VeriFone Systems Inc. (
reported fiscal third quarter 2013 earnings of 15 cents per
share, which beat the Zacks Consensus Estimate by 3 cents.
Earnings (including stock-based compensation) however plunged
77.3% year over year and 58.3% sequentially.
Excluding stock-based compensation, amortization charges and
acquisition-related charges VeriFone reported earnings of 24
cents, slightly better than management's forecast of 20 cents.
Revenues (excluding amortization of step-down in deferred
revenues at acquisition) decreased 15.3% from the year-ago
quarter and 2.9% sequentially to $417.5 million. This was however
better than the Zacks Consensus Estimate of $411.0 million.
System Solutions revenues (60.1% of revenues) decreased 28.5%
year over year and 10.2% quarter over quarter to $250.8 million.
Services revenues (39.9% of revenues) increased 17.1% from the
year-ago quarter and 10.7% sequentially to $166.7 million in the
Revenues in North America (which comprises operations in the US
and Canada) declined 16.3% year over year and 5.2% sequentially
to $115.8 million. The weak result was primarily due to negative
impact from higher MX 900 systems volume in the year-ago quarter.
Revenues in LAC (which comprises operations in South America,
Central America, including Mexico, and the Caribbean) decreased
26.0% year over year and 18.1% quarter over quarter to $69.9
Revenues in EMEA (Europe, Middle East and Africa) declined 12.0%
from the year-ago quarter but increased 3.6% sequentially at
ASPAC revenues (which comprises of operations in Asia Pacific,
including China, India, Japan, Australia, New Zealand and other
countries in the region) declined 7.4% year over year but
increased 6.2% sequentially to $52.8 million.
Gross margin (including stock-based compensation) contracted 470
basis points ("bps") from the year-ago quarter and 150 bps from
the previous quarter to 40.6%. The year-over-year decline was due
to 670 bps contraction in System solution gross margin. The
decline was primarily attributed to unfavorable regional and
Operating expenses as a percentage of sales jumped 740 bps from
the year-ago quarter and 350 bps on a sequential basis to 32.5%.
This sharp rise in operating expenses was due to higher research
& development expense ("R&D"), which as a percentage of
revenues increased 340 bps from the year-ago quarter and 140 bps
from the previous quarter to 11.0%.
Sales and marketing ("S&M") as a percentage of revenues
jumped 230 bps year over year and 80 bps quarter over quarter to
11.5%. General & administrative ("G&A") was up 170 bps
from the year-ago quarter and 120 bps from the previous quarter
Operating margin plunged to 8.1% from 20.2% reported in the
year-ago quarter and 500 bps sequentially. The significant
decline was primarily due to higher operating expenses and lower
gross margin base.
Net income margin plunged to 6.3% from 16.8% reported in the
year-ago quarter and 10.9% in the previous quarter.
At quarter end, VeriFone had approximately $309.3 million in cash
compared with $506.0 million in the previous quarter. Total debt
was $1.12 billion compared with $1.28 billion in the previous
quarter. Cash flow from operations was $49.0 million and free
cash flow was $30.9 million in the quarter.
VeriFone expects non-GAAP revenues to be in the range of
$418.0-$422.0 million for fiscal fourth quarter 2013. Management
expects fourth quarter non-GAAP earnings to be approximately 25
cents. Free cash flow is expected to be $25.0 million.
VeriFone reported better-than-expected third quarter results but
provided a cautious outlook for the remainder of fiscal 2013. We
believe that VeriFone's innovative product pipeline and strong
partnerships with leading retailers
will boost top-line growth going forward.
Moreover, VeriFone's additional spending on research &
development and technical sales personnel will drive sales volume
going forward. However, this additional spending will continue to
keep margins under pressure in the near term.
Additionally, competition continues to be stiff from the likes of
NCR Corp. (
, and is a major headwind. Organic growth also remains a matter
of concern amid volatile macro economic conditions. Further, we
believe that the rebuilding of the Middle East and African
distribution channel will take some time and remain a headwind
for top-line growth in the near term.
Currently, VeriFone has a Zacks Rank #2 (Hold).
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