Heartland Payment Systems Reports 31% Increase in First Quarter Adjusted Earnings Per Share

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Heartland Payment Systems Reports 31% Increase in First Quarter Adjusted Earnings Per Share

PRINCETON, N.J.--(BUSINESS WIRE)-- Heartland Payment Systems, Inc. (NYS: HPY) , one of the nation's largestpayment processors, today announced Adjusted Net Income and Adjusted Earnings per Share were $19.4 million and $0.51, respectively, for the quarter ended March 31, 2013, compared to Adjusted Net Income and Adjusted Earnings per Share of $16.0 million and $0.39, respectively, for the quarter ended March 31, 2012. For the quarter, the Company reported GAAP net income of $19.6 million, or $0.51 per share, compared to GAAP net income of $13.8 million, or $0.34 per share for the first quarter of 2012. First quarter 2013 GAAP net income from continuing operations, which excludes the gain on the sale of Collective POS in the current quarter, was $15.6 million, or $0.41 per share. Adjusted Net Income and Adjusted Earnings per Share are non-GAAP measures that are detailed later in this press release in the section "Reconciliation of Non-GAAP Financial Measures."

Highlights for the first quarter of 2013 include:

  • Quarterly Net Revenue of $146.8 million, up 16.8% from the first quarter of 2012
  • Operating Margin on Net Revenue of 18.2% compared to 18.1% for the same quarter in 2012
  • Small and Mid-Sized Enterprise (SME) quarterly transaction processing volume of $17.3 billion, up 3.8% from the first quarter of 2012, despite one less processing day in the current quarter than in the year ago quarter
  • Same store sales rose 2.2%, while volume attrition was 12.8%
  • New margin installed increased 10.1% from the first quarter of 2012
  • Share-based compensation reduced earnings by $3.9 million pre-tax, or approximately $0.06 per share, compared to $2.9 million pre-tax, or approximately $0.04 per share in the year ago quarter
  • Acquisition-related amortization was $2.3 million pre-tax, or $0.04 per share, in the first quarter, up from $1.1 million pre-tax, or $0.02 per share in the first quarter of 2012

Robert O. Carr, Chairman and CEO, said, "Financial results for the first quarter of 2013 were the best of any first quarter in the Company's history, extending the record results of the last two years. Card processing volumes continue to grow as we strengthen merchant relationships by enhancing our product suite to bring additional value to their businesses. In particular, we are excited about the growth prospects represented by our new mobile applications, including those developed through partnerships, such as that announced with LevelUp in the first quarter. Our sales organization once again achieved record new business productivity, with the best quarterly new margin installed in several years, and our strategy to add new relationship managers is gaining traction as we increased relationship manager count in the quarter, a key to further penetrating the market and sustaining our growth. The very encouraging early results of our latest acquisitions are not only exciting in their own right, but also in how they provide synergies that are enhancing the value of the entire Heartland franchise. And, despite the investment in integration and new business initiatives in the quarter, we remain vigilant in improving our efficiency and productivity to drive an ever increasing proportion of our growth to the bottom line and build value for shareholders."

SME card processing volume for the three months ended March 31, 2013 was $17.3 billion, a 3.8% improvement compared to the year-ago period. Card processing volume benefitted from better-than-expected same store sales, successful efforts to minimize volume attrition, and double-digit growth in new margin installed. Net revenue growth reflected growth in both card and non-card businesses, including contributions from the Ovation and ECSI acquisitions. The rate of operating income growth once again exceeded the rate of net revenue growth, despite budgeted spending increases to support new growth initiatives across the enterprise. Since share-based compensation and acquisition related amortization expense are not reflective of our ongoing operating performance, they are both excluded from the calculation of adjusted net income and adjusted earnings per share, as further detailed later in this release. In the first quarter, these two expenses reduced net income by $3.8 million, or $0.10 per share, compared to $2.5 million, or $0.06 per share in the first quarter of 2012.

Mr. Carr continued, "This is an exciting time in the payments industry, which is providing tremendous growth opportunities for organizations that can deliver real value to the market. We are fortunate to have the financial strength, organizational resources and market awareness that will enable us to not only develop, but to efficiently deliver value propositions that will resonate with merchants. Our strategy is to leverage our assets to bring new card and non-card products to market that will help our merchants utilize their payments technology as a more comprehensive platform to grow their business, while simultaneously simplifying their operations. You can expect Heartland to continue to deliver best-of-breed services, developed either organically or through partnerships or acquisitions, so that our merchants are best-equipped to operate in an increasingly complex world where mobility, loyalty and operations are all rapidly converging."


For full year 2013, we continue to expect Net Revenue to be between approximately $600 million and $610 million. Adjusted Net Income is expected to be in the range of $2.29 - $2.33, which is net of $0.37 of combined acquisition-related amortization and share-based compensation expense. We continue to expect GAAP EPS from continuing operations to be in the range $1.92 to $1.96.


The Company also announced that the Board of Directors declared a quarterly dividend of $0.07 per common share payable June 15, 2013 to shareholders of record on May 24, 2013. In the first quarter, the Company repurchased approximately 491,000 shares for $15.3 million under our Board approved share repurchase plan.


Heartland Payment Systems, Inc. will host a conference call on April 30, 2013 at 8:30 a.m. Eastern Time to discuss financial results and business highlights. Heartland Payment Systems invites all interested parties to listen to its conference call, broadcast through a webcast on the Company's website. To access the call, please visit the Investor Relations portion of the Company's website at: www.heartlandpaymentsystems.com. The conference call may be accessed by calling (888) 364-3108. Please provide the operator with PIN number 5340553. The webcast will be archived on the Company's website within two hours of the live call.

About Heartland Payment Systems

Heartland Payment Systems, Inc. (NYSE: HPY), the fifth largest payments processor in the United States, delivers credit/debit/prepaid card processing, school solutions, marketing solutions, end-to-end encryption technology, campus solutions, payroll solutions, and related business solutions and services to more than 250,000 business and education locations nationwide. A FORTUNE 1000 company, Heartland is the founding supporter of The Merchant Bill of Rights, a public advocacy initiative that educates merchants about fair credit and debit card processing practices. Heartland also established The Sales Professional Bill of Rights to advocate for the rights of sales professionals everywhere. More detailed information can be found by visiting HeartlandPaymentSystems.com, HeartlandPaymentSystems.com/Careers or following the company on Twitter @HeartlandHPY and Facebook at facebook.com/HeartlandHPY.

Forward-looking Statements

This press release contains statements of a forward-looking nature which represent our management's beliefs and assumptions concerning future events. Forward-looking statements involve risks, uncertainties and assumptions and are based on information currently available to us. Actual results may differ materially from those expressed in the forward-looking statements due to many factors, including risks and additional factors that are described in the Company's Securities and Exchange Commission filings, including but not limited to the Company's annual report on Form 10-K for the year ended December 31, 2012. We undertake no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this release.


Heartland Payment Systems, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share data)


Three Months Ended
March 31,
2013 2012
Total revenues $ 501,239 $ 467,576
Costs of services:




Dues, assessments and fees 47,332 43,868
Processing and servicing 59,397 55,628
Customer acquisition costs 10,733 11,436
Depreciation and amortization   4,090   4,352
Total costs of services 428,624 413,232
General and administrative   45,840   31,549
Total expenses   474,464   444,781
Income from operations   26,775   22,795
Other income (expense):


Interest income


Interest expense (1,234) (850)
Provision for processing system intrusion costs (206) (157)
Other, net   116  
Total other expense   (1,290)   (903)
Income from continuing operations before income taxes 25,485 21,892
Provision for income taxes   9,840   8,366
Net income from continuing operations 15,645 13,526
Income from discontinued operations, net of income tax of $2,135 and $133   3,970   326
Net income   19,615   13,852
Less: Net income attributable to noncontrolling interests   56   98
Net income attributable to Heartland $ 19,559 $ 13,754
Amounts Attributable to Heartland:
Net income from continuing operations $ 15,645 $ 13,526
Income from discontinued operations, net of income tax and non-controlling interests   3,914   228
Net income attributable to Heartland $ 19,559 $ 13,754
Net income $ 19,615 $ 13,852
Other comprehensive income (loss):


Unrealized gains on investments, net of income tax of $4 and $7


Unrealized gains (losses) on derivative financial instruments, net of tax of $43 and ($6) 80 (6)
Foreign currency translation adjustment   (54)   231
Comprehensive income 19,644 14,088
Less: Comprehensive income attributable to noncontrolling interests   40   167
Comprehensive income attributable to Heartland $ 19,604 $ 13,921
Basic earnings per share:
Income from continuing operations $ 0.42 $ 0.34
Income from discontinued operations   0.11   0.01
Basic earnings per share $ 0.53 $ 0.35
Diluted earnings per share:
Income from continuing operations $ 0.41 $ 0.33
Income from discontinued operations   0.10   0.01
Diluted earnings per share $ 0.51 $ 0.34
Weighted average number of common shares outstanding:
Basic 36,841 38,837
Diluted 38,374 40,560
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

(In thousands, except share data)


March 31, December 31,
Assets 2013 2012
Current assets: $


Cash and cash equivalents


$ 48,440
Funds held for customers 142,011 131,405
Receivables, net 226,485 180,448
Investments 1,299 1,199
Inventory 10,243 9,694
Prepaid expenses 13,712 10,421
Current deferred tax assets, net 10,311 10,475
Assets held for sale     17,044
Total current assets 441,565 409,126
Capitalized customer acquisition costs, net 55,747 56,425
Property and equipment, net 129,167 125,031
Goodwill 170,449 168,062
Intangible assets, net 48,905 53,594
Deposits and other assets, net   1,165   1,176
Total assets $


$ 813,414
Liabilities and Equity
Current liabilities: $


Due to sponsor banks


$ 37,586
Accounts payable 68,283 64,065
Customer fund deposits 142,011 131,405
Processing liabilities 160,928 95,273
Current portion of borrowings 102,001 102,001
Current portion of accrued buyout liability 11,468 10,478
Accrued expenses and other liabilities 36,541 47,817
Current tax liabilities 3,155 4,323
Liabilities related to assets held for sale     1,672
Total current liabilities 526,136 494,620
Deferred tax liabilities, net 31,618 29,632
Reserve for unrecognized tax benefits 3,386 3,069
Long-term portion of borrowings 45,000 50,000
Long-term portion of accrued buyout liability   25,288   24,932
Total liabilities   631,428   602,253
Commitments and contingencies

Common stock, $0.001 par value, 100,000,000 shares authorized, 37,804,792 and 37,571,708 shares issued at March 31, 2013 and December 31, 2012; 36,597,692 and 36,855,908 outstanding at March 31, 2013 and December 31, 2012

38 38
Additional paid-in capital 226,643 222,705
Accumulated other comprehensive loss (271) (399)
Retained earnings 24,608 7,629
Treasury stock, at cost (1,207,100 and 715,800 shares at March 31, 2013 and December 31, 2012)   (35,448)   (20,187)
Total stockholders' equity 215,570 209,786
Noncontrolling interests     1,375
Total equity   215,570   211,161
Total liabilities and equity $ 846,998 $ 813,414
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows

(In thousands)


Three Months Ended March 31,
2013   2012
Cash flows from operating activities $


Net income


$ 13,852
Adjustments to reconcile net income to net cash provided by operating activities:


Amortization of capitalized customer acquisition costs


Other depreciation and amortization 7,214 7,383
Addition to loss reserves 802 267
(Recovery) provision for doubtful receivables (292) 83
Deferred taxes 1,251 3,602
Share-based compensation 3,866 2,934
Write downs on fixed assets and system development costs 57
Gain on sale of discontinued operations (3,786)
Changes in operating assets and liabilities:


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