Verifone Systems, Inc. (PAY)

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VeriFone Systems, Inc (PAY)

Q1 2012 Earnings Call

March 05, 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 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

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

Bryan Keane - Deutsche Bank AG, Research Division

Gil B. Luria - Wedbush Securities Inc., Research Division

Philip Stiller - Citigroup Inc, Research Division

John T. Williams - UBS Investment Bank, Research Division

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

Keith M. Housum - Northcoast Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 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 would now like to turn the conference over to Mr. Doug Reed, Treasurer and Vice President of Investor Relations. Please proceed.

Doug Reed

Thank you, Derek, and welcome, everyone, to the VeriFone financial results conference call for the first 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 March 12, 2012.

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 first quarter of fiscal year 2012. For the ninth consecutive quarter, we posted all-time record results. Q1 non-GAAP revenues were $425 million, a 50% increase over the previous year.

Excluding the impact of all FY'11 and FY '12 acquisitions, organic revenue growth was 12%. Hypercom revenues were $73 million in the first quarter, and our major integration activities are now complete. We continue to see the benefits of our new business initiatives, as non-GAAP services revenue comprised 26% of total revenues in Q1 and 23% excluding the contribution from the Point acquisition.

Operating income was over 20% of revenue, a milestone achievement. We anticipate further progress on operating margin expansion towards the end of fiscal year 2012. Non-GAAP fully diluted earnings for the first quarter were $0.58 per share, 35% higher than the $0.43 per share result a year ago.

Today, I will review our performance by region and follow with comments on some of our strategic initiatives, 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 continued to show great strength in Q1, posting year-over-year growth of 96%. Organic growth excluding all FY '11 and FY '12 acquisitions was 32%. Latin America had another amazing quarter with over 100% year-over-year revenue growth and 65% growth excluding acquisitions. We continue to see strong sales across the region with wins at Softek in Puerto Rico, Credomatic Central America, Credibanco Visa in Colombia and VisaNet in Peru. We are seeing increasing interest by banks in countries such as Colombia, Venezuela and Mexico in creating private label networks to offer prepaid debit cards and credit cards that can utilize our PAYware CMS software and our managed service offerings.

We also are seeing clear signs of market verticalization across the Latin America region as retailers, health care providers and government agencies are all looking to implement targeted payment solutions to address their specific needs. In addition, banks and processes are pointing customers directly to VeriFone for help with the complexities of integrated payment solutions in Multi-lane Retail, since we are uniquely positioned to provide solutions based on EMV-bank certified software, PCI-certified hardware and in combination with our multitude of services offerings.

Our taxi solutions are also generating strong interest in markets like Mexico, Argentina, Columbia and Brazil where local taxi consortiums are interested in replicating our business models executed here in the U.S. with our taxi business and PAYMEDIA. Redecard, the second largest processor in Brazil, announced in early February that their plans to invest as much as $290 million in new point-of-sale infrastructure during 2012 to gain efficiency and expand their customer base. This is double the investment Redecard made in 2011 and represents an exciting opportunity for VeriFone.

In Europe, the Middle East and Africa, revenues grew 102% over Q1 of last year, and 20% excluding all of our FY '11 and FY '12 acquisitions.

Revenues from Point were $18 million in Q1, which includes only the month of January. Due to the nature of the Point revenue model, with a heavy emphasis on recurring revenues through their all-in-one offering, we expect this monthly revenue to increase sequentially throughout the year.

In the U.K., we continue to do well in the retail sector with wins at FEXCO, Travis Perkins and Post [ph] and Punch Taverns. NFC and mobile activity is growing in the U.K., driven primarily by retailers' strong focus on positioning themselves to support contactless cards by the Summer Olympics.

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