Vantiv Reports Third Quarter 2016 Results

Schedule 1

Vantiv, Inc.

Consolidated Statements of Income

(Unaudited)

(in thousands, except share data)

Three Months Ended September 30,

% 
Change

Nine Months Ended September 30,

% 
Change

2016

2015

2016

2015

Total revenue

$

914,019

$

815,998

12

%

$

2,623,859

$

2,307,604

14

%

Network fees and other costs

423,361

385,548

10

%

1,221,510

1,079,043

13

%

Net revenue⁽¹⁾

490,658

430,450

14

%

1,402,349

1,228,561

14

%

Sales and marketing

153,248

132,481

16

%

433,730

371,461

17

%

Other operating costs

72,162

66,563

8

%

219,464

211,853

4

%

General and administrative

40,727

41,492

(2)

%

133,831

136,395

(2)

%

Depreciation and amortization

66,086

70,638

(6)

%

199,550

206,099

(3)

%

Income from operations

158,435

119,276

33

%

415,774

302,753

37

%

Interest expense—net

(27,474)

(27,044)

2

%

(81,321)

(78,769)

3

%

Non-operating expenses⁽²⁾

(4,633)

(8,308)

(44)

%

(14,949)

(23,799)

(37)

%

Income before applicable income taxes

126,328

83,924

51

%

319,504

200,185

60

%

Income tax expense

39,324

24,776

59

%

101,591

61,348

66

%

Net income

87,004

59,148

47

%

217,913

138,837

57

%

Less: Net income attributable to non-controlling interests

(20,708)

(17,656)

17

%

(52,552)

(41,820)

26

%

Net income attributable to Vantiv, Inc.

$

66,296

$

41,492

60

%

$

165,361

$

97,017

70

%

Net income per share attributable to Vantiv, Inc. Class A common stock:

Basic

$

0.43

$

0.29

48

%

$

1.06

$

0.67

58

%

Diluted⁽³⁾

$

0.41

$

0.27

52

%

$

1.04

$

0.64

63

%

Shares used in computing net income per share of Class A common stock:

Basic

155,740,660

145,015,310

155,603,265

145,039,413

Diluted

197,342,169

201,899,024

197,126,571

201,483,652

Non Financial Data:

Transactions (in millions)

6,270

5,776

9

%

18,273

16,907

8

%

_____________________________

⁽¹⁾ Net revenue is revenue, less network fees and other costs which primarily consist of pass through expenses incurred by us in connection with providing processing services to our clients, including Visa and MasterCard network association fees, payment network fees, third party processing expenses, telecommunication charges, postage and card production costs.

⁽²⁾ Non-operating expenses for the three and nine months ended September 30, 2016 and 2015 primarily relate to the change in fair value of a tax receivable agreement ("TRA") entered into as part of the acquisition of Mercury.

⁽³⁾ Due to our structure as a C corporation and Vantiv Holding's structure as a pass-through entity for tax purposes, the numerator in the diluted net income per share calculation is adjusted to reflect our income tax expense at an expected effective tax rate assuming the conversion of the Class B units of Vantiv Holding into shares of our Class A common stock.  The expected effective tax rate for 2016 and 2015 was 36.0%. The components of the diluted net income per share calculation are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

Income before applicable income taxes

$

126,328

$

83,924

$

319,504

$

200,185

Taxes

45,478

30,213

115,021

72,067

Net income

$

80,850

$

53,711

$

204,483

$

128,118

Diluted shares

197,342,169

201,899,024

197,126,571

201,483,652

Diluted EPS

$

0.41

$

0.27

$

1.04

$

0.64

Schedule 2

Vantiv, Inc.

Pro Forma Adjusted Net Income

(Unaudited)

(in thousands, except share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

% Change

2016

2015

% Change

(in thousands)

(in thousands)

Income before applicable income taxes

$

126,328

$

83,924

51

%

$

319,504

$

200,185

60

%

Non-GAAP Adjustments:

Transition, acquisition and integration costs⁽¹⁾

2,761

11,359

(76)

%

22,332

49,378

(55)

%

Share-based compensation⁽²⁾

9,600

7,132

35

%

25,892

23,852

9

%

Intangible amortization⁽³⁾

47,797

48,682

(2)

%

142,704

143,431

(1)

%

Non-operating expenses⁽⁴⁾

4,633

8,308

(44)

%

14,949

23,799

(37)

%

  Non-GAAP Adjusted Income
  Before Applicable Taxes

191,119

159,405

20

%

525,381

440,645

19

%

Less: Pro Forma Adjustments

Income tax expense⁽⁵⁾

68,803

57,386

20

%

189,137

158,632

19

%

Tax adjustments⁽⁶⁾

(18,902)

(16,842)

12

%

(55,042)

(40,178)

37

%

Other⁽⁷⁾

354

319

11

%

1,581

1,470

8

%

Pro Forma Adjusted Net Income

$

140,864

$

118,542

19

%

$

389,705

$

320,721

22

%

Pro Forma Adjusted Net Income Per Share

$

0.71

$

0.59

20

%

$

1.98

$

1.59

25

%

Adjusted Shares Outstanding

197,342,169

201,899,024

197,126,571

201,483,652

Non-GAAP and Pro Forma Financial Measures

This schedule presents non-GAAP and pro forma financial measures, which are important financial performance measures for the Company, but are not financial measures as defined by GAAP.  Such financial measures should not be considered as alternatives to GAAP, and such measures may not be comparable to those reported by other companies.

________________________

Pro forma adjusted net income is derived from GAAP income before applicable income taxes and adjusted for the following items described below:

⁽¹⁾ Represents acquisition and integration costs incurred in connection with our acquisitions, charges related to employee termination benefits and other transition activities.  Transition, acquisition and integration costs for the three months ended September 30, 2016 and September 30, 2015 includes $1,769 and $5,110 in Other Operating, respectively and $992 and $6,249 in General and Administrative ("G&A"), respectively.  Transition, acquisition and integration costs for the nine months ended September 30, 2016 and September 30, 2015 includes $7,744 and $23,343 in Other Operating, respectively and $14,588 and $26,035 in G&A, respectively.

⁽²⁾ Share-based compensation is recorded in G&A.

⁽³⁾ Represents amortization of intangible assets acquired through business combinations and customer portfolio and related asset acquisitions.

⁽⁴⁾ Non-operating expenses for the three and nine months ended September 30, 2016 and 2015 primarily relate to the change in the fair value of a TRA entered into as part of the acquisition of Mercury.

⁽⁵⁾ Represents adjusted income tax expense to reflect an effective tax rate of 36.0% for 2016 and 2015, assuming the conversion of the Class B units of Vantiv Holding into shares of Class A common stock, including the tax effect of adjustments described above. The effective tax rate is expected to remain at 36.0% for the remainder of 2016.

⁽⁶⁾ Represents tax benefits due to the amortization of intangible assets and other tax attributes resulting from or acquired with our acquisitions, and to the tax basis step up associated with our separation from Fifth Third Bank and the purchase or exchange of Class B units of Vantiv Holding, net of payment obligations under tax receivable agreements.

⁽⁷⁾ Represents the non-controlling interest, net of pro forma income tax expense discussed in (5) above, associated with a consolidated joint venture.

Schedule 3

Vantiv, Inc.

Segment Information

(Unaudited)

(in thousands)

Merchant Services

Three Months Ended September 30,

2016

2015

$ Change

% Change

Total revenue

$

793,860

$

687,394

$

106,466

15

%

Network fees and other costs

389,448

342,518

46,930

14

%

Net revenue

404,412

344,876

59,536

17

%

Sales and marketing

147,663

126,400

21,263

17

%

Segment profit

$

256,749

$

218,476

$

38,273

18

%

Non-financial data:

Transactions (in millions)

5,241

4,743

10

%

Net revenue per transaction

$

0.0772

$

0.0727

6

%

Nine Months Ended September 30,

2016

2015

$ Change

% Change

Total revenue

$

2,251,033

$

1,935,364

$

315,669

16

%

Network fees and other costs

1,117,602

962,714

154,888

16

%

Net revenue

1,133,431

972,650

160,781

17

%

Sales and marketing

416,107

353,435

62,672

18

%

Segment profit

$

717,324

$

619,215

$

98,109

16

%

Non-financial data:

Transactions (in millions)

15,244

13,887

10

%

Net revenue per transaction

$

0.0744

$

0.0700

6

%

Financial Institution Services

Three Months Ended September 30,

2016

2015

$ Change

% Change

Total revenue

$

120,159

$

128,604

$

(8,445)

(7)

%

Network fees and other costs

33,913

43,030

(9,117)

(21)

%

Net revenue

86,246

85,574

672

1

%

Sales and marketing

5,585

6,081

(496)

(8)

%

Segment profit

$

80,661

$

79,493

$

1,168

1

%

Non-financial data:

Transactions (in millions)

1,029

1,033

—

%

Net revenue per transaction

$

0.0838

$

0.0828

1

%

Nine Months Ended September 30,

2016

2015

$ Change

% Change

Total revenue

$

372,826

$

372,240

$

586

—

%

Network fees and other costs

103,908

116,329

(12,421)

(11)

%

Net revenue

268,918

255,911

13,007

5

%

Sales and marketing

17,623

18,026

(403)

(2)

%

Segment profit

$

251,295

$

237,885

$

13,410

6

%

Non-financial data:

Transactions (in millions)

3,029

3,020

—

%

Net revenue per transaction

$

0.0888

$

0.0847

5

%

Schedule 4

Vantiv, Inc.

Condensed Consolidated Statements of Financial Position

(Unaudited)

(in thousands)

September 30, 2016

December 31, 2015

Assets

Current assets:

Cash and cash equivalents

$

183,818

$

197,096

Accounts receivable—net

750,449

680,033

Related party receivable

1,521

3,999

Settlement assets

150,901

143,563

Prepaid expenses

42,796

31,147

Other

55,118

61,661

  Total current assets

1,184,603

1,117,499

  Customer incentives

65,855

57,984

  Property, equipment and software—net

344,424

308,009

  Intangible assets—net

734,250

863,066

  Goodwill

3,366,528

3,366,528

  Deferred taxes

622,175

731,622

  Other assets

31,350

20,718

Total assets

$

6,349,185

$

6,465,426

Liabilities and equity

Current liabilities:

Accounts payable and accrued expenses

$

390,470

$

364,878

Related party payable

3,367

4,698

Settlement obligations

668,282

677,502

Current portion of note payable

98,339

116,501

Current portion of tax receivable agreement obligations to related parties

153,903

31,232

Current portion of tax receivable agreement obligations

59,978

64,227

Deferred income

12,255

14,470

Current maturities of capital lease obligations

7,887

7,931

Other

16,796

13,940

  Total current liabilities

1,411,277

1,295,379

Long-term liabilities:

Note payable

2,875,743

2,943,638

Tax receivable agreement obligations to related parties

317,215

801,829

Tax receivable agreement obligations

82,468

126,980

Capital lease obligations

15,385

21,801

Deferred taxes

33,845

15,836

Other

41,038

34,897

  Total long-term liabilities

3,365,694

3,944,981

Total liabilities

4,776,971

5,240,360

Commitments and contingencies

Equity:

Total equity⁽¹⁾

1,572,214

1,225,066

Total liabilities and equity

$

6,349,185

$

6,465,426

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

Schedule 5

Vantiv, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

Nine Months Ended September 30,

2016

Operating Activities:

Net income

$

217,913

$

138,837

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization expense

199,550

206,099

Amortization of customer incentives

18,508

12,535

Amortization and write-off of debt issuance costs

4,818

6,784

Share-based compensation expense

25,892

23,852

Deferred taxes

49,900

35,527

Excess tax benefit from share-based compensation

(11,193)

(15,797)

Tax receivable agreements non-cash items

14,880

21,196

Other

433

—

Change in operating assets and liabilities:

Accounts receivable and related party receivable

(67,938)

28,743

Net settlement assets and obligations

(16,558)

23,876

Customer incentives

(30,808)

(22,716)

Prepaid and other assets

6,183

2,016

Accounts payable and accrued expenses

24,859

40,051

Payable to related party

(1,331)

1,869

Other liabilities

(4,713)

3,685

  Net cash provided by operating activities

430,395

506,557

Investing Activities:

Purchases of property and equipment

(93,822)

(64,344)

Acquisition of customer portfolios and related assets and other

(2,179)

(39,312)

Purchase of derivative instruments

(21,523)

—

  Net cash used in investing activities

(117,524)

(103,656)

Financing Activities:

Borrowings on revolving credit facility

1,180,000

—

Repayment of revolving credit facility

(1,180,000)

—

Repayment of debt and capital lease obligations

(98,019)

(295,208)

Proceeds from issuance of Class A common stock under employee stock plans

12,340

12,739

Repurchase of Class A common stock

(25,008)

(161,156)

Repurchase of Class A common stock (to satisfy tax withholding obligations)

(6,036)

(16,119)

Settlement of certain tax receivable agreements

(158,115)

(44,800)

Payments under tax receivable agreements

(53,474)

(22,805)

Excess tax benefit from share-based compensation

11,193

15,797

Distributions to non-controlling interests

(9,018)

(12,732)

Other

(12)

—

Decrease in cash overdraft

—

(2,627)

  Net cash used in financing activities

(326,149)

(526,911)

Net increase (decrease) in cash and cash equivalents

(13,278)

(124,010)

Cash and cash equivalents—Beginning of period

197,096

411,568

Cash and cash equivalents—End of period

$

183,818

$

287,558

Cash Payments:

Interest

$

76,404

$

73,965

Taxes

35,709

6,484

Schedule 6

Vantiv, Inc.

Reconciliation of GAAP Net Income to Adjusted EBITDA

(Unaudited)

(in thousands)

Three Months Ended September 30,

% 
Change

Nine Months Ended September 30,

% 
Change

2016

2015

2016

2015

Net income

$

87,004

$

59,148

47

%

$

217,913

$

138,837

57

%

Income tax expense

39,324

24,776

59

%

101,591

61,348

66

%

Non-operating expenses⁽¹⁾

4,633

8,308

(44)

%

14,949

23,799

(37)

%

Interest expense—net

27,474

27,044

2

%

81,321

78,769

3

%

Share-based compensation

9,600

7,132

35

%

25,892

23,852

9

%

Transition, acquisition and integration costs⁽²⁾

2,761

11,359

(76)

%

22,332

49,378

(55)

%

Depreciation and amortization

66,086

70,638

(6)

%

199,550

206,099

(3)

%

Adjusted EBITDA

$

236,882

$

208,405

14

%

$

663,548

$

582,082

14

%

Non-GAAP Financial Measures

This schedule presents adjusted EBITDA, which is an important financial performance measure for the Company, but is not a financial measure as defined by GAAP.  Such financial measure should not be considered as an alternative to GAAP net income, and such measure may not be comparable to those reported by other companies.

________________________

⁽¹⁾ Non-operating expenses for the three and nine months ended September 30, 2016 and 2015 primarily relate to the change in fair value of a TRA entered into as part of the acquisition of Mercury.

⁽²⁾ Represents acquisition and integration costs incurred in connection with our acquisitions, charges related to employee termination benefits and other transition activities.

Schedule 7

Vantiv, Inc.

Outlook Summary

(Unaudited)

Fourth Quarter Financial Outlook

Full Year Financial Outlook

Three Months Ended December 31,

Year Ended December 31,

2016 Outlook

2015 Actual

% Change

2016 Outlook

2015 Actual

% Change

GAAP net income per share
attributable to Vantiv, Inc.

$0.39 - $0.41 

$0.31

26% - 32%

$1.43 - $1.45 

$0.95

51% - 53%

Adjustments to reconcile GAAP
to non-GAAP pro forma adjusted
net income per share⁽¹⁾

$0.31

$0.34

(9)%

$1.24

$1.29

(4)%

Pro forma adjusted net income per
share

$0.70 - $0.72 

$0.65

8% - 11%

$2.67 - $2.69 

$2.24

19% - 20%

Non-GAAP and Pro Forma Financial Measures

This schedule presents non-GAAP and pro forma financial measures, which are important financial performance measures for the Company, but are not financial measures as defined by GAAP.  Such financial measures should not be considered as alternatives to GAAP, and such measures may not be comparable to those reported by other companies.

__________________________

⁽¹⁾ Represents adjustments for the following items: (a) acquisition and integration costs incurred in connection with our acquisitions, charges related to employee termination benefits and other transition activities; (b) share-based compensation;  (c) amortization of intangible assets acquired in business combinations and customer portfolio and related asset acquisitions;  (d) non-operating expense primarily associated with the change in fair value of a TRA entered into as part of the acquisition of Mercury; (e) non-controlling interest; (f) adjustments to income tax expense to reflect an effective rate of 36.0%, assuming conversion of the Fifth Third Bank non-controlling interests into shares of Class A common stock, including the tax effect of adjustments described above;  and (g) tax benefits due to the amortization of intangible assets and other tax attributes resulting from or acquired with our acquisitions, and to the tax basis step up associated with our separation from Fifth Third Bank and the purchase or exchange of Class B units of Vantiv Holding, net of payment obligations under tax receivable agreements.