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Heartland Payment Systems Inc. Reports Operating Results (10-Q)

August 06, 2010 | About:
10qk

10qk

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Heartland Payment Systems Inc. (HPY) filed Quarterly Report for the period ended 2010-06-30.

Heartland Payment Systems Inc. has a market cap of $578.8 million; its shares were traded at around $15.3 with a P/E ratio of 22.9 and P/S ratio of 0.4. The dividend yield of Heartland Payment Systems Inc. stocks is 0.2%. Heartland Payment Systems Inc. had an annual average earning growth of 20.1% over the past 5 years.HPY is in the portfolios of David Nierenberg of D3 Family of Funds, David Nierenberg of D3 Family of Funds, John Buckingham of Al Frank Asset Management, Inc., Richard Pzena of Pzena Investment Management LLC, Bruce Kovner of Caxton Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

During the six months ended June 30, 2010, the Company recovered from its insurance providers approximately $26.8 million of the costs it incurred for the Processing System Intrusion and expensed approximately $11.3 million for accruals, legal fees and costs it incurred for defending various claims and actions, resulting in a net recovery of $15.5 million, or $0.24 per share. For the three months ended June 30, 2010, the Company expensed a total of $4.9 million, or about $0.07 per share, respectively, associated with the Processing System Intrusion.

For the three and six months ended June 30, 2009, the Company expensed a total of $19.4 million and $32.0 million, respectively, or about $0.32 and $0.53 per share, respectively, for accruals, legal fees and costs it incurred for defending various claims and actions associated with the Processing System Intrusion.

On May 19, 2010, the Company entered into a settlement agreement with MasterCard Worldwide (the MasterCard Settlement Agreement) to resolve potential claims and other disputes among the Company, the Sponsor Banks and MasterCard related to the Processing System Intrusion. Under the MasterCard Settlement Agreement, alternative recovery offers totaling $41.4 million were made to eligible MasterCard issuers with respect to losses alleged to have been incurred by them as a result of the Processing System Intrusion. The $41.4 million includes a $6.6 million credit for fines previously collected by MasterCard during 2009, so the maximum further amount to be paid by the Company under the MasterCard Settlement Agreement is $34.8 million. Payment of the final settlement amount is expected late in the third quarter of 2010, although consummation of the settlement is subject to the satisfaction of certain conditions described in the Companys Current Report on Form 8-K filed on May 19, 2010 and set forth in the MasterCard Settlement Agreement, which is filed as Exhibit 10.1 to such Form 8-K. The costs of this settlement were included in the Companys Provision for Processing System Intrusion on its Consolidated Statement of Operations for the year ended December 31, 2009 and in its Reserve for Processing System Intrusion on its Consolidated Balance Sheet as of June 30, 2010.

Our financial results for the three months ended June 30, 2010 have improved relative to recent quarterly results, but continue to reflect the impacts of adverse economic conditions, particularly on our SME merchant base, and the costs of the Processing System Intrusion. Both the levels of new SME merchant installs and processing volume at existing SME merchants continue to be unfavorably impacted by the uncertain economy. For the three months ended June 30, 2010, we recorded net income of $6.1 million, or $0.16 per share, compared to a net loss of $2.6 million, or $0.07 per share, in the three months ended June 30, 2009.

In the three months ended June 30, 2010, we recorded total expenses of $4.9 million, or $0.07 per share, and for the three months ended June 30, 2009, we recorded total expenses of $19.4 million, or $0.32 per share, associated with the Processing System Intrusion (see Processing System Intrusion for more detail). The following is a summary of our financial results for the three months ended June 30, 2010:

The amount of the up-front signing bonus paid for new SME bankcard, payroll and check processing accounts is based on the estimated gross margin for the first year of the merchant contract. The gross signing bonuses paid during the six months ended June 30, 2010 and 2009 were $13.0 million and $17.9 million respectively and for the full year ended December 31, 2009 were $34.7 million. The signing bonus paid, amount capitalized, and related amortization are adjusted at the end of the first year to reflect the actual gross margin generated by the merchant contract during that year. The net signing bonus adjustments made during the six months ended June 30, 2010 and 2009 were $(1.6) million and $(0.2) million, respectively. Positive signing bonus adjustments occur when the actual gross margin generated by the merchant contract during the first year exceeds the estimated gross margin for that year, resulting in the underpayment of the up-front signing bonus and would be paid to the relevant sales person. Negative signing bonus adjustments result from prior overpayments of up-front signing bonuses, and would be recovered from the relevant salesperson. The amount of signing bonuses paid which remained subject to adjustment at June 30, 2010 was $27.8 million.

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