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First Data Corporation today reported its financial results for the third quarter ended September 30, 2013. Consolidated revenue for the third quarter was $2.7 billion, up $38 million, or 1%, compared to a year ago, primarily driven by a $32 million increase in reimbursable debit network fees, postage and other. Adjusted revenue, which excludes certain items including debit network fees, increased $14 million, or 1%, year-over-year to $1.7 billion.
For the third quarter, the net loss attributable to First Data was $220 million, compared to a loss of $212 million a year ago. Improved operating profit and lower interest expense were offset by a $98 million dollar change in the provision for income taxes. Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) was $627 million, up $19 million, or 3%, compared to $608 million in the third quarter of 2012, driven by revenue growth in both the U.S. and International businesses.
For the quarter, First Data generated $23 million in operating cash flow, after $566 million in cash interest payments, and finished the quarter with $1.0 billion in unrestricted liquidity.
"We introduced a new point-of-sale solution earlier this month at the Money2020 conference in Las Vegas - Clover™ Station," said First Data CEO Frank Bisignano. "Clover Station not only represents nine months of dedicated engineering focus, but also further demonstrates that First Data is committed to innovate with our clients, incubate new technologies with developers, and drive greater business success for our clients and partners."
Segment Results
Retail and Alliance Servicessegment revenue for the third quarter was $917 million, up $6 million, or 1%, compared to $910 million in the same quarter of 2012. Merchant Services revenue was up 1% on higher volumes offset by lower yield. Transaction growth was 5%, and credit mix was 72%. Average ticket was $76.71, up 4% compared to a year ago. Product revenue increased 1% as growth in prepaid was partially offset by a decline in check-processing. Segment EBITDA was $410 million, flat compared to the same quarter of 2012. Margin for the third quarter was 45%. During the quarter, Retail and Alliance Services added 22 bank referral agreements, 11 new independent sales organizations and 3 revenue sharing alliances.
Financial Services segment revenue for the third quarter was $346 million, flat compared to the same quarter of 2012. New business and volume growth were offset by lost business and pricing. In addition, revenues were impacted by the divestiture of two small businesses providing information and check clearing services. Average active card accounts on file were up 10% compared to the prior year, primarily driven by organic growth and new business. Debit issuer transactions were down 4%, impacted by a decline in gateway transactions. Absent the impact of this item, debit issuer transactions were up 3% on continued organic growth partially offset by net lost business. Segment EBITDA was $163 million, up $13 million or 9%, compared to $149 million in the same quarter of 2012, as a result of cost restructuring initiatives. Margin for the third quarter improved to 47%, up 400 basis points. During the quarter, Financial Services renewed more than 300 contracts with financial institutions.
International segment revenue for the third quarter was $432 million, up $5 million, or 1%, compared to $427 million in the same quarter of 2012. On a constant currency basis, segment revenue was up 3%. Merchant acquiring revenue, on a constant currency basis, grew 9% on higher volumes. Issuing revenue, on a constant currency basis, decreased 1% as volume growth was offset by prior year license revenue. Segment EBITDA was $126 million, up $6 million or 5%, compared to $119 million in the same quarter of 2012. Benefit of revenue flow through and improvements in cost structure more than offset investments in the business. On a constant currency basis, segment EBITDA was up 9%. Margin for the third quarter improved to 29%, up 100 basis points.
Recent Events
Debt Refinancing
On Oct. 14, 2013, First Data announced that its parent company, First Data Holdings Inc. ("Holdings") had reached an agreement with existing debt holders to repay a portion of its approximately $2 billion 11.5% senior payable-in-kind ("PIK") notes due 2016 (the "existing notes"), and exchange the remainder for new 14.5% senior PIK notes of Holdings due 2019 (the "new notes"). In the refinancing, Holdings plans to: (1) Issue approximately $300 million of new convertible preferred equity in Holdings with a maturity date of December 2021 to existing shareholders; (2) Use the proceeds from the new preferred equity investment to repay approximately $300 million of the existing notes; and (3) Issue approximately $1.4 billion of new notes in exchange for all of the remaining existing notes.
New Product Launch
On Oct. 9, 2013, the company unveiled Clover™ Station—a reliable and easy to use point-of-sale ("POS") and business management solution for merchants. With the security and reliability of a terminal coupled with the flexibility of a cloud-based POS, Clover Station is the first solution to meet the complete spectrum of small to medium-sized business owners' needs. First Data and Clover Network, Inc., a Mountain View, Calif.-based company First Data acquired in Dec. 2012, jointly developed the Clover solution. Clover Station is powered by intuitive, cloud-hosted software that comes with everything a business owner needs in one convenient package and is ready to work right out of the box.
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