VeriFone Systems, Inc (PAY)
Q1 2013 Earnings Call
March 05, 2013 4:30 pm ET
Doug Reed - Senior Vice President of Treasury & Investor Relations
Douglas G. Bergeron - Chief Executive Officer and Executive Director
Marc E. Rothman - Chief Financial Officer and Executive Vice President
Darrin D. Peller - Barclays Capital, Research Division
Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division
Julio C. Quinteros - Goldman Sachs Group Inc., Research Division
Jason Kupferberg - Jefferies & Company, Inc., Research Division
John T. Williams - UBS Investment Bank, Research Division
Gil B. Luria - Wedbush Securities Inc., Research Division
Philip Stiller - Citigroup Inc, Research Division
Keith M. Housum - Northcoast Research
James E. Faucette - Pacific Crest Securities, Inc., Research Division
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Thank you, Derrick, and welcome, everyone, to the VeriFone financial results conference call for the first quarter of fiscal year 2013. 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 March 12, 2013. We encourage those on the phone to access the webcast in addition to or instead of dialing in because the slides can be helpful. With me today in VeriFone's San Jose, California, headquarters is our CEO, Doug Bergeron; and our CFO, Marc Rothman.
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. Our 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 substitute 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. Please note that on today's call we will be referring to the non-GAAP measures of revenue, gross margins, operating expenses and earnings per share.
[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. For the first fiscal quarter, we reported revenue of $430 million, non-GAAP EPS of $0.51, GAAP EPS of $0.11 and cash flow from operations was $53 million.
I want to use our time today to discuss the challenges we faced during our first quarter, details of our underperformance and most importantly, what we're doing to aggressively address the issues going forward.
On a summary level, we felt the impact of both external headwinds and internal challenges. The external headwinds were: impact of weaker-than-anticipated macroeconomic conditions in Europe; delayed customer tenders and spending, particularly in Asia; currency controls in Venezuela; and the canceled Washington, D.C. taxi contract. Internal challenges included delayed product customizations and certifications and sales execution missteps. Let me begin with the details around each of the external challenges that were a factor in our revenue shortfall.
First, Europe. Heading into the quarter, we were starting to become of a mind that the worst was over for Europe. With new products now shipping in Germany, we believe that the region would experience modest sequential growth. It did not. In fact, we saw some of the softest European economies trend towards recession.
While there are certain European countries that are performing at or above plan for us, on balance, we expect overall demand in Europe to continue to be challenged throughout the rest of fiscal 2013.
Second, several product tenders and requests for proposals forecasted for the quarter were delayed or canceled by customers, especially in Asia. In India, for example, anticipated sales were impacted by the Reserve Bank of India's directive to reduce and cap the merchant discount rate for debit transactions. This announcement has caused acquirers to slowdown on systems deployments until further clarity is attained. One of our larger Indian customers also implemented a capital freeze during the quarter.
Third, we experienced a shortfall of approximately $5 million due to currency controls in Venezuela, typically a very good market for VeriFone.
And finally, the city of Washington, D.C., canceled our 5-year, $35 million to $45 million taxi in-payment project after our competitors challenged the city's RFP process. This project was assumed in our forecast for the quarter and for the year. We are pursuing all of our legal remedies available under the binding contract with the city. As we await resolution, we are continuing to compete in the market by selling our superior solutions to individual taxi fleets.