VeriFone Systems, Inc. (NYSE:PAY) will release its fiscal fourth quarter and full-year 2013 financial results after the market closes on Dec. 17, 2013. Management will host a webcast to review the financial results on the same day at 1:30 pm (PT). This will be the first conference call for Paul Galant, who was named VeriFone CEO in September.
San Jose, California-based VeriFone, which competes with NCR Corp. (NYSE: NCR), makes global point of sale (POS) terminals and provides a wide array of hardware, service, and data security offerings that enable electronic payments processing for the global payments industry.
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Wall Street expects VeriFone to earn 26 cents a share, according to analysts polled by Thomson Reuters. The consensus estimate implies a drop of 65.8 percent from last year when it earned 76 cents a share. The company sees non-GAAP earnings of 25 cents a share for the period.
The company's quarterly earnings have managed to top Street view twice in the past four quarters, with the last quarter's earnings edging past consensus by 20 percent. Over the past 90 days, the consensus estimate remained unchanged, and in the past 30 days, one analyst raised the earnings estimate for the fourth quarter.
Quarterly revenues are estimated to fall 13.7 percent to $421.50 million from $488.56 million in the same quarter last year. VeriFone expects fourth quarter revenue of $418 million to $422 million.
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For the full year, analysts expect earnings of $1.44 a share on revenue of $1.70 billion.
Issues at VeriFone run deeper than just certification problems, as inferior products, pricing pressure, elongated sales cycle and secular headwinds towards mPOS continue to plague the company.
Deutsche Bank analyst Bryan Keane believes the company might be challenged to regain prior lost market s! hare, which differs from the street's assumption that VeriFone will gain share back once certification issues are fixed.
Revenues are expected to decline double-digits organically for the third consecutive quarter due to product and distribution issues, as well as increased competitive pressure resulting in price declines.
Headwinds from the petroleum business in the US, certification issues in Canada and Europe, distributor loss in MEA, and weakness in Latin America (after accelerated move to wireless terminals over last few years) are expected to continue to weigh on the revenue growth. Pricing pressure and accelerated investment are also expected to weigh on the margins.
With conservative fourth quarter guidance, Keane sees modest upside to VeriFone's fourth quarter, but more importantly, potential for downside to street second half 2014 revenue estimates. He believes Street estimates of 10 percent organic revenue growth in the second half could prove too aggressive.
Moreover, investors will look to CEO Galant for the strategic direction. Galant would need to decide to take down the bar now or later and make the difficult transition towards a software/ services company away from hardware.
The secular disintermediation risk from the tablet-based cloud-enabled POS devices is playing out as small and medium businesses are increasingly adopting these devices for value-added services namely loyalty, offer redemption, real-time analytics, and inventory management.
First Data launched the Clover station as well as NCR, ROAM, and Shopkeep have upped their game with enhanced products and increased marketing. Large specialty retailers are also increasingly adopting mPOS to improve customer conversion. Longer-term, payments would move to a software apps based model in the cloud away from hardware and VeriFone should decide its strategy before time runs out.
Investors could focus on how the two recent acquisitions (EFTPOS New Zealand Ltd and Sektor) are impacting the top! line. The! y would also keep an eye on margins as VeriFone has been forced to cut prices as it continues to be plagued by product certifications, and competitive pressures.
In addition, the company mentioned that payment-as-a-service is growing even faster in the 11 to 13 percent range, and VeriFone believes it is well positioned in that market. Investors may want to hear how much leeway it has made into that space.
Cash flow could be another focus area. VeriFone was at risk of breaching its debt covenants in early fiscal 2014. Hence the company amended the debt covenants with its borrower in July 2013. As of July 31, the company had operating cash flow of $49 million and free cash flow of $31 million. It expects fourth quarter free cash flow of of $25 million, excluding shareholder settlement payment.
The Street would look for the first quarter forecast, and it may decide the movement of shares post results. In September, the company said it expects the first fiscal quarter of 2014 to reflect modest sequential improvement to the fourth quarter guidance.
Shares of PAY, which trade at 15.4 times its forward earnings, have gained 17 percent since its last quarterly report, yet slipped 18 percent this year. They have traded between $15.34 and $36.13 during the past 52-weeks.
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