Heartland Payment Systems Inc. is adding merchant accounts and processing more transactions for its established merchants, thanks to a sales streamlining and a healthier economy.
The rise in new customers and the growing strength of older ones are driving increases in revenue and normalized income, according to analysts and company executives.
"Small businesses appear to finally be joining the economic recovery — same-store sales were up 3.2%," Robert Carr, the processor's chairman and chief executive, said Wednesday during a conference call with analysts.
Heartland achieved the increase in same-store sales even though its sales staff was dwindling, an outcome that indicates the company is keeping its best reps and shedding the low producers, according to David J. Koning, a senior analyst with Robert W. Baird & Co. Inc. of Milwaukee.
"It seems the good reps are sticking around, which is encouraging," Koning said.
The sales staff recently shrank by 155, from 917 in December to 762 in March, because of Heartland's efforts to improve sales productivity, Carr said.
The effort includes fine-tuning the hiring process and sharing best practices, he said.
The remaining reps created an average of $6,000 of new margin in the first quarter, a record for the Princeton, N.J., company, Carr said.
Those efforts and the improving economy are shown in Heartland's first-quarter increase in revenue, he said.
Heartland's first-quarter net income declined 44.4% from a year earlier, to $7.9 million.
"Last year, they had a recovery of some breach costs that hit in Q1, which was virtually all of their profits in Q1" of last year, Koning said.
Heartland reported a costly and well-publicized data breach in January 2009.
Heartland reported that its total first-quarter revenue rose 13.7% year over year, to $467.7 million.
At $112.7 million, net revenue for the quarter was up 8.5%, the strongest gain in six quarters. All of the company's card and noncard businesses registered gains Carr said.
Heartland's smaller units contributed to the revenue increases, Koning said.
Payroll processing, for example, grew by 15%, while equipment sales, mainly of private-label and other terminals, rose 10%. Equipment sales grew more slowly than in previous periods but still outpaced the company as a whole, the CEO said.
While increasing revenue, Heartland has been reducing costs, Carr said.
"Processing and servicing cost was down nearly 8% year over year, reflecting facility consolidations, reduced offices, efficiencies improvement and cost-containment measures," he said.
During the conference call, Carr was asked about the mood of the Heartland sales force.
"I think it feels the best it has been, frankly, since October of 2008, when things went south in terms of the economy," he replied.
The improvements the company has made in the sales force and the hopes for a continuing economic upturn explain his optimism, the CEO added.
"We have a smaller group, and our productivity is more than doubled in the last 12 months," Carr said of the sales staff.
"It seems that folks who weren't successful have more complaints and take up a disproportionate amount of time of their management team," he continued. "So we are managing the organization more closely."
