Heartland Reports Loss

Breach-Related Expenses Cost Processor $2.6 Million
Heartland Reports Loss
Heartland Payment Systems Inc. (HPY), the nation's sixth-largest payment processor, reports a loss for the second quarter because of a $19.4 million charge to settle claims and legal fees related to the security breach revealed earlier in January

The Princeton, NJ-based company says it lost $2.6 million, or 7 cents per share, compared with a profit of $11.5 million, or 30 cents per share, in the same quarter a year ago. Heartland reports its latest quarter included a charge of 32 cents per share related to an offer made by the company to resolve security breach claims and related legal fees. Excluding that, Heartland earned $9.3 million, or 25 cents per share.

Total revenue rose by 6 percent to $417.4 million. Net revenue, which excludes the money given to Visa, MasterCard and card-issuing banks, climbed 14 percent to $106.6 million.

In Heartland's first-quarter earnings call in May, company officials said last year's well-publicized data breach has cost $12.6 million. The amount includes legal costs and fines from Visa and MasterCard, both of which have stated the payment processor wasn't compliant with PCI standards at the time of the breach. Visa had taken Heartland off of its preferred payment processor list earlier in March after the breach was made public on January 20. Heartland announced it had been recertified and was reinstated onto Visa's list of PCI-DSS validated service providers on April 30.

In May, Heartland announced plans to protect the company's processing network with an end-to-end encryption system. Company officials say plans are to begin rolling out the solution to its merchants in the third quarter of this year. The merchants would pay for the installation of the equipment, but Heartland is already spending "millions" on developing the technology solution with Voltage, a technology provider.

In January, Heartland revealed hackers had secretly installed malware in its computer networks, "sniffing" or capturing data as it flowed across the network. The company says it processes 100 million transactions a month, mostly for small to medium-sized retail and merchant businesses. For 2009 Heartland says it is reducing its outlook. The company says it now expects earnings of 85 cents to 90 cents per share, excluding 6 cents per share in stock-based compensation expenses - and net revenue of $420 million to $425 million.

Heartland also says the volume of Visa and MasterCard credit card transactions at merchants using its systems for at least a year fell by 9.7 percent - the worst showing in the company's 12-year history.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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