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Heartland Payment Systems Reports 31% Increase in First Quarter Adjusted Earnings Per Share



  Heartland Payment Systems Reports 31% Increase in First Quarter Adjusted
  Earnings Per Share

Business Wire

PRINCETON, N.J. -- April 30, 2013

Heartland Payment Systems, Inc. (NYSE: HPY), one of the nation's largest 
payment processors, today announced Adjusted Net Income and Adjusted Earnings
per Share were $19.4 million and $0.51, respectively, for the quarter ended
March 31, 2013, compared to Adjusted Net Income and Adjusted Earnings per
Share of $16.0 million and $0.39, respectively, for the quarter ended March
31, 2012. For the quarter, the Company reported GAAP net income of $19.6
million, or $0.51 per share, compared to GAAP net income of $13.8 million, or
$0.34 per share for the first quarter of 2012. First quarter 2013 GAAP net
income from continuing operations, which excludes the gain on the sale of
Collective POS in the current quarter, was $15.6 million, or $0.41 per share.
Adjusted Net Income and Adjusted Earnings per Share are non-GAAP measures that
are detailed later in this press release in the section “Reconciliation of
Non-GAAP Financial Measures.”

Highlights for the first quarter of 2013 include:

  * Quarterly Net Revenue of $146.8 million, up 16.8% from the first quarter
    of 2012
  * Operating Margin on Net Revenue of 18.2% compared to 18.1% for the same
    quarter in 2012
  * Small and Mid-Sized Enterprise (SME) quarterly transaction processing
    volume of $17.3 billion, up 3.8% from the first quarter of 2012, despite
    one less processing day in the current quarter than in the year ago
    quarter
  * Same store sales rose 2.2%, while volume attrition was 12.8%
  * New margin installed increased 10.1% from the first quarter of 2012
  * Share-based compensation reduced earnings by $3.9 million pre-tax, or
    approximately $0.06 per share, compared to $2.9 million pre-tax, or
    approximately $0.04 per share in the year ago quarter
  * Acquisition-related amortization was $2.3 million pre-tax, or $0.04 per
    share, in the first quarter, up from $1.1 million pre-tax, or $0.02 per
    share in the first quarter of 2012

Robert O. Carr, Chairman and CEO, said, “Financial results for the first
quarter of 2013 were the best of any first quarter in the Company's history,
extending the record results of the last two years. Card processing volumes
continue to grow as we strengthen merchant relationships by enhancing our
product suite to bring additional value to their businesses. In particular, we
are excited about the growth prospects represented by our new mobile
applications, including those developed through partnerships, such as that
announced with LevelUp in the first quarter. Our sales organization once again
achieved record new business productivity, with the best quarterly new margin
installed in several years, and our strategy to add new relationship managers
is gaining traction as we increased relationship manager count in the quarter,
a key to further penetrating the market and sustaining our growth. The very
encouraging early results of our latest acquisitions are not only exciting in
their own right, but also in how they provide synergies that are enhancing the
value of the entire Heartland franchise. And, despite the investment in
integration and new business initiatives in the quarter, we remain vigilant in
improving our efficiency and productivity to drive an ever increasing
proportion of our growth to the bottom line and build value for shareholders.”

SME card processing volume for the three months ended March 31, 2013 was $17.3
billion, a 3.8% improvement compared to the year-ago period. Card processing
volume benefitted from better-than-expected same store sales, successful
efforts to minimize volume attrition, and double-digit growth in new margin
installed. Net revenue growth reflected growth in both card and non-card
businesses, including contributions from the Ovation and ECSI acquisitions.
The rate of operating income growth once again exceeded the rate of net
revenue growth, despite budgeted spending increases to support new growth
initiatives across the enterprise. Since share-based compensation and
acquisition related amortization expense are not reflective of our ongoing
operating performance, they are both excluded from the calculation of adjusted
net income and adjusted earnings per share, as further detailed later in this
release. In the first quarter, these two expenses reduced net income by $3.8
million, or $0.10 per share, compared to $2.5 million, or $0.06 per share in
the first quarter of 2012.

Mr. Carr continued, “This is an exciting time in the payments industry, which
is providing tremendous growth opportunities for organizations that can
deliver real value to the market. We are fortunate to have the financial
strength, organizational resources and market awareness that will enable us to
not only develop, but to efficiently deliver value propositions that will
resonate with merchants. Our strategy is to leverage our assets to bring new
card and non-card products to market that will help our merchants utilize
their payments technology as a more comprehensive platform to grow their
business, while simultaneously simplifying their operations. You can expect
Heartland to continue to deliver best-of-breed services, developed either
organically or through partnerships or acquisitions, so that our merchants are
best-equipped to operate in an increasingly complex world where mobility,
loyalty and operations are all rapidly converging.”

FULL YEAR 2013 GUIDANCE:

For full year 2013, we continue to expect Net Revenue to be between
approximately $600 million and $610 million. Adjusted Net Income is expected
to be in the range of $2.29 - $2.33, which is net of $0.37 of combined
acquisition-related amortization and share-based compensation expense. We
continue to expect GAAP EPS from continuing operations to be in the range
$1.92 to $1.96.

BOARD DECLARES QUARTERLY DIVIDEND; SHARE REPURCHASE PROGRAM UPDATE

The Company also announced that the Board of Directors declared a quarterly
dividend of $0.07 per common share payable June 15, 2013 to shareholders of
record on May 24, 2013. In the first quarter, the Company repurchased
approximately 491,000 shares for $15.3 million under our Board approved share
repurchase plan.

CONFERENCE CALL:

Heartland Payment Systems, Inc. will host a conference call on April 30, 2013
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) 364-3108. Please provide the operator with PIN
number 5340553. 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. (NYSE: HPY), the fifth largest payments
processor in the United States, delivers credit/debit/prepaid card processing,
school solutions, marketing solutions, end-to-end encryption technology,
campus solutions, payroll solutions, and related business solutions and
services to more than 250,000 business and education 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. Heartland also established The
Sales Professional Bill of Rights to advocate for the rights of sales
professionals everywhere. More detailed information can be found by visiting
HeartlandPaymentSystems.com, HeartlandPaymentSystems.com/Careers or following
the company on Twitter @HeartlandHPY and Facebook at
facebook.com/HeartlandHPY.

Forward-looking Statements

This press release contains statements of a forward-looking nature which
represent our management's beliefs and assumptions concerning future events.
Forward-looking statements involve risks, uncertainties and assumptions and
are based on information currently available to us. Actual results may differ
materially from those expressed in the forward-looking statements due to many
factors, including risks and additional factors that are described in the
Company's Securities and Exchange Commission filings, including but not
limited to the Company's annual report on Form 10-K for the year ended
December 31, 2012. We undertake no obligation to update any forward-looking
statements to reflect events or circumstances that may arise after the date of
this release.

                                                                    
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income
(In thousands, except per share data)
(unaudited)
                                                                        
                                                         Three Months Ended
                                                         March 31,
                                                         2013        2012
Total revenues                                           $ 501,239   $ 467,576
Costs of services:                                          
Interchange                                                307,072     297,948
Dues, assessments and fees                                 47,332      43,868
Processing and servicing                                   59,397      55,628
Customer acquisition costs                                 10,733      11,436
Depreciation and amortization                              4,090       4,352
Total costs of services                                    428,624     413,232
General and administrative                                 45,840      31,549
Total expenses                                             474,464     444,781
Income from operations                                     26,775      22,795
Other income (expense):                                     
Interest income                                            34          104
Interest expense                                           (1,234)     (850)
Provision for processing system intrusion costs            (206)       (157)
Other, net                                                 116         —
Total other expense                                        (1,290)     (903)
Income from continuing operations before income taxes      25,485      21,892
Provision for income taxes                                 9,840       8,366
Net income from continuing operations                      15,645      13,526
Income from discontinued operations, net of income tax     3,970       326
of $2,135 and $133
Net income                                                 19,615      13,852
Less: Net income attributable to noncontrolling            56          98
interests
Net income attributable to Heartland                     $ 19,559    $ 13,754
                                                                        
Amounts Attributable to Heartland:
Net income from continuing operations                    $ 15,645    $ 13,526
Income from discontinued operations, net of income tax     3,914       228
and non-controlling interests
Net income attributable to Heartland                     $ 19,559    $ 13,754
                                                                        
Net income                                               $ 19,615    $ 13,852
Other comprehensive income (loss):                          
Unrealized gains on investments, net of income tax of      3           11
$4 and $7
Unrealized gains (losses) on derivative financial          80          (6)
instruments, net of tax of $43 and ($6)
Foreign currency translation adjustment                    (54)        231
Comprehensive income                                       19,644      14,088
Less: Comprehensive income attributable to                 40          167
noncontrolling interests
Comprehensive income attributable to Heartland           $ 19,604    $ 13,921
                                                                        
Basic earnings per share:
Income from continuing operations                        $ 0.42      $ 0.34
Income from discontinued operations                        0.11        0.01
Basic earnings per share                                 $ 0.53      $ 0.35
                                                                        
Diluted earnings per share:
Income from continuing operations                        $ 0.41      $ 0.33
Income from discontinued operations                        0.10        0.01
Diluted earnings per share                               $ 0.51      $ 0.34
                                                                        
Weighted average number of common shares outstanding:
Basic                                                      36,841      38,837
Diluted                                                    38,374      40,560

                                                                 
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
                                                                   
                                                     March 31,    December 31,
Assets                                               2013         2012
                                                                   
Current assets:                                      $  
Cash and cash equivalents                              37,504     $  48,440
Funds held for customers                               142,011       131,405
Receivables, net                                       226,485       180,448
Investments                                            1,299         1,199
Inventory                                              10,243        9,694
Prepaid expenses                                       13,712        10,421
Current deferred tax assets, net                       10,311        10,475
Assets held for sale                                   —             17,044
Total current assets                                   441,565       409,126
Capitalized customer acquisition costs, net            55,747        56,425
Property and equipment, net                            129,167       125,031
Goodwill                                               170,449       168,062
Intangible assets, net                                 48,905        53,594
Deposits and other assets, net                         1,165         1,176
Total assets                                         $ 846,998    $  813,414
Liabilities and Equity                                             
Current liabilities:                                 $  
Due to sponsor banks                                   1,749      $  37,586
Accounts payable                                       68,283        64,065
Customer fund deposits                                 142,011       131,405
Processing liabilities                                 160,928       95,273
Current portion of borrowings                          102,001       102,001
Current portion of accrued buyout liability            11,468        10,478
Accrued expenses and other liabilities                 36,541        47,817
Current tax liabilities                                3,155         4,323
Liabilities related to assets held for sale            —             1,672
Total current liabilities                              526,136       494,620
Deferred tax liabilities, net                          31,618        29,632
Reserve for unrecognized tax benefits                  3,386         3,069
Long-term portion of borrowings                        45,000        50,000
Long-term portion of accrued buyout liability          25,288        24,932
Total liabilities                                      631,428       602,253
Commitments and contingencies                          —             —
                                                                   
Equity
Common stock, $0.001 par value, 100,000,000 shares
authorized, 37,804,792 and 37,571,708 shares
issued at March 31, 2013 and December 31, 2012;        38            38
36,597,692 and 36,855,908 outstanding at March 31,
2013 and December 31, 2012
Additional paid-in capital                             226,643       222,705
Accumulated other comprehensive loss                   (271)         (399)
Retained earnings                                      24,608        7,629
Treasury stock, at cost (1,207,100 and 715,800         (35,448)      (20,187)
shares at March 31, 2013 and December 31, 2012)
Total stockholders’ equity                             215,570       209,786
Noncontrolling interests                               —             1,375
Total equity                                           215,570       211,161
Total liabilities and equity                         $ 846,998    $  813,414

                                                 
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
                                                      
                                                  Three Months Ended March 31,
                                                  2013            2012
Cash flows from operating activities              $   
Net income                                           19,615       $  13,852
Adjustments to reconcile net income to net cash       
provided by operating activities:
Amortization of capitalized customer                 11,256          11,197
acquisition costs
Other depreciation and amortization                  7,214           7,383
Addition to loss reserves                            802             267
(Recovery) provision for doubtful receivables        (292)           83
Deferred taxes                                       1,251           3,602
Share-based compensation                             3,866           2,934
Write downs on fixed assets and system               57              —
development costs
Gain on sale of discontinued operations              (3,786)         —
Changes in operating assets and liabilities:          
Increase in receivables                              (45,664)        (7,268)
(Increase) decrease in inventory                     (608)           792
Payment of signing bonuses, net                      (5,780)         (7,554)
Increase in capitalized customer acquisition         (4,798)         (3,968)
costs
(Increase) decrease in prepaid expenses              (3,128)         297
Decrease in current tax assets                       598             2,378
Increase in deposits and other assets                (1,054)         (28)
Excess tax benefits on employee share-based          (1,753)         (1,321)
compensation
Increase in reserve for unrecognized tax             317             219
benefits
(Decrease) increase in due to sponsor banks          (35,836)        2,454
Increase in accounts payable                         4,051           2,614
Decrease in accrued expenses and other               (14,197)        (10,263)
liabilities
Increase in processing liabilities                   64,803          5,586
Payouts of accrued buyout liability                  (2,929)         (2,297)
Increase in accrued buyout liability                 4,275           4,207
Net cash (used in) provided by operating             (1,720)         25,166
activities
                                                                      
Cash flows from investing activities
Purchase of investments                              (609)           (206)
Maturities of investments                            201             575
Increase in funds held for customers                 (10,599)        (11,054)
Increase in customer fund deposits                   10,606          11,073
Proceeds from sale of discontinued operations        19,343          —
Purchases of property and equipment                  (11,351)        (7,361)
Net cash provided by (used in) investing             7,591           (6,973)
activities
                                                                      
Cash flows from financing activities
Principal payments on borrowings                     (5,000)         (3,751)
Proceeds from exercise of stock options              1,158           6,842
Excess tax benefits on employee share-based          1,753           1,321
compensation
Repurchases of common stock                          (14,280)        (10,672)
Dividends paid on common stock                       (2,580)         (2,336)
Net cash used in financing activities                (18,949)        (8,596)
                                                                      
Net (decrease) increase in cash                      (13,078)        9,597
Effect of exchange rates on cash                     1               45
Cash at beginning of year                            50,581          40,301
Cash at end of period                             $  37,504       $  49,943
                                                                      

Reconciliation of Non-GAAP Financial Measures And Regulation G Disclosure

To supplement its consolidated financial statements presented in accordance
with accounting principles generally accepted in the United States (“GAAP”),
the Company provides additional measures of its operating results on a
continuing operations basis, namely income from operations, operating margin,
net income and earnings per share, which exclude acquisition-related
amortization expense and share-based compensation expense. These measures meet
the definition of a non-GAAP financial measure. The Company believes that
application of these non-GAAP financial measures is appropriate to enhance
understanding of its historical performance as well as prospects for its
future performance.

Use and Economic Substance of the Non-GAAP Financial Measures - Management
uses these non-GAAP measures to evaluate  performance period over period, to
analyze the underlying trends in the Company's business, to assess its
on-going operating performance relative to its competitors, and to establish
operational goals and forecasts. Acquisition-related amortization expense and
share-based compensation expense are excluded as non-cash expenses that the
Company does not believe are reflective of ongoing operating results of
existing and acquired businesses. Additionally, share-based compensation
expense is an amount excluded from calculations of earnings per share used in
measuring achievement of performance targets required for vesting certain
performance-based share awards.

The following is an explanation of the adjustments that management excluded as
part of its non-GAAP measures for the three months ended March 31, 2013 and
2012:

Acquisition-related Amortization Expense - This expense consists of the
amortization of intangible assets such as  customer relationships, software,
non-compete agreements and merchant portfolios acquired through business
combinations. The Company excludes acquisition-related amortization expense
from its non-GAAP measures of income from operations, operating margin, net
income and earnings per share primarily because:

  * Acquisition-related amortization expense is non-cash expense that the
    Company does not believe is reflective of its ongoing operating results,
    or contributions from its acquired businesses; and
  * The Company's acquisition activity has increased significantly in recent
    years, with the result that acquisition-related amortization expense will
    become more significant.

Share-based Compensation Expense - These expenses consist of costs related to
the stock options, restricted stock  units, and performance share units, which
the Company has granted its employees. The Company excludes share-based
compensation expense from its non-GAAP measures of income from operations,
operating margin, net income and earnings per share primarily because:

  * Share-based compensation expense is non-cash expense that the Company does
    not believe is reflective of ongoing operating results;
  * Share-based compensation expense is excluded from calculations of earnings
    per share used in measuring its achievement of certain performance targets
    required for vesting performance-based awards; and
  * The Company's use of performance-based share awards has increased
    significantly in recent years, with the result that reported share-based
    compensation expense can vary significantly from year to year, or quarter
    to quarter, in ways that may not be related to the underlying operating
    performance of the Company.

Material Limitations Associated with the Use of Non-GAAP Financial Measures -
Non-GAAP income from operations,  operating margin, net income and earnings
per share that exclude the impact of acquisition-related amortization expense
and share-based compensation expense may have limitations as analytical tools,
and these non-GAAP measures should not be considered in isolation from or as a
replacement for GAAP financial measures, and should be considered only as
supplemental to the Company's GAAP financial measures. Some of the limitations
associated with the use of these non-GAAP financial measures are:

  * Acquisition-related amortization expense and share-based compensation
    expense that are excluded from non-GAAP income from operations, operating
    margin, net income and non-GAAP earnings per share can have a material
    impact on GAAP net income and GAAP earnings per share.
  * Other companies may calculate non-GAAP income from operations, operating
    margin, net income and non-GAAP earnings per share that exclude the impact
    of similar expenses differently than the Company does, limiting the
    usefulness of those measures for comparative purposes.

Usefulness of Non-GAAP Financial Measures to Investors - The Company believes
that presenting non-GAAP income from  operations, operating margin, net income
and non-GAAP earnings per share that exclude the impact of acquisition-related
amortization expense and, share-based compensation expense in addition to the
related GAAP measures provides investors greater transparency to the
information used by the Company's management for its financial and operational
decision-making and allows investors to see the Company's results through the
eyes of management. Additionally, the Company believes that the inclusion of
these non-GAAP financial measures provides enhanced comparability in its
financial reporting. The Company further believes that providing this
information better enables its investors to understand the Company's operating
performance and underlying business fundamentals, and to evaluate the
methodology used by management to evaluate and measure such performance.

This press release contains non-GAAP financial measures within the meaning of
Regulation G promulgated by the Securities and Exchange Commission. Pursuant
to Regulation G, a reconciliation of these non-GAAP financial measures with
the comparable financial measures calculated in accordance with GAAP for the
three months ended March 31, 2013 and 2012 follows:

Three Months Ended March 31, 2013

                                                                     
                                        Acquisition-
                                        related        Share-based    Adjusted
                             GAAP       Amortization   Compensation   Non-GAAP
Income from Operations       $ 26,775   $    2,277     $    3,866     $ 32,918
Operating Margin (a)           18.2%                                    22.4%
                                                                         
Net Income From Continuing   $ 15,645   $    1,398     $    2,373     $ 19,416
Operations
                                                                         
Diluted Earnings Per Share   $ 0.41     $    0.04      $    0.06      $ 0.51
From Continuing Operations
Diluted Shares Used in
Computing Earnings Per         38,374                                   38,374
Share From Continuing
Operations
                                                                         

Three Months Ended March 31, 2012

                                                                     
                                        Acquisition-                   
                                        related        Share-based    Adjusted
                             GAAP       Amortization   Compensation   Non-GAAP
Income from Operations       $ 22,795   $    1,097     $    2,934     $ 26,826
Operating Margin (a)           18.1%                                    21.3%
                                                                         
Net Income From Continuing   $ 13,526   $    678       $    1,813     $ 16,017
Operations
                                                                         
Diluted Earnings Per Share   $ 0.33     $    0.02      $    0.04      $ 0.39
From Continuing Operations
Diluted Shares Used in
Computing Earnings Per         40,560                                   40,560
Share From Continuing
Operations
                                                                         

(a) Operating Margin is measured as Income from Operations divided by Net
Revenue. Net Revenue is defined as total revenues less interchange fees and
dues, assessments and fees.

Contact:

Gregory FCA Communications
Joe Hassett, 610-228-2110
Heartland_ir@gregoryfca.com
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