Heartland posts Q2 profit

Source: Heartland Payment Systems

Heartland Payment Systems (NYSE: HPY), one of the nation's largest payment processors, today announced second quarter GAAP net income of $6.1 million or $0.16 per diluted share.

Results for the quarter are after $4.9 million (pre-tax), or $0.07 per diluted share, of various expenses and accruals, all of which are attributable to the processing system intrusion. Excluding these expenses and accruals, Adjusted Net Income and Diluted Earnings per Share were $9.1 million and $0.23, respectively, for the second quarter. Adjusted Net Income and Diluted 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 Second Quarter include:

* Small and mid-sized merchant (SME) Transaction processing volume was a quarterly record $16.3 billion, up 8 percent from the second quarter of 2009
* Relationship manager count grew to a record 1,393, a 24 percent increase from the level at March 31, 2010
* Net Revenue was up 8.1 percent compared to the same quarter in 2009
* Same store sales rose 1.1 percent, the first quarterly increase in over two years
* New margin installed improved to $12.1 million in the second quarter from $11.1 million in the first quarter, though this represented a 20 percent decline from the second quarter of 2009
* Operating margin on net revenue of 13.2 percent compared to 14.7 percent for the second quarter of 2009
* Stock Compensation expense reduced earnings by $1.2 million pre-tax, or $0.019 per diluted share, in the quarter, compared to $811,000, or $0.013 per share in the second quarter of 2009

Robert Carr, Chairman and CEO, said, "Both transaction processing volume and Network Services transactions processed reached quarterly records in the second quarter, while same store sales turned positive and contributed to our growth for the first time in over two years. As a result, the rate of net revenue growth in the quarter improved relative to the first quarter. By continuing to carefully manage expenses, we were able to achieve a 13.2 percent operating margin in the quarter, indicative of the progress we are achieving better leveraging our business model, in addition to the seasonal rebound in our margins. It is particularly rewarding to have reached these levels of activity during a period of continued muted economic activity and at a time when we have been heavily investing in our organization to launch a number of new growth initiatives. Over the past three months our relationship manager count has increased by 24 percent as we fill open positions and implement our focused vertical industry marketing strategy. This focus has already received recognition from the restaurant, lodging and healthcare industries currently being served, including a recent endorsement from the Texas Hotel and Lodging Association and preferred payments partner status with the California Medical Association. In addition, this quarter our new end-to-end encryption technology, E3TM, hit the market, with over 3,000 of our industry-leading terminals having already been installed by more than 2,500 merchants. As the economy recovers and our new growth strategies gain traction, we expect that our unwavering commitment to strengthen the Heartland franchise through continual investment in our organization will position us to achieve our long-term growth objectives and create value for our shareholders."

Net revenues in the second quarter of 2010 were up 8.1% from the second quarter of 2009 to $115.1 million, primarily driven by an 8% increase in SME Card processing volume, which was a record $16.3 billion in the quarter. Net revenue also benefitted from a quarterly record 800 million Network Services transactions, which were up nearly 10% from 728 million transactions in the June quarter of last year. In the second quarter of 2010, operating income as a percentage of net revenues was 13.2%, reflecting improved leverage of the company's business model through disciplined expense management. General and administrative expenses in the quarter were down both sequentially and on a year-over-year basis. In the second quarter, the Company incurred $4.9 million pre-tax, or $0.07 per diluted share in various expenses and accruals, all of which are attributable to the processing system intrusion. These various expenses and accruals are shown separately in the Company's Statement of Operations. Interest expense for the second quarter of 2010 included approximately $0.5 million, or $0.01 per share, related to borrowings we incurred to fund the settlement with Visa in February 2010.

Mr. Carr continued, "Same store sales and transaction processing volumes are beginning to show improved performance. Our sales organization is growing very nicely, and our new products and marketing strategy are ramping up. Consequently, we intend to focus on accelerating growth in new margin installed and leveraging our investments in the second half of the year. Certainly, the economy, and especially consumer spending and its effect on small business activity, will play an important role in our near term opportunity. However, over the longer term, we believe Heartland is positioned to benefit from our pricing transparency, strong products, and now the industry's leading security that merchants are demanding as they become increasingly educated and sensitized to their processing needs."

SIX MONTH RESULTS:

For the first six months of 2010, GAAP net income was $20.4 million or $0.52 per diluted share, compared to a loss of $5.1 million, or $0.14 per share for the first half of 2009. Net revenues for the first half of 2010 were $219.0 million, up 6.8% compared to the first half of 2009. Excluding various expenses, accruals, recoveries, and reserves, all of which are attributable to the processing system intrusion, adjusted net income and diluted earnings per share for the first half of fiscal 2010 were $10.8 million or $0.28 per diluted share, compared to $14.7 million, or $0.39 per share in the prior year six month period. Year-to-date 2010, stock compensation expense has reduced earnings by $2.8 million or $0.044 per diluted share compared to $1.1 million or $0.018 per diluted share a year ago.

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