VeriFone Outlines a Recovery Plan for Its ‘Self-Inflicted’ Wounds

Heads look like they’re going to roll at troubled point-of-sale terminal maker VeriFone Systems Inc. as it begins what chief executive Douglas Bergeron calls a “rebuilding year” in the wake of missteps that contributed to lower-than-expected revenues.

Bergeron told stock analysts Tuesday that the company has initiated “an exhaustive deep dive” review of its operations to correct the problems that came to the surface Feb. 21. That was when San Jose, Calif.-based VeriFone issued preliminary results for its first quarter of fiscal 2013 ended Jan. 31 that fell well short of earlier predictions. The report triggered a 43% drop in VeriFone share price.

“In retrospect, we have found that a number of our issues in the quarter, and in the last few quarters, were indeed self inflicted,” Bergeron said in assessing the subpar results during VeriFone’s quarterly conference call with analysts.

Bergeron attributed some of the results to “external headwinds,” including weak economic conditions in Europe, delayed customer payments in Asia, currency controls in Venezuela (usually a good market for VeriFone), and the cancellation of a five-year taxicab media and payments contract in Washington, D.C. worth $35 million to $45 million.

But Bergeron also did a mea culpa, saying VeriFone had “internal execution challenges.” Those problems manifested themselves in VeriFone not having products ready on time that were customized to meet the particular standards and regulations of individual countries. That happened in fast-growing Brazil and other countries in Latin America and Europe. “There’s been five or six of these things, which add up to $20 [million] or $25 million in the quarter,” Bergeron said.

In other areas, notably the Middle East and Africa, “poor sales planning and execution” hurt results, according to Bergeron.

In addition, some VeriFone staff members spent too much time focused on the company’s long-term strategy of generating more service revenues and lost focus on near-term product sales, according to Bergeron. Some analysts have said too much focus on services has caused VeriFone to lose market share to arch-rival Ingenico S.A. Bergeron, while admitting that VeriFone has suffered some share loss in various areas, insisted that the services strategy is sound and that “no loss is permanent.”

Excluding acquisitions, VeriFone’s revenues in the Europe-Middle East-Africa region fell 12% year-over-year on a constant-currency basis and they dropped 21% in Latin America. But the U.S. and Canada posted strong results. North American organic revenues rose just over 10%. Sales for multi-lane retailers increased 11%.

In all, VeriFone posted revenues $428.7 million, up 2% from $419.5 million in fiscal 2012’s first quarter. But the System Solutions segment, which includes POS devices, had sales of $281.7 million, down 10%, while the Services segment saw sales rise 38% to $147 million. Net income came in at $11.8 million versus a $3.12 million loss a year earlier.

VeriFone’s recovery plan includes improved product delivery and sales operations, better use of research-and-development funds, new people, and a yet-to-be-detailed new organizational structure.

“As we complete our internal evaluation, we will likely take additional steps, including changes to senior management to ensure that we have the best executive team and the resources to execute our strategic plan,” said Bergeron. He later told an analyst, “Watch this space, there will be changes made over the next several months.”