VeriFone receives approval for NYC taxi payment terminals; reports Q1 results

The TLC has mandated that beginning in October 1, 2007, upon their next scheduled inspection, all New York taxis will have implemented technology-based customer service improvements that will include an interactive electronic passenger map and information screen, and credit/debit card acceptance. Systems implemented by VeriFone Transportation Systems are the first to obtain a formal Notice to Proceed from the TLC, authorizing installation and use in any of the 13,000 licensed cabs in the city.

"We are pleased to be first to meet the standards set by the TLC in its efforts to enhance customer service and revolutionize the taxi industry in New York City," said Douglas G. Bergeron, chairman and CEO of VeriFone. "These systems provide the most dynamic, reliable and durable solution for owners and operators of taxis and limousines, and we look forward to working with them to make this new system a win-win for everyone."

The VeriFone-based solution utilizes wireless technology to provide integrated payment in the passenger cab, including a card swipe and contactless payment for credit and debit payment of fares, in an easy-to-use ATM style interface. Riders have the option to select a preset tip from a list of choices, or input their own amount.

The riding experience is further enhanced with the Passenger Information Monitor, a 10.4-inch touch-screen monitor that provides exclusive news and content for passengers through an exclusive partnership with market-leading WABC-TV New York. Content selections include news and weather from WABC; sport from ESPN; and information on restaurants, night life, hotels and attractions from Zagat Survey. Near-term enhancements will include traffic, movie previews and local event information at the touch of a button.

A smaller model utilizes the VeriFone MX870, which supports secure credit card transactions and PIN-based debit card transactions with contactless payment and electronic signature capture, as well as advertising and content delivery. The smaller option will provide an ideal solution for the integration of potentially smaller hybrid vehicles.

The unique interactive systems, which also include onboard global positioning systems (GPS), were designed under guidelines from the TLC as part of a service improvement system designed to enhance fleet management and improve customer service.

"The TLC is setting the standard for the industry by initiating this ground-breaking improvement to one of New York's most-beloved icons, the yellow cab," said Amos Tamam, president and CEO of VeriFone Transportation Systems. "In addition to providing customers with payment choices, owners benefit from improved fleet management and the potential for enhanced revenue through advertising. Drivers also now have improved access to real-time traffic information and the ability better serve customers who leave items in their cabs, an added benefit to both residents and visitors to New York."

VeriFone Transportation Systems will begin providing the integrated solution immediately, providing training and 24/7 service to operators. WABC is serving as the primary sales agent for advertising, which includes a variety of video and interactive messages, reaching hundreds of thousands of taxi riders in a unique environment.

Separately, VeriFone today announced financial results for the three months ended April 30, 2007.

Net revenues, for the three months ended April 30, 2007, were $217.2 million, 53% higher than the net revenues of $142.2 million for the comparable period of 2006. VeriFone's International business increased 97% and VeriFone's North America business increased 19%. The significant increase in sales was driven largely by the acquisition of Lipman, which closed November 1, 2006.

Subsequent to the end of the quarter, management determined that booked orders of approximately $4 million could not be recognized as revenue due to incomplete sales administration requirements in our international operations. These orders were largely sourced from VeriFone's new Israeli and Turkish facilities and all were headed to high growth markets in Asia, Eastern Europe and Africa. The Company is confident that the shortcomings in applying these field processes have now been remedied. All of this revenue has now been fully recognized and is reflected in guidance for the third quarter.

Gross margins, excluding non-cash acquisition related charges and stock-based compensation expense, expanded to a record 48.1%, for the three months ended April 30, 2007, compared to 45.7% for the comparable period of 2006. GAAP gross margins for the three months ended April 30, 2007, were 41.5%, compared to 44.6% for the three months ended April 30, 2006, as a result of increased amortization of purchased technology assets, the step-up in inventory and stock-based compensation.

GAAP operating expenses for the three months ended April 30, 2007, were $72.9 million compared to $37.8 million for the comparable period of 2006. In addition to the effect of the Lipman acquisition and related integration expenses, the Company incurred higher non-cash stock compensation expenses and amortization of purchased intangible assets. Stock based compensation for the three months ended April 30, 2007 was $9.8 million compared to $1.0 million for the comparable period of 2006. This increase was primarily due to the acceleration of the vesting of options of Lipman executives, the increase in the number of option holders following the Lipman acquisition and the grant of performance-based restricted stock units to the Company's Chief Executive Officer. Amortization of purchased intangible assets for the three months ended April 30, 2007 was $6.1 million compared to $1.2 million for the comparable period of 2006, primarily due to the Lipman acquisition.

EBITDA, as adjusted, margins for the three months ended April 30, 2007, expanded for the eleventh consecutive quarter and reached a record level of 26.3%, compared to the 21.6% recorded in the three months ended April 30, 2006.

GAAP EPS for the three months ended April 30, 2007, was $0.06 per diluted share, compared to $0.22 per diluted share, for the comparable period of fiscal 2006, due to acquisition related non-cash charges, higher stock-based compensation expense primarily related to the Lipman acquisition and to a significantly higher GAAP tax rate driven by an increase in the valuation allowance related to Lipman. Net income, as adjusted, which excludes non-cash acquisition related charges and debt issuance costs, as well as non-cash stock-based compensation expense and Lipman integration costs, for the three months ended April 30, 2007, increased 50% to $0.39 per diluted share, compared to $0.26 per diluted share, for the three months ended April 30, 2006.

"I am pleased to report on another very successful quarter for VeriFone as we once again achieved record profitability," said Douglas G. Bergeron, Chairman and Chief Executive Officer. "During the quarter, our record margins drove our robust EPS growth, and also resulted in strong cash flow," continued Bergeron. "We were especially pleased with our continuing success of our wireless products and were delighted with the resurgence of our North American business which grew sequentially 8 percent from the previous quarter."

"Based on these results and the $4 million of revenue which has been recognized in the third quarter, we are increasing our third quarter internal expectations for net revenue to $225 - $227 million and increasing our guidance for net income, as adjusted, per share to a range of $0.39 - $0.40. We remain confident of our prospects for the remainder of fiscal 2007."

Second Quarter Highlights

• In the UK, VeriFone had continued success with the Tesco contract, where the VeriFone Secura outdoor payment system is enabling easy integration with ECRs, pumps and a range of unattended devices in a Wincor Nixdorf-led project.
• In Mexico, VeriFone completed a successful pilot with American Express for its Vx 670 Pay at the Table solution and looks forward to demand creation from the related American Express advertising campaign.
• VeriFone announced wins at Ahold Group members Stop & Shop and Giant-Landover food stores. These organizations have embraced a strategy to install MX870's in all new and remodeled stores as well as to replace legacy products over time. In addition, VeriFone also announced other significant wins including Wegman's Food Markets, a high end supermarket in the northeast US region, which began its rollout of the MX870 with RFID to replace a competitive product; and Brookshires Grocery, a Texas based supermarket chain, which passed the Texas WIC certification and began a chain wide rollout with the MX870.

Note: The Company's second quarter results reflect the November 1, 2006 acquisition of Lipman and, because of the integration of Lipman's products and distribution channels as well as the lack of comparable quarter ends of VeriFone and Lipman, are compared to pre-acquisition results of prior fiscal periods.

Financial Measures

Reconciliations for the non-GAAP measures presented in this press release are provided at the end of this press release. Management uses the non-GAAP measures presented in this release to help them evaluate VeriFone's performance and to compare VeriFone's current results with those for prior periods as well as with the results of other companies in our industry, but cautions investors that these non-GAAP measures should not be considered as substitutes for disclosures made in accordance with GAAP.

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