Vantiv Earnings Call & DFS Legalities

by Raymond Pucci 0

In their 4Q and annual 2015 earnings call this morning, Vantiv presented strong results, citing healthy double-digit gains in both revenue and net income. They also forecast an upbeat vision for 2016, continuing on strong performance by both their Merchant Services and Financial Institution Services groups. Merchant Services is Vantiv’s star performer, as their delivery of integrated payments solutions to the retail trade is a winning growth strategy. Adding rocket fuel to Vantiv’s Merchant unit has been their successful 2014 acquisition of Mercury Payment Solutions. On the demand side, retail merchants and other vertical markets, such as healthcare, are looking beyond payment processing to added value services including data analytics, security, and supply chain management, to better run their businesses.

As reported by Vantiv today:

For the full-year 2015, revenue increased 23% to $3,160 million as compared to $2,577 million in the prior year. Net revenue increased 20% to $1,682 million as compared to $1,403 million in the prior year. On a GAAP basis, net income attributable to Vantiv, Inc. was $148 million or $0.95 per diluted share in 2015 as compared to $125 million or $0.75 per diluted share in the prior year. Pro forma adjusted net income increased 21% to $449 million as compared to $372 million in the prior year. Pro forma adjusted net income per share increased 20% to $2.24 as compared to $1.87 in the prior year. (See Schedule 2 for pro forma adjusted net income and Schedule 7 for GAAP net income reconciliation to pro forma adjusted net income.)

Vantiv’s scale and superior cost structure continue to drive high levels of profitability. For the fourth quarter, adjusted EBITDA margin expanded by 100 basis points to 49.1% as compared to 48.1% in the prior year period, primarily due to cost synergies created by the on-going integration of Mercury Payment Systems (‘Mercury’). For the full-year 2015, adjusted EBITDA margin was flat as compared to the prior year, primarily due to impacts from the Mercury acquisition, which were offset by cost synergies realized during the year. (See Schedule 8 for a reconciliation of GAAP net income to adjusted EBITDA.)

Now that Vantiv has digested the Mercury acquisition, we could see Vantiv add to their 2016 shopping cart with M&A targets such as software solutions firms in E-Commerce or integrated payments—and maybe an international play could be a possibility.

Separately, Vantiv also addressed the continuing saga of Daily Fantasy Sports heavyweights, DraftKings and FanDuel, vs multi-states’ Attorneys General, by stating their intention to pull out of this market. They left the door open to re-enter, pending the outcome of the legal wranglings. Our feeling still remains that there will ultimately be a settlement of this dispute, given growing market size and ever-expanding popularity of daily fantasy sports-driven consumers. However, for Vantiv and other payments companies, the risk-reward factor is always on the table when they consider entering gaming and entertainment themed vertical markets.

Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

Read the earnings report here

Read the Boston Globe story here