Heartland Payment Systems Reports Adjusted Net Income Increased 73%; Adjusted Earnings Per Share Increased 67% in Fourth Quarter

Adjusted Net Income and Adjusted Earnings per Share are non-GAAP
measures that exclude expenses attributable to the processing system
intrusion and stock compensation expense, as detailed later in this
press release in the section, Reconciliation of Non-GAAP Financial
Measures.  

Highlights for the fourth quarter of 2011 include:

Small and Mid-Sized Enterprise (SME) quarterly transaction processing
volume of $16.8 billion, up 7.1% from the comparable period in 2010

- Quarterly Net Revenue of $125.1 million, up 13.3% from the fourth quarter of 2010

- Operating margin on net revenue of 16.1% compared to 12.9% for the same quarter in 2010

- Same store sales rose 2.5% for the fourth quarter, our seventh consecutive quarter of same store sales growth

- New margin installed of $14.4 million, essentially unchanged from the fourth quarter of 2010

Highlights for fiscal 2011 include:

- Operating margin for the full year up 580 basis points, to 16.2% from
10.4% in 2010

- Same store sales up 2.6% for the full year over 2010

- Full year new margin installed grew for the first time in three years,
rising 4.6% for the year


Robert Carr, Chairman and CEO, said, We ended the year on a high note with double-digit net revenue growth, expanding margins, strong cash flow and operating earnings that increased over 40% in the quarter compared to the same quarter last year. In the quarter, we were successful in both growing our sales organization and setting a new record for relationship manager productivity. Our non-card businesses continue to play an increasingly important role in our overall growth, with K-12 School Solutions making a particularly significant contribution to our results this quarter. Margins are rapidly responding to our productivity enhancements, which is helping generate cash to reinvest in additional growth opportunities. The significant improvement in financial performance achieved this year is a direct result of the growth and productivity improvement strategy initiated in 2010, and provides a solid foundation on which we can build in 2012.

SME card processing volume for the three months ended December 31, 2011 was $16.8 billion, a 7.1% improvement compared to the year-ago period, with same store sales up 2.5% in the quarter and volume attrition in the quarter a relatively stable 13.4%. For the three months ended December 31, 2011, Network Services processed 807 million transactions, a 2.1% year-over-year increase. Revenue growth was also enhanced by the $5.5 million growth in K-12 School Solutions revenues. Efficiency improvements helped reduce processing and servicing expenses by 3.3% compared to the same year-ago quarter. Together with double-digit net revenue growth, improved productivity helped drive operating income to 16.1% of net revenue in the fourth quarter of 2011, up 320 basis points from the comparable 2010 period. The increase in general and administrative expense in the quarter was due in part to the transition of certain costs previously included in direct expense to overhead, but was also attributable to higher wages as well as costs related to the company's upcoming sales and servicing Summit. In addition, share-based incentive compensation grew significantly, as the improvement in corporate financial performance triggered recognition that certain performance-based Restricted Stock Units are likely to vest in coming years.

Mr. Carr continued, Durbin dollars keep rolling back to merchants as Heartland Payment Systems continues to pass along 100% of the new, lower debit interchange rates. The implementation of the Durbin amendment has clearly heightened merchant sensitivity to card processing costs. And, we are working hard to be there when merchants open their statements from their processors so we can help them recognize the tangible evidence of the value of Heartland's Fair Deal. Both new and existing relationship managers have been energized by this unique market opportunity, and are excited about the opportunity to add new merchants to the Heartland portfolio this year. 

Other Non-Operating Items

The company's GAAP results include a number of items in non-operating income and expense in the fourth quarters of 2011 and 2010. Non-operating expenses in the 2011 fourth quarter included charges ($1.1 million pre-tax) relating to its decision to discontinue Express Funds, a remote deposit capture product, partially offset by a gain from an earnout payment ($0.3 million pre-tax) relating to last year's sale of SME merchant bankcard processing contracts. The net effect was to reduce 2011 fourth quarter earnings by $0.8 million (pre-tax), or $0.01 per share. Combined with pre-tax charges of $0.8 million recorded prior to the 2011 fourth quarter for costs associated with closing our Johnson City, Tennessee service center, these 2011 items reduced 2011 full-year earnings by $1.6 million (pre-tax), or $0.02 per share.

The prior-year fourth quarter included costs associated with exiting its Johnson City servicing facility ($0.5 million pre-tax), an intangible asset impairment charge ($0.8 million pre-tax) and a $3.8 million pre-tax charge to settle litigation over the treatment of reimbursable employee business expenses. Also during the prior-year fourth quarter, the company recorded a $3.1 million gain on its sale of merchant accounts that had not been converted onto HPS Exchange. The net effect was to reduce 2010 fourth quarter earnings by $2.0 million (pre-tax), or $0.03 per share. Combined with pre-tax income of $2.0 million recorded prior to the 2010 fourth quarter for various legal settlements received, these 2010 items had no effect on 2010 full year earnings.

FULL YEAR 2011 RESULTS:

For the full year of 2011, GAAP net income was $43.9 million or $1.09 per share, compared to GAAP net income of $34.5 million or $0.88 per share for 2010. Net revenue for the full year of 2011 was $482.3 million, up 8.4% compared to 2010. Excluding expenses attributable to the processing system intrusion and stock compensation, Adjusted Net Income and Adjusted Earnings per Share for the full year 2011 were $50.5 million or $1.26 per share, compared to $29.7 million, or $0.76 per share in the prior year, increases of 70% and 66%, respectively.

FULL YEAR 2012 GUIDANCE:

For full year 2012, we expect Net Revenue to be between $530 million and $540 million, and fully diluted Adjusted EPS to be between $1.52 and $1.56, before deducting $0.19 per share of after-tax stock compensation expense. The company's guidance does not include any of the ongoing costs related to the 2008 processing system intrusion.

QUARTERLY DIVIDEND INCREASED, AND SHARE REPURCHASE PROGRAM UPDATE

The Company also announced the Board of Directors increased the quarterly dividend to $0.06 per common share, an increase of 50%. The new higher dividend is payable March 15, 2012 to shareholders of record on March 2, 2012. In the fourth quarter, the company repurchased 778,889 shares at an average cost of $21.61 per share under the Board approved share repurchase plan announced last quarter.

CONFERENCE CALL:

Heartland Payment Systems, Inc. will host a conference call on February 9, 2012 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 be accessed by calling (888) 329-8903. Please provide the operator with PIN number 2843174. 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., the fifth largest payments processor in the United States, delivers credit/debit/prepaid card processing, gift marketing and loyalty programs, payroll and related business solutions to more than 250,000 business 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. 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.