Heartland Payment Systems, Inc. Q2 2010 Earnings Call Transcript

Heartland Payment Systems, Inc. Q2 2010 Earnings Call Transcript
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Heartland Payment Systems, Inc. (HPY)

Q2 2010 Earnings Call

August 4, 2010 8:30 AM ET

Executives

Bob Baldwin – President and CFO

Bob Carr – Chairman and CEO

Analysts

Bob Napoli – Piper Jaffray

Dave Koning – Robert W. Baird.

Meghna Ladha – Susquehanna

Robert Dodd – Morgan Keegan

Reginald Smith – JP Morgan

Brett Huff – Stephens

Tim Willi – Wells Fargo

Chris Shutler – William Blair

Andrew Jeffrey – SunTrust

Leonard DeProspo – Janney Montgomery Scott

Paul Bartolai – PB Investment Research

Presentation

Operator

Good day everyone. And welcome to the Heartland Payment Systems Second Quarter 2010 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to the President and CFO, Mr. Robert Baldwin. Please go ahead, sir.

Bob Baldwin

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Thank you, and good morning, everyone. I'd like to welcome you to our Second Quarter 2010 Earnings call. Joining me is Bob Carr, Chairman and CEO. Today, Bob will begin our discussion with an overview of the quarter, and then I'll return to go through some of the financials in detail before taking your questions.

During the course of this call, we will be providing comments on the processing system intrusion we experienced, our investigation of the processing system intrusion is conventional and ongoing consequently beyond our prepared remarks we are advising our participants we do not intend to make any additional comments.

Before we begin, I'd like to remind you that some of our discussions may contain statements of a forward-looking nature which represent management's beliefs and assumptions concerning future events. Forward-looking statements involve risks, uncertainties and assumptions that 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 report of our financial results we released earlier this morning and in the company's SEC filings. We undertake no obligation to update any forward-looking statements to reflect events or circumstances that may arise after this call.

Additional detailed financial information can be found in Heartland Payment Systems statistical supplement for the second quarter of 2010, which is available on our website, heartlandpaymentsystems.com.

Now, I'd like to turn the call over to Chairman and CEO, Bob Carr.

Bob

Carr

Thanks Bob and good morning, everybody. I'd like to thank you all for joining us today and for your interest in Heartland. By now you should have seen our financial results for the second quarter that we released this morning. On an adjusted basis we reported net income of $9.1 million or $0.23 per diluted share, which after the adjustments Bob will review with you in a minute were in line with our expectations.

Results in the quarter were led by record small merchant processing volume, which reached $16.3 billion, up 8% organically, compared to the second quarter of last year, while we processed a record 800 million transactions in our petroleum vertical in the quarter.

I'm particularly pleased that we've achieved these results in both an unexciting consumer environment and during a period in which we're implementing a number of new growth initiatives. Certainly achieving 8% organic growth in our core business during a period of weak economic growth is an achievement in and of itself but what is more rewarding is achieving that growth while increasing our sales force by 24% ruling out a new sales management strategy and bringing the industry's leading security product to market.

For the first time in over two years, processing volume is benefited from a quarterly increase in same-store sales, which were up 1.1% for the quarter. While we were anticipating improvement in same-store sales this year after the sustained weakness of the last couple of years, it is nice to finally get a little lift from the economy with the improvement coming a little sooner than we had foreseen.

Although installed margin of $12.1 million was up sequentially from the first quarter, new business remains a challenge. Reinvigorating new business growth is one of our primary goals for the second half of this year. We're implementing a multi faceted aggressive growth strategy and in the second quarter we made significant progress on a number of our initiatives.

First and foremost, we filled 273 of our more than 1,000 open relationship manager positions in just three months. We now have a record 1,393 relationship managers up 24% from March 31.

In addition to sustaining our market share leadership in the restaurant vertical, we are making similar in-roads with our other targeted verticals. For instance, in hospitality industry the Texas hotel and lodging association recently became the 38th state hotel and lodging association to endorse Heartland as the official provider of card processing, gift marketing, payroll services, tip management and check management services.

Since receiving endorsement of the American Hotel & Lodging Association, hospitality organizations are coming to recognize our comprehensive suite of business products and services including first ever unified payments processing platform in the lodging industry and how we can help to improve their bottom lines.

We're achieving similar success in the healthcare vertical. We have just partnered with the California Medical Association to provide their membership with access to a full suite of payment solutions, specifically designed to streamline operations and control costs for healthcare practices.

In addition to our comprehensive card processing payroll and check managing services we are integrating with confirm pay a real-time web based eligibility verification and payment solution to bring increased transparency to the point of care.

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