Vantiv Management Discusses Q1 2013 Results - Earnings Call Transcript

May. 6.13 | About: Vantiv, Inc. (VNTV)

Vantiv (NYSE:VNTV)

Q1 2013 Earnings Call

May 06, 2013 5:00 pm ET

Executives

Nathan Rozof

Charles D. Drucker - Chief Executive Officer, President and Director

Mark L. Heimbouch - Chief Financial Officer and Principal Accounting Officer

Analysts

Jason Kupferberg - Jefferies & Company, Inc., Research Division

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Georgios Mihalos - Crédit Suisse AG, Research Division

Bryan Keane - Deutsche Bank AG, Research Division

Glenn T. Fodor - Autonomous Research LLP

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

David Togut - Evercore Partners Inc., Research Division

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

David S. Hochstim - The Buckingham Research Group Incorporated

Tulu Yunus - Nomura Securities Co. Ltd., Research Division

Christopher Shutler - William Blair & Company L.L.C., Research Division

Operator

Good day, and welcome to Vantiv's First Quarter 2013 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Nathan Rozof, Senior Vice President of Investor Relations. Please go ahead, sir.

Nathan Rozof

Thank you. Good evening, everyone, and thank you for joining us today. By now, everyone should have access to our first quarter 2013 earnings release, which can be found at Vantiv.com under the Investor Relations section.

During the call today, Charles Drucker, our President and Chief Executive Officer, will discuss first quarter operating performance and address some of our key initiatives. Mark Heimbouch, our Chief Financial Officer, will then review first quarter financial highlights and the outlook for the remainder of the year.

As you have also seen, we announced the filing of our registration statement for a proposed secondary offering of our Class A common stock, as well as the debt financing and share repurchase by Vantiv. You can access our filings at www.sec.gov for additional information. Since we are in registration, we will not be commenting on the secondary offering, share repurchase or debt refinancing in our prepared remarks or during the Q&A session of today's earnings call.

Throughout this conference call, we will be presenting non-GAAP and pro forma financial information, including net revenue, adjusted EBITDA, pro forma adjusted net income and pro forma adjusted net income per share information. These are important financial performance measures for the company, but are not financial measures as defined by GAAP. Reconciliation of this financial information to the GAAP financial information appear in today's press release.

I would also like to call to your attention the fact that we have renamed our key earnings metrics from cash and income and adjusted cash and income per share to pro forma adjusted net income and pro forma adjusted net income per share respectively. This is a change in name only. There has been no change in the underlying methodology or calculations. Finally, before we begin our formal remarks, I need to remind everyone that our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Please refer to the forward-looking statement disclosure in our earnings release and in our periodic filings.

Additional detailed information concerning many of the risks regarding our business and the factors that could cause actual results to differ materially from the forward-looking statements and other information that we give you today, can be found in our most recent annual report on Form 10-K under the headings Risk Factors and MD&A, and our subsequent filings with the Securities and Exchange Commission, which are available at sec.gov.

I will now turn the call over to Charles Drucker, our CEO. Charles?

Charles D. Drucker

Thanks, Nathan, and good evening. Thanks for joining today's call. During the first quarter, we continued to experience strong growth. Our outstanding performance included double-digit net revenue and earnings growth, again, demonstrating the strength and consistency of our business model.

During the first quarter, our business generated growth of 17% in net revenues to $273 million, driven by 18% growth in transactions. Adjusted EBITDA increased by 22% to $125 million given the scale and efficiency of our single processing platform and we continue to deliver superior growth in earnings with pro forma adjusted net income growth of 59% resulting in pro forma adjusted net income per share growth of 55% to $0.31.

Our results demonstrate that we continue to win in the market. We generated above market growth due to the combination of favorable secular trends in the payment market, our ability to win share in the traditional market, as well as our expansion into the high-growth areas like eCommerce or processing for payment facilitators.

The March issue of the Nielsen Report demonstrates that we are winning share. According to the Nielsen report data, we increased our market share in the Merchant acquiring space by 1.3 percentage points in 2012 to 14.8% from 13.5% in 2011. That is by far the highest rate of increase in the space. We've gained more market share than any other U.S. acquirer. We are in a solid position as the third largest acquirer and we are outpacing the growth of our competition. We are winning market share in our traditional markets by broadening our distribution and expanding geographically. In addition to our growing direct sales force to win new merchants and financial institutions, we are also winning clients through our merchant bank and third-party partner relationships in markets and geographies where we previously had limited access.

We use relationship-based approach with our clients. For new sales, we leverage the relationship with our partners such as our merchant bank partners' commercial and lending relationships or our VAR partners' client relationship to develop warm leads. Our scale and our comprehensive suite of services are competitive advantages. They allow us to serve our clients as a trusted advisor, help them navigate the changing payment landscape by providing access to new technology and insights from our 40 years of payments experience. Our ongoing investment in new products and our ability to offer a full suite of solutions provide advantages both in terms of winning new clients, as well as maintaining long-term relationships.

Our single integrated processing platform also drives unique benefits. Our larger merchants like the single point of connectivity and ease of integration, while our smaller merchants enjoy access to all of our new products. Our clients don't have to wait for us to deploy new products across several platforms and our financial institution partners find real value from the data and analytics that we're able to provide them, particularly in areas like fraud and loyalty. Each of these represent a differentiation point, delivering value to our clients and winning new business. As a result, our attrition in our direct Merchant business is among the lowest in the industry and many of our large client relationships extend back 2 decades or more.

We continued to win in the market during the first quarter with several new wins and key client renewals. In our Merchant Services segment, we won key new clients in the first quarter like Houlihan's Restaurant, which has more than 100 locations throughout the U.S. across their brands. And we renewed several important relationships, including Unified Grocers, h.h. gregg and Bob Evans. In our Financial Institution segment, we signed CorTrust Bank, which continues to expand their business in the new geographies and we began the conversion of Anheuser-Busch employees' credit union. We also signed AgriBank, which will utilized our prepaid platform. AgriBank is one of the largest banks within the National Farm Credit System with more than $82 billion in total assets.

And speaking of prepaid, one of our premier clients, Fifth Third Bank, was recently recognized by the prepaid industry for its access 360 prepaid card, which is powered by Vantiv. We are proud of this recognition as it speaks to the robust functionality of our prepaid platform.

Within the eCommerce segment, Litle also continues to grow well above market, increasing its sales volume 39% year-over-year due to strong new sales and organic growth. We are very excited about Litle's leading technology, including the data and analytics expertise and its leading position within this fast-growing eCommerce market. Therefore, beyond the contribution to net revenue growth this year, we expect Litle to continue to add to Vantiv's top line growth rate going forward as we continue to gain traction with our approach to the market, including pursuing cross-selling opportunities in our existing merchant base, as well as re-engaging with potential new clients that Litle was too small to pursue as a stand-alone company.

Beyond our traditional business and eCommerce, we are also expanding into high-growth segments and verticals. Our growing business with payment facilitators or PayFac, which is also known as payment aggregate, is really a good example. Giving us scale and comprehensive suite of services, Vantiv is already one of the largest enablers of PayFacs in the industry. In fact, we process for more PayFac registered with MasterCard than anyone else. We have grown our presence in this segment because PayFacs are important partners in this broad distribution strategy that can help us quickly grow transactions by leveraging their innovative payment technologies to increase our reach into selective markets.

Within the broader PayFac market, we have enjoyed recent success in the property payment space. During the quarter, we signed or began the conversion of 3 of the top property management PayFacs: that's the F stone, property solutions, and paid lease, which will help us quickly win additional market share in the property payment space as renters shift from cash to credit cards for monthly payments.

These new partnerships and clients wins highlight that Vantiv continues to be a payment partner of choice due in part to our consistent ability to stay ahead of new regulation requirements and our ability to quickly enable new technology faster than our peers due to the flexibility of our single integrated processing platform. Our platform makes us nimble and our APIs make integration with Vantiv easy, which is important to technology companies and new entrants to the payment space. Over the past few quarters, we've made several announcements that demonstrate our investment in new technology. This quarter, we were certified by Visa, MasterCard, American Express and Discover to process EMV transactions.

So in conclusion, we continue to be pleased with the success of our business. We are winning market share and our employees continue to execute, driving growth in both net revenue and profitability. Our company is focused on developing solutions to meet the evolving needs of our clients. We're excited about the opportunities unfolding before us and we believe that Vantiv is well positioned to continue to achieve above market growth.

Now I'll turn the call over to Mark Heimbouch, who will review our financial results. Mark?

Mark L. Heimbouch

Thanks, Charles, and good evening, everyone. As Charles indicated, our business generated double-digit net revenue and profit growth in the first quarter 2013.

Net revenue increased 17% to $273 million due primarily to 18% growth in transactions and pro forma adjusted net income increased 59% to $67 million resulting in a 55% increase in pro forma adjusted net income per share to $0.31. I'll touch on a couple of other items following Charles' review of the quarter. In the Merchant business, transactions grew by 23% as compared to net revenue growth of 22%. This superior level of growth was driven primarily by new business as discussed in our fourth quarter call, as well as the acquisition of Litle. Lower level of mid single-digit same-store sales growth that we experienced in the fourth quarter continued through the first quarter. Within the Merchant business, we experienced modest contraction in net revenue per transaction, which is consistent with the prior few quarters and again, due to the addition of a large national processing contract in the second quarter of last year. Excluding the impact of this contract, net revenue per transaction increased.

With respect to our Financial Institution business, net revenue grew 8%, driven primarily by higher net revenue per transaction, which increased by 4.6% year-over-year due to lower third-party processing fees and continued transaction growth.

Our adjusted EBITDA margin expanded by approximately 160 basis points year-over-year resulting in adjusted EBITDA of $125 million for the quarter. In terms of expenses, sales and marketing expense increased 4% to $76 million during the quarter. We continue to hire sales -- salespeople and to invest for our growth.

General and administrative expenses increased 26% to $23.1 million and other operating costs increased 26% to $48.5 million. In addition to the larger impacts resulting from our acquisition of Litle, growth in these lines was also contributed by additional personnel-related expenses and increased infrastructure and professional service costs to support our growth initiatives.

Lastly, interest expense decreased 60% to $10 million as compared to the prior year period, reflecting the impact of the debt paydown and refinancing that was completed in connection with the IPO at the end of the first quarter of 2012. As a result of our strong revenue growth, higher margins and lower interest expense, pro forma adjusted net income increased 59% to $67 million for the first quarter, which drove a 55% increase in pro forma adjusted net income per share to $0.31.

Before I turn the call back to Charles, I would like to address full year expectations. Our annual net revenue guidance has been $1.21 billion to $1.23 billion. Given the consumer spending trends we have observed over the past few months, including the continuation of same-store sales growth rates in the low- to mid-single digits, I believe we're currently on -- we're currently trending towards the lower end of the range, though it remains early in the year. Our annual guidance for pro forma adjusted net income also remains unchanged at $1.46 to $1.50 per share. Given the scale and leverage of our business model, our profitability continues to be strong. Given the varying assumptions across analyst models and specific influences on our quarterly results in 2013, we also want to provide additional color regarding quarterly trends for the remainder of the year. To begin with, I remind you that we lapped the impact from the large national processing contract that started at the beginning of the second quarter 2012. Therefore, transaction growth in the Merchant business will be lower as compared to the first quarter 2013.

With the lapping effect, as well as the impacts from lower consumer spending trends and Easter occurring in the first quarter as compared to the second quarter last year, we expect net revenues of $295 million to $300 million in the second quarter, which represents 13% to 15% growth and pro forma adjusted net income per share of $0.36 to $0.37, representing growth of 13% to 16%. Beyond the second quarter, we expect pro forma adjusted net income per share to step up sequentially for the remaining 2 quarters of 2013 as we continue to grow the business.

Now, I'll hand the call back to Charles to close today's call.

Charles D. Drucker

Thanks, Mark. So in conclusion, Vantiv is positioned to win market share and we are focused on delivering long-term value. We are aggressively adding new growth channels, such as eCommerce, merchant bank and payment facilitators. We have a differentiated business model with a broad client base, diversified distribution channel and a single integrated processing platform that enables us to drive strong profitability and rapid innovation. We are a market leader, focused on driving superior growth across that business, while we also continue to build the capabilities to compete and win as the payment space continues to evolve. Our business has proven to be highly resilient with strong predictability and we are also well positioned in attractive areas in the market, including eCommerce. And finally, our business delivers superior margins that allow us to invest for future growth.

Thanks for taking the time with us tonight. Operator, let's open up for some questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question today comes from Jason Kupferberg.

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Just wanted to start with a clarification. I know in the press release, around the share buyback and debt refinancing, you talked about $0.79 as 2013 EPS accretion. I'm assuming that is not in the EPS guidance that you just reiterated, is that correct?

Mark L. Heimbouch

Yes, Jason, this is Mark. Yes, that is correct, so -- but given that we're in registration on this call, we can't talk to the specifics of that offering, but your assumption is correct.

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Okay. All right, I just wanted to make sure -- presumably once that closes, then you'll be in the position to update the guidance as you see fit.

Mark L. Heimbouch

Yes.

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Okay. And then just a question on the merchant transaction growth, the 23%, pretty much the same as Q4 even though you did have the full 3 months of Litle in the Q1 year-over-year comparison and only about 1 month last quarter. So with the lack acceleration, just some of the lower same-store sales growth that you referenced or anything you can elaborate on in terms of what merchant transaction growth would have looked like excluding Litle in the quarter.

Mark L. Heimbouch

Yes, so keep in mind Litle is -- while it's instrumental in terms of entry into eCommerce, it actually is not a big contributor from a transaction perspective. So it might have been 1 point or 2 in terms of transaction growth for the quarter, but it's not significant. The -- it tends to have a bigger impact from a revenue perspective given eCommerce transactions and on a per item basis being relatively higher. The question around same-store sales trends, we've really seen them be fairly consistent from the fourth quarter to the first quarter. Actually, they're just slightly up to a little bit better. But not to that extent that we've just kind of seen signs of a strong economic improvement or underlying same-store sales trends.

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Okay. And then just lastly for me. Any conversations you've had so far with some of your larger merchants about the Chase Merchant Services initiative as far as how they're reacting to that or any sense of implications or lack of implications on any of your existing large retailer relationships?

Charles D. Drucker

We are in constant contact with our merchants around all the changes happening in payments and the Chase Visa deal has not been a topic of conversation. We have been talking to merchants for a long time about offering different discounting and platforms and providing that capability. So it hasn't been, Jason, on their radar screen.

Operator

And moving on now to Dave Koning.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

I just wanted to refresh on the transaction growth if we'd exclude both Litle and the big processing contract. I think you said Litle was probably 1% or 2% to transaction growth. Was the large processing contract, if I remember right, something like 12%, 13%, 14% to transaction growth, I'm just trying back into what organic transaction growth might have been.

Mark L. Heimbouch

Yes, from a transaction perspective, as you're aware, it's significantly more impactful from a -- the large processing contract is significantly more impactful from a transaction perspective as compared to a revenue perspective. So -- and I think we told people there was roughly 1 billion transactions last year. So it continues to kind of trek along at that rate.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Okay. So if we would assume that organic transaction growth probably low single -- I'm sorry, low or -- high-single to low-double digits.

Mark L. Heimbouch

Yes, I would say low teens.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Low teens, okay. Okay, great. And then I guess secondly, just on the yield on transactions, is there any reason to think sequentially that there's much of delta? I know last year, sequentially 2 of the yields came down quite a bit and that was obviously because of the big processing client, but Q2 this year, should it go up a little bit, I think, as has historically been the case, Q2 yields being up a little sequentially?

Mark L. Heimbouch

Yes, so I think the impacts of that contract now being lapped will be positive from a yield perspective. The eCommerce, I think, will also continue to be positive from a yield perspective. So, yes, we -- and I think the comments I made would be, over time, that we still expect that rate will continue to expand nicely.

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Great. And then just finally, free cash flow was extremely strong this quarter, but it looks like mostly because of settlement adjustments, which I think you kind of exclude from normalized cash flow. If we exclude that, was it about in line with earnings?

Mark L. Heimbouch

Yes. So we -- again, I think when we provided schedules and discussed it as being effectively 100% of cash net income and excluding the impacts on the settlement accounts, I would say -- that's still kind of our view, and I think that continues to be the case for the quarter. So there might have been a couple of anomalies in terms of other working capital, but it's really the settlement balances that cause the variability and mind you that they really reverse the next day or so, it's just a matter of the day in which the quarter closes.

Operator

And next we'll hear from George Mihalos.

Georgios Mihalos - Crédit Suisse AG, Research Division

So just to be clear, the -- what was organic revenue growth for the first quarter? Is it somewhere around 12%?

Mark L. Heimbouch

Yes, it would have been in low teens.

Georgios Mihalos - Crédit Suisse AG, Research Division

Okay. Okay. And then just looking at the FI business, the higher level of revenue per transaction, is that sustainable going forward and how do you kind of think of your transaction growth as you ramp throughout the year, specifically in FI?

Mark L. Heimbouch

So as you know, in the FI side, we've really been seeing kind of mid-single digits in terms of transaction growth for a while, granted a quarter or 2, it's been upper single digits, but we really can't continue to expect that. The question on yield, I think that we've been seeing expansion on the yield basis really now for the last 3 quarters. So I think that the team continues to be able to cross-sell and add to the service model, so we're still optimistic from that perspective.

Charles D. Drucker

Yes, I would tell you, we continue to get traction in the value-added services that our FI clients are taking, especially the mid-sized clients to give them some advantages.

Georgios Mihalos - Crédit Suisse AG, Research Division

Okay, great. Just last question for me, the PayFac business, how big is that now?

Mark L. Heimbouch

We haven't disclosed it from a revenue perspective, but it's beginning to become more meaningful.

Operator

And moving now to Bryan Keane.

Bryan Keane - Deutsche Bank AG, Research Division

Mark, I just want to think about the high level. I think last quarter, organic growth was 10%, now you're talking about maybe low teens and I know consumer same-store sales have been slow, so what accounts for that pick-up of 2 to 3 points there in the organic growth?

Mark L. Heimbouch

I think that -- again, our organic would include rate expansion, as well as some of the new business. So we've seen that continue to drive our growth. Referring back to 2012, we actually did an analysis on the Nielsen data that when you compare the Nielsen data from 2012, 2011, we actually picked up 1.3 percentage points of market share. So we're clearly leading the pack in terms of new wins in market share gains. So I would say, that continues to contribute, the -- I think the -- if you call organic, same-store -- if you're calling organic soley same-store sales trends, really, what we've seen is from month-to-month, you can see some variability in rates, but when you really break it down and pull off some of the anomalies for the additional day in leap year or the movement of Easter, really what we've seen is just a very slight improvement in same-store sales trends in the first quarter. But rate's really kind of holding in that mid-single-digit kind of category. Our view is that there is potential for better comps as you go into the second half of the year because it really was the second half of last year when we saw same-store sales trends kind of start to decline.

Bryan Keane - Deutsche Bank AG, Research Division

And I was going to ask that, because if there's a little bit of lull in the growth rate in second quarter that you've called out, but then it picks up in the back half, is that part of just easier comps why it picks up in the back half?

Mark L. Heimbouch

Yes, I mean, I think there's, particularly as you get in the fourth quarter, but we think that there's -- there are better comps in the second half of the year.

Bryan Keane - Deutsche Bank AG, Research Division

Okay, just last question for me on the guidance. You talked about revenue being towards the low end of the range for this year of the planned guidance. What about for EPS, is that also at the low end or is that just somewhere in that range?

Mark L. Heimbouch

We're highly comfortable with the range on EPS. You guys have seen the results and the margin expansion opportunity that we have, so we're highly confident on the profitability growth. And back to the first point, the first point is really just tied to the fact that we've just seen that same-store sales metric trend just kind of stick there and not move.

Operator

And our next question comes from Glenn Fodor.

Glenn T. Fodor - Autonomous Research LLP

The revenue is at the low end of guidance, I'm just trying to reconcile the statement given your business, there's a lot of nondiscretionary verticals and if I recall, last quarter, you said you did expect consumer spending to strengthen. So just want to make it clear that I have it right. So you didn't see it strengthen in the first quarter, hence your more cautious view, but do you still -- have you made a call in your guidance that you don't expect it to continue to step up again and continue to accelerate for the rest of the year, and if it flat lines here, there is further risk with the guidance? I'm just trying to reconcile the economic outlook with the numbers.

Mark L. Heimbouch

Yes, so we've taken a more conservative approach or a more conservative view in same-store sales types of trends holding more comparable to where they are versus expecting a significantly higher increase in the second half of the year. So consistent just with what we've seen year-to-date has caused us just to think about the range a little bit more. So nothing else really changing that. So, no, we don't -- we also aren't projecting a significant ramp in the second half of the year either.

Glenn T. Fodor - Autonomous Research LLP

Okay. And then when you've built in your expectations for Litle into the guidance, was it Vantiv plus Litle at its basic, really strong run rate or was it further -- did you add in synergies for the additional things that you guys could do with Litle under your watch now?

Mark L. Heimbouch

We really assume, from revenue perspective, from their base case, we actually took, what's right word, slightly additive given expectations around the sales channel opportunity. And I would say, from an EPS perspective, similar approach, as well as taking into consideration some cost savings or synergies. Mind you that this acquisition was more about growth than it was about synergies.

Operator

[Operator Instructions] Our next question from Julio Quinteros.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

One quick one, just to sort of backup on the yield assumptions into the back half of the year. Can you just kind of go back to that just to make sure I got that point about your expectations on yield in both the FI section? And then just lastly, on the new capital allocation initiative here, how do we think about that and just sort of thought process around buybacks and using debt to continue -- or to lever up to do that or something that could help add [ph] the EPS from here?

Mark L. Heimbouch

Yes, so let me answer the first one and then see how I can answer the second one. The first one is, I think on both businesses, Julio, we're optimistic in terms of continued expansion in the rate there for a couple of reasons that we've cited. Do we expect to see the type of increases that we saw fourth quarter -- beginning fourth quarter of 2011 when Durbin became effective? Not like that. But we still expect it to be accretive. The second point, truthfully, I have to say that -- need to refer you to the offering just given the fact that we're in registration. But we'll certainly be able to provide you as much color around that transaction, including the financing and repurchase. But I think -- I would just refer you to that disclosure for now.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Okay. So no philosophical change in terms of buyback approach or anything along those?

Mark L. Heimbouch

No. And I just to be clear, there was an announcement released and put out right before the call. If you haven't seen it.

Operator

And moving on, we'll now go to Tien-Tsin Huang.

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

Just want to ask about Litle and any surprises on client retention and I'm curious what the sales pipeline looks like. Do you have any large chunky eCommerce merchants that you're talking to that could be meaningful for this year?

Charles D. Drucker

Yes. So Tien-Tsin, it's been going very well at Litle. We've been engaged, we've been training the Vantiv sales -- the sales force to start reaching -- to be reaching out and we believe we're going to have some good wins coming up that could -- that will be chunky.

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

Okay, good. What's the typical lead time on something like that because if I recall, you have a lot of deals that were unbundled, meaning, you were doing the physical work and someone else is doing the online work. Is there a way for those contracts to come up for renewal or not necessarily?

Charles D. Drucker

Yes, some of them, we have to wait for the contracts to come up renewal. The real piece is, just getting the IT attention inside of the merchant's organization. So it's just getting into their queue. But it's a combination of both of those contracts that come up and then also getting into the merchant's queue. Litle is pretty nimble that they can move quickly to implement, but it's really like any other large or mid-sized clients, is get -- making sure you're getting into their queue.

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

All right. Good to know. Same question for FI, sorry if I missed because I jumped on late. What is the sales outlook? How does that look here, once you turn the calendar year? Any changes in your pipeline?

Charles D. Drucker

I think the pipeline continues to be strong. It's -- we're seeing solid movement. We're seeing -- FI is interested in a lot of the value-added services that we're bringing and we're seeing the wins. But again, as you pointed out, the contracts have to come up and then banks' or financial institutions' conversions take a little bit longer in that space. But the pipeline has been very strong and we've had good success there.

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

Okay. Last one for me, and again, sorry if you said this already. Just sales productivity from some of the newer channels that you focused on like the VARs and the agent banks, how is that measuring to date?

Charles D. Drucker

The merchant banks are starting to accelerate up. We're putting the sales force associated with them, we're seeing the ramp that we expected. The payment facilitators that we're talking about, we're winning deals in that space or aggregated model and we're seeing good traction there, but it's still in the ramp up stage. And the VARs, we're adding and connecting more of VARs, so we're seeing these ramp-ups happen and we'll continue to grow as the year and moving into next year happens.

Operator

And next, we'll hear from David Togut.

David Togut - Evercore Partners Inc., Research Division

What inning are you in with the expansion of your sales footprint?

Mark L. Heimbouch

What inning are we in?

David Togut - Evercore Partners Inc., Research Division

In other words, you've mapped out a strategy to really expand your sales footprint to be more national versus regional historically. So my question is, how far along are you in that process and what are the major territories you have yet to address?

Mark L. Heimbouch

Yes, I would say we still think it's early, David. I think the issue in terms of why not a faster rate of expansion in terms of sales force, that's because we're a little bit more methodical in terms of backing it up around merchant bank channels and other referral channels. We've been through the market share analysis in terms of what do we think is possible and I threw out some earlier trends -- earlier on the call, I threw out some trends in terms of what we saw, in terms of market share gains last year. So if you take up and down kind of the midwest around the traditional Fifth Third branch network, we're 20% market share, in some cases, more around those channels. If you go to the coast, we're really single digits in terms of market share. And by the way, that would include the large national clients that we serve. So with some of these kind of a mid-market bank -- merchant bank opportunities coming up, we think as we enter those markets, that our ability to take market share is actually pretty meaningful. So I would say it's early in terms of innings.

David Togut - Evercore Partners Inc., Research Division

I see. And then just related to that, if I could, on the cost structure, some nice leverage in sales and marketing. G&A and other operating costs, obviously grew above revenue growth. When do you think G&A and other operating expenses will grow more in line with revenue growth or even below revenue growth as you look out over the next year or so?

Mark L. Heimbouch

Yes. So Litle actually had a more significant impact on OpEx and SG&A. So mind you, they weren't in our last year quarter. So they were actually one of the big reasons for the expense lines popping to the extent they do. So you're going to see that really over the remaining 3 quarters. But internally, we're starting to see leverage on those other line items and I think previously, we've said that we expect those to be drivers of leverage, particularly on the G&A line. So they are starting to track more fixed in nature, but for the Litle acquisition.

David Togut - Evercore Partners Inc., Research Division

I see. And then what was your mix in the quarter in Merchant acquiring in terms of percentage of transactions that were PIN, SIG, debit and credit?

Mark L. Heimbouch

Just a second, I have that. So really, in terms of Q1, what we've seen is, PIN debit still kind of continued to -- really no change from Q4. So total transactions being about -- just a second, I'm reading -- on the Merchant business. So PIN debit continues to be on a transaction basis, still 41% to 42%, which has been consistent, really, for the last few quarters.

David Togut - Evercore Partners Inc., Research Division

And then the balance between signature and credit remains...

Mark L. Heimbouch

They're almost evenly split -- they're almost evenly split, actually.

David Togut - Evercore Partners Inc., Research Division

Okay, great. And final question for me, just revisiting JPMorgan and Chase Merchant Services, was -- is Chase Merchant Services receiving any proprietary technology from Visa that you don't have access to?

Charles D. Drucker

No. I tell you that we continue to believe that this is a issuer-side type of play that Visa has. Visa locking down for 10 years and it allows them to -- Chase to do some loyalty similar to Amex. And given our ties to the both merchant and financial institution, we think that we're really in a similar competitive position to be able to do the same thing. Now the difference is we have relationships with both banks and merchants and it really gives us the ability to offer similar capabilities with Chase. And the platform that Visa has offered to them is not exclusive and we believe we're going to be able to have access and have the similar benefits to that. So we think, like I said, issuer deal, we're going to be in a good position and we're also going to be in a good position as larger banks and mid-sized banks that don't have an acquirer business to be able to help them bring offers to our large national merchant and mid-sized clients.

Operator

Moving on now to Andrew Jeffrey.

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Overall, Charles, could you address, outside of CMS, the broad competitive backdrop? It seems like Vantiv is taking share and there's been a lot of noise, and I'll call it just that, around disruptive or emerging competitors. And can you go in a little bit to how you feel on the competitive front? Obviously, there's been no disruption in your business to date.

Charles D. Drucker

Yes, so, Andrew, we do keep our eye on all of the disruptors happening, and we stay very close to that. Right now, to date, the part of the market that has had potentially disruption is on the very low end, which is a place that we haven't focused on or have really, we play aggressively in. When you're going upstream, we have not seen that type of disruption, but we're very focused on bringing features, functionalities to our clients. We have long-term agreements with the clients and bringing new value-adds, such as where people talk about the Chase-Visa deal, we have been bringing discount offers and abilities to our platform and we're going to look at Visa's non-exclusive platform that they have to see if we can even grab more share that way. So we're very aware of what's happening. On the mobile side, we view mobile as more transaction to the market and we view it as an entry device. So a lot of our clients are trying to have us help them think through the wallets and mobile for us to process the transactions. You'll see us also, Andrew, very open to partnering with new emerging players to figure out how to use that scale and capabilities, to help grab share in areas that we're not playing in today. So we think, with disruption potentially happening, we're best positioned to, one, continue to win in the space that we're playing in; and two, enable new payment players to help take advantage of the market.

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And is any of that thought process affected by the EMV rollout in the U.S. and any thoughts on how you'd see the timing of EMV vis-à-vis the network's deadlines?

Charles D. Drucker

I mean, the network's deadlines are still -- they haven't moved from 2015 and we're seeing -- we're having conversations with merchants and there's not been a rush to jump into EMV but it's getting close -- it's starting to get closer. So we're having conversations. I think with -- as EMV gets closer and there's changing in the equipment and the hardware and how software functions, our merchant clients will work with them to think about mobile and how to attract more clients using loyalty programs, the discounting programs. So I do think, as we get closer, it starts to accelerate more opportunities to bring value-added services to these clients.

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Okay, that's helpful, and Mark, one for you. As I look at the way that the large processor client came on last year or more accurately, pro forma, year-on-year in the first quarter, is it safe to think about organic transaction growth somewhere in the mid- to high-single digits?

Mark L. Heimbouch

I would say the range -- so your question is excluding the impact to that contract, basically?

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Yes, and excluding the impact of Litle, which I think, you said was 1 to 2 points.

Mark L. Heimbouch

Yes. So on a transaction basis, Litle is 2 percentage points or less from a transaction perspective. So I think that kind of a range of transaction growth, excluding the impact of the 2, is at the low-end, upper single-digits, more like low teens.

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Okay. So that implies -- that implies a pretty significant ramp in the annualized transactions from that new processor if you -- if they contributed $1 billion last year. It ramped pretty sharply as the year went on...

Mark L. Heimbouch

I don't want to be -- talk specifically to their trends, but keep in mind, last year, they had just 3 quarters. And I don't want to comment specifically on the growth with respect to their contracts, but it's a large national type contract.

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

OK. So we leave it at that, low double-digit organic transaction growth?

Mark L. Heimbouch

I think that's reasonable.

Operator

Moving on now to David Hochstim.

David S. Hochstim - The Buckingham Research Group Incorporated

Sort of following up on Andrew's question. Could you talk maybe a little bit more about the competition you're seeing from other acquirers in the Merchant Services business? Are those companies that lost market share to you last year more aggressive now in some way?

Charles D. Drucker

We continue to win market share. To just revisit, we have been expanding our sales force in geographies that we haven't been before. Our agent bank and merchant bank continue to ramp, which allows us to get warm leads coming in. So we haven't seen -- we believe we are still going to take share and we demonstrated in Nielsen that we are shifting share in the small middle market and we continue to win in the national space. And we're very excited as we move into eCommerce with Litle to be able to win in that market. So we're -- it's been steady. We continue to win the space.

David S. Hochstim - The Buckingham Research Group Incorporated

And so you're not seeing more sort of aggressive price competition from some of the big...

Charles D. Drucker

We haven't seen it. At this point, we're still seeing pretty stable pricing in the market, so we haven't seen irrational pricing at this point in time in the deals that we're doing.

Mark L. Heimbouch

But it's always been competitive.

Charles D. Drucker

Yes, it's a very competitive space, but our single processing platform and our scale allows us to compete very well.

David S. Hochstim - The Buckingham Research Group Incorporated

Can you talk for a minute about the Mobile Accept and is that getting traction, or is that...

Charles D. Drucker

Yes, Mobile Accept is getting traction. I dongle out there, we're starting to leverage our bank distribution channels on the lower end of the clients and we're seeing good traction in that space. So that's going to be a nice growth area for us.

Operator

Moving on next to Tulu Yunus.

Tulu Yunus - Nomura Securities Co. Ltd., Research Division

I just wanted -- I was wondering, on the small mid-size channel, how much of your new business sales is now coming from those channels? Could you update us on that? And then related to that, I'm wondering kind of if you could help us understand what the rev per transaction tailwind, if you will, is coming from your growth there.

Mark L. Heimbouch

So we didn't update on the chart this quarter, but I think 2 earnings calls ago, we've put a pie chart out there in terms of new business ramp and broken down by size of merchant. And as I recall, I think kind of our definition of small to mid is probably -- was a majority of our new business. Our small to mid is probably larger in terms of definition. So our average new merchant as of last year was roughly $350,000 to $400,000 of annual sales volume. Nathan's actually telling me, a little bit more of that. So in excess of $400,000 in terms of annual sales volume. So that's really a market where we continue to be very aggressive and continue to win new clients. And if you think about it, just given our referral channels, it's typically going to be a little -- it's not going to be that micro merchant. So I would say that trend continues. And I think the second question is what's the impact on the revenue per transaction given that? So those merchants, just generally speaking -- still by the way as compared to 2.75% are probably paying less, but from -- given our volume mix, that still should be accretive on a revenue per transaction basis going forward.

Tulu Yunus - Nomura Securities Co. Ltd., Research Division

Right. Because you mentioned the revs per transactions actually increased in the Merchant business, excluding the large contract that's weighing on that metric. And part of the reason you give was Litle. I wonder if you exclude Litle, would you have seen growth or kind of flattish RPT or...

Mark L. Heimbouch

Yes. No, excluding Litle, it's still expanding.

Tulu Yunus - Nomura Securities Co. Ltd., Research Division

It is. Okay, great. And then just real quick on the sales headcount outlook, if you will. I think you had mentioned 10-plus percent growth in the headcount last time -- during the last call for this full year, is that still the thought process?

Mark L. Heimbouch

Yes. Yes and we're still -- our view is it's still going to be 10% to 20% in terms of total headcount add through the end of 2013.

Operator

Moving on now to Chris Shutler.

Christopher Shutler - William Blair & Company L.L.C., Research Division

A couple of questions on the small and mid-sized business. So first, to hang on to the last question, I just want to confirm that the NPC is growing. Is it growing faster than the overall Merchant business?

Mark L. Heimbouch

No, no, no. It's really our direct business that is the key driver to growth. The NPC business, while it's growing, it's growing more single digits.

Christopher Shutler - William Blair & Company L.L.C., Research Division

Okay. And then can I get an update on the integration of NPC into your front-end platform?

Mark L. Heimbouch

Yes, continuing -- I'm glad you brought that up, by the way, we failed to mention it. Yes, it continues to be on track. We expect to really complete that back-end conversion by the end of third quarter.

Christopher Shutler - William Blair & Company L.L.C., Research Division

Okay. And any significant economic benefit would show up in the P&L after that takes place?

Mark L. Heimbouch

Yes, I mean, there's -- yes, there's some expected P&L benefit just given the cost savings.

Christopher Shutler - William Blair & Company L.L.C., Research Division

Okay. And then the only other one is -- let's see here -- I was hoping you could give us an update on Fifth Third, and I know -- I don't want to talk too much about a specific client, but I remember at the time of the IPO, Fifth Third was a significant portion of your new business wins in the direct channel. Just wanted to get a sense if that trend, that percentage has remained relatively constant.

Mark L. Heimbouch

Yes. I think it's actually somewhat down, I think, as a percent of total. So I think through most of last year, it's probably about half of the referrals in the direct channel. It still continues to be a very productive channel. But as we have expanded, I would say some of these opportunities are contributing more -- at least half.

Christopher Shutler - William Blair & Company L.L.C., Research Division

Okay. So a little under half of the new business?

Operator

And that will conclude today's question-and-answer session. And at this time, I would like to turn the call back over to Mr. Charles Drucker for additional and closing remarks.

Charles D. Drucker

Okay. Thank you for joining our call today. As you can tell, we're extremely proud of the way Vantiv and our employees have performed since becoming a public company. We continue to execute well, as shown by our first quarter results, and we are very excited about the future of our company. If you have any additional questions after today's call, please reach out to Nate and he'll get you what you need. So thank you, again, for joining us and have a good evening.

Operator

That does conclude today's call. Thank you, all, for joining.

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