Heartland reports Q2 earnings

GAAP net income from continuing operations for the quarter ended June 30, 2013 was $19.7 million, or $0.53 per share compared to $18.0 million, or $0.43 for the quarter ended June 30, 2012. 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 2013 include:

Record Small and Mid-Sized Enterprise (SME) quarterly transaction processing volume of $19.3 billion, up 4.2% from the second quarter of 2012
Record Quarterly Net Revenue of $149.7 million, up 13.5% from the second quarter of 2012
Operating Margin on Net Revenue of 22.3%, compared to 22.0% for the same quarter in 2012; the operating margin for the first six months of this year also increased from the first six months of last year
Same store sales rose 1.9% and volume attrition was 12.9% in the second quarter
New margin installed of $17.6 million, up 16% from the second quarter of 2012 and the best quarterly new margin installed performance in over three years
Share-based compensation reduced earnings by $3.3 million pre-tax, or approximately $0.05 per share, compared to $4.0 million pre-tax, or $0.06 per share in the second quarter of 2012
Acquisition-related amortization was $2.3 million pre-tax, or $0.04 per share, in the second quarter, up from $1.1 million pre-tax, or $0.02 per share in the first quarter of 2012

Robert Carr, Chairman and CEO, commented, "Record earnings in the second quarter clearly demonstrate that our strategy to productively grow our sales organization, selectively enhance our core transaction processing capability, and add complementary non-card products to our portfolio is generating double-digit growth in net revenue and operating income. New business continues to gain momentum, as new margin installed grew 16% in the quarter, with new card margin installed growing faster than overall new margirall new margin installed. Pricing on new card merchants installed remains attractive, with June being the best month of new card margin installed in nearly five years. Productivity in our sales organization also improved to record levels, and for the second consecutive quarter, we grew the sales organization, achieving net growth of 42 relationship managers. We also achieved improved margins while investing in a variety of growth initiatives. The investments we continue to make across the organization are not only strengthening our performance today, but are positioning us for continued growth over the long term."

SME card processing volume for the three months ended June 30, 2013 increased 4.2% from the year-ago quarter to a record $19.3 billion, as new margin installed growth accelerated sequentially from the first quarter and same store sales and volume attrition remained within expectations. Net revenue in the quarter increased 13.5% over the prior year, with steady card processing revenue growth complemented by a 107% increase in payroll revenues, a 71% increase in Heartland School Solutions transaction processing revenue, strong revenue contribution by ECSI to our Campus Solutions business, and a 25% increase in total equipment-related revenue. Operating income in the quarter was up 15% from the year-ago quarter to a record $33.3 million, or 22.3% of net revenue. The operating margin remains ahead of last year despite a significant increase in investment spending on new growth initiatives and a substantial increase in acquisition-related amortization expense. General and administrative expenses were up 39% in the quarter, primarily due to increased costs associated with the December 2012 acquisitions. In the aggregate, share-based compensation and acquisition related amortization expense reduced earnings by $0.09 per share in the second quarter of 2013, compared to $0.08 per share in the second quarter of 2012.

Mr. Carr continued, "Heartland is ideally positioned to capitalize on the growth opportunities being created by the rapidly evolving payments market. To assure we can set the agenda for new payments technology and systems, we are developing new products, creating mutually beneficial partnerships, and making strategic investments. As a key differentiator, we are also strengthening our already dominant sales organization by adding new relationship managers, implementing new tools, such as our Atlas CRM application, and creating product specialists to both accelerate growth and increase sales productivity. Our non-card businesses are growing at even faster rates than our core card processing, while simultaneously increasing the number of multiple product merchants, which enhances the value of the overall Heartland relationship. With both the financial resources and management talent to undertake these broad growth initiatives, we are excited about our opportunity to create value for our shareholders by achieving our vision of shaping the future of electronic payments."

SIX MONTH RESULTS:

Adjusted net income from continuing operations and related earnings per share for the first half of fiscal 2013 were $42.5 million or $1.12 per share, respectively, compared to $36.5 million, or $0.90 per share, respectively, in the first half of fiscal 2012. Net revenue for the first half of 2013 was $297 million, up 15.1% compared to the first half of 2012. For the first six months of 2013, GAAP net income from continuing operations was $35.3 million or $0.93 per share, compared to $30.9 million, or $0.76 per share for the first half of 2012. Year-to-date 2013, share-based compensation and acquisition-related amortization expense have reduced net income by $7.2 million, or $0.19 per share, compared to $5.6 million, or $0.14 per share in the first half of 2012.

FULL YEAR 2013 GUIDANCE:

For full year 2013, we continue to expect Net Revenue to be between approximately $600 million and $610 million. Adjusted Earnings are expected to be between $2.29 and $2.33 per share, which is net of $0.37 per share of combined acquisition-related amortization and 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 $0.07 per common share payable September 13, 2013 to shareholders of record on August 23, 2013. In the second quarter, the Company utilized almost $19 million in cash to repurchase approximately 601,000 shares at an average cost of $31.56 per share. At the end of the quarter, approximately $70.6 million remained outstanding on the Company's existing repurchase Authorization.