First Data Corporation (NYSE: FDC), a global leader in commerce-enabling technology and solutions, today reported financial results for the fourth quarter ended December 31, 2015.
Consolidated revenue for the fourth quarter was $3.0 billion, up 3% versus the prior year period, or up 5% excluding currency impacts. Segment revenue, which modifies consolidated revenue for pass-through items and other impacts, was $1.8 billion for the quarter, up 2% versus the prior year period, or up 4% excluding currency impacts. Fourth quarter constant currency Segment revenue growth was 5% excluding the net impact of the GBS EMEA portfolio sale in the prior year period, an adverse difference in the year over year timing of security software revenue, and a benefit from a change in contract terms for a client in the NSS segment in the fourth quarter of 2015.
For the fourth quarter 2015, the net loss attributable to First Data was $1.2 billion, which compares to net income of $12 million in the prior year period. The decline was driven by debt extinguishment charges and one-time IPO-triggered expenses which totaled $1.3 billion in the fourth quarter. 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 non-normal course items, was $299 million, up $110 million or 58% versus the prior year period, driven by improved operating results and lower interest expense.
For the fourth quarter 2015, adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) was $762 million, up 7% versus the prior year period. Adjusted EBITDA margin improved 200 basis points to 41.6% in the quarter. Adjusted EBITDA benefited in the quarter by $11 million from gains on the revaluation of U.S. dollar denominated assets and liabilities in Argentina, and $8 million from the previously mentioned change in contract terms for a NSS client.
As a result of capital market transactions announced since September 30, 2015, the Company reduced its average borrowing costs from approximately 7.3% at September 30th, 2015 to approximately 5.5% at current interest rates, and reduced its annualized cash interest expense by $0.5 billion to approximately $1.0 billion.
"During a quarter that saw First Data return to public ownership, we were pleased to post continued revenue growth, solid margin expansion, and the refinancing of all our high cost debt earlier than planned,” said Frank Bisignano, First Data Chairman and CEO. “We expect 2016 to be a year focused on the execution of our growth initiatives and continued expense management,” Bisignano added.
Among recent highlights for First Data, beyond significant capital structure improvements, were the release of its Clover Go point-of-sale device, and continued progress on expense management initiatives which included consolidation of real estate. In addition, First Data continues to see wins with large enterprise clients across all three segments.
Segment Results
Global Business Solutions (GBS) provides retail point-of-sale merchant acquiring and eCommerce services, next-generation offerings such as mobile payment services, as well as the company's cloud-based Clover® point-of-sale operating system and its marketplace of proprietary and third-party business apps. Approximately 78% of GBS revenue is generated in North America and approximately 13% is generated in EMEA.
Segment revenue for the fourth quarter 2015 was $1.0 billion, down 1% versus the prior year period, or up 2% on a constant currency basis. GBS constant currency revenue growth was adversely impacted by 2 percentage points by the non-recurrence of the previously mentioned EMEA portfolio sale in the prior year period and an adverse difference in the year over year timing of fourth quarter security software revenue.
Within geographic regions, fourth quarter 2015 North America revenue of $802 million was flat versus the prior year period as increased product sales and 6% transaction growth were offset by a lower blended yield, and the timing difference in security software revenue which adversely impacted GBS North America revenue growth by approximately one percentage point. EMEA revenue was $144 million, down 7%, or up 3% on a constant currency basis, driven by 14% transaction growth, partially offset by the non-recurrence of the portfolio sale that benefited the prior period by $12 million.
Fourth quarter 2015 GBS adjusted expenses were $603 million, down 2% versus the prior year period, aided by a $7 million benefit from gains on the revaluation of U.S. dollar denominated assets and liabilities in Argentina during the quarter.
Fourth quarter 2015 Segment EBITDA was $436 million, flat versus the prior year period which included the $12 million benefit from the EMEA portfolio sale. Segment EBITDA margin for the fourth quarter was 42.0%, up 50 basis points versus the prior year period.
Global Financial Solutions (GFS) provides credit and retail private-label card processing, output services and next-generation offerings, such as its VisionPLUS Flex software, which enables card issuers to manage all of their payments-related products and services as a single, integrated “one-stop-shop” solution. Approximately 59% of GFS revenue is generated in North America and approximately 29% is generated in EMEA.
Fourth quarter 2015 Segment revenue was $394 million, up 1% versus the prior year period, or up 5% on a constant currency basis. Within geographic regions, North America revenue of $234 million was up 9% primarily due to growth from new business, internal growth and increased card personalization volume due to EMV demand. North America GFS card accounts on file grew 14% year over year. EMEA revenue was $117 million, down 10%, or down 2% on a constant currency basis, as internal growth was offset by lower blended yield.
Fourth quarter 2015 GFS adjusted expenses were $232 million, down 4% versus the prior year period, aided by a $4 million benefit from gains on the revaluation of U.S. dollar denominated assets and liabilities in Argentina during the quarter.
Fourth quarter 2015 Segment EBITDA was $162 million, up 8% versus the prior year period. Segment EBITDA margin for the fourth quarter was 41.1%, up 270 basis points versus the prior year period.
Network & Security Solutions (NSS) provides a wide range of network services such as Electronic Funds Transfer (EFT) Network Solutions, Stored Value Network Solutions, and Security and Fraud Management Solutions. Nearly all of NSS revenue is generated in North America.
Fourth quarter 2015 segment revenue was $398 million, up 11% versus the prior year period. Revenue growth in the quarter was primarily driven by transaction growth in EFT Network Solutions, growth in merchant security solutions and increased stored value volume. Stored value revenues also benefited by $10 million from a change in contract terms for one client.
Fourth quarter 2015 NSS adjusted expenses were $207 million, up 4% versus the prior year period, driven by increased cost of goods associated with revenue growth and investment in certain products.
Fourth quarter 2015 Segment EBITDA was $191 million, up 19% versus the prior year period. Segment EBITDA margin for the fourth quarter was 48.0%, up 340 basis points versus the prior year period.
Cash Flow
In the fourth quarter 2015, the company generated $108 million in cash flow from operations, down $328 million versus the prior year period. Free cash flow, which the company defines as cash flow from operations less capital expenditures and distributions to minority interests, was $(116) million in the current quarter, down $331 million versus the prior year period. The declines in both measures were driven by $349 million of accelerated cash interest payments related to the debt pay downs and refinancing activity during the quarter, and a one-time cost triggered by the IPO. The company finished the quarter with approximately $1.4 billion in unrestricted liquidity.
Improvements to Capital Structure
In October 2015, First Data raised approximately $2.8 billion from issuing approximately 176,000,000 shares of Class A common stock.
On November 18, 2015, First Data issued $3.4 billion in senior unsecured notes with an interest rate of 7.0%. The proceeds of these notes, together with net proceeds from the initial public offering and borrowings under the senior secured revolving credit facility, were used to redeem all of the outstanding 12.625% senior notes due 2021, all of the outstanding 10.625% senior notes due 2021, and all of the outstanding 11.75% senior subordinated notes due 2021, along with fees and expenses. The new notes mature in December 2023.
On November 25, 2015, First Data issued $1.0 billion in first lien senior secured notes with an interest rate of 5.0% and $2.2 billion in second lien senior secured notes with an interest rate of 5.75%. The proceeds of these notes were used to redeem all of the outstanding 8.25% second lien notes due 2021 and all of the outstanding 8.75% second lien notes due 2022 ($250 million was redeemed in December 2015 and $750 million was redeemed in January 2016), along with fees and expenses. The new notes mature in January 2024.
In November 2015, First Data also replaced the Company’s $1.5 billion senior secured term loan facility due March 2017 with incremental term loans of $1.25 billion and €200 million due July 2022 with an interest rate of LIBOR plus 375 basis points.
On December 31, 2015, First Data entered into an accounts receivables securitization program. On January 14, 2016, the Company borrowed $240 million securitized by accounts receivable of certain subsidiaries at a rate of LIBOR plus 200 basis points.