Heartland swings to Q2 net loss as cost of data breach mounts

Heartland swings to Q2 net loss as cost of data breach mounts

Last year's data breach at Heartland Payment Systems continues to prove costly, with the vendor incurring related pre-tax expenses of $19.4 million in the second quarter, contributing to a net loss for the three months.

The $19.4 million in various expenses, accruals and reserves comes on top of $12.6 million in costs in the first quarter attributable to the massive data breach, which saw malicious software in the firm's processing system potentially compromising the card data of millions of people.

Of the $32 million for the six months, $22.1 million, relates to fines imposed by the card brands in April 2009 against the company and its sponsor banks and a settlement offer made.

Heartland says it has not received any response to this settlement offer and there can be no assurance the claims that are the subject of the can or will be accepted.

Commenting on the potential losses arising from the breach, the firm says: "Neither the costs nor the potential losses are estimable at this point beyond sums already accrued, and further the potential losses are not currently deemed probable."

The firm says it is now testing its new fully encrypted end-to-end terminal system - introduced following the breach - with 10 merchants.

Robert Carr, chairman and CEO, Heartland, says: "Looking forward, we expect to introduce our new end-to-end encryption technology, and as the economy recovers, we believe we will be well-positioned to meet the increasingly complex transaction processing and related needs of a growing market."

For the second quarter, the company made a net loss of $2.6 million, or $0.07 a share, compared with a net income of $11.5 million, or $0.30 a share, for the same period the previous year. Revenue for Q2 was $417.4 million, up from $394.5 million in 2008.

Excluding the effect of expenses related to the system intrusion, adjusted earnings were $9.3 million. Same store sales contracted at 9.7% for the quarter, the largest in the firm's history.

The vendor has lowered its full year guidance, with revenue now expected at $420 million to $425 million, and earning per share to be between $0.85 and $0.90, excluding stock compensation expense.

"The economy in the second quarter was worse than expected, and revenue suffered from the combined impact of same store sales weakness and reduced installed margin growth compared to 2008," says Heartland.

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