Verifone (NYSE: PAY), a world leader in payments and commerce
solutions, today announced financial results for the three months
ended April 30, 2016.
Second Quarter Financial Highlights
- GAAP net revenues of $526 million and
Non-GAAP net revenues of $532 million
- GAAP net income per diluted share of
$0.03
- Non-GAAP net income per diluted share
of $0.47
- Operating cash flow of $51 million
“Q2 was a mixed quarter for Verifone as we grew our business,
but experienced several difficult market dynamics,” said Paul
Galant, Chief Executive Officer of Verifone. “As a result, it is
necessary for us to adjust for these risks and update our outlook
for FY16 to $2.100 billion dollars of revenue and $1.85 of earnings
per share. We are aggressively executing mitigating actions
including a headcount restructuring and a review of underperforming
businesses. At the same time, we remain committed to executing our
strategy in a disciplined manner, and continue to make progress in
bringing our next generation devices to market and launching our
services platform.”
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE AND
PERCENTAGES)
Three Months Ended April 30,
Six Months Ended April 30, 2016
2015 Change 2016
2015 Change GAAP: Net revenues $ 526 $
490 7.4% $ 1,040 $ 976 6.5% Gross margin as a % of net revenues
40.0 % 41.6 % (1.6) pts 40.9 % 41.3 % (0.4) pts Net income per
diluted share $ 0.03 $ 0.15 (80.0)% $ 0.24 $ 0.27 (11.1)%
Non-GAAP (1): Net revenues $ 532 $ 490 8.6% $ 1,046 $ 977 7.0%
Gross margin as a % of net revenues 42.4 % 42.8 % (0.4) pts 42.6 %
42.6 % —pts Net income per diluted share $ 0.47 $ 0.44 6.8% $ 0.94
$ 0.88 6.8%
(1) Reconciliations for the non-GAAP
measures are provided at the end of this press release.
Third Quarter and Fiscal Year 2016 Outlook
Guidance for the third fiscal quarter of 2016 is as follows:
- Non-GAAP net revenues of $515
million
- Non-GAAP net income per diluted share
of $0.40
Guidance for the full fiscal year 2016 is as follows:
- Non-GAAP net revenues of $2.100
billion
- Non-GAAP net income per diluted share
of $1.85
Restructuring Initiatives
Verifone is currently conducting a disciplined strategic review
to address underperforming businesses and reduce overall operating
expense levels. In connection with these plans the company intends
to reduce headcount and estimates that these activities in total
will generate approximately $30 million of savings in 2017.
Conference Call
Verifone will hold its earnings conference call today, June 7th,
at 1:30 pm (PT) / 4.30pm (ET). To listen to the call and view the
slides, visit Verifone’s website http://ir.verifone.com. The
recorded audio webcast will be available on Verifone's website
until June 30, 2016.
About Verifone
Verifone is transforming everyday transactions into
opportunities for connected commerce. We’re connecting payment
devices to the cloud, merging the online and in-store shopping
experience and creating the next generation of digital engagement
between merchants and consumers. We are built on a 30-year history
of uncompromised security with approximately 29 million devices and
terminals deployed worldwide. Our people are known as trusted
experts that work with our clients and partners, helping to solve
their most complex payments challenges. We have clients and
partners in more than 150 countries, including the world’s
best-known retail brands, financial institutions and payment
providers.
Verifone.com | (NYSE: PAY) | @verifone
Additional Resources:
http://ir.verifone.com
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This press release includes certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are based on management's current
expectations or beliefs and on currently available competitive,
financial and economic data and are subject to uncertainty and
changes in circumstances. Actual results may vary materially from
those expressed or implied by the forward-looking statements herein
due to changes in economic, business, competitive, technological,
and/or regulatory factors, and other risks and uncertainties
affecting the operation of the business of VeriFone Systems, Inc.,
including many factors beyond our control. These risks and
uncertainties include, but are not limited to, those associated
with: execution of our strategic plan and business and operational
initiatives, including whether the expected benefits of our plan
and initiatives are achieved within expected timeframes or at all,
short product cycles and rapidly changing technologies, our ability
to maintain competitive leadership position with respect to our
payment solution offerings, our dependence on a limited number of
customers, the conduct of our business and operations
internationally, including the complexity of compliance with
international laws and regulations and risks related to adverse
regulatory actions, including tax-related audits and assessments,
our ability to protect our computer systems and networks from
fraud, cyber-attacks or security breaches, our assumptions,
judgments and estimates regarding the impact on our business of
political instability in markets where we conduct business,
uncertainty in the global economic environment and financial
markets, the status of our relationships with and condition of
third parties such as our contract manufacturers, key customers,
distributors and key suppliers upon whom we rely in the conduct of
our business, our ability to effectively integrate the businesses
we acquire and to achieve the expected benefits of such
acquisitions, our ability to effectively hedge our exposure to
foreign currency exchange rate fluctuations, and our dependence on
a limited number of key employees. For a further list and
description of the risks and uncertainties affecting the operations
of our business, see our filings with the Securities and Exchange
Commission, including our annual report on Form 10-K and our
quarterly reports on Form 10-Q. The forward-looking statements
speak only as of the date such statements are made. Verifone is
under no obligation to, and expressly disclaims any obligation to,
update or alter its forward-looking statements, whether as a result
of new information, future events, changes in assumptions or
otherwise.
VERIFONE SYSTEMS, INC. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED, IN MILLIONS, EXCEPT PER
SHARE DATA AND PERCENTAGES)
Three Months Ended April 30, Six Months Ended
April 30, 2016 2015
%Change(1)
2016 2015
%Change(1)
Net revenues: Systems $ 342.5 $ 324.3 5.6 % $ 680.0 $ 637.7
6.6 % Services 183.8 165.8 10.9 % 359.8 338.7
6.2 % Total net revenues 526.3 490.1 7.4 %
1,039.8 976.4 6.5 %
Cost of net
revenues: Systems 200.5 189.0 6.1 % 395.3 374.6 5.5 % Services
115.4 97.2 18.7 % 218.8 198.7 10.1 %
Total cost of net revenues 315.9 286.2 10.4 % 614.1
573.3 7.1 %
Total gross margin 210.4
203.9 3.2 % 425.7 403.1 5.6 %
Operating expenses: Research and development 54.7 47.6 14.9
% 106.4 96.5 10.3 % Sales and marketing 59.0 55.3 6.7 % 114.0 112.8
1.1 % General and administrative 54.9 49.5 10.9 % 107.7 96.8 11.3 %
Litigation settlement and loss contingency expense — 1.2 nm — 1.2
nm
Amortization of purchased intangible assets 22.0 20.6
6.8 % 41.6 42.9 (3.0 )% Total operating expenses
190.6 174.2 9.4 % 369.7 350.2 5.6 %
Operating income 19.8 29.7 (33.3 )% 56.0 52.9 5.9 % Interest
expense, net (8.6 ) (7.4 ) 16.2 % (16.8 ) (15.3 ) 9.8 % Other
income (expense), net (4.8 ) (3.2 ) nm (7.0 ) (3.0 ) nm Income
before income taxes 6.4 19.1 (66.0 )% 32.2 34.6 (6.9 )% Income tax
provision 3.1 1.4 121.4 % 5.1 2.8 82.1
%
Consolidated net income 3.3 17.7
(81.4
)%
27.1 31.8 (14.8 )% Net income attributable to noncontrolling
interests (0.4 ) (0.1 ) 300.0 % (0.7 ) (0.4 ) 75.0 %
Net income
attributable to VeriFone Systems, Inc. stockholders $ 2.9
$ 17.6 (83.5 )% $ 26.4 $ 31.4 (15.9 )%
Net income per share attributable to VeriFone Systems,
Inc. stockholders: Basic $ 0.03 $ 0.15 $ 0.24
$ 0.28 Diluted $ 0.03 $ 0.15 $ 0.24
$ 0.27
Weighted average number of shares
used in computing net income per share attributable to VeriFone
Systems, Inc. stockholders: Basic 110.3 113.9
110.8 113.7 Diluted 111.3 115.9 111.9
115.7
(1) "nm" means not meaningful
VERIFONE SYSTEMS, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED, IN MILLIONS)
April 30, 2016 October 31, 2015
ASSETS Current assets: Cash and cash equivalents $ 156.6 $
208.9 Accounts receivable, net of allowances of $12.3 and $8.8
397.4 362.0 Inventories 154.6 129.7 Prepaid expenses and other
current assets 132.0 81.7
Total current assets
840.6 782.3 Property and equipment, net 217.2 191.0 Purchased
intangible assets, net 368.0 317.5 Goodwill 1,164.7 1,084.0
Deferred tax assets, net 38.0 35.9 Other long-term assets 79.9
62.4
Total assets $ 2,708.4 $ 2,473.1
LIABILITIES AND EQUITY Current liabilities:
Accounts payable $ 217.5 $ 189.4 Accruals and other current
liabilities 228.5 229.9 Deferred revenue, net 112.9 82.9 Short-term
debt 55.3 39.1
Total current liabilities 614.2
541.3 Long-term deferred revenue, net 61.7 55.3 Long-term debt
899.5 760.2 Deferred tax liabilities, net 113.5 102.9 Other
long-term liabilities 88.1 78.9
Total
liabilities 1,777.0 1,538.6 Stockholders’ equity: Common
stock 1.1 1.1 Additional paid-in capital 1,749.4 1,726.5
Accumulated deficit
(582.6
)
(535.7
)
Accumulated other comprehensive loss
(270.2
)
(292.3
)
Total VeriFone Systems, Inc. stockholders’ equity 897.7
899.6 Noncontrolling interests in subsidiaries 33.7 34.9
Total equity 931.4 934.5
Total
liabilities and equity $ 2,708.4 $ 2,473.1
VERIFONE SYSTEMS, INC. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED, IN MILLIONS)
Six Months Ended April 30,
2016 2015 Cash flows from operating
activities Consolidated net income $ 27.1 $ 31.8 Adjustments to
reconcile consolidated net income to net cash provided by operating
activities: Depreciation and amortization, net 85.6 86.3
Stock-based compensation expense 22.0 21.0 Deferred income taxes,
net (5.1 ) (7.2 ) Other 6.2 10.0 Net cash provided by
operating activities before changes in operating assets and
liabilities 135.8 141.9 Changes in operating assets
and liabilities: Accounts receivable, net (12.6 ) (35.2 )
Inventories (23.4 ) (11.7 ) Prepaid expenses and other assets (24.2
) (19.3 ) Accounts payable 26.0 17.3 Deferred revenue, net 30.9
12.7 Other current and long-term liabilities (18.4 ) (8.3 ) Net
change in operating assets and liabilities (21.7 ) (44.5 ) Net cash
provided by operating activities 114.1 97.4
Cash flows from investing activities Capital expenditures
(58.4 ) (48.9 ) Acquisition of businesses, net of cash acquired
(169.7 ) (11.0 ) Other investing activities, net 0.1 0.1
Net cash used in investing activities (228.0 ) (59.8 )
Cash flows from financing activities Proceeds from
debt, net of issuance costs 380.4 30.0 Repayments of debt (238.6 )
(70.2 ) Proceeds from issuance of common stock through employee
equity incentive plans 2.5 9.5 Stock repurchases (79.9 ) — Other
financing activities, net (3.4 ) (2.2 ) Net cash provided by (used
in) financing activities 61.0 (32.9 ) Effect of
foreign currency exchange rate changes on cash and cash equivalents
0.6 (20.7 ) Net decrease in cash and cash equivalents
(52.3 ) (16.0 ) Cash and cash equivalents, beginning of period
208.9 250.2 Cash and cash equivalents, end of period
$ 156.6 $ 234.2
VERIFONE SYSTEMS,
INC. NET REVENUES INFORMATION (UNAUDITED, IN
MILLIONS, EXCEPT PERCENTAGES)
Three
Months Ended Six Months Ended Note
April 30,2016
January 31,2016
April 30,2015
%Change(1) SEQ
%Change(1) YoY
April 30,2016
April 30,2015
%Change(1)
GAAP net revenues: North America $ 209.3 $ 235.7 $ 193.0
(11.2
)%
8.4 % $ 445.0 $ 353.3 26.0 % Latin America 69.8 54.8 68.1 27.4 %
2.5 % 124.6 139.1 (10.4 )% EMEA 197.0 170.3 179.4 15.7 % 9.8 %
367.4 359.6 2.2 % Asia-Pacific 50.2 52.7 49.6
(4.7 )% 1.2 % 102.8 124.4 (17.4 )% Total $ 526.3
$ 513.5 $ 490.1 2.5 % 7.4 % $ 1,039.8 $
976.4 6.5 %
Non-GAAP net revenues: (2) North
America A $ 215.4 $ 235.7 $ 193.0 (8.6 )% 11.6 % $ 451.1 $ 353.4
27.6 % Latin America A 69.8 54.8 68.1 27.4 % 2.5 % 124.6 139.1
(10.4 )% EMEA A 197.0 170.4 179.6 15.6 % 9.7 % 367.4 360.2 2.0 %
Asia-Pacific A 50.2 52.7 49.6 (4.7 )% 1.2 %
102.8 124.5 (17.4 )% Total $ 532.4 $ 513.6
$ 490.3 3.7 % 8.6 % $ 1,045.9 $ 977.2
7.0 %
GAAP net revenues $ 526.3
$ 513.5 $ 490.1 2.5 %
7.4 % $ 1,039.8 $ 976.4
6.5 % Plus: Non-GAAP net revenues adjustments A 6.1
0.1 0.2 nm nm 6.1 0.8 nm
Non-GAAP net revenues (2) 532.4 513.6 $
490.3 3.7 % 8.6 % 1,045.9
$ 977.2 7.0 % Net revenues from
businesses acquired in the past 12 months B (20.4 ) (5.2 ) (0.2 )
nm nm (25.6 ) (0.2 ) nm
Non-GAAP organic net revenues (2)
$ 512.0 $ 508.4 $
490.1 (0.3 )% 4.4 %
$ 1,020.3
$ 977.0 4.4 %
(1) "nm" means not meaningful.
(2) Reconciliations for the non-GAAP
measures are provided at the end of this press release.
For three months ended April 30, 2016
compared with three months ended April 30, 2015 For six
months ended April 30, 2016 compared with six months ended April
30, 2015
Netrevenuesgrowth
Impact dueto acquiredbusinesses(A) (B)
Non-GAAPorganicnetrevenuesgrowth
Impact dueto foreigncurrency(C)
Non-GAAPorganicnetrevenuesat
constantcurrencygrowth
Netrevenuesgrowth
Impact dueto acquiredbusinesses(A) (B)
Non-GAAPorganicnetrevenuesgrowth
Impact dueto foreigncurrency(C)
Non-GAAPorganicnetrevenuesat
constantcurrencygrowth
North America 8.4 % 0.7pts 7.7 % (0.1)pts 7.8 % 26.0 % 0.8pts 25.2
% (0.2)pts 25.4 % Latin America 2.5 % 0.0pts 2.5 % (24.0)pts 26.5 %
(10.4 )% 0.1pts (10.5 )% (21.2)pts 10.7 % EMEA 9.8 % 7.2pts 2.6 %
(3.5)pts 6.1 % 2.2 % 4.9pts (2.7 )% (6.5)pts 3.8 % Asia-Pacific 1.2
% 0.0pts 1.2 % (7.1)pts 8.3 % (17.4 )% 0.0pts (17.4 )% (7.5)pts
(9.9 )% Total 7.4 % 3.0pts 4.4 % (5.4)pts 9.8 % 6.5 % 2.1pts 4.4 %
(6.5)pts 10.9 %
Non-GAAP Reconciliations
VERIFONE SYSTEMS, INC. RECONCILIATIONS OF NON-GAAP
FINANCIAL MEASURES (UNAUDITED, IN MILLIONS)
GAAP netrevenues
Amortizationof
step-downin deferredrevenue
atacquisition
Non-GAAPnet revenues
Net
revenuesfrombusinessesacquired inthe
past 12months
Non-GAAPorganic
netrevenues
Constantcurrencyadjustment
Non-GAAPorganic
netrevenues atconstant currency
Note (A) (A) (B) (B) (C)
(C) Three Months Ended April 30, 2016 North
America $ 209.3 $ 6.1 $ 215.4 $ (7.7) $ 207.7 $ 0.2 $ 207.9 Latin
America 69.8 — 69.8 — 69.8 16.3 86.1 EMEA 197.0 — 197.0 (12.7)
184.3 6.2 190.5 Asia-Pacific 50.2 — 50.2 —
50.2 3.5 53.7 Total $ 526.3 $ 6.1 $ 532.4 $
(20.4) $ 512.0 $ 26.2 $ 538.2 Systems $ 342.5 $ — $
342.5 $ — $ 342.5 $ 17.1 $ 359.6 Services 183.8 6.1
189.9 (20.4) 169.5 9.1 178.6 Total $ 526.3 $
6.1 $ 532.4 $ (20.4) $ 512.0 $ 26.2 $ 538.2
Three Months Ended January 31, 2016 North America $ 235.7 $
— $ 235.7 $
(0.9)
$ 234.8 Latin America 54.8 — 54.8 — 54.8 EMEA 170.3 0.1 170.4 (4.3)
166.1 Asia-Pacific 52.7 — 52.7 —
52.7 Total $ 513.5 $ 0.1 $ 513.6 $
(5.2) $ 508.4 Systems $ 337.6 $ — $ 337.6 $ — $ 337.6
Services 175.9 0.1 176.0 (5.2)
170.8 Total $ 513.5 $ 0.1 $ 513.6 $
(5.2) $ 508.4
Three Months Ended April 30, 2015 North
America $ 193.0 $ — $ 193.0 $ — $ 193.0 Latin America 68.1 — 68.1 —
68.1 EMEA 179.4 0.2 179.6 (0.2) 179.4 Asia-Pacific 49.6
— 49.6 — 49.6 Total $ 490.1
$ 0.2 $ 490.3 $ (0.2) $ 490.1 Systems $
324.3 $ — $ 324.3 $ — $ 324.3 Services 165.8 0.2
166.0 (0.2) 165.8 Total $ 490.1
$ 0.2 $ 490.3 $ (0.2) $ 490.1
VERIFONE SYSTEMS,
INC. RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED, IN MILLIONS)
GAAP netrevenues
Amortizationof
step-downin deferredrevenue
atacquisition
Non-GAAPnet revenues
Net
revenuesfrombusinessesacquired inthe
past 12months
Non-GAAPorganic
netrevenues
Constantcurrencyadjustment
Non-GAAPnet revenuesat
constant currency
Note (A) (A) (B) (B) (C)
(C) Six Months Ended April 30, 2016 North
America $ 445.0 $ 6.1 $ 451.1 $ (8.6) $ 442.5 $ 0.7 $ 443.2 Latin
America 124.6 — 124.6 — 124.6 29.4 154.0 EMEA 367.4 — 367.4 (17.0)
350.4 23.4 373.8 Asia-Pacific 102.8 — 102.8 — 102.8
9.3 112.1 Total $ 1,039.8 $ 6.1 $
1,045.9 $ (25.6) $ 1,020.3 $ 62.8 $ 1,083.1
System Solutions $ 680.0 $ — $ 680.0 $ — $ 680.0 $ 36.2 $ 716.2
Services 359.8 6.1 365.9 (25.6) 340.3 26.6
366.9 Total $ 1,039.8 $ 6.1 $ 1,045.9 $ (25.6)
$ 1,020.3 $ 62.8 $ 1,083.1
Six Months Ended
April 30, 2015 North America $ 353.3 $ 0.1 $ 353.4 $ — $
353.4
Latin America 139.1 — 139.1 — 139.1 EMEA 359.6 0.6 360.2
(0.2)
360.0 Asia-Pacific 124.4 0.1 124.5 —
124.5 Total $ 976.4 $ 0.8 $ 977.2 $ (0.2) $ 977.0 System
Solutions $ 637.7 $ — $ 637.7 $ — $ 637.7 Services 338.7 0.8 339.5
(0.2) 339.3 Total $ 976.4 $ 0.8 $ 977.2 $ (0.2) $ 977.0
VERIFONE SYSTEMS, INC. RECONCILIATIONS OF NON-GAAP
FINANCIAL MEASURES (UNAUDITED, IN MILLIONS, EXCEPT PER SHARE
AMOUNTS AND PERCENTAGES) Note
Netrevenues
Grossmargin
Grossmarginpercentage
Operatingincome
Incometaxprovision
Net incomeattributableto
VeriFoneSystems,Inc.stockholders
Weightedaveragedilutedshares:
Diluted netincome
pershare (1)
Three Months Ended April 30, 2016 GAAP
$ 526.3 $ 210.4 40.0% $
19.8 $ 3.1 $ 2.9 111.3
$ 0.03 Adjustments: Amortization of step-down
deferred services net revenues and associated costs of goods sold
at acquisition
A 6.1 4.4 4.4 4.4 Merger and acquisition
related
D — 3.8 27.4 — 28.7 Stock based compensation
E — 0.8 11.6 — 11.6 Other charges and income
F — 6.6
9.0 — 10.1 Income tax effect of non-GAAP exclusions
G —
— — 5.8 (5.8 ) Non-GAAP $
532.4 $ 226.0 42.4% $ 72.2 $ 8.9 $ 51.9
111.3 $ 0.47
Three Months Ended April 30,
2015 GAAP $ 490.1 $
203.9 41.6% $ 29.7 $ 1.4
$ 17.6 115.9 $ 0.15 Adjustments:
Amortization of step-down in deferred
services net revenues at acquisition
A 0.2 0.2 0.2 — 0.2 Merger and acquisition related
D
— 5.0 25.7 — 26.7 Stock based compensation
E — 0.4 8.9 — 8.9
Other charges and income
F — 0.2 4.8 — 4.8 Income tax effect
of non-GAAP exclusions
G — — — 7.3
(7.3 ) Non-GAAP $ 490.3 $ 209.7
42.8% $ 69.3 $ 8.7 $ 50.9 115.9 $ 0.44
(1) Diluted net income per share is
calculated by dividing the Net income attributable to VeriFone
Systems, Inc. stockholders by the Weighted average number of shares
used in computing net income per share attributable to VeriFone
Systems, Inc. stockholders.
VERIFONE SYSTEMS, INC. RECONCILIATIONS OF
NON-GAAP FINANCIAL MEASURES (UNAUDITED, IN MILLIONS, EXCEPT
PER SHARE AMOUNTS AND PERCENTAGES) Note
Net revenues Gross margin
Gross margin percentage Operating
income Income tax provision
Net income attributable to VeriFone Systems, Inc.
stockholder Weighted average diluted
shares: Diluted net income per share (1)
Six Months Ended April 30, 2016
GAAP $1,039.8 $425.7 40.9 %
$56.0 $ 5.1 $ 26.4 111.9
$0.24 Adjustments: Amortization of step-down in deferred
services net revenues and associated costs of goods sold at
acquisition A 6.1 4.4 4.4 — 4.4 Merger and acquisition related D —
7.8 53.1 — 53.2 Stock based compensation E — 1.7 22.0 — 22.0 Other
charges and income F — 6.4 9.0 — 12.7 Income tax effect of non-GAAP
exclusions G — — — 13.1 (13.1 )
Non-GAAP $1,045.9 $446.0 42.6 % $144.5 $ 18.2 $ 105.6
111.9 $0.94
Six Months Ended April 30, 2015
GAAP $ 976.4 $ 403.1 41.3
% $ 52.9 $ 2.8 $
31.4 115.7 $ 0.27 Adjustments:
Amortization of step-down in deferred net revenues at acquisition A
0.8 0.8 0.8 — 0.8 Merger and acquisition related D — 10.0 53.6 —
51.9 Stock based compensation E — 1.1 21.0 — 21.0 Other charges and
income F — 1.0 11.1 — 11.1 Income tax effect of non-GAAP exclusions
G — — — 14.6
(14.6
)
Non-GAAP $ 977.2 $ 416.0 42.6 % $ 139.4 $ 17.4
$ 101.6 115.7 $ 0.88
(1) Diluted net income per share is
calculated by dividing the Net income attributable to VeriFone
Systems, Inc. stockholders by the Weighted average number of shares
used in computing net income per share attributable to VeriFone
Systems, Inc. stockholders.
NON-GAAP FINANCIAL MEASURES
This press release and its attachments include several non-GAAP
financial measures, including non-GAAP net revenues; non-GAAP
Systems net revenues; non-GAAP Services net revenues; net revenues
from businesses acquired in the past 12 months; non-GAAP organic
net revenues; non-GAAP organic net revenues at constant currency;
non-GAAP gross margin; non-GAAP gross margin as a percentage of
non-GAAP net revenues; non-GAAP operating income; non-GAAP income
tax provision; non-GAAP net income attributable to Verifone
Systems, Inc. shareholders; non-GAAP weighted average diluted
shares; and non-GAAP net income (loss) per diluted share. This
press release also includes certain forward-looking non-GAAP
financial measures, specifically projected non-GAAP net revenues
and non-GAAP net income per diluted share for the third fiscal
quarter and full fiscal year 2016. The corresponding
reconciliations of these non-GAAP financial measures to the most
comparable GAAP financial measures, to the extent available without
unreasonable effort, are included in this press release.
Management uses non-GAAP financial measures only in addition to
and in conjunction with results presented in accordance with GAAP.
Management believes that these non-GAAP financial measures help it
to evaluate Verifone's performance and operations and to compare
Verifone's current results with those for prior periods as well as
with the results of peer companies. Verifone incurs, due to
differences in debt, capital structure and investment history,
geographic presence and associated currency impacts, certain income
and expense items, such as stock based compensation, amortization
of acquired intangibles and other non-cash expenses, that differ
significantly from Verifone's competitors. The non-GAAP financial
measures reflect Verifone's reported operating performance without
such items. Management also uses these non-GAAP financial measures
in Verifone's budget and planning process. Management believes that
the presentation of these non-GAAP financial measures is useful to
investors in comparing Verifone's operating performance in any
period with its performance in other periods and with the
performance of other companies that represent alternative
investment opportunities. These non-GAAP financial measures contain
limitations and should be considered as a supplement to, and not as
a substitute for, or superior to, disclosures made in accordance
with GAAP.
These non-GAAP financial measures are not based on any
comprehensive set of accounting rules or principles and may
therefore differ from non-GAAP financial measures used by other
companies. In addition, these non-GAAP financial measures do not
reflect all amounts and costs, such as acquisition related costs,
employee stock-based compensation costs, cash that may be expended
for future capital expenditures or contractual commitments, working
capital needs, cash used to service interest or principal payments
on Verifone's debt, income taxes and the related cash requirements,
and restructuring charges, associated with Verifone's results of
operations as determined in accordance with GAAP.
Furthermore, Verifone expects to continue to incur income and
expense items that are similar to those that are excluded by the
non-GAAP adjustments described herein. Management compensates for
these limitations by also relying on the comparable GAAP financial
measures.
Our GAAP and non-GAAP net revenues are presented for our four
main geographic regions: North America, Latin America, EMEA and
Asia-Pacific. North America includes the US and Canada. Latin
America includes South America, Central America, Mexico and the
Caribbean. EMEA includes Europe, Russia, the Middle East, and
Africa. Asia-Pacific includes Australia, New Zealand, China, India
and throughout the rest of Greater Asia, including other
Asia-Pacific Rim countries.
Note A: Non-GAAP net revenues, costs of goods sold and gross
margin. Non-GAAP net revenues exclude the fair value decrease
(step-down) in deferred revenue at acquisition. Non-GAAP costs of
goods sold exclude the costs of goods associated with the fair
value decrease (step-down) in deferred revenue at acquisition.
Although the step-down of deferred revenue fair value at
acquisition and associated costs of goods sold are reflected in our
GAAP financial statements, they result in net revenues and gross
margins immediately post-acquisition that are lower than net
revenues and gross margins that would be recognized in accordance
with GAAP on those same services if they were sold under contracts
entered into post-acquisition. We adjust the step-down to achieve
comparability to net revenues and gross margins of the acquired
entity earned pre-acquisition and to our GAAP net revenues and
gross margins to be earned on contracts sold in future periods.
These non-GAAP net revenues, costs of goods sold and gross margin
amounts are not intended to be a substitute for our GAAP
disclosures of net revenues, costs of goods sold and gross margin,
and should be read together with our GAAP disclosures.
Note B: Non-GAAP organic net revenues. "Non-GAAP
organic net revenues" is a non-GAAP financial measure of net
revenues excluding "net revenues from businesses acquired in the
past 12 months" (as defined below). Verifone determines non-GAAP
organic net revenues by deducting net revenues from businesses
acquired in the past 12 months from non-GAAP net revenues. This
non-GAAP measure is used to evaluate Verifone net revenues without
the impact of net revenues from acquired businesses, as Verifone
analyzes performance both with and without the impact of our recent
acquisitions.
Net revenues from businesses acquired in the past 12
months consists of net revenues derived from the sales channels
of acquired resellers and distributors, and net revenues from
Systems and Services attributable to businesses acquired in the 12
months preceding the respective financial quarter(s). For
acquisitions of small businesses that are integrated within a
relatively short time after the close of the acquisition, we assume
quarterly net revenues attributable to such acquired businesses
during the 12 months following acquisition remain at the same level
as in the first full quarter after the acquisition closed. During
periods prior to our acquisition of former customers, net revenues
from businesses acquired in the past 12 months consists of sales by
Verifone to that former customer for that period.
Note C: Non-GAAP net revenues at constant
currency. Verifone determines non-GAAP net revenues at constant
currency by recomputing non-GAAP net revenues denominated in
currencies other than U.S. Dollars in the current fiscal period
using average exchange rates for that particular currency during
the corresponding financial period of the prior year. Verifone uses
this non-GAAP measure to evaluate performance on a comparable basis
excluding the impact of foreign currency fluctuations.
Note D: Merger and Acquisition Related. Verifone
adjusts certain revenues and expenses for items that are the result
of mergers and acquisitions.
Merger and acquisition related adjustments include the
amortization of intangible assets, fixed asset fair value
adjustments, contingent consideration adjustments, incremental
costs associated with acquisitions (such as legal and other
professional fees) and acquisition integration expenses (such as
costs of personnel required to assist with integration
transitions). In addition, we adjust for changes in estimate and
final resolution of contingencies that existed at the time of
acquisition. Acquisition related expenses also result from events
which arise from unforeseen circumstances which often occur outside
the ordinary course of business.
Verifone analyzes the performance of its operations without
regard to these adjustments. In determining whether any merger or
acquisition related adjustment is appropriate, Verifone takes into
consideration, among other things, how such adjustments would or
would not aid the understanding of the performance of its
operations.
Note E: Stock-Based Compensation. Our non-GAAP
financial measures eliminate the effect of expense for stock-based
compensation because they are non-cash expenses that management
believes are not reflective of ongoing operating results. In
particular, because of varying available valuation methodologies,
subjective assumptions and the variety of award types which affect
the calculations of stock-based compensation, we believe that the
exclusion of stock-based compensation allows for more accurate
comparisons of our operating results to our peer companies.
Stock-based compensation is very different from other forms of
compensation. A cash salary or bonus has a fixed and unvarying cash
cost. In contrast the expense associated with a stock based award
is unrelated to the amount of compensation ultimately received by
the employee; and the cost to the company is based on valuation
methodology and underlying assumptions that may vary over time and
does not reflect any cash expenditure by the company. Furthermore,
the expense associated with granting an employee a stock based
award can be spread over multiple years and may be reversed based
on forfeitures which may differ from our original assumptions
unlike cash compensation expense which is typically recorded
contemporaneously with the time of award or payment.
Note F: Other Charges and Income (Loss). Verifone
excludes certain expenses, other income (expense) and losses that
we have determined is not reflective of ongoing operating results.
It is difficult to estimate the amount or timing of these items in
advance. Although these events are reflected in our GAAP financial
statements, we exclude them in our non-GAAP financial measures
because we believe these items may limit the comparability of our
ongoing operations with prior and future periods. These adjustments
for other charges and income include:
- Certain costs incurred in connection
with senior executive management changes, such as non-compete
arrangement fees, legal fees, recruiter fees and sign on
bonuses.
- Certain expenses, such as professional
services and certain personnel costs, incurred on initiatives to
transform, streamline and centralize our global operations.
- Restructure costs, impairment charges
and losses related to certain exit activities initiated as part of
our strategic review of under-performing businesses and global
transformation initiatives.
- Foreign exchange losses related to
obligations denominated in currencies of highly inflationary
economies.
- Costs associated with litigation and
other loss contingencies, penalties and settlements
We assess our operating performance with these amounts included
and excluded, and by providing this information, we believe that
users of our financial statements are better able to understand the
financial results of what we consider to be our continuing
operations.
Note G: Income Tax Effect of Non-GAAP exclusions.
Income taxes are adjusted for the tax effect of the adjusting items
related to our non-GAAP financial measures and to reflect our
medium to long term estimate of cash taxes on a non-GAAP basis, in
order to provide our management and users of the financial
statements with better clarity regarding the on-going comparable
performance and future liquidity of our business. Under GAAP our
Income tax provision as a percentage of Income before income taxes
was 48.0% for the fiscal quarter ended April 30, 2016, 7.6%
for the fiscal quarter ended April 30, 2015, 15.8% for the six
months ended April 30, 2016 and 8.2% for the six months ended April
30, 2015. For non-GAAP purposes, we used a 14.5% rate for all
periods presented.
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version on businesswire.com: http://www.businesswire.com/news/home/20160607006607/en/
VerifoneInvestor Relations:Christine Marchuska or Doug Reed,
408-232-7831ir@verifone.comorMedia
Relations:Andy Payment, 770-754-3541andy.payment@verifone.com
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