VeriFone CEO Discusses F3Q2010 Results - Earnings Call Transcript

VeriFone CEO Discusses F3Q2010 Results - Earnings Call Transcript
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VeriFone Systems Inc (PAY)

F3Q2010 Earnings Call Transcript

August 24, 2010 4:30 pm ET

Executives

William Nettles -- VP, Corporate Development and IR

Doug Bergeron -- CEO

Bob Dykes -- SVP and CFO

Analysts

Tien-Tsin Huang -- JPMorgan

Andrew Jeffrey -- Suntrust

Darrin Peller -- Barclays Capital

Wayne Johnson -- Raymond James

Robert Dodd -- Morgan Keegan

Gil Luria -- Wedbush Securities

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the third quarter 2010 VeriFone Systems, Incorporated earnings conference call. My name is Amelia, and I’ll be your coordinator today. At this time all participants are on a listen-only mode. We will conduct a question-and-answer session towards the end of the conference.

I would now like to turn the conference over to Mr. William Nettles, Vice President, Corporate Development & IR. Please proceed.

William Nettles

Thank you. Good afternoon, and welcome to the VeriFone financial results conference call for the third quarter of fiscal year 2010. Today’s call is being webcast with both audio and slides available via the link in the Investor Relations area of our Web site, and a recording will be available on our Web site until August 31, 2010. With me today is our CEO, Doug Bergeron; and our CFO, Bob Dykes.

First for the legalities, I want to remind everyone that VeriFone desires to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain forward-looking statements in this conference call, including management’s view of future events and financial performance are subject to various factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For a description of these factors, I refer you to our filings with the SEC. Any forward-looking statements speak only as of today, and VeriFone is under no obligation to update these statements to reflect future events or circumstances.

In addition, today’s call will cover certain non-GAAP financial measures on both a historical and forecast basis. Our management uses these measures to evaluate our operating performance and to compare our results to those for prior periods, as well as to those of peer companies. These non-GAAP measures are not substitutes for disclosure 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 Web site at verifone.com.

During this presentation, your line will be in a listen-only mode. At the conclusion of today’s presentation there will be a question-and-answer session. Now, I’d like to turn the call over to Doug Bergeron, CEO of VeriFone.

Doug Bergeron

Thanks, William, and good afternoon, everyone. Quarterly revenue of $261 million were the highest in the history of the company, a 24% increase over the previous year. Services revenue grew 66% compared to the third quarter of 2009 as our new business initiatives progressed. Non-GAAP earnings for the third quarter were $0.36 per share compared to $0.26 per share last year.

Today, I will review our performance by region and follow with an update on some new developments with our rapidly growing services initiatives. Finally, I will turn the call over to Bob so that he could provide a detailed review of the financials and update guidance.

VeriFone’s third quarter revenue like that of the first two quarters of the year was driven primarily by robust demand in North America and a strengthening Latin American business. This quarter Asia was an important contributor finishing Q3 with solid revenue and excellent visibility of increasing Q4 demand.

Our European business declined sequentially due to the uncertain state of economic recovery and VX Evolution certification delay of several weeks in one of our major countries.

Let’s start with North America where revenue increased by 16% sequentially and 39% on a year-over-year basis. Petroleum, multi-lane retail and payment enabled media were the standout verticals in the quarter. Third quarter petroleum revenue increased by 4% from second quarter results and approximately 86% from the third quarter of 2009.

For the second consecutive quarter, we shipped record volumes of MX, Sapphire and Topaz indoor solutions, as customers aggressively upgraded their infrastructure to meet PCI PED standards. Demand was strong in each segment of the market we served, major oil companies, large independent marketers, petroleum wholesalers and independent site owners.

We see a number of factors driving demand in our Petroleum business this quarter, and that should continue throughout 2011 and 2012. The most significant factor is our customer’s desire to address security compliance at the Gasoline Island, which is driving Secure PumpPAY sales.

The second factor is that independent operators and wholesalers, who manage multivendor pump environments, increasingly recognize the value of VeriFone’s common platform across all pumps.

The third factor is the growing customer need for cross-marketing loyalty solutions, where consumers earn loyalty points at participating grocers and retailers, and redeem them at the gas pump. We currently are rolling out a nation-wide loyalty solution for a major oil customer and expect others to follow.

Our Multilane Retail business recorded record revenues, with growth of 42% sequentially and 57% compared to prior year levels. Wins this quarter included Menards, Smart & Final, 99¢ stores, Disney Store, Odell’s, and Urban Outfitters.

Our channel sales to smaller multilane merchants were excellent this quarter, providing an indication that security compliance in this segment is lagging larger merchants and strong demand is expected to continue.

VeriFone’s other North American vertical businesses including retail banking, hospitality and transportation, also did well in the third quarter. To supplement our direct selling efforts we have for years nurtured system integrator and value added reseller relationships that are today bringing VeriFone’s vertical solutions in to hotels, cruise ships, entertainment venues, retail banking, equipment rental businesses and public sector transportation.

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