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Sales in VeriFone Systems Inc.’s North America region jumped 54% in the quarter ended April 30 to $193 million from $125.3 million a year earlier, the payment-processing equipment maker reported Thursday. The big driver was the conversion of U.S. merchants’ point-of-sale terminals ahead of an October deadline for the devices to be able to read EMV chip cards.
But VeriFone’s top executives say other factors are boosting sales too, including orders for the company’s new E Series of mobile products and a growing number of certifications for VeriFone products from merchant acquirers and other distributors. “It’s important to note that our North America results are not simply due to EMV,” chief executive Paul Galant said in his opening remarks to analysts in a conference call to discuss the quarterly results.
Still, there’s no question that San Jose, Calif.-based VeriFone is benefiting handily as the U.S. EMV conversion gets into high gear. Merchant acquirers and big retailers, VeriFone’s prime customers, are trying to upgrade as many of their terminals as possible before the card networks’ October liability shift makes merchants liable for counterfeit fraud if their equipment can’t read EMV chip cards.
Accordingly, revenues in just about all of VeriFone’s major North American customer segments rose smartly in fiscal 2015’s second quarter. Revenues from U.S. multilane retailers rose 60% year-over-year. Twenty-eight large retailers placed orders specifically because of EMV, according to chief financial officer Marc Rothman, and 13 were new to VeriFone.
Revenues from U.S. petroleum retailers also jumped 60% as convenience stores ordered EMV terminals, controllers, and other equipment, according to Rothman. And revenues for the small and mid-size business vertical increased 50%.
Beyond EMV, another important revenue driver was the creation of additional sales outlets because more acquirers and processors have certified VeriFone equipment, Rothman and Galant said. Certifications had been slowed by VeriFone’s strained relations with a number of distributors, a situation Galant said his new management team began rectifying about 18 months ago.
“We repaired relationships that were deeply damaged,” he said. “That opened the door to certifying our products.”
The North American revenue spike spurred talk of what one analyst called the “EMV cliff,” the time when the conversion is done and the party for VeriFone and its chief competitor, France-based Ingenico Group, is over. But VeriFone thinks the music will keep playing for quite some time. Galant predicted that only about 41% of U.S. retail lanes, including non-card-accepting locations he expects to soon add card acceptance, will be converted by October. “There’s another 60% to go,” he said. And an estimated 1 million fuel pumps have until October 2017 before they face an EMV liability shift, he added.
VeriFone’s record second-quarter North American results were up 20% from the region’s first-quarter revenues of $160.3 million. They stood in sharp contrast to the Asia-Pacific region, where revenues fell 27% year-over-year to $49.6 million. Galant singled out China as the big trouble spot, saying he’s “really unhappy” with recent results. The company is attempting a turnaround with the appointment of a new top executive for the country and the development of low-priced products specifically for the Chinese market.
In all, VeriFone posted revenues of $490.1 million in the second quarter, up 5% from $466.4 million a year earlier and up 14% on a constant-currency basis. Net income was $17.6 million compared with a $23.9 million loss in fiscal 2014’s second quarter.
