Heartland Payment Systems Reports Second Quarter Results

Heartland Payment Systems, has announced Adjusted Net Income and Adjusted Earnings per Share of $21.0 million and $0.58, respectively, for the quarter ended June 30, 2014, compared to Adjusted Net Income and Adjusted Earnings per Share of $23.1 million and $0.62, respectively, for the quarter ended June 30, 2013. GAAP net income for the quarter ended June 30, 2014 was $17.5 million, or $0.48 per share, compared to Net Income and Earnings per Share of $19.7 million and $0.53, respectively, for the quarter ended June 30, 2013. 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.”

In July, Heartland announced its agreement to acquire TouchNet Information Systems, Inc., a pioneer in delivering innovative payments solutions, which will make the Company the largest provider of commerce solutions to the higher education market.

Highlights for the second quarter of 2014 include:

  • The seventh consecutive quarter of new margin installed growth, up 18.7% from a year ago to $20.8 million
  • Record Small and Mid-Sized Enterprise (SME) quarterly transaction processing volume of $20.4 billion, up 5.6% from the second quarter of 2013
  • Record Quarterly Net Revenue of $159.4 million, up 6.4% from the second quarter of 2013
  • Operating Margin on Net Revenue of 18.8% compared to 22.3% for the same quarter in 2013. Excluding the impact of Leaf discussed below, the operating margin was 20.6% in this year’s second quarter
  • Same store sales rose 2.4% and volume attrition was 12.6% in this year’s second quarter
  • One time impact of a prior period billing error reduced operating margin by 140 basis points and Earnings per Share by $0.04.

Robert O. Carr, Chairman and CEO, said, “Second quarter results were led by an acceleration in the rate of growth in card transaction processing volume and revenue as a result of our strong new business momentum. New margin installed set another record this quarter, for the first time exceeding $20 million in a quarter, a clear sign that our value proposition is resonating with merchants and our sales efficiency is continuing to improve. Transaction processing volume and card revenue growth were also aided by a rebound in same store sales growth. And, our non-card businesses continued to deliver growth rates that help propel the Company forward. The operating margin continues to reflect our investment in both Leaf and other new growth initiatives broadly across the organization. In a year that is focused on capitalizing on the emerging opportunities of an industry that is increasingly integral to the economy, we are making significant progress developing new products that will guide our future growth, while simultaneously achieving attractive current returns.”

SME card processing volume for the three months ended June 30, 2014 was $20.4 billion, a 5.6% improvement compared to the year-ago period and the fastest rate of processing volume growth since the third quarter of 2012. The increase in the processing volume growth rate represents the cumulative effect of the growth in new margin installed over the past year, strong same store sales and improved retention of our customers. The increase in total net revenue in the quarter was primarily attributable to strong organic card and non-card revenue growth. Compared to a year ago, operating margins include the loss attributable to the Company’s investment in Leaf, as well as the additional investment spending on growth initiatives budgeted for this year. In the quarter, Leaf’s results reduced the operating margin by 180 basis points and earnings by $0.05 per share. Since we cannot deduct Leaf’s loss, taxes had to be accrued at a 43.1% rate in the quarter. Also, the operating income was reduced by $2.3 million as a result of a billing error that occurred in the prior year in our Heartland School Solutions business. This reduced our operating margin in the current quarter by 140 basis points and our Earnings per Share by $0.04.

Mr. Carr continued, “This quarter we achieved the acceleration in the rate of transaction processing volume and card revenue growth that could be naturally anticipated from our consecutive quarters of record new margin installed. The strength of our core card transaction processing operations is providing the foundation for our wider participation in the growth opportunities emerging as a result of the rapid expansion of the entire electronic payments industry. In July, we announced our agreement to acquire TouchNet, consistent with our strategy to expand horizontally into adjacent and complementary markets that leverage our core capabilities, and offer outstanding growth opportunities. TouchNet will be integrated into our Campus Solutions business where we will now be the largest provider of integrated commerce solutions to the higher education market. In addition to its ideal fit with Campus Solutions, TouchNet also shares Heartland’s philosophy of transparency and merchant advocacy, which will further strengthen our franchise and build value for shareholders.”