First Data posts Q3 results

First Data today reported its financial results for the third quarter ended Sept. 30, 2009.

Consolidated revenue was $2.4 billion, up 13%. Consolidated revenue growth was primarily driven by the new Bank of America Merchant Services alliance. Bank of America Merchant Services is First Data's largest merchant acquiring alliance and was established in June 2009 after the extension of similar alliances with Wells Fargo and PNC in recent quarters. Together, these alliances further extend First Data's leadership in merchant acquiring. As a result of the unprecedented growth and change in ownership structure of its alliance distribution network, First Data has chosen to provide additional reporting to assist in comparing 2009 results to prior periods1.

Adjusted Revenue2, which excludes reimbursables, declined 9% for the quarter. The effects of the weak economy and constrained credit continue to weigh on the company's results.

For the quarter, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)3 were $532 million, down 23% compared to the third quarter of 2008, which was the strongest quarter in the last two years for the company. The adverse impact of the stronger U.S. dollar, lower royalty revenue and higher merchant credit losses also unfavorably affected Adjusted EBITDA comparisons, and excluding these items Adjusted EBITDA was down 14%.The net loss attributable to First Data was $289 million, which includes after-tax interest expense of $283 million.

"Despite a tough economy, we are taking advantage of unique opportunities in the marketplace," said Michael Capellas, chairman and CEO. "We are focused on our future as we continue to invest in new product development, reduce costs and expand our distribution channels."

Segment Results

Retail and Alliance Services
Retail and Alliance Services reported third-quarter Segment Revenue with reimbursables of $1.3 billion, up 4%. Segment Revenue which excludes reimbursables was $797 million, down 4%. Favorable drivers of Segment Revenue included 15% transaction growth, the addition of 17 new independent sales organizations, 11 new referral partners and 2 new revenue share agreements. This growth was more than offset by weakness in the economy reflected in declining average tickets, continued transaction mix shifts and lower interest income on deposits. Segment EBITDA was $304 million, down 15%, and margin was 38.2%. Segment EBITDA declined due to lower revenue, an incremental provision of $11 million related to higher credit losses from merchant failures and short-term dilution related to Bank of America Merchant Services.

Financial Services
For the quarter, Financial Services reported Segment Revenue with reimbursables of $488 million, down 13%. Segment Revenue which excludes reimbursables was $339 million, down 11%. Financial Services renewed 131 contracts in the quarter including a significant contract with GE. Growth from new business was primarily offset by the previously disclosed loss of a large bank client as well as price compression on certain renewals. The weak economy caused a reduction in active retail card accounts and active credit card accounts as well as lower statement volumes. Segment EBITDA was $148 million, down 24%, and margin was 43.7%. Segment EBITDA declined due to lower revenue and an increase in technology costs partially related to compliance with new regulations.

International
For the quarter, International generated Segment Revenue of $415 million, down 10%. Segment Revenue on a constant currency basis was down 1%. International transactions grew 7%. Segment EBITDA was $107 million, down 24%, and margin was 25.7%. On a constant currency basis, Segment EBITDA was $122 million, down 14% and margin was 26.7%. Segment EBITDA declined due to lower revenue and an increase in merchant credit losses.

Significant Events

Senior Management Additions and Two New Board Members
First Data made the following appointments during the third quarter: Pat Shannon, 46, as chief financial officer; Kevin J. Schultz, 51, as president of its Financial Services business segment; and John Elkins, 57, as chief marketing officer. In addition, Henry R. Kravis and Joe W. Forehand were appointed as new members to First Data's board of directors.

Launch of First Data® Secure Transaction Management(SM)
First Data and RSA, the Security Division of EMC (NYSE: EMC), announced a new service called First Data® Secure Transaction Management(SM), which is engineered to enable merchants to secure payment card data and remove it from their environment while allowing access when needed. The new First Data Secure Transaction Management service, offered exclusively by First Data and powered by the RSA SafeProxyTM architecture, is designed to dramatically reduce the cost and complexity of complying with the Payment Card Industry Data Security Standard (PCI DSS).

GE Renewal
First Data renewed a significant agreement with GE. The multi-year agreement includes the printing and e-delivery of statements and production of plastic cards for their retail card business.

Barclays Global Issuing
First Data's International segment signed a long-term global agreement with Barclays to provide technology for card issuing.

1 For additional details please refer to the Current Report on Form 8-K that the company filed with the SEC on November 10, 2009.
2 Adjusted Revenue represents the sum of Segment Revenue and All Other and Corporate revenue as adjusted to exclude revenue related to the IPS segment due to the wind down of the official check and money order businesses and to reflect elimination of intersegment revenues.
3 Adjusted EBITDA represents the sum of Segment EBITDA and All Other and Corporate EBITDA. Segment EBITDA represents segment earnings before net interest expense, income taxes, depreciation and amortization further adjusted for certain items. For additional details please refer to Current Report on Form 8-K that the company filed with the SEC on November 10, 2009.

View the figures here: