Image: Heartland Payment Systems.
Shoppers increasingly use credit and debit cards and other innovative payment methods to buy things, and merchant-services provider Heartland Payment Systems (HPY +0.00%) plays an essential role in helping retail businesses get paid when customers want to use these payment methods. Coming into Friday morning's first-quarter financial report, Heartland had seen its share price fall back from previous record highs, as some question how long the company can keep producing the growth that shareholders want. Nevertheless, Heartland reported record earnings during the quarter, and for now, the company appears to be firing on all cylinders. Let's look more closely at Heartland Payment Systems and what its most recent results show about its prospects going forward.
Heartland reaches a record
Heartland Payment Systems continued its record-setting ways, this time getting more of its sales down to the bottom line. Revenue climbed 22% to $190.3 million, which was slightly higher than investors had expected Heartland to post. The real story, though, came on the earnings front, where net income jumped more than 19% to $23.1 million, equating to adjusted earnings of $0.62 per share, topping consensus estimates by $0.02 per share.
Looking more closely at Heartland's results, the payment processor took advantage of several positive trends. New margin installed rose nearly 10% to hit a new record of $21.7 million, reflecting the efforts of Heartland's sales force in bringing in new business. At the same time, same-store sales were up 4.4%, and net volume attrition fell to just 9.6%, both of which represented the best performance Heartland has seen in five years. Transaction processing volume from small and mid-sized businesses jumped 16% from the year-ago quarter to $20.8 billion as improving economic conditions worked their way down to smaller retailers.
CEO Robert Carr had a number of things to say about Heartland's success. He highlighted the company's non-card-based business, pointing out that "revenue is up nearly 50% from both organic growth as well as the rapid integration of acquisitions." Heartland expects to continue to invest in innovative technology to make its solutions as attractive and effective to customers as possible.
Image: Heartland Payment Systems.
Heartland boosts its guidance
The strong results prompted Heartland Payment Systems to increase its guidance for the full year. On the sales front, Heartland now expects growth of 17% to 19%, equating to $790 million to $800 million in revenue for the year. Meanwhile, the company narrowed its expected range of earnings, boosting the bottom end by $0.03 to a range of $2.78 to $2.85 per share.
Heartland also expects better results due to the fact that certain expenses are likely to disappear or go down in future quarters. For instance, the company held its Heartland Summit earlier this year, which cost the company an incremental $2.9 million in expenses during the quarter. Yet Heartland doesn't hold its summit every year, and so future results won't have that expense item. Similarly, the company's Leaf unit, which had sold technology to help restaurants with their checkout process, is winding down, and Heartland therefore expects to save on the expenses that had been going toward that business.
The big question for Heartland is whether its acquisitions to bolster its Heartland Commerce unit will end up paying off. Carr sees Heartland Commerce as the "focal point of our strategy to offer the industry's most compelling integrated electronic payments processing platform with the highest level of security," and given the number of data breaches and other problems with payment databases recently, security has never been a more important consideration for merchants of all sizes. If the company can achieve its goal of making Heartland Commerce the leading source for electronic payments solutions, then further gains should follow.
Heartland Payment Systems has plenty of potential to reap rewards from the improving economy and its positive impact on spending. Depending on how well the company can do with its longer-term strategy, though, Heartland could make itself an even more important element of the payment-processing industry by solving its clients' problems before some of them are even aware of any risk.
