Heartland Payment Systems 90 Nassau Street
Princeton, NJ 08542 888.798.3131
HeartlandPaymentSystems.com
HEARTLAND PAYMENT SYSTEMS REPORTS FIRST QUARTER 2014 ADJUSTED EARNINGS PER SHARE INCREASE TO $0.52
Princeton, NJ - April 30, 2014 - Heartland Payment Systems, Inc. (NYSE: HPY), one of the nation's largest payment processors, today announced Adjusted Net Income and Adjusted Earnings per Share from continuing operations of $19.4 million and $0.52, respectively, for the quarter ended March 31, 2014. Adjusted Net Income and Adjusted Earnings per Share from continuing operations for the quarter ended March 31, 2013 were $19.4 million and $0.51, respectively. 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 2014 include:
| |
| • | New margin installed was an all-time record $19.8 million, a 24.3% increase from the first quarter of 2013 |
| |
| • | Small and Mid-Sized Enterprise (SME) quarterly transaction processing volume of $18.0 billion, up 3.7% from $17.3 billion in the first quarter of 2013 |
| |
| • | Quarterly Net Revenue of $155.5 million, up 5.9% from the first quarter of 2013 |
| |
| • | Operating Margin on Net Revenue of 17.0% compared to 18.2% for the same quarter in 2013. Excluding the impact of Leaf, the operating margin increased to 18.7% in the quarter |
| |
| • | Same store sales fell 0.2%, while volume attrition was 15.0% |
| |
| • | Leaf’s results reduced earnings by $0.05 per share |
Robert O. Carr, Chairman and CEO, said, “We continue to deliver record earnings, notwithstanding the negative impact of the severe winter weather on the entire industry. The continued success of our new business initiatives produced all-time record new margin installed for the third consecutive quarter and our first ever $7 million month in March. The strong momentum of our sales efforts will begin to drive faster card processing volume and associated revenue growth as we move through the year. Our results also reflected strong growth in our non-card businesses, and increased margins in our core businesses helped by disciplined expense management. Overall, these first quarter results are encouraging. Our success is a sign of the market's increasing awareness of the complexity of card processing and the corresponding need to find a trusted, knowledgeable partner. This growing recognition builds great value both in our franchise and for our shareholders.”
SME card processing volume for the three months ended March 31, 2014 was $18.0 billion, a 3.7% improvement compared to the year-ago period. Card processing volume reflected an extension of our streak of better than $6 million per month of new margin installed by another three months, offset by lower same store sales and higher volume attrition. The increase in net revenue reflected growth in both card and non-card businesses. Non-card net revenue growth in the quarter was above card, as anticipated, and all organic which raised non-card net revenue to 30.7% of total net revenue. Results in the quarter reflected a $0.05 per share loss on the investment in Leaf and a related increase in the effective tax rate to above 40%.
Mr. Carr continued, “While it is has been widely reported that severe winter weather had an adverse impact on consumer spending in the first quarter, probably even more pronounced at Main Street merchants, our relationship managers were nevertheless successful in fighting the elements, signing up new merchants and extending our streak of double-digit new margin installed growth. With the recent purchase of MCS Software, we are also continuing to execute on our selective acquisition strategy, which in the card-related businesses is focused on layering in targeted new payment applications. In an industry that has become increasingly complex and interdependent, our open platform is ideally positioned to integrate best of breed technologies that simplify the customer experience and provide merchants with the practical tools they need to grow their business."
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 $2.37- $2.41. Guidance assumes after-tax share-based compensation and acquisition-related amortization expenses reduce earnings per share by $0.43 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. The earnings reduction from our investment in Leaf, which is reflected in this guidance, is expected to be $0.14 in 2014.
BOARD DECLARES QUARTERLY DIVIDEND; SHARE REPURCHASE PROGRAM UPDATE
The Company also announced that the Board of Directors declared a quarterly dividend of $0.085 per common share payable June 13, 2014 to shareholders of record on May 23, 2014. In the first quarter, the Company repurchased approximately 696,000 shares for $28.7 million under our Board authorized $75 million share repurchase plan.
CONFERENCE CALL:
Heartland Payment Systems, Inc. will host a conference call on April 30, 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 2126175. 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, 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.
Contact
Joe Hassett
Gregory FCA Communications
27 West Athens Ave.
Ardmore, PA 19003
Tel: 610-228-2110
Email: Heartland_ir@gregoryfca.com
TABLES FOLLOW
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, |
| | 2014 | | 2013 |
| Total revenues | $ | 523,283 |
| | $ | 501,239 |
|
| Costs of services: | | | |
| Interchange | 318,096 |
| | 307,072 |
|
| Dues, assessments and fees | 49,668 |
| | 47,332 |
|
| Processing and servicing | 68,609 |
| | 59,397 |
|
| Customer acquisition costs | 10,250 |
| | 10,733 |
|
| Depreciation and amortization | 5,812 |
| | 4,090 |
|
| Total costs of services | 452,435 |
| | 428,624 |
|
| General and administrative | 44,486 |
| | 45,840 |
|
| Total expenses | 496,921 |
| | 474,464 |
|
| Income from operations | 26,362 |
| | 26,775 |
|
| Other income (expense): | | | |
| Interest income | 32 |
| | 34 |
|
| Interest expense | (1,050 | ) | | (1,234 | ) |
| Other, net | (132 | ) | | (90 | ) |
| Total other expense | (1,150 | ) | | (1,290 | ) |
| Income from continuing operations before income taxes | 25,212 |
| | 25,485 |
|
| Provision for income taxes | 10,300 |
| | 9,840 |
|
| Net income from continuing operations | 14,912 |
| | 15,645 |
|
| Income from discontinued operations, net of income tax of $2,135 | — |
| | 3,970 |
|
| Net income | 14,912 |
| | 19,615 |
|
| Less: Net income (loss) attributable to noncontrolling interests | | | |
| Continuing operations | (828 | ) | | — |
|
| Discontinued operations | — |
| | 56 |
|
| Net income attributable to Heartland | $ | 15,740 |
| | $ | 19,559 |
|
| | | | |
| Amounts Attributable to Heartland: | | | |
| Net income from continuing operations, net of noncontrolling interests | $ | 15,740 |
| | $ | 15,645 |
|
| Income from discontinued operations, net of income tax and noncontrolling interests | — |
| | 3,914 |
|
| Net income attributable to Heartland | $ | 15,740 |
| | $ | 19,559 |
|
| | | | |
| Net income | $ | 14,912 |
| | $ | 19,615 |
|
| Other comprehensive income (loss): | | | |
| Unrealized gains on investments, net of income tax of $9 and $4 | 12 |
| | 3 |
|
| Unrealized gains on derivative financial instruments, net of tax of $28 and $43 | 47 |
| | 80 |
|
| Foreign currency translation adjustment | — |
| | (54 | ) |
| Comprehensive income | 14,971 |
| | 19,644 |
|
| Less: Comprehensive (loss) income attributable to noncontrolling interests | (828 | ) | | 40 |
|
| Comprehensive income attributable to Heartland | $ | 15,799 |
| | $ | 19,604 |
|
| | | | |
| Basic earnings per share: | | | |
| Income from continuing operations | $ | 0.43 |
| | $ | 0.42 |
|
| Income from discontinued operations | — |
| | 0.11 |
|
| Basic earnings per share | $ | 0.43 |
| | $ | 0.53 |
|
| | | | |
| Diluted earnings per share: | | | |
| Income from continuing operations | $ | 0.42 |
| | $ | 0.41 |
|
| Income from discontinued operations | — |
| | 0.10 |
|
| Diluted earnings per share | $ | 0.42 |
| | $ | 0.51 |
|
| | | | |
| Weighted average number of common shares outstanding: | | | |
| Basic | 36,731 |
| | 36,841 |
|
| Diluted | 37,735 |
| | 38,374 |
|
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited) |
| | | | | | | |
| | March 31,
2014 | | December 31,
2013 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 73,145 |
| | $ | 71,932 |
|
| Funds held for customers | 155,557 |
| | 127,375 |
|
| Receivables, net | 201,662 |
| | 200,040 |
|
| Investments | 4,094 |
| | 4,101 |
|
| Inventory | 10,928 |
| | 11,087 |
|
| Prepaid expenses | 16,720 |
| | 15,284 |
|
| Current tax assets | 6,863 |
| | 10,426 |
|
| Current deferred tax assets, net | 6,788 |
| | 9,548 |
|
| Total current assets | 475,757 |
| | 449,793 |
|
| Capitalized customer acquisition costs, net | 62,628 |
| | 61,027 |
|
| Property and equipment, net | 151,803 |
| | 147,388 |
|
| Goodwill | 191,145 |
| | 190,978 |
|
| Intangible assets, net | 48,821 |
| | 49,857 |
|
| Deposits and other assets, net | 1,130 |
| | 1,262 |
|
| Total assets | $ | 931,284 |
| | $ | 900,305 |
|
| | | | |
| Liabilities and Equity | | | |
| Current liabilities: | | | |
| Due to sponsor banks | $ | 49,443 |
| | $ | 19,109 |
|
| Accounts payable | 65,375 |
| | 70,814 |
|
| Customer fund deposits | 155,557 |
| | 127,375 |
|
| Processing liabilities | 101,089 |
| | 130,871 |
|
| Current portion of accrued buyout liability | 14,015 |
| | 13,943 |
|
| Accrued expenses and other liabilities | 40,498 |
| | 49,861 |
|
| Total current liabilities | 425,977 |
| | 411,973 |
|
| Deferred tax liabilities, net | 40,003 |
| | 40,600 |
|
| Reserve for unrecognized tax benefits | 6,022 |
| | 5,633 |
|
| Long-term borrowings | 180,000 |
| | 150,000 |
|
| Long-term portion of accrued buyout liability | 27,285 |
| | 25,436 |
|
| Total liabilities | 679,287 |
| | 633,642 |
|
| Commitments and contingencies | — |
| | — |
|
| | | | |
| Equity | | | |
| Common stock, $0.001 par value, 100,000,000 shares authorized, 37,666,727 and 37,485,486 shares issued at March 31, 2014 and December 31, 2013; 36,436,572 and 36,950,886 outstanding at March 31, 2014 and December 31, 2013 | 37 |
| | 37 |
|
| Additional paid-in capital | 247,188 |
| | 245,055 |
|
| Accumulated other comprehensive loss | (29 | ) | | (88 | ) |
| Retained earnings | 48,598 |
| | 35,960 |
|
| Treasury stock, at cost (1,230,155 and 534,600 shares at March 31, 2014 and December 31, 2013) | (49,157 | ) | | (20,489 | ) |
| Total stockholders’ equity | 246,637 |
| | 260,475 |
|
| Noncontrolling interests | 5,360 |
| | 6,188 |
|
| Total equity | 251,997 |
| | 266,663 |
|
| Total liabilities and equity | $ | 931,284 |
| | $ | 900,305 |
|
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited) |
| | | | | | | |
| | Three Months Ended March 31, |
| | 2014 | | 2013 |
| Cash flows from operating activities | | | |
| Net income | $ | 14,912 |
| | $ | 19,615 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
| Amortization of capitalized customer acquisition costs | 11,985 |
| | 11,256 |
|
| Other depreciation and amortization | 9,864 |
| | 7,214 |
|
| Addition to loss reserves | 866 |
| | 802 |
|
| Provision (recoveries) for doubtful receivables | 337 |
| | (292 | ) |
| Deferred taxes | 4,205 |
| | 1,251 |
|
| Share-based compensation | 3,838 |
| | 3,866 |
|
| Gain on sale of business | — |
| | (3,786 | ) |
| Write off of fixed assets and other | 225 |
| | 57 |
|
| Changes in operating assets and liabilities: | | | |
| Increase in receivables | (1,959 | ) | | (45,664 | ) |
| Decrease (increase) in inventory | 163 |
| | (608 | ) |
| Payment of signing bonuses, net | (8,055 | ) | | (5,780 | ) |
| Increase in capitalized customer acquisition costs | (5,531 | ) | | (4,798 | ) |
| Increase in prepaid expenses | (1,436 | ) | | (3,128 | ) |
| Decrease in current tax assets | 5,737 |
| | 598 |
|
| Decrease (increase) in deposits and other assets | 122 |
| | (1,054 | ) |
| Excess tax benefits on employee share-based compensation | (2,174 | ) | | (1,753 | ) |
| Increase in reserve for unrecognized tax benefits | 390 |
| | 317 |
|
| Increase (decrease) in due to sponsor banks | 30,335 |
| | (35,836 | ) |
| (Decrease) increase in accounts payable | (6,871 | ) | | 4,051 |
|
| Decrease in accrued expenses and other liabilities | (13,071 | ) | | (14,197 | ) |
| (Decrease) increase in processing liabilities | (30,597 | ) | | 64,803 |
|
| Payouts of accrued buyout liability | (1,875 | ) | | (2,929 | ) |
| Increase in accrued buyout liability | 3,796 |
| | 4,275 |
|
| Net cash provided by (used in) operating activities | 15,206 |
| | (1,720 | ) |
| | | | |
| Cash flows from investing activities | | | |
| Purchase of investments | — |
| | (609 | ) |
| Maturities of investments | — |
| | 201 |
|
| Increase in funds held for customers | (28,160 | ) | | (10,599 | ) |
| Increase in customer fund deposits | 28,182 |
| | 10,606 |
|
| Acquisitions of businesses, net of cash acquired | (3,250 | ) | | — |
|
| Proceeds from sale of business | — |
| | 19,343 |
|
| Purchases of property and equipment | (12,846 | ) | | (11,351 | ) |
| Net cash (used in) provided by investing activities | (16,074 | ) | | 7,591 |
|
| | | | |
| Cash flows from financing activities | | | |
| Proceeds from borrowings | 30,000 |
| | — |
|
| Principal payments on borrowings | — |
| | (5,000 | ) |
| Proceeds from exercise of stock options | 246 |
| | 1,158 |
|
| Excess tax benefits on employee share-based compensation | 2,174 |
| | 1,753 |
|
| Repurchases of common stock | (27,237 | ) | | (14,280 | ) |
| Dividends paid on common stock | (3,102 | ) | | (2,580 | ) |
| Net cash provided by (used in) financing activities | 2,081 |
| | (18,949 | ) |
| | | | |
| Net increase (decrease) in cash | 1,213 |
| | (13,078 | ) |
| Effect of exchange rates on cash | — |
| | 1 |
|
| Cash at beginning of year | 71,932 |
| | 50,581 |
|
| Cash at end of period | $ | 73,145 |
| | $ | 37,504 |
|
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 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 months ended March 31, 2014 and 2013 follows (in thousands except per share data):
|
| | | | | | | | | | | | | | | |
| 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 From Continuing Operations Attributable to Heartland | $ | 15,740 |
| | $ | 1,366 |
| | $ | 2,270 |
| | $ | 19,376 |
|
| | | | | | | | |
| Diluted Earnings Per Share From Continuing Operations | $ | 0.42 |
| | $ | 0.04 |
| | $ | 0.06 |
| | $ | 0.52 |
|
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 37,735 |
| | | | | | 37,735 |
|
| | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2013 | | | | | | |
| | GAAP | | Acquisition-related Amortization | | Share-based Compensation | | Adjusted Non-GAAP |
| Income from Operations | $ | 26,775 |
| | $ | 2,277 |
| | $ | 3,866 |
| | $ | 32,918 |
|
| Operating Margin (a) | 18.2 | % | | | | | | 22.4 | % |
| | | | | | | | |
| Net Income From Continuing Operations Attributable to Heartland | $ | 15,645 |
| | $ | 1,398 |
| | $ | 2,373 |
| | $ | 19,416 |
|
| | | | | | | | |
| Diluted Earnings Per Share From Continuing Operations | $ | 0.41 |
| | $ | 0.04 |
| | $ | 0.06 |
| | $ | 0.51 |
|
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 38,374 |
| | | | | | 38,374 |
|
| | | | | | | | |
| (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. |
