Non-GAAP net revenues for Q1 FY12 were $425 million, compared to $416 million in the previous quarter and $284 million for the comparable period of fiscal 2011 ("Q1 FY11"), a 50% year-over-year increase. GAAP net revenues were $420 million for the latest quarter, $411 million for the prior quarter and $284 million for Q1 FY11.
Non-GAAP gross margins were 43% for Q1 FY12, compared to 40% in the prior quarter and 41% in Q1 FY11. GAAP gross margins were 37% for the latest quarter, 31% for the prior quarter and 39% for Q1 FY11.
Non-GAAP net income per diluted share for Q1 FY12 was $0.58, compared to $0.53 in the prior quarter and $0.43 for Q1 FY11, a 35% year-over-year increase. GAAP net income per diluted share for the latest quarter was a $0.03 loss, compared to $1.84 income in the prior quarter and $0.35 income in Q1 FY11.
"We are delighted with our strong start to fiscal year 2012. We reported record revenues and non-GAAP EPS, the highest non-GAAP operating margin in over five years and continued double-digit organic growth," said Douglas G. Bergeron, Chief Executive Officer. "The Point business is performing ahead of plan. Their 'payment-as-a-service' model is positioned to serve as the new North American paradigm for quickly deploying and maintaining advanced EMV software and mobile wallet software updates for Visa, Isis, Google, PayPal and others."
Highlights Since Last Earnings Release
Today Verifone announced an agreement with Isis, the joint venture between AT&T Mobility, T-Mobile USA and Verizon Wireless, to integrate the Isis Mobile Commerce Application in current and future NFC-enabled product lines. The companies have also agreed that their sales, marketing and implementation teams will collaborate to target large retail and petroleum/convenience merchants in previously announced Isis launch markets of Salt Lake City and Austin. Verifone's leading market share of U.S. retailers, NFC-ready product portfolio and "payment-as-a-service" delivery model will help accelerate the wide-scale adoption of mobile commerce.
On March 1, Verifone announced the acquisition of LIFT Retail Marketing Technology, the provider of the LIFT Station - a digital marketing system that integrates with leading point-of-sale systems and increases sales by convenience stores and gas station shops. Leveraging an advertiser-funded model, the LIFT Station personalizes the experience for each shopper by determining optimal offers based on the products being scanned, presenting the offers with compelling digital ads on a touchscreen display and providing cashiers with friendly transaction-specific selling scripts. The Verifone LiftRetail Solutions offering is another way Verifone is bringing intelligence to retail checkout.
On January 16, at the National Retail Federation Expo, Verifone highlighted several new payment solutions, including the GlobalBay Mobile POS and Retailing solutions. Global Bay, acquired by Verifone on November 1, provides technology that, when coupled with Verifone's secure mobile payment technology, offers the retailer an unparalleled comprehensive and integrated suite of mobile applications that will transform the in-store experience. Mobile retailing is spreading as merchants seek to interact with customers away from the check-out to deliver personalized and interactive service, up-sell and cross-sell, close the sale and accept payment.
On December 30, Verifone completed the acquisition of Point, Northern Europe's largest provider of payment and gateway services and solutions for retailers. Point, based in Stockholm, with operations in 11 Northern European countries, serves a contracted network encompassing almost 475,000 merchant accounts. Verifone intends to extend the Point platform throughout the region and beyond, creating the world's largest infrastructure for rapid deployment of alternative payments. Verifone paid approximately EUR 600 million to acquire all of the equity of Point, and also retired existing Point debt of approximately EUR 190 million at closing.
To finance the Point acquisition and refinance existing debt, Verifone executed a credit agreement for $1.5 billion led by J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Securities, LLC, Barclays Capital and RBC Capital Markets. The facility provides Verifone with long-term debt capital at economical interest rates. The debt consists of 5-year Term A Loans for $918 million, a 5-year revolving line of credit for $350 million, and 7-year Term B Loans for $232 million. The company's previously arranged credit facility has been repaid in full; a portion of the proceeds will be used to repay Verifone's outstanding 1.375% Convertible Notes due June 2012.
Guidance for Second Quarter 2012 and Full Fiscal Year
Verifone has updated its guidance. For the second fiscal quarter ending April 30, 2012, Verifone expects to report non-GAAP net revenues in the range of $465 million to $470 million. Non-GAAP net income per diluted share is projected to range from $0.59 to $0.60. For the full year of fiscal 2012, Verifone expects to report non-GAAP net revenues in the range of $1.900 billion to $1.925 billion. Non-GAAP net income per diluted share is expected to range from $2.60 to $2.66 in FY12.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This press release includes certain forward-looking statements 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. These risks and uncertainties include, but are not limited to: our assumptions, judgments and estimates regarding the impact on our business of the continued uncertainty in the global economic environment and financial markets, our ability to identify and complete acquisitions and strategic investments and successfully integrate them into our business, whether the expected benefits of our business initiatives are achieved, our ability to protect against fraud, the status of our relationship with and condition of third parties such as our contract manufacturers and key suppliers upon whom we rely in the conduct of our business, our dependence on a limited number of customers, uncertainties related to the conduct of our business internationally, our ability to effectively hedge our exposure to foreign currency exchange rate fluctuations, our dependence on a limited number of key employees, short product cycles, rapidly changing technologies and maintaining competitive leadership position with respect to our payment solution offerings. The forward-looking statements in this press release do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof. For a further list and description of such risks and uncertainties, see our filings with the Securities and Exchange Commission, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. Verifone is under no obligation to, and expressly disclaims 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") (NYSE: PAY) 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 and its attachments 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. In order to assist investors, this press release provides consolidated statement of operations information on a non-GAAP basis, reflecting the adjustments made in the non-GAAP measures listed above.
Reconciliations for the non-GAAP financial measures presented in this press release are provided at the end of this press release.
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 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 acquisition related costs, 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 and Restructuring Costs. Verifone adjusts certain revenues and expenses that are the result of acquisitions and restructurings. These adjustments include the amortization of purchased intangible assets, incremental costs associated with acquisitions (such as professional fees, legal fees related to inherited litigation and one-time charges related to acquired balances), acquisition integration expenses, loss on financial instruments entered into to fix the acquisition purchase price in U.S. dollars when it is payable in foreign currencies, 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. Acquisition related expenses 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: Stock-Based Compensation. 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 C: Other Charges and Income. Verifone excludes certain expenses and income that are the result of either unique or unplanned events that 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.
- Gains or losses on financial transactions, such as the accelerated amortization of capitalized debt issuance costs due to the early repayment of debt, which result from unforeseen circumstances and typically occur outside of the ordinary course of business are excluded from Other income (expense), net 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. Our non-GAAP tax rate for the period November 1, 2010 through December 30, 2011 was 20%. Our non-GAAP tax rate for the period since the December 30, 2011 acquisition of Point is 18%.
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 D: Non-GAAP Net Income per Share. 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. During Q1 FY12, the diluted non-GAAP weighted average shares include additional shares that are dilutive for non-GAAP purposes, because we have a non-GAAP net income and GAAP basis net loss.
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