Heartland Payment Systems Q2 net income rises

Adjusted Net Income and Adjusted Earnings per Share were $20.3 million and $0.50, respectively, for the quarter ended June 30, 2012, compared to Adjusted Net Income and Adjusted Earnings per Share of $13.6 million and $0.34, respectively, for the quarter ended June 30, 2011. Adjusted Net Income and Adjusted Earnings per Share are non-GAAP measures that are detailed later in this press release in the section "Reconciliation of Non-GAAP Financial Measures."

Highlights for the second quarter of 2012 include:

• Small and Mid-Sized Enterprise (SME) quarterly transaction processing volume of $18.6 billion, up 6.2% from the second quarter of 2011
• Quarterly Net Revenue of $135.3 million, up 10.7% from the second quarter of 2011
• Operating Margin on Net Revenue of 22.0% compared to 17.7% for the same quarter in 2011
• Same store sales rose 2.2% and volume attrition was 12.7% in the second quarter
• New margin installed of $15.1 million, up 20.5% from the second quarter of 2011 and the best quarterly new margin installed performance in three years
• Share-based compensation reduced earnings by $4.0 million pre-tax, or approximately $0.06 per share, compared to $1.7 million, or $0.03 per share in the second quarter of 2011

Robert Carr, Chairman and CEO, said, "Record transaction processing volume and exceptional growth in our non-card businesses in the second quarter drove earnings to a quarterly record. In addition, our operating margin in the quarter exceeded our near term goal as we continue to improve overall efficiency and productivity. New business in the quarter was the best in several years, with new margin installed increasing over 20% from a year ago as our Durbin Dollars marketing campaign continues to bolster results and both our established and newly hired relationship managers achieved individual record levels of new business production. Cash flow in the second quarter was up significantly from the same period a year ago, supporting our strategic growth initiatives, including our Heartland School Solutions' recent acquisition of Lunch Byte, as well as providing the resources to reward our shareholders through dividends and share repurchases. We have made tremendous progress strengthening our organization and expanding our franchise, and are well-positioned to capitalize on the growth opportunities arising across our industry to create value for our shareholders."

SME card processing volume for the three months ended June 30, 2012 increased 6.2% from the year-ago quarter to $18.6 billion as same store sales increased 2.2%, volume attrition was 12.7% and new margin installed grew 20.5%. Net revenue in the quarter increased 10.7% over the prior year as a result of strong card and non-card business revenue growth, especially Heartland School Solutions. Operating income in the quarter was up 37% over the year-ago quarter to $29.7 million, or 22% of net revenue, reflecting the improved leverage resulting from ongoing efficiency initiatives. The significant improvement in operating performance in the quarter was achieved despite a substantial increase in share-based compensation, which was also the primary driver of an 11% rise in general and administrative expenses. Share-based compensation throughout 2012 is expected to be substantially higher than in 2011, reflecting improvements in corporate financial performance that is triggering the recognition of additional costs associated with certain performance-based Restricted Stock Units that are likely to vest in coming years.

Mr. Carr continued, "These are exciting times throughout the payments industry. We are investing in new technology and developing exciting new products in existing and adjacent markets to remain a leader in this large, fast growing and dynamic industry. Most importantly, this past quarter we added accomplished executives to our management team to more effectively capitalize on existing and emerging opportunities in the industry that will enhance our growth and profitability. By continuing to strengthen our organization, we can more effectively leverage our resources and relationships to grow in markets that are rapidly expanding and offer superior returns. While our business continues to change and grow, we remain committed to providing our merchants with a 'Fair Deal.'"

SIX MONTH RESULTS:
For the first six months of 2012, GAAP net income was $31.6 million or $0.78 per share, compared to $20.1 million, or $0.50 per share for the first half of 2011. Net revenue for the first half of 2012 was $263.9 million, up 12.4% compared to the first half of 2011. Adjusted net income and earnings per share for the first half of fiscal 2012 were $36.0 million or $0.89 per share, compared to $22.8 million, or $0.57 per share in the first half of fiscal 2011. Year-to-date 2012, share-based compensation expense has reduced earnings by $4.3 million or $0.11 per share, compared to $2.3 million, or $0.06 per share, a year ago.

FULL YEAR 2012 GUIDANCE:
For full year 2012, we expect Net Revenue to be between $540 million and $545 million, and Adjusted EPS to be between $1.70 and $1.74, before deducting $0.22 per share of after-tax share-based compensation expense.

BOARD DECLARES QUARTERLY DIVIDEND; SHARE REPURCHASE PROGRAM UPDATE
The Company also announced that the Board of Directors declared a quarterly dividend of $0.06 per common share payable September 14, 2012 to shareholders of record on August 24, 2012. In the second quarter, the Company completed its previously-announced $50 million repurchase program, repurchasing a total of 1.93 million shares at an average cost of $25.82 over the course of the program. The Board has also authorized a new $50 million repurchase program under essentially the same terms and conditions as the completed program.