Heartland Payment Systems Reports 26% Increase in Fourth Quarter Adjusted Earnings Per Share
Strong Results Lead to Record Full Year GAAP Earnings of $1.64 per
share, Adjusted Earnings of $1.87 per share
PRINCETON, N.J.--(BUSINESS WIRE)--
Heartland Payment Systems, Inc. (NYSE: HPY), one of the nation's largestpayment processors, today announced GAAP net income of $15.0
million, or $0.38 per share, for the three months ended December 31,
2012. Adjusted Net Income and Adjusted Earnings per Share were $17.2
million and $0.44, respectively, for the quarter ended December 31,
2012, compared to Adjusted Net Income and Adjusted Earnings per Share of
$14.2 million and $0.35, respectively, for the quarter ended December
31, 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 fourth quarter of 2012 include:
Closed two strategic acquisitions, which provide immediate scale that
will leverage operating costs while improving product and distribution
capabilities in both the company's payroll and campus businesses
Small and Mid-Sized Enterprise (SME) quarterly transaction processing
volume of $17.6 billion, up 5.0% from the fourth quarter of 2011
Quarterly Net Revenue of $135.7 million, up 8.4% from the fourth
quarter of 2011
Operating Margin on Net Revenue of 19.3% compared to 16.1% for the
same quarter in 2011
Same store sales rose 1.5% and volume attrition was 13.3% in the
fourth quarter
New margin installed of $14.5 million, up 1% from the fourth quarter
of 2011
Robert O. Carr, Chairman and CEO, said, “Heartland Payment Systems
achieved record earnings in fiscal 2012, with outstanding fourth quarter
financial performance leading to a 48% increase in both 2012 adjusted
net income and adjusted earnings per share. These results are the
product of continued success in the marketplace driving double-digit net
revenue growth, and success improving operating efficiencies, resulting
in a 460 basis point increase in our operating margin. While we were
achieving this significant growth, we also enhanced our ability to
sustain our performance over the long haul through the strategic
acquisitions of Ovation Payroll and ECSI, which strengthen our Payroll
and Campus Solutions businesses, respectively. In addition to the
aggressive share repurchases and dividend increases implemented over the
past few years, these acquisitions represent another use of our strong
cash flow and balance sheet to reward and build value for our
shareholders.”
SME card processing volume for the three months ended December 31, 2012
increased 5.0% from the year-ago quarter to $17.6 billion, benefitting
from a 1.5% increase in same store sales and 1% increase in new margin
installed, while holding volume attrition to 13.3%. Together with strong
growth at Heartland School Solutions and other non-card businesses,
total net revenue rose 8.4%. The increase in general and administrative
expenses in the quarter was held to 6.7%. As a result, fourth quarter
2012 operating margin expanded to 19.3% of net revenue compared to 16.1%
in the year ago quarter. The operating margin for the full year was
20.8%, an improvement of 460 basis points over the full year 2011
operating margin of 16.2%, and well above the Company's
intermediate-term 20% operating margin target.
Mr. Carr continued, “The convergence of payments and operational systems
is creating opportunities to grow by developing innovative new products
that simplify and improve business operations for merchants both small
and large. We've been developing new products, investing in
infrastructure, making acquisitions, building partnerships, and
strengthening our management team to assure we have solutions that offer
the market's most enduring value for our merchants. Combined with the
extensive merchant goodwill Heartland has earned through our commitment
to a fair deal and continually improving the industry's largest and
most-respected sales organization, we are in a strong position to
capitalize on our unique franchise to achieve outstanding growth and
build value for our shareholders.”
FULL YEAR 2012 RESULTS:
For the full year of 2012, GAAP net income was $65.9 million or $1.64
per share, compared to $43.9 million, or $1.09 per share for the full
year of 2011. Net revenue for the full year of 2012 was $543.0 million,
up 12.6% compared to the full year of 2011. Adjusted net income and
earnings per share for the full year of fiscal 2012 were $75.0 million
or $1.87 per share, compared to $50.5 million, or $1.26 per share in the
prior year. Year-to-date 2012, share-based compensation expense has
reduced pre-tax earnings by $14.2 million or $0.22 per share, compared
to $9.5 million, or $0.15 per share, a year ago.
FULL YEAR 2013 GUIDANCE:
For full year 2013, we expect Net Revenue to grow 10% to 12% to be
between approximately $600 million and $610 million, and GAAP EPS to be
in the range $1.92 to $1.96, net of after-tax share-based compensation
expense of $0.22 per share for the year.
BOARD RAISES DIVIDEND 17%, SETS RECORD AND PAYMENT DATE
The Company also announced that the Board of Directors has raised the
quarterly dividend by 17% to $0.07 per common share. The new, higher
dividend is payable March 15, 2013 to shareholders of record on March 4,
2013.
CONFERENCE CALL:
Heartland Payment Systems, Inc. will host a conference call on February
7, 2013 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 also be accessed by calling (888) 438-5491.
Please provide the operator with PIN number 6409305. 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 sixth largest payments processor in the United States, delivers
credit/debit/prepaid card processing, school solutions, loyalty
marketing services, campus solutions, payroll and related business
solutions and services to more than 250,000 business and education
locations nationwide. A FORTUNE 1000 company, Heartland is the
founding supporter of The Merchant Bill of Rights,(www.merchantbillofrights.org),
a public advocacy initiative that educates merchants about fair credit
and debit card processing practices. The company is also a leader in the
development of end-to-end encryption technology designed to protect
cardholder data, rendering it useless to cybercriminals. For more
detailed information, visit www.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 on Form 10-K for the year ended December 31, 2011. We
undertake no obligation to update any forward-looking statements to
reflect events or circumstances that may arise after the date of this
release.
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive
Income
(In thousands, except per share data)
(unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
Total revenues
2012
2011
2012
2011
$
503,401
$
471,423
$
2,026,559
$
1,996,950
Costs of services:
Interchange
318,720
304,435
1,284,038
1,359,448
Dues, assessments and fees
49,009
41,860
199,503
155,233
Processing and servicing
52,069
51,577
221,580
212,747
Customer acquisition costs
10,201
10,518
43,547
46,140
Depreciation and amortization
5,618
3,829
19,890
14,675
Total costs of services
435,617
412,219
1,768,558
1,788,243
General and administrative
41,667
39,057
145,263
130,724
Total expenses
477,284
451,276
1,913,821
1,918,967
Income from operations
26,117
20,147
112,738
77,983
Other income (expense):
Interest income
47
48
252
177
Interest expense
(902
)
(863
)
(3,446
)
(4,125
)
Provision for processing system intrusion costs
(35
)
(222
)
(563
)
(1,012
)
Other, net
(24
)
(770
)
(949
)
(1,550
)
Total other expense
(914
)
(1,807
)
(4,706
)
(6,510
)
Income before income taxes
25,203
18,340
108,032
71,473
Provision for income taxes
10,046
7,028
41,494
27,126
Net income
15,157
11,312
66,538
44,347
Less: Net income attributable to noncontrolling interests
203
92
649
408
Net income attributable to Heartland
$
14,954
$
11,220
$
65,889
$
43,939
Net income
$
15,157
$
11,312
$
66,538
$
44,347
Other comprehensive income (loss):
Unrealized gains (losses) on investments, net of income tax of $2,
($3), $21 and ($4)
3
(4
)
33
(5
)
Unrealized gains (losses) on derivative financial instruments, net
of tax of $49, $59, $29 and ($341)
79
95
51
(556
)
Foreign currency translation adjustment
(183
)
270
281
(223
)
Comprehensive income
15,056
11,673
66,903
43,563
Less: Net income attributable to noncontrolling interests
148
173
733
341
Comprehensive income attributable to Heartland
$
14,908
$
11,500
$
66,170
$
43,222
Earnings per common share:
Basic
$
0.40
$
0.29
$
1.71
$
1.13
Diluted
$
0.38
$
0.28
$
1.64
$
1.09
Weighted average number of common shares outstanding:
Basic
37,386
39,198
38,468
38,931
Diluted
38,878
40,494
40,058
40,233
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
December 31,
Assets
2012
2011
Current assets:
$
Cash and cash equivalents
50,581
$
40,301
Funds held for customers
131,405
42,511
Receivables, net
181,352
176,535
Investments held to maturity
4,428
2,505
Inventory
10,100
11,492
Prepaid expenses
10,568
9,660
Current deferred tax assets, net
10,475
6,746
Total current assets
398,909
289,750
Capitalized customer acquisition costs, net
56,425
55,014
Property and equipment, net
125,651
115,579
Goodwill
177,399
103,399
Intangible assets, net
53,854
32,498
Deposits and other assets, net
1,176
681
Total assets
$
813,414
$
596,921
Liabilities and Equity
Current liabilities:
$
Due to sponsor banks
37,586
$
63,881
Accounts payable
64,562
47,373
Customer fund deposits
131,405
42,511
Processing liabilities
95,359
30,689
Current portion of borrowings
102,001
15,003
Current portion of accrued buyout liability
10,478
8,104
Accrued expenses and other liabilities
48,655
50,884
Current tax liabilities
4,580
1,408
Total current liabilities
494,626
259,853
Deferred tax liabilities, net
29,626
21,643
Reserve for unrecognized tax benefits
3,069
1,819
Long-term portion of borrowings
50,000
70,000
Long-term portion of accrued buyout liability
24,932
23,554
Total liabilities
602,253
376,869
Commitments and contingencies
—
—
Equity
Common stock, $0.001 par value, 100,000,000 shares authorized,
37,571,708 and 39,626,846 shares issued at December 31, 2012 and
2011; 36,855,908 and 38,847,957 outstanding at December 31, 2012
and 2011
38
39
Additional paid-in capital
222,705
207,643
Accumulated other comprehensive loss
(399
)
(680
)
Retained earnings
7,629
29,236
Treasury stock, at cost (715,800 and 778,889 shares at December 31,
2012 and 2011)
(20,187
)
(16,828
)
Total stockholders’ equity
209,786
219,410
Noncontrolling interests
1,375
642
Total equity
211,161
220,052
Total liabilities and equity
$
813,414
$
596,921
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(In thousands)
(unaudited)
Year Ended December 31,
2012
2011
Cash flows from operating activities
Net income
$
66,538
$
44,347
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of capitalized customer acquisition costs
45,125
47,188
Other depreciation and amortization
28,213
27,837
Addition to loss reserves
2,595
6,011
Provision for doubtful receivables
1,043
2,423
Deferred taxes
5,136
778
Share-based compensation
14,187
9,548
Write downs on fixed assets and system development costs
1,066
129
Other
—
1,915
Changes in operating assets and liabilities:
Increase in receivables
(665
)
(1,409
)
Decrease (increase) in inventory
1,460
(194
)
Payment of signing bonuses, net
(29,320
)
(29,035
)
Increase in capitalized customer acquisition costs
(17,216
)
(14,276
)
Increase in prepaid expenses
(612
)
(1,677
)
Decrease in current tax assets
9,118
23,522
Increase in deposits and other assets
(451
)
(65
)
Excess tax benefits on employee share-based compensation
(5,954
)
(3,454
)
Increase in reserve for unrecognized tax benefits
1,251
510
Decrease in due to sponsor banks
(26,295
)
(8,692
)
Increase in accounts payable
11,840
3,779
Decrease in accrued expenses and other liabilities
(964
)
(755
)
Increase (decrease) in processing liabilities
61,993
(4,104
)
Decrease in reserve for processing system intrusion
—
(8
)
Payouts of accrued buyout liability
(11,886
)
(10,380
)
Increase in accrued buyout liability
15,638
13,228
Net cash provided by operating activities
171,840
107,166
Cash flows from investing activities
(6,556
)
Purchase of investments held to maturity
(3,781
)
Maturities of investments held to maturity
4,714
2,934
Increase in funds held for customers
(88,839
)
(6,163
)
Increase in customer fund deposits
88,893
5,988
Acquisitions of businesses, net of cash acquired
(103,470
)
(23,165
)
Purchases of property and equipment
(34,549
)
(36,543
)
Net cash used in investing activities
(139,807
)
(60,730
)
Cash flows from financing activities
Proceeds from borrowings
133,000
—
Principal payments on borrowings
(66,003
)
(38,287
)
Proceeds from exercise of stock options
18,303
9,685
Excess tax benefits on employee share-based compensation
5,954
3,454
Repurchases of common stock
(103,774
)
(16,414
)
Dividends paid on common stock
(9,238
)
(6,232
)
Net cash used in financing activities
(21,758
)
(47,794
)
Net increase (decrease) in cash
10,275
(1,358
)
Effect of exchange rates on cash
5
(70
)
Cash at beginning of year
40,301
41,729
Cash at end of year
$
50,581
$
40,301
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, namely net income and earnings per share, which
exclude share-based compensation expense, and certain costs and expenses
and recoveries related to the criminal breach of its payment systems
environment (the “Processing System Intrusion”) announced in 2009. 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.
Use and Economic Substance of the Non-GAAP Financial Measures -
Management uses these non-GAAP measures to evaluateperformance
period over period, to analyze the underlying trends in the Company's
business, to assess its on-going operating performance relative to its
competitors, and to establish operational goals and forecasts.
Share-based compensation expense is excluded as a non-cash expense that
the Company does not believe is reflective of ongoing operating results
and which is an amount excluded from calculations of earnings per share
used in measuring its achievement of performance targets required for
vesting performance-based share awards. Net costs and expenses related
to the Processing System Intrusion are not indicative of the Company's
on-going operating performance and are therefore excluded by management
in assessing the Company's operating performance, as well as from the
measures used for making operating decisions.
The following is an explanation of the adjustments that management
excluded as part of its non-GAAP measures for the fourth quarter and
full year ended December 31, 2012 and 2011:
Share-based Compensation Expense - These expenses consist
primarily of expenses related to the stock options andrestricted
share units, including performance-based awards, which the Company has
granted its employees. The Company excludes share-based compensation
expense from its non-GAAP measures of net income and earnings per share
primarily because:
Share-based compensation expense is non-cash expense that the Company
does not believe is reflective of ongoing operating results;
Share-based compensation expense is excluded from calculations of
earnings per share used in measuring its achievement of performance
targets required for vesting performance-based awards; and
The Company's use of performance-based share awards has increased
significantly in recent years, with the result that reported
share-based compensation expense can vary significantly from year to
year, or quarter to quarter, in ways that may not be related to the
underlying operating performance of the Company.
Processing System Intrusion - On January 20, 2009, the
Company publicly announced the discovery of a criminal breachof
its payment systems environment. The Processing System Intrusion
involved malicious software that appears to have been used to collect
in-transit, unencrypted payment card data while it was being processed
by the Company during the transaction authorization process. The Company
believes the breach did not extend beyond 2008.
Since its announcement of the Processing System Intrusion on January 20,
2009 and through December 31, 2012, the Company has expensed a total of
$147.6 million, before reducing those charges by $31.2 million of total
insurance recoveries. The majority of the total charges, approximately
$114.7 million, relates to settlements of claims. Approximately $32.9
million of the total charges were for legal fees and costs the Company
incurred for investigations, defending various claims and actions,
remedial actions and crisis management services.
During the three months ended December 31, 2012, the Company incurred
approximately $35,000, or less than one cent per share, for legal fees
and costs it incurred related to the Processing System Intrusion. During
the three months ended December 31, 2011, the Company expensed
approximately $0.2 million, or less than one cent per share, related to
the Processing System Intrusion. During the full year of 2012, the
Company incurred approximately $0.6 million, or $0.01 per share, for
legal fees and costs it incurred related to the Processing System
Intrusion. During the full year of 2011, the Company expensed
approximately $1.0 million, or $0.02 per share, related to the
Processing System Intrusion.
Material Limitations Associated with the Use of Non-GAAP Financial
Measures - Non-GAAP net income and non-GAAPearnings per
share that exclude the impact of share-based compensation expense and
the Provision for Processing System Intrusion may have limitations as
analytical tools, and these non-GAAP measures should not be considered
in isolation from or as a replacement for GAAP financial measures, and
should be considered only as supplemental to the Company's GAAP
financial measures. Some of the limitations associated with the use of
these non-GAAP financial measures are:
Share-based compensation expense, and Processing System Intrusion
costs and recoveries that are excluded from non-GAAP net income and
non-GAAP earnings per share can have a material impact on cash flows,
GAAP net income and GAAP earnings per share.
Other companies may calculate non-GAAP net income and non-GAAP
earnings per share that exclude the impact of similar expenses and
recoveries differently than the Company does, limiting the usefulness
of those measures for comparative purposes.
Usefulness of Non-GAAP Financial Measures to Investors - The
Company believes that presenting non-GAAP net income andnon-GAAP
earnings per share that exclude the impact of the Provision for
Processing System Intrusion and share-based compensation expense in
addition to the related GAAP measures provides investors greater
transparency to the information used by the Company's management for its
financial and operational decision-making and allows investors to see
the Company's results through the eyes of management. Additionally, the
Company believes that the inclusion of these non-GAAP financial measures
provides enhanced comparability in its financial reporting. The Company
further believes that providing this information better enables its
investors to understand the Company's operating performance and
underlying business fundamentals, and to evaluate the methodology used
by management to evaluate and measure such 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 months and full years ended December
31, 2012 and 2011 follows:
Three Months Ended
Year Ended
(In thousands, except per share):
December 31,
December 31,
Net income attributable to Heartland
2012
2011
2012
2011
Non-GAAP - Adjusted net income attributable to Heartland
$
17,245
$
14,181
$
74,965
$
50,479
Less adjustments:
Share-based compensation expense
3,775
4,578
14,187
9,548
Income tax benefit on share-based compensation expense
(1,505
)
(1,754
)
(5,458
)
(3,635
)
After-tax share-based compensation expense
2,270
2,824
8,729
5,913
Provision for processing system intrusion costs
35
222
563
1,012
Income tax benefit on provision for processing system intrusion
(14
)
(85
)
(216
)
(384
)
After-tax provision for processing system intrusion costs
21
137
347
628
GAAP - Net income attributable to Heartland
$
14,954
$
11,220
$
65,889
$
43,938
Earnings per share
Non-GAAP - Adjusted net income per share
$
0.44
$
0.35
$
1.87
$
1.26
Less: share-based compensation expense
0.06
0.07
0.22
0.15
Less: provision for processing system intrusion costs
Press Release $HPY Heartland Payment Systems, Inc.
Strong Results Lead to Record Full Year GAAP Earnings of $1.64 per share, Adjusted Earnings of $1.87 per share
PRINCETON, N.J.--(BUSINESS WIRE)-- Heartland Payment Systems, Inc. (NYSE: HPY), one of the nation's largest payment processors, today announced GAAP net income of $15.0 million, or $0.38 per share, for the three months ended December 31, 2012. Adjusted Net Income and Adjusted Earnings per Share were $17.2 million and $0.44, respectively, for the quarter ended December 31, 2012, compared to Adjusted Net Income and Adjusted Earnings per Share of $14.2 million and $0.35, respectively, for the quarter ended December 31, 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 fourth quarter of 2012 include:
Robert O. Carr, Chairman and CEO, said, “Heartland Payment Systems achieved record earnings in fiscal 2012, with outstanding fourth quarter financial performance leading to a 48% increase in both 2012 adjusted net income and adjusted earnings per share. These results are the product of continued success in the marketplace driving double-digit net revenue growth, and success improving operating efficiencies, resulting in a 460 basis point increase in our operating margin. While we were achieving this significant growth, we also enhanced our ability to sustain our performance over the long haul through the strategic acquisitions of Ovation Payroll and ECSI, which strengthen our Payroll and Campus Solutions businesses, respectively. In addition to the aggressive share repurchases and dividend increases implemented over the past few years, these acquisitions represent another use of our strong cash flow and balance sheet to reward and build value for our shareholders.”
SME card processing volume for the three months ended December 31, 2012 increased 5.0% from the year-ago quarter to $17.6 billion, benefitting from a 1.5% increase in same store sales and 1% increase in new margin installed, while holding volume attrition to 13.3%. Together with strong growth at Heartland School Solutions and other non-card businesses, total net revenue rose 8.4%. The increase in general and administrative expenses in the quarter was held to 6.7%. As a result, fourth quarter 2012 operating margin expanded to 19.3% of net revenue compared to 16.1% in the year ago quarter. The operating margin for the full year was 20.8%, an improvement of 460 basis points over the full year 2011 operating margin of 16.2%, and well above the Company's intermediate-term 20% operating margin target.
Mr. Carr continued, “The convergence of payments and operational systems is creating opportunities to grow by developing innovative new products that simplify and improve business operations for merchants both small and large. We've been developing new products, investing in infrastructure, making acquisitions, building partnerships, and strengthening our management team to assure we have solutions that offer the market's most enduring value for our merchants. Combined with the extensive merchant goodwill Heartland has earned through our commitment to a fair deal and continually improving the industry's largest and most-respected sales organization, we are in a strong position to capitalize on our unique franchise to achieve outstanding growth and build value for our shareholders.”
FULL YEAR 2012 RESULTS:
For the full year of 2012, GAAP net income was $65.9 million or $1.64 per share, compared to $43.9 million, or $1.09 per share for the full year of 2011. Net revenue for the full year of 2012 was $543.0 million, up 12.6% compared to the full year of 2011. Adjusted net income and earnings per share for the full year of fiscal 2012 were $75.0 million or $1.87 per share, compared to $50.5 million, or $1.26 per share in the prior year. Year-to-date 2012, share-based compensation expense has reduced pre-tax earnings by $14.2 million or $0.22 per share, compared to $9.5 million, or $0.15 per share, a year ago.
FULL YEAR 2013 GUIDANCE:
For full year 2013, we expect Net Revenue to grow 10% to 12% to be between approximately $600 million and $610 million, and GAAP EPS to be in the range $1.92 to $1.96, net of after-tax share-based compensation expense of $0.22 per share for the year.
BOARD RAISES DIVIDEND 17%, SETS RECORD AND PAYMENT DATE
The Company also announced that the Board of Directors has raised the quarterly dividend by 17% to $0.07 per common share. The new, higher dividend is payable March 15, 2013 to shareholders of record on March 4, 2013.
CONFERENCE CALL:
Heartland Payment Systems, Inc. will host a conference call on February 7, 2013 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 also be accessed by calling (888) 438-5491. Please provide the operator with PIN number 6409305. 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 sixth largest payments processor in the United States, delivers credit/debit/prepaid card processing, school solutions, loyalty marketing services, campus solutions, payroll and related business solutions and services to more than 250,000 business and education locations nationwide. A FORTUNE 1000 company, Heartland is the founding supporter of The Merchant Bill of Rights, (www.merchantbillofrights.org), a public advocacy initiative that educates merchants about fair credit and debit card processing practices. The company is also a leader in the development of end-to-end encryption technology designed to protect cardholder data, rendering it useless to cybercriminals. For more detailed information, visit www.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 on Form 10-K for the year ended December 31, 2011. We undertake no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this release.
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income
(In thousands, except per share data)
(unaudited)
318,720
1,284,038
47
252
Unrealized gains (losses) on investments, net of income tax of $2, ($3), $21 and ($4)
Unrealized gains (losses) on derivative financial instruments, net of tax of $49, $59, $29 and ($341)
Weighted average number of common shares outstanding:
37,386
38,468
(In thousands, except share data)
(unaudited)
50,581
37,586
Common stock, $0.001 par value, 100,000,000 shares authorized, 37,571,708 and 39,626,846 shares issued at December 31, 2012 and 2011; 36,855,908 and 38,847,957 outstanding at December 31, 2012 and 2011
(In thousands)
(unaudited)
$
66,538
45,125
(665
)
133,000
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, namely net income and earnings per share, which exclude share-based compensation expense, and certain costs and expenses and recoveries related to the criminal breach of its payment systems environment (the “Processing System Intrusion”) announced in 2009. 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.
Use and Economic Substance of the Non-GAAP Financial Measures - Management uses these non-GAAP measures to evaluate performance period over period, to analyze the underlying trends in the Company's business, to assess its on-going operating performance relative to its competitors, and to establish operational goals and forecasts. Share-based compensation expense is excluded as a non-cash expense that the Company does not believe is reflective of ongoing operating results and which is an amount excluded from calculations of earnings per share used in measuring its achievement of performance targets required for vesting performance-based share awards. Net costs and expenses related to the Processing System Intrusion are not indicative of the Company's on-going operating performance and are therefore excluded by management in assessing the Company's operating performance, as well as from the measures used for making operating decisions.
The following is an explanation of the adjustments that management excluded as part of its non-GAAP measures for the fourth quarter and full year ended December 31, 2012 and 2011:
Share-based Compensation Expense - These expenses consist primarily of expenses related to the stock options and restricted share units, including performance-based awards, which the Company has granted its employees. The Company excludes share-based compensation expense from its non-GAAP measures of net income and earnings per share primarily because:
Processing System Intrusion - On January 20, 2009, the Company publicly announced the discovery of a criminal breach of its payment systems environment. The Processing System Intrusion involved malicious software that appears to have been used to collect in-transit, unencrypted payment card data while it was being processed by the Company during the transaction authorization process. The Company believes the breach did not extend beyond 2008.
Since its announcement of the Processing System Intrusion on January 20, 2009 and through December 31, 2012, the Company has expensed a total of $147.6 million, before reducing those charges by $31.2 million of total insurance recoveries. The majority of the total charges, approximately $114.7 million, relates to settlements of claims. Approximately $32.9 million of the total charges were for legal fees and costs the Company incurred for investigations, defending various claims and actions, remedial actions and crisis management services.
During the three months ended December 31, 2012, the Company incurred approximately $35,000, or less than one cent per share, for legal fees and costs it incurred related to the Processing System Intrusion. During the three months ended December 31, 2011, the Company expensed approximately $0.2 million, or less than one cent per share, related to the Processing System Intrusion. During the full year of 2012, the Company incurred approximately $0.6 million, or $0.01 per share, for legal fees and costs it incurred related to the Processing System Intrusion. During the full year of 2011, the Company expensed approximately $1.0 million, or $0.02 per share, related to the Processing System Intrusion.
Material Limitations Associated with the Use of Non-GAAP Financial Measures - Non-GAAP net income and non-GAAP earnings per share that exclude the impact of share-based compensation expense and the Provision for Processing System Intrusion may have limitations as analytical tools, and these non-GAAP measures should not be considered in isolation from or as a replacement for GAAP financial measures, and should be considered only as supplemental to the Company's GAAP financial measures. Some of the limitations associated with the use of these non-GAAP financial measures are:
Usefulness of Non-GAAP Financial Measures to Investors - The Company believes that presenting non-GAAP net income and non-GAAP earnings per share that exclude the impact of the Provision for Processing System Intrusion and share-based compensation expense in addition to the related GAAP measures provides investors greater transparency to the information used by the Company's management for its financial and operational decision-making and allows investors to see the Company's results through the eyes of management. Additionally, the Company believes that the inclusion of these non-GAAP financial measures provides enhanced comparability in its financial reporting. The Company further believes that providing this information better enables its investors to understand the Company's operating performance and underlying business fundamentals, and to evaluate the methodology used by management to evaluate and measure such 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 months and full years ended December 31, 2012 and 2011 follows:
(In thousands, except per share):
Net income attributable to Heartland
Non-GAAP - Adjusted net income attributable to Heartland
Income tax benefit on share-based compensation expense
Provision for processing system intrusion costs
Income tax benefit on provision for processing system intrusion
After-tax provision for processing system intrusion costs
Earnings per share
Less: provision for processing system intrusion costs
Shares used in computing net income per share
Gregory FCA Communications
Joe Hassett, 610-228-2110
Heartland_ir@gregoryfca.com
Source: Heartland Payment Systems, Inc.