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Verifone (PAY) Down 2.6% Since Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Verifone Systems, Inc. (PAY - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
VeriFone reported second-quarter fiscal 2017 adjusted earnings (Including stock-based compensation) of $0.20, missing the Zacks Consensus Estimate by $0.03.
Adjusted earnings (excluding stock-based compensation) of $0.30 per share decreased 45.6% from the year-ago quarter but were better than management’s guided figure of $0.29.
The year-over-year decline in earnings was primarily due to lower revenues, which decreased 11% to $473.9 million, slightly better than the Zacks Consensus Estimate. The figure was in line with high-end of management’s guided range of $470–$474 million.
Management stated that double-digit sequential growth in North America retail and SMB business verticals along with strong demand for devices in India helped the company to meet guidance.
We also note that both gross and operating margin declined in the quarter reflecting higher costs. Based on the unimpressive results and divestiture of three non-core businesses, the company lowered fiscal 2017 guidance.
Quarter Details
System revenues (60.3% of total revenue) decreased 16.6% year over year to $285.7 million. Services (39.7% of total revenue) decreased 0.9% year over year to $188.2 million.
VeriFone’s new Engage platform recently received PCI certification. The platform has also been certified by clients based in Germany, France, India, Japan and South Africa.
VeriFone recently launched Carbon 8, which runs on Alphabet’s Android. This integrated point of sales (IPOS) solution is currently on a pilot run with Vantiv in North America.
Moreover, the company recently announced a new mid-range mPOS solution based on the Carbon platform, which is anticipated to improve competitive position in SMB and emerging markets business.
Non-GAAP revenues from North America, EMEA, and Latin America fell 26.8%, 10.5% and 9.7% from the year-ago quarter to $157.6 million, $62.5 million and $177.8 million, respectively. However, Asia Pacific revenues surged 51.4% to $76 million.
Non-GAAP gross margin (excluding stock-based compensation) was 39.5%, which was in line with management’s expectation but contracted 290 basis points (bps) from the year-ago quarter.
Systems margins of 38.7% expanded 80 bps sequentially driven by continued cost reductions in operations and supply chain. Services margins were 40.7%, up slightly from the prior quarter but fell year over year, negatively impacted by a reduction in petro media revenues.
Operating expense decreased 11% to $149.5 million. However, as percentage of revenues operating expense (excluding one-time items) remained flat from the year-ago quarter at 31.5%.
Non-GAAP operating margin fell 340 bps year over year to 8%.
Balance Sheet & Cash Flow
As of Apr. 31, 2017, VeriFone had approximately $134.5 million in cash & cash equivalents compared with $147 million as of Jan 31, 2017. Long-term debt totalled $803.4 million as compared with $836.6 million at the end of the previous quarter.
Cash flow from operations in the quarter was $36 million. Meanwhile, free cash flow totaled $19 million in the quarter.
Divestiture of Non-Strategic Businesses
VeriFone announced divestiture of three non-strategic businesses to reallocate resources and capital to core payments and commerce platform.
During the reported quarter, the company formed a 50/50 joint venture by combining its Petro Media advertising business with Gas Station TV.
VeriFone also plans to divest its China business into a locally-owned and operated company. The company will continue to hold a minority interest. This transaction is expected to be completed during the third quarter.
Moreover, Verifone has completed the strategic review of its Taxi business. The company is now in the process of divesting this operation.
Guidance
For third-quarter fiscal 2017, VeriFone projects non-GAAP revenues to be in the range of $463–$465 million. Non-GAAP earnings are anticipated to be in the range of $0.35–$0.36 for the current quarter.
Management forecasts improved product margins in second-half 2017 driven primarily by cost reductions and new product introductions. The company expects services margin to improve meaningfully post the divestitures.
Taxi operation is anticipated to contribute $60 million in revenue with a modest earnings contribution in second-half 2017.
For fiscal 2017, the company now estimates non-GAAP revenues within a range of $1.861–$1.866 billion, down from previous guidance of $1.9–$1.915 billion range. Non-GAAP earnings are likely to be in the band of $1.32–$1.34, significantly down from previous guidance of $1.35–$1.39.
For fiscal 2017, free cash flow from operations is expected to be approximately $100 million, which includes approximately $20 million for restructuring related activities.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 17.3% due to these changes.
At this time, Verifone Systems' stock has an average Growth Score of 'C', though it lacks a bit on the momentum front with a 'D'. The stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We expect below average returns from the stock in the next few months.
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Verifone (PAY) Down 2.6% Since Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Verifone Systems, Inc. (PAY - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
VeriFone Q2 Earnings Miss, Revenues Beat Estimates
VeriFone reported second-quarter fiscal 2017 adjusted earnings (Including stock-based compensation) of $0.20, missing the Zacks Consensus Estimate by $0.03.
Adjusted earnings (excluding stock-based compensation) of $0.30 per share decreased 45.6% from the year-ago quarter but were better than management’s guided figure of $0.29.
The year-over-year decline in earnings was primarily due to lower revenues, which decreased 11% to $473.9 million, slightly better than the Zacks Consensus Estimate. The figure was in line with high-end of management’s guided range of $470–$474 million.
Management stated that double-digit sequential growth in North America retail and SMB business verticals along with strong demand for devices in India helped the company to meet guidance.
We also note that both gross and operating margin declined in the quarter reflecting higher costs. Based on the unimpressive results and divestiture of three non-core businesses, the company lowered fiscal 2017 guidance.
Quarter Details
System revenues (60.3% of total revenue) decreased 16.6% year over year to $285.7 million. Services (39.7% of total revenue) decreased 0.9% year over year to $188.2 million.
VeriFone’s new Engage platform recently received PCI certification. The platform has also been certified by clients based in Germany, France, India, Japan and South Africa.
VeriFone recently launched Carbon 8, which runs on Alphabet’s Android. This integrated point of sales (IPOS) solution is currently on a pilot run with Vantiv in North America.
Moreover, the company recently announced a new mid-range mPOS solution based on the Carbon platform, which is anticipated to improve competitive position in SMB and emerging markets business.
Non-GAAP revenues from North America, EMEA, and Latin America fell 26.8%, 10.5% and 9.7% from the year-ago quarter to $157.6 million, $62.5 million and $177.8 million, respectively. However, Asia Pacific revenues surged 51.4% to $76 million.
Non-GAAP gross margin (excluding stock-based compensation) was 39.5%, which was in line with management’s expectation but contracted 290 basis points (bps) from the year-ago quarter.
Systems margins of 38.7% expanded 80 bps sequentially driven by continued cost reductions in operations and supply chain. Services margins were 40.7%, up slightly from the prior quarter but fell year over year, negatively impacted by a reduction in petro media revenues.
Operating expense decreased 11% to $149.5 million. However, as percentage of revenues operating expense (excluding one-time items) remained flat from the year-ago quarter at 31.5%.
Non-GAAP operating margin fell 340 bps year over year to 8%.
Balance Sheet & Cash Flow
As of Apr. 31, 2017, VeriFone had approximately $134.5 million in cash & cash equivalents compared with $147 million as of Jan 31, 2017. Long-term debt totalled $803.4 million as compared with $836.6 million at the end of the previous quarter.
Cash flow from operations in the quarter was $36 million. Meanwhile, free cash flow totaled $19 million in the quarter.
Divestiture of Non-Strategic Businesses
VeriFone announced divestiture of three non-strategic businesses to reallocate resources and capital to core payments and commerce platform.
During the reported quarter, the company formed a 50/50 joint venture by combining its Petro Media advertising business with Gas Station TV.
VeriFone also plans to divest its China business into a locally-owned and operated company. The company will continue to hold a minority interest. This transaction is expected to be completed during the third quarter.
Moreover, Verifone has completed the strategic review of its Taxi business. The company is now in the process of divesting this operation.
Guidance
For third-quarter fiscal 2017, VeriFone projects non-GAAP revenues to be in the range of $463–$465 million. Non-GAAP earnings are anticipated to be in the range of $0.35–$0.36 for the current quarter.
Management forecasts improved product margins in second-half 2017 driven primarily by cost reductions and new product introductions. The company expects services margin to improve meaningfully post the divestitures.
Taxi operation is anticipated to contribute $60 million in revenue with a modest earnings contribution in second-half 2017.
For fiscal 2017, the company now estimates non-GAAP revenues within a range of $1.861–$1.866 billion, down from previous guidance of $1.9–$1.915 billion range. Non-GAAP earnings are likely to be in the band of $1.32–$1.34, significantly down from previous guidance of $1.35–$1.39.
For fiscal 2017, free cash flow from operations is expected to be approximately $100 million, which includes approximately $20 million for restructuring related activities.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 17.3% due to these changes.
Verifone Systems, Inc. Price and Consensus
Verifone Systems, Inc. Price and Consensus | Verifone Systems, Inc. Quote
VGM Scores
At this time, Verifone Systems' stock has an average Growth Score of 'C', though it lacks a bit on the momentum front with a 'D'. The stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We expect below average returns from the stock in the next few months.