Heartland Payment Systems‘ third-quarter earnings Friday (Oct. 30) coincided with the announcement that it would be acquiring Xpient Solutions, a enterprise-level restaurant POS software service — a move that CEO Robert Carr said would better position Heartland continuing growing the core of its business.
“Their POS technology is another area where our core payments capability is being naturally extended into a complementary market that we believe offers exciting growth opportunities. While Xpient’s platform will remain open to other processors, experience has shown that most merchants prefer to have a single business solutions provider, including payments processing, and have the same fully integrated in their point-of-sale,” Carr said in Friday’s earning call.
“For instance, Xpient, Leaf and our Heartland Secure solution offer merchants a secure platform to manage their businesses, process payments and enable other business applications all from the same provider. For Heartland, delivering a value-added integration to integrate solution to our customers is a solid value proposition and the POS component brings us closer to our customers.”
Most importantly, Carr said, is the having a product like Xpient to help address the growing concern over the number of high-profile data breaches that he said “are casting a shadow across the integrated POS industry.” Car said the company’s already existing card processing capabilities can continue to grow as additions like Xpient help provide a more secure platform for its customer base.
“Because many of the current integrated POS platforms increase breach risk, exposure of card data, large and midsized and smart — small merchants are now becoming increasingly interested in completing — completely separating card processing data from the POS system,” Carr said. “They want to go out of scope for PCI whenever possible and that is right in the sweet spot of Heartland. While Xpient will strengthen our position, merchant interest in E3 and Heartland Secure has already started to heat up. Now we think interest will really take off.”
“Our goal is to leverage our core strengths to continually move up the value chain and develop innovative solutions around our core payments capabilities, especially in areas of high strategic value such as business operations,” Carr said.
Xpient is primarily a point-of-sale software solutions provider for the food service industry. Applebee’s, Panera, Taco Bell, Arby’s, Wendy’s and IHOP are some of the hospitality franchises that rely on Xpient for their point-of-sale solutions or related products, including back office and enterprise management.
“From application that help efficiently take orders to kitchen display systems to labor management, inventory control, customer loyalty and data management, Xpient’s suite of solutions allows restaurant operators to better and more easily manage every aspect of their business, especially in helping kitchen throughput in the busiest of times such as lunch and dinner as well as taking mobile order reservations, wait management and reservations as well as pay at the table,” Carr explained.
Looking toward the security issues surrounding the industry, Carr addressed an analyst’s question Friday about Heartland’s EMV positioning and Heartland having a possible competitive advantage due to the structure of the company’s technology.
“We’ve added EMV capability. We’ve implemented that and we also have full scale tokenization to go with it. So we feel like we have the most complete solution out there,” he said. “We’re not the only ones that have that, but we have ours working. We were to able to process Apple Pay with our product at the Giant stadium for the World Series. We were able to set the MasterCard cafeterias in St. Louis and purchase, along with our Xpient who at the time was our partner and now it’s our company. So we, I think, are in a very strong position. We can take a merchant out of scope. We don’t have to charge an extra transaction fee.”
Not having to charge that transaction fee may be one factor that set’s Heartland apart from others in the industry, Carr said, adding that Heartland’s ability to address a wider scope of services in the payments industry better suits it for keeping pace with competition.
“What’s happened over the years is the — which I won’t get into a whole lot, but the opportunity to provide security solutions is it’s a software product that many in our industry have taken as an opportunity, as good capitalists, to charge a transaction fee for,” Carr said. “And good for them, but we don’t need to charge a transaction fee because we feel like we can make a good margin with our current transaction fees, maybe a little bit more to cover the overhead of developing and amortizing the security solutions. But right now we’re going head-on with some of the other players out there without a transaction fee and with arguably the most complete product out there.”
As for its third-quarter earnings, Heartland reported a net revenue of $169.4 million, up 10.5 percent, year over year. Net income for the quarter was $24.8 million, slightly less that last year’s third-quarter net income of $25.1 million. Small and Mid-Sized Enterprise core Visa, MasterCard and Discover quarterly transaction processing volume was $20.4 billion, up 7.1 percent, year over year. Total Small and Mid-Sized Enterprise transaction processing volume, including American Express, of $21.6 billion, up 10.7 percent from last year’s third quarter.