VeriFone’s Services Side Grows as Its North American Petroleum Business Struggles

VeriFone Systems Inc.’s North American revenues dipped sharply in the quarter ended Jan. 31, but the point-of-sale terminal and payment software provider nonetheless said it exceeded its financial expectations as software and services sales rose even as hardware sales fell.

San Jose, Calif.-based VeriFone on Thursday reported total revenues of $436.8 million in fiscal 2018’s first quarter, down 3.8% from $453.9 million a year earlier. So-called Systems, or hardware-based, revenues fell 8.4% to $243.1 million while the Services segment, which includes software and cloud-based services, grew 2.8% to $193.7 million.

On a conference call with analysts, VeriFone chief executive Paul Galant attributed part of the drop in Systems revenues to the “petrol EMV push-out” in the U.S. That was was reference to the payment card networks’ three-year delay in their originally planned October 2017 EMV liability shifts for unattended fuel pumps. Those postponements prompted many petroleum retailers, a major customer segment for VeriFone, to hold off buying chip card-processing hardware for pumps.

VeriFone’s revenues from North America plunged 25.4% to $123.8 million from $165.9 million in fiscal 2017’s first quarter largely because of slower sales to the U.S. petroleum sector. But there were bright spots, chief financial officer Marc Rothman said on the call.

“Our SMB [small and mid-sized business] vertical grew more than 20% year-on-year for the second straight period,” Rothman said. Quick-service restaurants, Canadian merchants, and some large early adopters of EMV card readers also generated new sales, and orders for mobile POS devices were strong, he added

Also exerting gravitational pull on hardware revenues was a fall-off in sales in India following a surge in early 2017 in the wake of that country’s so-called demonetization—a governmental policy that took more than 80% of the country’s cash out of circulation and spurred a rush to electronic payments. But VeriFone said Systems revenues grew in the double digits if the U.S. petroleum sector and India are excluded.

Galant on the call once again reiterated his desire to move VeriFone away from its traditional POS hardware orientation to a company that generates recurring revenues by supplying payment software, other business-management applications, and cloud-based services to merchants. Services accounted for 44% of first-quarter revenues, up from 41.5% in the year-earlier period.

A key component of the services push is the new Verifone Connect platform the company launched in January. The platform links Verifone devices and provides payment services, terminal management, and business and consumer apps. This week VeriFone reported that Paysafe will be the first independent sales organization to resell Verifone Connect.

VeriFone also said it expects revenues from new products, including its Carbon and Engage devices, to grow to 15% of Systems sales in fiscal 2018. New products produced 7% of Systems sales in the first quarter.

VeriFone reported net income of $7.3 million for the first quarter versus a $16.6 million loss a year earlier.