Merchant services provider Heartland Payment Systems (NYSE:HPY) doesn't carry the same brand awareness as card network giants Visa (NYSE:V) and MasterCard (NYSE:MA). But even though it operates under the radar of many investors, Heartland is the fifth-largest processor of payments in the U.S. And in its third-quarter financial report Friday morning, Heartland showed just how ambitious it is in generating future growth. Even in a competitive market, the company has taken advantage of an improving economic environment for its small and midsized business customers, but it is also aiming higher by targeting larger businesses to add to its customer base. In that context, let's see how Heartland Payment Systems did last quarter.
Heartland keeps profiting from payments
Heartland Payment Systems continued to see strong overall results. Total revenue climbed nearly 8% year over year to more than $600 million, and net revenue exclusive of interchange fees and other costs posted double-digit percentage growth to land at a record $169.4 million. While diluted earnings per share of $0.56 represented a slight decline from 2013's third quarter, the figure was better than the $0.53 per share that most investors had expected from Heartland.
Heartland especially touted its success in the small-business arena. Quarterly transaction volume for its small and midsized enterprise segment jumped 10.7% to $21.6 billion, with especially strong gains in its relationship with American Express (NYSE:AXP) and with record results in volume with its core Visa, MasterCard, and Discover relationships. Those growth figures were faster than Heartland managed earlier in 2014, and between new installations, customer retention, and the conversion of some of its customers to the AmEx OptBlue system, Heartland has expanded its customer base more effectively.
CEO Robert Carr discussed the multifaceted strategy that Heartland has used to accelerate its growth. Sales force productivity as measured by the company's new-margin-installed metric reached another record high during the quarter, and transaction processing volume gains helped drive overall revenue higher. Heartland has seen success in both its card-based segment and in noncard-related business, and boosting its sales staff set the stage for further gains in the future.
The next step for Heartland Payment Systems
Even more exciting for Heartland is its acquisition of Xpient Solutions, which it expects to close today. Carr sees the transaction as opening the door to major new business, with leading point-of-sale prowess that will serve major customers including Yum! Brands' (NYSE:YUM) Taco Bell and Panera Bread (NASDAQ:PNRA). Combined with its existing offerings, Heartland believes the Xpient integration will boost security and functionality and make its overall platform more attractive to potential customers. As Heartland demonstrates its ability to serve those customers well, investors hope that other large businesses will turn to Heartland to provide similar services and lead to even further gains in revenue and profitability.
Heartland, though, wasn't able to inspire investors fully with its outlook for the remainder of 2014. Expected net revenue growth of 11% to 12% should result in slightly higher net figures of $665 million to $670 million for the year, but the company's adjusted earnings-per-share range of $2.33 to $2.37 is slightly below what investors had pegged for 2014 profits.
Still, Heartland's long-term prospects rely on its continued ability to grow its business organically and to find new acquisition targets to help augment growth. In competing with much larger companies, Heartland has done a good job of holding its own and finding a fast but manageable pace at which to target future expansion.
Heartland Payment Systems is excited about its third-quarter results and believes that it can accomplish even bigger feats in the future. With investors expecting accelerating growth in 2015 and beyond, Heartland will have to work hard to deliver on its promises and make an even larger impression on the growing payment-processing space.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends American Express, MasterCard, Panera Bread, and Visa. The Motley Fool owns shares of Discover Financial Services, MasterCard, Panera Bread, and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.