Heartland Payment Systems (NYSE: HPY), one of the nation's largest payments processors, today announced a quarterly GAAP net loss of $9.6 million, or ($0.26) per share for the three months ended December 31, 2009 compared to net income of $8.0 million, or $0.21 per fully diluted share, for the same period of 2008.
Results for the quarter are after $23.7 million (pre-tax), or $0.42 per share, of various expenses, accruals and reserves, all of which are attributable to the processing system intrusion, including charges related to settlement offers made by the Company in attempts to resolve certain processing system intrusion related claims and settlements of certain claims deemed to be likely to be agreed upon in the near future based upon discussions between the Company and the claimants. Excluding these expenses, accruals and reserves, Adjusted Net Income and Earnings per Share were $5.9 million and $0.16, respectively. Fourth quarter Adjusted Net Income and Earnings per Share are non-GAAP measures that exclude certain items detailed later in this press release under the heading "Use of Non-GAAP Financial Measures."
Highlights for the fourth quarter of 2009 include:
- Small and Mid-Sized merchant (SME) transaction processing volume of $14.8 billion, up 5.0% from a year ago
- Quarterly Net Revenue of $105.1 million, also up 5.0% from a year ago
- 93.1% of new merchants installed were on HPS Exchange compared to 91% in the fourth quarter of 2008
- Operating margin on net revenue of 10.0% as a result of continued investment in the Company's growth platforms, compared to an operating margin of 13.9% in the fourth quarter of 2008
- Same store sales, while down 5.2% for the fourth quarter, reflect a 340 basis point sequential improvement from the third quarter of 2009 and the second consecutive quarterly improvement
- SFAS 123R stock compensation expense of $1.7 million, or $0.03 per share
Robert Carr, Chairman and CEO, said, "Adjusted earnings for the quarter, which is net of $0.03 per share of stock compensation expense, was consistent with our guidance. In the fourth quarter, results reflected encouraging progress on two important measures, year-over-year growth in SME transaction processing volume and same store sales, both of which also improved on a sequential basis from the third quarter. These are modest, but encouraging, signs our small and mid-sized merchants may be starting to recover from the most challenging year since Heartland's formation. During the quarter, we also made progress on resolving some of the claims relating to the processing system intrusion, which should free an increasing proportion of our resources for more productive pursuits heading into the new year. The sense of both an underlying shift in market direction as well as the increased focus on our growth opportunities we believe provide a solid foundation from which to pursue our long term objectives in 2010. We are proud of the many accomplishments achieved over the past year by our dedicated employees who have battled very difficult conditions, and are thankful for the loyal merchants who continue to value Heartland's "Fair Deal."
Net revenues in the fourth quarter were $105.1 million, an increase of 5.0% compared to $100.1 million in the fourth quarter of 2008, with gross revenues up in all major categories: processing, payroll and equipment-related. Card processing volume for the three months ended December 31, 2009 increased 5.0% to $14.8 billion compared to the fourth quarter of 2008. Though same store sales were down 5.2% in the quarter, they improved by 340 basis points sequentially from the third quarter of 2009 and have now improved for two sequential quarters, in part due to weak year ago comparables. New margin installed was down 23.3% in the fourth quarter as economic conditions continue to force merchants to postpone an evaluation of their processing solution. The operating margin on net revenue was 10.0% in the fourth quarter, primarily due to an increase in general and administrative expenses, especially stock compensation, legal costs, and salary, and fringe benefits. The various expenses, accruals, and reserves incurred in the fourth quarter, all of which are attributable to the processing systems intrusion, were $23.7 million pre-tax, or $0.42 per share. The majority of these charges relate to settlement offers made by the Company in attempts to resolve certain of the claims asserted against it relating to the processing system intrusion, and settlement of certain claims asserted against the Company that are deemed likely to be agreed upon in the near term based upon discussions between the Company and the claimants. The charge also includes significant legal fees. These various expense and accruals are shown separately in the Company's Statement of Operations.
Mr. Carr continued, "During the economic slowdown we have continued to invest in developing a broader portfolio of products and services, including our industry-leading end-to-end encryption technology, to strengthen our value proposition. We are also launching innovative new sales and marketing strategies, such as industry-focused saturation sales efforts, to leverage our proprietary sales force and reinvigorate the growth in our relationship manager team. Through these investments, Heartland is now more aggressively in the market with a broader, more comprehensive value proposition for a wider variety of merchants. We expect this will enable us to gain share this year, as well as to experience significant growth as the economy recovers and more merchants seek a competitive solution."
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