Delaware | 001-32594 | 22-3755714 | ||
(State or other jurisdiction | (Commission File No) | (I.R.S. Employer | ||
of incorporation or organization) | File No) | Identification Number) |
• | Acquisition-related amortization expense is non-cash expense that the Company does not believe is reflective of its ongoing operating results, or contributions from its acquired businesses; and |
• | The Company's acquisition activity has increased acquisition-related amortization expense to a more significant level. |
• | 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 certain performance targets required for the vesting of 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. |
• | Acquisition-related amortization expense and share-based compensation expense that are excluded from non-GAAP income from operations, operating margin, net income and non-GAAP earnings per share can have a material impact on GAAP net income and GAAP earnings per share. |
• | Other companies may calculate non-GAAP income from operations, operating margin, net income and non-GAAP earnings per share that exclude the impact of similar expenses differently than the Company does, limiting the usefulness of those measures for comparative purposes. |
(d) | Exhibits |
Exhibit Number | Description | ||
99.1 | Press Release of the Company dated | August 1, 2014 |
Dated: | August 1, 2014 | ||||
Heartland Payment Systems, Inc. | |||||
(Registrant) | |||||
By: | /s/ Samir M. Zabaneh | ||||
Samir M. Zabaneh | |||||
Chief Financial Officer | |||||
(Principal Financial and Accounting Officer) |
• | The seventh consecutive quarter of new margin installed growth, up 18.7% from a year ago to $20.8 million |
• | Record Small and Mid-Sized Enterprise (SME) quarterly transaction processing volume of $20.4 billion, up 5.6% from the second quarter of 2013 |
• | Record Quarterly Net Revenue of $159.4 million, up 6.4% from the second quarter of 2013 |
• | Operating Margin on Net Revenue of 18.8% compared to 22.3% for the same quarter in 2013. Excluding the impact of Leaf discussed below, the operating margin was 20.6% in this year’s second quarter |
• | Same store sales rose 2.4% and volume attrition was 12.6% in this year’s second quarter |
• | One time impact of a prior period billing error reduced operating margin by 140 basis points and Earnings per Share by $0.04. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Total revenues | $ | 582,859 | $ | 546,624 | $ | 1,106,142 | $ | 1,047,863 | |||||||
Costs of services: | |||||||||||||||
Interchange | 367,773 | 345,233 | 685,869 | 652,305 | |||||||||||
Dues, assessments and fees | 55,686 | 51,649 | 105,354 | 98,981 | |||||||||||
Processing and servicing | 67,048 | 58,376 | 135,657 | 117,773 | |||||||||||
Customer acquisition costs | 12,368 | 9,983 | 22,618 | 20,716 | |||||||||||
Depreciation and amortization | 6,679 | 4,522 | 12,491 | 8,612 | |||||||||||
Total costs of services | 509,554 | 469,763 | 961,989 | 898,387 | |||||||||||
General and administrative | 43,374 | 43,531 | 87,860 | 89,371 | |||||||||||
Total expenses | 552,928 | 513,294 | 1,049,849 | 987,758 | |||||||||||
Income from operations | 29,931 | 33,330 | 56,293 | 60,105 | |||||||||||
Other income (expense): | |||||||||||||||
Interest income | 30 | 32 | 62 | 66 | |||||||||||
Interest expense | (1,258 | ) | (1,269 | ) | (2,308 | ) | (2,503 | ) | |||||||
Other, net | 420 | (70 | ) | 288 | (160 | ) | |||||||||
Total other expense | (808 | ) | (1,307 | ) | (1,958 | ) | (2,597 | ) | |||||||
Income from continuing operations before income taxes | 29,123 | 32,023 | 54,335 | 57,508 | |||||||||||
Provision for income taxes | 12,552 | 12,342 | 22,852 | 22,182 | |||||||||||
Net income from continuing operations | 16,571 | 19,681 | 31,483 | 35,326 | |||||||||||
Income from discontinued operations, net of income tax of $—, $—, $— and $2,135 | — | — | — | 3,970 | |||||||||||
Net income | 16,571 | 19,681 | 31,483 | 39,296 | |||||||||||
Less: Net (loss) income attributable to noncontrolling interests | |||||||||||||||
Continuing operations | (881 | ) | — | (1,709 | ) | — | |||||||||
Discontinued operations | — | — | — | 56 | |||||||||||
Net income attributable to Heartland | $ | 17,452 | $ | 19,681 | $ | 33,192 | $ | 39,240 | |||||||
Amounts attributable to Heartland: | |||||||||||||||
Net income from continuing operations, net of noncontrolling interests | $ | 17,452 | $ | 19,681 | $ | 33,192 | $ | 35,326 | |||||||
Income from discontinued operations, net of income tax and noncontrolling interests | — | — | — | 3,914 | |||||||||||
Net income attributable to Heartland | $ | 17,452 | $ | 19,681 | $ | 33,192 | $ | 39,240 | |||||||
Basic earnings per share: | |||||||||||||||
Income from continuing operations | $ | 0.49 | $ | 0.54 | $ | 0.91 | $ | 0.96 | |||||||
Income from discontinued operations | — | — | — | 0.11 | |||||||||||
Basic earnings per share | $ | 0.49 | $ | 0.54 | $ | 0.91 | $ | 1.07 | |||||||
Diluted earnings per share: | |||||||||||||||
Income from continuing operations | $ | 0.48 | $ | 0.53 | $ | 0.89 | $ | 0.93 | |||||||
Income from discontinued operations | — | — | — | 0.10 | |||||||||||
Diluted earnings per share | $ | 0.48 | $ | 0.53 | $ | 0.89 | $ | 1.03 | |||||||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic | 35,936 | 36,153 | 36,350 | 36,698 | |||||||||||
Diluted | 36,734 | 37,439 | 37,250 | 38,108 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 16,571 | $ | 19,681 | $ | 31,483 | $ | 39,296 | |||||||
Other comprehensive income (loss): | |||||||||||||||
Reclassification of gains on investments net of income tax of $103, $—, $103 and $— | (164 | ) | — | (164 | ) | — | |||||||||
Unrealized gains on investments, net of tax of income tax $1, $—, $10 and $4 | 2 | 1 | 14 | 4 | |||||||||||
Unrealized gains on derivative financial instruments, net of income tax of $27, $53, $55 and $96 | 48 | 83 | 95 | 163 | |||||||||||
Foreign currency translation adjustment | — | — | — | (54 | ) | ||||||||||
Comprehensive income | 16,457 | 19,765 | 31,428 | 39,409 | |||||||||||
Less: Comprehensive (loss) income attributable to noncontrolling interests | (881 | ) | — | (1,709 | ) | 40 | |||||||||
Comprehensive income attributable to Heartland | $ | 17,338 | $ | 19,765 | $ | 33,137 | $ | 39,369 |
June 30, 2014 | December 31, 2013 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 53,839 | $ | 71,932 | |||
Funds held for customers | 131,448 | 127,375 | |||||
Receivables, net | 212,559 | 200,040 | |||||
Investments | 4,112 | 4,101 | |||||
Inventory | 10,351 | 11,087 | |||||
Prepaid expenses | 17,898 | 15,284 | |||||
Current tax assets | 17,789 | 10,426 | |||||
Current deferred tax assets, net | 7,715 | 9,548 | |||||
Total current assets | 455,711 | 449,793 | |||||
Capitalized customer acquisition costs, net | 66,433 | 61,027 | |||||
Property and equipment, net | 155,770 | 147,388 | |||||
Goodwill | 204,737 | 190,978 | |||||
Intangible assets, net | 50,103 | 49,857 | |||||
Deposits and other assets, net | 1,206 | 1,262 | |||||
Total assets | $ | 933,960 | $ | 900,305 | |||
Liabilities and Equity | |||||||
Current liabilities: | |||||||
Due to sponsor banks | $ | 58,774 | $ | 19,109 | |||
Accounts payable | 70,767 | 70,814 | |||||
Customer fund deposits | 131,448 | 127,375 | |||||
Processing liabilities | 107,108 | 130,871 | |||||
Current portion of accrued buyout liability | 12,901 | 13,943 | |||||
Accrued expenses and other liabilities | 28,941 | 49,861 | |||||
Total current liabilities | 409,939 | 411,973 | |||||
Deferred tax liabilities, net | 43,910 | 40,600 | |||||
Reserve for unrecognized tax benefits | 6,739 | 5,633 | |||||
Long-term borrowings | 200,000 | 150,000 | |||||
Long-term portion of accrued buyout liability | 28,367 | 25,436 | |||||
Total liabilities | 688,955 | 633,642 | |||||
Commitments and contingencies | — | — | |||||
Equity | |||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, 35,936,313 and 37,485,486 shares issued at June 30, 2014 and December 31, 2013; 35,936,313 and 36,950,886 outstanding at June 30, 2014 and December 31, 2013 | 36 | 37 | |||||
Additional paid-in capital | 240,209 | 245,055 | |||||
Accumulated other comprehensive loss | (143 | ) | (88 | ) | |||
Retained earnings | 424 | 35,960 | |||||
Treasury stock, at cost (534,600 shares at December 31, 2013) | — | (20,489 | ) | ||||
Total stockholders’ equity | 240,526 | 260,475 | |||||
Noncontrolling interests | 4,479 | 6,188 | |||||
Total equity | 245,005 | 266,663 | |||||
Total liabilities and equity | $ | 933,960 | $ | 900,305 |
Six Months Ended June 30, | |||||||
2014 | 2013 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 31,483 | $ | 39,296 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Amortization of capitalized customer acquisition costs | 24,930 | 22,478 | |||||
Other depreciation and amortization | 20,854 | 16,268 | |||||
Addition to loss reserves | 2,057 | 1,282 | |||||
Provision (recoveries) for doubtful receivables | 2,003 | (187 | ) | ||||
Deferred taxes | 7,260 | 5,447 | |||||
Share-based compensation | 7,542 | 7,138 | |||||
Gain on sale of assets | (259 | ) | (3,786 | ) | |||
Write off of fixed assets and other | 479 | 133 | |||||
Changes in operating assets and liabilities: | |||||||
Increase in receivables | (14,197 | ) | (56,662 | ) | |||
Decrease (increase) in inventory | 740 | (272 | ) | ||||
Payment of signing bonuses, net | (18,179 | ) | (12,080 | ) | |||
Increase in capitalized customer acquisition costs | (12,157 | ) | (10,121 | ) | |||
Increase in prepaid expenses | (2,524 | ) | (2,085 | ) | |||
Increase in current tax assets | (3,969 | ) | (7,336 | ) | |||
Decrease (increase) in deposits and other assets | 36 | (692 | ) | ||||
Excess tax benefits on employee share-based compensation | (3,394 | ) | (6,536 | ) | |||
Increase in reserve for unrecognized tax benefits | 1,106 | 748 | |||||
Increase (decrease) in due to sponsor banks | 39,665 | (36,904 | ) | ||||
(Decrease) increase in accounts payable | (51 | ) | 6,494 | ||||
Decrease in accrued expenses and other liabilities | (25,271 | ) | (14,026 | ) | |||
(Decrease) increase in processing liabilities | (25,821 | ) | 82,188 | ||||
Payouts of accrued buyout liability | (7,956 | ) | (10,450 | ) | |||
Increase in accrued buyout liability | 9,845 | 8,359 | |||||
Net cash provided by operating activities | 34,222 | 28,694 | |||||
Cash flows from investing activities | |||||||
Purchase of investments | (16,017 | ) | (1,224 | ) | |||
Sales of investments | 2,215 | — | |||||
Maturities of investments | — | 816 | |||||
Increase in funds held for customers | 9,736 | 21,096 | |||||
Increase (decrease) in customer fund deposits | 4,073 | (21,089 | ) | ||||
Proceeds from sale of business | — | 19,343 | |||||
Acquisitions of businesses, net of cash acquired | (20,493 | ) | — | ||||
Capital expenditures | (25,952 | ) | (23,445 | ) | |||
Net cash used in investing activities | (46,438 | ) | (4,503 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from borrowings | 60,000 | 9,000 | |||||
Principal payments on borrowings | (10,000 | ) | (10,000 | ) | |||
Proceeds from exercise of stock options | 1,337 | 7,809 | |||||
Excess tax benefits on employee share-based compensation | 3,394 | 6,536 | |||||
Repurchases of common stock | (54,455 | ) | (34,217 | ) | |||
Dividends paid on common stock | (6,153 | ) | (5,151 | ) | |||
Net cash used in financing activities | (5,877 | ) | (26,023 | ) | |||
Net decrease in cash | (18,093 | ) | (1,832 | ) | |||
Effect of exchange rates on cash | — | 1 | |||||
Cash at beginning of year | 71,932 | 50,581 | |||||
Cash at end of period | $ | 53,839 | $ | 48,750 |
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 From Continuing Operations | $ | 17,452 | $ | 1,479 | $ | 2,108 | $ | 21,039 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 0.48 | $ | 0.04 | $ | 0.06 | $ | 0.58 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 36,734 | 36,734 |
Three Months Ended June 30, 2013 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from Operations | $ | 33,330 | $ | 2,254 | $ | 3,272 | $ | 38,856 | |||||||
Operating Margin (a) | 22.3 | % | 25.9 | % | |||||||||||
Net Income From Continuing Operations | $ | 19,681 | $ | 1,385 | $ | 2,011 | $ | 23,077 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 0.53 | $ | 0.04 | $ | 0.05 | $ | 0.62 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 37,439 | 37,439 |
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 From Continuing Operations | $ | 33,192 | $ | 3,005 | $ | 4,378 | $ | 40,575 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 0.89 | $ | 0.08 | $ | 0.12 | $ | 1.09 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 37,250 | 37,250 |
Six Months Ended June 30, 2013 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from Operations | $ | 60,105 | $ | 4,531 | $ | 7,138 | $ | 71,774 | |||||||
Operating Margin (a) | 20.3 | % | 24.2 | % | |||||||||||
Net Income From Continuing Operations | $ | 35,326 | $ | 2,783 | $ | 4,384 | $ | 42,493 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 0.93 | $ | 0.07 | $ | 0.12 | $ | 1.12 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 38,108 | 38,108 | |||||||||||||
(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. |