VeriFone Systems Inc. beat Wall Street’s expectations for its fiscal third quarter ended July 31 based on strong North American sales and a rebounding Latin American market, and executives at the payment-terminal maker predict demand for wireless payment systems and gas-station terminals will help drive future earnings.
The San Jose, Calif.-based company on Aug. 24 reported net income of $18.5 million for the quarter, up 11.5% from $16.6 million during the same period last year. Net revenues totaled $265.5 million, up 25.7% from $211.3 million and a company record.
Regionally, revenues totaled $123.2 million in the U.S. and Canada, up 38.6% from $88.9 million; $62.1 million in Europe, down 7.6% from $67.2 million; $52.8 million in Latin America, up 72.5% from $30.6 million; and $23.3 million in Asia, down 5.3% from $24.6 million.
“The driver of our North American business in 2011 will be continued fantastic performance in petroleum,” VeriFone CEO Doug G. Bergeron said during a conference call with analysts. “The pay-at-the-pump initiatives now have got real traction.”
Gasoline retailers’ need for increased security at the pump boosted revenue in VeriFone’s petroleum operations by 4% from the fiscal second quarter, and about 86% from the third quarter of last year.
“In the middle of the night, there is no security,” says Barclays Capital Inc. analyst Darrin D. Peller of pumps left out in the open. “If [thieves] know how, they can figure out how to steal data off the terminal. … Gas station operators are realizing that they could be at risk.”
A broad range of merchant customers “aggressively updated” their terminals to meet new PIN-entry device security standards imposed by all the major networks, Bergeron told analysts. “Our channel sales to smaller multilane merchants were excellent this quarter, providing an indication that security compliance in this segment is lagging larger merchants and strong demand is expected to continue,” he said.
On the mobile front, earlier this year the firm began selling its PayWare Mobile reader in Apple retail stores. Nearly every major processor already supports PayWare Mobile, Pete Bartolik, a VeriFone spokesperson, said in April.
The payment application first became available through resellers in January, and the U.S. version of the software became available on Apple’s iPhone in February.
Meantime, the terminal maker’s efforts to increase payment card acceptance in taxis and at gas pumps is boosting business.
VeriFone’s revenue from taxi terminals was $18 million in the quarter, “well ahead” of the company’s year-end goal, Bergeron said.
The company also is capitalizing on the video-monitor systems used by many of the taxis by selling advertising for them. “Consumers are a captive audience,” says VeriFone executive Paul Rasori. “That can be used for more than just payment.”
In May, Bergeron told analysts he expected VeriFone to generate $60 million in annual revenue from its in-taxi advertising business by the beginning of 2011. VeriFone entered the in-taxi advertising business in 2007.
Roughly 12 out of every 13 taxis in New York have VeriFone’s advertising devices, says Darrin D. Peller, an analyst with Barclays Capital Inc. And there is a lot of room for growth, both within the United States and abroad, he says.
“You know those annoying commercials, that’s them,” Peller says of a majority of the colorful screens in the back seats of cabs. “Anytime you swipe your card in a cab, there are a few basis points that go to [VeriFone].”
Bergeron also alluded to a large pending contract for PayWare Mobile, one that Peller speculates could be with “a retailer like Avon, with a lot of out-of-home sales people.”
At midday Wednesday, VeriFone shares were trading at $24.90, up 11.6% from Tuesday’s closing price, after reaching a 52-week high of $24.95 earlier in the day.
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