Verifone Systems, Inc. (PAY)

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VeriFone Systems, Inc (PAY)

Q2 2011 Earnings Call

June 02, 2011 4:30 pm ET

Executives

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

Robert Dykes - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Douglas Bergeron - Chief Executive Officer and Executive Director

Analysts

Robert Dodd - Morgan Keegan & Company, Inc.

Tien-Tsin Huang - JP Morgan Chase & Co

Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.

Darrin Peller - Barclays Capital

John Williams

Keith Housum - Northcoast Research

Nick Setyan - Wedbush Securities Inc.

Wayne Johnson - Raymond James & Associates, Inc.

Unknown Analyst -

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 VeriFone Systems Earnings Conference Call. My name is Derek, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now like to turn the conference over to Mr. Doug Reed, Treasurer and Vice President of Investor Relations. You may proceed.

Doug Reed

Thank you, Derek, and welcome, everyone, to the VeriFone Financial Results Conference Call for the Second Quarter of Fiscal Year 2011. 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 June 9, 2011. With me today in San Jose is our CFO, Bob Dykes; and in New York is our CEO, Doug Bergeron.

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 SEC. 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 connection with the proposed Hypercom transaction, VeriFone has filed with the Securities and Exchange Commission, SEC, a registration statement on Form S-4 that includes a proxy statement and prospectus relating to the proposed transaction. Investors are urged to read the Form S-4 proxy statement and prospectus and all amendments and supplements thereto and any other relevant documents filed with the SEC because they contain important information about VeriFone, Hypercom and the proposed transaction. You can obtain copies of the S-4, proxy statement and prospectus, as well as VeriFone's other filings free of charge at the website maintained by the SEC at www.SEC.gov.

In addition, you may obtain documents filed with the SEC by VeriFone free of charge by visiting our website, www.verifone.com or by directing a request in writing to VeriFone, attention: Investor Relations, 2099 Gateway Place, Suite 600, San Jose, California 95110, by phone 408-232-7979 or by e-mail to ir@verifone.com. You may obtain documents filed with the SEC by Hypercom free of charge at Hypercom's website, www.hypercom.com, or by directing a request in writing to Hypercom Corporation, attention: Investor Relations, 8888 East Raintree Drive, Suite 300, Scottsdale, Arizona 85260, by phone to 480-642-5000 or by e-mail to stsujita@hypercom.com.

In today's call, we'll cover certain non-GAAP financial measures on both historical and forecast basis. 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. 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 at verifone.com. [Operator Instructions] Now I'd like to turn the call over to Doug Bergeron, CEO of VeriFone.

Douglas Bergeron

Thanks, Doug, and good afternoon, everyone. We are very proud of the results of our second quarter of fiscal year 2011. For the sixth consecutive quarter, we’ve posted all-time record top-line results. Q2 non-GAAP revenues were $293 million, a 22% increase over the previous year. This is also the fourth straight quarter that growth rates exceeded 20%. We continue to see the benefits of our new business initiatives as non-GAAP services revenue grew 40% over the same period last year, over twice as fast as our 18% growth in product revenues. Non-GAAP gross margins for the quarter were at 43%, a significant 200-basis-point increase from Q1. Our cash balances grew to $532 million, an increase of $52 million from the previous quarter. Non-GAAP earnings for the second quarter were $0.46 per share, 59% higher than the $0.29 per share result a year ago.

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

VeriFone's second quarter revenues reflect strong results globally as, once again, we saw double-digit growth in every one of our regions year-over-year. I'll start with North America where we delivered 14% year-over-year growth.

We continue to see strength in our Domestic business driven by ongoing upgrade and replacement dynamics and improving economy and the impact of our transformational services initiatives. Our Multi-lane Retail business posted strong results with some key wins at several national retail brands, including Dillards, Michaels, OfficeMax, Phillips-Van Heusen and a large and iconic national department store with 850 stores.

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