VeriFone’s Path to Recovery is Paved by Mobile

VeriFone's recovery from its earnings slump will rely heavily on merchants investing in new technology to respond to the impact of mobile on payments.

“Underpinning all of this is the broad adoption of mobility, it drives devices, mobile point of sale, mobile apps and data,” Interim CEO Richard McGinn said during VeriFone's Sept. 5 earnings call for its fiscal year third quarter that ended on July 31.

The San Jose, Calif.-based terminal manufacturer is attempting to improve its financial performance by investing heavily in research and development globally to take advantage of trends such as the migration toward EMV chip cards and mobile acceptance.

“Our efforts are paying off, the path ahead is becoming clear and more attainable,” McGinn said, adding the company’s improvement should accelerate in 2014. “Our plan is working, though there is more work to do.”

VeriFone posted a $1.9 million net loss off revenue of $416 million for the fiscal third quarter, compared to net income of $37.7 million off $489 million in net revenue a year ago.

Despite the decline, the company’s earnings and revenues exceeded its guidance, cash flow also exceeded VeriFone’s expectation, McGinn said, noting VeriFone paid down $160 million of debt. The acquisition of ENZ, a New Zealand-based payments provider, will extend payment-as-a-service offering in New Zealand, a model McGinn said is “thriving” in the Nordics and other international markets.

VeriFone has also enhanced its products in a number of areas, such as deploying sound-based mobile payments technology in taxis and selling bundled payments services. The company plans to add more data analysis capabilities to its network to enable value-added merchant and consumer services. “VeriFone has 20 million network devices deployed worldwide in 150 countries, and these terminals are becoming more intelligent by the day,” McGinn said.

VeriFone’s earnings should get an added boost in the future as payments terminals in the U.S. are replaced to accommodate the EMV chip-card migration, a trend recently noted by Northcoast Research.

VeriFone has struggled over the past year. The company’s earnings suffered after VeriFone decided to no longer market its Sail mobile card reader. It has not yet found a permanent replacement for longtime CEO Doug Bergeron, who left in March, and it is working to regain the confidence of frustrated customers that "have been brutally honest about our lack of partnership," McGinn said during June’s earnings call. On the Sept. 5 call, McGinn said the search for a permanent CEO was still underway.

Ingenico, VeriFone's chief rival, has benefited from VeriFone's struggles. Ingenico's payment terminal sales grew 21% in the first half of 2013, though the EMV expansion should enable VeriFone to recover going forward, Northcoast said.