Hypercom posts Q3 net profit

Source: Hypercom

Hypercom Corporation (NYSE:HYC), the high security electronic payment and digital transactions solutions provider, today announced financial results for the third quarter ended September 30, 2010.

Net revenue for the three months ended September 30, 2010 was a record $125.1 million. Third quarter 2010 net revenue increased $23.9 million, or 23.7%, compared to $101.2 million in the third quarter of 2009, driven by strong growth in Europe (21.3%) and Asia-Pacific (81.2%) combined with growth in the Americas (7.8%). Third quarter net revenue was up 20.4% over second quarter 2010 net revenue of $103.9 million. On a constant currency basis, net revenue increased 27.3%, over the prior-year quarter.

For the nine months ended September 30, 2010, net revenue was $327.8 million, up $38.2 million, or 13.2%, compared to $289.5 million in the same period of 2009. Year-to-date growth has been driven primarily by growth of 34.8% in Asia-Pacific and growth of 17.7% in Europe. On a constant currency basis, year to date net revenue increased 15.7% over the prior-year period.

"Global demand for our products and services has never been stronger," said Philippe Tartavull, Chief Executive Officer and President, Hypercom Corporation. "We are capturing significant market share in the Asia-Pacific region and in Europe. In the Americas, Tier 1 United States retailers are piloting our next generation L5000 multilane products and we are excited by the potential of these products to transform our presence in the market."

"These market share gains demonstrate that customers want Hypercom products," said Mr. Tartavull. "Customers trust our brand and they trust our people. We are confident that demand for our products will drive growth, and we currently expect sequential revenue growth in the fourth quarter of 2010 and continued growth throughout 2011."

Gross profit for the three months ended September 30, 2010 was $40.1 million, or 32.1% of net revenue, versus $32.1 million, or 30.9% of net revenue, in the second quarter of 2010, and $33.2 million, or 32.8% of net revenue, in the third quarter of 2009. Gross margin for the three months ended September 30, 2010 included 34.0% product gross margin and 25.4% service gross margin, compared to 33.8% and 22.1%, respectively, in the second quarter of 2010 and 35.2% and 28.7%, respectively, in the third quarter of 2009. Gross margin for the first nine months of 2010 was 32.6%, compared to 31.7% in the prior-year period.

Non-GAAP gross profit for the three months ended September 30, 2010 was $40.7 million, or 32.5% of net revenue, compared to $32.9 million, or 31.6% of net revenue, in the second quarter of 2010 and $34.0 million, or 33.6% of net revenue, in the third quarter of 2009. The non-GAAP gross profit excludes restructuring costs, amortization of purchased intangibles, and stock-based compensation. Non-GAAP gross profit for the three months ended September 30, 2010 included 34.1% product gross margin and 26.7% service gross margin, versus 33.9% and 23.8%, respectively, in the second quarter of 2010 and 35.3% and 28.5%, respectively, in the third quarter of 2009. For the nine months ended September 30, 2010, non-GAAP gross profit was $109.3 million, or 33.3% of net revenue, compared to $94.8 million, or 32.8% of net revenue, in the prior-year period.

Operating expenses for the three months ended September 30, 2010 were $33.1 million, or 26.4% of net revenue, compared to $29.2 million, or 28.1% of net revenue, in the second quarter of 2010 and $30.5 million, or 30.2% of net revenue, in the third quarter of 2009. The sequential and year-over-year quarterly increase in operating expenses was primarily related to an increase in R&D expenditures related to new product and software development, as well as an increase in selling expense related to increased revenue. In addition, operating expenses were impacted by an increase in general and administrative expenses related to the previously-disclosed unsolicited, non-binding proposal from VeriFone to acquire Hypercom, which was unanimously rejected by the Hypercom Board of Directors, and certain legal settlements. For the nine months ended September 30, 2010, operating expenses were $93.5 million, or 28.5% of net revenue, compared to $91.5 million, or 31.6% of net revenue, in the prior-year period.

Non-GAAP operating expenses for the three months ended September 30, 2010 were $30.3 million, or 24.2% of net revenue, compared to $27.2 million, or 26.2% of net revenue, in the second quarter of 2010 and $28.0 million, or 27.7% of net revenue, in the third quarter of 2009. For the nine months ended September 30, 2010, non-GAAP operating expenses were $87.5 million, or 26.7% of net revenue, compared to $83.9 million, or 29.0% of net revenue, in the prior-year period. Non-GAAP operating expenses exclude restructuring costs, amortization of purchased intangibles, stock-based compensation, costs related to the VeriFone proposal, certain legal settlements, and gains from the sale of assets.

Operating income for the three months ended September 30, 2010 was $7.1 million, compared to operating income of $2.9 million in the second quarter of 2010 and $2.7 million in the third quarter of 2009. For the nine months ended September 30, 2010, operating income was $13.4 million, compared to $0.2 million in the prior-year period.

Non-GAAP operating income for the three months ended September 30, 2010 was $10.4 million, compared to non-GAAP operating income of $5.7 million in the second quarter of 2010 and $5.9 million in the third quarter of 2009. For the nine months ended September 30, 2010, non-GAAP operating income was $21.7 million, compared to $11.0 million in the prior-year period.

Net income for the three months ended September 30, 2010 was $4.5 million, or $0.08 per diluted share, versus a net loss of $1.3 million, or $(0.02) per diluted share, in the second quarter of 2010 and net income of $1.2 million, or $0.02 per diluted share, in the third quarter of 2009. For the nine months ended September 30, 2010, net income was $3.6 million, or $0.07 per diluted share, compared to a net loss of $7.5 million, or $(0.14) per diluted share, in the prior-year period.

Non-GAAP income before discontinued operations for the three months ended September 30, 2010 was $9.1 million, or $0.16 per diluted share, compared to $2.9 million, or $0.05 per diluted share, in the second quarter of 2010 and $4.8 million, or $0.09 per diluted share, in the third quarter of 2009. For the nine months ended September 30, 2010, non-GAAP income before discontinued operations was $15.4 million, or $0.28 per diluted share, compared to $5.8 million, or $0.11 per diluted share, in the prior-year period. Non-GAAP income excludes restructuring costs, amortization of purchased intangibles, stock based compensation, costs related to the VeriFone proposal, certain legal settlements, gains or losses from the sale of assets, non-cash interest expense related to the amortization of warrants, and any applicable income tax effect.

Adjusted EBITDA (Earnings before interest, taxes, depreciation, amortization, stock-based compensation, restructuring charges, costs related to the VeriFone proposal, certain legal settlements, and gains or losses from the sale of assets) for the three months ended September 30, 2010 was $13.0 million, compared to $8.2 million in the second quarter of 2010 and $8.4 million in the prior-year quarter. For the nine months ended September 30, 2010, adjusted EBITDA was $29.5 million, compared to $18.3 million in the prior-year period.

Cash increased to $38.5 million at September 30, 2010 from $33.3 million at June 30, 2010. Cash flow from operating activities for the third quarter of 2010 was $8.2 million. Subsequent to September 30, 2010, the Company repaid $5.0 million of outstanding long-term debt.

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