iPayment Reports Fourth-Quarter Results

NASHVILLE, TN – iPayment, Inc. (NASDAQ: IPMT) today announced financial results for the fourth quarter and year ended December 31, 2004. For the fourth quarter, revenues increased 56% to $101,441,000 from $65,222,000 for the fourth quarter of 2003. Net income allocable to common stockholders for the fourth quarter of 2004 was $7,617,000, or $0.42 per diluted share, compared to $10,226,000, or $0.58 per diluted share, for the fourth quarter of 2003. The effective income tax rate for the fourth quarter of 2004 was approximately 31.3% versus 0.0% for the fourth quarter of 2003. In the fourth quarter of 2003, the Company also benefited from a $1.3 million nonrecurring reduction in an earlier estimate for merchant losses from a single merchant.

Commenting on the announcement, Gregory S. Daily, Chairman and Chief Executive Officer of iPayment, said, “We are very pleased with our performance for the fourth quarter and full-year 2004. Our profitable growth strategy remained on track, both through organic channels and acquisitions. Charge volume increased to $3,471 million in the fourth quarter of 2004 from $1,854 million in the fourth quarter of 2003. As we gain scale, we continue to improve efficiency at our operating centers. Our processing costs per transaction averaged $0.18 for 2004, down from $0.21 for 2003. Revenues per employee (average) expanded to $1,287,000 for 2004 from $863,000 for 2003, principally as a result of our acquisition of a portfolio of agent bank agreements and merchant accounts from First Data Corp. at the end of 2003. We finished the quarter with 310 employees.

“During January, we completed the acquisition of Petroleum Card Services, Inc. (PCS), an ISO with a portfolio of over 2,000 merchants and annual charge volume of approximately $800 million. PCS specializes in the unbranded petroleum and convenience store market, generating approximately 100 new merchants per month. iPayment expects the transaction to be accretive to its 2005 financial results, providing additional earnings of approximately $0.03 per diluted share.

“The PCS acquisition, along with the recently announced purchase of a merchant portfolio from First Data Corp., gives us a strong tailwind entering 2005. In order to finance acquisitions such as these, we have expanded our revolving credit facility led by Bank of America and JPMorgan Chase Bank to $205 million, of which approximately $163 million has been drawn. The facility contains an accordion feature that allows it to be increased up to $280 million. Looking forward, we remain confident in our ability to execute our profitable growth strategy through organic channels and additional acquisitions in the fragmented small-merchant market.”

Outlook
The following statements summarize iPayment’s guidance for 2005, which reflects the portfolio purchase from First Data and the acquisition of PCS, as well as guidance for long-term growth in its revenues and expansion in its operating margin. For 2005, iPayment is currently comfortable with a range for annual revenues of approximately $620 million to $650 million and an annual operating margin of approximately 9.5% to 10.5%. iPayment expects net interest expense of approximately $8.5 million to $9.5 million, an effective income tax rate of approximately 39%, and diluted weighted average shares outstanding of approximately 18.5 million, including 662,000 share equivalents from outstanding convertible promissory notes. iPayment is currently comfortable with a range for earnings per diluted share for 2005 of approximately $1.83 to $1.88. These estimates do not include expenses resulting from the adoption of FASB Statement No. 123R. These expenses will be a function of several factors including the Company’s date of adoption, the number of historical and new option grants, and the valuation methodology employed. Beyond 2005, iPayment targets long-term growth in revenues more in line with the industry growth rate through a combination of internal growth and acquisitions. iPayment reiterates its target annual range for its operating margin of 10% to 15% of revenues, with gradual improvement over time. As in the past, the operating margin may fluctuate on a quarterly basis, and the percentage may change as a result of acquisitions with higher or lower operating margins than iPayment’s margins.