R obert Carr launchedHeartland Payment Systems ( HPY ) in 1997 with $1 million in capital. His ambition was to provide credit card processing services for small companies.
In the 18 years since then, Heartland has grown into the fifth-largest card payment processor in the U.S. and seventh-largest payroll service.
Heartland operates in IBD’s Finance-Credit Card/Payments industry group, which is ranked a decent 45 out of 197 industries.
Its stock is trading about 11% off all-time highs set three weeks ago.
But as Carr, Heartland’s CEO, describes in his new book, “Through The Fires,” the company nearly crumbled in ruins around him as the result of a cyberattack.
The massive data breach starting in May 2008 was at that time the largest ever. Security experts estimated that as many as 100 million cards issued by more than 650 financial services might have been compromised.
Heartland found out about it in January 2009, and disclosed it publicly on Jan. 20. Its stock crashed 45% to 8.54 a share on Jan. 23 and continued tumbling to a low of 3.57 in mid-March 2009.
Investors lost faith in the card services company and customers didn’t know whether to trust it.
Telling The Whole Truth
Carr went on the offensive. Against the advice of Heartland’s attorneys, he went public with all available data about the breach, trying to be as transparent as possible. He overhauled the company’s security systems with the latest state-of-the-art equipment. At the same time, he added layers of security.
“We introduced end-to-end encryption to America in 2009 after our breach,” Carr told IBD, “and incorporated that into Heartland Secure, a suite of security services. As a result, the credit card number is never available to the bad guys.”
Employees rallied around and contacted customers to let them know what actions were being taken. As a result, Heartland lost just 2% of its customers.
Heartland shares turned around too, soaring 310% to 14.65 by mid-September of that year.
Today, “the outlook for Heartland is good. It’s benefiting from a couple of things,” Northcoast Research analyst Kartik Mehta said in an interview.
“One is that, as the economy has gotten better, consumers are spending more. And we are still seeing continued movement to credit cards and debit cards and away from cash transactions.”
The Fortune 1000 firm generates $2.3 billion in annual sales and serves 275,000 separate customer companies for payments services, along with 33,000 payroll clients.
Companies, schools and others pay Heartland to manage theirVisa ( V ),MasterCard (MA),Discover (DFS) or other branded credit card processing, and to provide other services such as payroll management.
“Heartland targets small and medium-sized merchants that generate between $50,000 and $5 million in annual bank card volume, using a ‘merchant friendly’ approach,” JPMorgan Chase analyst Tien-tsin Huang said in a report.
After Heartland beat profit and sales estimates a second quarter in a row on July 31, Huang noted that “Noncard revenues were up 77% . .. and accounted for about 36% of net revenues, up almost 10 points from the prior year.”