(PAY) VeriFone Holdings Tops Earnings Estimates

VeriFone Holdings Inc. (PAY) reported revenues of $223.4 million in the first quarter of fiscal 2010, up 2.6% sequentially and up 4.4% year over year. Systems Solutions generated revenues of $188.0 million, up 1.2% year over year. Services revenue increased 11% sequentially and 25% year over year.

Based in San Jose, California, VeriFone designs, markets and services a transaction automation system that facilitates electronic payments between consumers, merchants and financial institutions.

Revenue from international operations increased 2% sequentially. Latin America increased 14% and Europe grew 1% while Asia declined 11%.

Revenues from North America increased 3% sequentially. Petroleum and some of the smaller vertical solutions grew while the multi-lane retail business was steady compared to fourth quarter levels.

Gross margin came in at 39.2%, up from 37.9% in the prior quarter and 35.2% in the year-ago quarter. The improvement in gross margin was driven by favorable product mix in Europe and lower corporate costs primarily resulting from lower launch expenses.

Operating expenses increased $4 million this quarter to $51.9 million. G&A increased $2.4 million. R&D increased $0.9 million and sales and marketing expenses increased $0.7 million. The recently acquired Clear Channel Taxi Media business accounted for $0.5 million of the increase in sales and marketing expenses.

Earnings per share came in at 26 cents, easily beating the Zacks Consensus Estimate of 18 cents.

During the quarter, VeriFone generated $54 million of cash from operations and used $1.9 million in capital expenditures. The company exited the quarter with cash and equivalents of $374.6 million, up from $324.9 million at the end of the prior quarter. As of January 31, 2010, debt was $466.4 million, down from $468.8 million at the end of the previous quarter.

Management has revised its guidance for 2010. VeriFone now expects revenues between $925 million and $940 million in 2010, up from the previous estimate of $900 million to $945 million. Earnings per share (EPS) are forecasted between $1.00 and $1.10, up from the previous estimate of 97 cents to $1.07.

For the second quarter, management expects revenues between $225 million and $230 million, up 12% – 14% year over year. EPS is projected around 25 – 26 cents.

Meanwhile, VeriFone continues to take strategic steps to expand its business both domestically and internationally.

Last month, VeriFone acquired the Clear Channel Taxi Media business from Clear Channel Outdoor. VeriFone intends to leverage this well-developed channel into its Media Solutions payment-enabled business.

VeriFone has also entered the mobile payment initiation space in China. As a co-lead investor in Trunkbow International Holdings, VeriFone acquired an 8.6% ownership in Trunkbow and a seat on its board of directors. Based in Jinan, China, Trunkbow is a leading provider of technology platforms that enable mobile payments and mobile value added service applications.

Management believes that mobile phones are playing an increasingly active role in the initiation of payment transactions both within the existing payments infrastructure as well as with other telecommunications carriers like China Mobile, China Telecom, and China Unicom.

The company expects that this investment will provide an opportunity to expand its footprint in the growing market of China. Together with its telecom partners, Trunkbow expects to deploy approximately 125,000 mobile payment terminals integrated with its 2.4 gigahertz technology over the next three years.

The stock price fell 6.54% in after-hours trading to close at $19.30. In regular hours, the stock gained 4.77% to close at $20.65.

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