VASCO Data Security International, Inc. NASDAQ: VDSI

Transcription

1 VASCO Data Security International, Inc. NASDAQ: VDSI Senior Analyst: Zayda Romero Junior Analysts: Jackson Feder, Karan Mehra, Karen Rodriguez, Nick Tanabe, Smeet Patel 1

2 Agenda Recommendation Summary Industry Definition Industry Overview Industry Trends Company Overview Company Trends Valuation Risks 2

3 VDSI Recommendation Summary Company Recommendation VDSI BUY Current Trading Price $ Year Target Price $16.54 % Upside 31.8% Growing Number of Data Breaches Increase in Spending on Cloud Computing Strategic Acquisitions Driving Growth Proliferation of Mobile Banking 3

4 Industry Definition - Cybersecurity Cybersecurity or information technology security refers to the techniques used to protect computers, networks, programs and data from damage or theft while keeping electronic informations age. Major areas covered in cyber security are: 1) Application Security 3) Disaster Recovery 2) Information Security 4) Network Security NYSE: PANW Market Cap: 10.60b NASDAQ: FEYE Market Cap: 2.22b NASDAQ: SYMC Market Cap: 19.24b NASDAQ: CHKP Market Cap: 18.04b NASDAQ: QLYS Market Cap: 1.36b NASDAQ: IMPV Market Cap: 1.42b NASDAQ: CYBR Market Cap: 1.79b NASDAQ: FTNT Market Cap: 6.52b 4

5 Industry Trends Growing Number of Data Breaches Increase in Spending on Cloud Computing 5

6 Industry Trends Growing Number of Hacking Attacks Increases Demand for Cybersecurity Services Between 2010 and 2015, the number of data breaches in North America grew at a 65.5% CAGR. These data breaches cost a significant amount of money to overcome not only in terms of systems software, but also in terms of rebuilding companies reputations. Globally, these costs reached $3 trillion for the year of 2015 and are expected to double by Growth in Spending on Cloud Computing Cloud computing among businesses has been growing rapidly due to its cost-effectiveness as well as convenience. But, these platforms are also the most vulnerable to attack. Three Cloud Computing Platforms: Infrastructure as a Service (IaaS), Software as a Service (Saas) & Platform as a Service (Paas) Risks associated with cloud computing: 1) Limited fraud detection capabilities, 2) Weak registration systems, & 3) Limited cryptography. Cloud computing spending in 2016 reached $38 billion and is expected toreach $173 billion by theend of Cloud security accounts for 50% of Cybersecurity spending Median Costs for a Data Breach in the U.S Cloud Computing Spending: IaaS (Historical & Projected) IBISWorld, Cybersecurity Ventures, World Economic Forum, Forbes, CNBC 6

7 Company Overview VDSI VDSI is a cybersecurity company specializing in providing identity, security and business productivity to financial institutions and others. Two target market segments: Financial Institutions (87% of revenue) Enterprise and Application Security Market (13% of revenue) Growth strategy along with recurring business model: Expand to new applications, new markets, and new territories Shift to cloud-based and mobile device technologies Acquire technology companies Products & Services: Authentication DigiPass, VACMAN, IDENTIKEY Anti-fraud software and hardware Electronic signatures esignlive Financial Snapshot FY 2016 Revenue: Gross Profit: Net Income: Net Income Margin expected to increase from 5% to 10% 0 long-term debt Revenue Highlights: 2014: Revenue increases by 30% after acquisition of Cronto 2015: Revenue increases by 19.8% after acquisition of Silanis 2016: Revenue decreases by 20.4% with less business from their biggest customer Gross Profit Margin has remained consistently around 64% Comparison of 5-Year Cumulative Total Return Assumes Initial Investment of $100 December VDSI Russell 2000 Index Peer Group VDSI Historical & Projected Revenue E 2018E 2019E 2020E

8 Company-Specific Trends Strategic Acquisitions Driving Growth Proliferation of Mobile Banking 8

9 Strategic Acquisitions Driving Growth and Innovative Solutions VDSI has been continually acquiring small companies that are centered on specific segments they are interested in entering. The products of the acquired companies also complement the preexisting customers and services that VDSI caters to. Transition to recurring revenue model à can now offer other products and services once the original service is completed January 2011 VASCO acquires DigiNotar which brings a strong foothold in egovernment Annual revenue before Acquisition: $107,963 Revenue Growth after each Acquisition Annual revenue after Acquisition: $168,082 Revenue Growth: 55.68% May 2014 VASCO acquires Cronto which furthers their initiatives on the online/mobile banking segment Annual revenue before Acquisition: $155,047 Annual revenue after Acquisition: $201,537 Revenue Growth: 29.98% November 2015 VASCO acquires Silanis Technology and enters the e-signature market Annual revenue before Acquisition: $201,537 Annual revenue after Acquisition: $241,443 Revenue Growth: 19.8% Company 10-k 9

10 Proliferation of Mobile Banking & Mobile App Services Driving Demand for Security Services Mobile is changing the landscape of banking: new revenue opportunities, increased customer satisfaction, cost savings, etc. Mobile banking is becoming more accessible through new technologies: artificial intelligence and bots, block chain technology, and peer to peer lending services. Hackers regularly exploit mobile app vulnerabilities and steal sensitive data -> mobile app security becomes an important fraud prevention strategy. 60% of mobile malware specifically targets financial information on mobile devices 95% of the tested apps have at least one vulnerability VDSI markets to these services through their various products: DIGIPASS for mobile, IDENTIKEY Risk Manager, MYDIGIPASS, DIGIPASS for Apps Industry Revenue 100% 80% 60% 40% 20% 0% 18, , , , , , , Growth of Mobile Internet Connections vs Revenue R² = Number of Mobile Internet Connections Preferred Device for Banking Services Check Balance Deposit Check Pay Another Person Transfer Funds Between Accounts Resolve an Issue with Account N/A Tablet Desktop Laptop Smartphone Pay a Bill Sources: VDSI website, Federal Reserve, S&P Investment Research 10

11 Comparable Companies Analysis Company Ticker EV Market Cap Revenue EBITDA Net Income P/E EV/EBITDA EV/Revenue VASCO Data Security International, Inc. VDSI x 22.7x 2.4x Rapid7 RPD (42.3) (49.0) N/A N/A 3.4x Barracuda Networks, Inc. CUDA 1, , x 29.4x 3.0x SecureWorks Corp. SCWX (32.3) (46.3) N/A N/A 2.0x CyberArk Software CYBR 1, , x 39.6x 7.8x Qualys, Inc. QLYS 1, , x 27.2x 6.6x High 119.2x 39.6x 7.8x Mean 74.7x 32.0x 4.5x Median 54.9x 29.4x 3.4x Low 48.9x 22.7x 2.0x 11

12 Discounted Cash Flow Analysis Methodology Price / Share Weight Forecasted Discounted Cash Flow Perpetuity Growth $ % Exit Multiple $ % Comparable Companies P/E $ % EV/EBITDA $ % EV/Revenue $ % EBIT $20.87 $23.28 $29.62 $33.02 $ Taxes (3.60) (4.01) (5.10) (5.69) (6.56) $17.27 $19.27 $24.51 $27.33 $ D&A CAPEX (1.80) (1.99) (2.48) (2.36) (2.49) - Δ in NWC (17.40) (0.28) (0.65) (0.24) 0.02 Unlevered FCF $8.65 $27.66 $32.27 $35.72 $40.16 Net Present Value $96.46 Perpetuity Growth Method Exit Multiple Method Growth Rate 2.50% EBITDA Multiple 22.74x Undiscounted TEV $ Undiscounted TEV $1, Discounted TEV $ Discounted TEV $ DCF Value $ DCF Value $ Equity Value $ Equity Value $1, Share Price $9.31 Share Price $25.58 Implied Exit Multple 5.86x Implied Growth Rate 9.82% 12

13 Risks Limited Number of Customers A significant portion of VDSI s sales are to a limited number of customers, many of which are financial institutions. The loss of substantial sales to any of them could have an adverse effect on revenues and profits. Largest customer (HSBC): 11% of revenue. Limited Number of Products VDSI derives revenue from a limited number of products and do not have a broadlydiversified product base. Long Sales Cycle Sales cycle the period of time between the identification of a potential customer and completion of the sale is lengthy and can incur significant risks as a result. Typical sales cycle is 6 to 18 months long. Key Takeaway: VDSI s risks stem from its limited customer and product base. However, as they enter the next couple of years, they are seeking to expand their product pipeline and diversify into new customer markets using acquisitions, organic growth, and partnerships. Also, although their long sales cycles subjects them to many risks, it also presents an opportunity à market is not pricing future delayed revenues into stock price. Company 10-k 13

14 VDSI Recommendation Summary Company Recommendation VDSI BUY Current Trading Price $ Year Target Price $16.54 % Upside 31.8% Growing Number of Data Breaches Increase in Spending on Cloud Computing Strategic Acquisitions Driving Growth Proliferation of Mobile Banking 14

15 THANK YOU 15

16 Appendix 16

17 Growing Requirement of E-Signatures in the Corporate World Increase Revenue E-signed transactions have grown at a rate of 50% in the past year and is is expected to grow at a CAGR of 32.0% from 2016 to VASCO generates SaaS revenues from their cloud services offerings mainly their esignlive offering. This feature accelerates their transition to a software-based company which will allow them to diversify their pipeline and attract new customers. Key business drivers for e-signatures: User experience sign documents anytime, anywhere, on any device Compliance/legal satisfy regulatory requirements and capture detailed audit trails Improve efficiency Key customers: US Census Bureau to save $1.2 million annually by automating performance reviews using esignlive Cloud business process services (BPaaS) Cloud management and security services Cloud system infrastructure services (IaaS) Growth in Worldwide Cloud Services Cloud advertising Cloud application services (SaaS) Cloud application infrastructure services (PaaS) 0.00%5.00%10.00%15.00%20.00%25.00%30.00%35.00%40.00%45.00%

18 Revenue & COGS Projections 18

19 Balance Sheet Projections 19

20 Balance Sheet Projections 20

21 Income Statement Projections 21

22 Income Statement Projections 22

23 Statement of Cash Flows Projections 23