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Heartland Payment Systems Reports Record Quarterly Earnings

Stocks in this article: HPY

FULL YEAR 2012 GUIDANCE:

For full year 2012, we expect Net Revenue to be between $540 million and $545 million, and Adjusted EPS to be between $1.70 and $1.74, before deducting $0.22 per share of after-tax share-based compensation expense.

BOARD DECLARES QUARTERLY DIVIDEND; SHARE REPURCHASE PROGRAM UPDATE

The Company also announced that the Board of Directors declared a quarterly dividend of $0.06 per common share payable September 14, 2012 to shareholders of record on August 24, 2012. In the second quarter, the Company completed its previously-announced $50 million repurchase program, repurchasing a total of 1.93 million shares at an average cost of $25.82 over the course of the program. The Board has also authorized a new $50 million repurchase program under essentially the same terms and conditions as the completed program.

CONFERENCE CALL:

Heartland Payment Systems, Inc. will host a conference call on July 31, 2012 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) 466-4518. Please provide the operator with PIN number 3347240. 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 sixth largest payments processor in the United States, delivers credit/debit/prepaid card processing, school solutions, loyalty marketing services, campus solutions, payroll 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, ( www.merchantbillofrights.org), a public advocacy initiative that educates merchants about fair credit and debit card processing practices. The company is also a leader in the development of end-to-end encryption technology designed to protect cardholder data, rendering it useless to cybercriminals. For more detailed information, visit www.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, 2011. 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 and Comprehensive Income

(In thousands, except per share data)

(unaudited)

 
Three Months Ended Six Months Ended
  June 30, June 30,
2012 2011 2012 2011
Total revenues $ 518,521   $ 525,977   $ 989,006   $

993,623

 
Costs of services: 330,742 628,690
Interchange 365,207 686,006
Dues, assessments and fees 52,505 38,551 96,373 72,701
Processing and servicing 57,188 55,359 113,910 107,915
Customer acquisition costs 11,263 12,130 22,699 23,788

Depreciation and amortization

 

4,506

 

 

3,701

 

 

8,892

   

7,576

 
Total costs of services 456,204 474,948 870,564 897,986
General and administrative   32,584     29,377     65,466     59,423  
Total expenses   488,788     504,325     936,030     957,409  
Income from operations   29,733     21,652     52,976     36,214  
Other income (expense): 45 160
Interest income 41 82
Interest expense (756 ) (1,116 ) (1,606 ) (2,308 )
Provision for processing system intrusion costs (81 ) (372 ) (238 ) (675 )
Other, net   (4 )   (308 )   (4 )   (745 )
Total other income (expense)   (796 )   (1,755 )   (1,688 )   (3,646 )
Income before income taxes 28,937 19,897 51,288 32,568
Provision for income taxes   10,975     7,505     19,474     12,314  
Net income 17,962 12,392 31,814 20,254
Less: Net income attributable to noncontrolling interests   161     134     259     181  
Net income attributable to Heartland $ 17,801   $ 12,258   $ 31,555   $ 20,073  
 
Net income $ 17,962

 

$

12,392

 

$

31,814

 

$

20,254
Other comprehensive income:
Unrealized gains on investments, net of income tax of $2, $0, $10 4 15 5
and $2
Unrealized losses on derivative financial instruments (3 ) (536 ) (9 ) (582 )
Foreign currency translation adjustment   (267 )   97     (36 )   453  
Comprehensive income 17,696 11,953 31,784 20,130

Less: Comprehensive income attributable to noncontrolling interests

  81     163     248     317  
Comprehensive income attributable to Heartland $ 17,615   $ 11,790   $ 31,536   $ 19,813  
 
Earnings per common share:
 
Basic $ 0.46

 

$

0.32

 

$

0.81

 

$

0.52
Diluted $ 0.44

 

$

0.31

 

$

0.78

 

$

0.50
Weighted average number of common
shares outstanding: 38,844 38,840
Basic 38,792 38,625
Diluted 40,448 40,128 40,504 39,934
 
 
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

(In thousands, except share data)

(unaudited)

 

June 30,

December 31,
Assets 2012 2011
 

Current assets:

$ 42,951
Cash and cash equivalents

 

$

40,301
Funds held for payroll customers 48,859 42,511
Receivables, net 180,096 176,535
Investments held to maturity 3,711 2,505
Inventory 11,168 11,492
Prepaid expenses 8,787 9,660
Current tax asset 4,091
Current deferred tax assets, net   6,875     6,746  
Total current assets 306,538 289,750
Capitalized customer acquisition costs, net 56,223 55,014
Property and equipment, net 120,437 115,579
Goodwill 118,610 103,399
Intangible assets, net 37,359 32,498
Deposits and other assets, net   738     681  
Total assets $ 639,905   $ 596,921  
 
Liabilities and Equity
 
Current liabilities: $ 54,451
Due to sponsor banks

 

$

63,881
Accounts payable 56,401 47,373
Deposits held for payroll customers 48,859 42,511
Current portion of borrowings 43,502 15,003
Current portion of accrued buyout liability 9,232 8,104
Processing liabilities and loss reserves 37,229 30,689
Accrued expenses and other liabilities 41,493 50,884
Current tax liability       1,408  
Total current liabilities 291,167 259,853
Deferred tax liabilities, net 26,296 21,643
Reserve for unrecognized tax benefits 2,190 1,819
Long-term portion of borrowings 60,000 70,000
Long-term portion of accrued buyout liability   24,218     23,554  
Total liabilities   403,871     376,869  
Commitments and contingencies
 
Equity
Common stock, $0.001 par value, 100,000,000 shares authorized, 40,742,488 and 39,626,846 shares
issued at June 30, 2012 and December 31, 2011; 38,806,159 and 38,847,957 outstanding at 41
June 30, 2012 and December 31, 2011 39
Additional paid-in capital 229,691 207,643
Accumulated other comprehensive loss (699 ) (680 )
Retained earnings 56,111 29,236

Treasury stock, at cost (1,936,329 and 778,889 shares at June 30, 2012 and December 31, 2011)

  (50,000 )   (16,828 )
Total stockholders’ equity 235,144 219,410
Noncontrolling interests   890     642  
Total equity   236,034     220,052  
Total liabilities and equity $ 639,905   $ 596,921  
 

 
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow

(In thousands)

(unaudited)

 
 

Six Months Ended June 30,

2012 2011
Cash flows from operating activities $ 31,814
Net income

 

$

20,254
Adjustments to reconcile net income to net cash provided by operating activities: 22,509
Amortization of capitalized customer acquisition costs 24,400
Other depreciation and amortization 14,714 14,023
Addition to loss reserves 1,195 3,381
Provision for doubtful receivables 390 1,270
Share-based compensation 6,901 3,700
Deferred taxes 4,522 2,253
Exit costs for service center 771
Other 29 83
Changes in operating assets and liabilities: (2,324 )
Increase in receivables (17,561 )
Decrease in inventory 383 1,093
Payment of signing bonuses, net (15,461 ) (14,161 )
Increase in capitalized customer acquisition costs (8,257 ) (6,942 )
Decrease (increase) in prepaid expenses 886 (2,750 )
(Increase) decrease in current tax asset (945 ) 15,758
Increase in deposits and other assets (53 ) (295 )
Excess tax benefits on employee share-based compensation (4,556 ) (2,537 )
Increase in reserve for unrecognized tax benefits 371 273
(Decrease) increase in due to sponsor bank (9,430 ) 7,512
Increase in accounts payable 9,035 666
(Decrease) increase in accrued expenses and other liabilities (11,457 ) 1,723
Increase in processing liabilities and loss reserves 5,263 2,025
Payouts of accrued buyout liability (6,655 ) (7,276 )
Increase in accrued buyout liability   8,447     6,330  
Net cash provided by operating activities   47,321     53,993  
Cash flows from investing activities (1,865 )
Purchase of investments held to maturity (2,178 )
Maturities of investments held to maturity 676 1,282
(Increase) decrease in funds held for payroll customers (6,323 ) 1,818
Increase (decrease) in deposits held for payroll customers 6,348 (1,812 )
Acquisition of business, net of cash acquired (23,682 ) (7,598 )
Purchases of property and equipment   (16,420 )   (20,365 )
Net cash used in investing activities   (41,266 )   (28,853 )
Cash flows from financing activities 26,000
Proceeds from borrowings
Principal payments on borrowings (7,502 ) (30,778 )
Proceeds from exercise of stock options 11,840 5,733
Excess tax benefits on employee share-based compensation 4,556 2,537
Repurchases of common stock (33,586 )
Dividends paid on common stock   (4,680 )   (3,095 )
Net cash used in financing activities   (3,372 )   (25,603 )
 
Net increase (decrease) in cash 2,683 (463 )
Effect of exchange rates on cash (33 ) 37
Cash at beginning of year   40,301     41,729  
Cash at end of period $ 42,951   $ 41,303  
 

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, namely net income and earnings per share, which exclude share-based compensation expense, and certain costs and expenses and recoveries related to the criminal breach of its payment systems environment (the “Processing System Intrusion”) announced in 2009. 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.

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