Verifone (PAY) Misses Q2 Earnings Estimates, Tops Revenues

Verifone Systems, Inc. PAY reported mixed financial results for second-quarter fiscal 2018 wherein the company’s top line surpassed the Zacks Consensus Estimate but the bottom line missed the same.

Adjusted earnings per share of 25 cents missed the consensus mark by 3 cents and were down 30.6% from the year-ago quarter. Net revenues of $438.4 million beat the Zacks Consensus Estimate of $435.5 million but were down 1.4% year over year on a non-GAAP basis and 4.8% on a constant currency basis.

We observe that shares of Verifone have gained 25.6% in the past three months, significantly outperforming the industry’s growth of 5.6%.

 

Revenues by Segment

While non-GAAP revenues from Systems (59% of total non-GAAP revenues) declined 8.5% year over year to $258.6 million, the same from services (41%) increased 11.1% to $179.8 million.

Revenues by Regions

Non-GAAP revenues from EMEA (Europe, the Middle East and Africa) increased 3.8% to $182.3 million but declined 5.4% on a constant currency basis.

Non-GAAP revenues of $84.5 million from Latin America increased 35.2% on a reported basis and 38.8% on a constant currency basis. 

However, Non-GAAP revenues from North America fell 7.9% on a reported basis as well as constant currency basis to $122.9 million.

Non-GAAP revenues of $48.7 million from Asia Pacific fell 33.2% on a reported basis and 35.2% on a constant currency basis.

Operating Results

Gross income increased 3.3% to $178.5 million. Gross margin was 40.7% compared with 36.5% in the year-ago quarter

Operating income came in at $6.9 million against a loss of $81.4 million in the year-ago quarter. Total operating expenses declined 32.5% to $171.6 million.

Balance Sheet and Cash Flow

Verifone exited the second quarter with cash and cash equivalents of $168.4 million compared with $152.8 million at the end of the first quarter of fiscal 2018. Long-term debt was $835.7 million at the end of the quarter compared with $775.4 million at the end of the prior quarter.

The company generated $26.2 million of cash from operating activities in the quarter compared with $12.9 million in the year-ago quarter.

Merger Details

On Apr 9, Verifone entered into a definitive agreement with an investor group led by Francisco Partners and British Columbia Investment Management Corporation. Per the deal, the investor group will buy Verifone for $23.04 per share in cash, which represents a total consideration of approximately $3.4 billion, inclusive of Verifone’s net debt.

Verifone’s shareholders will receive $23.04 per share in cash, which is about 54% higher than the stock’s closing price of $15.00 as of Apr 9.

Subject to customary regulatory and shareholder approvals, the deal is expected to close in third-quarter fiscal 2018. Following the completion of the deal, Verifone will become a privately-held company.

Zacks Rank and Other Stocks to Consider

Currently, Verifone has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the broader Business Services sector include Mastercard Incorporated MA, FLEETCOR Technologies, Inc. FLT and WEX Inc. WEX. While Mastercard sports a Zacks Rank #1, FLEETCOR and WEX currently carry a Zacks Rank #2.

The long-term expected earnings per share growth rate for Mastercard, FLEETCOR Technologies and WEX is 19%, 16.5% and 14.3%, respectively.

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