VeriFone's (PAY) Q1 Earnings Match Estimates, Revenues Top

VeriFone Systems Inc. (NYSE:PAY) reported first-quarter fiscal 2018 non-GAAP earnings of 23 cents, which matched the Zacks Consensus Estimate. The figure jumped 9.5% from the year-ago quarter.

Non-GAAP revenues of $436.8 million beat the Zacks Consensus Estimate of $419.5 million, but declined 4.3% year over year. In the year-ago quarter, the company benefitted largely from sudden robust demand in India, courtesy of demonetization which led to a tough year-over-year comparison. Besides, divestitures of the China business, Petro Media and the Taxi businesses also negatively impacted results.

Notably, VeriFone’s shares have lost 11.3% in the past year against the industry’s growth of 36.6%.

Quarter Details

System revenues (57.3% of total revenues) declined 8.4% year over year to $243.1 million, owing to the headwinds arising from the U.S. petro business and Indian markets. However, revenues from Latin America, EMEA and North America SMB vertical contributed amply.

Services (45.6% of total revenues) increased 2.8% year over year to $193.7 million. Excluding the results of Petro Media and the Taxi business in both periods, adjusted services growth was approximately 11% year over year.

Non-GAAP revenues from North America and Asia Pacific fell 25.4% and 35.5% from the year-ago quarter to $123.8 million and $40.6 million, respectively. However, EMEA and Latin America revenues increased 9.5% and 54.9% to $184.1 million and $88.3 million, respectively. Growth in Latin America was fueled by Brazil, Argentina and Mexico.

Connected device footprint totaled approximately 1.9 million terminals. The increasing adoption is evident from the 13% recurring services revenues generated in the quarter.

In the quarter, new product sales accounted for 7% of total system sales. VeriFone’s global mPOS revenues continue to be a strong double-digit growth driver, which increased significantly in the quarter. The company’s e280 mPOS device is also gaining traction.

Operating Details

Non-GAAP gross margin was 41.2%, which expanded 230 basis points (bps) from the year-ago quarter.

Systems margin of 36.8% was lower sequentially as well as on a year-over-year basis, affected by unfavorable geographical mix. Services margins were 48%, up 280 bps driven by favorable service mix in North America.

Non-GAAP operating margin expanded 70 bps from the prior-year quarter to 10.3%.

Balance Sheet

As of Jan 31 2018, VeriFone had $152.8 million in cash & cash equivalents compared with $131 million as of Oct 31 2017. Long-term debt totaled $775.4 million compared with $762 million at the end of the previous quarter.

Cash flow from operations was $51.6 million compared with $26 million in the previous quarter. Meanwhile, free cash outflow was $38 million in the quarter.

The company repurchased 2.8 million shares in the quarter.

Verifone Systems, Inc. Price, Consensus and EPS Surprise

Verifone Systems, Inc. Price, Consensus and EPS Surprise | Verifone Systems, Inc. Quote

Guidance

For second-quarter fiscal 2018, VeriFone projects non-GAAP revenues of $435 million. The company expects earnings between 27 and 28 cents per share.

The company reiterated guidance for fiscal 2018. Non-GAAP revenues are expected to between $1.775 billion and $1.800 billion, adjusted to exclude divested business. Earnings are projected to be in the range of $1.47-$1.50.

Zacks Rank & Key Picks

VeriFone carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include NVIDIA Corporation (NASDAQ:NVDA) , Lam Research Corporation (NASDAQ:LRCX) and Paycom Software (NYSE:PAY) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for NVIDIA, Lam Research and Paycom is projected to be 10.3%, 14.9% and 23.8%, respectively.

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