Heartland posts Q4 results

Source: Heartland Payment Systems

Heartland Payment Systems (NYSE:HPY), a leading provider of credit/debit/prepaid card processing, payroll, check management and payment services, today announced quarterly net income of $8.0 million and fully diluted earnings per share of $0.21 for the three months ended December 31, 2008.

Earnings in the current quarter were up compared to net income of $6.8 million, or $0.17 per fully diluted share in the fourth quarter of 2007. Earnings in the year ago quarter include an aggregate $2.9 million in pre-tax charges (approximately $0.05 per share) to write off an investment and to recognize costs associated with the opening and relocation to our new service center.

Highlights for the fourth quarter of 2008 include:

  • Quarterly Net Revenue of $100.1 million, up 31.3%, and excluding NWS, up 9.7%
  • Total transaction processing volume of $16.5 billion, up 23%; organic volume of $14.0 billion, up 4.4%
  • Total new margin installed increased 9.8% with new payroll margin installed up 33.4%
  • 91.1% of new merchants installed were on HPS Exchange
  • Operating margin on net revenue of 13.9%

Robert Carr, Chairman and CEO, said, "We are pleased to report solid earnings in a quarter in which we faced extremely challenging economic conditions. During the quarter, we made progress on our most important metrics, increasing new margin installed, transaction processing volume, cash flow, and the proportion of merchants processing on our proprietary technology. With our talented and dedicated employee base, we believe Heartland has the depth and breadth of resources to deliver unequaled value for our merchants."

Net revenues in the fourth quarter were $100.1 million, an increase of 31.3% compared to $76.2 million in the fourth quarter of 2007. Excluding Network Services, net revenue was up 9.7% to $83.6 million. Card processing volume for the three months ended December 31, 2008 increased 23% to $16.5 billion, including $2.5 billion of volume from acquisitions made by Heartland in 2008. Transaction processing volume and net revenue growth were limited by the general slowdown in economic activity in the fourth quarter, including a 6.8% decline in same store sales. The operating margin on net revenue was 13.9% in the fourth quarter, reflecting the effect on margins from the Network Services acquisition, our ongoing investment in growth initiatives such as campus cards, micropayment solutions, and check products, the integration of American Express and Discover, and the unprecedented weakness in same store sales.

Mr. Carr continued, "Heartland has been built on a foundation of fair dealings, pricing transparency and merchant advocacy. Since our formation almost 12 years ago, our commitment to these principles has enabled us to grow into one of the largest companies in our industry. As the victim of a malicious system breach, we are highly focused on once again moving our industry forward, now taking the lead in strengthening the safety and security of information throughout the entire payments processing network. Heartland is committed to aggressively pursuing its efforts for the development and industry-wide implementation of end-to-end encryption technology- which if successfully developed and implemented will be designed to protect data at rest as well as data in motion - as an improved and safer standard of payments security.

"Clearly our biggest challenge in 2009 will arise from the system breach we suffered. There are two main components to the challenge we face: addressing claims that cardholders, card issuers, the Brands, regulators, and others have asserted, or may assert, against us arising out of the breach and managing the potential impact of the breach on the day-to-day operations of our business. With regard to the first challenge, we intend to vigorously defend any such claims and we believe we have meritorious defenses to those claims that have been asserted to date. At this time we do not have information that would enable us to reasonably estimate the amount of losses we might incur in connection with such claims. As to the second challenge, our sales and service teams have responded tremendously, and early indications of client response are positive: in the weeks since our announcement of the breach, we have installed more margin, and have a bit less merchant attrition, than in the same period in 2008. While it is too early to tell, and we will certainly face challenges from macro economic conditions confronting our customers, at this point we believe that our expanded product breadth, reputation for superior customer service, candor, and no arbitrary rate increases, should allow us to grow our card processing merchants, payroll clients and check management clients in 2009. I am very proud of our Heartland employees, who are aggressively reaching out to strengthen our relationships and maintain the trust and confidence of the merchant community."


For the full year 2008, net income was $41.8 million or $1.08 per fully diluted share, increases of 16.6% and 20.0%, respectively, from 2007 reported amounts of $35.9 million and $0.90, respectively. The 2007 reported net income included an aggregate $2.9 million in pre-tax charges (approximately $0.05 per share) to write off an investment and to recognize costs associated with the opening and relocation of our new service center. Net Revenues for 2008 were $383.7 million, up 30.2% compared to 2007. Excluding Network Services, net revenue was up 15.3% to $340.0 million.


Current economic conditions, the breach, and the financial climate are likely to influence same store sales growth and new merchant signings, necessarily adding conservatism to our guidance. For the year, we expect net revenue (total revenues less interchange, dues and assessments) to grow by 12 - 16%, to between $430 and $445 million, with 7 - 11% of that growth organic. For the year, earnings per share are expected to be $1.15 - $1.22. The Company's guidance for 2009 does not include any estimates for potential losses, costs and expenses arising from the previously announced security breach, including exposure to credit and debit card companies and banks, exposure to various legal proceedings that are pending, or may arise, and related fees and expenses, and other potential liabilities, costs and expenses. Neither the costs nor the potential losses are estimable at this point, and further the potential losses are not currently deemed probable.


The Company also announced that, in light of the difficulties in the financial markets, the Board of Directors believes it is prudent to maximize the Company's financial resources and liquidity. Consequently, the Board of Directors has established a new dividend rate and declared a quarterly dividend of $0.025 per common share, which is payable March 16, 2009 to shareholders of record on March 9, 2009.

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