Verifone Tumbles On Soft EMV

For Verifone, EMV has proven to be the payments equivalent of an earnings albatross — at least, for the near term.

The payments tech firm said on Thursday (Sept. 1) that its projections for the quarter that ends this October will be lower than expected, as EMV adoption, on what looks to be an international scale, is moribund given that POS hardware adoption, especially among smaller merchants, has proven to be far less robust than had been hoped.

That slowdown impacted results for the quarter that ended July 31, with adjusted earnings per share coming in at $0.42, down from $0.47 in the same period last year, as revenues slipped 4 percent to $493 million. The company’s projections for that timeframe had been for $515 million. Some margin leverage helped lift the earnings above management guidance at $0.40 per share.

But it was the devil in the details that sent shares down 14 percent in after-hours trading, with focus on the fact that system sales were off by 12 percent. The newest guidance stands at $0.28-$0.29 on the bottom line, versus consensus at $0.50, while revenues are markedly below analysts’ numbers at $460 million provided by management compared to consensus at $536 million.

In a conference call with analysts, CEO Paul Galant noted: “Q3 was a challenging quarter for Verifone in terms of revenue. Political and macroeconomic factors in Turkey and Latin America adversely affected our revenue during the quarter and are expected to persist for at least the near term, and the pace of EMV terminalization isn’t picking up at the rate we were expecting, which has caused us to lower outlook for Q4.” Turning attention to the U.S., the executive noted that, on “our last earnings call, we had anticipated that the North America EMV upgrade cycle would start to pick up again and that distributer inventory would sell through at a faster pace in Q4 than what we saw in Q3.”

“That is not turning out to be the case,” Galant said, adding that “we now see a significant slowdown in small and medium business terminal upgrades. And many larger merchants in the U.S. are pushing out orders as they continue to work to integrate software [and] certify the EMV.”

Jennifer Miles, president of the Americas at the company, stated on the call with analysts that, looking at the U.S., which saw significant declines in EMV uptake: “We’ve seen some change in the regulations that have taken a little bit of the pressure off of the small merchant. It could potentially also be the fact that a lot of the higher-risk merchants moved earlier and migrated in the year, and now, we’re seeing more moderate, regulated upgrade volume.”

Turning to a more sanguine outlook, management stated that Verifone has made “significant progress” in moving forward on its ongoing work with Visa and CyberSource, focused on eCommerce, with continued rollout of mPOS and other devices in conjunction with a pilot program that is underway.