Hypercom Corporation Q2 2010 Earnings Call Transcript

Hypercom Corporation Q2 2010 Earnings Call Transcript
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Hypercom Corporation (HYC)

Q2 2010 Earnings Call Transcript

August 4, 2010 4:30 pm ET

Executives

Scott Tsujita – SVP-Finance, Treasury and IR

Philippe Tartavull – President and CEO

Tom Sabol – CFO

Analysts

George Sutton – Craig-Hallum

Gil Luria – Wedbush Securities

Robert Dodd – Morgan, Keegan

Jeff Martin – Roth Capital Partners

Vincent Colicchio – Noble Financial

Presentation

Operator

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Welcome to the Hypercom Corporation second quarter 2010 results call. All participants are in listen-only mode. Today's call is being recorded. If you have an objection, you may disconnect at this time. Now, I will like to turn the meeting over to Mr. Scott Tsujita, Senior Vice President – Finance, Treasury and Investor Relations. Sir, you may begin.

Scott Tsujita

Good afternoon and welcome to everyone to Hypercom’s second quarter 2010 earnings call. With me today are Philippe Tartavull, Hypercom’s CEO and Tom Sabol, our CFO. The purpose of this call is to discuss this afternoon’s press release announcing Hypercom’s second quarter 2010 financial results.

You should note that this conference call contains forward-looking statements regarding future events and Hypercom’s future financial performance. Hypercom's management believes that the expectations contained in these forward-looking statements are based on reasonable assumptions. However, it can give no assurance that its expectations will be attained.

Actual events or results may differ materially from those in the forward-looking statements. Please see the Company's annual reports to stockholders and its filings with the SEC including its recent filings on Forms 10-K, 10-Q and 8-K as well as this afternoon’s press release for a discussion of important risk factors that could cause actual events or results to differ materially from those in the forward-looking statements.

All participants should be aware that the forward-looking statements included in this conference call are made only as of the date of this conference call and Hypercom undertakes no obligation to update such statements to reflect subsequent events or circumstances. Please note that all prior year quarterly figures shown in our published financial statements and referred to in today's comments are restated to reflect the same continuing operations as reported in the second quarter of 2010.

In addition, today's call will cover certain non-GAAP financial measures. Our management uses these measures to evaluate our operating performance and to compare our results with those of prior periods as well as those of peer companies. These non-GAAP measures are not substitutes for disclosures made in accordance with GAAP. Reconciliations of these measures to the most comparable GAAP measures are presented in our earnings release, which is available on our website, www.Hypercom.com.

By using the call-in number or website provided by Hypercom to access this call, you agree to the terms of with which Hypercom provides such access. Such terms include notice that this conference call is the copyrighted property of Hypercom Corporation and is being simultaneously recorded and webcast. Any copying, transcription, redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Hypercom Corporation is strictly prohibited.

I will now turn the call back over to Philippe Tartavull. Philippe?

Philippe Tartavull

Thank you, Scott, and good afternoon, everyone. The second quarter was a mix of a strong increase in product demand combined with component shortages that impacted our ability to fulfill some of these demand. We continue to see very strong demand and increased sales order backlog in almost every region. But the component shortages restricted our ability to deliver in excess of $6 million of product revenue most of which we now expect to realize in Q3.

This very frustrating situation impacted not only revenue but also our gross margin. As a large part of this undelivered demand was from higher gross margin geographies that provide us with an unusual margin of at least 40%.

We have taken steps to mitigate the impact of those component shortages. Tom Sabol, our CFO is leading this effort and will provide some color on this shortage.

Despite the component shortages our year-to-date revenue is up 7.6% compared to 2009 and it’s up over 9% on a constant currency basis taking into account the devaluated euro during Q2. This growth has been driven by our European region, which has had 20% revenue growth at constant currency and Asia-Pacific, which was up 8%.

This growth was offset by a revenue decrease of 10% in the Americas resulting from the exit of a large service contract in Brazil in 2009 and from weaker demand in North America. In the Southern and Northern EMEA regions, demand remains very strong. In the UK, we continue to strengthen our relationships with key players such as Eleven [ph], in the Middle East, we have new customers in Qatar, and Saudi Arabia. In Eastern Europe demand is coming from Slovenia, Croatia and Romania. In Western Europe, Spain was also very active compared to last year.

German banking rebound from last year and (inaudible) volume was driven by the development of a (inaudible) project and a general increase in demand from our local partner. Additionally, we experienced gain in our value added integrated payment system business in Europe. We continue to see an increase in demand from (inaudible) solution in low Tier 1, Tier 2, and 3 customers. As a result of all those sales initiatives, we expect to continue year-over-year second half growth in EMEA.

We saw a significant increase in demand in our Asia-Pacific region resulting from revenue growth in Indonesia and Australia. In Indonesia, we believe that we continue to get market share at the largest bank with our Countertop Optimum product. In Australia we increased revenue from the deployment of our Mobile Taxi Cash solution as well as from start of our previously announced Westpac contract.

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