VeriFone's (PAY) Q4 Earnings Beat Estimates, Revenues Up Y/Y

VeriFone Systems Inc. (NYSE:PAY) reported fourth-quarter fiscal 2017 non-GAAP earnings of 44 cents, beating the Zacks Consensus Estimate by a penny. The figure surged 47.7% from the year-ago quarter.

The year-over-year growth was primarily due to higher non-GAAP revenues, which increased 2.6% to $476.5 million and beat the Zacks Consensus Estimate of $472 million. The upside can be attributed to strong revenue growth in Latin America and Europe, Middle East and Africa (EMEA).

VeriFone recently completed the divestiture of the taxi business for approximately $30 million. However, the company retained minor interest in the business.

Moreover, Verifone’s board authorized an additional $100 million stock repurchase program which the company plans to execute over the upcoming 12-18 months.

VeriFone’s stock has gained 4.2% year to date, substantially underperforming the 36.7% rally of its industry.

Connected Device Footprint Expands

In fiscal 2017, VeriFone delivered earnings of $1.31 per share based on revenues of $1.874 billion. Total services revenues increased 8% in the year.

Connected device footprint totaled approximately 1.8 million terminals and generated more than $0.5 billion in recurring services revenues, which grew at a high-single digit annual run rate.

Payment-as-a service solution in North America more than doubled the company’s footprint of connected devices to approximately 400K.

Moreover, the company’s mPOS device has gained good traction within a short span of time. The device generated 25% revenue growth globally in the fiscal, primarily driven by the launch of a new midrange device.

Top-line Details

System revenues (56.3% of total revenues) increased 1.6% year over year to $268.4 million. Core North American business grew in the quarter. Moreover, Latin America and EMEA revenues contributed amply.

However, services (43.7% of total revenues) increased 4.1% year over year to $208.1 million. Excluding the results of Petro Media and the Taxi business in both periods, adjusted services growth was approximately 10% year over year.

Non-GAAP revenues from North America and Asia Pacific fell 9.6% and 3.8% from the year-ago quarter to $154.1 million and $46.2 million, respectively. However, EMEA and Latin America revenues surged 8.4% and 17.4% to $196 million and $80.2 million, respectively.

Operating Details

Non-GAAP gross margin was 41.4%, which expanded 160 basis points (bps) from the year-ago quarter.

Systems margins of 37.7% expanded 250 bps on a year-over-year basis, primarily due to favorable product mix. Services margins were 46.2%, up 180 bps on a year-over-year basis.

Non-GAAP operating expenses were 131 million, down sequentially and 3.5% year over year on the back of restructuring and efficiency initiatives.

Non-GAAP operating margin expanded 340 bps on a year-over-year basis to 13.9%.

Balance Sheet

As of Oct 31 2017, VeriFone had approximately $131 million in cash & cash equivalents compared with $159 million as of Jul 31 2017. Long-term debt totaled $762 million compared with $803.4 million at the end of the previous quarter.

Cash flow from operations in the quarter was $26 million compared with $13 million in the previous quarter.

Guidance

For first-quarter fiscal 2018, VeriFone projects non-GAAP revenues between $418 million and $420 million, adjusted to exclude divested business. The company expects earnings of 22 cents per share for the current quarter.

For fiscal 2018, Verifone estimates non-GAAP revenues between $1.775 billion and $1.800 billion. Management projects earnings between $1.47 and $1.50.

Management stated that robust backlog of business wins, accelerated sales and new channel expansion opportunities will help services business t grow organically at a double-digit rate in the long haul.

Verifone plans to surpass 2 million connected devices globally in fiscal 2018.

Zacks Rank & Key Picks

VeriFone carries a Zacks Rank #3 (Hold). Total System Services Inc (NYSE:TSS) , Visa Inc. (NYSE:V) and The Western Union Company (NYSE:WU) , all carrying a Zacks Rank #2 (Buy), are a few better-ranked stocks in the same industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Total System Services, Visa and The Western Union is currently pegged at 12.75%, 16.85% and 5.78%, respectively.

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