VeriFone Annual Shareholder Meeting (2010)

VeriFone (PAY) held its 2010 annual shareholder meeting at company headquarters in San Jose, California. CEO Douglas Bergeron handled most of the meeting, but Senior VP and General Counsel Albert Liu also played a significant role.

The person manning the front desk offered only coffee to visiting shareholders, but we later found a small treasure trove of pastries, Egg-McMuffin-type sandwiches, and Odwalla juices on our own. (Note to VeriFone: if you're going to have food and drinks, have some class and offer some to non-employee shareholders--don't hide the goodies in the back. Also, the coffee was terrible. Sigh.)

I estimated that fourteen people attended the meeting, including just three non-employee shareholders. Prior to the meeting, one of the attendees mentioned that he recently traveled to Cleveland, Ohio and was very impressed with the city. Members of the Board of Directors praised Cleveland, calling it a hidden gem. (Personally, I believe LeBron James will stay in Cleveland, Ohio. If you read the book, Shooting Stars, it's hard to see LeBron James turning his back on Ohio.)

VeriFone didn't have an informal presentation, so we went directly to the Q&A session after the business portion of the meeting concluded. Some shareholders asked a few questions. One shareholder asked about payments/purchases via cell phone. CEO Bergeron responded that the security of cell-phone-payment transactions was currently "questionable." At the same time, VeriFone was working on a way of encrypting personal/financial data before it reaches the cell phone, making the transaction more secure.

I asked why international sales of System Solutions had lower gross margins than North American sales (see 10K, page 27). CEO Bergeron indicated that homogeneity leads to a premium. After the meeting, I asked him to clarify his answer, and he indicated that if you're trying to sell someone 10,000 machines for the first time, obviously the price will be lower versus a situation where you've already sold a company 100,000 machines. Why? I surmised that the more machines VeriFone sells to a particular company, the more the company benefits from scale. Thus, once a company allows VeriFone to set its payment standard, disengagement might be difficult, which gives VeriFone more pricing power.

All of the people attending the meeting were male, and, with the exception of one employee (Mr. Liu), all of the Verifone employees appeared to be at least 50 years old. I asked the CEO about his thoughts on diversity. He responded that VeriFone was open to diversity and recruits the "best and the brightest," which, in this case, happens to be "middle-aged, white" males.

Overall, VeriFone's meeting was short and simple.

Disclosure: I own an insignificant number of VeriFone (PAY) shares.

VeriFone (PAY) Shareholder Meeting

VeriFone's (symbol: PAY) 2008 annual shareholder meeting took place today at the Doubletree Hotel in downtown San Jose.

VeriFone, Inc. is a payment-processing-technology specialist. When you use your credit or debit card, someone has to handle the transfer of information from Point A to Point B in a secure format. VeriFone is trying to position itself as the worldwide financial middleman. However, it has been plagued by accounting scandals and as a result, its stock price is near a 52-week low.

The meeting was a bare-bones event. VeriFone did not have a presentation. The informal portion of the meeting involved only a Q&A session and lasted under 10 minutes. Only water was served from a cooler. Only three non-employees attended. I asked about the financial irregularities. The CEO said VeriFone had replaced the CFO and the general counsel in an effort to reform the company. He said the specific accounting problem was that the company overstated inventory and understated the cost of goods. (This accounting problem would cause the company to report an incorrect higher net profit for most of last year.) Class action lawsuits have been filed against VeriFone, and the 10K did not list any settlements or pending resolutions.

I asked several other questions about the company's business. The CEO's responses are below:

1. VeriFone already has 65% market share in the U.S and Canada, and Hypercom is their primary competitor. The main reason VeriFone does not have more market share is because the market wants an alternative, even if that alternative is not as good as VeriFone.

2. (The 10K states that profit margins are lower in the U.S. and Canada, but VeriFone is seeking to expand more internationally rather than domestically.) The reason VeriFone is focusing on international expansion is because emerging markets are not saturated. Only around 1 to 20% of retailers in Brazil, Turkey and other emerging markets use payment-processing technology, and the opportunities for growth are much better.

3. VeriFone's competitive advantage is that it spends the most on R&D and has the most employees. They are a safe, if not the safest, choice.

As a value play, it's hard to go against VeriFone. At the same time, it's also hard to promote a company that had ethical issues as recently as last year, especially in a post-Sarbanes-Oxley world. I personally think there are better companies in which to invest, but others may want to consider VeriFone after it resolves outstanding litigation.

Disclosure: I own less than 30 shares of Verifone (PAY).