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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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