Heartland Payment Systems posts Q3 net income rise; buys Digital Dining

Source: Heartland Payment Systems

Heartland Payment Systems, Inc. (HPY), one of the nation's largest payment processors, today announced record third quarter Adjusted Net Income and Adjusted Earnings per Share of $29.7 million and $0.79, respectively, for the quarter ended September 30, 2015.

Adjusted Net Income and Adjusted Earnings per Share were $24.8 million and $0.68, respectively, for the quarter ended September 30, 2014. For the third quarter of 2015, Heartland reported GAAP Net Income of $23.9 million, or $0.64 per share. Adjusted Net Income and Adjusted Earnings per Share are non-GAAP measures that are detailed at the end of this press release in the “Reconciliation of Non-GAAP Financial Measures.”

Highlights for the third quarter of 2015 include:

  • Small and Mid-Sized Enterprise (SME) transaction processing volume was an all-time quarterly record $24.5 billion, up 13.1% from the third quarter of 2014, the fifth consecutive quarter of double-digit growth
  • Quarterly Net Revenue was a record $214.6 million, up 26.7% from the third quarter of 2014, with organic net revenue growth of 11.3% for the quarter
  • Net Revenue for our Non-Payment Processing segments grew by 61% in the third quarter of 2015 including the benefit of acquisitions; excluding such acquisitions, organic net revenue grew by over 8%
  • New margin installed was an all-time record $27.7 million, a 29.5% increase from the third quarter of 2014, and the fastest rate of new margin installed growth since the fourth quarter of 2013
  • Same store sales were up 4.1% and net volume attrition was 9.1%, continuing their trend of steady improvement

Operating results for the third quarter of 2015 include:

  • Stock compensation expense of $4.4 million and acquisition-related intangible amortization of $5.1 million, increases of $1.0 million and $1.6 million, respectively, compared to the third quarter of 2014
  • Increases in sales compensation and general incentive compensation in the third quarter of 2015, both due to improved financial performance
  • There was no impact from the Company's former Leaf business in the third quarter of 2015, whereas a year ago there was a net $0.05 per share benefit to both GAAP and Adjusted Earnings

Robert O. Carr, Chairman and CEO, said, "The strong momentum in new margin installed, transaction processing and net revenue growth continues to drive record earnings. Our new business growth was outstanding this quarter, with new margin installed up nearly 30%, one of the fastest rates of new business growth in many years, and this growth was accomplished from a much higher base. Our success this quarter was driven by the growth and productivity of our sales organization, our focus on complementary acquisitions, an improvement in consumer spending, and our innovative new technologies and products, such as Heartland Secure. We also had our best operating margin in nearly two years, consistent with our expectations and a reflection of the solid operating leverage inherent in our business model. We will continue to invest in our strategy, providing small and mid-sized merchants the same best-in-class solutions as the largest merchants, to help them improve their business, while building the value of the Heartland franchise."

SME card transaction processing volume for the quarter was up 13.1% compared to the third quarter of 2014, driven by new margin installs, growth in same store sales and improved net volume attrition. SME card transaction processing volume in both the third quarters of 2015 and 2014 includes Visa, MasterCard, Discover and Amex OptBlue, the latter of which we first began including in volume in the third quarter of 2014. Our total non-card segments grew their revenue by 61% for the quarter as a result of both organic and acquisition related growth.

The Adjusted Operating Margin for the third quarter of 2015 was 24.3%, a 230 basis point improvement from the third quarter of 2014. Margin expansion primarily reflected increased operating leverage as net revenue growth remains at levels consistent with the first half of the year while the planned rate of growth of investment in security, marketing, Heartland Commerce as well as incentive compensation slowed from the pace of the first half of 2015.

For the third quarter of 2014, both GAAP and Adjusted Net Income per share include a net $0.05 per share benefit related to the former Leaf business, primarily a $3.6 million one-time gain related to the settlement of an earn out obligation. Leaf was completely wound down as of the second quarter of 2015. Since March 31, 2015, the last quarter in which cash was used for acquisitions, we have reduced total debt by $90 million.

Mr. Carr continued, “The implementation of new EMV standards, the growing adoption of integrated point-of-sale technology, heightened security concerns and continual innovation is driving the payments industry to the center of the commerce universe. This is helping broaden and deepen our relationships with the small and mid-sized merchant community who have always considered Heartland a trusted partner and who are now increasingly turning to us to help navigate the increased complexity precipitated by these changes. Through our investments in Heartland Commerce, payroll solutions, and related businesses, we are expanding the range of solutions we can offer our merchants with the ultimate goal of simplifying their lives while improving their businesses. Heartland is well positioned to prosper in an environment where our long and unparalleled legacy of small and mid-sized merchant advocacy is often the only constant in a time of rapid and unprecedented change."


For full year 2015, we expect to deliver Net Revenue growth in excess of 20%, to between approximately $810 million and $815 million, and adjusted EPS to be in the range of $2.86 - $2.89. Guidance assumes after-tax share-based compensation and acquisition-related amortization expenses reduce earnings per share by $0.65 for the year and an approximate 39% tax rate.


The Company also announced that the Board of Directors declared a quarterly dividend of $0.10 per common share payable December 15, 2015 to shareholders of record on November 24, 2015 

Separately, Heartland Payment Systems (NYSE: HPY), one of the nation’s largest payment processors, today announced it has acquired privately held Digital Dining, a provider of restaurant point-of-sale (POS) and management systems throughout the United States. The acquisition allows Heartland to help restaurants turn their POS system into a secure commerce center as it collaborates with other operations including payroll, marketing and loyalty programs.

Headquartered in Springfield, Virginia, Digital Dining offers restaurants the convenience of a handheld POS on an iPad, iPhone, iPod and iPad Mini in a hybrid environment with conventional fixed terminals. Digital Dining is also used by restaurateurs for table management, delivery, reservations, labor scheduling, inventory and loyalty programs.

Key Highlights/Facts

  • With this acquisition of Digital Dining, Heartland advances its strategy of growing its commerce segment. Previously, the company acquired pcAmerica and Dinerware in February 2015 and XPIENT Solutions and LiquorPOS in 2014. The company will continue seeking profitable acquisitions to support its strategy.
  • Digital Dining, together with Heartland’s existing POS businesses of pcAmerica, Dinerware, XPIENT Solutions, LiquorPOS and other Heartland solutions, comprise Heartland Commerce. This segment delivers leading-edge, secure POS solutions, payments processing capabilities and other adjacent business service applications, initially serving the hospitality and retail industries.
  • Heartland has more than 100,000 customer locations using its Heartland Commerce software.
  • With more than 130,000 restaurant merchant relationships, Heartland has approximately 18 percent share of the entire restaurant market, including close to 24 percent share of table service restaurants, according to CHD Expert.
  • From payroll to gift cards and loyalty to card processing to POS solutions, Heartland has rapidly expanded its restaurant vertical business, supported by the endorsements of 45 state restaurant associations, the Council of State Restaurants Associations and the National Restaurant Association.
  • Heartland will substantially retain all Digital Dining employees and they will join the Heartland Commerce business group.
  • Menusoft, Digital Dining’s first product, was introduced in the U.S. in 1984. The first Digital Dining POS system was installed that same year at a Washington D.C. tavern with three workstations.

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