First Data today reported its financial results for the first quarter of 2008.
Consolidated revenues were up 16% to $2.1 billion. The adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were up 8% to $586 million.
Loss from continuing operations was $222 million, but included $303 million of incremental interest expense, net of tax, and $118 million of incremental depreciation and amortization, net of tax, compared to the first quarter of 2007. Both the incremental interest expense and depreciation and amortization are primarily attributable to the transaction with affiliates of Kohlberg Kravis Roberts & Co. (the "Transaction."). A table describing adjusted EBITDA and reconciling income (loss) from continuing operations to adjusted EBITDA is included in the accompanying schedules.
"Our solid performance in a difficult market reflects our laser focus on execution," said Michael Capellas, Chairman and Chief Executive Officer of First Data. "Going forward you will see us continue to invest actively in new product development and technology innovation."
Effective January 1, 2008, First Data adopted a revised segment reporting structure. The company's segments include Merchant Services, Financial Services, International, Prepaid Services and Integrated Payment Systems. For prior year periods, the company has made available financials realigned to these segments. The business activities of each of these new segments are described in our Quarterly Report on Form 10-Q which was filed today with the Securities and Exchange Commission (SEC).
For the quarter, Merchant Services generated revenues of $926 million, a growth rate of 10% or 3% excluding reimbursable debit network fees. Revenue growth was primarily driven by continued strong transaction growth. Operating profit was $73 million, down 63% or up 8% to $211 million excluding purchase accounting adjustments comprised principally of increased amortization expense related to the Transaction. Operating profit margin improved to 33.2% excluding reimbursable debit network fees and purchase accounting adjustments, compared to 31.7% in the first quarter of 2007. Reported operating profit margin for the quarter was 7.9%.
For the quarter, Financial Services generated revenue of $706 million, up 1% or flat excluding reimbursables and purchase accounting adjustments. Operating profit was $103 million, down 29% or down 4% to $139 million excluding purchase accounting adjustments comprised principally of increased amortization expense related to the Transaction. The decrease in operating profit was primarily the result of anticipated price compression related to contract renewals and lost business in 2007. Operating profit margin for the quarter was 27% excluding reimbursables and purchase accounting adjustments, compared to 28% in the first quarter of 2007. Reported operating margin was 14.5% for the quarter.
For the quarter, International generated revenue of $445 million, up 23%. Revenue growth on a constant currency basis, excluding acquisitions and divestitures, was 5%. This 5% growth was negatively impacted by price compression and lost contracts primarily in our Western European and Asia Pacific businesses. Operating profit was $21 million, down 38% or down 32% to $23 million excluding purchase accounting adjustments related to the Transaction. Operating margin was 5.2% excluding purchase accounting adjustments related to the Transaction compared to 9.5% in the first quarter of 2007. Operating profit included a loss reserve of approximately $6 million for a failed airline in one of International's merchant acquiring alliances and approximately $5 million in incremental investments in data center consolidation, platform initiatives and other expenses related to cost reduction initiatives, which negatively impacted the 5.2% operating margin by 2.4 percentage points during the quarter. Reported operating margin was 4.8%.
On April 28, 2008, First Data announced that it had reached an agreement to acquire InComm Holdings Inc. ("InComm"). The transaction is subject to customary closing conditions and regulatory approvals. InComm is a distributor of gift cards, prepaid wireless products, reloadable debit cards, digital music downloads, content, games, software, and bill payment solutions. InComm also provides stored value product marketing and technology solutions to international markets in Europe and Canada. First Data will acquire InComm for approximately $980 million, plus contingent future payments of up to $250 million over a three year performance period. This acquisition is expected to close in the second half of 2008. InComm will be reported as part of the Prepaid Services segment.
First Data's largest merchant alliance, Chase Paymentech, is 51% owned by J.P. Morgan Chase Bank, N.A. ("JPMorgan"), and 49% owned by First Data. The current term of the existing alliance agreement expires in 2010; however, JPMorgan had the right to terminate the alliance due to the change of control upon the closing of the merger. First Data has extended the time period to exercise this right to allow for further discussions regarding the alliance; however, the company expects the alliance to end prior to its existing expiration date in 2010.
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