Slowing ISO Orders Clip Revenues for Terminal Kingpin VeriFone

Signs are pointing to fewer merchant-account bookings by independent sales organizations, and that's translating into fewer orders for VeriFone Holdings Inc., the largest U.S.-based point-of-sale terminal developer. Last week, VeriFone reduced its revenue projections for its fourth quarter ended Oct. 31 and fiscal 2008. In a conference call late last week to preview VeriFone's official fourth-quarter earnings release, chief executive Douglas G. Bergeron told stock analysts that “declining retail sales, diminished access to credit, and plummeting emerging-market currencies adversely impacted our customers' purchasing behavior in many of our businesses.” Bergeron singled out the domestic market as the source of many of VeriFone's woes. “On a percentage basis our North American business declined in the mid-teens while international business increased in the high teens,” he said. “The weakest part of our North American business was the group that serves small and medium-sized merchants. Our processor and ISO channels are telling us that new merchant applications, which we are very leveraged to, have fallen in the neighborhood of 25% to 30%.” Some customers also are telling VeriFone that they are having trouble getting working capital, leading to reduced inventory levels. “These events have translated into a percentage revenue decline in the U.S. financial group in the mid to high-20s,” Bergeron said. Others are reporting that the same economic forces that have slammed retailers, banks, and other businesses in recent months are rippling into the ISO market. ISOs generate the majority of new accounts for merchant acquirers. Processing consultant Paul R. Martaus of Mountain Home, Ark.-based Martaus & Associates said the news wasn't great at some recent ISO conferences he attended. “There are no new merchants being formed anywhere because of a variety of circumstances,” he tells Digital Transactions News. “On top of that, we're seeing 10% to 15% of retailers facing imminent demise.” San Jose, Calif.-based VeriFone is hooking much of its U.S. revenue outlook on merchants' need to upgrade terminals to meet upcoming deadlines for Payment Card Industry data-security standard (PCI) and Triple Data Encryption Standard (3-DES) compliance. Petroleum and multilane retailers, traditionally strong segments for VeriFone, will be active buyers for more secure POS equipment, according to Bergeron. He added that security issues helped VeriFone bag some “great orders” recently from Wal-Mart Stores Inc., the U.S. Postal Service, and Family Dollar Stores Inc. “These are not enterprises that feel like spending money right now,” he said. “They're obviously doing it because they have a gun to their head and that will get even closer to the deadline next year.” Bergeron recently returned from Brazil, where VeriFone's major customers told him they were still on track for 15% to 20% increases in new merchant activations next year. But he warned that the malaise in the U.S. merchant-acquiring market could spread, calling conditions “a pretty ugly global economic mess.” VeriFone is scheduled to release its next financials Dec. 16. The company now expects fourth-quarter revenues to be $244 million to $246 million, down from the $260 million to $268 million it projected Sept. 9. VeriFone expects full-year revenues to come in at $950 million to $1.03 billion compared with the $1.03 billion to $1.09 billion it estimated in September.