VeriFone Swings to Loss on Revenue Slump, Bulging Expenses

Announces partnership with Worldpay to market new POS technology in the U.K.

v1Payments and commercial solutions company VeriFone Systems Inc. (NYSE: PAY) announced its Q4 FY16 and full-year FY16 financial results on December 12th, 2016.

Headquartered in San Jose, California, the Company offers countertop solutions that accept a range of payment options, including contactless, NFC, mobile wallets, and EMV; PIN pads that support credit and debit card, EBT, EMV, and other PIN-based transactions; and multimedia consumer-facing point of sales (POS) devices. It also provides portable payment devices comprising small, portable, and handheld devices that enable merchants to accept electronic payments wherever wireless connectivity is available; and mobile solutions that attach to and interface with iOS, Android, or Windows-based smartphones and tablets. The company operates under two segments: Systems and Services. Read more about VeriFone’s financial results below.

Q4 FY16 financial highlights

v2During Q4 FY16, VeriFone reported a 9.7% fall in net revenues to $464.2 million from $514.1 million in the year ago same period. Systems, which accounted for 56.5% of the total revenue, fell 22% Y-o-Y to $264.3 million. Services revenue grew 14.1% Y-o-Y to $200 million during the reporting quarter. Gross margins as a percentage of net revenues fell to 38.2% from 42.1% in the year ago comparable period.

In terms of geography, VeriFone generates revenues from four regions: North America, Latin America, EMEA, and Asia/Pacific. During the reporting quarter, North America revenues fell 27.3% Y-o-Y to $167.1 million from $229.9 million in Q4 FY15. Latin America revenues grew 8.8% Y-o-Y to $68.3 million from $62.8 million in the year-ago same period. EMEA revenues jumped 10.2% Y-o-Y to $180.8 million from $164.1 million in the same period a year ago, while Asia/Pacific revenues fell 16.2% Y-o-Y to $48 million from $57.3 million.

During Q4 FY16, operating expenses fell 2.3% to $178.4 million from $182.6 million. Despite a fall in expenses, higher interest expenses caused VeriFone to report an operating loss of $0.9 million versus an operating income of $33.8 million in Q4 FY15. As a result, the company swung to losses of $4.5 million, or $0.04 per share, versus profits of $38.2 million, or $0.33 per share, in the year-ago same period.

FY16 financial highlights

During FY16, VeriFone reported a 0.4% decline in net revenues to $1.99 billion from $2.00 billion in the prior year. Systems revenue fell 5.6% Y-o-Y to $1.23 billion. Services revenue grew 9.4% Y-o-Y to $755.8 million from $690.9 million. Gross margins as a percentage of net revenues fell to 39.9% from 41.3% in last year’s comparable period. In all, VeriFone swung to a net loss of $9.3 million, or $0.08 per share, from a net income of $79.1 million, or $0.68 per share, in the previous year.

Other highlights

v3Liquidity position: As of October 31st, 2016, VeriFone had approximately $148.4 million in cash compared with $208.9 million as of October 31st, 2015. Long-term debt totaled $860 million at the end of the quarter. Cash flow from operations in the quarter was $67 million. Meanwhile, free cash flow totaled $44 million in the quarter.

Partnership with Worldpay: On November 28th, 2016, VeriFone announced a partnership with Worldpay, a leading payments company. Under the agreement, Worldpay will work with Verifone to bring new POS technology to the market such as the VX690 portable device, a flexible solution that enables Wireless Fidelity (Wi-Fi), General Packet Radio Service (GPRS), and 3G-enabled connectivity. The VX690’s ability to roll over between Wi-Fi, GPRS, and 3G ensures constant connectivity for merchants and its larger, clearer screen allows for a better presentation for value-added services. Worldpay and Verifone will also be working together to bring Point-to-Point Encryption (P2PE)-compliant solutions to U.K. retailers and deliver new multi-communication devices to customers.

New product launches: VeriFone expects to launch a commerce platform and app marketplace on the heels of key Engage and Carbon deployments in the US and other markets in FY17. In the mPOS category, the company plans to launch new competitive products in the emerging markets of Latin America and Asia.

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Q1 FY17 and full year FY17 guidance

v5VeriFone provided guidance for the Q1 FY17 and updated its outlook for FY17. The company projects GAAP revenues of $446 million and non-GAAP EPS of $0.20 for Q1 FY17.

For FY17, the company estimates GAAP revenues within the range of $1.89 billion to $1.95 billion. Non-GAAP EPS is likely to be between $1.35 and $1.39, down from the prior expectation of $1.64 to $1.65.

Stock performance

v6VeriFone’s stock ended the day at $18.39, gaining 3.03%, at the close on Wednesday, December 14th, 2016, having vacillated between an intraday high of $18.51 and a low of $17.72 during the session. The stock’s trading volume was at 4,288,676 for the day. The Company’s market cap was at $2.06 billion as of Wednesday’s close.

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