Hypercom Corporation (NYSE:HYC), the high security electronic transaction solutions provider, today announced financial results for the three months and full year ended December 31, 2008.
Net revenue for the three months ended December 31, 2008 was $121.6 million, a $32.1 million or 35.8% increase over the net revenue of $89.5 million for the comparable period in 2007. Primarily as a result of the 2008 acquisition of the Thales e-Transactions ("TeT") business line, net revenues from Southern and Northern European sales regions increased $22.2 million and $25.3 million, respectively, over the prior year period. Net revenue from the United States, Mexico, and Asia-Pacific declined $5.7 million, $1.8 million and $2.8 million, respectively, due to global economic conditions. Net revenue from South America declined $5.1 million, primarily due to a one-time benefit in 2007 from a collection from the Brazilian Health Ministry of $4.6 million.
Gross profit for the three months ended December 31, 2008 was $32.8 million or 27.0% of net revenue, versus $24.6 million or 27.5% of net revenue in the same quarter of 2007. Gross margin for the three months ended December 31, 2008 includes 28.9% product gross margin and 24.1% service gross margin, compared to margins of 25.0% and 33.3%, respectively, for the three months ended December 31, 2007. The year-over-year product gross margin improvement is a result of incremental higher margin on sales of products acquired in the TeT acquisition, offset by higher period costs principally comprised of higher inventory excess and obsolescence cost. The decrease in service gross margin is primarily a result of the one time prior year collection from the Brazilian Health Ministry.
Operating expenses for the three months ended December 31, 2008, excluding a non-cash $67.8 million impairment charge related to goodwill and intangible assets, were $34.8 million or 28.6% of revenue, compared to $25.7 million or 28.8% of revenue for the same period in 2007. Sequentially, operating expenses were down $0.7 million compared to third quarter expenses of $35.5 million due to reduced research and development expenses and favorable currency translation due to the strengthening dollar.
The Company recorded a $67.8 million goodwill and intangible assets impairment charge in the fourth quarter and fiscal year ending December 31, 2008. While the impairment charge reduced 2008 operating results under U.S. generally accepted accounting principles, it is a non-cash charge and does not affect Hypercom's liquidity position or its cash flow from operating activities. Hypercom initiated the impairment testing of goodwill and intangible assets in accordance with Statement of Accounting Financial Standards No. 142, Goodwill and Other Intangible Assets, and FAS No. 144, Impairment of Long Lived Assets, and the impairment charge reflects the impact of the decline of the Company's stock price since September 2008 due to the global economic downturn and turmoil in the equity markets.
Including the $67.8 million impairment charge, the loss from continuing operations for the three months ended December 31, 2008 was $69.8 million or $(1.31) per diluted share, versus a loss of $1.2 million or $(0.02) per diluted share for the comparable period in 2007. Net loss for the three months ended December 31, 2008 was $74.8 million or $(1.40) per diluted share, versus net income of $0.3 million or $0.00 per diluted share for the same period last year.
EBITDAS (income from continuing operations excluding interest, taxes, depreciation, amortization, impairment of goodwill and intangible assets and stock-based compensation) for the three months ended December 31, 2008 increased $2.0 million to $4.1 million from $2.1 million in the same period last year.
As of December 31, 2008, Hypercom had $36.5 million of cash and short term investments on hand, up from $31.6 million at the end of the third quarter. Cash flow from operations was $8.7 million for the three months ended December 31, 2008 primarily due to a reduction in inventories, offset by an increase in accounts receivables and a reduction in accounts payable.
For the full year, net revenue increased $147.8 million from $289.5 million in 2007 to $437.3 million in 2008, gross profit increased $50.1 million from $74.7 million to $124.8 million, net loss increased from $7.5 million to $85.4 million, and EBITDAS, excluding the impairment charge, increased $13.0 million from $0.2 million to $13.2 million. The increases are primarily related to the inclusion of TeT financial results for the nine months ended December 31, 2008, as well as the impact of the $67.8 million impairment charge. Discontinued operations in 2008 and 2007 reflect the sale of a line of business in Australia in March 2009.
"2008 was a significant year for Hypercom. Net revenue increased 51% and EBITDAS increased $13.0 million over the prior year. We are successfully integrating the Thales e-Transactions business line, have significantly strengthened our position in Europe, particularly in Germany and France, and also gained market share in the unattended, e-health and integrated payment solution sectors. We generated strong revenue gains for the full year in North America, as well as strengthened our position in Northern and Southern Europe," said Philippe Tartavull, Chief Executive Officer and President. "Historically, first quarter revenue is 10% to 20% lower than fourth quarter revenue due to seasonality. Given the very challenging global economy, the volatility of foreign currency translation rates, and the tightening credit markets, the decrease in first quarter 2009 revenue may be larger than recent historical fluctuations. As a consequence of the anticipated revenue reduction, we have undertaken cost reduction activities to reduce operating expenses."
As previously announced, during the fourth quarter of 2008:
- • Hypercom commenced the rollout of its medCompact(R) healthcare terminal as part of the migration to the government's new e-Health card program in Germany.
- Hypercom introduced HyperSafe(R) Secure(TM), a solution that encrypts cardholder data at the point-of-sale so that sensitive information is never exposed. HyperSafe Secure is specifically designed to combat and halt escalating criminal efforts to steal unencrypted cardholder data through breaches of merchant networks, applications and servers that store and transmit sensitive cardholder data.
- Hypercom entered into an agreement with TASQ Technology under which TASQ will have exclusive rights to distribute Hypercom's new 32-bit Optimum T4205 payment terminal in Canada for one year.
- Intermarche, one of France's leading retailers with almost 1,500 retail outlets, installed and is successfully using Hypercom's Wymix(R) PIN Pad with contactless reader as part of the Payez Mobile trail for NFC payments in two test sales outlets in Caen and Strasbourg.
- Hypercom's T4200 and M4200 countertop and mobile payment terminals received APACS (Association of Payments And Clearing Services) Common Criteria accreditation in the UK. With the accreditation, Hypercom strengthens its position as a leading provider of payment solutions to the UK market.
- PayLife Bank GmbH, a joint venture of Austrian banks and the leading acquiring and issuing company in Austria, selected and will deploy thousands of Artema(R) Mobile payment terminals in Austria.
- Hypercom entered Denmark's retail card payment sector, commenced product sales and was in receipt of initial purchase orders from Danish distributor CTcoin.dk for its Artema Hybrid payment terminal. These actions followed field tests and certification of the device for use in the country by Payment Business Services (PBS), the national Danish certification authority.
- First Data Class A certified Hypercom's Optimum T4200 payment terminals.
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