Verifone Systems 8-K Results of Operations and Financial Condition

Exhibit 99.1

VeriFone, Inc.
2099 Gateway Place, Suite 600
San Jose, CA, 95110

www.verifone.com

Investor Contact:
William Nettles - Director Corporate
Development & IR
Tel: 408-232-7979
Email: ir@verifone.com

Editorial Contact:
Pete Bartolik
VeriFone, Inc.
Tel: 508-283-4112
Email: pete_bartolik@verifone.com

VeriFone Reports
Fourth Quarter and Fiscal Year End 2005 Results

Fourth-Quarter Revenues Increased 20%

EBITDA Margins (as adjusted) Exceeded 20% for the Quarter

GAAP Net Income more than quadrupled over the fourth quarter of 2004

San Jose, CA – December 1, 2005 –  VeriFone Holdings, Inc. (NYSE: PAY), a leading global provider of technology that enables electronic payment transactions, today announced financial results for the three months and fiscal year ended October 31, 2005. 

Net revenues, for the three months ended October 31, 2005, were $130.5 million, an increase of 20% over net revenues of $108.6 million for the comparable period of 2004.  The increase was driven by a 34% increase in net revenues from VeriFone’s International business and a 13% increase in net revenues in VeriFone’s North America business.

Gross margins, under generally accepted accounting principles (GAAP), for the three months ended October 31, 2005 were 42.7%, compared with 36.5% for the fourth quarter of 2004.  Gross margins, excluding non-cash amortization of purchased intangibles and stock-based compensation expense, expanded for the fourth consecutive quarter and reached a record level of 44.0% compared with 38.3% for the fourth quarter of 2004.

Net income, for the three months ended October 31, 2005, was $12.1 million, or $0.18 per diluted share, compared to $2.8 million, or $0.05 per diluted share, for the comparable period of 2004.  Net Income, as adjusted, which excludes non-cash amortization of purchased intangibles and debt issuance costs, as well as non-cash stock-based compensation expense, for the three months ended October 31, 2005 was $14.9 million, or $0.22 per diluted

share, compared to $6.0 million, or $0.11 per diluted share, for the comparable period of 2004.

EBITDA, as adjusted, which excludes non-cash amortization of purchased intangibles and debt issuance costs, as well as non-cash stock-based compensation expense, expanded for the fifth consecutive quarter and reached a record level of $26.5 million, a 70% increase compared with the $15.5 million earned in the three months ended October 31, 2004.  As a percent of net revenues, EBITDA for the three months ended October 31, 2005 reached a record level of 20.3%, compared to the 14.3% recorded in the three months ended October 31, 2004.

Net revenues, for the fiscal year ended October 31, 2005, were $485.4 million, an increase of 24% over net revenues of $390.1 million for the comparable period of 2004.

Net income, attributable to common stockholders, for the fiscal year ended October 31, 2005 was $33.2 million, compared to $0.65 million for the fiscal year ended 2004.  Net Income as adjusted for the fiscal year end October 31, 2005 was $49.7 million, compared to $24.6 million, for the fiscal year ended 2004.

EBITDA, as adjusted, for the fiscal year ended October 31, 2005, was $86.4 million, an increase of 51% over EBITDA, as adjusted of $57.2 million for the comparable period of 2004.  As a percent of net revenues, EBITDA for the fiscal year ended October 31, 2005 was 17.8%, compared to 14.7% for the comparable period of 2004.

“VeriFone had another outstanding quarter and an excellent 2005.  We successfully executed our strategic objectives and achieved record revenue, operating margins and earnings growth,” said Douglas G. Bergeron, Chairman and Chief Executive Officer.

“The world-wide market acceptance of our industry leading product offering remains very strong.  We look forward to continuing to grow as we take advantage of the key drivers in our industry - including accelerating demand for wireless payment solutions, the proliferation of IP, increasingly

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complex security standards and the proliferation of first use payment systems in many new and emerging markets worldwide,” continued Bergeron. 

Fourth Quarter Highlights

•VeriFone completed its follow-on offering on September 23, 2005, raising gross proceeds of approximately $272 million; VeriFone’s portion of the proceeds were approximately $49 million net of expenses and underwriting discounts.  

•VeriFone recently announced the formation of VeriFone Transportation Systems (“VTS”), a joint venture between VeriFone and TaxiTronic.  TaxiTronic has an estimated two-thirds market share of metering systems in New York City taxi cabs.  VTS is addressing the emerging market for government mandated credit card acceptance in taxi cabs.  The MX870, the industry’s only full motion video payment solution, will form part of the VTS offering.

•VeriFone continued to experience rapid growth in its IP business on a worldwide basis and to further support this effort recently announced the availability of McAfee® VirusScan® Mobile for Verix®, the first virus protection for payment solutions at the point of sale (POS) in the U.S.

•VeriFone announced on November 29, as part of the Mexican Terminalization initiative, a second major order from a major Mexican bank for a combination of IP, Wi-Fi and GPRS systems.

•In November, VeriFone introduced the VeriFone V^x 670 wireless system, ideal for the table-service restaurant industry and other mobile payment applications.  The V^x 670 is the smallest and lightest fully-functional handheld payment platform in the mobile payments industry and represents a new generation in form factor, ergonomics and overall usability.

•VeriFone received the CB5.2 certification from Groupement des Cartes Bancaires in France for our V^x 510 countertop payment

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solution.  The CB5.2 standard, managed by GIE Cartes Bancaires, complies with the latest French smart card payment specifications.    This certification paves the way for VeriFone to begin selling counter-top solutions in the key French market for the first time in several years.

Financial Measures

Reconciliations for both of 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. 

Conference Call

The management of VeriFone will host a conference call, which will be simultaneously webcast, on December 1, 2005 at 1:30 p.m. (PST) to discuss VeriFone’s fourth quarter results.  Management may provide forward looking guidance on this conference call.  To access the live conference call, the dial-in numbers are as follows:

Domestic callers: 866-202-4367

International callers: 617-213-8845

Passcode: 88036285

To access the audio webcast, please go to VeriFone’s website (http://ir.verifone.com) at least ten minutes prior to the call to register.  The recorded audio webcast will be available on VeriFone’s website until December 15, 2005.

A replay of the conference call, which can be accessed by dialing toll-free 888-286-8010, and outside the U.S. 617-801-6888, will be available until December 15, 2005.  The access code for the replay is 81036070.

-ends-

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About VeriFone Holdings, Inc. (www.verifone.com)

VeriFone Holdings, Inc. (“VeriFone”) (NYSE: PAY), a global leader in secure electronic payment technologies, provides expertise, solutions and services for today with a migration strategy for tomorrow. VeriFone delivers solutions that add value to the point of sale, resulting in improved merchant retention and the generation of new sources of revenue for its partners and customers. VeriFone solutions are specifically designed to meet the needs of vertical markets including financial, retail, petroleum, government and healthcare.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This press release includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological and/or regulatory factors, and other risks and uncertainties affecting the operation of the business of VeriFone Holdings, Inc. These risks and uncertainties include: the status of our relationship with and condition of third parties upon whom we rely in the conduct of our business, our dependence on a limited number of customers, uncertainties related to the conduct of our business internationally, our ability to effectively hedge our exposure to foreign currency exchange rate fluctuations, our dependence on a limited number of key employees, short product cycles, rapidly changing technologies and maintaining competitive leadership position with respect to our payment solution offerings, our ability to identify and complete acquisitions and strategic investments and successfully integrate them into our business, and our ability to protect against fraud. For a further list and description of such risks and uncertainties, see our filings with the Securities and Exchange Commission, including our Form S-1 registration statement, our quarterly report on Form 10-Q, and, when filed, our annual report on Form 10-K for the year ended October 31, 2005.  VeriFone is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

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VERIFONE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)

	Three Months Ended								Years Ended
	October 31,								October 31,
	2005			2004			Change(1)		2005			2004			Change(1)
	(unaudited)
Net revenues:
System Solutions	$	114,950		$	96,158		20	%	$	429,741		$	344,639		25	%
Services	15,540			12,461			25	%	55,626			45,449			22	%
Total net revenues	130,490			108,619			20	%	485,367			390,088			24	%
Cost of net revenues:
System Solutions(2)	64,967			59,458			9	%	252,476			205,381			23	%
Amortization of purchased core and developed technology assets	1,680			2,018			-17	%	6,935			9,745			-29	%
Total cost of System Solutions net revenues	66,647			61,476			8	%	259,411			215,126			21	%
Services	8,177			7,548			8	%	29,131			26,511			10	%
Total cost of net revenues	74,824			69,024			8	%	288,542			241,637			19	%
Gross profit	55,666			39,595			41	%	196,825			148,451			33	%
Operating expenses:(2)
Research and development	11,479			9,448			21	%	41,830			33,703			24	%
Sales and marketing	13,921			11,756			18	%	52,231			44,002			19	%
General and administrative	8,002			6,477			24	%	29,609			25,503			16	%
Amortization of purchased intangible assets	1,159			2,550			-55	%	4,967			10,200			-51	%
Total operating expenses	34,561			30,231			14	%	128,637			113,408			13	%
Operating income	21,105			9,364			125	%	68,188			35,043			95	%
Interest expense	(3,028		)	(4,074		)	-26	%	(14,786		)	(12,597		)	17	%
Other expense, net	(360		)	(54		)	567	%	(6,673		)	(11,869		)	-44	%
Income before income taxes	17,717			5,236			238	%	46,729			10,577			342	%
Provision for income taxes	5,657			2,461			130	%	13,490			4,971			171	%
Net income	12,060			2,775			335	%	33,239			5,606			493	%
Accrued dividends and accretion on preferred stock	—			—			nm		—			4,959			nm
Net Income attributable to common stockholders	$	12,060		$	2,775		335	%	$	33,239		$	647		nm
Net income per common share:
Basic	$	0.19		$	0.05				$	0.57		$	0.01
Diluted	$	0.18		$	0.05				$	0.54		$	0.01
Weighted-average shares used in computing net income per common share:
Basic	64,137			53,378					58,318			50,725
Diluted	67,112			56,596					61,460			56,588
Gross profit as reported	$	55,666		$	39,595				$	196,825		$	148,451
Amortization of purchased core and developed technology assets	1,680			2,018					6,935			9,745
Stock-based compensation	114			—					187			—
Gross profit without amortization of purchased core and developed technology assets and stock-based compensation(3)	$	57,460		$	41,613				$	203,947		$	158,196
As a percentage of net revenues:
Gross profit as reported	42.7		%	36.5		%			40.6		%	38.1		%
Gross profit without amortization of purchased core and developed technology assets and stock-based compensation	44.0		%	38.3		%			42.0		%	40.6		%

		Three Months Ended				Years Ended
		October 31,				October 31,
		2005		2004		2005		2004
(2)	Stock-based compensation included above:
	Cost of net revenues - System Solutions	$	114	$	—	$	187	$	—
	Research and development	173		—		358		—
	Sales and marketing	308		—		663		—
	General and administrative	177		334		479		400
		$	772	$	334	$	1,687	$	400

(1) ”nm” means not meaningful.

(2) The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” effective May 1, 2005 using the modified-prospective transition method. For periods prior to May 1, 2005, the Company followed the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”

(3) Management uses gross profit without amortization of purchased core and developed technology assets and stock-based compensation, a non-GAAP measure, to evaluate the Company’s gross profit and to compare the Company’s current results with those of prior periods, but cautions that it should not be considered as a substitute for disclosures made in accordance with GAAP.

VERIFONE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

	October 31,
	2005			2004
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$		65,065	$	12,705
Marketable securities	16,769			—
Accounts receivable, net of allowances for doubtful accounts of $1,571 and $2,868	87,424			77,839
Inventories	35,520			32,113
Other current assets	20,835			13,756
Total current assets	225,613			136,413
Equipment and improvements, net	5,873			5,754
Purchased intangible assets, net	18,912			22,234
Goodwill	47,260			53,224
Other assets	31,713			27,994
Total assets	$	329,371		$		245,619
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	47,161		$		43,702
Income taxes payable	8,746			13,749
Deferred revenue	17,542			14,152
Other current liabilities	37,729			37,100
Current portion of long-term debt	1,994			2,308
Total current liabilities	113,172			111,011
Deferred revenue	6,835			5,872
Long-term debt, less current portion	180,812			259,879
Other long-term liabilities	2,014			4,244
Total stockholders’ equity (deficit)	26,538			(135,387			)
Total liabilities and stockholders’ equity (deficit)	$	329,371		$		245,619

VERIFONE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

	Three Months Ended						Years Ended
	October 31,						October 31,
	2005			2004			2005			2004
	(unaudited)
Cash flows from operating activities
Net income	$	12,060		$	2,775		$	33,239		$	5,606
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of purchased intangibles	2,839			4,568			11,902			19,945
Depreciation and amortization of equipment and improvements	1,399			778			3,691			2,451
Amortization of capitalized software	393			365			1,173			698
Amortization of interest rate caps	29			—			109			—
Accretion of marketable securities discount	(17		)	—			(17		)	—
Accretion of debt discount	—			—			—			295
Amortization of debt issuance costs	259			398			1,150			945
Stock-based compensation	772			334			1,687			400
Non-cash portion of loss on debt extinguishment	—			—			2,898			8,385
Changes in operating assets and liabilities:
Accounts receivable, net	(13,119		)	3,509			(8,817		)	(7,721		)
Inventories	(2,504		)	(1,453		)	(3,407		)	8,544
Deferred tax assets	(8,968		)	(9,821		)	(13,116		)	(9,821		)
Prepaid expenses and other current assets	(1,389		)	(1,465		)	(269		)	(1,493		)
Other assets	(1,119		)	54			(1,118		)	1,543
Accounts payable	11,699			570			3,227			2,459
Income taxes payable	11,468			10,246			6,107			647
Accrued compensation	1,650			379			838			665
Accrued warranty	(144		)	221			1,448			(766		)
Deferred revenue	1,009			58			3,464			5,500
Deferred tax liabilities	(3,017		)	1,724			(2,047		)	1,724
Accrued expenses and other liabilities	2,107			(1,760		)	(1,101		)	(6,789		)
Net cash provided by operating activities	15,407			11,480			41,041			33,217
Cash flows from investing activities
Software development costs capitalized	(172		)	(207		)	(863		)	(2,555		)
Purchase of equipment and improvements	(955		)	(923		)	(3,121		)	(2,430		)
Purchases of investments	(23,952		)	—			(23,952		)	—
Sales and maturities of investments	7,200			—			7,200			—
Acquisition of business, net of cash and cash equivalents	51			—			(13,405		)	—
Purchase of other assets	(245		)	(288		)	(863		)	(288		)
Net cash used in investing activities	(18,073		)	(1,418		)	(35,004		)	(5,273		)
Cash flows from financing activities
Proceeds from revolving promissory notes payable and revolver	—			19,000			19,680			192,431
Repayments of revolving promissory notes payable and revolver	—			(22,500		)	(19,680		)	(209,643		)
Repayment of term promissory note	—			—			—			(60,000		)
Proceeds from long-term debt	—			—			—			250,102
Repayment of long-term debt	(465		)	(475		)	(78,972		)	(10,475		)
Repayments of capital leases	(53		)	(138		)	(409		)	(396		)
Repurchase of preferred stock	—			—			—			(86,169		)
Payment of common stock dividend	—			—			—			(97,432		)
Proceeds from issuance of common stock	51,950			—			136,950			—
Payment of IPO and follow-on financing costs	(4,102		)	—			(11,444		)	—
Proceeds from exercises of stock options and other	165			28			312			46
Repurchase of common stock	—			(13		)	—			(15		)
Net cash provided by (used in) financing activities	47,495			(4,098		)	46,437			(21,551		)
	145			301			(114		)	435
Net increase in cash and cash equivalents	44,974			6,265			52,360			6,828
Cash and cash equivalents, beginning of period	20,091			6,440			12,705			5,877
Cash and cash equivalents, end of period	$	65,065		$	12,705		$	65,065		$	12,705

SUPPLEMENTAL DATA

VERIFONE HOLDINGS, INC.

GEOGRAPHIC INFORMATION

(IN THOUSANDS, EXCEPT PERCENTAGES)

	Three Months Ended								Years Ended
	October 31,								October 31,
	2005			2004			Change		2005			2004			Change
North America	$	79,566		$	70,698		13	%	$	289,720		$	254,010		14	%
Latin America	18,935			12,194			55	%	71,265			44,557			60	%
Europe	23,110			15,931			45	%	88,995			61,474			45	%
Asia	9,084			9,908			-8	%	36,087			30,566			18	%
Corporate	(205		)	(112		)	83	%	(700		)	(519		)	35	%
	$	130,490		$	108,619		20	%	$	485,367		$	390,088		24	%

SUPPLEMENTAL DATA

VERIFONE HOLDINGS, INC.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)

	Three Months Ended								Years Ended
	October 31,								October 31,
	2005			2004			Change(1)		2005			2004			Change(1)
U.S. GAAP net income	$	12,060		$	2,775		335	%	$	33,239		$	5,606		493	%
Provision for income taxes	5,657			2,461			130	%	13,490			4,971			171	%
Interest expense	3,028			4,074			-26	%	14,786			12,597			17	%
Depreciation and amortization of equipment and improvements	1,399			778			80	%	3,691			2,451			51	%
Amortization of capitalized software	393			365			8	%	1,173			698			68	%
Amortization of purchased intangible assets	2,839			4,568			-38	%	11,902			19,945			-40	%
Amortization of step-up in deferred revenue on acquisition	205			113			81	%	700			519			35	%
Stock-based compensation(2)	772			334			131	%	1,687			400			322	%
Management fees to majority shareholder	—			63			nm		125			250			-50	%
Loss on debt extinguishment and debt repricing fee	100			—			nm		5,630			9,810			-43	%
EBITDA as Adjusted (3)	$	26,453		$	15,531		70	%	$	86,423		$	57,247		51	%
U.S. GAAP net income	$	12,060		$	2,775		335	%	$	33,239		$	5,606		493	%
Amortization of purchased intangible assets	2,839			4,568			-38	%	11,902			19,945			-40	%
Amortization of step-up in deferred revenue on acquisition	205			113			81	%	700			519			35	%
Stock-based compensation(2)	772			334			131	%	1,687			400			322	%
Amortization of debt issuance costs	259			398			-35	%	1,150			945			22	%
Interest adjustment on debt repaid on IPO	—			—			nm		3,157			—			nm
Loss on debt extinguishment and debt repricing fee	100			—			nm		5,630			9,810			-43	%
Total adjustments	4,175			5,413			-23	%	24,226			31,619			-23	%
Tax effect of adjustments	1,336			2,165			-38	%	7,752			12,648			-39	%
Tax effect rate(4)	32		%	40		%	nm		32		%	40		%	nm
Net adjustments	2,839			3,248			-13	%	16,474			18,971			-13	%
Net Income as Adjusted (3)	$	14,899		$	6,023		147	%	$	49,713		$	24,577		102	%
Net Income as Adjusted per diluted share	$	0.22		$	0.11				$	0.81		$	0.43
Weighted-average shares used in computing diluted net income as adjusted per common share	67,112			56,596					61,460			56,588

(1) ”nm” means not meaningful.

(2) The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” effective May 1, 2005 using the modified-prospective transition method. For periods prior to May 1, 2005, the Company followed the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”

(3) Management uses EBITDA as Adjusted and Net Income as Adjusted, both non-GAAP measures to evaluate the Company’s operating performance and compare the Company’s current results with those for prior periods, but cautions that they should not be considered as substitutes for disclosures made in accordance with GAAP.

(4) Tax effect rate excludes discrete items.