VeriFone Boss Says He Aims for Services to Account for Half of Revenue Within Four Years

n

Fresh from its acquisition of rival Hypercom Corp.’s non-U.S. business, leading U.S.-based point-of-sale terminal maker VeriFone Systems Inc. continued its diversification beyond its mainstay countertop terminals in fiscal 2011’s fourth quarter ended Oct. 31, according to results released on Wednesday.

n

n

Services brought in $91.5 million for San Jose, Calif.-based VeriFone, some 22% of $410.7 million in quarterly net revenues and up 92% from a year earlier. Chief executive Douglas G. Bergeron told analysts in a conference call that he’s shooting for 50% of revenues to come from services by the end of 2015.

n

n

Services produce steadier, high-margin revenues to offset more cyclical hardware sales. VeriFone offers a host of services beyond basic terminal repairs, including its VeriShield Protect data-encryption products, an array of online and mobile-commerce services under the PAYware brand, payment and digital-advertising services for taxicabs, and other products. The company’s pending, $1.1 billion acquisition of Sweden-based Point, which processes transactions for nearly 475,000 merchant accounts in Northern Europe, will further add to VeriFone’s service revenues.

n

n

VeriFone is also hitching its star to mobile payments and EMV, the chip card standard that has replaced magnetic-stripe payment cards in most of the developed world except the U.S. Bergeron said VeriFone, which is working with Google Inc. to get the Google Wallet mobile-payment system deployed in stores, has upgraded 40,000 retail lanes throughout the U.S. with the near-field communication (NFC) technology. The upgrades enable POS terminals to exchange payment and other data with NFC-enabled smart phones. VeriFone said it did upgrades at 12 of the 13 merchants listed on the Google Wallet Web site. That list includes such major names as Macy’s, Gap, Old Navy, OfficeMax, and Jamba Juice.

n

n

Bergeron also said VeriFone is talking with merchants on how to prepare for the predicted coming of EMV chip cards in the U.S. without junking their considerable investments in existing payment technology. These talks have yet to produce any breakthrough deals, but VeriFone wants to send the message that it’s a force in the developing EMV world. “Customers want to play and they want to be innovative, but they don’t want to create chaos in their retail infrastructure so they really like the concept of an adult in the room who’s helping them innovate quickly but who’s holding their hand making sure they don’t botch something up,” he said.

n

n

One service that’s ramping up is VeriShield Protect, which has 66 committed merchants. Bergeron said in response to an analyst’s question that he didn’t know how many are actually using it yet because merchant processors resell the service to their customers. First Data Corp., which processes for many national retailers, turned on VeriShield Protect Nov. 1, which should greatly increase the transaction flow. “It’s growing quickly,” said Bergeron.

n

n

A follow-up question about which major processors do not offer VeriShield Protect elicited a classic Bergeron dig at a perceived enemy. “Well, there’s a small processor called Heartland in New Jersey. I think they’ve decided to go their own way,” he replied. Princeton, N.J.-based Heartland Payment Systems Inc., which is the fifth-largest merchant processor and is on track to process more than $80 billion in charge volume this year, offers merchants a proprietary terminal called the E3. VeriFone sued Heartland for alleged patent infringement after the processor introduced the data-encrypting terminal in 2009, triggering a countersuit by Heartland and then more litigation. The parties dropped all their suits on March 30.

n

n

VeriFone’s $410.7 million in quarterly revenues represented an increase of 49% over $276 million in fiscal 2010’s fourth quarter. Net income ballooned 302% to $198.8 million from $49.4 million a year earlier. The August addition of Hypercom’s business was felt most in the Europe/Middle East/Africa region, where revenues grew 53% to $148.6 million, and in Latin America, up 61% to $104.6 million. North American revenues slipped 5% to $115.7 million, a decline Bergeron attributed to merchants’ reducing spending after making heavy outlays last year to meet new security standards.

n

n

For the full fiscal year, VeriFone posted net income of $282.4 million, up 186% from $98.8 million in 2010, on net revenues of $1.3 billion, an increase of 30% from $1 billion for 2010.