2009 allowing VASCO to finance its organic growth and acquisitions
5VASCO Investor Presentation
VASCO, the Full Option, All-Terrain Authentication Company
VASCO’s Mission is to authenticate the world
VASCO’s Vision:
The Full Option, All Terrain authentication company VASCO combines all authentication technologies on one and
unique platform
VASCO’s products can be used in unlimited vertical applications
VASCO secures people all over the world
VASCO sees authentication as a crucial application surrounded by other services and applications
6VASCO Investor Presentation
Full Option: Products
Authentication appliances
Combines Identikey with a wide variety of Internet communication solutions
Digipass
A suite of over 50 multi-application client e-signature software products
Digipass Plus: Authentication Services
Combines all VASCO products and solutions in an outsourced service offering. VASCO also offers related services under the DigipassPlus label, such as Fraud Detection and Analysis and the brand new VASCO Video Training.
Authentication server
Combines the VACMAN core authentication platform with full server functionalities
Core authentication platform
Combines all authentication technologies on one unique platform
7VASCO Investor Presentation
All terrain
All terrain = all applications/ technologies
VASCO’s products are used in over 50 applications
E-bankingE-brokerage
Online gaming
Automotive
E-government
Healthcare B-to-B
E-commerce
Social Security
EducationPublishing Industry
8VASCO Investor Presentation
VASCO’s Success Story: Full Years 2003 – 2008
572 543821
1,553
2,509
1,827
0
500
1,000
1,500
2,000
2,500
3,000
2003 2004 2005 2006 2007 2008
New Customers
$1.1
$5.6
$11.0
$18.9
$30.9$28.1
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
2003 2004 2005 2006 2007 2008
Operating Income (in millions)
$22.9 $29.9
$54.6
$76.1
$120.0$133.0
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
2003 2004 2005 2006 2007 2008
Sales (in millions)
69 7089
233
379
249
0
50
100
150
200
250
300
350
400
2003 2004 2005 2006 2007 2008
New banking customers
9VASCO Investor Presentation
2003-2008: Revenue from Banking and Enterprise & Application Security Markets
Revenue from Banking Market
$17.7$24.0
$46.8
$65.0
$108.9
$100.3
0
20
40
60
80
100
120
2003 2004 2005 2006 2007 2008
Do
llars
in M
illio
ns
Revenue from Enterprise & Application Security Market
$5.1 $5.9
$11.1
$19.7
$24.0
$7.8
0
10
20
30
40
2003 2004 2005 2006 2007 2008
Dol
lars
in M
illio
ns
CAGR: 44% CAGR: 36%CAGR VASCO
2003 -2008:42%
10VASCO Investor Presentation
Net Cash and Working Capital
Net Cash
$71.2
$8.1$4.8
$12.6
$57.7
$13.8
$38.8
0
10
20
30
40
50
60
70
80
90
Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Q3 09
Dolla
rs in
Millio
ns
Working Capital
$52.4
$16.3
$75.9
$10.0
$83.3
$22.1
$5.2
0
10
20
30
40
50
60
70
80
90
Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Q3 09
Dolla
rs in
Mill
ions
11VASCO Investor Presentation
Revenue: $69.8 million - 33%*
Gross Margin as a % of Revenue: 70.0% - 0.4 pts*
Operating Income: $8.0 million - 70%*
Operating Income as a % of Revenue: 11.5% -13.8 pts*
Net Income: $7.0 million - 67%*
Fully-Diluted Earnings Per Share: $0.18 - 67%*
1,057 new customers in YTD Q3 2009
151 banks
906 Enterprise Security Customers
* Compared to YTD Q3 2008
Summary Results YTD Q3 2009
12VASCO Investor Presentation
The current business climate in banking
Dust is settling after financial crisis
Banks are cautious with regards to new projects
VASCO has a large installed base that provides a source of sustainable, repeatable revenues
Rise in number of Requests for Proposals
Internet banking is the most cost effective business for financial institutions
13VASCO Investor Presentation
Sustainable, Repeatable Revenue Model
Typical Bank Customer Purchase TimelineIn a Stable Environment
→ E.g. bank has 100 K electronic banking customers at start (year 1) Roll-out for 100,000 units:
Pilot 3-4
Months Year 1 Year 2 Year 3 Year 4 Year 5
40K 55K60K 20K 15K
Year 6
65K
Initial Roll-Out Organic Growth of Application Second Roll-Out
NOTE: Individual roll-outs might differ materially from this example
14VASCO Investor Presentation
VASCO’s Strategies
15VASCO Investor Presentation
General Strategy
Banking: To offer banks and other financial institutions a full array of authentication products and services (Full Option)
Enterprise: To take our existing authentication products to the enterprise (i.e., companies) for employee remote or network security (directly and through our channel)
Application: To take our existing authentication products to other applications where security is required
Services: Develop and provide an authentication services platform and product offering.
16VASCO Investor Presentation
1. Until 2005: VASCO = “token company”.
2. Since 2005: VASCO = a software company, specializing in authentication, with hardware as an add-on to the software.
Results of a successful business mix:
large quantities to the banking market with low margins
increased penetration of the enterprise security market and expansion into the application security market (i.e., vertical markets of applications outside of banking) -- small and medium quantities sold with high margins
increase in non-hardware revenues at high margins
3. Next step is to expand product offering to include a service offering. This will allow our business mix to grow even stronger and grant VASCO the opportunity to add even more applications.
VASCO’s Evolution
17VASCO Investor Presentation
Authentication Market in Users
Source: VASCO
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2008 2009 2010 2011 2012 2013
Software StrongAuthenticationHardware StrongAuthenticationM
illio
n U
sers
One user can access multiple applications
CAGR Software Authentication Market: 18%
CAGR Hardware Authentication Market: 48%
18VASCO Investor Presentation
Re-defining Our Approach Moving forward
With Authentication Services, VASCO expects that it will be able to
tackle markets for which the current software offering is seen as too
expensive for their needs and create additional sources of recurring
revenue.
We plan to position this strategy as follows:
Authentication end-to-end
Banking
Enterprise Security
Application Security
Authentication Services
19VASCO Investor Presentation
COMPETENCE CENTERS
BankingOnline
Application Security
Enterprise Security
CUSTOMER security EMPLOYEE security
SELLING Managers
DISTRIBUTOR Managers
Local Sales Managers Reseller Managers
Authentication End-to-End
20VASCO Investor Presentation
VASCO Application Security Customers
21VASCO Investor Presentation
Application Security Verticals in VASCO’s scope
E-gaming (market leader)
Insurance
Healthcare
Education
…
Competence center per vertical in order to enhance leadership
22VASCO Investor Presentation
When we move to Authentication Services, VASCO’s technologies
(engineering) will be threefold:
Redefining Our Approach Moving forward
+ Maintenance+ Support
+ Maintenance+ Support+ Revenue per year
HARDWARE SOFTWAREAaaS:
AUTHENTICATION as a Service
23VASCO Investor Presentation
VASCO’s Outlook for the Future
24VASCO Investor Presentation
Key Growth and Profitability Factors
Overall growth will be strongly correlated to the growth in the use of the Internet for risk-based transactions.
VASCO has a growing base of customers that provide a sustainable, repeatable source of revenues.
Gross margins are expected to be stable as the benefits of the more non-hardware revenues will offset the margin pressure on hardware devices.
Operating margins will continue to be strong as a result of VASCO’s operating model.
25VASCO Investor Presentation
NASDAQ: VDSI