VeriFone Systems, Inc Q2 2010 Earnings Call Transcript

VeriFone Systems, Inc Q2 2010 Earnings Call Transcript
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VeriFone Systems, Inc (PAY)

Q2 2010 Earnings Call

May 26, 2010 4:30 pm ET

Executives

William Nettles - Vice President of Corporate Development & Investor Relations

Douglas Bergeron - Chief Executive Officer and Executive Director

Robert Dykes - Chief Financial Officer, Prinicipal Accounting Officer and Senior Vice President

Analysts

Robert Dodd - Morgan Keegan & Company, Inc.

Tien-Tsin Huang - JP Morgan Chase & Co

Andrew Jeffrey - SunTrust Robinson Humphrey Capital Markets

Gil Luria - Wedbush Securities Inc.

Wayne Johnson - Raymond James & Associates

Darrin Peller - Barclays Capital

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Q2 2010 VeriFone Systems Inc. Earnings Conference Call. My name is Derek, and I'll be your operator for today. [Operator Instructions] I will now like to turn the conference over to your host for today, Vice President of Corporate Development and IR, Mr. William Nettles. Please proceed.

William Nettles

Good afternoon, and welcome to the VeriFone financial results conference call for the second quarter of fiscal year 2010. Today's call is being webcast, and a recording will be available on our website until June 2, 2010. With me today is our CEO, Doug Bergeron; and Bob Dykes, our CFO.

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

Douglas Bergeron

Thanks, William. Good afternoon, everyone. Our revenues of $241 million were the highest we've ever recorded in the second quarter, increasing 8% sequentially and 19% from the previous year. Services revenue, which includes the result of our transformational initiatives, increased 16% sequentially and 47% compared to the second quarter of 2009. Non-GAAP earnings for the second quarter were $0.29 per share. Non-GAAP operating margin was consistent with the levels of the prior quarter at 540 basis points higher than the comparable period results in 2009.

Today, I will review our performance by region, follow with an update on VX Evolution, VeriFone's next generation of core payment systems, and update you on some new developments with our transformational services initiatives. Finally, I will turn the call over to Bob who will provide a detailed review of the financials and update guidance.

VeriFone's second quarter revenue, like that of the first quarter, was driven by robust PCI PED upgrade demand in North America and a rebounding Latin America business. These increases offset an anticipated seasonal decline in Asia and some weakness in the Balkans.

Let's start with North America, where revenue increased by 18% sequentially and 27% on a year-over-year basis. Petroleum, Multi-lane Retail and Media Solutions were the standout verticals in the quarter.

Second quarter Petroleum revenue increased by almost 40% from first quarter results, and approximately 100% from the second quarter of 2009. Demand for indoor solutions was particularly strong, and we shipped to record volumes of MX, Sapphire and Topaz systems. We also received a multi-million-dollar Secure PumpPAY contract from Tesoro, a major independent refiner and operator of hundreds of retail stations. Tesoro selected VeriFone because of our security expertise and because we offer a uniquely common platform across all pumps. The multiple pump manufacturers who supply Tesoro could not individually address this requirement. We are encouraged by this feedback and think that Secure PumpPAY will be an important contributor to our Petroleum business over the next couple of years.

Our Multi-lane Retail business had one of the best quarters in its history. We also continued to win the majority of new opportunities in this segment. This quarter, our wins included Pep Boys and Foot Locker, amongst many others.

Our Media Solutions business had a solid quarter. We completed the integration and training of the acquired taxi media sales force early in the quarter and saw the benefits of increased sales coverage on our top line. We also started to see the benefits of the economic recovery, with an uptick in digital advertising demand from both existing and new customers such as Microsoft.

Finally, in the past months, we've provided customers with a preview of VeriFone's new in-taxi video advertising platform that contains an enhanced visual experience and a number of features appealing to advertisers. For example, advertisers will be able to geo-target riders is at various locations such as the airport, theater and shopping districts. Advanced interactive features will allow riders to self-select advertising content for a particular merchant. We expect that this platform will go into production in the third quarter.

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