About 1 hour long. Short brief by Bergeron which mirrored the 2Q CC. Then Q&A which focused on these main items and attendee concerns (repeatedly & repeatedly): 1) FX issues with weakening currencies especially the euro; 2) Point revenue and growth rates; 3) explanation of the restatement of the cashflow line. One of the 1st questions for Bergeron was "What do you see is the disconnect between the fundamentals of the company and the company stock price this week?" Of course, Bergeron, being the visionary he is, opened up with his normal immediate and long term (20 years) changing of the payments landscape and how PAY is and will be the epicenter for this tremendous revenue and organic growth and they are already seeing growth. Explained the delayed acceptance of EMV in the U.S. as the 20 foot gaping hole in the huge security wall surrounding the rest of the world, and focused on the plans to increase services component of PAY over time. It was a little bizarre in that you could tell Bergeron was talking technologies way over everone's head, his investment of $150 million in R&D, future of the payment ecosystems; and the questions from attendee mostly focused on things like "Why was the net income line on your K.....such and such". Pretty much same planet, different worlds. Main concerns though seemed to be the euro thing and if PAY plans to hedge currencies to normalize the revenues and asked for constant currency growth transparency. Attendee focus was on issues like "..if the euro falls from $1.25 to $1.23, how exactly in numbers will that affect revenue for next quarter". I think Bergeron handled it pretty well, but I suspect he really felt like saying "I'm not going to issue and reset guidance every 3 days for all you bean counters based on world FX fluctuations!" I kind of wish he did. But maybe they should get an FX hedging desk.
Doug's thinking long term. The market is thinking tomorrow. The euro was down to 1.1 in the last couple of years and one can probably expect there will continue to be volatility.
Currencies are a random walk. If you hedge versus speculate on direction of change, you simply incur an expense and the total profit over several years is lower than if you did not hedge. If you speculate, you will sometimes be correct and sometimes incorrect and the questions then becomes are you in the payment business or in the currency speculation business.
With that said, it does appear the finance staff and the audit committee did not have a good handle on currency risk with respect to the P&L as well as the BS. Given the questions of organic growth from DB, and the exposure outside the dollar, a presentation in constant currency would have been high on my list if I was on the audit committee for at minimum, internal use and planning. It is impossible to have currency exposure and be naturally fully hedged. The comments by the CFO that there were minimal impacts, showed a lack of focus and understanding of the risk.
With that said, I am glad management is focused on the long-term and not the short term and believe that Verifone will be a winner in the changing payment landscape.
Thanks for the comments. You are correct on the hedging options. Look at what happened to the airlines a few years back when Southwest and American Airlines began trading futures for fuel. Southwest made a killing but AA got crushed. The one thing I think did p*ss off the analysts initially was your assessment of the CFO statement that currency fluctuations happen and he feels any weakening of the euro will have minimal impact. I remember when he said it in a cc and I thought to myself...."d'oh..so when exactly would you consider a weak euro to have a substantial impact?". I mean there has to be some model somewhere at a minimum, internal use for both tactical and strategic planning. I doesn't have to be good plan, or even work, but it has to be a plan. All he had to say was "Yes. We have a very agressive audit and risk model internally to address any extreme currency fluctuation as well as agressive plans to minimize the impact on the bottom line." I think this is what the investors were referring to when they mentioned more transparancy. So instead, the euro drops 3% and the stock gets a 35% haircut due mainly due to the uncertainty. I mean guidance of a penny or two below expectations wouldn't be enough pressure to pull the guillotine cord.
Would you mind telling me when the euro was 1.10 last?? Also airlines hedge all the time, even gold producers hedge. The point is to flatten out the curve, even troubled industries do it. And me thinks this is a troubled industry. Also if they are so focused on the long term why all the inside selling???
Im beginning to think the way to play this industry is through ebay-paypal.