Verifone Systems, Inc. (NYSE:PAY - News) today announced the completion of its acquisition of Hypercom Corporation. In connection with the closing, Verifone and Hypercom reached a settlement with the U.S. Department of Justice, following which Hypercom divested its U.S. payment systems business to The Gores Group, LLC.
"This strategic acquisition complements Verifone's position as a trusted, worldwide leader of the electronic payment industry," said Verifone CEO Douglas G. Bergeron. "Verifone plans to grow and enhance all major product lines that existed prior to completing this acquisition, bolstered with the strong Verifone brand identity."
The new and improved Verifone represents tremendous geographical, and product and services diversification. Hypercom's presence in a number of important markets enables Verifone to accelerate overseas growth, increase innovation and build value for customers, employees and shareholders.
Verifone expects the acquired Hypercom business to contribute in fiscal year 2012 non-GAAP revenue of $350 million and non-GAAP fully diluted EPS accretion of 20 to 25 cents.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This press release includes certain forward-looking statements related to Verifone Systems, Inc. within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the forward-looking statements herein due to changes in economic, business, competitive, technological and/or regulatory factors, and other risks and uncertainties affecting the operation of the business of Verifone Systems, Inc. and Hypercom Corporation. These risks and uncertainties include whether the anticipated benefits of the acquisition can be achieved. For a further list and description of risks and uncertainties, see our periodic filings with the Securities and Exchange Commission. Verifone is under no obligation to, and expressly disclaim any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.
About Verifone Systems, Inc. (www.verifone.com)
Verifone Systems, Inc. ("Verifone") is the global leader in secure electronic payment solutions. Verifone provides expertise, solutions and services that add value to the point of sale with merchant-operated, consumer- facing and self-service payment systems for the financial, retail, hospitality, petroleum, government and healthcare vertical markets. Verifone solutions are designed to meet the needs of merchants, processors and acquirers in developed and emerging economies worldwide.
This press release may include several non-GAAP financial measures, including non-GAAP net revenues; non-GAAP cost of net revenues; non-GAAP gross profit; non-GAAP operating expenses; non-GAAP operating income; non-GAAP interest expense; non-GAAP interest income; non-GAAP other income (expense); non-GAAP income before income taxes; non-GAAP provision for income taxes, non-GAAP net income; non-GAAP net income per share as well as these non-GAAP financial measures as a percentage of net revenues.
Management uses non-GAAP financial measures only in addition to and in conjunction with results presented in accordance with GAAP. Management believes that these non-GAAP financial measures help it to evaluate Verifone's performance and to compare Verifone's current results with those for prior periods as well as with the results of peer companies. Verifone's competitors may, due to differences in capital structure and investment history, record certain income and expense items, including interest, tax, depreciation, amortization, and other non-cash expenses, that differ significantly from Verifone's, in a manner that Verifone's management believes does not reflect underlying operating performance that is comparable to Verifone's. Management also uses these non-GAAP financial measures in Verifone's budget and planning process. Management also believes that the presentation of these non-GAAP financial measures is useful to investors in comparing Verifone's operating performance in any period with its performance in other periods and with the performance of other companies that represent alternative investment opportunities. These non-GAAP financial measures contain limitations and should be considered as a supplement to, and not as a substitute for, or superior to, disclosures made in accordance with GAAP.
These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and may therefore differ from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures do not reflect all amounts and costs, such as employee stock-based compensation costs, cash that may be expended for future capital expenditures or contractual commitments, working capital needs, cash used to service interest or principal payments on Verifone's debt, income taxes and the related cash requirements, and restructuring charges, associated with Verifone's results of operations as determined in accordance with GAAP.
Furthermore, Verifone expects to continue to incur income and expense items that are similar to those that are eliminated in the non-GAAP adjustments described herein. Management compensates for these limitations by also relying on the comparable GAAP financial measures.
Note A: Acquisition Related Expenses. Verifone adjusts certain revenues and expenses that are the result of acquisitions. These adjustments include the amortization of purchased intangible assets, step-down in deferred revenue on acquisition and step-up in inventory on acquisition. These adjustments do not include the fair value adjustments relating to certain contracts acquired as part of an acquisition whereby third parties have yet to fulfill their contractual obligations. In addition, we adjust for the settlements of contingencies and true-up of balances established at the time of acquisition and other acquisition related charges (such as integration charges, certain interest charges and certain foreign currency impacts.) Acquisition related charges also result from events which arise from unforeseen circumstances which often occur outside of the ordinary course of business. Accordingly, Verifone analyzes the performance of its operations without regard to such expenses. In determining whether any acquisition related revenue or expense adjustment is appropriate, Verifone takes into consideration, among other things, how such adjustment would or would not aid the understanding of the performance of its operations.
Note B: Other Charges. Verifone excludes certain expenses that are the result of either unique or unplanned events which are noted below. It is difficult to estimate the amount or timing of these items in advance. Although these events are reflected in our GAAP financials, these expenses may limit the comparability of our on-going operations with prior and future periods.
- Post-restatement incremental professional services fees, which include those fees that are incurred for incremental procedures for preparation, review and audit of financial information prior to remediation of any deficiencies, including material weaknesses, in our internal control over financial reporting, and to assist in remediation, are excluded from general and administrative expenses. These incremental fees enable management to conclude that our consolidated financial statements are in accordance with GAAP.
- Restructuring charges and gain on extinguishment of debt, which result from unforeseen circumstances and typically occur outside of the ordinary course of business, are excluded from cost of net revenues and operating expenses to ensure comparability between periods.
- Non-cash interest expense recorded relating to the adoption of ASC 470-20, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (including partial cash settlement) is excluded to promote comparability of our non-GAAP financial results with prior and future periods and best reflects our on-going operations.
- Income taxes are adjusted for the tax effect of excluding items related to our non-GAAP financial measures, in order to provide our management and users of the financial statements with better clarity regarding the on-going performance and future liquidity of our business.
Because of these factors, we assess our operating performance with these amounts included and excluded, and by providing this information, we believe that users of our financial statements are better able to understand the financial results of what we consider to be our continuing operations.
Note C: Stock-Based Compensation Related Items. Our non-GAAP financial measures eliminate the effect of expense for stock-based compensation because they are non-cash expenses that management believes are not reflective of ongoing operating results. In particular, because of varying available valuation methodologies, subjective assumptions and the variety of award types which affect the calculations of stock-based compensation, we believe that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies. Stock-based compensation is very different from other forms of compensation. A cash salary or bonus has a fixed and unvarying cash cost. In contrast the expense associated with an award of an option is unrelated to the amount of compensation ultimately received by the employee; and the cost to the company is based on valuation methodology and underlying assumptions that may vary over time and does not reflect any cash expenditure by the company. Furthermore, the expense associated with granting an employee an option is spread over multiple years and may be reversed based on forfeitures which may differ from our original assumptions unlike cash compensation expense which is typically recorded contemporaneously with the time of award or payment.
Note D: Non-GAAP Net Income per Share Items. Verifone provides basic and diluted non-GAAP net income per share. The basic non-GAAP net income per share amount was calculated based on our non-GAAP net income and the weighted average number of shares outstanding during the reporting period. The diluted non-GAAP net income per share included additional dilution from potential issuance of common stock, except when such issuances would be anti-dilutive. For diluted non-GAAP net income per share, we have reduced the diluted share count for shares that would be delivered to us pursuant to hedge transactions that we believe will be effective upon conversion of the currently outstanding Senior Convertible Notes (the "Notes") due in June 2012. Under GAAP, shares delivered to us in hedge transactions are not considered offsetting shares in the fully diluted share calculation until they are actually delivered.