EX-99.1 2 q42014exhibit991nr.htm EXHIBIT 99.1 Q4 2014 Exhibit 99.1 NR


Exhibit 99.1
Heartland Payment Systems 90 Nassau Street
Princeton, NJ 08542 888.798.3131
HeartlandPaymentSystems.com


Heartland reports 2014 fourth quarter and full year results
Organic Card Processing Volume, Revenue Growth Accelerates in fourth quarter
Expects fiscal 2015 Adjusted EPS of $2.75 - $2.85 on 15% - 17% Revenue Growth
Recognizes 2014 fourth quarter impairment charge to certain POS and related assets as a result of Strategic Actions
Princeton, NJ - February 13, 2015 - Heartland Payment Systems (NYSE: HPY), the nation's fifth largest payments processor and a leading provider of merchant business solutions, today announced Adjusted Net Loss and Adjusted Loss per share from continuing operations of $15.2 million and $0.42 per share, respectively, for the quarter ended December 31, 2014, compared to Adjusted Net Income and Adjusted Earnings per share from continuing operations of $20.5 million and $0.55, respectively, for the quarter ended December 31, 2013. The 2014 results reflect $41.4 million of pre-tax ($37.6 million after-tax, or $1.02 per share) asset impairment charges recorded in the fourth quarter, primarily related to our investment in Leaf and other Point-of-Sale (“POS”) assets and as more fully described below. For the fourth quarter of fiscal 2014, Heartland’s GAAP net loss was $19.8 million, or $0.55 per share. Adjusted Net Income and Adjusted Earnings per share from continuing operations 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 2014 include:

Record quarterly Net Revenue of $188.3 million, up 26.2% from the fourth quarter of 2013

Small and Mid-Sized Enterprise (SME) Visa, MasterCard and Discover processing volume grew 10.1% from the fourth quarter of 2013, continuing the solid sequential quarterly improvements experienced since the beginning of 2014

Record quarterly new margin installed of $21.4 million, up 11.7% from the fourth quarter of 2013


Page 1




Same store sales rose 3.9% and net volume attrition fell to 10.7% in the fourth quarter, the best performance for each metric in over 5 years

Both GAAP and Adjusted financial results reflect $41.4 million pre-tax, ($37.6 million after-tax) or $1.02 per share, in asset impairment charges as a result of an analysis of the values ascribed to investments at Leaf and in Prosper, our internally-developed POS software, as well as our investment in TabbedOut, a mobile payments provider. The impairment charges are recorded against operating income, excepting only the $4.0 million write down of TabbedOut. All charges are non-cash

The combination of share-based compensation and acquisition-related amortization reduced earnings by $7.5 million pre-tax, or approximately $0.13 per share, compared with $5.4 million pre-tax, or $0.09 per share in the fourth quarter of 2013

Robert O. Carr, Chairman and CEO, said, “We delivered another year of solid financial performance with accelerating growth across many of our most important key operating metrics, generating strong momentum on which we can build. Our performance reflects strong organic card processing volume and net revenue growth, as well as the continued contribution of strategic acquisitions and our non-card businesses. At the core, our success continues to reflect our fundamental market differentiators, offering small and mid-sized merchants transparent pricing, innovative products and uncompromised security, delivered by our trusted employee relationship managers - who generated record new margin installed for both the quarter and the year.”

In a separate release today, the acquisition of POS companies Dinerware and pcAmerica as well as the formation of Heartland Commerce was announced. These companies, along with existing POS businesses, Xpient Solutions, Liquor POS, Leaf, as well as other Heartland related solutions, constitute Heartland Commerce. Each of Dinerware and pcAmerica are in the process of completing the development of cloud-based POS systems that complement their well-established on-premise solutions. These cloud-based POS systems overlap with what is being developed by Leaf; consequently, Heartland decided that it will stop POS development efforts at Leaf, and write down related POS assets.

Mr. Carr continued: “The demand for robust cloud-based POS solutions is accelerating, and these acquisitions are helping us achieve our goal of becoming a leader in this segment of the market. New mobile, security, NFC and other innovations and requirements are increasing the complexity of the payments environment, while tablets and the cloud are driving down the cost and improving the functionality of point-of-sale solutions. The offering of a comprehensive integrated payments solution is a logical and natural evolution of the products and services we offer our merchants. As payments become more complex, merchants will increasingly turn to a trusted partner that can provide them with a solution that meets their unique needs. With a strong cloud-based POS infrastructure, we now have a leading

Page 2




platform to which we can quickly and efficiently add new applications either organically or through additional acquisitions, while further distinguishing Heartland as the leader in technology that provides the security and functionality increasingly demanded by the mounting complexity of the payments environment.”

FULL YEAR 2014 RESULTS:
For the full year of 2014, net revenue was $672.6 million, up 12.3% from $599.0 million in 2013, and Adjusted Net Income from continuing operations and related earnings was $50.2 million or $1.35 per share, compared to $88.1 million, or $2.32 per share, in the prior year. Fiscal 2014 GAAP net income from continuing operations was $33.9 million, or $0.91 per share. Both full year 2014 GAAP and Adjusted results reflect the $41.4 million of impairment charges recorded in the fourth quarter. Fiscal 2013 GAAP net income from continuing operations was $74.7 million or $1.96 per share. Full year 2014 share-based compensation expense and acquisition-related amortization expense reduced pre-tax earnings by $26.8 million, or $0.44 per share, compared to $22.0 million, or $0.36 per share, in 2013.

FULL YEAR 2015 GUIDANCE:
For full year 2015, we expect Net Revenue to grow 15% to 17% to be between approximately $775 million and $790 million, and adjusted EPS to be in the range of $2.75- $2.85. Guidance assumes after-tax share-based compensation and acquisition-related amortization expenses reduce earnings per share by $0.68 for the year.

BOARD DECLARES QUARTERLY DIVIDEND:
The Company also announced that the Board of Directors declared a quarterly dividend of $0.10 per common share, an increase of over 17% compared to the prior quarterly dividend rate, payable March 13, 2015 to shareholders of record on March 2, 2015.

CONFERENCE CALL:
Heartland Payment Systems, Inc. will host a conference call on February 13, 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, please visit the Investor Relations portion of the Company's website at: www.heartlandpaymentsystems.com. The conference call may also be accessed by calling

Page 3




(888)-317-6003. Please provide the operator with PIN number 1158564. 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), the fifth largest payments processor 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, 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

Page 4





Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
 
Three Months Ended December 31,
 
Year Ended
December 31,
 
2014
 
2013
 
2014
 
2013
Total revenues
$
604,613

 
$
530,380

 
$
2,311,381

 
$
2,135,372

Costs of services:
 
 
 
 
 
 
 
Interchange
363,653

 
332,448

 
1,422,894

 
1,335,487

Dues, assessments and fees
52,644

 
48,757

 
215,862

 
200,903

Processing and servicing
80,026

 
59,264

 
285,011

 
237,232

Customer acquisition costs
12,070

 
10,555

 
46,977

 
42,109

Depreciation and amortization
10,126

 
5,909

 
30,598

 
19,975

Total costs of services
518,519

 
456,933

 
2,001,342

 
1,835,706

General and administrative
53,313

 
42,326

 
190,554

 
173,568

Goodwill impairment charge
18,490

 

 
18,490

 

Asset impairment charges
18,875

 

 
18,875

 

Total expenses
609,197

 
499,259

 
2,229,261

 
2,009,274

(Loss) income from operations
(4,584
)
 
31,121

 
82,120

 
126,098

Other income (expense):
 
 
 
 
 
 
 
Interest income
30

 
29

 
125

 
124

Interest expense
(3,607
)
 
(1,683
)
 
(8,057
)
 
(5,429
)
Other, net
(4,313
)
 
(171
)
 
(444
)
 
(241
)
Total other expense
(7,890
)
 
(1,825
)
 
(8,376
)
 
(5,546
)
(Loss) income from continuing operations before income taxes
(12,474
)
 
29,296

 
73,744

 
120,552

Provision for income taxes
7,297

 
12,411

 
41,876

 
46,450

Net (loss) income from continuing operations
(19,771
)
 
16,885

 
31,868

 
74,102

Income from discontinued operations, net of income tax
of $— , $— ,$— and $2,135

 

 

 
3,970

Net (loss) income
(19,771
)
 
16,885

 
31,868

 
78,072

Less: Net (loss) income attributable to noncontrolling interests
 
 
 
 
 
 
 
     Continuing operations

 
(520
)
 
(2,011
)
 
(610
)
     Discontinued operations

 

 

 
56

Net (loss) income attributable to Heartland
$
(19,771
)
 
$
17,405

 
$
33,879

 
$
78,626

 
 
 
 
 
 
 
 
Amounts attributable to Heartland:
 
 
 
 
 
 
 
Net (loss) income from continuing operations
$
(19,771
)
 
$
17,405

 
$
33,879

 
$
74,712

Income from discontinued operations, net of income tax
and noncontrolling interests

 

 

 
3,914

Net (loss) income attributable to Heartland
$
(19,771
)
 
$
17,405

 
$
33,879

 
$
78,626

 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
      (Loss) income from continuing operations
$
(0.55
)
 
$
0.47

 
$
0.93

 
$
2.03

      Income from discontinued operations

 

 

 
0.11

      Basic (loss) earnings per share
$
(0.55
)
 
$
0.47

 
$
0.93

 
$
2.14

 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
      (Loss) income from continuing operations
$
(0.55
)
 
$
0.46

 
$
0.91

 
$
1.96

      Income from discontinued operations

 

 

 
0.10

      Diluted (loss) earnings per share
$
(0.55
)
 
$
0.46

 
$
0.91

 
$
2.06

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
36,253

 
36,906

 
36,354

 
36,791

Diluted
37,000

 
37,972

 
37,187

 
38,053


Page 5






Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
 
Three Months Ended December 31,
 
Year Ended
December 31,
 
2014
 
2013
 
2014
 
2013
Net (loss) income
$
(19,771
)
 
$
16,885

 
$
31,868

 
$
78,072

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Reclassification of gains on investments, net of income tax of
$—, $—, $108 and $—

 

 
(170
)
 

Unrealized (losses) gains on investments,
      net of income tax of $(5), $4, $(10) and $8
(56
)
 
8

 
(50
)
 
12

Unrealized gains (losses) on derivative financial instruments,
      net of tax of $23, $(38), $106 and $153
38

 
(61
)
 
178

 
254

Foreign currency translation adjustment

 

 

 
(54
)
Comprehensive (loss) income
(19,789
)
 
16,832

 
31,826

 
78,284

Less: Net loss attributable to noncontrolling interests

 
(520
)
 
(2,011
)
 
(570
)
Comprehensive (loss) income attributable to Heartland
$
(19,789
)
 
$
17,352

 
$
33,837

 
$
78,854



Page 6





Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
 
December 31,
Assets
2014
 
2013
Current assets:
 
 
 
Cash and cash equivalents
$
70,793

 
$
71,932

Funds held for customers
176,492

 
127,375

Receivables, net
234,104

 
200,040

Investments
106

 
4,101

Inventory
12,048

 
11,087

Prepaid expenses
22,658

 
15,284

Current tax assets
15,082

 
10,426

Current deferred tax assets, net
9,308

 
9,548

Total current assets
540,591

 
449,793

Capitalized customer acquisition costs, net
73,107

 
61,027

Property and equipment, net
154,303

 
147,388

Goodwill
425,712

 
190,978

Intangible assets, net
192,553

 
49,857

Deposits and other assets, net
1,507

 
1,262

Total assets
$
1,387,773

 
$
900,305

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Due to sponsor banks
$
31,165

 
$
19,109

Accounts payable
58,460

 
70,814

Customer fund deposits
176,492

 
127,375

Processing liabilities
119,398

 
130,871

Current portion of accrued buyout liability
15,023

 
13,943

Current portion of borrowings
36,792

 

Current portion of unearned revenue
46,601

 
18,172

Accrued expenses and other liabilities
41,517

 
31,689

Total current liabilities
525,448

 
411,973

Deferred tax liabilities, net
45,804

 
40,600

Reserve for unrecognized tax benefits
7,315

 
5,633

Long-term borrowings
523,122

 
150,000

Long-term portion of accrued buyout liability
32,970

 
25,436

Long-term portion of unearned revenue
2,354

 

Total liabilities
1,137,013

 
633,642

Commitments and contingencies

 

 
 
 
 
Equity
 
 
 
Common stock, $0.001 par value, 100,000,000 shares authorized, 36,344,921 and 37,485,486 shares issued at December 31, 2014 and December 31, 2013; 36,344,921 and 36,950,886 outstanding at December 31, 2014 and December 31, 2013
36

 
37

Additional paid-in capital
255,921

 
245,055

Accumulated other comprehensive loss
(130
)
 
(88
)
(Accumulated deficit) retained earnings
(5,067
)
 
35,960

Treasury stock, at cost (534,600 shares at December 31, 2013)

 
(20,489
)
Total stockholders’ equity
250,760

 
260,475

Noncontrolling interests

 
6,188

Total equity
250,760

 
266,663

Total liabilities and equity
$
1,387,773

 
$
900,305



Page 7





Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
Year Ended December 31,
 
2014
 
2013
Cash flows from operating activities
 
 
 
Net income
$
31,868

 
$
78,072

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of capitalized customer acquisition costs
51,626

 
45,648

Other depreciation and amortization
48,270

 
35,389

Asset impairment charges
37,365

 

Addition to loss reserves
9,650

 
2,787

Provision for doubtful receivables
3,279

 
195

Deferred taxes
7,515

 
8,403

Share-based compensation
13,269

 
12,838

Gain on sale of assets
(305
)
 
(3,786
)
Write off of fixed assets and other
1,996

 
1,034

Changes in operating assets and liabilities:
 
 
 
Increase in receivables
(18,134
)
 
(19,693
)
Increase in inventory
(890
)
 
(1,343
)
Payment of signing bonuses, net
(38,875
)
 
(29,091
)
Increase in capitalized customer acquisition costs
(24,831
)
 
(21,159
)
Increase in current tax assets
(11,047
)
 
(3,138
)
Increase in prepaid expenses, deposits and other assets
(3,153
)
 
(3,782
)
Excess tax benefits on employee share-based compensation
(7,524
)
 
(11,596
)
Increase in reserve for unrecognized tax benefits
1,682

 
2,564

Increase (decrease) in due to sponsor banks
12,056

 
(18,477
)
(Decrease) increase in accounts payable
(11,434
)
 
2,136

Increase in unearned revenue
1,554

 
5,010

Increase (decrease) in accrued expenses and other liabilities
1,569

 
(6,615
)
(Decrease) increase in processing liabilities
(21,123
)
 
32,761

Payouts of accrued buyout liability
(11,568
)
 
(13,651
)
Increase in accrued buyout liability
20,182

 
17,620

Net cash provided by operating activities
92,997

 
112,126

Cash flows from investing activities
 
 
 
Purchase of investments
(38,962
)
 
(5,262
)
Sales of investments
25,247

 

Maturities of investments

 
2,000

(Increase) decrease in funds held for customers
(35,420
)
 
4,040

Increase (decrease) in customer fund deposits
49,003

 
(4,030
)
Proceeds from sale of business

 
19,343

Acquisitions of businesses, net of cash acquired
(392,142
)
 
(15,182
)
Capital expenditures
(54,913
)
 
(52,924
)
Net cash used in investing activities
(447,187
)
 
(52,015
)
Cash flows from financing activities
 
 
 
Proceeds from borrowings, net
460,392

 
156,416

Principal payments on borrowings
(54,188
)
 
(161,001
)
Proceeds from exercise of stock options
6,109

 
14,174

Excess tax benefits on employee share-based compensation
7,524

 
11,596

Repurchases of common stock
(54,455
)
 
(49,625
)
Dividends paid on common stock
(12,331
)
 
(10,321
)
Net cash provided by (used in) financing activities
353,051

 
(38,761
)
 
 
 
 
Net (decrease) increase in cash
(1,139
)
 
21,350

Effect of exchange rates on cash

 
1

Cash at beginning of year
71,932

 
50,581

Cash at end of year
$
70,793

 
$
71,932


Page 8





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 twelve months ended December 31, 2014 and 2013 follows (in thousands except per share data):
Three Months Ended December 31, 2014
GAAP
 
Acquisition-
related
Amortization
 
Share-based
Compensation
 
Adjusted
Non-GAAP
(Loss) income from operations
$
(4,584
)
 
$
5,133

 
$
2,333

 
$
2,882

Operating margin (a)
(2.4
)%
 
 
 
 
 
1.5
%
Net (loss) income from continuing operations attributable
      to Heartland
$
(19,771
)
 
$
3,167

 
$
1,439

 
$
(15,165
)
(Loss) earnings per share from continuing operations
$
(0.55
)
 
$
0.09

 
$
0.04

 
$
(0.42
)
Shares used in computing (loss) earnings per share
      from continuing operations
36,253

 
 
 
 
 
36,253

Three Months Ended December 31, 2013
GAAP
 
Acquisition-
related
Amortization
 
Share-based
Compensation
 
Adjusted
Non-GAAP
Income from operations
$
31,121

 
$
2,339

 
$
3,075

 
$
36,535

Operating margin (a)
20.9
%
 
 
 
 
 
24.5
%
Net income from continuing operations attributable to Heartland
$
17,405

 
$
1,348

 
$
1,772

 
$
20,525

Diluted earnings per share from continuing operations
$
0.46

 
$
0.04

 
$
0.05

 
$
0.55

Diluted shares used in computing earnings per share
      from continuing operations
37,972

 
 
 
 
 
37,972

Twelve Months Ended December 31, 2014
GAAP
 
Acquisition-
related
Amortization
 
Share-based
Compensation
 
Adjusted
Non-GAAP
Income from operations
$
82,120

 
$
13,544

 
$
13,269

 
$
108,933

Operating margin (a)
12.2
%
 
 
 
 
 
16.2
%
Net income from continuing operations attributable to Heartland
$
33,879

 
$
8,262

 
$
8,094

 
$
50,235

Diluted earnings per share from continuing operations
$
0.91

 
$
0.22

 
$
0.22

 
$
1.35

Diluted shares used in computing earnings per share
      from continuing operations
37,187

 
 
 
 
 
37,187

Twelve Months Ended December 31, 2013
GAAP
 
Acquisition-
related
Amortization
 
Share-based
Compensation
 
Adjusted
Non-GAAP
Income from operations
$
126,098

 
$
9,112

 
$
12,838

 
$
148,048

Operating margin (a)
21.1
%
 
 
 
 
 
24.7
%
Net income from continuing operations attributable to Heartland
$
74,712

 
$
5,577

 
$
7,857

 
$
88,146

Diluted earnings per share from continuing operations
$
1.96

 
$
0.15

 
$
0.21

 
$
2.32

Diluted shares used in computing earnings per share
      from continuing operations
38,053

 
 
 
 
 
38,053

 
 
 
 
 
 
 
 
(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.


Page 9