Verifone Systems, Inc. (PAY)

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VeriFone Systems, Inc (PAY)

F4Q 2012 Earnings Call

December 13, 2012 4:30 pm ET

Executives

Doug Reed - Vice President, Treasurer and Executive officer of Investor Relations

Douglas G. Bergeron - Chief Executive Officer and Executive Director

Robert R. Dykes - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Darrin D. Peller - Barclays Capital, Research Division

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

John T. Williams - UBS Investment Bank, Research Division

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Wayne Johnson - Raymond James & Associates, Inc., Research Division

Philip Stiller - Citigroup Inc, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 VeriFone Earnings Conference Call. My name is Derrick, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Doug Reed, Senior Vice President, Treasury and Investor Relations. Please proceed.

Doug Reed

Thank you, Derrick, and welcome, everyone, to the VeriFone Financial Results Conference Call for the Fourth Quarter of Fiscal Year 2012. Today's call is being webcast with both audio and slides available via the link in the Investor Relations area of our website, ir.verifone.com, and a recording will be available on our website until December 20, 2012. We encourage those on the phone to access the webcast in addition to or instead of dialing in because the slides can be helpful. In addition, we will make the script available on our website immediately after the call.

With me today in VeriFone San Jose, California, headquarters is our CEO, Doug Bergeron; and our CFO, Bob Dykes.

First for the legalities. VeriFone desires to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain forward-looking statements in this conference call, including management's view of future events and financial performance, are subject to various factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For a description of these factors, I refer you to our filings with the Securities and Exchange Commission. Any forward-looking statements speak only as of today, and VeriFone is under no obligation to update these statements to reflect future events or circumstances.

In addition, today's call will cover certain non-GAAP financial measures on both historical and forecast bases. Management uses these measures to evaluate our operating performance and to compare our results to those of prior periods, as well as to those of peer companies. Please note that VeriFone expects to continue to incur types of income and expense items that are excluded from the non-GAAP results discussed today. These non-GAAP measures are not substitutes for disclosures made in accordance with GAAP. Reconciliations of these measures to the most comparable GAAP measures are presented in our earnings release, which is available on our website.

[Operator Instructions] Now I'd like to turn the call over to Doug Bergeron, CEO of VeriFone.

Douglas G. Bergeron

Thanks, Doug, and good afternoon, everyone. We are pleased with the results of our fourth quarter of fiscal year 2012. Q4 non-GAAP revenues were $489 million, an 18% increase over the previous year. Excluding the impact of all acquisitions over the past 12 months, organic revenue growth was 4%. On a constant currency basis, however, organic revenue growth was 8%. Non-GAAP services revenue continued to expand and comprised a record 31% of total revenues in Q4.

Non-GAAP gross margins were 44.2% of revenue. Non-GAAP operating margins were 23% of revenue. Non-GAAP fully diluted earnings for the fourth quarter were $0.76 per share, an increase of 43% over Q4 last year. That 43% growth rate matched the growth we generated for the full fiscal year. We delivered a stellar year of bottom line growth for our shareholders.

Today, I will review our performance by region and follow with comments on some of our strategic activities. Finally, I will turn the call over to Bob, who will provide a detailed review of the financials and update guidance.

Let's begin with North America, which had a fantastic quarter with sales up 26% compared to a year ago and 5% sequentially. Organically, revenues were up 22%. Q4 was our highest North American revenue quarter in history. As a result of our investments in new technology and solutions over the past 2 years, we now believe that North America will be a strong contributor to the company's growth for the next couple of years.

In the fourth quarter, 26% of the systems we shipped in the U.S. were chip card enabled as we continue to see interest in EMV. We will sell the EMV software later to make the systems fully EMV ready once U.S. industry standards are completed and announced.

Our multilane retail sales business reached record levels with over 50% year-over-year growth. The MX 900 Series continues to have incredible success with wins at Gymboree, Target, Kroger, Bass Pro Shops, H&M, Sleep Train and the UPS store. We are pleased to note that Target was a competitive steal from the former Hypercom U.S. business that we divested.

In Q4, we completed the rollout for the New York Metropolitan Transportation Authority contract for bus systems and dispatching software in the Bronx, having won the Staten Island contract previously. Our North American petroleum revenue was up 8% compared to a year ago, driven by BP, Marathon, Cisco and Sonoco-branded stations upgrading their VeriFone Gemstone systems to our keyboard touchscreen model in the kiosk and convenience stores.

Valero has decided to implement VeriFone's PAYMEDIA for Secure PumpPAY in an initial pilot at corporate-operated gas stations in the Austin, Texas, area. Installations begin in -- began in Q4. This represents a 3,500-pump opportunity if the pilot is successful. PAYMEDIA content is managed by VeriFone Media and broadcast via the VeriFone Digital Network, or VNET. Digital content delivered via VNET includes news, weather and entertainment from content partner NBCUniversal. This content is accompanied by highly targeted advertising and couponing offers that can draw customers inside the petroleum retailer's convenience store. It's important to note that the bulk of the economics in gas station retail is in the relatively high-margin convenience store, not at the pump. The goal here is to get the customer to enter the store.

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