Heartland Payment Systems Reports $0.62 Adjusted Earnings Per Share, a First Quarter Record

PRINCETON, N.J.--()--Heartland Payment Systems, Inc. (NYSE: HPY), one of the nation's largest payment processors, today announced record first quarter Adjusted Net Income and Adjusted Earnings per Share of $23.1 million and $0.62, respectively, for the quarter ended March 31, 2015. Adjusted Net Income and Adjusted Earnings per Share were $19.4 million and $0.52, respectively, for the quarter ended March 31, 2014. For the first quarter of 2015, Heartland reported GAAP Net Income of $17.2 million, or $0.46 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 2015 include:

  • New margin installed was an all-time record $21.7 million, a 9.6% increase from the first quarter of 2014
  • Same store sales were up 4.4%, contributing to a reduction of net volume attrition to 9.6%, both the best performance in over five years
  • Small and Mid-Sized Enterprise (SME) quarterly transaction processing volume was $20.8 billion, up 15.6% from $18.0 billion in the first quarter of 2014
  • Quarterly Net Revenue was $190.3 million, up 22.4% from the first quarter of 2014
  • Adjusted Operating Margin for the first quarter of 2015 was 20.7%, compared with 20.9% for the first quarter of 2014

Operating results for the first quarter of 2015 include:

  • Incremental general and administrative expenses of $2.9 million for the Heartland Summit, $0.9 million for Leaf ($3.2 million total for the first quarter) and $1.0 million for costs associated with acquisitions consummated in the period. All impacted first quarter Operating Margin.
  • Stock compensation expense of $4.6 million, an $0.8 million increase
  • Depreciation and amortization expense of $5.0 million for acquired intangibles amortization, a $2.7 million increase
  • A lower effective tax rate due to partial recognition of benefits of past accumulated losses of Leaf; it is expected the tax rate will return to historical levels in the remaining three quarters of this year

Robert O. Carr, Chairman and CEO, said, “For the fifth consecutive quarter, we increased the rate of growth in our processing volume, driving outstanding growth on both the top and bottom line. With another quarter of record new margin installed and growing momentum across all of our business drivers, the investments we have committed to our people and processes are clearly strengthening the Heartland franchise in the market, laying a solid foundation for sustained growth. We're generating the same success in our non-card businesses, where revenue is up nearly 50 percent from both organic growth as well as the rapid integration of acquisitions, including Payroll 1, which we are pleased to welcome to the Heartland team this quarter. The payments and related industries are increasingly recognizing and rewarding innovation, and Heartland remains committed to investing in our technology to continue to improve the utility and security of our products so that our merchants can enhance the productivity and efficiency of their businesses.”

SME card processing volume for the three months ended March 31, 2015 was $20.8 billion, a 15.6% improvement compared to the year-ago period and the fifth consecutive quarter in which the rate of year-over-year card transaction processing growth has accelerated. Core Visa and MasterCard volume processed in the quarter was up 11.4% compared to the year-ago period. Non-card revenue growth in the quarter was 49% compared to the first quarter of 2014, with strong organic growth supplemented by contributions from recent acquisitions. The operating margin in the quarter reflected the Heartland Summit and costs for acquisitions closed in the quarter, as well as a full quarter of operating expenses for Leaf. The expense from the Heartland Summit will not recur over the remainder of this year and Leaf is winding down. In addition, total expenses reflected a 49% increase in total depreciation and amortization, which, including amounts classified as processing and servicing costs, rose to $14.7 million in the quarter from $9.9 million in the first quarter of last year, primarily due to an increase in the amortization of both system development and acquired intangibles.

Mr. Carr continued, “Heartland Commerce is a focal point of our strategy to offer the industry's most compelling integrated electronic payments processing platform with the highest level of security. We are delighted by the enthusiasm the market - including both dealers and merchants - is showing for our offering, and we are making significant progress integrating operations to leverage our resources and market relationships to extend our technological leadership. Through Heartland Commerce, we are bringing the same best-of-both-worlds integration and security enjoyed by larger merchants to the small to mid-sized merchant community through integrated POS technology incorporating our proprietary out-of-scope solution that eliminates risks inherent in integrated POS in the market. Our goal is to build Heartland Commerce into the leading provider of electronic payments solutions that offers not only the most comprehensive functionality, but an uncompromised level of security."

FULL YEAR 2015 GUIDANCE:

For full year 2015, we expect Net Revenue to grow 17% to 19%, to between approximately $790 million and $800 million, and adjusted EPS to be in the range of $2.78- $2.85. Guidance assumes after-tax share-based compensation and acquisition-related amortization expenses reduce earnings per share by $0.66 for the year and an approximate 39% tax rate.

BOARD DECLARES QUARTERLY DIVIDEND

The Company also announced that the Board of Directors declared a quarterly dividend of $0.10 per common share payable June 15, 2015 to shareholders of record on May 28, 2015.

CONFERENCE CALL

Heartland Payment Systems, Inc. will host a conference call on May 1, 2015 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/about/investor-relations. The conference call may be accessed by calling (888)-317-6003. Please provide the operator with PIN number 0530331. The webcast will be archived on the Company's website within two hours of the live call.

ABOUT HEARTLAND

Heartland Payment Systems, Inc. (NYSE: HPY), one of the largest payment processors in the United States, delivers credit/debit/prepaid card processing and security technology through Heartland Secure™ and its comprehensive Heartland breach warranty. Heartland also offers point of sale, mobile commerce, e-Commerce, marketing solutions, payroll solutions, and related business solutions and services to more than 300,000 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.

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, 2014. We undertake no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this release.

TABLES FOLLOW

 

Heartland Payment Systems, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(unaudited)

 
Three Months Ended
March 31,
2015   2014
Total revenues $ 602,459   $ 523,283  
Costs of services:
Interchange 359,340 318,096
Dues, assessments and fees 52,775 49,668
Processing and servicing 77,737 68,609
Customer acquisition costs 14,048 10,250
Depreciation and amortization   10,673     5,812  
Total costs of services 514,573 452,435
General and administrative   58,124     44,486  
Total expenses   572,697     496,921  
Income from operations   29,762     26,362  
Other income (expense):
Interest income 25 32
Interest expense (3,647 ) (1,050 )
Other, net   26     (132 )
Total other expense   (3,596 )   (1,150 )
Income before income taxes 26,166 25,212
Provision for income taxes   8,928     10,300  
Net income 17,238 14,912
Less: Net loss attributable to noncontrolling interests       (828 )
Net income attributable to Heartland $ 17,238   $ 15,740  
 
Earnings per common share:
Basic $ 0.47 $ 0.43
Diluted $ 0.46 $ 0.42
 
Weighted average number of common shares outstanding:
Basic 36,432 36,731
Diluted 37,110 37,735
 
 

Heartland Payment Systems, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(unaudited)

 

Three Months Ended
March 31,

2015   2014
Net income $ 17,238 $ 14,912
Other comprehensive income:
Unrealized gains on investments, net of income tax of $12 and $9 32 12

Unrealized gains on derivative financial instruments, net of income tax of $19 and $28

  32   47  
Comprehensive income 17,302 14,971
Less: Comprehensive loss attributable to noncontrolling interests     (828 )
Comprehensive income attributable to Heartland $ 17,302 $ 15,799  
 
   

Heartland Payment Systems, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(unaudited)

 
March 31,
2015
December 31,
2014
Assets
Current assets:
Cash and cash equivalents $ 44,851 $ 70,793
Funds held for customers 210,122 176,492
Receivables, net 239,252 234,104
Investments 110 106
Inventory 11,272 12,048
Prepaid expenses 23,886 22,658
Current tax assets 16,888 15,082
Current deferred tax assets, net   7,019     9,308  
Total current assets 553,400 540,591
Capitalized customer acquisition costs, net 75,096 73,107
Property and equipment, net 164,792 154,303
Goodwill 475,580 425,712
Intangible assets, net 204,256 192,553
Deposits and other assets, net   1,837     1,507  
Total assets $ 1,474,961   $ 1,387,773  
 
Liabilities and Equity
Current liabilities:
Due to sponsor banks $ 46,777 $ 31,165
Accounts payable 53,664 58,460
Customer fund deposits 210,122 176,492
Processing liabilities 108,649 119,398
Current portion of accrued buyout liability 16,159 15,023
Current portion of borrowings 41,781 36,792
Current portion of unearned revenue 39,016 46,601
Accrued expenses and other liabilities   46,834     41,517  
Total current liabilities 563,002 525,448
Deferred tax liabilities, net 56,499 45,804
Reserve for unrecognized tax benefits 7,706 7,315
Long-term borrowings 547,435 523,122
Long-term portion of accrued buyout liability 30,323 32,970
Long-term portion of unearned revenue   2,366     2,354  
Total liabilities   1,207,331     1,137,013  
Commitments and contingencies
 
Equity
Common stock, $0.001 par value, 100,000,000 shares authorized, 36,562,755 and 36,344,921 shares issued and outstanding at March 31, 2015 and December 31, 2014 37 36
Additional paid-in capital 259,144 255,921
Accumulated other comprehensive loss (66 ) (130 )
Retained earnings (accumulated deficit)   8,515     (5,067 )
Total equity   267,630     250,760  
Total liabilities and equity $ 1,474,961   $ 1,387,773  
 
 

Heartland Payment Systems, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 
Three Months Ended March 31,
2015   2014
Cash flows from operating activities
Net income $ 17,238 $ 14,912
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of capitalized customer acquisition costs 14,155 11,985
Other depreciation and amortization 14,652 9,864
Addition to loss reserves 869 866
Provision for doubtful receivables 655 337
Deferred taxes 7,019 4,205
Share-based compensation 4,649 3,838
Write off of fixed assets and other 431 225
Changes in operating assets and liabilities:
Increase in receivables (3,606 ) (1,959 )
Decrease in inventory 926 163
Payment of signing bonuses, net (10,041 ) (8,055 )
Increase in capitalized customer acquisition costs (6,103 ) (5,531 )
Decrease in current tax assets 1,627 5,737
Increase in prepaid expenses, deposits and other assets (1,088 ) (1,314 )
Excess tax benefits on employee share-based compensation (3,481 ) (2,174 )
Increase in reserve for unrecognized tax benefits 391 390
Increase in due to sponsor banks 15,612 30,335
Decrease in accounts payable (5,535 ) (6,871 )
Decrease in unearned revenue (10,148 ) (9,390 )
Decrease in accrued expenses and other liabilities (4,107 ) (3,681 )
Decrease in processing liabilities (11,653 ) (30,597 )
Payouts of accrued buyout liability (7,507 ) (1,875 )
Increase in accrued buyout liability   5,996     3,796  
Net cash provided by operating activities   20,951     15,206  
 
Cash flows from investing activities
Decrease (increase) in funds held for customers 12,645 (28,160 )
(Decrease) increase in customer fund deposits (12,645 ) 28,182
Acquisitions of businesses, net of cash acquired (60,890 ) (3,250 )
Capital expenditures   (15,909 )   (12,846 )
Net cash used in investing activities   (76,799 )   (16,074 )
 
Cash flows from financing activities
Proceeds from borrowings 108,000 30,000
Principal payments on borrowings (78,687 )
Proceeds from exercise of stock options 768 246
Excess tax benefits on employee share-based compensation 3,481 2,174
Repurchases of common stock (27,237 )
Dividends paid on common stock   (3,656 )   (3,102 )
Net cash provided by financing activities   29,906     2,081  
 
Net (decrease) increase in cash (25,942 ) 1,213
Cash at beginning of year   70,793     71,932  
Cash at end of period $ 44,851   $ 73,145  
 

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 within the meaning of Regulation G promulgated by the Securities and Exchange Commission. 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. 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 months ended March 31, 2015 and 2014 follows (in thousands except per share data):

 
Three Months Ended March 31, 2015
  GAAP  

Acquisition-
related
Amortization

 

Share-based
Compensation

 

Adjusted
Non-GAAP

Income from operations $ 29,762 $ 4,962 $ 4,649 $ 39,373
Operating margin (a) 15.6 % 20.7 %
 
Net income attributable to Heartland $ 17,238 $ 3,034 $ 2,842 $ 23,114
 
Diluted earnings per share $ 0.46 $ 0.08 $ 0.08 $ 0.62
Diluted shares used in computing earnings per share 37,110 37,110
 
 
Three Months Ended March 31, 2014
GAAP

Acquisition-
related
Amortization

Share-based
Compensation

Adjusted
Non-GAAP

Income from operations $ 26,362 $ 2,310 $ 3,838 $ 32,510
Operating margin (a) 17.0 % 20.9 %
 
Net income attributable to Heartland $ 15,740 $ 1,366 $ 2,270 $ 19,376
 
Diluted earnings per share $ 0.42 $ 0.04 $ 0.06 $ 0.52
Diluted shares used in computing earnings per share 37,735 37,735
 

(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.

 

Contacts

Gregory FCA Communications
Joe Hassett, 610-228-2110
Heartland_ir@gregoryfca.com

Contacts

Gregory FCA Communications
Joe Hassett, 610-228-2110
Heartland_ir@gregoryfca.com