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Heartland Payment Systems Reports 26% Increase In Fourth Quarter Adjusted Earnings Per Share

FULL YEAR 2013 GUIDANCE:

For full year 2013, we expect Net Revenue to grow 10% to 12% to be between approximately $600 million and $610 million, and GAAP EPS to be in the range $1.92 to $1.96, net of after-tax share-based compensation expense of $0.22 per share for the year.

BOARD RAISES DIVIDEND 17%, SETS RECORD AND PAYMENT DATE

The Company also announced that the Board of Directors has raised the quarterly dividend by 17% to $0.07 per common share. The new, higher dividend is payable March 15, 2013 to shareholders of record on March 4, 2013.

CONFERENCE CALL:

Heartland Payment Systems, Inc. will host a conference call on February 7, 2013 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 also be accessed by calling (888) 438-5491. Please provide the operator with PIN number 6409305. 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.

   

Heartland Payment Systems, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share data)

(unaudited)

 
Three Months Ended Year Ended
December 31, December 31,
Total revenues   2012       2011     2012       2011  
$ 503,401   $ 471,423   $ 2,026,559   $ 1,996,950  
Costs of services:

 

 

Interchange

318,720

304,435

1,284,038

1,359,448
Dues, assessments and fees 49,009 41,860 199,503 155,233
Processing and servicing 52,069 51,577 221,580 212,747
Customer acquisition costs 10,201 10,518 43,547 46,140
Depreciation and amortization   5,618     3,829     19,890     14,675  
Total costs of services 435,617 412,219 1,768,558 1,788,243
General and administrative   41,667     39,057     145,263     130,724  
Total expenses   477,284     451,276     1,913,821     1,918,967  
Income from operations   26,117     20,147     112,738     77,983  
Other income (expense):

 

 

Interest income

47

48

252

177
Interest expense (902 ) (863 ) (3,446 ) (4,125 )
Provision for processing system intrusion costs (35 ) (222 ) (563 ) (1,012 )
Other, net   (24 )   (770 )   (949 )   (1,550 )
Total other expense   (914 )   (1,807 )   (4,706 )   (6,510 )
Income before income taxes 25,203 18,340 108,032 71,473
Provision for income taxes   10,046     7,028     41,494     27,126  
Net income 15,157 11,312 66,538 44,347
Less: Net income attributable to noncontrolling interests   203     92     649     408  
Net income attributable to Heartland $ 14,954   $ 11,220   $ 65,889   $ 43,939  
 
Net income $ 15,157 $ 11,312 $ 66,538 $ 44,347
Other comprehensive income (loss):

Unrealized gains (losses) on investments, net of income tax of $2, ($3), $21 and ($4)

3 (4 ) 33 (5 )

Unrealized gains (losses) on derivative financial instruments, net of tax of $49, $59, $29 and ($341)

79 95 51 (556 )
Foreign currency translation adjustment   (183 )   270     281     (223 )
Comprehensive income 15,056 11,673 66,903 43,563
Less: Net income attributable to noncontrolling interests   148     173     733     341  
Comprehensive income attributable to Heartland $ 14,908   $ 11,500   $ 66,170   $ 43,222  
Earnings per common share:
 
Basic $ 0.40 $ 0.29 $ 1.71 $ 1.13
Diluted $ 0.38 $ 0.28 $ 1.64 $ 1.09

Weighted average number of common shares outstanding:

 

 

Basic

37,386

39,198

38,468

38,931
Diluted 38,878 40,494 40,058 40,233
 
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

(In thousands, except share data)

(unaudited)

 
December 31,
Assets   2012       2011  
Current assets: $

 

Cash and cash equivalents

50,581

$ 40,301
Funds held for customers 131,405 42,511
Receivables, net 181,352 176,535
Investments held to maturity 4,428 2,505
Inventory 10,100 11,492
Prepaid expenses 10,568 9,660
Current deferred tax assets, net   10,475     6,746  
Total current assets 398,909 289,750
Capitalized customer acquisition costs, net 56,425 55,014
Property and equipment, net 125,651 115,579
Goodwill 177,399 103,399
Intangible assets, net 53,854 32,498
Deposits and other assets, net   1,176     681  
Total assets $ 813,414   $ 596,921  
Liabilities and Equity
 
Current liabilities: $

 

Due to sponsor banks

37,586

$ 63,881
Accounts payable 64,562 47,373
Customer fund deposits 131,405 42,511
Processing liabilities 95,359 30,689
Current portion of borrowings 102,001 15,003
Current portion of accrued buyout liability 10,478 8,104
Accrued expenses and other liabilities 48,655 50,884
Current tax liabilities   4,580     1,408  
Total current liabilities   494,626     259,853  
Deferred tax liabilities, net 29,626 21,643
Reserve for unrecognized tax benefits 3,069 1,819
Long-term portion of borrowings 50,000 70,000
Long-term portion of accrued buyout liability   24,932     23,554  
Total liabilities   602,253     376,869  
Commitments and contingencies
Equity

Common stock, $0.001 par value, 100,000,000 shares authorized, 37,571,708 and 39,626,846 shares issued at December 31, 2012 and 2011; 36,855,908 and 38,847,957 outstanding at December 31, 2012 and 2011

38 39
Additional paid-in capital 222,705 207,643
Accumulated other comprehensive loss (399 ) (680 )
Retained earnings 7,629 29,236
Treasury stock, at cost (715,800 and 778,889 shares at December 31, 2012 and 2011)   (20,187 )   (16,828 )
Total stockholders’ equity 209,786 219,410
Noncontrolling interests   1,375     642  
Total equity   211,161     220,052  
Total liabilities and equity $ 813,414   $ 596,921  
 
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow

(In thousands)

(unaudited)

 
Year Ended December 31,
  2012       2011  
Cash flows from operating activities

 

 

Net income

$

66,538

$ 44,347
Adjustments to reconcile net income to net cash provided by operating activities:

 

Amortization of capitalized customer acquisition costs

45,125

47,188
Other depreciation and amortization 28,213 27,837
Addition to loss reserves 2,595 6,011
Provision for doubtful receivables 1,043 2,423
Deferred taxes 5,136 778
Share-based compensation 14,187 9,548
Write downs on fixed assets and system development costs 1,066 129
Other 1,915
Changes in operating assets and liabilities:

 

Increase in receivables

(665

)

(1,409 )
Decrease (increase) in inventory 1,460 (194 )
Payment of signing bonuses, net (29,320 ) (29,035 )
Increase in capitalized customer acquisition costs (17,216 ) (14,276 )
Increase in prepaid expenses (612 ) (1,677 )
Decrease in current tax assets 9,118 23,522
Increase in deposits and other assets (451 ) (65 )
Excess tax benefits on employee share-based compensation (5,954 ) (3,454 )
Increase in reserve for unrecognized tax benefits 1,251 510
Decrease in due to sponsor banks (26,295 ) (8,692 )
Increase in accounts payable 11,840 3,779
Decrease in accrued expenses and other liabilities (964 ) (755 )
Increase (decrease) in processing liabilities 61,993 (4,104 )
Decrease in reserve for processing system intrusion (8 )
Payouts of accrued buyout liability (11,886 ) (10,380 )
Increase in accrued buyout liability   15,638     13,228  
Net cash provided by operating activities   171,840     107,166  
Cash flows from investing activities (6,556 )
Purchase of investments held to maturity (3,781 )
Maturities of investments held to maturity 4,714 2,934
Increase in funds held for customers (88,839 ) (6,163 )
Increase in customer fund deposits 88,893 5,988
Acquisitions of businesses, net of cash acquired (103,470 ) (23,165 )
Purchases of property and equipment   (34,549 )   (36,543 )
Net cash used in investing activities   (139,807 )   (60,730 )
Cash flows from financing activities

 

Proceeds from borrowings

133,000

Principal payments on borrowings (66,003 ) (38,287 )
Proceeds from exercise of stock options 18,303 9,685
Excess tax benefits on employee share-based compensation 5,954 3,454
Repurchases of common stock (103,774 ) (16,414 )
Dividends paid on common stock   (9,238 )   (6,232 )
Net cash used in financing activities   (21,758 )   (47,794 )
 
Net increase (decrease) in cash 10,275 (1,358 )
Effect of exchange rates on cash 5 (70 )
Cash at beginning of year   40,301     41,729  
Cash at end of year $ 50,581   $ 40,301  

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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