Verifone Systems, Inc. (PAY)

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VeriFone Systems, Inc (PAY)

Q4 2011 Earnings Call

December 14, 2011 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 Dykes - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

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

Bryan Keane - Deutsche Bank AG, Research Division

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

Keith M. Housum - Northcoast Research

Philip Stiller - Citigroup Inc, Research Division

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

Robert J. Dodd - Morgan Keegan & Company, Inc., Research Division

Darrin D. Peller - Barclays Capital, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 VeriFone Systems, Inc. Earnings Conference Call. My name is Regina, and I will be your conference operator for today. [Operator Instructions] Today's event is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Doug Reed, Treasurer and Vice President of Investor Relations. Please go ahead, Mr. Reed.

Doug Reed

Thank you, Regina, and welcome, everyone to the VeriFone Financial Results Conference Call for the Fourth 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 December 21, 2011.

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 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.

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

Douglas G. Bergeron

Thanks, Doug, and good afternoon, everyone. We are delighted with the results of our fourth quarter and fiscal year 2011. For the eighth consecutive quarter, we posted all-time record results. Q4 non-GAAP revenues were $416 million, a 51% increase over the previous year. This is also the sixth straight quarter that year-over-year growth rates have exceeded 20%, even when you exclude the contribution from the Hypercom business that we acquired in August. Sequentially, we had quarter-to-quarter growth of 9%, excluding Hypercom, our highest sequential growth rate in many years.

We continue to see the benefits of our new business initiatives, as non-GAAP services revenue comprise 22.5% of total revenues in Q4. We were able to grow cash by $11 million to $595 million, despite paying Hypercom transaction and restructuring costs, and paying off Hypercom's entire $71 million debt. Operating cash flow was a near record $53 million. Non-GAAP, fully diluted earnings for the fourth quarter were $0.53 per share, 33% higher than the $0.40 per share results a year ago. Today, I will review our performance by region, and follow with comments on some of our strategic activities, including an update on the Point acquisition. Finally, I will turn the call over to Bob, who will provide a detailed review of the financials and update guidance.

Our international operations led the way in Q4, posting year-over-year growth of 95%, including our Hypercom results, and 51% excluding Hypercom, as well as phenomenal sequential growth of over 19%, excluding Hypercom. Latin American sales were once again at record levels, with particular strength in Brazil, where we are seeing strong demand for our VX Evolution systems. We also enjoyed key customer wins in other countries across the region, including in Puerto Rico, Mexico and Central America.

In Europe, the Middle East and Africa, revenues grew 60% on a year-over-year basis and 15% sequentially, excluding results from our Hypercom acquisition. In the U.K., we generated strong revenues in the retail and banking sectors, with key wins at Jusins [ph] Farmfoods and Selfridges.

In London, we've partnered with Visa to increase installation in adoption rates of in-taxi payment and media systems in London cabs. And as part of this effort, Visa has launched a $4.4 million media campaign on VeriFone Systems, to be aired during the 2012 Olympic Games in London. We have now signed nearly 7,000 taxis to 5-year processing agreements. We still expect to have 10,000 taxi installed prior to the 2012 Olympics next summer.

We made some great progress in our expansion into Africa, with our first orders for VX Evolution systems to be supplied into Nigeria. This is a project, driven by the Central Bank of Nigeria, to turn Lagos into an electronic payment society and cut down on a black market currency trading that takes place today. Projected systems deployments over the next few years will be in the hundreds of thousands.

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