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California-based company $PAY said 3Q16 was a challenging quarter in terms of revenue. Political and macroeconomic factors in Turkey and Latin America adversely affected revenue in 3Q16 and are expected to persist for the near term. The pace of EMV terminalization has not picked up as expected causing $PAY to lower its 4Q16 outlook.
$PAY appointed Ronald Black and Larry Klane to its BoD. The two appointees will become directors of Verifone effective immediately. Also, the company said Eitan Raff has resigned effective Dec. 19, following a 10-year tenure as a member of Verifone's Board.
With regard to the performance objectives through 2020, $PAY still expects top line growth in the 5-6% range. The company lifted gross margin growth estimate by 200 basis points in the medium range planning cycle from 41-44%. Through 2020, $PAY raised operating margin growth forecast to 17-18% from 15-16%.
For 4Q17, $PAY reported gross margin of 40.2% and operating margin of 11.3%. For 2017, $PAY's gross margin stood at 42% and operating margin closer to 12.7% as both Taxi and China were dilutive. Moving into 2018, $PAY sees gross margins to be in the mid-43% range and operating margins post divestitures in high 13% closer to 14%.
$PAY said it is planning somewhat improved 2Q18 revenue from its 1Q18 guidance and expects 2H18 to increase about 6% versus the previous year results. The 1Q18 forecast reflects normal 1Q seasonality and is based on a more balanced view of North America due to lower petro revenue on a sequential basis.
Given current backlog of business wins, a strong pace of new sales and new channel expansion opportunities, $PAY sees this services business will still grow organically at double-digit rate for foreseen future. Outside of North America $PAY laid groundwork for FY18 growth through additional gateway and estate management infrastructure investment.
$PAY sold its Taxi business on Dec. 11, 2017 for $30MM in cash consideration. Verifone expects to use the net proceeds, plus available cash, to complete the balance $50MM authorized under its prior $200MM stock buyback program. Also, the BoD has authorized an additional $100MM stock repurchase program.
$PAY expects FY18 non-GAAP EPS of $1.47-1.50. This reflects core revenue growth, higher gross margins based on a greater mix of next generation products, and accretion from share repurchases, offset partially by additional investments in next generation solutions, and changes in its non-GAAP effective tax rate.
$PAY expects FY18 revenue of about $1.788-1.813Bil, which reflects low single digit growth on an adjusted basis excluding the divested China and Taxi businesses from the prior year. This outlook also demonstrates a return to growth in its core North America Retail and Small and Medium Business verticals.
$PAY swung to a profit in 4Q17 from a loss last year, on higher revenue and margins as well as lower operating expenses. Net income was $3.1MM or $0.03 per share compared to a loss of $4.5MM or $0.04 per share a year ago. Revenue rose 3% to $477MM. Non-GAAP EPS climbed 47% to $0.44.
$PAY and China's leading third-party payment platform Alipay, announced the extension of their existing global partnership to Verifone Taxi Solutions. Through the agreement, Chinese consumers traveling in New York and Las Vegas will be able to pay for taxis in the U.S. for the first time using their Alipay Mobile Wallet.
$PAY announced the full market availability of the first two devices in the Verifone Engage family of payment solutions in South Korea. Both have passed the mandatory and rigorous Korea Certification product inspection and meet Korea’s EMV standards.
$PAY said in terms of device connectivity, it had 301,000 connected devices as of the end of 3Q17. The company believes it will hit the 400,000 devices target and then continue to grow. At present, the backlog stands between 175,000 and 200,000 devices. $PAY sees expansion opportunities in this area.
$PAY is seeing a more stabilized trend across Latin America. The company is more diversified both on the geographic and business sides. $PAY is looking to expand its digital services in countries like Mexico where it has a gateway network so there will be more business in Mexico around payment-as-a-service.
For 3Q17, in North America, $PAY delivered revenue of $153MM, down 3% sequentially. In Latin America, revenues were $71MM, up 29% YoY. In Europe, Middle East and Africa, revenues of $194MM were up 2% from the prior year and up 9% sequentially. In Asia, revenues of $49MM were down 35% sequentially and 4% YoY.