VeriFone Beats Estimates - Analyst Blog

VeriFone Systems Inc.'s (PAY) revenues of $276 million in the fourth quarter of fiscal 2010, were up 27% year over year and up 6% 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.

On a segment basis, System Solutions generated revenues of $228.3 million, up 22.7% year over year. Services revenues grew 49.9% year over year to $47.7 million.

The growth in revenues was driven by solid sequential growth in international markets. Asia and Europe were the growth engines recording sequential growth rates of 28% and 13%, respectively.

North America registered a 40% year-over-year growth. In particular, petroleum revenues grew 58% driven by strong demand from major oil companies and independent marketers.

Asia also continues to be strong and revenues from Asia grew 28% sequentially and 11% year over year. VeriFone continues to drive and develop managed services across Asia and leverage its expertise to grow vertical markets in the region, especially China.

Revenues grew by 13% sequentially and 2% year over year in Europe, Middle East and Africa even though the economic conditions were challenging.

Margins

Gross margin (excluding stock-based compensation and one time items) came in at 40%, up from 39% in the previous quarter and 38% in the year-ago quarter. Including these items, gross margins came in at 38% compared to 37% in the previous quarter and 35% in the year-ago quarter.

The growth in gross margin was driven by strong margins in the services business and continued improvement in system solutions due to cost savings and product mix.  Operating margin of 17.6% was up from 15.9% in the year-ago quarter and 16.3% in the previous quarter.

VeriFone began selling its new VX Evolution product line in the fourth quarter and expects this product to gain traction in 2011 and positively impact gross margins throughout 2011.

Net income came in at $49.4 million or 55 cents compared to a net income of $18.6 million or 21 cents per share in the previous quarter and a net loss of $2.1 million or 3 cents in the year-ago quarter.

Excluding one-time charges but including stock-based compensation expense, net income was 33 cents per share, easily beating the Zacks Consensus Estimate of 30 cents.

VeriFone exited the quarter with cash and equivalents of $445.1 million, an increase of $45 million from the previous quarter. Days Sales Outstanding (DSO) came in at 46, down 3 days from the previous quarter.

For Fiscal 2010

Net revenues for fiscal 2010 came in at $1,002 million, up 19% year over year. Gross margin improved to 39% from 36% in fiscal 2009. Net income came in at $98.8 million compared to a net loss of $157.4 million in fiscal 2009.

Management expects revenues between $265 million and $270 million in the first quarter of 2011, up 19%–21% year over year. Earnings per share are projected around 38 cents-39 cents.

For fiscal 2011, VeriFone projects revenues between $1.130 billion and $1.150 billion, up 13% –15% in fiscal 2010. Earnings per share (excluding stock based compensation and one-time charges) are projected around $1.60 – $1.70.

Earlier, VeriFone announced that it will acquire Hypercom Corporation (HYC) for approximately $7.32 per share or $485 million in an effort to accelerate expansion in key international markets such as Europe. The acquisition is expected to close in the second half of 2011. 

Strong results and positive guidance impressed investors. Shares were up 3.56% to $38.07 in after-hours trading. In regular trading, shares gained 2.40% to close at $36.76.

 
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