VeriFone's Strong Numbers (PAY)

VeriFone Holdings (NYSE:PAY) has just posted $0.42 EPS and $231.9 Million in Revenues versus First Call estimates of $0.40 and $226.8 million.  If you look below you’ll see they are also raising guidance.  Analysts are still positive on this stock with an average price target of $44.00 to $45.00, so we’ll have to see if this is positive enough to keep them happy in the morning.

Net revenues from VeriFone’s International business increased 106% while net revenues from VeriFone’s North America business increased 22%. The significant increase in net revenues was driven largely by the acquisition of Lipman Electronic Engineering Ltd., which closed November 1, 2006.  Non-GAAP gross margins rose to a record 48.2%; GAAP gross margins fell to 44.0% from 45.0% primarily as a result of increased amortization of purchased technology assets.

Most importantly, the company is jacking up guidance.  Douglas G. Bergeron, Chairman and Chief Executive Officer: "We are increasing our internal expectations for the fourth quarter and now expect to repeat these record third quarter results. Our guidance for the fourth quarter, therefore, is for net revenue of $231 – $233 million and net income, as adjusted, per share of $0.41 – $0.42. As a result, we are also increasing our full year fiscal year 2007 expectations for net income, as adjusted per share to $1.59 to $1.60 per share. As well, given the out-performance in profitability that we have consistently enjoyed since the closing of the Lipman acquisition last November, we are now taking this opportunity to update our long term financial model. We are reaffirming our revenue growth rate projection in the 10% – 15% range and we are increasing our margin expectations as reflected in the table below."

                                          Long Term Model
                                        Prior                    New
Gross Margin         42% – 47%          45% – 50%
EBITDA Margin      18% – 24%          25% – 30%
Net Margin              12% – 17%          15% – 20%

Shares closed down $0.01 at $36.99 in normal trading and shares are up over 1% at $37.40 in after-hours trading after the raised guidance.  The 52-week trading range is $26.25 to $42.72.  A lot seems like it may depend on these portable handheld devices for credit card transactions that have been used in Europe for over 10 years.

Jon C. Ogg
September 6, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.