VeriFone Systems, Inc (PAY)

Q2 2012 Earnings Call

May 24, 2012 4:30 pm ET

Executives

Doug Reed - Vice President, Treasurer and Executive officer of Investor Relations

Douglas G. Bergeron - Chief Executive Officer and Executive Director

Robert Dykes - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Darrin D. Peller - Barclays Capital, Research Division

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Reginald L. Smith - JP Morgan Chase & Co, Research Division

Philip Stiller - Citigroup Inc, Research Division

John T. Williams - UBS Investment Bank, Research Division

Gil B. Luria - Wedbush Securities Inc., Research Division

Wayne Johnson - Raymond James & Associates, Inc., Research Division

Keith M. Housum - Northcoast Research

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 VeriFone Systems, Inc. Earnings Conference Call. My name is Melanie, and I'll be your coordinator today. [Operator Instructions] As a reminder, today's meeting will be recorded. I would now like to turn the call over to Mr. Doug Reed, Senior Vice President, Treasury and Investor Relations. Please proceed.

Doug Reed

Thank you, Melanie, and welcome, everyone, to the VeriFone Financial Results Conference Call for the Second Quarter of Fiscal Year 2012. Today's call is being webcast with both audio and slides available via the link in the Investor Relations area of our website, ir.verifone.com, and a recording will be available on our website until May 31, 2012.

With me today in VeriFone San Jose, California headquarters is our CEO, Doug Bergeron; and our CFO, Bob Dykes.

First for the legalities. 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 Securities and Exchange Commission.

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 historical and forecast basis. Our management uses these measures to evaluate our operating performance and to compare our results to those of prior periods, as well as to 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.

[Operator Instructions] Now I'd like to turn the call over to Doug Bergeron, CEO of VeriFone.

Douglas G. Bergeron

Thanks, Doug, and good afternoon, everyone. We are very pleased with the results of our second quarter fiscal year 2012. For the 10th consecutive quarter, we posted all-time record results. Q2 non-GAAP revenues were $479 million, a 64% increase over the previous year. Excluding the impact of all acquisitions over the past 12 months, organic revenue growth accelerated to 15%. Hypercom revenues were $81 million, up 11% sequentially and 17% over Q4 fiscal year '11. Point revenues totaled $58 million, also ahead of expectations.

Non-GAAP services revenue comprised a record 28% of total revenue in Q2. Non-GAAP operating income was 21% of revenue for the second quarter in a row. We hope for further good news on operating margin expansion throughout the remainder of the year.

Non-GAAP fully diluted earnings for the second quarter were $0.64 per share, 39% higher than the $0.46 per share results a year ago.

Today, I will review our performance by region and follow with comments on some of our strategic activities, including an update on the Point acquisition. Finally, I will turn the call over to Bob, who will provide a detailed review of the financials and update guidance.

Our international operation showed continued strength in Q2, posting year-over-year growth of 103%. Organic growth was 25%. Latin America had another very impressive quarter, with 71% year-over-year revenue growth and 46% growth, excluding acquisitions.

We continue to see strong sales in Brazil and across the rest of the region, driven by wider acceptance of electronic payments, growing economies and a migration towards contact with terminals.

Each and every other Latin American sales region materially exceeded plan, with a standout performance in Venezuela, Peru, Mexico and Chile.

New government mandates kicked off a new wave of growth in some markets. In Puerto Rico, for example, the government has developed an incentive for electronic payment instead of cash by rewarding the customer with a lotto number on their receipt, making them eligible for prizes if payment is made using electronic media.

The sales tax information is uploaded to the taxing authority as the transaction is processed. We are hearing that similar programs are now in the works in several emerging market regions, where increased tax collection and tax enforcement will be the key to financial stability.

In Europe, the Middle East and Africa, revenues grew 119% over Q2 last year and 10% organically. As I mentioned earlier, revenues from Point were $58 million in Q2. The development of the payment-as-a-service all in one model across Point's home markets continues to be very successful. All-in-one revenue was up over 25% on a year-over-year basis.

We are beginning the rollout of Point's payment-as-a-service offering beyond Point's traditional markets. In the quarter, we kicked off Point business plan expansion in Germany, the Netherlands, Poland and Australia. Through Point's gateway, we can deliver real-time EMV application support and guaranteed compliance, end-to-end encryption, and beginning this quarter, an extensive merchant analytics capability, enabling customers to do daily tracking of their sales and settlements.

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