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Supposedly mature North America lately is sporting growth rates befitting a green-field market for leading point-of-sale terminal maker VeriFone Systems Inc. VeriFone, which is moving ahead with plans to buy rival Hypercom Corp., late Tuesday reported that North American revenues increased 43% in its first fiscal 2011 quarter ended Jan. 31 to $128.5 million from $89.6 million a year earlier. North America’s growth far outpaced growth in Europe, Asia, and Latin America.
North America took a hit during the recession when merchant acquirers, processors, and independent sales organizations cut back on purchases of payment hardware and software. But the U.S. and Canada have been growing nicely in recent quarters for a variety of reasons that include security-related upgrades and purchases of more services that generate recurring revenues for San Clara, Calif.-based VeriFone. The terminal maker said business was especially strong in the first quarter in its big petroleum and multilane retailer segments. “On a year-over-year basis, our petroleum revenues increased 30%,” chief executive Douglas G. Bergeron told analysts in a conference call. Orders rolled in not just from oil companies themselves but also from independent petroleum marketers.
VeriFone launched an annual software-maintenance program for petroleum merchants in the first quarter, a program that 25% of its petroleum customers signed up for in its first two months. VeriFone expects a similar number of additions this quarter. The company also got traction from its “Secure PumpPAY” initiative to upgrade card security at what Bergeron said were “hundreds of thousands of unsecured gas pumps throughout the country.” The company closed deals with 16 wholesalers in the first quarter and hopes to have 25,000 of the nation’s estimated 800,000 gas pumps secured by year’s end and another 25,000 next year.
North American revenues also increased as Visa Inc. waivers for multilane retailers to meet Payment Card Industry data-security standard (PCI) deadlines expired, which generated new demand for VeriFone’s PCI-compliant products, according to Bergeron. Plus, VeriFone is seeing some “refresh opportunities” from merchants that installed PCI-compliant equipment in an upgrade cycle four years ago but now are looking for updated systems, he said.
VeriFone is testing a media pilot program for gas stations in Florida and California that pipes in video content and advertising on pumps and will expand the program this quarter ahead of a national launch, Bergeron said. And VeriFone’s taxicab unit, which offers combined payment terminals and video screens for the back seats of cabs, recently signed the biggest cab company in Las Vegas.
On the acquisition front, shareholders of Scottsdale, Ariz.-based Hypercom last week approved VeriFone’s all-stock buyout offer valued at about $485 million. The last big hurdle before the deal can close is approval by regulators in both the U.S. and Europe, which VeriFone hopes to have by year’s end. VeriFone is buying Hypercom mainly for its strong European business.
Meanwhile, although VeriFone is going after the nascent mobile-payments business with its PAYware Mobile line of products and related services, Bergeron cautioned against overly optimistic expectations that smart phones are about to take over payments. He did note that initiatives from Google Inc., PayPal Inc., and possibly Apple Inc., in addition to the Isis joint venture, show that it is “quite clear that we’re at a tipping point where mobile payments can begin to change the way we pay for goods and services.” But mobile-payments providers must win over the merchant, he added.
“These merchants won’t willingly migrate to alternative payment schemes and value-added services unless they are seamlessly compliant with traditional ways to pay at the point of sale and don’t add to the complexity and expense of payment acceptance,” he said. “Service providers have continually tried to force feed new payment acceptance and security requirements on merchants, who have been telling us that, frankly, they’ve had enough.”
VeriFone reported net income of $32 million for the first quarter, up 202% from $10.6 million a year earlier, on net revenues of $283.8 million, up 27% from $223.4 million. Hardware and software revenues grew 20% to $225.7 million while services revenues jumped 64.1% to $58.1 million.
