A month has gone by since the last earnings report for Verifone Systems, Inc. (PAY - Free Report) . Shares have lost about 12.9% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is PAY due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
VeriFone Systems reported first-quarter fiscal 2018 non-GAAP earnings of 23 cents, which matched the Zacks Consensus Estimate. The figure jumped 9.5% from the year-ago quarter.
Non-GAAP revenues of $436.8 million beat the Zacks Consensus Estimate of $419.5 million, but declined 4.3% year over year. In the year-ago quarter, the company benefitted largely from sudden robust demand in India, courtesy of demonetization which led to a tough year-over-year comparison. Besides, divestitures of the China business, Petro Media and the Taxi businesses also negatively impacted results.
System revenues (57.3% of total revenues) declined 8.4% year over year to $243.1 million, owing to the headwinds arising from the U.S. petro business and Indian markets. However, revenues from Latin America, EMEA and North America SMB vertical contributed amply.
Services (45.6% of total revenues) increased 2.8% year over year to $193.7 million. Excluding the results of Petro Media and the Taxi business in both periods, adjusted services growth was approximately 11% year over year.
Non-GAAP revenues from North America and Asia Pacific fell 25.4% and 35.5% from the year-ago quarter to $123.8 million and $40.6 million, respectively. However, EMEA and Latin America revenues increased 9.5% and 54.9% to $184.1 million and $88.3 million, respectively. Growth in Latin America was fueled by Brazil, Argentina and Mexico.
Connected device footprint totaled approximately 1.9 million terminals. The increasing adoption is evident from the 13% recurring services revenues generated in the quarter.
In the quarter, new product sales accounted for 7% of total system sales. VeriFone’s global mPOS revenues continue to be a strong double-digit growth driver, which increased significantly in the quarter. The company’s e280 mPOS device is also gaining traction.
Non-GAAP gross margin was 41.2%, which expanded 230 basis points (bps) from the year-ago quarter.
Systems margin of 36.8% was lower sequentially as well as on a year-over-year basis, affected by unfavorable geographical mix. Services margins were 48%, up 280 bps driven by favorable service mix in North America.
Non-GAAP operating margin expanded 70 bps from the prior-year quarter to 10.3%.
As of Jan 31 2018, VeriFone had $152.8 million in cash & cash equivalents compared with $131 million as of Oct 31 2017. Long-term debt totaled $775.4 million compared with $762 million at the end of the previous quarter.
Cash flow from operations was $51.6 million compared with $26 million in the previous quarter. Meanwhile, free cash outflow was $38 million in the quarter.
The company repurchased 2.8 million shares in the quarter.
For second-quarter fiscal 2018, VeriFone projects non-GAAP revenues of $435 million. The company expects earnings between 27 and 28 cents per share.
The company reiterated guidance for fiscal 2018. Non-GAAP revenues are expected to between $1.775 billion and $1.800 billion, adjusted to exclude divested business. Earnings are projected to be in the range of $1.47-$1.50.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter.
At this time, PAY has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks style scores indicate that the company's stock is suitable for value and growth investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, PAY has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.