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VeriFone Systems Inc. (PAY - Free Report) reported second-quarter fiscal 2017 adjusted earnings (Including stock-based compensation) of 20 cents, missing the Zacks Consensus Estimate by 3 cents.
Adjusted earnings (excluding stock-based compensation) of 30 cents per share decreased 45.6% from the year-ago quarter but were better than management’s guided figure of 29 cents.
The year-over-year decline in earnings was primarily due to lower revenues, which decreased 11% to $473.9 million, slightly better than the Zacks Consensus Estimate. The figure was in line with high-end of management’s guided range of $470–$474 million.
Management stated that double-digit sequential growth in North America retail and SMB business verticals along with strong demand for devices in India helped the company to meet guidance.
Verifone Systems, Inc. Price, Consensus and EPS Surprise
We also note that both gross and operating margin declined in the quarter reflecting higher costs. Based on the unimpressive results and divestiture of three non-core businesses, the company lowered fiscal 2017 guidance.
Shares fell 3.1% in after hour trading. We note that VeriFone has underperformed the Financial Transaction Services industry on a year-to-date basis.
Quarter Details
System revenues (60.3% of total revenue) decreased 16.6% year over year to $285.7 million. Services (39.7% of total revenue) decreased 0.9% year over year to $188.2 million.
VeriFone’s new Engage platform recently received PCI certification. The platform has also been certified by clients based in Germany, France, India, Japan and South Africa.
VeriFone recently launched Carbon 8, which runs on Alphabet’s (GOOGL - Free Report) Android. This integrated point of sales (IPOS) solution is currently on a pilot run with Vantiv in North America.
Moreover, the company recently announced a new mid-range mPOS solution based on the Carbon platform, which is anticipated to improve competitive position in SMB and emerging markets business.
Non-GAAP revenues from North America, EMEA, and Latin America fell 26.8%, 10.5% and 9.7% from the year-ago quarter to $157.6 million, $62.5 million and $177.8 million, respectively. However, Asia Pacific revenues surged 51.4% to $76 million.
Non-GAAP gross margin (excluding stock-based compensation) was 39.5%, which was in line with management’s expectation but contracted 290 basis points (bps) from the year-ago quarter.
Systems margins of 38.7% expanded 80 bps sequentially driven by continued cost reductions in operations and supply chain. Services margins were 40.7%, up slightly from the prior quarter but fell year over year, negatively impacted by a reduction in petro media revenues.
Operating expense decreased 11% to $149.5 million. However, as percentage of revenues operating expense (excluding one-time items) remained flat from the year-ago quarter at 31.5%.
Non-GAAP operating margin fell 340 bps year over year to 8%.
Balance Sheet & Cash Flow
As of Apr. 31, 2017, VeriFone had approximately $134.5 million in cash & cash equivalents compared with $147 million as of Jan 31, 2017. Long-term debt totalled $803.4 million as compared with $836.6 million at the end of the previous quarter.
Cash flow from operations in the quarter was $36 million. Meanwhile, free cash flow totaled $19 million in the quarter.
Divestiture of Non-Strategic Businesses
VeriFone announced divestiture of three non-strategic businesses to reallocate resources and capital to core payments and commerce platform.
During the reported quarter, the company formed a 50/50 joint venture by combining its Petro Media advertising business with Gas Station TV.
VeriFone also plans to divest its China business into a locally-owned and operated company. The company will continue to hold a minority interest. This transaction is expected to be completed during the third quarter.
Moreover, Verifone has completed the strategic review of its Taxi business. The company is now in the process of divesting this operation.
Guidance
For third-quarter fiscal 2017, VeriFone projects non-GAAP revenues to be in the range of $463–$465 million. Non-GAAP earnings are anticipated to be in the range of 35–36 cents for the current quarter.
Management forecasts improved product margins in second-half 2017 driven primarily by cost reductions and new product introductions. The company expects services margin to improve meaningfully post the divestitures.
Taxi operation is anticipated to contribute $60 million in revenue with a modest earnings contribution in second-half 2017.
For fiscal 2017, the company now estimates non-GAAP revenues within a range of $1.861–$1.866 billion, down from previous guidance of $1.9–$1.915 billion range. Non-GAAP earnings are likely to be in the band of $1.32–$1.34, significantly down from previous guidance of $1.35–$1.39.
For fiscal 2017, free cash flow from operations is expected to be approximately $100 million, which includes approximately $20 million for restructuring related activities.
Long-term earnings growth rate for Visa is currently pegged at 16.9%.
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VeriFone (PAY) Q2 Earnings Miss, Revenues Beat Estimates
VeriFone Systems Inc. (PAY - Free Report) reported second-quarter fiscal 2017 adjusted earnings (Including stock-based compensation) of 20 cents, missing the Zacks Consensus Estimate by 3 cents.
Adjusted earnings (excluding stock-based compensation) of 30 cents per share decreased 45.6% from the year-ago quarter but were better than management’s guided figure of 29 cents.
The year-over-year decline in earnings was primarily due to lower revenues, which decreased 11% to $473.9 million, slightly better than the Zacks Consensus Estimate. The figure was in line with high-end of management’s guided range of $470–$474 million.
Management stated that double-digit sequential growth in North America retail and SMB business verticals along with strong demand for devices in India helped the company to meet guidance.
Verifone Systems, Inc. Price, Consensus and EPS Surprise
Verifone Systems, Inc. Price, Consensus and EPS Surprise | Verifone Systems, Inc. Quote
We also note that both gross and operating margin declined in the quarter reflecting higher costs. Based on the unimpressive results and divestiture of three non-core businesses, the company lowered fiscal 2017 guidance.
Shares fell 3.1% in after hour trading. We note that VeriFone has underperformed the Financial Transaction Services industry on a year-to-date basis.
Quarter Details
System revenues (60.3% of total revenue) decreased 16.6% year over year to $285.7 million. Services (39.7% of total revenue) decreased 0.9% year over year to $188.2 million.
VeriFone’s new Engage platform recently received PCI certification. The platform has also been certified by clients based in Germany, France, India, Japan and South Africa.
VeriFone recently launched Carbon 8, which runs on Alphabet’s (GOOGL - Free Report) Android. This integrated point of sales (IPOS) solution is currently on a pilot run with Vantiv in North America.
Moreover, the company recently announced a new mid-range mPOS solution based on the Carbon platform, which is anticipated to improve competitive position in SMB and emerging markets business.
Non-GAAP revenues from North America, EMEA, and Latin America fell 26.8%, 10.5% and 9.7% from the year-ago quarter to $157.6 million, $62.5 million and $177.8 million, respectively. However, Asia Pacific revenues surged 51.4% to $76 million.
Non-GAAP gross margin (excluding stock-based compensation) was 39.5%, which was in line with management’s expectation but contracted 290 basis points (bps) from the year-ago quarter.
Systems margins of 38.7% expanded 80 bps sequentially driven by continued cost reductions in operations and supply chain. Services margins were 40.7%, up slightly from the prior quarter but fell year over year, negatively impacted by a reduction in petro media revenues.
Operating expense decreased 11% to $149.5 million. However, as percentage of revenues operating expense (excluding one-time items) remained flat from the year-ago quarter at 31.5%.
Non-GAAP operating margin fell 340 bps year over year to 8%.
Balance Sheet & Cash Flow
As of Apr. 31, 2017, VeriFone had approximately $134.5 million in cash & cash equivalents compared with $147 million as of Jan 31, 2017. Long-term debt totalled $803.4 million as compared with $836.6 million at the end of the previous quarter.
Cash flow from operations in the quarter was $36 million. Meanwhile, free cash flow totaled $19 million in the quarter.
Divestiture of Non-Strategic Businesses
VeriFone announced divestiture of three non-strategic businesses to reallocate resources and capital to core payments and commerce platform.
During the reported quarter, the company formed a 50/50 joint venture by combining its Petro Media advertising business with Gas Station TV.
VeriFone also plans to divest its China business into a locally-owned and operated company. The company will continue to hold a minority interest. This transaction is expected to be completed during the third quarter.
Moreover, Verifone has completed the strategic review of its Taxi business. The company is now in the process of divesting this operation.
Guidance
For third-quarter fiscal 2017, VeriFone projects non-GAAP revenues to be in the range of $463–$465 million. Non-GAAP earnings are anticipated to be in the range of 35–36 cents for the current quarter.
Management forecasts improved product margins in second-half 2017 driven primarily by cost reductions and new product introductions. The company expects services margin to improve meaningfully post the divestitures.
Taxi operation is anticipated to contribute $60 million in revenue with a modest earnings contribution in second-half 2017.
For fiscal 2017, the company now estimates non-GAAP revenues within a range of $1.861–$1.866 billion, down from previous guidance of $1.9–$1.915 billion range. Non-GAAP earnings are likely to be in the band of $1.32–$1.34, significantly down from previous guidance of $1.35–$1.39.
For fiscal 2017, free cash flow from operations is expected to be approximately $100 million, which includes approximately $20 million for restructuring related activities.
Zacks Rank & Key Pick
VeriFone carries a Zacks Rank #4 (Sell). Visa (V - Free Report) with a Zacks Rank #2 (Buy) is a better-ranked stock in the same sector. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth rate for Visa is currently pegged at 16.9%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>