Heartland Payment Systems Inc. has begun commercial testing of its end-to-end encryption system for card transactions.
"Our fully encrypted end-to-end terminal solution is currently being-beta tested at 10 merchant locations," Robert O. Carr, Heartland's chairman and chief executive officer, said during a conference call to discuss the Princeton, N.J., transaction processor's second-quarter results. "We expect to be offering merchants our new 'E3' product with what we believe will be the highest level of data security in the market in the near term."
Heartland, which disclosed a major system breach in January, said in June that it had run transactions from all four major card brands on the E3 system. However, the networks — Visa Inc., MasterCard Inc., American Express Co. and Discover Financial Services — do not yet accept encrypted data from Heartland, so it must decrypt the data to complete the transactions.
Heartland took a variety of pretax charges in the second quarter, totaling $19.4 million, or 32 cents a share, that it attributed to the processing system intrusion.
It reported a net loss of $2.6 million, or 7 cents a share, compared with net income of $11.5 million, or 30 cents a share, the year earlier. Its revenue rose 6%, to $417.4 million.
Excluding the charges, Heartland's adjusted net income of 25 cents a share topped the average analyst estimate by a penny.
But Heartland reduced its earnings outlook for the rest of 2009 due to economic conditions that are worse than it had anticipated in the second quarter. It said it now expects full-year adjusted net earnings of 85 to 90 cents a share, down from the range of 95 cents to $1 that it projected in its first-quarter report in May. The company said it now expects full-year net revenue — total revenues less interchange, dues and assessments — to grow 10%, to between $420 million and $425 million, rather than 12% to 14%, or between $430 million and $438 million.