First Data Reports Third Quarter 2017 Financial Results

  • Q3 consolidated revenue of $3.1 billion, up 5%
  • Q3 total segment revenue of $1.9 billion, up 5%; up 3% on an organic constant currency basis(a)
  • Q3 net income of $296 million, up 124%; diluted EPS of $0.31, up 121%
  • Q3 adjusted net income of $373 million, up 20%; adjusted diluted EPS of $0.40, up 18%
  • 3 total segment EBITDA of $787 million, up 6%; up 5% on an organic constant currency basis(a)
  • Q3 cash flow from operations of $581 million; free cash flow of $370 million
  • Announced definitive agreement to acquire BluePay

 

NEW YORK, OCTOBER 30, 2017 - First Data Corporation (NYSE: FDC), a global leader in commerce-enabling technology, today reported financial results for the third quarter ended September 30, 2017. Consolidated revenue for the third quarter was $3.1 billion, up 5% versus the prior year period. Total segment revenue was $1.9 billion for the quarter, up 5% versus the prior year period, or up 3% on an organic constant currency basis.

Net income attributable to First Data for the third quarter of 2017 was $296 million, or $0.31 per diluted share, up 124% and 121%, respectively, from third quarter of 2016 comparable figures. The increase in net income attributable to First Data was driven by a significant discrete tax item in the current period (see "Income Tax (Benefit) / Expense," below), improved operating results and lower interest expense.

Adjusted net income, which modifies net income for items such as debt extinguishment charges, stock-based compensation, amortization of acquisition intangibles, restructuring costs, discrete tax items and other items, was $373 million, or $0.40 per diluted share, up 20% and 18%, respectively, from third quarter of 2016 comparable figures. The increase was primarily driven by improved operating results and lower interest expense.

Total segment earnings before interest, taxes, depreciation, and amortization (total segment EBITDA) in the third quarter 2017 was $787 million, up 6% versus the prior year period, or up 5% on an organic constant currency basis.

“During the quarter we saw solid results in our GFS and NSS segments with strong performances across all of our international businesses,” said First Data Chairman and CEO Frank Bisignano. “We continue to make significant progress in establishing First Data as a major player in the ISV market, driven by the addition of CardConnect’s cutting-edge ISV product suite and the highly complementary acquisition of BluePay, which brings to us innovative Card-Not-Present integrated solutions,” Bisignano added.

Segment Results

Global Business Solutions (GBS)

Third quarter 2017 GBS segment revenue was $1.1 billion, up 5% versus the prior year period, or up 2% on an organic constant currency basis. Within geographic regions, North America revenue of $833 million was up 2% versus the prior year period or down 3% on an organic constant currency basis. The North America region's results were negatively impacted by the non-recurrence of previously disclosed unusual items that benefited the prior year period's results and a decline in JV revenue. EMEA revenue was $150 million, up 9% versus the prior year, or up 6% on an organic constant currency basis, primarily driven by growth in the United Kingdom and Germany. Latin America revenue was $72 million, up 53%, or up 61% on an organic constant currency basis, driven by strong results in Brazil and Argentina.  APAC revenue was $39 million, down 8%, or up 18% on an organic constant currency basis, primarily driven by growth in India.

Third quarter 2017 GBS segment expenses were $629 million, up 7% versus the prior year period, or up 3% on an organic constant currency basis.

Third quarter 2017 GBS segment EBITDA was $465 million, up 2% versus the prior year period, or flat on an organic constant currency basis. Reported segment EBITDA margin declined 100 basis points to 42.5% in the quarter.

Global Financial Solutions (GFS)

Third quarter 2017 GFS segment revenue was $416 million, up 5% versus the prior year period both on a reported and organic constant currency basis. Within geographic regions, North America revenue of $238 million was up 1%, driven by good processing revenue growth largely offset by a decline in card personalization revenue. North America GFS card accounts on file grew 6% year over year. EMEA revenue was $121 million, up 7% both on a reported and organic constant currency basis, driven by internal growth and new business. Latin America revenue was $33 million, up 22%, or up 24% on an organic constant currency basis, driven by growth in Argentina.  APAC revenue was $24 million, up 14%, or up 13% on an organic constant currency basis, primarily driven by growth in Australia.

Third quarter 2017 GFS segment expenses were $236 million, down 1% versus the prior year period on both a reported and organic constant currency basis.

Third quarter 2017 GFS segment EBITDA was $180 million, up 14% versus the prior year period on both a reported and organic constant currency basis. Reported segment EBITDA margin improved 350 basis points to 43.3% in the quarter.

Network & Security Solutions (NSS)

Third quarter 2017 NSS segment revenue was $395 million, up 5% versus the prior year period. Within NSS's primary businesses, Stored Value revenue grew 16% in the quarter, Security and Fraud revenue grew 5%, and EFT revenue declined 3%.

Third quarter 2017 NSS segment expenses were $211 million, flat versus the prior year period.

Third quarter 2017 NSS segment EBITDA was $184 million, up 11% versus the prior year period. Reported segment EBITDA margin improved 270 basis points to 46.6% in the quarter.

Income Tax (Benefit)/Expense

Third quarter 2017 income tax (benefit) / expense was a benefit of $(106) million, representing a change of $130 million from expense of $24 million in the prior year period. The significant change in income taxes in the current year period was primarily driven by discrete tax items in the quarter including a $132 million benefit associated with the release of a valuation allowance as a result of deferred tax liabilities recorded in connection with the accounting for the purchase of CardConnect in the current quarter.

Cash Flow

In the third quarter 2017, cash flow from operations was $581 million, down $171 million compared to $752 million in the prior year period. Free cash flow, which the Company defines as cash flow from operations less capital expenditures, distributions to minority interests and other, was $370 million in the current quarter, down $57 million compared to $427 million in the prior year period, primarily driven by the non-recurrence of a derivative settlement that occurred in the prior year period and timing impacts on settlement flows from day-of-week differences at respective period's quarter ends, partially offset by lower cash interest payments and improved operating results in the current period.

Capital Structure

First Data's total borrowings at September 30, 2017 increased to $18.6 billion, from $18.5 billion at December 31, 2016. The increase is a result of the recent acquisitions of CardConnect in July 2017, and Acculynk earlier in the year, partially offset by debt paydowns and divestitures. Net debt increased $32 million over the same timeframe.

BluePay Acquisition

As previously disclosed, on October 20, 2017, the Company announced that it has entered into an agreement to acquire BluePay Holdings, Inc., a provider of technology-enabled payment processing for merchants in the U.S. and Canada. BluePay is one of First Data’s largest distribution partners with a strong focus on software-enabled payments and Card-Not-Present transactions. The transaction is subject to customary closing conditions and is expected to close in the fourth quarter.

Innovation

First Data continues to invest in innovation to differentiate itself as a leader in commerce-enabling solutions. Below are examples of innovative solutions that the company introduced recently:

  • Disburse-to-debit: First Data's innovative solution for the gig economy allows businesses to disburse funds in real-time directly to a debit card. Faster payouts lead to increased loyalty, satisfaction, and reduced costs for businesses.
  • Breeze mobile apps: First Data and CareCloud joined forces to introduce the mobile app, Breeze. Backed by the power of First Data's Clover platform, Breeze’s mobile and web apps allow patients to manage their doctor appointments from their smart device, fill out necessary insurance and medical forms, and manage payments anywhere, anytime.
  • Apple/Clover launch: First Data and Apple announced the enablement of Apple Pay loyalty and gift cards through integration with First Data’s Clover platform. Developers and third party loyalty providers will also be able to leverage the Clover platform to facilitate Apple Pay for merchant clients. First Data’s Clover Go devices will be available in Apple retail stores across the U.S.
  • UnionPay International partnership: First Data and UnionPay International  will partner to expand UnionPay card acceptance in the United States, both with in-store and  online purchases. The partnership allows Chinese visitors to use their UnionPay chip credit and debit cards at First Data’s U.S. merchant clients.
  • Amazon Pay mobile app accepted through First Data's Clover POS: certain restaurants utilizing First Data's Clover POS can now accept takeout orders directly from the Amazon mobile app.
  • Financial Services developer portal: First Data has launched a developer portal for our financial services clients in North America. This portal offers an extensive catalog of APIs to streamline how our issuing clients engage with us. Through the developer portal, our clients can now introduce enhancements and changes to their solutions faster and in a more frictionless way.

Non-GAAP Measures

To supplement the Company's consolidated financial statements presented in accordance with generally accepted accounting principles, or GAAP, the company uses non-GAAP measures of certain financial performance. These non-GAAP measures include total segment revenue, total segment expense, total segment EBITDA, total segment EBITDA margin, adjusted net income, adjusted net income per diluted share, free cash flow and net debt. The company has included non-GAAP measures because management believes that they help to facilitate comparisons of the company's operating results between periods. The company believes the non-GAAP measures provide useful information to both management and users of our financial statements by excluding certain expenses, gains and losses that may not be indicative of its core operating results and business outlook. In disclosing year-over-year comparisons, the company has chosen to present non-GAAP measures because it believes that these measures provide users of our financial statements a consistent basis for reviewing the company's performance across different periods.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the company's results of operations as determined in accordance with GAAP. These measures should only be used to evaluate the company's results of operations in conjunction with the corresponding GAAP measures.

Reconciliation to the most directly comparable GAAP measure of all non-GAAP measures can be found in the tables included in this press release.

The company excludes certain items and other adjustments from total segment revenue, total segment expense, total segment EBITDA, total segment EBITDA margin, adjusted net income and adjusted net income per diluted share. See reconciliations for a complete list of items excluded from non-GAAP measures.

Adjusted net income is a non-GAAP financial measure used by management that provides additional insight on performance. Adjusted net income excludes amortization of acquisition-related intangibles, stock-based compensation, restructuring costs, deal integration costs, and other items affecting comparability and, therefore, provides a more complete understanding of continuing operating performance. Management believes that the presentation of adjusted net income provides users of our financial statements greater transparency into ongoing results of operations allowing them to better compare our results from period to period.

The company uses free cash flow, a non-GAAP measure. Free cash flow is defined as cash flow used in/provided by operating activities less capital expenditures, distributions to minority interest, and other. The company considers free cash flow to be a liquidity measure that provides useful information to management and users of our financial statements about the amount of cash generated by the business which can then be used to, among other things, reduce debt outstanding.

The company also uses net debt, a non-GAAP measure. Net debt is defined as total long-term borrowings plus short-term and current portion of long-term borrowings, at par value, excluding lines of credit used for settlement purposes, less cash and cash equivalents. The company believes that net debt provides additional insight on its level and management of leverage.

Certain revenue and expense measures in this release are presented excluding the estimated impacts of foreign currency changes ("Constant currency"). To present this information, monthly results in the current period for entities reporting in currencies other than United States dollars are translated into United States dollars at the average exchange rates in effect during the corresponding month of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year. Once translated, each month in the period is added together to calculate the constant currency current period results. The company believes that revenue growth is a key indication of how First Data is progressing from period to period and the non-GAAP constant currency financial measure is useful to investors, lenders and other creditors because such information enables them to measure the impact of currency fluctuations on the company's revenue from period to period.

Certain non-GAAP measures (segment revenue, segment expense and segment EBITDA) in this release are presented excluding the estimated impacts of foreign currency changes and acquisitions and divestitures ("Organic constant currency"). To present this information, results are adjusted as described above for currency fluctuations, and are further adjusted to exclude the results of significant divestitures in the prior year period, and include the results of significant acquisitions in the prior year period. The company believes that revenue, expense and EBITDA growth are key indications of how First Data is progressing from period to period and the non-GAAP organic constant currency financial measures are useful to investors, lenders and other creditors because such information enables them to measure the impact of currency fluctuations and recent acquisitions and divestitures on the company's revenue, expenses and EBITDA from period to period.

Investor Conference Call

The company will host a conference call and webcast on Monday, October 30, 2017, at 8 a.m. ET to review the third quarter 2017 financial results.

To listen to the call, dial +1 (844) 826-3033 (U.S.) or +1 (412) 317-5172 (outside the U.S.) at least 10 minutes prior to the start of the call. The call will also be webcast on the “Investor Relations” section of the First Data website at investor.firstdata.com along with a slide presentation to accompany the call.

A replay of the call will be available through November 30, 2017, at +1 (877) 344-7529 (U.S.) or +1 (412) 317-0088 (outside the U.S.); passcode 10112524 and via webcast at investor.firstdata.com.

Please note: 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 Corporation (NYSE: FDC) is a global leader in commerce-enabling technology, serving approximately six million business locations and 4,000 financial institutions in more than 100 countries around the world. The company’s 24,000 owner-associates are dedicated to helping companies, from start-ups to the world’s largest corporations, conduct commerce every day by securing and processing more than 2,800 transactions per second and $2.2 trillion per year.

 

(a) Organic constant currency growth (“Organic CC growth”) is defined as reported growth adjusted for the following: (1) excludes the impacts of year-over-year currency rate changes in the current period; (2) excludes the results of significant divestitures in the prior year period; and (3) includes the results of significant acquisitions in the prior year period. Impacts to growth rates from acquisitions/divestitures only relate to the GBS segment.

 

Contact
 
Peter Poillon
Investor Relations
First Data
212-266-3565
 
Liidia Liuksila
Public Relations
First Data
212-515-0174

 

STAY UP-TO-DATE WITH FIRST DATA