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 | October 31, 2014 |
Dated: | October 31, 2014 | ||||
Heartland Payment Systems, Inc. | |||||
(Registrant) | |||||
By: | /s/ Samir M. Zabaneh | ||||
Samir M. Zabaneh | |||||
Chief Financial Officer | |||||
(Principal Financial and Accounting Officer) |
• | The eighth consecutive quarter of new margin installed growth, up 15.7% from a year ago to a record $21.4 million |
• | Record Small and Mid-Sized Enterprise (SME) core Visa/Mastercard/Discover quarterly transaction processing volume of $20.4 billion, up 7.1% from the third quarter of 2013 |
• | Total Small and Mid-Sized Enterprise (SME) quarterly transaction processing volume, including American Express, of $21.6 billion, up 10.7% from the third quarter of 2013 |
• | Record Quarterly Net Revenue of $169.4 million, up 10.5% from the third quarter of 2013 |
• | Operating Margin on Net Revenue of 18.0% compared to 22.8% for the same quarter in 2013. Excluding the impact of Leaf discussed below, the operating margin was 19.6% in this year’s third quarter |
• | Same store sales rose 1.8% and volume attrition was 12.6% in this year’s third quarter |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Total revenues | $ | 600,626 | $ | 557,129 | $ | 1,706,768 | $ | 1,604,992 | |||||||
Costs of services: | |||||||||||||||
Interchange | 373,372 | 350,734 | 1,059,241 | 1,003,039 | |||||||||||
Dues, assessments and fees | 57,864 | 53,165 | 163,218 | 152,146 | |||||||||||
Processing and servicing | 69,328 | 60,195 | 204,985 | 177,968 | |||||||||||
Customer acquisition costs | 12,289 | 10,838 | 34,907 | 31,554 | |||||||||||
Depreciation and amortization | 7,981 | 5,454 | 20,472 | 14,066 | |||||||||||
Total costs of services | 520,834 | 480,386 | 1,482,823 | 1,378,773 | |||||||||||
General and administrative | 49,381 | 41,871 | 137,241 | 131,242 | |||||||||||
Total expenses | 570,215 | 522,257 | 1,620,064 | 1,510,015 | |||||||||||
Income from operations | 30,411 | 34,872 | 86,704 | 94,977 | |||||||||||
Other income (expense): | |||||||||||||||
Interest income | 33 | 29 | 95 | 95 | |||||||||||
Interest expense | (2,142 | ) | (1,243 | ) | (4,450 | ) | (3,746 | ) | |||||||
Other, net | 3,581 | 90 | 3,869 | (70 | ) | ||||||||||
Total other income (expense) | 1,472 | (1,124 | ) | (486 | ) | (3,721 | ) | ||||||||
Income from continuing operations before income taxes | 31,883 | 33,748 | 86,218 | 91,256 | |||||||||||
Provision for income taxes | 11,727 | 11,857 | 34,579 | 34,039 | |||||||||||
Net income from continuing operations | 20,156 | 21,891 | 51,639 | 57,217 | |||||||||||
Income from discontinued operations, net of income tax of $—, $—, $— and $2,135 | — | — | — | 3,970 | |||||||||||
Net income | 20,156 | 21,891 | 51,639 | 61,187 | |||||||||||
Less: Net (loss) income attributable to noncontrolling interests | |||||||||||||||
Continuing operations | (302 | ) | (90 | ) | (2,011 | ) | (90 | ) | |||||||
Discontinued operations | — | — | — | 56 | |||||||||||
Net income attributable to Heartland | $ | 20,458 | $ | 21,981 | $ | 53,650 | $ | 61,221 | |||||||
Amounts attributable to Heartland: | |||||||||||||||
Net income from continuing operations | 20,458 | 21,981 | 53,650 | 57,307 | |||||||||||
Income from discontinued operations, net of income tax and noncontrolling interests | — | — | — | 3,914 | |||||||||||
Net income attributable to Heartland | 20,458 | 21,981 | 53,650 | 61,221 | |||||||||||
Basic earnings per share: | |||||||||||||||
Income from continuing operations | $ | 0.57 | $ | 0.60 | $ | 1.47 | $ | 1.56 | |||||||
Income from discontinued operations | — | — | — | 0.11 | |||||||||||
Basic earnings per share | $ | 0.57 | $ | 0.60 | $ | 1.47 | $ | 1.67 | |||||||
Diluted earnings per share: | |||||||||||||||
Income from continuing operations | $ | 0.56 | $ | 0.58 | $ | 1.44 | $ | 1.50 | |||||||
Income from discontinued operations | — | — | — | 0.10 | |||||||||||
Diluted earnings per share | $ | 0.56 | $ | 0.58 | $ | 1.44 | $ | 1.60 | |||||||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic | 36,069 | 36,857 | 36,388 | 36,752 | |||||||||||
Diluted | 36,850 | 38,020 | 37,249 | 38,079 |
Three Months Ended September 30, | Nine Months Ended September 30 | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 20,156 | $ | 21,891 | $ | 51,639 | $ | 61,187 | |||||||
Other comprehensive (loss) income: | |||||||||||||||
Reclassification of gains on investments, net of income tax of $5, $—, $108 and $— | (6 | ) | — | (170 | ) | — | |||||||||
Unrealized (losses) gains on investments, net of income tax of $5, $—, $5 and $4 | (8 | ) | — | 6 | 4 | ||||||||||
Unrealized gains on derivative financial instruments, net of income tax of $28, $25, $83 and $121 | 45 | 152 | 140 | 315 | |||||||||||
Foreign currency translation adjustment | — | — | — | (54 | ) | ||||||||||
Comprehensive income | 20,187 | 22,043 | 51,615 | 61,452 | |||||||||||
Less: Comprehensive loss attributable to noncontrolling interests | (302 | ) | (90 | ) | (2,011 | ) | (50 | ) | |||||||
Comprehensive income attributable to Heartland | $ | 20,489 | $ | 22,133 | $ | 53,626 | $ | 61,502 |
September 30, 2014 | December 31, 2013 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 94,577 | $ | 71,932 | |||
Funds held for customers | 122,311 | 127,375 | |||||
Receivables, net | 220,936 | 200,040 | |||||
Investments | 4,110 | 4,101 | |||||
Inventory | 11,445 | 11,087 | |||||
Prepaid expenses | 19,451 | 15,284 | |||||
Current tax assets | 5,139 | 10,426 | |||||
Current deferred tax assets, net | 7,725 | 9,548 | |||||
Total current assets | 485,694 | 449,793 | |||||
Capitalized customer acquisition costs, net | 68,967 | 61,027 | |||||
Property and equipment, net | 162,707 | 147,388 | |||||
Goodwill | 424,270 | 190,978 | |||||
Intangible assets, net | 193,790 | 49,857 | |||||
Deposits and other assets, net | 1,336 | 1,262 | |||||
Total assets | $ | 1,336,764 | $ | 900,305 | |||
Liabilities and Equity | |||||||
Current liabilities: | |||||||
Due to sponsor banks | $ | 41,183 | $ | 19,109 | |||
Accounts payable | 60,729 | 70,814 | |||||
Customer fund deposits | 122,311 | 127,375 | |||||
Processing liabilities | 104,856 | 130,871 | |||||
Current portion of accrued buyout liability | 14,457 | 13,943 | |||||
Current portion of borrowings | 18,750 | — | |||||
Current portion of unearned revenue | 40,551 | 18,172 | |||||
Accrued expenses and other liabilities | 25,928 | 31,689 | |||||
Total current liabilities | 428,765 | 411,973 | |||||
Deferred tax liabilities, net | 45,039 | 40,600 | |||||
Reserve for unrecognized tax benefits | 6,769 | 5,633 | |||||
Long-term borrowings | 553,750 | 150,000 | |||||
Long-term portion of accrued buyout liability | 30,500 | 25,436 | |||||
Long-term portion of unearned revenue | 2,104 | — | |||||
Total liabilities | 1,066,927 | 633,642 | |||||
Commitments and contingencies | — | — | |||||
Equity | |||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, 36,179,147 and 37,485,486 shares issued at September 30, 2014 and December 31, 2013; 36,179,147 and 36,950,886 outstanding at September 30, 2014 and December 31, 2013 | 36 | 37 | |||||
Additional paid-in capital | 252,127 | 245,055 | |||||
Accumulated other comprehensive loss | (112 | ) | (88 | ) | |||
Retained earnings | 17,786 | 35,960 | |||||
Treasury stock, at cost (534,600 shares at December 31, 2013) | — | (20,489 | ) | ||||
Total stockholders’ equity | 269,837 | 260,475 | |||||
Noncontrolling interests | — | 6,188 | |||||
Total equity | 269,837 | 266,663 | |||||
Total liabilities and equity | $ | 1,336,764 | $ | 900,305 |
Nine Months Ended September 30 | |||||||
2014 | 2013 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 51,639 | $ | 61,187 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Amortization of capitalized customer acquisition costs | 38,056 | 33,936 | |||||
Other depreciation and amortization | 33,516 | 26,070 | |||||
Addition to loss reserves | 3,000 | 2,510 | |||||
Provision (recoveries) for doubtful receivables | 3,010 | (1 | ) | ||||
Deferred taxes | 8,361 | 5,632 | |||||
Share-based compensation | 10,936 | 9,763 | |||||
Gain on sale of assets | (258 | ) | (3,786 | ) | |||
Write off of fixed assets and other | (3,057 | ) | 386 | ||||
Changes in operating assets and liabilities: | |||||||
Increase in receivables | (11,339 | ) | (15,135 | ) | |||
Increase in inventory | (287 | ) | (524 | ) | |||
Payment of signing bonuses, net | (27,647 | ) | (19,546 | ) | |||
Increase in capitalized customer acquisition costs | (18,349 | ) | (15,676 | ) | |||
Decrease (increase) in prepaid expenses | 132 | (2,361 | ) | ||||
Increase in current tax assets | (2,957 | ) | (1,515 | ) | |||
Increase in deposits and other assets | (103 | ) | (296 | ) | |||
Excess tax benefits on employee share-based compensation | (5,670 | ) | (8,382 | ) | |||
Increase in reserve for unrecognized tax benefits | 1,136 | 1,198 | |||||
Increase in due to sponsor banks | 22,074 | 5,048 | |||||
Decrease in accounts payable | (12,509 | ) | (1,830 | ) | |||
(Decrease) increase in unearned revenue | (2,414 | ) | 3,820 | ||||
Decrease in accrued expenses and other liabilities | (12,304 | ) | (4,856 | ) | |||
(Decrease) increase in processing liabilities | (29,016 | ) | 10,310 | ||||
Payouts of accrued buyout liability | (9,621 | ) | (11,842 | ) | |||
Increase in accrued buyout liability | 15,199 | 13,294 | |||||
Net cash provided by operating activities | 51,528 | 87,404 | |||||
Cash flows from investing activities | |||||||
Purchase of investments | (31,017 | ) | (5,241 | ) | |||
Sales of investments | 17,215 | — | |||||
Maturities of investments | — | 1,430 | |||||
Decrease in funds held for customers | 18,849 | 19,519 | |||||
Decrease in customer fund deposits | (5,064 | ) | (19,510 | ) | |||
Proceeds from sale of business | — | 19,343 | |||||
Acquisitions of businesses, net of cash acquired | (355,066 | ) | (15,182 | ) | |||
Capital expenditures | (39,140 | ) | (36,929 | ) | |||
Net cash used in investing activities | (394,223 | ) | (36,570 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from borrowings, net | 436,392 | 9,000 | |||||
Principal payments on borrowings | (17,500 | ) | (15,000 | ) | |||
Proceeds from exercise of stock options | 4,482 | 10,725 | |||||
Excess tax benefits on employee share-based compensation | 5,670 | 8,382 | |||||
Repurchases of common stock | (54,455 | ) | (39,632 | ) | |||
Dividends paid on common stock | (9,249 | ) | (7,735 | ) | |||
Net cash provided by (used in) financing activities | 365,340 | (34,260 | ) | ||||
Net increase in cash | 22,645 | 16,574 | |||||
Effect of exchange rates on cash | — | 1 | |||||
Cash at beginning of year | 71,932 | 50,581 | |||||
Cash at end of period | $ | 94,577 | $ | 67,156 |
Three Months Ended September 30, 2014 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from Operations | $ | 30,411 | $ | 3,501 | $ | 3,394 | $ | 37,306 | |||||||
Operating Margin (a) | 18.0 | % | 22.0 | % | |||||||||||
Net Income From Continuing Operations Attributable to Heartland | $ | 20,458 | $ | 2,213 | $ | 2,146 | $ | 24,817 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 0.56 | $ | 0.06 | $ | 0.06 | $ | 0.68 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 36,850 | 36,850 |
Three Months Ended September 30, 2013 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from Operations | $ | 34,872 | $ | 2,242 | $ | 2,625 | $ | 39,739 | |||||||
Operating Margin (a) | 22.8 | % | 25.9 | % | |||||||||||
Net Income From Continuing Operations Attributable to Heartland | $ | 21,981 | $ | 1,454 | $ | 1,703 | $ | 25,138 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 0.58 | $ | 0.04 | $ | 0.04 | $ | 0.66 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 38,020 | 38,020 |
Nine Months Ended September 30, 2014 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from Operations | $ | 86,704 | $ | 8,411 | $ | 10,936 | $ | 106,051 | |||||||
Operating Margin (a) | 17.9 | % | 21.9 | % | |||||||||||
Net Income From Continuing Operations Attributable to Heartland | $ | 53,650 | $ | 5,038 | $ | 6,550 | $ | 65,238 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 1.44 | $ | 0.14 | $ | 0.18 | $ | 1.76 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 37,249 | 37,249 |
Nine Months Ended September 30, 2013 | GAAP | Acquisition- related Amortization | Share-based Compensation | Adjusted Non-GAAP | |||||||||||
Income from Operations | $ | 94,977 | $ | 6,773 | $ | 9,763 | $ | 111,513 | |||||||
Operating Margin (a) | 21.1 | % | 24.8 | % | |||||||||||
Net Income From Continuing Operations Attributable to Heartland | $ | 57,307 | $ | 4,237 | $ | 6,087 | $ | 67,631 | |||||||
Diluted Earnings Per Share From Continuing Operations | $ | 1.50 | $ | 0.11 | $ | 0.16 | $ | 1.77 | |||||||
Diluted Shares Used in Computing Earnings Per Share From Continuing Operations | 38,079 | 38,079 | |||||||||||||
(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. |