First Data Reports Third Quarter 2016 Financial Results

 

  • Q3 consolidated revenue of $2.9 billion, up 1%; up 2% excluding currency impacts
  • Q3 total segment revenue of $1.8 billion, up 1%; up 3% excluding currency impacts
  • Q3 net income of $132 million, improved $258 million; diluted EPS of $0.14
  • Q3 adjusted net income of $312 million, up 82%, driven by improved operating results and lower interest expense; adjusted diluted EPS of $0.34
  • Q3 total segment EBITDA of $739 million, up 5%; up 8% excluding currency impacts; total segment EBITDA margin expanded 150 basis points to 40.6%
  • Q3 cash flow from operations of $752 million; free cash flow of $427 million
  • Year to date, total borrowings reduced $702 million and net debt reduced $787 million

NEW YORK, NOVEMBER 7, 2016 - First Data Corporation (NYSE: FDC), a global leader in commerce-enabling technology and solutions, today reported financial results for the third quarter ended September 30, 2016. Consolidated revenue for the third quarter was $2.9 billion, up 1% versus the prior year period, or up 2% excluding currency impacts. Total segment revenue was $1.8 billion for the quarter, up 1% versus the prior year period, or up 3% excluding currency impacts.

For the third quarter 2016, net income attributable to First Data was $132 million (or $0.14 per diluted share), which compares to a net loss of $126 million in the prior year period. Adjusted net income, which modifies net income for items such as debt extinguishment charges, stock-based compensation, amortization of acquisition intangibles, restructuring costs and other items, was $312 million (or $0.34 per diluted share), up $141 million versus the prior year period, 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 2016 was $739 million, up 5% versus the prior year period, or up 8% excluding currency impacts, driven by revenue growth and expense management. Total segment EBITDA margin improved 150 basis points to 40.6% in the quarter.

“We are pleased to report another quarter of solid cash generation and debt reduction, healthy margin expansion and good earnings growth,” said First Data Chairman and CEO Frank Bisignano. “During the quarter we saw tangible improvements in our North America merchant business, continued success with enterprise clients and strong growth in non-U.S. revenue," Bisignano added.

Segment Results

Global Business Solutions (GBS)
Third quarter 2016 GBS segment revenue was $1.0 billion, up 1% versus the prior year period, or 3% on a constant currency basis. Within geographic regions, North America revenue of $819 million was up 1% versus the prior year period as 7% transaction growth was offset by a decline in blended yield. EMEA revenue was $137 million, up 2%, or up 8% on a constant currency basis, primarily driven by transaction growth, partly offset by lower blended yield. Latin America revenue was up 12%, or up 45% on a constant currency basis, driven by strong results in Brazil and Argentina.  APAC revenue was down 2%, or down 6% on a constant currency basis, the decline attributable to the performance of the Australian ATM business.

Third quarter 2016 GBS segment expenses were $590 million, down 2% versus the prior year period, or flat excluding currency impacts, benefiting from expense reduction actions.

Third quarter 2016 GBS segment EBITDA was $455 million, up 6% versus the prior year period, or up 8% excluding currency impacts. Segment EBITDA margin improved 170 basis points to 43.5% in the quarter.

Global Financial Solutions (GFS)
Third quarter 2016 GFS segment revenue was $397 million, up 2% versus the prior year period, or up 5% on a constant currency basis. Within geographic regions, North America revenue of $236 million was up 2%, with growth in processing and print revenue partially offset by a decline in card personalization revenue. The second half of 2015 represented a particularly strong comparison for card personalization revenue, primarily due to the October 2015 EMV liability shift.  North America GFS card accounts on file grew 4% year over year. EMEA revenue was $113 million, down 1%, or up 8% on a constant currency basis, primarily driven by new business and internal growth. Latin America revenue was up 4%, or up 28% on a constant currency basis, driven by growth in Argentina and Colombia.  APAC revenue was up 11%, or up 9% on a constant currency basis.

Third quarter 2016 GFS segment expenses were $239 million, down 3% versus the prior year period, or up 1% excluding currency impacts.

Third quarter 2016 GFS segment EBITDA was $158 million, up 9% versus the prior year period, or up 13% excluding currency impacts. Segment EBITDA margin improved 270 basis points to 39.8% in the quarter.

Network & Security Solutions (NSS)
Third quarter 2016 NSS segment revenue was $378 million, up 1% versus the prior year period. Revenue growth in the quarter was primarily driven by growth in security solutions and modest growth in EFT network, partially offset by a decline in stored value revenue.

Third quarter 2016 NSS segment expenses were $212 million, flat versus the prior year period.

Third quarter 2016 NSS segment EBITDA was $166 million, up 2% versus the prior year period. Segment EBITDA margin improved 60 basis points to 43.9% in the quarter.

Cash Flow

In the third quarter 2016, cash flow from operations was $752 million, versus $234 million in the prior year period. The third quarter 2016 cash flow from operations includes a reclassification of $123 million (see footnote (a) on Selected Consolidated Cash Flow Data table for additional detail). Free cash flow, which First Data defines as cash flow from operations, less capital expenditures and distributions to minority interests and other, was $427 million in the current quarter, versus $(8) million in the prior year period. The third quarter 2016 free cash flow excludes the impact of the aforementioned reclassification.

In the first nine months of 2016, cash flow from operations was $1.7 billion, up $973 million from $687 million in the first nine months of 2015. The first nine months of 2016 cash flow from operations includes a reclassification of $123 million (see footnote (a) on Selected Consolidated Cash Flow Data table for additional detail). In the first nine months of 2016, free cash flow was $946 million, up $948 million from $(2) million in the first nine months of 2015. The increase in year-to-date free cash flow was primarily driven by a $571 million reduction in cash interest payments and $153 million growth in total segment EBITDA. The first nine months of 2016 free cash flow excludes the impact of the aforementioned reclassification.

Capital Structure

Total borrowings at September 30, 2016 were reduced to $18.9 billion, from $19.1 billion at June 30, 2016 and $19.6 billion at year end 2015. Net debt at September 30, 2016 was reduced to $18.5 billion, from $19.0 billion at June 30, 2016 and $19.3 billion at year end 2015.

On October 14, 2016, First Data refinanced approximately $4.5 billion of term loans due in 2021, which reduced the interest rate on these loans by 100 basis points from LIBOR plus 400 basis points to LIBOR plus 300 basis points, resulting in annualized cash interest savings of approximately $45 million.

First Data estimates 2016 full year cash interest expense of approximately $1.0 billion.

Divestiture

On September 30, 2016, First Data sold its non-core Australian ATM business. The total sale price for the divested assets was AUD$55 million (approximately $42 million), and the net proceeds after closing adjustments were received in early October. The sale resulted in a book loss of $31 million, reported in Other income (expense) in the quarter. First Data is committed to retaining its presence in the Australian market via its core offerings.

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 an alternative view of performance. Adjusted net income excludes amortization of acquisition-related intangibles, stock-based compensation, restructuring costs and other items affecting comparability and, therefore, are not reflective 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 measures in this release are presented excluding the estimated impact 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.

Investor Conference Call

The company will host a conference call and webcast on Monday, November 7, 2016, at 8 a.m. ET to review the third quarter 2016 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 be webcast on the “Investor Relations” section of the First Data website at investor.firstdata.com where an accompanying slide presentation will also be available.

A replay of the call will be available through December 7, 2016, at +1 (877) 344-7529 (U.S.) or +1 (412) 317-0088 (outside the U.S.); passcode 10094184 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 (NYSE: FDC) is a global leader in commerce-enabling technology and solutions, serving approximately six million business locations and 4,000 financial institutions in 118 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 2,500 transactions per second and $1.9 trillion per year.

Media Relations

Peter Poillon
Investor Relations
First Data
212-266-3565
Peter.Poillon@firstdata.com

Liidia Liuksila
Public Relations
First Data
212-515-0174
Liidia.Liuksila@firstdata.com

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