- Adjusted revenue of $1.6 billion, up 2%; consolidated revenue $2.6 billion, up 8%
- Generated $962 million in operating cash flow during the last 12 months and ended the quarter with $1.8 billion in unrestricted liquidity
ATLANTA, Nov. 4, 2010 – First Data Corporation today reported its financial results for the third quarter ended Sept. 30, 2010. Consolidated revenue of $2.6 billion was up 8% compared to a year ago primarily driven by increases in debit network fees. Adjusted revenue of $1.6 billion increased 2% year-over-year driven by growth in both Retail and Alliance Services and Financial Services.
For the third quarter, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $526 million compared to $525 million in the third quarter of 2009. The year-over-year EBITDA comparison was positively affected by a timing benefit of $23 million from card association fees while higher incentive compensation accruals of $31 million and asset write-offs of $9 million negatively impacted the year-over-year comparison. For the quarter, the net loss attributable to First Data was $431 million, which included a charge of $178 million associated with U.S. tax legislation signed in August that adversely affects the company’s ability to use foreign tax credits to offset future U.S. taxes.
First Data generated $104 million in operating cash flow for the third quarter, which included semi-annual interest payments of $505 million and had $1.8 billion in unrestricted liquidity—$135 million in cash available for corporate use plus $1.7 billion under the line of credit—at quarter end.
"I am excited to be joining First Data—our management team is committed to continuing to grow this business organically and profitably by putting the customer first, introducing innovative products, and achieving operational efficiencies across the organization," said First Data Chief Executive Officer, Jonathan J. Judge, a 34-year technology-industry executive who began his new role Oct. 1, 2010. Previously, Judge served as president and CEO at Paychex, Inc. and is a 26-year veteran of IBM Corporation.
Retail and Alliance Services segment revenue of $851 million increased 7% in the third quarter of 2010 compared to 2009. Revenue growth was driven by transaction growth of 9%, continued penetration of complementary products including check processing, prepaid card, and point-of-sale equipment, and a timing benefit from card association fees. Credit mix remained stable at 72% and regional average ticket was $69, down 3% compared to the same quarter a year ago. EBITDA was $356 million, up $51 million or 17% compared to 2009 driven by revenue growth across all lines of business. Margin for the third quarter was 42%. During the quarter, Retail and Alliance Services added 10 referral agreements, one new revenue sharing agreement and 20 new independent sales organizations.
Financial Services segment revenue for the third quarter increased 4% to $354 million compared to the same quarter of 2009. New business and growth in transaction volumes were offset by pricing pressures and customer losses. Active card accounts on file declined 4%. Debit issuer transactions were up 7% excluding the impact of the loss of Washington Mutual. Segment EBITDA was $144 million down $4 million or 3% compared to 2009. Margin for the third quarter was 41%. During the quarter, Financial Services renewed 419 contracts.
International segment revenue for the third quarter was $402 million, down slightly compared to the prior year. On a constant currency basis, segment revenue was up 2%. Growth was driven by increases in the merchant acquiring business offset by declines in the card issuing business. Merchant acquiring growth was driven by transaction volumes and a new alliance in India. The card issuing business decline was driven by price compression from renewing long-term contracts and reduced demand for ancillary services. Segment EBITDA was $82 million, compared with $99 million in the same quarter of 2009 and margin was 20%. The decline in segment EBITDA includes asset write-offs of $9 million and the timing of incentive compensation accruals.
Amendment to Credit Facilities
On Aug. 10, 2010, First Data amended its existing credit agreement. This amendment provided the company with additional flexibility to extend its borrowings, execute various refinancing alternatives to address future maturities, and take action to improve the company’s overall capital structure. In connection with the amendment, the company issued $510 million in senior secured notes with a coupon of 8.875% due in 2020 to refinance existing debt and extend the company’s debt maturity profile.
Strategic Global Partnership with SK C&C
Committed to bringing one of the newest innovations in payments to its customers , First Data signed a partnership with SK C&C in September to bring expertise in mobile commerce from South Korea to the United States. SK C&C has successfully provided services such as Trusted Service Manager (TSM), a Mobile Wallet and Mobile Banking, to the South Korean market since 2002.
STAR CertiFlash and TransArmor
Continuing to innovate, STAR Network launched a new PIN debit application that advances point-of-sale security using one-time card number technology. The STAR Certiflash technology is programmed onto a contactless chip embedded within a payment device. For each transaction, the chip encrypts and transmits a card number that is good for only a single use.
On Sept. 1, 2010, the First Data TransArmor payment security service became available to U.S. merchants through the company’s network of resale partners. TransArmor changes the way merchants secure and manage cardholder data. The service protects consumer payment card data from the moment it enters the merchant environment and replaces card data with a token number that preserves the value of card data for merchant business operations but removes all value for fraudsters. As a result, merchants are able to reduce the scope, risk and costs associated with Payment Card Industry (PCI) compliance without requiring new hardware or extensive changes to existing business processes.
In certain circumstances, results have been presented that are non-GAAP measures and should be viewed in addition to, and not in lieu of, the company's reported results. Reconciliations to comparable GAAP (generally accepted accounting principles) measures are available in the accompanying schedules and in the "Investor Relations" section of the company's website at investor.firstdata.com .
Investor Conference Call
The company will host an investor conference call and webcast on Thursday, Nov. 4 at 8 a.m. ET to review third quarter financial results. Ray Winborne, First Data chief financial officer, will lead the call. Joining him for Q&A will be Jon Judge, CEO; Ed Labry, president of Retail and Alliance Services; and Kevin Schultz, president of Financial Services.
The call will be webcast on the "Investor Relations" section of the First Data website at investor.firstdata.com and a slide presentation will accompany the call.
To listen to the call via teleconference, dial 866.578.5801 (U.S.) or 617.213.8058 (outside the U.S.), pass code 94267902.
A replay of the call will be available through Nov. 18, 2010, at 888-286-8010 (U.S.) or 617-801-6888 (outside the U.S.), pass code 77957221, and via webcast at investor.firstdata.com .
Please note: All statements made by First Data officers on this call are the property of First Data and subject to copyright protection. Other than the replay, First Data has not authorized, and disclaims responsibility for, any recording, replay or distribution of any transcription of this call.
About First Data
First Data powers the global economy by making it easy, fast and secure for people and businesses to buy goods and services using virtually any form of electronic payment. Whether the choice of payment is a gift card, a credit or debit card or a check, First Data securely processes the transaction and harnesses the power of the aggregate data to deliver intelligence and insight for millions of merchant locations and thousands of card issuers in 36 countries. For more information, visit www.firstdata.com .
Senior Vice President, Communications and Investor Relations