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Hypercom narrows Q1 losses

07 May 2008  |  1376 views  |  0 Source: Hypercom

Hypercom Corporation (NYSE: HYC), the high security electronic transaction solutions provider, today announced financial results for the first quarter ended March 31, 2008.

The Company recorded a first quarter net loss of $0.3 million, or ($0.01) per share, versus a loss of $2.5 million, or ($0.05) per share, in the same quarter of 2007. First quarter results do not reflect the financial results of recently acquired Thales e-Transactions since the acquisition did not close until April 1, 2008.

First quarter revenue was $71.7 million, up $6.9 million or 10.6%, compared to $64.8 million in the same quarter of 2007. Product revenue for the first quarter was $49.6 million versus $48.2 million in the same period a year ago, up $1.4 million, or 2.9%. In addition to the $1.4 million year over year growth, first quarter 2008 revenue also replaced $3.7 million of negative margin terminal sales in Brazil in first quarter 2007. The Company discontinued such sales in late 2007 and did not record any similar revenue in Brazil during the first quarter of 2008. Product revenue growth occurred primarily in the U.S. due to strong countertop sales. Service revenue in the first quarter was $22.1 million versus $16.7 million in 2007, up $5.4 million, or 32.7%. Service revenue grew $4.0 million in South America primarily due to an increase in service volume and $1.5 million in Asia-Pacific as a result of the acquisition of ACG Group.

First quarter 2008 gross profit was $19.8 million, or 27.6% of revenue, compared to first quarter 2007 gross profit of $20.7 million, or 32.0% of revenue. The gross margin is a blend of 33.3% product gross margin and 14.6% service gross margin in 2008 versus margins of 38.2% and 13.8% in first quarter 2007. Year over year product gross margin has decreased as a result of lower average selling prices in EMEA and Asia-Pacific related to product mix and competitive price pressure, as well as a reduction of revenue related to high margin networking product sales. These decreases were partially offset by a higher volume of sales in North America. First quarter 2008 product gross margin was also impacted by $0.7 million of non-recurring facility closure and severance costs related to the shutdown of our Asian manufacturing operations, as well as $1.0 million of overlapping manufacturing costs in the quarter related to the transition to contract manufacturing. These transition costs are expected to continue into early third quarter 2008.

First quarter operating expenses were $21.8 million, or a decrease of $1.7 million, versus $23.5 million in the same quarter of the prior year. The decrease in the year over year operating expense is a result of $1.2 million of decreased R&D expense related to 2007 restructuring activities, the slowing of certain R&D activities in anticipation of the acquisition of the Thales e-Transactions business, and a $0.5 million reduction in selling, general, and administrative expenses, primarily related to a year over year reduction in quarterly bad debt expense. Operating expenses for the first quarter included $2.0 million of general and administrative charges resulting from $1.5 million of non-capitalized acquisition costs and $0.5 million of executive separation costs. The comparable quarter of the prior year included $1.7 million of similar charges.

"We believe that first quarter revenue growth continues to demonstrate our improved sales and product development execution in the marketplace," stated Philippe Tartavull, Hypercom's Chief Executive Officer and President. "While we are very pleased with our improved selling competitiveness and operating cost control, our gross margins remain a work in progress as we have not yet completed the transition to a full outsourced contract manufacturing business model. Gross margins are also expected to benefit over time from the anticipated scale synergies related to the recent acquisition of Thales e-Transactions, existing product cost reduction activities, the convergence towards a single, combined product family, and a focus on reducing other expenses such as freight, inventory obsolescence, and warranty cost."

Balance Sheet and Cash-flow

As of March 31, 2008, Hypercom had $98.7 million of cash and short term investments on hand, up from $81.9 million at the end of fourth quarter 2007. The increase in cash and short term investments was primarily due to a $15.2 million reduction in accounts receivable resulting from collections of high fourth quarter 2007 revenues. The increased inventory level was offset by higher accounts payable. Cash flow from operations was $19.2 million, primarily due to the reduction in accounts receivable.

New Announcements

Hypercom has recently made several new important announcements including:

  • The completion of the acquisition of Thales SA's e-Transactions business, a leading provider of secure card payment solutions in some of Europe's largest markets, including France, Germany, Spain and the United Kingdom. With the acquisition, Hypercom becomes the second largest provider of electronic payment solutions and services in Western Europe, and solidifies its position as the third largest global provider with estimated combined company pro forma revenue of approximately $500 million.
  • Introduction of the new Optimum M4200 series of mobile electronic payment terminals, a family of battery-powered devices designed to meet the need for high-performance, portable payment solutions. The line offers the same rapid 32-bit multi-application processing, compact form factor and market-leading memory size as the recently released Optimum T4200 countertop platform, including the latest security standards approvals. The M4200 family shares the same application development toolkit and user interface as the T4200, enabling business applications written for one platform to be quickly transferred to the mobile unit family for fast deployment. The M4200 family of mobile terminals can be used for services such as pay-at-the table, mobile service providers such as taxis and home repair vendors, door-to-door sales, flea markets, line-busting for larger retail stores, and petroleum full service.
  • Chase Paymentech, the world's largest merchant acquirer, will immediately provide full merchant and ISO support for Hypercom's new PCI PED approved, 32-bit multi-application Optimum T4210 (dial) and T4220 (Ethernet with dial backup) electronic payment terminals. The action follows Chase Paymentech's Class A certification of the two new devices. The T4200 platform features the highest security, largest memory and broadest feature set of any countertop device family of its kind and has also received MasterCard Worldwide Payment Terminal Security approval for IP and wireless transactions and incorporates additional security features such as optional privacy shields, Triple DES DUKPT encryption to protect cardholder PINs, and utilizes HyperSafe®32, Hypercom's exclusive RSA-based security infrastructure to prevent the introduction of fraudulent applications. The platform is compliant with the European Union's RoHS requirements for hazardous substances.
  • Introducing SmartPayments EasyRetail, an all-inclusive new product that lets smaller merchants bring the speed and convenience of cardholder-facing payment terminals to single-lane checkout counters. Featuring Hypercom's high security Optimum L4150 and L4250 multi-lane terminals and PC-based SmartPayments electronic payment processing software, it combines into one easy-to-install, "plug and play" package all of the components required for a small retailer to quickly and easily offer their customers the same payment speed, security and convenience at the checkout counter that the many larger, multi-lane retailers deliver today.
  • The appointment of Heidi R. Goff as President and Managing Director, the Americas, with responsibility for directing and driving Hypercom's sales, service and support activities throughout North America, South America, Mexico, the Caribbean and Central America. Ms. Goff brings industry experience from previous leadership positions with MasterCard International, Global Payment Systems, Transaction Network Services and U.S. Wireless Data.
  • The appointment of Ronald R. Rhodes to Vice President, Global Supply Chain Management, and Tim Jones to Vice President, Global Human Resources. Mr. Rhodes is responsible for directing the company's worldwide supply chain operations. Mr. Jones is responsible for managing and directing Hypercom's human resource function, including compensation, benefits, employee relations and related compliance worldwide.

 

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