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VeriFone, a provider of secure electronic payment systems and consulting, lost almost 50 percent of its market value after the company said Monday it will need to restate its financials for several reporting periods -- going back to January.
The restatements, resulting from an internal review, will include a correction to its reported revenue of US$904 million for the 12 months ended Oct. 31. As a result, the company will also delay announcing its fourth quarter 2007 results.
Shares of the company took a nose dive Monday. At press time, the company was trading on the New York Stock Exchange at around $26.03 per share, a decrease of $22 (46 percent) over its previous close.
"I am very disappointed," said Douglas G. Bergeron, VeriFone chairman and CEO. Bergeron promised a commitment to "fully remedy this situation ... regaining [customer and investor] confidence."
VeriFone's management and the audit committee announced at the same time that they discussed the matters with the company's independent registered public accounting firm.
VeriFone was not available for comment.
Accounting Errors
The inaccuracies stem from accounting errors committed when the company conducted an internal audit of its inventory movement and manufacturing allocation, among other operations. Each of these factors affected the company's reported costs of net revenues, according to VeriFone.
Concerned investors will be looking at VeriFone's operating margin to decide whether the company continues to be worth their attention, Irina Logovinsky, stock analyst at Morningstar, told CRM Buyer.
"Their reported revenue is in line with our own estimates, so that's not much of a concern. But if their true level of inventory was higher, that means they were understating the cost of goods sold and overstating gross margin," said Logovinsky.
Financially, VeriFone has historically fared better than its competitors, and the company has "very good management," and where the fault lies has yet to be determined, she added.
An E-Billing Leader
Founded in 1981 and publicly traded since 2005, VeriFone claims to be the global leader in e-billing installments -- with large customer 
bases in industries such as retail and petroleum -- located in more than 100 countries worldwide.
In its early days, the company provided New York's 13,000 taxis with electronic payment devices for credit cards. It has a hand in an array of e-billing segments, including "countertop" hardware and software systems, wireless technologies and self-service software, and it sells peripheral devices, including PIN pads and contactless card readers.
The company also offers hosted, managed e-billing services. In 1997, HP (NYSE: HPQ) acquired VeriFone for $1.2 million, but has since been spun off.
Damage Report
VeriFone will issue restatements for three reporting periods: the three months ended Jan. 31, the three and six months ended April 30, and the three and nine months ended July 31. VeriFone management anticipates adjusting several earnings figures downward. These will include reductions to previously reported inventories of $7.7 million, $16.5 million and $30.2 million respectively, during the three periods.
In addition, it will make reductions to previously reported pretax income of $8.9 million, $7.0 million and $13.8 million for the respective three-month periods. The company is also "currently evaluating the anticipated effect of the restatement on after-tax income for those periods," it said.
Looking at total revenue, the company will also revise previously reported total revenues for the three and 12 months ended Oct. 31. These were about $238 million and $904 million, respectively. Concluding the restatement process, VeriFone's management and audit committee of its board of directors will delay the release of full fourth quarter 2007 financial results, scheduled to be released Thursday, pending completion of the assessment of these errors and the restatements.
Corrections will be made to a variety of previously reported statements, including those of its inventories in material amounts and understated cost of net revenues in material amounts, VeriFone said. Furthermore, it cautions investors not to rely on its historical financial statements, earnings press releases and similar issuances for the restatement periods.
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