Image: Heartland Payment Systems.
Electronic payments have become more popular than ever, and behind the scenes, Heartland Payment Systems (HPY +0.00%) provides valuable services to merchants that allow them to accept credit and debit cards from their customers and receive payment for their goods quickly and efficiently. Coming into Friday morning's third-quarter financial report, Heartland investors were optimistic that the company would be able to continue its streak of solid performance, especially after rival Global Payments (GPN 1.01%) announced substantial growth in its quarterly report earlier in the month. Heartland's results bore that optimism out, with better revenue and profits than expected and record results in a number of categories. Let's look more closely at Heartland Payment Systems and how it managed to keep its momentum strong going into the key holiday season.
Another record-setting performance for Heartland
Heartland Payment Systems' string of record results continued during the third quarter. Net revenue hit a record $214.6 million, rising 27% and crushing investors' expectations of just 22% growth. On the bottom line, adjusted net income hit an all-time high of $29.7 million, climbing 20%, and that produced adjusted earnings of $0.79 per share, which was another record and was $0.03 better than the consensus forecast among investors.
As we've seen in past quarters, new highs in several business metrics helped power Heartland's performance. New margin installed rose 30% to an all-time high of $27.7 million, hitting its fastest growth rate in nearly two years. Small and mid-sized enterprise transaction processing volume also reached record levels of $24.5 billion, up 13% from the year-ago quarter. Same-store sales growth of 4.1% didn't hit a record, but it accelerated slightly from the previous quarter, and net volume attrition continued to improve, falling to 9.1%. Acquisitions helped send net revenue from non-payment processing segments up 61%.
CEO Robert Carr talked about the most important part of Heartland's report. "Our success this quarter was driven by the growth and productivity of our sales organization," Carr said, "our focus on complementary acquisitions, an improvement in consumer spending, and our innovative new technologies and products, such as Heartland Secure." The CEO also noted that new business growth and solid operating margins contributed to the company's overall success.
Heartland looks forward with optimism
Heartland Payment Systems has made positive guidance something that investors have come to expect, and the company did it again this quarter. The merchant-services provider raised its sales projections for the full 2015 year to a range of $810 million to $815 million, implying a growth rate in excess of 20% and roughly $10 million to $15 million higher than its guidance from the previous quarter. Heartland also increased its earnings range by $0.02 to $0.04 per share, now expecting adjusted earnings per share to come in between $2.86 and $2.89.
Carr remains excited about the opportunities in the space. "The implementation of new EMV standards, the growing adoption of integrated point-of-sale technology, heightened security concerns, and continual innovation are driving the payments industry to the center of the commerce universe," Carr said. Heartland sees those trends as a chance to prove its value to its small and mid-sized merchant clients that it can deliver even greater value by creating customized solutions that help make it easier for them to do business while producing new profit potential for Heartland.
That assessment is consistent with the growth that Global Payments posted in its most recent quarter. Global Payments enjoyed an 8% rise in adjusted net revenue, and its earnings per share jumped by 25% from the year-ago quarter. Like Heartland, Global Payments also boosted its guidance, seeing favorable conditions in its worldwide scope.
With the U.S. economy looking strong, Heartland Payment Systems is in a good position to continue riding the tide of solid consumer sentiment to keep its payments business prospering. With a reliable foothold into the key small and mid-sized business market, Heartland has the opportunity to help its clients enter the holiday season prepared to do more business and generate more profits in a win-win for everyone involved.
