Record New Margin Installed Leads to
Acceleration in Rate of Growth of Card Transaction Processing
Volume and Net Revenue
Agreement to Acquire TouchNet Information
Systems, Inc. will establish Heartland as the leader in the higher
education payments market
Heartland Payment Systems (NYSE: HPY), one of the nation's
largest payment processors and leading provider of
merchant business solutions, today 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."
SIX MONTH RESULTS:
Adjusted Net Income from continuing operations and related
earnings per share for the first half of fiscal 2014 was $40.6
million or $1.09 per share, compared to Adjusted Net Income from
continuing operations of $42.5 million or $1.12 per share,
respectively, in the first half of fiscal 2013. Net revenue for the
first half of 2014 was $314.9 million, up 6.2% compared to $296.6
million for the first half of 2013. For the first six months of
2014, GAAP net income was $33.2 million, or $0.89 per share,
compared to GAAP net income from continuing operations of $35.3
million or $0.93 per share for the first half of 2013. Year-to-date
2014, share-based compensation and acquisition related amortization
expense have reduced net income by $7.4 million, or $0.20 per
share, compared to $7.2 million, or $0.19 per share, in the first
half of 2013.
FULL YEAR 2014 GUIDANCE:
For full year 2014, we expect Net Revenue to grow 8% to 10% to
between approximately $645 million and $660 million, and adjusted
EPS to be in the range of $2.33 - $2.37. Guidance assumes after-tax
share-based compensation and acquisition-related amortization
expenses, before TouchNet amortization, reduce earnings per share
by $0.41 for the year and an effective tax rate above 40%, due to
the non-deductibility of the Company's proportionate share of
Leaf's operating losses. Guidance for the year reflects a reduction
of $0.17 per share for Leaf’s operating losses. Guidance does not
reflect any benefits from the acquisition of TouchNet. The
anticipated impact from the acquisition of TouchNet over the
balance of 2014, including associated transaction costs, is
expected to be slightly accretive on an adjusted basis.
BOARD DECLARES QUARTERLY DIVIDEND; SHARE REPURCHASE PROGRAM
UPDATE
The Company also announced that on July 31, 2014, the Board of
Directors declared a quarterly dividend of $0.085 per common share
payable September 15, 2014 to shareholders of record on August 25,
2014. In the second quarter, the Company repurchased approximately
652,000 shares for $25.8 million, completing the $75 million share
repurchase plan authorized by the Board in May 2013.
CONFERENCE CALL:
Heartland Payment Systems, Inc. will host a conference call on
August 1, 2014 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)-317-6003. Please provide the
operator with PIN number 7969889. 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, mobile
commerce, e-commerce, marketing solutions, security
technology, payroll solutions, and related business solutions
and services to more than 275,000 business and educational
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
at 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, 2013. 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
(In thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30, 2014 2013
2014 2013 Total revenues $
582,859 $ 546,624
$ 1,106,142
$ 1,047,863 Costs of services: Interchange
367,773 345,233
685,869 652,305 Dues, assessments and
fees
55,686 51,649
105,354 98,981 Processing and
servicing
67,048 58,376
135,657 117,773 Customer
acquisition costs
12,368 9,983
22,618 20,716
Depreciation and amortization
6,679 4,522
12,491 8,612 Total costs of services
509,554 469,763
961,989 898,387 General and
administrative
43,374 43,531
87,860
89,371
Total expenses 552,928
513,294
1,049,849 987,758 Income from
operations
29,931 33,330
56,293
60,105
Other income (expense): Interest income
30 32
62 66 Interest expense
(1,258 )
(1,269 )
(2,308 ) (2,503 ) Other, net
420
(70 )
288 (160 )
Total other expense
(808 ) (1,307 )
(1,958 ) (2,597 )
Income from continuing operations before income taxes
29,123
32,023
54,335 57,508 Provision for income taxes
12,552 12,342
22,852 22,182
Net income from continuing operations 16,571
19,681
31,483 35,326
Income from discontinued operations, net
of income tax of $—, $—, $— and $2,135
— —
— 3,970
Net
income 16,571 19,681
31,483 39,296
Less: Net (loss) income attributable to
noncontrolling interests
Continuing operations
(881 ) —
(1,709 )
— Discontinued operations
— —
—
56
Net income attributable to Heartland $
17,452 $ 19,681
$ 33,192
$ 39,240
Amounts attributable to Heartland:
Net income from continuing operations, net of noncontrolling
interests
$ 17,452 $ 19,681
$ 33,192 $
35,326
Income from discontinued operations, net
of income tax and noncontrolling interests
— —
— 3,914 Net income
attributable to Heartland
$ 17,452 $ 19,681
$ 33,192 $ 39,240
Basic earnings per share: Income from continuing operations
$ 0.49 $ 0.54
$ 0.91 $ 0.96 Income from
discontinued operations
— —
—
0.11 Basic earnings per share
$ 0.49 $
0.54
$ 0.91 $ 1.07
Diluted earnings per share: Income from continuing
operations
$ 0.48 $ 0.53
$ 0.89 $ 0.93
Income from discontinued operations
— —
— 0.10 Diluted earnings per share
$
0.48 $ 0.53
$ 0.89 $ 1.03
Weighted average number of common shares
outstanding: Basic
35,936 36,153
36,350 36,698
Diluted
36,734 37,439
37,250 38,108
Heartland Payment Systems, Inc. and
Subsidiaries
Condensed Consolidated Statements of
Comprehensive Income
(In thousands)
(unaudited)
Three Months Ended Six Months Ended June
30, June 30, 2014 2013 2014
2013 Net income $ 16,571
$ 19,681
$ 31,483 $ 39,296 Other comprehensive income
(loss):
Reclassification of gains on investments
net of income tax of $103, $—, $103 and $—
(164 ) —
(164 ) —
Unrealized gains on investments, net of
tax of income tax $1, $—, $10 and $4
2 1
14 4
Unrealized gains on derivative financial
instruments, net of income tax of $27, $53, $55 and $96
48 83
95 163 Foreign currency translation adjustment
— —
— (54 )
Comprehensive
income 16,457 19,765
31,428 39,409
Less: Comprehensive (loss) income
attributable to noncontrolling interests
(881 ) —
(1,709 ) 40
Comprehensive income attributable to Heartland $
17,338 $ 19,765
$ 33,137
$ 39,369
Heartland Payment Systems, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(In thousands, except share data)
(unaudited)
June 30, December 31, 2014 2013
Assets Current assets: Cash and cash equivalents
$
53,839 $ 71,932 Funds held for customers
131,448
127,375 Receivables, net
212,559 200,040 Investments
4,112 4,101 Inventory
10,351 11,087 Prepaid expenses
17,898 15,284 Current tax assets
17,789 10,426
Current deferred tax assets, net
7,715 9,548
Total current assets
455,711 449,793 Capitalized customer
acquisition costs, net
66,433 61,027 Property and equipment,
net
155,770 147,388 Goodwill
204,737 190,978
Intangible assets, net
50,103 49,857 Deposits and other
assets, net
1,206 1,262 Total assets
$
933,960 $ 900,305
Liabilities and
Equity Current liabilities: Due to sponsor banks
$
58,774 $ 19,109 Accounts payable
70,767 70,814
Customer fund deposits
131,448 127,375 Processing
liabilities
107,108 130,871 Current portion of accrued
buyout liability
12,901 13,943 Accrued expenses and other
liabilities
28,941 49,861 Total current
liabilities
409,939 411,973 Deferred tax liabilities, net
43,910 40,600 Reserve for unrecognized tax benefits
6,739 5,633 Long-term borrowings
200,000 150,000
Long-term portion of accrued buyout liability
28,367
25,436 Total liabilities
688,955 633,642
Commitments and contingencies
— —
Equity
Common stock, $0.001 par value,
100,000,000 shares authorized, 35,936,313 and 37,485,486 shares
issued at June 30, 2014 and December 31, 2013; 35,936,313 and
36,950,886 outstanding at June 30, 2014 and December 31, 2013
36 37 Additional paid-in capital
240,209 245,055
Accumulated other comprehensive loss
(143 ) (88 )
Retained earnings
424 35,960 Treasury stock, at cost
(534,600 shares at December 31, 2013)
— (20,489 )
Total stockholders’ equity
240,526 260,475 Noncontrolling
interests
4,479 6,188 Total equity
245,005 266,663 Total liabilities and equity
$ 933,960 $ 900,305
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Six Months Ended June 30, 2014
2013 Cash flows from operating activities Net income
$ 31,483 $ 39,296 Adjustments to reconcile net income
to net cash provided by operating activities: Amortization of
capitalized customer acquisition costs
24,930 22,478 Other
depreciation and amortization
20,854 16,268 Addition to loss
reserves
2,057 1,282 Provision (recoveries) for doubtful
receivables
2,003 (187 ) Deferred taxes
7,260 5,447
Share-based compensation
7,542 7,138 Gain on sale of assets
(259
)
(3,786 ) Write off of fixed assets and other
479 133 Changes
in operating assets and liabilities: Increase in receivables
(14,197 ) (56,662 ) Decrease (increase) in inventory
740 (272 ) Payment of signing bonuses, net
(18,179
) (12,080 ) Increase in capitalized customer acquisition
costs
(12,157 ) (10,121 ) Increase in prepaid
expenses
(2,524 ) (2,085 ) Increase in current tax
assets
(3,969 ) (7,336 ) Decrease (increase) in
deposits and other assets
36 (692 ) Excess tax benefits on
employee share-based compensation
(3,394 ) (6,536 )
Increase in reserve for unrecognized tax benefits
1,106 748
Increase (decrease) in due to sponsor banks
39,665 (36,904 )
(Decrease) increase in accounts payable
(51 ) 6,494
Decrease in accrued expenses and other liabilities
(25,271
) (14,026 ) (Decrease) increase in processing liabilities
(25,821 ) 82,188 Payouts of accrued buyout liability
(7,956 ) (10,450 ) Increase in accrued buyout
liability
9,845 8,359 Net cash provided by
operating activities
34,222 28,694
Cash
flows from investing activities Purchase of investments
(16,017 ) (1,224 ) Sales of investments
2,215
— Maturities of investments
— 816 Increase in funds held for
customers
9,736 21,096 Increase (decrease) in customer fund
deposits
4,073 (21,089 ) Proceeds from sale of business
— 19,343 Acquisitions of businesses, net of cash acquired
(20,493 ) — Capital expenditures
(25,952
) (23,445 ) Net cash used in investing activities
(46,438 ) (4,503 )
Cash flows from financing
activities Proceeds from borrowings
60,000 9,000
Principal payments on borrowings
(10,000 ) (10,000 )
Proceeds from exercise of stock options
1,337 7,809 Excess
tax benefits on employee share-based compensation
3,394
6,536 Repurchases of common stock
(54,455 ) (34,217 )
Dividends paid on common stock
(6,153 ) (5,151 ) Net
cash used in financing activities
(5,877 ) (26,023 )
Net decrease in cash
(18,093 ) (1,832 ) Effect
of exchange rates on cash
— 1 Cash at beginning of year
71,932 50,581 Cash at end of period
$
53,839 $ 48,750
Reconciliation of Non-GAAP Financial Measures And Regulation
G Disclosure
To supplement its consolidated financial statements presented in
accordance with accounting principles generally accepted in the
United States (“GAAP”), the Company provides additional measures of
its operating results on a continuing operations basis, namely
income from operations, operating margin, net income and earnings
per share, which exclude acquisition-related amortization expense
and share-based compensation expense. These measures meet the
definition of a non-GAAP financial measure. The Company believes
that application of these non-GAAP financial measures is
appropriate to enhance understanding of its historical performance,
its performance relative to its competitors, as well as prospects
for its future performance.
This press release contains non-GAAP financial measures within
the meaning of Regulation G promulgated by the Securities and
Exchange Commission. Pursuant to Regulation G, a reconciliation of
these non-GAAP financial measures with the comparable financial
measures calculated in accordance with GAAP for the three and six
months ended June 30, 2014 and 2013 follows (in thousands except
per share data):
Acquisition- related
Share-based Adjusted Three Months Ended June 30,
2014 GAAP Amortization Compensation
Non-GAAP Income from Operations
$ 29,931
$ 2,600 $ 3,704 $ 36,235
Operating Margin (a)
18.8 % 22.7 % Net
Income From Continuing Operations
$ 17,452 $
1,479 $ 2,108 $ 21,039 Diluted
Earnings Per Share From Continuing Operations
$ 0.48
$ 0.04 $ 0.06 $ 0.58
Diluted Shares Used in Computing Earnings
Per Share From Continuing Operations
36,734 36,734 Acquisition-
related Share-based Adjusted Three Months
Ended June 30, 2013 GAAP Amortization
Compensation Non-GAAP Income from Operations $ 33,330
$ 2,254 $ 3,272 $ 38,856 Operating Margin (a) 22.3 % 25.9 % Net
Income From Continuing Operations $ 19,681 $ 1,385 $ 2,011 $ 23,077
Diluted Earnings Per Share From Continuing Operations $ 0.53 $ 0.04
$ 0.05 $ 0.62
Diluted Shares Used in Computing Earnings
Per Share From Continuing Operations
37,439 37,439
Acquisition- related
Share-based Adjusted Six Months Ended June 30,
2014 GAAP Amortization Compensation
Non-GAAP Income from Operations
$ 56,293
$ 4,910 $ 7,542 $ 68,745
Operating Margin (a)
17.9 % 21.8 % Net
Income From Continuing Operations
$ 33,192 $
3,005 $ 4,378 $ 40,575 Diluted
Earnings Per Share From Continuing Operations
$ 0.89
$ 0.08 $ 0.12 $ 1.09
Diluted Shares Used in Computing Earnings
Per Share From Continuing Operations
37,250 37,250 Acquisition-
related Share-based Adjusted Six Months
Ended June 30, 2013 GAAP Amortization
Compensation Non-GAAP Income from Operations $ 60,105
$ 4,531 $ 7,138 $ 71,774 Operating Margin (a) 20.3 % 24.2 % Net
Income From Continuing Operations $ 35,326 $ 2,783 $ 4,384 $ 42,493
Diluted Earnings Per Share From Continuing Operations $ 0.93 $ 0.07
$ 0.12 $ 1.12
Diluted Shares Used in Computing Earnings
Per Share From Continuing Operations
38,108 38,108 (a)
Operating Margin is measured as Income
from Operations divided by Net Revenue. Net Revenue is defined as
total revenues less interchange fees and dues, assessments and
fees.
Gregory FCA CommunicationsJoe Hassett, 610-228-2110Heartland_ir@gregoryfca.com
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