Heartland Payment Systems Reports 26% Increase in Fourth Quarter Adjusted Earnings Per Share

Heartland Payment Systems Reports 26% Increase in Fourth Quarter Adjusted Earnings Per Share

Strong Results Lead to Record Full Year GAAP Earnings of $1.64 per share, Adjusted Earnings of $1.87 per share

PRINCETON, N.J.--(BUSINESS WIRE)-- Heartland Payment Systems, Inc. (NYS: HPY) , one of the nation's largestpayment processors, today announced GAAP net income of $15.0 million, or $0.38 per share, for the three months ended December 31, 2012. Adjusted Net Income and Adjusted Earnings per Share were $17.2 million and $0.44, respectively, for the quarter ended December 31, 2012, compared to Adjusted Net Income and Adjusted Earnings per Share of $14.2 million and $0.35, respectively, for the quarter ended December 31, 2011. 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 fourth quarter of 2012 include:

  • Closed two strategic acquisitions, which provide immediate scale that will leverage operating costs while improving product and distribution capabilities in both the company's payroll and campus businesses
  • Small and Mid-Sized Enterprise (SME) quarterly transaction processing volume of $17.6 billion, up 5.0% from the fourth quarter of 2011
  • Quarterly Net Revenue of $135.7 million, up 8.4% from the fourth quarter of 2011
  • Operating Margin on Net Revenue of 19.3% compared to 16.1% for the same quarter in 2011
  • Same store sales rose 1.5% and volume attrition was 13.3% in the fourth quarter
  • New margin installed of $14.5 million, up 1% from the fourth quarter of 2011

Robert O. Carr, Chairman and CEO, said, "Heartland Payment Systems achieved record earnings in fiscal 2012, with outstanding fourth quarter financial performance leading to a 48% increase in both 2012 adjusted net income and adjusted earnings per share. These results are the product of continued success in the marketplace driving double-digit net revenue growth, and success improving operating efficiencies, resulting in a 460 basis point increase in our operating margin. While we were achieving this significant growth, we also enhanced our ability to sustain our performance over the long haul through the strategic acquisitions of Ovation Payroll and ECSI, which strengthen our Payroll and Campus Solutions businesses, respectively. In addition to the aggressive share repurchases and dividend increases implemented over the past few years, these acquisitions represent another use of our strong cash flow and balance sheet to reward and build value for our shareholders."

SME card processing volume for the three months ended December 31, 2012 increased 5.0% from the year-ago quarter to $17.6 billion, benefitting from a 1.5% increase in same store sales and 1% increase in new margin installed, while holding volume attrition to 13.3%. Together with strong growth at Heartland School Solutions and other non-card businesses, total net revenue rose 8.4%. The increase in general and administrative expenses in the quarter was held to 6.7%. As a result, fourth quarter 2012 operating margin expanded to 19.3% of net revenue compared to 16.1% in the year ago quarter. The operating margin for the full year was 20.8%, an improvement of 460 basis points over the full year 2011 operating margin of 16.2%, and well above the Company's intermediate-term 20% operating margin target.

Mr. Carr continued, "The convergence of payments and operational systems is creating opportunities to grow by developing innovative new products that simplify and improve business operations for merchants both small and large. We've been developing new products, investing in infrastructure, making acquisitions, building partnerships, and strengthening our management team to assure we have solutions that offer the market's most enduring value for our merchants. Combined with the extensive merchant goodwill Heartland has earned through our commitment to a fair deal and continually improving the industry's largest and most-respected sales organization, we are in a strong position to capitalize on our unique franchise to achieve outstanding growth and build value for our shareholders."


For the full year of 2012, GAAP net income was $65.9 million or $1.64 per share, compared to $43.9 million, or $1.09 per share for the full year of 2011. Net revenue for the full year of 2012 was $543.0 million, up 12.6% compared to the full year of 2011. Adjusted net income and earnings per share for the full year of fiscal 2012 were $75.0 million or $1.87 per share, compared to $50.5 million, or $1.26 per share in the prior year. Year-to-date 2012, share-based compensation expense has reduced pre-tax earnings by $14.2 million or $0.22 per share, compared to $9.5 million, or $0.15 per share, a year ago.


For full year 2013, we expect Net Revenue to grow 10% to 12% to be between approximately $600 million and $610 million, and GAAP EPS to be in the range $1.92 to $1.96, net of after-tax share-based compensation expense of $0.22 per share for the year.


The Company also announced that the Board of Directors has raised the quarterly dividend by 17% to $0.07 per common share. The new, higher dividend is payable March 15, 2013 to shareholders of record on March 4, 2013.


Heartland Payment Systems, Inc. will host a conference call on February 7, 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 also be accessed by calling (888) 438-5491. Please provide the operator with PIN number 6409305. 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 sixth largest payments processor in the United States, delivers credit/debit/prepaid card processing, school solutions, loyalty marketing services, campus solutions, payroll 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,(www.merchantbillofrights.org), a public advocacy initiative that educates merchants about fair credit and debit card processing practices. The company is also a leader in the development of end-to-end encryption technology designed to protect cardholder data, rendering it useless to cybercriminals. For more detailed information, visit www.HeartlandPaymentSystems.com or follow 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, 2011. 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 EndedYear Ended
December 31,December 31,
Total revenues 2012   2011  2012   2011 
$503,401 $471,423 $2,026,559 $1,996,950 
Costs of services:







Dues, assessments and fees49,00941,860199,503155,233
Processing and servicing52,06951,577221,580212,747
Customer acquisition costs10,20110,51843,54746,140
Depreciation and amortization 5,618  3,829  19,890  14,675 
Total costs of services435,617412,2191,768,5581,788,243
General and administrative 41,667  39,057  145,263  130,724 
Total expenses 477,284  451,276  1,913,821  1,918,967 
Income from operations 26,117  20,147  112,738  77,983 
Other income (expense):



Interest income




Interest expense(902)(863)(3,446)(4,125)
Provision for processing system intrusion costs(35)(222)(563)(1,012)
Other, net (24) (770) (949) (1,550)
Total other expense (914) (1,807) (4,706) (6,510)
Income before income taxes25,20318,340108,03271,473
Provision for income taxes 10,046  7,028  41,494  27,126 
Net income15,15711,31266,53844,347
Less: Net income attributable to noncontrolling interests 203  92  649  408 
Net income attributable to Heartland$14,954 $11,220 $65,889 $43,939 
Net income$15,157$11,312$66,538$44,347
Other comprehensive income (loss):

Unrealized gains (losses) on investments, net of income tax of $2, ($3), $21 and ($4)


Unrealized gains (losses) on derivative financial instruments, net of tax of $49, $59, $29 and ($341)

Foreign currency translation adjustment (183) 270  281  (223)
Comprehensive income15,05611,67366,90343,563
Less: Net income attributable to noncontrolling interests 148  173  733  341 
Comprehensive income attributable to Heartland$14,908 $11,500 $66,170 $43,222 
Earnings per common share:

Weighted average number of common shares outstanding:







Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

(In thousands, except share data)


December 31,
Assets 2012   2011 
Current assets:$


Cash and cash equivalents


Funds held for customers131,40542,511
Receivables, net181,352176,535
Investments held to maturity4,4282,505
Prepaid expenses10,5689,660
Current deferred tax assets, net 10,475  6,746 
Total current assets398,909289,750
Capitalized customer acquisition costs, net56,42555,014
Property and equipment, net125,651115,579
Intangible assets, net53,85432,498
Deposits and other assets, net 1,176  681 
Total assets$813,414 $596,921 
Liabilities and Equity
Current liabilities:$


Due to sponsor banks


Accounts payable64,56247,373
Customer fund deposits131,40542,511
Processing liabilities95,35930,689
Current portion of borrowings102,00115,003
Current portion of accrued buyout liability10,4788,104
Accrued expenses and other liabilities48,65550,884
Current tax liabilities 4,580  1,408 
Total current liabilities 494,626  259,853 
Deferred tax liabilities, net29,62621,643
Reserve for unrecognized tax benefits3,0691,819
Long-term portion of borrowings50,00070,000
Long-term portion of accrued buyout liability 24,932  23,554 
Total liabilities 602,253  376,869 
Commitments and contingencies

Common stock, $0.001 par value, 100,000,000 shares authorized, 37,571,708 and 39,626,846 shares issued at December 31, 2012 and 2011; 36,855,908 and 38,847,957 outstanding at December 31, 2012 and 2011

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