Profitability Improves at VeriFone

VeriFone Holdings Inc. (PAY) yesterday reported revenues of $211.2 million for the third quarter. Revenues were down 18.4% year over year but up 4.7% sequentially.

Revenues from Asia were strong in particular, posting a 74% sequential growth. However, revenues from Latin America declined 24%. On a non-GAAP basis, gross margin was 36.8% compared to 33.8% in the prior quarter and 37.6% in the year-ago quarter. Operating expenses were down 45% year over year. 

The majority of the improvement came from a reduction in net inventory related charges. VeriFone had earlier made provisions for excess inventory in order to adjust to lower demand.

On a GAAP basis, EPS was 26 cents compared to 22 cents in the previous quarter and a loss of 9 cents in the year-ago quarter. On a non-GAAP basis, EPS came in at 26 cents, easily beating the Zacks Consensus Estimate of 13 cents.

Going forward, management stated that business has begun to recover in both domestic and international markets. Management expects revenues between $208 million and $215 million in the fiscal fourth quarter. On a non-GAAP basis, net income is estimated between 23 cents and 25 cents.

For the full year, VeriFone projects revenues between $835 million and $842 million. On a non-GAAP basis, net income is projected between 83 cents and 85 cents.

Inventory for the quarter came to $98.5 million, down from $105.6 million at the end of the previous quarter. Although there are signs of the economy bottoming out, recovery is going to slacken and revenue growth will be challenging. We would like to be on the sidelines given the continued near-term uncertainty.

In a separate statement, VeriFone announced that it entered into a settlement with the Securities and Exchange Commission in connection with the previously disclosed investigation into the company’s 2007 restatement of certain of its quarterly financial results. The restatement resulted primary from some incorrect inventory accounting adjustments made by a former employee. VeriFone agreed to a permanent injunction against future violations of certain reporting, books and records and internal accounting control provisions of the federal securities laws.

Based in San Jose, California, VeriFone designs, markets and services a transaction automation system that facilitates electronic payments between consumers, merchants and financial institutions.

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