Vantiv Reports Strong First Quarter 2012 Results

CINCINNATI--()--Vantiv, Inc. (NYSE: VNTV) (Vantiv or “the Company”) today announced financial results for the first quarter ended March 31, 2012. Revenue increased 17% to $432.8 million as compared to $371.4 million in the prior year. Net revenue increased 23% to $232.6 million as compared to $189.2 million in the prior year. Cash net income increased 30% to $42.4 million as compared to $32.5 million in the prior year. Adjusted cash net income per share was $0.20. (See Schedule 2 for cash net income and Schedule 6 for GAAP net income reconciliation to cash net income.)

On a GAAP basis, net loss attributable to Vantiv, Inc. was $18.4 million, or $0.38 per diluted share, compared with net income of $3.5 million, or $0.04 per diluted share, in the prior year. GAAP net loss included $91.8 million, or $0.55 loss on a diluted per share basis, primarily related to charges incurred in connection with refinancing of indebtedness following the Company’s initial public offering.

Transactions increased 12% and net revenue increased 23% primarily driven by a 16% increase in transactions in the Merchant Services segment and a 17% increase in rate per transaction in the Merchant Services segment. Adjusted EBITDA increased 18% to $102.9 million as compared to $87.5 million in the prior year. (See Schedule 7 for reconciliation from GAAP income from operations to adjusted EBITDA.)

“I am very proud of the results that the 2,500 employees in our talented Vantiv team produced in this new era as a publicly traded company. Our successful IPO and first quarter results are a testament to our strong record of performance and our ability to create and capitalize on opportunities in this fast paced industry,” president and chief executive officer Charles Drucker said. “We are focused on growing our comprehensive and integrated suite of services and diversifying our distribution channels to expand our market share. I also want to welcome our new shareholders. You can expect our team to continue to build on its accomplishments with a laser focus on creating long-term value.”

Merchant Services

Net revenue increased 36% to $157.5 million as compared to $115.8 million in the prior year, primarily due to a 16% increase in transactions, as well as a 17% increase in net revenue per transaction. We continue to experience an increase in net revenue per transaction as we expand our channels and increase our focus on the small and mid-sized merchants. Sales and marketing expenses increased 36% to $66.7 million as compared to $48.9 million in the prior year in connection with the increase in revenue and continued expansion of distribution channels.

Financial Institution Services

Net revenue increased 2% to $75.1 million as compared to $73.5 million in the prior year, as organic revenue growth more than offset the attrition of a large client in the third quarter of 2011. Sales and marketing expenses decreased by 10%.

2012 Financial Outlook

Net revenue for 2012 is expected to be between $995 million and $1,010 million, representing an increase of 15% to 17% as compared to 2011. Cash net income is expected to be between $234 million and $242 million. Adjusted cash net income per share is expected to be between $1.09 and $1.13. GAAP net income per share is expected to be between $0.42 and $0.46 on a diluted per share basis.

Earnings Conference Call and Audio Webcast

The Company will host a conference call to discuss first quarter 2012 financial results 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) 941-1428, or for international callers (480) 629-9665. 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 4532093. The replay will be available through Thursday, May 3, 2012. The call will be webcast live from the Company's investor relations website at http://investors.vantiv.com.

About Vantiv, Inc.

Vantiv, Inc. (NYSE: 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, EBITDA, adjusted EBITDA, cash net income, and adjusted cash net income per share information. These are important financial 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, primarily customer related intangible assets, 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 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, 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 this presentation, 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 registration statement filed 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 (Loss)
(in thousands, except share data)
(Unaudited)
     
Three months ended
March 31,
2012
March 31,
2011
% Change
 
Revenue $ 432,789 $ 371,446 17 %
Network fees and other costs   200,208     182,216   10 %
Net revenue 232,581 189,230 23 %
Sales and marketing 72,757 56,219 29 %
Other operating costs 39,009 37,740 3 %
General and administrative 28,597 21,383 34 %
Depreciation and amortization   38,895     36,700   6 %
Income from operations 53,323 37,188 43 %
Interest expense—net (24,450 ) (30,621 ) -20 %
Non-operating expenses(1)   (91,836 )   -   NM
Income (loss) before applicable income taxes (62,963 ) 6,567 NM
Income tax expense (benefit)   (20,035 )   1,868   NM
Net income (loss) (42,928 ) 4,699 NM
Less: Net (income) loss attributable to noncontrolling interests   24,564     (1,200 ) NM
Net income (loss) attributable to Vantiv, Inc. $ (18,364 ) $ 3,499   NM
 
Net income (loss) per share of Class A common stock attributable to Vantiv, Inc.:
Basic $ (0.20 ) $ 0.04
Diluted $ (0.38 ) $ 0.04
Shares used in computing net income (loss) per share of Class A common stock:
Basic 93,018,506 89,515,617
Diluted 102,377,931 89,515,617
 
Non Financial Data:
Transactions (in millions) 3,367 3,002 12 %
 
(1) Non-operating expenses primarily consist of charges incurred with the refinancing of our debt and the termination of our interest rate swaps in March 2012.

Schedule 2
Vantiv, Inc.
Cash Net Income (Non-GAAP)
(in thousands, except share data)
(Unaudited)

See schedule 6 for a reconciliation of GAAP net income (loss) to cash net income.
             
Three months ended
March 31,
2012
March 31,
2011
% Change
 
Revenue $ 432,789 $ 371,446 17 %
Network fees and other costs   200,208     182,216   10 %
Net revenue 232,581 189,230 23 %
Sales and marketing 72,757 56,219 29 %
Other operating costs 38,557 31,500 22 %
General and administrative   18,327     13,990   31 %
Adjusted EBITDA(1) 102,940 87,521 18 %
Depreciation and amortization   9,606     8,093   19 %
Income from operations 93,334 79,428 18 %

Interest expense—net

  (24,450 )   (26,625 )

-8

%
Income before applicable income taxes 68,884 52,803 30 %
Income tax expense (at an effective tax rate of 38.5%)   26,520     20,330   30 %
Cash net income(2) $ 42,364   $ 32,473   30 %
 
Adjusted cash net income per share $ 0.20
 
Adjusted shares outstanding(3) 212,304,534
 
Non Financial Data:
Transactions (in millions) 3,367 3,002 12 %
 
 

Non-GAAP Financial Measures

This schedule presents net revenue, adjusted EBITDA, cash net income, and adjusted cash net income per share information. These are important financial measures for the company, but are not financial measures as defined by GAAP. Such financial measures should not be considered as alternatives to GAAP net income, and such measures may not be comparable to those reported by other companies.
 

Cash net income is derived from GAAP net income, adjusting for the following items: (a) amortization of intangible assets acquired in business combinations, primarily customer related intangible assets; (b) non-operating expenses primarily associated with the refinancing of our debt and the termination of our interest rate swaps in March 2012; (c) adjustments to income tax expense assuming conversion of non-controlling interests into shares of Class A common stock. For purposes of providing better comparability, we also make adjustments for Q1 2011 to reflect depreciation and amortization assuming that our property and equipment at December 31, 2011 was in place on January 1, 2011 and for interest expense assuming the Company's level of debt and applicable terms as of December 31, 2011 was outstanding on January 1, 2011.

 
(1) See schedule 7 for a reconciliation of GAAP income from operations to adjusted EBITDA.

(2) Cash net income assumes the conversion of non-controlling interests into shares of Class A common stock.

(3) Shares are pro forma assuming the equity structure in place March 31, 2012, was in place January 1, 2012. Shares used in computing GAAP diluted net income (loss) per share were 102,377,931.
 
 
Adjusted shares for the three months ended March 31, 2012
Shares used in computing adjusted cash net income per share:
Class A common stock(a) 120,641,114
Class B units of Vantiv Holding(b) 85,913,505
Restricted stock(a)(c) 1,961,837
Warrant(d)   3,788,078  
Adjusted shares outstanding           212,304,534          
 
(a) Shares are weighted as if the equity structure in place March 31, 2012, was in place January 1, 2012.

(b) Class B units in Vantiv Holding are based on the if-converted method and represent fully diluted ownership in Vantiv, Inc. weighted as if the equity structure in place March 31, 2012, was in place January 1, 2012.

(c) Restricted Class A common stock issued under the treasury method based on the closing share price of VNTV as of March 30, 2012. These are excluded for GAAP purposes as they are anti-dilutive.

(d) Class A common stock issued upon exercise of the Warrant under the treasury method based on the closing share price of VNTV as of March 30, 2012. These are excluded for GAAP purposes as they are anti-dilutive.
 
 
Schedule 3
Vantiv, Inc.
Segment Information
(in thousands)
(Unaudited)
       
Three months ended March 31, 2012
Merchant Services Financial Institution
Services
General
Corporate/Other
Total
 
Total revenue $ 322,978 $ 109,811 $ - $ 432,789
Network fees and other costs   165,526   34,682   -     200,208
Net revenue 157,452 75,129 - 232,581
Sales and marketing   66,699   6,058   -     72,757
Segment profit $ 90,753 $ 69,071 $ -   $ 159,824
 
Non-financial data:
Transactions (in millions) 2,544 823 3,367
Net revenue per transaction $ 0.0619 $ 0.0913 $ 0.0691
 
Three months ended March 31, 2011
Merchant Services Financial Institution
Services
General
Corporate/Other
Total
 
Total revenue $ 262,686 $ 108,760 $ - $ 371,446
Network fees and other costs   146,911   35,305   -     182,216
Net revenue 115,775 73,455 - 189,230
Sales and marketing   48,887   6,710   622     56,219
Segment profit $ 66,888 $ 66,745 $ (622 ) $ 133,011
 
Non-financial data:
Transactions (in millions) 2,184 818 3,002
Net revenue per transaction $ 0.0530 $ 0.0898 $ 0.0630
 

     
Schedule 4
Vantiv, Inc.
Condensed Consolidated Statements of Financial Position
(in thousands, except share data)
 
March 31,
2012
December 31,
2011
Assets (Unaudited)
Current assets:
Cash and cash equivalents $

156,362

 

$

370,549

 

Accounts receivable — net 352,033 368,658
Related party receivable 5,002 4,361
Settlement assets 71,811 46,840
Prepaid expenses 11,270 8,642
Other   46,734     20,947  
Total current assets 643,212 819,997
 
Customer incentives 17,681 17,493
Property and equipment — net 160,272 152,310
Intangible assets — net 889,389 916,198
Goodwill 1,532,374 1,532,374
Deferred taxes 12,292 4,292
Other assets   28,540     47,046  
Total assets $ 3,283,760   $ 3,489,710  
 
Liabilities and equity
Current liabilities:
Accounts payable and accrued expenses $ 172,107 $ 193,706
Related party payable 950 3,814
Settlement obligations 163,851 208,669
Current portion of note payable 52,500 16,211
Deferred income 9,402 7,313
Current maturities of capital lease obligations 4,256 4,607
Other   5,759     6,400  
Total current liabilities 408,825 440,720
Long-term liabilities:
Note payable 1,202,217 1,738,498
Tax receivable agreement obligations 333,000 -
Capital lease obligations 11,152 12,322
Deferred taxes 9,263 9,263
Other   2,006     33,187  
Total long-term liabilities 1,557,638 1,793,270
Total liabilities 1,966,463 2,233,990
 
Commitments and contingencies
Equity:
Total equity(1)   1,317,297     1,255,720  
Total liabilities and equity $ 3,283,760   $ 3,489,710  
 

(1) Includes equity attributable to non-controlling interests.

 

Schedule 5
Vantiv, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

       
Three months ended
March 31,
2012
March 31,
2011
Operating Activities:
Net (loss) income $ (42,928 ) $ 4,699
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization expense 38,895 36,700
Amortization of customer incentives 1,234 684
Amortization and write-off of debt issuance costs 56,352 2,575
Share-based compensation expense 8,663 652
Change in operating assets and liabilities:
Decrease in accounts receivable and related party receivable 15,984 25,611
Decrease in net settlement assets and obligations (69,789 ) (42,852 )
Increase in customer incentives (1,422 ) (3,045 )
Increase in prepaid and other assets (26,764 ) (7,231 )
Decrease in accounts payable and accrued expenses (35,099 ) (13,505 )
Decrease in payable to related party (2,864 ) (2,798 )
Increase in other liabilities   1,719     495  
Net cash (used in) provided by operating activities   (56,019 )   1,985  
 
Investing Activities:
Purchases of property and equipment (10,269 ) (7,915 )
Residual buyouts (2,829 ) (512 )
Purchase of investments   -     (3,300 )
Net cash used in investing activities   (13,098 )   (11,727 )
 
Financing Activities:
Proceeds from initial public offering, net of offering costs 460,913 -
Proceeds from follow-on offering, net of offering costs 33,512 -
Proceeds from issuance of long-term debt 1,248,750 -
Repayment of debt and capital lease obligations (1,761,784 ) (3,972 )
Payment of debt issuance costs (28,949 ) -
Purchase of Class B units in Vantiv Holding from Fifth Third (33,512 ) -
Repurchase of Class A common stock (to satisfy tax withholding
obligations)
(11,929 ) -
Tax benefit from employee share-based compensation 10,244 -
Distribution to funds managed by Advent International Corporation (40,086 ) -
Distribution to non-controlling interests   (22,229 )   (28 )
Net cash used in financing activities   (145,070 )   (4,000 )
 
Net decrease in cash and cash equivalents (214,187 ) (13,742 )
Cash and cash equivalents — Beginning of period   370,549     236,512  
Cash and cash equivalents —End of period $ 156,362   $ 222,770  
 
Cash Payments:
Interest $ 32,559 $ 26,927
Taxes 773 667
Noncash Items:
Assets acquired under capital lease obligations $ - $ 12,234
 
 
Schedule 6
Vantiv, Inc.
Reconciliation of GAAP Net Income (Loss) to Cash Net Income
(in thousands)
(Unaudited)
                         
Three months ended March 31, 2012

GAAP

Transition, Acquisition
and Integration(1)

Share-Based
Compensation

Comparability
Adjustments

Other
Adjustments

Cash Net Income

 
Revenue $ 432,789 $ - $ - $ - $ - $ 432,789
Network fees and other costs   200,208     -     -     -     -     200,208  
Net revenue 232,581 - - - - 232,581
Sales and marketing 72,757 - - - - 72,757
Other operating costs 39,009 (452 ) - - - 38,557
General and administrative 28,597 (1,607 ) (8,663 ) - - 18,327
Depreciation and amortization   38,895     -     -     -     (29,289 ) (2)   9,606  
Income from operations 53,323 2,059 8,663 - 29,289 93,334
Interest expense—net (24,450 ) - - - - (24,450 )
Non-operating expenses   (91,836 )   -     -     -     91,836   (3)   -  
Income (loss) before applicable income taxes (62,963 ) 2,059 8,663 - 121,125 68,884
Income tax expense (benefit)   (20,035 )   793     3,335     -     42,427   (4)   26,520  
Net income (loss)(5) $ (42,928 ) $ 1,266   $ 5,328   $ -   $ 78,698   $ 42,364  
 
 
Three months ended March 31, 2011
 

GAAP

Transition, Acquisition
and Integration(1)

Share-Based
Compensation

Comparability
Adjustments

Other
Adjustments

Cash Net Income

 
Revenue $ 371,446 $ - $ - $ - $ - $ 371,446
Network fees and other costs   182,216     -     -     -     -     182,216  
Net revenue 189,230 - - - - 189,230
Sales and marketing 56,219 - - - - 56,219
Other operating costs 37,740 (6,240 ) - - - 31,500
General and administrative 21,383 (6,741 ) (652 ) - - 13,990
Depreciation and amortization   36,700     -     -     2,597   (6)   (31,204 ) (2)   8,093  
Income (loss) from operations 37,188 12,981 652 (2,597 ) 31,204 79,428
Interest expense—net (30,621 ) - - 3,996 (7) - (26,625 )
Non-operating expenses   -     -     -     -     -     -  
Income before applicable income taxes 6,567 12,981 652 1,399 31,204 52,803
Income tax expense   1,868     4,998     251     539     12,674   (4)   20,330  
Net income(5) $ 4,699   $ 7,983   $ 401   $ 860   $ 18,530   $ 32,473  
 
 

Non-GAAP Financial Measures

This schedule presents net revenue and cash net income. These are important financial measures for the company, but are not financial measures as defined by GAAP. Such financial measures should not be considered as alternatives to GAAP net income, and such measures may not be comparable to those reported by other companies.
 
(1) Represents costs associated with our separation from Fifth Third Bank and acquisition and integration costs in connection with our acquisitions in 2010.
(2) Represents amortization of intangible assets acquired in business combinations, primarily customer related intangible assets.
(3) Represents non-operating expenses primarily associated with the refinancing of our debt and the termination of our interest rate swaps in March 2012.
(4) Represents adjustments to income tax expense assuming conversion of non-controlling interests into shares of Class A common stock.
(5) Net income (loss) assumes the conversion of non-controlling interests into shares of Class A common stock.
(6) Depreciation and amortization represents expense associated with our property and equipment, assuming that our property and equipment at December 31, 2011 was in place on January 1, 2011.
(7) Represents adjustment to reflect what our 2011 interest expense would have been if the Company's level of debt and applicable terms as of December 31, 2011 was outstanding on January 1, 2011.
Schedule 7
Vantiv, Inc.
Reconciliation of GAAP Income from Operations to Adjusted EBITDA
(in thousands)
(Unaudited)
       
 
 
Three months ended
March 31,
2012
March 31,
2011
% Change
 
Income from operations $

53,323

 

$

37,188

 

43 %
Depreciation and amortization   38,895     36,700   6 %
EBITDA   92,218     73,888   25 %
Transition, acquisition and integration costs(1) 2,059 12,981 -84 %
Share-based compensation   8,663     652   NM
Adjusted EBITDA $ 102,940   $ 87,521   18 %
 
 

Non-GAAP Financial Measures

This schedule presents EBITDA and adjusted EBITDA. These are important financial measures for the company, but are not financial measures as defined by GAAP.
These financial measures should not be considered as an alternative to GAAP income from operations, and may not be comparable to those reported by other companies.
 
(1) Represents costs associated with our separation from Fifth Third Bank and acquisition and integration costs in connection with our acquisitions in 2010.

Contacts

Vantiv, Inc.
Don Duffy/Dara Dierks
866-254-4811 or 513-900-4811
IR@vantiv.com

Contacts

Vantiv, Inc.
Don Duffy/Dara Dierks
866-254-4811 or 513-900-4811
IR@vantiv.com