VeriFone Systems Earnings Call Insights: CapEx Outlook, Canada & Brazil

VeriFone Systems, Inc. (NYSE:PAY) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.

CapEx Outlook

John Williams – UBS: Had a couple of quick ones. So, Marc, you had mentioned quickly that you are currently having present sense of some certification issues in Canada. I was just hoping you could give us a little bit more info on what you meant by that? Then the second question is on CapEx. I know you mentioned that the quarterly number was lower than planned for the third quarter and I was just hoping you could give us some sense of what the fourth quarter number should look like, should we see that catch-up or is it generally going to run at a lower rate than you had originally planned three months ago?

Marc E. Rothman – EVP and CFO: Let me cover CapEx and Rich will make some comments on Canada. On the CapEx, as you mentioned $18 million for the quarter was lower than our planned expectation of $23 million to $25 million. Part of that was timing and increased focus on investment disciplines. I would expect with that downtick in Q3 that we will run around $25 million in the fourth quarter and that’s what we’re factoring into the free cash flow guidance that I provided. Substantial amount of that, again, would be for revenue generating assets.

Richard A. McGinn – Interim CEO: As far as Canada is concerned. We were not battle-ready in terms of things that we’ve done in the past couple of years. Customer reaction was not positive, and then we came forward to get into the certification queue. We were late to that queue, missed the cycle, and our good competitor, our primary competitor took advantage of that as one would, which had them get a bit move up in terms of business vis-a-vis us. But we’re back on top of it now. We have well-developed rock solid products. We’re getting into certification queue and over the next the two quarters we should see a full product line available for us in Canada, in terms of portable and mPOS devices, so we miss the cycle by our execution.

John Williams – UBS: So, just to be clear Rich, this was more of a legacy sort of lingering issue than something that’s come up in the last few months, this sound like an old issue that you’re still the only one…

Richard A. McGinn – Interim CEO: An old issue with a long tail. We are finally getting it under control now. That’s what has been plaguing us and understandably other customers voted with their feet. And they moved to someone else who was seen in the absence of our inability to deliver the product at the right time well baked to go with someone else. But the conversations that we’ve maintained with our customers informs us that as we finally get our act together here as we are. That the opportunity is there for us to begin, once again getting good business volume in Canada, but we didn’t do a good job for a while.

John Williams – UBS: If I could just sneak one last one on EMEA. I know you had talked about the issues there last quarter, how much of the improvement, it was a little bit better than we expected. How much of the improvement there was Middle East versus Europe, could you just give us a little bit of direction on that?

Marc E. Rothman – EVP and CFO: So in Europe, Middle East, and Africa the results in Middle East North Africa were relatively comparable to Q2. A significant part of the increase in Europe quarter-on-quarter, John, related to our success in Russia on the contract that both Rich and I highlighted with Sberbank, and lastly, the UM acquisition that we closed this quarter also contributed to the increase sequentially.

Canada & Brazil

Roman Leal – Goldman Sachs: This is actually Roman Leal in for Julio. I guess, just to follow-up on the question in Canada and maybe we can group Canada and Brazil together. More on how we should think about the cadence of – the trajectory of revenue and business volume there. Should we think about maybe two more quarters both Canada and Brazil before you kind of lap the initial step down with some customers there? So, maybe after two quarters the comps get easier. First, is that the way of thinking about the comps? And then secondly, do you have some visibility on when some of these customers potentially come back to market with some sizeable orders?

Richard A. McGinn – Interim CEO: First of all, I wouldn’t lump them together. First, dealing with Canada, now that we have addressed all of our issues and we moved into the cycle for certification we get through that and then the latency period between working with the customer and deployment that’s probably couple of quarters. I mean, that’s a reasonable statement. In Brazil, little bit different. In that we are still able to sell products in Brazil. We’ve got a very good market share position. Other major competitor took some ship share from us in the recent past as we didn’t have a full portfolio but as we have indicated we are investing to address that but it is not the same situation. It wasn’t as long duration as we have had in Canada. And products are coming online for Brazil by the end of this year first quarter of next year and fully by mid-year, next year. So, it is a lot more products that are specific for the Brazilian marketplace in form factor, in functionality at the request of our customers. But honestly, the relationship remain strong and they are just waiting for us to – not patiently waiting for us to deliver on the promises and the expectations that they have and that will occur on a step-by-step basis, starting soon and probably reaching a point of full competitiveness by mid-year, next year.

Roman Leal – Goldman Sachs: Then just in the balance sheet, you made some good progress there. Anything you can share with us in terms of what the near term goals are and maybe in terms of how much more debt you’d like to pay down or where you like to get to in terms of leverage and anything like that will be helpful?

Marc E. Rothman – EVP and CFO: So, this is Marc. On the balance sheet, and yes, we are pleased with the progress we made, and certainly looking forward to making more progress. On the deleveraging side, just to recap the $160 million from this quarter brings the debt down – the gross debt to around $1.1 billion. And we have the flexibility to pay down additional debt. Right now, we are planning to pay down at a minimum the amortized requirements, which double to roughly $25 million in the quarter next year and we will look for the right opportunities continue to at least pay down the revolver. We don’t have an intention to further pay down the term A and the term B at this point, except as it relates to the amortization, but we will be managing the revolver down as it make sense.

A Closer Look: VeriFone Systems Earnings Cheat Sheet>>