EMV Still Lifting VeriFone as Retailers Convert and the Oil Sector Begins Switchover

The conversion of U.S. mall and Main Street retailers to EMV chip card acceptance continues to lift VeriFone Systems Inc.’s North American revenues, but now the leading U.S.-based point-of-sale terminal maker and payment-services provider is getting ready for a rush of orders from petroleum marketers preparing to meet a key EMV deadline in 2017.

San Jose, Calif.-based VeriFone reported Monday that North American revenues grew 54.2% to $229.9 million in its fourth quarter of fiscal 2015 ended Oct. 31. The big growth is coming from new orders from merchant acquirers and big merchants in the wake of the U.S. point-of-sale EMV liability shift that took effect Oct. 1, in addition to sales of equipment and services for mobile commerce and the taxi market, according to chief executive Paul Galant.

Galant says more than half the 8 million payment terminals in the U.S. remain to be upgraded. “This upgrade cycle will provide tailwinds for the next several years,” Galant told analysts in a conference call. Large retailers are well along in their EMV conversions, but small and mid-size businesses, a huge market for VeriFone, have a long way to go, he said.

Under the card networks’ liability shifts, merchants whose terminals can’t read an EMV card will bear liability for any resulting counterfeit fraud. A similar liability shift will take effect in October 2017 for fuel pumps, which creates another big opportunity for VeriFone because the U.S. petroleum sector is one of the company’s biggest markets.

“It is definitely more than a one-year stint here,” Galant answered an analyst who asked how long the petroleum EMV conversion will take. “The petrol community has seen just how hard it is for the general merchant community, and they’re starting early.”

As a result of the continued EMV conversions and growth in other sectors, VeriFone upped its predictions for North American revenue growth to 5% in fiscal 2016 from the earlier 3%. Soon to hit the market will be a host of new products, including the Engage terminal now being tested by a bank in Mexico.

A year ago, North America was VeriFone’s second-largest region by revenue, after Europe-Middle-East-Africa, but now it’s No. 1 by far after bringing in nearly 45% of the fourth quarter’s $514.1 million in revenues. Hurt by the weak economies in some major countries, such as Brazil, and the economic fallout of low oil prices in major producing countries such as Russia and Nigeria in addition to the effects of the strong U.S. dollar, revenues from the EMEA, Latin America, and Asia regions all fell. Chief financial officer Marc Rothman, however, predicted growth will resume next year in the international markets.

Total fourth-quarter revenues were up 4.8% from $490.5 million a year earlier. Net income totaled $38.2 million versus $31.1 million in fiscal 2014’s fourth quarter. In contrast to the overall trend in recent years in which VeriFone’s software and recurring-revenue products have been gaining share on its traditional POS terminals and related hardware, services revenues fell 2.4% in the fourth quarter to $175.2 million compared with a 9% increase to $338.9 million for so-called System Solutions.

For all of fiscal 2015, VeriFone just passed the $2 billion revenue mark for the first time, representing an increase of 7% from $1.87 billion in fiscal 2014. Net income amounted to $79.1 million against a loss of $38.1 million in the prior year.