VeriFone Systems, Inc. (PAY) reported revenues of $240.7 million in the second quarter, up 7.7% sequentially and up 19.4% year over year.
Based in San Jose, California, VeriFone designs, markets and services a transaction automation system that facilitates electronic payments between consumers, merchants and financial institutions.
On a segment basis, System Solutions generated revenues of $199.5 million, up 15.0% year over year. Services revenue increased 16% sequentially and 47% year over year to $41.2 million.
The growth in revenues was driven by robust PCI PED upgrade demand in North America and a rebounding Latin America business. This growth more than offset an anticipated seasonal decline in Asia and some weakness in the Balkans.
In September 2006, credit and debit card associations (which include Visa [V], MasterCard [MA], American Express [AXP], Discover Financial Services [DFS], and JCB Co., Ltd) established the Payment Card Industry Security Standards Council (PCI SSC) to oversee and unify industry standards in the areas of credit card data security.
This is referred to as the PCI-PED standard which consists of PIN-entry device security (PED) and the PCI Data Security Standard (PCI-DSS) for enterprise data security, and the Payment Application Data Security Standard (PA-DSS) for payment application data security.
On a geographic basis, revenues from North America increased by 18% sequentially and 27% on a year-over-year.
Revenues from international business grew 1% sequentially and 14% year over year. On a sequential basis, Latin America increased by 24%, Europe declined by 4% and Asia declined by 25%. The decline in Asia was due to the Chinese New Year, which resulted in lower business activity. On a year-over-year basis, Latin America increased by 25%, Europe increased by 4% and Asia increased by 26%.
Gross margin (including stock-based compensation expense) improved to 39.2% compared to 33.7% in the year-earlier quarter. Operating margin of 14.4% was up from 9.6% in the year-earlier quarter.
Net income came in at $20.2 million or 23 cents in the quarter compared to $10.7 million or 13 cents in the year-ago quarter. Excluding one-time charges but including stock-based compensation expense, net income was 24 cents per share, easily beating the Zacks Consensus Estimate of 22 cents.
During the quarter, VeriFone bought an equity position in Trunkbow International Holdings of China. The company also acquired the remaining minority interest in VeriFone Transportation Systems.
VeriFone exited the quarter with cash and equivalents of $378.9 million, marginally up from $374.6 million at the end of the previous quarter.
Going forward, management upgraded its guidance for 2010. VeriFone projects revenues of $960 million to $970 million, up from the previous guidance of $925 million to $940 million. Earnings per share (excluding stock based compensation and one-time charges) are projected around $1.12-$1.15, up from the previous guidance of $1.00-$1.10.
Management expects revenues between $245 million and $250 million in the third quarter, up 16%-18% year over year. Earnings per share are projected around 29 cents-30 cents.
With the economy showing signs of recovery, revenue growth should pick up in 2010 after a significant slowdown in business in the last 12-18 months. The encouraging guidance provided by management pushed the share price up. Shares were up 4.56% to $18.10 in after-hours trading.
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