VeriFone Systems Inc.
) reported fiscal fourth-quarter 2013 earnings of 27 cents per
share, which plunged 64.5% from the year-ago quarter but
increased 12.5% sequentially. However, including stock-based
compensation, earnings were 13 cents per share, which missed the
Zacks Consensus Estimate by a nickel.
Revenues (excluding acquisition, divestiture and restructuring
related revenues) decreased 11.5% from the year-ago quarter but
increased 3.5% sequentially to $432.3 million. This was, however,
better than the Zacks Consensus Estimate of $421.0 million.
System Solutions revenues (60.0% of revenues) decreased 22.8%
year over year but climbed up 3.4% quarter over quarter to $259.4
million. Services revenues (40.0% of revenues) increased 13.5%
from the year-ago quarter and 3.7% sequentially to $172.9 million
in the quarter.
Revenues in North America (which comprises operations in the U.S.
and Canada) declined 14.3% year over year but increased 7.6%
sequentially to $124.6 million.
Revenues in LAC (which comprises operations in South America,
Central America, including Mexico and the Caribbean) decreased
11.5% year over year but increased 1.3% quarter over quarter to
Revenues in EMEA (Europe, Middle East and Africa) declined 11.7%
from the year-ago quarter but increased 0.6% sequentially to
ASPAC revenues (including operations in Asia Pacific, including
China, India, Japan, Australia, New Zealand and other countries
in the region) declined 4.2% year over year but increased 7.6%
sequentially to $56.8 million.
Gross margin (including stock-based compensation) contracted 310
basis points (bps) from the year-ago quarter but increased 40 bps
from the previous quarter to 41.0%.
The year-over-year decline was due to 430 bps contraction in
System solution gross margin. The decline was primarily
attributed to unfavorable regional and product mix. Services
gross margin declined 270 bps on a year-over-year basis.
The sequential improvement was due to a 140 bps jump in System
Solution gross margin, which fully offset a 120 bps contraction
in the services gross margin.
Operating expense surged 28.1% year over year and 8.8% quarter
over quarter to $147.5 million. The year-over-year rise in
operating expenses was due to higher research & development
(R&D), sales and marketing (S&M) and general &
administrative (G&A) expenses, which increased 21.1%, 23.2%
and 42.6%, respectively.
Operating income plunged 70.4% year over year and 12.6% quarter
over quarter to $29.7 million, primarily due to lower gross
margin base and higher operating expense.
Net income fell 81.7% from the year-ago quarter and 20.2% from
the previous quarter to $13.4 million in the reported quarter.
At quarter-end, VeriFone had approximately $268.2 million in cash
compared with $309.3 million in the previous quarter. Total debt
was $1.04 billion compared with $1.12 billion in the previous
quarter. Cash flow from operations was $55.0 million and free
cash flow was $38.0 million in the quarter.
VeriFone expects non-GAAP revenues to be in the range of $425.0
million-$430.0 million for the first quarter of fiscal 2014. The
company reported revenues of $429.0 million in fiscal
Operating expense of approximately $133.0 million is expected to
decrease 11.0% on a sequential basis. Management expects
first-quarter non-GAAP earnings to be approximately 26 cents,
down from 40 cents in the year-ago quarter but up sequentially.
The Zacks Consensus Estimate is currently pegged at 25 cents.
Free cash outflow is expected to be $25.0 million including $61.0
million related to legal settlement.
For fiscal 2014, non-GAAP revenues are expected to be in the
range of $1.77 billion-$1.80 billion, higher than $1.71 billion
reported in fiscal 2013. Operating expense is expected to
increase approximately 11.0% to $535.0 million.
Earnings are expected to be in the range of $1.35 to $1.40 per
share. Currently, the Zacks Consensus Estimate is pegged at $1.27
Free cash flow is expected to be 85% of non-GAAP net income for
fiscal 2014. The company reported free cash flow of $159.0
million in fiscal 2013, which was approximately 100% of the net
VeriFone reported relatively weak fourth-quarter results and
provided a cautious outlook for fiscal 2014. We believe that
tepid revenue growth coupled with higher operating expenses will
hurt profitability in the near term.
Additionally, competition continues to be stiff and is a major
headwind. Organic growth also remains a matter of concern amid
volatile macroeconomic conditions.
However, VeriFone's innovative product pipeline and
) as well as leading retailers like
) are expected to drive the top-line in the near term.
Currently, VeriFone has a Zacks Rank #2 (Buy).
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