iPayment Reports Transaction Efficiencies Driven by Acquisitions

Nashville, Tenn.-based iPayment Inc., a publicly held independent sales organization processing for 125,000 small merchants, reported strong results for the fourth quarter of last year and for all of 2004, driven mainly by increased economies of scale from merchant-portfolio acquisitions. Revenue jumped to $101.4 million for the quarter and $364.2 million for the year, increases of 56% and 61% respectively, resulting in an increase of net income for the year of 58% to $24.7 million. Profit for the fourth quarter dipped 25% to $7.6 million, although charge volume for the quarter almost doubled to $3.47 billion. In a statement this week, Gregory S. Daily, chief executive, pointed to rising cost efficiencies stemming from the additional processing volume. The processor's cost per transaction, he said, averaged 18 cents last year, an improvement of 3 cents over 2003. Although iPayment's interchange cost jumped 55%, to $176.6 million, last year, interchange as a percentage of revenue dipped to 48.5% from 50.5%. Much of the increased volume has come from a string of acquisitions, most prominently a portfolio acquisition iPayment made at the end of 2003 from First Data Corp. The company's consolidation efforts have continued into 2005. It closed last month on its acquisition of Petroleum Card Services Inc. (PCS), a Gardnerville, Nev.-based ISO specializing in the gasoline and convenience-store market, and had earlier announced a second major portfolio deal with First Data (Digital Transactions News, Dec. 28, 2004). PCS brings 2,000 merchants and $800 million in annual charge volume to iPayment. It is bringing on new merchants at a rate of 100 per month, the processor says. The deal with First Data, in which iPayment agreed to pay $130 million to buy a portfolio of 25,000 merchants, adds to the earlier agreement in which the company paid $55 million to buy an 18,000-merchant portfolio from the Denver-based processing giant. As part of the second portfolio deal, iPayment also rolled out a so-called preferred provider program with First Data, under which iPayment sales agents can offer various First Data add-on services, such as gift card processing and lease financing, in one bundled package. Part of the purpose of the program, the company says, is to increase retention of both merchants and sales agents. To help sustain iPayment's acquisition strategy, the company said it has expanded a revolving line of credit with Bank of America and J.P. Morgan Chase & Co. to $205 million, of which it has used $163 million. The credit line, Daily said, can be increased to $280 million if necessary, pointing to “additional acquisitions in the fragmented small-merchant market.”