Revenues and Earnings per Share Exceed Guidance
VeriFone Systems, Inc. (NYSE: PAY):
First Quarter Financial Highlights
- GAAP net revenues of $486 million
- Non-GAAP net revenues of $487
million
- GAAP net income per diluted share of
$0.12
- Non-GAAP net income per diluted share
of $0.44
- Operating cash flow of $41 million
VeriFone Systems, Inc. (NYSE: PAY), the global leader in secure
electronic payment solutions, today announced financial results for
the three months ended January 31, 2015. GAAP net revenues for the
quarter were $486 million, compared to $436 million a year ago, an
11% increase. Non-GAAP net revenues were $487 million, compared to
$437 million a year ago, an 11% increase. GAAP net income per
diluted share for the quarter was $0.12, compared to a net loss of
$0.15 a year ago. Non-GAAP net income per diluted share was $0.44,
compared to $0.31 a year ago, a 42% increase.
“I’m pleased with our performance in Q1, and the team’s
accomplishments. We again exceeded our financial guidance despite
foreign exchange and macro-economic related headwinds,” said Paul
Galant, Chief Executive Officer of Verifone. “We are successfully
executing on our transformation, better serving our clients, and
capitalizing on opportunities in key markets. At the same time, we
are investing in delivering important new products for our clients,
and in the future growth of our Terminals Solutions,
Payment-as-a-Service and Commerce Enablement businesses.”
The table below provides additional summary GAAP and non-GAAP
financial information and comparisons.
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE AND PERCENTAGES)
Three Months Ended January 31, 2015
2014 Change (2) GAAP: Net revenues $
486 $ 436 11 % Gross margin as a % of net revenues 41.0 % 39.0 %
2.0pts Net income (loss) per diluted share $ 0.12 $ (0.15 ) nm
Non-GAAP (1): Net revenues $ 487 $ 437 11 % Gross
margin as a % of net revenues 42.4 % 42.4 % —pts Net income per
diluted share $ 0.44 $ 0.31 42 %
(1) Reconciliations for the non-GAAP
measures are provided at the end of this press release
(2) "nm" means not meaningful
Additional Financial and Business Highlights
- Achieved record North America net
revenues driven by security and EMV migration
- Secured 20 large U.S. retail client
wins for EMV-capable devices including eight competitive takeaways
and seven new hospitality wins
- Announced new mPOS terminal offering
and executed a small tuck-in acquisition of a Cloud POS solution
for the SMB market
- Began the roll out of next generation
in-store site management and POS systems for petroleum
vertical
- Made initial deliveries on 3G
countertop terminal solutions deal with a major financial
institution in Mexico
- Continued Payment-as-a-Service
expansion in U.S., U.K., Turkey, and Australia
- Expanded network of taxis with Verifone
payment systems in Florida, Canada, and Ireland
Guidance
Our updated guidance reflects the impact of a more unfavorable
foreign exchange environment and a more challenged Russia market
since the last time we provided our outlook on December 15th. These
factors are partially offset by continued strength in certain
geographies, primarily North America.
Second fiscal quarter of 2015:
- Non-GAAP net revenues of $485 million
to $489 million
- Non-GAAP net income per diluted share
of $0.41 to $0.42
Full fiscal year 2015:
- Non-GAAP net revenues of $1,990 million
to $2,000 million
- Non-GAAP net income per diluted share
of $1.78 to $1.82
Conference Call
Verifone will hold its earnings conference call today, March
10th, at 1:30 pm (PT). 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 March 17,
2015.
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, 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 and service providers
upon whom we rely in the conduct of our business, the impact of
foreign currency exchange rate fluctuations on our business and
results and 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.
About Verifone
Verifone is transforming everyday transactions into
opportunities for connected commerce. We’re connecting more than 27
million 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. 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
VERIFONE SYSTEMS, INC. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED, IN MILLIONS, EXCEPT PER
SHARE DATA AND PERCENTAGES) Three
Months Ended January 31, 2015 2014 % Change
(1) Net revenues: System solutions $ 313.4 $ 261.2 20.0
% Services 172.8 174.9
(1.2)
%
Total net revenues 486.2 436.1 11.5 %
Cost of net revenues: System solutions 185.6 167.5
10.8 % Services 101.4 98.4 3.0 % Total
cost of net revenues 287.0 265.9 7.9 %
Total gross margin 199.2 170.2
17.0 %
Operating expenses: Research and
development 48.9 50.5
(3.2)
%
Sales and marketing 57.4 50.6 13.4 % General and administrative
47.4 50.9
(6.9)
%
Amortization of purchased intangible assets 22.3
24.7
(9.7)
%
Total operating expenses 176.0 176.7
(0.4)
%
Operating income (loss) 23.2 (6.5 ) nm Interest, net (7.9 )
(11.4 )
(30.7)
%
Other income (expense), net 0.2 (5.1 ) nm
Income (loss) before income taxes 15.5 (23.0 ) nm Income tax
provision (benefit) 1.4 (6.9 ) nm
Consolidated net income (loss) 14.1 (16.1 ) nm Net income
attributable to noncontrolling interests (0.3 ) (0.1
) nm
Net income (loss) attributable to VeriFone Systems, Inc.
stockholders $ 13.8 $ (16.2 ) nm
Net income
(loss) per share attributable to VeriFone Systems, Inc.
stockholders: Basic $ 0.12 $ (0.15 ) Diluted $ 0.12
$ (0.15 )
Weighted average number of shares used
in computing net income (loss) per share: Basic 113.4
110.3 Diluted 115.5 110.3
(1) "nm" means not meaningful
VERIFONE SYSTEMS, INC. NET REVENUES INFORMATION
(UNAUDITED, IN MILLIONS, EXCEPT PERCENTAGES)
Three Months Ended Note
January 31, 2015 October 31, 2014 January 31,
2014 % Change (1) SEQ % Change (1) YoY GAAP
net revenues: North America $ 160.3 $ 149.1 $ 122.1
7.5
%
31.3 % LAC 71.1 82.1 68.4
(13.4)
%
3.9 % EMEA 180.0 189.2 185.2
(4.9)
%
(2.8)
%
Asia-Pacific 74.8 70.1 60.4
6.7
%
23.8 % Total $ 486.2 $ 490.5 $ 436.1
(0.9)
%
11.5 %
Non-GAAP net revenues: (2) North America A $
160.4 $ 149.0 $ 122.1
7.7
%
31.4 % LAC 71.1 82.1 68.4
(13.4)
%
3.9 % EMEA A 180.5 189.4 186.3
(4.7)
%
(3.1)
%
Asia-Pacific A 74.9 70.2 60.4
6.7
%
24.0 % Total $ 486.9 $ 490.7 $ 437.2
(0.8)
%
11.4 %
GAAP net revenues $ 486.2
$ 490.5 $ 436.1
(0.9)
%
11.5 % Plus: Non-GAAP net revenues adjustments A
0.7 0.2 1.1 nm nm
Non-GAAP net revenues (2) 486.9
490.7 437.2
(0.8)
%
11.4 %
(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 January 31, 2015 compared
with three months ended January 31, 2014 Net revenues
growth Impact due to Non-GAAP net revenues adjustments
and acquired businesses (A) (B)
Non-GAAP organic net
revenues growth Impact due to foreign currency (C)
Non-GAAP organic net revenues at constant currency
growth North America 31.3 % (0.1)pts 31.4 % (0.2)pts 31.6 % LAC
3.9 % 0.0pts 3.9 % (11.1)pts 15.0 % EMEA
(2.8)
%
0.3pts
(3.1)
%
(6.8)pts 3.7 % Asia-Pacific 23.8 % (0.3)pts 24.1 % (3.4)pts 27.5 %
Total 11.5 % 0.1pts 11.4 % (5.1)pts 16.5 %
VERIFONE SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE
SHEETS (UNAUDITED, IN MILLIONS) January 31,
2015 October 31, 2014 ASSETS Current
assets: Cash and cash equivalents $ 240.6 $ 250.2 Accounts
receivable, net of allowances of $9.8 and $9.9 287.3 305.5
Inventories 137.6 124.3 Prepaid expenses and other current assets
103.8 105.6
Total current assets
769.3 785.6 Fixed assets, net 168.6 177.7 Purchased intangible
assets, net 389.3 457.6 Goodwill 1,099.3 1,185.9 Deferred tax
assets, net 13.7 30.4 Other long-term assets 63.9
65.0
Total assets $ 2,504.1 $ 2,702.2
LIABILITIES AND EQUITY Current liabilities:
Accounts payable $ 146.3 $ 161.2 Accruals and other current
liabilities 189.6 207.0 Deferred revenue, net 94.1 92.1 Short-term
debt 32.1 32.1
Total current
liabilities 462.1 492.4 Long-term deferred revenue, net 50.2
51.0 Long-term debt 831.2 851.0 Long-term deferred tax liabilities,
net 129.3 136.1 Other long-term liabilities 69.5
101.0
Total liabilities 1,542.3 1,631.5
Redeemable noncontrolling interest in subsidiary 0.8 0.8
Stockholders’ equity: Common stock 1.1 1.1 Additional paid-in
capital 1,690.3 1,675.7 Accumulated deficit (524.4 ) (538.2 )
Accumulated other comprehensive loss (242.2 ) (104.8
)
Total VeriFone Systems, Inc. stockholders’ equity 924.8
1,033.8 Noncontrolling interest in subsidiaries 36.2
36.1
Total equity 961.0
1069.9
Total liabilities and equity $ 2,504.1
$ 2,702.2
VERIFONE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN MILLIONS) Three Months Ended
January 31, 2015 2014 Cash flows from
operating activities Consolidated net income (loss) $ 14.1 $
(16.1 ) Adjustments to reconcile consolidated net income (loss) to
net cash provided by operating activities: Depreciation and
amortization, net 44.4 53.1 Stock-based compensation expense 12.2
15.7 Other 8.6 (6.4 ) Net cash provided by
operating activities before changes in operating assets and
liabilities 79.3 46.3 Changes in
operating assets and liabilities: Accounts receivable, net 9.4 17.3
Inventories (19.1 ) 15.5 Prepaid expenses and other assets (6.3 )
11.7 Accounts payable (11.6 ) (4.8 ) Deferred revenue, net 7.8 17.7
Other current and long-term liabilities (18.4 ) (71.8
) Net change in operating assets and liabilities (38.2 )
(14.4 ) Net cash provided by operating activities
41.1 31.9
Cash flows from investing
activities Capital expenditures (19.6 ) (20.9 ) Other investing
activities, net — 2.6 Net cash used in
investing activities (19.6 ) (18.3 )
Cash
flows from financing activities Proceeds from debt, net of
issuance costs 10.0 86.9 Repayments of debt (30.1 ) (121.9 ) Other
financing activities, net 3.7 5.6 Net
cash used in financing activities (16.4 ) (29.4 )
Effect of foreign currency exchange rate changes on cash and
cash equivalents (14.7 ) (3.1 ) Net decrease
in cash and cash equivalents (9.6 ) (18.9 ) Cash and cash
equivalents, beginning of period 250.2 268.2
Cash and cash equivalents, end of period $ 240.6 $
249.3
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
(loss) Net income (loss) attributable to VeriFone Systems,
Inc. stockholders Three Months Ended January 31, 2015
GAAP $ 486.2 $ 199.2 41.0
% $ 23.2 $ 13.8 Adjustments:
Amortization of step-down in deferred services net revenues at
acquisition A 0.7 0.7 0.7 0.7 Amortization of purchased intangible
assets D — 4.7 27.0 27.0 Other merger and acquisition related
expenses D — 0.3 0.7 (1.9 ) Stock based compensation E — 0.7 12.2
12.2 Restructuring charges F — — 1.4 1.4 Other charges and income F
— 0.8 4.9 4.9 Income tax effect of non-GAAP exclusions and
adjustment to cash basis tax rate F — —
— (7.3 ) Non-GAAP $ 486.9 $ 206.4 42.4
% $ 70.1 $ 50.8
Weighted average number of shares
used in computing net income (loss) per share: Net income
(loss) per share attributable to VeriFone Systems, Inc.
stockholders (1) Basic Diluted Basic
Diluted GAAP 113.4
115.5 $ 0.12 $ 0.12
Non-GAAP 113.4 115.5 $ 0.45 $
0.44
(1) Net income (loss) per share is
calculated by dividing the Net income (loss) attributable to
VeriFone Systems, Inc. stockholders by the Weighted average number
of shares.
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 (loss)
Net income (loss) attributable to VeriFone Systems, Inc.
stockholders Three Months Ended October 31, 2014
GAAP $ 490.5 $ 196.5 40.1
% $ 33.5 $ 31.1 Adjustments:
Amortization of step-down in deferred services net revenues at
acquisition A 0.2 0.2 0.2 0.2 Amortization of purchased intangible
assets D — 10.0 33.8 33.8 Other merger and acquisition related
expenses D — 0.6 1.0 (3.5 ) Stock based compensation E — 0.7 13.0
13.0 Restructuring charges F — 0.2 1.5 1.5 Other charges and income
F — (0.8 ) (14.9 ) (15.9 ) Income tax effect of non-GAAP exclusions
and adjustment to cash basis tax rate F — —
— (10.1 ) Non-GAAP $ 490.7 $
207.4 42.3 % $ 68.1 $ 50.1
Weighted
average number of shares used in computing net income (loss) per
share: Net income (loss) per share attributable to VeriFone
Systems, Inc. stockholders (1) Basic Diluted
Basic Diluted GAAP 113.1
115.1 $ 0.27 $
0.27 Non-GAAP 113.1 115.1
$ 0.44 $ 0.44
(1) Net income (loss) per share is
calculated by dividing the Net income (loss) attributable to
VeriFone Systems, Inc. stockholders by the Weighted average number
of shares.
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 (loss)
Net income (loss) attributable to VeriFone Systems, Inc.
stockholders Three Months Ended January 31, 2014
GAAP $ 436.1 $ 170.2 39.0
% $ (6.5 ) $ (16.2
) Adjustments: Amortization of step-down in deferred
services net revenues at acquisition A 1.1 1.1 1.1 1.1 Amortization
of purchased intangible assets D — 11.4 36.1 36.1 Other merger and
acquisition related expenses D — 2.0 3.2 5.7 Stock based
compensation E — 0.5 15.7 15.7 Other charges and income F — — 3.6
5.2 Income tax effect of non-GAAP exclusions and adjustment to cash
basis tax rate F — — —
(12.8 ) Non-GAAP $ 437.2 $ 185.2 42.4 % $ 53.2
$ 34.8
Weighted average number of shares
used in computing net income (loss) per share: Net income
(loss) per share attributable to VeriFone Systems, Inc.
stockholders (1) Basic Diluted Basic
Diluted GAAP 110.3 110.3 $
(0.15 ) $ (0.15 ) Adjustment for
diluted shares G — 2.1 Non-GAAP
110.3 112.4 $ 0.32 $ 0.31
(1) Net income (loss) per share is
calculated by dividing the Net income (loss) attributable to
VeriFone Systems, Inc. stockholders by the Weighted average number
of shares.
VERIFONE SYSTEMS, INC. RECONCILIATIONS OF
NON-GAAP FINANCIAL MEASURES (UNAUDITED, IN MILLIONS)
GAAP net
revenues Amortization of step-down in deferred
revenue at acquisition Non-GAAP net revenues
Net revenues from businesses acquired in the past
12 months Non-GAAP organic net revenues
Constant currency adjustment Non-GAAP organic net
revenues at constant currency Note (A) (A)
(B) (B) (C) (C) Three Months
Ended January 31, 2015 North America $ 160.3 $ 0.1 $ 160.4 $ —
$ 160.4 $ 0.3 $ 160.7 LAC 71.1 — 71.1 — 71.1 7.6 78.7 EMEA 180.0
0.5 180.5 — 180.5 12.6 193.1 Asia-Pacific 74.8
0.1 74.9 — 74.9
2.0 76.9 Total $ 486.2 $ 0.7 $
486.9 $ — $ 486.9 $ 22.5 $ 509.4
System Solutions $ 313.4 $ — $ 313.4 Services 172.8
0.7 173.5 Total $ 486.2 $ 0.7
$ 486.9
Three Months Ended October 31,
2014
North America $ 149.1 $ (0.1 ) $ 149.0 LAC 82.1 — 82.1 EMEA 189.2
0.2 189.4 Asia-Pacific 70.1 0.1
70.2 Total $ 490.5 $ 0.2 $ 490.7
System Solutions $ 310.9 $ — $ 310.9 Services 179.6
0.2 179.8 Total $ 490.5 $ 0.2
$ 490.7
Three Months Ended January 31,
2014
North America $ 122.1 $ — $ 122.1 $ — $ 122.1 LAC 68.4 — 68.4 —
68.4 EMEA 185.2 1.1 186.3 — 186.3 Asia-Pacific 60.4
— 60.4 — 60.4
Total $ 436.1 $ 1.1 $ 437.2 $ — $ 437.2
System Solutions $ 261.2 $ — $ 261.2 Services 174.9
1.1 176.0 Total $ 436.1 $
1.1 $ 437.2
VERIFONE SYSTEMS, INC. RECONCILIATIONS OF NON-GAAP
FINANCIAL MEASURES (UNAUDITED, IN MILLIONS)
Three Months Ended Note
January 31, 2015 October
31, 2014 January 31, 2014 % Change SEQ %
Change YoY Free Cash Flow GAAP net cash provided by
operating activities H $ 41.1 $ 51.6 $ 31.9
(20.3)
%
28.8 % Less: GAAP capital expenditures H (19.6 )
(22.2 ) (20.9 )
(11.7)
%
(6.2)
%
Free cash flow H $ 21.5 $ 29.4 $ 11.0
(26.9)
%
95.5 %
Three Months Ending April 30, 2015 Year
Ending October 31, 2015 Guidance Range of
Guidance Range of Guidance GAAP net revenues $
485 $ 489 $ 1,989 $ 1,999 Adjustments to net revenues A —
— 1 1 Non-GAAP net
revenues $ 485 $ 489 $ 1,990 $ 2,000
NON-GAAP FINANCIAL MEASURES
This press release and its attachments include several non-GAAP
financial measures, including non-GAAP 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 as a
percentage of non-GAAP net revenues; non-GAAP net income (loss) per
diluted share, and free cash flow. 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 second fiscal quarter and full fiscal year 2015. 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,
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
geographic regions: North America, LAC, EMEA and Asia-Pacific.
North America includes the US and Canada. LAC includes South
America, Central America, 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. Non-GAAP net revenues
exclude the fair value decrease (step-down) in deferred revenue at
acquisition. Although the step-down of deferred revenue fair value
at acquisition is reflected in our GAAP financial statements, it
results in net revenues immediately post-acquisition that are lower
than net revenues 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 of the acquired entity earned
pre-acquisition and to our GAAP net revenues to be earned on
contracts sold in future periods. These non-GAAP net revenues
amounts are not intended to be a substitute for our GAAP
disclosures of net revenues, 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
System solutions 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 organic net revenues at constant
currency. Verifone determines non-GAAP organic net revenues at
constant currency by recomputing non-GAAP organic 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 merger and acquisitions.
Acquisition related adjustments include the amortization of
purchased intangible assets, fixed asset fair value adjustments,
contingent consideration adjustments, incremental costs associated
with acquisitions (such as legal fees related to litigation assumed
as part of acquisitions) 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 an award of an option
or other 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 an option or other 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. Verifone
excludes certain revenue, expenses and other income (expense) 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:
- Benefits associated with the reversal
of litigation loss contingency expense.
- Certain costs incurred in connection
with senior executive management changes, such as separation
payments, 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 and impairment charges
related to certain exit activities initiated as part of our global
transformation initiatives.
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.
Income taxes are adjusted for the tax effect of the adjusting
items related to our non-GAAP financial measures and to reflect our
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
(benefit) as a percentage of Income (loss) before income taxes was
9.0% for the fiscal quarter ended January 31, 2015, (5.3)% for the
fiscal quarter ended October 31, 2014, and 30.1% for the fiscal
quarter ended January 31, 2014. For non-GAAP purposes, we used a
14.5% rate for the fiscal quarters ended January 31, 2015, October
31, 2014 and January 31, 2014.
Note G: Non-GAAP diluted shares. Diluted non-GAAP
weighted average shares include additional shares that are dilutive
for non-GAAP computations of earnings per share in periods when we
have a non-GAAP net income and a GAAP basis net loss.
Note H: Free Cash Flow. Free cash flow is not
defined under GAAP. Therefore, it should not be considered a
substitute for income or cash flow data prepared in accordance with
GAAP and may not be comparable to similarly titled measures used by
other companies. Verifone determines free cash flow as net cash
provided by operating activities less capital expenditures. We use
this non-GAAP measure to evaluate our operating cash spend
including the impact of our investments in long-term operating
assets, such as property, equipment and capitalized software.
VeriFone Systems, Inc.Investor Relations:Douglas D. Reed,
408-232-7979SVP, Treasury & Investor Relationsir@verifone.comorMedia Relations:Andy Payment,
770-754-3541andy.payment@verifone.com
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