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VASCO Reports Second Quarter and First Six Months 2004 Results

July 22, 2004

OAKBROOK TERRACE, Ill., and BRUSSELS, Belgium, July 22, 2004 - VASCO Data Security International, Inc. (Nasdaq: VDSI) ( www.vasco.com), today reported financial results for the second quarter and six months ended June 30, 2004.

Revenues for the second quarter of 2004 increased 21% to $7,174,000 from $5,953,000 in 2003 and, for the first six months of 2004, increased 19% to $13,195,000 from $11,071,000 in 2003. Net income available to common shareholders for the second quarter of 2004 increased 106% to $888,000, or $0.03 per diluted share from $430,000, or $0.01 per diluted share in 2003. Net income available to common shareholders for the first six months of 2004, increased 124% to $1,390,000, or $0.04 per diluted share from $620,000, or $0.02 per diluted share in 2003.

Financial Highlights:
• Results reflect the sixth consecutive quarter of operating profit and positive EBITDA.
• Gross profit was $5,075,000 or 71% of revenue for the second quarter and $9,521,000 or 72% of revenue for the first six months of 2004. Gross profit was $3,531,000 or 59% of revenue for the second quarter and $6,490,000 or 59% of revenue for the first six months of 2003.
• Operating expenses for the second quarter and first six months of 2004 were $3,596,000 and $7,143,000, respectively, an increase of 26% from $2,848,000 reported for the second quarter 2003 and an increase of 23% from $5,790,000 reported for the first six months of 2003.
• Operating income for the second quarter and first six months of 2004 was $1,479,000 and $2,378,000, respectively, an increase of 117% from $683,000 reported for the second quarter of 2003 and an increase of 240% from the $700,000 reported for the first six months of 2003. Operating income as a percentage of revenue for the second quarter and first six months of 2004 was 20.6% and 18.0%, respectively, compared to 11.5% and 6.3% for the comparable periods in 2003.
• Net income from continuing operations for the second quarter and first six months of 2004 was $953,000 and $1,536,000, respectively, an increase of 73% from $551,000 reported for the second quarter of 2003 and an increase of 114% from $719,000 reported for the first six months of 2003.
• Net income from total operations for the second quarter and first six months of 2004 was $953,000 and $1,536,000, respectively, an increase of 32% from $721,000 reported for the second quarter of 2003 and an increase of 28% from $1,202,000 reported for the first six months of 2003, respectively. Net income from total operations in 2003 included the results of its VACMAN Enterprise business, which was sold in the third quarter of 2003.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) was $1,613,000 and $2,756,000 for the second quarter and first six months of 2004, respectively, an increase of 41% from $1,140,000 reported for the second quarter of 2003 and an increase of 69% from $1,630,000 reported for the first six months of 2003.
• Cash balances at June 30, 2004 totaled $6,350,000 compared to $4,167,000 and $4,817,000 at March 31, 2004 and December 31, 2003, respectively.
Operational and Other Highlights:
• VASCO wins 115 new customers in Q2 2004 and 244 for the first six months of 2004. Year-to-date new customers include 33 new banks and 211 corporate customers.
• HSBC Brazil to use VASCO's Digipass GO3.
• VASCO launches four new products: VACMAN Middleware 2.2, Digipass 585, Digipass 850 Integration Toolkit for PKI and Digipass Plug-In for RACF.
• VASCO's Chairman & CEO and CFO present at Rodman & Renshaw Techvest Security Conference and AEA Microcap Conference.
• Soleil Securities Group initiates coverage of VDSI.

“I am very pleased with the results of the second quarter and first half of 2004,” said Ken Hunt, VASCO’s CEO, and Chairman. “Our strategy to expand our customer base is working and has resulted in higher margins. As noted in the first quarter, the increase in gross margins, as a percentage of revenue, indicates that the revenue growth came from our new customers in the Banking segment and in the Corporate Network Access market segment, both of which have lower volumes and higher margins than our larger strategic banking customers.”

“The results of the second quarter and first half of 2004 reflect the growing awareness and acceptance of VASCO’s strong authentication products,” stated Jan Valcke, VASCO’s President, and COO. “Due to our continuing communication efforts, organizations are becoming more aware of the value of VASCO's Digipass products in the battle against various forms of identity theft. As a result, more banks have started using our products. An important trend is the fact that existing customers in the financial sector, who previously used VASCO's products for corporate banking, are starting to introduce Digipass in large-volume retail banking applications. As we start the third quarter, which is normally our weakest quarter due to vacations, we have a backlog of firm orders to be shipped in the third quarter of $5.6 million.”

Cliff Bown, Executive Vice President and CFO added, “Our balance sheet continues to strengthen as a result of the strong operating performance. Cash balances have increased $2,183,000 or 52% from March 31, 2004 and $1,533,000 or 32% from December 31, 2003. Our working capital increased by 19% in the second quarter, from $6,013,000 at March 31, 2004 to $7,133,000 at June 30, 2004. Days Sales Outstanding (DSO) in net accounts receivable decreased to approximately 58 days at June 30, 2004 from 66 days at March 31, 2004.”

Conference Call Details
In conjunction with this announcement, VASCO Data Security International, Inc. will host a conference call today, July 22, 2004, at 10:00 a.m. EST - 16:00h CET. During the Conference Call, Mr. Ken Hunt, CEO, Mr. Jan Valcke, President and COO, and Mr. Cliff Bown, CFO, will discuss VASCO’s Results for the Second Quarter and First Six Months of 2004.
To participate in this Conference Call, please dial one of the following numbers:
USA/Canada: +1 888 424-5801
International: +1 973 409-9258

And mention access code: VASCO to be connected to the Conference Call.

The Conference Call is also available in listen-only mode on www.vasco.com. Please log on 15 minutes before the start of the Conference Call in order to download and install any necessary software. The recorded version of the Conference Call will be available on the VASCO website 24 hours a day.



About VASCO: VASCO designs, develops, markets and supports patented “Identity Authentication” products for e-business and e-commerce. VASCO’s Identity Authentication software is delivered via its Digipass security products, small “calculator” hardware devices carried by an end user, or in a software format on mobile phones, other portable devices, and PCs. For user access control, VASCO’s VACMAN products guarantee that only designated Digipass users get access to the application. VASCO’s target markets are the applications and their several hundred million users that utilize fixed passwords as security. VASCO’s time-based system generates a “one-time” password that changes with every use, and is virtually impossible to hack, or break. With over 11 million Digipass products sold and ordered, VASCO has established itself as a world-leader for strong Identity Authentication with300 international financial institutions and approximately 1,400 blue-chip corporations and governments located in more than 70 countries.
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Forward Looking Statements
Statements made in this news release 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.

Reference is made to the Company's public filings with the US Securities and Exchange Commission for further information regarding the Company and its operations.

For more information contact:
Jochem Binst, +32 2 456 9810, [email protected]

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