Heartland Payment Systems (NYSE:HPY), one of the nation's largest payments processors, today announced second quarter GAAP net income of $12.3 million, or $0.31 per diluted share.
Results for the quarter are after $372,000 (pre-tax), or less than one cent per diluted share, of various expenses attributable to the 2008 processing system intrusion.
Excluding these expenses, Adjusted Net Income and Diluted Earnings per Share were $12.5 million and $0.31, respectively, for the second quarter. For the second quarter of 2010, adjusted net income and diluted earnings per share were $9.1 million and $0.23, respectively. 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 $17.5 billion, up 7.2 percent from the second quarter of 2010
- Net Revenue was a quarterly record $122.2 million, up 6.1 percent compared to the same quarter in 2010
- An Operating Margin on net revenue of 17.7 percent, representing the best operating margin in almost three years, and up from 13.2 percent for the second quarter of 2010
- Same store sales rose 2.5 percent, the fifth consecutive quarter of same store sales growth
- New margin installed was $12.6 million in the second quarter, up 3.6 percent from last year's second quarter
- Stock Compensation expense reduced earnings by $1.7 million pre-tax, or $0.03 per diluted share, in the quarter, compared to $1.2 million, or $0.02 per share in the second quarter of 2010
Robert Carr, Chairman and CEO, said, "Through the combination of steady growth across our card and non-card businesses and disciplined expense management, we achieved one of the most profitable quarters in the company's history. We've made continued progress with our new business initiatives, growing new margin installed once again this quarter, while simultaneously better leveraging our business model through the successful implementation of efficiency initiatives that drove the operating margin to 17.7%. In an economy that remains on the mend, we believe we can build value for our shareholders through the effective execution of our back-to-basics marketing strategy and the introduction of innovative new products and services in a rapidly evolving and dynamic industry with strong growth opportunities."
Net revenue in the second quarter of 2011 was up 6.1% to $122.2 million, compared to the second quarter of 2010. Net revenue growth was driven primarily by a record $17.5 billion in SME card processing volume, representing a 7.2% increase over the same quarter a year ago, as well as double-digit growth in our non-card businesses. Network Services transactions processed were a quarterly record 847 million, an increase of 6% from 800 million transactions in the second quarter of last year. In the second quarter of 2011, operating income as a percentage of net revenue was 17.7%, with processing and servicing, customer acquisition and depreciation expense all down compared to the second quarter of 2010. General and administrative expenses increased 21.9% in the quarter, consistent with our strategy to invest a portion of anticipated incremental operating income in long-term growth and productivity improvement initiatives. In the second quarter, the Company incurred $372,000 (pre-tax) in expenses attributable to the 2008 processing system intrusion. These expenses are shown separately in the Company's Statement of Income.
Mr. Carr continued, "Our key same store sales and new margin installed figures were up in the quarter, reflecting modest economic recovery at our merchants and continued strong new business productivity from our relationship managers. Although the relationship manager count was down this quarter, our new hire initiatives are showing early signs of success in developing extremely productive new relationship managers. These results are encouraging as it supports our plans to reinvigorate growth in our sales force while maintaining high overall RM productivity. New product introductions and acquisitions continue to succeed, with Smartlink and K-12, for instance, showing nice growth this quarter. Most importantly, with the implementation of new debit interchange rules rapidly approaching, we are preparing for a unique market-wide opportunity to more fully exploit the compelling value proposition of our Fair Deal. As an industry leader providing merchants transparent pricing, product innovation and end-to-end processing security, we believe we offer the SME market the most comprehensive and cost effective payments processing solution available."
SIX MONTH RESULTS:
For the first six months of 2011, GAAP net income was $20.1 million or $0.50 per diluted share, compared to $20.4 million, or $0.52 per share for the first half of 2010. Net revenue for the first half of 2011 was $234.9 million, up 7.3% compared to the first half of 2010. Excluding various expenses, accruals, and insurance recoveries in 2010, all of which are attributable to the 2008 processing system intrusion, adjusted net income and diluted earnings per share for the first half of fiscal 2011 were $20.5 million or $0.51 per diluted share, compared to $10.8 million, or $0.28 per share in the first half of fiscal 2010. Year-to-date 2011, stock compensation expense has reduced earnings by $2.3 million or $0.058 per diluted share, compared to $1.7 million, or $0.044 per diluted share, a year ago.
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