SME card processing lifts Heartland Q3 income

GAAP net income from continuing operations for the quarter ended September 30, 2013 was $22.0 million, or $0.58 per share, compared with $18.9 million, or $0.47 per share for the quarter ended September 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 third quarter of 2013 include:

Record Small and Mid-Sized Enterprise (SME) quarterly transaction processing volume of $19.6 billion, up 3.9% from the third quarter of 2012
Record quarterly Net Revenue of $153.2 million, up 9.5% from the third quarter of 2012
Operating Margin on Net Revenue of 22.8%, compared with 23.4% for the same quarter in 2012. The operating margin for the first nine months of this year was 21.1%, down slightly from 21.3% for the first nine months of last year
Same store sales rose 1.6% and volume attrition was 13.1% in the third quarter of 2013
An all-time record $18.5 million new margin installed, up 28% from the third quarter of 2012, with new card margin installed up 29% in the quarter
The combination of share-based compensation and acquisition-related amortization reduced earnings by $4.8 million pre-tax, or approximately $0.08 per share, compared with $5.0 million pre-tax, or $0.07 per share in the third quarter of 2012

Robert Carr, Chairman and CEO, commented, "Record results this quarter once again reflect the growing strength of the Heartland franchise and our ability to deliver true value for our merchants. This quarter we achieved record new margin installed, led by strong growth in our SME card business, as we continued to successfully add highly productive new relationship managers. The continued increase in new SME card margin installed is key to accelerating the rate of organic card net revenue growth. Non-card businesses such as Payroll, Campus Solutions and Micropayments also performed exceptioned exceptionally well this quarter. And, we managed to achieve strong operating margins despite an increase in the level of investment spending incurred over the past three months. In a market that is in the midst of a wave of change, Heartland is responding with innovative new products and services that help improve our merchants' businesses, while creating value for our shareholders."

SME card processing volume for the three months ended September 30, 2013 was up 3.9% from the year-ago quarter to $19.6 billion, as new card margin installed grew 29%, same store sales rose 1.6% and volume attrition was 13.1%. Net revenue in the quarter increased 9.5% over the prior year, with steady growth in card processing, a more than doubling in Payroll, strong contribution from Campus Solutions and an 88% increase in Micropayments. Operating income in the quarter was a record $34.9 million. The operating margin was 22.8% of net revenue for the quarter, down from a year ago as savings from a reduction in the rate of general and administrative expense growth compared to the first half of the year were invested in new growth initiatives. In the aggregate, share-based compensation and acquisition related amortization expense reduced earnings by $0.08 per share in the third quarter of 2013, compared to $0.07 per share in the third quarter of 2012.

Mr. Carr continued, "Recent investments in Leaf and Tabbed Out, new partnerships with Bigcommerce in eCommerce, and the introduction of our innovative SaaS solution in Heartland School Solutions that helped us win the Chicago Board of Education contract, are examples of how our vision is driving an exciting transformation of our business in a constantly changing world. In contrast to the development of new standalone products and applications, we are taking an integrated view of the role technology can play in the evolving needs of the small to mid-sized merchant. And, our proprietary sales organization provides us with the industry's single largest network of qualified professionals who have earned the trust and confidence of merchants as not just a vendor, but as consultants who have their best interests at heart. This is why I feel Heartland has never been in a better position to capitalize on the tremendous growth opportunities unfolding before us, and to create significant value for our shareholders."

NINE MONTH RESULTS:

Adjusted net income from continuing operations and related earnings per share for the first nine months of 2013 were $67.6 million or $1.77 per share, respectively, compared with $58.6 million, or $1.45 per share, respectively, in the first nine months of 2012. Net revenue for the first nine months of 2013 was $450 million, up 13.1% compared with the first nine months of 2012. For the first nine months of 2013, GAAP net income from continuing operations was $57.3 million or $1.50 per share, compared with $49.9 million, or $1.23 per share for the first nine months of 2012. Year-to-date 2013, share-based compensation and acquisition-related amortization expense have reduced net income by $10.3 million, or $0.27 per share, compared with $8.7 million, or $0.22 per share in the first nine months of 2012.

FULL YEAR 2013 GUIDANCE:

For full year 2013, we now expect Net Revenue to be between approximately $600 million and $605 million. Adjusted Earnings are expected to be between $2.30 and $2.33 per share, which is net of $0.37 per share of combined acquisition-related amortization and share-based compensation expense. Additionally, 2013 Adjusted Earnings reflect an estimated $0.04 per share of proportionate losses on the consolidation of Leaf.

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 December 13, 2013 to shareholders of record on November 22, 2013. In the third quarter, the Company utilized approximately $6 million in cash to repurchase approximately 158,000 shares at an average cost of $38.00 per share, raising the amount of cash used to repurchase shares to over $40 million so far this year. At the end of the quarter, approximately $64.6 million remained outstanding on the Company's existing repurchase authorization.