Attached files
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| 8-K - 8-K - HEARTLAND PAYMENT SYSTEMS INC | hpy8kearnings2015q2.htm |
Exhibit 99.1
Heartland Payment Systems 90 Nassau Street
Princeton, NJ 08542 888.798.3131
HeartlandPaymentSystems.com
HEARTLAND PAYMENT SYSTEMS REPORTS RECORD SECOND QUARTER 2015 ADJUSTED EARNINGS PER SHARE OF $0.72
Princeton, NJ - July 31, 2015 -Heartland Payment Systems, Inc. (NYSE: HPY), one of the nation's largest payment processors, today announced record second quarter Adjusted Net Income and Adjusted Earnings per Share of $27.1 million and $0.72, respectively, for the quarter ended June 30, 2015. Adjusted Net Income and Adjusted Earnings per Share were $21.0 million and $0.58, respectively, for the quarter ended June 30, 2014. For the second quarter of 2015, Heartland reported GAAP Net Income of $20.9 million, or $0.56 per share. 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 2015 include:
• | Small and Mid-Sized Enterprise (SME) transaction processing volume was a quarterly record $23.8 billion, up 16.5% from the second quarter of 2014, the fourth consecutive quarter of double-digit acceleration |
• | Quarterly Net Revenue was a record $203.9 million, up 27.9% from the second quarter of 2014, with organic net revenue growth of 12.5% for the quarter |
• | New margin installed was an all-time record $23.9 million, a 14.6% increase from the second quarter of 2014, and a sequential acceleration from the 9.6% growth rate achieved in the first quarter of 2015 |
• | Same store sales were up 3.4%. Net volume attrition was 9.8% for the second quarter, down from 12.6% in the second quarter of 2014 and up only marginally from the first quarter of 2015 |
Operating results for the second quarter of 2015 include:
• | A $1.2 million operating loss (equivalent to $0.02 per share) for Leaf, which concludes losses related to this investment |
• | Stock compensation expense of $5.1 million and acquisition-related intangible amortization of $5.1 million, increases of $1.4 million and $2.5 million, respectively, compared to the second quarter of 2014 |
• | Excluding acquisition-related intangible amortization, all other depreciation and amortization expense was $10.4 million, an increase of $2.0 million over the second quarter of 2014 |
• | Increases in sales compensation and general incentive compensation in the second quarter of 2015, both due to improved financial performance |
Robert O. Carr, Chairman and CEO, said, "This was the most profitable quarter in Heartland's history, with major improvements in a number of our key operating metrics. The addition of productive new relationship managers
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contributed to another quarter of record new margin installed, and we not only accelerated the growth rate in installs, but in June also surpassed the $8 million mark for the first time ever. Combined with single-digit net volume attrition, we achieved double-digit card processing net revenue growth. Non-card revenues grew even faster, with acquisitions significantly enhancing the strong organic growth achieved in the quarter. We continued to heavily invest in strengthening security and ramping up marketing spend to drive future growth. With our momentum building, we are well-positioned to capitalize on the dynamic changes in our markets and create value for our shareholders."
SME card transaction processing volume growth for the quarter was 16.5% compared to the second quarter of 2014, the fifth consecutive quarter in which the rate of SME transaction processing volume growth accelerated, driven by new margin installs and improved net volume attrition. Core Visa and MasterCard volume processed in the quarter was up 12.0% compared to the second quarter of 2014, also sequentially accelerating growth from the first quarter of 2015.
Total non-card revenue growth was 75% for the quarter, of which over 20% was organic growth with the balance attributable to recent acquisitions.
The Adjusted Operating Margin for the second quarter of 2015 was 23.9%, up from the prior year second quarter, despite the continuing investments in Heartland Commerce, out-of-scope solutions, marketing, and security initiatives, and the year-over-year increase in sales and incentive compensation, as well as a final quarterly loss from Leaf. Comparatively, the prior year second quarter operating margin was also impacted by Leaf’s operating loss and the correction of a billing error at Heartland School Solutions as previously reported.
Mr. Carr continued, “We continued our investment in new growth initiatives and critical strategic areas. Heartland Commerce is at the heart of our strategy to help small-to-mid-size merchants use integrated point-of-sale technology to enhance their business operations. Over the past several months, we have achieved meaningful progress in our plans to integrate our point-of-sale technologies and organizations. With our ability to offer SMEs the same, if not better, functionality, security and EMV compliance currently only available to their larger rivals, Heartland Commerce is at the forefront of an emerging trend that is already beginning to shape the future of the payments industry."
FULL YEAR 2015 GUIDANCE:
For full year 2015, we expect Net Revenue to grow 18% to 20%, to between approximately $795 million and $805 million, and adjusted EPS to be in the range of $2.82- $2.87. Guidance assumes after-tax share-based compensation and acquisition-related amortization expenses reduce earnings per share by $0.66 for the year and an approximate 39% tax rate.
BOARD DECLARES QUARTERLY DIVIDEND
The Company also announced that the Board of Directors declared a quarterly dividend of $0.10 per common share payable September 15, 2015 to shareholders of record on August 25, 2015.
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CONFERENCE CALL
Heartland Payment Systems, Inc. will host a conference call on July 31, 2015 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, along with the related presentation slides, please visit the Investor Relations portion of the Company's website at: www.heartlandpaymentsystems.com/about/investor-relations. The conference call may be accessed by calling (888)-317-6003. Please provide the operator with PIN number 5336613. The webcast will be archived on the Company's website within two hours of the live call.
ABOUT HEARTLAND
Heartland Payment Systems, Inc. (NYSE: HPY), one of the largest payment processors in the United States, delivers credit/debit/prepaid card processing and security technology through Heartland Secure™ and its comprehensive Heartland breach warranty. Heartland also offers point of sale, mobile commerce, e-Commerce, marketing solutions, payroll solutions, and related business solutions and services to more than 300,000 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. Heartland also established the Sales Professional Bill of Rights to advocate for the rights of sales professionals everywhere.
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 on Form 10-K for the year ended December 31, 2014. 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 | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Total revenues | $ | 675,692 | $ | 582,859 | $ | 1,278,151 | $ | 1,106,142 | |||||||
Costs of services: | |||||||||||||||
Interchange | 409,549 | 367,773 | 768,889 | 685,869 | |||||||||||
Dues, assessments and fees | 62,267 | 55,686 | 115,042 | 105,354 | |||||||||||
Processing and servicing | 82,673 | 67,048 | 160,410 | 135,657 | |||||||||||
Customer acquisition costs | 14,735 | 12,368 | 28,783 | 22,618 | |||||||||||
Depreciation and amortization | 11,168 | 6,679 | 21,841 | 12,491 | |||||||||||
Total costs of services | 580,392 | 509,554 | 1,094,965 | 961,989 | |||||||||||
General and administrative | 56,872 | 43,374 | 114,996 | 87,860 | |||||||||||
Total expenses | 637,264 | 552,928 | 1,209,961 | 1,049,849 | |||||||||||
Income from operations | 38,428 | 29,931 | 68,190 | 56,293 | |||||||||||
Other income (expense): | |||||||||||||||
Interest income | 28 | 30 | 53 | 62 | |||||||||||
Interest expense | (3,884 | ) | (1,258 | ) | (7,531 | ) | (2,308 | ) | |||||||
Other, net | (326 | ) | 420 | (300 | ) | 288 | |||||||||
Total other expense | (4,182 | ) | (808 | ) | (7,778 | ) | (1,958 | ) | |||||||
Income before income taxes | 34,246 | 29,123 | 60,412 | 54,335 | |||||||||||
Provision for income taxes | 13,340 | 12,552 | 22,268 | 22,852 | |||||||||||
Net income | 20,906 | 16,571 | 38,144 | 31,483 | |||||||||||
Less: Net loss attributable to noncontrolling interests | — | (881 | ) | — | (1,709 | ) | |||||||||
Net income attributable to Heartland | $ | 20,906 | $ | 17,452 | $ | 38,144 | $ | 33,192 | |||||||
Earnings per common share: | |||||||||||||||
Basic | $ | 0.57 | $ | 0.49 | $ | 1.04 | $ | 0.91 | |||||||
Diluted | $ | 0.56 | $ | 0.48 | $ | 1.03 | $ | 0.89 | |||||||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic | 36,620 | 35,936 | 36,527 | 36,350 | |||||||||||
Diluted | 37,164 | 36,734 | 37,138 | 37,250 | |||||||||||
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Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net income | $ | 20,906 | $ | 16,571 | $ | 38,144 | $ | 31,483 | |||||||
Other comprehensive income: | |||||||||||||||
Reclassification of gains on investments, net of income tax of $—, $103, $— and $103 | — | (164 | ) | — | (164 | ) | |||||||||
Unrealized (losses) gains on investments, net of income tax of $(7), $1, $6 and $10 | (17 | ) | 2 | 15 | 14 | ||||||||||
Unrealized gains on derivative financial instruments, net of income tax of $15, $27, $34 and $55 | 24 | 48 | 56 | 95 | |||||||||||
Comprehensive income | 20,913 | 16,457 | 38,215 | 31,428 | |||||||||||
Less: Comprehensive loss attributable to noncontrolling interests | — | (881 | ) | — | (1,709 | ) | |||||||||
Comprehensive income attributable to Heartland | $ | 20,913 | $ | 17,338 | $ | 38,215 | $ | 33,137 | |||||||
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Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
June 30, 2015 | December 31, 2014 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 50,566 | $ | 70,793 | |||
Funds held for customers | 171,631 | 176,492 | |||||
Receivables, net | 271,288 | 234,104 | |||||
Investments | 110 | 106 | |||||
Inventory | 10,972 | 12,048 | |||||
Prepaid expenses | 22,790 | 22,658 | |||||
Current tax assets | 3,101 | 15,082 | |||||
Current deferred tax assets, net | 9,754 | 9,308 | |||||
Total current assets | 540,212 | 540,591 | |||||
Capitalized customer acquisition costs, net | 78,640 | 73,107 | |||||
Property and equipment, net | 166,645 | 154,303 | |||||
Goodwill | 474,147 | 425,712 | |||||
Intangible assets, net | 202,053 | 192,553 | |||||
Deposits and other assets, net | 1,735 | 1,507 | |||||
Total assets | $ | 1,463,432 | $ | 1,387,773 | |||
Liabilities and Equity | |||||||
Current liabilities: | |||||||
Due to sponsor banks | $ | 55,848 | $ | 31,165 | |||
Accounts payable | 58,674 | 58,460 | |||||
Customer fund deposits | 171,631 | 176,492 | |||||
Processing liabilities | 120,516 | 119,398 | |||||
Current portion of accrued buyout liability | 16,386 | 15,023 | |||||
Current portion of borrowings | 36,779 | 36,792 | |||||
Current portion of unearned revenue | 50,692 | 46,601 | |||||
Accrued expenses and other liabilities | 44,164 | 41,517 | |||||
Total current liabilities | 554,690 | 525,448 | |||||
Deferred tax liabilities, net | 54,868 | 45,804 | |||||
Reserve for unrecognized tax benefits | 8,160 | 7,315 | |||||
Long-term borrowings | 515,760 | 523,122 | |||||
Long-term portion of accrued buyout liability | 34,754 | 32,970 | |||||
Long-term portion of unearned revenue | 3,136 | 2,354 | |||||
Total liabilities | 1,171,368 | 1,137,013 | |||||
Commitments and contingencies | — | — | |||||
Equity | |||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, 36,704,141 and 36,344,921 shares issued and outstanding at June 30, 2015 and December 31, 2014 | 37 | 36 | |||||
Additional paid-in capital | 266,329 | 255,921 | |||||
Accumulated other comprehensive loss | (59 | ) | (130 | ) | |||
Retained earnings (accumulated deficit) | 25,757 | (5,067 | ) | ||||
Total equity | 292,064 | 250,760 | |||||
Total liabilities and equity | $ | 1,463,432 | $ | 1,387,773 | |||
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Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Six Months Ended June 30, | |||||||
2015 | 2014 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 38,144 | $ | 31,483 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Amortization of capitalized customer acquisition costs | 28,983 | 24,930 | |||||
Other depreciation and amortization | 30,197 | 20,854 | |||||
Addition to loss reserves | 1,769 | 2,057 | |||||
Provision for doubtful receivables | 2,706 | 2,003 | |||||
Deferred taxes | 2,758 | 7,260 | |||||
Share-based compensation | 9,711 | 7,542 | |||||
Write off of fixed assets and other | 1,047 | 220 | |||||
Changes in operating assets and liabilities: | |||||||
Increase in receivables | (38,228 | ) | (14,197 | ) | |||
Decrease in inventory | 1,202 | 740 | |||||
Payment of signing bonuses, net | (21,387 | ) | (18,179 | ) | |||
Increase in capitalized customer acquisition costs | (13,129 | ) | (12,157 | ) | |||
Decrease (increase) in current tax assets | 16,945 | (3,969 | ) | ||||
Increase in prepaid expenses, deposits and other assets | (25 | ) | (2,488 | ) | |||
Excess tax benefits on employee share-based compensation | (5,006 | ) | (3,394 | ) | |||
Increase in reserve for unrecognized tax benefits | 845 | 1,106 | |||||
Increase in due to sponsor banks | 24,683 | 39,665 | |||||
Decrease in accounts payable | (1,344 | ) | (51 | ) | |||
Increase (decrease) in unearned revenue | 2,299 | (13,785 | ) | ||||
Decrease in accrued expenses and other liabilities | (7,299 | ) | (11,486 | ) | |||
Decrease in processing liabilities | (686 | ) | (25,821 | ) | |||
Payouts of accrued buyout liability | (9,782 | ) | (7,956 | ) | |||
Increase in accrued buyout liability | 12,929 | 9,845 | |||||
Net cash provided by operating activities | 77,332 | 34,222 | |||||
Cash flows from investing activities | |||||||
Purchase of investments | — | (16,017 | ) | ||||
Sales of investments | — | 2,215 | |||||
Decrease in funds held for customers | 51,135 | 9,736 | |||||
(Decrease) increase in customer fund deposits | (51,135 | ) | 4,073 | ||||
Acquisitions of businesses, net of cash acquired | (60,969 | ) | (20,493 | ) | |||
Capital expenditures | (29,157 | ) | (25,952 | ) | |||
Net cash used in investing activities | (90,126 | ) | (46,438 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from borrowings | 131,000 | 60,000 | |||||
Principal payments on borrowings | (138,375 | ) | (10,000 | ) | |||
Proceeds from exercise of stock options | 2,256 | 1,337 | |||||
Excess tax benefits on employee share-based compensation | 5,006 | 3,394 | |||||
Repurchases of common stock | — | (54,455 | ) | ||||
Dividends paid on common stock | (7,320 | ) | (6,153 | ) | |||
Net cash used in financing activities | (7,433 | ) | (5,877 | ) | |||
Net decrease in cash | (20,227 | ) | (18,093 | ) | |||
Cash at beginning of year | 70,793 | 71,932 | |||||
Cash at end of period | $ | 50,566 | $ | 53,839 | |||
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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 within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The Company believes that application of these non-GAAP financial measures is appropriate to enhance understanding of its historical performance, its performance relative to its competitors, as well as prospects for its future performance.
This press release contains non-GAAP financial measures. 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 six months ended June 30, 2015 and 2014 follows (in thousands except per share data):
Three Months Ended June 30, 2015 | GAAP | Acquisition-related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from operations | $ | 38,428 | $ | 5,135 | $ | 5,062 | $ | 48,625 | |||||||
Operating margin (a) | 18.8 | % | 23.9 | % | |||||||||||
Net income attributable to Heartland | $ | 20,906 | $ | 3,126 | $ | 3,082 | $ | 27,114 | |||||||
Diluted earnings per share | $ | 0.56 | $ | 0.08 | $ | 0.08 | $ | 0.72 | |||||||
Diluted shares used in computing earnings per share | 37,164 | 37,164 | |||||||||||||
Three Months Ended June 30, 2014 | GAAP | Acquisition-related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from operations | $ | 29,931 | $ | 2,600 | $ | 3,704 | $ | 36,235 | |||||||
Operating margin (a) | 18.8 | % | 22.7 | % | |||||||||||
Net income attributable to Heartland | $ | 17,452 | $ | 1,479 | $ | 2,108 | $ | 21,039 | |||||||
Diluted earnings per share | $ | 0.48 | $ | 0.04 | $ | 0.06 | $ | 0.58 | |||||||
Diluted shares used in computing earnings per share | 36,734 | 36,734 | |||||||||||||
Six Months Ended June 30, 2015 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from operations | $ | 68,190 | $ | 10,097 | $ | 9,711 | $ | 87,998 | |||||||
Operating margin (a) | 17.3 | % | 22.3 | % | |||||||||||
Net income attributable to Heartland | $ | 38,144 | $ | 6,158 | $ | 5,922 | $ | 50,224 | |||||||
Diluted earnings per share | $ | 1.03 | $ | 0.17 | $ | 0.16 | $ | 1.36 | |||||||
Diluted shares used in computing earnings per share | 37,138 | 37,138 | |||||||||||||
Six Months Ended June 30, 2014 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from operations | $ | 56,293 | $ | 4,910 | $ | 7,542 | $ | 68,745 | |||||||
Operating margin (a) | 17.9 | % | 21.8 | % | |||||||||||
Net income attributable to Heartland | $ | 33,192 | $ | 3,005 | $ | 4,378 | $ | 40,575 | |||||||
Diluted earnings per share | $ | 0.89 | $ | 0.08 | $ | 0.12 | $ | 1.09 | |||||||
Diluted shares used in computing earnings per share | 37,250 | 37,250 | |||||||||||||
(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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