Eye on Earnings: Heartland Payment Systems, TNS, FIS

The softening economy so far hasn't taken a big bite out of payment processors' earnings, but it is having some effects. Meanwhile, processors continue to streamline their operations, integrate acquisitions, and roll out new services.

? Reflecting the recent weakness in consumer spending, big merchant acquirer Heartland Payment Systems Inc. reported a 0.1% decline in same-store sales in the second quarter, the first-ever such decline in its history. But new merchants and Heartland's acquisition of Alliance Data Systems Corp.'s Network Services business two months ago lifted charge volumes and revenues. Transaction processing volume was up 29% to $17.1 billion from the prior-year quarter, including $2 billion from acquisitions. Even without the Network Services merchants, most of which are gas stations and convenience stores, processing volumes were up 14%. Total revenues increased 18% to $394.6 million from $333.4 million in 2007's second quarter, and net income grew 10% to $11.5 million from $10.4 million. Beyond card processing, Princeton, N.J.-based Heartland offers remote deposit capture, payroll services, and card programs for college campuses. This week, Heartland introduced a tagging service for remote deposit to help merchants follow checks through the return and collections processes. The service lets the user link an alphanumeric remittance identifier to the transaction when a check is scanned for deposit using the Heartland Express Funds service. The user can key in or scan the ID, which can be placed on the check. Heartland says the IDs will enable users to easily search for checks and streamline the reconciliation process.

? Transaction Network Services Inc., the telecommunications provider that specializes in routing ATM and point-of-sale transactions between terminals and processors, saw strong growth from its International Services division, with revenues increasing nearly 32% to $42.6 million in the second quarter from $32.4 million a year earlier. On a constant dollar basis, international revenues would have increased almost 25% to $40.4 million. The revenue increase came from higher transaction volumes, more broadband connections for POS customers, and incremental growth from an Australian Internet gateway, Dialect Payment Technologies, that TNS bought in June 2007 for $4.2 million. Reston, Va.-based TNS announced this week that The Co-operative Group in the United Kingdom is using TNS's Internet Protocol links to cut payment card processing times by 80% in its 1,800 grocery stores. TNS's total second-quarter revenues increased 14% to $90.1 million from $79.4 million in the 2007 period, and net income grew 91% to $1.03 million from $537,000. The POS Division saw its traffic decrease nearly 7%% to 1.41 billion transactions from 1.51 billion a year earlier. POS revenue fell almost 8% to $19.1 million from $20.8 million in the year-earlier period. TNS attributed the decrease to a customer moving its dial-up volume off TNS's network in the fourth quarter as part of a previously disclosed vendor diversification policy.

? Processor Fidelity National Information Services Inc. (FIS) on Wednesday reported consolidated revenues of $1.3 billion for the second quarter, up 19% from a year earlier. The former eFunds Corp., which Jacksonville, Fla.-based FIS bought last September, brought in $137.2 million in revenues. Excluding eFunds, transaction-processing revenues grew about 7% and FIS's mortgage-processing unit, Lender Processing Services Inc., grew 8%. Net income fell to $71.9 million from $148 million in the year-earlier period as the company prepared to spin off the mortgage division. Fidelity is divesting parts of its sprawling processing business, which besides core bank processing and eFunds includes the formerly independent Certegy Inc., a check and card processor. On July 2, the company spun off Lender Processing Services, which claims to serve about half of U.S. mortgages. FIS in July announced a deal to sell the assets of its Australian unit, Certegy Australia Ltd. Earlier, the company sold FIS Credit Services and Certegy Gaming Services, the latter for $100 million to Global Cash Access Holdings Inc.