Heartland Payment Systems (HPY) 8-K Results of Operations and Financial Condition

EXHIBIT 99.1

Heartland Payment Systems Fourth Quarter Net Income Up 20%,
Diluted Earnings per Share Up 14%

Quarterly Dividend Doubled

Princeton, N.J., February 15, 2007 —Heartland Payment Systems, Inc. (NYSE: HPY), the nation’s sixth largest provider of merchant acquiring services, today announced a 20% increase in fourth quarter net income to $6.6 million compared to net income of $5.5 million in the fourth quarter of 2005. For the three months ended December 31, 2006, the Company reported earnings of $0.16 per fully diluted share, an increase of 14% compared to earnings of $0.14 per fully diluted share in the year ago quarter. Net income in the fourth quarter of 2006 includes a pre-tax charge of $1.5 million, or $0.03 per diluted share, for the write off of purchased software. Excluding this charge, net income for the fourth quarter of 2006 would have been $7.5 million, or $0.19 per fully diluted share, increases of 37% and 36%, respectively, compared to the fourth quarter of 2005.

The Company’s revenue in the quarter rose 27% to $288 million from $227 million in the year earlier period, driving a 25% increase in operating income. The operating margin for the fourth quarter fell to 17.9% of net revenues (defined as total revenues less interchange and dues and assessments), reflecting both seasonal weakness and certain one-time costs associated with the conversion of virtually all of the Company’s card merchant portfolio onto its proprietary back end technology.

Robert Carr, Chairman and CEO, said, “We ended the year with another quarter of strong growth among our key metrics, and achieved a better than 40% growth rate in earnings for the year. Among the many significant new milestones surpassed, this second biggest quarter in Company history lifted our total revenues for the year over $1 billion for the first time. Early in December, we had our first $1 billion processing week and, recently, the success of our unique sales force, which we grew by over 30% in 2006, was recognized by a leading sales professional publication. While the operating margin in the quarter was dampened somewhat by incremental costs arising from our “Passport” implementation, we are excited by the significant competitive advantages we have created through the development of our proprietary front- and back-end technology platforms. In the fourth quarter, almost 80% of new card merchants installed and 70% of total transactions processed were on HPS Exchange, helping drive down processing and servicing costs to their lowest relative level this year.”

Processing volume for the three months ended December 31, 2006 increased 25% to $11.4 billion from $9.1 billion during the same period in 2005, even though same store sales at our installed base rose only 2.2%, well below the Company’s historical experience. The Company’s active merchant count rose to 137,400 at December 31, 2006, a 21% increase over the past twelve months, comprised of 133,200 card processing and 4,200 payroll customers.

FULL YEAR RESULTS

For the full year 2006, revenues were $1.1 billion, up 31% compared to $835 million for fiscal 2005. Net income for 2006 was $28.5 million, or $0.71 per fully diluted share, increases of 49% and 42%, respectively, compared to net income of $19.1 million, or $0.50 per fully diluted share, in 2005. Earnings per share in 2006 are based on a 5% increase in the average diluted share count compared to fiscal 2005. Net income in 2006 includes a net pre-tax charge of $0.7 million, or $0.01 per diluted share, in other, non-operating income. Net income in 2005 includes a net pre-tax benefit of $2.2 million, or $0.02 per diluted share, from other, non-operating income.

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Mr. Carr continued, “We are entering 2007 having established a solid foundation for growth. We have a record number of installed merchants processing on one of the industry’s most robust technology platforms. We have expanded our sales organization to over 1,379 sales professionals, including 223servicing managers at December 31, 2006, to capitalize on the strong growth opportunities with small and mid-sized merchants. Since much of the growth in our sales force occurred in the second half of the year, we expect to see their contribution steadily improve this year. And, with our strong cash flow, we have the financial resources to support the rapid expansion we have consistently generated, including the expansion of our customer service infrastructure. By offering merchants transparent pricing, personalized service, and the new products and end-to-end processing our advanced technology investments can offer, we believe that we can sustain Heartland as the processor of choice in our markets.”

FULL YEAR 2007 GUIDANCE:

The Company is establishing guidance for fiscal 2007. For the year, we expect net revenue (total revenues less interchange, dues and assessments) to grow by 21% – 23%; operating income as a percentage of net revenue to be 19% – 21%; a tax rate of 37.2%; and earnings per share of $1.00 – $1.05, which excludes $0.04 per share of after-tax SFAS No. 123R stock-based compensation expense currently anticipated for fiscal 2007. Additionally, the Company announced that for the first quarter of 2007, it anticipates delivering earnings per share in the range of $0.16 – $0.18. Beyond the first quarter of 2007, Heartland does not anticipate providing further quarterly earnings per share guidance.

BOARD DOUBLES QUARTERLY DIVIDEND

The Company also announced that the Board of Directors has doubled the quarterly dividend to $0.05 per common share. The dividend is payable to shareholders of record on February 23, 2007 and will be paid on March 15, 2007.

Conference Call:

Heartland Payment Systems, Inc. will host a conference call on February 15, 2007 at 8:30 a.m. Eastern Time to discuss financial results and business highlights. The conference call may be accessed by calling (973) 935-8511 at 8:25AM Eastern time on February 15, 2007. Please provide the operator with PIN number 8385703. The conference call will also be Web cast where it can be accessed on the investor relations portion of Heartland’s website atwww.heartlandpaymentsystems.com.

A taped replay of the conference call will be available within two hours of the conclusion of the call and will remain available through Thursday, March 15, 2007. The number to call for the taped replay is 973-341-3080 and the conference PIN 8385703. The webcast will also be archived within two hours of the live call on the investor relations portion of the Company’s website.

About Heartland
Heartland Payment Systems, Inc. (HPS), a NYSE company trading under the symbol HPY, delivers credit/debit card processing and payroll solutions to over 137,000 small to medium-sized merchants throughout the United States. HPS also provides additional services to its merchants such as gift and loyalty card programs, paper check authorization, and sells and rents point-of-sale devices and supplies.

With over 1,350 sales and servicing professionals nationwide, HPS builds long-term business relationships in local sales territories, providing merchants with enhanced technology tools that assist them in more effectively operating their businesses.

Heartland processed its first transaction in 1997, and, since 2000, has grown at a compound annual rate of more than 30% to become the sixth largest merchant processor in the United States and fifteenth largest merchant processor in the world.
http://www.heartlandpaymentsystems.com

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Forward-looking Statements:
This press release may contain 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. Information concerning these factors is contained in the Company’s Securities and Exchange Commission filings. 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:
Paul Johnson or Joe Hassett
Gregory FCA
27 West Athens Ave.
Ardmore, PA 19003
Tel: 610-642-8253
Email:Heartland_ir@gregoryfca.com

Tables Follow

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Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(unaudited)

	Three Months Ended						Year Ended
	December 31,						December 31,
	2006			2005			2006			2005
Total Revenues	$	287,994		$	226,999		$	1,097,041		$	834,824
Costs of Services:
Interchange		211,841			167,636			804,267			611,736
Dues and assessments		10,602			8,553			40,334			31,491
Processing and servicing		29,686			22,749			118,342			87,668
Customer acquisition costs		10,182			7,747			35,451			28,025
Depreciation and amortization		1,639			1,629			6,042			5,685
Total costs of services		263,950			208,314			1,004,436			764,605
General and administrative		12,298			9,313			47,787			37,761
Total expenses		276,248			217,627			1,052,223			802,366
Income from operations		11,746			9,372			44,818			32,458
Other income (expense):
Interest income		366			232			1,225			477
Interest expense		(145	)		(162	)		(753	)		(1,553	)
Fair value adjustment for warrants with mandatory redemption provisions		¯			¯			¯			(2,912	)
Gain on settlement of financing arrangement		¯			¯			¯			5,140
Other, net		(1,500	)		187			(669	)		198
Total other income (expense)		(1,279	)		257			(197	)		1,350
Income before income taxes		10,467			9,629			44,621			33,808
Provision for income taxes		3,895			4,147			16,077			14,715
Net income		6,572			5,482			28,544			19,093
Income allocated to Series A Senior Convertible Preferred Stock		¯			¯			¯			(4,728	)
Net income attributable to Common Stock	$	6,572		$	5,482		$	28,544		$	14,365
Earnings per common share:
Basic	$	0.18		$	0.16		$	0.78		$	0.62
Diluted	$	0.16		$	0.14		$	0.71		$	0.50
Weighted average number of common shares outstanding:
Basic		37,280			34,160			36,394			23,069
Diluted		40,020			39,815			39,943			37,879

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Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)

	December 31,
	2006			2005
Assets
Current assets:
Cash and cash equivalents	$	16,054		$	8,724
Funds held for payroll customers		16,960			10,603
Receivables, net		107,154			93,756
Investments		1,082			561
Inventory		2,252			714
Prepaid expenses		2,030			1,979
Current tax asset		19,227			1,602
Current deferred tax assets, net		757			1,492
Total current assets		165,516			119,431
Capitalized customer acquisition costs, net		56,705			42,930
Deferred tax assets, net		4,562			3,477
Property and equipment, net		23,135			17,661
Goodwill and intangible assets		1,757			—
Deposits and other assets		93			186
Total assets	$	251,768		$	183,685
Liabilities and stockholders’ equity
Current liabilities:
Due to sponsor bank	$	27,253		$	34,530
Accounts payable		16,936			14,736
Deposits held for payroll customers		16,960			10,603
Current portion of accrued buyout liability		11,519			10,478
Merchant deposits and loss reserves		8,210			7,450
Accrued expenses and other liabilities		9,649			7,407
Current portion of borrowings and financing arrangements		174			261
Total current liabilities		90,701			85,465
Long-term portion of borrowings and financing arrangements		—			173
Long-term portion of accrued buyout liability		21,774			17,996
Total liabilities		112,475			103,634
Commitments and contingencies		—			—
Stockholders’ equity
Common Stock, $.001 par value, 100,000,000 shares authorized, 38,488,880 and 34,222,114 shares issued at December 31, 2006 and 2005; 37,405,680 and 34,200,114 shares outstanding at December 31, 2006 and 2005		38			34
Additional paid-in capital		153,997			96,417
Accumulated other comprehensive loss		(21	)		(26	)
Retained earnings (Accumulated deficit)		10,804			(15,879	)
Treasury stock, at cost (1,083,200 and 22,000 shares at December 31, 2006 and 2005)		(25,525	)		(495	)
Total stockholders’ equity		139,293			80,051
Total liabilities and stockholders’ equity	$	251,768		$	183,685

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Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(In thousands)
(unaudited)

	Year Ended December 31,
	2006			2005
Cash flows from operating activities
Net income	$	28,544		$	19,093
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of capitalized customer acquisition costs		35,823			24,636
Other depreciation and amortization		7,557			5,695
Deferred taxes		(351	)		1,811
Share-based compensation		1,323			—
Loss on purchased software		1,500			—
Fair value adjustment for warrants with mandatory redemption provisions		—			2,912
Gain on settlement of financing arrangement		—			(5,140	)
Other		254			33
Changes in operating assets and liabilities:
Increase in receivables		(12,389	)		(29,431	)
(Increase) decrease in inventory		(438	)		104
Payment of signing bonuses, net		(33,743	)		(21,788	)
Increase in capitalized customer acquisition costs		(15,855	)		(11,531	)
(Increase) decrease in prepaid expenses		(59	)		172
Decrease (increase) in current tax asset		10,978			(2,783	)
Decrease in deposits and other assets		23			1
Excess tax benefits on options exercised under SFAS No. 123R		(28,603	)		—
Decrease in due to sponsor bank		(7,277	)		(10,623	)
Increase (decrease) in accounts payable		1,325			(2,955	)
Increase in accrued expenses and other liabilities		1,958			2,116
Increase in merchant deposits and loss reserves		760			275
Payouts of accrued buyout liability		(10,664	)		(13,481	)
Increase in accrued buyout liability		15,483			14,920
Net cash used in operating activities		(3,851	)		(25,964	)
Cash flows from investing activities
Purchase of investments		(2,158	)		(1,544	)
Maturities of investments		1,258			487
Increase in funds held for payroll customers		(5,972	)		(163	)
Increase in deposits held for payroll customers		6,357			1,192
Acquisition of business, net of cash acquired		(3,453	)		—
Purchases of property and equipment		(13,960	)		(12,337	)
Proceeds from disposal of property and equipment		—			27
Net cash used in investing activities		(17,928	)		(12,338	)
Cash flows from financing activities
Principal payments on borrowings and financing arrangements		(261	)		(7,520	)
Proceeds from exercise of stock options		27,658			8,953
Excess tax benefits on options exercised under SFAS No. 123R		28,603			—
Repurchase of common stock		(25,030	)		(495	)
Dividends paid on common stock		(1,861	)		—
Net proceeds from sale of common stock		—			41,712
Net cash provided by financing activities		29,109			42,650
Net increase in cash and cash equivalents		7,330			4,348
Cash and cash equivalents at beginning of year		8,724			4,376
Cash and cash equivalents at end of year	$	16,054		$	8,724
Supplemental cash flow information:
Cash paid during the year for:
Interest	$	747		$	1,581
Income taxes		2,727			11,742

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