Verifone Reports Results for the Third Quarter of Fiscal 2016 and Updates Outlook for Full Year

Transcription

1 Verifone Report Reult for the Third Quarter of Fical 2016 and Update Outlook for Full Year SAN JOSE, Calif. (BUSINESS WIRE) Verifone (NYSE: PAY), a world leader in payment and commerce olution, today announced financial reult for the three month ended July 31, Third Quarter Financial Highlight GAAP net of $488 million and Non-GAAP net of $493 million GAAP net lo per diluted hare of $0.28 Non-GAAP net income per diluted hare of $0.42 Operating cah flow of $13 million "We made real progre during the third quarter in further repoitioning Verifone, building our ervice buine and bringing our new device to market. Depite thi progre, Q3 wa a challenging quarter for Verifone on. We moved deciively to reduce our cot tructure, and thoe initial effort helped u exceed our revied EPS target, aid Paul Galant, Chief Executive Officer of Verifone. "We are managing through what we believe are difficult but temporary local market and lingering EMV adoption iue. Our outlook for Q4 now aume a ignificantly lower EMV rollout, and we are projecting fical year 2017 conolidated to be approximately 3% below fical year 2016 level. That aid, we are relentlely executing the long-term viion for Verifone to tranform from a box hipper to a ervice provider. (UNAUDITED, IN MILLIONS, EXCEPT PER SHARE AND PERCENTAGES) GAAP: Three Month Ended July 31, Nine Month Ended July 31, Change Change Net $ 488 $ 510 (4.3)% $ 1,528 $ 1, % Gro margin a a % of net 39.2 % 40.5 % (1.3 ) pt 40.4 % 41.0 % (0.6) pt Net income (lo) per diluted hare $ (0.28) $ 0.08 nm $ (0.04 ) $ 0.35 nm Non-GAAP (1): Net $ 493 $ 510 (3.4)% $ 1,539 $ 1, % Gro margin a a % of net 42.2 % 41.7 % 0.5 pt 42.5 % 42.3 % 0.2 pt Net income per diluted hare $ 0.42 $ 0.47 (10.6)% $ 1.36 $ % (1) Reconciliation for the Non-GAAP meaure are provided at the end of thi pre releae. Fourth Quarter and Fical Year 2016 Outlook Guidance for the fourth fical quarter of 2016 i a follow: Non-GAAP net of $460 million

2 Non-GAAP net income per diluted hare of $ Guidance for the full fical year 2016 i a follow: Non-GAAP net of $2.0 billion Non-GAAP net income per diluted hare of $ $1.65 Conference Call Verifone will hold it earning conference call today, September 1 t, at 1:30 pm (PT) / 4.30pm (ET). To liten to the call and view the lide, viit Verifone webite The recorded audio webcat will be available on Verifone' webite until September 30, About Verifone Verifone i tranforming everyday tranaction into opportunitie for connected commerce. We re connecting payment device to the cloud, merging the online and in-tore hopping experience and creating the next generation of digital engagement between merchant and conumer. We are built on a 30-year hitory of uncompromied ecurity with approximately 29 million device and terminal deployed worldwide. Our people are known a truted expert that work with our client and partner, helping to olve their mot complex payment challenge. We have client and partner in more than 150 countrie, including the world bet-known retail brand, financial intitution and payment provider. Verifone.com (NYSE: Additional Reource: CAUTION CONCERNING FORWARD-LOOKING STATEMENTS Thi pre releae include certain forward-looking tatement within the meaning of the Private Securitie Litigation Reform Act of Thee tatement are baed on management' current expectation or belief and on currently available competitive, financial and economic data and are ubject to uncertainty and change in circumtance. Actual reult may vary materially from thoe expreed or implied by the forward-looking tatement herein due to change in economic, buine, competitive, technological, and/or regulatory factor, and other rik and uncertaintie affecting the operation of the buine of VeriFone Sytem, Inc., including many factor beyond our control. Thee rik and uncertaintie include, but are not limited to, thoe aociated with: execution of our trategic plan and buine and operational initiative, including whether the expected benefit of our plan and initiative are achieved within expected timeframe or at all, hort product cycle and rapidly changing technologie, our ability to maintain competitive leaderhip poition with repect to our payment olution offering, our dependence on a limited number of cutomer, the pace of EMV adoption in the United

3 State, the conduct of our buine and operation internationally, including the complexity of compliance with international law and regulation and rik related to advere regulatory action, including taxrelated audit and aement, our ability to protect our computer ytem and network from fraud, cyber-attack or ecurity breache, our aumption, judgment and etimate regarding the impact on our buine of political intability in market where we conduct buine, uncertainty in the global economic environment and financial market, the tatu of our relationhip with and condition of third partie uch a our contract manufacturer, key cutomer, ditributor and key upplier upon whom we rely in the conduct of our buine, our ability to effectively integrate the buinee we acquire and to achieve the expected benefit of uch acquiition, our ability to effectively hedge our expoure to foreign currency exchange rate fluctuation, ucceful execution of our retructuring plan, including whether the expected benefit of retructuring plan are achieved within expected timeframe or at all, and our dependence on a limited number of key employee. For a further lit and decription of the rik and uncertaintie affecting the operation of our buine, ee our filing with the Securitie and Exchange Commiion, including our annual report on Form 10-K and our quarterly report on Form 10-Q. The forward-looking tatement peak only a of the date uch tatement are made. Verifone i under no obligation to, and exprely diclaim any obligation to, update or alter it forward-looking tatement, whether a a reult of new information, future event, change in aumption or otherwie. Contact Verifone Invetor Relation: Chri Mammone, ir@verifone.com or Media Relation: Andy Payment, andy.payment@verifone.com

4 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN MILLIONS, EXCEPT PER SHARE DATA AND PERCENTAGES) Three Month Ended July 31, Nine Month Ended July 31, % Change (1) % Change (1) Net : Sytem $ $ (12.3)% $ $ % Service % % Total net (4.3)% 1, , % Cot of net : Sytem (12.7)% (0.9)% Service % % Total cot of net (2.1)% % Total gro margin (7.5)% % Operating expene: Reearch and development % % Sale and marketing (4.9)% (0.1)% General and adminitrative (8.1)% % Retructuring and related charge nm nm Litigation ettlement and lo contingency expene 0.6 nm nm Amortization of purchaed intangible aet % % Total operating expene % % Operating income (lo) (22.3) 20.3 nm nm Interet expene, net (9.0) (8.2) 9.8 % (25.9) (23.5) 10.2 % Other income (expene), net 0.1 (0.6) nm (6.8) (3.5) nm Income (lo) before income taxe (31.2) 11.5 nm nm Income tax proviion nm nm Conolidated net income (lo) (31.5) 10.1 nm (4.4) 41.9 nm Net (income) lo attributable to noncontrolling interet 0.4 (0.6) nm (0.3) (1.0) nm Net income (lo) attributable to VeriFone Sytem, Inc. tockholder $ (31.1) $ 9.5 nm $ (4.7) $ 40.9 nm Net income (lo) per hare attributable to VeriFone Sytem, Inc. tockholder: Baic $ (0.28) $ 0.08 $ (0.04) $ 0.36 Diluted $ (0.28) $ 0.08 $ (0.04) $ 0.35 Weighted average number of hare ued in computing net income (lo) per hare attributable to VeriFone Sytem, Inc. tockholder: Baic Diluted (1) "nm" mean not meaningful

5 ASSETS Current aet: CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED, IN MILLIONS) July 31, 2016 October 31, 2015 Cah and cah equivalent $ $ Account receivable, net of allowance of $13.5 and $ Inventorie Prepaid expene and other current aet Total current aet Property and equipment, net Purchaed intangible aet, net Goodwill 1, ,084.0 Deferred tax aet, net Other long-term aet Total aet $ 2,635.5 $ 2,473.1 LIABILITIES AND EQUITY Current liabilitie: Account payable $ $ Accrual and other current liabilitie Deferred revenue, net Short-term debt Total current liabilitie Long-term deferred revenue, net Long-term debt Deferred tax liabilitie, net Other long-term liabilitie Total liabilitie 1, ,538.6 Redeemable noncontrolling interet in ubidiary 6.3 Stockholder equity: Common tock Additional paid-in capital 1, ,726.5 Accumulated deficit (613.8) (535.7) Accumulated other comprehenive lo (317.2) (292.3) Total VeriFone Sytem, Inc. tockholder equity Noncontrolling interet in ubidiarie Total equity Total liabilitie, redeemable noncontrolling interet in ubidiary and equity $ 2,635.5 $ 2,473.1

6 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN MILLIONS) Nine Month Ended July 31, Cah flow from operating activitie Conolidated net income (lo) $ (4.4) $ 41.9 Adjutment to reconcile conolidated net income (lo) to net cah provided by operating activitie: Depreciation and amortization, net Stock-baed compenation expene Deferred income taxe, net (7.2) (8.7) Non-cah retructuring and related charge 29.1 Other Net cah provided by operating activitie before change in operating aet and liabilitie Change in operating aet and liabilitie: Account receivable, net 13.5 (33.4) Inventorie (53.3) (6.7) Prepaid expene and other aet (27.0) (20.8) Account payable (2.3) (0.2) Deferred revenue, net Other current and long-term liabilitie (21.8) 12.2 Net change in operating aet and liabilitie (62.5) (38.8) Net cah provided by operating activitie Cah flow from inveting activitie Capital expenditure (82.2) (78.5) Acquiition of buinee, net of cah acquired (172.2) (13.6) Other inveting activitie, net Net cah ued in inveting activitie (252.5) (92.0) Cah flow from financing activitie Proceed from debt, net of iuance cot Repayment of debt (333.9) (130.3) Proceed from iuance of common tock through employee equity incentive plan Stock repurchae (79.9) Other financing activitie, net (4.1) (2.5) Net cah provided by (ued in) financing activitie 75.8 (60.1) Effect of foreign currency exchange rate change on cah and cah equivalent (2.3) (24.8) Net decreae in cah and cah equivalent (52.3) (8.1) Cah and cah equivalent, beginning of period Cah and cah equivalent, end of period $ $ 242.1

7 Note NET REVENUES INFORMATION (UNAUDITED, IN MILLIONS, EXCEPT PERCENTAGES) July 31, 2016 April 30, 2016 Three Month Ended July 31, 2015 % Change (1) SEQ % Change (1) YoY July 31, 2016 Nine Month Ended July 31, 2015 % Change (1) GAAP net : North America $ $ $ (8.5 )% (8.2 )% $ $ % Latin America (21.1 )% (25.2 )% (15.6 )% EMEA (3.6 )% 10.1 % % Aia-Pacific % (6.4 )% (13.9 )% Total $ $ $ (7.3 )% (4.3 )% $ 1,527.9 $ 1, % Non-GAAP net : (2) North America A $ $ $ (9.0 )% (6.0 )% $ $ % Latin America A (21.1 )% (25.2 )% (15.6 )% EMEA A (3.6 )% 10.0 % % Aia-Pacific A % (6.4 )% (14.0 )% Total $ $ $ (7.5 )% (3.4 )% $ 1,538.5 $ 1, % GAAP net $ $ $ (7.3 )% (4.3 )% $ 1,527.9 $ 1, % Plu: Non-GAAP net adjutment A nm nm nm Non-GAAP net (2) $ (7.5 )% (3.4 )% 1,538.5 $ 1, % Net from buinee acquired in the B (22.8) (24.6) (0.1) nm nm (52.6) (0.3) nm pat Non-GAAP 12 month organic net (2) $ $ $ (7.5 )% (7.9 )% $ 1,485.9 $ 1,486.9 (0.1 )% (1) "nm" mean not meaningful. (2) Reconciliation for the non-gaap meaure are provided at the end of thi pre releae. For three month ended July 31, 2016 compared with three month ended July 31, 2015 Net growth Impact due to acquired buine e (A) (B) North America Latin America (8.2)% (25.2)% 1.3 pt 0.1 pt EMEA 10.1 % 9.1 pt Aia-Pacific (6.4)% 0.0 pt Total (4.3)% 3.6 pt Non- GAAP organic net growth Impact due to foreign currency (C) (9.5)% (25.3)% (0.2)pt (8.4 )pt 1.0 % (2.6 )pt (6.4)% (3.9 )pt (7.9)% (2.6 )pt Non- GAAP organic net at contant currency growth For nine month ended July 31, 2016 compared with nine month ended July 31, 2015 Net growth Impact due to acquired buine e (A) (B) (9.3)% (16.9)% 13.3 % (15.6)% 0.9 pt 0.0 pt 3.6 % 4.7 % 7.0 pt (2.5)% (13.9)% 0.1 pt (5.3)% 2.8 % 2.9 pt Non- GAAP organic net growth Impact due to foreign currency (C) 12.4 % (15.6)% (0.1)pt (16.7 )pt (2.3)% (5.3 )pt (14.0)% (6.4 )pt (0.1)% (5.1 )pt Non- GAAP organic net at contant currency growth 12.5 % 1.1 % 3.0 % (7.6 )% 5.0 %

8 Non-GAAP Reconciliation

9 Three Month Ended July 31, 2016 RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES GAAP net (UNAUDITED, IN MILLIONS) Amortization of tepdown in deferred revenue at acquiition Non-GAAP net Net from buinee acquired in the pat 12 month Non-GAAP organic net Contant currency adjutment Non-GAAP organic net at contant currency Note (A) (A) (B) (B) (C) (C) North America $ $ 4.5 $ $ (7.1) $ $ 0.3 $ Latin America EMEA (15.7) Aia-Pacific Total $ $ 4.5 $ $ (22.8) $ $ 13.2 $ Sytem $ $ $ $ (2.3) $ $ 8.7 $ Service (20.5) Total $ $ 4.5 $ $ (22.8) $ $ 13.2 $ Three Month Ended April 30, 2016 North America $ $ 6.1 $ $ (7.7) $ Latin America EMEA (16.9) Aia-Pacific Total $ $ 6.1 $ $ (24.6) $ Sytem $ $ $ $ $ Service (24.6) Total $ $ 6.1 $ $ (24.6) $ Three Month Ended July 31, 2015 North America $ $ $ $ $ Latin America EMEA (0.1) Aia-Pacific Total $ $ 0.1 $ $ (0.1) $ Sytem $ $ $ $ $ Service (0.1) Total $ $ 0.1 $ $ (0.1) $ 509.9

10 RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (UNAUDITED, IN MILLIONS) Nine Month Ended July 31, 2016 GAAP net Amortization of tep-down in deferred revenue at acquiition Non-GAAP net Net from buinee acquired in the pat 12 month Non-GAAP organic net Contant currency adjutment Non-GAAP net at contant currency Note (A) (A) (B) (B) (C) (C) North America $ $ 10.6 $ $ (15.7) $ $ 1.0 $ Latin America EMEA (36.9) Aia-Pacific Total $ 1,527.9 $ 10.6 $ 1,538.5 $ (52.6) $ 1,485.9 $ 75.9 $ 1,561.8 Sytem $ $ $ $ (7.1) $ $ 45.0 $ 1,010.0 Service (45.5) Total $ 1,527.9 $ 10.6 $ 1,538.5 $ (52.6) $ 1,485.9 $ 75.9 $ 1,561.8 Nine Month Ended July 31, 2015 North America $ $ 0.1 $ $ $ Latin America EMEA (0.3) Aia-Pacific Total $ 1,486.3 $ 0.9 $ 1,487.2 $ (0.3) $ 1,486.9 Sytem $ $ $ $ $ Service (0.3) Total $ 1,486.3 $ 0.9 $ 1,487.2 $ (0.3) $ 1,486.9

11 RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (UNAUDITED, IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND PERCENTAGES) Three Month Ended July 31, 2016 Note Net revenue Gro margin Gro margin percenta ge Operatin g income (lo) Income tax proviio n Net income (lo) attributabl e to VeriFone Sytem, Inc. GAAP $ $ % $ (22.3) $ 0.3 $ (31.1 ) Adjutment: Amortization of tep-down deferred ervice net and aociated cot of good old at acquiition A Merger and acquiition related D Stock baed compenation E Retructuring and related charge F Other charge and income F Income tax effect of non-gaap G 7.7 (7.7) excluion Non-GAAP $ $ % $ 64.9 $ 8.0 $ 46.3 Weighted average Net income (lo) per number of hare hare attributable to ued in computing VeriFone Sytem, Inc. net income (lo) tockholder (1) per hare: Baic Diluted Baic Diluted GAAP $ (0.28) $ (0.28 ) Adjutment for diluted hare H 0.7 Non-GAAP $ 0.42 $ 0.42 Three Month Ended July 31, 2015 GAAP $ $ % $ 20.3 $ 1.4 $ 9.5 Adjutment: Amortization of tep-down in deferred ervice net at acquiition A Merger and acquiition related D Stock baed compenation E Retructuring and related charge F Other charge and income F Income tax effect of non-gaap G 7.9 (7.9) excluion Non-GAAP $ $ % $ 71.5 $ 9.3 $ 54.3 Weighted average number of hare ued in computing net income per Net income per hare attributable to VeriFone Sytem, Inc. tockholder (1) Baic Diluted Baic Diluted GAAP $ 0.08 $ 0.08 Non-GAAP $ 0.47 $ 0.47 (1) Diluted net income (lo) per hare i calculated by dividing the Net income (lo) attributable to VeriFone Sytem, Inc. tockholder by the Weighted average number of hare ued in computing net income (lo) per hare attributable to VeriFone Sytem, Inc. tockholder.

12 RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (UNAUDITED, IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND PERCENTAGES) Nine Month Ended July 31, 2016 Note Net revenue Gro margin Gro margin percenta ge Operatin g income Income tax proviio n Net income (lo) attributabl e to VeriFone Sytem, Inc. GAAP $ 1,527.9 $ % $ 33.7 $ 5.4 $ (4.7) Adjutment: Amortization of tep-down in deferred ervice net and aociated cot of good old at acquiition A Merger and acquiition related D Stock baed compenation E Retructuring and related charge F Other charge and income F Income tax effect of non-gaap excluion G 20.8 (20.8 ) Non-GAAP $ 1,538.5 $ % $ $ 26.2 $ Weighted average number of hare ued in computing net income per Net income per hare attributable to VeriFone Sytem, Inc. tockholder (1) Baic Diluted Baic Diluted GAAP $ (0.04 ) $ (0.04) Adjutment for diluted hare H 0.9 Non-GAAP $ 1.37 $ 1.36 Nine Month Ended July 31, 2015 GAAP $ 1,486.3 $ % $ 73.2 $ 4.3 $ 40.9 Adjutment: Amortization of tep-down in deferred ervice net at acquiition A Merger and acquiition related D Stock baed compenation E Retructuring and related charge F Other charge and income F Income tax effect of non-gaap excluion G 22.5 (22.5 ) Non-GAAP $ 1,487.2 $ % $ $ 26.8 $ Weighted average Net income (lo) per number of hare hare attributable to ued in computing VeriFone Sytem, Inc. net income (lo) tockholder (1) per hare: Baic Diluted Baic Diluted GAAP $ 0.36 $ 0.35 Non-GAAP $ 1.37 $ 1.34 (1) Diluted net income (lo) per hare i calculated by dividing the Net income (lo) attributable to VeriFone Sytem, Inc. tockholder by the Weighted average number of hare ued in computing net income (lo) per hare attributable to VeriFone Sytem, Inc. tockholder.

13 Guidance RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (UNAUDITED, IN MILLIONS) Three Month Ending October 31, Year Ending October 31, 2016 GAAP net $ 456 $ 1,986 Adjutment to net A 4 14 Non-GAAP net $ 460 $ 2,000

14 NON-GAAP FINANCIAL MEASURES Thi pre releae and it attachment include everal non-gaap financial meaure, including non-gaap net ;; non- GAAP Sytem net ;; non-gaap Service net ;; net from buinee acquired in the pat 12 month;; non-gaap organic net ;; non-gaap organic net at contant currency;; non-gaap gro margin;; non-gaap gro margin a a percentage of non-gaap net ;; non-gaap operating income;; non-gaap income tax proviion;; non- GAAP net income attributable to Verifone Sytem, Inc. hareholder;; non-gaap weighted average diluted hare;; and non- GAAP net income (lo) per diluted hare. Thi pre releae alo include certain forward-looking non-gaap financial meaure, pecifically projected non-gaap net and non-gaap net income per diluted hare for the fourth fical quarter and full fical year The correponding reconciliation of thee non-gaap financial meaure to the mot comparable GAAP financial meaure, to the extent available without unreaonable effort, are included in thi pre releae. Management ue non-gaap financial meaure only in addition to and in conjunction with reult preented in accordance with GAAP. Management believe that thee non-gaap financial meaure help it to evaluate Verifone' performance and operation and to compare Verifone' current reult with thoe for prior period a well a with the reult of peer companie. Verifone incur, due to difference in debt, capital tructure and invetment hitory, geographic preence and aociated currency impact, certain income and expene item, uch a tock baed compenation, amortization of acquired intangible and other non-cah expene, that differ ignificantly from Verifone' competitor. The non-gaap financial meaure reflect Verifone' reported operating performance without uch item. Management alo ue thee non-gaap financial meaure in Verifone' budget and planning proce. Management believe that the preentation of thee non-gaap financial meaure i ueful to invetor in comparing Verifone' operating performance in any period with it performance in other period and with the performance of other companie that repreent alternative invetment opportunitie. Thee non-gaap financial meaure contain limitation and hould be conidered a a upplement to, and not a a ubtitute for, or uperior to, dicloure made in accordance with GAAP. Thee non-gaap financial meaure are not baed on any comprehenive et of accounting rule or principle and may therefore differ from non-gaap financial meaure ued by other companie. In addition, thee non-gaap financial meaure do not reflect all amount and cot, uch a acquiition related cot, employee tock-baed compenation cot, cah that may be expended for future capital expenditure or contractual commitment, working capital need, cah ued to ervice interet or principal payment on Verifone' debt, income taxe and the related cah requirement, and retructuring charge, aociated with Verifone' reult of operation a determined in accordance with GAAP. Furthermore, Verifone expect to continue to incur income and expene item that are imilar to thoe that are excluded by the non-gaap adjutment decribed herein. Management compenate for thee limitation by alo relying on the comparable GAAP financial meaure. Our GAAP and non-gaap net are preented for our four main geographic region: North America, Latin America, EMEA and Aia-Pacific. North America include the US and Canada. Latin America include South America, Central America, Mexico and the Caribbean. EMEA include Europe, Ruia, the Middle Eat, and Africa. Aia-Pacific include Autralia, New Zealand, China, India and throughout the ret of Greater Aia, including other Aia-Pacific Rim countrie. Note A: Non-GAAP net, cot of good old and gro margin. Non-GAAP net exclude the fair value decreae (tep-down) in deferred revenue at acquiition. Non-GAAP cot of good old exclude the cot of good aociated with the fair value decreae (tep-down) in deferred revenue at acquiition. Although the tep-down of deferred revenue fair value at acquiition and aociated cot of good old are reflected in our GAAP financial tatement, they reult in net and gro margin immediately pot-acquiition that are lower than net and gro margin that would be recognized in accordance with GAAP on thoe ame ervice if they were old under contract entered into pot-acquiition. We adjut the tep-down to achieve comparability to net and gro margin of the acquired entity earned pre-acquiition and to our GAAP net and gro margin to be earned on contract old in future period. Thee non-gaap net, cot of good old and gro margin amount are not intended to be a ubtitute for our GAAP dicloure of net, cot of good old and gro margin, and hould be read together with our GAAP dicloure.

15 Note B: Non-GAAP organic net. "Non-GAAP organic net " i a non-gaap financial meaure of net excluding "net from buinee acquired in the pat 12 month" (a defined below). Verifone determine non-gaap organic net by deducting net from buinee acquired in the pat 12 month from non-gaap net. Thi non-gaap meaure i ued to evaluate Verifone net without the impact of net from acquired buinee, a Verifone analyze performance both with and without the impact of our recent acquiition. Net from buinee acquired in the pat 12 month conit of net derived from the ale channel of acquired reeller and ditributor, and net from Sytem and Service attributable to buinee acquired in the 12 month preceding the repective financial quarter(). For acquiition of mall buinee that are integrated within a relatively hort time after the cloe of the acquiition, we aume quarterly net attributable to uch acquired buinee during the 12 month following acquiition remain at the ame level a in the firt full quarter after the acquiition cloed. During period prior to our acquiition of former cutomer, net from buinee acquired in the pat 12 month conit of ale by Verifone to that former cutomer for that period. Note C: Non-GAAP net at contant currency. Verifone determine non-gaap net at contant currency by recomputing non-gaap net denominated in currencie other than U.S. Dollar in the current fical period uing average exchange rate for that particular currency during the correponding financial period of the prior year. Verifone ue thi non-gaap meaure to evaluate performance on a comparable bai excluding the impact of foreign currency fluctuation. Note D: Merger and Acquiition Related. Verifone adjut certain and expene for item that are the reult of merger and acquiition. Merger and acquiition related adjutment include the amortization of intangible aet, fixed aet fair value adjutment, contingent conideration adjutment, incremental cot aociated with acquiition (uch a legal and other profeional fee) and acquiition integration expene (uch a cot of peronnel required to ait with integration tranition). In addition, we adjut for change in etimate and final reolution of contingencie that exited at the time of acquiition. Acquiition related expene alo reult from event which arie from unforeeen circumtance which often occur outide the ordinary coure of buine. Verifone analyze the performance of it operation without regard to thee adjutment. In determining whether any merger or acquiition related adjutment i appropriate, Verifone take into conideration, among other thing, how uch adjutment would or would not aid the undertanding of the performance of it operation. Note E: Stock-Baed Compenation. Our non-gaap financial meaure eliminate the effect of expene for tock-baed compenation becaue they are non-cah expene that management believe are not reflective of ongoing operating reult. In particular, becaue of varying available valuation methodologie, ubjective aumption and the variety of award type which affect the calculation of tock-baed compenation, we believe that the excluion of tock-baed compenation allow for more accurate comparion of our operating reult to our peer companie. Stock-baed compenation i very different from other form of compenation. A cah alary or bonu ha a fixed and unvarying cah cot. In contrat the expene aociated with a tock baed award i unrelated to the amount of compenation ultimately received by the employee;; and the cot to the company i baed on valuation methodology and underlying aumption that may vary over time and doe not reflect any cah expenditure by the company. Furthermore, the expene aociated with granting an employee a tock baed award can be pread over multiple year and may be revered baed on forfeiture which may differ from our original aumption unlike cah compenation expene which i typically recorded contemporaneouly with the time of award or payment.

16 Note F: Other Charge and Income (Lo). Verifone exclude certain expene, other income (expene) and loe that we have determined are not reflective of ongoing operating reult. It i difficult to etimate the amount or timing of thee item in advance. Although thee event are reflected in our GAAP financial tatement, we exclude them in our non-gaap financial meaure becaue we believe thee item may limit the comparability of our ongoing operation with prior and future period. Thee adjutment for other charge and income include: Certain cot incurred in connection with enior executive management change, uch a non-compete arrangement fee, legal fee, recruiter fee and ign on bonue. Certain expene, uch a profeional ervice and certain peronnel cot, incurred on initiative to tranform, treamline and centralize our global operation. Retructuring and related charge, including retructure cot, write down of aet held for ale, and charge for cot to terminate a contract related to a ervice we will no longer offer in Turkey, a well a loe related to certain exit activitie initiated a part of our trategic review of under-performing buinee and global tranformation initiative. Foreign exchange loe related to obligation denominated in currencie of highly inflationary economie. Cot aociated with litigation and other lo contingencie, penaltie and ettlement. We ae our operating performance with thee amount included and excluded, and by providing thi information, we believe that uer of our financial tatement are better able to undertand the financial reult of what we conider to be our continuing operation. Note G: Income Tax Effect of Non-GAAP excluion. Income taxe are adjuted for the tax effect of the adjuting item related to our non-gaap financial meaure and to reflect our medium to long term etimate of cah taxe on a non-gaap bai, in order to provide our management and uer of the financial tatement with better clarity regarding the on-going comparable performance and future liquidity of our buine. Under GAAP our Income tax proviion a a percentage of Income before income taxe wa 0.9% for the fical quarter ended July 31, 2016, 12.6% for the fical quarter ended July 31, 2015, 567.6% for the nine month ended July 31, 2016 and 9.3% for the nine month ended July 31, For non-gaap purpoe, we ued a 14.5% rate for all period preented. Note H: Non-GAAP diluted hare. Diluted non-gaap weighted average hare include additional hare that are dilutive for non-gaap computation of earning per hare in period when we have a non-gaap net income and a GAAP bai net lo.