Vantiv Reports Third Quarter 2012 Results

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Vantiv Reports Third Quarter 2012 Results

Investments in Distribution and Value Added Services Continue to Drive Superior Growth

22% Transaction Growth Led by 27% Growth in Merchant Services


19% Net Revenue Growth

$0.32 in Adjusted Cash Net Income per Share

Adjusted Cash Net Income per Share Guidance for 2012 of $1.15 to $1.17

CINCINNATI--(BUSINESS WIRE)-- Vantiv, Inc. (NYS: VNTV) (Vantiv or "the Company") today announced financial results for the third quarter ended September 30, 2012. Revenue increased 14% to $466.7 million as compared to $409.4 million in the prior year. Net revenue increased 19% to $258.5 million as compared to $216.9 million in the prior year. On a GAAP basis, net income attributable to Vantiv, Inc. was $24.3 million, or $0.19 per diluted share, compared with $11.6 million, or $0.13 per diluted share, in the prior year. Cash net income increased 44% to $68.1 million as compared to $47.1 million in the prior year. Adjusted cash net income per share was $0.32. (See Schedule 2 for cash net income and Schedules 6 and 7 for GAAP net income reconciliation to cash net income.)

Investments in distribution strategies and value added services continued to lead to superior transaction growth of 22%. The Merchant Services segment experienced strong double digit growth with a 27% increase in transactions, and the Financial Institutions Services segment also experienced strong growth with a 7% increase in transactions.

In connection with our growth, sales and marketing expense increased by 23% to $69.3 million as compared to $56.5 million in the prior year. The scale and efficiency of Vantiv's single processing platform continued to support superior profitability as reflected by the Company's 51% adjusted EBITDA margin for the quarter, with adjusted EBITDA increasing by 18% to $131.9 million as compared to $111.4 million in the prior year. (See Schedule 8 for reconciliation from GAAP income from operations to adjusted EBITDA.)

"Vantiv delivered another strong quarter," said president and chief executive officer Charles Drucker. "We continue to drive growth and profitability across our business, while developing innovative new products and solutions for our customers, such as Vantiv Accept and Vantiv Mobile Wallet within our expanded suite of mobile offerings."

Merchant Services

Net revenue increased 26% to $177.0 million in the third quarter as compared to $141.0 million in the prior year, primarily due to a 27% increase in transactions. Net revenue per transaction declined modestly as compared to the prior year due primarily to the addition of a large national processing contract in the second quarter; excluding such impact, our focus on small to mid-sized merchants contributed to growth in net revenue per transaction. Sales and marketing expenses increased 24% to $63.0 million as compared to $50.7 million in the prior year, primarily due to continued sales force and channel expansion.

Financial Institution Services

Net revenue increased 7% to $81.5 million as compared to $75.9 million in the prior year, primarily due to a 7% increase in transactions and growth in value added services revenue. Sales and marketing expenses increased by $0.9 million to $6.3 million from $5.4 million, principally due to costs associated with our annual client event.

2012 Financial Outlook

"The consistent growth and profitability that the Company generated during the third quarter increases our confidence and visibility into the rest of the year," said chief financial officer Mark Heimbouch. "For 2012, we continue to expect to generate net revenues of $1.0 billion to $1.02 billion, and we are narrowing our adjusted cash net income per share guidance to between $1.15 and $1.17, from our previous estimate of $1.13 to $1.17". The recently announced acquisition of Litle & Co. is expected to close late in the fourth quarter and therefore will not have a meaningful impact on our outlook for 2012 adjusted cash net income per share.

Earnings Conference Call and Audio Webcast

The Company will host a conference call to discuss third quarter 2012 financial results and the recently announced acquisition of Litle & Co. today at 8:00 AM ET. Hosting the call will be Charles Drucker, president and chief executive officer and Mark Heimbouch, chief financial officer. The conference call can be accessed live over the phone by dialing (877) 941-1427, or for international callers (480) 629-9664. A replay will be available approximately two hours after the call concludes and can be accessed by dialing (877) 870-5176, or for international callers (858) 384-5517, and entering the conference ID 4567381. The replay will be available through Thursday, November 8, 2012. The call will be webcast live from the Company's investor relations website at http://investors.vantiv.com.

About Vantiv, Inc.

Vantiv, Inc. (NYS: VNTV) is a leading, integrated payment processor differentiated by a single, proprietary technology platform. Vantiv offers a comprehensive suite of traditional and innovative payment processing and technology solutions to merchants and financial institutions of all sizes in the U.S., enabling them to address their payment processing needs through a single provider. We build strong relationships with our customers, helping them become more efficient, more secure and more successful. Vantiv is the third largest merchant acquirer and the largest PIN debit acquirer based on number of transactions in the U.S. The company's growth strategy includes expanding further into high growth payment segments, such as ecommerce, mobile, prepaid and information solutions, and attractive industry verticals, such as business-to-business, government, healthcare and education. For more information, visit www.vantiv.com.

Non-GAAP Financial Measures

This earnings release presents non-GAAP financial information including net revenue, adjusted EBITDA, cash net income, and adjusted cash net income per share information. These are important financial performance measures for the Company, but are not financial measures as defined by GAAP. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the attached schedules.

Net revenue is revenue, less network fees and other costs. Cash net income includes adjustments to exclude amortization of intangible assets acquired in business combinations and customer portfolio and related asset acquisitions, share-based compensation, transition costs associated with our separation from Fifth Third Bank, integration costs incurred in connection with acquisitions and conversion of non-controlling interests into shares of Class A common stock. For purposes of providing better comparability we also made adjustments to interest expense and depreciation in 2011. (See Schedule 6 for a reconciliation from GAAP net income to cash net income.)

Forward-Looking Statements

This release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in this release are forward-looking statements including any statements regarding guidance and statements of a general economic or industry specific nature. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, guidance, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "plan," "intend," "believe," "may," "should," "can have," "likely" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

The forward-looking statements contained in this release are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you review and consider information presented herein, you should understand that these statements are not guarantees of future performance or results. They depend upon future events and are subject to risks, uncertainties (many of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual future performance or results and cause them to differ materially from those anticipated in the forward-looking statements. Certain of these factors and other risk factors are discussed in the Company's filings with the U.S. Securities and Exchange Commission and include, but are not limited to: (i) the ability to keep pace with rapid developments and change in our industry and provide new services to our clients; (ii) competition within our industry; (iii) disclosure of unauthorized data and security breaches that expose us to liability, litigation and reputational damage; (iv) failures of our systems or systems of our third party providers; (v) our inability to expand our market share in existing markets or expand into new markets; (vi) our ability to identify acquisition, joint venture and partnership candidates and finance or integrate businesses, services or technologies that we acquire; (vii) failure to comply with applicable requirements of Visa, MasterCard or other payment networks; (viii) changes in payment network rules or standards; (ix) our ability to pass fee increases along to merchants; (x) termination of sponsorship or clearing services provided to us; (xi) increased attrition of our merchants, independent sales organizations, or ISOs, or referral partners; (xii) inability to successfully renew or renegotiate agreements with our clients or ISOs; (xiii) reductions in overall consumer, business and government spending; (xiv) fraud by merchants or others; (xv) a decline in the use of credit, debit or prepaid cards; (xvi) consolidation in the banking and retail industries; and (xvii) the effects of governmental regulation, changes in laws and outcomes of future litigation or investigations. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.

Any forward-looking statement made by us in this release speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

    
Schedule 1
Vantiv, Inc.
Consolidated Statements of Income

(Unaudited)

(in thousands, except share data)

 
Three Months EndedNine Months Ended
September 30, September 30,September 30, September 30,
20122011% Change20122011% Change
 
Revenue$466,736$409,36414%$1,369,147$1,183,37416%
Network fees and other costs208,239 192,466 8%617,691 560,376 10%
Net revenue258,497216,89819%751,456622,99821%
Sales and marketing69,31356,49523%212,602172,28423%
Other operating costs40,37635,02815%119,802107,74811%
General and administrative28,60018,89651%86,38768,50326%
Depreciation and amortization40,618 40,066 1%119,181 115,767 3%
Income from operations79,59066,41320%213,484158,69635%
Interest expense—net(10,056)(26,198)(62)%(44,675)(85,771)(48)%
Non-operating expenses(1)  NM(92,672)(13,799)NM
Income before applicable income taxes69,53440,21573%76,13759,12629%
Income tax expense20,895 11,532 81%22,848 14,083 62%
Net income48,63928,68370%53,28945,04318%
Less: Net income attributable to non-controlling interests(24,375)(17,035)43%(24,433)(24,516)%
Net income attributable to Vantiv, Inc.$24,264 $11,648 108%$28,856 $20,527 41%
 
Net income per share of Class A common stock attributable to Vantiv, Inc.:
Basic$0.20$0.13$0.26$0.23
Diluted$0.19$0.13$0.24$0.23
Shares used in computing net income per share of Class A common stock:
Basic122,959,42989,515,617112,953,42589,515,617
Diluted131,127,19789,515,617119,600,08289,515,617
 
Non Financial Data:
Transactions (in millions)3,9283,22122%11,1919,44518%
 

(1) Non-operating expenses primarily consist of charges incurred with the refinancing of our debt in March 2012 and May 2011 and the termination of our interest rate swaps in March 2012.

    
Schedule 2
Vantiv, Inc.
Cash Net Income (Non-GAAP)

(Unaudited)

(in thousands, except share data)

 

See schedule 6 and 7 for a reconciliation of GAAP net income to cash net income.

 
Three Months EndedNine Months Ended
September 30, September 30,September 30, September 30,
20122011% Change20122011% Change
 
Revenue$466,736$409,36414%$1,369,147$1,183,37416%
Network fees and other costs208,239 192,466 8%617,691 560,376 10%
Net revenue258,497216,89819%751,456622,99821%
Sales and marketing69,31356,20423%212,602171,99324%
Other operating costs39,82332,29623%117,45195,33523%
General and administrative17,503 17,015 3%55,558 47,280 18%
Adjusted EBITDA(1)131,858111,38318%365,845308,39019%
Depreciation and amortization11,039 8,093 36%31,026 24,280 28%
Adjusted income from operations120,819103,29017%334,819284,11018%
Interest expense—net(10,056)(26,624)(62)%(44,675)(79,874)(44)%
Adjusted income before applicable income taxes110,76376,66644%290,144204,23642%
Income tax expense (at an effective tax rate of 38.5%)(2)42,644 29,517 44%111,705 78,632 42%
Cash net income(3)$68,119 $47,149 44%$178,439 $125,604 42%
 
Adjusted cash net income per share(4)$0.32$0.83
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