VeriFone Systems Inc (PAY) posted a net income of $14.5 million in the second quarter of fiscal 2012 or $0.13 per diluted share compared with a net loss of $3.1 million or ($0.03) per share in the previous quarter and a net income of $25.2 million or $0.27 per share in the year-ago quarter. Excluding one-time charges but including stock-based compensation expense, net income came in at $0.54 per share, beating the Zacks Consensus Estimate by a penny.
VeriFone reported revenues of $472 million in the second quarter of fiscal 2012, up 61.4% year over year and up 12.5% sequentially.
Based in San Jose, California, VeriFone designs, markets and services a transaction automation system that facilitates electronic payments between consumers, merchants and financial institutions.
Excluding amortization of step-down in deferred revenue on acquisition, revenues came in at $479 million, up 64.0% y/y and 12.7% q/q.
On a segment basis, System Solutions generated revenues of $340.4 million, up 44.7% year over year. Services revenues grew 130.4% year over year to $131.6 million.
North America sales were up 6.8% year over year and 7.8% sequentially. In Europe, the Middle East and Africa, revenues grew 113.3% year over year and 28.4% sequentially. Latin American sales recorded a strong quarter with revenues growing 71.1% on a year-over-year basis, but down 4.1% sequentially. In Asia, revenues grew 115.7% year over year and 7.3% sequentially.
VeriFone has integrated both Point and Hypercom acquisitions into its operations smoothly. On January 4, 2012, VeriFone completed the acquisition of Point, one of Northern Europe’s largest providers of payment and gateway services and solutions for retailers.
Based in Stockholm, Point provides payment and gateway services and solutions for retailers in Northern Europe. Founded in 1988, the company has operations in 11 Northern European countries and currently serves a captive network with over 475,000 merchants. Nordic Capital acquired Point in 2004.
The company continues to bundle encryption services, content and advertising, gateway services, e-commerce capabilities and cloud-based retail application processing, which provides it with an edge over other competitors. VeriFone has begun the process of rollout of Point’s payment as-a-service offering beyond Point's traditional markets.
Margins
Gross margin (excluding stock-based compensation and one-time items) came in at 44.6% compared with 42.9% in the previous quarter and 43.4% in the year-ago quarter. Including these items, gross margins came in at 40.7% compared wiith 37.3% in the previous quarter and 41.9% in the year-ago quarter.
Operating margin came in at 21.3% compared with 20.5% in the previous quarter and 19.2% in the year-ago quarter.
VeriFone exited the quarter with cash and equivalents of $361.0 million, down from $379.9 million at the end of the previous quarter.
Outlook
VeriFone expects to see strong demand in the third quarter as well. However, concern looms large over the potential impact of a declining euro and other currencies when converted into U.S. dollar.
For the third fiscal quarter, VeriFone expects to report net revenues between $495 million and $500 million. Excluding stock-based compensation, net income per diluted share is projected between $0.68 and $0.70.
For fiscal 2012 (including 10 months of Point revenues), VeriFone expects to report net revenues between $1.900 billion and $1.925 billion. Excluding stock-based compensation, net income per diluted share is projected between $2.60 and $2.66.
During the quarter, VeriFone signed a comprehensive licensing, marketing and implementation agreement with PayPal. The agreement is targeted to accelerate retailer adoption of PayPal services while reducing barriers to adoption.
We continue to maintain a Neutral recommendation on VeriFone. Ourrecommendation is supported by Zacks #3 Rank, which translates into a short-term rating of Hold.
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