VeriFone Reports Results for the First Quarter of Fiscal 2013

First Quarter Financial Highlights

  • Non-GAAP net revenues of $430 million, up 1% year-over-year
  • GAAP net revenues of $429 million, up 2% year-over-year
  • Non-GAAP net income per diluted share of $0.51, down 12% year-over-year
  • GAAP net income per diluted share of $0.11, versus $0.03 loss a year ago
  • Operating cash flow of $53 million

SAN JOSE, Calif.--()--VeriFone Systems, Inc. (NYSE: PAY), the global leader in secure electronic payment solutions, today announced financial results for the three months ended January 31, 2013 (“Q1 FY13”). Non-GAAP net revenues for Q1 FY13 were $430 million, compared to $425 million a year ago, a 1% increase. GAAP net revenues were $429 million, compared to $420 million a year ago, a 2% increase. Non-GAAP net income per diluted share was $0.51, compared to $0.58 a year ago, a 12% decrease. GAAP net income per diluted share was $0.11, compared to a loss of $0.03 a year ago. The table below provides additional summary non-GAAP and GAAP financial information and comparisons.

 
(IN MILLIONS, EXCEPT PER SHARE AND PERCENTAGES, UNAUDITED)
 
    Three Months Ended    

%Change

(2)

January 31,

2013

   

January 31,

2012

Non-GAAP (1):
Net revenues (Note A, D) $ 430 $ 425 1.0 %
Organic net revenues (Note B) $ 391 $ 421 (7.1 )%
Organic net revenues at constant currency (Note C) $ 397 nm (5.6 )%
Gross margin as a % of net revenues 43.6 % 42.9 % 0.7 pts
Net income per diluted share $ 0.51 $ 0.58 (12.1 )%
 
GAAP:
Net revenues $ 429 $ 420 2.2 %
Gross margin as a % of net revenues 40.1 % 37.3 % 2.8 pts
Net income (loss) per diluted share $ 0.11 $ (0.03 ) nm
(1) Reconciliations for the non-GAAP measures are provided at the end of this press release.
(2) "nm" means not meaningful or relevant
 

“While our first quarter results fell short of our expectations, VeriFone remains well positioned to take advantage of the secular shift from cash to cashless transactions and the increasing demand for payment security, which should continue to drive healthy payment industry growth,” said Douglas G. Bergeron, Chief Executive Officer. “We are confident that our strategy to build out our service portfolio is sound, and we will continue to invest in multiple services infrastructure initiatives to enable us to offer innovative solutions and build deeper relationships with our customers. We have taken aggressive steps to address our execution challenges, including centralizing engineering resources, increasing investment in our world-class product portfolio and improving sales management of emerging market distributors and new services initiatives. We are likely to take additional steps as needed, including senior management changes, to ensure that we have the right executive team and resources in place to execute our strategic plan going forward.”

Additional Financial and Business Highlights

  • North America GAAP net revenues increased 11% year-over-year.
  • Multi-Lane Retail GAAP net revenues increased 11% year-over-year driven by higher demand for new MX 900 series systems.
  • Petroleum convenience store system Topaz unit sales set a record as gas stations continued to migrate from serial keyboard based Ruby systems to the IP touch screen based Topaz platform.
  • Services comprised 34% of total non-GAAP net revenues, compared with 31% in the prior quarter.
  • Installed base of Point All-in-One payments-as-a-service (“PaaS”) grew 25% in the last 12 months.
  • Accelerated rollout of PaaS in the Australia and New Zealand regions by signing agreements to acquire the largest electronic point of sale provider and the exclusive VeriFone distributor in New Zealand.

“We are continuing to execute our strategy and making the internal changes necessary to create long-term growth opportunities,” continued Bergeron. “We are facing a less than perfect macro environment; however, we are encouraged by a number of positive trends including those around services, mobility, security and U.S. EMV. Our strategic priorities are aligned to execute against these opportunities and we are focused on creating value for our customers and shareholders.”

Outlook for Second Fiscal Quarter 2013

  • Non-GAAP net revenues in the range of $435 million to $450 million
  • Non-GAAP net income per diluted share in the range of $0.45 to $0.50

Outlook for Full Fiscal Year 2013

  • Non-GAAP net revenues in the range of $1.80 billion to $1.83 billion
  • Non-GAAP net income per diluted share in the range of $1.90 to $2.10
  • Cash flow from operations less capital expenditures (free cash flow), in the range of $170 million to $190 million

Conference Call

VeriFone will hold its earnings conference call today, March 5, 2013, at 1:30 pm (PT). To listen to the call and view the slides, visit VeriFone’s website http://ir.verifone.com. To listen to the call over the phone, dial (800) 706-7748 within the U.S., or (617) 614-3473 outside the U.S., and use conference passcode 4783 6410. The recorded audio webcast will be available on VeriFone's website until March 12, 2013.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This press release includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations or beliefs and on currently available competitive, financial and economic data and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the forward-looking statements herein due to changes in economic, business, competitive, technological and/or regulatory factors, and other risks and uncertainties affecting the operation of the business of VeriFone Systems, Inc. These risks and uncertainties include, but are not limited to: our assumptions, judgments and estimates regarding the impact on our business of the continued uncertainty in the global economic environment and financial markets, our ability to identify and complete acquisitions and strategic investments and successfully integrate them into our business, whether the expected benefits of our business initiatives are achieved, our ability to protect against fraud, the status of our relationship with and condition of third parties such as our contract manufacturers, distributors and key suppliers upon whom we rely in the conduct of our business, our dependence on a limited number of customers, risks and uncertainties related to the conduct of our business and operations internationally, our ability to effectively hedge our exposure to foreign currency exchange rate fluctuations, our dependence on a limited number of key employees, short product cycles, rapidly changing technologies and maintaining competitive leadership position with respect to our payment solution offerings. The forward-looking statements in this press release do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof. For a further list and description of the risks and uncertainties affecting the operations of our business, see our filings with the Securities and Exchange Commission, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. VeriFone is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

About VeriFone Systems, Inc. (www.verifone.com)

VeriFone Systems, Inc. (“VeriFone”) (NYSE: PAY) is the global leader in secure electronic payment solutions. VeriFone provides expertise, solutions and services that add value to the point of sale with merchant-operated, consumer-facing and self-service payment systems for the financial, retail, hospitality, petroleum, government and healthcare vertical markets. VeriFone solutions are designed to meet the needs of merchants, processors and acquirers in developed and emerging economies worldwide.

Additional Resources:
http://ir.verifone.com

 
VERIFONE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
(UNAUDITED)
             
Three Months Ended January 31,
2013 2012 % Change (1)
Net revenues:
System solutions $ 281,708 $ 312,641 (9.9)%
Services 147,039   106,883   37.6%
Total net revenues 428,747   419,524   2.2%
 
Cost of net revenues:
System solutions 174,243 198,752 (12.3)%
Services 82,542   64,134   28.7%
Total cost of net revenues 256,785   262,886   (2.3)%
 
Gross margin 171,962   156,638   9.8%
 
Operating expenses:
Research and development 39,802 35,079 13.5%
Sales and marketing 45,748 39,986 14.4%
General and administrative 39,981 46,038 (13.2)%
Amortization of purchased intangible assets 24,696   13,615   81.4%
Total operating expenses 150,227   134,718   11.5%
Operating income 21,735 21,920 (0.8)%
Interest expense (12,590 ) (14,634 ) (14.0)%
Interest income 1,088 1,007 8.0%
Other income (expense), net 3,940   (20,849 ) nm
Income (loss) before income taxes 14,173 (12,556 ) nm
Provision for (benefit from) income taxes 2,463   (9,782 ) nm
Consolidated net income (loss) 11,710 (2,774 ) nm
Net (income) loss attributable to noncontrolling interests 128   (350 ) nm
Net income (loss) attributable to VeriFone Systems, Inc. stockholders $ 11,838   $ (3,124 ) nm
 
Net income (loss) per share attributable to VeriFone Systems, Inc. stockholders:
Basic $ 0.11   $ (0.03 )
Diluted $ 0.11   $ (0.03 )
 
Weighted average number of shares used in computing net income per share:
Basic 107,934 105,833
Diluted 110,558 105,833
 
(1)"nm" means not meaningful or relevant
 
VERIFONE SYSTEMS, INC. AND SUBSIDIARIES
NET REVENUE INFORMATION
(IN THOUSANDS, EXCEPT PERCENTAGES, UNAUDITED)
               
Three Months Ended % Change (1)
Note January 31, 2013     October 31, 2012 (1)     January 31, 2012 % SEQ     % YoY
GAAP net revenues:
International
EMEA $ 171,626 $ 201,347 $ 154,907 (14.8)% 10.8%
LAC 73,026 79,971 100,289 (8.7)% (27.2)%
ASPAC 50,880   58,802   44,698   (13.5)% 13.8%
Total International 295,532 340,120 299,894 (13.1)% (1.5)%
North America 133,215   145,259   119,630   (8.3)% 11.4%
Total $ 428,747   $ 485,379   $ 419,524   (11.7)% 2.2%
 
Non-GAAP net revenues: (Note A) (2)
International
EMEA A $ 172,884 $ 203,980 $ 159,003 (15.2)% 8.7%
LAC A 73,026 79,971 100,289 (8.7)% (27.2)%
ASPAC A 51,017   59,288   45,943   (14.0)% 11.0%
Total International 296,927 343,239 305,235 (13.5)% (2.7)%
North America A 132,727   145,318   119,965   (8.7)% 10.6%
Total $ 429,654   $ 488,557   $ 425,200   (12.1)% 1.0%
 
GAAP net revenues $ 428,747 $ 485,379 $ 419,524 (11.7)% 2.2%
Plus: Non-GAAP net revenues adjustments A, D 907   3,178   5,676   nm nm
Non-GAAP net revenues (Note A) 429,654 488,557 425,200 (12.1)% 1.0%
Less: net revenues from businesses acquired in the past 12 months
Point B (38,279 ) nm (4,128 ) nm nm
Other B (340 ) nm   nm nm
Total (38,619 ) nm (4,128 ) nm nm
Organic non-GAAP net revenues (Note B) 391,035   nm 421,072   nm (7.1)%
(1) "nm" means not meaningful or relevant
(2) Reconciliations for the non-GAAP measures are provided at the end of this press release.
 
   
For three months ended January 31, 2013 compared with three months ended January 31, 2012  
Net revenues growth    

Impact due to

acquired businesses

(A) (B)

   

Organic non-GAAP

net revenues growth

   

Impact due to foreign

currency (C)

   

Organic non-GAAP

net revenues at

constant currency

growth

International                
EMEA 10.8 % 23.9pts (13.1 )% (0.6)pts (12.5 )%
LAC (27.2 )% 0.0pts (27.2 )% (5.9)pts (21.3 )%
ASPAC 13.8 % 2.8pts 11.0 % 0.7pts 10.3 %
Total International (1.5 )% 12.6pts (14.1 )% (2.1)pts (12.0 )%
North America 11.4 % 1.0pts 10.4 % 0.1pts 10.3 %
Total 2.2 % 9.3pts (7.1 )% (1.5)pts (5.6 )%
 
VERIFONE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
         
January 31, 2013 October 31, 2012
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 476,668 $ 454,072
Accounts receivable, net of allowances of $9,424 and $8,491 355,119 366,887
Inventories 188,783 178,274
Prepaid expenses and other current assets 138,175   136,210  
Total current assets 1,158,745 1,135,443
Fixed assets, net 152,107 146,803
Purchased intangible assets, net 719,134 734,808
Goodwill 1,206,008 1,179,381
Deferred tax assets 215,963 215,139
Other long-term assets 82,109   79,033  
Total assets $ 3,534,066   $ 3,490,607  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 154,598 $ 193,062
Accruals and other current liabilities 221,172 230,867
Deferred revenue, net 119,003 91,545
Short-term debt 52,585   54,916  
Total current liabilities 547,358 570,390
Long-term deferred revenue, net 39,056 37,062
Long-term debt 1,238,966 1,252,701
Long-term deferred tax liabilities 216,494 214,537
Other long-term liabilities 71,110   70,440  
Total liabilities 2,112,984 2,145,130
 
Redeemable noncontrolling interest in subsidiary 817 861
 
Stockholders’ equity:
Common stock 1,084 1,081
Additional paid-in capital 1,557,640 1,543,127
Accumulated deficit (192,185 ) (204,023 )
Accumulated other comprehensive income (loss) 17,123   (32,390 )
Total stockholders’ equity 1,383,662 1,307,795
Noncontrolling interest in subsidiaries 36,603   36,821  
Total liabilities and equity $ 3,534,066   $ 3,490,607  
 
VERIFONE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
    Three Months Ended January 31,
2013     2012
Cash flows from operating activities
Consolidated net income (loss) $ 11,710 $ (2,774 )
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Depreciation and amortization, net 50,932 31,859
Stock-based compensation expense 12,359 10,704
Non-cash interest expense 4,112
Deferred income taxes (3,934 ) (8,490 )
Gain on divestiture of assets (4,080 )
Write-off of debt issuance costs upon debt extinguishment 2,115
Other (987 ) (1,804 )
Net cash provided by operating activities before changes in operating assets and liabilities 66,000   35,722  
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable, net 13,235 17,154
Inventories, net (8,072 ) (1,994 )
Prepaid expenses and other assets (1,832 ) (10,694 )
Accounts payable (39,297 ) (10,913 )
Deferred revenue, net 28,175 28,589
Other current and long term liabilities (4,778 ) (25,696 )
Net change in operating assets and liabilities (12,569 ) (3,554 )
Net cash provided by operating activities 53,431   32,168  
 
Cash flows from investing activities
Capital expenditures (20,789 ) (8,010 )
Acquisition of businesses, net of cash and cash equivalents acquired (1,000 ) (1,067,517 )
Proceeds from divestiture of assets 6,000
Other investing activities, net 132   7  
Net cash used in investing activities (15,657 ) (1,075,520 )
 
Cash flows from financing activities
Proceeds from debt, net of issuance costs 2,427 1,409,177
Repayments of debt (18,506 ) (307,760 )
Repayments of senior convertible notes, including interest (279,159 )
Proceeds from issuance of common stock through employee equity incentive plans 2,965 8,812
Payments of acquisition-related contingent consideration (4,993 )
Distribution to noncontrolling interest stockholders (134 ) (135 )
Net cash provided by (used in) financing activities (18,241 ) 830,935  
 
Effect of foreign currency exchange rate changes on cash and cash equivalents 3,063   (2,166 )
 
Net increase (decrease) in cash and cash equivalents 22,596 (214,583 )
Cash and cash equivalents, beginning of period 454,072   594,562  
Cash and cash equivalents, end of period $ 476,668   $ 379,979  
 
VERIFONE SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
                                           
Three Months Ended January 31, 2013  
GAAP    

% of net

revenues

Amortization

of step-down

in deferred

revenue at

acquisition

   

Acquisition,

divestiture &

restructure

related

   

Stock based

compensation

   

Costs of

efficiency

initiatives

   

Other

charges

and income

   

Income tax

effect

Non-GAAP    

% of Non-GAAP

net revenues

NOTE: (1) (A) (D) (F) (F) (F) (F) (1)
Net revenues:
System solutions $ 281,708 65.7 % $ 123 $ $ $ $ $ $ 281,831 65.6 %
Services 147,039   34.3 % 1,312       (528 )                         147,823   34.4 %
428,747   100.0 % 1,435       (528 )                         429,654   100.0 %
Cost of net revenues:
System solutions 174,243 nm (11,617 ) (426 ) 162,200 nm
Services 82,542   nm       (2,028 )     (120 )     (73 )             80,321   nm
256,785   59.9 %       (13,645 )     (546 )     (73 )             242,521   56.4 %
Gross margin:
System solutions (2) 107,465 nm 123 11,617 426 119,631 nm
Services (3) 64,497   nm 1,312       1,500       120       73      

        67,502   nm
171,962   40.1 % 1,435       13,117       546       73               187,133   43.6 %
Operating expenses:
Research and development 39,802 9.3 % (1,663 ) (1,617 ) 30 36,552 8.5 %
Sales and marketing 45,748 10.7 % (336 ) (4,093 ) (196 ) (27 ) 41,096 9.6 %
General and administrative 39,981 9.3 % (2,783 ) (6,102 ) (109 ) 30,987 7.2 %
Amortization of purchased intangible assets 24,696   5.8 %       (24,696 )                          
Total operating expenses 150,227   35.0 %       (29,478 )     (11,812 )     (275 )     (27 )       108,635   25.3 %
Operating income 21,735 5.1 % 1,435 42,595 12,358 348 27 78,498 18.3 %
Interest expense (12,590 ) nm 167 (12,423 ) nm
Interest income 1,088 nm 81 1,169 nm
Other income (expense), net 3,940   nm       (5,053 )                 (261 )       (1,374 ) nm
Income before income taxes 14,173 3.3 % 1,435 37,790 12,358 348 (234 ) 65,870 15.3 %
Provision for income taxes 2,463   nm                               6,696   9,159   nm
Consolidated net income 11,710 2.7 % 1,435 37,790 12,358 348 (234 ) (6,696 ) 56,711 13.2 %
Net income attributable to noncontrolling interests 128   nm       (574 )                         (446 ) nm
Net income attributable to VeriFone Systems, Inc. stockholders $ 11,838   2.8 % $ 1,435       $ 37,216       $ 12,358       $ 348       $ (234 )     $ (6,696 ) $ 56,265   13.1 %
 
Net income per share attributable to VeriFone Systems, Inc. stockholders:
Basic $ 0.11   $ 0.52  
Diluted $ 0.11   $ 0.51  
 
Weighted average number of shares used in computing net income per share:
Basic 107,934 107,934
Diluted 110,558 110,558

(1) "nm" means not meaningful or relevant.

(2) System solutions non-GAAP gross margin as a % of System solutions non-GAAP net revenues is 42.4%.
(3) Services non-GAAP gross margin as a % of Services non-GAAP net revenues is 45.7%.
 
VERIFONE SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
                                             
Three Months Ended October 31, 2012  
GAAP    

% of net

revenues

Amortization

of step-down

in deferred

revenue at

acquisition

   

Acquisition,

divestiture &

restructure

related

   

Stock based

compensation

   

Costs of

efficiency

initiatives

   

Other

charges and

income

   

Income tax

effect

Non-GAAP    

% of Non-GAAP

net

revenues

NOTE: (1) (A) (D) (F) (F) (F) (F) (1)
Net revenues:
System solutions $ 335,710 69.2 % $ 514 $ $ $ $ $ $ 336,224 68.8 %
Services 149,669   30.8 % 2,773       (109 )                         152,333   31.2 %
485,379   100.0 % 3,287       (109 )                         488,557   100.0 %
Cost of net revenues:
System solutions 204,403 nm (10,549 ) (325 ) (10 ) 193,519 nm
Services 81,439   nm       (2,092 )     (276 )     (95 )             78,976   nm
285,842   58.9 %       (12,641 )     (601 )     (105 )             272,495   55.8 %
Gross margin:
System solutions (2) 131,307 nm 514 10,549 325 10 142,705 nm
Services (3) 68,230   nm 2,773       1,983       276       95               73,357   nm
199,537   41.1 % 3,287       12,532       601       105               216,062   44.2 %
Operating expenses:
Research and development 40,416 8.3 % (2,018 ) (2,189 ) (701 ) 35,508 7.3 %
Sales and marketing 47,388 9.8 % (1,460 ) (1,937 ) (639 ) (1,606 ) 41,746 8.5 %
General and administrative 37,026 7.6 % (3,392 ) (5,655 ) (107 ) 27,872 5.7 %
Amortization of purchased intangible assets 23,243   4.8 %       (23,243 )                          
Total operating expenses 148,073   30.5 %       (30,113 )     (9,781 )     (1,447 )     (1,606 )       105,126   21.5 %
Operating income 51,464 10.6 % 3,287 42,645 10,382 1,552 1,606 110,936 22.7 %
Interest expense (13,186 ) nm (2,627 ) 3,151 (12,662 ) nm
Interest income 1,139 nm 102 1,241 nm
Other income (expense), net 2,589   nm       (5,452 )                 1,996         (867 ) nm
Income before income taxes 42,006 8.7 % 3,287 34,668 10,382 1,552 6,753 98,648 20.2 %
Provision for income taxes 14,117   nm                               (525 ) 13,592   nm
Consolidated net income 27,889 5.7 % 3,287 34,668 10,382 1,552 6,753 525 85,056 17.4 %
Net income attributable to noncontrolling interests (904 ) nm       (666 )                         (1,570 ) nm
Net income attributable to VeriFone Systems, Inc. stockholders $ 26,985   5.6 % $ 3,287       $ 34,002       $ 10,382       $ 1,552       $ 6,753       $ 525   $ 83,486   17.1 %
 
Net income per share attributable to VeriFone Systems, Inc. stockholders:
Basic $ 0.25   $ 0.78  
Diluted $ 0.24   $ 0.76  
 
Weighted average number of shares used in computing net income per share:
Basic 107,718 107,718
Diluted 110,342 110,342
(1) "nm" means not meaningful or relevant.
(2) System solutions non-GAAP gross margin as a % of System solutions non-GAAP net revenues is 42.4%.
(3) Services non-GAAP gross margin as a % of Services non-GAAP net revenues is 48.2%.
 
 
VERIFONE SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
                                           
Three Months Ended January 31, 2012  
GAAP    

% of net

revenues

Amortization

of step-down

in deferred

revenue at

acquisition

   

Acquisition,

divestiture &

restructure related

   

Stock based

compensation

   

Costs of

efficiency

initiatives

   

Other

charges

and income

   

Income tax effect

Non-GAAP    

% of

Non-GAAP

net revenues

NOTE: (1) (A) (D) (F) (F) (F) (F) (1)
Net revenues:
System solutions $ 312,641 74.5 % $ 2,028 $ $ $ $ $ $ 314,669 74.0 %
Services 106,883   25.5 % 3,648                                 110,531   26.0 %
419,524   100.0 % 5,676                                 425,200   100.0 %
Cost of net revenues:
System solutions 198,752 nm (18,275 ) (413 ) 180,064 nm
Services 64,134   nm       (1,465 )     (66 )                   62,603   nm
262,886   62.7 %       (19,740 )     (479 )                   242,667   57.1 %
Gross margin:
System solutions (2) 113,889 nm 2,028 18,275 413 134,605 nm
Services (3) 42,749   nm 3,648       1,465       66                     47,928   nm
156,638   37.3 % 5,676       19,740       479                     182,533   42.9 %
Operating expenses:
Research and development 35,079 8.4 % (1,859 ) (1,253 ) 31,967 7.5 %
Sales and marketing 39,986 9.5 % (823 ) (4,262 ) 34,901 8.2 %
General and administrative 46,038 11.0 % (12,862 ) (4,710 ) 28,466 6.7 %
Amortization of purchased intangible assets 13,615   3.2 %       (13,615 )                          
Total operating expenses 134,718   32.1 %       (29,159 )     (10,225 )                   95,334   22.4 %
Operating income 21,920 5.2 % 5,676 48,899 10,704 87,199 20.5 %
Interest expense (14,634 ) nm 435 6,227 (7,972 ) nm
Interest income 1,007 nm 539 1,546 nm
Other income (expense), net (20,849 ) nm       19,111                   48         (1,690 ) nm
Income (loss) before income taxes (12,556 ) (3.0 )% 5,676 68,984 10,704 6,275 79,083 18.6 %
Provision (benefit from) for income taxes (9,782 ) nm                               24,471   14,689   nm
Consolidated net income (loss) (2,774 ) (0.7 )% 5,676 68,984 10,704 6,275 (24,471 ) 64,394 15.1 %
Net income attributable to noncontrolling interests (350 ) nm                                 (350 ) nm
Net income (loss) attributable to VeriFone Systems, Inc. stockholders $ (3,124 ) (0.7 )% $ 5,676       $ 68,984       $ 10,704       $       $ 6,275       $ (24,471 ) $ 64,044   15.1 %
 
Net income (loss) per share attributable to VeriFone Systems, Inc. stockholders:
Basic $ (0.03 ) $ 0.61  
Diluted $ (0.03 ) $ 0.58  
 
Weighted average number of shares used in computing net income (loss) per share:

Additional dilutive

shares (G)

Basic 105,833 105,833
Diluted 105,833 3,728 109,561
(1) "nm" means not meaningful or relevant.
(2) System solutions non-GAAP gross margin as a % of System solutions non-GAAP net revenues is 42.8%.
(3) Services non-GAAP gross margin as a % of Services non-GAAP net revenues is 43.4%.
 
 
VERIFONE SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
                                     

GAAP Net

Revenues

Amortization

of step-down

in deferred

revenue at

acquisition

Divestiture

related

adjustment

to net revenues

Non-GAAP

net revenues

 

Net revenues

from businesses

acquired in the

past 12 months

Non-GAAP

organic net

revenues

 

Constant

currency

adjustment

Non-GAAP

organic

net revenues

at constant

currency

NOTE: (A) (D) (A) (B) (B) (C) (C)

Three Months Ended January 31, 2013

International
EMEA $ 171,626 $ 1,258 $ $ 172,884 $ (38,279 ) $ 134,605 $ 859 $ 135,464
LAC 73,026 73,026 73,026 5,913 78,939
ASPAC 50,880   137     51,017     51,017   (331 ) 50,686
Total International 295,532 1,395 296,927 (38,279 ) 258,648 6,441 265,089
North America 133,215   40   (528 ) 132,727   (340 ) 132,387   (56 ) 132,331
Total $ 428,747   $ 1,435   $ (528 ) $ 429,654   $ (38,619 ) $ 391,035   $ 6,385   $ 397,420
 

Three Months Ended October 31, 2012

International
EMEA $ 201,347 $ 2,633 $ $ 203,980
LAC 79,971 79,971
ASPAC 58,802   486     59,288  
Total International 340,120 3,119 343,239
North America 145,259   168   (109 ) 145,318  
Total $ 485,379   $ 3,287   $ (109 ) $ 488,557  
 

Three Months Ended January 31, 2012

International
EMEA $ 154,907 $ 4,096 $ $ 159,003 $ (4,128 ) $ 154,875
LAC 100,289 100,289 100,289
ASPAC 44,698   1,245     45,943     45,943  
Total International 299,894 5,341 305,235 (4,128 ) 301,107
North America 119,630   335     119,965     119,965  
Total $ 419,524   $ 5,676   $   $ 425,200   $ (4,128 ) $ 421,072  

FINANCIAL MEASURES

This press release and its attachments include several non-GAAP financial measures, including non-GAAP net revenues; net revenues from businesses acquired in the past 12 months; non-GAAP organic net revenues; non-GAAP organic net revenues at constant currency; non-GAAP cost of net revenues; non-GAAP gross margin; non-GAAP research and development expenses; non-GAAP sales and marketing expenses; non-GAAP general and administrative expenses; non-GAAP operating expenses; non-GAAP operating income; non-GAAP interest expense; non-GAAP interest income; non-GAAP other income (expense), net; non-GAAP income before income taxes; non-GAAP provision for income taxes; non-GAAP income tax rate; non-GAAP consolidated net income; non-GAAP net income attributable to noncontrolling interests; non-GAAP net income attributable to VeriFone Systems, Inc. stockholders; non-GAAP diluted shares; non-GAAP net income per share attributable to VeriFone Systems, Inc. stockholders; non-GAAP net income per diluted share, as well as these non-GAAP financial measures as a percentage of non-GAAP net revenues. In order to assist investors, this press release provides consolidated statement of operations information on a non-GAAP basis, reflecting the adjustments made in the non-GAAP measures listed above.

Management uses non-GAAP financial measures only in addition to and in conjunction with results presented in accordance with GAAP. Management believes that these non-GAAP financial measures help it to evaluate VeriFone's performance and operations and to compare VeriFone's current results with those for prior periods as well as with the results of peer companies. VeriFone incurs, due to differences in debt, capital structure and investment history, certain income and expense items, such as stock based compensation, amortization of acquired intangibles and other non-cash expenses, that differ significantly from VeriFone's competitors. The non-GAAP financial measures reflect VeriFone's reported operating performance without such items. Management also uses these non-GAAP financial measures in VeriFone's budget and planning process. Management believes that the presentation of these non-GAAP financial measures is useful to investors in comparing VeriFone's operating performance in any period with its performance in other periods and with the performance of other companies that represent alternative investment opportunities. These non-GAAP financial measures contain limitations and should be considered as a supplement to, and not as a substitute for, or superior to, disclosures made in accordance with GAAP.

These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and may therefore differ from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures do not reflect all amounts and costs, such as acquisition related costs, employee stock-based compensation costs, cash that may be expended for future capital expenditures or contractual commitments, working capital needs, cash used to service interest or principal payments on VeriFone's debt, income taxes and the related cash requirements, and restructuring charges, associated with VeriFone's results of operations as determined in accordance with GAAP.

Furthermore, VeriFone expects to continue to incur income and expense items that are similar to those that are excluded by the non-GAAP adjustments described herein. Management compensates for these limitations by also relying on the comparable GAAP financial measures.

Note A: Non-GAAP net revenues. Non-GAAP net revenues exclude the fair value decrease (step-down) in deferred revenue at acquisition. Although the step-down of deferred revenue fair value at acquisition is reflected in our GAAP financial statements, it results in net revenues immediately post-acquisition that are lower than net revenues that would be recognized in accordance with GAAP on those same services if they were sold under contracts entered into post-acquisition. We adjust the step-down to achieve comparability to net revenues of the acquired entity earned pre-acquisition and to our GAAP net revenues to be earned on contracts sold in future periods. These non-GAAP net revenues amounts are not intended to be a substitute for our GAAP disclosures of net revenues, and should be read together with our GAAP disclosures.

Note B: Non-GAAP organic net revenues. "Non-GAAP organic net revenues" is a non-GAAP financial measure of net revenues excluding "net revenues from businesses acquired in the past 12 months" (as defined below). VeriFone determines non-GAAP organic net revenues by deducting net revenues from businesses acquired in the past 12 months from non-GAAP net revenues. This non-GAAP measure is used to evaluate VeriFone net revenues without the impact of net revenues from acquired businesses, as VeriFone analyzes performance both with and without the impact of our recent acquisitions.

Net revenues from businesses acquired in the past 12 months consists of net revenues derived from the sales channels of acquired resellers and distributors, and net revenues from system solutions and services attributable to businesses acquired in the 12 months preceding the respective financial quarter(s). For acquisitions of small businesses that are integrated within a relatively short time after the close of the acquisition, we assume quarterly net revenues attributable to such acquired businesses during the 12 months following acquisition remain at the same level as in the first full quarter after the acquisition closed. During periods prior to our acquisition of Point (a former distributor of our products), net revenues from businesses acquired in the past 12 months consists of sales by VeriFone to Point for that period.

Note C: Non-GAAP organic net revenues at constant currency. VeriFone determines non-GAAP organic net revenues at constant currency by recomputing non-GAAP organic net revenues denominated in currencies other than U.S. Dollars in the current fiscal period using average exchange rates for that particular currency during the corresponding financial period of the prior year. VeriFone uses this non-GAAP measure to evaluate performance on a comparable basis excluding the impact of foreign currency fluctuations.

Note D: Acquisition, Divestiture and Restructure Related. VeriFone adjusts certain revenues and expenses for items that are the result of acquisitions, divestitures and restructuring programs.

Acquisition related adjustments include the amortization of purchased intangible assets and fixed asset fair value adjustments, incremental costs associated with acquisitions (such as professional fees, legal fees related to litigation assumed as part of acquisitions, and one-time charges related to acquired balances), acquisition integration expenses (such as costs of personnel required to assist with integration transitions), loss on financial instruments entered into to fix the acquisition purchase price in U.S. dollars when it is payable in foreign currencies and fair value increase (step-up) of inventory on acquisition. In addition, we adjust for changes in estimate or final resolution of contingencies that existed at the time of acquisition. Acquisition related expenses also result from events which arise from unforeseen circumstances which often occur outside the ordinary course of business. These adjustments do not include the fair value adjustments relating to certain contracts acquired as part of an acquisition whereby third parties have yet to fulfill their contractual obligations.

In January 2013 we divested of certain assets and business operations related to one of our product offerings. The estimated gain on the divestiture, as well as the net revenues, cost of net revenues and operating expenses for the fiscal quarters ended October 31, 2012 and January 31, 2013 that are attributable to the divested assets and business operations have been excluded from our non-GAAP financial measures in those same fiscal quarters.

Restructure related adjustments include all restructure charges as defined in accordance with US GAAP.

VeriFone analyzes the performance of its operations without regard to these adjustments. In determining whether any acquisition, divestiture or restructure related adjustment is appropriate, VeriFone takes into consideration, among other things, how such adjustments would or would not aid the understanding of the performance of its operations.

Note E: Stock-Based Compensation. Our non-GAAP financial measures eliminate the effect of expense for stock-based compensation because they are non-cash expenses that management believes are not reflective of ongoing operating results. In particular, because of varying available valuation methodologies, subjective assumptions and the variety of award types which affect the calculations of stock-based compensation, we believe that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies. Stock-based compensation is very different from other forms of compensation. A cash salary or bonus has a fixed and unvarying cash cost. In contrast the expense associated with an award of an option or other stock based award is unrelated to the amount of compensation ultimately received by the employee; and the cost to the company is based on valuation methodology and underlying assumptions that may vary over time and does not reflect any cash expenditure by the company. Furthermore, the expense associated with granting an employee an option or other stock based award can be spread over multiple years and may be reversed based on forfeitures which may differ from our original assumptions unlike cash compensation expense which is typically recorded contemporaneously with the time of award or payment.

Note F: Other Charges and Income. VeriFone excludes certain expenses and income that are the result of unique or unplanned events that are noted below. It is difficult to estimate the amount or timing of these items in advance. Although these events are reflected in our GAAP financial statements, we exclude them in our non-GAAP financial measures because we believe these expenses may limit the comparability of our ongoing operations with prior and future periods. Examples of adjustments for other charges and income are:

  • Gains or losses on financial transactions, such as the accelerated amortization of capitalized debt issuance costs due to the early repayment of debt. These accelerated costs are excluded from non-GAAP Other income (expense), net to enable comparability between periods.
  • Certain personnel expenses that we have identified will continue to be incurred only for a fixed short period of time in connection with scheduled operational changes as we streamline and centralize some of our global operations, including international distribution and repair facilities. These expenses are referred to as "Costs of efficiency initiatives" and we excluded these expenses from non-GAAP operating expenses to enable comparability of our ongoing operations.
  • Accrued loss related to litigation initiated by several former contractors of one of our Brazilian subsidiaries following termination of their services. These costs were not anticipated and relate to certain claims for which we have determined loss is probable and estimable primarily because of a partially unfavorable court ruling in one of the underlying proceedings. The costs are excluded from non-GAAP operating expenses to enable comparability between periods.
  • Non-cash interest expense recorded relating to the adoption of ASC 470-20 Debt with conversion and other options. This expense is excluded from non-GAAP interest expense to promote comparability of our non-GAAP financial results with prior and future periods and best reflects our on-going operations.
  • Income taxes are adjusted for the tax effect of excluding items related to our non-GAAP financial measures and to reflect our estimate of cash taxes on a non-GAAP basis, in order to provide our management and users of the financial statements with better clarity regarding the on-going comparable performance and future liquidity of our business. Our non-GAAP tax rates were 14% for the period August 1, 2012 through January 31, 2013, 18% for the period December 31, 2011 through January 31, 2012, and 20% for the period November 1, 2011 through December 30, 2011.

Because of these factors, we assess our operating performance with these amounts included and excluded, and by providing this information, we believe that users of our financial statements are better able to understand the financial results of what we consider to be our continuing operations.

Note G: Non-GAAP diluted shares. In connection with our 1.375% Senior Convertible Notes we had entered into certain note hedge transactions. We repaid these Notes in cash upon maturity on June 15, 2012, and the then outstanding note hedge transactions expired unused on June 15, 2012. Non-GAAP diluted shares reflect the offset of shares that would have been deliverable in the periods presented prior to the maturity of the Notes pursuant to note hedge transactions. Under GAAP, shares delivered in hedge transactions are not considered offsetting shares in the fully diluted share calculation until they are actually delivered.

Contacts

VeriFone Systems, Inc.
Investor Relations:
Doug Reed, 408-232-7979
SVP, Treasury & Investor Relations
ir@verifone.com
or
Media Relations:
Andy Payment, 770-754-3541
andy.payment@verifone.com

Release Summary

VeriFone announced financial results for the three months ended January 31, 2013 (“Q1 FY13”). Non-GAAP net revenues for Q1 FY13 were $430 million.

Sharing

Contacts

VeriFone Systems, Inc.
Investor Relations:
Doug Reed, 408-232-7979
SVP, Treasury & Investor Relations
ir@verifone.com
or
Media Relations:
Andy Payment, 770-754-3541
andy.payment@verifone.com