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

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."

FULL YEAR 2013 GUIDANCE:

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.

BOARD DECLARES QUARTERLY DIVIDEND; SHARE REPURCHASE PROGRAM UPDATE

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.

CONFERENCE CALL:

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)

(unaudited)

Three Months Ended

March 31,

2013

2012

Total revenues

$

501,239

$

467,576

Costs of services:

Interchange

307,072

297,948

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

34

104

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

3

11

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)

(unaudited)

March 31,

December 31,

Assets

2013

2012

Current assets:

$

Cash and cash equivalents

37,504

$

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

$

846,998

$

813,414

Liabilities and Equity

Current liabilities:

$

Due to sponsor banks

1,749

$

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

Equity

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)

(unaudited)

Three Months Ended March 31,

2013

2012

Cash flows from operating activities

$

Net income

19,615

$

13,852

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of capitalized customer acquisition costs

11,256

11,197

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: