First Data Deal Helps Drive Doubling of Business at iPayment

Nashville, Tenn.-based independent sales organization iPayment Inc. today reported its revenues and processed charge volume more than doubled in the first quarter compared to the year-ago period, with much of the growth driven by a December acquisition of a merchant portfolio from First Data Merchant Services. In a conference call today with analysts, Gregory S. Daily, chairman and chief executive of the publicly held company, hinted more deals are coming, including some that have been larger than those the company has executed so far. He said iPayment's larger size makes bigger acquisitions more feasible. “We feel we are able to handle a little bit larger merchant and a larger portfolio than we were a year ago,” he told analysts. “There are some [deals] we are working on.” iPayment has been an active buyer of merchant and agent-bank portfolios over the past few years. The processor, which serves some 130,000 small merchants in a wide variety of industries, said its charge volume reached $6.25 billion in the quarter, up from $2.86 billion in the first three months of 2004. At the end of the year, iPayment bought a portfolio of 25,000 small retailers from FDMS for $130 million in cash. In February, it acquired Petroleum Card Services, an ISO serving 2,000 mostly unbranded gas stations and convenience stores. Company executives in the conference call today attributed most of the processor's incremental growth to these deals, adding that the recent run-up in gasoline prices has also contributed to growth. Company revenues hit $163.4 million in the quarter, up from $80 million a year ago, leading to a 37% jump in net income to $6.9 million. iPayment added 10,000 new merchants in the quarter, up from 8,000 a year ago. The company also said it is tightening its relationship with First Data, with which it has an agreement to process at least 75% of its annual transaction volume. It has agreed to pay First Data at least $13.7 million in processing fees in 2005. In today's announcement, the company said it had converted portfolios served at a data center near Chicago to the FDMS platform from “higher-cost” platforms. At an average ticket of $65, iPayment's merchants generated about 96 million transactions in the quarter. Credit card volume accounts for 71% of this traffic, with signature debit producing 27% and PIN debit 2%. Daily did not give specifics about future acquisitions, but did say larger portfolio deals will be harder to pull off. “The bigger they are, the harder it is to get them at the right price,” he noted, indicating there are perhaps 50 deals in the $10 million-to-$20 million price range the company would like to execute, and another 10 in the neighborhood of $100 million. He added competition continues to stiffen, putting pressure on the existing merchant base. “We get calls every day from our merchants who have been visited by our competitors, and they want a better price,” he said. In response, iPayment will focus on strengthening its ties to ISOs and other sales agents, he said, rather than hire direct salespersons.