More than a month has gone by since the last earnings report for VeriFone Systems, Inc. PAY. Shares have added about 6% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
VeriFone reported third-quarter fiscal 2017 non-GAAP earnings of 36 cents, in line with the Zacks Consensus Estimate but declined 13.2% from the year-ago quarter. The figure was also in line with the high end of management’s guidance range of 35-36 cents.
The year-over-year decline was primarily due to lower non-GAAP revenues, which decreased 4.3% to $466.9 million, slightly better than the Zacks Consensus Estimate. The decline can be attributed to anticipated sluggishness in the Asia-Pacific, particularly India. This was partially offset by strong revenue growth in Latin America and Europe, Middle East and Africa (EMEA).
VeriFone is now in the process of divesting the taxi business. In June, the company completed the restructuring of operations in China. The company now has a minority stake in the newly created local company. As noted earlier, the company formed a 50/50 joint venture by combining its Petro Media advertising business with Gas Station TV during the second quarter.
These divestitures will help in improving services gross margin by at least 200 basis points (bps). Management believes that improving margin profile of services business coupled with successful launch of upcoming Engage (fourth quarter launch in 15 countries) and Carbon 8 (fiscal 2018 launch) platform will drive overall results, going forward.
Moreover, the company’s mPOS device has also gained good traction within a short span of time. Management believes that it is on track to deliver more than 20% organic growth across mobile product portfolio in fiscal 2017.
Further, the company expects modest growth in North America going into fiscal 2018 driven by strong growth traction in retail and SMB verticals. This was offset by headwinds in the petroleum vertical.
Top-line Details
System revenues (57% of total revenue) decreased 8.9% year over year to $266 million. The significant decline reflects tough comparisons, as the year-ago quarter benefited from strong EMV demand, particularly in the petroleum vertical. However, services (43% of total revenue) increased 2.5% year over year to $200.9 million.
Non-GAAP revenues from North America and Asia Pacific fell 22% and 4.3% from the year-ago quarter to $152.8 million and $49.3 million, respectively. However, EMEA and Latin America revenues surged 29.4% and 1.8% to $193.5 million and $71.3 million, respectively.
Management stated North America SMB vertical grew year over year for the first time in five quarters. The retail vertical benefited from several large QSR deployments, robust demand for E series mPOS devices as well as higher number of device refresh with Tier-1 retailers who were the earliest adopters of EMV.
Moreover, Latin America revenues benefited from strong year-on-year growth in Brazil, Argentina and Chile. Good momentum in France and Germany particularly due to robust demand for Engage platform drove top-line growth at EMEA.
Notably, in the first half of 2017 VeriFone sold Engage in four countries. In the reported quarter the platform was sold in seven countries. The company expects to launch the platform in 15 countries during the current quarter and another 10 countries in the first quarter of fiscal 2018.