Heartland Payment Systems posts 56% rise in first quarter net income

For the first quarter, fully diluted earnings per share rose 55% to $0.17 from $0.11 in the year earlier period. Results were driven by a 67% increase in operating income, which rose to $10.7 million in the quarter from $6.4 million a year ago, as the operating margin expanded to 15.6% in the quarter from 11.4% in the first quarter of 2006. First quarter 2006 operating income and operating margin was reduced by the impact of a $2.0 million pre-tax non-recurring charge to reflect a change in estimate of the amount of accrued on-line debit interchange expense. Also, first quarter 2006 net income benefited from a pre-tax gain of $0.8 million recorded in other income resulting from a cash legal settlement.

Robert Carr, Chairman and CEO, said, "We continue to grow faster than the industry with a straightforward strategy dedicated to providing Main Street merchants with the same competitive edge enjoyed by major retailers with sophisticated internal purchasing organizations. At the heart of our success is a dedicated and motivated sales organization, which increased to 1,480 this quarter and installed a record number of new merchants in our seasonally slowest quarter. We are leveraging this growth with some of the industry's most advanced technology. In the first quarter, 81% of new merchants installed and 71% of total transactions were on HPS Exchange. In addition, the performance of our Passport back end processing system continues to improve, with no significant added costs. As a result of the increasing efficiency of our technology investments, processing and servicing expense ratios are trending down, a key to driving further expansion in our operating margin. With the industry's leading customer-focused sales organization and our state-of-the art processing and customer service infrastructure, we have developed a winning combination that should enable us to continue to gain market share and create value for our shareholders."

Total revenues in the first quarter were $284.2 million, up 20% compared to $236.9 million in the first quarter of 2006. Processing volume for the three months ended March 31, 2007 increased 21% to $11.2 billion from $9.2 billion during the same period in 2006. The Company's active merchant count rose to 144,000 at March 31, 2007, a 21% increase over the past twelve months. Same store sales at our installed base rose 3.4% during the quarter and continue to make a meaningful contribution to the Company's growing processing volumes.

Mr. Carr continued, "Clearly, our transparent, Fair Deal pricing philosophy has enabled us to shift the merchant buying decision to a more comprehensive value proposition. The ability to add more Main Street merchants to the Heartland family enables us to leverage our efficient, end-to-end processing and servicing infrastructure, enhancing our customer relationships, thereby further strengthening our franchise and creating long-term shareholder value."

FULL YEAR 2007 GUIDANCE:

The Company is reaffirming 2007 full year guidance. We expect net revenue (total revenues less interchange, dues and assessments) to grow by 21% - 23%; operating income as a percentage of net revenue to be 19% - 21%; a tax rate of approximately 37%; and earnings per share of $1.00 - $1.05, which excludes $0.04 per share of after-tax SFAS No. 123R stock-based compensation expense currently anticipated for fiscal 2007.

BOARD INCREASES SHARE REPURCHASE AUTHORIZATION AND DECLARES QUARTERLY DIVIDEND

The Company also announced today that its Board of Directors has authorized a 1,100,000 share increase to the current share repurchase authorization, to a total of 2,000,000 shares. Further, the Company has been authorized to use general corporate funds for any share repurchases.

The Company also declared a quarterly dividend of $0.05 per common share. The dividend is payable to shareholders of record on May 25, 2007 and will be paid on June 15, 2007.

Read the consolidated statement here: