Attached files
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| 8-K - 8-K - HEARTLAND PAYMENT SYSTEMS INC | hpy8kearnings2014.htm |
Exhibit 99.1
Heartland Payment Systems 90 Nassau Street
Princeton, NJ 08542 888.798.3131
HeartlandPaymentSystems.com
HEARTLAND PAYMENT SYSTEMS REPORTS THIRD QUARTER ADJUSTED EARNINGS OF $0.68 PER SHARE
Both Card and Non-Card Business Growth Accelerates in Quarter
Princeton, NJ -October 31, 2014 - Heartland Payment Systems (NYSE: HPY), the nation's fifth largest payments processor and a leading provider of merchant business solutions, today announced Adjusted Net Income and Adjusted Earnings per Share of $24.8 million and $0.68, respectively, for the quarter ended September 30, 2014, compared to Adjusted Net Income and Adjusted Earnings per Share of $25.1 million and $0.66, respectively, for the quarter ended September 30, 2013. GAAP net income for the quarter ended September 30, 2014 was $20.5 million, or $0.56 per share, compared with $22.0 million, or $0.58 per share, respectively, for the quarter ended September 30, 2013. 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 2014 include:
• | The eighth consecutive quarter of new margin installed growth, up 15.7% from a year ago to a record $21.4 million |
• | Record Small and Mid-Sized Enterprise (SME) core Visa/Mastercard/Discover quarterly transaction processing volume of $20.4 billion, up 7.1% from the third quarter of 2013 |
• | Total Small and Mid-Sized Enterprise (SME) quarterly transaction processing volume, including American Express, of $21.6 billion, up 10.7% from the third quarter of 2013 |
• | Record Quarterly Net Revenue of $169.4 million, up 10.5% from the third quarter of 2013 |
• | Operating Margin on Net Revenue of 18.0% compared to 22.8% for the same quarter in 2013. Excluding the impact of Leaf discussed below, the operating margin was 19.6% in this year’s third quarter |
• | Same store sales rose 1.8% and volume attrition was 12.6% in this year’s third quarter |
Robert O. Carr, Chairman and CEO, said, “Growth accelerated in the third quarter due in part to the momentum created by the strong increase in new business achieved over the past few quarters. New margin installed was another record this quarter, which not only contributed to the strong performance in the period, but will also help
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drive further top line acceleration in the future. We achieved record net revenue this quarter, which was built on solid transaction processing volume and strong non-card revenue growth. Non-card revenue growth was primarily organic, but was also aided by the acquisition of TouchNet, which closed in the quarter and is being quickly integrated. Furthermore, during the third quarter, we strengthened our sales organization through the net addition of 68 relationship managers, helping us move towards our goal for the year, and establishing a broader foundation to support continued growth. Through complementary acquisitions and internal new product development, we are positioning Heartland to capitalize on the growth opportunities being created by the big trends in our industry - security, mobility, and integrated solutions - and to create value for our shareholders."
The growth in Visa/Mastercard/Discover SME card processing volume accelerated to 7.1% for the three months ended September 30, 2014, from the comparable 5.4% and 3.5% growth in the second quarter and first quarter of the year, respectively. Drivers of growth were once again record new margin installed, improved customer retention and stable same store sales growth. Adding to overall card processing growth, American Express processing volume was up significantly in the quarter due to the conversion of certain Heartland merchants to OptBlue. Revenue growth also accelerated across virtually all businesses in the quarter, aided in part by acquisitions. Operating margins in the quarter reflected one-time expenses associated with recent acquisitions, expenses associated with the conversion to OptBlue, and Leaf’s operating loss. We expect margins to rebound during the fourth quarter aided by the conversion to OptBlue. Also in the third quarter, we acquired all Leaf shares held by noncontrolling interests, resulting in 100% ownership, which enabled Heartland to tax-effect Leaf’s losses from the date the noncontrolling interests were acquired. We also reported a one-time gain of $3.6 million related to the settlement of an existing earnout obligation provided to the noncontrolling shareholders in the original partial acquisition. Combined, for the third quarter, Leaf’s operating and non-operating impact on earnings was a favorable $0.05 per share.
Mr. Carr continued, “We have an agreement to acquire Xpient Solutions and expect to close today. Xpient represents further development of our Point-of-Sale strategy. With the acquisition, we will become a leading POS company to customers including Taco Bell, Jack-in-the-Box, and Panera, among others. Xpient, Leaf and Heartland Secure provide a powerful POS solution platform that directly addresses security issues, while offering merchants robust features and functionality. POS is just another example of our strategy to expand horizontally into adjacent and complementary markets that leverage our core capabilities and offer outstanding growth opportunities. This strategy not only augments our growth rate, but also offers the opportunity to achieve synergies and competitive advantages that are unmatched in our industry."
NINE MONTH RESULTS:
Adjusted Net Income per share for the first nine months of fiscal 2014 was $65.2 million or $1.76 per share, compared to $67.7 million or $1.77 per share, respectively, in the first nine months of fiscal 2013. Net revenue for the first nine months of 2014 was $484.3 million, up 7.7% compared to $449.8 million for the first nine months of 2013. For the first nine months of 2014, GAAP net income was $53.6 million, or $1.44 per share, compared to GAAP net income from continuing operations of $57.3 million or $1.50 per share for the first nine months of 2013. Year-to-date 2014, share-based compensation and acquisition-related amortization expense have reduced net income by $11.6 million, or $0.32 per share, compared to $10.4 million, or $0.27 per share, in the first nine months
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of 2013.
FULL YEAR 2014 GUIDANCE:
For full year 2014, we expect Net Revenue to grow 11% to 12% to between approximately $665 million and $670 million, and Adjusted EPS to be in the range of $2.33 - $2.37. Guidance assumes that after-tax share-based compensation and acquisition-related amortization expenses will reduce earnings per share by $0.46 for the year and an effective tax rate above 39%. Guidance for the year reflects a reduction of $0.19 per share for Leaf’s operating losses, excluding the positive impact related to the one-time gain described above. Finally, the guidance includes the contribution from the acquisition of TouchNet in 2014, which, net of associated transaction costs, is expected to be slightly accretive on an adjusted basis.
BOARD DECLARES QUARTERLY DIVIDEND
The Company also announced that on October 28, 2014, the Board of Directors declared a quarterly dividend of $0.085 per common share payable December 15, 2014 to shareholders of record on November 24, 2014.
CONFERENCE CALL:
Heartland Payment Systems, Inc. will host a conference call on October 31, 2014 at 8:30 a.m. Eastern Time to discuss financial results and business highlights. Heartland Payment Systems invites all interested parties to listen to its conference call, broadcast through a webcast on the Company's website. To access the call, please visit the Investor Relations portion of the Company's website at: www.heartlandpaymentsystems.com. The conference call may be accessed by calling (888)-317-6003. Please provide the operator with PIN number 2206990. The webcast will be archived on the Company's website within two hours of the live call.
About Heartland Payment Systems
Heartland Payment Systems, Inc. (NYSE: HPY), the fifth largest payments processor in the United States, delivers credit/debit/prepaid card processing, mobile commerce, e-commerce, marketing solutions, security technology, payroll solutions, and related business solutions and services to more than 275,000 business and educational locations nationwide. A FORTUNE 1000 company, Heartland is the founding supporter of The Merchant Bill of Rights, a public advocacy initiative that educates merchants about fair credit and debit card processing practices. More detailed information can be found at HeartlandPaymentSystems.com or follow the company on Twitter @HeartlandHPY and Facebook at facebook.com/HeartlandHPY.
Forward-looking Statements
This press release contains statements of a forward-looking nature which represent our management's beliefs and assumptions concerning future events. Forward-looking statements involve risks, uncertainties and assumptions and are based on information currently available to us. Actual results may differ materially from those expressed in the forward-looking statements due to many factors, including risks and additional factors that are described in the Company's Securities and Exchange Commission filings, including but not limited to the Company's annual report
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on Form 10-K for the year ended December 31, 2013. We undertake no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this release.
Contact
Joe Hassett
Gregory FCA Communications
27 West Athens Ave.
Ardmore, PA 19003
Tel: 610-228-2110
Email: Heartland_ir@gregoryfca.com
TABLES FOLLOW
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Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Total revenues | $ | 600,626 | $ | 557,129 | $ | 1,706,768 | $ | 1,604,992 | |||||||
Costs of services: | |||||||||||||||
Interchange | 373,372 | 350,734 | 1,059,241 | 1,003,039 | |||||||||||
Dues, assessments and fees | 57,864 | 53,165 | 163,218 | 152,146 | |||||||||||
Processing and servicing | 69,328 | 60,195 | 204,985 | 177,968 | |||||||||||
Customer acquisition costs | 12,289 | 10,838 | 34,907 | 31,554 | |||||||||||
Depreciation and amortization | 7,981 | 5,454 | 20,472 | 14,066 | |||||||||||
Total costs of services | 520,834 | 480,386 | 1,482,823 | 1,378,773 | |||||||||||
General and administrative | 49,381 | 41,871 | 137,241 | 131,242 | |||||||||||
Total expenses | 570,215 | 522,257 | 1,620,064 | 1,510,015 | |||||||||||
Income from operations | 30,411 | 34,872 | 86,704 | 94,977 | |||||||||||
Other income (expense): | |||||||||||||||
Interest income | 33 | 29 | 95 | 95 | |||||||||||
Interest expense | (2,142 | ) | (1,243 | ) | (4,450 | ) | (3,746 | ) | |||||||
Other, net | 3,581 | 90 | 3,869 | (70 | ) | ||||||||||
Total other income (expense) | 1,472 | (1,124 | ) | (486 | ) | (3,721 | ) | ||||||||
Income from continuing operations before income taxes | 31,883 | 33,748 | 86,218 | 91,256 | |||||||||||
Provision for income taxes | 11,727 | 11,857 | 34,579 | 34,039 | |||||||||||
Net income from continuing operations | 20,156 | 21,891 | 51,639 | 57,217 | |||||||||||
Income from discontinued operations, net of income tax of $—, $—, $— and $2,135 | — | — | — | 3,970 | |||||||||||
Net income | 20,156 | 21,891 | 51,639 | 61,187 | |||||||||||
Less: Net (loss) income attributable to noncontrolling interests | |||||||||||||||
Continuing operations | (302 | ) | (90 | ) | (2,011 | ) | (90 | ) | |||||||
Discontinued operations | — | — | — | 56 | |||||||||||
Net income attributable to Heartland | $ | 20,458 | $ | 21,981 | $ | 53,650 | $ | 61,221 | |||||||
Amounts attributable to Heartland: | |||||||||||||||
Net income from continuing operations | 20,458 | 21,981 | 53,650 | 57,307 | |||||||||||
Income from discontinued operations, net of income tax and noncontrolling interests | — | — | — | 3,914 | |||||||||||
Net income attributable to Heartland | 20,458 | 21,981 | 53,650 | 61,221 | |||||||||||
Basic earnings per share: | |||||||||||||||
Income from continuing operations | $ | 0.57 | $ | 0.60 | $ | 1.47 | $ | 1.56 | |||||||
Income from discontinued operations | — | — | — | 0.11 | |||||||||||
Basic earnings per share | $ | 0.57 | $ | 0.60 | $ | 1.47 | $ | 1.67 | |||||||
Diluted earnings per share: | |||||||||||||||
Income from continuing operations | $ | 0.56 | $ | 0.58 | $ | 1.44 | $ | 1.50 | |||||||
Income from discontinued operations | — | — | — | 0.10 | |||||||||||
Diluted earnings per share | $ | 0.56 | $ | 0.58 | $ | 1.44 | $ | 1.60 | |||||||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic | 36,069 | 36,857 | 36,388 | 36,752 | |||||||||||
Diluted | 36,850 | 38,020 | 37,249 | 38,079 | |||||||||||
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Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30 | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 20,156 | $ | 21,891 | $ | 51,639 | $ | 61,187 | |||||||
Other comprehensive (loss) income: | |||||||||||||||
Reclassification of gains on investments, net of income tax of $5, $—, $108 and $— | (6 | ) | — | (170 | ) | — | |||||||||
Unrealized (losses) gains on investments, net of income tax of $5, $—, $5 and $4 | (8 | ) | — | 6 | 4 | ||||||||||
Unrealized gains on derivative financial instruments, net of income tax of $28, $25, $83 and $121 | 45 | 152 | 140 | 315 | |||||||||||
Foreign currency translation adjustment | — | — | — | (54 | ) | ||||||||||
Comprehensive income | 20,187 | 22,043 | 51,615 | 61,452 | |||||||||||
Less: Comprehensive loss attributable to noncontrolling interests | (302 | ) | (90 | ) | (2,011 | ) | (50 | ) | |||||||
Comprehensive income attributable to Heartland | $ | 20,489 | $ | 22,133 | $ | 53,626 | $ | 61,502 | |||||||
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Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
September 30, 2014 | December 31, 2013 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 94,577 | $ | 71,932 | |||
Funds held for customers | 122,311 | 127,375 | |||||
Receivables, net | 220,936 | 200,040 | |||||
Investments | 4,110 | 4,101 | |||||
Inventory | 11,445 | 11,087 | |||||
Prepaid expenses | 19,451 | 15,284 | |||||
Current tax assets | 5,139 | 10,426 | |||||
Current deferred tax assets, net | 7,725 | 9,548 | |||||
Total current assets | 485,694 | 449,793 | |||||
Capitalized customer acquisition costs, net | 68,967 | 61,027 | |||||
Property and equipment, net | 162,707 | 147,388 | |||||
Goodwill | 424,270 | 190,978 | |||||
Intangible assets, net | 193,790 | 49,857 | |||||
Deposits and other assets, net | 1,336 | 1,262 | |||||
Total assets | $ | 1,336,764 | $ | 900,305 | |||
Liabilities and Equity | |||||||
Current liabilities: | |||||||
Due to sponsor banks | $ | 41,183 | $ | 19,109 | |||
Accounts payable | 60,729 | 70,814 | |||||
Customer fund deposits | 122,311 | 127,375 | |||||
Processing liabilities | 104,856 | 130,871 | |||||
Current portion of accrued buyout liability | 14,457 | 13,943 | |||||
Current portion of borrowings | 18,750 | — | |||||
Current portion of unearned revenue | 40,551 | 18,172 | |||||
Accrued expenses and other liabilities | 25,928 | 31,689 | |||||
Total current liabilities | 428,765 | 411,973 | |||||
Deferred tax liabilities, net | 45,039 | 40,600 | |||||
Reserve for unrecognized tax benefits | 6,769 | 5,633 | |||||
Long-term borrowings | 553,750 | 150,000 | |||||
Long-term portion of accrued buyout liability | 30,500 | 25,436 | |||||
Long-term portion of unearned revenue | 2,104 | — | |||||
Total liabilities | 1,066,927 | 633,642 | |||||
Commitments and contingencies | — | — | |||||
Equity | |||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, 36,179,147 and 37,485,486 shares issued at September 30, 2014 and December 31, 2013; 36,179,147 and 36,950,886 outstanding at September 30, 2014 and December 31, 2013 | 36 | 37 | |||||
Additional paid-in capital | 252,127 | 245,055 | |||||
Accumulated other comprehensive loss | (112 | ) | (88 | ) | |||
Retained earnings | 17,786 | 35,960 | |||||
Treasury stock, at cost (534,600 shares at December 31, 2013) | — | (20,489 | ) | ||||
Total stockholders’ equity | 269,837 | 260,475 | |||||
Noncontrolling interests | — | 6,188 | |||||
Total equity | 269,837 | 266,663 | |||||
Total liabilities and equity | $ | 1,336,764 | $ | 900,305 | |||
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Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Nine Months Ended September 30 | |||||||
2014 | 2013 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 51,639 | $ | 61,187 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Amortization of capitalized customer acquisition costs | 38,056 | 33,936 | |||||
Other depreciation and amortization | 33,516 | 26,070 | |||||
Addition to loss reserves | 3,000 | 2,510 | |||||
Provision (recoveries) for doubtful receivables | 3,010 | (1 | ) | ||||
Deferred taxes | 8,361 | 5,632 | |||||
Share-based compensation | 10,936 | 9,763 | |||||
Gain on sale of assets | (258 | ) | (3,786 | ) | |||
Write off of fixed assets and other | (3,057 | ) | 386 | ||||
Changes in operating assets and liabilities: | |||||||
Increase in receivables | (11,339 | ) | (15,135 | ) | |||
Increase in inventory | (287 | ) | (524 | ) | |||
Payment of signing bonuses, net | (27,647 | ) | (19,546 | ) | |||
Increase in capitalized customer acquisition costs | (18,349 | ) | (15,676 | ) | |||
Decrease (increase) in prepaid expenses | 132 | (2,361 | ) | ||||
Increase in current tax assets | (2,957 | ) | (1,515 | ) | |||
Increase in deposits and other assets | (103 | ) | (296 | ) | |||
Excess tax benefits on employee share-based compensation | (5,670 | ) | (8,382 | ) | |||
Increase in reserve for unrecognized tax benefits | 1,136 | 1,198 | |||||
Increase in due to sponsor banks | 22,074 | 5,048 | |||||
Decrease in accounts payable | (12,509 | ) | (1,830 | ) | |||
(Decrease) increase in unearned revenue | (2,414 | ) | 3,820 | ||||
Decrease in accrued expenses and other liabilities | (12,304 | ) | (4,856 | ) | |||
(Decrease) increase in processing liabilities | (29,016 | ) | 10,310 | ||||
Payouts of accrued buyout liability | (9,621 | ) | (11,842 | ) | |||
Increase in accrued buyout liability | 15,199 | 13,294 | |||||
Net cash provided by operating activities | 51,528 | 87,404 | |||||
Cash flows from investing activities | |||||||
Purchase of investments | (31,017 | ) | (5,241 | ) | |||
Sales of investments | 17,215 | — | |||||
Maturities of investments | — | 1,430 | |||||
Decrease in funds held for customers | 18,849 | 19,519 | |||||
Decrease in customer fund deposits | (5,064 | ) | (19,510 | ) | |||
Proceeds from sale of business | — | 19,343 | |||||
Acquisitions of businesses, net of cash acquired | (355,066 | ) | (15,182 | ) | |||
Capital expenditures | (39,140 | ) | (36,929 | ) | |||
Net cash used in investing activities | (394,223 | ) | (36,570 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from borrowings, net | 436,392 | 9,000 | |||||
Principal payments on borrowings | (17,500 | ) | (15,000 | ) | |||
Proceeds from exercise of stock options | 4,482 | 10,725 | |||||
Excess tax benefits on employee share-based compensation | 5,670 | 8,382 | |||||
Repurchases of common stock | (54,455 | ) | (39,632 | ) | |||
Dividends paid on common stock | (9,249 | ) | (7,735 | ) | |||
Net cash provided by (used in) financing activities | 365,340 | (34,260 | ) | ||||
Net increase in cash | 22,645 | 16,574 | |||||
Effect of exchange rates on cash | — | 1 | |||||
Cash at beginning of year | 71,932 | 50,581 | |||||
Cash at end of period | $ | 94,577 | $ | 67,156 | |||
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Reconciliation of Non-GAAP Financial Measures And Regulation G Disclosure
To supplement its consolidated financial statements presented in accordance with accounting principles generally accepted in the United States (“GAAP”), the Company provides additional measures of its operating results on a continuing operations basis, namely income from operations, operating margin, net income and earnings per share, which exclude acquisition-related amortization expense and share-based compensation expense. These measures meet the definition of a non-GAAP financial measure. The Company believes that application of these non-GAAP financial measures is appropriate to enhance understanding of its historical performance as well as prospects for its future performance.
This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Pursuant to Regulation G, a reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP for the three and nine months ended September 30, 2014 and 2013 follows (in thousands except per share data):
Three Months Ended September 30, 2014 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from Operations | $ | 30,411 | $ | 3,501 | $ | 3,394 | $ | 37,306 | |||||||
Operating Margin (a) | 18.0 | % | 22.0 | % | |||||||||||
Net Income From Continuing Operations Attributable to Heartland | $ | 20,458 | $ | 2,213 | $ | 2,146 | $ | 24,817 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 0.56 | $ | 0.06 | $ | 0.06 | $ | 0.68 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 36,850 | 36,850 | |||||||||||||
Three Months Ended September 30, 2013 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from Operations | $ | 34,872 | $ | 2,242 | $ | 2,625 | $ | 39,739 | |||||||
Operating Margin (a) | 22.8 | % | 25.9 | % | |||||||||||
Net Income From Continuing Operations Attributable to Heartland | $ | 21,981 | $ | 1,454 | $ | 1,703 | $ | 25,138 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 0.58 | $ | 0.04 | $ | 0.04 | $ | 0.66 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 38,020 | 38,020 | |||||||||||||
Nine Months Ended September 30, 2014 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from Operations | $ | 86,704 | $ | 8,411 | $ | 10,936 | $ | 106,051 | |||||||
Operating Margin (a) | 17.9 | % | 21.9 | % | |||||||||||
Net Income From Continuing Operations Attributable to Heartland | $ | 53,650 | $ | 5,038 | $ | 6,550 | $ | 65,238 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 1.44 | $ | 0.14 | $ | 0.18 | $ | 1.76 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 37,249 | 37,249 | |||||||||||||
Nine Months Ended September 30, 2013 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from Operations | $ | 94,977 | $ | 6,773 | $ | 9,763 | $ | 111,513 | |||||||
Operating Margin (a) | 21.1 | % | 24.8 | % | |||||||||||
Net Income From Continuing Operations Attributable to Heartland | $ | 57,307 | $ | 4,237 | $ | 6,087 | $ | 67,631 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 1.50 | $ | 0.11 | $ | 0.16 | $ | 1.77 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 38,079 | 38,079 | |||||||||||||
(a) Operating Margin is measured as Income from Operations divided by Net Revenue. Net Revenue is defined as total revenues less interchange fees and dues, assessments and fees. | |||||||||||||||
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