Heartland Payment Systems, one of the nation's largest payments processors, today announced first quarter GAAP net income of $14.2 million, or $0.36 per fully diluted share.
Results for the quarter include $20.4 million (pre-tax), or $0.32 per diluted share, of insurance recoveries associated with processing system intrusion costs, net of expenses related to the processing system intrusion.
Excluding such net recoveries, first quarter Adjusted Net Income was $1.6 million or $0.04 per Diluted Share.
Highlights for the First Quarter include:
- Small and Mid-Sized merchant (SME) transaction processing volume of $14.4 billion, up 7.2% compared with the first quarter of 2009
- Transactions processed for Large National merchants of 685 million, up 6.8% compared with the first quarter of 2009
- Quarterly net revenue of $103.8 million, up 5.4% compared with the first quarter of 2009
- 94.6% of new merchants installed were on HPS Exchange compared to 91.2% in the first quarter of 2009
- A 370 basis point sequential improvement in same store sales performance (1.5%) relative to the fourth quarter of 2009, the third quarter of sequential same store sales improvement
- SFAS 123R stock compensation expense of $1.6 million, or $0.02 per share
Robert Carr, Chairman and CEO, said, "Growth rates in two key performance metrics, transaction processing volume and same store sales, both improved each month in the quarter, reflecting our merchants' strengthening business conditions. Though adjusted earnings in the quarter were down from the year ago period, they were consistent with the outcome we could expect based on our planned investment spending on new growth initiatives, including the Heartland Summit, compounding our seasonally weak first quarter. Expense growth has been considerably slowed through our efficiency and productivity initiatives, though elevated merchant losses weighed on first quarter margins. The recovery in same store sales is encouraging, including positive March same store sales, the first monthly increase in nearly two years. The timing of the roll out of our new growth initiatives is opportune as there are signs that a rebounding economy is increasing customer traffic at our small and mid-sized merchants. We believe we are well-positioned to leverage our franchise to gain share in attractive growth markets that will create value for our shareholders."
Net revenues in the first quarter of 2010 were $103.8 million, an increase of 5.4% compared to $98.5 million in the first quarter of 2009. Card processing volume for the three months ended March 31, 2010 was $14.4 billion, an increase of 7.2% compared to the three months ended March 31, 2009, primarily due to contributions from the ramp up in Discover and American Express activity, as well as growth in other SME merchant volume. In the first quarter of 2010, operating income as a percentage of net revenues was 2.5%, reflecting the economy's impact on net revenue growth, the expensing of our periodic Sales and Servicing Summit and higher merchant losses in the quarter. Margins also continue to reflect higher stock compensation expense in our general and administrative expenses. In the first quarter, the Company recovered approximately $26.8 million of the costs it incurred for the processing system intrusion from its insurance providers and expensed approximately $6.4 million for accruals, legal fees and costs it incurred for investigations and defending various claims and actions, for a net recovery of $20.4 million. These various expenses, accruals and recoveries are shown separately in the Company's Statement of Operations.
Mr. Carr continued, "The first quarter was a period of significant progress in introducing significant changes in our organization as part of the aggressive launch of exciting new sales and marketing campaigns. Our relationship managers are now fully engaged in our new vertical market strategy and are in the field with programs specifically targeting the restaurant, lodging and medical verticals; at the same time, our sales leadership is now implementing our aggressive hiring plan. This month we are introducing our fully encrypted end-to-end terminal solution to the market, offering merchants and their customers what we believe to be the highest level of data security available in the marketplace. Both our American Express One Point and Discover MAP programs are driving increased processing and servicing activity, making Heartland one of the few merchant processors capable of settling transactions from all of the four major card issuers. And, our Payroll, CampusCard and Gift Marketing programs are all achieving continued success opening new markets where we will seek to further grow the Heartland franchise. With the economy showing signs of stabilization - if not improvement - transaction processing volume is expected to experience better performance as cards increasingly become the payment vehicle of choice. This is an opportune time to leverage our strategic initiatives to achieve our long-term growth objectives."
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