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Paul Galant, the new chief executive of payment-processing hardware and software maker VeriFone Systems Inc., says he’s committed to increasing research and development, rationalizing VeriFone’s sprawling product lines, and becoming “more nimble and more focused on our strengths.”
Galant, a former senior Citigroup Inc. executive who took the helm 78 days ago from interim chief executive Richard McGinn, held his first conference call with analysts Tuesday afternoon to review the San Jose, Calif.-based company’s results for the fourth quarter of fiscal 2013 ended Oct. 31. Galant’s mission, begun by McGinn, is to oversee the leading but troubled point-of-sale terminal maker’s recovery from operational miscues under the administration of now-departed chief Douglas Bergeron as well as its adaptation to a rapidly changing payments market.
While down 11% from $485.4 million a year earlier, VeriFone’s fourth-quarter revenues of $431.2 million slightly beat the company’s expectations. Still, sales in all four of VeriFone’s geographic regions declined, led by North America, where revenues came in at $124.5 million, off 14% from $145.3 million a year ago.
McGinn detailed how over the past several quarters VeriFone lost sales to competitors by products not having certifications on time in various countries. Galant told analysts that those problems are on their way to being fixed. In Canada, where VeriFone has lost market share to archrival Ingenico S.A., leading merchant acquirer Moneris Solutions will roll out new VeriFone products in 2014.
In the U.S., VeriFone during the quarter signed contracts with seven multilane retailers that will use VeriFone’s MX 900 and VX series products. Two Top 100 retailers also completed rollouts of VeriFone’s PAYware Mobile products. VeriFone struck a deal with American Express Co. to enable AmEx cardholders to redeem Membership Rewards points to pay New York City taxi fares using VeriFone equipment.
Galant said his recovery strategy has three main parts—rationalizing the company’s products and services, which in many cases overlap, investing more in research and development to stay ahead of the market, and improving the global cost structure. Much of the product overlap is the result of a number of acquisitions VeriFone made in the Bergeron years. “We’re going to stop spreading the peanut butter thinly and evenly across the bread,” Galant said.
VeriFone spent $45.8 million on research and development in the fourth quarter, up 13% from a year earlier, and a total of $173.3 million in fiscal 2013, up 14% from $152 million in 2012. The company also paid down $83 million in debt during the fourth quarter.
With its gateways, security services, and other software products, VeriFone has become much more than the POS terminal maker so familiar to independent sales organizations and others in the merchant-acquiring industry. Recurring-revenue products and other software-based services brought in $633.8 million, or 37%, of VeriFone’s $1.70 billion in total revenues for the fiscal year compared with $527 million, or 28%, of 2012 revenues of $1.87 billion.
Still, VeriFone remains committed to the hardware side of payments, Galant said in response to an analyst’s question. “I love the hardware business, I have absolutely no desire to shy away from it,” he said. VeriFone, however, must become “more nimble and more focused on our strengths,” he added.
VeriFone reported a $247.7 million fourth-quarter loss mainly because of a $242 million non-cash charge to establish a valuation allowance against a large portion of its deferred tax assets.
