VeriFone Beats Expectations

VeriFone Systems Inc. (PAY - Analyst Report) reported revenues of $261 million in the third quarter of fiscal 2010, up 8.3% sequentially and up 23.7% year over year and beat the Zacks Consensus Estimate of $249 million.

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

On a segment basis, System Solutions generated revenues of $213.0 million, up 17.0% year over year. Services revenues grew 66.5% year over year to $48.4 million.

The growth in revenues was driven primarily by robust demand in North America and a strengthening Latin American business. Revenues from North America increased 16% sequentially and 39% on a year-over-year basis. In North America , petroleum, multilane retail and payment enabled media solutions were the stand-out verticals in the third quarter driving solid growth in the top line. Revenues from Latin America increased by 5% sequentially and by 73% year over year.

Asia also continues to be strong after reporting solid results in the third quarter and excellent visibility of increasing demand in the fourth quarter. Revenues from Asia grew 31% sequentially but declined 5% on a year-over-year basis.

Revenues from European markets declined due to the economic crisis. Revenues declined by 7% sequentially and year over year in Europe, Middle East, and Africa.

Moving onto margins, gross margin (excluding stock-based compensation expense and acquisition related) came in at 39%, flat sequentially, but up from 37% in the year-ago quarter. The company has started shipping its new VX Evolution product line which should positively impact gross margins throughout 2011. Operating margin of 16.3% was up from 14.4% in the previous quarter but almost flat on a year-over-year basis.

Net income came in at $18.6 million or 21 cents per share in the quarter compared to $16.6 million or 20 cents in the year-ago quarter and net income of $20.2 million or 23 cents in the previous quarter. Excluding one-time charges but including stock-based compensation expense, net income was 30 cents per share, easily beating the Zacks Consensus Estimate of 26 cents.

VeriFone exited the quarter with cash and equivalents of $400.5 million, an increase of $21 million from the previous quarter. Days Sales Outstanding (DSO) came in at 49, down 8 days from the previous quarter.

Management has upgraded its guidance for 2010. Revenues are projected in the range of $984 million to $989 million, up from the previous guidance of $960 million to $970 million. Earnings per share (excluding stock based compensation and one-time charges) are projected around $1.26-$1.27, up from the previous guidance of $1.12-$1.15.

Management expects revenues between $258 million and $262 million in the fourth quarter, up 18%–21% year over year. Earnings per share are projected around 35 cents-36 cents.

Strong results and upgraded guidance impressed investors. Shares were up 1.78% to $22.82 in after-hours trading. In regular trading, shares lost 0.04% to close at 22.42.

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